Volume 396, May 8 – May 11, 1941

DIARY Book 396 May 8 - 11, 1941 ereded - A - Book Page Aluminum Company American and Canadian Companies: HWr thinks shareholders are identical a) Asks Foley to check - 5/8/41 396 12 b) Discusses with Ickes - 5/8/41 18 e) Foley's memorandum to Ickes - 5/29/41: See Book 402, page 207 d) Ickes' letter to Jones showing them "twin brothers in iniquity" - 6/5/41: Book 405, page 17 American Securities, Foreign-owned O'Mahoney and HMJr discuss - 5/9/41 150 Appointments and Resignations Banning, Paul Cox, Oscar S. Young, Philip Etc. To be given opportunity to choose between going to Office of Emergency Management or staying at Treasury - 5/9/41 105 - B - Banning, Paul See Appointments and Resignations - C - Canada See War Conditions China See War Conditions Coast Guard See also War Conditions: Greenland British ship repairs: HMJr asks for allotment - 5/8/41 26 Correspondence Mrs. Forbush's resume's- 5/9/41 301,306 Cox, Oscar S. See Appointments and Resignations - D - Defense Savings Bonds See Financing, Government - 7 - Book Page Financing, Government Announcement of offering: $100 million of 91-day Treasury bills, to be dated May 14 and to nature August 13, 1941 - 5/9/41 396 319 Defense Savings Bonds: First seven days' report - copy sent to FDR - 5/8/41 73 Deposits in Treasurer's Account - 5/8/41, 5/10/41 77,371 Paderewski and Ludwig to assist in program - 5/9/41 108 a) Paderewski thanked for assistance - 6/19/41: See Book 399, page 339 Foreign-owned American Securities See American Securities, Foreign-owned - G - Greenland See War Conditions - H - - Hawaii For British-owned American securities, see War Conditions: Purchasing Mission Heath, Donald Possible transfer from Berlin to Latin America discussed by State Department and Cochran - 5/8/41 79,124 Hyde Park Declaration of Policy See War Conditions: Canada - I - India See War Conditions: United Kingdom Indo-China See War Conditions: Foreign Funds Control Insurance, Marine Jackson and HMJr discuss - 5/9/41 201 a) Confidential Customs reports sent to Jackson - 5/20/41: See Book 400, page 149 - I - Keynes, John Maynard See War Conditions: United Kingdom Regraded Uclassified - L - Book Page Latin America Mexico: Hochechild transmite report - 5/8/41 396 33 Ludwig, Emil See Financing, Government: Defense Savings Bonds - M - Magill, Roswell See Revenue Revision Marine Insurance See Insurance, Marine Mexico See Latin America Myers, William I. HMJr recommends highly to Jones - 5/9/61 203 P Paderewski, Ignace Jan See Financing, Government: Defense Savings Bonds Paydays, Staggered Discussed at 9:30 meeting - 5/9/41 103 Price Control See War Conditions - R - - Reconstruction Finance Corporation Incorrect restoration of interest exemption from Federal income taxes discussed in HMJr's letter to Jones - 5/8/41 30 a) Jones' answer 31 b) Discussion by Treasury group - 5/12/41: See Book 397, page 67 c) HMJr expresses Treasury point of view to Jones and asks him to present views to Senate Banking and Currency Committee - 5/12/41: Book 397, page 139 d) Letter to Wagner, Chairman, Senate Banking and Currency Committee - 5/12/41: Book 397, page 147 British reaction to approval of Senate Banking and Currency Committee of legislation authorizing Reconstruction Finance Corporation to lend on security of British direct investments - 5/9/41. 266 British direct investments - list of as provided for Reconstruction Finance Corporation - 5/9/41 280 Regraded Uclassified - 2 - Book Page Revenue Revision Eccles-Henderson testimony as arranged by Minton (HMJr not to be informed) discussed by HMJr and Watson - 5/8/41 396 1,10 HWr and Doughton - 5/8/41 5 a) HMJr tells Foley, Gaston, Sullivan, and Kuhn about conversation 8,12 (See also Book 397, page 6) Excess Profite Tax: Entire now program may be necessary - Sullivan tells Treasury group - - 5/9/41 125,206 Magill confidential memorandum to Jr - - 5/10/41 347 Kuhn draft (not used) of possible vtatement by HMJr - - 5/10/41 353 White memorandum on excess profits--corporation taxes - 5/10/41 360 - S - Stabilization Fund Extension: HMJr's statement before House Committee on Coinage, Weights, and Measures - 5/8/41 34 Eccles' possible testimony discussed by Congressman Cochran and Bell - 5/9/41 265 Dollar devaluation powers - Senate Committee votes to prohibit Treasury from paying more than $35 per ounce of gold - 5/13/41: See Book 397, pages 228, 232 and 234 a) Foley suggests HMJr call Rayburn and Cochran b) Hearings: Book 397, page 229 c) Memorandum on effect of amendment: Book 397, page 230 d) Rayburn swings vote: Book 397, page 327 1) FDR told: Book 397, page 328 e) Glass asks whether Treasury has asked FDR to write letter supporting - 6/2/41: Book 403, page 13 Staggered Paydays See Paydays, Staggered Statements by HMJr Before House Committee on Coinage, Weights, and Measurers - on extension of Stabilization Fund - - 5/8/41 34 Switzerland See War Conditions - T - - Taxation See Revenue Revision - U - Book Page United Kingdom See War Conditions: Military Planning: Purchasing Mission; United Kingdom w - War Conditions Airplanes: Shipments to United Kingdom and overseas commande - Kamarck memorandum - 6/9/41 396 248 Canada: Hyde Park Declaration of Policy - 5/9/41 258,259 a) "War Supplies, Ltd.' created to carry out - 5/19/41: See Book 399, page 402 China: Transfer of defense articles authorized by FDR - 5/8/41 82 Exchange market resume' - 5/8/41, etc 93,324,366 Export Control: Exports of petroleum products, scrap iron, and scrap steel from United States to Japan, Russia, Spain, and Great Britain, week ending May 10, 1941 323 Foreign Funds Control: Indo-China: Blocked funds and use thereof discussed in Pehle memorandum - 5/9/41 270,272,274,276 Greenland: HMJr's letter to Navy concerning assistance of Coast Guard and formation of a Greenland Squadron - 5/8/41 24 Military Planning: Report from London transmitted by Campbell - 5/9/41 326 Tactics of German Infantry and Its Support by Other Arms: War Department bulletin - 5/9/41 329 Price Control: Minutes of May 6 meeting of Price Administration Committee 321 Agenda for May 13 meeting - 5/10/41 367 Purchasing Mission: Weekly report - Lend-Lease purchases - 5/9/41 252 Hawaiian holdings discussed in memorandum to Cochran - 5/9/41 254,255 (See also Book 397, page 149) a) Cochran-Peacock discussion - 5/15/41: Book 398, page 297 b) Russell reports "good progress" with Peacock - 5/16/41: Book 399, page 133 British reaction to approval of Senate Banking and Currency Committee of legislation authorising Reconstruction Finance Corporation to lend on security of British direct investments - 5/9/41 266 British direct investments - list of as provided for Reconstruction Finance Corporation - 5/9/41 280 Regraded Uclassified - Y - (Continued) Book Page Var Conditions (Continued) Purchasing Mission (Continued): Vesting order sales - 5/9/41 396 295 Federal Reserve Bank of New York statement showing dollar disbursements, week ending April 30, 1941 - 5/9/41 296 Transfer of defense articles to United Kingdom authorised by FDR - 5/10/41 373 Switzerland: Swiss National Bank representation in United States - 5/9/41 278 United Kingdom: Keynes, John Maynard: To confer with HMJr May 12 - 5/10/41 368 a) Cochran memorandum on conference - 5/13/41: See Book 397, pages 221 and 225 b) Second conference, Phillips accompanying Keynes - 5/14/41: Book 397, page 306 1) India and Lease-Lend Act memorandum: Book 397, page 312 - Y - Young, Philip See Appointments and Resignations 1 May 8, 1941 12:12 p.m. H.M.Jr.: Hello. Operator: General Watson H.M.Jr.: Hello E. M. Watson: I'm working on that. H.M.Jr.: You are. W.: Yes. I'm not quite ready yet to report. H.M.Jr.: I see. W.: But I think you'll hear from down there. H.M.Jr.: Pardon me. W.: I think we'll get something today. H.M.Jr.: You do. W.: Yes. I checked up with Harry and everybody and nothing came from here, but I think your - maybe your suspicions weren't too far from the truth. H.M.Jr.: I see. W.: But I'm running that down and it's going to be complete disavowal as far as we are concerned. H.M.Jr.: And you'll do that with Doughton. W.: I've sent a man already to do that. H.M.Jr.: To 800 Doughton? W.: Yes. H.M.Jr.: You have? W.: Yes. 2 - 2 - H.M.Jr.: You are not ready to talk yet. W.: I'd rather wait until I hear from my man. H.M.Jr.: Oh, you sent somebody up on the Hill. W.: Yes, I sent a man, yes. H.M.Jr.: I see. W.: A man that had something to do with passing the message on. H.M.Jr.: What's that? W.: A man that had something to do with passing the message on. H.M.Jr.: Oh. W.: I sent him down to get first hand - just to go over it with him. H.M.Jr.: Oh, you have located the man? W.: oh, yes. I know where he 1s. H.M.Jr.: What? W.: Yes. H.M.Jr.: You are not alone now, is that it? W.: Yes, I'm alone. H.M.Jr.: Oh. W.: Well, I tell you Henry, I think there's a misunderstanding and I'm having it thrashed out. H.M.Jr.: I see. W.: And you're right - Harry feels just like I did. You had a perfect right to come up about that, I'd have felt the same way. I told Harry, the only thing you disliked was that the implication that the fellow 3 went down there from the White House. H.M.Jr.: Well, at that -- W.: There was no contradiction of the testimony at all, was there? There wasn't anything about that. H.M.Jr.: Well, that part didn't bother me. W.: That's what I told them. H.M.Jr.: But here's the Chairman of the Committee who gets the message that these two fellows should testify and are sworn to secrecy not to tell me, the Secretary of the Treasury. W.: Well, I think you'll have that settled before the day 1s out. H.M.Jr.: Yes. W.: I'm trying now to clear that up. H.M.Jr.: Well, you tell me the whole story when you get it out. W.: You bet I will. You bet and I think you'll H.M.Jr: There's somebody up on the Hill now, huh? W: How? H.M.Jr: You've got somebody up on the Hill? W: Yeah. I'd rather wait and tell you when I hear from them though. H.M.Jr: Well, if you're doing it, I'm in your hands. W: Well, that's right. I'm doing it and ...... H.M.Jr: Harry had nothing to do with it, did he? W: Not a damn thing. In fact, I went over there first and he didn't know a thing about it. 4 - 4 - H.M.Jr: Well, didn't he think I was right? W: He thought you had quite & lot on your side, and I told him it was Just & matter of the way it was done and that you felt grieved and I didn't know but what you had & perfect right to be, and he agreed with me. H.M.Jr: You can't work that way, Pa. W: No, I know you can't. Well, you know you're in sympathetic hands when I get to working around and we're not going to tell the President anything about it because he's up there sleeping and I'll just fix it up 80 that it's going to be cleared up with Doughton and it's being worked on right now and just leave it alone until maybe sometime this afternoon I'll call you up. H.M.Jr: Wonderful. W: Yeah, all right. H.M.Jr: Thank you. W: Good-bye. 5 May 8, 1941 2:50 p.m. H.M.Jr: Hello. Operator: Doughton. H.M.Jr: Hello. Robert Doughton: Hello, Mr. Secretary. H.M.Jr: Hello, Bob. Henry talking. D: Yes, how are you, Henry? H.M.Jr: I'm all right. D: Anything new since we talked? H.M.Jr: Well, I - General Watson said he'd have something for me this afternoon; he sent somebody up to see you. D: Well, if you could come down, or if I can see you, I'd come right up if you are ready to see me, but we've got these tobacco men in here you know and I've a little new light on it and I think I can help a little. H.M.Jr: All right. I could be there by 3:30. D: Just suit your own time. H.M.Jr: Well, where will I come? D: You come to the - well, it might be best not to create any commotion about it for you to come over to the Ways and Means Committee room in the Capitol. I don't know whether - if the newspapers weren't watching so much I could see you here in the Clerk's office. I'm working in my Committee Room now, holding hearings. Regraded Uclassified 6 - 2 - H.M.Jr.: Well, I'll come wherever you -- it's best for you. You tell me. Where do you want me? D.: Ah - hah. H.M.Jr.: Where would you like? D.: Well, where the papers not getting any knowledge of it at all, it might be the best for you to come on down there. H.M.Jr.: Oh, no. Let me come up to 800 you. D.: Ah - hah. Well, suppose you just drop in at 3:30 over at the Ways and Means Committee room in the Capitol - you know where it 167 H.M.Jr.: No, you will have to tell me. D.: How's that? H.M.Jr.: You will have to tell me. where it is. D.: On the second floor of the Capitol. You have been there many times. H.M.Jr.: oh, yes. D.: Right there next to the hall to the House, you know. H.M.Jr.: Oh, sure. D.: In the Capitol on the second floor, the Ways and Means Committee room. H.M.Jr.: I'll be there at 3:30. D.: Thank you. Be right there. H.M.Jrl: You got some more light on it? D.: How's that? H.M.Jr.: You have some more light? 7 - 3 - D.: I didn't get that. H.M.Jr.: You know you have some more light on it, you say? D.: Yes, perhaps I can give you a little more light. H.M.Jr.: Thank you. D.: I want to give you everything I can that I think can help the situation. H.M.Jr.: Thank you. D.: All right. 8 May 8, 1941 4:10 p.m. RE TAXES Present: Mr. Foley Mr. Gaston Mr. Sullivan Mr. Kuhn H.M.Jr: We were all wrong on our guesses. Congress- man Doughton called me up and asked whether I could see him; could he come down here or could I come up there, so I said I would come up there, which I did. He said shortly after he left here he had a call from ex- Senator Minton, who wanted to see him, had to see him. So he said, "All right," and he came over and he said, "I just want to tell you, Bob, that the request that I made of you that you have a hearing for Eccles and Henderson, also the request that I made that you tell nobody, even the Treasury, that I take the entire responsibility for that request. The President had nothing to do with it." Then he said Minton went on and said, "The President isn't feeling well and, of course, he shouldn't be bothered or know anything about this,' but he says, "I take entire responsibility." So Bob said to him, "Is it something that the President wanted?" and Minton said, "No, I take full responsibility for this and leave the President out of this." So he Regraded Uclassified 9 - 2 - said, "Now, Henry, if you were in my place and I got this message--" (Mr. Kuhn entered the conference.) H.M.Jr: what else could I do when I was told by the man who was supposed to be former floor leader on the Senate, a contact man from the Hill, and I get a request like this?" He says, "I didn't like it, but could I have done anything else?" I said, "No." So we renewed our affections. I explained to him when I asked for a meet- ing yesterday I didn't have this in mind. I only had it after reading the papers plus seeing it was inferred that we no longer were - that these other men were really talking for the President. I just asked him this in a more or less jocular way this morning. So he said, "When you sent for me yesterday, you didn't have this in mind?" And I said, "No, I didn't." Well, we left better friends than ever, if possible. Then he dropped a kind of funny remark. He said, "Now, Henry, let me give you an older man's advice. I would forget about this if I were you. I can tell you something else. Minton isn't going to be around the White House much longer." Gaston: He was nominated for the Circuit Court of Appeals yesterday. Foley: His name was sent down to the Senate yester- day for the vacancy on the Seventh Circuit. Regraded Uclassified 10 May 8, 1941 4:12 p.m. H.M.Jr: Hello. Operator: Just a moment. E.M. Watson: Hello. H.M.Jr: Pa? W: Say, Henry, have you seen Bob Doughton? H.M.Jr: Yes. W: Well, now I can tell you Shay Minton did that. H.M.Jr: Yes? W: And Shay made a suggestion to Doughton that he have Ecoles and Henderson testify. H.M.Jr: Yes. W: And that so far as he knew, the President had known nothing about this. That ought to clear it up all right. H.M.Jr: Are you over there now? W: Yes. H.M.Jr: Well, I got another one that I'd like to nip in the bud before it happens. W: (Laughs) Yes. What the hell is that for Christ sake? H.M.Jr: Well, suppose I come over and show it to you. W: All right. Regraded Uclassified 11 - 2 - H.M.Jr: I'll come on over. W: All right. H.M.Jr: What? W: I'm right over here in my office. H.M.Jr: I'll come and try to stop this one. W: All right, I did pretty good today. H.M.Jr: Yes, you are a friend in need. W: All right, you come on over here. 12 May 8, 1941 4:50 p.m. RE TAXES Present: Mr. Gaston Mr. Foley Mr. Sullivan Mr. Kuhn H.M.Jr: I made a statement that the Aluminum Company in Canada and the Aluminum Company of America have identical shareholders. So would you (Foley) try through Arnold - say, could he help us out. You might talk to Harry White about it. Gaston: Joe O'Connell could probably get it. H.M.Jr: I think I am correct. They have identical shareholders. Foley: All right. H.M.Jr: Well, we have got another fellow. Sullivan: A good one? H.M.Jr: Yes. We have got the fellow who told Sherman Minton to do it. It was Lauch Currie. So I think that makes it all right. That sounds like sense. It was Lauch Currie who asked Sherman Minton to do it. But that is all in the room here. 13 - 2 - I said, "Well, what is going to keep him from doing it again?" And Pa says, "Don't worry; I jumped on that fellow with both shoes and he is not going to do it again." He says Sherman Minton took the rap on it because he is through. He says, "I wanted Lauch to go up on the Hill, and he said, 'What is the use of both of us going up as long as Minton is going up?'" So I think that makes it all right. Don't you think so, Ed? Don't you think that makes sense? Foley: It makes more sense. Gaston: Lauch was in it all right, that was obvious, H.M.Jr: He was. He asked Sherman Minton to do it. Sherman Minton is a judge, so he doesn't care. Pa says we can forget the whole thing. He says, "It won't happen again, I will promise you that." The principal thing is, you see, it leaves Bob feeling we are aces high. He had it all the time. He gets the word from the President's secretary to call these fellows up, but don't tell anybody, even the Treasury. Just think of the difficulty Doughton was in. I am tickled to death, John, that I blew off this morning. Sullivan: Yes, I think the way it came out we would have been under a cloud all summer and we wouldn't have known what the cloud was. H.M.Jr: I waited, should I or shouldn't I do it; and I said, "Well, I am tired and I am sore, but I will do it anyway." 14 - 3 - Sullivan: I watched you and you were watching him while he was telling you what he could tell you and what he couldn't tell you, and I thought I saw the storm brewing there. H.M.Jr: Well, I told Doughton, "It is just like a slap in the face to me when you said you couldn't tell me who had asked you and where the message came from." I don't think it will happen again. Pa Watson promised me it wouldn't. It was an outrageous performance. Gaston: I don't think it will be pulled on Bob Doughton again, either. I don't think it would work on Bob Doughton again. H.M.Jr: Oh, he was very much upset. Oh, he was awfully upset. Gaston: I think Bob Doughton will say, next time, "Well, I am right here and the President has got a telephone." Foley: Sure. H.M.Jr: No, because I first thought, "Well, I am going to go and ask Henderson what it is - no, I am going to let the thing die. I am not going to bother with it." Foley: I think that is what it is. H.M.Jr: I don't think I want to pursue it any further. Gaston: I think you had to make a point of it at the time as you did. H.M.Jr: But let it drop. Gaston: Yes. H.M.Jr: I am awfully glad I did it. Sullivan: So am I. OFFICE OF 15 THE SECRETARY OF THE TREASURY May 8, 1941. TO: Mr. Gaston FROM: Secretary Morgenthau Please report to no about this on Monday. (Please return this copy to Room 285.) 16 May 8, 1941 4:55 p.m. H.M.Jr: Hello. Operator: F. M. Johnston. Mr. F. M. Johnston: Hello, Mr. Secretary. H.M.Jr: Talking. J: How are you, air? H.M.Jr: Fine. J: Mr. Secretary, I received word from Senator Harrison instructing me to get in touch with you personally concerning John J. Kennedy who 1s at present Comptroller of Customs at New Orleans. H.M.Jr: Yes. J: He was originally appointed in 1933 and was re-appointed in '37 and his appointment is one requiring Presidential nomination and confirmation. H.M.Jr: Yes. J: While the Senator realized that his present term will run until July 1st of this year, he recalled, and 80 indicated to me, that the question would probably be up within the next few weeks and knowing that he would not be here he wanted me to call you to tell you of his great interest and his wish and desire that Mr. Kennedy be re- appointed. H.M.Jr: Well, I'll give it very serious considera- tion and I'll give you & ring Monday. J: All right, sir. H.M.Jr: How is the Senator? Regraded Uclassified 17 - 2 - J: He's reports. getting along fine. We get splendid H.M.Jr: Well, I'm delighted. J: Well, thank you very much, Mr. Secretary. H.M.Jr: Thank you. 18 May 8, 1941 4:57 p.m. H.M.Jr: Hello. Operator: Secretary Ickes. H.M.Jr: Hello. Harold Ickes: Henry, at the last Cabinet meeting.... H.M.Jr: Yes. I: Jesse Jones talked about buying aluminum from Canada. I asked whether it was connected with the Aluminum Company of America. He said it was not and you looked at me with a half wink. H.M.Jr: Yes. I: What did you mean? H.M.Jr: Well, what I understand is this. That while they are not the same companies, they are the same shareholders. I: I see. H.M.Jr: They are identical shareholders. That's what I've been told. I: Well, shareholders in one company are not going to compete with shareholders in another. I suppose the price is the same. H.M.Jr: The price is the same. I: I think I'll raise that question again. H.M.Jr: But, I think you ought to check on my information if you could. I: Where can I check? I thought you had all the financial knowledge and information in the world. Regraded Uclassified 19 - 2 - H.M.Jr: (Laughs) That's just a slight exaggeration. Let me ask some of my boys if they can help. I: All right, fine. H.M.Jr: I think that Harry White can help on that. I: All right. H.M.Jr: I think my information is correct buttbefore .... I: I wonder if Arnold would have it. H.M.Jr: I don't know. I: Bee what you can get for me, will you? H.M.Jr: I'll do that. I: I'd appreciate it. H.M.Jr: I'll do that. I: Thank you. Regraded Uclassified 20 MAY 8 1941 by deal Mr. Chaires: Reference Le made to your letter of My by 1941, meloading & - of 3. J. Rea, 74, "To authorise the pastportment of payment of assunts payable to the United States by the Republic of Finland on the indebtedness under agreements between that Repoblis and the United States dated May 1. 1923, Way 23, 1932, and May 1, 1941. The joint resolution provides for the postponsment at the option of linland of the payment of mounts payable to the United States during the period from Junuary 1, 1941 to December 31, 1942, inclusive, Im the event of the exercise by Finlend of the option to postpome such payments the Secretary of the Treasury would be authorised to mine on behalf of the United States an agreement with Finland for the payment of the postponed amounts in forty sendenrus) installments, the first two installancts to be paid curing the calender year beginning Junuary 1, 1945, and two to be paid during each of the ninetem calendar years following. It is also provided that the assunts postponed shall not tear any interest beyond the dates. when such amounts first become payable under existing appearate, The encunte payable to the United States by Vinland which would be subject to postponsements under the proposed joint resolution are AS follows: Funding Agreement Heratorium Postportment Date May 1, 1923 Agreement Agreement Payable Principal Interest May 23,1933 May 1961 Total June 15, 1941 - $139,037.50 $19,030.50 $13,695.06 $171,763.06 Code 250 19d $79,000 139,037.50 19,030.50 13,695.06 250,763.06 June 15, 1942 - 137,655.00 19,030.50 13,695.06 170,380.56 Des. 15, 1943 $2,000 137,655.00 19,030.50 13,695.06 252,380.56 TOTAL $162,000 $553,385.00 $76,122.00 $54,780.24 0845,207.24 Finland's indebtedness for relief supplies aggregated $8,281,926.17 and was represented w obligations of $3,287,276.98 dated June 30, 1919 and 14,02,649.19 dated July 1, 1920. 40 0. result of the negotiations initiated in 1922 by the world Var Foreign labs Commission, the Congress by 48 lot approved March 12, 1924, authorized a refunding agreement with Finland under which interest on the original Indebtedness at the rate of 42/4 per cert per annum to December 15, 1922 amounting to $1,027,397.10 wid added to the Regraded Uclassified 21 - 2 - original debt, end after a each payment of $309,315.27 w Finlend, the belonce of $9,000,000 with interest at , per each per - from besember 15, 1922 to December 15, 1938, and thereafter at 32/2 per eant per mm, was to be repaid - a parted of 48 years, Bash ordernal installment has best prosphly paid w Finland emergy the installmate due in the fissal year 1932 which were postgemed under the proposed w President Houver, and authorized by the Jodn's Resolution of Congress approved December 23, 1932, and the installamt des on December 15, 1940, which we partpement purmish w the Joint Resolution approved June 150 1940. the postposed installments due in 1938 are being repaid is ten anmities with interest at 4 per cant per - true July " 1933, and the postgomed installment due on Insember 35, 1940 is to be repaid in ten ammittes with intervet as , per cent per - from injury 1, 1941. Since 1923, Finland has paid to the United States the - of $6,050,689.77 of which $960,398.17 represented principal and $5,090,291.60 represented interest. This includes the payment of $159,398.00 w Finland on - 25, 1940. The Treasury has no objection to the of the proposed Joint Resolution if the Congress determines to great a further massro of assistance to the Repablic of Finland, Finland was one of the first nations to - forward in 1922 to nake arreagements for repaying to this Government momts representing the cost to # of relief supplies which 14 had reserved, world emitions which have provailed during the past few years have suriously affected that country. The United States has resige nised this situation, the Congress enseted the Joint Reselution approved June 15, 1940, to postpons payment of assunts des from Finland in 1940, and the Expert=Import Bank has pricted cortain credits to that Government, the de provide 3 3 5 necesitives of life for the Finnish people, The properal entedied in the Joint Resolution will assist Finland to estatain the envishile recent of its credit relationship with the United States. The difficulties see confrosting Finland recomend our helpful attitude termis that dobtor. the Department has booth advised by the brown of the Badget that there is BO objection to the submission of this report to your Committee. Very truly (Signed) yourse. Morgenthau, Jr. Secretary of the Treasury. Monorable Walter 1. Acting Chairmen, Committee on Finance, United States Sensite, Rushington, D. C. (Not mailed here) WTHemlb 5-7-41 Regraded Uclassified 22 C 0 UNITED STATES SENATE P Committee on Finance Y Washington, D. C., May 6, 1941. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Treasury Department, Washington, D. C. Dear Mr. Secretary: I am attaching copy of S. J. Res. 74, introduced by Senator Vandenberg on yesterday and re- ferred to the Committee on Finance. The purpose of the joint resolution is to authorize the postponement of payment of amounts payable to the United States by the Republic of Finland under agreements between that Republic and the United States. This joint resolution is referred to you for consideration, and it will be greatly appreciated if you will furnish the committee B. report thereon as promptly as possible, as the committee is enxious to take sction on the proposal as speedily as possible. Thanking you, I am Sincerely yours, s/ Walter F. George ACTING CHAIRMAN Encl. Regraded Uclassified 23 77TH CONGRESS 1st SESSION S. J. RES. 74 IN THE SENATE OF THE UNITED STATES MAY 5, 1941 Mr. VANDENBERG introduced the following joint resolution; which was read twice and referred to the Committee on Finance JOINT RESOLUTION To authorize the postponement of payment of amounts payable to the United States by the Republic of Finland on its in- debtedness under agreements between that Republic and the United States dated May 1, 1923, May 23, 1932, and May 1, 1941. 1 Resolved by the Senate and House of Representatives 2 of the United States of America in Congress assembled, 3 That the Republic of Finland, at its option, may postpone 4 the payment of amounts payable to the United States of 5 America during the period from January 1, 1941, to 6 December 31, 1942, inclusive, under the agreements between 7 that Republic and the United States of America dated May 8 1, 1923, May 23, 1932, and May 1, 1941. In the event of 2 1 the exercise of the option granted in this section the Secretary 2 of the Treasury is authorized to make, on behalf of the 3 United States of America, an agreement with the Republic 4 of Finland for the payment of the postponed amounts in 5 forty semiannual installments, the first two such installments 6 to be paid during the calendar year beginning January 1, 7 1945, and two to be paid during each of the nineteen calen- 8 dar years following: Provided, That the amounts postponed 9 shall not bear any interest beyond the dates when such 10 amounts first become payable under the above mentioned 11 agreements. 12 SEC. 2. The agreement authorized in the first section 13 of this joint resolution shall be in such form that payments 14 thereunder shall, unless otherwise provided in such agree- 15 ment, be in accordance with, and subject to the same terms 16 and conditions as payments under, the agreement with the 17 Republic of Finland dated May 1, 1923. 24 May e, 1941. Dear Sir: This will acknowledge receipt of your letter of May 7, requesting assistance from the Coast Guard in the formation of a Greenland Squadron, which is being created in order to carry out 6 directive of the President. I have instructed the Commandent of the Coast Guard to make the necessary arrangements to comply with your request. Yours very truly, (Signed) H. Morgenthau, and Secretary of the Treasury. The Honorable The Secretary of the Navy. HEG:pm By Messenger 930 m 5/9 on File to Mr. Gaston Regraded Uclassified 25 DEPARTMENT OF THE NAVY OFFICE OF THE SECRETARY (SC)A4-3/Q813 WASHINGTON Serial 041130 CONFIDENTIAL MAY 7 BRI Sir: In order to carry out a directive of the President it becomes necessary to form e. Greenland Scuadron. Ac- cordingly, assistance 16 desired from the Coast Guard as follows: (a) Assign to operate under navel control for pur- poses connected with the establishment of military and naval Installations in Greenland: (1) One Coast Guard cutter of the ALGONQUIN class for use in a survey to be made in the Angmagssalik Area when ice conditions permit. (2) One 110 foot ice-breaking tug for use in connection with the movement of Army troops and supplies for the airdrome construction project (b) Assign to operate under naval control for pur- poses connected with the defense of Greenland: (1) The NORTHLAND and the NORTH STAR (2) A senior officer experienced in Arctic operations to command the ships and air- craft operating in northeast Greenland this summer. (c) Assist the Navy in retaining the BEAR as E. ship of the Navy for duty in northeast Greenland in order that the services of her experienced naval crew may be utilized. (d) Assist the Navy in obt ining the use of the BOWDOIN for duty in connection with airdrome surveys and construction projects. Respectfully, The Honorable Frankstnes Frank The Secretary of the Treasury Regraded Uclassified COPY 26 MAY 8** 1941 My - me. Rephine: In order to meet requisitions of the British Advicery Repair Mission and the British Purchasing Commission, - spectively, submitted to the United States Goods Guard for fulfillment, request is hereby mide for the allotment of $880,000 to the Treasury Department out of appropriations unde smilable is the Beforee A14 Supplemental Appropriation Act, 1941, approved March 37, 1941. or the total assess no quested, $100,000 10 initially required for spare parts and special mterial for the of the ten ex-Ocast Guard cutters transferred to the British Governments $50,000 for 10+ fitting these outtors, and $400,000 for aids to navigation and their sypendages, M mere fully not forth in the attached letter of the Commandant, United States Coast Guard, dated May 2, 1941. Inseruch as certain refitting and equipment is desired by the British authorities before the vessels in question sail from the United States, 11 will be appreciated if your early approval is given to this request. Tery truly yours, (Signed) 1. Morgenthas, Jr. Secretary of the Treasury. Inclecures Nemerable Harry L. Hopkins, the White House. 8-2-41 (Copies of Requisitions #834, 879, 659 enclosed. Copies of these requisitions in Comdr. Gorman's office.) By Memore 325 Regraded Uclassified GOFF 27 MAY 8⑉ 1941 Ky dear Mr. Espirines In order to met requisitions of the British Advisory Repair Mission and the British Purchasing Commission, no spectively, submitted to the United States Coast Guard for fulfillment, request is hereby mão for the allotment of $550,000 to the Treasury Department out of appropriations made available in the Defense A14 Supplemental Apprepriation Let, 1941, approved March 39, 1941. of the total amount - quested, $100,000 is initially required for agare parts and special material for the maintenance of the ton ex-Conet Guard cutters transferred to the British Government; $80,000 for No fitting these outters, and $400,000 for aids to assigation and their appendages, M 2010 fully not forth is the attached letter of the Commendant, United States Coast Geard, dated May a, 1941. Inseruch as certain refitting and equipment is desired w the British authorities before the vessels in question sail from the United States, 10 will be appreciated if your early approval is given to this request. Tory truly yours, (Signed) 8. Margenthan, 5. Secretary of the Treasury. Honorable Harry Lee Septine, the White House. Name 5-2-41 (Copies of Requisitions 4634, 879, 659 enclosed. Copies of these requisitions in Comdr. Gorman's office.) By Measenger Regraded Uclassified ANDRESS THE COMMANISMENT. U.S. COAST QUARD AND REFER to - F-0161 TREASURY DEPARTMENT UNITED STATES COAST GUARD HEADQUARTERS WASHINGTON 2 Pay, 1941. CONFIDENTIAL Budget Officer, Treasury Department. Sir: In connection with the transfer of the 10 Coast Guard cutters to the British Government, Coast Guard Neadquarters is in receipt of two requisitions from the British advisory Repair Mission, copies of which are inclosed herewith. Requisition No. 834 of 26 April, 1941, requires certain items for refitting and equipment of the 10 Coast Guard cutters and involves ex- penditure of approximately 235,000 for alterations and equipment desired by the British mission, which were not included in the rearmament program for these cutters for which the Coast Guard had been given appropriations. Requisition No. 879 of April 28, 1941, is in connection with spare parts and special material necessary for maintenance of the 10 former Coast Guard cutters. Correspondence and interviews with the British Advisory Repair Lission reveals that it will be necessary for the Coast Guard to keep these cutters supplied with spare parts and special material, and that from time to time the Sritish Advisory !lepair ission will sub- mit requisitions to the Coast Juard for these items. AS an example of the spare parts which will De requisitioned by the British from time to time Coast Guard Headquarters has been advised by Anrineer Rear Admiral G. G. T. Burt, d. N., that it is desired to have immediately available four spare propellers and two tail shaft assemblies. The estimated cost of these items is 24,000. Consultation with the Navy regarding similar arrangements for maintenance 01° the 30 destroyers previously transferred to the British reveals that the same procedure is being carried out with respect to the furnishing of spare parts and special material for those destroyers, and that an average of .10,000 per vessel would be required for such items. AS requisition NO. 679 states that the delay incident to submitting a separate requisition for each small item required is very undesirable, it is believed that funds in the amount of -100,000 should be allocated to the Coast Guard to meet requisitions which will be con- tinually received from the British advisory epair Lission for spare parts and special material for the 10 ex-Coast Guard cutters. Regraded Uclassified P-0161, 2 May, 1941. Budget Officer, Treas. Dept. There har aloo been received from the British Purchasing Commission requisition No. 659 of April 24, 1941, requesting 50 light buoys complete with moorings suitable for Trinity House requirements. Communication with the British Purchasing Commission has established that the light bucys required are the 9 x 32 type in use by the Coast Guard which cost approximately 36,000 a piece. The thim of 300,000 will, therefore, be required to fill this requisition. The Coast Guard has no funds with which to fill these or future requisitions from the British Purchasing Commission and the British Advisory Repair l'ission respectively, but, in order to obviate delay in filling these requisitions all preliminary work with respect to placing the orders is being accomplished. Under requisition No. 834 35,000 is required immediately, under requisition No. 879 $24,000 is required imediately, and under requisi- tion No. 659 $300,000 is required imediately. However, since, AS will be seen from the tenor of these requisitions, it is the intention of the British Advisory Repair Mission and the British Purchasing Commission to continue to requisition spare parts and special material for the main- tenance of the 10 ex-Coast Guard cutters and aids to navigation and their appendages, if the items are to Le furnished with a minimum of delay, as requested by the British authorities, funds should be allocated to the Coast Guard from the Defense Aid Supplemental Appropriation Act, 1941, to be set up as a working fund for the filling of requisitions as received from the British authorities. It is believed that an initial allocation of $100,000 for spare parts and special material for the maintenance of the 10 ex-Coast Guard cutters, $50,000 for refitting of these cutters, and $400,000 for aids to navigation and their ap: endages should be made to the Coast Guard from the Defense Aid Supplemental Appropriation Act, 1941. It is, therefore, requested that the sum of $550,000 be allocated to the Coast Guard from the Defense Aid Supplemental Appropriation Act, 1941, 35 soon as practi- cable. Inasmuch as certain refitting and equipment is desired by the British authorities before the vessels sail from the United States it is requested that the necessary steps be taken to expedite this allocation and Coast Guard Headquarters advised when an allocation is approved. Very truly yours, R. R. WAESCHE, dear Admiral, U. S. Coast Guard, Commandant. - 2 Regraded Uclassified 30 May 6, 1941 Dear Jesse: My attention has been called to one of the provisions of S. 1438 which might be construed to restore the exemption of interest on obligations issued by R.F.C. from Federal income taxes. Foley tells me that someone in his office spoke to Clay Johnson and Klagsbrunn and was in- formed that the language was included by inadvertence and was not intended to restore the exemption. I understand that language to correct the ambiguity has been agreed upon by our lawyers. I an satisfied that the language was not intended to restore tax-exemption to R.F.C. obliga- tions. Therefore, I am bringing it to your atten- tion rather than to the attention of the Committee in order that you may make the necessary change before the bill is reported. Yours sincerely, (Signed) HANTO Honorable Jesse E. Jones, SecRetary of Commerce. By Memores 5/8/41 Regraded Uclassified L 31 COPY The Secretary of Commerce Washington May 8, 1941 Dear Henry: Your letter of today received. The matter about which you write was brought out at the hearings this morning, and I explained that it was not intended to restore the exemption of interest on obligations issued by R.F.C. from Federal income taxes. We requested that the language be changed to conform to my agreement with you that we would support your program in this respect. Sincerely yours, /s/ Jesse Regraded Uclassified 32 MAY 8 1941 Doar Mr. b commition with reporte I m reselving bi-versity from the non plans and airplane englus intertry, 2 should like to certain information regarding unfilled others, new orders, and deliveries of sirplane engines for year company. I - metecing & table videh has tom propered two your every from various date smillable ab the Valt Department showing the - of cirplane enginee a order a April 26, 1941. will you please revise this table is amountance with the procedure outlined Wier. Bring forward to my 10 the cotinated deliveries of the unfilled entern w (1) insurting - orders received during the period April 27 through May 10 in their proper place, conbining - orders with orders MV shown en the table where the type of sirplane engine and class of purchase are the - and using a new line for - type of airplane englae met already instited in the schedule, and (2) indicating my No visions that have been made in the estimated delivery dates of the 14- mining orders - shown on the ashedule. After these revisions have both más, the schodule should above estimated deliveries of all er&ers unfilled a May 20. including any orders received during the period. the deliveries start, of name, a further offortment of the figures to reflect such deliveries would have to be mis. Date should entlude que yarts. If any spare purto in indivied is the contract, please they the percentage these her to the total order is the calumn at the extress right of the table. Please forward the revised table, together with a statement of are orders resolved and deliveries note in the paried Agril 87 through May 10, to Mr. Gestige e. Read, Pirector of Research ml Statisides, Treasury Squarient, Fashington, D. c., whom 1 have asket to arrange to estain from you 1 mhougam) figures as are accessary to bring the information - to date. I shall approciate 19 If you will and - regly w air mail special delivery ⑉ that 10 will reach Me as Nonday, May 12. Hurdy, (Signed) 1. Hargenthms, 32. Mr. Reflew a. Curtice, i Dedate Noter Division. General Neture Corporation, Flint. Richigue. I as S64 FILE COPY (Returned to Haas' office for mailing) Regraded Uclassified WITH THE COMPLIMENTS OF HAROLD K. HOCHSCHILD Copy of Letter from B, Mexico City, May 8, 1941. While May let 88 labor day wes observed 1a the usuel manner, no disorders were reported. Here in the city the Labor Unions staged their customery parede of militarized end civilien battelions, which was reviewed from the National Palace by the President and most members of the Cabinet. All activities were, of course, at rest on that day, which 18 one of those days on which tourists end out of town people find It difficult to secure at meal or find B taxi to teke them eround, although things are getting a little less redical from what they were E few years ago. The mein celebrations of 5th of May (enniversary of the hattle of Puebla) were transferred to Pueble itself on this occasion, to where the President journeyed for reviewing the troops, who had just con- cluded extensive military maneuvers in that vicinity. Politically, things have been entirely quiet. After an exile of several years in the United States, former strong man, Gen. Pluteroo Elias Calles, has returned to the country, staying for the present et his Hacienda Soleded de la Mota, near Monterrey. His intentions seen to be to reside et Mexico City and Cuernavaca, in both of which Calles OWTIS homes. In our own opinion, the return of Calles lacks political significance and we doubt that he hinself has any political ambitions left. He 18 getting along in years, and we believe his health is not always of the hest. And most of his political friends are "gone with the wind". In general, little importance 18 being given to the matter. Travels and interviews, sightseeing end other activities of the President's brother, Gen. Maximino, in the United States are atill moking headlines, whereas a convention of the Brotherhood of American Locomotive Engineers is being held in Mexico City, Ambassador Josephus Deniels presiding over the ineugural session, assisted by Gen. Enrique Estreda, Director of the National Reilways, who 18 probably hopeful thatMexican railroadmen will learn something from their American comrades in the way of discipline and efficiency. The Miners Union still seems to have it in for the A.S.& R.Co., whose Monterrey and Parral strikes, 8.5 was reported, have been declared legal by the Labor Board. And today's press talks of strike notices to the Smelting Company at Santa Barbera, Chihushua Smelter, Sen Luis Potosi Smelter, Senta Eulelia and Angangueo. The deadline according to these reports is May 15th. 094 the other hand, 8 strike at the sugarfields and mill of 81 Dorado in States, wes declared illegal by the Federal Labor Board, end when the workers did not return to their jobs within the time stipulated contracts were declared void, much to the dislike of the respective Unida, which YAM T8 nov vigorously attacking this decision of the Lebor authorities, to notalvid Cy offers seen to exceed slightly the demand, en have caused to be 6 little weaker, exchange remaining et E flat 4.85 during the lest few days. We do not enticipate any veristions of importance. Regraded Uclassified 5/7/41 file 6/8/91- Statement of Secretary Morgenthau Before 34 the Committee on Coinage, Weights and Measures of the House of Representatives, Thursday, May 8, 1941. Mr. Chairman, Members of the Committee: On April 28, 1941, the President wrote to the Speaker of the House recommending extension to June 30, 1943, of the nowers relating to the Stabilization Fund and of the power to alter the gold content of the dollar, which powers, under the present law, will expire on June 30, 1941. A Bill (H.R. 4646) has been introduced to accomplish this purpose. I am appearing before you in support of this Bill. When I appeared before your Committee on February 28, 1939, to recomend extension of these same powers, I said: "The emergency in the international economic and monetary field still exists and unfortunately there are no grounds for believing that such emergency will end on June 30, 1939. On the contrary, the recurrence of international crisis is as probable now as when the Stabilization Fund wes created in 1934.' These forebodings turned out to be only too true. I am afraid that the period ahead of us will be even more critical. Regraded Uclassified 35 - 2 - During the last two years the international exchange markets have been more disrupted than they have been in the past twenty years. In reviewing the work of the Stabilisation Fund during the last two years, I want to mention in some detail two of the operations which have been undertaken by the Stabilization Fund. The first arrangement was with China. You will recall that on December 2, 1940, I appeared before a joint session of the Senate Committee on Banking and Currency and the House Committee on Coinage, Weights and Measures, to make a statement about the proposed stabilization arrangement with China. I had on previous occasions in testifying before this Committee stated that I would not consent to the use of the Stabilization Fund to assist any foreign country in prosecuting a war without first consulting with the Congressional committees. The transaction we contemplated and entered into with China was for currency stabilization purposes. So long as there was any difference of opinion as to whether this type of transaction was similar to the one that I Regraded Uclassified 3.6 had referred to when I previously appeared before your Committee, I decided to lay all of the facts of the proposed transaction before the joint session. I was greatly appreciative of the vote of confidence given to Secretary Hull and myself on this occasion. Following months of intensive negotiation and study of the Chinese foreign exchange and monetary position, an Agreement was signed on April 25, 1941, making available $50,000,000 to China for the purpose of stabilizing the dollar-yuan rate of exchange. The Agreement also provided for the establishment by China of a United States dollar-Chinese yuan stabilization fund. Included in the fund's resources will be the dollars acquired from the United States through the purchase of Chinese yuan and a further sum of 20,000,000 United States dollars contributed by Chinese banks. The Chinese Government has placed this Fund under the control of 8 5-man Board, one member of which will be an American appointed by China on the recommendation of the Secretary of the Treasury. This Board will also have charge of the Chinese Yuan - 37 British Sterling stabilization funds which include a 5,000,000 sterling credit recently extended to China by the British Government. The stabilization arrangement with China has been of great aid to China in the currency battle in which she has been engaged with the puppet currencies and has been of assistance in strengthening the Chinese internal monetary position. This new stabilization agreement with China differs from the earlier agreement of July 14, 1937 with China, in that in the earlier agreement China was required to post with us gold collateral equal to the dollars which we had furnished to China. Under the 1937 agreement we had at one time purchased $48,000,000 of yuan. The amount of this operation has in the intervening period been reduced until it now stands at $19,000,000 fully collateralized by gold. It is expected that this old stabilization agreement with China will be allowed to lapse on June 30, 1941. Regraded Uclassified The second arrangment of importance to be entered 38 into by the Stabilization Fund was the arrengement ex- ecuted last January with the Argentine Government and the Central Bank of Argentina. Under that arrangement we have agreed to buy $50,000,000 of Argentine pesos and Argentina will use the dollars to stabilize the dollar- peso rate of exchange. The arrangement also provides for the exchange of information and of views bearing on the proper functioning of such 8. program. The monetary authorities of the two countries expect to hold further discussions in the future, which discussion it is hoped will enable both countries to reap the greatest possible benefit from the workings of the stabilization arrangement. The mere announcement of this arrangement had 8. most favorable effect upon the Argentine exchange market and upon financial conditions in Argentina. The machinery of the fund was most opportunely at hand to enable us to implement the Good Neighbor Policy at atime when Argentina, Regraded Uclassified 39 - 6 - in common with other Latin American countries, was dis- turbed about a prospective drain of its foreign exchange resources. Before t he Treasury actually pays any dollars to Argentina under this arrangement it will be necessary for Argentina to take certain action to confirm the authority of the Argentine Government to guarantee per- formance of all obligations undertaken by it and by the Argentine Central Bank. One of the older agreements in connection with which there was activity in the recent period is that with Brazil. On October 18, 1940 we bought $10,000,000 of milreis from - 7 - 40 Brazil under this agreement. As Brazil's foreign exchange position improved, Brazil repurchased from us $5,000,000 of these milreis on December 13, 1940 and the remainder on February 13, 1941. Under another part of the same agreement with Brazil we sold $24,000,000 of gold to Brazil for dollars. These are the largest exchange operations which have occurred since I appear before you in 1939. As I have previously promised, we have during this period published quarterly reports of the position of the Stabilization Fund. This is in addition to the yearly record of the activities of the Stabilization Fund which the statute requires that the Treasury send to the President and to the Congress. These annual reports, the most recent one of which sent to the Congress was dated March 12, 1941, give summaries of transactions in all of the accounts of the Exchange Stabilization Fund for the period April 26, 1934 to June 30, 1935 and for each fiscal year thereafter up to June 30, 1940. Regraded Uclassified - 8 - 41 In the period which I am now describing, the functioning of the Tri-Partite accord, the development of which had appeared to hold so much promise, was interrupted by the war. In July and August 1939, there were transactions aggregating some $37,000,000 in pounds sterling, French francs, Dutch guilders and Swiss francs. Since the outbreak of the war, these transactions have been dis- continued and the machinery set up by the Tri-Partite accord has been inactive. Since the outbreak of the war we have not acquired any currency of a belligerent nation and at the present time we are holding less than $4,000 worth of British pounds sterling, Belgian belgas, and French francs, acquired before the outbreak of the war. I venture to predict that the experience in inter- national monetary cooperation gained through the Tri-Partite accord will prove of permanent value. I believe that that machinery, which functioned in & spirit of cooperation and equality, promises more for future international economic organization than any of the aggressive monetary devices which now hold sway. Regraded Uclassified During the period from June 30,1939 t Dec. 81, 40 the Stablization Fund purchased -9- approximately 42 B3, 920 million of gold This gold was bought from twenty-three countries situated in all parts of the world. It is not eworthy also that in the same period there were sales of approximately $380,000,000 of gold to foreign countries. Eighteen countries sought and obtained gold from our stabilization fund In exchange for dollars. To give an idea of the far-flung extent of these operations, I will just mention Afghanistan, Java, and Uruguay as among the countries which the Stabilization Fund machinery has enabled to build up gold reserves. In this period the total number of gold transactions of the Stabilization Fund was lage. The circumstances of the purchases and sales were varied. In these transactions, also, the stabilization fund proves itself an effective piece of machinery in the field of international finance. Incidentally, the Stabilization Fund has made possible three large acquisitions of gold from hard-pressed friendly countries in need of dollars. For the consummation of these transactions, it was essential to have governmental machinery which could function with the utmost speed and secrecy. Regraded Uclassified - 10 - 43 The Stabilization Fund has proved its value during years of unparallelled crisis in international trade and finance. Long ago we made the dollar the strongest currency in the world. Foreign nations and foreign individuals have preferred the dollar to all other currencies. The flow of billions of European capital and the accompanying flow of gold to this country in recent years have made this point clear even to the most unfriendly critics of our monetary policies. The profit of the Stabilization Fund since its inception down to December 31, 1940 has been $25,581,763.31. In the crises of recent years it would have been worth while for the United States to spend large sums of money to stabilize the foreign exchange value of the dollar. We have greatly succeeded in this endeavor and yet in the process we have made money, not lost it. Now we are going forward into times of even greater peril. We are in the midst of 8. forest of exchange controls, a jungle of controlled currencies. Some are controlled with no friendly intent 44 toward the United States. Our Stabilization Fund is now & potent weapon of defense in our international economic relations. This is hardly the time to abandon the machinery of control which we have built up to protect the dollar and the American economy. Economic warfare, 8.8 well as military warfare, is now being waged on all sides of us. There is no certainty that even with peace these aggressive economic instruments will be abandoned by other countries. Nobody can say what kind of international economy will emerge from this war. But everybody would say that we were fools indeed if we chose this time to let private speculators and foreign governments determine the exchange value of the dollar. In these circumstances, I have no hesitation in making the strongest possible recommendation that Congress extend the Stabili- zation Fund powers. II. Alteration in the Weight of the Dollar The argument in favor of renewing the President's power to alter the gold content of the dollar to not less than 50% of its former weight is substantially the same as that I have just given for the Regraded Uclassified 45 - lla - . Stabilization Fund. When I was before the House Committee on Weights and Measures on February 28, 1939, I said: "The dollar now has identically the same gold value it had 5 years ago when the President proclaimed on January 31, 1934, -12- 46 that the gold content of the dollar shall be 15-5/21 grains of gold nine-tenthe fine. The fact that we have kept the gold value of the dollar stable through the international monetary distur- bances and alarms of the past 5 years should be adequate assurance that there is neither desire nor intent on the part of this Administration to alter the gold value of the dollar except under circumstances which clearly demand such action. Just as there were critics some years back who said that an irresponsible administration would squander the Stabilization Fund in a foolish manner, so there have been of persistent critics who said that the mere existence in the President's power to devalue the gold content would lead to inflation. Obviously the Adminis tration has no present intent to devalue the gold content of the dollar. But is this the time to remove flexible powers from the Executive when the Executives of all other nations possess virtually complete powers over the domestic and external monetary affairs Regraded Uclassified of their countries? In 1939, I said to Congress "This 47 power is a weapon in reserve needed for protection of American interests. In the monetary field, it is as important as a powerful Navy in the field of defense against armed attack." That statement is as true now as in 1939. There is no basis for believing that we are going to have inflation in this country because the President possesses this emergency power. I am sure that the President will be as zealous as Congress in taking the steps to prevent inflation. What steps will be necessary in the next two years in the international monetary field depends to a considerable extent upon the wars which are being fought allaround the globe. We are not seers and we cannot describe what the future holds in store. I feel very strongly that for Congress to remove this power at the present time because there is no immediate use for it would be an unwise step Regraded Uclassified - 14 - 48 in the face of an uncertain future. As I have previously stated, for this country to surrender any of its instru- ments for dealing adequately and promptly with international economic and monetary problems as they may from time to time arise would tie our hands when immediate action might be crucial. 49 SECRETARY MORGENTHAU'S TESTIMONY BEFORE HOUSE COMMITTEE ON COINAGE, WEIGHTS AND MEASURES MAY 8, 1941 (Extension of Stabilization Fund and Power to Alter the Gold Content of the Dollar) d ified 50 On April 28, 1941, the President wrote to the Speaker of the House recommending extension to June 30, 1943, of the powers relating to the Stabilization Fund and of the power to alter the gold content of the dollar, which powers, under the present law, will expire on June 30, 1941. A B111 (H.R. 4646) has been introduced to accomplish this purpose. I am appearing before you in support of this Bill. When I appeared before your Committee on February 28, 1939, to recommend extension of these same powers, I said: 51 - 2 - "The emergency in the international economic and monetary field still exists and unfortunately there are no grounds for believing that such emergency will end on June 30, 1939. On the contrary, the recurrence of international crisis is as probable now as when the Stabilization Fund was created in 1934." These forebodings turned out to be only too true. During the last two years the international exchange markets have been more disrupted than they have been in the past twenty years. I am afraid that the period ahead of us will be even more critical. In reviewing the work of the Stabilization Fund during the last two years, I want to mention in some detail two of the operations which have been undertaken by the Stabilization Fund. Regraded Uclassified - 3 - 52 The first arrangement is with China. You will recall that on December 2, 1940, I appeared before a joint session of the Senate Committee on Banking and Currency and the House Committee on Coinage, Weights and Measures, to make a statement about the proposed stabilization arrangement with China. I had previously stated to this Committee that I would not consent to the use of the Stabilization Fund to assist any foreign country in prosecuting a war without first consulting with the congressional committees. - 4 - 53 The transaction we contemplated and entered into with China was for currency stabilization purposes. So long as there was any difference of opinion as to whether this type of transaction was of the character that I had promised to discuss with your Committee, I decided to lay all of the facts of the proposed transaction before the joint session of the committees. I was greatly appreciative of the vote of confidence given to Secretary Hull and myself on that occasion. Regraded Uclassified - 5 - 54 Following months of negotiation and study of the Chinese foreign exchange and monetary position, an Agreement was signed on April 25, 1941, making available $50,000,000 to China for the purpose of stabilizing the dollar-yuan rate of exchange. The Agreement also provided for the establishment by China of a United States dollar - Chinese yuan stabilization fund. Included in the Fund's resources will be the dollars acquired from the United States through our purchase of Chinese yuan and a further sum of at least 20,000,000 United States dollars contributed by Chinese governmental banks. 55 - 6 - The Chinese Government 1s placing this Fund under the control of a five-man Board, one member of which will be an American appointed by China on the recommendation of the Secretary of the Treasury. This Board will also have charge of the Chinese yuan - British sterling stabilization funds, which include a 5,000,000 sterling credit recently extended to China by the British Government. These stabilization arrangements with China should be of great aid to China in her monetary problems and also in the struggle with the puppet currencies. In fact, the mere knowledge in the Far East of the contemplated arrangement has been of some assistance to the Chinese monetary position. 56 - 7 - Under the earlier stabilization arrangement of July 14, 1937 with China, we had at one time in the Stabilization Fund $48,000,000 of yuan. This amount has been reduced to $19,000,000, fully collateralized by gold. The second arrangement of importance to be entered into by the Stabilization Fund is the one signed December 27, 1940 with the Argentine Government and the Central Bank of Argentina. Under that arrangement we have agreed to buy $50,000,000 of Argentine pesos and Argentina will use the dollars to stabilize the dollar-peso rate of exchange. The arrangement also provides for the exchange of information and of views bearing on the proper functioning of such a program. 57 - 8 - The monetary authorities of the two countries expect to hold further discussions in the future, which discussions it is hoped will enable both countries to reap the greatest possible benefit from the workings of the stabilization arrangement. The machinery of the Fund was most opportunely at hand to enable us to implement the Good Neighbor policy at a time when Argentina, in common with other Latin American countries, was disturbed about a prospective drain of its foreign exchange resources. 58 - 9 - Before the Treasury actually pays any dollars to Argentina under this arrangement, it will be necessary for Argentina to take certain action to confirm the authority of the Argentine Government to guarantee performance of all obligations undertaken by it and by the Argentine Central Bank. There has been activity recently in connection with the stabilization arrangement which we entered into in 1937 with Brazil. On October 18, 1940, we bought $10,000,000 of milreis from Brazil under this agreement. As Brazil's foreign exchange position improved, Brazil repurchased from us $5,000,000 of these milreis on December 13, 1940 and the remainder on February 13, 1941. 59 - 10 - Under another part of the same agreement with Brazil we have sold $24,000,000 of gold to Brazil for dollars. In the period which I am now describing, the functioning of the Tripartite accord, the development of which had appeared to hold so much promise, was interrupted by the war. Since the outbreak of the war, the machinery set up by the Tripartite accord has been inactive. We have not acquired any currency of a belligerent nation since September, 1939, and at the present time we are holding less than $4,000 worth of British pounds sterling, Belgian belgas, and French francs, acquired before the outbreak of the war. 60 - 11 - I venture to predict that the experience in international monetary cooperation gained through the Tripartite accord will prove of permanent value. I believe that that machinery, which functioned in a spirit of cooperation and equality, promises more for future international economic organization than any of the aggressive monetary devices which now hold sway. During the period from July 1, 1939 to April 30, 1941, the Stabilization Fund purchased approximately $3,920,000,000 of gold. This gold was bought from twenty-three different countries. In the same period there were sales of approximately $380,000,000 of gold to foreign countries. - 12 - 61 Eighteen countries sought and obtained gold from our Stabilization Fund in exchange for dollars. To give an idea of the far-flung extent of these operations, I will just mention Afghanistan, Java and Uruguay as among the countries with which the Stabilization Fund has cooperated in building up their reserves. The total number of gold transactions of the Stabilization Fund during this period was large. The circumstances of the purchases and sales were varied. In these transactions the Stabilization Fund has proved an effective piece of machinery. Incidentally, the existence of the Stabilization Fund made it possible to carry out, with the essential speed and secrecy, three large acquisitions of gold from hard-pressed friendly countries. Doaradod - 13 - 62 As I have previously promised, we have during this period published quarterly reports of the position of the Stabilization Fund. This 1s in addition to the yearly record of the activities of the Stabilization Fund which the statute requires that the Treasury send to the President and to the Congress. These annual reports, the most recent one of which sent to the Congress was dated March 12, 1941, give summaries of transactions in all of the accounts of the Exchange Stabilization Fund for the period April 26, 1934 to June 30, 1935 and for each fiscal year thereafter up to June 30, 1940. I have with me for inspection by the Committee the last published balance sheet of the Stabilization Fund as of December 31, 1940. - 14 - 63 The Stabilization Fund has proved its value during years of unparallelled crisis in international trade and finance. Long ago we made the dollar the strongest currency in the world. Foreign nations and foreign individuals have preferred the dollar to all other currencies. The flow of billions of European capital and the accompanying flow of gold to this country in recent years have made this point clear even to the most unfriendly critics of our monetary policies. 64 - 15 - Now we are going forward into times of even greater peril. We are in the midst of many systems of currency and exchange controls. Some are operated with no friendly intent toward the United States. Our Stabilization Fund is a potent weapon of defense in our international economic relations. This is hardly the time to abandon the machinery of control which we have built up to protect the dollar and the American economy. - 16 - 65 Economic warfare, as well as military warfare, is now being waged on all sides of us. There 18 no certainty that even with peace these aggressive economic instruments will be abandoned by other countries. Nobody can say what kind of international economy will emerge from this war. But it would surely be unwise if we chose this time to let private speculators and foreign governments determine the exchange value of the dollar. In these circumstances, I have no hesitation in making the strongest possible recommendation that Congress extend the Stabilization Fund powers. 66 - 17 - II. Power to Alter Dollar. the Gold Content of the The reasons favoring the renewing of the President's power to alter the gold content of the dollar to not less than 50% of its former weight are comparable to those I have just given for extending the Stabilization Fund powers. When I was before the House Committee on Weights and Measures on February 28, 1939, I said: "The dollar now has identically the same gold value it had five years ago when the President proclaimed on January 31, 1934, that the gold content of the dollar shall be 15-5/21 grains of gold nine-tenths fine. 67 - 18 - The fact that we have kept the gold value of the dollar stable through the international monetary disturbances and alarms of the past five years should be adequate assurance that there is neither desire nor intent on the part of this Administration to alter the gold value of the dollar except under circumstances which clearly demand such action.' Just as there were critics some years back who said that an irresponsible administration would squander the Stabilization Fund in a foolish manner, so there have been persistent critics who said that the President's power to devalue the gold content of the dollar would be used to bring about inflation. 68 - 19 - There 1S no basis for believing that we are going to have inflation in this country because the President posseses this emergency power. I am sure that the President will be as zealous as Congress in taking the steps to prevent inflation. Obviously the Administration has no present intent whatsoever to devalue the gold content of the dollar. But certainly this 1s not the time to remove flexible powers from the Executive when the Executives of all other nations possess virtually complete powers over the domestic and external monetary affairs of their countries. 69 - 20 - In 1939, I said to Congress "This power is a weapon in reserve needed for protection of American interests. In the monetary field, it is as important as a powerful Navy in the field of defense against armed attack." That statement is as true now as in 1939. What steps will be necessary in the next two years in the international monetary field depends to a considerable extent upon the wars which are being fought all around the globe. We are not seers and we can not describe what the future holds in store. I feel very strongly that for Congress to remove this power at the present time because there 1s no immediate use for it would be an unwise step in the face of an uncertain future. -000- Regraded Uclassified 1 70 Balance Sheet of the Exchange Stabilization Fund As of June 30, 1940 and December 31, 1940 fee 30, 1540 I a DE: - treasurer of tibe 2. L. all. #1,800,000,000.00 francer of the c. E., shedding enterist $1,800,000,000.00 1,50,334.20 Fateral bern last of les Terk, qual account 127.190.369.35 1,570,599.17 Disbersing officers' balances and afrease 143,800,401.59 11.072.25 11,236.23 Apecial - of Secretary of the Treasury is Peteral leserve Bank of See Two Special access 3. 1, gald (Schadule 1) 45,000,180.63 47,598,800.03 be from foreign banks (fereign exchange): Trans a 17.00 . 17.88 hight 505.06 505.06 merting 2,036.40 2,580.05 Central bust of China (secured depesits) 1/ 15,112,500.00 19.11].212.66 less la Trasil (secured deposite) to . 5,026,712.34 19.115.059,34 24,147,487.99 Investments is v. s. Gevernment semetties (Schetale 2) 10,W48,723.13 10,446,783.13 Merial interest receivable (Schedule 2) 9,730.73 10,436.48 Other acceptate (deferred charges) 6,013.43 26,066.54 Commity sales contracts (deferred charges) 2,635.00 2,636.00 Total asseta $2,044,377,513.15 $2,027,018,377.76 lishilities and Cepital Accounts payable: Teachers payable 4 4,018.05 . 7,609.47 - to foreign banks 22,845,963.21 * 22.09.901.26 . 1,836,614.45 Capital servent 2,500,000,000.00 2,000,000,000.00 Bursings loss expenses (Schecules) sodk) 21.527.537.09 25.90.763.31 Total liabilities and cepital $2,044,377,519.15 $2,027,00,8,377.76 Desit Pleasest Annual balance sheets for the years 1934 through 1940 my be femal in the Annual Report of the Secretary of the freasury for 1940, Quarterly balance sheets commencing December 31. 1938 may be forms in previous Issues of the Treasury 1/ Denstated of 65,000,000 year as of im 30. 1940 and 65,016,027.40 year as of December 31. 1940. Ould hald as sollateral No $19,379,015.65 se of both dates. U Conststed of 100.534.246.58 milrets as of December 31. 1940. 0414 hald as sollatoral associated to $5,063,429.57. Schedules for Balance Sheet of the Exchange Stabilisation Fund Schedule 1 Location of gold hald by and for - of the Insurance Stabilization 1/ - 30. 1940 December 31. 1940 Location Crasse Dollars Oranges Dellare Federal Easarve last of New Taste 462,392.042 16,183,721.49 109,382.911 6,625,401.64 = 8. Assay Office, fav York 1 69,836,499.14 1,170,411,386 40,964,398.15 Total 2,457,719.448 56,020,180.63 1,359,794.297 47,592,600.03 V Revistes pla hald by frequence of the D. s. 2 Schedules for Balance Sheet of the Exchange Stabilisation Past (Contimed) Schedule 2 U. 8. Dovernment securities hald by - Muldiention hai June 30. 1940 31. 1990 Iames Tase Dest Average Assored has Death Aventge I value price interest value price Lakemen 2-1/45 treatry bunds, 1951-33. $10,000.000 $10,000,000.00 100,0000 $10,000,000 mn,000,000.00 100.0000 $ 5,000.01 2-3/46 Treasury name, 1998-63. 50,000 49,500.63 99.2413 56.39 50,000 49,00.63 99-2813 60,m 2-3/46 Treasury Vendo, 1960-65 402,000 339,082.50 99-2743 453.07 lice,000 359,002.30 99-2743 NP5.93 Total D. 8. Government securities. $10,452,000 $10,448,723.13 05.730.73 $10,552,000 $10,446,783.13 Schedule 3 Marnings of the Exchange Mabilisation 7ml Bearne Junuary 31, 19% Jamury n. 1934 Ump has 30, 1940 December 3. 1940 Profits 58 Brittsh storling transactions. I 310,494.44 - 310,638.09 Profits - French freas transactions 352,537.99 351.537.99 Profile na gold bullion (iscluding profise from handling charges on gold) 12,907,587.19 16,801,750.N4 Profits - silver transactions 105.371.27 105,371.27 Profits - mile of silver bullion to Treasury (nationalized) 3,473,362.29 3,473,362.29 Profite sa Investments 1,019,326.18 1,019,326.18 Interest on Lovestments 3,236,149.14 3,199,563.09 Missellaneous prefits. 473.74 473.74 Internet earned - foreign balances 56,727.37 63,429.72 Interest must M Place - 1,265,656.11 1,411,928.07 Total earnings $22,726,515.72 826,513,397.61 Schedule 4 Matainative Dipense of the Fund Classification Jamuary 31. 1934 through Jumury 31. 1934 I'm 30, 1940 Denember 31. 1990 Balaries # 723.720,40 a $14,726.09 trans 47,753.95 51,141.79 35,108.04 Telephone a valagraph 37,181.43 879,656.42 etc. 300,120.7% 13,011.21 All other 15,410.15 99,087.01 112,994.20 Total administrative expense 11.199.077.23 m,331,634.36 Regraded Uclassified 71 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 8, 1941 Secretary Morgenthau TO FROM Herbert Merillat HEARINGS OF WAYS AND MEANS COMMITTEE May 8, 1941 The entire day was taken up with testimony of tobacco farmers and their representatives protesting increases in taxes on tobacco. A Mr. Lanier of North Carolina led off with an able presentation of the tobacco farmers' case and visibly im- pressed the committee. The sympathetic attitude of the com- mittee continued throughout the day. Although the members' interest lagged as farmer after farmer gave essentially the same testimony, it is apparent that most members on both sides of the committee are inclined to question the desirability of further increases in taxes on tobacco. Regraded Uclassified 72 V IRVING BERLIN May 8, 1941 Mr. Henry Morgenthau Jr., Secretary of the Treasurey, Washington, D. C. My dear Mr. Morgenthau: On my return from Hollywood today, I found your letter of May 1st with the clippings enclosed. Nothing would give me greater satisfaction than to write a good song for your Defense Bonds Program. Quite frankly, its not an easy job to write this kind of a song to order. However I am going to try because I appreciate the importance of the Cause. I have spoken to Howard Dietz, who as you know, is doing some publicity for this; and hope that something will come of it. I can only promise that I will try very hard. In the meantime, I would suggest that nothing be said about this until I have something conorete to tell you. Kindest regards. Very sincerely yours, IB:G Regraded Uclassified 73 May 8, 1941 My dear Mr. President: I thought you would be interested in the first report that we have had on the sales of United States Defense bonds and stamps for the first seven days of May. I have been keeping in touch with Admiral MeIntire and I was glad to learn that you were feeling better. Yours sincerely, (Signed) Henry The President, The White House. the By Monorager 325 74 May 8, 1941 My dear Kr. President: I thought you would be interested in the first report that we have had on the sales of United States Defense bonds and stamps for the first seven days of May. I have been keeping in touch with Admiral MeIntire and I was glad to learn that you were feeling better. Yours sincerely, (Signed) Henry The President, The White House. By Memonager 75 May 8, 1941 My dear Kr. President: I thought you would be interested in the first report that we have had on the sales of United States Defense bonds and stamps for the first seven days of May. I have been keeping in touch with Admiral MeIntire and I was glad to learn that you were feeling better. Yours sincerely, (Signed) Henry The President, The White House. di I Regraded Uclassified 76 UNITED STATES SATING nome AND SAVING HAVE Daily false State Rig 1, 1942 Confidential 4 Thats of Insue Price (In through of dollars) # I All Sales - Post Office Sales - I hat false I to I : : Series I : Series 7 : 3 6 : $ Total Stamps Series Total I Series 3 Total : Segies I Series 7 : Series 6 I : 1941 2 $35.670 21,145 $ 4,996 $4,453 $25,047 $ 5.549 $1,145 $4,405 $ 30,121 $ 591 $4,453 $25,047 3 30,766 106 2.472 3,668 24,521 1,416 106 1,320 29,349 1,161 3,668 24,521 5 15,076 113 2,992 2,094 9,878 1,695 113 1,551 13,383 1,410 2,094 9.878 6 14,751 91 3,800 2,095 8,755 1,698 91 1,607 13,053 2,193 2,095 8,765 7 18,615 99 4,420 2,177 11,919 1,450 99 1,351 17,165 3,059 2,177 11,919 a $114,880 $1,554 $18,679 $14,517 $80,130 $11,609 $1,554 $10,254 $103.072 $8,425 $14,517 $80,130 soury Department, Division of Research and Statistics. May 8, 1941. POOL Division of Sevings Bonds. The post effice figures are estimated by the past office a the basis of actual sales w 100 larger post offices. The bank figures are taken from Federal Receive York reports at include their on sales. bte: Figures have been rounded to nearest thrmant and will not necessarily add to totals. DEPOSITS IN TREASURER'S ACCOUNT FROM SALE UNITED STATES SAVINGS BONDS (ALL SERIES) (In Thousands of Dollars (Based on Telegraphic Reports) TOTAL TO MAY 1 MAY 2 MAY 3 MAY 5 MAY 6 MAY 7 MAY 8 MAY 9 MAY 10 DATE Treasury 58 27 36 31 30 65 247 Boston 23 177 37 2,127 1,959 238 4,561 New York 511 2,128 683 1,336 1,292 1,842 7,792 Philadelphia 201 182 216 246 1,121 1,146 3,112 Cleveland 955 246 942 1,158 2,467 1,444 7,212 Richmond 163 234 289 292 1,021 1,166 3,165 121 305 174 1,317 523 298 2,738 Atlanta Chicago 457 634 740 1,233 585 983 4,632 St. Louis 534 804 1,822 1,538 505 981 6,184 Minneapolis 150 567 73 238 569 242 1,839 Kansas City 695 876 388 863 827 843 4,492 585 2,537 Dallas 271 157 429 271 824 San Francisco 312 572 534 687 259 1,333 3,697 TOTAL 4,451 6,909 6,363 11,337 11,982 11,166 Cumulative Total 4,451 11,360 17,723 29,060 41,042 52,208 Office of the Under Secretary May 8, 1941. << Regraded Uclas 78 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 8, 1941. TO FROM Mr. Haas Secretary MA Morgenthau Mr. Carl Hamilton, Assistant to the Secretary of Agriculture, telephoned me this morning to say that he had explored further the question of the Department's continuance of its surplus disposal programs in view of the price rise in cotton textiles. The justification for continuing the programs 16 that foreign markets have been greatly restricted and Government stocks of cotton amount to more than 10 million bales. He said they are fully aware that something should be done, but they feel that the real bottleneck is in the manu- facturing facilities and that some arrangement should therefore be made with the processors. He told me that Milo Perkins, who 1s running the surplus disposal program, had talked with Donald Nelson, and it was Mr. Hamilton's understanding that Mr. Nelson intended to go into the matter thoroughly with the Agriculture people and call a meeting with the textile manufacturers. They feel that if production at the mills can be increased the problem will be solved. Mr. Hamilton said they appreciated your calling this matter to their attention and they realize that their program as it now stands does aggravate the price rise. However they are now working on the problem, in conjunction with the other Government people concerned, and hope to be able to work out a satisfactory solution. Hennery 79 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE May 8, 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 5 o'clock yesterday evening Mr. John G. Erhardt, Chief of the Division of Foreign Service Personnel in the Department of State, telephoned ne informally to see whether the Treasury had any objection to Donald Heath being transferred from Berlin, where he is now serving as First Secretary of Embassy and doing some special reporting for the Treasury. Erhardt let no know that Heath's services were required in a Latin American capital, and reminded me that he had been in Berlin for some time. I told Erhardt that ve would place no obstacle in the way of Heath's transfer, but that I did desire to speak with Secretary Morgenthau personally on this point before giving a final answer. My recommendation 18 that we offer no objection. Within the near future I hope to talk with Erhardt on the general question of foreign service officers providing the Treasury with pertinent monetary and financial data, and I may suggest that the Secretary be good enough to receive Erhardt, who seems anxious to cooperate with us completely. In present circumstances, it is little worth while to designate new officers as special representatives of the Treasury in war-torn capitals of Europe. We should continue to receive such material as reaches the State Department on a monetary, financial and economic subjects and through Erhardt I can suggest topics for reports by our regular staff in any capital. Later on ve can reopen the question of special representation when conditions warrant it. NMP Regraded Uclassified May 8, 1941 80 Miss Chauncey said that she got this letter back from Mr. Knudsen and showed it to the Secretary, who said she should hold it as General Arnold is getting some additional information. The letter is dated January 8, 1941. 81 May 8, 1941 Miss Chauncey Secretary Morgenthau Several months ago I gave Mr. Knudsen a letter that I had received from the Boeing Company in which they mentioned certain shortages which they had. I wish you would please call up Mr. Knudsen's office and ask them to send me back the original letter this morning. Letter dated 82 THE WHITE HOUSE WASHINGTON May 8, 1941 My dear Mr. Secretary: I find that: (1) The defense of China is vital to the defense of the United States; (2) Sections 4 and 7 of the Act of March 11, 1941 have been complied with by the necessary agreement on the part of the Government of China; (3) It would be in the interests of our national defense to transfer the defense articles set forth in the annexed schedule. I therefore authorize you immediately to make the transfer to the Government of China of the defense articles set forth in the annexed schedule. I would appreciate it if you would arrange with the proper representative of China Defense Supplies, Inc., for the time, method, and other details of the disposition. Very sincerely yours, Marwesh The Honorable The Secretary of the Treasury Regraded Uclassified TRANSFER VE NO.D-16.I. 83 Defense Articles Authorised For Transfer to the Republic of China by the Secretary of the Treasury Requisition Articles Number Quantity Description C=2 1,800 7.50 I 20 8 ply truck tires and tubes. C-3 9,000 short tons Copper ingots, weight of ingots about 35 lbs. each. C-6 8,000 short tons Pig Lead. (2,000 lbs. each) C-5 5,500 short tons Zino, weight of each slab, 50-60 lbs. Zino content 99.95% min. 0-6 3,000,000 Gray Military Cotton Blankets. C=7 10,000,000 yds. Gray Sheetings, 36" in width, 48x48 threads. C-18 42 Caterpillar Tractors D-2 50 Caterpillar Tractors D-4 so Caterpillar Tractors D-6 0-14 5,000,000 gals. Gasoline 2,500 tons Lubricating Oils 30,700 lbs. Misc. Oils and Greases 1,000,000 C.C. Tetra Ethyl Load Fluid FIRST DRAFT 5/8/41 84 A BILL To establish a Department of Supply in order more effectively to coordinate and expedite the national defense pro- gram of the United States, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Department of Supply Act of 1941". SEC. 2. Where used in this Act, unless the context clearly indicates otherwise- (a) The term "agency" includes any executive department, in- dependent establishment, commission, office, board, bureau, service, administration, authority, Federally owned or controlled corporation, agency, division, or activity of the United States, whether in the District of Columbia or in the field service, or any part thereof. (b) The term "functions" includes any rights, privileges, powers, immunities, duties, authority, or functions, or any part thereof. (c) The term "property" includes any articles, goods, mate- rials, things, facilities, structures, improvements, machinery, equipment, stores, supplies, or any other property or rights in property, real or personal, tangible or intengible, including (without any limitation of the foregoing) any defense article or defense information as defined in section 2 of the Act of March 11, 1941 (Public No. 11, 77th Congress). 85 - 2 - SEC. 3. There shall be at the seat of government an execu- tive department to be known as the Department of Supply and a Secretary of Supply (hereinafter referred to as the Secretary), who shall be the head thereof, and shall be appointed by the President, by and with the advice and consent of the Senate, and have a tenure of office and salary like those of the heads of the other executive departments. Section 158 of the Revised Statutes, as amended (U.S.C., title 5, sec. 1), 10 amended to include such Department, and the provisions of Title IV of the Revised Statutes, including all acts amendatory and supplementary thereto, shall be applicable to such Department if not inconsistent with this Act. SEC. 4(a) There shall be in the Department of Supply an Under Secretary of Supply, a General Counsel, and seven Assistant Secretaries of Supply, who shall be appointed by the President, by and with the advice and consent of the Senate, all of whom shall exercise such functions as may be prescribed by the Secretary or required by law. The Secretary is authorized to exercise any function now or hereafter conferred or imposed upon him through any of the foregoing officers, or any other officer of his Depart- ment whom he may designate. The Under Secretary of Supply, the General Counsel, and the Assistant Secretaries of Supply shall each receive a salary of $10,000 per anmin. (b) In the absence or disability of the Secretary, or in the event of a vacancy in that office, the Under Secretary of Supply Regraded Uclassified 86 - 3 - shall act as Secretary. In the absence or disability of both, or in the event of vacancies in both offices, one of the Assistant Secre- taries of Supply or the General Counsel shall act as Secretary, and another Assistant Secretary or the General Counsel shall act as Under Secretary, in such order as may be determined by the Secre- tary. The Secretary may designate any officer of his Department to act as the Under Secretary, an Assistant Secretary, the General Counsel, a Director of Division, or an Assistant Director of Divi- sion, in the absence or disability of the officer involved, or in the event of a vacancy in the office involved. Any officer filling another office in an acting capacity under this subsection may exer- cise any function which might be exercised by the regular incumbent of that office. SEC. 5. There shall be in the Department of Supply such major Divisions as the Secretary shall by regulations prescribe, which regu- lations shall be approved by the President. In addition, there shall be in the Department of Supply such lesser subdivisions, sections, and offices, as the Secretary shall by regulations prescribe. All regula- tions under this section shall be published in the Federal Register. SEC. 6. There shall be at the head of each major Division of the Department of Supply a Director, who shall be appointed by the Secretary without regard to the civil service laws and shall receive a salary of $10,000 per annum, and one or more Assistant Directors (as the Secre- tary may find necessary), who shall be appointed by the Secretary Regraded Uclassified 87 - 4 - without regard to the civil service laws and each shall receive & salary of $9,000 per annum. SEC. 7(a). The President is authorized to transfer by Executive Order to the Department of Supply any agency or function relating to any one or more of the following activities: (1) The manufacture or production of any property by or under the supervision of any agency; (2) The management, coordination, and stimulation of expansion, of the manufacture or production of any property by private industry, private persons, or other persons or entities; (3) The procurement, warehousing, transportation, and distribu- tion of any property for national defense or other governmental purpose; (4) The establishment of priorities with respect to: (i) deliveries of property under any contracts, sub- contracts, orders or suborders; (ii) the carriage of any property, or classes of property, by any means of transportation; (iii) the carriage of any message, or class of message, by any manner of communication facility; (5) The allocation of property for defense, for private account, or for export, in the public interest or to promote the national defense; (6) The requisitioning of any property; (7) The control of prices and the protection of consumers; and (8) Such other activities as the President may deem so closely related to one or more of the foregoing that they should be administered Regraded Uclassified 88 - 5 - in the Department of Supply. (b) The President is authorized to transfer by Executive Order any agency or function of the Department of Supply to any other agency in the same manner and subject to the same provisions of this Act or other law as in the case of a transfer of an agency or function to the Department of Supply under subsection (a). (c) Each Executive Order under this section shall be printed in the Federal Register, and shall also be printed in the Statutes at Large in the same volume as the public laws. SEC. 8(a) Any supervisory or other functions exercised by any officer of any agency with respect to any agency or function trans- ferred to the Department of Supply under this Act are transferred to the Secretary. (b) The Secretary shall administer the laws relating to any agency or function transferred to the Department of Supply under this Act or brought within the jurisdiction and control of such Department by or pursuant to any other provision of law. SEC. 9(a) The Secretary shall cause a seal of office to be made for the Department of Supply, of such design as the Premident shall approve, and judicial notice shall be taken of such seal. (b) The Secretary shall annually, at the close of each fiscal year, make e report in writing to the Congress, giving an account of all money received and expended by the Department of Supply and describ- ing the work done by that Department. He shall also from time to time make such special investigations and reports as he may deem necessary or Regraded Uclassified 89 - 6 - as he may be required to make by the President or requested to make by either House of Congress. SEC. 10(a) The Secretary is authorized, subject to the civil service laws, to appoint such officers and employees as he deems necessary to enable him to exercise the functions now or hereafter conferred or imposed upon him or his Department by or pursuant to law, and the compensation of all such officers and employees shall be fixed in accordance with the Classification Act of 1923, as amended. (b) Notwithstanding the provisions of subsection (a), the Secre- tary is authorized to employ such compensated or uncompensated persons as he in his discretion may deem necessary for part-time or special work, and any such person may be appointed without regard to the civil service laws, and, if compensated, may receive compensation without regard to the Classification Act of 1923, as amended. SEC. 11. The Secretary may enter into contracts (which he is otherwise authorized to enter into by or pursuant to law) without ad- vertising or competitive bidding. No contract which would otherwise be subject to the provisions of the Act of June 30, 1936 (49 Stat. 2036; U.S.C., Supp. V, title 41, secs. 35-45), shall be exempt from the provisions of such Act solely because of being entered into without advertising or competitive bidding pursuant to this section. The cost- plus-a-percentage-of-cost system of contracting shall not be used under this section, but this shall not be construed to prohibit the use of the cost-plus-a-fixed-fee form of contract when such use is deemed Regraded Uclassified 90 7 - necessary by the Secretary. The Secretary shall report every three months to the Congress the contracts entered into by his Department without advertising or competitive bidding pursuant to this section. This section shall be supplementary to, and not in lieu of, all other provisions of law authorizing officers of the United States to enter into contracts without advertising or competitive bidding. The au- thority conferred by this section shall terminate June 30, 1943. SEC. 12(a) Each Executive Order under this Act transferring agencies or functions hall contain appropriate provisions for the transfer or other disposition of records, property including office equipment), personnel, and unexpended balances of appropriations or other funds, affected by such transfer. (b) The Secretary may appropriately change the name of any agency or the title of any officer transferred to the Department of Supply. (c) In the case of any commissioned officer or enlisted man of the Army, Navy, or Coast Guard transferred by any such Executive Order to the Department of Supply, such transfer shall be regarded as a detail, revocable at any time by the President. In addition, the President, or the head of any agency at the request of the Secretary, may at any time detail any officer or employee of his agency (including commissioned officers or enlisted men of the Army, Navy, or Coast Guard) to the Department of Supply, such detail to be revocable in the same manner in which it was made. Regraded Uclassified 91 - - I 1 Regraded Uclass SEC. 13 (a) All orders, rules, regulations, permits, or other privileges, made, issued, or granted by or in respect of any agency or function transferred under this Act, and in effect at the time of the transfer, shall continue in effect to the same extent as if such transfer had not occurred, until modified, superseded, or repealed. (b) No suit, action, or other proceeding lawfully commenced by or against the head of any agency or other officer or employee of the United States, in his official capacity or in relation to the discharge of his official duties, shall abate by reason of any transfer of func- tions from one officer, employee, or agency of the United States to another under this Act, but the court, on motion or supplemental petition filed at any time within twelve months after such transfer takes effect, showing a necessity for a survival of such suit, action, or other proceeding to obtain a settlement of the questions involved, may allow the same to be maintained by or against the head of the agency to which the transfer is made. (c) All laws relating to any agency or function transferred under this Act shall, insofar as such laws are not inapplicable, remain in full force and effect. SEC. 14. No transfer under this Act shall have the effect- (a) of continuing any agency or function beyond the date when it would have terminated if such transfer had not been made; (b) of continuing any function beyond the time when the agency in which it was vested before its transfer to the 92 - 9 - Department of Supply would have terminated if such transfer had not been made; or (c) of authorizing the Department of Supply, the Secretary, or any other agency or officer, to exercise any function which is not authorized by or pursuant to law. SEC. 15. There is hereby authorized to be appropriated such sums as may be necessary to carry out the provisions of this Act. SJS:mfw 5/8/41 93 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION Regraded Uclas DATE May 8, 1941. TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £50,000 Purchased from commercial concerns £22,000 Open market sterling remained at 4.03-1/4. Transactions of the reporting banks were as follows: Sold to commercial concerns -0- Purchased from commercial concerns & 2,000 The Cuban peso, which closed last night at a two-year high of 2-1/4% discount, reacted to close at 2-1/2% today. In New York, closing quotations for the foreign currencies listed below were as follows: Canadian dollar 12-1/4% discount Swiss franc .2321 Swedish krona .2385 Reichsmark .4005 Lira .0505 Argentine peso (free) .2375 Brazilian milreis (free) .0505 Mexican poso .2066 In Shanghai, the yuan was 1/16# higher at 5-9/324, and sterling vas quoted at 3.90, up 2-3/4#. There were no gold transactions consumsted by us today. The Federal Reserve Bank of New York reported that the Central Bank of the Colombian Republic shipped $2,776,000 in gold from Colombia to the Federal, dispo- sition unknown. We were informed that the Bombay gold price for May 3 was equivalent to $34.57. representing a decline of 5# from the quotation of April 26. Silver vas unchanged at the equivalent of 44.624. 94 - 2 - The Bureau of Foreign and Domestic Commerce reported on May 7 that $204,000 in foreign silver coin was exported from New York to the Netherlands Indies Government, Batavia, Java. Including this shipment, a total of $1,295,000 worth of silver coin tas been shipped to the Javanese Government under its order to purchase $2,100,000 in silver for conversion into coin. The Bureau of Foreign and Domestic Commerce also reported on May 7 that 300,000 ounces of refined silver bullion vas imported from Mexico, consigned to the American Metal Company in San Francisco, for trans-shipment to Bombay, India. In London, the price fixed for both spot and forward silver remained at 23-1/2d, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 354. Handy and Harman's settlement price for foreign silver was also unchanged at 34-3/44. We made no purchases of silver today. jux CONFIDENTIAL Regraded Uclassifie CONFIDENTIAL 95 Paraphrase of Code Cablegrom Received at the for Department et 09:11, my s, 1941. Lendon, filed 13:35, May s, 1941. 1. British Air Activity Cretinent. s Daylight, May 7. in Axis ship w observed to be mt by British bonks off the coast of France. Fighter squadrens performed effensive missions over the English Channel. b. Gight, May 6-7. There was havy beaking of Mainlary w 115 long range boabers. Le Havro, Loriest and subjected to attacks by a small mumber each. the Ands ship w mik w boaking eff the coast of the Netherlands. Airfields in occupied France TOTO attacked by five patrols of fighters. 2. Garman Air Activity Britain. & Eight of May THE There w German benting over the visimity of the Humber, East Anglia, the Timeside, Bristel, Glasgow, with the principal attacks en the Manshester at Marceyside. 2 Daylight, May % Air activity over the United Kingdon - limited to fighter patrols in the Calais-Bever area and several attacks w fighters en airfields in Kent. CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 96 2. Right of My 60% The air activity over Regland hou - Insurance reparied - the smale of 360 planse. 3. Thinks - British. (1) Hight of May 6-7. w 1 bender - she's down over complex Presse, (2) buylight, May 6. 6 fighters and 2 himhers - short - For of the pilets exceped without injury. Germin. (1) Hight of May 74. British night fighters she't - , Germen planse and damaged - in widespread attacks over There - no s shoup I (2) Reylight, May 7. Fighter squiros shot drem # planes with 4 mare probable and damaged 6 in fighting over the Britisk Charnel. (9) Hight of My 6-7- Large amle - raids en Great Britain, Right and possibly these husbers were shot does and the damaged. Another w destrayed w antiairment fire. 4. Theater. s Buylight, May 7. (1) Like. Planes based in Egypt attacked all Axis sirfields in Eastern Libya. CONFIDENTIAL + Regraded Uclassified CONFIDENTIAL 97 (2) Malta. British squatrons from Malta bented M Arts ship convey south of Pastellaria and secred direct kits is 3 chips, with a 4th probably hit. From the - base Tripeli harber we sind. (3) Iraq. British planes continued $6 attack trueys and gum positions of the Iraq bay. 5. German Air Activity. Middle Test Theater. German planes bombed Sude Bay in Crete and Tobruk 13. Libya, without infliciing any military damage. 6. The following is a mustery of British Military Intelligence opinions 1. Increased numbers of German agents and Fifth Columnists have recently entered Fortugal. 2. No serious trouble is expected in Iran as leag all the British are suscessful in Iraq. British reverses there my have repercussions in Iren. 3. There is me trouble in Syria as yet. LEE Distributions Secretary of Mar State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Air Corps G-3 CONFIDENTIAL - Regraded Uclassified 98 By C. of S., 0-2 SECRET Paraphrase of Code Cablegram Date 5/15/41 lett 8 > Received at the War Department Initials at 18:00, May s, 1941. Panama, filed May 7, 1941. It is reported the Dunav, a Jugeslav ship, will be ready to sail this afternoon at Cristchal, where it is now located. Its cargo consists of British Columbian Lumber destined for South Africa. The Secretary of the Treasury, according to the under- standing of the Fifteenth Naval District Commandant, has ordered no Jugeslav ships to be given clearance. It is requested further instructions be given. Reference is made to radio 945 from A. C. of s., G-2, PCD, and radio reply No. 1179 thereto. VAN VOORHIS Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence SECRET Regraded Uclassified By SECRET authority A. C. of 5) 052 99 Date 13 may 4 Disk Paraphrase of Code Cablegrez Initials Received at the The Department at 20:48, May 8, 1941 Cadro, filed May s, 1941. 1. It is reported that General Milch has recently inspented the German operations in Libya. 2. Tabrok. The 9th Australian Division with less than 30 tasks is included in the gerrison of 26,000 which holds Tobruk. The British technique for resisting attack by armored forces is to allow the Gensan tanks to pass through the defenses of the outer perinster and then to counter them with a sombination of interier anti-tank defense and counter- attack by British tanks. The Axis Infantry which follows the tanks is them dealt with. The antiaireraft defense of Tobruk has 75 Breds guns, 5 4.7 caliber, and 40 Before. The letter is considered the neet efficient British anti-tank gm. There are m planes available for supporting Tobank and Axis aireraft are making continuous heavy attacks. 3. The British have lest 7 ships suck in Tobank herber through entry action. One brigade of this 2nd Amered Division was last in Gresse, another in Libya. the 7th Arnered Division remains insffective while smiting new mochanized vehicles. West of Matruh there is a faree of 4 Infantry battalions partly moterised, with 40 field pieces, 15 light tanks and 50 ernored care which have been given the task of delaying without becoming seriously engaged. SECRET 100 4. Merca Matruh and Baggush are defended respectively by the 4th Indian and 5th British Divisions supported by one squadron of stuared cars and 34 infantry tanks. 5. I estimate that the line on which the British will make the major defense effort is north from n Maghra to the Nediterranean. They place their reliance upon the bot season, delay in successive positions by the forces at Matruh and Baggush, and Aris supply problems. The British are of the opinion that the Axis by the middle of next month can maintain one amored and one air borns division as for east as XL Maghra and that in order to support major operations the Axis must have the use of harbors east of Bengasi. This estimate I consider over optimistic in that it seme to ignore air transport and the overwhelming superiority in the air which the Axis a joy and which may block efforts to delay at Matruh and Baggush. 6. During the week beginning April 24th 6 German bombing squadrens were noved from bases in Europe to Bulgaria and 2 squadrens of Junkers 88 plus one squadron Me-109's were transferred from Sicily to Libya. Gersen losses for the week in the Middle East Theater are - timated at 50 planes. 7. There is almost contimueus traffic in munitions, oil products and troops between Italy, Sicily and Africa by the usans of 250 air trans- part planes principally Junkers 52's, which in critical areas, are conveyed by fighters. The main Axis air base in Libya is at Derma. 8. From bases in Sicily nine heavy bombing squadrons are - centrated on attacks on British shipping. 9. Supplies are flown into southern Greece by 300 transport planes presumably to assist in an offensive against Crete, Cyprus or possibly Syria. SECRET Regraded Uclassified 101 SECRET IN (freete the following mbe of planse have been identified: 30 Julian ⑉ or to 111's 123 Jukers 187's 1 De-17's so MB-109's 30 ME-110's 45 m 126's 10. It is estimated that in Tugeslavia and Bulgaria there are 200 planes. The following planes have been identified is fisily. 9 Do-17's 78 Ankers 87's 59 Junkers 88's 18 ME-110's 18 ME-109's 36 X 111's 11. There are 9 E 111's in Italy. 12. British air strength as of May 5 is the Middle East Theater. There were 35 fighters and 87 beniers in operation over the whole theater. 20 benbers and 9 fighters were out of operation undergaing overhealing. n Takeradi 75 pa40's have not yet boon put into comminsion. The - applice to 10 P-40's in Egypt. 25 P-40's and 6 Elembrins are in commission at Takoradi but pilots espable of flying them to Egypt are lacking. LES Distributions Secretary of Ver Assistant Chief of staff, 0-2 State Department Yes Plans Division Secretary of Treasury Office of Neval Intelligence Under Secretary of Yor Air Corps Chief of Staff 0-3 SECRE! Regraded Uclassified