Volume 307, September 19 – September 23, 1940

DIARY Book 307 September 19 - 23, 1940 - A - Book Page Allison Bagineering Company Seo War Conditions: Mirplanes (Engines) Appointments and Resignations Collector of Customs - St. Albans, Vermont ) Collector of Internal Revenue - Toledo, Ohio) Geston memorands giving resume - 9/18-19/40 307 9,34 Cox, Oscar: Complimented and promoted for work on Vultee contracts 9/20/40 174 Maryland: Appointments (General Watson's memorandum) discussed by HMJr, Helvering, Gaston, and Thompson - - 9/19/40 23 a) Magruder (Collector of Internal Revenue, Baltimore) offered job on Processing Tax Board of Review and FDR advised - 9/20/40 215 1) Welles' connection surmised by Gaston 292,311 2) Watson tells Gaston "OK to drop matter" - 9/25/40: See Book 308, page 172 Argentina See Latin America - B - Balfour, Harold H. (Captain) See War Conditions: United Kingdom Belgian Congo See War Conditions: Foreign Funds Control Burgess, W. Randolph "Financing the National Defense Program": Address before American Bankers Association, Atlantic City - - 9/23/40.... 394 Business Conditions Haas memorandum on situation for week ending 9/21/40 332 - C - Central Republic Trust Company HMJr, Helvering, Wenchel, and Foley discuss - 9/20/40 130 China See War Conditions: China; U.S.S.R. (Russia-China-United States agreement) Collector of Customs - St. Albans, Vermont See Appointments and Resignations Collector of Internal Revenue - Toledo, Ohio See Appointments and Resignations Cox, Oscar See Appointments and Resignations Crane, J. E. (Standard Oil Company of New Jersey) See War Conditions: Oil Customs, Collector of - St. Albans, Vermont See Appointments and Resignations - B - - Book Page Enforcement Agencies, Treasury Brandon, Edmund J. (United States Attorney for Massachusetts) addresses monthly coordination meeting in Boston - 9/21/40 307 247 Export Control See War Conditions - F - Financing, Government Refunding discussed by HMJr, Bell, Haas, Viner, Hadley, and Murphy - 9/23/40 382 "Financing the National Defense Program": Address by Burgess (W. Randolph) before American Bankers Association, Atlantic City - 9/23/40 394 Financial Transactions See War Conditions Foreign Financial Transactions See War Conditions: Financial Transactions Foreign Funds Control See War Conditions France See War Conditions - G - Germany See War Conditions: Foreign Funds Control; Germany Gold See War Conditions Graphite See War Conditions: Strategic Materials Greece See War Conditions Gunpowder See War Conditions - H - - Heinkel 113 See War Conditions: Airplanes - I - Internal Revenue, Collector of - Toledo, Ohio See Appointments and Resignations Italy See War Conditions: Foreign Funds Control - J - Book Page Jacemy, Colonel (French Indo-China group) See War Conditions: Export Control Japan See War Conditions: Export Control (discussion of embargo on scrap iron and oil); Japan; U.S.S.R. (Russia-China-United States agreement) - K - Klaus, Samuel See War Conditions: Foreign Funds Control -- I I Letin America Treasury representatives convention: Second meeting at Quito, Ecuador, on September 21, 1940 307 183 a) United States Government agenda attached Argentina: New Minister of Finance, Dr. Federico Pinedo: Resume of career by Norman Armour - 9/19/40 36 Financial negotiations discussed by Ambassador with White and Bell - 9/23/40 278,281 a) Minister of Finance will head delegation - 9/23/40 303,305 b) Resume of situation reported by American Embassy, Buenos Aires - 9/23/40 308 Luxembourg See War Conditions - M - - Magruder, M. Hampton (Collector of Internal Revenue, Baltimore, Maryland) See Appointments and Resignations Maryland See Appointments and Resignations Merry-Go-Round, Washington See War Conditions: Airplanes (Plant Expansion) Mexico Hochschild transmits report - 9/20/40 214 Military Planning See War Conditions - 0 - Book Page Obsolescence See War Conditions: Airplanes (Plant Expansion) Ohio Collector of Internal Revenue, Toledo: See Appointments and Resignations Oil See War Conditions - P - - Pehle, John W. See War Conditions: Foreign Funds Control Petroleum See War Conditions: Oil Phillips, Sir Frederick See War Conditions: United Kingdom Plant Expansion See War Conditions: Airplanes - 8 - Switzerland See War Conditions: Foreign Funds Control - U - - Unemployment Relief Works Progress Administration report: Decrease of 3000 from previous week - 9/23/40 307 356 U.S.S.R. See War Conditions: Foreign Funds Control; U.S.S.R. United Kingdom See War Conditions: Military Planning; United Kingdom - V - Vermont Collector of Customs, St. Albans: See Appointments and Resignations Vultee Aircraft, Incorporated See War Conditions: Airplanes - W - Book Page War Conditions Airplanes: Coordination of British orders and defense orders for United States discussed at conference; present: HMJr, Knox, Forrestal, Patterson, and Young - 9/20/40 307 246-A Employment by regions as shown by map - 9/20/40 239 Heinkel 113: Further information concerning from London - 9/23/40 379 Plant Expansion: Obsolescence: Resume by Sullivan of steps taken while Hanes was Under Secretary, in connection with Merry-Go-Round article - 9/19/40 91 a) Pearson and HMJr discuss - Doughton angry - 9/20/40 123 b) Doughton-HMJr conversation - 9/20/40 227 1) Copy of proposed letter to Doughton signed by Sullivan 236 Progress reports acknowledged by War and Navy Departments - 9/19/40 88,90 Vultee Aircraft, Incorporated: Contract as submitted to Canadian Government - 9/19/40 84 Engines: Allison Engineering Company: Schedule of deliveries - 9/23/40 272 China: Loan of $20 million against tungsten discussed by Jones and Soong; Jones repeats conversation to HMJr - 9/23/40 294 a) HMJr suggests to Jones making loan through Universal Trading Corporation - 9/24/40: See Book 308, pages 111 and 176 Exchange market resume - 9/19/40, etc. 60,208, 253,366 Export Control: Exports of petroleum products, scrap iron, and scrap steel from United States to Japan, Russia, Spsin, and Great Britain, as shown by departure permits granted for week ending 9/21/40 270 Iron and Steel Scrap Embargo: Hull calling meeting "to discuss situation on which he is on a day-to-day basis" - Henderson informs HMJr - 9/23/40 392 Financial Transactions: State Department inquires as to what information Treasury receives of interest to national defense regarding financial transactions with foreign countries - 9/20/40 126 Regraded Unclassified - -W- - (Continued) Book Page War Conditions (Continued) Foreign Funds Control: Belgian Congo: Situation discussed by Cochran and State Department - 9/23/40 307 396 Italian and German accounts as reported by Federal Reserve Bank of New York - 9/19/40 64,204 Klaus to work on German, Russian, and Italian payments in United States under Gaston and Cochran - 9/19/40 83 Pehle to act as head of group when Chamberlain returns to Columbia University - 9/19/40 82 Switzerland: Requirements of United States control discussed by Swiss Minister and Cochran - 9/23/40 395 U.S.S.R. transactions with Chase National Bank - 9/19/40 62 France: Rueff and Matthews discuss situation - 9/23/40 296 Germany: Economic resume at end of first war year: American Embassy, Berlin, report - 9/19/40 10 Germany-Greece trade agreement reported 9/21/40 259 Gold: Inflows since outbreak of war: White memorandum - 9/23/40 359 Greece: Germany-Greece trade agreement reported . - 9/21/40 259 Gunpowder: Chinese have too much - Lochhead worried; HMJr suggests arrangements for turning over to British - 9/19/40 1 a) Cochran memorandum - 9/20/40 111 Japan: Economic sanction . possible courses: Foley memorandum - 9/23/40 371 Luxembourg: German foreign exchange control now in force - 9/21/40. 255 Military Planning: Tentative Lessons from the Recent Active Campaign in Europe: War Department bulletins British Comment on Divisional Artillery - 9/19/40 39 Rhine Crossing and Penetration of Maginot Line - 9/23/40 315 German attacks on England, etc. - 9/19/40 43 Reports from London transmitted by Lothian - 9/19/40, etc. 94,98,222,274 Balloon barrages effect of - 9/23/40 375 Oil: Proposed method of payment for petroleum supplies to Grest Britain, Canada, Argentina, and Australian area as drawn up by Crane (Standard Oil Company) - 9/20/40... 237 Petroleum: See War Conditions: Oil - W - (Continued) Book Page War Conditions (Continued) Purchasing Mission: Statement of dollar payments as of 9/1/40 307 251 Vesting Order: Official sales of British-owned dollar securities - 9/23/40 397 Strategic Materials: Graphite: Facilitation of imports from Madagascar discussed by State Department and Cochran - 9/23/40 381 Iron and Steel Scrap: See Mar Conditions: Export Control U.S.S.R.: Inducements to cooperation as suggested by White - 9/19/40 55 a) Trade agreement - resume of 56 Russia-China-United States agreement: Discussion at Cabinet meeting reported by HMJr to Bell, Gaston, Foley, and White - 9/19/40 65 a) HMJr states this would be one way "to set Japan back on our heels" b) Hull apparently not too familiar with conversations going on between Oumansky and Welles c) FDR finally orders conference between Jones, HMJr, and State Department d) Welles-HMJr conversation 76 e) Hull-HMJr conversation - 9/20/40 141 f) Conference; present: Oumansky, Jones, HMJr, and White - 9/20/40 148 1) State Department representative did not come 145,147 2) Proposal as drawn up 189 3) Copy of transcript (confidential) of meeting sent to Jones - 9/24/40: See Book 308, page 94 g) HMJr tells Jones he will see Hull at his apartment tomorrow - 9/23/40 368 United Kingdom: Balfour, Harold H. (Captain): Back in England; thanks HMJr for assistance rendered in connection with plane mission - 9/19/40 78 Phillips, Sir Frederick: Reports to be made by United Kingdom to United States following talks with HMJr - 9/21/40 269 War Department Military Intelligence Division bulletins: See War Conditions: Military Planning Works Progress Administration See Unemployment Relief 1 GROUP MEETING September 19, 1940 11:15 a.m. Present: Mr. Foley Mr. Graves Mr. Sullivan Mr. Thompson Mr. Bell Mr. Cochran Mr. Gaston Mr. Chamberlain Mr. Schwarz Mr. Young Mr. White Mrs Klotz H.M.Jr: I have got several memoranda that I would like to get rid of. Archie Lochhead has got too much powder. Young: What kind of powder? H.M.Jr: Gunpowder. He is worrying about it and I thought that you could get the English to buy it, with an agreement that if they want some later, they will let them have it, but if he has got too much powder and they are short, why not sell it to the English with the arrangement they can have it later on, you see. Get the idea? Young: Yes, sir. H.M.Jr: They are worrying about storage. The best place to store it is in an English gun. I never saw so much fussing in my life about Mr. Baruch and this man Butler. Gaston: Is anything more coming to you on that? H.M.Jr: Well, it is just a memorandum from Merle Cochran. Gaston: Oh well, that is all taken care of. 2 BH - 2 - H.M.Jr: I would like to know about it in writing. Gaston: I will give you a memorandum on it. H.M.Jr: Would you? I have to know something about this. Could I have the facts? Gaston: Yes. H.M.Jr: Is this fellow Butler coming back? Gaston: No, he is staying in Paris. The only man we have left over there is him, but Johnson ordered him to get rid of this Chinese ser- vant who had been in a scandal and after some demurrer and protest, he finally did it. H.M.Jr: And he cabled to Baruch about that? Gaston: Yes, through the State Department. H.M.Jr: Well, why do we keep B. man like that? Gaston: Well, up to that point, there didn't seem to be any good reason for getting rid of Butler. He is a good man, but of course that going outside of the Department is quite a repre- hensive thing. H.M.Jr: I think it is terrible. Could you give me a report on it, Herbert? Gaston: Yes. H.M.Jr: Customs is under you. Where is Merle Cochran? This cable which you wrote, Harry, to go to the Argentine, I have no objection to sending it out. 3 - 3 - White: All right, because we just got another cable. It was cleared with Merle and Dan. H.M.Jr: Well, this man is coming in at 11:30 to talk to me. Supposing I ask him about this? White: All right; I think it would be a good idea. H.M.Jr: If he says okay, I will give it to you. Merle, on this fellow they are sending down to South America, the British, before he goes, I would like to talk to him. Cochran: You mean someone from here? There is no one -- H.M.Jr: This memo that you wrote me. Is he going from here? Cochran: No, they are sending a mission out from England, you see, a trade mission. H.M.Jr: Do you know about this, Harry? White: Yes, I do. H.M.Jr: All right. That is all. Thompson: You might be interested sometime, Mr. Secre- tary, in seeing how we have housed the Foreign Funds Control Unit. H.M.Jr: Oh, yes. Thompson: We have quite a force there. There are 135 employees. H.M.Jr: Are they in the middle of that corner there? Regraded Unclassified 4 - 4 - Thompson: Yes. Bell: It is very nice. H.M.Jr: All right, I will go down there. On that, I have taken this recommendation now, of this group. Bell, did you report that back? Bell: No, I did not. I haven't seen them. H.M.Jr: Just the way Bell wrote it to me on Mr. Pehle. Bell: Just like we agreed on it the other day. H.M.Jr: I take it that was unanimous. Bell: Yes. H.M.Jr: Professor Chamberlain was in on that meet- ing, wasn't he? Bell: No, he was not, because you asked us to con- sider that. H.M.Jr: He was not? Bell: No. I will be glad to tell him about it, though. H.M.Jr: Before I decide, I would like to ask him whether he thinks that is wise. I thought he was in on it. Bell: No, he wasn't. You asked Gaston and I and Dr. White and Foley to consider it. H.M.Jr: Then I will talk to Professor Chamberlain myself. I didn't realize that. Tell him it is my mistake. It is on me. Regraded Unclassified 5 - 5 - Harry? White: I have nothing. Cochran: Yesterday, Archie Lochhead phoned me about this Chinese powder, getting some facilities for storage, and I want to speak to Phil about it, if you have no objection. H.M.Jr: While you weren't in the room, I told him to buy it for the English. Cochran: Is that so? Because the State Department mentioned it to Colonel Burns, who is in the Ordnance Department, and he said if it is the right fineness, the right quality, that the Army would be willing to take it over. H.M.Jr: It is sold, sold to the English. Cochran: All right, if the Chinese are willing. I am not sure about that. H.M.Jr: Oh, sure they will be willing. White: Maybe it is wet. H.M.Jr: They have got a new system now between the lawyers for taking the stuff, on those Swedish planes. The deal was signed last night, you know, with Vultee. Foley: I knew they had the contract. I didn't know the contract had been signed. Young: It will be signed this morning. H.M.Jr: All right. Professor Chamberlain? UInclassified 6 - 6 - Chamberlain: May I see you for just a minute, Mr. Secre- tary? H.M.Jr: Right after this, sure. Chamberlain: It won't take long. H.M.Jr: Take as much time as you want. Chamberlain: I won't take much. H.M.Jr: Phil? Young: We are working out the Swedish machine guns on the same basis as the Swedish planes. H.M.Jr: Okay. Chick? Sullivan: I have nothing. H.M.Jr: What about tonight? Foley: I don't know whether they will drive me down or not. H.M.Jr: Let me know at 7:00 o'clock. How is that? Foley: I will let you know before 7:00. Gaston: The British Purchasing Commission want to know if they can use our shooting range down here in the basement for training 15 or 16 guards that they are employing here in Washington. I just don't know. H.M.Jr: The answer is no. Gaston: All right. 7 - 7 - H.M.Jr: The answer is no. Gaston: I have some -- H.M.Jr: There is enough shooting going on now. White: Who are they going to protect themselves against, the Americans? Gaston: There are other kinds here, Harry. White: We have got an adequate police force. Gaston: I have a recommendation for purchasing air- planes. Do you want to look at it? H.M.Jr: For what? Gaston: Funds we have now. We have a half a million dollars for airplanes. This is a recommenda- tion for the purchase of three Grumman twin motors. It is about the only thing we can get and it is about the most suitable of any- thing that we have had up to date. H.M.Jr: Can you get delivery? Gaston: We can get delivery. The planes are in con- struction now. If it is all right with you, I would approve it. H.M.Jr: All right. Gaston: We are also in the market for the new Grumman called the Widgeon. I don't know whether you have seen anything about it or not. It is an in line six cylinder motor on each side. It only costs half as much as these other twin-motor Grummans. It carries about four men. I will bring you in & picture of it, if you would like. 8 - 8 - H.M.Jr: I would like to see it. Gaston: We have money enough to buy ten of those. H.M.Jr: Well, buy those three. Gaston: This is just for these three, yes. H.M.Jr: Okay. All right? Gaston: That is all I have. I talked to Ed Flynn. H.M.Jr: What are you going to do about it? Gaston: Well, I suppose it will be what Ed Flynn wants. His proposal is to come on here and go with Bowen to the White House. When they come out of the White House, Bowen will announce that he is going out to campaign in the State of Washington for the President. He will tell who is going to direct the cam- paign in Washington. The man has resigned as Collector of Customs. H.M.Jr: All right, gentlemen. 3 do take & wit 9-19 September 18, 1960. TO: Secretary Norganthan FROM: Mr. Gaston You may wish to discuss either or both of the following political situations with the President: (1) Collector of Internal Revenue at Toledo, Chio. Charles H. Graves, former Collector, died August 15th. General Watson phoned on August 24th that the President had just been talking to Charles Sawyer of Cincinnati, National Committeeman, and that nothing was to be done toward filling this vacancy until the President had had & chance to talk to you. 1 don't believe the President will wish to make any appointment before election but I should like to confirm this so we can be guided accordingly. On August 23rd Senator Donahey wrote to the President recommending the imediate appointment of Ralph 0. Snyder, Secretary to Representative John Hunter, and also stating that the appointment of one Frazier Reans, a Lawyer of Tolede, would likewise meet with his approval. Is received this letter August 26th. Both Donahey's and Runter's offices have called us up frequently pressing for action. I finally told Hunter yesterday that nothing would be done until " got further directions, which seesed to stump him. Three persons have written or wired advising that no appointment be made until after the election. They are: Samuel R. Young, an attorney of Toledo; I. 1. Gotschall of Toledo, who gives John Biggers as reference, and Tell Thompson, County Chairman of Bancock County. (2) Frank Duffy, National Committeemen from Vermont, wants to have his son, Frank Duffy, Jr., appointed to succeed the late Stephen M. Driscoll, formerly Collector of Customs at St. Albans, Verment, who died several sonths ago. Duffy vas in to see you shortly after Driscoll's death and you introduced him to M. Be asked that nothing be done about the appointment until after the conventions, but he brought in and intro- duced his son at that time and told me that he hoped his son could be appointed. Duffy, Jr., is an engineer, formarly employed by the New York State Highway Department and more recently on P.W.A. bridge projects in Vermont. Duffy can, of course, produce an adequate number of letters of recommendation for his son, but doesn't wish to do so unless he gets the go sign. One John Picher, 8. member of the Prench-Canadian colony at Wincoski, near Burlington, has been emergetically advocated by residents of that town. Duffy says they are not an important element of the Democratic Party of Vermont. Regraded Unclassified 10 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy Berlin, via Bern DATE: September 19, 1940, noon. Rec'd: September 23, 1:08 p.m. NO.: 4062 The following telegram is for the Treasury from Heath, and for the information of the Department. There are two recurrent themes in the economic press in Berlin and in conversations with German officials, now that the first year of war has ended. They are: (1) The wartime performance of the German economy has triumphed. (2) Germany has been strengthened to the point of economic invulnerability through victories and territorial acquisi- long tions, however shouxt the war may be. The last point, however, usually is accompanied by a statement of the prescribed official point of view that the war will soon come to an end with complete victory for the German Government. In connection with the first point, it must be admitted that the German economy did come through the first year of war without breaking down, and also without serious difficulties, with the exception of the tie-up in transporta- tion which resulted from the unusually severe winter of 1939-40, defects in rolling stock, and personnel which was inexperienced, causing a temporary shortage in the larger cities of certain essential foodstuffs. The German people Regraded Unclassified 11 - 2 - people as a whole were adequately fed with the exception of this period. Fuel shortage was the main result of the difficulties of transportation, which caused vocal discontent as well as physical distress and illness. The warmer weather and German victories, however, brought to an end the vocal discontent. In connection with the second point, it must also be admitted that Germany in general 1s much stronger economically for another year of war than the country was last September. The fiscal policy of Germany, first of all, is much more sound than it was in the first World War. Through efficient control over consumption and distribution, Germany has avoided price and monetary disturbances of wartime. It 1s true that only 1/2 of the expenditures of the Government are met by Germany's present tax collection of about 2 billion marks a month, but only 1/10 of the outlays of the Government were met by taxes in the first World War. It has been necessary for the Government to borrow at the monthly rate of 2 billion marks, but there has been no difficulty in accomplishing this, and the present national debt 18 not inordinate. The disclosed debt of the Reich on the last day of June was 60 billion marks. This figure has probably gone up to 65 billion marks now, compared with the figure at the outbreak of the war of 37 billion marks. Regraded Unclassified 12 - 3 - The undisclosed debt of the Reich must be added to this figure - an amount probably greater than 10,000,000,000 marks - which was accumulated during the first years of rearmament under the National Socialist Party. The war has been financed for the most part by taxation and genuine savings resulting from enforced consumption curtailment rather than by recourse to currency and credit inflation. There was an increase in note circulation of the Reichsbank to 12.1 billion marks on August 23, 1940, as compared with 8.7 billion marks on August 23, 1939. To a large extent this expansion can be explained by the introduction of the mark into western territories in Poland which were incor- porated into the Reich, and by the cash reserves which German military units carried and the decreased velocity of note circulation because of the difficulties and restric- tions on purchases. Currency circulation increase was accompanied by an almost negligible rise in the prices of goods and services essential to the population due to the striot controls over prices, wages and rations which Germany now has over almost all economic goods and services. There was a rise in the cost of living index - using 1913 as 100 - to only 133.1 in August 1940 as compared with 127.3 in August 1939. Leaving out rents, which were statio, the 13 - 4 - the food and clothing increase was the largest. For clothing the increase was from 133. to 140, and for food from 124.9 to 133.0. Approximately the maximum has been reached for revenues under war conditions and at present rates of taxes. However, the cost of maintaining the German military forces 1s to a large extent now being borne by the countries occupied by Germany. This 1s a help to the monetary position of Germany as well as to the fiscal burden of the Reich; troops abroad are being paid either in a special mark scrip which the occupied territories must accept, or in currencies of the occupied countries. There is as yet no information available here concerning the stocks of raw materials which Germany acquired in the countries occupied by the military. It 1s understood that these stocks include substantial amounts of textile materials, non-ferrous metals and copper, and oil. New sources of raw materials have been acquired by Germany in addition to the stocks; she now has access to the French (omission) iron ore, the Silesian zine mines, Norwegian molybdenum, and important manufacturing facilities. In view of Germany's military domination of the whole continent of Europe, she is in a position to force increased deliveries of supplies of various commodities from European neutrals. The position of iron ore has changed to one of surplus over present needs, where heretofore it was one of potential shortage in a long Inclassified 14 - 5 - war. In addition to the oil stocks which Germany acquired by occupation, it should be possible for her to import from Rumania in & short time petroleum products at least at the annual rate of 3,000,000 tons, as contrasted with the quota conceded by Rumania in the early part of the war of 1.5 million tons. I can perceive no evidence that there is any great concern on the part of German military authorities over the supply of petroleum in the war's present phase and scale. If there should be a shortage of the petroleum supply, Germany would not permit operation of the considerable number of passenger cars and trucks which are still operating and which are not performing vitally essential services. There are certain potential economic weak spots, as contrasted with the foregoing economic gaine and elements of strength. One gains the impression from talks with German officials that behind the officially optimistic facade there 18 some concern over the fact that practically the whole continent of Europe is now under blockade - and Europe neither feeds nor clothes its people nor can it meet its minimum needs in most non-ferrous metals and in oil. It is known, specifically, that the problem of coal produc- tion and transportation is of some concern to the economic authorities. During the summer efforts have been made to transport to German cities a sufficient supply of coal to 15 - 6 - to avoid the shortages which occurred last winter. However, if this winter should be as severe as the last one, according to informed sources, these stocks will not be sufficient. The outlook 18 far more serious in the countries under occupation and in the neutral countries. This Embassy has authoritative information that the Netherlands 1s the only country outside of Germany which 1s secure from severe shortage by reason of its considerable domestic output. The coal industry of Germany 1s one in which the Third Reich has not been able to obtain any important enlargement of output during the past two years, and it is hardly likely that there will be an early increase which would at all make up for the 30,000,000 tons which Britain ships to Europe normally. A point of significance is that Dr. Ley in a speech he made recently promised to place the pay of the miners at the peak of wages in Germany. The supply of petroleum, as previously stated, does not present a serious problem in the present stage of the war. However, note should be taken of the fact that the synthetic gasoline plants present identifiable aerial targets as do the overburdened systems of rails and canals - and the air force of Germany and part of her motorized land forces now depend on the synthetic gasoline plants. It 1s to be noted particularly that despite the fact that Germany has been drawing on the rolling stock of the countries under 16 - 7 occupation, it has been necessary for the German State Railways to advise German shippers to use freight cars as sparingly and 88 promptly as possible. In the event of a long war, Germany cannot count with certainty upon imports from Russia, which imports have been a comparatively important factor in the war economy of Germany. Germany at war would definitely have added troubles should there be elimination or even substantial reduction of imports from Russia of manganese and 011, which it 1s claimed by German officials are being received now at an annual rate of more than 1,000,000 tons, plus feed grains, and the 500,000 tons of Russian phosphate fertilizer. It would seem that the German food supply 1s assured for another year of war. However, thereafter German observers believe it likely that the rations of fats and eventually meats will have to be decreased because of an insufficient supply of fodder. There have taken place already greater than normal slaughterings of livestock in Holland, Denmark, Germany and Belgium. It 1s the hope of agricultural authorities in Germany to raise French agri- cultural production in 1941 through ordering increased use of fertilizer and labor, but it 1s uncertain to what extent this can be achieved. Aside from the fats and meat question, an eventual grain shortage can be envisaged due to the insufficient supply of phosphatic fertilizers - although shipments Regraded Unclassified 17 - 8 - shipments from the northern part of Africa may remedy this situation. A contributing factor to eventual grain shortage would be the exhaustion of reserve stocks which in Germany will be drawn upon relatively lightly but which in states under German military occupation would be drawn upon heavily since they are grain deficit countries with the exception of France. There 1s still another question of which account must be taken, i.e., the effect of the prospect of prolonged warfare accompanied by air raids - on morale, which latter has been an important factor to date in the economic productivity of Germany. The efficiency of the consumption restrictions and controls has not been solely responsible for Germany's success in avoiding inflationary results from its tremendous financial operations; the acceptance of all this by the German people has been partly responsible. The German people have been instilled with the belief that their sacrifices would be brought to an end by an early decisive military victory by Germany. Should the European war continue to be limited as it is now to an aerial and naval attack against the British Isles with relatively unimportant aerial counterattack being suffered by Germany, these potential weaknesses in the future food supply and in transportation, the eventual deficiency of non-ferrous metals and alloys, the European coal Regraded Unclassified 18 - 9 - coal supply problem and the cumulative effect of re- strictions and shortage on Germany's civil population and on the civil populations in occupied countries should present to Germany no critical economic dif- ficulties. Should the area and the participation in the war increase and Germany, instead of being in the position of attacker, also be the object of a continued attack genuinely destructive without the compensation of continued successes, then the military nek scales might eventually be tipped by the aggregation of these weak places, strains and deficiencies with their BECEINED DELVE THE material and also paychological effects and conse- quences. (END OF MESSAGE) BID 2E KIRK EA:LWW/msg Regraded Unclassified 19 21524 GRAY 231333A $8 Mr. AS 30 - JACKHOST YRAT YAAT38338 3HT OT Buenos Aires Dated September 19, 1940 Rec'd 11:55 a.m. Secretary of State, Washington. 423, September 19, 1 p.m. Embassy's 422, September 19, noon. This noon the Director of the Exchange Control office informed the Embassy that the suspension applies to all (repeat all) applications for prior permits to import American merchandise including prospective purchases of such goods by Argentine Government departments. Thus the embargo is temporarily complete. TUCK WWC COPY ime 20 PARAPHRASE OF TELEGRAM No. 422, dated September 19, 1940 Noon, from Buenos Aires. The Embassy was requested this morning by the Minister of Finance to inform the Department that the suspension of prior import permits for American merchandise was not intended in any way to put Argentina in a bargaining position in connection with the visit of Warren Lee Pierson. He said that the measure became necessary due entirely to the fact that Argentina's supply of exchange had been seriously depleted. The Minister of Finance referred again to the prob- lem of an exchange and monetary agreement and asked if it were possible to do anything to have the United States act more quickly on this matter. He expressed the hope that it might be possible to arrange some form of a tri- angular agreement in connection with the current Anglo- Argentine negotiations regarding the proposed British purchase of 40 million pounds sterling of Argentine products. The Minister stressed the fact that the present economic and financial situation in Argentina is desperate and that help is urgently needed from the United States. RA:AED:CBT COPY bj 21 September 19, 1940. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston THE In view of your conversation with Assistant Secretary of State Breckenridge Long on September 3rd, you will be interested to know that the State Department has approved the request of Herbert L. May on behalf of the Permanent Central Opium Board and the Opium Supervisory Board under the 1931 Convention, both of Geneva, Switzerland, to establish temporary so-called branch offices in the United States. May, a rich American who has made control of the opium traffic his main interest, is a member of both boards. The State Department has accorded diplomatic visas to the five permanent members of the staffs of the two organiza- tions who are to come from Geneva. One of the staff, Leon Steinig, Secretary of the Supervisory Board, is already in the United States. This action came about in a. rather odd way. Various indirect approaches had been made and early last week May called up Harry Anslinger to ask if he could suggest any way in which they could get action- Anslinger said: "I suggest you make formal application to the State Department for permission to establish these offices." May did it and the application was granted. Long receded from his objections in view of Secretary Hull's strong interest. The offices will probably be housed at Rockefeller Center, New York. While they will be called branch offices, they will actually transact all the business of gathering statistics and regulating the international narcotics trade for the duration of the war in Europe. Operation from Switzerland has become impossible because of the great delays even in diplomatic mail. l 22 September 19, 1940. EMCRANDUE TO: Secretary Morgenthau FROM: Mr. Gaston In view of your conversation with Assistent Secretary of State Breckenridge Long on September 3rd, you will be interested to know that the State Department has approved the request of Herbert L. May on behalf of the Permanent Central Opius Board and the Opium Supervisory Board under the 1931 Convention, both of Geneva, Switserland, to establish temporary so-called branch offices in the United States. May, a rich American who has made control of the opium traffic his main interest, is & member of both boards. The State Department has accorded diplomatic visas to the five permenent members of the staffs of the two organize- tions who are to come from Geneva. One of the staff, Leon Stainig, Secretary of the Supervisory Board, is already in the United States. This action came about in a rather odd way. Various indirect approaches had been made and early last week May called up Harry Anslinger to ask if he could suggest any way in which they could get action. Analinger said: "I suggest you make formal application to the State Department for permission to establish these offices." May did it and the application was granted. Long receded from his objections in view of Secretary Hull's strong interest. The offices will probably be housed at Rockefeller Center, New York. While they will be called branch offices, they will actually transact all the business of gathering statistics and regulating the international nareotics trade for the duration of the var in Europe. Operation from Switzerland has become impossible because of the great delays even in diplomatic mil. HEG/mah Regraded Unclassified 23 September 19, 1940 10:50 a.m. Present: Mr. Helvering Mr. Gaston Mr. Thompson (for latter part) HM,Jr: Good morning, gentlemen. Will you sit down? This 1s the memorandum which the President gave me. Pa Watson. (Reading) "Memorandum for General Watson. "Senator Tydings and Senator Radcliffe handed me the enclosed list of the Maryland appoint- ments in which they are interested. Three of the four are re-appointments. "The Collector of Internal Revenue, Wm. S. Gordy is a splendid selection. He is from the Eastern Shore, and was a candidate for Governor about four years ago polling a large vote. "After the President told me that he would make these appointments, I talked with Helver- 1ng suggesting to him to appoint Magruder, the present Collector, to some place in the Wash- ington office. This would leave no bad feel- ing on the part of Magruder or his friends. I have not yet heard from Helvering about the appointment. "Tydings tells me that if I can assure him that the President will make these appointments, he will comply with my request to issue a state- ment supporting the ticket without waiting for the appointments to be sent to the Senate. I think it should be done today. Some one should advise Morgenthau to immediately appoint Magruder to come place in the Treasury Department." Unclassified 24 -2- HM,Jr: You know you (Helvering) and I talked about this. What can you do? Mr. Gaston: The point is we are asked to find another job in the Treasury for Magruder. HM,Jr: He (Helvering) knows about it. Mr. Helvering: Yes. Byrnes talked to me at length about it. HM,Jr: Jimmie Byrnes. Got a job? Mr. Helvering: We haven't anything in the Bureau. HM,Jr: How much do you pay on that Tax Board? Mr. Helvering: That Tax Board is $10,000. HM,Jr: Does Charlie West get $10,000? Mr. Helvering: Yes. Is he on the Tax Board? Oh, yes! Yes. $10,000. HM,Jr: There is a vacancy there. I think there 1s. Mr. Helvering: You mean the Board of Tax Appeals? Mr. Gaston: You are talking about the Processing Tax Board of Review that Charlie West 18 on. Mr. Helvering: I am not sure of their salaries. HM,Jr: It's $7,000 or $7,500. Mr. Gaston: There isn't any salary. I think the man is an employee of the Treasury Department and he's desig- nated by you to be a member and he can be appointed out of that to a job in the Treasury Department. HM,Jr: They want an answer right today on this thing. Mr. Helvering: The way they put it up to me, as I Regraded Unclassified 25 -3- explained to you -- I don't know that you recall -- that we find a place in Internal Revenue to advance him to 1t. But of course me can't advance anybody by reducing the salary and the only places we have that pays more than Magruder, or as much, are all filled by excellent men now. Only myself and the Deputy Commissioner and the Special Commissioner and Assistant and the Head of the Technical Staff. HM,Jr: Is it the fellow who formerly ran for Governor they want to take care of? Mr. Helvering: Oh, yes! He was Comptroller of Maryland. HM,Jr: Why wouldn't it be easy to take care of him and leave Magruder where he 1s? Mr. Helvering: What they want is to show they have enough influence to put Magruder out. Mr. Gaston: Magruder turned against Tydings. Mr. Helvering: Tydings will not have any objec- tion, but he wants to show Maryland Mr. Gaston: Magruder supported Lewis. (Mr. Thompson came into the Secretary's office at this point.) HM,Jr: Will you handle this and let me know today what you can do? Mr. Helvering: There isn't anything we can do in the Bureau. HM,Jr: Talk it over with Norman Thompson. I won't go over it again, but go in and see Norman and sometime tomorrow morning I will see you if you two can work out something on that. (HM, Jr then read Gaston's memo of Sept. 18th * the first two paragraphs of which referred to the posi- tion of Collector of Internal Revenue at Toledo.) Regraded Unclassified 26 HM,Jr: What the President said was this. You two fellows can handle this between you. I don't care how you do it. Call Charles Sawyer, of Cincinnati, and tell him what these fellows want and get his advice and after you know what Charles Sawyer wants I am to again talk to the President, but in order to save my time, Herbert, I am going to ask you to call up Pa Watson and tell him what Charles Sawyer said. Mr. Gaston: Yes. Yes. HM,Jr: You call up Charles Sawyer and give him this rigamarole and say the President wants to know what he thinks of it, what is his advice, and after you get it report back to Pa Watson. Mr. Gaston: Sawyer is a pretty week sister. HM,Jr: Well (The Secretary then read the last paragraph of Gaston's memorandum of Sept. 18th which referred to the desire of Frank Duffy, National Committeeman from Vermont, tohave his son, Frank Duffy, Jr., appointed to the vacant position of Collector of Customs at St. Albans, Vermont.) HM,Jr: The answer to Frank Duffy 18 this: The President remembers Frank Duffy, Jr., very well. He can't do anything Just now, but the chances are very good that after election he will take care of his son. Mr. Gaston: In other words, we will leave this thing alone for the present Just as it has been. HM,Jr: That's the story. Does that clean up the politic? Mr. Gaston: Yes. I was going to mention that Pa Watson called me a minutes ago and Donahey and Hunter were in his office and he wanted to know what to say to them. I told him there was nothing to say to them ex- cept no decision had been reached as to whether there would be an immediate appointment. Regraded Unclassified 27 -5- HM,Jr: Anything on your (Helvering) mind? Mr. Helvering: One matter I want to speak to you about. HM.Jr: Now? Mr. Helvering: Yes. About a year ago I made a recommendation that we take all these bank cases where they had disassociated their facilities under the Act of 1934 and set them on a certain basis. There was some opposition to it and I wrote up a memorandum distinguishing between the two cases which the Supreme Court had decided and settled, the ones under -- one case as having the divorcement provision in there that told us very clearly, showed us very clearly, that there had been divorcement of the af- filiate in the bank stock and there was a possibility of avocation of values. The Department of Justice, however, has some cases pending and they don't want that done. I want to state to you that recommendation over here to you and Mr. Hanes 0. K'd it. Since Hanes went out this situation in the Department of Justice has come up. Now, Hanes has written us a letter in which he de- mands us, under that provision in the recommendation, that we made and he O. K'd, that we go ahead and settle certain cases under these affiliates. HM,Jr: Hanes! Mr. Helvering: Yes, because that was the ruling and we should follow it. We discussed with the Depart- ment of Justice yesterday and they think they can now overrule the so-called Hageman case, which was the one we were getting the act under, but if we think adminis- tratively all these 400 - 500 cases could be settled better under the provision of that recommendation they will withdraw, but I know they don't like to. They think they can reverse the Hageman case. That is the quandary presented to us. HM,Jr: What is Hanes' interest in it? Regraded Unclassified 28 -6- Mr. Helvering: He has a friend who has a big tax case. HM,Jr: Who did he address the letter to? Mr. Helvering: Me. Of course, he remembered about this recommendation of mine that he 0. K'd. So he is contending there was a proposition passed by the Treasury and should have been acted on. HM,Jr: I will have to have -- could you bring Foley up to date and I will talk to the two of you to- morrow? Mr. Helvering: I would like to bring Wenchell. HM,Jr: Bring Wenchell along and bring the letter from Hanes. 000-000 29 September 18, 1940. MEMORANDUM TO: Secretary Morgenthau m5. FROM: Mr. Gaston You may wish to discuss either or both of the following political situations with the President: (1) Collector of Internal Revenue at Toledo, Ohio. Charles H. Graves, former Collector, died August 15th. General Watson phoned on August 24th that the President had just been talking to Charles Sawyer of Cincinnati, National Committeeman, and that nothing was to be done toward filling this vacancy until the President had had & chance to talk to you. I don't believe the President will wish to make any appointment before election but I should like to confirm this so we can be guided accordingly. On August 23rd Senator Donahey wrote to the President recommending the immediate appointment of Ralph O. Snyder, Secretary to Representative John Runter, and also stating that the appointment of one Frazier Reams, a lawyer of Toledo, would likewise meet with his approval. We received this letter August 26th. Both Donahey's and Hunter's offices have called us up frequently pressing for action. I finally told Hunter yesterday that nothing would be done until we got further directions, which seemed to stump him. Three persons have written or wired advising that no appointment be made until after the election. They are: Samuel R. Young, an attorney of Toledo; I. W. Gotschall of Toledo, who gives John Biggers as reference, and Tell Thompson, County Chairman of Hancock County. (2) Frank Duffy, National Committeeman from Vermont, wants to have his son, Frank Duffy, Jr., appointed to succeed the late Stephen M. Driscoll, formerly Collector of Customs at St. Albans, Vermont, who died several months ago. Duffy was in to see you shortly after Driscoll's death and you introduced him to me. He asked that nothing be done about the appointment until after the conventions, but he brought in and intro- duced his son at that time and told me that he hoped his son could be appointed. Duffy, Jr., is an engineer, formerly employed by the New York State Highway Department and more recently on P.W.A. bridge projects in Vermont. Duffy can, of course, produce an adequate number of letters of recommendation for his son, but doesn't wish to do go unless he gets the go sign. One John Picher, a. member of the French-Canadian colony at Winooski, near Burlington, has been energetically advocated by residents of that town. Duffy says they are not an important element of the Democratic Party of Vermont. 30 Originals returned to General Watson 9/19/40 THE WHITE HOUSE WASHINGTON September 19, 1940. MEMORANDOM FOR GENERAL WATSON: Senator Tydings and Senator Radcliffe handed me the enclosed list of the Maryland ap- pointments in which they are interested. Three of the four are re-appointments. The Collector of Internal Revenue, Wm. S. Gordy, is & splendid selection. He is from the Eastern Shore, and was & candidate for Governor about four years ago polling a large vote. After the President told me that he would make these appointments, I talked with Helvering suggesting to him to appoint Magruder, the present Collector, to some place in the Washington office. This would leave no bud feeling on the part of Magruder or his friends. I have not yet heard from Relvering about the appointment. Tydings tells me that if I can assure him that the President will make these appointments, he will comply with my request to issue E state- ment supporting the ticket without waiting for the appointments to be sent to the Senate. I think it should be done today. Some one should advise Morgenthau to immediately appoint Magruder to some place in the Treasury Department. JAMES BYRNES Regraded Unclassified Carlcolor of toh held until after election, United States Senate m WASHINGTON, D.C. Callector 7 Internal Revenue- we S. Gordy, gr. Salisburg. ma was maryland for 15 years state Comptroller of f. Brnard Flyme Baltimor md U. S. District atty - (evenmbent) august Recka, august Bactemors Y a.s. marohall (weembrut) S. Scott Back - Chestertown md Comptrollr f Customs Regraded Unclassified THE WHITE HOUSE Hill WASHINGTON 9-12-40 Talk Deer blead it MEMORANDUM FOR THE PRESIDENT: Henry Morgenthau 'phoned me that Guy Helvering was told by Senator Byrnes that the President wanted to promote Collector Magruder in Baltimore, to make a vacancy so that the two Senators could make a new appointment. Helvering is in a quandary as to how he could be promoted. Gurr- E. M. W. Regraded Unclassified 34 September 19, 1940. MEMORANDUM TO: Secretary Morgenthau W FROM: Mr. Gaston I talked to Charles Sawyer, National Committeeman of Chio, on the telephone this afternoon. He said he would rogard it as very unfortunate if any appointment of Internal Revenue Collector at Toledo were made before the election. He strongly urged that the ap pointment be delayed until after the election. As to Snyder, Secretary to Congressmen Hunter, whom Hunter and Senator Donahey have recommended, Sawyer said he was "no good"; that he was for Lemke in 1936 and before that a Republican. He added that John Hunter, the Congressman, "has never been with the President." I reported the substance of this to General Watson's secretary, General Watson being out of the office at the time. Soon after I had made this report to Pa Watson, Jim Rowe called me and said that the President wants to do all that he can to fill vacancies in Presidential offices immediately. He would like to have us start the tall rolling right away. Rowe had a list of vacancies in various departments and said the President would like some action on all of them except the Collectorship of Customs at Savarnah, as to which he said no, and the Collectorship of Internal Revenue at Little Rock, as to which he had a question mark: He added that the President wanted us to consult Ed Flynn before sending any of the nominations over. I told Rowe I would give him a list of our vacan- cies and explain the situation on each. It was Rowe's impression that Flynn might be in town this afternoon and would probably talk to us. At my request Johnson sent a telegram to Saul Haas today, sug- gesting that he telegraph a request for permission to come to Washington on Customs business. In talking to Ed Flyrin today I told him that I was here nearly all the time and that he could reach ne directly on matters affecting Treasury employees or appointments. 35 September 19, 1940. MEMORANDOM TO: Secretary Norgenthau FROM: Itr. Oaston I talked to Charles Sawyer, National Consitteem of Chio, or. the telephone this afternoon. Be said he would regard It as very unfortunate 1f any appointment of Internal Revenue Collector at Toledo were rude before the election. He strongly urged that the pointment be delayed until after the election. As to Snyder, Secretary to Congressnan Bunter, whom Runter and Senator Donahey have recomended, Sewyer said he was "no good"; that he vas for Leake in 1936 and before that a Republican. He added that John Hunter, the Congressman, "has never been with the President." I reported the substance of this to General Watson's secretary, General Watson being out of the office at the time. Soon after I had made this report to Pa Watson, Jim Rome called ne and said that the President wants to do all that be can to fill vacancies in Presidential offices immediately. Be would like to have us start the tall rolling right away. Rome had a list of vacancies in various departments and said the President would like some action on all of them except the Collectorship of Customs at Sevennah, as to which he said no, and the Collectorship of Internal Revenue at Little Rock, as to which be had & question mark. He added that the President wanted us to consult Ed Flynn before sending any of the nominations over. I told Rowe I would give him a list of our vacan- cies and explain the situation on each. It was Rowe's impression that Flynn might be in town this afternoon and would probably talk to us. At my request Johnson sent a telegran to Saul Hass today, our gesting that he telegraph 8 request for permission to come to Washington on Customs business. In talking to Ed Flynn today I told bin that I was here nearly all the time and that he could reach ne directly on matters affecting Treasury employees or appointments. HEG/mah Regraded Unclassified 36 Dr. Federioo Pinedo, Minister of Finance in the new Argentine Cabinet with the appointment of Dr. Federico Pinedo as Minister of Finance in the new Argentine Cabinet, there has been a decided change both in personality and in the general outlook of the occupant of this position. Dr. Pinedo, who is about forty-five years of age, possesses one of the outstanding financial minds in Argentina. While he was educated as a lawyer, he is also an economist of note and is highly respected in both fields. After ob- taining his doctorate in jurisprudence in 1915, he prac- ticed law and served three terms 8.8 National Deputy for the Federal District. From 1933 to 1935 he was Minister of Finance under President Justo and 18 a member of the Board of Directors of a number of prominent financial and business houses in Buenos Aires. Dr. Pinedo was instrumental in the reorganization of the administration of Argentina's finances, including the creation of the machinery for the Central Bank and the unification of taxes. Although Dr. Pinedo, with the Minister of Agriculture, inaugurated the bilateral system of trade balances in Argentina which was detrimental to American interests, he has not been uneympathetic towards this country and during intervening years his opinions have changed 80 that they are no longer in direct conflict with the principles of freedom of trade supported by Mr. Hull. He is a man of broad outlook and experience and in numerous recent conversations with members of the American Embassy staff at Buenos Aires has expressed himself Regraded Unclassified 37 -2- himself emphatically in favor of greater continental solidarity and in particular in favor of a Pan-American Customs Union and cooperation with the United States both economically and in continental defense. In a telegram of June 10, 1940 from the Embassy at Buenos Aires, it was reported that an article which had appeared in the local press signed by Dr. Pinedo in which he took a firm stand against the Nazis and asserted that the future well-being of Argentina would be threatened should they win the war. He urged closer cooperation with this country in con- tinental defense and by inference warned against the peril of "fifth column" activities, calling upon Argentina not to make the mistake of delivering over its Government, through fear of a possible enemy, into the hands of sympathizers with this enemy. It is reported that he maintains & very close touch on all the problems of the Ministry of Finance doing 8 great deal of the work himself and taking the responsibility of initiating and conducting negotiations. Dr. Pinedo is & close friend of Julio Roca, the new Foreign Minister, and they are reported to be in complete accord on political and economic questions. This fact, coupled with the fact that Roca is not in good health, makes it inevitable that Pinedo will take a leading part in Argentine negotiations with the United States. In a recent conversation with a member of the Embassy staff Pinedo stated that the Argentine Government has de- cided to do everything possible to cooperate fully with the United States in matters pertaining to further inter- American cooperation and solidarity. He added that Argentina is now in a position somewhat similar to that of Great Regraded Unclassified 38 -30 Great Britain with respect to the necessity for looking to the United States for aid in working out its problems. He continued that while Argentina formerly considered Great Britain as its chief interest, it is now felt that Argentina's future lies in developing closer relations with the United States. Regraded Unclassified 89 CONFIDENTIAL 0-2/2657-235 M.I.D., W.D. Tentative Lessons Bulletin No. 51 September 19, 1940 TENTATIVE LESSONS FROM THE RECENT ACTIVE CAMPAIGN IN EUROPE NOTICE This document is being given an approved distribution, and no additional copies are available in the Military In- telligence Division. Its reproduction in whole or in part is subject to the provisions of letter TAG, November 15, 1939, AG 350.05 (11-1-39) M-B-M, "Dissemination of Military Information by the Military Intelligence Division and by Recipients of M.I.D. Information". The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and are in no sense mature studies. BRITISH COMMENT ON DIVISIONAL ARTILLERY SOURCE The information in this bulletin came from a high British authority through an official American source. Reports were made in mid-August, 1940. CONTENTS I. BRITISH DOCTRINE ON COMMAND OF DIVISIONAL ARTILLERY. II. CHANGES IN ORGANIZATION CONFIDENTIAL -1- 40 CONFIDENTIAL I. BRITISH DOCTRINE ON COMMAND 07 DIVISIONAL ARTILLERY, After study of operations in Planders end France, the British have not changed their doctrine of command and methods of control of the Divisional Artillery. Perfect cooperation between all Artillery commanders and the Infantry commanders they support is emphasized more than ever, as is the necessity for instant and automatic change from "support- ing" to "attached" whenever communications to the higher echelon are broken. The British also stress the change from "attached" to "supporting" whenever divisional control is possible. The doctrine of employment of Infentry tends more and more towards rapid movement in the opening stages of an engagement, with Infantry brigades¹ and their normally supporting Artillery operating more or less independently as & brigade group². Natural- ly there will be many occasions during rapid movement when Division- al Field Artillery regiments will be "attached", under command of the Infantry brigade commander, However, when enemy resistance is met in forward move- ment, or when it is decided in withdrawal to establish resistance and the divisional commander is in a position to control his In- fantry brigndes, the Field Artillery regiments must at once revert to divisional control, The commander of the Divisional Artillery must therefore be able to establish his own communication with his regiments. As set up in the British divisional organization, one section³ of the Divisional Signals⁴ is permanently designated, organized, and trained to provide communications for the commander of the Royal Artillery. He does not share the Infantry net nor de- pend upon others to exercise his command functions. According to a recent War Office letter: "The divisional commander controls the employment of Divisional Artillery. "The commander of the Royal Artillery is in command of the Divisional Artillery and prepares detailed Artillery plans to implement the plans of the divisional commander. 1. The British Infantry brigade is the equivalent of our regiment.0-2 2. The British brigade group is the equivalent of our combat team.0-2 3. i,e,, one company. G-2 4, i.e., a signal battalion under command of a lieutenant-colonel.C-2 CONFIDENTIAL & 41 CONFIDENTIAL "The staff consists of & brigade major, a staff captain, B. lieutenant for Artillery intelligence duties, three clerks from the Royal Artillery, 1 draughtaman from the Royal Engineers and 20 other ranks. Two Royal Air Force radio operators join on arrival in the theatre of operations and remain permanently attached to the staff. "Communications are provided by the Divisional Signals. Three motorcycles are assigned to the brigade for employment by orderlies acting as dispatch riders. The attached Royal Air Force personnel are provided with one radio set." II. CHANGES IN ORGANIZATION. As a result of a thorough study of operations in Flanders and France, the General Staff Artillery Committee has recommended that, for the creation of a more flexible and more easily handled Artillery regiment, the battery should consist of only two troops of four guns each, The regiment will have three batteries instead of two, but the number of guns in the regiment, 24, will remain as before. It is authoritatively stated that this recommendation will be approved and put into effect. The British unit designated as 8. troop is a captain's command of four guns similar to our battery, but lacking certain elements of the maintenance platoon which are concentrated for economy of men and road space in the next higher echelon under a staff officer. The British unit designated as a battery is similar to our battalion and is a major's command, Another advantage of this reorganisation should be pointed out, As the British division is triangular throughout, the contem- plated change in the Field Artillery regiment will greatly facili- tate Artillery support. A regiment of Field Artillery (24 guns) will support the Infantry brigade, and a battery of Field Artillery (8 guns) will support each of the three battalions of the Infantry brigade. CONFIDENTIAL -3- 42 0-2/2657-220 RESTRICTED M.I.D., W.D. September 19, 1940. No. 198 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. No ground operations. 2. Air Force Operations. Apparently German daylight attacks on the London area on the 18th were successfully intercepted. German night attacks over London followed the usual pattern and. caused widespread damage. The air alert lasted 9½ hours, The Germans state they attacked num- erous docks and port facilities in London. Elsewhere in England, Liverpool, Newcastle, the Billingham chemical works and an airdrome were attacked. The British made some daylight attacks on the Channel ports on the 18th and renewed them more heavily that night. There was limited British activity over Germany. The R.A.F. is now en- ploying up to 200 bombers during each 24 hours in offensive opera- tions. II. Mediterranean and African Theaters of War. 1. The Italians are consolidating their hold on Sidi Bär- rani. There is still no reliable information concerning activity farther south. 2. The Italians claim air attacks on Mersa Matruh and on naval units off Sidi Barrani. The British claim to have bombed Italian forces between Bucbuq and Sidi Barrani. There were also widespread raids, presumably by small elements of the R.A.F., over East Africa, the Sudan and the Dodecanese Islands. RESTRICTED 43 CONFIDENTIAL M Paraphrase of Code Cablegram Received at the Nar Department 1:46 Polley Sept. 19, 1940 London, Filed 13:06, September 19, 1940 During the night of September 18-19 182 planes of the Reyall Air Force attacked energy ports and commissions across the English Channel. Six planes were lost. The Coastal Command carried out their usual reconnaissance and photographic mission, losing tmo planes out of the 77 employed. During the daylight hours of the 18th the Genam Mr Force operated about 800 aircraft, the attack centering generally along the Thanes River and the southeast part of Londen. Little damage was dans to important targets. Houses were demolished here and there, one all tank was hit and there were some civilian casualties. German attacks during the night of September 18-19 lasted all night and were consentrated on London, with raids on northeast England that did little damage. There was considerable randon damage done to houses in the Nest End of London, many streets were blocked with debris, and five good sised fires were started. Fire in the plant of the Pleasey Company, Ilford, Essex, did extensive damage. A fire in the gurponder factory at the Imporial Chemical Industries at Haltham me soon under control, production in the Royal Small Areas Pactory, Safield, was affected by an unexploded delay action banb, and there as a fire at the plant of Beston and Sans, Acton. German aircraft losses were 46 confirmed, 16 probable and 19 damaged. The Royal Air Force lost 12 planes and 3 pilots. Estimated CONFIDENTIAL Regraded Unclassified 44 CONFIDENTIAL commIttee in the Landon area were 90 billed and so injured. Three British skips totalling 13,500 tome were make There are as changes in the information of plans for invoice. Yesterday I mb a visit to the Amy an the coast. All I endorse any I E in s I I ] I Beaverbreak stated that there to 20 question but that Generary - business as Miss on - barges indicate that they were loaded with mummition. The Royal do Force is holding considerable air power in receive, including - powerful new humbers, for use against - sen-borne forces, From the might benberdamts of Lenden recently 10 - to be proved conclusively that both searchlights and aread leasters are ineffective, at least choolessent. Insury boulding planes during the last few nights have boom almost unappeced. In the mer future the British expect so equip their night fighters with a new detes- tion device that will enshle them to locate and dectroy beabers n night. German planse have been dropping parachute-borne nines - London, These result in extressly severe blasts but no far casualties have book moderate. They are reported to be about three foot in disector, with a terpods wall and a time fune. It has boen found necessary to estad all - out of tom n night. Cowerth Park (7) is beabed out and all are eleepless. No are all will hare. CONFIDENTIAL LEE Copies too Military Adde to President Amt. Secretary of Var Secretary of Map Chief of Staff State Department our Secretary of Treasury + UPD Regraded Unclassified CONFIDENTIAL AM 45 Paraphrase of Code Radiogram Received at the Var Department at 6132 P.M., September 19, 1940. Berlin, filed 19:28, September 10, 1940. The missions of the present Gerwan Air Activity sppear to bei 1. The obtainment of air supremacy. 2. The destruction of vital British industries and other objectives. 3. The undermining of public morale with the ultimate foreing of capitulation or bringing about a change of government and the ⑉ tablishment of a cabinet amenable to negotiation. The Germans continue preparations for an attack by all arms, thus containing England while preparing to conduct operations in other theatres. It is my opinion that Germany is apprehensive as to the success of an offensive against England at the present time. PETTON Distribution: Aide to the President Secretary of Mar State Department Secretary of Treasury Asst. Secretary of War Chief of Staff Var Plans Division Office of Naval Intelligence CONFIDENTIAL 48 CARLI FROM: Commercial Attache, Nicholaca Shanghai, China. DATE: September 19, 1940 For the Secretary of the Treasury. Current situation Shanghai for week ending September 14th STOP Exchange market was dull and steady throughout week with chief interest centered on Europe but no definite trend apparent STOP Market uncertain during most of period turning easy at close but still maintaining good volume with prices only moderately off STOP Sugar monopoly STOP Reported that Japanese military about to place in hands of four Japanese first exclusive privilege of importing all sugar destined for interior of China that a guarantee will be required that none of such imports go into unoccupied territory STOP Local cotton mills now operating at about 50% capacity but are considered likely to reduce to 30% either October or November STOP Prospects not bright as transport to interior is virtually cut off while local yara stocks estimated at 350,000 bales and increasing STOP Of local spindle capacity about 70% is Japanese mostly associated with Osaka interests and while operating in China is more profitable than in Japan apparently an effort will be made for Japanese domestic political reasons to give Osaka mills an increased share of China business which remains STOP Only bright aspect for China as that domestic supplies of raw cotton should for some time be adequate to meet requirements with substantial termination of foreign imports which during past year had such adverse effect on exchange STOP Japanese military however, apparently preparing to fix price of Chinese raw cotton 80 that industry proper will apparently gain little or no advantage. NICHOLSON Regraded Unclassified 3 47 6" "The Department has discussed with the Treasury the possi- bility of sending to Buenos Aires an important Treasury official who would be capable of and authorized to discuss and conclude a monetary and exchange arrangement with the Argentine authorities. After giving careful and sympathetic consideration to all of the points raised by Dr. Pinedo 1/ the Secretary of the Treasury believes that considering all the circumstances such a negotiation could more appropriately take place in Washington. Please discuss the situation with Dr. Pinedo and inform him that the Secretary of the Treasury would be glad to discuss in Washington the possibility of such arrangements with him personally or any representative which he may choose to name. O.K. 1/m. 9-19-40. 48 September 13, 1940 Mr. Whiter Mr. Collado called and dictated the following, which it is proposed to include in a cable to Argentina. (He wanted you to understand that we have already given the Argentines an opportunity tell us that they would like to have the discussions, so the Treasury is not inviting the discussions.) "The Department has discussed with the Treasury the possi- bility of sending to Buenos Aires an important Treasury during official who would be capable of and authorized to discuss and The conclude a monetary and exchange arrangement with the Argentine metances authorities. After giving careful and sympathetic consideration 1 to all of the points raised by Dr. Pinedo the Secretary of the more Treasury believes that such a negotiation could take place only appropriately in Washington because he is extremely desirous of playing an active role in 4t. Please discuss the situation with Dr. Pinedo and inform him that the Secretary of the Treasury would creatly glod to welcome the opportunity of discussing in Washington the possi- bility of such arrangements with him personally or any representa- tive which he may choose to name. "Phease also inform Dr. Pinado that the Department and the Treasury É sonsider such discussions would deal with basic monetary and exchange relationships of & lone term character and 20 such would not greatly conflict with the discussions of Mr. Pierson which will consist of commercial banking arrangements, the financing of long term development projects and similar matters. The new Minister of Finance. 49 QUINTUPLICATE Buenos Aires, Argentina, September 6, 1940. No, 1206 A SUGGESTED MONETARY AND EXCHANGE ARRANGEMENT BETWEEN THE UNITED STATES AND ARGENTINA The Honorable The Secretary of State, Washington. Sir: With reference to the Embassy's telegram no. 391 of September 4, 7 p.m., I have the honor to enclose a copy of a memorandum of the conversation in which Dr. Federico Pinedo, the Minister of Finance, inquired whether the Treasury Department would attach an appropriate official to Mr. Pierson's staff so that the matter of a monetary and exchange arrangement might be looked into during the course of Mr. Pierson's visit to Buenos Aires. & true copy of Respectfully yours, risk the signed HB origi- For the Charge d'Affaires Monnett B. Davis First Secretary ENclosure: as stated. CMR:jk Regraded Unclassified 50 MEMORANIUM OF CONVERSATION Busnos Aires, September 5, 1940. Messrs. Tuck, Davis and Revndal called on Dr. Fede- rico Pinedo this afternoon, at the latter's request, to discuss the Embansy's memorances of August 19 which indicated that if the Argentine Government should be interested in effecting a monetary and exchange arrangement with the United States, the Treasury Department would be pre pared to discuss the matter in washington. Dr. Pinedo said that r. Roca, the Minister for Foreign Affaire, had drawn the question to his attention last night and had asked him to draft an appropriate reply to the Embassy's communication. Be added that before making an official reply he wanted to discuss the matter informally with e. view to obtaining a fuller understanding of the background of the question. The Charge d'Affaires explained that members of the Argen- tine Delegation to the Habana Conference had discussed the Argentine economic situation in great detail with members of the United States Delegation and had emphasized the desirability of taking up the questions of a trade agree- ment, monetary arrangements, Export Import Bank credits, a corn agreement and possible purchases of surplus commo- citles. The Charge d'Affaires went on to say that it was felt that the question of a trade agreement could not be reised at this time, that we had already proposed B corn agreement which we understood was being studied by com- petent efficials of the Argentine Government, and that matters such as monetary arrangements fell within the prov- Ince of the Treasury which had indicated that if the AP- gentine Government wished to take the initiative Treasury officials were prepared to discuss a monetary and exchange arrangement in washington, (The question of the possible purchase of hides and skins specifically use at no time mentioned). Dr. Pinedo then remarked that both he and IT. Roca were of the opinion that since he is to take an active personal part in endeavoring to work out satisfactory agreements with the United States it would be very help- ful if the Treasury Department would be willing to send someone to Buenos Aires. Be recognized that the Depart- ment might have the same objections to the visit of 9. Trensury official as had led it to withhold the Hawkins sission, but suggested that perhaps these objections night be not 1f the Treasury expert were attached to Mr. Pierson, ostensibly in connection with business relating to the Export Import Bank. He pointed out that Mr. Pierson had been here before and that his coming at this time would be regarded as perfectly natura) in the light of publicity given the granting of the twenty million dollar Export Import Bank credit to the Central Bank. According- ly, he felt that If a Treasury official should come with Mr. Regraded Unclassified 51 - 2 - Mr. Pierson there would be no publicity which aight be construed as succeeting that trade agreement negotistions were being reopened. Dr. Pinedo also pointed out that there is a conneo- tion between a monetary and exchange agreement and the matters which Mr. Pierson is to discuss and that it would therefore seem to be reasonable to have the conversations held in the seme place rather than to have one part of related matter handled st Mashington while the greater part was being considered in Buense Aires. However, he went on to say, if the Treasury Department should not be plaposed to send an officiel to Argentina at this time, OF to authorize ar. Pierson's mission to handle the matter, the Argentine Jovernment would send 8 competent represen- tative to the United States at 9.0 early date. Be added Last ne sernestly hoped that 11 the Argentine Government should senu someone to the States, the Repartment would not use the same reasons ne had used and suggest that the argentine mission also discuss the matters which it ie now planned willbe considered during Mr. Merson's visit. in other NOTUR, it is hoped that any arrangement mace with regard to the monetary and exchange question will not be permitted to obviate the Plerson mission. . Pineco stated that the Argentine Vovernment is decised to do everything possible fully to cooperate -1th the Government of the United States In matters tensing to further inter-Americon aviluarity, smaing that argentina 1a now in 8 position annewhat similar to toat of Jrout oritain with respect to the necessity of looking LO the United States for 010 in working out its or blems. he want on to aay in this regard that midle Argentina Tomerly considered Great Aritain as its chief concern, it is now falt that Argentina's future interests lle In developing closer relations -ith the United States. r. Pinedo vas informed that the Embasey had for some time been considering making a recommendation to the opertment that the United States Novernment, purely ss c political measure, airchase some of Argentina's export surpluses es a eymbolic gesture of its firm intention to assist Argentine out of its cirriculties. P. Pined thought the Icea an excellent one but hopeu that the pur- chares would not be callue antil it could be annunceu that nog Liations looking towerds closer relations between the too countries were in progress. ne naid it would be must unfortunate to .lasipate ony of the political credit which aight be obtained from such purchases. with regard to the matter of naving a [reasury of- ficial included In dr. Pierson's biesion for the purpose of working out 8 monetary MTKL exchange arrangement, the Charge d'Affaires, just before leaving, again drew .r. Pineco's attention to the fact that matters such 12 monetory arrangements fall within the province of the Treasury, but added that he would be ¿lea immediately to submit the Minister's views to the epartment and Inform nin in the premises #8 8:00 Ad pussible. and Regraded Unclassified 52 DEPARTMENT OF STATE NOTONIHSVM September 19, 1940 In reply refer to EA 840.51 Frozen Credits/581 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses for such reply as he may consider appropriate a copy of a letter from Mr. Jack Gross of Brooklyn, New York requesting information concerning the bearing of Executive Order No. 8389 on commissions owed to him by a firm in Cognae, France. Mr. Gross has been informed of this reference. Enclosure: From Mr. Jack Gross, September 16, 1940. dm 53 1162 East 13th St. Brooklyn, New York Sept. 16, 1940 State Department, Washington, D. C. Gentlemen:- This letter has to do with FROZEN BANK CREDITS held here by a New York bank, to the order, however frozen, of a. French firm, in Cognac, France, - and by whom I was employed as a commission merchant, and salesman. For several months prior the capitulation of France, this firm in Cognac, France advised me that they had ap- plied to the Exchange Control for the right to send my commissions to me-and nothing was forthcoming. After the Order was issued from Washington, freezing funds here, for credit to French Nationals, at least one draft was presented here in behalf of a shipment made by my firm of Cognac, - and paid by the consignee. Therefore, this money must be held frozen here. I doubt very much that the firm in France, under strict surveillance as it is, would write me to-day, to help; al- though after the capitulation I did receive a letter from France, mentioning that they hope my commissions may be paid when matters become right. In order to establish my right to a claim on funds held here-please advise whether it is necessary for me to sue my French principals at law, and recover a judgment? If perchance, I could receive a letter from France, authorising the bank holding the funds here, to release to me-would that suffice? However, I fear there is little likelihood of such permission coming from France, - due to restrictions imposed. Will you refer this letter to the proper governmental department, in event I have mis-directed it? Respectfully yours, JACK GROSS jg/h mg Regraded Unclassified AMBASSADE DE HELGIQUE Washington, September 19th, 1940. 54 D. 8187 No. 3749 Dear Mr. Cochran, Referring to my letter of August 28th, No. 3378, may I take the liberty of calling again to your kind attention, the question of the "Banque Italo Belge". I am informed that the "Banque Belge pour l'Etranger" in New York, which has on deposit one of the accounts of the "Banque Italo Belge" in the United States" has requested, in connection with the license which expires on September 30th, that the United States Treasury consider the possibility of the total release of this account. You will recall that in my letter abovementioned, I had inquired whether it would be possible to release the accounts of the "Banque Italo Belge" up to 50%, and as an experiment. If the Treasury Department is unable to follow this suggestion, could it not at least, re- lease in its entirety, one of the accounts of the "Banque Italo Belge", for example, that on deposit at the Banque Belge pour l'Etranger in New York, while still maintaining the restrictions on the others, where the amounts on deposit, as you are sware, are quite large. Yours sincerely, The Counselor of the Embassy (s) Baron de Gruben Mr. H. Merle Cochran Technical Assistant to the Secretary Department of the Treasury Washington, D. 0. COPY bj Treasury Department Division of Monetary Research 55 Date September 19, 1940. To: Secretary Morgenthau Below are a few suggestions that might be worth thinking about as possible concessions that might be made to the Russians if any inducement is necessary to get them to cooperate. 1. Informal assurance that gold sent here by Russia which does not come from Germany, or from occupied territories, shall receive the same treatment as that accorded gold coming from any other country. (She has asked for something like that in & recent cable which has doubtless come to your attention.) 2. Informal permission for Russia to buy any materials she needs here, such as machine tools, possibly molybdenum or anything else that does not constitute a violation of any existing law here. 3. We might see what can be done about relinquishing the Baltic ships in our ports which are now being tied up with legal and foreign fund obstacles 50 that they shall not fall in Russian hands. 4. Possibly American technicians who were recalled at the time of the Finnish episode might be permitted to return. MR. WHITE Branch 2058 - Room 208 Regraded Unclassified Treasury Department 56 Division of Monetary Research Date Sept. 19, 1940. To: Secretary Morgenthau From: Appended is the report of the consummation of the trade agreement with Russia. You will be interested in the date, which is August 6, 1940. MR. WHITE Branch 2058 - Room 210 57 Commercial Policy AGREEMENT WITH THE UNION OF SOVIET SOCIALIST REPUBLICS [Released to the prese August T) As in the previous three agreements, the So- The Acting Secretary of State, Mr. Summer viet. Government has informed the American Welles, made the following statement regarding Government that the Soviet economic organi- the commercial agreement with the Union of zations intend to purchase during the next 12 Soviet Socialist Republics: months American goods to the value of at least It may be noted that notes were exchanged August $40,000,000. The agreement takes into account 6, 1940, between this Government and the Soriet Gov- the possibility that various export restrictions ernment extending ontil August 6, 1941, the commercial imposed by the United States in carrying out its agreement which in Its present form was first con- eluded between the two countries on August 4, 1937. national-defense program may make it impos- The present agreement la similar to those In effect dur sible for these organizations to carry out their Ing the previous three years in all respects except (hat intentions, there has been added a proviso to the Dote referring The Government of the United States under- to the minimum amount of purchases ($40,000,000) to takes in the agreement to continue to accord to be made In the United States by the Soviet economic the commerce of the Soviet Union unconditional organizations. This proviso takes into account the possibility that various export restrictions imposed by most-favored-nation treatment, with a reserva- the United States In the course of Its national-defense tion in respect of coal, deemed necessary be- program may make It Impossible for these organiza- cause of the nature of the coal-tax provisions of tions to earry out their Intentions, the Revenue Act of 1932, Under this agree- It le a surve of deep gratification that we are able ment, therefore, the Soviet Union will continue by means of this agreement to continue our commercial relations with the Union of Soriet Socialist Itepublics to receive the benefits of concessions granted ou the present basis, and It le to be hoped that during by the United States in trade agreements with the coming year they will develop in a manber advan- countries other than Cuba entered into under tageous to both partles, the authority of the Trade Agreements Act. The Soviet Government has renewed in 11 [Relexed to the press August 61 nôte accompanying the agreement. its commit- The commercial agreement between the ment to export to the United States in the next United States of America and the Union of So- 12 months not more than 400,000 tons of Soviet viet Socialist Republics which was proclaimed coal which was approximately the quantity of and became effective on August 6, 1937, and Soviet coal exported to the United States in the which was renewed for successive periods of calendar year 1936. While there were imports one year on August 5, 1038, and August 3, 1939, of coal during each of the first three agreement was continued in force for another year, that years, such imports did not in any such year is until August 6, 1941, by an exchange of iden- amount to 115 much ILS one hulf the 400,000-ton tie notes at Moscow on August 6, 1940, between limitation. Since October 1939 there have been the American Chargé d'Affaires ad interim, Mr. no imports of Soviet coal. Walter C, Thurston, and the People's Commis- The following table gives the value in dollars sar for Foreign Trade of the Soviet Union, Mr. of United States exports to and imports from A. I. Mikoyan. the Soviet Union in the agreement years: 105 Regraded Unclassified DEPARTMENT OF STATE BULLETER 106 AUGUST 18, 1960 107 revied by tata DATE the following Approvement wills to 110 been martied between the Gevernments of any the United Blates of America, to lectitories or pos à the Daion of Service Socialist Bepublics intends pente 9 1 IIVE contries: - the Philippine falands, or the Permise Canal - - - Zive for - another of to the Republic of Cube shall to make in the United States during the next 12 - The United WE Anterios will USM 3 Be le excepted from the speration at like special. months in connection with the commercial Unive of Soviet Sociallst Republics operaditions) - Nothing to this agreement whall be to you- agreement entered into two the United & muntricied la all et vent the adoption of prohibiting - restrict- States and the Saviet Union ON August B, 1940: tera cocorrating customs daties and charge of my Inc the expertation at Importation of goid - alver, - 0.30 klad and to the estated of levying Judies, and total or la prevent the adoptine of such all the Monore, August 4. 2940. 0,00 Excuration: - 18,474 to all mailer omerning the miles firmalités - Government of the Unlied Sintes of America may - M,200 24,7% charges Imposed to with the dearing of EL wird respect tu the control of the export of sale I have the have to refer the OUT PROMIE (lm a 60, mm 2,016 poils (Drongh the and with request to all Ises te export of armin, amminition, or Emplements of war, in regurd to the name letween the United States et regulations effecting the sale or - of Imported and, in exergtional all ather military reppttes. of America and the Union of Honialist Reposities geçde withle the country. it understood that any metion which may In talme and tn link posi to DAL the know the value wt acticles, Principals. Accordingly, natural of mannfactured postacts bay by the President of the United States of America unile the produces or manifactore of the Uslied The test of the identic notes eschanged at log their origin in the Calon of Borden Secialist the actively of Hertlin 2 (D) of the Neutrality Act States of America, which the Government of the Union Mcscow between the American Charge, Mr. lice shall in no care to in regard to the - of 1507 in maint to the passage of DUe to shall of Meviet Socialist Repoldies intends to purchase in the reforred to to any deties, taxes are charge offer ont be considered as enntraventag any of the provide United States of America during the set before Walter C. Thorston, and the People's Com- of higher, ist ta any rules or formalities niber lie an of This servement relating a the experiation of natural months for export to the Dutos of Beriet missar for Foreign Trade of the Union of Hepablics than the to which the like products lay. or masafactured productiv Ernor the territory of the Except [etc] Soviet Socialist Republics, Mr. A. L Mikeyan, the their origin in any third country are of may ben- United States of WALLON C. is as follows: after be subject. Subject to the requirement that - athiltzary dis- Mosnew, August c. 1910. Bireitaria, natural un products rejusted crimination shall to effected by the United States of from the terribors of the United Braten of Addition of Aneries against Importations from the Union of Bortet (Trandative) Executive: consigned to the territory of the Union at Savid Sod) Sociallst Republics and in Divor of those frues easy third In acciptance with the which BATA Missow, 6, 1540. taireu place, I have the - is on behalf et us shall le DU am be subject with income To emurry, the fortgiving provisions shall beit extend to Mr. Customer Animal by Genernment the agreement which las been muched exportation und in report to the nai probilitions DF restrictions (I) Impard as moral or In regily to your Inquiry regarding the Introded pur termiterias grounds. (2) designed to probet homen, Between the Governments of nur repretive restries ten, to any daties, taxes, of charges other un higher, - chairs by the Union of Boxist Sociallat Bepublics in that the agreement registration emmercial relating be 16 any rules iif formalition utter HT more animal, ut plant HA, (a) relating to prison-mado goods, the United States of America in the of the next than the to which the like products when chaiged if (4) relating to the enformement of pulice BE revenue terms the United Blaim of America and the Unive of twere moths, I have the hour to infurms you that Soviet Socialist Republics reverbed in the eschange of to the territory of any third country are or pay M laws the eronomie organizations of the Union of Sortes No- after be misject. Two On its part the Givernment of the Union of claims Requisties intend to buy in The United Stares of zeles of August 4, 1987, between the of Any advantage. favor, privillege or Immunity which Swirt Socialist Depabtics will take steps in the United Blates of America and the Poojdo's Com- America In the incime of the boxt Emelve months Amon- nime für Affaire of the Talun of Strict & Bown or may breather be granted by - Dornal substantially the anumint of purchase In the Upited me parata to the rates of at Irant claims Repeddies, with came bilo furne - August & BIUDS at America in mgant to the States of America for export to the Union of Bordet If, luwever, restrictions impossit - Experts by the III il united OF manufactured product udd of articles the growth. produce, the Government of the Cuited States should render le die- 1007 (MY the date 12 previsination thered by the Presi nating in any third country or consigned to the terditory contacture or the United States of Abetica. cult for Suriet organizations to satisfy flate dell of the Colted States of America and apprival of any third country shall be accorded Immediaty and Tures This agreement stall once NOMI form on the thread hy the of People's Dimisimars of the mede in the United States, " may to Impressible for without comperation in the like product neiginating to dat of predemation thereof by the President of the them to marry nut their Infentions. The Union of Bostet Socialist Bepublics, and which was re- userd on August & 1916, and Arigun = non, shall or overged to the territory of the Cokin of Borth United Rate of America und ni upproval thereof by Gevernment of the Unlim of Hoviet Bocialist Depotities the Suriam of People's Commisses of the Daten of Socialise Republics. la therefore net in a position at (be present the to exatince is Isne máil August e. DAL The present It M undervised that NO long M and in - for - Burriel Socialist Republics, which prodomation and should be givelalment for the Presider of the guarablee the value of the purchase existing law of the United State of America may suprival shall take plane on the same day. It shall in the United States, Crited Rate of America and approved by the Comeil otherwise regative, the foregolog procisions is en for BA outine lo for twebe months Buth parties Anneyt [etc] WALTER c, of People's Commission of the Union of Social Sociallet Republics. they would otherwise relate 5 datim, texts or clarme RETTL that not Loss than thirty days prior to The Accept (ven) on and cake therefrim, IF mail - - expiration of the aforemid period at insire months WALTER C. Terms best start negotiatives returning the extension Briquittes, stall out apply no much products importal of the period daring which the present agreement shall (Relessed - the - August 191 The following test is that of the signaturent into the United States of America. If the law of (b) motinge le firm. Called States HE America shall nne permits the - The commercial agriement between the of August 4, 1987:* operation of the foreining provisions with respect us de United States and the Union of Soriet Socialist With reference to ment WORD have above-mentioned products. the Union of Republics, signed on August 6, 1940, was pro- Indoss plan line regard to commerce between the Dested Repubiles reserves the right within Blives days not The following communications, exchanged claimed by the President on August 7. On the States of America and the Union of Soriet Socialist Junuary 1, 1008, to terminate than agreement - - between the American Chargé and the People's Requires, I have the to matirn stat DO make of - day, the agreement ITM approval by the entirely (1) thirty days' written aution. Commisse for Foreign Trade, concern the Couneil of People's Commissrs of the Union 1: is understood, forthermore. that the advancise Agriment Series No 100, of purchases which the Government of now amorded or which may Service for account ley of Soviet Socialist Republics. ACQUET 10, 1940 109 The Foreign Service Jamb D. Boam, of Princeton, N. J., Third Masurios Pasquet, of New York, N. Y, Vice Secretary of Embany at Herlin, Germany, has Consul al Daireo, Manchurie, has bonu usigned lass usigned for duty in the Department of 45 Vice Commi at St. Pinrro-Miqualon, where State, PRESS INTERVIEW BY THE AMERICAN AMBASSADOR TO BELGIUM an American Consulate will be required. Statement of the Acting Secretary of State, Mr. Welles - the prom Americant es ple, an interest which is shared by the people of Treaty Information I have DOW received from the Amarican Em- the United States. Nevertheless, the intervise havey in Location a transcript of the botes of the given was in violation of standing instructions promo interview given by Ambassador Codahy of the Department of State, and certain of the Compiled in the Treaty Division in London nn Tuesday, August 6, last. views expresed by the Ambassador are DOB to From the transcript it would appear thet Am- las construed as representing the views of this OPIUM yet mitded to the enpervision contrated under the besadar Cudshy received at an informal gath- Government. International Opium Convention (1925) Hele Impiriation en now undergeting oring some American correspondents and mp- The incident illustrates DUES again the import. the acceptance by the Poteral activerities of resentives of the British press who had no Bance which must be attributed by American Switzerland The Halth Committee's cansot take office quested interviews with him. within Switzerland and the - Federal law - representatives abroad to the Department's in- With reference to the circular letter from the lero force. As I previously stated, the Ambussador's in- structions to refrain at this critical time tme Leigue of Nations dated October 85, 1939," com- Requiring the to bring the faregoing to terview was given without prior authorization making public statements other than those made municating for information the text of a Inter the attention of the Generale constried. The from, or without prior notification to, the De- in accordance with the instructions of the Dr. Department has (De Me addressed to the states parties to the Interna- partment of State partment of State, limite, November 18th, 2020. tional Opium Convention of February 14, 1925, To the Secretarist of the I am sure that DO one will question the sin- By direction of the President. Ambasander ismeerning the acceptance by certain states, in- Lengue of Nations, General earity of the Ambastador's sympathetic inter- Cadahy has ben requested to return to the cluding Switzerland, of A new resolution of the et in the future well-being of the Belgiun peo- United States immediately for consultation. Health Committee applicable to the prepara- COMMERCE tions band on Indian-hemp extract or tincture, Agreement With the Union of Soviet the Secretary General of the League transmitted Socialist Republies PERSONNEL CHANGES to the Secretary of State with a circular letter dated May St, 1940, the following letter from the An regarding the commercial Swim Foderal Political Department dated agreement between the United States and the to du press digit (@) France, has been assigned as Consul at Marseilk, Novembre 18, IDAD: Union of Servict Socialist Republics, signed The following changes have occurred in the France, August 6, 1940, appears in this Bulletin under Foreign Service since August 3. 1940: In a cirridar lither dated October 20th list. the Rec- Samuel H. Wiley, of Salishory, N. C, Co. the heading "Commercial Policy". di the Lengtor of Natima Informed the Federal Leland B. Morris, of Philadelphia, Pa, Con- sul at Havre, France, has been issigned at Nites Department Hat, several metries, locksding INTERNATIONAL LAW end General at Vieuna, Germany, has been desig- Consul at Lisbon, Portugal. luving accepted the Bealth Committer's nated Counselor of Embassy and Consul General George J. Haering, of Huntington Station, resolution of May IDO comming the application of International Institute for the Unification Article 10 of the of February 14th, Her, to al Berllu, Germany, and will nerve in dual N. Y., has beeu unigned 4a Consul as Vigo, of Private Law erroretime bund Indian hemp extract or Unclure, capacity, Spain. Lie provisions of that agreement had berme Imme- The assignment of James J. Murphy, Jr., of The assignment of Joseph F. Burt, of Fair- Sintaty applicable to the preparations reternal to by the The American Ambessador to Italy trans- and in rélations between States. This - mitted to the Secretary of State with a despatch Pennsylvania, (M) Consul General at Rotterdam, Beld, Ill, as Consul at Prague, Bobensia, has - was immediately transmitted to the Federal dated May 16. 1940, a mpy of the EMW Funds- Netherlands, has been canceled. Mr. Murphy ben canceled, Mr. Burt has now been assignal Public Health Service. mental Statute of the International Instituto Itms now been amigod an Consul General at as Consul at Valparaiso, Chile. la approved with this Berview and referring to lle for the Unification of Private Law. The Insti- Hamburg, Germany. Thomas C. Wasmin, of Newark, N. J., Charal DANTE if August Ttis the Potities! Department has rute which is now established in Rome - for- Hugh 6, Fullertim, of Springfield, Ohio, at Vigo, Spain, has been assigned as Cormi all (Se butwar tn draw the Servetariate attention to the fact that, as Indian being extract and finctare are bed werly . part of the Leugue of Nations with First Secretary of Embasy and Consul at Paris, Dakar, French West Africa, where an American headquarters in Geneva, Consulate will be established. 308 the of December a una (vol, 1. no. 24), According to information furnished by the to Italian Foreign Office the statute, which is dated Regraded Unclassified 110 DEPARTMENT OF STATE BULLETTS March 15, 1940, entered into force on April 21, 1940. The following countries have adhered Publications to the statute: Belgium, Bolivia, Colombia, Fin- land, Germany, Greece, Hungary, Ireland, Italy, Lithuania, the Netherlands, Nicaragua, DEPARTMENT OF STATE Rumania, Spain, Sweden, Switzerland, and Uruguay, Reciprocal Recognition of Load Line Regulations for Vensela Engaged in International Voyages on the Great Lakes: Arrangement between the United States of America and Canada-Effected by exchanges of hotes Legislation signed April 29, 1988, August 24, 1988, October 22, 1988, September of 1939, October 18, 1989, January 10, 1940, and March 4, 1940. Executive Agreement Series No. Two Supplemental Estimates of Appropriations for 172 Publication 1482. 9 pp. 5f. State Department, 1941: Communication from the Achievements of the Second Meeting of the Foreign President of the United States transmitting two supple- Ministers of the American Republica: Statement of the mental estimates of appropriations for the Department Honorable Cordell Hull, Secretary of State, at the doe of State, for the fiscal year 1941, amounting to $305,500. of the Meeting, Habana, July 30, 1940, Conference (B. Doe, 802, 76th Cong., M sens.) 2 pp. 54. Series 47. Publication 1488, 8 pp. Se. #: B. PRINTING mo. nase For male by the Superistendent of Domments, Washington D. C-Price 10 centa Reherription price, $2.75 a yest PUBLISHED WINELY WITH THE APPROVAL OF THE DIRECTOR OF THE STREAT or THE BUDGET THE DEPARTMENT OF STATE BULLETIN AUGUST 10, 1940 Vol. III: No. 59-Publication 1493 Contents GENERAL: Page Statement by the Secretary of State 103 Licenses under the Export-Control Act 104 AMERICAN REPUBLICS: Dinners in honor of delegations to the Habana Meeting of the Ministers of Foreign Affairs: Brazilian delegation 104 Argentine and Uruguayan delegations 104 LIBRARY AUG 2 4 COMMERCIAL POLICY: Agreement with the Union of Soviet Socialist Republica 105 THE FOREIGN SERVICE: TREASURY DEPARTMENT Press interview by the American Ambassador to Bel- gium: Statement of the Acting Secretary of State, Mr. Welles 108 Personnel changes 108 TREATY INFORMATION: Opium: International Opium Convention (1925) 109 Commerce: Agreement with the Union of Soviet Socialist Repub- lics 109 International Law: International Institute for the Unification of Private Law 109 LEGISLATION 110 PUBLICATIONS 110 General STATEMENT BY THE SECRETARY OF STATE (Reland to the press August 4] The strong belief of the representatives of unless and until they recognize that there exists unbreakable resistance, the 21 American nations at the recent Habana Meeting was that the military and other sinister At Habana we forged new instrumentalities activities on the part of some nations in other of continental defense, These will be of Tast large areas of the world present real possi- importance to our Nation and to every Afteri- bilities of danger to the American republics can nation. But there are other and immunse tasks still before us. It was universally recognized that & threat to any important part of the Americas means a I would greatly prefer to my that we are safe threat to each and all of the American nations. in this country and in this hemisphere from It was, therefore, agreed that full and adequate outside danger. But I am firmly convinced that preparations for continental defense could not what is taking place today in many areas of the be taken too BOOD if the threatened danger from earth is a relentless attempt to transform the abroad was to be checked and terminated. It civilized world as we have known it into a world was also the unanimous view at Habana that in which lawlessness, violence, and force will the prompt strengthening of unity and reign supreme, as they did a thousand years ago, solidarity for the purpose of continental defense The people of this country cannot recognize too and for its implementation by concrete pro- soon this fact and its overwhelming significance grams supported by the 21 nations was indis- for our national safety and for the maintenance pensable to the safety, security, peace, and wel- of our national institutions. fare of this hemisphere. The one and only sure way for our Nation to There was general agreement that if the avoid being drawn into serious trouble or actual peaceful nations of Europe had thus promptly war by the wild and destructive forces now organized themselves for self-defense on the abroad elsewhere in the world and to command most effective cooperative basis, the chances are respect for its rights and interests abroad is for that their situation and that of Europe would our people to become thoroughly conscious of be vastly different today. Instead, many of the possibilities of danger, to make up their those countries complacently relied upon utter- minds that we must continue to arm, and to ances of peaceful purpose and upon their own arm to such an extént that the forces of on- neutrality to safeguard them against the mighty quest and ruin will not dare make an attack on forces of invasion, conquest, and destruction. us or on any part of this hemisphere. To this Some of them have been overrun and destroyed end, each citizen must be ready and willing for by the ruthless invader. Their fate should be a. real sacrifice of time and of substance and for Iragic lesson to us. hard personal service. In the face of terrific The vast forces of lawlessness, conquest, and problems and conditions, and until the present destruction are still moving across the earth serious threats and dangers have disappeared, iko a savage and dangerous animal at large. we cannot pursue complacently the course of By their very nature, those forces will not stop our customary normal life. 253007-40 100 Regraded Unclassified 104 DEPARTMENT or STATE BULLETTS I feel constrained thos to offer my views in The Honorable Dr. Autonio Camillo de Oliviers, to the light of what is already a dangerously wide- her of Brazilian Delegation spread movement for world conquest and for Dr. Delegation Abelardo Bueno do Prado, Member of the destruction of most of the worthwhile things which civilization has given the human race. The epiture Honorable Henry A. Waltace, Secretary of les The Honorable Key Pittman, United States Senate LICENSES UNDER THE EXPORT- The Honorable Bol Bloom, House of Representative CONTROL ACT The Honorable Charles A. Eaton, Bonse of Bepowests- tives (Keleased la the press August ") The Honorable James A. Shanley, Blouse of loss During the period July 5-81, 1940, inclusive, sentatives the Division of Controls received 6,242 applica- The Honorable Jesse Jones, Federal Loan Admisis tions for license to export articles or materials trator listed in the President's proclamation of July Mr. Drew Pearson 2. 1940,' establishing export restrictions under the authority of section 6 of the act of Congress Argentine and Uruguayan Delegations upproved the same day. Of this number, 5,397 (Released to the press August TI applications were disposed of on or before July 31, and 845 remained pending at the end of the The following guests attended the dinner month. Of the applications disposed of, 4,361 given at the Mayflower Hotel, Washington, An- were granted, 236 were rejected on the ground gust 7, 1940, by the Acting Secretary of State, that the articles or materials in question were the Honorable Sumner Welles, in honor of the essential to the national defense, 104 were re- Argentine and Uruguayan delegations to the turned with the request that further data be Habana Meeting of the Ministers of Foreign submitted, and 696 were returned with the Affairs: statement that no license was required for the His Excellency Señor Don Felipe A. Espil, Ambande contemplated exportation. of Argentina Bis Excellency Dr. Leopoldo Meto, Choirman of lie Argentine Delegation to the Habana Conference American Republics The Honorable J. Richling, Minister of Uruguay His Excellency Dr. Pedro Manial Bios, Chairman of the Uraguayan Delegation to the Habaus Conferme DINNERS IN HONOR OF DELEGATIONS The Honorable Dr. José A. Mora Otero, Member of the TO THE HABANA MEETING OF THE Uruguayan Delegation to the Habana Conference The Honorable Frank Knox, Secretary of the Navy MINISTERS OF FOREIGN AFFAIRS The Honorable Tom Connally, United States Senste Brazilian Delegation The Honorable Elbert D. Thomas, United States Benefits The Honorable Guy M. Gillette, United States Benale (Released to the press August 6] The Honorable Luther Johnson, Bouse of Represso The following guests attended the dinner tives given 00 August 6, 1940, by the Acting Secre- The Honorable Ed. V. Isae, House of Representative tary of State, the Honorable Summer Welles, The Honorable Foster Stearns, House of Represents tives at his home, Oxon Hill, Md., in honor of the General George C. Marshall, Chief of Staff Brazilian delegation to the Habuna Meeting of Admiral Harold R. Stark, Chief of Naval Operation the Ministers of Foreign Affairs: The Honorable Henry F. Grady. Assistant Becretary of State His Excellency Carlos Martins, Ambustador of Brazil His Excellency Dr. Mauricio Naburo, Chairman of the The Honorable Breckinridge Long. Assistant Service of State Brazillen Delegation and Undersecretary of State for Foreign Affairs of Brazil Mr. Fells Belair, Jr. Mr. Constantine Brown 'See the Bulletin of July 6, 1940 (vol. III, no, 54), Mr. Ernest Lindley DD. 12-12. Mr. Philip W. Bonsal, Department of State Mr. H. Charles Spruks, Department of State 58 DEPARTMENT OF STATE Washington In reply refer to September 19, 1940 EA 840.51 Frozen Credits/592 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses herewith copies of the paraphrase of & telegram received from the American Consulate General at Beirut regarding funds of the Banque de Syrie which are deposited with the French-American Banking Corporation and the Chase National Bank. Enclosure: Copies of paraphrase of telegram no. 91, from Beirut, September 18, 1940. COPY imc 59 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate General, Beirut. DATE: September 18, 1940, 6 p.m. NO. : 91. This is in reference to my telegrams numbered 46, 74, 76 and 83, concerning frozen French credits. I have been informed by the Banque de Syrie that its license permitting partial release of its funds deposited with the French-American Banking Corporation will expire on September 20, and that & similar license concerning their funds in the Chase National Bank will expire on September 27. The Banque de Syrie has communicated with these American banks by telegraph, requesting that these licenses be renewed. Because of the essential requirements of this mandated territory, the importance of this was stressed by the High Commissioner in a conversation which I had with him today. PALMER es MR 05 938 one HPD JACKHOST DIVIDOR 311 R 10 THE RECUEIVEL EA: VCL COPY imc Regraded Unclassified 60 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran confidential The six reporting banks executed the following transactions in registered sterling: Sold to commercial concerns £55,000 Purchased from commercial concerns £ 4,000 Open market sterling remained at 4.03-3/4 all day. Transactions of the reporting banks in open market sterling were as follows: Sold to commercial concerns £6,000 Sold to foreign banks (Venezuela) £5,000 Total £11,000 Purchased from commercial concerns -0= Continuing its improvement, the Canadian dollar reached a discount of 15-7/8% at the close today. It will be recalled that this currency reached & current low of 17-1/26 on September 14. The other currencies closed as follows: Swiss franc .2279 Swedish krons .2385 Lira .0505 Reichsmark .3992 Mexican peso .1996 bid, .2016 offered Cuban peso 8-7/8% discount There were no gold transactions consummated by us today. The Federal Reserve Bank informed us that it had made another three-months loan of $50,000 to the Central Bank of n Salvador. As collateral, the Federal set aside gold valued at $56,988 from the Salvadorean bank's earmarked account. The total of such loans now outstanding amounts to $350,000. secured by $397.753 in gold. Regraded Unclassified 61 CONFIDENTIAL 2 The Federal Reserve Bank reported that the Bank of Canada was shipping approximately $50,000.000 in gold from Canada to the Federal, to be earmarked for account of His Britannic Majesty's Government. The report from the Federal Reserve Bank of New York listing deposite for the account of Asia as reported by the New York agencies of Japanese banks on September 11, showed that such deposits totaled $85,301,000. a rise of $40,719,000 since the last report as of September 4. Included in this total were $34,210,000 in deposits with the Yokohama Specie Bank, New York, made by its branches in China, up $5,130,000 from September 4, and $42,110,000 in deposits made by Japanese banks in Japan and Manchuria, up $34,795,000. Loans made to Japanese banks by Yokohama's New York agency totaled $14,791,000, showing no change from the September 4 figure. We understand that the Federal Reserve Bank is investigating the above-mentioned deposit increases, in the belief that other unreported cash balances may be involved. It will be recalled that, in its investigation of changes in reports of Tokohama's New York agency for the two weeks ended August 7. the Federal learned of the existence of a custody account held for the Bank of Japan. The results of this investigation were summarized in our daily report of August 14. The Bombay gold price was slightly higher at the equivalent of $33.91, while the silver quotation was unchanged at 44.56#. In London, the price fixed for spot silver was unchanged at 23-7/16d. The orward price moved off 1/8d to 23-5/16d. The dollar equivalents were 42.56# and #2.33# respectively. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/4#. The Treasury's purchase price for foreign silver was also unchanged at 35#. We made two purchases of silver totaling 161,000 ounces under the Silver Purchase Act, both of which consisted of new production from foreign countries, for forward delivery. 62 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. McKeon of the Federal Reserve Bank of New York gave us the following information regarding transactions in the account of the State Bank of the U.S.S.R. maintained with the Chase National Bank, Principal changes in the account during the period September 12 to September 18, inclusive, were as follows: Date Amount Credited Received From Amount Debited Paid To September 12 $106,000 Commercial Letter of Credit Account $ 137,000 National City Bank September 14 200,000 Skandinaviska Banka, 500,000 Amtorg Trading Co. Stockholm 100,000 Swies Bank Corp. by 136,000 Commercial Letter order Reichsbank of Credit Account September 16 300,000 Hungarian General Bank, Budspest 95,000 Bank of Sweden 63,000 Commercial Letter of Credit - Import 54,000 Hungarian Commercial Bank, Budapest September 17 294,000 Commercial Letter 950,000 Amtorg Trading Co. of Credit - Import 98,000 Narodni Bank, Prague 418,000 Commercial Letter of Credit Account 69,000 Mellon National Bk. Regraded Unclassified 63 - 2 - Date Amount Credited Received From Amount Debited Paid To September 18 $10,951,000 Advance against gold $119,000 Commercial Letter shipment by U. S. of Credit Account Mint, San Francisco 304,000 Finlands Bank 183,000 Narodni Bank, Prague 175,000 Commercial Letter of Credit - Import 118,000 J. Henry Schroeder Banking Corporation P.M.P. 64 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTI Mr. McKeon of the Federal Reserve Bank of New York gave us the following information regarding the transfers listed below from Italian and German accounts. Italian National City Bank Date Amount Debited Account Debited Paid To September 9 $ 60,000 Bank of Naples Trust Chase National Bank Company September 10 150,000 Credito Italiano, Cash withdrawal New York Chase National Bank Date Amount Debited Account Debited Paid To September 16 $ 463,000 Credito Italiano, The Bank of Italy, Rio New York de Janeiro September 17 $1,122,000 If Post and Flagg September 17 500,000 Banca Commerciale IN Italiano, New York September 18 920,000 Credito Italiano, # New York German Chase National Bank Date Amount Debited Account Debited Paid To eptember 17 $ 80,000 Reichsbank Narodni Bank, Prague AMP 65 September 19, 1940 3:45 p.m. RE RUSSIA-CHINA-U. 8. AGREEMENT Present: Mr. Bell Mr. Gaston Mr. Foley Mr. White Mrs. Klotz H.M.Jr: Just sit down, everybody, and I will reserve the right of getting my chest clean first. I had a chance at Cabinet to talk about refunding next week, and if my memory serves me right, I said we could go out 14 or 15 years on & 2% bond. Bell: Well, a little far. H.M.Jr: You said '53-'55? Bell: That is right. That 1s 12-3/4. That is about right. On that sheet, 88 I recall -- H.M.Jr: From 1940 to 1955 makes 14 years. Bell: Well, the callable period is a little shorter than the maturity. H.M.Jr: Well, I think I got across today the most important thing I have done this year. In the usual discussion at Cabinet - of course, this 1s in the family - Hull said, "Now, within a day or two the Japanese are going to walk into China," and we would have to do something on scrap iron and loan 20 or 25 million dollars to China. (Unrecorded telephone conversation.) H.M.Jr: Welles is calling now to try to block this thing. At least I am going to make a record of it all. Regraded Unclassified 6S - 2 - After Mr. Hull said that he wanted to do something, then he went on to say there is no use doing anything on 011. So I said, "Well, if they really want to do something to set Japan back on our heels, take the President's suggestion of a couple of months ago of A. three-cornered deal with Ruesia, China, and ourselves. That would really mean something to Japan," and they said, "How," and I said, "Well, for example, if you bought somo manganese from Russia and had the understanding that Russia would sell some arme, with that money, we would give credit for arms and China could pay them with Tungsten or something like that--! They went on and on and on discussing it. of course, Stimson is always very helpful. I was going to Bay something again to make my point again and I didn't, because I thought - I was playing it down. I drove it pretty hard. This went on for about 20 minutes to 8 half hour, and then the conversation ceased. During the thing I said that if the President would direct me to do this, I said with the help of Jesse Jones I would like to do it, if the President wanted me to, That was all. Then they went on and on and on. The con- versation stopped and the President said, "Henry, I guese you had better get hold of the Russians and start your talk." So Jones spoke up - or Hull spoke up and said, "Well, before you have the final arrangement and give it out to the press, I would like to be consulted,' and I said, "Well, absolutely," and I said, "If it is agreeable to Mr. Jones, I would like to have Mr. Henderson, who looks after Russia, sit in and listen to the discussion." He said that was fine. So at 11:30 tomorrow we are on our way. Now we will get Welles. Klotz: He may surprise you. Regraded Unclassified 67 - 3 - H.M.Jr: I am going to tell him to do his arguing with Mr. Hull. Bell: Is Hull in favor of this suggestion? H.M.Jr: He never said & word. He never said yes or no and he said that I must have misunderstood Welles because he didn't know anything about it. I said it was Welles that said I couldn't do this and mustn't do this thing until he gets through with this trade treaty with Russia. Bo somebody said, "Well, how is this going to hurt the trade treaty?" Hull said he didn't know and he showed he didn't know anything about this thing and I kept stressing the point that this was the President's sug- gestion. There 1e no question that if you want to set Japan back, this 1s the way to do it. White: Sure. If they think they are forcing us into an arrangement with Russia by their steps in Indo-China, they would be more worried by that than anything else. They might reverse their position entirely. H.M.Jr: Hull is out on the end of the limb. He has twice scolded Japan if she goes into Indo-China. According to Hull, she 1a going into Indo-China and he is going to say, "Boys, I am going to lend some money to Indo-China," which they know they can't buy arms with. I pointed that out at the meeting. He 1s going to do something about scrap iron, but he won't touch oil, and I made a big talk on oil. White: Did you notice the figures -- H.M.Jr: But I thought it was one of the most important things I have sat in and Mr. Welles can just - I don't give a hoot what he says, I am going ahead with it. Bell: What is the reason for not touching 0119 Regraded Unclassified 68 - 4 - H.M.Jr: What Hull said was that if we shut down on oil here, they would go down to Indo-China and could get all they want. Bell: Indo-China? H.M.Jr: Dutch East Indies. So the President said, "Well, I am kind of dumb, but I don't see why you want us to stop giving the oil to Japan if she can get all she wants from the Dutch East Indies." So I said, "The answer 18, she can't," and Hull said, "Yes, that is right." White: The answer 1s she can't? H.M.Jr: She cannot get all the oil she needs in the Dutch East Indies. White: She can if they will give it to them unless it 1s destroyed. H.M.Jr: I know. Foley: That is what he means. H.M.Jr: I read the report. White: Two and two makes six. H.M.Jr: Stimson covered me up nicely by saying what it makes - I threw a little bluff and Hull, who didn't have his figures, agreed with me, but Stimson covered up nicely for me. (Telephone conversation with Sumner Welles follows:) P-16 UInclassified 69 - 5 - H.M.Jr: I an willing to be shaken hands with by anybody. Champ for one minute. How much is that worth to you, Harry? White: It sounds good to me right away. He is mad as hell. H.M.Jr: Well, did you hear? I said it was too bad -- White: That last crack set him back. H.M.Jr: What was that? White: That his own Secretary doesn't know what he 1s doing. H.M.Jr: Well, it 1s too bad. White: Well, there is something peculiar. I thought that trade agreement was already arranged in the first place. In the second place, apparently there are other things. What did he say about our citizens there? H.M.Jr: Sure, Singer Sewing Machine and everything like that. Klotz: If it goes back to the German Embassy -- White: Did you tell Oumansky anything that you wouldn't want the Germans to know? H.M.Jr: I haven't seen Oumansky. He is coming here tomorrow. The meeting hasn't taken place yet. Cabinet is just over. White: oh, he has reference to what he told Oumansky? H.M.Jr: Evidently. I haven't seen Oumansky. Klotz: Well, this will help. I said that 16 all to the good. White: You are taking on a fight. H.M.Jr: Did you hear what Mrs. Klotz said? She said Regraded Unclassified 70 - 6 - we should tap Oumansky's wire and I said no, Welles's. Didn't I sound perfectly pleasant? White: I mean, you are taking a fight on your hands. There is no question about that in my mind, and I think you ought to proceed very cautiously, because he will exploit any failure to the fullest opportunity. H.M.Jr: That 18 all right, Harry, and I have got to a point - I have got to a point where people like Mr. Welles and the rest of them, I am going to fight him tooth and nail up to the point that this place gets too hot for one of us. I have reached that point. White: There 1s a question of being careful 80 -- H.M.Jr: That 18 all right. I am not any more going to be careful with people like Mr. Welles. I am through. I crossed that bridge on the planes and look where I have got. I am going to have & stenographer sitting here and Jesse Jones here and Mr. Henderson and you and if the President of the United States - I have a direct order from him on this thing and BO has the Secretary of Commerce. Now, if Mr. Welles wants to go up against Jesse Jones and me and the President, okay, let's see what happens. I appreciate your personal friendship in warning me, but I am not going any more just the way I did. Just the way I decided, I am going to put in this young fellow Pehle and give the young fellows a chance whose hearts are in the right place. I am not going to fool around with any more appeasements. White: It does do the - I mean, make the best possible step by step that you can, because it would be well to be successful in this particular event. H.M.Jr: Look, Mr. Welles and the rest of them have made a complete failure with our negotiations from the day we recognized Russia, from the Regraded Unclassified 71 - 7 - day we recognized Russia. And the whole peace of the Pacific is at stake, and it is worth my taking on a fight with Mr. Welles. The whole peace of the Pacific. And this damned nonsense of Cordell Hull saying he 1s going to tell them he is going to make & loan to China and that way slow them up - the minute the word leaks out that the United States 1s talking with Russia and China, that is something, and I hope it leaks. I can take on Mr. Welles as long as I have got the President with me. White: Well, you don't want to make any false steps. H.M.Jr: Well, I have been pretty lucky without being over-confident, but, Harry, I am through with the Welleses. Now, on the train, between two and three o'clock in the morning, after continuous drinking from eight o'clock on, Welles began to talk and he told Wallace, who was my informer, and who doesn't drink, what a great guy Mussolini 1s and how we must do BO and 80 and 80 and 80. He still thinks that Mussolini is a great guy and 80 forth. The sooner the people get onto it, the better. White: Do you have - are you going to have something specific for tomorrow, or is it just going to be first -- H.M.Jr: Talk. Where is that memorandum of yours? Right here on top. What do you want me to do with Sumner Welles? White: No, I am glad to see you take him on, but having taken him on, I don't want to miss any bets, that 1s all. H.M.Jr: Well, I have taken -- White: He 1s a -- Regraded Unclassified 72 - 8 - H.M.Jr: He is a what? White: He 16 a tough adversary, and you want to watch each move. H.M.Jr: All right, he had better watch out. I am tough, too, and as I say, I went far more dangerously in this airplane thing a year and a half ago, and we have come to the position now - this is also in the room - where I go to the President of the United States and want additional planes for England, and you know what his answer was this morning? They can have anything they want. That is the answer I got today, and they are going to get it, too. Of course, the Gallup Poll has nothing to do with my policies. Klotz: That is wonderful. H.M.Jr: My God, when Harry begine to want to slow me up - where is that memorandum that you have been needling me with? White: I don't want to slow you up. I Just want to put a brick in your glove. H.M.Jr: All right. Gaston: Gallup gives 38 states to Roosevelt in a private poll. H.M.Jr: I made a note. Someplace or other, there 18 a list which came through - you will have to get together with Miss Chauncy - someplace, & list of war material which Russia had sold to China. Now, one of these many things that come my way, 80 many guns -- White: Did we get it from China? H.M.Jr: I think it came from Nicholson, but you will have to go through with it. Regraded Unclassified 73 - 9 - Gaston: Archie may know something about it. Whit e: Do you have any idea -- HM.Jr: It is within the last month. White: I see. That will be easier to find, then. H.M.Jr: Good night, everybody. I will read anything you will send to the house, Harry, on Russia, and don't go around and make a deal with Sumner Welles tonight, either, see. Regraded Unclassified 74 September 19, 1940 9:17 a.m. H.M.Jr: Paul Appleby was asking about. Herbert Gaston: Yes. H.M.Jr: Why don't you call up Ed Flynn yourself? G: Well, I thought of doing that. H.M.Jr: And ask him what it's all about. You've got the background. G: Yes, I know all about this situation. H.M.Jr: Just see it through for me will you? G: Yes, yes, I'll call him. H.M.Jr: Will you do that? And just ask him what he has in mind about Saul Haas and all the rest of it, please. G: Yeah. I'll do it. H.M.Jr: Thank you. 75 September 19, 1940 3:50 p.m. H.M.Jr: Hello. Operator: Mr. Purvis just went out to keep an appointment and she doesn't know how long he'll be. She said Mr. Young arranged the appointment with Mr. Vance. H.M.Jr: Oh. Well, does she know whether he's leaving town tonight? Operator: I'll ask her. Just a second. (Pause) She says she doesn't think he knows yet, but she doesn't. H.M.Jr: Well, I'd like to talk to him in the morning. Operator: All right, and Mr. Welles is calling you. H.M.Jr: Who? Operator: Welles. H.M.Jr: Welles? Operator: Yes. H.M.Jr: Well, I can't take it just now. Operator: All right. 3:53 p.m. H.M.Jr: Hello. Operator: Mr. Welles said he'd like to call you back. H.M.Jr: Well, tell them he'll have to do it in the next three or four minutes, if he wants to talk to me. Operator: Right. 76 September 19, 1940 3:55 p.m. H.M.Jr: Hello. Sumner Welles: Sorry to bother you again, Henry. H.M.Jr: That's all right. W: I wanted to ask you, because Mr. Hull told me that he wasn't sure what it was about, what the meeting is that you're going to have Oumansky at with one of our people and Jesse tomorrow. H.K.Jr: Well, I don't know why Mr. Hull didn't understand it. We went over it three times. W: Well, he told me that he didn't. H.M.Jr: Well, the question came up about what Mr. Hull could do to Japan if she walked into Indo- China and I reminded the President of his suggestion of a 3-cornered deal between the United States, Russia and Japan and China, and if he directed Jesse Jones and me to go ahead I'd be willing to, and after the discussion ran along twenty minutes he said he wanted Jones and me to do it. W: Uh-huh. H.M.Jri And Hull sald that before any final arrangement was made he'd like to Bee it and I said well I'd like whoever watched Ruseia for him to sit in at all of the meetings and he said the man was Henderson. W: Yes. Does this - what you have in mind - does this involve the loan to China? H.K.Jr: It might and it might not, but I also said, 80 that you have the whole story, that when I broached it to you that you said that you definitely didn't want me to do anything about it because it might hamper you on your trade deal with Russia. Regraded Unclassified 77 - 2 - W: Well, that's the reason that I wanted to have the chance of talking to you. I'm just in the middle of these conversations with Oumansky and the Russians have taken the most completely uncooperative attitude after the first two conversations and we haven't gotten anywhere with the treatment of our own citizens in Ruasia and on many other things that we con- sider necessary. H.M.Jr: Well, maybe this will help you. W: Well, I wanted to give you this background so that you'd know it. H.M.Jr: Right. W: In addition to that I want to tell you that we have positive information that everything that is told to Oumaneky here in the Department of State 1s immediately communicated by him to the German Embassy. H.M.Jr: I see. W: And I have no doubt that the German Embassy would inform the Japanese Government of anything that you might say in regard to that problem. H.M.Jr: Well, that would be helpful wouldn't it? W: Possibly; possibly not. In any event, Henderson will be there at your meeting and I wanted to tell you personally what the situation here was with regard to my negotiations with him. H.M.Jr: Well, it's too bad that Mr. Hull didn't seem to be familiar with your negotiations. He didn't seem to know anything about it. on W: Well, they've been going/as you know for two months. Of course he was away for three weeks out of that time. H.M.Jr: Yeah. W: All right, Henry, I just wanted to let you have that dope. H.M.Jr: Thank you. 78 September 19, 1940. Dear Caption Balfour: I vas very and to have your letter of September 6th, and to 10am that you had reached home safely. I approciate your writing as as you did about our discussions here, and I all find to have the information you sent no. with cordial regurds, Sincerely, 1 m I $ Captain Harold E. Belfeur, Purliamentary Undersearetory of State for Mr, Mr Ministry, Department O.A., King Charles Street, Whitehall, So we 1. Ingland. sent X state Dept. 9/20 to go by aliplomatic Pouch GEF/dbs Regraded Unclassified 79 Stytember 19, 1940. Dear Captain Balfours I was very glad to have your letter of September - and to 10am that you had reached home sefely. I appreciate your writing - no you are about - discussions here, and I - did to have the information you - - VEth cordial regurds, I (Signed) & Captain Herold 1. Belfour, Parliamentary Undersearetely of State Sent to State Dept 9/20 for ALP, to go by Diplomatic pouch MP Matery, Department O.A.S ring Charles Street, indichalls & V. 1. Regiant, GEF/dbs y Regraded Unclassified 80 September 19, 1940g Dear Captain Balfour: I we very and to have your letter of September 6th, and to 10am that you had reached home safely. I appreciate your writing me as you did about our discussions here, and I a glad to have the information you sent no. vish cordial regards, Sincerely, (Sagned) H. Morgepthau, J1 Captain Harold 1. Balfour, Partiamentary Undersearstary of State Sent to State Dept 9/20 for Air, to go by Diplomatic pouch Mr Hindway, Department O,Acg King Charles Street, 19 i d Ingland. GEF/dbs Regraded Unclassified 81 Dept.O.A. 6th September, 1940. Dear mr morgenthan I am so sorry that before leaving the American Continent I could not send you a personal letter of thanks for your hospitality on Sunday, and also to express my appreciation of the opportunity of meeting you. I left Montreal early yesterday morning and we got in safely this afternoon - so I lose no time in making up for my deficiency. When I went to New York I took up the question of the secret aircraft about which you spoke to me. I find that your words of three weeks ago did not fall upon barren ground, in that we have been making enquiries in a discreet way as to what is the position. I gather that the aircraft is not very far advanced as the prototype has not yet flown, and it may be 1942 before production can get into swing. We are, however, vitally interested. As regards your suggestion of connecting up the supply of the particular fitment you mentioned with the ordering of this type of aircraft; if, of course, the 1942 date 1s anywhere near correct this would make it an unduly long time. I think you know that Sir Henry Tizard is at Washington dealing with these very matters, and I have taken steps to see that he has been made acquainted with our conversation. With kind regards - and may I be allowed to add en expression of the sentiment which all of us feel, of gratitude to you for your personal help in what I believe is our common cause. Joins survey Bagen The Hon. Henry Morgenthau, Secretary of the Treasury, Washington, D.C. Regraded Unclassified 82 September 19, 1940 8:55 a. m. Present: Mr. Bell Mrs. Klotz HM,Jr: On this thing, your memorandum of Sept. 17th, on the recommendation of who should work on the German, Russian and Italian payments, I accept that recommendation. Number 2. Your recommendation about Professor Chamberlain -- in regard to Pehle, I accept that. Mr. Bell: He ought to understand that is tenta- tive. HM,Jr: If you will tell somebody, I would like to see Pehle myself. He ought to get a little more money. Mr. Bell: We thought not for the moment. Maybe on January 1, if he is still in charge, you would give him more money, but he has been promoted pretty fast in the last four months. Regraded Unclassified 83 THE UNDER SECRETARY OF THE TREASURY WASHINGTON September 17, 1940 MEMORANDUM TO THE SECRETARY: Messrs. Gaston, Foley, White, Thompson, Cochran, and I have con- sidered the following matters suggested by you at yesterday's conferences and make the recommendations indicated herein: 1. German, Russian, and Italian payments in the United States We discussed this at some length and feel that all of the material which we have in our possession should be studied by one of Dr. White's employees and Mr. Klaus, who should report thereon to Mr. Gaston and Mr. Cochran, making whatever suggestions they care to regarding further procedures to obtain additional information. We suggest that, for the time being, they confine their studies to the material already in possession of the Treasury. If, after discussing it with Mr. Gaston and Mr. Cochran, it is decided that further information is needed from either the Federal Bureau of Investigation or the Federal Reserve Bank of New York, Mr. Gaston and Mr. Cochran will make those contacts and request whatever 18 necessary. If it is later decided that there is sufficient work to require the full time services of an employee in addition to Mr. Klaus, we will then undertake to secure the services of such an employee. 2. Recommendation concerning Professor Chamberlain's position After some discussion of this matter we recommend that Mr. Pehle temporarily be given the title of "Assistant to the Secretary" and be authorized to administer the Foreign Funds Control section in the same manner that Professor Chamberlain has administered it, except that it might be understood with Mr. Pehle that this is a tentative arrange- ment and that after election you may want to bring in some one from the outside to handle this matter. The committee arrangement should continue, but every effort should be made to reduce the number of cases to be submitted to the committee and also to reduce the length of its meetings. It might even be possible to meet three times & week instead of every day. AWB Deeraded COPY 84 September 19, 1940 His Majesty's Government In Right of the Dominion of Canada c/o British Purchasing Commission 37 Well Street, New York, New York. Dear Sire: We submit this proposal to enter into a contract with you for the construction and delivery of 144 Vultee Model #48-0 Single-Engine Pursuit airplanes, in accordance with Vultee Specification #544-6 Change C. dated January 31, 1940, except as modified herein, plus 15 additional Pratt & Whitney Twin Wasp two speed engines, Model R-1830-$204-0, plus 15 Hemilton Hydromatic Standard propellers, plus spare parts for the above Model #48-C Vultee sirplanes to be selected by you within forty-five days efter your acceptance of this proposal, which, however, must include such spare parts for said sirplanes as are now in process of manufacture at our factories or have been heretofore ordered by us from the pur- veyors thereof. The terms and conditions of this proposal are 08 follows: 1. This proposal is subject to acceptance within twenty- four hours from the delivery thereof, and if accepted, e de- finitive contract is to be executed and delivered within ten days thereafter. 2. The price of each of said airplanes completed in AC- cordence with the specifications and including engine, pro- peller and accessories, and automatic manifold end optical gun- sights not covered by said specifications, but exclusive of charges for boxing and crating or delivery charges shall be $61,043. The price of each of seld additional engines shall be $17,508. The price of each of sald additional Hamilton Hydrometic Stendard propellers shell be $3.764, end your or- der for spare parts shall aggregate B. total amount of not less then $1,758,054.81 United States dollars. The total price of All of the sircraft. engines, propellers end aircraft spare perts to be manufactured, sold end delivered hereunder shall be $10,867,422.39, unless said aggregate total price is increased by reason of your having ordered aircreft spare parts in ex- ceea of the minimum of $1,758,054.81, and the down payment of Regraded Unclassified 85 His Majesty's Government In Right of the Dominion of Canada - 2 - September 19, 1940 50% of said total contract price, or $5,433,711.19 1a to be made by depositing said sum in United States dollars to our credit at The Chase National Bank of the City of New York, con- temporaneously with your acceptance of this proposal. The remain- 1ng portion of the contract price of each item to be delivered hereunder is to be paid to us when said items respectively are ready for delivery at one of our plants or at the plants of purveyors thereof, in the case of spare engines and propellers and such other articles as we may antually agree are to be shipped direct by such purveyors to you. The foregoing prices are exclusive of boxing end creting charges, sales, use and processing taxes imposed upon the manufacturer, if any, insurance and delivery charges which are in every case to be added to the contract price and paid by you, end at your risk and expense we agree to make delivery of all of the aircraft, engines, propellers and sircraft spare parts covered by this contract at such place outside the State of California but within the United States of America as you may designate. Your obligation to accept delivery of said airplanes and to make pay- ment of the balance of the purchase price thereof shell not be dependent upon the procurement of B. license to export same from the United States, but we agree to cooperate with you in endeavoring to obtain an export license. 3. The airplanes and materials to be manufactured and sold hereunder are to be ready for inspection as follows: Ae to airplanes - 2 airplanes not later than October 31, 1940; 3 airplanes not later than November 30. 1940; 7 airplanes not later than December 31. 1940; 10 airplanes not later than January 31, 1941: 15 airplanes not later than February 28, 1941: 20 sirplanes not later than March 31, 1941; 22 airplanes not later than April 30. 1941; 22 airplanes not later than May 31, 1941; 23 airplanes not later than June 30, 1941: 20 airplanes not later than July 31, 1941. As to spare engines, spare propellers end spare parts, delivery will be made of seven spare engines and spare propellers not later than June, 1941. and of the remaining 8 spare engines and spare pro- pellers not later than July, 1941. Our spare parte price list and recommendations 08 to the airplane parts you should purchase will be delivered to you within two weeks after your acceptance of this proposal. Your complete order for spare parts is to be given to us Regraded Unclassified 86 His Mejesty's Government In Right of the Dominion of Canada - 3 - September 19, 1940 n.e. soon 88 precticable thereafter, and in any event not later than 45 days after the receipt of sold price liet and recommen- dations. Having BO received said order, we agree promptly to order from our own purveyors such materials end supplies as are required to complete the ваше, and to commence deliveries thereunder within sixty days after the receipt of said order end complete the anme in monthly installments in substantially the same proportions 80 deliveries of the balance of the Bir- planes hereunder with final delivery not later than August 31, 1941. All obligations with respect to delivery are subject to force majeure and other excueable causes of delay as set forth in Article X of the agreement between the undersigned end His Najesty's Government in the United Kingdom, dated na of July 3. 1940, and are also to be excused without payment of loss or damage by us if consummation of the contract contemulated by this pro- posel 18 enjoined by final decree of B. court of competent juris- diction, or if we are required by government order or final de- cree of eny court to make delivery of said sirplanes end material elsewhere than to you, and upon the happening of any such event so preventing performance of our contract by reeson of government order or final decree of a court of competent jurisdiction, we agree to repay to you All moneys advanced by you to us pursuant to this proposel, less the contract price of any sirplanes or material actually delivered to you hereunder, and after deducting AD amount equal to All costs, damage and expense not otherwise veid by you which we neve sustained by resson of the making and acceptance of this proposal. 4. The definitive contract to be executed if this proposel 10 accepted 1s to contain the same guarantees and warranties with respect to the construction and performance of the sirplanes to be manufactured And delivered hereunder based upon the specifi- cations applicable thereto 89 are contained in the contract be- tween this corporation and His Mr jesty's Government in the United Zingdom, dated D.D of July 3. 1940, end in general, substantially the same provisione with reference to taxes, insurance, represen- istion of purchaser et seller's plant, inspection and tests, change orders, Neutrality Act, labor standards, patents, copyrights and Regraded Unclassified 87 His Majesty's Government In Right of the Dominion of Canada - 4 - September 19, 1940 tradesmarks, contingent fees, corrupt gifts to persons in His Majesty's service, confidential treatment and other applicable provisions. VULTEE AIRCRAFT, INC. By V.C. Schorlemmer, Vice President The foregoing proposal is hereby accepted this 17th day of September, 1940. HIS MAJESTY'S GOVERNMENT IN RIGHT OF THE DOMINION OF CANADA ACTING THROUGH THE DIRECTOR GENERAL OF THE BRITISH PURCHASING By A. C. Boddis COMMISSION FOR AND IN BEHALF OF THE DIRECTOR GENERAL 88 WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF WASHINGTON September 19, 1940. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Dear Mr. Morgenthau: Thank you very much for the following re- ports, which you sent me this date: Part I - Airplanes Deliveries of and New Orders for Airplanes, June 9 - September 14, 1940; Unfilled Orders and Estimated Deliveries on September 14, 1940. Part II - Airplane Engines Deliveries of and New Orders for Airplane Engines, June 9 - September 14, 1940; Un- filled Orders and Estimated Deliveries on September 14, 1940. Faithfully yours, Chief of Staff. 89 OCS ON OCS 17840-203 September 19, 1940. Honorable Henry Morgenthen, It., Secretary of the Treasury, Washington, D. C. Dear Mr. Borgenthau: Thank you very much for the following re- ports, which you sent ne this date: Part I - Airplanes Deliveries of and New Orders for tirplanes, June 9 September 14, 1940; Unfilled Orders and Pst ated Deliveries on September 14, 1940. Part II - Airplane Engines Deliveries of and New Orders for Airplane Engines June 9 - September 14, 19/0; Une filled Orders and Estimated Deliveries on September 14, 1940. Faithfully yours, (sed) G. C. MARSHALL Chief of Staff. DISPATOHED SEP 180 1940 FROM A C are Regraded Unclassified 90 C In mply refor to Initials and No. NAVY DEPARTMENT OFFICE OF THE CHIEF OF NAVAL OPERATIONS WASHINGTON 19 September 1940 Dear Mr. Morgenthau: Receipt is acknowledged of Parts I and II of the latest confidential reports furnished by the Treasury Department on airplane and airplane engine deliveries. Your courtesy in continuing to fur- nish these reports is much appreciated. Sincerely, W.R.Smedberg, III, Lt.Comdr., U.S.Navy, Aide to Chief of Naval Operations. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. JUEVER DELY8JMEWL BIO 26 so VN a 13 at 91 Farm MEMORANDUM September 19, 1940. TO: Secretary Morgenthau FROM: Mr. Sullivan On November 24, 1939, in a conference with Under Secretary [lanes which was attended by Mr. Foley, Mr. Kades and myself, Mr. Hanes showed us a photostatic copy of a mémorandum of November 9, 1939, initialed by the President directing you to work out a policy of depre- ciation allowance by which the abnormal investment in plant expansion that will be required by the airplane motors manufacturers will be absorbed over the life of the contracts or during the emergency period. At that conference Mr. Hanes asked ne to furnish him with a memorandum indicating the extent to which closing agreements might be used to expedite erection of additional facilities for National Defense. That afternoon Messrs. Lauchlin Currie, Kades, Burrus, Appel and Reiling net with me at the Bureau of Internal Revenue and on Novem- ber 25, 1939, we completed a memorandum which I submitted to Mr. Hanes. This memorandum stated that the objective of the President's memorandum might be more effectively approached by revising regulations relating to obsolescense than by any attempt to expand the functions of a closing agreement. On November 28, 1939, in a conference in Mr. Hanes' office which was attended by Mr. Wenchel and Mr. Kades, Mr. Hanes approved the memorandur of November 25th and suggested that the regulations relating to obsolescence might be clarified insofar as the Vinson-Trammell Act was concerned. Mr. Hanes asked me to bring everything I had on Consolidated Aircraft to a meeting the following day to be held with the Secretary. At the conference with the Secretary on November 29, 1939, Mr. Hanes submitted the memorandum dated November 30th stating that Congressional action was required and outlining the two methods which Congress could use to solve the problem: (1) direct appropriations to the Army and to the Navy for the construction of additional facilities and (2) a statute authorizing the Treasury Department to provide for special deductions for amortization. The Secretary disapproved the last part of this mémorandum and Mr. Kades and I prepared a new memorandum which was approved by Mr. Foley, and which on December 1, 1939, the Secretary took to give to the Regraded Unclassified 92 - 2 - President at the Cabinet Meeting. On December 2, 1939, Mr. Kades prepared a memorandum developing in detail the scope of the Treasury authority to assist in the program for National Defense by exercising powers conferred upon it by the Internal Revenue laws in respect to closing agreements, obsolescence allowances and remedies of taxpayers. On December 11, 1939, Mr. Kades prepared drafts of identical letters to the Secretary of War and the Secretary of the Navy, outlining the scope of the Treasury authority and summarizing the applicable laws and regulations. On this same day Mr. Foley submitted to the Secretary a draft of a memorandum for the President which had attached a copy of the letters to the Secretary of War and the Secretary of the Navy, which memorandum stated that the only two solutions of the problem were: (1) the erection of the Federal Government of shadow factories to be leased to private industry, and (2) the construction or financing of construction of such plants by the Federal Public Works. JLS Regraded Unclassified 53 Washington Daily Roosevelt, and on November 10 he decided to make Morgenthau co-ordinator for. the sale of air Merry-Go-Round planes to France and Great Britain Later, on December d. (Trade Mark Registered) Undersecretary of, State Sum ner Welles approved plan By DREW PEARSON and ROBERT S. ALLEN whereby the Treasury, rather EXPIRE disastrens news It la a mixed story. Sume than the State Department escaped the British buziness firms have been 100 passed on the shipment of air- planes to the Allies. recently la the Inct that por ceni patriotic in their sliempt to aid national defense Hitler Goms the Works Grated arma factory in south- England has been severely On the other frand, a great The Morgenthau Idea seemed by German bombs. many have not. Some have to work all right during the win- news has come back to been very much like British and ter, and the Allies laid plans for spending about $7,000.000 on via the diplomatic French munitions firms in their U. S. factory expansion. They millary cables, procrastination over vital was didn't do this very willingly, DUE Anstol plant is one of the orders. Louis Johnson, hard-boued As- important munitions fac- The story goes back to Novem- sistant Secretary of War. saw 10 it that they didn't get the Interal in England. and appar- ber A, 1939, when John Hanes. types of planes unless they paid nos been virtually put then Undersecretary of the extra for plant expansion, and business Coming on top Treasury, submitted a confi- MargentHau backed him up. camage to the Rolls-Royse dential memorandum to the Thus the British paid $739 President advising that Industry to the Curtise Aircraft Company motor plant, this is dev- would have to be given tax con- for putting in new :ools, not only information cessions if It was to expand for for British, but for new U. 3, Numbermore the Germans national defense. Specifically planes. causing a lot more Haney pointed out that airplane One factor upset this program manufacturers could not be es -namely, Adolf Hitler. For by than arta on the press pécted to build new plants to the time he had gone into Nor- end UD the whole the speed up production if, after a way, Belgium and Holland IL diustion nas worsened year or-two, the wat would be became apparent that the United the past week. over and they would be Reft with States was gains til need an emply plants un their hands planes a great deal faster Date motale is still high. So Hanes proposed that the either the British or the United Delley Uvan during the COFE of these new plants lat States could linance plant N. World War, and British amortized in a relatively short pansion-in fact. much faith full are patting up an time so that Industry would not than anyone could build have to pay taxes on them after plants. bettle, Tar surpassing the wer emergency was over. in undividual skill Companies Fear Taxes However, Bravery Morgenthan's Idea Shortly after the invesion airme will nos win Ronsevelt approved this pro- the Low Countries the when the output of social. But when the Hanes' entered into a deal with the We factories such as the memorandum went back to Department and-they though: artne plant is stopped. it. Secretary of the Treasury with Ford LO mantifacture Alergenthau, It ran imo storm? 0,000 Roll=Royce airplane the British may weather. In Tart. this memo tops, 6,000 for Britain and 200 morein and bravery was one of the things over für the United States The which Morgenthau and his was increased somewhall in für optimistic side, have undersecretary quarreled. der to take care of the mus Hanes and Morgenthau both expense to be incurred by Ford Rogal Air Force aviators it) equipping tile plant. an wreaking terrifie dam- are millionaire both able men Congress rushed through a spo- Oerman gasofine plants But Hanes A director or ene CA) appropriation of $43,500.000 factories. The claim- Glenn Martin Attoraft Corpora- to pay for the order. Then Peru reneged dr. IDA Cleiman plants is greater Non, looks A.C. taxes mois from Brink end of the order and mately Only trouble the businessman 5 viewpoint the affer was made to Packard British don't have while Morgenthau looks at taxin which immediately raised the Blany planes AA the Com the viewpoint of collection question of tas amortization. In in perform bombing money to run the Government other zuro Packard said that kind. If they mare to enlarge these in British bombing Therefore, Morgenthau soin plant they didn't want LO have the 420 va 12 Receivelt that he world secure to pay taxes on It after the British hember capacity: enough factory expansion from receipts was over lbe airplane companies. but = This WAS agreeable to the now but not Treasury and the White House. staid of taking is out of govern- But abdut this time the Treas- ment tax revenue, he would ury and the congressional com- make the French and Bruish matters opsidering new taxes struggle pay for it He pointed out time proposed a limit of 6 per cent Bastomal defense gradit on all Army orders This the Allies were placins isrge the same profit limitation the all- suplane orders. and that they enforced OR Navy orders under restain manu- ouid pay American factories a the Vinson Trammell Act, which adjusted eight price E ordes to finance was Inserted in the 1935 naval los most hill through an amendment plans enlargement and pow by Senator Tobey of New III the millibe todis. Hampshire However, the Army This assed a cood to escaped any profit restriction DES Its contracts except for atr planes on shink manufacturer CACE make a profit of 13 per and Regraded Unclassified 94 BRITISK EMBASSY, WASHINGTON, D.C. September 19th, 1940 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information 8 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. 95 Telegram from London dated September 19th, 1940 Royal Air Force During September 17th Blenheim aircreft attacked cargo boats at Zeebrugge and barges at Detend, Antworp, and stelburg. During September 17th/18th, 208 aircraft attacked barges and shipping in French, Belgian, Dutch and German porto, end reilway marshalling yards. Mine laying WGB also carried out. 2 aircreft missing. 2. German Air Force Considering widespread nature of attacks on London during the night of September 16th/17th, comperatively little major damage was done. several railway stations and lines were damaged, but not in e manner to affect main line traffic which is now normal from many termini. Some damage was done to electric power stations, but this is not serious. There were no cosualties in hospitals reported damaged in my telegram of September 17th. Certain main roads in London were blocked and treffic has been temporarily diverted. Preliminary reports indicate that 20 to 30 were killed and 250 to 350 injured, but these figures my be increased when final reports are received. Blight damage and no casualties are reported from l'idlands, except Coventry where 14 people were killed and 21 seriously injured. House property damagetat Liverpool and one person killed and 9 injured. The/ Regraded Unclassified go 96 + The principal energ activity yesterday was attack by approximately 300 circraft during the afternoon. Leading 110 sirereft reached Maldetone, reminder spreading out over Rest Xent. Our fighters obtained interceptions before the energy aircraft withdrew, and Themes Natuery was not crossed. Single enemy aircraft sttacked many places in South Hast England and Portemouth but only alight damage end for casualties resulted. Lest night London was frequently bosbed, and in the provinces chief areas of attack were Liverpool, South Wales and Glasgow. Extensive use was made of incendiary bombs. what are believed to be magnetic mines were dropped in London suburbs end at Tunbridge Wells. Some fires caused in London dooks but no serious damage resulted. Southern Reilway again suffered damage, but not to sein lines. Large number of fires reported in London area, but all are under control. Pigures of casualties not yet available. In Liverpool property was damaged and 24 fires started. Dock in Glesgow damaged by fire. Incendiary bombs dropped at Stranges - no serious damage. Bombing caused considerable damage to house property in Exeter. 3. Summary of air casualties. Enemy by day Destroyed probable damaged by fighters benber 1 - 1 fighters 4 4 1 by anti-aircreft fire fighters 2 by night by fighters bomber 3 - by anti-airoroft fire unknown 2 - - Totals 20 4 2 British/ Regraded Unclassified 97 97 -30 British: 5 aircraft (1 pilot killed or missing). be shipping Casualties. One british ship (5,300 tons) ank by torpedo on September 14th while honeward bound. Convoy of 39 ships, including 19 Allied and 3 neutrel, has crrived in home waters. Cargoes include 8 of pit-props, 15 of lumber, and 8 of steel. 5. Hiddle East Italian advance from Libya reported to be led by 2 motorized metropolitan divisions extended between Sidi Barrani and Sollum, while Libyan division 10 dispersed between sidi Come and Helfaye repering defensive positions. On September 16th Blenheims attacked mechanical transport concentrations East of Buq-Duq, and fleet air arm aircrart made successful attack on shipping in Derna herbour. Hangere and aircraft also destroyed by British air attack on Benina nerodrome. Sudan. Our positions at Bone and Gallebat bombed. September 15th. No casualties. Situation on Kenya front reported all quiet. 5, Projected setion against the United Kingdom. There is no material change in the situation regarding invasion. Regraded Unclassified 98 BRITISH EMBASSY, WASHINGTON, D.C. Personal & Secret September 20th, 1940. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of a supplementary resumé from London for the period September 5th to 12th. Believe me, Dear Mr. Secretary, Very sincerely yours, L Arron The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 99 Telegram from London dated September 18th. The following to a supplementary resumé of operational events covering the period September 5th to September 12th. 1. Naval. German attack on London docks has caused appreciable casualties to merchant vessels Sinkings by U-boat have decreased. Reports of raiders in the South Atlantic and Indian Ocean have been received. There has been a very marked movement of enemy merchant ships and barges westward along the southern shores of the North Bea and the English Channel. Our light forces have been earrying out sweeps off the French, Belgien, and Dutch coasts, during which they have encountered and sunk several enemy vessels. Sweeps have also been carried out towards Iceland and the Norwegien coast by heavy forces, but, spart from a few merchant veasels near the coast, nothing was encountered. 2. Military. In Itelian Sast Africa there are indications that an attack may soon be launched against the Sudan along Asmara-Kassala axis. This/ Regraded Unclassified 100 this offermive may be accompanied by a thrust continuer& towards Kenya, although no abnormel troop concentrations have yet been reported in this region. there 10 further evidence in Italy of & lack of enthusiam for the war) of a desire to preserve intact as long as possible the Italian areed forces in the hope that German offensive against Great Britein will bring victory at little cost in Italian blood and of serious effects on the morale and industry of R.A.F. attacks on Northern Italy. 3. Royal Air Force. Our bombing operations against Germany were on a similar scale to those of the previous week, but, in addition to continuing our offensive against the usual targets, a considerable sugmentation of series of attacks vas directed against concentrations of barges and shipping along the coaste of France and Holland. A number of varied targets in Berlin were bombed with satisfactory results. Attacks against Italy were restricted to a night raid on Turin. The enemy's tactics at first consisted of reserve and unsucceseful attempts to break drum our fighter defense by further attacks on British serodromes. Later G. now phase developed and attacks were directed with the object of disrupting communications and creating chaos in Loadon dock area. & third phase followed which comed to have M its aim the demoralisation of/ Regraded Unclassified 101 of the civilism population by indicoriminate night bouhing. Although general demage has been considerable no serious dislocation of the country's war effort was caused. It is satisfactory to note that in spite of the enemy's attacks on our aerodromes no aircraft were lost on the ground during this period. Our aircraft successfully attacked a number of enemy aerodromes on Libyan In East Africa several Italian aircraft were destroyed or damaged on the ground by bombers of the South African Air Force. The most destructive raid took place on the afternoon of September 7th against London dooks area by about 250 aircraft, and continued throughout the night. Bombing was accurate and considerable damage resulted. Righty of the ensay were destroyed by our fighters, and large seale deylight attacks were not repeated until the 11th, when equally heavy losses were sustained w the attackers, this time without any 002- peneating success. A feature of the enemy's daylight attacks has been the very heavy fighter protection provided for his bombers. led Regraded Unclassified 102 4a German Air Force. The dispositions of the German Air Force remain substantially unchanged. The two long range bomber formations from Norway are now stationed in Belgium. The short range dive bomber force, which was withdrawn from operations against this country on August 18th, has not been concentrated in the Calais area. The examination of over 100 prisoners shows that the morale of the German Air Force is still high. This is specially 80 amonget fighter pilots - high morale of heavy bomber crews being not quite so outstanding. A report by a medical officer says however that many of the prisoners show signs of nervous exhaustion. There is no apparent shortage of trained pilote. Italy. The 200 Italian pilots who were undergoing dive bombing instruction in Germany were recalled to Italy before the completion of their training. The reason for this curtailment was stated to be that the physique of the Italians was unequal to the strain. 5. Switzerland. There is reason to believe that the Swime Government under German and Italian pressure may be forced to take more serious measures to secure interceptuon of belligerent aircraft. It 10 reported that an order has been given to station anti-aireraft batteries high in the Swice mountains. 60/ Regraded Unclassified 103 6. Home Security. Damage caused by enemy bombing has been regularly reported in daily telegrams during the week as it occurred. Nearly all of those factories in Birmingham and Coventry, which in the last few weeks have sustained demage, are now on full production. None of the damage caused to electric power stations has caused more than a temporary failure of electric light or power; but a large area of East London has been out off from gas supplies for at least a week, owing to damage caused at a gas works. Casualties for the week ended September 11th were 1,211 killed and 5,547 wounded. These figures include 976 killed and 4,149 injured in the London area. Unexploded Bombs. Arrangements have been made not only to strengthen bombs disposal sections, but to add to them a number of trained men, who can carry out reconnaissance of the site of reported unexploded bombs. It is hoped that this procedure will save a considerable waste of effort on the part of the sections themselves, who are frequently called to places unnecessarily. Although/ Regraded Unclassified 104 Although there have been many casse of direct hits and near mines on shelters of all types, public confidence in them remains high, Large number of people take their beds to a public shelter every night. One shelter had a direct hit while some thousand people were inside, 162 casualties resulted, whereas of 600 refugees in a school which was hit in West Ham over 200 people were killed and many more severely injured. The civil defence services have been very heavily engaged and have endured long hours of very heavy duty with efficiency and cheerful- ness. Remarkable examples of skill and determina- tion have been reported from all services, and in at least one area they have been officially thanked for their work by a deputation of members of the public. 7+ Operational Aircraft Casualties. British In the Air On the ground Bombers 25 - Fighters 114 - Coastal 4 - Total 143 - At least 69 of the fighter pilots are known to be safe. Destroyed Probable Damaged Bombers 114 51 62 Fighters 153 44 51 Missellaneous 32 2 21 Total 299 97 154 N.B./ Regraded Unclassified 105 1,4 Included in the above are 15 destroyed, 2 probable and 10 damaged by anti-aireraft fire. No account is taken of German aircraft destroyed on the ground. Middle Rast. British In the air On the ground 3 - Italian Destroyed Probable Damaged. 17 11 14 8. No. 1 Canadian Squadron Hurricanes has been in action on most days during the period September 1st to 15th. This squadron has destroyed 8 enemy aircr ft (and probably a further 6) and damaged 16 others. During this period the squadron has lost 11 aircraft, 4 of the pilots of which were killed. During the same period the Natal Squadron (Spitfires) has also been heavily engaged. They have destroyed 26 enemy aircraft and probably a further 15, while they have damaged 16 others. During these engagements they lost 8 aircraft, although some of the pilote were saved. Regraded Unclassified 108 September 19, 1940 MEMORANDUM To: The Secretary From: Mr. Young Re: Possible Increase in Production Rate of Sperry Bomb Sights. At the present time Sperry Gyroscope Company has an order for 100 Sperry 0-1 bomb sights for the Air Corps. These will be produced at a rate of 20 per month and 15 have been delivered already. The Air Corps has planned to start production on a slightly improved bomb sight (Sperry F-1) in April thus losing any advantage which might be secured in price and in quantity by increasing the rate of production of the 0-1 bomb sight now being delivered. If Sperry could secure an order of 1,000 of these 0-1 bomb sights, 500 for the Air Corps and 500 for the British, the production rate would be increased to 100 per month in approximately six months and the cost would be cut by 30 to 40 percent. The additional expense necessary to bring about this increased rate of production would be relatively negligible and represented solely by some additional tooling. P4. 107 September 19, 1940 MEMORANDUM To: The Secretary From: Mr. Young Re: Increase in P-40 Production. The production rate of Curtiss P-40's will be stepped up by 33% because the Advisory Commission, the Air Corps and the British Purchasing Commission have agreed to build this one type for a definite period and so take advantage of mass production methods. Specifically, the production rate of increase is from 6 planes per day to 8 per day, or from 132 per month to 176 per month. The approximate cost of this production increase is only $190,000 ($150,000 for tooling and $40,000 for building) as against the initial cost value of the plant of $6,200,000. This specific instance of the P-40 demonstrates how the production rate can be increased from 20 to 40% at little additional cost where there is a sufficiently large order for a standardized product over a period of time long enough to take advantage of modern production methods. Py. 108 September 19, 1940 4:00 p.m, H.M.Jr: Hello. Operator: Mr. Purvis. Arthur Purvis: Hello. Good afternoon, Henry. H.M.Jr: Hello, Arthur. P: Yes, Henry. H.M.Jr: Where are you? P: I'm over with Mr. Vance for a few minutes on machine tools. H.M.Jr: Oh. P: I'd like to see you too - could I? Would ten minutes from now be all right? We're in rather an important meeting on that machine tool ..... H.M.Jr: No. I can't do it just now, I just wanted to tell you that the mission I undertook which I told you I was going to ..... P: Yes. H.M.Jr: You've heard about it? P: No, but you told me you were going to. H.M.Jr: Well, I met with even more favorable reception than I possibly could have hoped for. P: Oh, really. H.M.Jr: Yes. And if you think that that word would be encouraging ..... P: I think it would be, very. H.M.Jr: I think you might send that along. 109 - 2 P: Can I translate it into any practical issue. H.M.Jr: No, I think we'll have to wait. They hope to get it down in black and white and get his formal okay on it by the middle of next week. P: By the middle of next week. H.M.Jr: Yes. P: But it might be better than one-for-one, do you think? H.M.Jr: Pardon? P: Do you think it might be better than one-for-one? H.M.Jr: No, just what I said yesterday. P: Just what you said. H.M.Jr: No, but through until the first of July. P: Uh-huh. Oh, yes, I mean, that could be very valuable. H.M.Jr: Oh, yes. You saw the figures. P: Yes. Oh, yes, I think that's simply wonderful. H.M.Jr: Right. No, I think that you'd better go through with your machine tool thing and if you're in town tomorrow and still want to see me why maybe we can fix it up. P: I think I'll stay over in the hope of having a word with you tomorrow because I think I'd like to sit down and ask your - just advice on the other question of the financing thing - just to sit with you for three or four minutes and get your central thought. H.M.Jr: Oh, that's fine. Are you going to stay over Just for that? P: I think I shall stay over just for that. H.M.Jr: Good heavens! 110 - 3- - P: Well, after all, these are the important things. H.M.Jr: Well, will you call up McKay in the morning? P: I will. H.M.Jr: Right. P: Thank you very much. H.M.Jr: Good-bye. P: Good-bye. 111 H TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 20, 1940 TO Secretary Morgenthan FROM Mr. Cochran STRICTLY CONFIDENTIAL At the Staff meeting yesterday forenoon I brought up. the question posed to me on the preceding day by Mr. Lochhead in regard to Chinese contracts for powder in the United States. The Secretary told me that this powder should go to the British and that I should, with the assistance of Mr. Philip Young, work toward such an arrange- ment between Mr. Lochhead and the British. After coming out from the meeting I telephoned Mr. Lochhead in New York. I told him that I had spoken with Mr. Adams of the Far Eastern Division of the State Department the preceding evening. Mr. Adams had called ne back this morning. stating that he had discussed the matter with Dr. Hornbeck and Mr. Hamilton of the Department of State, and also with Mr. Green of that Department. There was no objection on the part of the Department of State to the Chinese obtaining storage facilities from Government departments in this country. The State Department was, in fact, desirous of rendering any appropriate assistance to the Chinese. With this in mind, the tate Department had talked with Colonel Burns of the Ordnance Department of the Aray. The latter had stated that if the powder contracted for by the Chinese is of suitable gramulation, the United States Army would be willing to take this over and then repay the Chinese with a similar amount at such time as the Chinese may desire delivery. I also told Mr. Lochhead of the Secretary's views on this proposition. Lochhead stated that there were plenty of opportunities to sell the powder, but that China was particularly interested in having the facility for imediate delivery of a similar amount of powder whenever shipment into Chine may be feasible. Ee promised to talk over the question further with his associates, and to get directly in touch with Mr. Young whenever their study in New York is completed. At 10:15 this morning Mr. Young telephoned to ask no if I bed heard from Mr. Lochhead. I replied that I had spoken with Mr. Lochhead yesterday after the meeting, and that it vas my understanding that Mr. Lochhead would call Mr. Young as soon as he was ready to talk on the matter. Mr. Young told ne that Mr. Purvis was in his office, and had shown him a memorandum of the Chinese powder situation, giving details along the same lines of those which Mr. Lochhead had provided me. In response to my inquiry. Mr. Young stated that the duPont people had given this infor- nation to Mr. Purvis. Mr. Young stated that Mr. Purvis thought an arrangement could be made whereby the British, if permitted to take over the Chinese powder deliveries now, would allot from their own deliveries such repayment as and when the Chinese desired. After this conversation, I again telephoned Mr. Lochhead and reported that Mr. Purvis vas here, with full information on the Chinese powder contracts. and Regraded Unclassified 112 - 2 - interested in making some sort of a deal. Lochhead stated that his people had not yet taken a decision, but that he would get in touch with Mr. Young as soon as practicable, with the possible view to a meeting with Mr. Purvis or one of his assistants. Lochhead still has certain reservations about selling to the British, especially considering the fact that it is the British blocking of the Burma Road which makes impossible the delivery of this powder to the Chinese. I told Mr. Young of this last conversation with Mr. Lochhead. jush 113 September 20, 1940 9:00 a.m. HM Jr: I am a little under pressure this morning so I will let you talk. Purvis: Fine. I won't bring anything - the first thing I wanted to ask your advice on was this RFC situation. We have now got them with a couple of letters which I think put the is- sue on the real basis; namely, that U.S. defense needs are 20 per day, and whereas the appropriation only enables them to order 10 per day, and we, of course have the advantage that if our order goes in - the U.S. has the advantage that skilled labor and executive talent is trained on a larger basis, and they don't lose but are taking the products in the meantime. That has been put crystal clear to the RFC, and we are terribly anxious to get this patent established even if it is only this once. And, of course, it all depends now as to what is the way to crystallize it with the RFC. I have hesitated to go to them because both Young and myself feel, I think, that to go over there introduces and emphasizes too much the British angle to the situation which Jesse Jones does not want in the picture. He has said and Schram has said in a meeting that if it is a fact that the Army and the Defense Advisory Com- mission want a capacity of 20 per day as being essential to U.S. defense needs they would go ahead and do the thing. Now he said that to me you see in a way, but I know he was rather sheering off for the time being. Nevertheless to hold up the defense program, because that is what it comes to almost, must be 8. rather difficult thing from his view, and it was just a question of how it could be brought home to him. HM Jr: What do you think, Phil? Young: I think if it does not jell this week I don't know when it will, and it is ready for the final pushover the top. I think this is the strategic time to have it done because if it is not done in this instance I don't know when it ever will be. Regraded Unclassified 114 - 2 - HM Jr: Why don't you do this, Phil - there are so many personalities in this thing - go over and see Schram and say now look, the English Purchasing Mission are on your neck; when can we get an answer; what if anything can they do to accelerate it? Ask Schram, "Will you, Schram, advise Phil Young what to do?" See? I think I would try that this morning. Young: No, I don't think it will do any good. Schram is going to talk to Jones this morning, I know, on that. HM Jr: Didn't Schram tell you? Young: He told me the other day he couldn't do anything except present it to Jones which he is doing. HM Jr: Well, Jones is coming in this morning. Supposing I ask him point blank? Purvis: For it is on the basis of U.S. defense needs with the British not there at all. HM Jr: The last time I talked to him they were waiting for something from you. Purvis: We have given him two letters. We haven't, but both the Defense Advisory and the Army have given him specific four-line bald letters that this is required essentially for U.S. defense. HM Jr: This is just the Continental thing? Purvis: Yes, but it is the patent for the whole thing. HM Jr: Supposing I call him up on the phone and ask him? Purvis: I think it is a good idea because it is based purely on U.S. defense. We can keep the British end out. Regraded Unclassified 115 - 3 - Young: It has nothing to do with the British. Purvis: It is really on the U.S. basis now. HM Jr: This is the Continental engine? Young: Yes. Purvis: Yes. They have gone so far - I mean the Army has burned its boats completely and with full approval of Patterson and Stimson. HM Jr: Supposing I do it another way? Supposing I ask Stimson to ask Jones? Young: I thought of that yesterday and almost suggested it to him last night. I think that's much better. If Stimson would call Jones and say, "I told you I wanted a production capacity of 20 tanks a day." Purvis: "What are you going to do about it?" HM Jr: I think that's better. Young: And remember - - Stimson called in Patterson to write the letter, and Stimson is going to be after you to follow this through because Stimson brought in Patterson to get the letter written, and Patterson got Gen. Harris and Colonel Lewis very enthusiastic about it. (At this point HM Jr tried to reach Secretary Stimson on the phone but he was not available.) HM Jr: I think that's the best way. Young: The stage is completely set. Purvis: The job has been done well. 116 - 4 - HM Jr: Do you (Young) think that's the best way? Young: Yes. If you can get Mr. Stimson to call up Jesse Jones and say, "Look here" - and say nothing about the British Purvis: That's the point. Young: ... "I want my tank engines." Purvis: And that fits in with what Mr. Jones said to me, "If they come to me at the top and don't get it too far down and put it on that basis, I am prepared to do it." HM Jr: Is that what you had in mind? Purvis: That was the chief thing. The other thing Mr. Jones would probably say he is waiting on the British. That is not so on this purely national defense basis. HM Jr: If that is 80 then I would say to Stimson that if they say they are waiting on the British, could he suggest to Jones that Jones send for Purvis at once? Young: No. HM Jr: Why not? Young: Because that brings the British into the picture and you don't want them in the picture. Purvis: Could you in that case get Patterson to work it with Young? Put them together on it. HM Jr: I will just ask Stimson to get the low-down on it and see if he could push the thing through, and if there is anything I can do let me know. Purvis: I think this is very vital because with that patent established we have something which I think could be used as 8 spearhead of a very important move. Regraded Unclassified 117 - 5 - HM Jr: I think the thing to do is to do it through Stimson. Purvis: I suppose the President himself would not take a part just now. HM Jr: No. Young: Did Jones talk to the President? HM Jr: I don't know. Anything else? Purvis: The only other thing is whether you had any particulars you could give me in a general way 80 I could indi- cate what it might mean ... HM Jr: No. I don't want to make the mistake - I never have - of making any half-forecasts and then disappointing you. Purvis: No. Quite. HM Jr: But what I am going after for your information ... Purvis: Quite. HM Jr: ... is wherever the Army has an excess - not excess - has deliveries in excess of what you people are getting between now and the first of July on fighting planes ... Purvis: Fighting planes? HM Jr: I am going to go for everyother one ... Purvis: And it looks as if it might happen? HM Jr: ... on every manufacturer, and where it is nec- essary to supplement the orders, I'm going to make 8. commitment on your behalf. Purvis: Yes. Quite. Regraded Unclassified 118 - 6 - HM Jr: You can always throw me down. Purvis: We have not been in the habit of doing that very strongly. HM Jr: I am going after - and I will give you 8. little indication - I have a memo here where they have worked out on the PBY 5s - it's all worked out but it only went for 50. I said, "That's very nice but it's no good." What do you mean?" I want to do it to the first of July. This only ran through April. Purvis: Yes. I see. HM Jr: So I said, "Run it through to the first of July." Purvis: Yes. I see. HM Jr: What I am crowding for is that the Army and Navy have this thing so they can put it on the President's desk the middle of the week so he can say yes or no, and I think he is going to say yes. And I haven't figured it up but it ought to be good for 500 or a thousand battle planes between now and the first of July. And with this thing - these are all bombers - should go the new bombsight, but I am meeting - both Patterson and Forrestal are coming at 10:30 this morning - on this. I haven't lost any ground. I have got my clearance from the President, but I think it is much better to play it down. Purvis: I think that's right. HM Jr: Play it down and be able to say, "Now, we have got this, particularly in view of this whole destroyer mess. Purvis: By the way, I have got Lothian to hold off any- thing except those four items which originally came in, and he has written his letter to Secretary Hull along the lines of what his understanding was from the President in regard to those four items, and he has cleaned out the balance. Regraded Unclassified 119 - 7 - HM Jr: And another thing by not sending messages on this it won't mix the two deals up. No ground is lost. I am pushing for all I am worth. You are not losing anything, and if another message came that might mix the two things up. Purvis: Could very easily happen. HM Jr: So I think you have everything to gain. And if you would make a mental note - for Heaven's sake, whoever is handling publicity - on the radio this morning - - you don't want the Nile to ask for any submarines for the next day or two. Purvis: Is there something? HM Jr: I have heard of it. But I think what happens - Louis Beal feeds this stuff to the White Committee and the White Committee gets it ... Purvis: Submarines is an entirely new thing. HM Jr: Anything in the next few days, I think if they just lay off. Purvis: Yes. HM Jr: And I sent word to the White Committee, "For Heaven's sake, lay off," because I gather somebody is pushing on the old flying fortresses. Purvis: Which frankly I think is a great mistake. HM Jr: You don't want it if you can get this stuff, 80 put a bee in somebody, "For Heaven's sake, pipe down." Purvis: Absurd. I must see. I don't know about that or where it is coming from. HM Jr: I imagine Beal is using this other committee as a front. Ike Bergen - - whatever his name is of the White Com- mittee ... Regraded Unclassified 120 - 8 - Purvis: I have never met any of them. If there is anything coming out of ours, we will stop it. HM Jr: Because I don't want - the other thing - are you catching a plane? Purvis: No. No. HM Jr: The other thing - I am not saying anything to them at this time about any training planes. Purvis: No. HM Jr: See? But over the weekend and not later than Monday have in my hands - I say Monday, if I could have it Monday afternoon - what your minimum needs are on training planes from now until the first of July. Purvis: Yes. HM Jr: Because if you could squeeze out some - I'm not saying anything to anybody about this - but if you could squeeze some out between now and the first of July, it would leave a much better taste. Purvis: Quite. HM Jr: Because I had Knudsen last night and Knudsen said, "Well, you know you need not sell me on anything for the British. They can have it all as far as I am concerned." But he said, "What we need is training planes." If it is something you could squeeze out ... Purvis: On the training end? HM Jr: If you could squeeze out something on the train- ing planes and say, "We are doing the fighting and you are doing the training," it would leave a much sweeter taste. Purvis: I can see that. Dearaded 121 - 9 - HM Jr: Tell them to take all the padding out and get down to bed-rock - what's the minimum they could get along with between now and the first of July? And you could say in view of what is coming you could forego this if there is something. It would make a much better aftermath. Purvis: It is a good approach if we can do it. HM Jr: Say to the fellows in Canada who have the train- ing program, "Look, boys, no kidding. You have so many on order and this is what you want. What do you really need?" One of the things - - I don't know if it is at all practical - - if they bring these fellows down to train them in these commer- cial schools, haven't these commercial schools got planes? Purvis: I don't believe 80. We are always up against the need for advanced trainers. HM Jr: You have sufficient confidence in me so I can put it in my vest pocket so at the right moment I could say, "Look, gentlemen, in view of what you have done ... Purvis: Yes. HM Jr: " I am going to do this," but I will only do it as a last resort. Purvis: Quite. Fine. I don't want to bother you about anything else. I have one or two minor things but I won't bother you. I am terribly anxious about this RFC thing. That weighs on my mind. 122 Persphrase of Code Radiogram Received at the Har Department at 8:40 A.M., September 20, 1940 CONFIDENTIAL Chungling, filed 05115, September 20, 1940. Japanese expected shortly to enter Inde-China according to the American Consul at Hanoi. Informed opinion here is that there will be little if any French resistance. While Chinese military headquarters has restated the Chinese intention to enter Indo-China regardless of French action, the recent destruction by the Chinese of the railroad bridge spanning the Red River at Laokay (en the border) and their reported intention to destroy the southern 70 kilomsters of the rail line through Tunnan prov- ince cause most observers here to think that Chinese action will probably be confined to taking up positions along the border, with possible limited penstrations at some points. Chinese military leaders feel that Admiral Decoux and the Vichy Government have both been attempting to mutually shift responsibility for the French decision. They likewise state that they (the Chinese) have from the beginning expected the French to eventually capitulate. BARRETT Distribution: Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff War Plans Division Office of Naval Intelligence CONFIDENTIAL Regraded Unclassified 123 September 20, 1940 9:00 a.m. H.M.Jr: Hello. Coerator: Drew Pearson. R.K.Jr: Hello. Drew Good morning, sir. Feareon: E.K.Jr: Hello, Drew. is Sorry to bother you. I wanted to warn you that my - our friend Bob Doughton is on the warpath and I think he's coming down to see you. H.M.Jr: Well, this is what I know about it. I told Johnny Sullivan to keep his shirt on yesterday and do nothing, which he did. P: Yeah. H.M.Jr: Yesterday afternoon publicly Doughton was very affable. Then after the meeting he again got hold of Sullivan and gave him hell and he is demanding to seo me, SQ in B little while I was going to call him up on the phone and find out what it was all about, see. is Yeah. H.R.Jr: But my attitude 16 - well, I'm not responsible for what you fellows write. #: Well, absolutely, or you would have changed some of the thinge we wrote about you. H.K.Jr: And how often. P: (Laughs). H.h.Jr: As a matter of fact, I can't remember whether I did or didn't tell you about this president of the tobacco company. Regraded Unclassified 124 2 P: Well, you gave me a tip on it but naturally I haven't divulged that to anyone. He called me up and raised hell first with me and then he said, well, where did this come from - the Treasury? And I said Congressman you know that I can't divulge any sources as to where I get stories and as a matter of fact, I said, the Treasury in the past has always been singing your praises, said you were cooperating very excellently with them. I said, I don't think they feel quite the same way about you this time but I said they didn't inspire this story if that's what you mean. H.M.Jr: Yeah. I appreciate your calling me up. He also - I gathered that he hoped to see you. P: Well, I have an engagement with him at 12:30 this morning and I thought I'd try to soft- soap him and calm him down, but he's threatening to go on the floor of the House, which I don't give a damn if he wants to do that, and denounce us. That's all right, but I just didn't want to get you into any trouble about it because he's on the warpath against you. H.M.Jr: Well, we are right now in hot water on it, but we've been there before and as far 86 the tax bill is concerned, I've got a clear conscience and I don't think that he has. P: Well, I don't think that he has either. I told him - the nearest hint that I gave about the story, I said, well, I'd talked to some of the members of the Committee - your Committee - and I indicated, I didn't exactly say it, that that was the chief source of the story. H.M.Jr: (Laughs). Good for you. P: But when he tried to pin me down on the Treasury I said, well, I can't tell you anything about that. I said the Treasury has been fine in singing your praises in the past. I sort of let it go at that. 125 - 3 - H.M.Jr: Well, did some of the members of the Committee help you out? P: Well, we did 8. little - I didn't do it personally, but we did a little checking up there and I think Jere Cooper feels pretty much as the story indicates. H.M.Jr: Well, the Committee is a big Committee, they're 26 members. P: Yeah. H.M.Jr: Well, I appreciate - we are in a hot spot, and I gather he's angrier than he's ever been before. P: Well, I may have to write something just to kid him along and make him feel better. I'm going to try to soft-soap him if I can. When are you going to talk to him? H.M.Jr: I'm going to talk to him in the next fifteen or twenty minutes. Foley and Sullivan are coming in here. P: All right. H.M.Jr: I'm going to talk to him while they're here. P: All right, swell, and if anything happens that I ought to know before 12:30, let me know. H.M.Jr: I'll have one of the boys call you. I may not be able to do it myself. P: All right. Thanks ever BO much. H.M.Jr: Thank you. 126 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 9:30 this morning Mr. Collado called no from the Department of State. He inquired as to what information the Treasury Department was receiving in regard to financial transactions with foreign countries which might be of interest in connec- tion with our national defense. Collado was familiar with the reports of capital movements which the Treasury requires from the Federal Reserve Banks. I reminded Collado that the Treasury's Secret Service was not in the field of gathering information of this type, which had been left to the F. B. I. I did tell him, however, that through the Federal Reserve Bank in New York we are currently receiving data with respect to important transactions carried out by the leading banks in New York for Italian, German and Russian account. Furthermore, the 7. B. I. gives us certain information on transactions of this character and has been re- quested by us to amplify its reporting on international financial transactions. Mr. Collado informed me that he was making this inquiry since the question was up with a group in the Department of State as to whether some system should be created for obtaining information of the type under reference for the benefit of this Government. Collado thought the Treasury was the proper agency for assembling such data. I confirmed that the Treasury was doing as much as it thought could wisely be undertaken in the circumstances, but would endeavor to improve its system, with the cooperation of the F. B. I. and the New York banks. To avoid duplication and possible embarrasement to the Government, I suggested to Mr. Collado that no new investigations should be started. I told him that such information as we obtained would naturally be made available by us to the State Department if the latter is interested. I stressed. however, the fact that the various reports reach- ing us required a lot of sifting and analysing and that it would be of little use to the State Department to give it the material as received. Mr. Collado agreed to inform the State Department committee along the above lines and to keep in touch with ne on the subject. B.M.P. 127 September 20, 1940 9:40 a.m. Secretary Stimson: on that kitty for South America - you know - you know the project? H.M.Jr: Yeah. S: Now apparently Pan America wants to borrow money from Jesse first for the first three months or after, and Jesse wants me to write a letter virtually guarantee- ing that out of the kitty - in case - that it'll come out of that in case of any trouble with Pan America. Well, now it seemed to me all right as it all comes out of Uncle Sam and it's just a question of whether it comes - if there's any loss whether it comes out of Uncle Sam's 12 million kitty or his R.F.C. Now, I thought that Jesse WAB entitled to the - he wants to keep it in the form of - which would be regular under commercial banking and I thought he was entitled to that, but I don't know what your custom has been in regard to that kitty. I ran into a block from -- my Judge Advocate General presented me with a block based, as I think, upon a false premise, that I couldn't spend that money from an appropriation - I couldn't make the guarantee - but it isn't a War Department appropriation. I retaliated by pointing out that I was not speaking as Secretary of War; I was speaking as the President's agent - it was his money. H.M.Jr: Yeah. S: Now, has that come up before? H.M.Jr: No. It's something brand new. S: Well, do you think I'm right or wrong? H.M.Jr: I don't know. I'd have to have something & little bit more. Would you want one of my attorneys to go over there and take a look at it? 128 - 2 - B: Well, I'll wait until I hear what my Judge Advocate says to my retort. H.M.Jr: I see. Well, if you want any ..... S: I'll see. H.M.Jr: I wouldn't - I just don't know enough about it. S; I mean, I don't know how - the principle - I have a good opinion of Jesse, as I think we all have, and I've been trying to help him in his efforts to keep the R.F.C. on sound banking principles. H.M.Jr: That's right. S: And as this 1s really - - in substance, this 16 really a payment by the U. S. from the kitty for certain expenditures and Jesse comes in simply as an interim banker and why he shouldn't be allowed to shape up on that H.K.Jr: Well, I wouldn't know. Of course, my feeling - 1f you ask me my feeling on it ..... 3: Yes, I do. R.M.Jr: as between the R.F.C. and a kitty of ..... the regular appropriation, when this thing 1s over it's all going to come out of the Treasury anyway because If the R.F.C. has a loss, we've got to make it up; if this fund 18 lost, we have to make it up so it's six of one and seven of the other and of course let Jesse 3: We have to make it up. What do you mean? R.M.Jr: The Treasury. I mean, let's say ..... 3; You mean you have to make it up out of texation. H.M.Jr: That's what I mean. in Well, that I understend, but I mean the kitty fund was made for just these purposes. 129 - 3 - H.M.Jr: Well, from what you tell me and if it's legal and it makes Jesse happy, I think I'd do 1t. S: Yes, that was my opinion. H.M.Jr: I think I'd do it. S: That was just my opinion. It seemed to me that it didn't make a bit of difference as far as Uncle Sam was concerned H.M.Jr: I don't think it does. S: ..... and it kept Jesse's banking methods above suspicion. H.M.Jr: And I know how he feels about those things. No, I think from what you tell me I would be inclined to go along with him. S: Well, that's what I thought. H.M.Jr: If after you've talked to him on this Continental engine thing for these tanks you could give me a word why I could pass it on to Purvis ..... S: Well, I'll try to pass it on. I'll try to do it, Henry. H.M.Jr: Thank you 80 much. S: All right. H.M.Jr: Thank you. 130 RE CENTRAL REPUBLIC TRUST COMPANY September 20, 1940 10:00 a.m. Present: Mr. Helvering Mr. Wenchel Mr. Foley H.M.Jr: All right, let's go. Helvering: These cases all have arisen, a great many of them, as a result of the legislation passed in 1933, effective June 3 of 1933, which divorced the trust affiliates from national banks and caused them to dis- associate themselves from the national banks. Those were accomplished during the latter part of 1936. A great many of these banks had weak affiliates. In some of them, the banks were weak and in some of them, they were rearranged. That is what caused it. Now we come up to the place where these people commenced to adjust their taxes in ¹³⁴ as a result of these various actions taken. The Central Republic Bank of Chi- cago was one of them among a great many cases. Foley: That is the Dawes bank. Helvering: I would like to have Mr. Wenchel give you the detail as to what happened there in that bank. Go ahead. H.M.Jr: Go ahead. My time is limited today. Wenchel: I will make it very short. The Central Republic Trust Company, andaffili- ate - the Central Republic Trust Company went sour and that left only the stock -- H.M.Jr: Excuse me a minute. I have a telephone call. (Unrecorded telephone conversation) 131 - 2 - Wenchel: That left the owners of the stock with just the investment company, which was the affili- ate. There never was any stock issued. It was simply endorsed on the shares of the bank stock and gave them a beneficial interest in the investment trust. Then the owners wanted to take the losses on the basis of the stock bank. We will take one particular case. They wanted to deduct $300,000 for losses sus- tained by reason of the bank stock going sour, and then put a value of $38 on the rest of it, and we said no, they couldn't do that. You can't tell what the value is until you have sold both. We lost the case when we - the first case we tried, the Hager- man Case. Then we tried another case, the DeCoppet Case, and we won that. Then came along a third case and we won that. However, a number of people thought that we should follow the Hagerman Case. H.M.Jr: Which you lost? Wenchel: Which we lost, and there is, of course, some- thing to the argument that you can't differen- tiate them. However, we think - that is, I thought that under the DeCoppet decision the language used was sufficient to overrule the Hagerman Case if we ever got another case up before the Supreme Court. H.M.Jr: Have you one now? Wenchel: Well, we won the DeCoppet Case in this way. H.M.Jr: What is that? Foley: That is the one that held you couldn't make a severance and that you had to sell both fully before you could determine the value 132 - 3 - and establish 8 loss. We had conflicting rulings of the Third Circuit in Philadelphia and the Second Circuit in New York, and we appealed from the decision in the Second Circuit to the Supreme Court, and they won. Certiorari was denied. This case, as I under- stand it, is before the Board that Clark wants to settle now, and there is also another case involving the same shares of stock, or stock in the same investment company, in the District Court out in Chicago. So I don't see as we can settle this case at all. I think we have to let the Board decide, and if they want to appeal from the Board's ruling, we will let the case go on up. Otherwise, it seems to me we will just have the administration of the Bureau in a hodgepodge. We won't know what to follow. H.M.Jr: What is this memorandum that Hanes refers to? Helvering: Well, I don't know whether you recall or not. We were in and talked to you on that and you told us to go out there and get together and you told Sullivan to go with us and get to- gether on this and work out something. H.M.Jr: Was Hanes here at that time? Foley: Yes, and Sullivan was still over in the Bureau. H.M.Jr: I couldn't remember. Helvering: Oh, you don't -- Foley: I didn't remember that, either. I talked to John last night and he said that at first he agreed with Sullivan - or I mean, with Hanes, and then when he talked with Philip afterwards, Philip showed him that John was wrong, and he agreed, after he talked with Philip, with Phil's position, and he agrees now that we shouldn't 133 - 4 - settle the Clark Case, and apparently John Hanes had told the taxpayer that he would have the thing settled, and he was quite annoyed with Phil, Phil tells me now, and I remember him mentioning it to me at the time, because Phil refused to go along with his interpretation of the law and what he thought ought to be done. Helvering: Well, it was perfectly natural for Hanes to tell this fellow that, because I made a recom- mendation that we, in those cases where it was clearly a divorcement, go ahead and settle it. I sent this memorandum over here and Hanes endorsed it, or I mean he signed it. Wenchel: Then the Commissioner talked to me and I told him I thought it was wrong, and then he told John that I said it was wrong, and then another conference was called and it was decided not to do anything about it. H.M.Jr: It was decided not to do anything? Wenchel: That is right. H.M.Jr: Then your record is all right. Helvering: Hanes, though, had told this fellow that that was all settled; he remembered signing the memorandum. And Clark told him it wasn't settled. So that is a -- Foley: I think we have to let the case go to the Board, Mr. Secretary, and let the Board decide. H.M.Jr: Are you all in agreement on that. Helvering: Well, I have always looked at it like this: Basically, these men had losses, there is 134 - 5 - no question about that, and we were in a way taking advantage of & technicality about the losses; that is, he was not getting the benefit of losses which he actually had, but at the same time if we - we understand now that the Department of Justice has a case which they say they can absolutely over- rule -- H.M.Jr: Well, the point is, after this memorandum came over and after Hanes signed it, there was a subsequent meeting in which Philip Wenchel -- Foley: The lawyers wouldn't go along with the administrative determination. H.M.Jr: Did you make a record of it? Wenchel: No, there was no record made. Foley: Well, you had & memorandum. H.M.Jr: Did you write any record in your office? Wenchel: That memorandum came afterward. Foley: After the meeting with Hanes? Wenchel: No, that was after the meeting with - in which Hanes talked about the specific case, but not - there was no memorandum made after this meeting in Mr. Hanes' office where he and I had this little difference. What really happened was this, Mr. Secretary. The Commissioner said, "Well, you heard what my lawyer tells me. What can I do?" He said, "Well, I would fire my lawyer." H.M.Jr: Who said that? Helvering: Hanes. 135 - 6 - Wenchel: To the Commissioner. H.M.Jr: Fire your lawyer? Helvering: You see, Hanes was really tromping on me because I had agreed to do something. I told him I had submitted it to my lawyer and he said no. I said if that was the case, what would I do. He said, "Well, I would fire the lawyer." H.M.Jr: I don't see that this is such a difficult problem. You fellows want to let this case go to the Board of Tax Appeals. Foley: And let the Supreme Court decide. H.M.Jr: Let it go. Foley: If we don't do it, we are going to upset a theory of law that the Department of Justice is pursuing in a case involving stock of the same affiliate, and there are lots of these stockholders, Mr. Secretary, holding shares of the same company that don't want to take losses in '34. They want to take their losses at the time they sell the stock when their income is high, so you are not going to satisfy all the people if you follow what Mr. Clark wants. Mr. Clark wants to take his loss in '34 be- cause Mr. Dawes tore up a note of his for $330,000 in '34. He wants to establish this loss. H.M.Jr: Wouldn't you establish the principle every- body has to go back? Foley: Everybody has to go back. Regraded Unclassified 136 - 7 - - H.M.Jr: How many stockholders are there? Wenchel: 169, I think. Helvering: In this particular bank, we have 8,000 cases all over the country. H.M.Jr: I have always had a rule, when in doubt let the Court decide. Foley: That is right, and if we don't, we wouldn't have any theories -- H.M.Jr: Meeting is adjourned. 137, Reptember 20, 1940 Files Mr. Cookres AS 10:00 this noraing Mr. Enske told M by telephone that the Chase Beat bed informed his that 11 was expecting 1,122,000 cunses of silver to arrive on the American steamship President Adams, which is completing a world cruise. This silver. consisting of coins etc., 10 being handled w the Shanghai and Beng Zong Banking Corporation, but to suppesed to com from the Central Bank of Chisa. It is to be melted w isto hars and then offered for sale is the United States. Mr. Knoke to sending no a nonorandes on this subject. 30ml HM0:1ap-9/20/40 138 September 20, 1940 Mr. Jones called to speak to the Secretary on the phone at 10:28, but the Secretary was at a meeting. When the meeting was over, HM, Jr asked Lieut. McKay to call Mr. Jones and ask him if it could wait until he came over to the Secretary's office for the 11:30 conference with the Russian Ambassador. The answer from Mr. Jones office was yes. Later, Mr. Jones office phoned again and said Mr. Jones would like to come in at 11:25 in order to see the Secretary alone before the conference with the Russian Ambassador and the State Department representative, Mr. Henderson, at 11:30. Following this call, Mr. Jones office again phoned and said he was on his way to the Secretary's office but would be a little late for the 11:30 meeting. CONFIDENTIAL MA. 139 Paraphrase of Code Radiogram Received at the Var Department at 10:46 A.K., September 20, 1940. London, September 20, 1940. During the night of September 19-30 the Nomber Command of the Royal Air Force dispatched 53 planes against Channel parts and railroads leading thereto, and to lay magnetic mines. Eight planes of the Constal Command attacked shipping. German daylight activities on the 19th were on a reduced scale, with about 70 planes participating, mostly operating singly. There were no major attacks. London was attacked again during the night of the 19-20th, with bombs falling in 39 different areas. Some streets are blocked by unexpleded bombs or nines. Production in one munitions factory vas partially, and in another entirely, stopped. German plane lesses were six confirmed and one probable. The British had no losses. Civilian casualties have not been reported, but are probably small, One 1,035 ton ship was sunk. There has been no further advance in Libya. An increase in the amount of shippingat Trondheim has been observed. The French cruisers that passed into the Atlantic are being shadoved by British varships. The general situation remains unchanged. LES CONFIDENTIAL Regraded Unclassified CONFIDENTIAL Distribution: Aide to the President Secretary of Var State Department Secretary of Treasury Asst. Secretary of Var Chief of Staff Var Plans Division Office of Naval Intelligence CONFIDENTIAL 141 September 20, 1940 11:05 a.m. H.M.Jr: Hello. Operator: Secretary Hull. Cordell Hull: Hello, Henry. H.M.Jr: Hello, Cordell. H: Why, that Russian-Chinese matter yesterday, I'd never heard of it before naturally and I didn't have a minute's time to think. Now, what we've got in mind here is to give you anything we've got as sidelights and background with reference to the whole Chinese loan - their whole idea of helping China. H.M.Jr: Right. H: In the first place it's this Russian outfit - I don't think you could depend on them a split second to do anything for China more than what they are doing or would be disposed to do any- how. They are supposed to be even more interested in helping her than we are and yet in Welles' conversations they've tried to strike up a bargain with him to allow a few planes to fly over a little strip of Russian territory to get into China. H.M.Jr: Yeah. H: It's that kind of a spirit that they've got. Well, now on the question of getting away from Brazil and others here that we do need to give every attention to, and buying large of manganese over there, to hire them in effect to do what they are more interested and more obligated to do than we, and when they are utterly as unreliable as Jesse James -- now that'e the -- then here's the other side now. H.M.Jr: Yeah. 142 - 2 - H: Suppose you people should - suppose we should - the Government - let them have tungsten ore to be paid for in tungsten and we give them cash or credit facilities. They can buy any- thing then they want in the way of munitions or other things and have the fullest latitude. In other words, we'd try to give them the fullest encouragement. Now that doesn't include the question that you had primarily in mind and that's actual delivery of armaments. H.M.Jr: That's right. H: Well, now I have this morning 8. pretty strong report from Grew at Tokyo to the effect that the Japs have had & 3-hour conference with the king - or whatever they call it - and they have decided to go into an open alliance - military defensive alliance they call it - with Germany. H.M.Jr: I see, H: That's like Jesse James and Colt Young were going into an alliance for self-defense. At any rate that means that they are - that Germany 18 probably telling the Vichy Government to let Japan into Indo-China. H.M.Jr: I see. H: And so on and so on. Now, we want to go as far as possible on a loan and on an iron scrap embargo as quickly as Japan settles in Indo-China, and it's a question of how far we can go without running too much risk of a military crash. Now this sort of a loan to China would obviate that. They couldn't make serious complaint about a purchasing loan like we made before if the Chinamen are disposed. So I thought - - there are some other phases connected with the situation - but from the standpoint of getting - of helping China actually that we could very well - and from avoiding possibly two brash acts with Japan all at once - the iron scrap and everything - embargo - and we might consider this other method than the Russian method if you and the President, after we talk a little further, should ..... 143 - 3 - H.M.Jr: Well, this Russian Ambassador is coming in here at 11:30 this morning. H: Yes, I know and you can be sure that the German Embassy and the Italian Embassy here in Washington will know everything that takes place between you and him in one hour. That's what he's been doing with Welles' conversation. H.M.Jr: Well, there's one thing I don't understand that Welles said. He called me up right afterward about - I got the impression that this trade treaty with Russia had not been consummated and I see it was consummated on August 6th. H: No, that was that annual arrangement we have with them. H.M.Jr: Yes, and 80 there's nothing pending with Russia. H: Nothing except that Welles has been having two and three hour conversations at a time on the whole situation between Russia and the United States to see whether anything could be finally worked out. H.M.Jr: Well, they couldn't have been very effective. H: No, I haven't - I wa.e away you know at Havana and the Springs and BO on and I haven't kept up with that. H.M.Jr: Well, Cordell, unless you tell me definitely you object - this fellow will be here in twenty minutes - and I thought I'á very diplomatically just throw out a hint along the line that the President asked me to. H: Well, that's your business. I'm just giving you my views if they're worth anything to you. H.M.Jr: Well, they're worth a lot and I only wish that you had said them yesterday at Cabinet. H: Well, if you had given me notice that you were going to spring that thing ...... 144 - 4 H.M.Jr: Well, I couldn't give you notice because I didn't know that you were going to bring it up. H: You mean bring up the ...... H.M.Jr: Doing something for China. H: Well, of course we've had that up at every session nearly. H.M.Jr: Well, I brought this up ..... H: And that was something new as to the method. I didn't have time to think it out, but anyhow I Just wanted you to know that what you say to him will be repeated by him to the German Embassy and to ours. H.M.Jr: Well, it may make them think twice. H: Well, that's all right then. H.M.Jr: Well, I'll be just 8.8 careful as I know how. Henderson is here and he can report back to you what I said. I realize that it's a very, very ticklish thing and if the President hadn't specifically said to go ahead, I wouldn't have dreamed of doing it. H: Yes. Well, of course, we are here trying to help him from this angle and sometimes we see something that's very patent, and we hold it up until we can get to see him and that's with you on that. H.M.Jr: Well, I'll try my best not to make it more difficult and I hope that I can make it. 145 September 20, 1940 11:38 a.m. H.M.Jr: Hello. Operator: Secretary Hull has a newspaper man with him and he'd like to call you back. H.M.Jr: Well, let me talk to his - Gray. Operator: Gray? All right. H.M.Jr: Gray, is that his name? Operator: Mr. Gray. Cecil Gray: Hello, Mr. Secretary. H.M.Jr: Yes. Mr. Henderson, in charge of the Russian desk of the State Department, was supposed to be here at 11:30. He's not here. I wondered if there was a change in the orders. G: I haven't heard & thing ..... H.M.Jr: Well, I wish you'd find out because - well, it's very embarrassing to me that Mr. Henderson isn't here. The appointment was made yesterday and if he isn't going to be here, I think that the least the State Department could have done is to extend me the courtesy of telling me he wasn't coming. G: I'll look into this matter immediately, sir. H.M.Jr: I mean, it seems I'm entitled to the courtesy if Mr. Henderson has been ordered not to come. G: Yes, I feel that he must be on his way or something, sir. H.M.Jr: Well, I'd like to know. Regraded Unclassified 146 - 2 - G: I'll report right away, Mr. Secretary. H.M.Jr: And let Mr. McKay know, please. G: I'll do it sir. 147 Sept. 20, 1940 11:40 a.m. Mr. Gray phoned Lieut. McKay and told him that Secretary Hull said he thought the meeting had been or should be cancelled. 148 September 20, 1940 111 45 a. m. Present: The Russian Ambassador, Mr. Oumansky Mr. Jesse Jones Dr. White HM.Jr: Mr. Ambassador, I am sorry to have de- layed you. Mr. Ambassador, Mr. Jones and I asked you to 00:00 down to 000 us because we have had an idea. You most likely know Mr. T. V. Soong has been here for some time on the question of getting a loan and in the discussions which we have had -- as you most likely know, with the money that we lend them they cannot buy munitions -- and the suggestion 1s made that they could get more help from Russia. Mr. Jones: I said to him, "Suppose we don't do this. Who's going to help you? "Russia. The only people we can get. And they can only help 80 much." HM.Jr: Now, the thing that we had in mind ..... Mr. Jones: I think he suggested, Henry, that"if you people in buying your defense supplies could buy more from Russia, more metals, manganese and some other things that they have got to sell, they might be able to do more for us" or something of that kind. Ambassador: If the United States buys more man- ganese from Russia? Mr. Jones: That was his sug estion. I guess he was floundering around looking for something. Probably been talking to you about it? Regraded Unclassified 149 + Ambassador: I had several talks with Mr. T. V. Soong, but not quite along this line and the suggestion of an increase in South American trade was not advanced by him. Mr. Jones: South Americant Ambassador: I mean Soviet-American trade. This suggestion he did not advance. Mr. Jones: The last time I saw him was two or three days ago. Probably you have not seen him since that. Ambassador: No; I have not. Mr. Jones: And he indicated -- maybe it was his own idea; maybe he thought if we would do something more in the way of the things we are doing already, buy- ing these metals, accumulating for stock piles, which we are doing on a large scale now and expect to continue to do. Ambassador: One thing I noticed with Mr. T. V. Soong. 1 had several talks with him since he arrived here. He has been in very friendly contact with me all the time. I did notice his general worry, I would say, and disappointment about the rather lamentable state of affairs in Russian-American relations. He was very much discouraged to nee our relations, far from getting better, are getting worse between our two countries. Mr. Jones: You mean our relations .... Ambassador: Economic and political relations between the United States and my country. And this, of course, disappointed him very much. Exactly by the same reasons you just mentioned. Mr. Jones: Maybe he was acting in the role of good Samaritan talking to m. Maybe he thought he could do some good. Ambassador: I think he has these intentions. 150 Mr. Jonest Yes. Undoubtedly. Ambassador: And I understand his motives per- fectly and they are very good notives, but of course the reality in our relations right now is very gloomy. This I want to make clear at once. And his approach to this is that exactly along the lines you are talking, that such a triangle requires good relations between every two angles of that triangle. Our relations with China are very close, very friendly. Your relations with China are very close, very friendly. Sorry that we cannot qualify in the same relations between my country and your country. But that's a general remark. HM.Jr: I understand, but I think we can both make the assumption we are both friendly disposed to China. Ambacador: This is a common denominator which does exist. HM.Jr: I think 16 are both interested in peace in the Pacific. Ambasandor: Certainly! HM.Jr: And with those two common denominators and possibly in the interest of both of those worthy causes, the question comes up of either manganese or chromite, quicksilver, nica, things that we need and things that you may or may not have a surplus of and want to sell. Mr. Jonest Are you helping Ohina a great deal now? Ambassador: Oh, yes! Mr. Jones: What do you sell them? Ambassador: Munitions. 151 Mr. Joness Munitions. Ambassador: well, according to the information which the same Dr. 7, v. Boong gave m, I don't think they could have resisted as long as they do if they had not had .... Mr. Jones: .... your help. Ambassedor: Yes; help. without wanting to discourage any scheme of the kind you mention, I Just think of a few factual questions I would like to raise. HM.Jr: Please. Anbassador: A few practical questions. My first question being, how could you get our manganess which, as you well know, is concentrated on the Black Sea coast? Mr. Jonest That's very difficult. Very diffi- oult. to get out. Ambassador: Not only is it difficult, but as a matter of fact, the situation has changed very much. A year ago w eat at this same table, & year ago, and I complained about you not buying enough of our manga- nese which you could have received, at that time, in great quantities. Unfortunately, I did not succeed. The Secretary of State promised to consider our oug- gestion that about 800,000 tons of our manganese be bought within four years, but nothing came of this. At that time, the communications were free. Today this manganese, as you will see, I can point to you, if you want, the particular spot. (The Ambassador referred to the world map hanging in the Secretary's office.) The gbeatest deposit in the world is here. 152 + HM.Jrs That's not far from Ambagsador: And this, Poti Port, all the de- posits are very close to the doast and the other is Mariupol, here. This route 10 out of the question now. So is this. To transport manganess are by rail.1s commercially unthinkable. Physically possible, but commercially ..... Mr. Jones: How far 1s it across here? Ambassador: About 9,000 miles, at least. So this is the first practical question which occurs to no. After Italy went into the war, I understand como American boats which were on their my to Poti just had time enough, in late May. to slip out and bring the last shipments. I don't think there have been any since. Mr. Jones: No way to get up here, huh? Ambagandori well, that, of course, is shorter, but by reasons not known to me this sone here, where not a single combat has over taken place, has been pro- claimed by your Executive to be combat sone, so American ships cannot enter. Mr. Jones: Mr. Boong's idea does not seen to be very practical then. Ambassador: This is my first doubt about it. Now, whether manganese is the only thing, I don't know. You mentioned other commodities. HM.Jr: I mentioned others. Ambassador: what did you mention? HM.Jrs The ones I jotted down, just as possi- bilities - asbestos, nica, seroury .... Ambassador: Platimen? Regraded Unclassified 153 - HM.Jr: Yes. Chromium. That's the whole group. Aubassador: Gold is not a commodity? HM.Jr: We buy that. I just bought 10 million from you the other day. Mr. Jones: Do you produce all those things? Ambassador's Asbestos, yes. Mica, yes. About meroury, I must check. Platinum, yes. Chromium, yes. HM.Jr: (To Mr. Jones) We just bought 10 million. Nr. Jonest Where did you get the gold? Ambassador: Plenty! Mr. Jones: Dig it out of the ground? Ambassador: (Laughed but made no reply.) HM.Jr: They have lots of it. Ambassador: That was my first question. HAdr: We don't consider it a commodity. The Ambassador and I had this discussion & couple of years age - lot of gold coming out -- as to whether gold was a commodity or not and he and I came to a very good understanding and from that day we have seen eye to eye on this gold question. Ambassador: That's correct. HM.Jr: And the working agreement 1s good today. Ambassador: with one exception, just departing as you did for one moment from our disoussion. In my con- versations with Mr. Summer welles I had quite some diffi- culty in obtaining a very simple statement. We took that up about three or four times among other questions, a very modest request of ours, of being given a general assurance Regraded Unclassified 154 & that there would be no discrimination toward Russia in the question of importation of gold; that w ye- alised you cannot give us a specific statement that you always will buy it and always at the same price. the know your laws. But - asked one very modest and very reasonable thing: That your fixed policy in the gold question be applied without discrimination to Russian gold. Sorry to say that this question, which I considered as being of third or fourth import- ance, as a very subsidiary question which I raised only because I had my instructions, I was surprised to see that on this question I did not obtain the necessary assurances. To have not finished our con- versations yet. Perhaps I will obtain it. But even on this technicality, which unfortunately does charae- terise the gloomy situation to which I was referring before.... That's just being nasty for a moment. HM.Jr: Well, Mr. Jones and I are neither of us diplomats. He's a newspaper publisher and I an a farmer. Is that right? Mr. Jonest Yes. HM.Jr: So we don't know anything about diplomacy. Ambassador: I have not known recently anything about diplomacy. I have been a newspaper man myself for 18 years. HM.Jrt well, you are talking to a newspaper man and a farmer, so we don't know anything about diplomacy. Ambassador: My second question, coming back to Mr. T. V. Boong's scheme is ... Mr. Jones: Call that "suggestion" instead of "scheme". Ambassador: Suggestion. Mr. Jones: Would you mind? Regraded Unclassified 155 Ambessadors No. I don't adnd at all. x second question is be or anybody who has brought for- ward that suggestion assumes that the amount of help we are giving our Chinese friends is limited by our financial resources; that we give only as much as w can afford financially. I don't know enough about the matter, but as a first reaction to what you told me I would say I an not sure of this. I think w are giving China that amount of help which we can afford from the point of view of available .... Hr. Jones: Materials? Ambassador: .... materials. And, as far as I know, financial difficulties between ourselves and China have not arisen, but this is my private reaction to a suggestion which is new to - and which, of course, I will refer to my Government. Mr. Jones: These talks or suggestions were more or less vague on his part; were not specific; to be reduced down to a definite suggestion. HM.Jr: You know by now in our previous discussions we have either agreed or not agreed. There has never been ..... Ambassador: That's correct. HM.Jrt It's either black or white. There has never been any grey, and I think I never have talked to you on a matter like that unless I had full authority. Ambassador: I realize that perfectly. HM.Jr: You appreciate that, because I don't take up your time talking about .... Ambassador: I realise that perfectly. Mr. Jones: How about your trade balance with this country? Regraded Unclassified 156 & Ambassador: It remains chronically passive. Mr. Jones: You have not been able to correct that? Ambassador: No. As to our trade in general between our two countries, if things continue as they are going on now, the moral embargoes, the retainment of goods which - have bought two years ago and which now in & retroactive way are being retained (they al- legedly are necessary for National defense) and so on, if these measures continue I don't think that our trade relations or any relations will develop in a antisfactory way. So far I cannot boast about any achievements in by conversations with your Government. Mr. Jones: I wish you would import more caviar than you do. Ambanandor: I share your desire very much. I an getting short of it. HM.Jr: That's one thing - I like it, but I could perfectly well get along without it the rest of my life. Mr. Jones: He taught no to drink vodka and like it and to eat saviar and that other fish .... Ambassador: (7) sturgeon, from which caviar comes. Night I ask you, Mr. Secretary, to repeat .... HM.Jr: The have two Secretaries. Mr. Jones is a Secretary since yesterday. Mr. Jones: My feathers are still pin feathers. HM,Jr: But you are drybbehind the ears. Ambesendor: Mr. Morgenthau, I don't quite under- stand. Imagine the situation is a practical one, just for the sake of this conversation. How would that man- ganese be purchased? It would have to be purchased by Regraded Unclassified 157 Regraded -10- our two customers, U. 5. Steel and Bethlehen Steel or would it be the Federal Government? HM.Jri You (itr. Jones) would buy it, wouldn't you? Mr. Jones: I suppose no. I think that would be a practical matter to work out. HM.Jr: You see, Mr. Jones in his many capacities, also has a - what do you call the corporation that buys these raw materials? Do you buy manganese or do IT Mr. Jonest We bought manganess. We have what w call the "Metal Reserve Company* and we have already bought over 1,000,000 tons. Ambassador: Imagine this is gold. Is credit open in this country here e what? How would that tri- angular arrangement work, speaking abstractly? HI.Jr: First we want to find out whether the will is there. Ambagsadort I understand. HM.Jr: But the 1dea .... Mr. Jonest If the will 1s there and the desire, we would have to work out the mechanics. HM.Jrt We have to work out some way, if we bought what to call strategic materials and paid you cash that you, in turn, would find some way to gosist our Chinese friends in an even bigger way than you have in the past. Ambassador: I understand. HM.Jrt Financial protection or whatever it is. The have no way of knowing, but we do know they are in great need. We also know that today Russia is the only place left, practically, that they can get supplies and, 158 -11- as I say, as you put it, very much better than I can, there are three points to a triangle and from Russia to China is friendly and from the United States to China is friendly. Ambassador: That's right. The rest is blank. HM.Jr: I an an optimist and I always have hopes. Ambassador: I tried to be for a long time. HM.Jr: And if and when you hear from your Govern- ment Ambassador: ... I will lot you know..... HM.Jr:..let me know and Mr. Jones and I will be do- lighted to see you. Ambassador: Mr. Secretary (Mr. Jones) I would be glad to come to you without any practical thing on my sind should you be interested in knowing what Russian- American trade looks like now. Mr. Jones: I will be glad to see you. Ambassador: I will be glad to come and ⑉ you and tell you about the very bad condition it is in now. Mr. Jones: I will be very glad to ... you. 000-000 159 G-2/2657-220 RESTRICTED M.I.D., W.D. September 20, 1940. No. 199 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. No ground operations. 2. Air Force Operations. All operations in the vicinity of England were ham- pered by rainy weather. In daylight of the 19th there was German bombing in the London area, in Essex, Sussex, and in the west of England but no large-scale attacks. During the night raids were steadily con- ducted over the London area but apparently this activity was less intensive than the night before. The British bombed along the Channel and in Western Germany on the night of September 19-20. According to news reports, large-scale German raids are in progress today, focussing on main junction points of the Southern Railway. II. Mediterranean and African Theaters of War. 1. No apparent Italian movements beyond Sidi Barrani, where consolidation continues. 2. The R.A.F. operated intensively against communications and concentrations west of Sidi Barrani. Italian planes continued their bombing of British forces in Egypt and also bombed a camp at Galladat, Anglo-Egyptian Sudan. RESTRICTED 160 HSM GRAY Berlin Dated September 20, 1940 Rec'd 12:06 P. m. Secretary of State, Washington. 4072, September 20, 10 a, m. (SECTION ONE) My 4036 of September 17, 5 P. m. The decree of the Reich Finance Minister relating to the incorporation of the protectorate into the customs territory of the REich dated September 16 has now been published in the REICHS GESETZBLATT of September 18, 1940. It provides for the abolishment of the customs frontier between the REICH and the protectorate Bohemia and Moravia on October 1, 1940 at which time the German customs regulations will bE introduced in the protectorate. Customs revenues and consumption taxes will thereafter bE collected and administered by the Reichs administra- tion. A separate decree issued by the Reich Finance Minister also dated September 16 provides for the creation of a Reich revenue office for the district (Oberfinanz- bezirk) of Bohemia and Moravia for administering customs EXCISES and monopolies. Effective Regraded Unclassified 161 ham ⑉2⑉ No. 4072, September 20, 10 p.m. from Berlin (SEO, 1) Effective October 1, the Reich tax laws relative to tobacco, sugar, salt, beer, brandy, electrical bulbs, playing cards, sacharin, mineral oils and fats are to bE introduced in the protectorate. The Reich turnover and slaughter taxes will also bE introduced in the pro- tectorate on the same date. According to an editorial appearing in the ESSENER NATIONAL ZEITUNG of September 18, the compatency of the Reichs Stellen or Reich monopoly boards for the various agricultural products will also bE Extended to the pro- tectorate. Therefore, in the future these boards will also compute purchases for the protectorate on a central- ized basis. Although considerable progress has been made in adjusting the price and wage levels to those of the Reich during the one one-half years of German occupation of the protectorate certain transitory measures are still deemed necessary to ensure B. smooth incorporation of the protectorate into the Reichs customs territory. Import- ant among these measures are agreements between the industries of the protectorate and the REich which have been worked out lately to reduce the Evil Effects which might arise on both sides from free competition after the ramoval of tariff barriers between the two territories. KIRK DDM Regraded Unclassified 162 RDS GRAY BERLIN Dated September 20, 1940 Rec'd 4:05 p.m. Secretary of State, Washington. 4072, September 20, 10 a.m. (SECTION TWO) The details of these agreements vary considerably for the different industries. Doctor Bernhard Adolf, the Reich protector's special commissioner with the associa- tion of Bohemian and Moravian industries, has summerized their general characteristios however in an article pub- lished in the Frague newspaper NEWERTAG on September 16 as follows: One. The markets of the Protectorate and of Slovakia are reserved for the Protectorate's manufacturers and those of the old Reich for German manufacturers. Two. The Austrian market is to bE supplied in common by both industries in respect to certain goods. Three. The Sudstenland market is in some instances reserved for Sudeten factories and in others for those of the Protectorate. Four. Some of the agreements provide for unilateral or reciprocal sales quotas, fixed for a certain period of time, 163 -2- #4072, September 20, 10 0.10. (SECTION TWO) from Berlin, time, and based on percentages of 1937 deliveries. Five. In some instances, the Protectorate manufac- turers have agreed to join the respective Reich cartels which make special measures for market protection super- fluous. Six. In some branches of industry, Protectorate manufacturers are forbidden to produce certain goods "in order to SAVE raw materiols", according to the official explanation. Many agreements contain provisions in regard to prices: Protectorate monufacturers undertake to adjust their offers to prices prevailing in the old Reich and ViCE vers.. The agreements in some industries are limited to a recip- rocal undertaking to abstain from sales propaganda and advertising in the other territory. In regard to the compensation for Exchange losses on foreign balances in Czech crowns referred to in telegram No. 4036, Doctor Friedrich Musller, the Reich's commissioner with the National Bank for Bohemic and Moravia, states in in article appearing in yesterday's NEUERTAG that all holders of such balances abroad who wish to take advantage of higher rate must offer such foreign holdings to the National Bank not later than October 1, 1940. HOWEVER, persons 164 -3- #4072, September 20, 10 a.m. (SECTION TWO) from Berlin. persóns who have claims in foreign currency which result from the sale of merchandise and cannot bE collected before October 1, may obtain compensation at the higher rate after that date. INFORM TREASURY (END OF MESSAGE) KIRK YOUNGAT RECEIVED 06/26 XX 2Eb SI MI IS 35 LITE THE 217 IT OT THE 165 September 20, 1940 12:40 p.m. H.M.Jr: Hello. Operator: Mr. Wallace calling. H.M.Jr: Who? Operator: Wallace. H.M.Jr: Wallace? Operator: Yes. H.M.Jr: All right. Hello. Henry Wallace: Hello, Henry. H.M.Jr: Hello, Mr. Vice President. W: Henry, I have no intention of making a speech on taxation on this Western trip which I'm starting, but I notice however Willkie dealt with it quite at length yesterday - I didn't know whether any of your people would care to fix up any information for me or not 80 that ..... H.M.Jr: Sure, if you'd give us an inkling of what you'd like. W: Well, I'd say it would be the natural things that would come to their mind in defense of your taxation policy in view of what Willkie has said about it. H.M.Jr: My own thing that went through my mind - but I'll be guided by you - is, I thought I'd give him a little more rope. W: Well, I had no intention of saying anything but ..... H.M.Jr: You see Johnny Hanes is there advising him ..... W: I get you. 166 - 2 - H.M.Jr: ..... and I thought if he went out a little bit further and really put his foot in it, then we might haul him up short. W: Yeah. H.M.Jr: My own hunch after reading it was just to sit back and see whether Johnny Hanes didn't get him to say some more. W: Yeah. You know Johnny Hanes and know what he'll likely do, huh? H.M.Jr: Pardon? W: You know what Johnny would likely get him to do. H.M.Jr: Yeah, and I thought we could wait a little bit. W: Yeah. H.M.Jr: And if something happens - I'll keep it in mind - I can telegraph it to you or give it to Paul Appleby and he can get it to you. W: Yeah. Well, I have no intention whatever of making a speech on taxation but I thought perhaps it's conceivable that the information might come in handy in an emergency of some kind. H.M.Jr: Well, Sullivan is coming in now and I'll mention it to him when he comes in. W: Well, it would be good education for me anyway to know the - a little bit about the ..... H.M.Jr: Well, we'll get something out for you. W: No tremendous rush on it - if you could have somebody slop it together and you can give it to Paul to mail it to me. H.M.Jr: R-r-right! 0. K. W: I talked with my brother-in-law and find 167 - 3 - that it's the - in the other Department and not in yours. H.M.Jr: Oh. W: It 18 what you suspected. I got the thing twisted from - Mrs. Wallace had got it twisted when she wrote me, and when I talked to him about it why he said he didn't have any idea (laughs) H.M.Jr: Well, wasn't he pleased the way we had taken care of it? W: Yes, yes. H.M.Jr: What? W: Yes. H.M.Jr: Because we had stretched a point to do it. W: Yes, he felt that your folks had been most cooperative. H.M.Jr: Good. W: Yes, I got it all twisted. You see, it was one of those things that came in a conversational letter from my wife and she got it twisted. H.M.Jr: 0. K. W: I just thought I'd let you know that he seemed to be greatly pleased at what you folks had done. H.M.Jr: Thank you, Henry. W: Yes. H.M.Jr: Good-bye. 168 GROUP MEETING September 20, 1940 2:30 p.m. Present: Mr. Gaston Mr. Foley Mr. Cochran Mr. Schwarz Mr. Young Mr. White Mr. Graves Mr. Thompson Mrs Klotz H.M.Jr: Has this gone through? Cochran: We were working on that yesterday. White: I thought we agreed on it. H.M.Jr: It is all right with me. Anybody object? Sold. Who will inform the Conmittee? Cochran: I can do that. H.M.Jr: I will keep this. It is blocked dollars, Harry. White: This was my understanding, that it was limited to that, although the discussion -- H.M.Jr: And in unoccupied France. White: Well now -- H.M.Jr: What? White: Is that stated 80 limited there? H.M.Jr: The majority of the - a number of refugees in unoccupied France. White: Oh. H.M.Jr: Unoccupied. 169 - -2- Cochran: But there was one operation which they had under consideration yesterday. That was Miss Ann Morgan's $10,000. I think that was to help her get out of occupied France. H.M.Jr: I am so sick and tired of hearing of Ann Morgan. I had Mrs. Bliss here for half an hour and we told them we would give them enough money to get her out of France and she should get out. Chamberlain sat here. I was willing to give her some money, and he said no, only give her the money to help her get out. Cochran: My only point was that part of this -- H.M.Jr: She will get out of France, yes, but I was willing to give her the money for the time being and he said no, Chamberlain did. Cochran: We referred this case specifically to him yesterday. H.M.Jr: And what did he say? Cochran: I thought they were putting that through, didn't you, Harry? White: Well, I think that would be an exceptional case and this is a general case and there- fore it is not included in there. H.M.Jr: I would give her $10,000 if she would come home. Chamberlain was handling it and he knew all about it. I don't have to get in on it, do I? Cochran: No. I mean, that is the general rule. H.M.Jr: Herbert? 170 - 3 - Gaston: You got my brief report on the status of this recruiting thing? H.M.Jr: Yes, and I sent a telegram to Pa Watson from what you told me, and I have sent a copy of it in to you. I said as soon as we heard anything further we would advise him. That was the easiest way. Gaston: Yes. You haven't any objection to my giving out a list of the Presidential appointees and their statuses to this man? H.M.Jr: He is entitled to them. Gaston: I am terribly afraid the first thing we are going to get is a nomination for Appraiser of Customs in New York and Comptroller of Customs in San Francisco. It might do some good. H.M.Jr: If he wants it, he can have it. Gaston: Yes. I will give it to him today. H.M.Jr: Anything else? Gaston: No, I don't think so. I wrote you & memo- randum on Butler, Homer Butler, Attache in Paris. H.M.Jr: I haven't got it yet. Gaston: I signed it today. H.M.Jr: When? Gaston: Just a little while ago. H.M.Jr: It just hasn't come yet. It will come. 171 4 Gaston: I will see that you get a copy. H.M.Jr: What else? Gaston: I haven't anything else. H.M.Jr: I am trying to hurry so as not to spoil any- body's golf. Gaston: Are you flying? H.M.Jr: Right. I am taking the second best plane. Gaston: What is the matter with the other? H.M.Jr: They sent a message the plane would be grounded until their personal representative could come in to look at something. Maybe something has gone wrong. They have grounded all those models pending putting in something in the tail. Gaston: All of them? H.M.Jr: I guess so; certainly this one. Gaston: Well, there was something, you know, about that speed. H.M.Jr: That was changed. Gaston: For & time, you know, they wouldn't let them land under 75 miles. H.M.Jr: Then we sent the plane out there and it was fixed, and now it is something else. Edward? Foley: I haven't gotten Nelson Rockefeller yet. He is in New York. H.M.Jr: Anything further on the Doughton thing? 172 - 5 - Foley: No. John had some funny statement from Doughton. He didn't have the letter, but John told him he would sign it and bring it up to him. He went up there this after- noon. He said something that didn't make any sense to me or to John, about he was going to indemnify Pearson against suit, and then he was out and the matter was be- tween the Treasury and Pearson, which I don't understand at all. It didn't make any sense to John, either. Cochran: Do you want to take along this statement of Jay Crane? H.M.Jr: Yes. Cochran: He didn't get to sign it, but he dictated it. H.M.Jr: I would like White and Bell to each have a copy of that. Anything else? Cochran: No, sir. Schwarz: I wanted to ask if we would be able to give out this decision about the remittances for the charitable organizations. The Associated Press has gotten a story in which they say that a lot of Americans are complaining about their difficulties. H.M.Jr: I never give you those stories. I don't know how you get them. Schwarz: We get them through the Legal Division. Is this going to be & general license? H.M.Jr: I don't know. Cochran: I don't think it is 8 general license. Regraded Unclassified 173 - 6 - White: Just general policy here, but not in the form of & general order. H.M.Jr: I don't know. Schwarz: We ought to do something 80 as to counter- act it. They say there are many people there complaining that our Consulates are allowed to pay out ten pounds to any Bri- tisher who comes in there acting as repre- sentative of the British Government. Bell: Is this a new order or the one that we gave out about two weeks ago? H.M.Jr: This is the one we talked about just before you came in. White: Why don't we see if something can be drafted? Schwarz: All right. We will see if we can't draft that into something. H.M.Jr: Who do you see when you get one of these statements? Schwarz: Pehle, usually. H.M.Jr: You know, I'm giving Pehle a chance to run this show on a make-good basis after Chamber- lain leaves. Schwarz: He always explains them well and translates it. H.M.Jr: Maybe you can get it out of him. Schwarz: I will try, sir. I think it is worth doing. Young: No difficulties. 174 - 7 - H.M.Jr: Will you compliment Cox on the work that he did on those Vultee contracts for me, Ed? According to Philip Young, he W&S very good. Foley: Yes, sir. H.M.Jr: Send him my compliments. Is he Assistant General Counsel? Foley: Assistant to the General Counsel. H.M.Jr: Are you one of those, also? Assistant to, and Assistant General Counsel? Foley: His title is Assistant to the General Coun- sel. He has the job that Jack Harlan had when he was here. H.M.Jr: Which pays more? Foley: He gets eight thousand. Bell: The same grade. Foley: It is in the same grade. We could give him eighty-five hundred. H.M.Jr: I think I would. Foley: All right. H.M.Jr: It is a cumulative thing. Thompson: If he is on your regular roll, you couldn't promote him because there is a prohibition on Administrative promotions. Foley: We will find a roll. H.M.Jr: He will give you a legal opinion, Norman. 175 - 8 - If necessary, Cox will write it. Well, the boy is doing good work and I think he has earned it. I would like to give a letter to him myself Tuesday. Foley: I will have it ready for you. H.M.Jr: Provided the President doesn't come down Sunday night. White: I have here a letter that needs to be signed before you go, if possible, and it has an agenda there. This is on the Latin-American meeting. The agenda I had a chance to clear with Gaston, and I would like to show it to Dan Bell. H.M.Jr: I am surprised you fool around with South America. I thought your middle name was Soong. White: It is not going so well in that direction. I am looking for new fields. H.M.Jr: What do you mean, after this morning? Anything else, Harry? White: No, that is all. Oh, yes, something else. Mr. Jones called up and wanted some informa- tion and a suggestion with regard to Costa Rica, and I said that if it would be all right with him, we would send him a memo- randum Monday and prepare something for him. H.M.Jr: He was going to give me a memorandum on Costa Rica. Young: That is going to be the one. White: He didn't ask for a memorandum. He asked for some - he wanted to know whether I 176 - 9 - thought something would be all right that they had contemplated doing, and I said -- H.M.Jr: Three for one on the money? Taking the money deposit out of the issued currency against it? White: Yes. H.M.Jr: He asked me about that and I said I couldn't give him an offhand opinion and he said, I will give you a memorandum on it." White: Well. H.M.Jr: I am going to get one, all right. White: I suppose it will be all right if I send him that? H.M.Jr: Sure. If he would like the financial reports that Ambassador Kennedy gets out, they are written by Butterworth. What else? White: That is all. H.M.Jr: Harold? Graves: I just received from Mr. Helvering a report on the activities of the Bureau of Internal Revenue in Chicago in connection with this labor union. H.M.Jr: I saw it in the paper this morning. Graves: Yes. I can give you Mr. Helvering's memo- randum or I can tell you. H.M.Jr: Tell me, please. Graves: Well, as I understand the situation, the 177 - 10 - State's attorney in Chicago, that is, the prosecuting officer for Cook County, has for a long time been investigating the activities of various unions which, according to this report, and evidently the newspapers have it, have to some extent been taken over by the hoodlum racketeer element. Now, as disclosures appear in the press, the Collector of Internal Revenue in Chicago has been follow- ing those inquiries to see whether the money that apparently has changed hands in these racketeering operations has been properly accounted for for tax purposes, and they have gone from one union to another, following more or less the activities of the State's attorney. Now, no statement was sent out yesterday by the Revenue people in Chicago. There are reporters who are stationed at all times in the Customhouse Building in Chicago and they have been in touch with this situation. They see people coming into the Collector's office and their story is sort of a rehash of what has been happening there for a long time when these investigations have been going on. That is roughly the picture. H.M.Jr: I see by the papers that Tom Dewey is starting an investigation of the State tax of Scalise, you know. We gave Tom Dewey some help on that. Gaston: We couldn't give him what he wanted. He wanted a very unreasonable thing. Foley: He wanted our investigation, which we couldn't give him. H.M.Jr: Oh. 178 - 11 - Foley: He didn't protest, and he got the con- viction without it. H.M.Jr: I see. Foley: Our investigation isn't completed, as you know. H.M.Jr: No, I don't know. Foley: It has been going on for several months. H.M.Jr: On Scalise? Gaston: Yes, entirely independent of his. H.M.Jr: When are you going to finish it, after he is in jail? Foley: Well, he put him in jail for a violation of the State law. We have an income tax -- H.M.Jr: But when are you going to break it? Foley: I don't know. That is up to Herbert. Gaston: No, no, that is up to Elmer and -- Foley: Well, he is under you. Gaston: No, he isn't. I didn't know about the tax investigation, but I did know something about this Tom Dewey thing, because that went through me, They just haven't completed their case, that is all. Schwarz: This story, Mr. Secretary, was undoubtedly requested by Pegler's United Feature Syndi- cate of the United Press in order to keep his stories lively and newsy. He has been pushing along on this subject. 179 - 12 - H.M.Jr: If you (Graves) could give our income tax investigation a push. Is it Scal-ee-se or Scal-i-ce? Probably Scalouse. Everything else all right? Daniel, are you going to rip those people back from Atlantic City? Bell: It is a little difficult to get one of them. Sinclair has arranged for a dinner on Monday evening at which he is the host. It will be a little difficult for him to get here before 1:00. H.M.Jr: 11:00 o'clock, Tuesday. Have you told McKay? Bell: Yes. How about doing it, so far as they are concerned, by telephone? H.M.Jr: Marvelous. Bell: Let Ransom and Chester Davis and Szymczak come over here. Bob Rouse can do a little scouting around on Monday if you want to make any announcement about whether its going to be just refunding or -- H.M.Jr: We will see. Bell: Well, I think it might be well to give that out Monday before he starts the conferences. That will help. We will do that after I talk to you on the phone Monday. H.M.Jr: All right. Bell: Swell. H.M.Jr: Going to get a little golf in tomorrow? 180 - 13 - Bell: I don't think so. H.M.Jr: Who is on duty tomorrow? Bell: I will be here. Sullivan, I think, is going away. H.M.Jr: Hope you all have a good week-end. 30 staff meeting TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 181 DATE September 20, 1940 TO Secretary Morgenthau FROM J. P. Chamberlain The majority of the Foreign Funds Control Committee authorized the sending of france to France against blocked dollare by charitable organizations which give satisfactory guarantees that the funds will be disbursed in France solely for relief purposes, and under control of agents of the American organization sending the funds. This authorization will only apply ao long as france are made available in France against dollare blocked in the United States. The large number of refugees in unoccupied France, both of French and of other nationalities, including Spaniards, Poles, Germans and Russians, creates a difficult relief problem, and the importance of permitting relief to go especially to the foreign refugees has been persuasively urged. In accordance with your instructions the licenses will only be given to unoccupied France. No license will be granted for more than one month, and it is understood that this authorization applies only no long as france are available in France against blocked dollars de- posited in the United States. go Chambuton Regraded Unclassified 182 paraphrase or TELEGRAM SENT TO: American Embassy, Buenos Aires. DATE: September 20, 1940, 4 P.M. NO.: 219. CONFIDENTIAL. The possibility of sending an important officer of the Treasury Department to Buenos Aires who would be capable of and have the authorization to disouss a monetary and exchange agreement with authorities of the Argentine Government and bring it to a conclusion has been discussed with the Treasury by the Department. The Secretary of the Treasury, after carefully and sympathetically considering all the points which Dr. Pimado raised, believes that in view of all the circumstances Washington would be & more appropriate place for such & negotiation. You are requested to talk this over with Dr. Pinedo. Inform Dr. Pinedo that the Secretary of the Treasury will gladly disouse the possibilities of such an agreement in Washington with Dr. Pinedo personally or with any representative Dr. Pinedo desires to send. HULL (BW) EA:EGG: OMS EA EA:MSG Regraded Unclassified 183 SEP 2 0 1940 My dear Mr. Under Secretary: This 10 in reply to your letter of September 16, 1940, your reference IC, inquiring as to whether December 9, 1940 is entisfactory to the Treasury as the date for convening the Second Neeting of Treasury Representatives at Quite, Reunder, and asking that any suggestions for the agenda of the Meeting be sub- mitted to you by September 21, 1940. December 9, 1940, the date suggested by the Reunderen Government for convening the Second Heating of the Treasury Representatives, is satisfactory to this Department. In accordance with your request the suggestions being submitted by this Department for the agenda of the meeting are appended hereto. Sincerely, (Signed) & Morgenthan, 4. Secretary of the Treasury. The Honorable Summer Welles, Under Secretary of State. Attachments cc to ms. Thompson By Measenger 3ʳᵈ you HRS:dla HRS 9/18/40-VC FINE COPY Regraded Unclassified 184 Suggested Agenda for the Coulng Inter-imerican Treasury Conference The following suggestions for - agenda for the Becond Inter- incrican Treasury Conference are submitted for consideration by American Republics: It would sem that effective work could be accomplished at the conference by having a series of round table discussions. Each round table would be presided over by the Treasury representative of a selected country which possibly has a more than ordinary interest in the problem, and the representative of another country that also has had some special experience or special interest would contribute the leading paper for discussion. The representative of the country designated in charge of the round table would have the duty not only of acting as chairman dur- ing the discussion, but would have the responsibility of preparing in advance an agenda of questions and topics relating to the subject. It is thought that the Inter-American Committee holdings its meeting in Washington might select the country whose Treasury representative might act as Chairman for a particular round table discussion, as well M the countries assigned to prepare particular papers. In view of the fast that the working period will probably only be five or six days, and in order to provide for the usual exchange of amenities, etc., it would probably be found desirable to limit the must of round table discussions to eight or ten. The following dosen topics are suggested out of which a final selection might be made: 1. Standardisation of budgetary and accounting practices in the Federal Government. (In view of Brasil's recent conferences to consider standardise- tion of budgetary and accounting practices of states and munici- pelities abs might wish to contribute an interesting paper on this topic.) 2. Unification of tames, (Argentina night wish to report on her experience since 1936 with the Federal collection of provincial taxes.) 3. A bulletin of American Treasuries. (Proposal by the United States, with a formal outline of the sug- gested bulletin.) 4a Smuggling and counterfeiting as Treasury problems. Regraded Unclassified : 185 - 2 - 5. The handling of the exchange problems arising at enties and clearing agreements. 6. The internal organization of American Treasuries. 7. The work of the General Accounting Office. 8. Administrative experience with the income tax. 9. Training personnel for Treasury work. 10. Problems in improving customs administration. 11. 1 comparison of budgetary procedure in American countries. 12. Short-term financing policies and procedures of American Treasuries. HINGLrs 9/20/40 - OFFICIAL COMMUNICATIONS TO 186 THE SECRETARY or STATE di a I DEPARTMENT OF STATE WASHINGTON In reply refer to IC September 16, 1940 My dear Mr. Secretary: Dr. L. 8. Rowe, Director General of the Pan American Union, informs me that he has received a request from the Government of Ecuador that the Pan American Union desig- mate the date for the Second Meeting of Treasury Repre- sentatives which will be held in Quito, Ecuador. The Organizing Committee appointed by the Government of Ecuador has suggested December 9, 1940 as the date for the convening of the Second Meeting, and Dr. Rowe has inquired informally whether that date would be convenient for this Government. In view of the fact that this will be a Meeting of Treasury Representatives to discuss tech- nical problems, this Department perceives no objection to the suggested date. I shall appreciate it very much if you will let me know not later than September 21 1940 whether this suggested date 1a agreeable to you. It The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. Regraded Unclassified 187 -2- It is important that the agenda for the Meeting be formulated at the earliest possible date and I therefore suggested to Dr. Rowe that the Governing Board of the Pan American Union consider suggestions for the agenda at the same time that it sets the date for the Meeting. I shall therefore appreciate it if you will submit any suggestions which you may have for the agenda 80 that I may receive them not later than September 21. The sug- gestions for the agenda will then be communicated to the governments of the twenty-one American republics for their TO comments, after which the definitive agenda will be formulated. Sincerely yours, ZECHEIVKA Ot. HEYORD OBSICE Under Secretary CANDLINE current amounts Regraded Unclassified 9/20/40 188 HM, Jr gave Mr. Jesse Jones the original ribbon copy of this after their conference with the Russian Ambassador today. 189 COPY July 15, 1940 MEMORANDUM FOR THE SECRETARY: Proposal for a possible three-vay arrangement between to China the United States, and China to give assistance The following tentative plan is put forward " - possible feasible method of carrying out the President's which would include Russia. suggestion of giving aid to China through an arrangement A. We would purchase from $100 to $200 million of strategic and critical commodities from Russia for delivery as repidly as possible but probably extending over several years. We would make advance payments for part of the purchase, preferably in proportion as Russia extends effective equivalent credits to China. According to an estimate based on the avail- able data, which are neither comprehensive nor up to date, Russia can supply us with about #25 million etc. (In addition to her normal exports to the per annual of manganese ore, asbestos, platinum, chromite, United States). (See Exhibits A and B.) Further information from the Soviet Government would be needed to ascertain the volume of such exports that could be made. B. Russia on her part would agree to extend to the Government of China credits equivalent to our advance payments for Russian strategic materials. Russia's pquivalent credits to China would be in addition to the #50 million or so of Russian credits reported by Mr Soong in the middle of July to be still outstanding which Chine is using up as rapidly as Russie will permit. Russia's equivalent credits to China would become effective simultaneously with our advance payments to Russia. c. To eliminate the risk of Russian non-delivery of goods for which ve have made advance payment, Russia could be requested to agree to leave gold on earmark with the United States to an amount equivalent to the cuse we pay in advance. The gold would be unblocked, and if desired withdrawn, concomitantly with our receipt of Russian goods already paid for. Regraded Unclassified 190 - 2 - D. AO a possible guid pro quo to the Russians " might allow them to use our advance payments to them for the purchase of such American goods as can be exported without detriment to our u. tional defense. Advantages of plan: 1. It would make possible increased aid to China at a time when no other means -- except perhaps a our- reney stabilization loan -- is open, and thus by strengthening Chinese resistance to Japanese aggression improves the United States' defensive position in the Pacific. 2. The aid to China would be made without our insur- ring any risk and only at the cost of payment in advance for strategic and critical materials which ve need anyhov. 3. We would increase our foreign trade by making possible larger exports to Russia. 4. If the international situation develops in such a way as to make it to our advantage to improve our N- lations with Russia, this three-way agreement would constitute a convenient opening wedge for this purpose. HDW:WLU:SA:lrs 9/12/40 Regraded Unclassified 191 EXHIBIT A September 12, 1940 The U.S.S.R. is a Sewree of Strategie and Critical Materiale¹ The United States may be able to purchase strategic and critical enterials from the U.S.S.R. to the extent of from $100 million to $200 million for delivery over a four-year period. (This our is in addition to our normal trade with the Soviet Union, which amounted to 824.5 million in 1939.) According to this estimate, the following materials might be annually obtainable in the following quantities and values: Material Quantity Value Manganese (ore) 450,000 long tone $10,000,000 Chromite (ere) 100,000 long tene 2,000,000 Mercury 7,000 flasks 1,400,000 (76 lbs.) Asbestes (mmanufactured 100,000 tens 5,000,000 Platinum (ingets) 60,000 trey cunces 3,000,000 Fluorspar (are) 301000 tons 1,000,000 Tin (ore or metal) 2,000 tone 2,000,000 (metal con- tent) Mica (strategic - unmanufactured) 10,000 tone 500,000 Graphite (natural) 10,000 tome 250,000 Total $25,150,000 The above estimates are based on published data available to w, but the data is not up to date, nor is it comprehensive. There are many strategic materials which are known to be produced in the U.S.S.R., but for which no adequate statistical information is readily accessible. Before any definite conclusion can be reached as to the extent of pessible purchases, it would be desirable to obtain the necessary information from the Seviet Government as & basis for a nore detailed survey. Prepared by Mr. Ullasm Division of Menetary Research Regraded Unclassified 192 In Manganeso is a strategic unterial, need is the of steel. It is emaldered of "first priority*. United States Commuttion: 1937 Produced in the United States 73,000 1mg tem and Imported - from U.S.S.R. 384,000 Imported - from other 538,000 countries Total importe 912,000 long tons are Apparent consumption 985,000 long tome are Importe from "other countries" came principally from the Gold Coast, Cuba, Brasil. Ression are has a higher manganess content than Western Hemisphere are. United States Energency Requirements: 12 months (Army estimate) Domestic Production 185,000 long tens are Importe 277,000 lang tens are Total requirements 602,000 long tame are (Deficiency to be unde up from inventories) This appears to be an undersstimate of inport tennage requirements. Estimated cost of importer $6,000,000. Soviet Manganess Production 1938 U.S.S.R. production 2,273,000 netric tone are Known U.S.S.R. resources 785,000,000 netric teme Conclusion import requirements from the U.S.S.R. The War Department estimates of The United States can probably obtain a large part of its usaganese manganess requirements appear low, especially in view of the 1937 volume. the cost of imported manganess would amount to about $10 million per year If, however, the United States were to import half the total 1937 quantity, (using the Army estimates of energency prices.) Regraded Unclassified 193 Anbestos is a critical material, used in the automative ininstries for brake linings and gasbets, 20 is also important for heat to- gulstion in various types of construction and oquipment. the United States has been largely dependent a imports to asbostes, with Canada the principal supplier (supplying about 90 percent). the Seviet Union was accord with 3 persent. United States consumption in 1937 was as follows: Domestic production 12,000 tens (unsenufactured) Imports from U.S.S.R. 10,000 Importe from other comtries297,000 Total imports 307,000 teams Less exports 3,000 tax Apparent consumption 316,000 tone Seviet Asbesteg Production The U.S.S.R., in 1936, produced 125,117 motris tons of unanaufactured asbestos, which use a rise of 30 percent from 1934. If Seviet production continued to increase at the 8420 rate, it probably will reach over 200,000 tens this year. The Soviet Union, in 1937, exported 27,000 motrie team. Conclusion The United States, faced with an energency, might have to import more asbestos from the U.S.S.R. If that country were able and willing, 10 might be able to sell the United States 100,000 tens of TOW asbestes at, perhaps, $50 per ten (The 1938 value of our imports from the W.S.S.R.) or $5,000,000. WLUedlm/iem 9/12/40 194 du Deagn Mica is a strategic material used in the electric and radio inten- trice. A large part of the world's nica production is of - strategic vica, ground and pulverised for many purposes, including roofing. United States Inergency Requirements: 12 menths (U.S. Army estimate) The War Department has estimated that the United States would need 2,600 short tons of strategic nica annually during an emergency (this appears low in view of pease-time consumption). It estimated that our production plus normal stocks could more than supply this demand. Now- over, this conclusion was based on "contemplated exploitation of all don- estie resources at unrestricted cests In the past, the United States has imported chiefly from Dritish Indian. If anything should out off the Indian supply, the United States night find it practical to import sion from the U.S.S.R. in order to - tail too sharp a price rise. Soviet Vica Production In 1935, the U.S.S.R. produced over 8,000 tons of nica, twice the 1934 output and exceeding British India's output. If the U.S.S.R. produc- tion expanded as rapidly as India's, Seviet production in 1938 would amount to over 14,000 toms. The United States has imported no Soviet vica, nor is it known that the Seviet Union has exported any. Conclusion The United States might find it practical to import 1,000 tene of unsanufactured vica from the Seviet Union, which might cost $500 per tos or $500,000. Regraded Unclassified 195 Marquez Does Mercury 1a a strategic material, used in manufacturing fulninate for detenating high explosives and fixed committes. It to used also in drugs (calemel, corresive sublimate, ets.) in paints for theracneters, etc.) ship bottoms, in electrical apparatus, and instruments (haromaters, United States Consumptions 1937 The United States has in the past imported a substantial partien of its consumptions approximately half in years of high consumption and less in other years, with donsetic consumption reasining relatively steady. Importe have come principally from Spain and Italy, with leaser anounts from Mexice. 1937 consumption was as follows: Denestic production Importe from U.S.S.R. 16,508 flasks (76 pounds) Name Imports from other countries 18,917 flacks (76 pounds) Less experts 456 flaske (76 permis) Apparent consumption 35,000 flasks (76 pounds) United States Increancy Requirements: 12 months (Army actimates) The Mar Department has estimated that requirements in an energency would rise. The Burosu of Mines has recently (1939) extimated that the energency requirements would amount to 86,000 flasks samually. Since domestic production has follows prices, it has been estimated that the United States output might reach 30,000 flasks under conditions of high energency prices, to which can be added 2,200 Clasks from Mexico. This would leave a deficit of approximately. 14,000 Macks which could be sup- plied only by imports. Since Spanish and Italian sereary might be out off from a rising American market, the price might readily reach $100 per flask (10 was $2,400,000. $96.55 in I'm 1937). The cost of importing 14,000 flasks would be Seviet Mercury Production Beliable information about Seviet production is not available. The Minerals Yearbook (quoting the Imporial Institute) places Seviet production at exactly 8,700 flasks in 1935, 1936, and 1937 (the latest year reported), 196 (Continued) which appears to be insccurate in view of the rapid expension of Seviet production in all other fields. This figure, however, would place the U.S.S.R. fourth in the world's mareury-producing countries, It is probable that Seviet production has expanded rapidly in recent years. As far as can be determined, the U.S.S.R. has exported no nereury. Conclusion The United States is faced with a deficiency in mercury, since require- ments are rising and since its two most important foreign sources of supply may be out off. The U.S.S.R. may be able and willing to supply us with perhaps 7,000 flasks annually, which would cost approximately $700,000. Regraded Unclassified 197 Grate Use: Chresive is a strategic material (of "first prierity"), used in alloy steels, in refractories, is pigments, and in chrend un plating (e.g., machine pm barrels). United States Consumptions 1937 The United States depends almost entirely on importe for its suply of chromite, importing chiefly from British Africa, from the Phillippine Islands, Cuba, and Turkey. The Cuban are is of 2air grade, and is there- fore used in refractories. It is understood that Turkey has agreed to sall chromite to Germany, a fector which (together with shipping diffi- culties) miss Turkey a desbiful serve of supply. 1937 consumption was as follows: Domestic Production Importe from U.S.S.E. 2,000 long tone on lieu Importe from other countries Apparent consumption 556,000 long tome we United States Increasey Requirements: 12 months (Army estimate) The Var Department has estimated that in an mergancy, the United States would need 285,000 tene of chroctte per year, using all possible substitutes. It estimated that domestic wines could produce 64,000 tea annually, which appears high in view of actual production (812 tone in 1938). Assuring its estimates to be correct, however, the United States would need to import approximately 200,000 tons per year. Soviet Chromits Production their output will 217,000 netric tens. Production 10 probably appreciably Seviet production data are not svailable for years since 1936, when higher at present, since it 18 known to have risen sharply through 1936; 1934 - 127,400 taxe 1935 - 177,900 tome 1936 - 217,000 tons in 1936, while they clained requirements to be 200 percent astisfied in Furthermore, Seviet publications claimed an Inadequacy of chronite 1938, when Soviet industry had expended appreciably from 1936 levels. Regraded Unclassified 198 Chromium (Continued) Soviet production now, it is felt, is probably well over 300,000 tone per year, a part of which the U.S.S.R. might be willing to export, - pecially since sales ef the are would in no way tax her refining facilities. The United States has imported no chromite from the U.S.S.R. since 1936. As far as can be determined, the Soviet Union has exported none since that time. Conclusions If the United States, under an emergency and using substitutes, were to import half its 1937 importations, it would need to purchase abroad 277,000 tons of chromite per year, which would involve an approximate cost of $7,000,000 (using Aray estimates of mergency prices). If the Seviet Union were willing to sell us 100,000 tone annually, the cost involved would anount to, roughly, $2,000,000. Regraded Unclassified 199 Plations Regr Platinum is a critical material, wood is making sulfuris and mitrie acids, as wall as in may laboratory instruments, electrical emtasts, and manufacturing processes. United States Consumptions 1937 The United States is largely dependent a importe for platinum, at- though & large part of the importe are in crude forms which are refined domestically. U.S. Production (from imported materials) 87,000 tray cunces U.S. Production (from demestic materials) 5,000 tray ounces Imports of ingote, bars, sheets, etc. From U.S.S.R. 15,000 tray curces From other countries 47,000 trey - Less experts (estimated 50,000 troy - Apparent consumption 104,000 tray - Importe of refined metal have come largely from the United Eingdon. Columbia bas supplied a large part of our crude patinum importe. U.S.S.R. production The U.S.S.R. 10 known to produce annually between 100,000 and 200,000 troy ounces of platinum, probably nearer the latter figures. Conclusion The United States, in - energency, would necessarily increase these industries which use platinum. However, the sale of platinum in consumers' goods (jewelry) would probably decline, possibly enough to effect the industrial increase. Nevertholess, R will have to inpart consi- derable quantities. The U.S.S.R., already - an export basis, night be willing to soll - 60,000 troy curress annually, which would cost approximately $3,000,000. Regraded Unclassified 200 Subibit 3 United States Trade with the U.B.S.R., 1937 - June, 1940 (Thousands of Dollars) - 1937 : 1938 1 I I 1939 I 1940 116 months) U.S. Exports (including resuports) Vegetable food products 0 3 # V $ 1,719 $ 2,351 Crude rubber - - 2,521 37 Other inedible vegetable products 711 59 35 47 Non-ustallic minerals 6,362 5,844 3,020 186 Copper 5 13 6,940 10,898 Volybdenum and ferro alloys 3,776 3,268 6,984 241 fin - - 1,012 1,852 Iron and steel products and other metals and asnufactures 9,535 8,961 5,092 5,289 Metal working mohinery 6,954 35,163 18,655 10,082 Aircraft and parts 3,213 5,171 2,905 - Other machinery and vehicles 10,028 9,108 6,942 4,075 Chemicals and related products 424 846 213 - Other articles 1,449 1,258 599 7,044 Total Exports $42,892 469,691 456,637 $42,102 a/ 1/ Less than 8500 2/ Preliminary and not yet classified Regraded Unclassified 201 Rehibit 1. Continued United States Trade de the 5.8.5.2., 1937 - June, 1940 (Thousands of Dollars) # 1937 I 1938 - 1939 I 2940 (6 monthe) U.S. Importe Edible animal products $ 2,176 $1,328 $ 1,610 . 77 Pare 11,698 12,397 12,454 6,095 Other inodible enimal products 1,299 760 1,176 260 Inedible vegetable products 635 779 1,229 544 Textile fibers and man- ufsctures 1,856 1,566 960 331 Wood and paper 1,939 511 317 - Asbestos 458 261 110 - Other non-setallie sin- erals 1,185 1,199 1,359 - Manganese are 3,960 2,662 2,204 2,698 Platinum 695 964 540 - Other metals 258 13 565 - Chemicals 638 752 1,163 - Other products 245 310 607 1,443 V Total Importe $27,240 $23,502 $24,494 $12,448 Treasury Department, Division of Monetery Research. September 3, 1940 V Preliminary and unclassified Sources U.S. Department of Connerce WLU:lrs 9/12/40 Regraded Unclassified