Volume 456, October 30 – October 31, 1941

DIARY Book 456 October 30 and 31, 1941 Regraded Unclassified - & Book Page Airport - New Hackensack See New Hackensack Airport American Friends Service Committee See War Conditions: Foreign Funds Control - C - Censorship of International Communications See Navy Department China See War Conditions Coast Guard Immediate transfer of part arranged by Knox and HMJr - Gaston memorandum - 10/31/41 456 197 a) Knox-HMJr conversations - 10/31/41 122,137 b) Proposed Executive Order 200 c) Executive Order - 11/1/41: Book 457, pages 27 and 48 Cochran, Mrs. Merle Health considered by HMJr, Wilson, Dietrich, Thompson, and Foley - 10/30/41 2 a) Cable 14 b) Taken to Sheppard Pratt - Dr. Klein informs HMJr 220 c) Resume' of case: Book 457, page 2 d) Cochran's Clipper delayed until November 12: Book 458, page 278 e) Cochran flies via Clipper on November 12; priority assured to San Francisco: Book 461, page 322 Contracts, Defense See War Conditions: Lend-Lease Curtiss-Wright Corporation See War Conditions: Lend-Lease (Delays) - D - Defense Contracts See War Conditions: Lend-Lease Defense Savings Bonds See Financing, Government Dollar-a-year Men Indicated defense agencies delegated authority by FDR to select and employ certain individuals, terms and conditions prescribed - - 10/30/41 47 - E - Egypt See War Conditions: Lend-Lease Regraded Unclassified - 1 - Book Page Financing. Government Defense Savings Bonds: Comparative statement of sales during first 25 business days of August, September, and October, 1941 - 10/30/41 456 72 Progress report - 10/31/41 287 Fox, A. Manuel See War Conditions: China - G - General Counsel, Office of Report on projects during September 1941 252 19 if Foreign Funds Control - 10/31/41 268 - H - Housing Changes in cost of construction of standard six-room house in St. Louis, July 1940-- September 1941 79 - I - Iceland See War Conditions - L - Lend-Lease Administration, Office of See War Conditions: Lend-Lease 2 I 1 Navy Department Censorship of International Communications: Treasury's reaction to proposed bill - 10/30/41 53 New Hackensack Airport Report prepared by HMJr's pilot on improvemente to field - 10/30/41 75 a) Watson sende preliminary report from Civil Aeronautics - 11/12/41: Book 460, page 152 b) Hinckley report to HMJr sent on to FDR - 12/2/41: Book 467, page 276 c) Connolly (Civil Aeronautics) report - 12/2/41: Book 467, page 282 Regraded Unclassified - 0 - Book Page Office of Lend-Lease Administration See War Conditions: Lend-Lease - P - Persia See War Conditions: Lend-Lease Pressman, Lee See War Conditions: Lend-Lease (Delays) Procurement Division Consolidation of purchasing activities of entire Government - memorandum concerning - 10/31/41.. 456 232 - Q - Quakers See War Conditions: Foreign Funds Control - R - - Rabon, Hampton A., Jr. See Revenue Revision Revenue Revision Excess Profits Tax base - Morris memorandum on problem - - 10/31/41 202 Comparative data on taxes in United States, Great Britain, and Canada: (1) death and gift; (2) general sales; (3) selective excise - Blough memorandum - - 10/31/41 214 "Know Your Taxes": Hampton À, Rabon, Jr., to obtain banks' reaction - 10/31/41 219 - S - Saint Louis See Housing Steel See War Conditions: Lend-Lease Stettinius, Edward, Jr. See War Conditions: Lend-Lease - T - Taxation See Revenue Revision Regraded Unclassified - V - Book Page Var Conditions Airplanes: Shipments to United Kingdom and overseas commands - British Air Commission report - 10/30/41 456 36 China: Japanese attack on Yunnan threatened - Chiang Kai-shek message - 10/30/41 16 Fox, A. Manuel: Adviser to Ministry of Finance - Treasury will interpose no objections - 10/30/41 21 (See also Book 457, page 351) a) Hu Shih's appreciation - 10/31/41 325 Exchange market resume' - 10/31/41 333 Foreign Funds Control: Office of General Counsel report - 10/31/41 268 American Friends Service Committee: Transfer of funds from French Government for purchase of food discussed in Foley memorandum - 10/31/41 277,278 Iceland: Economic relations of United States and Great Britain with Iceland - State Department memorandum - 10/31/41 326 Currency - adequacy of discussed in cable from American Minister, Reykjavik - 11/17/41: Book 462, page 410 Lend-Lease: Persia-Egypt: Transfer of locomotives and rolling stock discussed in British Purchasing Commission letter - 10/30/41 38 Steel: Resume' of purchases and shipments to date - 10/30/41 40 Allocations and contracts executed from inception of program to October 23, 1941 - 10/30/41 42 a) Charts: Days elapsed between date of clearance by Office of Production Management and Lend-Lease, and date order was placed (all orders, May 1 to date) - 11/13/41: Book 461, page 293 Office of Lend-Lease Administration, with Stettinius an Administrator, in office of Office for Emergency Management - 10/30/41 48 Delays: Defense Contracts: Difficulties with various departments - Burgess (Randolph) and Vaughan (Guy). of Curtiss-Wright, to work up examples for HMJr for FDR - 10/31/41 225,240 a) Answer - 11/3/41: Book 458, page 193 b) See report - 11/13/41: Book 461, page 168 Preseman, Lee: "Some aspects of delays in bomber production in the Detroit area: Book 461, page 260 Triangular transactions - Coe memorandum - 10/31/41. 244 Regraded Unclassified - Y - (Continued) Book Page War Conditions (Continued) Military Planning: Reports from London transmitted by Halifax - 10/30-31/41 456 99,335 War Department bulletin: Training Responsibilities of Young German Officers - 10/31/41 338 Purchasing Mission: Federal Reserve Bank of New York statement showing dollar disbursements, week ending October 22, 1941 32 Security Markets (High-Grade): Current Developments: Haas memorandum - 10/30/41 80 1 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE, Press Service Thursday, October 30, 1941. No. 28-25 Secretary of the Treasury Morgenthau today announced the final subscription and allotment figures with respect to the current offering of 1 percent Treasury Notes of Series A-1946. Subscriptions and allotments were divided among the several Federal Reserve Districts and the Trensury RB follows: Federal Reserve Total Subscriptions Total Subscriptions Total Subscrip- District Received from Holders Received from Holders tions Received of Reconstruction of Commodity Credit (Allotted in Finance Corporation Corporation Notes of full) Notes of Series P Serias E Boston $ 1,020,000 $ 5,887,000 $ 6,907,000 New York 227,076,000 132,088,000 359,164,000 Philadelphia 1,512,000 5,741,000 7,253,000 Cleveland 4,712,000 3,267,000 12,979,000 Richmond 3,848,000 2,647,000 6,495,000 Atlanta 250,000 1,450,000 1,700,000 Chicago 51,712,000 29,091,000 80,803,000 St. Louis 2,010,000 3,755,000 5,765,000 Minneanolis 2,170,000 3,250,000 5,420,000 Kansas City 2,731,000 3,401,000 6,132,000 Dallas 1,920,000 6,041,000 7,961,000 San Frencisco 590.000 1,504,000 2,094,000 Treasury 10,000 300,000 310,000 TOTAL $299,561,000 $203,422,000 $502,983,000 -o0o- Regraded Unclassified 2 October 30, 1941 9:20 8,m, DE IRS. MERLE COCHRAN Present: Mr. Wilson Mr. Dietrich Mr. Thompson Mr. Foley Mrs. Klotz R.M.Jr: Have you written a cable? Foley: No, do you want me to do it? H.M.Jr: Well, we can do it right now. Districh: I have got something here. I don't know whether it is exactly what you want me to say. H.M.Jr: No, I would simply say something along the lines, "Please return immediately to the United States. Your wife is ill." Foley: That is right, "Your wife is ill and needs you. Suggest you return on first Clipper." 11.11.Jr: Just like that. Now, what we have done, Norman, you don't know about this case, but you can pick it up. Merle Cochran's wife is a paranoiac and they have been trying to get her out of the apartment and last night the apartment people had a nurse up there, see, and she refused to have 8 nurse and she has closed all plugs to the tele hone and wires and everything else, and while the doctors were there last night she says, "Now listen, do you hear the voices?" Regraded Unclassified 3 - 2 - Her other troubles are secondary. The normal thing they would do is have her committed to Gallinger and then take her from Gallinger over to Johns Hopkins, but I am not going to take that responsibility. It isn't my responsibility. So Mr. Foley and I made the suggestion that we send up there at 10:30 to the lobby this morning one of our nurses, possibly if she has a psychiatric experience, and a Secret Service operator and keep these two people there continuously. We will have to change them. The nurse can't stand more than eight hours. How, that I am doing on the advice of Mr. Foley to protect this woman against herself and make it possible that the apartment house people will keep her in the apartment, you see. Now, if this fails, then we will just keep her there as long as the apartment house people will let her stay, trying to hold her there in the apartment until Herle Cochran can come back and take charge. Is that right, Ed? Foley: That is right. And then if she disturbs the peace or if she becomes e public menace or threatens people there and the apartment authorities feel that it isn't safe for her to be there under those circumstances, then the certifications and the admission to Gallinger will have to come from them as the moving authority rather than from Mr. Morgenthau, but it seems to me that if we do that, we have done all we can do to preserve the situation until Merle can get back here. Her doctor says that Merle definitely knew about this, that this has been going on for at least five months, and that he would come and ask for this special medicine and plead with Regraded Unclassified 4 - 3 - him to give it to her, so he definitely knew about it, so I think it is absolutely out- rageous that he left without saying to anybody, leaving this woman on my hands. Thompson: She has no friends or relatives here? H.M.Jr: No. I mean, it is at least five months old and as I say, the apartment house - who came down to see the Chief Clerk? Dietrich: It was Phillips, the owner of the apartment house. H.M.Jr: He came down to see the Chief Clerk. Dietrich: After I wouldn't see him day before yesterday. H.H.Jr: But what I am very anxious to do is to keep the woman in the apartment and keep her quiet until we can get Merle Cochran back. Klotz: Mr. Wilson made a suggestion to me this morning. I don't know how good it is. He said - you speak for yourself. Wilson: We have a woman guard at the Bureau of Engraving and Printing, a woman forty-seven years old that is & well educated woman and I asked Mr. White last night, who is the superintendent of the guards, if possibly she might be able to help out in the event that we needed somebody for the wife of one of our key men. I didn't say anything further and he said that this woman was a very level headed woman and that perhaps she would be available and that perhaps she could help, and I said, "Well, now, you go down to talk to her," last night, which he did, to see if she would be willing to help us out along that line in the event of an emergency. He talked to her and he said that she would be glad to do it, that she had never had any Regraded Unclassified 5 - 4 - nursing experience but her husband had been mentally ill and had died and she had to take care of him for a while, so that in an emergency I could get her on short notice. Foley: t.ell, that is a good thing to know about, but -- Wilson: You should have trained nurses. Foley: The thought was to have the nurse inside and the Secret Service man available outside so that if there was some disturbance and the nurse couldn't control the situation she always could summon the Secret Service man and he could come in and help. Rlots: I think that they ought to have a trained nurse and not these nurses. L.1.0r: She refused to have a trained nurse. She wouldn't let a trained nurse in. They wouldn't do it. Now, when they go in the doctor is going to be there. The point is, we are going to try to do everything to keen the thing - they say the woman isn't in a frame of mind to injure herself or anybody else at this moment. Totz: But she will be. H.M.Jr: Well, the doctor, at the moment, doesn't see any signs of that, you see. He went there and they couldn't get in. lie spent all day yesterday. They couldn't get in. They never got in until last night and then they waited two hours. They couldn't get in. Klotz: Well, she is afraid of being arrested. Foley: Well, Dr. Levitt is going to go there and he is going to explain to her that these people are there to observe to see whether or not there are people listening - to protect her and observe Regraded Unclassified 6 - 5 - the actions of the people above and below and on both sides of her to see whether or not they are trying to hear everything she says and trying to disturb her and all that. H.M.Jr: She threatened the proprietor of the hotel with a whip yesterday. Dietrich: She despises him. II.M.Jr: Well, anyway, I don't see what else I can do than to try to keep the thing the way it is. Can we order these nurses up there, do you think? Thompson: Well, we don't have any nurses on the Treasury payroll. They are all on the Public Health roll. It might be that we would have to put them on our own roll just for this assignment. I doubt if the Public Health Service will do it. H.K.Jr: Well, I have asked Mr. Foley to take this over for me. I mean, he has agreed to do it. Thompson: Well, we will work it out. H.M.Jr: If you will work it out, and I think you had better tell Dr. Levitt that 10:30 is too early, we can't move that fast, you see, but Mr. Foley has kindly consented to take this over. I mean, it is a great responsibility and after all, we don't want to - the last thing in the world I would want to do would be to put this woman in to an institution through the law. Motz: Oh, that would be terrible. H.M.Jr: Well, we are not going to do it, Mrs. Klotz, but what are you going to do if the apartment house puts her out? Are you going to let her walk the streets? Regraded Unclassified 7 - 6 - Notz: Well, isn't there a private institution you can put her in? Foley: Not in the District of Columbia. If she would only go willingly, there would be no problem. We could take her over to Baltimore to this private institution. We discussed that with the doctors this morning. But she absolutely refuses to do that and you would have to use force and if you have to use force, then you have to use public authorities and you have to have proper certification that she is mentally incompetent and that she is violent and she disturbs the peace and security and safety of others in the neighborhood. Then the policemen come there and take her to Gallinger. Once she is in Gallinger then they say that they could get her to go voluntarily to a private institution and get her out of the public institution, they hope. Klotz: I an familiar with that sort of thing. H.N.Jr: But if the woman this morning would agree to go up to Johns Hopkins we would put her in an automobile and send her over there. Notz: I know, but she is beyond that stage. H.H.Jr: And you can't just take her, you can't just take her by force, or could we? Klotz: Yes, you can. Foley: No. Thompson: No, not to Johns Hopkins you couldn't. H.M.Jr: That is why I have got Foley here. Klotz: Oh, I mean by force legally. That is another Regraded Unclassified 7 - 6 - Mlotz: Well, isn't there a private institution you can put her in? Foley: Not in the District of Columbia. If she would only go willingly, there would be no problem. We could take her over to Baltimore to this private institution. We discussed that with the doctors this morning. But she absolutely refuses to do that and you would have to use force and if you have to use force, then you have to use public authorities and you have to have proper certification that she is mentally incompetent and that she is violent and she disturbs the peace and security and safety of others in the neighborhood. Then the policemen come there and take her to Gallinger. Once she is in Gallinger then they say that they could get her to go voluntarily to a private institution and get her out of the public institution, they hope. Klotz: I an familiar with that sort of thing. H.M.Jr: But if the woman this morning would agree to go up to Johns Hopkins we would put her in an automobile and send her over there. Klotz: I know, but she is beyond that stage. H.K.Jr: And you can't just take her, you can't just take her by force, or could we? Mots: Yes, you can. Foley: No. Thompson: No, not to Johns Hopkins you couldn't. H.M.Jr: That is why I have got Foley here. Klots: Oh, I mean by force legally. That is another Regraded Unclassified 8 - 7 - thing. Oh well, I an not looking at it from the legal point of view. Foley: That is what I meant when I said no, when the Secretary asks me if he can and I always think of what you can do under the law. (Discussion off the record). H.M.Jr: Mrs. Klotz, I am not going to do it. Have you any other suggestion? Klotz: Well, it is very difficult for me to express myself because I am not sympathetic with the doctors point of view and I am not sympathetic with the legal point of view. I have got the human side at heart, and I think that there must be another way of handling it. H.M.Jr: Well, we were there for three quarters of an hour, three people. Thompson: I don't think there is any way you can handle it except-- H.M.Jr: With three doctors there, everybody thinking, and certainly I am taking the human stand- point. Klotz: I am sure of it. Foley: Mrs. Klotz, the doctors didn't want to do this temporary thing that the Secretary sug- vested. They wanted to commit her right then and there. Klotz: They would. Foley: Call the authorities in and take her to Gallinger and get her off their hands, and it was the Secretary who interceded with this Regraded Unclassified 9 - 8 - scheme of trying to keep the situation as it is until Merle can get back here and do what he thinks is best. H.R.Jr: If I had left the thing alone, that woman today would be going to Gallinger. Klotz: She knew it too. Foley: They said it was a matter ofhours. They said it wouldn't make any difference, an hour or two or three hours, but beyond that they did think it would be important if she wasn't in Gallinger Hospital. H.M.Jr: Well, I will tell you what you had better do, Ed. You had better call up Dr. Levitt and give us time to turn around, see, and if these men would go back into your room and I would say twelve-thirty instead of ten-thirty and you have got to find out now if we haven't got the authority to put Public Health Service nurses in there, then we will have to just hire private nurses and out a Treasury operator in there to protect the nurse and see that the nurse isn't thrown out. That is the purpose of the Secret Service man, to see that the nurse stays in there and that this woman stays in there. Klotz: You see, the nurses with psychiatric train- ing would know how to handle the woman. These Public Health nurses don't even know how to handle you when you are well. (Laughter) K.M.Jr: I greatly question the authority of where we can get three nurses to go up there. I don't see why we couldn't get nurses with psychiatric training and out them in there. There is all the difference in the world. And I Teatly question that we can take a nurse from downstairs. Regraded Unclassified - 9 - 10 Thompson: I don't believe we can either. Klotz: If she was in the Government, it would be another thing, but it is his wife. H.M.Jr: I think she is right. I think what we ought to try to do is to get psychiatric trained nurses. The way to do that is to get - well, it is up to Levitt. Don't let's get away from Levitt's responsibility in this thing, and tell Levitt it is up to him to employ the nurses with this train- ing and we will simply put & Treasury representative up there to see that nothing happens to the nurse. Foley: That is right. Wilson: I can put Mr. Stringfellow up there, one of our agents, who is a graduate nurse and spent considerable time down at St. Elizabeth's before he was in our service. He was a nurse down there. H.M.Jr: Stringfellow? Wilson: Yes, sir. H.M.Jr: Well, let's start with him. Wilson: He is a very level headed fellow and has handled many cases like this. H.M.Jr: That is wonderful because we may never get beyond the first case. I think if he and a trained nurse - I think Mrs. Klotz is right, and if we start this thing and try to make a hospital of her apartment-- flotz: Well, St. Elizabeth's is Public liealthand maybe we could get nurses from there. Regraded Unclassified 11 - 10 - Foley: Well, that was - we might look into that. That was mentioned over there this morning too, but one of the doctors said that they are SO short-handed over there now that they wouldn't have nurses available, but St. Elizabeth's, I should think, would know nurses with psychiatric training, nurses that could be retained for this week. H.M.Jr: I think that is the thing to do, and if he has had that training, that is wonderful. Wilson: Yes, sir, he was down there for several years as a young man, and he has handled lots of cases like this during the last few years. H.M.Jr: And I think when these people go up, Frank, you had better 70 un with them in the first instance. Dietrich: All right, sir. H.M.Jr: Don't you think so, or would you rather hav an attorney 70 up, one of your attorneys? Foley: You know her, do you Frank? Dietrich: Yes. Foley: I should think it would be better-- Klotz: I think she would feel kindlier to him. H.M.Jr: And the doctors kept saying, "Explain to her that this is to protect her." I think you had better give yourself plenty of time. I think if you get around to it at two-thirty you can clean it up by then. Well, I will leave it to you, but certainly Regraded Unclassified - 11 - 12 get that cable off tomorrow. Dietrich: Mr. Secretary, Mrs. Cochran took very kindly to the chief, too. I wondered if he would have any more availing-- H.M.Jr: No, he has -ot a lot of - no, I think if you go up there. She did take kindly to him? Dietrich: She took very kindly to the chief. Klotz: I would be glad to 70 un there. H.M.Jr: No, I don't want you to. Wilson: Yes, she did, but still maybe the Secretary or the Treasury Department might be criti- cised for sending the chief of the Secret Service or on investigator up to handle a medical case. You must think of that end of it. This is not an investigative case. She was friendly to me, but still somebody on the outside might say, "Why, the Treasury Department sent the Secret Service instead of sending doctors up there." IL.M.Jr: I think if her own doctor goes this afternoon and Frank will 70 un as a friend and try to ret nurses from St. Elizabeth's or some other place with psychiatric training and we will start off with Stringfellow and we will try to keep somebody there so that there are two people on duty, somebody from the Treasury and the nurse trained in this kind of case. Foley: I think maybe in that telegram we ought to say that we will endeavor to secure the priority for him on the first Clipper and -- Foley: Immediately, too. Regraded Unclassified - 12 - 13 Dietrich: There was another question I had on that cable, as to whether we wanted to send it through the State Department or send it through Nicholson, the Treasury attache. H.M.Jr: I would send it to Nicholson and tell Nicholson to get it to Cochran, it is terrifically important, see? Dietrich: On the priority, do we have to go to the State Department to get priority coming back? H.M.Jr: No. We have this woman here who has the agency for Pan-American. What is her name? Klotz: I have forgotten, but we have her. H.M.Jr: There is this woman here who represents Pan- American in Washington. Wilson: Da you want to say anything on that cable - do you want to ask him if he has any close relatives or if she has any relatives or friends that he would want to have you contact in connection with it? H.M.Jr: It is a good suggestion, but I would send it to Nicholson and tell him that this he has got to get to Cochran and then get Cochran the first plane out of Hong Kong. Dietrich: Well -- H.M.Jr: And Ed, if sometime this afternoon something comes up which makes you want to change the plans in an important way, let me know. I am available. Foley: All right. S.M.Jr: Thank you all very much. Regraded Unclassified 14 October 30, 1941 Mrs. Friedman, Coast Guard Frank F. Dietrich, Secretary's Office Secretary Morgenthan desires following cable sent with utmost dispatch to Spagent, Shanghair "It is of the utmost urgency that this message be handed immediately to H. Merle Coohran. 'Suggest you return on first clipper Your wife ill and needs you stop Will arrange for priority with Pan American stop Doctor Levitt in attendance stop Have you names of relatives or friends who can assume responsibility. Morgenthau.' EHFimp 10/30/41 Regraded Unclassified V October 30, 1941 Doong 15 shek Chearg Kar My dear Mr. President: The enclosed message from General Chiang Kai-Shek has just been handed to me at 11:15 o'clock this morning by Mr. T. V. Soong. Yours sincerely, The President, The White House. Regraded Unclassified 16 MESSAGE FROM GENERAL CHIANG KAI-SHEK RECEIVED TODAY, OCTOBER 30. DEFINITE INFORMATION REACHED ME JAPANESE DESIGN ATTACK YUNNAN IN NOVEMBER (STOP) THIS NOVE MAY POSSIBLY BE AVERTED IF AMERICA TAKES IMMEDIATE ACTION BY INforming JAPAN THAT ATTACK YUNNAN THROUGH INDO-CHINA WOULD BE VIEWED BY AMERICA AS DEFINITE STEP IN SOUTHWARD EXPANSION AND THAT AMERICA CANNOT REMAIN INDIFFERENT (STOP) SIMULTANEOUSLY MILITARY PREPARATIONS SHOULD BE MADE TO MEET THIS EVENTUALITY (STOP) I MUST EMPHASISE THE CRITICAL NATURE OF THE YUDNAN SITUATION SINCE IF YUNNAN IS LOST AND LAST LIFE LINE FOR MATERIALS FROM THE OUTSIDE WORLD SEVERED THE CHINESE PEOPLE AND ARMY MATERIALLY AI.D MORALLY ACOLD BE UNABLE TO OFFER FURTHIR ARMED RESISTANCE (STOP) I AM CONFIDENT WITH FORCES IN YUNNAN AND AVAILABLE NEARBY CHINESE ABLE TO HOLD THEIR OWN LAND PIGHTING IF REINFORCED AIRWARD (STOP) COLONEL CHENNAULT HAS ONLY 49 FILOTS CONSEQUENTLY STRONG AIR REINFORCEMENT ESSENTIAL (STCP) URGE AMERICA USE STRONG PRESSURE ON BRITAIN TO SEND SINGAPORE AIR FORCE TO CO-OPERATE WITH COLONEL CHENNAULT IN ORDER SAVE DEMOCRATIC POSITION IN FAR EAST (STOP) BRITAIN AND AMERICA EQUALLY CONCERNED TC PREVENT LOSS OF YUNNAN AS CHINESE BECAUSE IF JAPANESE OCCUPY YUNNAI THEIR NEXT STOP WOULD INVOLVE ATTACK OR BRITISH FAR EAST COLONIAL POSSESSIONS AND PRECIPITATE WAR IN THE PACIFIC (STOP) IF IMMEDIATE ACTION TAKEN BY BRITAIN IN SENDING AIR RFINFORCEMENT THESE POSSESSIONS WOULD BE SAVED AT A FRACTION OF THE COST THAT THEIR DEFENCE ZOULD INVOLVE LATER OR AND PACIFIC PROBLEM WOULD THUS RE SOLVED (STOP) JAPANESE WILL CONCENTRATE Largest AIR FORCE IN INDO-CHINA AND IF DESTROYED COMBINED AIR FORCES THREAT TO FAR EAST FINALLY REMOVED. Regraded Unclassified 17 October 30, 1941 11:28 a.m. HMJr: Good morning. Grace Tully: Hello, Mr. Secretary. HMJr: T. V. Soong Just left my office. T: Yes, sir. HMJr: I think the President definitely should see him before he leaves town. T: You do. HMJr: Definitely. T: Right, eir. HMJr: And I'm sending you over in the next fifteen minutes e message which came in the morning from Chiang Kai-shek T: Yes. HMJr: which I think the President should have. T: Right, sir. And then I'll ask the President what time, and then do we make it through you - do I call you back and let you get in touch with him? HMJr: Yes, that's right. T: Right, sir. All right, I will. Thank you, Mr. Secretary. HAJr: And let me know whether the President wants me to come over or not. That's uo to the President. Or whether he wants to see him alone. T: Uh huh. All right, fine, sir. I'll let you know. that too. HMJr: It's - I don't care. T: Uh huh. Regraded Unclassified 18 - 2 - HMJr: See? T: Yes. All right, fine, Mr. Secretary. I will. HMJr: And then you might do something else for me. T: Yes, sir. HMJr: I would like to have an appointment with the President again along the same lines as the last two, you know? T: Yee. HMJr: Just as soon B.E he comes back. I don't imagine he wants to be disturbed in Hyde Park. T: Uh huh. Right, sir. I'll make a note of it for next week. I don't think he'll be back before Wednesday. I'm sure he won't, but..... HMJr: Well, put me down for a morning. T: Right, sir. HMJr: And I'd put it the second morning after he gets here. T: Yeah. Thursday that would be. HMJr: Well T: All right. I'll make the suggestion, "Is it all right for Thursday at nine-thirty?" HMJr: If you please. T: Right, sir. I'll let you know. HMJr: Thank you. T: All right, Mr. Secretary. Good-bye. Regraded Unclassified 19 October 30, 1941 3:09 p.m. Gen. E. M. Watson: Hello. HMJr: H. M., Jr. W: Yeah. Look here, the President just sent out a memo that he wanted to see Mr. Soong. HMJr: Yes. W: tomorrow morning HMJr: Yes, sir. W: and wanted to see him alone. HMJr: All right. W: Now, he said to make it through you. HMJr: That's all right. What time, and I'll..... W: At eleven-thirty to twelve-thirty. HMJr: What's that? W: Eleven-thirty to twelve-thirty. HMJr: You going to give him an hour? W: Well, the President said, "I want to see him for an hour." I don't know why. HMJr: I see. W: This came out while I was at lunch. I don't know. HMJr: Well, anyway, would you like me to notify him? W: Well, he eaid, "You can notify him through the Secretary of the Treasury." HMJr: Very fine. Regraded Unclassified 20 - 2 - W: And Soong is to come alone. HMJr: Come alone. W: Yeah. I guess he didn't want to see you. HMJr: Well, I didn't ask to. #: (Laughs) HMJr: So you needn't be SQ snooty. W: (Laughs) All right. (Laughs) HMJr: Well, I'll get him there. W: All right. Get him to come to my office at eleven-thirty, and he's got him for an hour. I guess ne's got something cretty hot to talk about. HMJr: All right. W: That's the only one I'm going to make after cress. HMJr: All right. When 1s he going to leave? W: He's going to leave tomorrow about one o'clock, I think. HMJr: Good. W: All right, sir. HMJr: I'll get word. W: Good. Thank you. HAJr: Thank you. Regraded Unclassified 21 OCT 3 0 1941 My dear Mr. internators This note is in response to the informal emeranden you left with se on October 13th. I have given consideration to the to requests from the Government of China net out therein. The Department appreciates the action of the Deverment of China in proposing to ask Mr. L Manuel For to become Advisor to the Ministry of Finance. V6 have no objection to this appointment, providing Mr. Fox does not feel that the duties of the are position will is any way conflict with his duties as Mamber of the Stabilization Board. with reference to the possibility of the Federal Recerve Bank appointing a person to assist the Central Bank of China, the matter has been discussed with the Nonorable Marriner S. Scoles, Chairess of the Board of Governors of the Federal Reserve System. Mr. Secles advises that he will be ded to discuss the matter with you at your convenience. It is there- fore suggested that you communicate directly with his for at appointment. Tery truly yours. Secretary of the Treasury Rie Excellency, The Investator of the Republic of Chisa, Washington, D. c. Surge W I 3:26 V7C:DSF:meh:DVB:ca 10-27-41 name 211- Regraded Unclassified 22 Regraded Unclassified CCT 30 1941 To: Dr. Fais Mr. Bell (Initialed) D.W.B. Trans will you please send the following sable to the American Consul at Hong Kengs "Per Yes from the Secretary of the Treasury. The following letter has today been sent to the Chinese Ambassador in Washington: This note is in response to the informal accorander you left with as on October 13th. I have given consideration to the two requests from the Government of China not out therein. The Department appreciates the action of the Government of China in preposing to ask Mr. 4. Manuel Fox to become Adviser to the Ministry of Finance. We have to objection to this appointment, providing Mr. Pax does not feel that the duties of the DEW position will in any may conflict with his duties as lienber of the Stabilisation Board. With reference to the possibility of the Federal Reserve Bank appointing a person to assist the Central Bank of China, the natter has been discussed with the Honorable Harriner 5, Keeles, Chairam of the Board of Governors of the Federal Reserve System. Mr. Reeles advises that be will be glad to discuss the matter with yes at your senvenience. It is therefore suggested that you communicate directly with his for an appointment. I understand that Mr. Smilton any want to and a telegree to Mr. Fox setting forth the Department of State's views on the appointment of Mr. ha as Adviser to the Ministry of Flasses. orig. to Dietrict to transmit to DWB:VFC;rel 10/30/41 for Dept 23 October 14, 1941 TO: Mr. Bell Dr. White FROM: The Secretary Please talk to each other about this and then talk to me. Regraded Unclassified THE UNDER SECRETARY OF THE TREASURY 24 October 20, 1941 MEMORANDUM FOR MISS CHAUNCEY: Re: Note handed to the Secretary by the Chinese Ambassador on 10-14-41 relative to the increasing duties of the Central Bank of China. A cable was sent to Fox on Friday of last week, asking his advice. I also talked with Eccles regarding the matter and he is to let me have an answer today or tomorrow morning. After these answers are received, a letter will be prepared for the Secretary's signature. D.W.B. Regraded Unclassified 25 10/14/41 Handed to the Secretary today by the Chinese Ambassador. Regraded Unclassified 26 Since the establishment by the Chinese Government of the Foreign Exchange Control Commission, the Central Bank of China has found itself confronted with new duties of an increasing magnitude. The Chinese Ambassador is instructed to inquire of the Secretary of the Treasury as to the possibility of the Federal Reserve Bank appointing a suitable person to assist the Central Bank in its work. At some appropriate time the Central Bank hopes also to be able to send one of its officials to be attached to the Federal Reserve Bank for study and liaison purposes. The Ambassador is further instructed to inform the Secretary of the Treasury that the Chinese Government, in appreciation of Mr. A. Manuel Fox's services as B. member of the Stabilization Board, and in view of his special knowledge in tariff matters, is desirous of inviting him to serve as Adviser to the Ministry of Finance. The Chinese Government wishes to know whether the Secre- tary of the Treasury has any objection to the appointment of Mr. Fox in the above-mentioned capacity. October 13, 1941. Regraded Unclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. White The appended digest of opinion in the London press, pro- pared by Mr. Hoflich, I believe will interest you because it refers to pertinent matters now being discussed in the Treasury. The follow- ing brief summary will indicate its importance: Subject: British Production - "Restoration of Incentives" 1. An interesting and significant controversy has developed in the English press over the question of increasing profit and wage incentives to achieve maximum productive efficiency, and preventing inflation by more extensive rationing. 2, The campaign for higher profit and wage incentives is led by the Financial News, which claims that the present 80% excess profits tax (plus the 20% to be returned after the war) does not allow a sufficient profit incentive, that the promise of & 20% post-war rebate is too vaguely worded and carries no statutory right to repayment. The Financial News calls for the following positive measures: (a) Reduction of the excess profits tax to 60% or 70%. (b) More generous allowances for depreciation. (o) Higher wages in essential war industries. (a) Greater allowances of rationed goods for workers in war industries. The Financial Newe believes that the Treasury has en exagger- ated fear of the post-war debt burden. A higher post-war price level, brought about by a release of deferred purchas- ing power, will provide the additional tax revenue to pay off the larger debt. 3. The demand for higher profits and wages has aroused consider- able opposition. The opposition point of review 16 led by The Economist, Finance and Commerce, and the News Chronicle, which point out that: (a) Higher incomes alone would have an inflationary effect. Increased incomes which cannot be spent (due to the extension of rationing) will provide no addi- tional incentive. If the reduction of the EPT rate Regraded Unclassified 28 - 2 - to 80% (subject to the deferred return of the 20%) is not a sufficient incentive, why should 30% or 40% do the trick? The Economist says it must be the aim now "not to titillate peacetime incentives. ... but to remove them from the path". (b) Preferential rationing for workers in war industries would prove disrupting to national unity. Regraded Unclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 27, 1941 TO Mr. White FROM Mr. Hoflich Subjects British Production - Incentives and Treasury Control (From the London press, Sept. 22 - Oct. 10, 1941 - clippings received from Casaday) The present controls of profits and wages do not allow sufficient incentive to achieve the maximum productive efficiency. This feeling is reflected in certain sectors of the British press during recent weeks. The most insistent demand for the relaxation of profits and wage controls is found in the Financial News, which has been carrying on & persistent campaign, briefly summarized as follows: 1. The government must restore monetary productive incentives. This calls for a number of positive measures: a. Restore the profit incentive, by (1) reduction of the 100% EPT rate to 60% or 70% This should be accompanied by r eimposition of the Limitation of Dividends Bill, to give the increased incentive to small companies where it will be partic- ularly effective, and to insure that monies released will be used to strengthen the war machine. (2) more generous allowances for depreciation. (3) efficiency bonuses to firms. b. Increase workers' incentives by (1) higher wages in essential war industries and more generous overtime and piece rates. (2) differential allowances of rationed goods, favoring workers in war industries. C. Tackle inflation by direct means, notably by (1) rationing expenditure on unrationed food. The Financial News offers the following arguments for "restoration of incentives": 1. Arguments for higher profits. a. This would give an incentive to management for naximum productive afficiency. Falling profits are cited in 1940 and 1941 of 31 small and medium sized engineering concerns, in spite of greater productive efforts. Regraded Unclassified 30 - 2 - b. The possibility of more profits will furnish an incen- tive to keep costs down and eliminate waste. C. It will overcome the reluctance to expand plant facil- ities. The fear of post-war surplus capacity will be at least partially offset by increased profits. d. It will permit the accumulation of reserves for post-war use. 8, It may help to overcome the alleged injustice of EPT based on profits earned in an arbitrarily chosen period of time, which bears unevenly on different industries and differ- eat companies in the same industry. 2. Arguments for higher wages in war industries. a. This would increase workers' efficiency and would cost nothing insofar as it leads to higher output. b. It would help overcome the reluctance of workers to transfer to war industries, which reluctance is alleged to be due in part to higher wages elsewhere and in part to fear of post-war unemployment. The Financial News articles have called forth considerable protest. The following points have been made: 1. Incentives are not now Lacking in the major part of the British industries. 2. Higher incomes would have an inflationary effect. 3. Differential rationing will not prove an incentive, but might well be disrupting to national unity. "Let us not deceive our- selves that more output will be achieved in the long run by "hustling someone else out of the queue'. he Mr. Keynes put it in his 'How to Fay for the War', this is a 'mug's game to play''. (Finance and Commerce) 4. The Finance Act has already reduced the EPT to 80%, subject to the blocking of the 20% "If this deferred 20% is not a suffi- cient incentive, why should one assume that 30% or 40% will do the trick". (News Chronicle) 5. Increased incomes which cannot be spent (due to extension of rationing) will not give an increased incentive. The News Chron- icle calls this "bogus incentives", "arsatz incentives", "little better than a. swindle" and says it would prove a dangerous boomerang and breed class hatred. Regraded Unclassified M 3 The Economist says the proposal is to pay for increased war production by the distribution of I.O.U's. Its shortcoming 18 in sowing the seeds of unbridled inflation, thue increasing the cost of the war, and at the same time multiplying anti- inflation controls to neutralize the dangers created. "It 18 a weird exercise in well-intentioned ingemity that would sim- ultanously pump in social poisons and their antidotes at an ever-incressing rate". Further, the Economist doubts that this "open-handed courting of grave inflationary dangers" can "deliver the goods". It must be the aim now "not to titillate peacetime incentives. ... but to remove them from the path". In answer to these criticisms the Financial News says that the inflationary effects can be offset by the proposed extension of ration- ing. As to wages, it says they are rising anyway, in a haphazard way. It wants to correct the disparity between alleged low wages in essential industries and high wages elsewhere. The Financial News says further that the promise of a 20% post-war rebate is too vaguely worded to have any balance sheet value, and carries no statutory right to epayment. It believes furthermore that its plan would prove a real incentive. It admits that the national debt would have to be increased, and that there would be a higher volume of purchasing power after the war, but it says that the Treasury policy seems to have as its chief objective the mini- mising of the post-war debt problem rather than devising the most effic- 1ent system of war finance. The Treasury fears a post-war debt burden, but paying off the debt involves only an internal redistribution of goods. is to the interest charges, these are rising much less rapidly than the debt. And a higher post-war price level, brought about by a release of deferred purchasing power, will provide additional tax revenue to pay off the larger debt. The Financial News is still hammering on the idea that peacetime concepts of the role of finance are hampering the drive for maximum war production. To the demand for restoration of incentives the Financial News adde the complaint that too much delay is being caused by 4 close holding of the purse strings by the Treasury in sanctioning expenditures. It calls for less centralized control of expenditures and delegating more power to regional boards. In his letter of October 11, 1941, Casaday says that the Financial News campaign regarding "Incentive", the EPT and the "dead hand of Treasury control" has "decreased somewhat in intensity and in some re- spects assumed a more subtle form, since the Chancellor of the Exchequer's speech in which he stood firm on the established policy followed thus far". Regraded Unclassified C o P 32 I FEDERAL RESERVE BANK OF NEW YORK October 30, 1941 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran I am enclosing our compilation for the week ended October 22, 1941. showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, /=/ L. W. Knoke, L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy:vw:10-31-41 Regraded Unclassified NATYSTS OF BRITISH AND FRENCH CCOUNTS Strictly (Is Willion a BANK OF EXCLADO (BRITISM COVERNMENT) BANK DEBITS CREDITS DEBITS CREDITS NOT INC. Net Incr. Proceeds of Gov't Sales of (+) or Gov't Proceeds (+) or Total Expendi- Other Total Securities Other Decr.(-) Total Expendi- Other Total of Gold Other Decr. (-) PERIOD Debite tures(a) Debits Credite Gold (Ciridal)(b) Credita(c): Balance Debite tures (d) Debite Credits Sales Credits in Balance First year of war (8/29/77-8/28/40)* 1,793.2 605.6 1,187.60 1,828.2 1,356.1 52.0 420.1 + 35.0 866.3(e) 416.6(e) 449.7 1,095.3(a) 900,2 195.1(e) +229.0 Mar period through December, 1940 2,792,3 1,425.6 1,356,7 2,793.1 2,109.5 108.0 575.6 * 10,8 878.3 421,4 456.9 1,098,4 900,2 198,2 +220.1 Second year of war (8/29/40-8/27/1)** 2,203.0 1,792.2 410.8 2,189.8 1,193.7 274.0 722.1 - 13.2 38.9 4.8 34.1 8,8 - 8.8 - 30,1 1941 Aug. 28 - Oct. 1 140.9 105.9 35.0 176.2 20,1 2.0 154.1 + 35.3 0.3 I 0.3 0,5 - 0.5 * 0.2 Oct. 2- Oct. 29 Oct, 30 - Dec, 3 Date 4- Dec. 31 1962 ENDED: 22.8 93.5 0.3 +66.3 0.2 - 0.2 - - - - 0.2 Oct. 1 27,2 4.4 - 93.2 26.2 8.1 14.7 0,8 13.9 - 19.6 0,2 - 0.2 0.2 - 0.2 8 34.3 - 23.9 20.3 20.3 - 3.6 I 3.6 20.3 I - I - - 15 I 7.2 7.2(f) - 19.8 0.1 - 0.1 0.1 I 0.1 - 22 2740 15.4 11.6(g) - AVENUE Weekly Expenditures Since Outbreak of Har Transfers from British Purchasing Commission to France (through June 19,1940) $19.6 million Bank of Canada for French Account England (through June 19,1940) 27,6 million Book ended October 22, 1941 - million England (einos June 19,1940) 43.7 million Cumulation from July 6, 1940 162,7 million *For monthly breakiown see tabulations prior to April 23, 1941, **For monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footnotes) Regraded Unclassified (a) Includes payments for account of Brittian Purchasing Commination, Brit inb Air Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry of Shipping (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the proceeds of official Brit ish sales of American securities, including those effected through direct negotiation. In addition to the official melling, substantial liquidation of securities for private British account occurred, particularly during the early months of the ver, although the receipt of the proceeds at this Bank cannot be identified with any accurecy. According to data supplied by the British Treasury and released by Secretary Morganthau, total official and private British liquidation of our securities through December, 1940 amounted to $334 million. (o) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks, presumably reflecting the requisitioning of private dollar balances. Other large transfers from such aconunts eince October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently socruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 end returned the following day. (f) Includes an additional $2 million received from Commonwealth Bank of Australia, (g) 89 million paid to the De Javasche Tank account here. Regraded Unclassified AUSTRALIAN Strictly (In Millions of Dollars) Beek Ended October 22, 1941 Confidential BANK OF CANADA (and Canadian Government) COMMONWEALTH BANK OF AUSTRALIA (and Australian Government) DEBITS CREDITS DEBITS CREDITS Transfers Transfers Transfers from Official to Proceeds Net Incr. to Proceeds Net Incr. of British A/C Official (*) or Official of (+) or Total British Other Total Gold For Own For French Other Decr. (-) Total British Other Total Gold Other Decr. (-) PERIOD Debite A/C Debite Credite Sales A/O A/C Credits in Balance Debits A/C Debite Credita Sales Credits in Balance Cretyear of war - 9/39-8/28/40)* 323.0 16.6 306.4 504.7 412.7 20,9 38.7 32.4 +181.7 31,2 3.9 27.3 36.1 30.0 6,1 + 4.9 period through MG 1940 477.2 16.6 460.6 707.4 534.8 20,9 110,7 41.0 +230,2 57.9 14.5 43.4 62.4 50,1 12,3 + 4.5 year of war 460.4 - 460.4 462.0 246.2 3.4 123,9 88.5 + 1,6 72.2 16.7 / 55.5 : 81.2 62.9 16.3 + 9.0 logo 28 Oct, 1 23,1 - 23.1 52,2 21.2 - - 31.0 + 29,1 10.7 0,5 I 10.2 R 2,8 2.1 0.7 - 7.9 1941 Cor. 2- Oct, 29 Dote 30- Dec. 3 1. Inc. 31 1942 31 ENDED: 18.2 18.2 2.0 5.3 # 1.7 - 11.2 0.6 0.5 0.1 0.4 0.1 0.3 - 0.2 Oct. 1 - - + 1.1 1.6 0.5 1.1 0.2 0,2 - 14 8 5.6 - 5.6 7.1 2.6 - - 4.5 - 15 4.5 - 4.5 4.3 3.2 1.1 - 0,2 3.0 3.0 - - - 6.8 5.8 1.0 + 3.8 22 10.5 10.5 446 3.4 - - 1.0 - 6.1 3.6 2.0 1.4 0.7 0.1 0.6 - 2.7 - Weekly Average of Total Debits Since Outbreak of Bar Through October 22, 1941 1 7.3 million + For monthly breakdown ano tabulations prior to April 23, 1941. - For monthly breakdom see tabulations prior to October 8, 1941. r Revised Regraded Unclassified AM 36 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON, D. C. TELEPHONE HOBART 9000 LEASE QUOTE EFERENCE NO. With the compliments of British Air Commission, who enclose statement No. 4, covering aircraft shipped, for week ending October 28, 1941 The Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. October 30, 1941 Regraded Unclassified 37 STATEMENT No. 4, AIRCRAFT DESPATCHED FROM THE UNITED STATES WEEK ENDED OCTOBER 28, 1941, TYPE DESTINATION ASSEMBLY POINT BY SEA BY AIR FLIGHT DELIVERED FOR USE IN CANADA, ELL U. K. U.K. 1 : : Airacobra ESSNA T-50 Canada -- -- 15 ---- INSOLIDATED U. K. U. K. 3 : -- Catalina LiberatorII U.K. U. K. -- 12 : CURTISS Middle East Port Sudan 29 : -- Kittyhawk : : 5 Canada 2 : U. K. -- U. K. DOUGLAS 8 -- Middle East Port Sudan -- Boston III AIRCHILD U. K. 4 -- 24R9 U. K. : GLENN MARTIN Middle East Port Sudan 2 -- -- Baltimore NORTH AMERICAN 4 -- Middle East Port Sudan -- Barvard II 1 -- : Mustang U. K. U. K. 51 15 20 TOTAL British Air Commission, October 30, 1941. Regraded Unclassified TREASURY DEPARTMENT 38 INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Barnard I attach a letter from Sir Clive Baillieu answering my inquiry as to locomotives and rolling stock for the Middle East, about which you wished information. I find that as yet the Procurement Division has received only orders for ten light Diesels, probably for dock unloading and similar purposes, but that the War Department is buying fifty locomotives which are probably a part of those referred to by Sir Clive Baillieu. enB Regraded Unclassified 39 1510 K STREET N. W., WASHINGTON, D. C. TELEPHONE REPUBLIC 7060 BRITISH PURCHASING COMMISSION October 29, 1941 Dear Mr. Barnard: In reply to your letter of October 28th, WG have not seen the newspaper reports referred to regarding the transfer of locomotives and rolling stock from Egypt to Persia, and in fact any proposals there may be in this connection would be strictly secret. Re are not fully informed as to what are the detailed intentions but the facts so far as we know them are as follows. There is at present, a most urgent need for increasing the capacity of the Trans- Persian Railway in order to carry aid to Russia, and in order to meet this need in the quickest way possible, locomotives and rolling stock are being despatched from U.K. to Persia which had been destined to relieve the railway congestion in Egypt. This congestion has arisen as a result of the increasing flow of supplies from America, combined with the period- ical closing of the Suez Canal due to enemy action. In addition, loco- motives and rolling stock actually in transit at sea have very probably been diverted. of the 200 locomotives which it 1s desired to order in this country, any that can be delivered by February, 1942, will be con- signed directly to Persia, but deliveries subsequent to that date will be too late to arrive in Persia in time to meet the present situation. In consequence the major part of subsequent deliveries will go to the Middle East (i.e., Egypt, Sudan, Western Desert, Palestine, Syria and Iraq) where they will replace locomotives and rolling stock which would other- wise have been supplied from U.K. and will relieve the existing pressure on railways in connection with the transportation of military supplies and equipment. Yours very truly, Uni Asither (Clive Baillieu) Director-General The Hon. Chester I. Barnard Treasury Department Washington, D.C. OCT 30 1911 alt Regraded Unclassified TREASURY DEPARTMENT 40 INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Barnard You may be interested in the attached from Mr. Mack, CUB Regraded Unclassified 41 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON October 27, 1941 /8 TO MR. BARNARD: You will be interested to know that the OPM has allocated thus far 1,280,000 tons of semi-finished steel, representing all ritish requirements to December 31, 1941; that all has been purchased; and that shipment against contracts up to October 23rd totaled 811,326 tons, the balance to be delivered as scheduled. Further, the shortages in deliveries from the steel mills against October shipments has been brought to the attention of the mills and they have stated that they will meet their de- Jivery quotas by the end of the month with but one exception of 3,000 tons in the case of the Bethlehem Steel Corporation which we are checking further. I have sent inspectors to the principal mills with instruc- tions to give me daily reports of steel shipments to make sure that the deficit will be made up 8.S the mills have promised in order to make our quota of 270,000 tons this month. Clifton E. Mack Director of Procuremen t OCT 27 1941 Regraded Unclassified TREASURY DEPARTMENT 42 INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Barnard I don't know whether you care to see the attached statement. What I an particularly watching is deliveries which from now on ought to have increasing emphasis. I note that the actual expenditures as of October 23rd were only $45.6 millions out of allocations of $367 millions. The expenditures from now on ought to increase rapidly. OAR Page 1 of 2 43 Treasury Department, Procurement Division STATEMENT CE LEAST-LEND ALLOCATION Made Since Inception of Program AE of October 23, 1941 Allocations Contracts Executed Salance Millouidated Paryos Cinantfiontson (Trens. Directive Obligations Expensitures Total Unobligated United Mingdom THE Transport, Utility & Other Aircraft 0,515,000,00 950,673.82 : 3,271,956.70 6 1,230,630.03 : 2,284,369.98 1 3,243,043.80 115 Training, Aircraft 190,000.00 , 185,840.00 185,840.00 4,160.00 4,160.00 244 Wisc.Juto.Farts c Access, 699,366.00 563,954.06 19,572.76 583,527.62 115,030.38 679,793.24 345 Uncidnary & Equipment 449,216.00 145,746.74 19,065.00 164,811.74 294,604.26 430,351.00 was Other Arric. Products 709,000.00 26,402.51 - 26,402.51 962,597.49 959,000.00 60. Machine Tools 60,900.00 16,897.40 4,665.84 21,563.24 39,336.76 56,234.16 02 Apricultural Implements 11,233,799.00 0,290,301.95 1,708,154.01 7,999,456.66 4,235,342.14 10,325,644.19 a Road Blog. Bup, 9,207,424.00 3,585,402.56 1,600,200.79 5,189,603.35 4,101,820.45 7,697,223.21 434 E.ec. Equip., Laterials L Sip. 5,018,327.00 1,069,960.27 148,287.41 1,212,247.64 3,800,079.32 4,070,039.59 605 Hrs Fighting Excipeent 1,612,614.00 561,273.52 376,638.19 940,911.71 671,702.29 1,235,975.82 C36 Railroad Resipant 3,453,500.00 2,251,461.39 - 2,251,461.39 1,202,038.61 3,453,500.00 109 Vachinery, Passport X Departes 17,514,732.10 6,864,938.56 234,298.72 7,089,137.22 10,425,594.32 17,210,533.38 (41 Iron and Stacl 125,574,568.90 51,140,261.08 23,461,391.60 74,601,652.60 50,972,916.22 102,113,177.30 642 Conner and Drano 14,065,541.00 7,006,046,45 2,212,546.34 4,118,592.79 9,946,948.21 11,952,994.66 GAS Alandren 1,145,462.00 43,034.79 39,563.66 82,590.45 1,062,663.55 1,105,898.34 644 Zine 8,001,400.00 1,358,573.54 2,901,878.74 4,260,452.28 3,760,947.72 5,119,521.26 We Other Details and Alloys 10,043,396.00 8,378,167.90 2,121,600.92 10,499,768.90 3,344,127.10 11,722,295.08 640 Mon-Vetallic !inerals 8,586,500.00 7,000.00 - 7,000.00 8,579,500.00 8,586,500.00 651 - - 1 I 052 Thomphotes 8,798,000.00 2,374,282.11 2,214,199.43 4,508,481.54 4,209,518.46 6,523,500.97 659 Other Chemicals 19,099,093.00 7,223,505.08 1,221,462.47 8,441,967.55 10,654,125.45 17,877,530.53 660 Introleus a Coal Products 2,541,000.00 437,491.53 447,685.31 $85,176.84 1,655,823.16 2,093,314.69 670 Textile and Clothing 24,000.00 18,000.00 - ₹2,000.00 6,000.00 24,000.00 680 Twice Products 15,436,778.00 5,468,701.65 261,658.00 5,730,360.31 9,706,527.69 15,175,219.34 686 Civilian Modical Supplies 1,587,540.00 1,045,143.74 206,994.41 1,271,738.15 315,801.35 1,360,945.59 690 Compdities not Otherwise Class. 35,68),312.50 18,965,390.21 502,551.92 19.467.942.13 16,219,370.37 35,100,760.58 (01.82 - United Kingdom $112,401,269.30 $120,793,611.64 M3.079.723.14 $140,873,324.82 $148,557,944.68 $269,351,556.32 Regraded Unclassified 44 Page 2 of : Treasury Department, Procurement Division STATEMENT OF LEASE-LEND ALLOCATIONS Made Since Inception of Program Ad of October 23, 1941 Allocations Contracts Exacuted Balance Unliquidated Purpose Classification (Trant. Directive) Obligations Expenditures Total (inobligated Unexpersited Republic of Ohina 016 Explosive Propellant Powders & Miscellaneous Ammunition 1 50,000.00 $ 51,825.00 I - 4 51,825.00 $ -1,825.00 $ 50,000.00 114 Transport, Utility & Other, Aircraft 270,000.00 I - - 270,000.00 270,000.00 244 Visc. Auto. Parts & Accessories 954,000.00 232,559.75 63,581.79 296,141.54 657,058.46 890,410.21 419 Visc. Quartmmaster Supplies 3,725,000.00 3,054,781.52 262,958.79 3,317,740.31 407,259.69 3,462,041.21 633 Road Bldg. Equip., Nat'ls & Supplies 797,500.00 612,793.87 131,771.26 764,565.13 52,934.87 665,720.74 634 Elec. Equip., Mat'le & Supplies 1,625.00 200.00 I 200.00 1,425.00 1,625.00 639 Other Mach,, Equip., Mat'ls & Supplies 130,800.00 - - - 130,800.00 130,800.00 641 Iron & Steel 4,664,089.50 7,016,982.30 11,452.11 3,028,434.41 1,635,655.09 4,652,637.39 642 Copper and Brass 1,205,000.00 - 707,009.03 E0*600*406 497,990.97 497,990.97 643 Aluminum 66,150.00 I 72,549.04 72,549.04 -6,399.04 -6,399.04 644 Zinc 907,500.00 82,500.00 206,251.66 288,751.66 618,748.34 701,248.34 645 Lead 936,000.00 263,547.32 425,463.82 689,011.14 246,988.86 510,536.18 648 Other Metals & Alloys 136,453.00 - - I 136,453.00 136,453.00 651 Nitrates 71,500.00 - I - 71,500.00 71,500.00 659 Other Chesticale 333,400.00 29,400.00 I 29,400.00 304,000.00 333,400.00 660 Petroleum & Coal Products 7,063,504.00 1,994,851.80 290,124.46 2,284,976.26 4,778,527.74 6,773,379.54 690 Commodities not Otherwise Classified 2,823,012.00 1,576,631.10 286,215.88 1,862,846.98 960,165.02 2,536,796.12 Total - Republic of China $24,135,533.50 $10,916,072.66 $2,457,377.84 $13,373,450.50 $10,762,083.00 $21,678,155.66 695 Working Fund for Emergency $10,000,000.00 E 70,142.21 $ 1 $ 70,142.21 8 9,929,857.79 $10,000,000.00 Allocation Adjustment Reserves $21,102,679.00 I I $ I $ 1 $21,102,679.00 $21,102,679.00 Total Allocations for Purchase $367,669,482.00 031,779,826.51 145,537,091.02 $177,316,917.53 190,352,564.47 322,132,390.98 Administrative 830 Wino. & Contingent Expenses 8 5,000.00 6 - $ - $ I 4 5,000.00 4 5,000.00 900 Administrative Expenses, 1941 24,269.00 1,017.44 10,029.93 11,047.37 13,221.63 14,239.07 900 Administrative Expenses, 1942 275,000.00 41,041.30 72,779.90 113,821.20 161,178.60 202,220.10 Total - Administrative $ 304,269.00 $ 42,058.74 # 82,809.83 $ 124,868.57 I 179,400.43 s 221,459.17 Orand Totals $367,973,751.00 $131,821,885.25 $45,619,900.85 $177,441,786.10 $190,531,964.90 $322,353,850.15 Lewenin Certified Correct Re 1. Queenin Chief Pinance Division Regraded Unclassified 45 October 30, 1941 My dear Mr. May: I read in yesterday's papers that Mr. Taub testified, before a Committee, on contracting. If Mr. Taub has written out his statement, with suggestions and criticisms as to how & contract should be let, I would be glad to receive it before noon, Friday, as I would like to take it up to the country to read. Yours sincerely, (5-d) H. Morgenthau Jr Mr.Stacy May, Chief Bureau of Research and Statistics, Office of Production Management, Room 2700 Social Security Building, Washington, D. C. measergn 4.50 Regraded Unclassified 46 FOR THE PRESS INVEDUATE RELEASE OCTOBER 30, 1941 The President today signed the tax amortization bill and issued the following statement: This bill amends the Tax Amortization Law by requiring only the certification of the Secretary of War or the Secretary of the Navy, extending the time for filing applications to December 1, 1941, and otherwise simplifying procedure for tax amortization. Last year Congress passed the law which permits defense manufacturers to amortize over a five-year period emergency facili- ties, certified as necessary in the interest of National Defense during the emergancy period. The amended statute eliminates the joint certification formerly required by the war and Navy Departments and the Advisory Commission, and places the certification solely in the Service De- partments. The amended law puts into immediate effect other changes, based on actual experience, which will simplify the procedure and save time for both Defense manufacturers and the Government. The time for filing applications has been extended. Defense manufac- turers, who were unable to file applications within the short per- iod of 60 days provided by the old law, are given until December 1, 1941, to file new applications. Thereafter, the time for filing applications for certificates has been extended from 60 days to 6 months. The new law also simplifies procedure regarding Certifi- cates of Non-reimbursement by limiting the contracts to be certi- fied to those which are more than $15,000 in amount and which were made with the war Department, the Navy Department, or the United States Maritime Commission after December 31, 1959. Under the former law many manufacturers filed applications for certification of contracts of small amount, and contracts made with other depart- ments, such as the Department of the Interior, Post Office Depart- ment, Department of Agriculture and others. Under the new law such applications are unnocessary for any contract with any of these detertments, regardless of amount and for any contract if it is un- our $15,000, with the tar Department, the Navy Department, the United States Maritime Commission. Cortificates which have already been issued are not af- fucted by the emendment and the rights of manufacturers who have already filed applications are not prejudiced. New forms of applications and instructions are being pre- pared and moy be obtained from the Office of the Under Secretary of War, Tax Amortization Section, and from the Office of the Under Secretary of the Navy, Washington, D. C. Regraded Unclassified 17 THE WHITE HOUSE WASHINGTON - October 30, 1941 MEMORANDUM FOR: The Secretary of he Treasury The excretary of har The Director deneral and the Associate director Contral of the uffice of on lans/ment The Auministrator of the 01:200 of Frice aministration Inc. Coominator of Information The Coominator it Inter-Averican Affairs The Mation Differe for - Efflow of Endirency Managament The First Supplemental lational Appropriation Act, 1941, provides that: Lie nead of any department or independent establisment of who Government, notwithst. days the provinting of misting law, my employ, with the = ⑇ I've Trail my "A" er- son of outstation experience and at A compensation of 41 per amtur." In accordance with the langus of 10 Form R proctice to approve in writing tin employee of fill in val llar- seyear min in the defense program. In "Il Informal opinion, tor list I meteral approval dven by (A) to the besis of se specific allow- 'n- Liver Dr select and employ In triduals up DEI de pre- scribed by me is within the lenguare of the appropriations let. I hereby -ive such amountal to Wie officers to above %1: newor- Anrium is addressed. The requirement "of outstaviln merica in any II of course a necessary condition by of act iv approval is also condition-ly it ro Vt etc., In- Lividual dollar-a-year man be thoroughly invest :166 in inv ive Agency of the Government. Since all national are =0 in- vesti ated, it would do Dad practice to come all mented clarge suggest you use the F.B.I., which in on 100ml : Leasti the for no, because of its experience in handlin these Hats. This, Mary F, is in auministrative matter solaly for your unit the Regraded Unclassified OFFICE FOR EMERGENCY MANAGEMENT 48 DIVISION OF DEFENSE AID REPORTS WASHINGTON, D. C. October 30, 1941. Dear Secretary Morgenthau: I am sending you herewith, for your information and use, photostatic copies of the Executive Order of October 28, 1941, setting up the Office of Lend-Lease Adminis- tration, and the President's letter of the same date designating Vr. Stettinius as Administrator. Sincerely yours, Oscar Cox Oscar 5. Cox. Hon. Henry Vorgenthau, Jr., Secretary of the Treasury, Treasury Department, Washington, D. C. Enclosures Regraded Unclassified 49 THE WHITE HOUSE WASHINGTON OCT 28 1941 My dear Mr. Stettinius: I hereby redesignate you as Lend-Lease Administrator to exercise the power and authority provided in the Executive Order "Establishing the Office of Lend-Lease Administration in the Office for Emergency Management of the Executive Office of the President". As such Lend-Lease Administrator, you will con- tinue to receive compensation at an annual rate of $10,000. Very sincerely yours, Honorable Edward R. Stattinius, Jr. Washington, D. C. Regraded Unclassified INSCUTIVE ORDER ESTABLISHING THE OFFICE OF LEND-LAX ADMINISTRATION IN THE OFFICE 202. 12TERGENCY IN OF DE EXECUTIVE OFFICE OF THE P...IDENT By virtue of the authority vésted in me by one Complix tution and statutes of the United States, and by the act of March 11, 1941, entitled "An nel Public to promote the defense of the Unitod Studys, in- "or obler purposes" (hereafter reforred to " the act), on - Um Defense A1d Supply mental Appropriation ict, 141, - March 27, 1941, and acts amenintory or supplemental Une to, in order to define further the functions and julien of the Office for Imergency Management of the 0:10 of the President in respect La the national or le- clared by the President on May 27, 19/1, and in order to provide for the more effective minimistration n° lets in the interests of national Sefore, it 16 liething ordered & Follows: 1. There shall be in the Office or Emergency Manage- ment of the Executive Office of the President LA Office of Lend-Lense Administration, at the head of which shall be an Administrator, appointed by the President, who stall receive compensation at such rute as the President shall com and, in addition, shall be entitled to actual nd necessary trans- portation, subsistence, and other expenses Invidental NO the performance of his duties. 2. Subject to such policies at the Prestient nay" :com time to time prescribe, the Administrator la horeby collarted and directed, pursuant to section 3 of Lite sel, -0 movise any power or authority con "orred upon the Prodical % Regraded Unclassified 50 2 and by the Defense Aid Supplemental Appropriation Act, 1941, and any acts amendatory or supplemental thereto, with respect to any nation whose defense the President shall have found to be vital to the defense of the United States: Provided, That the master agreement with each nation receiving lend-lease aid, setting forth the general terms and conditions under which such nation is to receive such aid, shall be negotiated by the State Department, with the advice of the Economic Defense Board and the Office of Lend-Lease Administration. 3. The Administrator shall make appropriate arrangements with the Economic Defense Board for the review and clearance of lend-lease transactions which affect the economic defense of the United States as defined in Executive Order No. 8839 of July 30, 1941. 4. Within the limitation of such funds as may be made available for that purpose, the Administrator may appoint one or more Deputy or Absistant Administrators and other personnel, delegate to such Deputy or Assistant Administrators any power or authority conferred by these orders, and make provision for such supplies, facilities, and services as shall be necessary to carry out the provisions of this Order. Insofar as practicable, the Office of Lend-Lease Administration shall use such general business services and facilities as may be made available to it through the Office for Emergency Management. 5. Executive Order No. 8751 of May 2, 1941, establishing the Division of Defense Aid Reports and defining its functions and duties, is hereby revoked. THE WHITE HOUSE October 1941 8926 Regraded Unclassified 51 October 30, 1941 Dear Archie: Thank you very much for your letter of October 28th. I think I understood perfectly what you had in mind. Had there been any doubt, your letter would have clesred it up. Yours sincerely, (Signed) Heary Mr. Archibald MacLeish, The Librarian of Congress, Washington, D. C. By Messenger 1:45 Blubuell n.m.c Regraded Unclassified D THE LIBRARIAN OF CONGRESS Washington, D.C. 52 October 28, 1941 Dear Henry: Thanks again for seeing me this afternoon. It was kind of you and I got a very great deal out of our brief talk. It is good of you to say that I can come to see you again as our plans develop. I want to be sure that I didn't leave you with the feeling that the Office of Facts and Figures thought of itself as having any control over information issued by the various departments and agencies. Our job, as I see it, is X simply one of working with the departments to try to make the informa- tion they issue as effective as possible and to give the people of the country as full an explanation as possible of the government's activities and the situation facing the government. I write you this because I think some people have gotten the idea from conversations with the Mayor and elsewhere that the purpose was to exercise some kind of control over the dissemination of information by government agencies. The BX- scutive Order makes it very clear that this is not the fact und certainly I have no such thought in mind, Thanks again for seeing ne. Faithfully yours, Ceroline Archibald Macleish The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Regraded Unclassified OCT 30 1941 is dear Mr. Secretary: Reference is nade to your letter enclosing a copy of B. proposed bill, "To establish national consor- ship of international communications and for other purposes", and requesting an expression of the views of the Department thereon. This 5111 and the proposed olsa for dealing with censorship problems has been the subject of & number of conferences between officers of the avy and Treasury Departments. The bill and the proposed plan for dealing with consorship provides for the appointment of a civilian as the Director of Censorship and for the Havy to administer the radlo and cable censorship and the Army to administer the postal and wire consorship. The proposed bill authorizes the ecretary of the Treasury, on request of the Director 05 Censorship, to detail from the Coest Guard, or any reserve component thereof, such officers and enlisted men on notive duty as say be necessary to effectuato the provisions of the proposed Bill. The bill also designates the Fiscal Service of the Treasury repartment to perform the fiscal, disbursing, and accounting functions of the Director of Censorship. I have read the report on this proposed bill written to you by the Attorney General on eptamber 5, 1041, and 1 and generally in agreement with the views expressed therein by the Attorney General. It is therefore unnecossary for ae to repeat here any of the observations made in the Attorney General's report. I destro, however, to stress one aspect of the problem of connorship. Regraded Unclassified - 2 - At the outbreak of the present war, England's censorship was set up as a part of its Par Department. Coon thereafter and at the risk of temporary dislocation, censorship was taken out of the har Department and placed on a civilian basis. The current Britlsh experience is that not much more than ten per cent of the information obtained through censorship is made available to the military departments; that over fifty per cent of the information obtained is rade available to the Ministry of Aconomic Warfare; and that the Board of Trade, the British Treasury, and Post Office Department are also among the important clients of the censorship. I an informed that the Directors of the British Censorship act under the guidance of interdepartmental committees which meet periodically and advise the censorship of the kind of information to be sought out and the 4505 to be made of the information obtained by the censcrship. I see no roason to doubt that information obtained by consorship in this country would similarly have a far greater oconomic than military value. Accordingly, I believe that the whole problem of the administration of any program of censorship in this country should to reconsidered by the PresIdent, the Vice President as Cabinet. Chairman of the Boonomic Defense Board, and by the Very truly yours, a. Morgenthan, m Secretary of the Treasury. The Monorable, The Secretary of the Havy. the Manager 9:15 3B:nrd - 10/27/41. Regraded Unclassified TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE SEP 3 Secretary Morgenthau E. il. Poley, Jr. é: Censorship During the last few weeks Havy Department officials to us about the pronosed plan for censorship of communi- by mail, cable, etc., between the United States and 1gm countries. The plan, which the Havy says was approved President sometime ago, envisages that a civilian will be or of censorship but that the havy will administer the radio ble censorship and the Army will administer the postal and censorship. Both the Army and Navy are already setting up live organizations to carry on this activity. Legislation been drafted to carry out this program but has not as yet ubmitted to Congress. The Mavy submitted the legislation this Department for approval, in view of the fact that the Guard is to be used in some incidental capacity. Legisla- biss also been submitted to the Attorney General. Neither nor Justice has reported to Navy on the legislation. I" believe that it would be a great mistake to allow and Navy to run the censorship because of their training ir narrow point of view and because the vast bulk of in- Lon which would be obtained under a censorship would have to and other non-military uses. I believe that you might riately bring this matter up with the President or with onomic Defense Board. In this connection you may be interested in the follow- formation ities. which we obtained from the British censorship At the outbreak of the present war, England's usorship was set un as a part of the War Department. very quickly became clear that the censorship uld never fulfill its proper functions with real ficiency under Army control and at the risk of porary dislocation, censorship was taken out of War Department and placed on n. civilian basis. Regraded Unclassified - e - In the first ..orld har, military espionare played E. relatively _ore important role and therefore censor- shin was more enorobriately & matter for the military services than is true in the present war when Germany relies far more on properande and economic transactions than on espiona "e. writish experience is that not more than 10 per cent of the information obtained through censorship is ...lade available to the military departments; that over DO per cent of the information obtained is made available to the inistry of _conomic Marfare; and that the Soard of Crade, the Rritish .'reasury and Post Office Departments are also among the important clients of the censorship. The directors of Sritish censorship act under the -uidance of interdepartmental committees which meet periodically end sávise the censorship of the kind of information to be sou h: out and the uses to be made of the information oltained br- censorship. In view of the fact that we have not as yet replied to the Ravy Department's request for our views on the proposed legis- lation, I should appreciate your letting me know what action you desire to take in connection with this matter. 9.1.7L 7L Regraded Unclassified August 29, 1941. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston ner Lieutenant Commander Padgett (reserve officer on active duty) of the Navy has held several conferences with Mr. Bell and others in the Treasury on the draft of a bill and regulations for mail, radio and cable censorship in case of or in anticipation of war in which the United States is engaged. Under & draft bill prepared by the Navy Depart- ment the President may put censorship into effect at any time during the unlimited emergency. The bill provides for the appointment of a. Director of Censorship, presumably a civilian, and for the detail from the Army of a Chief Postal and Wire Censor and from the Navy of a Chief Radio and Cable Censor. We have been informally advised that the President authorized the Navy Department to prepare such & bill, but the only formal submission of the bill to the Treasury De- partment for approval is contained in the attached letter, dated August 19, from the Secretary of the Navy to the Secre- tary of the Treasury. This letter asks your advice, not 83 to the general advisability or propriety of the bill, or the plan of censorship which it provides, but merely for your views on those provisions of the bill which would permit the Secre- tary of the Treasury, on request of the Director of Censorship, to detail officers and enlisted men of the Coast Guard to serve on the staff of the censor. While there is provision for the employment of civilian personnel, the terms of the bill, plus indications given by Lieutenant Commander Padgett, indicate plainly that the censorship is to be operated on a military basis and the censors are to be Army, Navy and Coast Guard officers detailed for that purpose. Lieutenant Com- mander Padgett has stated that, so far as the Navy personnel is concerned, it is their intention that the censors will be in the main civilians drawn into service as reserve officers and he has added that the advantage of using B. military form of organization is that discipline and obedience may best be obtained in this way. Regraded Unclassified - 2 - I have discussed the matter with Mr. Cairns and Mr. Bernstein and I am firmly convinced, as I think both of these others are, that a censorship ought not be operated by the military services and that the personnel ought not be made up of military officers. Mr. Pehle and Mr. Bernstein have talked with representatives of the British censorship, who say that a military form of organization was tried in Great Britain and was a lamentable failure. Apparently the preconception upon which the decision for a military censor- ship has been based is that the principal object is to pro- tect military information and to obtain information of military value. Mr. Bernstein's memorandum explains that the British experience has been that this phase of censorship is relative- ly unimportant, being far outweighed by economic and propa- ganda considerations. This seems to me a very forcible ob- jection to the military organization. A further strong objection is that a censorship to be reasonably successful in accomplishing its objectives with a minimum of friction and public inconvenience must have a great diversity of practical knowledge and some imagination. I don't think you are at all likely to get this from military men, operating under military discipline and regulations. My own opinion is that the military man is least fitted of any class of educated men to administer a. censorship success- fully. It occurs to Mr. Cairns, Mr. Bernatein and myself that you may wish to ask reaonsideration, or further consideration, of the form of censorship before it has crystallized into definite action. I have rewritten the reply to Secretary Knox to admit of this possibility. Nrr Regraded Unclassified MEMORANIUM FOR THE FILE On the morning of August 28, 1941, Mr. Reaves and Mr. Feinler discussed with Mr. Biward Bartelt, Commissioner of Accounts, a copy of a confidential bill titled "A bill to estab- lish a national consorship of international communications, and for other purposes". This bill was referred to the Department of the Treasury by the Secretary of the Navy for an expression of viess so for as the bill relates to the Coast Guard. Mr. Bartelt stated that be had no objection to the bill. Mr. Feidler and Mr. Peeves pointed out to his the wording of section 5 of the proposed bill which reads "the Fiscal Service of the Treasury Department is hereby designated, empowered and directed to perform the fiscal, disbursing and accounting functions of the Director of Consorship in carrying out the provisions of this Act." Mr. Bartelt stated that be BEE highly desirous of having that phrassology in the bill and stated that he had personally suggested that wording. Mr. Bartelt further stated that if Mr. Bell raised any question about section 5, Mr. Feeves and Mr. Feidler should inform him that the language was Mr. Bartelt's. g.7.R EGGF Regraded Unclassified (SC)/A16/EN3-10 Serial 069712 DEPARTMENT OF THE NAVY OFFICE or THE SECRETARY WASHINGTON CONFIDENTIAL AUG 19 1941 Sir: There is forwarded herewith a copy of a proposed bill "To establish na- tional censorship of international commu- nications, and for other purposes", which has been forwarded to the Attorney General for his approval prior to its submission to the Bureau of the Budget. An expression of your views in connection with this bill as it relates to the Coast Guard is requested in order that any desired change may be submitted to the Attorney General as a joint recom- mendation of the Treasury and Navy Depart- ments. Respectfully, Frankdur The Honorable The Secretary of the Treasury Frank Saix Washington, D. C. Enclosure. Regraded Unclassified September 5, 1941 Comfidential The Nonerable The Secretary of the Navy. by dear Mr. Secretary: This acknowledges your letter of August 15 (your file (58)/A16/EN3-10, Serial 069712, L EP.) enclosing a dreft of & proposed bill to establish national eensorahin of international communications, prepared by the Havy Department in sollaborative with the Mar Department. It is noted that, In ascordance with the President's direction, the proposed draft 1a submitted to this Department for approval prior to its subsission to the brown of the Budget, The proposed Mll would authorize the President to astablish and estatein during the present Astional emergency of darlag 4 state of wer & of communications by mil, dable, relle, telephone, telegraph, teletype, vioual more, read, beeing or any other means mbstesever, between the Valied Mates and my foreign country; between the Valted States and its Territorios or possessions; between the United States and my vessel) and between any Territory or possession and any other Territory or possession, It La further proposed to authorise the President to speetnt, by and with the advice and concept of the Senate, 4.0 official to be known se the Director of Consership and to detail from the Army and Daty a "Chief Postal and Wire Consor" an : a "Delef Indio and Cable Conser to perform duties as /zecutive Assistante to the Mroster of Consorship. 4 for general ements may be of some value. It that the President my now by reles and regulations preclaimed by 4ds mader main 606(s) of the Communications Ast of 1934 Regraded Unclassified -7- control radio en: unications 50 na to revent the transmission from the United States of radio cartages intiteal to the national security; althes to the Commission itself by lection 126 of the 22/15 act 1s rebilited "rom ac doing. Ourl ne: the war of 1717-18 the President by Executive Order (No. 2604 or April 28, 1917) establish- DO consorchip of cable, t-legra and tele hone lines, reciting AO authority the Constitution and the Joint Resolution of April 6, 1917, which declared the existence of EA state of ar. The validity of the consorani no insuranted was never judicially established. Legislative authority CASH into existence with the Trading: with the Freezy Act of October 6, 1717, which supported consorship of cable, tolegraph and telechone during the existence of that war; and under the BRITE legislation censorship of the mails was first established on October 12, 1917, under authority which expired with the was. In view of the above, and notwithat-nding the authority over m310 above referred to en the authority exercised by Executive rier during the lant war over cable, telegraph and tele- :hone lines, and cartain controls now possible over the use of the mil, of ecially second, third an : fourth class mil, it neverthe- less arears advision to obtain legislation Lf censorship in now deemed wise, Cf orgree, whether or not such legislation should be sought 1, rimarily & question of olicy. In letermining the question of olicy consideration should be given (1) to the traditional attitule of the United States with respect particularly to the inviolability of first class mail excent in time of war, and (2) to censorship 05, telephones, which AGGNE necessarily to involve wire-ta inc. Congress has recently refused to enset legislation authorizing wire-tarding even in a restricted manner and for rest leted purposes. (Hobbe 9111, H.R. 4228). Because of this recent attitude of Congress, it would I believe be preferable, If consorshi legislation is sought to face the "rohlem of wire-tepring frankly and not in the guise of censorship of tolephones 48 in the provosed draft. The draft of bill, in view of it. emphasis on military participation, raises the question whether sufficient study has been made of the relative importance of consorship 08 between military on the one hand and economic and other civilian information on the other. I believe it will be found that the experience of the British suring the present Far shows that a relatively small per- centrage of the fruite of censorship has related to military AS distinct from sconomic and other civilian matters. This suggests the advisability, if it has not already been none, of conmultation with and working out of the principles of the draft with those eoo- corned with economic defense, civilian intelligence, and similar non-military activities. Regraded Unclassified - 3 - The United States bas never imagerated a system of exsept in time of actual war, While I believe that the existing astional emergency and the relationship of our security to existing ware would support the validity of legialation such 40 contemplated by the proposed draft of bill, I feel that the need for such consorship, to- gether with the presise nature of the need should be first care- fully exemined and determined, In any event, however, and whatever DAY be finally decided as to the matter of policy, I believe that it 10 very decirable that the problem be pursued to the end that the best presible draft be available in case it 1s decided that legis- lation should be sought. This department would be glad to ec- sparate and make such detailed suggestions as occur to it, a number of which I ML prenared to submit in conference between representatives of the departments or in writing if you prefer, Respectfully, (s)Francis Biddle Acting Attorney Geheral Regraded Unclassified (SO)/AL6/EN3-10 Serial 069712 one OF THE suc DEPARTMENT OF THE NAVY WASHINGTON CONFIDENTIAL Sir: There is forwarded herewith IN draft of a proposed bill, ""o establish national conscrehip of international com- munications, and for other purposes", prepared by the Havy Department in 001- laboration with the Tar Department, pur- suant to the directive of the Joint Board, No. 325(681), approved by the President on June 4, 1941. The President, in approving this legislative project, directed that it be cleared through the Attorney General "as to legialation". Awcordingly, the pro- posed droft is submitted for your approval prior to its submission to the Bureau of the Budget. Respectfully, The Attorney Ceneral of the United States Weshington, D. 0. Copy to: Secretary of War. Inclesure. Secretary of the Treasury. Regraded Unclassified CONTIDENTIAL A BILL To establish mational sensorship of international communications, and for other purposes. Be it enasted by the Senate and House of Represen- tatives of the United States of America in Congress amembled, That during a state of war, or the national emergency declared by the President on May 27, 1941, to exist, with the object of preventing the treas- mission of information detrimental to the national interest, the President is hereby authorized to ⑉ tablish and maintain, under such rules and regulations se he may from time to time prescribe, a consership of communications by mail, cable, radio, telephone, telegraph, thletype, visual means, sound, homing pigeons, or any other means whatever, between the United States, its territories and possessions, and any foreign country) between the United States and its territaries OF pessessions; between the United States, its territories and possessions, and any ves- sal, regardless of the location of such ressel; and between such territories or possessions and other such territorios OF possessions: Provided, That such Regraded Unclassified - 2 - shall be applicable to foreign communion- tions touching at any point in the United States, its territories end possessions, regardless of origin or destination: Provided further, That any radie broadenst or any other communication the receipt of which sannot be confined to specified domestic addressess shell be subject to aue:- consorship. SEC. 2. The President is further authorized to appoint, by and with the advice and sonsent of the Senate, an official to be known ⑉ the Director of Consorship, whose duties he shall prescribe, and whose salary he shall fix at - rate not in excess of $10,000 per annus. The President is also authorized to detail from the Army and Navy, respectively, a "Chief Postal and wire Gensor", and a "Chief Radio and Cable Censor", who shall perform duties ⑉8 Execu- tive Assistants to the Director of Consorship in son- nection with the sensorship provided for herein. SEC. 3. The Secretary of Ler, the Secretary of the Nevy, and the Secretary of the Treasury are author- ised, on request of the Director of Censorship to de- Regraded Unclassified - , - o tail from the army, Navy, and Marine Carps, and Goast Quard, respectively, or any reserve component thereof, such officers and mllated men on active daty as my be necessary to effectuate the provisions of this лев, Provided, That any officer or enlisted BAD of the Army, Navy, Marine Corps or Cocat Guard, or any reserve 60m- penent thereof, who may be 80 detailed shall not be prejudiced in regard to pay, allo onces, promotion, advancement, appointment, or other rights, benefits, privileges, and gratuities, now or hereafter provided by the laws eleting to the regular Army, Navy, Marine Corps or Coart Guard, respectively, or Sany reserve component thereof: Provided further, That personnel of the /ray, Navy, Marine Corps or Coast Guard, or any reserve component thereof, detailed in mocordence with this Section and the ess; loyees authorized by Section 4(e) of this Not may be ordered by the Director of Consorship to perf rn travel, by any means of trans- portation, in connection with their official duties re- latine to collorah's, and shall receive the transporta- tion end subsistance allo more appolfied by the "tendard- Regraded Unclassified CONFIDENTIAL - 4 - 1sed Travel Regulations, " now and hereafter emended, for the sivilian employees of the Government, and na other. 830. 4. The Director of Censcrahip is authorized; (a) To employ the necessary civilian person- nel with or without regard to Civil Service laws and the Classification Act of 1923, as amended, essign the sans such duties as he may does appropriate, and provide such office space, services, facilities, supplies and equipment, including motor-propelled vehicles and maintenance and exchange thereof, as may be required for the organization, training and maints- name of the consorship establishment, without regard to Section 3709 of the Revised Statutes of the United States. (b) To purchase such printing, binding and blank book work from public, commercial, or private printing establishmente or binderies upon orders placed by the Public Printer who is hereby authorized to marries, for the purpose of this Aet, the discre- tion rested in the Joint Committee on Printing by Section 12 of the Ast approved January 12, 1895, M mended by the Act approved July 8, 1935 (49 areat, 4751. Regraded Unclassified CONFIDENTIAL - 5 - (o) To require the registration and licens- ing of all persons, agencies, and organisations other than agencies of the United States Sovernment, owning, pos- sessing, asintaining, or transporting heaing pigease, and to requisition all homing pigeons se owned, pos- cossed, or maintained, upon the payment of fair and just compensation in the manner provided for by the ser of October 10, 1940 (Publio Numbered 829, Seventy- sixth Congress, Third Session). (c) To require the registration and lieens- ing of those agencies to be permitted to transmit to foreign countries newspapers, periodicals, books, and other printed matter or other authorized material, free of sensorship. SEC. 5. The Fiscal Service of the Treasury De- partment is hareby designsted, empowered and di- rested to perform the fiscal, disbursing and account- ing functions of the Director of Censorship in earry- ing out the previsions of this лов. Regraded Unclassified - 6 - SEC. 6. The Chairman of the Federal Communications Ommission la hereby directed to place as the disposal of the Director of Consorshi, such monitoring service end equipment as may be required to exercise radio surveillance over minor commercial radio circuise of the United States which, in the opinion of the D1- Fector, cannot be aconomically censored. SEC. 7. There is hereby authorized to be appro- pristed, out of any money in the Treasury not other- wine appropriated, not to exceed $10,000,000 to of- fectuate the purposes of this Act. SLC. 8. hoever stall wilfully violate any of t.o provisions of this not or of any license, rule, or regulation Issued thereunder, and whoever sholl wil- fully viclate, neglect, or refuse to comply with any order of the President issued In compliance with the provisions of this Aot shall, ujon conviction, be fined not more than $10,000, or, If 6 natural person, imprisoned for not more than ten years, or both; and any officer, director, or gont of any corporation Regraded Unclassified - 7 - the knowingly participates in such violation shall be yealshed by a like fine, imprisonment, or both, and my property, funds, securities, papers, or other crticles or documents, or any vessel, begether with her tackle, apparel, furniture, and equipment, ocu- serned in such violation shall be forfeited to the Waited States. Regraded Unclassified UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Twenty-five Business Days of August, September, and October. 1941 (August 1- September 1-30, October 1-29) On Basis of Issue Price (Amounts in thousands of dollars) : Amount of Increase : Percentage of Increase : Sales : or Decrease (-) : or Decrease (-) = : : October : September : October : September Item : : : : over 1 over : over : October : September August : over : : September : August : September : August : : 2.3% - 3.6% $ 38,976 $ 38,117 $ 39,554 $ 859 -$ 1,437 Series 1 - Post Offices Series 1 - Banks 75,095 7,972 - 7,598 11.9 - 10,2 67,123 74,721 114,070 105,241 114,275 8,529 - 9,034 8.4 - 7.9 Series È - Total 21,370 18,099 19,616 3,271 - 1,517 18.1 - 7.7 Series F - Banks 115,402 108,987 121,932 6,415 - 12,945 5.9 - 10.6 Beries G - Banks $250,842 $232,327 $18,515 -$23,495 8.0% - 9.2% $255,822 Total October 30, 1941. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of Note: Figures sales have been rounded to nearest thousand and will not necessarily add to totals. of United States Savings Bonds. Regraded Unclassified UNITED STATES SAVINGS BONDS Daily Sales - October 1941 On Basis of Issue Price (In thousands of dollars) Post Office Bank Bond Sales All Bond Sales Bond Sales Date Series E Series F Beries G Total Series x Series I Series G Total Series I October 1941 1 $ 1,450 $ 3,029 $ 1,286 $ 8,271 $ 12,587 $ 4,479 $ 1,286 $ 8,271 $ 14,036 867 4,324 7.977 4,656 867 4,324 9,847 2 1,870 2,786 2,150 3.299 1,065 6,323 10,687 5.449 1,065 6,323 12,837 3 14 1,270 1,696 612 6,400 8.707 2,966 612 6,400 9.97% 6 3,449 4,778 1,4444 9,286 15,508 8,226 1,444 9,286 18,956 572 2,913 7,287 7 1,207 2,595 572 2,913 6,080 3,802 8 1,363 3,674 821 3,611 8,106 5,037 821 3,611 9,469 9 1,652 4,270 903 3,654 8,827 5,923 903 3.654 10,479 3,672 989 5,272 9.933 5,167 989 5,272 11,428 10 1,495 11 1,291 2,400 632 4,098 7,129 3,690 632 4,098 8,420 2,515 3,624 1,164 4,989 9.778 6,139 1,164 4,989 12,293 13 14 437 1,022 261 511 1,794 1,459 261 511 2,231 6,417 3,055 759 3,482 7,296 15 879 2,175 759 3,482 16 1,376 3,054 724 3.908 7.685 4,429 724 3.908 9,060 1,422 3,609 860 4.969 9.438 5,031 860 4,969 10,861 17 18 1,180 2,424 846 3,013 6,283 3,604 846 3,013 7,463 10,918 2,827 3,395 895 ,800 8,091 6,222 895 3,800 20 21 2,029 436 2,959 5,425 2,917 436 2,959 6,312 887 22 1,284 3,316 835 5,880 10,032 4,600 835 5,880 11,316 882 5,322 9,406 4,697 882 5.322 10,901 23 1,496 3,201 24 1,364 3,320 718 2,963 7,001 4,684 718 2,963 8,365 1,341 2,393 959 4,798 8,150 3,735 959 4,798 9,491 25 27 2,224 3,854 1,120 4,156 9,131 6,078 1,120 4,156 11,354 842 5,660 9,830 2,164 842 5,660 8,666 3.377 28 1,213 29 1,333 3,314 877 4,839 9,031 4,647 677 4,839 10,364 Total $ 38,976 $ 75,095 $ 21,370 $115,402 $211,866 $114,070 $ 21,370 $115,402 $250,842 October 30, 1941. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. United States Savings Bonds. Regraded Unclassified Treasury Department TELEGRAPH OFFICE WC MA WUWD9 50 NT TDS BEVERLYHILLS CALIF OCT 29 1941, 1941 OCT 30 PM 8 19 HENRY MORGENTHAU JR SECY OF TREAS SONG RECORDED BY TONY MARTIN AND DAVID ROSE ORCHESTRA THIS AFTERNOON. REGORD FOR YOU TO HEAR BEING PROCESSED SHOULD REACH YOU END OF WEEK, SONG 19 CALLED "ABE LINCOLN HAD JUST ONE COUNTRY" AND JUDGING FROM ENTHUSIASTIC ACCLAIM AT RECORDING STUDIO THINK YOU WILL BE PLEASED. CERTAINLY HOPE SO. REGARDS JEROME KERN 747AM OCT 30 Regraded Unclassified October 30, 1941 My dear General Watson: As you undoubtedly know, the airfield at New Hackensack is frequently used by visitors to the President. I asked my pilot to write out for me the various steps that might be taken to im- prove the field and I am enclosing his recom- mendations herewith. If you concur and feel that the field should be put in first-class condition, I would appreciate it if you would bring this matter to the attention of the Civil Aero- nautics Administration with a recommendation that these steps be taken. Yours sincerely, (Signed) a. in General Edwin M. Watson, The White House. By have mmc. 1045 Benkmell Regraded Unclassified 76 27 October, 1941. ADMIRAL WARSCHE: This memorandum is submitted as a result of a conversation I had with the Secretary on the return flight from New Hackensack last night. The Secretary directed that a memorandum be submitted to him which he would take up with the White House. WSSinters W.E.Sinton, Lieutenant, U.S.C.G. Regraded Unclassified 27 October, 1941. MORANDUM FOR - The Secretary of the Treasury Subject: Civil Aeronautics Administration field at New Hackenseek, New York. 1. The Civil Aeronautics Administration field as New Macksaseck, N. Y., is frequently used by overnment aircraft on special missions of importance. It 18 the nearest field of any size to the President's Lyde Tark estate and 18 used to expedite the delivery of official cor- respondence to the President. 8. The present rield is estisfactory for doytime operations of sincle engine planse but is not considered adequate for operations of large twin engine aircraft nor for night time operations of military aircraft. 3. It is recommended that this Civil Aeronautics Administration intermedinte field be improved na follows: (a) Remove trees from the southwest end of the northeast- southwest runway. These troes rise to n. height of ap- proximately 60 feet constituting . distinct hasard to planes using this runwey. (b) Continue the hard surfacing of the southeest end of the northwest-scutheest runway und the northeest end of the northaast-southwest runway. The field has recently been enlarged but the runways have not been extended by hard surfacing. (0) Install flood lights for night landings. The field at present has boundary, approach end obstruction lights. Bome of the obstruction lights should be replaced us they are lower than the obstructions. (4) Restore the teletype circuit which contains sirmy terminal forechate and upper airs. Until recently tale circuit was available out Las been terminated. Regraded Unclassified 27 October, 1941. MISMORANDUM FOR - The Secretary of the Treasury Subject: Civil Aeronautics Administration field at New Mackensees, New York. 1. The Civil Aeronautics Administration field at New Rackensack, X. Y., is frequently used by overnment aircraft on special missions of importance. It in the nearest field of any size to the President's Hyde Park estate and is used to expedite the delivery of official 00/- respondence to the President. 2. The present field 10 satisfactory for doytime operations of single engine planes but 1a not considered adequate for operations of large twin engine aircraft nor for night time operations of militory aircraft. 3. It is recommended that this Civil Aeronautics Administration intermediate rield be improved na follows: (a) Remove trees from the southwest end of the northeast- southwest runway. These troes ries to a height of ap- proximately 60 feet constituting a distinct hazard to planes using this runwey. (b) Continue the hard surfacing of the southeest end of the northwest-scutheast runway and the northesst end of the northeast-southwest runway. The field are recently been enlarged but the runways have not been extended by hard surfacing. (e) Install flood lights for night landings. The field at present has boundary, approach and obstruction lights. Some of the obstruction lights should be replaced as they are lower than the obstructions. (d) destore the teletype circuit which contains sirway terminal forecasts and upper airs. Until recently title circuit was available out has been terminated. Regraded Unclassified 78 ORANDOM FOR - The Secretary of the Treasury 27 October, 1941. (e) Make svailable a rotary snow plow to keep the field open for winter operations. Last winter the County authorities supplied & road snow plow to keep the ruaways open but raised high drifts on each side of the rumways which constituted a hazard to sircraft operations. R. R. WAESCHE, Rear Admiral, U.S. Coast Ouard, Commandent. - 2 - Regraded Unclassified CHANGES IN COST OF CONSTRUCTION OF R STANDARD 6-ROOM FRAME HOUSE, ST. LOUIS Percentage Change July 1940 to Sept. 1941 PERCENT Item Percent Cost Material Costs Increase Sept.1941 Material Costs 50 Unfinished Lumber. 51.8 $563 40 Finished Lumber. 32.9 865 Paint. Hardware and 30 Electric Materials 22.8 474 Windows. Doors. etc. 21.7 689 20 Masonry and Tile Materials 9.8 673 10 Heating and Plumbing 5.8 551 Total 3,815 0 July 1940 Sept.1941 40 Labor Costs Labor Costs Total. 33.1 2,265 30 20 10 o July 1940 Sept.1941 30 General Costs General Costs Insurance Sale Tax. etc. 29.1 422 20 General Contractors Profit 25,8 649 Subcontractors Over- 10 head and Profite 23.0 433 Total 1,504 0 Total Costs. Sept. 1941. 7,584 July 1940 Sept.1941 Total Costs, July 1940. 6,004 Increase 1,580 Parcent 26.3 Source: Real Estate Analyst C-368-1 Regraded Unclassified Prepared by: Mr. Foy EPARTMENT 80 Mr. Murshy Mr. Hunn COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Haas SH Subject: Current Developments in the High-grade Security Markets; Bank and Insurance Company Absorption of Government Securities SUMMARY (1) During the past two weeks Treasury bonds advanced about one-half of a point, while Treasury notes declined about one-quarter of 8 point (Chart I). The average yield of long-term partially tax-exempt Treasury bonds reached an all-time low of 1.82 percent yesterday (Chart II).. (2) The new 1 percent Treasury note closed last night to yield 0.91 percent. This compares with 8 yield of 0.77 percent on the 3/4 percent note maturing three months earlier (Chart III). Several factors appear to account for the rather wide spreed of 0.14 percent for only three months. (3) The Treasury average yield of high-grade corporate bonds was 2.58 percent at last night's close, the lowest yield since January of this year (Chart II). In the two weeks ending October 25, the Dow-Jones weekly average yield of minicipal bonds, moving contrary to the trend of both Treasury and coroorate bonds, rose five basis points to 1.93 percent Chart IV). (4) During the six months from March 31 to September 30, commercial banks absorbed more than the entire increase in the privately-held marketable supply of Government securities. Mutual savings banks and life insurance companies each showed 8. small increase, in the case of mutual savings banks such increase being the net resul- tant of & large turn-over of tax-exempt into taxable securities. "All other holders" decreased their hold- ings of marketable securities during this period. This may be due in part to shifte by individuals and trusts out of marketable securities into savings bonds. (5) The Commonwealth of Australia 18 offering 8 loan of 6100 millions. The loan consists of two issues -- 2-1/2's of 1945-46 and 3-1/4's of 1950-57. Regraded Unclassified 81 Secretary Morgenthau - 2 I. United States Government Securities The past two weeks saw a continuation of the price trends in Treasury bonds and notes begun about & month ago. Since October 14 prices of bonds have advanced about one-half of 8. point and prices of notes have declined about one-quarter of a point (Chart I). The following table presents price changes of Treasury bonds and notes by maturity classes from September 30 to last night's close: Average price change Sept. 30- Oct. 14 Sept. 30- Oct. 14 Oct. 29 Oct. 29 (Decimals are thirty-seconds) Notes 1 to 3 years -.06 -.10 -.16 3 to 5 years -.08 -.04 -.12 Bonds 5 to 15 years to call +.04 +.14 +.18 15 years and over to oall +.07 +.27 +1.02 The average yield of long-term partially tax-exempt Treasury bonds, moving inversely to prices, achieved a record low of 1.82 percent yesterday (Chart II). Prior to last week, the record low yield had been 1.86 percent reached on Decem- ber 28, 1940. Last night's low of 1.82 percent 1a the lowest yield since the inception of the long-term partially tax- exempt Treasury bond average in 1919. Regraded Unclassified 82 Secretary Morgenthau - 3 II. The New Treasury Note On last Thursday, the day of announcement of the offer to exchange new 1 percent Treasury notes due in 1946 for the maturing RFC and 000 notes, bid prices of "rights" opened at 100-21/32 and closed at 100-17/32. Since then "rights" and when-1ssued quotations have settled slightly, and at last night's olose the when-issued bid quotation was 100-13/32. Chart III presents a comparison of the bid yield of the new Treasury notes with the bid yields of outstanding taxable Treasury notes. It will be noted that the yields of 0.77 per- cent on the 1945 notes and 0.91 percent on the new notes are farther apart than the difference in maturity of only three months would seem to justify. One explanation may be the fact that the 1945 notes are already selling slightly below par, and resistance to further declines (which would cause the yield to rise into line with that of the new notes) results from reluctance to suffer a capital loss on the part of commercial banks which acquired the 1945 notes at par. Another reason for the divergence in yields between the two note issues may be the unequal effect of the corporate income tax on the different sized coupons. By deducting from the yield of each issue a 31 percent tax on the respective coupons, it 1s found that the difference in the net yields to a holder subject to corporate tax is relatively small -- & 0.60 percent yield after taxes on the 1946 notes compared to & 0.54 percent yield after taxes on the 1945 notes. III. Other Domestic High-grade Securities New public offerings of bonds in the New York market have sharply declined the past half month, totaling only $5.4 mil- lions for the two weeks ending October 24 as compared with $56.3 millions the previous two weeks. High-grade corporate securities have had only very minor price movements during this period. The Treasury's average yield of five high-grade corporate bonds was 2.58 percent at last night's close, a decline of two basis points since Octo- ber 14 Chart II). This 18 the lowest yield the average has reached since January of this year. Regraded Unclassifie 83 Secretary Morgenthau - 4 For the two weeks ended October 25, the Dow-Jones weekly average yield of twenty 20-year municipal bonds, moving in- versely to prices, rose to 1.93 percent, an increase of five basis points from its all-time low yield attained October 11 (Chart IV). Since the average yield of long-term partially tax-exempt Treasury bonds was 1.83 percent on October 25, the spread between these two averages at the end of last week was once more a positive value, +0.10 percent, as compared to -.01 percent on October 11. IV. Bank and Insurance Company Absorption of Government Securities It has been pointed out in previous memoranda that life insurance companies and mutual savings banks, particularly the latter, have & very limited net absorptive capacity for Government securities. It has also been emphasized that most of the purchases of taxable securities made by mutual savings banks during the past year have been financed by sales of tax- exempt securities to commercial banks. These facts are brought out sharply in the following table and in Chart V. Net Changes in Holdings of Marketable Government Securities by Selected Classes of Investors March 31 to September 30 (Millions of dollars) Taxable Tax-exempt Treasury bills Total securities securities* Commercial banks +1,425 - 74 +222 +1,573 Mutual savings banks + 545 -424 - 5 + 116 Insurance companies + 515 -222 - 29 + 264 All other private investors + 446 -643 -488 - 685 All private holders +2,931 -1,363 -300 +1,268 Except Treasury bills. Regraded Unclassified Secretary Morgenthau - 5 84 The above table shows that, during the first six-month period covered by the Treasury Survey of the Ownership of Government Securities, commercial banks increased their hold- ings of marketable securities by a greater amount than the increase in the total privately-held supply. This 1s true even if the increase during this period in commercial bank holdings of Treasury bills (due principally to seasonal in- fluences) 1s disregarded. Chart V casts further light on how these changes came about. Commercial banks, it will be noted, managed to keep the reduction in their holdings of tax-exempt securities under $100 millions despite a reduction of $1.4 billions in the total privately-held supply of such securities. They accom- plished this by purchasing from other classes of holders almost enough tax-exempt securities to offset their entire maturities. Mutual savings banks show & large turn-over of securi- ties with a rather small net increase. It will be noted that these banks were especially partial to the 2-1/2's of 1956- 58. Insurance companies remained true to their tradition that they "buy to hold" and sold very few tax-exempt securi- ties. A much larger proportion of their purchases of new taxable securities, therefore, represented bone fide new savings. "All other investors" showed a net decrease of about $700 millions in their holdings of marketable Government 80- curities. About $500 millions of this was in Treasury bills and is probably largely seasonal in character. The remain- ing $200 millions 18 & real decline, however, and perhaps represents, in large part, a liquidation of marketable Be- curities by individuals and truste in order to purchase savings bonds. V. New Australian Loan Announced The largest single loan ever offered by the Commonwealth of Australia was announced October 7 by the Commonwealth Treasury. It comprises two new securities totaling L100 mil- lions. Of this amount, 670 millions is to be applied to the conversion of securities maturing November 15, 1941 and 430 millions 1a new money for current expenditures. The new bor- rowing 1s the equivalent on & per capita basis of about $1.8 billions in the United States. Regraded Unclassified Secretary Morgenthau - 6 85 As the estimated government expenditures for the year ending June 30, 1942 amount to about L320 millions, the new money obtained from the issues will cover nearly one-tenth of the total expenditures. The new loan is to be issued at par with a choice of two maturities. One issue bearing interest at the rate of 2-1/2 percent is callable November 1945 and matures November 1946. The other issue bearing interest at the rate of 3-1/4 percent 1s callable November 1950 and matures November 1957. According to a report appearing in the London Financial Times, the subscription books were to have opened on October 7 and were to close not later than November 15, 1941. Press reports immediately following opening of the books stated that the new money required was already in sight from 15,000 subscribers including institutional and corporate lenders. Attachments Regraded Unclassified 86 Chart I CHANGES IN THE PRICES OF U.S. SECURITIES Pointe Plotted Represent the Difference from December 28, 1040 Price of Banh Maturity Class 1941 1942 (94) MAR. MAY JULY SEPT. É ACPTEMBER JM. OCTOBER 5. 13 20 POINTS 27 4 10. A 15 22 - (NCY manac) POINTS Saturday Quotations Daily (NET - +18 *18 +3 +1 " 11 . +7 +2 +1 4 41 41 + i NOTES 1 3-5 Yes, Herps 1-3 Yes, o o o e à NOTES 1 1+3 Yes. -1 et -t # NOTES 345 Yes -1 # è 4. -1 Bowers, , Over 15 Yes Te DALL 7 -14 16 -1 Buros. -1) 11 5-15 Yes. TO CALL Boxps, 1 5-15 Yes T -11 11 TO CALL -2 -1 Boxns, DVER 15 Yes & TO CALL N -a Y R -8 21 -21 "i , -1 30 7 -M -N - M & " - Il -* T -10 - 4d 7 4d -11 F 6 13 20 27 é " 18 25 I . IS 22 29 JM. MAR. MAY JULY SEPT. NOV. JAM. ACTORER INVOICE 1942 EXPERIMER 1941 1941 No - the Secretary if the Transity how el - - - Regraded Unclassified 87 Chart II AVERAGE YIELDS OF LONG-TERM TREASURY AND CORPORATE BONDS 1940 1941 MAR APR MAY JUMÉ ANY AUG SEPT OCT NOV DEC 1941 JAN FEE PER MAR APR MAY - is - " = H . HI as JUNE If 14 - 14 " 18 JULY AUG SEPT - DCT NOV 1 DEC SEPT OCT 19 ⑉ 18 " is - or : . " " 2 - - - NOV a Scale Inverted Scale motried FER CENT PER CENT I State PEE CENT WEEKLY. Saturday Quotations 18 1.5 18 20 2.0 20 Long Term Treasury 22 22 22 Partially tax-exempt Treasury Bonds (12 years ar more to any dental 24 24 24 26 2.6 26 Corporate 25 28 20 High-Grade 30 Corporate Bonds 3.0 30 12 12 32 34 14 34 36 36 34 PER PER PER CENT CENT CENT 100 (00 100 Spread between Treasury and Coporate Bonds 60 80 60 60 Spread so so 40 40 40 20 20 10 o o a * - = If . . . E 1 . . " : - AS " FEB MAR - ⑉ APR 19 BY MAY " JUNE - JULY - I AVG If #: GEPT = OCT NOV L.P. D&C + JAM 4 FEB MAS . " AN is MAY - - JUNE (94) JUST # AUS is - 3821 - " OCT " M NOV - - DEC SEPT OCT HOM 1961 1940 - Change IR compasition of Lang Form Treasury average Indian 7-12-0-8 Regraded Unclassified Chart III 88 YIBLDS OF TAXABLE TREASURY NOTES Based on Closing Bid Prices, Oct. 29, 1941 1942 1943 1944 1945 1946 PERCENT PERCENT 1.1 1.1 1.0 1.0 NEW NOTE is * .9 .8 .8 * * .7 .7 .6 .6 .5 .5 14 .4 * :- .3 -2 .2 .1 -1 o o 1942 1943 1944 1945 1946 the Secretary of the Tressury 1 % 1 I ? F 216 Regraded Unclassified Chart IV AVERAGE YIELDS OF LONG-TERM TREASURY AND MUNICIPAL BONDS Yielde Based on Saturday Quotations 1940 JAN. , FEB. " MAR is 30 APR is EF MAY = " . JUNE M * JULY 20 - AUG. IT as SEPT - - OCT 4 14 . NOV as , DEC. " 4 JAN. is FEB. - MAR is " APR 18 as 40 MAY 14 . JUME = 1941 . JULY " . AUG 16 an SEPT OCT NOV DEC Inverted Scale = If 19 11 . " PER CENT Inverted Scale PER CENT Partially tax-exempt Treasury Bonds" 1.8 (If years or more de colf donta) 1.5 2.0 to 2.2 2.2 1.4 2.4 1.6 2.6 Dow-Jones Average Twenty 20-Year Municipal Bonds 1.8 2.8 10 3.0 1.2 1.2 PER CENT PER CENT .40 Spread between Treasury and Municipal Bonds 40 20 20 o o -.20 . - I IF . - M . 17 # ⑉ - - . - . - - - IS e as == en 4 18 JAN FEB MAR APR. MAY AM MY SEPT. IN AUG. # OCT. NOV R DEC. IS - 4AM FEE 14 , et . - MAR . 16 - - não APR D = JUNE JULY : . M 20 1940 AUG, GEPT. OCT MOV. 1941 "Areak - line indicates change in compension of Long Term Preesury average 89 Office el the Soundary the Trapery - - F-134-3 Regraded Unclassifie Chart V NET PURCHASES AND SALES OF MARKETABLE SECURITIES* BY SELECTED CLASSES OF INVESTORS March 31 to September 30, 1041 DOLLARS DOLLARS MILLIONS WILLIONS Commercial Banke Mutual Savings 20% 1956-'58 Banks 1600 200 TOTAL NET INCREASE 2½ 1952-154 = 1948-150 0 TAXABLE 1600 TOTAL NET INCREASE UNDER 5 YEARS BILLS MATURED SECURITIES 1400 -200 TAXABLE UNDER 5 YEARS TAX-EXEMPT 1200 -400 MAR.31 SEPT.30 1941 1941 600 Insurance Companies 1000 400 2% 1956-'58 BOO TOTAL NET INCREASE TAX-EXCHPT" TAXABLE 200 UNDER 5 YEARS (2% 1948-150 600 2% 1952-154 90 0 BILLS 400 MATURED 21% 1956-158 SECURITIES -200 MAR.31 SEPT.30 1941 1941 BILLS 200 400 All Other Private Investors 21% 1956-'58 0 200 TAXABLE UNDER 5 YEARS ZX 1948-150 20% 1952-154 2% 1952-'54 -200 0 a 1946-'50 -200 -400 MATURED SECURITIES" TAX-EXEMPT -400 -600 BILLS -600 -000 MATURED SECURITIES TOTAL NET Decrease -800 -1000 SEPT.30 MAR,31 SEPT.30 MAR.31 1941 1941 1941 1541 "INGLUDES QUARANTEED SECURITIES "EXCLUDING BILLS Office of the Secretary of the Transary F - 217 Division of Remarch and Statistics Regraded Unclassified 91 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE OCT 30 TO Secretary Morgenthau. FROM Mr. Foley. Josiah E. DuBois, Jr., of my office and John S. Hooker of the State Department have recently returned from a five-weeks' trip during which they visited the following countries: Haiti, Dominican Republic, Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. They worked with our diplomatic and consular officers in such countries and consulted with representatives of the local overnments with respect to problems arising in connection with our black list. As I previously advised you, this trip was occasioned by the fact that in certain of these countries it appeared that the business activities of certain firms on the black list were impor- tant in the economic life of such countries and that it was neces- sary to work out programs with the local governments so that the economy of such countries would not be harmfully affected and, at the same time, the objectives of the black list would not be de- feated. AS a result of this visit it was found that it was necessary to work out programs along these lines in Haiti, the Dominican Republic, Guatemala and Costa Rica. Such programs Regraded Unclassified 92 - 2 - have already been worked out in Haiti, the Dominican Republic and Costa Rica and it is hoped that a program will shortly be worked out in Guatemala. You will also be interested in the fact that Mr. DuBois and Mr. Hooker report that the black list has, on the whole, been very effective in these countries, destroying in some cases, and drastically curtailing in many others, the business activities of firms on the black list. 9.1.7 h Regraded Unclassified P 93 I DEPARTMENT OF STATE WASHINGTON October 30. 1941 In reply refer to IT 893.51/7333 The Secretary of St presents his compliments to the Honorable the ary of the Treasury and encloses copies of telegran No. 453, dated October 28, 1941, from the American Cons te General, Hong Kong, China, transmitting a message from A. Manuel Fox for the Secretary of the Treasury Enclosure: From Consulate General, Hong Kong, No. 453. October 28, 1941. Regraded Unclassified 94 TEM GRAY Hong Kong via N. R. Dated October 28, 1941 Rec'd 12:20 p.m. 29th Secretary of State, Washington. 453, October 25, 9 a.m. FROM FOX FOR SECRETARY OF THE TREASURY. "H-J. Re your 246 of October 21st received on 25th. Have discussed Frese's return to Treasury with him. In view of the fact that board started operations late and found it necessary to undertake exchange control program there remains many difficult and important accounting procedures and problems to be developed. Frese is enxious to return to regular work with Treasury but is desirous of staying here until some of more pressing of these can be worked out. This will take at least another month. Understand from Frese that before leaving for Shanghai Cochran discussed this matter with him and that Frese consented to stay until Cochran could get back to Washington to send some one out to replace him. In view of 95 -2- In view of constantly changing natureof the problem and the fact that the board's organization is still somewhat in developmental stage, it seems essential to have some one assigned from Treasury to continue Frese's they contemplate and for Frese to spend some time with him before he leaves. Know of no place where one could get as rich ex- perience as is here available. Qualifications desired young man with training in economics and accounting and some experience in latter field, some familiarity with banking also desirable, must have analytical mind and stable habite, salary need not be as high as Frese is receiving. Frese should remain here at least until first and second monthly reports and first quarterly reports are completed. Could you have some one here to replace Frese within next few weeks and arrange plane reservation for Frese early December as all plane reservations must be made in States." SOUTHARD WSB Copy:hr:10-31-41. Regraded Unclassified 96 RD CRAY London Dated October 30, 1941 Rec'd. 9:22 0. CLA Sceretary of State, Washington. 5158, October 30, 11 a. No Department's 4670, 4685 And Embassy's 4063. FOR THE SECRETARY (1) THE TREASURY PROM CASADAY. Britlsh Treasury and Rinistry of Information pleased to learn of the statent on the relative British and American the burdens MARCLE by Applatant Secretary of State of the Treasury dullivan in Boston October 23. The Ministry of Information states that it in planning in connection with other agencies n "outer therough" comparative survey of VAP time Planner .ct odd and burdens in LIVE United Singdom tisc Empire countries, Gereety, the United States, and possibly other countries. In general, therefort, authentic data on Thised States ver time Phone: - d taxation not pendity vallable here In publiced would be WElcomed by the, Specifically ok the time the Maintry Expirence surivary Regraded Unclassified 97 -2- 5158, October 30, 11 n.m., from London. curisoity regarding the figure of 22% in the second sentence of the fourth paragraph of the State Department's 4670. This figure is at variancE with the figure of 25% given by the United States Chamber of Commerce as the percentage of the United States national income tax collected in taxes. 22% was the Chamber's figure for Britain, not for the United States. In VIEW of the contemplated survey the Ministry is anxious that the data it gathers bE authentic and wonders whether the United States Treasury has made an independent Estimate of United States tax collections or of United States national income materially different from the Chamber of Commerce Estimates. WINANT. WSB Regraded Unclassified TREASURY DEPARTMENT 98 INTER-OFFICE COMMUNICATION DATE October 30, 1941. TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Dietrich Registered sterling transactions & the reporting banks were as follows: Sold to commercial concerns £76,000 Purchased from commercial concerns £6,000 Open market sterling WBB quoted at 4.03-1/2, and there were no reported transactions. The Canadian dollar, which has shown a somewhat firm tendency in the past few days, reacted to close at a discount of 10-7/8% today. Last night's final quotation was 10-5/8%. In New York, closing quotations for the foreign currencies listed below were BE follows: Argentine peso (free) .2377 Brasilian milreis (free) .0505 Colombian peso -5775 Mexican peso ,2070 Uruguayan peso (free) .4625 Venesuelan bolivar .2620 Cuban peso 1/8% discount We purchased $500,000 in gold from the earmarked account of the Central Bank of Peru. The Federal Reserve Bank of New York reported the following gold engage- mente, both of which are for sale to the New York Assay Office: $3,267,000 from Canada, shipped by the Bank of Canada to the Federal for account of the Government of Canada. 168,000 from Venezuela, shipped by the Royal Bank of Canada, Caracas, to the Royal Bank's New York agency. $3,435,000 Total & price of 23-1/2d was again fixed in London for both spot and forward silver, equivalent to 42.67$. Sandy and Harman's settlement price for foreign silver was also unchanged at 34-3/40. The Treasury's purchase price for foreign silver MBE unchanged at 35#. We made no silver purchases today. P Regraded Unclassified 99 BRITISH EMBASSY, WASHINGTON, D.C. October 30, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Hahjax Honourable Benry Morgenthau, Jr., United States Treasury, Washington, D.C. Regraded Unclassified 100 MA X TURNAM FROM LONDON DAY D OCTOBAR 20th. 1941. A mixed ordiser and destroyer fores bembarded the Bardia area or the sight of 2 P.A.A. Albacores dropped flares illuminating the harbour for this bombardment and also bombed the entrance to the barbour. The M/V Georgie 27,759 loss bombed and sunk off Lues 00 the 11th July has been salvaged. On the night of 26th/27th and on the following day. 4 :ellingtons and 9 Marylands attacked the docks at Dunkirk. During operations over Northern France in daylight on the 28th our fighters attacked barges and factories near Lunkirk. 2 M.S. 109's were destroyed and 1 --- destroyed on the ground. A Hudson Aircraft hit a medium alsed merchant ship off Terschelling OD the 28th. On the night of the 20th/29th the Royal Air Force ruided Cherbourg and the Skous works. A11 aircraft returned. 35 enemy aircraft operated against the United kingdom during the night of the 28th/20th dropping going bombs in domerset. even and Cormwall. No important damage was done. Dae enemy bomber was destroyed by night righters. OUSIA: Kelisin legions Russies counter attacks are preventing Germane from consolidating their positions. MORCOW ector: the Germans have made alight progress North of whinek or the Morhaiak-Moscow .ome and not of Hurofominsk. the Russians are counter-sttacking in the direction of Boshaisk. Donets Begin: the Aussians are resleting virously and the Jeruane have made little progress. JULOV Bector: Bo change is reported. Regraded Unclassified 101 RESTRICTED E-2/2657-2201 No. 532 M.I.D., W.D. 11:00 A.M., October 30, 1941 SITUATION REPORT 1. Eastern Theater. Ground: Fighting continues on the Moscow front, especially along the Nara river for control of bridgeheads. On the southern front, the German High Command claims to have reached the upper Donets river on a broad front, Further successes are claimed on the mainland of the Crimes. Air: The Finns claim that their planes have set fire to a Russian troop ship and have made direct bomb hits on B troop train on the Lurmansk railroad. Leningrad and Moscow suffered raids. II. Western Theater. Air: This merning British raiders bombed Brest, France, and German air bases in the occupied Low Countries, According to London, a single Nazi reider dropped bombs on southwest Britain last night, but caused no casualties or damage. American-built Hudson bombers were used by the British in an attack on Alesund, Norway, last night, III, Middle Eastern Theater. Air: Italians made another of the frequent raide on Malta. Italy reports British raids which were centered on Reggio Calabria and Catanzarn. RESTRICTED Regraded Unclassified