Volume 232, December 22 – December 31, 1939

DIARY Book 232 December 22 - December 31, 1939 - A Book Page Agriculture Income Certificate Plan: Blough memorandum of second meeting of Fiscal and Monetary Committee - - 12/26/39 232 130 News comment and Wallace statement 150 Blough memorandum giving reasons for believing net effect would not be appreciably "progressive" - 12/28/39 242 Alsop-Kintner French Mission notes returned with Duffield's corrections - - 12/22/39 37,40 Appointments and Resignations Hanes, John W.: Hanes' letter of resignation and HMJr's acknowledgment - 12/22/39 48,44 Smith, Tom K.: Under Secretaryship discussed with FDR who rejects idea - - 12/22/39 69 Argentina See War Conditions: Latin America - B - - Brazil See War Conditions: Latin America Budget Message, 1940 See Financing, Government Butterworth, Walton W. HMJr asks for detailed account of work done in France for United States Treasury - - 12/26/39 123 - C - Canada See Customs, Bureau of: Silver Fox Fur Agreement China Universal Trading Corporation: Keeshin bill displeases HMJr - 12/28/39 296 Colombia See War Conditions: Latin America Customs, Bureau of Silver Fox Fur Agreement (Canada): Hull asks HMJr to hurry - - 12/30/39 458 a) Signed letter 472 b) Draft agreement 473 - D - - Dies Committee Corcoran and HMJr discuss; HMJr will not abuse police powers given to him - 12/29/39 339 Regraded Uclassified - ? - Book Page Finanoing, Government Budget Message, 1940: Revenue estimates (Treasury) for fiscal year 1941 discussed by HMJr, Currie, Bell, and O'Donnell - 12/26/39 232 33 a) Currie and Smith confer with FDR; Currie considers Treasury estimates entirely too conservative; FDR suggests increasing Treasury estimates by $200 million and 80 explaining in budget message; Bell disapproves - prefers that Treasury estimates be revised and arbitrarily raised 1) Revised estimates changing 23 items and adding $111 million of the $200 million increase corporation and individual income taxes sent to White House 35 Fortune Magazine Gold Article: Treasury wishes it delayed and revised - 12/22/39 75 - G - General Counsel, Office of Projects completed since adjournment of Congress - 12/29/39 319 - H - Hanes, John 1. See Appointments and Resignations - I - Indiana Tax Cases: Attorney General tells HMJr Sam Clark is holding up - 12/29/39 347 - M - Morgan, J. P., and Company O'Connell memorandum transmitting evidence introduced before Temporary National Economic Committee relative to percentage of total capital contributed by individual partners - 12/26/39 121 Movie Cases See Tax Evasion - 0 - Book Page Ottley, John K., Sr. Possible deposit discussed at 9:30 meeting - 12/22/39.. 232 85 - P - - Panama Canal Financing memorandum sent to FDR: no additional bonds possible outside of general borrowing authorized in Second Liberty Loan Act unless authorization from Congress is secured - 12/22/39 36 - R - - Research and Statistics, Division of Projects completed since adjourment of Congress - 12/28/39 252 Revenue Estimates See Financing, Government Revenue Revision Undistributed Profits Tax: Conference of Treasury group - - 12/29/39 310 a) Wall Street Journal story 309 - S - Smith, Tom K. See Appointments and Resignations - T - Tax Evasion Movie Cases: Conference; present: HMJr, Foley, Kades, Wenchel (Internal Revenue), Clark and Kemp (Assistant Attorneys General) 12/30/39 459 a) Resund of Bioff and Schenck cases, et cetera 470 Tax Research, Division of Projects completed since adjournment of Congress - 12/28/39 274 Taxation See Revenue Revision See also Mar Conditions - Purchasing Mission (British-French): Amortization, et cetera, discussed by Purvis and HMJr - 12/22/39 22 - U - Universal Trading Corporation See China - V - Book Page Von Trott, Adam Federal Bureau of Investigation's memorandum on activities in United States - 12/27/39 232 183 - W - War Conditions Canada: Canadian Minister and Minister of Finance (Ralston) received by HMJr and Cochran - 12/22/39 70 a) Lack of understanding between British and Canadian Governments; British requirements for United States dollars; possibility of moral embargo upon the exports of molybdenum, aluminum, and gasoline to Russia and Japan; aviation requirements, et cetera, discussed b) Ralston thanks HMJr for conference - 12/23/39. 111 Capital Movements: Knoke resume: HMJr thanks Knoke and asks him to continue to send weekly report - 12/29/39 361 Closing Agreements: De Laval Steam Turbine Company: Arrangements made 80 that contract may now be drawn up without necessity of closing agreement - 12/22/39 59 Consolidated Aircraft: Closing agreement executed and contract with Navy awarded - 12/22/39 59 Diamonds - export of from British Empire, et cetera: discussion in New York - - 12/22/39 65 Exchange market resume - 12/22/39, et cetera 61,99, 175,344 France: Budget, 1940 - 12/28/39 222 Budget - National Defense, 1940 480 Reynaud's speech emphasizing reduction of all expenditures not strictly war necessities: Bullitt resume - 12/30/39. 489 Gold Shipment via Halifax: Copy of confidential letter from Governor of Bank of France to Harrison (Federal Reserve Bank of New York) - 12/22/39 53 Germany: Trade negotiations with Roumania, Holland, Latvia, Sweden, Denmark, Estonia, and Hungary reviewed by American Embassy, Berlin - - 12/26/39 124 Gold: France: Shipment via Halifax: Copy of confidential letter from Governor of Bank of France to Harrison (Federal Reserve Bank of New York) - 12/22/39 53 Hungary: Tyler (Royall) reports after return from Budapest - 12/22/39. 15 Italy: Tyler (Royall) reports after return from Italy - 12/22/39. 101 Pennachio (Bank of Itely) discusses conditions with Bullitt - 12/29/39 351 - - (Continued) Book Page War Conditions (Continued) Latin America: Argentina: Treasury memorandum intended for FDR (but not sent) stating that State Department wishes to include in proposed Argentine trade agreement provision with respect to exchange control - 12/26/39 232 162 a) White memorandum 168 b) Foley memorandum 170 Brazil: Cotton memorandum: "United States Steel Project and Brazilian Debt" - 12/26/39 157,160 White (Francis) aemorandum on discussions with Feis - 12/30/39 434 Colombia: Laylin endeavors to clear up misapprehension created in interview with Duggan - 12/26/39 156 Welles and HMr discuss advantage of having Traphagen and Colombian Ambassador confer now - 12/28/39 236 Foreign Bondholders Protective Council: White (Francis) memoranda on conferences with Feis in which change of Treasury attitude toward Council is brought out - 12/30/39 432 Eighth American Scientific Congress: State Department letter substituting Haas for Riefler on Committee on Statistics - 12/27/39 171 Interdepartmental Committee on Cooperation with American Republics: Copy for FDR sent to HMr for signature by Cotton - 12/29/39 377 Purchasing Mission (British-French): Plant capacity, amortisation, et cetera, discussed by Purvis and HMr - 12/22/39 21 a) HMr recomends that Treasury formula for plant expension already not up be discussed by Purvis and Sullivan; feels that when all details are worked out time can be saved on all future orders - 12/22/39 24 1) Instructions to Sullivan to discuss 56 Obsolescence discussed by Sullivan and White in light of Foley memorandum and Viner criticism thereof - 12/27/39.. 177 a) Collins, Purvis, Pleven, Bloch-Laine, et cetera, also consult with Sullivan b) Internal Revenue memorandum as presented to Sullivan.. 180 DuPont Company: Difficulties (depreciation, et cetera) discussed by Purvis and HMr - 12/22/39 22 - I - (Comtinued) Book Page her Conditions (Continued) Purchasing Mission (British-Franch) - (Continued) France: Bullitt sponsors Pleven who wishes to discuss greatly increased orders for engines and airplanes: a) Purvis consulted about conference; HMJr wishes to see no one except through head of mission - 12/22/39 232 18 b) Conference arranged; present: Purvis, Fleven, HWr, Cochran, Collins, and White - 12/22/39 1 1) HMJr offers all facilities and assistance of Sullivan and Collins c) Bullitt informed of conference 8 Airplanes: HAIr asks Collins on situation with regard to Curtiss P-40's - 12/22/39 95 Lercy-Beaulieu, departing for France, asked to deliver two messages: (1) Treasury still waiting for amount of scoep French plan to spend in United States during coaing year and how much will come from gold and how such from securities; (2) airplane situation: resume to be given Bullitt - 12/29/39 298 Special account to be opened in name of Bank of France with Federal Beserve Bank of New York, effective January 1, 1940: Cochran assorandum - 12/29/39 343 Great Britain: Riverdale, Lord: buglish agent for Climax Molybdenum - HMr tells Purvis be has just found out - 12/22/39. 18 United States Committee: HNJr asks Welles to clear set-up with FIR personally and then notify French and British Embassies - 12/28/39 238 a) HMr tells Collins he asked FDR to tell Welles to notify the Embassies 240 b) Collins to be taken to White House also c) Collins, Purvis, and Pleven meet FDR - 12/29/39 307,316 Strategic Mr Materials: Molybdanum, nickal, and tungsten situation (possible embargo to Japan and Russia and increased orders by England and France) again discussed by HWr and Purvis - 12/22/39 28 Molybdenm: Climax Holybdem Company: Copy of letter to be addressed to stockholders sent to State Department and Treasury - 12/26/39 117 Lamp Black: Wollner memorandum - 12/28/39 220 Purvis and Pleven confer with HWr, Cochran, Collins, and Glasser - 12/30/39 378 a) Molybdemum, tungsten, and ferro-alloys: Matthews (Paris Embassy) conference with members of Ministry of Blockade discussed b) Bullitt's report to Ball and HMr 414,485 - 1- (Continued) Book Page War Conditions (Continued) Sweden: Swedish Minister and Commercial Attache discuss possible loan with Sproul and Knoke, of Federal Reserve Bank of New York - 12/22/39 232 49 a) Documents transmitted by Governor Rooth (Sveriges Riksbank): new kind of sterling called special pounds, et cetere - 12/23/39 103 b) Rooth's personal letter to HMr - 12/25/39. 114 Swedish-British Clearing Agreement: Berlin coment - 12/23/39 107 Export-Import Bank interview with Erickson, Commercial Attache, reported by Cochran - 12/28/39 232 Tyler, Royall: Reports after return from Hungary and Italy - 12/22/39. 15,101 1 December 22, 1939 11:30 pm Present: Mr. Purvis Mr. Pleven Mr. Cochran Capt. Collins Dr. White Mrs. Klotz (Mr. Pleven gave the Secretary the attached communication from Ambassador Bullitt.) HM,Jr: will you gentlemen sit down! Excuseme and I will read it. That's a very nice letter from the Ambassador. Mr. Pleven: Mr. Secretary, I should have another letter to hand you, but I left 80 quickly from Paris that I could not take it. It was from Mr. Monnet who wanted ne to convey to you bis kindest regards. Mr. Secretary, Mr. Purvis has perhaps already men- tioned to you the reason of this visit. Mr. Purvis: Mr. Secretary mentioned it to ne, I think. Mr. Pleven: I would not like to take up too much of your time if you know what I have to say. HM,Jr: Let ne hear it from you and see if I an right. Mr. Pleven: I have been asked to come here to study with Col. Jacquin whether we could considerably in- crease the quantities of engines and planes that we could obtain from the United States. The Prime Minister has reached a view, with the support of his advisers, that not only must we continue to make in France and make in England Regraded Uclassified 2 -2- all that we can make, but that in order to display so- premacy in the air we must have many and many more planes than we will be able to secure even if the plans of France and England can be consumeted as planned. So far we have very good luck in that no plants were bombed, but If any plants had been bombed, of course our plans could not 80 38 speedily as they have since the "a" and even if our plans go on, wê do not think it will give us the supremacy which 1s wanted. The program 1s, therefore -- this 18 the problem which I have been asked to study with Col. Jacquin and I understand that the British Government 1s going to send, by one of the next Clippers, one of their experts to join vità us: whether there 18 any possibility of increasing the on- put of engines, specially of engines and of certain air II- terials in this country for purchase by the other. To give you an idea of the size of the effort which is contemplated, what we have in mind is something like four or five times as much as what has already been purchased by Col. Jacquin and the English Missions. HM,Jr: What is four or five times? Mr. Pleven: If in terms, you see, of values HM,Jr: No. In number of planes. Mr. Pleven: We have in mind something like 10,000. And this applies particularly to the engines. As far as the planes are concerned, we feel more hopeful to increase our output in France and in England, but as far as engines are concerned, we have difficulty to get the necessary machine tools; we have difficulty to get the necessary personnel to make engines. Now we realize that with orders whichhave al- ready been placed by England and France, and American 12- dustry as it is today, I don't say the whole capacity of the export of the industry is absorbed, but probably a great part of it. And we would like to be able to see, with your experts, by what steps we could take, either by new plants or enlarging the present methods or changing Regraded Uclassified 3 of certain methods, of increasing the supplies which we would like to get from the United States. HI,Jr: Well, E. Pleven, I think the thing that you want to do is to sit down with Mr. Purvis and Captain Collins and go over this whole situation. Captain Collins 18 familiar with what the present situation is, and get some 1des Just what you have in mind, and after you (Collins) have that, the thing in mind, I would like to know it looks like. As I explained to Mr. Purvis, earlier today, this request that you are making is possible. It is perfectly possible. But it means doubling the present plant capacity for our airplane engines, which means that we have to enlarge our plants. So after we get the picture, the first thing I have to do is sit down with you gentlemen and decide on what basis you are willing to help our manufacturers of engines to increase their plants and that is purely a Treas- ury matter, because it gets into the question of taxation. Mr. Pleven: Uhm. HM,Jr: Now 12 have worked out a formula which re are willing to recommend to any foreign Government who vishes to come in and ask our manufacturers to increase their plants, whether it 19 engines or gun powder. F. Purvis: Yes. HM,Jr: So that really is the first bridge that ought to be crossed after you have had 8 general talk with Capt. Collins, because once we do increase our plant there is no use talking, and the first thing that any manufacturer will do is case to us and say on what basis, and I think if VE could come to munderstanding between Governments as to how the plant should be financed, it will save an awful lot of time. But when you learn on what basis the Treasury is willing to recommend to the namufacturer that he accept money for manufacturing, as regards to the tax that's what interests him most. it. Fleven: I understand that. Regraded Uclassified 4 HM,Jr: How is he going to be taxed? Are you 8. manufacturer? Mr. Pleven: Yes. HM,Jr: You are? Then you understand. What do you manufacture? Mr. Pleven: Automatic telephones. HM,Jr: If you had to suddenly double your plant you would want to know where are you going to be when this order is finished. Mr. Pleven: Exactly! Exactly! HM,Jr: And that's what our manufacturer wants to know and we have a formula, but it has to be agreeable to the Government that 18 placing the order and to the man- ufacturer, but first I think to the Government, because it is a question how you will finance these orders, and we have been all through this with Consolidated. We came to an agreement with them and that was most difficult. Mr. Purvis: Yes. HM,Jr: We came to an agreement with Electric Boat on these 23, what do you call them, torpedo launches, which would be copied after the one you sent over here. And we have had different types of plant expansion. We have been unable to come to an agreement with the manufac- turers of armor plate. We have been talking with them for six months and we can't come to an agreement. So we have troubles here, but that's on domestic orders. But it would be very much easier to come to an agreement on an order placed by a foreign Government provided that the foreign Government will work with us, and we will be very reasonable. Mr. Pleven: Mr. Secretary, after all the help he has given us, there 1s no one we would rather work with than Capt. Collins. HM,Jr: The sympathy 18 here to do it and the discussion we had yesterday, Captain Collins and I with Regraded Uclassified 5 -5- the President, he's in sympathy, so I think you will find that we are ready to nove faster than you are. (Laughter followed this remark.) Mr. Purvis: Let's see if we can disprove that. We will try, but I think ve shall not be successful. HM,Jr: (To Captain Collins) If these gentlemen, on a sort of dare, should more very fast - I have spoken to Mr. Sullivan in New Hampshire and he will be back bright and early Tuesday morning. Mr. Purvis; Good! HM,Jr: And he is ready to talk. So if you (Capt. Collins) would take these gentlemen on for today, if you (Mr. Purvis) care to stay, F. Sullivan will be available Tuesday morning. Do you (Mr. Purvis) think of anything else? Mr. Purvis: I can't at the moment. I think you have covered the situation as far as it can be at this point. We may come back & little later. HM,Jr: I hope you will. Mr. Purvis: I wish you a Merry Christmas, Mr. Secretary. 000=00 Regraded Uclassified Presented at E meeting - Paris, December 11, 1939. Dear Henry: This note will serve, I hope, to introduce to you my old and close friend, René Pleven, who is about to visit the United States in his official capacity as assistant to the President of the Franco- British Committee of Coordination in London. You will have through other sources official introductions for Pleven, so that I shall not need to give them; but I should like to tell you that you can have as absolute confidence in his intelligence and discretion as you were able to have in Jean Mon- net's similar qualities. Anything which you say to Pleven will go no further. You will find him one of the The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. 7 - 2 - the most profoundly intelligent and one of the beat informed men that you have ever met. I was sorry that your telephone call the other day did not get through to me. Having visited certain northeastern regions incognito, I was engaged in ni- siting southeastern regions in the same capacity and, for obvious reasons, had given strict orders that no attempt should be made to locate me by telephone. In any event, I congratulate you on the deci- sion with regard to molybdenum, which I gathered OII my return to Paris was what you had in mind. That was subtle and admirable. Good luck and every good wish. Yours very sincerely, William C. Bullitt. Regraded Uclassified 8 humber 22, 1939 b. Pris i I will you Maily one the following meange: IA "AMIRICAN measy PARIS. STREETLY COMPENENTIAL M THE ANBASSADOR m THE SECRETARY s I и Pevis called today and presented Floven - I reseived and placed is ontact with Captain Colline. Best vishos te a very Marry Christmas." p.ms I 12,22.39 Regraded Uclassified 9 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Paris, France DATE: December 22, 1939, 8 p.m. NO.: 1557 FROM SECRETARY MORGENTHAU. STRICTLY CONFIDENTIAL FOR AMBASSADOR BULLITT. Today Purvis called and presented Pleven; I received him and placed Captain Collins in contact with him. I send you my best wishes for a very Merry Christmas. HULL (FL) EA:LWW Regraded 10 JT GRAY PARIS Dated December 22, 1939 REC d 6:05 pelle Secretary of State, Washington. 3031, December 22, 7 p.n. (3ECTION ONE) FOR THE TREASURY FROM MATTHEWS The Chamber by unanimous VOTE of the 536 present and withoug discussion this morning passed the national defense appropriations of approximately 55,000,000 france for the first quarter of 1940 (my telegram No. 3013, DECEMBER 20, 7 p.m.) and the authorization to contract Expenditures for national defense for the entire year 1940 of roughly 249,000,000,000 (preliminary estimate). During the hearings Daladier stated that as of November 30 the army had lost 1,136 nen killed, the navy 256, and air force 42 (compared to 450,000 killed by December, 1914). BUILITT EMB 11 JT GRAY PARIS Dated DECEMBER 22, 1939 Rec'd 6:47 p.m. SECRETARY of State, Washington. 3031, December 22, 7 p.m. (SECTION TO) Belgian tax receipts for the first Eleven months are given as 8,683,000,000 or 721,000,000 less than estimates and 154,000,000 less than the same period year 1938. Following the liquidation of the past two days (which was probably due in part to the cassation of the flow of repatriated capital seeking investment) the securities market was stronger today and most issues advanced between 1 and 2%. Rentes were up on the averate slightly over a franc the 1937 dollars Exchange issue gaining 1.35 francs. Official foreign Exchange rates were unchanged. (END (7 ESSAGE) BULLITT EMB BEST as 020 Regraded Uclassified 12 H311 PLAIN London Dated December 22, 1959 Rec'd 12:40 p. n. 3ecretary of State, Washington. 2707, December 22. FOR TREASURY FROM BUTTERHORTH. With reference to No. 2692 of December 21, 5% Sa, an amendment to the defense (finance) regulations announced last night provides that as from January 8, 1940, all transfers of sterling from the account of 8. inited King- dom resident to that of E. non-resident or the transfer of sterling securities by a resident to a non-resident will bE subject to treasury permission. A non-resident for the purposes of the order is defined as a person resident Elsewhere than in the United Kingdom, the British Dominions, colonies, protectorates and mandated terri- tories (EXCEPT Canada, Newfoundland and Hong Yong), Egypt, the Anglo-Egyptian Sudan and Iraq. The order does not affect the sterling accounts of non-residents which runin entirely free, The transfer of sterling from the account of 2 resident to that of a non-resident has since the beginning of exchange control been subject to SOME regu- lation 13 han -2- No. 2707, December 22, from London lation, application being necessary on form E. 1. The formalities required under form E. 1 were lax at first, the applicant being merely required to declare that the trunsfer did not contravene the regulations. As reported in telegram No. 2448, paragraph 3, of November 24, the procedure was tightened uo, applicants from then on being required to product evidence that the transfer was for the of paying for imports or for SOME other legitimate purpose, when making application for the transfer through a bank. If the bank 185 satisfied with the evidence it was then permitted to make the transfer. The new regula- tion which now requires Treasury permission in each CESE constitutes another step in the direction of reducing the amount of sterling which will become available on the unofficial market. It remains to bE seen on which types of application Treasury DERVISSION will bE granted. Hean- while by routing all such applications through the Treasury the authorities will have the opportunity of studying the type of transaction for which starling transfers are desired. Another order under the defense (finance regula- tions announced last night exempts from any formalities the payment of the proceeds of the sale or redemation of any sterling securities in the beneficial ownership of s non-resident, interest and dividends of any securities registered 14 ham -3- No. 2707, December 22, from London registered or inscribed in his name or in the name of his nominee and interest on bearer securities collected on his behalf by a bank having the custody thereof. This year's pre-Christmas note circulation Expansion of L25 million since the war-time low on November 22, compares with last year's 627 million. The week's Expansion of 67.2 million was more than offect by Bank of England purchases of Government securities which increased by 619 million; this with a decline of 611.3 million in public deposits, resulted in an increase in bankers' deposits of 627 million bringing the total to L114.8 million. The Bank of England is reputed to have made heavy Treasury bill purchases direct from clearing banks during the past two WEEKS -- a step contrary to convention and evidently resorted to in order to EASE the year-end credit situation. JOHNSON CSB 20 030 BK232 15 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Geneva, Switzerland M DATE: December 22, 1939, 4 p.m. NO.: 330 FOR MORGENTHAU FROM ROYAL TYLER. I spent one week in Budapest, and Just got back. I learned that now Hungary has definite assurance from Italy that the latter country will accept clearing liras for maritime freights for imports and exports. In cases where Italy 1e bound by contract to demand payment in free currencies, Hungary will be refunded. It 18 the intention of Hungary to continue, as at present, payments on the American relief credits and on League loan service. Hungary fears that after the summer of 1940, she cannot renew the three-year arrangement concluded in the summer of 1937 for other foreign debts on the same terms as incorporated in that arrangement. She 1s considering asking her creditors for agreement on suspending the amortization; the gold pengo paid out each year now amount to 40,000,000, and such suspension of amortization would reduce this amount by about 15,000,000. In the first weeks of the war the losses by Hungary in gold and free exchange were greater than they are now; however, Governor expects that the monthly average of these losses will be about 3 or 4 million gold pengo. At this rate it might be possible for Hungary to rock along for about two years, supplying essential raw 16 - 2 - materials to her industry, avoiding unmanageable unemployment, and resisting attempts by Germany to reduce her to the status of an agrarian colony. Germany is now exerting pressure by means of increases up to 60 percent in the Reichsmark prices of German goods, such as dyestuffs and chemicals, which are needed by industry in Hungary; there has been no change in the prices of finished goods, although the choice of goods available 18 being reduced, and there is a decrease in the total value of imports into Hungary from Germany. Orders from Hungary for automobiles and trucks are still being filled by Germany; opportunities for penetration propaganda and espionage are efforded Germany because of the fact that the whole motor trade in Hungary is in German hands. Efforts are being made by Hungary to reach free exchange markets, but lack of such markets makes it necessary for her to sell to Germany some 50 percent of her total exports. The figure for Reichsmark holdings by Hungary is about 45,000,000; it has been as high as 100,000,000, and it is likely that there will again be some rise. Hungary does not welcome such accumulation of holdings of Reichsmarks, but this 18 regarded as a lesser evil than a forced customs union or invasion. Efforts are being made by Germany to link food prices in Hungary to prices - 3 - 17 prices in Germany, so that any rise in the latter country will take place in Hungary also, making it increasingly difficult for Hungary to sell on free markets. For the past six weeks the Director-General of the Hungarian National Bank has been in London twying to reach agreement on blockade problems. Today by telephone from Budapest I learned that he is returning tomorrow with an agreement which Hungary considers satisfactory. Hungarian food shipments have been fairly steady up to the present, but there has been a rise in manufactured and imported goods; the cost of living index has not been affected by these increases because of the exclusion of articles which are no longer of ourrent consumption, such as coffee. Frantic efforts are being made by agents of Germany to buy up any foreign assets which Hungarians own. TITTMANN. EA:LWW BK232 18 December 22, 1939 10:15 a. m. Present: Mr. Purvis Capt. Collins Mr. Cochran Dr. White Mrs. Klotz HM,Jr: Mr. Purvis, I asked you to come down even though you did have a meeting with Lord Riverdale. Mr. Purvis: This 1s much more important. HM,Jr: I don't know whether you know what Lord Riverdale makes his living out of. Mr. Purvis: I don't think I do. HM,Jr: He's the English agent for Climax Molybdenum. Mr. Purvis: That explains a great many things! I did not know that! No. I think that completes a little circle. HM,Jr: I only had it completed yesterday. But I would not 800 Lord Riverdale. Mr. Purvis: No. Good. HM,Jr: I want you to know. Mr. Purvis: Yes. HM,Jr: Even though Mr. Pinsent was quite in- sistent, because I said I only wanted my contact with you. Mr. Purvis: Quite! Quite! And I am glad to say, Mr. Secretary, that from my viewpoint the thing is clearing up very well. Mons. Monnet telephoned yesterday and I had the felling that the question of communications Regraded Uclassified 19 -2- is going to be fixed up now very quickly. I have been dependent on very roundabout methods in certain regards and I think it is going to help in getting information perhaps a little more rapidly when we need it on the Anglo- French questions. HM,Jr: I am glad for your sake. Capt. Collins and I saw the President yesterday and he had & very long letter from Ambassador Bullitt in which Ambassador Bullitt said that the First Assistant to Jean Monnet Mr. Purvis: Mr. Plever. HM,Jr; Plaver Mr. Purvis: He called on me yesterday. HM,Jr: .... was to arrive here yesterday and that he was to see me and Capt. Collins and I thought you would be interested to know that the President said no; that we look to you, and that if you wanted to bring in Mr. Plaver that that would be all right, but you were the head, 8.8 we understood 1t, of the Allied Mission and that we would work with you and that Capt. Collins was appointed by the Presi- dent as Chairman of the Committee for the explicit purpose of working with you and other gentlemen, but as far as the English and French are concerned we are going to look to you. Mr. Purvis: Very good. And I think it 1s fair to Mons. Plaver to say that prior to coming to you, which he could only do if he was permitted to come to you, if you were willing to receive him, that he would ask me to tele- phone you and I said I would be very happy to go down, go he had it in mind. I think he has the correct steer on this thing. Some details may have to be worked out, but they will be very helpful. HM,Jr: I think the first time he comes you had better bring him. Mr. Purvis: I think he 18 supposed to be in Washington sometime today. He was planning to be. HM.Jr: Well, anyway, the first time he comes, Regraded Uclassified 20 -3- because we want to keep our lines straight and I think I know & little something of the difficulties you have had getting yourself straight, 80 certainly I am -- the President distinctly does not want other people to come in who are going to be over your head. Mr. Purvis: It helps me and it helps the pur- pose, which is the more important thing. HM,Jr: And that's why I would not see Lord Riverdale. Mr. Purvis: Quite. HM,Jr: And that's why I would not see Lord Riverdale. Mr. Purvis: Quite. HM,Jr: As to what 1s in Bullitt's letter, he tells us of a meeting which took place between the French and himself Mr. Purvis: Yes. HM,Jr: .... that they have got to have 10,000 planes this coming year. Mr. Purvis: Yes. I understand that is Mons. Pleven's great mission. HM,Jr: And what kind of planes, and all the rest of it, why Capt. Collins will be glad to listen and I would be glad to hear about it in the first instance. Mr. Purvis: Quite. Quite. HM,Jr: I take it you don't want to talk about that yet. Mr. Purvis: Not yet. As I understand it -- Just one other factoon the table -- I gathered from Mons. Pleven yesterday that this is something initiated by the French; taken up with the British Prime Minister, approved as a Mission, and that effort by the War Cabinet, which is a joint matter I believe, and then -- by the War Council, I Regraded Uclassified 21 mean R- and then started off by Mons. Pleven to come over and assist on the situation, endeavor to make a study with such help as you might give him and I to get in the commercial world as well any manufacturing knowledge I can add to it. I think that is what he wants to come to see you about. HM,Jr: Well, whenever you will bring him in. And I expect to leave tomorrow, and Col. Ralston, the Canadian Finance Minister, 18 coming at one and I am saving the rest of the afternoon for him. Mr. Purvis: If I could possibly reach Pleven in town today, if he is here, would there be a chance of squeezing him in for A preliminary talk with you before lunch, if it were only five minutes, Mr. Secretary? His plan, I know, was to come down on the midnight train. HM,Jr: Where would he be? Mr. Purvis: I think he was going to the Shore- ham and if we could reach him it would be invaluable to me. HM,Jr: Supposing Lask my operator to gethim and if we can you can go in Mrs. Klotz' office and talk to him there. (HM, Jr asked operator to reach Mr. Pleven and put the call in Mrs. Klotz' office.) HM,Jr: You see, when you get into this thing, one of the questions, the first question ie going to come up, 1s the question of plant capacity. Mr. Purvis: Yes. HM,Jr: And the Treasury, wholly on its own and nothing to do with this group, had several questions up which, if you don't know, I think you ought to familiarize yourself with and that is, for instance, the English, again I am informed, are trying to negotiate direct with both DuPont and Hercules on powder. Mr. Purvis: I want to ask Capt. Collins whether I could tell him what our situation 18. We have not yet started negotiations. We are only negotiating with Hercules. Regraded Uclassified 22 -5- (At this point the operator rang twice, in- dicating she had Mr. Pleven on the phone and ready to talk in Mrs. Klotz' room.) HM,Jr: I could see him at 11:30. Mr. Purvis: Very good indeed! (At this point, Mr. Purvis went into Mrs. Klotz' room to talk to Mr. Pleven.) Capt. Collins: I think we must suggest to the French that he stay away from the manufacturers until such time as we know what they want. HM,Jr: What I want to get at is this. This thing, if it gets down to plant business, we are right up against it with DuPont. He says it isn't Du Pont. DuPont want to build a $15,000,000 plant to take care of this ad- ditional powder and the question comes up, right off, of depreciation, everything else, and if they are going to the airplane manufacturers and do this thing I can help this fellow Give him a formula and say if you will follow this formula --and John Sullivan has the formula -- on this basis you can save months, if you say to the manu- facturers we will do it on such and such a basis, we will advance the money, and S llivan has that formula. He tells me that both Du Pont and Heroules are in disagreement. (Mr. Purvis returned to the Secretary's office.) Mr. Purvis: He will be here with the greatest pleasure. HM,Jr: Can you come back, Capt. Collins, at 11:30? Capt. Collins: Yes, sir. HM,Jr: What I want to say -- this is all I know through Internal Revenue, both Du Pont and Hercules tell us they have an order from you. Mr. Purvis: They are wrong; we are merely ne- gotiating with them and one of the questions I wanted to ask today is what I could count on amortization, a question Regraded Uclassified 23 -6- which is going to put its head up the minute we tackle anybody. HM,Jr: It has. The DuPont people eay they have a $15,000,000 order and want to build a plant. Mr. Purvis: They have no order. We asked for a proposal. To be perfectly frank, speaking in the room, I don't like the proposal. I would like very much the privilege of talking to Capt. Collins and asking such questions 88 I can properrly ask; for instance, I would like to ask is it wrong of me to ask such questions as this: if I were to say to Capt. Collins that the price of powder as indicated is 80 and 80 or the set-up as in- dicated, does that look to him like & high price to pay. I rather fear some of these suggestions that are being made to us and the same on small arms HM,Jr: That 1s the service we would like to render you. Mr. Purvis: Splendid! HM,Jr: That is 8. perfectly proper question. Mr. Purvis: Good! HM,Jr: We don't want our manufacturers to make exorbitant profits. We want them to make a profit, but not exorbitant profits. Mr. Purvis: Yes. HM,Jr: And we would be very glad to have you people say what the prices are that they are asking you and we would be very glad to tell you what 1s a reasonable profit. Mr. Purvis: Good! Very good! HM,Jr: That 1e one service we would like to render. Mr. Purvis: Thank you very much. We are so definitely in their hands that service 1s invaluable. Only one or two people could quote on these. HM,Jr; You are not in their hands because the thing we could do, which would save months, if you will put Regraded Uclassified 24 -7- yourself in our hands and let -- we have worked out a formula which we think is fair for any manufacturer who has a foreign order. Mr. Purvis: Yes. HM,Jr: In regard to plants, and questions of right-offs and depreciation. Mr. Purvis: Oh, good! HM,Jr: Now, if you think it 18 fair, all you have to say 18 "this is the formula which is the Treasury formula and we have accepted that. There is no use ar- guing with the British Government. That 18 the Treasury formula." And you won't get to first base on the airplane order until we decide as to the formula for plant expansion, which will be the first hurdle you will have to take, be- cause in order -- we figured yesterday with the President, Just figuring roughly, that a thousand of those were bombers. Mr. Purvis: That's correct. HM,Jr: Which would take two engines, plus B. spare, which is 3, which gives 15,000 engines plus if 10,000 were single Capt. Collins: 5,000 singles. HM,Jr: That's right. Five. So it would be seven. So it comes to 23,000 engines, we figure roughly, 80 we would have to total our motor capacity in this country. So the first thing is plant. Mr. Purvis: Correct. HM,Jr: So Mr. Sullivan, of Internal Revenue, has this thing worked out and it will save you months. Mr. Purvis: And will we have access to that quite quickly? HM,Jr: You could have it immediately. And the first thing you want to decide whether you think it 1s fair and if you think it is fair, or not, sit down with Mr. Sullivan and argue it out with us. Regraded Uclassified 25 -8- Mr. Purvis: Splendid! HM,Jr: And certain things that " want the British Government to do in connection with expansion of plant. You have your own tax problem at home. Mr. Purvis: We have. HM,Jr: And we just don't want to, through the tax route, let these fellows write off the plant against profit. You see? Mr. Purvis: Oh, I see! That's a legitimate Treasury decision. HM,Jr: So I think if you sat down with Mr. Sullivan for one day Mr. Purvis: Yes. HM,Jr: ... you could come to an understanding. Then you could cable that back and that 19 the keystone for all of these orders that need plant expansion. Mr. Purvis: Yes. I think that is point number one. HM,Jr: Point number one. And this gentleman who is coming over, before he can get anywhere you people will have to come to an understanding with' the Internal Revenue of the Treasury. We will be very fair. Mr. Purvis: Oh, yes! HM,Jr: And it won't be difficult. And then, knowing that, then you can talk price and everything else. Mr. Purvis: Exactly. That's one reason why I have not even responded to DuPont's quotation that they made on preliminary inquiry. I Just felt when I read the contract it was dangerous to set up anything in the nature of a precedent, 80 we are clear as far as the British end 16 concerned and of course the French are now dealing with us. They started earlier and have things on the record which are not & good precedent, I fear. Monnet was very clear on that yesterday. Regraded Uclassified 26 -9- There is one other question. May I ask your One of the things I an very anxious to avoid & precedent on is the idea we have to put up a great deal of the value of the order as an irrevocable credit before anybody starts to turn the sod, from my point of view as the British Gov- ernment representative. Now, in the first place, we are not asking first class directors here to put up & bond to show that they will fulfill their word and as far as possible I hope to get the atmosphere that they will ac- cept the fact that this is an unquestionable thing. I think the problem cane up in the last war and was satis- factorily settled after some discussion and perhaps some influence being brought to bear, but I think it 1s a de- sirable thing to get established. HM,Jr: That thing Capt. Collins could help you on. That would be down your alley? Capt. Collins: Yes, sir. k. Purvis: We may have to come to individual cases. HM,Jr: But the thing of depreciation and obso- lescence, F. Sullivan is prepared to discuss and has worked out a formala acceptable to me. Mr. Purvis: And will Capt. Collins introduce me to Mr. Sullivan? He's my channel? Hillr: He's your channel. Jr. Purvis: And can I recognize that as official? HM,Jr: It's official and the President yesterday instructed Capt. Collins to go ahead. Mr. Purvis: Splendid! Hr: And we have had our own little battle with the Army and Navy and they had to be told that the President is Commander-in-Chief of the Army and Navy and now they know it. E. Purvis: I an 80 glad somebody else has cooperation besides ourselves. 27 -10- HM,Jr: They know it now. You are free to call up Capt. Collins Just as often as you want. The President has made his available for this purpose. Mr. Purvis: Splendid! Thank you very much. HM,Jr: Now, your letter on aluminum. I gave it to Capt. Collins yesterday afternoon and he will talk to you about it. He has been all through this aluminum thing once for the French and then the French did not show up. Capt. Collins: Perfectly true. We had oon- flicting reports as to what the French wanted and it was decided to find out first Just what they did want. Mr. Blac-Laine was indicated as the one to contact us. Mr. Purvis: I will correct that situation from now on. Blach-Laine is a sensible man and I think a Ban we are lucky to have from that angle. HM,Jr: Hasn't he gone back? Mr. Purvis: No. He's here as Vice Chairman with me. Sometime, if you did have the time, he would like a chance to pay his respects to you. May I bring him in sometime? HM,Jr: You bring him in. Mr. Purvis: Thank you very much. HM,Jr: I have been trying to keep my lines clear. I will be very glad to have him brought in. I am still waiting to hear from your Government about nickle for. Japan. Yesterday I got a telegram from Butterworth saying he had lunch with Leith-Ross and I gathered Leith- Ross has this and that he hoped that he would have an answer for me over the week-end. Isn't that the way you interpreted that telegram? Mr. Coehran: Yes, sir. HM,Jr: He did not mention the commodity, but I take it he's talking about nickle. Mr. Purvis: Yes. Regraded Uclassified 29 -11- HM,Jr: The other thing I want to tell you about is this. Everybody here in Washington, plus the various metallurgists that I have talked to, all agree; it's unanimous; did not talk to Leith-Rose, but with that exception it's unanimous; that there are three alloys which are necessary to make either Russia or Japan feel the want of either one of the two of the three: molybdenum, nickle, tungsten. If we did all three, everybody agrees it would slow them down and they might have to do some redesigning of tanks, etc., but the three together would be difficult. Ve are doing everything we can to help the nolybdenum people get increased orders domestically and anything that you can do in England and France to increase your orders, would be helpful, although they are not asking you to build up stock piles. Mr. Purvis: No. No. HM,Jr: But anything you can do to increase the use of molybdenum in England and France would keep them happy, because half of their business was with Russia and Japan, so it's a great loss to them commercially, and they are being terribly good about it. On the tungsten thing, you are the first person from your Government or the French that I have talked to about it. This 18 the situation as the Chinese tell it to us. They had a production of around 10,000 tone a year of tungsten and tin. Mr. Purvis: Yes. HM,Jr: They will soon use up their $25,000,000 credit that they have with us. Have all their commitments made. They can't put out any more bids. Have used it all up and it has to be for non-miitary purposes. They have been very anxious for us to lend them another sum. of the 10,000 tons of tin they can deliver Dr. White: tungsten HM,Jr: No, excuse me, they can deliver 10,000 tone of tin, for sale through this Universal Trading Cor- poration. As to tungsten, half of it, Dr. Kung informed me this week or last week, was pledged to Russia on barter. They had about 500 tons pledged to England. which left Regraded Uclassified 33 -2- them, roughly. 5,000 tons for sale. I had some kind of an idea of 8. combined loan, 12 making possibly, oh let's say a loan of $25,000,000 which they could only use for non-military purposes, the English and French putting up $25,000,000 which they could use for ammunition. Mr. Purvis: Yes. HM,Jr: You know, politically the Russians are getting in more and more there and at present it 18 their only source of defensive weapons. This week a cable came in from the Minister of Foreign Affairs of France saying that the Chinese Government had in Indo- China 7,000 tons of tungsten and antimony; did not say how much of each, and the French Government has taken it all. Mr. Cochran: That wasn't from the Foreign Min- ister of France. HM,Jr: of China. Foreign Finister of China sent ne this message that they had 7,000 tons of tungsten and antimony which had been seized by the French. Well, I don't know what proportion 1s tungsten and what propor- tion is antimony. I would like to find out. I would like to find out what are the French going to do with this stuff and I would also like to find out whether in connec- tion with, let's say, "cornering" the market in tungsten and molybdenum and nickle, would the Allies consider a simultaneous venture with the Chinese Government. You see? Mr. Purvis: Yes, I see. HM,Jr: Which would take care of this tungstem situation. You see) Mr. Purvis: Yes. I Bee exactly what you mean. HM,Jr: And then I was going to put this up to you and then comes this ressage from the Foreign Affairs Minister of China that France has grabbed off 7,000 tons of tungsten and antimony. Now, if you have lines of com- munication BO that you could get a little bit quicker answer Mr. Purvis: Yes. Regraded Uclassified 30 -18- EM,Jr: .... because I an doing everything I can to keep our molybdemum people happy and I think your nickel people will be much happier if they knew that we were working on the three. Mr. Purvis: Ch, on the three! Yes. HM,Jr: I think there is only 16 pounds of molyb- denum goes into an airplane and this is all silly, but if you were going to withhold all then we feel we could tell our stockholders, and I an sure the nickel people would feel the same way. So here is this tungsten, somewhere in Indo- China, plus the annual production which they claim of 10,000 tons, so this has nothing to 10.00 this I an handling d1- rectly for the President and will not clear through Capt. Collins; I an handling with you direct. But the question of a certain kind of and the expense and anything like that would go through Capt. Collins. Mr. Purvis: But this 10 rather different. HM,Jr: And then this matter of getting the agreement between your Government and ours as to how we will handle new plants, I want to handle all myself be- cause you know how they are going to handle investment in a new plant. I want to get that settled first. Capt. Collins: That must be settled before I can go to any manufacturers. HM,Jr: But contacting of manufacturers, I want to leave entirely to Capt. Collins. He knows the President of the three airplane notor companies. He knows them, knows the manufacturers of airplanes, and all that. b. Purvis: Yes. Yes. Capt. Collins: May I suggest, in connection with that, that no contacts be made by any of the Mission until we have some understanding of Just what my be wanted. Mr. Purvis: And the special air study that is to be made. May I say ve are at the moment, for instance, in the British field, in negotiation for a number of snall things: 100 fighters; 40 seacraft from Consolidated, sin- ilar to the cass you recently bought, of some similar nature, Regraded Uclassified 31 -14- and 200 bombers from Douglas. I think it's 200. Ve are actually meeting those people from day to day now. Capt. Collins: That was business commenced before the Board was set up; has been going on for ser- eral weeks. Mr. Purvis: It's just emerging into the com- mercial side. It may be we will strike, even on small orders, the capital question, but it may be they will be so small in relation to the whole that the capital question will not stick its head out. HM,Jr: I think even if it is old business, I would bring the Board up-to-date. Mr. Purvis: If we can have an early meeting, we will bring everything pending on the British-Anglo Mission. HM,Jr: I would, because the President has had his troubles in getting this Board to work and some of the Army people, well, they Just don't like it. Now, in order -- the President only yesterday again reaffirmed his position that he wants Collins as Chairman of the Board. If you don't mind my saying, I wouldn't see the French. I think if you will bring Capt. Collins up to date on everything and we will save you some money, because this Consolidated crowd, for the Navy we saved the Navy from the time we started on right-offs we saved them $6,000 per plane. Mr. Purvis: We will come, I promise you. HM,Jr: And we will let you know what the Xavy bought. Mr. Purvis: Yes; exactly. We will immediately file with you a statement which should arrive either,o: Tuesday morning after Christmas, of outstanding negotiations. I will have to get the French on that over the week-end. HM,Jr: You Bee, what the French were doing up until the time I asked the President to release me, I got every Monday morning from the French a sort of running inventory, orders placed during the weeks, orders under consideration, and orders fulfilled. 32 -16- Mr. Purvis: A weekly statement? EN,Jr: Weekly statement. b. Purvis: That's what I plan to give Capt. Collins, but re can start with something bringing you up to date. HM,Jr: And they had a great time getting their people together because they were placing orders here and abroad, and the fact I insisted on the weekly report gave them an opportunity to use that 8.8 a leverage to get it for themselves. t. Purvis: And then you begin to get a focus on the whole thing and that's very helpful. EM,Jr: And I think if you could give Capt. Collins such 8 running inventory, eventually it would be very helpful. lr. Purvis: That will be done. And if you will give us a danger signal at any point "look out and wait for us", we will hold it up. Blach-Laine and I will establish offices next door to each other HM,Jr: Comgratulations! Mr. Purvis: ... after talking to Monnet yesterday. I realized that though we are both without instructions, until Pleven came over and handed me a personal letter from Monnet yesterday, I now see clearly and have sufficient doc- uments to know ve can decide our procedure and general set-up between the English and French on this side of the water. Ye will now proceed as rapidly as we know how. HM,Jr: That can you think of, Captain? Capt. Collinst I think you have covered it all 80 far, Sir. HM,Jr: You (Collins) have my aluminum letter? You have the original? Capt. Collins: I have it in my secret file. HM,Jr: You gentlemen come back at 11:30. If you want to wit in the Treasury, we have a. room where you can wait. 000-00 Regraded Uclassified date of meeting Pls file 12-22 2 TREASURY DEPARTMENT H 33 Regraded Uclass WASHINGTON December 26, 1939. MEMORANDOM POR E SBCHETART'S PERSONAL FILES Are. 22. Late Priday afternoon the Secretary sent for Mr. O'Donnell of Research and Statistics (Mr. Eass being confined to his home on account of illness) and me to confer with his and Leuchlis Currie regarding the basis of Treasury estimates of revenue for the fiscal year 1941. The Secretary handed Mr. Currie the original memorandum submitted by Mr. Hass giving the basis of these revenue estimates, and told Mr. Carrie that he could read over this memorandre and ask Mr. 0'Donnell any questions or for any additional information that be night vast; and if there vas No./- thing further he needed he could get in touch with Mr. 3ell or he could reach the Secretary by telephone at the fars. I understand that Xr. Currie vent into the basis of the estimates with Mr. O'Donnell. Full explanations were sade of each point raised by Mr. Currie. Mr. O'Donnell felt that while Mr. Currie vas disappointed that the business forecasts used in making the estimates did not yield more revenue, nevertheless be seened reconciled to the figures since he presented no new evidence which would ordinarily have led to a change in the estimates. Saturday afternoon Mr. Smith, the Director of the Budget, telephoned ne that he and Mr. Currie had just had = conference with the President; that Mr. Currie had told the President be felt the Treasury's estimates were entirely too conservative; that the Federal Reserve Board's estimates shoved total revenues of $6,400,000,000; and that be had 22 estimate from one outside concern which verified the Federal Beserve's estimates. Be suggested that -2- the revenue estimates be raised to this figure. Mr. Smith said the President did not agree to this increase but said he would agree to increase the Treasury revenue estimates by $200,000,000 and would state in Ms budget message that he felt the Treasury's estimates vere too conservative and that he had increased then by this sun. I told E. Smith I 616 not believe ve could allow the President, if ve could at all prevent it, to do this as it would look as though there vas a difference between the Treasury and the President on the revenue estimates, and for 17 part I would mch prefer to see the estimates revised by the Treasury and arbitrarily raised $200,000,000 than have the President arbi- trarily increase the estimates and state in his budget message that he had done that. Mr. Smith agreed that this would be better for all concerned and said be would appreciate it if I would talk to the Secretary and see If be would not agree to do this. I immediately telephoned Mr. Fass and explained to him the situation. Te agreed that the Treasury should change its estimates rather than have the President arbitrarily increase them. Ee said he would talk to O'Donnell and have him to over the estimates again and see If ve could distribute the $200,000,000 throughout the list early Tuesday morning so that the Budget could have our revised figures by noon that day. The Secretary called me Sunday morning and asked me what had happened in the Currie conference. I gave him the foregoing information and that I had talked with Xr. Hass and it vas our recommendation that the Treasury change its estimates to accord with the President's vishes. The Secretary said that ve should & ahead and work it out and that he would talk to us again Tuesday morning. Regraded Uclassified -3- 35 He called this morning and said that he would leave it in our tands to change the estimates by $200,000,000 and get them to the Budget today. He agreed that that vas the best way to handle the matter. A revised estimate went forward today changing about twenty-three items of the whole internal revenue list. About $111,000,000 of the $200,000,000 increase vas added to corporation and individual income taxes. stuff Regraded Uclassified 36 My dear Mr. President Recently you asked - about the possibility of issuing addi- tional bonds sgainst the Prante Canal under the Act authorizing the issuance of Genal bonds, to reimburse the Treasury for costs of the Cenal end more particularly for the purpose of flanno- inc the enlargement of facilities of the Canal in the interest of defense and as authorized by the Act approved August 11, 1939, - to all aggregate cost of $277,000,000. In the opinion of the Treasury Department, no additional bonde my be issued against the Camal outside of the general borrowing authorization is the Second Liberty Bond Act, vithout obtaining fur- ther authorization from Congress. The Person Canal Acts authorized the Secretary of the Treasury to issue $375,200,000 of two and three per cent bonds. of this amount only $134,631,000 very issued, leaving a balance unissued of $240,569,000. This belanes VII subject to adjustment for certain Postal Savings bonds, issued, etc., bringing the balance down to about $225,000,000 by the time of engotment of the Second Liberty Boad Act. The Second Mberty Band Act of September 26, 1917. authorized the Secretary of the Treasury to borrow, subject to 18 original lis- itation of about $7,500,000,000, (nov increased to $45,000,000,000) and atdet that of this - $225,000,000 shall be in lieu of" the uniersed Patuma Camel Bonds. In other words, the Second Liberty Bond ACT absorbed and artinguished the right to issue additional Penalta Camel bonds, leaving to specific usused authorisation to her- rev against the Cenal. I will end to you a further letter is the sert day or tve con- oursing the general subject of issuing obligations to capitalise ez- inting self-liquidating projects and finance the construction of future projects of this nature. Paithfully yours, (Signed) E Morgenthau, In The President, the valse has. WYSIVE December 21, 1939 Regraded Uclassified Greaps notes no ......................... HMJr's actioned to him BRE32 with ESD connections as pew remarks original to the net so 12/22/29 to 3lwp n 0 pack ( 37 the French airplane story begins in the numer of 1938, when H.M.M., while traveling in France, discussed with Bullitt and umbers of the French administration the possibility of the Prench procuring military airplanes in the United States. ) It was I of these discussions, as well, perhaps, as the President's many of part 1ar Department attitudes in such ratters, that when Bullitt arrived in this country with the Prench military mission in tow, the President put them under the wing of H.M.JR. This was early in December 1938. December 21, 1938, is the date of the origin of the TOW, it a cabinot meeting 8 this day, Woodring was informed of the presence and needs of the French mission, and of the fact that they were under H.M,JR's wing. The very next day at a meeting in H.M.JR's office, Woodring anounced violent opposition to the whole business, and especially to the release of the early model Douglas attack bomber, of the existence of which the Prunch mission had apparently learned from the Havy. In this pariod of the beginning of the FOW Woodring - ready, though far from andom, to approve release of the Certies P-40. Presumably this first meeting in H.M.JR's office caused both sides to go to the President. At my mis, towards the end of December, the President intervened to bring Johnson into the picture. Johnson will made familiar with what had already happened in a nescrandum from Regraded Uclassified 38 . 2 . I 1 I = 1 Products der 3 the precise INVERSE of Woodring!s stand. the Ourtise P-40, be daid, - the best paredit plane in the world, and the Franch should there- fore, only be permitted to have the alour 1-36. is to the Implas bember, hower, this w an out of date modal, impersed by mother type ordered by Johnson, of which Woodring we presently in which would be in production by the spring. Therefore, to suggested that the Prench be allowed to have the Douglas, The decision $ Insurance I I 1 3 1 Koodria, I ( 1 a rur broke at again B Junuary 5, 1939, the the President hald a meeting in the oval TOGE of the litte House to discuss Me special $ national Company I 1 I B E the President, Bullitt I.V.E., Times, Blison, and - admirals, hime, Craig, Marshall, Woodring and Arnold, Infunto appropriation had been discussed at - length and verious problems Ind be threshed ort, the French nission atter ⑉ brought up. Again there - agent and again there - no desision, A day " no later them w a cobinst meting after which the President received L.M.D., - Valles, Vendring and perious this in his office. fature the others - "Hijo - - President the given LLR a letter confirming Ms actiority to company help the Trush sinim, LLL explained that the Frunch wanted the - Douglas and the There - author big row, which w may the proliminary for a art of general bettle at a meeting at the - attended by Foodring at Mo staff a the day following, Regraded Uclassified - 3 - 39 when H.M.R. finally told Woodring, "I will tell the President you nosuch are an chotrosting m.' The day after that H.M.JR. wrote a letter to communation telephone letter this effect to Woodring, but after a telephonic argument, withirew 14. The matter was finally settled on Jamary 16, presumsbly by the intervention of Louis Johnson at still another White House meeting attended by Bullitt, H.M.JR. and the any people, at which the President flatly amounted that the proposed to let the French have the early Douglas, the Certies P-36, and smout of date Martin bomber as well. The orders to lot the French see these planes were signed on Jamary 19th, Regraded Uclassified Himes COPY 40 The French airplane story begins in the summer of 1938, when H.M. Jr., while traveling in France, discussed with Bullitt and members of the French administration the possi- bility of the French procuring military airplanes in the United States. It was because of these discussions, as well, perhaps, as the President's memory of past Har Depart- ment attitudes in such matters, that when Bullitt arrived in tuis country with the French military mission in tow, the President put them under the wing of H.M.Jr. This was early in December '38. December 21, 1938 is the date of the origin of the row. At a cabinet meeting on this day, Woodring was informed of the presence and néeds of the French mission, and of the fact that they were under H.W.Jr.'s wing. The very next day at a meeting in H.M.Jr.'s office, Woodring announced violent opposition to the whole business, and especially to the Regraded Uclassified 41 -2- release of the early model Douglas attack bomber, of the existence of which the French mission had apparently learned from the Navy. In this period of the beginning of the row Woodring was ready, though far from anxious, to approve release of the Curtiss P-40. Presumably this first meeting in H.M.Jr.'s office caused both sides to go to the President. At any rate, towards the end of December, the President intervened to bring Johnson into the picture. Johnson was made familiar with what had already happened in a memorandum from General Marshall, and immediately went to the President to advocate the precise reverse of Woodring's stand. The Curtiss P-40, he said, was the best pursuit plane in the world, and the French should therefore, only be permitted to have the slower Curtiss P-36. As to the Douglas bomber, however, this was an out of date model, superseded by another type ordered by Johnson, of which Woodring was presumably ignorant, which would be in Regraded Uclassified -3- 42 production by the spring. Therefore, he suggested that the French be allowed to have the Douglas. The decision was left pending, however, and (according to Woodring, but not Johnson) a row broke out again on January 5, 1939, when the President held a meeting in the oval room of the White House to discuss his special message to Congress on national defense appropriations. Present were the President, Bullitt, H.M.Jr., Hanes, Edison, and some admirals, Johnson, Craig, Marshall, Woodring and Arnold. Defense appropriation had been discussed at some length and various problems had been thrashed out, the French mission matter WES brought up. Again there was argu- ment and again there was no decision. A day or so later there was a cabinet meeting after which the President received H.M.Jr., Summer Welles, Woodring and perhaps John Hanes, in his office. Before the others went in, the President had given H.V.Jr. E letter confirming his authority to help the French mission. H.M.Jr. explained that the French wanted the new Douglas and Regraded Uclassified -4- 43 the Curtiss-Wright. There was another big row, which was only the preliminary for a sort of general battle at a meeting at the Treasury attended by Woodring and his staff on the day following, when H.M.Jr. finally told Woodring, "I will tell the President you are obstructing me." The day after that H.M.Jr. wrote a letter to this effect to Woodring, but after a telephonic argument, withdrew it. The matter was finally settled on January 16, presumably by the intervention of Louis Johnson at still another White House meeting attended by Bullitt, H.M.Jr. and the army people, at which the President flatly announced that he proposed to let the French have the early Douglas, the Curtiss P-36, and an out of date Martin bomber as well. The orders to let the French see these planes were signed on January 19th. Regraded Uclassified December 22, 1939. Dear Johns In view of the strong compulsion you feel to return to your private affairs which you have expressed to me both verbally and in your letter of December 22, I have no choice but to transmit your letter of resignation to the President. This I do with the greatest reluctance, both because of the loss of your able and loyal service and the deprivation that I feel in having to break a close personal association that has given me 80 much real pleasure. Your service to the government has been distinguished and your help has been invaluable to ms. I an most deeply grateful for it. I know that your further career will bring you even greater honors, in which I also shall take pride, and I hope that it will be full of deep personal satisfactions. Sincerely, Secretary of the Treasury The Honorable John 5. Hanes, Under Secretary of the Treas Regraded Uclassified 45 December 22, 1939. Dear Johnnier I an sorry to receive your letter of resignation, but in view of the wish that you have repeatedly expressed to return as soon as possible to private life I an accepting it as of the date you set, which is as of the close of business on December 31 of this year. In accepting it I desire to express my deep and sin- cere gratitude for the conscientious, loyal and able service you have rendered to the government and to this administration both in the Securities and xchange Commission and in the Treasury Department. It is a record of good work done at personal sacrifice for which you should be honored and in which you are entitled to take the greatest pride. I hope that your future activities may bring you great success and great rewards. Yours very sincerely, Signed President by the The Honorable John N. Hanes, Under Secretary of the Treasury. Regraded Uclassified 46 December 22, 1939. Dear Johns In view of the strong compulsion you feel to return to your private affairs which you have expressed to me both verbally and in your letter of December 22, I have no choice but to transmit your letter of resignation to the President. This I do with the greatest reluctance, both because of the loss of your able and loyal service and the deprivation that I feel in having to break 8 close personal association that has given me so such real pleasure. Your service to the government has been distinguished and your help has been invaluable to no. I an most deeply grateful for it. I know that your further career will bring you even greater honors, in which I also shall take pride, and I hope that it will be full of deep personal satisfactions. Sincerely, Secretary of the Treasury. The Honorable John We Hanes, Under Secretary of the Treasury. Regraded Uclassified 47 December 22, 1939. Dear Johns In view of the strong compulsion you feel to return to your private affairs which you have expressed to ne both varbally and in your letter of Documber 22, I have no choice but to transmit your letter of resignation to the President. This I do with the greatest reluctance, both because of the loss of your able and loyal service and the deprivation that I feel in having to treak a close personal association that has given as ao such real pleasure. Your service to the government has been distinguished and your help has been invaluable to 20. I an most deeply grateful for it. I know that your further career will bring you even greater honors, in which I also shall take pride, and I hope that it will be full of deep personal satisfactions. Sincerely, Secretary of the Treasury. the Honorable John We Banes, Under Secretary of the Treas Regraded Uclassified THE UNDER SECRETARY OF THE TREASURY WASHINGTON 48 December 22, 1939 Dear Henry: In accordance with our understanding last June, when I expressed my wish to return to private business and you suggested that we defer decision until the end of the year, I now beg to offer my resignation, to take effect at your convenience. May I say with deep feeling that for me it has been a rare privilege to serve under your leadership in the Treasury. Your conscientious devotion to duty has been an inspiration to me. Were I in a position to do so, and if you desired it, I should enjoy nothing more than to remain under your direction in the public service. The tasks recently assigned to me are now nearing completion and I know you will understand and accept my reasons for going back to my private affairs which have been completely neglected by me during these last two years. With every good wish and affectionate regards, Faithfully yours, John WHanes. The Honorable The Secretary of the Treasury. FEDERAL RESERVE BANK OF NEW YORK 49 FICE CORRESPONDENCE DATE Dec. 22, 1939. Files SUBJECT: Loan to Sveriges Riksbank, M L. W. Knoke The Swedish Minister to the United States (Mr. Bostrom) and the Swedish Commercial Attache (Mr. Erickson) called this afternoon at 3 p.m. and in the absence of Mr. Harrison spoke to Messrs. Sproul and Knoke. Mr. Bostrom handed us the attached message from Mr. Rooth of the Sveriges Riksbank to Mr. Harrison and inquired whether and on what basis Federal Reserve Bank of New York could arrange a credit to Sveriges Riksbank for one year of $10,000,000. It was explained to Mr. Bostrom that it is the policy of this bank to grant short term loans of seasonal character against gold only if the gold is deposited in this country. As regards what Governor Rooth calls loans against commercial paper we said Federal Reserve banks were authorized under Section 14 of the Federal Reserve Act to purchase commercial bills saturing within 9Q days, bearing two signatures and covering actual commercial transactions. These are the only two ways for extending credit to foreign central banks permitted Federal Reserve banks under the Federal Reserve Act. Mr. Bostrom inquired two or three times if 6 Federal Reserve bank could make a loan to B foreign central bank against the guarantee of its government and was told that it could not. A request for a loan against gold in this country or a loan in the form of the purchase of commercial bills, he was told, would have to be submitted for the approval of our board of directors and also that of the Board of Governors of the Federal Reserve System. Regraded Uclassified FEDERAL RESERVE BANK OF NEW YORK 50 FICE CORRESPONDENCE DATE Dec. 22, 1929. Files SUBJECT: Loan to Sveriges Riksbank. M L. W. Knoke No direct negotiations could be conducted by us without their knowledge. Mr. Bostrom inquired whether a loan in either form could be granted for one year and he was advised that it had been our practice in the past to make advances for three months with the possibility of renewals. Mr. Bostrom referred briefly to the trade between Sweden and this country which he said was favorable to us to the extent of $40,000,000 per year, with Sweden the second largest buyer of United States goods (next to Great Britain). Mr. Bostrom was advised that Mr. Rooth's inquiry would be submitted to our directors at their next meeting on December 28 but that in view of the present holiday season no final answer could probably be expected for about two weeks. In view of Mr. Rooth's statement to Mr. Bostrom over the telephone and in his cable to Mr. Harrison that the money was not urgently needed, this schedule seemed to be satisfactory to Mr. Bostrom. It was understood that after we are ready to communicate with Mr. Rooth #9 shall cable him direct by means of our private code arrangement with Sveriges Riksbank and send copy of our message to the Swedish Minister in Washington. 03V1333A segi 330 INTERNAL $ \ 3 - - - - - LWK.KW Regraded Uclassified IM 10-36 SWEDISH LEGATION 51 WASHINGTON. A telegram has been received at the Swedish Legation requesting that the following message from Mr. Rooth of the Swedish Riksbank be handed to Mr. Harrison of the Federal Reserve Bank of New York: "Can Federal Reserve Bank New York contemplate credit to Riksbanken for one year of, say, ten million dollars against either Swedish commercial papers, deposited at Oslo, or gold earmarked for you wit N Worges Bank, Oslo. If such credit possible, please cable conditions. No urgent need. Proposal made only as precaution- ary measure." Washington, December 22, 1939. BEEI 88 TRUNKET OF NEW Regraded Uclassified M/SC. 14DA you 2-28 FEDERAL RESERVE BANK OF NEW YORK 52 December 26, 1939. Birs: With reference to Mr. Harrison's telephone conversation this afternoon with Chairman Eccles, we enclose for the Board's confidential information copy of a memorandum covering the conversation we had with the Swedish Minister on December 22 and of Mr. Rooth's message to Mr. Harrison. Bo reply to this message has as yet been sent to Mr. Rooth. Very truly yours, L. 1. Knoke, Vice President. Board of Governors of the Federal Reserve System, Washington, D. c. BECEIRED DEC sa Inc. BEEI 0 LUCIKO Regraded Uclassified ? act FEDERAL RESERVE BANK OF NEW YORK 53 n December 22, 1939. Dear Mr. Secretary: I am enclosing for your information translation of a letter dated November 11, 1939, received by ne from the Governor of the Bank of France in connection with a recent French gold shipment via Halifax. I thought you might be interested in reading it. Respectfully yours, George L. Harrison, President. Hon. Henry Morgentham, Jr., Secretary of the Treasury, Washington, D. C. Enc. TRANSLATION 54 From The Governor, Banque de France, Paris To Mr. Harrison, President, Federal Reserve Bank of New York November 11, 1939 My dear Mr. Governor, I have the honor to introduce to you my Cashier General, Mr. Rousseau, whom I have delegated to accompany to your bank a new stock of gold, which I request you to place into the account of the Banque de France. The necessity of keeping this shipment secret, has not permitted me to inform you thereof; I request you kindly to excuse my action under the existing circumstances. I thank you for the steps you may take to facilitate the mission of my delegates, Yours, etc. (signed) P. Fournier Regraded Uclassified Desember 27, 1989. 55 Dear Mr. Harrison: In the of the Secretary, who is any from Washington for a few days, I as acknovledging your letter of December 22nd which enclosed a the lation of one you had received from the Governor of the Bank of France. is SOOR as Mr. Norgesthan is bask at his desk, I shall be gial to bring this to his attention. Sincerely. (Signed) H. S. Klotz 1. s. nots, Private Secretary. Mr. George L. Earrison, President, Tutt, r 1 any I Printed New York, Nov Tark. Signature.,28th + mailed GKF:lmf Regraded Uclassified 56 Desember 22, 1939 SULLIVAN a your return, Tuesday, I would appreciate your sitting down with Dr. Harry white and going over with his your proposed formula, which you evolved, is comnection with foreign Governments who wish to place orders with our manufacturers which will on- tail upon them the necessity of increasing their plants. Dearaded 57 December 22, 1939 MEMORANDUM FOR MR. SULLIVAN. On your return, Tuesday, I would appreciate your sitting down with Dr. Harry White and going over with him your proposed formula, which you evolved, in connection with foreign Governments who wish to place orders with our manufacturers which will on- tail upon them the necessity of increasing their plants. Regraded Uclassified 58 December 22, 1939 SULLIVAN. On your return, Tuesday, I would appreciate your sitting down with Dr. Harry white and going over with him your proposed formila, which you evolved, in connection with foreign Governments who wish to place orders with our manufacturers which will - tail upon then the necessity of increasing their plants. Regraded Uclassified TREASURY DEPARTMENT WASHINGTON 59 OFFICE OF WISSIONER OF INTERNAL REVENUE ADDRESS NORT - - INTERNAL REVOLE I I I IT:P:CA December 22, 1939. CAA REPORT FOR SECRETARY KREW: In regard to closing agreements which have been requested, the following applies: Do lavel Stom Turbine Company: A conference was hald with representatives of this concern on December 18, 1939, at the request of the Havy Department. Admiral Bass of the Juny attended. The contractor's represents- tive stated the concern will accept a letter ruling that the treatment of the special tool involved will be determined in accordance with L 1. $289. Such a letter has been mailed to the contrastor and it is expected that the contractor will now be willing to enter into a contract without the necessity of a closing agreement. The Midvale Company: This atter is still receiving active consideration but there have boen to developments. Consolidated Aircraft Corporation: The execution of & closing agreement in this case followed by the anard of the May contract involved operate to close this 00.00 with B. 100% accomplishment of the objective. lo IN mtters developed during the week. Commissioner. 00 ITsPack December 22, 1939. CAA BIPOST 7% SIGNATURE la regard to closing agreements which have been requested, the following applies De Leval Item Turbine Company A was held with representatives of this secores - Comber 18, 1830, at the request of the Savy Department. Admiral less of the havy attended. The contrastor's representa- tive stated the comers will accept a. letter ruling that the treatment of the special tool involved will be determined is accordance with I. T. 2259. Such & letter has been mailed to the contraster and it is expected that the contractor will new be willing to enter into a contract without the mecessity of B. closing agreement. The titrals Company: This atter is still receiving active consideration but there have less as developments. Consolidated airent Corporation: the mention of a elesing agreement in this case followed by the card of the Mary contract involved operate to close this - with a 100% accumplishment of the objective. to are atters developed during the week. Commissioner. CAA/MEA Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 22, 1939 TO Secretary Morgenthau Mr. Cochran FROM The foreign exchange market was very quiet which is the condition it usually settles into just prior to the Christmas holidays. Sterling opened at 3-94-5/8 End, during the morning, it moved up to 3.95. It remained at that level for most of the day but towards the close, the rate eased off. The final quotation vas 3.94-3/4. Sales of spot sterling by the four reporting banks totaled 1259,000, from the following sources: By commercial concerns 1 107,000 By foreign banks (Europe, Far East and South America) - 152,000 Total - 259,000 Purchases of spot sterling amounted to L316,000, ss indicated below: By commercial concerns i 205,000 By foreign banks (Europe and Far East) 111,000 Total : 316,000 The following reporting banks sold cotton bills totaling 128,000, to the British Control at the official rate of 4.02: & 13,000 by the Guaranty Trust Co. 1 8,000 by the Chase National Bank 1 7,000 by the National City Bank = 28,000 Total The other important currencies closed as follows: French france .0223-3/4 Guilders .5310 Swiss francs .2243 Belgas .1666 Canadian dollers 11-1/26 discount We purchased $250,000 in gold from the earmarked account of the National Bank of Belgium. The Federal Reserve Bank of New York received & cable from the B.I.S. request- Ing it to apply for a license to transfer from its Account 12 gold valued et approx- imately $747,000 to the account of the Netherlands Bank st the Federal. B.I.S.'s Account #2 is gold owned by that bank. Authority to mine this transfer was granted by the Treasury. Regraded Uclassified + S2 The Federal insurve Bask of Sev Tork reported to if that the following shipments of gold vers consigned to it: $2,090,000 from South Africa, shipped by the South drim issue Bank to be 617- marind for account of the Netherlands 3ast. 116,000 from Mexico, stipped by the Bank of Nexico to be for its ao- count. 102,000 from Revice, shipped by the Bank of Nexico for sale to the 1. S. Assay Office at Tex York. $2,308,000 Total Ve received a. cable from the State Department sest by the American Consul at Hong Your stating that the Banque Belge pour 1'Stranger, 3026 Long. shipped gold valued at approximately $211,000 to the Bank of America 3.7.5.A., Sea Francisco. This shipment will be sold to the = S. Kint at San Francisco. Easiy and Email price for foreign silver was fixed at 35-3/84, off 1-1/84 from yesterday. 3 Treasury's price was unchanged st 354. Je purchases of silver were unde by as today. The Γ. S. equivalents of the London fixing prices for spot and forward silver were slightly lower at 41.36# and 41.27#, respectively. Mr. Issue telephoned DE this noon that the Swedish Exister is calling at the Federal Secorve Bank of Sev Tork this afternoca st 3 c'clock in regard to 8. proposi- tion exempting from Devermer Broth of the Bank of Sveden. As of December 21 the account of the State Bank ed haris with the Chase Bank amounted to $6,400,000, which involves a decline of $4,000,000 from the letert bal- ance reported to us through the Federal Beserve Seak of Ser York, be amount of confirmed credits wes $5,400,000, which had been increased by $2,000,000 taken not of the current account to Antorg. the Antorg balance " of December 21 had gone from $1,000,000 to $2,000,000. the Minister of Finland dropped is for 6. chat yesterday evening. Xr. Incire told 29 yesterday that be had received cabled instructions from the Bank of Finland at Selsind to place $760,000 at the disposal of the Finnish Legation. In sasver to 4 inguiry, Mr. Incite told 28 that 20 gold is beli by the Federal Reserve Bank of lev York for account of the Seichsbank, it its IVI 1528, and, further- more, 2020 through my account of the B.I.S. with the Federal. kr. Indice was check- ing TX to see whether in recent shipments from the Fetherlands there had been The ceived any gold hars of German origin. Xr. ?. V. Lichtensteiger, who case from Lendon to establish the Agency of the Svine Bank Corporation at 15 Massa Street, Jev York, in October, called on at yester- day. Se is a Swiss, born in Basel, and has been with the Sviss Bank Corporation for 34 years, most recently in the London Agency. Xr. Golay, General Manager of the Svias Bank Corporation, had planned to CODE to Jer York to spen the Agency, but vas prevented by European developments. Be had written = a letter introducing Ke. Richtenateiger. The latter (are X a little 15m of the extent of de Agency's Regraded Uclassified 23 - business. The original plan had been to conduct the Fev York office with 2 staff of 36 people, most of whos were to be brought from Switzerland since the business of the Agency would necessitate knowledge of four languages by many of its personnel. 10 of the men who were to cose over were called to the Swies covers. Since opening 02 October 15 the New York Agency has increased its initial staff, first to 61 people, more recently to 92, and expects to have 100 by the end of the year. The percentage is about one-half American and one-half Swiss. The American half in- closes E sumber of people of Swies origin. Mr. Lichtensteiger stated that be had at least 20 applicants for every position. Brought up in 8 bank which strives for continuity of service, pensions its employees. etc., be vas startled to nee the lack of stability in employment by financial concerns in this country, as evidenced by the long list of positions which had been occupied, often for & very brief period, by the applicants coming to his agency. Mr. Lichtensteiger said that the New York Make, Bome of which must feel the presence of 8. new banking agency in their mrint, have teen very helpful in exterding cooperation and advice to his concern. Ee has been surprised at the number of accounts that have been opened with his institution. no records indicate that the Swiss have been for some time heavy purchasers of Americ = securities. The Swiss Bank Corporation itself has for many years held large blocks of American securities, including railways, both for its OWD account end for its clients. Since coming to Washington I have also had visits from representatives of the reganization get as in New York by the Credit Suisse, the other large bank in Switzerlani. Early in January, Mr. Chadenet, who came to New York this fall to 7)03 the agency there of the Societe Generale, is coming to Washington to call. It is hoped that some useful subsity of the business of the three new concerns on the American market ray be compiled within the next few months. Mr. Leroy-Beaulieu telephoned today from New York that he is leaving that city tomorrow for Ottawa and will return next Wednesday. At his request, I ar- ranged for the Secretary to receive his on Thursday next. Leroy-Beaulieu is to leave by clipper on January 2 for Trance, and to return by sir on January 20. Se is et present preparing an estimate of the dollars required to pay for the con- tracts which the French have now entered in the United States, such 8. report having been requested by the French Ministry of Finance. Until the French Ministry receives Leroy-Beaulieu's report, it will not be in a position to make its OWn estimate of dollar requirements for the sert year. AMS Regraded Uclassified TREASURY DEPARTMENT 64 Regraded Uclas INTER OFFICE COMMUNICATION DATE December Γ2, 1939 TO Secretary Morgentham FROM Mr. Cochran H At 4845 this evening the First Secretary of the Chinese Intessy tele- phoned no. He stated that a cablegram had just been received from the Chinese Embassy in Paris to the effect that the message from the Chinese Minister of Foreign Affairs had been dalivered to the American Inhany, as requested by Secretary Margenthma. The first Secretary informed me, however, that both Chinese Anbaesador Ico and American Ambassador Bullitt were absent from Paris. Consequently, the message had been placed in the hands of Secretary Barnes of the American Babasay. Mr. Bullitt Me under- stood to be on holiday in Algeria. B.M.R. THE DIAMOND AFFAIRS C5 MINUTES OF MEETING Held at the Office of Mr. R.R. Appleby, £5 Broadway, Yes York, December 22,1939 Present: Mr. G.D.N. Haggard, British Consul General in New York in the Chair Yr. L.H. Leach, British Consul in New York Dr. R.B. Appleby Mr. C.W. Boise Xr. Sydney H. Ball Mr. R.D. Peters Ir. J.H. Vincent (representing Messrs. Lord, Day & Lord). 1. Mr. Haggard occupied the Chair for the meeting. 2. (a) Ir. Leach reported that the British Embassy at Washinrton had indicated its general approvel of the schene outlined in the cable of the 17th December from Mr. Boise to Mr. Otto Oppenheimer. It was noted that the Embassy wished to see drafts of the communications proposed to be issued to the trade. (2) Yr. Boise reported a cable of the 21st December re- ceived from Yessrs. Otto and Louis Oppenheimer stating that the scheme had been submitted to the Board of Trade. 3. The following resolution was unanimously approved as a general expression of opinion: "That this meeting supports the scheze out- lined in the above-mentioned cable of the 17th December". 1. (6) Draft of the initial letter proposed to be cir culated to the trade was approved as amended. (I) Draft questionnaire to accompany the above- mentioned letter was substantially amended, and agreed subject to review of a clean draft. It was understood that the next step would be to submit the agreed drafts to the Embassy and also that the above-menticned letter and questionnaire could not be issued until approval of the scheme had been received from London. 5. Proposals as to future procedure for operating scheme were discussed. The under-mentioned draft forms were considered, various amendments were suggested, and it was agreed that revised drafts should be submitted at à subsequent mesting: (1) & special form of declaration or statement to be used in relation to existing stocks. (11) & form of undertaking to be used also as a record for every transaction. (111) Explanatory Notes to be issued with books of printed forms of the undertaking. Regraded Uclassified + 66 6. The position of Messrs. Appleby, Ball and Boise in connection with the operation of the scheme was discussed. It was agreed that, subject to the views of the lawyers after further consideration, the proposal be made that the Board of Trade should officially authorize the Consul General to act in consultation with these gentlemen who might be desig- nated as "Trade Consultants", and who would be regis- tered under the Propaganda Act. 7. It was agreed that no action be taken in re- gard to publicity. 8. Proposals regarding office arrangements were considered and agreed as follows, subject to authoriza- tion being received to proceed with the scheme. (a) Room adjoining the Consulate to be rented at about $900 per annum, and to be part of the Consulate office. (b) Mr. Tappan and Miss Bernholz to be taken on the staff of the Consulate. (c) Office furniture and equipment to be rented. (d) The Diamond Committee in London to be asked to arrange funds for expenses, such funds to be furnished to the Consul General through official channels in London. DRAFT 3. December 22, 1939. 07 Draft of Letter Proposed To Be Sent to Dealers and Users of Diamonds in the U.S.A. by H.V. Consul General, New York City. Gentlemen, I have no doubt you are aware that an embargo has been placed as a war measure on the ex- ports of diamonds from the British Empire, especially of those diamonds which can be used for industrial purposes. The British Authorities desire, however, to limit 30 far as possible the inevitable incon- venience resulting from a state of var, and in particu- lar they do not wish these restrictions to produce dis- location of the business of bona fide dealers and users of diamonds in the U.S.A. Accordingly an effort is being made to find a procedure whereby satisfactory assurances can be given that diamonds released for ex- port from countries within the British Empire will not reach any country at war with Great Britain or her Allies. In order to facilitate setting up a procedure which could operate with the minimum of in- convenience to traders and users, your cooperation is now invited and you are asked to fill out and re- turn the enclosed form at your earliest convenience. All information supplied to this Con- sulate General will De treated in strict confidence and used for the sole purpose for which it is intended in connection with the proposed plan. Yours very truly, Regraded Uclassified RD?/DS Issued to dealers, users, Draft etc. of rough diamonds. 12/27/39 QUESTIONTAIRE 08 Time All information supplied will be treated in strict Address confidence. 1. In what ways are you interested in rough diamonds? Describe whether as importer, dealer, broker, cutter, fabricator, user, etc., of diamonds S. Do you import? If so, from what countries? 3. Do you export diamonds or tools, dies,etc., in which diamond is used? 4. What was your approximate total stock of diamonds at December 31, 1939? Rough diamonds ets. (of which about .cts. was boart for crushing purposes) Other goods, including diamonds set in tools, etc cts. ets. Total cts. 5. Would you be willing to sign a statement that you would use your best endeavours to insure that diamonds or diamond products usable for industrial purposes would not, through act of yours, reach any country at war with Great Britain or her Allies? (Signature) (Please state whether proprietor, partner, or official of corporation, etc.) (Date) Regraded Uclassified C9 December 22, 1939 HM,Jr called Pa Watson and told him to ask the President what he thinks of Tom K. Smith for Under- Secretary and the President sent back word that he does not like Tom Smith. TREASURY DEPARTMENT 70 INTER OFFICE COMMUNICATION DATE December 22, 1939 10 Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran At 1 o'clock today the Secretary received as his luncheon gueste at the Treasury Colonel Ralaton, Winister of Finance of Canada, and the Canadian Minister to the United States, Mr. Loring Christie. Mr. Cochran also attended the luncheon, Colonel Ralston was very frank and cordial. He stated that be had no problems to bring up, but had been anxious for some time to meet his American colleague. He hoped they could talk over general questions of common interest now, and at any future time, on an informal basis, and he we prepared to answer any questions in regard to his own country. Secretary Morgenthau briefly summarized to the visitors the story of the trip of Messrs. Whigham and Gifford to this country with the view to preparing the way for the sale by the British Government of the U. S. dollar securities now held by British subjects but registered with the Government. The Secretary indicated his disappointment that the British Government had not approved of the recommendation made by the two experts, in full agreement with the views of the United States Treasury and the Securities and Exchange Commission, as well as with the advice of New York bankers, including J. P. Morgan & Company, that the British Government proceed at once with the vesting of some sixty securities. The Secretary was convinced that the market would be relieved of a certain nervousness if this step, which must come sooner or later, were taken as quickly as possible. Colonel Ralston said that he understood the securities which the British Government would take title to included large holdings of American railways, such as the New Haven and Hartford, which if sold now might seriously bear down the market prices. Secretary Morgenthau stated that he had received in strictest confidence a complete list of the U. S. dollar se- curities registered with the British officials, and consequently could not speak on the subject of the various types of securities held, He thought that Colonel Ralston's remarks, however, confirmed his own opinion that in- complete knowledge of the situation, and continued uncertainty as to what the British Government would have to sell now or later, contributed to 60 unstable and nervous market, Colonel Ralaton admitted freely that his people were not at all informed officially in regard to this subject. After speaking about the possible British requirements for U. S. dollars and the means of acquiring them, whether by the sale of gold or of securities, or both, the Secretary asked Colonel Ralston if his Government was informed with respect to British requirements of Canadian dollars. Colonel Ralaton explained that at the outbreak of the war his Government had taken a census of its income and had made a report to the British Government as to each Income and as to the extent to which the Canadian Government felt that it could participate in the war. Be commented upon the change in the situation alsoe Regraded Uclassified -2- 71 1914, when Canada had been obliged to berrow from England, He added that it we not now a question of England borrowing from Canada, but that the latter would contribute importantly to the war, while England would make sterling available to Canada against Canadian dollars. He explained that the process was already under may of the Canadian Government buying back its indebtedness on the London market, and borrowing in Canada to complete the refunding process. The Canadian Government does not yet know the 02- tent to which the British Government will have to raise Canadian dollars. As a matter of fact, the principal purpose in recently sending Governor Towers of the Bank of Canada on a flying visit to London we to seek more accurate information upon this and related subjects. Governor Towers is expected back shortly. In this connection Colonel Ralston volunteered that Mr. Greenley, of the British Purchasing Commission in North America, is considerably die- appointed over the difficulty of obtaining sufficiently precise instructions from the British Government to permit his Commission to go ahead on & constructive program on this side of the water. Secretary Morgenthau told his visitors that Mr. Purvis, for whom be had 8. very high regard as & competent and high type official, had seen the Secretary twice this fore- noon and had explained the problems of the Commission in having successful limison with the British Government. More effective lisison with the French vice-president of the Comission in the United States had just been con- summeted through Bloch-Laine taking as office adjoining that of Mr. Purvis. Secretary Morgenthan also told his visitors that Mr. Purvis had today pre- sented Mr. Pleven, the official next to M. Monnet, who had just arrived in this country to study the question of aeroplane production. Mr. Cochran re- marked that Mr. Pleven had told his outside of the Secretary's office that the French would now be able to buy a considerable number of aeroplanes from Italy, the latter country being willing to provide France with about any type of manufactured product within its capacity, provided France would in turn meet some of Itely's requirements for raw materials. In meeting this part of the bargain, the French had to be careful lest they supply Italy with raw materials which might be transshipped to Germany, which is looking to Italy importantly for this type of import. In connection with the lack of understanding between the Canadian and British Governments, Colonel Ralston pointed out that his Wheat Commission had been having direct contact with the Whest Commission in London most n- successfully, and finally ascertained that the proper contact was the Ministry of Food, The Secretary told the steps which had been taken by this Government the past few days to impose . moral embargo upon the exports of molybdenum, aluminum and gasolene processing plants to Russia and Japan, Re emphasized the sacrifice that American producers of molybdenum were being called upon to make, since more than half of their business has been with the two countries in question. He said that effort was being made to open B better domestic market for molybdenum, and that he hoped the British and French would do what they could to compensate the American producers, although the latter Regraded Uclassified T2 did not desire that the allies pile up unnecessary stocks of this metal, The point which the Secretary strove to bring home, however, was that this secrifice on the part of the American industrialists would be in vain if coordinated measures were not taken by various parts of the British Empire to stop the exports of the two other metals, nickel and tungsten, which, along with molybdenum, constitute the three elements necessary to miss steel alloys required in high speed machine steel, armor plate. etc. Be explained that the International Nickel Company, with mines and plants in Canada, had agreed to stop exports to Russia, but still had under con- sideration the question of checking nickel exports to Japan. Mr. Christie raised the question as to whether or not France had a small supply of nickel in New Caledonia. Norway was mentioned as another small source of nickel. It was agreed, however, that it was the Canadian production which was all important, and that if the export of the Canadian product was not checked, the plan could not succeed. The Secretary summarized the situation with respect to Chinese tungsten, including the story of the recent seizure by the French of Chinese tungsten and antimony in Indo-China. The Secretary explained that he had discussed this whole question with Mr. Purvis and that the latter had cabled his Government for instructions as to its attitude in the premises. The Secretary bad received word from London today that this question was in the hands of Sir Frederick Leith-Ross, and that a reply could be expected over the weekend. The Canadian visitors were sincerely appreciative of the position which our Government will taking through its moral embargo policy, and of the frankness of the Secretary in letting them know what the United States Government was doing. The question of aviation was touched upon at the luncheon, but dis- cussed more extensively in the Secretary's office at 2 o'clock, when the luncheon group was joined by Mr. Jack Sickerson from the Department of State and Messrs. Viner, Riefler and White. Colonel Ralston explained that there are contemplated sixty-seven air training achools in the Dominion of Canada, scattered from one end of the country to the other. At least 40,000 people are to be employed as techniciane and ground workers. Same men will come from England for training in aviation, but the large part of the flyers will be Canadians, augmented by Australians and New Zealanders. It is yet uncertain how many trained flyers will be prepared each year, but the number will run into thousands. This will make a heavy drain on the best type of Canadians from the age of 19 to 25 and within a couple of years the brunt of flying warfare for the British Empire will presumsbly be borne by the men trained in Canada. Instructors will go out from Ingland to Canada, Some training planes are being received from England and some of the Harvard type have been purchased in the United States. The planes from England are complete except for the wings, which are manufactured in Canada, Colonel Ralston mde the rather startling statement that the wastage in fighting aircraft, including men as well as equipment, was from 400 to 500% por year. This is higher than in bombers. Regraded Uclassified 73 In answer to an inquiry in regard to unemployment, Colonel Ralston stated that this who being rapidly reduced by military needs and that if the war continues to develop along the lines expected the unemploy- ment problem of Canada should be wiped out. Throughout his conversation Colonel Ralston contrasted the present war with the last war, stressing the degree to which this is an economic struggle, costing heavily, and involving & long grinding struggle without the glamour and music which attended the world war. To substantiate this he said that a. large contingent of Canadian troops had recently sailed from Halifax, with & remarkable convoy, without even the inhabitants of this most important Canadian port realising what was happening. Speaking of Halifax, he stated that traffic was being well taken care of and that there was no congestion on the railways leading into that port. The policies of the Canadian and American Governments with respect to looking after grain farmers were compared, Colonel Ralston, Mesure. Viner. Riefler and White contributing information upon the subject. It was developed that the United States is considerably more generous in this line than is the Dominion of Canada. Colonel Ralston stated that the wheat position of Canada for the next year will depend importantly upon the extent to which the United States wheat crop is diminished by drought. The Secretary explained to his visitors the problem which we have in this country of arriving at taxation on plants created or enlarged for war purposes. He said a formula had been worked out by the Treasury which vote available to foreign governments contemplating purchases on this market which involved creation or enlargement of plants, such as powder and aviation. Colonel Ralston explained that there was & provision under his tax system which permitted allowance for the development of plants solely or largely for war purposes. Dr. White raised the question as to whether the Canadian Government WSS responsible by some method of encouragement for the recent rise in Canadian gold production. Colonel Ralston was not aware that there was any significant increase, and said that no direct measures to foster increased production had been taken by the Government. It W&B shown, however, that the Canadian pro- ducers are allowed the full market price for their gold, as contrasted with the policy in South Africa. Colonel Balston stated that prospecting for gold was on the decline. He said that through his excess profits tax he could compensate the Government for the full price paid gold producers. He realized that gold production constituted an important source of foreign ex- change in present circumstances. In connection with chipping, Canada contemplates having destroyers and vessels of a heavy type constructed in England, while producing mine sweepers, whale catchers, and other small craft on this side of the Atlantic. Canada 10 following a policy of her own in shipping and shipbuilding. Regraded Uclassified 74 Throughout his conversation Colonel Ralston stressed the uncertainty of the character and duration of the war. He realised that it was difficult for the British Government to make many decisions, since it was still un- certain as to how far the war would be carried on by air, or by land, or by sea, and what type of weapons would be used, On this ground he excused certain slowness in development of British policy and coordination of Empire effort. The Minister planned to spend a few days in Florida. The Secretary ex- tended him a warm invitation to have another visit at the Treasury if possible on his return trip to Canada. The entire conversation was extremely cordial and frank and would appcar to have prepared the may for any serious conversations or negotiations that might subsequently be required by war or other developments. R.M.R. December 22, 1939. 9:30 a.m. GROUP MEETING Present: Mr. Cotton Mr. Schwarz 75 Mr. White Mr. Bell Mr. Cochran Mr. Thompson Mr. Gaston Mr. Foley Mr. Reifler Mr. Viner Mrs. Klotz H.M.Jr: Herbert? Gaston: No, I haven't got anything except - yes, there was A Fortune article that came to me Wednesday afternoon on money and gold and I had a chance to read it Wednesday night and I thought it was terrible and I turned it over to Harry yesterday and his man, Eddy, has been working on it but they are proposing to make it up right away, to go into 8. number of Fortune. I want to try if we can get the man who wrote it down here to talk to Harry, because it is pretty bad stuff. H.M.Jr: Are they for or against gold? Gaston: They are all mixed up on gold. They have got this old idea about financing European armaments by buying gold at too high a price. H.M.Jr: Why don't you call up the editor of Fortune? Gaston: Russell Davenport, John Davenport's brother? John wrote the article. H.M.Jr: Call him up yourself and tell him it is terrible and we would like plenty of time. If they haven't got time, they should skip it in the February issue and let it go in the March. White: Maybe we could give them something to hold it over, tell them we could give them some inside dope. 2 I I 76 H.M.Jr: Tell them we think it 1s terrible and we haven't got time to prepare for it and we suggest he hold it over until March. Gaston: Yes, I will call him. H.M.Jr: This must be the February issue this 1s going in, isn't it? Gaston: Yes. White: He said it was going into print today. H.M.Jr: He will lift it out. Will you, Herbert? You know them. Gaston: Yes. H.M.Jr: Will you? Gaston: Yes, I will do that. H.M.Jr: If you have no success, let me know and I will call up myself. If they refuse to hold it, let me know and I will call up myself. White: The article will not reflect particular credit for Fortune either, 80 that there is that much justification in holding it up. H.M.Jr: Can I say it 18 inaccurate? White: There were many inaccuracies in it. It 18 more than inaccuracies, it 18 the whole thing. H.M.Jr: If they won't hold it, I will call up and they will hold it. I have just got enough energy left to call up. Gaston: We saw two films yesterday afternoon, quite a number of us, on the Secret Service and the Bureau of Engraving and Printing. H.M.Jr: Did you look handsome? Gaston: Did I look handsome? - 3 - 77 H.M.Jr: I have got to tell & good story on myself. Last night we first went to Self-Help and I was 80 tired I excused myself and my family stayed and after they left they all went down to the Trans-Lux. So I said to Mrs. Morgenthau, "Was I in the movies? How was I?" "Oh, you were there, but I wish you had heard Herbert Hoover." She said, "He goes on and his voice is such that the whole audience tittered." They said it was the darndest performance they had ever seen. The whole audience just tittered. He follows myself and right after that - and his voice and his manner and his face - the audience all broke out laughing and he 1s making this appeal for the Finns. She said it was the darndest thing she had ever seen. She said, "Oh, you were there but you looked as though you were mad at somebody." I said I was up against tough competition with Procope. Mrs. Klotz: He insisted on a rehearsal. H.M.Jr: I guess that is about all I was, too. How were you in the Secret Service picture? Gaston: They didn't let me in it. H.M.Jr: How was I? Gaston: You were all right. H.M.Jr: Was I adequate? Gaston: Yes. H.M.Jr: Did I fill my chair nicely? Gaston: Frank Wilson was adequate, too. H.M.Jr: Ed? Foley: That letter approving the circular letter on the Japanese discriminatory view last night -- Regraded Uclassified 78 - 4 - H.M.Jr: They called up and thanked Mrs. Klotz for getting it out. Foley: There 1s a release they want put out that they approved which came back with the letter. Schwarz: It 18 out for this afternoon's release. Foley: That is what they want. H.M.Jr: It 18 like the Cuban tariff. I was there when the President was signing it. I said, "Do you know what 18 in it?" He said, "No, do you?" I said, "No, they never gave me a chance." Foley: They brought the letter over last night. Itreferred to the Cuban tariff thing and he said he hoped we wouldn't blame him for the rush on the part of his colleagues, because he was on it all the way through. He knew that it had been sent over here and that we were asked to rubber stamp it. That was Alger Hiss. H.M.Jr: Who 1s Alger Hiss? Foley: Donald Hiss' brother. H.M.Jr: Who 1s he, Mrs. Hiss' sont Foley: Well, he used to be over at A.A.A. White: They both are very excellent men, unusual for the State Department. H.M.Jr: I wrote Sumner Welles about the State Department, a very courteous letter. Foley: Hiss knew 1t. H.M.Jr: The President said the same thing happened to him. The Cuban thing, he had no idea what it cost, had no 1dea of it. He said nobody gave him a chance. White: You will be interested to know that one of the members of the committee, Trade Agreements Regraded Uclassified 19 - 5 - Committee, who is in the State Department also, and very active, that same morning showed reporters, and he was quite sincere about it, that there was absolutely nothing in the possibilities of the Cuban settlement, it had been dropped many months before and they Just were on the wrong track, BO nobody in that office suspected 1t. That was the same day. H.M.Jr: The way I figure, it 18 their responsibility. They have been very nice on this strategic war materials and I suppose they are under terrific pressure due to difficult times. It is their show. I mean, Mr. Hull got out that belligerent letter for me in twenty-four hours and was very nice about it. He was very nice to the belligerent people when they came down. He saw them. So, it pays to -- Foley: He should be. There 1s no change in policy at this time. It 18 possible they might work out some deal with the Japanese later, but they didn't want to take any action either pro or con right now. H.M.Jr: But you (Schwarz) are going to get out what they want? Schwarz: Yes. Foley: There is another release on silver, I think, that ought to go out today, saying that that proclamation letter will not be extended and that either delivery or documents of title must be furnished to the S.A. office by the 31st of December. H.M.Jr: Will you and Harry agree on the -- Foley: We have agreed on it, Harry and I. Cochran: I have, also. H.M.Jr: I don't understand it. I will read about it in the papers. Don't explain it. Foley: It is not important, just saying we aren't going to do anything more. Regraded Uclassified 80 6 I I Gaston: They can't have sixty-four and a half cents. Ve insist on paying them seventy-one. H.M.Jr: O.I. Foley: I have a couple of letters to the S.E.C. that you can sign. H.M.Jr: You will have to let it go until after Christmas. Cochran: Handy and Harmon's price is thirty-six and a half. There is a nice editorial in the Times you had better see. H.M.Jr: What do they say in this floor show, *Give Handy and Harmon a hand"? Cochran: That is it. H.M.Jr: Where is it, in the Times? Cochran: Yes. White: Are you raising your buying price? Cochran: No. H.M.Jr: Collins and Purvis are coming in at 10:15. I would like you here and I would like White here, please. Joe, all of these cables that have come in from Bogota and that they send up, I don't read them. Cotton: There is nothing in them. It is just about this legislation that vas dropped down there to let the President settle the debt. H.M.Jr: Incidentally, several weeks ago I made a suggestion to Mr. Welles that I thought it night be useful to have Ambassador Braden come up here on this thing. For reasons I don't understand, Mr. Velles said, "Oh no, no, don't have him up here." Cochran: I didn't know that - Regraded Uclassified 81 - 7 - H.M.Jr: I have heard nothing from Jesse Jones on this. Cochran: I have talked to Warren. I don't think you will get anything until after Christmas. E.K.Jr: But he -- Hanes: Jesse told me just before he went away, that he was going to write you a letter on the train, that he hadn't had time to write, that he was going to write on the train and send it back to you. E.V.Jr: I see. He called me up and said that he would let me have something before. Eanes: I called him up to say goodbye and wish him Merry Christmas and he said he was writing 8. letter from the train to you and he would send it back. I understood it would be back the next day, that he was going to write that night. Cochran: He turned it all over to Warren Pierson, I think, according to Warren. E.M.Jr: What are the plans of you two gentlemen (Viner and Reifler) for the next four or five days? Reifler: Well, I am going home this afternoon and going to the meetings next week in Philadelphia. I will come down if there 18 something urgent you want me for. E.K.Jr: Dr. Viner? Viner: I am here right through until Tuesday, but occupied - preocoupied. But if anything -- E.K.Jr: After Tuesday? Viner: Then I am gone with the wind. E.K.Jr: You mean you are going up to this association? Viner: Yes, and then go home. E.M.Jr: Well, some time today I would like to talk to both of you. Regraded Uclassified - 8 - Harry? B2 White: The exports to Russia show one important thing this week, very very large exports of copper and copper products. I have got a list of the other items. Of passing interest, the United Kingdom is putting more stress and pressure on buying goods and paying for it in sterling, which is something like Geruany started 80 as to force the - H.M.Jr: Who is doing that? White: England, as much as possible, paying for their imports in sterling, requiring the foreign exporter to accept payment in sterling. that will follow from that, that may or may not mean that they are going to adopt tactics of making sterling cheaper on certain markets to certain products, but we watch for it. H.M.Jr: That doesn't seen to gibe with the telephone conversation Knoke had. Cochran: I think it does It is in line with that telegram from Butterworth. H.M.Jr: No, I mean the telephone conversation Knoke had about seventy or eighty percent of the payments - was that to be in sterling? Cochran: I will check that again. I sent it direct to you. H.M.Jr: That telephone conversation. White: That excepts the United States. H.M.Jr: Don't do it now. Look at the telephone conversation that you sent ne last night that Knoke had with Bolton and compare those two. I don't think they check. It locks to ne - anyway, compare the two statements, will you? Cochran: All right, sir. Regraded Uclassified 63 6 I 1 H.M.Jr: Because I thought that was important and I didn't quite understand it. Cochran: I will look at the tvo of them. H.K.Jr: Will you, Harry? White: Yes. H.M.Jr: Telephone conversation Knoke had with Bolton. I think you gentlemen (Viner and Reifler) ought to look at that, too. I mean, if you have the time. It may mean a new move on the part of England. White: They are going forward in the Inter- American Subcommittee on the banks with their discussions and it seems to be shaping up pretty rapidly. I told Mr. Berle that ve here would begin working on a preliminary draft of the significant aspects and for your examination, so that it is coming closer to the time when there will have to be a definite decision made as far B.B Treasury is concerned on some of the more outstanding matters and we will have it ready some time during the week before New Years, some time within a day or two. The legal division will have to do much of the work, I take it, on the drafting. H.M.Jr: Chick? Schwarz: The Canadian legation announced that the Honorable Ralston comes here today and I would like to double check their story -- H.M.Jr: You saw the story before they gave it out, didn't you! Schwarz: That was dated Wednesday. He was originally coming Wednesday! E.M.Jr: Yes. Is he coming today? Regraded Uclassified - 10 - 84 Mrs. Klotz: I have him down for today. H.M.Jr: There is Ralston and Cochran and the Minister and myself. Schwarz? That is all? H.M.Jr: Do you people (Reifler and Viner) want to meet them after lunch? Reifler: Jake is the one that has been keeping in touch with this. I haven't. H.M.Jr: I think it would be nice if you would neet them around 2:00 o'clock, and Harry, you also. Dan? Bell: The committees -- H.M.Jr: Excuse me. Do you think we ought to have anybody from the State Department here? Cochran: I don't believe you need to. H.M.Jr: I tell you what you do. Call up Mr. Bull's office and ask if they would like to have us have somebody here from the State Department. Cochran: For the meeting at 2:00 o'clock? H.M.Jr: Yes. Who looks after Canada? White: Hickerson, unless he has changed. H.M.Jr: I would call him up. They have the right to have either Hickerson or Feis, if they want to. Bell: A committee of Government securities dealers in New York have been working for the past two months on the question as to whether they should change the quotations on Government securities from 8 thirty-second to a sixteenth and they have decided that they will make the change as of January 1. Regraded Uclassified - 11 - 05 H.M.Jr: Which way? Bell: To a sixteenth. H.M.Jr: I an in favor of one sixty-fourth. Bell: There will probably be a lot of deals and sixty-fourths and thirty-seconds. All the quotations will be in sixteenths. The chairman called me yesterday and said they were going before the Stock Exchange Committee on Tuesday and they probably would be asked the question as to whether the Federal Reserve Bank of New York and the Treasury have been consulted and they wanted to say they had been and that we offered no objection, but I don't think it 1s really any of our business. I don't think we care. H.M.Jr: I an for a sixty-fourth. Bell: Are you? Do you want to tell them that? H.K.Jr: No, I don't care. When it gets down to where I've got to decide one sixteenth or one thirty-second, it is a bad day for me. Bell: I told them I didn't think we were interested in it. I have a couple of letters. One is on that Panama Canal bond and I have put in a nice paragraph there. H.M.Jr: What 1s it, can you or can you not? Bell: Cannot, because the Second Liberty Bond Act took away that authority. H.M.Jr: Please send a copy of this to Harry Woodring, will you? Bell: Yes, indeed. That 1s a letter to the President asking him to sign the letter transmitting the report on emergency expenditures. H.M.Jr: Friend Ottley keeps saying that there is a Secretary of the Treasury fund, that I have a fund. Regraded Uclassified - 12 - Bell: A Secretary of what? 56 H.M.Jr: That I have money to deposit as the Secretary of the Treasury, not personally. Is there such a fund? Bell: No. H.M.Jr: Have I at my discretion money to deposit? Bell: No, you have, of course, control of the depository system and you could make this thing B. general depository and put A half a million or a million dollars down there, out it would be contrary to a long-standing policy. They have had four million dollars for about four years of special depositories and we haven't called upon them and they haven't rendered any service. H.M.Jr: Didn't I say that when he came up the next time that you and he could sit down? Bell: Yes. H.M.Jr: He is a go-getter. Hanes: Who? H.M.Jr: John Ottley. He called me up about three times. Bell: He 16 pretty well satisfied. H.M.Jr: He 1s the fellow who says we Judge our friends by the size of their donations. He says a hundred thousand dollars doesn't look like much friendship, or something like that. Bell: Well, he is earning that one. H.M.Jr: Yes. Bell: He gets all of these checks from the collection of this unemployment thing. H.M.Jr: He 1s a nice fellow and he has gone to A lot of trouble for ne. All right? Regraded Uclassified 87 - 13 - Bell: Yes. H.M.Jr: Who all wants to see me? Harry? White: Just for a minute. H.M.Jr: I would like to see Gaston and Hanes right now. Are you ready? Hanes: Yes. Dearadod December 22, 1939. 4:45 p.m. I've got one of your 08 H.M.Jr: - henchman with me here, Jesse. Hello! Jesse Jones: Hello. H.M.Jr: I've got one of your henchman here. J: Got what? H.M.Jr: I've got one of your men here on your payroll. J: Good, who 1s he? Hope he's a good one. H.M.Jr: His name 18 Tom Crawford. J: Oh I see. Good for Tom. H.M.Jr: Yes. He wants to borrow some money from the Export-Import Bank. He said he wants to borrow a hundred million for Sweden. J: I wrote you a letter on the train Henry. H.M.Jr: Yes, you're a great fellow. How the hell can I settle Columbia when you go down to Houston. What are you doing, commuting down there? J: Huh? H.M.Jr: What do you do, commute to Houston? J: I'm in Houston, yes. H.M.Jr: I say, you commute there. J: Yes, I am commuting, but I've got a hell of a cold now. H.M.Jr: I'm sorry. Did you write me a letter? J: I wrote you a letter from the train. H.M.Jr: Attaboy. J: I'm sorry you let Johnny go. H.M.Jr: Well I can't - he's been wanting to do that for six months. 39 - 2 - J: I know that. I S&V him the day I left but he didn't say anything about it. H.M.Jr: I see, well he's been wanting to do that for six months. J: All right. Vell - H.M.Jr: He says he's got to make & living. J: That's right. I guess we all have. R.M.Jr: That's right. :: Yell everything's all right with you. H.M.Jr: Everything's all right and I hope you and Mrs. Jones have a very happy Christmas. J: Thank you, the same to you and your family. H.M.Jr: We'll let Colombia vait until Christmas is over. J: O.K. H.M.Jr: Have 8 good time Jesse. J: Goodbye, thanks. H.M.Jr: Goodbye. Regraded December 22, 1939. 4:55 p.m. H.M.Jr: Jim? S0 James Farley: Merely want to congratulate you on Joining the third party movement. I see that you and Ickes and LaGuardia are in it, 80 I'm delighted to know that you're along - going along with them. H.M.Jr: Well I just thought there's another thing of Jim Farley's fine Italian taste. F: That's right. That's my Machiavellian- one of my Machiavellianmoves, if that's what you would call it. H.M.Jr: Yee. F: O.K. Well I merely wanted to wish you a Merry Christmas and Happy New Year, sir. R.M.Jr: Well that's what I want to say - what does it all mean Jim? in: Well frankly I don't know anybody more about it than you do. I really don't. Don't - I'd miss it, but I'm sure you don't pay any more attention to it than I do, which is nothing. H.M.Jr: Right. F: I don't know - it's B. lot of hocus-pocus. H.M.Jr: Well come down here and have lunch with me. F: Yes, I'll do It next week, positively. H.M.Jri Righto. F: this 16 a lot of hocus-pocus. I really don't know what's back of it. I don't give a damn. How do you like that? H.M.Jr: Right. F: Is that fair enough. H.M.Jr: You saw Hanes resigned. is: Yes I saw that. I was glad to see you appointed Johnny. Regraded Uclassified - 2 - 91 H.M.Jr: And pet in Sullivan. F: Yes, I SEY that. Was delighted to see it. He's - H.M.Jr: He's & grand fellow. F: Yes he 1s. I'm sorry - you know he's a friend of mine of long standing. I told you the story. H.M.Jr: Sullivan? F: Yes. H.M.Jr: Yes, well I knew he was. F: And I'm sorry to see Johnny go. H.V.Jr: Well he's had 1t in Hs mind, he's been talking about it for months now. F: IE that EO? H.M.Jr: But It's better now that it would be three months from DOV. F: I suppose. You're all right yourself, are you? H.M.Jr: Oh I'm all right mentally. Physically it's a tough job, and I haven't got enough help, but otherwise it's all right. F: Vell it's all you can do. Well the best to you and yours Henry. H.M.Jr: Thank you. Regraded Uclassified December 22, 1939. 10:55 a.m. 92 John I didn't dare bother you. I was calling Sullivan: Mrs. Klotz to give you the message. H.M.Jr: I want to know what the Doctor said. S: I finished with them and it is one hundred per cent. H.M.Jr: A hundred per cent? S: Yes. H.M.Jr: Well you're better than Ivory soap. S: That's it. H.M.Jr: I see. S: Well, I - I was very very much elated that it turned out to be just what the other fellows thought it was, a little food poisoning and absolutely nothing more. H.M.Jr: Swell. S: And on the ticker - perfect. H.M.Jr: Wonderful. S: So - H.M.Jr: Vell I'm delighted. S: I didn't know whether you were interested in knowing. H.M.Jr: I am and I'm interested for this reason. You saw maybe in the paper that Hanes is resigning. S: I talked to his secretary this morning and he told me that that was in there. H.M.Jr: And we may want to announce your appointment - S: That Schwarz - Hello. The President may want to announce your appointment as Assistant Secretary today, I don't know. S: I Bee. Regraded Uclassified 93 2 I I H.M.Jr: But, so if it comes, don't be surprised. 3: I see. H.M.Jr: Otherwise he proposes to send it up on the first day that Congress meets, see? S: Yes. Well, then I'm glad I called if there was anything like that pending, because I an completely ready and will be in fighting trim. H.M.Jr: Now let me ask you this. The head of the Allied Missions, Mr. Purvis, 1s here, and very early next week, I want to give him a formula in case any, the English Government wants to put any money into our plan on what basis we can go along. You've got that formula ready, haven't you? 3: Yes. H.M.Jr: What? 3: Yes. H.M.Jr: And incidentally they have no order for Dupoht, they don't want to do business with Dupont right now. 3: Is that 80? H.M.Jr: Isn't that interesting? S: Very, very. H.M.Jr: So - when will you be back here? S: I will be there at eight o'clock Tuesday morning. H.M.Jr: Well, that's fine. I hope you and your family have a very happy Christmas. S: Thank you and we all wish you the same. H.M.Jr: I'm delighted you're a hundred per cent. I wish I could say as much. S: Oh well, I think you are too. H.M.Jr: All right. m I I 94 5: And you'll be back Thursday. H.M.Jr: Vednesday or Thursday. S: I see. Well then I'll get in touch with you as soon as you get back. H.M.Jr: Thank you. S: Thank you so much, sir. H.M.Jr: Goodbye. S: Goodbye. December 22, 1939. 4:07 p.m. H.M.Jr: Captain? 95 Captain Collins: Yes, str. R.M.Jr: I'd like you to find out in your various talks whether any of those Curtis P-40's have gone over to France yet. C: Yes, sir. H.M.Jr: Do you know whether they have? C: I do not think 80 sir. H.M.Jr: The thing that I had in mind was - and if there was any doubt about it - that we might arrange to let the French have three right away so they can try it out - well what I had in mind 18 this, a remark that General Arnold dropped. They're not at all sure that that's as good a ship as it may be on account of whether - its maneuverability, you see? C: Yes, sir. H.M.Jr: So they can try it out to see whether, how it is in battle, you see? C: Yes, sir. H.M.Jr: Supposing you make some inquiries. C: Yes, I can get some information on that Tuesday. H.M.Jr: That'll be all right. C: Yes, sir. H.M.Jr: If they have it, I think they ought to - we haven't much - a great many on order for ourselves, the Army I mean. C: Yes, sir. I do not know that total number but - H.M.Jr: They've bought a hundred. C: Yes, sir. H.M.Jr: My thought was to let them have three right away and get them over there. 6 Yes, sir. The French ordered a hundred we know. - 2 - 86 E.M.Jr: Yes. I don't know how many the Army has. C: I don't either sir. S.N.Jr: But it's one thing to have then on the drawing board and it's another thing to have them in battle. 0: Yes, sir. H.M.Jr: I think everybody 1s surprised that the P-36 has stood up as well as it has. 0: Vell of course that vas arranged for 8. ship you see, it vas the old 75-8 brought up to date. H.M.Jr: I know but this P-40 is something cuite new. C: It's revolutionary, it's the first - it's the first liquid cool you see that's been used. R.M.Jr: Now what I'm interested in 1s the remarks that Arnold dropped. I'm not at all sure that he's sure, that the thing - how the thing will perform. 0: Yes, sir. Well he ought to know that VES tested out there. E.M.Jr: I know. 0: AndWright, you know, they gave it the works before they ever gave them an order. H.M.Jr: Don't you think to be tried in actual battle is something quite different? C: Well - of course they're fighting there - out there they simulate battle conditions on those flight tests you see, before the experimental 1s awarded. H.M.Jr: They're not going up against - : No that's true. M.M.Jr: German ships. C: No that's perfectly true. H.M.Jr: Vell you do & little inquiring. - 3 - 97 C: I'll do that sir. H.M.Jr: Did you get - and let me know back before Wednesday. C: Yes, sir. Have you another moment? H.M.Jr: Surely. C: Well we had quite a session over here. I brought the gentleman over to the office and we had quite a talk and I tried to impress upon them some of the difficulties that had been encountered in the last sessions we had with the French. H.M.Jr: Yes. C: The way it stands now is that they are to see Mr. R - - Mr. Sullivan, they're coming here at nine Monday and I will take them to him. H.M.Jr: Monday is Christmas. C: I nean Tuesday, sir. H.M.Jr: Yes. C: I will say Monday. And then after that I told him that we must know definitely what they want and what the plans are and they must make up their minds that they want a specific motor and that motor alone. H.M.Jr: Yes. C: Because I do not see really any use in bringing the manufacturers into this Mission until such time as these people have made up their minds because the manufacturers have too much business to be putting up with any shopping expeditions today. H.M.Jr: They should make up their mind as to what? C: As to the types of motors they want. H.M.Jr: That's right. C: Because there's no use of me calling on Carl Ward and say, "Can you give them three hundred motors". - 4 - S8 H.V.Jr: That's right. C: And I think after, if we can impress upon them the necessity of not changing their minds every fifteen minutes I think we'll be able to go some place. Now from what Purva says there will not be this difficulty that we experienced with the other deal or their having to go continuously back to Paris, because he apparently has been given plenty of powers and can make decisions. H.M.Jr: Yes. O.K. C: Well then I will see you Wednesday, sir. H.M.Jr: That's right. Don't forget about this P-40. 0: I shan't forget, sir. H.M.Jr: All right. C: And I want to thank you 80 much, Mr. Secretary, not only for myself, but on behalf of the others who have worked BO hard over here for that note. It's very cheering and the psychological effect 1s gorgeous. H.M.Jr: Well I'm pleased at everything you've done and I know the President 1s pleased. 0:, Well thank you very much, sir. H.M.Jr: Merry Christmas. C: Merry Christmas to you sir. H.M.Jr: Thank you. C: Goodbye. Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION M 99 DATE December 23, 1939 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL The foreign exchange market was very quiet. The opening quotation for sterling was 3-94-3/4 offered. The Federal Reserve Bank of New York received an order to sell -75,000 at 3.94-1/2 or better from the National Bank of Denmark. The closing quotation was 3.94-5/8 bid. Sales of spot sterling by the four reporting banks and the Federal Reserve Bank of New York totaled 1245,000, from the following sources: By commercial concerns 1 55,000 By foreign banks (Europe) 1 115,000 By Federal Reserve Bank of New York (for Denmark) 1 75,000 Total 1 245,000 Purchases of spot sterling amounted to 170,000, as indicated below: By commercial concerns. 1 32,000 By foreign banks (South America) I 38,000 Total 1 70,000 The Guaranty Trust Company reported that it sold cotton bills amounting to 12,000 to the British Control at the official rate of 4.02. The other important currencies closed as follows: French france .0223-3/4 Guilders +5309 Swiss france .2243 Belgas .1664-1/2 Canadian dollare 11-1/2% discount We purchased the following amounts of gold from the earmarked accounts of the banks indicated: $ 800,000 from the National Bank of Rumania 350,000 from the Bank of the Republic, Colombia $1,150,000 Total Regraded Uclassified 100 -2- The Federal Reserve Bank reported to us the following shipments of golds $20,000,000 from Canada, shipped by the Bank of Canada to the Federal Reserve Bank of New York, to be earmarked for account of the Bank of England, 7,842,000 from Sweden, representing three shipments by the Bank of Sweden to the Federal Reserve Bank of New York, to be earmarked for account of the Bank of Sweden. 2,146,000 from Sweden, shipped by the Bank of Sweden to the Federal Reserve Bank of New York, to be earmarked for account of the National Bank of Denmark, 2,088,000 from South Africa, shipped by the South African Reserve Bank to the Federal Reserve Bank of New York, to be earmarked for account of the Netherlands Bank. 1,925,000 from Norway, shipped by the Bank of Norway, to the Federal Reserve Bank of New York, to be earmarked for account of the Bank of Sweden. 103,000 from India, shipped by the Chase Bank, Bombay for account of its London office, to the Chase National Bank, New York, for sale to the U. S. Assay Office at New York. $34,104,000 Total B.M.R. CONFIDENTIAL Regraded Uclassified 101 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Geneva, Switzerland DATE: December 23, 1939, 4 p.m. NO.: 332 FOR MORGENTHAU FROM TYLER. I spent R few days in Rome and Milan, after having been in Budapest. It 18 extremely difficult to get any information on Italian public finance. One Italian in the inner circle told us that since last September the total expenditure by the State has gone up to an annual level of 100,000 million lire; this figure is approximately four times as various great as the/estimates which have been published. The bills of the State are certainly not being paid; every chicken roost 1a being robbed by it, and irresistible pressure is also being brought to bear on solvent corporations to turn ownership over to the State for such compensation as 18 considered adequate by the State. That there 1e any extreme difference. between this procedure and Bolshevism 18 often not apparent to the so-called beneficiaries. TITTMANN. EA:LWW CHINESE EMBASSY WASHINGTON, D. C. 102 December 23, 1939 My dear Mr. Secretary: Yesterday I received a cablegram from the Chinese Embassy in Paris saying that Mr. Bullitt had left for Algeria and would not return until after Christmas and that my message had been transmitted to his secretary, Mr. Barnes. Since then, I have received information from Paris saying that "French Foreign Office has expressed willingness to give favorable consideration to exports to England and America". I hasten to transmit this encouraging news for your information. I called on the President Wednesday noon. He was very sympathetic and understanding as always. I do hope your prophecy about my being as handsome as the Finnish Minister may come true. I take this opportunity to send you and Mrs. Morgenthau my warmest greetings and best wishes of the season. Very sincerely yours, Her Shit Hu Shih Honorable Henry Morgenthau, Jr. 2211 30th Street, N.W. Washington, D.C. Copies of received from for Rooth COPY by FOR SECRETARY the SVEHIGES RIKSBANK 103 Re B. now kind of sterling, called special pounds. Às will be seen from the enclosed translation of a Communique concerning payments in sterling the main principle of the procedure to be followed is that sterling arising to Sweden from the United Kingdom out of trade, freight etc. must not be sold on the international foreign exchange market. Such sterling balances with banks, firms etc. abroad and ster- ling securities as are in Swedish possession on the day when the new procedure was announced, shall be declared to Sveriges Riksbank and may be used for only purposes net out in the Comminique. Under normal conditions Sweden has a surplus in her balance of payments with the United Kingdom. Whether this will continue to be BO under present circumstances is of course impossible to say. In order to prevent the accumulation of Swedish special pounds that cannot be disposed of, such pounds may be used for payments not only in the United Kingdom but also within the British Empire /except Canada, Newfoundland and Hong Kong/ and in BOES other countries. The rate for special pounds will be based on the Riksbank's dollar rate and the Bank of England's rates for Swedish kronor and dollars. On the first day the Riksbank quoted 16.80 - 17.00 per pound which corresponded to the Swedish kronor rate quoted by the Bank of England on that day. Since then London has been quoting 16.85 - 16.95 and ve have quoted the London rates. The Swediah banks soll sterling at the official selling rate and buy at the official buying rate. The Riksbank's transactions in special pounde with the commercial banks are made at the middle rate, less 1 ore when ve buy, and plus 1 öre when ve sell. & translation of the declarations that buyers and sellere of foreign exchange are asked to make, will be found enclosed. Stockholm, 23rd December, 1939. Regraded Uclassified Declarations to be made by 104 (a) buyers of special pounde "I. the undersigned, request that you will sell to me special pounds. I an aware that such pounds must not be sold on the foreign exchange market abroad but my be used exclusively for payments by persons in Sweden within the British Empire (except Canada, Newfound- land and Hong Kong) and in Brazil, Egypt and Belgium. I undertake not to use them otherwise. The above amount will be disposed of for the payment of (the purpose to be stated here: trade, freight etc.) The debt to be paid by these pounds existed (did not exist) on December 20th 1939 and has (has not) been declared to Sveriges Riksbank before January 15th 1940. (b) buyers of other pounds than special pounds "I, the undersigned, request that you will sell to me pounda sterling (not special pounds). I an aware that such pounds must not be used for commercial or financial payments by persons in Sweden within the British Empire (except Canada, Newfoundland and Hong Kong) and in Brazil, Egypt and Belgium. I undertake not to use them for such purpose." (c) buyers of other foreign exchange than sterling "I, the undersigned, request that you will soll to as ($, Francs etc.). I undertake not to use this currency directly or indirectly for the purchase of pounds sterling, to be used for payments within the British Empire (except Canada, Newfoundland and Hong Kong) or in Brazil, Egypt and Belgium." (d) payers of kronor to an account of a bank abroad "I, the undersigned, hereby pay into the account of X bank with you Kronor Regraded Uclassified 105 - 2 - I confirm that this kronor amount will not with 47 knowledge be converted abroad into pounds sterling or constitutes the equivalent of pounds sterling bought abroad. I an aware that pounds sterling bought against Swedish kronor abroad must not be used for commercial or financial payments from Sweden to the British Empire (except Canada, Newfoundland and Hong Kong) and to Brasil, Egypt and Belgium." PRANSLANCE COMMENT QUE 106 In order to secure that is the first place net starling as arise from the United Lingion to Swedish creditors from trade, freight, is- surance and certain kinds of financial payments etc. shall be used for Swedish payments to the British Empire / expept Canada, Incomiland and Hong Long/, Sveriges and the Swedish comercial banks have agreed on the following procedure. Debts payable in Swedish crowss are settled by trade of Swedish crowns to the creditors. Any sterling /special pounds/ arising as from this day from debts of the sbove-mentioned kisis will be paid into Swedish accounts in the United Tingdom. then selling sterling to a Svedish bank, the Swedish creditor will receive payment on the basis of Sveriges Ricoback's buy- ing rate for sterling. Special pounds my be purchased from the banks at the selling rate for starling quoted by Sveriges The rates for sterling quoted by Sveriges Richark as from today will refer to special pounds. Special pounds my be und for payments is sterling within the British Empire /except Canada, Informiland mi Eng Inc. These pounds my not be sold on the international foreign embange acts. The banks will control this. - Special pounds should be soli through & Swedish bank. The debts payable is starling my not be paid other- vise than by using special pruis. Vith regard to existing sterling balances DOY in Swedish possession the following shall be observed. às starling balances of this dal shall be considered starling bal- ances and sterling securities in Svedish possession. The said existing balances as well as Swedish debts, payable in starling shall be declared to Breriges not later than Jamary 15th 1940. Any sterling assets of this kiai, which, declared to Sveriges Rike- bank within the specified perioi, have been approved of by Everlges Rike- bank my be used for the payment of 2/ existing Swettsh debts is starling, provided these debte have been declared to Sveriges before the 15th January 1940: of travelling expenses insured is the British Inpire /excluding Canada, Berfound and Bang Long/ by persons is Swedes. Such uses, if not declared within the specified period or if declared but not agrowed of by Sveriges Rikshank. my be und for the pay- eat of of the holder's - debts, subject to permit being granted by Sveriges Ricebank: travelling expenses abroad incurred by the holder E de family. Stockholm, 20th December, 1939. Regraded Uclassified JT GRAY 107 BERLIN Dated December 23, 1939 Rec'd 3:05 p.m. Secretary of State, Washington. 2453, Decemb r 23, 10 a.m. The two leading business and financial dailies of the Reich, the Berlin BOERSEN ZEITUNG and the FRANKPURTER ZEITING in their aditions of yesterday both give prominence to the new British-Swedish clearing agreement which be- cause of its provision that the EXCESS of Swedish exports over incrts from Great Britain must be paid into a special blocked account which can thereafter only bE utilized for purchases in certain parts of the British Empire is cited as B proof of the weakness of the pound sterling and of British Export organization. Both aditorials also describe it as 8 new form of British pressure on new- trals. The FRANKFURTER ZEITUNG Editorial states that the agree- ment is "the first but probably not the last of its kind" concluded by England and designed to give support to the pound against the heavy pressure on the sterling exchange rate. Omitting any reference to the fact that the British clearing Regraded Uclassified -2- #2453, DEC. 23, 10 a.m. from Berlin 208 clearing system with Sweden is similar to that which Germany employs with most of the countries with which it is still in trading relations the editorial asserts that "for England to have recourse to such methods is significant. One SEES how limited its financial possibilities are today. In 1938 Swedish imports from Englend were 376,000,000 pounds and exports 447,000,000 pounds. Probably this relation- ship during the war has not improved in England's favor. Sweden has therefore sterling credits, the disturting in- flurnce of which is feared ty England". The concluding paragraph of the BOERSEN ZEITUNG cdi- torial 19 devoted to & discussion of the international payment and internal monetary difficulties of Sweden as a result of the war pointing out that Sweden had an unfavor- able trade balance for the first Eleven months of 1939 of more than 500,000,000 crowns in comperison with 200,000,000 crowns for the corresponding period of last year. The sditorial comments that "this deterioration of Sweden's trade and payment balance has naturally had an Effect on the position of the Swedish Central Back, The Swedish Reichs Bank was obliged on December 14 to raise its discount rate by H to 3%. The tension in the status of the +3- #2453, DEC. 23, 10 a.m., from Berlin 109 the Swedish Reichs Bank which caused this raise in discount rate is clearly illustrated in the institution's statement of DECEMBER 15. Its foreign Exchange (foreign bonds, credits abroad and foreign bills) which had already diminish- Ed the week before by 66,000,000 crowns to 319,000,000 crowns again diminished by 59,000,000 crowns to 260,000,000 crowns, The reduction was mainly at the EX- pense of forsign bank credits which fell from 267,000,000 crowns to 208,000,000. The gold reserve of 733,000,000 crowns remained practically unchanged; internally, however, a. change is to be noted since the gold reserve COVETAGE fell from 624,000,000 crowns to 609,000,000 while gold reserve held abroad and not included in the gold reserve coverage rose from 109 to 124,000,000 crowns. Inland bills discounted which had risen during the previous week from 62,000,000 to 137,000,000 crowns, increased again by 59,000,000 crowns to 197,000,000 crowns. As a result of this credit demand on the institution the clearing deposits of the banks with the Swedish Reichs Bank which during the course of this year, suffered a decline of more than 400,000,000 crowns to a total of 92,000,000 crowns in the previous week increased to a total of 133,000,000 crowns. Bank note circulation which had reached arcoord high of 1,275,000,000 crowns in the previous WEEK attained a DEW high 110 -4- #2453, Drc. 23, 10 selle from Berlin high of 1,341,000,000 crowns on December 15. OnE must wait and SEE whether the measures taken in Sweden which include a further limitation of the currency circulation will have the desired Effect and brake the flight of capital". REDEAT to Treasury. KIRK JRL COPY 211 PERSONAL MINISTER OF FINANCE Canada Pancoast Hotel Miami Beach December 23, 1939 Dear Mr. Morgenthau: Thank you again and most sincerely for your hospitality of yesterday. I came away with most pleasant and satisfying recollections of my visit and of your keen appreciation of problems which affect us both. Thank you too for the added pleasure of meeting Mr. Cochran and that exhilarating group of Treasury and State Department Staff. From word already received it is apparent that I shan't have any opportunity for E stopover in Washington on my way back -- (I expect now that I shall have to leave here Sunday the 31st) but having met you I very genuinely look forward to closer associations and I shall not fail to avail myself of your cordial suggestion that we see each other when I am next in Washington. I need not say that it would give us in Canada a great deal of pleasure if your activities might bring you to see us in our "native lair". We would welcome you most heartily I assure you. In the meantime I hope that you will feel perfectly free to communicate with me if there is anything 2 112 by way of information or otherwise in connection with which you think our relations as "opposite members" might be useful. Yours sincerely /s/ J. F. Ralston Hon Henry Morgenthau Jr Secretary of the Treasury, Washington / " is 7 3 Ceuronal Paucaart Hatel miami Beach December 23.1939 Dear bus thank you again and rest surcevely far were hospi- tality of yesterday. 4 cause away with most pleasant and satisfuring me- collections of we visit and of your Keen appreciation of problems which affect us bath - thank uses too for to added pleasure of weeting use Cachron and that exhilarating group and State Depart. burt Staff. from woud already received it is apparent that 4 shout have any opportunity fau a stopover in mashinaton on my way back. (n expect waw that 4 shall have to leave here tunday the 31st) but having wet you 4 very generally look forward to closer associations and 4 shall not fail to avail my- self of your caudial tug quation that we All each artrei when 4 am west in maminston- 4 need unt say that it would give us in Canada a great deal of pleasure if your activities wight using you to All (our) us in our native lair" - we would welcome you must beautily 7 assure you - the the meantrise 4 hope that you will heel perfecting free to communicate write we if treas is sughing un was of information or arbertise is connection with which you turnin our relations as 'offeet init he useful- yours sincerely have Heaver for Secretain of the Treasury, Washington Regraded Uclassified callen pal 114 STRICTLY CONFIDENTIAL STOCKHOLM, December 25th, 1939. Dear Mr. Secretary, I very much appreciate the Seasonal Greetings that you kindly sent to ne and I reciprocate then most heartily. Although our dollar assets are so far not depleted we have a feeling that the political situation may under certain circumstances deteriorate and that it would therefore be wise to try to increase them. $ To this end we have been sending gold to America for about a year. at present there are very few boats leaving Scandinavian ports for New York and the American insurance companies are not willing to insure more than & fairly small amount on each steamer varying from 2 to 3½ million dollars according to the ship. Tie can, however, not use these boats for our own account only. Our neighbouring countries Finland, Denmark and Horway also want to ship gold to America and we have, therefore, made an arrangement under which we share the shipments between us in a reasonable way. The gold that we still hold in London is being shipped via South Africa to New York. On this route ve have heavy Dutch The Honorable Henry Morgenthau, Secretary of the Treasury, WASHINGTON, D.C. Regraded Uclassified 15 The donorable Henry Morgenthau, 25.XII.1939. 2. shipments to compete with but we have come to an understanding with the Rederlandsche Bank so 69 to permit us to send some gold that way. In order to help our Finnish friends we have on several occasions from them bought gold earmarked in London and in Stockholm. All Scandinavian central banks have deposits in Bweilsh kronor which they are now gradually exchanging for dollars insofar 83 they are not using their Swedish kronor for imports from Sweden. our assets in the United States have seen reduced to about half of what they were at the end of August. With a view to increasing our dollar assets we asked the Swedish Minister to take contact with you in order to find out whether it would De agreeable to the U.S. Government If we tried to issue a Swedish loan on the American market and if Sveriges Riksbank tried to get an overdraft credit from american Janks. I of grateful for your reply that your Government did not object to these plans. AS you may already know, we have subsequently been informed by Mr. BostrUm that there is at present no possibility of reising such credits. Mr. Boström informed ne at the same time that be had talked to Mr.Pierson of the Export-Import Bank and that Ur.Plarson would consider a loan of about 25 million dollars to Sweden when his funds had been increased by Congress. I also understand that there may be a chance for Sveriges Riksbank to get - credit from the Federal Reserve Bank of New York. Cochran has been informed of a new law regarding Sveriges Riksbank which may be put into effect in an emergency. I have alao told him about some developments on our money market which Regraded Uclassified 116 The Honorable Heary Morgenthau, 25.XII.1939. 3. I thought night be of interest to the Treasury. I suppose that he has informed you of these things in case they interest you personally. Will you please excuse ne for having written you this long letter. I felt, however, that I had to thank you for what you have done for us and I hope that you will in future help not only Sweden but also the other neutral countries in Europe. Amongst them I include Finland which in spite of her heroism and her present success needs substantial help by way of planes, munitions, money and nen. I do hope that Congress will change your law so as to permit of a credit for Finland to be used not only for the purchase of commercial stocks but also for buying aruaments from the United States and other countries. I an, Dear Mr.Secretary, Sincerely yours, Regraded Uclassified CLIMAX MOLYBDENUM COMPANY $00 FIFTH AVENUE HKH:AA NEW YORK TELEPHONE PENNSYLVANIA 6-8787 December 26,1939. MINE AND MILL. CLIMAX, COLORADO CABLE ADDRESS "HOLYBOEHUN" NEW YORK 117 Mo-: clubon den- X 4 um M Honorable Henry Morgenthau, Secretary of the Treasury, Washington, D. C. Dear Henry: I am attaching copies of my today's letter to Mr. Green and of the enclosure therein referred to. Sincerely, Harold Enclosures HKH:AA December 26,1989. 18 a Joseph C. Green, 589., Chief, Division of Controls, Department of State, Washington, D. c. Dear Mr. Green: You will recall that when Be had the pleasure of seeing the Secretary of State and you on December 20th we read to you e dreft of proposed letter to our stockholders. Since then, because of many inquiries received, we have deened it edvisable to revise that draft. À copy of the revised draft is enclosed. I shell take the liberty of telephoning you tomorrow to ascertain whether the letter is setisfactory from your standpoint insofar 6.5 the Department of State is interested in this metter. Yours very truly, Harold K. Hochschild. Enclosure bc-Hon.Henry Morgenthau Regraded Uclassified 19 To the Stockholders: Be quote herewith EL letter received by us from the Department of State, Washington, D. C.1 (Insert) The enclosure referred to reads as follows: (Insert) Be understand that this request applies to Russie, Germany má Texas. We have advised the Department of State that we shall be guided by our Government's policy. We have also informed the Depart- sent that " have contracts with customers in Germany but that, due to the American neutrality legislation and the Allied blockade, no ship- ments under these contracts have been made since the outbreak of the ver, During the pest five years the proportion of our sales to the said countries to our total sales has been as followe: Year Percent of Total 1935 52.97 1936 54.89 1937 53.02 1938 72.11 1939 57.8 The extent to which this request will effect your Company's business under present conditions depends on various factors the influence of which cannot now be foreseen. We understand that in certain foreign countries not affected by this situation the con- susption of molybdenum in 1940 is expected to be materially greater than in 1930. Our domestic sales have shown an upward trend during the year 1939 both actually and in proportion to our total business. Regraded Uclassified -2- 120 In addressing our stockholders in this matter, we desire to correct any erroneous impressions that may have arisen. Molybdenum is widely used in alloy steels of high quality but it is added to such steels usually in small amounts, averaging between two-tenths and four-tenths of one percent in the steel. It is safe to estimate that not more than one percent of all the molybdenum consumed in the world during the past three years has gone into aircraft of all types - commercial and military. The primary uses of molybdenum are for peace- time industrial purposes. Like many other commodities to which that statement applies molybdenum can be considered a war material only to the extent that the industry of a country is geared to & war basis. By Order of the Board of Directors: Max Schott, President. Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 121 DATE December 26, 1939 TO Secretary Morgenthan FROM Joseph J. 0'Comell, Jr. During the investment banking hearing before the Temporary National Economic Committee, evidence was introduced relative to the percentage of the total capital of J. P. Margua and Company contributed by the individual partners. is of the end of 1938, the largest single capital contribution us that of the estate of Charles I. Steele, that estate holding 36.6 per cent of the total capital of the fire. Thomas 1. Lamont, with 34.2 per cent was in second place, and J. P. Norgan, with 9.1 per cent was third. The follow- ing partners had mde the following capital contributions: i 10 5 6.1 per cent F. D. Bartow 2.9 . . J. S. Norgan 2.2 # . 1. I. Inderson .1.9 . . George Whitney 1.9 - H. B. Davison 1.2 . Charles P. Rickey is . . T. S. Lamont .6 I The above figures total 97.6 per cent. The record does not include information as to whose interests & to min up the balance. The distribution of earnings in J. P. Morgan and Company bears no necessary relationship to the capital contribution made by the various part- ners. Mr. Whitney, while offi the stand, explained that the partnership agree- ment provides for a stated return 68 the capital contribution of each partner, with an arbitrary division of profits over and above the stated return on a basis which has nothing to do with the capital contribution but is related (at least to some extent) to the participation of the various partners in the day to day operations of the firs. Infortunately, the record does not contain any information as to the actual proportion d earnings paid to each partner. Jaya & 122 Regraded Uclassifie December 26, 1939 Secretary Morgenthan Joseph J. 0'Connell, Jr. During the investment banking hearing before the Temporary National Economic Committee, evidence was introduced relative to the persentage of the total capital of J. P. Morgan and Company contributed by the individual partners. is of the end of 1938, the largest single capital contribution was that of the estate of Charles 1. Steels, that estate holding 36.6 per cent of the total capital of the firs. Thomas I. Lamont, with 34.2 per cant was in second place, and J. P. Morgan, with 9.1 per cent was third. The follow- ing partners had made the following capital contributions: R. c. Leffinguall 6.1 per cant F. D. Bartow 2.9 . J. S. Morgan 2.2 - . 1. 1. Anderson 1.9 . 2 George Phitney 1.9 . E. B. Devison 1.2 - Charles ?. Rickey .9 . T. S. Lamont .6 # . The above figures total 97.6 per cent. The record does not include information as to whose interests go to make up the balance. The distribution of eurnings in J. P. Morgan and Company hears no measury relationship to the capital contribution sade by the verious part- sers. Mr. Whitney, while of the stand, explained that the partnership agree- sent provides for a stated return on the capital contribution of each partner, with an arbitrary division of profits over and above the stated return on a basis which has nothing to do with the capital contribution but is related (at least to some extent) to the participation of the various partners in the day to day operations of the firs. Unfortunately, the record does not contain any information as to the setual proportion of earnings paid to each partner. (Signed) Joseph J. O'Connell, Jr. Tyyped 12/26/39 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, London -201 DATE: December 26, 1939, noon NO.: 1668. The following is from Secretary Morgenthau; it is strictly confidential, for Mr. Butterworth. You are requested to forward by pouch a detailed account of what you did for the Treasury when you were in France. HULL (HF) EA:LWW 03V13338 exer 19330 PARAPHRASE OF TELEGRAM 224 To: Secretary of State, Washington. Front American Embassy, Berlin (via Brussels) Dated: December 26, 10 a.m. Reg'd' December 29, 1939, 2105 p.m. No. 2461 My 2370, December 16, 10 M.M. The German official news agency has announced the conclusion of trade negotistions with Rumania, Holland, Latvis and Aweden as well As signature of the German- Danish trade agreement, negotiations for which were concluded in November. Negotiations with Estonia are still continuing in Berlin and with Hungary at Budapest. The press communique gives but few details of the trade agreements. with regard to the Rumanian agreement it was announced that effective January let the clearing selling rate of the mark will be increased from 40.5 lei to 49 101 and the buying rate to 50 lei. The original German demand was for a rate of 60 101, later reduced to 06 lei. The press asserts that the new agreement vill mean & substantial improvement in German imports from Humania. The Dutch agreement 10 briefly described as a prolongation Regraded Uclassified 125 prolemgation of the present clearing arrengement. Con- earning the Latvian arrangement the statement 10 made that "the agreement gives ground for anticipating an, increase in the trade exchanges during the next year.' The communique reported the Swedish negotiations as - cerned with "the extension of the private debtors' 4700- ment between the two countries and the structure of German Swedish commerce in 1940° to which was added the terse comment "the negotiations have resulted in a solu- tion of these questions". The Rumanian Legation has not yet received exast in- formation regarding the recently arranged quota for deport of oil from Rumania to Germany. However, it is the conseneus that no very great increase over the former volume 10 represented. I an told by my informants that though the mark has had its value upped 50 percent in relation to the lei this sugmentation is not as great as the increased price in leis of petroleum products. The 101 price of petroleum products has game up almost 100 persent, that 18, at the and of October from 32,390. loi a tank local Constansa to 62,200 lei at today's date. It to reported from coupons in Holland that no conspieuous increase of imports from the Netherlands to. Germany will result from the nev German trade agreement. what 126 Regraded Uclassif What has already resulted from Angle-Dutch negotiations which are still pending has been described as the agreement forsed upon Holland not to reexport supper, iron ore and several other things to Germany. Therefore purchases w Germany in the Netherlands are limited for the most part to butter, cheese, '' and other products of an agricultural nature. Likewise the statement is made that the blocked clearing balance the Dutch had in Gernany, amounting to over 40,000,000 guilders and assumulated as a result of increased imports by the German Reich during the months just before the var, has chrunk to approximately 4,000,000 guilders. at the present rate it is expected that Germany will soon have material credits in the Netherlands owing to the favorable balance of trade she now has. The persons who have supplied me with the above information forsee that when this situation 10 attained a proposal will be made by the Germane that the agreement be changed from a clearing to a paying one, the giving free exchange to Germany. It was signified that probably the Dutch would put no objection in the path of a proposal of this kind. According to sources in Latvia it has been indicated that in the new accord there was no provision made for a special innovation or trade increase. It was stated that due to Latvia's obligation to sugment her imports to the U.S.S.R. her power to send increased previsions to Germany vas hindered. Likewise the complaint 127 complaint has been received that in the quantities she wished Latvia could not get certain kinds of merchandise, especially products of steel and iron. Reports here state that Latvia 10 still being allowed to keep up some trade with England. This applies to Denmark also. Originally 12 had been the hope of some agricultural officials in Germany to divert all the former trade that had been carried on between Denmark and England to Germany. However, information has reached the Embassy to the effect that this plan has been given up. One of the principal reasons for this abandomment 10 the fast that if Denmark 18 to maintain her production of dairy products she must go on getting concentrates and fodder with which Germany and the Baltie district cannot supply her but which must come from overseas. The latter implies that permission must be granted by the British blookade officials. From sources in Sweden come indications to the effect that the new German agreement brings in no important change to the trade relationship of Germany and Sweden. Also it 10 believed that in spite of the fact that the accord was negotiated to last & year new negotiations rould be suggested by the Germans within the next several months. It would seen that the Germans have gained no marked sugmentation of supplies. This impression is based upon press articles and conversations with local persons, in neither Regraded Uclassified 128 neither of which has enthusiasm been expressed vis-a-vis the trade negotiations. Notwithstanding, sources in Switzerland and Holland maintain that the German Reich has been enabled to get better range of quality and terms of delivery of its exports than vas the situation of the first weeks after the var's commencement. It was said at the Legation of Switzerland that that country had been able to obtain from Germany certain agricultural products, the exact nature of which were not specified. It is presumed that this relative amelicration of exports 10 due partly because of the use of stocks previously nanufactures. However, indubitably it is also due to the special efforts on the part of German manufacturers urged on by pressure from the government. During & confidential talk it was suggested by & certain German source of authority that in the matter of furnishing exports to countries in Europe while the var was in progress Germany had been granting too many favors, and that Germany's efforts did not appear to be appreciated w all these countries. The comment was also made that Germany might withhold some of her exports until other nations demonotrated more desire to grant compensation to the Reich in the form of goods of which Germany 10 in need. ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON. D.C. 129 DEPARTMENT OF STATE WASHINGTON December 29, 1939 In reply refer to Eu The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits for the latter's information five paraphrases of telegram no. 2461, December 26, 1939, 10 a.m., received from the Embassy in Berlin. Enclosures: 5 copies Telegram no. 2461, Berlin this The Honorable Henry Morgenthau, Jr., BAL Secretary of the Treasury. 1313 BECEINED are TREASURY DEPARTMENT 130 INTER OFFICE COMMUNICATION DATE December 26, 1939 TO Secretary Morgenthau FROM Mr. Blough Attached is a summary of the proceedings of the second meeting of the Fiscal and Monetary Committee called to discuss the Income Certificate Plan for Agriculture which was held in your office last Thursday, December 21, 1939. This 18 not a verbatim record, but is believed to be a substantially correct statement of what transpired at the meeting. RB 131 Subject: The second meeting of the Fiscal and Monetary Committee to discuss the Income Certificate Plan for Agriculture held in the office of the Secretary of Treasury, December 21, 1939, at 4:00 P. M.* Those present were: The Secretary of Agriculture; Mr. Carl B. Robbins, President of the Commodity Credit Corporation; Mr. J. B. Hutson, Assistant Administrator of the Agricultural Adjustment Administration; Mr. H. B. Boyd, Director of Insular Division, Agricultural Adjustment Administration. The Chairman of the Federal Reserve Board; Mr. E. A. Goldenweiser, Director, Division of Research and Statistics of the Federal Reserve System. Mr. Frederic A. Delano, Chairman, National Resources Planning Board; Mr. Thomas Blais- dell, Chief, Division of Research, National Resources Planning Board. The Director of the Budget. Dr. Lauchlin Currie, Administrative Assist- ant to the President. The Secretary of the Treasury, The Under Secretary of the Treasury; Mr. Roy Blough, Mr. Carl Shoup and Mr. Ecker-Racz, Division of Tax Research, Treasury Department. Mr. Morgenthau #88 detained at the White House; Mr. Hanes called the meeting to order. This 18 a summary and not & verbatim record of the pro- ceedings and, therefore, 18 subject to error. Regraded Uclassified 132 - 2 - Mr. Wallace addressed some remarks to the question whether the certificate plan was regressive or progressive in its effects. Available data on cotton indicate, he said, that the effect of the plan would be progressive. About 80 percent of the returns from the cotton certificates would go to farm families having annual incomes of less than $750. These funds would come from consumers who, on the average, had higher incomes. To account for 78 percent of cotton consumption one must include consumer groups having annual incomes up to $3,000. Moreover 25 percent of cotton farm families in the lowest income brackets have annual incomes of less than $400, whereas one must include groups of con- sumers having incomes up to $1,200 in order to account for 25 percent of cotton consumption. Hanes: How shall we proceed? I understand that the plan proposed by the Department of Agriculture and that analyzed by the Treasury Department differ in some respects. Have the two staffs conferred? Blough nodded to indicate "yes." Wallace: We have prepared a statement which outlines the Department of Agriculture's plan. Would you like to have the statement read? At this point, Mr. Robbins pleaded 8. weak voice and asked Mr. Blough to read Agriculturs's statement. Mr. Blough Regraded Uclassified - 3 - 133 read the statement. Mr. Wallace interjected to say that at the Chicago meeting of the Farm Bureau Federation early this month the cotton group proposed a program which would call for a cotton crop loan equal to parity price and for an 02- port subsidy equal to 6 cents a pound. At the Base meeting Oscar Johnson proposed that the appropriation for parity payments be increased from $225 million to $500 million, the money to be raised from & manufacturers' sales tax. These groups, said Mr. Wallace, were quite influential. Mr. Mor- genthau arrived as the reading of Agriculture's statement was being completed. When the memorandum had been read, Mr. Mor- genthau asked Mr. Eceles to preside. Ecoles: The proposed plan raises many questions. As a non- ber of the Fiscal and Monetary Committee, we are faced with certain alternatives. In the final analysis, the question 16 not whether we like or dislike this plan. If the Cer- tificate Plan is not adopted, then what are the alterna- tives? We can't ignore the political implications of this issue. I, personally, don't like a tax on consumption. What we need at this time is an addition to purchasing power and not a redistribution of the existing purchasing power. However, we can't ignore the agricultural problem. We would not be helpful to the President unless we gave him some plan. To report merely that we disapprove the Regraded Uclassified 4 134 Certificate Plan because it would tax consumption would not be of practical assistance to the President. Wallace: I may interject at this point that the United States Chamber of Commerce is meeting today in Chicago to discuss the problem of parity payments. Eccles: It is By view that something should be done for agri- culture. Agriculture is in bad condition and requires assistance. But, let us not spend too much time discussing theoretical generalities. None of us can stay here long enough to cover all the theoretical problems raised. Mr. Delano, would you like to say something? Delano: I an here as an observer who is not very thoroughly versed in these matters. I have, however, seen agriculture and know that it has problems. Secretary Wallace has stated the problem in a correct way. I don't think he has exag- gerated it. None the less, I an not prepared at this time to say whether the Certificate Plan is or is not the solu- tion to the agricultural problem. It 18 an ingenious device, quite new to n. In a may, Secretary Wallace would do for agriculture what Alexander Hamilton did for zanu- facturing. Hamilton's assistance to manufacturing placed a burden on all the people. Everybody 18 paying for it. It is, of course, more difficult to help the farmer in the name way. When the tariff will first adopted the farmer represented Regraded Uclassified - 5 - 135 75 percent of the population. None the less, he allowed this burden to be put on him, but in return received a market for his products and large grants of land from the Government. I have discussed this plan with two of my colleagues. I expected Beardsley Ruml to be very much concerned about the burden the Certificate Plan would place on the consumer. He didn't take that position as strongly as I expected and was willing to admit that it may not necessarily be too burdensome to consumers because farmers have low in- comes. Charles E. Merriam was not prepared to express an opinion without further study. I notice that Flynn in the Washington News makes some unpleasant remarks about the plan. He thinks it 1s designed to deceive the public. Vallace: Mr. Delano, with reference to your remarks on the tariff, I may say that the Certificate Plan 1s essentially a scheme to help export agriculture. To be sure, indirectly, it will help the entire agricultural structure. However, the only concrete case you can make out for its helping other farmers is that by helping cotton and wheat growers it will enable these say, 2 million farmers to buy more in the cities, thereby creating a greater demand in the cities for farm products. I might add that export agriculture will be in a particularly bad condition when this war comes to an end. Regraded Uclassified - 6- - 136 At this point, E. Eceles asked r. Smith for an 12- pression of opinion. Smith: I haven't had a chance to look into this problem in sufficient detail and I at not prepared to take a position on it. Before making - Ky mind I would want to know more about the actual impact of this thing on our national economy. That is I very difficult thing to work out. These theoretical generalizations are not enough. We need more specific data. Up to now w have provided parity payments to farmers through borrowing. Now we proposed to provide parity payments by taxing eon- suncrs. Vallace: We all agree that this is a tax on consumers. Smith: It would be a regressive tax on consumers. Vallace: That is where we differ. I don't think the of- feet would be regressive. Smith: That question has to be answered specifically with facts and not generalizations. The plan needs more diges- tion on the part of the technical people. It needs analy- sis removed from the steosphere of a meeting devoted to defending or attacking the plan. I, myself, all not pre- pared to make up my mind. Eccles: Well, are there some things 19 can agree on? Do W all agree that Agriculture needs some assistance in Regraded Uclassified - 7 - 137 addition to the $500 million appropriated for soil conser- vation? Is it necessary to give agriculture more assist- ance? If our answer to that question is in the affirma- tive, then we must ask what 18 the best way to give that assistance. No have three alternatives: (1) Deficit financing, (2) general taxation, (3) & plan of this sort. Personally, I think agriculture needs assistance. More- over, I think that it will get assistance from Congress. I think it is to the interest of the whole economy that agriculture gets some assistance which will equalize dis- tribution of incomes. I don't like the Certificate Plan as a first choice. I think aid to the farmer should come from appropriations and it should be paid for by corpora- tion and individual income taxes. The burden should be distributed in accordance with ability to pay and should be placed on those more or less responsible for the present lack of the flow of funds. If that is impossible, then the Certificate Plan is our second choice. Our third choice 18 to do nothing about it. (To Mr. Morgenthau) Mr. Secretary, It my be a good plan for each of us to write up our recom- mendations with reference to this question. That may be the best way to proceed on this thing. Regraded Uclassified - 8 - 138 Wallace: I am wondering what we should say to the Press at this time. They were on my heels as I came in here. They know that we are discussing the Certificate Plan and I don't think it would be politically advisable to tell them that there has been disagreement among the Committee. It would be preferable to tell them that the meeting of the Committee had an educational purpose. Morgenthau: This 1s an informal committee and in the past its recommendations were communicated only to the President. Eceles: All we are expected to do is advise the President with respect to the specific problems that he raises. Morgenthau: I am wondering whether our technical people (I don't mean the Department of Agriculture) could not meet between Christmas and New Year to iron out some of these questions. We could make better progress if they discussed this plan and then presented a statement to this Committee, indicating to what extent they are in agreement and provid- ing alternative answers on those questions that they dis- agree on. Ecoles: It would be well for the technical staffs to discuss this problem. Mr. Goldenweiser is here for the Board. Mr. Delano brought along Mr. Blaisdell. How does that plan strike you, Mr. Goldenweiser? Goldenweiser: I think that is a good idea. Regraded Uclassified 139 - 9 - Morgenthau: Would it then be agreeable if Mr. Blough get the group together and started things going? At this point, Mr. Blough was designated to act as Chairman of the Technical Committee. The meeting me adjourned at 5:45 P. M. 140 December 26, 1939 Secretary Morgenthau Mr. Blough Attached is a summary of the proceedings of the second meeting of the Fiscal and Monetary Committee called to discuss the Income Certificate Plan for Agriculture which we held in your office last Thursday, December 21, 1939. This is not a verbatis record, but is believed to be a substantially correct statement of what transpired at the meeting. RB/amn 12/26/39 Regraded Uclassified 141 Subject: The second meeting of the Fiscal and Monetary Committee to discuss the Income Certificate Plan for Agriculture held in the office of the Secretary of Treasury, December 21, 1939, at 4:00 P. 1.° Those present mre: The Secretary of Agriculture; Mr. Carl a. Robbins, President of the Commodity Credit Corporation; R. J. B. Rutson, Assistant Administrator of the Agricultural Adjustment Administration; kr. H. 5. Boyd, Director of Insular Division, Agricultural Adjustment Administration. The Chairman of the Federal Reserve Board; kr. E. A. Soldsaweiser, Director, Division of Research and Statistics of the Federal Reserve System. Mr. Frederic A. Delane, Chairman, National Resources Planning Board; Mr. Thomas Blais- doll, Chief, Division of Research, National Resources Planning Board. The Director of the Budget. Dr. Lauchlin Currie, Administrative Assist- ant to the President. The Secretary of the Treasury, The Under Secretary of the Treasury; Mr. Roy Blough, er. Carl Shoup and Mr. Taker-Rees, Division of Tax Research, Treasury Department. m. Morgenthan ni detained at the White Bouse; b. Banco called the meeting to order. This is a summary and not a verbatin record of the pro- coodings and, therefore, is subject to OFFOR. Regraded Uclassified - 2 - 142 D. Vallace addressed .... resarts to the question whether the certificate plan was regressive or progressive is its effects. Available data on cotton indicate, he sald, that the effect of the plan would be progressive. About 80 percent of the returns from the cotton certificates sould n to farm families having annual incomes of less than $750. These funds would come from consumers who, on the average, had higher incomes. 90 account for 78 percent of cotton consumption one mut include consumer groups having assual incomes up to $3,000. Moreover 25 percent of cotton fare families in the lowest income brackets have annual income of less than $400, whereas cas must include groups of con- sumers having incomes up to $1,200 in order to account for 25 percent of cotten consumption. Hones: Now shall 99 preseed? I understand that the plan proposed by the Department of Agriculture and that analysed by the Treasury Department differ is some respects. Have the two staffs conferred? Bleugh nodded to indicate "yes." Wallass: No have prepared a statement which outlines the Department of Agriculture's plan. sould you like to have the statement read? AS this point, m. Robbins pleaded a was voice and asked Mr. Blough to read Agriculture's statement. Mr. Blough Regraded Uclassified - 3 - 143 read the statement. Mr. vallace interjected to say that at the Chicago neeting of the Para bureau Federation early this month the cotten group proposed I program shich would call for a cotton erop lean equal to parity price and for an 12- part subsidy equal to 6 costs I pound. At the name meeting Decar Johnson proposed that the appropriation for parity payments be increased from 4225 million to $500 million, the money to be raised from a manufacturers' sales tax. These groups, said Mr. #allace, wire quite influential. kr. - genthau arrived as the rinding of Agriculture's statement me being completed. Then the memorandum had been reed, R. in genthau asked a. Seeles to preside. Recleat The proposed plan reises many questions. M a - ber of the Fiscal and Nonstar: Committee, 10 are faced with certain alternatives. in the final analysis, the question is not whether DO like or dislike this plan. If the Car- tiflente Plan is not adopted, then what are the alterna- tives? to can't ignore the political implications of this issue. I. personally. don't like a tax on consumption. That n need at this time is an addition to purchasing power and not a redistribution of the existing purchasing power. Novever, se can't ignore the agricultural problem. 11 would not be helpful to the President unless w gave his some plan. To report nerely that we disapprove the Regraded Uclassified - a - 144 Certificate Plan because it would tax consumption would not be of practical assistants to the President. vallace: I may interject at this point that the United States Chamber of Commerce is meeting today in Chicago to discuss the problem of parity payments. Eceles: It is Ky view that something should be done for agri- sulture. Agriculture is in bad condition and requires assistance. But, let us not spend too much time discussing theoretical generalities. None of us can stay here long enough to cover all the theoretical problems raised. b. Delano, would you like to say something? Delane: I as here as an observer who is not very thoroughly versed in these matters. I have, however, seen agriculture and know that it has problems. Secretary Wallace has stated the problem in a correct way. I don't think he has exag- gerated 18. None the less, I as not prepared at this time to say whether the Certificate Plan is OF is not the solu- tion to the agricultural problem. It is an ingenious device, quite are to m. In a way, Secretary #allace would do for agriculture what Alexander Hamilton did for sanv- facturing. Macilton's assistance to manufacturing placed a burden on all the people. Everybody is paying for it. It is, of course, mare difficult to help the farmer in the name say. thea the tariff was first adopted the farmer represented Regraded Uclassified - 5 - 145 75 persent of the population. None the less, be allowed this burden so be put on his, but in return received a market for his products and large grants of lane free the Government. I have discussed this plan with two of up colleagues. I expected Beardsley Rual to be very much concerned about the burden the Certificate Plan would place on the consumer. He didn't take that position as strongly as I expected and me willing to admit that it my not mecessarily be too burdensome to consumers because farmers have lee 10- comes. Charles E. Herrian was not prepared to express an & opinion without further study. I notice that Flym in the Washington Bent makes some unpleasant remarks about the plan. Be thinks 18 10 designed to deceive the public. Wallage: b. Delane, with reference to your remarks on the tariff, I my say that the Certificate Plan is easentially a scheme to help expert agriculture. to be sure, indirectly, 18 will help the entire agricultural structure. Newever, the only controte case you can make out for its helping other farmare 16 that by helping cetten and wheet growers 18 will emable those,say,2 million farmers to buy MPV in the cities, thereby creating a greater demand is the cities for fare products. I might add that export agriculture will be in a particularly bad condition when this var comes to at end. Regraded Uclassified - 6 - 146 it this peint, RP. Leeles asked Mr. Smith for u 11- pression of optnion. Smith: I beven't had a chance to look into this problem in sufficient detail and : n not prepared to tab a position on 11. Before naking up my aind I would want to know more shout the setual impact of this thing on our national economy. That 10 a very difficult thing to work out. These theoretics! generalizations are not enough. le need more specific dels. DD to ace " have provided parity payments to farmers through borrowing. Nov 10 proposed to provide parity payments by taxing 002- Wallnoe: 10 all agree that this le - tax on consumers. Sulti It sould be a regressive tax on consumers. Vallace: That is where - differ. I don't think the of- feet would be regressive. Smith: That question has to be anovered specifically with feets and not generalizations. The plan needs MN diges- ties on the part of the technical people. It meds analy- de removed from the steesphere of a meting devoted to defending or attacking the plan. I, syself, an not pro- pared to nake up my stad. Ecolog: Fell, are there some things no eas upon ast Do M all agree that Agriculture needs some assistance In Regraded Uclassified - 7 - 147 Regraded Uclassifi addition to the $500 million appropriated for soil conser- vation? Is it necessary to give agriculture more assist- anoe? If our answer to that question is in the affirm- tive, then 10 must ask what is the best way to give that assistance. is have three alternatives: (1) Deficit financing, (2) general taxation, (3) a plan of this sort. Personally, I think agriculture needs assistance. Hore- ever, I think that it will get assistance from Congress. I think it is to the interest of the whole economy that agriculture gets some assistance which will equalize dis- tribution of incomes. I don't like the Certificate Plan all a first choice. I think aid to the farmer should come from appropriations and 18 should be paid for by corpore- tion and individual income taxes. The burden should be distributed in accordance with ability to pay and should be placed on these more or less responsible for the present lack of the flow of funds. If that is impossible, thea the Certificate Plan 10 our second choice. Our third choice 10 to de nothing about it. (To is. Horgenthau) Mr. Secretary, 11 may be a good plan for each of us to write up our NMP madations with reference to this question. That my be the best my to proceed on this thing. 148 - 6 . Regraded Uclassif vallage: I a watering what w should say to the Tress at this tim. They MN on as heels at I came in here. They know that w IN discussing the Certificate Plan and I den't think it would be politically advisable to tell then that there has been disagreement among the Counittee. It sould be preferable to tell thes that the meeting of the Consittee had M educational purpose. Morgantham: This is an informal committee and in the past its resomsendations vere communicated only to the President. Cooles: All w are expected to do is advise the President with respect to the specifie problems that be raises. 7. I all vondering whether our technical people (I don't MAR the Department of Agriculture) could not met between Christmas and lev Year to iron out some of these questions. w could make better progress If they diseased this plan and then presented a statement to this Committee, indieating to what extent they are is agreement and provid- ing alternative answers on three questions that they die- agree on. Leeles: It would be will for the technical staffs to discuss this problem. w. Goldemveicer 16 here for the Heard. Mr. Delano brought along in. Blaiedell. How does that plan strike you, M. Ooldenweiser? Goldemweiser: I think that is I good 1dea. - 9 - 149 would it then be agreeable if Mr. Blough gòt the group together and started things going? AB this point, M. Blough we designated to act as Chairman of the Technical Comittee. The meeting me adjeurned at 5:45 P. He K-Ricb 12/26/39 Uclassified The TO: The Secretary Do you Think he can make up his mind us to whether it's a tax or not? @ 12.28.39 From: MR. SCHWARZ increased its net to ournal Farm Certificate DEC 2,8 1020 Will Replace Export Subsidies, Says Wallace Incomes "Approaching" Parity To Be N Provided, He Explains - Silent On Sugar Program WASHINGTON-Secretary of Agriculture Wallace yesterday said that the proposed farm- er's income certificate plan to provide parity income for farmers would end the need for ex- port subsidy payments by the government. He explained that farmers under the plan would receive an income "approaching" parity from that portion of that crop that is consumed do- mestically and therefore, with this bolstering of income, the portion of commodities intended for export would be sold at the market. Mr. Wallace declined to comment on the sugar situation, except to say that the sugar division of the department would announce 1940 marketing quotas as soon as possible. He also declined to comment on the proba- bility of farmers receiving parity payments next year if the certificate plan or some other pro- ET is not adopted. He termed it a "farmer's tar He denied that the proposed plan is in the strictest meaning of the word a tax and compared it with the tariff which benefits in- dustry. "Like the tariff, it is a tax on consum- ers," he said, "but only in the sense that it is compared to the tariff." The plan, which would provide for issuance of certificates to farmers which they would sell to processors and thereby receive additional in- come from their crops, might be extended to commodities other than the three principal ex- port crops-cotton, wheat and rice-the secrs- tary said. 150 SECRETARY WALLACE TODAY COMPARED HIS FARMERS' INCOME CERTIFICATE HOPOSAL TO THE TARIFF WHICH HE SAID IS ALSO A TAX ON CONSUMERS. DISCUSSING THE DISPUTE FOR FINANCING FARM RELIEF WITHOUT DRAWING ON THE TREASURY, HE TOLD REPORTERS: "IT IS ESSENTIALLY THE FARMERS TARIFF. LIKE THE JARIFF IT IS A TAX ON THE CONSUMER." THE CERTIFICATE PLAN, WHICH WALLACE DESCRIBED AS A SUBSTITUTE FOR THE OUTLARED PROCESSING TAX, WOULD ENABLE FARMERS COOPERATING IN THE AGRICULTURAL ADJUSTMENT ADMINISTRATION PROGRAM TO SELL CERTIFICATES TO PROCESSORS PURCHASING THEIR PRODUCTS. THE PRICE OF THE CERTIFICATES WOULD BE SET AT THE DIFFERENCE BETWEEN THE PURCHASING PRICE FOR LAST YEAR'S CROPS AND PARITY. PROCESSORS WOULD HAVE TO BUY CERTIFICATES TO COVER PRODUCTS TO BE SOLD IN THIS COUNTRY. THE COST PRESUMABLY WOULD BE PASSED ON TO CONSUMERS. "THE GREAT ADVANTAGE OF THE CERTIFICATE PLAN, WALLACE SAID, *IS THAT IT DOES NOT APPEAR IN THE BUDGET. : IF IT APPEARS IN THE BUSCOT PLOPLE POINT TO IT AND SAY 'MY, HOW LARGE THE BUDGET 15. VALLACE SAID THAT THE PLAN ALSO WOULD MAKE UNNECESSARY PAYMENT OF EXPORT SUBSIDIES. 12/27--R413P Regraded Uclassified CORMATION FOR THE PRESS United States Department of Agriculture 151 Release - Immediate WASHINGTON, D. C., December 26, 1939 STATEMENT BY SECRETARY WALLACE Henry A. Wallace, Secretary of Agriculture, announced today that the following statement was being issued in order to correct any wrong impression that may have arisen recently about the Farmers' Income Certificate Program 88 a consequence of its having been crroneously charactorised as a regrossivo tax on consumers. "Congress has for seven years declared its objective to bring about parity relationships between prices and incomes of agriculture and other industries. "Back of this objectivo is the recognition of the fact, repeatedly domon- strated by actual experience, that the maintonanco of farm income at a parity level means moro jobs for industrial workers, more purchasing power in the hands of consumers, incroased business activity, and an improved condition of the Fod- oral Treasury. As n. result of the farm and other programs considerable progross has boon mndo toward attaining the parity objectivo, thus bringing about a moro nearly reasonable balance between agriculturo and industry. In 1932 farm income was only a third of parity. It is now throe-fourths of parity. Farmors are gotting only 75 percent of parity bocauso foreign and domostic conditions knop prices relatively low. The cortificato program is n. mothod of bringing about parity rolationship, on the domostic portion of cortainbasle export crops. To the extent the certificate plan contributos to the restoration of this parity balance, less federal funds will be roquired. 1145-40 2 - 152 "It 16 not a tax measure that would raise revenue for the Treasury," said the Secretary. "Moreover, its effects, instead of being regressive, would be progrossive because it would benefit the low-income farm group through improved prácos for agricultural products supplied in large part to the higher-income non- form groups. "Tho outstanding inference of the chargo that this is a regrossivo tax on consumers is that the cortificate program is somehow unfair. This is not only mislonding but also astonishing, because a fundamental result of the program would be the correction of cxisting injusticos. "For a long period, particularly sinco 1920, certain policios of the Fedar- al Government have had regrossivo offects on the producers of export crops. The not offocts of high toriffs, and numerous other price-supporting devices for in- dustrial products, have been to impair the farmer's foreign market and at the same time to increase his costs of both living and production. Consequently the greatest distress and lowest incomes developed nmong the producers of our great export crops. Later the income from other crops was affected, and finally our entire industrial structure was impaired. "Since 1933 some counterbalancing forces have been set in motion, but these, powerful as they have been, have only partially corrected the situation. The prices of farm products in relation to non-farm prices are still 25 percent bolow & normal rolationship. "In the rotail markots food pricos are 15 percent lower than other pricos, taking 1929 0.8 & basis for comparison. In fact oornings of employed industrial workers could now buy 26 porcont moro food than in 1929. "Evon at parity prices the average cost of the whent in en 8 or 9 cont lonf of brond is only 1.8 conts. This would be 0.7 cont moro per lonf of broad than in October 1939, when the average form price of whent was 70.3 conts. 1145-40-2 Regraded Uclassified - - 153 "The cotton farmer at present prices receives on the average 12 cente for the raw cotton in an article retailing at $1.00. The restoration of parity prices would mean the addition of less than 5 cente to this retail cost. "It is to be noted that the certificate plan 18 supplementary to the Ever- Normal Granary program under which consumers are protected against scarcity and extremely high prices. In the long run, consumers will gain from B. continued soil conservation and Ever-Normal Granary program. It 18 to their long-time advantage to have all farmers perticipating in such a program from year to year. In this way they can be sure that the soil fertility will not be destroyed. Consumers, as seekers of employment want to protect themselves as well as farmers from the ghastly effect of 15 cent corn, $3.00 hogs, 5 cont cotton, and 30 cent wheat, They know that the low farm prices of 1932 brought them no benefit. They do not want to go through with that again. I am convinced that when people in the cities really under- stand the farm program they will want to see it strengthened and not weakened. "The objective toward which the farm people are striving with the certificate program is not only to obtain a fair income, but also to place agriculture on a more lasting and self-sustaining baris comparable to that enjoyed by industrial groups generally, through such governmental price-supporting/messures as tariffs, franchises, and corporate powers. "The thing I believe most farmers really deserve and desire, is that agricul- ture be given a fair chance to stand on its own feet and participate equitably with industry in the national income by being permitted to dorive its own income in the normal way through the sale of ite products. "I am convinced that many of those who are against the certificate program honestly belive that the producers of cotton and wheat are not entitled to a parity price even on the domestically consumed portion of their products. They will fight any plan which will make it possible for cotton and wheat producers to adjust more ontinuously and equitably to the world situation. My belief is that the certifi- cate program or its equivalent 1s needed if we are more continuously and definitely to protect farm income, the Boil, the consumer and the national income itself." 1145-40-3 - -BH - TREASURY DEPARTMENT 154 INTER OFFICE COMMUNICATION DATE December 26, 1939 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Quotations in the foreign exchange market today remained fairly steady in light trading. Sterling, after opening at 3.94-3/4, moved to 3.95 during the morning, then returned to 3.94-3/4 at the close. Sales of spot sterling by the four reporting banko totaled £136,000. from the following sources: By commercial concerns ₺ 106,000 By foreign banks (South America) 19 30,000 Total by 136,000 Purchases of spot sterling amounted to £202,000, as indicated below: By commercial concerns. È 177,000 By foreign banks (Far East) 1 25,000 Total b 202,000 The Guaranty Trust Company reported that it had sold oil bills amounting to 5330,000 to the British Control, this being the first reported oil bill transaction going through at the official rate of 4.02. The Guaranty explained that the sale arose from a special arrangement between a leading American oil firm and the British Treasury. and covered shipments of oil to South Africa. It ie Guarenty's opinion that this transaction should not be regarded as establishing a precedent that oil bills are entitled to the official rate. The Chase National Bank stated that it had sold cotton bills totaling 612,000 to the British Control at the official rate. The other important currencies closed as follows: French france .0223-5/8 Guilders .5309-1/2 Swiss france .2244 Belgns .1665 Canadian dollars 11-3/8% discount There were no gold transactions consummated by us today. The Federal Reserve Bank informed us that the Chase National Bank's Bonbay office wes shipping $280,000 in gold to the Chase National Bank, New York, for sale to the U. S. Assay Office. Regraded Uclassified - 2 - 155 Ve received from the State Department cables informing us of the following gold shipments: 5,530,000 from Japan, shipped by the Tokohana Specie Bank. Osaka, to the Tokobana Specie Bank, San Francisco. 1,293,000 from England representing two shipments by Samuel Montagu & Co. to the Irving Trust Company, New York. 916,000 from England, representing two shipments by Samuel Montagu & Co. to the Chase National Bank, New York. 17,739,000 Total The first of these shipments will be sold to the U. S. Mint at San Francisco, and the others to the U. S. Assay Office at Sew York. Since today was a holiday in Great Britain, there were no prices fixed for silver in London. Although there vas a holiday in Bombay, a New York bank received 2. quotation for first settlement silver (January 7 delivery) from that center. The U. S. equivalent, less the import tax, wes 42.884. In the Sev York silver market, Handy and Haruen reduced their price for foreign silver to 34-3/44, off 5/84 from Friday. The Treasury's price was unchanged at 35% and three purchases totaling 300,000 ounces were made under the Silver Purchase Act. All of this silver was new production from foreign countries. and vas purchased by us for forward delivery. The Federal Reserve Bank of Sev York reported that the Far Eastern deposits with the 3ev York agencies of Japanese banks as of December 20 totaled 63,791,000. the greater part of which ($56,448,000) is placed with the Tokobama Specie Bank in New York. The latter bank also has on its books an overdraft of $95,443,000 ES of December 20 which is understood to be for account of its head office in Japan. Since November 1, this overdraft has risen about $13,800,000. CONFIDENTIAL Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 156 DATE December 26, 1939 TO Becretary Morgenthau FROM Joseph ?. Cotton, Jr. Be: Colombian Debt. Laylin called de this sorning and asked me to try and clear up In /roper quarters a misapprehension as to the Colombian position shich be, Laylin, unwittingly RAY have fostered in his interview with reported la the of December 14. In discussing the cable of instructions from President Santos Do Turbey, both he and Duggan interpreted the reference to the fact that the emount of service offered should include the sterling as well LB the dollar debt as E condition which would continue during the shole life of the agreement. On the basis of & subsecuent talk with Turbey, Liylin finds that the Ambassador interprets such reference is his In- structions to mean only that In the first year the adount offered should include service of the sterling LE well as of the dollar debt, and that therefter this ainimo figure - which aight be increased by gradual stages to *2,000,000 - would exclusively apply to service of the dollar Sebt. Incidentally, I learned that it. Velles has not yet talked with Turley. Under the circumstances, and in view of Mr. Duggan's absence from Mischington, I communicated the stove to lb. Brices of the Deport- eat of State, asking him to comunicate with t. Welles. IP.CP. FILE: BRAZIL L, A. PROBLEMS complete December 26, 1939 Secretary Bergerthen Joseph % Cotton, Dr. for The Debt snd the 1. S. Steel Project. b. NoComall, it. Moble's advisor at the Department of Commerce, has developed and explored with 1. 8. Steal and with financial interests in Box York, AS 16m for tring is the J. 3. Steal project in Brasil with an adjustment of that country's dollar debt which sease to present interesting possibilities. t. Soble bas been trying to bring it to Mr. Telles' attention without success so far, for the reason, I as informed, of 6008 personal antegonias which exists between Dr. Walles and Mr. McConnell. The idea, as explained to se by Mr. NcConnall, 1s, briefly, is follows: (1) The : 3. Steel project would involve development of the famous Itabire consemsion 1/1 the State of Mines Cerses, reorgenization of port facilities and of the central reilbay of Bresil, and the build- ing of a steel plant to neet E substantial portion of Brazil's internal needs. It would require a capital of some $25 millions in foreign ex- change plus the equivalent of BOLL 815 millions in milreis for internal costs, (2) The project is believed to present great profit-msking pos- sibilities and is being serioualy considered by the financial consittee of the U. S. Steel Coupany on the basis of the detailed report of its experts sent to Brasil for that purjose, Vergan and the Bresillan army are seld to be been about the possibilities. In addition to desand- ing certain concessions and modification of the Brazilian labor and imaigration laws to persit importation of United States technical por- soonel and to assure effective the steel people feal that, is order to fortify the safety of each an external irrestment the Brasilian Government or Interests sponsored by the government of Brasil should at ap the necessary milreis capital and participate in the con- trol and development. (3) Mr. McCommell's Idea is that the United States bondholder should ten over his bond to, sad receive in return an interest in, a Regraded Uclassified - 2 - 158 development corporation formed to undertske this and other projects, provided the Brasilism Covernment would agree to service and redeem the bonds is ailreis - thus providing the milrois capital necessary for the project. is the bonds were redeesed, the Brasilian Govern- sent would become the eventual partner of U. 8. Steel by gradually taking over the share of control originally vested in a representative of the bondholders. (4) It is believed that, negatively, by reducing the necessity of importe, and positively, by exports of iron ore, the project would greatly improve Brasil's foreign exchange position; and give the bond- holder and other foreign investors participating & run for their soney. Although Brasil wight be sensitive to the implication of & large-scale development corporation and it mould be difficult to work out setis- factory arrengements for divided control, the project seess to present something tangible from which all important interests =ight hope to benefit substantially. The apparent hopelessness of the United States bondholder getting smything substantial in any conventional readjust- sent of the Branilism external debt, is an additional reason why this noval proposal sould HOME to serit serious consideration. The total external governmental debt is approximately alf billions, of which by far the larger part consists of franc and sterling indebtedness, the dollar debt being only about 8350 millions, Presumably the United States Government would come into the picture because the U. B. Steel Company would be willing to put up only a part of the Deceasary external capital of 025 millions. (initialed) J.P.C., It JPC,JriBJ Regraded Uclassified 159 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, London DATE: December 26, 1939, noon NO.: 1668 The following is from Secretary Morgenthan; it is strictly confidential, for Mr. Butterworth. You are requested to forward by pouch a detailed account of what you did for the Treasury when you were in France. HULL (HF) EA:LWW TREASURY DEPARTMENT 160 INTER OFFICE COMMUNICATION DATE December 26, 1939 TO Secretary FROM Joseph P. Cotton, Jr. Te: The Bratilian Debt end the 1. S. Steel Project. t. NoConnell, Er. Noble's advisor at the Department of Comarce, 2011 developed and explored with J. 3. Steel and =1th financial interests in Sex Tork, en idea for tying in the U. S. Steel project in Sruil vith an sijustment of that country's dollar debt which seems to present interesting possibilities. t. Noble has been trying to tring it to E. elles' attention without success so far, for the reason, I 12 Inforced, of soce personal antagonisa thich exists between J. Velles and ir. The Lies, 42 explained 20 - by >. is, briefly, :: follows: (1) The :. S. Steel project would Involve Invelopment of the -322 Itabire coupession : the State of time James, reorgnization of Addities of the central railway of Irazil, and the build- of e steel plant to neet E. substattial portica of truil's internal - It vould réquire E. capital of scie 25 millions 1= foreign 63- charge plas the equivalent of sace $15 millions in milreis for internal losts. (2) The project is believed to present _rest profit-neking pos- sibilities LTÉ is being seriously by the financial comittee of the :. :- Steel Soupery 20 the besis of the detailed regal of its experts cent to Email for that jurjose. Terges cai the Bronflian 40 Lse said to be keep about the possibilities. In audition to read- 2% extain and milliation of the liber the Ins to pirmit importation of United States technical yet- mil and to 135276 affective the steel people feel that, 1 offer to fortify the safety of such = exteral investment the Tracilian Covernment = intereste sponsored y the government of inill just 43 the decessary milreis cepital and participate is the 000- trol and development. (3) c. doComell's idea is that the United States boutholder tould tax over his bout 20, sai receive in return as interest in, 2 2 161 development corporation formed to undertake thit and other projects, provided the Brasilian Covernment would agree to service and redeem the bonds in milreis - thus providing the milrois capital necessary for the project. is the brais were redeemed, the Brazilian Govern- sent would become the erectual partner of U. S. Steel by gradually taking over the share of control originally vested in E. representative of the bondholders. (4) It is believed Unit, negatively, by reducing the necessity of imports, and positively, it exports of iron cro, the project would greatly improve Brazil's fruign exchange position; and give the bond- holder and other foreign investors participating a run for their money. Although Brazil night be sensitive to the implication of E Inrge-scale development corporation and it would be difficult to work out setis- factory arrangasents in divided control, the project seems to present something tangible from which all important interests might hope to benefit substantially. The apparent hopelessness of the United States boadholder getting saything substantial in any conventional readjust- ment of the Brazilian enternal nebt, is an additional reason sky this novel proposal would seem to serit serious consideration. The total external governmental debt la approximately $1} billions, of which by far the larger part consists of franc e.ná sterling indebtedness, the dollar debt being only about 1350 millions. Presumably the Drited States Government would come into the picture because the I. S. Steel Company would be willing to put up only a part of the necessary external capital of $25 millions. 1.P.CL not Regraded Uclassi 12-39-39 162 HYMOSANDOM FOR THE PRESIDENT: The State Department wishes to include is a proposed Argentine trade agreement a provision with respect to exchange controls screwhet along the following lines: If the Government of either country octab- lishes or maintains say fore of control of the sease of international payment, 18 shall impose no prohibities or restriction 00 the transfer of payments for articles the growth, produce or annufacture of the other country or of payments Recessary or incidental to the importation of such articles, etc. It is 17 understanding that Argentime prefers that the exchange control provision simply involve 4. guarantee of mont-favored nation treatment (shich appears generally in our trade agreements), but that State Department believes that the American exporter will receive greater protection against discrimination if Argentina vill agree to place no restrictions upon the granting of foreign exchange for goode imported into Argentima free the United States. If the above provision is included in the Argentine trade agreement, and if, by reason of the "most-favored action* clause, 11 is generalized to all countries with whom we have agreements, then the pover nov possessed by the Provident and the Secretary of the Treasury to employ exchange control for the purpose of controlling imports is seriously ourtailed. In view of what I believe to be your instructions to maintain & free hand to nove on a twenty-four hour basis with respect to foreign exchange control, I as reluctant to ap- prove the inclusion of the above provision in the Argentine trade agreement without taking this opportunity of calling your attention specifically to this matter and obtaining your express aproval to this restriction of our foreign exchange povers. Se can not be certain at this time that the occasion may not arise necessitating foreign exchange ecatrol here brught to be limited by the Argentine agreement. - 2 - 163 the Senater trađe agreement signed is Injust, 1938, contains a limitation on foreign exchange control similar to that propesed to be included in the Argentise agreement. Neve ver, if yes agree with the views which I have expressed is this memerandum, 18 would @@@ decirable for the State Department to take appropriate action to setify a per- timent provision is the Sevator agreement and is off other agreement where 1t my appear. Treasury Department 0 Division of Monetary Research Date 12/27/39 19 To: Miss Chauncey From: L. Shanahan For your records. The originals of attached memoranda were sent to the Secretary last night by Secret Service messenger. DEC 2 e 1939 204 MEMORANDUM FOR THE PRESIDENT: The State Department wishes to include in 4 proposed Argentine trade agreement a provision with respect to exchange controls somewhat along the following lines: If the Government of either country estab- lishes or maintains any form of control of the BOADS of international payment, it shall impose no prohibition or restriction on the transfer of payments for articles the growth, produce or manufacture of the other country or of payments necessary or insidental to the importation of such articles, etc. It is my understanding that Argentine profere that the exchange control provision simply involve è guarantee of most-favored nation treatment (which appears generally in our trade agreements), but that State Department believes that the American exporter will receive greater protestion against discrimination if Argentina will agree to place no restrictions upon the grenting of foreign exchange for goods imported into Argentina from the United States. If the above provision is included in the Argentine trade agreement, and if, by reason of the "most-favored nation' clause, it is generalized to all countries with whom " have agreements, then the power now possessed by the President and the Secretary of the Treasury to employ exchange control for the purpose of controlling imports 10 seriously ourtailed. In view of what I believe to be your instructions to maintain a free hand to sove on 6 twenty-four hour basis vith respect to foreign exchange control, I am reluctant to ap- prove the inclusion of the above provision is the Argentine trade agreement without taking this opportunity of calling your attention specifically to this matter and obtaining your express approval to this restriction of our foreign exchange powers. We can not be certain at this time that the occasion may not arise necessitating foreign exchange control here sought to be limited by the Argentine agreement. Regraded Uclassified - 2 - 165 The Equador trade agreement signed is ingust, 1938, contains a limitation ⑉ foreign exchange centrol similar to that proposed to be included is the Argestize agreement. Nevever, if you agree with the views which I have expressed in this memorandum, it would ⑉ desirable for the State Department to take appropriate action to milfy the per- timent provision is the Emader agreement and is any other agreement where it my appear. Regraded Jclassified December 26, 1939 Secretary Borgenthau Ir. Este Subject: Apologia. 1. Be first questioned this provision on legal grounds four months ago. Some time in September the State Department saked us to pass on the provision in connection with the then proposed revised trade sgree- art. After discussing the matter with our legal division ve informed the State Department that " had BOBE doubts about the visdom of including this provision in their trade agreement and asked them to withhold action until " bed further opportunity to study the matter. However, the Cuban trade agreement was then dropped and DO there vis no occasion to discuss it at that time. The provision next received our attention during October and November in connection with the proposed Argentine trade agreement. At that time I advised the State Department orally that the Treasury van question- ing the advisability of including the contemplated pro- vision in the Argentine agreement and suggested that the State Department's legal division contact the Treasury legal division for the purpose of discussing this mtter further. is . result thereof, Mr. Bernstein discussed with represen representatives of the State Department the legal consequences and purposes of the proposed provision and indicated that, in view of the fact that such provision constituted E serious curtailment of foreign exchange povers of the President and the Secretary of the Treasury, it TM incumbent upon Treasury counsel to specifically advise the Secretary of the Treasury of the significance of the provision. The State Department representatives agreed to furnish the Treasury with legal and other memo- randa on the problem, and we decided to vait for such meso- rends before calling the mtter to your attention. After . lapse of . week or ten days, Mr. Bernatein inquired at the State Department " to when ve aight expect to receive the memoranda indicating that the Treasury would like to CATE ample time to consider the problem after the receipt of these memorands and before the Secretary of the Treasury " neked to approve the Argentine trade agreement. Despite Regraded Uclassified Uclassifie - 2 - 107 Regraded repeated inquiries, the State Department did not deliver the secorania ustil E day or two before the Christmas holidays. 2. The provision is question is a so-called standard provision which w passed on by a subcommittee of the trade agreement committee of which I an Chairman. The provision vas the subject of contention for a period of many sonths in the year 1937 and was approved by the trade agreement committee of which I was a member. The Treasury at the time consistently apposed this provision on economic grounds but not on legal grounds. In fact I did not at my time in the past see the full legal implica- tions of the restriction. Ve were outvoted but did not consider the miter of sufficient Treasury interest at that time to varrant taking the mtter up with you. The mtter did not come to the attention of the legal division until the Cuban agreement during Septemer. 3. The name provision is contained in the Loundor trade agreement. The legal division was not given an opportunity to pase on the Ecuador agreement because it vas received at 1:15 P.E. on Saturday afternoon in August, 1938, with notice it vas to be signed at 6 P.H. the same afternoon. Defects in the agreement from the Customs point of view were called to the attention of the State Depart- ment that afternoca but no changes were mde in the agree- amt. Various corrections were mde subsequently by protocols but not relating to this exchange provision which vas not called to State Department's attention. 4. A similar provision 10 contained in the modus vivendi concluded with Greece on January, 1938, but was not submitted to the Treasury Department for approval. TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 26, 1939 TO Secretary Morgenthau 168 FROM Mr. White Subject: Apologia. 1. We first questioned this provision on legal grounds four months ago. Some time in September the State Department asked us to pass on the provision in connection with the then proposed revised trade agree- ment, After discussing the matter with our legal division we informed the State Department that we had some doubts about the wiedom of including this provision in their trade agreement and asked them to withhold action until we had further opportunity to study the matter. However, the Cuban trade agreement was then dropped and 60 there was no occasion to discuss it at that time. The provision next received our attention during October and November in connection with the proposed Argentine trade agreement. At that time I advised the State Department orally that the Treasury was question- ing the advisability of including the contemplated pro- vision in the Argentine agreement and suggested that the State Department's legal division contact the Treasury legal division for the purpose of discussing this matter further. As a result thereof, Mr. Bernstein discussed with representatives of the State Department the legal consequences and purposes of the proposed provision and indicated that, in view of the fact that such provision constituted a serious our tailment of foreign exchange powers of the President and the Secretary of the Treasury, it was incumbent upon Treasury counsel to specifically advise the Secretary of the Treasury of the significance of the provision. The State Department representatives agreed to furnish the Treasury with legal and other meno- randa on the problem, and we decided to wait for such memo- randa before calling the matter to your attention. After 8 lapse of & week or ten days, Mr. Bernstein inquired at the State Depar twent as to when we might expect to receive the memoranda indicating that the Treasury would like to have ample time to consider the problem after the receipt of these memoranda and before the Secretary of the Treasury was asked to approve the Argentine trade agreement. Despite - 2 - 109 repeated inquiries, the State Department did not deliver the memoranda until & day or two before the Christmas holidays. 2. The provision in question is a so-called standard provision which WQB passed on by e subcommittee of the trade agreement committee of which I as Chairman. The provision was the subject of contention for a period of many months in the year 1937 and was approved by the trade agreement committee of which I vas & member. The Treasury at the time consistently opposed this provision on economic grounds but not on legal grounds. In fact I did not at any time in the past see the full legal implica- tions of the restriction. We were outvoted but did not consider the matter of sufficient Treasury interest at that time to warrant taking the matter up with you. The matter did not come to the attention of the legal division until the Cuban agreement during September. 3. The same provision is contained in the Ecuador trade agreement. The legal division was not given an oppor tunity to pass on the Ecuador agreement because it was received at 1:15 P.M. on Saturday afternoon in August, 1938, with notice it was to be signed at 6 P.M. the same afternoon. Defects in the agreement from the Customs point of view were called to the attention of the State Depart- ment that afternoon but no changes were made in the agree- ment. Varlous corrections were made subsequently by protocols but not relating to this exchange provision which was not called to State Depar treat's attention. 4. A similar provision is contained in the modus vivendi concluded with Greece on January, 1938, but was not submitted to the Treasury Department for approval. Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE 12-27-39 170 3 Secretary Margenthen FROM k. Folay to Pursuant to your suggestion, the State Department bes been informed of 100 views on the proposed foreign ettibuge provision in the Argentine agreement. to of the representatives of the Trade Agreements Division case over to discuss the atter with = The problem MIS carressed in its various aspects. It appears: (a) State considers this provision the essential benefit which the limited States will receive from the Argentine agreement. Of course, Argentina would be happy to have the exchange provision 10. - a most-fevered nation basis. (b) State could suggest no alternative method of dealing with the site- tice that would be satisfactory to the Treasury and said that the problem was - in decision between the two Secretaries and the President. (e) There is a 50-50 chance that the sugutiations for the agreement will trut dom for other reasons. lower, if the agreement is to be signed at all, it will be signed before the coming sension of Congress. (d) If the Treasury point of visa is sustained with respect to the foreign exchange provision, it would be possible through negotiation to adify the exchange control provision in the Bender agreement and in any other agreement which undestrably impairs the Treasury foreign exchange powers. E.N7/ - OTCAL - THE SECRETARY OF STATE - a BC = DEPARTMENT OF STATE WASHINGTON 171 December 27. 1939 My dear Mr. Secretary: I have received your letter of December 14, 1939, in reply to my communication of December 13 with which was enclosed a letter designating Mr. Winfield W. Riefler as a member of the Committee on Statistics of the Eighth American Scientific Congress. I note in your letter under acknowledgment that you would prefer that Kr. George C. Haas, Director of Research and Sta- tistics in your Department, be designated to serve on this Committee in Mr. Riefler's stead. When the Department was called upon to organize the Eighth American Scientific Congress it became evident that in view of the magnitude and scientific nature of the task it would be necessary to rely in a large measure upon an Organizing Comittee composed of prominent scientists and Government officials residing in or near Washington. The members of this Committee were chosen with the collaboration of Dr. L. 8. Rowe, Director General of the The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. & 172 of the Pan American Union, and Dr. Alexander Vetucre, Secretary General of the Congress, and represent the principal professions interested in the meeting. Consonant with this policy of dependence upon pro- fessional advice, the Department requested the Organizing Committee to select the sections into which the work of the Congress will be divided and to nominate the section chairmen to whom has been assigned the primary responsi- bility for the administration of the technical work of the several groups. In view of the fact that the section chairmen were thus called upon to assume such important responsibilities the Department felt that those executives should be accorded the privilege of nominating the officers and members of their respective committees. In general the section chairmen have recommended experts who have had wide 81- perience in inter-American affairs and who are well known throughout the other American republics. The Department and the Organizing Committee have urged the section chairmen to restrict the membership of their committees to & minimum compatible with the effective performance of their duties and, consequently, the chairmen have deemed it feasible to select only a few individuals rather than to attempt to obtain appropriate departmental representation. Regraded Uclassified 173 representation. It would be extremely difficult to include in all of the committees representatives of the numerous branches of the Government concerned with the several phases of the Congress' activities. Cognizant of the very valuable counsel and cooper- ation which the Government departments and agencies are in 8. position to offer in connection with the Congress, the Department and the Organizing Committee are planning to request you and the other interested members of the Cabinet and heads of independent agencies to serve AB vice chairmen of an Advisory Committee. This Committee will include the heads of appropriate divisions of the several departments as well as distinguished scientists and professional leaders in private life. It is hoped that the Advisory Committee will be constituted at an early date and that those invited to serve will find it possible to participate in this important work. I an glad to furnish you with this information in view of your special interest in the matter. Dr. Stuart A. Rice, Chairman of the Section on Statistics, has in- forned me that he has discussed with you the question of Mr. Hass' service on the Committee. Dr. Rice now recommends that Mr. Hass be designated to serve on the Committee Regraded Uclassified + 174 Committee in his individual capacity. Accordingly, I am enclosing herewith for transmittal to Mr. Haas, should you desire to do so, a letter designating him as a member of the Committee on Statistics of the forth- coming Congress. I am grateful for your interest in the Congress and I trust that the Department and the Organizing Committee may be assured of your continued cooperation as the preparatory work progresses. Sincerely All Enclosure: Letter of designation. TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 2.25 DATE December 27. 1939 TO Secretary Morgenthan FROM k. Cochran CONFIDENTIAL Thile the foreign exchange market bad the semblance of inactivity, there V23 novertheless at fair volume of sterling transactions. be rate for sterling opened at 3.94-1/2 nd fluctuated is 8 narrow range until about 2002. At that time, it Y85 noted at 3.94-3/4. the rate remined steady for the rest of the day and closed at 3.94-3/4. Sales of spot sterling by the four reporting banks totaled 1578,000, from the following sturres: 37 comercial conceras : 135,000 by foreign banks (Far last and Europe) - 443,000 Total : 578,000 Purchases of spot sterling amounted to L196,000, as indicated below: 3y commercial concerns : 161,000 35 foreign tasts (Europe and Far East) - 35,000 Total : 196,000 The following reporting banks sold cotton bills totaling 115,000 to the British Control et the official rate of 4.02. : 14,000 by the Guaranty Trust Co. 3,000 by the National City Bank 1,000 by the Bank of the Mankattas : 18,000 Total The rate for the belgs moved in an erratic It opened in Ansterdan at .1666-1/2 and rose to .1690. Later in the day it vas quated at .1680 in that market. In Jev Tark, the opening quotation vas .1675 bit and, after touching .1685-1/2, it receied to close at .1675. The vide corresents in the rate were due to some buying to cover contracts naturing at the end of the year. The other important currencies closed as follows: Presch francs .0223-5/8 Guilders 5311-1/2 Svies france .2243-1/2 Canadian dollars 11-3/85 discount Ve sold $2,000,000 in gold to the Central Bank of Argentina to be added to its earnarized account, - 2 - 176 Ve purchased $10,000,000 in gold from the earnaribed account of the National of Switserland. There vere 20 shipments of gold reported today. & the recort of December 20, received from the Federal Reserve Bank of Bev York, giving the foreign emhange position of banks and bankers in its district, the total position of all currencies VIS short the equivalent of $16,173,000, an increase of $555,000 in the short position. The net changes in positions are as follows: SECRE POSITION SHORT POSITION INCREASE IN COURT DECEMBER 13 20 SHORT POSITION Ingland 4,494,000 $ 5,745,000 $ 1,351,000 harope 8,026,000 7,068,000 958,000 (Decrease) Canada 572,000 (Long) 4,000 576,000 latin America 464,000 287,000 177,000 (Decrease) far last 3,178,000 3,044,000 134,000 (Decrease) All Others 28,000 25,000 3,000 (Decrease) Total $15,618,000 $16,173,000 $ 555,000 The prices for foreign silver fixed by Handy and Harman and the Treasury were both unchanged at 34-3/44 and 35#. respectively. We made eight purchases of silver totaling 699,000 cunces under the Silver Purchase Act. or this amount, 200,000 sunces represented inventory and 224,000 ounces consisted of silver acquired by a Sex Tark bank in expectation of sale at higher prices to Bombay, which did not naterialize; the remining 275,000 ounces were new production from foreign countries and were purchased for forward delivery. Ve also purchased 60,000 ounces of silver from the Bank of Canada under our monthly agreement. Silver is Lendon was weak. The spot price was fixed at 22-1/24 and the forward price at 22-11/16d, both off 13/16d. The U. S. equivalente were 39.944. off 1.42#. al 39.92#, off 1.354, respectively. The drop in the prices of silver VII attributed to selling from India, coupled with very little support in London. Indian males of silver in London are probably due to the desire of Bombay speculators to reduce the long position built up. to take care of expected up-country demands which have not materialized to the extent anticipated. As India is included in the sterling area by the British Control, settlement for such males is on B. sterling basis and presents no special exchange problem to the British authorities. The only price quoted for silver in Boubay usa for January 7 delivery. The U. S. equivalent, less the import tax, was 42.75#. off about 1/8#. B.M.R. CONFIDENTIAL TREASURY DEPARTMENT 177 WASHINGTON OFFICE or 2020 OF INTERNAL REVENUE December 27, 1939. # is E - - g $ 1 Menorandum for the Secretary: On Tuesday forenoon, December 26, 1939, Dr. Harry White called and we discussed the general problem facing the Anglo-French Mission in the light of Chief Counsel Poley's memorandum on obsolescence and the criticism of Mr. Viner. Fe concluded that the closing agree- sents with Colt and Consolidated Aircraft would not be helpful racept insofer as they reveal the attent to which small tools and special activery could be depreciated for income tax purposes. It T28 X Thits's suggestion that in my conference with the Anglo- French Mission I discuss the various techniques that might be used to enable their governments to persuade American manufacturors to Increase their plant facilities without incurring substantial tax liabilities and losses arising therefrom. In the telephone conversation which Dr. White and I had with you It was guested that instead of the British Government building their own plants they let the manufacturers build the plants and the total construction price be deposited in escrow; then at the ent of the smergency when the manufacturers write off the plants as they discard them or have them revalued for another purpose, whatsver loss they suffer at that time would be offset by reimbursement from the secrow fund. Dr. White suggested that this would have an added simentage that by taking fire percent depreciation at the end of the first year and at the ent of the second year, that ten percent could be released from the escroe fund to the government. In that way they would not suffer so much loss because the depreclation had been wither off and an equal SIZ returned to the British Government out of the escrow fund. You approved of this plan but asked that we work out some plan whereby a mill manufacturer might borrow money without having to go to a banker, and suggested that you would like '15 to keep in mind the desirability of establishing new airplane companies in the central part of the United States. At three o'clock Ceptain E. I. Collins called with the following gentlemen: E. Purvis it. Playen Mr. Bloch-Liane Mr. Willer-Hyde ltr. Boddis Colonel Jacquin Regraded Uclassified -2- 178 The discussion on their side was led by Mr. Purvis, head of the Joint Anglo-French Mission. The problem which was disturbing them was the reluctance of American manufacturers to increase their plant facilities for feer that when the war ended they would have on their hands obsolete buildings and would be receiving no income from which this obsolescence could be deducted. After they outlined their difficulties I stated the problem from the point of vier of the manufacturer and then told them that, realizing their urgency, we had addressed ourselves to the problem but that we were still in the thinking stage and that in this conference I would discuss with them techniques which we hoped might become evail- able. I first submitted to them the proposal that in B case where they wanted Corporation A to erect E new plant costing $1,000,000 they deposit $1,000,000 in escrow in en American benk and in their contract with Corporation A provide that when the contract was completed and/or the war ended the corporation be reimbursed at that time out of the escrow fund whatever amount of obsolescence was written off against the building. This could be done in different ways. Example: In 1940 and in 1941 Corporation A writes off five percent depreciation each year against the million dollar new building. At the end of each calender year the foreign government could withdraw from the secrow fund $50,000. In 1942 the war ends and the corporation instead of discarding the building elects to continue it, not as B manufactur- ing plant but as a warehouse. The Internal Revenue Bureau engineers st that time evaluate the property for $400,000. The foreign //overn- ment would then reimburse Corporation A $500,000, - this being the difference between the new value of the property and the adjusted cost basis of the building. Subsequently, I suggested that & slightly different technique was under consideration: namely, that the foreign government lend to Corporation A $1,000,000 to be repaid at the end of the war or the termination of the contract and Corporation A be permitted to deduct from the repayment amount the difference between the new valuation of the building or its salvage value and the adjusted cost price. The latter technique seemed to be far more acceptable to the members of the Mission and Captain Collins and I agreed to communicate with them Friday morning, December 29th, after submitting the proposal to you. egraded Uclassified -3- 179 Men in the Income Tax Unit to whom I submitted this proposal raised the question of the necessity or desirability of the manufacturer paying interest upon the loan or giving security for it. Their other observations have been reduced to a memorandum which I am enclosing herewith. Acting Commissioner. Enclosure. ded Memorandum to Mr. Sullivan: *50 Basing an opinion on the conditions which are alleged to prevail in the plants of American mamufacturers of military powder, it appears to the undersigned that the following general outline of a plan of procedure will most nearly fit into the objectives of the parties in connection with advances by foreign governments to enable the acquisition of additional plant capacities by such manufacturers for the production of munitions for export. The American manufacturers desire to secure capital for the necessary expension of the facilities. A plan involving the making of a loan by the foreign power to the American manufacturer commends itself for the reason that neither in the making of the loan nor in the repayment thereof is taxable income engendered. It is understood that the situation does not permit of mortgaging the property as security for the loan and that the loan will be made on the general credit of the manufacturer but subject to the terms of a contract between the parties. It is earnestly recom- mended that the contract provide for the payment of interest on the loan in order to bring into operation one of the best widences that the advance is in fact a. loan. Under this arrangement, the American manufacturer will proceed to procurs the necessary additional facilities. The American manufacturer also desires to avoid the risks of an investment in plant facilities which at the termination of the war will be found to be obsolete, involving a. serious loss to him. The avoidance of this loss may be accomplished by provision in the contract under which the foreign government guaranties to make good any amount of loss suffered by the American manufacturer from this source, and it will be highly important to make the provision in the contract as to the time when this guaranty liability on the part of the foreign government definitely accrues to fall within the came income tax taxable year BE such year in which the loss of the American contractor ie deductible for income tax purposes. If the two accruals fail to fall within the same income tax year they will loss their mutually compensatory effect on the tax. The contract may provide that the loan shall run during the entire period of the European war and for 8. specified additional period thereafter long enough to afford full opportunity for 1 determination of the loss of the manufacturer due to the obsoleteness of the facilities, in order that, as also may be provided expressly in the contract, the American manufacturer may take oredit against the loan for the loss, thus reducing his obligation to the foreign government prior to the date when it is due and payable. Regraded Uclassified - 2 - 181 The American manufacturer is desirous of following a course which he may legally take to pay a tax only on the real profit he realises from the manufacturing operations. An agreement on the part of the foreign government to pay the income tax attributable to the guaranty against loss through obsoleteness, if any, would satisfy this desire. capphel John 29(f) FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Den. 27, 1939. To CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH L.W. Knoke BANK OF FRANCE. FROM 182 Mr. Cariguel called at 11:15 a.m. today. He wanted to make sure, he said, that if and when he had to sell some of the gold which we were holding for account of Bank of France, he could get credit at once. I replied that on refined gold the Assay Office was in the habit of making an advance of from 90 to 98% depending on the fineness, that is, on high grade fineness they would advance as much as 98%. However, they would never commit themselves in advance. If he had to sell some gold he must, of course, instruct us in time as it would always take 8 couple of hours before we could make physical delivery from our vaults to the Assay Office. Mr. Cariguel thanked me for the information; he had wanted to be sure that there was no change in our usual practice. LWK:KW each 22030 Regraded Uclassified December 27. 1939. 183 Dear Mr. Hoover: Secretary Norgenthan has saked m to acknowledge your letter of December 16th, together with the enclosed copy of a memorandum dealing with the activity in this country of He. Adam Von Trott. Mr. Morgenthau vas glad to have this material and appreciated your sending 11 to his. Sincerely, (Signed) H/S. Klotz H. S. Klots, Private Secretary. Mr. J. Rigar Hoover, Federal Buresu of Investigation, United States Department of Justice, Washington, D. c. GEF:lmf in Johnsh Ploack rec. - JOHN EDGAR HOOVER 76 DIRECTOR Federal Bureau of Imestigation United States Department of Justice Washington, D. C. December 16, 1939 184 The Honorable The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: I thought you would be interested in having a copy of the attached memorandum dated December 16, 1939, which pertains to the activities of Adam Von Trott, whom you recently discussed with a member of my staff. Copies of this memorandum have been trans- mitted to the White House and to the State Department. This is the first memorandum pre- pared on this matter in view of the fact that a constant surveillance has been maintained in an effort to accumulate such a quantity of data concerning Trott's activities as to per- mit the preparation of the material in a com- prehensive form. Present indications are that Von Trott will in the near future leave New York and return to Germany via the Orient. Sincerely yours, Enclosure J.20ym J. abover December 16, 1934 Regraded Uclassified 115 Bei 18. AD&B voll THUTT SI soll, with aliases: Adan Tan Trett Bld sals, Ton Trupp as Sols, idaa Van Total Il sale Information has been received that in. Adm Von frott n Sais, who arrived is le Tark City a Detaber 2, 1939, from Europe estensibly to attend & of the in- stitute of Pasific lelations held at the Cavalier Total, Virginia Health, Virginia, between lovember 22 and leember 2, 1939, inclusive, in reality is visiting the United States for the purpose of soliciting the assistance of 4 few product indivi- deals in a plan to overthros the present regise in in Von frost arrived la for York City on the 3. Se Vuleania of the Italian Line, having originally departed from Deces, Italy, DE September 2, 1939. The records of the Imigration authorities at WW York City indicate that Vom Trott was in possession of Visa 17-176, issued 00 infast 9, 1939, st terlin, many, for pleasure. He has s round-trip ticket and his papers indicate that his final destination is These records further reflect that be intended to visit do uncle, If. (illiam Feldeffelia, at 620 Park in York City, for the approvi- mate duration el four contis, kr. dehieffulin, according to Their 120°, in York lition for 1938, m born la les York City on spril 14, 1866, and m educated at the Columbia School of lines, obtaining a Phone dagree, and the iniversity of mich, from which institution be received a Phone degree. 12. chieffelin has been concepted with Schieffelin and Company LAboratorias for the past temaly years and has occupied the positions of President and Chadres of the Heard of Directors. to balongs to a number of civis and social clubs in Sex York City and - Caloral of the 15th in York Infentry from 1918 to 1923. The resords of the Imigration and istentist- Wen Service indicate that in Yes Trett previously visited the lited States arriving - March 12, 1937, having sailed from Southampten, England, Ris pass art on this oceasion was in Berlin, Germany, - February 1, 1937, and indicated that da permitment address - Instrumen, Jersany, and Ma father's name vas given - he To Trott $9 sala, address, Instruction, Salsa, - 186 - 2 - the conference of the Institute of Pasific - letions, held at the Cavalier Notal, Virginia Heach, Virginia, from November 22 to leaster 2, 1939, inslusive, W strented by approximately eighty-five persons from the United States, Europe and the last. This course of study is held every three years and was to have not at Visteria, british Columbia, Canada, during 1939, but, due to the outbreak of MP in purope, w changed to a asuáral country. Yes Trett's expenses for da trip to the United States are apparently being defrayed by the Institute of Pacific Helations, as evidenced by a telegram dated September 12, 1939, addressed to Adam Ton trets, Falkenreid 30, Tableta, serlin, emay, by life Hard C. Carter, amber of the Board of Instea of the Imerican Council of the Institute of Pacific Relations, New York City, which is quoted M follows: "Institute exploring pessibility expending for lasters inquiry to relate unofficial scholarship to general assilament. In view your knowledge present inquiry regard it dest importance you come this country carliest possible - for consultation. Hope this - be regarded as your first national service. Cable." It has been accertained that the implem Comeil of the Institute of Pasific Relations, 229 last 52ml Street, for York City, has been in exclatance since 1925, the institute at the present time has eleven national commils which exchange pasphlots and literature with ⑉ another based upon research work scomplished by the respective councils. the institute appears to be particularly comment with Oriental countries and places a gress daal of ouphasis upso the relations of these various countries with other parts of the we'ld. the insurin Commil is definitaly interested in the part the Inited States plays in the Orient. The institute is reported to work very alossly with the Foreign Policy issociation, 8 lest 40th Street, for York City, and with the Reyal Institute of Internation- al Affaire, Landon, England, the Council's antional officers, 4d reflected in the annual report of the insurin Council of the Institute of Pacific Relations, Insurporated for 1938, IN ad follows: Regraded Uclassified 187 , Carl 6 Alsharg, I Ballase Me Alemader Froderisk 1. Fiald the Ma L Philip Co Jump Immux reajesta 1. time Intert Cordon Sproul Prentis So has My 1 Time Mm Bilds Luston, On October 2, 1939, Dr. Ten Trett registered at the Susbison Plans Estal, la York city, abositing out a October 11, 1939, from - be used to the Botel, 33 York 55th Street. It has been accurtained that during de stay in New York City he has been complag an office at the Institute of Pasific Relations, 129 last Stat Street, for Task City. an Yes Trutt is reported to be the m of a terms Minister of Culture of Presion - days and is the author of a book entitled Tegale State Philleophy and the Internation] Right", published by Cottigen Industrity, the for public rights and diplaney, in 1932. n has also been learned that be - a Beine Trustee and spent a your ao such in ista constine age studying confitions there. 28 is internsting to anto that an Yes Trutt is is personation of - lotters of introduction from - - burlin resident, - of which is addressed to Professor I s Cards 1 w I 1 2 wideh is deted My n 1939, and infentes that Yes Trett is a class friend of the ather w the commission and m to be in into be s paried of - mk. This comminication requested that m. Tobotor give his an stating that be, Yes Trutt, 1 a 1 7 r and É I . I E letter to addressed to - Breaks, unler of Purliament, London, England, and to in a sinilar wis w in addition inflastes thes For Trott "tends to the Schlange brand of opinion rather than the Helthe brand 188 - 4 - There is retain to believe that Ven Trett - to the Entted States with Prite Caspari, who registered in Room 1404, motion Plann Botal, for York City, on October 2, 1939, checking est a October by 1939. This individual eukibited passport miner 098561, Department of State, insued by the imprican Coundate at Statigart, Commany, - August 1, 1936, and visa amber 527 for Switessland. the association of Yes Truth with campari is adstantiated by a note written to Dr. Yes Trett a October 2, 1939, which has been translated as follows Dear Trupp: ky control etc. lasted a great length of time. I followed your instructions and live here in - 1404. In the event I to not there please notify M M to what time you expect to be here. (signed) F.C." n is - that Campari arrived at las Terk City abound the S. 8. Vulearda on October 2, 1939, and it is interesting to note that be is presently teaching at Serippo College, Clarmant, California, shere be first arrived w an instructor in February 1939 from Gererary where be bad been serving in the any. be returned to Company in July 1939, allegedly for a visit, but again appeared in Clarement, California, - October 10, 1939, an be resides with Dr. Arould the - to Scripps College M the hand of the Germa Department is the fall of 1937. Although claims to be a be is friendly with the local deman - mither me Campari is openly pro-last. n to reported that Dr. served on the fast Remards Delegation to Landen in 1933. a october 19, 1939, a communition w - hand between Too Trett, Prederick To Field, Secretary of the Council, Institute of Peedile Relations, - Sincer, Professor at the in School for Social Research, for Tast city, and & in and (phonetic), whose identity is - which in substance was as follows. Van truth mationed a Fromer, who is possibly idention] with Leen France, President of the First National Ink of the city of liet Tark, de be described ao a met repetable person is financial circles 00 Nell Street Regraded Uclassified 189 Regraded Uclassified - 5 - and a - of unsual skility, past experises and discretion. If Tritt No 3 I owner 10 de in Traser, who intionted bis unillingements to Issue implicated is M international trust, re-ealled. in Tes Trett described da to kis - M a tru being to does not 1am to the English side int the - w Tes Trutt as heing a good prospect, apparently as a superior of the theorise el 100 frost and bio associates communing the solution of present-day problems. During tide corrention, is trutt lest the esta to mention the fallasy of the - "goid commulating" policy and continued by referring to an intividual, believed to be in Frasur, stating that be - will prepared and willing % help . here in in de to being about the comultation with Europe, and this includes Pres the communition which followed, 11 appears that a Prover spearently informal 1an frott that be did net believe incrion should he in class relationship with - and fee Trett - of the epintee that Insure - an important inview for de mps, Ven trett also referral during the emetie to Jeamp, who is believed idention] with Philip June, Time Claims of the incrima Commil of the Institute of Perific inlations. The - of do he item Fayse - also estimal eni Ven Trett resulted that be - this individual and *10 met talk this one point me with da NO to is for - about ⑈ with - plan's Later during the - of - the - of Labora - markinst. Leken is believed to to idention] with Prite Leturn, Professor of being Incomica the for School for Social insearch, the also participated M an apart is the - income injury the the refers d Carporation tax and Statutes. with reference to I le bell stated that be - totally - in fursign effairs at advised that rie de not - whether so could smile in kis M to fureign atters, For trutt is a provious communion du Lebran had apparantly tald kim that May - striving for the - skjectives bet that 4 - ast be wegh to present Das of the quests thes reserved, "Ither has a group eich is important. Too trett apparently responded by stating, *I believe that N and this MO and - 190 - 6 - - striw way diligently to being about & forerable relation in onler that aty have a resterements to the purpose of clampleting the - which evaluad a reart by one of the guarts, " - companite to a greet extent with the institute with reference to its activities". MI the currention continued, Tea Trett stated that be - not ready to definitely examine whether the Instan influence sould shilds itsulf in the constitution of future Purope and that - as Idea is probably contrary to the theory promigated by valoteff. a further elaborating upon this point, Yes Trutt advised that do (Tomp - not in a position at this time to abrogato the agreement but be did intieste that the spinion generally existed that the revelutionary elements of Commany and Runda - compurate to order to introduce & socialistic emport in time of 1 Ten trest, during the - of this conference, Indiested de intention to prossed to Instan, for the perjuse of esking a every of It is interesting to note that be as proced to Barken, shere be allegedly visited Beinrich truning, a Professor st University and & tome timessive of - and Almonder inter, also born M Behar, a tater at Burned Delversity, the funnty attented Coryes Christi College at Carpet Christi, Tests. The outure then continued with a discussion u to what from the qualifie plan would tain, whether it would be a peason plan w classifical refers. Tel Trett stated that it mild be knowl - emitions favorable to passe and that the plan would be minitted to the incriate after 11 had been classly estimal and by eight invision leaders, the - of when - regard by - of the gasts - Commy, Total I 1 f 1 1 a - and to other intividuals tem - could not be 1 Yes trett and a of kis gusts then referred to their plan and to the possibility of its adeption by the - people. the - indicated that be contemplated - relastmen on the part of the people and further explained that the plan at be introhood mildly or by Jessip (apparently commeted with the Institute of Relations) would protest Regraded Uclassified Regraded Uclassifie - , - violently. 100 Trott expressed Ma opinion that a rallying point in public opinion of the Allies, and Cereany be voted for before bringing the atter to the public, or & revolutionary LOVE would result. One of the cuasts then restried that England was ready to deprive Fither of the leadership and to relegate Derminy to a constitutional form of government. Yes trott replied that England did not recognise the revelutionary socialis- the element in any and that was why the English proparada me ⑉ inaffectually planned. The possibility of having a German Commist bring about passe w also discussed bet, it were contended that a adlitary Putzeh was memory to bring into action & socialistic regins in Germany. The possibility of having an imediate overtive of the Jerman Government w registed by Ven Trott but 30 discussion followed. M the conversation continued Von Trott indicated that he had been engaged in similar work in England but that the results vers mere favorable there then they had born in ins. In diseaseding the socialistic element Von Trett advised that it was possible to build up the arystalisation point for a constructive serialist proposal. However, be stated that the Americans my very of the term "socialism" bes that be would incorporate it in his European passe proposal. be explusised the fact that the occuperation of Huasia should be sought to defeat Ritler. This was to be accomplished by conkining the socialistic cleant in Ruesia and Jernary, Von Trett stated that Gererary - in 4. better position for a socialistic revolution than it was in 1932 at the time Ritler case into power, Public spinion has been bolstered since then, accurding to Ven trett, and the enstional type working - has increased in cumbers. the the - of this program Ven Trett stated that the progressive croups in the United States and participate and bring pressure to bone upon France and treat Britain. Von froth suggested that AMERICAN progressive groups could be called upon for seristance in their progres 11 BOLB such alogan as "Emp out of NOT by participation in passe* was well publiciand. Tom Prott stated, * is Jernary feel that no hope for socialism will be realised unless - have European passe. I really feel that, and that usans ultimate world Regraded Uclassified 192 - a - socialism. I thought that W should convey to you the feeling and prom the visa of the I socialists. You ⑉, they are DO cath off, ao isolated, and they feel quite right that they are entirely administration and forgotten." On October 24, 1939, Tea Trott held a activered- tion with a friend, believed to have been Des teme Vable of 18 Clarendon Place, Bloomfield, ler Jersey, who is comested with the Seberring Company at Bloomfield, at which time Von Trett indicated that be had paid a visit to tr. Irvening, Professor at larvard and discussed bis plans and program with da to BOUR extent but that be did net got way for with truening and did not " into the entter in detail because of this fact. Yes Trott and dis good than stated that it w veir purpose to create two parties which were to have a - basis and that it art not be disclosed that thair program WW of socialistic origin, Tea Trett then intimated that be did not believe kis gues - eartly 90 his side, to which the latter responded by stating that if mail - the case it was due to of Me principles. The discussion then inlicated that meet of the Immes people - in favor of a shange and that the Comes property - issue been greatly and the working people have mm into a serv document position in Sernan affairs. Ven Trett advised that it - dvvious that the Nasis were 100 planting their Liene in the sinds of the children, which apparent- ly has the free-thinking Derman people, and that be wished to my that at the present the objections to a revulation are underd at. Ten Trett advised kis part that they should be extressly exctions not to the morals of the Garnan people at a time vbso foreign nations ware naking - attack. Se then expressed the opixion that no far M be could ⑉ victory for Demany w net apparent. Be advised that the present vse the time for 8. socialistic strength to arise in Certify and further related that the Communistic element had grestly strengthened itself of late. 90 further expressed the epinion that Jenuary - uniergaing a recrganisation without regard for Indership but that conditions is Jeruary demanded a change. On October 28, 1939, a conversation between Von Trett and Arthor Sesbash, 4 Jersan refuges uto resties at the Croydon listal, Sev York City, was overheard and is substance VIII as follows. 193 - 9 - Souhnah expressed the quale - the inskility of Europe to be # friendly tene - de to Hiller which, in I 1 X effects, 1 Y a 1 I I 2 # of parents. Yes Trett respended that is the interier of hope there were certain middle-sgai revolutioni stim which emaidered themselves larger then they estrally - and 11 IN this superficial attitude wid - R x diseastent and arest is Europe. Yes trett the stated that they - to that the passe wideh - by the will ml in a lasting - and that within a for - the iseal distin in January wold be changed w - ww true foreign I wall M from inter - nill # & rising tru the Polish-Justrian situation and the imigues of certain emerted action and the Depot activity. expend the opinion that 4 revalution wild be better to to im a % lest Ceremy and that # should be shows (apporently is the rend table discussions a the onforme É the Institute of Pesific Relations) that the I in net - the - to restrict the Htler region. To Trubt required that the min point today I I In as and 1 If > 1 } - I I changes but that if these - day - this - 19 will - entire to sesk their aid but . ml countrier then w meder, Tes trett that this - a polition] emalderation but there - 8 grest possibility the do - in invoice night be alsocastrued and the payple nie to Ma as a - - representing financial interests in Immy the 1 I x I I I I s - # should be Instial. Ten Trutt - d the plain that a - life is Enrope - ast pensible - the 1 system of exaflicts - a mithol states to that a to billed Stabse would have to be smithly which - attentistic and - M able to min the - internal problem. b - of the quain that the with of Engo and ody w compliated through the experation d Europe, sinilar to that w the Langue of Intions, and that n is - is wild be - to - seta, afriss and the United States - the list of keep estam of I exports to replace India. During the todach indicated that be had prepared to leave - is 2005 - is lam that with de talents be and age with the dietim and risk loaving Regraded Uclassified 234 - 20 - I 3 required I I B a el 1 Injury did I by the I the intenting that vas aparently n elde with the present register in this entry. the Ortober 30, 1939, a commention between Tea Trott and Poul Scheffer, funer liter in thist of the burlis fageblett, the - ourset by - Visister of Propagamia lembels I of Me liberal and anti-lack sympathies, - overheard, and in part no in the fallowing wis Tom trutt - of the epinten that a surials practical plan should be unde and, N ingested W a Mr. there should be a peace program vertud out to the my the League of leties failed and to elaborate - the qualities still remining in - which wild give support to a passe program approved by eight involves and three w for I Yes trues inferred is da rearie that the peaso plan net be realistic and - presental to the eight AMERICANS it should be promited to them not for the perpose of inflamsing the int for the purpose of getting a clearer virapulate Ideller suprosed the qixim that the great problem 2 I 3 s 1 I 1 I 1 I that the entasting - juriam - should then classly to the facts and not tall the mything obish - uire as Stome Ind strespted. Is trutt stated that be had - from imag in as undicial expecity and that - the plan me promoted I B a 3 = 1 I B 1 dealer, via is believed identional with But timler, Professor of Philosophy at the is School for Social and funerly 1 il I r I y a I from 1906 to 1920, and a - - lister, - identify is s 1 During the exemition it No further and by for trutt that be - - to !makfurier, apparently Idention] with is Justice Pelix of the - court, and other very propremise people and M supiries NY - Be tim - of the wis stick - people di had placed - de 1/00 Two Trota further expressed an qiale that May had a very good working state videl had met received any publicity bet that is world be highly desirable to establish through which information amild be estanged al through - stady mill w Regraded Uclassified 195 Regraded Uclassified - 11 - Scheffer and Ven Tress then spoke of exportances of the various refugese from Germany and Voc Trott entired Seebech all - person who had certain experimes and suffered greatly mentally. Ten Trett stated that his suffering me not confined strictly to political views and that Scheabe, apparently De. Schools of Jersany, said that the - people, from & standpoint of social traits, - too subsiderive and to this extent unlike the people of Russia and England, On the afterness of Revember 10, 1939, Ten Trett received 8 telephone call from Teabington, Do Co from a in stemp, who described an interview with Mr. Welles on that day and processed to discuss som decument, the nature of which me mt stated, over the telephone. Mr. Stone further advised that be had left Apparable s 1 an 111 I É de 6 - Stone further indicated the Mr. Welles we on of the fact that Stone represented Ven Trutt in this miter and that there was to be another dissussion with in Wellse the following not. On November 18, 1939, Ven frott, ascempanied by Arthur Hasse Ton Soobash, frequently referred to w Socimale, left See York City by autombile and proceeded to Washington, Do Co, where they registered at the Mayflower Botal - the - date. During his stay in Washington, Dr. Ven frost contacted Thomas HeFadden, Felix Morlay, Mr. George S. insistant Secretary of State, and Dr. Zum them, Commoler of the German liaburry, Terbort Ven Strapel, First Secretary of the German labrary and William To Stone, who has been employed sime 1924 M Maskington correspandent of the Foreign Policy Ameriation, New York City. Mr. Stone is Visa President of the association and local member, with offices in the Intional Press Building. Yes Trutt departed from Hashington, Do 4 a the norning of November 21, 1939, and proceeded to the Cavelier Hotel at Virginia Seash, Finginds, where be attanded the conference of the Institute of Pasific Relations ustil December 2, 1939, to he returned to Washington, De Co via automobile, where be again registered at the Hotal. the following is 6. letter dated November 2, 1939, directed by Von trett to Dr. Inventing, Professor at Harvard University, which is quoted as follows: LEE - 22 - "129 L 52 in York City lew 1,1939. lear . traning, is supplementation to the draft proposols of dissumsion themes which was to be submitted at the meeting, my I 8 progrems of somethes are emeting questions wideh is a prelistary sounding were subsitted to - from the other side. These would be the substantial paints to be cleared - with - marro of agreement if an undificial and confidential advistry condition vary to prove really effective et a later and sere critical stage. n is fully appreciated at the - time that ast the alightest peint of inform- tim med be disclosed which would weeken the country's present position in the struggle and it is therefore dvims that some of the quartions do not require - fall I I also maless & capy of DE. draft which By be interesting M a first basis of discussion. would consider a proliminary meeting between the four lenses ambero of the condities M extressly desirehle. Perhaps Triday afternoon would be current for you? timping that you will not consider 4 claims on your time # teo burdensome, I resta, Yours sincerely,' The following quoted letter, dated Surnable 2dg 1939, - reseived by Tom Trutt from as intividual who rigard de name w the ', probably identional with Professor Bruesing at larved Deiversity: aty dear Tretts I thank you very sont for your letter of the 16th and for the replies w v questions. Regraded Uclassified Regraded Uclassified - w - "I hope that you arrived safely at 78. Bench in the martine. I earnet imagine has & bathing resort could be very inviting at this of the year. I hape that you have very interesting people instead. Is your conformer (9). Today I again have something of which to inform you, - though is is limited and I also have monthing to ask of you I as dividing w saterial into groups and assigning a use to each group or paragraph in order that you my dre the ADDRES by seraly referring to the more. 1. I received 8. letter from Y. Allen of Exford which ⑉ written in response to a letter I sent to bin stortly after the outbrea's of the me. Fe stated in his letter that be had heard that you ways intending to leave for the United States but that be could ast imagine be you could possibly do tide. Re further reported that be had received a telegram from sydalotte which informed his that Jessen has been employed by the Harvard Law School. James sest thereafter - to America. Allen stated that be had also heard that certain difficulties had arteen and that be had bee: approved on the part of the School by - who did not have authority. That will become of this, I do net Inc, but I cannot issuine that the difficulties are very earlous, since Jeasen bas sufficient finances. 2. In the seantime I have received from England a grest muter of nice and reasonably counting letters. The general them of the letters my been be stated is the following 'I hope and trast we stall som be sitting together again talking about her foolist W have all been in the past.' I seriously fear that this self critical quinton is not favored by the administrative circles of England, 30 Seve you followed the namper reports concerning the visit of Siberald in England? It W reported in this in & very uninows teme that the present Palish - ships in the writing Floor indicate that Palam: is given the possibility of being & - or special significance in this regard is a report by 'Angur' appearing in the fer Tark Time and La the Dostom Herald in which It wes indicated 198 - 14 that Siberski to negotisting in Landon for the recention of Polant and that the question M to the cutlet to the - plays a visal role. n is mitimal that the powers i a s I I I I a # w - is rither of Polich w baseles birth in as ruch a you'ree properality w to the Folice distin, a the other side ⑉ my my that this consetional and mt vary undependable. 30 originated the stupid story about the lensing est of Trieste to - and has (alther a do - or with a re a Mild ( I 1 3 bis great experiment. It is a store that - replice to the currestion of such articles are - - wideh mid father me objective. The general silms is then considered as comunt. The publishers of the 4 1. Time - either in the dark with reference to the perilems situation w intentionally de ml desire to de saything - as & rule in mush etten they ment state their alitorial positions. to that W the entome of your intereise with Derethy Thompson? M kind of - impression did her attitule - upon you In this land actually very little publication wet is date without her and - is - with so Ry ingula- Partagues Print of Lenden the is Protego has resently left Burlin and is - in Lisbon, That has the attantage that be my w contacted in an united - by air mile Should you desire the experiment appropriate to introtume your Inco to the Inglish Press in this - I shall w wad to by 140 This - is 4 best friend, way mounts ml shoulately dependable. 6. I had a may brief communition with 1 1 a r I 1 as de 1 Inc. will informed about M tre wine - and grest interest and Ind the a requested - and also others to - to Virginia at the emalution of the incriate Political Science Conference di Machington during the latter part of December, which I believe I shall do. I spoke to his with reference to the objectives of the var to ele be replied that be will like to know birself and be does not emailer the date- Regraded Uclassified 139 - 15 - heretofers made public as being conslusive and brande Charehill's speech as being dreadful. I did not conceal the fact from bis that Charchill by bis speech placed his- self upon the - level as that of Ritler. I especially attempted to impress upon his which is that a the side of Ingland - sistate to be assumed, which is that Commis like syself who very definitely and after regligently bald themselves aloot from national socialisn, demonstrute their lask of interest in the valiare of I - sised the point that I could not imagine her 4 European federation could exist without giving Jersey the - power as other nations. Tie made Line impression upon - that be - in a receptive and for such ideas and stated in response to 4 direct question prepounded by - with reference to Austria the following opinions 'The nort 90 want in that direction so a free plabiscite under the supervision of the Cale powers. When I expressed way four in that regard to his that now in Landon and in Paris various promises are made to all kinds of people just like during the World Har as for instance Storhenberg is Paris and sum Behenleche in Lendon he said, 'but - wealdn't allow 11% is to how far be is aligned with certain London interests I we not able to determine. 7. In conjunction with ay work, which I have completed, I recently had 4 trief conversation with Allen u to the objectives of the var. Contrary to thesler- Dennett (this was however prior to bis visit) be shared with - 47 initial fear and WM of the opdaion that the attitude of London has become bed and that there has been a definite beginning In the sistrestment of the anti-Masi- I (Tree Tree). During this conversation very - postedly de strong Catholic and regional entipathy against Yorth last Certify was expressed. 11th reference to the in the last he - of the opinion that the results would be doubtful and that an 80% majority would probably be against Commany. The people mat to have a Haboburger- Deada State and it is not certain whether Baveria, the remainer of South Commany and the Rheinlacd would net must to participate. of course I my be visled but 1 bad the impremation that in this respect be vas under-sertimating the state unifying process of recent years. On the otherside it - 4 viers in the support (I had previously speken to Na about this) that coe sust guard against a plobiscite after the overtime or failure of & covernment. Yes, - plabinaite, and 14 is good, but only after a period of ⑉ to three years has clapeed. Regraded Uclassified 200 - 16 - % Per a to - I reserved the invormien the Allen - not with reference to the split - the Cathelic thein-comm Commany and the Protected I I I India I a H I # I I - that 16 would probably be better tor Damage If it 1 i 1 Promia s 1 I a in a Instria be and to this be stated that if Pelant - had last Presia it would 104 the Polish inflame ten free Inj I 1 1 within of I dilla 1 # eartainly always entertain the hope to regain Austria. & I I in 4 the Denster Insure which ankibited to - bis strong and walk polate. His lesture cartainly unde a good impression in wideh he brought ont is beld relief the fullow of the reparations polition. be also said that by - of force and a tringh of multions - perment place could be established is Exempe videh has been expressed to Fither as will as to ide English and Trunch enentes, no also resegnises & Pederation but to failed to describe 120 Hith all respons to kis in the following entire, I was Income will infresed (as has been the - previously). & with de componsion of certain atten this as - only give the I 1 I 15 I 1 he His tendency to view political miture which an of met importance de as comanic problems and thereby less night of their real This critician could also be applied to his administrative functioning is bis office. 4. The fast that be has had may unformable Instruct with his political frimis, Liver the demitall of the joint under plans for an an 1 I I 1 - E inprovation - sees - that be (Allon) - in for of a Deaso Federation, Pridently this impression is false, byll Regraded Uclassified 201 Regraded Uclassifi - 17 - Allen bad to illustrate the atter is each a - us to provide mich conclusion, because be would otherwise be a - for these people the respired as lastrian nation (the imester of Britains, incriases and illailled Fresh politicians). 10. I exal/ier the report of proct signifi- - it is stated that the Prevident will have a personal conforme with his with refur- - to de regarding the establishment of pesso by - spring. 10 that a turning tourd ⑉ of - relast stybe is are friendly than n belived Ma to in. 11. Utile you - in Mashington me you able to kindly and nd & People the - in class occtast with fall and 1 D If 2 -3 .3 I I E 1 s to 12. Should a Bullitt - to this ciuntry for this emforence is to necessary that - emisst Me - de and less at wight with the President. for - Udag be - e very good time with m. tre and Allen and de position is Purio - be outlived highly. n is of great significance to m that in Parto the US 1 is taking inflemible views - for M further territorial division plans are 1 11. Yould you please read as ⑉ us pensible & besk estitled Intionality and the - by or at last the prefess. n - with is 2985 and ostanidas and top met with the process time. One could astaally cits curtain instances from 12. 10 should sale pare - of 6 L (1) (Contral State) in w instructions w will as that agent thisk deals with the negotiations of the Visam Congress and its results. Europe after the fall of Supelam - in a sinilar position M it will be after the fall of Filler. it that time - stearved very clossly the political natention of - OVER though Prance bed been the a tessie the eldef disturbance # he 202 - is - w passe - concerned. The result we that since the France, emeept for a brief interval under the relge of Espoleen III, conducted itself peaceably and took the side of these parage which desired to crishlish the states - Should - desire to have & stailar identify in the febure - - gurd against creating MY in which there is the purpose, - or loter, to Idadle the destruction of the status - n is regrettable that W de not have a fullyreed, or de you feel that you - a attch for that relat 140 - do you MRS when you refer to the 'internal cashange of Ideas of the Osneral Staff' and designate 11 M 'far reaching?' # & Inter-ally enchange of which - for reaching w far w suppenenting - dividing Dermany 10 1 be OF terms-English and aschange of issue which is be renshing M far M bringing about - analieration is concerned. 15. have you had my luck in ortablishing French acctasts? 16. Do you have a contact with Ste Quable in inshington? I believe that I bome sequisted with his very Instity in Parts. I stall wite today to 4 friend Delleing in Paris and disease with him the native of socuring other peoples' sttitules. 17. I shall also with to In bregan. a will also - be in theirington in order to participate is the American Political Schemes Conference in Describer 180 with reference to a trip to regist, n shall speak to each other perconally. I memocrarily de asi object to it in the - I as considered - being espable for the task by you and other people. 19. I 4d glad to hear of - P. (probably IIF. Feal Schaeffer) visit from New York and hope the be Regraded Uclassified 203 - 19 - 'shall - soon. I shall also M glad to converso with I the at com time - exected with the S 7 D and the is will acquirted with the lens: working class. 2. the letter of your Servas Friend which you enclosed with your letter - very interesting to 16. lacy thanks. lie indicates a plantible and pleasant attitude - though from the professional standpoint I have a leaning toward your view. Your friend should first of all gain control of de obsolets vocabulary (which is mening- ly - of de characteristics). Our visapoint, if I under- stand it correctly, absolutely does not have anything to do with mo's clubs and general elab discussions and is absolutely in 10 may paternalistic. tat nains the cooperation between the working class and the upper streta 80 measury and vital is really the debeaing of the Inco citizency (which after this - will still be closer to the working class than before) and the dwalling que its (working class) inability by time the are institutively of political leadership. The strespt of the Republic of Jeruary to be governed by the intelligence of the citizenry and also other failed to such an extent that the expression 'dissory and intelligence' has a bad reputation in At this time it is not to be a question of the classes but it is to be a personal question and there it appears is - that from the old aristersay - net insignifiest (even though rether sall as a group) number 9 premising people the are sufficiently broadated to ⑉ our problem du reference to the working class the could give that class & landership which it could not ao readily develop from its - resis considering the fact that the working class class of Central harge is not to be based upon class distinction. Fundamentally the problem of the working class is $ antional - of the first order and is therefore net strictly limited by class distinction. Fimily, the entire world will be confronted with this problem after 11 has fully developed and a - 000 stating of the joint efforts of the conservative and socialistic - and certain persumalities will be attached to it (Now Deal, Chinag Kai delt, totical Invernment). Just like in the 19th Century I hepeful proposals were sade concerning democratic conservation (Maraeli, Hamarek, issalle, etc.), likerise today there are the proposals for a conservative socialism or a socialistic conservation if - DO desire to have 14 The great question is - Regraded Uclassified 204 - 20 - *ean transfers these proposals into active politics 48 it has beso done in the case of Receivelt. 21. bin will - again speak to each other in Doomber 7 I to very - brake. lbm will you com to Casbridge? 22. idelph Schlepsyrall who is in ventreal made impuiry overning your address. I will only dm his your address after you have given - your persission. At tide time I a addressing his in 8. latter that I do not for your address. 23. the Propaganda idaistry in Berlin securingly no longer functions. Its discoveries conserning the English Secret Service with reference to the attempted mader at trundah to M to be childishly and poorly invested, It makes - very doubtful if after all the Certape did net lay the fondations in it. On the other side, the silence of the Dateh Covernment is painfully obviews. 240 X F. (probably Fields) is not 4 emfides- tial friend of Allon OVER though I did not receive that impression. I do not converse with his very much and I mention - 25. Regarding & proposed Russian Secret Service, while you - in 1. I. C. did you ever rm seross a and by the - of Supers the formerly was editer of she Marlik publications. Se lives in great lunnery at Central Park Test (near 65 Street) and either (as be claims) became & stook mutst speculator and fimily a capitalist, or be met work for 0050 capitalistic parter. I res into 4 very intelligent ate here by the - of X Speteda, then - does not emetly know whether be is a German or whether he is a Instan, I shall try to question his very cautionaly. 26. The flight of in Thymala to Switzerland is & good inlication to no that the 'Rate leave the ship'. Let - her from you - Searty greetings Always yours 4 3." Regraded Uclassified® _05 - 21 - The following is 48 unfinished letter dated leveber 2, 1939, written by Ven Trett, which is of interest - as is asta forth partinent information regarding his departure from - in commetion with his visit to the United States, *levember 2, 1939 ky done Custom lisrge probably has written you about w only vish which - that I left about three weeks after the outbreak of bestilities in order to represent Surope in the Pasific meeting which is being held have in America. I, as a temperary member of the Secretarial staff of the Iss- stitute in Jeruary have been granted & military furlough to extend until net June and through the will and effort of the Gereen and American foreign officials I was panditied to eress the borders. Some difficulty was encountered at Deadther (7) in over there I was sussessful without emberraement. In antisipation I wish to state that toward the end of December I will enbark upon Kg has vayage via Hart Anda and I hope very moh, If I do not " by my of South Asia and fly to lissem, that an apportunity will arise wideh will give - an opportunity to ⑉ you There shall be sere to my than I dare to confide in this letter, and seeing you Tetch, (or has there been as estrage- ment?) Stule and Ridder, and our dear friends on Pharing Street will resurd - - hundred fold for the incomvendance I have lower I shall only be able to stay for about 4 to 8 days and it would be a sudden arriving and equally walden departure. You will certainly drop DO & line as to this. You have in your add our dear Joblanski who during September ensountered ml hardship but you have been able to estateda a friendly demander during these ensking evacts ml you have not permitted yearself to be either spiritually or physically, to be anyed into saking a otherse decision. Nothing has - in lest yet. To shall continue to think of Johloneki, and more then that and there skill is no basis to become despendent with reference to Demany and to Europe. Now, of course, everything is open to decision and every reserve group is the subjected to the toot of desiding - (unfinished) Regraded Uclassified 206 - 22 - The following is a letter received by Ten Trett from an individual signed "Hame" who is believed to be idention] with Arthur (Basse) Tea Seebech, Derman refuges and friend of Ven Trett in Her York City: "the Crayden 22 last 86th Street New York Saturday serving Dear Adams You Incor that I - prefessionally at your dispessl to as greet an extent as I possibly OGA be and that I have unlinited confidence in you I in therefore - taking the liberty of applying valiatied criticism where 18 is According to ay epinion you unde two nistakes. - You submitted a document to Machington which is inserrect and politionlly, at last, subject to ulsisteryre- takion. I understand that If and R on the basis of your document and certain agents! reports received an - impression, You should not have forwarded this document to Washington without having given - an opportunity to emains it theroughly. You failed to give - all the in formation, for instrace, when you presented the documents to W you did not disclose to M your intentions. Should you have submitted your documents after the receipt of w - then your actions are still sere unjustifieble because then you could have recognised the professional differentiations in nental consepts or at lesst certain overlayping which would have más abvious to you the them I expressed. THE you should have, prior to your comming to work here, advised the State Department in an apprepriate - in fullest detail with reference to your visas and intentions. then, you could have actoblished 1 1 I $ a 5 s 1 E. I In 1 18 I According to w will established Idea conducting political work along our lines in the States is only post- sible when the United States Government has complete in- formation as to - Therefore I suggest without my reservation be proming's technique. Permit Ricolar, Labra sai - to submit to the Covernment a documents propered W w expressing w views and purposes and etate that this document supporte your documento Regraded Uclassified 207 - 23 - "Simee I M not will Insure at the State Department, it would be highly destrible if Ricelar, States at I would propero a statemt supported way proper documents m garding their personal status, polition] setivity and other measurery details. I - anrely giving these details with reference to these natters in Banklagton w I would is my other kind of werk. Hearty Greetings, Impo Issue The following is a letter performed Number 24, 1939, at Bloomfield, les Jersey, bearing the mm address of Date E shile, 18 Carrington Place, Bloomfield, la Junes widsh was received by Von Tretts dess Man to 420 DEF returning to Company and that my intend be a way dangerous undertaking and the - if # will one ⑉ each other again, is for at our purpose is in incrion and inlirectly in England and Trance we desire that you in Generary should have a presuble arrengement and that you should laws a enlightened internal system of thought. In the foregoing paragraph I have outlined to you in detail what a view are and what - of the limitations are as to Germa politics. I have not stressed the military engle but have valori the principals that provail - Immentio groups and I have not at my Man expressed anyticing M to to the Schemallen and regist. the baly alliance to - being attached m ini - 1st . por to the paint with 10 stated w m ml Salag that the imastes of Belled and beigin w the has been kindered by the party - - M well as the march on Progre during the costing Spring. Should are consider the Heinhstag fire which las been attributed net to any ast a the part of - but to that of London, Regraded Uclassified 208 - 24 - " can my that mither view is justified. Prom this stand- polor 18 to for as to be still mare careful with refurence to 4 military yesh. Purthamare the objective of the me an standing out in bolder relief and it is the - pass of the French and English governments to restere Peland Ches and Austria. This view however appears to be rether Subspian to M. If W consider the English view which would give Poland a strong pesition an the sultie See then your view with reference to establishing the boundaries of on- may through ethangraphe standards is & fallowy and could not be assosplished mise any conditions. It I to - if possible under any circumstance at this time to bring about a revolution in Generary with the result- ing penemble settlement of more than a temparary nature, You - that I # not nerely saying this as a result of w - sental process but that I have contacted French and English confidentially informants, who have lead - to 9 occulusion. leaver it my be too late at this time to propose a pease plan which could be acceptable by the Germa silitary ath- crities and especially is this true after the United States has sensingly taken the side of the Allies and that the proper of would be these in existance in 1932 bet who would dare to not forth this proposal. Hower, if Jersey is willing so nake a morifiee of its territory at this time the enterializing of sur pease plan would net be the afield. or course that my be fuverable at the present time ime- much as Russia is exhibiting a kind of pensive ettitule, but the Allies true day to day are becoming mee and IN - of their - the claft is becoming nare and asre provinct from day to day and 11 will be seen for this to be energetically handled by the Deream military authorities. to a result of the German, & adlitary revolution the and result would be that the Cermin securities would literally have to be struck off the books. Your view with reference to the Jersan people that they would be willing to stand to the last - where Regraded Uclassified 209 - 25 - "pease plan is actually false and I do net understand has you could justify other than to say that you probably note this statement in a tastful silitary NM. The - revelution cannot be brought about exclusively by the motion of entside forces. The revelution must - at my price from 4 novement of a national pelitical sature eriginating on the interier. that is what you and your military friends and propose to bring about. - in this regard I have very little hope for you As is 1918 such - as and Luiandorfs will - their appearance and again put in their md. Homever in this revolution it is Memory that the 1sher- itance of power in these who are to be pal into control - be liquidated. For this perpose # and do everything possible from & silitary standped.nt to organize the various classes of society and w met especially see to it that the working class has a clear understanding of what our purpose is. Number, I fully realise that this is net a enter to be undertaken today and tenerrow but 16 is a program which is to be instituted - and which is to materialise in my years in the future. the revulution on the part of the military branch of the government which will take place similtaneously with the civil would min the natur - complete and would involve I I 1 Every delusion would onl indiquiable in a period of reste- retien despite the view of Bruing and noinler (or Ricalar) and would intect be unfortmete if there would be mush & complete subdivision of which would eliminate this period of resteration. I an not writing this as an indication of ag friviless thoughts but I actually believe that the resteration will Regraded Uclassified 210 - % - "dw a great opportunity to England and Tence to decrease Demany's parents Howver, Commy will still ensury the position of being 4 buffer state for Imasia's aggressive action and this strictly in line with the haly alliance with Metaler a preatly - plan. lower the socialistic revolution threatens this arrangement to as grees as extent as it did is 1918 and 1919. The separation of the communistic and socialistic elements would greatly hinder the progress of the revolution. the Genera revolution thus stands between two great importal parents - - 10 the west and 000 in the cust and M long as Ressevalt 10 in Washington there to a good basis for the However, R are not in of crimblishing a allitary regise in Certify and it is at this point that which both of W esentagly agree. As you will notice from the foregoing statements that there is very little is common between syself on the ⑉ side and liveling and Reitsler on the other. I feel as though I all not in 4 position to take up the endgles with them. It is therefore that you de the fallowing to things: That you designate - to your incrion friends as your legit- imte agent the my be sonsidered in discussion circles as the confidential - of the I the basts of a pelit- 10al financial fund not be fully assured for m prior to your departure from the United States. Without the above I aboulutely camet premise syself any degree of - 1, therefore, suggest that you utilise the limited miss of days that you have here net in idle talk with M but with carine discussions with Sinons in the event you do not have to Bruing to be present. Naturally I will always be at your disposal and I will - in & professional capacity in any discussion that my take place in the Derman and in the iseriess circles. 211 Regraded Uclass - 27 - "Home, I will feel M though I have been relieved of the abligation of being the initiating force in these discussions with reference to introducing the subject metter. with hearty greetings, your The following quoted letter was received by Von Trott on 29, 1939, apparently from Tea Seebach: elly dear Trott, Many thanks for your exceedingly interesting letter. I - writing this letter in a great burry and not intentional- by for the purpose of making it brief. The reprehensible circumstances expressed by M (Moble?) have long been dealt with. Here there is a - who is a secret agent of Ven Otto and be states that Otte's brother is also 'speaking' with Da. in Parts. In & very ingenees and reprehensible names be and Da. declared there that they were favoring a Donan Pederation with reference to the Rhein provinces. That is the destruction of - this system, however, still incorperates - selfish principles as to whether the confederation is to be a necessby or something also. In this assure be is informing then of the confederation at the expense of Beready which my not be paid. It is like shis, that the net warry for the Allies is what the real objectives of peace are, and that England and France are fully in opposition to sach other in this matter and that England could net assept such 6 proclamation oven if it 66 desired. Chmberlain's INTERNATE conclusions expressed in his radio addresses are & product of worry and by others are considered worthless. the way about a ner Fundch I consider 40 being seaselson. I would say that if such intentions still promil in England, then it certainly has the upper hand is sush meeting. I eannot insgine being in the position of the English people, in which the buman nervous system, as the reports from citizens indicate, would net seek the loss grussome way, if the practical opportunity would permit its (The news system alone cannot de that, - I know 18.) There is reason to believe that the publication is surcessful. I shall consider all the vimpoints you compay to - is I have entd, I consider them at having 212 . 26 - toom reported. n all depends on whether N can mis it clour to the partlem on both sides of the Channel that they are in - if they consider the victory of 1918 as the basis. the bird is the hand is not even certain, - if - consider a complete vietory because it would have been obtained in mush a destructive - that it would not be with its I could send you the memoript. I as doing everything for its Beartily yours, 8. (probably Sechnch)* n has boan assertained that Mr. Edward c. Carter, an efficial of the Institute of Peoific Relations, a October 25, 1939, directed lotters to Mr. Charles Mem of the in York Time and me. Cerrell Mater of the Chiengo Daily - them letters being idention). this letter is quoted M follows: q med your advise. Yould it be feasible the no to write to the principal notropoliten editors end the assional - agencies describing the purposes of 4 small Study Neeting which the I.P.R. is halding at Virginia sooth at the and of - requesting that no attempt be made to our the pressedings in the press? the meeting is entirely of a research and discussion rature, held to advance a series of scholarly staties on problems arising from the we in the Par East. After these station im bom reviewed they will ultimately be - public and I will ⑉ that the - York Times gets expire. Jet the day by day net at Virginia Beach which will be attended w scholare from several of or National Councils will be - zero superseful If the sentero - feel free to - their epinions privately without danger of public quotation, Several of these who are coning from abroad will have other ninsions to this country bestdes the I.Palls and their presence here of course on naturally be a natter of - 1 Following the Study Meeting the Date two's governing bound, the Pacific Comeil, will need and the results of its administrative desisions us, of - be commission to my - which my be intervated 1a the scholarly propres of the Institute." Regraded Uclassified 213 - 29 - the statement in this communication "coveral of these who are conding from abread will have other nissions to this country bosides the I.P.R. - - to be quite indicative of a contention that Ten Trett is undoubtedly in the United States for a purpose other than do part in the conference of the Institute of Pasific Relations. Information has been received indicating that Dr. Ven Trett is planning so leave New York city shertly tor the neet Coast where be will depart for the Orient on or about January 12, 1940. is a matter of possible assistance in gaining a clearer picture of the individuals mentioned in this americation, the following fasts conserning the individuals with - For trett has been in contact since de arrival in the United States are set forth hereinafter in alphabetical order. HAMILTON FISH AIRESTRONG Editer of foreign affaire magasines, New York City ALEXANDER BAKER, also Income at Dobor Denster House, Cambridge, tater at Harvard University) ferserly attended Corpose Christi College, Corpus Christi, Texas. BOORR N. DALDWIN n Union Square, - Tark City: affiliated with the American civil Liberties Union. JOHN W. BENNETT 3132 0 Street, N.W., makington, Do Cop believed to be connected with the mashington Post and whose address is in Yes Trett's pessonation. MRS. CHARLES v. BONSANGUET Losust Valley, Lang Island, New Took, Fost office to 5631 daughter of Schieffeling her left 8 August 4, 1939, for England to enter the services of the liajesty's Government. Regraded Uclassified 214 - 30 - EDUARD c. CARTER Member of the Board of Trustees of the Amriem Council of the Institute of Pesific Relations, New York City. sume of CARRETT President, James L Country and Company, Im., w will Street, New York City: violemler and retailer of is- vertment securities. ANY CHAUPINAT 18 East 60th Street, for York City: apparently connected with the Svise Bank Corporation, tall Street, for York City. JUNE 4. CMITORD Bashelor of University of Sydamy, 1931; Walter & Klima Ball Reserch Fullow in Sydney University, 1933-35; Lesturer in Isural - eniss, Bydney University, 1936; Immede Advisor to Real Bank of N.S.N., Sydamy, 2935; Communicalih red Service Follow, United States, 1938-40. Joint where of "Istional Income of instrulis and - tributor to the Institute of recific Balations and the Institute of Political Sclence statise - "instrulia and the PUP hast and "instrulia's Foreign Policy*. a. N. EUNTATHOPULO 242 last 72st Street, - York City: office, 8 technfullar Plana, New York City. FREDERICK FIELD Secretary, Institute of Pacific Relations; residence, 24 Test 55th Street, you York City. Regraded Uclassified Regraded Uclassified 215 - n - LEON FRASER Vice President of the First National look of the city of M Tark, for York City. OTTO JUNES Derum financier Who in Im 1939 appointed General Partner 1= the firm of [Amed Prepare and Company. PHILIP c. JESSUP Chairesn of the Pasific Commil, Institute of Perific Inlations) instaler of irrs, Rediton College, 1919, Dostor of Los, 1937) Insbuler of Laws, Yale, 19241 laster of Arts, Columbia, 1924, Doctor of Philosephy, 1927. idditted to listrict of Columbia Dar, 19251 - York 32, 1927; - under firs Parker, Finkey, & - jusing Letter International Law, Columbia, 1925-27; instruct Preferr, 1927-291 immegiate Professor 1929- 35. Professor since 1935. les assistant solicitor United States Department et State 1924-25; essistent to Fliba lost, Conference of jurists on Present Court International Justice, 19291 lesturer Londary Inter- national Law, The lage, 1929, legal advisor to to seriam to Calm, 1930, served with Amrican I Tares, Total I ú è sittes harved Internal in International Law] trustee and Chaires of incriase Counsil, Institute of Pacific Relations) under hard of Directore, Council 01 Foreign inlations, Society International Law, Amrisa Bronk of International Law Ammuniation, American Bar Amessiation, Barltime Law Americation of the United States, Academy of Politionl Saience, implean Leadary Politionl and Social etenos; and The Law of 100% riterial listers and writing Aurisdiction, 1927, the United States and the Yorld Court, 1929, unriam - teality end International Police, 1928, International Security, 19351 Nestrality, Its Hatery, Reonecies, and Las, Volume I, the Origins (with Frands Deak), 19351 Volume п, Today and Tenarrow, 1936. Miter, Columbia University Staties in Elstary, Immaties and Public Law, 1929-331 under Board of [ditore Incrican Journal of International Last Authori The Life of flim Hoot, 1934. - = - 216 ALVIN JUST Muster of the to School the Social Insura), - York City. PRITE LEGIAN 8 I I 1 1 I I I at the for School for Social in the I I an 18 column, rs a I participated as an apart is the - injury for r reduce Use 7 1 Statement I 5 "Law Perso and Remands types d Private Entorprise" end of - articles dealing with emporation fissue, 1 I I Y I I 1 1 us. 1 WILLIAM 1. LOCKSOND A To y 1 a 1 an I I stitute of Fasific Relations. GENERAL PRANK ROBS NOTE United States may, retired) President of the Foreign Policy Association, 8 Test 40th Street, in York City. ZINCH at 4 instaler of Arts, University callege, Landon. States at Institute of listerical 1930-39. and Information offlow, Australian Institute d Ishar- estimal Affairs, Brishen, sustralia. Attended - foreme at Pinginia Boosh, Virginia. FALIX MORLEY Teshington Post, lashington, 2. Co Regraded Uclassified 211 - B - a. ELECT PRATT 1 Tast Ind ivens, in York city: country estate, in kilferd, Connective) froquest sectart of Tea Treat and funerly connected with the Policy insoci- stim, KIRT Professor of philosuphy is the Philemaphy of listery* at les School for Social funer musber of the Pereign Service of Imperial and Commany Professor of Philosophy and Chaires of the Jeard of the Jorths University at atter of "Form and imp, 1925; 1933 and "Leafist of Protection", 1935 and I articles - the beste problem of philosophy and mines, to is & Pholo grabate of the Injurnity of PAUL SCHEPTER lorner intiter-in-Chief of Barlia Tageklatt, 1936, at which the tizister of Propagable custed his because of liberal and anti-lest syspetics. Scholfer then - to to let # correspondent. Has - - markined in the - trials in the spring of 1938 by the he Charaff, Summer Comber of Agriculture, M the - through de in Intelligence officers - Charrelf instructions for substage. This securation has been deried w Sebsifer. ARTHUR also issue M Yes Soutch refuges befriended w entheren Julia Insury resides at Creydes Hotal, im 1531, Sex Tark City) ascompanied Tom Trett en his trip from for York City to Teskington, % Co via automabile of Inventor 17, 1939. Regraded Uclassified - 34 . 218 1. SEMPARDOON treasure of the Council of Foreign Relations, 45 last 65th Street, New Tark City, recidence, 213 - 61st Street, - York City, office, 52 Tall Street, for York City. JAKE SHEPPAND Australia; active in affaire of Institute of Festfie Relations and holder Schiff Following at Columbia University, 1939-40. HAIRS SINONS Prefessor, - Subsol for Social Research, of Post-Tar European International Polition, The B.3.H. International Affaire, the International Sabona, International Relations. no is also professor of International Lm, International Relations and Public Administration. no - seneral Secretary of the League of Nations Union, 1919-22 and - on the staff of the Passe Delegation at Versailles; oursed in the Bedeh as the Pression Visister of the Interier, 1922-23 and 1928-30) director and lesterer, German Political Landamy, Burlin, 1924-30, adviser to the Oursen Condition the Beich Refers, 1928-30, Government representative at International Conference, Peris, Genera and Termory President of Lieguita - 1931-321 guest lesterer at New York University, 1936-37 and throughout the United States and Canada under the suspless of the Camages Information for International Pease, Foreign Policy Association, League of Nations Association and the Canadian Institute of International Affairs; effter of the Political Monthly - hosenstruction, 1921, outhor of The Evils of the Press of Langue of listless Constitution"; chaires of the for School Femily Council. MISS JAME SOMMITHE Member of the American Counsil of the Institute of Pacific Relations, Inv York City. -35- 35 219 . w I x 1 I Y I if I I I r I 1 here I 1 1 I - a I I / 1 - á a I 1 I i r / I Poblications: Information 00 the - I r I full 1 # I % I 1 1 r 1 I if 1 ne, a I 1 Its w 1 I I I I . mo n all TREASURY DEPARTMENT 220 WASHINGTON December 28, 1939. Memorandum on Lampblack Lampblack is elemental carbon of intense black color, varying from brown to a bluish shade, and used primarily in paints and inks. Blacks are generally produced by the incomplete burning of carbonaceous materials. It has been generally understood,, in the past, that when a liquid or a solid material, such as oil, fat, resin, or tar was burned with a deficiency of air the products so formed were lampblack; when 8. gas, such as natural gas, was burned in an insufficiency of air the product was known generically as carbon black. These distinctions have not been clean-cut and they have been variously interpreted at different times. Generally, however, lamp- black is soft and flocculent and blacks which conform in general physical characteristics to typical lampblacks are accepted as such. Carbon blacks tend to be harder and are generally more brilliant. There is a third classification of blacks, made from acetylene gas, which are apparently distinct in physical characteristics from either of the other two. Uses Lampblack and carbon black are employed primarily for their coloring characteristics. Carbon black is extensively used in the pigmenting of automobile tires where it affects the workability and cure of the rubber latex. It is extensively employed wherever black pigments are needed. Where intense black color is desired carbon black has replaced lampblack. There are, however, other considera- tions involved. In some instances, where physical characteristics of inks and paints BO demand, lampblack alone is frequently used. The reverse instance is also frequently encountered. As a result of the lack of agreement in the use of the words lampblack and carbon black it is difficult to ascertain the relative quantities of each of these two classifications of products in the various fields. 221 Figures on importations for uses are as follows: Lamblack Year Pounds 1938 129,037 1937 199,624 1935 375,345 1934 326,136 1933 199,987 1932 219,638 Domestic sales of carbon blacks for 1931 (I believe this definition includes lampblacks): To rubber companies 134,315,000 pounds To ink companies 15,184,000 - To paint companies 6,760,000 , For miscellaneous purposes 5,453,000 - Exported 96,714,000 , Total 258,426,000 , Alfhrollan a J. Wollner, Consulting Chemist. Note: Additional information is being obtained from the Department of Commerce. 222 NC GRAY PARIS Dated December 28, 1939 Rec'd 5:20 p.m. Secretary of State Washington 3045, DECEMBER 28, 5 p.m. FOR THE TREASURY FROM MATTHEWS. The Senate Finance Committee completed its report on the 1940 civil budget and consideration of the bill was initiated in the upper house on DECEMBER 26. The com- mittee report presented by Senator Abel Gardey emphasized that there should bE no illusions concerning the "balance" of the civil budget in view of the vastly superior military Expenditures uncovered by revenue. Gardey said that as far as one could tell at this time total public Expendi- tures during 1940 would amount to SOME 300,000,000,000 franes, In discussing ways and means to raise this sum he recalled that the French cost of the world War was borne 20% by taxation, 68% through loan issues and 12% by infla- tion. As to the 1940 expenditures it appeared that they would bE covered up to 26% by tax receipts -- & figure which Gardey considered too low if the "financial errors" of the last war are to bE avoided. HE felt, however, that under war conditions tax receipts should increase substan- tially without the necessity of imposing new higher taxes. (END SECTION ONE) BULLITT Regraded NC GRAY 223 PARIS Dated December 28, 1939 Ree'd 4:45 D.M. Secretary of State Washington 3045, DECEMBER 28, 5 2. (SECTION TWO) On the question of loan financing ha stated that in 1914 public credit was better than today but there are ISV at number of favorable conditions namely: important recatria- tions of capital since 1938; dehoarding of substantial quantities of banknotes and gold; satisfactory functioning of the capital circuit; restriction of consumption and MI- trol if prices. AS to the capital circuit, however, Gardey found that it presents certain inconvEniences. It leads, he said, to B. rapid increase in the public debt and is not sufficient to assure the financing of the war; therefore It will bE indispensable for the government to SITY cet OLI- solidation operations to the greatest erist misible. EE terminated by eachasizing the necessity of avoiding EXCES- sive inflation and expressing satisfaction at the TEASUTES taken for the Government to limit the currency issue. STALLY 818 NC GRAY 224 PARIS Dated December 28, 1939 Rec'd 6:46 p.m. Secretary of State Washington 3045, DECEMBER 28, 5 D.m. (SECTION THREE) His report on the 1939 budget situation pointed out that ED to August 31 tax revenue was about Equal to Estimates, For the whole year 1939 he predicted revenue, in view of the dislocation of the early months of the war, will fall short of Estimates by 9,000,000,000 francs and that Expenditures under the ordinary budget will total 106,850,000,000 or about 49,500,000,000 more than actual revenue. (1939 Expenditures under the special armament budget add approximately 79,000,000,000 to this year's outlay. Paul Reynaud delivered this morning in discussing the 1940 budget before the Senate another strong address much of which in EVERY particular was in the nature of a paraw phrase of his speech before the Chamber reported in my telegram Number 2976, DECEMBER 14, 5 p.m. HE reviewed again the remirkuble improvement in French finance and Economy in the ten months preceding the war and emphasized that present "moloch state" was all-consuming and completely altered peace time tenets. As to payment for the war one must NC -2- #3045 from Paris, DECEMBER 28, 1939 (SECTION THREE) 225 must distinguish between internal Expenditures and those to bE made abroad. As to the former he denounced "the solution of inertia" namely the printing of bank- notes by the billion by the Bank of France and the devas- tating Effects of inflation. BULLITT EMB 226 NC GRAY PARIS Dated DECEMBER 28, 1939 Rec'd 7:35 p.m. Secretary of State Washington 3045, DECEMBER 28, 5 p.m. (SECTION FOUR) HE Embasized that "a rise in prices is much harder on the poer than on the rich. To make & chop cost 500 francs would be to strike a serious blow on the social structure of the country. There have already been democracies which died of it". HE praised the return flow of "volunteer capital" and boasted that "a government is never wrong which places confidence in France". HE urged "voluntary priva- tions" i,E, savings and the investment of these savings i:: armanent bonds. But "voluntary savings are not enough and the public's purchasing power must be systematically reduced by the fiscal measures almady taken" (DEW taxes. maximum wages, Etc.) HE deneunced the cirgans in store windows to buy and his own previous DESCE time plea to that Effect thus definitely oncosing the school of thought which holds that purchases by French in war time will keep the wheels of the country's Economic (wheels?) turning. "The counsel to buy must be addressed to foreigners today to bring about a return of tourists. BULLITT EXS Regraded Uclassified NC GRAY 227 PARIS Dated DECEMBER 28, 1939 Rec'd 6:50 p.m. Secretary of State Washington 3045, December 28, 5 Dalla (SECTION FIVE) For in time of war for of Frenchman to make any needless Expenditure is a crime against the country". In this matter of private spending, hE said, there is a venial sin and a mortal sin against the country's Economy. TE former hE feels consists in buying more wine than needed instead of purchasing an armament bond or to buy a pleasure automobile the money for which could not only bE better expended on arnament bonds but the labor of the skilled workman who makes the car could bE better utilized in building tanks -- not to speak of the steel which should bE Employed in the manufacture of arms. "The mortal sin," be said, "would bE to buy a foreign tour- ing car because that involves an outflow of gold. I hasten to tell you that my administration will wisely oppose such purchase by means of exchange control". BULLITT EMB 228 NC GRAY PARIS Dated December 28, 193 Rec'd 7:40 p.m. Secretary of State Washington 3045, December 28, 5 p.m. (SECTION SIX) Turning to the second problem of murchases abroad he said that the first way to find the necessary foreign EX- change is to Export as much as possible and to import as little as possible. The second is to USE the gold of the Bank of France -- a "patrimony" which will be spent to the least possible degree. "But gentlemen if VE look at the world which will WE SEE? It is now divided for us into two zones, that where WE can only buy by handing over & part of our gold stock and the immense zone where WE can buy with pounds". HE then proceeded to dwell en the advantages of the Franco -- British financial agreement and to ridiculs German propaganda which, y said, had with SOME contradiction accused him simultansously of going to London to cry poverty and of having saved the British currency with the gold of the Bank of France. 5 like- wise found it necessary again to Explain (in the face of SOME misunderstanding and criticism) that the agreement for common expenditures of the two countries in the ratio of 3 to 2 only applied to certain specified expenditures, BULLITT EMB NC GRAY PARIS Dated DECEMBER 28, 1939 Rec'd 7:45 p.m. Secretary of State 229 Washington 3045, December 28, 5 p.m. (SECTION SEVEN) HE closed with an appeal for a return to a liberal Economy once the war has been successfully concluded and he said: "To those who declare that time works for us I reply: "Tim is a neutral which will join the strong'. It is up to us to win it over". The Sente this afternoon approved the civil budget by the unanimous vote of the 303 present. Today's Journal Official publishes a decree providing for notification of merchandise seized at SEA by the French Navy under a procedure similar to that adopted during the last war for bringing C2SES before a prize court and the presentation to the Blockade Ministry of demands for release. The decree provides that seizures shall be notified to those concerned through advertisements insert- Ed in two commercial or maritime publications of the port where seizure is made. Two insertions will be miled at intervals of forty-sight hours, They will be communica- ted by the Ministry of Foreign Affairs to the Embassy or Legation of the national interests concerned. The parties NC -2- #3045 from Paris, December 28, 1939 (Section 7) 230 parties involved must present requests for release to the Blocknde Ministry within a time limit of thirty days from the date of publication of the announcement of seizure, If no request is received within this time limit the merchandise is to bE sold or requisitioned. If goods seized are subsequently released or if seizure is subsequently invalidated those concerned may not claim damages because of such sale of of requisition. BULLITT EMB