Volume 341, December 18 – December 20, 1940

DIARY Book 341 December 18 - 20, 1940 - A - Book Page Air Bases, Army ...... For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States Aluminum See War Conditions: Strategic Materials Appointments and Resignations Kuhn, Ferdinand, Jr.: Joins Treasury staff - 12/19/40.. 341 218 Army, United States For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States (Air Bases; Camps) - B - Binocular Purchases by Navy See War Conditions: Germany - C - Camps, Army For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States Chemical National Bank and Trust Company See War Conditions: Germany China See War Conditions Copper See War Conditions: Strategic Materials Curtiss-Wright Aircraft See War Conditions: Airplanes - D - Dutch East Indies See War Conditions: Silver - È - Eccles, Marriner S. See Federal Reserve System for special report on monetary preparedness in connection with military defense - 7 - Federal Bureau of Investigation Klaus memoranda - 12/18/40 98,99,100 - 1- - (Continued) Book Page Federal Reserve System Special report to Congress urging preparedness in monetary organization in connection with defense program - 12/19/40 341 170 a) HMJr, Gaston, Bell, Haas, White, and Kuhn discuss - 1/2/41: See Book 344, page 14 b) HMJr, Foley, Sullivan, Haas, Gaston, Bell, White, and Kuhn discuss: Book 344, page 28 1) Proposed statement by HMJr: Book 344, pages 44 and 96 c) FDR sent press comment "showing its 8. fight over interest rates" - 1/3/41: Book 344, page 337 d) Viner asked to review proposed memorandum for FDR "which he will memorize and then destroy" - 1/6/41: Book 345, page 50 e) Aldrich speech in Boston to be compared with Recles plan by White - 1/6/41: Book 345, page 193 f) Leading bank stocks (approximately six) to be watched by Haas - 1/7/41: Book 345, page 305 1) See Haas memorandum - 1/9/41: Book 346, page 272 2) Discussion at 9:30 meeting - 1/10/41: Book 346, page 300 3) Haas requested to ask Henderson who dealt in these bank stocks - 12/31/40: Book 348, page 95 g) Jones telle press conference he is opposed to plan - 1/8/41: Book 346, page 41 n) White memorandum commenting on proposals - 1/8/41: Book 346, page 59 1) Eccles' letter to HMJr concerning - - 1/13/41: Book 347, page 152 3) Cochran memorandum - 1/24/41: Book 350. page 297 k) FDR provided with Treasury report on Federal Reserve Board recommendations - 1/30/41: Book 353, page 69 Financing, Government Porter, Sylvia: Columns on "free riding" discussed by 16 9:30 group - 12/18/40 World War I financing - resume' of - 12/20/40 273 - G - Germany See War Conditions: Foreign Funds Control - H - Harrison, George L. (President, Federal Reserve Bank of New York) Guest list for dinner given for HMJr - 12/18/40 167 - I - Italy See War Conditions: Foreign Funds Control Regraded Unclassified - K - Book Page Kuhn, Ferdinand, Jr. See Appointments and Resignations - L - Liaison Committee See War Conditions - I - Navy For binocular purchases see War Conditions: Germany Netherlands East Indies See War Conditions: Silver New York Telegraph Boycott because of articles favoring LaGuardia discussed by HMJr and Gaston - 12/18/40. 341 166 - P - Peru See War Conditions: Strategic Materials (Copper) Porter, Sylvia See Financing, Government Portugal See War Conditions Publicity, Treasury HMJr again refuses signed article in connection with inauguration - 12/18/40 27 Putlitz (su), Baron Wolfgang Wiley report - 12/19/40. 208 - R - Roumania See War Conditions - S - Shipping See War Conditions Silver See War Conditions Steel See War Conditions - U - Book Page U.S.S.R. See War Conditions: Foreign Funde Control United Kingdom See War Conditions: Military Planning: Shipping; United Kingdom - W - War Conditions Airplanes: Curtise-Wright to produce 300 additional P-40's for delivery in May, June, and July, 1941; allocation discussed in memorandum to Hull - 12/18/40 341 127 a) HMJr discusses with Phillips - 12/20/40 237 b) Young memorandum - 12/22/40: See Book 342, pages 37 and 39 c) Conference with State, Army, and Liaison Committee - 12/23/40: Book 342, page 47 d) Conference with British Purchasing Mission - Young memorandum - 12/23/40: Book 342, page 51 Army, United States: Air Bases; Camps Itinerary of inspection trip by HMJr as suggested by Chief of Staff - 12/18/40 162 China: Central Reserve Bank new regulations reported - 12/20/40 252 a) For capitalization, see Book 342, page 22 b) . reaction, 080 Book 342, page 254 Exchange market resume' - 12/18/40, etc 117,213,246 Foreign Funds Control: Germany: Transaction with Chase National Bank - 12/19/40 217 Italy: Transactions with Chase National Bank, National City Bank, and Federal Reserve Bank of New York - 12/18-19-20/40 119,120,215, 216,248 U.S.S.H.: Transactions with Chase National Bank - 12/18/40 121 Germany: Navy order for binocular spare parts referred to Treasury for opinion - 12/18/40. 116 Purchase by Germans of German properties of American corporations: Discussion by Chamical National Bank and Trust Company with State Department - 12/18/40. 135 Limison Committee: "Informal Committee" now servicing many foreign governments: HMJr's memorandum to FDR - 12/19/40 219 a) FDR's acknowledgment - 1/4/41: See Book 345, page 1 Military Planning: Reports from London transmitted by Butler - 12/18/40, 12/20/40 89,91,313 Regraded Unclassified - W - (Continued) Book Page War Conditions (Continued) Portugal: Anglo-Portuguese payments agreement transmitted by State Department - 12/20/40 341 288 Purchasing Mission: Vesting Order: Official sales of British-owned dollar securities - 12/18/40 124,125 Requirements: Simultaneous announcements discussed in Cochran memorandum - 12/19/40 190 a) Proceeding up to point of signing and then awaiting Congressional action protested by Phillips "Informal Committee" (Liaison Committee) now servicing many foreign governments: HMJr's memorandum to FDR - 12/19/40 219 a) FDR's acknowledgment - 1/4/41: See Book 345, page 1 Statement showing dollar disbursements transmitted by Federal Reserve Bank of New York - 12/20/40 266 Roumania: Anglo-Roumanian transfer agreement transmitted by State Department - 12/20/40 288 Security Markets (High-Grade): Recent Developments: Hase memorandum - 12/18/40 104 Shipping: Lothian memorandum on British shipping losses and replacements: Copies sent to Knox, Hull, Stimson, and Knudsen - 12/18/40 142 British 60-ship program: Delay explained in Young memorandum - 12/18/40 148 Silver: Netherlands East Indies program for purchases in connection with coins to be made for their government and similar purchases discussed in Cochran memorandum - 12/20/40 249 Steel: Congestion in industry leads HMJr to resume' in memorandum to FDR - 12/18/40 101 Strategic Materials: Aluminum: West Coast fabricating capacity - Young preliminary report - 12/19/40 226 Copper: Importation from Peru without duty discussed by Jones and Gaston - 12/20/40 306 United Kingdom: Anglo-Portuguese payments agreement and Anglo-Roumanian transfer agreement transmitted by State Department - 12/20/40 288 United States financing during World War I - resume' of - 12/20/40 273 World War I See War Conditions: United States Financing 1 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 18, 1940 TO Secretary Morgenthau FROM Mr. Haas JOH Subject: Butter under loan or owned by Department of Agriculture. In response to your request of yesterday, I have learned that the Commodity Credit Corporation has acquired under its 1940 price stabilization program 66,000 pounds of butter, valued at approximately $19,000, and the Surplus Marketing Administration has 25,000 pounds (chiefly 1939 butter) for relief distribution, valued at about $8,500. This represents the total present interest of the Department in the butter market. 2 THE SECRETARY OF STATE WASHINGTON December 18, 1940. Dear Henry: Thank you very much for your note of December seventeenth and its enclosure re- garding British plans for the future, which I anticipate examining with keen interest. I shall not forget their confidential na- ture. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 3 December 18, 1940 9:17 a.m. H.M.Jr: Hello. James Forrestal: Henry? H.M.Jr: Good morning. F: Good morning. I was going to bring this message over sometime this morning. I think you want to see it. It's fairly complete and it's a report on ..... H.M.Jr: Why don't you do this to save yourself. Haven't you got a Naval Aide? F: Well, yeah, but he's on a mission today. H.M.Jr: Oh. F: I can get the Secretary's Aide to do it, Mort Deyo. H.M.Jr: I mean, it would save you trouble unless you want to see me about something. F: No. Well, I'll just do that because I didn't want to let this ...... H.M.Jr: Would that be all right? F: Yeah, I'll bring it over - 80 long as he hands it to you. H.M.Jr: Yes, if he could - I'm always glad to see you but I want to save you that trouble. F: Right. 0. K., Henry. H.M.Jr: If he'll come over about quarter of 11:00 - he may have to wait a little bit, and I don't like to keep you waiting. F: 0. K., Henry. H.M.Jr: How's that? Regraded Unclassified 1 - 2 - F: That's fine. H.M.Jr: How are you after yesterday's meeting? F: Well, I think that - I don't know whether we'll get it by today or not, but I think that it has progressed and I think that's a - there's only one thing that - I'd like to have it on a basis where we could have reference to you on these things - we'd not flatter you at all about it but because I think that procedure - these are men who don't know some of the temperamental qualities down here, you see, and I think that they need guidance. H.M.Jr: Well, they can have whatever 18 left of me. F: Yeah. H.M.Jr: I'm available. I mean, I'm available whenever, you know, there 18 something like yesterday, or any other time. F: Well, I think you'll be - there'll be need for more and more of that as the pressure gets on, because this isn't going to be fun from here in. H.M.Jr: Well, it's been that way since 1928. (Laughs). F: (Laughs). I know it. I know it. H.M.Jr: All right. F: All right, Henry. H.M.Jr: Good-bye. Regraded Unclassified 5 December 18, 1940 9:30 a.m. GROUP MEETING Present: Mr. Bell Mr. Sullivan Mr. Pehle Mr. Thompson Mr. Chamberlain Mr. Wiley Mr. Haas Mr. Foley Mr. White Mr. Schwarz Mr. Young Mr. Cochran Mr. Graves Mrs. Klotz H.M.Jr: That worked out all right with the press. Where is Schwarz? Schwarz: Yes. H.M.Jr: The Times, I haven't had time to read them all. The New York Times, I thought, handled it all right. Gaston: I think all of them substituted the correct quote. Schwarz: The transcript, that is right. H.M.Jr: But that was a dirty piece of business, that sub- committee up on the hill. George, if you would come here a minute. I won't fuss with this now, but in the next two weeks, if Regraded Unclassified 6 - 2 - you could fill in - I think back of this line, give me one figure (indicating chart) from January through July 6. If you give it all, it would be too much, but if I could have a total from January 2 through July 6. A total, one figure, and then totals here. Haas: Until the beginning of the year? H.M.Jr: Yes. Do you need this? Haas: No. H.M.Jr: Who is working on ships for me, the whole ship- ping question? Foley: Herbert and I. Gaston: I had a date to go over, but I didn't go on account of other matters yesterday, and there is another meeting this morning. H.M.Jr: Good morning, Professor. Chamberlain: Good morning, Mr. Secretary. H.M.Jr: I won't be able to read this today, and I haven't. This is a confidential thing. I got it and the President and three Cabinet members. (Memorandum from Lord Lothian to the Secretary dated December 8, 1940, giving data on shipping losses and replacements, November H.M.Jr: This is the whole shipping question, the loss of their shipping and everything else. It is con- fidential on the background. The President, Hull, Knox, Stimson, and Knudsen got copies of that this morning. I am giving you as good service. Ed, this Congressman (Ludlow) is only interested in, could we, under our present laws, make a loan 7 - 3 - to Canada. Couldn't you, on the telephone, call him up and say we are interested, is there anything in the law which would keep our Government or a private citizen from making a loan? Which would it be? Foley: Well, in so far as the Johnson Act is concerned, the Johnson Act only applies to private citizens, and the Attorney General answered, among other questions back in 1934, the question that & political subdivision or & dominion of & country that was in default on its indebtedness to the United States would not be under the ban of the act, and an individual in the United States could make a loan to a political subdivision or a dominion of such an empire, so that if England were actually in default under the Johnson Act, there would be no prohibition in so far as a loan to London is concerned-- h.M.Jr: But if England was under the law. Foley: That was one of the questions discussed, and at that time he held she wasn't because there were negotiations looking to an adjustment of the War debts. Now I don't think there is any question about the fact she is in default within the meaning of the act. H.M.Jr: How about the Neutrality Act? Foley: The Neutrality act doesn't apply to the United States, probably by 8. construction that was placed on it by 8. discussion on the floor. It does apply to corporations, the Import-Export Bank, and the RFC, but not to the Treasury. H.M.Jr: What I would do is, I would call him on the tele- phone. He is 8. lawyer. He is & member of a law firm. Then there is nothing in writing. Don't you think that is a better way to do it? Regraded Unclassified 8 - 4 - Foley: All right. And then we will hold this letter and not send the letter? H.M.Jr: Kill it. Foley: All right. I perhaps spoke out of an over- abundance of caution, and the only reason that I wanted to bring it up was-- H.M.Jr: Well, your caution is justified. You just don't know how these - the afternoon headlines - when I went home and read the headlines in The Star and then read the body of the story, it was a most outrageous thing. They headlined three times in the body of the story. Did you read it? The Star? Gaston: Yes. H.M.Jr: The story they hedged all the way down the line, but the headlines were terrible. Schwarz: Not enough words in the headline to explain it. Foley: I don't like to see you quoted in the paper as having said that the Johnson Act prevents you from making loans or giving credits. H.M.Jr: I didn't say that. Foley: Well, I know, but I' don't like to have it appear that you said that. H.M.Jr: Well, I said that-- Foley: The Johnson Act doesn't apply. H.M.Jr: What I said was, and I still hold, that as long as the Congress feels as it does, I, personally, will not make any loans to England. Foley: As a matter of policy? Regraded Unclassified 9 - 5 - H.M.Jr: As a matter of policy. Are we together on that? Foley: Yes, that is all right. H.M.Jr: I said irrespective of what the lawyers said. Foley: I know. You said they look for loopholes, too, but there is no question of loopholes. H.M.Jr: I am sorry. (Laughter) Do you feel better now? Foley: Yes, I feel better. Dan is giving me the bird. Elotz: Oh, I love that. Oh, that is marvelous. H.M.Jr: We are putting a united press in your office (Schwarz). Schwarz: That was what I asked six months ago. H.M.Jr: Well, I always told you if you didn't holler loud enough around this place-- Schwarz: I got your support for it this time. H.M.Jr: You didn't ask me for it, did you? Schwarz: I asked Norman. H.M.Jr: He is the watchdog. He is the head of the Treasury Budget Committee. I am just Secretary of the Treasury. (Laughter) It costs 75 dollars a month. Do you think we are all right on our publicity now, Herbert? Gaston: Oh, yes, the President took all the heat off. Anyway, I wasn't seriously concerned about the story, except as 8. matter of your own under- standings here in the Government. H.M.Jr: His statement and mine ran all right because Regraded Unclassified 10 - 5 - after he got through making this talk about the fire hose, he ended up by saying, "Well, we will maybe have to give it to them anyway. He criticized Mrs. Roosevelt indirectly, not too indirectly, for the banal suggestion of a gift and then ended up by saying, "Well, maybe we will have to give it to them anyway." Gaston: I have no difficulty in underwriting your state- ment. I have a lot of difficulty in underwriting the President's talk about leasing and all that sort of thing. H.M.Jr: Well, it is all right. Bell: Does that include bombs? Gaston: It may be a good psychological approach. H.M.Jr: I have got to take & share of the responsibility with it. He said, "I want you to be my public, at lunch, and he rehearsed the thing word for word, and I told him it was all right because he should be & little tougher than what I thought Congress might be, rather than Congress tougher than he, and to break the ice, I think it is all right. Gaston: I think it is a good way to open it up. H.M.Jr: I will take whatever my proportion of the re- sponsibility is. Gaston: I think just as it lies now, it is sort of im- practical, but then I think it is a good way to open it up. Foley: I think it could be worked out legally without going to Congress the way he suggests. White: I am wondering whether, before Cabinet meeting tomorrow or before anything is done, we couldn't 11 - 6 - have a chance to discuss it with you or submit a memorandum. I share Herbert's feelings, and I think, though it is a very excellent move, puts the thing on the right basis, excellent politically and psychologically, that it can be implemented in such 8. way as to avoid many of the disadvantages, and I am wondering whether before you see the President or before you - whether we couldn't have a chance to submit suggestions and discuss the disadvantages in the way of implementing it. H.M.Jr: I am just sewed up 80 tight, I can't even see Commissioner Helvering. Sullivan: He didn't holler loud enough. It was 10 days early, but not loud enough (speaking loudly). (Laughter) We will have to get him a megaphone for Christmas. White: He is just learning fast. Sullivan: I have got a memorandum herefor you to give the President, and that takes care of that thing. H.M.Jr: Well, I go on the theory that it either takes care of it or bursts. You (Sullivan) look all right. You look very happy. Gaston: By the way, did I call your attention to that paragraph in the transcript where you said that you think all of this about Great Britain and Canada should stay within the room? After you got done talking about Great Britain and Canada and the Johnson Act, you said that, "I think all of this about Great Britain and Canada ought to stay within this room. H.M.Jr: Mrs. Morgenthau said last night, "Its lovely to have all these editorials that you should go up on the Hill and consult Congress, but look what happens when you do." I mean they will just spill it. 12 - 7 - Schwarz: Within an hour. H.M.Jr: Well, the difference is, I should only consult the Democrats. It is true. Just as soon as you let a Republican in you see what happens. Bell: Yesterday. I am not so sure that it was a Repub- lican yesterday, though. H.M.Jr: You are not? Schwarz: Partly a Republican. H.M.Jr: Who do you think it is? Bell: Well, for a while I suspected Mr. Johnson who has a son on the United Press. H.M.Jr: Who is Johnson? Bell: The one who sits at the right of the Chairman, the old man from West Virginia. H.M.Jr: Well, now, I thought I would call up the Chair- man. What is his name? Schwarz: Ludlow. H.M.Jr: And tell him that he embarrassed me terribly yesterday. What harm is that? Bell: I don't think there is any harm. I think you ought to tell the Committee-- Sullivan: They are going to be there for the next three or four days, your various bureaus, testifying in detail, and he can make it pretty unpleasant for for the boys. White: I am wondering whether that isn't a good thing to remember the next time you go up, or the next time they ask you, rather than calling it to their attention now. 13 - 8 - Gaston: He was very much upset, both he and Mark Shields, the clerk, and he called an executive meeting of the committee yesterday afternoon on this thing, and went over this transcript. H.M.Jr: Shall we let it ride? Gaston: I think I would, yes. White: If for no other reason, that after all you fre- quently go over testimony correcting errors and so on, and if you get tough with them they are liable to get tough with you. H.M.Jr: Well, on the train back, I heard this voice from the wilderness. Sullivan: John is the name. Bell: John from the wilderness. H.M.Jr: If you have a memorandum sometime and you holler early enough and loud enough, maybe I will get to it, and this is the important thing. The meeting with Senator Glass is at eleven tomorrow. Now, who is going to tell the story. Foley: Well,-- H.M.Jr: You see, I think that you should go, I think I should go, and I think Delano should go, but I don't think - don't you think that is enough? Foley: All right. O.K. H.M.Jr: Can you learn it? Foley: Yes. H.M.Jr: Between now and tomorrow? Foley: Yes. 14 - 9 - H.M.Jr: And can you get it to Senator Glass' hotel? Foley: Yes, the memorandum is all ready. Do you want to read it? H.M.Jr: I haven't got time. Why don't you personally arrange to drop it over there or arrange to give it to-- Foley: Ritchie Smith. H.M.Jr: He can come and get it. Foley: All right, I will. H.M.Jr: Are you (Bell) going with us tomorrow? Bell: I can. H.M.Jr: It is not necessary. Bell: No. H.M.Jr: All right, I will save you. Bell: This is a letter to Leon Henderson on the sta- tistics of income tables. Are you going to do anything about getting Phillips and Prebisch together on the British securities, is that our job? H.M.Jr: No. I have mentioned it now to everybody, and I think that in view of what happened, I wouldn't push it. I have told Prebisch about it, and I have told Phillips about it. Bell: Prebisch, last time he was in, asked if you wanted a joint conference, and I told him I didn't know if you had that in mind, but I would find out. White: That was one of the items on the agenda that was Regraded Unclassified 15 - 10 - sent down to them, but I think it could be well handled in the next discussion we have in Mr. Bell's office without bothering you about it, because I don't think anything will develop from it at this end. H.M.Jr: I think I would let the two of them get together. I would simply say this, "They are here and let the two of them get together; and, if they have anything, we will be glad to talk to them." I don't want to be pressing them. White: I think it is better that they do it. H.M.Jr: Let the two get together. Bell: I don't think we are interested unless they use our dollars. H.M.Jr: That is right. What else? Bell: That is all. H.M.Jr: Harold? I still will see you. I don't think it will be until next week now, because I am going up Thursday night to this dinner, and I hope not to come back until late Friday. Chick? Schwarz: Sylvia Porter gives us some ideas in her column. They have got a good line there. They suggest defense liberty bonds. H.M.Jr: I saw her at my house yesterday. Schwarz: That may be a result. H.M.Jr: I had quite a talk with her. She is an awfully swell girl. Schwarz: She is very smart. Bell: Not so friendly at times, is she? 16 - 11 - H.M.Jr: Well, she was right, Dan. Bell: It wasn't exactly right. The Treasury was a party to it. She intimated that the Treasury did it so that they could have the free riding. That isn't quite true. She could have pointed out all the steps we have taken to eliminate the free riding. H.M.Jr: Well, but the woman is smart. Schwarz: She analyzed the situation. H.M.Jr: We may have her down here. Yes, sir, I am serious about having her come down for six months. No likee? Bell: It is hard enough around here now. (Laughter) H.M.Jr: She knows this racket in New York. Foley: Who is that, Mr. Secretary? H.M.Jr: Mrs. Porter. She writes for the New York Post, and she knows the racket, how to beat the game better than anybody I have seen. I don't say she knows it any better, but at least she will tell. White: We are making studies on the individual corpora- tions, the British corporations. I am just let- ting you know so that in case you want them, we have a study on each separate industry. We are beginning with the largest and going down the list. H.M.Jr: Right. White: And we had thought, unless you feel to the con- trary, that we would also cooperate with the SEC man whom they are loaning to us in evaluating these. I don't know whether you would rather postpone that until some later date or not. We 17 - 12 - had thought merely of going ahead. M.M.Jr: Use your own judgment. White: O.K. That is all. Did I understand you to say that you would read a memorandum if We prepared it on-- Jr: Yes, if you get it to me within - Cabinet is tomorrow, that is the trouble. I am all fixed up. White: It is only because it is taking so much of the stage that it is worth while. B.M.Jr: If you can get it to me in my waking hours. haas: Mr. Secretary, you have asked if we would work up some charts on the different bank holding companies. We have completed three, and I have got another one here. Do you want me to turn them in to you, or-- H.M.Jr: To Professor Foley. He is going to give this lecture tomorrow; and, if you have some other than trans-American, it would be very helpful. linas: Yes. This makes four. ....Jr: Yes. Heas: Cy Upham is getting the dope from the banking men. That is the big one. E.M.Jr: Is it pushing you too much, Ed, to have this lesson ready by tomorrow? Foley: No. I don't think we will have that second part of the legislation that you spoke to me about. H.V.Jr: That is all right. Regraded Unclassified 18 - 13 - Foley: I have got the holding company legislation, but the other part I won't be ready with. H.M.Jr: Good. I will have to just sit there with Carter Glass and listen. Haas: I forgot to attach copies of - I put the wrong name on this, on that steel thing. H.M.Jr: This should be Henderson? Haas: Yes. That was your suggestion, you know. H.M.Jr: I hadn't had time to read it yet. Philip? slessor Young: Air Commodore Schlessor has sent in another note in reply to the reply of the War Department to his original note. H.M.Jr: How does he know about the War Department note? Young: I don't know, but he takes up the points one by one. I thought I would summarize all three and give you a short summary of the bunch before he has a chance to get out another one. H.M.Jr: Good. White: Mr. Secretary, did you happen to hear a report that the CIO is going to present to the President ways of expanding airplane capacity by using other factories and so on? You said something about it. I wonder whether you might not want to get hold of it. H.M.Jr: Yes. White: I don't know who can get it for you. I can't. H.M.Jr: CIO? White: The various vice presidents are indicating in a 19 - 14 - memorandum how plane production can be increased and why it is under produced now. H.M.Jr: Well, the person to get it through is the Com- missioner over there. Schwarz: Hillman. H.M.Jr: The CIO fellow? Schwarz: Hillman. White: Well, I don't know what avenues you have, but if you are interested in the report-- Schwarz: That has been published, that they were planning such a report. H.M.Jr: Call up his office and say if there is such a report, I would like to have a copy of it. White: I will do that for you if you like. H.M.Jr: Do it direct. White: Is there somebody here who deals with him at all? H.M.Jr: No. White: I will call up Lubin, his assistant. H.M.Jr: Yes, that is good. Young: I haven't yet been able to get out of Nelson's office a copy of his recommendations on treat- ment of foreign priorities. I understand that he has gone home and won't be back until after the first of the year. He left about a week or so ago. Because of pressure on that stuff, unless you have some objection, I thought I would write up a few sample cases of foreign priorities for the formal presentation to the Priorities Board as such and then see what they do. 20 - 15 - H.M.Jr: I haven't got it enough, Phil. If you think it is good, all right, but I can't give you any judgment on it. I don't know enough about it. Young: All'right. H.M.Jr: But I think I would talk it over with Graves and discuss it with Graves. My judgment is no good because I don't know enough about it. You will have to decide whether it would be help- ful or harmful in view of what we are trying to do. Young: All right. H.M.Jr: Discuss it with Graves, and whatever the two of you decide, O.K. Young: That is all. Pehle: Was there anything particular about Martinique that I should know? I sent you that memo as to what we did-- H.M.Jr: Well, just this, that two hundred seventy thou- sand . if that is correct - I read the memorandum. Why don't we just call up the State Department and say, "Why don't they release it." Pehle: Well, we had a conference while you were away over at State in Mr. Berle's office, and at that time they were having a great deal of difficulty with the Admiral, the French Admiral in charge of Martinique, who has since been supplanted from Vichy, and he was threatening at any time to take one of the boats and put some gold on it and leave, and the State Department felt that in view of that attitude they had better go very slowly, particularly on a monthly allow- ance. Then they asked for this large amount monthly, and which is quite large in comparison with the individual amounts that they have asked 21 - 16 - for. Since then I have heard, although it hasn't been confirmed, that the French have agreed to cut that amount in half, but we still haven't heard from the State Department about the monthly license. Now, if you want to, I will be glad to call them up. H.M.Jr: Well, just ask them where it stands. Pehle: We had a letter within the past week saying that that was still under consideration. H.M.Jr: Well, ask them again. Pehle: I will. H.M.Jr: The French Ambassador - I sat next to him Satur- day night - raised the thing. Pehle: I don't think they really have any complaint. H.M.Jr: Raise it, will you? Pehle: Yes, sir. H.M.Jr: Professor Chamberlain? Chamberlain: We had an appointment at three o'clock this afternoon, Mr. Secretary. H.M.Jr: It still stands. Haas: Mr. Secretary, may I be excused to go up to that Appropriations Committee? H.M.Jr: Sure. I have a note here for you. Read this. It is in my own handwriting. I would like to know more about it. I happen to be related - he is a first cousin by marriage, and if there is anything more, I would like to know. 22 - 17 - Wiley: All right. H.M.Jr: I know what his firm in Paris has done, and I have always been very curious. Merle? Cochran: I have this memo from the British on gold. I have circulated it to Bell and White and Bern- stein. And I have these figures on allowances that you wanted to see. Then there is a cable- gram from Shanghai that I think you ought to read when Archie is here, at least have it be- fore you. H.M.Jr: Well, tell Archie to bring it in, and let Archie read it. Cochran: All right. H.M.Jr: Can't Archie read it? Cochran: Sure. H.M.Jr: Let Archie read it, and I won't be at a loss. Cochran: That is all. Bell: By the way, should Archie sit in on these Chinese-- H.M.Jr: Well, you had better wait until I see him. Now, I am seeing him at eleven. He doesn't want to go and all the rest of it. He will be here at eleven o'clock. Bell: We are going to have a conference this morning internally on the agreement. The Chinese are not in it at all. H.M.Jr: Well, let him sit in on that anyway. He is all right. Regraded Unclassified 23 - 18 - Cochran: The State Department fellows are coming. H.M.Jr: Let him sit in on it. Sullivan: Here is another memorandum. H.M.Jr: Good. Sullivan: And here is 8 memorandum from Commissioner Helvering on the Ramspeck bill. We have got 25 hundred people who are under our service, and we are taking another thousand next month. If the President issues the order covering Internal Revenue under the Ramspeck bill, we loose them all. H.M.Jr: John, if this isn't important-- Sullivan: It is. H.M.Jr: Is this & letter to the President? Sullivan: No, that is 8. memorandum to you from Mr. Helvering. H.M.Jr: But then, the fellow who controls it is the Presi- dent. Sullivan: That is right. H.M.Jr: Then fix it up for me in the form of a letter to the President. Sullivan: A letter from you to the President? H.M.Jr: Yes, and if you will give it to Mrs. Klotz, she will see that I get it within the hour, and I will sign it, if you will write it. Sullivan: All right, sir. H.M.Jr: If you leave it that way, it is - you know - but 24 - 19 - if you get it to her, she will get it to me, and I will sign it. Sullivan: All right, sir. The collections for the first four months of this year are up two hundred sixty- two million over last year, and of that amount, a hundred and forty-seven million is in defense taxes. The tentative figures for November indi- cate that we are up about a hundred and six mil- lion dollars just in the month of November. Of course, we are getting practically no income tax payments. This would seem to indicate that our estimate of a billion dollars for the Revenue Act of forty for a full year are going to be low. There is a man out in Kansas who is B. friend of Commissioner Helvering's who was brought over from Amsterdam. He is a foreign trade expert, and he sent to the Commissioner a resume of the South American situation, and I thought I might turn that over to Dr. White. H.M.Jr: Good. Sullivan: You wanted to be acquainted with the steps that were being taken to familiarize the public with the necessity of filing returns. H.M.Jr: Yes. Sullivan: I don't suppose you have time to look them over, but we have here all of the information we send out to the newspapers and the radio programs, the forms that are being distributed in the army camps for those boys to file, and all that sort of business. Now, in addition to that, there were two different people who were writing scripts for movie skits. Rogan, the collector in California, got in touch with the movie people and asked them if they would be willing to do a skit, and they said they would, but they didn't think it should be confined to California, it should be used all over the country. They spoke 25 - 20 - of using either Clark Gable or Spencer Tracy. And I asked him to have the skits sent on here and let us look them over. If the skit isn't any good, it doesn't make any difference who plays it. H.M.Jr: That is right. Sullivan: I assume your veto on Bert Lehr still holds? (Laughter) H.M.Jr: All right. Foley: The important thing, Mr. Secretary, is this meet- ing of the State Department on ships yesterday. Herbert wasn't able to bo, but I went. I have a memorandum here. There is a meeting over there at ten o'clock this morning to work up a memorandum for presentation to the President to cover what can mobilize ships in our ports, what action should be taken, and how, what distribution is to be made of them between our Army and our Navy and our own shipping lines, if we get them, and what is to be done about new ship construction facilities like Hog Island, for instance. Now, the one thing at this meeting yesterday that was attended by the Army and the Navy and the Mari- time Commission and the State and the Treasury was that there is a disposition on the part of everybody to do something about the problem this time. Hull made the rather naive suggestion that each Department submit its problems and its policy and he take them all over to the President, and I said I thought that was unfair to the President and would delay and confuse the situation, and I thought that we ought to get a joint memorandum and put down the conclusions of the group and the recommendations, and he said that that sounded fine and suggested a meeting this morn- ing at ten o'clock, and he asked me if I would come and-- H.M.Jr: You ought to go. 26 - 21 - Foley: Yes. If I have got these other things, I won't be able to stay over there all day; but, if it is all right with you, I will take Huntington on this ship control business and Cox, who was with me yesterday, and leave them over there to work on the memo. S.K.Jr: That is all right. Foley: I told then that-- M.M.Jr: Who called this meeting? Foley: Hull. Land was there, and Land was very coop- erative yesterday. He said that he understood the President had in mind some kind of a statute whereby We could take over these imbilized ships belonging to the French and Danes and Germans and Italians in our ports; and, of course, we can hold them. Now, I pointed out that we had a request for clearance for this Sheherazade, a big tanker, down in New Orleans. She is a French tanker and wants to clear for martinique. Hull said we should hold her until after this memorandum could be gotten up, and he could clear it with the President. Gaston: That was a test case. B.K.Jr: I think you had better go on over and leave those two boys behind. I think you had better 8° right away. Foley: Yes. There isn't any objection from the Belgian Ambassador to ask Bernie to come to lunch today, and I told him I didn't think there would be any objection as long ES he didn't become 8. cookie pusher. (Laughter) H.V.Jr: That is all right. Do you have anything, Herbert? Regraded Unclassified 27 - 22 - Gaston: Yes. Just one thing. Steve Early called me yesterday afternoon and wanted to urge very strongly that you agree to the request of the Star to submit an article for your signature on that special inaugural section of the Star. He said that everybody else in the Cabinet was going to do it, and it would break up the scheme, which apparently Steve had agreed with Ben McKelway to do. Schwarz: He already told Mr. Noyes we would. Gaston: Who had told him? Schwarz: We sent another letter. Gaston: Does that letter say that it would be done? Schwarz: Would not be done. Gaston: That letter is on my desk. It hasn't gone out. White: What is the subject matter, Herbert? Gaston: Oh, just general about the past and future of the Treasury Department. H.M.Jr: Well, I have never done it. Caston: I know you have never done anything of that sort. I thought you ought to know about this direct request from the White House. It is apparently Steve's scheme worked up with Ben McKelway of the Star. H.M.Jr: Well, I am the only Cabinet member that wouldn't do anything on that famous book that they got out four years ago. Gaston: Yes, the campaign book. H.M.Jr: I wouldn't do it, either. 28 - 23 - Gaston: Yes. H.M.Jr: There are a lot of things I don't do, Herbert. Schwarz: If you change your policy now, it will be hard for us to turn down other things. H.M.Jr: I am sorry, I am not going to do it. 29 Copy left with Bertha Jones at 12:15 on 12/18/40, Mr. Young' being at the British Purchasing Mission. 30 December 18, 1940 11:23 a.m. H.M.Jr: Hello. Operator: Mr. Welles. Sumner Welles: Hello, Henry. How are you? H.M.Jr: I'm pretty well. How are you? W: All right, thanks. Struggling along. Mr. Hull gave me this morning a letter to him in regard to these Greek planes. H.M.Jr: Yeah. W: I must admit that I'm in a state of the most helpless confusion because Butler the night before last came in to see me to say that he just received a telegram from his Government informing him that General Metaxas had advised the British Government that he would be quite satisfied with the Defiance planes in substitution for the P-40 planes. H.M.Jr: Well, I'll be damned. W: Now, we've got in touch with Butler in view of the Greek Minister's statement to you which he also made to us last night. Butler is talking to - what's his name - Morris Wilson is it and he is to let us know by noon today. And I think also the best thing we'd better do, Henry, is to telegraph to our Minister in Athens and tell him to try and find out exactly what the situation is because here we have two completely diametrically opposed statements. H.M.Jr: Let no just get this - I'm breathless. Metaxas sent word to the British Embassy here ..... W: Metaxas informed the British Government and the British Government informed the British Embassy here and the latter informed me personally the night of the 16th ..... 31 - 2 - H.M.Jr: That it's 0. K. W: ..... that they are glad to receive the Defiance planes instead of the P-40 and yesterday the Greek Minister goes to you and to us and says just the contrary. H.M.Jr: And now you're going to do some checking up and I'll sit tight and do nothing until I hear from you further. W: Now Butler is going to check with Morris Wilson and we're going to instruct our Minister in Athens to find out just exactly what the situation ie. H.M.Jr: of course if they will take those Defiance, it would relieve us all I think. It was a very embarrassing situation. W: Why it would solve the whole problem. H.M.Jr: And I personally think that the English are sincere about the Defiance, and that they are carrying the whole burden of the fight in the air. They really ought to know. W: Yes. H.M.Jr: And my people tell me that the Defiance 1s a good plane. W: Yes. Well, I have no doubt it would be entirely suitable for the operations there. H.M.Jr: That's right. Well, I'll sit tight until I hear further from you. W: That's right. Now, with regard to the other question you asked; that 18, the 10 planes for Siam and the Philippines and the 6 completed to 81am in California. My understanding is that the Chinese do not want them and that our Army does want them. H.M.Jr: Well, the word that I got yesterday was that the Army has again changed its mind for about the fifth time and does not want them. Regraded Unclassified 32 - 3 - W: (Laughs). H.M.Jr: That's why I wrote the letter. W: Well, as you know, the Chinese have said they didn't want them. H.M.Jr: Well, I am writing Hull a letter today suggesting that he have a meeting in his office Monday morning with whomever is in his Department. We have here about 20 different requests for planes, engines and parts from about 20 different countries. I'm sending the complete list over to him today. W: Good. H.M.Jr: I'm asking him to have Mr. Stimson and Knox present because each one has his own ideas. I think there are about 20 different requeste W: There must be at least that. H.M.Jr: ...... and the ones - the list will be ready to be sent over - because the ones for South America - I do think we ought to at least tell them yes or no. W: I think it 18 of the utmost importance that we tell them yes to the fullest extent possible. H.M.Jr: But this thing has gotten 80 that it's kicked around and kicked around and we do the best we can but each day we hear something else, and I think out of the meeting - If State, War and Navy would say, well, on this question we'll meet once every two weeks, or we'll meet once a week or something. You know. W: That's a very useful suggestion. It would solve a lot of difficulties. H.M.Jr: Yeah, because these people have a grievance, just like this one - you say the Army says they do or don't, and I hear something different. It's gotten to a point where they should say yes or no. Regraded Unclassified 33 - 4 - W: Exactly. Well, I think that's a very helpful suggestion. I think it ought to be done just that way. H.M.Jr: Six planes to Siam are just as much trouble as a thousand planes. W: Exactly. H.M.Jr: Well, thanks for the call. W: All right, Henry. Then I'll let you know as soon as we get some verification. H.M.Jr: Thank you. W: Thanks. 34 December 18, 1940 12:16 p.m. H.M.Jr: Hello, Guy Vaughn: Hello, Mr. Morgenthau. H.M.Jr: Talking. V: This 1s Guy Vaughn. H.M.Jr: How are you? V: This Studebaker building engines for the British and for the United States Government has got some complications in it as far as our own future business is concerned, and we would like very much to discuss it with you at your convenience. H.M.Jr: Right. V: If you are coming up around Christmas or if you would be in Washington on Thursday - either way, whatever your convenience is between now and then except that I am definitely tied up here on some very important things that must be cleared immediately 80 that I couldn't come to New York this week - Washington this week. H.M.Jr: How pressing is this thing? V: Sir? H.M.Jr: How pressing is the thing that you're talking about? V: Well, it's got to be done before a meeting and it's in the interest of national defense to get things cleared and under way. H.M.Jr: Well, I mean ..... V: It's just a delay in our own production schedule; that is, propeller particularly and that, you know, is being done last and therefore will be a bottleneck and I've been working 35 - 2 - night and day on it and I could come down there and get right back I suppose this week. Be better for you. H.M.Jr: Well, the trouble is I'm tied up solid now until tomorrow and I go up to a dinner in New York tomorrow night late. Hello? V: Yes. I hear you. H.M.Jr: I'll be in New York Friday morning. V: You'll be in New York Friday morning. H.M.Jr: Yes. V: Well, will you have a moment? H.M.Jr: Yes. V: Well, now, you just set your own time and place and we'll be there. H.M.Jr: Well, I tell you what you can do. I'm staying with my father at 1133 Fifth Avenue. V: 1133 Fifth Avenue. H.M.Jr: And he lives just above Willkie. V: Yes, I know just about where it is - about 98th - 97th Street. H.M.Jr: Yeah, 93rd. And if you were there at 9:00 o'clock I could see you Friday morning. V: 9:00 a.m. Friday morning. Well, that's perfect. It's just a matter of policy. I'm not going to bother you with & lot of details but after all you want to protect us in a fair and equitable manner and we don't want any more than we have to have to exist. H.M.Jr: That's all right. V: All right, sir. Well, that's fine and thank you very much indeed. H.M.Jr: Good-bye. X 36 December 18, 1940 My dear Mr. President: For your confidential information, I an inclosing herewith a report from the British showing the member of airplanes and pilots they had en hand as of May 10, September 87 and November 29. Yours sincerely, (Signed) E. Morganthau, Jr. The President, The White House. 415 i 1 37 December 10, 1940 My dear Mr. President: For your confidential information, I an inclosing herewith a report from the British showing the mamber of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) H. Morganthan, Jr. The President, The White House. & I Regraded Unclassified 38 December 10, 1940 My dear Mr. President: For your confidential information, I as inclosing herewith a repart from the British showing the member of airplanes and pilots they had on hand as of May 10, September 89 and November 29. Yours sincerely, (Signed) I Morganthau, Jr. The President, The white House. di 39 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclesing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 87 and November 29. Yours sincerely, (Signed) E. Monganthau, Jr. The Honorable The Secretary of the Havy. di I 4 40 December 18, 1940 My dear Mr. Secretary: For your confidential information, I an inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) H. Morgmthan, Jr. The Honorable The Secretary of the Havy. By Memenger 41 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) E Mongestion, Jr. The Honorable The Secretary of the Mavy. di I 42 December 18, 1940 My dear Mr. Knudsen: For your confidential information, I an inclosing herewith a report from the British showing the number of sirplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) 1 Monganthan, Jr. Mr. william 5. Kandson, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D. C. By Memorager 4'5 4 43 December 18, 1940 Ny dear Mr. Knudsen: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Stgned) R Jr. Mr. william s. Kandsen, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D. C. 1 . Regraded Unclassified 44 December 18, 1940 Ky dear Mr. Kandeen: For your confidential information, I an inclosing herewith a report from the British showing the washer of airplanes and pilets they had on hand as of May 10, September m and November 29. Yours sincerely, (Signed) 1 - dr. Mr. villiam s. Kandson, Advisory Commission to the Council of National Defense, Federal Receive Building, Fashington, B. c. di 45 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilets they had on hand as of May 10, September 87 and November 29. 1 Yours sincerely, (Signed) R Mongesthan. Jr. The Memorable The Secretary of State. By Memogar 415 4 46 December 18, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the mumber of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) E Mongesthan, Jr. The Honorable The Secretary of State. & I Regraded Unclassified 47 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) E Margathon, dr. The Menorable The Secretary of State. I & 48 December 18, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) a the Jr. The Honorable The Secretary of var. By Measenger 4'5 15 Regraded Unclassified 49 Docember 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclesing herewith a report from the British showing the musher of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) E Magnition, dr. The Honorable The Secretary of war. k I (LIGN) 50 December 18, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Stgned) 1 Meaguathan, Jr. The Nonerable The Secretary of war. By 1 5 STRICTLY CONFIDENTIAL orig No filed 12/14/40 SECRET AND MOST CONFIDENTIAL date itwas given to High May 10. Sept. 27. Nov. 29 Stocks 3.209. 3.735 4.185 (Hurricane, Spitfires, Wellington, Blenheim, Whitley & Hampden) N.B. Planes shipped to other theatres of war by Britain were included in Sep- tember figures, but not in November. (These numbered 374 in period from May to November.) Consequently improvement between September and November is greater than appears at first glance. Pilots 3.101 4.149 4,398 N.B. Pilot wastage last quarter about 400 per month, allowing for half wounded returning to duty. C.R.O. 1.874 1.882 (Awaiting repairs and inspection) STRICTLY CONFIDENTIAL 52 December 18, 1940 3:30 p.m. H.M.Jr: Hello. Operator: Secretary Hull coming on. H.M.Jr: Thank you. Hello. Cordell Hull: Hello, Henry. H.M.Jr: Hello, Cordell. H: That's going on? H.M.Jr: Well, I sent you over a letter which ought to get to you in a few minutes and I've asked whether you would call a meeting at your office Monday morning with myself, Stimson and Knox. H: Yes. H.M.Jr: And I'd like to lay before you -and I sent it in the letter - there are about 20 different countries that have requests in for airplanes and we're not giving them any answer and I think we ought to say either yes or no to these people. H: Yes. H.M.Jr: And I sent you over a list of the requests from the various countries for airplanes, engines and parts up to date. H: Well, now, we'll fix up anything that we can get - I think I told you that Stimson and Knox have been coming in here every Tuesday morning for an hour to go over the points of our situation together and I guess - it will suit no 100% Monday. H.M.Jr: Well, I just sent the letter over and I sent the list of the various requests and there are 300 Curtiss P-40's to be divided up. You see? 53 - 2 - H: Well, now suppose I call them - - shall I ..... H.M.Jr: I'd much rather you'd have your office do it. H: All right. I'll tell them that you want us to meet together here and discuss that situation. H.M.Jr: And I'm laying on the table 300 Curtiss P-40's which can be gotten and which can be divided up. H: Now this is Monday morning. H.M.Jr: Yes. H: All right, Henry. H.M.Jr: Now, what time would suit you? H: 9:30? H.M.Jr: 9:30 Monday. H: I'll let you know if there's any trouble about their being present. H.M.Jr: But I thought that if we could do this once in a while and then - like those damn 10 planes in the Philippines - instead of having it knock around for two months if we could say yes or no. You know. H: Yes. H.M.Jr: And Sumner called me on that Greek thing. Have you heard the last one on that? H: On which? H.M.Jr: On the Greek? The last thing on the Greeks? H: I turned it over to Sumner and told him that he had failed to communicate with you as I asked his to and he overlooked it I knew. 54 - 3 - H.M.Jr: Well, he called me up this morning. H: Yes. H.M.Jr: You know I sent to him a memorandum last night. H: You see he got in that picture originally and that's the reason I have to keep him in it. H.M.Jr: Well, he called me up thie morning and tells me that General Metaxas says he wants the planes that England wants to give him and the Greek Minister last night told me that they didn't want it. H: Well, the Assistant Greek Minister 10 telling somebody else here something else. H.M.Jr: Well, I told Sumner I'd sit tight now and do nothing until I heard from him further. H: All right. H.M.Jr: Because he says he wants to carry it. H: All right, Henry. H.M.Jr: So he and I are together since this morning. H: Well, fine. H.M.Jr: If I don't hear from you again I'll be at your office at 9:30 on Monday. H: Now, if the Secretary can't come is it all right for the Chief of Operations to come or do you want to put it off? H.M.Jr: No, I think if it's possible, I think we ought to go to town on it. H: With ..... H.M.Jr: Well, with whoever is here. 55 - 4 - H: 1 All right. H.M.Jr: Whoever is here. H: All right. H.M.Jr: Thank you. 56 December 18, 1940 4:30 p.m. RE BRITISH PURCHASING PROGRAM Present: Mr. Young Sir Frederick Phillips Mr. Bell Mr. Cochran H.M.Jr: Sent for Mayor LaGuardia of New York, and I am trying to squeeze you in. When he comes, I will have to stop. I was just reading this thing here. Young: My note? H.M.Jr: Yes. Young: I must say that everyone and their pup today have been on my neck about the ship program. H.M.Jr: Well, do I gather from this that you want to do the ship program first, is that it? Phillips: That is my belief, yes. Bell: That comes ahead of the ordnance. Phillips: I think it comes ahead of the ordnance, yes. Whether it comes ahead of the airplanes, I don't know. Young: Certainly, Sir Frederick, ships and planes come before ordnance. (Mr. Cochran entered the conference.) 57 - 2 - H.M.Jr: Do you (Phillips) want to read this (Young's memorandum) and see if this expresses the way you feel? 11:45 am meeting 12/18/41 Phillips: Yes. Yes. I did put the first question to Mr. Young, as to the status of these new orders under Program 1 and Program 2. You know the President's press statement drew a distinction between the future orders and existing orders, and the question I put to Mr. Young is, are these Program 1 and Program 2 orders which you have given us a clearance for future orders or are they existing orders, and I thought the answer was, "They are future orders," and I thought he rather agreed with me. We haven't got it in black and white. Young: They are future orders today, in that no contracts have been signed for anything on either of those programs. H.M.Jr: Is that the first question? Phillips: The first question, yes. Bell: Future orders but existing programs. The program has already been put before this Government. Phillips: Oh yes, that is perfectly true. Bell: The orders haven't been entered under those programs, is that what you mean? Phillips: I don't think there is any doubt. They are future orders. We haven't got it in black and white. H.M.Jr: There is Program 1 and 2, existing orders or future orders. That is question number one. Phillips: Yes, number two follows from this table, We submitted to you a program showing an expenditure, 58 - 3 - 1343 before the end of February on orders already placed, Program 1 and Program 2. H.M.Jr: On orders already placed? Phillips: Yes, plus Program 1 and Program 2 and our outgoings as we estimate them by the end of February are 1,343 million dollars, which exceeds our immediate resources -- Young: One billion. Phillips: By 800 million dollars and I want to know what is the thought on that subject. H.M.Jr: Let me have that again. If you placed - would this be correct? If you placed orders for one and two, plus what you already have on our books -- Phillips: That is right. H.M.Jr: If orders one and two were placed, plus existing orders - what is the date? Phillips: By the end of February. H.M.Jr: Would you say by March lst? Phillips: Yes. We estimate cost at 1,343 million, of which capital, 287 - 1,343 is the figure and our immediate resources are about 570. H.M.Jr: How much? Phillips: 570, and as you know, sir, Gifford is selling at about a million dollars a day. He pushed it right up to 6 million dollars a week. Bell: It is just about doubled. Phillips: That is as far as it has gone. 59 - 4 - H.M.Jr: Now, what you want to know is, where do you go from here. Phillips: Yes. H.M.Jr: Well, I can't tell you that until I ask the President. Phillips: That is what I felt sure your answer would be. H.V.Jr: Well, this boils down this whole thing, doesn't it' Phillips: I think that is the lot, excent that I again mentioned to Mr. Young the question of the end of the war. We are running our gold right down during this period. Then the question of what gold we have at the end of the war becomes much more important to my people. We want to know what will we do if that gold reserve comes right down, what chance of building it up again before the end of the war to a minimum figure. The minimum figure, I mentioned before, is 600 million dollars. H.M.Jr: The other thing, I am going to put down three, the order of priority which you select. Phillips: We would like to have it. I have got my people working on that at this moment. H.M.Jr: Oh, you don't have it yet? Phillips: I can get it tonight. Ree Phillapst that H.M.Jr: No, if I can get it tomorrow morning. We will 11-19 have Cabinet tomorrow. If I could have it before two tomorrow. You give me the order of priority that you would like. Phillips: Very well. 60 - 5 - Young: In what detail? H.M.Jr: Oh, not too much. Talk about ships, planes, and ordnance. Young: Those three? H.M.Jr: Yes. I tell you what you can do. You could have the word ships at the top on one sheet, and then give me all the details. Shins and the total cost up on top, you see. Then if anybody in Cabinet says, "Well, what kind of ships," and 30 forth, well, I have it there if I want it. Then another sheet, Ordnance, then as much detail as you can. But you will have to number which comes first, ships, ordnance, or planes. Phillips: All right, we will do that. H.M.Jr: Is that practical? Phillips: Yes, I think we can give you what you want all right. H.M.Jr: If I say they want ships first, Frank Knox may say, "What kind of ships, what speed, what tonnage," and 80 forth. Well, I will have some of that information. Phillips: Well, what I am giving you, sir, is only Program 1 and Program 2. Would you like me to go on and deal with Program 3? That would take me some time. H.M.Jr: No, you would sink this ship (indicating self) if you did. Phillips: All right. H.M.Jr: But on the one and two, if you could give me the order in which you want it, with just a heading, "Ships", and then this, "Planes", and so forth, so if they ask me -- 61 - 6 - Phillips: Yes. Young: Of course, those two programs do not include other expenditures which may be made for products outside of ordnance and ships. Phillips: They do include steel and iron. H.M.Jr: Well, I think that - it isn't plain to me - if you get it between now and two we can squeeze another time in. But you have got what you want right now. Phillips: Yes, you have given me the answers I expected to get. H.M.Jr: You are luckier than I am. referred to at 62 4,30 meeting Hops COMPIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips 11:45 A.M. at his request. Sir Frederick Phillips asked as to come over to his of- fice insuruch as he said he had some questions to ask concern- ing the President's statement on financing for Britain. I attach herevith a table which he unde up showing estimated monthly distribution of payments against existing commitments plus commitments to be nate under Programs 1 and 2. Sir Prederick has two things on his mind: first, he is very sexious to find out how to tackle the problem of placing orders as the British Purchasing Commission feels that - tracts must be made imedintely for new especity to build ships and planes. In this connection he pointed out that the 3 Progrem vas included is Program No. 1. and that, if it is & question M to allocation of available recources, London feels that the money should - to ships ml planes rather than to ordnance, I think Sir Fredarick is right on this point, and as the D Program is included in the over-all picture the British should have the right to say what should get priority. The essend problem on Sir Frederick's sind is the - tion of draving down the gold reserve to the vanishing point. He feels TW7 strongly that this can only be done in the case of a going concern, such as the United Kingdom, provided it vas understood that the United Kingdom would be permitted to accumlate a comparable reserve for exchange stablization, etc., to be available after the var. Sir Fredarisk is anxious to talk with you about these miters, and be said that he and his colleagnes would give us 100 per cent cooperation in getting information or in laying all their assets out on the table at my time. (Initialed) P.Y. Fring fell 63 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips 11:45 A.M. at his request. Sir Frederick Phillips asked ne to come over to his of- fice inasmuch as he said he had some questions to ask concern- ing the President's statement on financing for Britain. I attach herewith a table which he made up showing estimated monthly distribution of payments against existing commitments plus commitments to be made under Programs 1 and 2. Sir Frederick has two things on his mind: first, he is very anxious to find out how to tackle the problem of placing orders as the British Purchasing Commission feels that con- tracts must be made immediately for new capacity to build ships and planes. In this connection he pointed out that the B Program was included in Program No. 1, and that, if it is a question as to allocation of available resources, London feels that the money should go to ships and planes rather than to ordnance. I think Sir Frederick is right on this point, and as the B Program is included in the over-all picture the British should have the right to say what should get priority. The second problem on Sir Frederick's mind is the ques- tion of drawing down the gold reserve to the vanishing point. He feels very strongly that this can only be done in the case of a going concern, such as the United Kingdom, provided it was understood that the United Kingdom would be permitted to accumulate a comparable reserve for exchange stablization, etc., to be available after the var. Sir Frederick is anxious to talk with you about these matters, and he said that he and his colleagues would give us 100 per cent cooperation in getting information or in laying all their assets out on the table at any time, Pu see 182 Is program It 2 64 existing aders a future adero ? 1 R. I forders 162 were placed plus by march 1st are they existing aders estimate cost at 1.343, million immediate res ourses $570. million 3. 65 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips, 4:30 P.M. Sir Frederick submitted a table, attached herewith, showing estimated monthly distributional payments against existing commitments plus commitments to be made under Programs 1 and 2. Sir Frederick stated that there were two principal problems on his mind: (1) Are Programs 1 and 2 to be regarded as exist- ing orders or future orders. (No contracts have yet been signed for any of the items in- cluded under Programs 1 and 2). (2) If orders covering Programs 1 and 2 were placed immediately and the necessary payments added to balances due on orders already placed, $1,343,000,000 would have to be paid from December 1, 1940, to March 1, 1941. To offset this $1,343,000,000 Sir Frederick said that he had immediate resources of $570,000,000.00, leaving & deficit of $773,000,000. D4. Estimated Monthly Distribution of British Purchasing Mission 66 Payments in the United States against Existing Commitments and Programmes 1 & 2, as per Schedule entitled "Summary of British Programmes" handed by the Secretary of the Treasury to Sir Frederick Phillips, December 17, 1940. Millions of U.S. Dollars Total After Total Dec. Jan. Feb. Dec. - Feb. Feb, 1940 1941 1941 1940 1941 1941 Balances due on Orders already placed Product 1284 156 147 123 426 858 Capital 17 10 5 1 14 5 Programme No. 1 Product 2062 86 197 187 470 1592 Capital 699 35 89 139 265 436 Programme No. 2 Product 1225 65 59 38 160 1065 Capital 10 10 - - 10 - Total Product 4571 305 405 548 1056 5515 Capital 726 55 92 140 287 459 TOTAL 5297 360 495 488 1345 3954 Note: The monthly distribution of payments shown above reflects a partial revision of the rate of expenditure shown in the November 30th estimates. A complete revision as of December 31st will be available early in January. B.P.C. - WH December 17, 1940 Regraded Uncla 67 December 18, 1940 CONFIDENTIAL To: The Secretary From: Mr. Young The following is a summary of comments by General Marshall and General Brett regarding Air Commodore Slessor's notes on United States air production: 1. Air Commodore Slessor's notes were apparently based on incomplete information or written with the ultimate aim of effecting a change in United States productive facilities. 2. The speed and armament of United States bombers and fighters is considered for the most part as good as or superior to their British equivalents. The specifications are the result of joint Army-Navy- British technical consultation based on recent combat experience. 3. It is agreed that new productive capacity should be reserved in large measure for advanced-design planes using new 2000 h.p. in-line motors, such designs to be also those which can be soonest translated into United States production. 4. Any general increase in capacity such as envisioned by Commodore Slessor (to 4500 per month) would in- volve a restudy of delivery objectives. General Marshall expresses his concern as to the effect of this type of criticism on the aircraft manufacturers and on the consummation of our own airplane program. Py. 68 MOST SECRET THE U. S. AIR PRODUCTION PROGRAMME - NOTE BY AIR COMMODORE SLESSOR 1. The following note conveys my impressions of the main problems in connection with the programme of production in the United States, arising from a very brief visit to this country. There appear to ne to be two main directions in which the programme of aircraft production in the U. S. A. falls short of requirements of modern warfare, from the point of view both of Great Britain and the United States - namely, in the fighting efficiency of the aircraft due for production and in their numbers. It must be remembered that the contri- bution of U. S. industry to the air war will not make itself felt to a really important degree until the second half of 1941 and early 1942. Fighting Quality 2. The bombers now being produced in U. S. A., while they have good speed and range and a fair bomb load, de not incorporate the important lessons that the R. he 7. have learnt from the fighting of last summer, notably in the direction of defensive armament. The types coming an to production early in 1941, such as the Consolidated B.24 and Martin B.26 show a marked improvement in this direction. And, although no U. 8. bember at present in sight compares for fighting efficiency with our own heavy bombers now in production - such as the Halifax and stirling - the American bombers will be quite adequate for night operations and will constitute a most valuable contribution when they appear in any substan- tial mmbers, though we should have liked & considerably larger proportion of the heavy four-engined types. 3. As regards fishters, however, it is difficult to svoid the conclusion that United States types that will be available in any numbers by the summer of 1942 are for the most part Regraded Unclassified 69 + unlikely to be of sufficiently high fighting quality to neet really effectively the requirements of the air war by that date. If there is one lesson which sticks out more than others from the lessons of last summer, it is the enormous importance of fire-power in the fighter. It is hardly too such to say that it was the 8-gun fighter that saved England in August and September. This is not to say that it was only the 8 guns which did the trick. It was also (apart from the fighting value and training of the crews ) the superior performance and quality of the British types - Hurricanes and Spitfires. We must keep that superiority - we cannot afford inferior quality aircraft as well as inferior numbers. Any production man knows that to introduce a new type into existing capacity means a terrible drop in production of the existing types before the new one comes in in any numbers. The enemy has now at his disposal the potential - the floor space, machine tools and raw materials - of all the conquered territories, notably of France; and always in the background is the possibility of the Germans, with their drive and efficiency developing the vast potential of Russia. 4. It is, therefore, of great importance that at least those U. S. fighter types for which new capacity is to be created in this country should be a really substantial advance on British types now in production and at least equal in fighting quality to the new British type, the Typhoon, now going into production in the U. K. I do not claim to be a technical expert, but I do not feel that they do come up to this standard. For instance the Curtiss 87, which starts coming in in substantial numbers in the spring, may attain about the same speed as the Spitfire III (on paper - actually it probably won't be as fast), but it only mounts four .50 machine guns " against the eight .303 of the Spitfire III. The fire say that, with the best will in the world, they cannot promise to install six guns till the Regraded Unclassified 70 -3- 151st aeroplane; this may mean that we shall still have 4-gun fighters being delivered in England in January 1942. As com- pared to the Typhoon, the Curtiss 87 is very much slower, and the Typhoon has twelve .303 or six .20 n.m. cannon guns against the four .50 guns of the Curtiss. 5. There are other more advanced fighters now under devel- opment. The Bell Aerocobra, for instance, of which we have several hundred on order, may have a rather higher performance than the Spitfire though less than the Typhoon, and the firm have proposed the installment ultimately of a powerful arma- ment amounting to five 20 E.M. and two .50 guns. It has, how- ever, certain doubtful features such as a very high wheel load- ing, and its performance when the improved armament is installed must be to some extent & matter of conjecture. Another fighter type now under development in the United States, namely, the Republic P.47.B, will have a useful arma- ment of eight .50 calibre guns and a good top speed at high altitude (25,000 feet). On the other hand I understand that it's performance so far is only on paper and it will not fly until January or February 1941, whereas the Typhoon has been flying for some months already. In general, except at its specialised height of 25,000 feet , it seems certain to be inferior in speed, performance and operational qualities to the Typhoon, and the Technical Officewsof the British Air Commission have not thought it desirable to go in for it. Both the Aerocobra and the Republic P.47 incorporate certain untried experimental reatures, which may or may not be suc- cessful in larger scale production, whereas the Typhoon is a normal development of a tried type, The Hurricane. 6. Reference should be made to the question of gun oali- bres. 11 is true that the guns in the initial issue of Typhoons are .303 as against the .50 calibre machine guns in the U. s. types. But the British view, which has received same confirmation in recent trials in England, is that the Regraded Unclassified 71 .50 calibre, while greatly superior in hitting power to the .303 - is not likely to be fully affective against the degree of armour which must be anticipated in enemy aircraft by 1942. For this reason the British intend to mount in the Typhoon six 20 m. cannon guns as they become available -- a type of gun against which they believe it to be quite impossible to armour. Indeed, British policy is ultimately to turn over to cannon guns in all fighters, including existing types. 7. It seems to no therefore the best chance of getting in substantial numbers by June 1942 a really marked advance in the spheres both of performance and armament, is for U. 8. industry to produce the Typhoon - a type of which, incidentally, I have little doubt we could satisfy the U. 8. Air Corps that they could make very valuable use in emergency. The argu- ments in favour of producing American as against British types in U. S. A. are well known; but it is hard to believe that the difficulties (anyway as far as fighters are concerned) are insurmountable. The production of the airframe should be relatively easy; the main difficulty is going to be to make the engine, the 2000 h.p. Napier Sabre. Both of course involve the creation of new capacity, and both will involve difficulties in the direction of machine tools. But it is hard to believe that the vast engineering resources and skill available in the U. 8. A., if really vigorously directed along the right channels, could not overcome the difficulties and produce Typhoons by the spring of 1942. Humbers. B. This can only be dealt with on more general terms. Very briefly, the situation in this. The "3000 a month" scheme has,for the present, faded out of the picture as a practical proposition in the reasonably near future. The present scheme invelves 26,000 aircraft for the Empire by June 1942 - the 14,000 8 existing orders and the now 12,000 - which verks our at an sverage of about 1300 a month. But this programo is only being achieved by continued use of existing egraded Unclassified 22 and part use of new capacity already being created under the U. s. Defence programme. The joint U. 8. - British capacity which will probably be in existence by June 1942 on present plans, would be of the order of 2500 combat planes a month, of which only 10%, or 250 & month would be heavy bembers. This planned figure is probably little, if any, more than the present capacity of Germany alone. And - in view of the pos- sibility of really serious and widespread interference with production in England by bombing - it seems impossible to sit back and accept & situation in which the British and U. B. Air Forces are backed by 80 inadequate a production. It will no doubt be suggested that shortage of machine tools pre- cludes the possibility of creating any further capacity in the near future. But there seems some reason to hope that the machine tool situation will show an improvement in the near future. And in any event experience in the U.K. has shown that, where one is really up against it, it is surprising what can be done by going out into the highways and hedges and making use of all sorts of hidden capacity, normally in use for other purposes and, if the best is not available, making do with the second best, such as the plant and tools of the automobile industry. It would be an admission of defeat to accept that the production of aircraft engines and the necess- ary accessories such as guns, radio, etc., cannot be greatly increased in scope and accelerated in tempo, But it cannot be done without far more drastic neasures than are at present in force. 9. As & practical suggestion (which has the authority of Bix Henry Self) the following seems the programse at which TO should aim. To had originally assumed that by June 1942 10 should coe a production on joint account of 3250 combat planes a month Can against the 2500 sentioned above) with & further capacity for 1250 & month, to be started early in 1941 and is be in full production by the and of 1942. Regraded Unclassified 73 Our aim therefore should be first to create immediately capacity for at least an additional 250 a month of an improved type of heavy bomber - a class which are of vital importance to the defeat of Germany and in which there is a serious deficiency on present programmes. This should be followed as soon as possible after the first stage is under way (by which combat plane capacity will have been increased as above to 2750 per month) by the creation on joint account of capacity for the production of new types to bring the total of United States production up to 4500 a month. November 27th, 1940. Regraded Unclassified MOST SECRET MOST SECRET 74 THE U. S. AIR PRODUCTION PROGRAMME Second Note by Air Commodore Slessor, 1. An a result of visits to certain aircraft factories and to Wright Field, and of further discussions with U. S. Air Corps officers, I think it may be desirable to amplify the views expressed in my note on the U. S. Air production programme dated 27 November 1940. 2. There are two main desiderata in the field of aircraft production in the United States, from the point of view both of the British Air Force and of the U. S. Air Services who have their own great programe of expansion. These are (a) the need to produce as large a number as possible of adequate combat types to meet the require- ments of expansion and of wastage in the campaign of 1941, and (b) the need to produce, in as large quantities as possible, aircraft of improved performance and fire power that will be better than, or at least as good as, the greatly improved types that we must anticipate will form a high proportion of the enemy air forces in the campaign of 1942. 3. Unfortunately these desiderata are to some extent conflicting. If we were to attempt to introduce the new 1942 types into existing capacity, the result could only be that to should not get adequate numbers of existing types during 1941. The suggestion in my previous note, however, was that me should not mortgage all the new capacity to be created by extending the production of existing types, but should reserve at least some of it for the production of new types which are a really substantial advance on those now in production. 4. The previous note dealt sainly with fighters. If it were possible to apply the foregoing principle to the production of bombers it would obviously be desirable to do so, There is, however, no suggestion that we should attempt to produce the Halifax or Stirling in U.S.A., I do not believe It would be possible to get into substantial production on these types before an U. S. type bomber could be produced of quality equal to either. 5. 4a regards fighters, I should nake it clear that my previous note implied no criticise of U. S, fighter types as 1941 fighters. What I Regraded Unclassified 75 - 2 - was, and still as, concerned about in whether there la anything now in eight which will be of sufficiently high all-round fighting quality - speed, climb, manoeuvrability, and volume and hitting power of the areament - to be 100% effective against the bonbers of greatly improved speed, armament and armour that it is only prudent to assume will be net in the spring and summer of 1942. And, if we are to have fighters of that quality in sufficient numbers by that time, we should be creating the capacity for them DOW. I do not suggest that all our fighters must or can be of this high quality - obviously they cannot be; the Hurricane now is markedly in performance inferior/to the Spitfire, yet it iz still shooting down a groat many Huns; and we ourselves in England shall still be in large scale production of Spitfires in 1942. But at least some of the new capacity now to be created in this country should be allocated to the production of 5 really first class 1942 fighter. 6. The problem is what type to select for this purpose. It seens likely that the only way of achieving with certainty the required fire- power and performance will be to nake use of much higher powered engines than any now in quantity production. In my previous note I suggested that the best solution would be to produce the Typhoon with the 2000 h.p. Napier Sabre engine in this country. The crux of this is the production of the Sabre engine of which the drawings are now in the hands of the D. S. tochnical experts. I think the Typhoon still holds the field AE the best 1942 fighter now in production. The only possible alternatives would seem to be to build a fighter round either the 1650 h.p. Rolls Griffon (which eight be introduced as at follow-on for the Merlin at Packard's) or one of the hig radial engines coming into production in this country, such as the Wright 3350 or the Pratt and Whitney 2800. I cennot help doubting whether It will be possible to achieve adequate overall performance in & fighter with one of the b1g radials; the British technical officers have not taken & favourable view of the only fighter at present projected using the P and 1 2800, namely the Republic P.47. It my be possible to introduce such improvements into the Bell Airacobra and Allison engine 56 will give that type the Decessary performance as well as gun-power 4.9 50 interim type; and in by note annexed to Sir Henry Self's letter of December 14th I have recomended taking a chance on that, Regraded Unclassified 76 - 3 - 7. To sum up, the U. S. type fighters now coming into production such as the Curtiss Hawk 87, the North American 73, and the Bell Airacobra with existing armament will be very formidable fighters for 1941. For the fighting season of 1942 we should endeavour to produce in the United States, from new capacity to be created, as many fighters as possible with 1942 fighting qualities - which means at least 400 m.p.h. at operational height and multiple cannon. ember 15, 1940. BECEIAED over ID 1,030 Instructions real grow $9 le zii) 77 Becomber 18. 1940 Dear General Norahall: Thank you for seating - your consente and these of General Brett regarding Mr Commadore Sleeser's motes on the Valted States Alp Production program. Sincerely. (Signed) H. Morganthan, Jr. Secretary of the freesury General Casage 6. Marchall, this of start. the Department. Nechington, 3, e. bpu. Regraded UInclassified 78 Becomber 10, 1940 Bear Conseol Marchall: Shank you for conding - your comments and these of General Brett regarding Mr Commoders Sleeser's motor on the United States Alr Production program. Sincerely, (Stgned) H. Morgesthau, Jr. Secretary of the Treasury d I I Shief of Steff. - Department. s in I GPV:1s 79 SECRET WAR DEPARTMENT arten & OFFICE OF THE CHIEF OF STAFF WASHINGTON summary December 11, 1940. MEMORANDUM for the Secretary of the Treasury: My dear Mr. Morgenthau: I have had Commodore Slessor's notes on the United States Air Production Program checked over by General Brett and his officers. The following are their comments: À careful study of these notes indicates clearly that they are based upon incomplete investigation and information; that Commodore Slessor had not at the date of these notes consulted with or conferred with the Air Corps engineers charged with development and production; that the information as furnished in his notes is contrary to much of the information furnished by other members of the British Purchasing Commission such as Mr. Fairey, Commodore Mansell and Commodore Baker; that he has not personally gone into the details of any of our later models nor has he examined those models, which are available at the various factories. Also, reading between the lines, it appears that Commodore Slessor's ultimate objectives are: 1. Production in America of a British design long range bomber (the Sterling) b. Production in America of a new British design pursuit airplane. c. Increased productive capacity of the American air- craft industry (1.0. from 2500 airplanes a month, as now set up, to 4500 airplanes a month by 1943) General Brett submitted the following detailed comments: a. LONG RANGE BOMBERS. Fire Power - It is stated that: "No U.S.bomber - compares for fighting efficiency with our own heavy bombers now in production." Comment - The fire power of the "Sterling" and "Halifax" SECRET Regraded Unclassified 80 SECRET British bombers consists of eight .30 caliber guns mounted in three turrets. The fire power of the B-24 (Consolidated) and the B-17 (Boeing) consists of six to seven .50 caliber and one to two .30 caliber, or the equivalent of twelve to thirteen .30 caliber guns. The overall combat efficiency of the American bomber is considered superior to the English. Commodore Mansell, in meetings with our technical specialists, has stressed the desirability of the British changing from .30's to .50's. By yardstick methods, we consider one .50 equal to two .30's in a bomber. Prototype of two models of 5300 mile bomber provides for fourteen .50's and two .20's. These are scheduled to be ready for production in early 1942. Speed - The production articles of both the B-17 (Boeing) and the B-24 (Consolidated) are at least the equal of the British types now in production. The advantages due to turbine super- charger installations of the American types have been stressed by technical and tactical representatives of the British Purchasing Commission. New Types, Heavy Bombers -The placing in production of the British bombers now in production would require at least a year, and probably two years, in view of the differences: in American technique. The Army now has under construction service test orders of a. heavy bomber with greater range, with greater fire power, with greater speed, greater bomb capacity, than either of the British bombers discussed. b. FIGHTERS (PURSUIT) In regard to comparison of the British "Hurricane" and "Spitfire" with the modernized pursuit types now in production (i.e., the Bell P-39, and Republic P-47, and the Curtiss P-40D), the follow- ing comments are pertinent: The Bell P-39 is equipped with one 37 m. cannon, two .50 caliber synchronized guns in the nose, and four .30 caliber wing guns as compared with the Spitfire's eight .30 caliber gun. The P-47B (Republic) has provision for eight .50 caliber wing guns. The Curtiss P-40D has a normal equipment of four .50 caliber wing guns; provision is also made for substituting two 20 m. cannons for two .50's. SECRET + Regraded Unclassified 81 SECRET The Curtiss P-40B (a stop-gap airplane) is equipped with two .50 caliber guns and four .30 caliber wing guns. The gun installations and areament details of all these air- planes were coordinated with representatives of the British Commission, based on combet experience available that August and September. New Types - Tie concur with Commodore Slessor's statement that: "It is of great importance that at least those U.S.fighter types for which new capacity is to be created in this country should be really & sub- stantial advance in British types now in production" (see paragraph 4, page 2). It is believed that a 2000 horsepower liquid-cooled engine is essential to seet this requirement. The Pratt & Whitney Aircraft Company discontinued the development of the Army engines of this type after they were well under my. The Navy has an experimental 2000 horse- power liquid-cooled Lycoming engine. A conference between the Army, Navy and British, with the view of determining whether the Navy Lycoming engine or the British Sabre engine should be put into production for this purpose is highly desirable in view of the Pratt and Whitney change in experimental policy. The British engine appears to be in a more ad- vanced state of development. Provided the engine can be sade available, the production of either the Typhoon type or the American design could be effected. PRODUCTION. Commodore Slessor's suggestion that the production be increased to 4500 airplanes per month is a re-statement of the request of July 24 for additional productive capacity. The means for obtaining this increased production appears to be practical. The present production capacity as now set up will reach 2500 airplanes per month, neglecting Government factories now authorised. Tentative British orders for 12,000 airplanes, now being placed, are sufficient for the first increment of increased productive capacity, suggested by Air Commidore Slessor, provided that both the Army and British place additional orders for at least 24,000 airplanes, for de- livery in 1943, at an early date. RESTUDY OF PRESENT PROGRAMS. The suggestions unde by Air Commodore Slessor for increasing pro- duction requires & restudy of the delivery objectives established July 23 and 24 for the period June 30, 1940 to April 1, 1942. Consideration should be given at this time to the following: (1) The release of all airplanes to the British over and above the actual requirements to equip 54 groups. (2) The matter of finance, facilities. (3) The mtter of placing orders with proper consideration to the ability of the industry to absorb the additional load SECRET -3- Regraded Unclassified 82 SECRET Personally, I an inclined to believe that there is an ulterior motive behind this statement, having in view a complete rearrange- ment of production and procurement procedure. I am deeply concerned over the slow rate, the dwindling rate of plane deliveries to the Army; but I an becoming even more concerned over the possible effects of the present campaign in certain portions of the press, particularly if supported by statements such as this from Commodore Slessor. It is natural that Slessor should be dominated by the desire to help the British situation, however superficial his knowledge of conditions in this country may be at the moment. My interest must center on our situation, and I am worried over the disturbing effect this sort of thing has on the airplane manufacturer and other agencies involved. Our problem is hard enough as it is - in time of peace with an unrestricted press, with the varied interests of Latin America, China, the British Empire, and our own vast expansion - but it is becoming increasingly difficult and confused under the various pressures, some very powerful, and each of which has a special purpose in mind. Incidentally, the recent publicity campaign direct- ed against American types of planes in England as a reflection on the general efficiency of our program, is really an outrageous piece of business. The British Government was given what they pled for, in some cases to our serious embarrassment in training; now we are being damed in the press for that action. Please note General Brett's statement on the subject, which is attached. Chief of Staff. encl. SECRET Regraded Unclassified December 13, 1940. 83 WAR DEPARTMENT Public Relations Branch Tel. RE 6700 Brs. 3438 and 3425 IMMEDIATE RELEASE DATA ON AIRPLANES RELEASED FOR EXPORT Major General Geo. H. Brett, Acting Chief of Air Corps, made the following comments today relative to the release of Army airplanes for export and the consequent efficiency of such airplanes now in use by the British. "Prior to March, 1940, it was the policy of the War and Navy Depart- ments to release for foreign sale only such equipment as was classed as obsolescent. Under this policy many airplanes, only some of which could be regarded 88 United States Army types, were purchased by and delivered to the British and French Governments in the full knowledge that they were not the latest types. "At the urgent request of Foreign Purchasing Commissions, the War Department released obsolete equipment (the A-17 planes) which were used only for pilot training. Ninety-three of these airplanes were turned back to the manufacturer by the Army in exchange for new models at the insistence of the Anglo-French officials and after the Army Air Corps had made it clear to them that these. airplanes were completely obsolete for fighting purposes. ."The DB-7 Douglas bomber was initially ordered by the French and taken over by the British in considerable quantities. This combat airplane was not found acceptable when offered to the Air Corps by the Douglas Company in a competition held early in the year 1939. "The Martin-167 bomber, for which large orders were placed by the French and taken over later by the English, was likewise found to be un- acceptable by the Army in a competition held in April, 1939. "The Curtiss P-36, which was purchased in considerable numbers by France, was determined by the Air Corps, in competitions held in 1939, to be obsolescent, "On March 25, 1940, the policy was liberalized to permit the release of modern equipment for foreign sale provided an improved model of the re- leased type was available for procurement by the Army Air Corps. On that Regraded Unclassified 84 date, which was before any severe air fighting had occurred between German and British or French air forces, the first model of one of our latest pursuit planes, the P-40, was in production. It mounted four machine guns. but had no armor nor leakproof fuel tanks. Some of these early models were purchased by the British and it is understood that after the addition of two machine guns and leakproof tanks and limited improvised armor, they were sent to England. Whether any of these planes have been used in combat is unknown, "When the P-40 was released to Britain, although a modern plane, it was regarded as obsolescent by the War Department which was placing in pro- duction an improved model known as the P-40D which has greatly increased fire power, leakproof tanks, and protective armor. These planes are now being manufactured for both the United States and Great Britain. "The above statements should clarify in the minds of the American public the fact that the "ar Department has not only developed but is procur- ing equipment which, from all information that can be secured by our observers in Europe, is equal or superior to that now employed abroad. "Close relationship has existed between the technical members of the British Purchasing Commission and our War Department. Every advantage has been taken of the lessons learned during the War and the incorporation of new features of design and equipment has been made as rapidly as possible in all the equipment. now under production. But the development and production of air- planes is a lengthy process and cannot be interrupted for each new improvement if necessary numbers are to be obtained." END - 2 - Regraded Unclassified WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF WASHINGTON Dec.16,1940. The attached was inadvertently omitted as Enclosure to letter signed by the Chief of Staff dated Dec.ll, 1940 to the Secretary of the Treasury, which was delivered about 1 P.M., today, by special messenger. - 85 SECRET December 10, 1940. MEMORANDUM FOR - The Chief of Staff. SUBJECT - Comments of Mr Commodore Slessor. 1. Herewith attached are comments on notes submitted to the Secretary of the Treasury by Air Commodore Slessor. 2. A very careful study of these notes indicates clearly that à They are based upon incomplete investigation and information. in To the knowledge of the undersigned Air Commodore Slessor had not at the date of these notes consulted with or conferred with the Air Corps sugineers in charge of de- velepment and preduction. g. The information as furnished in his notes is contrary to such of the information furnished by other members of the British Purchasing Commission such as Mr. Fairay, Commodore Mansell and Commodere Baker. d. To the knowledge of the undersigned he has not personally gone into the detail of any of our later models nor has he examined those models which are available at the various factories. 2. The consents herewith attached are a statement of fact and are based upon the best possible information available from England. Further study and further factual date can be furnished upon request. GEO. H. BRETT, Najor General, U.S.A., Inals The Accistant. Communts. SECRET Regraded Unclassified SECRET 86 COMMENTS ON NOTES SUBMITTED to THE SECRETARY OF THE TREASURY X AIR COMMODORE SLESSOR ON THE UNITED STATES AIR PRODUCTION PROGRAM. 12-10-40. 1. Reading between the lines, it appears that Air Commodore 51essor's ultimate objectives area a Production, in America, of a Brittsh design long-range bomber (the Sterling). A Production, in America, of 8 MY British design pursuit airplane. 2. Increased productive capacity of the American aircraft industry (1.0., from 2500 airplanes a month, as now set up, to 4500 airplanes a month W 1943). 2. The notes appear to be based upon incomplete investigation and 1200 formation, therefore are in part misleading and contrary to information furnished by other nembers of the British Purshasing Commission. Air Commodore Slessor had not visited Wright Field nor commulted with Air Carps engineers. Cognisance has not been taken of improvements that have been made as & result of British experience in combut airplanes now on order or of our experimental program. In partimlar, it is desired to invite attention to the followings 1. LOTO RANGE BONDERS. Pire Possent - It is stated thats no U.S. beaber - - - compared for fighting efficiency with our om heavy beabers sov in production. Commins - The fire power of the "Sterling" and "Halifes" British bombers consists of aight .30 caliber - mounted is three turrets. The fire power of the 8-24 (Conselidated) end the B-17 (Desing) consists of ein to DOTOR .50 caliber and case to too +30 caliber, or the equivalent of twolve to thirteen .30 caliber gas. The overall ceebat efficiency of the American boaber is considered experior to the Ruglish. Commodere Mansell, in nootings with our technical specialists, has stressed the desirability of the British changing from +30's to 050'80 " yardstick nothods, 90 consider - .50 equal to to ,30's in a benter. Prote- type of too models of 5300 sile beater provides for fourteen ,50's and the .20's. These are scheduled to be ready for production is early 1942. Speed - The production articles of both the B-17 (Seeing) and the B-24 (Consolidated) are at least the equal of the British types MV in production. The advantages in to turbine supercharger installations of the American types SECRET Duel) Regraded Unclassified SECRET 87 have been stressed by technical and tectical representatives of the British Purchasing Commission. Nov Types, Heavy Bombers - The placing in production of the British beabers nov in production would require at least & year, and probably two years, in view of the differences in American technique. Theirey now has under construction service test orders of & heavy benter with grater range, with greater fire power, with greater speed, grester bonb capacity, than either of the British bombers discussed. be FIGHTERS (PURSUIT). In regard to comparison of the British "Hurricans" and *Spitfire* with the medermised American pursuit types now in production (1.0., the Ball P-39, the Republic P-47, and the Curties P-40D), the following commis are partinement The Bell 1-39 is equipped with cas 37 s. camon, too .50 caliber synchromised pm in the mose, and four .30 caliber wing - as compared with the Spitfire's eight .30 caliber gun. The P-470 (Regublio) has provision for eight .50 caliber wing - The Curties P-400 has & normal equipment of four .50 caliber viag - provision is also made for substituting two 20 m. cannons for too .50's. The Curties P-408 (a stop-gap airplane) is equipped with too +50 call- bar quas and four .30 caliber wing gms. The pm installations and amount details of all these airplanes were coordinated with representatives of the British Commission, based en combat experience available last Anount and September. In Types - " concur with Compodere Sleeser's statement thats *It se of great importance that at least those U.S. fighter types for which are especity is to be created is this country should be really a substantial advance in British types now is production® (see paragraph 4, page 2). It is believed that a 2000 harsepower liquid-ceeled engine is essential to neet this requirement. The Pratt & United Aircraft Company discontinued the development of the Army engines of this type after they were well under way. The Havy has all experiencial 2000 horsepower liquid-cooled Lyooming engine. A conference between the Arey, Havy and British, with the view of determining whether the Havy Lycoming engine or the British Sabre engine should be pet into production for this purpose to highly desirable in view of the Pratt and Whitney change in experimental policy. The British engine appears to be is a more advanced state of development. Pro- vided the engine can be made available, the production of alther the Typhoon type or the American design could be affected. SECRET 2 - Regraded Unclassified 88 SECRET 3. PRODUCTION- Complete Sleeser's suggestion that the production be increased to 4500 airplanes per month is & restatement of the request of July 24 for additional productive capacity. The seens for obtaining this intreased production appears to be prestical. The present productive capacity as MV not 9 will reach 2500 airplanes per month, neglecting Government factories - authorised. Tentative British orders for 12,000 airplanes, now being placed, are sufficient for the first increment of increased - dective capacity, suggested w Air Commodere Slessor, provided that both the Any até British place additional orders for at least 24,000 airplanes, for delivery in 1943, at an early date. 4. The suggestions made w Air Commedore Slesser for investing yro- duction requires 4 restair of the delivery objectives established July 23 $91.24 for the period June 30, 1940 to April 1, 1942. Consideration should be given at this time to the following: (1) The release of all airplanes to the British over and above the actual requirements to equip $4 groups. (2) the natter of finance, facilities. (3) the matter of placing orders with proper consideration to the ability of the industry to about the additional Load. SECRET - , - Regraded Unclassified 89 BRITISH EMBASSY, WASHINGTON, D.C. December 18th, 1940 Personal and Secret Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, horde Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 90 Telegram from London dated December 17th. Naval. The French torpedo-boat "Branlebas" manned by Royal Navy, which sailed on December 13th from Dart- mouth as escort to a West bound channel convoy, has failed to answer any signals and must be presumed lost. The 8. 8. "Orari" has arrived safely in port. 2. Filitary. Italian prisoners taken by the Greeks now number more than 10,000. Their morale is extremely low as indicated by their abandonment of equipment and criticism of their officers and Fascist leaders who are considered responsible for the unpopular war with Greece. 3. Royal Air Force. Night of December 16th/17th. A total of 120 heavy and 8 medium bombers carried out a very successful attack against the industrial targets at Mannheim. All returned safely except two. 4. German Air Force. Night of December 16th/17th. Only about 30 enemy aircraft were operating. The majority visited the North Midlands and Manchester where eleven persons were killed and 13 seriously injured; damage was confined to private property. 5. Aircraft casualties in operations over and from British Isles. Enemy: N12. British: two bombers missing. Regraded Unclassified 91 BRITISH EMBASSY, WASHINGTON, D.C. Personal and Secret December 18th, 1940. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, thavile Buttin The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. c. 92 Telegram from London dated December 16th. Naval. British naval forces have been continuing to support operations in the constal area between 81di Barrani and Bardia. 2. From Air reconnaissances on the 14th and 15th, the following is the disposition of the Italian naval units. At Taranto: 2 damaged battleships, 1 6-1nch cruiser, 1 destroyer. One Littoria class battleship, one 8-inch cruiser, 4 destroyers and 2 large merchant vessels entering the harbour. At Naples: 2 (possibly 3) battleships, 4 or 5 cruisem 15 or 16 destroyers, 11 merchant vessels. At Tripoli: 4 destroyers, 3 torpedo boats, At Messina: 3 cruisers, 3 destroyers, 4 or 5 submarines. 3. Germany. Air reconnaissances December 14th shows "Lutsow" and one old battleship at Kiel, "Tirpits" at Wilhelmshaven, and "Bismrok" at Hamburg alongside Blohm and Voss yard. 4. Shipping Casualties, A Denish ship (2300 tone) in south bound ocavey, has been sunk by E-boat off the East Coast. 5. Ship mentioned in the second sentence of pera- graph 2 of the summary of the 15th has now sunk. 6. A sonvey of 21 ships has arrived from Canada; nose were lost on the passage. 7. Royal Air Force, Night of 15th/26th. 59 heavy bonbers were sent to attack military objectives is Berlin and 10 others to Frankfurt. In both creas may large fires and explosions caused. In Regraded Unclassified 93 + heavy bombers were minelaying. Three aircraft are missing 2 crashed crew being injured in one case, and one came down in the sea crew saved. 8. Night of 15th/16th. About 125 enemy aircraft were operating of which 20 were mine-laying. Regraded Unclassified 94 G-2/2657-220 RESTRICTED M.I.D., W.D. December 18, 1940. No. 273 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. Air Force Operations. Unfavorable weather prevailed. The German Air Force executed no offensive operations. The R.A.F. carried out small night raids against Mann- heim and the Channel invasion ports. II. Greek Theater of War. The heaviest fighting appears to be in the Tepeleni-Kli- sura area, where the Greeks have been able to make little headway. Apparently, Italian resistance is stiffening in the Porto Palermo area and along the coast road where recently the Greeks have made their farthest advances. Air activity was limited by weather. III. Mediterranean and African Theaters of War. In extreme western Libya all Italian strongholds except Bardia, where the Italians are resisting strongly, have been cap- tured by the British. The British mechanized forces have appar- ently penetrated west of Bardia to the main Bardia-Tobruk road. The Italians claim to have increased their air activity over western Egypt. There were widespread minor raids by both sides throughout these theaters, including an apparently effec- tive Italian attack on Port Sudan, on the Red Sea. RESTRICTED Regraded Unclassified 85 CONFIDENTIAL Paraphrase of Code Radiegram Received at the Mar Department 10:20 A.M. Doe- ember 18, 1940. London, filed 15:15, December 18, 1940. EXTRACT In a confidential conversation the Assistant Quarter- motor General in charge of the supply of feed and petroleum products in the War Office advised Colonel C.M.C., special observer in this office, that it - his eccolusion that enery booking has caused severe losses of feed, to include the destrue> tion in Liverpool of rations valued at $80,000,000. Recent - attacks have destroyed two oil caming factories, where gaseline and lubricants are sealed in tin containers for use by Army tactical units. These plants had a total capacity of 2,400,000 gallens a day and their destruction handiesps motor transport forces overseas, whose divisions have a daily require- ment of 100 teme. The Any is now contemplating reducing the present meet ration of 10 - to 7t. LEE Distribution: Secretary of Ver State Department sest. Secretary of War Chief of staff MP Plans Division Office of Neval Intelligence CONFIDENTIAL Regraded Unclassified CONFIDENTIAL Paraphrase of Code Radiogram 96 Reseived at the War Departments at 10:20 A.M., Desember 18, 1940 London, filed 15:15, December 18, 1940. 1. On Tuesday, December 17, planes of the Coastal Command earried out attacks en a factory and two airdrass in the Calais area and en & French port. No planes of the Bember Command operated that day. The preceding night British benbers made a consentrated attack on an important industrial city in the Whine Valley. It was reported to be very supeessful. 2. Daylight operations of the German Air Foree on December 17, were limited to coastal recommaiseance flights, and no German planes flow inland that night. 5. During the night of December 18-26, a total of 17 planes operated against energy targets. or these 10 attacked Frankfert and 89 Berlin, while eight heavy benbers laid mines. or these, three planes are missing and two erashed on landing. The - night 185 easuy planes were plotted, of which 20 laid nines. 4. Station nevel vessels are ANY based on Messima, Maples, and Terente. 5. British aircraft in bembed Tobruk and other Italian treep consentrations. The Ind Amount Division participated is nest of the recent action in this theater. British benbers based in Grocos attacked the harber of Durasse, Albania. The Italian priseners cap- tured in this theater have an extremely low nerale, as indicated by their criticism of Fascist leaders and their - efficers and by their abandoment of equipment. the Italian Centraure Amered Division in CONFIDENTIAL Regraded Unclassified 97 CONFIDENTIAL this theater is equipped with about 220 tanks, probably between two and five tens; but it apparently did not operate as an armored divi- sion. Some troops in this Division fought as dismounted Infantry and one regiment of Bersaglieri was detached from the Division early in the operations for use elsewhere. 6. A 2,300 ton Danish ship was sunk off the east coast by an E-boat. A convoy from Canada of 21 ships has just arrived with- out loss in Britain. 7. The German attack on Sheffield during the night of Dec- ember 12-13, did considerable damage to the business district but the larger mitions plants suffered but little. 8. The general apprehension continues of an enesy invasion of the British Isles before the New Year) but in spite of this no significant change in the disposition of enemy shipping has as yet been observed. LEE Distribution: Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff -2 War Plans Division Office of Naval Intelligense AC-2 G-3,1 + CONFIDENTIAL Regraded Unclassified 98 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE December 18, 1940 Secretury Morgenthau TO Vr. Claus FROM PHI reports: November 18. FBI is monitoring Czechoslovakie funds in San Francisco. November 27. FBI is watching Italian bank accounts in the Los Angeles erea through confidential informants employed in key positions in various banks; special enplusis is being placed on the account of B. sister of Cesare Grinaldi, reported as having been Et former bodyguard of Mussolini. FBI 16 also monitoring Japanese bank accounts in the same area. December 2. A report that en officer of the Corn Exchange National Bank in Philadelphia states that the German Consul has not been paying any bill by check since January 1940; be has oven been paying his hotel bill in cash. December 13. The Dutch Consulate General in New York City has learned from the Dutch Embasay in London that the Nazis in Holland have confiscated an unknown unber of genuine Dutch passports which are being issued to Nazi espionage agents, particularly to German-Jewish agents who are posing as Dutch refugees. December 14. The Germen and Italian Ministers in Guatemala are said to be buy- ing up United States bank notes, preferably of high denomination. December 14. A strike was called December 11 on the Standard Fruit Company boats et New Orleans; the boats are of Honduran registry and the strike is said to be led by Communist elements in the American Communications Association and the National Maritime Union (Joe Curren's organization). December 14. A large number of American securities have been transferred from Switzerland to the National Bank of Haiti, Port-au-Prince, Haiti, for the account of a new company to be organized in Haiti; the Haitian bank officials are suspicious and the FBI is investigating further. ns Regraded Unclassified 99 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE December 18, 1940 TO Secretary Morgenthau FROM Mr. laus State Department reports: December 10. From the Embassy in Vichy: The Germans vetoed a French pro- posed law requiring the registration of all foreign securities held in France; the ground of the refusal is presumed to be the Germans' desire to keep their operations in bearer securities secret. 811 100 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY FIDENTIAL DATE December 18, 1940 Secretary Morgenthau TO Mr. Klaus FROM V3I reports: December 9. The Italian Air Attache and the Italian Ambassador on December 11 cashed two Banco di Napoli Trust Company Treasurer's checks amounting to 19,738.35, receiving 8 $1,000 bills and the remainder in currency of small de- nomination. FBI has the numbers of 5 of the $1,000 bills. December 12. The German Embassy purchased a $7,500 draft payable to the German Consulate General in New York City in 5 $1,000 and 5 $500 bills which are being traced. December 17. The outstanding $10,000 notes traced to the German Consulate General, %ew York, have been reduced to $30,000; 10 notes have just appeared at J. 2. Morgun and Company in payment for Hamburg-American Line bond redemption obligations. December 17. The Banco de Mexico is reported to be buying $12,000,000 in gold in Bew York City, having thus far transferred $9,000,000 to its account it the Federal Reserve in payment for the gold. dis. Regraded Unclassified 101 DEC 1 8 1940 W dear Mr. President: By interest is forestalling potential inflationary developments that would react unforerably on the consent of the country, as well all our shale fiscal program, and is gurding against possible shortages of 10- fame materials, leads me w express w serious sensern over the growing magestion is the steel industry. No export knowledge is Momory to ⑉ that the stool injurity will be mable to handle the volume of orders that lies about. In addition to the huge British orders that are now in prospect, the bulk of our defense orders are still to be placed with the steel mills, and the ordinary MI- defense demand will undoubtodly be calarged M the national income rises. is you will more on the shart which I - attaching, there to very little expecity available in any steel district for a further insrease is outynt. A system of priorities, applied except as a temporary expedient, would seriously hasper the угоргая for achieving full employment of laber and recources. I have not been greatly unsuraged by recent prese assemements of expension plans W certain steel companies. In an attached table I have lieted all of the proposed increases in steel inget especity that I have about, plus the are especity (electric furnase) completed this year or under construction. Taken tegether, this amounts to 4 prespective 12- crosse is inget espacity of only 2.7 per cent, the balk of which appareably will not be completed for 12 to 18 months. You will reall the large steel expension that was found necessary during the World Var, when the inget especity was increased about one-third between 1914 and 1918. In view of the increasingly urgent need for mm steel, 11 seems to - that as imediate major expansion yongress for the steel industry 10 slearly called for. Faithfully years, (Signed) H. Morgesthan. Jr. the President, the White Druse, Copies to: Mr. Stettinius Mr. Henderson an AWB " 110 FILE COPY Regraded Unclassified 102 New steel expecity completed, under construction or authorized since Jenuary 1, 1940 Net tens Mothlehem Steel Corporation 850,000 U. s. steel Corporation 400,000 American Helling NEW 50,000 Electric furnades (imerican Irea and steel Institute estimate of capacity of 21 - electric furnasse nov is operation, or expected to be in production early in 1941) 900.000 2,200,000 GCH:law 12-17-40 FILE COPY STEEL OUTPUT AND RATED CAPACITY Weekly Tonnage 1939 1040 (94) - A M if A & a N o - F M A. M , - A . o H D # I UNS TONS Millions U.S. Total Millions Copacity 16 14 12 1.2 Output 1.0 1.0 # 9 4 é .4 4 2 2 o 0 J F M A M J J A $ o N o J F M A M J J A 8 o N o J F M 1939 1940 1941 PRINCIPAL PRODUCING DISTRICTS 1939 1940 1941 1939 1940 1941 JFMAMJJABONDJFMAMJJAKONDJFM JFMAMJJABONDJFNAMJJASONOJFM TONDITI TONS TOWE Thousands Thousands Thousands Chicago 360 -Copecity 360 320 320 Pittaburgh Copacity are 320 280 200 103 zao 280 140 240 240 240 200 200 Output 200 200 160 140 Gutput 160 160 120 120 120 120 00 so 80 60 40 40 40 40 o o Youngstown o o 200 200 IND Philadalphia 168 160 160 130 120 120 120 10 no " se 40 40 40 sa a o a o Cleveland Buffalo #1) -- en so 40 40 40 40 o o a o Birmingham 40 40 40 40 Wheeling o o e a Cinsinnati au 40 40 40 Detroit a a o J F M A M , J A 5. o # o , FMAMJJABONDJFM J F M à J A & D " o J # a A M J A o M D F o 1939 1940 1941 1939 1940 1941 "hand as iren Age - Regraded Unclassifie Prepared by: Mr. Turner Mr. Murphy 1 Mr. Bans TREASURY DEPARTMENT 104 INTER-OFFICE COMMUNICATION DATE December 18, 1940 TO Secretary Morgenthau FROM Mr. Subject: Recent Developments in the High-grade Security Markets; The Market Value of Tax Exemption SUMMARY (1) New record high prices were attained during the first half of December by long-term Treasury, corporate and municipal bonds (Charts I, II and III). (2) The new National Defense Treasury notes are now sell- ing to yield about 12 basis points more than it 1s estimated that a five-year note identical with out- standing notes would yield (Chart IV). Part of this differential is due to uncertainty as to the future "righte" value of the new notes, and part -- probably the larger part -- 1s due to the difference in tax exemption between the Defense notes and outstanding Treasury notes. (3) Estimates of the market value ascribed to the tax- exemption privilege vary widely and are subject to a large error of estimate. The differential between the yields of taxable corporate bonds and tax-exempt municipal bonds has shown no definite relationship to the maximum rate of the Federal individual income tax since the initiation of that tax in 1913 (Chart V). The largest spread in favor of municipals occurred before the institution of the Federal income tax. In Treasury testimony before Congressional Committees about a year and & half ago, the differential between the yields of long-term, high-grade bonds attributable to "full" tax exemption WEB estimated at between 1/4 of 1 percent and 1/2 of 1 percent, and that attri- butable to "partial" tax exemption at between .05 per- cent and .15 percent. Current observation would show larger differentials, but it is questionable whether such larger figures measure the rate at which 8. sub- stantial volume of new borrowing could be accomplished through the issuance of tax-exempt securities. 105 Becretary Morgenthau - 2 I. Recent Movements in the High-grade Security Markets Prices of long- and intermediate-term Treasury bonds advanced to new all-time highe during the first half of December, but have receded elightly during the first two days of the current week (Charts I and II). Prices of Treasury notes show little net change since the beginning of the month. High-grade corporate and municipal bond prices also reached new highs during the first half of the month (Charts II and III). Corporates declined in price slightly yesterday. II. Reception of the New National Defense Treasury Notes The new 3/4 percent, 5-year National Defense Treasury notes opened on A when-issued basis on the day after the dlosing of subscription books at 100-16/32 bid, and have since then suffered a net decline of ebout 1/32. Chart IV showe as of yesterday's close the yields of all outstanding Treasury notes selling on a positive yield basis, including the new National Defense notes, and, for comparison, the yield of the partially tax-exempt 2-1/2 percent Treasury bonds which mature on the same date P.E the new notes. Because the new note is fully subject to Federal income taxes and there is some question with respect to its "rights" value, its yield cannot be compared directly with the yields of outstanding Treasury notes. A yield of .65 percent for the new note 1s, however, about 12 basis points higher than the estimated yield basie on which & 5-year Treasury note identical in all respects with outstanding issues would sell. This spread represents the combined market effect of the increased taxability and the diminished prospective rights value. It 16 extremely difficult to determine how much of this spread is the result of each of these factors taken sepa- rately. The impairment of rights value 1s, of course, due to the provision of the First Revenue Act of 1940 requiring that the national defense obligations therein authorized Regraded Unclassified 105 Secretary Morgenthau - 3 be paid from specified tax revenués. This presumptive absence of rights value would be of dominating importance if taken at its face value, for it is estimated that Dro- spective rights values result in e diminution of as much ER 20 basis points in the yield on outstanding five-year notes. It 18 clear, however, that only & fraction of this marimum valuation of the rights privilege on outstanding notes can be allowed for its impairment in the present 0836. Five years 1s a long time, and it doubtless appears to the market that chances are excellent that by the time the notes just issued mature they will be on all fours with other outstanding issues as far as the rights privi- lege 18 concerned. The possible impairment of the privi- lege in the present case has occasioned considerable market discussion, however, and probably accounts for some portion of the existing differential in yield between the new note and outstanding issues. It seems, however, that the larger portion of the differ- ential should be ascribed to the complete taxability of the new notes for the Federal income tax. In this connection it is interesting to observe that the yield of the 2-1/2 per- cent Treasury bonds, due December 15, 1945, 18 11 basis points lower than that of the new notes, and only 1 basis point above the estimated basis for a five-year note of the traditional type. As far as individuals ere concerned, these bonds are exempt from only the 4 percent normal tax; but for corporations their exemption is equivalent, under present laws, to that of the wholly exempt Treasury notes, This would suggest that the additional value placed by the market on "full" as compared with "partial" tax exemption is very small in the case of securities with a five-year maturity. III. Estimated Market Value of Tax Exemption Estimates of the market value of the tax-exemption privilege -- 1.e., the yield differentials attributable to differences in taxability - vary widely. Chart V and the attached table compare the yields of fully taxable high- grade corporate bonds with those of fully tex-exempt high- grade municipal bonds annually since 1900. There 1e also shown (in red on the chart) the maximum rate of the Federal individual income tax annually since 1ts initiation in 1913. It will be noted that the differential between corporate and municipal bond yields has varied widely, and that on 00088- ion the yields of the municipals have been higher than those Regraded Unclassified 107 Secretary Morgenthau - 4 of the corporates. It is also interesting to note that the maximus differential in favor of the municipals 00- curred before the introduction of the Federal income tax. There does not seem to be any definite relationship between the differential and the maximum rate of this tax. It would appear, therefore, that tax exemption has never been the decisive factor in determining municipal bond yields, that the value attached by the market to the tax- exemption privilege has probably varied widely from time to time, and that it 18 subject to a wide margin of error of esti- mate. It would appear, however, that the market does attach some value to tax exemption. This has already been indi- cated in the previous discussion of the new Defense notes. A substantial market valuation of tax exemption 18 also indicated by a comparison of the yields of Federal with high-grade State and municipal bonds. The State of New York, for example, offered early this month an issue of serial bonds of which the 20-year maturity was priced to yield 1.35 percent and the 25-year maturity WES priced to yield 1.45 percent. On the day these bonds were offered, the partially tax-exempt Treasury bonds of 1960-65 sold to yield 2.10 percent to earliest call date (20 years) and 2.20 percent to final maturity (25 years). This is a yield differential of 75 basis points in favor of the New York State bonds. While 8 portion of this may be explained away on various grounds, a substantial portion must be due to the superior tax-exemption qualities of the State as cost pared with the Federal bonds. Although it is thus clear that tax exemption has a real value in the market, the measurement of this value is extremely complex. Thus the differential between the yields of high-grade corporate and municipal bonds shown on Chart V is currently about 67 basis points. The use of other sets of indices would give substantially different results, however. This 1s due principally to the diffi- culty of maintaining a uniform standard of quality for the inclusion of issues in the indices, and to the difficulty presented by the large number of corporate bonds now sell- ing above their call prices. It 18 necessary, therefore, in the final analysis to resort to comparisons of indi- vidual issues. 108 Secretary Morgenthau - 5 It was estimated in the teetimony of the Treasury De- partment before the Special Senate Committee on the Taxation of Governmental Securities and Salaries in the spring of 1939 that the differential due to "full" tax exemption was between 1/4 of 1 percent and 1/2 of 1 percent, and that the differential due to "partial" tax exemption was between .05 percent and .15 percent. These estimates were reaffirmed in the testimony before the House Ways and Yeans Connittee in June 1939. They referred in each 08.66 to long-term, high-grade securities. Both the total value of tax exemption and the difference between the value of "full" and "partial" tax exemption is much less for shorter usturities. These estimates were based upon observations of the market differentials made before the cessation of further issuance of tax-exempt securities was generally considered & strong probability. We are now making a detailed study of the value of the differential at the present time, but it 18 clear that, at least in the case of the "full" tax- exemption privilege, it is substantially higher now than it WAS & year and & half -- or even three months -- ago. It may well be, however, that the earlier measurements embodied in the testimony before the Congressional Com- mittees in 1939 are more representative of the differ- entials at which substantial amounts of new borrowing through the issuance of tax-exempt securities could be accomplished than those prevailing today, which may reflect in large part an expected scarcity value for the outstanding supply of tax-exempt securities. Attachments Regraded Unclassified 109 Comparison of the Differential in Yield betwom High-Grade Corporate and Municipal Bonds and the Meximum Rate of the Federal Individual Income Tax, 1900-40 = 2 : High-grade : Meximum : Year 1 Municipal : I corporate Differen- 1 Federal : bonds 2/ # bands tial I individual : : # I income tax 1900 4.05 3.12 0.93 - 1901 3.90 3.13 -77 - 1902 3.86 3.20 .66 - 1903 4.07 3.38 .69 - 1904 4.03 3.45 .58 - 1905 3.89 3.40 .49 1906 3.99 3-57 .42 1907 4.27 3.86 .41 1908 4.22 3.93 .29 1909 4,06 3.78 .28 1910 4.16 3.97 .19 1911 4.17 3.98 .19 1912 4.21 4.02 .19 1913 4-42 4.22 .20 7 1914 4.46 4.12 .34 1915 Z 4.64 4.16 .48 7 1916 4.49 3.94 .55 15 1917 4.79 4.20 .50 67 1918 5.20 4.50 .70 77 1919 5.29 4.46 .83 1920 73 5.79 4-98 .81 1921 5.57 73 5.09 .48 1922 4.85 4.23 .62 58 1923 4.98 4.25 -73 90 1924 4.78 4.20 .58 46 1925 4.67 4.09 .58 25 1926 4.51 4.08 -43 25 1927 4.31 3.98 .33 25 1928 4.34 4.05 .29 25 1929 4.60 4.27 .33 24 1930 4.55 4.07 .48 25 1931 4.58 4.01 -57 25 1932 5.01 4.65 .36 63 1933 4.49 4.71 -.22 63 1934 4.00 4.03 -.03 63 1935 3.60 3.41 .19 63 1936 3.24 3.07 .17 79 1937 3.26 3.10 .16 79 1938 3.19 2.91 .8 79 1939 3.01 2.76 .25 79 1940 2.85 2.54 .31 81 1940 2.71 2.04 .67 81 1 Tields from 1900 through 1929 are those reported by Standard Statistics Co. for 15 high-grade railroad bonds. fields from 1930 through 1940 are those reported by Moody's Investors Service for high-grade corporate (Ann) bonds. 2 Yields are as reported by Standard Statistics Co. W Standard Statistics Co. index of yields of high-grade railroad bonds was 4.39 percent for 1930, and the differential based upon this index, 0.32 percent. Average for first 11 months. 5/ December 11, 1940. 110 Chart I CHANGES IN THE PRICES OF U.S. SECURITIES Potats Plotted Represent the Difference from April 6, 1940 Price of Bash Naturity Class 1940 1940 1941 OCTUBER HOVEMBER INSURER MAY JULY SEPT. - JAN. MAR. MAY 5 12 19 25 2 , 16 23 30 7 14 21 POINTS PRINTS (MET CHANGE) 11117 POINTS (NET daturday Quotations Daily (NET - +21 +26 -- 1 +2) +29 +3 +3 +26 +26 +2 +2 +2 +2 +18 +16 -11 *18 .) +1 Bowes NOTES +18 Over 15 Yas. NOTES TO CALL +16 1-3 Yes. 3-5 Yes. o o +1 = # - 4 -1 +1 Bonos = 5-15 Yes TO CALL - . 4, -2 ++ + - 0 o NOTES -3 ? 3-5 Yes, Bums, -+ - 4 5-15 Yes. TO CALL 1 -t T NOTES - I 1-3 Yes. # 1 Bowps, -5 OVER 15 Yes TO CALL 9 -1 T -11 -16 . Y -14 -18 < -7 -16 = -2 -2 é - - -21 -2% F -21 -2) & -21 -21 -10 -10 -3 -3 MAY JULY SEPT. NOV. JAM. MAI. MAY 5 12 19 26 2 9 16 R 30 7 14 21 28 1940 1941 OCTOBER NOVEMBER DECEMBER 1940 Office of the Secretary of the Treasury Divise of - and / F - 153 0 . 111 Chart II Stp COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS 1939 FEB MAR APR MAY JUNE JULY AUG. SEPT JAN OCT NOV DEC JAM FEB 1940 MAB AM 1940 a . a . II . in IF a , - . . MAY 4 , JUNE 5. " - - . AAY AUR SEPT e OCT. NOV DEC. OCT. NOV DEC . - . - n 9 at . - 4 , # . . # - . . - es as # : - Scale Inverted Scale Inverto Scale PER CENT PER CENT PER CENT WEEKLY. Saturday Quotations 2.0 2.0 1.0 22 2.2 Lang Term 2.2 Treasury 2.4 2.4 2.4 Long Term Treasury (42 years or more ⑉ sortiest cwif and 2.6 2.6 2.6 2.8 2.6 2.0 Corporate 3.0 3.0 3.0 Corporate 3.2 3.2 3,2 1.4 3.4 3.4 3.6 3.6 3.6 1.0 3.8 3.8 PER PER PER CENT CENT CENT 100 LDO 1.00 Spreed so 80 so Spread Between Long Term Treasury and Carparate $ 60 40 40 40 40 20 20 .10 0 D data o - 12 as , # # a M - 14" e as = - * - P # E.P. a . . . - , if = . FEB - MAR, ARR MAY AND AUG. SEPT "wore a - JAN AAY OCT. DEC. JAIL FEE MM. ARB. MAY JUNE JULY AUG. REFT OCT. NOV DEC OCT. NOV. DEC. 1940 1940 1939 1 1 and of I I 1 - . the lientey Transary I J I 1 - Chart III COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY AND Dow-JONES AVERAGE OF MUNICIPAL BONDS Vields Based on Saturday Quotations 1939 1940 JAN FEB MAR APR MAY JUNE JULY AUG. SEPT OCT. NOV. DEC JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT. NOV DEC is - 9 " - AT 18 1 If = is as 19 43 11 La 18 M. u AS AR = = IS " " inversed Sogie Inversed Scale PER CENT PER CENT 20 Long Term Treasury" (10 yours - more M contrat - / 2.0 11 2.2 8.4 14 2.6 24 3.8 2.0 4.0 3.0 Twenty 20-Year Municipal Bonde $.2 3.2 3.4 8.4 PER PER CENT CENT 60 60 40 40 Differential 20 20 o an = e = is If 18 B is - - se - = # 16 JUNE JULY AUG. SEPT. OCT. NOV DEC. JAN. FEB. MAR. APR. MAY ⑉ JUNE . = JULY 6 16 1 AUS. IF III apt H EN OCT. EI as NOV. IF DEC. 10 se H 11 = = . = 5 - I n - # se . ET II o JAM. FEE MAR APR MAY 1939 1940 "Prom - - indicates change - composition of lang Term Treasury everage, 112 Office el the Secretary al - Treasury - of - - - F-134-A Regraded Uncla Chart IV 113 YIELD OF TREASURY NOTES and 21% TREASURY BOND OF DEC. 15, 1945 Based on Closing Bid Prices, Dec. 17, 1940 1941 1942 1943 1944 1945 PERCENT PERCENT .7 .7 NEW NOTE X .6 .6 BOND .5 .5 .4 .4 x X X .3 .3 X .2 .2 .1 .1 0 o 1941 1942 1943 1944 1945 Office of the Secretary of the Treasury I 1 , I 1 F - 196 114 Chart V COMPARISON OF THE DIFFERENTIAL IN YIELD BETUBEN HIGH-ORADE CORPORATE AND MUNICIPAL BONDS AND THE MAXIMUM RATE OF THE FEDERAL INDIVIDUAL INCOME TAX, 1900-40 1905 1910 1915 1920 1925 1930 1935 1940 PERCENT PERCENT (INVERTED) (INVERTED) 2.5 2.5 LATEST FIGURES DEC. 11, 1940 3.0 3.0 3.5 3.5 MUNICIPAL CONDS MOODY'S AAA STANDARD STATISTICS 4.0 4.0 4.5 4.5 5.0 5.0 RAILROAD BONDS, STANDARD STATISTICS 5.5 5.5 6.0 6.0 PERCENT PERCENT (DIFFERENTIAL) (INCOME TAX) 1.5 75 DIFFERENTIAL .5 50 0 25 MAXIMUM RATE or INCOME TAX -5 o 1905 1910 1915 1920 1925 1930 1935 1940 *YIELD FIGURES FOR 1940, AVERAGE OF FIRST 11 MONTHS Ma of the Secretary of the Treasury - of - ml B 216 Regraded Unclassified 115 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Additional P-40 planes. The representatives of Curtiss Wright have insisted that they must get an immediate release on at least 100 of the 300 additional P-40 planes if materials are to be ordered and production maintained. They feel that they cannot wait until next week. There are two possible solutions: first, for you to ask Guy Vaughan to have Curtiss Wright undertake this commitment on its own; or, secondly, to let the British place an order for 100 of these right away, leaving the allocation of the 200 to other purchasers until next week. (The British have already been promised fifty. and I think they should get 100 out of the 300 to be pro- duced.) view compare. ** the is tale Mo My Mar on can E st we this NV 1 at the 116 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Admiral Spear, my Lisison Committee member in the Navy, called me late this afternoon to say that he had been asked to sign 8. letter addressed to the United States Naval Attache in Berlin, requesting the latter to purchase $25,000 worth of binocular spare parts from Zeiss for the United States Navy. This has evidently been a usual peace-time practice in the past and the Navy needs the parts. Despite the fact, however, that these parts include no optical ele- ments and merely consist of frames and the like, it is my feeling that this request should be called to your attention. Admiral Spear is interested in getting the reaction of the Treasury Department. 2 6 Inreital's 10 Bring to Forestals attention Son * any menage Regraded Unclassified 117 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau TO CONFIDENTIAL FROM t. Cochran Registered sterling transactions of the reporting banks were BR follower Sold to commercial concerns $54,000 Purchased from commercial concerns in 8,000 Open market sterling remained at 4.03-3/4. Transactions of the reporting 11035 **** as follows: Sold to commercial concerns : 3,000 Purchased from commercial concerns è 4,000 The Swine franc, which has remained in the neighborhood of .2321 since the end of October, had a weak tendency today. Prior to our opening, the rate of 2318-7/8 VE # received from the Zurich market, and the first quotation here was .2320. & low if 2318 was recorded at noontime, and the closing rate was .2318-1/2, ( There was virtually no movement in quotations for the other currencies, and closing rates were: Canadian dollar 13-3/8% discount Swedish krona .2385 Reichamark .4005 Lira .0505 Argentine peso (free) .2360 Brazilian milreis (free) .0505 Mexican peso .2070 Cuban peso 8-1/2% discount There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the National City Bank, 3osbay, shipped $926,000 in gold from India to its head office at New York, for sale to the Sew York Assay Office. The Bombay gold price was unchanged at the equivalent of $33.82. Silver in bosbay was priced at the equivalent of 43.01#. up 1/84. The prices fixed in London for spot and forward silver both advanced 1/16d. to 23d and 22-15/16d respectively. The dollar equivalents were 41.76 and 41.65#. Regraded Unclassified 118 -2- Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 354. We made one purchase of silver amounting to 50,000 ounces under the Silver Purchase Act. This consisted of now production from various countries, for forward delivery. The report of December 11 received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $10,013,000, an increase of $202,000 in the short position. The largest movement occurred in the sterling position, wherein the banks undertook further commitments to sell pounds equivalent to $1,448,000. Reduction in the "Europe" short position was concentrated minly in Swiss francs, with the position here moving from $512,000 short to $292,000 long. Net changes were as follows: Short Position Short Position Change in Country December 4 December 11 Short Position* England** $ 59,000 (Long) $ 1,389,000 + $ 1,448,000 Europe 3,950,000 3,114,000 - 836,000 Canada 11,000 (Long) 373.000 (Long) - 362,000 latin America 362,000 374,000 + 12,000 Japan 4,296,000 4,093,000 - 203,000 Other Asia 1,347,000 1,428,000 + 81,000 11 others 74,000 (Long) 12,000 (Long) + 62,000 Total $9,811,000 $10,013,000 + $ 202,000 *Decrease in short position, or increase in long position, indicated by minus (-). Increase in short position, or decrease in long position, indicated by plus (+). **Combined position in registered and open market sterling. S.M.A CONFIDENTIAL 119 TREASURY DEPARTMENT Secretary mose Morgenthau is INTER OFFICE COMMUNICATION DATE December 18, 1940 TO FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transactions in Italian accounts maintained with the Chase National Bank, New York, the National City Bank, New York and the Federal Reserve Bank of New York, Chase National Bank Date Amount Debited Account Debited Paid To December 16 $100,821.60 Banca Commerciale Italiana, Check to order of N.Y. Swies Bank Corp., N.Y. National City Bank Date Amount Debited Account Debited Paid To December 17 $1,860,000 Banco di Napoli Trust Co., Chase National N.Y. Bank, N.Y., for account of Swiss Bank Corp., N.Y. 100,000 Banca Commerciale Italiana, Check to order N.Y. of Chase National Bank, N.Y. Federal Reserve Bank of New York Date Amount Debited Account Debited Paid To December 17 $ 40,000 Banco di Hapoli Trust Co., Cash withdrawal N.Y. 650,000 Check to order of Banco di Empoli Trust Co., N.Y., endorsed in favor of Federal Reserve Bank of pmp N.T., in payment of subscription for $650,000,par amount U.8.3/4% Notes due Dec.15, 1945 120 TREASURY DEPARTMENT / INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthan TO FROM Mr. Cochran STRICTLY CONFIDENTIAL In By memorandum of December 17 it Vas reported that the Banca Commerciale Italiana, New York, had issued a check in favor of the Federal Reserve Bank of New York for $195,000 against its account maintained with the Chase National Bank, New York. Mr. McKeon reported today that this amount was in payment for $195,000 par amount of the new U.S. 3/4% Notes due December 15, 1945. 10.ml. 121 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION To --- Chaunce@ DATE December 18, 1940. TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transactions in Russian accounts maintained with the Chase National Bank. Principal changes in the State Bank of Russia's dollar account during the period December 12 to December 18, inclusive, were as follows: Amount Amount Date Credited Received From Debited Paid To Dec. 12 Dec. 13 $ 250,000 Amtorg Trading Corp. 57.733.67 Commercial Letters of Credit Dec. 14 $300,000 Chase National Bank, 471,164.96 Commercial Letters N.Y., by order of of Credit Union Bank of Swit- zerland, Zurich, by order of Ungarische Allgemeine Creditbank, Budapest. 110,000 Chase National Bank, N.Y., by order of Swies Bank Corp. ,N.Y., by order of Export Kredit, Hamburg, re Credit #10870 by order of Banque Suisse, Zurich. Dec. 16 135,000 Amtorg Trading Corp. 250,562.92 Commercial Letters of Credit Dec. 17 167,293.33 Chase National Bank, 205,560.88 Commercial Letters N.Y., by order of of Credit Stockholms Enskilda Bank A/B, Stockholm 1,304,977.94 Amtorg Trading Corp. 411,349.90 Chase National Bank, N.Y., bills discounted for account of Prom- syricimport. Regraded Unclassified - 2 - 122 Amount . Amount Date Credited Received From Debited Paid To Dec. 18 $580.000 Irving Trust Co., $ 99,765.68 Commercial Letters N.Y., by order of of Credit Ungarische Allge- meine Creditbank, Budapest, by order of Union Bank of Switzerland, Zurich On December 18 the balances of the State Bank and the Amtorg Trading Corporation were as follows: State Bank of the U.S.S.R. Amtorg Trading Corporation Cash Balance $ 10,593,600 $ 1,436,200 Cash commercial Letters of Credit 13,120,200 2,338,700 Time deposits 10,300 -0- Total $ 23,724,100 $ 3,774,900 inges in total since December 11 - $ 904,100 + $ 239,300 pm TREASURY DEPARTMENT 123 INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau TO FROM Mr. Cochran Mr. Gifford telephoned no at 12:30 this noon. He let me know that he had registered with his control $20,000,000 of United States Government securities, including issues of thirty-four different dates. He would like to vest title in these securities for liquidation early in the coming year. Before doing this, he inquired as to whether this might interfere in any way with our market operations. In compliance with his request, I brought this matter to the attention of Secretary Morgenthau who authorized me to call Mr. Gifford back, which I did, and let him know that ve had no objection to this transaction. NMP TREASURY DEPARTMENT 124 INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold December 2 32,310 903,235 4,000 1,530 3 5,775 261,254 27,000 18,434 4 21,908 563,481 92,000 53,978 5 29,850 984,768 Nil Nil 6 6,818 303,011 Nil Nil 7 1,675 86,640 Nil E11 98,336 3,102,389 123,000 73,942 ovember 26 adjustment 32 3,102,421 Sales from February 22 to November 30 2,186,324 76,520,977 5,606,500 4,342,191 TOTAL FEBRUARY 22 TO DECEMBER 7 2,284,660 79,623,398 5,729,500 4,416,133 Mr. Opie reported sales of non-vested securities for the week ended November 30 totaled $500,000. BMP 125 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold December 9 24,790 773.937 25,000 9.338 10 26,215 973,629 Nil Nil 11 18,020 675,001 34,000 13,644 12 27,784 1,068,870 5,000 3,456 13 44,495 1,105,197 1,000 595 14 200 8,618 Nil Nil 141,504 4,605,252 65,000 27,033 Sales from ( February 22 to December 7 2,284,660 79,623,398 5,729,500 4,416,133 TOTAL FEBRUARY 22 TO DECEMBER 14 2,426,164 84,228,650 5,794,500 4,443,166 Mr. Opie reported sales of non-vested securities for the week ended December 7 totaled $1,250,000. nml Regraded Unclassified 126 beauther 18, 1960 My dear Mr. Secretary: At the direction of the Secretary of the Treasury, I enclose herevith a copy of a letter of over date, addressed w the fourstary of State, concerning No quests from foreign countries to the purchase of air- craft. Sincerely yours, (Rigned) Philip Young Philip Years Assistant to the Secretary the Recerable, the Secretary of the Borry. Similar letter to Secretary of Ver Fish) Regraded Unclassified 127 December 18, 1940 X by doar Mr. Secretary: I have been informed by the Ourties Wright Carpora- tion that it will be in a position to produce 300 alli- tional P-40 pursuit ships for delivery is May, June, and July, 1941, over and above those already allocated and on order. This 300 includes the 194 P-40's which have been discussed from time to time by Mr. Philip Young with Assistant Secretary of State Berle. It is my understanding that neither the Ver Depart- and nor the Mary Department are interested is placing as order for these planes, a situation which night mis it possible for then to be allocated to other foreign per chasers, with as China, Greece, and Latin America. Por your information, I - enclosing a list propared for - by Mr. Philip Young, of the Interdepartmental Committee for Coordination of Pereign and Domestic Mill- tary Purchases, which above the various requests received from all over the world for airplanes, airplane engines, and parts. In order that this potential supply of please my be best distributed is accordance with the donard, my I regist that Secretary Stinces, Secretary Imax, and ayself met in your effice net Monday norning and invite this comittee, composed of Mr. Philip Young, General burns, Admiral Spear, and Colonal Namell, to be process. Sincerely, (Signed) I Morgunihan, h. a 1 the Decretary of Diate. 2 know my QU- By Memerage 37 Regraded Unclassified REQUESTS FOR AIRPLANES AND PARTS BY SOUTH AMERICAN COUNTRIES PREDING OR RECENTLY DISAPPROVED AS OF DECEMBER 13, 1940 Date Forwarded to Country Request For Date of Request Defense. Army, Navy Status Argentina 600 - Part 16892 - Rocker Shafts Nov. 4, 1940 Nov. 23, 1940 Disapproved for Twin Wasp Junior S2A4G Nov.23,1940 Engines Argentina Spare parts for Wasp S3H1 engines Dec. 4. 1940 Dec. 9, 1940 Pending Argentina Spare parts for Northrov airplanes Nov. 22, 1940 Nov. 26, 1940 Pending Argentina 15 NA-16-1 and 15 NA-16-3 training Sept. 25, 1940 Sept. 28, 1940 Pending planes Brasil 2 Douglas DO-3 Commercial Trans- Dec. 5, 1940 - Pending letter porte from Govt. Brasil Spare parts for Pratt and Whitney Nov. 13, 1940 Nov. 13, 1940 Pending infor- Wasp Jr. engines mation. (PER B-11) Brasil 2 Leckheed Model 18-14 airplanes Oct. 28, 1940 Oct. 31, 1940 Pending equipped with Pratt & Whitney 84040 engines and Hamilton Standard constant speed pro- pellers, Hub #23E50 and Blades #6139A-12. (Filed by Lockheed) Chile Ryan S.T.M. with Kinner 160 KP Nov. 25, 1940 Nov. 25, 1940 Pending infor- (20 to 25) - (PNR D-2) mation 128 Regraded Unclassified Date Forwarded to Country Request For Date of Request Defense. Army, Pays Status Chile 1 S1E3-0 Hornet engine and Nov. 25, 1940 Nov. 25, 1940 Pending infor- accessories (PNR D-3) (PNR D-3) mation Chile 25 Fairchild Trainers M. 62-B Nov. 28, 1940 Nov. 28, 1940 Pending infor- and spare parts (PNR D-5) (PNR D-5) mation Mexico Spare parts for airplane Nov. 15, 1940 Nov. 19, 1940 Pending engines (Wasp S1B1 and Vasp Junior SB) Mexico Spare parts for airplane Nov. 15, 1940 - Pending infor- engines (Canadian Car & mation Foundry) Mexico 21 aeroplanes CW 22 and Oct. 10, 1940 Oct. 12, 1940 Temporarily 6 aeroplanes CV 21 disapproved. Uruguay 8 Model 6-4000 Ranger Oct. 24, 1940 Oct. 25, 1940 Disapproved aircraft engines (Pluna) Nov. 14, 1940 Veneruela 2 standard Hamilton pro- Dec. 4, 1940 Dec. 5, 1940 Pending pellers, 40 rubber tubings, and 80 clamps Venesuela 3 Curties P-36 planes, Oct. 22, 1940 Oct. 25, 1940 Pending 3 Stearman A75L3 planes, 6 North American NA 16-3 planes, 3 North American 76-D-3 planes. Veneruela 1 2030 (6167A-6 blades) pro- Dec. 10, 1940 Dec. 13, 1940 Pending peller (not yet mailed) TOU 129 Regraded Un REQUESTS FOR AIRPLANES AND BY FOREIGN COUNTRIES PENDING OR RECENTLY DISAPPROVED AS OF DECEMBER 13, 1940 Date Forwarded to Country Request For Date of Request Defense Aray. Havy Status Australia 7 Cyclone GR-1820-ORE Engines for Oct. 30, 1940 Nov. 6. 1940 Disapproved installation in a DO-3 Douglas (FMR 250) Nov. 30,1940 Commercial Transporte (PER 255) China 2 Model 18-40 "Lodestar" airplanes Oct. 31, 1940 Nov. 18, 1940 Pending equipped with 4 Wright Cyclone 0R-1820-G1C2A engines from Lockheed Aircraft Corp. 250 Fighters (Brewater 147 or Nov. 25, 1940 Nov. 30, 1940 Pending Grumman 36A or Vultee Vanguard or Republic P-43) 100 Fighters (Curtise-Wright P-40 or North American NA-73) 50 Bombers (Douglas B-23 or older type if more promptly available) 100 Bombers (Lockheed-Hudson) Training Planes: 120 Ryan, 50 North Nov. 26, 1940 Nov. 30, 1940 Pending American Basic Trainers and 20 Beechcraft AT-18 Bombing trainers 10 Lockheed Lodestar transport planes Spare parts Norway 4 Fairchild M-62 Trainers for use Nov. 23, 1940 Dec. 2. 1940 Pending in Canada 130 Regraded Uncla - 2 - Date Forwarded to Country Request For Date of Request Defense Army, Navy Status Philippine Spare parts for Pratt & Whitney Nov. 6. 1940 Nov. 7, 1940 Disapproved Government Jr. Engines Series T1B and SB Nov. 29,1940 Turkey Spare engine parts - Wright Nov. 22, 1940 Nov. 28, 1940 Pending Cyclone Engines 60 Ourtiss-Wright Model 22 Nov. 22, 1940 Nov. 28, 1940 Pending Falcon training planes with necessary R-975-M3 450 HP Wright Whirlwind Engines Sweden Spare parts for Wright Cyclone Nov. 15, 1940 Nov. 20, 1940 Pending G102A Engines 131 PY. Regraded Uncl 132 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Vichy DATE: December 18, 1940, 8 p.m. NO. : 856 The following is a message for the personal attention of Mr. Matthews from the Treasury Department. The payment of $50,000 out of the blocked funds in the United States belonging to the French Government is being approved by the Treasury, payment to be made to the American Friends Service Committee. The latter wishes to purchase milk in Switzerland for distribution to children in France. It would be appreciated by Secretary Morgenthau if you would report at intervals on the importation and distribution of such milk by the Friends Committee. Informa- tion particularly desired is whether the milk is being die- tributed under American supervision directly to the children in France. HULL (BL) 10 THE EA:HF:LMW XU LEONNICY OPA/D BD: A-B OE THE EAILMW PMO DEC SO we 0 oa Copy:bj 133 ER GRAY Baghdad Dated DECEMBER 18, 1940 Rec'd 8:40 p.m. Secretary of State, Washington. 122, DECEMBER 18, 4 p.m. British banks in Iraq have received instructions from their head offices in London to refuse all applications for dollar exchange. The British maintain that Iraqi dollar credits resulting from their exports to the United States are more than sufficient to meet their normal purchases in the United States, but that the Iraqis have permitted their dollar exchange to bE utilized for their purchase from Japan. In these circumstances Britain will not permit its meager dollar credits to be utilized by Iraq. It is Estimated that Iraqi dollar credits lack by 30% Enough to meet their normal American requirements plus the equipment for their army now on order in the United States. The LE- gation's banker informed DE today that the local British banks Endeavored to pursuade Iraqi Government to institute Exchange control in order to safeguard their foreign credits for legitimate needs such as American credits for American goods but no action was taken. The Regraded Unclassified 134 EH -2- 122, DECEMBER 18, 4 p.m. from Baghdad. The Effect of this situation will bE a throttling of Iraq purchases in America until steps are taken to control DEC BNO DEC 00 dollar credits for American purchases. ТИЗИТРАЯ SURABAT ABAT BECEN ED ENAED BYO KNABENSHUE EMB - - - TO - SERETARY OF STATE - a c. 135 DEPARTMENT OF STATE Pinle WASHINGTON 20 In reply refer to December 18, 1940 EA Harry While LHE 220 SIVEA John The Secretary Wiley of State presents All his or LECHNICAT DELICE THE " IS 030 ONE BECEIVED compliments to the Honorable the Secretary of the Treasury and transmits for his consideration a copy of a memorandum of a conversa- tion between the president of the Chemical National Bank and Trust Company and officers of the Department of State regarding purchase by Germans of German properties of American corporations. Enclosure: Memorandum of conversation, December 17, 1940. 30 HR ADVISER ON INTERNATIONAL ECONOMIC AFFAIRS EPARTMENT OF STATE 136 Memorandum of Conversation DATE: December 19, 1940 Purchase by Germans of German properties of American SUBJECT: corporations PARTICIPANTS: Mr. Frank c. Houston, President, Chicical National Bank and Trust Company, New York Mr. Feis Mr. Livesey COPIES TO: are I-Mail Mr. Houston called + reference from the Secretary of State. No said that the Chemical National Bank has been making collections in Gereany white very good It vas a with $17,000,000 credits outstanding in Germany at the time of the transfer crisis of 1931 and they were frozen under the Standstill Agreement. All these credito have been collected without less to the Bank, The Bank has recently had in Germany for several menths at employee, Rr. folloar, Gernan-bern, naturalized-come 10 or le years up, very able and elever, who in ways that Mr. Houston doss net understand, but apparently largely in contact with the Stabil Verbo, has mossoled in collecting a million dollars Regraded Unclassified 137 - 2 - dollars for the Bank and other - for a British banking firm. Mr. Kollmar returned to New York last week. Mr. Kellmar brought word from come important German interests that they were interested in purchasing for dollars the German properties of American corporations. Mr. Houston showed some press elippings dealing with similar German activities and said that he of couse had heard of them, including a report that the General Electric Company had sold some of its German interests to the Gorman General Electric Company for $20,000,000 eash. If some of the friends and customers of the Chemical National Bank actually feel the vay that they have talked, they would be glad to sell their properties in Germany for $.50 on the dollar, if they could get paid part in cash for the properties which have vielded little or no dollar returns for many years. It appeared therefore that the Chemical National Bank sight be in a position to oblige its customers and to make a commission for itself by following up the German propesal. Newever, before approaching any one with such 8 propesition, he had wished to come down and put the whole matter before the Department of State and find out whether 10 had eary objections to such activities. Mr. Feis said that the Department had of course heard & great dead about such purchase transactions, and had - corved newspaper reports regarding then. Nevover, n had little Regraded Unclassified - 3 - 138 little direct knowledge of them. Be acked where Germany was getting the dollars to pay for such purchases. Mr. Houston said that he are not know. No had heard that certain Belgian and Notherland banks had large assunts of dollars accumulated through the Bank for International Settlements or Swies banks, and were now using these dollars to purchase American properties in Gernany. Mr. Feis said that Germany had not laid hands on the Belgian or Notherland banks. Mr. Houston said.that the Germans had not seixed the banks but he had heard that they had bought into them and thus obtained control and direction over them. The Reichobank was said to have used large sume in such investments. Mr. Feis suggested that the Department night telegraph the American Consulat Basle, Ovitnerland, and ask him to comment on runers such as Mr. Nousten had nentioned. No sention vould be mão of the Chemical National Bank. Mr. Neuston - m objection to this. Mr. Feis said that 18 was his understanding, subject to correction by his colleagues, that the Department ⑉ mah purchase and sale arrangements as private transactions or which the Department die not sere to comment - as the phrase vas. Reverer, he could not say this without first circulating the to several others in the Department to I Regraded Unclassified™ 139 - 4 - ascertain their views. No suggested he telephone Mr. Houston in two or three days. Mr. agga he would prefer to have something in writing and if BECEINED there was no objection he would be glad write-the Department tomorrow, se that it would have some more definite on which to base a memorandum and a reply. This was agreed to. Mr. Houston said that if his Bank, after hearing from the Department, should pursue the matter with its friends and customers, he would be glad to keep the Department fully informed of all transactions and of all particulars of these activities. Mr. Houston remarked that the Germans are of course buying back securities of all kinds in the United States, and he had heard in England also. Just before the war started, they had made extensive purchases of German bends in England. Mr. Houston was in London at the time, and on August 22, 1959, the day before he left London, a banker friend there told his that on that one day his firm had delivered 84,000 1 of Gernan bends to German purchaseby who paid through the Bank of England. The ТИЗМТЯА930 491184 381 British OF had taken this as a sign there would be no BECEIVED to Mr Houston to be German confidence that dereany win house that German purchases in about Britain con OLENE weste THE as losst, the knowledge dos and approval of СОИДНОГ Regraded Unclassified 140 THE SECRETARY OF STATE WASHINGTON December 18, 1940. Dear Mr. Secretary: I want to thank you for your letter of December eighteenth enclosing a copy of Lord Lothian's letter to you dated December eighth regarding British shipping questions, which I am very glad to have. I appreciate your kindness in sending it to me. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 141 DEC 1 8 1940 X My door B. Procident: I have pleasure is enclosing. is strict confidence. a photostable eagy of a letter written so no under date of Becomber # w the late Serd Lothian, together with its exclosures, consisting of secret americals dealing with British shipping lessee and replacement, the position is British shipperds, and ostimated deliveries univer the - chant shipbuilding program. I É (Signed) 1 Morganthau, Jr. 1 r $ I I the Proctices, m White losse. 70mg By Memorage 10 Regraded Unclassified 142 DEC 1 8 1840 action midul á I h I have pleasure is enstering, is strict confidence, a photostable - of a letter within to me under date of December 8 w the late lard Lothian, together with its enclosures, constating of secret dealing with Britich chipping lesses and replacement, the position is British shipperts, and cottacted deliveries under the - that chilybuilding program. Massely yours, (Signed) & dr. Secretary of the freesury I the Reservable, Frank New, Secretary of the May. AMR By Manual 16 Regraded Unclassified 143 DEC 8' 1989 By sur Mr. Georetary: I have pleasure is enclosing, is street confidence, a photoctatic emp of a letter withen to at under date of December 8 w the late last Lethian, together with ate enclosures, medialing of occret necerania dealing with Brittsh chipping lessee and replacement. the position is Brittich shipperds, and estimated deliverise under the - cheat shipbuilding progres. I É (Mad) E h. I a 1 I I the Cardell Ball. Surchary of State. amp By Measement 105 Regraded Unclassified 144 DEC 1 8 1948 my dear Mr. Secretary: I have pleasure is enclosing, is strict confidence. a photostatic my w a Letter within to me under date of Describer s w the late Land Lothian, together with its enclosures, consisting of secret amereada dealing with Britich shipping lesses and replacement. the position is British shippards, and estimated deliveries under the ⑉ chenk shipbuilding program. Sincerely yours, (Signed) E. Sr. Secretary of the Treasury Inclesures the Securable, Honry &. Missin, Secretary of Mr. AMR By 10 EM0:1ap-12/17/40 Regraded Unclassified 145 December 19, 1940 My dear Mr. Knudsen: I have pleasure in enclosing, in strict confidence, a photostatie copy of a letter withen to me under date of December 8 by the late Lard Lethian, together with its enclosures, consisting of secret memoranda dealing with British shipping losses and replacement, the position in British shipyards, and estimated deliveries under the - chant shipbuilding pregram. Sincerely years, Mr. william 8. Kwadson, Advisory Commission to the Commail of National Defense, Federal Reserve Building, Washington, D. c. 146 December 18, 1940 My dear Mr. Knudson: I have pleasure in enclosing, in strict confidence, a photostatic copy of a letter written to no under date of December 8 by the late Lord Lethian, together with its enclosures, consisting of secret memeranda dealing with British shipping losses and replacement, the position in British shipyards, and estimated deliveries under the mr chant shipbuilding program. Sincerely yours, Mr. William s. Kundeen, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D. c. Regraded Unclassified 147 December 18, 1940 My dear Mr. Knudson: I have pleasure in enclosing, in striet confidence, a photostatic copy of a letter written to no under date of December 8 by the late Lord Lothian, together with its enclosures, consisting of secret memoranda dealing with British shipping losses and replacement, the position in British shipyards, and estimated deliveries under the mr- chant shipbuilding program. Sincerely yours, Mr. Villian s. Kundeen, Advisory Commission to the Coumeil of National Defense, Federal Reserve Building, Washington, D. c. 148 CONFIDENTIAL ACTION REQUIRED December 18, 1940 To: The Secretary From: Mr. Young Re: British Shipbuilding. Admiral Peoples, representing Todd Shipyards, visited ne this morning, and Admiral Land, Commissioner Vickery of the Maritime Commission, Congressman Oliver from Maine, and representatives of the British Purchasing Commission all telephoned me today wanting to know why the Treasury was holding up the British sixty-ship program. As I explained the other day, clearance had been given for the British to negotiate a contract for these ships with Todd, and, as I advised you, I asked Mr. Ballantyne not to have this contract signed until final clearance wes given. My reasons for this request were, first, that Secretary Knox had questioned the advisability of this new ship construction; secondly, that the President during our conference at the White House had made certain comments with respect to it; and, thirdly, because the ship program was one item of the British orders to be placed which is now under consideration. Admiral Land advised me today that Secretary Knox had no objection to this contract being signed. The British have advised me that about 50 million dollars have been earmarked for these ships (out of the total cost of 96 million dollars, including capital). Both Todd and the British are ready to sign the contract. The Treasury is in the position of holding it up. My reaction would be to clear it if the British ear-tagged the full amount, otherwise to let it wait pending the detailed clearance of program No. 1. 149 December 18, 1940 X Dear Steve: I an inclosing herevith 8 mesorandum with assespanying charte from which you will note that - pleyment in the aviation manufacturing industry has sultiplied here then four times in the last twenty months end has doubled in the last sine maths. These figures pero # inter- seting to ⑉ that I thought mybe you OF the President night like to she them public. Yours sincerely, (Signed) E & Son. Stephen Early, Secretary to the President, The White House. Enc. photostatic copy of nemo for Secretary from Mr. Haas dated 12/12/40 1 & Regraded Unclassif 150 December 18, 1940 Dear Steve: I an inclesing herewith a memorandum with accompanying charts from which you will note that - ployment in the aviation manufacturing industry has multiplied fore than four times in the last twenty months and has doubled in the last nime months. These figures were so inter- esting to - that I thought maybe you or the President might like to make them public. Yours sincerely, Hon. Stephen Early, Secretary to the President, The white House. By M Unclassifica December 18, 1940 151 Dear Steve: I an inclesing herevith 8 memorandum with assespanying charte from which you will note that - ployment in the aviation manufacturing industry has multiplied fore then the times in the last twenty months and has doubled in the last nine months. These figures vere so inter- esting to me that I thought maybe you w the President night like to make then public. Yours sincerely, Non. Stephen Early, Secretary to the President, The white Home. BY 1 STRICTLY CONFIDENTIAL TREASURY DEPARTMENT 152 INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE December 12, 1940 TO Secretary Morgenthau FROM Mr. Hand RA. Subject: Employment in the Aviation Manufacturing Industry 1. Employment in the aviation manufacturing industry has multiplied more than four times in the last twenty months and has doubled in the last nine months. In November 1940, manufacturers of airplanes employed approximately 120,700 factory workers, and manufacturers of airplane engines approximately 34,300 factory workers,a total of approx- imately 155,000 for the entire industry. Included in these figures are the employees of manufacturers of parts for airplanes and airplane engines. 2. For the industry as a whole employment rose by approx- imately 7,100 factory workers in November. The largest increase in employment - approximately 2,150 factory workers -- occurred at the Lockheed Aircraft Corporation. Consolidated Aircraft Corporation added 1,300 factory workers to its rolls during the month, raising its total employment to 12,355. In January of this year Consolidated employed only 2,837 factory workers. 3. The increase in employment during November was not experienced by all plants in the industry, however, there being important decreases at two of the large plants. At the United Aircraft Corporation employment decreased by 800 during the month. At the Boeing Airoraft plant in Seattle there was a decrease of 1,040 factory workers. Boeing reported that this decrease in employment was due to "between contracts and laok of materials". 4. Two charts are attached to this memorandum. The first shows total employment in the industry and the employment of selected companies since January 1937. The attached tables give the figures plotted on the chart. The second chart presents total employment in the industry by geographic areas for December 1938, December 1939, and November 1940. Attachments Regraded Unclassified Employment in Aviation Manufacturing Industry 153 (Airplanes and Airplane Engines) 1937-1940 : : : : : 1937 : 1938 : 1939 : 1940 : : : : Airplanes January 22,100 23,700 25,251 58,000 February 60,500 March 24,100 24,200 27,875 64,500 April 67,000 May 73,000 June 25,200 22,800 35,973 80,000 July 90,000 August 97,448 September 23,400 22,050 41,425 105,362 October 115,241 November 120,650 December 23,800 24,450 52,800 Airplane Engines January 5,500 6,500 6,989 13,900 February 15,800 March 6,000 6,600 7,825 17,300 April 18,600 May 20,800 June 6,600 6,900 8,727 22,900 July 25,400 August 27,019 September 6,400 6,772 9,289 28,981 October 32,633 November 34,314 December 6,600 6,847 12,600 Total Industry -- Airplanes and Airplane Engines January 27,600 30,200 32,240 71,900 February 76,300 March 30,100 30,800 35,700 81,800 April 85,600 May 93,800 June 31,800 29,700 44,700 102,900 July 115,400 124,467 August September 29,800 28,822 50,714 134,343 147,874 October November 154,964 December 30,400 31,297 65,400 Office of the Secretary of the Treasury, Division of Research and Statistics. 151 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 : : : : : 1937 : 1938 : 1939 : 1940 : : : : Bell Aircraft Corp. January 615 222 654 859 February 865 March 850 290 912 896 April 840 May 873 June 808 440 1,410 1,192 July 1,480 August 1,963 September 718 235 703 2,413 October 3,355 November 3,449 December 213 606 799 Boeing Aircraft Co. - Seattle January 1,834 1,493 2,380 5,137 February 4,942 March 1,726 1,700 2,749 4,759 April 4,198 May 5,190 June 1,249 1,736 2,989 5,882 July 6,571 August 6,926 September 1,109 1,798 3,985 6,940 October 6,391 November 5,351 December 1,380 2,285 4,749 Consolidated Airoraft Corp. January 3,169 2,540 968 2,837 February 3,477 March 3,246 2,518 819 3,807 April 4,349 May 5,040 June 3,099 2,104 832 5,821 July 6,743 August 7,836 September 2,617 989 1,408 9,289 October 11,018 November 12,355 December 2,580 981 2,540 155 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) : : : : : 1937 : 1938 : 1939 : 1940 : : : : Curtiss-Wright Corp. - Buffalo January 1,241 2,211 3,802 4,380 February 4,744 March 1,500 2,347 2,939 5,016 April 5,213 May 5,698 June 1,933 2,310 2,848 6,314 July , 6,531 August 6,597 September 2,202 2,736 1,562 6,824 October 7,682 November 7,889 December 2,007 3,491 3,447 Douglas Aircraft Co., Ino. January 5,591 6,328 4,334 11,952 February 12,077 March 5,961 6,173 4,177 13,119 April 14,033 May 14,656 June 6,653 4,672 5,445 14,957 July 14,662 August 14,898 September 5,532 4,028 6,318 14,219 October 14,158 November 14,787 December 6,771 4,110 10,362 Lookheed Aircraft Corp. January 910 1,577 2,305 5,157 February 4,768 March 1,094 1,594 3,509 4,362 April 4,400 May 5,016 June 1,338 1,797 5,699 5,591 July 6,599 August 7,296 September 1,383 1,997 5,324 7,582 October 8,517 November 10,675 December 1,428 2,123 5,156 153 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) : : : : : 1937 : 193R : 1939 : 1940 : : : : Glenn L. Martin Co. January 1,364 1,814 2,905 10,9я4 February 9,407 March 1,716 1,*92 4,092 9,133 April 9,010 May 9,357 June 2,044 2,134 6,029 9,133 July 9,513 August 11,200 September 2,032 2,341 10,070 10,019 October 11,414 November 12,950 December 1,*1* 2,777 11,174 North American Aviation, Inc. January #29 1,713 2,223 4,049 February 4,324 March **9 1,935 2,457 4,154 April 4,371 May 4,336 June R41 2,400 3,125 4,782 July 4,91x August 4,916 September 1,272 2,6*5 2,992 5,111 October 5,22% November 6,054 December 566 2,530 3,795 United Aircraft Corp. (excluding Pratt & Whitney) January 2,350 2,245 1,*26 2,757 February 3,051 March 2,444 2,16* 1,766 3,46* April 3,735 May 3,912 June 2,497 1,972 1,952 4,2m2 4,923 July 5,016 August September 2,439 1,**0 2,123 5,445 6,010 October 5,251 November December 2,33# 1,774 2,5** 157 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) : : : : : 1937 : 1938 : 1939 : 1940 : : : : Vultee Aircraft, Ino. January 364 742 February 938 March 440 959 April 1,008 May 1,334 June 560 533 2,127 July 2,618 August 2,857 September 430 288 3,531 October 3,652 November 3,749 December 334 662 158 Employment of Selected Airplane Engine Corporations 1937-1940 : : : : : 1937 : 1938 : 1939 : 1940 : : : : Allison Engineering do. January 218 262 454 1,114 February 1,261 March 229 297 466 1,610 April 1,958 May 2,766 June 238 339 558 3,254 July 3,917 August 4,595 September 238 382 642 5,282 October 6,280 November 6,295 December 266 439 901 Continental Motors Corp. (Airplane Engine Division) January 151 153 134 288 February 344 March 153 152 138 358 April 368 May 378 June 162 144 171 388 July 398 August 382 September 135 146 203 567 October 732 November 855 December 152 142 243 Lycoming Division of Aviation Manufacturing Corp. January 849 729 519 581 638 February March 889 704 521 657 711 April 765 Kay June 901 549 573 819 July 873 970 August September 756 514 644 1,080 October 1,459 November 1,320 December 762 506 689 159 Employment of Selected Airplane Engine Corporations 1937-1940 (continued) : : : : :, 1937 : 1938 : 1939 : 1940 : : : : Pratt & Whitney Aircraft January 1,931 2,567 2,264 5,642 February 6,549 March 2,119 2,4mg 2,659 7,15% April 7,541 May 7,765 June 2,384 2,555 3,066 ₹,504 July 9,121 August 9,449 September 2,471 2,384 3,394 9,406 October 9,794 November 10,377 December 2,61* 2,227 5,022 Wright Aeronautical Corp. January 2,254 2,607 3,39m 5,411 February 6,0%1 March 2,515 2,705 3,771 6,537 April 6,984 May 7,882 June 2,800 2,930 3,997 #,6x2 July 9,491 August 10,151 September 2,690 3,184 4,026 10,726 October 11,240 November 11,950 December 2,60 3,374 5,141 STRICTLY EMPLOYMENT IN AVIATION 160 MANUFACTURING INDUSTRY Factory Wage Earners 1937 1938 1939 1140 (14) M M . j a M # M M M = = M EMPLOYEES EMPLOYEES Thousands Thousands Total Industry (Aircreft and Engines) 140 140 120 120 100 100 60 80 60 60 40 40 20 20 o o J M M J . N J M M J. a N J M M. J . N + M M J $ _M J M M , 5 M 1937 1936 1939 1940 1941 Selected Aircraft Manufacturing Companies Selected Airplane Engine Companies EMPLOYEES EMPLOYEES EMPLOYEES Thousands The Douglas Airstaft Ce Glenn L.Martin Co. Thousands Wright Aeronactical Carp IT % 15.0 15.0 16.0 12.5 125 115 is.o 10.0 non 7.5 7.5 78 5.6 10 50 26 25 2.5 o a 1937 1438 1934 1943 1941 1937 1938 1939 1940 1941 IN : IT E 6 Boeing Aircraft Ce Pratt and Whitney Aircraft 1937 1938 1939 1940 (94) 12.3 12.2 150 Consolidated Aircraft Corp. 10.0 16,0 12.5 7.5 1.5 10.0 1.0 1.0 7.5 2.5 1.5 e.o 0 14 o 1937 1939 1939 1940 1441 1937 1430 1939 1940 1941 (2.5 12.5 Lackheed Aircraft Carp Curtiss/Wright Corp. a Receiving - formantical Deg) 1987 1938 1919 ress 1941 10,0 19,5 10.0 Aligon Ingrearing Ce. 15 10,0 7.3 5.0 1.0 7.0 2.5 2.5 10 o 0 2.4 1937 1938 1939 1940 1941 1937 1938 1429 1940 1941 100 10,0 United Aircraft Corp. Marth American Aviation, Inc. 0 1937 1938 1959 1948 : Prant - 7.0 7.6 1,5 Lycaming Division of Amation Manufacturing Carp 50 so so 15 1.5 11 a o 0 1937 1930 1939 1940 1941 1937 1438 1439 1940 1941 1987 1938 (R3) 1940 1931 1.0 50 to Sell Aircraft Carp Vultes Aircraft Corp Continental Motari Engre Desail 2.6 is 21 . e 0 1937 1938 1999 ISAD 1941 1937 1958 me 1942 1941 HIT 1938 1989 1940 TRAI Regraded Unclassified 161 EMPLOYMENT IN THE AVIATION MANUFACTURING INDUSTRY BY REGIONS / Factory Wage Earners MONT - H.B.As MISN / : - NY - BAX a Wig Pacific 2000.500 28000 - MASS 104 Dve 1939- 1.00 1940- - 61,500 new /Bang I 11 IDWA UTAH Ness was ILE MICH IND =010 : - MO. RANS 15 Mountain Central and Southern Dec - 1.200 1 Atlantic ARIZ Dec 1939- 4,400 Nov. 1940-22.000 VA - MEA Nov Dec D4A 1940-71.500 " wf DELA THAT ARE " g4. CALIF will ALA LA. VLA Total U.S. Dac 1918- 31,300 Dec 1939-65400 Nov. 1940-155,000 . Including Parts Companies Delice e The of the Truey 1-124-A - - - Regraded Unclassified WAR DEPARTMENT 162 OFFICE OF THE CHIEF OF STAFF WASHINGTON December 18, 1940. MEMORANDUM FOR LIEUTENANT COMMANDER MCKAY: Attached is a proposed itinerary for the Secretary's trip as suggested by the Chief of Staff. It includes visits to type installations in Continental United States. We would have liked to arrange for the Secretary to visit the Puerto Rican area and see some phase of the joint operations scheduled there for Febru- ary, but the plans of the Navy Department have made the dates of this landing exercise so uncertain that it would be difficult to include it in a short trip. The hours shown on the proposed itinerary are, of course, only tentative and are included simply to give an idea of the time required to make the trip. 138 W.B.S. Incl. SUGGESTED ITINERARY OF KR. MORGENTHAU 163 (All Travel by Air) Dayton Fort Washington Sill Barksdale Field Langley Field It, Brugg Camp ackson Sen Camp Besuregard intonio Ft, Benning let Day Depart Washington 9:00 for Langley Field. Arrive Langley Field 10:00 A. M. Depart Langley Field 1:00 P.M. for Fort Benning flying over Fort Bragg and Camp Jackson, Arrive Fort Benning 5100 P.M. 2nd Day Inspect Infantry School Armored Division 4th Infantry Division Witness demonstration of modern weapons and tactics. Depart Fort Benning 1100 P.M. E.S.T. for Camp Beauregard Arrive Camp Beauregard 3:00 P.M. C.S.T. Inspect concentration area, 3rd Day Depart Camp Beauregard 9:00 A.K. for Barkedale Field Arrive Barkodale 9150 A.M., inspect Air Corps combat units Depart Barksdale 1:00 P.M. for San Antonio Arrive San Antonion 3:25 P.M. Inspect Gulf Coast Training Center (Air Carps) 4th Day Inspect Fort San Houston, - Ranclelph - Kelly Fields. 5th Day Depart San Antonion 8:00 A.M. for Fort Sill Arrive Fort Sill 10:30 A.M., inspect Field Artillery School Depart Fort Sill 1:00 P.M. for Dayton, Ohio Arrive Dayton 6:50 P.M., visit Air Corps Material Division 6th Day Depart Dayton 12:30 P.M. CST for Washington Arrive Washington 4:10 P.M. EST OCAC 12-18-40 Regraded Unclassified 164 December 18, 1940 5:07 p.m. Frank Knox: Hello, Henry. H.M.Jr: Hello, Frank. K: I just thought you might be interested to know that we had a very, very satisfactory talk with the President on a matter we discussed with you and in principle the idea was accepted. H.M.Jr: oh, wonderful. K: Yeah. H.M.Jr: Isn't it marvelous. K: Yeah, 8.8 a matter of fact as I might of guessed, the Old Man had found his way there pretty nearly alone. H.M.Jr: Pardon. K: He practically found that - he practically had gone all the way himself in his own thinking. H.M.Jr: Well, I'll be darned. K: Yeah. So I guess it's going to come out all right. It's going to be decided this week. H.M.Jr: Wonderful. K: Yeah, I think so. I think we'll get a little order out of the thing now. H.M.Jr: Well, one thing that I - I talked up everybody but ourselves and my boys have told me today that we musn't forget about the guiding of the England in this picture. K: Do what? H.M.Jr: Taking care of England and her orders. Regraded Unclassified 165 - 2 - K: Well, that's part of the picture. H.M.Jr: It 18. K: Oh, yes, very definitely. H.M.Jr: Well, where would they fit in? K: Huh? H.M.Jr: I didn't attempt to get my own self into the picture. I: How will it fit in? H.M.Jr: Yeah. K: They become Army and Navy orders. H.M.Jr: I see. K: See? H.M.Jr: I see. I see. K: The problem that we have got ahead of us 1s additional appropriations. H.M.Jr: I see. But you're perfectly happy? K: I'm very happy over it and delighted with the way the thing was received. H.M.Jr: Well, I'm awfully glad. I appreciate your calling me. K: All right, Henry. H.M.Jr: Thank you. I: Good-bye. Regraded Unclassified 166 December 18, 1940 I called up Herbert Gaston at 8:00, and told him that Mayor LaGuardia had told me that the New York Tele- graph in New York City is being boycotted, and the reason they are being boycotted is because of a few articles and statements which he gave out during the campaign. I told him that I thought if the articles they were running on me were friendly that it might help the New York Telegraph in New York City. Gaston said that this was an excellent angle, and it looks as though we were doing them a favor instead of their doing us a favor. Gaston said he elmost hesitated to tell them this for fear that they might want too much from me. However, he said he would do it, and would get hold of Parker, take him out to lunch and talk the matter over with him. I asked Gaston to write me a memo and tell me what happened when he saw Parker, and he said he would. 167 December 19, 1940 Guest list for dinner given in honor of HM, Jr by Governor George Harrison of the Federal Reserve Bank in New York this evening. Suretary 168 Henry Sr. writterop aldrich Clease teatured struart Baker manhattan arthur Ballantyne lawyer Daniel Bill James G. Blaine Warine Treasury Gudland Drialdson Brown qu. Unitors Deuch FRB NY Martiner Buckues 4.4. Trust sloan Get ? Baulus Trust T.J. Coolidge Fruit Company Truys W. Davison Central Haurn laward Day Pres. Cornell Lan Fraser Fuit batwual Waltu Frew Com Ex chauge Russell I P.M. to Un me C. Wartin ? 4.4. Sth Ex change Frank L Polk. Illian C. Potter Guarant Lawyer Trust Tordon Reutschler. national lity Brandsly Runl Macy. & Dis F.R. Brug. 169 olur M. Schuff Kuhn Lorb hu S Suclain F.R.Blc Plulad. Wan Sproul F. R.Bk 4.4. Harold stanly Pres. hurgan Stanly Me Rebut stevens ? Y walter Strwart E Traphagm T.J. Water. Jut. Business luach.r Dei. F.R. ofthy red Urlliamson Pres. 4.4. Central D.M. Baruch Wen D. young. L. Harvison Eccles 170 The capy go Harrison President of 7000 rettl 2 charges langht this in % Secretary Edward E Bron December , 1940 Dec 19 SPECIAL REPORT TO THE CONGRESS by the Board of Governors of the Federal Reserve System, the Presidents of the Federal Reserve Banks, and the Federal Advisory Council For the first time since the creation of the Federal Reserve System, the Board of Governors, the Presidents of the twelve Federal Reserve Banks, and the members of the Federal Ad- visory Council representing the twelve Federal Reserve Districts present a joint report to the Congress. This step is taken in order to draw attention to the need of proper preparedness in our monetary organization at a time when the country is engaged in a great defense program that requires the coordinated effort of the entire Nation. Defense is not exclusively a military undertaking, but involves economic and financial effective- ness as well. The volume of physical production is now greater than ever before and under the stimulus of the defense program is certain to rise to still higher levels. Vast expenditures of the military program and their financing create additional problems in the monetary field which make it necessary to review our existing monetary machinery and to take measures to forestall the development of inflationary tendencies attributable to defects in the machinery of credit control. These tendencies, if unchecked, would produce a rise of prices, would retard the national effort for defense and greatly increase its cost, and would aggravate the situation which may result when the needs of defense, now a stimulus, later absorb 171 - 2 - less of our economic productivity. While inflation cannot be con- trolled by monetary measures alone, the present extraordinary situation demands that adequate means be provided to combat the dangers of overexpansion of bank credit due to monetary causes. The volume of demand deposits and currency is fifty percent greater than in any other period in our history. Excess reserves are huge and are increasing. They provide a base for more than doubling the existing supply of bank credit. Since the early part of 1934 fourteen billion dollars of gold, the principal cause of excess re- serves, has flowed into the country, and the stream of incoming gold is continuing. The necessarily large defense program of the Govern- ment will have still further expansive effects. Government securities have become the chief asset of the banking system, and purchases by banks have created additional deposits. Because of the excess reserves, interest rates lave fallen to unprecedentedly low levels. Some of them are well below the reasonable requirements of an easy money policy, and are raising serious, long-term problems for the future well-being of our charitable and educational institutions, for the holders of insurance policies and savings bank accounts, and for the national economy as a whole. The Federal Reserve System finds itself in the position of being unable effectively to discharge all of its responsibilities. While the Congress has not deprived the System of responsibilities or Regraded Unclassified 172 - 3 - of powers, but in fact has granted it new powers, nevertheless, due to extraordinary world conditions, its authority is now inadequate to cope with the present and potential excess reserve problem. The Federal Reserve System, therefore, submits for the consideration of the Congress the following five-point program: 1. Congress ahould provide means for absorbing & large part of existing excess reserves, which amount to seven billion dollars, as well as such additions to these reserves as may occur. Specifically, it is recommended that Congress - (a) Increase the statutory reserve requirements for demand deposits in banks in central reserve cities to 26%; for demand deposits in banks in reserve cities to 20%; for demand deposits in country banks to 14%; and for time deposits in all banks to 6%. (b) Empower the Federal Open Market Committee to make further increases of reserve requirements suf- ficient to absorb excess reserves, subject to the limitation that reserve requirements shall not be increased to more than double the respective per- centages specified in paragraph (a). (The power to change reserve requirements, now vested in the Board of Governors, and the control of open market operations, now vested in the Federal Open Market Committee, should be placed in the same body.) (c) Authorize the Federal Open Market Committee to change reserve requirements for central reserve city banks, or for reserve city banks, or for country banks, or for any combination of these three classes. (d) Make reserve requirements applicable to all banks receiving demand deposits regardless of whether or not they are members of the Federal Reserve System. (e) Exempt reserves required under paragraphs (a), (b) and (d) from the assessments of the Federal Deposit Insurance Corporation. Regraded Unclassified 173 - 4 - 2. Various sources of potential increases in excess re- serves should be removed. These include: the power to issue three billions of greenbacks; further monetization of foreign silver; the power to issue silver certificates against the seigniorage, now amounting to one and a half billion dollars on previous purchases of silver. In view of the completely changed international situation during the past year, the power further to devalue the dollar in terms of gold is no longer necessary or desirable and should be permitted to lapse. If it should be necessary to use the stabilization fund in any manner which would affect excess reserves of banks of this country, it would be advisable if it were done only after consultation with the Federal Open Market Committee whose responsibility it would be to fix reserve requirements. 3. Without interfering with any assistance that this Govern- ment may wish to extend to friendly nations, means should be found to prevent further growth in excess reserves and in deposits arising from future gold acquisitions. Such acquisitions should be insulated from the credit system and, once insulated, it would be advisable if they were not restored to the credit system except after consultation with the Federal Open Market Committee. 4. The financing of both the ordinary requirements of Government and the extraordinary needs of the defense program should be accomplished by drawing upon the existing large volume of deposits rather than by creating additional deposits through bank purchases of Regraded Unclassified 174 - 5 - Government securities. We are in accord with the view that the general debt limit should be raised; that the special limitations on defense financing should be removed; and that the Treasury should be authorized to issue any type of securities (including fully taxable securities) which would be especially suitable for investors other than comercial banks. This is clearly desirable for monetary as well as fiscal reasons. 5. As the national income increases a larger and larger por- tion of the defense expenses should be met by tax revenues rather than by borrowing. Whatever the point may be at which the budget should be bal- anced, there cannot be any question that whenever the country approaches a condition of full utilization of its economic capacity, with appropriate consideration of both employment and production, the budget should be balanced. This will be essential if monetary responsibility is to be discharged effectively. In making these five recommendations, the Federal Reserve System has addressed itself primarily to the monetary aspects of the situation. These monetary measures are necessary, but there are protective steps, equally or more important, that should be taken in other fields, such as prevention of industrial and labor bottlenecks, and pursuance of a tax policy appropriate to the defense program and to our monetary and fiscal needs, It is vital to the success of these measures that there be unity of policy and full coordination of action by the various Governmental bodies. A monetary system divided against itself cannot stand securely. In the period that lies ahead a secure monetary system is essential to the success of the defense program and constitutes an indispensable bulwark of the Nation. STRICTLY CONFIDENTIAL Memorandum 175 December 19, 1940 A-L Mr. Long: The following representatives of government departments and agencies met on December 18, 1940 to discuss policies covering immobilized foreign shipping in United States juris- diction: State Department Green H. Hackworth, Legal Adviser to the Secretary J. E. Saugstad, Assistant Chief, Division of International Communications Treasury Department Herbert E. Gaston, Assistant Secretary of the Treasury E. H. Foley, Jr., General Counsel Huntington Cairns, Assistant General Counsel Oscar S. Cox, Assistant to the General Counsel War Department Lt. Col. C. H. Kells, Executive Office, Water Transportation Branch Major Frank Ross, General Staff Corps Justice Department Judge N. A. Townsend, Special Assistant to the Attorney General Navy Department Capt. R. B. Schuirmann, Director of Central Division, Naval Operations Capt. C. S. Alden Commander H. Biesemeier, Office of Judge Adjutant General United States 176 - 2 - United States Maritime Commission Admiral Emory S. Land, Chairman Russell E. Luta, Assistant General Counsel Eugene J. Ackerson, Attorney, Legal Division H. T. Morse, Assistant to the Chairman The attached nemorandum for the Secretary of State is agreed to by these officials although not signed by them. LE:GHH IN:JES:FMD (Copy:pm) 177 MEMORANDUM OF CONFERENCE ON IMMOBILIZED SHIPPING Time: 4:00 to 5:40 P.M., December 18, 1940 Place: Room 474, State Department Building Present: State Department: Green H. Hackworth, Legal Adviser to theSecretary, and J. E. Saugstad, Assistant Chief, Division of International Communications. Treasury Department: Herbert E. Gaston, Assistant Secretary of the Treasury, E. H. Foley, Jr., General Counsel, Huntington Cairns, Assistant General Counsel, and Oscar S. Cox, Assistant to the General Counsel. War Department: Lt. Col. c. H. Kells, Executive Office, Water Trans- portation Branch, and Major Frank Ross, General Staff Corps. Justice Department: Judge N. A. Townsend, Special Assistant to the Attorney General. Navy Department: Capt. R. E. Schuirmann, Director of Central Division, Naval Operations, Capt. C. S. Alden, and Commander H. Biesemeier, Office of Judge Adjutant General, United States Maritime Commission: Admiral Emory S. Land, Chairman, Russell E. Lutz, Assistant General Counsel, Eugene J. Ackerson, Attorney, Legal Division, and H. T. Morse, Assistant to the Chairman. Discussion: Mr. Saugstad of the State Department, raised for discussion the revision of Draft No. 3 of the memorandum, a copy of which is annexed. The Treasury Department raised the fundamental question of whether it was wise to recommend to the President that a Coordinator be appointed since the conferees were apparently meeting for the purpose of coordinating and disposing of the problem of immobilized ships. The Treasury, through Messrs. Gaston, Cairns, and Cox, also raised a series of specific questions. One was the statement that there was not now an acute shortage of tonnage available for the requirements of the 178 - 2 - United States overseas commerce. Mr. Cox pointed out that factually, in the light of what Admiral Land had said, the statement was not true and that as a legal matter, if it were decided to requisition the ships, & record should not be made against the Government on either an unsupported or doubtful statement of fact. The Treasury also raised the question as to whether or not the statement in Paragraph 3, on page 7, about the inability of the Maritime Commission to requisition under existing law, was accurate. The Treasury also suggested that if it were decided to proceed on the basis of the present plan, one of the major recommendations should be that the Coordina- tor determine whether or not the immobilized ships could be put to use under the law. All of the Treasury's views were adopted. Other suggested revisions were also introduced and accepted. Mr. Saugstad said he would send & revised copy of the memorandum to Mr. Gaston on the morning of December 19. Mr. Saugstad also said that he wished to submit this memorandum to the Secretary of State at the same time. The memorandum was sent, not to Mr. Gaston, but to Mr. Cox at 5:00 P.M. on December 19. Attachment 0SC:mp 12/20'40 (Copy:pm) 179 STRICTLY CONFIDENTIAL MEMORANDUM For the Secretary of State: Subject: Vessel Tennage It is the consensus of representatives of the Departments of State, Treasury, Var, Justice, and Navy, and of the Maritime Commission, after informal discussion, that destruction and disruption of world shipping tonnage caused by current var in Europe have reached conditions in amount and in degree of intensity sufficient to verrent immediate adminis- trative consideration. Tonange Destruction Strictly confidential official name indicate that from September 3, 1939 to November 24, 1940, temage Regraded Unclassified 180 + tonnage destruction has been: British 2,729,000 gross teas Foreign 1,898,000 . . Total 4,627,000 - # Average rate of British loss per week from June 10 to November 24, 1940, 99,000 gross tens, or approximately 14,000 green tens per day. Tonnage Immobiligation There are in United States parts (including outlying possessions) 112 vessels of foreign registry totalling 615,000 gross tens which are immobilized by reason of war conditions, They are at follows: Totals by Plage a Gross Tome Denish 41 158,561 French 15 164,018 Italian 27 145,480 Norvegian 6 41,925 Belgian 1 6,129 freek 4 24,515 Mangarian 1 3,983 Lithmanism 1 1,255 Yugesler 3 11,642 Lawism 3 10,761 Estenion 3 5,957 Ramanian 2 7,209 svedish 3 24,601 Gerean 2 9,007 Total 112 618,430 There Regraded Unclassified 181 + There reasins of the 112 vessels in the Maritine Commission's 1e16-up fleet at the outbreak of the var, a total of 46 vessels, 24 of which are up for bid for purchase without restriction, 2 are up for bid restricted to purchase by American citizens for domestic operation, and the remaining to vessels are either undergoing receive ditioning or are to be reconditionsd for use as may be required, Tennage Shortage and Recerve The Maritine Commission is of the opinion that there is not now nor has there been seute shortage of commercial tounage available for the requirements of the United states overseas commerce. It is generally agreed that 18 10 10- possible to prodict with any certainty future teanage requirements. It 10 obviews in the light of provious experience during var conditions that the Government of the United States must maintain - reserve teanage. of Agencies The present additional I sime shipping reportente Regraded Unclassified 182 requirements of government agencies other than these of the Maritime Commission are summarized as follows: Var Department: 7 vessels of transport class and 5 vessels of supply class. Havy Department: 15 combination vessels and 10 sarge supply vessels. The Maritime Commission has already turned over to the war Department 13 veceels-? combination vessels and 6 cargo vessels, and there are under construction for the account of the Commission for delivery to the Var Depart- ment two 0-3 type transporte. The Maritime Commission has made arrangements for acquisition by the Havy or has turned over directly to the Navy 38 vessels-14 combination vessels, 12 new eargo vessels of the 0-2 and 0-3 type, and 12 new national defense tankers. The Commission has received bids for the construction of five additional new national defense tankers for the Navy, Problems Regraded Unclassified 3713 Problems On the surface, 11 might appear that ve could take over these foreign vessels amounting to over six hundred thousand tone and release the equivalent of that tonnage to the British. This does not necessarily follow. It is a question as to how anny of these vessels are desir- able or sconomisally suitable for operation in our United States trade, Some of the problems involved are as follows: 1. The acquisition of these vessele and their operation as merchant vessels under the American flag will necessitate, under existing law, altera- tions to meet our inspection requirements and standard of crews quarters. 2. Being equipped with foreign-built engines, most of which are Diesel, numerous difficulties will be encountered in operation, such as making repairs, securing parts, steetera, 3. Securing American licensed engineers experienced in operating these engines will be difficult, 4. If these vessele were chartered for commercial operation in our Herebant Marine, 11 would Regraded Unclassified 184 welld probably be necessary to retain at least the Danish engine ress personnel. Under existing 1aw, all licensed officers must be American citizens. s. If, in tran, American vessels were treas- forred to the Mary or sold to the British, the American area would be thrown out of work with resultant curious objections by American labor. 6, These vessels, being foreign-built, would mt, under existing 1aw, be eligible for subsidy w operation in the domestic trade, 9. Mary of these ships are of small teamage rendering questionable their utility to our Merchant Marine w to the Any or Nevy. In the spinion of the Any and Havy, the bulk of those vessels are not suitable for Assy or Mary needs. Newever, they night be very useful to the British. Desired dejective 1. That such central should new be exercised over foreign tennage immobilized in United States porte on assount of ver conditions as will keep 18 available to this dovernment for use as my be needed w eur various services w for possible release to the British Regraded Unclassified 185 + Existing Authority to Centrol and Acquire Persign Plan Tennage under 1. The Treasury Department has authority to take protective control over the immobilized vessels in our parts and may prevent their depar- ture and protect them against nots of sabotage. (U.S.C., Title so, Chapter 12) AB existing presi- dential preelamation is sufficient basis for the exercise of this authority. 2, The Havy Department has authority to asquire and convert vessels for neval auxiliaries. It my charter OF purchase vessels for naval auxiliaries but does not have authority to requisition. (Seeent Supplemental National Defense Appropriation Act, 1941 (Public No. 781)) 3. The Maritine Commission is the requisi- tioning agency of the Government with respect to American-owned vessels but it does not, under existing statutes, have authority to purchase, charter, or requisition fereign-ewnod, foreign flag tennage, (Section 902, Merchant Marine ACE, 1986) Recommendations 1. That the President designate - - as Chief Comminstor wir the President for the activities of the various Departments and into- pendent agencise of the Government conserned in the Regraded Unclassified 186 the problem of dealing with the immobilized vessels, tenange supply and other related energency problems, 2, That the Secretary of the Treasury, in sceperation with the Chief Coordinator, inwediately take such steps as may be necessary to control and safeguard the immobilized vessels new in our parts, including parts of the insular possessions. s. That the Coordinator accertain if the insobilized vessels can be requisitioned or other- wise asquired by the Government under existing law, 4, That the Havy proceed, in occperation with the Chief Coordinator, to exercise the authority which it nov has to buy or sharter any of the tennage under consideration that say be needed for its purposes. 5. If existing law does not authorise the requisition of immobilized vescels and if the President submite legislation to the Gengress in line with the policy recently announced with 700- post to granting aid so the British, there be 100 cluded a section giving his specific authority to sequire or requisition foreign owned foreign flag vessels inschilized w yearson of war conditions, found in United States jurisdiction, together with cash authority as may be necessary to make each use or disposition thereof as he shall determine, It Regraded Unclassified 187 + It will of course be appreciated that any request for legislative authority to sequire immobilized foreign vessels will at onse raise the question as to why such authority is needed at a time when we are selling vessels, and also whether the purpose in obtaining such authority is to enable us to turn these or other vessels over to the British Government or to keep available reserve tea- nage for national needs. Any opposition would perhaps be more pronounsed in connection with an independent bill for this purpose than it would be if a section for the same purpose were included in other legislation of a general sharaster conserning aid to the British, Le:GHR IN:JES:FM Regraded Unclassified 188 December 19, 1940 12:00 p.m. H.M.Jr: Hello. Isador Lubin: Hello. H.M.Jr: Yes, Lubin. Morgenthau. L: Is there any chance of my seeing you for one minute? H.M.Jr: No, but you can do it on the phone. L: It's the sort of thing I can't talk about. H.M.Jr: Well, what is it? L: It's a matter that I think the Boss has got to be spoken to about. H.M.Jr: Well, can you give me an idea? L: Well, it's this reorganization of the Commission. H.M.Jr: Oh. Well, do you want to before Cabinet? L: I don't care whether - more or less - but I do feel that there's going to be a hell of & reaction particularly in view of John Lewis and his group - to be able to say that the two Republicans - three Republicans, Army, Navy and a big industrialist are going to run this whole show. H.M.Jr: Well, why don't you be here at 10 minutes of 2:00. L: O. K. I'll be there. H.M.Jr: 10 minutes of 2:00. L: All right, fine. Swell. 189 December 19, 1940 Mr. Lubin phoned the Secretary at 12 o'clock and wanted to come over to see the Secretary on a matter he preferred not to discuss over the phone. He came over at ten minutes to two. Mr. Lubin said he thought it was a great mis- take to have three Republicans, Stimson, Knox and Knudsen and no Democrats on the council to speed de- fense. He thinks it is a great mistake not to have a labor man on this committee. He also felt that Knudsen was not the man to head up this council for, in his opinion, he has done nothing worthwhile up to date. Lubin asked the Secretary whom else he should talk to and the Secretary suggested Corcoran, Cohen and Felix Frankfurter. TREASURY DEPARTMENT 180 INTER OFFICE COMMUNICATION DATE December 19, 1940 Secretary Morgenthau TO FROM Mr. Cochran STRICTLY CONFIDENTIAL Sir Frederick Phillips, accompanied by Messrs. Pinsent and Playfair, called on no at 12 o'clock noon by appointment. Around 11 o'clock Secretary Morgenthen had explained to Messrs. Bell, Young and myself the circumstances attending the issuance of the simultaneous press conferences held at the White House and the Treasury in which information had this morning been made available in regard to the British pro- gram of contracts in this country. It vas understood that I should make the ticker reports of such conferences available to Sir Frederick Phillips, but that I could add no information thereto. When I showed the visitors the ticker reports Sir Frederick Phillips imadiately insisted that be had understood the Secretary to have given him the use that the British were free to go ahoad with the placing of their contracts, without any restriction being made that they should merely proceed up to the point of signing and then await some action on the part of Congress. In answer to Phillips' inquiry, told him that Secretary Morgenthan and Under Secretary Bell were not available, acsuse of schedules involving the Cabinet Meeting and immediate departure thereafter for Yev York. I did, however, at my visitors' suggestion, ask Phillip Young to join our group. Phillips concentrated upon the argument that it is very vital to his Government that they know the calendar date by which this situation pay be cleared up 80 that they can actually sign contracts. Young and I argued that as much as it was possible to give had been embodied in the communications and that there was no possible vay of telling by what date the whole problem could be resolved vis-a-vis Congress. I promised to speak to the Secretary on this point if I BBV his before be attended the Cabinet Meeting, or to ask Mr. Bell to telephone me back from Yes York any massage which the Secretary might feel free to let no pass on to Phillips tonight, particularly if the plans might have crystallized to some further extent at this afternoon's Cabinet Meeting. It vsa our belief, however, that there could be no further helpful discussion of the question before Secretary Morgenthau's return from Yes York. Before leaving us at 1 o'clock Phillips asked if he could 106 M again in the afternoon. At 5 o'clock this afternoon Phillips returned to my office, accompanied by Pinsent. I explained to Phillips that I had not seen the Secretary before the Cabinet Meeting, but had spoken with Mr. Bell along the lines above indicated, and that I would pass on to him, Phillips, any assuage which I might receive from the Secretary bafore his return to Washington tomorrow afternoon. Phillips said there was no use is discussing the question of contracts and supplies further today, but that he was were be would be having inquiries from his Government tonight or is the morning, and would consequently like to see the Secretary again as soon as possible. He did desire day, however, to go into the assets side of the question with M. 131 - 2 - Phillips reminded me that when he was explaining British nasote to the Secretary be had let it be known that gold holdings of Great Britain, together with foreign exchange assets in the United States and Canada, totaled $574,000,000. Since the date on which Phillips gave this estimate, these resources have dwindled further. Now that the possibility has arisen that & for days or several weeks may be involved before any definite arrangement is made which will relieve the British of paying cash for their purchases in this country, Phillips feels that ve must consider the very immediate problem of the cash question. He reminded no of the British desire to maintain a. minimum working balance of $600,000,000 in gold. The figure has now gone considerably below that level and this 18 the one available reserve to be looked to immediately, acide from the securities which are being liquidated. Phillips explained to me that while B. large portion of the British gold had been transported to and stored in Canada, the supply there 10 nov nearing exhaustion and there are various problems involved in bringing more gold to the United States from Australia and South Africa where the remaining gold boldings of the British are situated. In this connection, Phillips asked whether it would be possible for the Treasury or the Federal Reserve Bank of New York to buy gold situated in Australia or South Arice. I told Phillips that it had been the consistent policy of the Treasury since the day that the European war broke out in September 1939 to purchase gold only upon delivery in the United States. I let his know that various treasuries and central banks in Europe had approached us on this subject, but that the only gold which ve had taken title to outside of the United States after the outbreak of the war vas that French gold which we accepted delivery of aboard an American cruiser and brought to the United States in the month of June, 1940. I added, furthermore, that the Federal Reserve Bank of Yew York has not bought any gold abroad, although both it and private banks have in a few cases made advances to central banks against gold in transit to the United States. Whether this could be done in the present instance was a question. On Fhillips' side, he said there was doubt in his mind as to whether the risk should be attempted of bringing gold from South Africa in a merchant ressel. He asked, in this connection, if the American Navy had any vessels in South African waters. I replied that I believed none vas maintained there regularly, although our ships occasionally visited South African ports. He was obviously interested in rendering a service to the British similar to that provided the French in transporting one lot of gold by cruiser. Phillips then raised the question of the British Government acquiring gold from her allies. He said that he believed his Prime Minister would want some expression from President Recsevelt as to the propriety of such action before his Government pursued this point further with the allied governments. In enswer to my inquiry, Phillips confirmed that his Government had already taken up this matter with the exile governments of Norway, the Netherlands and Belgium. When the proposal vas made to them that they dispose of their gold to the British Government against sterling. in order to help finance the common cause, the Norwegians and Dutch officials insisted that they had certain dollar obligations themselves to meet. They were not willing to accept the proposition. The Belgians likewise refused, but did indicate British, provided an undertaking was made to return it to Belgiam at the closs of 6. villingness to consider the proposition of lending some of their gold to the 192 - hostilities, since this constituted the one reserve of Belgium which has been pro- served, and which will be needed for post-war rehabilitation. Phillips did not mention whether an approach had been made concerning the comperatively mall amount of Crech gold. That of Poland is all in the hands of the French in Dakar, Denmark's gold holdings are quite small. The question of French gold held in Canada vas then discussed. Phillips reminded be that part of this was earmarked directly with the Bank of Canada by the Bank of France, and that the remainder bad been earmarked originally with the Bank of England, and that the latter had now placed this with the Bank of Canada. The Britiah do not feel that they should take steps toward "pinching" that French gold which is with the Bank of Canada in the name of the Bank of England unless and until the Dominion Government is reconciled to the idea of the Government of Canada, through the Bank of Canada, taking similar action with respect to that French gold earmarked directly with the Bank of Canada, Phillips told no that the proposal toward this end which he had submitted to the Government of Canada last summer after his visit to Washington had been turned down. He has again taken the matter up with Deputy Minister of Pinance Clark during the latter's visit to Washington several days ago, end is still waiting some word from Ottawa. He added that another cause for a cautious policy on the part of the British in this respect was the concern of Purvis lest contractors in the United States might become excited if the British were taking over French gold in this hemisphere. He thought this might lead to difficulties in lacing British orders. Nov, however, Phillips feels that the purchasing program has developed to such a point that there is no longer need for concern on this ground. Da the other hand, there has been a DSV development in France which gives cause for pause. That 18, with the sentiment in France having become decidedly more pro-British in recent weeks, there is a question as to whether any step should DOW be taken through "pinching" the French gold in Canada which might strongly antagonise the French. Furthermore, Phillips pointed out that only & part of the French gold is accessible to the British, that part aside from the stock in Canada being distributed in the United States, Martinique and Senegal. With respect to United States dollar securities held by the British, we dis- cussed the efforts of Mr. Gifford to speed up the liquidation thereof, and shared pleasure at the progress which Gifford has made the first three days of this week, from which it appears that it will be possible considerably to increase the rate at which dollar securities have been marketed at New York. Even if this total does, however, go along at the rate of the first half of this week, or even increases further, the total proceeds therefrom will be entirely inadequate to meet the cash requirements of the British. Phillips naked whether there had been my further thought given to the subject of the Treasury or the R.F.C. taking over these securities. Pinsent agreed with = that & recent statement by R.F.O. Chairman Jones indicated that he felt that no loan could properly be nais against such securities in the absence of Congressional action. Pinsent sad I also reminded Phillips of recent statements of Secretary Margentham wherein he denied say intention of rendering financial aid to Great Britain, which wight conceivably violate even the spirit of the Johnson Act, without prior approval of Congress. 1S3 4 Phillips then let me know that he had seen Prebisch of the Argentine Financial Delegation a few days ago and had discussed the proposition which the British have had TD with the Argentines for some time of the latter redeeming the British-owned railways in Argentina. Phillips believes that the maximum value of such securities is present market conditions is L45,000,000, or approximately $180,000,000. Various arrazgements have been talked over with the Argentines, but Phillips thought the one mit likely to offer possibilities was one whereby Argentina might borrow around $100,000,000 from the United States and pay the British in dollare for their securities ind also, I believe, the equity involved. I asked Phillips if it was his understanding that Prebisch would look to us for this $100,000,000 in addition to the two trans- actions, one by the American Export Import Bank and the other by our Stabilization Fund, which are now being consummated. Phillips replied in the affirmative. He realized that there might be another plan worked out whereby the British would be reimbursed for their Argentine securities through 4 percent sterling debentures which would run 60 years. I told Phillips that we have had no recent conversations with the Argentines on this subject, leaving the field to the British and the Argentines themselves to cover. Às 8 next possibility. Phillips brought up the question of direct investments In the United States. He thought the Department of Commerce estimate thereof was too Md. especially since some of such investments really consist of securities which be been taken over already by the British Government and have brought the total of be United States dollar securities up to about $1,000,000,000. which 1e in excess of the Department of Commerce estimate. Phillips feels that the marketability of most of their investments in the United States is small because of the importance of the connection of the parent concern in England with the affiliates in the United States. He seemed to favor the idea of borrowing under mortgages covering such properties, rather than attempting outright sales. In answer to my question, he said that Gifford had not looked into this possibility, and that some other agent than Gifford, who is purely B security expert, would probably be selected if any com- prehensive effort to dispose of direct investments is undertaken. Finally Sir Frederick raised the question as to whether immediate and direct wwistance could be obtained from our Stabilization Fund. I explained to him the simple process which we use in our current and proposed operations with certain countries. I added, however, that I doubted whether Secretary Morgenthau would feel that his clearance with the Congressional committees on the Chinese proposition loft him free to carry out a similar transaction with Great Britain, the latter being definitely a belligerent. Pinsent agreed with me that other statements of the Secretary might preclude such a possibility. They hoped, however, that I would broach this subject to the Secretary, since it would be the most prompt and immediate aethod of providing dollar exchange, if it is at all feasible. I ventured to suggest that the Secretary might refrain from such action, even though the law might permit 5, nov that the big program has been launched of putting the British situation by the President and the Secretaries of State, Treasury and Commerce, there might be squarely before Congress. That is, I thought that in view of the statements made De risk of damaging the whole British cause here if the Treasury Department should Regraded Unclassified 194 - 5 - now proceed independently and take the position of anticipating Congressional approval. Sir Frederick hoped that I would talk this whole subject over with the Secretary, considering the urgency of the British cash position and the arrangement for the Secretary to let Sir Frederick have his views as early as possible. 70m/8. 195 BRITISH EMBASSY, WASHIKGTON, D.C. 19th December 1940. Dear Mr. Secretary, I enclose tables in the form in which you asked me for them yesterday afternoon, showing the order in which we should wish to place the various orders contained in Programs Nos.1 and 2. I hope this will give you all the information which you require. Believe me, Dear Mr. Secretary, Very sincerely yours, Hhillips The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 196 His Majesty's Government have learned with very deep appreciation of the President's message conveyed by the Secretary of the Treasury, that they should proceed at once with the placing of the orders necessary to fulfil Programs Nos.1 and 2 referred to in the statement handed to Sir F. Phillips by Mr. Morgenthau on the 17th December. They are anxious to proceed immediately in accordance with the President's decision. The British Purchasing Commission and British Air Commission have prepared, subject to confirmation from London, the following notes on the succession in which they believe it will be possible to place orders:- British Embassy, Washington, D.C. 19th December 1940. Estimated Monthly Distribution of British Purchasing Mission Payments in the United States against Existing Commitments and Program 1 & 2, as per Schedule entitled "Summary of British Programs" handed by the Secretary of the Treasury to Sir Frederick Phillips, December 17, 1940. Millions of U.S. Dollars Total After Total Dec. Jan. Feb. Dec. - Feb. Feb. 1940 1941 1941 1940 1941 1941 Balances due on Orders already placed Product 1284 156 147 123 426 858 Capital 17 10 5 1 14 5 Program No. 1 Product 2062 86 197 187 470 1592 Capital 699 35 89 139 265 456 Program No. 2 Product 1225 65 59 38 160 1065 Capital 10 10 - - 10 - Total Product 4571 305 405 548 1056 3515 Capital 726 55 92 140 287 439 TOTAL 5297 360 495 488 1548 3954 Note: The monthly distribution of payments shown above reflects & partial revision of the rate of expenditure shown in the November 30th estimates. A complete revision as of December 31st will be available early in January. 197 Regraded Uncla 198 FIRST GROUP OF ORDERS (In Willions of U.S. Dollars) Estimated Payments Estimated Payments Total of Orders Dec. 1940 - Feb, 1941 after Feb. 1941 SHIPS Product 97 30 67 Capital 9 9 - 106 39 67 ATRCRAFT Product 620 160 460 Capital 500 75 225 920 255 685 MUNITIONS Product 444 70 374 Capital 35 35 - 479 105 374 TOTAL Product 1161 260 901 Capital 344 119 225 GRAND TOTAL 1505 579 1126 1. SHIPS lieu Ships. This is theTodd scheme for the construction of 60 now merchant ships, 410 feet long, 9500 tons, 10} knots speed. Used Ships. Purchases of used merchant ships at auction. B. AIRCRAFT The above covers (a) the placing of orders to complete the first 14,000 aircraft (already cleared) (b) the release of orders for 3660 aircraft from existing capacity (clearance pending), and (e) the creation of capacity for further production, especially for urgently needed heavy bombers. C. ritish Types. This represents the "Army Progrem ⑈ required to complete the equipment of the divisions already formed or forwing, together with Oerlikon guns for merchant shipping anti-sireraft defense, American Types. This represents certain U.S. type material (gras, assistion etc.) which are in the "Army Program A Regraded Unclassified 199 SECOND GROUP OF ORDERS (In Millions of U.S. Dollars) Estimated Payments Estimated Payments Total of Orders Dec. 1940 - Feb, 1941 after Feb, 1941 AIRCRAFT Product 200 50 150 Capital - - - 200 50 150 UNITIONS Product 100 30 70 Capital 15 4 11 115 34 81 TOTAL Product 500 80 220 Capital 15 4 11 GRAND TOTAL 515 84 251 D. AIRCRAFT These orders cover the continued employment of existing espacity from April to June 1942. of name The above covers orders still to be placed to complete our program for 5000 15 American Type Cruiser Tanks. Regraded Unclassified THIRD GROUP OF ORDERS 200 (Millions of U.S. Dollars) Total of Estimated Payments Estimated Payment Orders Dec.1940 - Feb.1941 after Feb. 1941 AIRCRAFT Product 650 140 510 Capital 150 75 75 800 215 585 MUNITIONS Product 600 130 470 Capital 200 75 125 800 205 595 MISCELLANEOUS Product 576 20 556 Capital - - - 576 20 556 TOTAL Product 1826 290 1536 Capital 350 150 200 GRAND TOTAL 2176 440 1736 F. AIRCRAFT The above covers (a) the British share in new plants now being created by the U.S. Army. (b) orders to be placed from new British capacity referred to in the first group of orders:paragraph B (c). G. MUNITIONS The above covers the 10 Division scheme (Army Program B) exclusive of certain additional items still under consideration. H. MISCELLANEOUS The above covers steel and miscellaneous purchases. These are in the nature of current supplies which are ordered on running contracts, not involving large forward commitments. TREASURY DEPARTMENT 201 INTER OFFICE COMMUNICATION DATE December 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran Mr. Gifford telephoned me from New York at 10:30 this morning. He stated that yesterday he consummated one single transaction for a total of between $1,250,000 and $1,500,000. This involved the sale of its own stock to an issuing company and took place after B. revival of a heretofore unsuccessful effort to make the deal. Mr. Gifford let me know further that another transaction is under way envisaging a disbribution operation through Smith Barney, amounting to about $2,500,000. This second deal is contingent upon the state of today's New York stock market. If the market recedes beyond a certain point, and it was noted that the opening was weak, Smith Barney may withdraw from the arrangement under the privilege which they have. Gifford telephoned me these two items to let us know that he is making a real effort to speed up transactions, and is following insofar as possible the lines which he thought the Treasury desired that he pursue. December 20, 1940 Late yesterday afternoon Mr. Gifford tried to reach me by telephone, but I was in a meeting. Following that, Pinsent told me when calling here with Sir Frederick Phillips that Gifford had asked him to communicate to me the message which he had hoped to give directly, that is, that the $2,500,000 deal (which Gifford had non- tioned to me and which is described above) had been consummated and will appear is the report covering yesterday's transactions. Thus there will be included in the sales of December 18 an item amounting to $1,250,000 to $1,500,000, and in the report of December 19 this other item of about $2,500,000. B.M. > JR PLAIN 202 London Dated December 19, 1940 Rec'd 2:05 p.m. Secratary of State, Washington. 4144, 19th. The President's "lend our neighbor the hose pipe" declaration at his press conference was reported in yesterday's press but not until this morning did journalists have time to catch their breath and comment on the proposals. The scheme is universally praised, nearly all comments emphasizing the fact that the statement revealed a determined Effort for specding up production as the primary problem sclipsing any technical considerations of finance or foreign exchange. The TIMES diplomatic correspondent refers to the statement as "one of the most important suggestions to come across. the Atlantic since war began" and states that "seldom can a few words have offered the prospect of so complete a change in a great and vital problem". This writer also asserts that "in London it is thought that hardly less important than Mr. ROOSEVELT'S statement is the one made at about the same time on Tuesday by Mr. Cordell Hull on the great task that faces Great Britain during the Regraded Unclassified 203 -2- #4144, December 19, from London. the next few months". The TIMES long Editorial on the subject points out that America realizes that loans on the scale needed would simply create difficulties after this wer similar to those which helped to wreck the world after the last war, end that Britain could only repay by increasing exports to the United States which would stimulate higher teriffs to protect American industry and Employment. This editorial also points out that Britain hrs freely mode -11 secret and technical information evoilable to the American uthorities and that r. distinguished American soldier hrs described these facilities FS worth many millions of dollars; the aditorial contains = worning that the sug. ations must be submitted to Congrass -nd suggests the various types of opposition it will doubtless meet but rdds that by many it will bE h-iled r.s the "first gleem of economic sanity in C world bedevilled by finance" and that there will bE relief that t the End of the wer the "world may be spired the nigotmere of unpoyable war debts and reporation which after 1918 helped to product such conditions `8 mrde social unrest, Hitlerism nd war -lmost inevitable." This aditorial urges that the British Government should make it clarr that no repayment is expected of the advances mnde to Greece nd of similar dvences. The Regraded Unclassified 204 -3- #4144, December 19, from London. The MANCHESTER GUARDIAN, like the DAILY TELEGRAPH, Emphasizes that the President's statement reverls that he is alive to the importance of increasing American production. "As WE have found production nt war speed cannot bE secured by peace-time hours of labour and methods of organization and the United States is making the some discovery." The NEWS Chronicle stresses the some point in 1ts editorial referring to Secretary Hull's Emphasis on the need of increasing the flow of rms to Britnin. The FINANCIAL PRESS naturally stresses the foreign exchange implications. The FINANCIAL TIMES, for example, stating "whether intentionally or not the plan has the advantage of avoiding pitft.lls inseparable from international lorns end credits and it Effectually bypasses the difficult problem of foreign Exchange." This editorial concludes that the scheme foreshndows Extended Economic collaboration and "may later adumbrate the appearance of r. new order of n very different type from the slovery system envisaged by Hitler." The FINANCIAL NEWS S points out the it is reasonable to assume that the scheme can well provide n "useful possible wer cushion for British industry" C.S WELL na avoiding the confusion crising from an entanglement of dollar debts. "Responsible American statesmen do not of course doubt the Efficecy of gold as international currency but 205 -4- #4144, December 19, from London. but they have long recognized that further considerable additions to = redundent gold stock SERVES merely to ensure that ultimately the United States will suffer the fate of Midns." This editorial ends with C. worning similar to those contained in the comments of the DAILY TELEGRAPH and the MANCHESTER GUARDIAN that the United States cannot exert its full weight EXCEPT with a reduction in living standards and nssumes that the DEfence Commission must bE given more powers in due course. The favorite subject of today's cartoons 13 the presentation of the President C.S. Sentr. Claus. In one CASE (the DAILY EXPRESS) Britnin's stocking hangs on the firsplace of = bomb-shattered room with r. note "thanks D. million--sorry I couldn't wnit--I'm on duty." In another CASE (DAILY HERALD) Uncle Sam asks "can WE afford to give all that to Britain" and Sente Clnus replies "cen WE offord not to?" Please give n copy of this telegram to Trensury. JOHNSON CSB Regraded Unclassified 206 THE OF AMERICA STATES THE ASSISTANT SECRETARY OF WAR WASHINGTON STATE HOLDER December 19th, 1940. My dear Henry: I acknowledge with thanks receipt of your letter of December 9th, enclosing two communica- tions from Air Commodore Slessor, relating respective- ly to the British operational aircraft and pilot situa- tion and Air Commodore Slessor's impressions of the United States Air Production Programme. The confidential nature of this material has been noted and it will be held in the appropriate files. Sincerely yours, Honorable Henry Morgenthau, Jr., The Secretary of the Treasury. 207 THE SECRETARY OF STATE WASHINGTON December 19, 1940 Dear Mr. Secretary: I wish to thank you for your kindness in sending me enclosed in your letter of December eighteenth the report on the British air force. Your courtesy in making it available to me is appreciated. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. NVO 31 SPS TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 19, 1940 TO Secretary Morgenthau FROM Mr. Wiley Re: Buron Holfgeng zu Putlitz. Supplementing my memorandus of December 4, the FBI now reports that Baron Putlitz arrived in the United States on June 20, 1940, from England, and quotes him as stating that he had been in the German Diplomatic Service for many years, had served with Von Rib- bentrop in London, and was last stationed in The Netherlands. Because be was anti-Nasi and was suspected of un-German activities and sympethies, he had been kept under surveillance for several years by the Gestapo. In October, 1939 he fled from the Hague to England by private plane, where he claims he furnished valuable information, particularly to Van Sittart. Though he offered his services to the British Government he was not used, and when Churchill came to power conditions in England became impossible for any German. Re was then given a visa for Janaica. He save the name of Lottie Lehman 85 his best friend in the United States, where he was permitted to remain thirty days en- route to Kingston. He told FBI various anecdotes: For example, when he was working with Von Ribbentrop in London he knew & nan who was receiving 650 a month from Von Ribbentrop for the sole purpose of contacting Chemberlain's brother-in-law. This stool- nigeon, an Englishmen, was a house-guest practically every week- end in Scotland, where the innermost secrets of the Chamberlain government were freely discussed. This sort of thing stopped struptly when Churchill took over the government. Since the British did not think it was worth while to make use of his services, I see no special reason from his record why we should. His personal peculiarities, too, would suggest that it might be better for him to remain in Jemaica, Regraded Unclassified 209 mr. W aley gave this to the Deing after the 9:30 meeting this am: TREASURY DEPARTMENT 210 INTER OFFICE COMMUNICATION DATE December 4, 1940 Mrs. Klotz TO Mr. Wiley FROM I return herewith the correspondence regarding Baron Wolfgang zu Putlitz. Within a day or so I expect to receive reports from several sources on him. It appears that he is very well known to the State Department, where views regarding his admission to the United States are divided. In any event, should he be given a quota visa at Jamaica, he would not become eligible for a quota number for some three months, so the matter is not urgent. As soon as further information is received I shall send it to you. The Air Mail. 211 SECRET AND PERSONAL. Bouse 29th November, 1940. Dear Mr. Morgenthau, Concerning Baron Wolfgang zu Putlitz, I enclose a copy of a letter I have sent by this mail to Lord Lothian. It is self- explanatory. He only made two copies of the typescript, one which I had sent for him to the New York publishing firm and one for himself. He is now busy typing a copy for you, which I will send through Lord Lothian. With best wishes, Yours very sincerely, The Hon. Henry Morgenthau, J.R. Secretary of the Treasury WASHINGTON, D.C. 212 ARE Moil. Secret and Personal. 29th November, 1940. Dear Lord Lothian, Six months ago I received here Baron Wolfgang zu Putlits and his volet Friedlos wilhelm Schneider, at the request of and His Majesty's Government. I was asked to look after then to to the intern them British Government. We have a military hill station above Kingston and separately as the Baron had rendered great services A small house whe allotted for their use. It is e lonely miserable and life for 8 man of considerable culture. He has written no one 8. to book talk - an autobiographical criticiam of the Nazi regime. I sent it to and nothing to do. During the aix months he has recently for him to 8 New York firm:- Graystone Press, Inc., East 49th Street New York and Putlitz is only forty years of age and in my view day play a big if they publish it I am confident 1t will have M great sale. part and 18 well known is many diplomotic circles. He mentions 68 in the post War world. He is 8 friend of Sir Robert Vensittar people who know all about him three names:- Huxley, British Embasey, Washington; Hugh 8. Cumming, Jr. State Michael Department, Washington; Walton Butterworth, American Embasey, London. During the matter to him and expressed the opinion that here keeping was a the recent visit of Mr. Henry Morgenthan to Jamaice I mentioned in idleness and eating his heart out might such el man rotting I have recently suggested to London that he there. be great mistake. Intelligence Work under the Foreign office sent back to do been received. Mr. Morgenthau before leaving of the Jameice book No reply has yet that I might send 8 copy of the typescript States Govern suggested to me and he would consider whether United one copy and is to him through you of his services. Putlitz hns only it is ready ment now busy could typing make another use hich I will send to you ns soon AB It will take about R fortnight. Morgenthau Neanwhile on the if you subject. I have sent him 8 copy of letter. think fit, you might care to speak this to Mr. with best wishes, Yours very sincerely, AM P.S. quota The has idea been of enquired obtaining into, but no you know there 1a waiting entry into the United States a under long the list and it may take years. Am The Most H.B.M. Hon. Ambassador The Marquess Extraordinary of Lothian and Plenipotentiary British Embassy WASHINGTON, D.C. Regraded Unclassified TREASURY DEPARTMENT 213 INTER OFFICE COMMUNICATION DATE December 19, 1940 Secretary Morgenthau TO FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns 333,000 Purchased from commercial concerns 53,000 In the open market, sterling was quoted at 4.03-3/4 throughout the day. Transactions of the reporting banks were as follows: Sold to commercial concerns in 4,000 Purchased from commercial concerns is 2,000 Following yesterday's decline to .2318, the Swies franc had a steadier tone today. The final rate for that currency was .2320. Closing quotations for the other currencies were: Canadian dollar 13-5/16% discount Swedish krona .2385 Reichsmark .4005 Lira .0505 Argentine peso (free) .2360 Brasilian milreis (free) .0505 Mexican peso .2070 Cuban peso 8-1/2% discount There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the Bank of Canada shipped $3,030,000 in gold from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay Office. The Bombay gold and silver prices were both unchanged at the equivalents of $33.82 and 43.01# respectively. The prices fixed in London for spot and forward silver were also unchanged at 23d and 22-15/16d. The dollar equivalents were 41.76# and 41.65#. Handy and Harman's settlement price for foreign silver ⑉ unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 354. We made two purchases of silver totaling 100,000 ounces under the Silver Purchase Act, both of which consisted of new production from foreign countries, for forward delivery. Regraded Unclassified 214 -2- The Federal Reserve Bank's report of December 11, listing deposits of banks in Asia with the New York agencies of Japanese banks, showed that such deposite totaled $101,895,000. an increase of $1,440,000 since December 4. Às usual, nearly all of the change in deposits took place on the books of the Yokohama Specie Bank's New York agency. The latter's principal dollar liabilities to and dollar claims on Japanese banks in Asia stood as follows on December 11: December 11 Change from Dec. 4 Liabilities: Deposits for Japan & Manchuria $53,361,000 + $2,969,000 Deposits for China 36,328,000 - 597,000 . : U.S. Treas. bills, comm. paper, etc... 31,187,000 + 761,000 Claims : Loans $40,269,000 + 2,703,000 Il : Other - mainly Jap. import bills 17,891,000 - 538,000 The last three categories refer almost entirely to Japanese banks in Japan and Manchuria. The rise in deposits for account of such banks mainly reflects an increase in loans made by the New York agency. juil CONFIDENTIAL 215 TREASURY DEPARTMENT FOS Miss Chaunces INTER OFFICE COMMUNICATION DATE December 19, 1940 Secretary Morgentheu TO FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Credito Italiano, New York, maintained with the Chase National Bank, New York. Date Account Credited Amount Credited Received From December 19 Credito Italiano, N. Y., $ 214,400 Chase National Bank, for account of Credito N. Y., by order of Italiano, Rome Sveriges Riksbank, Stockholm 76mR. 216 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 105 Miss SS DATE December 19, 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transaction in the account of the Banco di Napoli Trust Oo., New York, maintained with the National City Bank, New York. Date Amount Debited Paid To December 18 $ 300,000 Federal Reserve Bank of New York, for account of Banco di Napoli Trust Co., N.Y. BMR 217 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION Chauncey DATE December 19, 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transaction in the account of the Deutsche Golddiskontbank, Berlin, maintained with the Chase National Bank, New York. Date Amount Debited Paid To December 18 $ 67,560 Irving Trust Co., N.Y., for account of Carl Marks and Co. H.M.S. 218 The New York Times Times Square December 19, 1940. Dear Mr. Secretary, This is just to tell you that I shall be at the Treasury on Monday morning st 9, ready for business. My temporary address will be the Hay-Adams, beginning Sunday night. As I told you at lunch last Saturday, you can count on my full devotion in this new work. I am proud of the opportunity to be of use to you, and I am deeply grateful. Faithfully yours, & The Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. December 19. 1940 Xy dear Mr. President: The "informal committee to represent the American Govern- nent in its contacts with the interested foreign governments in all matters relating to the purchase of var materials in the United States", which you appointed on December 6, 1939, has been forced to extend the scope of its work due to the our- rent international situation. Originally established to service the British and French purchasing missions, this Committee today is not only miding and closely supervising the British programs, but also helping the Government of the Netherlands and other British allies, M well as Chima and the countries of Latin America. Faced at the outset only with the necessity of arranging for friendly foreign purchasers to sequire supplies from surplus stocks, 11 now has the infinitely mrs complex task of fitting foreign precurement into our own defense program with its priorities and itd almost complete absorption of our productive capacity. This Committee is constantly in touch with the British Purchasing Commission and has been instrumental in working out detailed programs for the procurement of aireraft, tanks, and ordnance material. To & large extent, it has been the weens whereby your policies in dealing with the British have been implemented and fellowed up. To give the greatest possible assistance to the British programs and still prevent conflicts with our own defense effort, a alearance procedure has been established through this Condition for all substantial British orders. This pro- seture bridges the gup between the British Purchasing Commission and the Var and Savy Departments, the Advisory Commission to the Council of National Defense, the State Department, the Reconstruc- tion Pleanoe Corporation. and the Administrator of Export Central. Every request for clearance is processed by this Committee with these departments and a single coordinated reply is furnished to the British. Regraded Unclassified 220 Regraded Unclass - 2 - In addition, the Committee has been instrumental in bring- ing the fighting experience of British technicians and British vespons to the notice of United States experts; in working end standardised arms, ammunition, sad naterial of VS7; in develop- ing ways and means of increasing production; in securing all kinds of information from the British for interested United States Government agencies; and in arrenging for the financing of new facilities to w used by both the British Government and the United States Government. to assist these United States Government agencies in study- ing the impost of the British purchases on our economy, statis- tical surveys and reports have been secured from the British Purchasing Commission covering value of orders placed, value of orders to be placed, capital commitments made and to be más, cash requirements, and financial reserves. The - treatment and assistance accorded the British is also being given to the Notherlands Purchasing Commission which has the second largest foreign purchasing program. Bare, hav- ever, a frequent check is made with the State Department through Assistant Secretary Barle to be sure that these purchases are consistent with our foreign policy. With the development of our our defense program and the expansion of Brittsh orders, It Le becoming increasingly difficult to fit the Dateh requirements into our preductive especity and may of their requests have had to be denied. Im greater difficulty has been encomiered in arrenging for the placing of orders w Latin American countries. the Advisory Commission to the Owneil of National Befense has apparently given little hard to the requirements of foreign buyers other than the British. In nost instances it has been impossible to find sources of supply which are free to fill latin American requirements within a reasonable period. the Maisen Condition is veridag closely with lbs. Helson Reckafeller and the State Department is X attempt to selve this problem which to making it extremely difficult to give Latin America my tangible ovidence of the United States "good noighbors pelicy in the matter of wr supplies. the Condition has also received representatives of China, trease, Tervey, Finland, Belgiwa, Portugal, Turkey, Irm. traq, Thailand, Hire, freding and Rusis. In every - the State Department we cooperated closely with the Maison Committee. 221 - 3 - The contacts which the Committee has established with every foreign government purchasing war supplies in the United States, and the clearance procedures which it has net up. have developed an important system of centrels ever foreign purchas- ing. For the first time, it is now possible to gride foreign purchasing from the standpeint of foreign policy, commie defense, and the purchaser's *ability to pays before my attempt is made to assertain the availability of production espacity. In addition, the Committee is surveying all fereign orders for var supplies already placed in the United States. Faithfully yours, (Sgl.) 1. Morgenthm, Jr. The President, The White House. Fithj Ospy:jpt Regraded Unclassified (CONFIDENTIAL) 222 CONFIDENTIAL PARAPHRASE The following 1e the substance of a confidential telegram of December 19, 1940, from the American Con- sulate General at Singapore: The Embassy has been informed in confidence from an official source that a British officer who has recently completed a trip over the Yunnan-Burma high- way states that because of extra bridges, the present width and improvements on the road and the availability of coolies to make repairs, the likelihood of a complete break in traffic by either weather or accident 1s negligible. It 18 also stated that to interrupt traffic by artificial landslides, it would be necessary to bomb one spot practically daily and systematically. 347 90 301 TMA FOIDRA JAJ el CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department 223 ab 18:10 P.M., December 19, 1940 Lendon, filed 19:30, December 19, 1940. 1. During daylight hours of Wednesday, December 18, 15 Leckhood Hudsens of the Ceastal Command benebed the Bergen-Oale railread. A direct his en Nyset (1) was observed. The Mass Retuary in Helland, was mined. the preseding night eight medium bonbers attacked ports and airdremes in France and Belgium and nine heavy beabers attacked Mambein. 1. During the night of Documber 18-19 enemy air activity was slight. Probably this is partially explained by weather conditions. - the Continent, but in the past large scale operations by long range beabers have taken place under mare adverse weather conditions. 8. On December 19 four British bembers were missing and see earry plane was destroyed. 4. In the Greek theater the coustal tem of Quare (1) has been compled and Topelani has been subjected to artillery fire. Weather conditions have limited operations. 8. British planes reported nine large vessels at Durasse en the 16th of December. 6. On December 19, the British took Shafforson, Musaid (1) and 8141 Our in the Egyptian theater. At Capusso and Salue, 10 Italian fighter planes (Fint CaRe 42) were exptured intent. On the night of Dosember 10-17, British fighter planes harassed the retrest- ing Italian treeps at Tebrek, inflisting have leases; a motor transport and the city of Bardia were also banbod. CONFIDENTIAL Regraded Unclassified CONFIDENTIAL 224 7. On December 16, & South African Brigade made a No- cessful attack on E1 Wak in Kenya. a. It was reported by sources in Tugeslavia that an Albanian Grames battalism has been disarmed by the Italians. This battalism was attached to the Italian Ferrara Division (23rd) and it is believed that all other Albanian troops will also be disarmed. Desertions of Albanians to the mountain regions are frequently reported. 9. On December 15, photographs were made of practically all of the Channel Coast from Belle Isle to St. Massire and almost no land or shipping activity was observed. Twenty-mine barges and three coastal vessels, which appeared to be unleaded, were observed at Boulogns. Shipping activity at Brest appears to be primarily naval, with patrol vessels and mine sweepers being observed. The photographs reveal that there has been only a minor redistribution of craft since December 10. 10. During high speed trials on Desember 17, the British 1350-ten destreyer ACHEROM sank after an explosion from an unknown cause. There were a - survivors. 11. It was stated in reports from Tangier that white troops had replaced a thousand Moors who were withdrawn becaus= of their discontant with the long mobilisation and the shortage of food. In all probability white troops will replace other Moorish units. LEE Distribution: Military 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 AC-3 6-3, 1 CONFIDENTIAL Regraded Unclassified 0-2/2657-220 RESTRICTED M.I.D., W.D. December 19, 1940. No. 274 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. Air Force Operations. There was no important German air activity over Eng- land in daylight yesterday or last night. According to press re- ports heavy aerial fighting is in progress over London today. The R.A.F. attacked Mannheim for the third success- Lve night. II. Greek Theater of Mar. The Greeks continued their pressure but there seems to have been little change in the situation. Despite bad weather, there was minor air activity by both sides against troop concen- trations. III. Mediterranean and African Theaters of War. 1. Operations continue in the Bardia area. Bardia appears to be encircled by the British, and its fall is believed to be only a question of time. The British report a successful road on El Wak (El llach), which is in the Jubaland territory near the Kenya border. 2. Reports on air activity in the Egyptian-Libyan thea- ter are inconclusive. There were sporadic air raids in East Africa, inclu- ding another Italian attack on Port Sudan. Last night the R.A.F. operated over northern Italy in limited force, perhaps two squadrons, attacking factories at Milan and docks and the airdrome st Genoa. RESTRICTED Regraded Unclassified 226 December 19, 1940 MEMORANDUM TO: The Secretary FROM: Mr. Young Re: Preliminary Report on West Coast Aluminum Fabricating Capacity It appears that the West Coast inspection trip started everyone in town worrying about the aluminum situation, for when we asked the Aluminum Section of the Advisory Commission for West Coast information they threw up their hands with horror and said that they had been deluged with work in the last two weeks and begged us not to insist on detailed informa- tion unless we were prepared to wait a week or ten days. They seemed to be the only people having anything like a complete picture, for neither the Reconstruction Finance Corporation, Department of Commerce, War Department nor Navy Department has anything that 18 specific. We gather that it 16 only recently that the Aluminum Section of the Defense Commission has really begun to get complete data on fabricating capacity. Heretofore there have been a good many press releases on how the "poundage" of aluminum capacity 18 great enough to meet our needs, but I think it 1s only now that they are beginning to wake up to the necessity for an intensive analysis for the various major types of fabricating capacity which will be required to meet the needs of the various aircraft programs. At this point the following 16 all the information we have been able to collect on the West Coast situation: 1. The only ingot production on the West Coast will be the new Aluminum Company plant at Vancouver, Washing- ton, which has a present capacity of about 60,000,000 pounds per year which will be increased to about 150,000,000 pounds by June, 1941. The bulk of this production will probably have to be shipped to the Middle West or to the East for fabrication. Regraded Unclassified - 2 - 227 2. The Aluminum Company has forging capacity at Los Angeles which 1s to be increased in January, 1941. No information is available at the moment as to the percentage of West Coast forging requirements which this plant will be able to cover. 3. The Aluminum Company also has some capacity for producing extrusions at the Los Angeles plant, but probably not a very substantial portion of West Coast requirements. 4. There 18 a small amount of independent casting capacity in the Los Angeles area, but probably relatively small in relation to requirements. 5. There is no capacity for the production of bars, rods, and sheets on the West Coast now nor does it seem that any is contemplated. All of this material required by the West Coast aircraft industry must come from middle western or eastern plants. 6. The Defense Commission will be able to tell us shortly: a. The percentage of the potential ingot output at the Vancouver plant which can be fabricated on the West Coast. b. The percentage of West Coast requirements which can be produced by plants in the area. 0. Whether there 1s any serious planning at the present for bar, rod, or sheet capacity on the West Coast. Py. Regraded Unclassified 92/17/40 228 STRICTLY CONFIDENTIAL DELIVERIES OF AIRPLANES, BY PURCHASERS AND BT TIMES OF PLANES January 1 - December 7, 1940 Other Commercial Bombers Purquits Trainers military planes Total planse TOTAL ALL PURCHASERS Jan. 1 - July 6 589 630 946 108 420 2,693 July 7 - July 20 63 71 96 6 NO 276 July 21 - Aug. 3 56 99 131 6 54 346 Aug. 4. - Aug. 17 55 71 139 F 51 320 AUR. 18 - Aug. 32 54 65 131 14 53 337 Sept. 1 - Sept. 14 16 61 172 6 45 300 Sept. 15 - Sept, 26 26 104 171 9 77 309 Sept. 29 - Oat, 12 25 116 206 8 64 419 Oct, 13 Oot. 26 28 50 184 6 35 305 Oct, 27 - Nov. 9 38 133 159 96 0%0 9 28 367 Nov. 10 - Nov. 23 39 93 6 19 253 Nov. 24 - Dec. 7 61 118 179 10 37 405 Subtotal July 7 - Dep. 7 463 1,001 1,664 86 503 3,717 Total Jan. 1 - Dec. 7 1,052 1,631 2,610 194 923 6,410 ARMY Jan. 1 - July 6 34 50 532 65 - 661 July 7 - July 20 5 21 8 - 91 July 21 - Aug. 3 11 40 74 - 129 Aug. a - Aug. 17 7 29 82 1 - 119 Aug. 16 - Aug. 31 5 38 63 6 - 135 Sept. 1 - Sept. 14 4 16 76 1 - 99 Sept. 15 - Sept. 28 6 52 57 - - 145 Sept. 29 - Cot. 12 4 34 86 - - 124 Out, 13 - Oct. 26 6 14 92 - - 112 Ont. 27 - Nov. 9 6 6 67 - - 79 Nov. 10 - Nov. 23 4 a 33 2 - 43 Nov. 24 - Des. 7 4 10 96 - - 110 Subtotal July 7 - Dec. 7 b8 264 838 16 - 1,166 Total Jan. 1 - Des. 7 102 314 1,370 81 - 1,667 HAVY Jan. 1 - July 6 42 3 92 39 - 176 July 7 - July 20 - - 12 2 , 14 July 21 - Aug. 3 3 - 13 2 - 16 Aug. 4 - Aug. 17 - 1 3 - 6 Aug. 16 - Aug. 31 F 3 3 a . 18 Sept. 1 . Sept. 14 6 0 14 5 - di Sept. 15 - Sept. 25 6 - 26 9 - 43 Sept. 29 - Out. 12 di 13 23 5 - 52 Dot, 13 - Oot. 26 6 12 9 8 - 37 Dot, 27 - Nov. 9 14 11 26 that 9 - 60 Nov. 10 - Nov. 23 7 5 30 - 46 Nov. 24 - Den, 7 10 04 52 10 - 75 Subtotal July 7 - Dec. 7 70 56 209 % 1 403 Total Jan. 1 - Des. 7 112 59 301 107 , 579 BAITISH EMPIRE AND FRANCE Jan. 1 - July 6. 500 384 203 2 10 1,099 July 7 - July 20 55 1 17 2 - 118 July 21 - Aug. 3 & 57 42 - 2 143 Aug. 4 . Aug. 17 at 36 27 - TU 111 Aug. 16 - Aug. 31 25 44 15 - 1 85 dept. 1 - Sept. 14 5 39 37 - 11 52 : a Sept. 15 - Sept. 26 14 - El Sept. 29 - Oct, 12 13 69 36 - 6 124 Dot. 13 - Oot, 26 13 21 38 - 1 73 Oct. 27 - Nov. 9 13 103 19 - - VAL 137 Nov. 10 - Nov. 23 26 67 27 - # 126 Nov. 24 - Doo, 7 47 OF 21 - 4 152 Subtotal July 7 - Dec. 7 296 614 293 2 26 1,231 Total Jan. 1 - Dea, 7 796 996 496 4. 36 2,330 OTHER Jan, 1 - July 6 13 193 119 2 410 737 July 7 - July 20 - & 7 - 40 53 July 21 - AME- 3 , E 2 - 52 56 Aug. a - Aug. 17 ou 29 - 49 84. ANG. 16 Aug. 31 17 - 30 - 52 99 Sept. I - Sept. 14 1 - 43 - 5 89 Sept. 15 - Sept. 26 3 - 44 I 73 120 Dept. 29 - Oct. 12 - - 61 # 58 119 Dos. 13 - Got, 26 1 3 45 - 34 83 Dot. 27 - Nov, 9 5 13 47 - 26 91 Now, 10 - Nov. 23 - 17 6 - 15 38 Nov. 24 - Dea, 7 - 22 10 - 33 65 Subtotal July 7 - Deo, 7 29 67 324 - 477 497 Total Jan. Das. 7 42 260 4k3 2 687 1,634 OFFICE of the Security of the Treasury, Division of Research and Statistics Desember 19, 1940 - faturation mider French constructs 0020 made up to June 30, 1940, Regraded Unclassifie STRICTLY CONFIDENTIAL lived Commular HSK m. young has copy B.J. 12-27-40 ROYAL GREEK LEGATION Depasta WASHINGTON 229 MEMORANDUM CONFIDENTIAL FOR MR. MORGENTHAU The reasons for which the Greek Government insist on securing P. 40 airplanes are clear. Today we confront a great power well equipped with a strong and powerful air force, while tomorrow we might have to confront another still stronger and more powerful; therefore, our present air force must urgently be strengthened with more modern and effective planes. Defiance planes are unweildy for pursuit purposes, slow in taking off, two seaters, con- sequently do not fill the real purpose of our needs. That is why these latter are no longer used by Great Britain. Washington, D. C. December 19, 1940. Received 4.25 P.M. fee 20 α 1940. 230 December 20, 1940 4:02 p.m. Sen. Robert Wagner: Hello, Henry. H.M.Jr: How are you? W: Pretty good. H.M.Jr: Where are you? W: I'm in Washington. H.M.Jr: Oh, for heaven sakes. W: I was on a little cruise and I landed at the Virgin Islands and saw the spot where you did your swimming. H.M.Jr: (Laughs). W: (Laughs). It was a nice little spot too. H.M.Jr:. Did you go in? W: I didn't go in, no. We didn't have enough time. H.M.Jr: Oh, it's beautiful there. W: Yes. How long did you stay - you had a rest there too, didn't you? H.M.Jr: Two days. W: Oh, yeah. Well, it's a great place to be. H.M.Jr: Well, I'd like to stay there two weeks. W: So would I some time or other. H.M.Jr: Of all those places I think that's the most attractive. W: That 1s, yes. If there are any - well, of course the climate 18 wonderful and all that but I went around those slums - how those poor people live and I think it's distressing. 231 - 2 - H.M.Jr: Did they tell you I walked all through those? V: Yeah. H.M.Jr: I walked all through those. W: Yeah. H.M.Jr: Did they tell you? V: Yes, they did. Well, I didn't have time enough. I had to take the car, but it's sad and I don't know what you can do about it. You know - right away. H.M.Jr: Yeah. W: Well, Henry, the reason I called 18: Ed Foley called the office I think it was yesterday that you wanted to sit down with me sometime. H.M.Jr: That's right. V: When did you intend that to be? H.M.Jr: Well, at your convenience. W: Well, I mean how soon because I was leaving again tomorrow noon and, you know, Christmas is on and ..... H.M.Jr: I know. W; Is the first of the year too late? H.M.Jr: Well, I tell you, Bob, it's something on bank legislation and I did what you always tell me to do - I spoke to Carter yesterday and he's all for it. Some special kind of legislation I want. W: Yes. H.M.Jr: And he wants us to prepare - work on a bill for him. W: I see. 232 - 3 - H.M.Jr: But I wanted to find out, naturally, how you felt and try to get your support also. W: Yeah. H.M.Jr: Now that's what it 18. W: Well, then it's got a little time hasn't it, I mean, as long as he's got it in charge. H.M.Jr: Oh, yes. Well, you know you always ask me when I come to see you - have you seen Carter ..... W: Yeah. Well, that's all right. Yes, we've got to humor him a little bit. He annoyed a few Senators this last time at our China conference - they told me afterwards, but he doesn't mean - he gets impatient, you know. H:M.Jr: Well, he's all right on this and this thing will V: Well, that's all right with me. H.M.Jr: Is it all right with you? W: Yes, absolutely. H.M.Jr: Well, then, why not let's leave it until after the first of the year. W: Yeah, I believe it'll go until after the first H.M.Jr: Would you have someone call me when you come back? I need about an hour. W: Yeah. All right. H.M.Jr: 2'11 need about an hour but I wanted to tell you because without your help I can't get anywhere. W: Yeah. All right, Henry. H.M.Jr: Thank you. W: All right. Good-bye. 233 December 20, 1940 4:35 p.m. H.M.Jr: Hello. Wallace Murray: Hello. H.M.Jr: Mr. Murray. M: Yes, Mr. Morgenthau. H.M.Jr: How-do-you-do. I'm calling you because I find that Mr. Welles has gone home. Mr. - well, I don't know - Depasta, the Minister-Counselor ..... M: Depasta, I think his name 1s. H.M.Jr: Depasta. Well, he was here and he gave me a memorandum which I let him read me. It was some more stuff on these Greek planes. I said, I have no comment that you and Mr. Welles are handling this thing until they can find out what's straight. I said it's gotten beyond me. M: Yes. H.M.Jr: So he said, won't you make any suggestion. I said absolutely none and I said, the only suggestion I do make is please give a copy of what you've given to me to either Mr. Welles or Mr. Murray. So I made absolutely no comment of any kind other than that he should walk it over to you. M: All right. Now I take it that - of course, we haven't - I only heard indirectly that there was something in the works. I take it that he's bringing a second communication around saying that they still want the P-40's. I presume that's what it is. Is that it? H.M.Jr: When you boil it all down, that's what it 1s. M: That's what it is. Well, I had a talk with Mr. Philip Young, who I presume has talked with you meanwhile or will do so, giving some 234 - 2 - suggestions which we are going to - we've already wired our Minister in Athens to take a hand in this thing to try to clear it up and I have a feeling, Mr. Morgenthau, if we can safely say that there would be 8. delay in any case in this P-40, in the delivery of it, much less in the transportation of it and we can bear down on that point, I told Mr. Young that I thought we could break the Greek resistance and have them look at this thing reasonably and I think they are being unreasonable. H.M.Jr: Well, I personally think that they are being very unreasonable considering the fact that England has over 400 planes there now fighting their battle. M: That is subject to 8. little qualification. She is stated to have 400 planes assisting Greece. The Greeks claim that the actual number there in Greece - permanently there 18 of course a very much smaller number, but that's a detail. But in any case I think the important point is that here are planes in hand in Egypt that can be flown to Greece, the spare parts are available - the P-40 spare parts would not be available - and the British are willing to wait for the later delivery which, I take it, may be June whereas they can get these planes right now. And 80 that is the line we are taking and the line we have instructed our Minister in Athens to take and I have a feeling that it will - and further- more, I have talked both with the Counselor of the British Embassy and he has talked with the Purchasing Commission people here, Mr. Morris Wilson, and I think really we can bear down on them and get this thing cleared up. I can assure you that we are bringing - taking every pressure that we can from this end to do it. H.M.Jr: Well, I'm glad because I personally think that that is the angle to take and I agree with you. I think the Greeks are being very unreasonable. Regraded Unclassified 235 - 3 - M: And I even - I think I might just give you the word that the British even think that the Greeks are trying to play both ends against the middle and get planes out of both of us. H.M.Jr: It wouldn't surprise me. M: And they want both the P-40's and the of getting P-40's when they probably can't fly them and then they will use the British and their Defiance planes for the actual work. H.M.Jr: It wouldn't surprise me - I've been in Greece. M: (Laughs). Your father has also. H.M.Jr: Well, I've been there too. M: (Laughe). If you get a chance to talk to Mr. Young today he will tell you a great deal more. I won't bother you with telling you what I said to him but I think that whenever you have a chance to talk with him you'll Bee that I think we've got the answer and I think the answer 18 that at the time we cannot assure them that these planes will be available immediately and furthermore Mr. Young tells ne that he has not ever assured the Minister that they would be ready immediately. Now I think there 1a the answer to the whole question if I can with all assurance say that Mr. Young or you or nobody has ever told the Minister they could have these planes at once. H.M.Jr: Well, you can go further: you can say that nobody in the Treasury ever told them that they could have them at all, which 18 the truth. X: (Laughs). Yeah. H.M.Jr: I sent a written report saying that to Mr. Hull. I don't know whether you saw it or not. X: Yeah, I did. I just saw it. It got out of ay hands and went back to you before I had a chance to finish it. I wanted to read that report. 236 - 4 - H.M.Jr: Well, in that report we made a statement we haven't promised the Greeks anything because we couldn't. The Army says they won't give up a plane and we couldn't promise planes that don't belong to us and belong to the British. M: But did I understand that the Army actually has any P-40's ready that could, I mean every- thing else being equal, just be taken down off the shelf and given to the Greeks. H.M.Jr: I don't know. M: I don't think there is such a thing. H.M.Jr: I don't know, but the Army evidently is very reluctant and I think that at this time it would be a mistake to take anything from the Army. They've got too little as it 1s. M: I know. H.M.Jr: I think it would be a mistake. M: Yes. Well, thanks a lot for this information and if you have occasion to talk to Mr. Young I think you will approve, and I sincerely hope you will, the line which I took with the Greeks and which we're taking in that ..... H.M.Jr: Well, I approve it heartily now. I approve it most heartily. M: Yes. H.M.Jr: A hundred percent, and if this fellow comes over and said that I said anything other than that he should see you, he's just telling a whopper. M: Well, that's a good double check to have on them. You know these wily Greeks. H.M.Jr: I know them. M: All right. Well, that's very helpful Mr. Morgenthau. Thank you very much and I'll bear that in mind. H.M.Jr: Thank you. Regraded Unclassified 237 December 20, 1940 4:45 p.m. RE BRITISH PURCHASING PROGRAM Present: Mr. White Mr. Cochran Mr. Young Sir Frederick Phillips H.M.Jr: This was 8. little party last night, and I answered questions and all they wanted to know was England's problems and ours. They didn't get on anything else. Sir Frederick, I have not had a chance to have any of these gentlemen bring me up to date on anything that has happened. I have been back about an hour and a half. So - and I told them that unless there is some emergency, I am going to try not to work Saturday and Sunday, but I will read reports. I am going to try not to see people because the last three and a half weeks have been 8. little bit more strenuous than usual, but I have asked Mr. Bill to have 8. meeting Monday morning at his office. I don't want to let you know this the night before 80 that you have to stay up until 9:30. At that time we are going to discuss the so-called order for 300 Curtiss P-40's. Now, the story is this. Some time along in August or September, we don't know just exactly when, the Curtiss Wright Company runs out of orders on the Curtiss P=40. They are making 8 a day. And with these extra engines which amount to 500 and how much? Young: I think Sir Henry said he had about 530 or 60, Regraded Unclassified 238 - 2 - something like that. H.M.Jr: Well, you were there. Which became available of Allison engines due to the cancellation that you had with Lockheed, this order can be placed. Now, what I am doing before these three Cabinet members is to lay before them all the orders we have from all of the various countries for pursuit ships. Not orders, but requests. I misspoke myself. Requests, you see. Now, we can't promise them any of your engines unless we get your consent, but I would like to be in a position to be able to say that the English do or don't want "X" number of these pursuit ships and they have or have not got the money earmarked for this similarly to the deal on the 60 ships, you see. Phillips: Yes, I see it all except the money earmarked, which I don't quite follow. H.M.Jr: Well, Philip Young told me that in connection with these 60 ships, that there was 50 million dollars earmarked for that deal. On that basis, I so told the President and the President said, "All right, let it go through." I take it that wherever Young got that information, it was correct. Is there any doubt about that? Phillips: Well, I am not familiar with the phrase "earmark", but I don't think that particular point matters very much, but certainly as regards the Curtiss planes and my understanding is that it is simply an ordinary British purchase. We have made no special provision or earmarking of funds in ad- vance for it. H.M.Jr: Well, this has nothing to do with any other transaction but we will have to take each of these transactions up separately. Here is one I have got to settle, 239 - 3 - because the pressure comes from the manufacturer. If he is going to continue and not shut down, whatever the date is - he said September 1. I saw him in New York. But he wasn't sure. Let's say he is right, but he is checking. He has to place his order for materials now or else he will have to shut down his line and, naturally, the pressure comes from him, not from me. We also have pressure from about 20 other countries that want pursuit ships, and I said we want to know from the British government between now and Monday, do they want any or all of these if they can get them and too, do they consider that they have the funds wherewith to pay for them. Phillips: Well, I will get the proper people in touch with Mr. Young tonight. H.M.Jr: If I could have the answer by nine o'clock Monday morning. Phillips: Yes. H.M.Jr: And anything else that you discussed with Cochran, I just haven't had the chance, but he has written it out and I will absorb it Saturday and Sunday, 80 you can figure you can have 8. quiet week-end unless there is some emergency. Phillips: Oh, I don't know about that. H.M.Jr: Well, 8.8 far as I an concerned. I am really going to try not to work for two days, if possible, other than to study, but if I could have that and it has nothing to do with anything else other than here is the manufacturer and he says if you people want these and you want him to continue to make 8 a day, you have got to tell him Monday what you want, because it takes him 6 months to place his orders at least for his materials. UInclassified 210 - 4 - Phillips: Yes, I have got the point. Production is like that (indicating up), and if we do nothing it will go down and then shoot up later. H.V.Jr: Exactly. And this is the only company in America that is really turning out ships in any number. Phillips: Yes, H.V.Jr: Thank you. Phillips: I haven't got any reply from London on the last statement of the President's. It is just as well, perhaps, that I don't try to discuss it now. E.M.Jr: Well then, maybe by Monday, but I really am 8 little extra tired. You have nothing until Monday either? Phillips: I don't know. H.M.Jr: Well, just this one thing which is really something quite by itself. Phillips: Very well, thank. you. Regraded Unclassified > 241 December 20, 1940 4:54 p.m. H.M.Jr: Hello. Operator: Mr. Forrestal. H.M.Jr: Hello. James Forrestal: Yes, Henry. H.M.Jr: Jim, they say you called me. Have you forgot ...... F: Well, I must be disintegrating, Henry, I can't remember what it WBB about. H.M.Jr: Well, that's all right. F: I think everything looks pretty good - the other thing. H.M.Jr: Oh, do they. F: I don't think you're going to get perfection This isn't going to get any miraculous sudden change but I think it's at least in the channele. H.M.Jr: Well, that's the way democracies work. F: One thing - I think that that little Brewster plant up at Long Island City is in good shape now. I talked to the fellow today and they are really hitting. H.M.Jr: Wonderful. Well, if you remember I'll be here for another half an hour. F: You will. H.M.Jr: Yeah. F: O. K., Henry. H.M.Jr: Thank you. Regraded Unclassified 242 December 20, 1940 5:18 p.m. H.M.Jr: Hello. Operator: Mr. Lubin. I reached him in Mr. Hillman's office. H.M.Jr: Hello. Isador Lubin: You don't give me a chance to call you. to thank you and tell you what a swell job it turned out to be. H.M.Jr: Well, I did it at Cabinet, and I put it on the note that you'd been around to 600 me and had made the suggestion to me. L: Oh, swell. H.M.Jr: I mean, I said that Lubin has been here and made this suggestion and I agree and I underlined it. 3 Well, it turned out beautiful. H.M.Jr: Well, I gave it to the President yesterday at Cabinet. L: And everybody's happy and it's going to work too because we've got four people who really can work together. H.M.Jr: Well, I just thought you'd want to know I did give it to him and I did put it on that you'd come to 800 me and that I agreed with you heartily and I thought he ought to do it. L: Swell. Thanks a million times. H.M.Jr: Well ..... L: You know, we've got another problem now. H.M.Jr: Only one more? 243 - 2 - L: We've got & liaison person to pick. H.M.Jr: Meaning what? L: Between him and the group. H.M.Jr: Between who? L: The Skipper. H.M.Jr: Oh, really? L: Yeah. H.M.Jr: Oh, isn't he going to work with them directly? L: Yeah, but I mean, he wants a full-time person to keep his eye on things. H.M.Jr: Pardon? L: He wants a full-time person to keep his eye on things. H.M.Jr: Besides these four? L: Somebody between ..... yeah. H.M.Jr: I didn't know that. When did that happen? L: Well, he's been thinking in those terms apparently. H.M.Jr: You mean he wants liaison people between these L: A leg-man really. (Laughs). H.M.Jr: Well, what the hell does he want & leg-man.- why can't these men come and see him? L: Well, I suppose ..... H.M.Jr: You can't talk where you are. L: Yeah. That's it. 244 - 3 - H.M.Jr: What? L: Yeah. Are you going to be in your office tomorrow? H.M.Jr: No, but I'll be home. L: May I call you or come over? H.M.Jr: Give me a ring tomorrow. I made a little oath I wasn't going to see anybody for two days, but I'd love to have you call me. L: I could see you this evening if you're free. H.M.Jr: No, I'm going to the concert. L: O. K. Well, I'll call you at the house and if you're free I'll come; otherwise, I'll understand. H.M.Jr: How's that? L: 0. K. H.M.Jr: Yeah, I'd like to and every rule has its exceptions. L: What's the home phone? H.M.Jr: For you and you only? L: Yeah. H.M.Jr; I mean, you won't tell anybody. L: No, absolutely. H.M.Jr: Because it's unlisted: North 8898. L: O. K. Thanks so much. H.M.Jr: It's unlisted. North 8898. L: Thank you ever 80 much. Regraded Unclassified 245 - 4 - H.M.Jr: I'm delighted because I think it was a major mistake. Labor has to be there, we have to recognize labor, we need labor and it's got to be a partnership. L: Yeah. Well, I think so. H.M.Jr: And I was a hundred percent for it. L: Fine. Thanks a million times. H.M.Jr: Right. L: All right. 246 TREASURY DEPARTMENT Chauncey INTER-OFFICE COMMUNICATION Miss DATE December 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £101.000 Purchased from commercial concerns £ 6,000 The Federal Reserve Bank of New York sold £20,000 in registered sterling to a non-reporting bank. Open market sterling remained at 4.03-3/4. and transactions of the reporting banks were: Sold to commercial concerns £ 5,000 Purchased from commercial concerns -0- The Canadian dollar has had a slightly firmer tone in the last few days. As against a discount of 13-9/16% at the beginning of the week, that currency closed today at 13-1/4%. It is believed that seasonal tourist demand has influenced the quotation. The Swiss franc gained another point in today's trading, closing at .2321. The rate 1s now back to the level which prevailed prior to the decline on December 18. The other currencies closed as follows: Swedish krona .2385 Reichemark .4005 Lira .0505 Argentine peso (free) .2360 Brazilian milreis (free) .0505 Mexican peso .2070 Cuban peso 8-5/8% discount There were no gold transactions consummated by us today. No new gold engagements were reported. The Bombay gold price vas equivalent to $33.84. up 24. Silver was 1/2# higher at the equivalent of 43.574. In London, the prices fixed for spot and forward silver both advanced 1/16d. to 23-1/16a and 23d respectively. The dollar equivalente were 41.88$ and 41.76#. 247 -2- Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35#. We made one purchase of silver amounting to 50.000 ounces under the Silver Purchase Act. This represented trading silver. 16M.8 confidential 248 - Chauncey TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Credito Italiano, New York, maintained with the Chase National Bank, New York. Date Amount Debited Paid To December 20 $100,000 Chase National Bank, N.Y., for account of Sveriges Riksbank, Stockholm, by order of Credito Italiano, Rome. Jind TREASURY DEPARTMENT 249 FOR Miss Chaundey INTER OFFICE COMMUNICATION DATE December 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran At 11:35 this morning Mr. Knoke telephoned me from the Federal Reserve Bank at New York. He mentioned an arrangement entered into by the Government of the Netherlands East Indies with the Guaranty Trust Company of New York for the purchase on an installment scale of 6,000,000 ounces of silver to be used by the United States Mint in making coins for the Netherlands East Indies. I told Mr. Knoke that I was not aware of this business, and that I would arrange with Mr. Howard of our Mint service to keep my office currently informed of such transactions, and that we, in turn, would give all pertinent information to the Federal Reserve Bank of New York. Such is- portant operations as the present one will affect directly the amount of silver which the Treasury may be called upon to purchase. BMS THEASURY 28767 250 AS PLAIN Shanghai via N. R. Dated December 20, 1940 Rec'd 11:02 a.m., 21st Secretary of State, Washington. 1415, twentisth. Special Financial. Minister Finance Nanking regime yesterday announced NEW Central RESERVE Bank to be opened Nanking January 6th and to issue currency temporarily at par with "the old lapi" until the latter system collapses. Branches to bE opensit in principal cities and notes to bE considered legal TENDER for pay- ment taxes, for official and private business and for foreign exchange transactions. Lapi is to be allowed circulation temporarily pending ultimate rehabilitation and unification. Statement also assails indisoriminate inflation by Chungking financial authorities causing high costs living, thus necessitating issuance of a new currency. NEW bank to be in principle the Central Bank in North China where present federal reserve banks our- rency to be permitted temporarily to continue circula- tion. Present Hus Hsing issue to be abolished. The military 251 A8-2- No. 1415, twentisth, from Shanghai. military yen scrip to oontinus in circulation as it has a coordinating and complementary value in relation to the new currency, henoe the two to be allowed to achieve their respective objectives. Minister also announced the regula- tions governing a foreign exchange TESERVE control committee to consist of four Experts yet to be appointed. INFORM COMMERCE. LOCKHART ALC 840 DEC St VPI a THAT OT THE STUR 252 AS PLAIN Nanking via J. R. Dated December 20, 1940 Rec'd 2:15 p.m. Secretary of State, Washington. 139, December 20th, 4 p.m. Opening of Central Bank of Issue by the Nanking Regime. Following is a free translation of an item appearing in today's local Chipese press: "The Central Reserve Bank regulations which were passed at the 38th Central Political Council meeting and referred to the Legislative Yuan for examination have been approved by the latter on December 14th after amendments. They were promulgated by mandate of the National Government on the 19th. In connection with the opening of the Central Reserve Bank which is to take place on January 6th Mr. Chou Fu-hai, Minister of Finance, made the following statement yesterday: 'The TO: habilitation of economy and strengthening of finance is an important administrative policy of the National Government. In order to be able to etabilise finance and rehabilitate economy a sound national bank must be organized. Since the outbreak of hostilities the people have been in great distress and economy is on the verge of bankruptcy because of the continued drop in the value of currency and the increasing high cost of commodities. Therefore, 253 AS-2- No. 139, Dec.20th, 1 p.m., from Manking. Therefore, unless a fundamental adjustment is made in China's finance the sufferings of the people cannot be relieved, and the foundation of social economy cannot be stabilized. At the time when the Government returned to its capital, this Ministry made a solemn declaration in regard to maintaining the value of currency and the stabilising of finance. Later a petition was made to the Government for the organization of a preparatory committee for the establishment of the central bank. After care- ful deliberations and positive planning for the past several months, preparations on all matters such as the raising of reserve fund, business policy, internal organization and issuance of notes have now been completed. In accordance with a resolution passed at the Central Political Council meeting in March 1937. the name of the bank will be the Central Reserve Bank. The formal opening of the bank will take place in the capital on January 6, 1941 on which date business will comence. With a view to enlarging the scope of its business, branches will be gradually established in the principal cities. The notes to be issued will be called "legal tender" and may be used for paying taxes, exchange purposes and all public and private payments. In order to avoid any disturbance to the financial market and to safeguard the resources of the people all old legal tender notes which are DOW in circulation will for the time being be allowed to circulate at par value with the legal tender notes to be issued by the Central Reserve Bank. Gradual adjustment Regraded Unclassified 254 AS-3- No. 139, Dec.20th, 4 p.m., from Nanking. adjustment will be made and means will be devised to unify them. This Ministry has already drawn up effective measures to deal with the possibility of Chungking's again increasing its note issue which would cause further depreciation in the value of its notes, produce disturbance in the market and affect the livelihood of the people. With regard to the circulation of Japanese military notes which is in a special condition during the continuation of hostilities, the new legal tender will give sutual assistance so that both may be able to complete their respective tasks. The Federal Reserve Bank is an important financial organ in North China therefore efforts should be made to afford it a healthy development. The present status in the areas where the Federal Reserve notes are circulated should be main- tained. As regards the Hus Hsing Bank, its note issuing rights will be mullified and its business in the future will be confined to foreign trade, finance, and ordinary commercial banking. From now on China's economic development, enrichment of its National Treasury, social prosperity and international prestige all depend on the authority of the Central Reserve Bank. Every care will be exercised in the issuance of the new notes, and it may be taken for granted that both the mation and the people will be benefited. I sincerely hope that people in all walks of life will understand this and give their assistance to the now notes 80 that they say be circulated without obstruction and the living conditions of the people may be stabilized and their sufferings reduced. IN Sent to the Department. Repeated to Chungking, Peiping and Shanghai. By mil to Tokyo. PAXTON y COPY im Regraded Unclassified (CONFIDENTIAL) 255 CONFIDENTIAL PARAPHRASE A telegram (no. 1422) of December 20, 1940, from the American Consul General at Shanghai reads substantially as follows: Upon obtaining detailed information in regard to the plans for the new Central Bank of the Wang Ching-wei government and for the bank's currency, bankers in Shanghai expressed themselves as feeling relieved since it seems that the scheme 1s not nearly 80 drastic as it was expected to be. Although Shanghai bankers admit that the new currency will definitely threaten the currency of the Chinese National Government in the Shanghai area, they do not feel that the dangers will be immediate. Shanghai bankers are of the opinion that counter-measures having for their aim elimination of speculative assaults on the foreign exchange value at Shanghai of the currency of the National Government and a reduction in the extent of profit which the new currency measures may afford the Nanking regime and the Japanese will probably be taken by the authorities at Chungking. It is not likely, in the opinion of Chinese bankers, that foreign trade at Bhanghai will be made impossible by such counter-measures, at any rate not for some time yet, depending upon developments in the situation. 256 CONFIDENTIAL -2- A summary of the comments of bankers follows: (a) AB the published announcements show that not much authority 1s given to the Nanking regime for support of the new currency, views held previously that the Japa- nese did not favor the introduction of the currency but for political reasons granted the right to the new regime are confirmed; (b) Toleration concerning the continued circulation of the notes of the North China Federal Reserve Bank and of fapi with no provision for the circulation in North China of the new currency discloses the new currency's weakness; (c) As the present fapi is acceptable even for pay- ment of tax, no compulsory measures are seen in the announcements for circulation of the new currency; (a) No definite time is fixed for elimination of fapi in any area under the control of the Nanking regime; (e) Provisions for competition of the new bank with private commercial banks in accepting private deposits and in dealing in commercial foreign exchange matters directly (not a function usually exercised by a govern- ment reserve bank) discloses the depeptiveness of the position of the new bank as & central bank solely; (f) 257 CONFIDENTIAL -3- W (f) Attention was called to the fact that it was only after foreign trade control measures were instituted and compulsory tactics enforced that the currency of the Federal Reserve Bank in North China was successful; although it is admitted that it is likely the regime at Nanking has the authority to make drastic measures effective, doubt exists whether such action will be en- couraged by the Japanese authorities in the near future; rapid success of the new currency is not expected for this reason. (g) It 1s pleasing to observe that none of the stated provisions seem to involve measures for the control of trade; (h) As the announcements concerning foreign exchange are very vague and are considered impractical, especially without cooperation on the part of exchange banks-Chinese and foreign--it is not anticipated that an attempt will be made to control foreign exchange. The abolition of the Huahsing currency as the unit of currency used in paying customs dutiew is a matter of concern in business circles which are fearful that increases in the effective tariff rates may result therefrom. 258 Message from Chase Bank in China received through courtesy of Federal Reserve Bank of New York, December 20, 1940. C 0 P Y CABLE RECEIVED FROM SHANGHAI DECEMBER 19. 1940 "PRIVATE AND CONFIDENTIAL It is expected Nanking China Government opening new Central Bank of China in Shanghai early in January and will issue bank notes; for that reason T exchange market weak For your information only English banks American banks have agreed amongst themselves not to accept nor have dealings with new banknotes" Copy:alm (comfidential) 259 PARAPHRASE A telegram of December 20, 1940, from the American Consul General at Hankow reads substantially RB follows: Consular offices in Hankow have been informed by the Japanese Consulate General of new regulations governing the carrying, by travelers between Hankow and points down river, of drafts, letters of credit, or cash. The new regulations, which are effective retroactively as of December 1, provide that each traveler may carry without a permit 300 yen in cash. Travelers desiring to carry more than this amount in cash, drafts or letters of credit must obtain E. permit from the Japanese military. The let- ters of credit or drafts are to be obtained from Japanese banks. Travelers must upon departure from or errivel at Hankow or other ports submit to the military authorities a formal declaration in regard to the letters of credit, drafts or cash in their possession. Confiscation of their money or other treatment considered suitable 1s to be meted out to travelers violating these regulations. Although the Japanese circulated to foreign banks the limitation regulations, the regulations have been dis- regarded by the foreign banks, which continue to send funds to Shanghai without obtaining permits from the Japanese military. Travelers will suffer no practical hardship from the regulations a8 long as the banke continue the 260 -2- the above-mentioned practice and travelers are permitted to carry 300 yen without obtaining 8. permit. Strict enforcement of regulations, however, may result later on in seizure by the Japanese of letters of credit and drafts which non-Japanese banks have issued without having obtained the permission of the Japanese military in advance. Attempts at penalty confiscation of funds of boat transporting such bank transfer may also be possible in case of a strict enforcement of regulations. The question of discrimination against an American bank does not arise as the branch in Hankow of the National City Bank of New York closed on December 12. At the present time it is not clear what were the motives for the promulgation of the above-mentioned regu- lations. The principal factors involved seem to be B. desire to prepare the ground for crowding non-Japanese banks out through discriminatory permit system for all transfers, to strengthen the Japanese military yen on the Hankow market, and to stop shipments to Shanghai, by speculators (including Japanese) in military yen, of large amounts of Chinese national ourrency. In the opinion of some persons the regulations are being used also for the purpose of putting into operation at an early date an issue of paper money projected by the regime of Wang Ching-wei -- such -3- 261 -- such currency to be exchanged at par in Hankow for cur- rency of the Chinese National Government. After consulta- tion with British and French banks and Chambers of Commerce the British and French consular representatives are re- fraining for the present from replying to the Japanese Consulate General's notification. For this reason and on account of the situation described above, the Consul Gen- eral suggests that pending clearer signs of Japanese in- tention to interfere seriously with the transfer of funds of American citizens he also refrained from making any reply to the Japanese notification. Regraded Unclassified (CONFIDENTIAL) PARAPHRASE CONFIDENTIAL 262 A telegram (no. 70) of December 20, 1940, from Consul Reed at Hanoi reads substantially as follows: Although previous to 1940 the amount of Indochinese rice imported by Japan was insignificant in amount, 8.0- cording to information received on December 19 from an official of the economic section, the Japanese demand now that they be allowed to receive during 1941 approxi- mately 700,000 tons, which is about one-half of the ex- portable surplus. The 450,000 tone of rice imported by Japan in 1940 and imports in previous years were paid for in American dollars. However, the Japanese propose that a barter arrangement be made for 1941 imports. The informant remarked that it was necessary to find another market for Indochinese rice, even on the basis of 8. barter arrangement, eince the loss of the French market, which was most important in the past, General reports indicate that Japan is lacking in exportable commodities suitable for the Indochinese market. Therefore, it would appear that Japan's adverse trade balance with Indochina which 1s already large would be considerably increased by greater imports from Indochina and that large unusable credite in Japan would result. By means of clearing agreements Japan, through her debtor position, would secure for herself profitable commercial relations with Indochina comparable to the position of Germany in the Balkans before the war.