Volume 516, April 13 – April 15, 1942

DIARY Book 516 April 13 - 15, 1942 - B - Book Page Bautzer, Gregson - Lieutenant, United States Naval Reserve Investigation of - Analinger memorandum - 4/13/42 516 50 British Purchasing Mission Federal Reserve Bank of New York statement showing dollar disbursements, week ending April 1, 1942 - 4/13/42 61 Business Conditions Haas memorandum on situation, week ending April 11, 1942 - 4/13/42 34 - 0 - China Loan: To appear in budget as "War Expenditures Loan to China" - 4/15/42. 269 Consumer Credit See Inflation - D - - Djamgaroff, George See Fish, Hamilton Dominican Republic See Fish, Hamilton - E - Exchange Market Resume's - 4/13/42, etc. 72,220,441 Exports Freight Situation - - Haas memorandum - 4/15/42 427 - F - Financing, Government Estimates revision discussed by HMJr, Bell, Haas, Buffington, Hadley, Baker, and Murphy - 4/15/42 274 a) Stacy May's previous estimates (March 7, 1942) discussed 285 Tax Notes, Series A and B - resume' of sales - 4/15/42.. 286 War Savings Bonds: Agents: For complications introduced by Comptroller General, see General Motors program Voluntary Savings: See Inflation Josten, Werner: 111 soldiers send in words for marching song to be composed by - 4/13/42 27 Comparative statement of sales during first 10 business days of February, March, and April, 1942 - 4/13/42. 32 Regraded Unclassified - 1 - (Continued) Book Page Financing, Government (Continued) War Savings Bonds (Continued): Payroll Savings Plan: General Electric Company program discussed at conference; present: HMJr, Graves, Buffington, Houghteling, Gamble, Peare, and Neal - 4/14/42 516 126 a) Copies sent to Doughton, George, Barkley, etc.: See Book 520, page 328 General Motore program discussed by representatives of the company and the Treasury - 4/14/42 154,180 a) Doughton asked by HMJr to see company representatives - 4/14/42 175,300 1) Testimony: Book 517, page 6 2) Pictures of appearance in House of Representatives: Book 517, page 189 b) Issuing complicated by Comptroller General's lack of cooperation (Iseby-HMJr conversation) - 4/15/42 264 1) Lindsay Warren--HMJr conversation - 4/15/42 319 2) Lindsay Warren-HMJr conversation repeated to Iseby 323 3) See Comptroller General's letter - 4/23/42: Book 520, page 78 c) Detroit has only second-class Post Office - another complication - 4/16/42: Book 517, page 62 d) Conversations with Thomas and Reuther reported by Houghteling - 4/15/42 288,297 e) HMJr's telegram of congratulation to Wilson: Book 517, page 47 Summary of operation in firms with defense supply contracts of $2 million or more. 332 Seaver, Jane: Graves' memorandum on connection with War Savings Bonds staff - 4/14/42 188 Delay to be investigated: 1000 postal cards of inquiry to each of 12 Federal Reserve Districts - 4/15/42 327 a) Haas memorandum reporting on first 4000 answers received - 4/27/42: Book 521, page 89 Books of Defense Savings Stamps (10d and 25d denominations): Investigation of errora in contents - 4/15/42. 329 Fish, Hamilton Income tax returns being checked - 4/15/42 386 a) Djamgaroff, George (Director of Propaganda in United States for Dominican Republic): Protege of Fish Foreign Funds Control Neutral European countries (Portugal, Spain, Sweden, Switzerland, and Turkey): Definitive information requested with respect to amount of production of American-owned establishments being exported from - 4/15/42 415 Vonsiatsky, Anastasi Andre: See also Book 447 Criminal case against - 4/13/42 52 Freight, Export See Exports Regraded Unclassified - G - Book Page General Electric Company See Financing, Government: War Savings Bonds (Payroll Savings Plan) General Motors Corporation See Financing, Government: War Savings Bonds (Payroll Savings Plan) Great Britain White to represent Treasury at meetings to discuss financial and monetary aspects of relations between United States, Great Britain, and Iran - 4/15/42. 516 431 - I - Inflation Excess Profits: Conference: present: HMJr, PAUL, Sullivan, and Blough - 4/13/42 B a) Excess profits talk between FDR and HMJr reported 1) Auditore to visit dosen Army, Navy, and Marine contractors suggested by HMJr 9,250 2) Officers of companies working on Government contracts limited to $50,000 yearly, plus transportation, suggested by FDR. 10 Conference; present: HMJr, Paul, Sullivan, Blough, Helvering, Patterson, Nelson, Marbury, Forrestal, Anderson, and Land - 4/14/42 85,235 a) FDR informed Treasury to be furnished with names of 36 corporations having contracts with Army, Navy, and Maritime Commission - 4/14/42 110 Rationing, General: Discussion at Brookings Institute - 4/13/42 23 Consumer Credit - recent developments in: Haas memoranda - 4/13-14/42 24,200 a) Regulation W of Consumer Credit discussed by Ransom and HMJr - 4/15/42 293 (See also Book 518, page 47 - 4/18/42) Sales Tax - evile of: Treasury memorandum for FDR's press conference - 4/14/42 114 Savings, Voluntary: Conference between Houghteling and Murray (President, Congress of Industrial Organizations) - 4/13/42 30 Iran White to represent Treasury at meetings to discuss financial and monetary aspects of relations between United States, Great Britain, and Iran - 4/15/42 431 Iranian-Anglo exchange dispute discussed in American Embasey, London, memorandum - 4/29/42: Book 522, page 131 Regraded Unclassified - J - Book Page Jewish Welfare Board See Speeches by HMJr Josten, Werner See Financing, Government: War Savings Bonds - L - Lend-Lease U.S.S.R.: See also Books 499, 506, 507, 509, and 513 Ports at Baltimore, Philadelphia, and New York discussed by HMJr and Lewis Douglas - 4/14/42 516 147 a) Baltimore situation discussed by Patterson and HMJr - 4/20/42: See Book 518, pages 158 and 160 Bottom cargo sent from mills to Philadelphia - 4/14/42 195,196 (See also Book 517, page 90 - 4/16/42; Book 518, page 163 - 4/20/42) Douglas-Tickton conference - 4/16/42: Book 517, page 93 - M - Marcey, Herbert L. - Captain, White House Guards See Secret Service May, Stacy See Financing, Government Military Reports British operations reports - 4/13/42, 4/15/42 73,442 Kamarck summaries - 4/13-14/42 80,232 Coordinator of Information reports: British Home Intelligence report - 4/14/42 222 British Political Warfare Executive - German directive of - 4/14/42. 226 British Ministry of Economic Warfare propaganda survey - 4/14/42 230 Mint, Bureau of New Orleans Mint discontinued; consequent amendment to Provisional Gold Regulations issued under Gold Reserve Act of 1934, as amended - 4/15/42 405 Monetary Research, Division of Report on projects during January, February, and March, 1942 - 4/15/42 387 - N - New Zealand Wool shipments discussed by HMJr and Nash, and HMJr and Wallace - 4/14/42 151 a) Nash letter - 4/17/42: Book 517. page 306 Regraded Unclassified - o - Book Page Office of Facts and Figures Speeches - clearance of - 4/14/42 516 184 - P - Portugal See Foreign Funds Control - R - Rationing, General See Inflation Reuther, Walter See Financing, Government: War Savings Bonds (General Motors program) Revenue Revision For discussion of profite on defense contracts, see Inflation, Book 516, and Revenue Revision, Books 514-515 Sales Tax - evils of: Treasury memorandum for FDR's press conference - 4/14/42 114 Corporation net income for 1942 - information on estimated amount sent to Senator George (Chairman, Committee on Finance) - 4/14/42 116 Excise Tax Returns: Proposed Treasury decision authorizing and providing rules and regulations for the inspection of a) Draft - 4/15/42 255 b) Regulation - 4/20/42: See Book 518, page 175 Roosevelt, James (Bautzer, Gregson . - Lieutenant, United States Naval ( Reserve (Spitzel, Herman - Lieutenant Commander, United States Naval Reserve Investigations of - Analinger memorandum - 4/13/42.. 46 a) Spitzel's resignation to be permitted- 4/15/42 385 - S - Savings, Voluntary See Inflation Seaver, Jane See Financing, Government: War Savings Bonds Secret Service Marcey, Herbert L. - Captain, White House Guards: Office of Price Administration asks investigation of in connection with tire rationing - 4/14/42 192 Spain See Foreign Funds Control Regraded Unclassified - S - Book Page Speeches by HMJr Steinberg, Milton - Rabbi (New York City): Will help on speech before Jewish Welfare Board - 4/13/42. 516 26 a) Joseph Gaer draft: See Book 517, page 66 b) Kuhn draft A: Book 517, page 210 c) If If B: If If II 215 d) Reading copy 4/18/42: Book 518, page 22 Spitzel, Herman - Lieutenant Commander, United States Naval Reserve Investigation of - Anelinger memorandum - 4/13/42 46 a) Resignation to be permitted - 4/15/42 385 Steinberg, Milton - Rabbi (New York City) See Speeches by HMJr Sweden See Foreign Funds Control Switzerland See Foreign Funds Control - T - - Taxation See Revenue Revision Thomas, R. J. See Financing, Government: War Savings Bonds (General Motors program) Turkey See also Foreign Funds Control United States currency eituation reviewed for American Embassy, Ankara, by Treasury - - 4/14/42. 217 - V - Voluntary Savings See Inflation Vonsiateky, Anastasi Andre See Foreign Funds Control - W - War Savings Bonds See Financing, Government Warren, Lindsay (Comptroller General) See Financing, Government: War Savings Bonds (Payroll Savings Plan General Motors program) Wool See New Zealand Regraded Unclassified 50 - 4 - LT. GREGSON BAUTZER, U.S.N.R. This officer is Herman Spitzel's attorney and obtained his commission through his client. Ee is stationed in Washington in the same Division with Spitzel, and is under investigation with Spitzel. He has been reported several times as being engaged to DOROTHY LAMOUR, the movie actress. About a year ago he accompanied her on A trip to Honolulu, HERMAN SPITZEL'S ASSOCIATES JOHNNIE ROSSELLI - allegedly an insurance business asso- ciate of Spitzel. He is reported to be in control of Italian racketeers in Los Angeles, Cal. He has been arrested several times and has been involved in a murder case. RAYMOND ELEINBERGER - Police Commissioner under Mayor Shaw. JOSEPH MARCHETTI - Judge, Loe Angeles Municipal Court. ORSATTI BROTHERS - Frank Orsatti, actor's agent, was at one time connected with TONY PARMAGINI's narcotic syndicate. He quit this business several years before the gang was sent to the penitentiary. Recently, he figured in a transaction involving BENNY SIEGEL, who is being held in Los Angeles for New York authorities on & charge of murder. Mysterious financial transactions took place between CHARLES WARD, politician of Minneapolis, and BENNY SIEGEL, in which Orsatti was in some way involved. The Income Tax Unit has investigated these money transfers. Regraded Unclassified Hrn asked me Klane to keep him formed TREASURY DEPARTMENT 52 INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE April 13, 1942 TO Secretary Morgenthau FROM Mr. Klaus I learned unofficially from the Department of Justice that a criminal case against Anastasi Andre Vonsiatsky is boing prepared to be submitted before a Grand Jury in Connecticut, probably next week. I thought you would be interested. S&C. 53 GENERAL ANILINE & FILM CORPORATION P y 230 Park Avenue New York April 13, 1942 Mr. Joseph J. O'Connell, Jr. Assistant General Counsel Treasury Department 3303 Chanin Building New York, N. Y. Dear Mr. O'Connell: On April 11, Secretary Morgenthau requested in- formation regarding war production progress in our Binghamton plant. The present management appointed by Secretary Morgenthau were elected to office on March 16 under directive which emphasized the desirability of im- mediately converting all capacity, in so far as possible, to war production. Mr. A. E. Marshall was assigned to the Binghamton Division. He arrived at Binghamton on March 22, since which time the present Board has executed the following contracts: March 24 Sextants for the Air Corps $2,259,624.90 March 26 Bomb Tail fuse contract 1,054,868.68 March 27 Collimators for the Air Corps 108,062.00 April 7 Air Corps cameras 122,092.00 April 13 Extension of Bomb Tail Fuse contract for production after January 1, 1943 783,000.00 Navy Torpedo Parts 70,782.04 Buffalo Arms Co., (Sub- contract) 114,188.00 Total war production of war contracts executed to date $4,512,617.62 Pending contract negotiated but not executed: Army Air Corps for contact printers $474,609.00 Regraded Unclassified 54 Mr. Joseph J. O'Connell Jr. - 2 - 4/13/42 We are pleased to report that we have an assured gross for the next nine to twelve months of something over five million dollars, as compared with the previous peacetime peak production of two and one-half million dollars. These contracts use over 90% of the floor space in the camera plant on a three shift-six day per week basis and it is estimated that the payroll will be increased from 400 to approximately one thousand by the end of June. This company has just purchased in Binghamton & two story and basement building of approximately 40,000 square feet of floor space partially for the purpose of storing old equipment used for peacetime production in the camera and in the Ozalid plants in order to enable us to increase war demands. In the case of contracts for sextants and bomb tail fuses, we have provided for revision of prices downward after experience has been gained in manufacture and manu- facturing costs have been properly developed. We do not expect our original quotations to leave other than a nominal margin of profit. An opportunity is reserved for revising prices downward in the event we are able to institute economies in a greater efficiency over the previous production methods. Following is 8. record of production of the Ogalid reproducing machines. I understand that practically all of this production is now on high priorities for Army and Navy requirements. January 1942 $260,664.01 February 1942 278,679.55 March 1942 362,550.00 $901,893.56 The plants are in process of being converted to wartime production and we are committed to full use of the factory facilities on B three shift per day-six hour basis. It may be desirable, therefore, to defer invitation to representa- tives of the Army Signal Corps and the Army Air Corps for a few weeks until the plant is operating rather than to invite inspection at 8. time of conversion which, of course, involves considerable confusion. Regraded Unclassified 55 - 3 - Joseph J. O'Connell, Jr. 4/13/42 I feel that Mr. Marshall has taken hold of this part of the business in an aggressive, intelligent manner and deserves a great deal of credit and I hope that you will agree. I also think that we can show a satisfactory operat- ing profit in wartime production and also adhere to the highest business standards. There is attached herewith 8. copy of a letter addressed to the Surgeon General of the U. S. Army. Very truly yours, /8/ R. E. McConnell R. E. McConnell President Regraded Unclassified 56 April 13, 1942 y Surgeon General U. S. Army Washington, D. C. Dear Sir: I am writing you at the suggestion of the Secretary of the Treasury to offer my cooperation along the following lines. Control of the General Aniline & Film Corporation was vested in the Secretary of the Treasury by Vesting Order, dated February 16, 1942, pursuant to Section 5-B of the Trading with the Enemy Act, be- cause It was found that ownership of control of this company was the property of nationals of a foreign country designated in Executive Order No. 8389. The Winthrop Chemical Company, which is jointly owned by General Aniline & Film Corporation and Sterling Products, Inc., manu- factures a broad line of pharmaceutical products which have their ori- gin very largely in German patents, including, among others, the new quinine substitute, atabrine. It occurred to the Secretary of the Treasury that the manufacture of these various pharmaceutical products might be of interest to you or someone in your Department and I would like to offer you the facilities at my disposal in case any of your officers wish to meet any of our personnel or visit any of our plants or laboratories. Will you please let me know if this matter is of any inter- est to you. Very truly yours, Robert E. McConnell, President GENERAL ANILINE & FILM CORPORATION REMc:T CC: Mr. James Hill, Jr., President, Sterling Products, Inc. Regraded Unclassified 57 4/13 STRICTET CONFIDENTIAL Bottom cargo for Russians sent from mill to port (In tone) : Philadelphia : --- Baltimore --- New York ---- Total Record of actual tonnage sent from mill to port: Sunday April 5. 530 371 698 1,599 Monday April 6. 3,424 1,226 1,397 6,047 Tuesday April 7. 3,083 2,651 2,014 7,748 Wednesday April 8. 3,374 2,622 2,107 8,103 Thursday April 9 3,231 3,884 2,892 10,007 Friday April 10 2,958 2,125 1,925 7,008 Saturday April 11 2,352 2,599 2,646 7,597 Total actual shipments, April 5 - April 11 18,952 15,478 13,679 48,109 Amount required to be sent from mill to port for the week April 5 to April 11 15,000 13,000 15,000 43,000 Office of the Secretary rof the Treasury, Division of Research and Statistics. April 13, 1942 Source: Procurement Division, Treasury Department. Regraded Unclassif 58 STRICTLY CONFIDENTIAL Bottom cargo for Russiane sent from milla to Philadelphia, total March 30 to April 4 end daily April 5 to 11, 1942 Tonnage Name of company and Total : : 1 March 30 Sunday Monday Tuesday Wednesday Thursday Friday Saturday commodity to April 5 April € Anril 7 April 8 April 9 April 10 April 11 April 4 : : : : Broos American Sreee Co. 1,156 231 191 91 Challe Breas à Copper Co 96 39 19 Devere Copper 5. Press Co 54 40 39 17 40. 40 Servill Manufacturing Co 108 39 39 19 16 willingford Steel Co Copper and brees Revere Copper & Brace Co 127 Copper Areconde Tire à Cable Co 24 Nickel International Nickel Co 200 Steel Alen Tood Steel Co. 152 Allegheny Ludlum Steel do 322 143 50 102 95 50 American Rolling Mille 4g4 American Steel & Wire Co 50 Armoo International Co 89 474 330 277 389 224 68 Sethlehen Steel Co. 1,764 254 271 275 339 533 283 376 Flair Strip Steel Co 26 Prainers Steel Co 50 50 Cold Notel Products Co 50 Collyer Insulated Wire Co 15 Colorado Fuel & Iron Co 1,862 Crucible Steel Do 91 Firth Sterling Corp 17 Ford Motor Co 2 Grest Lekes Steel Corp. 1,630 197 140 332 432 319 Inland Steel Co 1,903 156 95 134 119 43 24 Johnson Steel & Wire Oo Jones é Laughlin Steel Corp. 398 393 332 41 30 41 Keleetman Pros 20 Keyetone Steel & Wire Co 30 145 75 110 La Salle Steel Co 79 34 47 34 Medison Wire Do WoLouth Steel Co 881 51 47 51 126 221 126 Mid States Steel Co. 25 National Tube Co 185 9 New England High Carbon Wire Co 200 45 45 Newport Rolling Ville Otis Steel Co 639 52 169 136 65 149 201 P & M Co 255 51 155 134 75 93 Pittsburgh Steel Co 460 629 Republic Steel Corp 3,242 575 577 646 949 John A. Roebling & Bone 104 Senece Steel Co 30 Sharon Steel Co. 176 Superior Steel Co 271 31 94 62 30 Thomas Steel Co 145 58 68 18 32 28 30 56 48 75 39 38 Thompson Steel & Wire Do 42 42 84 42 84 Union Drawn Steel do 274 166 U. 5. Steel Export Co 3,702 29 46 234 Universal Cyclops Co 45 9 1 Vulcan Crucible Co. Wallingford Steel Co 72 50 24 24 22 18 Washington Tinnlete Co 36 69 81 41 40 Weirton Steel Do 1,302 2,105 569 191 144 321 140 Wheeling Steel Corp Wyokoff Drewn Steel Go so 714 24 84 84 29 Youngstown Sheet & Tube Co Undesignated 11 Miscellaneous 130 Electro Co National Look Weaher Co 2 Vanadium Corp 28 26 28 Total 24,605 530 3,424 3,083 3,374 3,231 2.958 2,352 Office of the Secretary of the Treasury, April 13, 1942 Division of Research and Statistice. Source: Procurement Division, Treasury Department. Regraded Unclassified 59 STRICTLY CONFIDENTIAL Bottom cargo for Russians sent from mills to Baltimore, total March 30 to April 4 and daily April 5 to 11, 1942 : Tonnage Name of company and : Total : : : # : commodity 1 March 30 Sunday Monday Tuesday : Wednesday Thursday Friday Saturday : to April 5 April 6 April 7 April OIL April 9 April 10 : April 11 : April 4 : : Brase American Brass Co, 96 47 47 47 94 47 47 Chase Brass & Copper Co 58 23 19 Copper Wolverine Tube Co 10 Steel Allegheny Ludlum Steel Co 11 American Rolling Mills 352 Bathlehem Steel Co 360 64 64 31 175 Bleir Strip Steel Co 21 19 Brainerd Steel Co 50 Dold Metal Products Co 53 18 33 Colonial Steel Co. Great Lakes Steel Co 537 146 257 36 292 Inland Steel Co. 340 285 324 61 Johnson Steel & Wire Co 24 44 Jonee & Laughlin Steel Corp 1,592 870 1,084 1,236 69 83 Keystone Steel & wire Co 227 Otte Steel Co 111 105 149 39 51 F & y Co Recublic Steel Co. 5,397 1,091 1,166 260 343 474 496 John A. Roebling & Sons 33 Rustless Iron & Steel Co 13 28 26 Seneca Steel Co Sharon Steel Co 128 32 29 28 32 23 50 Thomas Steel Co 38 35 U. S. Steel Export Co 611 225 45 476 1,039 509 442 Universal Cyclops Co 25 Worhburn Wire Co 4 Weirton Steel Co 182 33 165 215 94 137 Youngstown Sheet & Tube Co 153 112 382 432 384 Undesignated 187 Miscellaneous Hubbard & Co 115 353 MoKenna Metale Co. Undesignated 67 Total 10,379 371 1,226 2,651 2,622 3,884 2,125 2,599 Office of the Secretary of the Treasury, April 13, 1942 Division of Research and Statistics. Bource: Procurement Division, Treasury Department. Regraded Unclassified 60 STRICTLY CONFIDENTIAL Bottom cargo for Russians sent from mills to New York, total March 30 to April 4 and daily April 5 to 11, 1942 : Tonnage : Name of company and : Total : : : : : March 30 Sunday : Monday Tuesday : Wednesday Thursday: Friday Saturday commodity to April 5 April 6 April 7 April 8 : April 9: April 10 : April 11 April 4 : : : : Brass Phelps Dodge Co 113 Copper United Wire & Supply Oo 33 Iron 22 Oliver Iron Co. Steel American Rolling Mill# 1,225 Aruco International Co 541 134 141 255 Bethlehem Steel Co. 50 123 Cornegie Illinois Steel Co. 331 Cold Metal Products Co. 84 53 Colorado Fuel & Iron Co 1,332 Crucible Steel Co. 28 Great Lakes Steel Co 274 76 266 323 350 177 175 Halcomb Steel Co 27 39 Heppenstahl Co 101 59 135 Indiana Steel & Wire Co 104 525 Inland Steel Co. 695 234 35 58 Jones & Laughlin Steel Corp 135 339 46 46 38 Madison Wire Co 25 McLouth Steel Co 54 54 National Standard Co Otie Steel Co 652 37 74 328 260 140 142 P& M Co 51 Pittsburgh Steel Co 1,349 547 542 384 Republic Steel Co 940 89 137 36 102 27 65 Sheffield Steel Co. U. 8, Steel Export Co 1,336 40 73 100 334 953 968 635 34 Washington Tin Plate Co Weirton Steel Do 117 45 Wheeling Steel Corp 78 Wyckoff Drawn Steel Co 399 115 40 39 76 38 37 Youngstown Sheet & Tube Co 1,829 331 157 635 915 361 263 277 Total 11,306 698 1,397 2,014 2,107 2,892 1,925 2,646 Office of the Secretary of the Treasury, April 13, 1942 Division of Research and Statistics, Source: Procurement Division, Treasury Department. Regraded Unclassified For Miss Chauncey 61 TREASURY DEPARTMENT OFFICE or THE SECRETARY April 13, 1942. COMPINSITIAL Received this date from the Federal Recerve Bank of New York, for the confi- dential information of the Secretary of the Treasury, compilation for the week ended April 1, 1942, showing dollar die- bursements out of the British Empire and French accounts at the Federal Reserve Bank of New York, and the means by which these expenditures were financed. D dm:4/13/42 Regraded Unclassified C For Miss Chauncey 62 0 P Y FEDERAL RESERVE BANK OF NEW YORK April 9. 1942 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I am enclosing our compilation for the week ended April 1, 1942, showing dollar disburse- ments out of the British Empire and French accounts at this bank and the means by which these expendi- tures were financed. Faithfully yours, /s/ L. W. Knoke L. W. Knoke, Vice President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy:vw:4-11-42 Regraded Unclassified OF CARADI AN AND AUSTRALIAN ACCOUNTS (In Willions of Dollars) York Inded Indl 1. 1942 BANK OF CANADA (and Canadian Government) DO OTHER an or AUSTRALIA M DEBITS CREDITS DEBITS CREDITS Transfers Transfers Transfers from Official to Proceeds Net Incry to Preceeds Net Incr. Official of British A/C (+) or Official of (-) or Total British Other Total Gold For Own For French Other Decr, (-) Total British Other Total Gold Other Decr, (-) PERIOD Debite A/C Debits Credits Sales A/O A/C Credite in Balance Debite A/C Debite Credits Sales Credite in Balance First year of war (8/29/39-8/28/40)* 323.0 16.6 306.4 504.7 412,7 20,9 38.7 32.4 +181.7 31.2 3.9 27.3 36.1 30.0 6.1 - 4,9 War period through 62.4 December, 1940 477.2 16,6 460.6 707.4 534,8 20.9 110,7 41.0 +230.2 57.9 14.5 43.4 50,1 12,3 + 6.5 Second year of was (8/29/40-8/27/41)** 460.4 - 460.4 462.0 246,2 3.4 123,9 88.5 + 1,6 73.2 16.2 59.5 81.2 62.9 28.3 - 9.0 Aug. 26 - Oct. 1 23.1 - 23.1 52.2 21,2 - - 31,0 + 29,1 10,7 0.5 10,2 2,8 2.1 0.2 - 7.9 1941 Oct, 2- Oct, 29 37.4 - 37.4 19.7 11.9 - 1 7.8 - 17.7 8,2 5.5 2.7 8,0 5.9 2.1 + 0.2 52.F 0.1 52.7 32.5 19.3 - 13.2 - 20.3 10.3 6.9 3.4 11.6 9.0 2,6 + 1.3 Oct, 30 - Dec. 3 - Dac. 6- Dec. 31 47.7 67.7 22.2 17.3 - 1 4.9 - 25.5 3.9 1.8 2.1 2.8 62 2.6 - 121 - 1942 Jan 1 - Jan. 28 39.5 39.5 33.0 27.0 - , 6.0 - 6.5 4.5 I 45 10.8 E 10.8 + 6.3 1 3.1 1.6 1.6 - 6.8 inno 29 - False 25 34.1 14.1 35.2 12.4 - - 23.3 + 1.6 8.4 5.3 - - 46.5 - 66.5 99.3 20.5 1.7 * 21.1 + 52.8 7.8 1.1 6.5 3.6 - 3.6 - 4.2 Feb 26 - Apr. 1 BIT EXTED: 2.6 4.3 45.5 + 44.3 2,1 2.1 0.4 - 0.6 - 1.7 del 52.4 , I Yes, 6 8.1 - 11 2.9 2.9 16.4 5.2 13.2 2.0 200 0.1 I # 15.5 0.1 # - 1.9 - - 7.5 3.3 Il 42 - 2.0 1.3 - 1.3 0,2 - 0.2 - 1.1 18 9.5 - 9.5 0.5 + 0.4 11.9 8.3 0.2 3-4 - 6.7 - 3.6 0.1 - 0.1 as - 25 11.9 - Apr. 1 12.7 9.2 - 14.1 3.5 - 1.4 23 1.3 1.0 2.4 4. 2.4(a) * (1.1 1/1 - feekly Average of Total Debits Since Outbreak of Ear Through April 1, 1942 $ 7.9 million + For monthly breakdown pee tabulations prior to April 23, 1941. H For monthly breakdown 200 tabulations prior to October 8, 1941. (a) Includes al million received from U. S, Government for account of U. S. Havy. graded Inclassified AMELYSIS OF NITUR ID ACCOUNTS (In Milliams of Dollars INW April 1, 19/2 HANK OF RACKAND (BRITISE GOVERNMENT) SAME OF TRANCE DEBITS CREDITS DEBITS CREDITS Proopeds of Net Incr. Gov't Sales of (+) or Dov't Proceeds Net her. (*) or Total Expendi- Other Total Securities Other Decr.(-) (-) Total Expendi- Other Total of Gold Other Decr. (-) PERIOD Debite tures(s) Debits Credits Gold (00%) (b) Credit alto Balance Debits tures (d) Debita Credite Sales Credits in Inlance First year of was (8/29/39-6/28/40) 1,793.2 605.6 1,187.6 1,828.2 1,356.1 52.0 420.1 + 35.0 866.3(e) $16.6(e) 449.7 1,095.3(a) 900.2 195.1(e) +229.0 War period through December, 1940 2,792.3 1,425.6 1,356.7 2,793.1 2,109.5 108.0 575.6 + 10,8 878.3 421.4 456.9 1,098.4 900.2 198.2 +220.1 Second year of war **(17/12/8-07/62/8) 2,203.0 1,792.2 410.8 2,189.8 1,193.7 274.0 722.1 - 13.2 38.9 4.6 34.1 6,8 - 8.8 - 30.1 1961 Aug. 28 - Oct. 1 140.9 105.9 35.0 176.2 20.1 2.0 154.1 + 35.3 0.3 - 0.3 0.5 - 0.5 - 0,2 Oct. 2- Oct. 29 109.0 77.3 31.7 150.9 0.6 - 150.1 + 41.9 0.3 - 0.3 0,3 - 0.3 - Oct. 30 - Dec. 3 156.1 111,6 44.5 134,6 - 1.0 133.6 - 21.5 16.1 - 16.1 0.4 - 0.4 - 15.7 Dec. 4- Dec. 32 88.6 69.6 16.8 51.5 - IN 56.5 - 36.9 0,8 - 0,8 0.4 - 8.6 - 0.4 1942 Jan. 1 - Jan. 28 102.3 73.2 29.1 69.3 - 0.5 68.8 - 33.0 0,2 - 0,2 0.4 I 0.4 + 0.2 Jan. 29 - Feb. 25 87.2 63.8 23.4 57.2 I 1.0 56.2 - 30.0 - - - 0.3 - 0.3 + 0.3 Tab. 26 - Apr. 1 121.4 86.4 35.0 171.4 E I 171.6 + 50.0 0.1 - 0.1 0:4 - as - 0.3 RECEIVED ENDED: Mar. 4 39.3 23.7 15.6 59.2 I - 59.2 + 19.9 0.1 - 0.1 0,1 - 0.1 1 11 16.9 15.9 1.0 8.2 - - 8.2 - 8.7 - - , 0,1 - C.I + 0.1 18 24.3 19.3 5.0 26.3 I - 26.3 + 2.0 - - I 0.1 I 0,1 +B.I 25 21.1 14.2 6.9 18.8 I - 18.8 - 2,3 - - - 0,1 I 0,1 +D.1 Apr. 1 19.8 13.3 6.5 58.9 I - 58.9(f)+ 39.1 - - I - Éverage Weekly Expenditures Since Outbreak of Mar Transfers from British Purchasing Comission to France (through June 19, 1940) $19.6 million Bank of Canada for French Account England (through June 19, 1940) 27.6 million Week ended April 1 England (since June 19, 1940) 39.1 million Cumulation from July 6, 1940 : - million 162.7 million #For sonthly breakdown see tabulations prior to April 23, 1941. **Por monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footootes) Regraded Unclassified (a) Includes payments for associati of Britdab Contaction, Brink - RIUM Supply Timber Costrol, and Ministry of Shipping. (b) Estimated figures based on transfers from the Now York Agency of the Bank of Matroal, which apparently represent the procesés of official British sales of American pocurities, including those effected through direct negotiation, Is addition to the official selling, substartial liquidation of securi for private British account occurred, particularly during the early months of the war, although the receipt of the proceeds at this Bank casmot be identified with any securacy. According to data supplied by the British Treasury and released by Secretary Morganthan, total official and private British liquidation of ONE securities through December, 1940 assunted to 6334 million. (e) Includes about 885 million received during October, 1939 from the accounts of British authorised banks with New York banks, precumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (a) Adjusted to eliminate the affect of $20 million paid out on June 26, 1940 and returned the following day. (f) Includes: $40 million received from the R. F. C. representing partial payment of the purchase price of Australian wool, $ 4 million received from Central Bank of China covering purchase of £1,000,000. $ 4 million received from U. S. Gov't for account of U. S. Army abroad, $1.3 million transferred from official Australian account. Regraded Treasury Department 66 Division of Monetary Research Date April 13 19 42 To: Miss Chauncey From: Mr. White The Secretary would, I believe be interested in glancing at this. 67 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 30, 1942 TO Mr. White FROM Mr. Hoflich Subject: British Income Tax on Wage Earners: Criticism of Method of Collection at Source 1. According to cable advice from Casaday, the present eystem of collecting at the source the income tax on British wage earners has been attacked by some of the weekly journale, news- papers and a number of employers, on the following grounds: B. Because of the great complexity of the present method, it cannot be explained satisfactorily to workers. There apparently has been a deficiency of explanatory propaganda. Not until last month was there issued an effective pamphlet, "Income Tax Quiz for Wage Earners." b. Workers in the lower wage brackets are subjected to hardship. The size of current tax deductions depends on the amount of wages earned in the previous assessment period. It 18 argued that the tax deduction may come at a time when earnings are far below those earned in the assessment period, due to seasonal fluctuation, illness, or lack of employment at the end of the war. Inland Revenue authorities have vetoed plans to base current tax deductions on current earnings, largely be- cause of the greater complications and increased labor which such a change would involve. 2. The Trades Union General Council has dropped its demands for e change in the method of assessment and deduction, the system 1s now being accepted, and it seems obvious that it has come to stay at least for the duration of the war. 3. There also seems to be considerable feeling against any plan by which workers would have to disclose details of family and personal status to employers. It does not seem to be clear whether this means opposition to present collection at the source, but Casaday hopes to obtain more information on the subject this week. (Cable No. 1488, London, March 27, 1942.) Regraded Unclassified 68 DEPARTMENT OF STATE Washington In reply refer to March 30, 1942 FD 841.5151/1897 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of a paraphrase of telegram no. 1488, Section 5, dated March 27, 1942, from the American Embassy, London, England, transmitting a message for the Secretary of the Treasury from Casaday and Penrose. Sections 1, 2, 3, and 4 were sent to Treasury on March 28, 1942. Enclosure: From Embassy, London, no. 1488, March 27, 1942. VW: eh:copy 3-30-42 Regraded Unclassified C 69 0 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, London, England DATE: March 27. 1942. 10 p.m. NO.: 1488, Sections 1, 2, 3. 4 This message is in strict confidence from Casaday and Penrose for the Secretary of the Treasury. The alleged difficulties involved in the present eystem of collecting at the source the income tax' on the wage earners has recently come under consider- able discussion. 2,500,000 wage earners came under this system in 1941. In January 1942 3,000,000 more workers at lower wage levels were brought into the system. There was a delay for over a week in getting the forms out because of the extraordinary pressure of work on the inland revenue. Considerable compli- cations were caused for some time by this delay. The present eyetem has been attacked by some of the weekly journals, news- papers and a number of employers on the following grounds: 1. Because of the great complexity of the present methods they cannot be satisfactorily explained to workers. 2. Workers in the lower wage brackets under this system of assessment are subjected to hardship. In relation to the first of these points, it may reasonably be held that there was A deficiency of explanatory propaganda. Not until February 1942 vas there issued an effective pemphlet, INCOME TAX QUIZ FOR WAGE EARNERS. Other methods of spreading propaganda such as the radio seem to have been used insuf- ficiently. The incompatibility of extreme simplicity in the way the tax is as- sessed and the requirements of equity is B. strong argument Government spokesmen have advanced but the most does not seen to have been made of this argument. Regarding the second of these points in as much as only three months of the year of assessment and nine months of the following year make up the period in which the tax is deducted, the argument has been presented that the deduction of tax may come at some time when because of seasonal fluctuation, illness, or lack of employment at the end of the war, the current wages of the workers are far below the average they earned during the assessment period. Some elaborate and ingenious schemes to replace the present method of tax- ation by a system of current texation of wages making the year of deduction and the base year coincide have been worked out by a few employers and the Inland Revenue Staff Federation. Regraded Unclassified 70 - 2 - For a time the General Council of the Trade Union supported one of these schemes and pressed the Treasury to adopt it. Keynes indicates, however, that after conferring with the Inland Revenue, the T. U. C. delegates dropped their demands and that at present it seems unlikely that there will be a change in the system. It seems obvious that the difficulties have been greatly exaggerated by the agitation by the London ECONOMIST and newspapers and that the system is being accepted and has come to stay at least for the duration of the war in its general lines. Some of the arguments which caused the Inland Revenue to veto the plans to make the base year and the year of deduction coincide are as follows: (1) At a time when clerical labor is very scarce, such plans would involve more work for employers. (2) Deductions from wages based on computations by the employer would be involved and no opportunity would be given the work to question them until the end of the year. Now a notice of assessment is received by the worker and he can appeal against it before the deduction of any tax. The Inland Revenue tells the employer in advance what tax to deduct. (3) Usually not until the end of the week does the employer know what the total earnings of the workers are. Under the proposed plans all the computations of the tax would have to be done on the last day, which would be impossible 80 there would always be a one week lag. MATTHEWS Copy:vw:3-28-42 Regraded Unclassified C 0 71 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, London, England DATE: March 27, 1942, 10 p.m. NO. : 1488, Section 5. There seems to be considerable feeling in Great Britain against any plan by which the worker would have to disclose details of family and personal status to the employer. I hope that I can obtain more information in detail next week on this subject. In the moantime the conclusion may be drawn that the Inland Revenue prefers that no fundemental changes be made in the present methods of collecting at the source income tax. Their most difficult task has been to get the forms out and to get them filled out during the three months before the beginning of the deduction. They think that an additional month may be necessary. Of course, all of the preceding should be kept in strict confidence. A summary of the criticisms which have been presented against the existing system of taxation and collection of income tax as applied to wage earners is being forwarded by air pouch for your confidential information Relevant documents and clippings will accompany the summary. END OF MESSAGE. MATTHEWS eh:copy 3-30-42 Regraded Unclassified 72 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 13, 1942 TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns R 53,000 Purchased from commercial concerns £111,000 of the latter amount, £100,000 was purchased from the International General Electric Company and reportedly represented dividends. Open market sterling remained at 4.03-3/4. with no reported transactions. The Canadian dollar discount, which has been quoted between 13% and 13-1/4% during the past two weeks, narrowed to 12-7/8% today. No unusual activity was reported. In New York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) .2373 Brazilian milreis (free) .0516 Colombian peso -5775 Mexican peso .2064 Uruguayan peso (free) .5295 Venezualan bolivar .2830 Cuban peso 3/32% premium Ve sold the following amounts of gold, which were earmarked for account of the banks indicated: $ 992,000 to the Central Bank of El Salvador 549,000 to the Surinam Bank $1,541,000 Total The Federal Reserve Bank of New York reported that the Bank of Canada shipped $3,869,000 in gold from Canada to the Federal for account of the Govern- ment of Canada, for sale to the New York Assay Office. In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35#- Handy and Harman's settlement price for foreign silver vas also unchanged at 35-1/8#. We made no purchases of silver today. A Regraded Unclassified 73 Copy No, 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 12] Information received up to 7 A.M., 13th April, 1942. 1, HAVAL Reference OPTEL No, 120 naval sub-paragraph two, One of our destroyers reports destroying one E-boat and damaging a second, the other seriously damaged the third. Our ships reported no damage or casualties. As a result of bombing at- tacks in BAY OF BENGAL on fifth and sixth about 19,000 tons of shipping was aban- doned and about 10,000 tons damaged, 2, MILITARY BURMA. 11th, Heavy Japaness attacks, supported by all arms have been reported upon the Chinese forces at SWA. Fierce fighting is in progress, Japanese reinforcements, estimated at one division have arrived at RANGOON, ). AIR OPERATIONS WESTERN FRONT. 12th, lane Bostons, escorted by 21 squadrons of fighten (including aircraft from two United States "Eagle" squadrons, one R.C.A.F. and one New Zealand squadron) successfully attacked the railway centre at HAZEBROOK, Enemy fighters were encountered in strength, four were destroyed, four probably destroyed and ten damaged. We lost fifteen Spitfires, including one United States and one Canadian (four pilote safe) and one Canadian Boston, 12/13. 327 aircraft were sent out (ESSEN 251 (including 49 heavy) GENOA 18, HAVRE 27, SEA-MINING 20, Dutch aero- dromes 4, Leaflets PARIS 7; 10 are missing and three crashed on return, LIBYA. 11th, Seven Tomahanks intercepted twenty dive bombers escorted by ton fighters off TOBRUE forcing them to jettison their bombs, Three enemy air- craft were dectroyed and one damaged. We lost five Tomahawks and three pilots. MALTA. 11th evening and 11th/12th, Eighty-nine aircraft attacked HAL FAR and TAKALI aerodromes were rendered temporarily unserviceable. 12th. Fifty- three aircraft camo over, Our fighters and anti-aircraft destroyed five, probably destroyed two and damaged two. Four of our aircraft were destroyed on the ground. BURMA. 10th. Enemy fighters machine-gunned LOIWING aerodrome, damaging five AVG Tomahawks on the ground, Hurricanes and AVG Tomahauka shot down seven Onemy aircraft, Two Hurricanes were lost. Regraded Unclassified 74 UNITED STATES GOVERNMENT FORMATIC COORDINATOR OF INFORMATION WASHINGTON, D.C. SECRET COORDIAATOR OF INFORMATION April 13, 1942 The Honorable Henry A. Morgentahu The Secretary of the Treasury Washington, D. C. Dear Henry: The attached has just come to us from our London office. It is the French subdirective of the British Political Warfare Executive. Sincerely, Bill William J. Donovan Regraded Unclassified 75 War. a) Britain is beginning to take the offensive herself, no longer merely preparing to resist German invasion. In order to show a new spirit offensive indications of eagerness and impatience of the British public may be used. Weather conditions are the only limitations to an RAF offensive against Germany. b) Russia - Still holds initiative. c) Air. Do not exaggerate scale attacks by present standards. They are only average. Weight these attacks will increase as weather improves and more aircraft are produced. In stating the damage done in these raids, care should be exercised. Use official evidence only. Vichy and France: a) This week Laval's chance of coming back in the Vichy Cabinet seems even more remote. The weight of our attack should be on Pucheu and Darlan and the helplessness of Petain. We should not, however, forget Laval. b) The supplies to North Africa should be treated in accordance with Official communiques from Washington and London. Regraded Unclassified 76 UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, D.C. April 13, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: The attached information is from the British Political Warfare Executive-Italian Directive. Sincerely, Bill William J. Donovan Regraded Unclassified SECRET - Background: Emphasis on "bright future" has suddenly replaced the campaign of intimidation and pessimism which followed Mussolini's speech of March 26th. They have dropped the propaganda against Russia probably because (a) unfavorable re otion on the part of the industrial workers (b) difficulties in the way of sending more troops to Russia. They have re- turned to he thesis "mare nostrum" and have dropped the re- ferences to specific territorial claims against France. This is probably due to (a) Hitler's having forbidden their for- mulation (b) Italian public's having lost interest. The grain situation has grown constantly worse. This is il- lustrated by (a) Mussolini's visit to Frosinone (b) fifth postponement of the date of delivery of the grain to the state pools, (c) the fact that the Draconian degress against farm S irkers are not enforced (d) receipt of rye from Germany, Propaganda: (a) Point out that alleviation of the Italian food situation lepends on the maintenance of order in the Balkans; stress that the famine in Greece is another drain on the Itelian economy; comment on fighting in Yugoslavia and else- whe:e in the Balkans. (b) At the present the Italian headquarters on the Russian front are at Stalino with the Italian troops grouped around Gorlokova. Emphasize the fighting in this area, es- pecially along Taganrod-Dniepro Etrousk railway. Keep in mind that the Italian people are not being told the details. (c) Bear in mind the possibility that there may be an attack by Rommel. (d) Draw attention to the fact that eighty per cent of FAF aircraft abroad and ninety per cent of the aircraft based in Britain were manufactured in Britain. Regraded Unclassified 78 COORDINATOR OF INFORMATION WASHINGTON, D.C. April 13, 1942 The Honorable The Secretary of the Treasury SECRET Washington, D. C. COORDINATOR OF INFORMATION My dear Mr. Secretary: There is attached a private report from Zurich which was received by PWE under date of April 10, 1942. Sincerely, Bill William J. Donovan Attachment Regraded Unclassified 79 COORDINATOR SECRET OF INFORMATION General Oshima, the Japanese Ambassador in Berlin, will be accompanied on his trip to Sofia, Budapest and Bucharest, by a high German Foreign Office official who will act as interpreter and also by the Counsellor and First Secretary of the Embassy. Emphasizing Oshima's strong advocacy of Japanese intervention against Russia, diplomatic circles declare that at Berlin's wish he has undertaken the mission to urge reluctant Bulgaria, Rumania, and Hungary to accede to the German demands for full scale military participation in a Russian offensive. Oshima, by explaining his conviction that Japan will attack Russia at the moment the German offensive is launched, will add weight to these persuasions. Regraded Unclassified TREASURY DEPARTMENT 80 INTER OFFICE COMMUNICATION DATE April 13, 1942 TO Secretary Morgenthau Mr. Kamarok FROM Subject: Summary of Military Reports Malta The scale of attack against Malta is the most con- centrated and sustained in the history of air warfare. The average intensity of effort in March was 100 attacks per 24 hours. In April this has increased to over 200 attacks per 24 hours. Field Marshal Kesselring, who 1s in charge of the attacks, failed against the R.A.F. in the Battle of Britain. His attempt at bombing Mosoow was also smashed. The prestige of the German Air Force 1s now heavily at stake in the attack on Malta. Malta's ability to withstand the German attacks, 80 far, has weakened Rommel's ability to strike at Egypt by causing wastage and consumption of stocks which the German Air Force can 111 afford. (The concentration on Malta has enabled the British to maintain air super- iority in Libya.) The German effort against Russia has also been weakened, since nearly all the German squadrons attacking Malta came originally from the Russian front. (U.K. Operational Report, April 10, 1942) Supply Routee to Russia It is estimated that there are between 150 and 175 German long-range bomber types between Trondheim, Norway, and Petsamo, Finland, suitable for anti-shipping opera- tions. (In addition, the bulk of the German Navy is also engaged in the attempt to cut the supply routes to Russia.) (U.K. Operational Report, April 10, 1942) Regraded Unclassified 81 - 2 - R.A.F. Activities On the night of April 8/9, 250 tone of high explosive and incendiaries were dropped over the Hamburg area. Owing to bad weather, most aircraft bombed on estimated time of arrival, (1.e. bombe were dropped over the approximate location of Hamburg. It seems that the old illogical practice of bombers bringing their bombs back to England because they could not locate their specific target has been discontinued.) (U.K. Operational Report, April 11, 1942) Voice of the Chief - Wholesale Corruption in Germany "While the common people stand in long queuee in front of the stores in the cold and dirt of the streets, the Party Commune in the homeland encourages the farmers in their pro- fiteering. All the Nazi officials have their extra rations delivered from the country to their city homes in packages and boxes. Every second farmer's son, in return, enjoye his firmly established privileges. And the farmer certainly knows why he 1s doing all this. In addition to the dizzily high prices, there 1s added an extra premium in the shape of a small favor or two. "Everybody knows about these actions, only the Gestapo seems to be ignorant. Once in 8. while, they try to calm the massee with the arrests of small insignificant profiteers while they let the big commune bosses carry on unmolested." "I have collected quite a number of these big-time para- sites and will make them known within the next few days. It 1e about time we finished off these lice who paralyze our will to win the war." (Federal Communications Commission, April 10, 1942) Regraded Unclassified 82 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Press Service Tuesday, April 14, 1942. No. 31-16 4/13/42 The Secretary of the Treasury announced last evening that the tenders for $150,000,000, or thereabouts, of 91-day Treasury bills, to be dated April 15 and to mature July 15, 1942, which were offered on April 10, were opened at the Federal Reserve Banks on April 13. The details of this issue are as follows: Total applied for - $311,219,000 Total accepted - 150,073,000 Range of accepted bids: (Excepting two tenders totaling $150,000) High - 99.960 Equivalent rate approximately 0.158 percent Low - 99.922 If If # 0.309 IS Average Price - 99.929 # # # 0,281 # (16 percent of the amount bid for at the low price was accepted) -o00- Regraded Unclassified 83 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 14, 1942. TO The Secretary FROM Mr. Kilby As you requested, I have obtained a. breakdown of the subscription figures for the new certificates of indebtedness as between banks and non- banking institutions. In this statement the non-banking subscriptions are divided in four groups. Amount Percent Subscribed of Total Banking institutions: $1,815M 59.3% Other corporations: 1,061 34.6 Individuals: 36 1,2 State and local governments: 27 .9 All others: 124 4. TOTAL $3,063M 100.0% Individuals took very much less than they normally take on & note or bond offering. The banks took less than they usually take in notes, but sub- stantially more than they get in bonds. A better picture of what the corpora- tions took, as compared with other issues, will be available in about three weeks when Dr. Haes makes his analysis. Eng Regraded Unclassified 84 April 14, 1942. The Secretary Mr. Kilby As you requested, I have obtained a breakdown of the subscription figures for the new certificates of indebtedness as between banks and mo- banking institutions. In this statement the non-banking subscriptions are divided in four groups. Amount Percent Subscribed of Total Banking institutions: $1,015M 59.3% Other corporations: 1,061 34.6 Individuals: 36 1.2 State and local governments: 27 : All others: 124 4. TOTAL $3,063M 100.0% Individuals took very much less than they normally take on a note or bond offering. The banks took less than they usually take in notes, but sub- stantially more than they get in bonds. & better picture of what the corpora- tions took, as compared with other issues, will be available in about three weeks when Dr. Has makes his analysis. ELK mrp Dearaded 85 April 14, 1942 9:00 a.m. LIMITATION ON PROFITS Present: Mr. Patterson Mr. Paul Mr. Nelson Mr. Sullivan Mr. Blough Mr. Helvering Mr. Marbury Mr. Forrestal Mr. Anderson Admiral Land H.M.JR: Randolph, do you want to state the case? Come on up here. I mean, you have been talking both with Mr. Patterson and Mr. Forrestal. MR. PAUL: I have been following on this profit limitation ever since I had to go up before that Naval Affairs Committee following you (Mr. Patterson) and Mr. Nelson and Mr. Forrestal; and, as a matter of fact, ever since that we have been trying to work on some provision that would work, realizing that there was this terrific political pressure all over the country. We haven't been able to find anything that is satisfactory. We took the position before the Committee, as Mr. Nelson and the others did, that the best way was taxes, and probably the only way. Well, last week I had a conference with George and Doughton, at which particularly George expressed great concern over the way things were moving, being afraid that the conference committee now having this recent bill in charge would take the House draft instead of the Senate draft, the Senate draft being reasonably innocuous, although some people over at the Navy Department think it Regraded Unclassified 86 - 2 - is pretty dangerous as is. Saturday Mr. Patterson called me, and I also saw Mr. Forrestal, and we have been talking-- H.M.JR: He is coming; Jim is late. MR. PAUL: And it seemed to me that it was time we all got together and consolidated our forces, because if we don't, something is going to happen here that is going to be very troublesome, indeed may go so far as to seriously impede the war effort. ADMIRAL LAND: Specifically the amendment of this nineteen billion dollar appropriation bill? MR. PAUL: That is right. ADMIRAL LAND: That is what I assumed. They had me on the Christmas tree on this same subject on Vinson's committee. MR. PAUL: The present acuteness is in connection with that appropriation bill, but, of course, the Vinson Committee is all part of the general picture. ADMIRAL LAND: And it is part of the general public stampede for action. MR. PAUL: That is right, and I am just a little afraid there is going to be some action. Unless we can find some constructive way of dealing with it, we are going to have a bill that is going to be very bad. I don't know whether we can, apart from taxes, get anything that will be satisfactory. I spoke to the Secretary about it Monday, yesterday, and he immediately thought it was 8. good idea to have this conference. H.M.JR: I spoke to the President on the phone and asked him if he had made any commitments one way or the other, and how he felt about it. He said he had made Regraded Unclassified 87 - 3 - none, and he'd like us to go ahead and see if we couldn't do something about it. He'd like to see it handled through the tax way, rather than through 8. special bill, and he gave me 8. couple of his own ideas which he said he was just pulling out of the air, such as could we limit salaries to fifty thousand dollars, and so forth and so on, but I mean, he wanted to go ahead and try to do something. Here was a suggestion I was just going to offer in view of the fact that there seems to be, unless something is done to satisfy these Congressmen in their primaries that something is being done about profits and salaries, and that is this - and I am asking for punishment when I make this suggestion, and I don t want to do it unless the departments involved really want the Treasury to do it, because I think Helvering won't talk to me for 8. week after I make this suggestion. That is this, if the Departments, the Army and Navy, Nelson, Maritime Commission, would like the Treasury to, we are willing through Internal Revenue auditors to go in and make the original investiga- tion and get a finding of facts. After ail, we are in there anyway with these businesses, and we would be looking for the profits on an annual basis, and not on the individual contract basis. MR. NELSON: That is the important thing right there, Mr. Secretary. They are all thinking in terms of a con- tract basis. Now, the contract basis, as you know, is absolutely impractical. You'd never audit it on a contract basis. MR. PAUL: That is the Navy's last line of defense, to at least get into an annual basis. H.M.JR: I just say we are taking on a hell of 8. burden, and then my thought was, if you people wanted it, would ask us, that after we go in and find this - for instance, normally we wouldn't know what the '41 profits were or the salaries until almost a year from now. Regraded Unclassified 88 - 4 - MR. HELVERING: Fifteen months after. H.M.JR: Yes, but if the Army and Navy, for instance, or Nelson and the Maritime Commission, were worried or bothered about any particular contract and say, "Please go in and make & pre-audit on such and such a concern, we are prepared to do it. MR. NELSON: We have been talking with the Federal Trade Commission about that, Mr. Secretary, they did it during the last war. They had a set-up to do it. Now, it would be a question of which could do it best and easiest, you or they. H.M.JR: Well, I am not asking for this - this is & terrific burden. We have five thousand auditors that are in the businesses anyway, that have to go through the books; and I'd only do it if you, plus the Navy, would want us to do it, you see, I was looking for a way to be helpful. MR. NELSON: It is very important that that be done by some agency, in my opinion. I think the War Department doesn't agree, at least Somervell. I have talked to him about it. I don't know how Bob feels, but I feel that that is highly important, and one of the first things to assure the Congressmen is that some independent agency is going to make the audit, in my opinion. H.M.JR: Then the thought that we had is, when we got these findings of facts, there is 8. joint committee on tax- ation, House and Senate, and we have the right and they have the right to see any returns. We would file a copy with them, and then make the copy public. Now the thought is that if a business knew that the Treasury Department was going to make an audit and then make it public; rather than have the stigma, the chances are nine out of ten that they'd come in and ask for renegotiation of the contract. MR. NELSON: Well, they are doing that now, of course, in a large number. Are you familiar with what has been done in the War Department on this subject? Regraded Unclassified 89 - 5 - H.M.JR: Only in a small way. MR. NELSON: There is & committee over there now that is made up of five or six interested parties, all of whom have something to contribute in the picture. And they are going over these contracts, taking the bigger ones first and renegotiating them, and, of course, the manufacturers have been for some time asking for renegotiations on many of these, because what has happened, Mr. Secretary, is that as this stuff gets into mass production, they can produce it so much cheaper than they originally thought they could. They learn to do it in fewer man hours, they get the mass production methods, and their profits go up tremendously. A concern like Continental Motors, their contract readjusted for the last six months over forty million dollars, 8. concern with three million capital savings. It would just be a national scandal, and still the company took it at the same price they had been doing it at before, but had learned how to make it cheaper. H.M.JR: Well, Don, I say I am offering this as & suggestion. MR. NELSON: I understand, sir. H.M.JR: Because through the Treasury, if you people think it over - I am not trying to rush you or anything - we would be willing to go up and see George and Doughton and McKellar, and try, if you wanted us to do this, to swing the thing over into the taxing power committees. ADMIRAL LAND: I'd like to say right here now I don't have to think it over. This is exactly the line that the Maritime Commission wants to follow, and it has already been suggested. We think it is not only the simplest and surest way of accomplishing it, but that your agency, despite the fact it is a dirty trick to wish it on you, and so forth, can do a better job than any other department of the Government. Now, Mr. Anderson studied the thing very carefully, has been to all these conferences, Regraded Unclassified 90 - 6 - spent the last part of this week with the War and Navy Departments - General Carter, was it, over with your show, Bob? While I won't say that they go along with this, our conclusions are very definitely that you can't set a fixed percentage price and put it on all the contracts existing in the United States. You can put 8. ceiling, but you can't make it applicable and do justice to the people without interfering with production, so that again that leads up to the other angle. If we need your assistance with somebody we think is crooked, and so on, as you say, we would come and get it in advance, pre-audit. So you don't have to wait for the Maritime, because we are convinced that that is the proper way of proceeding. MR. PAUL: Of course, in the public mind the salary aspect has this dramatic appeal. H.M.JR: From the business man's standpoint I should think the less auditors from the Government he would have crawling around through his books, the better he is pleased. MR. NELSON: That has 8. great advantage, and the ones they are accustomed to. H.M.JR: I am not going to plead for this, because We are perfectly happy to go along as we are, but I am worried. If you do this thing, the impact it might have on the manufacturer, this separate profits bill on each contract, which won't accomplish what Congress wants, will just be an embarrassment to the manufacturer, and in that way might impede production. ADMIRAL LAND: Not only might, but will. MR. NELSON: It will, definitely, no doubt about it. MR. PAUL: Even a definite limitation on the year's business, without applying to particular contracts, might impede the war effort. Regraded Unclassified 91 - 7 ADMIRAL LAND: All you have to do is put up a doubt in the man's mind, no matter what the thing is; they are all worrying about the thing now. H.M.JR: Senator George and Bob Doughton will fight to keep it in their committee, and keep it - they both feel that way. What do you think, Bob? MR. PATTERSON: Well, there is no doubt of the fact that there are abuses right now, caused mainly by two things: A contractor, taking B. new item to produce for the War Department, figured out his probable costs and then he figured out a great many contingencies; some of those contingencies weren't in his favor, so he is left with an abnormal margin of profit. And the second thing is the one that Don mentioned, which is that as he took a small order he didn't make much on this; but when he preserved the same unit cost in large orders, he found a great many ways of saving man hours, and the execution of the large orders resulted in a good deal of profits stay- ing with him, far more than he ought to have. A good many contractors recognized that themselves, but they didn't know what to do about it. They thought perhaps the tide would turn against them on wages, or something like that, and SO they just letit ride along. We have got the abuses there. Congress proposes to control them by profit limitations. The best way from our point of view of controlling them would be by the department policing their own con- tracts, bringing them down and relying upon the excess profits law to catch all cases we missed. We can't do it apart from the excess profits law. You can't for the reason that you have got all kinds of sub-sub-sub-contractors down the line, and it is an impossible task for any depart- ment, I don t care what it is, to police all of those jobs way down and have them reflected up at the top in any correct way on the cost the Government pays, so that for that the the only possible cure is, as I see it, the excess profits tax. MR. PAUL: Your point would be that it would not be fair to select certain contracts, which apparently were war contracts, and audit them, and leave untouched a great Regraded Unclassified 92 - 8 - many material matters that would really be making war profits just as much as the prime contractor. MR. PATTERSON: The question - of course, I have only discussed the thing in a very general way so far, but the question is more practical than that. We are faced with legislation in the form of a rider on the appropriations bill, the House saying six percent, and the Senate saying renegotiate, and the Secretary shall keep anything they deem excessive. That will not work well, even if they take the Senate version, because it leaves 8 contractor in complete doubt as to what his price is. He will be driven to demanding a cost-plus- fixed-fee contract, which is very bad, and which we deplore. But that will be the tendency if the bill that is passed by the Senate becomes law. The question is, how to prevent that, and how to get it so that the con- tracts are policed internally and the prices renegotiated, the profits reduced, and then the excess profits law tax taken. MR. PAUL: Of course, you appreciate one difficulty - I don't know whether it is clear to some of you - any excess tax profit you have falling short of a hundred percent - if you have ninety percent, I have seen cases where the ten percent remaining is more than the man dreamed of making in 1939. MR. NELSON: That is very true. MR. PAUL: If he is making it on his own capital in- vestment, that is one thing; but if he is borrowing the money from the Government and has no risk capital in there-- MR. NELSON: That is why I would like to see you do both things, tax law and get it administratively, too. MR. PATTERSON: I would only count on the tax law to catch the cases that the departments missed. And you can't rely purely on the excess profits tax law without reexamination of the contracts. Regraded Unclassified 93 - 9 - MR. PAUL: That is my point. MR. PATTERSON: I agree with that. In fact, the excess profits tax law I view as 8. stop-gap. MR. PAUL: I struck a case recently of B. man that made one hundred twenty thousand in the pre-war period and he has now & thirty million dollar business, and his profits are six million; and if we take ninety percent of it, that leaves him six hundred thousand, which is five times what he made before the war. I dare say that isn't an untypical case. (Mr. Forrestal entered the conference) H.M.JR: This is the suggestion I am making. We are willing to put on this, if the four Departments ask us to, really want us to - we are willing wherever the Army or Navy, Maritime Commission, or Nelson feel that there is an exorbitant profit being made, that instead of waiting for fifteen months - normally we wouldn't get at the '41 books of a corporation for about fifteen months, but we are offering, if you people wanted us to do it - think it over - that we would go in and make what we call & pre-audit and a finding of facts which we send to you and to the Joint Committee on Taxation in the Senate and the House, and also be made public. MR. PATTERSON: I don't grasp yet how that will meet the problem that is urgent today, which is to try to get that appropriation bill passed without any provi- sion about excess profits. H.M.JR: Well, I can explain it to you. As I say, I keep repeating this, because I am very sincere about it, because it is an awful responsibility, & headache. If you gentlemen after thinking it over feel, "Morgenthau, we'd like you to do it," I'd be willing to go up and ask for a meeting with George and Doughton and McKellar and Barkley and Rayburn and simply say that the Treasury is willing to do this, take the responsibility. Are you willing to leave it to the Committee on Taxation to handle the question of excessive profits and excessive Regraded Unclassified 94 - 10 - salaries? I know in advance that George and Doughton want it that way. ADMIRAL LAND: Would that mean they would drop both amendments? That, of course, is the ideal thing; that is what you argued for the other day. H.M.JR: Yes. ADMIRAL LAND: If you could possibly do it. If it is possible to do it, we think that ought to be done. That isn't the place to handle it on that appropriation bill - absolutely illogical. H.M.JR: That is it, to kill the amendment and put it in a tax bill. ADMIRAL LAND: We did our darnedest to steer the thing. Certainly political strategy, national, not Republican or Democratic, made them do what they did. Whether that was the only way out, I don't know. H.M.JR: And I checked with the President, Jim, and he is all in the clear on this, and he would like something like this, whatever we agree on. He has got no commitments. I cleared with him. MR. FORRESTAL: The implication would be, then, that the reference back to the War, Navy, or Production Board would be followed by their own individual action. MR. NELSON: Renegotiation of some kind, or recapture. H.M.JR: We would be used as an agency, as an audit agency, to make the audit. We are in the books, anyway. It is & question of doing it a year and a quarter in advance. Then if we find that certain companies are escaping, then it is up to George and Doughton to draft a bill and get them. ADMIRAL LAND: And that is the proper place the bill should be drafted, in the committees and not a rider on an appropriation bill. 95 - 11 - MR. PAUL: In fact, in the House that has to be passed as B. separate bill. MR. PATTERSON: Do you believe that if that pro- posal were made to Barkley and McKellar - of course I know George and Doughton - I know their views - do you suppose that that would head off this legislation that is now in the conference committee? (Mr. Marbury entered the conference.) H.M.JR: As I say, if I am asked to do it by you people, and you back me up, somebody go up with me, I am willing to go up and make the effort. MR. FORRESTAL: Hatch said the thing could have been beaten that way. Barkley said again on Friday that it was a lot less hysterical. MR. PAUL: Perhaps if you couple with it salaries, that would help 8 lot. MR. PATTERSON: Of course, I urged the Senate leaders not to put anything in the appropriation bill and take a chance on coming out of conference with nothing, in the appropriation bill, they'd take the Senate version rather than the House version. I was overruled; no one else agreed with me. Hall told me we had to take something passed in the Senate, then work out some kind of a com- promise. MR. LAND: You mean none of the Senators agreed with you, but the Government agencies all agreed with you, that is, we four. MR. PATTERSON: They agreed with Senator McKellar as to what was likely to happen, I believe, because perhaps I didn't know as much about it as they did. I don't quite see how we are going to get out of the pickle we are in now with the appropriation bill in conference. The bill is passed by the House. containing a square, strict pro- vision on profit limitation, and the bill is passed by Regraded Unclassified 96 - 12 - the Senate containing a vaguer provision on profit limi- tations. They will tell us, I am pretty sure, that that binds the conference to include something on profit limitation. H.M.JR: The other thing that I had in mind, and I forgot, was that we are ready - for instance, if you people like the idea, we would take twelve companies that do business for the Army, twelve for the Navy, and twelve for the Maritime Commission, throw in enough auditors the next three or four days to see what their '41 profits were, and salaries, and tell these people we will come up there Monday. For instance, we will have the salaries of officials for '41, '40, and '39, their profits for '41, '40, and '39, and then apply the pending tax bill to the '41 profits and the salaries of the indivi- dual and show you what it does to these thirty-six com- panies. Now, we could do it. We could have something certainly by Monday morning, and tell them we will come up there, and we will lay this on the table, and you people decide whether this bill which is pending does the trick that you want it to do, or whether It doesn't, theoretically. We will lay it right on the table, and I am sure there isn't a president of a company that ouldn't help us, having it done on an annual basis rather than contract. Go see the president of the company. The trouble is, practically all of these companies have exten- sions of time. Practically none of them have filed their March 15 returns, so we would have to go in and ask for the help of the president of the company, or the comptroller, or the auditor. I think by the end of the week we can have thirty- six companies, Army, Navy, and Maritime, you (Nelson) giving us the ones this morning that you think, 80 we won't lose any time. Throw enough people in there, and by the end of the week we could have it. I think-- MR. PATTERSON: I am afraid that might increase the demand for profit limitation rather than get rid of it. MR. NELSON: I am, too. 97 - 13 - H.M.JR: It wouldn't look so good? MR. NELSON: I don't think it would look good. MR. FORRESTAL: Before you applied the taxes. MR. PATTERSON: I am afraid it would land you with a six percent profit limitation law. H.M.JR: You mean after you applied the pending bill, you apply those to '41 taxes, and it.isn't going to look good? MR. NELSON: That is my opinion, it won't. MR. PAUL: You mean ten percent that we leave them, or the eleven percent is going to be 80 much, is that the point? MR. FORRESTAL: Only in a few companies like planes, I think. MR. NELSON: I say if you pick twelve representative companies, and you try to pick them, I am afraid they won't look good on '41 business. ADMIRAL LAND: Salary basis - I know you are right about that. H.M.JR: After they have paid the taxes, and after you apply the proposed bill to their '41 salaries? MR. NELSON: Well, maybe after you apply the tax bill to their salaries, but no one ever does. H.M.JR: That is the whole point. We will take the tax return of the president of any concern - we have his return - he has filed his return. We will take his '41, '40, and '39 salaries, then his net, then apply the pend- ing tax bill to his '41 salary. MR. PAUL: Mr. Secretary, why isn't that salary end of it a way out? You can satisfy the lions by throwing Regraded Inclassified 98 - 14 - 8. few high salaries to them and put in the appropriation bill - don't care - a limitation on salaries, but keep out the profit limitation. Might be 8. damned good thing to have 8 limitation on salaries. H.M.JR: You could freeze the salaries as of a certain date, too. MR. PAUL: That would be a compromise. MR. FORRESTAL: Your two hundred thousand on a salary - that is the fellow with about fifty-five thou- sand under the new schedule? MR. PAUL: I don't remember the figure, but that is probably approximately correct, and, in addition, we can show this if you disallow the salary deduction to the company and then still tax the individual, we will probably get more with these high salaries than we would if they weren't paid. MR. FORRESTAL: Show what is going to happen to Messrs. Jack and Heintz, who are busted, I should think, today. H.M.JR: The point I'd like to see myself - in fact, I am going to do it anyway for my own information - I want to satisfy myself that the pending bill is going to do the trick. MR. NELSON: Yes, from that standpoint I think it is fine. I meant from the standpoint of going down and promising this committee you would turn them over to them, I am afraid. That was all I meant. H.M.JR: Don, it gets down to this, is our pending tax bill good enough to do the job? MR. NELSON: From that standpoint, I think it is fine. H.M.JR: That is what I would try to sell to them, that the pending bill will do the job, gentlemen, and will do Regraded Unclassified 99 - 15 - it better than what you are suggesting now. Why not leave it to the Tax Committees, but I can't do it until I get the actual facts. MR. PATTERSON: I think there is a fair chance that if the people in Congress were confident of prompt action on excess profits tax law that they'd drop the profit limitation. They think of it as being a thing that is going to take months and months - always do take months. MR. SULLIVAN: Do you think that if the Secretary made such & suggestion to them and agreed to go ahead and have an audit on the '41 returns, apply the corpor- ate and individual tax rates under the present Treasury proposal to those '41 profits, and bring them in and submit them to the House Ways and Means Committee for action - as 8. part of this tax bill, do you think that would appease the critics of the present system and the people who want the rider in the appropriations bill? ADMIRAL LAND: I will answer that without knowing anything about it. It will appease the inteiligentsia, it won't appease the rebel. MR. PAUL: Will it appease them if you had a salary limitation, too? MR. PATTERSON: Salary limitation would not be as bad as a profit limitation. Of course, there again you get into a thing where you are trying to cast things into a straight jacket. If you'd say, "No salary in excess of fifty thousand dollars shall be paid out of these monies, well, I suppose that the tendency to that would be for small fry who heretofore had been getting twenty thousand dollars would be to boost up to fifty thousand. It is bad in legislation. MR. PAUL: But it isn't as bad as the other. H.M. JR: The whole thing is, gentlemen, here is what the Treasury proposed legislation does to & company based on their '41 earnings. Here is what this rider does. Now, we at the Treasury think we can do EL better job - we can get more money this way, and it is fairer. Regraded Unclassified 100 - 16 - Now why not leave it to the Taxing Committees, give examples. MR. PAUL: If we approached it from another angle, too, apart from the political angle, it might be 8. darned good thing to find out if ninety percent is a high enough tax. MR. NELSON: I think your test sampling is fine. It is just in my mind as to whether that will eliminate this rider. H.M.JR: I gather, Don - I may be wrong - that Congress is looking for an out on this thing. ADMIRAL LAND: Sure H.M.JR: And so far we have sat in the back seat and said nothing. MR. NELSON: This fellow Case who introduced the amendment in the first place called me on the phone. Congressman Case said he was disappointed at the turn the thing took. He said he had introduced the thing primarily so that these contracts should be renegotiated. Then they told him on a point of order he couldn't do that, so then he had to put it on a profit limitation. He did it at the instance of an Army officer, who felt that it would be 8 good thing to have contracts renegotiated and have Congress renegotiate them, so he tells me. MR. PAUL: Has he been court-martialed? (Laughter) MR. NELSON: He wouldn't even tell who it was. MR. FORRESTAL: Glad he mentioned the Army. I think what the Secretary of the Treasury says is true. They are looking for an out, and I think any reasonable out. MR. PATTERSON: Is there any way of your rates on excess profits being accelerated, that is-- MR. PAUL: I think that would be very difficult, but, on the other hand, I think maybe-- Regraded Unclassified 101 - 17 - MR. PATTERSON: Those aren't the things they have the long hearings and long pieces of testimony about, are they? They are about other things in the bill. MR. PAUL: That is true. H.M.JR: You mean rushing the bill through? MR. PAUL: Rushing that part of the bill through. H.M.JR: We went to them, asked them whether they would rush the excise taxes through, and they said they wouldn't. MR. PAUL: They don't want to establish any rates in one field until they have the whole bill planned. In other words, that is their attitude, and 1 think that would be very difficult. H.M.JR: They are finishing the hearings this week in the House. MR. PAUL: I don't think this is going to take as long as some people suppose. MR. PATTERSON: How long do you think it will take? MR. PAUL: Well, I think by the end of July it ought to be in, and maybe the middle of July. MR. PATTERSON: Well, quite a ways off. MR. PAUL: I know, but people say October, elections, and everything. It may pass the House by about the 10th of June, and the Senate I would have to allow a month. MR. FORRESTAL: You would, I think, do harm with 8. six-percent bill that went through, and then was wiped out when your tax bill - the point is, these people have got to have & bone to throw to the dog; and if they agreed to have the tax bill cancelled, anything they pass now, if it were satisfactory to them-- Regraded Unclassified 102 - 18 - H.M.JR: You can answer that better than I can. MR. FORRESTAL: they'd accept. MR. PAUL: I think it is very difficult to get a tax bill off the books. MR. SULLIVAN: You have something very dangerous there, because once the Congress puts this on the books, B. popular measure, and these twenty-five members of the Ways and Means, all of whom come up for reelection this fall, have to accept the onus of taking this popular measure off the books; and that is quite a load for them to carry. Then you have got a lot to do after the com- mittee has acted favorably on it. MR. PATTERSON: If it passes, you will never get rid of it unless-- MR. SULLIVAN: You might after election, but cer- tainly not before. I think the harm would be done before. MR. NELSON: Does anybody know whether the conferees can throw both amendments out? MR. PAUL: We were talking about that. MR. SULLIVAN: I think they can do it by directing the Secretary of the Treasury to make this study and to bring in 8. report to the other cammittee. MR. MARBURY: They are not committed to anything in the Senate except renegotiation of contracts. They can bring in something which merely relates to renegotiation of contracts, and that is in the parliamentary rules. MR. NELSON: Why not see what comes out of the con- ference? Maybe the conference will accept the Senate amendment. MR. SULLIVAN: Too late then. Regraded Unclassified 103 - 19 - MR. MARBURY: They can knock 8. lot of stuff out of the Senate amendment. We have been working on something which takes all the poison out of what the Senate passed. ADMIRAL LAND: Why not follow what you have been work- ing on here, which would leave the thing in a fairly harmless state, that is, if I understand what Mr. Marbury and his gang have been doing here, the Senate amendment has been redrafted already, and you could hold on to the renegotiation and drop everything else, and then your procedure would still be effective and still be logical and proper. That is an out for the political aspect of the thing. MR. MARBURY: As I understood it, we had prepared this thing, which is nothing in the world but a re- negotiation clause. It takes everything else out of it; and as it stands, it couldn't possibly hurt a fly. ADMIRAL LAND: That is right. MR. PAUL: Do you have that power now to renegotiate? MR. MARBURY: Not by law. MR. PATTERSON: You have it morally. ADMIRAL LAND: This may provide an out. MR. PATTERSON: Still you morally have the power. MR. MARBURY: As I understand it, the suggestion made to us was that the conferees would be glad to accept something like this, which gave us additional powers of obtaining information in addition to those in the War Powers Act, that is, powers to demand interim statements, and things of that sort, and the power to renegotiate, even though & contract contained no renegotia- tion clause; that with those two powers they would be glad to let it go at that, provided they could get something Regraded Unclassified 104 - 20 - to show the public that this problem of possible limi- tation was being taken care of in the tax bill, and would be taken care of effectively. MR. SULLIVAN: Don't you think that that directive to the Secretary should be included there; because if you go just 8.5 far as your proposed amendment, then I am afraid there would be a rider put on every bill that went through, and this thing would keep coming up unless there is some indication to the people and to the Congress that we are really going after this problem. MR. MARBURY: What is the proposed directive to the Secretary? MR. SULLIVAN: That he shall make pre-audits of '41 returns of companies that have contracts with the Army, Navy, and Maritime Commission, and after bringing the results of those audits to the attention of the Joint Tax Committee, will then make recommendations as 8 part of the present bill by means of handling this situation. MR. MARBURY: I think their making pre-audits is good, but I feel 8.8 if you bring all that stuff in and It is just ammunition, like the way they do with this Las Vegas thing. It is just dynamite because it looks 50 horrible before the taxes are applied, and some dema- gogue, as it were, throws it around like chaff in the wind. H.M.JR: That is the difference. We would only bring it to them showing after the people had paid the tax, or the proposed tax bill. I know, somebody said the present bill isn't severe enough, but the way to get these companies on an annual basis is through taxes. MR. MARBURY: That is right, we can't reach sub- contractors. H.M.JR: As I say, if the present legislation for corporations and individuals isn't severe enough, we have got plenty of time to change them. i 105 - 21 - MR. MARBURY: I think it is severe enough, but I am just wondering if you can confine your reports to Congress as to what the result would be after they paid their taxes, I think that might be different. MR. PAUL: I think that would serve a very useful purpose. MR. PATTERSON: You couldn't confine it to that. Of course, they would want to know the whole thing; they would want to know what the salary question was. MR. SULLIVAN: Bob, we will certainly find cases in which our present proposal will take more from the corporations than this six percent limitation will. MR. PAUL: Yes. You will find that in all cases where there isn't a high income credit or invested capital credit. H.M.JR: Some of you people say what you want. I am not here as a salesman. MR. PATTERSON: The question right now is whether, I take it, the Treasury should go into a pre-audit as opposed to the War Department, or some other agency. H.M.JR: No, the thing that I am suggesting is, that is a suggestion that I go up there, and whoever goes along with us, and bring George and Doughton in on this picture, with McKellar and Cannon, and try to swing this thing out of the Appropriations Committee into the Tax Committee. I make a suggestion - well, that is not good enough for them, but if you will do this, then on that basis we are willing to swing it over to the Tax Committee and drop the thing. That is the thought. MR. NELSON: I am all for swinging it over into the Tax Committee. I think the way to get at this thing is through taxation. Anything else certainly will hurt this procurement program, and I already see signs of it right now, taking these small business pools and so forth; 106 - 22 - I had one yesterday that was awfully hard to find 8. way to even get them into this picture on any kind of a limitation profit like that. The only way to do it is to swing it into management fee, 80 all these things will swing into management fee or cost-plus-fixed fee. You can see that very clearly. MR. PAUL: Then you will have added costs. MR. PATTERSON: That is ruinous. H.M.JR: Bob, you seem worried; think it over. MR. NELSON: May we do that? MR. FORRESTAL: Let's nail it down to what they are talking about. Now they are not suggesting, as I gather, opposing this step of the conference agreeing upon rene- gotiation. That is not your thought, is it, Henry? H.M.JR: I am here offering the services of the Treasury to go up there and make this first suggestion, which will most likely not be acceptable, but the pur- pose being trying to get the amendment killed, swing it out of the Appropriations Committee into the Tax Committee. MR. PAUL: That is not inconsistent with that re- negotiation. MR. MARBURY: That is my point. MR. PATTERSON: I think that that might be effective, what you propose might be effective in trying to at least confine the legislation attached to this appropriation bill to the narrowest limits. Keep out the six-percent provision of the House; keep out the sliding scale that came out of the Senate Committee, but didn't pass the Senate; keep out, if possible, the provision that did pass the Senate giving the Secretary power to declare anything excessive that is going to be very disturbing to people because they don't know what price they are working for. That is apt to come out. 107 - 23 - ADMIRAL LAND: That is the point, that this can be killed if the Secretary, goes up there and offers his solution, and they won t accept that; then he gives them this bait of renegotiation, and then we will hope that that will stick and drop the rest. I am a hundred percent in agreement with that procedure. MR. PATTERSON: We have got a provision now which doesn't modify the bill as it passed the Senate very much, which renders it quite innocuous; and after a great many words and clauses and paragraphs, boils down to rene- gotiate. H.M.JR: Have you got any assurance, Bob, they will take it? MR. PATTERSON: No. H.M.JR: That is your trouble. MR. PATTERSON: But I think that the policy you propose will help us get that over. H.M.JR: Do you want to think it over for twenty- four hours? MR. PAUL: I would like to impress one final thought there, that if these two things don't work, that you be prepared on the next step, which is perhaps some salary limitation; while I don't like that particularly, I think it is better than other alternatives. ADMIRAL LAND: Why not leave that in the hands of the Secretary if we agree to go up there; and if he doesn't get away with his first thing - get away with his compromise-- MR. PATTERSON: I agree with Randolph Paul that the salary thing is the red flag to wave. It is more strik- ing to the public to have a stenographer receiving forty thousand dollars per annum than it is that the company made fifty percent, or something like that. 108 - 24 - MR. PAUL: Especially that one. MR. MARBURY: May I say this? The House conferees have asked for 8. meeting tomorrow before they meet with the Senate conferees. They want to hear from the War Department. MR. NELSON: Who are the House conferees? MR. MARBURY: The whole Sub-Committee on Corporations. MR. PATTERSON: Headed by Cannon. MR. MARBURY: They have asked the War Department to go up there tomorrow and talk to them about this profit thing by itself. H.M.JR: And Frank Knox is up there this morning at ten o'clock on this. ADMIRAL LAND: He is on the Vinson Committee. MR. MARBURY: This is the actual conferees. ADMIRAL LAND: I spent two and a half hours there yesterday. MR. PAUL: We have all been up there, I guess. ADMIRAL LAND: I doubt if anybody was there as long as I was. MR. NELSON: I was there two and a half hours. ADMIRAL LAND: This is the Vinson-Smith Bill - nothing to do with this bill. H.M.JR: What would you like, gentlemen? MR. PATTERSON: I would like to think it over, as you say. Can't we have a meeting tomorrow? Regraded Unclassified 109 - 25 - H.M.JR: Same time? MR. PATTERSON: Yes. H.M.JR: Want to come back tomorrow morning at nine o'clock? MR. SULLIVAN: May I suggest that if there is any chance of following your sampling pre-audits, these gentlemen should ask somebody to select the names of companies, because the time will be very short. MR. PATTERSON: You can do it in ten minutes. H.M.JR: Would you give me something this morning, Don? MR. NELSON: Yes, I will see that you get it. I will get it from both the Army and Navy and Maritime. You want a representative of about twenty-four? H.M.JR: I would like thirty-six. MR. NELSON: I will give you thirty-six that are representative. H.M.JR: Get it into Sullivan's hands by noon. MR. NELSON: I will get it by noon. 110 April 14, 1942 My dear Mr. President: I thought you would like to know that at my request Mr, Donald Nelson is furnishing me today with the names of 36 corporations having contracts with the Army, Navy or Maritime Commission. All of the tax returns of these companies for the years 1939 and 1940 are now available. Normally we would not complete audits on the 1941 returns until about the middle of 1943. However, we propose to send Internal Revenue auditors into the home offices of these various businesses tomorrow and to make immediate audits on the 1941 returns. We shall then apply to the 1941 profits of these 36 corporations the income and excess profits tax rates under the Treasury's pending proposal. We will then know definitely whether the Treasury's proposed legislation is adequate to take the profits out of war and whether it will limit the net salaries of individual officers to a reasonable degree or whether some other technique will be required. Mr. Sullivan and Mr. Helvering assure me that I can have this information not later than Tuesday next. Yours sincerely, The President, The White House. Regraded Unclassified 111 Personally dictated by HM, Jr as a rough draft and to give the men his ideas. 112 (DRAFT) April 14, 1942 My dear Mr. President: I thought that you would like to know that I have requested Mr. Donald Nelson to furnish me today with the names of 36 corporations, 12 of which have contracts with the Army, Navy and Maritime Com- mission, respectively. Mr. Nelson has agreed to do this. We propose to send Internal Revenue auditors into these various businesses and get their tax re- turns for 1939, 1940 and 1941, both on their annual profits and on the salaries and returns of the officers of these companies. Normally we would not audit the 1941 corporation returns until sometime in 1943. We then propose to apply to the 1941 returns the Treasury's proposed tax bill and with this infor- mation at hand we will definitely know whether the Treasury's proposed legislation will take the profits out of war and will limit the net return to the individ- ual officers on 8 reasonable basis. Yours sincerely, Regraded Unclassified 113 -2- Mr. Sullivan and Mr. Helvering assure me that I can have this information not later than Tuesday next. Yours sincerely, The President, The White House. Regraded Unclassified Treasury Department Division of Tax Research 114 Date ADE. 14 194 2 Miss Chauncey : Miss Doyle This is the material that was prepared for the President's press conference at 4:00 this afternoon. Mr. Blough took it to the Secretary at 2:45 this afternoon and then he .Blough) and Mr. Kuhn took it to the White House. Mr. Blough thought you would want copies for your file. Doaraded 115 EVILS or m RATES TAX L The sales lax violates the principle of ability to pay. It falls more heavily on the poori 11 is, in fact, a "spare- the-rish" tax. A sales tax taking 10 persont of Income st the $500 level would take 6 percent at $2,500 and 3 persont above $10,000. It is bed economics to increase the tax load as people who have all they can do to feed and clothe then- selves and their families. A sales tax would reduce their productive officiency and night require Federal relief for them. 3, A sales tax is not required to withdraw purchasing power. 1. Although about 45 percent of the national income goos to those who de not nov pay Income tax, the very lev incomes are not getting the balk of the income ingreases. The $18 billion increase is national income expected for 1942 will @ very largely to persons subject to income tax in 1942. (Based on O.P.A. figures.) 2. Lever incomes are already being reached; persons in lover income groups are already paying = bigger share of their incomes is Federal, State end local taxes than are persons just above the income tax exemption level. 3. Lover incomes will be further reached throught (a) The $2 billion increase in social security taxes, (b) the $1,300 million proposed exclse taxes, and (e) the voluntary payroll deduction savings program. 4. Lev income groups spend more of their money on foods and other relatively plantiful goods and less on durable goods and other scares goods that compete with war production. c. The imediate effect of the sales tax would be to increase the coob of living. It would have the care kind of effect on lev Incomes as inflation. 1. It would stimlate the vage earner's desende for vage increases which by increasing costs vould result in higher prices. 2. It would add to fare prices under the parity provisions. RB:dad 4/14/42 FILE COPY Regraded Unclassified 116 April 24, 1948 Dear Velter: In accordance with the request in your letter of April 10. 1942 for sertain information relating to the corporation income and excess profite tax, 1 as as- closing two exhibits. The first 10 a special tabulation from excess profite tax returns for 1940, filed through December n. 1941 which shows that the excess profits credit claimed by corporations taxable under the excess profits tax amounted to $2,074 million. Corresponding data for the corporations not taxable under the excess profits tax are not available, except for the larger corporations. The corporations with normal tax net income of $100,000 or over and excess profits credit of $250,000 or over reported as excess profits credit of $5,546 million. The second exhibit is is saswer to your questions 2, 3 end 4. Sincerely yours. Nonorable Walter P. George United States Denate Enclosures files Thompson By Messeoger Brown LOIN 9:05 4/14/22 4/18/42 Regraded Unclassified 117 Exhibit 2 Information on estimated corporation net income, calendar year 1942 (2) The estimated not income of all net income corporations, calemdar year 1942, exclusive of intercorporate dividends and wholly tax- exempt interest, is $16,650 millions (3) The amount of partially tax-exempt interest included is (2) is estimated at $ 300 willious (4) The amount of income of corporations with net incomes of $25,000 or less, included in (2) is estimated at s 1,375 millions Regraded Unclassified 117 Exhibit 2 Information on estimated corporation not income, calendar year 1942 (2) The estimated not income of all not income corporations, calemiar year 1942, exclusive of intercorporate dividends and wholly tax- exempt interest, is $16,650 millions (3) The amount of partially tax-exempt interest included in (2) in estimated at $ 300 millions (4) The amount of income of corporations with net incomes of $25,000 or less, included in (2) 10 estimated at $ 1,375 millions Regraded Unclassified 117 Mahibit 2 Information en estimated corporation not income, calendar year 1942 (2) The extimated net income of all not income corporations, calemdar year 1942, exclusive of intercorporate dividends and wholly tax- exempt interest, is $16,650 millions (3) The amount of partially tax-exempt interest included in (2) 10 estimated at $ 300 millions (4) The amount of income of corporations with net incomes of $25,000 or lees, included in (2) is estimated at $ 1,375 millions Regraded Unclassified 44. COMMISSIONERY - M. LA FILLETTE, a wis. I ANTIVE CAPPER, KANK. - - ARTIVE 44, VANCENIERS. M/DL JAMIER 4. DAVIR, PA. N. HOME CAINIT LOONE, JA., MABA. - A. DANAMER. COMP. United States Senate 1 MONEY & TAFT. - 7 1 COMMITTEE ON FINANCE 1 in - April 10, 1942 - & - . KENNEDY. CLIER Decr Henry: I would like to have you furnish me the following information: (1) The aggregote excess profits credit claimed by corporations showing net income, on 1940 returns. (2) The estimated net income for the calender year 1942 of all corporations, excluding intercorporate dividends and wholly tax-exempt interest. (3) The amount of partially tax-exempt interest included in such estimate. (4) The amount of income included in such estimate for corporations with less than $25,000 of net income. I need the information to enable ae to form an intelligent estimate on the basis of dif- ferent corporate rates, both normal and excess profits rates. Thanking you for the information as soon as it can be conveniently arranged, I am Sincerely yours, Haure 7. George Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. Regraded Unclassified 119 April 14, 1942 10:21 a.m. HMJr: Hello. Operator: Jesse Jones. HMJr: Hello. Jesse Jones: Hello. HMJr: Jesse. J: Yeah. HMJr: How are you? J: All right. How are you? HMJr: Okay. Jesse, I've got word from Foley, from your lawyers and our lawyers, that this question of lending the silver J: Yeah. HMJr: is at a standstill because they say that you say that you and I aren't in agreement. I didn't know of any disagreement between us. J: Well, I hadn't - when I got back from Cabinet I reported to the lawyers our discussion. HMJr: Yeah. J: And told them to look up and bring me the sug- gested procedure, and they haven't done it. They've been busy on other things, and I'll get at them right away and call you. HMJr: Will you? J: I certainly will. HMJr: Jesse, Foley - hello J: Yeah. HMJr: tells me that this question of an indemnity 120 - 2 - was all explained to your people before we went into it, and they said it was all right. They had no objections. J: Well, I sent it to you. It was new to me; I hadn't seen it. HMJr: Well, do you want to know the names of the people that sat in on it for you? J: Yeah. HMJr: Let me ask Foley. (Talks aside) Who..... Sam Husbands is one. J: Yeah. HMJr: Klagsbrunn. J: Yeah. HMJr: And O'Hara. J: Okay. HMJr: And those boys knew all about it in advance, and raised no objections. J: Yeah. Okay. Well, I'll look into it. HMJr: Do you think you can do it today, Jesse? J: I'll try, Henry. I've got a pretty full day, but I'll do the best I can. HMJr: Because the Production boys say that time 18 of the essence. J: I'll look right into it. HMJr: I thank you. phato To 121 - or or THE SECRETARY OF COMMERCE THE STATES - B WASHINGTON April 14, 1942 Dear Henry: Both Mr. Husbands and Mr. Snyder tell no that they did not agree to the terms and con- ditions proposed to them, namely, that Defense Plant Corporation should agree to return to you the silver of the same weight and fineness as that delivered by you to Defense Plant Corporation. They said to your representatives and to the meeting that they would submit the matter to the directors of Defense Plant Corporation, which they have since done. They advise me that Defense Plant Corpora- tion will agree to stand all expense of transporting the silver, fabricating it for use in the plants, and will protect it to the best of their ability, and, upon the request of the Secretary of the Treasury, return it. I see no reason why Defense Plant Corpora- tion should be required to do more than this. Sincerely yours, JamesJones Secretary of Commerce The Honorable The Secretary of the Treasury 122 April 14, 1942 10:26 a.m. HMJr: Hello. Stephen Early: Yes, Henry. Good morning. HMJr: Good morning. E: How are you, sir? HMJr: Fine. Steve, I don't know whether what John MacCormac wrote in the New York Times was any less truthful in what he seid about me, than what he said about you. Did you read the story? E: No, I haven't yet. HMJr: Well, it's a front-page story on the Times. E: Got me in it? HMJr: Yeah. E: What's it all about? HMJr: Well, it starts off this way: "An over-all anti-inflationary program which will comprise higher taxes, broader price ceilings possibly re- enforced by rationing, and limitation of profits, probably stabilization of wage levels, will be presented to Congress by President Roosevelt within the next two weeks. It will be outlined in a special message upon which the President 18 already at work, his secretary, Stephen Early, intimated today.' E: Why, I said no such thing. HMJr: And E: They tried to make me say that he was writing a message, and I wouldn't. I said he was doing a lot of spade work in line with his discussion at the last press conference. HMJr: That what the Tribune reported you as saying. Regraded Unclassified 123 - 2 - E: Well, that's what I did say. HMJr: And then they go on and say that I was up at the farm over the week-end, and I was working on how to raise five billion more new taxes. E: (Laughs) HMJr: And 80 I thought that we here would point out his errore as far as we're concerned, and you might want to do the same for yourself. E: Well, I certainly will. Thanks, Henry. I haven't gotten to the Times yet. HMJr: Well, it's - the fellow's done it before, and he just draws on his imagination and he doesn't seem to care about the truth at all. E: That's the New York Times, 18 it? HMJr: The New York Times, John MacCormac. E: John MacCormac. HMJr: It's on the front page. E: Yeah. I'll catch it. HMJr: Righto. E: All right, sir. Thank you, Henry. HMJr: Thank you. E: Good-bye. Regraded Unclassified 124 The New Bork Times. APR 14 1942 Bravy 7M Load for 1045 en 50 centa B pair PRESIDENT DRAFTS and afternoon. To defeat such This would mean that the Amer- "chiseling," the Senatar said, price lean people would be expected to callings should be made retrono- pay $30,000,000,000 of Texas to the INFLATION CLAMP tive. calendar year 1042. But It la point- Senators Connalty of Texas, Reed ed out that war expenditures in the of Kanass and Vanderberg of Mich- ON WIDE FRONTS 1945-43 time) year will be $76,000,- Igan agreed on an overall price 090,000 and Lotal Pederal supendi- celling. tures about $85,000,000,000. Senator Vandenberg called for This tremendous Injection of "all-out price control on 6 national government maney Into the DA- basis along the general lines of the Special Message Due in Two llonal somety. is La orgual, but Baruch plan." Weeks Comprises Tax Rise, be balancest by - TAX program Senator Thomas of Oklahoma, which will take at least a third of Price, Profit and Wage Action while favoring price freeting, de- It out again. nied that the country was siready To get the additional five billions in the upward spiral of Inflation. in taxes Treasury circles now seem The dellar, according to Labor Bu- TREASURY'S PLAN SHAPING to be realgned 8 the prospect reals statistics, WM still worth either of B general vales tax or 8 $1.021, he acid, and added that in lowering of Individual Income tas a few months It would be "down to It Calls for 5 Billion More examptions. a dollar." Being considered is the possibil- Revenue-Senate Hears Pleas After & conference here the Re- Ity of distinguishing between the tailers' National Council declared for Over-All Celling Now taxpayer who has made less rather lonight that retailers did not op- than more money because of the pose price cellings If all other costs Var and Is marely trying to pay including rents, wages, Interest By JOHN MscCORMAO er past debta and the taxpayer and other business coate were like- to THE NW TORE TIMES. who has benefited from the war wise fromen. WASHINGTON, April AD and must be prevented from Incu The council said that proposed over-all anti-inflationary program, ring new DDRS. allings freesing the prices of goods which will comprise higher taxes, Celling Action Asked in Senate could be applied fairly and red a broader price celling, possibly re- Secretary Morgenthau La sald inmended that the Office of Price Inforced by rationing, limitation of still to feel that the most Impor- Administration allow 5. reasonable profits and probably stabilization tant single anti-inflationary mens- time lag between wholesale and TO- of wage levels, will be presented to ure would be an overall price tall prices, celling. A start on this was de- Retailers, the council sid, gen- Congress by President Roosevelt manded in the Benate today by erally have cooperated with the within the next two weeks. Senator Clark of Missouri, who de- OPA in afforts to keep prices down It will be outlined in a special nounced B sales tax as Inflation- and would now lome heavily unless measage, upon which the President ary. adequate provision were made to in already at work, his secretary, Urging that the President sub- permit the re-establishment of the Stophen Early, intimated today, mit his anti-inflation program proper relationship between cost saying that appointments were be- with all possible speed, be said and selling prices. that the Office of Price Admin- The council's membership In- ing restricted to permit "much istration should meanwhile use lbs cludes several hundred thousand spade work along the lines that he merchants in all parts of the enem- powers "to stop the effort to best gave you at his recent press con- the Administration's program be- ference." fore it comes to Congress." Secretary Morgenthau was at At a. Washington department work over the week-end on the store on Saturday, he said, he Treasury's part in the program, found that prices had jumped ao said to include increasing its tax per cent In & few days. Cotton quilte which had been $4.50 & pair proposal by $5,000,000,000 to a Dew on Friday were $6.75 8 Saturday total de $12,000,000,000. A woman found that shoes had de Regraded Unclassified 124 The New York Times. APR 14 1942 Heavy Tax Load far 1948 I en no centa & pair between computer and afternoon. To defeat such PRESIDENT DRAFTS This would mean that the Amer- "chiseting." he Senator said, price lean people would be expected la collings should be made retroac- pay $30,000,000,000 of taxes In the live. INFLATION CLAMP calendar year 1943. But It la point- Senators Connally of Texas, Reed ed out that war expenditures in the of Kansas and Vanderberg of Mich- 1012-43 fiscal year will be $78,000,- ON WIDE FRONTS igen agreed on an overall price 000,000 and total Federal expendi- reiling tures about $5,000,000,000. Senator Vandenberg called for This tremendous injection of Pall-out price control on & retional government maney Into the não basis along the general lines of the Special Message Due in Two lional economy. It la argued, must Baruch plan." Weeks Comprises Tax Rise, be balanced by & tax program Senator Thomas of Oklahoma, which will take at least . third of while favoring price freezing, de- Price, Profit and Wage Action It out again. nied that the country was already To get the additional five billions in the upward spiral of inflation. in taxes Treasury circles now seem The dollar, according to Labor Bu- TREASURY'S PLAN SHAPING to be resigned to the prospect reau statistics, WAS still worth either of a general sales tax or 6 $1,021. he said, and added that in lowering of Individual Income tax a few months IL would be "down to Il Calls for 5 Billion More exemptions. a dollar." Being considered is the possibil- After 1. conference here the Re- Revenue-Senate Hears Pleas ity of distinguishing between the tailers' National Council declared for Over-All Ceiling Now taxpayer who has made less rather tonight that retailers did not op- than more money because of the pose price cellings if all other costa war and is merely trying to pay including sents, wages, interest By JOHN MacCORMAO if past debta and the taxpayer and other business costs were like- two tá THE New time Times. vito has benefited from the war wise frozen. WASHINGTON, April 18- An And must be prevented from Incur The council said that proposed over-all anti-infistionary program, ring new ones. cullings freezing the prices of goods which will comprise higher taxes, Ceiling Action Asked in Senate should be applied fairly and red- - broader price colling, possibly n- Secretary Morgenthau is said onmended that the Office of Price sull to feel that the most unpor- Administration allow . reasonable inforced by relioning, limitation of profits and probably stabilization tant single anti-inflationary meas- time lag between wholesale and De- ure would be an overall price tall prices. of wage levels, will be presented to ceiling. A start on this was de- Retailers, the council aid, gen- Congress by President Roosevelt manded In the Senale today by erally have cooperated with the within the best two weeks. Senator Clark of Missouri, who de- OPA In efforta to keep prices down It will be outlined in & apecial nounced . sales tax M inflation- and would now lose heavily unless message, upon which Lhe President ary. adequate provision were made to is already at work. his secretary, Urging that the President sub- permit the re-estabilahment of the Stephen Early, Intimated today, mit bis anti-inflation program proper relationship between coat saying that appointments were be- with all postble speed, he said and selling prices. that the Office of Price Admin- The council's membership In- Ing restricted to permit "much cludes several hundred thousand intration should meanwhile use its spade work along the lines that ne merchants in all parta of the coun- powers "to atop the effort to best My, gave you at his recent press con- the Administration's program be- fore it comes to Congress." Excretary Morgenthau was at At a Washington department work over the week-end on the store ço Saturday, he said, he Treasury's part to the program, found that prices had jumped 20 said to Include increasing its laz per cent. in A. few days, Catton quilts which had been $4.50 # pair proposal by $5,000,000,000 to a new on Friday were $0.75 on Saturday Cotal of $12,000,000,000. A. woman found that shoes lied ris- Regraded Unclassified 125 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1942. TO Mrs. Klotz FROM Secretary Morgenthau I want Lawrence Houghteling to be present at a meeting with General Electric and General Motors today. Please arrange it. Also, George Buffington. Done- Regraded Unclassified 126 April 14, 1942 10:30 a.m. DEFENSE SAVINGS BONDS Present: Mr. Graves Mr. Buffington Mr. Houghteling Mr. Gamble Mr. Peare Mr. Neal H.M.JR: Which of you men are responsible for the very good job that you did up at G.E.? MR. PEARE: Mr. Neal. MR. NEAL: Mr. Peare, and possibly about a hundred other people, I'd say, at least. MR. PEARE: I am manager of the department, and Fred did the job. That is the total, Mr. Secretary. You take your choice, and we will be glad to answer questions. H.M.JR: What is your department? MR. PEARE: I am manager of the Publicity, Public Relations, and Advertising. H.M.JR: Public Relations and Advertising. You? MR. NEAL: I work for Mr. Peare, Employee Rela- tions. MR. PEARE: We have an Employee Relations, general promotional point of view, within that Public Relations Department. We have a group working on employee rela- tions, too. H.M.JR: An employee who works with-- Regraded Unclassified 127 - 2 - MR. PEARE: Employee Relations Section within my department. H.M.JR: You have employees who work with you; I mean, how do you reach the employees? MR. PEARE: Through various media, radio, news- papers. H.M.JR: That isn't what I mean. Is General Electric unionized? MR. PEARE: Yes, sir, CIO. H.M.JR: How do you work through CIO, for instance, as far as the job like this is concerned? MR. PEARE: Some places there is great discussion with the local union groups; and in other places, two in particular, we are carrying on 8. plan right now that works directly with the employee-management pro- duction committees, rather than with the management of the works. That depends on what works we are working in. Some have a different set-up than others. MR. NEAL: Some of us, of course, have both the AFL and the CIO unions. MR. PEARE: The AFL is such a minority that-- H.M.JR: Well, I am groping; I know very little about this. You start on a program, you decide you want to put it over in a week. How do you do it, from the management down, and how much do you get the cooperation from the unions? That is what I am groping for. MR. PEARE: Fine cooperation. In a case like that, I think there is very little difference between the management and the unions. We are all employees of the General Electric Company, and we sit down and talk about it, and it works. We don't formally reach - 128 - 3 - in most cases we don't formally go to the unions and discuss it with them. The union members sit down with members of the management of the company. It is just discussed in informal fashion. H.M.JR: Well, I don't know whether in General Electric, but in the automobile industry we have what they call shop stewards. MR. PEARE: Yes. H.M.JR: I don't know whether you have those or not. MR. PEARE: Yes, we do. H.M.JR: And it is the job of the shop steward to explain anything to do. MR. PEARE: That is what the unions say. H.M.JR: Well, I mean, I wondered how much, for instance, you use shop stewards. MR. PEARE: I can't answer that question because we use them in many places; in other places we don't. Some places the foreman will take care of it; other places the shop steward will take care of it. There is a twilight zone in there, Mr. Secretary, that really doesn't lend itself to definition. H.M.JR: Let me put it to you another way. General Motors people are coming in this afternoon. I don't know who they are, but they are coming in. They are very anxious to go forward on this pay-roll deduction, and we are hoping, not only General Motors - better confine it to General Motors - they'd be CIO also? MR. PEARE: Yes. H.M.JR: How can we get the benefit of what you people have done and make it available to General Motors? 129 MR. PEARE: We will be delighted to tell them anything they want to know. H.M.JR: I mean, we have got, roughly, fifty thousand corporations who have the pay-roll deduction plan in. Now, we haven't had an announcement of 8. real drive trying to raise this to ten percent; we are not ready yet. Now, when we do it - 80 far very few, if any, of the corporations have the men making a ten percent deduction voluntarily. Now, what I wanted to find out is how much would General Electric help the Treasury to teach this technique which you people worked out successfully to other corporations who want that information. MR. PEARE: We will be glad to help you any way that we can. To us it doesn't seem particularly unique or different because we have been doing things like this for B. long time, so I don't know just what it will involve; but we will be glad to sit down and talk with them about it and tell the story or we will be glad to put it on paper and you can circularize it. H.M.JR: Let me explain what I have in mind. Philadelphia Evening Bulletin worked out a very elaborate, successful plan whereby they are selling stamps, and they did it, they made a success of it; 30 we wanted to interest other newspapers, 80 the circulation manager of that paper on down helped us to sell it successfully, using their technique, their literature, to some eight hundred other newspapers. We used the Philadelphia Bulletin technique of it. Now, you fellows have made the outstanding success, 30 far as I know, in this field, and we'd like to get you to help us from here. MR. GRAVES: Of course that Bulletin thing, Mr. Secretary, was organized through the publishers associations. The publishers associations did all of that job, using-- H.M.JR: We did use Mr. MR. GRAVES: Mr. Stodgill organized that in the - 5 - 130 publishers associations. H.M.JR: But he first did it, worked it out, and then he taught these people how to do it. To get down - I mean, it seems very easy to you, but to other people who haven't been able to make B. go of it, it isn't 60 easy. MR. PEARE: I realize that. My job in the company is the dissemination of information. I am just, as you told Mr. Graves, turning over in my mind how it might best be done without completely taking our whole organ- ization to do it, which has been pretty well robbed already, you know, by various important tasks. Is there anything - can you get the assistance of trade associations? H.M.JR: Yes. MR. PEARE: Take, for instance, the Chamber of Commerce? H.M.JR: Yes. MR. PEARE: Or some group like that? MR. GRAVES: National Association of Manufacturers, for instance. MR. PEARE: Your heavy manufacturers, I presume, would be in that. The smaller business men would be more interested in the Chamber. MR. GRAVES: That is right. Those two organizations probably would reach pretty nearly everybody. MR. PEARE: Those two pretty well cover your cor- porations and the small, unincorporated business men. We could tell our whole story to A group of men appointed by those two organizations, and I think give them enough to get them into effective action fairly quickly. That would be my suggestion. 131 - 6 - H.M.JR: Wouldn't you really almost have to hold regional schools of the top people in each corporation? MR. PEARE: They could do that. H.M.JR: They could do it? MR. PEARE: Yes, the associations. That is the tie- in that I am trying to find, because we don't have the man power to do it, Mr. Secretary. We handle this with 8. very few people. H.M.JR: You do? MR. PEARE: Oh, yes. Of course our organization in each outlying unit is pretty well set up, and our home office organization goes to them with the general details, the objective, how we plan to do it, and they carry it out. Now, to undertake a program of education on a thing like this is really an enormous task. So it would have to be one of these large, over-all groups, it seems to me, that would carry this thing through. H.M.JR: I am reasonably sure that both the Chamber and NAM would appoint 8. special committee just on pay- roll deduction. MR. PEARE: We can help them a lot. We could bring them to Schnectady and go into it with them over & period of two or three days, or we could meet them in New York, wherever they saw fit, and I believe do a fine job. H.M.JR: One thing that wasn't quite clear in read- ing the circular which you have just gotten out, whether the pay-roll deductions of G.E. are all new or whether you are giving credit for what they already had in your old system of pensions. In other words, how much are your people deducting each week now from their pay roll? I couldn't quite get that. The two things seemed mixed up a bit. MR. PEARE: All the figures were the new bond commitments. They had nothing whatsoever to do with our old pension. Regraded Unclassified 132 - 7 - MR. NEAL: Nothing at all, completely new. H.M.JR: As you read that, it isn't clear in the circular. MR. NEAL: What happened was this; We had a system for several years whereby the employees could purchase employee securities, corporation bonds, 8.S we called them, and the company, I believe, holds the common stock in that corporation and the employees buy the bonds. That was done, of course, to prevent fluctuation in the market value, so the employees would have the stable security to buy. As I remember, about one-third of the employees from time to time have purchased those employee bonds; but of course the amount was nothing comparable to the totals we have on the bond sales. The plan was first put in last May. There was no concentrated drive at that time. Of course the plan was announced in the employee papers, and what not, but there was no concerted drive. One-third of our employees who were purchasing bonds continued to make their sub- scriptions and buy employee bonds, and so for that reason there were very few Government bonds purchased. Now, those subscriptions all ended in December, be- cause these bonds we were issuing were issued on a one- year basis; in other words, & series of 1939 and a series of 1940, and so on, and so in December that employee bond payment was all cleared up. For that reason we felt it was time to then put on B. drive for the Government bonds. H.M.JR: What they are doing now, weekly or monthly figures, are in all war bonds and not in your bonds? MR. NEAL: Yes, we entirely eliminated the employee bonds, 88 far as any new issue was concerned, last May. MR. PEARE: As soon as your program was announced, we discontinued this other plan, which as only 8 savings plan, and it is there if you want to use it, It is limited to five hundred dollars 8. year, no promotion back of it, or anything like that. We made them no longer available and went wholeheartedly into your security. 133 - 8 - H.M.JR: When you say you handle publicity, that is both inside the company and outside? MR. PEARE: Yes, sir. H.M.JR: I mean, all the advertising of the products, your general advertising? MR. PEARE: Yes, sir. H.M.JR: Then the stuff within the company, too? MR. PEARE: Yes, sir. H.M.JR: Which agency do you use? MR. PEARE: We use four or five different agencies. Matson, Incorporated, has most of our accounts. H.M.JR: For your over-all publicity? MR. PEARE: Yes, sir. H.M.JR: Let me get this - excuse my ignorance. MR. PEARE: Go right ahead. H.M.JR: I am just trying to find out. MR. PEARE: It isn't your ignorance but my poor explaining, probably. H.M.JR: No, no, I am just starting. Let's just say for a minute that we get the NAM and the Chamber of Commerce to say, "We each appoint a committee, and we will work together 80 we don't overlap, and NAM take certain ones and we will take certain others. There won't be duplications. Now, in anything we can do we have got to bring the unions in. MR. PEARE: Sure, should bring them in. H.M.JR: Now, just use your imagination - as B. publicity man you are supposed to have ideas - we'd like to make the unions feel that they are in anything from 134 - 9 - the start because they have been awfully good with us on this thing, very enthusiastic. Do you suppose we could have a committee composed of the Chamber of Commerce, the NAM, and whatever union involved? MR. PEARE: I'd say that would be largely a local problem. H.M.JR: You see, I had at this table for the first time in five years the representatives of CIO and AFL and the Chamber of Commerce and the NAM. All six of us all sat down there to broadcast together about three or four months ago, so we all did do it together at once over the air, and it was very good - and the railroad brother- hoods? MR. GRAVES: The brotherhoods. H.M.JR: We all did it together. Just think a minute about the union angle of it, just from your own experience. MR. PEARE: Well, from our own experience, as far as I know, the union angle hasn't come into it at all, largely, I presume, because the deduction method of purchasing has been made available by the company to its employees for at least twenty-five years, and our problem in connection with new defense or savings bonds consisted almost entirely of changing our plan from the collection of funds to the deduction of funds for one security over to another security and adding a promotion plan for the new media of investment which hadn't existed for the old. So I couldn't make a contribution on that, Mr. Secretary, I don' t know enough about it. I should imagine that the relationship existing between the management of B. company and its union representatives, and then to break that down farther, purely local situations, that might exist within that same company in one works or city or another, would be different in many cases. H.M.JR: Well, these committees that Mr. Nelson has set up - are you familiar with those? MR. PEARE: I know something about them, yes. 135 - 10 - H.M.JR: You couldn't use that same framework maybe? MR. PEARE: I should say only for promotion purposes. H.M.JR: Only for promotion? MR. PEARE: That would be my guess, and it isn't 8. very good guess. It is of little value to you. H.M.JR: I wonder if we could find out from Nelson - what is his name - I will tell you who is doing it, the man who is down here 8.8 Nelson's assistant. MR. BUFFINGTON: Sidney Weinberg. H.M.JR: Sidney Weinberg, I understand, is handling the thing for Nelson. I am so informed. MR. BUFFINGTON: That is what I understand. I heard that in Boston. H.M.JR: We might find out they are doing. You don't want any more committees. MR. PEARE: There are enough. H.M.JR: So if they have already got good committees I'd love to use somebody else's committees. MR. PEARE: It would occur to me in that connection that these committees are formed largely as a clearing house for ideas to improve production. Well, the facilities set up to do B. thing like that, it seems to me, would have little to offer toward the collection of money or towards establish- ing 8. routine for the collection of money that you are seek- ing. Now, they could give it a boost, an emotional boost, a patriotic appeal, and that sort of thing; but I don't see how they could be used as now constituted for your purpose. That is a curbstone opinion. MR. HOUGHTELING: In the railroad pay-roll plans we have been very successful in setting up joint committees. We have asked the president of the railroad to appoint one of his officers, usually the treasurer or the chief fiscal officer, as chairman of the committee, railroad 136 - II - labor being very fully organized. They have a general chairman for each one of the railroad crafts, and he sits on the committee with the treasurer and one or two other people appointed by the president of the rail- road, and It is the general chairman, labor chairman's job, to get out and promote the participation in the pay- roll savings plan, not only as to getting all of the people to take part, but also in getting the percentage up. We have got to do & ten percent average job of pay-roll allot- ment if we are going to put this thing over. Now, the best people, we think, to tell the union members what they ought to do is their own union repre- sentatives rather than the Government or the management. MR. PEARE: I find no fault with it. MR. HOUGHTELING: For instance, I have a circular gotten out - I don't believe you have seen this yet, Mr. Secretary - by the United Automobile Workers, and United Automobile Workers CIO executive committee is recommend- ing to all UAW war workers that they put as high as twenty percent of their weekly pay into Defense Bonds. H.M.JR: Twenty percent? MR. HOUGHTELING: Twenty percent. They are going ahead of what we are asking, and this was put out with- out our knowing it or without consulting us. They have the combined objective of helping to finance the war, helping to fight inflation by drawing off the excess pay, and also building a cushion against the adjustment at the end of the war, which will be good for the union and good for its members. It seems to us that they are the people who can go in, as Dave Dubinsky's ladies garment workers are doing and saying, "We want two weeks' pay this first half of 1942. for that reason we feel that the better relationship we can get by joint committees the more effective it will be, and that one thing of bring- ing up the percentage of the pay that is allotted. You have the Electrical, Radio and Machine Workers of the CIO, haven't you? MR. PEARE: That is right, sir. MR. HOUGHTELING: Both factions in that union are very 137 - 12 - much interested in this. Mr. Carey, who was defeated for the presidency last fall, is secretary of the CIO, he is very keen on this, and in fact the new president, Emspak, has also committed himself very thoroughly to this, so that the union as a body is committed to it. MR. PEARE: Fitzgerald is the new president. MR. HOUGHTELING: Not Emspak? H.M.JR: Could I interrupt you a minute. Harold, do you think we would be moving too fast, in order to make the best use of these gentlemen's time, if you tried to see now whether the president of the Chamber of Commerce and NAM are in town or get them, wherever they are, and tell them you are forming B. management committee of manu- facturers, businesses and unions, to advise with me to help me put over this new program, this intensified program. Ask them whether they would be willing to cooperate with us, dividing up the country, and that these gentlemen are here today and could talk with somebody from NAM, U.S. Chamber of Commerce, telling them what they have done, and if we will not be going too far, that they would be ready to put at the disposal of this committee the technique which the General Electric has used. MR. PEARE: That is right. MR. GRAVES: I doubt if either of these gentlemen are here. Mr. Hawkes is in New Jersey; he is the president of the United States Chamber, and the head of NAM is in Pittsburgh, as I recall - I don't remember his name. MR. HOUGHTELING: Witherow. H.M.JR: You might get him on the phone. MR. HOUGHTELING: He is in Pittsburgh. H.M.JR: How long are you men here for? MR. PEARE: I will be here until tomorrow some time. H.M.JR: That goes for you, also? Regraded Unclassified 138 - 13 - MR. NEAL: I have 8. reservation on the six o'clock, but I can cancel it. MR. PEARE: We will be at your disposal whenever you want us. H.M.JR: I think we ought to - if you agree, Harold, I think we ought to contact these fellows right away, see whether they would be willing. Do you say yes or no? MR. GRAVES: 1 am thinking. Answering your question, my own notion would be that this would be apt to be more effective if you would get these two, plus Green and Murray and Lehman all at once. MR. PEARE: I think you will have to because this is a conditioning process with our employees, and if you get NAM in it - and this is another curbstone opinion - if you get NAM in it, you will have to get CIO and AFL. MR. GRAVES: That is right, and I think they ought to be gotten all at once, and a sort of proposition made to them all at the same time. H.M.JR: Why don't you go in your room, Harold, and talk 8. little bit further? I have got to stop now. Then you give them an assignment to start off. MR. HOUGHTELING: I haven't seen Green yet; I talked to Murray. H.M.JR: Don't you want to talk a little bit further, and then we can see what General Motors has in mind, and by tonight we can decide which way we want to go; but I want to keep moving. MR. PEARE: All right, we will help you, sir. Regraded Unclassified 139 April 14, 1942 11:25 a.m. HMJr: Hello. Operator: Miss Tully. HMJr: Hello. Operator: Go ahead. HMJr: Hello. Grace Tully: Good morning, Mr. Secretary. How are you? HMJr: Fine. T: That's good. HMJr: I'd like to see the President at his convenience, either Wednesday or Thursday morning. Which do you think would be better? T: Well, I don't know offhand. I can't tell you. I don't know whether he's made any appointments for either or both, Mr. Secretary. I'll have to check it. HMJr: Right. Now, I don't know how I do this - when I spoke to Sam, Saturday, he volunteered that he'd keep me furnished with drafts of that speech 88 they went along. T: Un huh. HMJr: Now, who's the correct person to ask for that? T: Well, I should think - Sam's working on it in New York, probably. HMJr: I see. T: You see, sir, unless he'd mail it down, we'd have no chance of getting it until he arrives probably Wednesday or Thursday. HMJr: Well, then, I'll get in touch with him. Regraded Unclassified 140 - 2 - T: Yes. I think if you get in touch with him in New York and have him mail you a copy. HMJr: I see. Well, then, I'll do it that way. T: He didn't leave any here that I know of. HMJr: He didn't. T: No. HMJr: But - and then you'll let me know. T: Yes, I will. HMJr: I thank you. T: All right, Mr. Secretary. Good-bye. HMJr: Good-bye. v 141 April 14, 1942 11:28 a.m. HMJr: Hello. Operator: I have Mr. Sproul. HMJr: All right. Operator: Go ahead. HMJr: Hello. Allan Sproul: Hello, Mr. Secretary. HMJr: Dan Bell said, Allan, you wanted me to call you. S: Yes, I tried to reach you yesterday and you were busy HMJr: Yeah, I S: and the darned things are boiling down there. HMJr: I was out of town. S: I see. Following up my conversation with you last week HMJr: Don't believe what you read in today's New York Times. It's a pure fabrication. S: It is? HMJr: Pure. S: Well, I've gotten in the habit of not believing all I read in the papers. HMJr: The Wall Street Journal has as near accurate story 28 anybody. S: That's the best story, is it? HMJr: Yeah. S: Well, I'll take a look at that. Regraded Unclassified 142 - 2 - HMJr: Yeah, because the New York Times is pure yellow journalism. 9: Every once in awhile they E° off the deep end that way. HMJr: Yeah, I don't t understand it. S: Neither policy. do I, because that's not their general HMJr: No. S: Well, what I wanted to talk to you about, following up my conversation with you last week, we had another meeting of the New York City banks, and I told them of my conversation with you. HMJr: Good. S: They want to go right ahead and make good on their offer of cooperation in any campaign of distribution which may become necessary. HMJr: Good. S: Now that will mean the organization of the banking community, and the organization in New York City, it seems to us, ought to be part of a district-wide and nation-wide organization for the same purpose; and it's their view and mine that this can best be done as far as the banks are concerned by Federal Reserve Districts, and they want to go to work with me setting it up in the Second Federal Reserve District, but we want to be sure that you approve. HMJr: Oh, sure. S: Okay. I think the A.B.A. and the Reserve City Bankere will be getting a dose of the same sort of thing, and that probably this movement will take hold all over the country; and I think it's high time we did have the banks organized, for whatever develops, 80 they can lend a hand wher- ever it's necessary. Regraded Unclassified 143 - 3 - HMJr: Well, Burgess left here 8 few minutes ago with the vice president of A.B.A., and this Saturday they're launching first a national, then a state, about. and then get down - the same thing you're talking S: Well, that would fit right together. of course, I've talked with him up here about it. HMJr: Then I take it that all these people that you're talking with are members of A.B.A. S: Yes, they are. HMJr: S₀ then there won't be any conflict. S: No, there'll be no conflict at all. In fact, the two things will go right along together. HMJr: Swell. S: Well, then we'll go ahead on that as far a.s this District's concerned. HMJr: Fine. Good. S: Now, the second thing, I told them what you said about your willingness to see them or even possibly, if it could be arranged and your circumstances would permit, to come up here. HMJr: That's right. S: Well, they would like very much if you could come up to New York at any time you can, for luncheon at the bank or for dinner, or whatever suite your convenience. HMJr: I'm going to try to do it. S: Well, I wish you'd let me know if and when you can, because they'd like it and appreciate it, I know, and they have so said. HMJr: Good. Okay. S: All right. I'll wait until I hear from you on Regraded Unclassified 144 - 4 - that, and meanwhile we'll go shead with organizing the banks in this District. HMJr: Thank you 80 much. S: All right. HMJr: Good-bye. S: Good-bye. 145 FEDERAL RESERVE BANK OF NEW YORK April 14, 1942 Dear Secretary Morgenthau: Enclosed is a copy of a letter which I have written, as a result of our telephone conversation this morning, to Mr. W. C. Potter, Chairman of the General Committee of the New York Money Market. Yours faithfull Sproul, President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enc. en 8 MA 21 99A see svya to INSURANCE (sits 146 FEDERAL RESERVE BANK OF NEW YORK April 14, 1942. Ir. 1. C. Potter, Chairman, General Committee of the Boy York Money Market, e/o Quarenty Trust Company, New York, N.L. Dear Mr. Potters I talked with Secretary Morgenthau by telephone this norning. I told him that ve had had another meeting of the principal member banks in New York City last Friday, at which the results of my comversation with him, 4. week ago, had been re- ported to the group. I said that the group now wante to make good on its offer of cooperation in an aggressive campaign of distribation of government securities; that this will 5960 the organization of the in York City banks for the job, and that at secas to us that such an organization should be part of e nationwide organization de- veloped for the NAME purpose. Tabs, be believe, I told him, can best be accomplished by Federal Reserve Districts, pentering the organization around the Federal Reserve Bank - the Fiscal Agent of the Treasury to each district; and that no went to go aboad in the Second Federal Resurve District, out, before doing 60, we want to be sure that he approves. No said that se does without hesitation or reservation. I discussed briefly with the Secretary what is going forward in the American Bankers Association and the Reserve City Bankers Association, and said that THE MV no conflict between what - are proposing to do and what these associations - to have in mind; that, in fact, what be are doing is complemantary - not conflicting. No have the green light, therefore, and can go ahead with plans for organize- tion 10 this district. I shall be ready at any time to meet and discuss such plans with the committee, which you have appointed to etudy the question, of organization of the banks of the district for the distribution of government securities. 0 I also told the Secretary how much the group would appreciate it'll he could find the time to cose to New York to meet with it, either at lenchace here st the bank, or at dinner, or et a meting at some other convenient time. I as age that he will do Bo if it is at all possible, and I as to await more definite word Trom him. Tours faithfully, ALLAN SCROUL 21 Я9А SARI Allan Sproul, President. AS&R Regraded Unclassified 147 April 14, 1942 11:40 a.m. HMJr: Hello. Operator: Lewis Douglas. HMJr: Hello. Lewis Douglas: Yes, Henry. HMJr: Lew, how are you? D: (Laughs) Nobody's poisoned me yet. HMJr: Well, I hope they won't. D: How are you, Henry? HMJr: I'm all right. Lew, I was telling Bob Patterson this morning. We had our man up in Baltimore D: Yes. HMJr: where there are a lot of ships being loaded for Russia. D: Yes. HMJr: Baltimore now is almost as hectic as Philadelphia was three weeks ago. D: Yes. HMJr: I wish you'd take a look at it. D: All right, sir. HMJr: The great trouble 18, everybody goes around as though it was a great secret; and no Government agency tells another anything. D: I know. It's 8 - excuse me, Henry. HMJr: Sure. D: I'm going back to my mule-skinner's proclivities. HMJr: That's all right. Regraded Unclassified 148 - 2 - D: Excuse me, sir. HMJr: That's all right. Now, one other thing. I had our Treasury man go up to New York. D: Yes. HMJr: New York Harbor's in swell shape. D: Yes. HMJr: And I don't see why they can't put more of these ships into New York. D: Neither do I, Henry. I never have seen why they couldn't. HMJr: Now, they've got nine in Baltimore loading there now D: Yes. HMJr: and they've dumped those in on us over night D: Yes. HMJr: no notice. Our responsibility 1s to get the bottom cargo there D: Yes. HMJr: and we just don't know from one day to the next. D: Yes. HMJr: And the most we ever have is twenty-four hours' notice, which isn't enough to get - and then D: It's terrible, Henry. HMJr: And these ships - I've got this thing here - I won't mention any names - but - hello. D: Yes. HMJr: There's day after day that after the ship arrives - Regraded Unclassified 149 - 3 - I've got one ship here - now, let me just see, let me just see - she got in there on the twenty-seventh. D: Yes. HMJr: and from the twenty-seventh until the seventh - well, they began to load her on the sixth. D: She was idle - she was idle for ten days. HMJr: Yeah. D: Yeah. HMJr: Yeah. Well, the name is "Hollywood", 1s the name of the vessel. D: Yes. HMJr: At Baltimore. D: Yes. HMJr: Well, that's terrible. D: It's terrible, Henry. It makes the hair on the back of my neck stand out straight. I can tell you something else about that Baltimore situation some day, too. HMJr: And if you want - as I say, will you take a look at it? D: Yes, I will, Henry. HMJr: And this man that I sent up to Baltimore and Philadelphia and New York says New York could handle, within reason, any number of these ships. D: Certainly. Yes, I think she could. I think there is a shortage of lighterage, but she can certainly handle many more ships than she has. HMJr: Well, I mean - and then they wouldn't Jam Regraded Unclassified 150 - 4 - Philadelphia and Baltimore the way they have. D: Exactly. HMJr: Let me know what you do about it. D: Yes, I will, Henry. HMJr: Thank you. D: All right. HMJr: Thank you. D: Good-bye. 151 April 14, 1942 3:13 p.m. HMJr: Hello. Operator: The Vice President is at the ball game. I have Mr. Perkins. HMJr: Hello. Operator: Go ahead. HMJr: Milo. Milo Perkins: Hello, Mr. Secretary. HMJr: How are you? P: Wonderful. HMJr: You're wonderful? P: Sure. HMJr: (Laughs) P: How are you? HMJr: Well, I'm alive. P: Good. HMJr: Mr. Nash, the Minister of New Zealand, is sitting here with me. P: Uh huh. HMJr: He said they got twenty-five thousand bales of wool there waiting, sold to Boston, and they can't get it up here. P: Uh huh. HMJr: From what the Vice President told me the other day, things are coming more your way; and I wondered if you couldn't get in on this. P: I certainly can. 152 - 2 - HMJr: Will you? P: I will right away. Now, I wonder if Mr. Nash - by the way, isn't he a wonderful person? HMJr: Yes. P: A wonderful person. I wonder if he could get me a note on that, and I'll get the thing in the machinery. It's probably partly working with Maritime Commission on it. HMJr: Yes, they've been . - he's been working with Maritime, but I thought he'd get better luck through you. P: Well, the President signed this Order today. HMJr: Good. P: And if Mr. Nash will get me that note, I'll get it to our people working with Maritime and do everything I can to push on it. HMJr: Is that Order going to be made public? P: Yeah. I just sent Harry White a copy. I'll send you one if you'd like to see it. HMJr: Send me one down, will you? P: I'll get it to you right away, sir. HMJr: And why don't you send one to Mr. Nash at his residence, 80 he knows why I'm doing business with you. P: Fine. I'll do that, too. HMJr: Right. P: Thank you, sir. HMJr: Hello. Milo. P: Yeah. HMJr: While we're on it, do you know how much is Unclassified 153 - 3 - waiting in Australia? P: No, sir. HMJr: Could you find out? P: That's part of what I'll have to find out. HMJr: Will you? P: Yeah. Now, that's going to be more difficult on account of the way we've run this import thing, and HMJr: I know. P: .....it's one of our jobs to get straight. HMJr: Well, I tell you who knows an awful lot about it 18 Sir Frederick Phillips. P: Uh huh. Good. HMJr: See. P: I'll run into that one, too. HMJr: Will you? P: Sure. HMJr: Righto. P: Thanks. HMJr: Thank you. P: Thank you very much. 154 April 14, 1942 3:20 p.m. DEFENSE SAVINGS BONDS Present: Mr. Jerpe Mr. Anderson Mr. Buffington Mr. Graves Mr. Houghteling Mr. Gamble Mr. Iseby MR. ISEBY: General Motors, Mr. Secretary, are putting on a grand drive in all their plants. The zero hour is next Thursday leading up to it. H.M.JR: This week? MR. ISEBY: For all their employees, yes. They have started on the eighth to have a teaser campaign in all their plants throughout the United States, and leading up to this hour of the sixteenth, the zero hour. I'd like to have Mr. Jerpe and Mr. Anderson tell you about it. MR. JERPE: Sometime in 1941, Mr. Secretary, Mr. Wilson decided that we should put on some type of bond activity. We weren't at war and complacence was all around us, 80 in early January the corporation decided that we should do more about Defense Bonds. The War Management Committee, composed of our chairman and our president and three or four of our vice-presidents appointed Mr. Anderson, who is also 8. vice-president, and Mr. Fred Doner as the committee who would take charge of this particular phase of your problems. They, in turn, passed the job down to an operating committee made up of a man named Seaton, a man named Roberts, and me. Well, we 155 - 2 - wanted to do a selling job 80 we went to a selling organization. We went to Chevrolet and we said, "We want to sell bonds to our people the way you people successfully sell Chevrolets to the world." H.M.JR: Harold, do you hear what he said? MR. GRAVES: Yes. (Laughter) H.M.JR: You must excuse me. Years ago, twenty years ago, I knew about a man who was sales manager for Chev- rolet. He is now vice president of general motors, Mr. Grant, and I have been trying to get hold of Mr. Grant to talk to him for 8. month. I said, "There is a man that knows selling and this is just plain selling, and they haven't any more automobiles to sell, so let's get some of these fellows." MR. JERPE: This program that we hope to show you would be 8 Mr. Grant program, because we are just disciples of his. So we went to Chevrolet and got the best man they had, Brents, assisting him were two other men, & man named Berger and a man named Dowling. These three men built 8. program and brought it back up to the operating committee to look at. We couldn't find anything wrong with it. We showed the program to Mr. Anderson, and three other vice presidents and they couldn't find anything that they could add to it. So we started to work on production. We started production on this plan on the twenty-eighth of February and we launched the entire campaign to two hundred twenty-six thousand employees through ninety campaign managers in the United States on April 8. As I told you before, the campaign breaks itself, therefore, into three parts, three announcements. The slogan of the campaign is "Save and Serve for Victory." We kept out the A.V.E. and the R.V.E. and just gave them the S's, S.S.V. So we have had a lot of fun about what S.S.V. means, and the best thing we have gotten from it has been "Swing Shift for Victory." H.M.JR: What? Regraded Unclassified 156 - 3 - MR. JERPE: "Swing Shift for Victory." That comes from the men in the fields. Another one is "Sacrifice Sunday Vacations," so we are getting 8. lot of good stuff out of it. Now then, on the sixteenth, and we have teased them with stencils all over the floors, we have teased them with five thousand banners all over the country, they just couldn't walk anywhere without seeing S.S.V., and in our own General Motors we have kept it secret. Very few people know what S.S.V. means, but on the sixteenth rallies will spring up all over the U.S. at twelve noon when our plant managers and chosen experts will tell our people what S.S.V. means. A lot of music, 8 lot of selling, and when they come back to their desks or their machines, the application cards will be there for signature. An example, Mr. Wilson, our president, and Mr. Iseby, our colleague in this business, will be the experts at two General Motors railies in the General Motors building on the sixteenth to our employees, and thanks to Mr. Anderson, on company time, not employee time. At the afternoon meeting at twelve. twenty-five, will be Mr. Kettering to our research people and Mr. Iseby. Our audiences will be about fifteen hundred people in each of the three meetings. Multiply that by ninety, having ninety such meetings all over the country on April sixteenth. The Governor of Indiana will be the Muncie, Indiana speaker at our plant there. We turned the campaign material over to our people and our campaign managers have just supplemented our original ideas so that it is making me look kind of dwarfish when I look over what they are all doing. I don't know what Mr. Anderson thinks. I haven't talked with him, but I think I feel safe in saying that we will not get one hundred percent participation by April thirtieth. At the present time we are in the throes of re-tooling, changing our plants over. We have some men who are not yet working, but, of course, they don't count because they are not employed. We have some people working three days a week, but I feel certain that before fall comes along we will be doing about a fifty million dollar business for you and our Government - annually and I think that by next year- 157 - 4 - Mr. Anderson, I have never talked to you about it - on the basis of a minimum of two hundred twenty-five dollars per employee, or one bond minimum, per employee per month, that by mid-summer we will be doing about 8. hundred million dollar bond business for the United States Government annually. H.M.JR: You have got me a little confused. You first said fifty million dollars & year. MR. JERPE: I mean, annually. I am talking yearly figures, fifty million the first statement, and & hundred million the second statement, annually. MR. ISEBY: Double their employees, Mr. Secretary. H.M.JR: When you are through I want to ask you some questions. MR. JERPE: I am through, Mr. Secretary. H.M.JR: Let just get this. Let's talk in terms of monthly pay roll. What is your monthly pay roll now? MR. ANDERSON: The number of employees will run around about a hundred seventy thousand. H.M.JR: How much average? MR. ANDERSON: The average annual income of employees was twenty-one hundred forty dollars, that is, the hourly- rated people. H.M.JR: But do you know how much your gross pay roll is? MR. ANDERSON: I can't tell you. It runs up in such high figures, Mr. Secretary, I don't try to remember it. H.M.JR: When he says two hundred million - what I am trying to get at is the terms of percentages. If your pay roll is a billion dollars, what percentage Regraded Unclassified - 5 - 158 of your pay roll will be invested in our bonds, that is what I am trying to get at. MR. JERPE: One bond per month minimum is eighteen seventy-five times twelve, gives you two hundred twenty- five dollars annually. Then you multiply two hundred twenty-five by our anticipated four hundred thousand in mid-next-summer, that gives you a figure of ninety million dollars that is a minimum expectancy. H.M.JR: What I was trying to get at is, because what we hope to do shortly is to go after ten percent of the pay roll, and I wondered how near. MR. ANDERSON: This is way below ten percent. MR. ISEBY: Not on the basis of twenty-one forty average. MR. JERPE: Two hundred twenty-five dollars a year, twenty-one forty dollars would be about eleven percent of twenty-one hundred dollars. MR. ANDERSON: I am thinking about salaried people on top of that. That would be a minimum figure. H.M.JR: You said something about the average pay of employees. MR. ANDERSON: Twenty-one forty. MR. JERPE: Ten percent, two, two hundred twenty- five or better on our minimum. That is merely an expectancy. That is not an accomplishment. H.M.JR: Well, this is music to my ears, because I have, from what you see in the papers, been going through a terrific fight in the last ten days. Fighting for the volunteer method of buying these bonds because I am a great believer in it, and I think I am all right. I don't know. The President has got to decide it. I want him to decide the thing. Regraded Unclassified - 6 - 159 MR. JERPE: Mr. Secretary, the figure that we are not satisfied with now is eleven dollars and some odd cents, I think ninety-four cents per participating employee at the present time. H.M.JR: Well, that is what it is. MR. JERPE: That is the present figure? H.M.JR: You see, we are looking at this thing - the theoretical boys with the sharp pencils - you see, they say we have got to get out of current earnings another five billion dollars. They have been wanting to do it by the tax route, and I have been telling the President, "I can do it through getting it from the pay roll on the volunteer deduction basis, and I am confident that with the backing of industry and labor, I can get it." I haven't asked anybody yet anything other than just to put the system in. We have never said to anybody "This is the yardstick, now will you go out and help us get it up?" Now, I have just said - it is like trying a horse around the track, trotting, but now you send B. clock and he gets down to business. Up to now we haven't clocked anybody, just jogging around, and it has taken, like in your case, three hundred fifty thousand dollars worth of office machinery, I think, to be installed and 80 forth, and it takes time to get these things in. I wanted to ask you, have you got it so now if a man buys 8. bond he can get it fairly quickly? MR. ANDERSON: That has been the main thing we were working out with Treasury. Mr. Prentiss is sympathetic with it. We have had 8. lag of almost a month. A fellow buys a bond, if he pays for the bond we ought to be in 8. position to say, Here it is." He may turn around and say, "Well, put-it in the safe for me," but he has his hands on it once. H.M.JR: Can you do anything? Regraded Unclassified 160 - 7 - MR. ANDERSON: The last figure I had is about 8. week. Even that is too long. H.M.JR: What is the trouble? MR. JERPE: Post offices. MR. ISEBY: Mr. Secretary, I have been on that continuously in all our plants on this. You have met Mr. Jackson, who is with General Motors, and he split this up, I think he has the best sense of what it takes to do this job of any one of the large corporations. Certain places he is doing it with the post offices, certain places with the Federal Reserve Banks. He is trying to split it 80 he doesn't swamp anyone. We have got plants in Detroit that are nine weeks. I have got to devote all my time the next three weeks. The unions are after me. That is bogging this thing, nine weeks, ten weeks. I had & man call my house night before last, he said, "I have got nine bonds coming." I have got to get Chrysler and get them there. MR. JERPE: In General Motors this is what we are doing now, Mr. Secretary, and Mr. Iseby: Our comptrollers in many of our plants do the purchasing of bonds for the employees for the plant. We have asked our comptrollers to purchase more frequently. In some instances they have only been purchasing it once each month so we are stepping that up to more frequent monthly interest values. Another thing we are doing in our campaign in addition to pay-roll deduction, we are asking our comptrollers to purchase bonds as delivery boys for anyone who comes in with a lot of money and says, "I want to buy 8. bond through General Motors." He can leave his money with our comptroller. Our comptroller will go out and buy a bond, deliver it to him, and we are considering that as participation when a man does that. H.M.JR: I thought you went all through this with the Federal Reserve in Chicago, I thought that - hadn't General Motors been appointed to this committee? MR. GRAVES: General Motors is not an issuing agent. 161 - 8 - H.M.JR: Can't we do something about that? MR. ANDERSON: I imagine we can. MR. GRAVES: That is the answer to this. MR. ISEBY: It is the answer. It isn't the Treasury's fault. It is trying to get it. MR. GRAVES: If they were issuing agents they could solve it. MR. ISEBY: That is the thing we have to work on. MR. ANDERSON: I don't know what the complications are, being an issuing agent, but if that is a complication, if that is a minor thing in the issuing-- H.M.JR: It is minor. Whoever your comptroller is we could fix him up over night, make him an issuing agent. MR. ANDERSON: One of our problems is this, Mr. Secretary, as you may not know, we have got ninety plants scattered the length and breadth of the country, so if we had an issuing agent, we will say in Detroit, we will still have a lag of maybe a week getting it back to the plants. H.M.JR: Let me ask you this. I haven't been through this. Your ninety plants, don't they pay out at each plant? Don't all pay out at Detroit? MR. ANDERSON: At each plant. H.M.JR: Why can't each plant have an issuing officer? MR. ISEBY: I spent that time with Mr. Jackson. I have been working with him. As I say, General Motors are getting the bonds to their employees faster than any others could now. 162 - 9 - H.M.JR: There is no reason that I know of, is there, Harold, why General Motors can't, if they wanted to, be an issuing agent ninety times over? MR. GRAVES: No reason they couldn't issue at any plant where they have the office facilities. H.M.JR: Who is handling that, who is responsible for that for me? MR. GRAVES: Dan. H.M.JR: I see. MR. GRAVES: As a matter of fact, it is being handled, as you know, by the Federal Reserve Banks, and I might say, for the information of these gentlemen that of the five hundred companies in the U.S. employing more than five thousand people, about 8. hundred and twenty have qualified as issuing agents, one hundred twenty out of five hundred larger corporations in the country are taking care of the issuance of bonds for their employees. H.M.JR: That is such an easy thing to do. I mean, it seems wicked if the people want to sell it that they shouldn't get the bond the same day they buy it. MR. ANDERSON: Over-the-counter delivery is my idea. H.M.JR: Yes, mine too. You go in and buy a car, you don't wait, you want the car. You put the check down and you want the car that day. Certainly if you can deliver a car we ought to be able to have the bond there. MR. JERPE: Your tailor can deliver a suit in two weeks-- MR. ISEBY: The day that happens, the extra five billion dollars that you are talking about will be no question, that is the only thing that is holding it now. H.M.JR: If that is the only thing we can take care of that. 163 - 10 - MR. ANDERSON: Let me say this, I will be giving this question about why we are not an issuing agent to Mr. Iseby or anybody you designate, as to what the complications are from our point of view. H.M.JR: Give it to Iseby. He can give it to us. Do I understand you have some literature you want me to look at? MR. JERPE: I have a selling presentation for you. It is a selling thing. H.M.JR: I'd like to see it. MR. ANDERSON: I would like to make two comments. We put this thing off another month on account of March 15. We could have got under way & month earlier. 164 April 14, 1942 4:22 p.m. Mr. C. S. Young: Young speaking. HMJr: Mr. Young. Y: Yes. HMJr: Morgenthau speaking. Y: All right. HMJr: How are you? Y: Just fine, Mr. Morgenthau. HMJr: Mr. Young, on April 16th General Motors 18 starting a big campaign on this War Bonds. Y: On April 6 - April 16? HMJr: April 16. Y: Yes. HMJr: Now, they want to - I don't think they're a fiscal agent. Y: No, just the General office - the office management there signed that. HMJr: Well, they've got ninety different branches, and I want to get this thing - at least offer them enough cooperation that we get on a basis where we give the man the bond the day he buys it. Y: Uh huh. HMJr: Now, our State Manager, Iseby, comes in and says people call him up at the house from Chrysler and say they don't get their bond under nine weeks. Y: Oh, that's a - if we have anything to do with it, it isn't nine weeks. 165 - 2 - HMJr: Well, anyway..... Y: No. We're on a five and six day here, and I'm sure that the branch isn't very much more than that. HMJr: Well, I don't know. It ought to be the same day. Y: Yes. HMJr: Now, I'm going to let Mr. Bell talk to you, and then we want to send somebody to Detroit tonight. Y: Uh huh. HMJr: A good man. Y: All right. HMJr: And we'd like you to send somebody there and stay there until we get this Detroit thing straightened out. Y: All right. Well, I'm sure that they're wrong about the delay. HMJr: Mr. Bell will talk to you 8 minute. Y: All right. Daniel Bell: Hello, Hap. Y: Hello. How are you, Dan? B: Okay. Say, I think maybe Sihler ought to go out there and meet Mills at the branch tomorrow morning, and let them go over the ground work there and then go over and see the General Motors comptroller together. Y: All right. B: And Mills will have the story, and you can work from that point on. 166 - 3 - Y: Is Mills coming from your place? B: Yes. He's going tonight, and I don't know what time he gets there. Y: Well, all right. I'll have Sihler there in the morning, and B: Wait a minute. (Talks aside) What's that? He'll be there at eight-thirty in the morning, so he'll go to the branch sometime between rine and ten, I should think. Y: And I think probably it might be well to have our cashier to go as to the mechanics of the thing, but I'm pretty sure that they're all wrong about the delay up there; because they're not very far behind. B: Well, I think we'd have heard of it before this if that had been true. Y: All right. Well, of course, we're six days - five or six days - it takes three days for checks to clear, and they're only a few days behind. B: Uh huh. Well, let's get on it anyhow and settle it. Y: All right, and I'll B: That's General Motors and Chrysler. Y: All right. Well, now, are they going to have an opportunity to talk to General Motors people tomorrow? B: Yes. I understand the comptroller is expecting somebody to come there. Y: Well, that's fine. Well, I'll have two of the boys there in the morning - at the branch. B: All right. Y: All right. 167 - 4 - B: Thanks, Hap. Y: We'll take care of it. B: Right. Y: All right. 168 April 14, 1942 4:30 p.m. HMJr: Hello. Judge Rosenman: Henry. HMJr: In person - in the flesh. R: How are you? I got four calls that the Secretary's going to call, and then the Secretary's going to call twenty minutes later. HMJr: Does it disturb you? R: Finally I got you. HMJr: Did it disturb you? R: No, I like to be warned like that. HMJr: They didn't get you R: I hope you guys use a direct wire instead of spending my tax money on it. HMJr: I've got four wires. R: Okay. What are the numbers? It's a good way to call you. HMJr: (Laughs) You call the Federal Reserve and ask for me. R: Federal Reserve. Okay. HMJr: Where are we? R: I'm in New York. HMJr: No, but I meant on this - the President 1s using my letter to him on that fifty per cent business and salee tax. R: Yeah. It's a good letter. It's convinced me. HMJr: He's using it at his press conference today. He asked us to condense it. Regraded Unclassified 169 - 2 - R: It convinced me. HMJr: Now, Sam, where do we stand. .... R: I'm not convinced on compulsory savings yet. HMJr: You're not. R: No. HMJr: Well, is the President. R: Well, I think he 18. (Laughs) Well, he's leaning that way. HMJr: Well, you remember you said you were going to let me have a draft. R: Yes. HMJr: When? R: Well, we haven't really got down any decent draft, except I knocked out a very rough thing for him. HMJr: Yeah. R: But he really - he hasn't read it. HMJr: Well, when do you think - I like them rough. R: Yeah. HMJr: (Laughs) When can I see it? R: I'll get you a copy of "Esquire". HMJr: That's not rough enough. R: But he's leaning your way on compulsory savings. HMJr: He 18. R: Yes. HMJr: How about the taxes? 170 - 3 - R: Well, I'm convinced you're right on the taxes. HMJr: I see. R: I've read that booklet you gave me. I thought it would be awfully dull, but it's very interesting. HMJr: You mean the various speeches? R: Yeah. HMJr: Did you read that? R: Yeah. HMJr: Good for you. R: The only thing that I haven't read yet 1s that letter of April 3. I'm going to read that tonight. HMJr: Well, he's using that at his press conference. R: No, that isn't the one you're talking about. You're talking about the one. HMJr: Oh, no. Not the April 3rd one. R: on April 14 - April 11. HMJr: Yeah. R: No, I mean the one of April 3rd. The letter of April 11 is very good. HMJr: With all modesty, wasn't my speech in Boston on inflation good? R: It was very good coming then. HMJr: Yeah. R: Demn good. HMJr: Well, Sam, I know you're holding your cards close. Regraded Unclassified 171 - 4 R: No. Well, I'm not doing any more than not revealing anything I shouldn't. HMJr: Yeah. R: I'm coming down tomorrow night. HMJr: Yeah. R: I'm going to see you at the dinner with those Lions, I think. HMJr: Right. R: If I'm there. HMJr: Well, do I have to get you drunk to make you talk? R: Well, there's really nothing to say. You know he went away on Saturday HMJr: I see. R: and I haven't seen him since. HMJr: I see. R: I spent Saturday knocking out a rough draft, which I don't think I ought to give you, because he really hasn't seen it. HMJr: That's all right. Well, just let me ask you this R: Since then I haven't talked with him. I will, I'm sure, this week-end, at great length. HMJr: Well, let me put it this way. As far a.e you're concerned, the only thing that you still have got to be sold on 1s the volunteer method. R: That's the only thing I disagree with you on except - well, on the general thing, I don't think it ought to be - you know, what you were saying about a general appeal. HMJr: Yeah. 172 - 5 - R: I think it ought to be tougher than that. HMJr: You mean on..... R: I don't think legislation is necessary. HMJr: Well, that's what I said. R: But some directions to the Labor Board would be. HMJr: Well, anyway, I'm seeing you tomorrow night. R: Yeah, if I get down in time. Is that a drinking dinner? HMJr: I hope 80. R: All right, Henry. HMJr: You'll be there. R: I'll be there. HMJr: Righto. R: Okay. HMJr: Thank you. 173 April 14, 1942 4:34 p.m. HMJr: Hello. S: Hello. HMJr: Morgenthau. S: Just a moment (Talks aside) Secretary Morgenthau. Grace Tully: Hello. HMJr: Morgenthau. T: Mr. Secretary. HMJr: Yes. T: The President has people both Wednesday and Thursday, but he said he'd see you over the week-end if you're going to be home. HMJr: Home. T: Uh huh. HMJr: Yeah. T: Are you going to be? HMJr: Oh, you mean home T: Home up-state. HMJr: Home on the range. T: Yeah. HMJr: Yeah, I'm going to be home on the range. T: I see. HMJr: But I'd kind of like to see him before that. T: You would. HMJr: Yeah. 174 - 2 - T: Uh huh. HMJr: Because I want to make some plans on our bond selling campaign. T: I see. HMJr: And - in advance - if he's going to stick to the volunteer plan. T: Uh huh. HMJr: Do you suppose I could get a regular appointment tomorrow? T: Why don't you try the General, huh? HMJr: Try the General. T: Yeah. HMJr: I'll do that. T: All right. Because I don't know how their schedule 18, Mr. Secretary. I never know, you see, in advance; until I get my copy in the morning, I don't know what's happening on their list. HMJr: I'll do that. T: Grand. HMJr: Thank you. T: All right. Fine, Mr. Secretary. Good-bye. 175 April 14, 1942 4:40 p.m. HMJr: The General Motors people have just come in here and have explained to me what they propose to do beginning with April 16 to reach every employee in their company to get them on this volunteer payroll deduction plan. Hello. Robert Doughton: I hear you. HMJr: They put practically their whole sales force to work on this thing. They can't sell automobiles, 80 they propose to do this. I was tremendously impressed, and the union 1s cooperating with them. I wondered whether you'd be willing, or think it would be wise, to let them take a half an hour and explain it to your committee, and - because this is the kind of thing that I propose to do, and this is the way I propose to raise the money, on a volunteer basis; and I never could explain it half as well as General Motors could explain it. D: Uh huh. Well, when would they want to come? HMJr: Well, they'd accept any time on the sixteenth that would be convenient to you. D: The sixteenth? HMJr: Yes. D: That's Thursday. HMJr: Yeah. D: That's - tomorrow's tobacco day. Well, I don't know until I consult my clerk - the clerk of the committee - just what he's got, but I'd be delighted to have them come and do it; and if it was necessary, why they, I would think, ought to do it when there's a full committee, and it's hard to have a full com- mittee amonget those we could get to be present at night HMJr: Yeah. 176 - 2 - D: but I'd be willing we'd be might glad even to go in at night and take care of the calender. I'm trying to clear up the calendar day by day. HMJr: Yeah. Well, they would do it at night. They just - I just wes..... D: Well, I'll have them put on for Thursday, I'll tell you that right now, and I'll see as to what time we can get them on. I think it's a fine idea, and I think it's very patriotic of them and unselfish to do it, and I approve it a hundred per cent and I think it will be helpful. HMJr: Now D: It will help the country, as well 88 the committee, I think. HMJr: And I-- do you suppose we could get Welter George to come over, too? D: Why, yeah. I'll call him and invite him and give him a chair right on our - I'll get him a cushioned chair right up on the platform. HMJr: Yeah, and maybe some Republican, also, from over there. D: Yeah, we'll let him bring anyone he wants to. HMJr: He might invite the whole committee. D: That's Thursday. HMJr: Yeah. D: Yeah, he might invite the whole committee if he'd like to. HMJr: Yeah. D: That'd be all right. Well, now, will you do it or shall I do that? HMJr: No, no, no, no. I'll - all I'll do is tell General Motors to be in town Thursday. Regraded Unclassified 177 - 3 - D: Be ready for call any time Thursday, and we'll let them know Thursday morning about what place they'll have on the record. HMJr: That's right. D: On the calendar. HMJr: And they'll bring with them also the head of the union who 18 cooperating with them. D: What kind of a union are you talking about? HMJr: Well, I mean the union - it's the automobile union. D: Uh huh. You mean the employees'? HMJr: The employees', yes. D: Yeah. HMJr: Representative - no, a representative of the employees. D: I understand. HMJr: So I mean, it wouldn't be just the company, there'd be 8 representative of the employees. D: Well, that's what I understand. Speaking for them. HMJr: Speaking for the employees. D: Yeah. What more do you hear about the matter we discussed Saturday? HMJr: Nothing other than that the President asked me to give him a statement today for his press conference, which he was going to use on - about taxing the lower exemption groups. D: Uh huh. HMJr: Now, whether he used it or not - but he sent over a hurry call at three o'clock please to send him over a statement, and I've asked to Bee him tomorrow to just check up where we stand. 178 - 4 - D: Somebody was just telling me that in the after- noon paper maybe that there was not 80 much likelihood of coming out for requesting such a large increase in the tax bill. Did you hear anything about that? HMJr: Well, it's just where I left it Saturday. I have had no word from him that he wants more taxes. D: They've been telling me, you know, right along that we'll be called on for more and more, and somebody told me that - said there was an article in the New York Times about their saying you were studying it over the week-end, but I didn't believe that. HMJr: Well, I told the newspaper men that was an untruth. D: Yeah. Well, I was satisfied about that. Somebody called my attention to it, and I said, "I don't believe that at all." HMJr: No, that was an untruth. D: Yeah, I was certain of that. Well, they just write those things as feelers, you know. HMJr: Yeah. D: Yeah. HMJr: All right. D: I'll call Senator George right now about that. HMJr: Yeah, and I'll have these General Motors men available Thursday. D: Well, I can let him know then some time Thursday about what time they can come over HMJr: That's right. D: So they won't lose much time. HMJr: That's right. 179 - 5 - D: All right, thank you; and I think it's a fine suggestion and a fine plan. HMJr: Thank you. D: Good-bye. 180 April 14, 1942 4:45 p.m. DEFENSE SAVINGS BONDS Present: Mr. Buffington Ar. Houghteling Mr. Gamble Mr. Iseby Mr. Anderson Mr. Jerpe Mr. Mills Mrs. Klotz H.M.JR: I just spoke to Mr. Doughton, chairman of the Ways and Means Committee, and asked him did he think it would be & good idea to have General Motors come up and explain what their plan was on the sixteenth, bring- ing with them a representative of the union, and he said it would be & magnificent idea and he would invite Senator George and as many of his people to come over, too. MR. ANDERSON: We will be there. H.M.JR: Now, he said if you would be here Thursday, be here on tap, he would let me know what time Thursday, some time during the day or they might do it at night, but he thought it was a very fine idea and he would very much like to have you people come, bringing with you a representative of the union and let him arrange with him to give him time to make his talk. MR. ANDERSON: Do you want me to make the arrangement with the union? H.M.JR: I will leave it with you (Iseby). MR. ANDERSON: We will fix it up. 181 - 2 - MR. ISEBY: All right. H.M.JR: And Mr. Houghteling, who looks after unions - General Motors, Mr. Houghteling, Mr. Iseby, the three of you make sure that the union is here, that they are happy about this thing, you see. I want at least as much en- thusiasm as you showed. MR. JERPE: Thank you. H.M.JR: Could you count on that? When does your train leave? MR. ISEBY: It has gone. H.M.JR: What do you do, go back? MR. ISEBY: I think I shall go back because I think we ought to take Mr. Houghteling, Mr. Anderson to Mr. Reuther and these men in Detroit to make sure that they are all one hundred percent in accord 80 when they step up before Mr. Doughton and his committee that they will be just as enthused as Mr. Jerpe. H.M.JR: That is right. It is very important that we get a united front, that this is management and labor, this is what they want. It is unique. I don't know whether it has ever been done before, go before a committee of Congress and explain the thing. It won't do General Motors any harm. MR. ISEBY: I think they will do it a hundred per- cent. MR. ANDERSON: I am reasonably sure. I can almost vouch for it, but I don't want to go quite that far. I am reasonably sure they will endorse it. H.M.JR: You look after it. (Iseby) Is that all right with you, Harold? MR. GRAVES: Yes, sir, fine. Doaraded 182 - 3 - H.M.JR: And then if you are here Thursday morning I will get word, give you the time, but Mr. Doughton said fine, and we will let the press know what is going to happen. I used the sixteenth because that is the day you shoot the plan. MR. ANDERSON: All the more reason. MR. JERPE: I think I will go back, Mr. Anderson, be- cause I have a lot of work to do tomorrow. I will have to have some one understudy me on the meetings, come back tomorrow night. H.M.JR: Tell Mr. Grant about this thing and maybe he can get off B. half an hour to go up and see you boys do your stuff. MR. ANDERSON: We will take him right along with us. H.M.JR: Take him up to see you do your stuff. If I can get away for half an hour I will go up myself, too. MR. JERPE: Thank you, sir. H.M.JR: You fellows are doing me a favor, and then you see what we are going to do afterwards is get you fellows to help us with the other industry to do the thing, but this is the best plan I have seen yet. MR. ANDERSON: Thank you very much. H.M.JR: And it is sales talk, and that is what we need. It is the best thing I have seen. MR. GAMBLE: You might be interested to know these gentlemen have offered to print B. thousand in colors of their small turnover (chart). Supply them to every large corporation in the country. H.M.JR: Leave me the big one. I have asked for an appointment to see the President. If I see him tomorrow I want to show him. Just the big one, just the thing you flipped over, just the easel board. 183 - 4 - MR. JERPE: If you don't have an easel it is hard to present it, and you don't have an easel. H.M.JR: He wouldn't give me time. He will leave it. I will take it over. He will say, "What in heaven's name are you bringing?" I will say, "I am trying to sell & set of books. And he will leaf through the thing, and if he likes it sometimes he will take the time - he may take the whole thing, he may just leaf it through, but I want that thing that you had on the easel. I understand you people want to contact your comptroller. Is that right? MR. ANDERSON: That is correct, Mr. Secretary. I would like to get it ironed out with Mr. Prentiss, find out what the complications are, then I'd be very glad to contact your office. H.M.JR: Call up Chicago, We are ready to turn the whole Federal Reserve, the Treasury loose, to help you deliver the bonds the day they are bought." MR. ISEBY: I want, Mr. Secretary, to have meetings at the same time with the other thirty-two industrialists in Detroit. H.M.JR: You mean that you do this? MR. ISEBY: Yes, sir. H.M.JR: Mills is the man. I asked him whether he knew how to curse, and he says he does. MR. MILLS: 1 can learn from the Defense Savings Staff, I am sure. 184 April 14, 1942 Dear Archies This is just to tell you that I have forwarded your letter of April 11th to our Public Relations Section and to the War Savings Staff with the suggestion that they cooperate in every possible way in carrying out the policy which you have outlined. We have already made informal use of your clearance facilities in this way, and our public relations people are very lad of the opportunity to check any material which might conceivably affect the work of other Government departments. Sincerely, (Signed) Heary Hon. Archibald MacLeish, Chairman, Committee on War Information, Office of Facts and Figures, Washington, D. C. FK/cgk Photo file n.m.c Fils to Regraded Unclassified OFFICE OF FACTS AND FIGURES WASHINGTON A--11 11, 194° Dear Kr. Secretary: On January 13, the TresIdent requested the e logs of the Cabinet, the Federal Administrators, Undor Secretari E - Secretaries of the Executive LA Male 02 inse agencies to submit their Mg 11 diresses tatte office of Pusto and Figures. This pricebure 763 adoited to encure conditioney in government policy sal to 11 10 - contrubictory stree- ments of government olicy on naitors Credit more - one dey rt- ment or agency. The function of OFF in this Last consintel primarily in clearin V] possible % "licts legart E: and agencies. Within its limited liels, the retedure birs locked, 1 believe, with marked Obviously, however, the trocedure will fell of its Tugrose if corresponding effort 1 not -ede to "roterve consistency to avoid conflict in the expression of government solicy in "ress con- ferences, press releases, or in other form of state é'ts wid to not come within the category of ullie Taking note or this situation the Committee on har Infor- mation directed me to surgest to the verious departments 150 that they scan with greatect c - all It losser -n: other statements emanating from their offices with e visi to usrdin- & right N.O. publication of any inform tion witch may materially affect the vork of other departments or = encias 1: ALL's clearing such in advence with such other der or a encies either directly or, if they profer, ti roll = 110 l'Inison facilitie at JFF. In view of the far-reachin rumifications DA the wer offort, informational statements chief ordingrily would see. to relate only the work or " particular bureeu may in excuination be Sound to affect most seriously the work of other clos. For examin, M not release of n cortain department unnounced tist tests nade -X of its ureaus indicated the certain types or colored 1s:es and be used to "rotect the nyen of \ersons fighting incondinry D. Unnecessery end unintentional emb rrosement resulted lecuuse release was made without commultation with the Office of Civilich anne which, If it does not met the denand for such [100 03 from Regraded Unclassified 2- thousands of its air-reid wardens and fire fighters, will have to be prepared to explain why such denand cannot or should not be met. It 1s clear that with the exercise of B. little care and foresight not only may serious embarrassment be avoided but governmental team- work, vitally essential to our war effort, may be markedly improved. Faithfully yours, Americant Archibald MacLeish Chairman, Committee on War Information The Honorable The Secretary of the Treasury Washington, D. C. Regraded Unclassified 187 TREASURY DEPARTMENT WASHINGTON April 14, 1942. MEMORANDUM FOR THE SECRETARY: In accordance with your (returned) request this morning, I hand you herewith folders containing statements of the experience and duties of the principal employees of the War Savings Staff in Washington. These were very hastily and, I fear, imperfectly done, but I trust they will serve your immediate purpose. If you like, I will be glad to have them done again, with greater care and more completely. GRAVES. FORDEFENSE BUY UNITED STATES SAVINGS BONDS Regraded Unclassified 188 treasury department WASHINGTON April 14, 1942. MEMORANDUM FOR THE SECRETARY: I have received the following from Mr. Poland about Miss Jane Seaver: "I have had Miss Jane Seaver in to see me about the possibility of her working for us. She told me when she was in my office that she had already applied for another position. Saturday morning when I telephoned her to find out whether she had made up her mind, she told me that OPA had finally cleared her application and that she had so far committed herself with them that it would be a breach of good faith if she did other than accept the OPA job." GRAINS. GRAVES. cupy to Mrs. m. 4/15/42- Regraded Unclassified 189 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14 TO Secretary Morgenthau he FROM Mr. Callahan The production man who actually controls volume, timing, etc. on Wheeling Steel is Maury Longfellow. His superior, J. L. Grimes, General Advertising Manager of the Wheeling Steel Corporation, Wheeling, West Virginia, directs the production. Mr. Longfellow can be reached through Mr. Grimes' office. 191 CONFIDENTIAL UNITED STATES SAVINGS BONDS Daily Sales - April, 1942 On Basis of Issue Price (In thousands of dollars) Post Office Bank Bond Sales All Bond Sales Bond Sales Date Series I Series X Series I Series G Total Series E Series 7 Series G Total April 1942 1 $ 2,476 $ 10,517 $ 2,380 $ 9,608 $ 22,504 $ 12,993 $ 2,380 $ 9,608 $ 24,980 2 2,999 8,264 2,119 7.570 17,953 11,263 2,119 7,570 20,953 3 3,222 7.572 1,185 6,235 14,992 10,794 1,185 6,235 18,214 is 2,778 9,292 1,387 5,334 16,013 12,070 1,387 5,334 18,790 6 4,961 13,035 2,329 8,027 23,391 17,996 2,329 8,027 28,352 7 2,958 5,722 834 8,983 15,539 8,680 834 8,983 18,497 8 2,309 9,610 1,142 6,562 17,314 11,919 1,142 6,562 19,623 9 2,906 9,304 955 5,715 15,974 12,210 955 5,715 18,880 10 2,730 8,052 1,573 5,261 14,885 10,782 1,573 5,261 17,615 11 2,150 5,224 668 2,720 8,613 7.374 668 2,720 10,762 13 4,619 17,571 2,432 8,604 28,608 22,190 2,432 8,604 33,227 Total $ 34,108 $104,163 $ 17,005 $ 74,617 $195,786 $138,271 $ 17,005 $ 74,617 $229,894 Office of the Secretary of the Treasury, Division of Research and Statistics. April 14, 1942. 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. 190 CONFIDENTIAL UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Eleven Business Days of April, March and February 1942 (April 1-13, March 1-13, February 1-13) On Basis of Issue Price (Amounts in thousands of dollars) : : Amount of Increase : Percentage of Increase : Sales : or Decrease (-) : or Decrease (-) Item : = : : April : March : April : March : April 1 March : February : over : over : over : over : : : : March : February : March : February Series 1- Post Offices $ 34,108 $ 40,003 $ 47,158 -$ 5,895 -$ 7,155 - 14.7% - 15.2% Series 1- Banks 104,163 118,956 178,899 - 14,793 - 59,943 - 12,4 - 33.5 Series I - - Total 138,271 158,959 226,057 - 20,688 - 67,098 - 13.0 - 29.7 Series 1- Banks 17,005 20,394 29,433 - 3,389 - 9.039 - 16.6 - 30.7 Series G - Banks 74,617 89,532 146,008 - 14,915 - 56,476 - 16,7 - 38.7 Total $229,894 $268,884 $401,499 -$ 38,990 -$132,615 - 14.5% - 33.0% Office of the Secretary of the Treasury, Division of Research and Statistics. April 14, 1942. 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 Uncl SS 192 ASSISTANT SECRETARY OF THE TREASURY April 14, 1942. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston The Office of Price Administra- tion has asked the assistance of the Secret Service in checking apparent irregularities by three men concerned in tire rationing in the District. One of the three suspects is a Secret Service man, Captain Herbert L. Marcey of the White House Guards. I recommend approval, especially since we shall probably have to do our own investigation of Marcey in any event. Mr. O.K. im h Regraded Uncl 193 OFFICE OF PRICE ADMINISTRATION RECEIVED WASHINGTON, D.C. ECRET SERVICE Temporary Building D 1.42 APR A' !RC April 9, 1942 Refer to: 5:4:JHJ Mr. Frank J. Wilson Chief Secret Service Treasury Department Washington, D. C. Dear Mr. Wilson: We are presently investigating the tire rationing situation in the District of Columbia, and in connection with that investigation we are interested in a check-up of Captain Herbert L. Marcey of the White House Guards, Eugene T. Brady, formerly chief clerk of the District Rationing Board, and John M. Cawood, one of the inspectors of the local Motor Vehicle Division. We would appreciate your assistance in checking possible local benk accounts of these three individuals from January 15 through February 28. If you are disposed to assign one of your men to the type investigation we have indicated, please call Mr. John Joss of my staff, whose tele ohone number is Republic 7500, extension 6610. Very truly yours, Brunner Brunson MacChesney Wer Chenny Assistant General Counsel VICTORY BUY - STATES 1 BONDS name 194 OFFICE OF LEND-LEASE ADMINISTRATION FIVE-FIFTEEN 22d STREET NW. WASHINGTON, D.C. ER Stettinium, Jr. Administrator April 14, 1942 Honorable Henry Morgenthau Secretary of the Treasury Washington, D. C. Dear Mr. Secretary, Thank you for your letter of April 11 relative to record keeping requirements in connection with Lend-Lease export cargo. I note you approve the idea we had of creating a special committee to study this situation. I am designating Mr. J. M. Juran of our organization to serve on this committee. I agree with you that the War Department should be represented. Subject to your approval, I am asking Mr. Juran to serve as chairman of this com- mittee, to complete its organization, and to call a meeting at the earliest possible date. With best wishes, Sincerely yours, Incomes B.W: Cale Thomas B. McCabe Acting Administrator 195 STRICTLY CONFIDENTIAL NOVEMENT OF RUSSIAN LEND-LEASE MATERIAL FROM PHILADELPHIA PORT Report of Telephone Conversation by Mr. Sidney G. Tickton April 14, 1942 On Tuesday afternoon, April 14, I telephoned Lt. Col. H.G. Williams, of the War Department's Service of Supply, at his Philadelphia office to discuss the movement from the port of Philadelphia of lend-lease materials for Russia, The Colonel ISVE me the following information: 1. The treffic situation in Philadelphia 18 under com- plete control. Bottom cargo has been flowing into the cort in sufficient quentity, and the railroads, the Russians, and Moore-McCormack are working to- gether smoothly. 1. Nine ships carrying Russian cargoes sailed from Phila- delohis during the past week, and 9 ships also sailed during the preceding week. These sailings brought the total number of ships departing with Russian cargo during the past month up to approximately 30. 3. Nine ships were in port today. Three of these were completely loaded and expected to sail before night- fell, and 5 of the remaining ships will sail by Thurs- day or Friday of this week. The ninth ship will sail next Monday, having been in port only a. few days. -. It has now become possible to turn ships around in about 8 days. This is the goal at which Col. Williams simed when he srrived in Philadelphia 32 weeks ago. Regraded Unclassified 196 STRICTLY CONFIDENTIAL Sottom cargo for Russians sent from mille to Philadelphia, total April 5 to April 11 and daily April 12 and 13, 1942 Tonnage Name of company and Total : commodity April 5 Sunday Monday to April 12 April 13 : April 11 Brees American Brace Co 513 75 Chare Brann è Copper Co 58 Revers Conner & Brane Co 176 58 Scovill Menufecturing Co 97 "allingford Steel Co 16 Cooper American Brass Co 19 Ansconda Wire A- Cable Co 24 Nickel International Nickel Co 200 Steel Alan Wood Stoel Co 152 405 Allegbeny Ludlus Steel Jo. 440 144 94 Areco International Co 1,762 300 ?ethlehes Steel Co. 2,331 128 103 Breinerd Steel On 50 Cold Retel Products Co 50 Collyer Insulated Wire Co 15 Grent Lakes Steel Corp. 1,420 37 Inland Steel Do 547 Johnson Steel 3 Wire Co 24 Jones & Laughlin Steel Corp 637 41 Keystone Steel A Wire Co 330 109 Vedison Wire Do 81 VeLouth Steel do 622 135 52 National Tube Co 183 Res England High Carbon Wire Oo 9 Resport Rolling Mille 90 Otis Steel Do 772 99 P A = Co. 255 Pitteburgh Steel Co 457 Republic Steel Corp 3,935 1,07% 254 Service Steel Co 30 Sharon Steel Co 37 Superior Steel Co 217 Thomas Steel Co 234 60 Thompson Steel & Wire Co 200 Union Drapn Starl Co 460 U. 3. Steel Emort Co 303 269 Universal Cyclope Co 9 7010mn Crucible Co 1 Wallingford Steel Co 138 Veirton Steel Co 231 71 Theeling Steel Corp. 1,365 193 Youngatown Sheet & Tube Co 221 58 29 Misselleneous Electro Co 130 Vanadium Corp 56 Total 18,952 1,576 2,268 Office of the Becretary of the Tyeseury, Division of Research and Statistice. April 14, 1942 Source: Producement Division, Treasury Department. Regraded Unclass ified 197 STRICTLY CONFIDENTIAL Bottom cargo for Russians sent from mille to Baltimore, total April 5 to April 11 and daily April 12 and 13, 1942 : Tonnage : Name of company and : Total : : commodity : April 5 : Sunday : Monday : to : April 12 : April 13 April 11 : : Brass American Brass Co 329 47 Chese Brase & Copper Co 42 Steel Allegheny Ludlum Steel Co. 11 Pethlehem Steel Co 334 70 Blair Strip Steel Co 19 23 Brainerd Steel Co 50 Colonial Steel Co 33 Greet Lakes Steel Co 731 247 Inland Steel Co. 1,010 Johnson Steel & Wire Co 44 Jones & Laughlin Steel Corp 3,342 92 Otis Steel Co 293 P & M Co 51 Republic Steel Co 3,830 253 448 John A. Roebling & Sons 33 Seneca Steel Co 54 Sharon Steel Co 194 71 Thomas Steel Co 35 U. S. Steel Export Co 2,736 334 Weirton Steel Co 644 106 Youngstown Sheet & Tube Co 1,310 431 710 Miscellaneous McKenna Metals Co 353 Total 15,478 684 2,148 Office of the Secretary of the Treasury, Division of Research and Statistics, April 14, 1942 Source: Procurement Division, Treasury Department. 198 STRICTLY CONFIDENTIAL Bottom cargo for Russians sent from mille to New York, total April 5 to April 11 and daily April 12 and 13, 1942 : : Tonnage : Total : Name of company and ST April 5 : Sunday ? : commodity Monday : to : April 12 : April 13 : April 11 : : Brass Phelps Dodge Oo 113 Iron Oliver Iron Co 22 Steel Armco International Co 530 356 Bethlehem Steel Co 123 65 Cold Metal Products Co 53 Crucible Steel Co 28 Great Lakes Steel Co 1,641 230 84 Halcomb Steel Co 66 Heppenstahl Co 59 Indiana Steel & Wire Co 135 137 Inland Steel Co 956 1,783 Jones & Laughlin Steel Corp 469 46 National Standard Co 54 Ot1s Steel Co 981 90 P & M Co 51 Pittsburgh Steel Co 1,473 Republic Steel Co 391 52 Sheffield Steel Co 65 U. 3. Steel Export Co 3,103 52 597 Washington Tin Plate Co 34 Weirton Steel Co 45 Wyckoff Drawn Steel Co 348 166 84 Youngstown Sheet & Tube Co 2,939 114 Total 13,679 500 3,356 Office of the Secretary of the Treasury, Division of Research and Statistics. April 14, 1942 Source: Procurement Division, Treasury Department. 199 April 14, 1942. George Haas Secretary Morgenthau Please send Tickton's report on New York and Baltimore over to Clif Mack's office the first thing in the morning. I think the man's name is LeFevre who is in charge while Mack's away. After they have it, I'm going to send for them and talk to them. I wonder if you could give ne a rough chart, if the figures are existing, showing how much instalment credit is outstanding each month for the last 12 months. I want to see what, if anything, Federal Reserve has done to cut this down. Also get the date on which they made this announcement effecting instal- ment credit. I'd call up Coldenweiser, if I were you, and get it from him to save time. - See Has memo 0/4/14/42 Regraded Unclassified TREASURY DEPARTMENT 200 INTER OFFICE COMMUNICATION DATE TO FROM Mr. Haas Secretary M Morgenthau APR 14 1942 Subject: Consumer Credit In accordance with your request, there are attached hereto A table and a chart showing the changes in the amount of consumer credit outstanding by classes, at the end of each month from December 31, 1940, to date. The total estimated amount of consumer credit outstand- ing on August 31, 1941, was $9.8 billions, an all-time high. The Board of Governors of the Federal Reserve System com- menced the regulation of consumer credit on September 1. Since that time, there has been an increasing scarcity of those durable consumer goods usually purchased on credit. This scarcity, according to Mr. Parry (who ie in charge of enforcement of consumer credit regulation for the Board of Governors), has been the major factor in the subsequent con- traction of the outstanding amount of consumer credit; al- though he believes that the regulation of consumer credit has also had an appreciable influence. In evaluating the decrease of only $200 millions in consumer credit between August 31, 1941, and the end of the year, it should be noted that there would normally have been e substantial seasonal increase in consumer credit during the period. On the other hand, the contracti on of $1.1 b11- lions in total consumer credit since the first of the year has been partly seasonal. It 1s interesting to note that "retail installment credit", which includes installment sales of automobiles and other durable consumer goods, has contracted from $4.0 billions on August 31, 1941, to $2.9 billions on March 31, 1942. This represents about 85 percent of the total con- traction in consumer credit which has occurred during the period, although such credit represents well under one-half of the total amount of consumer credit outstanding. Attachments Regraded Unclassified Estimated Amount of Consumer Credit Outstanding at the End of Each Month (Billions of Dollars) : Retail : : Cash : : Charge Commercial : : : : : Installment Installment Account Service : Bank : : Credit Credit : Credit 2/ Total : Credit 1/ : : Accommodation : : : : : : Loans : 1940 December 3.3 1.8 2.4 .6 .6 8.7 1941 January 3.3 1.8 2.2 .6 .6 8.5 February 3.3 1.8 2.1 .6 .6 8.4 March 3.3 1.9 2.1 .6 .6 8.5 April 3.5 1.9 2.3 .6 .6 8.9 May 3.7 2.0 2.4 .6 .7 9.4 June 3.8 2.0 2.4 .6 .7 9.5 July 3.9 2.0 2.4 .6 .7 9.6 August 4.0 2.1 2.4 .6 .7 9.8 September 3.9 2.0 2.5 .6 -7 9.7 October 3.8 2.0 2.5 .6 -7 9.6 November 3.7 2.0 2.5 .6 -7 9.5 December 3.6 2.0 2.7 .6 .7 9.6 1942 January 3.4 1.9 2.5 .6 .6 9.0 February 3.1 1.9 2.5 -6 .6 8.7 March 2.9 1.9 2.5 .6 .6 8.5 Treasury Department, Division of Research and Statistics. April 14, 1942 Source: Board of Governors of the Federal Reserve System. 1 Small loans, etc. Doctors' bills, etc. 201 Regraded Unclassified (Billions Estimated Amount of Consumer Credit Outer ding at the End of Each Month Billions of. of dollars) dollars) Regulation of consumer credit effective Commercial Bank Accommodation Loans Service Credit (Doctors' bills. etc.) Charge Account Credit Cash Installment Credit (Small loans, etc.) Retail Installment Credit 10.0 10.0 9.0 9.0 5.0 8.0 7.0 7.0 6.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 202 o o Dec. Jan. Feb. Apr. May June 1941 July Aug. Sept Oct. Nov. Dec.e Jan. Feb. Mar. 1942 Apr. May June July Inclassif 1940 203 C 0 P Y ALH Sydney This telegram must be paraphrased before being Dated April 14, 1942 communicated to anyone other than a Governmental Rec'd 3:43 a.m. agency. (BR) Secretary of State, Washington. 219, April 14, noon. Referring to Department's telegram no. 100, March 14, aggregate amount Treasury checks received from Commonwealth Bank last night United States 640,489.42. PALMER NK Copy:bj:4-14-42 Treasury Department 204 Division of Monetary Research April 15 Date 1942 To: Miss Chauncey I think the Secretary should glance at this. H.D.W. MR. WHITE Branch 2058 - Room 2141 205 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1942 TO Mr. White FROM Mr. Friedman Subject: Digest of cable from Adler dated April 12, 1942. 1. As a result of meeting held with Vice Ministers of Finance, Board decided to recommend lowering of exchange rate to 5%. K. P. Chen favored reduction to 4% but members of Ministry of Finance opposed. 2. Adler raised advisability of the 4x rate with Dr. Kung but Kung replied that he favored 5% rate. 3. Statistics given indicating the increas- ing gravity of the economic conditions in Free China. 4. It 16 believed in Chungking that bond issue backed by United States currency will have similar di sappointing history because of lack of United States guarantee. Regraded Unclassified 206 C o P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embasay, Chungking, China. DATE: April 12, 1942, midnight. NO.: 396. The following message is for Mr. A. Manuel Fox and the Secretary of the Treasury from Mr. Adler. TF 27. 1. This morning the Board's Chairman and Secretary SBY Y, C. Koo and Tai of Ministry of Finance, the Minister of Finance not attending the meeting. The gravity of the economic and financial situation was emphasized by Zabo. He admitted quite frankly that it was a desperate position. In order to insure sales of savings he feela that reduction of the exchange rate to five cents is imperative. In order to avoid need for subsequent reduction or reductions the Chairman indicated that perhaps it would be better to go et once to a four cent rate if reduction at the present time is necessary. Tai insisted that the reduction in the emhange rate to five cente was enough. Ee and Koo pledged that the Board would not be asked to lower the rate later if sales of bonds and saving certificates move slowly. The understanding at the end of the meeting wes that we were to send & formal letter to the Board embodying recommenda- tion to lower rate to five cents. All members of the Board agreed to act favorably except Hsi. 2. Since I knew your feelings on the matter I brought up the advisability of a four cent rate with Dr. Kung in the afternoon. Dr. Kung told me that the Generalissimo and many other people regard the existing rate as too lowl Were it not for the fact that a. four cent rate would weaken con- fidence in fapi and that dealers and merchants would immediately raise their prices in proportion to the rate change. Dr. Kung would be in favor of a four cent rate because it would make his Government's U. S. dollars go further. However, he felt that & five cent rate vas sufficient. I pointed out the disadvantages of lowering the rate to five cents at the present time and having to lower it again later. He replied that he thought this would be unnecessary. He pointed out that it in intended to give discount on U. S. dollar-backed bond flotation in form of a six cent rate which, in order to put a premium on early buying, would gradually be lowered to par. 3. I called on 0. I. Yui and Y. C. Koo almost immediately afterwards. Again the seriousness of the economic Regraded Unclassified -2- 207 economic situation vas stressed by Zabo, At the end of December the circulation of fapi was $15,000,000.000 and at the end of February it had risen to 16,500,000,000. In the some period the volume of fayi in circulation plus the deposits of government banks increased from $23,000,000,000 to just under 26,000,000,000. The value of the fapi in circula- tion plus government bank deposits at the end of February was only one-fourth of that in July 1937 except for the price chenges. (Although it may safely be assumed that then more than half the fapi and government bank deposits could be accounted for in what is now occupied China, now the proportion is to be reversed. Since then, on the other hand, the economic activity in Free China has increased significantly. Even on the assumption that these factors are cancelled out by each other, the drop in value mentioned above is dangerous.) Koo continued that the wholesale price index in Chungking which rose from 2700 at the end of December to 3,000 at the end of February, in March suddenly soared to 3.700. (The index is that of the Institute of Wartine Economic Research with the period January-June 1937 equalling 100). He also said that the reduction of the rate of exchange would stimulate the sale of saving certificates which had been insignificant. Again I brought up the point that a larger reduction now would be better than to temper with the rate of exchange again later in order to force sales of these certificates. Koo again agreed that the latter should not be done. This, however, he did in a half-hearted way, and in order to justify half- heartedness he even invoked purchasing power parity. Competent observers here think that too much confidence cannot be placed in "pledge" that further reductions in order to stimulete sales of government securities will not be resorted to should there be any unfavorable developments. Then the Board would be in a weak position since it would be a very convenient alibi and scapegont if it were reluc- tant to permit the rate to be lowered every time the Ministry of Finance insisted that the sales campaign of securities would benefit by doing 80. 11. Although the Ministry of Finance will not admit it, one factor causing the failure of the campaign for the sale of savings certificates is the fact that many possible investors are inclined to think that when the certificates fall due the government DAY not pay in American currency and these potential investors are disappointed that there is no direct guarantee of the certificates by the Treasury of the United States. It may be that the Finance Ministry missed an opportunity when it did not bring in E. semi-foreign like (?) in which the potential investors would no doubt feel more confident. It is believed that the bond issue backed by United States currency will have a very similar history. GAUSS copy:Icae:4/13/42 Regraded Unclassified 208 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1942 TO Mr. White FROM Mr. Hoflich Subject: British Tax System - Increased Criticism and Predictions of Changes. Cable advice from Casaday indicates increased oriticism of the British tax system, by the press, and by both Conservative and Labor sem- bere of Parliament. There is also considerable speculation in regard to the forthcoming Budget, and predictions of tax changes. Casaday's report any be summarized as follows: 1. It 10 widely believed that the Chancellor of the Exchequer will announce the following changes, in his Budget statement about to be made: a. Modifications in the excess profits tax, probably a reduc- tion in the rate. b. The separate assessment of married women's earned incomes. C. The assessment of workers' income taxes on the basis of ourrent earnings instead of the present deductions based on wages in the previous assessment period. It should be noted that both Laborites and Conservatives favor the latter two changes. 2. There seems to be considerable opinion, in the press, and else- where, favoring the following additional changes in the income tax on vages in order (it 18 argued) to increase the incentive for an all-out war effort: a. Raise the minimum weekly wage remaining after the deduction of the income tax from $7.50 to $9.70, for single men, with propor- tionate increases for married men. b. Remove or reduce the tax on overtime. 0. Give the workers certificates or some other tangible evidence of the promised post-war rebate on income taxes. 3. Some commentators urge and predict increased excises on luxury goods, to make up for possible reductions in revenue which would result from suggested changes in the excess profits and income taxes. (Cable No. 1769, London, April 11, 1942) Regraded Unclassified 209 AS PLAIN London Dated April 11, 1942 Rec'd 11:45 a.m. Secretary of State, Washington. 1709, Eleventh. FOR VIII SECRETARY 02 LES TREASURY from CASADAY. Embassy's telegrams number 1401, March 24 and number 1400, March 27, also Embassy's telegrams on EXCEDS profits tax forwarded in November and December 1941. Criticism of various aspects of the present taxation system and sur estion and sproulation with regard to the forthcoming budget have further in- creased in the past few days and have come not only from the press but from both Constrvative and Labor members of Parliament and from recently published reports of the Select Committee on National Expendi- ture. It may be significant that in spitt of the firm attitude thus far evidenced by the Covernment, several commentators mostly of the press are not only sucresting changes but preducting them. This is especially 210 ⑉2⑉ 1769, Eleventh, from London specially truc with respect to the income ax on workers' wages. For example today's FINANCIAL NEWS states: "Leamhile the usual speculation proceeds, with the difference that many prophets are this time even super of themselves then usual. It is not often the the Labour Party holds identical views with those of the 1922 committee on matters of taxation but when such an unusual situation does arise the Chancellor of the Exchaquer can hardly Efford to disragard these views. For these reasons it is fairly safs to forecast a decision in favour of the separate assessment of married women's carned incomes and a radical change in the method of assess- ment of income tax on wages, As for a raduction in S.P.T. it would bE wish- ful thinking to regard this as more than a possibility." The SUNDAY EXTRESS for April 5 states that the City expects: "1. Assessment of workers' income tax on current pay packets. 2. Separate tax ment for wives who go out to work. 3. Modifications of EXCESS profits tax". Criticime and suggestions regarding the EXCESS profits 211 -3- W1769, Eleventh, from London profits tax have already been covered in reports sent to the Department. Suggestions with respect to the income tax include the following: 1. That the minimum weekly pay packet remaining after deduction of income tax bE raised above the present level of ONE pound seventeen shillings and six pence (for single men) to two pounds Eight shillings and six pence. Proportionate increases areasked for married DED. 2. That income tax on overtime be removed or reduced to create greater incentive for "marginal" affort. 3. That income tax bE assessed currently rather than half-yearly as et present. 4. That in- come tax on working wives be assessed separately. 5. That workers bE given certificates or some other tangible evidence of the promised post-war rebate on present income taxes, All of these suggestions are advanced on the ground that the present system is preventing an all- out war effort. It may be of interest that some commentators urge and predict increasts in EXCISES on luxury goods. In part this move 18 urged as a means of making up for the possible reductions of revenue which would result Regraded Unclassified 212 1769, Eleventh, from London result from the suggested changes in income tax and E.P.T. The clippings and ther = sports of the Select Consulted on National Expenditure herein referred to are being forwarded by airmail. REference is also made to the Densard report of the production debate of Harch 24 (sopecially colume 1874, 1900 and 1907 to 1959) and March 25 (colums 2054, 2107 and 2113) these WEDE forwarded by air pouch on March S1 under COVER of a letter to the Secretary of the Trta- sury dated Harch 26. It is worth noting that in the last reference given above Lyttleton said that he certainly proposed to Chacuss the whole matter with the Chaneellor of the Enchaquer. It is assumed of course that those suggesting or predicting taxation changes are quite ignorant of the actual provisions of the forthcoming budget. In view of the foregoing however it serms probable that if no changes are made considerable dissatis- faction and agitation will continus. The budget speech scheduled for next WEEL and the press reaction thereto will be reported as promptly C.S Doncible. HATTHEWS UPD Regraded Unclassified 213 DM GRAY Bombay Dated April 14,1942 Rec'd 10:49 n.m. Secretary of State, Washington. 263, April 14, 5 p.m. Department's 68 to Calcutta. Total amount of United States Trassury checks cashed by National City Bank of NEW York ct Bombay and delivered to this consulate is $812.58. INFORM TRE/SURY. DONOVAN BB 214 DEPARTMENT OF STATE WASHINGTON In reply refer to April 14, 1942 FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram no. 181, dated April 14, 1942, from the American Commissioner, New Delhi, India, asking that Renson be left in charge of Bombay office of the National City Bank of New York. Enclosure: From Commissioner, New Delhi, no. 181, April 14, 1942. eh:copy 4-14-43 Regraded Unclassified 215 PD NEW Drlhi This telegram must be paraphrased before be- Dated April 14, 1942 ing communicated to anyone other than & Rec'd 6:17 c.m. Governmental agency. (BR) Secretary of State, Washington. RUSH. 181, April 14, 10 c.m. The Governor of the RESErvE Bank of India through the Consul at Bombay and the finance member of the Government of India through me have requested the that National City Bank of NEW York lerve Ransom in charge of the office at Bombay rather then replacing him by Br.bb stating that on account of the extreme importance of matters being handled between the two banks, the presence of the more senior man is highly desirable. JOHNSON NK Regraded Unclassified 216 EJ GRAY Belfast Dated April 14, 1942 Rec'd 11:08 a.m. Secretary of State, Washington. 7, April 14, 4 p.m. Department's 11, April 8, noon. FOLLOWING FOR TREASURY. "Northern Bank Limited, Belfast accept's procedure outlined which will become Effective inmediately. Correspondents of the Northern Bank Limited in NEW York are Brown Brothers, Harriman and Company, Fifty-nine Wall Street." BUHRILN ED:. Regraded Unclassified C 0 217 ? Y April 14, 1942 TO: Mr. Livesey FROM: D. W. Bell Will you please send the following cable to the American Embassy, Ankera, Turkey, as reply to its No. 168, March 16. "From Treasury. Your 168 of March 16 on increasing discount at which United States currency is selling in Near and Middle East. Under the program of economic warfare being pursued by this government, every effort is being made to minimize the economic benefits accruing to the enemy na the result of concuest or economic penetration. This policy was followed when the United States promptly blocked or 'froze' all Norwegian and Danish assets in the United States upon their occupation by Germany in April, 1940. This prevented the Axis from using such assets in its war economy. Thereafter, as other countries were occupied by. or submitted to, the Axis, this country blocked the assets of the conquered areas. On June 14, 1941, the United States blocked the assets of every country in continental Europe except Turkey. German and Italian assets were blocked at this time and also those of Switterland, Spain, Portugal and Sweden so that those neutrals might not be employed as cloaks for the Axis. While Russian assets were also blocked at the same time, they were freed when Germany attacked Russia. Japanese assets were blocked July 26, 1941, and at the same time Chinese assets were blocked at the request of China so that Japan might not use occupied China for cloaking purposes and the Chinese Government might gain maximus advantages from Chinese assets in the United States. As early as June 6, 1940, a strict control was imposed on all securities entering the United States so that the Axis could not liquidate looted securities in our markets. From time to time this control has been tightened by various additional measures. Obviously it is not feasible to outline the complete scope and application of this policy. The foregoing is merely illustrative. The problem of minimising the benefits to the Axis from the large amount of United States currency held in occupied countries is particu- larly difficult and important. Every time that the enemy acquires goods or services from non-occupied or neutral areas without having to deliver goods or services, there is a net increase to the enemy economy and war potential. Recognising that the enemy does have many ways of Regraded Unclassified - 2 - 218 compelling neutrals to furnish goods and services on credit, still there are limitations on this technique beyond which the neutrals' economy may collapse - preventing further effective aid to the enemy. Obviously the enemy can 111 afford to pay the neutrals in goods and services without injury to this war effort. From their point of view it is preferable to effect payment in, for instance, United States currency - which can be taken from the occupied areas. The neutral will accept United States currency as long as such currency can be profitably employed in the purchase of goods and services in other parts of the world. As you indicate in your 168, there are substantial amounts of United States currency !working its way down from central and eastern Europe through the Balkans to the Near and Middle East'. The same is true with respect to Switzerland, Spain and Portugal. It is in our interest to see that United States currency is A drug on the market in these neutral countries, The more we can reduce its exchange value the less the enemy can obtain in the way of goods and services through this means of payment. Accordingly, this government is encouraging this reduction in value. Thus, for example, on March 13, 1942, the United States Treasury imposed import restrictions on all currency brought into the United States from any part of Europe except Turkey. Under this regulation any such currency will be incounded. Further measures of this type are being studied. Your reference to the decline in the prestige of the United States arising out of the steadily increasing discount at which United States currency is selling, 10 of course an important consideration. The enemy no doubt exploits the natural fears and prejudices of these people to encourage the acceptance of the value of United States currency 8.9 a barometer of the war. For these reasons it is important that it become known that the depreciation in United States currency in this area is B. definite policy of this government and that the reasons underlying the policy be disseminated through appropriate channels. In this connection, compare the British policy of voiding all Sterling currency in countries outside the Sterling Area. Particular attention should be called to the fact that the cable transfer rate of United States dollars represents a much superior index to the prestige of the United States dollar in neutral countries. We should appreciate receiving your views AB to the effectiveness of an educational program of this character and suggestions as to how to maire it most effective in the Near and Middle East. You refer to the fact that substantial amounts of United States currency are being brought to the Near and Middle East by the United States Government and representatives of all services who are arriving in ever-increasing numbers, and that the discount on such currency works D. hardship in such cases. Regraded Unclassified - 3 - 219 Certain steps have been talcen in some areas, and a blanket procedure is being developed now for the Sterling Area, in order to secure a favorable rate for United States currency properly in the possession of authorised government officials. This program contem- plates the establishing of a dollar credit to the account of banks in each area against telegraphic advice that the currency has been mutilated and delivered to designated American consular officers. Authority to use such facilities would be limited to officers and paymasters charged with the duty of preventing the use of this procedure where the United States currency vas acquired locally by American officers or employees. In the case of Turkey, however, it is not clear at this time that a procedure of this type is necessary or desirable. American officials in Turkey should be encouraged to cable their respective departments their local currency requirements. Arrangements can then be made to advance dollar credits through the New York correspondent of their local benking connection. AFL:mah 4/8/42 copy:kma:4/14/42 Regraded Unclassified TREASURY DEPARTMENT 220 INTER-OFFICE COMMUNICATION DATE April 14, 1942 TO Secretary Morgenthau FROM Mr. Dietrich confidential Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £71,000 Purchased from commercial concerns £33,000 Open market sterling held at 4.03-3/4, with no reported transactions. The Cuban peso was offered at a premium of 5/32% as compared with 3/32%, the rate that has prevailed so far this month. In New York, closing quotations for the foreign currencies listed below were as follows: Canadian dollar 13% discount Argentine peso (free) .2373 Brazilian milreis (free) .0516 Colombian peso -5775 Mexican peso .2064 Uruguayan peso (free) .5295 Venezuelan bolivar .2830 There were no transactions of gold consummated by us today. The Federal Reserve Bank of New York reported that the Bank of Mexico shipped $187,000 in gold from Mexico to the Federal for its account, for sale to the New York Assay Office. No new gold engagements were reported. In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35#. Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/84. We made no purchases of silver today. 221 - 2 - The report of April 8 received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $2,342,000, 8. decrease of $212,000 in the short position since April 1. Net changes were as follows: Short Position Short Position Change in Country April 1 April 8 Short Position - England $ 618,000 (Long) $ 905,000 (Long) - $ 287,000 Europe 2,411,000 2,485,000 + 74,000 Canada 1,652,000 (Long) 1,674,000 (Long) - 22,000 Latin America 70,000 (Long) 25,000 (Long) + 45,000 Japan 160,000 160,000 - Other Asia 2,296,000 2,288,000 - 8,000 All others 27,000 13,000 - 14,000 Total $2,554,000 $2,342,000 - $ 212,000 * Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign (-) indicates decrease in short position, or increase in long position. CONFIDENTIAL & 229 UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION SECRET WASHINGTON, D.C. COORDINATOR OF INFORMATION April 14, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: The attached is the report of the British Home Intelligence for the week ending April 6, 1942 Sincerely, Brie William J. Donovan 223 Elight rise in ublic spirits which was mentioned in the last report appears to be maintained. So does the mood of expectancy which still is ill-defined. There is "an air RET of suspense, of waiting for something to happen". Lack of - new disasters and indications of British vigor and initiative contribute. However, the public will need many more signs that Britain is passing from an attitude of defense to the much desired aggressive spirit before it can be described again as 'on its toes''. The general trend of public thought is toward attack rather than defense. The St. Nazhire attack, the recent heavy raids on France and Germany and the successful passage of the Murmansk convoy have had the effect of a tonic but the public still reacts to them as spectators rather than as perticipants. According to one RIO: "Private considerations and the lure of personal gains still weigh more with many persons than does the cause". Lack of interest in the war and reluctance to talk about it are mentioned by 7 RIO's. "The public appears to be concentrating on what they can do for themselves". They are preoccupied with domestic or home affairs such &S civil defense or "digging for victory", The general tone of most reports suggested that there still exists a "sense of frustration which, though no longer at boiling point, exists as a background for discontent". On India, there is very great ammiration for Cripps, this being "more of a compliment to his personality than optimism concerning the result of his mission". There are fears that India will go the way of Burma. In some juarters the government is criticized for "putting the plan forward too late". "We should have won India by an offer of Dominion Status immediately following the Atlantic charter". Regraded Unclassified 224 -2- United States. About the USA there is little comment but natisfaction is reported that "they are doing something at last". Postal censorship confirms some belief in USA sup- port "as soon as they get into their stride". Complaints come from the same source on the behavior of U.S. troops now in England. It is alleged that they "all talk", and resentment is expressed at their tone: "It is about time we came over to win the war for you". It is felt that they are "throwing their weight around". Russia. Sympathy and admiration continue as before for Pussia, but anxiety is reported again by 5 RIO's at the ap- parent slowing donw of the progress and prospecte of the Red Army. News presentation and broadcasting. There exists "an- noyance" at expressions such as "strategic withdrawal" and "straightening of lives" in Burma. Listeners research re- port No. 78 discloses that in the last few weeks the level of listening to news bulletins has decreased by 20 per cent. Post-war conditions. This week 3 Ministry of Information speakers and 4 BIO's refer to interest of the public in post- war conditions. People "demand to be informed what sort of post-war society our rulers contemplate as a result of victory". Two of the RIO's refer to the belief that "pro- duction would be improved if something could be done to convince workers that post-war conditions would be better than those which they now enjoy". "A definite statement by the government, - preferably the Prime Minister -, on conditions in this country after the war would do a great deal to improve the war effort". Food. There is little complaining about it but growing demand for "equality in distribution" and strong feeling Regraded Unclassified 225 -3- that "luxury foods should not be at the disposal of only the wealthy". The abolition of white bread was taken with very little complaint. Black markets and anti-semitism. From Midland and London areas and from police duty room reports references to an increase in anti-semitism, said to be due principally to "the frequent occurrences of Jewish names in news reports of black market cases". Other reasons cited for the increase or prevalence of anti-semitism are the "many current stories of Jewish evasion of duties and regulations, and the "ap- parent unwillingness to take action, on the part of Jewish leaders". 226 COORDINATOR OF INFORMATION WASHINGTON, D.C. April 14, 1942 The Honorable The Secretary of the Treasury SECRET Washington, D. C. COORDINATOR OF INFORMATION Dear Henry: The attached is from the German Directive of the British Political Warfare Executive, and is dated April 10, 1942. Sincerely, William J. Bill Donovan Attachment Regraded Unclassified 227 1. Appreciation of German home situation a. German attention is still almost exclusively CRET concentrated on the Russian front and concerns at home, - although RAF offensive rapidly is becoming a source of apprehension. There is a feeling of anxiety over con- tacts between civiliane and soldiers. The soldiers from the front are easily disillusioned by the conditions they find while on leave. Many civilians are shocked by their attitude. The home front is reminded daily that it must live up to the soldiers. This situation is explanation of why the Deutschlandsender is more truth- ful about Russia in its home broadcasts than those to Europe. b. The second line for the home front is a build- ing up of confidence in the Spring offensive. This will be launched along the whole front from Murmansk to Sebastapol, with new strategy, new troops and new weapons. c. The third main theme is successes of the D-boats. d. There is evidence of a strong skepticism of alleged victories in the East, despite the buoyant tone of German propaganda. The Germans are only interested in a final 1942 victory over Russia. e. Omissions in home news: Representation of Japanese at the Vatican; no reference whatsoever to Sauckel since his appointment; Laval negotiations; full stop on recalling that some of the territory occupied by Japan was at one time German-New Guinea, Bismark Archi- pelago, etc. 2. Policy and Strategy a. India. Do not bore listeners by giving too great length or prominence to this, for Germans, minor topic. Regraded Unclassified 228 . 2 b. Russia. Use to the fullest all German self- commitments to Spring counter-offensive along the whole front; use again the 38 divisions scheduled for re- equipment and reat kept this winter at the front; revive the German admissions of last November of the underestimate of Russia and its strength. Stress the industrial strength of Russia beyond the Drals. Call attention to the pre- dicament of the three Italian divisions, Celere, Vesuvio and Torino, on the Russian front and to the fourth division which is now enroute to the front. C. Mediterranean. Maintain the diversion theme. Malta is concentrating on itself full force of fleet of bombers sufficient to blitz London. If Rommel moves, the attack should be played up as an attempt to break through the Suez. d. Far East. Straight news, no military surveys. e. Northern Route. Can again be run hard. Also the inactivity of the Scheer, Tirpitz and Hipper. For seven weeks the Scharnhorst and Gneisenau have been under repair. After aix weeks out of action the Prince Eugen is still in Trondheim. The Murmansk front is becoming a heavy German commitment. Failed on account of German inability to keep up sea communications for Dietl's troops. Heavy shipping losses by Germany due to action by Russian and British submarines and sircraft. f. Do not place too much emphasis on American claims of U-boats aunk in the Atlantic or Japanese ships sunk in the Pacific. g. Air, Give care to quick home releases of the effectiveness of raids, which should never be used for Regraded Unclassified 229 - 3 - Germany without a further check. Continue to comment that Gatha, Magdeburg, Sluttgart and Wuerzburg are the same flying distance as Lubeck. Stress the deliberate strategy of pummelling one area till flak is moved in and then striking elsewhere, when reporting raids on France. Production strength of British aircraft is shown by the fact that 90% of home-based aircraft is British made, more than 80% of all aircraft in RAF, including overseas, and 100% of night bombers are British made. 3. Features and Talks. a. As in 1917, Germans are feeling the stress. When giving explanation for ration cuts, never attri- bute them to the blockade but always to: 1. The call up of German peasants due to short- age of manpower. 2. The passive resistance of occupied terri- tories which should export. 3. The call up of German Balkan allies such 88 Roumania. b. Britain's part in a single Anglo-Russian strategy. Regraded Unclassified 230 COORDINATOR OF INFORMATION WASHINGTON, D.C. April 14, 1942 The Honorable SECRET The Secretary of the Treasury INFORMATION Washington, D. C. Dear Henry: The attached is from the most recent British Ministry of Economic Warfare propaganda survey. Sincerely, Biu William J. Donovan Attachment 231 Additional evidence of Axis Production difficulties are: (a) Funk's acknowledgement of using costs in state- ments to shareholders Reichsbank meeting that while production rose in 1941, incomes increased even more. (b) 50% decrease in Italian war production due: 1. Reduction in expenditure from 7,000,000,000 ECRET Lire per month to 5,000,000,000. a INFORMATION 2. Inefficient wage and price stops. 3. Most efficient labor moved to Germany. More drastic black market regulations in France per- mitting 10 years imprisonment, 10,000,000 francs. Greece's financial load is eased, occupation costs removed due to the fact that Greece is milked dry. Labor drive extended to Belgium, Holland principally aimed at unemployed. In Pelgium, wages deliberately are kept low in comparison with wages paid to Belgian workers in Germany. VERWILGHEN, Secretary General, Ministry of Labor, resigned as a protest against German labor measure. For the first time on the continent, fruit and vegetables are to be rationed by Belgium. Regraded Unclassified 232 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Summary of Intelligence Reports Russo-Japanese Relations According to 8 private report from Switzerland, forwarded by the British Political Warfare Executive, the Japanese Ambassador in Berlin, General Oshima, 18 making the rounds of the Balkans. Oshima is attempting to persuade the Balkan countries to participate more actively in the war against Russia. In order to con- vince them of the coming victory, he 1s stating that Japan will attack Russia at the moment the German offensive 1a launched. (British Political Warfare Executive Directive, April 13, 1942) Italy The Itelians have recently discontinued their propagande against Russia, probably because of unfavor- able reaction among the industrial workers, and because of difficulties in the way of sending more troops to Russia. The grain situation has grown worse. Italian propaganda now lays emphasis on a "bright future" in place of the recent campaign of intimidation and pessimism. (British Political Warfare Executive Directive, April 13, 1942) Regraded Unclassified - 2 - 233 Use of American Planes During the day of April 12, nine Boston bombers (Douglas A-20) escorted by 21 squadrone of fighters, (or 252 planes) successfully attacked the railway center at Hazebrouck, France. German fighters were encountered in strength. In the fighting, four German fighters were certainly destroyed, four more were probably destroyed, and ten damaged. Fifteen Spitfires were lost and one Boston. (This is the first mention of the use of Bostons by the British as daylight bombers, the use for which they are designed. Last year, the British used the Bostons as "Havoo" night fighters over England, or 88 "Intruders", 1.e., used to sit over German airdromes at night and shoot down the German bombers 88 they came home.) On April 10, Japanese fighters machine-gunned Loiwing airdrome in Burms. Five AVG Tomahawks were damaged on the ground. Hurricanes and AVG Tomahawks shot down seven Japanese fighters. Two Hurricanes were lost. (U.K. Operations Report, April 13, 1942) British Planes in R.A.F. More than 80 percent of all the aircraft in the Royal Air Force, including the overseas contingents, are British made. Ninety percent of the planes based on England and 100 percent of the night bombers were built in the United Kingdom. (U.K. Political Warfare Executive Directive, April 10, 1942) German Home Situation The government 18 showing B. feeling of anxiety over contacts between civilians and soldiers. The soldiers from the front are easily disillusioned by the conditions they find while on leave. Many civilians are shocked by their attitude. Because of this situation, the German stations are more truthful about Russia in their home broadcasts than in those to other countries. (U.K. Political Warfare Executive Directive. April 10, 1942) Regraded Unclassified 234 - 3 - Russia Colonel Donovan's office reports that "according to what purports to be an official tabulation, 650,000 people starved to death during the two winter months in Leningrad alone." Rations in Moscow are also supposed to be low. "The result seems to have been a slight slump in the morale of the Capital." (This report surpasses the claims of the Nazi propagandists.) (C.O.I., "The War This Week," April 2 - 9, 1942) Regraded Unclassified 235 April 15, 1942 9:05 a.m. LIMITATION OF PROFITS Present: Mr. Nelson Mr. Patterson Mr. Sullivan Mr. Forrestal Mr. Helvering Admiral Land Mr. Paul Mr. Foley Mr. Blough Mr. Marbury Mr. Anderson H.M.JR: It is nine o'clock. Let's go. MR. PATTERSON: We are apprehensive that a pre- audit at this time, even if concluded in time to be of value, might have a boomerang effect. It might, particularly, if we took the twelve so-called ripest cases we have, where we thought that prices were the highest, in comparison with the probable cost of producing the stuff - might have an effect of ac- celerating the movement in commerce for profit limitation rather than dampening it. It is 8. gamble at best, and we think that a gamble might turn out against us. We would like very much to have the Secretary of the Treasury confer with Senator George and Congressman Doughton, and also with Senator McKellar and Barkley, and Cannon, present what Mr. Paul has already told the Vinson Committee; that the best measure of control- ling profits, we believe, that at least the last stand in controlling profits, is by the excess profits tax law; that we have doubts as to the wisdom of engaging in any pre-audit. I think if we did we would be committed certainly to tell them the outcome, the effect 236 - 2 - of it, possibly to publicize the outcome, and we would rather try to get our house in order on these top cases, we will say, the top layer, as we are doing, on a re- adjusted and renegotiated basis, with the concerns themselves, which is going forward in & fairly good way. Browning Incorporated has got a board assembled there. MR. NELSON: Yes, we worked. with him on that board. MR. PATTERSON: Browning is giving practically his entire time to it. H.M.JR: Well, Bob, so there will be no misunder- standing, we asked Nelson for a list of names which he gave us. (Mr. Anderson, Admiral Land, and Mr. Helvering entered the conference.) H.M.JR: For my own satisfaction, whether I do anything on this or not, we are going ahead with these audits, forty odd companies that you gave us, you see, and the instruction to my boys is, "Have the answer Tuesday," but I wouldn't be willing to go up on the Hill and say anything to these people unless I could say to them, "Well, I am going to give you a visual demon- stration as to what this bill will do." Now, I am not going to put my neck out with the President or with the Hill any further than it is now, on this tax thing, unless I can say, "Gentlemen, we will come up there and show you what this proposal on excess profits will do to these companies. But if that is going to scare you, then I would rather not do anything. Again, to be perfectly frank, I don't want you to say I pulled a fast one on you. I may do it anyway in connection with our bill in order to try to prove to them that this is a good tax bill. You see, I mean, I may do it anyway, may have to do it. Paul may have to do it. So I don't want you to say, "Well, Morgenthau used this and then went ahead on his own." I want you to know just where we stand. I don't know any better evidence, if it is good evidence, than if when we get through we are not going to get 237 - 3 - the excess profits then Paul has got to get busy and tighten it up. MR. PATTERSON: Of course, the cases selected, I take it, will not be typical cases? H.M.JR: You have got to ask Mr. Nelson. MR. PATTERSON: They would be top cases, I should think. MR. NELSON: We went down through, tried to pick a fairly typical - we put the aircraft people in there. They will be typical of one branch. We have got such people as the Standard Oil Company and others. They are just representatives of parts of business, a lot of business, small and large. We tried to pick 8. very representative group. I thought, Bob, and I think it would make a great impression, have just the opposite effect, if when these come in on pre-audit, you immediately got them in and cut them down. That is what was done in '41. You have cut them down for '42, and it is a visual demonstration of the combination of the two methods, which I think is right, the administrative method by cutting it down where you know about it, and then the tax method to mop up what you don't get. I think that is the logical way. MR. PATTERSON: Yes, but of course these figures will show the situation without any renegotiation effort. MR. NELSON: As of '41, Bob. These fellows were just getting started in '41. MR. PATTERSON: It will show some large profits, no doubt of that. It will show some large. profits, but it will not show any effect of & renegotiation effort, and in that way, and I think probably the cases will be top cases. I haven't seen the company's list of correspondence. I don't know what it is, but my 238 - 4 - idea would be that it would not be a sampling all the way down and up the line. I don't believe 80. H.M.JR: Have you got the list? MR. SULLIVAN: I sent it over. The file I got from Mr. Nelson, without waiting to have it copied, Eimmediately sent to Mr. Mooney, who immediately got on the phone and instructions were given to every agent in charge west of the Mississippi, before the close of business yesterday. There is a copy on the way over here now, and I will ask my office to send it in. MR. PATTERSON: How can you possibly complete an audit by Tuesday? MR. PAUL: Couldn't have it all. MR. SULLIVAN: You can't have an audit on the '41 profits. They will have to take the word that is given them by the corporation auditors. MR. BLOUGH: This is definitely not B. pre-audit because it is all what has happened in the past, 1941. H.M.JR: We have to take the word of the president of the company. MR. PATTERSON: It would take us months to do that. H.M.JR: It is the word of the president of the company, or the treasurer of the company, or the comptroller of the company. MR. BLOUGH: This is really just getting advance information on 1941, It is not an audit. MR. NELSON: You will have that in a month or two anyway, won't you? MR. BLOUGH: Except for salary information and 30 on. H.M.JR: The salary information. Regraded Unclassified 239 - 5 - Bob, I am not going to do a thing unless you fellows definitely ask us to. I am not going to go up on the Hill because I have got nothing to sell them. MR. PATTERSON: Got the same thing to sell them that we had two weeks ago. You have got the same sales talk that Paul had before the Vinson Committee which was good. H.M.JR: But until I see what this bill does to the company, what the profits and the salaries are, I won't stick my neck out. I said to the Army, "Should we wait for the Navy?" They said, "Hell no, let's keep going." (Mr. Forrestal entered the conference.) MR. PAUL: I ran into Senator O'Mahoney last night and he asked me if I was working on this, and he said that something had to be done by Thursday. What did he mean by that? MR. PATTERSON: Conference committee meets. H.M.JR: Bob, tell Forrestal what you said, and see if he agrees with you. MR. PATTERSON: 1 said that I questioned whether 8 so-called pre-audit which can be nothing more than B. receiving of the company's own statement by Tuesday, because 8. real pre-audit would take months - I doubted the benefit for the reason that a short list of companies is likely to be not a fair sampling of all contracts, and would probably reveal profits that might be deemed by 8. great many people excessive, and that the discussion of those cases with the conference committee or any other group in Congress would be more likely to lead to demands for profit limitation statutes than to soothe them. MR. FORRESTAL: You mean, even after the application of the taxes? MR. PATTERSON: Yes. Moreover, it would show a - 6 - 240 situation where the efforts of the Army and Navy, on renegotiating contracts and fixing a lower unit cost, would not have taken effect at all. MR. FORRESTAL: That is right. MR. PATTERSON: For that reason I questioned whether any benefit in our present impasse about the riders that have been tacked onto this appropriation bill would be brought about. However, I do urge that the Secretary of the Treasury see the leaders, Senator George, Rep- resentative Doughton, Senator MoKellar, Representative McCormack, leaders, and reinforce the position stated by Mr. Paul before the Vinson Committee as to the preference that the Treasury Department would have to handle the matter on an excess profits tax basis rather than on & profit limitation basis. H.M.JR: I won't do it, Bob, I won't do it on that basis, I am sorry. I mean, I won't do it unless I can give them an actual-- MR. PAUL: Of course, my neck is out already. H.M.JR: Excuse me, I just want to explain, I mean, I won't do it unless I can go up and say, 'Here is & list of companies given to me by Mr. Nelson. We have looked at them, we have taken the companies' word," and that this is what the proposed bill will do. Unless I can do that, give them an actual-- MR. FORRESTAL: What is the harm, Bob, in getting that list of companies and see what the result is after you apply? I certainly know if you apply that rule to the General Electric or Bethlehem Steel, for last year, you are going to out the hell out of their showing. MR. NELSON: I think you will in '41, particularly. Now, '42, without renegotiation, would be bad, but '41, I think, will show the other way. 241 - 7 - MR. PATTERSON: Of course, '41 - these companies for the calendar year '41, except for the aircraft, Dupont, Sperry, and some of those did not have an exclusively Army and Navy business. A great deal of their business was straight civilian business. MR. PAUL: Of course, as Mr. Helvering pointed out yesterday, that makes for a complication. MR. SULLIVAN: We have asked for 8 break-down be- tween war contracts and the rest of the business. MR. PATTERSON: Of course, during 1941 the great bulk of their (indicating companies on paper) business was straight normal commercial business. Their profits, as shown are on an annual basis for the calendar year 1941, would not be particularly helpful as to whether or not you should have profit limitations in dealings with the Government. The aircraft companies, of course those are instances. MR. NELSON: We have tried to pick both kinds. You see Baldwin Locomotive would be very largely with the Government. Bendix, Aviation, Sperry, General Electric would be over half - Savage Arms-- MR. PATTERSON: For '41, would they be over half? MR. NELSON: I think so. Western Cartridge Company - we tried to pick companies that we thought would be representative. MR. PATTERSON: You will have to analyze the list 8. great deal, and no hasty conclusions could be drawn from it. The Western Cartridge Company, almost all their business is with us, is on & cost-plus fixed-fee basis. They manage plants. Nine-tenths of their business is on the basis of the running of the St. Louis Ordnance Plant. MR. FORRESTAL: What is the harm - I don't think you can visualize what this means until you see the figures - 8 - 242 and see the application of the tax, then it begins to-- H.M.JR: That is the point. Then you know. MR. FORRESTAL: If it doesn't look so hot, then you scrap it don't you? H.M.JR: No. MR. PATTERSON: You are gone by the time you get to that stage. H.M.JR: If it doesn't look so hot, we will revise our tax bill, and it is another thing, it is an answer to all of these long-haired boys with flowing neckties around town that think they know how to run this show, whether the Treasury knows its job or doesn't, and I would like to find out. Maybe we don't. Maybe we don't know our job. I mean, not that the columnists bother me after nine years, but what's-his-name that writes for the Post-- MR. BLOUGH: Lindley? H.M.JR: Lindley said I say 8 lot of pretty words about inflation, but I never back it up with any tax recommendations. MR. PAUL: He has been saying that.. H.M.JR: So he may be right. Maybe Ernest Lindley is right. I would like to find out. MR. PATTERSON: Of course, for your own purpose on your own tax law, I have nothing to say about that at all. We were only discussing the thing from the point of view it might have on the pending legislation for profit limitation. H.M.JR: Bob, if I go up and just make a cold plea, without anything new, I am not going to get to first base. 243 - 9 - MR. PATTERSON: 1 think it would be very helpful if you could do it and press for speed. That is a new element in view of the pressure now on profit limitations, isn't it? MR. PAUL: New thing in revenue. H.M.JR: No hard feelings, you fellows handle it the best you can, and that's that. MR. PATTERSON: No, we want your assistance. H.M.JR: No, I won't go. MR. NELSON: I think the combination of the two things, administration of re-negotiation which you have got well set up now, where you can catch & great many of these companies, certainly the ones-- MR. PATTERSON: If we get another instance flaunted right in front of their faces right now like Jack and Hintz, we are just wasting our time here today. I can tell you that. Off they will go, and there will be a six percent or 8 five percent or something like that, and you will have some of the most awkward legislation to handle you have ever had. H.M.JR: You see, if we go up there with & lot - supposing we discover another half 8. dozen cases like Jack and Hintz-- MR. PATTERSON: That is Forrestal's case. H.M.JR: Supposing you do find another and then they ask Paul, What about Jack and Hintz?" He says, in regard to this woman who is getting forty thousand dollars, it is disallowed, and that he gives them a chance to explain how the income tax thing works. MR. PAUL: I did that before. MR. PATTERSON: You told the Vinson Committee they would never get away with 8. thing like that. Regraded Unclassified - 10 - 244 MR. PAUL: Yes, I did. I even pointed to the criminal statutes at their pressure. MR. FORRESTAL: On this list of companies, what I am suggesting is, what is against doing the exploratory work, getting the statements, see how it looks, and I say, then make your decisions whether you are going before that committee or not. MR. PAUL: I wonder how long that committee will be in session. MR. PATTERSON: That conference? Some few days, no doubt of that. MR. FOLEY: The Senate will be in session until the twenty-first. H.M.JR: If that is what you want, don't prolong the agony. Everybody has got a lot to do. No use pro- longing the agony here, everybody is busy. If that is what you want, just count me out, that is all. No hard feelings. MR. FORRESTAL: I haven't talked to Bob on it, but I think it is always difficult to visualize - you talk about taxes and what they are, but unless you nail it down in terms of specific figures, it doesn't register. MR. MARBURY: You can use figures without names of companies. MR. FORRESTAL: Well, we might do that. The same with these salaries of executives. MR. PATTERSON: I dare say, that with 8. good many of those companies on that list which are the big companies, no question of that, probably B. pretty good list, that with 8 good many of those companies, probably it would be quite illuminating to know what the effect would be of your new rates on that, and probably-- - 11 - 245 MR. PAUL: I would like to know. MR. PATTERSON: I think probably the showing in many cases would be what you would want. MR. FORRESTAL: We have done some hypothetical figuring ourselvesitknocks these earnings into a cocked hat in most cases taking your proposal. MR. PATTERSON: You take a company like Consolidated Aircraft, there is no doubt of the fact that they have got quite B. chunk of fat. MR. FORRESTAL: Even on that it looks as if they would make five million dollars this year against eight million dollars last year. H.M.JR: Five against how much? MR. FORRESTAL: Eight. H.M.JR: How much volume? MR. FORRESTAL: Tremendous. MR. MARBURY: After taxes? MR. FORRESTAL: Yes. MR. NELSON: I think this will be very illuminating to see how it is. H.M.JR: We are going to do it anyway. MR. PATTERSON: My only doubt is what effect it would have to discuss the upshot of it with this conference committee. MR. PAUL: You don't want to have discussions with them before we look in the back of the book and know the answer. 246 - 12 - MR. PATTERSON: I thought maybe you were committed to do it, to go ahead. MR. PAUL: If we tell them we are going to, we are. (Admiral Land passed the paper to Mr. Nelson.) ADMIRAL LAND: Those are just ones, Don, we selected in case you wanted our things, that is all. The only comment I make on your list is that there are no Liberty Ship, straight Liberty Ship, contractors on it at all, and you probably ought to add one on those. You ought to have one of the Kaiser group in there, Kaiser group, Liberty Ship Builders. MR. NELSON: Yes, I think so. H.M.JR: Give us the name. ADMIRAL LAND: I have given it to Mr. Nelson. MR. NELSON: He has got a list there, five or six additional companies. H.M.JR: You would like those added? ADMIRAL LAND: I would like to have Mr. Nelson con- sider them and see whether they fit in with his picture. MR. NELSON: Yes, I think SO. H.M.JR: Do you recommend those? MR. NELSON: They are all right. ADMIRAL LAND: More or less of a cross section. I think Nel-son's list is O.K. I can understand why they didn't pick one, they are so new they didn't have any record. MR. NELSON: That was the reason. 247 - 13 - ADMIRAL LAND: I think, for strategy, you ought to have one of the Kaiser group in. They have been shot at all over the U.S. MR. PATTERSON: Quite a number of these concerns in 1941 - 8. great percentage of their business was with ordinary industry, and they would not be particularly revealing as to the effect of & profit limitation by the Government. MR. PAUL: I think that is true, except that I under- stand that they plan to segregate the business. I don't know whether they can do that. H.M.JR: Who crossed this out? (The paper is handed to the Secretary.) ADMIRAL LAND: That is a list submitted to me by my financial director. I picked out six of them that were typical. Anybody can pick anybody else they want to. We agreed those were the most typical. Some of that e are on Mr. Nelson's list and some not. H.M.JR: I want to be able to say that we didn't pick the list. I want to be able to say we didn't pick it. ADMIRAL LAND: You asked who crossed them out. I picked the six. H.M.JR: I want to be able to say Nelson picked them. MR. NELSON: I think those are all right. H.M.JR: I want to be able to say that Nelson picked the list. MR. NELSON: Those would be all right as an addition. They were new companies. ADMIRAL LAND: They wouldn't pick & Liberty Ship, they have no record. They only started in February 1941. Regraded Unclassified 248 - 14 - MR. PATTERSON: Was the period for which the state- ments are to be taken their last fiscal year? MR. PAUL: Yes, it will be either the fiscal year ending December 31, will be the last we could get, or previous fiscal year. MR. SULLIVAN: Bob, what we are asking for from these companies are for the years '39, '40, and '41. The amount of profit recorded before and after computation of Federal taxes, the excess profit tax credit used by the taxpayer as well as the average base period net income or invested capital for each year, depending upon the method used in arriving at the excess profits tax credit claim. The names of, and amounts paid to cor- porate executives for each of the several years who received compensation of ten thousand dollars or more in any one or more years. The net profit derived from Government contracts reflected in the total net profit record, the gross Government contract price, and the cost of performing the contract. If profits are re- flected on basis of partial completion, the percentage of the contract price reflected in gross income and the percentage of contract completion, then we will take those figures and superimpose on the 1941 profits the tax rates in the pending Treasury proposal. MR. PATTERSON: Well, let's do this, if agreeable to all concerned. The thing is on the way. Let's see when the returns come in, and I will abide by what Randolph Paul thinks, as to whether it would be help- ful or not, as to whether a full discussion of these cases with the people in charge of this pending revenue bill would help any. MR. MARBURY: You won't be able to get all the in- formation on costs of the contract. If they could give us that we wouldn't be worried. MR. SULLIVAN: We will, in many instances. Regraded Unclassified - 15 - 249 MR. PAUL: I am concerned about the time factor here. The committee meets Thursday, we won't have this until Monday or Tuesday, and to get it then is almost a physical impossibility. MR. PATTERSON: I doubt if they have adjourned by that time. I really think they will still be in conference? Maybe not. MR. PAUL: Of course, if they take testimony in conference committee it will take a long time. MR. PATTERSON: The conference, as I understand It, consists, in this case, of the full committee, so there will be some thirty or forty men sitting around. ADMIRAL LAND: And a lot of them aren't here and won't be here this week. MR. PATTERSON: That is good. H.M.JR: No use keeping - I think you are wrong, but I will abide - it is your baby. MR. PATTERSON: You don't think I am wrong in what I have said, now? I say that when the election returns are in, I want brother Paul to study them. You don't disagree with that? MR. PAUL: I would be the first one if they came in and showed we weren't getting enough tax, to revise my schedule upwards. MR. PATTERSON: I also would like your judgment as to whether the use of those figures and so on would be helpful to us in our pressing problem now. MR. PAUL: I will be glad to give you my answer on that, although that is 8. political question. 250 MEMORANDUM April 15, 1942. TO: The Secretary JLS FROM: Mr. Sullivan Testerday afternoon the attached instructions were given. to Agents in Charge in regard to the audit of the corporations enumerated on pages 2 and 3 of this memorandum. This morning the same instructions were given in regard to the corporations on page 4, the addition- al list submitted by Admiral Land through Mr. Donald Nelson.