Volume 476, December 22, 1941

DIARY Book 476 December 22, 1941 Regraded Unclassified - A - Book Page Airplanes Shipments to British Forces - Kamarck report - 12/22/41 476 270 - 8 - Budget, Bureau of "Defense - the Treasury's part in" - report as submitted 12/22/41 96 business Conditions Heas memorandum on situation, week ending December 20, 1941 222 - e - China Stabilization Agreement of 1937 - renewal of: Southard's memorandum to White - 12/22/41 282 Hong Kong's entry into sterling bloc and American and British orders freezing Chinese Assets: American Consul General, Hong Kong, cable - 12/22/41 283 Courchill, Winston "United States of Europe" - Saturday Evening Post article - - 12/22/41 267 Customs, Bureau of Inspection in connection with persons travelling in military aircraft: Stimson believes it impracticable end HMJr asics his reconsideration - 12/22/41 234 - D - Defense Savings Bonds See Financing, Government - 3 - ingreving and Printing, bureau of H/Jr's inspection trip impresses him favorably - 12/22/41 6 to mirse on duty at night - HWr's memorandum to Thompson 10 a) Thompson regly - 12/22/41 12 exchange Market Resume' - 12/22/41 296 Regraded Unclassified - F - Book Page Financing, Government Bond Market Policy: Bell-Morris-Haas memorandum to HMJr - 12/22/41 476 158 Defense Savings Bonds: Comparative statement of sales during first 18 business days of October, November, and December, 1941 202 - G - Gold Bullion shipments from Japan to Peru: American Embassy. Lima, cable - 12/22/41 292 - J - Japan See Gold - L - Latin America Policy on economic matters ... in anticipation of forthcoming Rio meeting: Board of Economic Warfare resolution - 12/22/41 161 a) Meeting on December 26, 1941: See Book 478, page 48 Peru: See Gold Lincoln, Abraham See Wise, Rabbi Jonah B. - M - Military Reports "Supply Routes to Russo-German War Zone from United States" - Coordinator of Information report 12/22/41 297 War Department bulletin: Japanese tactics - notes on - 12/22/41 519 - N - New York Stock Exchange Schram (Em11) offers wholehearted support - 12/22/41 238 Regraded Unclassified - P - Book Page Peru See Gold Philippine Islands Enemy Property: Correspondence between Sayre and Treasury, together with proposed memorandum to FDR - 12/22/41 476 255 n) Memorandum to FDR: See Book 477, page 112 - 12/23/41 - R - - Revenue Revision British Excess Profits Tax: Beaverbrook and Bevin opinion - 12/22/41 275 - S - Schram, Emil See New York Stock Exchange - T - - Taxation See Revenue Revision - U - United Kingdom See Revenue Revision - W - Wise, Rabbi Jonah B. Lincoln's Proclamation on March 30, 1863, eent to HMJr who senda it on to FDR - 12/22/41 242 Women Employees HMJr recommends extensive employment in Treasury - 12/22/41 7 a) Thompson memorandum 8 Ingraving and Printing, Bureau of: No nurse on duty at night - HMJr's memorandum to Thompson. 10 a) Thompson reply - 12/22/41 12 Regraded Unclassified 1 December 22, 1941 9:27 a.m. Operator: Senator Barkley at his office. HMJr: Hello. Senator Barkley: Hello. HMJr: Alben. B: Yeah. HMJr: This ie Henry. B; Yeah, how are you? HMJr: Fine. Have you got 8 minute? B: Yes. HMJr: Alben, I'd like a little advice. Three or four months ago I went to Senator Waleh and said that I'd like to appoint ae Under Secretary, Jim Landis; and he said that he would have to oppose him and BO forth and so on because - well, to boil it all down, Landis Was for Roosevelt in Massachusetts and not for Walsh. B: Uh huh. HMJr: Well, I went to him two or three days ago and said I had looked all over for an Under Secretary and I couldn't find one; and I asked him now that the war was on, whether he wouldn't just etep aside and let me have Walsh - let me have Landis - he didn't have to be for or against him. And he promised to let me know the following day and the next day, and finally on Friday, he said he was aeking Dies about Landie. In other words, he's trying every sort of way to find out something against him. B: Uh huh. HMJr: And then evidently he'd been telking with Senator George, although George had said Regraded Unclassified 2 - 2 - nothing to me, but George thought I ought to get a banker other than a lawyer. Well, I really need Landis. Landis doesn't care par- ticularly about coming - he's Dean of Harvard Law School, and he's in charge of the New England region of Civilian Defense; and they tell me it's the only district which is well organized. Now, what I wanted to ask you was, should I make a fight of it and could I win. I don't want to put Landis through the thing unless I could win on it, but when you get B: Well, I'd like to have a little time to look into it. Now, most of the Senators are going to be gone and if you had a fight, you probably couldn't get any action until January HMJr: Yes. B: on it, and therefore nothing will be lost in waiting a few days. Let me - maybe I can talk to Walsh. HMJr: Well, I think B: or would you want me to. HMJr: Yes. Yes. I mean, I'd like - he's kept telling me it's to be private and all that, but now you take people like this Father White, who's Dean of the Catholic Law School here in the District, he's a great friend of Landis and he'll give him his wholesale support. I've talked with various Catholics high up in the church - they're all for Landis - - 80 it isn't a Catholic issue, you see? B: Uh huh. HMJr: It's just because Landis was for Roosevelt and belonged to that wing of the party in Massachusetts who was for Roosevelt. B: Yes. HMJr: And he wasn't for Walsh. B: Yeah. Regraded Unclassified 3 - 3 - HMJr: And..... B: Well, now, of course, Walsh wasn't a candidate, and..... HMJr: Well..... B: Of course, that boy - he'd merely want to control the delegation, but then - I mean, establish his own leadership. HMJr: But, you know Landis. B: Yeah. HMJr: I mean - there's nothing that anybody can point their finger at him for. Hello. B: Hello. HMJr: I mean, he's a fine citizen. B: Yeah. Well, I'll tell you. Let me feel it out for & day or two - - a few days. HMJr: Will you? B: Because if you send the name over here now with BO many gone and there was any objection, it would be delayed. HMJr: Well, he'd have to go before the Finance Committee, of which George is the Chairman. B: Yeah. Yeah. HMJr: And I..... B: I think it might be well for me to talk to George about it. HMJr: I think so. B: Now, Walsh 18 in - I think - in Massachusetts. HMJr: He said he'd be back tomorrow. B: George may be in Georgia. I don't know yet. I'll have to find out about that. Regraded Unclassified 4 4 HMJr: Well, Alben, unless I could win B: Yeah. HMJr: I don't want to start all this. B: oh, no. I think you're right. HMJr: See? B: You don't want to get up a futile fight here. HMJr: Nobody's got time for that. B: Because after all, while you want him and all that, there is somebody in the country you could get if you can't win with him. HMJr: That's right. I haven't happened to find anybody, but I think in these times - I mean, I can under- stand Walsh saying it three months ago, but not now. B: Yeah. HMJr: What? B: Well, Walsh has been very decent since this war started, in his attitude towards everything. HMJr: Yeah. B: And I just have hope that he may do the same in this. HMJr: Well B: But if you want me to, I'll talk to him or whether you want me to or not, I. HMJr: No, if I could leave it in your very able hands, I won't talk to anybody else and leave it with you. B: I'll tell you. I'll talk with him and I'll talk with George. HMJr: Right. Regraded Unclassified 5 - 5 - B: Inasmuch as it would go before that committee..... HMJr: That's right. B: .....and get their reaction. HMJr: Thank you 60 much. B: All right. Good-bye. 6 December 22, 1941 Mr. Hall Secretary Morgenthau I made an inspection Sunday night of the Bureau of Engraving and had 8. good impression of what was going on. I just thought you would like to know. When I went through the plant, I noticed that there were places for several деw automatic printing presses. I asked why they weren't installed and your men said they were waiting for motors. Please let me know how many new presses you have on hand that you can't install because you lack cer- tain parts and let me know what those parts ere. Please send that report in to Lt. Stephens as soon as possible. memo submitted 12/03/41- Regraded Unclassified 7 December 22, 1941 Norman Thompson Secretary Morgenthau I wish you would make a study of where in the Treasury we can recruit women with special technical knowledge - such as lawyers, economists, bookkeepers, and begin to put them into more important places. I have been preaching this now for a long time, and I am more convinced than ever that we have got to get more and more women into the Treasury as the nation will call on able-bodied men for the armed forces. Please talk to me about this on Monday. Regraded Unclassified TREASURY DEPARTMENT 8 INTER OFFICE COMMUNICATION DATE December 22, 1941 TO Secretary Morgenthau FROM Mr. Thompson With respect to the recruitment of women in the Treasury, I have to report that on December 9, 1941, a Recruitment and Place- ment Section was set up in the Division of Personnel. This section has accomplished much already in having heads of offices forecast their needs and in locating suitable personnel, and it will concentrate on the necessity for recruiting women instead of men in all branches of the Department in accordance with your wishes. You may be interested to Innove that Ed Foley has 8 women lawyers on lis staff, while 16 women economists are employed in the Research Divisions of your office. of Regraded Unclassified Thompson reported at Group on 12/31/419 that since Chief Deasey will not be with Treas full time, he is trying to get an engineer officer and the Chief of Engineers has this retired Brig, Gen. HM Jr said "Fine." Letter ant to Sery. of War. - Follow up 1/15/41 also see Thompsond meno /10/22/41- 50 December 22, 1941 Norman Thompson Secretary Morgenthau I visited the Bureau of Engraving, and I was shocked to find that none of the women working there at night have received any drill in case of an alarm or 8 bombing. Please let me know today what steps should be taken to have drills in all of the Treasury buildings all over the United States. I read in the paperthat they have done something in the De artment of Commerce and evidently it was done very sell. Also, I was shocked to find that after nine years in the Treasury and explicit orders that no women should work at ni ht unless 8 nurse is on duty, all of these women are working over there in the Bureau and no nurse or doctor is in attendance. I really am very much annoyed that my instructions aren't carried out after nine years. Please make a survey and let me know if anywhere in any Treasury building women are working, day or night, and there isn't 8. nurse in attendance - not only for the women but also for the men, but especially for the women. There are all kinds of volunteer organizations who have given women training to do first aid, and if you can't get trained nurses, we can get these volunteers from the Red Cross who have hadthis training. Somebody in your office should be charged with this war emergency work to see that we are up to the minute and not dragging our feet. If the Department of Commerce can do it - according to the newspapers - I should think that the Treasury can do it. I don't only want it in Washington. I want it all over the United States. Regraded Unclassified 11 - 2 - The matter of air raid protection and warnings is supposed to be under a man by the name of General Gasser. I understand that General Gasser is good, and possibly he could lend us a man or detail somebody to the Treasury. We certainly need somebody. Regraded Unclassified TREASURY DEPARTMENT 12 INTER OFFICE COMMUNICATION DATE December 22, 1941 TO Secretary Morgenthau FROM Mr. Thompson We have completed our arrangements for a drill in the Treasury Building and it is tentatively set for 3 P.M., Tuesday, December 23. Instructions also are going out to the Heads of Bureaus and Offices of the Treasury giving them details of how we have set up our pro- tective measures for Treasury personnel during emergencies and directing that drills be held in all buildings in Washington and in the field occupied by Treasury personnel. Attached hereto is a memorandum in some detail setting forth what we have done in the Treasury in protective measures and employ- ment of nurses and other personnel. This is for the record but I am sure you will find it of interest if you find time to read it. of Regraded Unclassified 13 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 22, 1941 TO Secretary Morgenthau FROM Mr. Thompson Respecting your concern over appropriate steps taken and to be taken since Sunday, December 7th, would advise: With the news that Pearl Harbor had been bombed Sunday afternoon, a member of my staff reported to the Treasury under my direction and called together the service units including the Superintendent of Guards, the Superintendent of Maintenance, the Chief Clerk, and others, and commenced on a program for taking necessary precautions against possible damage and sabotage. On Monday, December 8th, admission to the building was restricted in accordance with a plan of regulations which had been considered earlier for adoption in the event of war. By noon on Monday all persons in this building, numbering slightly over 2,000, had identification passes. A reception room was established where courteous treatment was accorded all visitors. Since Monday, December 8th, my office has participated in an almost constant flow of conferences and has been responsible for many major changes, all leading up to a better plan of safety for the employees of this building as well as for the employees of every Treasury unit in Washington. At the beginning of the current emergency it was realized that with my limited staff I could not prescribe rules and regulations for the outlying Treasury offices in Washington, much less for the field offices. I took, however, the next best course of action, namely, set up within my administrative office a unit to deal with the problems of this building and had contacted the heads of all bureaus and offices, impressing upon them the importance of following closely the program being inaugurated in the Main Treasury Building and charging these heads with the responsibility for prescribing safety measures peculiar to their own individual operations. Regraded Unclassified Secretary Morgenthau - 2 14 My office has had conferences on the question of safety of employees with the Public Buildings Administration, which is the body charged with this responsibility for all Govern- ment buildings. On three occasions Mr. Reynolds has called personally at this office; Mr. Cook, Chief Structural Engineer, and Mr. Barber, Assistant Structural Engineer, called and sur- veyed this building; and arrangements were made to have Colonel Studler, who undertook this identical program of work in the Embassy in London, call and give us the benefit of his views. To sum up, these engineers have informed us that this building is not safe in a bomb attack, and that the best we can do is to order people from the fourth and third floors to the first and second floors. We have gone into such matters as blacking out the Treasury, bricking up windows, installing signal systems, painting arrows for employees to follow, and on Saturday, December 20th, issued the first circular concerning the conduct of employees in the event of an air raid. We estimate that $309,000 will be needed to put into opera- tion some of the measures above referred to, which item we requested from the President's Fund, knowing that it would be a matter of months before such item would be appropriated either to us or to the Public Buildings Administration. On your advice this item was deleted from the letter to the President and re- quest was made for it by members of my staff at a budget meet- ing held today at 10:00 a.m. The Bureau of the Budget examiners informed my staff assistants that they should request the Pub- lic Buildings Administration to proceed with these necessary protection measures, indicating that if the Public Buildings Administration did not make available these funds, then my staff assistants are to return to the Bureau of the Budget. At the beginning of the present acute emergency, the Chief of the Secret Service requested this office to assist in every way possible that service in its grave responsibility for protecting the President, as well as protecting through coordi- nated efforts the persons in this building. A member of my staff attended a meeting in the Secret Service offices on December 8th and submitted at this meeting a memorandum to the Chief containing ten suggestions for immediate considera- tion. These suggestions follow: Regraded Unclassified 15 Secretary Morgenthau - 3 (1) Anti-aircraft guns mounted on Treasury Department, State Department, and White House. (2) Tunnel to go from White House to Main Treasury, to be continuation of the tunnel from Main Treasury to Annex. (3) Garage in the Belasco Theater where two cars can be stationed and available. (4) Buzzers from every executive's desk to Captain of the Guards. (5) Revolvers assigned to every executive to be held in their desks loaded. (6) Plan in full contemplation of the Treasury being bombed in order to assure best approach for safety of employees. (7) Complete defense regulations promulgated for the Treasury Department contemplating any type of emergency. (8) White House Garage under Secret Service with no other employees to be admitted; doors to be closed. (9) Move Secret Service cars out of the ramp to Executive Avenue side. (10) Plan for temporary White House in Middle West. Subsequently the same representative has handled for the Secret Service all administrative phases arising in connection with securing immediately equipment, arranging conferences with competent engineers, discussing plans, and the like. In this connection the tunnel to the Main Treasury is nearing com- pletion, Vault 1 has been cleared out, and two bays are in process of being finally equipped for the use of the Chief Executive in the event of bombing of the White House. This has necessitated conferences and planning on auxiliary exits from the Vault, separate power to the Vault, moving steam pipes to different locations, change of air at stated intervals, barometer and humidity equipment, chemical toilets, construction of beds, supplying of food and water, supplying of office equipment, and a score of details all of which have been handled in a minimum of time as expeditiously as it has been possible to handle such matters. Here I should like to point 16 Secretary Morgenthau - 4 out that, commencing with Sunday, December 7th, facilities have been available for the President in the event of an emergency. Since December 7th and without an available foot of space, arrangements have been made to bring into the Treasury over 100 soldiers, provide them with suitable quarters both in the Sub-Basement and on the fourth floor, as well as to provide sleeping quarters for 20 Secret Service men on 24-hour duty in this building. This has associated with it many administrative problems such as providing suitable equipment, soliciting a collection of over $400 for their amusement, shifting our service units essential to this building, such 8.8 the paint shop, the plumbing shop, the storekeeper, etc., to other loca- tions and the removal from the Main Treasury Building of many truck-loads of equipment held to be pressed into use in an emergency. The space problem and the expansion of the tax experts has been met since December 7th, and over 16,000 square feet of additional office space has been developed in the Washington Building for the overflow occasioned both as & result of the war emergency and the expansion in tax work. The above is all additional responsibility assumed within the last two weeks, and with it the regular work of my office, which is heavier now than it has been at any time in the history of my office, has been carried on without delay. It is of in- terest to mention that within the last two weeks I have received a complimentary letter from the General Counsel on the efficiency of my immediate office in handling the regular work. I had hoped to add to my staff Mr. Shane McCarthy and Mr. Parham, who I felt certain could contribute to the many practical problems now confronting us, and in view of the changed conditions since we last discussed these men, I should now like to have your per- mission to put them on immediately. In addition, I am recruit- ing persons of the type you had in mind and I am prepared now to discuss with you one likely candidate--a woman--at your convenience. Respecting the availability of nurses during overtime hours, would advise that two weeks ago I made arrangements to have the Public Health nurses in this building remain on duty until Regraded Unclassified 17 Secretary Morgenthau - 5 11:30 p.m. There are very few women in this building after that hour. Respecting Mr. Hall's having nurses, this matter was taken up with him many months ago and 8. letter was written by this office to the Public Health Service requesting medical aid on night shifts. We were advised by the Public Health that no funds were available for the procurement of doctors and nurses during overtime hours; however, I have today in- structed Director Hall to put the necessary nurses on his own pay roll. In the meantime, we are endeavoring to work out arrangements for volunteer nurses. Volunteer nurses also are being recruited in other Treasury buildings so that we will have a full coverage. With respect to the field service, the heads of the larger bureaus are taking immediate steps to have the necessary nursing or Red Cross first aid facilities established in each field office where such facilities are not already available. General Gasser loaned us ten days ago Battalion Chief Deasy of the New York Fire Department, who had spent some time in London studying actual bombing conditions and is experienced in the technique of incendiary protection. Chief Deasy and Treasury representatives are covering every foot of space throughout the Main Treasury Building from the roof to the Sub-Basement, determining the areas which are desirable as bomb shelters. Recommendations have also been submitted by Chief Deasy and Agents Cawley and Baca covering the Bureau of Engraving and Printing and the Bureau Annex. Recommendations covering the Liberty Loan and Auditors' Buildings are in process of prepara- tion. However, the same situation as to funds will exist with respect to these buildings. you Regraded Unclassified 13/04/41- 18 Thompson repated at Group Meeting,- Said cast would he probibitie. Deasy recommends putting cloth over windows. Hijs said all right. the Thompsons menes of 12/29/41- 19 December 22, 1941 Mr. Thompson Mr. Morgenthau Have you had any estimates made on how much it would cost to put shatter-proof glass into the various Treasury buildings? If you haven't had this done, I wish you would have an estimate made and let me know how much it would cost. Regraded Unclassified 20 December 22, 1941 9:30 a.m. GROUP MEETING Present: Mr. Gaston Mr. Morris Mr. Thompson Mr. Sullivan Mr. Buffington Mr. Viner Mr. Blough Mr. Kuhn Mr. Graves Mr. Paul Mr. Schwarz Mr. White Mr. Foley Mr. Bell Mr. Haas Mrs. Klotz H.M.JR: Norman, did you get my various notes? MR. THOMPSON: I just received one. H.M.JR: I went through the Bureau of Engraving yesterday and there were all these women and nobody that I can find in the Treasury has had any instructions in case there is an air raid warning or bombing. MR. THOMPSON: For the Bureau? H.M.JR: Anywhere. MR. THOMPSON: They have, yes. I put out a circular. MR. VINER: You mean in this building? Regraded Unclassified 21 - 2 - H.M.JR: Yes. MR. VINER: We all received -- H.M.JR: But I asked the women working, "What would you do?" They didn't know. MR. VINER: There were notices down at the entrance and they were all received in the offices. H.M.JR: There is nothing over at the Bureau. I think we ought to have a practice. I think we ought to get some regular Army retired officer, preferably from the Engineering Corps, assigned to us. MR. THOMPSON: Battalion Chief Deasy has been cooperat- ing with us and giving us all -- H.M.JR: But these women, in the first place, they had no instructions and there was no nurse on duty in case of an accident last night, and there hasn't been. You know how I feel about that. I think if we could get 8. retired Army officer, preferably from the Engineering Corps. Maybe somebody could be recommended to detail to us. After all, we have employees all over the United States. He could travel from one place to another. He might need a few assistants. He could have regular drills. Was anybody in Washington yesterday who heard the air alarm? MR. GASTON: I heard it over the radio. H.M.JR: Not over the radio. MR. SULLIVAN: I did. H.M.JR: Did you hear it? MR. SULLIVAN: Yes, sir. H.M.JR: I couldn't. MR. BELL: It sounded like & fire engine, but I heard it. Regraded Unclassified 22 - 3 - H.M.JR: I couldn't hear it. I have got to go at seven=thirty to my school tonight to get instructions on how to handle bombs. Anybody else? Who has been visited by an air warden at their homes? MRS. KLOTZ: We were. MR. GASTON: We had a couple of papers left at our house by a small boy yesterday morning. One was a questionnaire to go out. H.M.JR: Were you told to go to school or any place? MR. GASTON: No, we were just told to fill out the questionnaire as to who lives in the house and how old they are and whether they are crippled or not. H.M.JR: Have you been told where to go? MR. FOLEY: No. I went around to the air warden in New York last night and talked with him, but no one has been to our apartment. MRS. KLOTZ: We were told to stay in our apartment. H.M.JR: He said he was appointed Saturday night and he came around to see me on Sunday. So he looked at both of us and he said to her, "I guess I will make you warden." So I said, "I can get under the bed first and she has got to run around to see whether things are all right." It is terrible. And they pick seven-thirty to hold a school. MR. THOMPSON: There was an editorial in the Post this week. H.M.JR: I read it. It was a good editorial. Norman, get on that, will you please? And I gave some orders over there - I won't bother. The soldiers there had a table half this size, forty-three soldiers, to eat off. It is terrible. Forty-three soldiers eat off a table half this size. I took care of it over there. Regraded Unclassified 23 4 MR. THOMPSON: Is that in the new building? H.M.JR: They moved the men from the bridge up on top of the Bureau of Engraving; forty-three men are living up there in the attic, of the Coast Artillery, 212th. What I thought, you might make & note, there are forty-three men there and I don't know how many men there are over in the old gymnasium. Possibly we might run some movies in the auditorium of the Bureau of Engraving for those groups. You might inquire. You might work it out that when they get through with the films here they might use the same films over there, maybe on alternate days or something. Will you look into it and talk to me about it? MR. THOMPSON: Yes. H.M.JR: The more inspecting I do of the soldiers, the poorer impression I get of the way they are handled. I think they are handled just like so many cattle. I think it is terrible. Forty-three men living up there in an attic, no place to eat, food - tin plates that look cold and un- appetizing. General Cox came to see me last night and he said, "I always see my men get at least one hot meal a day." I keep thinking, I don't know when Henry is going to be a private and I hope somebody is going to look after him, but it is terrible the way they are taken care of. And they all say it is 80 much better, for instance, downstairs in the Treasury, they would 80 much rather be there than any other place they have been 80 far. Norman? MR. THOMPSON: I have nothing. H.M.JR: Dan, I got B. good impression of what Hall was doing last night over in the Bureau. Everything was working - I mean, there were & few little suggestions, but on the whole -- MR. BELL: You mean on the manufacturing end? H.M.JR: Yes, I found four men who were working Sunday Regraded Unclassified 24 - 5 - night on a twenty-five dollar plate, engraving. There were a few little odds and ends, B. few suggestions, but I thought I would tell you it was all right. MR. BELL: O.K. H.M.JR: I don't - at ten o'clock I have got to break this off. I am sitting down on the tax suggestions. I read your Byrd thing and I am not very happy about it. MR. BELL: Some points. I have just dictated a letter answering some of the questions. H.M.JR: Do I have to vote on that? MR. BELL: I don't know what he is going to do. He probably thinks he has authority to write and send the report in but he has sent a copy of it to everybody. H.M.JR: Are you happy about it? MR. BELL: Two or three things, no. I told him I didn't think that you ought to agree to the recommendations to turn all reserves in to the Treasury. H.M.JR: What I would like to do is, Paul has to appear before the Budget at eleven, SO I have got to stop at & quarter of eleven. So a little after that - give me fifteen minutes - and I would like to sit down with you on the Byrd report. O.K.? MR. BELL: Fine. H.M.JR: Harry, I sent you a book. MR. WHITE: I already noticed it and have it in my bag. H.M.JR: Thank you very much. Harry White was kind enough to give me a book when I thought I was going away on & vacation. After I had been back two days, he says, Have you finished? I want to borrow it from you." (Laughter) Regraded Unclassified 25 - 6 - I rushed through it. It is a good book. MR. WHITE: I was afraid Mrs. Morgenthau might see it. (Laughter) H.M.JR: She wanted to read it. Have I got something on Russian gold for tonight for the press at four o'clock? MR. WHITE: You have. It is all ready. I sent in to you a little note -- H.M.JR: Supposing you give it to Chick and then Chick can give it to me a couple of minutes before press. MR. WHITE: I will do that. MR. SCHWARZ: I will bring it in. H.M.JR: Will you please? All right, Harry? MR. WHITE: You might want to mention that the Chinese have renewed their agreement. It is not important. It may sound important. I will give you a little note on it, give it to Chick. H.M.JR: You know, due to me, I never gave you a chance to talk to me about whether you were going to put Professor Southard in - is he in there? MR. WHITE: Partly. Whenever you are ready to discuss - have ten minutes, there are a number of things there that need to be cleared with you. Any time this week that you are ready. MR. BELL: We ought to discuss at the same time Professor Brown. MR. WHITE: That is one of the things. H.M.JR: Chick? Regraded Unclassified 26 - 7 - MR. SCHWARZ: This problem of contributions directly to the Treasury seems to be growing. Pearson and Allen again last night made an appeal. I have just been talking with Mr. Heffelfinger. He was talking with Mr. Bell. We are accepting some of the money even when it comes in for specific purposes, so it seems difficult to announce that we can't receive it for that purpose. H.M.JR: Do you mind working it out with Bell? I don't want to handle it in my press conference. I don't want to stress it. Work it out with Bell. MR. SCHWARZ: You may be able to do it simply by letters to the individual people. MR. BELL: The way we are handling it. I think maybe we ought to get out a press statement on the whole thing. MR. FOLEY: I do too. Bob Lovett called up and said that it is a troublesome problem to them because people keep sending the money in for a bomber and they don't know what to do with it. MR. BELL: They ought to send it over here. We are putting it in 8 special account and writing the people and telling them that we can't accept it for specific purposes but if they want to donate it for national defense we will be glad to take it. Otherwise we will have to eturn it to them. MR. SCHWARZ: The American Society of Newspaper Editors is asking if you will talk in New York to them for twenty minutes on taxes in April. It is pretty far in advance. H.M.JR: After the experience I am going through now, I am not going to make any more speaking dates until I have a speech written and then I will look for 8. spot to talk. MR. SCHWARZ: Shall I suggest they renew their request? H.M.JR: I am not going to go through it again. Here we are and we don't know what - 1 am stumped. I am not going to take any more speaking dates. I will get a subject Regraded Unclassified 27 - 8 - and then look for a place to speak. MR. SCHWARZ: They can check later. We may like that sounding board. It is a good -- H.M.JR: But as I say, from now on, the speech is going to be written first and then we will look for a place. Is that right, Ferdie? MR. KUHN: That is right. MR. WHITE: What will make you write a speech if you haven't a place? Which comes first? MR. VINER: The yegg. H.M.JR: The desire. (Laughter) MR. WHITE: This is a good place to make a speech. They don't have to specify the topic the way they do. H.M.JR: I am not going to -- MR. SULLIVAN: Which comes first, the yen or the yegg? H.M.JR: As a matter of fact, just so you will be ready, Harry, if I can't make this speech, we are sending Regraded Unclassified 28 - 9 - you up there Sunday night. MR. WHITE: I wasn't planning to be available Sunday night. (Laughter) H.M.JR: You had better reconsider your plans. MR. SCHWARZ: That is all. H.M.JR: I thought you might like to please the Director of the Budget, who is president of the organization. MR. WHITE: I can suggest a lot of good people to go up and talk Sunday night if you are short. H.M.JR: I have. MR. GASTON: Do you need a lot? H.M.JR: Roy? Did you have any success at Harvard? MR. BLOUGH: I think we are going to be able to get a couple of persons there, yes. One man was in this morning. I am quite sure we will get at least part of his time, and I hope full time. Regraded Unclassified 28 - 9 - you up there Sunday night. MR. WHITE: I wasn't planning to be available Sunday night. (Laughter) H.M.JR: You had better reconsider your plans. MR. SCHWARZ: That is all. H.M.JR: I thought you might like to please the Director of the Budget, who is president of the organization. MR. WHITE: I can suggest a lot of good people to go up and talk Sunday night if you are short. H.M.JR: I have. MR. GASTON: Do you need & lot? H.M.JR: Roy? Did you have any success at Harvard? MR. BLOUGH: I think we are going to be able to get a couple of persons there, yes. One man was in this morning. I am quite sure we will get at least part of his time, and I hope full time. Regraded Unclassified 29 - 10 - H.M.JR: Paul asked me a question. If a man was for Willkie and was 8. good statistician, does it mean he couldn't come and work for us? I said he could provided he wasn't both for Willkie and America First. I can't stand America First. MR. BLOUGH: The gentleman in question is Pro- fessor Leonard Crum of Harvard who is trying very hard to get back into the artillery, and they won't take him for age reasons. H.M.JR: I don't mind his being for Willkie, but if he was both Willkie and America First, no. I can't swallow that. MR. BLOUGH: There is no America First in this. MR. GASTON: He is the man we had on tax estimates. H.M.JR: Anything else, Roy? MR. BLOUGH: Many things, but nothing important for now. H.M.JR: George? MR. HAAS: I have nothing this morning. H.M.JR: Viner? MR. VINER: No. H.M.JR: Kuhn? MR. KUHN: No, sir. MR. GRAVES: No. H.M.JR: George Buffington? MR. BUFFINGTON: Nothing. H.M.JR: Got any ideas on what I called you up about Regraded Unclassified 30 - 11 - last night? MR. BUFFINGTON: Not definitely. I will have later in the day. MR. MORRIS: Nothing. H.M.JR: Paul? MR. PAUL: Nothing until ten o'clock. H.M.JR: We are going to make it. We have got ten minutes to go. MR. SULLIVAN: War and Navy Departments are pro- posing legislation to prevent the states from taxing anything that is - any contractor who is manufactur- ing or selling anything to the War Department or the Navy Department. We are against that. There was quite a conference last week, and I think the Budget is putting it up to the White House to see what they want to do. There is a realm of uncertainty that we think should be cleared up by a statute that would enable the states to even tax the Federal Government outright in certain instances, and that is probably what we are going to recommend. I have a memo on that I will give to you. We have been getting inquiries from industrial concerns 8.8 to whether or not expenses they incur in building bomb-proof shelters can be deducted for income tax purposes. The answer is no, but we were considering legislation which would enable them to do that. Jim Landis started the inquiries, and I phoned Jim and I put it up to him that the best solution of the problem was through amortization, and he agreed, so then I talked with Eddie Greenbaum, and Eddie said that they could issue certifications almost automati- cally there, and we are sort of preparing - we are pre- paring a press release on it. I didn't know whether you would want to talk about that in your press con- ference today or whether it would be better to give it out in a formal release. Regraded Unclassified 31 - 12 - H.M.JR: Who all is to have a look at it? MR. SULLIVAN: Herb and Ferdie and Chick. H.M.JR: Well, what about Foley and Paul? MR. SULLIVAN: Yes, I have told Randolph about it and Kades and - no, Tarleau and Blough. MR. PAUL: Not the bomb shelters. MR. SULLIVAN: Not the bomb shelters? I thought I discussed that with you. MR. PAUL: We discussed the other point, about the state taxation. MR. SULLIVAN: That is right. I thought I had-- MR. PAUL: I was a little surprised that they couldn't deduct that. That was my immediate reaction. MR. SULLIVAN: Well, it is subject to deprecia- tion, and we can stretch the rules that way, but it would be much more to the advantage of the company not to write it all off in one year, but to have five years in which to write it off. I thought that it would be a good idea just before this - we go in on this tax bill for you to make an announcement of this and let them know that they can get this amortization. MR. VINER: But what if they are not a defense plant? MR. SULLIVAN: The feeling of the War Department is that practically anything is a defense facility now, anything that - any bomb-proof shelter that is protect- ing working people. H.M.JR: Well, is it up to-- MR. VINER: Supposing it is making women's clothing, Regraded Unclassified 32 - 13 - you still want them to have a bomb shelter? MR. SULLIVAN: Yes, we do, of course. MR. PAUL: Are these shelters very permanent in character 80 that they can't be-- MR. SULLIVAN: Yes. MR. PAUL: It would certainly seem that they are useless after the war, whenever that is. MR. SULLIVAN: I don't think they are going to be useless, Mr. Paul. Everybody is going to build them 50 they can use them for a warehouse or for storage or something afterward. H.M.JR: I don't agree with you. I don't think you can build one you can use as a warehouse. MR. WHITE: If they do it that way, they are not good bomb shelters. They are too expensive. H.M.JR: According to the specifications I have seen, the only thing they would be good for would be 8. wine cellar. MR. SULLIVAN: Well, I will bet most of the factories find some storage uses for them. H.M.JR: Not if they build them according to specifications. MR. SULLIVAN: I don't even know what the specifi- cations are. H.M.JR: If you saw the way they have them, the gas locks and the winding rows and narrow passages and everything else, you can get a human being in and that is about all. MR. WHITE: Would the Army certify the particular Regraded Unclassified 33 - 14 - project so it would pass certain requirements before it could be classified as a bomb shelter, is that the thought? MR. FOLEY: John, you could have two types, couldn't you? You could have one where it could all be taken out in the year in which it wasn't used any longer, and you could have the type where they might want to build it as a defense facility and take amortization over a five-year period. MR. SULLIVAN: That is right. MR. FOLEY: I should think that the release could be phrased in such a way that the taxpayer could be informed as to both manners of handling the thing from the tax end. MR. SULLIVAN: They don't want the first kind. MR. FOLEY: Well, they might. Jim Landis spoke to me when he was out at dinner the other night-- H.M.JR: Do you mind? Don't let's do the home work here. You raised it, and these people I have mentioned could take a look at it. MR. SULLIVAN: Sure. H.M.JR: It doesn't have to go out at four o'clock today? MR. SULLIVAN: No. H.M.JR: And if these other people would have a minute to look at it and initial it and bring it to me, and we will get it out. MR. SULLIVAN: RIght. That is that other memo I spoke of. H.M.JR: Thanks. Regraded Unclassified 34 - 15 - Have you got something for me for Bill Knudsen? MR. FOLEY: I haven't, but I will give you one. H.M.JR: Will you? MR. FOLEY: Yes. H.M.JR: Give it to Stephens and tell him to mark it urgent. MR. FOLEY: Right. H.M.JR: And I invited Oscar Cox to have lunch with me alone today. I located him up at the Supreme Court. MR. FOLEY: Yes. Do you want me to go down and see the gentleman? H.M.JR: Yes, call him up for an appointment. The fact that Oscar is up there is all the more reason that you should go. MR. FOLEY: All right. H.M.Jr: How were the children? MR. FOLEY: Fine, thank you. H.M.JR: Did it go over successfully? MR. FOLEY: Very well, It was a nice party. H.M.JR: Good. Was it bumpy going up? I didn't want to tell you, but I thought it would be terrifically rough. MR. FOLEY: It was kind of bumpy. I sat next to Cabot Lodge and he tried to get me to go in the Tank Corps with him so we didn't mind the bumps very much. He is & major now in the Tank Corps. Regraded Unclassified 35 - 16 - H.M.JR: Herbert? MR. GASTON: We wrote to the Secretaries of War and Navy on November 27 asking if they would be good enough to ask their field commands to let us know when planes arrive from abroad with passengers carrying baggage and so on. The Secretary of War first &0- knowledged it, and now a letter dated December 17 says the matter has been given careful consideration and "since such action would seriously handicap the offensive and defensive operations of the Army air forces, it is not believed practicable to comply with your request. So here is a letter prepared with your signature ex- pressing surprise at that reply and telling them it seems - saying, "I believe that this matter should be seriously reconsidered. It seems unlikely to me that your Department will find it necessary to permit the carriage of merchandise and baggage in military air- craft in any manner which would necessarily involve infaction of the laws of this country." All we ask them to do is to let us know and to hold the merchandise, not to tell us where the plane came from and when, simply to hold the merchandise for examination. It seems an absurd sort of reply. H.M.JR: They all get a little excited. MR. GASTON: The House has passed 8 bill which would annul this twenty-four hour rule on the lower California border. In view of the huge population of defense workers and soldiers there in San Diego, if that thing is annulled, we are going to have a tre- mendous traffic across the border there, and it is going to be very difficult to police, and I think we ought to take a position in opposition to the bill in the Senate. Our position was misquoted in the House. They read an old letter which referred to another bill and said it was on this bill, but I think we ought to oppose this because we are going to have a very diffi- cult policing problem on the border anyway on this com- munications not in the course of the mails. We have Regraded Unclassified 36 - 17 - two men down there looking at the situation now to see how much more help we will need. H.M.JR: O.K. Now, Randolph, who stays for the tax meeting? We are right on time. MR. PAUL: I will go around the room. I think Mr. Bell should stay, Mr. White, Mr. Blough. How about you, Mr. Haas? MR. HAAS: I am on the financing part. H.M.JR: Yes, I think you should be here. Mr. Viner. Mr. Kuhn, if he wants to. MR. PAUL: He hasn't been in on the discussion. H.M.JR: What does that mean? MR. KUHN: I have not been in on the discussion. H.M.JR: He asked you whether you wanted to stay. MR. KUHN: Yes. MR. PAUL: Mr. Graves, I think. I think everybody around - I don't know whether Mr. Foley needs to stay. I think you ought to stay, Mr. Gaston. MR. FOLEY: Chuck is sitting in. MR. PAUL: And then you said you would like to have Mr. Knollenberg. Mr. Knollenberg is in my room. H.M.JR: Good. I will have him come. Regraded Unclassified 37 December 22, 1941 10:00 a.m. RE PRESIDENT'S BUDGET MESSAGE Present: Mr. Gaston Mr. Sullivan Mr. Paul Mr. Buffington Mr. Kuhn Mr. Viner Mr. Bell Mr. Kades Mr. Blough Mr. Knollenberg Mr. Haas Mr. Tarleau Mr. White H.M.JR: I only glanced at this thing very hurriedly last night. MR. PAUL: We are at your pleasure. You can read it over. Of course, you must understand that we worked under terrific pressure yesterday and we are not satisfied with the language. (Mr. Knollenberg and Mr. Haas entered the conference.) H.M.JR: I think the best way would be if you read it out loud. (Mr. Tarleau entered the conference.) I don't know whether yours is ready yet or not. MR. BELL: Have you got any carbons, Randolph? MR. PAUL: We are - the first edition ran out immediately last night and the second edition is just about to come off the press. It will be ready in a few minutes, won't it, Roy? Regraded Unclassified 38 - 2 - MR. SULLIVAN: Take mine, Dan. I know it by heart. MR. BELL: Do you know it by heart? MR. PAUL: Let me say that - as an introduction - this is a very different document from that which came over from the Bureau of the Budget. There is 8. good deal of addition to that and there is a good deal of subtraction from that and we are also not at all satisfied with the precise form and phraseology but we are pretty well satisfied with the substance of what we have got here. I will read, if you want me to, the part that we did on taxation and Mr. Bell has another part on borrowing. "Our war effort will call for public expenditures unprecedented in magnitude. If we are to achieve full utiliz- ation of the productive capacities of our people and our resources, we must carefully plan our financial program. We must see to it that the necessary financial burdens of war are justly distributed. We must see to it also that we emerge from the war period with the minimum of financial and economic dislocations. We must see to it also that our fiscal program shall not interfere with our primary economic goal of maximum production for the war effort." H.M.JR: Can I make criticisms as you go along without going into words? MR. PAUL: Yes. I would like to have somebody - will you (Blough) take notes of them? Do you want to make one there? H.M.JR: Yes. I personally -- (Mr. White entered the conference.) Harry, have you got something else? MR. WHITE: I had to do something else. H.M.JR: You can't stay? Come over here by me. My feeling on this is that it is contradictory. I don't - 3 - 39 think it is strong enough. MR. PAUL: We wrote that first and we can very much improve that paragraph. H.M.JR: I don't feel that - "if we are to achieve full utilization of productive capacity we must" - I mean, we have got to use full utilization, we have got to carefully plan our financial program. MR. PAUL: I think we get your point. It is kind of contradictory. H.M.JR: I would say you have to achieve full utilization of capacity of our people and our resources. We must see to it - I mean, the part that gripes me a little bit, we must carefully plan our financial program. That is the point. MR. PAUL: All right. We recognize that can be very much improved. All we say is that it is 8. good deal better than-- MR. BELL: I agree with that; it is much better than what they had. MR. PAUL: the middle of page nine of the Budget Report. H.M.JR: I just want you to get my reaction. And I think that next sentence is unnecessary. "We must see to it that our fiscal program will not interfere with our primary" - I think it is unnecessary. I take that for granted. MR. PAUL: Well, that last-- MR. BELL: It all depends on what the program you adopt is, whether it will or won't interfere. MR. PAUL: I think we should stress the point that nothing should interfere with that. I think that is important. MR. WHITE: I think that paragraph could definitely be improved, but I am wondering if that particular thought, Regraded Unclassified 40 - 4 - no matter how it is phrased, should not be in there, because one of the criticisms of increased taxes that arises from producers is that you may be interfering with initiative and production and that is the charge they have against the tax in England, for example. H.M.JR: Look, Harry, if you come out with a statement - if we in the Treasury - of course it is in the room - will do everything we can to make the thing go and I wouldn't have any qualifying about it. I mean, I wouldn't qualify it. You are qualifying it when you say we must see that our fiscal program won't interfere - don't forget, this is the President telling me. This is the President saying, "Now, you have got to raise the money but you can't interfere with our production." Well, it isn't necessary to tell me that. MR. BELL: He is telling the American people that they are not going to have inflation interfere with production or inflation through fiscal programs. H.M.JR: All I can do as I read it is to give my reactions. MR. PAUL: We will take another crack at that. That was written in the early stages before we had written the rest of it. The next heading is Receipts Under Present Legislation: "Federal tax receipts in fiscal year 1943, it is estimated, will without further addition to the tax structure be sixteen billion dollars four hundred million or three times the five billion four hundred million collected in fiscal year 1940. This increase in tax receipts will be the result of two factors: The expansion of industrial activity consequent upon the defense expenditures of the Government, and the tax measures enacted in 1940 and 1941. Now that we are approaching full use of our productive resources, we must look almost exclusively to additional tax measures for additional tax receipts. "Deficits under -- " Regraded Unclassified 41 - 5 - H.M.JR: Do you mind? Instead od saying, "Now that we are approaching full use, if I were writing it I would say, "When we approach," because we are not approaching it. MR. PAUL: What about that? We had some discussion of that, Jake. MR. WHITE: Well, we are approaching it. It is a question that we are far away from the goal. MR. VINER: It is a question as to whether we are far away from the goal. H.M.JR: Paul, I am going to ask for a privilege. I am going to make my comments so that you can get off at a quarter of eleven. I mean, I am not asking for an argument. I mean, I am going to - I just throw out my comments. You fellows can come back and say, "Well, your comment is no good, but just I want to get you out of here by a quarter of eleven. If you ask each fellow what they think of my comments you won't get out of here. MR. PAUL: All right. The next heading is Deficits under Present Legislation: "The budget net deficits are estimated at $16 billion for the current fiscal year, and at $38 billion for the fiscal year 1943, omitting the yield of new taxes to be enacted this year." H.M.JR: Excuse me. If I could add another comment, after all, the reason I am saying this, the last figures I saw is only 17% of our productive capacity is on & war effort, so that is why I say we are not now approaching it. MR. BELL: But this is total production. MR. VINER: This is total. That isn't military production. H.M.JR: Well, as I say, 17% anyway. MR. VINER: We are not yet anywhere near our full Regraded Unclassified 42 - 6 - military program, but we may be near full utilization of resources for some purposes and that was the point there. MR. PAUL: "If we surpass this--our minimum--program of expenditures will be greater than now estimated, and therefore also our deficit will be greater than now estimated unless additional tax measures are enacted. "Additional capital will also have to be provided for Government corporations. On the other hand, the accumulation of Government trust funds will operate to reduce the amount of public financing required. Combining the budgetary deficit, the needs of Government corporations for additional capital, and the net accruals of Government trust funds, the total amount that must be met by additional taxation or borrowing from the public is estimated at $16 billion for the ourrent fiscal year, and at $36 billion for the fiscal year ending June, 1943. "I should warn you that in this estimate of expenditures and receipts, allowance is made for only a moderate rise in prices. Any considerable rise in the level of prices would greatly increase the deficit. With every rise in prices there is E. rise in the level of expenditures, whereas tax collections, on the other hand, lag behind the price rise. Even were expenditures and receipts to rise proportionately, the deficit would still be greatly increased with a rise in prices, because expenditures are running two to three times 85 large as tax receipts. "The need for additional taxes. "The expansion of the defense program into an all-out war program accentuates the need for more tax receipts. At a time when we cannot be certain either of the rate of expenditure that we can achieve nor of the duration of the emergency period, it is a matter of elementary caution that we substantially increase our taxes. An additional warrant for increased taxes is that the national income is high and is rising, thus augmenting taxpaying ability. Furthermore, higher taxes have the additional positive value of releasing the productive resources we need to make the planes and tanks and guns, and all the other instruments of victory." Regraded Unclassified 43 -7 - H.M.JR: Just a moment, please. I don't understand that sentence. "Furthermore, higher taxes have the additional postive value of releasing productive resources we need. I don't understand that. MR. WHITE: It is 8. good thought but it needs to be explained. MR. VINER: "Of diverting from civilian use the productive resources. The idea is all right, but the wording is rotten. H.M.JR: O.K. I can't improve on that statement. (Laughter) MR. PAUL: "Finally, every additional dollar we collect in new taxes will contribute so much more to prevent in- flation now, and ease the difficulty of making the necessary post-war adjustments later. "I realize full well that such revenue needs will mean sacrifices for all of us. Fortunately our resources are such that in spite of our projected war expenditures we should be able to maintain a decent standard of living, while moving rapidly forward to an all-out war program. But the time is upon us when we must forego many luxuries and conveniences. We must all work harder and longer hours. There is no escape from this necessity if we are to safe- guard for all time our historic freedom. "The control of inflation. "We cannot, particularly at a time like the present, approach the problem of taxation from the point of view of revenue alone. Taxation has additional functions to perform. Among its new responsibilities is the task of helping to control inflation." H.M.JR: Excuse me. On page 4 - I have seen the President work and so has Bell. He would condense that down to about two or three sentences. It has got to be a great deal more condensed for him or else he will do it and then he may leave out the meaning you want. He never Regraded Unclassified 44 - 8 - will take 8. page four like that and use it. MR. PAUL: I think all this must be condensed, but it could only be condensed after it was first read at length. H.M.JR: That is right. MR. PAUL: Because you start with the long and end with the short. H.M.JR: O.K. MR. PAUL: "I stated in last year's budget message that we might need extraordinary measures to aid in avoiding inflationary price rises which may occur when full capacity is approached. In the intervening months our war production has been enormously increased; and all changes in the production programs have been upward. In the coming year this program must be still further enlarged. Even in 1941, when there was still a margin of unused resources, the impact of increasing war expenditures resulted in substantial price increases. "From now on there will be continuing large increases in war expenditures. These expenditures will increase civilian incomes at the same time that shortages of material, labor and facilities result in decreasing the volume of goods available for consumption and expansion of civilian enterprises. If civilian goods are reduced and incomes greatly increased, inflation will result, unless we use taxes and other measures to curtail consumption and civilian investment. Taxes cannot do the whole job, but they can absorb some of the newly created purchasing power and some of the business funds which may be used for purchasing. In doing so, taxes will reduce the upward pressures now operating on the price structure. "I need hardly enlarge in this message upon the evils of inflation. Although there are times when a moderate rise in prices is necessary to encourage increase of production and expansion of our productive facilities, we are now approaching a period when all of our productive Unclassified 45 - 9 - resources will be fully utilized in our great national war program. At this time, any considerable rise in prices is an unmitigated evil. It is a source of grave social injustice. It undermines morale and impedes war production. Inflation divides the country. It sets up producers against consumers, workers against employers, the people who owe money against the people to whom the money is owed." H.M.JR: You have been stealing my Boston speech. MR. WHITE: That is right. It is almost a direct quotation. There are several phrases through there. MR. PAUL: "The hardships of inflation strike at random, without consideration of equity or ability. Moreover, once it has acquired momentum, inflation is extremely difficult to control. If it is not checked the Government must pay for its war needs at boom prices. The personal economies of many citizens will become chaos worse confounded. And inflation will leave a heritage of post-war difficulties that will haunt us for a decade. Every consideration of national welfare calls for its prevention. "I should be less than candid if I failed to admit that inflation is not a thing of the remote future, but rather an immediate threat of serious proportions. Defense expenditures of $6 billion and a deficit of $5 billion have caused a considerable inflationary increase in prices in the fiscal year 1941. "The defense program of 1940 and 1941 has already greatly increased the income of our people. The war production program is further increasing incomes and is doing so at the same time that it is reducing the volume of goods and services available for civilian consumption. The pre-war picture was that of potential abundance of goods and insufficient purchasing power. That picture is being converted into & prospect of surplus purchasing power and insufficient goods. Much of the increased war output is being achieved and must continue to be achieved by diverting production from civilian into military channels. This Regraded Unclassified 46 - 10 - diversion, while it reduces the amount of civilian goods, leaves the incomes paid to civilians as large as or even larger than before. "There is a significant difference between conditions prevailing a year or two ago and those prevailing under 8. war economy. A year ago, while we had unused resources, defense expenditures stimulated private investment and civilian consumption. Production could and did expand sufficiently to permit defense expenditures in addition to civilian expenditures. Now, as our war economy reaches nearer to full employment, increased expenditure under our war program must to a great extent replace private capital investment and civilian consumption. Allocations and priorities, necessitated by shortages of essential materials, are now in operation. They curtail expenditures for consumers' durable goods, private and public construction, and new investment and replacement in non-defense plant and equipment. In this way, allocations and priorities offset in part the inflationary effect of our huge war expenditures. The expansion of the social security program so as to extend coverage and increase contributions and benefits desirable for its own sake, would also incidentally make a contribution to checking inflation by temporarily draining off purchasing power. I would like to interpolate that that last sentence is a substitute for about a page and a half of the Budget Message. H.M.JR: Well, all of this is four times too long. MR. SULLIVAN: We agreed that pages 5, 6, 7 and 8 can be -- MR. VINER: Boiled down. MR. PAUL: I was speaking there of just that one sentence on the social security. H.M.JR: I see. MR. WHITE: There is nothing else in the statement about 11 # I 47 social security except that reference. It may be too little if you feel that way. MR. PAUL: "But these measures will not alone suffice. With expenditures and deficits that we foresee under our war program, we shall require an integrated, coordinated, program to prevent inflation. We need centrol of materials and machines, price control, credit control, financial control, more taxation and more saving, and every other device available for the prevention of destructive inflation. With such a comprehensive program, I say with confidence that we can and we shall combat inflation diligently and successfully. "Our system of rationing on the business level, the so-called allocations, should be extended and made fully effective especially with respect to inventory control. I do not at present propose introduction of a ration system because we do not yet have the general scarcities in the necessities of life which make such a step imperative. (The problem of consumers' rationing still requires discussion in light of an executive order that is in preparation on that topic.) I do appeal, however, for the voluntary and necessary cooperation of the consumer in the nation's effort. Restraint in consumption, especially of scarce products, may make fewer compulsory measures necessary. Hoarding should be encouraged in only one field, that of defense savings bonds. "I should add that every possible effort should be made to apply anti-inflationary measures as equitably as possible. Extreme hardships can be avoided by the timely adoption of a variety of measures, each involving 8. moderate burden upon each individual." H.M.JR: Don't say that sentence, "Hoarding should be encouraged in defense savings bonds." 48 - 12 - MR. PAUL: That sentence we took from the Budget report. H.M.JR: That is terrible. MR. PAUL: Make 8. note of that Roy. MR. WHITE: Hoarding has a connotation which sounds bad, no matter how you use it. MR. PAUL: Yes. "Equitable distribution "The increased taxes and lowered exemptions already enacted have greatly accentuated the need for equitable distribution of the tax burden. If we are to preserve our national unity, the load must be shared by all, corporations and individuals alike. All who are above 8 minimum subsistence level must contribute their share to what Mr. Justice Holmes called 'The cost of living in a civilized society.' It is intolerable in times of acute national peril that anyone should be permitted to avoid his just share of the tax burden. The avoid- ance of tax by those utilizing loopholes in the present tax structure increases the tax burden on the others who are already heavily taxed. The increase in tax burden also adds to the urgency of providing relief to all taxpayers, to the greatest extent possible, from inequities. "The fact that we must tax mass purchasing power to control inflation should not persuade us to switch from progressive to regressive taxes. Under present, as well as previous, conditions it is desirable to use ability taxation to the limit. I have frequently stated the reasons in favor of progressive taxation for past years and they are still valid today - indeed, they are more valid today than ever. And the need for taxes that absorb mass purchasing power makes it all the more desirable to make progressive taxation fully effective. We must balance our program; our higher income groups, as well as our low income groups must do their share. Regraded Unclassified 49 - 13 - H.M.JR: He will never use the word "progressive and regressive." There isn't one man in a hundred on the street that would know what he is talking about. MR. PAUL: Apart from the word, in view of this morning's paper, that paragraph has become even more important in substance. H.M.JR: What do you refer to? MR. PAUL: I refer to the movenment on the Hill reported in this morning's paper in favor of sales tax- ation. H.M.JR: But if you could use some other language-- MR. PAUL: Well, we can use less technical words of art. MR. BELL: Isn't this the opposite of what the Budget proposed? MR. SULLIVAN: Yes. The Budget proposed a sales tax. MR. PAUL: The Budget proposed an added value tax, which we are against. MR. BELL: Well it is in effect 8. sales tax. MR. PAUL: Yes, it is, a modified sales tax. MR. BELL: Yes. MR. PAUL: "The taxation of execessive profits "Under conditions of a wartime economy there are likely to be unduly high profits for some business con- cerns. Excessive profits are bad enough at any time; in wartime they undermine unity and morale and should therefore be recaptured. Some profit is necessary even in wartime to secure maximum production with economical - 14 - 50 management and to provide a sound financial structure for business. But beyond the amounts necessary for these purposes there is no place for profits in this period of national emergency." H.M.JR: That has got to be gone over. I wouldn't have the President say that. I mean, I think that has to be gone over because they could take that sentence - just suppose they lift that part, "there is no place for profits in this period of national emergency"? I mean, they could just lift that one thing. It would look awfully bad. MR. PAUL: Well, they would have to split 8 sentence, of course. H.M.JR: Well, that has been done. MR. PAUL: Well, we get your point there. MR. WHITE: Do I get your thought? You feel that the statement that now is no time for excess profits is bad or was it the other part of the sentence? H.M.JR: It is the way you say it. I mean, I think you have got to say it differently. I still think that we will come to some sort of form that a man will be allowed six percent or thereabouts in the way of profits, but I think that the way you are saying - I mean, I think we are going to come to that, but I think from what you are saying here, I am sure the President won't say it. I think you can point up to the thing without being quite 80 frank about it. MR. PAUL: We get your point. Of course, we feel that essentially the thought is both true and important, but we can lead up a little more. H.M.JR: I think you can show the way we are going, but this thing here would give the boys such a shock that - I mean, you have got to cut the dog's tail off by inches. Regraded Unclassified 51 - 15 - MR. PAUL: That is right, especially if you are going to be misquoted. H.M.JR: Well, you will be. MR. PAUL: "Proposed Legislation "The adjustment of taxes-- MR. BELL: You didn't read eleven, did you? MR. PAUL: Oh, that is right. "Post-war period "Taxes imposed to finance the war should be de- signed, as far as is consistent with maximum prosecu- tion of our war efforts, to minimize post-war disloca- tions. While we must be bold enough to take all the financial measures necessary for maximum war production, there will be many areas in which careful consideration of alternatives on the basis of their post-war effects will strengthen our economy in peace without weakening our war effort." H.M.JR: I would love to see just how you are going to do that. It is a pretty thought. MR. PAUL: Well, we had some discussion on that. MR. SULLIVAN: We have still got B. fight coming on that paragraph. H.M.JR: It is 8. pretty thought. MR. WHITE: I think you will find it hard to name one area. MR. PAUL: "Proposed legislation. "The adjustment of taxes to achieve these objectives is usually difficult at this time because we do not know Regraded Unclassified 52 - 16 - the total amount of war expenditures that we shall have to make, nor how effective priorities, allocations, credit controls, and direct price controls will be in keeping price increases within bounds. A precise recommendation as to the additional taxes that may be needed at any specific time during the next eighteen months cannot be made far in advance. "It is, accordingly, important that tax legisla- tion be more flexible to meet changing needs than it has been in the past. To achieve increased flexibility I submit two suggestions for the consideration of the Congress. "(1) Several different rate schedules might be enacted for one or more of the more important taxes, any one of which would become effective only through 8 later action of the Congress in some form. Such action would be occasioned by some change in the national economy or in the spending by the Federal Government which required Congressional action. Such 8. method would not only avoid the defects of hasty legislation, but would pro- vide the flexibility in tax legislation which is 80 urgently needed in emergency periods. H.M.JR: You will never get away from that. MR. PAUL: That first point is from the budget message. The second point we added to it. H.M.JR: You will never get away with it. MR. PAUL: We have tried to be general here because we are a little uncertain as to precise measures but-- H.M.JR: But the President will say when he reads it, "Well, what have you got in mind?" MR. PAUL: I think we might ask the Budget what they had in mind there. They wrote that. H.M.JR: Well, I wouldn't worry about the Budget. Regraded Unclassified - 17 - 53 I don't like the paragraph at all. It is too vague. It is a sword hanging over the people's head. I would rather say something definite or nothing at all. MR. PAUL: Well, we could have a sentence which emphasized - just one sentence saying a flexible tax program. H.M.JR: That is all right. MR. PAUL: I do think this is a very important point. I think you agree on that, Jack. MR. VINER: I think you have got to have it, and I don't see how you can have flexibility ithout having a sword over them. MR. WHITE: Also, I think there must be some specific proposals which provide flexibility that you ought to have, but you ought to have some specific plan in mind before you make the statement. H.M.JR: Yes. MR. WHITE: If you haven't any specific plan in mind in the first part, I agree with the Secretary it shouldn't be included. I should think there would be some proposals. There have been several talked of. I don't know how practicable they are. MR. PAUL: That paragraph was written by Gerhardt Colm. He has a great many specific plans in mind. MR. WHITE: I think the Secretary is still right. If there isn't anything the Treasury can get behind so far as a Treasury program is concerned, you ought to leave it out. MR. PAUL: We do have something in mind on that point, too. H.M.JR: All right. 54 - 18 - MR. PAUL: "(2) The Secretary of the Treasury might be given discretion, within limits, to make advance collections if the conditions of the moment justify withdrawing additional funds from the stream of purchasing power. That is the plan we have under discussion. "It is believed that these provisions would make it possible to adjust the tax program more quickly to the changing conditions of the rapidly developing war- time situation. "Let me recapitulate the basic objectives which should guide the Congress in the--" H.M.JR: Excuse me. On this number two, if you are going to say that, then I would say "through a tax at the source. MR. PAUL: We had that in and then we took it out on the ground that it would raise the ghosts of recent-- H.M.JR: I think you have got to be more specific or-- MR. SULLIVAN: I think the Secretary is right, Randolph. Either you tell the plan or you cause an awful lot of trouble. MR. PAUL: Of course that is one of our basic difficulties here, John. You can't go ahead and tell one plan without telling all your plans, and we are not ready yet. We have adopted the approach of generality. MR. SULLIVAN: This is the only one in which you are discussing your recommendation in any detail at all, and I thought your argument in favor of doing that was that this was the new feature of the whole thing. MR. WHITE: Well, maybe you can avoid all that by making your plea for flexibility a little bit stronger, Regraded Unclassified 55 - 19 - and then say there will be some specific measures later suggested to carry out the idea of flexibility. H.M.JR: It sounds better to me than making & plea for flexibility. MR. PAUL: That will save 8. lot of space. We will simply have a general strong statement in favor of flexibility. H.M.JR: Yes. Dan? MR. BELL: Yes. H.M.JR: O.K. MR. PAUL: Then that will be more in accord with the rest of it, as B. matter of fact, because we are general otherwise. H.M.JR: Yes. MR. PAUL: "Let me recapitulate the basic objectives which should guide the Congress in the formulation of tax legislation this year. These objectives are: "(1) To raise needed revenue "(2) To help control inflation "(3) To distribute the tax burden equitably "(4) To prevent undue profits "(5) To ease post-war adjustments, and "(6) To introduce flexibility in our tax system during the emergency "These are the principles which should guide our wartime tax policy. 11ᵗʰ It is 8. very weak ending. 56 - 20 - H.M.JR: No, I don't agree with you. I think that those six points are splendid. I am perfectly willing to put my name on them, and I think if the President decides to use that he will do very little explaining beyond those six points. MR. PAUL: Maybe those six points are all we need, then. H.M.JR: I mean, they are your things and for his sake, because I know what will happen because I have worked with him so often as has Dan, I would get those six points right up-- MR. WHITE: Right at the beginning. H.M.JR: right at the beginning, and then give as much explanation as he wants of why we need those six things, but I would stick those things right up in the beginning. Here is what We need. MR. PAUL: We will discuss that. MR. WHITE: It will be easy to shorten it if you follow that device. H.M.JR: Here is what we need, and then give as much explanation for each one of the six points as necessary. Have one, two, three, four, five, six, for each point, a supporting argument, and then he can boil those down as much as he wants. That is the way I would handle it. If he has to wait to get to that, he won't read the thing at all. MR. PAUL: We can do that. As a matter of fact, we considered doing that after we got it all done. H.M.JR: Fine. I am just - I mean, I am taking very much an advantage of you all. I am asking for a one-way conversation so that you can get out of here. I think the six points are swell. I would take those and then have one page for each of the six points and Regraded Unclassified 57 - 21 - that is all. He won't take more than a page on each, if he takes that much. MR. SULLIVAN: Some of those won't need to take a page. MR. VINER: It is fairly close to that now with some cutting. We haven't done the cutting yet. With the cutting it won't be hard to do that, I mean to fol- low out your suggestion. H.M.JR: Are you going to say how much - didn't the Budget use the figures? MR. PAUL: Yes, ten billion is in the budget. I think Mr. Bell ought to - I think one of the most important things we have to discuss is the question of how much taxes is in the whole fiscal picture. Mr. Bell can give the figures. Why don't you repeat those figures we discussed outside this morning, starting with fifty-six? MR. BELL: The total deficit for the fiscal year we are now in is about sixteen and a half billion, raised from twelve and a half, and the deficit for next year is thirty-eight billion, and I think that will be-- H.M.JR: Without any new taxes? MR. BELL: Without any new taxes, and I think that will be increased to forty billion because I think the Budget Bureau was using a tax revenue estimate of their own of nineteen billion whereas ours was only sixteen billion, 80 I think it is thirty-eight or forty billion dollars next year. It seems to me that we have got to raise our whole thinking around here in terms of taxes and Savings Bonds or some kind of savings, because I don't think that you can go on a basis of five billion dollars that we have been thinking about for taxes, which would leave you thirty-three billion dollars to raise through borrowing and then five billion dollars that we have been thinking about for Savings Bonds, 58 - 22 - which leaves twenty-eight billion dollars that you have got to raise in the open market, and I just don't think you can face the American people with that program. H.M.JR: Well, Dan, let me ask you this. We have got five minutes to go. Do you think that we are pre- pared at this stage to recommend to the President a figure for additional taxes? MR. BELL: Well, I should think that you would have to et some figure away up in the twenties for taxes and enforced savings. MR. PAUL: Then thinking of the enforced savings, and that does require about ten billion, doesn't it? MR. BELL: I wouldn't put it at less than twenty- five billion dollars for '43 in taxes and savings, and that still leaves you thirteen to fifteen billion to raise in the open market. H.M.JR: Now, where is your program? MR. BELL: Well, we have got & statement here which, of course, has to be changed materially because it doesn't necessarily tie into this, and I would like to read it just to give you the thoughts that we had on that. H.M.JR: Couldn't you and I sit down and do that without my being under pressure? MR. BELL: Yes. H.M.JR: And then how long will you (Paul) be before the Bureau of the Budget? MR. PAUL: I don't know. I have never been before the Bureau before. MR. SULLIVAN: Fifteen or twenty minutes, Randolph. H.M.JR: Do they run it on time? Regraded Unclassified 59 - 23 - MR. SULLIVAN: Yes. H.M.JR: Well, and then will you people want to see me again this afternoon? MR. PAUL: I would like to - well, I would like to have some chance to revise this first if we could see you late. H.M.JR: Well, when would you be ready? I have press at four. Do you want to come after press? MR. PAUL: Afterward would be better. H.M.JR: About four-thirty? MR. PAUL: Yes, that would be fine. We can have a lot of contractions and revisions by that time. MR. BELL: I told the Budget we would have some- thing this evening or tomorrow morning, so you have really got until tomorrow noon, if you want it. H.M.JR: Well, I could put you down again for four-thirty. MR. PAUL: Put us down for four-thirty and we will do all we can before that. MR. WHITE: Before you submit any figures of that character, Mr. Secretary, I take it there will be B. good deal of discussion on the figures as to how much we have to tax and 80 on. H.M.JR: Oh, yes, nothing is settled, but I can't - I want him to get - I can't work under-- MR. WHITE: That is all right. There will be plenty of time before it is submitted. H.M.JR: We will have 8 figure at four-thirty as part of the discussion. It won't freeze, if that is Regraded Unclassified 60 - 24 - what you mean. MR. VINER: I would like to know if the idea on those figures is that we ought to ask the Budget Bureau to figure on a six months' basis, the first six months and the second, that in these times to figure for eighteen months at this time is a little absurd, and even if they feel obliged to figure eighteen months ahead, let them break it down into six-months sections. H.M.JR: I want to go to school with Dan privately and not show my ignorance. MR. PAUL: Dan, will you bring up this point that-- MR. BELL: Yes. MR. PAUL: I think that is very important. MR. BELL: That ties in with the statement that I just made, that I think we have got to go to 8. much larger figure than five or ten billion dollars for taxes alone. It is & question as to whether we shouldn't have something in this budget message that the people have got to expect enforced savings as part of this tax program. Now, I was hoping that it would be back in the tax part with this message. I think they have got to face it, and we wrote this together in the tax part, but we also put it in here in case these boys didn't put it in, and they didn't put it in the tax part. MR. PAUL: Not because we were necessarily against that, but we just didn't reach it. MR. BELL: You didn't have time to discuss it, yesterday. H.M.JR: If Dan and I come to any kind of a tentative statement before four-thirty, circulate it amongst the people here, Dan. Regraded Unclassified 61 - 25 - MR. BELL: I think we have all got to be together on this whole draft, and weave this into what they have written and what they come out with. H.M.JR: O.K. MR. BELL: Before four-thirty. MR. PAUL: That really should be postponed until we rewrite it. MR. BELL: Yes, I think that is right. MR. PAUL: I would like to have a copy of that. MR. VINER: I am not sure about that, Randolph, because we don't have any idea what is in the draft, and we might write in a different way if we did. MR. PAUL: That is why I said we wanted a copy of it, Jack. MR. BELL: And I think we all ought to be together on the next revision, don't you? MR. VINER: Yes. MR. BELL: So the two-- H.M.JR: Don't you want to set a time now? MR. PAUL: I was suggesting we get a copy. H.M.JR: Look, you go on with your meeting, and let Bell read out loud what he has got here. How is that? MR. PAUL: All right, but I still would like to have & copy of that. MR. BELL: We will be ready, Randolph, when you come back to sit down and go over the whole thing. Regraded Unclassified 62 - 26 - MR. PAUL: All right, fine. H.M.JR: Well, if you are going to do that, there is no use of doing it twice. Let me work with you alone. MR. BELL: O.K. H.M.JR: Let's leave it this way. As soon as Bell comes back, or rather as soon as Paul comes back, he will let Bell know, and then you will get together. PAUL: All right. Regraded Unclassified 63 Only draft in Secretary's office. 64 Financing the war Our war effort will call for public expenditures unprecedented in magnitude. If we are to achieve full utilization of the productive capacities of our people and our resources, we must carefully plan our financial program. We must see to it that the necessary financial burdens of war are justly distributed, We must see to it also that we emerge from the war period with the minimum of financial and economic dislocations. We must see to it also that our fiscal program shall not interfere with our primary economic goal of maximum production for the war effort. D DB Regraded Unclassified 65 - 2 - Receipts under Present Legialation Federal tax receipts in fiscal year 1943, it is estimated, will without further addition to the tax structure be billions, or three times the billions collected in fiscal year 1940. This increase in tax receipts will be the result of two factors: The expansion of industrial activity consequent upon the defense expenditures of the Government, and the tax measures enacted in 1940 and 1941. Now that we are approaching full use of our productive resources, we must look almost exclusively to addi- tionaMax measures for additional tax receipts. DB - 3 - 66 Deficits under present legislation The budget net deficits are estimated at $16 billion for the current fiscal year, and at $38 billion for the fiscal year 1943, omitting the yield of new taxes to be enacted this year. See Table 3, below. If we surpass this our minimm program of expenditures will be greater than now estimated, and therfore also our deficit will be greater than now estimated unless additional tax measures are enacted. Additional capital will also have to be provided for Government corporations. On the other hand, the accumulation ofGovernment trust funds will operate to reduce the amount of public financing required. Combining the budgetary deficit, the needs of Government corporations for additional capital, and the net accruals of Government trust funds, the total amount that must be met by additional taxation or borrowing from the public is estimated at $16 billion for the current fiscal year, and at $36 billion for the fiscal year ending June, 1943. Text Table 3: The effect of the combined Federal deficit on Borrowings, Fiscal Years 1940-1943 I should warn you that in this estimate of expenditures and receipts, allowance is made for only a moderate rise in prices. Any considerable rise in the level of prices would greatly increase the deficit. With every rise in prices there is a rise in the level of expenditures, whereas tax collections, on the other hand, lag behind the price rise. Even were expenditures and receipts to rise pro- portionately, the deficit would still be greatly increased with a rise in prices, because expenditures are running two to three times as large as tax receipts. DB Regraded Unclassified 67 - 4 - The need for additional taxes The expansions of the defense program into an all-out war pro- gram aceentuates the need for more tax receipts. At a time when we cannot be certain either of the rate of expenditure that we can achieve nor of the duration of the emergency period, it 1s a matter of elementary caution that we substantially increase our taxes. An additional warrant for increased taxes is that the national income is high and is rising, thus augmenting taxpaying ability. Furthermore, higher taxes have the additional positive value of releasing the pro- ductive resources we need to make the planes and tanks and guns, and all the other instruments of victory. /Finally, every additional dollar we collect in new taxes will contribute so much more to prevent infla- tion now, and ease the difficulty of making the necessary post-war ad- justments later. I realize full well that such revenue needs will mean sacrifices for all of us. Fortunately our resources are such that in spite of our projected war expenditures we should be able to maintain a decent standard of living, while moving rapidly forward to an all-out war program. But the time is upon us when we must forego many luxuries and conveniences. We must all work harder and longer hours. These no escape from this necessity if we are to safeguard for all time our historic freedom. DB Regraded Unclassified 68 - 5-0 The control of inflation We cannot, particularly at a time like the present, approach the problem of taxation from the point of view of revenue alone. Taxation has additional functions to perform. Among its new responsi- bilities is the task of helping to control inflation. I stated in last year's budget message that we might need extra- ordinary measures to aid in avoiding inflationary price rises which may occur when full capacity is approached. In the intervening months our war production has been enormously increased; and all changes in the production programs have been upward. In the coming year this program must be still further enlarged. Ewen in 1941, when there was still a margin of unused resources, the impact of increasing war ex- penditures resulted in substantial price increases. From now on there will be continuing large increases in war ex- penditures. These expenditures will increase civilian incomes at the same time that shortages of material, labor and facilities result in decreasing the volume of goods available for consumption and expansion of civilian enterprises. If civilian goods are reduced and incomes greatly increased, inflation will result, unless we use taxes and other measures to curtain consumption and civilian investment. Taxes cannot do the whole job, but they can absorb some of the newly created purchasing power and some of the business funds which may be used for purchasing. In doing so, taxes will reduce the upward pressures now operating on the price structure. DB Regraded Unclassified 69 - 6 - I need hardly enlarge in this message upon the evils of infla- tion. Although there are times when a moderate rise in prices is necessary to encourage increase of production and expansion of our productive facilities, we are now approaching a period when all of our productive resources will be fully utilized in our great national war program. At this time, any considerable rise in prices is an unmitigated evil. It is a source of grave social injustice. It undermines morale and impedes war production. Inflation divides the country. It sets up producers against consumers, workers against employers, the people who owe money against the people to whom the money is owed. / The hardships of inflation strike at random, without consideration of equity or ability. Moreover, once it has acquired momentum, inflation is extremely difficult to control. If it is not checked, the government must pay for its war needs at boom prices. The personal economies of many citizens will become chaos worse con- founded, And inflation will leave a heritage of post-war difficulties that will haunt us for a decade. Every consideration of national wel- fare calls for its prevention. I should be less than candid if I failed to admit that inflation is not a thing of the remote future, but rather an immediate threat of serious proportions. Defense expenditures of $6 billion and a deficit of $5 billion have caused a considerable inflationary increase in prices in the fiscal year 1941. DB Regraded Unclassified 70 - 7 - The defense program of 1940 and 1941 has already greatly in- creased the income of our people. The war production program is and is doing so further increasing incomes/at the same time that it is reducing the volume of goods and services available for civilian consumption. The pre-war picture was that of potential sbundance of goods and in- sufficient purchasing power. That picture is being converted into a prospect of surplus purchasing power and insufficient goods. Much of the increased war output is being achieved and kg: must continue to by diverting production from civilian into military channels. This diver- sion, while it reduces the amount of civilian goods, leaves the incomes paid to civilians as large as or even larger than before. There is a significant difference between conditions prevailing a year or two ago and those prevailing under a war economy. A year ago, while We had unused resources, defense expenditures stimulated private investment and civilian consumption. Production could and did expend expand sufficiently to permit defense expenditures in addition to civilian ex- penditures. Now, as our war economy reaches nearer to full employment, increased expenditure under our war program must to a great extent re- place private capital investment and civilian consumption. Allocations and priorities, necessitated by shortages of essential materials, are now in operation. They curtail expenditures for consumers' durable goods, private and public construction, and new investment and replacement in non-defense plant and equipment. In this way, alloca- cations and priorities offset in part the inflationary effect of our huge war expenditures. The expansion of the social security program A Regraded Unclassified 71 - 8 - 60 as to extend coverage and increase contributions and benefits de- sirable for its own sake, would also incidentally make a contribution to checking inflation by temporarily draining off purchasing power. - But these measures will not alone suffice. With expenditures and deficits that W6 foresee under our war program, we shall require an integrated, coordinated, program to prevent inflation. We need con- trol of materials and machines, price control, credit control, finan- cial control, more taxation and more saving, and every other device available for the prevention of destructive inflation. With such a comprehensive program, I say with confidence that we can and we shall combat inflation diligently and successfully. Our system of rationing on the business level, the so-called allocations, should be extended and made fully effective especially with respect to inventory control. I do not at present purpose intro- duction of & ration system because we do not yet have the general scarcities in the necessities of life which make such a step impera- tive. (The problem of consumers' rationing still requires discussion in light of an executive order that is in preparation on that topic.) I do appeal, however, for the voluntary and necessary cooperation of the consumer in the nation's effort. Restraint in consumption, espe- cially of scarce products, may make fewer compulsory measures neces- sary. Hoarding should be encouraged in only one field, that of defense savings bonds. I should add that every possible effort should be made to apply anti-inflationary measures as equitably as possible. Extreme hard- ships can be avoided by the timely adoption of a variety of neasures, each involving & moderate burden upon each individual. DB Regraded Unclassified 72 - 9 - Equitable distribution The increased taxes and lowered exemptions already enacted have greatly accentuated the need for equitable distribution of the tax burden. If we are to preserve our national unity, the load must be shared by all, corporations and individuals alike. All who are above a minimum subsistence level must contribute their share to what Mr. Justice Holmes called "The cost of living in a civilized society." It is intolerable in times of acute national peril that anyone should be permitted to avoid his just share of the tax burden. The avoid- ance of tax by those utilizing loopholes in the present tax structure increases the tax burden on the others who are already heavily taxed. The increase in tax burden also adds to the urgency of providing relief to all taxpayers, to the greatest extent possible, from inequities. The fact that we must tax mass purchasing power to control infle- tion should not persuade us to switch from progressive to regressive taxes. Under present, as well as previous, conditions it is desirable to use ability taxation to the limit. I have frequently stated the reasons in favor of progressive taxation for past years and they are still valid today - indeed, they are more valid today than ever. And the need for taxes that absorb mass purchasing power makes it all the more demirable to make progressive taxation fully effective. We must balance our program; our higher income groups, as well as our low income groups must do their share. DB 73 - 10 - The taxation of excessive profits Under conditions of a wartime economy there are likely to be unduly high profits for some business concerns. Excessive profits are bad enough at any time; in wartime they undermine unity and morale and should therefore be recaptured. Some profit is necessary even in wartime to secure maximum production with economical manage- ment and to provide a sound financial structure for business. But beyond the amounts necessary for these purposes there is no place for profits in this period of national emergency. DB Regraded Unclassified 74 - 11 - Post-war period Taxes imposed to finance the war should be designed, as far as is consistent with maximum prosecution of our war efforts, to minimize post-war dislocations. While we must be bold enough to take all the financial measures necessary for maximum war production, there will be many areas in which careful consideration of alternatives on the basis of their post-war effects will strengthen our economy in peace without weakening our war effort. DB Regraded Unclassified 75 - 12 - Proposed Legislation The adjustment of taxes to achieve these objectives is unusually difficult at this time because we do not know the total amount of war expenditures that we shall have to make, nor how effective priorities, allocations, credit controls, and direct price controls, will be in keeping price increases within bounds. A precise recommendation as to the additional taxes that may be needed at any specific time during the next eighteen months cannot be made far in advance. It is, accordingly, important that tax legislation be more flexible to meet changing needs than it has been in the past. To achieve in- creased flexibility I submit two suggestions for the consideration of the Congress. (1) Several different rate schedules might be enacted for one or more of the more important taxes, any one of which would become effec- tive only through a later action of the Congress in sorm form. Such action would be occasioned by some change in the national economy or in the spending by the Federal Government which required Congressional action. Such a method would not only avoid the defects of hasty legis- lation, but would provide the flexibility in tax legislation which is so urgently needed in emergency periods. (2) The Secretary of the Treasury might be given discretion, within limits, to make advance collections if the conditions of the moment justify withdrawing additional funds from the stream of purchasing power. It is believed that these provisions would make it possible to adjust the tax program more quickly to the changing conditions of the rapidly developing wartime situation. AD Regraded Unclassified 76 - 13 - Let me recapitulate the basic objectives which should guide the Congress in the formulation of tax legislation this year. These objectives are: (1) To raise needed revenue (2) To help control inflation (3) To distribute the tax burden equitably (4) To prevent undue profits (5) To ease post-war adjustments, and (6) To introduce flexibility in our tax system during the emergency These are the principles which should guide our wartime tax policy BB Regraded Unclassified 77 December 22, 1941 11:03 a.m. James Landis: Hello. MJr; Henry Morgentheu. L: Yeah. This is Jim Landis talking. HWr: How are you? 11 Fine. HMJr: Now, here's the gituation. This man Waleh is stalling me, you see. L: Yeah. HMJr: So I got hold of Senator Barkley this morning and said that I'd like him to find out if he was willing to sort of make e poll up there, you see, that 15 we sent your name up over the objections of Senator Walsh, could I win. L: Uh huh. HWr: And he's agreed to do that for me. L: Yeah. OWe: So I dion't know how much you wanted to con- sider this thing that Mrs. Roosevelt talked about, but I didn't feel it was fair to tie you us indefinitely. L: Yeah. H.Jr: And I just - but I did want to let you know I was going ahead and that was the next steo I was taking without consulting you. L: Un huh. Have you had B definite answer from Waleh, or HMJr: No, Walsh last - he's postponed it now until tomorrow. L: Yeah. Regraded Unclassified 78 - 2 - HMJr: But I went up and eaw him and literally went almost - I didn't - did everything but go down on my knees L: Yeah. HMJr: and his only answer was, well, he had to think it over again until Tuesday. L: Yeah. HMJr: So he's trying to find one excuse after another, you see; and so I just thought that I was sick and tired of it L: Yeah. HMJr: and if Senator Barkley said that I could win, all right; but I naturally - you don't want to be dragged through the Senate, 80 to speak L: Uh huh. HMJr: Unless we were sure that you could win; and if Barkley said we could win, why you can count on him. L: Uh huh. HMJr: Does that make sense? L: That makes sense, very much. I - - this might give you a hunch of one other way you might work. HMJr: Yes. L: Through Congressman McCormack. HMJr: Oh. L: Why I say that - I think the Congresemen knowe me. I had B. rather pleasant time with him yesterday where I spoke at a big celebration which gave him an award, and I think he - well, he sort of liked what I said and liked the attitude of the group toward me, and 80 on. HMJr: I'll do that. 79 - 3 - L: It might be of help to you. HMJr: How about Mayor Tobin? L: Oh, he'll go to bat, sure. HMJr: He will? L: Oh, yes. HMJr: Right. Well, I've decided - it's a question of now having to bring pressure L: Yeah. HMJr: and I'll get hold of McCormack, and I'll keep you posted. But as I say, I don't feel I have the right if Civilian - if this thing in Washington - whatever it is - 1s something that appeals to you L: Yeah. HMJr: I just L: That hasn't quite jelled yet. I Just got a word from Mrs. Roosevelt that something's in the wind there, and I don't know what it 18; but it doesn't seem to have jelled quite yet. HMJr: Then she's not waiting for me? L: No, she wrote me, in fact, saying that there were some things going on - she didn't quite indicate what they were, but I think I'll call her up this morning and just find out whether she - it's my next move or whether it's her next move. HMJr: Yeah. Well, would you do me this courtesy; if for some reason something comes up L: Yeah. HMJr: which would close the door between you and me, let me know. L: I would without your asking that. Regraded Unclassified 80 - 4 - HMJr: Because I've got my fighting clothes on now, and I'm going down the line. L: Yeah. HMJr: See? Without asking you to do anything. L: Yeah. Well, I certainly would have done that in any event; and naturally, I will. HMJr: Okay. L: Fine. HMJr: We had a wonderful fire drill here yesterday. L: Did you? HMJr: Nobody heard it as far as I can find. L: (Laughs) HMJr: I think in the whole District they had one whistle L: Uh huh. HMJr: and nobody heard it; and my fire warden showed up at one o'clock yesterday. They had announced it for a week that it W88 to have been between nine and ten L: Yeah. HMJr: and he'd been appointed at eleven o'clock the night before. L: (Laughs) HMJr: It's terrible. L: Well, we're bad; but I don't think we're quite that bad. HMJr: So if you've got any whistles, you can lend them down here; even if it's one of these five cent things, I think it would help them. Regraded Unclassified 81 - 5 - L: Uh huh. HMJr: The District's in terrible shape. L: Why, I might do the same thing that the Mayor of New York City did for New York City. You heard about that, didn't you? HMJr: No, what did he do? L: He distributed a lot of whistles to his auxiliary police HMJr: Yeah. L: and when you turn them over, there were the words, "Made in Japan" on them. HMJr: Oh, marvelous. L: (Laughs) HMJr: Oh, wonderful. Fiorello did that? L: Well, I don't say Fiorello, but that's what happened in New York City. HMJr: I think that's marvelous. L: (Laughs) There are more nice headaches in this than anything I've seen. HMJr: Oh, it's terrific. L: (Laughs) HMJr: All right. L: Fine. HMJr: Good-bye. L: Good-bye. Regraded Unclassified 82 December 22, 1941 11:23 a.m. Ronald Rensom: Hello. HMJr: Hello. Ronald? R: Yes. HMJr: This 1e Henry Morgenthau. R: Yes, how are you today? HMJr: Fine. Ronald, in strictest confidence, we're working on the fiscal and monetary end for a meesage for the - the Budget message, you see? R: Yes. HMJr: And it's so enormous that I want - I'd like to get the benefit of Goldenweiser's advice. R: Certainly. HMJr: So if that's all right - if you'll tell him - and he'll hear from Dan Bell sometime today. R: Yes. HMJri We'd like to guard this very, very carefully. R: Certainly. HNJr: But we do want the benefit of his advice. R: Why certainly. I'll have him available any time, day or night, that you want him. HMJr: And tell him that he's got to guard this very carefully. R: Why certainly. FMJr: Okay. R: All right, fine. Regraded Unclassified 83 December 22, 1941 11:25 a.m. Lauchlin Currie: Hello, Mr. Secretary. HMJr: Hello, Lauch; how are you? C: Fine, thanks. HMJr: Lauch, I don't know whether the Bureau of the Budget consulted you this year or not on the President's Budget message. C: (Laughs) No. HMJr: They haven't? C: No. HMJr: Well, I'd like to; because we're preparing some- thing here for the President, see? C: Yeah. HMJr: And if you would sit in with us, and naturally treat the thing very confidentially. C: Yes, I promise you. HMJr: It's BO enormous that I want to get all the help that I can get. C: Yeah. HMJr: So sometime during the morning - I don't know - Bell will call you and let you know when there's going to be a meeting. C: Fine. HMJr: But, as I say, this of all things we want to guard. C: Yeah. HMJr: But it's 80 enormous that I'm asking you and Goldenweiser and Leon to help me. I don't know whether they've been - I know the Fed hasn't 84 - 2 - been consulted. C: Yeah. HMJr: But I'm going to consult the President's friends and my friends. C: Fine. Thank you 80 much, Mr. Secretary. HMJr: Thank you. C: All right, thank you. 85 December 22, 1941 11:29 a.m. HMJr: Leon? Leon Henderson: Yes, Henry. HMJr: This is Henry. H: Yes, sir. HMJr: Leon, I don't know whether the Bureau of the Budget has consulted you on the President's Budget message or not. H: No. HMJr: They have not? H: No. HMJr: Well, we're trying to do a job here for the President, see? H: Yeah. HMJr: And I know how vitally interested you are in the whole question of the taxes and the savings and all like that. Hello. H: Yeah. HMJr: And we want your help. Now, do you want to send - because we've got to work in awful close confidence on this H: Yeah. HMJr: Is there some one person that you'd like to at the preliminary meetings send over? H: Yeah, I'd like to send Dick Gilbert. He's been working with your fellows, you know, all along. HMJr: Dick Gilbert. H: Yeah. HMJr: And then when we get to the final draft, would you like to sit in yourself? 86 - 2 - H: I certainly would. HMJr: All right. Now here's the thing. I've gone around and I've asked the Fed; they've not been consulted. And I've asked Lauch, and he's been left out. H: Uh huh. HMJr: So - but, as I put it - I'd like to go to the President's friends and my friends to help me, because it's an enormous task. H: Yeah. HMJr: And Bell will call up Dick Gilbert a little later and let him know when there 1s a meeting. H: All right. HMJr: But when the thing is - before I sign it, I'd like to go over it with you personally. H: All right, swell. HMJr: But it's simply - - it's overwhelming - - the size of it. H: I'll bet it 18. HMJr: Yeah. H: All right; well, we'll..... HMJr: And will you caution Gilbert to be close-mouthed the way he never has been before? H: Yes, sir. HMJr: I mean, more close-mouthed. H: Yeah. HMJr: Please. H: All right. 87 - 3 - HMJr: Thank you. H: Merry Christmas, Henry. HMJr: The same to you. H: Good-bye. 88 December 22, 1941 11:35 a.m. RE PRESIDENT'S BUDGET MESSAGE Present: Mr. White Mr. liaas Mr. Viner Mr. Bell Mrs. Klotz H.M.JR: Here is the thing that Dan tells me. This is my first reaction. The Bureau of the Budget's estimate for the next fiscal year is that they are going to spend fifty-six billion dollars and that our collec- tions from revenue will be sixteen billion, leaving 8. deficit of forty. Now, Dan says that we ought to raise - I mean, this is his horseback opinion and subject to change - twenty- five billion dollars so we don't have a deficit of more thanfifteen billion dollars. Right? MR. BELL: Well, I would say we ought to raise twenty-five billion dollars of that forty through taxes and savings and fifteen billion dollars through open market operations. MR. VINER: But from the point of view of deficit, that still leaves the deficit an uncertain amount. MR. BELL: That is right. Regraded Unclassified 89 - 2 - H.M.JR: Well, the point that I wanted to get for this thing, just to get my own reaction so that you people could be thinking about it, is this, for the present. Let's use the figure of twenty-five billion dollars that we are going to raise through taxes - forced savings is taxes. MR. BELL: That is right. That is what I meant. H.M.JR: My horseback opinion is that to say, us- ing the figure for the moment of twenty-five billion dollars, and these are the methods which we can raise it by, but not tie ourselves down, or the President. We can raise it through taxes; we can raise it through forced savings; this way and that way, but leave it open, you see. Not say that of that, ten billion is going to be taxes or fifteen billion dollars is going to be taxes or ten billion is going to be forced savings. We don't know. But if we set the figure that we have got of the fifty-six billion, forty billion has to be raised other than through borrowing, then I want to leave it open so that we can move from one way to another, and then if we have this thing that you were talking about, payroll deduction plan of from two to fifteen percent, that we could start at two and go forth - - you don't know. After all, up to now they have only spent six billion dollars for national defense, haven't they? MR. BELL: We will have spent eight at the end of this month. H.M.JR: So when they get all of these figures and everything else around, it is one thing on the paper and another thing to prove it, 80 my own reaction to Bell's thing is, I believe we should have a figure, but how - and say the various devices that we have in mind, but leave it open 80 that you can shift within that figure. MR. VINER: I am all for that. Regraded Unclassified 90 - 3 - H.M.JR: I wanted to give that to this group so that you could be thinking about it and you could- come back at me, you see. MR. BELL: That ties in with what this other group has done because they have put no figure in their state- ment, you see. H.M.JR: Yes, but the Bureau of the Budget has. MR. BELL: That is right. H.M.JR: And I think that is wrong. MR. BELL: I do too, and I think that group thought so yesterday because they left without any reference to 8. figure on taxes. H.M.JR: You don't know, for instance, what we can do through the voluntary method of Defense Savings Bonds. You don't know. MR. VINER: It is not only that. A rate of taxes which would be quite right for next December would be quite wrong for this January. MR. HAAS: You need flexibility. MR. VINER: You need flexibility. Even if you knew the over-all program and you knew you were going to achieve it, you don't know the rate at which you are going to move up to it and the tax program oughtn't to move too far ahead of that or you may supress productive activity. H.M.JR: I just wanted to get that off, because to me, I don't care what they write in the rest. From my standpoint, there are just two things. One is to hit a figure and the other is to say there are three or four methods, but we have got to have an elasticity within that figure and the rest of the stuff is just verbiage. Regraded Unclassified 91 - 4 - MR. HASS: That is right. MR. VINER: Yes. H.M.JR: Harry? MR. WHITE: I like the idea of setting a figure and leaving you flexibility within it, but offhand, my first reaction is that I don't think that figure ought to include what you contemplate on saving, forced saving, because that outs so across the other kind of saving, et cetera, that I think that that should be 8 road open to you in addition to taxes, that the outside limit should be what you ought to get in taxes and the various ways of how it might be obtained possibly, et cetera, and with flexibility stressed, but I don't think that that outside limit ought to include forced saving because if the figures are of any magnitude of that character, then I think that it - any forced saving that you may have to do will have to be beyond that because one of the first impacts of forced saving is that it cuts very sharply into your voluntary saving, so that your proposal for forced saving has to be much larger than at first appearance because you can not add it onto voluntary saving. It replaces, depending upon the scheme, most of your voluntary saving, so I would like to see that not included in-- H.M.JR: Well, that again is a segment, but it is the over-all picture which makes the drafting of all of this thing very easy if we say first we have got to arrive at a figure, whether it is twenty-five, fifteen, twenty, twenty-five, or thirty, we have got to have 8. figure. Then once we have the figure, we have all agreed that within that figure we have to have flexi- bility, and then we have got to set down the various methods of how we are going to do it. MR. WHITE: I had a suggestion that I wondered-- MR. VINER: I would like 8. paragraph in this statement which gives the present and the estimated Regraded Unclassified 92 - 5 - national income. That is part of the background and should be in somewhere, because we are talking about fifty billions. It is more understandable when you put that against what we think the national income is. H.M.JR: Now, the other thing which I did, I called up three different groups and asked each of them whether they had been consulted by the Budget and not one of them had. One is the Federal Reserve Board, and they hadn't. I invited them to send one of their men over. I called up Mr. Henderson, and he has not been con- sulted, and he is sending Mr. Gilbert and will come later on himself. I called up Lauch Currie, and he hadn't been consulted, and he is coming. I want to get all the brains I possibly can. Not one of these groups has been consulted, and this thing has been a month in preparation. MR. WHITE: I had 8. suggestion for this thing-- H.M.JR: I have invited each one of these people so that means that this thing is 80 stupendous that I - and if there is anybody else in town that - or any other group that has any brains, but that is why I am - I am groping for 8 fellow like Ned Brown, because all of these people are educated and are economists. MR. VINER: Yes, but I don't know. This is per- haps none of my - I have no right to say this, but I think you ought to go very slow on bringing in an out- sider at this stage, because this is a tremendous business explosive, and he is a banker operating a big concern. Even if he just uses his knowledge within his own bank, that already is important. I would check up with somebody else on that. H.M.JR: I am not going off half cocked. MR. BELL: You mean, that is what you wanted with Ned Brown? H.M.JR: I have been looking for a long time for Regraded Unclassified 93 - 6 - some important financial person in the financial com- munity who had courage enough to openly vote for Roosevelt, and when I was in Chicago I was told he openly came out for Roosevelt. Well, the man to do that has got the courage. MR. VINER: Oh, he has got unlimited courage. He is a character. You might find him 8. little like Sir Frederick Phillips. He is hard to understand. He mumbles his words, turns away from you. Have you ever met him? H.M.JR: Oh, yes. MR. VINER: I think a lot of him, but I don't know on this. It is & big bank. It has big trust accounts under its management. You are giving him an inside track. I would be a little nervous, wouldn't you, Dan? MR. BELL: I think I would. I don't know enough about Ned Brown. I have met him a lot, and he comes in every time he is in Washington. I question whether he knows as much about tax system-- H.M.JR: Anyway, gentlemen-- MR. BELL: He is a good banker. H.M.JR: Well, I just wanted to give you my first reaction. I will see you later on it. MR. WHITE: I have a suggestion that might elimi- nate that necessity for the whole proposal. See what you think of it. I suggested it the other day. I think if you attempt to have a fiscal - a budget for a whole year for eighteen months, the magnitude you are going to deal with is 80 tremendous that no matter how you fix it, it is going to be both disturbing and-- H.M.JR: What is the idea, Harry? Don't give me the speech. Regraded Unclassified 94 - 7 - MR. WHITE: The idea is that I think this is the time the President can come out with the state- ment that in view of the emergencies I am only going to give a budget for six months. The earlier six months are the easier ones. You will know approxi- mately what you are going to spend. The tax and the rest of the program will look much, much milder, and then he will come before them four or five months from now and give them a budget for the other six months. It is impossible to deal with a longer time than that. You are dealing with such figures-- MR. HAAS: The law requires it, doesn't it, Harry? MR. WHITE: I think the emergency might make it possible for him to avoid that. H.M.JR: The law requires it? MR. HAAS: I think so. MR. BELL: Yes, the law requires him to give the estimates for the fiscal year. MR. VINER: He can give the estimates for the fiscal year, but break it up, as I have been suggesting, into two six-months periods and don't go into detail on the second six months, but only on the first on the ground that you can't see ahead that far. MR. WHITE: Leaving the other very vague, very general. H.M.JR: It strikes a sympathetic chord with me. Have you got the idea, too? MR. VINER: I have been saying all along I can't see how you can plan eighteen months ahead now. MR. HAAS: I made a suggestion that it is illegal, isn't it? Regraded Unclassified 95 - 8 - MR. WHITE: It is uncommon 2 around here, but we were going to draft 8. statement. H.M.JR: It would be, then, until December 31, '42. MR. WHITE: That is right. You can make a much more intelligent plan, and then you can have flexibility, and it won't frighten people, and We will know what you have-- H.M.JR: All right, Harry, O.K., I have got your idea. It is a very good idea. All right, people, I will see you later. 96 December 22, 1941 Dear arold: I am transmitting herewith the summary report which you requested in your letter of December 11th. in view of the Budget Mensage this report must necessarily be retrospective and cannot coal with policies and programs for the coming year. For the convenience of those who may be working on the President's message on the State of the Union, I also attach more detailed reports from the Bureau of Customs, the Coast Suard, the Procurement Division and Foreign Funda Control. The summary report contains an abridgment of these documents. Sincerely, (Moned) E. Mergenthan, m Von. arold D. Smith, Director, Bureau of the Dudget, Tashington, D. C. Enclosures. FK/ogk By Messenger m. Des Jones thompson has file nmc. Regraded Unclassified COPY 97 EXECUTIVE OFFICE OF THE PREAURITY BUREAU OF THE BUDGET Regraded Unclassified WASHINGTON, D. 0. PERSONAL and CONFIDENTIAL December 11, 1941 My dear Mr. Secretary: The President has asked no to secure from the defense agencies a series of brief SUBMARY reporte concerning their relationship to the defense program. It is the President's thought that these reports will be helpful to his in preparing his annual message on the State of the Union and to other officials in the Executive Office, particularly the Director of the Office of Facts and Figures. May I suggest that your report be limited to & seven to ten page presentation which will set forth the shief accomplishments of those divisions in your agency which are directly related to the defense effort, the changes in objectives which have been brought about by the declaration of war, and the major problems and impediments confronting your program. In this connestion it would be desirable to look at both the strengths and weaknesses of your program, and to present such conclusions as are now reasonably certain respecting the time schedule of operations for the next year. It would also be helpful if you could give a short outline of new or additional work plans for 1942 resulting from the declaration of war. If these plans cannot be outlined at this time, may I ask you to send as, about February 1st, 1942, & second report relating to them. If summary figures are available to shorten your presentation, they may be in- cluded in the text or attached as appendies. Such figures might be of par- ticular value in the drawing of contrasts and in the presentation of information concerning the physical progress of major segments of your program. It is not desired that this report be concerned with technical discussions or that it include material in justification of any part of your program. It is felt rather that it should be a frank appraisal in narrative style, which brings into proper relationship both achievements and lack of achievements. It would be particularly helpful to the Office of Facts and Figures if you would include as an appendix identifying information concerning any Federal statistical series or other compilations of data which you consider significant in reflecting the progress of your program. Such a list should also contain information as to whether the data referred to are collected by your agency or by other agencies end whether they are available for publication. It 10 urgent that your report be in my hands not later than December 17th. Very truly yours, HAROLD D. SMITH The Honorable Director The Secretary of the Treasury. THE TREASURY'S PART IN DEFENSE - 1941 98 Regraded Unclassified The Treasury's primary function at this time is to raise the money needed to win the war. Throughout the period of the defense program, and now of war itself, it has sought to fulfill its function, firstly, by paying currently as much of the cost as possible, secondly, by spreading the burden as fairly as possible, and thirdly, by taxing and borrowing in such & way as to check inflation as far as possible. Already the Treasury's money-raising task has grown until all prece- dent has been shattered and all previous conceptions discarded. The amount of money needed today bears no relation whatever to the amount the Treasury had to find as recently as two years age. In January 1940, before the collapse of France and before the real start of the defense program, monthly expenditures were approximately $700 million, or at a rate of $8} billion & year. By January 1941, on the eve of the Land- Lease Act, monthly expenditures had jumped to $1.1 billion a month, or an annual rate of $13.2 billion. By December of this year, monthly expenditures have soured to almost #2 billion, or an annual rate just short of 824 billion. The curve of expenditures is still rising, 4d the figures for the next three months are sure to show. Even allowing for the comparatively slow rate of spending st the start of 1941, the expenditure of this calendar year is higher then it was in 1919, which until now has been a record in the history of the Inited States. The 1941 expenditures will be very close to $19 billion. The President's budget estimate for the 1942 fiscal year ending June 30, 1942, an estimate revised on October 5, 1941, called for - 2 - 99 total expenditures of $24.58 billion, of which $3.0 billion was for defense purposes. In the Has budget, receipts for the fiscal year were estimated at $12 billion, leaving a prespective deficit of $12.58 billion. These figures are likely to be revised still further before the end of the fiscal year " the page of production quicksas and the calls on the Treasury gree still more insistent, To raise these coloreal - greater than any on record, the Treasury has resorted to taxation and borrowing. In April, Secretary Morgenthau said that 12 was his intention to raise two-thirds from taxation and one-third from berrowing. This standard has been followed fairly clossly in the calendar year just ended. Taxation Taxation not only produces a steadily rising amount to cover these huge expenditures, but it is being widened year by year to reach millions who had never been called upon to pay taxes before. The speed of the enlargement can be shown by comparing the number of taxpayers under the Revenue Act of 1939, 1940 and 1941. Under the 1939 Act 7,716,000 persons were required to file income tax returns, and of this number 3,959,000 were taxable. The 1940 Act almost doubled these figures; it called for 15,246,000 individual returns, of which 7,520,000 were taxable. Under the present Revenue Act of 1941 it is estimated that 22,007,000 will be required to file individual returns, and of this number 13,200,000 will have to pay taxes. The increase in the number of new taxpayers under the 1941 Act is due to three factors: 1) reduction of the personal exemption from $800 to 8750 for I single taxpayer and from $2,000 to Regraded Unclassified , 100 $1,500 for a married tempayer; 2) application of the surtex rates to the first dollar of net income; and 3) the increase in the levels of income during a relatively presperous year. Such an increase in the musber of nov taxpayers presente the Treasury with a number of problems, netably the need for sequalating the new taxpayers with their abligations, and the correspending need of insuring prompt payment and a prompt collection when the first payments come due on March 15, 1942. In is effert to make taxpaying easier for those in the low income group, the Treasury this year introduced a simplified tax form for these with incomes under $3,000, a form so simple that only six easy stops are required in order to complete it. Instead of going through elaborate and difficult computations, the small taxpayer is new able to find the amount of his tax on & table printed with the new simplified form. At the case time the Treasury has sought to encourage saving on the part of taxpayers 60 that they can meet their payments on March 15, & new type of security known as the Tax Anticipation Note was intro- duosd in August of 1941 60 that taxpayers could is effect pay their taxes in advance and receive interest in 80 doing. of the two types of tax anticipation notes, cas - known as Series "A" - is designed for small taxpayers and carns about 1.92 per cent & year for its holder, who may net use more than $1,200 worth in the payment of taxes is any calender year. The other, known as Series "B", is intended for large taxpayers and beare interest at 0.48 per cent, but can be held in unlimited amounts, More than $2 billion worth of these notes had already been sold by the and of 1941, thus serving the triple purpose Regraded Unclassified - 4 - 101 of enabling the taxpayer to cave, insuring more repid and efficient collection, and withdrawing a large amount of purchasing power from ourrent income. Berrowing During the calendar year just ended, the Treasury sold marketable public debt issues(exeluding Treasury bills)for cash amounting to almost $4.9 billions. These sales were carried out in five major market operations. The securities sold consisted of one note issue and fear different bond issues. In addition, the Treasury refunded about $3.1 billions of securities not including Treasury bills. Two facts stand out from the record of these transactions, spart from their sise. One is that each of them was heavily oversubsoribed. In no case wes there the slightest difficulty in obtaining the necessary funds on the Government's terms. The latest and largest of these financing operations, for 824 billion of new cash, was oversubscribed seven times on the very eve of the Mr. Regraded Unclassified - s - 102 The other outstanding fact is that the average interest rate - the outstanding debt is now the lownet in history. It fell from 2.566 per cent at the and of Desember 1940 to 2.429 per cent at the end of November 1941. Im other words, while the national debt has now risen to a record level of are than 855 billion, and while the Government needs more money than over before, it can obtain that money more cheaply than ever before. In financing the defense progres and the present war effort, the Treasury is seeking to restrict as far as possible the sale of large amounts of public debt obligations to commercial banks, for berrowing from the banks would not only fail to check inflationary tendencise, but would actually accentuate them. For this reason, the Treasury esharked in May upon a program of berrowing from millions of individual investors throughout the country. The new defense savings bonds issued in May were an attempt; 1) to borrow from individuals and thereby reduce the volume of purchasing power, 2) to give to indi- viduals a back-leg of savings for the pest-mar period, and 3) to build nation morale by making individuals feel & some of participation in the defense effort. Up to the outbreak of actual war with the Ands, more than 62 billion worth of these bonds had been sold. The defense savings pro- gram was accompanied by a campaign of publicity and promotion by radio, press and never which sought not only to sell the bonds, but to give to the American parale a realisation of their privileges and power and purpose. Defense savings organizations vero established Regraded Unclassified 103 - 6 - in every state and in commitities of 10,000 people or over, and cooperation case speedily from all groups and all sections in the country. Up to the sotual outbreak of war more than 82 billion worth of these bonds had been sold to more than 3 aillion indi- vidual investors. In terms of money the total was entisfactory, but it was estimated that only a relatively small proportion of the money total had come from regular systematic purchases out of current income. For this reason the wartine voluntary savings effort will be directed at those receiving regular wages or salaries, and a determined attempt will be made to persuade all the 35 million recipients of regular income to set aside volum- tarily a portion of their pay in defense bonds and stamps. Foreign Funds Control The "freesing control program of the Foreign Funds Control was initiated by executive order in April, 1940, by the freesing of Danish and Norwegian assets in this country at the time of the German invasion of Norway and Denmark. Its chief purpose was to prevent these assets from falling into Axis hands. AS other countries ware invaded or dominated by the Axis powers, the con- trol was successively extended, first to the conquered countries, then to Germany and Italy, and still later to Japan and China. At present the control covers more than $7 billion of assets and transactions involving 33 countries including all Continental Europe (except Turkey) as well as China and Japan. The blooked essets in this country consist of not only bank deposite and Regraded Unclassified 104 - 7 - earmarked gold, but also securities, merchandise, patents, business anterprise and other forms of property. Approximately 2,500 business enterprises in the United States, with varying degrees of foreign connections, are operating under licenses issued by the Control. AS a result, the Treasury now has in its files organised information regarding the structure, activities and background of Axis owned or dominated concerns. Numerous banks and banking agencies owned by foreign interests have also been brought under Treasury control through the licens- ing process, thus safeguarding the funds of American depositors in these institutions without undersining public confidence in the banks involved. All security accounts of foreigners have been frosen and all purchases and sales of securities for the accounts of blocked individuals have been regulated. The dumping in the American market of securities looted by Axis countries has been prevented by forbidding the importation into the United States of any securi- ties from any foreign country. All import and export transactions with blocked countries have been controlled, thereby creating effective regulation over the operation of a large number of foreign owned ships. Hundreds of firms and individuals operating in the Western Headsphere have been black-listed as being sympathetic with the Axis powers, with the result that transactions with or for the persons or firms on the black-list are stringently regu- lated in the national interest. Regraded Unclassified 105 - 8 - Regraded Unclassified To provide the basic data needed for administering Poreign Funds Control, the Control has soreover made the first complete and - prehensive census of foreign property held within the United States. These census reports are providing the most accurate information obtainable regarding every conceivable type of foreign owned property in this country. By all theee and other aethods, Foreign Funds Control operated during 1941 as & powerful weapon of economic warfare. With the outbreak of war, the Control has intensified and widened its work 80 as to wipe out any economic influences in this country which might DO hostile to the national interest. By cutting off the funds for Axis propagandists in this country, the Control helped to prepare the United States for the outbreak of war in December. Stabilisation Loans The operations of the United States Stabilisation Fund, began in 1936, are designed to maintain stability in rates of exchange between the United States dollar and the currency of countries with which agreements exist. While these operations do not arise directly out of the war effort, they assisted by preventing dis- ruptive fluctuations in foreign exchange and thereby help to pro- vent any weakening of the economic and monetary structure. The following commitments of the fund were made during 1941 by inter-governmental agreements: Central Bank of China - $50 million; 106 - 9 - Chinese Stabilization Fund - $50 million; Brasil - $60 million: Argentina - - 850 million: Mexico - 840 million. The agreements with China and Brasil are now in operation, but those with Mexico and Argentina are not yet operative. since they have not yes been ratified by the Latin-American Congresses concerned. It should be noted that the Chinese stabilisation commitment provides full collateral for United States purchases of Chinese year. and that the consitment to the Bank of Brasil requires a deposit of gold is the United States as collateral to the full value of the United States purchases of milrois. Procurement Division At the beginning of 1941 the Treasury Procurement Division was chiefly engaged is its normal activities of purchasing and contract- ing for the civilian needs of the government. It was not yet a vital part of the defense effort except for its purchases of strategic and critical materials for stock piling, and its purchases of supplies for the American Red Gross distributed to refugees abroad. with the increasing temps of the defense progren, however, the Procurement Division was called upon to purchase thousands of tone of chrome,manganess, tin and tungsten, huge quantities of industrial diamonde, maila fiber, nereury, optical glass and scores of other Regraded Unclassified - 10 - 107 materials cocontial to the building of the armed services. At the same time the Procurement Division was called upon to buy a multitude of household items needed for the thousands of nov homes for defense workers. with the passage of the Loase-Lond Act, the Procurement Division because a central buying agency for meeting the commercial needs of the British and other Allied governments. Thousands of commodities ranging from aviators' watches to locomotives vere rushed to the dooks for shipment abroad and the buying volume of the Division increased by millions of dollars each month as were advanced its purchases for the United Kingdom, China and Seviet Bussia as to the $257 million, representing 2,917 contracts since April 1. 1941. Its purchases in the nermal catagories jumped from $64 million in 1940 to over $118 million in 1941. Its purchases for defense housing from November E, 1940 to the middle of December 1941 have totalled $6,259,000 and its purchases for refuges relief from September 1940 to November 1941 totalled $26,921,000. As the year ended the Procurement Division vse becoming the nation's main buy- ing agency for all non-military supplies needed for the var effort. Bureau of Customs The work of protecting the interests of the United States in a world at war have greatly increased the duties of the Bureau of Customs. Following the enactment of the export control and foreign funds control asts, the Customs Service was charged with the physical control of exports to insure that strategic and critical Regraded Unclassified - 11 - 108 naterials should not be taken out of the United States except under license] to insure that no funds or other values vere removed from the United States except as authorised w the Secretary of the Treasury: and so enforce the prohibition against trading with persons or firms on the so-called block-list of Aris interests is this hemisphere. On behalf of the office of export control the Ouetome Service has investigated, since February 1. 1941. approximately siz thousand individuals, firms, and corporations conducting export business, and has also investigated suspected violations of foreign funds control provisions by a large number of individuals, firms or corpo- rations. Officers of the Quatoms participated in seiwures of foreign vessels immobilised in American ports and assisted in saking these ships available for American use. United States Coast Guard During the calendar year 1941, up 10 November 1, the United States Coast Guard functioned as a bureau of the Treasury Depart- ment, but on that date is was, by direction of the President. transferred to the jurisdiction of the Secretary of the Havy. The Coast Guard, in the period prior to its transfer to the Havy Depart- ment, had assumed many special and additional duties consequent upon the state of war abroad and the growing menage to the United States. Supervision over the number of vessels is the harbors and territorial waters of the United States was greatly strengthened Regraded Unclassified - 12 . 109 and intensified. The program of training of merchant sailors and officers under the direction of the U.S. Maritime Commission was substantially enlarged and at the request of the Navy Department seamen were trained in specialised occupations. Men and officers specially qualified and equipment specially adapted to navigation in 100 conditions vere employed in Greenland operations and later transferred to Havy command. The enlisted personnel of the Coast Guard was increased to an all-time high of 21,837 on November 1, 1941. & building program instituted during the year includes some 75 outters of various classes in which are included four 260-foot steel ice-breakers of 5,000 tons displacement, three for Arctic service and one for lake service, three 327-foot steel cruising cutters, and ten 255-foot steel cruising cutters to replace ten 250-foot outters which were transferred to Great Britain under the Lease-Lend Act. Regraded Unclassified 110 December 22, 1941 12:05 p.m. HVJr: Okay. Unerstor: All right. Go ahead. MJr: Hello. Herbert Emmerich: Hello. This is Herbert Emmerich speaking. ANJr: Hello, Emmerich. is Do you want me to come over there, or do you went me to tell you on the phone what I've thought up? Jr: Well, tell me on the phone first and let me see how good it is 2: All right. Wr: because I'm kind of tied up. MM Well, I talked to Harold Smith about it, and to Luther Gulick HMJr: Yes. 6: who are responsible for inviting you, I believe. Mar: That's right. is And we all feel that - hope very much that you can see your way clear to do a job for the two or- ganizations; and we feel that there's A story that hasn't been told at all, which I happen to know 18 an important 005, and that's Just what the Treasury has done in the national defense program. The Treasury has had 80 many major rolls to play in it. Wr: <eah. 10 These two growns, you know, they're not economists. - They're not? Regraded Unclassified 111 - 2 - X: They're interested - the Political Science Association, 8 great many of them are professors and students of Government; and the Public Administration Society, are mostly administrators. (MJr: Yes. - The role of the Treasury in this thing has been SC important, that that's a story which I think they'd be extremely interested in; and you folke have been not only in bond selling and taxation, but in Foreign Funds Control and God knowe what else. If you think that's an important enough job here to do, I think that's the thing that would go very well. HMJr: Well, I don't; but I tell you what I'm going to do, if you don't mind. I'd like to turn you over on the ohone to Ferdinand Kuhn and let the two of you talk it over. Do you know Kuhn? E: I think I do. HXJr: Could I turn you over to him now? 10 Well, may I say one more thing? EMJr: You can say two more things. 6i All right. Smith and I both think that the kinds of problems that are shead, the relation of fiscal policy to things like price control and inflation, and the relation of fiscal policy to conservation of materials and all that sort of thing, as an indication of the problems you folks have got coming, would be perfectly all right even if you can't talk about the new tax program; because you might feel that it would interfere with the President's message. EMJr: Well, I - I mean, I've got everything that should go to 8 group like that, but I'm recommending that 1t. all go into the President's Budget measage, which leaves me 85 flat as a pancake. in Yeah. Well, I don't mean to tell them the answers, because that you can't do, orobably. Regraded Unclassified - 3 - 112 HMJr: Well, I can't, in these times, go up there and state the problem and not - and act as though I didn't know what the answers were. It's very difficult. They never should have asked me to speak one week before the Budget message. E: Yes, it's an awkward time; there's no doubt about it. HMJr: Let me ask you, as an old friend, how awkward would it be if I didn't come? E: Well, the - several other of their programs have kind of faded out. They were going to have Nelson and Henderson the day before; and, of course, they want very much to have you. HMJr: What happened to Nelson and Henderson? E: Well, they've cut off all their speaking engage- ments about three weeks ago, and notified the committee they couldn't be scheduled. HMJr: Well, that's - of course, I mean, I've got the stuff. It's all here E: Yeah. HMJr: but I just don't Bee how I can talk about it. Let me - are you free to talk to Kuhn now? E: Yes, indeed. HMJr: See? E: I'll be glad to. HMJr: I'll get him on the wire and introduce you, you see, and then you can listen. E: Yeah. HMJr: Just a moment. Operator: Operator. HMJr: Put Mr. Kuhn on the same time. I want to intro- duce him to Mr. Emmerich. Doaradad - 4 - 113 Operator: All right. HMJr: I'm awfully much obliged to you for thinking about it, Herbert; but the more I talk to you, the more I think I shouldn't talk. E: Well, that's up to you. This 18 the best - and by the way, Gulick is up taking to - he's flying back this afternoon, but he's going to take to Operator: Go ahead, sir. HMJr: Ferdie, Herbert Emmerich's on the wire listening..... Ferdinand Kuhn: Yes. HMJr: and he's been kind enough to call me up, and he's got some suggestions, and I thought I'd let him talk to you and then maybe you could get to- gether. K: All right, fine. HMJr: And, he's on the phone now and I'll let you talk with him. K: Good. HMJr: And I think if - the sooner the two of you could get together, the better; because I think I ought to make up my mind between now and sunset whether I'm going to talk or not. K: I think 80. HMJr: And if you would talk to Herbert Emmerich, and between now and sunset let's make up our minds. E: Let me say just one more thing. Now, Gulick is sending Smith air mail today some suggestions along the lines I've mentioned, which Harold Smith will have tomorrow morning HMJr: Yeah. E: for whatever they're worth. HMJr: Okay. Regraded Unclassified 114 - 5 - E: All right, Mr. Kuhn. K: Yes, Mr. Emmerich. 115 December 22, 1941 12:10 p.m. HMJr: Hello. Operator: General Cox. HMJr: Hello. General Cox: Good morning, Mr. Secretary. HMJr: Good morning, General, how are you? C: I saw GeneralReybold, Chief Engineer, this morning..... HMJr: Yes. C: .....and he said this matter was being handled entirely by General Fleming. HMJr: That's what I thought. C: Yes. Now, I've just talked to General Fleming..... HMJr: Yeah. C: .....and he said the reason for not putting in a bombproof shelter is just exactly, of course, as you told me. HMJr: Yes. C: That it wasn't permitted. HMJr: Yes. C: That they would like to do it. HMJr: Yeah. C: And that this set-up that they have over at the Treasury building is the best available under the circumstances. HMJr: Yes. Well, I think we'll have to let it rest there until the President changes his mind. UInclassified - 2 - 116 C: Yes. I still am just as fully impressed as I was. It's not good. HMJr: Right. Well..... C: And the sooner we can get the other done, the better. HMJr: Right. C: I think General Fleming thinks that maybe later on they might be able to get the other thing done. HMJr: Yeah. All right, General. C: In the meantime, I'll just continue these plans about this digging out thing. HMJr: Yeah. C: .....that we discussed. HMJr: That's right. C: Okay. Thank you, sir. HMJr: Good-bye. see page 2 117 December 22, 1941 1:02 D.M. Operator: Go ahead. HMJr: Hello. Senator Barkley: Henry? HMJr: Yes, Alben. B: I talked to Walter George about that matter HMJr: Yes. B: and he said that Walsh had talked to him HMJr: Yeah. B: and that as far as Walter was concerned, he had no objection but he said that Walsh had told you he would let you know this week HMJr: Well B: about it. I haven't been able to talk to Walsh yet. He's in town, though, today HMJr: is he? B: and I'll try to get hold of him. If I can't today, I'll do it tomorrow. HMJr: Will you? B: Yeah. I'll let you know. of course, Walter said, and I agree, that it's not a state appoint- ment exactly; although this fellow comes from Massachusetts, it's not a state office, and that if it were, he might have grounds for making it & personal objection but that inasmuch as it's a national office, that he might yield on it, BO I hope he will. HMJr: Well B; It'll be 8. lot better than to have to have a. fight over it. Regraded Unclassified 118 - 2 - HMJr: I don't want to fight, but - and as I say - unless you assured me I could win, I don't want to fight. B: Well, I'd have to canvass the Senate and the com- mittee both HMJr: Yes. B: before giving you any such assurance. HMJr: Yes. B: ..... but I'll let you know. HMJr: Thank you. B: Now. HMJr: Yes. B: Here's another matter. HMJr: Yes, sir. B: I called up Francis Biddle the other day about a situation in Louisiana HMJr: Yes, sir. B: over the appointment of a District Attorney. HMJr: Yes, sir. B: And he said that you had expressed some skepticism about the man recommended by Ellender and Overton because he might be too close to some people down there involved in income taxes. Is that correct? HMJr: Well, as far as I know, I don't know that - I can't remember that Biddle ever talked to me about it. B: Well, anyhow - well, now here's the situation. HMJr: I mean, I have B: You know the two Senators from Louisiana are as Regraded Unclassified 119 - 3 - loyal administration supporters as we've got in the Senate. HMJr: Yeah. B: And we have our problems over here HMJr: Yeah. B: and they tell me that this man 18 all right; and even if it did involve any income tax matter, you can do as you frequently do - send a special attorney from the Department. I don't think there are any suits down there pending at this time. HMJr: Well, Alben B: And what I'm anxious to do - these boye want to go home for Christmas and they're having an election down there, and they're anxious for this appoint- ment to come in before they go: and we're going to meet tomorrow and then go over till Friday; and Francis told me that he's all right on it, but he's waiting on you. HMJr: Well, I don't think that that's true. The only case that I can remember of, he talked to me about a man from Los Angeles B: Uh hun. HMJr: to be a judge. B: Well, he may have the cases mixed. HMJr: And I don' B: This fellow's name 1s Christenberry, and they say he's a very able man and that he hasn't any con- nections down there that would be embarrassing; and I'd like to Just help these boys out and keep our house in order over here, which, you know, I've got a big troupe over here that I have to deal with. HMJr: I know. Well, now, what do you suggest I do? B: And they've been negotiating and talking about Regraded Unclassified 120 - 4 - it for the last three or four months, and he's been a first assistant down there for six years. HMJr: Well, you see B: Why can't you call Francis up and tell him 8.8 far as you re concerned to let it come on in? HMJr: Well, I'll just tell him, I don't know anything about it. B: Well, will you do that? HMJr: I'll call him up immediately. B: And I'd like to have him send it over tomorrow. HMJr: Christenberg. B: Christenberg, yes. HMJr: Never heard of him. B: Christenberry, Christenberry. HMJr: Christenberry. Yeah. B: Yeah, that's an old Southern family name, and we've got a lot of Christenberry's in Kentucky and they're all good people. HMJr: Well B: I can't guarantee those in Louisiana. HMJr: I've got a lot of poor qualities, but one of them 18 I tell the truth. B: What's that? HMJr: One of the few qualities I have is I tell the truth. B: Well, you can put the soft pedal on that now and then, can't you? HMJr: No, I still like to tell the truth. I never heard of him. Regraded Unclassified 121 - 5 - B: Well, you don't tell it except when you have to. (Laughs) Is that what I gather? HMJr: Well. Well, listen B: Now, I don't know, it may be that he's got that case mixed with some other. HMJr: I'm afraid he B: Probably he has. Anyhow, will you call him up right away and tell him that I talked to you? HMJr: I'll do that. B: And that I'm anxious to get this thing ironed out and I wish he'd - as far as you're concerned, that you haven't got any interest in it. HMJr: Well, I'll call him up at once. B: All right. And I'll call you tomorrow about this Massachusetts matter. HMJr: Thank you. B: All right. 122 christentery on Bell no Gaston yes Sullivan no MR. THOMPSON'S OFFICE TO Foley yes TO: The Secretary Christenberry were Inquires about his made by the Attorney- Jineral of m. Gaston hr. Faley frier to 1:00 pm 7. today From: LIEUT. STEPHENS 12/22/41 Regraded Unclassified 123 December 22, 1941 1:10 p.m. Francis Biddle: Hello, Henry. HMJr: Francis. #: Yes. HMJr: I've just had a telephone call from one Alben Barkley. Barkley? Yes. Alben, yeah. MJr: He's one Alben. He works in the Senate, B: Yeah. MMJr: Comes from Kentucky, I've heard of him. MJr: Yeah. And he seys thet you Bay that you'd love to send Christenberry's name in from Louisiane, but that I'm holding you up. No, I dion't say that. I said that we want to clear with the Treasury before we sent it in. NOW, what I'm doing, I'm going to send over whristenberry's name with B. little caveat to the President. It undoubtedly means that the anti- Huey Long crowd will take the appointment to mean that we're backing the Huey Long organization. NOW, if the Chief wante to do that, it's all right. But we've got several tax cases and several criminal cases, and I think he ought to remember that. Well, I was perfectly truthful in telling him that you'd never telked to me about it. 81 That's right. HMJr: You haven't. B: No. I mean, I think our people cleared with Ed Regraded Unclassified 124 - 2 - or somebody over there, and both our people and your people feel that we just don't like it. HMJr: Well B: We just don't like it. HMJr: No one - I don't - well, I don't think B: oh, they wouldn't have bothered you about it I don't believe. HMJr: Well, I just say - has it already been sent over here? B: No, no. I told Jim to - or Sam Klaus - to check with the Treasury and get their aquint on it. HMJr: Yeah. B: I don't know who he talked to. I can find out if you like. HMJr: Well, I don't know; but anyway, I said the only case you'd ever talked to me personally about was a fellow from Los Angeles. B: That's right. That's right. No, I never talked to you about this. HMJr: Well, anyway B: You're perfectly in the open. HMJr: Well, he seems to think that I'm personally holding it up. B: Well, I'm going to call him as soon as the name 18 sent over; and I'll just call him and tell him that we've sent the name over to the Chief and told him what the situation was, and I think that HMJr: I don't know the man. I don't know whether he's bad - if I looked him up, I'd most likely find out he was no good. B: Quristenberry 1sn't bad, but his gang are awful. Regraded Unclassified 125 - 3 - HMJr: What? B: Oristenberry's all right, but his crowd are pretty awful. HMJr: Well, you've got ways of finding it out, haven't you? B: Oh, I've got the whole dope. I've got everything there 18. HMJr: Yeah. Was he part of the Huey Long gang? B: Hie brother was very close to the Huey Long or- ganization. HMJr: Yeah. B: If we just - if the President wants to; I mean politically, it simply looke as if the Administration were backing up the Huey Long organization. HMJr: Well, that would look pretty bad, wouldn't it? B: I think it would, and I think the Chief will have to make up his mind whether he wante to give that to Ellender or not. HMJr: of course, we haven't done that up to now. B; No. On the other hand, there's nothing specifically against enberry; he's & competent, decent little fellow with a perfectly good reputation. HMJr: Right. B: So I think the Chief will have to decide for political matter. HMJr: Right. B: All rightie. HMJr: Thank you. B: Thank you. Regraded Unclassified 126 December 22, 1941. MEMORANDUM FOR THE SECRETARY'S FILES Conference in Secretary Morgenthau's Office December 22, 1941 3:00 P. M. Present: Secretary Morgenthau Sir Frederick Phillips Mr. White Sir Frederick called at his request. He stated that he had three points to raise. 1. The United States is taking planes which the British had ordered prior to the Lend-Lease Act for their own use and for which they had paid dollars. He was unable to learn exactly how many planes the Army had taken nor had any statement been made as to whether they were to be paid for or replaced. He stated the British Government would very much like to have them paid for with cash. The Secretary replied that the Army had not notified him of any such transactions but he would see what he could find out. He telephoned Mr. McCloy and was unable to reach him. Mr. Lovett was also unavailable, 80 he spoke with Mr. Patterson. The Secretary told Mr. Patterson that Sir Frederick Phillips was in the office and had come to him stating that the British planes were taken over by the War Department and that the British Treasury wished to receive cash for them but had not been told how many planes were taken nor when and how they were to be paid. Mr. Patterson inquired whether the British had paid for the planes and Sir Frederick replied to the Secretary that ad- vance payments had been made in all cases and in some cases they had been completely paid for. Mr. Patterson then said that the Army would pay the British in cash and that the British could then pay the manufacturers the balance due, if any. Mr. Patterson said that he would get in touch with Sir Frederick directly on the matter very soon. The Secretary suggested to Sir Frederick that if he did not hear by Friday, he should get in touch with him (the Secretary). 2. Sir Frederick referred to the probable loss of dollar exchange to the British resulting from the attack on Malaya. Sir Frederick stated that if Malaya was unable to export rubber and tin, British dollar exchange resources would be seriously depleted during the coming year. He estimated the loss at approximately $300 million a year. He said he proposed to present an estimate of a balance of payments for the coming year in which the figures were to be adjusted in the light of the new circumstances. Regraded Unclassified 127 Division of Monetary - 2 - Research 3. Sir Frederick referred to a letter he. had received from the Secretary of the Treasury asking whether the British Treasury would wish to release to the Federal Reserve Board the weekly British gold figures which were submitted confidentially to the Treasury. Sir Frederick asked the Secretary whether he felt that was necessary. The Secretary said he would not press the matter and Sir Frederick said the British Treasury would prefer that the figures be confined to the Treasury unless the Secretary pressed them to release them. The Secretary said he would not press the matter. Regraded Unclassified 128 December 22, 1941 3:17 p.m. HMJr: Hello. Operator: Mr. McCloy is out of the building attending a meeting, and they don't expect him for at least an hour. HMJr: Well, see if Mr. Stimson is in. Well, wait a minute, it's planes. Give me Lovett. Operator: Lovett, all right. HMJr: Lovett - Robert Lovett. Operator: Right. 3:21 p.m. HMJr: Hello. Operator: Mr. Lovett 1s not in, but his secretary will try to locate him and have him call you. HMJr: Get me - try - see if the Under Secretary is in - what's his name? Operator: Patterson? HMJr: Patterson. Operator: Right. HMJr: See if he's there. Operator: All right. 3:22 p.m. HMJr: Hello. Operator: Mr. Patterson. Regraded Unclassified 129 a 1 I HMJr: Hello. Robert Patterson: Hello, Henry. HMJr: Bob? P: Yeah. HMJr: Can you help me out? P: Sure. HMJr: Sir Frederick Phillips, representing the British Treasury, 18 here. I tried to get McCloy and I tried to get - what's his name - your air man? P: Lovett? HMJr: Lovett - but nobody's in, 80 I've got to bother you. P: All right. HMJr: Somebody in the War Department has taken over a lot of English planes in this country. Now, the British Treasury wants to know how you're going to pay for them; and, of course, I told him I know less than nothing about it. I'm only in the Treasury. P: Yeah. Well, of course HMJr: But P: I understand we have taken over planes on British orders since the outbreak of war. HMJr: Yes. Now, they want to be paid in cash. P: Yeah. Well, they ought to be. HMJr: Well, now, could you P: If they paid the plane companies - I suppose they paid them largely in advance, didn't they? HMJr: Well, Just a minute. He's sitting across the Regraded Unclassified 130 - - desk. (talks aside) How have you paid for theee planes BO far? You've paid in advance? They've made advance payments in cash; and most likely if they've taken delivery, they have them paid entirely for cash. P: Yeah. I presume the thing to do 1s really to reimburse the British Government and let them make the arrangements with the manufacturers. HMJr: Well, something like that. But they're left high and dry, and they think it'll run around a hundred and twenty million dollars, which in dollars is a lot to them. P: Well, I'll take it right away. Who should I talk it over with? HMJr: Well, if you'll - for the British? P: Yes. HMJr: Sir Frederick Phillips. P: Yeah. All right. I can get him at the British Purchasing Commission? HMJr: Yes. He's eitting here. He'll be going back to his office shortly. P: Yeah. HMJr: Now, he's been unable to even get a list of the planes. He's aleo in the Treasury, so he's sort of in the dark. P: Yeah. HMJr1 So - but he knows he's paid cash, but he can't find out what planes you've taken. P: Yeah. HMJr: But I think if it could be done fairly promotly, it would leave & good taste in their mouth. P: Oh, they ought by all means to get the money. Regraded Unclassified 131 - 4 - HMJr: And - do you think it could be done fairly promptly? P: Yes, sir. HMJr: Okay. P: All right, Henry. HMJr: Thank you. P: Good-bye. Copy to Mr. Daniel Bell December 22, 1941 3:43 p.m. 132 Senator Byrd: Hello, Henry, how are you? HMJr: I'm alive. B: Henry, everybody down here agreed to sign it except LaFollette. HMJr: I Bee. B: And Nye has approved of all of them except the farm - he wouldn't sign the farm. HMJr: Yeah. B: So would it be all right for ue to work out any little changes with Bell? HMJr: Yes. B: All right. HMJr: Yes. Will you do that? B: Yeah. I'm sorry I couldn't do better. And then just sign your name to it, huh? HMJr: You mean, let Bell? B: Yeah, I mean let Bell sign your name to it. HMJr: Well, I'd like to talk with Dan about it. B: He was down here, you know, and we went all over it. HMJr: I know. He wanted to talk to me this morning, but they've just swept me off my feet all day. B: What we're trying to do 18 to get it out the first thing in the morning, so as to release it Wednesday morning. HMJr: Oh. Well, I'd like to talk with Dan once more. B: Are there any things you've got in your mind, especially, about it? HMJr: Well, of course, I don't think it's gone far enough. Regraded Unclassified 133 - 2 - B: Well, I don't either; but we emphasized here that we're going into a lot of other matters and we added another clause to it. This is just the preliminary report. HMJr: There's one thing there which would hit me pretty hard. Hello. B: Yeah. HMJr: And that's this question of publicity people. B: Uh huh. Well, that's immaterial. If you want that done, we'll out it out. HMJr: Because we can't sell Defense Savings Bonds without having publicity people. B: Well, what it meant was in non-defense. HMJr: Well..... B: But if you want that - there's no importance attached to that - we'll leave that out. HMJr: I mean, I have no objection to your going into the other agencies and looking at them, but just naming it that, we might - they might suddenly wake up and have no appropriation for Defense Savings Bonds. B: All right. Well, suppose we strike that out, then. HMJr: Would you do that? B: Yes, sir. HMJr: And I'll talk with Dan - when are you going to see him? B: Well, we could see him any time. We're anxious to get it out into the papers this afternoon. They've all - everybody else has signed it except Cannon - Cannon went home, but he said he's for it. HMJr: Well, give me - can you give me a half an hour to turn around in? Regraded Unclassified 134 - 3 - B: Oh, yes. Do you want Hayward Bell to come up Bell? there and see Dan, then - my secretary, Hayward HMJr: Come here. B: Yeah. HMJr: If he could do that; and I'll try my best, but..... B: All right. Of course, if you could make this publicity relate strictly to non-defense, I think it would be a good thing; but if you have any question about it, we could leave it out. HMJr: Well, what 16 that? B; That publicity part of it. That publicity item. I say, if you could make it strictly to non- defense. HMJr: Look, I'll go along with you on examining any of these agencies who have publicity departments. B: All right. HMJr: But I just think if you nail it, it might frankly, somebody, you know, they'll say, "Well, strike them all out." B: Uh huh. Well, I think you can re-word that, Henry, just to affect those that have nothing to do with the defense. HMJr: Oh, I don't know. Well, if it..... B: But if you think it's inadvisable, it's entirely acceptable to us - to me - and I know it will be to the rest of them - to leave it out. HMJr: Thankyou. B: Fine. Well, he'll come up there in a little while, then. HMJr: He'll come to see Bell. Regraded Unclassified 135 - 4 - B: Yeah. HMJr: I'll tell Dan. B: All right. HMJr: Thank you. B: Thank you. Regraded Unclassified 136 December 22, 1941 My dear Senator: I as villing to sign the report of the Joint Committee on Reduction of Non-essential Federal Expenditures subject, however, to ay disagreement with the recommendations under "Arriculture." I disagree with the recommendations with respect to "Agriculture" and in lieu of the recommendations contained in the Committee's report, I desire to suggest the following: "Yhen I appeared before the Committee on November 14 I stated that expenditures included in the Budget under the farm program which was initiated in 1933, after the catastrophic fall In prices in 1932, vere designed mainly to meet conditions involving low prices for farm products, surplus production and loss of export markets. Present conditions are radically different from those which the farm program was designed to met. It is estimated that in 1941 the farmor's share of the national income will be 20 per cent greater then in 1932, notwithstanding a. redue- tion of almost 10 per cent in the proportion of the farm population to the total population of the country. Although governmental aid was necessary in order to bring the farmer's net income from three and one-quarter billion dollars in 1932 up to eight and one-half billion dollars or more in Regraded Unclassified 137 - 2 - 1941, certainly after having reached this goal there does not appear to be any reason to continue spending at the same rate. The farmer is getting his share of the total expenditures made by the devernment, as the increase in his not income indicates. In addition, there are substantial benefits that will accres to the farmer from the Lend-lease program. "In view of all these circumstances I feel at this time that we should make drastic outs in our agricultural expenditures and I would recommend that the Secretary of Agriculture be required to operate the agricultural program included in the Budget with an annual appropriation of $500,000,000 less than authorized for the current fiscal year. "Vith respect to that part of the agricultural program carried on with funds borrowed from the Reconstruction Finance Corporation, I would want the Committee to make a more thorough investigation of these activities before I make any definite recommendation for reductions in the amounts available for this purpose." I also raise a question about the recommendation (paragraph 1, item 7), to cover into the Treasury all reserves not up by the Bureau of the Budget. Receives are set up primarily to meet unfere- seen contingencies and to avoid deficiencies. Many times these Regraded Unclassified 138 - 3 - reserves result in large savings. It come to me that if a general recommendation of this kind is adopted, 11 would defeat the very purpose for which recerves are created. Sincerely yours, $. H. Morgenthau Jr. Secretary of the Treasury Honorable Harry 1. Byrd, Chairman, Joint Committee on Reduction of Non-essential Federal Expenditures, United States Senate, Washington, D. C. WTH:CE:NLE December 23, 1941 Regraded Unclassified 139 December 22, 1941 My dear Senator: I as willing to sign the report of the Joint Committee on Reduction of Non-essential Federal Expenditures subject, however, to my disagreement with the recommendations under "Agriculture." I disagree with the recommendations with respect to "Agriculture" and in lieu of the recommendations contained in the Committee's report. I desire to suggest the following: "When I appeared before the Committee on November 14 I stated that expenditures included in the Budget under the farm progres which was initiated in 1933, after the catastrophic fall in prices in 1932, were designed mainly to meet conditions involving low prices for form products. surplus production and loss of export markets. Present conditions are radioally different from those which the farm program was designed to met. It is estimated that in 1941 the farmer's share of the national income will be 20 per cent greater than in 1932, notwithstanding a reduc- tion of almost 10 per cent in the proportion of the form population to the total population of the country. Although governmental aid was necessary in order to bring the farmer's net income from three and one-quarter billion dollars in 1932 up to eight and one-half billion dollars or more is Regraded Unclassified 140 - 2 - 1941. certainly after having reached this goal there doos not appear to be any reason to centinue spending at the case rate. The farmer is getting his share of the total expenditures made by the Government, as the increase in his not income indicates. Is addition, there are substantial benefits that will accrue to the farmer from the Lend-lease program. "In view of all these circumstances I feel at this time that we should make dractic outs in our agricultural expenditures and I would recomend that the Secretary of Agriculture be required to operate the agricultural program included is the Budget with an annual appropriation of $500,000,000 less than authorised for the current fiscal year. "With respect to that part of the agricultural program carried on with funds borrowed from the Reconstruction Finance Corporation, I would vant the Committee to make a more thorough investigation of these activities before I make any definite recommendation for reductions in the amounts available for this purpose." I also raise a question about the recommendation (paragraph 1, item 7), to cover into the Treasury all reserves set up by the Bureau of the Budget. Reserves are not up primarily to meet wifere- seen contingencies and to avoid deficiencies. Many times these Regraded Unclassified 141 - 3 - reserves result in large savings. It seems to Be that if a general recommendation of this kind is adepted, 1t would defeat the very purpose for which reserves are created. Sincerely yours, $ 4. margenthan, Jr. Secretary of the Treasury Honorable Harry F. Byrd, Chairman, Joint Committee on Reduction of Non-essential Federal Expenditures, United States Senate, Washington, D. c. WTH:CE:NLE December 23, 1941 Regraded Unclassified 142 December 22, 1941 4:27 p.m. John W. McCormack: Hello there, Mr. Secretary; how are you? HRJr: Where did I locate you? Me: Well, you located me in Boston at the WPA head- quarters. HMJr; Well, I didn't want to know that; I just wanted to know whether you were in Washington or not. KO! No, in Boston you got me. HMJr: John, here's what I'd like to ask your advice about. Three or four months ago I went to Senator Walsh and said that I'd like to have as Under Secretary, Jim Landis. Hello. Mo: Yes, I'm listening. MJr: And he objected on personal grounds. Mc: Yes. HMJr: Well, I went to him last week and I said, "The wer is on now and I've looked for three months, and I can't find anybody, and I still want Jim Lendis for Under Secretary." Ker Yeah. HMJr: Well, he's given me every oossible excuse and he's out it off and put it off, and he said he'd let me know tomorrow. Now, there's nothing against the man and there's everything for him. The only thing against - for - I mean, against him is that he waen't for Willkie. He WAS for Roose- velt. Mel Yeah. Well, I guess that HMJr: What? May I guess Waleh - you mean he's personally objectionable to Walsh? Regraded Unclassified 143 - 2 - HMJr: Yes. Mo: Uh huh. HMJr: But, I..... Mc: I think that's on account of the Senatorial side. HMJr: Yes, but I understand from Alben Barkley, who I've taken the thing up with Mc: Yeah. HMJr: ..... that that particular position is considered a national position and that this question of personal privilege doesn't apply. Mc: Well, I should think 80. Now, what do you want me to do, Henry, or try to do? HMJr: Well, if - I want help. I don't just - I want help on Walsh, that's all. Mc: Well, of course, you know that I haven't talked to Dave only twice this year, because we've been as far apart as the Poles. HMJr: Well, let me ask you this, who 1s there up in Massachusetts that has influence with him? Mc: Well, I don't know as I - - I think probably I could still talk to him. My diplomatic relation- ships have not been severed. HMJr: Well, could you talk to him? Mo: Oh, of course, I'd talk to him. I'd put it up to him coldly and say it's a credit to Massachusetts to have the Under Secretary of the Treasury come from there. As a matter of fact if you'd want me to send you a wire of endorsement of Landis HMJr: No, that doesn't help any. It's a question of talking directly with Walsh. Mc: Yes. HMJr: Because he keeps saying, "Well, the Democrats in Massachusetts won't like this. Regraded Unclassified - 3 - 144 Mo: Well, I should think there's a deeper question there, that it's the feeling of pleasure that the state has been recognized. HMJr: Well, Landis is a fine fellow; and I've looked high and low, I can't find anybody half as good. Mo: Well, you couldn't - you haven't got anyone that has a greater respect for Landis than I have. I think he - as a matter of fact, he was at a breakfast yesterday given to me by the B'nai B'rith. It was an unusual honor, being the first New Englander selected for the gold medal. HMJr: I wrote them a letter about it. Mc: Well, they're going to have them all bound and given to me. I didn't know they had done that, but it was really one of the - it was an historic occasion HMJr: Yeah. Mo: and he was there. I have a very high regard for him. When are you going to see Walsh again? HMJr: Well, he just keeps putting it off. It's a question of somebody like yourself calling him up and saying, "Now, look, Dave, Morgenthau's talked to me and I Just want to let you know that as far as I'm con- cerned I'm for Landis." Mc: Uh huh. All right, let me mull it over. Is there any particular hurry about it? HMJr: Well, I mean, I think if you could do it in the next twenty-four hours. Me: Yes. Is he down in Washington - Walsh? HMJr: They tell me he 18, yes. Mc: Yes. Well, I'll try and get him and have a talk with him. HMJr: If you'd do that, I'd appreciate it. Mo: All right, Henry; I'll do anything I can for you, you know that. Regraded Unclassified - 4 - 145 HMJr: Because, as I say, I think it's & damn shame in these times to hold me up. Mo: Well, I agree with you. Men have got to be given their own weapons. HMJr: Yeah. Mc: That's the one thing I've been standing for in Congress, that we've got to give the Executive branch of the Government which has to conduct the war, all the powers that's necessary. HMJr: Yeah. A telegram won't do any good, either. Mc: Oh, no, I wouldn't send a telegram. HMJr: It's a question of a personal telephone call. Mo: Can I tell him I had a talk with you? HMJr: Yes. Mo: And that during the course of the talk we discussed Landis? HMJr: Yes. Mc: All right, fine. HMJr: Yeah. Mo: I'll do what I can, Henry. HMJr: Thank you. Me: Good-bye. HMJr: Good-bye. > H 146 T R E A S - 85 1941 DEC 22 PM 5 58 U R Y WV155 33 GOVT T BOSTON MASS DEC 22 452P 1941 E L HON HENRY MORGANTHEAU E G SEC OF TREASURY R A IMMEDIATELY AFTER OUR TALK TRIED TO GET WALSH ON THE FONE P INFORMED HE HAD LEFT WASHINGTON AND WOULD BE IN CLINTON H TUESDAY I WILL TRY AND CONTACT HIM THERE AND REPORT TO YOU T R JOHN W MCCORMACK M C. E A 525P. 9 Regraded Unclassified 147 December 22, 1941 4:49 p.m. HWr: Dan Bell ie sitting next to me. Senstor Byrd: Yeah. HMJr: Now, he's got a few little thinge which he'll tell you about. Hello. at All right. TJr: which are not important, and I'm sure that you'll go along with; but here's the importent thing. The Agricultural thing - what I'd like to do would be to write you a letter, see. N3 in hum. We And say that I think that what I'd like to see vould be the Secretary of Agriculture be directed to save five hundred million dollars of his appropriation. All right. PMr: Bee? in I wish you'd have been there that day, Henry, we might have gotten something done. I had e devil of e time. Alle: Because the way 3: Danny will exolain it to you. There He did. 3: They jumped on us all over. But I'd like to do it that way rather than singling out these different items. All right. I think - you mean instead of signing that particular 942r: Well, 99 I say, I'll sign it some way with 8. proviso that I'm not going along on the Agriculture; Regraded Unclassified 148 - 2 - but on the Agriculture, this is my suggestion. B: Uh huh. HMJr: Something like that. B: All right. I entirely approve of it, and I thought rather than for me to withdraw - - I mean, to get up only two or three members to eign it, it's better for me to go along. HMJr: Yes, but you don't mind my doing B: No, not at all. I think it would be an excellent idea. I think there ought to be deeper cuts. Of course, we do say, you know, that this 18 a preliminary report and that we'll bring in others. HMJr: Well, I couldn't sign this one, because it singles out certain things that if I had to do the cutting, I wouldn't cut, you see, in Agriculture B: Uh huh. HMJr: .....and the things I'd like to out, they don't. B: I see. All right. HMJr: So I'd like to just B: You'll sign it with that exception. HMJr: With that exception, and then suggest that in view of - they'll fix up a little letter - and the increased - - oh, they'll take just the part out of the statement which I gave them on the Hill. B: Yeah. All right. HMJr: I forget - - I mean, which I gave to you - I mean, in view of the situation and the increased B: You see, those darned fellowe, they just wouldn't do anything on parity payments and soil conser- vation. HMJr: Well, I'd like to Just take what I said before you on Agriculture. B: All right. Regraded Unclassified 149 - 3 - HMJr: And say, "In view of these conditions which I have already presented to you, I feel that the Secretary of Agriculture could very well save five hundred million dollars, but it's up to him to do it. B: Uh huh. All right, sir. HMJr: That won't - is that all right? B: Yes. I think that's HMJr: Well, with that, and with a few little things which Bell will tell you about - your man's in hie room now B: Yeah. HMJr: we're all right. B: Fine, Henry. And I think we can get some further reports now. George told me today that he thought we ought to have gone farther, although he at the time didn't want to do it. I mean, he didn't want to cut any of these Agricultural things. But I think as time goes on, about the first of the year, we can get a recommendation to cut them deeper HMJr: All right. B: from the committee. Now, you see the fact that we're getting practically everybody to sign this, I think, will have some effect. HMJr: Well, I'd just like to eign it with that one proviso. B: Why, that's fine. I think that'll really help it, too. HMJr: All right. B: Fine. Thank you so much. And I'll say a Happy Christmas to you. HMJr: Thanks. Same to you. B: Good-bye. HMJr: Good-bye. Regraded Unclassified 150 December 22, 1941 5:03 p.m. HMJr: Hello. Herold Smith: Hello. HMJr: Harold Smith. 8: Yes. HMJr: Henry Morgenthau. S: Yeah. HMJr: Look, have you got a minute or two? S: Yes. HMJr: It's about next Sunday night. Now, in the first place, I wish I had time to come to see you. Will you please take my word a hundred per cent the fact that I've been hesitating about doing this - there's nothing personal in it - it's just the question of the subject and the time. 8: Yeah. HMJr: Because when you were kind enough to ask me to do it, I felt very much complimented and I still do, but we're all here trying to turn out something for the President and you on this Budget thing; and all the suggestions I've gotten from the various people, they all - every- body, when they get down to it - they all shy away because they realize that the President's Budget message comes first. Let me ask you this question, are you going to be able to get up there Sunday night yourself? S: Well, I'll have to be up there all the time, I guess HMJr: Are you going to S: or at least I may have to fly back. Regraded Unclassified 151 - 2 - HMJr: Are you going to be there for three days? 8: Well, I'll have to be there for parts of three days. I'm in B. hell of a spot, because I'm the President of this outfit HMJr: I know. S: and I've got a presidential address to give, I think that's Monday night. HMJr: Has it occurred to you at all, the possibility of postponing the whole thing for two weeks? S: Well, you see, that can't very well be done be- cause it's a joint meeting with the Political Science people and they start a year in advance to plan their meeting, that's the rub. HMJr: But I meant - because the thing on you must be simply terrible. It would be bad enough on me, but the repercussions on you would be ten-fold. S: Well, I know, I'm in an awful Jam; and, of course, I was - nobody ever consulted me or even 80 much 8.8 warned me last December. They got into a Jam over something and elected me president without any notice, and I never - - I Just got through resigning from everything I'd ever been connected with. HMJr: Uh huh. S: Well, I think that there's an area there that you can talk about that doesn't have much bearing on the Budget message; and as far aa I'm con- cerned, I don't think it would do much harm if you crowded it a little bit. But I think that there's something that can be said that'll be a background for the Budget message - it will be very helpful; and I know it's a little bit diffi- cult; but at the same time, I feel that this is going to be a national broadcast HMJr: Yeah, that's the trouble. S; people are very much concerned about all these problems, and that there's an area that Regraded Unclassified 152 - 3 - I believe will be helpful. HMJr: Well, all day long we've been talking back and forth here, and with other people, and we just can't find the area. S: (Laughs) HMJr: And I've been really trying very hard because I I don't like to say I'm going to do something and then not do it. S: Well, I don't want to crowd you at all, but I..... HMJr: I've never been BO stumped in my life. I mean, two weeks from now I could follow the Budget and say, "Now, this 1e what the President said; now here's my job and this is my end of it." S: Well, I wouldn't - I wonder if you aren't too much concerned about the immediate task there - of financing, I mean and taxation. It seems to me - I think, it seems to me, your boys could help you put something together on the problems and HMJr: Well, frankly they haven't been able to, and they've really made an honest effort. S: My gosh. Well, it's kind of a dilemma. I hate to see you withdraw from that, because I think it's really - they're banking on you, you know. HMJr: I know. S: Well, we've sort of advertised you now. HMJr: Well, if it wasn't for you personally - I mean, the fact that you are the president of this thing - I'd say just as quick ae a flash, "Please excuse me." S: Well, I hope you won't put it on that basis. HMJr: But I mean, it's just - the fact that you are the president, it makes me hesitate. S: Well, we..... HMJr: That's the only reason I'm hesitating, because we've all talked about it - everybody around here - 153 - 4 - and it just seems about the worst possible time to make a speech - for the Secretary of the Treasury to make a speech. 8: Uh huh. It's an awfully good group to make one to. HMJr: I know it 18. S: Yeah. HMJr: It's a fine group. S: And we've done something to - of course, that program has got very wide distribution, and even the preliminary program. Well, it's a kind of a dilemma, isn't it? HMJr: It 18, and as I say, I want to - and I'm trying to look at it in an abstract manner, what can I do, and I really feel I'd be a complete flop up there. Because the boys here, we've got some bright boys around here and. S: Yes, you have. HMJr: they've tried earnestly - I mean, I've talked with Jack Viner and I've talked with other people and - who are all interested in your work - I mean, this public administration; and the suggestions that Emmerich gave me were not so good. S: Yeah. HMJr: Herbert Emmerich didn't - I mean, what he came through with wasn't any good. S: Yeah. Well, I may be wrong. I thought that you could put together - here's a puzzling situation with priorities, scarcities, and civilian supply HMJr: Oh, I could S: prices soaring HMJr: make a speech, but that's what I hope to give the President and you. S: Uh huh. Regraded Unclassified 154 - 5 - HMJr: The stuff that - I've got the speech, but I'm going to hand it to the President and you. S: Uh huh. HMJr: I mean, we're going to give you everything that we've got here in the Treasury. S: I wondered - well, I'm - I think that you ought - won't you just think a little more about this before you HMJr: Sure. S: before you make up your mind. HMJr: Sure. S: I appreciate the - I don't think I did when we came over there to talk to you about this, and you very graciously accepted. I think probably neither Luther Gulick nor I quite realized at the time that this might possibly conflict with the Budget message. HMJr: Well, I know I didn't think about it. I just thought between Christmas and New Years - it isn't as though I'm going anywhere or got anything else to do. S: Yeah. HMJr: But it's - other than to go to bed..... S: Yeah. Well, both you and I are very much rushed; and I don't know, maybe some of your boys haven't been a.8 ingenius this time as they usually are. HMJr: No, they've tried awfully hard. I've had them in here about three timee on this today. S: I see. HMJr: We've talked about it the first thing in the morning. I talked about it at the house last night, and we've been talking about it for a week. Regraded Unclassified 155 - 6 - S: Yeah. HMJr: And the more I get into this message for the President, every good idea I've got I'm giving to that. S: Yeah. HMJr: For whatever it's worth. S: Yeah. HMJr: But supposing S: You don't think there's anything on the administrative side - now, take your Fund Control isn't understood very well HMJr: Well, that's S: by people over the country, and HMJr: Well, I may 5: the general Treasury effort. HMJr: I may wake up and find I've lost it between now and Sunday. (Laughs) S: (Laughs) HMJr: Although I hope not. I tell you, I'll tell the boys to think about it once more and make an honest effort; and then I'll call you up around noon tomorrow. S: Yeah, fine. If I can be helpful - if you want me to talk to any of them - I'll be glad to do it. If - of course, I feel this way, that we did bank on you being a feature of that program and you're the only person on it, and there were some other plans to get some other people and we pushed them out of the picture, 80 you'd have that whole evening to yourself HMJr: Uh huh. S: and - but on the other hand, I will say to Regraded Unclassified 156 - 7 - you that if after you size this up and you feel that you shouldn't do it, why I think we can pull the thing out without very much repercussions. HMJr: And there mustn't be any feeling on it. S: Yeah. HMJr: There won't be any feeling on your part. S: Oh, absolutely not. Oh, no I'm just as sensitive to your position almost, I suppose, as you are. HMJr: Well, I..... S: I can see the difficulty of getting around it. I'm just a little - because it 18 a joint meeting - it was one of the few joint meetings planned, you Bee..... HMJr: Uh huh. S: and you were the king pin of the plan, and a little from the standpoint of both the Political Science Association and the other group to see it dropped. HMJr: Yeah. S: But we are at war, and if it comes to that, why we'll just have to try to do it, that's all. HMJr: Well, I appreciate your spirit - - nobody could be friendlier - and we'll make one more honest effort. I'll give you a ring around noon. S: Yeah, all right. HMJr: Ever so much obliged. S: Thank you. TO: The Secretary 457 The recommendations of the Treasury group (Morris, Hass, Murply Mill) were made before we saw The Budget Messagr. Since seing This message it becomes more imperative That something like this be done. Dear Office of the Under Secretary 0 12/22 158 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE De. Secretary Morgenthau TO Mesers. Bell, Morris and Haas FROM subject: Government Bond Market Policy The Executive Committee of the Federal Reserve Open Barcet Committee called on us on Thursday to discuss the proper handling of the Government bond market during the war. The Committee 1s badly divided among themselves. They Are agreed that we ought to establish EL "pattern of retes", and that the rate for future long-term borrowing should be 2-1/2 percent. They differ sharply, however, BE to the maturity range in which it would be appropriate to Dorrow new 2-1/2 percent money. Three members of the Committee, Messre. Ecoles, Sproul, and Leach, believe that new borrowing should not be longer then the 1955-60 maturity range, and that the outstanding 2-1/2's of 1967-72 should be allowed to fall to a discount. Retimates of how much of a discount this would represent differ. Mr. Sproul suggested a price of 98. Chairman Scoles suggested 8. price of 97. Our studies indicate that the appropriate price might be RB low as 95. The other two members of the Committee, Messrs. Ransom end McKee, differ sharply from this view. They believe that it 18 extremely important psychologically that the 2-1/2's of 1967-72 should be maintained at par, and believe that the pattern of rates should be framed with this objective In view. Mr. McKee urged that this would increase the saturity of new long-term borrowing by only about 5 years and that this was very unimportant compared with the psycho- logical advantages of maintaining the outstanding 2-1/2's M par. The Eccles-Sproul group are also very desirous of in- creasing short rates. Mr. Sproul suggested that the "pattern of I'stes" should run from 0.50 to 0.75 percent on 90-day bills to 2-1/2 percent on 1955-60 bonds. Mr. McKee seid that such a pattern would not give us room "to turn around". Regraded Unclassified 159 Secretary Morgenthau - 2 Mr. Williams, who was present, agreed with the Ecoles- Sproul group. We are informed that Mr. Goldenweiser, who WAB not present, agrees with the Ransom-McKee group. After a disoussion of nearly three hours, it was con- cluded that the group had better not see you until it could reconcile its own differences. Chairman Eccles stated, how- ever, that the Federal Reserve System would go along with any program you requested. It was agreed that Federal would support the 2-1/2's of 1967-72 at par, if necessary, until a more permanent program could be agreed upon. We believe that it is feasible for the Government to set the rate at which it will issue long bonds for the duration of the war. We do not believe that it 1s feasible, however, to set an entire "pattern of rates". We are par- ticularly skeptical of any pattern such a.B that suggested by Mr. Sproul, beginning as high as 0.50 to 0.75 percent for 90-day bills and extending only to 1955-60 for 2-1/2 per- cent bonds. It will probably be necessary to maintain a much wider spread between long and short ratee if the long rate is to be held at 2-1/2 percent. In any event, we be- lieve that short rates should be allowed to find the level appropriate to & 2-1/2 percent long rate rather than be fitted into any arbitrary "pattern". We recommend: (1) That the Treasury and the Federal Reserve System definitely indicate to the market that the Government does not intend to pay a long rate in excess of 2-1/2 percent for the duration of the war. It would be helpful in this connection if a statement to this effect could be included in the President's budget meseage. (2) That the 2-1/2's of 1967-72 and all future issues of long-term Government securities be maintained indefinitely at par, and that the maturities of new securities be deter- mined with this in view. Regraded Unclassified 160 Secretary Morgenthau - 3 (3) That reliance should be had 80 far as possible upon orthodox and conventional modes of financing, but that the market should be given to understand that the objective of a 2-1/2 percent rate will be upheld, if necessary, by stronger and less orthodox procedures. We recognize that it is possible that future events may make it necessary to change the rate and "back down" from the original statement. This danger is always in- volved in any announcement of long-term policy. We be- lieve, however, that the 2-1/2 percent rate can be maintained, that it 18 important that it be maintained, and that the chances of maintaining it will be greatly enhanced if a firm declaration to that effect 1s made at this time. Regraded Unclassified Date January 12, 19 42 To: Miss Chauncey From: Mrs. Shanahan Before he left, Mr. White asked me to return this for your files. Mr. White took the matter up with the Secretary prior to the December 26th meeting, referred to in the letter. yets if BOARD OF ECONOMIC WARFARE 162 DEFENSE COARD WASHINGTON, D.C. INFICE OF THE CHAIRMAN December 22, 1941. Dear Henry: A meeting of the Board of Economic Warfare will be held on Friday, December 26, 1941, at 10:30 a.m. in my office in the Capitol Bullding. The meeting is called primarily to estiefy the urgent need for A declaration of policy on economic matters relating to Latin America in anticipation of the forthcoming meeting of the Foreign Ministers of the American Republics to be held in Rio de Janeiro, Specifically, there will be presented for the Board's consideration an extremely important resolution, 6 copy of which is enclosed, with respect to the satisfection of the essential requirements of the other American Republics. The Supply, Priorities and Allocations Board and the Office of Production Management have been affording priority assistance, and in the case of one commodity, tin plate, have granted an allocation to the other American Republics. Both Mr. Donald Nelson, the Executive Director of the Supply, Priorities and Allocations Board, and the Office of Production Management have now indicated that further effective assistance may appropriately be granted only after a declaration of policy by the Board of Economic War- fare. Such e. declaration of policy has been incorporated in the proposed resolution, I cannot emphasize too strongly the importance of this resolution to the basic structure of our Hemisphere defense, Many of the other Republics have already joined us as allies and we are anxious to maintain the friendly support of all of the Republics. Such support will depend in large measure upon a political stability which, in turn, is dependent upon 8. substan= tial measure of economic stability. This Government has secured some and 18 in the process of negotiating for other strategic military bases in the other American Republics. With the danger to our source of supply in Regraded Unclassified 163 - 2 - the Far East, we become more than ever dependent upon Latin America for supplies of strategic and critical materials. We are now securing the support of the other American Republics against Axis influence in their principal industries, their banks, and their system of communication. All of our objectives, both military and economic, and particularly our program for maximizing their production of strategic and critical materials, will be jeopardized if we fail to supply our neighbors with the bare essentials necessary to support their simple economies. Less than 3% of our normal productive capacity 1s needed to accomplish these vital defense objectives. I also enclose herewith a copy of the report prepared by the Board of Economic Warfare in support of the tin plate allocation recently granted by SPAB. The report demonstrates the great care, through cooperation with all interested Govern- ment agencies, that is being exercised to insure thorough examin- ation of Latin American requirements. Sincerely yours, Haw allace H. A. Wallace Chairman The Honorable, The Secretary of the Treasury, Washington, D. C. Enclosures Regraded Unclassified 164 Proposed Resolution by the Board of Economic Warfare with Respect to the Satisfaction of the Essential Requirements of the other American Republics WHEREAS, the President, in his letter of April 5, 1941, to Mr. Knudsen and Mr. Hillman, declared that: "In the interest of Hemisphere defense, therefore, it now appears desirable to give the vital requirements of these (other American) Republics such priority as may be necessary to maintain their industrial and economic stability, provided that there should be no prejudice to the national defense program of this country." and WHEREAS, the Subcommittee of the Committee on Appropria- tions of the House of Representatives in reporting on its trip to South and Central America in the late summer and early fall of 1941 has declared that "The committee is definitely of the opinion that South and Central America are not being given the proper priorities consideration that they should be extended in terms of the needs of our national and hemispheric defense The feeling of the committee, therefore, is that an intensive study should be made of the needs of each country for our raw materials and manufactured goods and that we accommodate our neighbors in every way possible up to the point where such accommodation would definitely deprive ourselves of absolutely essential national-defense commodities." Regraded Unclassified 165 - 2 - and WHEREAS, the Board of Economic Warfare has worked out a procedure in collaboration with the Supply, Priorities and Allocations Board pursuant to which authoritative analyses of minimum essential Latin American requirements have been and are being made in cooperation with all of the interested agencies of this Government, and WHEREAS, the new danger to our sources of supply in the Far East renders it more than ever imperative that the economic stability of the other American Republics be maintained 80 as to enable them to continue and increase their production of strategic and critical materials, and WHEREAS, nine of the other American Republics have declared war against all of the Axis powers, two have broken off diplomatic relations with all Axis powers, six have stated that they do not regard the United States as a belligerent, three have officially declared that they will pursue a policy of solidarity with the United States in accordance with Inter-American agreements, and several of them are making available strategic bases for the military defense of the Hemisphere, and WHEREAS, all of the American Republics have adopted some form of economic control in support of Hemisphere defense, including control over the export of strategic materials, freezing of funds of Axis nationals, the seizure and utilization of immobilized Axis ships, and the elimination of Axis influence from airlines and other vital communications and industrial systems, and WHEREAS, the economies of the other Republics can in fact be kept stable by providing them with an extremely small part, less than 3%, of our normal productive capacity, and Regraded Unclassified 166 - 3 - WHEREAS, the economies of the other Republics are extremely sensitive, based frequently upon a single commodity or industry, and lack the capacity for developing substitutes or changing methods of production, and have no defense contracts to absorb the shock of dislocation in industry, it is hereby resolved that 1. It is the policy of the Government of the United States to aid in maintaining the economic stability of the other American Republics by recognising and providing for their essential civilian needs on the basis of equal and proportionate consideration with our own. 2. The requirements of essential industries and services in the other Republics for repair, maintenance and operating supplies shall be given equal consideration with our own in relation to their comparable importance. 3. The Department of State, through its repre- sentative at the Conference of Foreign Ministers to be held in Rio de Janeiro during January, 1942, be, and it hereby 1s, authorized to announce the foregoing statement of policy on behalf of this Government. Regraded Unclassified copy no. 98 167 SECRET November 12, 1941 Insid L Valeon, Precutive Director, fundy Priorities and Allocation Board 2. : Putterwarih, Stairms Policy Committee little of befort Control, Toonomic Defense Board Allocations to non-ag(Teasor countries Unitate requirements of non aggressor countries for the or 1942, which the U.S. will be called upon 16 supply have exted 11 follows by the Inter-Departmental Requiremente Committee, Region (000 Metric Tone) Latin American Republics 218.6 British Empire (except Danada) 239.0 Conda 45.0 British Account 33.0 AIL 18.0 Shina 10.0 Twibsrlands (Zast) Indies 42.6 Pullippine Commonwealth 30.0 Other Areas and Special Reserves Addust Contingencies 20.0 Total 776.2 - that a. definite allocation for the first quarter be Anway mail that tentative allocations be made for the next three 4_10 scorriance with the quarterly requirements " shown in the CANEWA Regraded Unclassified 168 -2- EXPORT REQUIREMENTS BY QUARTERS (in Thousands of Metric Tons) Country or Region Proposed Allocation for: Calendar First Second Third Fourth Year Quarter Quarter Quarter Quarter British Pupire (except Canada) 339.0 84.7 84.8 84.8 84.7 Canada 45.0 6.8 13.5 18.0 6.7 Portugal, British Account 33.0 13.2 6.8 5.0 8.2 U.S.S.R. 48.0 12.0 12.0 12.0 12.0 China 10.0 2.5 2.5 2.5 2.5 Netherlands East Indies 42.6 8,5 12.8 12.8 8.5 Philippine Commonwealth 20.0 5.0 5.0 5.0 5.0 Latio imprican Republics 218.6 51.2 49.2 46.3 71.9 Argentina (77.5) (11.6) (19.4) (19.4) (27.1) Brazil (64.5) (22.6) (12.9) (9.7) (19.3) Chile (12.0) (3.6) (1.8) (1.8) (4.8) Cube (13.5) (2.3) (3.2) (2.7) (5.4) Next 00 (15.0) (3.0) (3.0) (3.8) (5.2) Oraguay (17.0) (3.4) (5.1) (5.2) (3,4) Other Latin America (19.1) (4.8) (3.8) (3.8) (6.7) Other leas and Contingency Retires 20.0 5.0 5.0 5.0 5.0 ECTAL 776.2 188.9 191.4 191.4 204.5 Regraded Unclassified 169 SECRET ECONOMIC DEFENSE BOARD November 1. 1941 MEMORANDUM To The Policy Committee of Office of Export Control Treas Inter-Departmental Requirements Committee Subject Tin plate Export Requirements to the World during the next Twelve Months SUMMARY It Is estimated that the United States will have to export 776,200 matric toas of tin plate to the world during the next twelve months. These exports will be divided AS follows: Region (000 Metric Tons) Latin American Republics 218.6 British Empire (except Canada) 339.0 Canada 45,0 Portugal, British Account 33.0 U.S.S.R. 48.0 China 10.0 Netherlands (East) Indies 42.6 Philippine Commonwealth 20.0 Other Areas and Special Reserves against Contingencies 20.0 TOTAL 776.2 The astimates of British Empire, Canadian, Portuguese, Soviet, Things and Netherlands East Indies requirements are those furnished by the official agencies of those countries or alse they represent commit- cente already undertaken by the United States, They are reported with- vas critical comment by your committee. The Comittee, however, did not include the British Estimate of 110,000 long tons of tin plate to South America for the English meat PAdic OR the d'ounds that & careful check revealed that the real require- Noat for tin plate on this account would not exceed 58,200 tons, even allowing for a possible 15% shift from frosen to canned meats. This Esther 1. discussed fully later in the report. The astimate for the Philippine Commonwealth is AB interpolation et toos statistics. Regraded Unclassified The requirements of certain minor and scattered areas, such all 170 Free French Africa, Belgian Congo, Netherlands West Indies, Greenland and Iceland could not be ascertained in view of the lack of available data. A figure of 20,000 metric tone was assigned to cover the needs of these regions and in addition to serve AS a general export pool to be used to increase shipments to certain countries if changing conditions or fuller information compel upward revision of the estimate of needs. The estimates of tin-plate requirements for the Latin American Republics represent what is believed to be & careful sumary and analysis of the available data. Latin American requirements are estimated at 218,600 metric tons. More than one-fourth of this amount is essential for the shipment of meat and other necessary feed products to the United Kingdom and the United States for defense purposes. Any effort to pare down the quantities allocated to Latin America would, it is believed, result in wide-spread unemployment in the Latin American canning industry. Tin-plate inventories are practically exhausted in most of the Latim imerican Republics. Cammeries producing foodstuffs essential to the health of the population have already closed down because of lack of raw materials in Chile and in Mexico. Poor refrigeration, inadequate transportation facilities and regional specialization in mining or in monoculture noo- essitate the use of canned food products lest large groups in the Latin American Republics be deprived of protective foods. In Chile, for example, the failure to provide timely supplies of tin plate for caming the fruit and vegetable crops would not only wipe out a source of revenue for an important segment of the population but would endanger the food supply of the miners of the northern desert for the full year and of the whole country for the vinter. In arriving at these estimates, IN have assumed that immediate nb- stitution of alternate packaging materials can be affected in certain Regraded Unclassified 171 + types of tin plate use. This implies that the necessary materials and machinery will be made available by the United States. The estimate to below 1940 Latin American imports which amounted to 233,000 metric tone. This, despite the presence of significant factors increasing Latin American requirements. The first of these factors is the increase in British and United States imports of meat and other timed foods The second factor 10 the elimination of European exports of edible oils chemicals, etc., which were shipped to Latin America in cans and no* met be replaced by increased production and packaging of these products in Latin America In the third place, the disruption of normal Latin inerican trade with the world has tended to increase unemployment, saking it doubly desirable that & curtailment of employment in the canning and mist packing industries be avoided. Latin American requirements, as herein estimated, would constitute only 5% of United States tin-plate production in 1941. Deducting the emounts required by United States and British defense orders, Latin American needs are less than 4% Approximately two-thirds of Latin American tin-plate requirements 678 for Argentina and Brasil. The breakdown of import neede by countries is presented below. TABLE I Estimate Tin-plate Import Requirements of the Latin American Republics (In metric tons) Country Estimated Requirements Argentina 77,500 Bolivia 600 Brasil 64,500 Chile 12,000 Colombia 4,500 Costa Rica 35 Cruba 13,500 Dominican Republic 200 Tonador 700 XI Salvador 30 Guatemala 1,500 Units 50 Regraded Unclassified + 172 Sountry Estimated Requirements Honduras 0 Mexico 10,000 Ticaragua 75 Panama 500 Paraguay 1,900 Peru 5,000 Uraguay 17,000 Veneruela 4,000 TOTAL 218,600 Date above requirements will be needed in proportionately larger volues fortage the next three months than in the succeeding three quarters, at W below shows. KIFORE EXCUIREMENTS BY QUARTERS (in Thousands of Metric Tons) 12 Proposed Allocation for Calendar First Second Third Fourth Year Quarter Quarter Spate Quarter Britten Patire (except Canada) 339.0 84.7 84.8 M.B 94.7 - 45.0 6.B 13.5 18.0 6.7 - 3:1t1sh Account 33.0 17.2 6.6 5.0 8.2 411 U.O 21.0 12.0 12.0 12.0 Rive 10.0 2.8 2,5 2.5 2,5 Test Indies 43.6 8.5 12.8 12.8 8,5 Minder Commonwealth 20.0 5.0 5.0 5,0 5.0 atta invidem Republics 218,6 51,2 49.2 46.3 71.9 (77.5) (11.6) (19.4) (19.4) (27.1) Tradill (64.5) (22.5) (12.9) (9.7) (19.3) COLLE (12.0) (3.6) (1.8) (1.8) (4.8) 5 (13.5) (2.2) (3.2) (2.7) (5.4) (15.0) (3.0) (3.0) (3.8) (5.2) mean (17.0) (3.4) (5.1) (5.1) (3.4) 100 Tatin invrice (19.1) (4.8) (3.8) (3.8) (6.7) The lows int Contingency 111m 20.0 5.0 5.0 5.0 5.0 = 776.3 188.9 191.4 102.4 204.5 THE conficients were worked out from U.S. export statistics AUTO SEA constries concerned or from their imports from the world where 20 scasonal factor could be applied to the British requirement Yes use 000 tona the to the fact that the destination of this item is - bill to your committee. The proportionately greater Latin American Invistments during the last quarter are due to the aeasonal character of the emailer and Ohilean packs and the approach of the Fugar grinding Name - Doba Regraded Unclassified JUSTIFICATION FOR ESTIMATES 07 FOREIGN REQUIREMENTS or TIN PLATE 173 The estimates proceed from the assumption that it is of paramount importance to permit a sufficiently large flow of tin plate to Latin America to allow adequate exports of tinned foods to Britain and the United States. It is further assumed that It is desirable to permit continued production of preserved foods for domestic Latin American consumption lest serious unemployment result and living standards deteriorate. The estimates allow for substitution of glass, paper and cardboard containers for tin plate to an extent deemed practicable in terms of present knowledge of conditions in the container and canning industries of Latin America. It is not, however, assumed that substitution should be pushed to such an extent in Latin America as to become inconsistent with the State Department's proolaimed policy of equality of treatment as between Latin American and United States civilian consumers, It is also recognized that the backward industrial development of Latin America makes wholesale and rapid substitution and rationalisation peculiarly difficult, that all changeovers in industrial techniques involve a. time lag, and that wholesale substitution would involve additional Latin American imports of machinery, cellulose and other materials which this country might find difficulty in sparing. The estimates cover all import requirements on the assumption that the United Kingdom will not be in a position to deliver any tin plate to Latin America. To the extent that British shipments occur the satimates of the amounts which the United States should supply will be reduced. An explanation of the various estimates made is contained in the body of this report. The information available is of . very heterogeneous character, Unfortunately, few of the consular reports on Latir American Regraded Unclassified - 2 - 174 requirements over tin-plate demand. The main sources considered in preparation of this report were: Ao Consular despatches on import requirements B. Estimates of Latin American Governments C ₂ Estimates of United States stool concerns Dc Estimates of the Department of Commerce E. The import and export record F. The available Latin American periodical literature dealing with business conditions G Consular despatches on the supply situation in Latin America H. The files of the Commercial Intelligence Division of the Department of Commaros ID Special studies such as the Argentine Central Bank report and the survey of the Latin American glass container industry The estimates of Latin American requirements compare with the following statistical record of imports: TABLE I Latin American tin-plate imports (1937-1940) and estimated import requirements for the 12 months ending November 1, 1942 (in thousands of metrio tons) Estimated Country or 1937-39 1939 1940 require- Area Imports Imports Imports ments Argentina 67 ₫ 68.6 90.6 77.5 Solivie 0.3 0.4 101 0.6 Brasil 47.9 50.3 64.6 84.5 Chile 704 9.0 11.3 12,0 Colombia 4.0 5.5 4.7 4.5 Cubs. 11.2 12.7 10.1 13.5 e Central American Republics 2.0 1.7 1.5 2.1 Dominican Espublic now.so n.s.s. n.s.s. 0.2 Boundor 0.7 0.8 0.8 0.7 Haiti DO n.s.s. n.s.s. .0 Moxico 14.6 17.0 16.7 15.0 Paraguay 1.3 1,6 3.7 1,9 Peru 5.7 5.5 6.5 5.0 Uruguay 8.5 10.7 18.5 17.0 Venezuela note 1.8 a)2.5 4.0 TOTAL 171.0 185.6 232.6 218.6 s) Estimated n.a. Not available D.S.S. Not shown separately Regraded Unclassified - 3 - 175 The difference between a tin-plate allowance which would mintain the Latin American food=packaging industry in operation and one which would occasion serious hardship throughout the 20 neighbor republice is of the magnitude of 50,000 metric tons, Retimated total United States production of tin plate in 1941 is approximately 4,200.000 tons. Equitable treatment of Latin America in this respect would involve at most a 1 1/2 - 2% change in the amount of tin plate made available to domestic consumers, The reminder of this report contains, 1. An extimate of the tin plrte required to ship canned most to Britain and the United States 2. Country by country estimates of tin-plate requirements with explanation of the economic factors involved, wherever possible A. The British and United States Meat Pack Data on the magnitude of British and United States meat purchases from Latin America during the next 12 months was obtained on October 27 from Mr. Fitsgerald of the United States Department of Agriculture, The material concerning British projected purchases was secured by Mr. Pitzgerald from the British purchasing officials concerned. The United Kingdom will take from 221,500 to 271,500 mstric tone of canned mest from Latin America during the next 12 months. The emount purchased, within this range. will depend on the mest supplies available. Britain has made a flat commitment to take 500,000 metrio tous of frosen and chilled met from Argentina. Bor purchases of canned met will represent the residual after frozen and chilled imports have been made. It is believed by the Department of Agriculture that sotual British purchases will probably represent an arithmetic average of the two figures, or 246,500 metrio tone. Should Britain succeed in obtaining more, there will conceivably be an equivalent decrease in the quantities of canned seat obtained by the United States, United States projected purchases amount to 40,000 motrio tons. On the assumption that Britain obtain the maximum amount estimated and that the United States will also obtain the quantities desired, the total for the Anglo-United States meat pack will be 311,500 metrio tons, Regraded Unclassified The ratio of Argentine container weights to weight of met content, as determined from three samples tested for - by the United States 176 Department of Agriculture, was 12 ounce cans 21% 1 1/2 lb. - 18% 6 . 13% While 20% is the figure used by the United States Embassy in Rio in estimating tin-plate requirements, 18% seems to be a better figure in view of the British efforts to increase average container size. On the basis of this ratio, Latin American tin-plate requirements for the British and United States meat pack would amount to 56,100 matrio tons. This does not allow for any further shift from frosen to canned meat imports by the United Kingdom. TABLE 2 Tin Plate Requirements For the British and United States Meat Pack From Latin America (in thousands of metrio tons) Tin Plate Projected British U.S. Projected Purchases: Total Equivalent Country Purchases Army - Havy Industrial Mest At 18% Argentina 135 -165 10 15 (1) 190.0 34.2 brazil 52.5- 72.5 10 (1) 82g5 14.9 Uruguay 28.7 2.5(1) 31.2 5.6 Paraguay 5.3 2.5(1) 768 1.4 Total 221.5-271.5 10.0 30.0 311.5 5601 (1) The breakdown of this item among the four countries concerned is that of Mr. Fitsgerald Information was received from Mr. Fitsgerald to the effect that the United Kingdom will take from Latin America during the next twelve months 10,000 tons of tomato extract, of which 9,000 tons will be obtained from Argentina and 1,000 tons from Brasil. This will involve an additional tin-plate requirement of approximately 1,600 tons for Argentina and 180 tons for Brazil. In addition, unspecified, but presumably small, quantities of fate, oils, dairy products and fish are being exported from Argentina to England, Regraded Unclassified - 5 - 177 Adding the tomato extract Item to the met figure and allowing as additional 15% for other timed products and contingemeies(a) the total British and United Stutes tin-plate requirements from Latin America during the next twolve months should be as follows, TABLE 5 Estimated Tin Plate Requirements On Account or British Food and United States Neat Imports From Latin America (in thousands of mtric tons) Estimated Estimated United States Country British Requirements Requirements Total Argentina 38,200 4,500 40,700 Brasil 18,000 1,800 16,800 Druguay 5,900 450 6,350 Paraguay 1,100 450 1,550 Total 58,200 7,200 65,400 The estimate of tin-plate requirements for the British pack is generous in view of the fact that the capacity of the South American camaries is limited in the opinion of Mr. Hutton of the British Food Mission. The above figures represent an outside estimate of the quantities which the four Latin American countries concerned might be able to supply. It will be noted that the above estimate of 58,200 metrio tons for total British requirements is utterly inconsistent with the arrangements already made by the British Government for direct purchase of 110,000 tons of tin plate for the South American pack... When quaried about this latter estimate, Mr. Malcoln of the British Purchasing Commission states that 100,000 tons represented the London estimate of requirements while the remining 10,000 tons could be considered as a reserve against contingencies. He also states on the telephone that these quantities of tin plate were solely for the British pack. This fifty percent discrepancy between the two estimates is so great that Mr. Hutton has wired London for & full explanation. Within the course of the next few days more precise information may lead to some revision in the above extimates. a) This allowance is mde on the assumption that the shipping situation my deteriorate 80 markedly as to compel the maximum possible substi- tutions of canned mat exports for frozen meet exports Regraded Unclassified - 6 - 178 The British are purchasing their tin plate from United States concerns and arranging for top priorities on this tin plate through OPM. They presented an itemized statement of orders covering the final quarter of this year and the first quarter of 1942. This statement shows that a total of 24,100 long tons are to be sent to South American frigorificos during this quarter and that 14,650 long tons are earmarked for the first quarter of 1942. This last figure will probably be increased somewhat in the coming months, However, in view of the seasonal character of packing operations in the Platins area the allocation of 24,100 long tons in the present quarter appears inconsistent with any program of utilizing B.O. much as 100,000 tons on the British pack. The breakdown of British tin-plate orders by frigorificos and by countries is shown in the table below. The country breabiown is available for the first quarter of 1942 only. TABLE 4 British Orders For Tin Plate From South American Frigorificos (in long tona) Fourth Quarter First Quarter Frigorifico 1941 1942* CAP 1,469 1,469 Smithfield 960 - Swift 6,400 5,049 Frig- Nao. 1,000 463 Liebi, 'a 2,000 2,000 Cin, Sausinena 890 960 Union Cold Storage 5,970 2,980 Armour & Co. 4,350 - Sowril 600 3 Wilson & Co. 1,740 1,740 Intn'l. Products Corp. 600 - MoCall 32 - TOTAL 24,101 14,651 First quarter of 1942 breakdown Argentina 6,878 Brasil 5,420 Uruguay 1,353 Paraguay 1,000 TOTAL 14,661 long tens . Larger quantities of tin plate will probably be taken in the first quarter of 1942 by Union Cold Storage, and additional orders will probably be placed for Armour, Bovril and McCall. For the last quarter of 1941, no breakdown by countries is available Regraded Unclassified 179 The Argentine Central Bank sent the Department of State in September 1941, a detailed list of tin-plate requirements for the ten months ending June 30, 1942. This list distributed the tin plate by uses and by consum- ing plants. Argentina requested 45,750 long tons of tin plate for the meat packers, or at an annual rate of 54,900 tons as compared with 1940 consumption. of 27,200 tons. The text of the report states that this vastly increased amount of tin plate was necessary because the packing houses "have stated that they foresee an increase in the export of canned meats to the United Kingdom to replace part of the frozen meat which would cease to be shipped because of the difficulty in obtaining the necessary refrigerated cargo space. Furthermore, they think that sales of canned mest to the United States will show an appreciable increase insumuch as Argentine packing housee are participating to an ever growing extent in tenders for the supply of meat to the United States Aray." This statement is inconsistent with the course of British-Argentine negotiations on canned meat. The British Ministry of Foods informs me that they originally requested the Argentine packing houses to furnish them with 250,000 tons of canned neat and that as recently as six weeks ago the Argentine Government informed the British that only 50,000 tons would be made available during the coming year. Actually, the British believe that they will get a maximum of 165,000 tons from Argentine It thus appears that the Argentine Government is presenting an *xaggerated request for tin plate from the United States on the plea that it intends to supply huge quantities of tinned most to Britain, while on the other hand it is negotiating with the British on the basis of a mere 50,000 tons of canned mest exports--involving only 9,000 tons of tin plate requirement-in order to compel the British to raise prices. Moreover the Argentine assorandum admits that "some packing houses have put down figures in ****** of their real import requirements for certain Regraded Unclassified types of tin plato (thick, for six-pound cans). foresseing that the 180 British Government may give preference in its purchases to six-pound cane of meat instead of the 12-ounce cane which it was accustamed to buy," It is hardly nacessary to observe that a. shift from 12-ounos to six-pound cans reduces total tin-plate requirements. ARGENTINA The estimate of Argentine tin-plate import requirements is 77,500 mstrio tons, This compares with the following statistical record, Item Thousands of metric tons 1937-39 imports from the world 68,5 1939 imports from the world 68.6 1940 imports from the world 90.6 Argentine Central Bank substitution study 90.0 Argentine Central Bank requirements memo 127.2 The first Argentine Central Bank estimate, prepared on August 60 1941, for the Argentine Finance Minister was drawn up to serve as a guide to the Government in meeting an existing import stringency, and not as & brief to obtain generous treatment from the United States. The memorandum deducts certain amounts from calculated Argentine requirements on the theory that extensive substitution of other containers and rationalization in tin plate use was possible. The second Argentire Central Bank memorandum is a composite of estimated requirements presented by firms in the tin plate consuming industries. It can be assumed that the companies approached exaggerated their re- quirements in the hope of accumulating tin-plate inventories for the lean years ahead and in the expectation that only a portion of what they requested would be granted. Method of Estimation Estimated Argentins tin-plate requirements on account of food exporte to Great Britain and meat exports to the United States were placed at 40,700 mstrio tons, Adding to this figure the amount necessary to oover Argentine Regraded Unclassified seet exports to other countries and tin-plate matage in container mm- facture, the overall tin plate figure for met exports to the world is 181 41,500 tons. The normal requirement of tin plate for the packaging of those products domestically consumed and of export products not specified above was esti- rated at 45,000 tons, or the figure in the first memorandum of the Argentine Central Bank.* This memorandum stated that paper, cardboard, cellophane and glass containere could eliminate 14,000 tons of tin plate immodiately, if all such substitute container producing facilities were fully utilized imediately, and 21,500 tons of tin plate if production capacity were expanded. The second memorandum of the Central Bank, however, stated that the following difficulties had been encountered in attempting to resort to wholesale substitution, (a) Glass container production capacity had been over- estimated in view of the faot that a. large proportion of the glass containers made proved to be non-recoverable, (b) Glass packaging of edible oils proved impractical due to the impossibility of washing the bottles thoroughly with the washing machinery Argentina at present possesses. (a) Jane and biscuits, when packaged in paper, card- board, cellophane and pliofilm containers, were spoiled in some cases by moisture. (d) To increase paper-container capacity to the required extent, it would be mecessary to expand cellulose imports from the United States, while the substitution of pliofilm and cello- phane containers is limited by the fact that these materials must he imported from the United States in their entirety. It is impossible to evaluate this conflicting evidence without an impartial survey by disinterested specialists in Argentina who would have full to the material collected by the Central Bank A decision was made to place possible substitution at 11,500 metrio tone -- & figure which seems not inconsistent with the second Central Bank report. This is eighty percent of the estimate of immediately practicable substitution contained in the first Central Bank memorandum. . The second memorandum suggests that Argentine requirements will be considerably higher due to excellent harvests this year. Regraded Unclassified This yolded - figure of 33,500 metrio tone for packaging of products domestionlly consumed plus those exports not covered in the first estimated 182 In addition, Argentina normally uses ROMO 6,700 metrio tone of tin plate, for advertising displays, tinfoil for cigarettes, toilet preparations, kitchen utensile, etc. This amount we reduced to 2,500 metrio tons, as against a Central Bank estimate of requirements of 6,800 tons. This yielded a total estimate of Argentime requirements of 77,500 matrio tons. The above estimate covers total Argentine import requirements. British officials have recently stated that no tin plate of English origin is now being shipped or is intended for shipment to South America due to the diversion of British tin mills and tin mill workers to direct munitions production. A recent consular despatch stated that Argentina imported 12,200 metrio tons of tin plate from the world in August 1941, of which 7,500 came from the United Kingdom and 4,700 from the United States. It should be ascertained whether the figure for British exports represents tin plate purchased from the United States and exported from U.S. ports or actual British shipments. BRAZIL The estimate of Brasilian tin-plate import requirements is 64,500 metrio tons. This compares with the following statistical record: Item Thousands of metric tons 1938 imports from the world 43.7 1939 imports from the world 50,3 1940 imports from the world 64.6 1941 (estimated) imports from the world 66.0 Brasilian Government requirements estimate 70.0 Method of Estimation The method of estimation was to take M & starting point the Brasilian Government's view of normal import needs which is simply a projection of the normal growth trend in tin-plate utilisation. To this figure of 70,000 metric tone was added 8,500 tons representing the additional tin plate needs Regraded Unclassified on account of increased United States and United Kingion canned meat imports. On the basis of the method of analysis contained in the Argentine Central Bank 183 report on tin-plate substitution, as applied to Brasilian conditions, 10 - M- rased that 20% of this normal demand could, without inconvenience, be eliminated through use of other packaging materials. This yielded the above estimate. The United States Department of Agriculture calculations show that Brasil will export 82,500 metric tons of canned meal to the United Kingdom and the United States in the next twelve months. Allowing for a tin plate-ment tonnage ratio of 18%, and increasing this figure 15% for sontingencies, this represents A requirement for 16,800 tons of tin plate. However, Brasil sold the United States and the United Kingdom 45,000 tons of canned mest in 1940. The additional demand for tin plate on account of the increased United States-United Kingdom nest pack is therefore 8,500 metric tons. Brasilian Exports of Canned Meat (in thousands of metric tone) Item 1938 1939 1940 1941* Total exports 24.4 38.2 47.9 64.6 to U.S.A. 12.8 22.0 8.4 10.0 to U.I. 2.0 11.9 36.6 54.6 a Estimated January-June figures multiplied by two Degree of Pos ible Substitution The extent to which substitute materials can be used in lieu of tin-plate containers depends mainly on the following factors: (a) type of products pack- aged: (b) average distance of hmal, period elapsing between production and sale; (o) nature of transportation and handling; and finally (d) extent to which industries making substitute containers (glass, paper, cardboard, plantics, sts.) can take care of additional demand. In the case of Brazil, information available on these three points is net sufficient for a definitive judgmont. About 48% of Brasilian canned food products are represented by sweets, candies and chocolates-a category which presenably includes candied jullies and fruit and vegetables preserves. According to Brasil. 1939-40. an official government statistical annual, the cauning industry has grown as Regraded Unclassified - 19 - 184 follows: THE APASILIAN CANNING INDUSTRY (in thousands of mtrio tome) Total camed Demote, Candies, Most, fish Year goods Chocolates, etc, Coloring mtter Other 1930 31.5 8.2 22.2 1.,1 1935 56.0 M.S.S. MA, 1938 80.6 36.3 n.s.s. 35,9 8.4 The Brasilian consumption pattern in tin plate above greater possibil- ities for substitute packaging materials than that of Argentina. Conserning the item "sweets and candied preserves." the Argentine Central Bank report states, "The tins used for compact or solid sweets (quinoss, years, etc) can be replaced, when the product has a high sales turnover in markets close to the loous of production, by paper treated with paraffin or cardboard OF wooden boxes. It is believed this would be 50% cheaper than equivalent tin-plate containers. Two-thirds of production satisfies these conditions of substitution." Despite the fast that the Brasilian canneries are scattered all over the country, it is conservatively assumed that, not two-thirds, but only one-half of the tinned candies, preserves, etc. could be packaged in substitute 000- tainers. This would indicate immediate possibility of substitution of 24% of total Brazilian tin plate used for food containers. In addition, tins for yerbs mate could be eliminated entirely. The substitution ratio was reduced to 20% because the Brasilian glass industry has concentrated - production of beverage bottles (54,300,000 units in 1937) and bottles for lotions and medicines (65,000,000 unite). (1) There is no evidence that this glass industry could produce the type of jara needed for displacement of tin plate. The industry comprised 10 glass continuer factories in 1937, most of them non-specialized and producing for order, two of then equipped with auto- matio mohinary. by October 1935, Commercial Intelligenos Division reported the existence of 50 glass container factories in Brasil. An adequate, impartial survey of possibilities of substitution should be made in Rio de Jansiro. 1) "The Latin American Glass Industry and Trade," Department of Commerce, Washington, 1937. al PP+ Regraded Unclassified - 13 - 185 CHILE The estimate of Chilean import requirements is 12,000 metrio tons. This compares with the following statistical record: Items Thousand of motric team Importe from the world,1938 5.8 Importe from the world,1939 9.0 Imports from the world,1940 11.3 Resid. U.S. exports in 1941 6.0 Fournto Corporation 13.0 Supply Situation in neate stringency of tin plate egists in Chile. The Republic Steel representative in Bantiago, Mr. Luis Harnecker, wrote his home office on September 22, 1941 that the *situation is frankly alarming steel suarcity la becoming worse every day." The Fomento Corporation labelled its tin plate request from the United States "needed with extreme urgency." The Chilean Venufacturers Association estimated that 50% of total tim-plate requirements for the soming year should be usda available in the last quarter of 1941, presenably because of stock depletion. The Habrary in Santiago reports that " silk canning factory in Valparaiso has closed down and it is feared it will not be possible to provide tin cans to take dare of the coning Regulable and fruit harvest." Among the underlying causal factors are: (a) cannors are attempting to replaniah stocks of canned food which were drastically diminished when drawn upon to food earthquake victims; (b) low 1941 exports by the United States: and (a) the increase in tin container manufacture. Mothod of Retimation Proj oking the growth trend, normal Chilean import drunné for tin plate one be computed at approximately 13,000 matric tons. Definting this figure by 10% to take account of immediately practicable substitution yields at estimate of 11,700 motric toas. This figure was increased slightly because of the mouse situation prevailing, the almost total exhaustion of inventories and the poculiar social importance of canned goods to Chile. Regraded Unclassified 186 - 14 - All the Chilean coastline is longer than NY other country on the earth in proporaion to area, as internal transport facilities and constwise steamers are inadequate, and all cold storage facilities on the ships and in most Chil-an toma are also inadequate, 11 is manifestly essential that sinned food consumption be at least maintained at 1932-40 levols. Fresh vagetables are available to only a mill section of the country and then only for four months during the year. Cenning Industry Connercial Intelligence Division reports that there were 35 canneries in Chile in 1938, 11 of which packaged fruits and vegetables, 7 of which packaged fish, 5 meats, $ vegetables and 7 miscellaneous products(occoa, candies, oils, eta.). The existence of 5 glass container factories of unstated capacity was reported. THUGUAY The estimate of Uruguayan imports requirements is 17,000 metric tons. The statistical resord in as follows: Item Thousands of Metrie Tone 1937-39 Average imports from the world 8.7 1939 imports from the world 10.7 1940 imports from the world 18.8 1941 Estimated U.S. exports (a 8.1 a) First six months of 1941 multiplied by two. Uruguayan official statistics show that tin-plate imports were running at an annual rate of 24,800 tons during the first half of 1941. The discrepancy between United States exports and Urugnayan imports might result from transshipments among the Platine Republics Uruguayan %in-plate requirements during the next twelve months for the British end United States meat pack will amount to 6,300 motric tons, calculated at 18% sin plate to canned most and with a 10% allowance for contingencies. Uraguayan tin-plate import statistics show a rapid increase during the period 1988 to 1941. Unfortunately, however, 11 is impossible to project the growth tread so determine normal dread because of the unknown mome of importe for transchipment so frigorificos is Pio Grande do Bal, Brasil, at Regraded Unclassified - 15 - 187 because of 1941 import figures appear wareliable. The estimate of total requirements 10 baned a a report facts reseived from the Urognagen dovement requesting 3,000 seas this quarter for all purposes other than meat packing. Assuning that this involves an annual requirement of 11,000 total and adding the $,380 some for the most pask yields a total of 17,380 tome. The Uragusyan tin our making industry, producing for the domestic market, showed the following user pattern is 1938g of 3,000,000 cans produced, 600,000 were used for meat and fish, 2,260,000 for fruits,vagetables and preserves, 1,000,000 for general purposes, and 150,000 for yerha mate. Total substitution is possible in the Gase of yorbs mate and partial substitution in the case of sweets, preserves and fruits, provided glass eas- tainer making facilities are available. In 1936, Uruguay had two assufac- turers of glass containers, producing 2,280 toms of products annually and cos- contrating on hottling of bear, wine, milk and carbonated beverages. MEXICO The estimate of Mexican import requirements is 18,000 tone. This compares with the following statistical records Item Thousands of Metrio Toma 1937 imports from world 16,7 1938 imports from world 10.7 1939 imports from world 17.0 1940 imports from world 16.7 Not'd. 1941 U.S. exports 15.7 The fact that some Mexissa container factories have already been obliged to close down as & result of irregular and inadoquate tim-plate supplies indicates that the above cotimate will probably prove inadequete unless there is intelligent rationalization of container industry supplies and substitution, wherever possible. Taking 1939 importe as normal, the proposed estimate represents B reduction of approximately 12%. It is worth noting that mong the 200 industries to be established this year under the tax exemption Law 10 - marino extraction plant which will presumably require tin plate to paskage cooking fats. New plants to prosess froson fowl and broken - are also being established, according to recent sonsular despatches. Regraded Unclassified - 18 - 188 The Mexican canning industry consists of a large seaber of comperatively small plants with diversified activities. It is important that the canning industry be maintained to prevent deterioration is living standards. the glass container industry is very emall. Mexico imported $251,000 of finished cans from the United States during the first eight months of 1940 out of total Lawin American imports of this item from the U.S. of $397,000. GUBA The estimate of Cuban import requirements is 13,500 metric teas Item Thousands of Metric Tons 1937 imports from the world 18.1 1938 imports from the world 9.5 1939 imports from the world 18.7 1940 imports from the world 10.1 1941 estimated U.S. exports 15.2 The present rate of importation indicates that there should be no shortage of tin plate in Cube at present. There are several large cammeries in the country, specializing is peckaging of jollies, fruits, preserves, lard, guava and lebster. IS is believed that nest canning facilities are expending with the growth is the Cuben livestock and meat expert industry. Nothing is known concerning industries making substitute centainers in the island. Expending lecal demand for canned feed products my be expected with increasing Cuban income, resulting from improved sugar prespects. PERU The estimate of Peruvien import requirements is 5,000 tens. This compares with the fellowing statistical recerd: Item Thousands of metrio team 1937 imports from the world 6.1 1938 imports from the world 5.8 1939 imports from the world 5.5 1940 imports from the world 6.5 1941 estimated U.S. experts 3.0 The 1941 rate of importation indicates that stringency is respect 10 tin plate probably exists. The canning industry contained eleven companies listed by Cemmercial Regraded Unclassified - 17 - 189 Intelligence Division is 1939. Three of these had Japaness firm time. The main products canned are fish, fruits and preserves. Boven of the eleven concerns listed 129 201 equipped to make their OTHER cans. One of the companies is owned by the Peruvian Government. U.S. Steel Cerpera- tien reports that there is large depand for five-gallen oil cans from the petroleum companies. Those are presumably manufactured lecally. Peru has seven glass container factories, one of which is large, equipped to make all types of bottles, jara and centainers and previded with automatic machinery. COLOMBIA The estimate of Columbian import requirements is 4,500 toms. This compares with the following statistical record: Item Thousands of metric teas 1937 imports from the world 4.1 1938 imports from the world 2.6 1939 imports from the world 5.5 1940 imports from the world 4.7 Estimated U.S. experts in 1941 2.1 As no edequate information is available concerning the demand for or consumption pettern of tim plate in Celembia, the procedure resorted to -- to take a rough average of 1939-40 imports se representative of normal demand and deflate this figure 10 percent to indicate presumed ability to substitute and sconomize. Cenneries im Colembia There are three canneries in Colembia, packing preserves, vegetables, tomato juice, soups, marmalades, etc., and using both tim cans and bottles in unspecified propertions, according to the October 1939 Commercial Intelligence Division report. Candies, seda creckers, butter and lard are also packed in tim containers in Calembia. There are four glass container firms of unspecified preduction capacity. VENEZUALA The stimate of Venezuela's import requirements is 4,000 metrio tens. This compares with the following statistical record: Regraded Unclassified 18 190 Item Thousands of matric tear 1938 imports from the world 1,5 1939 imports from the world 1.8 1940 U.S. exports 1.3 1941 U.S. exports (estimated) 0.5 Veneguelan Government 4.7 The above estimate 18 based en the Venezuelan Government statement of requirements, which, unfortunately, was not supported by as adequate economic or statistical analysis. It should be noted, however, that the Venesuelam Government estimates are conservative in respect to most items. The reasons for believing that Venemuelan tin-plate needs have in- cressed very rapidly are the fellowing: The canning industry 1a expanding rapidly under the impetus of govern- ment subsidy and 68 a result of . general program to diversify feed preduc- tion, stimulate meat experts and impreve autritional standards. This program is endorsed, on the whele, by the U.S. Department of Agriculture. The canning industry has expanded from six concerns in 1936 to 28 in 1941. There has been large government investment in meat packing at Maracay and Caripite. Utilization of fish resources is planned, invelving ostablishment of flesting fish reduction plants and canneries. These developments are important as a means of (1) stimulating mest experts to deficit meat producing areas in the Caribbean, (2) improving Venezuelam dietary standards by making preserved meat, fish, vegetable oils and deiry products more generally available, and (s) developing histerland agricul- tural areas at present handicapped by deterieration of preduce while being transported to urban markets. The fact that Venesuela has been obtaining tin plate from the United States this year et the rate of only 300 tens indicates that stocks must be virtually exhausted. PARAGUAY The estimate et Puraguayan import requirements is 1,900 metrio tons. This comperes with the fellowing statistical record: Item Metric Teas 1937 imports from the world 1,011 1938 imports from the world 1,382 1939 imports from the world 1,638 1940 importe from the world 3,731 Regraded Unclassified 191 - 19 - Method of Betimation If 1a estimated that Paraguay will ship 5,300 metric tens of meat to she United Kingdom and 2,500 metric tons to the United States during the DOIL twelve months. At the 18% centeiner-meat ratio and allowing 15% for contingencies, chis will require 1,550 metric tons of tin plate. The estimate assumes that 300 tens of tin plate will be needed for legal consumption. It in assumed that Paraguay will reduce or eliminate her importe of supty tim containers, which amounted to 145 metric tons in 1939 and 327 =wrrio tone in 1940. by reason of her large tin plate imports during 1940 - part of which were on account of inventory speculation Paraguay is in & comparatively strong position. The country bes no glass conteiner industry. There are three mest cenneries (frigorificos with conneries attached), which is 1939 had M capacity of 70 tona of ment products per day. Their indicated daily capacity tim plate utilization is 14.7 toma. Dreught conditions on the Paraguayen ranges this year will limit meat supplies and hence tin plate demand. EGUADOR The estimate of Ecuedor's tin-plate requirements 10 700 tens. The atotistical record is as follows: Item Metric Toms 1937 imports from world 550 1938 imports from world 960 1939 imports from world 770 1940 importe from world 759 Se information 1a evailable as to the canning industry in Lounder, ta 1939 there was ne reported menufacture of containers. BOLIVIA The estimate of Bolivien import requirements is 600 teas. Regraded Unclassified - 20 192 The statistical record is as follows: Item Matrie Teas 1937 imports from the world 320 1938 imports from the world 870 1939 imports from the world 370 1940 importe from the world 1,130 1941 est'd. U.S. exports 158 There are six canaeries in the country, five of which manufacture their own containers. Canning activity is general, including fruits, vegetables, preserves, jellies, milk preducts and meet, There is only one glass CO3- telmer factory, which manufactures glussware and beer bettles. Whether is could produce substitute containers is not known. The normal estimate gives some weight to the substential increase is importations occurring in 1940, while recognizing that the nain cause of that increase was presumably speculative end inventory purchasing. PANAMA Estimated requirements for Passue are 500 tens. The statistical record is ⑉ fellows: Item Metric Teas 1937 imports frie world 47 1938 imports from world 70 1939 imports from world 92 1940 imports from world D.S. 1941 U.S. exports (est'd.) 492 No information is available on Panamanian cenning or glassware manufsoture. The estimate reflects the increased demand, arising out of increased garrisons and construction activity in the Canal Zone. QUATEMALA Estimated requirements for Gustemala are 1,500 teas. The statistical record 18 as follows: Item Metric Teas 1937 imports from world 2,120 1938 imports from world 1,800 1939 imports from world 1,740 1940 imports from world 1,536 1941 U.S. experts (est'd.) 80 There is as information available se to the canning industry in Quatemala, In 1937 there was no manufacture of glass containers in the country. Regraded Unclassified - 21 - 193. The estimate THE made 02 the showing of past imports and the present stringency indicated by the extremely lew comparative tennage received in 1941. HONDURAS Estimated requirements 0 U.S. experts 1941(est'd.) o COSTA RICA The estimate of requirements is 35 tens, The statistical record is as follows: Item Metric Teas 1937 imports from world NSS 1938 imports from world 25 1939 imports from world 30 1940 imports from world 34 1941 U.S. experts (est'd.) 4 KL SALVADOR Estimate of requirements 30 tons Import figures 1937-40 NSS U.S. exports 1941 (est'd.) 30 tons NICARAGUA Estimate of requirements 75 tons Import figures 1937-40 NSS DOMINICAN REPUBLIC The estimate of requirements is 200 tens 1937-40 imports from world - not available 1941 U.S. Experts (est'd.) - 124 tens No information is available concerning canning or manufacture of glass containers in the Deminican Republic. HAITI Estimated requirements are 50 tens 1931-40 imports from world average 51 toms 1941 U.S. experts (est'd.) 24 tone 194 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 22, 1941, TO Secretary Morgenthau FROM 1. Schwarz e Mr. Kuhn and I think it might be well to give the attached telegram at your press conference. I you Winging a dozen copies down if you agree. Mr. Houghteling points out that members of the U A VI already have purclased $12,000,000 worth of bonds and that they pee promising this expension in the face of possible unemployment for some weeks, but are acting in accord VISA your delceration at Chicago that ell of us will have 17 tighten our belts. He asks if you will express the have that other national orgenizations similarly intensify their efforts. Regraded Unclassified 195 Detroit Mich. Dec. 20, 1941. Non. Henry Vorgenthau Jr. Secretary of the Treasury Washington, D. C. As part of our defense of America from aggressor nations I am anticipating today a drive among 700,000 auto and aircraft workers to sell to our entire membership and officers in as short a time as possible $50,000,000 worth of Defense Bonds. The son of a UAW CIO member went down on the Arizona. He was Killed in action. We are answering that dastardly attack by trchasing these Defense Bonds to replace the U S S Arizona ES speedily as possible in order to stop forever the brutal appression of our enemies. R. J. Thomas, President. Regraded Unclassified 196 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 22, 1941 TO Secretary Morgenthau Vincent F. Callahen FROM Both Mr. Sloan and Mr. Gilchrest personally talked with Ste. Seth, Assistant Manager, end Mr. Bell, announcer, from Station VEVA at Fredericksburg. They both feel that neither of these nen would be suitable for the work proposed. Mr. Seth is twenty-seven and Mr. Bell is twenty-two. They are youthful in appearance and unimpressive. Mr. Gilchrest, who is an experienced radio man, says he does not believe radio station menagers would take them seriously. Meanwhile, the following action has been taken: 1, Stories describing in detail the Fredericksburg plan have been placed in two radio trade publications. This was the quickest way to reach station managers with the idea. 2. Last Saturday, December 20, a letter was sent to all 865 radio stations in the United States. (Copy attached) 3. Field men, representing radio and press, ore being spoointed. These men will personally visit stations to follow through on the letter. Attached is B copy of a report mAde to Mrs. Klotz on December 15. Regraded Unclassified 197 To: Secretary Morgenthau December 22, 1941 From: Vincent F. Callahan Page 2 We have in Washington today (Monday) a man from Boston whom we are considering putting in charge of this promotion. Univent Callaha Regraded Unclassified 198 MRS. KLOTZ. December 15, 1941 MR. GILCHREST. Herewith the report regarding the Defense Bond and Stamp promotion of Radio Station wfva, Fredericksburg, Virginia, as requested by the Secretary. The program entitled "Any Bonds Today?" is broad- cast over WFVA from 11:00 to 11:30 AM, Monday through Friday, and resulted in a total sale of $43,100.00 during four days. After the initial program on Tuesday, December 9th, the sales have averaged $600 per broadcast. The broadcasts originate from a "Defense Bond Head- quarters", established by WFVA in the window of a leading local department store. This temporary studio is equipped with a private telephone, the number of which is announced once at the opening of the broadcast. Listeners are urged to call the number to order Bonds or Stamps. The name and address of persons calling are announced on the air, and the amount of Stamps or Bonds which they wish to purchase. An adding machine has been installed so that total sales may be announced throughout the half-hour broadcast. As telephone requests for Bonds and Stamps are received, Boy Scouts and Girl Scouts leave the Bond Head- quarters and deliver them to homes or business offices. In the case of Bonds, they deliver an application blank, and give the purchaser complete instructions as to filling out the application and redeeming it for their Bond at post offices or banks. In addition to the telephone calls made to the Bond Headquarters, the announcer calls telephone subscribers, and asks "Any Bonds Today?" As & result of such a telephone call on one program, the announcer was given an order for over $20,000.00 in Bonds by the head of B. large corporation. 199 TO: MRS. KLOTZ. Page Two. FROM: MR. GILCHREST. 12/15/41. The program idea was conceived by John Bell, an announcer at WFVA, and carried out by William R. Seth, As istant Manager of the station. Mr. Bell, a native of Baltimore, Maryland, is 22 years of age, married, and has worked in radio as an announcer for three years. He attended Loyola College in Maryland for one year. Mr. Seth, also a native of Baltimore, is 27 years of age and married. He graduated from the University of North Carolina and entered radio in 1933. Regraded Unclassified 200 December 20, 1941. TO ALL RADIO STATIONS : Dear During these past weeks when every station the country over has been bending every effort to further the sale of Defense Bonds and Stamps, hundreds of new program ideas have developed by radio stations. One such idea has been submitted to us, which we believe could be used by hundreds of stations advantageously. I want to pass the idea along to you for your consideration. The program, originated by WFVA, Fredericksburg, Virginia, is broadcast one-half hour daily, and resulted in B total Defense Bond and Stamps sale of $43,100.00 in the first four days it was on the air, in a city of about 10,000 population. The broadcasts originate from 8. "Defense Bond Headquarters", located in the window of a leading local department store. This temporary studio is equipped with 8. private telephone, the number of which is announced once at the opening of the broadcast. Listeners are urged to call the number to order Bonds and Stamps. The name and address of persons calling are announced on the air, and the amount of Stamps or Bonds which they wish to purchase. An adding machine has been installed to record sales, and total sales are announced severel times during the half-hour broadcast. As telephone requests for Bonds and Stamps are received, Boy Scouts and Girl Scouts leave the Bond Readquarters and deliver them to homes or business offices. In the 0888 of Bonds, they deliver an application blank, and give the purchaser complete instructions as to filling out the application and redeeming it for their bond at post offices or banks. In addition to the telephone calls made to the Bond Head- quarters, the ennouncer calls telephone subscribers, and asks "Any Bonds Today?" As a result of such a phone call on one program, the announcer was given an order for over $20,000.00 in Bonds by the head of B. large corporation. Telephone calls are interspersed with recorded music. The programs have not only resulted in tremendous Defense Bond and Stamp sales, but have also brought wide publicity to the station. We hope that you may be able to instigate a similar series in your city. Sincerely yours, Vincent F. Callahan, Chief, Radio and Press Sections. Regraded Unclassified TREASURY DEPARTMENT 201 INTER OFFICE COMMUNICATION DATE December 22, 1941 TO Secretary Morgenthau FROM Vincent F. Callahan Since June 1, 1941 Miss Marjorie Spriggs has been conducting, through individual stations, a nation-wide radio campaign directed to the women of the country. She has been consistently sending material to, end contacting 456 women program directors of a similar number of stations. These women personally conduct their own programs and their audiences total in the millions. Material used is special and is prepared by Mrs. Frank Hummert. Through a return post card system, Miss Spriggs knows definitely that the material is being used. These women's programs represent the largest single women's group in the United States. We are reaching them daily and consistently. Vincent7. 7. Callaha (34 En Regraded Unclassified LIMITED STATES SAVINGS BONDS Commerative Statement of Sales During First Eighteen Business Days of December, November and October 1941 (October 1-21, November 1-24, December 1-20) On Basis of Issue Price (Amounts in thousands of dollars) : : Amount of Increase -- Percentage of Increase Sales : : or Decrease (-) : or Decrease (-) Item : = : : December : November : December : November : December : November : October : over : over : over : over : : : : November : October : November : October Series E - Post Offices $ 54,284 $ 31,056 $ 28,720 $23,228 $ 2.336 74.8% 8.1% Series E - Banks 106,487 56,543 53,532 49,944 3,011 88.3 5.6 Series E - Total 160,770 87,599 82,252 73.171 5,347 83.5 6.5 Series F - Banks 16,298 14,600 15,136 1,698 - 536 11.6 - 3.5 Series G - Banks 92.300 83,008 81,783 9,292 1,225 11.2 1.5 Total $269,368 $185,208 $179,171 $84,160 $ 6,037 45.46 3.4% Office of the Secretary of the Treasury, Division of Research and Statistics. December 22, 1941. Source: All figures are denosits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily ndd to totals. Regraded Unclassified UNITED STATES SAVINGS BONDS Daily Sales - December 1941 On Basis of Issue Price (In thousands of dollars) Post Office Bond Sales Bank Bond Sales All Bond Sales Date Series E Series E Series I Series G Total Series E Series F Series G Total December 1941 1 $ 2,976 $ 3,904 $ 1,333 $ 7,220 $ 12,458 $ 6,880 $ 1,333 $ 7,220 $ 15,434 2 1,229 2,592 623 5.750 8,964 3,821 623 5,750 10,193 3 1,510 2,734 870 5,289 8,893 4,244 870 5,289 10,403 4 2,411 4,036 726 7.530 12,292 6,447 726 7,530 14,703 5 2,015 4,805 1,152 12,357 18,314 6,820 1,152 12,357 20,329 6 1,001 2,293 656 2.776 5.725 3,294 656 2,776 6.726 8 3,282 4,764 1,011 3,810 9,585 8,046 1,011 3,810 12,866 9 1,528 3,877 601 4,996 9,475 5.706 601 4,996 11,304 10 1,651 3,566 491 2,612 6,668 5,217 491 2,612 8,320 11 1,909 4,763 719 3,423 8,905 6,672 719 3,423 10,814 12 2,773 5,012 658 3,768 9,437 7,785 658 3.768 12,211 13 2,767 5,030 584 2,120 7.734 7,798 584 2,120 10,501 15 7.185 11,679 1,022 4,462 17,162 18,864 1,022 4,462 24,347 16 2,113 3,956 893 1,901 6,750 6,069 893 1,901 6,863 17 4,164 9.750 1,180 6,327 17,257 13,914 1,180 6,327 21,421 18 5.382 11,630 1,337 6,826 19,793 17,012 1,337 6,826 25,175 19 5.995 10,205 1,172 5,214 16,591 16,201 1,172 5,214 22,586 20 4,091 11,890 1,270 5,921 19,081 15,981 1,270 5,921 23,172 Total $ 54,284 $106,487 $ 16,298 $ 92,300 $215,085 $160.770 $ 16,298 $ 92,300 $269,368 Office of the Secretary of the Treasury, Division of Research and Statistics. December 22, 1941. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 304 U. S. SAVINGS BONDS, SERIES 1, TYPE A STOCK ACCOUNT OF LOANS AND CURRENCY VAULT Report of December 22, 1941 Total $25 $50 $100 $500 $1,000 Pieces On hand c.o.b. Dec. 21 4,663 5.502 17,321 13,751 72.280 113,517 Received from Bureau Dec. 22 160,000 75,000 25,000 260,000 Total 164,663 80,502 42,321 13,751 72,280 373.517 Shipments Dec. 22 149,950 76,240 31,325 6,075 11,077 274,667 On hand C.O.b. Dec. 22 14,713 4,262 10,996 7,676 61,203 98,850 Istimated deliveries to be received from Bureau of Engraving and Printing: Tuesday Dec. 23 180,000 85,000 35,000 300,000 Wednesday Dec. 24 220,000 50,000 25,000 325,000 Thursday Dec. 25 235,000 80,000 35,000 350,000 NOTE: The bureau advises that the aggregate number of pieces for all denominations to be delivered each day will not be less than the figures shown but that there may be variations as between demominations. In case the Bursau does not operate on December 25. the deliveries for this date will be made on December 26. Regraded Unclassified U. S. SAVINGS BONDS, SERIES B, TYPE A REQUISITION ACCOUNT OF ISSUING AGENTS Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21 Federal Reserve Banks 228,000 274,000 273,000 66,500 46,000 887.500 P. 0. Department 526,000 288,000 245,000 20,000 20,000 1,099,000 Others Total 754,000 562,000 518,000 86,500 66,000 1,986,500 Requisitions received Dec. 22 Federal Reserve Banks 113,450 75,240 120,325 26,575 26,077 361,667 P. 0. Department Others 5,500 1,000 6,500 Total 118,950 76,240 120,325 26,575 26,077 368,167 Totals Federal Reserve Banks 341,450 349,240 393,325 93.075 72.077 1,249,167 P. 0. Department 526,000 288,000 245,000 20,000 20,000 1,099,000 Others 5,500 1,000 6,500 Total 872,950 638,240 638,325 113,075 92,077 2,354,667 Shipments Dec. 22 Federal Reserve Banks 84,450 50,240 26,325 6.075 11,077 178,167 P. 0. Department 60,000 25,000 5,000 90,000 Others 5.500 1,000 6,500 Total 149,950 76,240 31,325 6,075 11,077 274,667 Due on requisitions c.o.b. Dec. 22 Federal Reserve Banks 257,000 299,000 367,000 87,000 61,000 1,071,000 P. 0. Department 466,000 263,000 240,000 20,000 20,000 1,009,000 Others. Total 723,000 562,000 607,000 107,000 81,000 2,080,000 Regraded Unclassifie U. S. SAVINGS BONDS, SERIES E, TYPE À REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF BOSTON Report of December 22, 1941 Total $25 $50 $100 $500 $1,000 Pieces Due on requisitions c.o.b. Dec. 21 3,000 3,000 Requisitions received Dec. 22 20,000 10,000 20,000 50,000 Total 20,000 10,000 23,000 53,000 Shipments Dec. 22 5,000 5,000 3,000 13,000 Due on requisitions c.o.b. Dec. 22... 15,000 5,000 20,000 40,000 Regraded Unclassified 207 U. S. SAVINGS BONDS, SERIES 1, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF NEW YORK Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 64,000 55,000 105,000 30,000 25,000 279,000 Requisitions received Dec. 22 Total 64,000 55,000 105,000 30,000 25,000 279,000 Shipments Dec. 22 25,000 15,000 10,000 5,000 55,000 Due on requisitions c.o.b. Dec. 22... 39,000 40,000 95,000 30,000 20,000 224,000 Regraded Unclassifi 208 U. S. SAVINGS BONDS, SERIES 3, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF PHILADELPHIA Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 7,000 15,000 11,000 20,000 53,000 Requisitions received Dec. 22 48,000 35,000 50,000 25,000 25,000 183,000 Total 48,000 42,000 65,000 36,000 45,000 236,000 Shipments Dec. 22 5,000 5,000 Due on requisitions c.o.b. Dec. 22... 48,000 42,000 65,000 36,000 40,000 231,000 Regraded Unclassifie 209 U. S. SAVINGS BONDS, SERIES 1, TIPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF CLEVELAND Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 52,000 36,000 20,000 10,000 ..... 118,000 Requisitions received Dec. 22 Total 52,000 36,000 20,000 10,000 ..... 118,000 Shipments Dec. 22 10,000 5,000 ..... 15,000 Due on requisitions c.o.b. Dec. 22... 42,000 31,000 20,000 10,000 ..... 103,000 Regraded Unclassi 210 U. S. SAVINGS BONDS, SERIES 3, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF RICHMOND Report of December 22, 1941 Total #25 $50 $100 $500 $1,000 Pieces Due on requisitions c.o.b. Dec. 21... 6,000 16,000 13,000 1,000 1,000 37,000 Requisitions received Dec. 22 450 240 325 75 77 1,167 Total 6,450 16,240 13,325 1,075 1,077 38,167 Shipments Dec. 22 2,450 2,240 1,325 1,075 1,077 8,167 Due on requisitions c.o.b. Dec. 22... 4,000 14,000 12,000 ..... ..... 30,000 Regraded Unclassifie 211 U. S. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF ATLANTA Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 4,000 6,000 3,000 ..... ..... 13,000 Requisitions received Dec. 22 10,000 ..... ..... ..... 10,000 Total 14,000 6,000 3,000 ..... 23,000 Shipments Dec. 22 4,000 ..... 4,000 Due on requisitions c.o.b. Dec. 22... 10,000 6,000 3,000 ..... ..... 19,000 Regraded Unclassifi 212 U. S. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF ATLANTA - NEW ORLEANS BRANCH Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 8,000 4,000 12,000 Requisitions received Dec. 22 Total 8,000 4,000 ..... 12,000 Shipments Dec. 22 Due on requisitions c.o.b. Dec. 22... 8,000 4,000 ..... ..... ..... 12,000 Regraded Unclassifi 213 U. S. SAVINGS BONDS, SERIES 1, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF CHICAGO Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 20,000 15,000 5,000 ..... 40,000 Requisitions received Dec. 22 20,000 20,000 40,000 ..... 80,000 Total 20,000 40,000 55,000 5,000 ..... 120,000 Shipments Dec. 22 15,000 10,000 5,000 5,000 ..... 35,000 Due on requisitions c.o.b. Dec. 22... 5,000 30,000 50,000 ..... ***** 85,000 Regraded Unclassi 214 U. S. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF ST. LOUIS Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 13,000 23,000 11,000 2,500 ..... 49,500 Requisitions received Dec. 22 Total 13,000 23,000 11,000 2,500 ..... 49,500 Shipments Dec. 22 5,000 3,000 ..... 8,000 Due on requisitions c.o.b. Dec. 22... 8,000 20,000 11,000 2,500 ..... 41,500 Regraded Unclas 215 U. S. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT or THE FEDERAL RESERVE BANK OF MINNEAPOLIS Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 5,000 10,000 5,000 ..... 20,000 Requisitions received Dec. 22 ..... Total 5,000 10,000 5,000 ..... 20,000 Shipments Dec. 22 Due on requisitions c.o.b. Dec. 22... 5,000 10,000 5,000 ..... ..... 20,000 Regraded Unclass 216 U. S. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF KANSAS CITY Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 12,000 10,000 13,000 2,000 ..... 37,000 Requisitions received Dec. 22 ..... ..... Total 12,000 10,000 13,000 2,000 ..... 37,000 Shipments Dec. 22 5,000 2,000 ..... ..... 7,000 Due on requisitions c.o.b. Dec. 22... 7,000 10,000 11,000 2,000 ..... 30,000 Regraded Unclassit U. 8. SAVINGS BONDS, SERIES E, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF DALLAS Report of December 22, 1941 $25 $50 $100 $500 $1,000 Total Pieces Due on requisitions c.o.b. Dec. 21... 11,000 17,000 10,000 ..... ..... 38,000 Requisitions received Dec. 22 15,000 10,000 10,000 1,500 1,000 37,500 Total 26,000 27,000 20,000 1,500 1,000 75,500 Shipments Dec. 22 5,000 5,000 ..... ..... 10,000 Due on requisitions c.o.b. Dec. 22... 21,000 22,000 20,000 1,500 1,000 65,500 Regraded Unclas 218 U. S. SAVINGS BONDS, SERIES 1, TYPE A REQUISITION ACCOUNT OF THE FEDERAL RESERVE BANK OF SAN FRANCISCO Report of December 22, 1941 Total $25 $50 $100 $500 $1,000 Pieces Due on requisitions c.o.b. Dec. 21... 53,000 70,000 60,000 5,000 188,000 Requisitions received Dec. 22 Total 53,000 70,000 60,000 5,000 188,000 Shipments Dec. 22, 8,000 5,000 5,000 18,000 Due on requisitions c.o.b. Dec. 22... 45,000 65,000 55,000 5,000 170,000 Regraded Unclassified 319 TREASURY DEPARTMENT WASHINGTON Columbia, S. C. December 22, 1941 Monorable Henry Morgenthau Secretary of the Treasury Washington, D. C. Desr Mr. Morgenthau: I have your letter of the 13th notifying me that my designation is changed to Consulting Expert in the Defense Savings Staff. I also have your letter of the 20th explaining that it is necessary that you have additional full time Assistante because of the changed situation since our country has entered the war. This arrangement is entirely satisfactory to me, and you will remember that I told you when we talked the matter over about six weeks ago that I would be very happy to meet your wishes in this respect at any time. If I can be of help in any capacity, I am with pleasure at your command. With kindest regards, I am incerely yours, B, M. Edwards 3VE:mtb Regraded Unclassified 220 TREASURY DEPARTMENT WASHINGTON December 22, 1941. MEMORANDUM FOR THE SECRETARY: You will recall asking me at Chicago to make inquiry to determine the indentity of a Jewish citizen who, as you said, lived in Senator Harrison's home town. I have the attached letter from our State Administrator for Mississippi with reference to this matter. Does any of the persons named appear to be the person you had in mind? GRAVES Regraded Unclassified 221 TREASURY DEPARTMENT INTERNAL REVENUE SERVICE OFFICE OF THE COLLECTOR JACKSON MISS. INVICT DE MISSIBIPPI December 20, 1941 in RESERVING - TO PERSONAL AND CONFIDENTIAL Hon. Harold N. Graves issistant to the Secretary Treasury Department Washington, D. C. dear Mr. Craves: Referring to your conversation with Orrin Swayze and me during the luncheon in Chicago Wednesday, and in compliance with your request, I give you below the names and addresses of a number of outstanding Jewish citizens of Mississippi: Alec Loob, Meridian Isidore Lehman, Jackson Irving Rothenberg, n Isidore Dreyfus, IT Louis Threefoot, 11 Lee S. Hart, If Ike Rosenbaum, n Dan Cohn, Lorman Gabe Jacobson, If S. B. Laub, Natchez Jake Rubel, Corinth Albert Krauss, Fayette Simon Rubel, " You told us that the Secretary was under the impression the person he had in mind was from the home town of Senator Harrison, but there is not an outstanding Jewish citizen who is a resident et this time of Crystal Springs, Senator Harrison's birthplace, or Cull'port, which was his home, and, while it is quite possible I may have overlooked the very person inquired about, since we have many fine Jewish citizens, the above list, in the opinion of local Jewish friends with whom I have conferred, is composed of citizens who might meet the specifications you mentioned. If we can be of any further service to you and the Secretary in this matter, please command us, You did yourself proud at the Chicago meeting, and deserved all the fine things that were said about you. with kindest regards, I am Sincerely yours, Engine Eugene Fly Collector Regraded Unclassified TREASURY DEPARTMENT 222 INTER OFFICE COMMUNICATION CONFIDENTIAL DATELLecember 22, 1941 TO Secretary Mongenthau FROM Mr. Hare Subject: The Business Situation, Yeek #nding December 20, 1941. Summary (1) Despite increasing restrictions on the output of civilien roads, industrial production rose to a record high In November and was maintained at & high rate in the first DOIT of the current month. The FRB adjusted index of indus- triel production in November stood at 167 as compared with 163 In the previous month and only 112 in April 1940, before the defense program got under way. (2) The Government price control program continues to trotõen, Additional price ceilings have been imposed on basic commodities, and restrictions on finished (oods prices have been increased. The forthcoming institution of consumer rationing, thus far limited to automobile tires, will afford an important means of imolementing inflation control. (3) The general price level in the opening week of the var rose 0.9 point to 93.1, the highest point since December 1929. Basic commodity prices in the following week, however, declined somewhat, largely 2.8 a result of recent Governmental price control measures, particularly the imposing of ceiling orices for fats and oils. (4) The shipbuilding industry will provide an important offset to unemployment caused by restrictions in some civilian goods industries. On top of an increase of more than 400,000 vorkers since January 1939 (when total employment in shipyards yes only 100,000), it 1s estimated that the shipbuilding industry vill employ 234,000 additional workers by next November, solely on the basis of contracts on hand at the end of September. (5) Department store sales in the week ended December 13 Iran only 1 percent above year-earlier levels, AB compared with a vain of 9 percent in the previous week, despite a 15 percent increase in prices over last year. Sales in the San Francisco and New York areas reflected the adverse effects of air raid larms and fell 5 and 3 percent, respectively, below year- earlier levels. Regraded Unclassified 223 - 2 - General situation The second week of the war brought into clearer light the trende in the national economy that will result from the outbreak of hostilities. While steps are being taken to expand the output of such items as steel, copper, machine tools and war equipment, restrictions are being tightened on the production and consumption of a widening range of civilian goods, particularly those using up strategic ma- teriale produced in the Far East. The extension of the ban on tire sales and the 80 per- cent out planned for civilian rubber consumption, together with such developments as the freezing of tin stocks and the severe production curtailments recently ordered for the automobile and household appliance industries, all emphasize the drastic adjustments that will have to be made in gearing un the war effort. Evidence of public recognition of this is seen in the action of the stock market, where the so-called "war stocks" during the past week have strengthened somewhat, while "peace stocks" have shown noticeable weakness. (See Chart 1.) As a result, the ratio of war to peace stocks moved up to a new high. Despite the production curtailment of some civilian goods, which was already in progress before war broke out in the Pacific, aggregate industrial production and business activity has continued to move ahead. The FRB seasonally- adjusted index of industrial production in November rose to a new high at 167 from 163 in the previous month, and pre- liminary estimates indicate that a high rate of activity was maintained in the first half of the current month. Both Barron's index and the New York Times index of business activity rose moderately during the week ended December 13. A rise of 0.6 point to 133.3 carried the latter index within 0.1 point of the high for the year. Consumer rationing of tires to begin soon In order to cope with the limited supply of tires avail- able for civilian use when the sale of tires 18 resumed on January 4, the OPA has announced that a complete rationing system for the sale of tires will be put into effect on that date. This action, which is expected to be followed by others of a similar nature, is the first of its kind since the war began. It derives special significance from the Regraded Unclassified 224 - 3 - fact that in addition to directing the flow of goods into the most useful channels, rationing provides a method of reducing the effective demand, and 16 thus an important means of implementing governmental efforts to control inflation. BLS all-commodity monthly index at 12-year high Wholessle commodity prices in November, 88 measured by the BLS index of 889 commodities, reached a new high mark since January 1930. (See Chart 2, upper section,) The November figure of 92.5 represents an increase of 14.8 percent since the beginning of the sharp rise last February, and 23.3 percent since the pre-war August 1939 level. The Conference Board cost-of-living index in November ( shown on the chart) rose 1,0 percent above the October level, marking an unbroken 12-month rise that has carried the index up 9 percent in that period, and 11 percent since August 1939. All-commodity weekly index at new high The sharp advance of wholesale prices in the week ended December 12 (after the Japanese attack) lifted the BLS all-commodity weekly index 1.0 percent to 93.1, the highest peak since December 1929. (See Chart 2, lower half.) Advances were general. Farm products prices in- creased 2.2 percent, chemical and allied products, 2.0 per- cent, and foods, 1.9 percent. The largest increase in an individual group W&B 14 percent in fate and oils. The rise in basic commodity prices in recent weeks (lower section of chart) has been steeper than the advance in the all-commodity index. Basic commodity prices recede The sharp advance of wholesale prices in the second week of December was dampened last week by vigorous Government action. Prices of basic commodities declined substantially, reflecting uncertainty over future govern- mental action and confusion in the trade from OPA emergency measures. (See Chart 3.) As was to be expected from the Government's price-fixing action, prices of domestic fate and oils weakened. Cottonseed oil, lard, butter and tallow prices declined sharply. Wheat lost half of its large gain of the week before, while rosin continued to advance. Most of the imported commodities have been subject for some time to OPA restrictions, and prices in this group showed rela- tively little change. Regraded Unclassified 225 - 4 - Price controls extended A noticeable stiffening of price control measures occurred last week, which will tend to offset inflationary tendencies arising from the prospective curtailment of Far East imports and the stepped up war demands. There were indications that farm products may be subjected to wider and stricter Government control than had heretofore seemed likely. Restrictions on prices of finished goods were broadened, and seemed likely to be extended further. The OPA continued to implement its control of prices by imposing new ceilings, and by making advance "standstill an- nouncements" of ceilings to come. The textile field was especially affected last week by OPA action. An announce- ment was made that price restrictions were in preparation for a wide range of textiles, at all stages of production and distribution except at retail. By bringing previously-excepted groups under control, this action has the net effect of placing under restriction wholesale prices of practically all textiles except garments. Late in the week a subcommittee of the Senate Banking Committee tightened the House version of the price control bill, restoring the power to 1ssue licenses, authorizing the Price Administrator to buy and sell commodities to stabilize their prices, and giving him greater control of farm commodity prices. Left for action by the full committee was the choice between the alternatives of fixing the ceiling on farm prices at 100 percent or 110 percent of parity. The bill 18 scheduled to go before the Senate on January 5. Commodity Credit Corporation to sell wheat Announcement by the Commodity Credit Corporation that the Government was willing to sell 170 million bushels of its holdings of 1939 and 1940 wheat total CCC wheat hold- ings October 31 were 173 million bushels) was interpreted in the trade as & warning that the Administration is opposed to a substantial price rise in wheat and perhaps in other farm products. Secretary Wickard said in & public statement last week: "There 18 little excuse for any substantial in- crease in the price of agricultural commodities at this time, and we will do everything in our power to check speculative increases.' Regraded Unclassified 226 - 5 - The Corporation stated that this wheat would be sold at the market price, or 15 cents a bushel above the 1941 loan level at storage points, whichever was higher. This tends to establish & ceiling, for example, on the basis of No. 2 hard winter at Kansas City at about $1.25 a bushel, which compares with a price last Friday of about $1.22. Steel expansion to be pushed While some civilian goods industries are curtailing operations, steps are being taken to expand the production facilities of steel and other industries closely identified with the armament program. During the past week the OPM announced that high priority ratings would be given projects for expanding steel output, particularly those providing additional pig iron capacity, electric furnaces or facilities for the output of special steels. One example of what can be done in expanding pig iron capacity, needed to offset the shortage of scrap, was given recently by a subsidiary of the National Steel Corporation. This concern completed and put into operation within 6 months one of the largest blast furnaces in the world, which produces 450,000 tone of pig iron B. year. Under ordinary circumstances it is said that such furnace would require 12 to 18 months for completion. Automobile producers, normally the largest consumers of steel, are reported to be suspending almost all of their unfilled steel orders, because of the automobile curtailment program. This is having the intended result of providing greater facilities for defense orders. Steel operations, which last week rose 0.4 point to 97.9 percent of capacity, are scheduled at 93.4 percent of capacity during the current holiday week. The Carnegie- Illinois Steel Corporation, the country's largest producer, has announced that its blast furnaces, coke ovens, certain open hearths and various other facilities will operate on Christmas. Increased copper output sought One of the most serious bottlenecks in the entire defense program has been the shortage of non-ferrous metals. Near the end of the week representatives of the copper industry met with OPM and other Government officials to discuss means of expanding output, including steps to improve working efficiency and to reopen mines now closed. Regraded Unclassified 227 - 6 - In a move to alleviate the copper shortage, two of the largest domestic producers, the Anaconda Copper Mining Company and the Phelps Dodge Corporation, recently announced that all their properties were going onto B. 3-shift basis, 7 days a week. Before the end of the year the latter company is expected to begin operations at its new open pit Morenci mine which has been under development for 5 years. This mine is expected to add 75,000 tons a year (nearly equal to one month's total industry output) to the country's copper production. Large increase in shipbuilding employment expected As an important offset to unemployment caused by curtail- ment of production in some civilian goods industries, further substantial gains are in prospect for shipbuilding employment. The number of workers employed in ship construction and repair work has risen from less than 100,000 in January 1939 to around 500,000 in the current month. On top of this unusually sharp rise, the Bureau of Labor Statistics esti- mates that shipbuilding employment will show & further gain of 234,000 men by November of next year, solely on the basis of contracts on hand at the end of last September. Sizeable additional shipbuilding contracts have been awarded since the end of September, and further large increases appear almost certain. War hits department store sales Actual figures for department store sales, now available for the opening week of the war, tend to corroborate earlier reports that sales had slumped sharply after the Japanese attack, particularly in coastal cities. Thus despite a 15 percent rise in prices, department store sales in the week ended December 13 ran only 1 percent above year-earlier levels A8 compared with a gain of 9 percent in the previous week. (See Chart 4.) Moreover, the San Francisco, New York, Boston and Philadelphia areas actually showed declines from year-earlier levels running from 1 to 5 percent. Significantly, the best showing was made by the St. Louis district, where sales ran 10 percent above the corresponding week in 1940. Preliminary reports indicate that some recovery was shown last week from the slump occasioned by the outbreak of war, but it is said that trade is still below the levels Regraded Unclassified 228 - 7 - expected earlier in the year. One source reports that the growing practice of corporations to give their Christmas bonuses in the form of defense bonde and stamps, together with the fact that many individuals are giving defense bonds instead of other gifts, has retarded trade, New orders higher With all major components showing gains, our index of new orders in the second week in December rose substantially above the levels of the two preceding weeks. (See Chart 5.) The outstanding factor in the rise in that week (the first week of the war) was a sharp gain in electrical equipment orders, which pushed the "all other" component up to the high- est levels since the second week in October. New orders for steel also expanded substantially and rose to 109 percent of capacity from 84 percent in the previous week. COMPARISON OF PRICE MOVEMENTS OF 20 "WAR" STOCKS AND 20 "PEACE" STOCKS* 229 August 1939-100 Chart 1 1939 1940 (94) 1941 § o N D J F M A MJJASONDJFMAMJ mudito J A $ o N D AUG. SEPT. OCT NOV. DEC A 11 10 & = is 17 è = - is - . = = 29 & a so If PER ER PER ENT WEEKLY Friday Quotations CENT CENT DAILY 60 160 160 40 140 Wor Stocks 140 20 120 120 Wor Stocks 00 100 100 BO 80 80 "Peace" Stocks "Peace" Stocks 60 60 60 40 40 40 ER PER PER NT CENT CENT Oc) (Ratio) Ratio of "War" Stocks (Ratio) to "Peace" Stocks 00 Rotio of "War" Stocks to "Peace" Stocks 200 200 MAIL . GRAMP INVANCE DO IND Genial 180 180 - 14. Dell 7 Sex, T 60 - sur James - OCCUPT - as Artens 160 ATTACKS 160 - Taxis - within DEPARTY invents Name) main APRIL . - INVASES - 40 APRIL 17 140 140 ATHERS EVERINDERS 20 JULY or 120 120 - REGINA MASS air NATES -- . - AG - - - AFTABLE --- : - 100 100 - - - BO A 5 DI N° 0 J F M A M J J A S o N o J F M A M J J A S o N D 80 a M 4. a 30 #7 4 " - is I . = 12 2 & : NO FT BO AUG. SEPT OCT. NOV. DLC. 1940 1941 1941 . Stocks relected an basis of relative benefits from prolonged nor vi early peace inderes are weighted overager of price relatives . I 4 - F-223-* - Regraded Unclassified COMMODITY PRICES AND COST OF LIVING 1926 - 100 PER PER - Inter CENT CENT Monthly Das is 92 92 90 90 88 88 86 86 Cost of Living. N.I.C.B. 84 84 82 82 80 80 78 78 889 Commodities, B.L.S. 76 76 74 74 1935 1936 1937 1938 1939 1940 1941 PER PER CENT CENT Weekly 92 92 88 88 84 84 889 Commodities, B.L.S: 80 80 76 76 72 72 28 Basic Commodities, B.L.S.: 68 68 64 64 60 60 56 56 A 5 o N D J F M A M J J A $ o N D J F M A M J 1941 J A $ o N o 1939 1940 "30 Commodities Prior to January 1940 230 - - P-196-3 Regraded Unclassified MOVEMENT OF BASIC COMMODITY PRICES 231 AUGUST 1939-100 Chart m PER PER PER PER Weekly Average CENT CENT Daily CENT CENT 170 170 170 170 160 160 // Imported 165 165 Commodities 150 150 160 // Imported 160 Commodities 140 140 17 Domestic 155 155 Commodities 130 130 150 150 120 120 17 Domestic Commodities 110 145 145 110 100 140 140 100 A J A S o N D J F 4 a 10 If # II is 25 - e is If 29 & a su A $ o N D J F M M J 1942 SEPT OCT. NOV. DEC. 1940 1941 1941 Percentage Change for Individual Commodities, August 1940 Low to December 12 and to December 19. 1941 PER PER CENT CENT 17 Domestic Commodities Il Imported Commodities Tollow 15372 +150 +150 "Cottonseed Dil 1364X Cocoo 125.7% Shellac 124.1% +125 +125 Lord 9918 aReain 954X Barley 92.9% +100 Coffee 945t *100 Cotton 808% What 76.8% Buriap 72.9% +75 "Print Cloth 73./X +75 Hoge 71.6% "Hides 59.0% Zinc 3012 Wast 49.9% Butter 29.2% +50 Flaxseed 40.1% +50 Steem 25.02 Sugar 34/% alead 23.2% «Corn 215% Silk 21.0% +25 +25 Copper 118% Rubber 16.9% Steel Scrap.dam. 87% Tin 30% Steel Screp exp. 2.7% o Dec.12 Dec 19 o Aug. 1940 Dac. 12 Dec.19 Aug. 1940 Cow Low P-WA-S-1 I I Regraded Unclassified Chart 4 232 DEPARTMENT STORE SALES 1935 - '39 . 100, UNADJUSTED JAN. MAR. MAY JULY SEPT. NOV. PER PER CENT CENT Weekly 240 240 220 220 200 200 180 180 160 160 140 140 '41 12U 120 100 100 BO 80 '40 60 60 JAN. MAR. MAY JULY SEPT. NOV. The el M Secretary of the Treasury of - and C 390 Regraded Unclassified G THAT - 233 - I I I Il a I 5 1961 0161 4141 e . . 0 e 04 KIMMO 0112048 or N 1MM M or is or - 5 8 05 mm < or & 8 as - nh 20 Myr Total escluding Blool and Testiles W 8 8 s os (6) 001 011 ou OZI 021 on DCI OH 061 < 140 051 091 91 are 021 081 OBL 051 051 02 M 002 and . Total (embined indext 012 DIE an OZZ N DEZ orz or one ost 052 ost 092 our our 002 092 062 062 SINIOR o . o , - # 4 - , L a . o = « . < . / F 0 . o $ V 1961 1960 6E6 I Combined Index of New Orders and Selected Componente INDEXES OF NEW ORDERS 231 DEC 22 1941 Dear Mr. Secretary: I have your letter of December 17, 1941, in -hich you state that it vould seriously handicap the offensive and defensive operations of the Army Air Forces if they were instructed to take measures looking towards compliance with the tariff laws with respect to merchandise and brought into the United States in mili- tery aircraft. I believe that this matter should be seri- ously reconsidered. You will note that the in- structions requested by this Department did not contemplate any detention of aircraft and did not necessarily require any immediate disclosure, even to customs officers, of the operations of such craft. It seems unlikely to me that your Department will find it necessary to permit the carriage of merchandise and baggage in military aircraft in any manner which would necessarily involve clear infraction of the laws of this country. Sincerely yours, T. If. Secretary of the Treasury. The Honorable The Secretary of Var. By Nameur Sharts WRJ-esb N.P.C. Regraded Unclassified WAR DEPARTMENT WASHINGTON (11-27-41) B DEC 17 1941 The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: Further reference is made to your letter of November 27, 1941, signed by the Acting Secretary, requesting that appropriate instructions be issued with reference to merchan- dise and baggage brought into the United States in military airoraft subject to customs entry, examination and payment of duties. This matter has been given careful consideration in the War Department and since such action would seriously headicap the offensive and defensive operations of the Army Air Forces, it is not believed practicable to comply with your request. Sincerely yours, Hurry L. Stimson Secretary of Mar. Regraded Unclassified WNITE war DEPARTMENT (11-87-11) WASHINGTON DEC - 2 1941 The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: Receipt is acknowledged of the letter of November 27, 1941, signed by the Acting Secretary, requesting that appropriate instructions be issued to the proper authorities with reference to merchandise and baggage brought into the United States in aircraft subject to customs entry, exami- nation and payment of duties. The matter is receiving attention and you will be given a further reply at a later date. Sincerely yours, Henry h Secretary of Stines War. Regraded Unclassified 237 Nov. 27, 1941 MY deer Mr. Secretary: civil aircraft arriving in the United States from a foreign port or place are required by the Air Come rce act of 1926. B.S amended (U.S.C. title 49. sec. 177) and the regulations thereunder, to make the first landing at en airport of entry unless permission to land else- chere 10 obtained in advance from the Commissioner of Customer Weshington. D. C. The term "civil aircraft" does not include aircraft used exclusively in the governmental service of the United States or E foreign country and not carrying per- sons or property for commercial purposes. Therefore, military aircraft arriving in the United States are not subject to the requirement cited. However, merchandise and baggage brought into the United States on such air- cruft are subject to custome entry, examination and payment of duties, If any are due, in the name manner -- like merchandise and baggage brought in by other modes of transportation. In order to assist the customs service of this Dep rtment in the enforcement of the laws which it is charged to administer, it is requested that you issue appropriate instructions to the commending officers at U. S. airfields and bases and to the operators of military aircraft under your jurisdiction BO that in the event any merchandise or baggage io brought into the United States in military or naval aircraft, the nearest customs officer will be notified immediately and the de rchandise or beggng* held intact until custome inspection and clearance can be bed. A similar request is being made of the Secretary of the Navy. This Department would like advice 83 to any instruc- close which you may issue 80 that the customs officern may be appropriately informed. Your cooperation in this matter will be greatly appreciated, Very truly yours, (Signed) Berbert 3. Gaston Acting Secretary of the Treasury to Honorable, The Secretary of War 11/26/41 Regraded Unclassified 238 December 22, 1941. Dear Mr. Schram: Thank you for your nice letter of December 18th. Your expression of confidence is very much appreciated. I an sure the New York Stock Exchange, under your leader- ship, will share the responsibility we are facing during this emergency. Best wishes for the coming year. Sincerely, (Signed) 1. Morgenthams Mr. Emil Schram, President, New York Stock Exchange, Eleven Wall Street, New York, New York. cc-2hamp n.m.c. GB:amo 12/22/41 Regraded Unclassified 239 New Dork Stock Exchange, PRESIDENTS OFFICE December 18, 1941 Dear Mr. Secretary: On behalf of myself and my associates here in the financial com- munity, I wish to send you this word of appreciation for the vitally im- portant job you are doing and for the wisdom and courage with which you are facing the grave tasks which lie ahead. We are unanimous in extending to you our wholehearted loyalty and sup- port. Best wishes for the Christmas season. Emith Sincerely Schram yours, Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Regraded Unclassified 240 December 22, 1941 Dear Felix: Thank you for your cheerful note of December 19th. Randolph Paul has gotten off to a good start. I have re-read your letter three times, and I do not know how long "be- fore very long" is that I have to wait for an invitation to lunch. I will fur- nish the apple if you will furnish the snake ala Eve. Sincerely yours, 151 Henry Honorable Felix Frankfurter, Supreme Court of the United States, Washington, D.C. By Land 9:00 am. Shorts 12/23/41 241 Supreme Court of the United States Mashington. D.C. CHAMBERS OF USTICE FELIX FRANKFURTER December 19, 1941 Deur Henry: h word of congratulation to you in having summoned Randolph Paul as one of your aides. And before very long I hope I can snake you for & Luncheon or something. These are more than crowded days for all of us but, after all, even you have to eat lunch. Keep fit - we week you Ever yours, FT. Hon. Henry Morgenthau, Jr. Regraded Unclassified 242 December 22, 1941. My dear Mr. President: Rabbi Jomah 3. Vise has sent no a copy of a prayer, issued in proclamation form by Abraham Lincola on March so, 1863. It occurred to Rabbi Vise that you would be interested in reading this, and that you might at some time make use of its contents. I as therefore sending you a copy of the document herevith. Faithfully yours, (Elkned) 1, Morgesthan, 102 The President, By Messager Semmer The White house. 12:45 Enclosure. OFF/dbs Regraded Unclassified 243 December 19, 1941 Dear Rabbi Wise: Thank you very much for sending me the text of the Lincoln prayer. It is one that I had not seen before, and I all very glad to have it. I intend to show it to the President at some appropriate time, in the hope that he can make use of it. Mrs. Morgenthau and I want to thank you for your greetings, and we send our best regards to you both. Sincerely, (Signed) deark Rabbi Jonah B. Wise, 35 East 62nd Street, New York, N. Y. FK/hkb 12/19/41 Copies to Shompson nm C Regraded Unclassified TO: 244 Mrs. McHugh 12/18/41 This prayer is a little too abject for my taste. I wouldn't send it to the President now, but I would hold it in reserve. F.K. Att: Rabbi Wise letter of 12/15/41 and proclamation by Lincoln 3/30/1863. MR. KUHN Regraded Unclassified 245 CENTRAL SYNAGOGUE 55TH STREET AND LEXINGTON AVENUE STATE Kh RABBI JONAH B. WISE 15 EAST 62nd STREET NEW YORK 0 OUNDED x 8 December 15, 1941 Henry Morgenthau Jr. 2434 Belmont Road asshington, D. C. 11007 Mr. Morgentheu: Mrs. Mise and I wish to call the attention of the President to the enclosed prayer which, as you will notice, was issued by proclamation by Abroham Lincoln, on March 30, 1863. We have B feeling, from hearing the President speak, that this prayer will mean some- thing to him. With kindest personal regards to you and ars. Morgenthau, in which Mrs. wise joins me, I EMILL Just Sincerely B. Wise yours, B. Wine JBW/ks I and of Insul tradest station Jonéh the included on the allerge at 7 P.C. Bwad enclosure M.I. last Naturday 2. of Natural casting bo Regraded Unclassified 246 PROCLAMATION BY ABRAHAM LINCOLN MARCH 30, 1868 And whereas, it is the duty of nations as HELL as of men to own their dependence upon the over- ruling power of God, to confess their sins and transgressions in humble surrow, yet with assured hope that genuine repen- tance will lead to mercy and pardon; and to recognize the sublime truth, announced in the Holy Scriptures and proven by all history, that those nations only are blessed whose Cod is the Lord; And insomuch as we know that by His divine law nations like individuals are subjected to punishments and chastisements in this world, may we not justly fear that the awful calamity of civil war which now desolates the lind may be but a punishment inflicted upon us for our presumptuous sins, to the needful and of our national reformation as a whole people. We have been the recipients of the choicest bounties of Heaven. i.e have been preserved, these sany vears, in peace and prosperity, lie have grown in numbers, wealth, and power ES no other nation hes ever grown; but we have forgotten God. we have forgotten the gracious hand which preserved us in peace, and multiplied and enriched and strengthened us; end we have vainly imagined in the deceitfulness of our hearts, that all these Regraded Unclassified 247 PROCLAMATION BY ABRAHAM LINCOLN - page 2 blessings were produced by some superior wisdom and virtue of our own. Intoxicated with unbroken success, we have become too self-sufficient to feel the necessity of redeeming and preserving grace - too proud to pray to the God that made us. It behooves us, then to humble ourselves before the offended Power, to confess our national sins, and to pray for clemency and forgiveness. All this being done in sincerity and truth, let us then rest humbly in the hope authorized by the divine teschings, that the united cry of the nation will be heard on high, and answered with blessings no less than the pardon of our national sins and the restoration of our now divided and suffering country to its former happy condition of unity and peace. (From AUTOBIOGRAPHY OF ABRAHAM LINCOLN - Bobbs-Merrill Co. Regraded Unclassified 248 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Dec. 22, 1941. Secretary Morgenthau TO FROM P.T.. Foley, Jr. On December 8, 1941, General Motors Overseas Corporation filed with the Federal Reserve Bank of New York an application (NY 320069) to remit direct $2,500 to each of four sisters located in Denmark of Mr. Knudsen or, in the alternative, to credit the account of General Mators International A/S, Copenhagen, Denmark, the Danish subsidiary of General Motors with the amount of 310,000 covering remittances to be made by it of the kroner equivalent of $2,500 each to Mr. Knudsen's four sisters, This application was denied by the Federal Reserve Bank of New York under instructions of the Foreign Funds Control, dated December 12, 1941. These instructions were issued in strict accordance with established policy. Under General License No. 32 the amount of funds which may be remitted monthly to non-American citizens located in Denmark is $100, plus $25 per month for ad- ditional members of the household, but not in excess of 7200 per calendar month to any one household. The amount limits thus established are not being deviated from by the Foreign Funds Control. Mr. Knudsen desiros to make the remittances in one of two ways. The first is to remit the $2,500 direct to his sisters. This would involve the establishment of B. free dollar account for $10,000. Since October 23, 1941, When General License No. 32 was amended to eliminate the free dollar provision no free dollar accounts have been permitted to be established for remittances to non-American citizens. Accordingly, It is clear that such remittances could not be allowed in favor of Mr. Knudsen. Regraded Unclassified 249 . 2 - The other method suggested in the application filed on behalf of Mr. Knudsen is to effect the remittances by crediting the dollars to General Motors' Danish subsidiary. This in effect would permit a remittance against blocked dollars, which is obviously much less objectionable. The Foreign Funds Control is willing to allow such a remittance within the amount limits specified in General License No. 32. This will allow Mr. Knudsen to send for the month of December, assuming that each of his sisters is married and has three children, the total of $200 for each of such sisters, or $800. The Federal Reserve Bank of New York has been instructed to issue such a license. 9 1~76 Regraded Unclassified TO: 250 MISS CHAUNCEY The original of this memo was given to the Secretary yesterday but at his request was superseded by the shorter memo, copy of which was transmitted to Mr. Knudsen. 12/24/41. 0 MR. FOLEY 251 Dec. 22, 1941 Decretary Morgenthan :- H. Foley, Jr. On December 8, 1941, General Motors Overseas Corporation filed with the Federal Reserve Bank of New York an application (NY 320069) to remit direct $2,500 to each of four sisters located in Denmark of Mr. Knudsen or, in the alternative, to credit the account of General Cotors International A/S. Copenhagen, Lenmark, the Danish subsiciary of General Motors with the amount of $10,000 oovering remittances to be made by it of the kroner equivalent of -2,500 each to Mr. Knudsen's four sisters. This application was denied by the Federal lesorve Bank of New York under instructions of the Foreign /unés Control, dated December 12, 1941. These instructions were issued in strict accordance with established policy. Under General License No. 32 the amount of funds Which may be remitted monthly to non-American citizens located in Lenmark is $100, plus $25 per month for ac- ditional members of the household, but not in excess of 3200 per calendar month to any one household. The amount limits thus established are not being deviated from by the Foreign Funds Control. Mr. Knudsen desires to make the remittances in one of two ways. The first is to remit the $2,500 direct to his sisters. This would involve the establishment of a IDEE dollar account for $10,000. Since October 23, 1941, when General License No. 32 was amended to eliminate the free dollar provision no free dollar accounts have been permitted to be established for remittances to non-American cillzens. Accordingly, it is clear that such remittances could not be allowed in favor of dr. Knusen. Regraded Unclassified 252 - 2 - The other method suggested in the application filed on behalf of Mr. Knudsen is to effect the remittances by crediting the dollars to General Motors' Danish sub- sidiary. This in effect would permit a remittance against blocked dollars, which is obviously much less objection- able. The Foreign Funds Control is willing to allow such a remittance within the amount limits specified in General License No. 32. This will allow Mr. Knudsen to send for the month of December, assuming that each of his sisters is married and has three children, the total of $200 for each of such sisters, or $800. The Federal Reserve Bank of New York has been instructed to issue such & license. (Initialed) E. H. F., Jr. JWP/ma - 12/22/41 (Dictated over the phone by Miss Hiller). Regraded Unclassified 253 DEC 22 1941 Dear Bill: Attached is a memorandum in regard to your application for a permit to remit funds to your relatives in Lennark. I think within the amount limits referred to in the memorandum something can be done. Your representative should work out the details with our people in the New York Federal Reserve Bank. Sincerely, (Signed) Heary Mon. William S. Knudsen Office of Production Management Social Security Bullding Washington, D. C. Inclosure. By Memenger Brown 3:25 BLT:EHF/mp 12/22/41 Initialed; BLT JWP BB n.m.c. Regraded Unclassified 254 Secretary Morgenthau December 22, 1941 E. H. Foley, Jr. On December 8, 1941, General Motors Overseas Corporation filed with the Federal Reserve Bank of New York an application (NY-320069) to remit direct $2500 to each of 4 sisters located in Denmark of Mr. Knudsen or, in the alternative, to credit the account of General Motors International A/S, Copenhagen, Denmark, the Danish subsidiary of General Motors, with the amount of $10,000 covering remittances to be made by it of the kroner equivalent of $2500 each to Mr. Knudsen's 4 sisters. This application was denied by the Federal Reserve Bank of New York under instructions of the Foreign Funds Control, dated December 12, 1941. These insturctions were issued in strict ac- cordance with established policy. Under General License No. 32 the amount of funds which may be remitted monthly to non-American citizens located in Denmark is $100, plus $25 per month for additional members of the household, but not in excess of $200 per calendar month to any one household. The amount limits thus established are not being deviated from by the Foreign Funds Control. The Foreign Funds Control is willing to allow 8. remittance within the amount limits specified in General License No. 32. This will allow Mr. Knudsen to 8 end for the month of December, assuming that each of his sisters is married and has three children, a total of $200 for each of such sisters, or $800. Mr. Knudsen's representative should work this out with Mr. Kimball of the Federal Reserve Bank of New York. (Initialed) 1. N. "., Jr. Regraded Unclassified 255 Recember 22, 1941 our Francist attached are (1) cable from Sayre, (*) proposed memorandum to the President, and (a) proposed cable to Boyre, which we will send If the President approver. Before submitting the memorandum to the President, 1 would like to have your suggestions or criticisms. If you could telephone me in the merning after you have hat a chance to read these drafts, it will help matters materially. Mincerely, (Signed) R.B. Foley, Jr. The Honorable, The Attorney General. Enclosures EMPJr:vls - 12/22/41 Regraded Unclassified 256 Manila, scember 10 - 7 22 requiry 0 artment ton, Your tele Tax acember eleventh re energ reporty to doot Tobleus hare urisin from fact this Is the noti Bilitary operations an in view present onsible han rade of allons an other have Lean interned and separated from their reperties. No allitary nurson- .01 Cau be seared to suard such roperties. Luch enemy property cust le requisitioned for military, naval and civilian corr ency 308. Silitary, have and civilia emer gency administration needs at le ordinated on such problems and records kept :: all such rog isitioning. Authority necessar to one e personnel and inour other 53 colltures for custols and supervisory work. lease specify what fund salaries and necessary expenses are to 00 aid. within to continue eration some enemy-owned industriss such as textiles, dair and poultry farms and the like in coopurat on with Commonwealth overnment, its a encies and others. Milly Jurira le that ecific authority be given to enter into any sort of a receent with Com onwealth Government or others for custodial and upervisory work including arran enents for continuing operations incer UNP supervision. ower of sale without vublication of enemy pro crty should extend beyond perishables and include any enemy crty where such sale la deesed needenar, LOCATITE of sur a of var or for other military or administrative reasons. pecial athorization la Le 1van for continued operation extensive Ja anose hemp plantations in Davao for defense purposss. In final analysis all arren e onts canst be subordinated to Military neces- sities and therefore subject to the military directive of the andin beneral. My :7 all of these reperties day at any time Le actually in & zone of real combat, and therefore subject to capture and recapture. Fore going Su tions relate to immediate eder ency needs here. I sho ld appreciate your advising ne what lans are In contemplation with are to creanent administration of enemy roport and particularly with respect to hillppines. longe fornish CO ies of t is radio to Interior, tate, ar and other interested de) artments. (tio signature WAB on t. is cable) Regraded Unclassified 257 FOR THE PRESIDENT The High Commissioner to the Philippines has cabled Be that it is imperative that he receive 1m- mediately adequate authority and funds to deal with enemy property in the Philippines. / copy of such cable is attached. Sayre states that the property of interned enomy aliens must be guarded and military personnel cannot be spared. In some cases the Government must move in and operate enemy properties whose continued production is essential for defense purposes. Much enemy property must be seized or requisitioned for military, naval and civilian emergency uses. Records must be kept. Military, naval and civilian adminis- tration measures dealing with enemy property require coordinating. Funds for meeting these activities must be provided. As you know, the High Commissioner has been handling freezing control for me in the Philippines for the past twenty months and I have always delegated broad powers to him 50 that he could exercise his own judgment in dealing with Philippine matters. Since July of this year I have provided him with 6. staff of experts tobelp him deal with the Japanese situation under freezing control. fie has been doing a good job. Under Title III of the First Mar Powers Act, 1941, which you approved December 18, 1941, you are granted complete powers over foreign property and can deal with enemy property on any basis consintent with our war effort. I strongly recommend that the Righ Commissioner be notified at once that he may meet the Regraded Unclassified 258 - 2 - present emergency by exercising any or all of the powers conferred upon you by such legislation. At the BRISE time I will notify him that he can draw on our freezing control appropriation for any funds he needs to carry out this program. Attached to this memorandium in e draft of a proposed cable from me to the High Commissioner covering this matter. If you approve I will have the cable despatched at once. I do not think this matter can be delayed pending the issuance of an Executive order relating to enemy property in this country. 1 approve the foregoing action. WHITE HOUSE, December - 1941. AFL:BV/ma - 12/22/41 Regraded Unclassified