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Volume 286, July 24 – July 25, 1940
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Volume 286, July 24 – July 25, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 286
July 24 and 25, 1940
- A -
Book Page
Appointments and Resignations
Buokley, James C. (Securities and Exchange Commission):
Jerces Frank asked to loan as assistant to
Philip Young on defense program - 7/24/40
286
119
a) Young memorandum explaining Securities and
Exchange Commission's reluctance
254
b) Frank-HMr conversation: See Book 287, page 40
Chamberlain, Joseph P. (Professor): Asked to associate
himself with Foreign Funds Control - 7/25/40
280
Asiatic, East, Company
Bee War Conditions: Foreign Funds Control
- B - -
Belgium
See War Conditions: Ship Movements
Boeing Aircraft Company
Federal Bureau of Investigation report
128
Brown, J. Douglas (Professor, Princeton University)
See Revenue Revision
Buckley, James C. (Securities and Exchange Commission)
See Appointments and Resignations
- C -
Chamberlain, Joseph P. (Professor)
See Appointments and Resignations
China
See War Conditions
- D -
Departure Permits
See War Conditions: Export Control; Wenner-Gren, Axel
- I - -
East Asiatic Company
See War Conditions: Foreign Funds Control
Equador
See Latin America
- F -
Financing, Government
Defense financing conference; present: HMJr, Foley,
Gaston, Sullivan, and Bell - 7/25/40.
203
a) Bell assorandum on changes in situation
214
Flynn, John H. (Brother of Edward Flym - Chairman, National
Democratic Committee)
Raise from $3800 to $4600 reported to FDR - 7/25/40
180
Foreign Funds Control
See Bar Conditions
France
des Mar Conditions
- G -
Book Page
Gasoline (Aviation)
See War Conditions: Export Control (Japan)
Germany
See War Conditions
Great Britain
See War Conditions: United Kingdom
- I -
Iglehart, D. Stewart (President, W.R. Grace and Company)
See Latin America
- J -
Japan
See War Conditions: Export Control
- L - -
Latin America
Monetary Assistance: White, with American delegation
in Havana, Cuba, asks HMJr's permission for Hull to
mention - - 7/24/40
286
141
a) HMJr's answer
143,148
Suggestions put forth by Iglehart (D. Stewart),
President, W.R. Grace and Company - 7/25/40
303
Ecuador: German activities: Federal Bureau of
Investigation report
128
Leroy-Beaulieu, Paul
See War Conditions: France
- M -
Merchant Ship Movements
See War Conditions: Export Control
Mexico
Federal Bureau of Investigation report
128
Hochschild transmits report - 7/24/40
172
- P -
Poland
See War Conditions
Regraded Unclassified
- R - -
Book Page
Reconstruction Finance Corporation
See War Conditions: Airplanes (Engines: Financing of
by Reconstruction Finance Corporation)
Revenue Revision
Excess Profits Tax:
Draft of bill: Rates explained to FDR - 7/25/40
286
217
Brown (J. Douglas - Professor, Princeton University)
memorandum on depreciation allowance.
241
a) HMJr's acknowledgment - 7/25/40
239
- S -
Ship Movements
SOUTHERN CROSS (Yacht): See Wenner-Gren, Axel
See also War Conditions: Export Control
SOUTHERN CROSS, Yacht
See Wenner-Gren, Axel
Sterling
See War Conditions: Exchange market
- T -
Taxation
See Revenue Revision
- U -
U.S.S.R.
See War Conditions
United Aircraft Corporation (Pratt-Whitney Aircraft Division)
See War Conditions: Airplanes (Engines)
United Kingdom
See Mar Conditions
- W -
War Conditions
Airplanes:
Boeing Aircraft Company: Federal Bureau of Investigation
report
128
War and Havy Requirements: Revised program - 7/24/40
69
Engines:
Six separate plants, each with capacity of 12,000 planes
a year of 1000 horsepower or over - half for England
and half for United States - planned by HMJr - 7/24/40.. 124-A
a) Conference; present: HMJr, Brett, Lyon, Towers,
Kraus, and Young - 7/24/40
125
1) Production lag discussed thoroughly
United Aircraft Corporation, Pratt-Whitney Aircraft
Division: Wasp Junior Models released for export
by War Department - 7/24/40
80
- W - (Continued)
Book Page
War Conditions (Continued)
Airplanes (Continued):
Engines: Financing of by Reconstruction Finance
Corporation:
Packard-Rolls Royce arrangements for joint
British-United States purchases: Purvis-Knudsen
and Purvis-HMJr correspondence protesting change
in arrangements already completed with
Reconstruction Finance Corporation - 7/24/40
286
11
a) Purvis-Young conversation
174
b) Knudsen-HMJr conversation - 7/25/40
243
HMJr-Corcoran-Cohen-Foley memorandum to FDR -
7/24/40
29
China:
Young (Arthur N. - Financial Adviser to Chinese Government)
urges new legislation to increase Export-Import Bank's
fund by $500 million with some provision for granting
added credits - 7/24/40
127
Keeshin report - 7/25/40
184
Shanghai financial resumé - 7/25/40
312
Exchange market: Sterling transactions - 7/24/40
170,181
Export Control:
Scrap Iron and Steel: Memorandum on supply prepared by
Advisory Commission to Council of National Defense -
7/24/40
19,190
Japan: Aviation Gasoline: "Cornering market" -
BO San Francisco Army Corps Area Commander
telegraphs Stimson - 7/24/40
86,234
a) Copy sent to Ickes
235
Merchant Ship Movements: Resume of cases - 7/24-25/40
67,256
Foreign Funds Control:
East Asiatic Company: Memorandum from British Embassy
explaining position as non-Danish 7/24/40
25
Securities from invaded countries: Executive Order and
specimen form - 7/25/40
223
a) Early reports FDR's signature - 7/26/40:
See Book 287, page 1
France:
Leroy-Beaulieu, Paul: Leaving for France; says goodbye
to HMJr - 7/24/40
77
Germany:
Banking Transactions: Federal Reserve Bank of New York
report on - 7/24/40
65
Secret meeting of Hitler and Stalin in Lwow, Poland:
Federal Bureau of Investigation report
128
Payments by order of Bosch - Stuttgart, Germany:
Federal Bureau of Investigation report
128
Debt situation as reported in press - 7/24/40
153
Tax revenues - 7/25/40
310
Poland:
Secret meeting of Hitler and Stalin in Lwow, Poland:
Federal Bureau of Investigation report
128
- W - (Continued)
Book Page
War Conditions (Continued)
Purchasing Mission:
Program discussed by HMJr, Sir Henry Self, Purvis,
Ballantyne, Wilson, Knudsen, Stimson, Towers,
and other representatives of Treasury, War, and
Navy - 7/24/40
286
92
Ship Movements:
Belgian tanker: Arrival in Port Arthur, Texas,
reported by Federal Bureau of Investigation -
7/25/40
286
Strategic Materials:
See War Conditions: Export Control
U.S.S.R.:
Secret meeting of Hitler and Stalin in Lwow, Poland:
Federal Bureau of Investigation report
128
United Kingdom:
Military Situation: Reports from London transmitted
by Lothian - 7/24-25/40
7,175
Kennedy comments on British budget and financial
problems - 7/25/40
305
Wenner-Gren, Axel
Yacht SOUTHERN CROSS: HMJr and Welles decide not to permit
departure for Alaska - - 7/24/40
89
a) Stimson-HMJr correspondence:
See Book 287, pages 214 and 217
TREASURY DEPARTMENT
1
Washington
FOR RELEASE, MORNING NEWSPAPERS
Press Service
Wednesday, July 24, 1940.
No. 21-69
7/23/40
The Secretary of the Treasury, on behalf of the Commodity
Credit Corporation, is today offering for subscription, at par
and accrued interest, through the Federal Reserve Banks, $250,000,-
000, or thereabouts, of 2-year 9-month notes of the Commodity
Credit Corporation, designated 3/4 percent notes of Series P. The
notes will be dated August 1, 1940, and will bear interest from that
date at the rate of 3/4 percent per annum payable on a semiannual
basis, the first coupon being for the fractional period ending
November 1, 1940. They will mature May 1, 1943, and will not be
subject to call for redemption prior to maturity.
The notes will be fully and unconditionally guaranteed both
as to interest and principal by the United States. They will be
exempt both as to principal and interest from all Federal, State,
municipal, and local taxation (except surtaxes, estate, inheritance,
and gift taxes).
The notes will be issued only in bearer form with coupons
attached, in denominations of $1,000, $5,000, $10,000 and $100,000.
Subscriptions will be received at the Federal Reserve Banks
and Branches, and at the Treasury Department, Washington. Sub-
scriptions will not be received at the Commodity Credit Corporation,
Banking institutions generally may submit subscriptions for account
of customers, but only the Federal Reserve Banks and the Treasury
Department are authorized to act as official agencies. Subscrip-
tions from banks and trust companies for their own account will be
2
- 2 -
received without deposit, but will be restricted in each case to
an amount not exceeding one-half of the combined capital and sur-
plus of the subscribing bank or trust company. Subscriptions from
all others must be accompanied by payment of 10 percent of the
amount of notes applied for. A new certification has been added
to the subscription blanks to be used for this offering, designed
to eliminate the practice of making formal or informal contracts
for the sale of subscriptions or allotments before the closing of
the books. This practice has been discouraged by the Treasury and
the Federal Reserve Banks, but has still persisted to some extent
on recent issues.
The right is reserved to close the books as to any or all
subscriptions or classes of subscriptions at any time without
notice. Subject to the reservations set forth in the official
circular, all subscriptions will be received subject to allotment,
Payment for any notes allotted must be made or completed on or
before August 1, 1940, or on later allotment.
The text of the official circular follows:
3
COMMODITY CREDIT CORPORATION
3/4 PERCENT NOTES OF SERIES F, DUE MAY 1, 1943
Dated and bearing interest from August 1, 1940
FULLY AND UNCONDITIONALLY GUARANTEED BOTH AS TO INTEREST AND PRINCIPAL
STATES, WHICH GUARANTY IS EXPRESSED ON THE FACE OF EACH NOTE
Exempt both as to principal and interest from all Federal, State,
municipal, and local taxation (except surtaxes, estate, inheritance,
end gift taxes)
1940
TREASURY DEPARTMENT,
Department Circular No. 638
Office of the Secretary,
Washington, July 24, 1940.
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF NOTES
1, The Secretary of the Treasury, on behalf of the Commodity
Credit Corporation, invites subscriptions, at par and accrued interest,
from the people of the United States for notes of the Commodity
Credit Corporation, designated 3/4 percent notes of Series F. The
amount of the offering is $250,000,000 or thereabouts.
II. DESCRIPTION OF notes
1. The notes will be dated August 1, 1940, and will bear
interest from that date at the rate of 3/4 percent per annum, pay-
able on a semiannual basis on November 1, 1940, and thereafter on
Pay 1 and November 1 in each year until the principal amount becomes
payable. They will mature May 1, 1943, and will not be subject to
call for redemption prior to maturity.
2. These notes are issued under the authority of the act
approved Harch 8, 1938, (Public No. 442-75th Congress), as amended,
- 2 -
4
which provides that these notes shall be fully and unconditionally
guaranteed both as to interest and principal by the United States;
that they shall be deemed and held to be instrumentalities of the
Government of the United States, and as such they and the income
derived therefrom shall be exempt from Federal, State, municipal,
and local taxation (except surtaxes, estate, inheritance, and gift
taxes); and that the notes shall be lawful investments and may be
accepted as security for all fiduciary, trust, and public funds the
investment or deposit of which shall be under the authority or con-
trol of the United States or any officer or officers thereof.
3. The authorizing act further provides that in the event the
Commodity Credit Corporation shall be unable to pay upon demand,
when due, the principal of, or interest on, such obligations, the
Secretary of the Treasury shall pay to the holder the amount thereof
which is authorized to be appropriated, out of any money in the
Treasury not otherwise appropriated, and thereupon to the extent of
the amount so paid the Secretary of the Treasury shall succeed to
all the rights of the holders of such obligations.
4. Bearer notes with interest coupons attached will be issued
in denominations of $1,000, $5,000, $10,000 and $100,000. The notes
will not be issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks
and Branches and at the Treasury Department, Washington. Banking
institutions generally may submit subscriptions for account of
customers, but only the Federal Reserve Banks and the Treasury
5
- 3 -
Department are authorized to act as official agencies. Others than
banking institutions will not be permitted to enter subscriptions
except for their own account. Subscriptions from banks and trust
companies for their own account will be received without deposit
but will be restricted in each case to an amount not exceeding one-
half of the combined capital and surplus of the subscribing bank or
trust company. Subscriptions from all others must be accompanied by
payment of 10 percent of the amount of notes applied for.
2. The Secretary of the Treasury reserves the right to reject
any subscription, in whole or in part, to allot less than the amount
of notes applied for, and to close the books as to any or all sub-
scriptions at any time without notice; and any action he may take
in these respects shall be final. Allotment notices will be sent
out promptly upon allotment, and the basis of the allotment will be
publicly announced.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for notes
allotted hereunder must be made or completed on or before August 1,
1940, or on later allotment. In every case where payment is not so
completed, the payment with application up to 10 percent of the
amount of notes applied for shall, upon declaration made by the
Secretary of the Treasury in his discretion, be forfeited to the
United States,
V. GENERAL PROVISIONS
1, As fiscal agents of the United States, Federal Reserve Banks
Are authorized and requested to receive subscriptions, to make
6
- 4 -
allotments on the basis and up to the amounts indicated by the
Secretary of the Treasury to the Federal Reserve Banks of the re-
spective districts, to issue allotment notices, to receive payment
for notes allotted, to make delivery of notes on full-paid sub-
scriptions allotted, and they may issue interim receipts pending
delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from
time to time, prescribe supplemental or amendatory rules and regu-
lations governing the offering, which will be communicated promptly
to the Federal Reserve Banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
7
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
July 24th, 1940
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Loluzan
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
Telegram despatched from London
late on the evening of July 23rd.
8
1. H. M. Destroyer "Hesty" on
night of 7th/8th north of Alexandrie carried
out two promising attacks against U-boate.
First depth charge attack followed by heavy
under-water explosions considered successful.
Pew hours later second U-boat attacked, is
believed damaged and possibly sunk.
As sequel to enemy mine-laying
setivity recently: 27 magnetic mines destroyed
in sweeping operations yesterday.
8. Royal Air Foree night bombing
21et/22nd generally successful. Hite
observed on aircraft factories and depote at
Gottingen, Notemburg, Wismer and Rassel, on
reilway targets at Homm and Soest, and on oil
plant at Geleenkirehen. Aerodromes at
Hotterden and is northwest France and north-
vestern Germany also oil tanks at Gheat were
attacked with success and mine-laying opera-
tions carried out.
Yesterday, all Blenhoims despatched
obliged to abandon tacks owing to lack of
eloud cover.
Last night 78 aireraft despatched
as follows: so heavy bonbers against cirereft
festery and depot at Bronen and Paderborn: oil
plant/
Regraded
plant as Gelsenkirchen; railway targets at
liams, Masen and Dusseldorf; serodrome at
9
Aschwege. of these, one aircraft carried
leaflets for northwest France. 18 medium
bombere against serodromes; 10 aircraft for
mine-laying in Helsingfors aree, has Estuary
and Hubert Oat. 20 aircraft missing.
S. Addition to yeaterday's report:
enemy aircraft caused considerable damage to
Albert Docks station, Leith Looks, night of
21st/22nd. Casualties one killed, six injured;
shipping and main traffic not affected.
Only slight enemy air activity yester-
day. Duff House, danff, was bombed, four
Jerman prisoners milled, twenty-three injured.
ueteorological flights carried out, chiefly
over north Brottish waters, and in one case as
far as iceland, also shipping reconneissance
flights. Our convoys, protected by fighters,
were approached but enemy seemed reluctant to
attack. Several incondiary bombs dropped in
Northumberland, but fires quickly extinguished.
Last night, considerable enemy
metivity over wide-spread area, but damage was
slight and casualties few. Incendiary bombs
dropped in Fife, and a few H.S.B in Lineolnshire,
Besex, Yorkshire and South Wales; at Chepator
a factory was damaged without causing casualties
or affecting output. Mine-laying was on exten-
aive scale. Casualties: Knemy two bombers
confirmed/
10
+
confirmed and one unsonfirmed. Our fighter
casualties mil.
4. Be shipping casualties were
reported yesterday.
s. séan- 12 Blesheims dropped
five bombs on Diredawn aerodrome July 21st;
results not yet svailable, one Blenheim
missing. Night of Slat/S2nd, two of our
sirereft bombed Macasca acrodrems.
On July 20th a unit of our
ermoured brigade engaged enemy column of
twelve guas and motor transport north of
Capasse and foreed enemy to withdraw. lacay
aircraft on July Slet bombed Sollum, Moree
Matrah, Fake and area west of 8161 Barreni.
Be damage reported.
11
15 BROAD STREET, NEW YORK
TELEPHONE HANOVER 2-2460
BRITISH PURCHASING COMMISSION
725 15th Street ".w.
Washington, D.C.
July 24, 1940.
The Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
Dear Mr. Secretary,
I enclose a copy of a letter handed to
Mr. Knudsen this afternoon.
At that interview Mr. Knudsen stated
that complications had arisen in connection with
the terms which he had arranged for us with regard
to the Packard Rolls Royce deal. I understand that
as we are interested to an extent greater than one
half the R.F.C. financing plan cannot be arranged
and we must put up a further $10,000,000 to take
care of capital expense. I had reported it to
London on the other basis.
While I realize that the change does not
involve vital considerations on the one contract,
I am quite worried as to the possibility of a prece-
dent being established which would detract from the
value of the arrangement which I reported to London
for complementary programmes. London attaches a
great deal of value to that arrangement and it would
be with the greatest regret that they saw anything
happen to prevent it being worked out in practice.
This I know from the cables they have sent me in
response to my message after we had talked.
I am wondering if there is some way out
whereby a precedent could be avoided. My own
suggestion to Mr. Knudsen was that the U.S. share
might be increased from three to six thousand engines
12
2.
so putting it on & 50-50 basis and avoiding the
difficulty althgether. I suggested that he might
be willing to go to Congress for the extra amount.
I did not make much progress along this line.
He has asked me for a reply this afternoon.
Frankly I hesitate to press you upon one more matter of
ours today and indicated to him therefore that I might
decide to write you, giving us both a night to sleep
over it and telephone you from New York in the morning.
Yours sincerely,
better Rhm
1
15 BROAD STREET. NEW YORK
TELEPHONE HANOVER 2.2460
Regraded Unclassified
opy
BRITISH PURCHASING COMMISSION
725 15 Street N.W.
Washington, D.C.
July 24g 1940.
Was 8. Knudsen, Esq.
Chairman, Advisory Connittee
National Defense Commission
Washington, D.C.
Dear Mr. Knudsen,
As arranged, I as writing to confirm
the conclusions reached at the meeting this morning
in Secretary Morgenthau's office.
For the immediate programe up to
April 1st, 1942, it was agreed that the informal
memorandum attached hereto as Statement 4, would
regulate further approvals of airframe orders
and the release of surplus engines for shipment to
the United Kingdom. We have ventured to modify
the wording slightly but I do not think we have in
any way detracted from our mutual understanding.
It was also agreed that you will arrange,
on United Kingdom account, for the early formulation
of plans and estimates for the creation, over and
above all arrungements already in train, whether
for the United States of for the United Kingdom, of
additional capacity equivalent to 3,000 planes per
sonth with a fully balanced production for all
ancillary equipment including engines, propellors,
armanent etc. The suggested split-up of this total
of 3,000 is as shown in Statement B appended, and
it was the hope of the meeting that those plans
should envisage the creation of this now potential
with the utmost acceleration.
14
a
I trust the foregoing correctly records
the understandings reached.
Yours sincerely,
Director General
1
Statement "A"
Regraded Unclass
Airplane - Army allocation to 4/1/42
12,884
.
- Navy allocation to 4/1/42
6,208
-
- British allocation to 4/1/42
14,375
April 1. 1941 October 1. 1941 April 1, 1942
Army
6,882
3,548
2,454
Navy
1,923
1,555
2,730
British
4,094
4,686
5,595
These allocations are accepted by parties involved
in relation to capacity immediately in prospect.
The United Kingdom will place at once the 1,287 planes
under negotiation and has the option of placing 4,200
planes more to make the total of 14,400.
There are, in addition, requirements totalling 1,820
for Canada, Australia, South Africa, India, which will
be dealt with separately.
On Engines
British orders of today are 21,485 with options to
12/31/42 of 20,589. It is understood and agreed that
all planes made in the United States, American and
British, get priority on engines and that optional
and unallocated engines àre distributed in accordance
with the above understanding. It is understood also
that specifications for spare engines for Great Britain
manufactured planes will be submitted as soon as
possible and will be considered on the same basis.
16
Single-engined pursuits
Twin-engined
.
I 3,000 TOTAL
Rive-bombers
Twin-engined medium bonhers
250
Hulti-engined lang-range bombers
Flying boats
Single-ongined advanced trainers
Twin-engined
. # 9 -
17
15 BROAD STREET, NEW YORK
TELEPHONE HANOVER 2-2460
BRITISH PURCHASING COMMISSION
725 15th Street N.W.
Washington, D.C.
July 24, 1940.
The Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
Dear Mr. Secretary,
I attach the original of the memorandum
with regard to the Wright R-engines (2200 H.P.),
copy of which was handed to Mr. Knudsen this after-
noon with a request for a clearance.
He has asked Dr. Mead to develop the
situation.
Yours sincerely,
he aur
18
AIDE-MEMOIRE FOR MR. MORGENTHAU
With reference to your recent
telephone message to me, the United Kingdom
Government desires to order 2 two-speed
super-charged Wright R-3350-B engines, type
705-A, for delivery first week in September,
1940.
It is also desired to secure special
priority for an initial order up to 400, and
consideration is requested of this application,
in the hope that it may be possible to indicate
the best deliveries that can be looked for.
B.P.C.
July 24, 1940
ADVISORY
MISSION TO THE COUNCIL or HAT AL DEPENDS
13
OFFICE MEMORANDUM
To:
Mr. W. L. Batt
Date: July 24, 1940
From: W. S. Tower
Subject: Supply of Iron and Steel Scrap
In the memorandum entitled "Iron and Steel Scrap," prepared
by the Subcommittee on Regulation of Exports, and dated July 1940,
the following points are made in respect to the importance of
supplies of such scrap:
"(1) While pig iron and steel scrap are interchangeable within
limits for steel manufacture, considerably greater tonnages of steel
can be produced as the proportion of steel scrap in the furnace
charge is increased, because steel scrap contains less non-ferrous
impurities than pig iron. Steel production can be increased more
quickly by using scrap.
"(2) To achieve maximum steel production at minimum cost, adequate
scrap supplies should be available relatively near the steel plants.
This minimizes cost and also bottlenecks in transportation, and in
the production of coke and pig iron. The continued export of scrap
in large volume operates to increase scrap prices and makes it neces-
sary to go farther afield for supplies.
"(3) The steel industry is now much more dependent upon scrap than
during the first World War."
While pig iron and steel scrap are "interchangeable within
limits" for steel manufacture, the hard fact is that the steel indus-
try could not operate at much more than 60% of capacity, if all the
vailable blast furnaces in this country were producing only pig
iron for use in steel making.
IDC-5--7/40--50M.
To: Mr. W. L. Batt
24, 1940
A substantinl part of blast furnace capacity, however, surt
be used for making essential ferro-alloys and foundry, mallesble
and other grades of non-steel making pig iron.
It is evident, therefore, that "to achieve maximum steel
production" of which the industry is capable would, under any circum-
stances, require 40% or more of the metallic charge of the steel
furnace in the form of scrap.
It is sometimes urged that so-called "synthetic scrap" offers
a partial solution of the problem of scrap supply. But entirely
apart from the fact that relatively few steel makers have any facil-
ity for producing synthetic scrap, competent opinion in the industry
is to the effect that it ceases to be a possibility when the rate of
operations gets above 75% of capacity.
If it be assumed for this discussion that the effects of de-
mand for steel in the defense program, added to all other needs,
will call for a sustained rate of production at 75% to 80% of capac-
ity, such a rate would represent an output of 5 to 52 million net
tons of steel ingots per month. For comparison, it may be noted that
the current rate (week of July 22) is 88%.
Assuming also a continuation of the common practice of charg-
ing at least 50% scrap in the open hearth steel furnace, the amount
of scrap required for that assumed rate of operations would be about
2.5 to 2.7 million net tons per month.
A major part of the scrap used in steel furnaces is so-called
home scrap, created in the process of making and finishing steel
products in the mills. But current trends indicate that the percent-
-re of home scrap created is likely to be relatively less than in
21
: Mr. W. L. Batt
-3-
July 24, 1940
he recent past, for the following reasons:
(a) Exports of semifinished steel, like shell steel and forging
billets, mean less scrap per ton of ingots represented.
(b) The larger proportion of heavy rolled products in the total
output of finished steel means relatively less scrap per
ton of ingots used because of less wastage in the manufacture
of such products.
(c) At higher rates of operation there is more chance to use off-
heats of steel in other ways than in remelting them in lieu
of using scrap.
The expected high rate of output, therefore, does not serve
D relieve the pressure on supplies of scrap.
Among steel producers who are important consumers of scrap,
It is generally agreed that the minimum margin of safety in scrap
supply is the equivalent of 60 days' consumption, either in yards
(consumers' or suppliers') or in transit thereto.
Based on the foregoing assumptions in respect to steel produc-
tion 60 days' supply of scrap would be 5 to 51 million net tons. An
analysis of the Bureau of Mines report on scrap supplies as of March 31,
1940, indicates less than 5 million tons of steel making grades of
scrap as of that date in the hands of consumers and suppliers or in
transit.
It seems unlikely that the report on scrap supplies as of
June 30, when it becomes available, will show any important improve-
ment in visible supplies of steel making scrap in view of (a) the
Regraded Unclassified
22
To: Mr. W. L. Batt
-4-
July 24, 1940
rapid rise in the rate of steel output during the second quarter
and (b) the continued export of substantial tonnages of scrap
(April-May exports about 582,000 net tons).
Although not readily supported by specific data, the opinion
is general among large scrap consumers that continued heavy exports
during the past three or four years have greatly depleted the poten-
tial sources of prompt scrap.
The available information, therefore, indicates that the
visible supplies of steel making grades of scrap are below the com-
monly accepted minimum margin of safety, for an assumed rate of steel
production averaging only 75% to 80% of capacity for some considerable
period. If the industry is "to achieve maximum steel production," the
60-day supply as the margin of safety would call for upwards of 6 mil-
lion tons of visible supplies of steel making scrap, or 20% to 25%
more than the tonnage reported as of March 31, 1940.
The attached table shows the tonnage of scrap exported in each
month from January 1937 to and including May 1940. It is evident
from the figures for the first five months of this year that exports
were at an average rate of more than 200,000 tons per month. This
tonnage includes shipments averaging about 60,000 tons per month to
Italy, which shipments have since been discontinued. Tonnage figures
on export shipments of scrap for June 1940 are not now available. It
is felt, however, that such figures will probably show that the dis-
continued tonnage to Italy was almost replaced by increased shipments
to United Kingdom, Canada, and other smaller countries.
Recent press reports refer to Japanese purchases of scrap,
stated to total close to 300,000 total fee shipment over the next
23
To: Mr. W. L. Batt
-5-
July 24, 1940
three or four months, with approximately half the total tonnage to
be shipped from Atlentic coast ports. Such shipments will be at
ap roximately the same rate as was experienced in the first five
months of 1940.
It probably is true that at a price there is theoretically a
huge amount of scrap which might be made available for use in this
country for steel production. But the practical fact is that deple-
tion of the potential sources of prompt scrap and a less than ade-
quate margin of safety in current visible supplies open the way for
an actual physical shortage of scrap for the needs of maximum steel
production over a sustained period.
For all these reasons appropriate steps should now be taken
through regulation of the export movement of scrap to safeguard the
progress of the defense program against any such possible contingency.
hallers lower.
W. S. Tower
Attachment
WST: jms
24
Table 2. - Iron and steel scrapl/: United States exports by months,
1937-39 and January-May 1940
(Thousands of long tons)
#
I
#
I
Month
:
1937
I
1938
I
1939 2/
1940
:
1
:
#
January
:
69
#
356
=
225
:
186
February
=
143
1
256
:
223 :
233
March
=
356
:
335 :
310 =
205
April
:
421
:
307 :
238 =
219
May
:
631
:
372 I
383 :
310
June
#
515
=
160 :
397 =
July
:
420
:
125 :
347 :
August
=
474
:
107 :
291 :
September
=
253 :
143 :
328 :
October
:
184
:
221 :
335 :
November
:
254
I
271 #
271 I
December
: 328
I
321
:
204
:
Total - - 12 months
# 4,048
I 2,974
:
3,552
I
:
=
:
:
Total. - first 5 months
: 1,620
I 1,626
#
1,379
=
1,153
:
=
:
:
1, Excludes tin-plate scrap, circles, etc., waste-waste tin plate,
and terne-plate clippings and scrap.
2/ Preliminary. 1939 total differs slightly from that shown in
table 1.
Source: Compiled from official statistics of the U. S. Dept. of
Commerce.
(Handed by Mr. Pinsent of the British Embassy to Mr. Cochran
25
in the Treasury at 12 :00 noon, July 26.)
Telegram of 24th July 1940 from London.
We understand that American Express
have refused to accept a rupee deposit from the East
Asiatic Company, Calcutta, on the ground that the
Reserve Bank will only allow credit to a blocked
account.
We have already taken adequate steps to
remove all branches of the East Asiatic Company from
the control of the head office in Denmark.
In particular Calcutta branch is
under control of the Government of India. Cessation
of operations of the Company would have serious
economic consequences not only in British territories
but throughout the Far East.
Can you explain the position to the
Treasury and secure that the branches of the East
Asiatic Company be treated as non-Danish concerns.
COPY
26
FEDERAL RESERVE BANK
of New York
July 24, 1940.
Sir: Attention: Mr. H. Merle Cochran
We enclose for your information a state-
ment showing the amounts paid by us under in-
structions from the Reichsbank, Berlin, and the
Bank for International Settlements, Chateau d'Oex,
to the German Embassy, Washington, D. C., the
German Consulate General, New York, and the German
Consulate, San Francisco, since September, 1939.
It is interesting to note that no payments
were made directly to the Embassy and Consulates
prior to September, 1939.
Respectfully,
L. W. Knoke,
Vice President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Inc.
PAYMENTS MADE BY THE FEDERAL RESERVE BANK OF NEW YORK, BEGINNING
27
SEPTEMBER 1939. TO THE GERMAN EMBASSY, WASHINGTON, D. O.. THE
GENERAN CONSULATE GENERAL, NEW YORK, AND TO THE GERMAN CONSULATE,
SAN FRANCISCO
(From the account of the Reichsbank up to December 14, 1939,
and since that date from the account of the Bank for
International Settlements)
Paid to the German Embassy. Washington, D. C.
Date Paid
Amount
1939
September
$ 138,765.94
October
69,536.57
November
80,224.63
December
80,224.63
1940
January
182,580.79
February
72,202.17
March
80,224.63
April
130,224.63
May
160,000.00
June
100,777.90
July (24th)
60,000.00
Total
$1,154,761.89
Paid to the German Consulate General, New York
1939
September
213,053.70
October
151,363.82
November
704,980.00
December
7,980.00
1940
January
33,000.00
February
-0-
March
-0-
April
50,000.00
May
&
June
-0-
July (24th)
35,000.00
Total
1,195,377.52
28
-2-
Paid to German Consulate, San Francisco
Date Paid
1940
March
$ 60,000.00
GRAND TOTAL
$2,410,139.41
RECAPITULATION
Date Paid
Amount
1939
September
351,819.64
October
220,900.39
November
785,204.63
December
88,204.63
1940
January
215,580.79
February
72,202.17
March
140,224.63
April
180,224.63
May
160,000.00
June
100,777.90
July (24th)
95,000.00
GRAND TOTAL
$ 2,410,139.41
29
July 24, 1940
TELEGRAM TO THE PRESIDENT, HYDE PART
(Via White House Telegraph Wire)
URGENT AND STRICTLY CONFIDENTIAL
Tom Corooran, Ben Cohen, Ed Foley and
myself have worked up the following program which
we are very anxious to discuss with you before Friday
night when Tom Corcoran and I are going away for a
short vacation. I would appreciate your giving us
the necessary time to discuss this idea with you.
1. Date should be ostablished within the n. 1. c.
a separate division, to be known as the Defanse
Finance Administration, specially equipped to deal
quickly and effectively with the financing of our
national defense needs. The division should be in
charge of an aggressive administrator aided by a few
key men with a passion for taking and not evading
responsibility, cutting red tape and making quick
decisions. The division should be authorised to
avail itself of the powers of the Reconstruction
Finance Corporation under section 5d of the RFC Act
as provided by the Glass-Steagall Act of 1938 and the
1940 National Defense Amendment.
2. The Defense Finance Administration should have &
expersto section to look after the credit and cepital
needs of small and nedium-sised businesses in order to
nake it possible for then to take an active part
Regraded Unclassified
30
Secretary Morgenthau,
2.
in the national defense program. The expediting
of the national defense program requires the full
utilisation of the capacity and skill of all
business, small as well as large.
3. The Defense Finance Administration would conduct a
widespread publicity campaign, making known to mall
and medium-sised business that funds will be available
on liberal terms, including low interest rates and
without the rigerous requirements which have heretofore
characterised the making of leans to mall and medium-
sised business by the Reconstruction Finance Corporation
and Federal Reserve Banks.
4. The Defense Finance Administration should utilise not
only the RFC regional fiscal agencies but also other
decentralised government offices as well as ordinary
commercial banks, with a view to bringing credit and
capital to business men on their home ground and making
it unnecessary for them to come to Washington. These
local agencies and banks could act as the agents of the
RFC, or in the case of local banks, the loans could be
made by the banks with the RFC parMoipating therein.
Regulations governing the program should lay dom standards
which will emable the local agencies and banks to approve
small leans without reference to Washington.
31
Bearetary Margestholl,
3.
5. The Reconstruction Finance Corporation would
sake available to the Defense Finance Administration
4 billion dellars to be provided by berrowed funds
to the extent that the RFC night not have such
amount available. This many would be used as a
revelving fund by the Defense Finance Administration.
6. Once a month the Defense Finance Administration
would make a. detailed report of its activities during
the preceding month to the Board of Directors of the
RFC se that the RFC would always be advised of the
activities of the Defense Finance Administration.
The degree of centrol which the Federal Loan
Administrator would exercise ever the Befores Finance
Administration would be substantially the - as
the centrol which he exercises over the Federal Heasing
Administration, the Federal Home Loss Bank Board,
or other organizations under his supervision.
Henry Morgenthau, Jr.
7-24-40
hr 32
July 24, 1940
TELEGRAM TO THE PRESIDENT, HYDE PARE
(Via White House Telegraph Wire)
URGENT AND STRICTLY CONFIDENTIAL
Tom Corcoran, Ben-Cohen, Ed Foley and
myself have worked up the following program which
we are very anxious to discuss with you before Friday
night when Tom Corooran and I are going away for a
short vacation. I would appreciate your giving us
the necessary time to discuss this idea with you.
HA 33
July 24, 1940
TELEGRAM TO THE PRESIDENT, HYDE PARK
(Via White House Telegraph Wire)
URGENT AND STRICTLY CONFIDENTIAL
Tom Corcoran, Ben Cohen, Ed Foley and
myself have worked up the following program which
we are very anxious to discuss with you before Friday
night when Tom Corcoran and I are going away for a
short vacation. I would appreciate your giving us
the necessary time to discuss this idea with you.
0 34
July 24g 1940
n dear Mr. Presidents
In talking to Secretary Stinson yesterday in regard to
adding oil and scrap metals to the list of stratagic miterials
is your Babarge Preclamation, Secretary Minem called my
attention to the fact that during the episode
in Siberia over the Chinose Easters Bailmy is 1918, the for
Trade Board successfully applied economic pressure on Jagan by
restricting licenses for the export of sotten to Japan and for
the import of silk from Japan. I a enclosing, for your
information, an extract from Foreign Relations, 1919, Bussia,
which relates the episode.
My reason in calling this to your attention is that
you night want to consider possible esonomic constions at this
time. If you are interested, I have prepared full
R economic canctions against Japan which I shall be happy to
discuss with Jul.
Yours sincerely,
The President
The Unite lime
EHF:mp
7/24'40
35
Regraded Unclass
Extract from "Foreign Relations, Russie. 1919"
"You may then narrate in considerable detail the difficulties
which we have had with Japan with reference to this reilway and
in particular the action of Japan in prootically seising the
Chinese Eastern Railway, thereby in effect controlling all inter-
course to and from Russia via the Pacific. You might mention the
number of troops sent by Japan for the parpose and point out that
such number was far in excess of that contemplated by the errenge-
ment under which troops of the Associated Governments ware lended
in Siberia. The nature of the activities of Japen including die-
position of their troops and Japanese commercial activities should
then be referred to (followed by) a statement of the efforts of
the Government of the United States to restore the reilroad to a
condition where it would not be exclusively dominated by any 020
power The conversations of the President and Secretary of
State with the Japanese Ambassador, the negotiations of Ambassador
Morris under instructions from the Department and the economic
pressure applied by the War Trade Beard40 may be referred to. You
should then describe the successful conclusion of these efforts of
the United States as evidenced by the arrangements for administre-
tim of the railway by Stevens as a Russien employee and the with-
drawal of substantial numbers of Jayanese troops. We feel that
these proceedings and their conclusion can properly be described
as a very important and constructive achievement which may be of
insstimable value to the people of Russie end to the United States
as well as the world in general, provided they are followed through,
thereby giving practical effect to the principle of the open deor."
"46. By restrictions laid upon licenses for the export of costom
and the import of silk in November 1918 (file no. 694.119/245)."
SEC. OF WAR
JUL 2 ₄ 1840
LETTER
SEC. OF- TREASURY
36 Date
RL: Addressee's letter of July 23, 1940, with
which was enclosed a copy of an extract from "For-
eign Relations, 1919, Russia" which dealt with the
ER2
OTHER Russo-Japanese episode in Siberia
n n November, 1918.
He
TION TAKEN: Receipt is acknowledged.
maD
EH2
7/24
(F - 7/24/40.
M. or 112
MATTER
N. or TREASURY
37.
RE: letter of July 25, 1940, with
de - enclosed a copy of un extract from or
in Relations, 1919, Russia skich dealt with the
INCOME opisode is Siberia
1 revenber, 1910.
I s I
- - 7/24/09.
10 0 38
JUL 24 1940
W dear Mr. Secretary:
Receipt of your letter of July 23, 1969, with
which was enclosed a copy of at entract from "Fereign
Relations, 1919, with dealt with the
spicede in liberia in November, 1918, is
Your courteny in making this information available
to se is approciated.
Very truly yours,
(Signed) H. Morgesthau, Jr.
Secretary of the Treasury.
The Homerable
the Secretary of Mr.
HEF/SVP
Typed: 7/24/40.
Fide
ec to M. Thompaon
39
JUL 24 1940
I I á è
Receipt of your letter of July m, 1949, with
which - 8 - of m entruct free "Foreign
Relations, 1919, which dealt with the
op&sele is Mborin to November, 1920, to acknowl.cigal.
Tear courteey is using this information smillable
to - is approciated.
I I É
(Signed) H. Morgenthau, Jr.
Secretary of the treasury.
the
the Secretary of M.
Type#: 7/24/49.
40
JUL 24 1940
Reservey I á h
Boundys of your letter of say m, 1900, with
which - custical a - of as entrest from "Foreign
Relations, 1019, with dealt with the
opients is Micria is Revember, 1019, to
Your courteay is setting this information smilable
to - to opproxiated.
I I É
(Signed) H. Morgesthau, dr.
a x I I
the
the Secretary of M.
Typed: 7/24/49.
41
JUL 24 1940
I á h
Receipt of your letter of July s. 1949, with
which me enclosed a up of - entract from *Foreign
Relations, 1919, which dealt with the
episode in Suberia is November, 1910, 10 acknowledged.
Tear courtery is neking this information available
to - to approciated.
Very truly yours.
(Signed) H. Morgenthau. JT.
Secretary of the freasury.
the Recerable
a I r á
m/m
Typed: 7/26/40.
42
WAR DEPARTMENT
WASHINGTON
July 23, 1940.
My dear Mr. Secretary:
Here 1s a copy of an Extract from "Foreign Relations,
1919, Russia," pages 246 and 247, which refers to the episode
with Japan in Siberia, which took place in November 1918.
I referred you to this citation in my telephone talk this after-
noon.
Very sincerely yours,
Henry h think
Secretary of War.
Honorable Henry Morgenthau, Jr.,
Washington, D. C.
BIO TT 01077 SM W 8 21
&
Secretary of the Treasury,
DAVIDE
43
EXTRACT FROM A TELEGRAM OF THE
COMMISSION TO NEGOTLATE PEACE TO THE ACTING SECRETARY OF STATE
Paris, January 31, 1919, 8 P.M.
(From "Foreign Relations, 1919, Russia," pages 246 and 247.)
"You may then narrate in considerable detail the difficulties
which we have had with Japan with reference to this railway and in
particular the action of Japan in practically seizing the Chinese
Eastern Railway, thereby in effect controlling all intercourse to
and from Russia via the Pacific. You might mention the number of
troops sent by Japan for the purpose and point out that such num-
ber was far in excess of that contemplated by the arrangement under
which troops of the Associated Governments were landed in Siberia.
The nature of the activities of Japan including disposition of
their troops and Japanese commercial activities should then be
referred to (followed by) a statement of the efforts of the Govern-
ment of the United States to restore the railroad to & condition
where it would not be exclusively dominated by any one power.
The conversations of the President and Secretary of State with
the Japanese Ambassador, the negotiations of Ambassador Morris
under instructions from the Department and the economic pressure
applied by the War Trade Board46 may be referred to. You should
then describe the successful conclusion of these efforts of the
United States as evidenced by the arrangements for administration
of the railway by Stevens as a Russian employee and the withdrawal
of substantial numbers of Japanese troops. We feel that these
proceedings and their conclusion can properly be described as a very
important and constructive achievement which may be of inestimable
value to the people of Russia and to the United States as well as
the world in general, provided they are followed through, thereby
giving practical effect to the principle of the open door."
"46. By restrictions laid upon licenses for the export of cotton
and the import of silk in November 1918 (file no. 694.119/245)."
44
July 24, 1940
X dear Mr. Secretary:
I an inclosing herewith a statement
showing departure permits granted vessels
earrying petroleum products on July 28rd.
Yours sincerely,
(Engued) a Morgenthau, Jr.
Honorable Harold L. Ickes,
Secretary of the Interior.
Enc.
E
By Memagee 57
45
July 24, 1940
My dear Mr. Secretary:
I an inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(higned) H Morganthau, Jr.
Honorable Harold L. Ickes,
Secretary of the Interior.
By -
46
July 24, 1940
My dear Mr. Secretary:
I an inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 28rd.
Yours sincerely,
(Signed) H. Morgenthau, JI.
Nonorable Harold L. Ickes,
Secretary of the Interior.
B I
Regraded Unclassified
DEPARTURE PERMITS GRANTED TO VESSELS CARRYING
PETROLEUM PRODUCTS or JULY 29.
Tessel
Bat.
Not
Cargo
Amount
From
To
Tonnage
SAN CLEMENTE MARU
Jap.
5285
Petroleum Products
San Francisco
Japanese & Chinese ports.
GULFVAI
Am.
5522
Petroleum Products
I
Port Arthur
Port Petrol. California.
KEISTO MARU
Jap.
3582
Aviation Gamoline
10,000 bbls.
San Pedro
Tokuyama & Xure. Japan.
in drums.
SOLSTAD
Nor.
3435
Lub. 011
Houston
United Kingdom
TATIBANA MARU
Jap.
-
Diesel 011
55.000 bbla.
San Pedro
Invasaki, Japan.
In bulk.
CORISCO
Hon.
552
Petroleum Products
I
Port Arthur
Puerto Cortes, Hondurse.
SKANDINAVIA
Nor.
723
Petroleum Products
I
Port Arthur
Montivideo, Uraguay:
Rio de Janeiro & Santos,
Brasil.
Regraded Unclassified
48
July 24, 1940
My dear Admiral Stark:
I am inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) H. Morgenthau, Jt.
Admiral Harold R. Stark,
Chief of Naval Operations,
Navy Department,
Washington, D.C.
Enc.
By Messenger 507
Regraded Unclassified
49
July 24, 1940
*
dear Admiral Stark:
I an inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Admiral Harold R. Stark,
Chief of Neval Operations,
Hevy Department,
Washington, D.C.
By
50
July 24, 1940
My dear Admiral Stark:
I an inclosing herewith & statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) H. Morgesthau, JI.
Admiral Harold R. Stark,
Chief of Naval Operations,
Navy Department,
Washington, D.C.
By Measuager
DEPARTURE PERMITS GRANTED TO VESSILS CARRYING
PETROLEUM PRODUCTS ON JULY 29.
Teasel
Nat.
Net
Cargo
Amount
From
to
Tounage
SAN CLEMENTE MARU
Jap.
5285
Petroleum Products
San Francisco
Japanese & Chimese ports.
GULFVAY
As.
5522
Petroleum Products
Port Arthur
Port Petrol, California.
KEISYO MARU
Jap.
3582
Avistion Gasoline
10,000 bble.
San Pedro
Tokuyana & Euro, Japan.
in drums.
SOLSTAD
Nor.
3435
Lub. 011
----
Houston
United Kingdom
TATINANA MARU
Jap.
Diesel 011
55,000 bble.
San Pedro
Kavasaki, Japan.
in balk.
CORISCO
Hon.
552
Petroleum Products
I
Port Arthur
Puerto Cortes, Hondures.
SKANDINAVIA
Nor.
723
Petroleum Products
I
Port Arthur
Montivideo. Uraguay;
Rio de Janeiro & Santos,
Brasil.
Regraded Unclassified
52
July 24, 1940
My dear Mr. Welles:
I am inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. Summer Welles,
Acting Secretary of State.
Exc.
By Messeager 505
53
July 24, 1940
m dear Mr. Welles:
I an inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) E Morgestbau, Jr.
Mr. Summer Welles,
Acting Secretary of State.
By Memorager
54
July 24, 1940
My dear Mr. Welless
I am inclosing herewith & statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) R Morgenthau, Jr.
Mr. Summer Welles,
Acting Secretary of State.
By Measuager
55
July 24, 1940
W dear Mr. Secretary:
I an inclesing herewith a statement
showing departure permits granted vessels
earrying petroleum preducts on July 23rd.
Yours sincerely,
(Signed) & Morgenthau, Jr.
Honorable Frank Knex,
Secretary of the Nevy.
Ene.
By Memages 809 qie m
7/35
56
July 24, 1940
My dear Mr. Secretary:
I am inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Honorable Frank Knox,
Secretary of the Navy.
By Messeager
Regraded Unclassified 4
57
July 24, 1940
My dear Mr. Secretary:
I - inclesing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) E. Morgenthan, Jr.
Nonorable Frank Knox,
Secretary of the Navy.
By Messanger
58
DEPARTURE PERMITS GRANTED TO VESSELS CARRYING
PETROLMEM PRODUCTS or JULY 29.
Vessel
Eat.
Net
Cargo
Amount
From
al
Tounsge
& SAF MARU
Jap.
5285
Petroleum Products -
San Francisco
Japanese & Chinese ports.
GULFMAX
Am.
5522
Petroleum Products
I
Port Arthur
Port Petrol, Califernia.
KHISTO MARU
Jap.
3582
Aviation Gasoline
10,000 bble.
San Pedro
Teksyana & Eare. Jugen.
is drums.
SOLSTAD
Nor.
3435
Lub. 011
-
Houston
United Kingdom
TATIBANA MARU
Jap.
-
Diesel 011
55,000 bble.
San Pedro
Invaski, Japan.
Is bulk.
CORISOO
Hon.
552
Petroleum Products -
Port Arthur
Paorte Cartes,
SKANDINAVIA
Nor.
723
Petroleum Products -
Port Arthur
Nontivideo, Uraguay:
Rie de Jameire & Santos,
Brasil.
59
July 24, 1940
My dear Mr. Secretary:
I an inclosing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 28rd.
Yours sincerely,
(Signed) E. Morgenthau, dt.
Honorable Henry L. Stimson,
Secretary of War.
Exc.
,
5.5 I -
SQ
July 24, 1940
*
dear Mr. Secretary:
I am inclesing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Segned) & Mongestion, Jt.
Honorable Henry L. Stimson,
Secretary of Bar.
n 2 I
61
July 24, 1940
My dear Mr. Secretary:
I an inclesing herewith a statement
showing departure permits granted vessels
carrying petroleum products on July 23rd.
Yours sincerely,
(Signed) E Morgesthau, Jr.
Honorable Henry L. Stimson,
Secretary of Far.
By Memorager
62
July 24, 1940
My dear Mr. Forster:
will you please telegraph to the President
the information contained in the inclosed table.
Yours sincerely,
Mr. Rusliph Forster,
Executive Clerk,
The White House.
Forster had left
S. thiowas Delived
to m m miles.
the telegraph clerk
m Thank 500 phoned
her at was come
63
July 24, 1940
My dear Mr. Forster:
will you please telegraph to the President
the information contained in the inclosed table.
Yours sincerely,
Mr. Rudblph Forster,
Executive Clerk,
The White House.
Dearaded L
64
July 24, 1940
My dear Mr. Forater:
will you please telegraph to the President
the information contained in the inclosed table.
Yours sincerely,
Mr. Rushiph Forster,
Executive Clerk,
The white House.
65
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
In accordance with our instructions, the Federal Reserve Bank has commenced
this week to check up on German balances in New York. Since such balances amount
to only $8,000,000. and $5,000,000 of this is carried with the Chase Bank alone,
inquiries will be insugurated solely with the Chase Bank until we have our initial
picture of the situation. We do not desire to male BO many inquiries that some of
this capital might be inclined to flee in fear of a blocking arrangement.
Assistant Vice President McKeon has provided the following information in
regard to Italian balances:
On July 16 the Credito Italiano drew a check on the National City Bank for
$75,000 in favor of the Swiss Banking Corporation.
On July 22 & check was drawn on the Chase by the Banco Commerciale Italiano
in favor of the Swiss Banking Corporation for $100,000.
On July 22 the Chase was ordered by the Bank of Italy at Rome to transfer
$143,000 to the Credit Suisee of New York for account of the Credit Suisse, Zurich.
On July 21 the Banco Commerciale Italiano drew a check on the Chase for
$50.000 in favor of the Banque Francaise et Italienne pour l'Amerique du Sud.
On July 21 the Banco Commerciale Italiano drew & check on Chase for $121,000
in favor of the Standard 011 Company of New York.
On July 15 the Banco Commerciale Italiano drew B. check on the Chase in favor
of the French American Banking Corporation for $65,000.
Mr. McKeon gave me the following information on Russian balances:
As of July 22 the State Bank of Russia had with the Chase Bank $5,300,000 in
its dollar balance and $2,800,000 under its letter of credit account. On the same
date Amtorg had a dollar balance of $857,000 and a letter of credit account for
$1,660,000.
Among the payments into the State Bank account for the week ended July 22 WES
& transfer from the Federal Reserve Bank of New York by order of the Bank for
International Settlements for $600,000. $200,000 was received from the Union Bank
of Switzerland. There was B. transfer from the Russian State Bank account with the
main office of the Chase Bank to the account of the Antorg Trading Company in the
new Netherlands branch of the Chase for $500,000. There was a transfer from the
Regraded Unclassified
66
- 2 -
from the State Bank account to the Amtorg account for $400,000. There was also &
sransfer to the Mellon National Bank of $151,000. The Russian account was also
lebited $186,000 for trust fund corporate maturities and interest. There use
nother payment of $400,000 from the Russian State Bank account to Amtorg.
inally the Russian State Bank account was debited for a transfer of $50,000 to
he Bank for Foreign Trade, Moscow.
p.m.s
67
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
July 24, 1940.
To
Secretary Morgenthan M
FROM Mr. Gaston
MERCHANT SHIP MOVEMENTS
Matters Requiring Action by the Secretary of the Treasury
Major Holbrook of the United States Army requested the
Treasury yesterday to prevent the departure from San Francisco to
Alaska of the yacht SOUTHERN CROSS, owned by the Swedish munitions
millionaire Axel Wenner-Gren, but under Panamanian registry. The
request came from the San Francisco corps area command of the Army
and Army Intelligence at Panama has made a report on Wenner-Gren.
Major Holbrook indicated that the Army considered it inadvisable
for the yacht to proceed to Alaska. He stated further, however,
that the Secretary of War would make a formal application today
to the Secretary of the Treasury to have the vessel detained.
Steps have been taken by. the Coast Guard to delay the departure of
the vessel. @ brlieve we should Cmoult State,
Matters Not Requiring Action by the Secretary of the Treasury
Pending Cases
The matters described in paragraphs 1, 3, and 4 under
"Pending Cases" in the July 17, 1940, report, attached, are still
under consideration.
Regraded Unclassified
68
Secretary Morgenthau
Mr. Caire
July 17, 1940
MERCHANT SHIP MOVEMENTS
Closed Cases
1. A departure permit was refused for the American Tanker
ARYAN, carrying potroleum products to Spain. This vossel is
owned by the Texas Company, and 10 et Port Arthur, Terms.
2. A departure permit was refused for the American Tanker
NEVADA, earrying petroloun products to Spain. This vessel is
owned by the Texas Company, end 1e at Port Arthur, Texas.
Pending Cases
1. The Texas Company has submitted a request to export
610,000 tona of petroleum products to Spain for the belance of
the year 1940. This would make a grand total of 1,076,000 tone
for the year 1940. A memorandum of a conference with representa-
tives of the Texas Company held on July 17, 1940, in attached.
This matter is under consideration.
2. The Toxas Company has requested advice LS to whether or
not the 88 MONTE JAVALON, under Spenish registry, will be permitted
to carry 5,000 tons of asphalt to Spain. The vessel will be looded
at Part Neches, Texas, some time between August 10 and the early
part of September. This natter is under consideration.
3. Suspicious circumstances have arises in connection with
the departure of the SIMLA, a Norwegian vessel now at the port
of Philadelphia. No departure permit has been requested, but E
stop order has been placed against such a request when it is
received.
4. The Lithmanian Steamship DEWY is now in Boston. The
Lithusnisn-Amarican Inport & Export Corporation, 157 Chambers
Street, New York City, has requested that it be advised if a
departure permit is naked for this vessel. The corporation
desires to submit certain facts to the Treasury Department before
wueh permit is granted. This aatter is under consideration.
HC/op
(Initinled) H, C.
001 Miss Charnesy
Mr. Foley
Regraded Unclassified
69
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
July 24, 1940.
MEMORANDUM FOR THE SECRETARY:
There is attached a revised statement of the plane
program of the War and Navy. The Budget Officer of the
Navy was at the Capitol yesterday in connection with
the hearings on the pending estimates. In his absence,
the person in the Navy Department who furnished the
information which I gave to you yesterday afternoon
did not understand the situation involving the presently
authorized contract authorizations of $125,000,000
for the fiscal year 1941 which is sufficient to provide
for 1979 planes.
DWB
70
Revised, July 24, 1940
PLANES
AUTHORIZED PROGRAM - FISCAL YEAR 1941
Planes to
Funds
Contracts
be procured
appropriated
authorised
Total cost
far
4,247
$262,412,030
$212,559,597
$474,971,627
lavy
3,101
81,088,562
125,000,000
206,088,562
PENDING PROGRAM (PRESIDENT'S MESSAGE
OF JULY 10, 1940)
Planes to
Appropriations
Contract author-
be procured
pending
isations pending
Total cost
Far
14,394
$502,197,404
$1,002,600,000
$1,504,797.404
lavy
4,028
125,000,000
375,000,000
500,000,000
71
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Mr. Leroy-Beaulieu will call tomorrow at the appointed time of 11 o'clock.
He asked if it would be opportune to present to the Secretary at the same time Mr.
Georges Picot, who is succeeding Bloch-Laine on the French Purchasing Mission in New
York, and who will substitute as Financial Attache between the date of Leroy-Beaulieu's
departure and Alphand's arrival. I told Leroy-Beaulieu that I was fitting his
appointment into the Secretary's very crowded schedule and I thought it might not be
desirable to endeavor to introduce the new man at this time. I explained, however,
that I had known Picot for some time in Paris, and would welcome him at the Treasury
at any time, and would let the Secretary know whenever he was coming, to see if a
presentation could be arranged. Leroy-Beaulieu agreed that it might be better for
him to have more of a personal visit with the Secretary tomorrow than would be
possible with Picot present. Picot will come to Washington, nevertheless, as he has
certain business to attend to here. If and when the Secretary desires that he be
brought in, I can arrange it.
Leroy-Beaulieu would like to take the clipper on Thursday of next week, but his
Ambassador is trying to get him to stay over a few days longer. His final plans will
be decided tomorrow while he is in Washington.
BMR.
72
day sh, 1940
Water (suretary Dell
STRICTLY CONFIDENTIAL
Mr. desistran
In accordance with the decision reached at our deemp Meeting yesterday
ovening, I told Mr. Pincent w telephone this norning in - to Ms inquiry of
yesterday. that se had approved the release to the devernment from its
account is See Yest of one-half aillion dollars for the purchase of maltises.
Mr. Pineset had reselved a suggestion to this effect from the Noitish Purchasing
Commission, but desired to ⑉ that British and Hereogica purchases of maitions
on this market - "secrdinated".
Smx
MM0:1ag-7/24/40
Regraded Unclassified
73
SEAL SE SOLATH ORE E
THE SECRETARY OF THE INTERIOR
WASHINGTON
July 24, 1940.
My dear Henry:
Thank you for your letter of July 23, to which was
attached a list of permits granted to vossels carrying
petroleum products on July 20, 21 and 22, last.
Sincerely yours,
Secretary of the Interior.
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Ot
20 25
DEPARTURE PERMITS GRANTED TO VESSELS CARRYING PETROLEUM PRODUCTS
July 24, 1940
Net
Vessel
Nat.
Tonnage
Cargo
Amount
From
To
GENTO MARU
Jap.
5815
Fuel and Gas 011
84,000 Bbls.
San Pedro
Tokahama, Japan.
CRIPPLE CHEEK
Am.
4668
Petroleum products
Amount to be
Port Arthur
Tokahama, Japan.
in drums and cases
ascertained
THORSHOVDI
Nor.
5889
Fuel 011
51,000 Bbls.
San Pedro
Osaka, Japan.
Diesel 011
49,000 Bbls.
MARGRETTHE BALKE
Nor.
3200
Gasoline in druns
1,589,994 Gals.
New Orleans
Japanese ports.
SCOTTSBURG
Am.
4829
Gasoline
477,000 Gals.
New Orleans
Manilla, P.I. via San Pedro,
Lubricating Oil
106,435 Gals.
Tokahama, Kobe, Osaka, and
Grease
74,630 Lbs.
Shanghai
MARINA
Nor.
5903
Refined 011
----
San Francisco
Manilla, P.I. and Cebu
CITY OF LINCOLN
Br.
3978
Lubricating 011
----
Philadelphia
India via New York
ISELIN
Nor.
Fuel 011
92,000 Bbls.
San Pedro
Balboa, Canal Zone.
FEEJA
Nor.
463
Crude 011
----
Port Arthur
Montreal, Canada,
VINKLER
Pan.
4383
Gasoline
I
Port Arthur
Rio de Janeiro and Santos,
Brazil.
74
Regraded Unclassified
DEPARTURE PERMITS GRANTED TO VESSELS CARRYING PETROLEUM PRODUCTS
July 24, 1940
Net
Vessel
Eat.
Tonnage
Cargo
Amount
From
To
MARINA
Nor.
5903
Refined Oil
-
San Francisco
Manilla, P.I. & Cebu
CITY OF LINCOLN
Br.
3978
Lubricating 011
I
Philadelphia
India via New York
Nor.
-
Fuel 011
92,000 Bbls.
San Pedro
Balboa, Canal Zone.
PERIA
Nor.
463
Crude 011
----
Port Arthur
Montreal, Canada.
Pan.
4383
Gasoline
-
Port Arthur
Rio de Janeiro & Santos,
Brazil.
75
Regraded Unclassified
July
H elp En gland
Help and Herself
Keep M.S. out of # War
15 3 1
Mr. Cochran:
77
0
Lt McKay said this appointment is for 11 o'clook
tomorrow. You are expected to make the appt.
ka
Done 2:15 pm 7/24/10
Ind
78
TREASURY DEPARTMENT
11
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Mr.Paul Leroy-Beauliou told me confidentially by telephone yesterday that he
was expecting official instructions for his return to France. This morning it
appears in the press that he has been ordered back to become "Director of Foreign
Commerce" and that he will be replaced in the United States by Mr. Herve Alphand.
Mr. Alphand has been for several years "Director of Commerce Accords" in the French
Government, and I assume that this is merely an exchange of positions between
Lercy-Beaulieu and Alphand. I should explain that Leroy-Beaulieu has for several
years been a very close friend of Mr. Bouthillier, who recently became Minister of
Finance of France. It is undoubtedly Bouthillier's influence which has caused the
issuance of the transfer instruction. Alphand is the son of & French diplomat, who
latterly served as Ambassador to Switzerland. He speaks English quite well and is
a very smooth negotiator, a little too smoth if anything.
Leroy-Beaulieu has telephoned no this morning asking for an appointment with
the Secretary on Thursday to say goodbye. This would be the last opportunity to
see the Secretary since Leroy-Beaulieu will have left the United States before the
Secretary returns from his week's absence. I an to telephone Leroy-Beaulieu today
to indicate the hour for an appointment, if this is possible.
10mp.
79
MR. MORGENTHAU'S OFFICE TO-
Ar. Bell
Mr. Thompson
Mr. Gaston
Mr. Foley
Mr. Bullivan
Mr. Graves
......
Mr. Alexander
Mr. Hass
Mr. Allen
Mr. Hall
Mr. Bartelt
Mr. Hanna
Mr. c. S. Bell
Mr. Harper
Mr. Berkshire
Mr. Harris
Mr. Bernard
Mr. Helvering
Mrs. Betts
Mr. Irey
Mr. Birgfeld
Mr. Julian
Mr. Blough
Mr. Kilby
Mr. Broughton
Mr. Mulvihill
Mr. Bryan
Mr. Rose
Mr. Cochran
Mrs. Ross
Mr. Collie
Mr. Schwars
Capt. Collins
Mr. Sloan
Mr. Delano
Mr. Spangler
Miss Diamond
Mr. Tarleau
Mr. Dietrich
Mr. Upham
Miss Flanagan
Mr. White
Mr. Wilson
LML. young
file
Regraded Unclassified
C
14/7/010
80
P
The Honorable,
JUL 24 1940
The Secretary of State.
Dear Mr. Secretary:
There is enclosed a copy of letter dated June 28,
1940, from the Pratt & Whitney Aircraft Division of the
United Aircraft Corporation requesting permission to sell
for export certain aircraft engines which it manufactures.
The War and the Navy Departments have no objection
on the ground of military secrecy in its relation to the
national defense to the domestic or foreign sale of the
following Pratt & Whitney Wasp Jr. engines manufactured in
accordance with specifications as listed:
Wasp Jr. Model T1B3 - Spec. PW-2033
Wasp Jr. Model SB3 - Spec. PW-2031
Wasp Jr. Model TB3 - Spec. PW-2032
THEMTRARS
AD
Wi 8 21
This release is granted with the proviso that the
proposed production of additional engines for export does not
interfere with production for the United States Government.
REGULIVHA OF, OLLICE
Sincerely yours,
ONe
EENRY 1 STIMSON
Secretary of War.
Enclosure:
Copy Pratt & Whitney
letter of June 28.
DISPATCHED
JUL 24/194
FROM A G.O.
Copy for Mr. Morgenthau
COPY
81
The Honorable,
JUL 24 1940
The Secretary of State.
Dear Mr. Secretary:
There is enclosed a copy of letter dated June 22,
1940, from the Washington representative of the Curtiss-
Wright Corporation requesting permission to sell for export
the Model 20 Cargo Airplane.
The War and the Navy Departments have no objection
on the ground of military secrecy in its relation to the na-
tional defense to the foreign sale of the Model 20 Cargo Air-
plane manufactured by the St. Louis Airplane Division of the
Curtiss-Wright Corporation in accordance with Model Specifica-
tion P-239. This release is granted with the proviso that
such foreign sale shall in no way interfere with possible
production for the United States Government.
As the R-2600-B5 engine has been released for nego-
tiation purposes only, it will be necessary for the engine
manufacturer to obtain release for foreign sale prior to the
actual sale of this installation.
Sincerely yours,
HENRY L STIMPON
Secretary of War.
Enclosure:
Copy Curtiss-Wright
BECKEIVMA DE PREVENHA
letter of June 22,
20F SJ VW a 05
DISPATCHED
751370
TMSMTRAS30 YRU
JUL 24/1940
FROM .G.O
Copy for Mr. Morgenthau
82
July 24, 1940
3:18 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Purvis. Go ahead.
H.M.Jr:
Hello.
Arthur
Purvis:
Henry, I'm sorry to worry you but Maurice
Wilson has been onto Lord B., who sends
you his most grateful thanks.....
H.M.Jr:
Thank you.
P:
.....
and says that it's a great thing
at a time like this to have a friend like
that.
H.M.Jr:
Thank you. I am quite touched.
P:
Then there was another little thing I
wanted to speak to you about. I'm sending
on a memorandum -- I've got a message from Sir
Edward Beatty -- a telegram and it gives
particulars of the situation at the
Seignory Club.
H.M.Jr:
oh, yes.
P:
He also mentions Digby, which is another
place as a suggestion, but that's on the
Bay of Fundy and I know that
H.M.Jr:
I know Digby. I don't like that Bay of
Fundy country.
P:
No.
H.M.Jr:
It's too hard to swim, the tides are 80
terrific.
P:
And that's quite right and in addition to
that -- in any case, this will show you
exactly what the situation is at the Beignory
Club and that's the part of the message
you'll be interested in. The only
83
- 2 -
difficulty is that the cottages are all
open, but they could put you up very
comfortably indeed in a suite in the log
cabin if you could -- well, you'll see
from the tone of his message the kind of
thing, and I think it looks all right to
me.
H.M.Jr:
Please.
P:
Now then the other thing was that you
were .....
H.M.Jr:
Are you sending me his message?
P:
That copy will come over in a very few
minutes.
H.M.Jr:
Thank you.
P:
Along with that will be a copy of the
letter to Knudsen confirming this arrange-
ment and then we're Just going to go over
and see him and deliver it personally.
H.M.Jr:
You're going over.
P:
Yes, he asked particularly
.....
H.M.Jr:
What I'd like you to do as much as possible
when you go over there, if this is agree-
able to you, is to have Philip Young with
you.
P:
Yes. Now, the only difficulty is that
Philip Young is with Daniel Bell and, I think,
Ballantyne working -- and Charles, our lawyer,
on that French assignment question. However,
I'll send word over and tell him we're
running over at 3:30 -- yes, I can do that,
and he can come along then.
H.M.Jr:
I think 80.
P:
It's much better to keep it like that I
agree. I'll ring him straight away. Now
there was one other thing that I wanted to
mention to you and that is that you were
84
- 3 -
good enough to telephone me a little while
ago in regard to 2 U-type 2200 horsepower
Wright engines, 3350, No. R3350
.....
H.M.Jr:
Well, that was weeks ago.
P:
Yes, it was some little time. Well, now
Sir Henry has just given me a note saying
that he has got a cable from London wanting
to place an order for 400 of those. I'm
sending you over a note, but I'm just
mentioning this because I realize that
the new discussions may or may not work
in with it. But they would like to place
an order.
H.M.Jr:
Well, why don't you under the new system
tell that to Knudsen today 80 as not to
lose any time.
P:
All right. Well, then we'll take it up
with him and get his clearance on it.
H.M.Jr:
Why don't you just tell him.
P:
Fine. All right, we'll tell him this
afternoon with the greatest pleasure. We're
Just typing up a little note now and I'll
send you a copy of what we've told him.
H.M.Jr:
I think I'd just tell him under the new
plan that this has come in and in order to
save time and cut corners
P:
Yes.
H.M.Jr:
..... you can say, we mentioned it to
Mr. Morgenthau and he said to put it right
into his hands. How's that?
P:
Excellent. (Laughs). That's the kind of
action.
H.M.Jr:
Now you'll be interested -- I've already
talked to the President and told him about
our conference. He's simply delighted.
P:
oh, good. Oh, I am glad,
85
- 4 -
H.M.Jr:
Simply delighted, and I still haven't
caught my breath from Sir Henry's having
that information.
P:
(Laughs). I'll tell him that. He'll be
pleased.
H.M.Jr:
I'm still breathless. If anybody tells me --
you know, the English are always slow, I'll
say, go around and see Sir Henry.
P:
(Laughs). All right. I'll give him that
message straight away and as I say, it may
be an act of supererogation, but I had my
thanks to Lord B. as expressed through
H.M.Jr:
Well, I tell you something, I think it's
electrified all of us.
P:
Good work. I think it's splendid.
H.M.Jr:
Tell me. Is he going to handle it from
the other side -- the publicity?
P:
Yes, I think he's going to -- I think you'll
find he will put something right out.
H.M.Jr:
I told that also to the President that I
thought it would come that way and he said
fine.
P:
Yes. You know, it'll be a very heartening
thing over there.
H.M.Jr:
Well, somebody figures up here and told me
that -- we were talking and, I don't know --
it was several billion dollars.
P:
That's right. (Laughs).
H.M.Jr:
Well, being in the Treasury I never think
of money.
P:
(Laughs). No, I agree.
H.M.Jr:
All right.
P:
All right, thank you very much.
86
July 24, 1940
4:15 p.m.
Secretary
Stimson:
.....
a remarkable coincidence with what
we were just talking about. A cable has
been placed in my hands from -- or rather
a telegram -- from the Commander of the
Army Corps Area out in San Francisco, and
I'll just read it to you -- it's short, and
you'll see what it says.
H.M.Jr:
Please.
S:
"Unquestionably reliable report indicates
Japan effecting practical corner of aviation
gasoline market. Practically every Pacific
and Gulf Coast 011 Company has been approached
and contracts have been let or tendered for
1,200,000 drums. Earliest practicable
delivery being insisted upon, with as much
as possible to be delivered by September let,
1940. Practically all contracts let or
tendered call for delivery by November 1940
with only small quantity asked for delivery
in 1941. Practically all contracts are for
gasoline in tin drums. Quantities being
bought will strip market and productive
capacity for months to come. If these
purchases are all consummated, there would
be a shortage of aviation gasoline should
Army and Navy need it in quantity during
next six to nine months." This is a telegram
to our Adjutant General.
H.M.Jr:
Well, now are you going
.....
B:
Are you interested in that?
H.M.Jr:
Very, very much. I'd like to -- if you'll
give me a copy
......
S:
I'll have to have it paraphrased for it is
in our confidential code, but I'll send it
to you.
H.M.Jr:
Yeah, and may I send & copy to Harold Ickes?
Regraded Unclassified
87
- 2 -
S:
To whom?
H.M.Jr:
Ickes.
8:
Yes.
H.M.Jr:
I mean, it's a conservation matter.
S:
Yes.
H.M.Jr:
What?.
S:
Yes, send it confidentially.
H.M.Jr:
Oh, yes, I mean to Ickes. Why don't you
it direct?
S:
Well, all right, except that I don't know
him as well as you do.
H.M.Jr:
Well, let me do it.
8:
I'll send you two copies and you can send
one to him.
H.M.Jr:
And will you send it -- will you care to
give it to the President?
S:
All right, if you think .....
H.M.Jr:
I think it's most important.
S:
Yes. Well, I tell you, how do I address
him, I mean, when he's up there.
H.M.Jr:
You send it .....
S:
You see, I haven't been communicating
with him.
H.M.Jr:
Right. Well, what you do 1s -- the Chief
Clerk over there at the White House,
Mr. Forster -- and ask him to put it on
the private telegraph wire to the President
-- secret telegraph wire.
S:
All right.
88
- 3 -
H.M.Jr:
You see?
8:
All right. I'll do that myself.
H.M.Jr:
Yes, you send it to the President and if
you'll let me have a copy I'll get it over
to Ickes.
S:
All right.
H.M.Jr:
And we've just got to do something about it.
S:
Oh, I think you've got to. You see, here's
& man who's interested in it solely from
our national defense side, telegraphing
this Department.
H.M.Jr:
Well, I'm 80 glad you called me and you
take care of the President and I'll take
care of Harold Ickes.
S:
All right. I'll send this as soon as I
can have it paraphrased.
H.M.Jr:
Thank you 80 much.
89
July 24, 1940
4:24 p.m.
Sumner
Welles:
Hello.
H.M.Jr:
Hello, Sumner.
W:
Henry, I'm just about to see the French
Ambassador and I wanted to get your views
on the matter that we discussed.
H.M.Jr:
Oh, yes. Now could you wait thirty seconds
and I'll give you a yes or no. Bell just
walked in. Just wait thirty seconds.
W:
Yes, indeed.
H.M.Jr:
(Talks aside). Bell says yes.
W:
All right.
H.M.Jr:
I'm sorry. I should have done it but I've
just been up to my ears. The answer is
yes.
W:
All right, Henry. I'll wait my turn,
don't worry.
H.M.Jr:
Now, while I've got you, let me ask you one.
W:
Right.
H.M.Jr:
I'm sorry, I should have done it but I've
been up to my ears now, you see. But as
long as you get a yes it's all right.
Axel Wenner-Gren's yacht, the Southern
Cross, expects to leave San Francisco
tonight for Seattle and Army Intelligence
wants us to hold it up. He's going to
Alaska. They don't want him to.
W:
Yeah.
H.M.Jr:
Now, I'm perfectly willing not to give it
to his.
90
- 2 -
W:
Well, all I can tell you, Henry, is that
I know something about that gentleman. I
don't know whether you know, but when I
went to Europe he was on the boat and
shadowed me the entire way over and back
and most of the time that I was there.
I haven't got a word of proof, but I have
the most violently strong hunch that that
man 18 acting as an agent for the German
Government.
H.M.Jr:
Yeah.
W:
So if you take that action, I should be
entirely and wholeheartedly in accord.
H.M.Jr:
Well, I'll do it and I'll do it the way I
do all these things -- when they ask me, I'll
just shrug my shoulders.
W:
(Laughs). That's a perfectly good method.
H.M.Jr:
Well, that's all right, she won't sail.
W:
Yeah.
H.M.Jr:
And then if they come around, well, we just --
as I say, I just shrug my shoulders.
W:
Yeah, exactly.
H.M.Jr:
What?
W:
In this case I think you have every possible
justification short of evidence.
H.M.Jr:
Well, we'll hold her at San Francisco and
if she does sail for Alaska why we'll have
a Coast Guard cutter keep them out of
Alaskan waters.
W:
I think that's all right.
H.M.Jr:
That's where he wants to go.
W:
Yeah.
H.M.Jr:
What?
Regraded Unclassified
- 91
- 3 -
W:
Yes, there's something so perfectly
apparent about that man's activities that
I think you should have no hesitation in
taking just that action.
H.M.Jr:
Well, that's that. Anyway we'll hold him
and if you hear about it, you can shrug
your shoulders.
W:
I will, indeed and with particular pleasure.
H.M.Jr:
0. K.
W:
All right, Henry. Thanks. Good-bye.
H.M.Jr:
Good-bye.
92
RE ALLIED PURCHASING PROGRAM
July 24, 1940
11:30 a.m.
Present:
Colonel Knox
Lieutenant Anderson
Mr. Reed
General Brett
Major Lyons
Admiral Towers'
Colonel Dasher
Mr. Ballantyne
Mr. Purvis
Mr. Foley
Mr. Knudsen
Mr. Wilson
Mr. Henry Self
Mr. Nelson
Captain Kraus
Mr. Young
Mr. Stimson
Mrs Klotz
H.M.Jr:
Does anybody know where Mr. Stimson is?
Arnold:
He is up on the Hill, sir, and I am not
sure if he is finished.
H.M.Jr:
Well, I think we will start.
Knudsen:
Mr. Secretary, we got together after we left
your office yesterday and went over to my
place and we finally arrived at the figures
here as follows:
The Army requirement to April 1, '42, there
are 12,884 planes. The Navy requirements
are 6208, and the British requirements are
14,375.
We then sorted out or negotiated out the
quantities that could be produced in the
three periods, April 1, 1941, October 1,
1941, and April 1, 1942, and we split the
quantities that I have given you above by
periods so that in the first period the
93
- 2 -
Army got 6882; the Navy 1923; and the British
4094. In the second period, six months' period,
the Army got 3548; Navy, 1555; and the British,
4686. In the last period, the Army got 2454;
Navy, 2730; and the British 5595.
Now, these requirements were accepted by the
parties over there and it was agreed that the
British would place at once the 1287 planes
that have been in negotiation for some little
time and that they had the option of placing
4200 more planes in order to meet these quan-
tities. In other words, the British have the
right to place 4200 more planes within this
period 80 it would make the quantity 14,400.
H.M.Jr:
Now, the easiest way to say this - I got this
last night and I began to worry, because I
think the British are making a mistake, see,
because --
Purvis:
I would like, if I may, to speak on this memo-
randum, because we have had a little discussion
with Mr. Knudsen this morning.
H.M.Jr:
Oh.
Purvis:
We also felt - you see, this is 8. throw-off of
Mr. Knudsen's office which for instance, I,
having left the office only saw yesterday after-
noon. We have been discussing our views on
that.
The first point we wanted to make on this is -
and we have discussed this with Mr. Knudsen
this morning - the thing that worries us most
is the freezing of our position. There are
two things that are worrying us; one, the
freezing of our position of 14,375 planes
plus a possible 1820 that we have been talking
of for the other Empire units for delivery
prior to '42. The second thing has been the
fact that --
94
- 3 -
H.M.Jr:
May I interrupt you & second? Major Lyons,
would you excuse me? Is this your hand-
writing?
Lyons:
Yes, sir.
H.M.Jr:
Just one second, please. Is this Army and
Navy?
Lyons:
No, this is Army only, sir.
H.M.Jr:
Thank you.
Purvis:
The second thing that worried us was that
the formula in the last paragraph of the
memorandum as dictated --
Knudsen:
We haven't gotten around to that, Mr. Purvis.
Purvis:
No, but I mean as it is at present dictated.
Knudsen:
I haven't even read it yet.
Purvis:
This memorandum that you gave to us yesterday?
Knudsen:
I started with planes and the Secretary stopped
me.
Purvis:
I beg your pardon. Oh, I thought everybody
had that.
H.M.Jr:
I thought you were through. I am sorry.
Purvis:
I thought that had been circulated, Mr. Knudsen.
H.M.Jr:
Let Mr. Knudsen finish. I thought he was
finished.
Purvis:
I am sorry.
H.M.Jr:
I am sorry, too.
95
- 4 -
Knudsen:
On the engines to go with these planes, the
British have orders today for 21,485 engines.
Up to the end of '42, not to April '42, but
to the end of '42, 20,589 more. So we agreed
that all planes, American and British, would
get engines first. In other words, whether
the plane was American or British, we would
say the engines would power the planes first
and if there was any surplus of engines at
any time, we would negotiate that on the basis
that whatever was left would be shipped out
to England or utilized in some other way.
The opinion was that we ought to have a dis-
patch committee which would meet once 8. month,
the last week in the month, and plan for the
second month ahead, the first month being too
close, and in our conversations this morning
Sir Henry advocated we plan two or three
months ahead 80 as to give the British something
to work on. In other words, he will submit to
us their schedule of planes and we will apply
that against our surplus 80 that we can write
the schedule. That is all, sir.
H.M.Jr:
Now, do you want to talk?
Purvis:
May I - - as I say, on this basis there were
two things we were discussing with Mr. Knudsen
this morning. Number one, it put an automatic
ceiling for a long period ahead on the number
of plane orders which we could hope to place
in this country. That, we feel, is bound to
have an extremely dangerous effect on the
other side.
The second thing it does is, it takes away
from us a certain - or may take away from us,
I think that is fairer, because as Mr. Knudsen
pointed out to me, you shouldn't cry about
it having gone until it has gone. It might
take away from us engines which today we own
Regraded Unclassified
98
- 5 -
because the allocation of U.K. airframes
against the French - what are called the
French engines, would only come after U. S.
airframes had had their show.
Now, so far as the first point is concerned,
the freezing at 8. level which looks to us
dangerously low, I should mention that the
phrasing used in here, British requirements,
to the first of April 1942, is built up in
this way. It is built up of the orders which
we have placed with manufacturers which were
full-blooded up to September '42. When we
placed them, that was about as far ahead as
the manufacturers seemed to have to go to
get on with the job, plus an addition at
the same rate per month, which Mr. Knudsen
allowed us yesterday of 700 & month to '42,
to the end of March '42.
Now, the minute we begin to get into that,
it looks extremely dangerous from its
freezing effects. After all, it - going
back to my point yesterday, the only reason
we only have orders for 8,300 placed for
delivery up to December '41, was because we
could not at that time get from the industry
more, as far as we could find out, and that
is something that was just a condition up
to September '41, and perhaps the best way
to crystallize this whole thing would be to
say that in 80 far as this freezing of re-
quirements is concerned, of which we are very
much afraid, we would like to regard this
market as a big market from which planes
can come even if our factories are bombed,
which is a. three-to-one chance possibly that
they will be. We would like to work on the
basis that we - for instance, we could say
to you firmly, "Will you arrange to make
3,000 planes 8. month?" We would take them
97
- 6 -
from January 1, 1941, to the end of December '42.
Now, if you can't reach the 3,000 in January '41,
will you reach it just as fast as you can and
you will know where you stand opposite us and
will give something to look forward to.
Otherwise, we want to get rid of that feeling
which is going to be cast upon us now suddenly
as a result of this formula and which is, I think,
the major - or one of the major points that the
U.K. will have against any such arrangement. Is
that right, Mr. Wilson?
Knudsen:
Mr. Purvis, when you want 3,000 planes a month
on January 1, '41, you ought to begin to talk
about that January 1, '39, and not in the middle
of July.
Purvis:
Yes.
Knudsen:
Because you are just doubling the program that
we have got laid out and while it might be swell
for us to tell you we will go to it, you are
not going to get it, 80 that is all there is.
Purvis:
But Mr. Knudsen, did you hear my point? My
point is that as we are now going beyond
September '41, which is fifteen months ahead,
up to the present we have been chained down
to a date but yesterday we took this through
to April 1, '42. That is nearly 20 months.
Now, we realize that you can't get to 3,000
on January '41, but if we have that as our
aim then it seems to me we are really going
to get somewhere and we must cooperate by
putting you in a position to know what we
want sufficiently long ahead to do that class
of a job as a production problem, which you
know better than I do, but I also know a
little bit about. I am wondering whether
that wouldn't be the best tactics.
Knudsen:
That means placing 40,000 British planes
on American order?
98
- 7 -
Purvis:
More than that, isn't it?
Wilson:
Well, Mr. Knudsen means --
Purvis:
Well, I mean you may have to know beyond
12 months.
Knudsen:
I am taking 8. round figure of 40,000.
Purvis:
3,000 8. month through the two years. In
other words --
Wilson:
In other words, we are terrified, but this
doesn't necessarily concern you. But I per-
sonally an terrified at the prospect of this
afternoon having to telephone Lord Beaverbrook
and telling him I am very sorry despite all
your efforts and feelings that the ceiling
of the United States for at least 20 months
ahead is 700 planes a month. You will either
win or lose the war on that 700 planes.
Knox:
For 20 months.
Purvis:
It is a long while.
Wilson:
We are talking now until April '42.
Knox:
Am I wrong about this, that a part of the
reason you are asking this is for the moral
effect it will have?
Wilson:
Oh, I don't think BO.
Purvis:
It is to make & production program - to set
up an actual production program to be - you
see, this word "British requirements" is
quite wrong. The word "requirements" in the
ordinary sense of the term is what you really
need a month and are willing to buy. We
are willing to buy very, very much more than
that up to April '42. We are willing to go
Regraded Unclassified
99
- 8 -
beyond April '42, if it will make a better
production program possible for Mr. Knudsen
as a man faced with a practical difficulty
of getting the output.
Knox:
We would have to have a production of about
6,000 a month to meet that.
Knudsen:
That is right.
Knox:
Now you are talking about dream figures. You
can't do it.
H.M.Jr:
Oh yes you can, pardon me.
Brett:
No, I beg your pardon, sir. He is not talking
a dream figure; he is talking for something to
shoot at.
Purvis:
I am talking what we would be willing to put
on the table so it could be tackled.
Knox:
I am talking about what we can produce.
Purvis:
We realize there will be no 3,000 in January '41.
I realize that. It won't be done. But if we
aim for 3,000 a month production, we shall get
month by month a larger and larger proportion
of what that is.
Knudsen:
We will be in for all we can get.
Purvis:
But Mr. Knudsen, I have an idea that you, as
& General Motors man, having done what you do,
you always set something that you really want
to get in the form of a figure. If you were
to say, "We will make as many cars as we can,"
you would never get as many as if you set the
kind of schedules you set.
Knudsen:
But 33,000 planes we have set as a schedule.
33,000 planes for the three of us is the
schedule.
Regraded Unclassified
100
- 9 -
Purvis:
The reason we are worried about it is that
it puts a ceiling on us of 14,000 planes
plus the possibility of this 1820, which
is --
Knudsen:
That is all you could get anyway. Now
if you are talking about --
Purvis:
Are you sure it is all we can get? As we
go beyond into April '42, are you willing
to state that whatever orders you get, that
is the limit, because if so, it is not a
question of freezing. You have just got to
tell Lord Beaverbrook that the country can't
produce them.
Knudsen:
Well, of course we started out with the
assumption that we can make 33,000 planes
from now until April 1, '42, and that is
5,000 high, you see. We put 5,000 more in
there, feeling that by extra push we could
get that 5,000. Now, what you plan after
April 1, 142, doesn't concern me at all.
We can go 3,000 a month or 6,000 8. minute
if you want, but what I want to say is that --
Purvis:
That sounds more like a figure for us.
Knudsen:
Let's talk facts here. We can make 33,000
planes and out of that 33,000, your split
is 14,400, see. Now, if we are going to
build some more plants and do some more ex-
panding, let's do that, but let's be sure
we get this first.
Knox:
That is good horse sense.
H.M.Jr:
May I interject myself? May I do it with
all due humility, because I am talking in
your field, but Mr. Purvis and Mr. Wilson
for the first time are saying something
new here today and I am partly responsible
Regraded
101
- 10 -
for this, because frankly I have been pacing
the floor since 5:00 o'clock this morning
worrying that with the chances 75 out of
100 they are going to lose their plants
but they will still have the island and they
will still have the will, that they are not
going to have the tools, and the time to make
the plans is now and not to be fighting over
a pool which is not to be increased but to
have these people say - I have urged them to
say what are your needs on the basis of
three out of four chances that they are going
to lose these plants and therefore they are
saying to the United States now that going
on the assumption and looking at it from the
darkest side of the picture, they may lose
all of their production and their needs are
3,000 planes a month when we can reach that
and therefore - they should have said this
yesterday or a week ago or six months ago,
but they haven't, which is unfortunate.
I am sure the productivity of the United
States is possible, but we cast this picture
and have another look at it, entirely new
look at it, and what I would like to ask -
as I say, I am very - I realize I am asking
something which is your business, but at
least I can look at the thing from the
whole standpoint and I have been literally
pacing the floor since 5:00 this morning -
is to have an entirely new outlook at the
thing in view of what Mr. Purvis and Mr. Wil-
son a re saying now.
Now, nothing is impossible if you know what
they need. They are saying something quite
new and if I may make the suggestion, after
you have had that look at it you will say,
All right, it will cost you 80 much for
additional plants."
102
- 11 -
Knudsen:
That is certain.
H.M.Jr:
That is what - after you have had a reason-
able amount of time, that you come back and
say, "All right, we can do this but this is
what it is going to cost you. Now, we
would like an affirmative statement saying
that they are ready, and 80 forth and so on,
but there is no use going over the fact that
they should have done it before, but they
are doing it now and I am partly responsible
for them doing it, because I think up to
this time, if you don't mind my saying so,
they have been shortsighted and there is no
use - they have got to go on the assumption
they are going to lose their plants and have
got to prepare so that the - if they have no
production, they want 3,000 fighting planes
a month just as soon as the United States can
reach that point, and as I take it, you would
like Mr. Knudsen and his associates --
Purvis:
to figure on that basis.
H.M.Jr:
And as soon as they are ready, give you the
figure and you will say --
Purvis:
take it up with England. That is the
kind of thing.
H.M.Jr:
And give them a yes or no within a couple of
days.
Purvis:
Oh, yes.
H.M.Jr:
That is the picture.
Purvis:
Mr. Knudsen, that doesn't need to interfere
with going ahead in the meantime and doing
everything you have got here.
Regraded-Unclassified
103
- 12 -
Knudsen:
Oh, we are not going to stop on this. The
thing that I want to get clear here now,
I got the requirements of the United States
down to what was considered a minimm yes-
terday. He gave me the actual figures that
he required and we added to this this British -
we took the total production and gave the
British 70 to 100 percent. Now, this other
proposition that we talked about will have
to be superimposed on that, because there
was no use of crowding after these hundreds
of thousands of people are in certain locali-
ties. We have to spread it and get it out
of the way. It will only interfere instead
of doing 8. lot of good. In other words, we
will have to spread the overhead around in
different spots and put up plants for it.
H.M.Jr:
Supposing - I don't know whether it is true -
that Detroit had not heretofore taken care
of the South American market and somebody
else comes to you and says, "Now look, from
now on we expect to take care of the South
American market in addition to the United
States and Canada." Well, all right, "How
much do you want?" "Well, I want - it means
80 much. Yrs "All right, give me a couple of
days and I will give you an answer, and that
is what this means, that you have overnight -
since their last figure they came back and
say - I don't know, let's say we will agree
to what is on this piece of paper which is
here, but in addition to that it is an on-
tirely new chapter. We want this other.
Knudsen:
There is only one thing I want, then. If
you will give me the split by types. 80 as
to be able to plan the manufacture, 80 many
this way and so many bombers.
Wilson:
We will give you everything you need.
Regraded Unclassified
104
- 13 -
Knudsen:
And if you will furnish me with this schedule,
I will go right to work on it.
Purvis:
If we can get that kind of outlook on the thing,
it makes it a little easier to get over the
second part which is that the - don't forget
we are needing all the stuff we thought we
owned, that these engines we thought we owned
and do own legally today, except for such needs
as you may have which are 80 urgent that you
have to invoke some high authority on them,
which we fully recognize as your right, it
would perhaps enable us to get a little over
that hurdle with the Air Ministry in London
if they know that there isn't a ceiling on
what --
Knudsen:
You will have to have a flock more motors.
Purvis:
We already have started to produce some more
motors that are not in this thing.
Knudsen:
You will have to have a great many more than
that. The ratio is 1.7.
Purvis:
You remember I wrote you & note last week say-
ing we would be happy to go 50-50 in another
engine enterprise.
Knudsen:
In the same breath, you called to my atten-
tion politely and forcibly that you had al-
ready spent a lot of money.
Purvis:
But I wrote you saying that we would go 50-50
again. Both things are true.
Knudsen:
All right. In other words, this is agreeable
here and --
Purvis:
I --
H.M.Jr:
I don't know. He has got to say that. Is
this agreeable here?
Regraded Unclassified
105
- 14 -
Purvis:
You are satisfied on the engine situation,
aren't you?
Wilson:
As the beginning of a larger discussion, we
don't object to this.
H.M.Jr:
Just 80 that we don't - one or both of you
tell Mr. Knudsen, because he and I are of
the same mind. Once you say your word - is
that right, Bill?
Knudsen:
Yes.
Purvis:
Let us say then what, Mr. Secretary --
Knudsen:
I told him I would rewrite it.
Purvis:
Mr. Secretary --
Knudsen:
He told me first it was all right.
Purvis:
The first thing we have asked Mr. Knudsen
to do this morning is this: The item of
British requirements to the first of April
'42 is marked at 14,375. We were discussing
the matter yesterday and we pointed out that
we had not the figures for certain parts of
the Empire. We have asked here this morning
to add 1820 to that. He has said that he
will try and do that, but that he might want
to suggest that we take it in knocked-down
parts.
Knudsen:
To survey the field and see if I can get
knocked-down planes, I can't get them.
Purvis:
So that perhaps should be added to this memo-
randum because it is a separate point that
has been discussed since. We might perhaps
make & redraft of that.
The second point we want to bring out is,
before we finally settle, this last paragraph,
Regraded Unclassified
106
- 15 -
as we understand it, does go beyond the
principle that was agreed yesterday - or
discussed yesterday. I won't say it was
finally agreed. It does go beyond the
principle that we discussed yesterday that
we will not be hurt 80 far as existing orders
are concerned in that for the engines that
we have taken over from the French we only
have a right to discuss the possibility of
getting some of those as distinct from being
able to export them as such to U.K. frames
without question. Is that right, Mr. Knud-
sen?
Knudsen:
It is pretty long. I will have to have it
again.
Purvis:
Well, yesterday when we talked se
Knudsen:
What about the piece of paper?
Purvis:
I want to say that that is my understanding,
that this last paragraph of yours is intended
to go beyond the discussion we had yesterday.
As I understood the discussion we had yes-
terday, it was that our existing orders would
not be interfered with.
Knudsen:
Orders for planes or for engines?
Purvis:
For anything which will give us more planes
and engines, will give us planes if we can
get them into frames in England; or in other
words, as a practical matter, if the U. K.
were to cable us tomorrow morning saying
we have enough U. K. frames coming through
to take care of more than the French engines
that you have, this would prevent our shipping.
Knudsen:
I will agree to that as far as the engines
actually on order.
107
- 16 -
Purvis:
That is right, 80 that it does go beyond
the principle that we talked yesterday and
we hoped, of course, that we would be able
to hold the ground we already had both on
completed aircraft and on engines. Is that
right?
H.M.Jr:
You fellows have got to look at each other,
because I haven't been sitting with you.
As long as the two of you understand each
other, I am perfectly happy.
Purvis:
Well now, I think here at this point, having
pointed out that he goes past that prin-
ciple --
Knudsen:
We agreed this morning that we will set up
8. crowd over in my place consisting of a
representative of the British, a representa-
tive of the Army and Navy and Mead and my-
self, that we would - the last week in each
month we will have & meeting and decide
what surplus engines there are with - for
the second month following and Sir Henry
Self suggested that that be extended to
cover not only the second month following
but the third and fourth months following
and I said that was all right.
Self:
And the fifth and sixth.
Knudsen:
Well, we will get some more.
Self:
England can't possibly organize their plane
production unless they can see the engine
deliveries.
H.M.Jr:
I wasn't in on this, so you people --
Knudsen:
The principles, I understand, you agree to
the principles that 8. plane must have an
Regraded Unclassified
108
- 17 -
engine, either & British plane or an Ameri-
can plane.
Wilson:
You tell us that that is an absolute priority
to any discussion.
Knudsen:
Yes.
Wilson:
We accept that and then this morning we agree
further that you will marry frames and engines
month by month or quarter by quarter, if you
like. You will marry frames and engines and
then you have got "X" engines left over for
that period. You say to us, "Get them out
of the country, we have no interest in them,"
and every 30 days we will repeat that process.
That is correct, isn't it?
Knudsen:
That is correct.
Wilson:
Well, I take it that the feeling, in theory
at least, has been removed by the discussion
here this morning and that being so, we can
base this proposal regarding engines a little
bit better than we could have yesterday. Yes-
terday I just didn't know what to say. I have
got a man on the other end of the wire waiting
for me to talk to him and I have been dodging
him for 48 hours.
Knox:
Mr. Knudsen, this object now outlined, there
is a possibility involved of a huge invest-
ment in expanded plants and new factories
and the people who are going into this busi-
ness are going to require some money to build
these plants. How is that going to be taken
care of?
Knudsen:
Mr. Morgenthau says I should give the British
a figure and I shall give them that figure.
Regraded Unclassified
109
- 18 -
I want to set that up separate now, engines
and planes, 3,000 a month.
Purvis:
So as not to interfere with getting ahead on
this thing. We have got a contribution toward
this in our joint deal on the Rolls Royce en-
gine.
Wilson:
Mr. Knudsen smiles at the figure of 3,000 a
month, but I don't need to tell you that that
is the popular figure for the German production.
Knudsen:
But not the true figure for the German production.
Knox:
What is the true figure?
Purvis:
Can you tell me the truth?
Knudsen:
I haven't been there, no. It is 2200.
Purvis:
We have got to the point that we have fooled
ourselves 80 long --
Knudsen:
You won't go wrong on 3,000.
H.M.Jr:
Then if it is 2200, 3,000 sounds good because
they have got to do better than the Germans.
Wilson:
We are losing our planes every day, very
rapidly.
H.M.Jr:
There is one thing I would like to point out,
if you people understand each other, and that
on our program, engine expansion, the Navy is
short 45 million dollars.
Knox:
We are short on our present program 45 million
dollars.
H.M.Jr:
For plant expansion. And if you want me to
help, I will be glad to help.
110
- 19 -
Knox:
We are certainly glad to help.
H.M.Jr:
And I want to bring that to the attention
of the Navy now, that the Navy is short
45 million dollars for plant expansion.
Towers:
I pointed that out to Mr. Knudsen yesterday
and got his permission to say that that
was the amount of money that he wanted for
the Navy.
H.M.Jr:
I think all of us ought to get busy and get
it for the Navy.
Brett:
May I make an observation, Mr. Secretary,
just in talking about plant expansion?
According to my figures and the dope that
I have, starting in March and April - April
and May and June of 1941, speaking of the
plant expansion which has been performed by
the foreign countries in the United States,
the foreign countries, Anglo-French, are
getting 1640 engines as compared to 200 of
the U. S. Army. In May of 1941, the Anglo-
French Government is getting 1600 engines
and the U. S. Army is getting 20 engines.
In June of 1941, the Anglo-French Purchasing
Commission is getting 1640 engines under
order as compared with 40 engines for the
United States Government.
Purvis:
General Brett, would you be --
Brett:
Those are the orders which are now under
contract but which does not include any
future orders.
Purvis:
I am glad to hear something said to indicate
that our buying hasn't been quite so bad.
Brett:
Your buying has been very, very good because
we have furnished over a period of 20 years
111
- 20 -
a tremendous amount of plant expansion and
production and in the spring and summer of
1941 that plant expansion is going very
nearly entirely to the Anglo-French Pur-
chasing Commission as compared with the
Army orders.
H.M.Jr:
What months were you talking about?
Brett:
I was quoting the months of April, May, June
of 1941.
H.M.Jr:
Well, what kind of engines are you talking
about?
Brett:
I am talking total engine orders.
Purvis:
You haven't placed your orders, is that it?
Brett:
We have not placed our orders as yet.
H.M.Jr:
Look over my shoulder.
(Discussion off the record)
Brett:
My figures are right, aren't they, Mr. Secre-
tary?
H.M.Jr:
Yes.
Brett:
Thank you.
H.M.Jr:
Well now, as I understand, you (Knudsen) want
them to give you a breakdown on these 3,000
engines, is that right?
Knudsen:
3,000 planes.
H.M.Jr:
Now, what is a reasonable time to expect that?
Self:
Now, sir.
Regraded Unclassified
112
- 21 -
H.M.Jr:
Now?
Self:
I mean, do you want the basis --
H.M.Jr:
Now is 8. lovely word.
Purvis:
Especially from anybody who has been up since
5:00 in the morning.
Knudsen:
Go ahead, sir.
Self:
600 single engine pursuits; 400 twin engine
pursuits; 400 dive bombers; 600 twin engine
medium bombers; 250 multi-engine long range
bombers, two or four engines, according to
the best performance you can get with em-
phasis on long range; 250 flying boats.
Knudsen:
Is that two engines?
Self:
Yes. 500 advanced trainers. I put no ele-
mentary trainers in there because I think
Canada can take care of that.
Brett:
Are you interested in the twin engine trainer
or is that a single engine trainer?
H.M.Jr:
I put 500 advance trainers.
Self:
I didn't split it as between the single and
twin. If you want to split, you had better
take 200 single and 300 twin.
Knudsen:
Mr. Purvis will write me a. confirming letter
on this?
Purvis:
Yes, asking you to figure out for us a capital
expansion program.
H.M.Jr:
I think you gentlemen's sense of humor is good
enough for me to say that when Sir Henry came
113
- 22 -
through by saying, "Now," I said to myself,
"Maybe England will win the war yet.
Lyons:
Did you say 304 two-engine trainers?
Self:
300 twins and 200 single. Split the advanced
trainers 300 twin engines and 200 single
engines.
H.M.Jr:
Do you want to do it again, Sir Henry, to make
sure everything is there?
Self:
600 single engine pursuits; 400 twin engine
pursuits; 400 dive bombers; 600 twin engine
medium bombers; 50 multi-engine long range
bombers; 250 flying boats; 250 single engine
advanced trainers; 300 twin engine advanced
trainers.
H.M.Jr:
Now, you want that confirmed in 8. letter but
in the meantime you will make your plans so
that you can tell them in several days or
whatever is reasonable?
Purvis:
We will get the letter over today, sir.
H.M.Jr:
They will get it over there --
Knudsen:
And at the same time you will confirm the
arrangement?
Wilson:
Yes. In view of the discussion that took
place here and what we said on the way down,
if you will allow us, we will redraft it and
submit it to you for your approval 80 that
we are - our minds are together. There will
be no difficulty in translating the paper.
Purvis:
For your approval.
Knox:
You are not going to change the original --
114
- 23 -
Purvis:
Oh yes, just to clarify it in the light of
the later discussions this morning.
Knox:
This stands?
Wilson:
Yes, our minds are together. It is merely
a matter of expression.
Purvis:
The figure 1820 point about the Empire planes
that we talked about, things of that kind,
merely the things that we have discussed.
Knudsen:
All right, sir.
Purvis:
And then you will reject that or not, de-
pending on how well we have expressed it.
H.M.Jr:
May I just say this, and then you (Knudsen)
will give him a breakdown of how much it
will cost, is that right?
Knudsen: Yes.
H.M.Jr:
May I say this about what we did after you
left. The newspaper men saw that you were
here and I had my man call up every one of
the offices and we simply said that we were
here to synchronize the thing, but if - once
this is ready, I think this is & magnificent
story and I think it ought to be very care-
fully done, Purvis, and if your people would
write it out and then submit it to Mr. Knud-
sen, I think, and Army and Navy, I think you
have got a great story here and I think it
could be held and not leak out and then say,
"This is what they are going to do," and 80
forth.
Knudsen:
There will be no leak as far as I am con-
cerned.
Regraded Unclassified
115
- 24 -
H.M.Jr:
No, I know it.
Mr. Nelson, do you want to add anything?
Nelson:
No, I think it is perfectly all right,
Mr. Secretary.
H.M.Jr:
How does it sound to you?
Nelson:
It sounds okay.
H.M.Jr:
Are we going too fast?
Nelson:
No sir, I think not.
Knudsen:
I think if that is what they want, that is
what we will figure on.
H.M.Jr:
Colonel Knox?
Knox:
I am agreeable. I think you are going after
impossible figures, but go ahead and try it.
H.M.Jr:
General Arnold?
Arnold:
I think it is one of the best things we have
done yet. It will give us something to shoot
at.
H.M.Jr:
Admiral Towers?
Wilson:
And it doesn't make us fold up on the other
side. That is what we were afraid of.
Self:
May I mention, Mr. Secretary, that this is
considerably less program than we had planned
in the United Kingdom in 1942.
Purvis:
Sorry we have to raise the ante.
H.M.Jr:
Have I overlooked anybody who would like to
say anything?
116
- 25 -
Knudsen:
Kraus, you had better say something.
Knox:
Purvis, you fellows have got your teeth
all set for a nice large sum.
Purvis:
Oh yes, we are used to that.
Knox:
It is going to cost like hell.
Purvis:
The war is costing like hell anyway and
perhaps if we had let it cost a little more
earlier, as the Secretary said, it would
have been better. However, we thought we
had other reasons - we thought we were on
a desert island with just so much food and
we had to - Mr. Hitler has told us some
things.
H.M.Jr:
I would like to say this, gentlemen: I
have sat in a lot of meetings. I think
there has been one of the best spirits
of any meeting I have ever attended here
and what the English are asking us to do
has put more encouragement into me than
anything that has happened this year. I
think there is a chance. It is the most
hopeful thing that has happened.
Purvis:
Thank you very much.
(Mr. Stimson entered the conference)
H.M.Jr:
I think if Mr. Knudsen could possibly sum
up what happened here this morning for
Mr. Stimson.
Knudsen:
Mr. Secretary, I think you were shown last
night the points agreed on and the layout
of production until April 1, 1942. This
proposal this morning has been accepted
by everybody concerned, with the understanding
Regraded Unclassified
117
- 26 -
that we will add 1820 more planes which we
have got to try to find and which I am
hoping to get to the British in a knocked-
down state. I am getting two weeks to look
that over.
On top of that, at the direct request that
has been made by Secretary Morgenthau this
morning of the British Government, there will
be superimposed on that schedule that you
have a copy of a production program of 3,000
planes per month for the British account and
I have been requested to estimate the amount
of funds required --
Stimson:
What?
Knudsen:
The amount of money required for a program
of that sort, this being strictly a British
undertaking, aside from anything else.
Stimson:
When do they want delivery?
Purvis:
January '41, if possible, but we are quite
aware of the fact that it won't start quite
as early as that.
Knudsen:
It is out of the question, of course, by
January '41, but they will take the capacity
as, if and when we can get it, I understand.
H.M.Jr:
That is the story.
Stimson:
So far as the original program is concerned,
I am very glad you reached an agreement. I
felt it a very good solution, Mr. Secretary.
H.M.Jr:
It is good spirit on all sides.
Stimson:
I am sure of that, and as for this other
program, I hope it can be --
118
- 27 -
Purvis:
We wanted to unfreeze the situation. We
were terribly afraid of the affect in
London of having such a small ceiling
about us. When you get into talking about
'42, we want to really get into the kind
of thing that would enable us to combat
Germany.
Stimson:
You are looking for that last battle.
Purvis:
Yes. We should have looked a little earlier,
Mr. Secretary, as Mr. Knudsen properly re-
minded us.
-119
July 24, 1940
Dear Jeremes
Due to the increased pressure arising from
the National Defense Program, which has edded -
siderably to the burdens which se many of w have
been carrying, 1 have found it necessary to esk
Philip Toung, Assistant to the Secretary and Member
of the President's Liaisen Committee, to find a
person to work with his and with - on a highly
confidential assignment. Because of the nature
of this job, 10 is extremely difficult to find &
person who has the proper qualifications.
Mr. James c. Backley, of your Reorganisation
Division, was suggested to - as a person will
qualified to to this job. After talking with
Mr. Buckley, I - very saxious to secure his MP-
vices for from three to six months in the interest
of national defense.
May I request that the services of Mr. Buckley
be unde available to my office on a loan basis with
reinbursement provisions, and with the understanding
that at the expiration of this temporary assignment
he will return to the Securities and Exchange Com-
mission.
Sincerely,
Henry
Manarable Jerome I. Frank, Chairman,
Securities and Enchange Commission,
Washington, D. c.
Frib; Pu. Am
cc to Mr. Thompson
By Memonger 335
Regraded Unclassified
120
COPY
Rio do Janeiro, Brasil, July 24, 1940.
No. 3321
Subject: The Release of Dollar Funds Of The Banco Frances e Italiano.
The Honorable
The Secretary of State,
Washington.
Sir:
With reference to the Department's telegram No. 211 of
July 11, 1940, regarding the release of dollar funds of the
Banco Frances e Italiano in New York, in order to make a dollar
payment to the Bank of Brazil here, I have the honor to quote
below the text of a letter from the Director of Exchange con-
cerning a dollar draft drawn by the Banco Frances 6 Italiano
against J. Henry Schroder Banking Corporation of New York:
"The Honorable
Jefferson Caffery,
American Ambassador,
Rio De Janeiro.
"With this letter we wish to request Your Excellency
to take the steps which you may deem necessary in order to
have liberated the amount of US $14,084.71, drawn by the
Banco Frances e Italiano against J. Henry Schroder Banking
Corporation, New'York, referring to the required delivery
of the 30 por cent official exchange, which amount belongs,
therefore, to the economy of the Brasilian Government.
"Anticipating our best thanks for your kind attention
to this matter, we remain,
Very truly yours,
sd) Francisco Alves dos Santos Filho,
Director of Exchange.
Alberto de Castro Monezes,
Chief, Exchange Department. .
The Department's cooperation in arranging for the release of this
Regraded Unclassified
121
- 2 -
amount will be appreciated.
Respectfully yours,
For the Ambassador:
Walter J. Donnelly,
Commercial Attache.
File 851.6
WJD:KF.
THAT 123,
10 THE RE
01 THE
IS or MA 2 DUA ONG DUA ONGI
IMPORATO YEURA 387
BECEINED
121-A
July 24, 1940
8:50 a.m.
Present: Mr. Young
Mrs. Klotz
HM Jr: I am thoroughly disgusted with the
Army and with Mr. Knudsen. They simply can't see any
farther than the end of their nose. This memorandum here
is terrible - it simply sickens me. (ce all
Now, I'll tell you what I've been thinking
about this morning. What I want is six separate engine
plants, each one with & capacity to build 12,000 engines
a year of 1000 HP or over, half of which will go to Eng-
land and half of which we will keep. Now the way I
figured the thing out is this: Curtiss Wright, New
Jersey, Curtiss Wright, Ohio, two General Motors, Packard,
and one other company. You see? And each of those
factories should receive orders up to 1,000 engines B.
month on a two-shift basis. We're way short of that.
Then if we have that, that means that with six plants
each producing 1,000 engines a month we would have 6,000
engines. That will mean we will give 3,000 engines 8.
month to England and have 3,000 for ourselves.
When Mr. Roosevelt finds out what the program
is he is going to go right through the ceiling. They
haven't done what I asked them to.
Young: George Mead called me up. I have been
sending him certain inquiries with respect to other foreign
orders, and he said it is going to take some time, that he
still doesn't know what the air frame capacity is.
HM Jr: What difference does that make? They
should get started on this other thing.
I talked to the President last night and I told
him how things were going, and he said, "My God! Haven't
they done that yet?" There's just something wrong some-
where and that's why I'm going to have Kraus and
121-B
- 2 -
Towers up alone at 10:00. I want to see them alone.
You see?
Young: They're all right. The trouble there
it seems is with General Arnold.
HM Jr: Well, Towers and Kraus are coming en-
tirely alone because Kraus knows what Mead is doing if
anybody does. He lives with him you know.
Young: Oh, yes, he knows all right.
HM Jr: So I'm going to find out, and Towers
is my best bet.
Young: He's all right. He really is 8. square
fellow.
HM Jr: But I don't know what the capacity of
each of these plants is today and how many orders they have
on hand.
Young: Kraus has all the figures on that laid
out as it is now.
HM Jr: What?
Young: Kraus has all the figures on that.
HM Jr: He seems to carry 8. lot of that stuff
in his head - never seems to have a lot of figures written
down.
Young: They have a pretty complete survey.
HM Jr: Well, giving Mead the best of the breaks
I take it all he has in mind is he is trying to make what
he has go as far as it can.
121-c
- 3 -
Young: Sure. What I wanted to do yesterday
afternoon was to talk about these other foreign orders
because he might be able to get another 1,000 engines.
HM Jr: What I say is this - if Germany has a
capacity of 1,000 units, we should have 1500 units. If
they have 1500, we should have 2000 and so on.
Mrs. Klotz: Purvis said that yesterday.
HM Jr: Yes. The point is this - it is only
8. question of time before some bombs are going to hit the
English airplane plants, and here we are doing nothing,
waiting until they hit a plant.
Young: That's what Morris Wilson said.
HM Jr: But it's just ridiculous. I mean
...
Young: We can do it all right.
HM Jr: The President - if he had left it to
me I would have done it and it would have been on the way
now. This person doesn't want to do it for this reason
and that person doesn't want to do it for someother reason.
And it's just terrible.
(To Mrs. Klotz) Wait until you see the telegram
I sent the President this morning. It's going directly.
I dictated it over the wire. (cofor in Briss folder)
Young: Any more information on that memo?
HM Jr: It's a good memo but it gives me the
whole picture and it is simply sickening. It isn't your
fault. The memo is good but the stuff that is in it is
making me sick. All right then. Does that hit the bell
with you, Phil?
Young: Absolutely.
121-D
- 4 -
HM Jr: Oh, yes, somebody told me you can't
get this fellow Buckley. How are you coming along on
that?
Young: Well, yes. Jerome Frank seems to
think
HM Jr: Dictate a letter for me to Jerome
Frank. You write it for me to Jerome Frank, you see?
Young: All right. I'll be glad to.
Notes on Conference in the
Secretary's Office at 10:15 A.M.,
Wednesday, July 24, 1940.
Those present, the Secretary, General Brett, Major Lyon,
Admiral Towers, Captain Kraus, and Mr. Young.
The Secretary opened the conference with a general state-
cent that, according to his information, the aircraft program
under the direction of Mr. Kuudsen and, more specifically,
Dr. Head had not been progressing very fast. He said he did
not know what the reason VAS for the delay; that he did not
think much had been accomplished. He asked Captain Krans if
they were still thinking in terms of the original program for
50,000 planes & year as outlined when Krans and Head were work-
in the Treasury. Kraus replied that they were following it
generally, but that they were only shooting at 40,000 planes
per year.
The Secretary stated that he wanted to be perfectly frank
with everybody present and to lay his cards on the table. He
added that he thought everybody in the room knew that he could
be trusted and that he always played feir and above board. He
looked specifically at General Brett and remarked that he hoped
the General realized that 8.9 he certainly should from the earlier
contacts which they had had while the aircreft program was in the
hands of the Treasury. Whereupon, the Secretary asked everybody
to take their hair down and tell him just what they thought the
trouble was. At that point there was AD intermission of approxi-
mately ten minutes while the Secretary talked with the White
House on the telephone.
When the group reconvened, the Secretary stated that he had
been swfully worried about what had occurred at the conference
with Knudsen the preceding afternoon as it tended to freeze air-
craft, plane and engine production in the United States. He
added that he had been awake most of the night thinking over the
problem and had literally been pacing the floor since 5 o'clock
in the morning. Further, that he had talked with the President
the preceding evening about the whole matter.
The Secretary again outlined what he understood to be the
President's policy concerning the superimposing of the defense
program on top of foreign orders. The Secretary said that he
123
- 2 -
thought the way to tackle the problem was to put down in a
column the potential aircraft engine capacity in the United
States for the calendar year 1941, and then for the calendar
year 1942. From this total should be subtracted the require-
ments for the Army, the requirements for the Navy, and the
number of engines on order for the British. According to the
Secretary, the result would be a minus balance which could
only be counteracted through expansion of engine production
capacity.
Whereupon, the Secretary asked Captain Kraus for the
engine production capacity for the calendar year 1941 in order
to demonstrate the procedure outlined above. This table &
peared as follows:
Engine Production Calendar Year 1941
(1) Pratt & Whitney
13,000
(2) Curties Wright
(Patterson plant)
15,000
(3) Curties Wright
(Ohio plant)
3,600
(4) Packard
4,000
(5) Allison
5,700
Total
41,300
Army Requirements
20,000
Balance
21,300
Navy Requirements
Balance
England has on order
Deficit 7
The foregoing table is incomplete due to the fact that
Admiral Towers was not in a position to supply the Havy require-
ments at the time. The Secretary went on to say that he would
like to see a monthly schedule of deliveries worked out beginning
121
with January, 1941, and extending through December, 1942.
Admiral Towers said that his view of the whole program as
visualized by Mr. Knudsen vas A question of creating the neces-
sary production velocity. Mr. Knudsen visualized a balanced
program of completed airplanes including accessories. It was
that balanced program, according to Admiral Towers, which
Mr. Knudsen had in mind when he said that this country could
produce 30,000 planes in two years.
The Secretary said that he did not agree with Mr. Knudsen's
point of view or with the way in which the problem was attacked.
Briefly, instead of stating how much the country could produce,
the requirements of the Army and Navy plus those of the British
should be ascertained first and then the capacity of the country
should be developed to meet the requirements. In this way, a
definite goal would be set to shoot et regardless of facilities
presently available.
The Secretary asked Captain Kraus as to what was the matter
with George Head, adding that he felt some responsibility for
Head inasmuch ns he had originally brought him to Washington.
Both Cantain Kraus and Admiral Towers replied that they thought
Kead to be an excellent engineer and a good man for the job.
Captain Kraus emphasized the point, however, that Mend vas work-
Ing under a definite directive on e specific program. Kraus
added that he knew Mead would cooperate 100 per cent in working
out a program whether it provided for 30,000 or 300,000 planes.
Cantain Kraus also pointed out that Mend had been very
worried over the Pratt & Whitney production situation. Evidently.
the Pratt & Whitney personnel has become very thin, so that the
company is afraid to go ahead on an expansion program at least
to the extent of building and managing a plant in the middle
Vent away from its home ground. Curtiss Wright, on the other
hand, said Captain Kraus, had a large and skillful personnel,
so that that company was quite ready to build a new plant in
Ohio and to go ahoad on such an expension program.
General Brett stated that he thought the greatest difficul-
ties nt the present time which were hindering the aircraft program
were those of a legal nature plus those created by red tape pro-
cedure. The Secretary said that he realized that those difficul-
ties existed and that he had aven checked with the Budget Bureau
to find out the number of planes for which appropriations had been
approved for both the Army and the Navy. He pointed out that at
Pogradod
125
4
Regraded Unc
the present time $262,000,000 had been appropriated for 4,247
planes for the Var Department, and $81,000,000 for 3,101 planes
for the Havy. Further, that appropriations were pending amount-
ing to $502,000,000 covering 14,394 Army planes, and $125,000,000
covering 4,028 Navy planes.
Admiral Towers and General Brett stated that these figures
were correct, but Admiral Towers added that he had $45,000,000
still pending in the Bureau of the Budget, General Brett added
that he had $93,000,000 already, and, further, that he had plenty
of money to start the new Curties Wright Ohio plant on its nev
production program.
Reverting back to his idea of what the aircraft program
should include, the Secretary sounded out the group on the state-
ment which Mr. Purvis had made the preceding day, namely, that
the British would like to get 3,000 planes a month if they could.
Both General Brett and Admiral Towers admitted that they had never
heard that figure mentioned in that connection before, but that
they thought the possibility of a now program superimposed on the
potential program discussed yesterday should be seriously con-
sidered.
The Secretary asked Mr. Young to request Mr. Purvis to come
to Mrs. Klots' office and to wait until the Secretary could talk
with him. The Secretary concluded the conference by saying that
he was going to talk with Mr. Purvis and urge him to make & defi-
nite request for the production of 3,000 planes per month for the
British, and that this matter should be discussed at the ensuing
conference at which Messrs. Knudsen, Stimson, Knox, Arnold, and
Purvis were to be present.
The Secretary and Mr. Young met with Mr. Purvis and Mrs. Klots
about 11:20 A.M. in Mrs. Klots' office. The Secretary explained to
Mr. Purvis that he had skipped out of a conference with General
Brett, Admiral Towers, and Captain Krans, and that he only had five
minutes.
"Purvis," said the Secretary, "the aircraft program of the
United States can't be frozen, it can't have a ceiling. You've
talked about how the British would like 3,000 planes B. month: say
to Knudsen you're ready to order them on behalf of England - on
behalf of the British Expire!"
- 5 -
126
Purvis was very startled and unconsciously started to
object. The Secretary said, "Don't worry about the authoriza-
tion - take forty-eight hours - take until next Monday, you'll
get it all right."
Purvis said, "Do you mean make 8 firm offer to Knudsen
for 3,000 planes?"
"You've got to do it," replied the Secretary. "Knudsen
may quibble over 1,200 planes but he can't do it on 3,000,
Pass the ball to him."
"Hadn't I better say 2,500 planes?" queried Purvis, still
not grasping the scheme.
"Purvis," said the Secretary, "you've got to bluff; stick
to the 3,000 planes and put it up to Knudsen as though it were
an offer you had been thinking about for weeks. After all, part
or all of your British production facilities will be bombed -
this country has got to take care of it.
"Tell Knudsen you want 3,000 planes and I'll back you up;
I'll tell him it would be suicidal if this country didn't do it."
"I'll do it!" said Purvis, "but I must see Morris Wilson -
he's Lord Beaverbrook in this country and I've got to have his
backing - he must share the responsibility - but I'll do it!"
Mr. Purvis left to see Morris Wilson and Sir Henry Self
before the conference at 11:30 A.M. at which Messrs. Knudsen,
Stimson and Knox were to be present.
On the way out, the Secretary said to Phil Young, "Write me
an account for the Diary, especially this meeting with Purvis -
it's history."
127
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Dr. Arthur N. Young, Financial Advisor to the Chinese Government, who is in
the United States accompanying Dr. Soong, asked me yesterday evening if I would
bring to the Secretary's attention the urgent desirability of having the new
legislation for increasing the Export-Import Bank's funds by $500,000,000 include
some provision which will make it possible to grant added credits to China, and
for the purposes which have been discussed in recent conferences between the repre-
sentatives of China and the American officials.
I 128
July 24, 1960
My dear Mr. Hoover:
Thank you for the following letters which I
have received from you recently:
July 17 - Boeing Aircraft Company,
Seattle;
July 18 - German activities in
Ecuador;
July 19 - Secret meeting of Hitler
and Stelin in Lnow, Poland;
July 20 -
Stuttgart, Payments by Germany; order of given Bosch, to mr. Daston 9/19/42
July 20 - Summary of information in
the Mexican press relative
to entrance of political
refugees into Mexico.
I appreciate your kindness in making these
various reports available to me.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Neover, Director,
Federal Bureau of Investigation,
Washington, D.C.
123
July 24, 1940
My dear Mr. Hoover:
Thank you for the following letters which I
have received from you recently:
July 17 - Boeing Aircraft Company,
Seattle;
July 18 - German activities in
Eouador;
July 19 - Secret meeting of Hitler
and Stalin in Lnow, Poland;
July 20 - Payments by order of Bosch,
Stuttgart, Germany;
July 20 - Summary of information in
the Mexican press relative
to entrance of political
refugees into Mexico.
I appreciate your kindness in making these
various reports available to m.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
130
July 24, 1940
My dear Mr. Hoover:
Thank you for the following letters which I
have received from you recently:
July 17 - Boeing Aircraft Company,
Seattle;
July 18 - German activities in
Ecuador;
July 19 - Secret meeting of Hitler
and Stalin in Lnow, Poland;
July 20 - Payments by order of Bosch,
Stuttgart, Germany;
July 20 - Summary of information in
the Mexican press relative
to entrance of political
refugees into Mexico.
I appreciate your kindness in making these
various reports available to m.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
OHN EDGAR HOOVER
DIRECTOR
131
Federal Bureau of Investigation
United States Department of Justice
I mi w.
July 17, 1940
PERSONAL AND CONFIDENTIAL
SPECIAL MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I am transmitting herewith as of possible in-
terest to you copies of a memorandum containing informa-
tion received from a confidential source concerning
labor conditions at the Boeing Aircraft Company, Seattle,
Washington.
Sincerely yours,
J. Edgar Hoover
Enclosure
132
July 16, 1940
MEMORANDUM
Information has been received from a confidential
course to the effect that Hugo Lundquist, Business Agent
of the Aeronautical Mechanics Union at the Besing Aircraft
Company, Seattle, Washington has instructed several Union
members to resign from the National Guard or also resign
from the Union.
Lundquist reportedly stated that the Aerensutical
Mechanics Union is going to strike and be does not want
National Guard - shooting other Union employees.
JOHN EDGAR HOOVER
DIRECTOR
133
Federal Burrun of Impretigation
Nutted States Department of Justice
Washington, D. C.
July 18, 1940
PERSONAL AND
CONFIDENTIAL
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Às of possible interest to you, there is
being transmitted herewith a memorandum incorporat-
ing information relative to German activities in
Ecuador, South America. These data were obtained
through a confidential source of information by the
representative of this Bureau presently stationed in
Ecuador.
Sincerely yours,
Enclosure
J.23yan J. Hoover
BY SPECIAL MESSENGER
134
July 18, 1940
MEMORANDUM
Re: GERMAN ACTIVITIES IN ECUALDR
The Press
In Quito, Ecuador, the German Legation spends about
$500 a month for articles in the newspapers and expends approx-
imately the same sum for the identical purpose in Guayaquil,
Ecuador, These articles are written by Germans using fictitious
names and also by Ecuadorians who are paid for their services in
this regard. The articles are paid for as business advertisements
and therefore are printed in their entirety. On the other hand,
items with anti-Nasi themes are frequently deleted by editors be-
cause the newspapers receive no money for them, whereas the Germans
pay for their articles as business advertisements or announcements
which compels the editors to print the articles without making any
deletions therefrom.
Since the collapse of France these articles have been &
rected against the Jews and the United States. Their theme has
been to show what great things Germany has done for Latin-America
and on the other hand to point out United States exploitation of
Latin-America, They frequently refer to the financial loans of
the United States to Republics in South America as "Dollar Dictator-
ship". Another theme is that Pan-Americaniam is another form of
American business.
In the near future a newspaper will be published and fi-
nanced by Nasi and Fascist adherents in Ecuador.
The Radio
The radio station in Guayaquil has a daily program of one
hour which consists of anti-Semitic propaganda.
In Quito the Bolivar radio station gives daily press news
furnished by Transocean, the German overseas press bureau. It is
said the radio station receives several thousand dollars a year for
this utilization of its service. This press news is highly favor-
able to Germany and the radio station sees no advantage in spending
Regraded Unclassified
135
-2-
money for one of the American news services.
Transocean has an office in Quito which is under the
direction of Herr von Simons who was formerly Minister of Propa-
ganda in Berlin. This office 18 one of the Nasi propaganda
centers in Equador.
Direct Propaganda
The Ecuadorian Army has Fascist tendencies due to the fact
it is under an Italian Military Mission and also because a large
number of the staff officers thereof have attended postgraduate
military schools in Italy.
Commercial
Most of the merchants in Ecuador have done good business
with Germany and are highly organized by the Nasis. The merchants
represent both German and American concerns and secure prices on
articles from the United States which are quoted to the German
manufacturers who are consequently in a position to submit a lower
bid than the American concerns.
Other Propaganda Factors
The Germans have established schools in Ecuador which
are attended by the children of many influential Ecuadorians.
The German House is open to Ecuadorians who are frequently invited
to attend parties and celebrations, most of which happen to fall
on German and Nazi holidays.
Frequent meetings are held in The German House, in private
homes, and on farms owned by Germans. There are military drills
at early hours on German farms and German tourists from neighbor-
ing Republics are encouraged to visit Ecuador. There are secret
and unlicensed radio stations, and campaigns against the Jews and
"Yankee Imperialism" in South America.
Many Germans have married into politically influential
Ecuadorian families.
The so-called Commist, radical and socialist elements
in Ecuador are being influenced by Nasi propaganda to believe that
Germany is fighting against capitalism; that the United States is
the symbol of capitalism, and that Dr. Arroyo dal Rio, the incoming
President who is pro-American, 10 the representative of the dollar.
136
-3-
Funds for Propaganda Purposes
The Nasis have about $500,000 at their disposal for
propaganda purposes. A part of this is contributed by the
Nazi party and the remainder is secured from German merchants
and importers of German goods who are given credit in banks in
Germany for the amounts they contribute locally.
Another source of funds is Victor E. Estrada, a power-
ful banker of Ecuador who prior to the war arranged the Aski-
mark agreement between Ecuador and Germany, and who in return for
his services was designated by the German Government as the ex-
clusive agent for this type of trade money. It is not known if
he is contributing at the present time inasmuch as the war caught
him with a large amount of Aski-marks in the possession of his
bank La Previsora with no way of disposing of them.
Regraded Unclassified
JOHN EDGAR HOOVER
137
DIRECTOR
Federal Bureau of Investigation
United States Department of Justice
Washington, D. G.
July 19, 1940
PERSONAL AND
CONFIDENTIAL
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Information has just been received from
a confidential source to the effect that after the
German and Russian invasion and partition of Poland,
Hitler and Stalin met secretly in Lwow, Poland, on
October 17, 1939. It is alleged that foreign govern-
ments have not yet become aware of this meeting.
During these secret negotiations, Hitler and Stalin
reportedly signed a military treaty to replace the
previously consummated Non-Aggression Pact. It is
reported that on October 28, 1939, Stalin made a
report to the Political Bureau of the Communist
Party of the Soviet Union, in which he furnished
the seven members of the said Bureau, full details
concerning his negotiations with Hitler.
I thought you would be interested in these
data.
Sincerely yours,
La before
BY SPECIAL MESSENGER
OHN EDGAR HOOVER
138
DIRECTOR
Federal Bureau of Investigation
United States Department of Justice
Washington, B. C.
July 20, 1940
PERSONAL AND
CONFIDENTIAL
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
As of possible interest to you, there is
being transmitted herewith a memorandum summarising
information appearing in the Mexican press relative
to the entrance of political refugees into that
country.
Sincerely yours,
Enclosure
J.20.200ver
BY SPECIAL MESSENGER
139
July 20, 1940
MEMORANDUM
A summary of information appearing in the Mexican
press reflects that notwithstanding recent official statements
published in Mexico City to the effect that no more political
refugees would enter that country, nearly one hundred political
refugees who were former Azana soldiers in the Spanish War
arrived in Mexico aboard the Laredo train on June 1, 1940.
These refugees originally entered the United States through
the port of New York City.
It is also reported that the ex-President of the
former Spanish Republic, Don Manuel Azana, would soon arrive
in Mexico incognito, accompanied by his private secretary.
Azana was granted admission by the consent of President
Cardenas and his voyage was to be made directly to Vera Crus
and not by way of New York.
It was further reported that at different places
in Mexico there were arriving some of the former high officials
of the erstwhile Republican Government, among them being Angel
Galarza, Minister of the Interior under the Azana Government,
and considered one of the principal instigators of the Spanish
Civil War.
- email COMMUNICATIONS TO
THE SECRETARY OF STATE
140
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
July 24, 1940.
Dear Merle:
I enclose message from Harry White for the
Secretary of the Treasury. Please advise me of
the reply.
Sincerely yours,
llerbert teis
Herbert Feis
Adviser on International
Economic Affairs
Enclosures:
4 copies, paraphrase,
No. 9 of July 23 from
Habana.
THE RESUEAVBA
That EACH
Mr. Merle Cochran,
17 70 201590
18 H MA as JUL 00
BECEIVED
Technical Assistant to the Secretary
185
Treasury Department.
141
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Delegation, Habana, Cuba
DATE: July 23, 1940, 6 p.m.
NO.: 9
FOR THE SECRETARY OF THE TREASURY FROM WHITE.
I was approached by Secretary Hull with the question
as to the desirability of the United States Government
being able to give to some of the other foreign ministers
in confidence at this conference some indication of what
might be done in the way of monetary assistance from the
United States Government. It 1s our opinion that it would
be very helpful to Secretary Hull if and when he deems
it would be appropriate he could, on your authorization,
make the following statement or a similar one, orally,
either directly or through Berle in private talks with
delegation heads -
QUOTE. I understand that should any Latin American
Government approach the Secretary of the Treasury he 18
prepared to give immediate and sympathetic consideration
to specific proposals involving American assistance for
cooperative arrangements directed at stabilization of
relationship between the dollar and the currency of that
country and the strengthening of the monetary and banking
system of that country. Any such monetary cooperation 1s
envisaged
142
- 2 -
envisaged only when it 1s part of & broad program of
cooperation between the countries directed toward the
attainment of the objectives as outlined in my address before
the conference. END QUOTE.
Presumably the transaction implied by this statement
1s one which would involve essentially a loan of gold and
dollars from the United States out of the stabilization fund
using as collateral the currency of the other country.
Any person to whom such a statement 18 made would doubtless
interpret it in some such manner. There was inserted the
term "cooperative arrangement" to indicate that the other
country would have to meet certain conditions which you
may prescribe before consummation of an arrangement.
Although you are not committed to any specific action in
the statement, you would be committed to serious considera-
tion of any plan that might be put before you. The statement
seems further to commit you to the expectation that in
some cases favorable action will result, provided the
country in question has on its part given us adequate
cooperation on other parts of the program in general.
funcessed
HULL
W.AR
EA:LWW
143
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 24, 1940
FO
Secretary Morgenthau
FROM Mr. Cochran.
STRICTLY CONFIDENTIAL
There is attached a cablegram to Dr. White, setting forth your answer as given
to ne by Mrs. Klots.
Does the answer cover adequately the question as to whether you would give
"s loan of gold and dollars from the United States out of the Stabilisation Fund
using as collateral the currency of the other country"?
Have no made any commitment to Congress which would oblige the Treasury to
seek the approval of Congress before giving a loan of gold from the Fund to a
"oreign state or central bank?
On the other hand, are we changing our policy so that the Fund may be giving
a loan of dollars against paper currency (rather than secured by gold or silver)
as collateral, provided the borrowing government and central bank individually
and collectively guarantee repayment?
70ml.
Regraded Unclassified
144
July n, 1940
Secretary Hargenther
Mr. declarem.
STRICTLY CONFIDENTIAL
There is attached a coblegram to M. thite, setting forth your cheese as gives
to - W Mrs. Elets.
Does the - CUTOP adequately the question as to whether you would give
" lean of seld and dellars from the United States out of the Stabilisation Paul
using as collatoral the currency of the other country°1
Sere w mão say consituent to Congress which would obligo the Treasury to
ceek the approval of Gengrees before giving 8 less of all the the Part to 6
Tereign state or central beak?
On the other hand, are we changing our policy $ that the Fund my be giving
& less of dellars against paper currency (suther then secured w gold w silver)
as cellateral, provided the berreeing government and central boak individually
and collectively guarantee repayment?
Srad
Regraded Unclassified
145
day n 1940
2. seis
Mr. declarem
with reference to your note of July 24, treasmitting a paraphrace of the cable-
pm received from the American Delegation at Service, the Decretary of the treasury
decires that the fellowing cablegram be combe
American Delegation,
American
$ I
For White from the Secretary of the Treasury.
Reference year B. 9. July 25, 6 p.a. I - willing to - along
provided the deverament and Control Bank of each particular essatey
wald guarantee individually and collectively the sold
Sml
milag-7/24/40
146
July 24, 1940
5:30 p.m.
Jesse
Jones:
How are you?
H.M.Jr:
Oh, I'm fine.
J:
I've got & telegram here -- I suppose you
must have had one -- from the Little Rock
Clearing House Association.
H.M.Jr:
What kind of clearing house?
J:
The Little Rock, Arkansas.
H.M.Jr:
No, I haven't got it?
J:
May I read it to you?
H.M.Jr:
Please.
J:
It just came to me. It's a wire.
"I have just heard that the 1940 cotton
loans in our territory are to be transferred
to Memphis Federal Reserve Bank for handling
instead of the Little Rock Federal Reserve
Bank as heretofore. This will be great
inconvenience to farmers, merchants, cotton
buyers and bankers in the Little Rock
territory and will tend to further depress
our local cotton markets."
H.M.Jr:
Well, Jesse, you're calling up the wrong
fellow. I'm not running for Vice President.
J:
You're not.
H.M.Jr:
(Laughs). No.
J:
Well, where's Wallace? (Laughs).
H.M.Jr:
(Laughs).
J:
See, I'm out of the race now.
H.M.Jr:
Well, I think Wallace is playing tennis in
Des Moines, Iowa, or throwing the -- what
do you call the thing -- boomerang.
147
- 2 -
J:
Yeah, boomerang is right.
H.M.Jr:
(Laughs).
J:
I showed Henry that -- talking about that
proposed increase in the bank -- I showed
him that proposed legislation and he wouldn't
discuss it. This was after he was nominated.
H.M.Jr:
I see. Well, Jesse, to be serious for a
moment, if you'll send the thing over to me
I'll be glad to look into it.
J:
0. K. I will because the fellows are --
I'll be glad to send it over.
H.M.Jr:
Thank you, Jesse.
J:
Everything all right with you?
H.M.Jr:
Everything's fine. I hope to see you soon.
J:
Fine.
148
PARAPHRASE OF TELEGRAM SENT
TO: American Delegation, Habana, Cuba
DATE: July 24, 1940, 8 p.m.
NO.: 25
FOR WHITE FROM SECRETARY MORGENTHAU.
I refer to your telegram of July 23, 6 p.m.,
no. 9 from the Delegation.
Provided the Government and Central Bank of each
country concerned would guarantee individually and
collectively the gold loan, I am willing to go along.
WELLES
Acting
EA:HF:MSG
010 705 X 01221 M 2
20
THA THANKA 12JMH03T
10 245 REC 1791
EA:LWW
149
JT
PLAIN
LONDON
Dated July 24, 1940
Rec'd 2:30 p.m.
Secretary of State,
Washington.
2377, July 24.
FOR TREASURY FROM BUTTERWORTH.
The only sditorial in this morning's press which
may be said to EXPRESS approval of the budget is that in
the FINANCIAL TIMES. In general the budget has not been
well received, the criticism being that it does not go
far enough either in providing a suitable proportion of
expenditure from ourrent taxation or in ourtailing :
consumption spending. EVERY writer stresses the interim
character of the budget, the DAILY MAIL Excusing the
Chancellor of the Exchequer on the grounds that he has
been too short & time in office to prepare & war budget
on a new basis, while the FINANCIAL NEWS asks, if only
6126 million of the 6800 million increase in the expendi-
ture estimate since April is to be raised by taxation and
confidence is placed in the hope that the great bulk of
the gap will bE filled by voluntary savings supplemented
by
Regraded Unclassified
150
JT -2- No. 2377, July 24, from London
by drafts on gold reserves and the USE of other assets,
why was this supplementary budget made at all? THE TIMES,
THE TELEGRAPH, THE FINANCIAL NEWS and THE MANCHESTER
GUARDIAN all pay tribute to the Chancellor's EXCELLENT
statement of the general problem which he gave in the
opening part of his speech, the MANCHESTER GUARDIAN
characterizing it as whole-heartedly commendable and
saying: "Mr. Keynes and the many others who have been
trying to drive the unpalatable facts into the heads of
politicians have not agitated in vain. The crux of the
Economic problem, as Sir Kingsley said, is that WE have
& larger and increasing total of money incomes and a smaller
and diminishing supply of consumable goods, Behind this
fundamentally dangerous situation 11ES the possibility
of a quickly developing inflationary movement with wages
and prices chasing one another upwards. To permit this,
as he said, might well bE fatal to the successful prosecu-
tion of the war and certainly a source of hardship and
suffering, more particularly to the poorer sections of the
community." But all agree that the measures proposed in
the budget are inadequate to combat the situation, the
FINANCIAL NEWS putsit: "In fact there is only too good
reason to conclude that if this is all the Treasury can
do by way of emergency financing WE shall certainly have
inflation by the front door." The MANCHESTER GUARDIAN
says
Regraded Unclassified
151
-3- #2377, July 24, from London
says: "If this budget represents the maximum burden
that can bE laid upon incomes then the freedom to spend
incomes must be restricted by direct legislative inter-
ference. It is not enough to restrict the supply of
goods either by consumer rationing or by trade rationing.
There must also bE & direct restriction of spending power
if some sort of balance is to bE maintained." The TIMES
points out that: "From the point of view of preventing &
continuation and acceleration of the rise in the general
level of prices which has already begun it is quite
inadequate. For it leaves by far the greater fraction of
the extra incomes and extra wages which will bE the
counterpart of the increased EXOESS of EXCHEQUER disburse-
ments over receipts in the ourrent year to bE spent on a
diminishing quantity of goods. This 18 to invite infla-
tion, unless far more drastic steps are contemplated
outside the budget as such in order to divert the moneys
back to the Exchequer." Another specific criticism is
made by the DAILY MAIL which prediots that there will bE
a great rush to purchase goods liable to be subject to the
purchase tax, Especially as this tax will not be operative
until SOME unannounced date in the next month or two.
Regarding the decision to make compulsory & system now
working on a limited voluntary basis of income tax deduc-
tions at the source from monthly salaries and weekly
wages,
Regraded Unclassified
152
#2377, July 24, from London
wages, the MANCHESTER GUARDIAN rightly points out that:
"A very large number of income arners have lately COME
into the income tax range who for administrative reasons
have been difficult to catch." It is generally admitted
that the deduction at source will also help to prevent
SOME consumption spending. This is the one feature which
meets with universal approval in a budget generally
characterized by such adjectives as, timid, tinkering,
make-shift, stop-gap and inadequate. The TIMES editorial,
for example, concludes: "Its figures WETE necessarily
provisional; its proposals WETE provisionally humdrum;
and there 18 good augury for the future in the fact that
the audience WETE clearly ready to applaud something
much more imaginative and drastic."
KENNEDY
WWO
153
ATP
GRAY
BERLIN
DatedSJuly 24, 1940
Reo'd 8:50 p.m.
Secretary of State,
Washington
3134, July 24, 2 p.m.
My 2644, July 5, 9 p.m.
FOR TREASURY FROM HEATH AND ALSO FOR THE INFORMATION
OF THE DEPARTMENT.
Today's press carries a statement of the short term
debt of the Reich on May 31. No statement of long
term debt has been issued since the one for March 31
80 that it is still impossible to get a complete picture
of the Reich's borrowing since that time.
On May 31 the short term debt of the Reich (including
tax certificates) was 25,345,000,000 marks as compared
with 22,674,000,000 marks a month before. The increase
during May for short term debt alone was thus 3,671,000,000
marks, which is well above the previous record for
monthly increase in both long and short term debt of
2,483,000,000 marks which was reached in October of last
year. It SEEMS probable that there was also a fairly
large increase in long term debt during May since it is
known that 4 per cent Treasury certificates continued to
be sold up to middle of the month. If sales WETE at
the
154
-2- 3134, July 34, 2 p.m.
from Berlin
the same rate as in March, roughly 500,000,000 marks of
these bonds should have been issued during May and in
addition li-loans WETE preseumably also taken up by
the savings banks and insurance companies. It SEEMS
almost oertain that the total increase in debt during
May was above, perhaps WEll above, 3,000,000,000 marks,
which would not bE astonishing in view of the military
operations in that month.
The amount of Treasury bills and certificates
outstanding increased during May by 26,078,000,000 marks
to 20,872,000,000 marks. The amount borrowed against
the Reich's operating credit at the Reichsbank decreased
by 258,000,000 marks to 250,000,000 marks. "Other short
term loan", however, which had been negligible in the
past, increased by 347,000,000 marks during
May to 351,000,000 marks. Exactly what type of loans these
maybe is not known. The amount of tax certificates
outstanding decreased during May by 96,000,000 marks.
(considerably less than in previous months) to 37,022,000,000
marks.
in
KIRK
TFV
WWC
155
JR
PLAIN
London
Dated July 24, 1940
Rec'd 2:50 Della
Secretary of State,
Washington.
2378, July 24.
FOR TREASURY FROM BUTTE REVORTH.
The Cormercial and Agricultural Attaches would
appreciate it if their departments could have made
available to then the contents of the penultinate
paragraph of my 2353, July 23, together with the
following details: Budget customs EXCISE increases
Effective July 24. BEER customs increase 16 shillings
per barrel 36 gallons new full rate five pounds one
shiling five pence plus three shillings (instend of
two shilling six pence) additional for Each degree over
1027. Same increases EXCISE. Tax now four pounds one
shilling plus SOTIE gravity charge. Increases equivalent
one penny per pint retail. Light wines increase 2
shillings per gallon to 8 shillings, heavy wines 4
shillings gallon to 16 shillings. No change in
additional rates on sparkling wine and bottled still
wine. Excise increase 2 shillings gallon all wines.
Tobacco increase 2 shillings pound all categories both
customs EXCISE. Full customs rate now on unmanufactured
(10 per cent
156
-2- #2378, July 24, from London.
(10 per cent or more moisture) unstripped 19 shillings
6 pence, stripped 19 shillings 6 pence halfpenny. (below
10 per cent) 1 shilling higher. Cigars 1 pound 8
shillings and 1 penny. Cigarettes 1 pound 4 shillings
7 pence, Preferential customs rates increased in all
CASES by SCITE amount as full rates. Customs EXCISE
drawbacks raised by same amounts as duties. Entertain-
mento tax increased on cliding scale Effective October 6.
Full details and Effective date new purchase tax not
yet announced.
KENNEDY
WSB
17214
157
MP
PLAIN
Shanghai via N.R.
Dated July 24, 1940
Rec'd. 4:52 a. m., 25th
Secretary of State,
Washington
685, Twenty-fourth.
FROM COMMERCIAL ATTACHE.
Special Financial. Under instructions from
Ministry Finance of Nanking regime, Shanghai customs
on July twentigth began collecting import duties in
terms of gold units on a new basis. Director of Customs
Administration, Ministry Finance of Nanking regime made
statement July 21st paraphrased as follows: since gold
unit for collection of customs duties has been based
on official stabilization rate of Fapi or Chinese yuan
at fourteen ONE half pence customs has sustained heavy
losses as open market rate of fapi now only around
four DENCE, furthermore since gold unit has been hitherto
based on London nominal price of gold which is lower
than NEW York price, an additional loss has been sus-
tained in revenues. Instead of collecting customs
revenue in terms of gold units at open market rate for
Fapi thus causing local importers to be heavily burdened,
authorities
158
MP -2- #685, July 24 from Shanghai
authorities are now merely changing the basis for gold
unit to NEW York price of gold to protect to some
extent collections of customs revenues at Shanghai.
It is hoped that Shanghai merchants will appreciate
official Efforts. End paraphrase.
(END OF SECTION ONE)
BUTRICK
EMB
159
MP
PLAIN
Shanghai via N.R.
Dated July 24, 1940
Rec'd. 4:55 a. m., 25th
Secretary of State,
Washington
685, Twenty fourth. (SECTION TWO)
Formerly as calculated daily by the Central Bank
of China, Shanghai, the gold unit for duty payment
purposes was based on the London price of standard gold
of one six eight shillings per troy ounce at Chinese
Government's basic stabilization rate of fourteen one
half pence to the yuan without reference to the free
sterling rate thus arriving at yuan two point SEVEN
naught SEVEN as the equivalent of the gold unit.
HOWEVER, Shanghai customs since September first last
year has collected the duties on an arbitrarily SET
rate of Huahsing yuan two point SEVEN naught Eight
(redeat eight) to the gold unit. On the new basis
Effective July twentieth the NEW York price of United
States dollars three five per troy ounce of gold and
the closing free sterling rate in NEW York of the
previous day are used for determining the day!s Hua-
hsing currency Equivalent of the gold unit for duty
payment
Regraded Unclassified
160
MP -2- #685, July 24, from Shanghai
payment purposes. Formula now used by Shanghai customs
to determine yuan Equivlaent of gold unit for duty
payments as follows, rates for July twenty-second used:
NEW York price gold per troy ounce United States dollars
three five divided by NEW York free sterling rate of
previous business day Saturday July twenty but arbitrarily
raised one cent to United States dollars three point nine
one equals pounds Eight point nine five one three three
four.
(END OF SECTION TWO).
BUTRICK
EMB
161
JT
PLAIN
SHANGHAI VIA N.R.
Dated July 24, 1940
Rec'd 9:35 p.m.
Secretary of State,
Washington.
685, twenty-fourth. (SECTION THREE)
which is the equivalent price in free sterling per troy
ounoe and is equal to two one four eight point three two
penos. This figure multiplied by a constant of point
naught one nine three five (which represents the gold
unit in terms of troy ounces with adjustment for finences)
gives four one point five BEVEN penoe as the free starling
equivalent of the gold unit. There is now arbitrarily
added a farthing as commission, shipping and other charges
making the Equivalent four one point eight two penos
per gold unit. This is divided by fourteen one half pence
(official basic stabilization rate of Chinese yuan but
not the stabilization rate for Hua Heing yuan which is
arbitrarily BET at six pence) to convert into Chinges
national yuan two point eight eight four three per gold
unit but arbitrarily this figure 18 considered to repre-
sent the Hua Heing currency equivalent of the gold unit
henoe must bE multiplied by one point sixty to arrive
at
162
-2- No. 685, July 24, (SEC THREE) from Shanghai
at yuan four point six one five which was the duty
paying equivalent to gold unit in terms of Chinese yuan
on July twenty-second (Hua Hsing notes being at a
premium of sixty per cent OVER yuan representing differ-
ENCE between these arbitrary values of six pence and the
open market rate of the day for yuan
(END SECTION THREE)
BUTRICK
NPL
163
JT
PLAIN
SHANGHAI VIA N.R.
Dated July 24, 1940
Rec'd 3:45 p.m.
Secretary of State,
Washington.
685, twenty-fourth, (SECTION FOUR).
At three and thirteen sixteenths penoe which actually
represents only fifty five per oent premium of Hua Hsing
over yuan at latter's equivalent value of the day at
foregoing rate but 18 arbitrarily charged at sixty per
cent premium). Application of the new basis to United
States dollars invoices at rates and calculations of July
twenty-seoond indicate duty payment in terms of Hua Hsing
of Chinese nationals ourrency six and half per cent
greater than on July ninsteenth on former basis. Comments
will follow separately. Inform Treasury and Commerce
reference to latter's inquiry of April first, written
details to follow.
(END MESSAGE)
BUTRICK
NPL
164
AS
GRAY
Riga
Dated July 24, 1940
REc'd 1 p.m.
Secretary of State,
Washington.
224, July 24, 6 p.m.
Nationalization of banks has now been put into
Effect.
WILEY
WSB
- LMA 03
-
165
CABLE
FROM: Treasury Attache Nicholson,
Shanghai, China.
DATE: July 24, 1940
For the Secretary of the Treasury.
Shanghai market July 23 closed quiet at 3-57/64
for cash and July 3-7/8 for August for sterling. 6-1/8
for cash and July 6-1/16 for August for U.S. dollars gold bars
closed at 5270 and wei wah at discount of 4.60%.
MICHOLSON
10 THE RECEIVED
ДЕСНИОНТ
OLICE M THE
BIG 75 2 W ID 22
RECEIVED
166
TREASURY DEPARTMENT
Regraded Un
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
From Mr. McKson in the Federal Reserve Bank yesterday I learned that the
lazard transaction concerning which Pinsent spoke to us was made the basis of
application for license No. 28113. From the Treasury's records it develops that
Lasard Freres in New York received on July 16 a cablegram from Lazard Freres in
France which is believed to have been despatched on June 12 ordering & payment of
$550,000 to the Bank of Manhattan. The Federal asked for more information on this
application and was informed that it was anticipated that payments out of the
account with the Bank of Manhattan would be requested by Lazard Freres.
Since the Treasury has not yet acted upon this application, Mr. Pehle has
agreed to request the Federal Reserve Bank at New York to obtain more information
as to the contemplated withdrawals from the account. I have this forenoon advised
kr. Pinsent of the status of this application. He thanked us for the information
and assumes that the sum if transferred will be held in a blocked account, and
that we will carefully scrutinize applications for withdrawals therefrom.
RMP.
LOT
day 26, 1940
Under secretary Bell
STRICTLY COME
Mr. Coshress
Reference Le usde to ky dated proterday in which I reported a con-
versation by telephone with Mr. Formed theperd, Tico President of the National City
Bank of Nov Tork.
At 11:00 this morning Mr. Shoperd telephoned no and I took dess the following
cablegram which has had Just received from the Manager of the Fresch affiliate of
the National City:
*To National City, New York,
Trea National City, Legay.
We can make payments is france in free some and with delays
in sertain compled parts including Parts and Bordownz If you cas
furnish imediate GOTOR step Bank of Prance willing to buy 441-
lare 43.70 and to resit fresen saly upon receipt advice by cable
Federal Reserve Bank that dellars have been received for their
account Step Consequently you san procure frease W selling del-
lars direct to the 2ask of Prease at present Chatel Gayes.'
I sold Mr. Sheperd that 1 had taken w with our Group yesterday the question
that faces the National City if 10 is to reepen is Paris. I premised Mr. Sheperd
that I would proce for a decision which would parmit the National City is Bee York
to cable a reply to Mr. Pearee. Mr. Superd made 11 plais that 10 will net be
able for the Paris bank to operate unless 11 my be possible for the New Tork bank
to provide It with dollare with which france - be obtained free the Bank of
Trance. I teld Shoperd that 19 had sensidered the advicability of having the
Federal Recorre Bank at New York hering a joint meeting of representatives of the
basks to that city which have their own argunisations is Prease, and that be MJ
hear from the Federal en this point. I promised, however, to - what I could to
have in the senatize,
In the meting posterday I made the point that cablegrams from Mathews Lodi-
mate that the German devernment bee requested healting institutions is France,
including American leaks there established, to respen for business. Palose the
National City has funds to carry out its operations, 11 10 obviously impossible for
is to function. I also added that the American banks operating is Parts - valu-
able Mal estate which sight conseivebly be senfismbed If they fail to comply with
German requests for repealing. % the face is midag our decision the question se
to have lest to protect American interests ostablished abroad. b. Ehepard mid M
would have to will to hear from u before be - reply to m. Person.
Regraded Unclassified
168
- 2 -
Dr. again reminded as of the pressing requests which their bank line
for licenses to permit remittences to friends and relatives in Europe. I teld
his this question was receiving - urgent attention and that a desision could be
1 expected
HMP
Peereded
169
daty A, 1940
- Supretary Sell
STRICTLY CONFIDENTIAL
a. doctoren
In accordance with the desision table 18 - - Mooting postering ofter-
men, I telephoned m. Pineses this serving that the M. Mades referred to is
Mo ascenge of daly n should have applications the issumes mis through we
basks is Boy Yesk with chich be curries bio funds, all that the treatmy CA
ast favorable thereon to expedito Me sale of $1,000,000 so the United
Bashange Gentral.
pm.3
170
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 24, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
confidential
The volume of business in both registered and open market sterling was increased
toleg.
Transactions of the six reporting banke in registered sterling were as follows:
1. Purchased from the Federal Reserve Bank of New York
L185,000
Purchased directly from authorised banks in London
I 8,000
Total purchased
L193,000
2. Sold directly to authorized banks in London
I 6,000
or the above-mentioned purchases, L173,000 were bought by the banks for their
commercial customers; most of the remaining L20,000 appears to have been used to
increase registered account balances in London.
The Federal Reserve Bank of New York also stated that L28,000 in registered
sterling WHB purchased from it by J. P. Morgan & Co., to be used in payment for whisky
shipments.
The rate for open market sterling advanced from 3.81 at the opening to a high of
3.88 in the mid-afternoon. It closed at 3.86. Today's reported turnover was the
largest since the institution, on July 18, of dealings in registered sterling.
Sales of spot sterling in the open market toteled L102,000, from the following
sources:
By commercial concerns
L 62,000
By foreign banks (Far East)
L 40,000
Total
L102,000
Purchases of spot sterling amounted to L103,000, as indicated below:
By commercial concerns
6 63,000
By foreign banks (Europe)
in 40,000
Total
L103,000
It vas also reported that the New York agencies of Japanese banks were fair
buyers of open market sterling this morning.
Regraded Unclassified
171
- 2 -
The other currencies closed as follows:
Swise franc
.2273
Canadian dollar
11-5/8% discount
Lira
.0505
Reichemark
.4005
Cuban peso
9-15/16% discount
Mexican peso
.2010 bid, .2030 offered
Ye sold $1,000,000 in gold to the Central Reserve Bank of Peru, to be added to
its earmarked account.
The Federal Reserve Bank of New York reported that the following gold shipments
were consigned to it:
$ 8,291,000 from England, shipped by the Bank of England, to be earmarked for account
of His Britannic Najesty's Government.
3,840,000 from Canada, shipped by the Bank of Canada for its own account, for sale
to the U. S. Assay Office.
$12,131,000 Total
The State Department forwarded & cable to us stating that Johnson Matthey, London,
shipped $90,000 in gold from England to the National City Bank, New York, for sale to
10 U. S. Assay Office.
The Bombay gold price was slightly lower at the equivalent of $33.75.
Spot silver in Bombay was equivalent to 44.064, up 1/16#.
In London, spot silver was fixed 1/16a lower at 22-3/8d, and the forward price
VS8 unchanged at 22-1/16d. The U. 8. equivalents were 40.68# and 40.11# respectively.
Handy and Harman's settlement price for foreign silver vas unchanged at 34-3/44-
The Treasury's purchase price for foreign silver vas also unchanged at 35#.
Ve made two purchases of silver totaling 135,000 ounces under the Silver Purchase
Act. Of this amount, 35,000 ounces represented a sale from inventory, and the remaining
100,000 ounces consisted of now production from foreign countries, for forward delivery.
CONFIDENTIAL
BMP.
COMPLIMENTE
OF
172
MR. H. K. HOCHECHILD
Copy of Letter from B, Mexico City, July 24,1940.
In politics, things seem to have quieted down considerably, and
after all the election excitement has blown over people seem to be
eine of this calmness, which does not necessarily mean that things
STC definitely settled. As e matter of fect, no one knows what the
future will brine. While the P.F.M. emphatically declares that they
isve roa the elections, and that Congress will be theirs, and the
Arile Cenncho will be the next President, the P.R.U.N. (Almezen's
Party) insinuates that there will be en Almazanista Congress, and that
Almazon will take office 68 President, And in addition there are dozena
of different rumors, some talking about è possible transaction, or some
sort or on understanding between the two candidates; others claiming
tot Alsezen will not admit defeat; others that Almezen will not under-
take anything, but that some of his followers vill. In short, the
political pioture 1a quite obscure and confused, and it 18 quite 110-
possible to predict what will happen. What 1s a fact, however, 1a
e.ot Gen. Almazan has gone to Havens, obviously for the purpose of
texine a rest. Some people believe that Almazen's presence in Havana
st this time is his desire to contect certain statesmen of this hemis-
ghere, which does not sound very plausible to us. Wishful thinking
ankes us hope that the storm will blow over without serious trouble,
because we are convinced that any revolution or uprising will not
solve Mexico's problems, but would rather complicate them, exposing
the country to an intervention from the outside. The one party that
nas lost lot of prestige of late 18 labor leader #1, Lio. Lotardo
Toledano, who has been very severely attacked and oriticized, and
whome star seems to be definitely declining (or which we would be
awTully glad.)
The Havana conference is receiving considerable attention in the
10cm1 press. Opinions are divided, some hoping that practical results
be achieved; others believing that this cannot be done, due to the
complexity of economic conditions in this hemisphere and abroad.
The impending and most necessary reorganizations of the Reilroads
(Forkmen's edministrat on) and the 011 Industry (Government adminis-
tration) continue to be in the limelight, but apparently ell efforts
by the Government have achieved nothing up to now, mainly due to the
Union's stubborn opposition to admit any readjustments in men and wages,
without which the reorgenization cannot be carried out. The Railroad
Unions in perticular will not listen to any proposition entailing the
Morementioned readjustments. They Bee the only salvation of the
Rellways in heavy increases of teriffs, mentioning in their demande
particularly the Mining Industry, on which they would like to double
and triple tariffe. 8o far the Government has held e different view
in the matter, and we hope that it will thus continue, although there 1a
of course no assurance in this respect. The P esident 18 pl ading with
oil and R.R. workers Unione to sccept his projects for reorganization,
which entail sacrifices on part of the workmen. So, we sre finally
harvesting the results of the agitation of many years.
There is no change in the status of the Cananee strike, and no
Latications that there will be in the near future. There has, however,
Regraded Unclassified
173
-2-
been a change in the status of the Matehuala conflict of the A.S.& R.Co.
That Company has finally suspended payment of wages to the non working
men of that plant. If we recall correctly, the Autlting Company had
been paying full wages for eight months at Matehuala, and while the
plant could not be operated for lack of rew materials. The Union Yes
fused shut down or readjustment in spite of the provisions of the Laber
Law which should have been enforced, The Smelting Company pleaded with
the Labor Department, the Secretary of Economy, the Treasury Department,
and finally with the President, receiving promises overywhere but no
reults. After thus having exhausted all means for a peaceful and legal
settlement, they have now suspended payment of wages, which will force
8 showdown, the outcome of which will be most interesting. What the
Union wants is a smelting plant of their own. Will they now get one?
These are their dreams tomake them independent from oustom smelters
for treatment of Cooperativas productions. And telking about
Cooperativas, most of them seem to be in very difficult conditions.
as has been disclosed at the Union's Grand Convention which is taking
place in this city at present.
The Exchange has stayed close to 4.95 for the period under review,
and there are no indications that it will vary much from this figure
in the near future.
174
CONFIDENTIAL
July 25, 1940
To:
The Secretary
From:
Mr. Young
Re: Packard
I talked with Mr. Purvis on the telephone at 10:10 A.M.
in an effort to clarify his letter to you of last night.
According to Mr. Purvis, the original arrangement provided
for $22,000,000 for working capital, $6,000,000 for tools,
and $20,000,000 for plant cost. Under the original comple-
mentery arrangement, the United Kingdom W&B to pay two-thirds
and the United States one-third of each item.
The present controversy centers on the $20,000,000 for
plant cost. Under the old arrangement, the RFC was to put up
the money and the United Kingdom was to pay its proportion,
$13,600,000.00, pro rata on the unit price.
Mr. Knudsen advised Mr. Purvis last night that in ac-
cordence with a legal opinion (which Mr. Knudsen said
Secretary Mor ;enthau knew all about) the RFC could not put
up the money, except on B. fifty-fifty basis, or less, for the
British. Mr. Knudsen added, however, that the legal diffi-
culty (?) could be eliminated if the United Kingdom made a
$10,000,000 down payment on plant cost and then apportioned
the remaining $3,500,000 of its share pro rata on the unit
price. Thus, the United Kingdom does not pay any more money,
but It does pay by far the largest part of its proportion of
plant cost at the beginning.
Mr. Purvis takes the stand that, although an initial
$10,000,000 down payment on plant cost is not important in
itself, it is important as establishing a precedent which will
make impossible other complementary programs between the United
Kingdom and the United States. Mr. Purvis comes to you with
this because he stated that you had made the original arrange-
ment for the working out of FL complementary program and had
deemed it to be, not only of great importance, but also a great
advance beneficial both to the United States As well as the
United Kingdom.
P.M.
Regraded Unclassified
175
BRITISH EMBASSY,
WASHINGTON, D.C.
July 25th, 1940
Personal and Secret
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lottran
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
Telegram despatched from London
196
on the evening of July 24th.
1.
Force of eight enemy destroyers and
six merchant vessele reported by our aircraft
22.00 hours July 23rd off southwest Norway,
course northwest 10 knote. Fifteen aircraft of
Fleet air arm left to attack between 23.30
hours and midnight. One Swordfish registered
hit on enemy destroyer with torpedo, other
machines failed to locate enemy. One of a force
of our M.T.B.S operating off French coast
engaged six enemy E-boats early this morning.
2.
During night of 22nd - 23rd heavier
scale attacks against Gelsenkirehen oil plant,
Paderborn air depot and Bremen air factory all
observed very satisfactory.
Yesterday, attacks by Blenheims were
hampered by bad weather and inconclusive.
Last night, one hundred aircraft
despatched as follows. Three Blenheims to
aerodrome at Amsterdam, eleven Blenheims to
aerodromes in Germany, thirty Wellingtons to
aircraft factory at Gotha and oil plant at
Gelsenkirchen, twenty-four Whitleys to aircraft
factory Kassel, marchalling yards at Osnabruck
and Oldenburg, and oil refinery at Hemburg,
#ourteen/
Deeraded i
fourteen Hampdens aireraft factory
177
Wensendorf, three Wellingtons and three
Whitleys leaflet dropping in northern France
six Blenhaims barges at Amsterdam, six
Swordfish minelaying in the Scheldt off
Terschelling Gat and off Texel.
One Messerschmidt 110 shot down
by Wellingtons on the way out, One Blenheim
missing.
3.
Full reports indicate enemy bombing
activity night of 22nd-23rd almost entirely
confined to coastal districts as follows.
Firth of Forth, Humber to the Wash, Themes
Estuary, South Wales coast. No serious damage,
only ten minor casualties.
Yesterday morning two small enemy
formations attempted to penetrate; one crossing
the coast near Shoreham 68 far as Kenley, other
approached to within a few miles of North
Foreland; both turned back on seeing our fighter
squadron patrols. Only bombe dropped were in
Chathern and Worthing districts, no damage or
casualties reported.
Last night enemy activity was on a
reduced scale, almost entirely confined to
constal flights, probably minelaying; chief
attention paid to east coast from Dover to
the Tyne and the Forth Estuary.
Soon after midnight, a smoke screen
about 100 yards long and 30 feet high
40/
reported off Dover by Observer Corps.
Regraded Unclassified
178
Issues Overtimed - 1 bomber (Kinnaire Read)
1 flying boat
Unsconfirmed - 1 bomber (Greet
Yarmouth)
Our ⑉ N12
1 Messerschnidt 110 confirmed,
1 Heinkel 111 confirmed.
Our owns 1 Blenheim missing
Total - Many 4. Our Own 1.
30
No attacks on shipping reported
during period covered by summary: but entry
aircraft attacked 4 mine-sweeping trawlers
theres intuary and caused some damage.
6,
Amt. During the night of the 21st
- 22nd and on the 22nd, Elenheims attacked
xi Gubbi acrodrome, where fires were started
and three bonbs fell smong enemy aircraft;
and Tobrak harbour, where direct hits were
obtained on submarine jetty.
Same night, enemy aircraft bonbed
0181 Berreni, Morse Matroh, Akasabe and Fuker
so damage. on the 22nd, tea enemy bombers
attacked treeps Heare) no important damage.
Malta
179
Malta. Yesterday one Sunderland
airoraft attacked three merchant vessels and
three tankers in convoy with one destroyer off
Cape Spartivento. Direct hits observed on two
merchant vessels and convoy dispersed.
Sudan. Successful attacks made on
serodromes Asmara and United 21st and 22nd.
Kenya. Aircraft of S.A.A.F. on the
20th and 21st bombed 5 gun emplacements and 50
camels north of lluca and native troops at Derkali
and motor transport on Takaaba-Buna road.
Indications point that enemy's
entire Italian air forces in Italian East
Africa are concentrated in northern Eritrea
opposite Aden and the Suden and in eastern
Abyesinia opposite British Somaliland, leaving
southern Abyssinia and Italian Someliland com-
pletely undefended by fighter aircraft. These
dispositions evidently rendered necessary by
constant R.A.F. raids on Italian aerodromes
in northern Eritrea and eastern Abyesinia.
Regraded Unclassified
180
JUL 25 1940
My dear Mr. President:
Às you may recall, last December 6 question was raised as to the
possibility of a promotion of $500 for John H. Flynn, brother of Id
Flynn. On taking the matter up with the United States Housing Authority,
where John Flynn is employed as a Land Appraiser, it developed that it
would not be legally possible to make the promotion prior to July 1, 1940.
I an now advised that Mr. Flynn was promoted on July 23 from $3800
to $4600 a year - an increase of $800.
Faithfully yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The President,
The White House.
ENT: ams
Regraded Unclassified
181
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 25, 1940
TO
Secretary Morgenthau
confidential
FROM Mr. Cochran
Business in registered sterling was small today with only three of the six
reporting banks effecting transactions:
1. Purchased from the Federal Reserve Bank of New York
125,000
Purchased directly from authorized banks in London
1 8,000
Total purchased
L33,000
2. Sold directly to authorized banke in London
1 1,000
All of the above-mentioned purchases were bought by the banko for their
customers.
The Federal Reserve Bank of New York also stated that L1,000 in registered
sterling was purchased from it by a non-reporting bank.
In the open market, sterling advanced from 3.86 at the opening to 3.88-3/4
in the mid-morning. It subsequently declined, however, and closed at 3.85-1/2,
slightly lower than last night's final quotation. The reporting banks executed
orders to sell L100,000, of which 170,000 were for account of B. Far Eastern bank
and L30,000 for commercial concerns. Orders to purchase 247,000, all for commercial
concerns, were also executed.
It appears that a large part of the sales and purchases of open market sterling
nade by commercial concerns in the past week represent the reversel of forward
delivery contracts made prior to June 8 as hedges against the expected shipment of
goods. Such reversals are probably occasioned by the fact that open market sterling
(1) can no longer be used to pay for imports from the sterling area, and (2) 1a no
longer received in payment for exports to that area.
The banks have also been reporting foreign bank orders to sell sterling,
such 65 the £70,000 order executed today. Since the sterling area accounts of
American institutions can no longer be credited with open market sterling received
from foreigners, inquiry was made regarding the circumstances of recent foreign
bank sales. We learned that storling was purchased some time ago, for forward
delivery, by foreign banks, and that now the latter, instead of accepting the
sterling, were ordering the contract cancelled (in effect, re-selling the sterling
to the Rew York banks). These cancellations are reported as sales by foreign banks,
even though the sterling involved has not left the New York banks' accounts.
Regraded Unclassified
182
- 2 -
The Canadian dollar, which has been quoted in the neighborhood of 11-1/2%
discount during the past few days, weakened in a thin market today to 12-5/8% at
the close.
The other currencies closed as follows:
Swise franc
.2273
Lira
-0505
Reichsmark
.4004
Cuban peso
9-15/16% discount
Mexican peso
.2018 bid, .2040 offered
There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported that the following gold
shipments were consigned to it:
$ 8,240,000 from Canada, shipped by the Bank of Canada for its own account, for
sale to the U.S. Assay Office.
From England, shipped by the Bank of England:
3,101,000 for account of the Royal Norwegian Government, disposition unknown.
2,510,000 to be earmarked for account of the National Bank of the Kingdom of
Tugoslavia.
2,060,000 to be earmarked for account of the Swiss National Bank.
1,298,000 for account of the Bank of Greece, disposition unknown.
1,066,000 for account of the Bank of Portugal, disposition unknown.
394,000 to be earmarked for account of the Bank of Finland.
$18,669,000 Total
The State Department forwarded to us a cable stating that the following
shipments of gold would be made from Sweden:
$ 2,262,000 representing two shipments by the Bank of Sweden for its own account
to the Federal Reserve Bank of New York, disposition unknown.
335,000 shipped by the Bolidens Gruvaktiebolag to the New York Trust Company,
New York, for sale to the U.S. Assay Office.
2,597,000 Total
The Bombay gold price was equivalent to $33.72, off 34.
Spot silver in Bombay was unchanged at the equivalent of 44.06#.
In London, the price fixed for spot silver noved off 3/16d to 22-3/16d.
The forward price was 1/16á lower at 22d. The U.S. equivalents were 40.34# and
40,00$ respectively.
CONFIDENTIAL
- 3 -
183
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35#.
We nade four purchases of silver totaling 350,000 ounces under the Silver
Purchase Act. Of this amount, 275,000 ounces represented sales from inventory,
and the remaining 75,000 ounces consisted of new production from foreign countries,
for forward delivery.
The Federal Reserve Bank of New York, under authorization by the Treasury,
transferred $776,318 and gold valued at $2,246,202 from the account of the Bank of
France to the account of the Bank of Poland. The gold, which was originally held
under earmark for account of the Bank of Poland, was transferred to an account in
the name of the Bank of France last December.
RMP.
confidential
184
July 25, 1940.
Dear Mr. Keeshins
Your letter of July 20rd, which
encloses a espy of one you have received
from Mr. Yam Patter, has reached the
Secretary's office, and ve are very and
to have 19. I vast to thank you an Mr.
Norgenthan's behalf for sending this be
him, and I can assure you that 20 will
be read with such interest.
1
(Signed) H. S. Klotz
1. 8. Klets,
Private Secretary.
Mr. i. L. Keechin,
President, Koodin Freight Lines, Inc.,
281 Vest Reservelt Read,
Chicago, Illinois.
ONNER JUL
GMF/dbs
185
July m, 1940.
Dear Mr. Keeshing
Your letter of July seri, which
encloses a copy of one you have received
from Mr. The Patter, has reached the
Secretary's effice, and we are very gind
to have 10. I wast to thank you a Mr.
Norgrathem's behalf for sending this to
Ma, and I - secure you that 10 will
be read with much interest.
I 1
(Signed) H. S. Kletz
n. 8. Klets,
Private Secretary.
Mr. s. be Keechin,
President, Kooshin Freight Lines, Im.,
an Vest Receivelt Read,
Chicago, Illineds.
GEF/dbs
186
July se, 1940.
Dear Mr. Keeshins
Tear letter of July serd, which
encloses & - of ⑉ you have received
from Mr. Yes Putter, has reached the
Secretary's office, and we are very glad
á 1 z 1 04 I 11. g I 3
Margrathem's behalf for sending this to
Ma, and I - assure you that 10 will
be read with - interest.
I 1
(Signed) H. S. Klotz
1. So Klets,
Private Secretary.
É % s
Precident, Keeshia Freight Lines, Inc.,
m Vest Receivelt Read,
Chicago, Illinede.
GMF/dbs
187
KEESHIN FREIGHT LINES, INC.
J.L.KEESHIN
221 WEST ROOSEVELT ROAD
PRESIDENT
CHICAGO
July 23, 1940
The Honorable Henry J. Morgenthau, Jr.
Secretary of the Treasury
Treasury Building
Washington, D.C.
My dear Mr. Secretary:
Enclose herewith copy of
another letter received from C. W. Van Patter,
from Kweiyang, China written under date of June
25, 1940.
Kindest regards-
Very truly yours,
L. Keeshin
JLK:LR
Enc.
OFFICE
SECRETARY OF TREASURY
1940 JUL 25 AM 9 00
orib
TREASURY DEPARTMENT
Insurtrapt theat
045 as JUL
so
down
188
COPY
June 25, 1940
Eweiyang, China
t. J. L. Keeshin
21 We Roosevelt Road
chicago, Illinois
lear Mr. Keeshin:
The date of our return to America is drawing near but I will get one
are letter through to you before that time arrives. I have been in Kweiyang since I
last wrote to you and expect to return to Chunglding near the fifteenth of July. Tie plan
to leave Chungking either the last of July or early in August providing the states have
not declared war on Japan previous to that time.
The Japanese bombs are still dropping on Chungking and considerable damage
ME been inflicted on the schools, universities and residential districts. New Villa #6
AS been demolished since I departed from Chungking but very fortunately Andy was in the
dugout both days that it was bombed. I was unduly worried for a few days as the telephone
immunications were servered between there and Kweiyang, making it impossible to receive
my authentic news, however, I now know that be has escaped without injury. It is quite
sparent that the enemy still has some unfinished business 60 I believe the air raids
Mill continue for another two weeks. Many people have been killed and wounded in each of
these daily raids.
Business is going on as usual here in Kweiyang, but I an afraid the
pasoline shortage is going to cause many hardships perteining to the imports and exports
of wood oils, I express this opinion in view of information that we have very recently
received from Indo China, stating that they would be unable to permit any more commodities
to pass thru the two seaports of Haiphong or Saigon. If some agreement more favorable to
China is not reached, the situati on here is going to become very serious, particularly so
if the states hesitate to exert extrems pressure on Japan. Also there is a remote pos-
sibility that they may attack Hongkong.
The Szechuen Kweiyung and Yunnan Burna routes have both had traffic in-
tions due to landslides, however, the Szechuen highway slide was only a mall affair
ad is now open to through traffic but the Burma route is still closed at this writing.
X course, We are now having an over abundance of rain due to this time of the year being
the rainy season in China's interior.
Since arriving here in Kweiyang, I have been extremely busy endeavoring
X establish in the Eweiyang maintenance and repair shops enough basic principles and
reasonable efficiency to assure them a pattern to follow in effecting improvements in
the other shops and garages throughout free China. Inexperience, lack of enthusiasm, and
treat variation of ideas have all been difficult problems to solve. However, I feel
u though we have made unusual progress and if they will only carry on after we leave
China, I - sure that their unnecessary trials and tribulations will eventually come to an end
4 have given them the shop procedures 80 commonly followed in America, with a deviated
policy to properly fit Chinese conditions. If they will only proceed by inacting the
knowledge that we have so painfully conveyed to them, I an certain that $ reasonable
transportation system will be the result of our afforts. Untold numbers of past evils
***ected but they will have to continue with the same method and procedures otherwise our
late been eliminated during the previous two months and many improvements have been
efforts have been futily wasted.
Regraded Unclassified
189
Mr. J. L. Keeshin
- 2 -
June 25, 1940
Eweiyang, China
Only a few days ago I received a letter from Mr. Gordy, and was very
pleased to hear from him. He also informed me of the good news that conditions
within the company are more favorable than they have been for quite some time. It
is reasonable to believe that the European situation will also have a desirable
stimulating effect on business, however, even though my sympathy is strongly within
the Allies, the present situation is not too favorable for their cause. In my
opinion the only savior to France, is a quick attack on Germany from the Russian
border and I would gather from the tone of our unauthentic news received here in
Kweiyang that that is very unlikely to occur.
I am looking forward with pleasure to returning to work again in the
Keeshin organization and until that time, my best wishes and kindest regards are
always with you and yours.
Very sincerely yours,
(signed)
Van
R VIII
Regraded Unclassified
190
July 25, 1940
BY HAND
For Secretary Morgenthau
from
E. R. Stettinius Jr.
:
ADVISORY
MISSION TO THE COUNCIL OF NATI LL DEFENSE
191
OFFICE MEMORANDUM
To:
Mr. W. L. Batt
Date: July 24, 1940
From: W. S. Tower
Subject: Supply of Iron and Steel Scrap
In the memorandum entitled "Iron and Steel Scrap," prepared
by the Subcommittee on Regulation of Exports, and dated July 1940,
the following points are made in respect to the importance of
supplies of such scrap:
"(1) While pig iron and steel scrap are interchangeable within
limits for steel manufacture, considerably greater tonnages of steel
can be produced as the proportion of steel scrap in the furnace
charge is increased, because steel scrap contains less non-ferrous
impurities than pig iron. Steel production can be increased more
quickly by using scrap.
"(2) To achieve maximum steel production at minimum cost, adequate
scrap supplies should be available relatively near the steel plants.
This minimizes cost and also bottlenecks in transportation, and in
the production of coke and pig iron. The continued export of scrap
in large volume operates to increase scrap prices and makes it neces-
sary to go farther afield for supplies.
"(3) The steel industry is now much more dependent upon scrap than
during the first World War."
While pig iron and steel scrap are #interchangeable within
limits" for steel manufacture, the hard fact is that the steel indus-
try could not operate at much more than 60% of capacity, if all the
available blast furnaces in this country were producing only pig
iron for use in steel making.
HDC-5--7/40--50W.
192
To: Mr. W. L. Batt
-2-
July 24, 1940
A substantial part of blast furnace capacity, however, must
be used for making essential ferro-alloys and foundry, malleable
and other grades of non-steel making pig iron.
It is evident, therefore, that "to achieve maximum steel
production" of which the industry is capable would, under any circum-
stances, require 40% or more of the metallic charge of the steel
furnace in the form of scrap.
It is sometimes urged that so-called "synthetic scrap" offers
a partial solution of the problem of scrap supply. But entirely
apart from the fact that relatively few steel makers have any facil-
ity for producing synthetic scrap, competent opinion in the industry
is to the effect that it ceases to be a possibility when the rate of
operations gets above 75% of capacity.
If it be assumed for this discussion that the effects of de-
mand for steel in the defense program, added to all other needs,
will call for a sustained rate of production at 75% to 80% of capac-
ity, such a rate would represent an output of 5 to 51 million net
tons of steel ingots per month. For comparison, it may be noted that
the current rate (week of July 22) is 88%.
Assuming also a continuation of the common practice of charg-
ing at least 50% scrap in the open hearth steel furnace, the amount
of scrap required for that assumed rate of operations would be about
2.5 to 2.7 million net tons per month.
A major part of the scrap used in steel furnaces is so-called
home scrap, created in the process of making and finishing steel
products in the mills. But current trends indicate that the percent-
age of home scrap created is likely to be relatively less than in
Regraded Unclassified
193
To: Mr. W. L. Batt
-3-
July 24, 1940
the recent past, for the following reasons:
(a) Exports of semifinished steel, like shell steel and forging
billets, mean less scrap per ton of ingots represented.
(b) The larger proportion of heavy rolled products in the total
output of finished steel means relatively less scrap per
ton of ingots used because of less wastage in the manufacture
of such products.
(c) At higher rates of operation there is more chance to use off-
heats of steel in other ways than in remelting them in lieu
of using scrap.
The expected high rate of output, therefore, does not serve
to relieve the pressure on supplies of scrap.
Among steel producers who are important consumers of scrap,
it is generally agreed that the minimum margin of safety in scrap
supply is the equivalent of 60 days' consumption, either in yards
(consumers' or suppliers') or in transit thereto.
Based on the foregoing assumptions in respect to steel produc-
tion 60 days' supply of scrap would be 5 to 5½ million net tons. An
analysis of the Bureau of Mines report on scrap supplies as of March 31,
1940, indicates less than 5 million tons of steel making grades of
scrap as of that date in the hands of consumers and suppliers or in
transit.
It seems unlikely that the report on scrap supplies as of
June 30, when it becomes available, will show any important improve-
ment in visible supplies of steel making scrap in view of (a) the
194
To: Mr. W. L. Batt
-4-
July 24, 1940
rapid rise in the rate of steel output during the second quarter
and (b) the continued export of substantial tonnages of scrap
(\pril-May exports about 582,000 net tons).
Although not readily supported by specific data, the opinion
13 general among large scrap consumers that continued heavy exports
during the past three or four years have greatly depleted the poten-
tial sources of prompt scrap.
The available information, therefore, indicates that the
visible supplies of steel making grades of scrap are below the com-
sonly accepted minimum margin of safety, for an assumed rate of steel
production averaging only 75% to 80% of espacity for some considerable
period. If the industry is "to achieve maximum steel production," the
60-day supply as the margin of safety would call for upwards of 6 mil-
lion tons of visible supplies of steel making scrap, or 20% to 25%
core than the tonnage reported as of March 31, 1940.
The attached table shows the tonnage of scrap exported in each
donth from January 1937 to and including May 1940. It is evident
from the figures for the first five months of this year that exports
were st an average rate of more than 200,000 tons per month. This
tonnage includes shipments averaging about 60,000 tons per month to
Italy, which shipments have since been discontinued. Tonnage figures
on export shipments of scrap for June 1940 are not now available. It
is felt, however, that such figures will probably show that the dis-
continued tonnage to Italy was almost replaced by increased shipments
to United Kingdom, Canada, and other smaller countries.
Recent press reports refer to Japanese purchases of scrap,
stated to total close to 300,000 tons for shipment over the next
Regraded n
195
To: Mr. W. L. Batt
-5-
July 24, 1940
three or four months, with approximately half the total tonnage to
be shipped from Atlantic coast ports. Such shipments will be at
approximately the same rate as was experienced in the first five
months of 1940.
It probably is true that at a price there is theoretically a
huge amount of scrap which might be made available for use in this
country for steel production. But the practical fact is that deple-
tion of the potential sources of prompt scrap and a less than ade-
quate margin of safety in current visible supplies open the way for
an actual physical shortage of scrap for the needs of maximum steel
production over a sustained period.
For all these reasons appropriate steps should now be taken
through regulation of the export movement of scrap to safeguard the
progress of the defense program against any such possible contingency.
halters.lower.
W. S. Tower
Attachment
WST: jms
198
Table 2. - Iron and steel scrapl/: United States exports by months,
1937-39 and January-May 1940
(Thousands of long tons)
:
:
:
Month
:
1937
:
:
1938
:
1939
:
1940
:
=
:
:
January
:
69 :
356 =
225 :
186
February
:
143 :
256 :
223 :
233
March
:
356 :
335 :
310 :
205
April
:
421
:
307 :
238 :
219
May
:
631 :
372 :
383 :
310
June
:
515 =
160 :
397 :
July
:
420 :
125 :
347 :
August
:
474 :
107 :
291 :
September
:
253 :
143 :
328 #
October
: 184 :
221 :
335 :
November
:
254 =
271 =
271 :
December
:
328
:
321 :
204 :
Total - 12 months
: 4,048
:
2,974 #
3,552 :
:
:
:
:
Total - first 5 months
= 1,620
: 1,626
:
1,379
# 1,153
:
:
:
:
Excludes tin-plate scrap, circles, etc., waste-waste tin plate,
and terne-plate clippings and scrap.
2/ Preliminary. 1939 total differs slightly from that shown in
table 1.
Source: Compiled from official statistics of the U. S. Dept. of
Commerce.
ADVISORY C ITEMION to THE COUNCIL OF MATE &
197
OFFICE MENGRANDUM
To: Mr. W. L. Batt
Date: July 24, 1940
From: W. S. Tower
Subject: Supply of Iron and Steel Scrap
In the memorandum entitled "Iron and Steel Scrap," prepared
by the Subcommittee on Regulation of Exports, and dated July 1940,
the following points are made in respect to the importance of
supplies of such scrap:
"(1) While pig iron and steel scrap are interchangeable within
limits for steel manufacture, considerably greater tonnages of steel
can be produced as the proportion of steel scrap in the furnace
charge is increased, because steel scrap contains less non-ferrous
Impurities than pig iron. Steel production can be increased more
quickly by using scrap.
"(2) To achieve maximum steel production at minimum cost, adequate
scrap supplies should be available relatively near the steel plants.
This minimizes cost and also bottlenecks in transportation, and in
the production of coke and pig iron. The continued export of scrap
in large volume operates to increase scrap prices and makes it neces-
sary to go farther afield for supplies.
"(3) The steel industry is now much more dependent upon scrap than
during the first World War."
While pig iron and steel scrap are "interchangeable within
limits for steel manufacture, the hard fact is that the steel indus-
try could not operate at much more than 60% of capacity, if all the
available blast furnaces in this country were producing only pig
iron for use in steel making.
NDC-5--7/40--50M.
198
To: Ur. W. L. Batt
-2-
July 24, 1940
A substantial part of blast furnace capacity, however, must
be used for making essential ferro-alloys and foundry, malleable
and other grades of non-steel making pig iron.
It is evident, therefore, that "to achieve maximum steel
production" of which the industry is capable would, under any circum-
stanees, require 40% or more of the metallic charge of the steel
furnice in the form of scrap.
It is sometimes urged that so-called "synthetic scrap" offers
-t1.1 solution of the problem of scrap supply. But entirely
spirt from the fact that relatively few steel makers have any facil-
ity for producing nthetic scrap, competent opinion in the industry
12 to the effect that it ceases to be a possibility when the rate of
operations gets above 75% of capacity.
If it be assumed for this discussion that the effects of de-
2918 for steel in the defense program, added to all other needs,
will for = sustained rate of production at 75% to 80% of capac-
Ity, C rate would represent an output of 5 to 5 / million net
= steel ingots per month. For comparison, it may be noted that
the Parrent rate (week of July 22) is 86%.
Busing also a continuation of the common practice of charg-
50% scrap in the open hearth steel furnace, the amount
or
required for that assumed rate of operations would be about
7,5
.7 million net tons per month.
jor part of the scrap used in steel furnaces is so-called
created in the process of making and finishing steel
Lm the mills. But current trends indicate that the percent-
scrap created is likely to be relatively less than in
Regraded Unclassified
199
o: Mr. W. L. Batt
-3-
July 24, 1940
the recent past, for the following reasons:
(a) Exports of semifinished steel, like shell steel and forging
billets, mean less scrap per ton of ingots represented.
(b) The larger proportion of heavy rolled products in the total
output of finished steel means relatively less scrap per
ton of ingots used because of less wastage in the manufacture
of such products.
(c) At higher rates of operation there is more chance to use off-
heats of steel in other ways than in remelting them in lieu
of using scrap.
The expected high rate of output, therefore, does not serve
to relieve the pressure on supplies of scrap.
Among steel producers who are important consumers of scrap,
it is generally agreed that the minimum margin of safety in scrap
supply is the equivalent of 60 days' consumption, either in yards
(consumers' or suppliers') or in transit thereto.
Based on the foregoing assumptions in respect to steel produc-
tion 60 days' supply of scrap would be 5 to 52 million net tons. An
analysis of the Bureau of Mines report on scrap supplies as of March 31,
1940, indicates less than 5 million tons of steel making grades of
scrap as of that date in the hands of consumers and suppliers or in
transit.
It seems unlikely that the report on scrap supplies as of
June 30, when it becomes available, will show any important improve-
sent in visible supplies of steel making scrap in view of (a) the
Regraded Unclassified
200
To: Mr. W. L. Batt
July 24, 1940
rapid rise in the rate of steel output during the second quarter
and (b) the continued export of substantial tonnages of scrap
(April-May exports about 582,000 net tons).
Although not readily supported by specific data, the opinion
is general among large scrap consumers that continued heavy exports
during the past three or four years have greatly depleted the poten-
tial sources of prompt scrap.
The available information, therefore, indicates that the
visible supplies of steel making grades of scrap are below the com-
monly accepted minimum margin of safety, for an assumed rate of steel
production averaging only 75% to 80% of capacity for some considerable
period. If the industry is "to achieve maximum steel production," the
60-day supply as the margin of safety would call for upwards of 6 mil-
lion tons of visible supplies of steel making scrap, or 20% to 25%
more than the tonnage reported as of March 31, 1940.
The attached table shows the tonnage of scrap exported in each
month from January 1937 to and including May 1940. It is evident
from the figures for the first five months of this year that exports
were at an average rate of more than 200,000 tons per month. This
tonnage includes shipments averaging about 60,000 tons per month to
Italy, which shipments have since been discontinued. Tonnage figures
on export shipments of scrap for June 1940 are not now available. It
is felt, however, that such figures will probably show that the dia-
continued tonnage to Italy was almost replaced by increased shipments
to United Kingdom, Canada, and other smaller countries.
Recent press reports refer to Japanese purchases of scrap,
stated to total close to 300,000 Cana for shipment over the next
Regraded Unclassified
201
To: Hr. W. L. Batt
-5-
July 24, 1940
three or four months, with approximately half the total tonnage to
be shipped from Atlantic coast ports. Such shipments will be at
ap roximately the same rate as was experienced in the first five
months of 1940.
It probably is true that at a price there is theoretically a
huge amount of scrap which might be made available for use in this
country for steel production. But the practical fact is that deple-
tion of the potential sources of prompt scrap and a less than ade-
quate margin of safety in current visible supplies open the way for
an actual physical shortage of scrap for the needs of maximum steel
production over a sustained period.
For all these reasons appropriate steps should now be taken
through regulation of the export movement of scrap to safeguard the
progress of the defense program against any such possible contingency.
W.S. Tower
Attachment
WST: jms
202
Table 2. - Iron and steel scrapl/: United States exports by months,
1937-39 and January-May 1940
(Thousands of long tons)
:
:
:
:
Month
:
1937
:
1938
:
1939 2/
#
1940
:
:
:
:
January
:
69
:
356
:
225
:
186
February
:
143
=
256 :
223
:
233
March
:
356 :
335 :
310 :
205
April
=
421 :
307 =
238 :
219
May
:
631 :
372 :
383 :
310
June
:
515 :
160 :
397 :
July
=
420
:
125 :
347 :
August
:
474 =
107 :
291 :
September
:
253 :
143 :
328 :
October
:
184
:
221 :
335 :
November
:
254
:
271 :
271 :
December
=
328
:
321 :
204
:
Total - 12 months
: 4,048
: 2,974
:
3,552
1
:
:
:
:
Total - first 5 months
: 1,620
I 1,626
:
1,379
: 1,153
:
:
:
:
1 Excludes tin-plate scrap, circles, etc., waste-waste tin plate,
and terne-plate clippings and scrap.
2/ Preliminary. 1939 total differs slightly from that shown in
table 1.
Source: Compiled from official statistics of the U. S. Dept. of
Commerce.
Regraded Unclassified
203
RE DEBT LIMIT
July 25, 1940
9:00 a.m.
Present:
Mr. Foley
Mr. Gaston
Mr. Sullivan
Mr. Bell
H.M.Jr:
Well, go ahead.
Bell:
Okay. We have no estimate from the Budget
on this latest picture because the last
defense message that went up asked for two
billion 61 million dollars in cash and two
billion 600 million in contract authoriza-
tion. That was what the Army and Navy es-
timated they would need under that program
and the Budget can't now revise that until
Congress passes on it, because if they sub-
mit a figure less than that two billion one
they are afraid that Congress will out the
appropriation. Anyhow, I have made some
estimates on the idea that they won't spend
more than two billion dollars out of that
two billion one. I figure now that the
estimated receipts will be three billion
600 million.
H.M.Jr:
You are going to have something in writing
on this, aren't you?
Bell:
Yes. The total expenditures of 11 billion
547 million, making a net deficit for the
1941 year of five billion 180 million dollars.
On the basis of the debt increase that we
got under the Revenue Act of 1940, we had
on July 1, five billion 781 million of
borrowing power and if we run through the
year to June 30, we will have left only
118 million dollars and we will have to
make some shift beginning in January from
the national - from the regular to the
national defense in order to live within
Regraded Unclassified
204
- 2 -
the 45 billion dollar limitation on general
account. That is the picture in a nutshell.
Foley:
That is without any new taxes?
H.M.Jr:
Without any new taxes on this program we
are working on now, but it includes the
taxes on the revenue bill we just signed.
But you are going to have that written up?
Bell:
Yes. You want it as short as possible for
him to read, don't you?
H.M.Jr:
Yes.
Bell:
All right.
H.M.Jr:
Well, that is the picture. Then on another
piece of paper I would like to have something
for him, Dan, along the lines we were talking
earlier this morning, in which we say - you
said he needed a debt limit of around 52
billion to - that you were going to kill
these other bonds and do this thing on a
straight financing basis.
Bell:
Well, I had in mind putting it in the same
memorandum, but I can put it on a. separate
one.
H.M.Jr:
I would rather have it on two separate pieces
of paper.
Bell:
One is the statement of facts and the other
a recommendation.
H.M.Jr:
Yes. How do you arrive at the 52 billion?
How long would that take us?
Bell:
Well, I was just giving you some leeway over
and above the 49 billion. You could get
by with 50 billion in the next session.
Regraded Unclassified
205
- 3 -
H.M.Jr:
What would 50 give us?
Bell:
That would give us a balance on June 30 of
about 50 million dollars.
H.M.Jr:
I wouldn't ask for more than 50.
Gaston:
You mean borrowing power balance?
Bell:
Yes.
H.M.Jr:
I wouldn't ask for more than 50.
Bell:
It is enough as long as you are going to -
if you are going to state that you are
perfectly willing to come up each year
and any Secretary should be willing to
come up to the Congress and ask for a debt
increase each year.
Sullivan:
What would your balance be, Dan?
Bell:
About a billion.
Sullivan:
And your borrowing power would be --
Bell:
About a billion also. You would have to
have a debt increase in the next session.
Sullivan:
That is at 50?
Bell:
Yes, and then when you get in the next
session you see what kind of a national
defense program we are going to have for
'42 and you can ask for another debt in-
crease based on that new program.
H.M.Jr:
The country has gotten kind of prepared for
50. I would say 50.
Bell:
All right, that is plenty. Of course, you
have got to have a debt increase before
June 30, anyhow.
Regraded Unclassified
206
- 4 -
H.M.Jr:
We have had one preliminary run on this
already this morning. Now, what are we
going to ask the President for in the way
of taxes on excess profits?
Sullivan: Well, I can give him the reaction in the
memorandum if you wish it, the reaction of
the fellows up there that we have talked
with, and the rates that will produce half
a billion, three quarters of & billion and
a billion.
H.M.Jr:
No, let's kind of instead of doing it that
way, let's do it the way we are doing it
with Dan. I am making a recommendation on
this that we are raising the debt limit to
50, you see. These monies are to be on this
year's earnings, aren't they?
Sullivan:
That is right, sir.
H.M.Jr:
I have a good filing system.
Gaston:
Have you got it for two billion?
Sullivan:
Yes.
Gaston:
One hundred percent? One hundred percent of
the profits over what?
Sullivan:
Over their average profits in the base period
between four and ten percent.
H.M.Jr:
Well, my own feeling I have now, I would give
my recommendation to the President subject
to what you fellows have to say. I would
ask for 500,000 because that means 25 percent.
Sullivan:
I think that is right, sir.
H.M.Jr:
Have you seen it?
207
- 5 -
Gaston:
No.
Bell:
Would you be willing to ask for some smaller
percentage or even 500 million for 1940 and
raise those rates for '41?
Sullivan:
That is what Dr. Viner - you mean as Dr. Viner
suggested?
Bell:
I don't know.
Sullivan:
He suggested that we put in this bill with
rates that would prevail in succeeding years
and I don't think they would stick in the
first place. I think they would be subject
to revision upward and downward. If you
put them in and you didn't have them up as
high as you needed, you might have 8. little
trouble.
Bell:
Is this a one-year program?
Sullivan: No.
Bell:
Isn't this more or less a permanent law
during the emergency?
Sullivan:
That is right, but I mean you were going up
and ask to have these rates increased as your
requirements increase, Dan, and I don't think
you are going to accomplish very much by putting
in at this time the rates that will prevail
for succeeding years.
Foley:
What do you mean? Do you mean you change it
every year?
Sullivan:
No, you leave this rate in until Congress
changes it.
Bell:
Well, there wouldn't be any difference, of
course, if you said it would be 20 percent
Regraded Unclassified
208
- 6 -
above your base for 1940, which gives busi-
ness a little stimulus and 30 percent in
1940 and thereafter.
Sullivan:
Yes, but suppose when you get to that time,
Dan, you don't want 30 percent, you want
50 percent.
Bell:
Well, that is true of every tax bill you
pass.
Sullivan:
I think they are going to be reluctant to
fix a sliding upward scale on rates here.
Bell:
It just eases the first year in which you
are going in and the second year you hit a
little harder.
H.M.Jr:
I don't think we can go up and ask for less
than half a billion dollars.
Sullivan:
No, I don't either, sir.
Foley:
Why not ask for 750 million?
H.M.Jr:
It is too big a shock, Dan.
Bell:
That is what I was thinking.
H.M.Jr:
The people don't yet realize - they haven't
got on to the thing, or hadn't as of last
week.
Sullivan:
That would call for & rate starting at 35
and then jumping to 50.
Bell:
750?
Sullivan:
Yes.
H.M.Jr:
I think we had better - 25 percent is just
going to be slaughter to some of these fellows.
209
- 7 -
Foley:
Well, it is all excess profits, Mr. Secretary.
H.M.Jr:
It is excess for an arbitrary figure.
Foley:
Over a normal return.
Sullivan: No, it isn't that.
Foley:
Why?
Sullivan:
Because no company is allowed to make exempt
from excess profits more than ten percent of
their invested capital.
Foley:
Isn't that a pretty good earning?
Sullivan:
Yes, but you are talking about normal. A lot
of them have been making a lot more than that
and we would be taking it away from them, al-
though they are not making more than normal.
H.M.Jr:
You are suddenly introducing an entirely new
philosophy of business profits and you are
saying to the fellow who rents his facilities
and therefore has very little capital invested,
"You can't do 80 and so, and the fellow who
has his money invested in real estate and has
a large capitalization, that is different, but
this is something that is an entirely new
philosophy. I think we should kind of ease
them into the thing. The country is only still
a 72 billion dollar country.
Foley:
Yes, but with these expenditures it will be --
Sullivan:
But these aren't taking effect in 1940.
Foley:
They will be felt in this year's income.
Sullivan:
They will to some extent, yes.
Regraded Unclassified
210
- 8 -
H.M.Jr:
We are going to get 25 percent of it.
Gaston:
This implies no change in your existing
corporate tax rates other than the existing
excess profits, is that right?
Sullivan: No --
Gaston:
Present corporate taxes.
Sullivan:
The existing excess profits stays on the
books.
Gaston:
And the present corporate rates?
Sullivan:
That is right, which have recently been in-
creased.
H.M.Jr:
The way I feel is this: The thing that we
want to do is - well, I think the taxes should
follow very closely on the profits, but I do
think we ought to let the fellows have the
profits, let them feel good for a little
while and then take it away from them, but
I think if we go above 25 percent - and I am
making this recommendation of a half a billion
dollars at 25 percent. There isn't one chance
in five that Congress will pass it, but at
least that is steeply putting the thing on.
Bell:
You say there isn't one chance?
H.M.Jr:
One chance in five.
Sullivan:
Well, either the rate will be reduced or the
provisions will be softened 80 the yield will
come down & little.
H.M.Jr:
Let me put it another way. We can go across
the street. I want something with a concrete
recommendation to the President. I don't
want to tell him this is what Congress thinks.
Regraded Unclassified
211
- 9 -
Then we will listen to him and he can say
this isn't high enough or this is too high,
but at least we have given him something to
chew on and that is what I want to do. I
don't want to walk over there and simply
say, "Pat Harrison thinks it is terrible
and Bob Doughton doesn't know what it is
all about, and somebody else is sore be-
cause Harry Hopkins told him this. In other
words, we don't want to go over and have a
little gossip.
Gaston:
Those things are all true that you just said?
H.M.Jr:
Or am I manufacturing? No, they are all true.
Gaston:
It is rather interesting. I think the Presi-
dent will ask for a bill with the idea Con-
gress will want it down.
H.M.Jr:
That is all right. The statements I made
about Harrison, Doughton and McCormack?
Gaston:
That is what I was interested in.
H.M.Jr:
Those are all true statements, at least the
people in the room have told me that.
Bell:
Is the President going to ask for 8. certain
amount? He wants to make a recommendation.
H.M.Jr:
But I just want to put something on the desk
and if he wants to raise me, that is all right,
I won't mind. I wouldn't want to go across
the street with less than half 8 billion.
Bell:
It isn't worth while to walk over for less
than half 8. billion.
H.M.Jr:
No, if you fellows will have this ready, after
he has entertained the ruling heads of Europe,
he will see us.
Regraded Unclassified
212
- 10 -
Bell:
Ruling heads?
Foley:
Luxembourg.
Gaston:
The whole story is in the paper this morning,
the Luxembourg family were coming on the
Trenton to Annapolis.
H.M.Jr:
Last night in riding down the river with
Colonel Knox, I was telling about - he
offered us his financial editor. Is it
Mr. Gruber?
Sullivan:
No, Roy O. Munger.
Gaston:
He is a hundred percent anti-New Deal.
H.M.Jr:
What kind of fellow is he?
Gaston:
Little, querulous, scolding - a pretty smart
fellow, at that.
Sullivan:
A good man on financial stuff?
Gaston:
Oh, he is a good LaSalle Street man. He
writes what they want to hear.
H.M.Jr:
Well, I kind of got myself into it. I am
afraid we can't turn him down. He is being
loaned to us. Now, who do we want to off-
set him? Who do we want to do the job? That
is the trouble going down the river with
these New Hampshire Republicans. Anyway,
Herbert, who do you think we want today?
Gaston:
I think we had better start out with a man
that is close at hand and would be quite
willing to do the work. That is Dave Coyle.
H.M.Jr:
Will you send for him this morning?
213
- 11 -
Gaston:
Yes, and I understand this stuff is to be
strictly stuff for - anonymous stuff for
official authorship.
H.M.Jr:
That is right, and if he likes it, I would
like to see him sometime this afternoon.
Gaston:
Have you any special hour you would like to
see him?
H.M.Jr:
Why don't you send in a note if you get him?
Gaston:
All right.
THE ml
when 9 sam 7.H.R.
Jook this with me
THE SECRETARY OF THE TREASURY
/An.h.
214
WASHINGTON
7-25-40
July 25, 1940
MEMORANDUM ON THE FISCAL SITUATION
The table below summarizes the changes in the 1941 Budget
estimates since your Budget Message of January 3. 1940. These
changes have been brought about largely as a result of the enactment
of the Revenue Act of 1940 and the enlarged national defense program
submitted by you to the Congress.
BUDGET ESTIMATES FOR 1941
(In millions of dollars)
: Estimates
:
Estimates
:
Estimates
:
Estimates
:
of
:
of
:
of
of
July 24,1940
:
June 3,1940
:
May 29,1940
:
Jan. 1940
Receipts
6,367
5,652
5,652
5,548
Expenditures
Regular
6,947
6,751
6,751
6,484
National defense.
4,600
3,250
2,604
1,940
Total
expenditures.
11,547
10,001
9.355
8,424
Net deficit
5,180
4,349
3.703
2,876
The national defense expenditures given under the first column
of the above table were estimated by the Treasury. The Budget has
made no official estimate as yet and does not feel that it can con-
sistently make one until Congress has passed on your last request
for $2,161,000,000 additional cash.
Regraded Unclassified
215
Regraded Uncla
- 2 -
To finance the presently estimated deficit of $5,180,000,000
indicated above, the Treasury has a combined borrowing authority
of $5,781,000,000 under the general debt limitation of $45,000,000,000
and the national defense debt limitation of $4,000,000,000. After
providing for the deficit, for future accruals on this year's estimated
sales of U. S. Savings Bonds, and for certain statutory investment
accounts, our borrowing authority will be reduced on June 30, 1941,
to about $118,000,000. From these figures it is quite obvious that
we will need to secure additional borrowing authority early in the
next session of Congress, and in order to be absolutely safe we
should probably ask for it in this session. If the increase is
delayed until the next session, the Treasury would be deprived of
that flexibility in its financing which is now necessary in view of
the larger national defense program.
In view of the fact that the Ways and Means Committee is now
working on an excess profits tax bill, it is suggested that the entire
fiscal situation be submitted to that Committee for consideration in
connection with this bill.
218
THE SECRETARY OF THE TREASURY
WASHINGTON
July 25, 1940
RECOMMENDATIONS
1. That the $4,000,000,000 debt limitation to cover national
defense expenditures included in the Revenue Act of 1940 be repealed
and that the general debt limitation be increased from $45,000,000,000
to $50,000,000,000. This increase would, I believe, more than cover
the estimated deficit for 1941 and give the Treasury flexibility in
its financing operations.
2. That the special fund created to retire any obligations
issued under the national defense debt limitation included in the
Revenue Act of 1940 be repealed. The taxes collected under that Act
could then be covered into the Treasury like any other revenue
collections.
3. That Congress be advised that further recommendations with
respect to an increase in the debt limitation and additional taxes
will be made to the next session in the light of programs formulated
at that time.
Regraded Unclassified
217
twicery
July 25, 1940
MEMORANDUM FOR THE PRESIDENT:
The present draft of the Excess Profits Bill pro-
vides the following rates:
25% on that amount of net income which rep-
resents 16% of invested capital.
40% on that amount of net income which rep-
resents between 15% and 20% of invested
capital.
50% on that amount which represents more than
80% of the invested capital.
Under current business conditions these rates will
yield a probable minimum of $500,000,000 per year.
one carbon to to Fuley.
218
July 25, 1940
MEMORANDUM FOR THE PRESIDENT:
The present draft of the Excess Profits Bill pro-
vides the following rates:
25% on that amount of net income which rep-
resents 15% of invested capital.
40% on that amount of net income which rep-
resents between 16% and 30% of invested
capital.
50% on that amount which represents more than
30% of the invested capital.
Under current business conditions these rates will
yield a probable minimum of $500,000,000 per year.
Regraded Unclassified
219
Draft #1.
THE SECRETARY OF THE TREASURY
WASHINGTON
July 25, 1940.
MEMORANDUM FOR THE PRESIDENT:
The present draft of the Excess Profits Bill provides the
following rates:
25% on that amount of net income which represents 15% of
invested capital.
40% on that amount of net income which represents between
15% and 30% of invested capital.
50% on that amount which represents more than 30% of the
invested capital.
Under current business conditions these rates will yield
a probable minimum of $500,000,000 per year. (In view of the
reaction of these Congressional leaders who have thus far been
consulted, and because this is a new type of tax to which bust-
ness will have to become adjusted, I recommend no higher rates
than these be applied to 1940 income)
The question as to whether the Congress would entertain
other revenue raising bills at this session has been explored,
and thus far the reaction has been almost unanimously unfavorable.
However, there is 1 feeling that at the next session Congress
would be receptive to the extension of taxes on some commodities
and would seriously consider a manufacturers sales tax.
220
July 25, 1940.
Dear Admiral Stark:
I - sending you herewith, for your confidential use,
the following reports:
Part 1. Airplanes
Deliveries of and New Orders for Airplanes,
May 1 - July 20, 19401 Unfilled Orders and
Estimated Deliveries - July 20, 1940.
Part II - Airplane Regines
Deliveries of and New Grêere for Airplane
Ragines, May 1 - July 20, 19401 Unfilled Orders
and Notimated Deliveries # July 20, 1940.
These tables carry forward through July 20, 1940 the
information furnished you last vook.
Rasembly,
$ ( nè
Admiral Hareld a. Stark,
Chief of Naval Operations,
Havy Department,
Washington, D. e.
WA
GCHsek
FILE COPY
for
By Messenger 425
221
July 25, 1940.
Dear General Marshall:
I as vending you herewith, for your confidential use,
the following reports:
Part 1- Airplanes
Deliveries of and New Orders for Airplanes,
May 1 - July 20, 1940; Unfilled Orders and
Retinated Deliveries on July 20, 1940.
Part II - Airplane Regises
Deliveries of and New Orders for Airplane
Ingines, May 1- July 20, 1940s Unfilled Orders
and Estimated Deliveries en July 20, 1940.
These tables carry forward through July 20, 1940 the
information furnished you last vesk.
(Signed) H. Morgenthau, Jt.
I I d.
Chief of Staff,
Var Department,
Vashington, D. c.
MA the
FILE COPY
By Measenger 425 4
GCHjek
Regraded Unclassified
222
July 25. 1940.
Dear Mr. Kuudsen:
I MI sending you herewith, for your confidential use,
two copies of each of the following reports:
Part 1- Airplanes
Deliveries of and New Orders for Airplanes,
May 1- July 20, 19401 Unfilled Orders and
Notimated Deliveries on July 80, 1940.
Part II - Airplane Ragines
Deliveries of and Nev Orders for Airplane
Ingines, May 1 - July 20, 19401 Unfilled Orders
and Notimated Deliveries on July 20, 1940.
These tables earry forward through July 20, 1940 the
information furnished you last veek.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mr. Villiam 8. Emissea,
Chairwan, Advisory Commission to the
Council of National Defense,
Room 2262, Federal Receive Building,
Washington, D. c.
GCHsek
OA FILE Noo GOPY
By Messenger 425
Regraded Unclassified
223
-©
-0000-
FORM TFEL-2
OF
SPECIMEN
ISSUER:
ISSUE:
CERTIFICATE No.
DENOMINATION:
224
ORIGINAL AND FOUR CARBONS OF THE
EXECUTIVE ORDER WENT TO THE PRESIDENT
VONAMEUE FOR THE PRESIDENT:
Annexed is an Executive Order which amenda the existing Order
imposing certain "freesing" control,
Under the proposed Order a license will be required in order
to deal in securities bearing stemps or notarial seals, stc., show-
ing that they have been in one of the invaded countries. In this
connection we are reliably informed that approximately 95 percent
of all foreign securities in the Netherlands at the time of invasion
had a Chrtch revenue stamp which 10 readily recognizable imprinted
upon them and that this stamp will be of material aid in tracing
bearer securities looted in the Wetherlands. Purthermore, foreign
securities which have been brought into some of the other invaded
countries, much as France, are required to have a government tax
stamp on them.
The Order will also restrict dealings in securities not
physically situated within the United States. le understand that
certain brokerage firms in New York have already voluntarily adopted
A policy along this line and the extension of this policy will aid
in preventing the unloading of looted securities in our markets by
cabled instructions, etc,
I believe the proposed Order will be very helpful in thus earry-
Ane out the purposes of the existing freesing control, and particularly
in supplementing the existing regulations governing the importing of
securities into the United States,
These documents have been cleared with the Attorney General, the
Securities and Exchange Commission, and the Itate Department.
Secretary of the Treasury.
Regraded Unclassified
226
July 25, 1940
MEMORANDUM FOR THE PRESIDENT
Annexed is an Executive Order which amends the existing Order
imposing certain "freesing" control.
Under the proposed Order & license will be required in order
to deal in securities bearing stamps or notarial seals, etc., Bhon-
ing that they have been in one of the invaded countries. In this
connection we are reliably informed that approximately 95 percent
of all foreign securities in the Netherlands at the time of invasion
had 8. Dutch revenue stamp which is readily recognizable imprinted
upon them and that this stamp will be of material aid in tracing
bearer securities looted in the Netherlands. Furthermore, foreign
securities which have been brought into some of the other invaded
countries, such as France, are required to have a government tax
stamp on them.
The Order will also restrict dealings in securities not
physically situated within the United States. We understand that
certain brokerage firms in New York have already voluntarily adopted
a policy along this line and the extension of this policy will aid
in preventing the unloading of looted securities in our markets by
cabled instructions, etc.
I believe the proposed Order will be very helpful in thus carry-
ing out the purposes of the existing freezing control, and particularly
in supplementing the existing regulations governing the importing of
securities into the United States.
These documents have been cleared with the Attorney General, the
Securities and Exchange Commission, and the State Department.
/s/ H. Morgenthau, Jr.
Secretary of the Treasury.
Initialed by:
AFL LCA BB EHF,Jr. HMC
Regraded Unclassified
177
227
C
0
P
I
EXECUTIVE ORDER
AMENDMENT OF EXECUTIVE ORDER NO. 8389
OF APRIL 10, 1940, AS AMENDED.
By virtue of the authority vested in me by section 5(b)
of the Act of October 6, 1917 (40 Stat. 411), as amended, and
by virtue of all other authority vested in me, I, FRANKLIN D.
ROOSEVELT, PRESIDENT of the UNITED STATES OF AMERICA, do
hereby amend Executive Order No. 8389 of April 10, 1940, as
amended, amending Executive Order No. 6560 of January 15, 1934,
by adding the following sections after section 12 thereof:
"Section 13 A. The following are prohibited
except as specifically authorized by the Secretary
of the Treasury by means of rulings, regulations,
instructions, licenses, or otherwise:
"(1) The acquisition, disposition or
transfer of, or other dealing in, or with
respect to, any security or evidence thereof
on which there is stamped or imprinted, or to
which there is affixed or otherwise attached, a
tax stamp or other stamp of a. foreign country
designated in this Order, or a notarial or
similar seal which by its contents indicates
that it was stamped, imprinted, affixed or
attached within such foreign country, or where
the attendent circumstances disclose or indicate
that such & stamp or seal my, at any time, have
been stamped, imprinted, affixed or attached
thereto.
*(2) The acquisition by, or transfer to,
any person within the United States of any
interest in any security or evidence thereof
if the attendant circumstances disclose or
indicate that the security or evidence thereof
is not physically situated within the United
States.
228
2 I I
"B. The Secretary of the Treasury may investigate,
regulate, or prohibit under such rulings, regulations,
or instructions as he may prescribe, by means of
licenses or otherwise, the sending, mailing, importing
or otherwise bringing, directly or indirectly, into the
United States, from any foreign country, of any
securities or evidences thereof or the receiving or
holding in the United States of any securities or
evidence thereof so brought into the United States.
The provisions of General Ruling No. 5 of June 6, 1940,
and all instructions issued pursuant thereto, are hereby
continued in full force and effect, subject to amendment,
modification or revocation pursuant to the provisions of
this Order.
"C. In the case of any transaction covered by
this section, an application for license may be filed
in the manner indicated in the Regulations of April 10,
1940, as amended, issued pursuant to this Order.
"D. The Regulations of November 12, 1934, are
hereby modified in ao far as they are inconsistent with
theprovisions of this section.
"Section 14. The Secretary of the Treasury my
require any person to furnish under oath, complete
information relative to any transaction referred to in
this Order, or with respect to any property in which any
foreign country designated in this Order, or any national
thereof, has any interest, including the production of
any books of account, contracts, letters, or other
papers, in connection therewith, in the custody or
control of such person, either before or after such
transaction is completed."
THE WHITE HOUSE,
July , 1940.
Initialed by:
AFL LCA BB EHF,Jr. HMC
HM,Jr.
Regraded Unclassified
229
August 1, 1940
No Streeter
file Sectord
Permit to your request through Nature, I all trans-
sitting berevith by & specimen form of TFEL-2. Since I
all bild directly assembable for the distribution of and speciment,
at will be greatly approciated at you will sign the receipt below.
A.P.L.
ABSERVY
Receipt to of - specimen Form 178-2.
8-2-40
230
July 25, 1940
My dear Mr. Secretary:
Thank you for your letter of
July 24th sending me a paraphrase
of the radiegram from the Command-
ing Officer of the 4th Corps Area at
San Francisco.
Yours sincerely,
(Stgned) H. Morgesthau, Jr.
Honorable Henry L. Stimson,
Secretary of War.
231
July 25, 1940
My dear Mr. Secretary:
Thank you for your letter of
July 24th sending me a paraphrase
of the radiogrem from the Command-
ing Officer of the 4th Corps Area at
San Francisco.
Yours sincerely,
(Signed) H. Morgesthan, Jr.
Honorable Henry L. Stinson,
Secretary of War.
232
July 25, 1940
My dear Mr. Secretary:
Thank you for your letter of
July 24th sending no & paraphrase
of the radiogram from the Command-
ing Officer of the 4th Corps Area at
San Francisco.
Yours sincerely,
(Signed) H. Morgesthau, ft.
Honorable Henry L. Stimson,
Secretary of War.
Regraded Unclassified
233
WAR DEPARTMENT
WASHINGTON
July 24, 1940.
Dear Mr. Secretary:
I send you enclosed paraphrase of radiogram
from the Commending Officer of the 4th Corps Area
at San Francisco, relating to Japan's purchases
of aviation oil about which I spoke to you over the
telephone.
Faithfully yours,
Henry x Strinson
Secretary of War.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
CONFIDENTIAL
234
PARATHRASE or RADIOGRAM
w 655.7 (7-83-40)
FROM: DENITT, Presidio of 3am Francisco, July 25, 1940.
TO: the Adjutant deneral.
Report which is unquistionably reliable inlinates practical
corner of aviation gasoline mazket to being effected by Jagen and that
approaches have been made to prestically every Pasific all our Coast
oil Company and contracts for - million two hundred thousand drums
have been lot or tendered too. Instet upon carliest prosticable
delivery to to made by September 1st 1960 as nearly " possible.
Delivery by November 1940 are requested a prestically all contracts
let or tendered. Yor delivery in 1941 only small qualtity is asked for.
Gasoline in tin druns are requested by practically all contracts. Market
will be stripped w quantities being bought and productive capacity
for maths to - likevice affected. should Assy and Harry need
it in quantity during - six = to nine months there would be
- chartage of eviation gasoline if these purchases are all
CONFIDENTIAL
Regraded Unclassified
235
July 25, 1940
Dear Harold:
I an inclesing herewith a very
important and interesting telegram
furnished me by the Secretary of War
in strictest confidence.
Yours sincerely,
Henry
Honorable Harold L. Ickes,
Secretary of the Interior.
Ene.
By Measenger 1137
236
July 25, 1940
Dear Harold:
I am inclosing herewith a very
important and interesting telegram
furnished me by the Secretary of War
in strictest confidence.
Yours sincerely,
Henry
Honorable Harold L. Ickes,
Secretary of the Interior.
Regraded Unclassified
237
July 25, 1940
Dear Harolds
I - inclesing herewith a very
important and interesting telegram
furnished me by the Secretary of War
in strictest confidence.
Yours sincerely,
Henry
Honorable Harold be Iskes,
Secretary of the Interior.
238
OF THE
THE SECRETARY OF THE INTERIOR
WASHINGTON
July 25, 1940.
My dear Henry:
I have yours of this date, to which was attached a.
copy of a "paraphrase of radiogram sent to you by the
Secretary of War." A copy of this had already been sent
to me. Surely we ought to do something to prevent what
seems to be a plan to corner our aviation gasoline on the
Pacific Coast.
Sincerely yours,
Harold
Secretary of the Interion
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Date Professor -
I was very clas to have your letter of June 15, 1940 ownern-
ing the survey of industrial relations problems in defense industries
which you are saking, and, of course, I was especially interested 1a
your coments concerning the all-mance for depreciation.
As you know, the Internal Neverue Code provides that in occuput-
122 at income no deduction shall in any case be allowed in respect
of any anount paid out for new buildings or for permanent improvements
or betterments made to increase the value of any property or estate.
$ 26(a)(2). Consequently, capital expenditures insurred to expand
productive facilities in connection with the national defense program
are not deductible business expenses under existing law.
There is no provision in the Internal Revenue Code for the assetis-
ation over a period of years of capital expenditures except the depreci-
ation deduction. The Code defines the deduction as a reasonable allow-
ance for the exhaustion, wear and tear of property used in the truis or
business, including a reasonable allowance for faire is
nothing to indicate that Congress intended that, for income tax purposes.
the taxable incomee of private namufacturers of areasent should in de-
termined according so any different rules from the rules applicable to
the taxable incomes of all other private manufacturers.
It is BY duty to 'superintend the sollection of the revenue."
2,5% I 248. The Congress has not delegated to ne discretion to allow
anorlization of the cool of new plant capacity during the unisting
mergency shen it Le anyone's guess (a) whether or not the plant
capacity will ever be used excess or (b) laow long the existing
marganey will last.
The prosent policy of the Pressury as smbodied in existing regular
Lions relative to the allowance for obsolescence ie consistent with the
position taken by the Cousens Corrittee in its report to the Sensite on
the Investigation of the Bureau of Internal Revenue. After pointing
out that any investment in equipment might turn out to be unprofitable
and that the full cost plus a profit might not be realized during its
115a, was Condittee revie the following coments which seem equally
Applicable todays
The war facilities which a taxpayer slects to retain
1n use can have no different status than any other facilities.
Regraded Unclassified
as to all facilities he takes the risk instduct to the
business of recovering their value through annual de-
dustions for depresiation. If a recidual undepreciated
value remains, visa the we of such facilities are
abandomed, the recides is taken " less of useful value.
*No deduction of & capital less should be parmitted
until 11 can be computed with reasonable certainly. to
attempt to say new that a taxpayer will net recover through
operation the value of facilities be elects to retain in
use, and to attempt to crapute the resulting loss involves
nothing more than shour spesalation" (Senate Report No.
27, 69th Comg., 1st Sexo., P. 168-170.)
Although there has been an artreardinary amount of discussion
anotig certain interests - the subject of depresiation deductions,
stimulated in N opinion by a few nissaned "now letters", not a
single instance has ever been bronght to my attention in which the
existing Treasury regulations have worked my hardship or inequity
upon, or distorted the true income of, any industrial enterprise.
Needless to sky, however, the Treasury is going to give full -
sideration and stady to persible revisions of the law to permit
expenditures for plant fasilities especially acquired for the
national defense progres be be treated differently from ordinary
capital expenditures.
I an looking forward enthawishically to receiving and reading
a copy of your report which you have se thoughtfully said you would
send M.
Sincerely yours,
(Signid) H Morgenthan. it.
Secretary of the Treasury.
Professor do Douglas Iron
Director, Industrial Relations Section
Princeten University
Princeten, you Jersey
CLK,S
6-22-40
Regraded Unclassified
241
PRINCETON UNIVERSITY
INDUSTRIAL RELATIONS SECTION
(Department of Ememics and Social Institutions)
1. DOUGLAS BROWN, Director
HELEN BAKER, Auistant Director
Princeton, New Jeney
HAZEL C. BENJAMIN, Librarian
June 15, 1940.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Confidential
Dear Secretary Morgenthau:
During recent weeks I have been making an in-
tensive survey of industrial relations problems in defense
industries, visiting machine tool, aviation, aviation parts,
and certain essential mass production companies. We are
rushing to print on a report analyzing problems and I shall
send you a copy as soon as it 1s off the press.
In my survey I am increasingly impressed with
the importance of the early adjustment of depreciation regu-
lations in regard to corporate income taxes, particularly in
the case of the machine tool industry. While I realize the
great need of the Treasury for funds these days, I feel that
one of the most reasonable objections to rapid expansion ad-
vanced by machine tool builders is the fact that additions
to plant and equipment made to speed up production will prove
in large measure unnecessary following the defense boom. I
do feel that it 1s sound economics to recognize the temporary
but vital usefulness of these extensions to plants by deter-
mining the rate of depreciation for tax purposes in terms of
the time the plants are used for defense production. The
machine tool builders have faced feast and famine, and the
very machines produced in great quantities now will prove
a depressing factor in the machine tool market for some
years following the boom.
Since I felt so strongly on this matter, I
stopped in to express my views to Jacob Viner on Wednesday.
He suggested that I write you this letter.
Further, I am not at all convinced that the
machine tool people have yet raised their sights suffi-
ciently as to the necessities of the present situation.
The industry is directed, to a considerable extent, by an
older generation of executives who are deeply imbued with
conventional engineering thinking. At the same time, they
are probably much worried by the possibility of government
Regraded Unclassified
242
The Honorable Henry Morgenthau, Jr. - page 2 - June 15, 1940.
intervention. It seems to me that a good deal of the talk-
ing that they are doing concerning their ability to meet the
situation is really a defense against increasing government
pressure. Rather than depending on skilled labor supplies,
the industry will have to adjust itself quickly to the type
of labor now available by rapid dilution of skills and in-
tensive short-time training. Many of the executives of these
companies, as engineers, naturally object to such a step.
I am leaving tonight for the West Coast to sur-
vey the aviation industry there. If I can be of assistance
at any time, however, I hope that you will let me know. Any
word will be forwarded immediately.
Yours respectfully,
B/a
243
July 25, 1940
11:10 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Knudsen. Go ahead.
H.M.Jr:
Hello.
Wm. S.
Knudsen:
This is Knudsen.
H.M.Jr:
How are you?
K:
Did Purvis talk to you last night?
H.M.Jr:
No. He wrote me a letter, but he didn't
talk to me.
K:
What do you think of it?
H.M.Jr:
Bill, I don't know enough about it. I mean,
I don't know enough about the facts.
K:
Well, the facts are this, that of course
Jesse wants them to put up 10 million against
the 20.
H.M.Jr:
You'll have to explain it a little bit more.
E:
All right. You know we're talking about a
plant that coste $20 million, of which the
English have two-thirds and the Americans
one-third. Jesse takes the position that
unless the English is smaller than the
American he's going to be in wrong, 80 if we
put up 10, that leaves 10 and that gives
the Americans two-thirds and the British
one.
H.M.Jr:
Now, let me see. How much does Jesse have
to put up, 20?
K:
Yes.
H.M.Jr:
20. And when you originally spoke to Purvie,
how much was he to put up?
K:
He wasn't to put up any for the plant,
that was to come out of the motors.
Regraded Unclassified
244
- 2 -
H.M.Jr:
Oh. Well, of course, here's the thing.
We sent you this ruling over from the
Attorney General and under that ruling
Jesse could loan the whole 20. I don't
know whether you've had a chance to look
at it.
K:
I read it, yeah. You sent it to me. I
was very grateful for it.
H.M.Jr:
What's that?
K:
I was very grateful for that.
H.M.Jr:
I don't know whether Jesse has seen that
or not.
K:
Yes, he has.
H.M.Jr:
And he won't do it?
K:
He says that according to his attorney's
opinion, the minute he has a smaller portion
in American funds than in British funds,
then he's in wrong.
H.M.Jr:
Well, how could his attorney stand up
against the Attorney General
K:
Well, I don't know.
H.M.Jr:
Well, it's silly.
K:
No, but then I put the burden -- you know,
I spoke to you yesterday noon
11111
H.M.Jr:
I know.
K:
Then I put the proposition to Purvis and
he took it very bad and he said he was going
over to see you and I said that was all right.
I couldn't stop him from seeing you.
H.M.Jr:
Well, I was letting him cook because I
figured sooner or later somebody would call
me. Let me ask you this, Bill. Is this
something you want to settle today?
Regraded Unclassified
245
- 3 -
K:
Yes. I've got the Packard man here. You
know, that thing has been stewing around
for a couple of weeks. of course, the
Convention was in -- the Convention was in
between, see.
H.M.Jr:
Yeah. Of course, you and I, we've talked
to the President about this at least twice,
you know, and both times the President said
O. K.
K:
Yes.
H.M.Jr:
And now you've got the Attorney General's
opinion to back us up. I don't know what
the hell to say.
K:
Well, I'll have to bring up the issue with
Jesse.
H.M.Jr:
What?
K:
I'll have to bring up the issue with Jesse
because if the British don't want to put
up the money, well, then, Jesse will have
to go through with it.
H.M.Jr:
Well, I haven't talked to Purvis since he
left my office yesterday -- I started to
say last week, it seems like it .....
K:
He was to call me this morning and let me
know but he didn't call me.
H.M.Jr:
And I've got this letter from him in which
he mentions this and how badly he felt and
all that, and I have not talked to him
today.
K:
I 800.
H.M.Jr:
Well, my thought is -- I'm thinking out
loud -- I'd try to shove this Attorney
General's opinion down Jones' throat and
see what happens. Now if you don't get
anywhere, give me & call and I'll do what
I can to help.
246
- 4 -
K:
All right.
H.M.Jr:
Is that all right?
K:
Thank you, sir.
H.M.Jr:
Thank you.
247
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consulate General, Shanghai.
DATE: July 25, 1940, 3 p.m.
NO.: 693.
Consulate's no. 666 of July 20, 2 p.m.
Chinese
In order that the operations of the/branches of
the Banque de L'Indochina, Shanghai, may be facilitated
in dealings with the U.S., the Bank's Manager requests
the authority to open in behalf of every individual
branch with their main correspondent, the French American
Banking Corp., N. Y., an account in U.S. dollars, of
which the free disposition would be assured definitely.
Funds to be deposited in these new accounts would include
the remaining balances of amounts which are unblocked
already, all (sums?) pertaining to business transactions
in the future and any (sume?) which are still on deposit
with U.S. correspondents which may in a second release
be unblocked. It 1s stated by the manager of Banque
Franco-Chinoise's three branches at Peiping, Shanghai
and Tientsin that these branches had deposits in the
Irving Trust Company of New York of 266,000 U.S. dollars,
66,500 U.S. dollars of which was released on the 29th
of June, leaving an amount still unblocked of U.S.
dollars 199,500. Release of at 100,000 U.S. dollars
additional is requested by the bank's manager, to be
used for meeting depositors' demands; the manager explains
that
Regraded Unclassified
248
-2-
that one fifth of the bank's capital of fifty million
france is owned by the Finance Ministry of the Govern-
ment of China, the China Development Finance Corp.,
the Bank of China and the Bank of Communications;
he further states that the bank has many commitments
to Chinese, back in accounts both private and official.
The French Ambassador has been cabled (?) for assistance,
by the bank.
BUTRICK
the
the
EA:MSG
00
MA es JUL
00 2
YRA 30058 SHT OT
= as
THA
249
July 25, 1940
My dear Mr. Neever:
Thank you for your letter of
July 18th in which you report the
results of your agent's contact with
the British Purchasing Commission.
Yours sincerely,
(Stgned) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
250
July 25, 1940
My dear Mr. Heaver:
Thank you for your letter of
July 18th in which you report the
results of your agent's contact with
the British Purchasing Commission.
Yours sincerely,
(Regued) H. Morgenthan, Jt.
Mr. J. Edgar Heever, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
251
July 25, 1940
My dear Mr. Hoover:
Thank you for your letter of
July 18th in which you report the
results of your agent's contact with
the British Purchasing Commission.
Tours sincerely,
(bigned) H. Morgenthau, Jr.
Mr. J. Edgar Heover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
252
OHM EDGAR HOOVER
DIRECTOR
Frderal Bureau of Investigation
Nutted States Department of Justice
Washington, B. G.
July 18, 1940
The Honorable Henry Morgenthau, Jr.
The Secretary of the Treasury
Personal and Confidential
Washington, D. C.
By Special Messenger
My dear Mr. Secretary:
In compliance with your telephonic request of
yesterday and the subsequent verbal request made of Mr.
Foxworth by your Mr. Young and Mr. Purvis of the English
Purchasing Commission, I saw that the appropriate action
was immediately taken.
Mr. Purvis suggested that a representative of
this Bureau contact his assistant, Hamish Mitchell, in
New York City. This has been done. Mr. Mitchell at
first, although Mr. Purvis stated he knew the details
and he would inform Mitchell to expect an FBI man, stated
when contacted that he did not know any of the detail
matters. Mr. Mitchell further said that the English
were now in possession of all the plans and specifications,
etc., which the French had. Upon making inquiry in his
office he could not verify this.
Thereafter, Mr. Mitchell contacted Mr. Purvis
and later talked with my New York representative, at
which time he stated positively that the English had
possession of everything so far as plans and specifi-
cations were concerned that the French possessed and
in fact had sent one complete set of all such plans and
specifications to London. Mr. Mitchell informed that
he thought "the matter was just a tempest in a teapot."
It was stated by him that while the French Purchasing
Commission in the United States was still in possession
of one copy of the plans and specifications of course
the original and undoubtedly other copies of the same
253
Honorable Henry Morgenthau, Jr.
-2-
7-18-40
plans and specifications were in France, and that there-
fore no real harm could be done even if the representatives
of the French Government returned the set of plans and
specifications now in their possession to France.
Close contact will be maintained with Mr.
Mitchell of the New York office of the British Purchasing
Commission and in the event anything further develops in
this matter I will immediately advise you.
Sincerely yours,
J.Edgen Houser
July 25, 1940
Mrs. Klotz:
I was informed last night by Ted
Sheridan, Executive Assistant to Jerome
Frank, that it would be impossible for
the SEC to let Jim Buckley be assigned on
a temporary loan basis to the Treasury.
At that time, Mr. Frank had not yet read
the letter addressed to him by Secretary
Morgenthau. I also understood from this
conversation that this was the first re-
quest of this nature to be refused by the
SEC.
My point of view is simply that I do
not consider it fair to ask Mr. Buckley to
come to the Treasury on a temporary basis
if he cannot be assured by the SEC that he
can have a job, even though it not be his
original job, back at the end of the period.
I consider Buckley to be the best
qualified person I know of for this Treasury
assignment, and his services would be far
more valuable to the Treasury than they
would be to the SEC Reorganization Division
in his present capacity as Senior Analyst.
I would also like to point out the fact that
after a complete investigation, Mr. Irey gave
Buckley a very high recommendation.
P.Y.
DEPARTURE PERMITS GRANTED TO VESSETS CARRYING PETROLEUM PRODUCTS,
SCRAP IRON AND SCRAP STEEL TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN.
July 25, 1940
Vessel
Nat.
Cargo
Amount
From
To
NISSYO MARU
Jep.
Crude
88,550 Bbls.
San Francisco
Kavasaki, Japan.
CONDYLIS
Greek
Scrap Iron
5.333 Tons
Houston
Tokahama, Japan.
KENTUCKY
Am.
Scrap Steel
7.317 Tons
Portland, Oregon
Tokahama & Osaks, Japan.
SAN RAFAEL
Pan.
Scrap Steel
7,412 Tons
Portland, Oregon
Japan via Victoria, B.C.
GALLA .
Nor.
Gasoline
73,000 Bbls.
Port Arthur
United Kingdom
YASUKAWA MARU
Jap.
Lubricating 011
42,000 Bbls.
San Francisco
Tokohama, Osaka & Kobe, Japan
Scrap Iron
-------
:
MIRAMIRE
Pan.
Scrap Steel
**
Jacksonville
Osaka, Japan.
MATHILDA
Nor.
Scrap Steel
5,431 Tons
New Orleans
Hull, England
ESTURIA
Br.
Gasoline
:
Corpus Christi
United Kingdom.
YSELHAVEN
Neth.
Scrap Iron
I
:
Norfolk
United Kingdom.
NOTES:
e Vessel also carried 40,000 Bbls. of kerosene.
** Amounts have been requested.
255
Regraded Unclassified
256
July 25, 1940.
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Gaston
K
MERCHANT SHIP MOVEMENTS
Matters Requiring Action by the Secretary of the Treasury
None.
Matters Not Requiring Action by the Secretary of the Treasury
Closed Cases
Following a request from Military Intelligence and your
conversation at 4:30 P.M., July 24, with Acting Secretary of
State Summer Welles, instructions were sent to the Captain of
the Port at San Francisco to permit the departure for Seattle
of the Panamanian yacht SOUTHERN CROSS, owned by Axel Wermer-Oren,
Swedish millionaire, but instructions at the same time were sent
to Coast Guard headquarters at Seattle and Juneau, Alaska, that
the SOUTHERN CROSS is not to be permitted to depart from Seattle
for Alaska and that she is not to be permitted to enter Alaskan
waters.
Permits to depart were granted to the American Export
Lines for the American SS EXTAVIA from Norfolk for Lisbon, with
a cargo of coal and pipe, under charter to the Consolidation
Coal Company, and to American SS EXCAMBION from New York to
Lisbon, with a general cargo.
Permits to depart were granted to the Greek SS NICOLAOU
VIRGINIA from Savannah, Georgia to Glasgow; the American SS
KENTUCKY, from Portland to Yokohama; the Panamenian SS SAN
RAFAEL from Portland to Japan via Victoria.
Pending Cases
The German yacht TE RAPUNGA applied for permission to
depart from Honolulu, Hawaii, for the high seas. This case was
held for further consideration.
257
July 25, 1940.
TO:
Secretary Morgentham
FROM: Mr. Gasten
MERCHANT SHIP MOVEMENTS
Matters Requiring Action by the Secretary of the Treasury
None.
Matters Not Requiring Action by the Secretary of the Treasury
Closed Casse
Following a request from Military Intelligence and your
conversation at 4:30 P.M., July 24, with Acting Secretary of
State Summer Welles, instructions were sent to the Captain of
the Port at Sen Francisco to permit the departure for Seattle
of the Penemanian yacht SOUTHERN CROSS, owned by Aml Wemer-Oren,
Swedish milliamaire, but instructions at the cam time were sent
to Coast Guard headquarters at Seattle and Junean, Alaska, that
the SOUTHERN CROSS is not to be permitted to depart from Seattle
for Alaska and that she is not to be permitted to enter Alaskam
unters.
Permite to depart were granted to the American Export
Lines for the American SS EXTAVIA from Norfolk for Lisbon, with
& cargo of ceal and pipe, under charter to the Consolidation
Ocal Company, and to American SS EXCAMBION from New York to
Lisbon, with a general eargo.
Purmits to depart were granted to the Creek 83 NICOLAOU
VIRGINIA from Sevennah, Georgia to Glasgow) the American as
KENTOCKY, from Portland to Tokebomaj the Panamention $9 SAM
BAFAEL from Portland to Japan via Victoria.
Pendins_Gass
The German yasht TE RAPUNDA applied for permission to
depart true Henalulu, Remail, for the high This case w
hold for further ounsideration.
CC: Mr. Cairns
Mr. Feidler
Miss Channesy Mr. Folsy
Communder Derty
Regraded Unclassified
258
THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
FEDERAL RESERVE BUILDING
WASHINGTON, D.C.
July 25, 1940
The Honorable Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
I have sent the steel scrap memo-
randum to Lieutenant McKay by special
messenger.
I am not sure that it is in
exactly the form that you desire,
and if it is not, please call me.
Faithfully Ea
E. R. Stettinius, Jr.
259
TELEGHAM SENT
JI
GRAY
July 25, 1940
5 p.m.
AMEMBASSY,
RIO DE JANEIRO
226.
Your despatch no. 3252 July 9.
Treasury advised by the Bankers Trust Company
that check was paid on July 5. Treasury states that
it is apparently the practice of some NEW York banks
upon receipt of checks against blocked accounts to
protest such che cks and, at the same time, apply for
license which would Explain the Trust Company's
telegram of June 27.
WELLES
(Acting)
(FL)
840.51 Frozen Credits/303
EA:FL:EHS
Regraded Unclassified
260
TELEGRAM SENT
RDS
PLAIN
JULY 25, 1940
AMERICAN LEGATION,
STOCKHOLM.
251, Twentyfifth.
Your 733 July 16, 1940.
The Treasury is advised by the Bank of Manhattan
that it has no information with respect to the trans-
action.
WELLES
Acting
(FH)
840.51 Frozen Credits/302
EA:FL:EHS
261
THE SECRETARY OF THE NAVY
WASHINGTON
July 25, 1940
My dear Mr. Secretary:
Thank you very much for your note of July
twenty-third and for the enclosures. I was glad to
have the information which they contain.
It was 8. real pleasure to have you on the
boat with us last night and I hope we can do this
frequently in these hot days.
Yours sincerely,
Franknoknos
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
so ⑈ NA is side subject we
Regraded Unclassified
262
AS
PLAIN
Berlin
Dated July 25, 1940
Rec'd 8:25 a.m., 26th
Secretary of State,
Washington.
3183, July 25, midnight. (SECTION ONE).
FOR TREASURY FROM HEATH AND DEPARTMENT'S INFORMATION.
Funk, Reich Economics Minister and Presidnet of the
Reichsbank, gave an address to foreign correspondents this
evening on the subject of the new Economic order in
Europe, prefacing his talk with the statement that he had
been commissioned by Goering to prepare a comprehensive
plan for building up the German and European Economy after
the End of the war. The text of his address, however, was
handed to the correspondents in the form of answers to
questions formulated by the Editor of the SUDOST ECHO.
There follows a close summary translation of the
official text of his remarks.
One. In answer to the question "How do you picture
to yourself the general Economic order in the new Euro-
pran order?". Funk pointed out that the National Socialist
Economic policy had never been rigidly dogmatic but had
employed methods which BEEMED most practicable at the
moment.
Regraded Unclassified
263
AS-2- No.3183, July 25, midnight. (SECTION ONE), from Berlin.
moment. There was a natural foundation for CLOBE E00-
nomio cooperation between Germany and the other. European
countries. The war will have far reaching Effects on the
European and the world Economy. Germany intends to 00.
operate clossly with Italy toward the reconstruction of
Europe.
The Economic methods which will bE applied will bE
those which have given such great Economic results for
the Reich before and especially during the war. The un-
regulated play of forces which previously brought German
Economy into such great difficulties will not be allowed
to become Effective in the future. The new methods will
not only bE of advantage to Germany but to all European
Economics which have Close relations with the Reich.
KIRK
ALC
264
AS
PLAIN
Burlin
Dated July 25, 1940
Reo'd 9:12 a.m., 26th
Secretary of State,
Washington.
3183, July 25, midnight. (SECTION TWO).
Two. The currency after the war. Funk maintained
that the currency was a secondary problem, the primary
consideration being conomic leadership. In & sound
European <00n0my and a BENSIBLE division of labor between
the European ECONOMIES the currency problem would be solved
automatically since it was only a. question of employing
the correct monetary technique. The Enormous inorease in
the power of the Greater German Reich will naturally insure
the Reichsmark a dominant position. It will continue to
increase in importance released from the bonds of unsettled
foreign debts and the numerous variously valued types of
mark. "On the basis of the methods of bilateral trade al-
ready applied and the payments agreements which have
developed out of them, there will bE a further development
to multilateral trade and to an adjustment of balances of
payment of the individual countries that thus the various
countries can also enter into ordered ECONOMIC relations
with
265
AS-2- No. 3183, July 25, midnight. (SECTION TWO), from Berlin.
with each other by means of a clearing agency. Stable
currency ratios presuppose an squilization of the balances
in terms of value of the various countries and the road
to such & regulation of currency ratios will be 8. long
one. In Europe EVETY country must develop ita own coonomic
forces and EVETY country will bE able to carry on trade
with another country but the principles and methods by
which this trade is conducted will, by and large, be the
same. Under a common valid monetary and payment system the
controls strict regulations and red tape can largely be
sliminated for they will be unnecessary.
Three. What will be lacking in the new European
economy? and what commodities will be superfluous?
Certain products will always bE lacking in Europe and
an EXCLUSIVELY BELF sufficient Economy is not envisaged.
Europe will naturally continue to be bound up to a
great extent with the world coonomy. HOWEVER, it is in-
tended that as far as possible all those products which
are necessary to the conomio independence of the European
Economic area shall be produced in sufficient quantity in
Europe. Funk maintained that the German raw materials base
has improved greatly during the war and that Germany at
the end of a victorious war will have an export potential
greater
Regraded Unclassified
266
A8-3- No. 3183, July 25, midnight. (SECTION TWO), from Berlin.
greater than EVET before. She will bE far more indepen-
dent of the monocultures of the world than she was before
through such products as coal, potash, iron, wood, Eleo-
trical ENERGY and Especially in all the synthstic materials
developed by German science and Economy. But it will be
necessary to continue Economic relations with the rest of
the world in order to raise the standard of living of
the German people and that of the highly developed Euro-
pean industrial states.
KIRK
ALC
267
AS
PLAIN
Berlin
Dated July 25, 1940
Rec'd 3:08 a.m., 26th
Secretary of State,
Washington.
3183, July 25, midnight. (SECTION THREE).
Four. What merchandise does the new Europe Exprot
of Russia, America, South America and the Far East. And
what commodities will it deliver in Exchange?
According to Funk Russia will in the future play an
EVEN greater role 8.8 a supplier of raw materials and as
a market for German industrial products.
"How great Germany's trade with the United States
will be depends entirely on the Americans themselves. Of
course as long as it defames German goods such trade is
problematical and 8.8 long as it holds to a dogma. which is
nothing more than 8. dogma and has no longer any basis in
economic practice, trade with the United States will
naturally bE difficult. But if the United States wishes
to make a continuous contribution to the formation of world
Economy it must abandon its wrongful methods of wanting
to be at the same time the greatest oreditor nation and
the
268
AB-2- No.3183, July 35, midnight. (SECTION THREE), from
Berlin.
the greatest export country. If one 18 a great creditor
country one should not promote exports by all methods
while systematically hindering imports. WE will not attempt
to answer the question of what America will do with its
gold. In any event gold will in the future no longer play
a role as the bast for European ourrencies sinor a currency
is not dependent on its COVER but on the value which the
state that is in this CABE the Economic order regulated by
the state gives it. It is something Else when ONE con-
siders gold as a useful means for adjusting payment balances
but Germany will never carry on a monetary policy which
brings it into any sort of dependence on gold since one
cannot bind oneself to an instrument whose value one can-
not himself determine. If however the Americans want to
get rid of their gold which at present is of absolutely no
use to them then they must revalue the dollar upwards which
would of course lead to substantial difficulties for the
American Economy. But then gold would flow out of America
that is then one would be able to BELL advantageously in
America. and a stream of goods would then flow to America.
This is however a question depending upon to what extent
the internal American policy can carry through such a
me asure, If one incidentally brought the entire gold
which
269
AS-3- No.3183, July 25, midnight. (SECTION THREE), from
Brlin.
which lies in America looked up in a fort to an island
and this island sank into the BEQ through some natural
catastrophe then absolutely no change would necessarily
ENSUE in the Economic life of the proples.¹ #
KIRK
ROW
270
EH
PLAIN
Berlin
Dated July 25, 1940
Rec'd 8:55 a.m. 26th.
SECRETARY of State,
Washington.
3183, July 25, midnight (SECTION FOUR)
Funk asserted that after the End of the war and the
blockade Germany's trade with South America and the Near
East would develop favorably since it must bE remembered
that the difficulties of the world Economy, Especially
of Europe, were aside from the ridiculous methods of
VErsailles, due to the fact first, that Russia was
Eliminated as a market which sold its grain surpluses in
Europe; that secondly, the great Far Eastern market was
greatly affected by the war in China. The return of
stable Economic conditions in China, however, towards
which Japan is striving will change this situation. Funk
said hE did not believe that the attempts to make the
American market autarchic and to shut them off from trade
with the world would bE successful. The Economic requisites
were lacking since the United States can never absorb
South American products to the EXTENT which Europe can.
The
271
-2- 3183, July 25, midnight, from Berlin/ (SECTION FOUR)
The United States must give up the idea that it can distate
its Economic conditions to Germany or Europe, respectively.
WE do not need the United States as an intermediary to
carry on trade with the South American countries. Either
German, South American trade takes place on the basis of
free agreements with sovereign South American countries
or it will not occur at all. American plans for export
monopolies for the South American products are in principal
a bilateral Economic system which it already has in Effect
with other countries. Just why should Germany be shut out
from this system? There are, in any EVENT, no technical
difficulties in the way of a normalization of reciprocal
trade relations. It is, after all, not the methods but
the quality of the commodities which is decisive and in
this regard there really need bE no worries concerning
German export products.
(Five) How is this war being financed in Germany?
Funk maintained that the ESSENCE of German war
financing is "labor". The bills through which the Reich
borrows are "labor bills" whose value is absolutely stable
because prices and wages are stable. HENOE, the question
of consolidating short term credits was absolutely unim-
portant and the indebtedness in Germany could cause no
concern.
272
-3- 3183, July 25, midnight, from Berlini (SECTION FOUR)
concern.
(SEVEN) How will the war Economy bE transformed into
a peace Economy? Will this readjustment not lead to a
great Economic crisis?
Funk asserted that Germany had controlled the Economy,
both before and during the war, largely in accordance with
public needs and since there will bE important problems
to solve after the war, the readjustment will lead to no
great difficulties. There will not be 8. sudden demand for
money or credit because stocks will be permitted to bE
only gradually restored. Money and credit after the war
will bE directed at first, to Essential branches of pro-
duction.
In conclusion, Funk said;
(A) By means of long terms Economic agreements with
the European States will adjust their production on a
long term basis to the German market. By this means it
will bE possible to increase European output and to under-
take production of entirely new products. On the other
hand there will also bE better markets in Europe for
German goods.
KIRK
ALC
273
EH
PLAIN
Berlin
Dated July 25, 1940
Rec'd 4:30 a.m. 26th.
Secretary of State,
Washington.
3183, July 25, midnight. (SECTION FIVE)
(B) Through creation of stable currency relationships
a WELL functioning payments system for carrying on trade
between individual countries will bE insured. The present
clearing agreements with stable Exchange rates can bE
developed to SErVE as a starting point for increased trade.
(c) Through consultation in the field of agriculture
and industries the greatest possible production of food-
stuffs and raw materials and a sensible Economic division
of labor in Europe will bE achieved. By making practicable
USE of Economic forces present in Europe the standard of
living of the European peoples will bE raised and their
sense of security against possible blockade measures will
bE strengthened.
(D) A strengthening of the feeling of Economic
community among the European peoples must bE brought about
through cooperation in all the fields of Economic policy
(ourrency,
274
-2- 3183, July 25, midnight. (SECTION FIVE) from Berlin.
(currency, credit, production, trade, Etc.)
The Economic solidarity of the European countries
should make possible a better representation of European
Economic interests as against other Economic groups in
world Economy. This United Europe will not permit any
non European unit to impose political or Economic condi-
tions on it. It will carry on trade with other partners
at any time on the basis of Equality but bE able in doing
so to throw the full sconomic weight of the continent
into the scales.
Funk concluded by saying that the comprehensive plan
for a peace Economy prepared by him will guarantee the
Greater German Reich the maximum of consumption goods
to improve the well being of the people. The European
Economy will bE directed toward this goal.
END OF MESSAGE
KIRK
ROW
275
MN
GRAY
(Paris)
La Bourboule
Dated July 25, 1940
REc'd 10:10 p.m.
Secretary of State
Washington
150, July 25, 11 a.m.
FOR THE TREASURY FROM MATTHEWS.
Governor Fournier has at last returned from
Paris but the Bank of France plans for returning to the
capital SEEM still to bE in the air. I missed both the
Governor and Rueff at Chatslguyon but I hope to
SEE the latter tomorrow. Another convoy of French
bank personnel numbering about 1200 is due to leave
for Paris Friday. The opening of the Bourse has been
postponed until Monday and I understand that the agenta
de change are leaving their securities in unoccupied
territory.
No agreement has yet been reached with the Germans
with respect to modalities of Exchange control or with
respect to the freedom of movement of assets between
Paris and unoccupied territory requested by the French
banks (fourth paragraph my telegram Number 111, July 19,
9 a.m.). The Germans are not permitting removal
either
276
- 2 - #150, July 25 from La Bourboule (Paris)
Either of any securities or of French or foreign bank
notes in substantial volume from occupied to unoccupied
territory. They have not however as yet established any
system of personal search of refugees and other persons
permitted to pass between occupied and unoccupied terri-
tory. (The movement of refugees both French and
Belgian back to occupied territory 18 gradually gaining
momentum and three trains daily are running from
Vichy to Paris. The almost complete absence of available
gasoline supplies of course constitutes a great obstacle).
The American banks continue to proceed slowly
in the move to return to Paris though Barrett told me
yesterday that the Guaranty is moving half its securities
section personnel German next WEEK.
Cariguel told me that his dollar transactions have
now been reduced to some half a million dollars daily
and I gather from other sources that the obtaining of
dollar Exchange authorizations is growing more
difficult. For instance I am told that to obtain dollars
for payment of imports previously contracted the
import authorization is insufficient and proof of actual
shipment or arrival of goods in France is being required
(a policy which may, it seems to mE, hamper trade
EVEN further in view of its variance with our cash and
carry provisions). The Minister of Finance, who returned
to Paris several days ago, has given instructions that
all personnel of his Ministry must report at their
Regraded Unclassified
277
MA -3- tel # 150 July 25 from La Bourbouls (Paris).
posts in occupied territory by July 31 or lose their
jobs.
Leroy-Beauliss has been appointed "director of
foreign commerce at the central administration of the
Ministry of Finance" and HERVE Alphand (former director
of commercial accords of the Minister of Commerce)
Financial Attache at Washington in his place.
I believe you are sufficiently acquainted with Alphand's
name to require no comment from me (I have no confidential
code here.) (END SECTION ONE).
MURPHY
RR
278
JI
PLAIN & GRAY
(Paris)
La Bourboule
Dated July 25,1940
REC'd 3:53 pame
Secretary of State
Washington
150, July 25, 11 a. no (SECTION TWO)
The Bank of France has now officially blocked
British balances in France, The Syndicate of Bankers
has circulated the following le tter received by its
President from Rueff.
"In view of the measures taken by the British
Government with respect to French balances in Great
Britain I have the honor to request you urgently to
invite in my name all bankers and brokers to block
until further notice such credit balances as they may
hold for the account of British physical or moral
persons.
"I shall bE grateful if you will give all desirable
publicity to these measures and inform your members
thereof as quickly as possible".
MURPHY
NPL
279
JR
PLAIN
Budapest
Dated July 25, 1940
Rec'd 9:51 a.m.
Secretary of State,
Washington.
169, twenty-fifth.
REference Legation's 161, July sixteen.
Futura now advises further amounts of some description
also blocked. Banque Commercial Roumaine, Bucharest by
order Future instructed by Hungarian General Bank, Budapest
to remit the latter $107,000 blocked with Chase National Bank
Similarly Banque Commercial Roumaine instructed by First
National Savings Bank Corporation Budapest to remit the
latter $11,940 blocked with Irving Bank NEW York. Both
NEW York banks refused to remit. Futura states situation
Exactly analagous to that outlined Legation's cable above
mentioned. Please raply STCOR soon as possible CASE being
urgent.
MONTGOMERY
ROW
Regraded Unclassified
280
July 25, 1940
8:21 a.m.
H.M.Jr:
Hello. Professor Chamberlain.
Prof.
Chamberlain: Yes.
H.M.Jr:
Can you hear me?
C:
Yes, very well, thank you, sir.
H.M.Jr:
I just had a talk with Dan Bell and he
would be simply delighted to be relieved
of the responsibility because he said
he was about ready to come to me. He said
he just couldn't carry it all.
C:
Yes, I think that's true.
H.M.Jr:
Now, I'd like to do a little bargaining
with you.
C:
Yes.
H.M.Jr:
On thinking the matter over, I wondered
if your generosity would go to the extent
of saying that if you undertook this that
you would see me through the rest of this
year.
C:
Well, Mr. Secretary, the point I have is
this, that I have a pretty heavy schedule at
the University. I could undertake the responsi-
bility of coming to Washington for as much
time as is necessary of course this summer
and then coming on -- coming down during
the winter. I couldn't give as much time
after the first of October, but I could
come down every week.
H.M.Jr:
The point is this, Bell was saying that if
we did it, in order to really relieve him,
then you ought to do the signing as well.
Hello?
C:
Yes.
H.M.Jr:
Which he does -- I mean, the signing of the
various stuff. In other words, what I'm
281
- 2 -
trying to envisage is, if we're going to
do it, relieve him of the entire responsi-
bility. Hello?
C:
Yes.
H.M.Jr:
Now, would that be agreeable to you?
C:
Yes, if it could be done on that basis.
H.M.Jr:
Well, October 1 looks like a lifetime
away for me and if you could take it from
now until October 1, between now and then
why we could certainly work out somebody
else who could take over after that.
C:
I think that we could. I could come down --
I'll be down Monday and I could see him
or see -- you're not going to be there,
I understand.
H.M.Jr:
No.
C:
Well, that's good. I'm glad you're getting
a rest.
H.M.Jr:
What I want to do is, Bell says I'd have
to get the President to sign an Executive
Order authorizing -- delegating this power
to you. I can't do it; he has to do it.
Bee? But there'll be no trouble about
that, I mean, the way it is now it's dele-
gated to me that the only person who can
sign my name is an Assistant Secretary.
C:
I see.
H.M.Jr:
But we'll fix up an Executive Order and
ask him to make it legal so that you can
sign as well.
C:
All right.
H.M.Jr:
See?
C:
Yes.
282
- 3 -
H.M.Jr:
And what I've got in mind, I mean, 80
that we're thinking along the same line,
is that beginning with Monday, I mean, as
rapidly as you can, you'll take it off
Bell's shoulders and take the full
responsibility and using our present staff
and adding to it in any way that you think
you'd like to do.
C:
What does he think about my suggestion of Mr.
Pehle?
H.M.Jr:
Oh, you mean sort of upping him?
C:
Yes.
H.M.Jr:
Well, I talked to Foley and he thought
that Pehle was all right but that Bernstein
also is very important in the picture.
C:
Yes, but I thought Bernstein had a number
of other jobs too 1e the reason why I
didn't suggest him.
H.M.Jr:
Well, he thought that Pehle is all right,
but that he'd like to have Bernetein con-
tinue sort of as legal adviser to Pehle.
C:
That is what I thought.
H.M.Jr:
But the way I would do it, if you'd come
down Monday -- anyway that you and Bell
and Foley work it out is all right with
me.
C:
All right, Mr. Secretary, I'll be down
Monday.
H.M.Jr:
If you'll do this, of course, it'll be
a terrific help to both Bell and me.
C:
Well, I'll undertake it on that condition
that after the term begins, I'll have to
give more time here.
H.M.Jr:
I understand. Well, then, it'll be up to
all of us to be looking and possibly after
you've been here awhile you may feel that
Pehle could carry on.
Regraded Unclassified
283
- 4 -
C:
Well, I think that's quite possible.
H.M.Jr:
And if not, we'd have two months to look
around for somebody.
C:
All right.
H.M.Jr:
But I'm fearful that if we don't take
some of this off Bell, he's going to break
down.
C:
He seems to be very tired. I think you've
all got pretty heavy responsibilities.
H.M.Jr:
I think if you come and then say we keep
our eyes open for somebody to break in
almost immediately -- that you could break
in to carry on after October 1.
C :
All right, Mr. Secretary. I'll be down on
Monday and I'll see Mr. Bell and have a
talk with him.
H.M.Jr:
Fine.
C:
I'll write him a note this morning telling
him I am coming down and see if I can make
an appointment with him.
H.M.Jr:
Thank you.
C:
Thank you, Mr. Secretary.
Regraded Unclassified
284
July 25, 1940
10:26 a.m.
H.M.Jr:
Hello.
Lord
Lothian:
Hello.
H.M.Jr:
Morgenthau.
L:
Good morning, Mr. Morgenthau. I was trying
to get you last night.
H.M.Jr:
Yeah. I was down the river.
L:
Because Mr. Purvis came up to see me and he
gave me an account -- he said the most
marvelous performance he'd ever seen done
by anybody was done by you yesterday.
H.M.Jr:
I see.
L:
He absolutely is as enthusiastic as can be.
H.M.Jr:
Well, that is nice.
L:
I thought I'd just ring you up and say how
much I appreciate it. It'll make terrific
difference to the whole future for the whole
thing is lifted at last onto the right basis.
H.M.Jr:
Well, that's the way I feel and I'm very
happy about it also and I was terribly
worried that they were going to freeze
this production.
L:
Yes.
has lifted the whole scale now onto the
right proportions.
H.M.Jr:
And I think after the people sort of
I think it's going to have a lot to do to
overcome the defeatist attitude in this
country.
L:
I quite agree.
H.M.Jr:
It was very kind of you to .....
285
- 2 -
L:
He said he never heard & more impressive
thing than your statement yesterday. He
said it made an enormous impression on
everybody, so I thought I'd just ring you
up and tell you how much I appreciated all
you've done.
H.M.Jr:
That's very kind. Now, just as long as I
have you -- we are collecting the figures
on the shipments of oil daily going to
Japan, and they are increasing tremendously.
L:
Yes, they are.
H.M.Jr:
And
L:
I wired for similar figures from London
and the other sources. I haven't got them
yet.
H.M.Jr:
And they are -- daily, really there's an
awful lot going out.
L:
Yes, there is.
H.M.Jr:
Well, thank you for calling.
L:
Well, all right. Thank you, Mr. Morgenthau.
H.M.Jr:
Good-bye.
L:
Good-bye.
286 4
original letter
sent to Gaston
July 25, 1940
My dear Mr. Hoover:
Thank you for your letter of
July 22nd concerning the expected
arrival in Port Arthur, Texas, of
the Belgian tanker Spidoleine which
left some British port July 11th.
This information has been care-
fully noted.
Yours sincerely,
(Signed) H. Morganthau, Jr.
Mr. J. Edgar Neever, Director,
Federal Bureau of Investigation,
Washington, D.C.
July 25, 1940
My dear Mr. Neover:
Thank you for your letter of
July thi concerning the expected
arrival in Pert Arthur, Texas, of
the Delgism tanker Spidelsine which
left - British part July 11th.
This information has been care-
fully noted.
Yours sincerely,
(Signed) H. Morgesthau, Jr.
Mr. 3. Edgar Neever, Director,
Federal Bureen of Investigation,
Washington, D.C.
288
July 25, 1940
My dear Mr. Hoover:
Thank you for your letter of
July 22nd concerning the expected
arrival in Port Arthur, Texas, of
the Belgian tanker Spidoleine which
left some British port July 11th.
This information has been care-
fully noted.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
289
July 25, 1940
9:30 a.m.
GROUP MEETING
Present:
Mr. Haas
Mr. Thompson
Mr. Schwarz
Mr. Gaston
Mr. Foley
Mr. Sullivan
Mr. Bell
Mr. Young
Mrs. Klotz
H.M.Jr:
Chick, I thought the way you handled that
plane story was very good.
Schwarz:
Thank you, sir.
H.M.Jr:
I don't know how much difficulty you had --
Schwarz:
We were put on the spot pretty much.
Everybody called for it.
H.M.Jr:
That was handled very well.
Schwarz:
Thank you.
H.M.Jr:
Now, are you coming to my press conference
to talk about that 8 year contract?
Foley:
If you want me to.
H.M.Jr:
What are you going to talk on, the first
contract?
Foley:
We can't mention the taxpayers' names yet,
but in the Treasury Bulletin for this week
is set forth, using letters instead of the
230
- 2 -
names of the taxpayere, the Treasury decision
which on those circumstances provide that for
income and excess profite tax purposes the
entire lease may be written off within the
period of the original lease, which 1e 8 years.
H.M.Jr:
It 18 for my information.
Foley!
It 18 Curtise-Wright and it 18 the loan that
WAS in the Well Street Journal as having been
made by the RFC.
H.M.Jr:
Now, 8 couple of things: The first thing this
morning, Mr. Bell and I have had 8 talk and
in order to make life livable for Dan, I am
going to relieve him of all this foreign
exchange work and I called Professor Chamberlain
to be down Monday ready to take over. He can
not atay on full time after the first of
October.
Bell:
He cannot stay?
H.M.Jr:
No. He 18 full time from now until the first
of October and after that he cannot give hie
full time on account of his university
responsibilitiee, but he will immediately
begin to look for somebody either inside
the Treasury or out, to take over when he
goes. I mean he will immediately begin to
look for someone. I mentioned to Norman the
fact we needed an Executive Order BO that
Chamberlain can sign. You gentlemen can
work that out.
Thompson:
I was going to sak the General Counsel if
he could appoint him 88 an assistant to the
Secretary.
H.M.Jr:
Well, work it out. Dan says that doesn't
help.
Foley:
What 1a the Executive Order for, Dan?
Thomoson:
It 18 authority to perform these duties,
Bell:
This authority is lodged by the President's
Regraded Unclassified
291
- 3 -
order with the Secretary. Bernie has some
question as to whether the Secretary - it
1s not delegated to Secretary Morgenthau.
It 1s delegated to the Secretary of the
Treasury. He has some question as to whether
anybody else can sign these papers. I haven't
signed anything as Under Secretary.
Foley:
You sign as Acting?
Bell:
Now, can an assistant to the Secretary sign
as Acting Secretary or if he signs --
Foley:
Assistant to the Secretary, of course, can't
sign 8.8 Acting any more than I can as Acting.
H.M.Jr:
Gents, work it out.
Thompson:
We will check it up.
H.M.Jr:
I have been all through this before. I think
Bell is right.
Foley:
That 1s right, but the question is whether
or not you may delegate to an assistant to
the Secretary the authority to sign.
H.M.Jr:
Well, between you and Bell and Norman, have
it fixed up and if I have to sign anything,
I can do it tomorrow.
Foley:
Right. What happens to the committee,
Mr. Secretary?
H.M.Jr:
Chamberlain takes that over.
Foley:
I see, and he just is Vice for Dan?
H.M.Jr:
He is what?
Foley:
He is Vice for Dan.
H.M.Jr:
Why get personal?
Foley:
As they say in football, Bell out and
Chamberlain in.
292
- 4 -
H.M.Jr:
That is right, but instead of Bell on the
bench we put him up in the bleachers.
Foley:
And the committee functions Just as it has.
H.M.Jr:
Just as it has, Just relieve Dan of this
thing 80 he can do more important things,
financing et cetera.
Foley|
I think it has reached the point where it
1s routinized enough 80 that Dan can drop
out.
Bell:
It 1en't routine by any means.
H.M.Jr:
Well, you set up a beautiful organization --
Bell:
It really requires a lot of time.
H.M.Jr:
It isn't fair. I am going to look for a
couple more people to bring down and try
Chamberlain out. I think he 1s going to
work out swell and not only two months, but
I am going to get some more people and try
them out and if they succeed we will use
two or three young fellows around here. We
will Bee what happens. The other thing is,
I have had a preliminary discussion with
some of the people here, Norman, and under
the rules and regulations of the Treasury
nobody 1s supposed to receive gratuities.
Isn't that right?
Thompson:
Yes, sir.
H.M.Jr:
All right. Well, whether it 1s & theatre
ticket or a box of candy or a three day trip
on the boat. Therefore, by word of mouth
I want it to be spread that I think it 1s -
does not come under the rules and regulations
or the spirit of them for anybody to make this
trip over the week-end on the "America". And
if the thing comes back on you (Schwarz) on
the boat trip why suddenly 80 many people
decided not to, the answer is to show them
the rules and regulations on gratuities.
293
- 5 -
Schwarz:
Easy.
H.M.Jr:
Certainly if a couple of theatre tickets
18 a gratuity, a three day trip on the boat
with all the liquor you can drink is a
gratuity.
Thompson:
I don't think anybody asked. Some of the people
think they will, because evidently there are
more people counting on going than I knew,
but the fact that they have got to come and
ask --
H.M.Jr:
That 18 right. The fact that they have got
to come and ask me whether they should go
shows there must be some doubt on the people's
minds, and if there 1s doubt, I just don't
want them doing it. Gaston 18 going to break
it to McReynolds. Mac was going to go and
Gaston wants to let McReynolds know. Well,
anyway --
Gaston:
I will just call his attention to the Treasury
regulations.
Klotz:
Is he in the Treasury?
Gaston:
He 18 not in the Treasury any more.
Klotz:
He won't go, then.
H.M.Jr:
Gaston thinks he would be leaving him out
on the end of 8. 11mb if he didn't let Mac
know that nobody from Treasury was going.
Thompson:
The only people that I have heard of that
were going in Treasury was one of the lawyers
in Customs.
H.M.Jr:
Some Internal Revenue people were planning
on going. You are taking care of that?
Sullivan:
Yes, sir.
H.M.Jr:
All right, Norman.
Thompson:
I have a list of promotions in the Coast Guard
294
- 6 -
which you might like to sign, since it includes
Lieutenant MoKay and Lieutenant Tollaksen.
H.M.Jr:
Oh, when does this become effective, as of
today? Do I date it? July 10th is the date.
Gaston:
They have to get commissions, yet, don't they?
You have to get the commissions signed by the
President.
Thompson:
Yes, they have to be nominated and confirmed.
H.M.Jr:
Can that go up today to the Senate?
Thompson:
No, these have to go to the President. He
will send them right along.
H.M.Jr:
The Senate is in session today.
Thompson:
Here 1s the letter I prepared for your
signature to the President on the John Flynn
case, which was up last December.
H.M.Jr:
What else?
Thompson:
That 1s all.
Bell:
You will recall some time ago that Jesse Jones
wrote you a letter about the delay in the
Treasury in handling his cases, and he pointed
out that the Hudson County National Bank had
been delayed for some time. That case was a
young Bank of America case, probably a little
worse, except in size. They have had several
conferences during the past two weeks with
the representatives of the bank, including
former Senator Milton. Apparently he 1s a
political power up there. They have finally
come to an agreement and everything is
straightened out and Jesse 18 satisfied, so
it is on the road to settlement.
H.M.Jr:
Good.
Bell:
I still have for discussion that Executive
Order on securities, as to whether or not
we are going to attach a stamp to securities
that have been abroad and have some indication
295
- 7
that they passed through foreign sources.
H.M.Jr:
Well, if you stay behind this meeting, we
will settle this right now. We will go
around the room.
Bell:
I think we ought to have Ed and Bernstein.
H.M.Jr:
All right.
Bell:
Professor Chamberlain has gone back to
New York.
H.M.Jr:
Yes. Pehle should be on that, too.
Bell:
Yes. I will get them.
Foley:
Dan, don't you think that John ought to
have & little more money? He 18 going to
assume additional responsibility on this.
Bell:
Why, I think it would be very good if he
would get more money. I don't know how
much promotion he got while I was away.
I know he got some.
Foley:
He got $500.00. He gets $5,500 now. I
think he ought to get $6,500.
Thompson:
He gets $5600 now.
H.M.Jr:
I think we ought to have Merle Cochran.
Klotz:
Yes. I knew there were more people missing.
Bell:
Well, I can discuss that with you.
H.M.Jr:
I called up the bank in New York and neither
Harrison nor his second man were there, 80
I will tell you now what I wanted to tell
them. I won't do it this Saturday, but
beginning the first of August I won't do any
business any more on Saturday on foreign
exchange until further notice. That gives
everybody 8. chance to get caught up. It
1s just too much.
296
- 8 -
Bell:
Start this Saturday, if it 1s possible.
H.M.Jr:
All right, start this Saturday.
Bell:
New York banks don't do much business on
Saturday.
Foley:
Most of them are closed, aren't they, Dan?
They have changed the law in New York, you
know. The State Banks can be closed.
Bell:
I don't think they voted on that this year.
H.M.Jr:
I will do it and the question is why the
Treasury has gone Seventh Day Adventist.
Bell:
Do you want me to call them?
H.M.Jr:
Yes. We have become Seventh Day Adventists.
Bell:
But we are not going to work on Sunday,
are we?
H.M.Jr:
On Saturday we are Seventh Day Adventists.
Bell:
That is all I have.
H.M.Jr:
George? You put this Detective McKay on
my track all the time on some book you want.
Haas:
That new order book.
H.M.Jr:
I haven't got it.
Haas:
You haven't got it? I will have to put the
detective looking somewhere else.
H.M.Jr:
Have you asked Madam Klotz about it?
Haas:
McKay did, didn't he?
Klotz:
Madam Klotz? I will ask her and find out.
Haas:
We will go into 8 huddle.
H.M.Jr:
See if she can see you.
(Mr. Haas handed report to Secretary.)
297
- 9 -
H.M.Jr:
I would stop this now and don't send that
in to me any more unless there is something
wrong with it.
Haas:
That ien't on the new basis yet, Mr. Secretary.
H.M.Jr:
What is this?
Haas:
Ship movements.
H.M.Jr:
As of yesterday?
Haas:
That 1s right.
H.M.Jr:
Well now, I will send --
Haas:
There is nothing very exciting on that.
H.M.Jr:
No. I think, Herbert - I will not be here
next week, but you make a note, will you
please?
Gaston:
Yes.
H.M.Jr:
You get these figures every Tuesday from
now on and while I am not here on Tuesday,
the figures covering the week before of oil
and the breakdown on it, what kind of oil
and scrap iron, to Japan, Russia, Spain and
England to go to the President, State, War
and Navy and Interior. Will you take care
of that?
Gaston:
Yes. And Admiral Stark?
H.M.Jr:
Yes.
Gaston:
In addition to the Secretary of the Navy?
H.M.Jr:
Yes, and, Herbert, in order - - I don't want
every day during the day these ship movements
any more, see, unless you yourself are in
doubt.
Gaston:
All right.
H.M.Jr:
If you are in doubt you give me a ring and
298
- 10 -
I will see you, but I am getting a lot of
stuff I don't want to get any more and if
you, Herbert Gaston, are in doubt, you walk
in and ask Henry Morgenthau what he thinks
about it.
Gaston:
Could I have a chance some time today to
talk about two or three points in connection
with that ship movement thing?
H.M.Jr:
Sure. Come in right after the press conference.
Gaston:
Yes.
H.M.Jr:
But I mean they keep feeding this stuff into me
all the time and I want to stop it.
Gaston:
Well, you gave that order last night that you
didn't want to pase on those individuals any
more.
H.M.Jr:
Yes, but around here it is hard to stop these
things. All right, George?
Haas:
I am all through.
H.M.Jr:
Philip?
Young:
I will give this letter back to you from
Mr. Purvis.
H.M.Jr:
Phil, this 1s my reaction. I don't know -
sit down a minute. I don't know the detail.
In the corner after that difficult meeting
yesterday Mr. Knudsen whispered to me, he
said, "Well, I may have to ask ten million
dollars more of the English on the Packard-
Rolls Royce deal, because that 1s the only
way Jesse Jones would do it." I don't know.
And now Purvis comes back on me. I don't
want to wear out my welcome with Knudsen,
you see. We did pull & white rabbit on him
yesterday. Why does Knudsen want ten million
dollars more out of Purvis?
Foley:
Because he hasn't done anything with the
opinion we gave him. If Jesse will follow
that opinion he doesn't have to have ten
million more out of Purvis.
239
- 11 -
H.M.Jr:
Well, eupposing I do this? You (Young) were
over there, weren't you?
Young:
No, I wesn't over there.
H.M.Jr:
I asked him to take you over.
Young:
He called up. I had the Greek Chancellor on
my neck.
H.M.Jr:
Turn your head around once.
Young:
It 1e still there.
H.M.Jr:
I want to Bee if it 1A clean.
Young:
By the time I got through with him, Purvis
said it wasn't worthwhile coming over but
that he would let you know what occurred.
H.M.Jr:
Well, supposing I sit tight this morning
and do nothing. I will tell you what I can
do, I have got 8 call for Knudsen and you
can all listen in. I will talk to him right
now and ask him where he stands. I just don't
went this fellow to feel - I don't want him
to get, you know, impetient with me, Knudsen,
and I guess Jesse has pushed him pretty hard.
My own hunch 18 that in view of the fact
that we want the President to Bee us today or
tomorrow on the new setup of financing war
orders, which we have recommended, we might
let this thing slide; and if it 18 this new
organization, we may get a breath of fresh
air and if we want horrible examples to give
the President, the Packard one would be as
good 8.8 any, wouldn't it?
Foley:
Yes.
H.M.Jr:
You (Young) couldn't find out for me from
Purvis where he stands on this Rolls Royce
thing?
Young:
Sure.
H.M.Jr:
Why would he want them to out up ten more besides
Regraded Unclassified
300
- 12 -
the 25, 1s that half the money?
Young:
I don't know.
H.M.Jr:
I don't either. Do you know, Ed?
Bell:
Thirty million 18 the amount, isn't it?
Foley:
I don't know. Jesse set it un on the basis
of where the amount of capital contributed
by RFC and the British for construction 1s
in ratio to the number of engines to be
manufactured for the United States and for
the British. That is the way he wanted it
set up in the first instance. We take the
position, and I am sure we are right, that
National Defense Legislation calle for the
construction of the facilities and the use
of the facilities has no bearing upon the
construction of them but what we need 1e
to be able to produce airplanes and if the
facilities are there, what they may be used
for until the Government wants to take over
the use under priority or under mobilization
of industry makes no difference.
Young:
Doesn't it say in that letter that they can't
go ahead any way except on a fifty-fifty basis?
H.M.Jr:
He doesn't say fifty-fifty. "United States'
share might be increased from 3 to 6,000 engines,
BO putting it on a fifty-fifty basis on the
engines," but not on the contribution of money.
Foley:
Maybe the 10 million dollars will increase the
British contribution from 1/3 to 50%.
Young:
He says, "I understand that as we are interested
to an extent greater than 1/2, the RFC financing
plan cannot be arranged and we must have & further
10 million dollars to take care of capital
defense."
H.M.Jr:
They are getting 2/3 of the engines but - I took
it they were putting up 1/3 of the money. I
don't know. Try to find out.
301
TC
- 13 -
Young:
I will find out.
H.M.Jr:
Anything, Phil?
Young:
No. I have two or three things I want to
talk to you about some time before you get
out of town. Our Hispano Suiza engine has
turned up in the Ford plant at Detroit.
H.M.Jr:
How did it get through Customs?
Young:
I haven't any idea. Mr. Harris was looking
out for it.
H.M.Jr:
I know it. Weren't there two of these engines?
Young:
Only one turned up.
H.M.Jr:
Ask McKay, will you, for an appointment?
Who 18 running for Governor of New Hampshire?
Got it all under control?
Sullivan:
I guess 60, In another couole of hours.
H.M.Jr:
What a state.
Sullivan:
They play for keeps.
H.M.Jr:
Ed?
Foley:
Nothing.
H.M.Jr:
Are you all right?
Foley:
Yes.
Gaston:
I will see you later, I hope. Waesche went
up this morning to meet Smith at New London.
H.M.Jr:
Let's see, we are going to do - what are we
going to do, Dan? Stamp tax now.
Schwarz:
I got passed up, Mr. Secretary, on one matter.
H.M.Jr:
Oh, that 18 what you call playing "Going to
Jerusalem."
Regraded Unclassified
302
- 14 -
Schwarz:
I have this order on Chrome from the
Procurement Division and I also have
just received a memorandum from the
Director of Procurement in which he says
the folks over there have talked over the
whole situation and feel that it is contrary
to the Government's interest to release these
negotiated contracts where they have limited
sources of supply because they fear prices
will rise.
H.M.Jr:
All right.
Schwarz:
What I would like 1s an opinion on it.
H.M.Jr:
Well, take his advice.
Schwarz:
For the time being, and possibly later on
if they have got enough stuff, then when
they have got it all in we can make use of
the figures.
H.M.Jr:
All right.
Copy to
lien. Jesse Jones
llon. Marran L. Pierson
Mr. George Marnane
Bon. Edward & Stettinius, Jr.
Hon. Benry Morgenthau
Krs. Roosevalt.
L'EMORANDUM OF CONVERSATION WITH
D. STEWART IGLEMANT, PRESIDENT,
6. it. GRACE AD COMPANY,
JULY 25, 1940
Mr. D, Stewart iglehart of #. A. Grace and Company called
this aorning to say that he has just received word from Peru that 90-day
sterling bills ware now practically unsaleable. He suggested exploring
the possibility of setting up some kind of bank operation in New York
to handle this kind of credit. Be thought that Loree of the Oueranty
was about the best informed on South American Exchange. Ha remarked
that the New York Clearing House might also be used, I am going to talk
to George Murnane and ask him if he will make an independent study of
this question, also exploring the possibility of organizing a corporation
under the Edge Act, or an acceptance bank with private capital, to
embark on this form of business. If responsible private capital could
be interested, 1 assume that the Export-Import Bank or the R.F.C. eight
consider loans.
Mr. Iglebart also maid that he had just been informed by one
of his people in Bolivia, a man named Boware, that the Germans had begun a
to acquire nowspapers in Solivia, also that lufthansa wes also making
proposal to buy & half-interest in the Bolivian Mirlines, paying for
such stock in equipment, that is, planes, hangars, etc.
Mr. Iglehart also referred again to his suggestion of two
weeks ago that DOMB of our Government agencies - Federal Reserve Bank,
R.F.C., or the Treasury - consider small stabilising loans to the
Remarve Banks of various South american countries against specific DOE-
modities - Brazilian ocifes, Chilean nitrates and Solivian tin and
antimeny.
Regraded Unclassified
304
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS
Press Service
Thursday, July 25, 1940.
No. 21-71
7/24/40
Secretary of the Treasury Norgenthau announced last night that
the subscription books for the current offering of 3/4 percent notes
of Series F of the Commodity Credit Corporation closed at the close
of business Wednesday, July 24.
Subscriptions addressed to a Federal Reserve Bank or Branch,
or to the Treasury Department, and placed in the mail before 12
o'clock, midnight, Wednesday, July 24, will be considered as having
been entered before the close of the subscription books.
Announcement of the amount of subscriptions and the basis of
allotment will probably be made on Monday, July 29.
-00g-
Del
305
RAW
PLAIN
London
Dated July 25, 1940.
Rec'd. 2:55 p.m.
Secretary of State,
Washington.
2402, July 25.
FOR TREASURY FROM BUTTERWORTH.
My 2353, July 23, blocked out the dimensions of the
budgetary position and my 2377, July 24, gave the press
reaction the reto. Important aspects of Britain's financial
problem as I SEE them which have not been discussed in the
press and which should bE receiving the attention of the
British monetary authorities are the following:
With the present rate of war Expenditure running at
L57 million a WEEK it is probable that spending is now out=
running - daily and weekly - the intake from (1) taxation
and (2) genuine savings (although these latter may for war-
time purposes bE taken as gross not net savings). This is,
if this bE correct, "borrowing in EXCESS of savings", the
classic and simplest form of inflation.
In this connection it is pertinent and Exceptional
that an overwhalming proportion of Britain's wartime outlay
on pay rolls is being spent in the United Kingdom - the
army and air force being at home. In fact this circumstance
1s
Regraded Unclassified
306
RAW -2- Plain, London, July 25, 1940.
is much in Evidence: the large flow (repeat flow) of money
as compared with the condition prevailing during "the
Indian summer of British war finance" (SEE my no. 2695 of
December 21, 7 p.m.).
The suggestion implicit in the Chancellor's budget
speech that acquisition of dollar and other securities by
the British Government avoids, pro tanto, inflationary crea-
tion of credit seems to ME over-simplifying matters because
the sterling has first to bE borrowed or created for purchase
of these holdings. On the other hand, it 1a possible (1)
that inflationary credit has to some Extent already been
created via the Exchange qualization fund and (2) that most
of the starling paid to investors will return more or less
directly to Government loans of one kind or another.
If as seems probable port or shipping facilities, if
nothing Else, will Enforce a lower rate of total (repeat
total) consumption of consumables, there 18 the prospect of
larger money income impinging on a smaller supply. Prices
must rise unless such diminishing supply is rationed very
severely and prices regulated. In other words administrative
and political control will have to counteract what would bE
the normal influence of the money flow in the British
Economy.
The present and probable future financial and Economic
strain is Easily justified and Explained by the fact that -
for
Regraded Unclassified
307
RAW -3- Plain, London, July 25, 1940.
for known reasons - Britain is now compelled to telescope
(repeat telescope) what would, EVEN 1f undertaken over a
period of years (as was done by Germany), have been a
prodigious financial war effort. But the risk of a STEEP
and dislocating - ora non self-propelling - rise in United
Kingdom prices and wages is not removed by this admission.
It SEEMS to me only a firm and concerted policy can counter-
not it. It is hard to SEE how monetary Expansion rendered
inevitable by the Exigencies of a war effort could (repeat
could) bE counteracted by monatary, 1.E. fiscal measures in
an opposing sense. Administrative and mechanical control of
prices and distribution of supply can alone prevent the
monetary flow from exerting its normal influence: especially
as there appears to be great hasitancy about reducing
spendable incomes - now being rapidly generated and certainly
already raising total national income above peacetime levels -
to the degree practiced in Germany. These considerations
seem to me to link up naturally and directly with the ques-
tion of Exchange policy and mechanism: if a rise in United
Kingdom prices is not or cannot bE prevented the need for
some elasticity in the Exchange (governing Exports) is the
greater.
In the CASE of Germany two Essential factors had to be
Employed in support of exports other than subsidies, which
did not prove a success and WETE not really liked by the
German
Regraded Unclassified
308
RAW -4- Plain, London, July 25, 1940.
German Government itself: (1) absolute rigidity of wages
was Enforced and it was the workers' consumption that had
to give way and (2) when EVEN so export prices WEIE found
too high various differential Exchange rates were used
Either as different types of marks or by means of direct
bilateral commercial arrangements with individual countries
in each of which exchange differentials played the requisite
part,
On the other hand, the British Treasury has by the
measures undertaken on July 17 introduced a degree of rigidity
in its foreign Exchange mechanism which seems to me can but
in due course prove incompatible with the complete lack of
rigidity of wages and domestic costs,
Ironically enough this seems to have been unnecessary
for in its original regulation 5b, as pointed out in my tele-
gram no. 594 of March 9, 12 noon, it was eating its foreign
Exchange cake and having it too; garnering its full quota
of dollars from the sales of the monopolistic 5b goods (and
this list could bE added to or subtracted from at will) while
at the same time the free market for sterling (which could
at any time bE hEld at any lEVEl deemed appropriate by the
intervention of the Equalization fund) benefited Britain's
competitive Exports. If to this WETE added the blocking of
non-resident owned securities and the network of payments
agreements or unilateral clearing arrangements, having thus
closed
309
RAW -5- Plain, London, July 25, 1940.
closed up the unprofitable loopholes in the free starling
market, a neat mechanism would have remained which in con-
junction with the equalization fund would have provided a
flexible and Effective means of Ensuring a competitive EX-
change rate for vulnerable British exports to the United
States. The operation of the 100 percent EXCESS profits duty
tax would have automatically drawn off any undue advantage
accruing to a particular Export industry.
HOWEVER, the problems remain; how and when they will 11
bE faced up to is in the lap of whatever political gods there
bE.
KENNEDY
WWC
310
ДВ
GRAY
Berlin
Dated July 25, 1940
Reo'd 4:15 a.m., 26th
Secretary of State,
Washington.
3158, July 25, 3 p.m.
My 2289, July 2, 2 p.m.
FOR TREASURY FROM HEATH AND ALSO FOR THE INFORMATION
OF THE DEPARTMENT.
According to a statement published by the Reich's
Finance Ministry the total tax revenues of the Central
Government of the Reich in the period from April 1 to
June 30, 1940 WETE 6,067,000,000 marks of which 4,896,000,000
marks WETE derived from income property and trade taxes
(including war surtaxes) and 1,171,000,000 marks from con-
sumption taxes and the customs. Total tax revenues WETE
thus 227,000,000 marks higher than in the preceding quarter
and 846,000,000 marks higher than in the corresponding
period of last year. It is to be noted that normally tax
collections are somewhat higher in the June quarter than
in the March quarter.
For the period from October 1, 1939 to June 30, 1940
during
311
AS-2- No. 3158, July 25, 3 p.m., from Berlin.
during which present tax ratre have been in effect grose
tax on revenues of the Central Government have averaged
slightly OVER 2,000,000,000 a month with little variation-
a. rate of 24,000,000,000 marks 8. year. A part of this
amount between 1.5 and 2,000,000,000 marks a year is trans-
ferred to the governments of the provinces and communes.
On the other hand the war contributions of the provinces
and COMMUNES to the Central Government amounting to about
1,5 billion marks a year are apparently not included in
the official statement of tax revenues. There are, further-
more, oertain miscellangous revenues such as the Reich's
share of the profits of the Reichsbank, Reichsbahn and
other state ENTERPRISES, seignorage on metal coinage,
rents on government real estate, court fines and costs,
Etc., which are also not included in the statement of tax
revenues BO that it can probably bE safely assumed that
the Central Government's total revenues from taxes and
miscellaneous sources (not including borrowing) are at
least 2,000,000,000 marks a month.
KIRK
TFV
312
CABLE
FROM: Treasury Attache Nicholson,
Shanghai, China.
DATE: July 25, 1940
For the Secretary of the Treasury.
Shanghai market July 24 closed quiet at 3-29/32 for
cash and July 3-57/64 for August for sterling 6-1/8 for
cash and July 6-1/16 for August for U.S. dollars. Gold
bars closed at 5263 and wei wah at discount of 4.60%.
HICHOLSON