Volume 542, June 23 – June 25, 1942

DIARY Book 542 June 23 - 25, 1942 Regraded Unclassified - A - Book Page American Federation of Labor See Financing, Government: War Savings Bonds Appointments and Resignations Elliott, Harriet (Dean of Women, University of North Carolina): See also Book 539: Financing, Government (War Savings Bonds) Appointed Consulting Expert and Associate Field Director - 6/23/42 542 50,51 Argentina See Latin America - B - - Bolivia See Latin America - C - Canada 1942-43 budget - resume' of - 6/24/42 259 United States dollar position - White memorandum - 6/25/42 378 Proposed tax changes - Blough memorandum - 6/25/42. 383 China Fiscal and Monetary Situation: Apparent continued deterioration and possible remedy discussed in cable to American Embassy, Chungking - 6/23/42 137 Cleveland, Ohio See Ohio Committee on Practice Appointment of Yntema (Dwight B.) recommended by Gaston - 6/25/42 303 Coudenhove-Kalergi, Count R. N. See Post-War Planning Cuba See Latin America - D - - Department Store Inventories See Inflation Dietrich, Marlene Tax deficiency and frozen funds discussed by HMJr and Graves - 6/25/42 309 Lansburgh's Department Store-Marlene Dietrich connection discussed by HMJr - 6/26/42: Book 543, page 38 - 1- Elliott, Harriet (Dean of Women, University of North Carolina) See Appointments and Resignations Exports Freight Situation - Haas memorandum - 6/24/42 255 a) Last report Regraded Unclassified - F - Book Page Federal Reserve System See Financing, Government Financing, Government Federal Reserve interference with Treasury problems discussed by Walter Stewart with HMJr and Bell - 6/23/42 542 37 Municipal bond flotations - Haas memorandum - 6/24/42 159 War Savings Bonds: McClintock for publicity discussed by HMJr, Graves, Kuhn, Odegard, and Gamble 6/24/42, 151 Leffingwell correspondence supporting Treasury attitude on voluntary purchases of War Bonds - 6/24/42 163 Smith (Director, Budget Bureau) supports advice to refrain from buying consumers goods and services and invest money in Bonds and Stamps - 6/24/42 167 Payroll Savings Plan: Report for May - 6/24/42 170 Issuing Agents: Report for week ending June 20, 1942 - 6/24/42 173 War Department: No high-pressure salesmanship - memorandum on - 6/25/42 346 American Federation of Labor: Report on campaign - 6/25/42 354 Newsreels flown to England given to King and Queen, Chief of Air Staff, and Ministry of Information - - 6/25/42 359 Sales report - 6/25/42 364 Fourth of July HMJr recommends Treasury closing - 6/25/42 305 Freight, Export See Exports - G - General Counsel, Office of Report on projects during April 1942 - 6/24/42 183 Germany Reichsbank's Escudo account with Banco Lisboa y Acores and Banco Espirito Santo (June 24, 1942) 146 (See also Book 544, pages 338 and 339 - 6/30/42) Securities control by June 15 ordinance - White memorandum (June 29, 1942) 262 Casady cable - 6/24/42: See Book 543, page 221 Ginsburg, David (General Counsel, Office of Price Administration) See Inflation - H - Helvering, Guy See Revenue Revision Regraded Unclassified - I - Book Page Inflation Price situation for pork products - Haas (Daggit) memorandum - 6/25/42 542 322 a) Ginsburg (Office of Price Administration)--HMJr conversation - 6/25/42 338 Excessive department store inventories - White memorandum - 6/25/42 377 Inventories See Inflation - K - Keezer, Dexter Unfriendliness toward Treasury - did he influence Lowell Mellett (father-in-law) or vice versa? - 6/25/42 302 - L - Latin America Argentina: Immediate blocking of all imports of dollar currency discussed in cable from American Embassy, Buenos Aires - 6/25/42 400 Bolivia: Proposed Stabilization Agreement with United States - press attacks on - 6/25/42 402 Cuba: Gold Purchase Contract - - White memorandum - 6/24/42 253 Nicaragua: Movement of dollar currency - need for and character of measures restricting discussed in cable from Managua - 6/25/42 413 Paraguay: United States currency movements - cable from Asuncion . 6/25/42 415 Uruguay: United States currency - exclusive right to purchase, sell, etc., conferred upon Bank of the Republic - 6/24/42 272 (See also Book 544, page 340 - 6/30/42) Lend-Lease Report for week ending June 20, 1942 - 6/23/42 93 Liberia Use of Stabilization Fund to solve currency problem - - 6/25/42 393 Liquor Resume'. of States issuing licenses for sale of liquor by the drink - 6/25/42 308 - X - McClintock, Mr. See Financing, Government: War Savings Bonds Mellett, Lowell Unfriendliness toward Treasury - did he influence Dexter Keezer (son-in-law) or vice versa? - 6/25/42.. 302 Regraded Unclassified - M - (Continued) Book Page Military Reports British operations - 6/23/42, etc 542 148,273, 420,422 Kamarck summaries - - 6/24-25/42 274,424 "The War This Week, June 18-25, 1942" - Office of Strategic Services report 426 Mills, Abbot, Jr. HMJr recommende that he be kept with War Savings Bonds staff - 6/25/42. 300,318 Morgenthau, Henry, Jr. Farm: Girls or boys for apple picking discussed with Mrs. Lindheim - 6/25/42 329 - N - Newsreels See Financing, Government: War Savings Bonds Nicaragua See Latin America - 0 - Ohio Cleveland: Bomber fund launched by Cleveland News reported by Schwarz - 6/25/42 353 - P - - Paraguay See Latin America Pork See Inflation Portugal See Germany Post-War Planning Coudenhove-Kalergi, Count R. N: "United States of Europe" - White resume' of study - 6/26/42 96 Powel, Harford Record of accomplishments for 1942 - 6/23/42 44 - R - - Revenue Revision Present law, Treasury proposal, and Committee action - Blough study - 6/23/42 58 FDR to see Doughton with HMJr present - 6/24/42 149 a) Reported to 9:30 group by HMJr - 6/25/42 278 Excess Profits Tax under Revenue Act of 1942 - proposal for post-war credit as made by Robertson - 6/24/42 245 a) Blough memorandum on Ways and Means Committee plan: Book 544, page 138 b) Eccles' reaction to post-war rebate - 7/1/42: Book 545, page 39 c) Currie expresses general agreement: Book 545, page 39 Regraded Unclassified -R- (Continued) Book Page Revenue Revision (Continued) Joint Returns: Reasons for Committee turn-down discussed by 9:30 group - 6/25/42 542 276 Withholding at Source: Helvering report on - 6/25/42.. 368 Robertson, A. Willis (Congressman, Virginia) See Revenue Revision - S - Savings, Compulsory vs. Voluntary See Financing, Government: War Savings Bonds (Leffingwell, R. T.) Smith, Harold D. (Director, Budget Bureau) See Financing, Government: War Savings Bonds - T - Taxation See Revenue Revision Tully, Grace HMJr will provide job for nephew during summer - 6/25/42 312 (See also Book 543, page 78) - U - Uruguay See Latin America - W - War Department See Financing, Government: War Savings Bonds War Savings Bonds See Financing, Government - Y - Yntema, Dwight B. Appointed on Committee on Practice recommended by Gaston - 6/25/42 303 checked June 23, 1942 1 9:08 a.m. Operator: Go ahead. HMJr: Hello. William C. Bullitt: Hello, Henry. HMJr: How are you? B: Fine, how are you, sir? HMJr: I'm alive. B: Good for you. Do you happen to be free for either lunch or dinner? I invite you for both of them, sir. HMJr: Well, that's very sweet of you, but I happen to have guests at both. B: That sounds bad. HMJr: I've got three guests for lunch and two for supper. B: No, it's all wrong. HMJr: What? B: It's all wrong. We must get together some- time. HMJr: I wish we would. B: I'd like to - Henry - I want to let you know that I've taken on a new job anyhow. HMJr: Oh, really? B: Yeah, and I thought I'd like to tell you about it. HMJr: What 1s it? B: Well, it ien't anything but as the work is of the highest conceivable interest, I'm coming over - I'm setting in the Navy at the moment. Regraded Unclassified 2 - 2 - HMJr: Oh. B: Yeah. HMJr: Well? B: And I'm - I'm on some work here which really pleases me intensely because it's direct war work, no more nonsense. HMJr: Oh, that' B: I finally managed to get released yesterday from my noble title of Personal Representative of the President with the rank of Ambassador for All Countries, which is utterly meaning- less since there's not enough work. HMJr: Yeah. B: So I got out of that yesterday, and I'm over here now in the Navy. HMJr: The Navy. B: Yes, sir. HMJr: Well, try me again, Bill. B: Well, Henry, are you going to be - I'd like to drop over and see you for thirty seconds. Or you're probably all tied up all day? HMJr: Well, I tell you today's wicked day but tomorrow isn't. B: Why don't you stop in and have dinner with me tomorrow night? HMJr: Well, Elinor's here with me. B: Well - we - Elinor, of course. HMJr: Elinor's here with me. B: Well, of course Elinor. You don't think I'm inviting you for dinner without Elinor? Regraded Unclassified 3 - 3 - HMJr: Well, could I ask her, then call you back? B: Swell, swell. I'm at the Navy at Extension 61678. HMJr: 6... B: 16... HMJr: 616... B: 78. HMJr: 78...extension, the Navy. B: That's right. HMJr: Ah, I'll speak to Elinor and I'll call you back. B: Fine. You like to dine early, don't you? HMJr: Well, do you call 7:30 early? B: Any time that suits you. HMJr: Quarter of eight? B: I don't care what time we dine - seven-thirty, seven o'clock, any old time. HMJr: Well, I think quarter of eight would be good. B: All right, quarter of eight. HMJr: Does that suit you? B: That's fine. 3030 Cambridge Place. HMJr: 3030 Cambridge Place. B: Yeah. HMJr: I don't know what Elinor has on but I'll ask her. B: That's bully, Henry. HMJr: Thanks. B: So long. Regraded Unclassified 4 June 23, 1942 Lord Halifax called on me and said that after the conversation with me, Oliver Lyttleton wrote notes as to his ideas and he would read from Lyttleton's notes to me. That the information I had given to them at lunch about Monnet, and subsequently through Stopford, they hoped was unofficial and not official, because if it was of- ficial they would have to have like a trial of Monnet. So I said of course it was unofficial. And that Lyttleton had sent for Monnet and very closely interrogated him and, after doing so, had come to the conclusion that Monnet was all right. (f could have forecast this, because I knew they would do nothing about Monnet.) Then he made a remark that irritated me a little bit. He said he hoped that there would be no gossip spread about Monnet. So I said I could assure them there would be hohe here, but I was very sorry that Oliver Lyttleton had seen fit to interview Monnet without first getting my permission, because Monnet would surely know where Lyttleton had gotten his information and that I had gotten this urgent call from Ambassador Bullitt today to have a meal with him and I was confident, now that I knew about Lyttleton interviewing Monnet, that Bullitt's invitation was instigated on behalf of Monnet. Halifax does not always get things straight or his memory does not seem very good, because he said well, I had talked to Hopkins about Monnet; he was sort of worried I might talk to other people. I said "No, you have got that wrong. Lyttleton told me that Hopkins had said that Morgen- thau had suspicions about Brand, but nothing about Monnet." He said that was right. Well, did I have any objections to his talking to Hopkins? I said "None whatsoever." Well, did I think that Hopkins was discreet? So I said, "Well, he's walking around with enough secrets in his head 80 I am sure he must be discreet." (Of course, some of these things that Halifax asked me may not be failing memory, but may have been just Regraded Unclassified 5 -2- trick questions, but I certainly left no doubt in his mind that there would be no leaks here, but if Monnet started talking that there could not help but be leaks.) Well, he was going to send for Monnet and tell him not to talk. Of course, now that Lyttleton has interviewed Monnet, the fat is in the fire. He told me that about a year ago Air Marshal Harris was disturbed about Monnet and complained about it and at that time he had gone around and asked various people and he said that Arthur Purvis had come to the support of Monnet, which surprises me. After all, after Lyttleton told me that he had employed Monnet to negotiate the purchase of some stock of a German metal company, I never for a moment thought that they would do anything about Monnet. So Halifax said, "Well, I suppose in your mind it leaves the thing in an unsatisfactory condition" and I said, "Yes, it does, but," I said, "we are certainly going to con- tinue our investigation and if we find anything concrete I will let you know." What I did not tell him, because I would not tell him anything I did not want repeated, was that we may have & criminal case against Monnet on his tax returns and it will serve these English big business men and high nobility, like Halifax, right if ever, having warned them about Monnet, this criminal case breaks. One thing that Halifax said that amused me -- Air Marshal Harris complained about Monnet because he had not declared himself for De Gaulle, 80 Halifax said, "Well, neither has the United States, which I thought was rather silly. Regraded Unclassified 6 June 23, 1942 9:30 a.m. WAR BONDS Present: Mr. Haas Mr. Tickton H.M.JR: Did you have a chance to read that stuff? MR. TICKTON: Yes, sir, I read these three, Odegard's memorandum and two of Gamble's. H.M.JR: Let me give you a little background. I didn't have a chance to read it, and I am not too hot. I have one of my bad headaches. The thing that took place in this room - I can't remember whether George Haas was here or not, but I said I wanted to stop this pledging business and get a sales business; and I had a hell of a row, one of the worst I have ever had, and Odegard and the other boys and Gamble went out. They said, "We have come back now, Mr. Morgenthau; we have got what you want; we have got a sales campaign. See? They were going to sell. Well, in reading their original memorandum - just summarize it for me - what did Gamble say the new plan was? MR. TICKTON: On that basis there are two important points that he said. One is that an agreement would be obtained that was "tantamount to a firm purchase of Bonds on a regular basis." That phrase goes through each one of these three memoranda, "a firm purchase of Bonds on a regular basis." H.M.JR: Where is that? MR. TICKTON: That is not what you have right now. H.M.JR: This is-- Regraded Unclassified 7 - 2 - MR. TICKTON: This is what he sent you on the twentieth, excerpts from the other one, "for signature to an agreement tantamount to a firm purchase of Bonds on a regular basis. In instances where these persons have bank accounts, this purchase agreement could amount to an order on their bank for the purchase of 'X' bonds." Now, this is the guts of these three memos. H.M.JR: Right here, and none of those things are true? MR. TICKTON: Those things are not true at this moment. Now, down here he says, "Arrangements would be made with the issuing agency to follow up the purchase agreement. In cases where this did not result in a con- summation, a report would be received by the local War Savings office and a call-back would be made." That cannot happen as a result of this present arrangement because each one of those three postal cards that I showed you goes to everybody, whether or not he buys a bond, and there is no record maintained as to whether I actually buy the bond after I sign it. They can't make that record; they haven't made any arrangements to make it. So this sentence here, that is not true, "In cases, and so forth. That is, the present campaign as they have it organized and as they explained it in New York, does not call for this. This sentence is in each of these three memos. H.M.JR: What do you mean, each of the three? MR, TICKTON: That is in each one of the three. H.M.JR: Is it the same? MR. TICKTON: It is the same kind of approach, except Odegard doesn't like house-to-house campaigns; he thinks that is terrible. Regraded Unclassified 8 - 3 - H.M.JR: Well, Odegard said yesterday - did he say that in his memo? MR. TICKTON: He said in his memo that he wants it through the businesses and not house-to-house cam- paigns. He thinks those are the - the Fuller Brush man idea is terrible because people are naturally antago- nistic to Fuller Brush men because of their long experience with them. H.M.JR: Now, how does he explain that, Ted Gamble, that he doesn't do this? MR. TICKTON: He doesn't explain it; he says his New York campaign is a little better than this. He says it is better because he has three follow-ups, but I brought you especially these three follow-ups, because, to my mind, they represent 8. very gentlemanly type of follow-up. They don't dun you; they don't force you into anything. They just say, "We are writing you in connection with these things." They don't say, "You promised to do" thus and so. This is the height of a voluntary campaign. I mean, it is extremely voluntary, so voluntary that all we do is remind you that you signed a pledge; we don't remind you that there is a war on and that, by gosh, you have got to fulfill this pledge. H.M.JR: Now, I am going to have them in in a minute or two. MR. HAAS: I have got one thing which I think is quite important. You probably are thinking about it. In the Senate, if George comes out with this plan of bonds up to fifteen percent, my hunch is that you are going to be seriously questioned again. I would like to see the voluntary program continue because I think it has some extreme advantages in a democracy, that you recognize, but something more of an inducement will have to be put on than salesmanship, it seems to me. I think you should have a counter-proposal ready to meet some of these other proposals that come in. There Regraded Unclassified 9 -4- are several ideas floating around, but they have to be worked down, to be perfected, and I think that if you had Paul - have a committee around the Treasury - I don't want to be chairman of the thing - because, if it is acceptable to you, they will have to put it across up on the Hill. I would just as soon be the devil's advocate, have Paul chairman, and get White in, so you will have an alternative. H.M.JR: Well, don't let's do that this morning. MR. HAAS: I am just giving it to you; I thought you might want to talk to Randolph. H.M.JR: No, but don't let me forget it, but I don't want to get side-tracked on that this morning, because I have got one other thing before I send for these people. Keep after me, because that won't come until we get over to the Senate. MR. HAAS: They need some time - should be working on it. H.M.JR: All right. Will you keep after me? Let's just leave this a minute, and let's go to pay-roll deduction. See? I haven't been following this thing chart-wise as close as I should - see what I mean? MR. TICKTON: I wrote for - you asked Mr. Graves for a memo yesterday afternoon. I wrote it last night. Incidentally, we have some charts in the chart room that I would like to have you take a look at. H.M.JR: On pay-roll deduction? MR. TICKTON: Yes, which you have never had a chance to study, and some new charts on sales which we propose to keep up every day. On pay-roll deductions, I wrote the memo last night. I can tell you what I had in it. The average deduction during the month of May was around nine dollars and nine cents per person. There were approximately-- Regraded Unclassified 10 - 5 - H.M.JR: That is up? MR. TICKTON: It is up - it is moving up. That is, after all, these big campaigns are having some effect on the figures. It takes - I was cautioned to point out, and I will, that there is a lag; that is, the General Motors campaign in the first week in May doesn't show up on the figures until maybe July, because people signed and then after they signed you have got to go through the mechanics of deducting. Sometimes it is two or three weeks before they make the book entries, but be that as it may, you move up slowly. It runs nine, nine, and you have around fourteen million persons who are actually having money deducted, that is, on the average, so that your deductions during the month of May were approximately a hundred twenty-five millions and sales of bonds were something in the neighborhood of ninety- five millions. For the month of June, this current month, it will continue to go up a little bit, and I estimate it will run something in the neighborhood of one hundred fifty million worth of deductions and one hundred twenty-five million worth of bonds. Gamble feels that the sales, increase in the sales - of May over April, should represent more pay-roll deduc- tions than they do. That is, the increase in bonds was only around twenty-five or thirty in May, but there were other increasès in purchases apparently. That is, a lot of other people are becoming interested in this campaign who are not under pay-roll deduction. The maximum number you will probably ever get on pay-roll deduction will probably be between twenty-five and thirty million. In order to get five hundred million dollars, which is Gamble's goal, from thirty million people, you have got to have them deducting seventeen dollars a month apiece, and that, compared with nine dollars and nine cents that we now have, is a long way to go. It has moved up in the last three months. Regraded Unclassified 11 - 6 - H.M.JR: From what? MR. TICKTON: From seven, thirty-one, which we had in February, I guess, to nine dollars and nine cents in May. It will go up probably just as a result of these current campaigns, like General Motors, to ten dollars and some. H.M.JR: How many people three months ago? MR. TICKTON: Three months ago there were around seven or eight million people. The number of people participating has increased rather sharply over this period, but in order to increase the deductions, you see, everybody has got to take out at this higher rate; and as new people come in, they take out primarily at a lower rate. That is, your new people are your lower- paid working class who come in, but instead of taking off ten dollars apiece they only take. off four or five apiece. There are a great many non-defense industries, people who have not gotten the benefit of higher wages yet, and those people are not deducting anywhere near ten dollars. For instance, take banks - I get a lot of reports from banks, and I find they average four or five dollars apiece. H.M.JR: You mean bank clerks? MR. TICKTON: Take Mr. Madden's bank - they average five dollars apiece. H.M.JR: Well, take a shipbuilding company. MR. TICKTON: Shipbuilding companies are averaging twelve and fifteen dollars apiece, but there aren't enough people in the shipbuilding companies that are taking out fifteen dollars apiece to-- H.M.JR: I think we ought to show this to get the good and bad points. I think we ought to show this somewhat by industry. We ought to show that for the Regraded Unclassified 12 - 7 - country fourteen million people are doing nine dollars plus, but I think to show in the shipbuilding so much, airplane so much-- MR. TICKTON: I sent you three tables last month that had shipbuilding in one, airplane in another, and I don't know the third - railroads was the third. Railroads, for instance, are down. Railroads have not witnessed any increase in wages to speak of. They had this three hundred million, but it doesn't amount to very much. H.M.JR: I think the President would be very much interested if you did it by industry because the thing that everybody wants is to be sure that these full war- time industries who have these big increases are coming along. I think, for instance, another group - I think what the Navy Yards are doing - does that show up at all, the Navy, civilians? MR. TICKTON: The Navy shows up - we get special reports from Commander Eubank that show what his people are doing. That is, he has a monthly report. The trouble is, it is kind of late. H.M.JR: Is he over in the Treasury? MR. TICKTON: He is in the Treasury; he is down in Gamble's old office. I met him on the street this morning and asked him when he was going to give me some reports on what the Government employees were doing, but as you know, the Government employees are relatively behind. That is, the Treasury plan is in full operation, but you can't say as much for, say, Commerce or Interior or any of the other departments. They aren't in operation. That is, I think it is only the Army, the Navy, the Treasury, and there was Works Progress and FDIC the last time I heard, that had plans in full operation. H.M.JR: That is terrible. Regraded Unclassified 13 - 8 - (Following record taken in the chart room.) MR. TICKTON: This is a daily chart on Savings Bonds, and it shows the quota. (Chart entitled "All Series War Savings Bonds, Cumulative Daily Quotas and Sales, June 1st to Date".) This is up through Saturday, by Federal Reserve Districts. This is the quota, and this is what they sold (indicating). In other words, this is the daily quota adjusted each day, moves for- ward each day, and there is the sales. This is how far they have to go. I hoped to have this for you last week when some of these districts were ahead of their quota, but time marched on and the sales didn't. H.M.JR: Which is blue? MR. TICKTON: Blue is quota; red is sales. The only geographic breakdown we can get conveniently during the month is Federal Reserve Districts. You can get a very good idea because the important ones are relatively concentrated. This is all series. New York, quota up through the twentieth, one hundred and twenty-five million, and their sales, eighty million. This is on all series. Richmond and Atlanta are right on the quota, and the reason for Richmond, I can explain, is because of the Navy Yard at Norfolk; and Atlanta because they have a small quota. They are doing all right down there. This is all series here. Chicago is ahead because of the Detroit operation. Frank Isbey's crowd in Detroit and the Detroit high wages are combining to give you progress in Chicago. Total down here is, quota, five hundred and some million, and your sales are four hundred and some. Now, on that side you have E and on that side you have F and G, and you can follow right along. There is Boston on top. Regraded Unclassified 14 - 9 - On E, here again New York is down and Chicago is far ahead. The fact that Chicago is ahead over here is due entirely to this E situation, because when you come over here Chicago is behind on F and G, like everybody else. Everybody is behind on F and G. On E San Francisco is behind. That is, the shipyards on the West Coast and the airplane companies have not brought sales this month up ahead of the quota. In the San Francisco area it should have brought them ahead of quota because those same shipyards were there last year, and we based this quota on their operations last year. Now, the theory of this chart is that every day we bring it up to date. It is one day later than the sales figures you get now because it has to be broken down, but at any time that the situation changes - that is, if this quota should move forward this far and sales stay still, of course your relative position would change. The New York figure here and there and there, all three, represents the New York State, one county in Connecticut, and a few counties in northern New Jersey; but it is primarily New York. MR. HAAS: On F and G, Dallas is ahead, and St. Louis is about even; Atlanta is 8. little ahead. MR. TICKTON: When you get into big money they fall behind. H.M.JR: What is this? MR. TICKTON: With all the operations in the various States, this still points out there are a lot of firms who don't have the pay-roll savings plan. (Indicating charts entitled "Progress of Payroll Savings Plans for War Savings Bonds" and "Payroll Savings Plans for War Savings Bonds, by States".) Regraded Unclassified 15 - 10 - They have relatively a small proportion of the employees; that is, there are this many firms and this number of employees, but still throughout there are a lot of firms in this country that don't have pay-roll savings. It is mostly small firms, but it is those firms that you can't reach through your big firms; in other words, these restaurants and dry goods stores, and what not, they have lots of employees. These (indicating) are between a hundred and five hundred. Some of those employees are trying to get in on this pledge campaign. MR. HAAS: There you can see the summary. MR. TICKTON: That is the summary (indicating). Each State has a bar, and the gray part of the bar shows those that don't have the plan. This is only firms over a hundred. H.M.JR: What is the gray? MR. TICKTON: The gray means those that don't have the plan. That is number of firms. H.M.JR: What is that again? MR. TICKTON: Do have the plan; don't have the plan (indicating). MR. HAAS: Mr. Secretary, the theory is the panel number is given there. This is really an index. For Alabama, you look at panel five - they are all numbered. H.M.JR: Well, I think the thing is that I would like to get, if you could, in here some charts, so I could study them with you. We hav e lots of room. I want the charts by industries. MR. TICKTON: By industries, all right. H.M.JR: And then as against that-- Regraded Unclassified 16 - 11 - MR. HAAS: You want the percent. H.M.JR: No, I would like to show the industries which in the last year have gotten the biggest in- creases in wages. For instance, I don't think steel has got the dollar increase. MR. TICKTON: Some of the others have. H.M.JR: Let's go back over the twelve months, would you, or six months - what would you go back? MR. TICKTON: A lot of them only six months because they will be converted. H.M.JR: I think if you started on the first of January, who has gotten the big increase in wages. Well then, if you could do this - I mean, you can just take wage increases by the important industries. Then I can say, "All right, Harold, here somebody has the most; quit fooling around with" - well, some industry, railroads - "quit fooling around with that industry but concentrate on airplanes", if that is a high-wage industry. MR. TICKTON: It is, but the trouble is that the airplane companies are doing relatively good compared with the railroads, who are only contributing four dollars apiece. H.M.JR: Now, wait a minute, I have got to go before a committee and say, "Now, look, gentlemen, you say there is inflation and you want to reach the people who have got the greatest increase in wages. Those people can afford it the most. Now we have concentrated on it, and that is where we started. We do it in the order of the people who have got the increases. Here is an industry which has the most. That is number one. This is the way we are going to work, and the industry that has gotten the greatest increase in wages we have gotten." 17 - 12 - Now, what have we done in that industry? Then we go to the bottom - the sharecroppers are at the bottom, or something else. But I mean I go to the President - I am thinking out loud. If I could say, "Now, Harold", the way he says there are ten States that have got sixty percent of the thing - but if I could show and direct him, that the industry that gets the highest increase in wages we go after first on the pay-roll thing. I need some figures, and I ought to have - I mean, give me the figures first and the charts after- wards. MR. TICKTON: That is right. H.M.JR: Will you add that? Don't you think that is a very good point? MR. HAAS: I get it. In other words, you have to work up a brief on it, and that is the progress you are making. 18 It is recommended that, in all States where the Pledge Case paign has not been started we abandon this activity as such; that the utilise the organizations that have been conceived for this work wherever practical to solicit all of the remaining 16,500,000 people (except in the armed forces) for signature to an agreement tantamount to a firm purchase of Bonds on a regular basis. In instances where these persons have bank accounts, this purchase agreement could amount to an order on their bank for the purchase of "I" bonds. In other instances, and it is believed that the higher percentage of them will not have bank accounts, it is suge gested that these persons indicate the issuing agency that they prefer to use for the purchase of their Bonds. This would be any one of the following: banks, post offices, building and loan and savings and loan associations, investment banks, insurance companies, pay stations, etc. These orders would be signed in triplicate; the original going to the issuing agency so designated by the signed order, a copy remaining with the signer, and the third copy to the War Savings Staff. "Arrangements would be mãe with the issuing agency to follow up the purchase agreement. In cases where this did not result in a consumation, & report would be received by the local Mar Savings office and a call=back would be made. Where the pledge organisation as such would not be avail- able or practical for this work or where the Pledge Campaign had been completed, our War Savings Committees would be extended for Regraded Unclassified 19 - 2 - this solicitation. Such extension would provide for workers rep= resentative of these groups to take care of the actual contact. The farmers would be reached through the U. S. Department of Agriculture Local War Boards, AAA, Dairy Associations, etc., professional groups through medical associations, teachers' unions, dental associations, etc., self employed and small firms through retailer groups, commercial clubs, salesmen, delivery men, etc.; dividend groups through American Institute of Banking, etce 20 June 23, 1942 10:00 a.m. WAR BONDS Present: Mr. Graves Mr. Kuhn Mr. Odegard Mr. Gamble Mr. Haas Mr. Tickton Mrs. Klotz H.M.JR: There are two things that I wanted to talk to you about quietly. Could I have this thing that you studied for me last night? (Memorandum handed to the Secretary by Mr. Tickton.) That is this, to go back again to the New York pledge campaign - I mean, I am not trying to make a record, but I do have to - I can't be following through every single minute, and it is important from my standpoint, what did you people recommend to me, and then where we are at. The original recommendation - I had Tickton go through this thing. It is Gamble's, I understand, and is more or less the same thing as Odegard's. The recommendation: "wherever practical to solicit all of the remaining 16,500,000 people for signature to an agreement tantamount to a firm pur- chase of Bonds on a regular basis. In instances where these persons" - that is "tantamount to a firm purchase of Bonds on a regular basis." No one would call New York pledge campaign that. I don't, at least. I don't think you do, do you? MR. GAMBLE: Well, with some reservation I do. Regraded Unclassified 21 - 2 - H.M.JR: With great reservation. "In instances where these persons have bank accounts, this purchase agreement could amount to an order on their bank for the purchase of 'X' bonds.' Well, there is no such thing, and the follow-up cards, these three follow-up cards - just let me run through what I have in mind - very wishy-washy, just slap a person on the wrist, and so on and so forth. Finally, "In cases where this did not result in a consummation, a report would be received by the local War Savings office and a call-back would be made." Of course that isn't included, either. So the conclusion that I arrive at, very quietly, is that the things that we set out to do in this memorandum, and I think Odegard's was more or less the same except that he didn't want a house-to-house campaign, we haven't accomplished and won't accomplish in the two weeks. Now, what are we going to do about it? The thing that I think that we ought to do - I see by the papers they are going to be through Sunday - is to tell Madden - I don't know just how to do this - that what he had in mind, what he set out to do, he has done very well, but this isn't where I want to leave it. It isn't what I have in mind, and what I would like to try to do with these millions of pledges that we have there is to convert them into sales, you see. So therefore, I mean, if we had accomplished in New York what is in this memorandum it would be fine; but we haven't. At least I don't think we have. I think we are a long way from it. So these block tests that I asked for yesterday, I think they are more important than ever, and I am not - until I get those block tests I will sit back and wait, but the sooner we can get those the better. MR. GAMBLE: Madden wants to do them next week. His reasoning, I think, is very good. He says that, Regraded Unclassified 22 - 3 - in the first place, as a date to give all their Minute Men - he sent the information down this morning - they set July 1 as the standard date for people to say they will begin to pledge - "on July the 1st, we pledge, beginning then," to do certain things. He says he would prefer to do it because he wants to get - if he is going to do it he wants to get a good reaction. H.M.JR: That is fair. MR. GAMBLE: He says, in addition to that, that he would like to not have a crew out until after the campaign is ended, which will be Sunday night. So I think that is reasonable. H.M.JR: I concede that. MR. GAMBLE: So he is willing to do that. He is willing to make the test. He sent down some information which I wish you would take the time, so long as you have gone into this so thoroughly . - I wish you would take the time to go through this because I still think we have missed a great point. I don't think it is possible for anyone with a three or four days' exposure to make the statement to you or give you a report that it is just a casual effort to get people to say what they are going to do, because it is much more than that. Here is the correspondence between the clearing house association and the banks. H.M.JR: Do you mind working on Tickton? MR. GAMBLE: I would be very happy to have you give me the opportunity to work with Mr. Tickton for half a day. I don't think you are getting the whole story from New York. H.M.JR: Tickton is available for the rest of the day, and I will say this for him - I mean, after all, he went up against Bob Patterson, Lew Douglas, General Somervell, and that whole crowd, plus the shipping and forwarding agencies for the Russian 23 - 4 - Government, the Russian purchasing agents, the railroad people, and when he got through - everybody started saying it wasn't so, and when he got through they had to admit that his facts were correct. So I mean he is not a prejudiced person. MR. GAMBLE: I understand that, sir. H.M.JR: And I think it is safe to say that both he and George want to see this thing succeed. Now, all he is doing - these people are here to analyze, and I gave him the stuff to read last night - this is your impression, too, isn't it, George? MR. HAAS: Sir? H.M.JR: I mean, you don't differ from Tickton? MR. HAAS: No, sir, based on his report. H.M.JR: I mean, Tickton is available for the rest of th e day, so work on him. MR. GAMBLE: Fine. H.M.JR: And see what happens. Now, is that-- MR. GAMBLE: That is not quite all. I have one other point I don't think you have gotten from that, and it apparently hasn't been given to you. The sixteen and a half million people - if we approach. it, Mr. Secretary, the New York campaign, on the basis of reaching just their percentage of that sixteen and a half million people, it would be much easier to follow it up. There was nothing to stop us from confining the follow-up to the banks, but when we decided to canvass everyone in New York we didn't apply all of the things that are in that memorandum. If we were just contacting the doctors, the lawyers, the dentists, the self-employed, it would be a very simple thing to confine this follow-up to the banks and to those people. Regraded Unclassified 24 - 5 - H.M.JR: But, you see, Ted, where I am terribly disappointed - what I asked you people to do was to get an order blank, when they sign this thing - now just confine it to the banks and do it as an order, you see. In this thing you say, "In instances where these persons have bank accounts, this purchase agree- ment could amount to an order on their bank for the purchase of 'X' bonds." That isn't true. MR. GAMBLE: Well, it isn't technically, that is correct, Mr. Secretary, but-- H.M.JR: Morally or ethically or any other way. MR. GAMBIE : I can't agree with that. H.M.JR: But the impression I got was that where a man had a bank account these people you talked about would have a piece of paper, a blank check, which he would execute on his bank. MR. GAMBLE: Mr. Secretary, you see, you are making too much of a technical point of this, and I submit this to Mr. Tickton and Mr. Haas, if you sign one of these yourself and turn it over to the bank in Beacon, New York, you as Henry Morgenthau, Jr., are going to purchase one seventy-five dollar bond every month and you have a bank account in that bank, what do you think is going to happen? MR. HAAS: Nothing. MR. GAMBLE: That is not true. MR. HAAS: They won't take it out. MR. GAMBLE: They will do this. The bank may ask you to sign another card; in all probability they will. To say that nothing is going to happen after every bank in New York City has said something is going to happen I don't think is fair. Regraded Unclassified 25 - 6 - H.M.JR: Ted, I am quiet. Don't get me excited, see. MRS. KLOTZ: It is his turn now. H.M.JR: I am not going to let him get excited because we are in a situation and I want to convert the very fine work that Mr. Madden has done into cash, and I want everybody in this room to help. MR. GAMBLE: To help you do it, that is right. MR. ODEGARD: Mr. Secretary, could I make just one comment? H.M.JR: We have got a situation which, right or wrong, I feel, as it is today, is not convertible into cash. Now, I want to get the brains that we have here, which are good brains, and convert that thing into cash; and we have got to do something different. That is all. Mr. Odegard. MR. ODEGARD: The only point I had - when you talk about a bank draft plan, it would be, I imagine, a comparatively simple thing for the banks to solicit, on a house-to-house or any other basis, the people who have bank accounts, and for whom a bank draft plan has a meaning. But for the overwhelming majority of the people who are covered in this house-to-house canvass in New York, a bank draft plan is quite impractical. They have no bank accounts. One of the reasons the banks are tremendously interested in this house-to-house canvass is because they see in it - and this isn't a criticism of the banks, merely a statement of fact - I think they see in this an opportunity to increase the number of their accounts. It is one thing to solicit people who have bank accounts and who can sign an order on the bank; it is Regraded Unclassified 26 - 7 - quite another thing to solicit hundreds of thousands of people who have no such accounts. H.M.JR: Peter, I agree with you a hundred percent, see, but I mean, in this thing where it is impossible - after all, this is one of a half a dozen important phases I have got in the Treasury. It isn't the only one. So therefore I have got to rely on you people when you give me a written memorandum; I have got to refer back to it and see where have we differed. Now, just to talk to your particular point, here is a sentence, "In instances where these persons have bank accounts, this purchase agreement could amount to an order on their bank for the purchase of 'X' bonds." MR. GAMBLE: And it does, Mr. Secretary, and for anyone to say that it doesn't, it is saying that the banks in New York - that everything they have told us is wrong. H.M.JR: We are not talking about Oregon. MR. GAMBLE: I am talking about New York. H.M.JR: Well, the proof of the pudding is the eating. MR. GAMBLE: That is correct, and we are now guessing what is going to happen. H.M.JR: What I want you to do is to get mad at the people up in New York and not at me. (Laughter) Get mad about this thing and about what the heck are we going to do with all this paper work, how are we going to do it - get mad at this thing. Let's be realists about the thing. If I am too pessimistic, fine, but I have got to be shown. MR. GAMBLE: I don't think it is pessimism. We have been jockeyed into a position here where we are defending - We have been put on the defensive of a Regraded Unclassified 27 - 8 - very fine piece of work that they have done in New York, and I don't think it should be discounted. When they have gone out and made arrangements with the banks in New York to open these victory fund accounts-- H.M.JR: I think you should be on the defensive until I am proven wrong or you are proven right. MR. GAMBLE: I am willing to be on the defensive with you, but I don't think the New York organization ought to feel this program amounts to nothing. H.M.JR: Were you here when I talked with Mr. Madden? MR. GAMBLE: Yes, sir. H.M.JR: Did you hear what I said to him about congratulations? There has been no other communication between Mr. Madden and me. I have been very careful. MR. GAMBLE: I know that; I didn't mean that. I don't think we should be belittling what is going on there. H.M.JR: No, I am not. I am just trying to be realistic, that is all. I have had the only com- munication I had with Mr. Madden - didn't I give you a copy of it? MR. GAMBLE: No. H.M.JR: You read it, or you were in the room, weren't you? There was nothing in that except en- couragement and appreciation, and in my conversation with him, and I have had no other communication with him and don't intend to. So what we are talking about, again, is we have got a situation up there where we have done this job, Regraded Unclassified 28 - 9 - and what I want is to see you people put the thing into cash. Now, I agreed with you that if out of this thing - - as a matter of fact, if the banks get "X" thousands of new accounts that would spread like wildfire, and it would be the best thing that could happen to the bankers in the country. Then they will say, "Maybe there is something in this for us and, after all, it isn't just a headache." I hope that they do get thousands of accounts because, again, it is an argu- ment which I want to put in my presentation, that we are creating a new class of savers. Now, unless Harold has got something to say on this I would like to go on to something else. MR. GRAVES: No. H.M.JR: Now, Harold, again looking forward to good and bad points of this thing, some time I want, in the next day or two - we have talked about having people under you who would concentrate on pay-roll deduction. You brought in a man and I have never met him. He has been here about two months; I think it is time I met him. I got this idea this morning, and I have asked Tickton to prepare this for me; a criticism could be leveled at us on this thing, that the people who are getting the greatest increase in wages are not being reached, and that would be a severe criticism. Therefore, I have asked Tickton to go back over six months, or twelve months, whatever is good, and find out from the Department of Labor, or some place, which particular industries have gotten the greatest increases; and then after he has gotten that he is going to arrange it statistically for you and me. Industry number one will be the industry that has gotten the greatest number of increases. Then after Regraded Unclassified 29 - 10 - talking it over, my idea is we would concentrate on that industry first to bring that industry up in its per weekly or per monthly deduction. Now, he tells me, which I think is vory interest- ing, that, for instance, the railroads have not gotten their increases - this thing is going to be very en- lightening to everybody, that the railroads, that their stuff-- MR. TICKTON: The railroads have a relatively low deduction. H:M.JR: About four dollars. MR. TICKTON: Four or five dollars. H.M.JR: They haven't gotten their increases. Now, when I say to him, "What has happened in the airplane industry", he doesn't just off-hand know; what has happened in the shipbuilding industry he doesn't off- hand know. But I thought it would be distinctly worth while, because if I could go to the President or Congress or the public and say, you see, "Now, talking in terms of hourly wages and what they are talking, rather than in terms of the whole country, as of today there are fourteen million people deducting on an average of, a month, nine dollars plus.' Now, the amount of people come up, and the amount of dollars; but it might be very misleading. In the first place, the railroads pull it down. On the other hand, what is Detroit doing? Now, if we are very good in Detroit, I would be simply delighted, and I think that this plan, even though we go way below our quotas, if the people getting & dollar and a half or two dollars are making their ten percent of that two dollars it would bring in - well, to me, anyway, it would be an eye opener. Then we could answer some people like Mr. Wallace, "When you are only getting nine dollars that is very low, but look, Henry Wallace, a million and a half of Regraded Unclassified 30 - 11 - those are railroad workers, with no increase the last year, and they are only getting four dollars, and that is what pulls the thing down.' Maybe everybody else has thought of this, but to me it is a discovery, a new idea. I mean, it is a new method of presenting this thing. To me it is new. What? MR. GRAVES: I think Mr. Tickton has done some- thing like this before, railroads and shipping. MR. T ICKTON: The shipbuilding and the airplane we did before. H.M. JR: And the doubting Thomases, I think if by good luck we found that the fellows with big in- creases were making their ten percent it would be awfully good selling, Harold, and if in some cases we find we are not and I can sell this crowd on it, then I can say to you now, "All right, let's start with number one, which has gotten the biggest increase; let's go after that." What do you think, Harold? MR. GRAVES: I think that is very good, a guide to our operation. H.M.JR: Don't you think it would be very helpful towards the public? MR. ODEGARD: It is very good because it gives a more realistic approach. MR. GRAVES: Of course there is one thing Mr. Tickton will find, that in certain industries we were very slow and late getting started. I was thinking of shipbuilding particularly where your showing is going to be low as of the present time, where prospectively it is undoubtedly going to be very high. 31 - 12 - MR. TICKTON: That is right. H.M.JR: Well, each of those things could be weighed. MR. GRAVES: That is right. I think it would be very helpful to have that. H.M. JR: And you might take what Odegard was saying yesterday. He was saying to do it by classi- fications. Well, we would even go further. We break that down more. Now, Chicago, the Federal Reserve District is either up to or ahead of its quota on account of Detroit, and Richmond is ahead of its quota on account of the shipbuilding yards at Norfolk. So I think we have got - how soon do you think you could have something along these lines? MR. TICKTON: We will have it this week. H.M.R: Does anybody question the philosophy of this thinking? MR. KUHN: You remember that in the surveys that Likert made for us all a round the country he found that one of the real grouches against pay-roll savings was that the people that had the increases weren't putting aside commensurately with the higher income they were receiving, and it was one of the few kicks against our whole program in the minds of workers. H.M.JR: Well, I had that in mind. Now, I have got one other thing and one last thing, Harold. I haven't had a chance to see your Admiral, but I am disappointed that the work among Government employees isn't going along faster. Now, we have done a beautiful job in the Treasury so we can say we have shown you how to do it. See? And I think that the next move that We should make would be to start with the Chief Executive. I spoke to the President several Regraded Unclassified 32 - 13 - weeks ago, and I told you he would be very glad to have the people go over and come right into his office. I don't know whether - I would like to take the White House next, you see, and I think it would be very helpful, and then having the President - if he has done it, by golly everybody else is going to have to do it. MR. KUHN: OEM, Budget, all those people. H.M.JR: The whole group around him, and I think for the country it would be awfully good. Of course the President said to start with Grace Tully, but I think General Watson - I think if we would start with Grace Tully and the chief clerk-- MRS. KLOTZ: Foster. H.M.JR: That between the two of them they would get everybody, and then from there branch out into everything which hooks into the President, you see. I think the effect on the country would be very good, and I know that if the President at the White House has done it and I went to him and said, "Well, Mr. President, you look wonderful, the White House is wonderful, but I can't get the Bureau of the Budget to come across, I can't get OEM to come across", he will put the pressure on. I think there is just something that is lacking towards the country, that the White House, from there down, Chief Executive, has not been done. I don't know what comes next, but could that be done? MR. GRAVES: Yes, I think it could. As a matter of fact, I think that the Admiral's committee has been waiting on this Treasury program, and now they are ready to go, as I understand, with the same program - an exact duplicate of the Treasury program is to be installed now in every one of the depart- ments of the Government. Regraded Unclassified 33 - 14 - We had to work out a kind of technique for this thing, promotion material, posters, and so on. That is,all right. MR. GAMBLE: They started this week with Agriculture and Interior. MR. GRAVES: You would like us to kind of shift over to the group directly under the President? H.M.JR: Definitely, starting with the people immediately in the White House. MR. KUHN: I think the Admiral has been wanting to do that. H.M.JR: And, incidentally, the man over there who has always been sold on this thing and has said so publicly more than anyone else is Stephen Early. Now, between Foster and Stephen Early and Grace Tully you will get this thing. Stephen Early has been one of the best backers we have had, and the reason is on account of his boy. His boy has been a big investor. He has graduated and earning a little money, and every dollar he has had he has put into War Bonds, and he has really liked our publicity. So I really would like - and then the other thing - now, for instance, just to show you, they sent over the coordinator from Atlanta, on the alcohol tax-- MR. GRAVES: Dave Harrington. H.M.JR: He is a friend of yours. MR. GRAVES: Yes, he is. H.M.JR: He said, "Now, Mr. Morgenthau, do you mind if I talk shop with you a minute?" I said, "No." He said, "I would like to tell you I have two hundred and fifty employees that I am responsible for, and Regraded Unclassified 34 - 15 - we have gone twenty-five percent over on the dollar", and then he said, "And may I again thank you for what you did for our boys eight years ago against Senator McKellar. This is our chance after eight years to come back and show you." I thought that was very nice. And the other thing - well, you people aren't interested - but anyway he said, "This is our chance to show our appreciation; you looked after us." That was seven or eight years ago. So I mean it is a nice feeling, and he seemed like a nice man. I would like to direct this thing that way. I will keep talking until Mr. Davis comes. I see the State of Pennsylvania came through ninety percent. MR. KUHN: The State treasurer's office has sai a they have not only come through ninety percent but they had done a hundred and could they get an auto- graphed certificate from the Secretary on it. H.M.JR: If that is the first State, even though it has a Republican governor and a bad one, what about sending telegrams to the other forty-seven governors, "How about doing as well as Pennsylvania?" If that is the first one, Harold, will you make a note on it? Let's go after the other governors. MR. KUHN: It may not be the first one. It may only be the first one we have heard about. H.M.JR: Let's go after the other governors. MR. KUHN: The Governors' Conference is on now. We might do it that way. Regraded Unclassified 35 It is recommended that, in all States where the Pledge Cam- paign has not been started we abandon this activity as such; that we utilize the organizations that have been conceived for this work wherever practical to solicit all of the remaining 16,500,000 people (except in the armed forces) for signature to an agreement tantamount to a firm purchase of Bonds on a regular basis. In instances where these persons have bank accounts, this purchase agreement could amount to an order on their bank for the purchase of "X" bonds. In other instances, and it is believed that the higher percentage of them will not have bank accounts, it is sug- gested that these persons indicate the issuing agency that they prefer to use for the purchase of their Bonds. This would be any one of the following: banks, post offices, building and loan and savings and loan associations, investment banks, insurance companies, pay stations, etc. These orders would be signed in triplicate; the original going to the issuing agency so designated by the signed order, a copy remaining with the signer, and the third copy to the War Savings Staff. Arrangements would be made with the issuing agency to follow up the purchase agreement. In cases where this did not result in a consummation, a report would be received by the local War Savings office and a call-back would be made. Where the pledge organization as such would not be avail- able or practical for this work or where the Pledge Campaign had been completed, our War Savings Committees would be extended for Regraded Unclassified 36 - 2 - this solicitation. Such extension would provide for workers rep- resentative of these groups to take care of the actual contact. The farmers would be reached through the U. S. Department of Agriculture Local War Boards, AAA, Dairy Associations, etc.; professional groups through medical associations, teachers' unions, dental associations, etc.; self employed and small firms through retailer groups, commercial clubs, salesmen, delivery men, etc.; dividend groups through American Institute of Banking, etc. Regraded Unclassified 37 June 23, 1942 11:58 a.m. HMJr: What Walter Stewart said was that they started talking about excess reserves, see. Daniel Bell: Uh huh. HMJr: Then the next thing he says, Eccles said, "Well, the next meeting will be over at the Federal Reserve in connection with financing." So Stewart said, "If they're going to talk financing, why the hell shouldn't they talk about it in the Treasury?" B: (Laughs) HMJr: And he said he wasn't going to go over. He said, "I'm not going over to the Federal Reserve to talk about Treasury problems.' He said, "I'm always available at the Treasury to talk about Treasury problems or Federal Reserve,' but he said, "I'm not going to go over to the Federal Reserve, Il and he said, "They're just inching in on you. And he said, "It's not an accident." He said, "They very carefully think that out over there.' So I just thought I'd pass it along to you. B: Yeah, he told me that. HMJr: He told you the same thing? B: Yeah. HMJr: Okay. B: Well, I don't feel quite that way about it, because we have switched these conferences. HMJr: Well, I don' t B: Before Eccles comes over here, and now we go over there. HMJr: Well, I think both you and I are a couple of innocents. At least I am, anyway, talking for myself. Regraded Unclassified 38 - 2 - B: Well, I think we've got to keep our eye on them, but. HMJr: I say, talking for myself, but Walter's Just a little friendly warning, and I'd keep it in mind. B: Yeah. Well, I've been watching that, but I try to kind of - I don't like to be so uppish and say, "Well, you come over and see us," all the time, because maybe we're on top of the heap; and I feel that we ought to go over there once in awhile. HMJr: Well, as long as you have it in mind, okay. B: Yes, I have. And this conference probably isn't going to amount to a lot - it's a talk fest - but I think we ought to kind of keep them going, don't you? HMJr: That's right. B: Keep them in good humor. HMJr: That's right. B: And rock along a little. HMJr: All right. B: Even though we have to spend the time. HMJr: Thank you. B: All right. Regraded Unclassified 39 June 23, 1942 2:55 p.m. HMJr: Hello. Operator: Miss Tully. Go ahead. HMJr: Hello. Grace Tully: How do you do, Mr. Secretary. How are you, sir? HMJr: How do you do, Miss Tully. How are you? T: Very well indeed, sir. Thank you. HMJr: I'm surprised you'd talk to me. I'm neither a Prince nor a King nor a Princess. T: (Laughs) You're not a Princess? Oh, I thought you were a Princess. (Laughs) HMJr: I hope you don't mind slumming for a minute. T: (Laughs) oh, dear. HMJr: Oh, dear, is right. T: Yeah, exactly. HMJr: Yeah. Listen, I got this memo about Keith Morgan and his idea. T: Yeah. HMJr: Now our people communicated with him T: Uh huh. HMJr: that we were chuck-a-block full for July, and that on the seventeenth - he suggested the fourteenth - all the retail stores, that is, one in each county all over the United States, are putting aside 8. day for us, see. T: Yes. HMJr: So we've got about all that we can swing. Regraded Unclassified 40 - 2 - T: I see. HMJr: We've communicated that to him. T: Well, that's all right, as long as he knows that it was referred where it should have been referred, of course. HMJr: And - I don't have to answer the President beyond that, do I? T: I don't think so, no. It just says, "Let Keith know what you think of it, and if you " HMJr: His memo didn't call - the President's memo didn't call for a direct answer. It just asked me to get in touch with Keith. T: That's right. HMJr: Well, I didn't know how much T: He just - he got this idea and thought it was a pretty good one, and just telephoned it, you see, and said, "Ask the boss what he thinks about it," and said it could be got up very quickly etc., etc., and 80 I made a memo for the President and he said to send it over to you and tell you to get in touch with him. HMJr: Well - and aside everything else, our people over here don't think that the people of the United States are going to get very much excited about "Bastille Day". T: Uh huh. Well, not in view of Laval's speech. (Laughs) After the statement yesterday, I think less. HMJr: Yeah. T: Although we don't blame the French people for that, of course. HMJr: No, no. T: But there are some skunks among them, and you Regraded Unclassified 41 - 3 - can't very well come out and say, "Let's do - let's go all-out for them," with a person like Laval there. HMJr: I hear that Peter's in the ice-box until five o'clock. T: (Laughs) Yeah. I wish they were all in the ice-box to tell you the truth. HMJr: Yeah. Okay. T: Oh. It's something. HMJr: I'll bet you. T: Grand. HMJr: Good-bye. T: All right. Good-bye, Mr. Secretary. 42 June 23, 1942 3:35 p.m. HMJr: Hello. Colonel Harrison: This 18 Colonel Harrison, Mr. Secretary. HMJr: Oh, yes. Colonel Harrison, a responsible person has told me that in the Army they line up the soldiers and make them subscribe to our War Bonds. Hello. H: Yes, sir. HMJr: Those that subscribe they put on one side, and those that don't on another. Now, you remember when I came over to make that talk with Mr. Stimson - hello. H: Yes, I'm listening. HMJr: I suggested that we do not direct our efforts to the enlisted man, but direct it against - towards the civilians in the Army. H: Yes. HMJr: And I would like to recuest that your Inspector General check up on this to find out whether this pressure is being put on the privates or not. H: Yes, I'll have that done. HMJr: Because I'm disturbed, because I'm the fellow that'll get the blame. H: Yes. HMJr: And I don't want it, you see. H: Well, sir, there might be an isolated case where one company commander was trying to make a big record and he might do something like that, but we'll check on it and see. HMJr: Would you have it checked up? Regraded Unclassified 43 - 2 - H: Yes, sir, I will. HMJr: And within a reasonable time let me know? H: Yes, sir, I'll do that. HMJr: Thank you 80 much. H: Yes, sir. 44 TREASURY department WASHINGTON June 23, 1942 MEMORANDUM FOR THE SECRETARY: Apropos of your inquiry yesterday, I attach a memorandum from Mr. Sloan, dated May 21, re- garding Mr. Powel's work for the War Savings Staff. A GRAVES. DEFENSE BUY UNITED STATES BAVINGS BONDS AND TAMPS Regraded Unclassified 45 TREASURY department WASHINGTON DEFENSE SAVINGS STAFF May 21, 1942 MEMORANDUM FOR MR. GRAVES: For the record, I call attention to the following accomplishments of Harford Powel this year, 1942: 1. He is the best letter writer on the Staff and prepares hundreds of letters for my signature, yours and others. 2. He is our ablest speaker and has made outstanding talks before bankers, brokers, investment dealers, women's clubs, retailers, in New York, Chicago, Cleveland, Houston, Topeka, New Orleans, etc. 3. He worked out Christmas cards to be sold by the greeting card industry in the millions. 4. He worked out the July issue use of the American Flag on covers of all magazines. 5. He created, designed and now supervises each issue of the "Minute Man", regular publica- tion of the Field Division. 6. He has assisted writers in preparation of magazine articles on War Savings Bonds. 7. He interviews many people with ideas and suggestions and works out the worthy ones. 8. He carries on a voluminous correspondence with advertising and publicity men, fur- nishing ideas and suggestions, many of his suggestions have been developed and been superb aid to our campaign. 9. Finally, he is a most accommodating person willing to help anybody on our Staff in any possible way. He is an experienced and capable adviser to me on many problems which DEFENSE come to us every day. BUY UNITED STATES LAVINGS BONDS RMN EWS. EWS Regraded Unclassified Sales of United States Savings 46 Bonds CONFIDENTIAL From June 1 through June 22, 1942 Compared with Sales Quota for Same Period (At issue price in millions of dollars) : Series E # Series I and G : Total : Actual Sales : Quota, 2 Sales : Actual Sales : Quota, # Sales I Actual Sales I Quota, 1 Sales Date : : June 1 : June 1 I to Date : : June 1 : June 1 : to Date I : June 1 I June 1 1 to Date : Daily : to I to : as % of : Daily : to : to : as $ of I Daily : to # to : as $ of : # Date I Date : Quota : : Date : Date : Quota : : Date 1 Date 1 Quota 1 $ 19.8 $ 19.8 $ 21.7 91.2% $ 9.7 $ 9.7 $ 14.0 69.3% $ 29.5 $ 29.5 $ 35.7 82.6% 2 8.0 27.8 32.0 86.9 7.9 17.6 23.0 76.5 15.9 45.4 55.0 82.5 3 13.0 40.8 46.4 87.9 8.6 26.2 37.9 69.1 21.6 67.0 84.3 79.5 4 17.4 58.2 63.6 91.5 13.8 40.0 51.0 78.4 31.2 98.2 114.6 85.7 5 24.8 83.0 79.6 104.3 9.3 49.4 61.7 80.1 34.1 132.3 141.3 93.6 6 15.2 98.2 93.7 104.8 6.5 55.9 69.4 80.5 21.7 154.1 163.1 94.5 8 27.0 125.2 120.0 104.3 11.5 67.4 82.2 82.0 38.6 192.7 202.2 95.3 9 8.9 134.2 132.4 101.4 5.0 72.4 89.2 81.2 13.9 206.5 221.6 93.2 10 20.1 154.2 149.6 103.1 9.9 82.3 99.6 82.6 30.0 236.6 249.2 94.9 11 15.7 169.9 170.0 99.9 7.5 89.9 108.4 82.9 23.2 259.8 278.4 93.3 12 16.5 186.5 189.0 98.7 5.4 95.3 115.4 82.6 22.0 281.7 304.4 92.5 13 15.2 201.7 205.6 98.1 6.2 101.5 120.8 84.0 21.4 303.2 326.4 92.9 15 24.0 225.7 236.5 95.4 7.3 108.7 130.9 83.0 31.2 334.4 367.4 91.0 16 7.5 233.2 251.1 92.9 3.6 112.3 137.3 81.8 11.1 345.5 388.4 89.0 17 15.8 249.0 271.3 91.8 7.5 119.7 147.8 81.0 23.3 368.8 419.1 88.0 18 12.3 261.3 295.2 88.5 6.3 126.0 157.0 80.3 18.6 387.4 452.2 85.7 19 19.4 280.7 317.4 88.4 8.0 134.1 164.6 81.5 27.4 414.8 482.0 86.1 20 11.0 291.7 336.9 86.6 3.4 137.4 170.6 80.5 14.4 429.2 507.5 84.6 22 29.4 321.1 373.0 86.1 10.3 147.7 181.9 81.2 39.7 468.8 554.9 84.5 23 390.0 189.2 579.2 24 413.5 201.3 614.8 25 441.1 212.0 653.1 26 466.8 221.0 687.8 27 489.2 228.0 717.2 29 530.6 241.4 772.0 30 550.0 250.0 800.0 Office of the Secretary of the Treasury, Division of Research and Statistics. June 23, 1942 Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Takes into account both the daily trend during the week and the monthly trend during the month. Regraded Unclassified CONFIDENTIAL 47 UNITED STATES SAVINGS BONDS - TOTAL Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June : Cumulative sales by business days Date : daily : : : : June as June : sales : : May : April :percent of May June 1942 1 $ 29,539 $ 29,539 $ 19,981 $ 24,980 147.8% 2 15,903 45,442 39,430 45,933 115.2 3 21,604 67,046 72,048 64,147 93.1 4 31,162 98,208 88,605 82,937 110.8 5 34,132 132,341 122,575 111,289 108.0 6 21,744 154,085 157,866 129,786 97.6 8 38,574 192,659 181,431 149,409 106.2 9 13,863 206,523 201,464 168,289 102.5 10 30,029 236,552 232,801 185,904 101.6 11 23,220 259.772 246,756 196,667 105.3 12 21,952 281,724 271,525 229,895 103.8 13 21,439 303,163 296,152 242,969 102.4 15 31,235 334,398 317,861 257,280 105.2 16 11,099 345,497 337,371 279,933 102.4 17 23,285 368,782 371,066 295,244 99.4 18 18,587 387,369 385,098 309,780 100.6 19 27,435 414,804 409,987 339,594 101.2 20 14,354 429,158 439,987 353,636 97.5 22 39,655 468,812 466,171 374,391 100.6 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. Source: All figures are deposits with theTreasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL UNITED STATES SAVINGS BONDS - SERIES I Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June : Cumulative sales by business days Date : daily : : : June : May June as : sales : : : April :percent of May June 1942 1 $ 19,834 $ 19,834 $ 12,679 $ 12,993 156.4% 2 8,008 27,841 24,263 24,256 114.7 3 12,970 40,811 46,532 35,050 87.7 4 17.388 58,199 55,460 47,119 104.9 5 24,789 82,988 73,824 65,115 112.4 6 15,209 98,197 97.049 73.795 101.2 8 27,048 125,245 114,218 85,714 109.7 9 8,912 134,157 128,670 97,925 104.3 10 20,085 154,242 151,956 108,707 101.5 11 15,678 169,920 161,346 116,081 105.3 12 16,550 186,470 177,133 138,272 105.3 13 15,230 201,700 194,047 146,937 103.9 15 23,984 225,684 208,939 154,623 108.0 16 7,535 233,218 223,242 168,103 104.5 17 15,815 249,033 247,532 178,870 100.6 18 12,288 261,321 257,374 189,156 101.5 19 19,421 280,742 271,079 207,742 103.6 20 10,987 291,729 290,485 217,104 100.4 22 29,386 321,114 309,584 229,140 103.7 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. 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. CONFIDENTIAL 49 UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June I Oumulative sales by business days Date : daily : : : June : May June as : sales : : : April :percent of May June 1942 1 $ 9,705 $ 9,705 $ 7.302 $ 11,987 132.9% 2 7,895 17,601 15,168 21,677 116.0 3 8,634 26,235 25,516 29,097 102,8 4 13,774 40,009 33,145 35,818 120.7 own 5 9,344 49,353 48,751 46,174 101.2 6 6,535 55,888 60,817 55,991 91.9 8 11,526 67,414 67,213 63,695 100.3 9 4,952 72,366 72,794 70,364 99.4 10 9,945 82,310 80,845 77,197 101.8 11 7,542 89,852 85,410 80,586 105.2 12 5,402 95,254 94,391 91,623 100.9 13 6,210 101,464 102,106 96,031 99.4 15 7,251 108,715 108,923 102,657 99.8 16 3,564 112,279 114,129 111,829 98.4 17 7,470 119,749 123,534 116,374 96.9 18 6,299 126,048 127,724 120,625 98.7 19 8,014 134,062 138,908 131,852 96.5 20 3,367 137,429 149,502 136,532 91.9 22 10,269 147,698 156,587 145,250 94.3 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. 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. 50 June 23, 1942. Miss Harriet W. Elliett, Washington, D. c. Dear Miss Elliett: You are hereby appointed Consulting Expert, CAF-15, on the Mar Savings Staff of the Office of the Secretary, with compensation at the rate of $8,000 per annum, payable from the appropriation, "Expenses of Loans, Act of September 24, 1917, as Amended and Extended." This appointment is to be effective June 23, 1942, and continue for the duration of the war and six months thereafter. Very truly yours, (Signed) 1. Morgenthan, n. taxtke Secretary.of the Treasury. JJ:jd File to Mr. Thompson's office for mailing nmc Regraded 51 June 23, 1942. Mise Harriet W. Kiliett, Washington, D. c. Dear Miss Elliott: In connection with your employment as a Consulting Expert on the War Savings Staff, you will also serve as an Associate Field Director, in which capacity you are hereby designated and appointed. Under your designation as an Associate Field Director, you will perform such duties as may be assigned to you by the Field Director. Very truly yours, (Signed) 1. Morgenthau, IN Secretary of the Treasury. ssage Wile te Mr. Thompson's office for mailing Nne Regraded 52 June 28, 1942. Dear Dr. Range 1 any telephone E me your correr in the passing of our good friend and associate, Name) Fax. I too feel that he (we Mo life to the work so which he wee # deveted, and 10 to good to have that Me Chinese friends join with Me American case in correw of Me yessing. with certial personal regards, (Signed) 1. Horgenthan, 102 Dr. 1. 1. - Visa Preeident and Maister of Finance, e 1 Ohina. Fils n.m.c. ria Diplometts Pauch GEF,dbs Delivered to State Defthy Manue 4:35 Regraded Unclassified T 53 R E A S U WUWE2 VIA RCA R F CHUNGKONG 60/59 JUNE 21 2010 1942 JUN 22 AM 7 37 Y T MR HENRY MORGENTHAU JR E SECRETARY 0 F TREASURY WASHDC L E G 8 R URGENT PLEASE ACCEPT MY HEARTFELT CONDOLENCES AT THE DEATH A P OF MR FOX IN THE COURSE OF HIS WORK IN CHINA HE WON OUR ADMIRATION FOR HIS ABILITY AND COURAGE AND OUR AFFECTION - FOR HIS INTEGRITY AND WARMHEARTED FRIENDSHIP FOR CHINA HE T DIED LIKE A SOLDIER AT HIS POST R E H H KUNG. A 734AM JUNE 22. S U. R L E F Regraded Unclassified Washington Star 54 Abraham Manuel Fox, D. C. Economist, Dies At Chungking, China Former Member of Tariff Commission Was Adviser on Currency Abraham Manuel Fox, American member of the Chinese Currency Stabilization Board and former member of the United States Tariff Commission, was found dead in bed yesterday morning in Chungking, according to an Associated Press dispatch. Physicians said he died of & heart attack: A. MANUEL FOX. Mr. Fox, who lived here at 3002 -Underwood Photo. P street N.W., arrived in Chung- king last summer to take up his duties as a member of the Stabili- zation Board and was caught in Hong Kong when the war in the Pacific started. He escaped by plane and reached Chungking and later made a trip to the United States, returning to China only recently. Investigated Loan. Officials here recalled that Mr. Fox made the investigation which demonstrated the necessity for the $500,000,000 loan which this Govern- ment made to China early this year. Recently he had been serving as financial adviser to the Chinese Finance Minister. Mr. Fox's wife was understood to be visiting a daughter in New York today. Besides his wife and daugh- ter, Mr. Fox is survived by a son, Melvin J. Fox. A native of Philadelphia, the 53- year-old economist, was educated at Cornell and New York Universities. He came to Washington in 1923 as an economist on the staff of the Tariff Commission and served the commission continuously until his appointment as B. member of the Stabilization Board last May. For five years, from 1924 to 1929, he was an associate professor of economics at Catholic University, and lectured in the Knights of Columbus Evening School from 1923 to 1926. Appointed to Commission. One year after beginning his serv- ice with the Tariff Commission. Mr. Fox was made chief of its economic division and later served as chair- man of the Advisory Board, chair- man of the Planning and Reviewing Committee and director of research. He was appointed a member of the commission in 1937. Mr. Fox was a member of the American Economics Association, American Statistical Society, Beta Sigma Rho. and P1 Gamma Mu. He was also a member of the Cosmos and Cornell Clubs. Regraded Unclassified In This Edition Two Extra Pages 55 I'm 25, 1942. H Dear Mr. Chem: It was good of you to send no a telegram speaking with se much appreciation of the vork that Mammel Fox did during his all-toe-brief service to our country and yours. We shall nise his greatly, and 18 is good so know that he is also neurned w you and others who vere associated with his in China. with cerdial personal regards, Sincerely, (Signed) 1. Morgenthaw. it. in. si / : I Comminal I surgers 1 / fale nmc. Via Diplomette Pouch Pelivered to Stea Dept. 4:35-Manua GEF/dbs Regraded Unclassified 56 El WE25 VIA RCA 1942 JUN 22 AM in 53 F CHUNGKING 78 22/1500 SECRETARY MORGENTHAU Y SECY OF THE TREASURY WASHDC T E PROFOUNDLY REGRET SUDDEN PASSING AWAY OF AMERICAN MEMBER FOX ON JUNE 21 1942 AS CHAIRMAN OF THE STABILIZATION BOARD OF G R CHINA I LEARNED TO APPRECIATE HIS INVALUABLE SERVICES ON A BEHALF OF THE BOARD AS A CHINESE I LEARNED TO ADMIRE HIS DEEP FRIENDSHIP FOR MY COUNTRY SYMBOLIZING AS IT DID THE FRIENDSHIP OF YOUR COUNTRY FOR MINE IT WAS MY PRIVILEGE TO BE BOTH HIS COLLEAGUE AND FRIEND K P CHEN. 1052A. Regraded Unclassified R 57 196 1942 JUN 23 DM 1 34 W26G64WASH L20 SF 23-1028-42 MILLS TREASURY AMBROSE HAS NOT BEEN ABLE TO CONTACT LEE. HOWEVER UNDERSTAND COUNCIL HAVING A MEETING THIS WEEK. JUDGING FROM INQUIRIES 7 Y A R T G S R E A T L Y E R E FROM COMPANIES ABOUT SPECIFIC MATTERS BELIEVE WE SHOULD NOT BEGIN TO FEEL DISCOURAGED CLERK. E Regraded Unclassified From Ray Blough 58 June 23,1942 Present law, Treasury proposal and Committee action on revenue bill of 1942 Present Treasury Committee law proposal action A. Corporation taxes 1. Normal tax Corporations with net income of not more than $25,000: Not in excess of $5,000 15% 15% 15% Next $15,000 17 17 17 Next $5,000 19 19 19 Corporations with a net income over $25,000: 24 24 24 Notch provision: Alternative tax $4,250 plus $4,250 plus $4,250 plus 37% of excess 31% of 31% of over excess excess $25,000 over $25,000 over $25,000 Top income to which applicable $38,461.54 $50,000 $50,000 2. Surtax Corporations with net income of not more than $25,000 6 16 10 Corporations with net income over $25,000: First $25,000 6 31 16 Over $25,000 7 31 16 Notch provision -- ($25,000 to $50,000) None $4,000 plus $2,500 plus (bracket 46% of 22% of rates) excess over excess over $25,000 $25,000 Note: Under the Committee action the normal and surtax rates do not apply to the balance of adjusted excess profits net income remaining after excess profits tax. Regraded Unclassified 59 - 2 - Present Treasury Committee law proposal action 3. Relief for corporations with decreased earnings None None Corporations with current year surtax net income less than the average surtax net income for the base period years 1936-1939 should be allowed a tax credit of 10 percent of the difference but not to exceed the smaller of (a) 20 percent of surtax net income or (b) the excess of the surtax computed without benefit of this provision over $4,000. This provision should apply only to corpor- ations with net income over $25,000 that do not use the alternative rate under the notch provision. 4. Excess profits tax a. Excess profits credit (1) Invested capital method: First $5 million of invested capital 8% 8% 8% Next $5 million 7 7 7 Next $190 million 7 7 6 Balance 7 7 5 (2) Income method: Portion of average earnings in base period 1936-1939 95 95 95 b. Specific exemption $5,000 $5,000 $10,000 (Note: The Treasury agreed in advance to the modifications in the excess profits credit and specific exemption indicated above under Committee action.) C. Excess profits tax rates Adjusted excess profits net income: First $20,000 35% 50% 94% $ 20,000 to $ 50,000 40 55 94 50,000 to 100,000 45 60 94 100,000 to 250,000 50 65 94 250,000 to 500,000 55 70 94 Over 500,000 60 75 94 (Note: Under the Committee action the normal and surtex rates do not apply to the balance of adjusted excess profits net income remaining after excess profits tax.) Regraded Unclassified 60 - 3 - Present Treasury Committee law proposal action 5. Post-war credit None Accepted in principle (a) Statement of Secretary, March 3, 1942: "However, it is recog- nized that very high top, or so-called 'marginal rates,' may leave little incentive for the maintenance of efficiency in business operation. Further- more, after the war there may well be need for a large volume of expendi- ture in readjusting industry and maintaining employment. For these reasons it is believed desirable that in the case of any dollar of corporate profits the receipt of which results in an increase in tax beyond perhaps eighty cents, the additional tax on such dollar shall be held by the Government to the account of the corporation and be returnable within a limited period after the war, in those cases where it is spent for new and additional capital equipment or otherwise is spent in the additional employment of labor." (b) Proposal made jointly by Mr. Paul, Tax Adviser to the Secretary of the Treasury, and Mr. Stam, of the staff of the Joint Committee on Internal Revenue Taxation, on June 18, 1942: "1. The amount to be returned shall be 14 percent of the tax- payer's adjusted excess-profits net income. "2. The amounts returned shall not be included n mrporate income subject to tax. "3. The amounts shall be set aside in a special fund to be held by the Treasury to the credit of the taxpayer who shall be given a non-negotiable, non-interest-bearing certificate as evidence of his claim. #4. The amounts returned to the taxpayers are intended for use in the conversion of their businesses to peacetime activity or in the maintenance of employment in business activity. To this end the amounts returned shall not be available for the following purposes: (1) The payment of cash or stock dividends. (2) Bonuses or salary increases to executives. (3) The increase of cash reserves unless employed in the business. (4) The purchase of securities. "5. The amounts returned to the taxpayer shall be returned in the following manner: First-year collections shall be paid within the third year after the cessation of hostilities; second-year collections within the fourth year; third-year collections within the fifth year; balance within the sixth year after the cessation of hostilities." This specific proposal was rejected by the Committee. Regraded Unclassified 61 - 4 - Present Treasury Committee law proposal action 6. Consolidated returns Allow for Allow for both both income income and ex- and excess dess profits tax profits tax imposing, how- ever, a differ- ential tax of 2% of surtax net income for the privilege * Not allowed for normal tax and surtax (except for railroads, etc. and certain corporations in foreign trade.) Allowed for excess profits tax. 7. Tax on nonresident foreign 271 Not speci- 36% corporations fied - to be aligned 8. Payment of corporation income 273% Not speci- 36% tax at source (Sec. 144) fied - to be aligned 9. Personal holding companies Not in excess of $2,000 713% Not 75% specified In excess of $2,000 813% Not 85% specified (Note: The Committee action on points 7, 8 and 9 was taken at the suggestion of the Treasury). 10. Capital stock tax and declared value excess profits tax Capital stock tax $1.25 for Repeal Taxes retained each $1,000 but provision of adjusted was made for the declared annual redeclar- value ation of capital stock value Regraded Unclassified 62 - 5 - Present Treasury Committee law proposal action Declared value excess profits tax net income: In excess of 10% and not in excess of 15% of adjusted declared value 6.6% Repeal In excess of 15% of adjusted declared value 13.2% Repeal B. Individual income tax 1. Rates a. Normal tax 4% 4% 6% b. Surtax (See attached schedue, (Note: The Treasury recommended that the first $2,000 bracket be subdivided into four $500 brackets. Under the Committee action the first $2,000 bracket is retained.) C. Non-resident alien individuals not engaged in trade or business within the United States and not having a place of business therein 271% Not speci- 36% fied - to be aligned (Note: The 36% rate under Committee action does not apply to non-resident alien individuals with aggregate receipts of more than $22,800.) d. Withholding of tax at source 2712% Not speci- 36% (Section 143) fied - to be aligned Regraded Unclassified 63 - 6 - Present Treasury Committee law proposal action 2. Exemptions a. Single person $ 750 $ 600 $ 500 Married person 1,500 1,200 1,200 Dependent 400 300 400 (Note: The original Treasury proposal of March 3. 1942 recommended exemptions of $750, $1,500 and $400. In & letter to the Chairman May 6, 1942, the Secretary recommended the lowering of exemptions to $600, $1,200 and $300.) b. Children 18-21 Not in- Include Not in- attending school cluded as as cluded as dependents dependents dependents 3. Earned income credit For normal tax only 10% of earned Repeal Retain net income but without not in excess change of the entire net income 4. Collection at source None Rate 10% The plan as finally re- vised by the Treasury was adopted * Collect the income tax at source with respect to salaries and wages, dividends and bond interest. For salaries and wages, allow personal exemp- tions, credit for dependents, and deductions equal to 10 percent of exemp- tions and credit for dependents. Originally the Treasury recommended that the Secretary have discretion to collect at source at a rate up to 10 percent, since it was not known how soon and to what extent it might be necessary to speed up tax collections to check inflation. Subsequently, the Treasury asked outright for a 10 percent rate. On June 19, 1942, the Treasury submitted a plan to case the transition to collection at source by spreading the impact of the 10 percent tax over two transition years 1943 and 1944. Under this plan one-half the amount collected at source during 1943 would be credited against the instalment payments on 1942 liabilities and the balance would be credited against the quarterly payment on 1943 liabilities due in March, 1944. It was suggested further that for the purpose of equalizing the impact of collection at source on persons with sources of income subject to withholding and persons not subject to withholding, all taxpayers be required to pay 5 percent of net income plus one-fourth the balance of the liabilities for 1943 in March, 1944. Regraded Unclassified 64 - 7 - Present Treasury Committee law proposal action 5. Joint returns Optional Mandatory with Mandatory without a special allow- special allowance ance for the for the earned earned income income of the of the wife or wife or husband the husband (Note: On March 30, 1942, the Treasury more specifically recommended an allowance as follows: "Where the wife works outside the home, additional household expenses usually are incurred which are not present where the wife is able to devote her full time to the maintenance of the home. For this reason, it is suggested that an additional credit be provided as follows: "There should be allowed as a credit against the tax upon the family an amount equal to 10 percent of the wife's earnings. Such credit, however, should not exceed $100. "Д similar credit should be allowed where a person occupy- ing the status of head of the family, such as a widow, works." 6. Medical expenses No allowance No action * Allow a deduction for extraordinary medical expenses in excess of a specified percentage of the family's net income. The amount allowed should, however, be limited to some specified maximum amount. (March 30, 1942.) C. Estate and gift taxes 1. Rates See attached schedule No increase 2. Exemptions a. Estate tax Specific exemption $40,000 Substitute one One $60,000 $60,000 speci- specific exemp- Insurance exclusion $40,000 fic exemption tion for the for the present present speci- specific exemp- fic exemption tion and insur- and insurance ance exclusion exclusion b. Gift tax Specific exemption $40,000 $30,000 $30,000 Annual exclusion $4,000 for Allow each donor $3,000 for each donee $5,000 for all each donee donees Regraded Unclassified 65 - 8 - Present Treasury Committee law proposal action D. Excise taxes (See attached summary of present rates, Treasury proposal and Committee action on various excises) 3. Removal of special privileges 1. Tax-exempt securities Future and outstanding Interest Repeal Present State and local exempt from present exemption securities normal tax exemption retained or from both normal and surtax 2. Percentage depletion and Eliminate Retain intangible development both per- present expenses centage allowances depletion and expensing of develop- ment costs * Owners of mines and oil wells are allowed to deduct percentage depletion or cost depletion, whichever is higher, and in some cases to expense intangible development costs. Regraded Unclassified 66 - 9 - Present Treasury Committee law proposal action 3. Capital gains and losses a. Individuals (1) Classes of gains and losses (a) Short-term Assets held Assets held Assets held 18 months 18 months 15 months or less or less or less (b) Long-term 2 classes: 1 class: 1 class: Over 18, not Over 18 Over 15 over 24 mos.; months months over 24 mos. (2) Percentage of gain or loss taken into account (a) Short-term 100% 100% 100% (b) Long-term Over 18, not over 24 months 66-2/3 50 50 Over 24 months 50 50 50 (c) Maximum rate on statutory net long-term gains 30 60 50 (3) Treatment of losses (a) Short-term losses Allowed solely To be al- Same as against gains lowed against Treasury of the succeed- long-term proposal ing year gains and a maximum of $1,000 of other income Regraded Unclassified 67 - 10 - Present Treasury Committee law proposal action 3. Capital gains and losses (Continued) a, Individuals (3) Treatment of losses (b) Long-term losses Allowed a- To be allowed Same as gainst solely against Treasury ordinary short-term proposal income in capital gains full and a maximum of $1,000 of other income (4) Loss carry-over (a) Short-term One year Permit 5-year Permit 5-year against carry-over carry-over short-term capital gains (b) Long-term No carry- Permit 5-year Permit 5-year over re- carry-over carry-over quired because allowed against other income b. Corporations (1) Classes of gains and losses (a) Short-term Assets held No distinction Assets held gains not aver to be made over 15 18 months months (b) Long-term losses Assets held No distinction Assete held over 18 to be made over 15 months months (2) Maximum rate on net long-term None None 25% gains Regraded Unclassified 68 - 11 - Present Treasury Committee law proposal action (3) Offsetting of losses (a) Short-term Allowed solely Allow against Allow against against short- short or long- short or long- term gains term gains term gains (b) Long-term Allowed against Allow solely Allow solely other income against short against short in full or long-term OF long-term gains gains (4) Carry-over of losses (a) Short-term Carried for- Permit 5-year Permit 5-year ward for one less carry-over loss carry- year against over short-term gains (b) Long-term No carry- Permit 5-year Permit 5-year forward loss carry- loss carry- required over over since off- set against other income (Note: The modifications in the Treasury recommendations were agreed to by the Treasury in advance.) 4. Insurance companies a. Life insurance Tax base is invest- Retain invest- Accepted in- ment income only ment income base dustry propo- with liberal al- but lower reserve sal using lowance for reserve earnings deduction Treasury earnings deduction and eliminate formula for and with double double deduction determining deduction of part of tax-exempt aggregate tax of tax-exempt interest interest base but giving each company flat percentage of net in- vestment in- come 8.8 reserve earnings deduction Regraded Unclassified 69 - 12 - Present Treasury Committee law proposal action (Note: Treasury made no objections to acceptance of industry proposal.) b. Mutual insurance companies other than life (1) Exemptions Exempts practi- Exempt companies Same as cally all mutual with less than Treasury insurance com- $100,000 proposal panies other admitted assets than life or less than $50,000 net income (2) Tax base In most cases Modify tax base Same as negative tax including both Treasury base because investment and proposal all premiums underwriting deducted income F. Technical and administrative amendments (See attached list) Regraded Unclassified 70 Comparison of individual surtax rate schedule under present law, Treasury proposal, and Ways and Means Committee decision : Bracket rate : Surtex net Total surtex cumulative : : income $ : : : : : (000) :Present:Treasury:Ways and: Present : Treasury : Ways and : law :proposal: Means : law : proposal : Means $ - .5 6% 12% 12% $ 30 $ 60 $ 60 .5 - 1 6 15 12 60 135 120 1 - 1.5 6 18 12 90 225 180 1.5 - 2 6 20 12 120 325 240 2 - 3 9 22 15 210 545 390 3 - 4 9 24 15 300 785 540 4 - 6 13 27 19 560 1,325 920 6 - 8 17 30 23 900 1,925 1,380 8 - 10 21 34 27 1,320 2,605 1,920 10 - 12 25 38 31 1,820 3,365 2,540 12 - 14 29 42 35 2,400 4,205 3,240 14 - 16 32 45 39 3,040 5,105 4,020 16 - 18 35 48 42 3,740 6,065 4,860 18 - 20 38 51 45 4,500 7,085 5,760 20 - 22 41 54 48 5,320 8,165 6,720 22 - 26 44 57 51 7,080 10,445 8,760 26 - 32 47 60 54 9,900 14,045 12,000 32 - 38 50 64 57 12,900 17,885 15,420 38 - 44 53 68 60 16,080 21,965 19,020 44 - 50 55 72 62 19,380 26,285 22,740 50 - 60 57 76 65 25,080 33,885 29,240 60 - 70 59 78 68 30,980 41,685 36,040 70 - 80 61 80 71 37,080 49,685 43,140 80 - 90 63 82 74 43,380 57,885 50,540 90 - 100 64 84 76 49,780 66,285 58,140 100 - 150 65 86 78 82,280 109,285 97,140 150 - 200 66 86 80 115,280 152,285 137,140 200 - 250 67 86 81 148,780 195,285 177,640 250 - 300 69 86 81 183,280 238,285 218,140 300 - 400 71 86 81 254,280 324,285 299,140 400 - 500 72 86 81 326,280 410,285 380,140 500 - 750 73 86 81 508,780 625,285 582,640 750 - 1,000 74 86 81 693,780 840,285 785,140 1,000 - 2,000 75 86 81 1,443,780 1,700,285 1,595,140 2,000 - 5,000 76 86 81 3,723,780 4,280,285 4,025,140 5,000 and over 86 - 77 81 - - Treasury Department, Division of Tax Research June 20, 1942 Regraded Unclassified 71 Table 5 Comparison of estate tax rate schedule under present law and proposal Net estate after: Bracket rate I Total estate tax specific exemp-: Present : : : law cumulative tion 1 : Proposal : ($000) : : I Present law : Proposal Under $5 3% 8% $ 150 $ 400 5 - 10 7 12 500 1,000 10 - 15 11 15 1,050 1,750 15 - 20 11 18 1,600 2,650 20 - 30 14 22 3,000 4,850 30 - 40 18 26 4,800 7,450 40 - 50 22 30 7,000 10,450 50 - 60 25 33 9,500 13,750 60 - 70 28 36 12,300 17,350 70 - 100 25 40 20,700 29,350 100 - 150 30 44 35,700 51,350 150 - 200 30 46 50,700 74,350 200 - 250 30 45 65,700 98,350 250 - 300 32 50 81,700 123,350 300 - 350 32 52 97,700 149,350 350 - 400 32 54 113,700 176,350 400 - 450 32 56 129,700 204,350 450 - 500 32 58 145,700 233,350 500 - 600 35 60 180,700 293,350 600 - 700 35 62 215,700 355,350 700 - 800 35-37 64 251,700 419,350 800 - 900 37 66 288,700 485,350 900 - 1,000 37 68 325,700 553.350 1,000 - 1,500 39.42 70 528,200 903,350 1,500 - 2,000 45 72 753,200 1,263,350 2,000 - 2,500 49 75 998,200 1,638,350 2,500 - 3,000 53 76 1,263,200 2,018,350 3,000 - 4,000 56-59 78 1,838,200 2,798,350 4,000 - 5,000 63 79 2,468,200 3,588,350 5,000 - 6,000 67 80 3,138,200 4,388,350 6,000 - 7,000 70 80 3,838,200 5,188,350 7,000 - 8,000 73 80 4,568,200 5,988,350 8,000 - 9,000 Z6 80 5,328,200 6,788,350 9,000 - 10,000 76 8 6,088,200 7,588,350 10,000 and over 77 80 - - 1/ A specific exemption of $40,000 and a life insurance exclusion of $40,000 are allowed by the present law. The proposal would allow a single specific exemption of $60,000 but no life insurance exclusion. Regraded Unclassified Action on specific excise tax proposals # Article or service Present rate a Treasury pro- a Committee # 1 posed rate I action Liquer Distilled spirits # per gallon $6 Accepted Beer (fermented malt liquors) $6 . barrel #8 $7 Still wines Not over 14% 84 por wine gallon 16¢ 10# Over 14 not over 21% 30¢ # - # 50¢ 40% Over 21 . # 24% 65¢ . # # $1 Accepted Other wines Sparkling 7₫ per * pint 104 Accepted Artificially carbonated 33% . . . 5% # Liqueurs, cordials, etc. 32% 1 . or 5¢ # Tobacco Cigarettes, small 104 brands $3.25 per M $3.50 Accepted 15% . 3.25 - - 4.00 $3.50 Cigarettes, large Not over 61" long 7.80 - # 9.60 8.40 Over 6½" long 3.25 . # 4.00 3.50 Smoking tobacco 184 per pound 36¢ 24% Cigars, (retailing at) (Revised Proposal) A - Not over 2.5 cents $2.00 per M $2.50 - Accepted B - 2.6 to 4.0 2.00 # . 3.50 or C - (4.1 - 5.0 . (5.1 # 6.0 . 3 2.00 - - 3.00 . 3 5.00 , . . D - 6.1 - 8.0 - 3.00 - . 7.00 - B - 8.1 # 11.0 # 5.00 - . 10.00 . 7 - 11.1 . 15.0 # 5.00 - . 13.50 - 72 G - 16.1 - 20.0 # 10.50 - . 18.00 I - 20.1 - 30.0 . 13.50 . . 25.00 . I - 30.1 and over 13.50 . - 35.00 . Regraded Unclass 1 I Treasury pro- # Committee Article or service Present rate = : posed rate # action Cigarette paper and tubes Papers: (per pkg.) 1/24 per 25 Accepted Not over 25 sheets-sxempt papers or tubes 26 - 50 # -1/24 or fraction Each additional thereof 50 sheets or fraction thereof -1/24 Tubes: 1% per pkg. of 50 or fraction thereof Gasoline 1 1/24 per gallon 34 No increase Lubricating oil 4 1/24 per gallon 10/ 6% Photographic apparatus 10% of manufacturers' 25% Accepted but with sales price exemption of cameras weighing more than 4 lbs. Carbonated soft drinks Bottle not over 33 fluid ounces retailing at Not over 10% None 14 per bottle No action taken Over 10$ not over 20$ . 2x . a # Over 20% . 34 : - Bottle over 33 fluid ounces ! 36% of bottlers' - selling price ( Carbonic acid gas used in unbottled soft drinks None 80¢ per pound No action taken Candy and chewing gum None 15% of manufac- Rejected turers' sales price Communications Service (Revised Treasury Proposal) Telephone and radio-telephone 5% tax on charge of 20% of total charge toll service charge of more 25 to 50¢1 additional 73 than 24% 54 tax on each 60/ Accepted Regraded Unclassi Article or service # Present rate : Treasury pro- a Committee # # posed rate I action Communications Service 1/ (Cont'd.) Telegraph, cable and radio dis- patch or message 10% of charge 15% of charge Accepted Leased wire services 10% - = 15% # # Local telephone service 6% of bill 10% - . Public station coin-operated - telephone service charges under 25$ Exempt Exempt Transportation of persons 5% of amount paid 16% on transporta- 10 % of amount paid tion charges; 20% on seats and berths Transportation of oil by pipe line 48% of smount paid Treasury withdrew No change proposal (increase to 10%) Recommended for repeal Commercial washing machines 10% of mirs.' sales price Exempt Repealed Optical equipment 10% # 90 If If Electric signs and advertising devices 10% Rubber articles 10% = . - Freight and express None No recommendation 5% of amount paid Pari-mutual wagers None 5% of pool Coin-operated amusement and $50 gaming devices $10 on gaming devices gaming devices $10 pinball machines paying prices of not more than 5x;$10 all - amusement devices no publicity of 70- turhs 1/ Revised Treasury Proposal 74 Regraded Unclass : : Article or service Present rate Treasury pro- : Committee : : posed rate : action Material requested by the Commi the an which they did not take action Second class mail Make up deficit Accepted excepting that on county news- papers Barber and beauty shop services None 10% of charge. Not accepted No recommendation Electrical energy 3-1/3% 5% Not accepted No recommendation Revision of electrical energy tax 3-1/3%, exempting sales Eliminate exemption Not accepted by publicly owned plants of sales by publicly owned plants. No recommendation but no Treasury objection Manufactured and natural gas None 5% of amount paid. Not accepted No recommendation Sugar 1/2 cent 1 cent per pound. Not accepted per pound No recommendation Coffee None 5 cents per pound. Not accepted No recommendation Tea None 10 cents per pound Not accepted no recommendation 75 Cocoa None 5 cents per pound Not accepted No recommendation : : Present rate Treasury pro- : Committee Article or service : : posed rate : action Radio broadcasting None (a) Tax based on Not accepted transmission power (b) Tax based on net time sales No recommendation Bank checks None Two cents per check. Not accepted No recommendation Withdrawals from bank accounts None 1/100 of 1$ Not accepted Treasury Department, Division of Tax Research June 23, 1942 76 Regraded Unclass 77 Technical and administrative amendments tentatively acted upon by the Committee on Ways and Means to June 15, 1942 Rejected Income tax amendments Treatment of pre-March 1, 1923. earnings and profits. Basis of assets acquired from & decedent. Estate and gift tax amendments Idmitation on deductibility of charitable bequests. Postponed to later legislation Income tax amendments Charitable organization engaged in trade or business Approved Income tax amendments Taxation of mutual insurance companies other than life. Consolidated returns for purposes of corporation normal tax and surtax. Taxation of mutual investment companies. Pension trusts, and other retirement plans Deductibility of investment expenses (Higgins case). Treatment of income accrued at date of decedent's death (Enright case). Alimony. Annuity trusts. Amortization of bond premium. Treatment of nonbusiness bad debts. Elimination of charge-off requirement for bad-debt deduction. Longer statute of limitations for bad debts and worthless stock losses. Treatment of recoveries of bad debts and previously paid taxes. Elimination of interim report requirement under last-in first-out inventory section. Treatment of improvements by lessee. Treatment of interest on money borrowed to carry paid-up life insurance. Extension of 5-year amortization provision to individuals and partner- ships, and to facilities constructed after January 1, and before June 10, 1940. Personal holding company tax relief to deficit corporations, and allied problems. Undistributed profits tax relief to deficit corperations. Eliminating loan and investment companies from taxation under personal holding company tax. Regraded Unclassified 78 - 2 - Approved - (continued) Income tax amendments - (continued) Supplement R revisions. Treatment of involuntary conversion problems. Revisions in method of taxing income from sources without the United States. Revision of section 107 dealing with compensation for services rendered over several years. General procedural relief provisions for taxpayers in combat sone or in enemy-occupied territories. Modifications in the statute of limitations on refunds. Reciprocal exemption to employees of the Philippine Government residing in the United States. Treatment of income placed upon an annual basis. Modification in treatment of nonresident aliens as respects requirement of office or place of business and definition of commodities. Treatment of suits against the Collector of Internal Revenue. Estate and gift tax matters Treatment of renounced legacies. Clarification of credit for property previously taxed. Deduction for charitable pledges. Disallowance of claims in excess of the gross estate. Life insurance. Powers of appointment. Community property and joint estates. Reversal of gift tax and State tax credits. Excess-profits tax Revision of Supplement A. Revision of section 751. Revision of treatment of liquidations under the invested capital credit. Revision of treatment of earnings and profits on certain reorganizations. Clarification of computation of basis of property paid in for stock. Clarification of method of computing deficit under average earnings credit. Regraded Unclassified 79 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 23,1942 TO Secretary Morgenthau FROM Mr. Kamarck Subject: Shipping Situation (Charts attached) returned 1. The current rate of shipping losses is now higher than at any other period in this war. In May, for the fourth consecutive month, shipping losses were over the 600,000 tons mark. In the four months February - May, losses totalled 2,600,000 gross tons. 2. In spite of the fact that present shipping losses are about as bad as they were in the darkest period of the First World War, the net shipping situation is beginning to look better. As a result of greatly increased American shipbuilding, the rate of launchings of new ships in May finally caught up with the high rate of losses. As the increase in launchings will continue and the shipping losses along our coasts should decline due to better protection, the shipping position of the United Nations should continue to improve from now on. Regraded Unclassified 80 SECRET JUN 23 1942 AGENDA 1. Progress Report on Wooden Sailing Vessels for Latin American Trades. (Copies have been circulated.) 2. The Food Supply Problem in the Other American Republics. (Report attached) Regraded Unclassified 81 2465 SECRET June 22, 1942 Dear Mr. Wallace: As agreed upon at the meeting with the Board of Economic Warfare Juno fourth, we submit the report on the food supply problem in the other American Republics. We are very much indebted to the Department of Agriculture, the Board of Economic Warfare, the Department of State, and the Department of Commerce for assistance in the preparation of this report which reflects as completely as possible the available infor- mation on the food supply problem in the other American Republics at the present time. In view of the constantly changing circumstances occasioned by the withdrawal of shipping through the war effort of the United Nations, it has become apparent that existing sources of informa- tion are insufficient to supply the detailed facts required for the effective solution of the food supply problems confronting certain of the other American Republics. Às indicated in the report, this Office is prepared to establish field partics as required in the other American Republics, not only to secure complete data but also to commence immediately, in co- operation with the other governments, such programs of food distribu- tion and expansion of domestic production as are necessary. hilson Sincerely Nelson A. yours, Rockefeller Coordinator Mr. Honry 1. Wallace Chairman, Board of Economic Warfare Washington, D. C. Regraded Unclassified 82 Office of the coordinator of Inter-American Affairs June 20, 1942 The Food Supply Problem in the Other American Republics This memorandum is a brief statement of the food supply problem in the twenty republics of Latin America. A study of the facts now at hand indicates the need of more adequate information from the field, in view of the constantly changing situation occasioned by the progress of the war. The four southernmost republics of South America, Argentina, Chile, Uruguay and Paraguay, comprise a relatively self-sufficient or surplus food producing region. This is not to say that they do not import food from outside their joint area or that there are not food distribution problems within the region. Together in 1941 they imported foodstuffs valued at $1,900,000 from the United States. Relatively, however, thoir food problems appear to be less pressing than those of the arca farther north, The sixtoon republics farther north ordinarily import substantial quantities of food. These imported foods are of significance for the bulk of the population of those republics inasmuch as riec, wheat flour, and dried fish are staple articles in the diot of largo numbers of low income people. Even where imported foods aro customarily used only by the upper income strata of the population they constitute a significant part of the total food supply. Their removal from the total supply will result in food shortage which in the end will woigh most heavily upon the large numbers of people of restricted income. In Venezucla, for example, Regraded Unclassified 83 - 2 - twenty-five per cont of the total quantity of corcals consumed, as flour or otherwise, is normally imported, largely as whoat flour and rice. The failure of this part of the supply to appear on the domestic market causes serious shortage. Persons normally consuming imported wheat enter the market for limited supplies of domestically produced whoat, corn and rice, with the result that these supplies cannot be secured by those ordinarily dependent upon them. Food Imports Within the past few years annual imports of food into this arca of northern South America, Central America, Mexico and the three island republics have amounted to almost 2,000,000 tons. Almost a million tons consisted of Argentine wheat to Brazil, largely to southern Brazil. Of the remaining 1,000,000 tons moro or less, somo 400,000 moved annually to the throo island republics and some 600,000 tons to the other republics, including Brazil. or these 600,000 tons roughly half or 300,000 tons went to Bolivia, Poru and Brazil, largely but not entirely from Argentina. The remaining 300,000 tons went to Venezuela, Colombia and Ecuador, Central Amorica and Mexico and originated largoly but by no means entirely in the United States. Similarly a large part of the food importod by the island republics was from the United Statos. Approximately half of the 1,000,000 tons of food annually im- portod by the 16 republics (Brazilian wheat imports excluded) con- sisted of wheat and wheat flour. Another 25 per cont consisted of rico. The island republics imported somowhat loss whoat and moro rico Regraded Unclassified -3- 84 and the continental area more wheat and less rice. In the case of each area wheat, whent flour and rice amounted to about 75 per cent of the tonnage of food imported. Other foodstuffs imported in significant quantities were lard, sugar, fish, potatoes, beans, onions and canned or dried milk. A variety of other foods were imported in relatively small but probably important quantities. Effect of War on Food Supply Since the outbreak of war and more particularly within the past few months, reports have indicated deterioration in the food situation in many of these sixteen republics. In the case of the thirtoen repub- lics not primarily supplied by overland transportation from Argentina and likewise in the case of northern Brozil, the shipping situation is, of course, the critical factor. Normal shipping facilities to these areas have been reduced, both by withdrawal and by sinkings. Whether the movement of food by ship has been reduced to the point where acute food shortages are widesprend is not clear. To date we do not have reliable data on (1) requirements, (2) stocks, (3) current movement of food by ship, and (4) domestic crop prospects. The important points to be noted are that first, food shortages have been consistently reported from a number of arens and there scem thus to be areas where critical shortages as a result of reduced shipping have developed or are imminont. Second, the shipping capacity now or recently available may be reduced, in which case it is quite certain that serious shortages will appear. Às stated, data on requirements, in the sense of minimum essential requirements, are not at hand. The volume of foodstuffs normally imported provides some indox, however, to requirements, sufficient at least to indicate the imminent danger of serious shortages. Regraded Unclassified -4- 85 It may also be noted that shortages have developed or at least threaten in some arcas where the problem is not so much ocean shipping as it is internal transportation, by highway, rail or river. A second point to be noted is that the demand for food in certain areas has been increased by the employment of large numbers of workers in the expanding production of critical and strategic materials. In some cases large numbers of people are moving into deficit food areas, in many cases abandoning agricultural activities. In other cases large numbers of people are coming into the market for foodstuffs for the first time by virtue of employment at wages which, however low, represent higher than normal incomes. Without the data necessary to indicate precisely where there are areas of shortage and the types and quantities of food needed therein, it is still possible to indicate first, the obviously vulnerable areas and second, the alrendy reported critical shortage arcas. Data on normal imports and flow of foodstuffs indicate that Cuba, Panama, including the Canal Zone, Venezuela, Ecuador and several of the Central American republics, notably Honduras, are highly vulnerable to food shortage resulting from reduction in shipping. Colombia, northern Brazil, Haiti and the Dominican republic are less so only in degree. The Amazon Basin More spocifically, the largest area of critical food shortage at the present time is the Amazon Basin in Brazil and in adjacent parts of Peru, Ecundor, and Bolivia, This area has always been a deficit area in terms of food stuffs. At present with large numbers of people moving into the area for wild rubber collection the food situation has become acute. To quote a careful observer just returned from one of the important rub= ber producing areas of the Amazon Basin: Regraded Unclassified -5- 86 "There is a growing shortage caused by less planting, increased consumption, high prices. Although it is not yet critical, unless certain constructive action is taken, it may become SO. In Belem the Mayor of the city said he was preparing a decree limiting the number of dishes to be served at one meal to two, In Manaos the Vice-Consul had been trying for ten days to buy a chicken but without success. This is a city of 90,000 people. When the central market opens at three o'clock in the morning there is a long line waiting and by four o'clock AM very little is left. "The Governor of the State of Amazonas is alarmed and has sent out a poster warning seringueiros of the approaching food crisis and recommending that they plant subsistonce crops. It should be kopt in mind that many of these people do not read, have no soods, and do not know much about agriculture. "In Porto Velho the Mayor of the city and Managing Director of the Railroad were both alarmod as the fow small gardens of the city had beon abandoned by former agriculturists in favor of the more profitable work in the jungle. "In going overland between the Abuna and Acro rivers, the writer spont one night in a scringueiro's hut where the dinnor was composed of a cup of coffee with sugar. There was noither rice nor beans, the staples of dict. Another night dinner was rice and coffee, but no boans. In a distance of 1600 miles, from the lower Abuna, across Acro, down the Purus river and into the Solimocs, to Manaos, only one garden was scen." Present plans of the United States Government in cooporation with the Bra- zilian, Peruvian and Bolivian governments for the production of rubber in the Amazon Basin indicato that 100,000 to 300,000 poople may be moved into the arca within the next twolvo months. Approximately 50,000 to 150,000 tons of food pcr year would be required for these people. This amount represents no small addition to the food import tonnage normally required. Regraded Unclassified 87 -6- Other Critical Arcas Outsido of the Amazon Valley in Brazil thore are a number of local arcas in northcast Brazil in which food is now or is likely to be in critical- ly short supply. These regions are in the vicinity of Sao Luis, in the State of Maranhao, where babassu nut production is being expanded, and in the neighborhood of Natal and Recife, where United States military and naval requirements have created temporary local shortages and may constituto in the future an important drain on the food supplies available to this region. The coastal area of Venezuela, including the Maritime Andos and the interior valloys, includos the bulk of Venezuola's population and normally imports a considerable sharc of its food needs. This arca includes the im- portant oil producing soctions in the noighborhood of Carapito where the population is at present almost entirely fod on food imported from the United States. There appear to be in this aroa good prospects of an increasing local food production if offorts along this line are properly directed. But the area will bc dependent upon imports for at loast a year. A scrious short- Ago of flour is already reported. In Colombia the food situation is on the whole much better than in Venezuela, although substantial quantities of somo foods have in the past been imported. The only region in Colombia where it appears that a critical food shortage now exists is in the banana producing area around Santa Marta on the north const. On the west const of South Amorica the worst local situation at the moment appcars to be in the vicinity of Guaynquil, Ecundor. In the past this rogion has boon dofinitely n doficit food area and has depended to a consider- nblo extent upon imports of such products as whont flour and lard. In this Regraded Unclassified 88 -7- particular region, it appears, in the case of lard, that the situation could be rolieved by bringing in food from the Inter-Andean Platoau if the permitted prices were increased sufficiently to be attractive to producers in that region and sufficient rail transportation were made available. In the case of where according to recent roports, a shortage now exists. The situation in Poru is not as yet ncuto but potentially Poru might become onc of the most sorious food deficit rogions in Latin America. Tho reason for this is that the citios of the Andoan Platoau and the irrigated valleys are largoly dependent upon trucking facilitios for the distribution of their food supplies. Bolivia is very largely dependent upon imports of food which como largely by rail from Argentina. The situation there may not be expected to become critical so long as adequato rail facilitics are available. There is considerable ovidenco that those facilities are already loss than adoquate. Food Shortages in Contral Amorica In Central morica the local arcas whore acute food shortages have alroady developed are on the northorn const of Honduras and the adjacent arca in Guatemala and on the west coast of Costa Rica where the populations are largely dependont upon imports from this country which have now boon cut off by the romoval of banana vessols. The Canal Zono itsolf is, of courso, heavily dependent upon imports of food but except for products which have to be moved under rofrigoration thore docs, not appear to be any prospect of a shortage of tonnage to satisfy the noods of this aron. Also throughout Contral Amorica there appoar to be more or less scrious food shortages developing in the vicinity of all of the larger towns because of the cutting off of the customary supplies of imported Regraded Unclassified 89 --8- food and the reduction in local transportation because of the shortages of trucks and tires. In Mexico the rogions in which the most scrious situntions appear to provail at present are (1) the Yucatan peninsula and (2) the coast of Tabasco and the ncighboring areas of Vera Cruz and Campoche. This is a banana and henequen producing region, parts of which are isolated from the rost of the country and which have boon heavily dependent upon imports of food on the banana and henoquon carriers. In the remaindor of Mexico food supplios are apparently normal although, as in the Amazon Basin, the stimu- lation of wild rubber production in southorn Mexico may cause the development of other areas of critical food shortages, In many arcas, shortage or the throat of shortage has led to sky- rockoting prices for food stuffs. In Peru wholesale prices of foodstuffs have rison 25 por cent above their average 1941 level. In Colombia the price of wheat has jumpod 25 por cent within the past two months. In Cuba wholesale prices of imported commodities rcse by almost 50 por cent between April, 1941 and April, 1942. These examples can be multiplied. In summary, the food problem is scrious and may become dangorous in any of the island republics, in Contral America, in Venozucla, Ecuador, and possibly in Colombia, Poru and Bolivin. The situation is one which calls for action: first, in the organization of distribution of foodstuffs in aroas currently facing shortage; second, in the dovelopment of increased local food production designed to make the republics concorned self-sufficient as to minimum requirements. Regraded Unclassified 90 -9- Caribbean Area A report by the Agricultural Marketing Administrator to the Secretary of Agriculture says: "The food supply job in the Caribbean area as a whole is very complex. In general, the other islands face much the same situation as our own Caribbean territories: possible severe shortages because of their dependence on imports for a large part of their food requirements. One important factor is the number of governmental interosts represented - American, British, French, and independent. If the food requirements of all the 61 islands in the area were pooled as they should be, supplies could be more efficiently purchased and shipped. "Plans are being worked out to handle the problem of purchasing and distributing this food, It is proposed to establish one stockvile at Santiago de Cuba, which is afforded some protoction by military and naval installations in the area, and another at St. Thomas if feasible. Another stockpile at San Juan, P. R., may be necessary. It is believed that enough shipping is available to maintain the stockpiles at these points, with the inter-island distribution job depending mainly upon small vossols under 1,000 tons, "Tho purchase of those foods, under the present plan, would be financed from a special revolving fund, This fund would be reimbursed by purchases from tho stockpiles. "The Under Secretary of State has recommended that the President direct Lond-Lease Administration to tako responsibility in cooperation with other Regraded Unclassified 91 -10- agencies of the government in supplying the food needs of the Caribbean area, While no final arrangements have been made with respect to islands that are independent or owned by the governments other than the United States and Great Britian, an allotment of funds has been made by the Lend-Lease Ad- ministration to the Agricultural Marketing Administration, and the program has been started at least to the extent of meeting British and American needs." The Office of the Coordinator of Inter-American Affairs is responsible for the food supply problems of the three island republics: Cuba, Dominican Republic, and Haiti. The Office of the Coordinator of Inter-American Affairs will cooperate very closely with those agencies of the United States Government charged with responsibility for the food supply of the Caribbean possessions. Conclusions Review of the facts concerning the food supply problem in the other American Republics together with the experience of this Government in its Caribbean possessions and in Hawaii leads to the following conclusions: 1. Requirements must be carefully determined on a sound and uniform basis throughout Latin America and the Carribean area. Estimates of require- ments must conserve every possible foot of cargo shipping space. If further withdrawals of shipping are occasioned by the war effort, allocations of food cargoes should be made on a uniform basis. Determination of the requirements of the other American Republics should be on a cooperative basis following the pattern set in the estimates of requirements of essential matorials already supplied to this government. 2. Unified control of imports and exports of food supplies should be established by the government concerned. Regraded Unclassified -11- 92 3. It is important that the requirements and :llocations of shipping space for food supplies should be determined in the light of the total Latin American food supply problem rather then in the light of the situation in any one area or country alone. 4. Once a unified control of imports and exports of foodstuffs has been established, the experience of the United States Government in the establishment of price controls and rationing should be made available on & cooperative basis to the republics concerned. 5. More effective organization of distribution and internal transportation for foodstuffs should be carried out in cooperation with the governments concerned. 6. Most important, a determined effort nust be made to expand domestic production of foodstuffs in the other American Republics and in the Caribbean possessions to make them solf-sufficient ns to minimum food requirements thoroby lessoning demands on shipping. In the execution of these recommendations, it is imperative that the Office of the Coordinator of Inter-American Affairs establish field parties in those areas facing food shortages. These field parties will socure necessary detailed information on situations which change constantly from d.y to day. Such field parties should begin immediately, in coopera- tion with the other governments, the necessary operations for food distribution and the expansion of domostic production. Regraded Unclassified 93 TREASURY department PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON June 23, 1942 MEMORANDUM TO THE SECRETARY: There is submitted herewith the operating report of Lend-Lease purchases for the week ended June 20, 1942. The shipping situation has been of great concern to us just recently because of the routine procedure required under the program of centralizing traffic control in Wash- ington and necessitating clearances from the War Department before traffic can move to the ports. I held a meeting at my office Saturday morning, the 20th, and stated that the procedure would have to be stream-lined in order to meet the constantly changing pro- duction situation and that we needed authority to provide stockpiles of bottom oargo nearby or at ports. A blanket release of 200,000 tons was granted yesterday for the British and we are now endeavoring to work out 8. plan to short-cut the procedure whereby we will get blanket or block releases from the War Department for the succeeding month's requirements, rather than clearing each transaction. FORVICTORY BUY UNITED STATES BONDS AND STAMPS John Clifton E. Mack Director of Procurement Regraded Unclassified LEND-LEASE TREASURY DEPARTMENT, PROCUREMENT DIVISION $4 STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS AS OF JUNE 20, 1942 (In Millions of Dollars) Administrative Undistributed & Total U. K. Russia China Expenses Miscellaneous Allocations $1695.9 $754.6 $298.0 $ 56.7 $ 1.6 $585.0 (1700.6) (714.6) (286.6) ( 56.7) ( 1.6) (641.1) Purchase Authoriza- tions (Requisitions) $1042.3 $680.4 $309.4 $ 45.6 - $ 6.9 (1026.8) (670.2) (304.5) ( 45.6) - ( 6.5) Requisitions Cleared for Purchase $ 999.4 $668.3 $278.9 $ 45.6 - ( 981.7) - ₹ ( 6.2) $ 6.6 (659.8) (270.1) ( 45.6) Obligations (Pur- chases) $ 955.7 $657.8 $253.8 $ 39.1 $ 1.4 $ 3.6 ( 943.7) (649.0) (250.8) ( 39.1) ( 1.2) ( 3.6) *Deliveries to For- eign Governments $ 421.5 $337.9 $ 62.5 $ 19.4 - $ 1.7 at U. S. Ports ( 411.6) (329.8) ( 60.9) ( 19.2) - ( 1.7) *Deliveries to foreign governments at U. S. Ports do not include the tonnage that is either in storage, "in-transit" storage, or in the port area for which actual receipts have not been re- ceived from the foreign governments. Note: Figures in parentheses are those shown on report of June 13, 1942. Regraded Unclas sified 95 Explanation of Changes The decrease in the total allocations is a: result of the cancellation of the allocations for Yugoslavia in the amount of $4,806,000. This fund has been turned over to the War Department. Regraded Unclassified 96 Treasury Department Division of Monetary Research Date June 26, 19420 To: Miss Chauncey From: H. D. White The Secretary might possibly want to glance at this summary of material sent to him. I don't think it is very important. 97 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 23, 1942 TO Secretary Morgenthau FROM Mr. White Subject: Count R. N. Coudenhove-Kalergi on a United States of Europe Summary Count R. N. Coudenhove-Kalergi, an Austrian and President of the Pan Europa Union, has written a paper suggesting that the idea of a United States of Europe would constitute both an effective instrument for breaking down the German "will to resist" and a practical basis for a post-war European organization. His argument takes the following course: 1. Attractive terms of peace will shake German willingness to continue the war. 2. The Atlantic Charter already "assures Germany her pre- invasion frontiers of 1937". 3. The Atlantic Charter also "pledges not to repeat the fatal reparation policy of Versailles", 4. But the terms already offered Germany are not sufficiently clear and attractive to constitute an important instrument of psychological warfare. 5. The League of Nations symbol has lost its appeal to the European peoples. The suggestion of a world-leadership exercised by the English-speaking nations is even less attractive. 6. Only the slogan of a United States of Europe "corresponds exactly to the necessities of psychological warfare It has remained the ultimate hope of uncounted millions between the Fjords of Norway and the Isles of the Mediterranean". 7. But the United States of Europe is not merely an effective slogan. It is & solid basis for & durable peace, which will unite Europe in 8. single market, under a federation including both constitutional monarchies and republics. Regraded Unclassified 98 Division of Monetary - 2 - Research 8. The United States of Europe is also the solution for the German problem because within its boundaries the German people will have a plentiful scope for their talents, while controlling only one-tenth of the territory of the federation and less than one-fifth of its population. Comment Without undertaking any extensive examination of the fundamental ideas involved in the program of a United States of Europe, the following comments may be ventured on Count Coudenhove-Kalergi's memorandum: 1. The Count overstates the committments to Germany, on frontiers and reparations, involved in the Atlantic Charter. 2. He is in error in suggesting that the peoples of the continent are consumed with longing for a United States of Europe. 3. He does the idea of a United States of Europe a disservice in passing lightly over the obstacles to the establishment of a continental federation. The legacy of national hatred, the great differences in wealth, the conflict of social systems, varying conceptions of government -- all these will constitute, in the post-war period, real obstacles to continental unity. These obstacles cannot be glibly conjured away by light talk about a single market and a single currency. Regraded Unclassified 99 that June 8, 1942. white Dear Count Comdenhove-Kalergis Your letter of June 6, together with the copies of your recent address before the Town Hall Clab, have been received in the Secretary's office during his absence from Washington. I shall be glad to bring both the letter and the enclosed material to Mr. Morgenthau's at- tention as soon as be returns. Sincerely yours, (Signed) H. S. Klotze E. s. Klots, Private Secretary. Count Richard N. Coudenhove-Kelergi, President, Pan Europa Union, 2501 Palisade Avenue, New York, New York. GEF/dbs Regraded Unclassified 100 2501 PALISADE AVENUE NEW YORK CITY New York, June 6, 1942 Personal Mr. Henry Morgenthau, Secretary of the Treasury Washington, D.C. Dear Mr. Secretary, may I submit you two copies of my recent address at the Town Hall Club, New York City, about: "Peace Aims as War Weapons," stressing the necessity of psychological warfare and the use of the pan-European idea as an effective means to speed up victory. I consider this as a matter of vital importance, because psychological warfare seems to be neglected by all United Nations with the exception of the Soviets. And because this lack may not only prolong the war beyond the Presidential Elections, but finally lead to the conquest of Europe by ideas hostile to Western Civilization. I therefore would suggest the establishment of a "Board for Psychological Warfare", consisting of persons combining vision with an intimate knowledge of the psycho- logy of the enemy nations. I need not say that I am ready to help any such organization by all possible means. If you believe that my suggestions are as important one of the copies to the President. as I consider them to be, please be so kind devisusi as to give Of course, I should like to submit him perdonally the the matter, together with a practical plan of procedure, but I know how difficult it is to obtain, under the present circumstances, such an audience. But on the other hand, any message by the President, sup orting the hope for a United States of Europe, would electrify the 016 Continent no less than the magnificent raids on Cologne and Essen.- Very sincerely yours, RN Conden have- alergi Regraded Unclassified 101 PEACE AIMS AS WAR WEAPONS By Count Richard N. Coudenhove-Kalergi, President of the Pan Europa Union. - The evolution of the War and the expansion of war production give ample evidence that Hitler is doomed, and the Allied Victory certain. This certainty makes more important than ever the question: "what time and what sacrifices victory still demands." In the light of the events in the Far East the question of the duration of the European War becomes a problem of rising impor- tance. Not only to win the war but to win it as quickly as possible is a vital issue for our common future and civilization; therefore the demand for a second front in Europe has become urgent and justified. But a total war is waged not only on several fronts but also on several plans. Modern warfare is not only a military but also an economão and psychological matter. The vital importance of economic warfare is at last being fully acknowledged: We recognize now that the construction of a new plane factory is equivalent to a major military victory. The time has come to stress the importance of psychological warfare as an equally decisive weapon in & total war. The aim of military and of economic warfare is to break the enemy's power to resist. The aim of psychological warfare is to break the enemy's will to resist. Both elements are equally important methods to assure and to hasten victory. -0- Regraded Unclassified 2 102 Some of the greatest wars in history have been won by idealogical weapons. Garibaldi succeeded in invading and con- quering half of Italy with an expeditionary corps of only 1,000 men because his three little ships carried an idealogical weapon of invincible strength: the idea of & free and united Italy. This idealogical arm proved to be stronger than all the cannons and soldiers of the King of Naples. Lenin and his handful of Bolshevists succeeded in conquering the vast Empire of Russia because they were armed with the explosive idea of Social Justice. Although not generally recognised it is a fact that the first World War was terminated in the East as in the West by weapons of idealogical character. It was General Ludendorff's idealogical warfare that led to the Russian capitulation; and it war President Wilson's psychological warfare that led to the capitulation both of Germany and of Austria-Hungary. It is well known that after Ludendorff had failed for three years to break the backbone of the Russian Armies by means of strategy, he sent Lenin acress the front to crush the Russian moral resistance. This psychological warfare resulted in the desintegration of the Russian army and its surrender at Brest-Idtovsk. But it has never been sufficiently streesed that Wilmon's ideas were one of the decisive factors in the Allied victory of 1918. At that time the German armies were defeated but not smashed. They were still able to organize a last ditch defense at the Rhine. Such a defense would not have changed the final outcome of the war - but it would have prolenged it for many months. The surprisingly sudden capitulation of the German Army was largely Regraded Unclassified 103 due to the psychological warfare waged by President Wilson which succeeded in breaking Germany's will to resist. Because of his Fourteen Points the German Generals had to give up all hope of mobilising public opinion against Wilson's peace offer; against his magnificent vision of a world-embracing League of Nations assuring the vistors and the vanquished an equal benefit of peace and liberty, of justice and prosperity. That was the main reason why Germany decided to accept Wilson's peace aims rather than to continue a desperate war against overwhelming odds. Therefore military, economic and psychological elements had an equal share in Germany's surrender. The explosive power of Wilson's peace aims became even more obvious with the collapse of the Austro-Hungarian Monarchy; undefeated by the Italian armies, the Viennese Government surrendered as a consequence of the internal desintegration produced by Wilson's ideas. The national groups within the Danubian Monarchy preferred to share in Wilson's new world of self-determination and of Democracy rather than continue defending Austria-Hungary's Imperial traditions. So this huge Empire was overthrown by psychologial warfare and by dynamic peace aims. -0- The world seems to have forgotten these historic lessons and the close connection between psychological warfare and establishment of peace aims. This close connection is being disregarded by all those who wish to postpone all peace problems until victory is achieved with the impressive argument "Now we are in war and must concentrate all our efforts on war. When once the war shall have been Regraded Unclassified 4 104 won, we shall have smple time to consider the problems of peace." To this, I reply, "Peace aims are vital instruments of warfare; wars are won by guns and by ideas, by abils and by programs; peace aims can serve av powerful bombs exploding in the rear of the enemy fronts; peace aims can break the resistance of armies; peace aims can arouse public opinion against soldiers and guns; peace aims can be transformed into irresistible weapons if time of war." The Second World War will also be decided by combined results of belligerent strategy, economics, and psychology. Nobody can predict which of these elements of modern warfare will prevail. To believe that psychological warfare alone could win this war would be just as ridiculous as to doubt that idealogical weapons might shorten it for months or even for years. Therefore the same attention should be given to ideas and to peace aims as are given to the production of tanks and of planmes. -0- The United Nations have begun to establish a peace program with the Atlantic Charter. It is a good start because it settles two of the most complicated peace problems: the territorial and economic fate of the vanquished. It points out that the United Nations seek no territorial agfandisment and it asserts that after the liberation of all invaded lands, no territorial changes will be made without the consent of the populations involved. Thus the Atlantic Charter assures Germany her pre-invasion frontiers of 1937. Moreover the Atlantic Charter pledges not to repeat the fatal reparation policy of Versailles, but to give the Germans an equal chance of living out their lives free from fear and want by 5 105 3 assuring them equal access to the world markets and raw materials. But in spite of these generous and reasonable suggestions, the Atlantic Charter could not make any impression on the enemy nations because it appeals to reason and not to vision. It does not take into account that human nature is not reasonable ,that it is more impressed by pictures and visions than by arguments and theories, In spite of numerous analogies between Wilson's Fourteen Points and the Atlantic Charter, the difference between them is immense: Wilson gave a grand picture of a new World while the Atlantic Charter gives byrt a useful frame. The World is still waiting for a new picture, a picture that can create faith and enthousiasm, move spirits and arouse wills, inspire heroes and martyrs. 60- Many private organisations are trying to fill the Atlantic frame- work with such & living picture of the coming World Order. They have worked out three main plans: 1st: The Reconstruction of a League of Nations. 2nd: British-American Union and its World Leadership. 3rds A United States of Europe. All three of these ideas will certainly have some influence on the future World Order: for it is absolutely necessary that some instrument of international collaboration, embracing all Nations, Federations, Continents, be established at the end of this war. It also is certain that the great English-speaking Nations will have to maintain their close association beyond the War emergency in order to assume moral leadership in the gigantic task of building up a new and better World. And it also is evident that the 30 European states, situated between the two greatest federations of the World, the United States of America and the Soviet Union, will have to follow these two grand Regraded Unclassified 6 106 examples by establishing some kind of federation. From the point of view of post war planning, the study and co-ordi- nation of these three progrmas is of equal importance. But from the point of view of psychological warfare, their value appears very different. The League of Nations, the strongest weapon of idealogical warfare in 1918, has lost all its appeal to European minds and hearts. Never in history has an institution been greeted with greater hopes and led within so short a period to greater disappointment. Its moral authority has vanished after an uninterrupted series of smashed hopes and of broken pledges. Lost power can be quickly resto- red by new power. But to re-establish a ruined credit takes years. No European would now be ready to trust any institution connected with one of the World's greatest and most tragic failures. The less the Europeans are reminded of the League, the better for our psycho- logical warfare. The suggestion of a world leadership exercised by the united English-speaking Nations, controlling a disunited Europe, is still more dangerous from the point of view of psychological warfare. For it can easily be 8 transformed into an argument against the Allies by the Axis , by their pretensions of defending Europe against Anglo-Saxon domination. -0- To wage a succesful psychological war against the Axis, we must first of all realise that it is now Germany and not Britain that has become a besieged fortress. In spite of all her conquests, Germany is now surrounded and encircled by the superior forces of the United Nations, who dumand her surrender. Hitler's psychological warfare profits from this fact and consists in making the Germans Regraded Unclassified 7 7 107 believe that they are facing the alternative: victory or annihi- lation. His propaganda warnd the German people to carry on the struggle with the utmost energy and unity as the only way to prevent a terrible catastrophe: the alaughter, torture and starvation of all Germans by revengeful enemies. It is obvious that the garrison of any besieged fortress, belie- ving that it will be slaughtered or enslaved as soon as it surrenders, will resist to the utmost. The German people know of the crimes their nation has committed and what punishment some of their enemies are advocating. They prefer to fight a long war or to fall in battle, rather than to be slaughtered or starfed after their surrender. They continue to fight desperately because they consider victory or death on the battlefield as the two only ways of escaping this terrible punishment. So Germany's fear of post-war revenge has become one of Hitler's strongest instruments for unifying his nation, and for carrying on his war. In his endeavor to blackmail his own people he receives precious help from some of his most fanatic enemies. Any indiscriminate threat of annihilation, uttered by citizens of the United Nations against the German people, is bound to strees the link between the Nazi gang and the German nation. That unparalleled crimes provoke unparalleled feelings of revenge is only too natural. But from the point of view of psychological warfare, these cries for revenge are very dangerous because they happen to unite the Germans behind Entler and to postpone the collapse of the Third Reich. & Regraded Unclassified 8 108 Psychological warfare demands an entirely different attitude. All those who wish to speed up victory and to oever-thrown Hitlerism Regraded Unclass must do everything to convince the German people that their indivi- dual fate will be brighter after an Allied victory than it would be if Hitler's tyranny prevailed. For the German people, not "victory or punishment" must be the alternative, byrt "tyranny or freedom." It should be made quite clear, as Summer Welles had done in his recent Memorial Day Speech, that only those will be punished who are responsible for crimes and atrocities - but not those who are rather the victims than the authors of these terribas tragedies. It must be made quite clear for what kind of a European order the United Nations are fighting and what place within this new Europe will be reserved for the German people. If this place will assure their individual rights in the spirit of the Atlantic Charter, then every German will be able to consider whether he prefers to live in a state of permanent war, oppression, fear insecurity and misery - or whether he would rather live a safe life, protected by civilized laws and a stable peace organisation as a citizen of a United States of Europe. & The United States of Europe is the only peace aim that corres- ponds exactly to the necessities of psychological warfare: the vision of a European Commonwealth, peaceful like Switgerland, prosperous like the United States, and free like both. This idea of a United States of Europe has an old and strong tradition within all nations of Europe. It has remained the ultimate hope of uncounted millions between the Fjords of Norway and the Isles of the Mediterranámu. It appleals to vision and to emotion, to hearts and minds, to interests 9 y 109 and ideals. Within the last 20 years it has been carried by a mighty wave of public opinion all over the Continent. It has been opposed by only two groups of powerful individuals: by industrialists whose wealth is based on national protectionism, and by politicians whose careers are based on national antagonism. Apart from these two small but influential groups, the pupie of Europe ,in factories, on fields and at desks, are longing for a lasting peace that would assure their liberty, their bread, their jobs, their family and their chance of participating in a rising and more justly distributed tide of prosperity. The European Commonwealth of Nations, with its place between the United States of America and the Union of Soviet Russia will have to be established on a Social and democratic basis: more social than America - more democratic than Russia. Its democratic parliament will have to be elected by free and general votes; its parliamentary government will have to assure a common policy in foreign, social and colonial matters; it will secure a common market and currency; it will replace national armaments by a Federal Army and a Federal Police. But one of the chief elements of the European constitution must be a common Bill of Rights, loyally interpreted by Federal Courts. This Bill of Rights will have to assure not only political freedom and equality among all ethnical and religious groups, but also social rights: it must protect every European against any kind of oppression by tyrants, state govern- ments, organizations and bosses. Within such a Constitution there will be place for republics as well as for constitutional monarchies; but not for totalitarian states nor for dictators. -0- Regraded Unclassified 10 110 Facing such fair and progressive peace-aims, most Germans would undoubtedly prefer to become free citizens of a federated Europe rather than to remain at the mercy of the merciless Third Reich and its tyrants. All citizens of Italy, as far as their personal interests are not linked to Nazism, would equally prefer to be controlled by & European Federation than by a German dictater. And the Nations of the occupied territories, too, would receive new impulse and inspiration in their heroic struggle against the invader by the vision of a great construc- tive aim that would replace the present uncertainty regarding their future. This common hope, crystallizing around a grand vision and inspiring idea, would create an irresistable current within the entire popu- lation of Europe. This tide of public opinion would rise behind the German lines and within a near future sweep away Hitler with all his satellites. Nothing illustrates the appeal of the pan-European idea of European minds better than the fact that Hitler himself now tries to steal it from the ideological arsenal of democracy in order to use it as a weapon for his own psychological warfare. He, the deadly enemy of Europe and of its civilization, is suddenly pretewing to fight for European Union and for its independence from Anglo-Saxon domination. He tries to convince the people of Europe that England and America are fighting for their own hegemony over a wak, dismembered, disunited and miserable Europe. It is easy for the United Nations to smash this psychological weapon in Hitler's hand. But this cannot be done by repeating that reactionary slogant "We wish to re-establish all national sovreignties just as they were in the pre-war period," but rather by proclaiming boldly: Regraded Unclassified // 111 "Hitler is offering you & United Europe of slavery and misery; we are offering you a United Europe of freedom and of prosperity. It is up to you to make your choice." Presented in this way, the idea of a Free and United Europe would become a powerful weapon in the war against Namism; a Trojan horse behind the defense lines of Hitler's Empire; a challange for those who are attempting to prolong the war only to maintain slavery and to perpetuate misery. & But the United Nations should not try to launch this ideological bomb without first considering it in all its possible consequences. To use peace aims just to lure the énemy into surrender and then to drop them would be not only a crime but also an unpardonable blunder: for no lasting peace could ever be established on broken pledges. We therefore are bound to consider whether this first-rate weapon of psychological warfare is apt to be transformed after the war into a useful instrument of the coming peace. A glance at the map answers this question: it illustrates convincingly why 30 European states, between the American and the Russian Federation, may never again return to their pre-war state of anarchy. Two great Emropean wars within a single generation give ample evidence that European disunion is bound to lead again and again to periodic wars, engulfing in their bloody current all states and continents of the world. A glance at European history gives further evidence that Europe never experienced a period of lasting peace as long as it was split up in national sovreignties. Europe enjoyed its only period of lasting peace during the two centuries of its Union within the Roman Empire. 12 112 It also is evident that, if the World wishes to insugurate a new period of lasting peace, it can never again admit the existence of an independent German state in the heart of the European Continent. Any peace based on that notion would be mere folly and suicade. Post- war Germany will have to accept an effective international control of her manpower, her foreign and internal policy, her production, and her education. To organize such a control, two ways are possible: either to transform Germany into a colony of the United Nations and the Germans into pariahs of the white race, or to establish a permanent control over Germany and all other States of Europe by a federal board, thereby replacing the old conception of national sovreignty by the new principle of federalism. This latter solution Valone would be able to prevent a Third European War and a second Hitler, because an enslaved Germany would sooner or later seek and find her revenge: either by war or by revolutich. -0- One of the basic and eternal rules of politics recommends: the reconciliation of an enemy whom you cannot crush - and the crushing of an enemy whom you cannot reconcile. The United Nations are fighting two different kinds of enemies on German soil: the Nazi gang and the German people. We must be aware that we can never reconcile Nazism with ourselves; nor can we ever annihilate the German race. These two facts indicate the double aspect of a lasting European peace: we must annihilate irriconcilable Nasism - and pave the way for the future reconciliation of the indestructible German race. This double method of assuring peace has been clearly outlined by the Atlantic Charter and it has again been stressed by Stalin's last speech. But the only way to ahieve this double result lies in the Regraded Unclassified 13 113 establishment of a European Federation that would break forever with the orver-age notions of an independent German Reich, based on its national army and economy, and integrating the creative forces of the German race into a European Federation and into the wider community of our common civilization. & For in spite of the obvious necessity for European Union We may never forget that our planet is growing smaller day by day owing to the marvellous progress of technology. Therefore European isolation would be just such an illusion as American isolation. The slogan of the coming World will be not isolation but co-operation. Therefore the new Europe will have to be established from its very beginnings in close co-operation with other Continents and Federations first of all with its two great neighbors in the East and in the West, the American Republics and the Soviet world. But what ever the future organization of our Planet might be, it is certain that Europe can never again return to its pre-war dismembrement. Whether the war should be followed by a permanent collaboration among the United Nations, or be a World Union of Democracies, or by some other successor of the unfortunate League of Nations, one thing is evident: that a future Europe will have to be considered not as a number of independent states, but as am single family of nations, bound together by gegraphy and by history, by common economic interests and by common cultural traditions. In this new era the Netherlands and Belgium for instance will have to adjust their collaboration rahter after the model of the relations between the two neighbor-states Vermont and New Hampshire, than after those between Mexico and China. This new Europe will also have to decide for a federal language, Regraded Unclassified y 114 presumably English, to be taught in all its elementary schools besides the various national idioms, as a necessary instrument of general understanding. The transformation of Europe into a single market with a common monetary system has become another necessity for any sound program of Continental economic resurrestion. Only thus can Europe assure a rising standard of living for its huge population. -0- This war will be considered one day as the great Civil War of Europe; as a gigantic revolution against the attempt of some men, gangs, and states to re-establish slavery, robbery and torture within our very civilized Old Continent. I believe that this Civil War will have to be liquidated exactly like the American Civil War was liquidated : by a federal government, enforcing the respect for the Bill of Rights and the abolition of slavery within the entire Union; by granting equal rights to the vanquished States and to their citizens; by stressing the economic union between North and South; by making any attempt at a military or revolutionary revenge impossible and even inconceivable; by paving the road toward ultimate reconciliation between victors and van- quished within a commen patriotism. This wise and generous American policy that has led to a complete success, indicates the only way in which we may successfully liquidate the European War, as soon as Nazism is overthrown and is followed by a civilized Government willing to accept the principles of the Atlantic Charter, and to collaborate in establishing a free and united Europe. For some time however, the feelings of hatred among the Europeans will undoubdetly prevail as they did for years after your Civil War. Regraded Unclassified 15 115 But it is encouraging to note that even these feelings of hatsed of revenge and resentment did not prevent the evolution , reconstruction and functioning of the United States and the triumph of ultimate re- conciliation. S₀ we need not bury the hope that one day Europe will look back on Hitler's War as you are now looking back on you Civil War or England on the War of Roses. & Enemies of European Union have expressed some apprehension that Germany might try to abuse the European Federation to establish her hegemony over the Continent. Such a fear is utterly unfounded. For, according to the Atlantic Charter, the German Nation will control only one-tenthof Europes territory with less than a fifth of its population. A sound European Constitution, inspired by the European example of Switzerland, could easily prevent any attempt of this little minority to dominate ar to control any of its neighbors, if ever such an attempt should take place. On the other hand we may never forget that Hitler's only chance to conquer and to dominate Europe was based on the fact that he was facing a servies of disunited and isolated states, without federal links. Had a United States of Europe been established at the end of the last war, or even as a consequence of Briand's Initiative of 1929 - there would have been not Hitler ruling Germany and no Second World War torturing Europe and devastating the whole world. We cannot alter the past, but we still can save the future by a policy of clear vision and of courageous action. The same peace program and idea that can serve during the war as a Mighty psychological weapon for victory can be transformed at its end into the most solid pillar of any future world organization. The same dynamic idea that can help to win the war can also serve to win the peace%. Regraded Unclassified 16 116 During three centuries Europeans of all Nations have con- tributed in building up this marvel of the World, the United States of America. Now it is up to this New World to save Europe and all Western Civilization by establishing on the ruins of Hitlerism,the United States of Europe.- 10-0-0- 117 PEACE AIMS AS WAR WEAPONS By Count Richard No Condenhove-Nalorgi, President of the Pan Europa Union. - The evolution of the Was and the expension of war production give and evidence that Ritler is decemed, and the Allied Victory certain. This certainly makes more important than over the questions "what time end what sacrifices victory still demands." In the light of the events in the Far East the question of the duration of the European War becomes a problem of rising impor- tance. Not only to win the war but to win 10 as quickly as possible is a vital issue for our common future and civilisation; therefore the demand for a second front in Europe has become urgent and justified. But a total war is waged not only on several fronts but also on several plans. Modern warfare is not only a military but also an coonomão and psycholegical matter. The vital importance of econrado warfare is at last being fully acknowledged: we recognise now that the construction of a new plane factory is equivalent to a major military victory. The time has come to stress the importance of psychological warfare as an equally decisive wespon in a total were The aim of military and of economic warfare is to break the enery's power to resist. The aim of psychological warfare is to break the energy's will to resist. Both elements are equally important methods to assure and to hasten victory. Regraded Unclassified 2 118 Some of the greatest wars in history have been was by idealogical weapons. Gardbaldi succeeded in inveding and one- quering half of Italy with an expeditionary corps of only 1,000 men because his three little ships carried an idealogical waspon of invincible strengths the idea of a free and united Italy. This idealogical am proved to be stronger than all the dannons and soldiers of the King of Naples. Lonin and his handful of Beleheviste succeeded in conquering the vast Employe of Russia because they were armed with the explosive idea of Social Justice. Although not generally recognised 1t is a fact that the first world Ter was terminated in the East as in the Test by weapons of idealogical character. It was General Ludenderff's idealogical warfare that led to the Fussian capitulation; and it war President Wilson's psychological warfare that led to the capitulation both of Cermany and of Austrier-Bingary. It is well known that after Ludendorff had failed for three years to break the backbone of the Russian Armies by means of strategy, he sent Lendn across the front to crush the Russian moral resistance. This psychological warfare resulted in the desintagration of the ussian any and its surrender et Brest-Idtovsk. But it has never been sufficiently stressed that "11don's ideas were one of the decisive factors in the Allied victory of 1918. At that time the German armies were defeated but not mashed. They were still able to organize a last ditch defense at the Whine. Such a defense would not have changed the final outome of the war - but it would have prolonged 1t for many months. The surprisingly sudden capitulation of the German Army was largely Regraded Unclassified 3 119 due to the psychological warfare waged by President Wilson which succesded in breaking Germany's will to resist. Receive of his Fourteen Points the German Generals had to give up all hope of mobilising public opinion against wilson's pease offer; against his magnificent vision of a world-smirecing League of Nations assuring the vistors and the vanquishied an equal benefit of peace and liberty, of justice and prosperity. That was the main reason why Germany decided to accept Wilson's peace aims rather than to continue a desperate war against overwhelming edds. Therefore military, economic and psychological elements had an equal share in Germany's surrender. The explosive power of "ilson's peace aims became even more obvious with the collapse of the Austro-Hingarian Menarchy; undafested by the Italian armies, the Hennese Government surrendered as a consequence of the internal desintegration produced by "ilson's ideas. The national groups within the Danubian Monarch/ preferred to share in "ilson's new world of self-determination and of Democracy rather than continue defending Austria-Itungary's Imperial traditions. 00 this huge Empdore was overthrown by psychologial warfare and by dynemic peace due. The world seems to have forgotten these historic leasons and the close connection between psychological warfare and establishment of peace dr. This close connection is being disregarded by all those who wish to postpone all peace problems until viobory 10 achieved with the impressive argument "Now we are in war and must concentrate all our efforts on war. hen once the war shall have been Regraded Unclassified 4 120 won, 170 shall have emple time to consider the problems of peace." To this, I reply, "Pease aim are vital instruments of warfare; wars are was by guns and by ideas, by mohile and by programs) peace aims can serve as powerful bombs exploding in the rear of the emergy fronts; peace sins can break the resistance of mades) peace aims can arouse public opinion against coldiers and gans) peace aims can be transformed into irresistible wespons u time of i" The Second world War will also be decided by combined results of belligerent strategy, economics, and psychology. Nobody can predict which of these elements of modern warfare will prevail. To believe that psychological warfare alone could win this war would be Just as ridiculous 20 to doubt that idealogical wespons might shorton 1t for months or even for years. Therefore the sime attention should be given to ideas and to peace alm as are given to the production of tanks and of planses. + The United Nations have begun to establish & peace program with the Atlantic Charter. It is a good start because it settles two of the most complicated peace problems: the territorial and economic fate of the vanquished. It points art that the United Nations seek no territorial agrandisment and 1t asserts that after the liberation of all invaded Lands, no territorial changes will be made without the consent of the populations involved. Thus the Atlantic Charter assures Germany her pre-invasion frontiers of 1937. Noreover the Atlantic Charter pledges not to repeat the fatal reparation policy of Versailles, but to give the Germans an equal chance of living out their lives free from fear and want w Regraded Unclassified 5 121 assuring them equal 000000 to the world markets and rer materials. Regraded Unclassified But in spite of these generous and reasonable suggestions, the Atlantic "harter could not make my impression as the energy nations because it appeals to reason and not to vision. It does not take into account that human nature is not reasonable #that it is more impressed by pictures and visions than w arguments and theories. In spite of numerous analogies between "ilson's Fourteen Points and the Atlantic Charter, the difference between them 10 immenso: "ilson gave & grand picture of a new World while the Atlantic Charter gives byt a useful frame. The World is still waiting for a new picture, a picture that can create faith and enthousiasm, move spirite and arouse wi 1s, inspire heroes and nartyrs. $ Mary private organisations are trying to fill the Atlantic frame- work with such a living picture of the cording World Order. They have worked out three main planse 1st: The Reconstruction of a League of Nations. 2nd British-Americen Undon and its world Leadership. 3rds A United States of Europe. All three of these ideas will certainly have some influence on the future Forld Orders for it 10 absolutely necessary that some instrument of international collaboration, embracing all Nations, Federations, Centinents, be established at the end of this war. It also is certain that the great English-speaking Nations will have to maintain their close association beyond the War emergency in order to assume moral leadership in the gigantic task of building up a new and better World. And it also is evident that the 30 European states, situated between the two greatest federations of the World, the United States of America and the Soviet Union, will have to follow these two grand 0 122 examples w establishing some kind of federation. From the point of view of post war planning, the study and 00-ordi- nation of these three programs 10 of equal importance. But from the point of view of psychological warfare, their value sprears very different. The League of Nations, the strongest weapon of idealogical warfare in 1918, has lost all its appeal to European rinds and hearts. Never In history has an institution been greeted with greater hopes and led within no short a period to greeter disappointment. Its moral authority has vanished after an uninterrupted series of smashed hopes end of broken pledges. Lost power can be quickly resto red by new power. But to re-establish a ruined credit takes years. No Buropean would now be ready to trust any institution connected with one of the World's greatest and nost tragic failures. The less the Europeans are reminded of the League, the better for our paycho- logical warfare. The suggestion of & world leadership exercised by the united English-speaking Nations, controlling a disunited Purope, is still more dangerous from the point of view of psychological warfere. For 1t can earily be = transformed into an argument against the Allies by the And , by their pretensions of defending Europe against Anglo-Saxon domination. + To wage a succesful psychological war against the Ands, we must first of all realise that it is now Germany and not Britain that has become a beadeged fortress. In spite of all her conquests, Cormany is now surrounded and encircled by the superior forces of the United Nations, who demend her surrender. Hitler's psychological warfa'e profits from this fact and consists in making the Germans Regraded Unclassified 7 123 believe that they are facing the alternative: victory or annihi- lation. His propaganda warnd the German people to carry on the struggle with the utmost emergy and unity as the only way to prevent a terrible estastropher the slaughter, torture and starvation of all Germans by revengeful ansmies. It is obvious that the garrison of any besinged fortress, belie- ving that 1t will be slaughtered or enaloyed as soon as it surrenders, will resist to the utmost. The Cormon people know of the crimes their nation has comitted and what pundshment some of their onsmies are advocating. They prefer to fight & long war or to fall in battle, rather than to be almightered or started after their surrender. They continue to fight desperately because they consider vistery or death on the battlefield as the two only ways of escaping this terrible punishment. So Germany's fear of post-war revenge has become one of Hitler's strongest instruments for unklying his nation, and for earrying on his war. In his endenver to blackmail his own people he receives precious help from some of his most fanatic enemies. Any indiscriminate threat of annihilation, uttered by citimens of the United Nations against the German people , is bound to strees the link betw en the Nami gang and the German nations That unparalleled crines provoke unparalleled Feelings of revenge is only too natural. But from the point of view of psychological warfare, these cries for revenge are very dangerous because they happen to unite the Germans behind Mitler and to postpone the cellapse of the Third Reiche Regraded Unclassified 8 124 Psychological warfare demands an entirely different attitude. All those who wish to speed up victory and to oursr-throum Hitleriam mot do everything to convince the German people that their indivi- dual fate will be brighter after an Allied victory than it would be 5.9 Hitler's tyranny prevailed. For the German people, not "vistory or punishment" must be the alternative, but "tyrenny or freedom," It, should be made quite clear, as Summer Telles hert done in his recent Memorial Day Speech, that only those will by pundched who are responsible for ordnes and atrocities - but not those who are rather the viotâns than the authors of those terrible tragedies. It must be made quite clear for what kind of a European order the United Nations am fighting and what place within this new Europe will be reserved for the German people. If this place will assure their individual rights in the spirit of the Atlantic Charter, then every German will be side to consider whother he prefers to live in a state of permanent war, oppression , fear insecurity and minery - or whether he would rather live a nafe 1150, protected to civilised laws and a stable peace organization as a citizen of a United tates of Europe. + The United States of Burope so the only peace An that corres- pondo exactly to the necessities of psychological warfare: the vision of a European Commonwealth, peaceful like Initserland, prosperous like the United States, and free like both. This idea of a United States of Europe has an old and strong tradition within all nations of Surope. It has remained the ultimate hope of uncounted millions between the Fjords of Norway and the Iales of the Mediterranism. It appleals to vision and to evotion, to hearts and minds, to interests Regraded Unclassified 9 125 and ideals. Within the last 20 years 10 has been carried by & mighty ware of public opinion all over the Continent. It has been opposed by only two groups of powerful individuals: by industrialists whose wealth is based on national protectionism, and by politicians whose careers are based on national antagonism. Apart from these two small but influential groups, the pepple of Europe ,in factories, on fields and at desks, are longing for a lasting peace that would assure their liberty, their bread, their jobs, their family and their chance of participating in a rising and more justly distributed tide of prosperity. The European Commonwealth of Nations, with its place between the United States of America and the Undon of Seviet Russia will have to be established on a Social and democratic basis: more social than America - more democratic than Russia. Its democratic parliament will have to be elected by free and general votes; its parliamentary government will have to assure a common policy in foreign, social and colonial matters; it will secure a common market and currency) it will replace national armanents by a Federal Army and & Federal Police. But one of the chief elements of the Ruropean constitution must be & common Bill of 1ghts, loyally interpreted by Federal Courts. This Bill of Rights will have to assure not only pelitical freedom and equality among all ethnical and religious groups, but also social rights: it must protect every European against any kind of oppresation by tyrants, state govern- ments, organisations and besses. Within such a Constitution there will be place for republics as wall as for constitutional monarchies; but not for totalitarian states nor for dictators. Regraded Unclassified 10 126 Facing such fair and progressive peace-ains, most Germans would undoubtedly prefer to because free citizens of a faderated Surope rather than to remain st the mercy of the merciless Third Reich and its tyrants. A23 citizens of Italy, as far as their personal interests are not linked to Nazim, would equally prefer to be controlled by a European Vederation than by a Corman dictator. And the Nations of the compled territories, too, would receive new inpulse and inspiration in their heroic struggle against the invader by the vision of a great construe- tive aim that would replace the present uncertainty regarding their future. This contron hope, crystallizing around a grand vision and inspiring Idea, would create on irresistable current within the entire poper lation of Purope. This tide of public opinion would rise bahind the Correct lines and within a near future excep enror Bitler with all his antellites. Nothing illustrator the appeal of the pan-Puropean Idea oñ European mindo better than the feet that Hitler hirmelf now tries to steal 1t from the ideological arsonal. of democracy in order to use it as a imapon for his own psychological warfare. Rn, the deally enesty of Perope end of its civilization, is suddenly preteming to fight for Puropean Undon and for its independence from inglo-Saxon domination. Mo tries to convince the people of Europe that England and America are fighting for their am hegemony over 8. wak, dismombered, disunited and miscrable Europe. It 10 eary for the United Mations to mash this psychological waspon in Hitler's hand. But this cannot be done by repeating that reactionary alogans "0 wish to re-establish all national sovreignties just as they were in the pre-war period," but rather by proclaiming boldlys Regraded Unclassified 11 127 "Hitler is offering you a United Europe of slavery and misery) we are offering you a United Europe of freedom and of prosperity. It is up to you to mis your choice." Presented In this way, the idea of a Free and United Purope would become a powerful weapon in the var agkinst Namism; a Trojan horse behind the defense lines of Hitler's Empires a chaldange for those who are attempting to prolong the war only to maintain alavery and to perpetuate minery. But the United Nations should not try to 1ounch this idealogical bomb without first considering it in all its possible consequences. To use peace aims just to lure the énemy into surrender and then to drop them would be not only a crise but also an unpardonable blunders for no lasting peace could over be established on broken pledges. Te therefore are bound to consider thether this first-rate weapon of psychological warfare is apt to be transformed after the war into a useful instrument of the coming peace. A glance at the map answers this question: 1t illustrates convincingly why 30 European states, between the American and the Russian Federation, may never again return to their pre-war state of anarch . Two great Emergean ware within a single generation give ample evidence that European disunion is bound to lead again and again to periodic wars, engulfing in their bloody current all states and continents of the world. A glance at Buropean history gives further evidence that Europe n ver experienced a period of lasting peace as long as 1t. was split up in national sovreignties. Europe enjoyed its only period of lasting rease during the two centuries of its Union within the Roman Empire. Regraded Unclassified 12 12 128 It also in evident that, if the World wishes to insurrate a now period of lasting pease, it can never egain admit the existence of an independent Gorman state in the heart of the European Continent. any peace baned on that notion would be mêre folly and suicide. Post- war Germany will have to accept an effective international control of her nanpower, her foreign and internel policy, her production, and her education. To organise such A control, two ways are possibles either to transform Certify into a colony of the United Nations and the Cermans into parishs of the white race, or to establish a permanent control over Cermany and all other States, of Europe by a federal oard, thereby replacing the old conception of national sovreignty by the new principle of federalism. This latter solution alone would be able to prevent & Third Buropean Far and n second Hitler, because an enslowed Cereery will or later seek and find her revenget either by vsr or by revolutich. One of the tasic and eternal vules of politics recomendst the reconciliation of an enemy when you cannet crush - and the crushing of en enemy when you cannot reconcile. the United Nations are fighting two different kinds of enemies en German seilt the Nami gang and the Cerman people. Fe must be aware that we can never reconcile "anton with ourselves; nor can we ever annihilate the Cerren race. These two facts indicate the deuble aspect of a lasting Buropean peacet we must emihilate irriconcilable Namism - and pare the way for the future reconcilisti of the indestructible German race. This double method of accuring peace has been clearly outlined by the Atlantic Charter and It has again been stressed by Stalin's last speech. But the only way to ableve this double result line in the Regraded Unclassified 13 129 establishment of a Rusropean Federation that would break forever with the cover-age notions of an independent German Redch, based on its national any and economy, and integrating the creative forces of the German race into a European Federation and into the wider community of our cormon civilisation. + For in spite of the obvious necessity for European Union we may never forget that our planet 1s growing maller day by day owing to the marvellous progress of technology. Therefore European isolation would be just such en illasion as American isolation. The slegan of the coming World will be not isolatio but co-operation. Therefore the now Europe will have to be established from its very beginnings in close co-operation with other Continents and Federations first of all with its two great neighbors in the last and in the West, the American Republics and the Societ world. Put what ever the future organization of our Planot might be, it is certain that Europe can never again return to its pre-war dismembrement. Whether the war should be followed by a permanent collaboration among the United Nations, or be a World Undon of Democracies, or by serve other successor of the unfortunate League of Nations, one thing is evidents that & future Europe will have to be considered not as & number of independent states, but as - single family of nations, bound together by gegraphy and by history, by cormon economic interests and by common cultural traditions. In this new era the Netherlands and Belgium for instance will have to adjust thair collaboration rahter after the model of the relations betw en the two neighbor-states Vermont and New Hampshire, than after those between Mexico and China. This new Europe will also have to decide for a federal lang e Regraded Unclassified 14 130 presumably English, to be taught in all its elementary schools besides the various national idions, as a necessary instrument of general understanding. The transformation of Surope into a single market with a comman nonstary system has become another necessity for any sound program of Centinental economic resurrestion, Only thus oan Europe assure a rising standard of living for its hage pogulation. + This war will be considered one day as the great Civil Tar of Europes as a gigentic revolution against the attempt of soma man, gangs, and states to re-astablish clavery, robbery and torture within our very civilized old Continent. I believe that this Civil Nar will have to be liquidated exactly like the American Civil War was liquidated # by a federal government, enforcing the respect for the Bill of Rights and the abolition of slavery within the entire Undons by granting equal rights to the vanquished States and to their citizens; by stressing the economic union between North and Souths by making any att :pt at e military or revolutionary revenge impossible and even inconcedvable; by paving the read toward ultimate reconciliation between victors and var quished within a camn patriotism. This wise and generous Anardean policy that has Ind to a complete success, indicates the only way in which we may successfully liquidate the Puronean War, as soon as Needom is overthrown and is followed by a civilized Goverment willing to accept the principles of the Atlentic Charter, and to collaborate in establishing a free and united Europe. For some time however, the feelings of hatred among the Europeans will undoubdatly provail as they did for years after your Civil ware Regraded Unclassified 12 15 131 Put It in encouraging to note that even these feelings of hatsed of revenge and recentment did not prevent the evolution , reconstruction and functioning of the United States end th triumph of ultimate No conciliation. So we need not bury the hope that one day Europe will look back on Hitler's Yes M you are now looking back on you Civil War or ngland on the "ar of Roses. Enendos of European Undon have expressed some apprehension that Germany night try to abuse the Baropean Federation to establish her hogemony over the Continent. Such a fear is utterly unfounded. For, according to the Atlantic Charter, the German Nation will control only one-tenthof Europes territory with less than a fifth of its population. A sound European Constitution, inspired by the Suropean example of Switz rland, could easily prevent any attempt of this little minority to dominate or to control any of its neighbors, If ever such an attempt should take place. On the other hand we may never forget that Hitler's only chance to conquer and to deminate Europe was based on the fact that he was facing a services of disunited and isolated states, without federal links. Bad 8 United States of Europe been established at the end of the last was, or even as a consequence of Briand's Initiative of 1929 - there would have been not Hitler ruling Germany and no Se and World Var torturing Europe and devastating the whole world. To cannot alter the past, but we still can save the future by a policy of clear vision and of corrageous action. The name peace program and 1dea that can serve during the war as a dighty psychological weapon for victory can b- transformed at its end into the most solid pillar of my future world organisation. The Same dynamde idea that can help to vin the war can als nervo to win the peacets Regraded Unclassified 16 132 uring three centuries Europeans of all Nations have con- tributed in building up this narvel of the World, the United States of America. How it is up to this New World to save Europe and all Estern civilisation by establishing on the rudns of Hitlerimm,the United States of Enrope- Regraded Unclassified 133 Personal LERONX CENTRAL 1942 5PM Now PM 6 FNTS ?' Mr. Henry Morgenthau, Secretary of the Treasury, RETARY'S CORNESPONDENCE DIVISION WASHINGTON, D.C. MERVED 12 9 DATE 0 134 TELEGRAM SENT MDS June 23, 1942 This telegram must bE paraphrased before be- 11 p.m. ing communicated to any- one other than a Govern- mental agency. (BR) AMEMBASSY, BUENOS AIRES, (ARGENTINA). CIRCULAR In accordance with B. request from the Treasury Department you are instructed to submit a daily report by telegraph on the following: (1) The market value of United States dollar cur- rency. (This refers to the price of United States notes and bills, not repeat not the Exchange rate for drafts or telegraphic transfers on the United States.) (2) Dome indication of the total volume of trade in United States currency. (3) Large blocks of United States currency which are seeking or which have found markets, with names of individ- uals involved in the transactions whenever such names are available. Charge telegrams to Treasury in accordance with Section V-45. Same to: Rio de Janeiro Bern Lisbon Stockholm Madrid Ankara HULL (AAB) FD:GL:MLB FF DCA EQ FA Regraded Unclassified 135 TELEGRAM SENT MJF June 23, 1942 This telegram must bE peraphrased before bEing 11 p.m. communicated to anyone other than a Governmental agency. (BR) AMERICAN EMBASSY LA PAZ, (EOLIVIA) (1) In accordance with e request of the Treasury Department you are instructed to submit by telegram every Monday A report on the following: (a) The closing market rate on the previous Saturday on United States dollar currency. (This refers to the price of United States notes and bills, not repeet not the Exchange rate for drafts or telegraphic trensfers on the United States.) (b) Some indication of the total volume of trade in United States dollar currency. (c) Large blocks of United States currency which Are seeking or which have found markets, with names of individuals involved in the transactions whenever such names are available. (2) It 18 suggested that the first report in this series bE submitted PB promotly F.B. possible after the receipt of this instruction and subsequent reporte on Mondays Regraded Unclassified 136 -2- Unnumbered, June 23, 11 p.m. to La Paz, (Solivia) Mondays ^8 indicated above. II Charge telegrams to Treasury in accordance with Section V-45. SPINE to: Santiago Quito Lima Caracas Montevideo Tangier Asuncion Bogota HULL (AAB) FD:GL:MLB FF DCA EO FA Regraded Unclassified 137 C o P Y DEPARTMENT OF STATE Washington June 23, 1942 In reply refer to FD 893.51/7502 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and trans- mits herewith copies of & parephrase of telegram No. 510, dated June 10, 1942, from this Department to the American Embassy at Chungking with reference to the fiscal and monetary situation of China, and copies of a paraphrase of the Embassy's reply thereto, telegram No. 732, under date of June 22, 1942. Enclosures: 1. No. 510, June 10, 1942, to Embassy, Chungking. 2. No. 732, June 22, 1942, from Embassy, Chungking. Copy:vw:6-24-42 Regraded Unclassified C 138 o P Y PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Chungking, China. DATE: June 10, 1942, 7 p.m. NO. : 510. It is the general impression of the Department that the fiscal and monetary situation of China is continuing to deteriorate in spite of the financial aid recently extended by the United States. It is also the feeling of the Department that as indicated in your despatch no. 384 of April 23 China itself may not be undertaking energetic steps to combat inflation to the extent that it might be practicable for it to do 80. In this connection reference is made to the memorandum prepared by Sir Ottó Niemeyer which, as reported in your despatch no. 261, December 31, 1941, the British Ambassador handed to you on December 20. Has China ever taken steps to implement suggestions such as those contained in points no. (1), (3) and (4) of Sir Otto's memorandum? If China has undertaken such measures do you consider that China is doing whatever may be reasonably expected or is feasible along these linec? It would be of interest to the Department to receive your opinions or suggestions with respect to any measures which you think China might appro- priately adopt to control bank credit, stimulate production, control prices or ration commodities. Although the Department does not wish you to make a specific inquiry of the Chinese Government on the matter, do you know whether the Government of China still is interested in obtaining an American central banking expert? Assuming that a person with proper qualifications can be obtained, do you have any views as to the desirability of sending such a person to China promptly? HULL (AAB) Copy:bj:6-24-42 Regraded Unclassified 0 139 o P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Chungking, China. DATED: June 22, 1942, 1 p.m. NUMBER: 732 The deterioration in the economic and monetary situation in China continues. You are referred to my despatch No. 266 of January 8 in connection with the failure of the American credit to influence the situa- tion favorably. The monetary circulation in June of last year was January approximately 10,500,000,000. In in of this year it had reached 15,000,000,000 and in April 18,500,000,000, or nearly thirteen times the pre-war figure. The monthly rate of issue at present amounts to nearly 800,000,000 yuan. On the basis of the first six months of 1937 = 100. The Chungking wholesale price index reached 1,400 in June of last year, 2,400 last December and approximately 4,300 last April. It is said that to date the expenditures of the Government are within the year's budget estimate of 17,000,000,000 yuan. There has been improvement in tax revenues, which including the tax in kind it is estimated will reach 6,000,000,000 or 7,000,000,000 yuan. The only Regraded Unclassified 140 The only use to which the American loan has 80 far been put is its use as backing for issues of saving certificates and American dollar bonds. The sale of these securities has 60 far been too small to retard inflation as it was hoped. Among the reasons which have been advanced for the limited demand for these securities are the following: (1) the large proceeds to be had from speculative ventures; (2) the failure to place the American dollar security in a trust fund; (3) the sus- picion that ultimate holders of American dollar credits will be subjected to the foreign trade and exchange controls of the Chinese Government; and (4) the failure to place any time limit on the availability of bonds at the present exchange rate which is highly advantageous to purchases. Some of these criticisms could of course be removed if appropriate action were taken. The Chinese Government has undertaken some measures similar to those recommended to it in Sir Otto Niemeyer's memorandum. Private stocks of gasoline are being requisi- tioned and gasoline is being rationed. In addition, there has been some taking of inventories of essential commodities. Regraded Unclassified 141 -3- It is probable that industrial cooperatives will be granted a credit of 100 million Chinese dollars but there is only halfhearted encouragement by the Government of small scale productive enterprises. Measures for in- creasing the production of consumer goods should be taken. Chinese legislation in the fields of hoarding and specula- tion is not effective, the enforcement of measures to correct these activities is not in competent or expert hands and accordingly hoarding and speculation continue practically unchecked. The same situation exists with respect to national mobilization in general and to price control measures. The necessary war-time national mobilization and economic controls are hardly possible in a country which has not reached a higher standard of administrative organi- sation and efficiency than that existing in China. Moreover, because of the considerable influence of bankers and land- lords in the Kuomintang and in the Government measures against their interests are opposed or or ineffective to a large degree. It is hoped that the taking over of the note issue of other government banks by the Central Bank on July 1 will make possible a stricter control of note issues and check currency inflation. Although regulations have been adopted for the control of bank credit there is no control of interest rates. There is a need for restrictions on the speculative activities of cash shops and private banks but the enforcement of such restrictions would be difficult. Regraded Unclassified 142 Over 75 per cent of the economy of China is agricultural and therefore less sensitive to monetary disturbances. Accordingly, in commenting on the economic situation of China, competent observers point out that the social and political dangers from inflation tend to be less in China than 1u Muntries which are more highly organized. That the situation is becoming more serious, however, is admitted by such observers. The general feeling which is shared by the Embassy is that China will continue as it has in the past to use half measures for avoiding collapse and will be able to get along on this basis for some time at least. The harvest last year was good and this together with the promise of bumper crops this year is more encouraging than activities undertaken by the Government of China. There has not been any recent expression of interest in an expert in central banking and it is the view of the Embassy that unless an official request is made by the Chinese Government no action should be taken with respect to this matter. In the opinion of the Embassy there are no practicable measures that we could take at this time to improve the economic situation in China. Moreover, it is the impression of the Embassy that further assistance or advice from us is not now desired or expected by the Chinese. GAUSS Copy:bj:6-24-42 143 C o P Y DM Bogota This telegram must be paraphrased before being Dated June 23, 1942 communicated to anyone other than a Governmental Rec'd 7:21 a.m., 24th agency. (BR) Secretary of State, Washington. 836, June 23, 11 p.m. Reference Department's number 705, June 20, 7 p.m. Information from Ministry of Finance indicates that Helda has not (repeat not) been subjected to Government trusteeship since modifications in that firms partners, made prior to Colombian Government decrees number 59 of January 16, 1942 and number 147 of January 26, 1942, left the Swiss corporation Sosicosa of Zurich and Jose Arturo Andrade, Colombian citizen, as sole partners. Therefore, rental payments by telephone company to Helda will not (repeat not) be frozen by Colombian Government. LANE RR Copy:vw:7-1-42 Regraded Unclassified C 144 0 P Y RS Ciudad Trujillo This telegram must be paraphrased before being Dated June 23, 1942 communicated to anyone other than a Governmental Rec'd 7:11 p.m. agency. (BR) Secretary of State Washington 286, June 23, 6 p.m. Department's instruction no. 622, June 20 The Treasury's press release number 32 - 9 June 17, stated that the currency was "believed (repeat be- lieved) to be of German origin". On page two of Radio Bulletin 144, June 18, it states that this currency is "known (repeat known) to have been in circulation in Germany." Inasmuch as the Dominican authorities may possibly wish to discuss more in detail the origin of this currency I would appreciate being in formed as to its exact status in the eyes of our Government. LAWTON HLM Copy:bj:6-25-42 145 C 0 P Y BRITISH EMBASSY, WASHINGTON, D.C. June 23rd 1942. With the Compliments of H. W. AUBURN Mr. Frank Dietrich, U.S. Treasury Department, Foreign Funds Control, 1610 Park Road, N.W., Washington, D.C. 146 C 0 P Y June 22nd 1942. W.T. 1124/BA/36/42. Further to previous memoranda regarding the Reichsbank accounts in Escudos ve have received the following information, which is sum- marized:- 1. Reichsbank's Escudo account with Banco Lisboa y Acores:- Payments in May 30 - June 6, 1942 Payments out From Leu & Co.'s Bank Esc. 6,100,000 To Miscellaneous Esc. 700,000 II Miscellaneous Sources Payees against Swies franc sales 5,600,000 11,700,000 Esc. 700,000 2. Reichsbank's Escudo account with Banco Espirito Santo:- Payments in May 30 - June 6, 1942 Payments out From Credit Suisse Esc. 500,000 To Miscellaneous Payees Esc. 1,900,000 II Swiss Bank Corp. 500,000 II Miscellaneous Sources against sales of Swiss france 5,600,000 Esc. 6,600,000 Esc. 1,900,000 Copy:1c:6/23/42 147 2041 PLAIN LSH Stockholm Dated June 23, 1942 Rec'd 7:20 a.m. 26th Secretary of State Washington 1595 twenty-third Parliamentary Banking Committee proposal freeze price and wage levels next autumn by agreement between government and various producer and consumer groups approved in principle by Riksdag. Agreement with Denmark covering trade during final half 1942 provides imports exports 21 million Swedish crowns each and comprises approximately same quotas as second half 1941. Simultaneously, financial agreement regulating payment Swedish claims in Denmark extended unchanged. Gross freight earnings Swedish merchant marine 1941 estimated 505 million crowns compared 442 million 1940 number ships engaged during 1941 smaller but average freight rates considerably higher. Funds now made available pay interest and amortization due June 15 Norwegian 3 and one half percent loan 1935 upon presentation owner- ship affidavit. Fuel shortage has caused large number fishing boats operat- ing Goteborg waters suspend work, Night frost Goteborg are a caused extensive damage potatoes vegetables. Inform Treasury, Agriculture, Commerce. JOHNSON NPL Copy:imc:6/29/42 Regraded Unclassified COPY NO, 13/48 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 213 Information received up to 7 A.M., 23rd June, 1942. 1. NAVAL TOBRUK. All vessels were evacuated by midnight 20th under shellfire of enemy tanks, some light craft and landing craft are missing. One of our motor gunboats attacked and drove. off six E-boats on 21st/22nd off CALAIS. 2. MILITARY TOBRUK. The enemy occupied the town and port areas with tanks and lorried infantry by the evening of the 20th after gaining control of the Escarp- ment overlooking the Harbour. Some small parties of our troops who escaped by sea have reached ALEXANDRIA. The enemy are reported to be in some force in the BARDIA- CAPUZZO area. 3. AIR OPERATIONS 22nd. Six Bostons with fighter escort, bombed DUNKIRK docks and six others attacked an aerodrome close by. One Junkers 88 was destroyed off GREAT YARMOUTH. 22nd/23rd. 246 aircraft were despatched - - EMDEN 227, aerodromes 17. Six are missing. Preliminary reports indicate that the majority attacked EMDEN in good weather, and many fires were started. LIBYA. During 21st and 21st/22nd our aircraft attacked transport at SIDI AZEIZ and on the TOBRUK-BARDIA Road. BENGHAZI HARBOUR and enomy aerodromes were bombed. On 21st, enemy aircraft attacked some of our forces 32 miler S.S.E. of EL GOBI. MALTA. Between 12: 45 P.M. 20th and 10 A.M. 22nd, about 60 enemy aircraft attacked. Four were destroyed and one damaged for the loss of one Spitfire 4. HOME SECURITY SOUTHAMPTON. 21st/22nd. Reported 35 killed and 35 seriously wounded 149 June 24, 1942 10:13 a.m. HMJr: Hello. Hello. Operator: Oh, he was on there a minute ago. Just 8 minute. White House Operator: Hello. Operator: The Becretary's on the wire. W.H.O. Mr. Secretary, Mr. McIntyre. HMJr: Hello. Marvin H. McIntyre: Hello. HMJr: Hello. Me: Henry. HMJr: Good morning. Me: Good morning to you, sir. Doughton's been wanting to see the boss HMJr: Yeah. Me: and this morning the boss told me that he thought he'd better have him in this morning and get it over with and to ask you to be there, too. HMJr: Good. Mc: Eleven-fifteen at the office. HMJr: Eleven-fifteen. Me: At the office. HMJr: At your office. Mc: Yes, sir. HMJr: I thank you. 150 - 2 - Mc: Thank you, Henry. HMJr: Hello. Mc: Yeah. HMJr: He doesn't want - does he want Randolph Paul there? Me: No, I think he just wants you and the old Bob. HMJr: Okay. Eleven-fifteen. Mc: Yeah. HMJr: Thank you. Mc: You all are too much for Bob, anyhow. HMJr: What? Mc: You and the boss are too much for Bob, anyhow. HMJr: The boss 1s. Me: (Laughs) HMJr: Too much for anybody. Me: (Laughs) All right. HMJr: Thank you. Mc: Fine, Henry. 151 June 24, 1942 10:15 a.m. WAR BONDS Present: Mr. Graves Mr. Kuhn Mr. Odegard Mr. Gamble Mrs. Klotz H.M.JR: What I wanted to see you about - Ferdie has upset me, I am sorry-- MR. KUHN: I am sorry. H.M.JR: I mean, I was going to try to give some- thing, and now I might better - I will get over the idea, but I won't be able to sell it to you because I can't be steamed up on something and then get cold water in the face. On this thought of looking, Harold, for somebody on the publicity angle, I don't know whether you are impressed with him - I don't know how much you know, but each of the four of you do know something of him, this man McClintock. I don't know how much each of you know him. MR. GRAVES: We all know him, and I think we are all favorably impressed with him. H.M.JR: Well, I was going to throw out to you the possibility - I mean, after you have looked into more of his background - the suggestion of McClintock. MR. GRAVES: Yes. We, as a matter of fact, had a little talk. I don't know whether it went beyond Dearaded 152 - 2 - Mr. Gamble, but following your talk I talked with Gamble, about him. H.M.JR: You mean you dreamt it, as the President would say? (Laughter) MR. ODEGARD: No, I know he didn't dream it. MR. GRAVES: And I think that is a very good sug- gestion, one that we ought to consider carefully. H.M.JR: I mean, you have already considered it? Why do you say he didn't dream it? MR. ODEGARD: Dream it? Well, I don't know whether he dreamt it or not, out of Freudian analysis, but Ted and I talked about McClintock, and if it is so common maybe we will dream about it. I don't dream about things. (Laughter) MR. GRAVES: No, that is a sound suggestion, I am convinced. MR. ODEGARD: I would raise one question only, as I did with Ted Gamble. McClintock has done a very excellent job for us through the Advertising Council in the preparation of advertising copy, but it seems to me that we probably need something more than that. We need something more than a good judge of advertising copy. H.M.JR: May I interrupt you? He didn't prepare any copy; he just got the people to do it. MR. ODEGARD: That is right, that is why I say we need somebody who is more than a good judge of advertising copy. I have no objection to McClintock except that one. I do know that there is very great pressure, at least if Editor and Publisher and these other things Regraded Unclassified 153 - 3 - are any indication, by advertisers, advertising agencies, and all the rest of it, just as there is pressure now from investment bankers and security dealers to find some kind of a lucrative-- MR. GRAVES: Formila. MR. ODEGARD: Well, some activity. The advertis- ing lineage has gone up; it went up last year over the year before, but in certain areas it has dropped very sharply and it is more likely to drop again sharply this year. It may be a protective device, I don't know, but I just think we ought not to be unaware of that fact. H.M.JR: Well, I hadn't thought of that. I don't know what - you said he is something of a - that he teaches? MR. KUHN: He did teach. MR. ODEGARD: Yes, that is right. MR. GAMBLE: He is a brilliant man. I think that the advertising people have resigned themselves to the fact that the Government is not going to spend any money, and I think they want to do a good job of trying to coordinate their work with the Government activities, to the end that they can get their own clients to spend more money for more effort. MR. ODEGARD: In this week's Editor and Publisher there is an article in which they say that the reason why the Army has done such a superb job, as compared with the War Savings Staff, is because the Army put itself in the hands of an advertising agency. H.M.JR: The Editor and Publisher has fought us for the last five years so it is nothing new. It is nothing new. Well anyway, I was full of this thing, and then Ferdie upsets me. (Laughter) I had my mind Regraded Unclassified 154 - 4 - single-tracked. I hope I didn't upset you too much, Ferdie, but I was trying to think of somebody, and I thought - I am just raising it. I am not even recom- mending it. I don't know enough about the man. I thought the biggest objection that somebody would raise would be, "Well, you take him away from that Council and I may lose the benefit of the Council, and the Council is doing a lot of work for other Government agencies." I mean, without knowing an awful lot about the man, he is the kind of man I am looking for. Is that right, Harold? MR. GRAVES: That is right. I think one definite advantage is he seems to work well with people. MR. ODEGARD: Of course I have only met him twice. MR. GRAVES: I think he would be apt to fit in quickly with our organization, with a minimum of upsetting. H.M.JR: Ted handled him the most, didn't he? MR. GAMBLE: Yes. H.M.JR: What do you think of him? MR. GAMBLE: I thought enough of him that we had a conversation about him. I think he is splendid. H.M.JR: Well, I don't know what - by whatever theory, whether it is Freudian or whatever it is, we evidently all thought of the same man. As I say, I want to make it very clear I am not recommending him, but I was trying to think of somebody of that type, to sort of give it to you. So that is that. That is my ten o'clock suggestion. Regraded Unclassified 155 - 5 - MR. GRAVES: I suppose you would like us to go further with this, perhaps go to the extent of talk- ing with Mr. McClintock about it? H.M.JR: That was the thought. MR. GRAVES: I think the objection raised by Peter is one, probably, that we can meet in advance. He would have to assure us of what his attitude was, and we would have to demand complete loyalty to our project, a clean separation from that advertising group that may want to be pushing in with some paid program. MR. GAMBLE: The biggest worry is going to be, are we going to be able to get him. The advertising people, I think, are to be commended for doing such a grand job of picking a man to represent them, and I understand they are paying him some fifty thousand dollars a year. I don't know whether that is correct or not. But they picked what they thought was the best man in the country to represent them in all the Government agencies, and I think they did a pretty good job of picking. H.M.JR: Well, I was thinking during the night of who around the people - I thought we would start with him, then if you couldn't get him maybe he could think of somebody, but at least not go to him and say, "Mr. McClintock, can you recommend somebody?" We should at least do him the compliment, if it is a compliment, of offering it to him. MR. GAMBLE: He will appreciate it. H.M.JR: Harold, I want it perfectly clear. I am just raising it. I am not recommending it. MR. GRAVES: Yes, I understand. H.M.JR: That is all I have got. chished! 156 June 24, 1942. 12:46 p.m. HMJr: Will you give Mr. Gamble this message for him? Miss Adame: Yes, sir. HMJr: He told me in a hurry this morning what - oh, what's the man's name in New York whose in charge of the A: Colonel Patterson? HMJr: No, the drive.... Madden? A: Madden? John Madden? HMJr: Yeah, what Mr. Madden proposed to do with the 70 or 75 men Monday, see? A: Uh-huh. HMJr: Well, I'm afraid I didn't get it all, and I wish he'd either - he'd get Mr. Madden to put it down in writing. A: All right. HMJr: .... just what the plan is, and if possible let me have a copy of it tomorrow. A: Yes, sir. Well, he asked Mr. Madden to do that and he's going to send it in. HMJr: oh, he has asked him. A: Yes, sir. HMJr: Fine. Well, when he gets it I'd like to have it to go over with Mr. Gamble myself. A: All right, sir. HMJr: Thank you. A: I'll tell him. Goodbye. 157 June 24, 1942. 2:05 p.m. HMJr: Hello. Operator: Mr. Mack. HMJr: Hello. Clifton Mack: Yes, sir. HMJr: Hello, Cliff. Cliff, I wrote a letter a couple days ago to Don Nelson.... M: Yes. HMJr: ....telling him I was worried about this 300,000 or more Russian steel bottom cargo. M: Yes. HMJr: I haven't heard a thing from him. M: Yes. HMJr: Are we still buying that? M: Yes, we are and I intended to call you later this afternoon to ask if I could see you sometime tomorrow. HMJr: Surely. M: I'd like to if you can fit it in. HMJr: Surely. M: On this shipping situation. HMJr: Sure. M: Well, very good.... HMJr: Wait a minute, I'll give you eleven o'clock tomorrow. M: Very good. HMJr: Yeah. M: Very good, and that would be fine. 158 - 2 - HMJr: And also about buying for Russia. M: Yes? HMJr: I mean, are we still buying for Russia? M: Oh, yes. Yes, we are. HMJr; You'd better let me know how much we've got in storage. Il M: Yes, I'll do that. I'll have those figures for you. HMJr: All right. M: Now, I think this - this shipping situation that they changed about six weeks ago... HMJr: Yeah. M: ...and there's quite a lot of procedure to it; it's kind of involved; and I think we've - it's got to be streamlined. HMJr: All right. M: And I'd like to talk to you a little bit about it. HMJr: 0. K. M: Fine. Eleven o'clock then. HMJr: Yes, sir. 159 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1942 TO Secretary Morgenthau FROM Mr. Hass Subject: Municipal Bond Flotations In accordance with your request, there is attached hereto a chart, the bottom grid of which shows municipal bond flotations divided into new capital and refunding. During the month of May 1942, total municipal bond flo- tations totaled only $30 millions, the lowest level since September 1939. For the first five months of 1942, total municipal financing was $299 millions as compared with $520 millions for the corresponding 1941 period. of these latter amounts, approximately 70 percent and 50 per- cent, respectively, represented new capital. The proportion of new capital to total finanoing is customarily greater in the case of. municipal than in corporate issues. During the past ten years, over 75 per- cent of the total municipal financing represented new capital while only 33 percent of total corporate flo- tations (both bonds and stocks) were issued for this purpose. State and local securities are usually issued for specific projects, and either mature serially or are pro- vided with sinking funds. They are consequently seldom refunded at maturity. Municipal securities are also generally non-callable, 80 that the possibilities of re- funding before maturity at a saving in interest rates are also much smaller than in the case of corporate securities. While the volume of new capital flotations by State and local governments 1s a substantial portion of their total bond flotations, these same governments are ordi- narily retiring outstanding issues for cash as they mature. In recent years the volume of new capital issues has been approximately offset by such retirements. Con- sequently, the total municipal debt,* which increased from $1.9 billions in 1902 to $17.7 billions in 1932, has re- mained almost stationary at around $18 billions during the past few years. Less sinking funds. Regraded TOTAL DOMESTIC COND FLOTATIONS (EXCLUDING FEDERAL) DOLLARS DOLLARS Millions Millions Total Excluding Federal Government and Federal Agency 800 800 Refunding Total 700 New Capital 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 700 700 160 Domestic Corporate 600 600 500 500 400 400 300 300 200 200 100 100 0 o 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 400 400 State and Local 300 300 200 200 100 100 o 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 o 1931 1932 1929 1930 Regraded Unclassified F-208 161 JUN 24 1942 Dear Marriners I appreciate your letter of June 9, 1942, advising no of the action taken with respect to the activity in Government securities of the Chairman of the Board of Directors of the Federal Reserve Bank of Chicago. Sincerely yours, Secretary Henry of the Treasury. Honorable Marriner s. Feeles Chairman, Board of Governors Federal Reserve System Washington, D. c. File n. m.c. DWB:ew 6-23-42 copies town Thompson Regraded Unclassified 162 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 3 HEARTS of 2 WASHINGTON OFFICE OF THE CHAIRMAN June 9, 1942. PERSONAL AND CONFIDENTIAL Dear Henry: Upon receipt of your letter of May 19, I immediately took up in an executive session of the Board the matter of Mr. Frank J. Lewis' dealings in Government securities. We were, of course, unanimous in the view that this was an impropriety, to say the least, that could not be condoned. At my request Mr. Lewis came to Washington and called at my office on June 1. Before he left I had him sign a letter of re- signation as Chairman and Federal Reserve Agent and as El Class C Di- rector of the Federal Reserve Bank of Chicago. The Board has formally accepted the resignation as of July 1. Mr. Lewis was greatly upset when I told him that while no question of the legality of his transactions was raised, we considered them improper and unethical and that there was no alternative but for him to tender his resignation. In view of his long years as B. business man with an unblemished public reputation and his six years of honorary service without compensation at the Chicago Bank, I agreed to permit him to sign a letter of resignation that, like the letter of acceptance, does not spread on our records for any public inspection the occasion for demanding the relinquishment of his position. I think the best interests of the System as well as of the Treasury in its relationship to the Federal Reserve Banks as fiscal agents are served by disposing of the matter in this fashion. Let me add that we all appreciate the way in which you brought this matter to our notice as soon as it came to yours. Marimer Sincerely yours, Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Regraded Unclassified 163 Regraded Unclassified JUN 24 1942 Dear Mr. Leffingwell: Thank you very mash for your letter of June 11, 1942. I M glad that you agree with the Treasury's policy with respect to the voluntary sale of Government securities. I agree with you that as such of the funds needed to finance the ver as is possible should be raised from teration. I believe in the program which we pro- sented to the Rays and Means Committee by the Treasury 19 have gene just about as far as w can safely go at this time in taxes. I note what you say about the delay, red tape and paper work in connection with the redemption of Mar Savings Rode. Generally speaking, Way Savings Bonds are promptly redeemed, but as you know, it was necessary to throw certain restrictions around their redemption in order to protest the owers as wall as the Government in these redemptions. For instance, it is necessary for the over to sign the request for redemption before certain individuals named in the regulations and be identified by that individual as the ower of the bond. This is for the pro- testion of the own, but may of them 40 not appreciate this. There are other cases where the owner has died and the 00-01-2017 or the beneficiary has requested redemption. It, of course, is accessary in these casse to have certain ovidence available to the Treasury before redemption can be mis. These cases take time and involve a great deal of correspondence. There do not - to be 80 may cases of this kind, but the few cases there are cause nost of the criticism. I appreciate all you my about the mtter end - have attempted to speed up the redemptions as mush as w possibly can, at the - time requiring - degree of safety an these redemptions. I appreciate your writing and remain Sincerely yours, (Signed) 1. Morgenthau. in. Secretary of the Treasury. Semerable 1. T. Leffingwell 23 Wall Street New York, 1. Y. Phato file n.m.c. DWB:ew 6-23-42 Orig. file to mr. Thompson 23 Wall Treet New York June 11, 1942 Dear Mr. Secretary: I am delighted to see that you are firm in your op- position to so-called forced savings. Forced saving is really suphemism for a forced loan. A government that is forced to sell forced leans is likely to be, or become, in bad credit. Few people will want to buy bonds voluntarily of a government that is forced to force its loans down the people's gullets. Foroed loans are loans that are badly sold, badly placed, and will come back on the market. If an effort is made to make the bonds unsaleable, unnegotiable and unredeemable during the war, then there will be a black market in them. The poor peo- ple whose money has been taken from them by force will have to part with their bonds at a wicked discount to the further dis- credit of the Government's credit. I know nothing more harmful to the war savings' cam- paign than the veiled threat (which some thoughtless persons are making) of forced loans if the people don't come across and buy bonds voluntarily. Not only is it injurious to the credit of the United States, but it tends to make people who might otherwise buy bonds voluntarily hold back so that they will have some money to pay for the threatened forced loan when it comes along. The people should be taxed to the very limit of en- durance, and the Government should hand out a tax receipt for the taxes it collects, not a promise to pay the money back. Nobody can know beforehand how much each citizen has Regraded Unclassified 2. got to spend. One man may have a dosen children and another none. One man may have sickness in the family and another none. The very essence of successful war finance is to tax up to the limit of safety the personal incomes of all of the citizens, and then appeal for the balance to the people to subscribe voluntarily for loans according to their remaining means. This allows for the variation in the means and needs of the citizens. Neighbors can be counted on to judge whether a citizen is doing his part or not if you really organize each community to sell the war loans. Public opinion will take care of the slackers. Another subject but not an unrelated one -- I hear the most grisly tales of the red tape, paper work and delay, in some cases covering a period of months, incident to collecting War Savings Bonds presented for redemption. I have no first- hand knowledge of it, but I thought I would pass this on to you because I am sure if such conditions do exist it 18 without your knowledge or approval, and that you will want to remedy them. It goes without saying that a Treasury which has tens of billions of dollars to borrow cannot allow itself to get the reputation of be- ing slow in paying its debts. As we say in banking, a paying teller has got to be quick on his toes and pay on the dot if the receiv- ing teller is going to have any business to do. I am, my dear Mr. Secretary, with great respect Faithfully yours internal The Honorable The Secretary of the Treasury Washington, D. C. Regraded Unclassified 166 June 24, 1942 TO: MR. KUHN FROM: THE SECRETARY I want to quote from a letter from Mr. Leffingwell, of New York: "Forced saving is really euphemism for a forced loan." I wonder if we could not sort of tell some of the commentators, writers, etc., to get across the idea that when people are recommending compulsory savings versus volunteer savings, they are really recommending a forced loan as against a volunteer loan. Regraded Unclassified 167 June 24, 1942 Dear Harold: I appreciate your letter of June 23, and I am especially glad that you liked what I said about fore- going the buying of consumers goods. Ever since I spoke on the radio we have been putting more and more emphasis on the need of self-restraint on the part of buyers. The approach you suggest is the one we are using: namely, that by refraining from buying the people are making possible the use of materials and labor by the war industries for the eventual use of our fighting men. We have found that people will not respond to the saving appeal in terms of outting down excess purchasing power. They don't understand the conception and are not particularly interested. We find an entirely different result, however, when we tie the saving appeal to the war in the way you have suggested. People like to feel that by denying themselves they are helping the men in uniform. As for the abuses of our appeal which you mention, I can only cite our continual and steadily increasing emphasis on the investment of current income. You will notice that our quota campaign calls for at least ten percent every pay day, and every poster, advertisement, or radio announcement that emanates from the Treasury emphasizes the "every pay day" angle. We have not sought to tap accumulated savings, and we are making every effort to convince the public that current income is the real money we want and need. I am sending copies of your letter to all those in charge of our promotion effort, but in the meantime, let me tell you again how much I appreciate the interest which you have shown. Sincerely, Hon. Harold D. Smith, (Signed) Henry Director, Bureau of the Budget, FK/cgk Washington, D. C. Original file te Thompoon Photo file n.m.c Regraded Unclassified EXECUTIVE OFFICE OF THE PRESIDENT BUREAU or THE BUDGET WASHING DO Juit My dear Mr. Secretary: Your recommendation in a recent radio address that the American people refrain from buying consumer goods and services unless absolutely necessary impressed me very much. I en wondering if the Nar Savings staff could not give more emphasis to this most important point in the war bond sales campaign. In the fight against inflation, great reliance has properly been placed on the sale of bonds and stamps to absorb excess purchasing power and thus support other measures designed to control the cost of living. Recent surveys seem to indicate that many of the people buying bonds and stamps believe the purpose of the campaign is to provide dollars for tanko, guns, and ships. Hence, they feel it their duty to withdraw funds from savings accounts and life insurance, to postpone paying off debts, or to divert ordinary savings to war bonds and stamps. Unfortunately, the transfer of savings of this nature increases the government's interest bur- den without aiding substantially the anti-inflationary program. Commercial organizations have even perverted the campaign to promote the sale of their products. "Buy a watch and & band," "Buy at our store on your credit and use your cash to buy War Bonds." In general, it seems to no that we want to discourage advertising which promotes the sale of goods, since such promotion is in direct conflict with the objective of decreasing consumption. Could not the War Savings staff, in all phases of the campaign, emphasise the need of postponing purchases not absolutely necessary? It could become patriotic to be self-sufficient, to wear last year's clothes with patches (rather than the new war-style dress), to make what one has last longer. The people should become convinced that by foregoing goods of and services, through not buying, they are making possible the use these goods and services by our fighting men at the front. By increasing public understanding of the real problems involved, the campaign to sell bonds and stamps could thus become a more potent weapon in the fight against inflation. Yours sincerely, The Honorable The Secretary of the Treasury Regraded Unclassified 169 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1942 TO Secretary Morgenthau FROM Mr. Thompson Director Hall wanted you to know that Secretaries Stimson and Knox, and Postmaster General Walker are planning to be at the Bureau at 12:15, Thursday, June 25th, to witness the first run of the new "Win the War" stamps. the 170 TREASURY DEPARTMENT m INTER OFFICE COMMUNICATION DATE June 24, 1942. To Secretary Morgenthau FROM Harold Graves As you asked on Monday, I hand you herewith a memorandum, prepared by Mr. Haas, indicating the progress being made under the payroll allotment plan throughout the country. 171 OPERATION OF PAYROLL SAVINGS PLAN IN MAY 1. During the past 3 weeks 12,124 companies employing 7,700,000 per- sons have submitted data to the Treasury covering the operation of the payroll savings plan in their organizations in response to your monthly letter to such companies requesting this information. The figures cover such a large number of companies and employees that they are believed to be representative of the opera- tion of the payroll savings plan in all of the companies in the country. 2. On the basis of the application of the figures reported by the 124 companies, it is estimated that 13,900,000 persons (approximately 65 per- cent of the persons exposed) had funds deducted from their pay for the purchase of war savings bonds during the month of May. It is further estimated that these de- ductions amounted to 5.3 percent of the monthly pay of these persons, or to approx- imately $9.09 for each one of the persons participating. This amount would be suf- ficient to purchase one $25 bond per person every 9 weeks. In the aggregate, it is estimated that the amount of the deductions from pay was $126 millions during May but that as a result of the lag between the time the deductions are made and bonds are actually purchased from the funds accumulated, the total purchases of war sav- ings bonds under payroll savings plans during May amounted to only $95 millions. 3. Figures similar to the foregoing have been given to you from time to time in the past. A table summarizing these figures will provide an over-all picture of the progress that has been made during the past 6 months, and a. cue to the distance that still has to be traveled. Such a table follows: : Number of : Number of : Estimated : : : Aggregate : number of Percent of Average de- : firms with : employees Aggregate : bonds pur- : 100 or more : exposed to : employees pay of par- duction per deductions :chased from Month : employees payroll sav-: partici- ticipating employee made : funds ac- : with payroll ings plan : pating employees partici- : (millions) : cumulated savings plans: (millions) : (millions) deducted pating : (millions) Dec 2,500 4.0 0.7 4.1 $ 7.10 $ 5.0 $ 3.0 Jan 7,500 10.3 3.8 4.5 7.28 28.0 10.0 Feb 16,428 12.8 7.6 4.8 7.69 58.0 25.0 Mar 17,260 18.7 9.6 4.9 8.08 78.0 40.0 Apr 20,114 20.7 11.6 4.9 8.31 96.0 65.0 May 21,301 21.4 13.9 5.3 9.09 126.0 95.0 June July Aug Sent Goal. 33,695 35.0 30.0 10% $17.00 $500.0 $500.0 Note: Figures in first column relate to firms with 100 or more employees only. Figures in all other columne relate to all firms in the country. Regraded Unclassified 172 June 24, 1942 Harold Graves Secretary Morgenthau Amongst my weekly mail is a letter from Charles H. Hill, Jr., Gloucester, Massachusetts saying he can't get 254 stamps. I wish you would check this case, and also some other places and see if it is so difficult to get stamps. It seems to me that by this time we ought to have enough places where people can buy stamps easily, and where they would be on sale at all times. Please let me hear from you on this in the next day or two. See Draves memos 6/26/42- 173 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1942. TO Secretary Morgenthau FROM Mr. Tickton 565 Subject: Corporations qualifying as issuing agents for war savings bonds the week ended June 20. Attached to this memorandum are 3 tables presenting the latest data on corporations qualifying 28 issuing agents for war savings bonds. A summary of the data in- corporated in the tables follows: (1) The total number of corporations issuing war savings bonds increased to 2,240 8.8 106 corporations qual- ified during the week ended June 20. (Table 1) Employ- ment in corporations acting as issuing agents aggregated 5.9 million or 28 percent of the total number of persons employed in all companies having payroll savings plans. (Table 2) (2) There were 53 corporations with more than 500 employees which qualified as issuing agents during the week ended June 20 bringing the number to date to 1,455, or 30 percent of the total number of companies of this size with payroll savings plans. The Federal Reserve Banks of Richmond and Minneapolis still lagged far behind the other banks in qualifying larger corporations as issu- 1ng agents. (Table 3) Attachments Regraded Unclassified Corporations with Payroll Plans Appointed as Issuing Agents May 23, 1942 to date : May : May : June : June : June Federal Reserve District : 23 : 30 : 6 = 13 : 20 Boston 5 10 11 11 13 New York 26 24 26 20 19 Philadelphia 7 8 9 8 5 Cleveland 11 6 8 8 - Richmond 3 7 6 6 4 Atlanta 8 6 3 4 2 Chicago 23 26 19 13 12 St. Loui 20 13 9 8 9 Minneapolis 2 1 1 1 - Kansas City 2 4 3 1 2 Dallas 1 - 1 - 4 San Francisco 21 29 36 35 36 Total 129 134 132 115 106 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. 174 Regraded Unclassified 175 Table 2 Corporations Acting as Issuing Agents for Savings Bonds Purchased by Their Employees Under Payroll Savings Plans January 31, 1942 to date : : : Number of : : Number of : Number of : employees : Percent of : corpora- : employees : in all : employees : tions act- : in corpora- : corpora- : in corpora-' Date : ing as = tions act- : tions with : tions act- : issuing : ing as : payroll : ing as : agents : issuing : plans in : issuing : : agents : the country : agents January 31... 351 * 15,000,000 # February 28.. 686 * 17,000,000 * March 28 931 # 19,000,000 * April 18 1,110 3,179,349 19,500,000 16.3 April 25 1,223 3,449,927 19,700,000 17.5 May 2 1,331 3,934,448 19,900,000 19.8 May 9 1,475 4,401,738 20,000,000 22.0 May 30 1,887 5,286,402 20,300,000 26.0 June 13 2,134 5,725,107 20,700,000 27.7 June 20 2,240 5,855,434 20,900,000 28.0 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. # Not available. Doaraded Table 3 Progress of the Federal Reserve Banks in Appointing Corporations with 500 or More Employees as Issuing Agents : : Number of corpo- : Number of : : rations with 500 : Percent corporations : : or more employees: appointed Federal with payroll : : appointed as : as issuing Reserve District : savings plans : issuing agents : agents : having 500 or : Week Ended : Week Ended : more employees : June 13 : June 20 : June 13 : June 20 Boston 475 112 121 24 25 New York 902 280 294 31 33 Philadelphis 427 177 178 41 42 Cleveland 592 123 123 21 21 Richmond 446 60 61 13 14 Atlanta 228 62 63 27 28 Chicago 868 323 328 37 38 St. Louis 152 68 72 45 47 Minneapolis 101 15 15 15 15 Kansas City 147 33 33 22 22 Dallas 72 20 20 28 28 San Francisco 368 129 147 35 40 Total 4,778 1,402 1,455 29 30 Office of the Secretary of the Treasury, June 23, 1942. Division of Research and Statistics. 176 Regraded Unclassified CONFIDENTIAL 177 UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June : Cumulative sales by business days Date : daily : : : : June June as : sales : : May : April :percent of May June 1942 1 $ 9,705 $ 9,705 $ 7,302 $ 11,987 132.9% 2 7,895 17,601 15,168 21,677 116.0 3 8,634 26,235 25,516 29,097 102.8 4 13,774 40,009 33,145 35,818 120.7 5 9,344 49,353 48,751 46,174 101.2 6 6,535 55,888 60,817 55,991 91.9 8 11,526 67,414 67,213 63,695 100.3 9 4,952 72,366 72,794 70,364 99.4 10 9,945 82,310 80,845 77,197 101.8 11 7,542 89,852 85,410 80,586 105.2 12 5,402 95,254 94,391 91,623 100.9 13 6,210 101,464 102,106 96,031 99.4 15 7,251 108,715 108,923 102,657 99.8 16 3,564 112,279 114,129 111,829 98.4 17 7,470 119,749 123,534 116,374 96.9 18 6,299 126,048 127,724 120,625 98.7 19 8,014 134,062 138,908 131,852 96.5 20 3,367 137,429 149,502 136,532 91.9 22 10,269 147,698 156,587 145,250 94.3 23 5,834 153,532 161,404 152,983 95.1 fice of the Secretary of the Treasury, June 24, 1942. Division of Research and Statistics. urce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL 178 UNITED STATES SAVINGS BONDS - SERIES E Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June : Cumulative sales by business days Date : daily : June : : May : : sales : April June as : : :percent of May June 1942 1 $ 19,834 $ 19,834 $ 12,679 $ 12,993 156.4% 2 8,008 27,841 24,263 24,256 114.7 3 12,970 40,811 46,532 35,050 87.7 4 17,388 58,199 55,460 47,119 104.9 5 24,789 82,988 73,824 65,115 112.4 6 15,209 98,197 97,049 73,795 101.2 8 27,048 125,245 114,218 85,714 109.7 9 8,912 134,157 128,670 97,925 104.3 10 20,085 154,242 151,956 108,707 101.5 11 15,678 169,920 161,346 116,081 105.3 12 16,550 186,470 177,133 138,272 105.3 13 15,230 201,700 194,047 146,937 103.9 15 23,984 225,684 208,939 154,623 108.0 16 7.535 233,218 223,242 168,103 104.5 17 15,815 249,033 247,532 178,870 100.6 18 12,288 261,321 257,374 189,156 101.5 19 19,421 280,742 271,079 207,742 103.6 20 10,987 291,729 290,485 217,104 100.4 22 29,386 321,114 309,584 229,140 103.7 23 10,692 331,806 323,705 241,644 102.5 fice of the Secretary of the Treasury, June 24, 1942. Division of Research and Statistics. arce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL 179 UNITED STATES SAVINGS BONDS - TOTAL Comparison of June sales to date with sales during the same number of business days in April and May 1942 (At issue price in thousands of dollars) : June : Cumulative sales by business days Date : daily : June : : May : : sales : April June as : : :percent of May June 1942 1 $ 29,539 $ 29,539 $ 19,981 $ 24,980 147.8% 2 15,903 45,442 39,430 45,933 115.2 3 21,604 67,046 72,048 64,147 93.1 4 31,162 98,208 88,605 82,937 110.8 5 34,132 132,341 122,575 111,289 108.0 6 21,744 154,085 157,866 129,786 97.6 8 38,574 192,659 181,431 149,409 106.2 9 13,863 206,523 201,464 168,289 102.5 10 30,029 236,552 232,801 185,904 101.6 11 23,220 259,772 246,756 196,667 105.3 12 21,952 281,724 271,525 229,895 103.8 13 21,439 303,163 296,152 242,969 102.4 15 31,235 334,398 317,861 257,280 105.2 16 11,099 345,497 337.371 279,933 102.4 17 23,285 368,782 371,066 295,244 99.4 18 18,587 387,369 385,098 309,780 100.6 19 27,435 414,804 409,987 339,594 101.2 20 14,354 429,158 439,987 353,636 97.5 22 39,655 468,812 466,171 374,391 100.6 23 16,526 485,338 485,109 394,628 100.0 fice of the Secretary of the Treasury, June 24, 1942. Division of Research and Statistics. arce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. pte: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 180 Sales of United States Savings Bonds CONFIDENTIAL From June 1 through June 23. 1942 Compared with Sales Quota for Same Period (At issue price in millions of dollars) Series E : : Series F and G : Total : Actual Sales : Quota, : Sales : Actual Sales I Quota, : Sales : Actual Sales : Quota, : Sales Date : : June 1 : June 1 : to Date I : June 1 : June 1 : to Date : : June 1 : June 1 : to Date : Daily : to : to : as x of : Daily : to : to : as $ of : Daily : to = to : as $ of : : Date : Date : Quota : : Date : Date* : Quota : : Date : Date : Quota 1 $ 19.8 $ 19.8 $ 21.7 91.2% $ 9.7 $ 9.7 $14.0 69.3% $ 29.5 $ 29.5 $ 35.7 82.6% 2 8.0 27.8 32.0 86.9 7.9 17.6 23.0 76.5 15.9 45.4 55.0 82.5 3 13.0 40.8 46.4 87.9 8.6 26.2 37.9 69.1 21.6 67.0 84.3 79.5 4 17.4 58.2 63.6 91.5 13.8 40.0 51.0 78.4 31.2 98.2 114.6 85.7 our 24.8 83.0 79.6 104.3 9.3 49.4 61.7 80.1 34.1 132.3 141.3 93.6 15.2 98.2 93.7 104.8 6.5 55.9 69.4 80.5 21.7 154.1 163.1 94.5 8 27.0 125.2 120.0 104.3 11.5 67.4 82.2 82.0 38.6 192.7 202.2 95.3 9 8.9 134.2 132.4 101.4 5.0 72.4 89.2 81.2 13.9 206.5 221.6 93.2 10 20.1 154.2 149.6 103.1 9.9 82.3 99.6 82.6 30.0 236.6 249.2 94.9 11 15.7 169.9 170.0 99.9 7.5 89.9 108.4 82.9 23.2 259.8 278.4 93.3 12 16.5 186.5 189.0 98.7 5.4 95.3 115.4 82.6 22.0 281.7 304.4 92.6 13 15.2 201.7 205.6 98.1 6.2 101.5 120.8 84.0 21.4 303.2 326.4 92.9 15 24.0 225.7 236.5 95.4 7.3 108.7 130.9 83.0 31.2 334.4 367.4 91.0 16 7.5 233.2 251.1 92.9 3.6 112.3 137.3 81.8 11.1 345.5 388.4 89.0 17 15.8 249.0 271.3 91.8 7.5 119.7 147.8 81.0 23.3 368.8 419.1 88.0 18 12.3 261.3 295.2 88.5 6.3 126.0 157.0 80.3 18.6 387.4 452.2 85.7 19 19.4 280.7 317.4 88.4 8.0 134.1 164.6 81.5 27.4 414.8 482.0 86.1 20 11.0 291.7 336.9 86.6 3.4 137.4 170.6 80.5 14.4 429.2 507.5 84.6 22 29.4 321.1 373.0 86.1 10.3 147.7 181.9 81.2 39.7 468.8 554.9 84.5 23 10.7 331.8 390.0 85.1 5.8 153.5 189.2 81.1 16.5 485.3 579.2 83.8 24 413.5 201.3 614.8 25 441.1 212.0 653.1 26 466.8 221.0 687.8 27 489.2 228.0 717.2 29 530.6 241.4 772.0 30 550.0 250.0 800.0 Office of the Secretary of the Treasury, Division of Research and Statistics. June 24, 1942. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Takes into account both the daily trend during the week and the monthly trend during the month. 181 JUN 24 1942 MEMORANDUM TO THE PRESIDENT: I - returning herevith letter ested June 12, 1942 from Mrs. Deris Mas Marrey of Fall River, Massachmeetts, which you transmitted with your note of June 18, 1942, asking what you should do about it. Mrs. Marray has writ- ten a book entitled "Com Thing After Another" which she offers to donate to the United States Government, any proceeds from the sale of which would be used to replace the two blimps that vire recently destroyed at Lakeburst. Mrs. Murray has written one other book entitled "Pick of the Crop" which apparently has not had 6. very vide circulation, although she claims that it is widely read in her neighborhood. I do not believe that the Government should accept unpublished memocripts from any author. It would be necessary for the Government to stand the expense of publication and would certainly build up the reputation of the author. If we established a presedent I - efraid we would be flooded with offers of this kind. I am attaching a draft of reply to Mrs. Murray's letter for Harvin NoIntyre's signature. I thought it would probably be better for him to sign it rather than you. However, if you prefer to sign 1t, it can be changed for your signature. (Signed) R. Marguathau, its Attachment By memoryer 4:45 Photo File n.m.c DWB:ew 6-24-42 Capies to Thompson Regraded Unclassified 182 By dear Mrs. Murray: The President has asked me to acknowledge receipt of your letter of June 12, 1942, in which you so graciously offer to donate to the United States Government your DEW book entitled "Ome Thing After Another", the proceeds from the sale of which would be used to replace the two blimps recently destroyed at Lakehurst. The President has asked no to convey to you his sincere thanks for your very generous offer and he appre- siates the spirit in which it was made. However, the Government does not have any means whereby it can accept unpublished manuscripts of this character. If your offer were accepted it would be necessary for the Government to make all arrangements for publication and distribution, which it is not at the present time equipped to do. If the arrangements could be made by you to have the book published and sold through the usual channels, the Secretary of the Treasury would be glad, under the provisions of the Second Mr Powers Act, to accept any part of the proceeds which you care to donate to the United States for the 10- placement of the two blimps mentioned. Again thanking you for your kind offer, I as Very truly yours, MARVIN H. McINTIRE Secretary to the President hrs. Doris line Murrey 463 Oak Grove Avenue Fall River, Massechusetts. DWB:ew 6-24-47 Regraded Unclassified 183 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE JUN 2 4 1942 TO Secretary Morgenthau FROM Mr. Foley In accordance with the existing instructions, there is submitted herewith a summary report of activities and accomplishments carried on by the Legal Staff for the month of April 1942. 9.74. Attachment. 184 SUMMARY REPORT ON ACTIVITIES AND ACCOMPLISHMENTS IN THE OFFICE OF THE GENERAL COUNSEL APRIL, 1942. The following matters received attention in the Office of the Chief Counsel for the Bureau of Internal Revenue: 1. Use Tax on Motor Vehicles. The matter of en- forcing penalties for operating a motor vehicle or boat without a use stamp was discussed with Assistant Attorney General Clark. No appropria- tion is available for detecting violations of this law. The Commissioner authorized the Chief Counsel's Office to prepare instructions to Collectors, under which such violations as come to the attention of Collectors or their deputies in the regular course of their other duties would be submitted directly to the United States Attorneys. The Assistant Attorney General indicated he would instruct United States Attorneys to take appropriate action upon such cases. One case, involving a plea of guilty, has come to the attention of the Chief Counsel's Office. This matter was handled by Mason B. Leming, Assistant Chief Counsel. 185 - 2 - 2. War Savings Campaign. An organization set up for handling the War Savings Campaign, both in Washington and in the Field, is now ready to function. Messrs. Burrus and Ellis of the Chief Counsel's immediate office will be in charge. 3. Tax Status of Reimbursement to Contractor for Facilities Installed to Meet Government Needs. Hagy, Harrington and Marsh, Amarillo, Texas, is not a public utility, but supplies gas to utilities. It was asked to extend a gas line to certain Government facilities. The form of the pro- posed contract is apparently the same which is being used for the purchase of gas or electrical energy from public utilities and provides for payment by the Government of approximately 75% of the cost of the contractor's additional facilities, but contains no provision for pro- tecting the Government's interest in the facilities. At the time section 124 (1), Internal Revenue Code, was repealed making protection of the Government's interest no longer necessary as a condition to amortization, it was generally understood that the matter of 186 - 3 - protecting the Government's interest would be handled by the contracting agency. Apparently this is not being done in some cases in con- nection with contracts with public utilities where the reimbursement is being designated in the contract as a connecting charge, even though it may require (as in this case) the construction of substantial facilities which are much more than are usually required in making ordinary connections. Representatives of the above concern were informally told that Revenue could not agree to any form of closing agree- ment which would, in substance, relieve them from tax upon the reimbursements. This matter was handled by Herman T. Reiling, Special Assistant, and S. T. Hazard of the Interpreta- tive Division. 4. Refund of Excess Profits under Navy Contract. The Electric Boat Company, New York City, has proposed to refund and credit to the Navy De- partment $2,874,665, which is the approximate excess of the company's 1941 profits over what they would have been had the Vinson-Trammell Act been in effect for that year. The company 187 - 4 - has requested & ruling and closing agreement that this amount shall be excluded from 1941 income although it relates to contracts begun in prior years. The question involved is whether, in view of the Under Secretary's letter to Chairman Vinson, the adjustment of income should be confined to the year 1941 (and if it is not, the company refuses to make the refund). Herman T. Reiling, Special Assistant, and 8. T. Hazard of the Interpreta- tive Division are handling this case. 5. Acceptance of Treasury Notes, Tax Series, in Partnership Cases. It has been held that Treasury Notes of Tax Series A-1943, B-1943, A-1944, and B-1944, inscribed in the name of a partnership, may not be accepted by a Collector in payment of income taxes of indi- viduals even though such individuals be members of the partnership. The question was con- sidered by E. C. Holt, of the Interpretative Division. 6. Tax Status of the Pan-American Coffee Bureau. This non-profit Bureau is supported by contribu- tions made by the Governments of Brazil, Colombia, 188 - 5 - Costa Rica, Cuba, El Salvador, Mexico, and Venezuela. Its purpose is to disseminate, through publicity, knowledge regarding coffee as a beverage. In response to its inquiry, a letter was prepared in the Accounts and Collections Unit for the Secretary's signa- ture informing the State Department that the Coffee Bureau is held to be an instrumentality wholly owned by the above-named Governments and that, therefore, no liability for social security and employment taxes is incurred with respect to its officers and employees, regardless of citizenship or residence. The letter was re- viewed by S. G. Winstead of the Interpretative Division. 7. Processing Tax Case Involving Sugar. The Chief Counsel sent a memorandum to the Bureau approving the proposed offer of settlement sub- mitted by the W. J. McCahan Sugar Refining and Molasses Company, Philadelphia, Pennsylvania, whereby the Company is to be allowed $271,370.06, plus interest of $98,225.61, with respect to its claim for refund. The claimant paid $2,755,740.80 as processing tax on sugar, and 189 - 6 - $126,091.56 as floor stocks tax on sugar and cotton, paper and jute containers. It sought refund of $1,204,575.16 of the amounts paid as processing tax, and $32,814.50 of the amounts paid as floor stocks tax. The net allowance payable to the claimant after making income tax and interest adjustments is approximately $297,820.19. This allowance represents approxi- mately five cents per bag of taxable sugar, or ten percent of the tax paid, and is the best settlement for the Government 80 far effected in any such case. The case was handled by Philip D. Harris of the Processing Tax Section. 8. Alleged Violation of Tax Statutes by Japanese Aliens, St. Petersburg, Florida. A group of Japanese aliens has been engaged in the restaurant business in St. Petersburg, Florida, operating as a partnership under the name of "Nikko Inn". Two sets of records were maintained, one for tax purposes kept in Eng- lish, and a secret set kept in Japanese. The discrepancy in profits shown on the two sets of records involves & net under statement of Regraded Unclassified 190 - 7 - profits for the years 1934 to 1941, inclusive, of approximately $38,000. The assets of the taxpayers were seized in December, 1941, in connection with Foreign Funds Control. It appears that the Nikko Inn Restaurant has been licensed to resume business operations under close supervision of Treasury officials. It also appears that the assets, totaling $41,254.05, were released from custody after jeopardy assessments and collections for tax deficiencies had been made. The question of the advisability of instituting criminal prose- cutions is being considered by Irving D. Berger of the Penal Division. 9. Court Gives Consideration to War Effort in Sentencing Tax Evader. On March 27, 1942, Arthur F. Weber, Cleveland, Ohio, was fined $1,000 on each of five counts, and the Triplex Screw Company was fined $1,000 on each of four counts, on guilty pleas to indictments charging willful tax evasion. Prior to the pleas of guilty Weber paid taxes, penalties, and interest aggregating $92,232.66, and the corporation paid Regraded Unclassified 191 - 8 - a like liability of $26,834.49. The pleas of guilty were to felony counts, and the court in merely imposing fines stressed that this corporation "is entirely a one-man concern, dependent upon Weber for its continued opera- tion; that 90% to 95% of itsproduct goes di- rectly into war materials; that the unimpaired continuance of the war effort is of paramount importance and for these reasons a fine only was imposed." The case was one of flagrant tax evasion, in that Weber over the years involved diverted a large part of the corporate earnings to his individual use and benefit, and this diversion was so well concealed that it was not detected by the corporation's auditors. E. Riley Campbell of the Penal Divi- sion handled this case while it was active in the Bureau. 10. Not Guilty Verdict on Tax Evasion Indictment. On April 11, 1942, in the case of the Win or Lose Corporation and James A. Noe, New Orleans, Louisiana, the jury returned a verdict of not guilty on all four counts (tax evasion) of the indictment against this corporation and individual. Noe is 192 - 9 - a former Governor of Louisiana. Seymour Weiss, who was named in the indictment, had previously pleaded guilty. Prosecution of Noe was not recommended by the Bureau. While active, the case was handled by T. C. Uhler, Assistant Head, Penal Division. 11. Tax Evasion Case of William R. Skidmore. On March 8, 1941, William R. Skidmore of Chicago, Illinois, was found guilty by a jury of having willfully attempted to evade or de- feat a large part of his income taxes for the years 1936, 1937, and 1938, totaling $340,119.66 and was sentenced to pay a fine of $5,000 and costs, and to serve thirty months in prison. Advices have now been received from the Depart- ment of Justice that the judgment has become final and that on March 20, 1942, Skidmore entered the United States Penitentiary at Terre Haute, Indiana, to commence serving his sentence. While in an active status, this case was given attention by W. H. Norman of the Penal Division. The following work was done under the supervision of Assistant General Counsel Cairns: 193 - 10 - 12. New York Foreign-Trade Zone (for description see February, 1942 report, item 3; March, 1942 re- port, item 5). The Acting Secretary of the Treas- ury signed a letter on April 3, 1942, addressed to the Chairman of the Foreign-Trade Zones Board, which had been prepared by Mr. Chambers of this office, approving a proposed Order regarding the Foreign-Trade Zone at New York. The Order designated as part of the Zone, for the duration of the present emergency, certain piers and up- lands adjacent thereto which were offered for temporary inclusion in the Zone by the Mayor of New York City. The Order was issued by the Chairman of the Board and a Treasury Decision has been prepared to bring it to the attention of customs officers and others concerned. 13. Entry of relief articles free of duty (for description see February, 1942 report, item 4). (a) Messrs. Chambers and Ivey of this office prepared regulations to carry out the provisions of the Proclamation of the President (issued under section 318, Tariff Act of 1930), authorizing the Secretary of the Treasury to permit free entry of jerked beef for sale or distribution to consumers in Puerto Rico. These regulations were published 194 - 11 - in T. D. 50599 of April 10, 1942. (b) Messrs. Chambers and Ivey prepared a final draft of a Presidential Proclamation, authorizing the importation free of duty by the Red Cress of food, clothing, and medical, surgical, and other supplies for use in emergency relief work, and a letter for the signature of the Secretary, sub- mitting the proposed Proclamation to the Presi- dent. Regulations to put into effect the pro- visions of the proposed Proclamation have been prepared, and will be issued if and when the Proclamation is signed by the President. 14. Violations of Federal narcotic law. Dr. William A. Nailling was convicted in the United States District Court at Jackson, Tennessee, on March 31, 1941, for violations of the Federal narcotic law, After the judgment of conviction was affirmed by the Circuit Court of Appeals for the Sixth Circuit, Dr. Nailling's attorney petitioned for a rehearing on the ground that the indictment should have specified official order forms as issuable by the Secretary rather than by the Commissioner of Internal Revenue. 195 - 12 - Mr. Lubore of this section furnished information for a brief in opposition to the petition, and the court denied the petition for rehearing. Dr. Nailling's attorney then petitioned the United States Supreme Court for a writ of certiorari to review the case. The principal question presented by the petition was whether the Secretary of the Treasury has consti- tutional statutory authority to delegate to the Commissioner of Internal Revenue the function of issuing order forms, and if so, whether the Secre- tary has delegated that function to the Commis- sioner. On Monday, April 27th, the Supreme Court denied the petition. 15. Proposed order to limit retail sales of preparations containing opium. The Commissioner of Narcotics, Mr. Joseph McDonald of the Office of Price Administration, and Mr. Tennyson of this office discussed the issuance of a proposed order placing limitations upon the retail sale of cer- tain preparations containing opium and opium derivatives. The Commissioner explained the need for this order as a conservation measure, stating that it would conserve about 20,000 pounds of opium annually. Mr. McDonald suggested that the time 196 - 13 - limitation be eliminated but it was pointed out that this would largely nullify the benefit anticipated from the enforcement of the order. In a letter dated April 9th to Mr. Gaston, Mr. Leon Henderson stated that the proposed order. was being given consideration by the Drug Unit of the Chemical Section of the Price Division. 16. Drugs for Japanese evacuees. The Wartime Civil Control Administration has charged the United States Public Health Service with the medical care of Japanese evacuees from the West Coast area. Japanese physicians will furnish practically all of the medical care to such evacuees, and hospital supplies and drugs, in- cluding narcotics, will be purchased by the Army for the W. C. C. A. As government-owned drugs are being supplied and the Public Health Service has supervisory responsibility, it has been de- termined that there will be no necessity for the Japanese physicians obtaining registration under the Federal narcotics law. 17. State political activity by national bank receiver. An Opinion addressed to Mr. Delano, Comptroller of the Currency, which was prepared Regraded 197 - 14 - by Mr. Feidler, and signed on April 8, 1942, concluded that the prohibitions of the so-called Hatch Act (U.S.C., title 18, sec. 61h) prohibit any officer (including 8. national bank examiner) from taking an active part in state as well as national politics. 18. Importation of coca leaves from which all narcotics have been removed (decocainized coca leaves). Two Opinions were prepared on this subject, one to Mr. Anslinger, Commissioner of Narcotics, dated April 10, 1942, and one to Mr. Tennyson, Chief Legal Officer of the Bureau of Narcotics, dated April 11, 1942. The first opinion ruled that decocainized coca leaves were "narcotic drugs" within the meaning of the Nar- cotic Drugs Import & Export Act, and hence subject to the restrictions imposed by that Act. It was also ruled that all coca leaves whether decocain- ized or not were subject to the regular duty pre- scribed in the Tariff Act of 1930 on "coca leaves". The second opinion rules that under section 2(b) of the Narcotic Drugs Import & Export Act, (U.S.C., title 21, sec. 173) narcotic drugs may not be in- ported for flavoring purposes. Under the special 198 - 15 - authorization in section 6 of the Act of June 14, 1930 (U.S.C., title 21, sec. 173a), coca leaves may be imported only in their natural and untreated state. Hence, decocainised coca leaves for flavor- ing purposes are excluded from the United States. These opinions were prepared by Mr. DuBois. 19. Bonds of certifying officers in the foreign service. An Opinion dated April 11, 1942, pre- pared by Mr. Feidler, which is in the form of a letter to the Attorney General, deals with officers in the foreign service who are already bonded and who cannot, as a matter of physical impossibility, execute the separate bonds required by the Act of December 29, 1941. The sureties on such existing bonds, without the consent of the principal, add the new conditions and provide for pro-ration of the penalty to the added conditions. 20. Disclosure of information obtained in income tax investigations. An exhaustive study of the extent to which the Secretary of the Treasury may disclose information obtained in the course of an income tax investigation has been completed by the members of the Opinions Section. 199 - 16 - The following work was done under the supervision of Assistant General Counsel Bernard: 21. Un-American Activities Committee (for description see August, 1941 report, item 16; March, 1942 report, item 19): In addition to the regular routine duties with the Un-American Activities Committee, Mr. Spingarn prepared (1) a memorandum for Mr. Foley's signature to Mr. Thompson about the case of Wilma Hermina Poth; (2) a memorandum to Mr. Pehle and Mr. T. F. Wilson about the case of Miss Irene Wenglarz, Foreign Funds Control stenographer; (3) a memorandum for Mr. T. F. Wilson and Mr. Jordan about the cases of Philip Gross- man and Samuel Guskin, two Customs men in New York; and (4) a letter for Mr. Thompson's signature to Allan S. Haywood, C.I.O. Director of Organization, replying to Mr. Haywood's letter requesting to be advised as to the identity of the top-ranking C.I.O. official who had informally advised the Treasury that it would be making a mistake if it retained William Wheeler Hinckley on its staff. In connection with the controversial William Wheeler Hinckley case Mr. Spingarn, also, prepared a letter for Mr. Graves' 200 - 17 - signature in reply to a letter which a Mrs. Cummings had written to the Secretary protesting the Treasury's action in dropping Hinckley, and a letter for Mr. Thompson's signature to Miss Eleanor Nelson, Secretary- Treasurer of the United Federal Workers, in answer to her letter to the Secretary protesting the Treasury's action and asking for a personal interview with the Secretary. 22. Board of Legal Examiners (for description see July, 1941 report, item 15). Mr. Bernard, as alternate for Mr. Foley, is continuing his work on this Board. 23. Law Committee of Defense Communications Board (for description see November, 1940 report, item 23). Mr. Spingarn (who is Treasury's representative on the Law Committee of this Board) is continuing his work. 24. Transfer to B.T.A. of Processing Tax Board functions. As a result of a request made by Assistant Secretary Sullivan, Mr. Bernard prepared a draft of an Executive Order providing, in effect, for the abolition of the Processing Tax Board of Review and a transfer of all its functions, property, and personnel (other than 201 - 18 - the chairman and members who would be eliminated) to the Board of Tax Appeals under the reorganizing authority of Title I of the First War Powers Act. A memorandum about the proposed Executive Order, discussing various legal and policy questions in connection with it was also prepared by Mr. Bernard and given to Mr. Sullivan. 25. Interdepartmental Committee on Investigation. At the request of Mr. Gaston, Mr. Spingarn of this office accompanied him to the first meeting of the new Interdepartmental Committee on Investigation on April 14, Membership of the Committee is (1) Under Secretary of the Interior Dempsey (who was on the Dies Committee for three years when he was in Congress), Chairman, (2) Under Secretary of Commerce Wayne Chatfield Taylor, (8) FDIC Solicitor Francis Brown, and (4) Mr. Gaston. Edwin Dickinson, Special Assistant to the Attorney General, is the Executive Secretary. At this meeting on April 14 the nature and functions of the committee were discussed at length. Mr. Gaston and Mr. Spingarn attended meetingsof the committee on 202 - 19 - April 21 and April 23. 26. Tires for Treasury enforcement officers. The O.P.A. tire rationing regulations authorize the fur- nishing of tires to Federal police agencies, but the O.P.A. ruled that the Alcohol Tax Unit enforcement agents were not eligible under this provision. Mr. Spingarn had several conferences with O.P.A. and Procurement in an effort to have this ruling changed and the prospects seem promising that the O.P.A. will rule that all the Treasury enforcement agencies are eligible for tires to the same extent as other Federal police agencies, such as the F.B.I. 27. Treasury Guard Force salary situation. Mr. Gaston and Chief Wilson conferred with Mr. Spingarn on April 17 about this matter which is becoming more urgent. Due to the $1200 salary which most of our Treasury Guard Force privates receive, the turnover of this force has assumed serious proportions. Mr. Spingarn conferred with Chair- man Ramspeck of the House Civil Service Committee and Mr. Bernard is going to try to help Mr. Ramspeck push through his Classification Act Amendment bill, H.R. 6217, 203 - 20 - one provision of which would increase the base salaries of custodial employees and would thus raise the base sal- ary of the Treasury Guard Force privates from $1200 to $1500 per year. The legislative section is preparing a letter for Mr. Gaston's signature as Acting Secretary to Mr. Ramspeck outlining the situation we are con- fronted with down here, together with other material which he can use on the floor of the House in support of his bill. The bill (H.R. 6217) has been reported favorably by the House Civil Service Committee. That office is also (1) preparing a letter to General Fleming, the Federal Works Administrator, who is in charge of most of the Government guards; (2) a letter to Senator Bulow, Chairman of the Senate Committee on Civil Service, with reference to S. 2150, which among other things would classify guard positions in the next higher grade and thereby alleviate the Treasury guard force problem; (3) and letters to the Secretary of the Navy and to the Federal Works Administrator suggesting that they consider the advisability of likewise addressing the two Civil Service Committee Chairmen. 204 - 21 - 28. Letter to Mrs. Roosevelt re Veterans' insurance bill. Mr. Bernardend Mr. Spingarn prepared a letter which the Secretary sent to Mrs. Roosevelt on H.R. 4402, a bill to extend the privilege of renewing the expiring 5-year term insurance policies which date from the last world war for another 5-year period. Mrs. Roosevelt had received a telegram urging her to support the bill, and wanted the Secretary's views. The letter which was prepared, and the Secretary sent over to her, indicated that the bill is without merit. 29. Foreign Funds Control estimates for 1943. Mr. Bernard and Mr. Spingarn attended a Budget hearing on April 23 on the Foreign Funds Control appropriation estimates for the fiscal year 1943. The estimate submitted to Budget by Foreign Funds Control was six and one-half million dollars, and the tenor of the Budget hearing was such that they feel reasonably satisfied that Budget will approve this estimate. No questions were raised about the Legal Division's share of this estimate, and we asked for 20 more 205 - 22 - lawyers, 15 more stenographers, and 2 more messengers than we now have. 30. Bureau of Engraving and Printing cafeteria situation. At the request of Secretary Morgenthau and Norman Thompson, Mr. Spingarn asked his uncle, Arthur B. Spingarn, President of the National Associa- tion for the Advancement of Colored People, to come to Washington to confer about the troublesome inter-racial problem in the Bureau of Engraving and Printing cafe- teria. A number of conferences were held, and it is believed that the difficulty is on the road to satis- factory adjustment. Mr. Spingarn prepared a draft which Mr. Thompson is going to use as the basis of a letter of instructions on this situation to Alvin Hall, the Director of the Bureau of Engraving and Printing. 31. Return of families of Treasury employees from Hawaii. The legislative section is studying the problem of whether there is statutory authority for returning families of Treasury employees at Government expense from Hawaii or other danger zones and whether 206 - 23 - appropriations are available for that purpose. 32. Procedure under Public No. 490, authorizing continuance of pay of missing or captured persons. At a meeting held in Commissioner Bartelt's office to consider this problem, it was concluded, at the suggestion of Mr. Cross of this office, that in view of the relatively small number of Treasury employees within the scope of this law, formal regulations would not be needed and, in lieu thereof, a procedure should be determined under which each individual case would be decided on its merits. Best estimates presently indicate there are but 12 or 14 employees captured or interned. 33. Maloney amendment to S. 2250. Mr. Cross of this office attended a meeting in Mr. Batchelder's office to consider substitute language for this amendment (the bill creates a Smaller War Plants Corporation with a capital of $100,000,000 to be subscribed for by the Secretary of the Treasury). Mr. Francis C. Brown, FDIC Counsel, subsequently prepared an alternative amendment which would permit all insured banks to Regraded Unclassified 207 - 24 - act as depositaries or fiscal agents for the receipt of funds of the United States or under the control of the United States, and prevent discrimination in the selection of depositaries on the basis of the class of institution involved. At Mr. Batchelder's suggestion a provision was included that each officer be separately considered for insurance purposes in case of deposits in the same bank. Mr. Brown stated that he intended to present the amendment to Chairman Steagall of the House Committee on Banking and Currency, where the bill is now pending. Mr. Brown's amendment, if adopted, will accomplish many of the things sought by the Treasury- proposed Government Depositary Act of 1941, which is inactively pending in the Bureau of the Budget. 34. Recruitment of White House Police. At the request of Mr. Gaston and Chief Wilson, the legislative section prepared proposed legislation and lettersof transmittal to Congress to eliminate the present restriction that White House police must be hired from the Metropolitan or the United States Park police forces. The proposed legislation and letters of transmittal were sent forward for initialing and signatures. 208 - 25 - 35. Postal Savings transfer legislation. Mr. Rupert and Mr. Spingarn of this office attended a meeting in D. W. Bell's office on April 13 on the proposed Postal Savings legislation to transfer the Postal Savings System from the Post Office Department to the Treasury Department. Mr. Ironside, who represented the Post Office Department, presented a draft of a proposed justifying statement on this legislation which he wanted the Treasury to review. At Mr. Bell's request Mr. Bernard is handling this matter. The Post Office Department is going to sponsor this legislation, and we will, of course, push it too. 36. Compulsory Savings legislation. Members of this office, Mr. Spingarn and Mr. Cross, took part in a discussion pertaining to the drafting of legislation to require compulsory savings. 37. Government Practice bill. Norman Thompson, Mr. Kloeber of Budget, and Mr. Spingarn of this office conferred during the month on 8. suggested amendment to the Treasury's revision of the Hatch Bill, S. 1987, which bill regulates the Government practice of former Government officers. The suggested amendment would 209 - 26 - add 8. further restriction to our bill against a man practicing before his own agency within two years after leaving it unless he gets the permission of the head of the agency. Mr. Kloeber, who is acting as Budget's clearance man on the various departmental reports to Congress on the bill, said that most of the departments had suggested something along this line and that since the Treasury report and substi- tute bill were the model of all of those submitted, Budget was anxious to secure the Treasury's views on such a provision. Mr. Spingarn advised him that there would be no objection to such a provision from our standpoint. 38. Silver legislation. At the request of Mr. Opper, Mr. Bernard extended to him the facilities of this office to assist him in the drafting of any silver legislation which may be necessary. Mr. Rupert is working on this matter. 39. Reproduction of War Savings Bonds (for description see March, 1942 report, item 26). Mr. Spingarn of this office conferred separately with Mr. Graves and Mr. Schoeneman on the proposed regulations, prepared by 210 - 27 - Mr. Bernard and Mr. Ranta, authorizing the illustration of War Savings Bonds in connection with the campaign for the sale of such bonds. They were given a memo- randum, prepared in this office, answering the objections which Mr. Broughton had raised to these proposed regu- lations. It was agreed that the regulations should go forward for signature. 40. Letter to Practising Law Institute. Mr. Bernard and Mr. Spingarn prepared a letter for Mr. Foley's signature to Harold P. Seligson, Director of the Practising Law Institute of New York, in response to & letter, asking what his Institute could do to advise lawyers in private practise as to how they could be helpful in the war effort. 41. Patents bill (s. 2303). A letter was prepared in this office addressed to Senator Bone, Chairman of the Senate Committee on Patents, in response to his letter to the Secretary advising him of the im- pending hearings on S. 2303, 8. patents bill, and requesting a Treasury report on the bill, and asking for the designation of a Treasury man to act as a 211 - 28 - liaison with the conmittee on the hearings. Mr. Aarons of Mr. Bernstein's staff was designated as the liaison man. 42. Proposed amendment of sections 165 and 171 of the Criminal Code. This office is preparing, at the sug- gestion of the Secret Service Division, proposed legis- lation and appropriate letters of transmittal to amend these sections in order to prevent the mutilation and other undesirable use of coins in devices such as coin tricks, and to clarify the statutes relating to the use of illustrations of coins. 43. Congressional Action on Treasury-Sponsored Legislation (A) Relief of Roy F. Lassly and G. F. Allen. H.R. 5857, our bill for the relief of Roy F. Lassly, former acting chief disbursing clerk, Department of the Interior, and G. F. Allen, chief disbursing officer, Division of Disbursement, Treasury Department, was passed by the Senate on April 27, 1942. It was approved by the President on May 2, 1942 and became Private Law No. 392. 212 - 29 - (B) Relief of Disbursing Officers. On April 23, 1942, Representative McGehee introduced as H.R. 6990, our bill for the relief of G. F. Allen, Chief Disbursing Officer, Treasury Department, and for other purposes. The bill was referred to the Committee on Claims. (e) Conspiracy in Counterfeiting. H.R. 4934, our bill to provide for the punishment of persons conspiring to violate the laws relating to counterfeiting, and cer- tain other laws, was passed by the House on April 20. On April 23, it was referred to the Senate Committee on the Judiciary. (D) Banking facilities at Military Posts. Our bill, S.1603, to provide for the extension of banking facilities at military reservations and at navy yards and stations, and for other purposes, which has been passed by the Senate, was referred to the House Com- mittee on Banking and Currency. The following work was done under the supervision of Assistant General Counsel Tietjens: 44. Financing: (a) Certificates of Indebtedness. During the week beginning March 30, financing through 213 - 30 - the issuance of certificates of indebtedness, which had not been issued by the Treasury for a good many years, was revived. Mr. Cunningham worked on the legal problems involved. (b) Federal Home Loan Bank Consolidated Debentures. The Federal Home Loan Bank Administration offered two new series of consolidated debentures. These securities are not "guaranteed" obligations but the details of their issuance are handled for the Federal Home Loan Bank Administration by the Treasury Department. Mr. Cunningham assisted in working out the details of the procedure for handling. (c) Savings Bond Regulations. Department Circular No. 530 and Federal Reserve Memo No. 466, containing regulations covering savings bonds, are in the process of revision with a view to cutting out unnecessary de- tail and generally making the regulations more workable. Messrs. Coe, Fuller and Cunningham are assisting in the revision. (d) Public Debt's Move to Chicago. In connection with the removal to Chicago of that portion of the Bureau 214 - 31 - of Public Debt connected with savings bond work, it was determined to set up a separate legal section in Chicago. The details with reference to space, per- sonnel and library needs for this new section were worked out after discussions with Mr. Broughton and Mr. Kilby. Messrs. Cunningham and Fuller carried out this job. (e) HOLC Notes, Series C. Messrs. Cunningham and Tietjens passed upon the legal sufficiency of papers connected with the call of the above notes. (f) 2 Percent Treasury Bonds of 1949-51 and 2-1/2 Percent Treasury Bonds of 1962-67. Messrs. Tietjens and Cunningham passed on the legal sufficiency of papers in connection with the above issues. 45. Small Business Loans under $13(b) of the Federal Reserve Act. A conference was held with representa- tives of the Federal Reserve Board and of the Treasury fiscal service concerning proposed amendments to the regulations under 13(b) with a view to facilitating loans to business by the Federal Reserve banks. The suggested smendments would permit the Reserve Banks 215 - 32 - to make loans with funds advanced by the Treasury Department without requiring the Reserve Banks to "match" such advances with Reserve Bank funds. Except in some detailed respects, satisfactory amend- ments were agreed upon. Further action in this re- spect has been postponed pending approval by the Secretary. Messrs. Tietjens and Reeves collaborated with the Opinion Section on this job. 46. Delivery of Pension Checks to American Beneficiaries Residing in Sweden. After a conference with representa- tives of the Swedish Legation concerning the delivery of pension checks to American beneficiaries residing in Sweden, it was agreed to establish a procedure whereby the funds represented by such checks would be cabled to Sweden for credit to an account established with a Swedish bank. The pension checks in question would then be drawn against this account by an officer of the State Department who would be designated as an Assistant Disbursing Clerk for the Treasury Department. Heretofore the Germans had permitted the passage of such checks through the blockade. This permission 216 - 33 - has been withdrawn and the procedure outlined above has been worked out in order to obviate the danger of destruction if the checks were sent by mail. Mr. Reeves assisted in working out this procedure. 47. Handling Excess United States Currency and Dollar Credits Abroad. Mr. Tietjens reviewed instructions prepared by the fiscal service directing the American Consuls at Suva, Fiji Islands, and Wellington, New Zealand, providing for the establishment of telegraphic credits in the United States for the Bank of New South Wales at Suva and the Bank of New Zealand at Wellington. The establishment of such credits will enable the banks in those places to. siphon off excess credits arising out of the checks drawn on the United States Treasurer and will also enable the banks to dispose of excess United States currency. Similar instructions have from time to time been issued to American officials in various parts of the world, particularly in those places where troop movements have taken place. 48. Philippine Securities. At & conference attended by representatives of High Commissioner 217 -34 - Sayre's staff and the fiscal service, the disposi- tion of valuables brought back by the High Com- missioner from the Philippines and which are now in the Federal Reserve bank at San Francisco, was discussed. The inventory furnished by the Federal Reserve Bank is to be checked against the receipts given by the High Commissioner's staff at the time the valuables were delivered to him, and claims requiring immediate attention are to be singled out for preferred action. It was de- cided that five sealed trunks delivered by the National City Bank could properly be delivered to the Bank as soon as details were worked out. This has been done. Other claims will be handled on an individual basis depending upon the directions of the owner, the type of property involved, etc. Messrs. Tietjens and Reeves have been working on these problems. 49. Hawaiian Securities and Currency (for description see March, 1942 report, item 37): At a conference attended by representatives of the fiscal service and Foreign Funds Control the pro- posed regulations drafted by Foreign Funds relating 218 - 35 - to the "scorched earth" policy in Hawaii were discussed and suggestions made. Messrs. Cunningham and Tietjens attended the conference. 50. Fiscal Operations of the War Shipping Administration. At a conference with representa- tives of the War Shipping Administration the pro- cedure to be followed in connection with the re- ceipt and disbursement of funds resulting from the operation of ships on behalf of the War Shipping Administration by various shipping companies, was discussed. No objections to the proposed procedure for handling such funds in accordance with usual commercial procedure and accounting for the net amount due the United States were raised. This procedure has been approved by the General Accounting Office. Mr. Reeves worked on this problem. 51. Gift of Naval Laboratory. In telephone conversations with Lt. Pennebaker of the Navy Department, procedure was outlined for the acceptance of a gift of one full day's payroll from the employees on a Navy Department construction project at the Burns City, Indiana, Ordnance Plant. 219 - 36 - The proceeds of the day's payroll were to be employed in the construction of a naval laboratory at the site of the Burns City project. Mr. Tietjens handled this. 52. Postal Savings. At & conference attended by representatives of the Post Office Department and the fiscal service and Mr. Bell's office, details of handling legislation transferring postal savings to the Treasury Department were discussed. An agreement between the Treasury and the Post Office Department outlining the mechanics to be followed in the take-over by the Treasury of the issuance of savings stamps was also reviewed. Messrs. Cunningham and Tietjens worked on this. 53. Federal Depository Legislation. In collabora- tion with representatives of the fiscal service, Mr. Bell's office and the FDIC, details of legis- lation designed to permit the deposit of public funds in insured banks as well as in national banks and members of the Federal Reserve system were worked out. Messrs. Tietjens, Zarky and Reeves worked on this. 220 - 37 - 54. Sale of Assets, First National Bank-Detroit Receivership. A number of conferences have been held between representatives of the Comptroller's Office and the Committee representing the stock- holders of the First National Bank-Detroit to work out an agreement concerning the general details and a tentative draft of the proposed con- tract covering the sale of all of the known assets of the Receivership to a corporation to be formed for the purpose of carrying on the further liquida- tion of the assets. Messrs. Barse and Anderson have been working on this matter. The following work was done under the supervision of Assistant General Counsel Bernstein: 55. Litigation: (a) Commission for Polish Relief V. National Bank of Rumania. The brief of the United States as Amicus Curiae before the Court of Appeals of the State of New York in the case of Commission for Polish Relief, Ltd. V, National Bank of Rumania was prepared by members of this staff. This case was of unusual importance and interest inasmuch as it involved the question of to what extent, if at all, unlicensed transfers of foreign property would be effective. It also 221 - 38 - enabled the Department, for the first time, to bring Foreign Funds Control before the highest court of New York and set out the policy reasons which impelled much of our action. General Ruling No. 12, discussed at a later point, was of significance. Messrs. Luxford, DuBois, Golding, Daum, Cook, Zarky, Miss Goode, and Messrs. Reeves, Arnold, Wolf, and Hannett worked on this case. (b) McLaughlin et al, V. Morgenthau et al (for description see March, 1942 report, item 67). This action was brought by McLaughlin and several other plaintiffs to restrain the Treasury Depart- ment and the Federal Reserve Bank of San Francisco from keeping certain accounts blocked. It pre- sented several interesting legal aspects involved in the ad hoc procedure of blocking accounts in which a blocked interest has appeared. An investi- gation was made and completed in Washington and Los Angeles, as a result of which the plaintiffs are taking prompt steps to liquidate the corpora- tions which they owned or controlled and which were being operated to benefit certain German interests. A thorough study of the legal problems 222 - 39 - involved was made preparatory to & defense of the suit. It now appears that the suit will be dis- missed in the near future. Messrs. Sherbondy, DuBois, Lesser, Ackerman, Carlock, Locker, Miss Hmiel, and Messrs. Murphy and Golding worked on this case. 56. Alien Property Custodian, Consultation Committee. During the early part of April the Alien Property Custodian appointed a "Consultation Committee" to advise him on the legal and policy aspects of his office. Upon the advice of Judge John Burns he appointed 8 distinguished judges, law professors and practicing attorneys to participate. Representatives of Foreign Funds Control and the Department of Justice were also invited. Messrs. B. Bernstein, Pehle and Luxford represented the Treasury Department. The first meeting was held April 8 and was devoted to a discussion of the relative merits of proceeding under section 5(b) of the Trading with the enemy Act or under the other provisions. The Treasury approach to foreign property was also compared to that advocated by representatives of the Depart- ment of Justice. Both agencies explained their views in some detail and the Committee agreed 223 - 40 - to study matters and report back in two weeks. At the second meeting the views of the Committee were expressed and their conclusions were almost unanimously in favor of the Treasury concept of the program. A preliminary transcript of the second meeting has been edited by Mr. Luxford and a final transcript is expected soon. Some of the Com- mittee were very outspoken in their praise of the Treasury's program under freezing control and its handling of the "vesting" problem. 57. New Executive Order Delegating Authority. This office prepared a new draft of an executive order amending Executive Order No. 9095. The proposed order would confer all the powers under section 5(b) of the Trading with the enemy Act upon both the Secretary of the Treasury and the Alien Property Custodian, acting either jointly or severally, and confer exclusive authority on the Secretary under section 3(a) of the Act. The delineation of functions between the Secre- tary and the Alien Property Custodian would take the form of a joint memo to the President for his approval. Generally speaking, the Alien Property Custodian would be given complete control over 224 - 41 - the property of nations actually at war with the United States as well as over patents, trade- marks and copyrights and the Secretary of the Treasury would have control over the balance of the field. Copies of these documents, together with memoranda discussing the same, have been fur- nished the Alien Property Custodian and discussions have taken place on the subject with representatives of that office. Messrs. Luxford and DuBois worked on this matter. 58. Issuance of Documents: (a) General Ruling No. 12. General Ruling No. 12 and a press release explana- tory thereof were issued. This ruling was in the nature of a formal document calling attention to the fact that all unlicensed transfers of blocked assets in the United States are void and unenforce- able. It represents another aspect of the Treasury's policy in protecting the 7 billion dollars of blocked assets and preventing the Axis aggressors from realizing/their on aggressions. Of course, a Treasury Department license may be issued to authorize such a transfer. This ruling was of particular significance in view of Commission for Polish Relief, Ltd. V. National Bank of Rumania 225 - 42 - in which the Government filed & brief as amicus curiae. Messrs. Luxford, Golding, Daum, Cook, and Zarky prepared this material. (b) Proposed Public Circular. Certain language in the decision of Brown v. Morgan, to the effect that a bank has a duty to apply for a Treasury Department license to make a transfer from a blocked account in an attachment action, has resulted in research, looking toward the preparation of a public circular which would relieve the bank from this burden. In other words, it would call attention to the fact that a bank may rely upon the prohibitions contained in the freezing order without further action on its part. Messrs. Zarky, Daum, and Golding are making this study. 59. Vesting of Axis Property:(a Luscombe Airplane Corporation (For description see February, 1942 report, item 26 (d)). We assisted the Alien Property Custodian in the necessary steps (including the drafting of the papers) involved in the vesting of the foreign-owned stock of this corporation. The Treasury Department, the Alien Property Custodian, and the Navy 226 - 43 - Department agreed that Mr. Lee Brutus, formerly executive vice-president of the Waco Airplane Corporation, should be installed as president. In addition, the Reconstruction Finance Corpora- tion has agreed to make a loan of one million dollars to the corporation. Messrs. Sherbondy, McMurray and Williamson carried out this job. (b) Schering Corporation (for description see February, 1942 report, item 26 (b)). We have cooperated in the final steps (including the drafting of the papers) in the vesting of the foreign-owned stock of this corporation in the Alien Property Custodian. We have now removed the Treasury representative and guards from the premises of the corporation. Messrs. Sherbondy and Clay handled this matter. (c) Transfer of General Aniline and Film Corporation stock to Alien Property Custodian (for description see February, 1942 report, item 45 (b)). This office participated in the preparation of a memorandum for the Secretary transferring to the Alien Property Custodian 97 percent of the stock in General Aniline & Film Corporation, together with all powers of control over the corporation and its subsidiaries which had been previously vested 227 - 44 - in the Secretary of the Treasury. Messrs. Luxford, DuBois, Golding, and Daum handled the details of this transfer. 60. Investigations: (a) Southern Field Trip. In conjunction with several of Mr. Pehle's staff, we completed a two-weeks' field survey of various supervised foreign business enter- prises throughout the South. Steps are being taken to clear up certain outstanding problems revealed by the reports of this survey. Messrs. Proctor and Fulda are working these problems. (b) Northern Field Trip. In conjunction with several of Mr. Pehle's staff, we also made a survey of certain supervised foreign business enterprises in the New York Federal Reserve District. Steps are being worked out by Messrs. Clay, Ackerman, Proctor and Fulda and are being taken to clean up problems revealed by that survey. (c) Sterling Products, Inc. (for description see February, 1942 report, item 26 (b)). An investi- gation of the files and records of Sterling Products, Inc. is now being made by Messrs. Lawler, Marks, McMurray, and Quint. 228 - 45 - (d) Topken & Farley. We are presently engaged in an intensive investigation of the files and personnal of the Topken & Farley law firm, which served as counsel for the German Consulate in New York City. Much helpful information has been revealed. Messrs. Proctor and Fulda, and Miss Hmiel are making this investigation. 61. Blocking Procedure. We are presently engaged in studying the entire procedure by which the Treasury Department instructs that accounts be blocked, with the possibility that we may desire to establish some type of a review procedure for the handling of requests to unblock accounts. Messrs. Sherbondy, DuBois and Lesser are making this study. 62. Hawaiian "Scorched Earth" Program (for description see February, 1942 report, item 30; March, 1942 report, item 46). This office has formulated and is presently completing the draft- ing of documents with respect to a program designed to guard against the possibility, however remote, of an enemy invasion of Hawaii and the looting of securities and United States currency there. 229 - 46 - Financial, Government, and military authorities have requested protection for securities and currency, and extensive plans, involving the drafting of regulations, preparation of supporting memoranda and the making of appropriate arrange- ments with other Government groups, are well under way, Messrs. Luxford and Murphy and Miss Goode handled this matter. Report forms to carry the policy into effect are being prepared by Messrs. Murphy, Reeves, and Arnold. 63. Philippine Moratorium (for description see February, 1942 report, item 24; March, 1942 report, item 47(a)). This office is studying the desirability of a moratorium on the funded obligations of cer- tain Philippine corporations, such as the Manila Electric Company and the Manila Gas Company. Cer- tain Philippine companies having substantial assets within the Philippines are finding it difficult to meet interest payments on their funded obligations. Failure to meet such payments may result in losses to the stockholders and bondholders out of all proportion to actual losses resulting from the invasion of the Philippines. Some of the companies involved have requested the Treasury Department to 230 - 47 - provide relief in the form of a moratorium in order that interest payments may be postponed until such time as it is possible to evaluate more accurately the financial condition of such com- panies. Messrs. Luxford, Cook, and Golding are studying this problem. 64. Censorship (for description see January, 1942 report, item 4(d); February, 1942 report, item 31; March, 1942 report, item 48). This office col- laborated with representatives of the Office of Censorship in drafting regulations approved by the President on April 15, 1942, and issued by the Chief Postal Censor. These regulations govern the mailing and transmitting of letters to foreign countries. They are particularly significant in the Treasury Department's program inasmuch as they adopted the concept of "enemy national" and "enemy territory" as defined in General Ruling No. 11. They have the effect of licensing, for Censorship purposes, the mailing and transmitting of commercial and financial communications to enemy nationals, if such communications received licenses from the Treasury Department. Messrs. DuBois, Murphy and Rains assisted in working out the details 231 - 48 - of this procedure. This office is also working on two sets of instructions to be transmitted by the Chief Postal Censor to the district postal censors throughout the country. One of these relates to the treatment of stamps moving in the mails. This is significant because of the efforts of the Axis governments to issue large volumes of stamps either themselves or through their satellites for sale in South American and other countries. Likewise, this office is engaged in preparing instructions to be sent to the district postal censors, which instructions cover the treatment of communications in which Foreign Funds Control is interested. It is hoped that a concrete procedure may be developed which will treat communications from enemy nationals in a manner calculated to bring before Foreign Funds Control information on the commercial and financial dealings of enemy nationals, particularly in Latin America. Messrs. Murphy and Rains are working on these instructions. This office is also working on a confidential cir- cular to be sent to the Federal Reserve Banks. Inasmuch as the Censorship regulations impose 232 - 49 - upon Foreign Funds Control the duty of licensing certain communications with enemy nationals, it was considered desirable to issue concrete in- structions to the Federal Reserve Banks covering the handling of applications therefor. Messrs. Murphy and Rains are working on this circular. A proposed order to be issued by the Office of Censorship was drafted which will instruct censor- ship field personnel with respect to the type of material in which Foreign Funds Control is interested. 65. Legislation (for description see March, 1942 report, item 43(c)). Messrs. DuBois and Murphy of this office participated in the preparation of a proposed statute which will exempt transfers to the United States, pursuant to the Trading with the enemy Act, from thestamp tax provisions of the Internal Revenue Code. 66. Patents (for description see February, 1942 report, item 26; March, 1942 report, item 53): (a) Committee re Applications. In the field of patents the Treasury's primary interest is in connection with license applications for filing patents in which there is a blocked interest, for paying fees here and abroad, and for transfers 233 - 50 - and assignments of patents in which there is a blocked interest. The Department wrote a letter to the Alien Property Custodian stating that a considerable number of license applications have been held up pending crystallization of the Alien Property Custodian's policy on vesting and com- pulsory licensing of patents. We followed up this letter with a suggestion to the Alien Property Custodian that a committee be formed to consider the Treasury license applications which have been held up, the committee being composed of representatives from the Alien Property Custodian, Anti-Trust Division of Jus- tice and the Treasury. Such a group has now been formed and is giving consideration to these applications. (b) Cooperation with Senate Committee. In con- nection with the bill, authorizing and vesting and licensing of patents, upon which hearings are now being held before the Senate Patent Com- mittee, Mr. Aarons was designated as liaison man between the Treasury and the Senate Committee. Mr. Aarons or Mr. Kehl attended most of the hearings Regraded Unclassified 234 - 51 - of the Committee; a report was prepared on the bill in accordance with Senator Bone's request; and we cooperated with the Committee in informally furnishing such information as it requested. (c) Application and payment for patents in enemy countries. We have also prepared a proposed public announcement that the Treasury Department will deny applications for licens es to send applica- tions for patents into enemy countries and to pay any patent fees to enemy countries. The announce- ment also states thatthe Treasury will also deny the filing of new patent applications in the United States and the payment of fees, if such applica- tions originate in enemy countries. Messrs. Aarons and Kehl handled this matter. (d) Chemical Foundation Study. A study was made and a memorandum prepared by Mr. Kehl with regard to the Chemical Foundation to which were sold chemical patents seized by the Alien Property Custodian in the last war. 67. Liquidation of Enemy-owned Business Enterprises (for description see February, 1942 report, item 28; March, 1942 report, item 57). We have been proceeding 235 - 52 - as rapidly as possible in forcing the liquidating of enemy-owned firms which are unimportant to the United States in the war effort. For example, after checking with the Alien Property Custodian we indicated to creditors of the Italian Line and the Nippon Yusen Kaisha Line that we would license their liquidation under the supervision of a bank- ruptcy court or a state receivership. The Nippon Yusen Kaisha bankruptcy proceedings have already commenced. In the case of Yamanaka and Company, owning three large Japanese curio stores, we have directed the New York store to solicit offers for the immediate sale or consignment of all its merchandise. We intend to follow this procedure with the other stores. In the case of the Chicago store, legal problems arose this month as a result of the action of the landlord in attempting to take possession of the stock in trade on account of his rent claim and in defiance of our custody of thopremises. The Secretary of the Treasury had also been made a party to a law suit brought by the landlord for past due rent. Mr. Aarons spent a day in Chicago conferring with the attorneys for all the interested parties and Regraded Unclassified 236 - 53 - succeeded in having all the law suits withdrawn and restoring the status quo. In connection with the liquidation of the New York agency of the Yokohama Specie Bank we are giving consideration to a number of questions involving conflicting claims. For example, this bank has over a million dollars on deposit with the National City Bank and National City Bank refuses to honor the deposit because it, in turn, has yen deposits in the Far East which are frozen by Japan. Mr. Aarons is handling these matters. 68. Interpretations (for description see March, 1942 report, item 55). Voluminous correspondence was handled by Miss Hodel and Miss Klein which involved questions of interpretation of the Execu- tive Order, Regulations, rulings, and licenses. Consideration was given to questions of service of process on nationals by service on the Secre- tary of the Treasury, and numerous letters trans- mitting citations, orders, and other judicial process to the Alien Property Custodian were prepared, by Messrs. Reeves, Arnold and Wolf. A number of applications were reviewed for legal sufficiency and memoranda written in connection therewith by Messrs. Reeves and Wolf. 237 - 54 - Administrative practice on applications be- lieved to involve enemy nationals as defined in General Ruling No. 11 was reviewed for legal sufficiency by Miss Klein. A number of inter- pretative problems with regard to enemy nationality, raised by the Federal Reserve banks, were handled by Miss Hodel and Miss Klein. Miss Klein has also made interpretations and written memoranda on decedents' estates, particularly with regard to past violations of the Order. 69. Bankruptcy of Blocked Nationals. A memorandum was prepared concerning the right of a trustee in bankruptcy to the assets and records of blocked firms which are under Treasury supervision by Miss Klein. 70. Foreign Funds Control as a Bureau. Preliminary work was done by Miss Klein on a memorandum with regard to the procedure involved in constituting Foreign Funds Control a separate bureau within the Department. 71. Enrollment of Attorneys. Consideration is being given by Miss Klein to the applicability to Foreign Funds Control matters of regulations 238 - 55 - concerning enrollment of attorneys for practice before the Treasury Department. 72. Proposed Stipulation 1 A. Consideration is being given by Miss Klein to the legal questions involved in a proposed Stipulation 1 A, which would authorize payments to blocked nationals to be made into a bank account in the name of a non-national in trust for the national. 73. Census Reports (for description see January, 1942 report; item 45; February, 1942 report, item 39; March, 1942 report, item 49). Letters were written and conferences held with regard to re- ports on Form TFR-300 by governmental and state agencies. Mr. Arnold handled these matters. 74. Latin America (for description see January, 1942 report, item 37; February, 1942 report, item 55; March, 1942 report, item 61). There has been considerable discussion between representatives of this Department and representatives of the State Department and the Board of Economic Warfare with respect to a program for obtaining the active cooperation of the Latin American Republics in our economic warfare effort. The program con- templated includes the sending of a number of 239 - 56 - men to Latin America (who have been given a thorough training in freezing control by the Treasury and in other matters by the other agencies); and the establishment of a central committee composed of representatives of the three agencies. Mr. DuBois handled this matter. A member of this office returned in April from a trip to Central America - E1 Salvador, Honduras, Nicaragua, and Costa Rica - where, in conjunction with representatives of the State Department and the Board of Economic Warfare, he examined the effectiveness of the local freezing control laws enacted by these countries; and the extent to which our economic warfare program has been effective in these countries. A separate report has already been prepared on the findings of this mission by Mr. Mann. A program for controlling the importation of currency from Latin America has been worked out by Messrs. DuBois and Rains and is being cleared with the State Department. A number of problems were handled which arose in connection with the diversion of shipments of Regraded Unclassified 240 - 57 - goods from persons on the Proclaimed List. A circular letter to the American Missions in South America was prepared relating to the problem of the diversion of shipments and the problem of goods detained at the Panama Canal Zone. Messrs. Rains and Fisher worked on these problems. Consideration is being given to the prepara- tion of instructions to 17,000 exporters and im- porters, explaining their obligations in connec- tion with our Proclaimed List policy. Messrs. DuBois and Rains are working on this. A member of this office, Mr. Fisher, acted as a consultant to the Enforcement Section of Foreign Funds Control on Proclaimed List matters. This work included reviewing correspondence, requesting investigations, consultation on in- dividual cases, and analyzing and evaluating investigative reports. 75. European Neutrals. A study is being made by Mr. DuBois of the extent to which we should go in preventing American concerns within the neutral European countries from trading with enemy territory. Regraded Unclassified 241 - 58 - 76. Dutch and Belgian Decrees. A study is being made of the questions as to how far this Govern- ment should cooperate in enabling the Dutch and Belgian refugee governments to obtain control of the assets of their nationals in this country (pursuant to the decrees of these governments). Mr. DuBois is making this study. 77. Certifications pursuant to Section 25(b) of the Federal Reserve Act, as amended (for descrip- tion see January, 1942 report, item 47; February, 1942 report, item 51; March, 1942 report, item 66). The appropriate documents were prepared in con- nection with the issuance of licenses and certifi- cations, relating to the use of certain assets of friendly blocked governments and their central banks by the recognized representatives of such governments by Mr. DuBois. 78. Silver (for description see February, 1942 report, item 57; March, 1942 report, item 70). We prepared contracts for leasing and licensing the use of "free silver" to the Defense Plant Corporation. Messrs. Opper, DuBois, and Brenner handled this matter. Drafts of legislation designed to suspend the silver purchase program and to permit the use Regraded Unclassified 242 - 59 - of Treasury silver in the war effort were pre- pared by Mr. Opper, Miss Hodel and Mr. Brenner. A study was made by Mr. DuBois, Miss Hodel and Mr. Brenner of the various possible methods by which silver in the Treasury might be sold for use in the war effort. This office prepared an Opinion of the General Counsel to the Secretary stating that there is authority to sell approximately 1,300,000 ounces of "Silver Ordinary". Miss Hodel and Mr. Brenner prepared this opinion. 79. Spanish Silver. In cooperation with the Bureau of Accounts and the Federal Reserve Bank of New York, this office worked out a method for paying the fee of Winthrop, Stimson, Putnam, and Roberts for their services in the Spanish Silver cases. Miss Hodel and Mr. Brenner handled this problem. 80. Gold Reserve Act. This office prepared an amendment to the Provisional Gold Regulations signed by the Secretary and approved by the President on April 15, 1942. The amendment changed the definition of the term "mint district" because of the closing of the Assay Office at New Orleans, Louisiana. Miss Hodel did this work. Regraded Unclassified 243 - 60 - 81. Rueckwanderer Investigation (for description see March, 1942 report, item 56(d)). We dis- cussed this case on a number of occasions with representatives of the Department of Justice and also reviewed a lot of material on the case fur- nished to us by Justice. We wrote a letter to the Department of Justice, in response to their inquiry, stating that we had no objection to Justice's taking whatever action it deemed appropriate against the Chase Bank in connection with the sale of Rueckwanderer Marks. Mr. Quint handled this matter. 82. China. Consideration is being given to the preparation of a memorandum dealing with the methods by which the United States may act in order to give security for bonds to be sold by the Chinese Government to nationals of China. This program would be a significant aspect of financing the Chinese war effort. Mr. Daum is working on this matter. 83. Chinese Financial Aid Program. We had many conferences during the month of April covering the transfer of funds from the Treasury to accounts in the Federal Reserve Bank in the name of the 244 - 61 - Chinese Central Bank as fiscal agent of China, and other steps in the carrying out of the pro- gram for financial aid. We also discussed problems which had arisen in connection with the activities of the Chinese Stabilization Board and sent communications on these matters to Adler in Chungking. Regraded Unclassified