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Volume 575, October 3 – October 6, 1942
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Volume 575, October 3 – October 6, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 575
October 3 - 6, 1942
- A -
Book Page
Advertising Council
See Financing, Government: War Savings Bonds
Airplanes
Aircraft despatched, week ending September 29, 1942 -
British Air Commission report - - 10/6/42
575
215
American Viscose Corporation
Courtauld's, Limited: Chairman's remarks at annual
meeting concerning - 10/6/42
217
Fulton (Counsel, Senate Special Committee Investigating
National Defense Program)-Cairns conversation during
HMJr's absence in London - 10/21/42: See Book 579.
page 93
Morgan Stanley and Company letter - 10/24/42: Book 579,
page 146
Morgan Stanley--Dillon Reed proposed letter to Fulton -
10/29/42: Book 580. page 179
Treasury group general discussion after HMJr's return
from England - 11/2/42: Book 581, pages 36, 153, and 173
a) Resumé of HMJr's action: Book 581, page 164
Fulton, Hugh - "Who's Who":Book 581, page 171
Conference; present: HMJr, Bell, White, Cairns, and
Fulton: Book 582, page 35
a) Copy of Jones' letter to HMJr and HMJr's reply:
Book 582, page 57 and 58
- B -
Brazil
See Latin America
Business Conditions
Haas memorandum on situation, week ending October 3, 1942 -
10/5/42
121
Byrnes, James
See Inflation: Economic Stabilisation Authority
- C -
Canada
See Lend-Lease
Commissioned Officers
See Officers, Commissioned
Commodity Credit Corporation
Report as of March 31, 1942, sent to FDR for Senate and
House - 10/6/42
204
Contracts
See Procurement Division
Council of State Governments
See State Governments, Council of
Courtauld's, Limited
See American Viscose Corporation
- D -
Book Page
Daniels, Jonathan
See Officers, Commissioned
Diplomatic Pouches - immunity of
See State Department
- I -
Economic Stabilization Authority
See Inflation
- 7 -
Financing, Government
Chart of Treasury financing, 1942: Haas recommends against
making public - - 10/5/42
575
94
Baker (Davis L., Jr.) memorandum: "Possible new issues,
dated approximately October 15, 1942" - 10/5/42
97
$4 billion borrowing: Conference: present: HMJr, Bell,
Buffington, Haas, Murphy, Baker, and Rouse - 10/6/42
143
a) Haas: 2% 1950-52 bond and reopening of 11%
December 1946 note
b) Baker: 21% and 1-3/4% bonds
c) Bell: Quotes conversations with Dudley Mills and
Ben Levy
d) Guaranty Trust, Devine, etc., recommendations
148
e) Estimated yields and prices on possible new
Treasury issues
153
Conference: present: HMJr, Bell, Haas, Murphy, and Shields -
10/6/42
154,184
a) HMJr does not like 2% bond (recommended also by
Eccles): suggests "hanging on for another month or
two in orthodox way"
b) "Suggested means of preparing market for October
and subsequent financings"
188
War Savings Bonds:
Milman, Morton: HMJr and Callahan discuss - 10/5/42
69,71
War Department: Delay in delivery to soldiers discussed
in Stimson letter - 10/5/42
100
Advertising Council: Assistance discussed in Kuhn-
Buffington memorandum - 10/5/42
102
Meldahl, Horace S. (Charleston, West Virginia): Coyne
evaluation in connection with "compulsion in War
Savings program" - 10/5/42
109
Insurance Agents as Underwriters: Graves memorandum - -
10/6/42
189
Fulton, Hugh
See American Viscose Corporation
- G -
Gold
See U.S.S.R.
- I -
Book Page
Ickes, Harold L. (Secretary of Interior)
See Lend-Lease: U.S.S.R.
Inflation
Economic Stabilization Authority:
Conference with FDR at which he signed Order described
to HMJr by Gaston - 10/3/42
575
1,13, 19-A
a) Mr. X to be appointed and give orders "but not
to the Treasury"
b) $25,000 salary directive discussed by William H.
Davis (War Labor Board) and Gaston
1) Proposed Executive Order, Internal Revenue
regulations, etc
20
2) Effect on FDR discussed at 9:30 meeting -
10/5/42
50
Paul-HMJr conversation - 10/3/42
6
Byrnes appointed Director - - 10/3/42
15
Ruml-Paul conversation reported to 9:30 group -
10/5/42
56
Treasury representation at Byrnes' meetings discussed
by HMJr, Bell, Gaston, Kuhn, and White - 10/5/42
83
New York Times editorial suggests to HMJr that he call
Sulzburger inviting him, the editorial writer, and
Paul to a conference - 10/5/42
42
a) Sulzburger-HMJr conversation - 10/5/42
72
Insurance Agents
See Financing, Government: War Savings Bonds
- J -
Jehovah's Witnesses
See Meldahl, Horace S.
- L -
Latin America
Brazil: Financial plan to provide for war - report from
American Embassy, Rio - 10/6/42
227,229
Lend-Lease
Report for week ending October 3, 1942 - 10/6/42
198
Canada: Proposed Navy contracts with Boeing Aircraft of
Canada, Limited, and Fairchild Aircraft, Limited -
report by Joint War Production Committee - 10/6/42
218
U.S.S.R.:
FDR's memorandum to HMJr altering procedure
67
a) HMJr-Mack conference - 10/5/42
59
b) Cox-HMJr conversation - 10/5/42
61
Ickes letter in connection with "pat on back" given
Procurement by HMJr - 10/6/42
193
Library of Congress
Transfer of surplus funds intended for specific gift
discussed in MacLeish-HMJr correspondence - 10/6/42
207
(See also Book 583, page 380)
- X - -
Book Page
Meldahl, Horace 5. (Charleston, West Virginia)
Coyne evaluation in connection with "compulsion in War
Savings program" - - 10/5/42
575 109
Military Government
See Occupied Territories
Military Reports
British operations - 10/3/42, etc
34,36,
137,236
"Voice of the Chief" broadcast - Hoflich summary -
10/5/42
138
Hoflich summaries - 10/5-6/42
141,240
Bombing Raids over Western Europe during September 1942 -
Hoflich memorandum
237
Milman, Morton
See Financing, Government: War Savings Bonds
Monetary Stabilization
See Post-War Planning
Morgenthau, Henry, Jr.
Trip to England OK'd by FDR - 10/5/42
58-C
- N -
New York Times
See Inflation
- o -
Occupied Territories
Military Government: Synopsis of War Department program
for - 10/6/42
210
Officers, Commissioned
HMJr recommends to FDR that all desk officers under
30 and physically fit be sent to combat service -
10/5/42
58-B
a) FDR says Jonathan Daniels is investigating
- P -
Post-War Planning
Monetary Stabilization: "Keynes' Proposals for an
International Clearing Union"
a) Discussed by representatives of State, Board
of Economic Warfare, White House, Interior,
Commerce, Office of Price Administration, Federal
Reserve Board, and Treasury - - 10/5/42.
91
1) Questions raised
92
b) Discussed by Berle, Taylor, and Sir Frederick
Phillips - 10/7/42: See Book 576, page 162
Procurement Division
Director or any member of Contract Review Board to
act in place of HMJr with regard to contracts entered
into - 10/6/42
200
Regraded Unclassified
- Q - -
Book Page
QUEEN MARY, SS
Collision off coast of England reported to HMJr by FDR -
10/5/42
575
58-C
- R -
Revenue Revision
Income and excess profits taxes by Federal Reserve
Districts for June and September, 1942 compared -
10/5/42
99
Roosevelt, Franklin D.
Censorship on trips discussed by FDR and HMJr - 10/5/42.
58-C
- S -
Spain
See State Department: Diplomatic Pouches - immunity of
State Department
Diplomatic Pouches - immunity of: FDR-HMJr conversation - -
10/5/42
58-A
a) FDR to appoint special committee (Treasury-War-Navy)
to inspect all pouches for thirty days
58-E
b) Five Spanish diplomatic pouches discussed in
Gaston memorandum
58-G
State Governments, Council of
Appointments to fiscal committees discussed by HMJr.
Bell, Gaston, Kuhn, and White - 10/5/42
81
a) Sullivan asked to represent Treasury - 10/5/42
88
- T -
Taxation
See Revenue Revision
- U - -
U.S.S.R.
See also Lend-Lease
Gold: Purchase of 602,000 fine troy ounces - further
report on - 10/6/42
223
- V -
Viscose Corporation, American
See American Viscose Corporation
- W -
War Department
See Financing, Government: War Savings Bonds
Regraded Unclassified
- Y -
Book Page
Young, Philip
Correspondence between Young and Stettinius and Young
and HMJr on return of Cox to Lend-Lease staff - -
10/3/42
575
28
1
October 3, 1942
9:20 a.m.
Operator:
Hello. Hello.
Herbert
Gaston:
Yes, hello.
Operator:
Hello, Mr. Gaston?
G:
Yes.
Operator:
All right.
G:
Right. Hello.
Operator:
There you are.
G:
Hello.
HMJr:
Hello, Herbert?
G:
Yes.
HMJr:
Well, how'd you make out last night?
G:
Well, I didn't have much of a - any opportunity
to express any view at all.
HMJr:
Is my light on?
G:
Yes.
HMJr:
Good.
G:
The meeting was entirely occupied with a dis-
cussion of the terms of the bill, mostly with
Barkley, Brown, and McCormack.
HMJr:
I see.
G:
....at the end of which the President signed
it. He did, however, ask people from - ask
Jesse Jones and Oscar Cox and Bledsoe and
Henderson about - their opinion about the
effectiveness in the control of prices in
their fields. He told them that it would
not be up to them to make policy decisions,
that they'd get their orders from Mr. X.
HMJr:
Good.
Regraded Unclassified
2
- 2 -
G:
He said, "That applies to all of you," and then he
turned to no, but he said, "But not the Treasury.
HMJr:
oh, he did.
G:
He said, "We changed the language from the original
form, because the other was objectionable to the
other departments and stuck out too much, but we
eliminated that clause excepting the Treasury but
we eliminated the language which would give the
new authority power over Treasury functions." And
I said, "Yes, I - Randolph Paul had told me some-
thing of that." And that's - that's the only way
that we got in at all. We weren't - nobody was -
the Executive Order wasn't shown during the meeting
last night. The President announced that it would
be issued today.
HNJr:
It would be.
G:
Yes, and the papers carry the story that Mr. X will
be appointed today. After the - after the meeting
I went to the President and told him that I hoped
that he wouldn't say that this bill was going - the
complete answer against increases in the 008 t of
living, because we felt very strongly that we needed
more taxes than had yet been provided and other fiscal
means of preventing inflation.
HMJr:
Yeah.
G:
And he said that he agreed to that entirely, and he
was going to have & paragraph in his speech to that
effect in - in his announcement to that effect.
HMJr:
I see.
G:
As I was going out - or rather as we were standing at
the end of the room after the meeting, Davis said to
me, "You know the President waen't entirely correct
in saying that.
HMJr:
I didn't hear you. You'll have to repeat that.
G:
I say Davis, as we were standing talking in the end
of the room before going out - William R. Davis of
the War Labor Board said to me, "You know, the
President waen't entirely correct in his statement
that the Treasury is not affected." He said, "You
(cont.)
Regraded Unclassified
3
- 3 -
G:
know, there's that paragraph in the bill," and I
(cont.)
said, "Yes, I - I knew about that paragraph."
HMJr:
What paragraph?
G:
Well, there's a paragraph in the - the paragraph
in the bill gives the - the President power to
regulate wages and salaries, and under that paragraph
they're proposing to issue, as one of the first if
not the first directives, a directive to all agencies
to - in respect to salaries.
HMJr:
Yeah, I know.
G:
That's - that's the $25,000 thing, and he has power
to and intends apparently to make that directive
to the Bureau of Internal Revenue - to the Treasury
Department as well as to the contracting agencies.
HMJr:
Well, I - later in the evening I had a talk with
Paul while you were at the White House.
G:
Yes.
HMJr:
....and I asked whether that set & precedent. Could
the President write a tax bill on all income? He
said, "No, he could not."
G:
Well, probably not, although I'm not too happy about
the - I don't think there's anything to be done.
The President just told us, he didn't ask us, last
night, but the - and I haven't seen the terms of the
Executive Order. But there is substantial differ-
ence between an order that in terms says the director
of this "super-duper" cannot issue directives to
the Secretary of the Treasury and one which merely
omits mention of Treasury functions except that it
does include a paragraph in respect to salaries that
gives the President power over all agencies of the
government.
HMJr:
Well, I also got Sam Rosenman later in the evening....
G:
Yes.
HMJr:
....and he says that - he assures me that by we
having no reference....
Regraded Unclassified
4
- 4 -
G:
Yeah, uh huh.
HMJr:
...that it leaves us out.
G:
Yes, yes.
HMJr:
He also assured me that Mr. X had been told that
he had nothing to do with the Treasury.
G:
Yes, uh huh.
HMJr:
You say the President said that in front of
everybody else?
G:
That's right. That's right, and he made it so
emphatic that Davis - that Davis later told me
that that wasn't quite correct because there's &
paragraph in the bill that very plainly gave
the see? President power over - over the salaries,
HMJr:
Well, I don't see - I - unless I've been hood-
winked, I don't - I think that this....hello?
G:
Yes. Well, I think it's all right because -
because of that statement of the President before
the group and - and, anyway, it's - it's the
practical effect that counts and it - everything
he said has indicated that we're not going to be
pushed around without an opportunity for you to
talk to him.
HMJr:
I have a very bad connection.
G:
Yeah. Well, I - - I get breaks in your - in your
transmission.
HMJr:
So do I.
G:
Yeah.
HMJr:
Hello?
G:
Yes.
HMJr:
If and when they announce who Mr. X is, would you
call me?
Regraded Unclassified
5
- 5 -
G:
Yes, indeed, I will.
HMJr:
I'd like to know.
G:
Yes, as soon as that Executive Order comes out, I'll -
I can let you know that it's out, and then if they
get Mr. X, I'll let you know.
HMJr:
Yeah. Well, when they call the Executive Order, if
you're going to call me, I'd like to speak to you
and Paul together.
G:
Right.
HMJr:
See?
G:
Yes, yes.
HMJr:
But I think - I wouldn't -- unless it's an emergency --
I wouldn't call between now and twelve-thirty, if
you don't mind.
G:
All right. All right. I got a note from Steve
just now that - from Stephens that Paul is not in
the office yet, but he'll undoubtedly be here soon.
HMJr:
Well, unless it's an emergency - that they could
wait until twelve-thirty.
G:
All right. I - I think it - I think it no doubt
can.
HMJr:
Right.
G:
Right.
HMJr:
Okay.
G:
Okay.
Regraded Unclassified
6
October 3, 1942
10:00 a.m.
Randolph
Paul:
What - what they did was this, apparently - they
adopted the language that I had drawn up for
Rosenman late in the afternoon.
HMJr:
Yes.
P:
....with one slight exception which I'll point out
to you.
HMJr:
Yeah.
P:
They adopted a proviso clause which was a combina-
tion of suggestions made in the earlier meeting....
HMJr:
Yes.
P:
in the afternoon. The principal thing that I
suggested was the addition of War Bonds to the
list 80 as to prevent discrimination in favor of
debtors
HMJr:
Yeah.
P:
....and also a general hardship clause at the end.
HMJr:
Yeah.
P:
I also suggested contributions be added to that
proviso list.
HMJr:
Yes.
P:
You know we've had a lot of correspondence about
that, and I think one - some of it from Mrs.
Roosevelt.
HMJr:
Yeah.
P:
They did not - they adopted that suggestion, 80
far as those people present yesterday were oon-
cerned, but apparently the President overruled
them, and Rosenman said that he was for it and
Harry Hopkins argued very strongly for it, but
the President wouldn't take it.
7
- 2 -
HMJr:
Wouldn't take the War Bond business?
P:
No, he wouldn't take the contributions.
HMJr:
How about the War Bonds?
P:
As far as I know, that's in.
HMJr:
I see.
P:
You see, why we put that in is simply to - if
you're going to allow for debts, you can't - you've
got to allow for another type of saving applicable
to the man who isn't a debtor.
HMJr:
Just hold the line. Hello?
P:
Yeah.
HMJr:
Will you hold on one minute?
P:
All right.
HMJr:
Hello?
P:
Yes.
HMJr:
Go ahead.
P:
So that the result - the general result on this
particular directive is that they've taken pretty
much our language. But, of course, I've pointed
out that our language was just an adaptation of
their idea and we weren't - I was inclined to think -
I certainly thought we should study it more.
HMJr:
Yeah.
P:
But if they had to get out something last night....
HMJr:
Yes.
P:
....it was the best we could do.
HMJr:
Well, I just want to compliment you, because I
think you saved the day.
Regraded Unclassified
8
- 3 -
P:
Well, I don't think so. I'm not so sure. But
here's one thing I want you to understand I did
get out.
HMJr:
Yes.
P:
They had it fixed 80 that you took - you took not
only the salary but you took a man's other net
income.
HMJr:
I 600.
P:
In other words, suppose a man had, say, a $50,000
net income from other sources, not his salary.
HMJr:
Yes.
P:
He couldn't get anything. He couldn't be allowed
any salary, because the other income combined with
his salary would be too much.
HMJr:
I see.
P:
Now that would mean that every employee would have
to tell his employer what his - what his outside
income was.
HMJr:
Yes.
P:
It would mean also that at the beginning of the
year nobody would be able to tell how to obey the
order because he wouldn't know what other income
the employee was going to get, even assuming the
employee was willing to tell him.
HMJr:
Yes.
P:
And also, of course, there's this argument which
I made to Rosenman, that this business of after
the payment of taxes, we don't know what the taxes
are going to be at the beginning of the year. But
he thought, "Well, we can work that out in regula-
tions." But I got that other income business
completely out of it.
HMJr:
Good. Well, it's unfortunate - it's inexcusable
to try to do these things on a split second.
Regraded Unclassified
9
- 4 -
P:
Yeah. Now this thing about which Rosenman called
me up last night was rather a refined point. I'm
not sure if I'm right or not. But my....
HMJr:
Wait a minute.
Operator:
Long distance.
HMJr:
Operator, I have nothing but trouble with this
phone. It not only fades, but there's a constant -
a short interruption.
Operator:
I'll get Miss Carr for you.
HMJr:
May I have....
Miss
Carr:
Yes.
HMJr:
There's been nothing but trouble on this. Now it's
faded out completely but as he - sounded as though
somebody was putting a key in on me?
Miss
Carr:
Yes, just a moment now.
HMJr:
Had nothing but trouble.
Miss
Carr:
Well, one - are you - you're not through talking
on the line, Mr. Secretary?
HMJr:
No, I'm not.
Operator:
Are you through? Washington?
Miss
Carr:
Just a moment now.
2nd
Operator: Hello.
Miss
Carr:
I was going to ask you, Mr. Morgenthau was talking
with Mr. Gaston. Are we still connected?
10
- 5 -
2nd
Operator: Hello. Hello.
P:
Hello.
2nd
Operator: Hello. Hello.
P:
Hello.
2nd
Operator:
Well, could you hear on here? Hello?
P:
I can hear. I don't know whether Mr. Morgenthau
is on now.
2nd
Operator: Yes, just a minute. Yes, we're changing the
connection. He couldn't hear you. Just a minute.
P:
All right.
2nd
Operator: Just a minute. We're changing the connection.
Mr. Paul?
P:
Yeah.
2nd
Operator: Just a second.
HMJr:
Hello.
Operator:
There you are.
P:
Hello.
HMJr:
Randolph?
P:
Yeah.
HMJr:
Can you hear me now?
P:
Yeah, I didn't have any trouble hearing you. I
can hear you very plainly now.
HMJr:
There was a constant outting in, as though some-
body was turning a key in on us.
Regraded Unclassified
11
- 6 -
P:
Yeah, well, that's right. It wasn't very good.
HMJr:
Now I can hear you.
P:
Yeah. Well, now as I understand it, they're going
to get this thing out this morning.
HMJr:
Yeah.
P:
of course, it's - it's just a general statement.
Some sort of detailed regulations have to be drawn
up under it, and I suppose I ought to get in touch
with Rosenman about that.
HMJr:
Yeah.
P:
Have you anything more?
HMJr:
No, except Gaston said that he - he just listened
and that the President told everybody in the room
that they've got to take their orders from Mr. X
except the Treasury.
P:
Yeah, that's right. That's what he told me.
HMJr:
Who?
P:
Gaston.
HMJr:
oh, you talked to him.
P:
I talked to him last night after he got back.
HMJr:
Well, then you've got it.
P:
Yeah.
HMJr:
No, I have nothing. I told Gaston that if either
of you want to call again, unless 1t's an emergency
not to call until twelve-thirty.
P:
All right. I don't think we'll bother you today.
I've got several things, but I won't bother you
until Monday. You coming back Monday?
HMJr:
Yeah, bright and early.
12
- 7 -
P:
All right. I won't call you unless I have to.
HMJr:
Right.
13
October 3. 1942
12:45 p.m.
Herbert
Gaston:
"salaries, profits, rationing subsidies and
all related matters all for the purpose of prevent-
ing avoidable increases in the cost of living" etc.
HMJr;
Yes.
G:
It does leave out the reference to fiscal and tax
policy. Then - then the paragraph of the Order,
No. 7, said that "In order to correct gross in-
equities and to provide for greater equality in
contributing to the war effort, the Director is
authorized to take the necessary action to issue
the appropriate regulations 80 that in so far as
practicable no salary shall be authorized under
Title III, Section 4, to the extent that it ex-
ceeds $25,000 after the payment of taxes allocable
to the sum in excess of $25,000." And then
there's a proviso - that's the point that they
discussed last night and they changed it to read -
Randolph had it - the - exceeds $25,000 after the
payment of the taxes allocable thereto, and they -
the President made it read, "after the payment of
taxes allocable to the sum in excess of $25,000*
which can have the effect of reducing a man's net
salary below $25,000.
HMJr:
How the hell are you going to figure that?
G:
Well, there is a question, you know, of whether
the - whether the tax is allocable to the sum in
excess of $25,000 or figured at the top bracket
rates or whether they're separately figured, and
I - I figure that we re going to have a lot of
inquiries here that we're not going to be prepared
to answer.
HMJr:
Well, you can refer them to the White House.
G:
Well, (laughs) I - - I think so.
HMJr:
But do you think we're in the clear on that?
G:
Well, yes, otherwise the thing is just as we -
just as Randolph drew it. Now there's a proviso
that such regulations shall make due allowance
(cont.)
Regraded Unclassified
14
- 2 -
G:
for the payment of life insurance premiums on
(cont.)
policies heretofore issued and required payments
on fixed obligations heretofore incurred, and
shall make provision to prevent undue hardship.
Now....
HMJr:
Does it leave out War Bonds?
G:
They left out War Bonds.
HMJr:
Damn !
G:
They left out War Bonds, and - which - which
Randolph suggested to them. But, of course, this -
this particular exception will mean quite a lot
of - of inequities, disparities as between the men
who have debts to pay and the men who don't have
debts to pay.
HMJr:
Well, why didn't they include War Bonds?
G:
I don't - we do not know. Randolph is right here,
but as I understand 1t, he wasn't told that they
were going to exclude War Bonds. No, he was not
told. He shakes his head. Now then - then - then
he thought it was going to be in. Now then,
there's another - there's a third title to the
order that relates to the administration of the
wage and salary policy, and in the fourth para-
graph of that title, it says that "in order to
effectuate the purposes and provisions of this
Order in the Act of October 2nd, any wage or
salary payment made in contra... - contravention
thereof shall be disregarded by the Executive
Departments and other governmental agencies in
determining the costs or expenses of any employer
for the purpose of any law or regulation including
the Emergency Price Control Act of 1942 or any
maximum price regulation thereof or for the purpose
of calculating deductions under the Revenue Laws
of the United States or for the purpose of deter-
mining costs or expenses under any contract made
by or on behalf of the government."
HMJr:
I don't know what that all means.
Regraded Unclassified
15
- 3 -
G:
Well, it means simply this - that we're directed by
this Executive Order to take that - to follow that
$25,000 limit in - in tax deductions - corporation -
corporation reports - corporation tax reports. They
can't charge as expenses salaries in excess of the
amount allowed there.
HMJr:
Well, the $25,000 thing doesn't bother me so much.
I mean, you lose - for Paul and the Bureau....
G:
Yes, yes.
HMJr:
....but we seem to be in - in the clear on the rest.
G:
Yeah, yeah, we seem to be in the clear on the rest of
it.
HMJr:
Which is of more importance to me.
G:
Yes. That - that one thing about the $25,000 salaries
seems to be the only thing where the directives will
hit US....
HMJr:
Well, I'm not going to worry about that. But - but
Jimmy Byrnes can't tell me what to do, can he?
G:
Well, - I think that only in regard to this salary
regulation.
HMJr:
Well, that the President told me. But outside of
that?
G:
Just a moment. Let me ask Randolph.
HMJr:
Let me ask Paul that.
G:
Yeah.
HMJr:
Can Jimmy Byrnes tell me....
Randolph
Paul:
I don't think he can. The only thing that he will do
now is ask you to get up regulations, detailing some
of this generality of this Order, and those regula-
tions will cover the subject of the $25,000 limitation
and also this other thing that Herb read to you about
wages under the War Labor Board. Now these really, as
you just said, are directives from the President, and
you will be asked by the - by Mr. Byrnes to get up
(cont.)
Regraded Unclassified
16
- 4 -
P:
regulations to implement those two orders of the
(cont.)
President.
HMJr:
But outside of that, I'm still Secretary of the
Treasury, only responsible to the President.
P:
That's right, and this language at the beginning of
the Order, which Herb read to you, pretty much
follows what - what Sam showed to me and pretty
much said - follows what the President said at his
conference last night, according to Herb's report.
HMJr:
Well, that's what really interests me, and....
P:
Yeah.
HMJr:
this other thing is a mess which is going to
be difficult for you and the fellow over at Internal
Revenue, but I want to know whether I can still -
the only person that can give me orders is the
President, is that right?
P:
That's right.
HMJr:
What?
P:
I think that's true.
HMJr:
Well, that's what interests me, and I've been
fighting.
P:
Yeah, you're - you've got your sovereignty still.
HMJr:
What?
P:
You still have your sovereignty.
HMJr:
All right. That's all I wanted because....
P:
Wait a minute. Hello?
HMJr:
Yeah.
P:
John wanted to know if you didn't think he'd better
be here Monday rather than in New York.
HMJr:
John?
Regraded Unclassified
17
- 5 -
P:
Yeah.
HMJr:
Where is he now?
P:
He's here.
HMJr:
Do I think he'd better be here?
P:
Better be in Washington rather than in New York.
HMJr:
Very definitely.
P:
Very definitely?
HMJr:
Yeah.
P:
Okay. Anything else?
HMJr:
John can - John can - he can explain this.
P:
Explain it to whom?
HMJr:
The world.
P:
(Laughs) Okay, wait a minute. He wants to take
the phone on that.
John L.
Sullivan: I'll betcha I can explain it as well as anybody else
can at this particular moment.
HMJr:
Well, that's saying a lot, John.
8:
No, that's saying nothing, sir.
HMJr:
(Laughs) Well, anyway....
8:
I - I think I'd better be here, because there are
going to be quite a lot of questions.
HMJr:
oh, I think 80. We'll all have to grin and bear it.
8:
Righto.
HMJr:
What else?
S:
That's all. Isn't that enough?
HMJr:
What?
Regraded Unclassified
18
- 6 -
S:
Isn't that enough?
HMJr:
Enough for me.
8:
(Laughs) All right, sir. Have a good week-end.
HMJr:
Thank you. May I - hello?
S:
Yes, sir.
HMJr:
Could I just say something to Paul a minute?
S:
Right.
Randolph
Paul:
Hello.
HMJr:
Did Gaston give you thg - - my suggestion for my alter-
nate on that committee
P:
No, I haven't - he hasn't had a chance yet.
HMJr:
Joe O'Connell.
P:
Which committee is that?
HMJr:
Well, to represent me. I'm not going to go sit on
this committee with....
P:
Oh, I see. Well, I'll think it over. I'll talk with
you Monday on that.
HMJr:
Yeah, but - my thought - I've been looking over the
place - Joe did a beautiful job on T.N.E.C.
P:
Yeah, he did. There's no question about his
ability.
HMJr:
Well, think it over.
P:
All right.
HMJr:
Talk it over.
P:
Right.
HMJr:
Well, cheerio.
Regraded Unclassified
19
- 7 -
P:
Right.
HMJr:
May I have my operator, please?
P:
Just a minute.
Operator: Hello.
P:
The Secretary wants the operator.
Operator: Yes, sir. Hello.
11
19-A
October 3, 1942.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
Miss Roberta Barrows, at the White House,
attempted to get me on the phone at 6:00 o'clock
last night when I was on my way home. I called her
back and she told me that there was to be a meeting
with the President at&the White House at 8:45, which
I was asked to attend. She asked me if I knew what
was to be the subject of the meeting. I told her I
did not. She then told me the names of some of
those who were to be present, including Jesse Jones,
Francis Biddle, Leon Henderson, Harold Smith, Sam
Bledsoe, of Agriculture, and Will Davis. A little
later Randolph Paul got me on the phone and said
that Sam Rosenman had called him over to the White
House during the afternoon and that he was about to
go back again. Sam had shown him a penciled draft of
a so-called directive, presumably to be addressed to
the director of the new Economic Stabilization Authority,
instructing him that salaries were to be limited to
$25,000 a year, after taxes, and Randolph was told
that this was to be enforced through the War Contracting
Agencies and also through the Bureau of Internal Revenue,
which was to disallow expenses for salaries above this
amount. Rosenman had also told Randolph, casually and
incidentally, that the Executive Order creating the
Economic Stabilization Authority had been redrafted
so as to leave out the paragraph specifically exempting
the Secretary of the Treasury from obedience to
directives by the head of the Authority, but that in-
stead reference to Treasury powers had been eliminated
from the paragraph outlining the functions of the new
Authority. Sam explained that the reason for this was
that there had been objection by the other departments
and agencies to this specific exemption of the Treasury
Department and that it stuck out like a sore thumb,
but that the new language would .accomplish the same
effect. Randolph was permitted to glance at the para-
graph outlining the Authority's functions and it
- 2 -
seemed to confirm what Rosenman had said. Not knowing
definitely what was to be the subject of the evening's
meeting and in view of these conversations between
Rosenman and Paul, it seemed to me that it might be
better for Randolph to represent the Treasury at the
meeting. I put in a call for you over the Treasury
switchboard and found that you were then talking to
Stephens, who had called me 8. few minutes before to
ask me for advice as to whether he should call you
and tell you about the meeting and that I was planning
to go. Randolph called me back after his second trip
to the White House to report that Rosenman had accepted
his redraft of their proposed directive. While I was
talking with him the operator told me that you were on
the line in response to my call and I asked Randolph
to stay on. I outlined the situation to you and
Randolph said he thought I should go, since I would
be in & better position to ask for delay on both the
matters he had discussed with Rosenman. You agreed
with this and said you would rely on me to protect the
Treasury's interests.
I reached the Treasury about 8:15 and reviewed the
situation with Randolph before going to the White House.
The President saw us in the study at about 9:00 p.m.
Those present were: Senators Barkley and Prentiss Brown;
Congressman McCormack, Jesse Jones, Francis Biddle, Leon
Henderson, Harold Smith, Will Davis, of the War Labor
Board, Sam Bledsoe, of Agriculture, Oscar Cox and Isadore
Lubin. Sam Rosenman stuck his head in the door a couple
of times, once to call Oscar Cox out for a conference,
but was not present through the meeting. Harry Hopkins
came in as the meeting was breaking up.
Almost the entire meeting was devoted to a dis-
cussion of the Stabilization Bill, which had gotten
through conference and been passed late in the after-
noon. The President had the official No. 1 copy of
the engrossed bill before him and signed it near the
end of the conference. I noticed that Leon Henderson,
who sat at my right, also had a copy of the engrossed
bill. Francis Biddle had only the latest Senate print,
19-D
- 4 -
There was reference to the so-called Norris Amend-
ment to the bill, which would have given the President
complete power over public utility rates. The substitute
provision permits "timely intervention" by agencies of
the Federal Government in any application for change of
rates by any regulating authority and there is a 30-day
waiting period before the hearing. Barkley said that
Norris accepted this substitute provision and he believed
it would accomplish the necessary results, with which
the President seemed to agree, as he pointed out that
it would give an opportunity for delay and for complete
publicity.
The President questioned the various people around
the room as to their opinion of the effectiveness of the
bill. Everybody agreed that it gave very broad powers
to the President, but doubt was expressed that it would
completely prevent increases in the cost of living.
Oscar Cox thought it might hold increases within 8. range
of 10%, to which Sam Bledsoe agreed, and the President
called them pessimistic. When the President said that
the director of the Authority would have complete con-
trol over policy, Barkley interjected that he had dis-
cussed with Leon Henderson the policies to be applied
and had given assurances to the Senate based on Leon's
statements. He thought it was necessary to interpret
the bill in the light of Congressional intent and that
this statement of his ought to be taken into consideration.
The President said he would issue & statement on
the signing of the bill, and Barkley said he hoped he
would be able to include some praise of the manner in
which Congress had acted. The President agreed he would
do this and in that connection mimicked the almost tear-
ful plea made to him by Sam Rayburn when the President's
message asking for the bill was about to go up. Rayburn
had asked the same thing as Barkley was now asking.
After the meeting broke up, I spoke to the Presi-
dent and said that I hoped his statement would not
give the impression that this bill was the complete
answer to controlling the cost of living. I said we
Regraded Unclassified
19.
- 5 -
thought that there must be a further tax increase and
some fiscal legislation to control spending. The
President replied that he intended to say in his state-
ment that the authority granted under this bill must
be supplemented by other legislation in the tax and
fiscal field.
20
OCT -3 1942
MR. SECRETARY:
There is transmitted herewith, with the recom-
mandation that it be approved, a proposed Treasury
desision which will regulate the inspection by the
Office of Price Administration of certain financial
date reported on corporation income and declared value
uneess-profits tax returns. To this end it is pro-
pered to permit the inspection of such data contained
on certain corporation statistical transcript cards.
with this proposed Treasury decision there is a pro-
proof Resentive Order which authorizes such inspection.
Under Importive Order 9076, dated February 26,
1942, Surgestion of similar corporate financial data
- premitted with respect to income and declared value
tax returns mão for taxable years be-
gianing ufter June 30, 1935, and ending before July 1,
1941. Treasury Decision 5120, approved February 26,
1942, permitted such inspection. In his letter to you
Deareded iti
21
&
of September 28, 1942, Honorable Leon Henderson,
Administrator of the Office of Price Administration,
requested permission to inspect returns for years end-
ing after June 30, 1941, apparently without limitation.
It is believed, however, that it is imappropriate to
provide now for blanket authorization for inspection
of data on all future returns. Accordingly, the proposed
Executive Order and Treasury decision herewith submitted
provide that such inspection may be made of transcript
cards containing data on corporate income and declared
value excess-profits tax returns for years ending after
June 30, 1941 and before July 1, 1942.
The information obtained by the Office of Price
Administration must, of course, be limited to official
use and is subject to all existing statutory provisions
permitting unlawful disclosure.
(Signed) Guy T. Helvering
Commissioner.
22
OCT 9 1942
Through the Bureau of the Budget
Through the Attorney General.
Through the Division of Federal
Register.
My dear Mr. President,
I as submitting herewith for your consideration,
with the recommendation that they be approved, a pro-
posed Executive Order authorizing the inspection by
the Office of Price Administration of certain corporate
financial data on income and declared value excess*
profits tax returns made for taxable years ending after
June 30, 1941 and before July 1, 1942, and also a pro-
posed Treasury decision regulating such inspection.
Under Executive Order 9076, dated February 26, 1942,
the Office of Price Administration was permitted to in-
speet similar data on income and declared value excess-
profite tax returns for taxable years beginning after
June 30, 1935, and ending before July 1, 1941. The
Office of Price Administration now desires to obtain
23
such data with respect to corporation returns filed
for taxable years ending after June 30, 1941. Authority
for such additional inspection must therefore come from
& specific Executive Order.
Faithfully yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The President,
The White House.
Sent to JC in Thompson's of fice
10/10 for mailing to Mr. Shey
in Budget Bureau.
Copy in Diary.
24
MANOURIVE
I
INSPROTION n = OFFICE OF PRICE
B
corporation
STATIOTICAL TRANSCRIPT GARDS m
PARED from INJ4NB AND
VALUE EXCESS-PROFITS TAX ABSURNS
" vistue of the entherity vasted in as by
sections 55 (a) and 603 of the Internal Revenue
Code (53 state 29, 111). 10 so hereby ordered
that corporation statistical transcript cards
propared by the sureen of Internal Revenue from
corporation income and declared value
profite - returns nade under the Internal
- cose, as amazied, Car say taxable year
ending after June 30, 1961 and before July 1.
1942, shall be open be inspection by the office
of Price Administration; such inspection to be
in acceptance sad upon compliance with the rules
and regulations prescribed by the decretary of
the receive in the Treasury decision relating
to the inspection of such cards w the Office of
Price Administration, approved by se this date.
this order shell to published in the Federal
Register.
THE WHITE ROOSE,
Detober . 1942.
Regraded Unclassified
25
(r. D. ,
TITLE % - INTERNAL revenue
CHAPTER I
PART 458 . SUBPART x
TREASURY DEPARTMENT,
Washington, D. C.
TO COLLECTORS OF INTERNAL REVENUE
AND OTHERS CONCERNED:
Pursuant to the previsions of sections
55 (a) and 603 of the Internal Revenue Code,
corporation statistical transcript cards
propered by the Bureau of Internal Revenue
from corporation income and declared value
excess-profits tax returns mde under the
Internal Revenue Code, as amended, for any
termble year ending after June 30, 1941,
and before July 1, 1942, may be open to
inspection by the Office of Price Admin-
istration. The inspection of such trans-
cript cards herein authorized say be made
Regraded Unclassified
26
of 6 9
by ear officer or employee of the Office of
Price Administration daly authorized by the
Administrator to nake such inspection. Upon
written notice by such Administrator to the
Secretary of the Treasury giving the elasses
of corporations whose transcript cards it is
desired to inspect, the Secretary and any
officer or employee of the Treasury Depart-
next, with the approval of the Secretary,
say furnish such Office of Price Administra-
ties with any data on such cards or may make
the cards, or any of them, available in the
office of the Commissioner of Internal
Revenue for inspection and copying by the
Office w Price Administration or by such
emainers or agents as the Administrator
Information a = designate. Day
obtained may be published or diselosed in
statistical form providing such publication
doss not diselose, directly or indirectly,
the name or address of any corporate tax-
payer. (E.O. . Det. . 1942, and sees.
Regraded Unclassified
27
- s -
55 (a) and 603, 53 State 29, 111; 26 U.S.C.
1940 ado, 55 (a). 603.)
(Wigned) H. Morgenthau, Jr.
Secretary of the Treasury
APPROVED: Getober 0 1942.
THE WHITE HOUSE.
LAD 10-3-42
Regraded Unclassified
28
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
October 3, 1942
PERSONAL and CONFIDENTIAL
Dear Mr. Secretary,
Just a note to keep you in touch with general develop-
ments. After going over the whole situation and talking
with various persons, I am leaving for Van Hornesville for
a maximum of thirty days leave.
I have decided not to go into the Army at the present
time as I honestly feel I can contribute more in a civilian
capacity until such time as the situation changes.
For your own personal and confidential information, I
attach herewith a copy of the letter I received from Ed
Stettinius and & copy of my reply.
The last few days at Lend-Lease have definitely demon-
strated the fact that by staying here during the internal
renovation period of that organization I an only harming
the operation rather than helping it. In the first place,
I am no longer in a position to know what is going on until
after it has happened, and, secondly, the new operating
management is highly embarrassed just by my physical pres-
ence.
I think you know me well enough to realize that I
would not take this step unless I sincerely thought it was
the right thing to do.
I have to admit that I am looking forward to a little
time off for I will do a better job when I come back, and
29
- 2 -
at that time I am looking forward to getting in touch with
you in order that you may receive a full and complete report
on the status of the weather, the apples and the raspberries
of the central New York area.
Faithfully yours,
Diecip
Philip Young
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
C
30
0
?
Y
September 23, 1942
PERSONAL & CONFIDENTIAL
Dear Phil,
As agreed in our conversation this morning, I an writing
this letter, as I feel it night clarify the whole situation
in your mind and in mine. At the outset I want you to know
that you have By complete confidence and respect. I regard
you as one of the able, competent men I have been associated
with in business and your integrity and character are of the
highest. May I also add that I have always been rather
proud of our association, in view of the close and affectionate
relationship between your father and by father, not only during
the last var, but immediately thereafter in the reconstruction
period.
I don't believe there is anything to be gained by my
dwelling at length on the circumstances surrounding Oscar
Cox's returning to Lend-Lease on a full time basis. I believe
you thorsughly understand the situation and the importance to
the Lend-Lease Administration and its future in having his do
so, Both from the standpoint of effective operations within
the organization as well as in deference to your personal
desires, I felt that, with Oscar's prospective appointment
as Senior Deputy, it was insvitable that your field of activity
should be changed. Therefore, I confirm your appointment as
Deputy Administrator of the Lend-Lease Administration. You
will report direct to as and will be on the same level of
dignity. prestige and responsibility with Major General Vesson,
John L. Pratt and 9. 3. McCabe.
You inquired this morning as to what your specific duties
might be in such a. post. To that I can only reply that, as
hard pressed as ve all are in the Var effort, I can assure you
that you will have sany important and varied functions to
perform and, while it is impossible at the moment to make any
commitment as to a definite field or territory. I will repeat
among the items I menttoned to you this morning such relation-
Regraded Unclassified
31
- 2 -
ships as - Treasury Department contacts on the broad financial
aspects of our activity; Reciprodal Lend-Lease in its varied
ramifications; Board of Economic Varfare limison activity; special
direction of appropriation studies: special direction of the
Caribbean food problem as a whole. These are only a few of such
assignments that I have in mind and with respect to which you
are so eminently qualified to do an outstanding job.
Philip, I can only assure you, in closing, that I would
personally deeply regret your leaving the Lend-Lease Adminis-
tration with the resultant less in the future of your extra-
ordinary experience and ability. I can think of nowhere else
in the Var effort where you are in a pesition to make as impor-
tant a contribution as you are in Lend-Lease at this time. If
you transferred to another activity - Army, Havy, or another
civilian agency, it would take you months before you could be
half as effective as you are and will be here.
of course, a decision as to military service is one which
a man must make primarily himself after weighing all the per-
sonal factors involved, but there is no doubt in my mind, that,
viewed solely from the angle of degree of contribution to the
War effort, you could make your greatest contribution in Lend-
Lease. I have written you frankly in order that you night have
clearly before you By thoughts on the subject.
May I repeat, that you have By complete confidence and
respect and add that I have an affectionate interest in your
progress and success.
Faithfully yours,
12/ M
1. R. Stettinius, Jr.
Mr. Philip Young
515 - 22nd Street, N.W.
Washington, D. G.
Regraded Unclassified
32
October 2, 1942
PERSONAL AND CONFIDENTIAL
Dear Ed,
I want to take this opportunity to thank you for your
most cordial and sincere letter of September 23rd, and may
I reciprocate those expressions of confidence and respect
which you so ably stated.
On my side, I also have been proud of our association,
and I am glad that we have been able to carry on the tradi-
tion of our fathers. It is By hope that this may be continued
and augmented during the arduous months to come. In any event,
this relationship will always carry on between us, regardless
of the exigencies of var and of politics.
It gives as great pleasure to accept the appointment as
Deputy Administrator of the Lend-Lease Administration. It
is my understanding that I shall repert directly to you and
carry on those special functions and responsibilities which
you may assign. The field is broad and there is such to be
done. It is my sincere hope that you and your staff will
have the unhampered oppertunity to make their maximum contri-
bution to the var effort.
During my eight years in Government service I have ao-
quired an intimate knowledge of Washington and specifically
of the Land-Lease business. My point of view, as I have already
outlined in our conversations, is merely that this knowledge
and experience, plus whatever abilities I may have, must be
used wherever it can contribute most effectively to winning
the var. As you stated in your letter that a decision as to
military service is one which a man must make primarily for
himself, so in this situation I believe that in the last analy-
sie, I must nake the desision as to where my contribution could
be most effective.
You predict that Lend-Lease offers a greater opportunity
for the use of my knowledge and experience than any other
Regraded Unclassified
33
- 2 -
activity in the war effort. I hope that prediction will turn
out to be true.
During the installation of the new operating management,
there will probably not be a very clear definition of functions
and responsibilities. It would seen that this offers an oppor-
tune time for me to take some of By accumulated leave. with
your permission I should like to depart immediately, returning
to assume my new post and duties about the first of November.
Of course, I shall be delighted to return sooner if you wish it.
Again let me say how much I appreciate your letter and the
sincerity of your feelings.
Faithfully yours,
10/ Phil
Philip Young
Honorable 1. R. Stettinius, Jr.,
Lend-Lease Administrator,
515 - 22nd Street, N.V.,
Washington, D. 0.
Regraded Unclassified
34
COPY NO 13
BRITISH MOST SECRET
U.S. SECRET.
OPTEL NO. 342.
Information received up b 7 a.m. 3rd Oct, 1942.
1. NAVAL.
TIRPITZ was sighted in her berth near Nervik on
the 1st. Night 1/2nd three motor torpedo boats fired
torpedoes into Rhodes Harbour. Five explosions were seen.
2. MILITARY
Egypt. The brigade which attacked on the 30th W&S
able to consolidate and re-organize.
Madagascar. After capturing an enemy position at
Sambaina the column moving south from Tananarive had by the
1st reached a point 18 miles North of Antsirabel. Progress
has been slow on account of numerous obstructions,
Russia. Both the Russians and Germans are delivering
local attacks on the Leningrad Front. The Germans have
improved their positions slightly at Stalingrad and in their
advance on Tuapse.
New Guinea. 30th. Light forward patrols reached
Nauro without gaining contact with the main enemy force.
More enemy pment was captured.
Gilbert Islands.
It is reported that the Javanese
landed on Beru and Nonouti Islands on the 26th and th
contact with Tamana Island was unobtsinable on 27th.
It therefore appears that all the Gilbert Islands are now
in Japanese occupation.
3. AIR OPERATIONS.
Western Front. lst/2nd. Wismar and Area. 73 tons
of H.E., 79 tons incendiaries, Considerable cloud, poor
visibility and heavy ground mist. Flensburg. 28 tons H.E.
2 tons incendiaries. Practically cloudless with good
visibility over the objective but very dark. Most aircraft
attacked from below 1600 Seet. Crews could distinguish
ground features and fires were seen in the target area.
All defences had been greatly increased since the last
attack, Lubeck and area. 41 tons H.E., 3 tons incendiaries.
Considerable cloui, identification difficult, a few fires
started.
2nd. A total of 62 U.S. Fortresses and 12 Bostons
escorted by 34 Squadrons of fighters, including 8 U.S.
attacked the Potez Airframe Factory near Albert, the docks
at Havre and an Aerodrome near St, Emer. Six enemy aircraft
were destroyed and 27 probably destroyed. We lost 6 lighters
1 pilot safe. Five Mosquitos bombed an Armament Works near
Liege.
2nd/3rd. 188 aircraft were sent to Krefeld -nd three
see-mining. 7 are missing. Weather over Krefeld was
cloudless but there was considerable round haze.
Regraded Unclassified
35
Russia. 1st. German aircraft bombed railways
in the Moscow and/in the Lower and Mid le Volga Areas.
Libya and Egypt. Tobruk harbour was bombed
on 30th/1st. One ship was hit and another possibly hit.
1st. Our fighters intercepted a heavily escorted
dive bomber formation destroying 6 JU 87's and
probably destroying 5 without loss to themselves.
Regraded Unclassified
36
NOT TO BE RE-TRANSMITTED
COPY NO. ,3
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 343
Information received up to 7 A.M., 4th October, 1942.
1. NAVAL
2nd/3rd. A motor gunboat was lost during an action between our ligh
forces and enemy trawlers off the Dutch coast.
Attacks on shipping. During the 3 days 30th September to 2nd October
7 ships were reported to have been attacked by submarines between the 23rd and 29th
September. One British ship was sunk in convoy in North Western approaches and one
was torpedoed in Canadian waters but reached NEWFOUNDLAND. A U.S. ship was sunk
the TRINIDAD area. 3 British ships were torpedoed in the FREETOWN Area and a Panama-
nian ship was shelled and set on fire in the INDIAN OCEAN. A Panamanian ship was
sunk by aircraft West of CAPE FINISTERRE and B. Swedish ship was torpedoed by air-
craft in the RED SEA but able to proceed. One U.S. tanker was reported overdue and
an overdue British ship is now reported torpedoed between CAPETOWN and FREETOWN on
19th September.
2. MILITARY
EGYPT. In the Southern sector our patrols were active and found the
enemy in occupation of some localities slightly north of and on the Southern edge of
the EL MUNASSIB Depression.
MADAGASCAR. Our troops moving south from TANANARIVE reached ANTSIRAB
on the evening of the 2nd.
NEW GUINEA. lst. Light patrols pushing forward from NAURO. Contact
with main enemy force not yet regained.
3. AIR OPERATIONS
WESTERN FRONT. 2nd/3rd. KREFELD About 130 tons of H.E. including
12 4,000 1b. bombs and 180 tons of incendiaries were dropped in about 40 minutes. No
cloud but darkness and ground haze made identification difficult. Most of the fires
that could be seen were scattered over the target area, but many were reported in the
cown. 3rd. Sunderlands attacked an outward bound enemy blockade runner off CAPE
INISTERRE. Bombs were seen to straddle or hit the bow of the ship which was last
reported returning eastwards.
LIBYA and EGYPT. 1st. Bostons bombed landing grounds southeast of
MATRUH, starting fires. 2nd. During offensive patrols 5 enemy aircraft were shot
down and a sixth probably destroyed. Enemy activity was on an increased scale.
Regraded Unclassified
37
- 2 -
One dive bombing attack and 8 attacks by fighter bombers were made. An enemy
reconnaissance aircraft was destroyed by fighters off ALEXANDRIA.
MEDITERRANEAN. lst/2nd. U.S. Liberators reported 2 hits on a ship
in NAVARINO HARBOUR. R.A.F. Liberators and Wellingtons attacked an escorted
southbound convoy between CRETE and TOBRUK. A torpedo hit is claimed on a 6,000
ton tanker and an enemy aircraft was shot down, 2 more being probably destroyed.
MALTA. During September R.A.F. MALTA destroyed 14 enemy aircraft,
probably destroyed 8 and damaged 14 for the loss of 4 pilots.
BURMA. 2nd. 12 Blenheims bombod MEIKTILA Barracks and SCHWEBO
cantonment.
Regraded Unclassified
38
October 5, 1942
10:10 a.m.
GROUP
Present: Mr. Bell
Mr. Buffington
Mr. Haas
Mr. Gamble
Mr. Kuhn
Mr. Thompson
Mr. Schwarz
Mr. Paul
Mr. Gaston
Mr. Sullivan
Mr. Graves
Mr. Blough
Mr. White
Mrs. Klotz
H.M.JR: Ted, or Harold, I wish you would tell
Vince Callahan that I listened to that Mutual program
Saturday night and liked it very much. It is a new
program. I would like a little note from Vince on who
gets the credit for that program. I mean, I thought it
was very novel, very good. If Vince would write me
direct - not go through what they call a channel and I
get it in about a week.
MR. KUHN: Do you want to write to Al Smith on
that one, Mr. Secretary?
H.M.JR: Now look, don't do that, Ferdie. I mean,
I wrote you a memorandum - now, there is somebody, as
long as you brought it up - I wasn't going to say anything -
somebody like Senator Wagner does a job for me and nobody
writes a letter. Now, there are letters that should be
written instead of all these other things. I mean, a
man like Wagner takes the time, and so forth, and so on,
and I thought that was all arranged. I am sick and tired
39
- 2 -
of writing to all these other people, and then when
somebody on the Hill goes to bat for me - doesn't the
stuff go to you, Ferdie?
MR. KUHN: This didn't.
MR. PAUL: He didn't go to bat for you, did he?
H.M.JR: Sure he did, I read the whole thing.
MR. PAUL: He didn't the day he said he would.
H.M.JR: Well, he took 8. lot of time and trouble
and everything else. What is the arrangement when some-
body on the Hill - somebody on the Hill takes the time
to defend the Treasury, and he does a good job? I mean,
does it come out of your shop or Kuhn's shop?
MR. PAUL: So far as the Congressional Record is
concerned, it comes out of my shop, and everything in
the Congressional Record is called to your attention.
H.M.JR: Yes, but what I would like from now on--
MR. PAUL: I haven't seen anything in the Record
yet.
H.M.JR: Well, I read the Record. The point is
that things are happening on the Hill which are a great
deal more important than writing to all these chorus
girls. I wrote to about thirty of them, and I am sick
and tired of it.
MR. PAUL: I agree with you about that.
H.M.JR: My desk is just full of these things
every day; I am just fed up on it.
MR. KUHN: We talked about this on Saturday - about
Wagner.
H.M.JR: No, but look, Ferdie, will you get the
Record from the Hill - do you get a copy of what goes
on?
40
- 3 -
MR. KUHN: I get this - I also get a digest of
any attack that is made on the Treasury . - any criticism.
H.M.JR: But how about when somebody takes some
trouble for us?
MR. PAUL: The same thing.
H.M.JR: Do you get that?
MR, KUHN: I haven't been, but I can.
H.M.JR: Will you take the responsibility - assistant
to me - that if somebody for the Treasury, or in regard
to me personally, does something on the Hill, goes out of
his way - there won't be many, because instances are long
and far between, and when they do, they are 80 rare, that
I would like to - and if anybody thinks that somebody on
the Hill does something for the Treasury, will you let
Kuhn know?
MR. KUHN: I think it is a good idea.
H.M.JR: Will you take that? Did you get 8. telegram
from me?
MR. KUHN: I did. (Sign exhibited, "For Immediate
Attention, From the Secretary.") It is & new poster we
have gotten out.
H.M.JR: What is that? That is new. Who did that?
MR. THOMPSON: Something came in one day and didn't
reach a person in time, so I fixed this up.
H.M.JR: I didn't mean to get off on the war path,
but as long as I am, I might as well get it all off my
chest.
Harold, maybe a month ago I asked - there was some-
thing - it was a very good saying - advertising. Did
anything ever happen to that?
Regraded Unclassified
41
- 4 -
MR. GRAVES: Yes, that is in work. That is that
bond thing. Would you like me to get 8. report on that?
H.M.JR: I would. The other thing was some
advertisement in the paper - some soldier - which I liked
very much - some commercial advertisement. It was in
"Life" or something.
MR. KUHN: Yes, it was in an aviation magazine.
H.M.JR: I just crossed the top off and suggested
we put that out. Did anything ever happen on that?
MR. KUHN: I believe 80.
H.M.JR: For everybody, particularly, if and when
I ask something and there isn't a stenographer around,
could I have some kind of report on whether the thing dies,
or something or other? I think it is about a. month--
MR. GRAVES: That is right, it is a month.
H.M.JR: I ought to be informed, Harold. I mean,
I don't ask - make suggestions very often. Ferdie got
me off torpedoing, with Al Smith, who was very good--
MR. KUHN: That is why I asked.
H.M.JR: And should get a letter-- (Laughter)
MR. PAUL: When did Senator Wagner do this, Saturday?
H.M.JR: I read this whole Record. Maybe I am
wrong, but--
MR. PAUL: What I read - I went up to see him to
get him to do it, and I read - he didn't do it, but said
he would do it in the course of the tax bill. I was rather
disappointed that he didn't keep his word. If he did it
Saturday, the Record isn't out.
Regraded Unclassified
42
- 5 -
H.M.JR: I may be wrong. I have been wrong
before, and I hope I will be wrong again.
MR. PAUL: I hope you are not wrong on this,
because I hope he did it.
H.M.JR: I may be wrong. Anyway, it is the idea.
I may be wrong on this one. When somebody on the Hill
does something for the Treasury that is favorable,
which won't happen more than once in six months, let's
write him something.
MR. PAUL: Six months is very optimistic. (Laughter)
H.M.JR: And one other thing, the last thing I
have on my chest, the "New York Times" today had a per-
fectly swell editorial on inflation - I don't know
whether anybody here has read it, but you wouldn't
think the Treasury existed. They go on about the gap,
and 80 forth, and "something has to be done about the
gap." There is nothing snooty in it. I mean, they
just forget we ever existed and don't mention us.
What I was thinking of doing was calling Sulzberger,
which I do very rarely, and say, "This is a fine editorial.
If you really mean it and want to do something about it,
can't we get Randolph Paul together with you and the
man who wrote the editorial? I would like to tell you
what we think can be done and what we have said could
be done." You see? I mean, in a perfectly friendly
manner, because the editorial of a day or two ago was,
"We need more taxes on this thing; it has to be a sales
tax." Today they don't say anything about the sales tax.
Incidentally, I prophesied that just as soon as
this price bill passed they would go after this inflation
gap - all the press. You remember when I said that and
said I was glad to make the record. When the "Times"
says something they cannot say the Treasury hasn't
suggested anything because we have made the record. But
I knew that that would be the next thing that the press
took up.
Regraded Unclassified
43
- 6 -
Are you free any day this week?
MR. PAUL: Tomorrow I will be out on the Senate
floor. I suppose I have to be up there most of the
time. I am making a speech in New York Wednesday.
H.M.JR: In New York? What time?
MR. PAUL: In the evening, and I have a dentist
appointment in the morning. So I could see Sulzberger
fine that day if I can get away.
H.M.JR: Supposing they asked you to their
editorial luncheon?
MR. PAUL: Swell.
H.M.JR: Wednesday, subject to your--
MR. PAUL: Subject to my being obliged to stay
here. I called up La Follette this morning and tried
to see when he was going to put his works on.
H.M.JR: All right. I mean, I am going on the
assumption that we are sincere, et cetera, et cetera.
Is that editorial written by Bell?
MR. KUHN: The good ones are written by Bell,
and the bad ones by Haslitt.
H.M.JR: This was a good one.
Norman?
MR. THOMPSON: I have nothing this morning.
H.M.JR: Daniel Bell?
MR. BELL: I went over the redemption procedure
in the Federal Reserve Bank in New York on Saturday.
They have a nice set-up. I went over some of the
Regraded Unclassified
44
- 7 -
records, and I found that a great many savings bonds
are being redeemed after the first sixty days from
the Treasury and the Navy Yards and the Federal Ship-
building Corporation.
H.M.JR: Being redeemed?
MR. BELL: Yes. I thought I might write each
of the banks and have them give us a record of about
twelve of the largest corporations for the month of,
say, October. Possibly we could write letters to each
of those people - those corporations - in November, to
see what they can do about delaying redemptions.
Do you think that might be a good thing, Harold?
MR. GRAVES: Were these September redemptions
you have been looking at?
MR. BELL: These were the last few days of
September and the first two days of October.
MR. GRAVES: Is that tax thing likely to be
important?
MR. BELL: I don't think so. It was after--
MR. GRAVES: I think it would be a good thing.
MR. BELL: There are a number of twenty-five-
dollar pieces coming in right after the sixty days.
MR. GRAVES: Mr. Tickton is right now making
a statistical study of the redemptions.
H.M.JR: What else?
MR. BELL: There are quite a few kicks on the
matter of statistics. They claim that - the banks
claim that the issuing agents objected strenuously to
our requests at the end of September to rushing the
bonds. They also did not like the fact that they got
Regraded Unclassified
45
- 8 -
those requests from the theater people rather than
from the Treasury. In the Atlanta District some of
them went so far as to say that if this was going to
be kept up they were going to ask to be relieved of
being issuing agents. Corporations doing the work
are snowed under.
H.M.JR: Who is going to ask to be relieved?
MR. BELL: The issuing agents - that is, the
corporations that now have the pay-roll plan and are
issuing the bonds at the same time. They said it was
just too much work at the end of the month.
H.M.JR: Harold has no worries. He can add
that one.
MR. BELL: You sent a memorandum to Paul, Gaston,
Kuhn, and myself on the Gerhardt Colm article. We
are ready to talk to you about it now.
H.M.JR: Let's clear it right now. Shall we do
anything with the Director of the Budget or OWI?
MR. BELL: No. We feel that there is nothing
in the article to which you can object. The only
thing wrong was the title, and he had nothing to do
with that.
MR. GASTON: And the introduction written by
Fortune.
MR. PAUL: I sent you a copy of the title he
submitted. I talked to him about it.
H.M.JR: What was his title?
MR. PAUL: I have forgotten. I wrote it on my
copy.
MR. BELL: I will send it in for your file.
MR. PAUL: It was a perfectly innocuous title.
Regraded Unclassified
46
- 9 -
H.M.JR: You fellows' recommendation that it be
dropped is accepted.
Harold, what did you do about your quota for
this month?
MR. GRAVES: We have not announced the quota.
We had intended to do it at the time we issued the
press release about September sales; but following
your instructions we struck that out. Our own people
were notified ten days or more ago that the quota for
October would be the same as the quota for September.
H.M.JR: What are you going to do publicly?
MR. GRAVES: I don't think it is very important
what we do publicly since our own people know. We
can either announce it or skip it.
MR. SCHWARZ: Should the Secretary mention it
this afternoon at the press conference? He was asked
about it the other day.
H.M.JR: If I am not asked - if I am asked, it
is seven hundred and seventy-five?
MR. GRAVES: Seven hundred and seventy-five.
H.M.JR: O.K. What else?
MR. GRAVES: Incidentally, you will be interested
to know that our percentage of sales in relation to
quota is about ninety-three from May through September.
H.M.JR: You mean taking them altogether?
MR. GRAVES: Taking them altogether, we have
averaged ninety-two point eight percent.
H.M.JR: Yes, sir.
What else?
Regraded Unclassified
47
- 10 -
MR. GRAVES: Nothing.
H.M.JR: Mr. White?
MR. WHITE: Nothing
H.M.JR: Wonderful. (Laughter)
Schwarz?
MR. SCHWARZ: Nothing
MR. HAAS: I have nothing.
H.M.JR: Have you got there a chart for me?
MR. HAAS: Yes, sir.
H.M.JR: Where is it?
MR. HAAS: I will get it. I was waiting for a
finance meeting.
H.M.JR: Blough?
MR. BLOUGH: Nothing.
H.M.JR: Kuhn?
MR. KUHN: I have a couple of suggestions about the
press conference today. Senator George or somebody on
the Hill has given the impression to the whole press
that this is an eight billion dollar tax bill. Now, Roy
and Randolph and I think that, without necessarily
accusing anyone, you might point out to your press con-
ference that this is not an eight billion dollar tax bill,
and give them a factual analysis of what we estimate that
the tax bill will produce.
H.M.JR: Well now, do you think I should go back
and get him again? We pretty nearly called him a
liar because he said we didn't figure it right.
48
- 11 -
MR. SCHWARZ: He said the difference is on the
income that we use as a base.
H.M.JR: Mr. Sullivan thinks we shouldn't. What
does Mr. Paul think?
MR. SULLIVAN: This isn't any of my business. That
was just my reaction.
H.M.JR: This is a nine-thirty group.
MR. SULLIVAN: I think Senator George is one of the
best friends we have up there. There are many things we
have not agreed with him on, but I think he is as reliable
as anybody up there, including Prentiss Brown, and I
don't think it does us any good to kick him in the -
papers. (Laughter)
H.M.JR: Will you draw me a diagram after this?
MR. SULLIVAN: A miss is as good as a mile, isn't
it? (Laughter)
H.M.JR: Well, Ferdie, there is one nine-thirty
opinion which is worth considering.
MR. KUHN: The reason I made the suggestion was
that the emphasis in the papers was all on the colossal
side of the tax bill, whereas the emphasis we want is on
the inadequacy of it.
H.M.JR: Why not let the hundred million dollar OWI
get out 8. dollar's worth on that? (Laughter) My own
hunch, Ferdie, is that I am hoping that I may get the
President to say something when it goes to conference.
But, I think I have said enough, now. That is the way I
feel.
MR. KUHN: The second subject that you will probably
be asked about is the Byrnes appointment, and so forth,
and it seems to me that only one sentence is needed - would
be much better than no comment - one sentence: "I know
Regraded Unclassified
49
- 12 -
Jimmy Byrnes has been a good friend of ours for a long
time."
H.M.JR: Strictly judicial - always gives the
Treasury the breaks.
MR. KUHN: "We are going to cooperate."
MR. GASTON: On that twenty-five thousand dollar
thing--
H.M.JR: Oh, listen--
MR. GASTON: He has to issue regulations - the
director has to issue regulations, so it would hardly
be proper for us to try to discuss that until the
director has issued his regulations.
H.M.JR: Is that the answer?
MR. SULLIVAN: Oh, yes, I think it is. Incidentally,
Commissioner Helvering and Mr. Cann are in my office
now, and Randolph has sent for Phil Wenchel and some other
people. .We are going to start right in.
H.M.JR: Do you want to say the director is going
to issue the regulations to us on how to do this?
MR. SULLIVAN: No, I think he will probably ask
you to work with them in getting out the regulations,
but I think he is the head of the show under the order.
MR. GASTON: It affects half a dozen departments -
his general regulations.
H.M.JR: Well, look, you two guys (Paul and Sullivan)
get together on this between now and four o' clock, because
the chances are that both of you will be at my press
conference and have to answer the questions.
MR. SULLIVAN: I am perfectly willing to be here
if you want us, but I think this is a pretty good time to
keep quiet until you are asked by the director to do
something about--
Regraded Unclassified
50
- 13 -
MR. PAUL: What is contemplated is Byrnes will
ask us to draw some regulations under our part of the
order, which will be our part.
H.M.JR: I don't like that approach.
MR. SULLIVAN: I think that is the approach.
H.M.JR: Think it over. I don't like it.
MR. SULLIVAN: I don't know that we like it, but
that is what it is.
H.M.JR: I had a great time kidding the President
last night about Mr. Hassett's explanation about how
the President was going to handle his income tax. He
was very much amused. He says, "Does it make sense?"
I says, "No." I says, "Between now and four 'clock
we are going to try to master it. If we can't we will
refer it right back to Steve Early." He laughed. That
is what I told him last night.
Hassett went into great explanation, with Steve
Early's assistance, as to how it would affect the President's
income, his seventy-five thousand dollars.
MR. SULLIVAN: He wasn't far from right - Hassett.
H.M.JR: Wasn't he?
MR. SULLIVAN: No, the comment I read in the paper
was to the effect that the seventy-five thousand
dollar salary would have to be adjusted downward because
he wouldn't be allowed to retain more than twenty-five
thousand after he paid taxes, and that anybody over fifty
thousand would be in the same--
MR. GASTON: No, the United States is not a war
contractor nor is it an employer who pays taxes, and I
don't see how any question would come up as to the
pay rolls of the United States at all.
51
- 14 -
MR. PAUL: Sammy Rosenman said that explicitly
to me.
MR. SULLIVAN: It doesn't say that in the order.
MR. BLOUGH: There would be nothing, as far as
I can see, to affect the President's salary except
his own feeling that as a matter of leadership for the
Nation, he will have to do something about it.
MR. SULLIVAN: You don't have the same curb over
the employer as you have over a corporation in refusing
to allow his deduction.
MR. PAUL: I don't think it has anything to do
with Government employees.
H.M.JR: You call all your experts in and get
together, boys.
MR. SULLIVAN: Right.
H.M.JR: How is that? But I - - certainly, if the
President of the United States, within twenty-four
hours or eighteen hours, can get out this complicated
regulation, I think it makes the Treasury look pretty
silly if, after forty-eight hours, we don't know what
the answer is. "We are waiting until Mr. Byrnes asks
me."
MR. SULLIVAN: That is what we are not doing;
that is why we are having this meeting called for ten
o'clock this morning.
H.M.JR: I will let you out in a minute. See
how it goes; perhaps you will have an answer after
lunch.
MR. PAUL: Of course, our job is a lot more diffi-
cult than what they did.
H.M.JR: The public does not appreciate that, Mr.
Paul. How far did we get?
Regraded Unclassified
52
- 15 -
MR. KUHN: I have nothing more.
H.M.JR: Kuhn, you raised this hornet's nest.
It is all right.
Mr. Gamble?
MR. GAMBLE: I have nothing.
H.M.JR: You will get & kick out of this. At
Cabinet I said something about, "We have done well on
our" - the President first said he was pleased on the
income tax returns, and I said, "Yes." I said, "We
could be pleased for twenty-four hours because we sold
more bonds than we had figured on, and a great many more
tax notes."
Frank Walker spoke up and he said, "Yes, that was
the moving picture people." I said, "No, Frank, it
wasn't the moving picture people; it was the theater
owners." I wish you could have seen him expand when
I said that it was the theater owners. He just loved
that.
He said, "That is right, that is right." And it
was the theater owners. He is a nice guy.
Mr. Buffington?
MR. BUFFINGTON: I have nothing.
H.M.JR: Listen, young fellow, we sent & man up
to New York to make a study about publicity for you
and then we were going to do something about this adver-
tising council. Now there is another - I never got a
report - nobody tells me "nothing" - I am the forgotten
man in the Treasury. (Laughter)
MR. BUFFINGTON: The Doremus man who is doing the
publicity on the C notes has been down; we have had a
meeting with him.
H.M.JR: I didn't know you hired Doremus. The
last I heard was the advertising council--
Regraded Unclassified
-8
53
- 16 -
MR. BUFFINGTON: He was the man designated by the
advertising council.
H.M.JR: I didn't know it.
MR. BUFFINGTON: The more important thing is that
we still have not anyone assigned to us, specifically,
to do the job for publicity on the A notes, which is
much more important than the publicity on the C notes.
H.M.JR: I don't like the sound of dynamite.
MR. KUHN: We had a long meeting on the F and G
notes with the Albert Frank firm, which was assigned
by the advertising council to do that job; the
Doremus thing - we had a meeting with them on the C
notes.
Now, early this week we are going to have a
meeting with somebody else from the advertising council
who they will designate to do the A notes.
H.M.JR: Supposing you write me a little memo
bringing me up to date, will you?
MR. KUHN: Yes, sir.
H.M.JR: Are you in on this?
MR. KUHN: Yes, sir.
H.M.JR: Do you think these Victory Fund Committees -
are we going to call them to do anything Thursday or
Friday?
MR. BELL: I wouldn't keep them out. I don't know
as we want to direct them to bend all their efforts
to do this job.
H.M.JR: I would like to meet with them on Thurs-
day - these managers. Could they come here, or will
they?
Regraded Unclassified
54
- 17 -
MR. BUFFINGTON: Who?
H.M.JR: Your managers - the paid managers.
MR. BELL: I should think they ought to be at
their desks.
H.M.JR: All right. Do you agree?
MR. BUFFINGTON: Yes, I think they would like to
meet with you, but if they are going to be asked to do
much of a job on this financing, they should be on the
financing.
H.M.JR: I would like a joint memo on this
publicity from you and Kuhn - or are you doing the
over-all?
MR. KUHN: We will give you a joint memo.
H.M.JR: Just keep it current, will you? I want
some action, too.
MR. BUFFINGTON: We need it.
H.M.JR: Paul?
MR. PAUL: I have nothing.
H.M.JR: Sullivan?
MR. SULLIVAN: Paraguay has asked us to negotiate
a tax treaty with them down there. I have prepared
a letter for your signature, to the Secretary of State,
saying we would be very happy to start the preliminary
negotiations, but we prefer to have them here.
(Letter to Secretary Hull signed by the Secretary.)
H.M.JR: What else?
MR. SULLIVAN: Commissioner Helvering is very
much disturbed about getting forms out on time. He
raises some very pertinent questions in a memorandum
Regraded Unclassified
55
- 18 -
to you which Randolph and I have gone over. The point
specifically raised is that if the debate on this tax
bill is very extended, or if the conference is pro-
tracted, then he may not be able to get his forms
out in time, and therefore he may have to grant a
general extension beyond March 15 for the filing of
income tax returns.
We have gone over it and think that it won't be
necessary to do that, but I think the Commissioner just
wanted to warn you of what he is up against.
That is all I have now, sir.
MR. GASTON: I notice that in the enumeration of
the powers of the director of economic stabilization
authority, the first power enumerated is to restrict
consumer purchasing power, which is rather interesting
and which might be logically expected to get into ques-
tions of taxation, forced lending, and so on.
H.M.JR: Tell the gang what the President said
with Justice Byrnes present. He was present?
MR. GASTON: No, he was not present; that was the
odd part of it. They should have told us that he was
the man, but I didn't get it. He was not there, but
he was listed as being present.
He said that the director - something was said to
him by Jesse Jones about the policy to be evolved by
the different agencies. "Well, now, get this straight,"
he said, "You won't decide the policy; none of you will
decide the policy. The director will decide the policy
and he will tell you." Then he turned to me and he said,
"But that doesn't affect the Treasury."
He said, "We found it necessary to rewrite the
order, and we eliminated that paragraph about specifi-
cally exempting the Treasury, and instead of that we
Regraded Unclassified
56
- 19 -
left out any mention of matters that would affect the
Treasury in the draft of the powers."
He said, "We did that because it was" - I think
they said it "stuck out like a sore thumb," or some-
thing of that sort.
MR. PAUL: That is what they told me.
MR. GASTON: Just about as it had been explained
to Randolph. They thought the Treasury would not be
affected and then later Davis pointed out to me, after
the meeting had broken up, the paragraph in the law on
which the Treasury would be affected on the limit on
salaries. I said, "Yes, I know about that."
MR. PAUL: Do you want an item of gossip on that?
H.M.JR: I love gossip. (Laughter)
MR. PAUL: Beardsley Ruml stopped in my house last
night.
H.M.JR: He did? Did you shake him by the hand or
by the foot? (Laughter)
MR. PAUL: He is an old fellow director. He stopped
in because it was Sunday and he wanted a drink and there
was no other place to go. (Laughter) But he did bring
up this same question. He had been looking at the
economic - at the order before. He had been given a
draft of it and noticed that there was the divesting
of powers at the top and then the BEW formula. He said
he didn't see it in the order as issued, and he wondered
about it, and then he tried to argue that - not having
been present at the conference, he tried to argue that
under this language definitely a comprehansive, national,
economic policy must cover taxes; that the general lan-
guage there covers taxes. I pointed out that none of
the words after it did. I told him I was sure--
H.M.JR: Was he sore that the President didn't
write the Ruml plan into that order?
Regraded Unclassified
57
- 20 -
MR. SULLIVAN: It may be there.
MR. BLOUGH: Practically made the Ruml plan a
necessity.
H.M.JR: How does Ruml act when he comes into
your house?
MR. PAUL: The same boisterous self. He is not
a particularly sensitive flower. (Laughter)
H.M.JR: Did you say anything about "Why not put
your energy into a really good plan instead of concen-
trating on taking care of a couple of executives of
Macy's?"
MR. PAUL: On the whole, I try to avoid the sub-
ject of the Ruml plan when he comes around, because I
don't want to sit up all night. (Laughter)
H.M.JR: O.K. Thank you all.
Regraded Unclassified
Treasury Department
58
Copy
TELEGRAPH OFFICE
VIA WESTERN UNION
WE14 18 GOVT COLLECT XC
BEACON NY OCT 4 1942,1040A 1942 OCT 5 AM 7 55
FERDINAND KUMN
DLR 9 AM MONDAY OFFICE SECY OF TREASURY
PLEASE SPEAK TO ME ABOUT WRITING TO SENATOR WAGNER AND
OTHER SIMILAR CASES. COPY TO MRS KLOTZ
HENRY MORGENTHAU JR
751 AM OCT 5 1942.
58A
October 5, 1942
I was with the President last night, and I told him
that 8. week ago Saturday I had brought to the attention of Mr.
Patterson the abuse of the diplomatic pouches by so-called
neutral nations; that either Monday or Tuesday Mr. Stimson
had gone to see Hull and told him of four vitally important
cases, and that nothing had happened. I said, "In view of
the information which the Army has given me, I think it is in-
excusable to risk the lives of thousands of our men because
there is a very strong possibility of military information
leaving this country through diplomatic pouches."
The President said, "Where is the Navy on this?" and
I said, "The Navy is opposed to it because they are supposed
to be getting jewelled bearings through our diplomatic pouch
in Switzerland," I said, "But how can you compare & few
jewelled bearings with the possibility of our enemies getting
all of our military information?" I said, "I understand that
a complete set of specifications either went out through the
Switzerland or the Spanish pouch, giving the disposition of
all of our troops all over the world, and after photostating
them, G-2 put these papers back into the pouch and let them
go." I said, "Now this is second hand, but it is first hand
from Stimson because he told me himself what he had told Hull."
The President agreed that it was silly to compare the
value of a few jewelled bearings as against the possible informa-
tion which was leaving the country. He said, "Is this FBI?"
I said, "No," and then I said, "The Treasury comes into it
because if you said to me tonight, 'Henry, I would like to
hold up all the pouches pending my making a decision,' we
would just go ahead and do it through Customs." So he said,
"I will tell you what we will do. I will write B. letter to
you, the Secretary of War, and the Secretary of the Navy telling.
you to appoint B. committee to inspect these pouches for 30 days."
He then told me what he wanted in the letter and I wrote it down.
(See attached note in HM Jr's handwriting; also copy of letter
as dictated by HM Jr and sent to President for transmission to
Secretaries of Treasury, War and Navy.)
Regraded Unclassified
58.6
- 2 -
I told the President that the man from the Treasury
would be Herbert Gaston and asked him if that was all right.
He said, "Herbert Gaston - yes, he would be fine."
The part of the letter referring to the examining of
pouches in and out of the State Department is really the
President's own idea. I said, "You don't mean that?" and he
said, "I certainly do. I want to know what is going in those
pouches." He wants any diplomatic pouch examined that goes
to those particular countries, both out of the country and
into the country. Then he wants State Department pouches
examined going to those countries and returning pouches to the
State Department, plus any pouches addressed to Biddle in London
which might contain mail sent to Poland, Czeckoslovakia, Greece,
and Norway. Those are the countries he mentioned - the ones
to which Ambassador Biddle is accredited.
I then said to the President, "I think you ought to
get out an order saying that any young man under 30 years of
age, physically fit, who is an officer in the Army or Navy,
and who is holding down 8 desk job should be ordered into
combat service." I also said, I suggest that you do this
before we have a lot of casualities and the criticism of
the country will descend upon you as Commander-in-Chief because
of this situation." I said, "I know that Stimson says repeatedly
that he passes on all of these commissions personally and
that more recently General Craig and a Board does it for him,
but the fact remains that there are lots of young men who are
holding down desk jobs who are under 30 and who are physically
fit." The President said that he would go at. it B. little
bit differently. He told me very confidentially that he is
having Jonathan Daniels go over the lists, particularly to see
whether rich men's sons are holding down these .desk jobs. I said,
"Well, that will take care of only part of it, and I wish you
would consider my suggestion." He said he would.
I told the President that there had been delays in pur-
chases for the Russians going back to last August, 1941, particular-
ly for gasoline refineries and rubber-making machinery, and I
thought it was inexcusable that when he issued an order that it
wasn't carried out. He told me to give him some examples.
Regraded Unclassified
596
- 3 -
I told the President that I thought General Groninger,
Commander of the New York Port of Embarkation, was doing an
excellent job, and that I was surprised to learn that nobody
from the Secretary of War's office had ever inspected this
Port. This surprised the President, but he was very pleased
to learn that the loading of the troops was proceeding 50
well. He asked me a number of questions, particularly where
the ships were located.
He then told me in strictest confidence that the Queen
Mary either yesterday or the day before ran into a small
coastwise vessel somewhere off England and damaged her bow
considerably, and had to slow down to 15 knotts, but they hoped
she would land either today or tomorrow. The President said
that the English are guarding this with great secrecy, which
he seemed to think was sort of ridiculous once a vessel is
landed. However, he said that it is most unfortunate that they
will lose the use of the Queen Mary for some time.
I then told the President that I was planning to leave
for England in about a week, and I asked him whether it was all
right. He said that it was.
The President is very sensitive on this criticism about
his clamping down censorship on his trip, and he went into a
long discussion about how his efficiency would have been out
down if he had been accompanied by 75 newspapermen and photo-
graphers, and how he couldn't have discussed freely with the
various managers of the plants their problems if he was con-
stantly surrounded by newspapermen. I said, "Mr. President,
entirely aside from that, it would have been almost impossible
to protect you if each day it had been announced that you would
be in a certain city." He agreed with me and said, "Even if it
were announced after I left the city, it would be easy enough
for anybody to figure out what my next route was to be." He
said, "Supposing it was announced that I was going to Seattle.
Everybody would know that I would go to see Anna and the streets
would have been lined. This way there was nobody on the streets
to Anna's house." So I said, "Well, if you would have had no
censorship, the papers would have criticized you for making a.
political campaign trip." These remarks of mine seemed to
please him.
Regraded Unclassified
STD
- 4 -
I was with the President for about 55 minutes. He
was very quiet and was putting stamps in his books. I broke
up the meeting myself because I thought it was time for me to
leave since I had told him when I made the appointment that
I had nothing really urgent. When I got up to go, to my
surprise, he said that Admiral King was waiting to see him,
but he certainly gave no indication before that that any one
was waiting for him.
Regraded Unclassified
58E
Please affrint 1. funn Treas
ask g 2 +omi to
each afforiat a opresentation
this committee for 30 days
to inspect fn 7.W.R
as CFC to inspect for
30 days all outsoing
and in caming difference
posistes of Shamih swedich
feviss Patugere Vichy Freed
Embasiers and Leg atims and
during next 3,0 days and
all out going fouchs from
Stab Depart to these
to our to our
nations and Entansies indox
located in Lndm.
ho mispection shall
be made first /
There shall he m substiments
of this committee ,ther Lasm of 3
and no shall
1
he in formed of anny Insti comp
centents ofsaid fruches
Reports will he made To one
and to me only
WASHINGTON
THE WHITE HOUSE
THE WHITE HOUSE
fruit
WASHINGTON
October 5, 1942.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
THE SECRETARY OF WAR
THE SECRETARY OF THE NAVY
Please appoint one man to represent the
Treasury, one man from G-2 to represent the Army, and one
man from ONI to represent the Navy, to serve as a committee
for the next 30 days to inspect for the President, as
Commander-in-Chief, all outgoing and incoming diplomatic
pouches of the Governments of Spain, Sweden, Switzerland, Finland,
Portugal, and France.
Also to inspect during the next 30 days all
outgoing pouches from our State Department to our Embassies
and Legations in the above mentioned countries; also all
outgoing pouches from our State Department to Ambassador
Biddle in London. The object is, of course, to see whether
our own pouches are being used from this end to convey in-
formation to other governments without our knowledge, even
though these governments may be a part of the United Nations.
There shall be no subordinate to represent any
member of this committee of three, and no person shall be
informed of any suspicious contents of said pouches except
the President of the United States. All reports will be
made to the Commander-in-Chief and only to the Commander-in-Chief.
I am having made only this one directive, which
I am sending to the Secretary of the Treasury with the request
that he communicate it verbally to the Secretary of War and
the Secretary of the Navy. No copies shall be made, nor shall
any reference thereto be reduced to writing. This is in the
interest of complete secrecy.
F.D.R.
for
Regraded Unclassified
5TG
FROM: MR. GASTON'S OFFICE
TO:
October 5, 1942
Mr. Gaston:
Miss Kidd, Bureau of Customs, telephoned
stating that the following message was received
by teletype from the Collector of Customs at
New Orleans:
"Senor Don Ernesto Barnach-Calbo, Second
Secretary, Spanish Embassy, Washington, and Senor
Don Jose Maria de Garay, Spanish Consul in New
Orleans, have presented this office with letters
from Spanish Embassy, Fashington, authorizing them
to act as diplomatic couriers for delivery to
Captain of the Spanish SS MAGALLANES five diplomatic
pouches containing diplomatic correspondence from
Spanish Embassy, Washington, addressed to Minister
of Foreign Affairs of Spain. Said individuals
advise that the Embassy has applied to the State
Department for authority to have pouches passed
without examination, as required by Section 3(c),
Trading with the Enemy Act. Please advise whether
pouches may be passed without examination. Reply
today by teletype requested inasmuch as above-
mentioned individuals wish to return to Washington
tonight.
PRATT"
(State Department also telephoned this request
to Bureau of Customs)
ata
E.A.
pm
Regraded Unclassified
59
October 5, 1942
11:20 a.m.
AID TO RUSSIA
Present: Mr. Mack
H.M.JR: Read this, please. (Memorandum from
the President handed to Mr. Mack.)
MR. MACK: All right, sir.
H.M.JR: What do we do?
MR. MACK: Well, these specific points, that is,
(a) has to do with shipping; (b) priorities or, rather,
the determination of priority cargoes; and (d) is also
on transportation. We can get in touch right away with
the Central Transportation Committee that determines
what ships can be made available and check that against
our--
H.M.JR: How can I answer this letter? He says
"the progress of the Treasury Department in meeting
these objectives" - oh, I see, it is directed to me.
MR. MACK: The same letters are being sent to all
others, as a matter of fact.
H.M.JR: Do you suppose Oscar Cox wrote this?
MR. MACK: It might be. These points concern
primarily - that is, on the shipping, the War Shipping
Administration, and a copy of the same letter went to
him; and on the airplanes - of course, we have nothing
to do with that - that is for the War Department.
H.M.JR: I will get Oscar.
MR. MACK: Our part in this would be to make sure
that we are not being held up on any cargo that the
Regraded Unclassified
60
- 2 -
Russians say they must have and that, of course, we
would have to go to War Shipping Administration and
tell them we don't have enough boats and we must have
more boats.
H.M.JR: I see. Now, I saw the President last
night. I told him things were being held up from last
August through until now for Russia - a great delay.
He said, "Give me examples." Now, you know I asked
you to get out that time table. How are you coming on
that?
MR. MACK: Tickton was over there Saturday morning,
and we are now getting together the information that he
indicated he would want to make up these charts. There
are three types of charts that he wants. We will have
some for Wednesday, some Thursday, and some Friday. Now,
if that isn't quick enough, I will ask them to--
H.M.JR: No, but how about some specific cases.
How about the automobile--
MR. MACK: We will get you specific cases.
H.M.JR: Can you get some?
MR. MACK: Yes, sir.
H.M.JR: While we are still waiting?
MR. MACK: I think so.
H.M.JR: I mean, you know where the Russians
want some stuff?
MR. MACK: We will get that. We will go through
our records to look, particularly, for those items that
have been outstanding.
(The Secretary held a telephone conversation with
Mr. Oscar Cox as follows:)
61
October 5, 1942
11:25 a.m.
HMJr:
Hello.
Operator:
Mr. Cox.
HMJr:
Hello.
Oscar
Cox:
Hello, Mr. Secretary.
HMJr:
How are you?
C:
Fine.
HMJr:
Oscar, do I 600 your fine Italian hand in this
letter from the President to all of us on Soviet
Government Second Protocol?
C:
Only very, very remotely.
HMJr:
I see. Because it doesn't affect us much. It's
addressed to Army, Navy, and the rest of them.
C:
Yeah.
HMJr:
But I didn't know - because I'm - I'm sort of
stumped how to answer it, because it's addressed
to all these people and myself....
C:
Yeah.
HMJr:
....and we really have very little to do with
it. I didn't know whether you could interpret
it. Evidently you can't.
C:
No.
HMJr:
Well, that's all right.
C:
Okay.
HMJr:
It was a good letter 80 I was giving you credit
for it.
C:
Well, I'm - I only deserve about one per cent on
that one. Have you - what did you think of the
Jimmy Byrnes thing?
Regraded Unclassified
62
- 2 -
HMJr:
Okay.
0:
Yeah, I think it's a good job.
HMJr:
Okay. If you want to get a really good belly-
laugh....
C:
Yeah.
HMJr:
.....end for PM today, and Ickes' letter to
I.F. Stone.
C:
Oh. Yeah. (Laughs)
HMJr:
It's somethin'.
C:
Well, I'll have to read it.
HMJr:
Oh, it's somethin'.
C:
Yeah.
HMJr:
He compares him to Bertie McCormack.
C:
Compares Stone to?
HMJr:
Yeah.
C:
oh! Well, that's a strange comparison.
HMJr:
Yes. And Stone says he's glad to hear from him,
and then he says, "The Petroleum Coordinator's
Office looks like an anti-trust law rogues'
gallery."
C:
(Laughs) That's wonderful.
HMJr:
"There's some fine men in it from the big com-
panies, but their influence needs to be leavened
by New Dealers...."
C:
Yeah.
HMJr:
....who are representing the oil workers and
diplomate. As for Secretary Ickes' attack on me,
I'm sure Colonel McCormack will resent it."
Regraded Unclassified
63
- - 3 -
C:
(Laughs) That's wonderful.
HMJr:
Read it. It's good.
C:
I certainly will.
HMJr:
All right.
C:
Goodbye.
Regraded Unclassified
64
- 3 -
H.M.JR: (To stenotypist) Take this letter to
the President: "My dear Mr. President: I beg to
acknowledge receipt of your memorandum of October 2.
We will be very glad to carry out your instructions,
as outlined in this memorandum, as far as they affect
the Treasury." Right?
MR. MACK: Right.
H.M.JR: "We will be very glad to carry out your
instructions.
MR. MACK: I think that first was very good,
because this is all transportation.
H.M.JR: "Carry out your instructions as they
affect the Treasury."
MR. MACK: Very good. Every one of these points
is transportation - transportation of planes - trans-
portation of anything they want.
H.M.JR: I think that is all that is necessary.
MR. MACK: I think so, and then we will get busy
on this,- to prepare the type of report that is wanted.
H.M.JR: The important thing that I want - the
important thing that I want is examples for the
President now--
MR. MACK: All right.
H.M.JR: ... where you are waiting. You see what
I mean. You know, isn't rubber tires one - a good one?
MR. MACK: Yes. That rubber tire plant is rather
an involved situation.
H.M.JR: Well, give me one that you can nail down.
MR. MACK: All right.
Regraded Unclassified
65
- 4 -
H.M.JR: What did you tell Stone when you saw him?
MR. MACK: Stone came in Saturday, and the kind
of information that he wanted was information that we
did not have: that is, what are they going to use as
plant information, and what is WPB going to do, and
all of that. He wanted specific information as to
what ties into the rubber plant.
Well now, I told him that, "Of course, our requis-
ition comes through for generators, magnetos, this and
that, and not tied into that particular plant. So far
as the second-hand equipment is concerned, that is now
being considered by WPB, but hasn't actually cleared
through to us." As 8. matter of fact, since Stone was
over there this morning I got in touch with the WPB
man that is located with us, and asked him to give me
the story of the rubber plant. Briefly, it is this:
We have requisitions for about six million five hundred
thousand dollars; contracts were placed for about six
million one hundred thousand dollars; and of those
contracts which have been placed, there have been com-
pleted and shipped a hundred thousand dollars at the
outside; small parts in production, about two million
seven; and there were suspended in August, three million
three. Now, that is what the difficulty is all about--
H.M.JR: I see.
MR. MACK:
...
whether or not they shall substitute
used equipment for this three million three and so on.
I had 8. letter just this morning from Jeffers. I had
written him to find out what he is going to do about
this matter that was referred to him, and he says in
substance that he will let me know in a few days.
This information I am giving you, I did not have
Saturday morning when I spoke to Stone, but I thought
I had better get it.
H.M.JR: Thank you.
Regraded Unclassified
66
October 5, 1942
My dear Mr. President:
I beg to acknowledge receipt of your
memorandum of October 2.
We will be glad to carry out your
instructions, as outlined in this memoran-
dum, as far as they affect the Treasury.
Sincerely yours,
(Signed) 3. Morgenthau, Jr.
The President,
The White House,
Washington, Do C.
ENVELOPEMARKED "CONF"
attn: Miss Tully
By (Harmon) Messenger 10/5/42 at B 1:39Pm
File in Diary
Regraded Unclassified
CONFIDENTIAL
THE WHITE HOUSE
67
WASHINGTON
October 2, 1942
MEMORANDUM FOR THE SECRETARY OF THE TREASURY.
Last May, with the concurrence of the British Prime
Minister, I offered the Soviet Government a second protocol
covering the flow of supplies from this country to the
U.S.S.R. during the period July 1, 1942 to June 30, 1943.
Because of enemy action on convoys to North Russia, it
has not been and it may not be feasible in the future to send
the full tonnage of supplies contemplated in this protocol.
It is therefore of particular importance that every effort be
made to utilise to the maximum the supply routes that may be
available to us.
To this end I desire that the following steps be taken:
1. That ships be made available to fill our
quota of such convoys as my be sent to North Russia
and also to lift all the cargo that can be cleared
to Russia through the Persian Corridor.
b. That necessary arrangements be made, includ-
ing the utilisation of whatever production priorities
or directives may be necessary, to insure sufficient
priority cargoes in accordance with protocol commitments
to load such ships as my be dispatched to Russia by all
routes.
2. That airplanes be delivered in accordance
with protocol schedules by the most expeditious means,
whether by ship or flight.
d. That the project for the operation and enlarge-
ment of the transportation facilities of the Persian
Corridor be given sufficient priority and support in the
form of men, equipment and ships to insure its early and
effective accomplishment.
FIDENTIAL
CONFIDENTIAL
68
It is further desired that a report be submitted to
me by the 10th of each month showing the progress of the
Treasury Department in meeting these objectives and including
say recommendations you my have for expediting aid to
Russia.
Similar letters are being sent to -
Secretary of War
Secretary of the Havy
Secretary of the Interior
Chairman, War Production Board
Chairman, War Shipping Administration
Lend-Lease Administrator
-2-
NFIDENTIAL
69
October 5, 1942
12:12 p.m.
HMJr:
Hello.
Operator:
Callahan.
HMJr:
Callahan?
Vincent
Callahan:
Yes, sir.
HMJr:
Who is Morton Milman? M-1-1-m-a-n.
C:
He works for our radio section, and he's our contact
with the American Federation of Musicians, principal-
ly.
HMJr:
I see. Is he all right?
C:
Yes, sir.
HMJr:
Guarantee him?
C:
Well, I'll guarantee him as far as the union is con-
cerned. He's a very headstrong man, and he's a
little bit of - I wouldn't t call him a racketeer, but
he's - he's a tough guy.
HMJr:
Well, the point is that Huntington Cairns took him
along, and he wants me to write a letter to Milman
thanking him....
C:
No, no.
HMJr:
What?
C:
I say "no."
HMJr:
You say "no"?
C:
Yes, sir.
HMJr:
Well, that's what I called up for.
C:
That's right. I mean, he's all right. We use his
for tough jobs, Mr. Secretary.
HMJr:
I 600.
Regraded Unclassified
70
- 2 -
C:
But we have to hold him close to us.
HMJr:
But you - no letter over my signature?
C:
No, sir. I mean, it would be very bad for the
morale on - as far as he's concerned.
HMJr:
Well, that's what I'm calling you....
C:
We got to - - we got to keep the boy in line. (Laughs)
HMJr:
Okay.
C:
Thank you, sir.
Regraded Unclassified
71
October 5, 1942
12:14 p.m.
HMJr:
Hello.
Vincent
Callahan:
Yes, sir.
HMJr:
Would you do this -- Cairns wants to know -- would
you tell Milman I'm very much pleased.
C:
I'd be very happy to do that.
HMJr:
Tell him I'm very much pleased at the assistance
that Mr. Cairns gave, and that Mr. Cairns said
he was most helpful.
0:
Well, that's grand.
HMJr:
How's that?
C:
I'd love to do that.
HMJr:
You - suppose you do that.
C:
Well, I - you see, the reason I object to the letter,
I don't know what he'll do with the letter.
HMJr:
Well, that's why I called you.
C:
Yeah. (Laughs) Okay, sir.
HMJr:
I'm...
C:
Yeah.
HMJr:
....I'm known as a suspicious cuss.
C:
Yeah.
HMJr:
Yeah, all right.
C:
All right, sir.
Regraded Unclassified
72
October 5, 1942
12:15 p.m.
HMJr:
Hello.
Arthur
Sulzberger:
Hello, Henry.
HMJr:
How are you?
S:
I'm fine, thank you. How's yourself?
HMJr:
Very well.
8:
Good.
HMJr:
Arthur, I read with great interest your editorial
on the fiscal problem in the Times today....
8:
Yes.
HMJr:
....and I thought you people stated the case very
well, and it happened to agree with an analysis
that we presented to Congress.
S:
Yes.
HMJr:
And, of course, where we seem to part ways is on
the remedy.
S:
Yes.
HMJr:
And I wondered whether you - Randolph Paul is
going to be in New York Wednesday making a speech...
8:
Yes.
HMJr:
....and whether you would care to see him, plus
whoever wrote the editorial.
S:
Yes, delighted to.
HMJr:
Would you like to have him for lunch?
S:
The trouble is I can't be here, Henry. I'm tied
up with - your Department of Justice is sueing
the Associated Press
HMJr:
oh.
Regraded Unclassified
73
- 2 -
8:
....and I'm a vice president of the Associated
Press
HMJr:
I see.
S:
and we're tied up all this - all this week
starting tomorrow.
HMJr:
Well, you mean you won't be able to see him your-
self?
S:
I won't be there at lunch. I could see him later
in the afternoon
HMJr:
Well
S:
or I could have him come in and have lunch with
Charlie Merz and some of the others.
HMJr:
No, I'd like to - I'd like to try to crack you.
S:
Uh huh.
HMJr:
See?
S:
Right.
HMJr:
(Laughs) There's not much use in seeing the other
people unless you're around.
S:
Well....
HMJr:
Supposing you set a time.
8:
Or I could - let's see. The only time that would
be safe would be - and even that mightn't be....
HMJr:
Yes.
S:
Just a second. Wednesday is the only day he's
going to be here?
HMJr:
He's got to be there Wednesday to make a speech,
and he isn't sure that he won't have to be on the
Hill before the Committee either.
S:
I see.
HMJr:
So I mean it - - it isn't definite on his part.
Regraded Unclassified
74
- 3 -
S:
Well, why doesn't he do this - why doesn't he come
for lunch on Wednesday
HMJr:
Yeah.
8:
....and I will make every effort to come over at
least for a time
HMJr:
Yeah.
8:
....and he will be then with Charlie Merz,²) and Henry
Hazlitt and Bell who are doing most of those economic
editorials, and I'll have them there.
HMJr:
Good.
S:
And I will make every effort to come back for a few
minutes at least 80 as just to say hello and get it -
see that it's all going properly.
HMJr:
Well, we'd like to storm the sales tax in its fort.
8:
Uh huh.
HMJr:
Beer
8:
Yeah.
HMJr:
No, I mean - you're - the thing today was excellently
written, and the premises - just the premise that
we've presented to Congress.
S:
Yes.
HMJr:
And so we start off the same. Now the next thing is
the remedy.
8:
Right.
HMJr:
And I'd like to have Paul have a chance to state our
case and have you fellows question him and 800
whether there's any chance that - of convincing each
other.
8:
Right. Well, I - I think that's the best way.
HMJr:
All right.
Regraded Unclassified
75
- 4 -
81
And, as I say, I'm going to be down in Washington
next Monday, but unfortunately you're going to be
away.
HMJr:
I'm going to be away.
S:
Right.
HMJr:
Now - he - does - should he go to your office?
S:
Let him come to Charlie Merz' office.
HMJr:
Charlie Merz' office.
S:
Yeah, that's on the tenth floor.
HMJr:
Tenth floor.
S:
And he will be expecting him, and I'll try to be
there.
HMJr:
At what time will that be?
S:
At one o'slock. o'
HMJr:
One o'clock.
S:
On Wednesday, October 7.
HMJr:
Right. Thank you 80 much.
8:
That's all right, Henry.
HMJr:
Goodbye.
S:
Goodbye.
Regraded Unclassified
76
October 5, 1942
2:13 p.m.
Col.Edwin
A. Halsey:
Hello.
HMJr:
Colonel Halsey?
H:
Yeah. Before you tell me your mission, I want
to tell you just how much we enjoyed that
little box of apples you sent up here.
HMJr:
Good.
H:
I never heard as many people rave about apples
in my life, and I come from a great apple state.
HMJr:
What state's that?
H:
Virginia. We have some pretty good apples there.
You ought to bite our apples.
HMJr:
You think you raise good apples in Virginia?
H:
I know we raise good apples. I don't think.
HMJr:
And they liked those, eh?
H:
Yeah, but they liked yours. I'll give you
credit. It was delicious. Everybody remarked
on it, and they even, after they had their
dessert, they said, 'Well, now this is better
than the dessert we had."
HMJr:
Well, I had the - I had the nerve to send a box
of apples to Harry Byrd.
H:
(Laughs) Well, I think he'd appreciate them.
(Laughs) That's taking the coals to Newcastle,
but nevertheless I think he'll - the flavor of
your apple, he'll appreciate it.
HMJr:
Well, he sent no some Virginia Delicious and
I thought I'd send him a New York State apple
80 that....
H:
Well, it was really - now, no kidding, the boys
came in here and they're still doing it. We
have some few left and they still enjoy them.
77
- 2 -
HMJr:
Well, I'll send you some more.
H:
Yes, sir, I'll appreciate it, and it really is
one of the outstanding things. They've enjoyed
them as much as anything we've ever had in our
little parties here, and in these little group
meetings. We've got one here today. Mayor Kelly's
here now.
HMJr:
Now I - - I want - what I'm calling up was this....
H:
Yeah.
HMJr:
....you got a pencil?
H:
Yes.
HMJr:
I'd like to get Senator Barkley and Senator
George....
H:
They're both right in the room.
HMJr:
....and Bob Doughton....
H:
Uh huh.
HMJr:
....and Jere Cooper.
H:
Well, now wait & minute, let me get these - let
me get....
HMJr:
Robert Doughton.
H:
I got - yeah, I got Jere Cooper
HMJr:
And Bob Doughton....
H:
Yeah. That's four.
HMJr:
....and Jere Cooper, those four.
H:
Yeah, that's four.
HMJr:
I - I wanted to try to get them together tomorrow.
Now I'd be glad to have them down here for lunch
if they could spare the time.
Regraded Unclassified
78
- 3 -
H:
Well, now they've agreed, Mr. Secretary, they've
agreed to meet here at the Senate, and mest at
eleven o'olock tomorrow and take up the bill....
HMJr:
Yeah.
H:
Senator George reported it today formally and asked
that it be made the unfinished business, and asked
that the - that the formal reading be dispensed with
and it will only be read for Committee members.
HMJr:
Well....
H:
They're going to work right on at eleven o'olock
tomorrow morning.
HMJr:
Well, there's a little matter that I want to take up
on the bill, and I wanted to see the four of them.
H:
Yeah.
HMJr:
It isn't - if they can't - I didn't know whether
they could have lunch up there or down here, or I
could come up just as early in the morning - or I'll
meet any place that the four of them can get to-
gether, anytime tomorrow.
H:
Well, now let no - let me talk to them. Barkley and
George are in the room - in my other room there.
HMJr:
Yeah - I mean, anytime the four of them could see
Randolph Paul and no.
H:
Yes,well....
HMJr:
We'd meet them any place and time that they say.
H:
Well, how about this afternoon?
HMJr:
This afternoon?
H:
Yeah.
HMJr:
I could do it at five o'clock.
H:
Well, let me nee what they say. If they can't, I'll
find out about tomorrow. of course, I can't speak
for Doughton and Cooper now.
Regraded Unclassified
79
- 4 -
HMJr:
No.
H:
I don't know what they've got on hand.
HMJr:
Well, what - if we knew
H:
Yes.
HMJr:
Walter George is very nice. He might call up
Doughton for me.
H:
Well. All right, now they - they're right -
they're in the other room there, and I'll be glad
to
for you.
HMJr:
Yeah, we - we could do it at five o'olock today....
H:
Uh huh.
HMJr:
....time and place to be named by them.
H:
All right. If we can't, we'll try to arrange on
something tomorrow.
HMJr:
Yeah, please.
H:
All right, now - you're at your office?
HMJr:
I am.
H:
All right, I'll - don't let me have any trouble
getting to you. Sometimes, you know, you're a
little inaccessible.
HMJr:
oh, no.
H:
(Laughe)
HMJr:
I'll leave word when you call to put you right
through.
B:
All right, all right, that's fine. I'll check on
this as soon as they break up there - just as -
they're having a little meeting with Mayor Kelly -
a little luncheon there....
Regraded Unclassified
80
- 5 -
HMJr:
Right.
H:
....the Vice President, and 80 forth.
HMJr:
Right.
H:
All right.
HMJr:
Thank you.
81
October 5, 1942
3:25 p.m.
APPOINTMENT OF COMMITTEES
Present: Mr. Bell
Mr. Gaston
Mr. Kuhn
Mr. White
Mrs. Klotz
H.M.JR: I have got to decide on the two commit-
tees and I want 8. little advice. I have got to put
somebody on this committee for Frank Bane.
Frank Bane wants me to appoint somebody to re-
present theFederal Government on the joint federal-
state-local committee on fiscal policies and practices,
and to work with the committee established by the
Council of State Governments dealing with this problem.
(Reading letter from Frank Bane) "A number of
the members of our Tax Committee, especially those
from the West, will be in Cincinnati at the time of
the meeting of the National Tax Association, on
October 19-21.'
MR. BELL: That is a meeting?
MR. KUHN; Blough is going to that meeting.
H.M.JR: The 17th at Washington.
MR. GASTON: Somebody in Randolph Paul's office,
I should think.
MR. KUHN: Blough is going to address the National
Tax Association.
MR. BELL: He attended last year, too, I think.
Regraded Unclassified
82
- 2 -
H.M.JR: John Sullivan? I am just questioning
it; I don't know.
MR. WHITE: Apparently it is mostly taxes, isn't
it?
H.M.JR: (Reading letter from Frank Bane) "We
have a letter today from the President to the effect
that he has appointed the Secretary of the Treasury
and the Director of the Budget to represent the Federal
Government on the joint federal-state-local committee
on fiscal policies and practices, and to work with the
committee established by the Council of State Govern-
ments dealing with this problem."
We had this tremendous committee; it cost us - I
don't know - seventy-five thousand or a hundred thou-
sand to make this study - this professor from Wisconsin -
what was his name?
MR. GASTON: Harold Groves.
H.M.JR: ...Groves, and all those. The trouble is,
it is getting so - it takes up 80 much time.
MR. BELL: Isn't that just & three-day conference?
H.M.JR: Well, no, it is more. It will go on
along with the committee. He wants me to call him.
He wants me, anyway, to meet him on October 17. Well,
I am not going to meet with them - to hell with them.
I am not going to sit around - meet with a lot of
stuffed shirts and what not.
MR. WHITE: The Treasury ought to be represented
on it if it is already in being; there is no question
about that.
MR. BELL: John had charge of the Gulick thing,
didn't he? That is all right to put him on this.
MR. GASTON: He can very well represent us.
Regraded Unclassified
83
- 3 -
H.M.JR: I hate to load up Paul with a lot of
stuff.
MRS. KLOTZ: Is that an important meeting?
MR. BELL: It might be if properly handled. The
chances are it won't be, but it could be.
H.M.JR: How about it?
MR. WHITE: I think John Sullivan would be all
right.
H.M.JR: All right. Take a little memorandum to
John Sullivan, and copy of this to Paul: "Dear John:
I am sending herewith my correspondence from Frank Bane,
plus a telephone call slip. I would appreciate it very
much if you would represent me on this committee, and
keep other members of the Treasury who are interested
in federal-state-local fiscal and tax problems advised."
(Dictated to stenotypist)
That is that.
Another committee?
MRS. KLOTZ: No. (Letter from Mr. Jesse Jones
dated October 5, 1942, handed to the Secretary.)
H.M.JR: That can wait. This is only four hundred
million dollars - eye wash.
We have got to appoint another committee.
On the Jimmy Byrnes' committee - I mean, I will
go to the opening ceremonies and break & bottle of
champagne on somebody's head, (Laughter) but after
that, who is going to represent the Treasury?
MR. WHITE: I think you would be in a better posi-
tion to attend. After you attend a couple of meetings
and see the sort of thing they do - judging from the
Executive order, they can do a great deal, and I think
you would be in 8 better position to know who is attend-
ing and what they plan to do.
Regraded Unclassified
84
- 4 -
MR. BELL: Do you think these will be continuous
meetings, every day or so?
H.M.JR: I don't know how Byrnes acts. He is a
member of the legislature; he is not an administrator -
never has been. He has been on the Court, supposedly,
and knows the treatment of public life. I don't
know how he will act. The President says he has
set him up with a couple of assistants.
MR. WHITE: You may find, at least in the earlier
meetings, they will be Cabinet members or Under
Secretaries, but later on those meetings have a way
of petering out.
MR. BELL: Subcommittees.
H.M.JR: I went to one or two meetings of Wallace's.
MR. WHITE: They have not met for & couple of
months; that is what happened there.
H.M.JR: I went to the first one.
MR. WHITE: The first half dozen meetings the
Secretary and Under Secretary usually attended.
MR. KUHN: Hasn't this got much broader powers
than Wallace's Board had?
MR. WHITE: They have much more work to do.
MR. GASTON: I think you had better make up your
mind who is going to be your alternative, and take him
to the first meeting or two so he can keep the thing
in line. I don't know how Paul reacts towards the
suggestion of Joe O'Connell, but I think he would be
very good. This thing is going to simmer down into a
meeting of economists, and they are going to deal with
these questions of how to restrict consumer purchasing
power. They are going to get down to this question of
restricting consumer purchasing power, and they are
going to talk about expenditure rationing, spendings
tax, and forced lending.
Regraded Unclassified
85
- 5 -
MR. WHITE: And & lot of labor policies.
H.M.JR: Labor or legal?
MR. WHITE: Wages. The problems - the determina-
tion of modifications in wages and the criteria which
shall be applied, I think, will occupy that committee,
and will be kind of a battleground for some time.
MR. KUHN: Should it be Joe O'Connell, if that is
true?
MR. BELL: I question whether it should be Joe.
MR. GASTON: Then it should be someone out of the
three research organizations.
H.M.JR: I don't think so.
MR. BELL: I think it probably should be a line
officer. How about Herbert?
H.M.JR: Well, Herbert would be fine, but if some-
thing happens to some of us - you are fully occupied,
Herbert?
MR. GASTON: Yes.
H.M.JR: You are all very helpful. (Laughter)
MR. WHITE: I think it ought to be either the
Secretary or the Under Secretary, or an economist. I
mean, it either ought to be a high official - who cer-
tainly ought to attend the first time - but I don't
think it is the sort of thing that you can send any-
body to but a Secretary or an Under Secretary - or
possibly an Assistant Secretary - to the first dozen
meetings, and then later we can see--
H.M.JR: Let's leave it this way. If, by any
chance, there should be a meeting called and I was
out of town, then will you go, Bell, just the way
you would the Cabinet meetings?
86
- 6 -
MR. BELL: Yes.
H.MJR: And the second man after you will be
Gaston.
MR. BELL: I should think they ought to have an
agenda for those meetings, and you ought to take with
you the person who is interested in the subjects; if
you had a tax matter, certainly Paul ought to go; if
you had some other kind of a subject, somebody else
might go; White might go, or Haas might go on the
financing.
H.M.JR: All right.
Let me see what this is that Mrs. Klotz has given
me. (Indicating letter from Mr. Jesse Jones)
You (White) prepare an answer. Mrs. Klotz, would
that go to White?
MRS. KLOTZ: I just got it.
H.M.JR: It is just for information. They don't
want the thirty-five, apparently.
MR. KUHN: You wanted me to speak about your so-
called speech at Tammany Hall. It is the first you
have heard of it, isn't it?
H.M.JR: I am not speaking.
MR. KUHN: I think that rather than deny it to the
press conference, I would call up Walker in New York.
H.M.JR: Would you?
MR. KUHN: Sure.
H.M.JR: Will you do that?
MR. KUHN: Sure.
Regraded Unclassified
87
- 7 -
H.M.JR: Tell him I: haven't been asked. Nobody
asked me to. All right?
MR. KUHN: Yes.
H.M.JR: Dan, would it be agreeable to you - have
you got anything on tonight, socially or otherwise?
MR. BELL: No.
H.M.JR: Could you and George - who else? - come
tonight to talk about this financing? I have been
going to try to do it all day, but I can't get myself
into the mood for it.
MR. BELL: Murphy and Baker.
H.M.JR: Do you think he would contribute some-
thing?
MR. BELL: Well, he is leaning a little toward
the New York viewpoint.
H.M.JR: All right. What about Buffington?
MR. BELL: I don't think he has studied it very
much.
H.M.JR: Organize it and have it at the house at
eight-thirty. I will be good for maybe thirty minutes
to an hour. That is all I need.
Regraded Unclassified
88
October 5, 1942
Mr. Sullivan
The Secretary
I am sending herewith my correspondence from
Frank Bane, plus a telephone call slip.
I would appreciate it very much if you would
represent me on this committee, and keep other
members of the Treasury advised who are interested
in Federal, State and local fiscal and tax problems.
Copy to: Mr. Paul
HMJR:mcd
Regraded Unclassified
COPY
m Dullar )
Conginal to 89
The Council of State
Governments
1313 East Sixtisth St.,
Chicago, Ill.
October 2, 1942.
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
My dear Mr. Secretary:
We have a letter today from the President
to the effect that he has appointed the Secretary of
the Treasury and the Director of the Budget to re-
present the Federal Government on the joint federal-
state-lood committee on fiscal policies and practices,
and to work with the committee established by the
Council of State Governments dealing with this problem.
A number of the members of our Tax Committee,
especially those from the West, will be in Cincinnati
at the time of the meeting of the National Tax
Association, on October 19-21.
I an wondering, therefore, if it would be
convenient for you to meet with this Committee in
Washington on Saturday, October 17th. If so, we will
try and arrange time and place for your convenience.
I expect to be in Washington on Monday. May
I call your office with respect to this matter?
With kindest personal regards, I an,
Very sincerely,
(Signed)
Frank Bane
Executive Director
FB:mlh
Copied 10-6-42/hs
Regraded Unclassified
90
October 5, 1942
5:00 p.m.
Randolph
Paul:
It hasn't come to me yet that I know of.
HMJr:
It hasn't come to you?
P:
It may be outside, but I - I told them to let
me know.
HMJr:
I'll send you in the Dow-Jones. Just a minute.
P:
Send me what?
HMJr:
I'll send you a copy of it.
P:
Well, it - it might be out on the desk, but I
don't think 80.
HMJr:
Well, I want you to read it, and then call me
after you've read it.
P:
All right. I'll do that.
Regraded Unclassified
91
Regraded Unclas
MEMORANDUM TO THE FILES
Interdepartmental Subcommittee Meeting
in Mr. White's Office
October 5, 1942,3:30 P.M.
Present: Messrs. Berle, Livesey, Pasvolsky from
State Department
Mr. Coe and Dr. Bean from Board of
Economic Warfare
Mr. Currie, White House
Mr. Cohen from the Interior Department
Mr Clayton from the Department of Commerce
Mr. Gilbert from the Office of Price
Administration
Mr. Gardiner from the Federal Reserve Board
Messrs. White, B. Bernstein, E. M. Bernstein
and Taylor from the Treasury Department
1. The meeting was convened specifically to discuss questions that had
been raised concerning the "Proposals for an International Clearing
Union", drafted by Lord Keynes and submitted to the Treasury by
Sir F. Phillips on behalf of the British Government.
2. Sets of questions drawn up by representatives of the State and
Treasury Departments were submitted to the meeting for consideration.
After examination and modification, a revised list was drawn up.
Through the facilities of the State Department this list will be
handed to Sir F. Phillips, who is leaving for London soon where he
will take these questions up with Keynes and his Government.
3. On Mr. Pasvolsky's recommendation, it was decided to meet again on
October 8th to discuss Mr. White's program for the establishment
of an United Nations Stabilisation Fund.
The meeting adjourned at 5:30 P.M.
W. H. Taylor
92
Questions on Lord Keynes' Proposals
For an International Clearing Union
1. Is it assumed that exchange rates between members of the Union
would fluctuate within gold points or their equivalent and that
foreign exchange obtained through bancor facilities would be sold
only at such gold points?
2. If transfer is to be at a fixed rate may not two rates of
exchange develop between member countries unless the governments
are prepared to take active steps through a stabilization fund or
other agency to control the rates?
3. Is it contemplated that transfers of bancor could take place
other than by direct transfer between central banks or treasuries?
(a) Specifically, will the DSW "instrument of international
currency" be utilised by means of negotiable drafts in bancor on
the Clearing Union or by entries on the books of the Union?
(b) If the first, by whom would it be sold and bought in individual
countries? Specifically, would transactions in bancor be & monopoly
of the central bank and/or the Treasury, or would it be generally
negotiable like an ordinary bill of exchange? (c) Would the bancor
be an instrument of payment between member and non-member countries?
If so, how would this operate?
4. In what currency and under what exchange rate regulations would
non-members keep "credit clearing accounts" with the Union and what
would be the advantage to then to do so, since they cannot borrow
from the Union?
5. How under the plan could the quantum of international currency
be contracted to reduce "effective world demand", mentioned in
paragraph 1(c) of the Proposals?
6, What provision is there for preventing the use of benoor quotas
to meet foreign obligations where there is no adverse balance of
payments on current account? What could prevent countries with
weak currencies from quickly exhausting their quotas should they
wish to acquire strong currencies?
7. What is the contemplated order of magnitude of total bancor
quotas? Are We correct in understanding that within such amounts
& country could do nothing to limit the call of the Clearing Union
for its currency? What is the maximum amount of U.S. dollars
which the United States might be obligated to provide in return
for bancors during the first five years of operation?
8. What disposable assets would the Union hold to assure liquida-
tion of bancor credits in the event of dissolution of the Union
Regraded Unclassified
93
- 2 -
or in the event of war? In the event that any country wishes to
withdraw, what specific steps could it take to liquidate without
loss the bancor that it might have accumulated?
9. Does the proposal envisage that the British Commonwealth as a
whole is to have one representative on the Board and one quota, or
would each of the dominions also have a separate representative
and a separate quota? If the Commonwealth is to be treated as a
unit, is it thought that intra-commonwealth trade is to be treated
as foreign trade for the purpose of determining the quote?
10. Is it not likely that those countries likely to develop large
creditor accounts with the Clearing Union will be in a minority 80
far as voting strength and control over policies are concerned?
11. Does the drawing of a distinction between a few founder states
and other members run counter to the general objective of securing
international collaboration?
WHT:dal 10/6/42
Copy:$1 10/7/42
Copy: rl 10/8/42
Regraded Unclassified
TREASURY DEPARTMENT
94
INTER OFFICE COMMUNICATION
DATE October 5, 1942
Secretary Morgenthau
TO
FROM
Mr. Haas AR
On further thought, I should like to advise against
releasing to the press the "Chart of Treasury Financing,
1942". While the information contained therein has all
been made public previously and therefore no question 1s
raised about releasing the particular figures, it seems to
me that the chart itself might raise certain questions if
given to the press. What I have in mind is that some persons
might attempt to draw conclusions regarding the establishment
of & particular pattern for future financing in a way which
might be embarrassing to you. For example, the large amount
of bills and certificates offered since the first of the year -
which stands out strikingly in the chart - may be taken as an
indication of 8 pattern of financing largely through the
banks.
Regraded Unclassified
95
CHART OF TREASURY FINANCING, 1942
New Money
Refunding
Bills
Certificates
Notes
Bonds
Jan.
8150 millions weekly; for months $100 mil-
$1,014 millions, Pi die 6/15/99-51 refunding
lines see money, @501 millions refunding.
of Treasury note, suro nota and too the bonds,
Feb.
8150 millions weekly) for months as new
$1,512 millions, at's 4as 6/15/52-55 sev anney,
anney, 0601 millioms refunding.*
Mar.
8150 millions weskly: for months se ---
maney, @602 millions refunding."
Apr.
$150 millions weekly: for month: $300 etl-
81,507 millions, - 11/1/20 nee
liems ser anay, 6951 millions refending.
soney.
May
$150-850 millicas weekly) for with: 8303
1,892 aillions, 2's due 9/15/19-51 - anny.
millions - MONT, $601 millions refunding.
sear millions, H% dos 6/15/62-47 - money.
June
8250-300 millious workly: for month: 1252
61,508 millions, P. the 2/2/93 new
$1,119 millions, 18% lise 12/15/26
attlicas see anney, 0502 millions refunding.
money,
refunding of sole bond and RPC note,
July
$300-350 millions for months $1,155
$2,097 millions, No - 12/15/89-51 - may,
willions sew assay, 8450 millions refunding.
Aug.
1350 millions rephiyt for month: $505 atl-
$1,609 millions, I " the 6/1/93 now
1,836 millions, H's due 6/15/62-67 (respening)
lions see money, $904 millions refusting.
money.
- anney.
Sept.
@350-400 millions workly) for months $4.9
$1,506 millions, ,65's due 5/2/43
$1,606 millions, 18°F due 3/15/25
millions - mary, 8 1,456 millions refunding?
- money.7
new money.?
Oct.
Nov.
Dec.
*In addition se refunding shows, $100 millions of bills ware paid off during February and #350 millions during March,
TAn - of 1942 willions of the --- money incroved in September - in effect used sa PAY aff the September 15
Treasury nate saturity.
Ifflue
1
I , I I
- -
egraded Unclassified
96
96
CHART OF TREASURY FINANCING. 1942
New Money
Refunding
Bills
Certificates
Notes
Bonds
Jan.
$150 millions workly: for month: $100 mil-
lions new money, $501 millions refunding.
$1,014 millions, 2's due 6/15/49-51 refunding
of Treasury nota, RFC note and two FFMC bonde,
Feb.
#150 millions weekly: for month: no new
money, $601 millions refunding.*
$1,512 millions, 2t's due 6/15/52-55 new money,
Mar.
$150 millions weekly: for month: no new
money, #601 millions refunding.*
Apr.
#150 millions weekly: for month: $300 mil-
$1,507 millions, in due 11/1/42 new
lions new money, #451 millions refunding.
money.
May
#150-250 millions weekly: for month: #303
$1,292 millions, 2's due 9/15/49-51 new money.
millions new money, $601 millions refunding.
8882 millions, 23's due 6/15/62-67 new money.
June
#250-300 millions weekly: for month: $252
$1,588 millions, P. due 2/1/43 new
$1,119 millions, 19's due 12/15/46
millions new money, $902 millions refunding.
money.
refunding of HOLC bond and RFC note.
July
$300-350 millions weekly: for month: $1,155
$2,097 millions, 2's due 12/15/49-51 new money.
millione new money, $450 millions refunding.
Aug.
#350 millions weekly: for month: $505 mil-
$1,609 millions, 8 " due 8/1/43 new
1,236 millions, 24's due 6/15/62-67 (reopening)
lions new money, $904 millions refunding.
money.
new money.
Sept.
#350-400 millions workly: for month: $449
$1,506 millions, .65' due 5/1/43
#1,606 millions, 14% due 3/15/45
millions new money, $ 1,456 millions refunding,
new money.T
new money.?
Oct.
Nov.
Dec.
In addition to refunding shown, $100 millions of bille were paid off during February and #350 millions during March,
TAn amount of $342 millions of the new money borrowed in September vae in effect used to DAY off the Suptember 15
Treasury note maturity.
Regraded Unclassified
Office of the Secretary of the Treasury
F-252
TREASURY DEPARTMENT
97
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
October 5, 1942
TO
FROM Davis L. Baker, Jr.
Possible New Issues, dated approximately October 15, 1942
Treasury Notes
Coupon
Approx. Term
Due Date
Yield
Market Price
Premium
1 %
1 yr. 5 mos.
Mar. 15, 1944
0.95%
100 2/32
2/32
1 3/8%
3 yrs. 2 mos.
Dec. 15, 1945
1.30%
100 8/32
8/32
1.35
100 3/32
3/32
1 1/2%
3 yrs. 11 mos.
Sept. 15, 1946
1.44%
100 7/32
7/32
1.48%
100 2/32
2/32
4 yrs. 2 mos.
Dec. 15, 1946*
1.50%
100
-0-
*(reopening of 1 1/2% T.N. due 12/15/46, Series 'B')
1 5/8%
4 yrs. 8 mos.
June 15, 1947
1.57%
100 8/32
8/32
1.61%
100 2/32
2/32
4 yrs. 11 mos.
Sept. 15, 1947
1.59%
100 6/32
6/32
1.62%
100 1/32
1/32
Treasury Bonds - Fixed Maturity
1 3/4%
5 yrs. 2 mos.
Dec. 15, 1947
1.65%
100 16/32
16/32
1.70
100 8/32
8/32
5 yrs. 5 mos.
Mar. 15, 1948
1.68%
100 11/32
11/32
1.73%
100 3/32
3/32
2
%
8 yrs. 2 mos.
Dec. 15, 1950
1.95%
100 13/32
13/32
1.97%
100 7/32
7/32
8 yrs. 5 mos.
Mar. 15, 1951
1.97%
100 8/32
8/32
1.99%
100 3/32
3/32
98
-2-
Treasury Bonds - Callable Issues
Coupon
Approx. Term
Due Date
Yield
Market Price
Premium
2 %
7 yrs. 5 mos.-
Mar. 15, 1950-52
2.00%
100
-0-
9 yrs. 5 mos.
2 1/4%
11 yrs. 11 mos.- Sept. 15, 1954-57
2.21%
100 13/32
13/32
14 yrs. 11 mos.
2.23%
100 6/32
6/32
12 yrs. 11 mos.- Sept. 15, 1955-58
2.23%
100 7/32
7/32
15 yrs. 11 mos.
2.25%
100
-0-
Regraded Inclassified
Secretary of the Treasury
99
INCOME AND EXCESS PROFITS TAXES
FOR SEPTEMBER 1942
AS COMPARED WITH JUNE 1942
BY
FEDERAL RESERVE DISTRICTS
Sept. 1942
June 1942
STON
$
170,413,067.31
$ 151,764,845.41
YORK
572,245,303.10
606,016,011.30
ILADELPHIA
182,139,376.38
183,977,761.99
REVELAND.
257,432,432.52
251,489,276.96
CHMOND
112,353,295.68
114,814,117.18
ITA.
75,205,299.91
74,372,220.00
ICAGO.
420,829,085.06
396,858,161.26
LOUIS.
51,247,709.71
45,290,592.09
INNEAPOLIS.
22,477,204.68
23,494,237.16
USAS CITY.
53,724,481.69
50,731,652.45
ALLAS
44,986,742.45
45,056,575.30
as FRANCISCO
152,659,554.50
141,833,074.08
ELL, FEDERAL RESERVE BANKS .. $ 2,115,713,552.99
$ 2,085,698,525.18
RITORY OF HAWAII
**1,234,883.16
*296,086.17
RAND TOTAL
$ 2,116,948,436.15
$ 2,085,994,611.35
Reports June 15, 16, 17, etc. not yet received.
Reports Sept.15, 16, 17, etc. not yet received.
10
100
OCT 1942
Honorable Benry Morganthou, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Hearys
I have received your letter of September 25, 1942,
in which you invite my attention to the delay an the part of
the Mar Department in the delivery of war bonds to soldiers.
While I have not been understal of this situation I appreciate
your calling it to my attention. In view of your encom,
which I also share, it is my thought that you may be interested
in & statement of the Bar Department precedure leading up to
the present situation, and the action which is now under -
sideration to improve it.
In connection with the astablishment of the Mar
Department Pay Reservation Plan for the purchase of war bonds
by all Army personnel and civilian employees in or under the
War Department, the initial major decision to be made was whether
the sale of these bonds should be conducted through a centralised
or a deesntralised eyetem. It was desided, end 80 planned upda
the information and emperience them svailable, that centrelization
in Washington of the secounting procedures in connection with such
sales would most efficiently and promptly accomplish its purposes
first, because of the decire to remove all administrative work
from field organisabima, no far as possible, the releasing the
energies of personnel of sush organizations for strictly combet
training and daty) accound, because the continued - of
individuals and organisations seesingly made impresticable a de-
centralisation of operations) and third, because of the availability
in Washington of accounting meltines whereby it was thought that
economy and speed of operation could best be accomplished.
The plan became effective last April. Prom that nonth
to September includive, recermtions from pay have bom authorised
by 2,065,366 abseribers, a volume which, unquestionably, for
exceeds that of my other Government Department. There have been
inherent difficulties in procedures, and in the promound and
Regraded Unclassified
101
training of personnel, in a nealy established erganisation -
fronted with such a burden of business, Also the time required
for the transmittal of vouchers to Washington has been found to
be greater than anticipated. Nevertheless is is confidently
expected that, with the present organization and procedure, it
will be pessible by December 19th to mill bonds to military
subscribers in the United States within forty-five days follow-
ing the month in which complete payment of the bend has bom
made. Procedures will - be put into effect which will result
in a reduction of the time required for the trunsmittal of actual
pay deduction information from organisations stationed both in
the United States and overcess, It is believed that such action
will reduce the time to emalderably less than forty-five days
for the dispetch of bonds to subscribers in the United States.
Moreover, it is planned to decembralise, at an early
date, the sale of bonds to sivilians by the employment of bonded
Issuing Agents designated by the Treasury both in the field and
in the District of Columbia. It is believed that such action
will eliminate my delay in the delivery of bonds to such
employees. This plan may be put into effect, to & limited extent,
for military personnal.
It will be appresiated, I - were, that it is impres-
ticable to deliver bonds to the millions of MI in the Army, a
(reat number of whom are constantly in transit from one place
to another, and who are stationed throughout the world, with the
same expedition as in their delivery to civilian personnel.
The Chief of Finance, who is the Har Bond Officer for
the Bar Department, is of the opinion that the foregoing neasures
will preve effective. I assure you that this matter is receiving
his earnest attention and that it is one in which I - personally
interested.
Sincerely yours,
HENRY L STIMSON
Secretary of Har.
Copy to accompany original.
Regraded Unclassified
TREASURY DEPARTMENT
102
INTER OFFICE COMMUNICATION
DATE
October 5, 1942.
TO
Secretary Morgenthau
FROM Ferdinand Kuhn, Jr
F.K.
George Buffington
You will remember that the War Bond people recently
worked out what promises to be a satisfactory arrangement
with the Advertising Council for the writing and preparation
of War Bond advertising and promotion material. The Council
agreed to appoint an account executive with two assistants
to handle all our requests for War Bond copy and to farm it
out among several of the biggest agencies.
We are now applying this procedure in the case of other
Treasury promotion. The Advertising Council appointed the
Albert Frank Gunther Law Agency to handle copy for Series F
and G Bonds, and we had a long and productive meeting with
the executives of this agency about ten days ago. Thomas Lane,
of Vincent Callahan's shop, will be the channel through which
all our requests concerning F and G Bonds will be handled at
this end.
In line with the same procedure, the Advertising Council
has appointed Doremus and Company to handle the promotion
of the Series C Tax Savings Notes, and we had a useful meeting
with two executives of this agency last week. They intend to
make 8 special effort to reach small corporations through
local publicity in the smaller cities 80 8.8 to broaden the
sale of these notes. They seem to realize that if this
operation is to be successful it must get away from the
financial pages of the big metropolitan dailies and must be
brought to the attention of businessmen throughout the country.
Mr. Hobbs, of George Buffington's shop, will be the channel
for dealing with Doremus at this end until such time as 8. man
is appointed to supervise all publicity matters for the
Victory Fund Committee.
The next step, in the cases of the F and G Bonds and
the C Notes, will be for the agencies to submit to us their
proposals for reaching the respective markets most effectively.
Regraded Unclassified
- 2 -
103
Regarding the Series A notes, which require mass
merchandising tacties, the Advertising Council has
promised to appoint an agency early this week and to
send representatives of this agency to Washington for
8. similar meeting. The Advertising Council seems to
feel that little can be done with the mass of taxpayers
until they know exactly what their taxes will be. We
are urging that the campaign be laid out in advance as
far as possible, 80 that the moment the tax bill is passed
we shall be able to start in the newspapers and magazines
of the country.
The Disney film project, which might have been used
for Tax Savings notes, was, as you know, turned down by
the Bureau of the Budget, and we were told to get our
money from Lowell Mellett. John Sullivan sent a formal
request to Lowell Mellett a week ago, but 80 far has not
even received an acknowledgment.
J.K.
Regraded Unclassified
TREASURY DEPARTMENT
104
INTER OFFICE COMMUNICATION
DATE Outober 5, 1942
Secretary Morgenthau
TO
Vincent F. Callahan
FROM
The new program which we inaugurated Saturday night,
October 3rd over the Mutual Network is entitled THE SATURDAY
NIGHT BOND WAGON. It is planned to have it broadcast each
week from 10:15 to 10:45 PM.
Mr. William Rainey has arranged with the Radio Directors'
Guild to supply one of their outstanding directors each week
and the scripts are to be supplied by the War Writers' Board.
We plan to use outstanding stars of the entertainment field
and hope to avoid using a set format.
Last Saturday's program included Bob Hawk, Jack Pearl and
Cliff Hall, Ethel Merman, and Ex-Governor Alfred E. Smith.
We are trying to achieve the atmosphere of a bond rally
in terms of radio with heavy emphasis on the direct sale of
bonds on each broadcast. Each station on the network cuts in
for 45 seconds to handle a local appeal according to the system
that each one has set up for itself. Those stations that have
qualified as issuing agents accept direct telephone calls.
7. ohan
Regraded Unclassified
O.W.I. Corres.
105
October 5, 1942.
Dear Mr. Fleming:
I appreciate your letter of September 25th
regarding the clearance of Mr. Bard's speech.
Naturally we would have liked a look at
this speech before delivery, but the reference
to War Bonds was not very important, and it has
not been noticed in the general stir that Mr. Bard
seems to have created.
Your office has been most efficient and help-
ful on speech clearances in the past, both with
Treasury speeches which have gone to you for
approval and with those of other agencies which
you have given us an opportunity to clear. I
know from your friendly letter that you will keep
up the good work.
Sincerely,
(Signed) H. Morgenthau. Jr
Mr. John R. Fleming,
Chief, Bureau of Publications
and Graphics,
Office of War Information,
Washington, D. C.
FK:eg
Regraded Unclassified
OCT 2
106
OFFICE OF WAR INFORMATION
WASHINGTON
September 25, 1942
The Honorable
The Secretary of the Treasury
Washington, D.C.
My dear Mr. Secretary:
We owe you an apology.
The Assistant Secretary of the Navy, Mr. Ralph
Bard, submitted a speech to this office for clear-
ance Wednesday afternoon. The speech had a passing
reference to war bonds and to taxes. Through an
oversight, in some part because of the necessity
for speed in obtaining clearance, we neglected to
refer it to the Treasury Department. It may well
be that you would have preferred some modification
of the references to bonds and taxes.
This sin of omission is wholly ours. We have
had very few slips of this sort in speech clearance,
and I can assure you I regret most keenly this
particular one.
Sincerely,
Jahn John Chief R. Fleming R. Henning
Bureau of Publications
and Graphics
FORVICTORY
BUY
Pritts
STATES
WAR
DONDS
***
STAMPS
Regraded Unclassified
TREASURY DEPARTMENT
107
INTER OFFICE COMMUNICATION
DATE October 5, 1942
TO Secretary Morgenthau
FROM Huntington Cairns
The consent of Petrillo, The American
Federation of Musicians, and the R.C.A. Victor Company
for the production of the record "Ev'rybody Ev'ry
Payday" has now been obtained. I believe there is
nothing further for me to do in the matter.
He
i
TO:
10/4/42
The Secretary
108
Cairns phoned from New York that
Petrillo has agreed to permitting
union musicians to make for Victor
recording and Actributing the
record (platter) with the "Ever@ybody
every payday" song on one side and
the infantry song on the other. Some
elight details are to be ironed out
with the union attorney, now in Toronty
give Victor, no but these MR. detain should with
and the matter has to be cleared
TREASURY DEPARTMENT
109
INTER OFFICE COMMUNICATION
DATE October 5, 1942.
To
The Secretary
FROM Harold Graves
Herewith a report from Mr. Coyne regarding the complaint
of Horace S. Meldahl, as represented by the attached telegrams.
110
MEMORANDUM
TO:
Mr. Graves
FROM:
R. W. Coyne
10/3/42
With reference to the wire of September 27 addressed to President
Roosevelt by one Horace S. Meldahl of Charleston, West Virginia,
and the wire of September 28 addressed to the National Labor Re-
lations Board by the same person, I have the following report to
make:
Both of these wires stated that compulsion was being used in West
Virginia in connection with the War Savings Program, and employees
were being discharged from plants in West Virginia for failure to
buy War Bonds. Administrator Yoke has advised that Meldahl is known
to him as something of a "screwball" attorney, who has been active
in West Virginia in the defense of various members of the Jehovah's
Witnesses Sect, and is generally regarded as their state counsel.
Meldahl has been communicated with by Yoke and has particularized
concerning his complaints, as follows:
At Parkersburg, West Virginia an employee of the American Viscose
Company quit her job because of pressure from employees following
her refusal to-participate in the War Savings Program. This em-
ployee was a member of the Jehovah's Witnesses. She has not been
discharged but the resentment on the part of the employees makes
her return to work unwise.
Five members of the Ford Bacon Company, which is a plant being con-
structed for the manufacture of synthetic rubber, were discharged
for the reason assigned by the employers as "failure to participate
in the defense effort." These employees, also members of the Jehovah's
Witnesses, were reinstated.
Mr. Meldahl, in this position, further stated that three or four
additional members of the Jehovah's Witnesses had left their employ-
ment at an unnamed plant at Clarksburg, West Virginia and were
"afraid" to return to work following their refusal to salute the
American flag.
Mr. Meldahl has agreed to write Mr. Yoke and, if it should appear
that any action is indicated on the part of the War Savings Staff,
Mr. Yoke will take that action.
The foregoing was obtained in two telephone calls from Parkersburg,
West Virginia this morning. In view of the facts contained in the
your needs. Any additional report that is made will be promptly
second telephone call, it is thought that this report may suffice
forwarded to you.
Rub
Regraded Unclassified
WESTERN
111
SYMBOLS
CLASS OF SERVICE
This is - full-rate
elegram of Cable-
im unless in de-
UNIONSW DL-100 Lesse
Oversisht Telegram
erred character is in
Deferred Cable
dested by a suitable
NET=CoMe Night Letter
mbol above of pre-
coding the address.
A. N. WILLIAMS
NEWCOMB CARLTON
d. G. WILLEVER
PRESIDENT
CHAIRMAN OF THE WOARD
FIRST VICE-PRESIDENT
Ship
TM sing Liese above is the date line on telegrams and day letters la STANDARD TIME at point of origin. Time of receipt la STANDARD TIME at point of destination
JB118 69 DL=CHARLESTON WVIR 28 1205P
1942 SEP 28 PM 2 03
NATIONAL LABOR RELATIONS BOARD=
WASHDC=
Treasy
TO MAKE HUNDRED PERCENT PLANTS, THOUSAND THROUGHOUT NATION
PRODUCING FOR DEFENSE ARE BEING DISCHARGED FOR FAILURE TO
BUY WAR BONDS REGARDLESS OF REASONS YET EMPLOYERS AND
INDEPENDENT PEOPLE ARE NOT COERCED THIS WAY. IF COMPULSORY
WHY NOT TAXATION OR ENFORCED SAVINGS REACHING ALL? WORD FROM
YOU WILL STOP SUCH COERCION BY OVER ZEALOUS BOND SALESMEN
TRYING TO MAKE RECORDS FOR THEMSELVES. LETS KEEP AMERICA
REE. PLEASE ADVISE YOUR ATTITUDE=
HORAGE
THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE
Regraded Unclassified
112
the Milite
havey
SEP 28 8 is AM 1942
WB16 58 NT
CHARLESTON WVIR SEP 27 1942
HON FRANKLIN D ROOSEVELT
WHITE HOUSE
TO MAKE HUNDRED PERCENT PLANTS THOUSANDS THROUGH OUT NATION
ARE BEING DISCHARGED FOR FAILURE TO BUY WAR BONDS REGARDLESS
OF REASONS, YET EMPLOYERS AND THE RICH ARE NOT COERCED THIS
WAY. IF COMPULSORY WHY NOT TAXATION REACHING ALL ACCORDING
TO MEANS? YOU BELIEVE IN A FREE COUNTRY. WORD FROM YOU WILL
CORRECT THIS UNFAIRNESS. WHAT IS YOUR ATTITUDE?
HORACE S MELDAHL.
Regraded Unclassified
113
October s, 1943.
Dear General Greaingers
It vas very good of you to esad - a franch
copy of the picture taken when I visited the New
York Pert of Imbarkation. I am very glad to
have the photograph in this permanent form as a
nemate of as interesting trip.
Sincerely,
(Signed) H. Morgenthau, Jr.
Majer General Numer n. Greninger,
United States Anny,
Bev York Port of Rebarkation,
Brooklyn, New York.
GEF/dbs
File in Diary
Regraded Unclassified
1.6
114
WAR DEPARTMENT
(
NEW YORK PORT OF EMBARKATION
OFFICE OF THE COMMANDING GENERAL
HMG/hfz
BROOKLYN, N. Y.
October 2, 1942
Mr. Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington, D. C.
My dear Mr. Secretary,
Please accept this photograph as a
memento of your visit to the New York Port of Embarkation.
It was 8. genuine pleasure as well as en honor to have had
you with us.
Sincerely,
Deerade
115
October 5, 1942
Dear Lauch:
Thanks for your very amusing let-
ter. Permit me to give you a chuckle.
Here is a story told me by an officer
in the Infantry. On a recent trip to
Miami he found, on entering a bar
attended mostly by the Air Corps, the
following sign, "Lieutenant Colonels
of the Air Corps under 21 years old
unless attended by their mothers will
not be served drinks at this bar."
Here's for more humor and greater
successes!
Sincerely yours,
(Signed) Henry Morgenthau, Jr.
Honorable Lauchlin Currie,
Administrative Assistant to the
President,
The White House.
Del. by Harmon 4:40 10/5/42
File in Diary.
Regraded Unclassified
116
THE WHITE HOUSE
WASHINGTON
October 2, 1942.
Dear Mr. Secretary:
Judging from the papers, you
have been having rather a grim time
recently, so I thought perhaps you
might appreciate a chuckle. Hence
the enclosed, which I picked up at
New Delhi.
Yours sincerely,
Lanch
Lauchlin Currie
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
117
A TRUE COPY
Chinese Lisison Mission,
Margherita. 8-7-42.
To Lt. General Sun
Commanding 38 Div., C.E.F.
I have the honour to forward herewith copies of
correspondence between the proprietor of the Ledo Tea Estate and
the Officer Commanding 112 Regiment.
I an sure that you will agree that the matter and the
tone of the latter's letter is most 111 judged and requires an
apology, and that you will take the necessary steps to obtain
this and will forward to me for transmission to Mr. Hughes.
Such a letter as Colonel Chen's can have only the
worst possible effect upon the good relations between our
respective countries which we are all 80 anxious to maintain.
Brigadier
CLA to CEF
Copy to H.Q., C.E.F.
Dibrugarh
seg
A TRUE COPY
Regraded Unclassified
H.Q. Regt. 112 Regt. 38 Div.
TRUE COPY
C.E.F. July 4th 42.
118
Manager,
Ledo Tea Estate.
Subjects Adieu Words.
Your letter dated 3rd July and Bill No. 12/ML/1942 were received yesterday.
The letter 1e fine reading and the bill is clear enough without error. We
eaght to reimburse you the sum You've showed but I'm sorry I can't. As I
683055 the coal which was used "to fill up the holes" "Meking roads, etc."
VBP not so much as amounting 67.18 tone I think at most 10 tons and as your
price it cost you Rupees 140. Yet I cant pay you for that number. Ive
another suggestion to make you for to deal with the problem--, You may
hire 100gl coolies and let them take the coal bak in one days work. At most
as.8 per day, it will cost only you Rs. 50 and say that there must be 1/2
ton left on the ground in the holes and on the road, which will cost you Rs.7
your final and total cost.
Furthermore Ill tell you that you may use another method to get back
those 57 Rupees through getting Rs. 743 after selling the bamboos which
wever gathered for your estate. Rs. 127 by selling boards and Rs. 26 by
selling string totally you can get Rs. 896 through which you can get Rs. 839
extra.
Besides the labour which we expend to repair your iron floor cost us
Rs. 1200, to repair the ground cost us Rs. 750 to repair the road cost us
Rs. 450 altogether Rs. 2850. Then your net profit will be Rs. 3689 which we
dont want to take back.
And last I have & few words to say to you!
(1) Chine and Britain are friends now, Brithshers had better not treat
their friends as we Chinese like that. I saw the Britishere in China, they
are not treated 60,
(2) You ought to know that an Army after hot flight and long withdrawal
must be very careless and often do something which always causes others
troubles. Tie who had fought three months and once saved so called First
Burna Division (British) and had & long retiring are content for our
behaviours. And we can say that no aray in the world can do better than us,
therefore (3) Your absolutely wrong during our garrison here to cause countless
trouble meaningly. I know youve always been meaningly as
(4) Once you took & paper bearing some bloody words, which said that two
of our officers had gone into one of your house and "forced" your men to
take sway two water tine and they took out their pistols which was absolute
nonsense. You did defame us by making such a bloody paper.
(5) Youve no feeling of "Allies Spirit" Therefor I any youve no
nationalism in your mind, not to say unpetriotic. One cant live in this
warlike world without some natural feeling. Therefore I do say
(6) You are & money finder penny minded ghost. A jew, a Shylock (If youve
ever read The Merchant of Venice by your Ancient Master Shakespeare) and
at last and to conclude - - - youre lost your countries face.
I an sorry I may offend you by saying so, yet I must say so by my
conscience. Adieu.
I an, and always remain,
your faithfuly friend
Sd.J.Chen, Col. commending 112 Regt.
Regraded Unclassified
Treasury Department
Division of Monetary Research
Date 10/5/42
19
To: Secretary Morgenthau
You may be interested in
lancing at this.
H.D.W.
MR. WHITE
Branch 2058 - Room 2141
120
International Photo)
A scene in one of the many vaults at West Point Silver Depository as men load trucks
with silver bars weighing 72 pounds and u p, and worth from $500 to $1,000 a bar.
WPB has ordered release of precious metal to industries needing silver for war effort.
(SWRCE) New York Daily Mirror - October 1, 1942
Regraded Unclassified
TREASURY DEPARTMENT
121
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE October 5, 1942
TO
Secretary Morgenthau
FROM
Mr. Haae
Subject: The Business Situation,
Week ending October 3, 1942.
Summary
(1) National income payments in August rose to a new
record peak at an annual rate of $116.4 billions, as compared
with $114.1 billions in July. In the early part of 1940, before
the defense program got under way, the annual rate of income
payments was running at approximately $74 billions. Since that
time the estimated purchasing power of national income payments
has risen about 33 percent, despite the intervening rise in the
cost of living.
(2) Basic commodity prices in the aggregate showed a
further moderate rise last week. Due largely to new highs
recorded for prices of hoge, butter and rosin, the BLS price
index of 28 basic commodities advanced fractionally to a new
high approximately 70 percent above its pre-war level. The BLS
all-commodity index in the week ended September 26 again
advanced fractionally, with higher prices for farm products and
foods.
(3) Average farm prices as of September 15 were unchanged
from a month earlier, and again averaged 107 percent of parity.
(4) Action initiated by the President under the new anti-
inflation legislation brings 90 percent of foods under OPA
control from the previous 60 percent. In fixing ceilings on
farm products, deductions from parity prices are to be made
for benefit payments and subsidies, as against the inclusion of
farm labor costs.
(5) Total retail trade rose more than seasonally in August
&6 the aggregate dollar volume of sales increased 6 percent over
the previous month, according to Department of Commerce data.
However, sales were still 1 percent under August 1941, when 8.
heavy wave of advance buying was under way. Department store
sales in the week ended September 26 moved up to the highest
levels since the week before Easter.
Regraded Unclassified
122
- 2 -
National income payments rise to new high
National income payments continued to expand during
August and rose to a new record peak at an annual rate of
$116.4 billions. This figure compares with $114.1 billions
in the previous month and $94.8 billions in August 1941.
In the early part of 1940, before the defense program got
under way, national income payments were running at an
annual rate of about $74 billions. (See Chart 1.)
Although living costs also moved higher in August,
national income payments rose at a faster pace. The estimated
purchasing power of income payments consequently made a
further advance to a new high. Since the early part of 1940,
the estimated purchasing power of national income payments
has risen about 33 percent. (Refer to Chart 1.)
Salaries and wages, the dominant factor in national
income payments, continued to rise in August and showed gaine
on both a seasonally-adjusted and unadjusted basis. Actual
dollar payments for salaries and wages in August were 2.7 percent
higher than in July, and 27.7 percent higher than in August 1941.
They were 70 percent above the level of early 1940.
Retail trade improved
After lagging behind the rising tide of national income
payments since last January, seasonally-adjusted retail sales
turned upward in July and then showed further gains in August.
With the sole exception of filling stations, all store groups
showed gains from July to August after allowance for seasonal
factors, and the aggregate dollar volume increased 6 percent.
Nevertheless, total sales in August were still 1 percent
below the unusually high level attained in August 1941. If
sales of automotive stores are excluded, however, sales were
7 percent above the corresponding month in 1941. The widest
gaine over 1941 levels were shown by jewelry stores, drug
stores, food stores, and eating and drinking places, with
increases ranging from 21 to 23 percent.
An August retail sales survey by the Census Bureau,
exclusive of chain stores and mail order houses, revealed that
liquor stores led the gains over year-earlier levels for the
fifth consecutive month, with an increase of 29 percent. On
the other hand, motor vehicle and household appliance dealers
showed declines of 60 and 50 percent respectively, reflecting
the curtailments in production of these items.
Regraded Unclassified
123
- 3 -
Department store sales at high levels
Rising consumer incomes are doubtless being reflected
in the retail sales upturn noted in recent weeks. Department
store sales in the week ended September 26 rose to the
highest levels since the week before Easter. Moreover,
sales again ran 5 percent above 1941 levels, despite the
advance buying that was in progress at that time last year
in anticipation of new excise tax levies that went into
effect October 1, 1941. (See Chart 2.) All districts
except New York showed gains over the corresponding week in
1941.
In contrast with the showing in August, when department
store sales lagged 5 percent behind year-earlier levels, sales
in the 4 weeks ended September 26 ran 8 percent above the
corresponding period in 1941. Moreover, the improved retail
sales trend appears to have continued during the past week,
as Dun and Bradstreet's report for the period states that
"sales of fall merchandise have expanded faster than usual
in all sections of the country." It was further indicated,
on the basis of preliminary reports, that the aggregate sales
volume held close to the peak reached just before the new
excise taxes went into effect & year ago. However, it was
reported elsewhere that sales in New York last week were
sharply below year-earlier levels, due to the heavy volume
of pre-tax buying in the 1941 week.
Commodity prices continue advance
Basic commodity prices advanced again last week, con-
tinuing the rise begun in August when the prospect of new
anti-inflation legislation became apparent. (See Chart 3.)
The index of 9 uncontrolled commodities rose sharply, reflecting
new war-time highs in hogs, butter, and rosin. Grains and
cotton moved uncertainly as last minute compromises on the
pending bill were in the making. Among the 19 controlled
commodities, wool top prices increased moderately on
announcements of new Government contracts. The BLS index
of 28 commodities now stands practically 70 percent above its
pre-war level.
Continued sharp advances in wholesale prices of farm
products and foods during the week ended September 26 again
slightly lifted the BLS all-commodity index. At a level of
99.4, the index stands 9.0 percent higher than a year ago,
and 32.5 percent higher than in August 1939. The index has
recently been gradually rising. In the four-week period
ended August 22 the index increased 0.5 percent, and in the
Regraded Unclassified
124
- 4 -
four-week period ended September 26, it increased another
0.5 percent. There 1e doubt, however, whether the index
now reflects the magnitude of the actual price rise.
Hog prices rising again
Hog prices again rose last week as marketings continued
too light for demand. With the recent rise in hog prices,
and the price of pork remaining stable under ceilings,
packers' margins have again declined, as indicated by the
Department of Agriculture calculations shown in Chart 4.
Last week the Department announced its heaviest
purchases of pork since the two-week period ended August 15,
although purchases were still confined largely to the canned
product. Unusual demand for lard is considered responsible
for much of the strength in the hog market. At times heavy
lard-type hogs are selling at practically the same level as
the lighter-type hogs, although normally the lard-type 18
quoted at a substantial discount.
Wholesale beef rationed and placed under ceiling
Two measures were taken last week to alleviate the beef
price and supply situations. A ceiling of 23 cents a pound
wholesale, at delivery points, was placed on choice beef,
with lower ceilings on poorer grades. This will supersede
"unduly high individual ceilings" which, according to the
OPA, have permitted some packers to bid livestock prices
above those which other packers could afford to pay.
A reduction amounting to about 20 percent in meat
deliveries for civilian use during the last quarter of the
year has been ordered by the OPA. Civilian deliveries will
be limited to the following percentages of deliveries during
the last quarter of 1941: Beef, 80 percent; pork, 75 percent;
lamb and mutton, 95 percent; veal, 100 percent. Consumers
are asked to observe "voluntary rationing" of 21 pounds of
meat per person a week.
Farm product prices unchanged at 107 percent of parity
Prices received by farmers as of September 15 were
unchanged from a month earlier, as declines in prices for
meat animals, truck crops, and other products offset higher
prices received for grains, cotton, tobacco, fruits, dairy,
was 17 than a year earlier, and 85 percent
and poultry products. The index of farm prices in September
higher percent than in higher the pre-war month of August 1939. (See Chart 5.)
Regraded Unclassified
- 5 -
125
Prices paid by farmers, including interest and taxes,
were unchanged for the fifth consecutive month. As a result,
the index of prices received by farmers in mid-September
remained at 107 percent of parity, the high reached in
August. It 1s of interest that the inclusion of interest
and tax costs lowered the parity level in September, for the
first time since 1919.
Consumers' food costs continue to rise
Retail food costs continue to reflect the rise in whole-
sale farm and food prices. Between mid-August and mid-
September the BLS index of the retail cost of foods in 51
large cities increased 0.4 percent, whereas the wholesale
food index rose 1.0 percent. (See Chart 6.)
Prices of food not under direct control by the OPA were
0.3 percent higher in September than in August. This monthly
advance was much less than in previous months, owing to the
substantial seasonal decline in prices of fresh fruits and
vegetables. Prices of foods subject to OPA control increased
0.5 percent as of mid-September, which, it will be noted,
was more than the increase in those not subject to control.
The rise was due mainly to upward seasonal adjustments allowed
for meats, which were less, however, than the usual seasonal
increases.
New anti-inflation action
The OPA has acted immediately under the new anti-
inflation act by placing 60-day emergency price ceilings,
effective today, on a large group of foods at retail and
wholesale levels. This group, representing about 30 percent
of the items entering into the average family's food budget
brings the total under control to about 90 percent. Products
added are: flour, poultry products, most dairy products,
potatoes, citrus fruits, corn meal, dry onions, dry edible
beans, and mutton. The only important foodstuffs exempt for
the time being are most fresh fruits and vegetables, fresh
fish, and peanuts.
Although most foods are now covered by ceilings, the
Price Administrator announced that prices of about 15 percent
of these will be increased shortly to relieve the price
"squeeze" on wholesalers and retailers who have been unable
to transact business under their March ceilings.
The act directs the President to stabilize wages,
of the war or to correct gross inequities. Wages and salaries
Adjustments may be made thereafter to aid in the prosecution
salaries, and prices on the basis of September 15 levels.
may not be reduced below the highest paid between January 1 and
September 15, 1942.
Regraded Unclassified
126
- 6 -
Farm product ceilings, under the act, may not be set
below parity or below the highest market level between
January 1 and September 15, 1942, whichever is higher. The
act provides that adequate weighting shall be given to farm
labor in fixing ceilings for agricultural commodities, and
modifications shall be made where necessary to increase
production for war purposes, or where the ceilings do not
reflect increased labor or other costs incurred since
January 1, 1941. The executive order, however, directs
that appropriate deductions from parity prices shall be
made for conservation payments, parity payments, and
Government subsidies.
On cotton, corn, wheat, rice, tobacco, and peanuts
harvested after December 31, 1941, the 000 1s directed to
make loans at 90 percent of parity. The loan rate of
85 percent may be retained for any commodity if necessary
to prevent an increase in the cost of feed for livestock
and poultry.
Crops frost-damaged at season's close
Abnormally low temperatures in the last week of September,
according to the Weather Bureau, have caused considerable
damage to late crops which had not matured. The degree of
damage will be indicated in the crop reports to be released
by the Department of Agriculture late this week. Killing
frost between the Appalachian and Rocky Mountains affected
chiefly such crops as tomatoes, lima beans, late potatoes,
and more extensively, soy beans. Unusually heavy snowfall
in many places between the Lake region and the Rocky Mountains
caused deterioration to unthreshed grains. Most of the corn
crop had developed beyond susceptibility to frost, but late
fields were affected.
Concern indicated for next year's vegetable production
No hope for an increase in the aggregate vegetable crop
next year 18 held out by the Department of Agriculture. On
the contrary, the Department has released a prediction of a
somewhat smaller crop in 1943, carrying implications of prices
at least as high as those this year. Shortages of labor,
materials, and transportation are cited as likely to cause
a fall in output. Moreover, it is pointed out that the
next year's crop 1s not likely to be favored by the unusually
high yields of 1942.
In an effort to increase production, according to the
press, a formal request will be made of Congress by the
Regraded Unclassified
127
- 7 -
Administration for an appropriation of several hundred
million dollars to provide low-income farmers with funds
enough to expand next year's output. It 1s proposed either
to move low-income farmers to more productive land or to
enable them to improve the productive methods on their own
farms. It was estimated that loans would average approximately
$350 per farm. Officials emphasized that extension of credit
to low-income farmers at this stage of the war would
effectively stimulate production for several years.
London stock prices at new high
Following up recent gains, industrial stock prices in the
London market last week advanced to another new high for the
entire war period. By the end of the week the industrial
stock price average stood 14 percent above the levels pre-'
vailing just before the outbreak of war in Europe. United
States industrial stocks, on the other hand, despite recent
improvement, were still 17 percent below the pre-war level.
(See Chart 7.)
Railroad stock prices in London also have been improving
recently, thus paralleling action in the New York market
where strength and activity in railroad stocks and bonds
have featured trading. Thus the Dow-Jones average of U. S.
railroad stock prices last week advanced to within a
fraction of the high for the year. Moreover, trading in
speculative railroad bonds on the New York Stock Exchange
last month was 80 heavy that total bond dealings on the
Exchange reached the highest levels in 3 years.
One London commentator, according to the Wall Street
Journal, states that some brokers attribute the recent rise
in common stocks in that market to investors' fear of
inflation induced by recent increased wage demands. Moreover,
it 18 pointed out that controlled capital markets, and the
severe limitation on the floating supply of securities, makes
any reaction due to war reverses short-lived. Increased
buying of real estate 18 also noted.
Regraded Unclassified
AND 115 EQ VALENT PURCHASING POWER
1939
1940
1941
-1942
DOLLARS
DOLLARS
Billions
Billions
Monthly
115
115
110
110
105
105
100
National Income
100
95
95
90
90
85
85
Purchasing Power of
National Income* *
80
80
75
75
70
70
A SONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASOND
1939
1940
1941
1942
Chart 1
. Based - cost of living index of B.L.S. Aug. 1939-100
128
Office of the Secretary of the Treasury
Division of Research and Stateties
C-415-A
chart 2 129
DEPARTMENT STORE SALES
1935 - '39 = 100, Unadjusted
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
PERCENT
DEC.
PERCENT
Weekly
260
260
240
240
220
220
200
200
180
180
160
160
1942
1941
140
140
120
120
100
100
1940
80
80
60
60
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
Office of the Secretary of the Treasury
C-390-A
Division of Research and Statistics
Regraded Unclassified
MOVEMENT OF BASIC COMMODITY PRICES
1941
1942
PERCENT
PERCENT
August 1939-100
190
190
185
185
9 Uncontrolled Commodities
180
180
175
175
170
28 Commodities
170
165
165
160
IGO
19 Controlled Commodities)
155
155
150
150
145
145
140
140
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1941
1942
PERCENTAGE CHANGE DEC. 6, 1941 TO SEPT. 25 AND OCT. 2, 1942
PERCENT
PERCENT
Wage aux
19 Controlled
9 Uncontrolled
+46
Commodities
+45
Commodities
+40
+40
+35
+35
Address
MM
+30
+30
+25
+25
Missin an
+20
Hard
+20
funiy ALEX
Sture NET
+15
Shelle an
+15
Land us
Care 1275
Print Cloth 7.8%
+10
Super am
+10
or ass
Dates zip
Zine ...
- 2/8
4:5
0.5 Share
+ 5
sa.
Tin, Publicer,
o
Coffee, Copper,
o
- 5
Cooso as
- 5
follow-4/s -4/X
-
-10
-10
Dec. 6
Sept.25
Out. 2.
Dat. 6
Sept. -
Our. 2
1541
1942
1942
1941
1942
THE
a 20 Controlled and . provises to - If
130
- of the Sunday of the Tenary
] 1 j I
-
Regrad d Un Л ssitie
HOG PRICES, VALUE OF PORK PRODUCTS, AND GROSS MARGINS
Weekly, July 1941 to date
1941
1942
AUG.
OCT.
DEC.
FEB.
APR.
JUNE
AUG.
OCT.
DOLLARS
DOLLARS
PER
PER
100 LBS.
100 LBS.
15
15
COMPOSITE WHOLESALE
VALUE OF Hog PRODUCTS
14
14
13
13
12
12
WHOLESALE PRICE OF LIVE Hoes**
11
11
10
10
GROSS
GROSS
MARGIN
(CENTS)
Gross MARGIN
MARGIN
(CENTS)
100
100
0
0
-100
AUG.
OCT.
DEC.
FEB.
APR.
100
JUNE
AUG.
OCT.
DEC.
131
Chart 4
1941
1942
. WHOLESALE VALUE OF ALL EDIBLE PRODUCTS IN 100 LB. OF LIVE NOGS.
-- GOOD CHOICE, 180-200 LBS.
SOURCE: U.S.D.A.
Office of the Secretary
Lanes
Dividen of -
Regraded Un
P - 246
AVERAGE PRICES RECEIVED BY FARMERS: GRAPHIC SUMMARY FOR THE UNITED STATES
INDEX NUMBERS (AUG. 1909-JULY 1914=100)
175
175
175
ALL FARM PRODUCTS
GRAIN
COTTOM AND COTTONSEED
150
150
150
1941
125
1942
125
125
100
e
100
100
1940
PERCENT
75
PERCENT
75
PERCENT
75
175
MEAT
DAIRY PRODUCTS
CHICKENS AND EGGS
ANIMALS
150
150
150
125
125
125
400
e
100
100
75
75
J. F. M. A. a. J. J. A. s. o. M. D.
J. F. a. A. M. J. J. A. 8. 0. N. D.
J. F. N. A. M. J. J. 4. 5. 0. R. D.
ACTUAL PRICES
90
140
180
CORN
WHEAT
RICE
CENTS PER BUSHEL
80
120
150
1942
1941
70
60
CENTS PER BUSHEL
100
CENTS PER BUSHEL
120
64.2
88.4
80
90
1940
81.3
50
60
60
20
COTTON
WOOL
BUTTERFAT
15
124
CENTS PER POUND
40
CENTS PER POUND
40
30
30
CENTS PER POUND DOLLARS PER 100 POUNDS CENTS PER POUND
10
26.8
5
20
18.3
12
HOGS
12
20
BEEF CAPILE
LAMBS
10
DOLLARS PER 100 POUNDS
10
10
CENTS PER BUSHEL DOLLARS PER POUNDS
100
8
8
8
7.22
6
6
6
6.21
5.87
4
4
4
CHICKENS
EGGS
APPLES
16
40
14
CENTS PER DOZEN
140
30
100
12
21.5
11.4
20
96.0
10
60
J. F. a. A. M. J. J. A. s. o. N. B.
J. F. #. A. M. 1. J. A. 1. o. N. D.
. S-YEAR AVERAGE. AUGUST 1900-JULY 1914
132
Regraded Un classified
FOOD PRICES
1940
1941
1942
PERCENT
PERCENT
1940 . 100, Unadjusted
145
145
140
140
135
135
130
130
Wholesale
B.L.S.
125
125
120
120
115
115
110
110
Retail
51 CITIES. B.L.S.
105
105
100
100
95
95
90
JAN.
MAR.
MAY
SEPT.
JAN.
MAR.
MAY
JULY
SEPT.
90
133
Chart 6
JULY
NOV.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1940
1941
1942
- of the bentry of the Incury
1 I ] I .
Regraded P-239 Unclas
INDUSTRIAL STOCK PRICES IN U.S. AND U.K.
AUGUST 1936 - 100
Weekly
(AVERAGE OF DAILY)
1941
1942
JAM.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
PER
I
PER
CENT
CENT
100
100
95
95
90
90
85
85
U.S. 30 INDUSTRIAL
STOCKS (DOW-JONES)
80
80
75
75
70
70
65
65
8
60
U.K. 56 INDUSTRIAL
STOCKS
55
55
50
50
45
45
40
JAN.
FCB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
40
JAN .
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1941
1942
Office of the Secretary of the Treasury
Division of Research and Statistics
13# 156
Chart
Regraded Uncla
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
E. R. Stettinium, Jr.
Administrator
October 5, 1942
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Treasury Department
Washington, D. C.
Dear Henry:
Thank you for your letter of October 2
relative to the valuation of reciprocal Lend-
Lease.
The suggestions in your letter seem very
sound to us and we are going to attempt to have
the substance of them incorporated in the instruc-
tions which the Army and Navy will send out to
the field on this matter.
I appreciate your coo; eration in advising
with us on this subject.
with best wishes,
Sincerely yours,
E. R. E Stettinius, Jr.
Regraded Unclassified
136
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro, Brazil
DATE: October 5, 1942, 5 p.m.
NO.0 3997
Reference is made to telegram no. 3984, from the
Embassy at Rio, sent at 9 p.m. on October 3, 1942.
The Banks are expected to resume operations on
October 8. At the same time that this announcement is made,
the public will be informed by the Minister of Finance of
several important new financial and economic decree-laws
related to:
war
1. The issuance of 3,000,000 contos of /bonds.
2. The compulsory purchase of war bonds by the tax-
payers. The quota of each taxpayer will be equal to the
income tax on 1942 profits which is payable in 1942.
3. The allotment by employers and employees of part
of four per cent retirement payments for the purchase of war
bonds.
4. A decree-law providing for control or expropriation
of property of the Axis in Brazil (reference Embassy's
telegram 3985, 3rd of October).*
6. Cruzeiro banknotes and coins replacing milreis
(reference Embassy's telegram 3986, 3rd of October).
7. Short-term treasury obligations to finance the
Government of Brazil to the end of 1942.
8. A decree law relating to readjustment of Brazil's
current financial situation. (The Government of Brazil
in this connection will increase its gold buying in the
United States with dollar assets there).
In support of the now economic measures, nation-wide
broadcasts are to be made this week by Boucas and the
Ministers of Finance and Foreign Affairs.
CAFFERY.
* This section is being serviced.
Regraded Unclassified
137
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 344
Information received up to 7 A.M., 5th October, 1942.
1. NAVAL
3rd/4th. Our light craft were in action with enemy patrols off
the Dutch coast. Some damage was done to the enemy.
2. MILITARY
MADAGASCAR. With the occupation of ANTSIRABE our troops from
MAJUNGA have covered 460 miles in 25 days. The TAMATAVE forces have now joined
this column moving by road and rail in spite of numerous road blocks and felled
trees. We have now captured more than 450 miles of railway constituting the main
system on the island together with much rolling stock.
3. AIR OPERATIONS
GREECE. 3rd. U.S. Liberators bombed shipping in NAVARINO HARBOUR,
4 ME 109's were destroyed in the air, 1 Liberator is missing.
MEDITERRANEAN. 3rd. A Wellington torpedoed amidships a 7,000
ton escorted southbound ship in the STRAIT OF OTRANTO. This vessel. and its des-
troyer escort later went to CORFU.
Regraded Unclassified
Treasury Department 103
Division of Monetary Research
Date Oct. 5,1942
To:
Secretary Morgenthau
From: Mr.Hoflich
Attached is the "Voice of the
ief" broadcast of October 1, as
sported by Federal Communications
pamission.
139
'VOICE OF THE CHIEF'
B.S. HAS UNDERGROUND ROUTE IN FRANCE
According to the clandestine transmitter, "Voice of the Chief",
with "Gustav Siegfried Eine" broadcasting in German to the Reich
(Oct. 1), the S.S. in France has established a regular "under-
ground" route into North Africa by means of which members desert
in order to shun service in Russia.
Painful S.B. Losses--"The Waffen 8.8. has suffered painful losses
in France", the radio says. "These losses were not incurred
honorably, on the field of battle. Nevertheless, they have con-
siderably thinned the ranks of two S.S. divisions, the Division
Reich and that of the Life Standard Adolf Hitler. Both together
have lost 774 men. As & result, the dispatch of 774 new B.S.
warriors to France was necessary.
Understanding Boss--"Thus, within a couple of weeks, those B.B.
parasites have simply deserted. How de I tell my Fuehrer? of
course, in the opinion of Obergruppenfuehrer (Chief Group Leader)
sepp Dietrich, General of the Waffen Deserters, it is not at all
& case of desertion. He simply speaks of 'missing'. Yes, 'missing'
are those poor 5.9 to 6-foot tall 8.8. sausages.
Mysterious Whereabouts--Now where could they be, those 8.8.
heroes? Were they ambushed on Paris streets and thrown into the
Seine, a millstone around their necks? Or did they fall in one
of the many dangerous landing attempts which the British are
alleged to have made after their socalled 'Dieppe victory'.
Reunion in Africa--"Actually, how can anyone prove to Herr General
Dietrich that his 774 deserters have landed in North Africa where
they are going to wait calmly and happily for the end of the war?
Nobody can prove such a thing, of course. And certainly not the
Safety Service Police or the Secret Military Police because
there is utter confusion among those two bodies, and already they
had pronounced those 774 missing S.B. warriors as victims of the
Communists.
French Conspirators--"A to the soum of French police, they are
as bad as the S.S. themselves. Actually, they help the latter to
desert. The worst are the French gendarmes. I don't mean the
Police Nationale in their Garde Mobile uniform with the Petain
emblem. They do their duty and escort back everybody who sneaks
across the border into unoccupied territory. No, I mean the
rabble of those gendarmes, in their light-grey pants and their
black visor hats. They fraternize with every deserter, soldier
or not.
Regraded Unclassified
140
- 2 -
Underground Setup--"In fact, these gendarmes are members of a
traitorous organization which smuggles all deserters into
Africa, free of charge. There, they are received in camps,
and get good food and care. Two of such camps have been
reported to me as situated near Casablanos. Their names are
(Putja Bergej Cetasse) and (Abibi Allai Asaja). of course,
if any of the gentlemen of the Armistice Commission should
ever inspect in that district, he certainly would be unable
to find any trace of deserters because the latter would be
hidden by the French traitors until the danger had blown over.
Only Remedy--"The only remedy for such French trickery would
be to march into Unoccupied France and teach these gentlemen
in light-grey pants with black stripes how & vanquished people
ought to behave. But what can you expect from the French if
the Reich is represented in Vichy by such a Nigger Slaver as
Herr Krug zur Nidda. And how are we able to make the French
respect our armed forces if the 8.8. deserts en masse, merely
because they may have to fight in the East?
Chocolate Soldiers--"But don't worry. While the best sons of
our people are thrown into the Russian inferno, Herr General
Sepp Dietrich takes care that his chocolate soldiers don't
get scratched and are comfortably bedded and fed. If they
desert, they are pronounced missing, and, in their stead, new
shirkers are dispatched onto the white beds of France. This
is Gustav Siegfried Eins. The 'Chief' has spoken."
(Federal Communications Commission, October 2, 1942)
Regraded Unclassified
TREASURY DEPARTMENT
141
11
INTER OFFICE COMMUNICATION
DATE Oct.5,1942
TO
Secretary Morgenthau
Mr. Hoflieh
FROM
Subject: Summary of Intelligence Reports
Russian Disappointment over the Failure to open a Second Front
It is reported that, while Molotov assured Willkie that
the Russians would hold the Caucasus and did not plan to
surrender Stalingrad, Stalin was less optimistic. Other
Soviet officials have recently prophesied the loss of Stalin-
grad and the Caucasus, and the reduction of Moscow to a state
of siege. According to these officials, this prospect was
causing a slump in Soviet morale, extending even to the army.
One Russian official considers that Molotov's trip to
England and the United States was a great mistake, in that
it aroused in Russia false hopes of a second front. This
official declares that the withdrawal of at least 100 Nazi
divisions from the Eastern front would be necessary now to
give adequate relief to the Soviet Union, whereas last
December the removal of 20 Nazi divisions and in June the
withdrawal of 50 divisions, would have been adequate. One
high-ranking army officer has expressed the opinion that
large elements in England and the United States would like
to see Russia and Germany continue to fight until both are
exhausted, at which time the British would be able to seize
control in Germany. This officer reportedly mentioned
British official reluctance to talk of the current status
of Rudolf Hess as evidence of such a plan.
(Office of Strategic Services, "The War This Week",
September 24 - October 1, 1942)
Finland's Strategy
Reports from Helsinki indicate that for several weeks
a debate has been going on within the Finnish Government with
respect to the advisability of Finnish participation in a
Nazi offensive against Leningrad. Apparently the Finnish
Regraded Unclassified
142
- 2 -
General Staff favors such participation, while President Ryti
and Marshal Mannerheim oppose it. The latter evidently fear
political consequences, especially in the United States. The
same source reports that the siege guns from Sevastopol were
moved to the Leningrad area about August 17.
(Office of Strategic Services, "The War This Week",
September 24 - October 1, 1942)
143
October 6, 1942
8:55 a.m.
FINANCING
Present: Mr. Bell
Mr. Buffington
Mr. Haas
Mr. Murphy
Mr. Baker
Mr. Rouse
H.M.JR: Well, Dan, where does our own crowd
stand?
MR. BELL: I think there is a little division.
George, as I understand it, is recommending a two
percent '50-'52 bond, and a reopening of the one and
a half percent December 1946 note.
Baker feels we ought to put out a two and a quar-
ter percent, I think, and a one and three-quarters
percent bond. Is that it?
MR. BAKER: Yes, sir.
MR. BELL: While I was in New York Saturday I
talked to a couple of dealers that came into the Federal.
One was Dudley Mills and the other the second man in
Ben Levy's shop. Dudley Mills is strong for the same
program Baker mentions, the two and a quarter percent
bond and a one and three-quarters percent bond, main-
taining that the note market will be heavy if we put
out too many two's.
Levy's man said that he would put out a two; he
would not pay the banks any more than that, and also
put out a note some place - three or four or five
years.
(Mr. Rouse entered the conference.)
144
- 2 -
MR. BELL: (To Rouse) I was just telling him
what Mills and Spencer said.
H.M.JR: What did Levy say?
MR. BELL: That was Levy's man. Hesaid that he
would not put out any more than a two percent bond
for the banks. He thought it was enough for the
Treasury to pay. He thought it was enough for the
banks to expect. Then he would put out a note. He
mentioned the one and a half, I believe, of September
'46, specifically.
Eccles still feels strongly that we ought to put
out the two percent bond and the one and a half per-
cent note. He said he thought George's suggestion of
reopening the December '46 was good.
H.M.JR: I haven't got that - I haven't got a
sheet.
MR. BELL: A billion one hundred and eighteen
million.
H.M.JR: What have you got, George? (Mr. Haas
handed chart to the Secretary.)
MR. HAAS: It is this one here (indicating) -
December '46.
H.M.JR: You want to reopen it?
MR. HAAS: Because that is about all you can do
unless you want to move way back. You either reopen
that or you move to September, and if you move to Sep-
tember I am afraid that this will go below par. Of
course, the Fed can keep it up with the strong-arm
method.
H.M.JR: You want to put two billion on top of
that - make it a three billion dollar note?
MR. HAAS: Yes. You would just--
Regraded Unclassified
145
- 3 -
MR. MURPHY: Piser prices it at par and favors
the March. He says he thinks it can be done, but it
is obviously strong-arming it.
MR. BELL: That makes your December a little
above par, if you hold that at par.
H.M.JR: One of these things is going to have to
taste good if it is going to be 8. two percent.
MR. HAAS: The taste is all determined by the open-
market operations, these days, Mr. Secretary.
MR. ROUSE: Not entirely.
H.M.JR: No. I will never believe that as long
as I am here. Right?
MR. ROUSE: Right.
MR. HAAS: I still think I am right.
H.M.JR: Still, you know, the people who own the
money have an opinion about their own money.
MR. HAAS: I know, but you develop the opinion
by the market.
H.M.JR: Why does it have to be a one and & half
percent?
MR. HAAS: Our original one was a one percent,
but we are willing to- go back that way because we
don't feel strongly, one way or the other. If you
go to one percent, you get rid of some of these
difficulties.
H.M.JR: Where would the one percent fall?
MR. HAAS: December '43.
146
- 4 -
MR. BELL: We have a March - one percent, March
15, '44, two thirty-seconds premium.
H.M.JR: You have got a December one and one-
eighth, too, '43.
Well, let's hear what these fellows have to
say, shall we? If Rouse and Haas and Bell will stay,
we will see this group.
MR. BELL: Mr. Rouse says that one and a quarter
which we put out last month is still pretty heavy on
the market. They took sixty million of them yesterday
and didn't take them all.
MR. ROUSE: Just under sixty-four million. In
the last eight days we have taken, since delivery--
H.M.JR: What have you taken?
MR. ROUSE: The new one and a quarter percent note
of March '45. We have had to take sixty-four million
of them, and we have not taken all that are offered.
We bought them liberally.
147
SCHEDULE OF APPOINT ENTS IN THE
SECRETARY'S OFFICE WITH VARIOUS
BANKERS, OCTOBER 6, 1942
9:00 Mr. Garner, Guaranty Trust Company, New York
9:20 Mr. Repp and Mr. Mills, Discount Corporation, N. Y.
9:40 Mr. Devine, C. J. Devine and Co., New York
10:00 Mr. Murray, National Bank of Detroit
10:20 Mr. Gill, Bank of Manhattan, New York
10:40 Mr. Ihlefeld, Savings Banks Trust Company, N. Y.
Regraded Unclassified
October 6, 1942
/m Jarner guaranty Impts 148 Co.
5yr 13/4%
2% Bmd a
2/4 Bind
Regraded Unclassified
2/m
X
of
October 6, 1942
Reft f mills
149
2 1/4 %
October
13/4 %
2½
nw.
2
Dr.
certificates
note
October 6, 1942
Chris Herine 150
2/4 54-57
13/4 4'2- 6 'm '/2 Bmd
October 6, 1942
Murray
151
not Bank Detroit
13/4 have15 -1947
maid 15- 1950
2% fixed maturity
mr gill mandattan an
=
21/4 70 Bond 54-56
13/4% march 1948
a 47049
?
October 6, 1942
I hlefeed
152
Savings Bank
2 'Dis hillin
24% 2½ 54-56
march 15-1950 fixed maturity
2 billion 2%
153
Estimated Yields and Prices on
Possible New Treasury Issues
:
Estimated
:
I
Yield
:
Probable
:
:
Basis
Price
:
:
(Percent)
1
percent note
due December 15, 1943
(1 year - 2 months)
.95
100-2/32
1-1/2 percent note
due December 15, 1946
(4 years - 2 months)
1.50
100
1-3/4 persent bond
due September 15, 1947-49
(4 years - 11 months
6 years - 11 months)
1.72
100-4/32
1-3/4 percent bond
due March 15, 1948
(5 years - 5 months)
1.73
100-3/32
2
percent bond
due March 15, 1950-52
(7 years - 5 months
9 years - 5 months)
2.00
100
2-1/4 percent bond
due September 15, 1954-57
(11 years - 11 months
14 years - 11 months)
2.23
100-7/32
. Based on closing bid prices, October 6, 1942.
Regraded Unclassified
154
October 6, 1942
12:10 p.m.
FINANCING
Present: Mr. Bell
Mr. Haas
Mr. Murphy
Mr. Shields
Mrs. Klotz
H.M.JR: I just feel this way, in view of what
all of these people say - I mean, we have got to keep
having successes. Until We do it a different way -
I just don't want to please Marriner Eccles or anybody
else. The way I feel I don't want to kind of bull
through a two-percent bond.
Now, certainly within a month or two we will have
8. plan. I think we can hang on for another month or
two doing it the orthodox way. That is the way I feel.
MR. HAAS: The situation is this: I think to
do the two's - you know, the way Eccles contemplates -
you have to have 8. lot more reserves and they have got
to put them in. Now they haven't got them, 80 you are
kind of in B. spot on the thing.
H.M.JR: What are the reserves?
MR. HAAS: The reserves are about two billion
all told.
H.M.JR: What I am saying, Henry, is this: Every-
body that came in here this morning wants & two and a
quarter percent bond. Eccles wants a two. You know
we have certain plans in mind. Whenever the plans go
through, we may be doing, something quite different,
you see. But I just don t feel, after listening to
Regraded Unclassified
155
- 2 -
all these fellows, that I want to stand up here and
say, "Damn it, take a two-percent and like it. The
Federal Reserve will provide the funds." Well now,
it would be one thing if you had your ammunition all
stored up in the way of reserve funds, but they
haven't got them. What are your reserves today?
MR. HAAS: Two billion two.
H.M.JR: How much is there in New York?
MR. BELL: I think there is about two hundred
and fifty million in New York.
MR. HAAS: The situation is tight.
MR. MURPHY: Is that a new figure since Saturday?
MR. BELL: I think that was last night's.
MR. HAAS: If they keep that flooded up you could
do your two, and that is the only--
H.M.JR: If they did what?
MR. HAAS: If they kept their reserve situation
more plentiful than it is. But this way is just forcing
into higher rates, that is all it is doing. I agree
with Eccles, not go over two, but, on the other hand,
if you are not going over two you have to put a lot
more reserves in.
H.M.JR: We can go back to 8. two; after all, in
February we had a two and a quarter for a billion and
a half.
MR. BELL: But you had a little different
situation in February, of course, than you do now.
There was some demand back in February for bonds.
People had not awakened to this month-after-month
financing at that time.
156
- 3 -
MR. HAAS: Ihlefeld was very fair. He said,
"Don't go out to a two and a quarter, because pretty
soon they will be talking two and a half to you."
MR. BELL: He is the one man who should be talking
two and a quarter.
H.M.JR: But the rest of the stuff he talked
about didn't make sense.
MR. BELL: The thing that worries me is that, as
Repp said, our objective ought to be to get the first
of this money outside of the banking system; and se-
cond, it ought to be to get it outside of New York
in the country banks. Apparently the country banks
want two and a quarter, and probably the Victory Fund
Committees can sell some two and 8. quarters outside the
banking system. I don't think they could sell much of
the two.
The other thing that worries me is going against
the market again. We did that in September; we didn't
give them what they wanted. Now if we do it again, I
am afraid we are going to create a feeling that there
is no use of their coming down.
MR. HAAS: Here is what I think, Mr. Secretary:
Mainly what is being done here is creating bank de-
posits. It should be easy. The reason it isn't
easy is because the people who should be creating
funds are not creating them, and, therefore, they
make 8. very difficult situation. They talk about
what the market wants, and so on. The market is created -
it is just the creation of bank deposits and should be
easy. But it isn't easy, because it is not coordinated.
The Federal Reserve is not supplying the funds. Wouldn't
you say that?
MR. MURPHY: I would. I perhaps have 8 different
slant on it, which I hope doesn't sound too bureaucratic.
I was talking to Piser. He thinks the two-percent market
is as solid as a rock. All of the Federal Reserve Board
people feel that way. I don't think it is, because they
Regraded Unclassified
157
- 4 -
have made a very bad reserve situation there. Take
Moody in his letter - how he thinks these rates will
harden a little because reserves are low. But, after
all, they are enthusiastic for a two; a two is a good
policy from the long-term point of view. It is all
the rate that we ought to pay; and if we issue the
two, they are going to have to validate. They are
right on the spot. They have been getting what they
have asked for, and they have asked for what they are
getting, and they will have to make it good.
H.M.JR: Now listen
MR. BELL: That is the Board's--
MR. HAAS: I say you have to look out.
H.M.JR: Listen, would you like to see me, about
Friday afternoon or Saturday afternoon, be in the
position that I have got to go around and say to the
Board, "Pretty please, you have got to take half of
this issue"?
MR. MURPHY: It seems to me - maybe I am naive -
that the Board in strongly advising the two, is stating
that the issue is good, that the market there is solid,
and it has made a moral commitment to see that it is
good.
H.M.JR: But how are they going to do it beginning
Thursday morning?
MR. MURPHY: By, if necessary, purchasing as much
of it as necessary. I don't think they will have to
take any. I think it will be over-subscribed. I feel
that a two and a quarter is easier now, but it is
harder in the long run.
H.M.JR: What is that?
MR. MURPHY: I feel that the two and & quarter
may be somewhat easier now, but harder in the long
run. It will make your next financing harder.
Regraded Unclassified
158
- 5 -
H.M.JR: Well, the way I am looking at this thing,
I am not looking beyond December 31, because I can't
keep up this kind of financing beyond December 31. I
have got to go to something entirely different. Henry,
the thing is that - I was thinking if I have got to go
on this way for another one or two years, it is some-
thing different. But do I today want to join hands
with the Federal Reserve and say, "O.K. The hell with
what the banking community thinks, you take a two
percent and like it, and the Fed will see me through"?
Now, what they mean when they say they will see
me through is that they have got to buy a block of
this, don't they?
MR. MURPHY: It would seem to me that having
said that a two is & good idea, that it is all the
Treasury is justified in paying, that it is a good
deal, that the obligation extends - and I would ask
them to make a commitment to you - extends beyond
buying & block of it, namely, to see to it that there
is a demand to make that bond worth par in the market,
aside from their
H.M.JR: You don't answer me. What are they going
to do Thursday and Friday?
MR. MURPHY: They ought to buy the list, if necessary.
H.M.JR: That is what I don't want.
MR. MURPHY: I meant buy the list of all outstand-
ing issues.
MR. BELL: You don't mean subscribe to this one
necessarily?
MR. MURPHY: Go right down, try to buy ten million
down the list as they go. Now, they have - I talked to
Lee this morning about--
H.M.JR: Lee?
Regraded Unclassified
159
- 6 -
MR. MURPHY: Piser. I talked to him about the
two's being off a thirty-second, and he says there
are no bonds offered - that is, they are very firm.
I don't know - he is an optimist. But they say that
the market is cleaned now. I don't know, but it is
weak during this period. I would say that the Fed
ought to, if necessary, agree in advance to go right
down and buy the list - put in bids above the market
all the way down the list.
H.M.JR: Have you ever seen them do it?
MR. BELL: Thirty-nine. (Laughter)
MR. HAAS: That is a prerequisite to this type
of financing. They have to do that.
H.M.JR: Has anybody else in your shop got any
independent thoughts like Murphy's?
MR. HAAS: Shields.
H.M.JR: I know, but besides that - anybody I
should talk to?
MR. HAAS: Wes - you might ask him, too.
H.M.JR: Wes who?
MR. HAAS: Wes Lindow. Tickton is in on it.
H.M.JR: Can't you interpret for them?
MR. HAAS: Yes, sir, they feel just as Murphy and
I feel.
H.M.JR: How do you feel?
MR. HAAS: I feel this way - I feel that the
Federal Reserve should have been in this market and
dressed the thing up before now. They put us in
Regraded Unclassified
160
- 7 -
somewhat of a tight situation. Before this financing
if these people came down the two percent market would
have looked good - if they handled it, they could make
it look good.
Now, I wouldn't give up doing the two, but I would
get a very definite commitment from Eccles that you are
going to do the two; you don't want to go out for it,
but get right busy and straighten this market out.
I don't think it would look so bad if they had to take
some of this new issue under these conditions.
MR. BELL: You mean subscribe?
MR. HAAS: No, no. That won't happen. It will
go over; that won't happen.
MR. BELL: I would hate to have them take the
new issue; I swear I would.
MR. HAAS: That won't happen. I think the two
will go over. If they dress the market up now, I
think it will go over.
MR. BELL: If we had the books closed, I wouldn't
mind, but I hate to see them subscribe.
MR. HAAS: They won't have to subscribe, Dan; I
didn't mean that.
I think you have a cross-roads here, Mr. Secretary.
It is a very difficult decision right now.
(The Secretary held a telephone conversation with
Mr. Sproul as follows:)
Regraded Unclassified
161
October 6, 1942
12:25 p.m.
HMJr:
Hello.
Operator:
Mr. Sproul.
HMJr:
Allan?
Allan
Sproul:
Hello, Mr. Secretary.
HMJr:
Hello. How are you?
S:
All right.
HMJr:
Allan, take a couple of minutes and tell me how
you feel about this bond issue, will you?
S:
Yeah.
HMJr:
Go ahead.
S:
I feel just as I did - did the other day, on
further thinking it over - question whether you
want to go for another four billion aimed right
at the banks on top of the three billion in
September, or whether you want to go out for some
non-bank - non-commercial bank buying with a two
and 8 quarter, which would be, in my opinion, the
fully marketable equivalent of the registered two
and a half. And second, I think it's - it's
desirable - important to go all out for funds from
banks outside the money centers where there are
excess reserves and to get those funds into use
promptly, and to that extent I think you can con-
sider that a two and a quarter would be the offset
to substantial time deposits in those banks. Then
from a market standpoint it seems to no that a
one and three-quarter and a two and a quarter makes
the best combination for a very successful financing,
that it'd have more - would have more appeal
generally and - and would get a better distribution
as between different classes of buyers.
HMJr:
If you'd do a....
S:
The big city banks, the short-term-minded banks,
would go for the one and three-quarter -- they've
been asking for it -- and the smaller banks and
the non-bankers would go for the - the two and a
(cont.)
Regraded Unclassified
162
- 2 -
B:
quarter, whereas I think anything like a one and a
(cont.)
half and a two would be second-best marketwise and
would be slower and wouldn't - and they'd appeal
generally to the - to the same buyers rather than
to different groups of buyers.
HMJr:
You'd do a two and a quarter and what?
8:
And a one and three quarter.
HMJr:
Yeah. Well, now supposing - now let's - that - that's
your advice.
S:
Yeah.
HMJr:
Now supposing I accepted the advice of the Federal
Reserve Board. Let's just figure for a minute, see?
S:
Yeah.
HMJr:
You would - well, are you chairman of this Open
Market Committee?
S:
No, I'm vice chairman. Marriner is chairman.
HMJr:
All right. Well, you're a member of it, huh?
S:
Yeah.
HMJr:
Just translate yourself for a. minute to that.
8:
(Laughs)
HMJr:
And - all right, I'm tell Marriner, "I'll accept
the advice of the Board, and I'm going to do the
two per cent."
8:
Yeah.
HMJr:
Then what would be necessary to make a success of
the issue?
8:
Well, the issue would be a success -- it would sell --
but it wouldn't have the zip, I don't think, of the -
of the two and a quarter and the one and three
quarter. You make it at two per cent, then you'd
have to put with it something, say, carrying a one
and a half coupon or something, because I don't
think you could do the whole thing, the whole four
billion, with the two.
Regraded Unclassified
- 3 -
163
HMJr:
No.
St
You put with it something that carries one and a
half and I think you have two issues, neither one
of which would have a great deal of - of zip to
it, but it would go.
HMJr:
It would got
8:
Yes.
HMJr:
Well - I mean, how much would you men have to do
to make it go?
8:
Well, we'd have - whichever issue you put out, I
think we'd have to do some work in the market,
because it would be selling of outstanding issues,
whichever issue you put out, in order to buy the
new issue at par.
HMJr:
Yeah.
8:
How much it would be -- there's no way of telling --
I think it would be about the same either issue,
the amount of work we'd have to do.
HMJr:
Well, the - the
8:
Because it would be selling of outstanding issues
to buy the new ones at par, and we'd have to provide
the market for those outstanding issues....
HMJr:
But the two....
S:
in large part.
HMJr:
the two per cent would go?
8:
I think it would go, yes.
HMJr:
If I did a two and a quarter this month, would
that preclude my doing a two next month?
S:
No, I don't think it would. I think you're - you'd
have a - a range of possibilities then in the -
in the longer area from, say, one and three quarter
right out to the two and a quarter, which you could
still use any one of the issues in there, one and
three quarter, two, two and a quarter, and you'd do
the rest in short stuff.
Regraded Unclassified
164
- 4 -
HMJr:
Devine made the suggestion on the one and three
quarter we make it & four to six year.
S:
You mean instead of a straight maturity?
HMJr:
Yeah.
S:
Well, I think that would go too. I - I've been
thinking in terms of a straight maturity, and I
think straight maturity would do a little better,
but I think the - the call date plus the maturity
would go and go well.
HMJr:
Well, he thought it would make it more attractive,
but it - that's unimportant once we get through
it.
S:
That's right.
HMJr:
The thing to settle is whether it's going to be &
two or a two and a quarter.
8:
Well, I don't think it precludes you at all from
doing a two. The banks - many banks now are hold-
ing back to 800 if they're going to get & two and
a quarter. Other banks don't want to go out that
far, and would continue to buy two's, and I - I
don't think one shute out the other at all.
HMJr:
What's - what part of the market is the weakest
right now?
S:
Well, the weakest right now is the one and & quarter
per cent note, the new note, which is being sold
steadily and we're buying it partly because there
was some speculation in it, I think, and partly in
anticipation of a new issue which will be a little
longer and carry a higher coupon.
HMJr:
How much do you have to buy this week?
S:
Just a minute, I'll Well, we've - for the week -
statement week ending tomorrow we've bought forty-
four million of notes and those are mostly the new
notes
HMJr:
Well
Regraded Unclassified
165
- 5 -
8:
....and we're buying some more today.
HMJr:
Well, that's not very much, is it?
S:
No, it isn't. The rest - the rest of the market -
there's some selling of - of two's for the same
reason that they're selling the notes, in anticipa-
tion of either a new two or a new two and a quarter
which they can put on their books at par.
HMJr:
I see. Okay, I'll be talking to your this after-
noon.
S:
All right.
HMJr:
Thank you very much.
S:
Goodbye.
166
- 8 -
H.M.JR: Just so I get this thing straight, you
fellows are in the two-percent corner, is that right?
MR. HAAS: Provided the Fed will back you up.
H.M.JR: Sure, that goes without saying.
And you, Dan?
MR. BELL: I like the two's, too, but I am a
little like you, I feel we are going against the
advice of people who are buying our securities. We
did that the last time, and they didn't like it. I
would hate to do that every time.
MR. HAAS: Sometimes you have to do that. Some-
times you have to - maybe you can make a deal on this
thing.
H.M.JR: What kind of a. deal?
MR. BELL: For more reserves, you mean?
(Mr. Shields entered the conference.)
MR. HAAS: Give the Secretary that story you gave
Dan Bell and I.
MR. SHIELDS: You mean on the October financing?
MR. HAAS: That is what you were interested in,
wasn't it?
H.M.JR: Yes, sure.
MR. BELL: Your feel of the market, the reserve
situation, and what we should do in October in raising
the four billion.
MR. SHIELDS: Well, I pointed out, Mr. Secretary,
that the selection of issues seems to me to be less
important than the preparation of the market for
whatever issues the Treasury had in mind. The market
Regraded Unclassified
167
- 9 -
has been sagging rather sharply recently - - excuse me -
rather persistently recently. Many of the long-term
and intermediate-term issues have been drifting lower
in that period.
H.M.JR: Where have they been dropping? Let me
just check it - which section?
MR. SHIELDS: Look in the '49-'52 area and then
in some of the longer-term issues. I don't know that
book.
H.M.JR: This is '46-'49 - where do you say?
MR. SHIELDS: In the '49-'52 area.
H.M.JR: Haven't you got a price on here?
MR. HAAS: Here is '46-'47. (Indicating on chart.)
MR. SHIELDS: Here it is sagging rather persistently
during the past three months. These issues are only
about a point under what they were three months ago,
but they have lost three-eighths of a point in & month.
There has been no significant snap-back in that market
now for almost three months.
H.M.JR: This shows it here. (Indicating)
MR. SHIELDS: That is for a longer period. This
is for the entire year of '41. In the last few years
there has been persistent sag in the market, but not
a good market, I think, in which to offer large amounts
of new securities.
H.M.JR: All right. That is point number one.
MR. SHIELDS: That raises a question in the minds
of the investors as to the ability of the Federal
Reserve and the Treasury to hold the present pattern
of rates. I think that is in no small part accounted
for by the lack of aggressiveness - support of the
market by the Federal. At a time when the Treasury is
Regraded Unclassified
168
- 10 -
faced with the necessity of borrowing more per month
than it has in many recent years, considerably more
aggressive dressing up of the market seemed to me to
be called for; and, of course, the present is no time
to experiment to see how low excess reserves can be
carried. Neither is it a time when the Federal Reserve
purchases of U. S. securities should be merely for the
purpose of preventing declines in the market. Manipula-
tion may be reprehensible in peace-time, but it is a
legitimate tool for Treasury use when it has to finance
a war. My recommendations made a few weeks ago were
that reserve requirements be reduced immediately to
twenty percent, and that Federal Reserve policy should
be to raise excess reserves, through successive reductions
in reserve requirements, to whatever is required in
order for the market to show signs of strength.
The market needs assurance not that additional
reserves will be supplied after excess reserves in the
big cities decline to one hundred or two hundred millions,
but that excess reserves will not be permitted to decline
below three hundred millions, or even five hundred, I
think, would be a better figure.
Then I pointed out that the Federal Reserve need
not hesitate to add to excess reserves, because they
can be, for deposits rising as rapidly as is inevitable
in the months ahead - excess reserves can be permitted
to decline quickly in the event that such action is
called for.
Second, I recommended that the Federal Reserve
buy enough U. S. securities to move the market up
moderately, using its purchases not simply to prevent
declines in weak issues, but to force advances in some
of the stronger maturities. This market should be
dressed up 80 that an offering of two's would show
something like three-eighths to a half of a point
premium instead of a much smaller premium, which would
be the situation today.
Regraded Unclassified
169
- 11 -
I will summarize the other recommendations. I
suggested that the offering include investment type
securities. The bills, certificates and short notes
offered for bank purchases in the past few months
have been tailor-made for money market institutions,
and have not been of any particular interest to banks
faced with the necessity of paying one percent or
more on the substantial volume of time deposits. An
investment type issue might result in a sufficiently
large increase in country and reserve city bank sub-
scriptions relative to central reserve city bank sub-
scriptions, to arrest the flow of reserves out of
New York City and Chicago.
Then I thought that the offering should be priced
to show a moderately attractive premium - and the
premium should be maintained during and subsequent to
the offering period through Federal Reserve support of
the market. À little old-fashioned enthusiasm for new
issues should rid the market of fears which give
expression to statements such as the following which
one hears now and then:
"Look at the trend - you may be able to buy a
ten-year two and a half percent bond before long."
"Why subscribe to new issues, except for patrio-
tism, when you can buy the issue later at close to
par and maybe below par?".
"Why purchase a new security in the market when
the drift of the market is downward?"
In other words, it seemed to me that if the
offering was to involve two issues, and it is large
enough so that probably it is desirable, there ought
to be a one-percent differential in interest between
them 80 the longer maturity provides some apparent
compensation rate for the extension of maturity. A
twelve-months' note or a twelve-months' security and
a two-percent bond would certainly be successful if
the market were dressed up as I had in mind.
Regraded Unclassified
170
- 12 -
I am not sure, sir, that it has been properly
handled in the past few days. I was sorry to see
that the market was allowed to go off one thirty-
second yesterday in the '49-'52 area. Personally,
I believe that five or ten million dollars' worth
of buying in that area would have caused a rise of
two, three, or even four thirty-seconds. That was
the statement I read to Danny Bell and Mr. Haas the
other day, sir.
H.M.JR: It is a good statement.
MR. BELL: We had that when we went to the Board
last week. We raised some of those points. Eccles
will contend that the fact that there isn't much of a
market here doesn't seem strong; it is 8. sort of &
gasping thing, a last gasp. People have come to realize
that this is really not a market. It is just a question
of what the Treasury wants to do, and the Federal
Reserve Bank.
I also talked to Bob Rouse about being a little
aggressive in the market, and on Friday they undertook
to buy some bonds in that '50-'55 area. They did it
rather secretly; they just had one dealer operating,
and he was only able to pick up a half 8. million
dollars in bonds in that whole area.
MR. SHIELDS: Then does it make sense for them
to let the market drop a thirty-second early this
week?
MR. BELL: They will contend that that just
drifted over, that there wasn't any activity there
at all. That is the contention.
MR. SHIELDS: Well, there is a difference between
cleaning the market of offerings and going out and
buying the market up, which is quite frequently called
for if one has & large piece of financing to handle.
Regraded Unclassified
171
- 13 -
Mr. Secretary, the offerings sometimes dry up
if the market begins to rise gently.
H.M.JR: When I was over in Farm Credit, Mr.
Roosevelt was worried about the Government bond
market. Mr. Woodin wasn't handling it the way he
liked it. We had money over there; 80 through our
fiscal agent - the Farm Credit was separate - I
placed orders all around for a million dollars to
the tune of about - I don't know--
MR. HAAS: Forty, I think was all, but they
thought it was a much bigger figure.
H.M.JR: It was forty or fifty million - all
one morning - we never got a bond; we turned the
market.
I did the same thing in wheat for Mr. Roosevelt.
I almost fainted, but I did it. I had & market for
that. In those days Harry Hopkins would take all he
could get and feed it to the poor, unfortunate un-
employed. In those days I used to have nerve. I
went through that.
But I know just what you are talking about, and
up to very recently we here used to control the buying.
I mean, we used to say how much buying, and so forth
and so on. It has to be proportionate; we don't have the
funds any more to rely on the Fed. But they will do
pretty near anything within reason if we ask them.
I think possibly we have to share the blame, if
there is blame. We have not asked them. Have you?
Regraded Unclassified
172
- 14 -
MR. BELL: No, I don't know as we have come
right out and asked them. We have suggested to them
to have more reserves, and also be more aggressive
in the market, but we have not asked them to do it.
I think when we have asked them to be more aggressive
they have gone out and have undertaken to buy some,
but it hasn't been general or large amounts.
H.M.JR: These are the two horns of the dilemma
that I am facing. The market all says to me, "Two
and a quarter percent bond. Why not give the out-of-
town banks a chance to buy some?" They all want it.
New York and Chicago are loaded up; they haven't got
any money. Guaranty has borrowed fifty million dollars.
That is no secret, is it?
MR. BELL: I guess not.
MRS. KLOTZ: You have said it. (Laughter)
H.M.JR: Well, he (Shields) is all right. After
all, you are in the Treasury now. And 80 should I,
here on the eve of a financing - it is no secret that
the Federal Reserve Board wants a two percent bond.
The Federal Reserve of New York and all the people I
have talked to want a two and a quarter.
Now, should I say to follow the advice of what the
buyers want, or do what Eccles says, who says he fur-
nishes the funds, and make them take a two percent
and like it?
MR. SHIELDS: Well, here - for what it is worth -
is my feeling about this. In adhering to a ten-year
limit on either issue, you are on very strong ground -
in market issues for sale to the banks, you are on
very strong ground.
I think that policy is clearly justified, and I
would not want to be in the position to recommend that
you begin to sell longer securities than that to the
banks in view of the larger amounts of securities that
the banks will have to take in the years ahead.
Regraded Unclassified
173
- 15 -
The bank earnings don't seem to me to require
higher coupons than that, and at & time when bank
assets and bank deposits are going to expand rapidly as
compared with capital funds, it seems to me that the
risk of possible loss through market fluctuations
ought to be minimized by the Treasury offering mainly
short terms instead of long, to the banks.
Then another thing, it seems to me that the
Federal Reserve has accepted the responsibility for
preventing major declines from occurring in the Govern-
ment bond market, and their job in that respect is
going to be easier if you have offered to the banks
and they have subscribed mainly to short and inter-
mediate securities, and not to the longer.
But that is not to deny, sir, that the two percent
bond offers some difficulty in the present market under
present conditions.
First, as you know probably only too well, many
of the dealers in the big banks, rightly or wrongly,
take the position that a two percent issue is not
likely to go very well.
In talking up other sections of the market they
have talked down the two percent area, which may make
the market's reception far from enthusiastic to a two.
Secondly, the premium on a two percent bond cannot,
under present conditions, be large enough to induce
subscriptions on that account. Had the market been
dressed up properly, & two might have been a great
success - a market success - with a nice premium on it.
Thirdly, the '49-'51 maturity area is already
heavy, relative to other nearby sections. In '49
there is six billion seven hundred million of maturities
and issues callable for the first time in that year.
In '48 it is three billion four; in '47 it is one billion
four; in '50 it is one billion two; and then there are
smaller figures on either side of that issue.
Regraded Unclassified
174
- 16 -
The bank portfolios already have 8. little bulk
in that area, which makes them a little reluctant to
add to that particular maturity.
Now, all of that suggests that a two will not be
an automatic success. But the banks would, if they
were requested to do so, buy that security or any other
security you offer. Their responsibility with respect
to purchasing a new issue ought to be known to them.
George, did you explain that relationship between
excess reserves and the amounts that the banks would
be expected to take?
MR. HAAS: No, I didn't develop that. You might
do that.
H.M.JR: Now, wait a minute; before you leave the
subject, I want to nail you down. I mean, I either
want you to say one or the other, or say that you don't
want one.
MR. SHIELDS: I am not leaving the subject; I
have one more point, and then I will come back to you.
H.M.JR: I thought maybe you were running away--
MR. SHIELDS: No, I want you to understand all the
facts as I know them, then depend on your judgment
as to what to do afterward. There is just one more
fact about the market that occurs to me. This October
financing marks a very real change in the relationship
between bank subscriptions and bank excess reserves.
Not for years have the banks been called on to
purchase U. S. securities in amounts which exceed
their holdings of excess reserves at the time of sub-
scription. In most cases, as a matter of fact, they
have been asked to subscribe only in amounts which
represent a fraction of their total excess reserves.
Regraded Unclassified
175
- 17 -
Here are the recent figures on percentage of excess
reserves as of date of offering, to the amount the
banks were finally allotted; on the half percent certi-
ficates of indebtedness in April, the banks had excess
reserves equal to four hundred twenty-five percent of
the securities they were allotted.
On the two percent bonds offered in May thefigure
was three hundred and fifty-five percent - that is,
excess reserves to allotments. On the certificates
offered in June, two hundred and sixty-five percent;
on the two percent bonds offered in July, a hundred
and ninety-five percent; on the August certificate
issue, two hundred and five percent; last month,
the two offers totaling three billion dollars in combi-
nation, a hundred and nineteen percent.
Now, the banks have got about two billions of
excess reserves; they will probably have to take two
billion six of this issue, 80 that they have seventy-
seven percent. In other words, they are going to be
asked to subscribe to somewhere between a hundred
and thirty and a hundred and - the amount which will
represent a hundred and thirty to a hundred and fifty
percent of the excess reserves they have at the date of
subscription. This is a new condition for the banks,
and I doubt if many banks understand that that is
expected of them.
Therefore, the offering is a difficult one, sir.
H.M.JR: I appreciate that.
MR. SHIELDS: I would like - I would prefer the
two percent to the two and a quarter and the two percent
in combination with the one percent note.
MR. BELL: But that will take a great deal of
support.
MR. SHIELDS: That will take a great deal of
support. I wish, Mr. Secretary, you could let the
banks know how much buying you expect of them in this
issue. They will come through if they know what is
Regraded Unclassified
176
- 18 -
expected of them, but I dread the development of a
situation where they are not - they don't know how
much they are expected to buy.
H.M.JR: One percent - where does that fall?
MR. HAAS: Fifteen months.
H.M.JR: Why one percent?
MR. HAAS: Well, we suggested that, originally,
but Murray had this reason for suggesting that: He
wanted & differential - a one percent spread between
the two issues.
H.M.JR: I see.
MR. SHIELDS: The two is a sort of weak issue, any-
how, and therefore it ought not to have the competition
of & five year shorter issue at a half percent differen-
tial in rate. At least that is my opinion, sir.
H.M.JR: Well, this bad reserve situation, which
I was conscious of but I had never seen it put up.
just like that - two and a quarter wouldn't help it
any, would it?
MR. SHIELDS: I would rather see you hold to the
ten-year limit. The people who suggested that you dis-
regard & ten-year limit don't appreciate how large
your fiscal problem is in the years ahead.
H.M.JR: They are willing to have the country
banks disregard it?
MR. SHIELDS: Well, I think that for most country
banks, if the thing were put to them properly, a two
percent issue would be all that they required.
H.M.JR: Do you want the one percent just because
you want the one percent differential? That is a bad
period, too, isn't it? I mean that falls in & heavy
period, doesn't it?
Regraded Unclassified
177
- 19 -
MR. HAAS: I don't think you have to worry. It
is near the one and & quarter, which you know was just
recently out.
MR. BELL: There is only a half a billion in
there, Mr. Secretary.
H.M.JR: Well, then, let me see if I can sum up
this technical information. What you are telling me
is this. I have & bad situation, and I might as well
cross the Rubicon now as any time. I mean, I have
got--
MR. SHIELDS: I prefer that you do it now rather
than later, yes.
MR. BELL: The two percent would go all to the
banks, wouldn't it?
MR. SHIELDS: George, I am sorry to bring this
up, but if it were possible for you to notify the
banks - write a letter to the banks asking for their
cooperation in the issue, and asking them to subscribe
to at least one and & half times their present excess
reserves because the Government needs their assistance,
they would do it and the issue would be a great success.
H.M.JR: One and a half times?
MR. SHIELDS: That is what is required, sir.
MR HAAS: On an average.
MR. SHIELDS: On an average - one and a half times.
But in the absence of that it may be difficult. It
might, conceivably, be difficult for the Federal Reserve
to step in.
H.M.JR: I will tell you what I would like you to
do. Are you here today and tomorrow?
MR. SHIELDS: Yes, sir.
178
- 20 -
H.M.JR: In the time that you have got, with
George's people, try to write me out a formula. I
would like to have it not later than three o'clock; if I
go on the two percent, what is the bill that I should
render to the Fed - not a bill, I mean, what kind of &
program - should I say, "Well now, I am willing" - they
want me to do this - 80 "All right, I will do it provided
you will do this." And they will do anything that I ask,
but I haven't got a program; that is my trouble. You
haven't got one for me; you should have one.
MR. HAAS: I have one, but I haven't got it written
out.
H.M.JR: Well, here I have five minutes before the
Fed Board comes for lunch. You ought to have a program.
MR. HAAS: I haven't got it written out.
H.M.JR: It should be, George; it should have been
written out. Can you write one out and have it ready?
MR. SHIELDS: I will do the best I can, sir. I
would like to discuss it with your other men.
H.M.JR: Goerge will be available. Bell is going
downstairs with me. I say three - sometime between
three and four. I want to know - I want to say, "All
right, I will do it provided you will do this.
MR. SHIELDS: Very well, sir.
H.M.JR: See what you can do.
MR. HAAS: That isn't a difficult assignment.
H.M.JR: I know, but we are talking around, and I
ought to have a program.
All right. I mean, just the same as when we did
this bill thing, we finally - they wanted me to go at a
half and I wouldn't; they agreed that they would support
the bill market at three-eighths indefinitely - indefi-
nite in amounts. And they have, haven't they?
Regraded Unclassified
179
- 21 -
MR. SHIELDS: Yes.
H.M.JR: And made a good bill market.
MR. SHIELDS: It is a posted rate situation.
H.M.JR: All right, why can't we make them do
the same thing with & two percent bond as long as that
is what they want to do?
In other words, I want to put everything down that
is necessary for them to do in order to protect the
Treasury 80 that this issue will be 8 good success.
MR. SHIELDS: If you could write the banks a letter -
the banks of the country a letter - you probably haven't
time to do it - your success would be automatic.
H.M.JR: I won't. That isn't necessary, but I
can get the presidents of the twelve Federal Reserve
banks to do it.
MR. SHIELDS: That is & good idea.
MR. HAAS: That is a good idea.
MR. SHIELDS: I was talking to George about the
possibility of your writing them a letter.
H.M.JR: No, no, that would be a_mistake, but the
presidents of the twelve Federal Reserve banks--
MR. SHIELDS: Sir, I think you have something; we
will talk about it.
Regraded Unclassified
October 6, 1942
11:15 a.m.
180
HMJr:
Hello.
Operator:
Greenbaum.
HMJr:
Hello.
Col. Edward
Greenbaum:
Henry?
HMJr:
Yes, Eddie.
G:
I told you the other day this - that - the
person who suggested the name of that man to us.
HMJr:
Yes.
G:
Have you - you haven't mentioned it to him, have
you?
HMJr:
No.
G:
Well, don't because of your - I'll tell you why.
But Mr. McCloy was eager that nothing be said to
him about it.
HMJr:
Oh. No, I....
G:
He'd be disturbed.
HMJr:
Who would be?
G:
Your - the fellow who suggested him.
HMJr:
He would be disturbed?
G:
If there was any clouds on him - if there was any
doubt as to why the fellow shouldn't have been
appointed.
HMJr:
Well, I don't know - well, if there are clouds,
why shouldn't he know it? Hello?
G:
Well, maybe he should but it oughtn't to be from
us. I'll tell you when I see you, but Mr. McCloy
thought you oughtn't to talk to him about it,
unless you already have.
HMJr:
Well, I - I - I can't - I can't take that hobble.
G:
(Laughs)
Regraded Unclassified
- 2 -
181
HMJr:
What? I mean, if McCloy wants to see me, I'm
available. You can tell him that.
G:
Okay.
HMJr:
You can tell him that I - I'd like to know why -
I can't accept that, Eddie old man.
G:
Well, I'll speak to his about it.
HMJr:
What?
G:
I'll speak to him about it.
HMJr:
Has it got you into trouble?
G:
oh, no, not a bit.
HMJr:
Well, you better tell him that - if it's some awful
good reason he'll have to tell me himself.
G:
Okay.
HMJr:
If you don't mind.
G:
No, not a bit, I'll tell him about it.
HMJr:
Thank you.
G:
Okay.
Regraded Unclassified
182
October 6, 1942
4:35 p.m.
HMJr:
Hello, Sproul.
Allan
Sproul:
I was talking with Marriner a little earlier
this afternoon, and he told ne something about
your meeting at luncheon. There are plans for
a meeting tomorrow morning at ten, I think he
said.
HMJr:
Yes.
S:
And a question in ay mind was whether I should
come down or not.
HMJr:
I'd be delighted to have you here.
8:
He told me about the possibility of issuing a
joint statement and also discussing what the
Federal Reserve had in mind in the future as far
as making the Treasury's post-financing program
feasible.
HMJr:
Successful.
S:
Successful, yeah.
HMJr:
Right. No, I'd be delighted to have you here.
I think....
8:
Well, I am....
HMJr:
I think you can do more good here tomorrow
than you could in New York.
S:
Yeah, well, I'm trying to find some way to get
down now. I'm having difficulty, 80 I wanted to
check with you and see how you felt about it
before I went further.
HMJr:
It's all right. If you want any help at this
end, I refer you to Commander Stephens.
St
Commander Stephens.
HMJr:
In my office.
S:
All right. Thanks, Mr. Secretary.
Regraded Unclassified
- 2 -
183
HMJr:
All right.
B:
I may get in touch with him.
HMJr:
Okay.
S:
Thank you.
Regraded Unclassified
184
October 6, 1942
4:55 p.m.
FINANCING
Present: Mr. Bell
Mr. Murphy
Mr. Shields
Mr. Haas
MR. HAAS: We got it all on one sheet, Mr.
Secretary. (Memorandum entitled "Suggested Means of
Preparing the Market for the October and Subsequent
Financings" handed to the Secretary, copy attached.)
H.M.JR: Wonderful.
I made good use of those twenty minutes I had
with you before lunch. I learned my lesson, didn't
I?
MR. BELL: Yes, sir.
(The Secretary read the memorandum.)
H.M.JR: What are the reserves now?
MR. MURPHY: Two point one or two point two.
H.M.JR: Well, I am not going to argue about it.
It is a good place to start.
Are you in agreement on this?
MR. BELL: There are two things I don't like
about it. One is the last sentence in No. 2. That
is not 80 important. The other is No. 4. I suppose
it is all right; because if it were a failure, you
would have to call them up.
Regraded Unclassified
185
- 2 -
H.M.JR: I never would let this leave. What I
would do if I were you, if We agree on it, would be
to call up Marriner and say, "This is the idea,' and
sort of paraphrase this or read it to him over the
telephone.
MR. BELL: That is really what the boys intended
when they wrote it. It was for conversation, maybe
between you and Eccles or somebody like that.
H.M.JR: Between you and Eccles, and tonight -
that is what I would do. I would do it this way: I
would make it a little stronger than what you expect
to get. The way it is written, "I take it, Marriner,
if the thing didn't go well you would have the presidents
of the twelve Banks get in touch with so and so," and
that is the way it would have to be done.
MR. BELL: Of course, if we found out late Friday
afternoon that this thing wasn't going good, and if we
were going to close it that night, we would just have
to call up the Federal Reserve Bank presidents or
say to the Federal, "You will have to put up 8. sub-
scription."
H.M.JR: Yes, but the point I would like to say
is that they are going to give me 8. memorandum. I
don't want to send them one like this - along these
lines. I would like to see it in the memorandum.
MR. BELL: You would like to see something like
this?
H.M.JR: Yes, because here is the point: Supposing
Friday comes and there are no subscriptions, then I
don't want to sit here Friday trying to decide how
we are going to do this. I want it all decided. In
other words, before they make a landing on some
place in Europe, these fellows practice this thing on
the coast of Maryland. I want to have a practice
for every possible emergency and not sit here with
the perspiration rolling down my brow - how am I
Regraded Unclassified
186
- 3 -
going to get the Fed - I want them to agree in case
the worst happens, and you can tell them. Then let's
pray that it doesn't happen. See, Dan?
MR. BELL: Yes, I see.
H.M.JR: I don't want to suddenly figure out a
landing barge and then find out it does not work.
MR. BELL: Yes, I will talk to him.
H.M.JR: But I mean - in other words, I might be
smart enough to foresee every possibility and have it
agreed to in advance of a breakdown, and I would put
it to him on that basis. We don't want to wait until
the breakdown occurs and then have the scurrying around
and so forth and so on. Are you fellows in agreement
with this?
MR. HAAS: Yes, sir.
MR. SHIELDS: Yes, sir.
MR. MURPHY: Yes, sir.
MR. BELL: They probably will have to raise the
reserves to two and a half in order to raise that
market. Do you think so?
MR. MURPHY: I don't think they have to buy that
many, but that is just a judgment. You can never tell.
I would a lot rather set the bogéy this week in terms
of increasing prices by a given amount - which gives
the market its tone - than set the bogey in terms of
buying 80 many bonds. They let down both the two's
and the two and a quarter's--
H.M.JR: What?
MR. MURPHY: They have let down both the two's
and the two and a quarter's another thirty-second today.
It is a very small change, but it gives the market a
tone.
Regraded Unclassified
187
- 4 -
MR. BELL: They bought some in the '48-'50 today,
but I don't know how many - not very many. They bought
about twenty-one million today all told.
H.M.JR: You did a good job. Well, you (Bell)
do this.
Let me have a talk with just Mr. Shields.
Regraded Unclassified
188
Regraded Unclass
Suggested Means of Preparing the
Market for the October and Subsequent Financings
1. The Federal Reserve System should agree that it
will, by means of aggressive open-market purchases, raise
the average price level of all Treasury bonds with more than
five years to naturity or earliest call date, by at least
6/32 between yesterday's and next Friday's close. The prices
of bonds with less than five years to maturity or earliest
call date and of notes should similarly be raised by an aver-
age close. of 2/32 to 3/32 between yesterday's and next Friday's
2. The Federal Reserve System should agree that for
the next six months, excess reserves in the country as a
whole should not fall below $2.5 billions, and excess re-
serves in New York City should not fall below $250 millions
- the Federal Reserve System to hold these limits by what-
over instrumentalities it considers suitable. News of this
agreement or intention on the part of the Federal Reserve
System should be "leaked" to the market promptly, so that
the market will have the benefit of this assurance while the
books are open on the present issues.
3. The Federal Reserve System should agree to maintain
a good market tone in the future by aggressive open-market
purchases. A "good market tome" may be defined roughly for
this purpose as a situation in which the general level of
yields show little fluctuation from month to month, and the
average level of prices never deolines for two successive
weeks.
4. The presidents of the twelve Federal Reserve Banks
should be prepared to are that adequate bank subscriptions
are obtained in their districts to insure a success of the
issues. If subscriptions to the issues should lag on Friday,
the presidents should be asked to contact individual banks
by telephone and ask them to enter subscriptions in adequate
amounts. In making such contacts, the presidents of the
Federal Reserve Banks can point out to individual bankers
not only that the banks have an important role to play in
the fiscal program but that if these particular issues are
to be a success, it is necessary that the total of bank sub-
scriptions be close to twice their excess reserves. The
banks 60 contacted may be assured that they will not be
making a mistake from & business point of view in subscrib-
ing to the issues and,1f necessary, point number 2 above may
be quietly mentioned to them.
189
TREASURY DEPARTMENT
WASHINGTON
October 6, 1942.
MEMORANDUM FOR THE SECRETARY:
Answering your inquiry about our using insurance
agents, you probably recollect that a large number of
underwriters have been working for us for a consider-
able period in many States in the installation and pro-
motion of payroll allotment plans.
We have also been planning to use insurance agents
in the sale of F and G bonds, following & suggestion
made to you by George L. Harrison. On September 10, Mr.
Harrison, as Chairman of a Committee representing the
insurance industry, wrote a letter to all life insurance
company presidents describing a program agreed upon be-
tween the Committee and the Treasury for the sale of F
and G bonds, and suggesting among other things that
names of qualified agents be made available to our State
Administrators by the insurance companies upon request.
Copies of Mr. Harrison's letter were sent by us to
State Administrators, also on September 10, by Field
Memorandum No. 390. I attach for your information a
copy of this field memorandum, and likewise a copy of
Mr. Harrison's letter.
We are now compiling prospect lists for use in a
systematic canvass for the sale of F and G bonds. When
ready, it is intended that these lists will be dis-
tributed to our State and County organizations. The
intention has been to make full use of insurance agents,
along with other groups, in making this canvass. We in-
tended to develop this project at our meeting of State
Administrators to be held the middle of this month,
but as you know plans for this meeting are in abeyance
pending further discussion with you. We would of course
like to have this further discussion as soon as meets
PORVICTORY
your convenience.
BUY
ENITED
GRAVES.
Regraded Unclassified
TREASURY DEPARTMENT
190
WASHINGTON
DEFENSE SAVINGS STAFF
FIELD MEMORANLUM #390
Subject: Cooperation of Life
Insurance Men in the
sale of F and G Bonds.
September 10, 1942
TO ALL STATE ADMINISTRATORS:
The Life Insurance companies and field men through the Life Insurance
Coordinating Committee have very generously offered the full cooperation
of their companies and their agents in any way in which they can help
promote the sale of War Bonds. This offer of cooperation is expressed
in the enclosed copy of a letter sent today to life insurance presidents
by George L. Harrison, Chairman of their coordinating committee.
We believe you as Administrator will want to avail yourself of their
services in the sale of F and G Bonds quite apart from the existing
organization for the snle of E Bonds through Payroll Savings Plans.
In each community there are a number of top-flight insurance agents,
managers and general agents whose services could be used in the sale of
F and G Bonds. We suggest that you contact the Chairman for the Life
Underwriters Committee in your State and advise with him concerning the
number of such men that might be used to advantage in each community-
The agents undertaking this work would, of course, do so subject
to your general supervision and direction and may be used in addition
to, or as n part of, or in cooperation with, any existing committees.
You in turn will indicate to them the prospects on whom you expect
them to call.
It is suggested that cards or letters of authority be issued
designating these volunteers as Treasury representatives.
The Life Insurance men have been most helpful to us in the War
Savings Program in the past and now offer this additional support to
assist in an all-out effort. We feel that whenever possible, we
should avail ourselves of their services.
R. N. COYNE
Field Director
Ear Savings Staff
FORDEFENSE
Attachment
BUY
UNITED
STATES
MYINGS
BONDS
-
9/1/12
Regraded Unclassified
191
Letter to Life Insurance Company Presidents
from George L. Harrison, Chairman of the
Life Insurance Coordinating Committee
September 10, 1942
You will remember that in my letter of August 14, 1942, I referred
to the appointment of a sub-committee of the Life Insurance Coordinating
Committee to study ways and means by which a carefully selected group of
Life Insurance Agents might be made available to assist the Treasury
Department in the sale of F and G Bonds. That committee since then has
had several conferences with the Treasury authorities in Washington.
They have expressed the desire in cooperation with the committee to formu-
late a plan by which this assistance might be most effectively provided.
Accordingly the Treasury and the committee have formulated the
following program which, it is believed, will serve as A satisfactory
basis of cooperation, although it is realized that as our efforts proceed
modifications may become necessary in the light of experience. It is
hoped that your cooperation and that of your agents will aid in making
the program an effective and crediable one.
Briefly the program may be outlined as follows:
1. In each state the Administrator of the Var Savings Staff will
be directed by the Treasury to determine the number of men needed to
assist in the sale of F and G Bonds.
2. Each State Administrator will acquaint the chairman of the Life
Underwriters Committee in his state of his requirements for manpower for
the sale of F and G Bonds. The chairman of the Life Underwriters Commit-
tee in turn will attempt to furnish such agents, managers, or general
agents as may be best qualified for such work in the various communities
of the state. All life insurance agents will be eligible for consideration
regardless of company or association affiliation. It vill, however,
greatly facilitate the contemplated work if you as a company may SEU fit
to indicate your approval and support of the effort by advising your field
force to that effect in whatever fashion you doem most appropriate in the
circumstances. "hile the chairman of the Life Underwriters Committee
vill be the contact man with the Treasury officials in each State and
will undertako to rocruit whatever force may be required for part time
work in the sale of Bonds in that state, nevertholess it is hoped that
ultimately as the program develops, no one will be used for this work
who has not had the approval of his own agency or company officers.
3. All men so solected will be expected to serve directly under
the supervision of the local Var Savings Condittee and as members of
the special F and G sub-committees.
Regraded Unclassified
192
-2-
40 In order to expedito the necessary recruiting of n. carefully
selected list of men from the Life Insurance business and in order to
supplement this recruiting by the chairman of the Life Underwriters
Committee, it would be appreciated both by the Treasury and by the sub-
committee which has been working with it if you would prepare and send
A list, by states, of such men in your company as you believe would be
will qualified as salesmen for the F and G Bonds. These lists may be
sont directly to the local state chairman of the Life Underwriters
Committee or to me in the event that the name of the local state chair-
man of the Life Underwriters Committee is not yet available to you.
You are, of course, familiar with the fine work which the life
insurance agents of the country have already undertaken in the sale of
E Bonds through the Payroll Savings Plan. Indeed, many agents indivi-
dually or in cooporation have aided matorially in the sale of other
Government socurities. It is believed, however, that nn organized
cooperative offort on the part of life underwriter agents, with the
backing and support of our respective companies, will prove to be of
invaluable help in the sale of F and G Bonds. It is believed that this
program will give an opportunity to many agents to perform o substantial
patriotic service. Furthermore, the program presents A roal challenge
to the Life Insurance business to nid even more effectively in the war
offort.
If you have any suggestions to make or questions to ask, the
committee will, I am sure, welcome hearing from you.
For your information, I am enclosing R copy of R memorandum which
the Treasury Department is sending to the Stato Administrator of the
har Savings Staff in each state. I hope you vill notice that it is
contemplated that a card or letter of authority, designating each
solicitor insurance agent who is enrolled ns a oart of this program.
Sincerely yours,
George L. Harrison
Chairman
Regraded Unclassified
193
OFFICE OF
PETROLEUM COORDINATOR FOR WAR
WASHINGTON
October 6, 1942.
Dear Henry:
I could not but admire your footwork when, one day last week, you called
a special press conference to give an opportunity to delighted correspondente
to learn with what celerity Procurement had moved in the matter of helping the
Russians to get their gasoline refinery material after the heavy-footed Secre-
tary of the Interior had caused to be delivered a letter answering certain
questions that had been propounded in a letter from yourself. This play was
enacted on September 28, with you in an eagerly alert pose saying that "eighteen
minutes after I received Secretary Ickes' letter, I performed the miracle of
pulling from a hat the refineries that the Russians have been asking for."
It was a carefully arranged alibi, cleverly suggestive. You knew that
some members of my staff felt that Procurement had been dilatory in concluding
this deal. You knew this because I had told you 80. So you wrote to me a letter
asking for information that you didn't need in order to do this job. It had al-
ready been agreed at two or three conferences with you that Procurement should
go ahead, but if you had done so without having it appear that you could not do
it without certain technical information from me, it would constitute an ad-
mission that your people had been nodding at the switch. So you wrote the
letter and then put on your act.
Doubtless you are fully aware of the President's prohibition against pub-
lic controversies between government officials. You could say something which,
by implication at least, held me up as the obstructionist, 60 far as a program
is concerned in which I have had a vivid personal interest, but no official
responsibility, from the beginning. And I would be foreclosed from giving you
the horse's laugh that you had coming to you because then I would be violating,
not only the spirit, but the letter of the President's prohibition. The only
satisfaction that I can get out of it is writing you this letter telling you
that I am perfectly conscious that you put & fast one over on ae and that I
don't think it was quite cricket. You may be interested in the enclosed copy
of B. memorandum which contains some interesting and highly illuminating chron-
ological data.
Sincerely yours,
Hardll L. Febr
Petroleum Coordinator for Ware
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
P.S. - I "ain't mad at you;" only greatly admiring.
Inc.
Regraded Unclassified
10/1/2.
As a result of negotiations between the technologists
of the Soviet Government Purchasing Commission and the Foreign
Division of the Office of Petroleum Coordinator for War, which
started April 29, 1942, a program acceptable to the Commission
was worked out and the plants as agreed upon were offered to the
USSR in a letter of l'ajor General J. H. Burns, dated July 6,
1942.
This program was officially accepted by the Commission
in a letter dated July 22, 1942, which contained the following
closing paragraph:
"We deeply appreciate that our oil refining
program has been solved to our mitual satis-
faction and sincerely trust that the program
will be fulfilled successfully."
Concurrently with the technological discussions with
the technolorists of the SGPC, numerous other discussions and
correspondence were carried out between OPC and the various en-
gineering and technical firms to develop approximate cost infor-
mation, the uantity of strategic materials required, and the
best method of handling the program.
On July 9, 1942, a meeting was hold in the offices of
Lend-Lease between Lend-Lease, Treasury Procurement and OPC, where
a verbal sura: ry of these negotiations was presented by OPC, and a
recomendation made that an over-all engineer-architect and coordi-
nator be employed to handle the whole project and that the project
be considered as if it were a DPC plant.
On July 25, 1942, at a meeting held in the office of
OPC between Lend-Lease, Treasury Procurement and OPC, a written
surrary of these negotiations and photostatic copies of pertinent
correspondence from engineering firms willing and able to handle
the project were presented to Lend-Lease and Treasury Procurement.
It was again confirmed at this meeting that an over-all engineer-
architect by appointed and that the program be handled on the
general basis of DPC plants.
A draft of 3 contract form based on DPC form 184436 was
submitted for consideration to Lond-Lease and Treasury Procurement.
This material was forwarded to Lend-Lease and Treasury Procurement
with a letter dated July 27, again recommending that an engineer-
Regraded Unclassified
architect be selected and also that authority be viven to inspect
and appraise the two second-liand plants,
In transmitting this information and holding these con-
ferences, it was the intent of CPC to supply to Lend-Lease and
Treasury-Procurement sufficient background and information to permit
Treasury Procurement to formulate a policy for handling the project
DO that when the SGPC had alected most of the important processes
the engineering work could be started.
The SCPC advised by letter, dated Au ust 29, 1942, that
they had selected the Houdry Catalytic Cracking Process, Sulfurio
Acíd Alkylation, Duosol Ditraction and EX Dewaxing for aviation
lubricating oils. Treasury Procurement was advised of this choice
by phone on August 31, 1942 when the above letter was received
in this office. ¡¡O policy had yet been formulated by Treasury
Procurement to that date.
A meeting was held on September 4 betw en Treasury
Procurement, Lend-Lease, OPC, Universal Oil Products Company and
E. B. Badger Jons Company to again discuss the method of handling
the program.
Á meeting mas held between Treasury Procurement and CPC
at Treasury |rocurement, where the question of the over-all engineer
architect was again discussed and where CFC .urrested Badger as the
most likely firm to the job because of the selection by SGPC
of the Houdry unit. It was agreed at this meeting that the technical
work of the envineer-architect and of the specialized firms should
proceed imediately without waiting for the preparation of formal
contract covering the units, the complete plants or royalty arrange-
ments.
on September 14, 1942 another meeting was held at Treasury
Procurement between Lend-Lease, Treasury Procurement, O.C, Universal
Oil Products and in 3. Padger Jons, at which the handling of the
program was again discussed both as to royalties and overall super-
vision, The handling of royalties, also on the basis of DPC plants
was discussed with TOP and Houdry who agreed to submit a letter to
Treasury procurement on this matter. At this meeting Treasury Pro-
curement verbally asked for a definite recomendation on the engineer-
architect from CPC.
In a letter of September 9, 1942, the Deputy Coordinator
recorremied to the dructor of Procurement that 3. 3. Badger Sons
Company be 2. gointed the engineer-architect who should have the
over-all supervision of processing and engineering of all plants,
2
Regraded Unclassified
506 who oul une shoul utilize -ith. the advice of CPC, other
firms best Linded to handle the different phases of the
program which (LI'o = de ⑆ thoir normal scope of work.
- T. - Member 28, 1242 or 19 Mayo after this recommen-
dation was is ed, Treasury rocurement l'orwarded a letter of
intent to % Padger Jons which covered only engineering
without procurement of miterials, On October 1, 1942 Sadger
was advised by Treasury Procurement that 3. letter of intent
coverin" procurement of material was being issued to them,
on the same day, Treasury Procurement approved orders
for approximat 1- 1,000,000 worth of equipment.
A representative from Treasury Procurement will be
sent to Boston to approve the ordering of any other materials
and equipment for which requisitions and specifications are
available. lost D- these requisitions will deal with the
Houdry catalyting cracking units,
We understand that the som York Office of Badger
which is bein enlarged by then to handle the Russian program,
will be organized durin- the week ending October 10, 1942.
They lost the first option for enlarged quarters while await-
ing the decision of Treasury Procurement and had to renegotiate
the deal.
In the meantime two Russian technologists will go
to the main office of A.D. Badger Sons in Boston to famil-
iarize themselves with the engineering of some of the processes
involved in the Russian program.
L. in. Lekler.
LA the
Regraded Unclassified
197
TREASURY department
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
October 6, 1942
MEMORANDUM TO THE SECRETARY:
The report, due by October 10th, relative to
the Russian Lend-Lease program, requested in the
President's letter of October 2nd, will be in your
office by the close of business tomorrow, October
7th.
JK Director Clifton of Procurement E. Mort Mack
FORVICTORY
BUY
UNITED
STATES
june
BONDS
AND
FIAMPS
Regraded Unclassified
198
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
October 6, 1942
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating report of
Lend-Lease purchases for the week ended October 3, 1942.
Army warehouses at inland points for the storage of
Lend-Lease goods are in the process of construction and,
through an arrangement made with Lieutenant General
Somervell's office, our Lend-Lease warehousing program
is being coordinated with the War Department require-
ments whereby space is allocated for our needs at six
points in New York, New Jersey, Ohio and Indiana. When
this program is completed, which is expected will be in
about six weeks, the assembling of cargo for ship loading
will be greatly facilitated as much of that work can be
done at the storage depots.
Janes Clifton' E. Mack
Director of Procurement
ORVICTORY
BUY
VENTER
FTATES
BONDS
APS
STAMPS
Regraded Unclassified
LEND-LEASE
TREASURY DEPARTMENT, PROCUREMENT DIVISION
199
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
AS OF OCTOBER 3, 1942
(In Millions of Dollars)
Administrative
Undistributed and
Total
U.K.
RUSSIA
CHINA
Expenses
Miscellaneous
Allocations
$2100.3
$1129.9
$621.5
$56.7
$3.7
$288.5
(2100.3)
(1120.9)
(598.3)
(56.7)
(3.7)
(320.7)
Purchase Authoriza-
$1644.5
$ 982.5
$605.6
$40.5
-
$ 15.9
tions (Requisitions)
(1605.2)
(970.0)
(579.4)
(40.5)
-
( 15.3)
Requisitions Cleared
$1577.4
$ 968.6
$552.9
$40.4
.
$ 15.5
for Purchase
(1546.9)
( 958.8)
(532.9)
(40.4)
-
( 14.8)
Obligations (Pur-
$1472.6
$ 936.8
$481.8
$40.4
$2.4
$ 11.2
chases)
(1446.7)
( 926.9)
(466.8)
(40.4)
(2.3)
( 10.3)
*Deliveries to For-
eign Governments
$ 612.7
$ 487.1
$102.1
$20.1
-
$ 3.4
at U. S. Ports
( 602.1
( 479.0)
( 99.9)
(20.1)
-
( 3.1)
*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 received from the foreign governments.
Note: Figures in parentheses are those shown on report of September 26, 1942.
Regraded Unclassified
TREASURY DEPARTMENT
WASHINGTON
OCT 6 - 1942
TREASURY DEPARTMENT ORDER NO. 48
By virtue of the authority conferred on
me by Executive Order No. 9127, dated April 10, 1942,
I hereby designate the Director of Procurement, or
in his discretion and by his direction, any official
or officials, employee or employees, or committee
or board of the Procurement Division, to exercise
as to contracts entered into by the Procurement
Division the powers and authority conferred on me
"by Executive Order No. 9127, except as hereinafter
provided.
With respect to the powers conferred on
me by section 4 of Executive Order No. 9127, I hereby
authorize, empower, and direct the Director of Pro-
curement, or any member of the Contract Review Board
of the Procurement Division, to exercise, perform,
and carry out, as to contracts entered into by the
Procurement Division, the powers 80 conferred.
Secretary of the Treasury
Regraded Unclassified
201
TREASURY department
WASHINGTON
PROCUREMENT DIVISION
LEGAL SECTION
IN REPLY PLEASE QUOTE
SEP 24 1942
Mr. Paul:
The Procurement Division has recently
established a Contract Review Board whose func-
tion is to determine whether contractors' prices
to the Division are reasonable. The power to
ascertain what is a reasonable price is inadequate
without the right to inspect a contractor's
books and records and to obtain the testimony
of witnesses while under oath. Hence, there
is attached the proposed Order of the Secretary
of the Treasury which would delegate to the
Director of Procurement the same powers to
inspect the books and records and to require
the attendance and testimony of witnesses as
were heretofore conferred on the Secretary by
Executive Order. The power to require the
attendance and testimony of witnesses is also
delegated to any member of the Contract Review
Board.
Human Itill Thuman
Chief Counsel
Attachment
05:01
U
Regraded Unclassified
202
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
SEP 241942
MEMORANDUM TO THE SECRETARY:
Attached to this memorandum is & proposed
Treasury Department Order designating the Director of
Procurement, or in his discretion and by his direction,
any official or officials, employee or employees, or
committee or board of the Procurement Division, to
exercise as to contracts entered into by the Procure-
ment Division the powers and authority conferred on
the Secretary of the Treasury by Executive Order
No. 9127, dated April 10, 1942, except that the power
to administer oaths, issue subpoenas, and invoke the
aid of the courts is delegated not only to the Director
of Procurement but also to any member of the Contract
Review Board of the Procurement Division.
By Director's Order No. 145, dated August 11,
1942, there was established within the Procurement Divi-
sion a Contract Review Board whose functions are to
examine all negotiated contracts and all nonnegotiated
contracts where the amount involved exceeds $10,000 to
determine whether the amount paid or to be paid under
such contracts is in accordance with prevailing market
prices, whether the price includes commissions,
retainers, fees, royalties, or other special fees
which may be in violation of existing laws, rules, on
regulations, and, in general, to ascertain whether the
price to the Procurement Division is reasonable.
In order to perform properly the duties pre-
scribed for the Contract Review Board, it is felt that
the right to inspect the books and records of "defense"
contractors and to require the attendance and testimony
of witnesses, would be of material assistance even
though such a right would not necessarily extend to all
contracts made by the Procurement Division.
POBVICTORY
BUY
Regraded Unclassified
203
- 2 -
Title XIII of the "Second War Powers Act, 1942"
(Public Law 507, 77th Congress), provides that the right
to inspect the plant and audit the books and records of
any contractor with whom a defense contract has been
placed at any time after the Declaration of Emergency on
September 8, 1939, and to determine whether a given con-
tract is 2. "defense contract," shall be made by 2. Govern-
mental agency or officer designated by the President or
by the Chairman of the War Production Board.
Executive Order No. 9127, issued April 10,
1942, designates the Treasury Department as one of several
Governmental agencies authorized to inspect the plant and
audit the books and records, as provided in title XIII
of the Second War Powers Act, 1942. This Executive Order
further provides, in part, that with respect to the making
of any inspection or audit the authority therein conferred
may be exercised by the Secretary of the Treasury, or in
his discretion and by his direction, may be exercised also
by and through any officials of his Department designated
by him for this purpose. The Secretary of the Treasury
may also authorize such officials to make further delega-
tions of such powers and authority conferred on him. The
power to administer oaths, issue subpoenas, and invoke the
aid of the courts may be exercised by the Secretary of the
Treasury or by such other officials of his Department as
he may authorize, but no authority to make further delega-
tions of such powers is granted.
In view of the foregoing, I am submitting for
your consideration the attached Order which would grant
these powers to the Director of Procurement, and also, in
the case of the administration of oaths, the issuance of
subpoenas, and the invocation of the aid of the courts,
to any member of the Contract Review Board.
Just Direct of Procurement
Mont
Attachment
Regraded Unclassified
204
OCT 6 - 1942
My dear Mr. President:
There are submitted herewith for transmittal to
the President of the Senate and the Speaker of the House of
Representatives copies of the report on the appraisal of
the assets and liabilities of the Commodity Credit Corpora-
tion as of March 31, 1942, pursuant to the provisions of
the Act approved March 8, 1938, (52 Stat. 107), as amended.
Faithfully,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
Del. by 88 Agent 6:00 10/6/42
Copies to Thompson
Enclosures
CC in Diary
GEJ;ams
9/25/42
Regraded Unclassified
205
My dear Mr. Speaker:
I have the honor to transmit herewith for the information
of the Congress a letter dated September 4, 1942, from the Secretary
of the Treasury transmitting, pursuant to the provisions of the Act
approved March 8, 1938 (52 Stat. 107), as amended, an Act to sain-
tain unimpaired the capital of the Commodity Credit Corporation at
$100,000,000 and for other purposes, an appraisal of all the assets
and liabilities of the said Corporation as of March 31, 1942. On
the basis of such appraisal the Commodity Credit Corporation has de-
posited in the Treasury the sum of $27,815,513.68.
During the fiscal year 1938, it was necessary for the
Congress to appropriate $94,285,404.73 to maintain unimpaired the
capital of the Commodity Credit Corporation, and it was necessary
for the Congress to appropriate for the fiscal years 1939 and 1941
further amounts of $119,599,918.05 and $1,637,445.51, respectively.
The payment, made by the Corporation in the fiscal year 1940, amount-
ing to $43,756,731.01, together with the payment for the fiscal
year 1942 of $27,815,513.68 results in net expenditures by the
Congress for the last five years amounting to $143,950,523.60.
The policy adopted by the Congress and incorporated in
the Act approved March 8, 1938, as amended, providing for an annual
appraisal of the assets of the Commodity Credit Corporation, makes
it possible to include in each annual budget the expenditures
necessary to support the program which the Corporation is engaged
upon or the receipts which the Government receives from that
activity.
Very sincerely yours,
The Speaker
The House of Representatives
Washington, D. c.
GEJ;ams
9/21/42
Attachment
Regraded Unclassified
206
My dear Mr. Wallace:
I have the honor to transmit herewith for the information
of the Congress & letter dated September 4, 1942, from the Secretary
of the Treasury transmitting, pursuant to the provisions of the Act
approved March 8, 1938 (52 Stat. 107), all asended, an Act to main-
tain unimpaired the capital of the Commodity Credit Corporation at
$100,000,000 and for other purposes, an appraisal of all the assets
and liabilities of the said Corporation as of March 31, 1942. On
the basis of such appraisal the Commodity Credit Corporation has de-
posited in the Treasury the sum of $27,815,513.68.
During the fiscal year 1938, it was necessary for the
Congress to appropriate $94,285,404.73 to maintain unimpaired the
capital of the Commodity Credit Corporation, and it was necessary
for the Congress to appropriate for the fiscal years 1939 and 1941
further amounts of $119,599,918.05 and $1,637,445.51, respectively.
The payment, made by the Corporation in the fiscal year 1940, amount-
ing to $43,756,731.01, together with the payment for the fiscal
year 1942 of $27,815,513.68 results in net expenditures by the
Congress for the last five years amounting to $143,950,523.60.
The policy adopted by the Congress and incorporated in
the Act approved March 8, 1938, as amended, providing for an annual
appraisal of the assets of the Commodity Credit Corporation, makes
it possible to include in each annual budget the expenditures
necessary to support the program which the Corporation is engaged
upon or the receipts which the Government receives from that
activity.
Very sincerely yours,
Honorable Henry A. Wallace
President of the Senate
Washington, D. C.
GEJ;ams
9/21/42
Attachment
Regraded Unclassified
207
OCT 6 1942
Dear 5.
Receipt to acknowledged of your letter of Sephonber 19, 1942,
concerning certain income which has account from the endormed of
875,000 established w the Camages Corporation of New York for the
chair of Pine Arts which so in - of the - needed to couply
with the endoment, and in which you onggest that stops be taken to
obtain authority to apply this Anseno for objects related to the -
peeo of the gift.
I note that the Accistent Solicitor General has advised that for
the protection of the Library of Congress truet and Beard m applica-
tion of the accrued income should be attempted until ouch application
has been approved w the courts. Also, that before court approval is
sought, negotiations should be opened with the Carnegie Corporation to
see whether agreement - be reashed.
with du deference to the Avaistant Selicitor's advice, it -
to as that is the event the Carnegie Corporation approves the proposed
application of the assorad Valance w subjects other than the income
of the insumbert of the thair of Plane Arts, 18 my not be necessary to
take this matter w the courts. 28 will be recalled that in a commont
similar situation involving the application of income from a donation
made by time Annic-May to the Library of Congress Trust Part
Board, the Attorney General advised the President a May 29, 1941, that
income from the gift could be applied in eirementances not specifically
provided for under the tenan of the an if the approval of the denor
were obtained. In his opinion in that case the Atterney General did
not suggest the necessity of court approval. 18 is, of course, appro-
clated that there my be important differences between the too situations
of which I - not eware which would compal the trust Purl Seard to neck
court approval in this case. Emerger, before stops toward court setten
are taken, I suggest that the Assistant Selicitor's attention be called
to the Magamen matter if he has not already considered 18.
Should 18 develop that there is me alternative to court action, I
shall be glad to approve the authorization contained in your letter.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
sea. Archibald Metaich
the Librarian of Congress and
Secretary of the Library of
File to Thompson
Congress Trust Pand Heard
The Marary of Congress
Photo file in Diary
Washington, Do 6.
WTH&NOT:t
9-24-4219-29-42
Regraded Unclassified
THE LIBRARIAN OF CONGRESS
WASHINGTON
September 19, 1942
My dear Mr. Chairman:
There is an accrued balance in excess of $10,000 in the
hands of the Library of Congress Trust Fund Board as 6. result of
the fact that the income from an endowment of $75,000, established
by the Carnegie Corporation of New York for the Chair of Fine Arts,
has for a number of years exceeded the honorarium paid from the in-
come of the fund to the Incumbent of the Chair thus established.
Since the original endowment has now been converted into
the Permanent Loan Account and the income of the Chair is conse-
quently assured, there is no necessity to continue to hold the
accrued balance to pay the honorarium, should income from the en-
dowment fail.
I have requested the advice of the Attorney General 6.8 to
whether the accrued balance can be applied to other subjects than
the income of the incumbent of the Chair. I am advised in a letter
from the Assistant Solicitor General, dated July 16, 1942, that,
for the protection of the Library of Congress Trust Fund Board, no
application of the accrued balance should be attempted until such
application has been approved by the courts. The Assistant Solicitor
General offers me the assistance of the Department of Justice in Be-
curing the necessary adjudication. He suggests, however, that it
eight be desirable first to enter into conversations with the Carnegie
Corporation of New York to see whether an agreement cannot be reached
by that means.
I therefore propose the following authorization for adoption
or rejection by the Board:
The Librarian of Congress, as the Secretary of
the Library of Congress Trust Fund Board, is authorized
to enter into negotiations with the Carnegie Corporation
of New York to secure the Corporation's agreement to the
use of the accrued balance of income from its gift for e.
Chair in the Fine Arts in the Library of Congress (and
of future balances which may accrue), for objects related
to the purpose of the gift; and
Regraded Unclassified
-2-
The Librarian of Congress, as the Secretary of
the Library of Congress Trust Fund Board, is also
authorized, with the advice of the Attorney General or
of appropriate members of his staff, to enter a petition,
in the name of the Library of Congress Trust Fund Board,
submitting this question to the review of the Courts of
the United States.
I recommend adoption of the above authorization.
Respectfully,
Amartion
Archibald MacLeish
The Librarian of Congress
and Secretary of the Library
of Congress Trust Fund Board
I vote for
(adoption)
of the authorization.
(rejection)
Signed
The Honorable
Henry Morgenthau
The Secretary of the Treasury
Chairman, Library of Congress
Trust Fund Board
Washington, D. C.
Regraded Unclassified
21
Mr. BellV
Capies gen
Dr. White
m. Dw Bell
Mr. Thompson
m. shire
m. Ss. Bell 10.2.42.
To make a recommendation to the Secretary
ot later than- Monday.
1
(
OCT A - 1942
211
Dear Mr. Secretary:
I have your letter of September 26,
1942, enclosing a copy of a "Synopsis of War
Department Program for Military Government,"
under which it is planned to create groups
of technical and advisory personnel for
eventual duties in military government. I
note that you hope to recruit these groups
principally from those agencies of the govern-
ment having an interest in certain special
fields that may be involved in future military
occupations. You suggest that, dn order to
cooperate with the War Department in this
activity, I designate some person in this
Department to establish and maintain liaison
with Major General Allen W. Gullion, Provost
Marshal General, who is directly in charge
of the military government program.
I am vitally interested in this subject
and will, of course, be glad to cooperate
with your Department in this matter. We want
to be of service in whatever way you think we
can be. As a liaison officer between the
Treasury and Major General Gullion, I am desig-
nating Mr. Harry White, my Assistant in charge
of the Division of Monetary Research.
Sincerely yours,
(Signed) =:
The Honorable,
The Secretary of War.
October 6, 1942
DWB: NLE
Sent by Secret Service 5:30 p.m.
Regraded Unclassified
212
war department
WASHINGTON
September 26, 1942.
The Honorable,
The Secretary of the Treasury.
Dear Mr. Secretary:
From the enclosed copy of a "Synopsis of War Department
Program for Military Government" you will observe that, among
other objectives, it is planned to create groups of technical
and advisory personnel for eventual duties in military govern-
ment. It is hoped to recruit these groups principally from
those agencies of the government having an interest in certain
special fields that may be involved in future military occupa-
tions.
Since your Department may have now or may later develop a
peculiar interest in certain aspects of military occupations, it
is believed that you will desire to cooperate with the War
Department in the indicated activity.
Accordingly, if you have not already done so, will you be
good enough to designate some person in your Department to
establish and maintain liaison for that purpose with Major General
Allen W. Gullion, The Provost Marshal General, who is directly in
charge of the military government program.
Sincerely yours,
Henry Stimson
Secretary of War.
1 Incl.
"Synopsis".
Regraded Unclassified
WAR DEPARTMENT
213
SERVICES OF SUPPLY
OFFICE OF THE PROVOST MARSHAL GENERAL
WASHINGTON
Synopsis of War Department Program for Military Government
Any occupation of hostile or Axis-held territory may be divided into two
phases: (a) a period of military necessity and (b) an ensuing period when
military necessity will no longer exist. During the first phase, it is the
obligation of the armed forces to establish and maintain military government;
during the second phase, civilian authority of some type will probably assume
the mission then to be surrendered by the Army. Until the second phase has
begun, however, it devolves upon the Army to administer the government of any
occupied area.
In recognition of these basic principles, the War Department is now pur-
suing a program designed to accomplish two objectives: (1) the procurement
and training of an adequate personnel to fulfill its mission of military
government and (2) the development of a technique which will effect the
transition from military to civilian control with a minimum impairment of
efficiency.
The procurement and training program is designed to produce, with the
necessary rapidity, the following categories of personnel for military
government: (a) top administrativo commissioned personnel, (b) junior
commissioned personnel, (c) occupational (or military government) military
police, and (d) technical and advisory personnel. Category (a) is now being
produced at the School of Military Government at Charlottesvillo, Virginia,
which graduated its first class on August 29, 1942, and which began its
second four-month's course on September 9. Categories (b) and (c) will be
produced at two new schools to be opened at the Provost Marchol General's
School Centor et Fort Oglothorpe, Georgia, about November 1, 1942. Category
(d) will be devoloped in the mannor presently to be indicated.
This last-mentioned group of technical and advisory personnel is to be
solected from highly trained civilians. Since there vill be no immodiate
need for their services, it would be inadvisable to withdraw then from their
present non-military pursuits at this time. However, it is necessary to
compile a roster of these specialists, seloct those best-qualified, and make
arrangements to have them available for call. Only a minimum amount of
training in the special field of military government will be necessary for
them as they will be already highly trained in their respective fields for
the specialized functions which they will later perform. On them willfall
the burden of performing the important duties horcafter referred to.
FORVICTORY
Many complicated technical problems will inevitably arise in any
BUY
occupation. Among these will undoubtedly be fiscal matters of far-
TIATES
reaching economic importance. Control of local banking establishments
WAR
must be undertaken. Disentanglement of monetary systems from Axis-
BONDS
***
STAMPS
imposed regulations must be accomplished and American occupational qur-
rency and rates of exchange established.
Regraded Unclassified
214
The economic problems that will arise will be of doubly difficult solu-
tion because of the prior Axis occupation and total disarrangement incident
thereto. Industries must be surveyed to determine those to be continued in
operation or re-established, Raw materials, operating personnel, and funds
must be allocated to obtain maximum efficiency of production.
Administrative problems arising from the care and feeding of liberated
peoples will require special techniques, tact, and skilled administration.
Public health and sanitation will present other problems requiring special-
ized knowledge. The broad field of public utilities will demand trained
technical administrators.
These problems, but a few of those that may be anticipated, prove the
immediate need, at the beginning of an occupation, for skilled technicians
and advisors in all fields of public endeavor.
The Army's mission of military government is primarily an administra-
tive ono, Many underlying policies will be determined by aguncies other
than the War Department or the Army. Thus, the political policy of an
occupation will be determined by the State Department; the economic policy
by the State Department or the Board of Economic Warfare, or both; the
fiscal policy by the Treasury Department and the Federal Reserve Board, and
so forth. These general policios will be administered in great part by the
technicians referred to above who will, however, during the period of mili-
tary government, be under military control and direction. But since the
functions to be performed by them will be largely the administration of those
policies formulated by agencies other than the War Department, it is planned
to recruit them from nominations supplied by the various agencies concerned,
since such agencies are In a position to discover the bost-qualified individ-
uals for the tasks in which they have a peculiar interest.
In the light of the foregoing, the following immediate cooperative
activities between the War Department and other agencies of the government
are indicated:
a. The furnishing to the War Department of lists of persons qualified
for missions in military government in the special field with which any
agency is concerned. From such lists, the technical and advisory group
reforred to above will be principally recruited. The War Department has
alroady requested such lists from certain agencies; a general request will
be made shortly.
b. The study, by certain agencies, at the request of the Tar Department,
of various special and tochnical problems arising in military government. The
Jar Department has horotofore suggested to the State Department and the Board
of Economic Tarfare cortain studies in the fields of international law and
economics. A need for research in other fields exists, and studies concerning
them are to be requested.
C. For the past five months, several departments and agencies have been
cooporating with the School of Military Government in furnishing it with
materials and lecturers in connection with its instructional work. These
activities are continuing.
Regraded Unclassified
215
BRITISH AIR COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D. C.
TELEPHONE HOBART 9000
PLEASE QUOTE
REFERENCE NO
With the compliments of British Air Commission
who enclose Statement No. 53 - Aircraft Despetched
- for week ended September 29, 1942.
The Honourable Henry Morgenthau, Jr.
Secretary of the Treasury
WASHINGTON, D. C.
October 6, 1942.
Regraded Unclassified
216
MOST SECRET
STATEMENT NO. 53
AIRCRAFT DESPATCHED FROM THE UNITED STATES
WEEK ENDED SEPTEMBER 29th, 1942
ASSEMBLY
BY
BY
FLIGHT DEL'D
TYPE
DESTINATION
POINT
SEA
AIR
FOR USE IN CAN,
CONSOLIDATED
Catalina IB
U.K.
U.K.
1
#
.
If
Canada en route
1
Liberator III
U.K.
.
M
#
1
BREWSTER
Bermuda
U.S
U.K.
4
DOUGLAS
Boston IIIA
U.K.
Canada en route
4
FAIRCHILD
Cornell PT 26
Canada
Canada
12
GLENN MARTIN
Baltimore IIIA
Canada
Canada
5
Mara uder I
Middle East Middle East
3
LOCKHEED
Hudson VI
Canada
Canada
5
.
If
U.K.
Canada en route
1
1
#
2
#
Middle Enst Middle East
3
3
GRUMMAN
Martlet IV
U.K.
U.K.
9
NORTH AMERICA
Harvard II
South Africa
Capetown
54
If
M
.
East London
40
NORTHROP
Vengeance
India
Bombay
5
TOTALS
112
10
26
British Air Commission
October 3rd, 1942.
yes/or
Regraded Unclassified
TREASURY DEPARTMENT
217
INTER OFFICE COMMUNICATION
DATE Oct. 6, 1942
TO
Mr. White
FROM
Mr. Wood
Subject: Remarks of Mr. Samuel Courtauld, Chairman of Courtaulds, Ltd., at
Annual Meeting of Courtaulds, September 25. (U.S. Embassy, London,
No. 5620, Sept. 24, 1942.)
1. The profit standard of American Viscose, which figures in the
Courtsuld group for excess profits purposes, was a favorable one, and
it will no longer form part of the standard of the group. At the same
time, the proportionate profits of American Viscose will no longer
come in for assessment.
2. It appears that the gilt-edge investments (made with the
proceeds of the settlement made with the British Government) may, since
they are not subject to excess profits or national defense contribution,
yield as much as the shares of American Viscose would have during the
period of high taxation in the United States.
3. Although the company will not suffer materially from
Government acquisition of the American Viscose shares, "your Board
regret as keenly 88 ever the loss of an undertaking of enormous
potential value situated in the richest market of the world, as well
as all that that means in the way of international prestige and the
spreading of interests."
4. Mr. Courtauld viewed the future of the company with optimism:
"Courtaulds may well have the chance of regaining their outstanding
position in the world industry of which they have been temporarily
deprived." After the war "there are likely to be many fresh and
important openings in the rapidly evolving field of Textiles generally,
synthetic fibres and allied industries for those who have the foresight
and energy to seise them and the wherewithal in hand."
Regraded Unclassified
218
OCT 6- 1942
Dear Mr. Knowlson:
I have received your latter of September 24 and
the enclosed report of the Airplane Subcommittee to
the Joint war Production Committee of Canada and the
United States on the Havy's proposed contracts for
aircraft production in Canada. I appreciate your
sending this report to me.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Mr. James S, Knowlson,
Chairman, U. S. Section,
Joint war Production Committee,
Social Security Building,
Meshington, D. C.
File to Thompson
Photo file in Diary
JEHidal
10-2-42
Regraded Unclassified
JOINT WAR PRODUCTION COMMITTEE
CANADA AND UNITED STATES
UNITED STATES SECTION
COMMERCE BUILDING
WASHINGTON, D.C.
Social Security Building
September 24, 1942
Dear Mr. Secretary:
At the suggestion of Dr. Lauchlin Currie, Adminis-
trative Assistant to the President, I have requested the
Airplane Subcommittee of the Joint Yar Production Com-
mittee for a full report on the proposed Navy contracts
with Boeing Aircraft of Canada Limited and Fairchild
Aircraft Limited.
I am transmitting their report herewith for your
consideration.
Sincerely James S. knowlson yours, / which
Chairman, U. S. Section
The Honorable
The Secretary 02 the Treasury
Regraded Unclassified
JOINT WAR PRODUCTION COMMITTEE
CANADA AND UNITED STATES
UNITED STATES SECTION
COMMERCE BUILDING
WASHINGTON, D.C.
September 23, 1942
It'. James S. Knowlson
Chairman, United States Section
Joint War Production Committee
United States and Canada
Room 5075, Social Security Building
Washington, D. C.
My dear Mr. Knowlson:
The United States Section of the Airplane Subcommittee wishes to make
this special report to you of the considerations influential in its
approval of the orders proposed by the United States Havy for certain
airplane production in Canada. The production in question consists of:
(1) A proposed contract with the Boeing Aircraft Corpora-
tion of Canada for 200 PB2B-1 (PrY type) for Lend-Lease;
(2) A proposed contract with the Fairchild Airplane Company
of Montreal, Canada, for 300 SBF-1 (SB2C-1) for which a
request for letter of intent W8B dated July 24, 1942.
The Under Secretary of the Navy on December 31, 1941, issued 8 directive
entitled "War Production Policy for Canaña and the United States," which
directed as follows: "Victory will require the maximum war production in
both countries in the shortest possible time; speed and volume of war out-
put, rather than monetary cost, are the primary bjectives
Manufac-
turing facilities available in the United States and Ganada will hereafter
be placed upon an equal basis so far as awards of production orders are
concerned, having in mind that time is of the essence and that, other
things being equal, production of essential war materials at the earliest
practicable date is the immediate aim of the Department." This directive
was issued at the request of the President as an implementation of the
declaration of policy by the Joint War Production Committee of Canada and
the United States, which had been approved by the President and the
Canadian War Cabinet.
Operating under the above directive this particular production was placed
in Canada for the following reasons:
(a) Canada had production capacity with management, engineering
and aeronautical experience as well as trained labor, which
had been devoted to the manufacture of certain British de-
signed airplanes that were becoming obsolete. It was desir-
able that this production capacity, together with labor end
material supplies, be utilized directly in the war effort in
the shortest possible time and without any lapse.
Regraded Unclassified
- 2 -
(b) Available Canadian capacity for the production of rew
materials and the primary processing of materials was and
continues to be needed, a typical example being the Aluminum
Company of Canada, whose facilities for the production of
aluminum alloys and particularly their forging and extrusion
capacity had become substantial and an important part of
continental capacity.
(c) Skilled labor in the Canadian aircraft industry had not been
diluted nearly as much 88 WEE the case in our own industry.
It was, therefore, reasonable to expect that labor and
facilities could be utilized at least as quickly and this
capacity would become available to the United States.
(d) It was necessary to provide airplanes to our allies and this
need could be taken care of in the Canadian plants without
restricting the delivery of similar airplanes from factories
within the United States.
(e) In the case of the PBY-5 airplane currently in production at
Consolidated, San Diego, California, an additional reason
existed for its production in Canada. This airplane is an
older type and the current orders at Consolidated satisfy
the immediate needs of the United States. British needs,
however, have not been completely satisfied. It has been the
desire of the Navy to expand the production of more advanced
types in the Consolidated factory and to make available pro-
duction capacity for the possibility of an additional type
of airplane. It was accordingly highly desirable to move
the production of this older design out of the Consolidated
factory. It is also desirable to keep this PBY-5 design
available for possible future needs of the United States
forces 8.6 well as immediate British needs. The small facili-
ties of Boeing at Vancouver, which have a capacity of 15 to
20 airplanes a month, will be amnle to take care of this need.
These airplanes are treated exactly as if they were being built within
the United States, with the Navy furnishing government equipment, includ-
ing engines, propellers and instruments, drawings and technical informa-
tion in coordination with the United States production program. Special
arrangements have been made to expedite these movements across the Lorder
and also to allow the technical people concerned to move very freely
within the two countries with the necessary papers and other data con-
cerned. In other words, this Canadian productive capacity is definitely
regarded by the Bureau of Aeronautics as being merely an extension of
United States manufacturing capacity.
In order that the work of the prime contractors building the SB2C-1 model
may be efficiently conducted from the standpoint of sub-contracting and
interchange of work in the several factories involved, including the prime
contractor, the Navy Department has formed a Liaison Committee for which a
directive has been prepared and which is composed of engineers and executives
representing the companies, the Navy Department, and the War Production
Board. The scheme is patterned after that used with great success in the
Regraded Unclassified
- 3 -
case of groups of companies within the United States which are
building the same model.
Any reduction of these proposed orders would probably result in an
equivalent reduction in the production of military airplanes for
the reason that no such productive capacity, not otherwise obligated
to the present program, is now available within the United States.
The Committee strongly recommends that this plan be allowed to
proceed exactly as it is now set up.
Airplane Subcommittee
Chairman
Afformatio Courtr. USNR.
Navy Member
Army Member
Regraded Unclassified
223
OCT 6 - 1942
ky dear Mr. Ambassader:
1 wish to refer to the agreement dated January 3, 1942,
relative to the purchase of 602,000 fine troy ources of gold
by the Secretary of the Treasury from the Covernment of the
Onion of Soviet Socialist Republics, against which en advance
of $20,000,000 was made on January 5, 1942.
1 take pleasure in enclosing for your information two
copies of the assay report of the United States Assay Office
at New Tork giving an analysis of the gold which was received
by the Federal Reserve Bank of New York and was deposited by
order of your Government on September 17, 1942 for the account
of the Secretary of the Treasury.
You will observe from the enclosed report that the ship-
sent, after melting and upon assay, was determined to contain
53,497.728 fine tray ourses of gold and to have a value of
1,872,420.48. After the deduction of the amount of 04,734.65,
representing the melting. charge of $53.60 plus the 1/45 handling
charge of $4,681.05, the net value of the gold was $1,867,685.83.
This anount of gold has been applied by the Treasury against the
amount of gold agreed to be purchased by the Secretary of the
Treasury under the agreement of January 3, 1942.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
Ris Excellency
Maxim Litvineff,
ambassador of the Unders of Seviet
Socialist Republics.
inclosures.
JWG/jm
10/2/42
Regraded Unclassified
Mia 111 serve to certify that there WAS received on the
1st of August, 1942, in the Port of rebancel from the - A&E
BANK OF R. UNION OF DCI 1132 REPUBLICS and shipped on
board vial colroyer = 44 (Porty-"cur) MARTIN G o L. D in accord-
anoe with specification No. 9-0, handed over, wel ::ing
1,664, 473.1 ligature Termos (Ono million, dx mindred sixty-
four thousand, forte Inundred abventy-threc and or.o tenth grames),
NET MaHe 1,664,302.9 Tanmes (Jne million, dx hundred
sixty-four thousand, three hundred and two and nine tenths
grammes), in A total number of 28 (twonty-sight) cases musbored
32 (thrty-two) to 59 (fifty-nine) inclusive and each case boing
supplied ith two leaden seclc of the following improssions:
I. "ΓoxpaH" - "Torres Отделение ?"
2. "Toxter контролен" "Toxix E Стродение :".
for transshipment and transference to the Government Teasury
in 0110 of the United States ports.
c.nv.a by who Captain of estroyer G Porty-Cour MARTIN.
THE COMMANDING OFFICE
CROTROMSON Cole (SIGNATURE)
E1AUG1842
C.R.P. Thomson)
EMI. "MARTIN"
The Over THOMSON, the Captain of the
Destroyer Porty-four MARTIN, is certified hereunder by the
Senior British Kavul Officer at Archangel.
SEA
Hand
(SIGNATURE)
12
(SEAL)
Cuptain AN
letof August, 1942.
Archangel, U.S.S.R.
Regraded Unclassified
225
September 16, 1942
My dear Mr. Secretary:
I have been informed that 6. shipment of 28 cases
of gold shipped by the Government of the Union of Soviet
Socialist Republics has arrived at Norfolk, Virginia.
Please arrange with the Federal Reserve Bank of New York
to have the gold transported uninsured and at our risk
from Norfolk, Virginia, to the United States Assay Office
in New York where it is to be deposited for the account
of the Secretary of the Treasury of the United States by
order of the Government of the Union of Soviet Socialist
Republics. The gold contained in this shipment is to be
applied against the amount sold under the agreement of
January 3, 1942. Please request the Federal Reserve Bank
of New York to communicate with the State Bank of the
relative to any expenses which it may
incur in connection with the transportation of this gold.
DAS 10 by 3 SS
Sincerely yours,
The Henorable
VSCH
The Secretary of the Treasury
Washington, D.C.
Regraded Unclassified
226
Draft of letter to be written w the Ambascator.
My doar Mr. Secretary:
I have been informed that a chipment of 26 cases of gold
chipped w the Government of the Union of Seviet Scotalist
Reyublics has arrived at Nerfelk, Virginia. Please arreage with
the Federal Reserve Bank of New York to have the gold transported
uninsured and as our risk from Norfelk, Virginia, to the United
States Assay Office is New York where st to to be deposited for
the account of the Secretary of the Treasury of the Valted States
w order of the deversment of the Union of Seviet Secialist
Republice. the gold contained is this shipment is to be applied
against the amount sold under the agreement of January 3. 1942.
Please request the Federal Recerve Bank of New York to communicate
with the State Bank of the U.S.S.R., Reseev, relative to my
expenses which 10 my insur is commention with the transportation
of this gold.
Sincerely yours,
The Hemorable
The Secretary of the Treasury.
Washington, D. c.
FD:10:9/15/42
Regraded Unclassified
227
DLA
PLAIN
Rio de Janeiro
Deted October 6, 1942
Rec'd 5:25 p.m.
Secretary of State,
Washington.
4019, sixth
My 3997, October 5, 5 p.m.
Department of Press and Propagande last night
relessed following statement.
"In El meeting held today in the Ministry of
Finance, the Minister of Finance made en exposition
of the financial plan to provide for the situation
created by the war, the messures embodied in the
following decree-laws having been approved:
One. Authorizing the issuance of war bonds in
the value of 3,000,000 contos;
Two. Authorizing the Minister of Finance to issue
treasury bonds in the value of 1,000,000 contos;
Three. Restricting the issuing power of the
Treasury and extending the attributes of the Rediscount
Department;
Four. Establishing the Cruzeiro 88 the Brazilian
monetary unit;
Five.
Regraded Unclassified
228
-2- #4019, October 6, 5 p.m. from R1o de Janeiro
Five. Creating the Economic Defense Commission
(replaces proposed Repression Commission);
Six. Superseding the provisions of Article two,
of decree-law number 4166 of March 11, 1942.
"It was decided to review the entire public works
plan, the Minister of Finance being required to submit
to the President of the Republic, within the shortest
possible time, the plan of the works in execution, 80
as to determine the suspension of those which may be
postponed. No appropriation will be included in the
next budget for any new public works. Those which
are considered essential for safety purposes will be
executed with the special funds destined to wer
financing. The Government is not contempleting any
other special measures to increase its resources."
Details will be reported later.
CAFFERY
CSB
Regraded Unclassified
229
EJ
PLAIN
Rio do Janciro
Dated October 6, 1942
Roold 2:49 a.m., 7th
Secretary of State,
Washington.
4027, Sixth,
My tolegram 3997, October 5, 5 p.m.
The Brazilian Government today published the
following important financial docroo laws:
CURRENCY.
The President of the Republic, using the powers
conforred on him by Articlo 180 of the constitution,
docroos:
Article 1, The unito of the Brasilian monotary
system will honcoforth will bo the cruzcire.
One. The ono hundredth part of the cruzoiro will
be called the contavo.
Two. Amounts in cash, of whatscover value, will
be written proccoded by the symbol CR.S.
Throc. The cruzciro will correspond to the milros.
Article 2. The Brazilian circulating modium will
be constituted by motallic coins and bankmotos.
Article 3. Motallic coins will correspond to 1,2
and 5 cruzoiros,
Regraded Unclassified
230
-2- //4027, October 6, from Rio do Janciro
and 5 crusciros, and 10,20 and 50 contavos, having the
following unchangoable characteristics: (A) the
cruzoiro and its multiplos: value and dinmoter 1
cruzeiro 23 millimetors 2 cruzoiro 25 millimotors 5
cruzoiro 27 millimoturs,
Face of coin: in the contor, the map of Brazil.
Noar tho bordor, at the loft, the word "Brezil" supor-
posing--two horizontal and parellel linos.
Reverse of coin: in the conter, the value oncom-
passed by two laurel wreaths and the southorn cross
constellation, On the space botwoon innor and outor
circlo the ongravors monogram and the alfa star of
the southern cross constollution. In the fiold to the
loft, the dato.
Contour: throaded rim.
(B) For the contavos: value and diamotor 10 contavos
17 millimctors 20 contavos 19 millimotors 50 contavos
21 millimotors.
Faco of coin: The offigy of Prosident Gotulio Vargas.
On the rim the inscription "Gotulio Vargas" followed by a
somicircle, S star, and the word "Brazil".
Revorse sido: the conter the value in two superposed
linos overhoaded by n star.
Contour
Regraded Unclassified
231
-3- #4027, Octobor 6, from Rio do Janoiro
Contour: smooth.
Solo paragraph the weight, composition of alloy
and equivalont tolorance will follow tho characteristics
of the onclosed tablo, and are the only elements which
can be allowed.
Articlo 4. The nintago of commonorative coins for
whatsoover purposes is prohibited.
Articlo 5. Except in the caso of mutual agreement
between interestod partios, the liborating power of the
coins boing minted according to the provisions of this
docroo law is the following: 5 cruzciro up to 100
cruzoiros 2 cruzciros up to 50 cruzoiros 1 cruzoiro up
to 25 cruzoiros 50 contavos up to 10 cruzoiros 20 contavos
up to 4 cruzoiros 10 contavos up to 2 cruzoiros.
Article 6. Banknotos will bo in tho value of 10,
20, 50, 100, 200, 500, and 1000 cruzciros.
Ono. All banknotos will have the same sizo of .70
millimotors X 140 millimotors, and the sano dosigns on
the main body of the noto.
Two. The chersotoristics of the banknotes, according
to thoir value, will be as follows: (first) value
cruzoiro (secend) offigy free (third) inscription reverse
(fourth) color reverso,
10, Gotuli
Regraded Unclassified
232
-4- #4027, October 6, from Rio do Janciro
10, Gotulio Vargas, Unidado Nacional, groon; 20,
Marshall Doodoro da Fonsoca, Proclamacho da Republica,
pink; 50, Princoza Izabel, Loi Auroa, purplo; 100, D
Pudro II, A Cultura Nacional, nut brown; 200, D Podro I
Grito do Ipiranga, olivo; 500, D João VI, Abortura dos
Portos, bluo; 1000, Podro Alvaros Cabral, Primoira
Missa, orango.
Noto--tho color of the banknotos on the right sido
is uniform for all valuos: bluo,
Articlo 7. The Ministry of Financo will provide
for the coinago or acquisition of the motallic coins,
and the acquisition or printing of the benknotos in the
valuo and proportion required by the circulating modium.
Articlo 8. The Minister of Finance will ostablish
the conditions whorounder and the periods whoroin the
present coins and banknotes may be exchanged for their
nominal valuo, without discount, as woll as the terms
and gradual discounts which will provail in subsequent
periods up to the dofinito loss of value.
Articlo 9. The coins of the formor nintago will
gradually be dopreciated.
rticlo 10. Starting from the date of this docroe
law, no coin or banknoto will be mndo or acquired by the
the government
Regraded Unclassified
233
-5- #4027, Octobor 6, from Rio do Janoiro
the government which does not conform with the models
now ostablishod, excepting only the parts of ordors
alroady boing executed.
Articlo 11. From November 1, 1942, all acts and
facts relativo to monoy shall have reference to the now
currency.
Solo paragraph starting from the dato catablished
in this article up to the datos which shall have been
stipulated in accordance with the provisions of Article
8, the cruzoire and the milros and their respectivo
multiples and submultiples will bo used indistinctly.
Articlo 12, Provisions to the contrary are rovoked.
REDISCOUNTS.
Restricting the currency issuing rights of the
Government, the President of the Republic signed the
following decroe law:
The President of the republic, using the powers con-
forred upon him by Articlo 180 f' the constitution,
docroos:
Article 1. The rediscount department ni tho Brank of
Brazil, in addition to rediscount operations, is heroby
authorized to grant loans to banks, when guarantood by
"treasury bonds", payablo within a poriod not exceeding
180 (ono hundred
Regraded Unclassified
233
-5- #4027, October 6, from Rio do Janoiro
the government which dous not conform with the models
now ostablishod, excepting only the parts of ordors
already boing executed.
Articlo 11. From November 1, 1942, all acts and
facts rolativo to monoy shall have reforence to the now
currency.
Solo paragraph starting from the dato ostablishod
in this articlo up to the dates which shall have boen
stipulated in accordance with the provisions of Articlo
8, the crusoiro and the milros and their respectivo
multiplos and submultiples will be used indistinctly.
Artíclo 12. Provisions to the contrary are rovoked.
REDISCOUNTS.
Rostricting the currency issuing rights of the
Government, the Prosident of the Republic signed the
following docroe law:
The President of tho republic, using the powers con-
forred upon him by Articlo 180 :f the constitution,
docroos:
Article 1. The rediscount department of tho Bank of
Brazil, in addition to rediscount operations, is hereby
authorized to grant loans to banks, whon guarantood by
"tronsury bonds", payable within a poriod not crecoding
180 (ono hundred
Regraded Unclassified
234
-6- 1/4027, October 6, from Rio do Janciro
180 (ono hundred and cighty) days.
Articlo 2. Upon enforcement of this law, issues
rosulting from rediscount operations as well as those
resulting from loans to banks, in accordance with the
requirements covered by article 2 of law No. 449 of June
14, 1937, and articlo 4 of docroo No. 21499 of Juno 0,
1932, will be guarantood by government funds, in gold
and drafts, ct the rato of 25 percent.
Articlo 3. Any procodure of issuos other than the
ono indicated in this docroo law is horoby forbiddon.
Article 1. Paper currency in circulation, not
issued in accordance with Article 2, will be gradually
collected, following government instructions.
Article 5. Provisions to the contrary are horeby
revolted.
TREASURY BONDS.
The Prosidont of the Republic, in accordance with
the powers conforred upon him by Article 180 of the con-
stitution, docroos:
Articlo 1. The Ministor of Finance is authorized to
issuo up to a limit of 1,000,000.000 C 000 (ono million
contos) of Treasury bonds, which shall reach maturity
on 180 (ono hundred and sighty) days.
Article 2.
Regraded Unclassified
235
-7- #4027, October 6, from Rio do Janciro
Articlo 2. The bonds shall have a nominal value
of 1:0003000, 5:0000000, 10:000$000 or 50:000$000 to
the boaror and shall pay intorost at the rato of 3 0/0
por annum.
Articlo 3. The prosont docroo law bocomes offective
upon the dato of its publication, all disposition to the
contrary boing rovoked.
CAFFERY
RR
Regraded Unclassified
236
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 345
Information received up to 7 A.M., 6th October,
1942.
1. NAVAL
One of H.M. Submarines sank a southbound ship
off TOBRUK on the 18th.
2. AIR OPERATIONS
WESTERN FRONT. 5th/6th. 256 aircraft were sent
to AACHEN. 10 are missing and 6* crashed in the U.K., mainly owing
to a severe storm at take-off time. Preliminary reports very dark,
some ground have, medium cloud, identification very difficult.
One good fire concentration and many scattered fires reported.
3. HOME SECURITY
Yesterday evening about 60 shells wore fired into
DOVER, FOLKESTONE and DEAL. Somo damage was caused to Dover College,
6 persons were killed.
Regraded Unclassified
TREASURY DEPARTMENT
23/
INTER OFFICE COMMUNICATION
DATEOct. 6, 1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Bombing Raids over Western Europe during September, 1942
1. During September the U.S. Army Air Force
conducted three bombing raids over occupied Europe,
attacking military objectives in seven cities. In
the largest raid, 41 Flying Fortresses bombed an
airframe factory at Meault, dropping 64 tons of high
explosives. Two Fortresses were lost.
2. The Royal Air Force made 28 bombing raids
over Europe during the month, with a loss of 158
bombers. The two largest night raids were on
Dusseldorf and Bremen. In the Dusseldorf raid 475
bombers, including 192 heavy bombers, participated,
and 700 tons of heavy explosive and incendiary bombe
were dropped, including 86 of the two-ton "blook
busters". Thirty-five planes -- over 7 percent --
were lost. In the attack on Bremen, 446 bombers,
including 230 heavy bombers were sent out, but only
346 attacked the objective. Twenty were lost. Of
the 741 tons of bombs dropped, four weighed four tons
each, 107 were two-ton heavy explosive bombs, and two
were two-ton incendiaries.
3. In the large-scale R.A.F. attacks, losses
which were revealed in secret British reports ranged
from 1-1/2 percent to 10-1/2 percent, and averaged
a little over 6 percent, of the planes participating.
(British Operations Reports, British communi-
ques, and press despatches).
Regraded Unclassified
- 2 -
Bombing Raids Over Western Europe
During September
238
R.A.F.
U.S.A.
Total
I. Raids over Western Europe reported
during September.
28
3
31
II. Bomber losses in raide over Western
Europe.
158
2
160
III. Cities reported attacked.
A. Germany
Bielefeld: Various industrial objectives
1
1
Bremen: Aircraft, submarine, ship and oil
production; port and rail center
2
2
Bremerhaven: Docks and waterways
1
1
Cologne: Industrial objectives - iron, steel,
tanks, engines, rubber, explosives
2
2
Duisburg: Port, rail center, submarine parts
1
1
Dusseldorf: Munitions, engines, iron and
steel
1
1
Emden: Port, submarine production
2
2
Essen: Munitions, synthetic oil
3
3
Flensburg: Submarine and shipbuilding
1
1
Frankfort: Rolling stock, rubber, oil
refineries
1
1
Karleruhe: Rail center, industrial
1
1
Munich: Airoraft manufacture
1
1
Munster: Rail and industrial center
2
2
Osnabruck: Rail center, metallurgy
2
2
Saarbrucken: Rail center, iron and steel
2
2
Vegesack: Submarine and shipbuilding
1
1
Wiesbaden: Chemical manufacture
1
1
Wilhelmshaven: Submarine and shipbuilding,
naval base
1
1
Wismar: Aircraft works
1
1
Total reported attacks on German
cities during September.
27
o
27
B. Occupied Areas
Abbeville: Port, airfield, rail sheds
1
1
Bordeaux: Aircraft production
1
1
Boulogne: Docks, railway yards
1
1
Cherbourg: Port, airfield, shipbuilding
3
3
Comines: Power plant
1
1
Ghent: Iron, copper, oil and machine works
1
1
1
1
Ijmuiden: Iron and steel works
Le Havre: Port, shipyards
2
1
3
1
1
Lille-Lens area: Power station
Regraded Unclassified
239
- 3 -
R.A.F.
U.S.A.
Total
III. Cities reported attacked (cont'd.)
B. Occupied Areas (cont'd.)
Meaulte: Airframe production
1
1
Oslo: Political center
1
1
Rotterdam: Port, shipyards
1
1
Rouen: Rail center, shipyards, fuel
tanks
1
1
St. Omer: Railways, airfield
1
1
Utrecht: Railyards
1
1
Total reported attacks on cities in
occupied areas during September
12
7
19
Total reported attacks on Western
European cities in September
39
7
46
Regraded Unclassified
240
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Oct.6, 1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Summary of Intelligence Reports
German Military Strength
The following estimate of the number of men in the German
armed forces comes from the Office of Strategic Services:
Army
6,990,000
Paratroops.
50,000
Air Force
1,500,000
Navy
200,000
Total
8,740,000
French Shipping
Thirty-six foreign ships, totalling about 127,000 tons,
are being turned over to the Axis by the French Government,
according to a Viohy report which the Office of Strategic
Services describes as reliable. It 18 said that former Nor-
wegian, Dutch, Danish, and Greek vessels are included.
India
Disturbing reports have come out of India on the develop-
ment of a revolutionary movement in rural areas. With the
imprisonment of the Congress leaders, it 1s said that this
movement is being organized by left-wing peasant leaders,
many of whom believe that only violence can drive out the
British. It is reported that rural blacksmiths are manu-
facturing crude weapons. A peasant leader has stated in con-
fidence that this movement may not break out until December,
but that then it will be irresistible.
(Office of Strategic Services, "The War This Week",
September 24 - October 1, 1942)
Regraded Unclassified