Volume 598, December 19 – December 23, 1942

DIARY Book 598 December 19 - 23, 1942 - B - Book Page Brown, Louis See Johns Manville Company Brown, Prentise M. See Michigan Budget For overtime pay - cut in personnel, see Treasury Department Business Conditions Hass memorandum on situation, week ending December 19, 1942 - 12/22/42 598 145 - C - China 1937 Agreement extended for 6 months - 12/22/42 214 (See also Book 599, page 124) - D - Davis, Chester (President, Federal Reserve Bank of St. Louis) Bankers' willingness to finance agricultural program comparable to their willingness to push War Savings drives - telegram to HMJr - 12/21/42 115 a) Copy to Wickard 119 de Sola Pool, Mrs. David See Iraq - F - Financing, Government Federal Reserve operations in Government securities - 12/19/42 10 War Finance: Loan flotations in United States during previous wars - Haas memorandum - 12/23/42 281 War Savings Bonds: December drive "shatters all financial records" - Treasury release - 12/19/42 6 a) New York Federal Reserve District congratulates HMJr - 12/23/42 288 b) Victory Fund organizations thanked by HMJr - 12/23/42 291 c) International Business Machines Corporation congratulates HMJr - 12/23/42 292 Radio Programs - cost of: Graves memorandum - 12/23/42. 293 a) HMJr-Graves conversation 263 b) Saturday P.M. 6-7 programs so bad HMJr plans to cancel: See Book 599, page 33 c) Conference; present: HMJr, Gaston, Graves, Camble, Crampton, and Callahan - 12/28/42: Book 599, page 66 1) "Over Here" coste outlined: Book 599, page 73 2) "Bond Wagon" . # : Book 599, page 180 Regraded Unclassified - 1- (Continued) Book Page Financing, Government (Continued) War Savings Bonds (Continued) Radio Programs (Continued): d) Harold Thomas consulted about new programs - 12/29/42: See Book 599, page 167 e) Most popular 1-hour and -hour programs: Book 599, page 175 f) Bacher:Kuhn's "Who's Who": Book 599, page 178 g) Welch in charge in future - Mrs. HMJr to advise: Book 599, page 179 h) Conference; present: HMJr, Murray, Rainey, Graves, Gamble, Odegard, Kuhn, and Callahan - 12/30/42: Book 600, page 6 1) Murray states his case: Book 600, page 25 a) Kuhn's telegram okaying program: Book 600, page 192 2) Thomas (Harold) discusses Murray with HMJr: Book 600, page 91 Wanders, George: HMJr thanks New York Herald-Tribune for loan of - 12/23/42 598 298 Foreign Funds Control Sterling Products: Harold Thomas's connection with Treasury (War Savings Bonds) discussed by HMJr and Pehle - 12/21/42 110,310 - G - Grossman, Marc J. Not available for Treasury appointment at present time - 12/22/42 208 - I - International Business Machines Corporation See Financing, Government: War Savings Bonds - J - Johns Manville Company Paul memorandum on discussion with Louis Brown (President) on current tax situation - 12/22/42 198 Joint Committee on Taxation See Revenue Revision - L - Legislation, Tax See Revenue Revision Lend-Lease Report for week ending December 19, 1942 - - 12/22/42. 212 Regraded Unclassified - L - - (Continued) Book Page Lend-Lease (Continued) United Kingdom: Federal Reserve Bank of New York statement showing dollar disbursements, week ending December 9, 1942 - 12/19/42 598 14 Aircraft despatched, week ending December 15, 1942 - 12/19/42 19 - M - Marshall, General George C. Congratulates HMJr on successful financing and in behalf of Army thanks him for support - 12/23/42 304 a) HMJr's reply - 12/30/42: See Book 600, page 55 Michigan Branch bank situation discussed by Prenties Brown, HMJr, Bell, and Delano - 12/19/42 1 a) Brown-Treasury correspondence 12/23/42 300 Military Reports British operations - 12/19/42, etc 21,22,160, 221,327 Highlights of the war news - 12/22/42, etc 158,217, 219,325 Office of War Information report - Kuhn digest - 12/21/42 161 Mint, Bureau of See also Occupied Territories Coinage of new penny of steel with coating of sine described to War Production Board - 12/23/42 305 Murray, William See Financing, Government: War Savings Bonds (Radio Programs) - o - Occupied Territories Minting of gold coins suggested to HMJr by Oscar Cox - 12/22/42 144 Overtime Pay See Treasury Department - P - Palestine 700 children of the Youth Aliyah in Tehran, Iraq - transfer to Palestine discussed by HMJr and Welles (Mrs. de Sola Pool's letter to Mrs. HMJr) - 12/22/42.. 184 Regraded Unclassified - R - Book Page Radio Programs See Financing, Government: War Savings Bonds Revenue Revision Tax Legislation: Paul study of "constitutional and legal basis for Treasury suggestions to Congress on tax legislation" - 12/21/42. 598 71 Supplement A of Internal Revenue Code amended by Section 228 of 1942 Revenue Act: Redefinition of base period applicable in case of acquiring corporations - Senator George-HMJr correspondence - 12/22/42 188 Joint Committee on Taxation: Legislation enabling Committee to circumvent head of Department by securing information from subordinate bureau, etc. - Barkley criticism of - 12/22/42. 194 - S - Schwarz, Charles (Director of Public Relations, Treasury) To clear speeches with Office of War Information beginning January 1, 1943 - 12/22/42 210 Sterling Products See Foreign Funds Control - T - Tax Legislation See Revenue Revision Taxation See Revenue Revision Thomas, Harold See Foreign Funds Control: Sterling Products Treasury Department Personnel, Equipment, etc.: Surplus to be checked carefully by HMJr's instructions - 12/21/42. 23 - U - United Kingdom See Lend-Lease - W - Wanders, George See Financing, Government: War Savings Bonds War Finance See Financing, Government War Production Board Coinage of new penny of steel with coating of zinc described by HMJr - 12/23/42 305 War Savings Bonds See Financing, Government Regraded Unclassified 1 December 19, 1942 MEMORANDUM FOR THE SECRETARY: On Friday, December 18, 1942, following the conference with Senator Downey regarding applications for branches for the Bank of America National Trust and Savings Association, the Secretary requested Mr. Bell and Mr. Delano to remain a few moments for a discussion of the Michigan branch bank situation. Senator Brown had previously mentioned the matter over the telephone to the Secretary, indicating that he was interested in two branches for the Michigan National Bank, and that he thought they should be granted promptly in order that they might become effective before the first of the year. At the Secretary's request, Mr. Delano ex- plained that the Michigan National was a branch system operating in Michigan with its head office at Lansing and branches at Saginaw, Grand Rapids, Flint, Marshall, Port Huron (4) and Battle Creek (2). The system, which is controlled by the Bohn Aluminum interests, has Regraded Unclassified 2 - 2 - deposits of something over $80,000,000 and a capital structure of $3,000,000. The Bohn interests have been friendly to Senator Brown and the Administration, and vigerously supported the Senator in the recent election. Mr. Delano further explained that some few weeks previously, the management of the Michigan National had informally approached the Office of the Comptroller of the Currency with a request for two branches, one in Detroit and one in Bay City, both of which were to be consummated by purchase of small existing banks in those areas. Senator Brown, who accompanied the bank's officers at the time of the informal request, had ex- pressed himself as entirely disinterested in regard to the Detroit branch, but hoped that something could be done to pass favorably on the Bay City extension. A review of the matter by the Office of the Comptroller had resulted in & denial of the request for the Detroit branch and a statement that the proposed Bay City branch would be given careful consideration if a formal request were forwarded. Subsequent to this denial as to Detroit, which occurred on November 20, the Senator had approached the Comptroller with a request that both branches be Regraded Unclassified 3 - 3 - granted. He requested prompt action because of the impending meeting of the State Legislature and the probability that that body would pass legislation prohibiting any farther expansion of existing branch systems. Mr. Delano then reviewed the reasons for his decision in denying the entry into Detroit and for his opposition to granting the Bay City request. The reasons as briefly summarized follow: (1) Very reliable sources clearly indicate that the legislature which is to convene in 1943 will certainly pass legislation prohibit- ing the action under consideration. To grant a branch expansion of any kind just prior to the almost certain passage of such legislation would be tantamount to thwarting the will of the people of Michigan and would appear to be indefensible from a public relations stand- point. (2) The granting of these two applications for the Michigan National, particularly in Regraded Unclassified 4 - 4 . the matter of the one for Detroit, might well be construed as inconsistent with our attitude toward further branch expansion of the Bank of America National Trust and Savings Associa- tion. (3) Certainly as regards Detroit, there is no need of additional banking facilities. The city has twelve (12) banks with over one hundred (100) banking offices. The approval of the application of the Michigan National Bank would be equivalent to the authorizing of a new national bank in Detroit. (4) The population of Lansing is about 77,000 and the population of Detroit is approximately 1,600,000. It is contrary to sound banking supervisory policies as well as the theory and function of branch banking to permit a bank located in a place the size of Lansing to establish a. branch in a large industrial center. One of the principal justifications Regraded Unclassified 5 - 5 - for branch banking is the extension of banking facilities to those communities which would not otherwise have suitable and adequate facilities to meet the existing needs. It is obvious that the City of Detroit is not in need of such addi- tional banking facilities as would be afforded through the establishing of a branch of a bank situated in a much smaller community, such as Lansing. (5) Any further expansion of the Michigan National at this time raises serious questions of technical capitalization factors which could only be resolved by a much larger increase in capital 8 tructure than the bank has indicated its willingness to make. Mr. Bell expressed himself as concurring in the Comptroller's opinion, and after a further brief discussion, it was the Secretary's decision that both branch applica- tions should be denied. Preschibed clans DWB Preston Delano Regraded Unclassified 6 MONDAY A.M. RELEASE 12-21 ok 12-1-9-42, All financial records of history have been shattered in the Decem- ber Victory Fund Drive of the Treasury, which already has enlisted $10,000,000,000 of borrowed funds in the war effort, or $1,000,000,000 more than the $9,000,000,000 mark set at the beginning of the campaign, Secretary Morgenthau announced today. The sights have been raised, he added, in the hope that the borrowing can be increased to $11,000,000,000 by the end of the month. While banks were buying their upper limit of $2,000,000,000 of 7/8% certificates and other investors continued to place funds in all available issues, the $9,000,000,000 aim was met late last week and the gauge crept up to the $10,000,000,000 mark soon thereafter. Although results of the drive are exceeding expectations, Secretary Morgenthau urged redoubled efforts by the Victory Fund organization and heavier purchases by investors, as & means of insuring that the next drive can be postponed until late March or early April. Books are being held open until the close of business December 23 for subscrip- tions by others than commercial banks to three issues included in the drive, while sales of tax savings notes and savings bonds will con- tinue, All issues, including Treasury bills, are included in the flotations from which the Treasury hopes to raise the total to $11,000,000,000 or more in December. Regraded Unclassified 7 - 2 - "I am deeply gratified by the superb public response to the mone- tary needs of our country in this war," Secretary Morgenthau said. "This is the sort of news that Axis leaders dread to hear and that they will not permit their misguided peoples to know. It is the sort of news that inspires our associates of the United Nations. It will reassure all soldiers who are fighting the good fight. The speedy borrowing of the tremendous sum is a reflection of our American deter- mination to win the war and win it quickly. "Much more than $10,000,000,000 will be needed, and I urge every American to dig deep into his pockets and buy more of the securities that will remain available until December 23, and the tax notes and savings bonds that will continue to be on sale. The funds are an in- dispensable means for making available the guns and ships, planes and tanks, with which the armed forces of the United Nations will achieve victory. "The response by investors has been stimulated in large part by the eager participation in the drive of many thousands of volunteer workers drawn from the banking, securities, insurance and other fields. These workers have well earned the thanks of the nation." (more) Regraded Unclassified 8 - 3 - The extent to which previous records have been exceeded is indicated by comparison with the largest loan heretofore floated, which was the $6,900,000,000 Fourth Liberty Loan raised in three weeks by the United States Treasury in 1918. Together with tax and other receipts of about $2,500,000,000, the estimated $11,000,000,000 of borrowing would draw into the Treasury a total of about $13,500,000,000 in this single month. The issues on which subscription books will remain open up to the close of business December 23 for buyers other than commercial banks are Victory two-and-one-half's due December 15, 1968, and callable December 15, 1963; 1-3/4 percent bonds due June 15, 1948, and 7/8 per- cent certificates of indebtedness due December 1, 1943. Treasury of- ficials also stressed the continuing availability of tax savings notes and savings bonds. The hope was expressed that Christmas and other bonuses and monetary gifts will be invested in securities of the United States Government. (Insert formal announcement on bank subscriptions to and allotments of 7/8 percent certificates.) (more) Regraded Unclassified 9 - 4 - Figures released by the Treasury show that the drive is successful not only because of the amount involved, but also because of heavy pur- chases of securities by others than commercial banks. One of the prin- cipal aims of the drive was to borrow a large proportion of the funds from nonbanking sources, since that is the soundest and least inflation- ary method of Treasury borrowing. Of the total sales of $ to the close of business December 18, about percent was to commercial banks and percent to others. Funds borrowed to and including December 18 from all sources, on the different issues, are: (Insert table) The December drive was opened by President Roosevelt, when he bought the first $1,000 Victory two-and-one-half from Secretary Morgenthau, and declared that we must make our dollars "fighting dollars" by investing them in Government securities. To the Victory Fund organization was as- signed the task of placing with individual investors, business firms, in- stitutions and banks the three series on which books will close December 23 and also tax savings notes and Series F and G savings bonds. - 30 - Regraded Unclassified 11 Page 2 FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES Column & shows Federal Reserve operations 1a millions of Market purchases y Market sales Column 3 shows price changes is 32ade. dollars as follows: Naturities STRICTLY CONFIDENTIAL last Week Menday Thestay Vetnesday Thursday Friday Saturday Index This Vock Des, 7 . Full Vesic Description 9 10 Monday 11 12 Vednesday Thersday Friday Batarday A . 4. . & 3 A , A Dec. 14 15 16 Fall Vesic 3 & 3 A 3 17 if 19 III. Tax-exempt securities A 3 A . A . A , A 3 & 3 A 3 - Treasury notes 11 1-3/21 12-15 42 . 3 1-1/8 A 6-15 43 -$30.8 -$30.6) -1 -1 II la 1 -1 -1 -1 C - 9-15 43. -1 7 -1 If 2 6 . =1 1-1/8 12-15 43 1 -1 -1 +1 -1 3 - 3-15 4% +1 K 7 3/4 -1 4 - 6-15 : 1 -1 c 9-15 M -1 # 10 3/4 1- 3-15 los +10.5 +2.9 +1.0 Treasury boads +.2 -2 +.2 +14.8 +1.5 & B 1 +3.1 +,1 & 3-3/85 - +.8 6-15 43-47 +1.3 +3.3 +10.3 +2.0 & +1.0 +1.1 3 2 3-1/4 - 10-15 b3-b5 +.3 +,4 +1.2 +.5 +1.0 +3.4 7 +,2 +2.1 +5.4 7 3 3-1/4 +1.0 - 4-15 44.66 4,2 +,2 +.8 & +,6 +3.8 -2 -1 -1 3 C & +.) +.2 -1 12-15 44-54 +.1 +,3 -1 +,7 +.3 -1 +1.0 7 +.1 +.3 +1.3 -1 +,% +3.0 20 3 , 2-3/4 - 9-15 45-47 7 -1 *.5 1.5 -1 42.1 +1.0 -1 +,2 +.5 +2.3 36 +.5 2-1/2 +,2 -1 12-15 is -1 +1.2 +1.2 -2 = +1.0 3-3/4 - 3-15 46-56 +2.2 3 if +.1 3 - 6-15 46-48 *.7 +.5 *.1 +1.4 +.7 +,6 +1.3 :- 39 3-1/8 *,2 -1 +.2 v.4 - 6-15 +,1 46-49 V.I 4,2 -1 -1 L. +,1 +.8 # 10 4-1/4 - 10-15 47-52 +,1 2 %) +.5 +,2 +1 +,1 +,2 2. +,6 -2 *.1 B 11 2 +,6 12-15 47. *.9 +.5 +.7 +1.0 +3.8 B 13 2-3/4 3-15 48-51 +1 -1 -1 -1 +1.0 - 3 15 2-1/2 - 9-15 48_ +1.6 7 -1 +2.9 -1 -1 16 -1 2 12-15 48-50 +2 -1 > 20 3-1/8 12-15 49-52 7 *.7 +,7 +.7 +,2 +.9 +2.1 +.3 +4.2 3 21 +,1 2-1/2 12-15 +1,9 49-53 +1.4 +.5 = +3.5 23 +1,9 $2.4 +2.6 +1.5 2-1/2 - 9-15 50-52 +.6 +1.8 *,1 que +7.4 +1.1 +1.2 +6.2 3 24 % +,1 2-3/6 - 6-15 51-54 +2.9 +,6 +,2 +,1 +.1 +.5 +5.0 +.5 15 3 - 9-15 51-55 1.6 = = +,4 +1.4 +.5 1.5 126 26 2-1/4 - 12-15 51-53 +.2 *.1 : +1 +1 y :- 30 2 - 6-15 53-55 31 2-1/4 - 6-15 54-56 +1 +1 *.5 +.1 +.1 +.3 +," +1.0 3 32 2-7/8 - 3-15 55-60 +,6 +.9 034 2-3/4 9-15 56-59 +.7 *.7 - +.2 +.9 +3.8 +.3 7 +,6 +,4 35 2-3/4 - 6-15 58-63 +.3 +,1 +.5 +.1 +,6 +,4 +.8 +.2 +2.7 " 36 2-3/4 *,1 - 12-15 60-65 +.5 N7 +.2 +.5 +.3 +,4 +2.4 Guaranteed securities +.2 +,2 01 COC 3/4% , 5-1 43 -1 -1 o 9 USEA 1-3/8 - 2-1 leke *.2 1.2 +,2 +,4 +.2 +.E : FFNC 3 - 3-15 44-49 -1 +,5 FFNC 3-1/4 *.5 - -1 o , - 3-15 When +1.0 7.4 +.8 +.6 +1 +1.5 9 2 BOLC 3 A 5-1 44-52 +1 *,1 7 +.1 06 HOLC 1-1/2 M 6-1 45-47 *.) 2 : +1.3 *.9 +1 +,2 +1.1 +1 *21.9 All tax-exempt securities +9.0 +6.7 +7,2 +11.4 +10.7 +66.9 Market purchases, +4.0 +5.0 Market sales +7.6 +9.6 *9.1 +2.5 +40.8 Maturities +21.9 +9.0 +6.7 *7.2 +11.4 -=30.8 +10.7 +66.9 Total net increase (+) or decrease (-) +4.0 -=30.8 -22.8 +7.6 +9.6 *9.1 +2.5 +10.0 Office of the Secretary of the Treasury. Division of Basearch and Statistics. , Original figures revised. Less than $50,000. 1/ Purchases and sales recorded -- of day of transaction and not day of delivery. Transactions after la s'alock are included is the sert day. Regraded Unclassified 10 10 FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES Tage 1 Column & show Federal lesure Marketable Insues: operations is millions of Spécial ane-day certificates 1/1 Market purchase 1/ + Bet Increase, Calum . above price theages is 32ake dollars se follows: 7 Market sales New decrease for all securities estays certificates. 1 Direct purchases from Treasury +d. For certificates. Galum , shave Naturities yisld changes is decimale. STRICTLY CONFIDENTIAL last Vesit Monday Tuesday Velnesday Thursday Friday This Yesit Baturday Inden Full Vesk Description Nonday Tuesday? Dec. 1 5 Voluming , 10 11 Baraday Triday laterday 18 Dec. 14 15 16 Fall Feek A 3 A 3 A 3 A 3 & ) A 1 17 16 19 A 3 & 3 1. Punnary & 3 à , à I à 3 & 3 à , +95.6 Markstable Insurer +194.0 427.8 +23.5 +E2.) +19.0 +382.2 Market purchases -9.2 -21.0 -8.5 -28.5 +19.6 *17.3 -67.2 +7.3 Market sales +16,1 +27.2 +12.9 +101.2 7 47.0 -14,7 -s2.7 Direct purchases from Treasury -20.3 - -a2.7 Maturities -a30.8 -a21.0 Special one-day certificates: -51.1 +415.0 -415.0 +56.4 +173.0 +16.6 Net change -5.0 +37.3 +4.0 0.60 +312.3 415.0 5546.0 Total net increase (+) or decrease (-) +19.0 -00.5 *117.2 Velnesday report of total persfolio -149.2 +27.2 +12.9 +6,6 5537.0 5537.0 II, Texable securities +63.7 Bills all issues combined +120.1 +3.3 +9.5 *2.1 +6.3 +205.0 -9.2 -21.0 Market purchases -8.5 -28.5 +12.5 48.5 -67.2 Market sales *.3 +5.5 +16.6 +10.4 453.8 -2.7 -. -7.0 -14.7 -2.7 Naturities -20.3 -42.6 -54.5 +99.1 -7.9 -19.0 +2.1 +6,3 +135.1 -$21.0 Total ast increase (+) or decrease (-) -m21.0 *11.7 +1.5 -35.4 -14.8 +1.6.6 $10.4 -10.0 Certificates +.9 +27.8 *,* -.02% +29.1 +,4 -.02% 5/05 1- 2-1 by +13.0 +.2 +.6 -.02% +14.2 .65 5-1 43 .02% 4,02% -.015 -.02% +5.0 +5.2 +5.0 .02% +1.5 +.2 +16.9 +.5 7/6 1. 6-1 43 +18.0 +15.6 +2.0 -.015 -,03% +1.3 +3.8 +39.2 7/8 D - 11-1 43 -.015 +2.0 .015 7/8 1. 12-1 4300 -.015 +d15.0 -415.0 Special one-day certificates milk5.0 ass.o Treasury notes 11 3/46 2 3-15 43 - -1 " , -3/4 , 9-15 - +1 «1 Il 1-1/4 :- 3-15 is # 12 3/4 3 12-15 as -1 -1 -1 11) 1 A 3-15 46 =1 N 14 1-1/2 12-15 46 Treasury bonds +,2 +.5 +,1 +1.7 +1.5 +4.0 32 25 - 3-15 48-50 +1.3 : : +1.0 32 1-3/4 - 6-15 45 +1.5 +4.6 v.4 +,4 3 17 2 - 6-15 49-51 à +.9 +1.1 4 +2.0 --- 3 18 2 - 9-15 49-51 +1 +1 + +1 $ 19 2 - 12-15 49-51 +1 «1 +1 + +1 8 22 +1 2 - 3-15 50-52 +1 +1 + +1 +1 +1 3 27 2 - 12-15 51-55 +1 +3 +2 +1 +2 = 25 2-1/2 - 3-15 52-54 2 +1 +1.0 -1 +.3 +1.3 329 2-1/4 - 6-15 52-55 +1 = & =1 +1 +2 33 2-1/2 - 3-15 56-58 +1 +1 37 2-1/2 - 6-15 62-67 +1 +1 & 30 2-1/2 - 12-15 63-68 -1 -1 7 e 39 2-1/2 - 9-15 67-72 1+ 1 +3.0 Paranteed securities +3.0 0 7 KPC 1-1/85 T - 7-15 43 +1 11 RPO 1 Y - 4-15 - = +,2 +.2 G 2 COC 1-1/8 2-15 by +1 +1 All temble securities *73.7 +185.0 Marketable Lesseer +21.1 +16.3 *10.9 -9.2 -21.0 +1.3 *315.3 Market purchased -4.5 +15.8 -24.5 +9.3 7 +6.5 -67.2 Market vales +18.1 -. -14.7 +10.4 +60.1 -7.0 -20.3 -2.7 Direct purchases from Treasury 42.1 42.7 Naturities -$21.0 Special me-day certificates: -a21.0 +64.5 +164.0 +615.0 -415.0 +9.9 Net change -12.2 +25.3 -8345.0 -6.7 +245.4 Total net Increase (+) or decrease (-) 4145.0 Office of the Secretary of the treasury, Division of Research and Statistics, +15.0 +2.3 +109.6 -150.0 +18.1 +10.4 -3.1 . less than $50,000, , Original figures revised. -- Not pet traded, 1/ Parthases and sales recorded as of day of transaction and not day of delivery. Transactions after 4 s'clock are included is the next day. Il Transmations are entered as of the day following that to which they apply. visce data are not available will the following suraing. Regraded Unclassified 2nd 12 TREASURY DEPARTMENT Dhaft INTER OFFICE COMMUNICATION DATE December 19, 1942 TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. Regarding the distribution of the work I have been doing, I would suggest that you give the following assignments: Savington Crampton: (1) To handle the correspondence that has been coming to me from Miss Chauncey's office, some of it con- sisting of letters for your signature and a larger number of letters to be written and signed on your behalf. (2) To receive visitors sent by your office. (3) To continue as executive secretary of the committee that has been working on public information on taxes and inflation. no (4) To handle the clearance of speeches with O.W.I. All Treasury speeches by the Secretary, the Under Secretary, Assistant Secretaries and the General Counsel should be referred to Mr. Crampton, who will clear them with Mr. John R. Fleming's office at O.W.I. Mr. Fleming's office, in turn, will refer to Mr. Crampton all Government speeches bearing on Treasury problems; Mr. Crampton will circulate them among the appropriate Treasury officials, and will 8 end their comments or suggestions back to Mr. Fleming. Regraded Unclassified - 2 - 13 Peter Odegard: (1) To direct the writing of public messages signed by the Secretary in connection with War Bonds. This applies equally to telegrams or letter-messages which go out to individuals or groups over the Secretary's signature. Except for routine telegrams, such as those to factories, the public messages should be submitted to the Secretary before being sent; Mrs. Klotz will help in rush cases where a deadline has to be met. (2) To handle all Treasury relations with O.W.I. except in matters of speech clearance. (3) To mark passages of O.W.I. Intelligence Reports or other public opinion surveys if he thinks the Secretary would be interested in them. Harold Mager: (1) To prepare the Secretary's public speeches and to assist in the preparation of other formal statements. The best procedure on speeches will be as follows: The Secretary will "talk" his ideas to Mr. Mager, who will discuss the problem with Mr. Gaston and Mr. Odegard and then write & first draft; the first draft will then be shown to the Secretary, to see whether it meets his ideas in A general way; Mr. Mager will then write a second draft, and will circulate it among members of the Secretary's staff for their comments and suggestions. Successive drafts, if necessary, can be worked out in group discussion with the Secretary. (2) To write or assist in the writing of speeches or articles for other Treasury officials who ask for his help. Herbert Gaston: To edit, for style and content, all speeches other than the Secretary's, and to approve them for policy. These speeches shall not be made unless Mr. Gaston approves the manuscript. 3.K. Regraded Unclassified 14 INSURANCE I CFFICE of - SECRETARY December 19, 1942 COMPERENTIAL Received this date from the Federal Reserve Bank of New York, for the confidential informa- tion of the Secretary of the Treasury, compilation for the work ended December 9. 1942, showing dollar disbursements out of the British Repire and French accounts at the Federal Reserve Bank of Nev Tests and the more by which these expenditures were finamood. (Init.) E. m.B. imc:12/21/42 Regraded Unclassified 15 C 0 P Y FEDERAL RESERVE BANK OF NEW YORK December 18, 1942 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I em enclosing our compilation for the week ended December 9, 1942, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, /8/ L. W. Knoke L. W. Knoke, Vice President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy:imc:12/21/42 Regraded Unclassified ANALYSIS OF AND PREMICH ACCOUNTS Strictly (In Millions of Dollars) That Invided December 9, 1942 BANK OF ENGLAND (BRITISH GOV OF FRANCE DEBITS CREDITS DEBITS CREDITS Proceeds of let Incr. Net Incr. Gov't Sales of (+) or Dor't Proceeds (+) or Total Expendi- Other Total Securities Other Deer. (-) Total Other Total of Gold Other Decr. (+) PERIOD Debite tures(a) Debite Credite Gold (fficial)(b) Candita(e) Debite tares (e) Debite Credite Sales Credits in $ Funds (a) Pirch year of was 1.793,2 605.6 1,187.6 1,828,2 1,356.1 52.0 16 + 35.0 866.3(f) 416.6(f) 449.7 1.09530 900.2 195.1(f) +229.0 War period through December, 1940 2,792.3 1,425.6 1,356.7 2,793.1 2,109.5 108.0 575.6 + 10.8 878.3 421.4 456.9 1,098.4 900.2 196.2 +220.1 Second year of wards 2.203.0 1,792.2 410.8 2,189.8 1,193.7 274.0 722.1 - 13,2 38.9 4.8 34.1 8,8 - 8.8 - 30.1 mind year of ware+s 1,235.6 904.8 330.8 1,361.5 21.8 5.5 1,334.2 +125.9 18.5 18.5 4.4 - - 4.4 - 14.1 1962 Sept. 3 - Sept. 30 56.1 37.1 19.0 81,6 - - 0.5 81.1 + 25.5 10.1 - 10,1 0.4 0.4 - 9.7 Oct, 1- Dot, 26 46.7 27.4 19.3 57.5 - 57.5 + 10.8 - - - : - - ? . 0.3 Oct. 29 - Dec. 2 39.7 23.2 16.5 27.3 - I 77.3 + 37.6 0.1 1 0.1 0.3 . 0.3 + 0.2 Dec. 3- Dec. 30 AEEX ENDED: Nov. 18 6.0 6.8 21.0 21.0 + 8.2 0.1 - 0.1 - - - - 0.1 12.8 - - +14.9 - - - 23.3 - 7.4 1.0 23.3 - - - 25 B.4 - - Dec. 2 8.4 4.3 4.1 20.4 20,4 +12.0 - - - - - - - - - C1 7.2 2.7 4.5 13.7 - 13.7(g) + 6.5 - - - - - - - 4 il iverage Weekly Expenditures Since Outbreak of War Transfers from British Purchasing Commission to France (through June 19, 1940) $19.6 million Bank of Canada for French Account England (through June 19, 1940) 27.6 million Week ended December 9, 1942 - million England (since June 19, 1940) 33.1 million Cumulation from July 6, 1940 162.7 million *For monthly breakdown sse tabulations prior to April 23, 1941 **For monthly breakdown see tabulations prior to October 8, 1941. ***For monthly breakdown see tabulations prior to October 14, 1942. (See attached sheet for other footnotes) Regraded Unclassified (a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry of Shipping. (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the proceeds of official Dritish sales of American securities, including those effected through direct negotiation. In addition to the official selling, substantial liquidation of securities for private British account occurred, particularly during the early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation of our securities through December, 1940 amounted to $334 million. (c) Includes about $85 million received during October, 1939 from the accounts of British authorised banks with New York banks, presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Reflects changes in all dollar holdings payable on demand or maturing in one year, (e) Includes payments for account of French Air Commission and French Purchasing Commission. (f) Adjusted to eliminate the effect of $20 willion paid out on June 26, 1940 and returned the following day. (g) Includes 33.8 million deposited by British Ministry of Supply 2.9 million to be held for credit of U. S. armed forces abroad 3.0 million proceeds of Australian wool purchased by Defense Supplies Corp. Regraded Unclassified ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS Strictly (In Millions of Dollare) Week Ended December 9, 1942 Confidential BANK OF CANADA (and Canadian Government) COMMO BALTH BANK OF AUSTRALIA (and Australian Government) DEBITS CREDITS D EBITS CREDITS Transfers Transfers Transfers from Official to Proceeds Net Incr. to British A/C Proceeds Net Incr. Official of (+) or Official of (+) or Total British Other Total Gold For Own For French Other Decr. (-) Total British Other Total Gold Other Decr. (-) PERIOD Debite A/C Debite Credita Sales A/C A/C Credits Dr 3 Debits A/C Debits Credit Sales Credita Stundal First year of ware 323.0 16.6 306.4 504.7 412.7 20,9 38.7 32.4 + 181.7 31,2 3.9 27.3 36,1 30,0 6,1 + 4.9 for period through 1940 477.2 16.6 460.6 707.4 534.8 20.9 110,7 41.0 + 230.2 57.9 14.5 43.4 62.4 50.1 12.3 + 4.5 year of - 660.4 660.4 462,0 246.2 3.4 123.9 88.5 + 1,6 72.2 16,7 55.5 81.2 62.9 18.3 + 9-0 - Led year of mrs. 525.8 0.3 525.5 566.3 198.6 7.7 - 360.0 + 60.5 107.2 57.4 49.8 112.2 17.2 95.0 - 5.0 1912 400 3- Sept. 30 46.3 46.3 53.6 13,2 - - 40.4 + 7.3 28.0 - 20,5 7.5 18,1 - 18.1 - 9.9 Det, 1- Oct, 28 44,9 44,9 51,5 16,6 - - 34.9 + 6,6 14,3 12,0 2.3 14,6 - 14,6 - + 0,3 Oct, 29 - Dec, 2 43.7 43.7 65.2 11.0 - - 54.2 + 21,5 7.4 5.0 2.4 9.3 II 9.3 + 1.9 E 10, 3. Dec. 30 NEEK ENDED: 3.6 3.6 14.7 2.8 11.9 + 11.1 0.5 - 0.5 0.6 - Nov. 18 Oak - 0.1 - - - 25 12.3 12.3 16.4 2.6 - - 13.8 + 4.1 0.3 - 0.3 5.5 - 5.5 + 5.2 - Dec. 2 15.3 15.3 14.3 2.8 - - 11.5 - 1.0 5.5 5.0 0.5 2.1 If 2.1 - 3.6 - 9 11.0(b) - 11.0 15.10 2.8 - - 12.3(c) + 4.1 0.5 # 0.5 8.3 , 8.3(d + 7.8 Average of Total Debits Since Outbreak of War Through December 9, 1942 * 8.5 million apor monthly breakdown 300 tabulations prior to April 23, 1941. - monthly breakless see tabulations prior to October 8, 1941. Water mathly breakdown ... tabelations prior to October 14, 1942. (a) Reflects shanges in all dollar holdings payable on desand or saturing in one year. (b) Does not reflect transactions in U. S. Treasury bills. (c) Includes $7.8 million deposited by War Supplies, Ltd. (d)Includes $8.0 million held for credit of U. S. armed forces abrond. Regraded Unclassified 19 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON, D. C. TELEPHONE HOBART 9000 EASE QUOTE FERENCE NO With the compliments of British Air Commission who enclose Statement No. 64 - Aircraft Despatched - for week ended December 15, 1942. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury WASHINGTON, D. C. December 19, 1942. Regraded Unclassified OST SECRET 20 STATEMENT NO. 64 AIRCRAFT DESPATCHED FROM THE UNITED STATES WEEK ENDED DECEMBER 15,1942 TYPE DESTINATION ASSEMBLY BY BY FLIGHT DEL'D POINT SEA AIR FOR USE IN CAI Boeing FortressII U.K. Canada en route 2 Consolidated Catalina IB U.K. Bermuda en route 13 Douglas Boston IIIA U.K. Canada en route 4 Curtiss Kittyhawk Middle East Port Sudan 14 Grumman Martlet U.K. U.K. 10 Lockheed Hudson VI West Africa Freetown 5 Ventura S. Africa S. Africa 2 Glenn Martin Baltimore IIIA Middle East Middle East 12 North America Harvard II New Zealand Wellington 8 Vultee Vengeance India Bombay 20 TOTAL 52 38 Movement Division British Air Commission December 19th, 1942. Regraded Unclassified 21 NOT TO BE RE-TRANSMITTED BRITISH MOST SECRET COPY NO. 13 U.S. SECRET OPTEL NO. 438 Information received up to 7 A.M. 19th Dec. 1. NAVAL One of H.M. destroyers was torpedoed and sunk west of Oran yesterday. Six officers including the Captain and 167 Ratings were rescued. Another of H.M. submarines sank a Southbound ship and possibly a second in Central Med. on 14th 2. MILITARY Libya. Advanced U.K. light armoured elements reached Nofilia Area night 16th and were joined there by a brigade of N.Z. Division morning 17th. These units engaged enemy in this area during afternoon and evening when our advanced forces were ten miles West of Nofilia but enemy units in Nofilia and vicinity were still under fire from our troops and appeared to be withdrawing Westwards. Damage and casualties inflicted on enemy in this area and some prisoners taken. Considerable enemy M.T. movement Westwards between Sirte and Buerat. 3. AIR OPERATIONS Western Front. 18th. 11 enemy aircraft operated over Coastal Districts in Kent and Sussex. One was destroyed by our fighters one of which is missing. At Eastbourne bombs were dropped in the shopping centre. Twenty persons were killed and ten are missing. A Whitley engaged on air Sea- rescue 200 miles West of St. Nazaire was attacked by enemy aircraft. The Whitley damaged two J U 88's and later destroyed one F W 190, a second F W 190 being shot down by a destroyer. Tunisia. 17th. U.S. bombers attacked Tunis. Bostons bombed an airfield near Tunis, 17th/18th. Malta. Wellingtons dropped 22 tons of bombs on Tunis and La Goulette. Large fires were started at a fuel storage depot and hits were seen in the docks. Sicily. 17th/18th. Beaufighters destroyed two J U 52's taking off from Castelvetrano and made several hits on seaplanes at Marsala, Med. 18th. 4 Italian transport S M 82's probably carrying troops, were intercepted in the Sicilian Channel. One was destroyed. The other three were severely damaged by Beaufighters one of which is missing. Regraded Unclassified 22 NOT TO BE RE-TRANSMITTED 13 COPY NO. BRITISH MOST SECRET U.S. SECRET OPTEL No. 439 Information received up to 7 A.M., 20th December, 1942. 1. NAVAL It is reported that a Russian Warship has sunk an enemy 8,000 ton transport in the BLACK SEA. ATTACKS ON SHIPPING. During the week 12th to 18th 13 ships were reported to have been torpedoed - a British tanker (still afloat), a Norwegian tunker, a British and a Belgian ship in convoy in North-Western Approaches, one British and one Dutch ship in the West Atlantic, one British ship (which later arrived in port) in the Azores area; a British ship and a Norwegian tanker in the Indian Ocean, and a British end di Norwegian ship in the South Atlantic. Two other British ships are presumed sunk by submarines, probably in the South Atlantic. In addition, one Norwegian was sunk and 3 British ships were damaged by human tor pedoes in ALGIERS Bay, and a French ship was sunk by aircraft near BOUGIE. One British ship, torpedoed in November, has reached port. One United States, 1 Russian, 1 Eirean and 6 British ships previously reported overdue are now presumed lost. 2. MILITARY LIBYA. Early on 18th NOFILLIA was finally cleared of the enemy. His troops continued to withdraw along the cosstal road throughout the day and by afternoon were west of SULTAN. 2nd New Zealand Division continued their advance and vy evening were about 25 miles east od SULTAN. RUSSIA. In the Middle Don area, Russian troops have launched an. offensive and occupied the towns of NOYX, NOVAYA, KALITVAAY, KANTEMIPOVKA and BOGUHA and the district centers of TALY, RADCHENSKOE and VOKOVSKAYA. Southwest of STALIN- GRAD, the increased German thrust may have made progress. BURMA. Our troops have advanced to E. point on the KALAPANZIN River 10². miles south of BUTHIDAUNG. They are not repeat not in touch with the Japanese who have withdrawn towards AKYAB. 3. AIR OPERATIONS WESTERN FRONT. 19th. 6 enemy aircraft crossed the south coast. anemy casualties 3, 1, 2. 19th. 15 aircraft were sent sea mining. TONISIA. 17th GABES and SIDI TABET airfield (northwest of TUNIS) were each attacked by 12 United States Bostons at night. 3 Bisleys were destroyed on the ground at CANROBERT. 18th/19th. Wellingtons dropped 20 tons of bombs on the docks at TUNIS and LA GOULETTE with good effect. United States Liberators from LIBYA attacked SOUSSE Harbour starting a large fire. MALTA. 18th. At about 10 p.m. 40 Junkers 88 made low-level bombing attacks in bright moonlight upon our airfield. One was shot down. At LUQA, 7 Noi- Lingtons were destroyed on the ground and 4 aircraft damaged. MEDITERRANEAN. 19th. M-1ta Fighters shot down 5 enemy transport aircraft. One Fighter missing. TRIPOLITANIA. 18th. Fighter-bombers attacked enemy mechanical transport in the SULTAN area with good results. Regraded Unclassified 23 December 21, 1942 9:30 a.m. GROUP Present: Mr. Bell Mr. Buffington Mr. Odegard Mr. Sullivan Mr. Kuhn Mr. Thompson Mr. Schwarz Mr. Blough Mr. Haas Mr. Cairns Mr. Paul Mr. White H.M.JR: Norman? MR. THOMPSON: It might be of interest to know that our staff of administrative men in the field gathering in equipment, have picked up seven thousand four hundred and six pieces - typewriters, adding machines, file cases, and 80 on. H.M.JR: Pillow cases? (Laughter) MR. THOMPSON: File cases. They have a value of two hundred and sixty-nine thousand dollars, turning practically all of it over to the Public Debt and Internal Revenue. H.M.JR: This is just Treasury? MR. THOMPSON: Just Treasury. We are surveying all of our field activities to get the maximum use and pick up all surplus equipment. H.M.JR: Well, speaking on that, the other day the President was going around talking about extra Regraded Unclassified 24 - 2 - Government people. He first said - we were talking about freezing the people in their jobs, and manpower, and so forth - "And then to take Justice, for instance, with Immigration - they have nothing to do, of course. And the Attorney General fell for the bait, and he made 8. passionate speech about what he was dsing. He said, "Look at Customs." I said, "I am not going to answer you." The fact was, I didn't know. He said, "The people used to come in; they would rush down to the docks and examine their baggage - and now what are they doing?" MR. BELL: Port work, aren't they? MR. THOMPSON: Yes - the exports. The exports are pretty near taking up as much-- H.M.JR: Does anybody go through Customs, people like that in the various bureaus, to see-- MR. THOMPSON: Yes, they are being checked all the time. H.M.JR: Whom by? MR. THOMPSON: Our people are checking all their equipment, and so on. H.M.JR: When you take the equipment, what about the people who work? MR. THOMPSON: Mr. Gaston has his people going through and checking. H.M.JR: Does anybody sort of - as an outsider, 80 to speak, 80 somebody doesn't do it to us - catch us? Regraded Unclassified 25 - 3 - MR. THOMPSON: No, we haven't done that recently - kept a close check on that. H.M.JR: Any Bureau of Efficiency people left who are working, Dan? MR. THOMPS ON : Harold Graves is the only one left around here. But we have some very good men being trained and brought into that. H.M.JR: All right. Supposing you make a couple of people responsible directly to me and let them start just as soon as possible. Will you do that? MR. THOMPSON: Yes, sir. We also have some major space moves in the field in connection with Internal Revenue. The plan will be to move out of Federal buildings the Revenue offices where there isn't sufficient space in the building to expand. Where there is space available by moving out other activities, we will do that. In Boston we are moving the Collector out of the Federal Building into other space; but that is being worked out. We have had meetings with Public Buildings and the Post Office and Internal Revenue. It is going along nicely. H.M.JR: I still think there should be somebody go through before somebody else does it for us. MR. THOMPSON: We are going to have to go through the whole Department in our budget operations in fight- ing the cut because of this salary raise. H.M.JR: That was the whole - what the President wanted to do was to give them the salary raise and then lay off enough personnel so there would not be any in- crease in the pay roll. He had the memorandum from the Bureau of the Budget asking for - saying every department should lay off enough people so there would be no increase in the pay roll. Regraded Unclassified 26 - 4 - I said, "That is impossible." Nobody said a word. I said, "What you should do is hold each head of the department responsible. In some places he can do it; in some he can't. If the head of the department isn't any good, you ought to let him go. But to make an all- out ruling like that is just unfair." MR. THOMPSON: It is unfair, and goes too far. If we have a forty-eight hour week we will have & twenty- one percent increase. H.M.JR: I said, "Why don't you start with the Bureau of the Budget; find out what they can do." (Laughter) (The Secretary held a telephone conversation with Senator Walter George.) H.M.JR: I think it is worth the effort. MR. SULLIVAN: You bet. H.M.JR: Don't anybody breathe this. I think it is worth the effort. I was amazed that the President said he would let me show it to him. We have never done that before. MR. SULLIVAN: He almost didn't let us see it last year. H.M.JR: I think it is the right thing to do. MR. SULLIVAN: I think this is a lot better than if he were up on the Hill and you were going up there. It means more. MR. ODEGARD: I will say it means more. H.M.JR: I was amazed that the President said O.K. He said he thought it would be fine. Roy? Don't you think Roy looks a little airsick? (Laughter) Regraded Unclassified 27 - 5 - MR. BLOUGH: No, I am thinking of a little agenda I hope you take up with him. I think you ought to go into & good many things he has in his mind, as well as you have on your mind. H.M.JR: You would go along with us, MR. BELL: You got yourself into it there. (Laughter) H.M.JR: At least I could learn my homework on the way down. MR. BLOUGH: That is what you meant by "airsick" - you know that-- (Laughter) H.M.JR: We don't tell on each other, do we? (Laughter) MR. THOMPSON: That is all I have. MR. BELL: We have had a number of letters from bankers objecting to the advertising that the Farm Credit agencies put out to get loans from them - from the farmers into these credit agencies. Now, it comes from Chester Davis, Federal Reserve Bank, St. Louis. He says that Hemingway is receiving a lot of complaints - and particularly this program that Wickard now is start- ing - the Food for Freedom. He has put out some sort of a booklet or pamphlet, and in that he says that the Farm Credit and Farm Security are sources of local credit. They have said nothing about the bank credit, and apparently the whole West - the banking areas - are pretty much up in arms. They say they are cooperating with you in your program, and wondered if you wanted to say something to Wickard about it. That is a telegram that came in Saturday from Chester Davis. H.M.JR: Let me have it. (Telegram handed to the Secretary by Mr. Bell.) MR. BELL: We have had 8 number of letters on that and merely referred them to Governor Black, coming from Kansas and Missouri, particularly. Regraded Unclassified 28 - 6 - H.M.JR: I will take care of it. MR. BELL: The Bank of Morocco asked us to repro- duce their Moroccan franc notes. We could not to it; neither could the American Banknote Company. We suggested a new type of currency, and said if they wanted to do that we would give them all the help we could. We suggested they designate somebody in the United States to talk to us about it. They have designated a gentleman by the name of Maurice Boyer, whom we don't like very well, but I guess we will have to talk to him. H.M.JR: Who is Maurice Boyer? MR. BELL: I have got several memoranda on him. He is a representative of a bank in Paris and also represents some interests in North Africa. Foreign Funds has quite a bit on him. I don't think that we can do much other than guide the negotiations. The Bureau of Engraving and Printing would take months to reproduce these notes. I think the American Banknote Company really ought to do it. H.M.JR: Well, I would not fool around with it. If they want it - I mean, if they want new stuff, I would give it to them. MR. BELL: It would have to be new stuff; we couldn't reproduce the old. (Mr. Paul entered the conference.) H.M.JR: Don't let this thing sort of hang fire. MR. BELL: No, no. I just got this this morning. Here is a letter that a gentleman wrote me from Minneapolis on the sale of farms, and so forth, in the territory. I don't know whether you would like to have it - it is 8. manpower problem, rather interesting. (Letter from the Northwest Bancorporation, Minneapolis, dated December 15, handed to the Secretary by Mr. Bell.) Regraded Unclassified 29 - 7 - H.M.JR: Harry? MR. WHITE: You asked me to inform Phillips about the correction statement. I did not do so yet because I wanted to raise the question whether it is desirable to do SO. I don't think he would like that correction. I think he would prefer to let the matter stand as is. I think that merely raising the subject with him will merely stir up a hornet's nest. So, if it is all right with you, let's let it ride. H.M.JR: O.K. MR. WHITE: You have here a letter from Hull with regard to the financial assistance of the Greek Govern- ment. Bell has seen the Greek minister, and what I suggest is that we prepare a letter raising some further questions as to their financial assistance and then you probably call a meeting, because it states here that the President has decided that some arrangement must be made by which the Greek Government can be kept going. It is our view they can be kept going without additional assistance, but rather than take that position, draft a letter which will raise further questions. MR. BELL: Keep 'em rolling. (Laughter) H.M.JR: O.K. Regraded Unclassified 30 - 8 - H.M.JR: Should you be here today? MR. SCHWARZ: The doctor said it was all right - that the cold weather would keep down the fever. (Laughter) H.M.JR: Have you a fever now? MR. SCHWARZ: No. The New York papers are late on the train, but the plane looks pretty good. (The Secretary held a telephone conversation with Mr. Doughton.) MR. PAUL: Is George still down there? H.M.JR: Yes. MR. PAUL: He was supposed to be back. H.M.JR: You told me that he would be back this morning. MR. PAUL: I said that because he was to be back in two weeks. H.M.JR: Anyway, I thought it would be good ball. I got the President's enthusiastic approval to discuss this thing with them. I want to clean up my work by Wednesday noon, if possible, 80 I think you and this intrepid flyer, Roy Blough - - I wish you had seen the color of Roy's com- plexion when he heard the wind was blowing strong down there in Georgia. I don't know from what direction, over what manure pile. (Laughter) MR. PAUL: When do you want to leave? H.M.JR: Right after lunch. This isn't premeditated, because I was amazed that the President - I have been worrying about this thing, the Regraded Unclassified 2 31 - 9 - difference between the Treasury and other agencies, and different things, on the theory that we can make progress fastest by getting together "Tirstest," and the President liked it. So my thought was that if we get the weather report we would leave right after lunch, and you, Roy, and I could talk about it all the way down there. MR. PAUL: All right, assuming we are able to talk. (Laughter) H.M.JR: Now, listen, I just want this to be under- stood. I am now calling for volunteers. Nobody has to go. (Laughter) MR. PAUL: I didn't say that I didn't want to go. H.M.JR: Have you had your coffee this morning? MR. PAUL: I am just replying to your observation about our talking all the way down. H.M.JR: Have you had your coffee this morning? MR. PAUL: I have had some. H.M.JR: Great enthusiasm around here, isn't there? (Laughter) MR. SCHWARZ: That is all. The New York papers should be here in about half an hour. H.M.JR: I gave several suggestions yesterday-- MR. SCHWARZ: He checked with me this morning. H.M.JR: about getting this stuff overseas. MR. SCHWARZ: OWI has sent that out, and Army and Navy. H.M.JR: Do you know the fellow he mentioned who was in charge of the overseas office in OWI? Regraded Unclassified 32 - 10 - MR. SCHWARZ: Plummer is on the domestic desk; George McMillan, I believe, is on the overseas. I will call him further, but he did send it out. H.M.JR: Don't call him unnecessarily. MR. SCHWARZ: I talked with the Army people who take care-- H.M.JR: But the point is, I ought not to have to do this. I sit home and I think about it; nobody thinks about this stuff for me. MR. SCHWARZ: We reminded them that sometimes it is a special-- H.M.JR: Look, Chick, nothing is done, but in the future let's do something. This was a good story for our Allies and our armed forces, but nobody made any effort to see that it went out. MR. SCHWARZ: We sent out to the labor press and asked them for help. H.M.JR: Nobody is sitting back and seeing what is good for overseas that the Treasury does. Nobody has done a damned thing about it. MR. SCHWARZ: We sent a number of stories to them that they have sent out. H.M.JR: Here was a particular story, this financial story, that should have gone over. In the future I am sure you will. MR. SCHWARZ: We will check it. MR. HAAS: I have nothing. H.M.JR: I am right, nobody has made a particular effort to get this overseas. Regraded Unclassified 33 - 11 - MR. KUHN: I only know of that one, your Winston- Salem speech, and they were very glad to get that. H.M.JR: Which I had to ask to be done by the Treasury. Here is another one which should go over. MR. SCHWARZ: We send them stuff, I would say, about four or five a week. H.M.JR: Schaeffer said there had been no effort made. MR. SCHWARZ: I have been sending a lot of it directly. I sent the Winston-Salem speech over. H.M.JR: After I had asked for it. MR. SCHWARZ: I believe before. H.M.JR: Anyway, we always end up the same way, Chick. In the future, will you please do something about it. MR. SCHWARZ: We will watch them early and often. H.M.JR: You are not feeling well; I won't start anything. George? MR. HAAS: I have nothing, sir. MR. BLOUGH: Nothing. H.M.JR: Peter? Where are Harold Graves and Gamble? MR. ODEGARD: They are on their way back from Chicago. H.M.JR: When will they get back? MR. ODEGARD: They should have been back this morn- ing, but I assume the trains are late. They will be back some time this morning, God willing. Regraded Unclassified 34 - 12 - H.M.JR: O.K. MR. KUHN: I have nothing. MR. CAIRNS: Nothing. H.M.JR: If you stay behind a minute - I want to talk to you. MR. PAUL: Shall I take up-- H.M.JR: No, I mean Huntington. I want to talk to Huntington. What have you got, Randolph? MR. PAUL: I have a letter that came to me from Senator Maybank about t he twenty-five thousand limitation. I think it is really John's letter. H.M.JR: I sent it in to Norman Thomspon and said to find out who it was for. MR. THOMPSON: It didn't come to me. H.M.JR: I didn't know whether it went to Paul or Sullivan. Didn't I ask you? MR. THOMPSON: No. H.M.JR: Maybe I asked somebody in your office. MR. PAUL: You asked me to speak to you about a chap named Ellis of the Peabody Coal Company. It is page two of something. I don' know what-- H.M.JR: What? MR. PAUL: There is another thing you sent me about a Peabody up in Chicago. It is the second page of some sort of a report. Regraded Unclassified 35 - 13 - H.M.JR: He is complaining about - he wanted to pay them war bonds as a bonus of some kind. Isn't that the one? MR. PAUL: He is complaining that he didn't get proper attention in the Chicago office. H.M.JR: Is that Sullivan? MR. SULLIVAN: That is mine. (Second page of mail report handed to Mr. Sullivan by Mr. Paul; also letter from Senator Maybank to the Secretary, dated December 17, 1942.) H.M.JR: But he wants to do something about Christmas or something. He said that they were understaffed there. MR. SULLIVAN: The only office that we have had any criticism about is Chicago. I had three others like that. Before this came in I talked with the Commissioner about sending some extra people out there, and I am talking with him again this morning. The other offices are doing very well, but I have had three just like this on that same office. MR. PAUL: One more thing I want to raise sometime is this matter of extending the time to file corporate returns. MR. SULLIVAN: We are very strong for that, Mr. Secretary. H.M.JR: That doesn't have to be - when do you have to let the corporations know? It is the 15th of March, isn't it? Let's postpone that. MR. SULLIVAN: There isn't anything pressing about it; but along the line of helping business with all they are up against, it is very important that we be realistic about that this year. H.M.JR: Take itup with me early next week, will you? MR. SULLIVAN: Yes, sir. Regraded Unclassified 36 - 14 - MR. PAUL: I have an answer to Senator George which we can discuss, I imagine, on the plane. H.M.JR: Yes. MR. BUFFINGTON: This is a colored cartoon from the "Tribune." (Cartoon from the "Chicago Tribune" handed to the Secretary.) H.M.JR: They have been very good, amazingly good. MR. BUFFINGTON: The Chicago Fed has asked if there would be any objection to writing them a letter in view of their cooperation. They have apparently done 8 good deal during this Victory Fund Drive. H.M.JR: Let the Chicago Fed write them a letter. MR. BUFFINGTON: That is all. MR. SULLIVAN: If you get to discussing the Victory Tax with Senator George, I think you ought to be brought up to date on the attack the southern churches are making on that. The General Association of Kentucky Baptists have published this statement, that the Victory Tax Bill must be altered or else we face almost certainly the spectacle of seeing Baptists go to jail in America for their relig- ious beliefs. (Laughter) The vice president of the Baptist General Convention of Texas says: "It is the first time in the history of America that the churches have been invaded. The provision of the bill is a clear violation of the separation of the church and state and the Bill of Rights, Furthermore it opens our churches to bureaucratic control. This gives the federal government the right to check church finances." H.M.JR: Don't give it to me; give it to one of my assistants who are going down with me. (Paper entitled "Religious News Dispatches" handed to Mr. Paul,) MR. PAUL: We have had a lot of this, all because they have to collect the tax on the ministers' salaries at the source. Regraded Unclassified 37 - 15 - MR. SULLIVAN: I have got to do some work in Brooklyn, New York, and I think I will get up there this noon and do it today and tomorrow. As long as you are going to be away, this is as good a time as any. H.M.JR: Are you going to be here? MR. BELL: Yes, sir. H.M.JR: When do we meet, Paul and all of you - are you fellows ready, or aren't you ready? MR. PAUL: We were to meet at ten, I thought. H.M.JR: I also understood-- MR. BELL: We were to meet at nine this morning, but everybody was held up. H.M.JR: Why don't you meet in Bell's office now-and give me a breathing spell? MR. BELL: We have a draft, but it hasn't been gone over. We went over it Saturday afternoon. H.M.JR: All right, we will meet pretty soon. Regraded Unclassified 38 December 21, 1942 9:41 a.m. HMJr: Hello. Operator: Senator George. HMJr: Hello. Senator George: Hello. HMJr: Henry Morgenthau. G: Yes, Henry. How are you, sir? HMJr: Fine. We're kind of freezing up here. It's about zero. G: Well, it's pretty cold here. HMJr: Good. Walter, I spoke to the President last night and asked him whether it would be -- can you hear me all right? G: Yes, I can hear you. HMJr: I am seeing him Wednesday morning with our sug- gestions for his Budget Message as it affects taxation, and I asked him whether it would be agreeable to him whether I would see you and Bob Doughton before I saw - submitted my suggestions. Hello? G: Hello. HMJr: And the President said he'd be delighted if I would. G: Good. HMJr: Now you know I'm starting out this time feeling that if we could sort of come to some kind of agreement beforehand we might save three to four months on the Hill. G: Yes. HMJr: Now I know you're down there because I spoke to your secretary, but I could get a plane and come down because I think it's 80 important I'd like to go over it with you. Regraded Unclassified 39 - 2 - G: What time do you have you got to submit it, Henry? HMJr: I have to submit it to him at 9:30 Wednesday morning. G: This coming Wednesday? HMJr: Yes, sir. G: Well, we haven't a field here. I would have to meet you in Atlanta. HMJr: "At Atlanta. G: Yes. HMJr: There's nothing at - there's nothing at Macon? G: Yes, they have a field at Macon. HMJr: But is it - 1s it lit up at night? G: I am not so sure about that. HMJr: No - would - Atlanta would be the best then, wouldn't it? G: Yes, I think it would. HMJr: Well, now, Walter, if - as I say I lay great stress on this to get your ideas because I think it's going to save a lot of headaches and heartaches if I could get your ideas beforehand. G: Well, I'll be very glad to meet you in Atlanta. HMJr: Yes. Could you if I could get away after lunch today, could you do it tonight? G: Yes, I - - I think I can leave here on an afternoon train HMJr: Yes. G: ....and be in Atlanta tonight, yes. HMJr: Well, now where would we meet? G: Well, what time will you get into Atlanta? Regraded Unclassified 40 - 3 - HMJr: Oh, I could get there around six or seven o'clock. G: Well, I would suggest that either - any one of the hotele. HMJr: Yes. G: I usually stop at the Henry Grady Hotel. HMJr: The Henry what? G: Henry Grady. HMJr: Clady? G: Grady - - G-r-a-d-y. HMJr: Henry Grady. G: Yes. HMJr: I see. G: It's conveniently located. HMJr: Yes. Well, shall we - a little - or does it - supposing when I find out more about the weather, what would be a good time - what time would you have to know? G: I would have to know by noontime. HMJr: By noon? G: Yes. HMJr: Is that - by twelve o'clock? G: Yes. HMJr: Well, I could call you back between now and noon. G: All right. HMJr: I - - I'll know then definitely about the - how is the weather down there now? Regraded Unclassified 41 - 4 - G: It's cold and windy, very windy. HMJr: Is the sun shining? G: Yes, sun is shining but it's very windy. HMJr: Well, it is - but you've got the sun out? G: Oh, yes. HMJr: Well, that's all we need. G: Yes. HMJr: I'd bring Paul down with me. G: Well, supposing you call me. HMJr: Yes. G: Now I could come up tomorrow just as well. I can - I'd like - I think I could go this afternoon. HMJr: Hello? G: Hello. HMJr: You mean you could go this afternoon? G: Yes, I think my train would get in there about seven-thirty. HMJr: I see. Well, we could.... G: I think by seven-thirty this afternoon. HMJr: Yeah, we could spend the evening together. G: Yes. HMJr: Well, that would be fine. I'll call you between now and noon. G: All right. HMJr: Thank you. Regraded Unclassified 42 -5- - G: All right. HMJr: Thank you. 43 December 21, 1942 9:52 a.m. HMJr: Hello. Robert Doughton: All right, Henry. HMJr: How are you, Bob? D: Oh, fine, thank you. How are your HMJr: I'm never better. D: Well.... HMJr: Bob, I have to submit to the President -- this is very, very confidential now, what I'm saying - hello? D: I understand. HMJr: Wednesday morning at nine-thirty we're submit- ting to him our suggestions about how to handle the tax situation for next year in his Budget Message. D: Yeah. HMJr: And I got his hearty approval of discussing it with you and Walter George before I saw him. D: Well HMJr: Now I was trying to get you earlier. I suppose you were frozen up the way everybody D: I'd like to have not got here at all, because I had to come down on a street car, and I - never got started, and I got - I'd like to have never gotten here. HMJr: Now I located Walter George in his home D: Well HMJr: and if I'm going to see him, I'm going to have to go down there tonight to see him. D: Well Regraded Unclassified 44 - 2 - HMJr: But I'd like very much to see you. D: Well, where do you want to see me? HMJr: Well.... D: I'm at your command and ready any time. HMJr: Well, here's my - here's my situation. My trouble is I didn't know - somebody told me that George was going to be here this morning, and he misspoke himself, 80 I now find that he isn't and I'm going to have to go down there 80 I'll have to rear.. - and if I go at noon, I wondered if I could see you tomorrow. D: Yes, sir. HMJr: Well.... D: If I'm living you can. HMJr: If you're living - well, you'll be living. D: Well, I'm hoping BO. HMJr: I'll guarantee that. D: Yes. HMJr: Now do you want - this will take a couple of hours. Do you want to start at lunch time and then work through tomorrow afternoon, something like that? D: Whatever suits you better. HMJr: All right. D: Just after lunch, there's a lot of bother about - were you coming up or do you want me to come down? HMJr: Well, I want to do it where we won't be seen. D: Just whatever suits you better, Henry. Your time is more precious than mine right now. I've - I'm in no special rush. Regraded Unclassified 45 - 3 - HMJr: Well, if I go down to Atlanta, I think I could be back here by one o'clock tomorrow if everything went well. D: Yeah. HMJr: So if you didn't mind maybe we could have lunch together and then work on it right straight through the afternoon until we got together. D: Well, if that suits you better, I'll just - it'll suit me. HMJr: Well, then supposing.. D: Why don't you - why don't you just leave off the lunch, and when I get down just HMJr: No, no, no. D: Well, all right. Well, we won't argue. HMJr: I want to give you victuals. D: Well, all right. HMJr: And supposing D: I don't know whether I'm worth my feed or not. HMJr: I think you're worth a lot. D: (Laughs) Well.... HMJr: So let's leave it this way, and - and my office will be in touch with yours in case there's any - I don't get here on time or anything, you see? D: You just have them call me, and let me know again HMJr: Yeah, and we'll leave - supposing we leave it tentatively for one o'clock tomorrow? D: One o'clock and then they can call me and let me know for certain, or if I don't hear shall I be down there Regraded Unclassified 46 - 4 - HMJr: Yes. D: ....or shall I wait to hear from them? HMJr: They'll - they'll let you know. But in the meantime, I'm goling to try to go down to Atlanta and back. D: All right, I hope you have a nice, safe trip. I know you enjoy your.... HMJr: You don't want to take a ride, do you? D: No, I don't think 80. HMJr: What? D: I know you'll enjoy - oh yeah, I wouldn't mind it - but I hope you'll enjoy your trip with - visit with Senator George. I expect I'd better stay here and work. HMJr: All right, well, I didn't want you to feel hurt now. D: What? HMJr: I don't - I didn't want you not - if you want a ride, you know. D: Oh, I'd like to ride with you always, but.... HMJr: No, I'm just joking. D: Yeah. HMJr: All right, Bob. D: Well, I'll wait until I can get further orders and I'll be right ready. HMJr: Thank you. D: Thank you. Goodbye. Regraded Unclassified 47 Original of this. is in President's folder because of last paragraph. Regraded Unclassified 48 December 21, 1942 At twenty minutes of seven Sunday night I called up Roy Blough and told him I would like him to put down às Plan A of the Tax Program: a very stiff withholding tax, rationing on all scaree articles, increase the personal incomes and corporate tax and social security tax, and nothing on the compulsory lending or saving. Did he think that that would do the jobp He said, "Yes, it would." He asked me how much did I think the volunteer plan could do? Was it good for $12 billion? I said I certainly thought that it was. Then I asked him to write me a letter to the President whereby I would point out the defects in the present plan of the 80⑉ called $25,000 limit, and recommend that we limit personal income, both in salaries and invested capital, to a progres- sive income tax. Roy Blough said that he believed in that himself and would be very glad to do it. I personally believe that if we could get enough money to close the gap and control inflation without borrowing more money from the people through compulsory saving and can get it through the volunteer plan, that it's an important part of the morale situation on the home front. I don't know how the plan would set with Congress, but I wish I could find out, and I now have a telephone call in for the President to see whether he would let me talk to Walter George and Doughton and try out the plan on them before I see him next Wednesday. I talked to the President at five minutes to seven and said that I'd like to consult with George and Doughton and lay the problem before them. Should we have a diagnosis of the problem or should we diagnose it and make recommendations? He said he'd be delighted to have me talk to them. I'm de- lighted and it puts me in a much stronger position when I see him and also a stronger position in relation to the other agencies. I told him that we knew what the Jimmy Byrnes' crowd wanted and what the Budget crowd wanted and what the 0.1.0. crowd wanted, and he said, "Well, how are things be- tween all of you? Are they quiet?" And I said, "Yes, all relations are very friendly," and that seemed to please him. I said had he heard anything about the war? Re said, "No, I haven't heard anything in two days and was hoping to hear something soon." He sounded in a very good humor. Regraded Unclassified 49 December 21, 1942 Items forDiscussion 1. Magnitude of 1943 revenue legislation. 2. Timing: Whether to do something at once on a few items or to wait for a tax bill of the regular kind. 3. Collection-at-source: Whether to attempt to start the high rates about April 1; the "Ruml plan." 4. Compulsory lending: Whether necessary; magnitude; protection against transfer of savings; amalgamation with Victory tax. 5. Spendings taxi Whether desirable; magnitudes. 6. Income tax rates and exemptions. 7. Social Security expansion and extension. 8. Corporate taxes. 9. Sales taxes. 10. Other taxes: Estate and gift; excise. 11. Victory Fax? RB Regraded Unclassified 50 TREASURY DEPARTMENT WASHINGTON December 21, 1942 To: Secretary Morgenthau From: Randolph Paul I think the President's budget message should contain a specific figure (I think $20 billion - perhaps more) and that as a base therefor we should have on the inside a plan showing the composition of this figure, Irrespective of whether it contains a definite figure, I also think that the budget message should come out for forced lending or saving and against a sales tax. Perhaps it should advocate the spendings tax. T bably, also, it should come out against loopholes and for the $25,000 substantial limit. One more thought is that I think the figures should go into the President's message with reference to the gan, BS- pecially since Jones' new national income figure is $125 billion. I assume that the subject of social security will be taken care of somewhere in the message. HD Regraded Unclassified 51 December 21, 1942 11:20 a.m. TAXES Present: Mr. Bell Mr. Paul Mr. Haas Mr. Blough Mrs. Klotz H.M.JR: Go ahead. (Copy of Budget Message, dated December 21, 1942, handed to the Secretary by Mr. Blough.) H.M.JR: Which statement is this? MR. BLOUGH: This is the one we have been working on since the middle of last week, which we keep down to the policy-- H.M.JR: This is the diagnosis without any opera- tion. (Laughter) MR. BLOUGH: There is a little operation at the end but not much. MR. PAUL: There are no figures stated and no particular scheme stated. H.M.JR: Just make a note here, I would like to make, somewhere in this thing, the statement that we believe there should be rationing for all goods of which there are shortages or impending shortages. MR. BELL: Didn't we have that in? MR. PAUL: The only reason for not putting that in is we all agree-- Regraded Unclassified 52 - 2 - H.M.JR: I would like to put it in if it is not going over in somebody else's back yard. I would like to add, "There should be rationing of goods for which there are scarcities or shortages, or impending short- ages." MR. BLOUGH: On page three it says, "We must extend rationing." We could say, "We must extend rationing to all scarcities." MR. PAUL: Or "impending"-- H.M.JR: "--for which there are shortages. I don't care. Think it over - whichever word you prefer. MR. PAUL: Morris Ernst just got back from England. He went over on the paper shortage and he talked about everything, but what he particularly talked about, that interested me, was that with the rationing over there they don't have any trouble at all; the people all cooperate. H.M.JR: Who sent him over there? MR. PAUL: I think a magazine sent him over, but he was going over in full cooperation with Nelson's office. In fact, he is down there this morning. MR. BELL: We have in, on page three, "We have rationed some essential, scarce goods to assure every- one a necessary minimum and to help protect price ceil- ings. ... We must extend rationing." We must extend rationing of the same kind, I suppose you mean. H.M.JR: You have what I have in mind. MR. PAUL: The thought that not only those that are scarce, but those that are likely to become scarce. H.M.JR: That is right. MR. BELL: I think scarce goods - it is kind of complicated. Regraded Unclassified 53 - 3 - H.M.JR: Of course, "scarce" - I don't like the word - didn't I use the word "shortage"? MR. BLOUGH: It is just a matter of reconstructing the sentence. There is no scarcity of sugar; there is plenty of sugar. We are short of it in a sense. MR. PAUL: That is the whole inflation problem. There won't be any scarcity if you distribute it properly. H.M.JR: I don't agree with you on that. There are not enough shoes. It isn't bad distribution of shoes; there just won't be enough shoes. Anyway, I think we all mean the same thing. MR. PAUL: There are two refinements there. H.M.JR: I would like to come out and say that we should, as promptly as possible, ration the things of which there are not enough to goaround and the things on which there are impending shortages. MR. PAUL: I think you can defend that as being in your back yard on the ground that the two things are tied so closely together. H.M.JR: I am going so overboard on this thing that it doesn't make any difference anyway. MR. HAAS: You previously said that before the Ways and Means Committee. H.M.JR: That is right. You say, "We must extend rationing." You say, "These measures are interrelated." We are all right. MR. BELL: We haven't said it in the way you indi- cated. It is not strong; it is in there, but kind of covered up. MR. HAAS: Of course, this is broader than the other; you may want to leave it broad. Regraded Unclassified 54 - 4 - H.M.JR: No. MR. BELL: It might go to all goods instead of just scarce goods. It leaves it open. H.M.JR: If you don't mind, on top of page four I would put "--the encouragement of maximum war produc- tion" first. MR. PAUL: That was George's point. We left it that way partly on the theory that putting that at the end was B. little more climactic. H.M.JR: They keep telling me that, people do, but it doesn't affect me that way. I like the first thing first. I think this is a damned good statement from my standpoint. MR. PAUL: I think it is fine as far as it goes. Of course, I still think that - I drew up a little statement of what I thought - I think we ought to mention the figure. MR. BLOUGH: We do mention the figure here. MR. PAUL: I am a little afraid of that; there are so many variations. MR. BELL: You ought to be afraid of the other, then, Randolph. Jones came out with & hundred and thirty-five billion dollar national income this morning, which makes your gap ten billion dollars larger. MR. PAUL: That is what came out Sunday afternoon. H.M. JR: Go ahead. (Mrs. Klotz entered the conference.) Regraded Unclassified 55 - 5 - MR. PAUL: I just think we ought to make our deci- sion on compulsory. My feeling is that we ought to make our decision about the forced lending or forced saving. We ought to come out against loopholes. I am not very strong for it, but I think the President will want to come out for substantially a twenty-five thousand limitation. H.M.JR: We had that thing in about loopholes, didn't we? MR. BLOUGH: It is in here - not in detail. MR. PAUL: I don't think we ought to do it in de- tail. Then I agree on that point. H.M.JR: What was your first point? MR. PAUL: I think we have to decide on compulsory. MR. BELL: "--special privileges and loopholes should be eliminated." MR. PAUL: All right. I forgot we left that in. The principal point is the forced lending. I think we ought to decide it. I don't know whether we should advocate a spendings tax. I think we should come out against a sales tax. H.M.JR: Are you finished? MR. PAUL: I am simply not sure about the spendings tax. H.M.JR: What I have done is - what has happened - I will go over it once more. I have been thinking very hard on all of this stuff and I realize that there is a difference . - certainly Paul and myself - as to how far we should go and I also realize that Paul, more or less, now reflects a lot of these other people around here who are pretty much in agreement. Regraded Unclassified 56 - 6 - MR. PAUL: I think I am in agreement with Roy and Harry White; I am not sure about George. H.M.JR: Well, I am talking to you as head of the Tax Division. I am not singling you out. Therefore, what I always try to do is to be fair, and I have never given myself the luxury of having any ideas or hobbies - any success I have had, I have always eliminated any personal hobbies which I try to ride, like War Bonds or anything else. So what I am trying to do is to say, knowing how you felt, along with the other people - I got permission from the President to talk to George and Doughton, and therefore when we see them tonight - we are flying to Atlanta after lunch today - I am going to give you ample opportunity to state the whole case. I want to give him this and simply say, "How much further do you think we can go?" MR. PAUL: Yes, I see. MR. BELL: Give him this as 8 minimum that the President can say in his message? H.M.JR: As a minimum; now, "How much more?" "If I was working entirely alone without any advice, I would do this. My advisors are not in agreement with me." Therefore, I want to see how much more George and Doughton - they may say, "All right, we will go along with this; we will take one, two, three, and find out." We may have to tell the President that George and Doughton agree on this as a minimum and that George will take so much more; Doughton will take so much more. MR. PAUL: George and Doughton won't be in agree- ment. MR. BLOUGH: Moreover, if I may say, there is the question of how much should be in the message and how much should be in agreement behind the message, and giving meaning to the message even though it is not put into the message. Regraded Unclassified 57 - 7 - H.M.JR: What do you mean by that, Roy? MR. BLOUGH: The President might say just what you have said here, but sometime the Administration is going to have to decide on how far it is going to ask Congress to go. It seems to me we might just as well get that settled as nearly as possible before the mes- sage goes up, so even if it should not be put in the message, they will have agreed. H.M.JR: I agree, but what you are saying is im- possible. I will tell you why. I am going to try to get as much - I am not flying down to Atlanta because I like Atlanta, but Doughton told me he has got to get six new Democratic members on his Ways and Means; and Doughton isn't going to commit himself until he has his committee behind him. Let's be practical. He is simply going to say, "All right, Henry, I think you are right, but until I have organized my committee, I can't tell you." MR. PAUL: My feeling about this goes to the basic point. It doesn't go to the question of whether it should be 8. Budget Message. But I do think that we have to have 8 pretty definite administration program before we can even say half the cost to the Government. H.M.JR: Look, you fellows are all idealists, and I love you for it. Even fairies and pixies and all the rest of that-- (Laughter) MR. PAUL: I won't accept that designation of idealism. H.M.JR: All right. Well, anyway - now, if we coula get out of this and simply say that they finance this war and pay half of it out of taxes, wonderful, but you don't know. And the thing that bothers me is - all right, give up the voluntary War Bond program of whatever it is, because we are going to get twice as much gross from the forced savings, then we deduct the difference and we are so much ahead, which you don't know. Regraded Unclassified 58 - 8 - Now, if you could get any kind of a commitment that you would get these in increased taxes, and a very strong - did Roy give you the Morgenthau plan yesterday? MR. BLOUGH: This morning I gave it to him. I didn't call him last night. MR. BELL: In reading this do you get out of it that we have got to go fifty percent of the expendi- ture in taxes? H.M.JR: Yes. MR. BELL: That isn't what it means. MR. PAUL: We used the word "levies." MR. BLOUGH: The last paragraph is something of a weasel paragraph. I don't like to use that word. H.M.JR: You are slipping from your idealism. (Laughter) MR. BLOUGH: I was just about to bring it to your attention, Mr. Secretary. He beat me to it. MR. HAAS: It means "all one" or "a combination." MR. PAUL: It leaves the door open. The word "levy" is a weasel word. MR. BELL: It is hard to say, but I am afraid most people will interpret it just like the Secretary did, and that would be unfortunate, I think. MR. BLOUGH: I think that is quite true. They will interpret it as taxes. H.M.JR: As what? MR. BLOUGH: They will interpret it as taxes - half in taxes. Regraded Unclassified 59 - 9 - H.M.JR: Why "unfortunate"? MR. BLOUGH: It wouldn't be unfortunate if we can get it. It would be unfortunate if we closed the door to their giving it to us in anything else. MR. BELL: I think what you will have to do is - the minute you go before Congress they will say you are advocating fifty percent in taxes. Then we will be up against the question whether you want to say, "No, we didn't say that; we said 'levies'" and levies may mean enforced savings of one kind or another plus taxes - or, taxes plus enforced savings, I should say. MR. PAUL: Even the word "levies" doesn't cover it because if you had compulsory savings, that would not, in a sense, be a levy as would compulsory lending. H.M.JR: The point is this, gentlemen, I want to get the President to say as much as he can. I don't want him to say something which is immediately going to get Doughton's back up and he is going to begin to fight us from the minute the Budget Message is said. Let me give you this to cheer you up. MR. PAUL: Cheer me up? (Laughter) H.M.JR: Don't you need cheering up? MR. PAUL: I can always take it. H.M.JR: This is the way I feel. I would much rather have the President say the minimum and then fight inch by inch after the thing, than have him go overboard and say everything we want, and have them fight us and begin to lop the thing off. I think that is the fundamental difference between you and me on this thing. MR. PAUL: No, I don't think we have too much difference there. Regraded Unclassified 60 - 10 - MR. BELL: No, I don't think so, either. MR. PAUL: Our basic difference is on compulsory lending. MR. BELL: You have now come around, I think, if I understand you correctly, that you don't care whether compulsory lending is specifically mentioned in the Budget Message. What you would like to get is agreement with everybody around town on a program of some kind. MR. PAUL: That is right. MR. BELL: So I think this is the right approach to the Budget Message, myself. H.M.JR: You do? MR. BELL: Yes. MR. PAUL: I think it is going to be misunderstood. It is going to be regarded as fifty percent taxes. H.M.JR: You can clear that up. MR. BELL: You have to work on that paragraph. MR. BLOUGH: (Reading) "The amount and kinds of taxes Congress adopts will have a bearing on other fis- cal measures it will need to take. Whatever the type of action, time is of the essence. New measures should be passed and put into operation promptly. Within the next few months we should be collecting from current levies one-half of the cost of the Federal Government." MR. BELL: It puts Haroid Smith a little in the hole because he can't complete his budget estimate. MR. PAUL: I don't mind that. MR. BELL: You would mind it if you were sitting in his chair. Regraded Unclassified 61 - 11 - H.M.JR: Well, listen-- MR. BELL: I know how he feels. I have been there. MR. BLOUGH: He wants a figure. MR. BELL: I would, too. MR. BLOUGH: They feel, if the President doesn't give the figure and split it up between taxes and com- pulsory savings, that he isn't taking that leadership that the country is entitled to. H.M.JR: He has taken the leadership and where has it gotten him? What I want, gentlemen, is the difference here as between a frontal attack and a creeping attack, and I am recommending that we simply give a creeping attack; we do this thing inch by inch instead of going all out and having to retreat. It is what we have done every time. I have done this thing a dozen times. I have gone up there with a swell program and then steadily the Treasury forces withdraw. Now, this time I would like to-- MR. PAUL: You might say that steadily the adminis- tration forces withdrew from behind the Treasury. Of course, in other respects you believe that the New Deal ought to be restored and we ought to-- H.M.JR: I believe? MR. PAUL: You do, don't you? H.M.JR: Yes. MR. PAUL: I do, too. This is a par of that whole problem, to my mind. This is one of the vital fronts where we ought to attack and not defend. Regraded Unclassified 62 - 12 - H.M.JR: I want to show them our strength. I would like the President of the United States to be not too far behind the front. MR. PAUL: I see what you mean. That is what I like about his social security idea. H.M.JR: You didn't have that in there. MR. PAUL: We didn't put it in there because it WSS to be put in another part. MR. BLOUGH: We can if you like, but there is a passage in the Budget Message on social security. H.M.JR: I would like to put it in to make it perfectly clear how I stand on rationing. Isthat recommending & plan, to do that?. MR. BELL: You can put it in here, "The rates should be increased from top to bottom and special privileges and loopholes should be eliminated.' H.M.JR: I wish you would. MR. BLOUGH: We can put it in - I don't know if that is the place, but we can put it in. I think that if we are going to get any action in Congress, the emphasis will have to be, not on social security as a fiscal measure, but on social security as a social measure, with incidental fiscal benefits. Social security as a fiscal measure runs up against very strong hostility right at the beginning. H.M.JR: All right. MR. PAUL: I had dinner Friday night at the invita- tion of Mr. Louis Brown of the Johns Manville Company. H.M.JR: You were going to meet the half & dozen men who run America. MR. PAUL: Do you know who they are? H.M.JR: I would love to know. Regraded Unclassified 63 - 13 - MR. PAUL: Mr. Louis Brown was at the head of the table, at his right was Mr. Ross Magill and Mr. Alvord, and at his left were John Hanes and Mr. Cheever Cowdin. I had more fun than I have had in a long time. I had them disagreeing with each other. H.M.JR: Wait 8. minute, Ross Magill, Alvord, Cheever Cowdin of the NAM-- MR. PAUL: And John Hanes. H.M.JR: And John Hanes, well, I will be damned. Was it fun? MR. PAUL: I had more fun. I mean I had them in complete disagreement and agreement in fifteen minutes, and they were arguing with each other instead of me. Cowdin wants sixty billion. H.M.JR: Of what? MR. PAUL: Taxes and savings. He wants a sales tax and he wants a flat twenty percent compulsory savings. John is reconciled to higher corporate rates. H.M.JR: Johnny Hanes? MR. PAUL: Yes. MR. BLOUGH: Is reconciled to them? I thought you said worried about them. MR. PAUL: He wants to settle it. Louis Brown said he would take a fifty percent rate if we had a debt relief provision. Alvord doesn't think you will get much out of the sales tax. Magill didn't say an awful lot. All of them dis- agreed with Cowdin's high figure of sixty billion. Regraded Unclassified 64 - 14. - H.M.JR: I would love to get that in writing to myself and the President. MR. PAUL: The only other subject discussed was the Rum1 plan, or the modified Rum1 plan. H.M.JR: I would like to get that. Doe 12/pr MR. PAUL: They asked me to have lunch with them the 28th and spend the afternoon with them. I will write it up for you. MR.HAAS: Isn't Brown Morgan's man? MR. PAUL: Yes, he is on the Morgan Board of Directors. H.M.JR: He is his own man. MR. PAUL: He has a front - one of these tax policy leagues, or something. H.M.JR: Let me stop here, now, and I think this is all right. I would like to get - I have got to have this ready. You boys have got to be ready at two. MR. PAUL: Leave here at two? H.M.JR: Yes. MR. BLOUGH: This will be ready. MR. PAUL: I will write up 8 report on the plane on that other. H.M.JR: Then we have got three hours to talk about the other thing going down. One thing, Dan - we are all right now, aren't we? One thing, Dan, I would like to ask your horse-back opinion - would you or wouldn't you seek publicity on this trip to Atlanta? Regraded Unclassified 65 - 15 - MR. BELL: I would not. I don't know whether - if you can avoid it, I would not; but if you don't think you can avoid it - I think it is better to do SO. H.M.JR: Why? I would like to know your reasons. MR. BELL: I think if it gets back to the Budget and to Byrnes that you are talking about the Budget Message or your tax program for the Budget Message - I think if it gets back to the Budget Bureau or to Byrnes that you are talking to these gentlemen about what is going on the Budget Message on taxes, it will create-- MR. PAUL: Take Byrnes down with you, and Smith. (Laughter) H.M.JR: The President took it perfectly for granted that I am proceeding on the right. track. I think per- sonally - no one has said so - I think it is awfully smart maneuvering that I have been doing. MR. BELL: I think so, too. H.M.JR: I mean this move with Doughton. I have been trying to think how I could flatter George by flying down there and everything like that - a great compliment to him. MR. PAUL: He will probably get to the local papers that the Secretary flew down to see him. H.M.JR: If he does, it is all right. Maybe you people don't agree with me. MR. PAUL: I don't disagree at all. H.M.JR: Doughton is just as sweet - anything I want, just tell him. He knows how busy I am. He says, Tell me when you want me, Henry, and I will be there." Regraded Unclassified 66 - 16 - MR. BLOUGH: It is too bad he couldn't go along. H.M.JR: Don't you think this is good? MR. PAUL: I think it is very good. MR. BELL: Will publicity hurt him with his new committee? H.M.JR: No, I was thinking with George, whether I should seek it or not. I guess - let nature take its course. But the thing that pleased me, when I talked to the President, "Fine, how are you getting along with all these people down in Washington?" "Everything is fine. No trouble - no trouble." He says, "That is what I like to hear." In other words, I just think, up to the minute, we have just kind of out-maneuvered some of these fellows. I don't know how long it will last. MR. PAUL: When is George coming back - did he say? H.M.JR: Not until the 30th. Don't you think, Dan - you have been around this town a long time - that you have to take the leadership? If you just sit here and scratch your head and say, "Jimmy Byrnes is doing this and that," the first thing you know he is. MR. BELL: Yes, I think this is the thing to do. I would like to keep it out of the papers. H.M.JR: All right. Thank you all. Regraded Unclassified 67 December 21, 1942 During the coming fiscal year we face two related fiscal problems, one on the budgetary front and one on the economic front. On the budgetary front the fiseal problem is to supply the funds required to pay for the var. Tax legislation of the past three years, and particularly of 1942, has greatly increased revenues. But expendi- tures for war have increased vastly more. Taxes under existing law will raise less then one-third of the amount needed to pay for Federal expenditures in the fiscal year 1944. We should finance the war to a far greater extent by means of taxes. Taxes will be easier to pay during the wartine period of expanded money incomes then they are likely to be after the war. On the economic front the fiscal problem is to pay for the var without further increases in prices and the costs of living. which we call inflation. The people of the United States will have billions of dollars more !ncome than they have had in the past, and there will be billions of dollars less goods to buy. More than half of our production 10 going directly to Regraded Unclassified 68 - 2 - the war effort. Less than half is available for civilian use. Every effort will be made to keep the supply of civilism goods and services as large " is consistent with 8. maximum war effort and to make them available when and where they are needed most. There will be enough for health; there will be enough for efficiency: but there will not be enough goods available at present prices for the dollars people have to spend. The excess dollars should be absorbed through taxes or !ncreased saving. The spending of these dollars would have results which APO alarmingly clear. Present shortages would be intensified and new shortages would appear. Prices and the cost of living would rise at an accelerating rate. A mad seremble for goods might ensue. Black markets would be difficult to prevent. Distribution of goods would be cruelly unfair. The war effort eight be dangerously hampered. The tragedy of inflation can be prevented; it must be prevented; and it will be prevented If we take the steps necessary to meet the danger. We have already taken many vital steps. We have increased taxes and stimulated voluntary seving, thus withdrawing income from the spending stream. We have Regraded Unclassified 69 - 3 - net price ceilings, thus at least temporarily putting the brakes on the spiral of rising prices. We have stabilized wages and salaries, thus restraining the rise of business costs and the increase in money incomes. we have placed limits on consumer credit and have brought about a great amount of debt repayment. Ne have rationed some essential, scarce goods to assure everyone a necessary minimum and to help protect price ceilings. we sust go further. We must greatly increase taxes. we must greatly increase net savings. we must extend rationing. These measures are interrelated. Each increase in taxes and each increase in savings will lessen the upward pressure on prices and reduce the amount of rationing and other direct controls we shall need. This twofold fiscal problem calls for action of wartine proportions. I have endesvored to make clear that higher taxes now are the best way to pay for the war and to do so without inflation. Certain broad principles should guide us in raising the additional revenue we need. These principles include the protection Regraded Unclassified 70 - 4 - of a basic minisum standard of living, the fair and equitable distribution of the financial cost of the war, the prevention of excessive profits from the war effort, and the encouragement of maximum war production. A revenue program in harmony with these principles will retain the individual income tax as the backbone of our revenue system. The rates should be increased from top to bottom and special privileges and loopholes should be eliminated. We must adapt the income tax to war needs. We should collect as such AS possible of the individual income tax currently out of incomes when they are paid. This will make the tax easier to bear; it will bring the money into the Treasury more quickly and more certainly; while at the same time it will remove the money from the spending stream before it can be used to bid up prices. The amount and kinds of taxes Congress adopts will have a bearing on other fiscal measures it will need to take. Whatever the type of action, time is of the essence. New measures should be passed and put into operation promptly. Within the next few months we should be collecting from current levies one-half of the cost of the Federal Government. Regraded Unclassified 71 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE DEC 2 1 1942 TO Secretary Morgenthau FROM Randolph Paul We have made a thorough investigation of the constitutional and legal basis for the making of suggestions to Congress by the Secretary of the Treasury, in respect to tax legislation. I thought you might be interested in reading a copy of this memorandum. The summary of the conclusions begins on page 1. hat Regraded Unclassified MEMORANDUM It has been requested that consideration be given to the question of the extent of the Secretary's power and authority to recommend revenue legislation to the Congress even though not re- quested to do so by the Congress or a committee thereof. The results of the legal research on the question may be summarized as follows: Summary of Conclusions It is concluded that the Secretary has authority to present to the Congress recomendations concerning revenue legislation with- out regard to the request of the Congress for such recommendations. While the proper view would appear to be that the Secretary has such authority of and by himself, it should be recognised that an argument can be made that such authority is limited by a requirement result= ing from section 206 of the Budget and Accounting Act, 1921, that the President's approval be first obtained, Article II, section 3, of the Constitution makes it the duty of the President to recommend to the Congress from time to time "such Measures as he shall judge necessary and expedient, # * ⑈ Za the light of the constitutional language, the duty of the President to recommend legislation may not be affected by statutory provisions. There appears to be no reason why the President cannot perform his constitutional duty by a direction to the Secretary of the Treasury as his agent to recommend revenue legislation approved by the President. Regraded Unclassified - 2 - The following statutory provisions bearing upon the question were discoveredt First, sections 248 and 257 of the Revised Statutes of 1873, carried into U.S.C., title 5, as sections 242 and 262, outlining the powers and duties of the Secretary of the Treasury. Those sections were based on earlier statutes under the authority of which the Depart- ment of the Treasury was established and the duties of the Secretary defined. Section 248 provides, inter alia, that the Secretary "shall from time to time, digest and prepare plans for the improvement and management of the revenue, **** and "shall make report and give information to either branch of the legislature in person or in writing as may be required, respecting all matters referred to him by the Senate or House of Representatives, or which shall appertain to his office # ***, Section 257 relates to the annual report required to be made to the Congress by the Secretary, and provides that the report shall contain estimates of the public revenue and public expenditures for the fiscal year then current, and plans for improving and increas- ing the revenues from time to time. Second, sections 202 and 206 of the Budget and Accounting Act, 1921, incorporated in U.S.C., title 31, as sections 13 and 15. Section 202 prescribes that the President shall, when the estimated expenditures exceeds the estimates of receipts and of moneys in the Treasury, recommend new taxes, loans, or other appropriate action to meet Regraded Unclassified - 3 - ortimated deficiency. Section 206 forbids all department officers employees to submit to the Congress or any committee thereof any actimate or request for an appropriation, or any recomendation as to have the revenue needs should be met, unless at the request of either of the Congress, Is is concluded that the Budget and Accounting Act does not have the effect of repealing the statutory provisions with respect to the powers and duties of the Secretary of the Treasury, That is, the carlier statutory provisions requiring the Secretary to make report and to give information on matters pertaining to his office and to davise revenue plans asy be considered as a request within the meaning of section 206. In any event, section 206 cannot be construed as more then a requirement that the recommendations be transmitted through the President. It should be recognised that the research conducted and the authorities cited with respect to the purely legal phases of the above- mentioned question go only to the point of recommendation of legisla- tion and de not indicate any authority on the part of the Secretary, in the absence of a request from either House of the Congress, to appear in executive sessions of any of the committees of the Congress to advocate specific proposals or to argue on behalf of the adoption of particular policies to be incorporated in revenue legislation.,1/ See, in that connection, Opinion of the Solicitor of the Treasury to the Secretary of the Treasury, dated June 23, 1914 (Fed. No. 8412) holding that the Secretary may appear before committees even though kis appearance is not requested. The opinion is based on an assumption that a committee of the Congress would not refuse to hear the Secretary. Regraded Unclassified - 4 - In a contemporaneous memorandum prepared by the Division of Tax Research dealing with the history of Treasury participation in revenue legislation, the entire activities of the Department of the Treasury with respect to such legislation, including advocacy of specific proposals and activities extra-legal in character, are con- sidered. I. Constitutional Provision Article II, section 3, of the Constitution provides: "He [the President] shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedi- ent; **** As originally drafted, the provision read - * * he may recomend # ", but "On motion of E GovE Morris, 'he may' was struck out, & 'and' inserted before 'recomend' in the 2ᵈ clause sect- 2d art: I. in order to make it ['the duty of' stricken out] the duty of the President to recommend, & thence prevent umbrage or cavil at his doing it-" (3 Documentary History of the Constitution of the United States (State Dept. 1900) 612; see also 1 Ibid. 153.) The Congress has recognized the President's power and duty under this section with relation to the revenue. Thus, the Act of March 4, 1909, c. 299, sec. 7, 35 Stat. 1027, provided:2/ 3/ See also the legislative history of the Budget and Accounting Act, infra. Regraded Unclassified - 5 - "Imediately upon the receipt of the regular annual estimates of appropriations needed for the various branches of the Government it shall be the duty of the Secretary of the Treasury to estimate as nearly as may be the revenues of the Government for the ensuing fiscal year, and if the estimates for appropriations, including the estimated amount necessary to meet all continuing and permanent ap- prepriations, shall exceed the estimated revenues the Secretary of the Treasury shall transmit the estimates to Congress as heretofore required by law and at once transmit a detailed statement of all of said estimates to the President, to the end that he say, in giving Congress information of the state of the Union and in recomending to their consideration such measures as be asy judge necessary, advise the Congress how in his judgment the estimated appropria- tiens could with least injury to the public service be reduced 80 as to bring the appropriations within the estimated revenues, or, if such reduction be not in his judgment practicable without undus injury to the public service, that he may recommend to Comgress such leans or new taxes as may be necessary to cover the deficiency." (Underscoring supplied.) Again, the Senate has, on the basis of the Constitutional provision, refused to receive any commications from executive officers waless transmitted to the Senate through the President except them authorised or required by law or a resolution, 8 Cannon's Presedents of the House of Representatives (1936) sec. 3353. That sestion is as follows: withs Senate declines to receive communications from my executive department except through the President unless in response to a resolution of the Senate or in accordance with law. "Co December 14, 19202/ in the Senate, following the reading and approval of the Journal, the Vice President.) amounceds Regraded Unclassified - 6 - "In order that the Senate may be informed as to certain action taken by the Vice President out- side of the Senate I an making this statement. At the Sixtieth Congress the Senate passed the follow- ing resolution: "Resolved, That no communication from heads of departments, commissioners, chief of bureaus or other executive officers, except when authorised or required by law, or when made in response to a reso- lution of the Senate, will be received by the Senate, unless such communication shall be transmitted to the Senate by: the President.' "The present occupant of the chair has held that the Senate passed that resolution in conformity to the clause of the Constitution of the United States which provides that among other duties of the President- "He shall free time to time give to the Congress information of the state of the Union and recommend to their consideration such measures as be shall judge necessary and expedient.' "Certain solicitors of various departments of the Government have disagreed with the Vice President to the extent of saying that the resolution adopted in the Sixtisth Congress only applied to the Sixtieth Congress. Various departments and bureaus are com- stantly sending to the Vice President recommendations as to what the Congress should or should not do, without submitting the same to the President of the United States. I an holding that they have no right to do that, regardless of a resolution of the Senate of the United States; that the legislation of the United States of America originates in either the Senate or the House, and that recomendations with reference to such legislation must come either from or through the President of the United States. "I call attention to it se that if Senators think the Chair is in error, the Chair my be corrected Regraded Unclassified - 7 - and hereafter hand these communications down, I have been sending them back." V Third session Sixty-sixth Congress, Record, P. 308. mg/ Thomas R. Marshall, of Indiana, Vice Presi- dent." Finally, Mr. Justice Story, in his Commentaries on the Con- stitution of the United States (3rd Ed. 1858) analysed the reason for the prevision as follows (p. 418)= - # There is great wisdom, therefore, in not merely allowing, but in requiring the president to lay before congress all facts and information which may assist their deliberations; and in en- abling him at once to point out the evil and to suggest the remedy. Be is thus justly made responsible, not merely for a due administration of the existing systems, but for due diligence and examination into the means of improving them." Since the quoted provision of the Constitution imposes a daty upon the President, it is clear that no action of the Congress can either relieve him of that duty or prevent him from exercising 14. , While it is true that traditionally the President has per- formed that duty, either by written messages delivered by one of his secretaries, or by oral messages, no reason is perceived why he may not, having first approved the proposals to be made by the Secretary of Treasury, send that official to deliver his message, or recommen- dation, for him. Of especial interest in that connection is the Regraded Unclassified - 8 - statement in President Wilson's book, "Constitutional Government in the United States," that (p. 201) there is no reason to believe that the framers of the Constitution - # # meant actually to exclude the President and bis advisers from all intimate personal consultation with the houses in session. No doubt the President and the members of his cabinet could with perfect legal propriety and without say breach of the spirit of the Constitution attend the sessions of either the House or the Senate and take part in their discussions, at any rate to the extent of answering questions and explaining any measures which the President might see fit to urge in the messages which the Constitu- tion explicity authorises him to send to Congress." п. Statutory Provisions The only statutes concerning the instant question}/ which have been found are sections 248 and 257 of the Revised Statutes of 1873 (U.S.C., 1940 ed., title 5, secs. 242, 262), and sections 202 and 206 of the Budget and Accounting Act, 1921 (Act of June 10, 1921, c, 18, secs. 202, 206, 42 Stat. 21 (U.S.C., 1940 ed., title 31, secs. 13, 15)). Rev. Stat., sec. 248, provides, as it appears in the Codes "The Secretary of the Treasury shall, from time to time, digest and prepare plans for the improvement and management of the revenue, and for the support of the public credit; shall superintend the collection of the revenue; shall, from time to time, prescribe 3/ Section 512 of the Revenue Act of 1942 (Act of October 21, 1942, 0. 611, sec. 512, 56 State ) concerning the power of the Joint Committee on Internal Revenue Taxation to obtain data from the various departments is not pertinent, Regraded Unclassified - 9 - the forms of keeping and rendering all public accounts and making returns; shall grant, under the limitations herein established, or to be provided, all warrants for moneys to be issued from the Treasury in pursuance of appropriations by law; shall make report and give information to either branch of the legislature in person or in writing, as may be required, respecting all matters referred to him by the Senate or House of Representatives, or which shall appertain to his office; and generally shall perform all such services relative to the finances as he shall be directed to perform." (Underscoring supplied.) The legislative history of the Act of September 2, 1789, c. 12, 1 Stat, 65, from which that section was ultimately derived, shows that as originally introduced the bill provided that the Secre- tary should "digest and report plans for the improvement and manage- ment of the revenue". Representative Page moved to strike out that provision on the ground that it would render the Secretary too power- ful an officer and interfere with Congressional authority. The motion failed, but a substitute motion to change the word "report" to "prepare" was carried. However, the direction of the section that the Secretary *make report, and give information to either branch of the legislature, in person or in writing (as he may be required), respecting all matters referred to him by the Senate or House of Representatives, or which shall appertain to his office" was not amended. That portion of the section has been construed as permitting the Secretary of the Treasury to recomend legislation to Congress even though his views have not been requested. 5 Hinds' Precedents w See Appendix A. Regraded Unclassified - 10 - of the House of Representatives (1907) sec, 6652.5/ That section is as follows: "The Secretary of the Treasury may recommend legislation to Congress, even when his views have not been requested by either Bouse. - On February 14, 1878,4 the Speaker laid before the House a communication from the Secretary of the Treasury, stating that discussion as to a reduction of taxes on spirits and tobacco had resulted in a decrease of revenue, which might render necessary the in- position of further taxes by Congress. The communication having been read, Mr. Carter H. Harrison, of Chicago, made the point of order that the Secretary of the Treasury was not author- ized to recommend legislation to Congress except when his views had been requested by either House, and that the said comunication was not properly before the House. The Speaker2/ overruled the point of order on the ground that the Secretary was required, under section 248 of the Revised Statutes, to give informa- tion to either branch of Congress respecting matters which shall appertain to his office.2/ Second session Forty-fifth Congress, Journal, pp. 435, 436; Record, P. 1033. "?/ Samuel J. Randall, of Pennsylvania, Speaker. "3/ The Secretary of the Treasury alone, of all the Cabinet officers, sends his annual report to the House directly. The other Cabinet officers transmit their 5/ See also telegram from Secretary Sherman to the House of Representa- tives Journal Clerk, dated February 14, 1878, statings "The practice has been to freely communicate to the House or the Committees of the House all information from this Depart- ment, whether called for or not, and usually direct to the appropriate Committee, but in matters of importance to the House itself. The precedents of both forms of communication are very numerous." (Letters Sent, Series "C," Vol. 7, P. 205) Regraded Unclassified - 11 - reports as a part of the President's message, or rather with it. The law of 1789 puts the Secretary of the Treasury on a basis of especial prominence\in regard to Congress." Rev. Stat., sec. 257, provides in part, as it appears in the Code: - "The Secretary of the Treasury shall make the following annual reports to Congress: "First. A. report on the subject of finance, containing estimates of the public revenue and public expenditures for the fiscal year then current, and plans for improving and increasing the revenues from time to time, for the purpose of giving information to Congress in adopting modes of raising the money requisite to meet the public expenditures. (Underscoring supplied.) Those statutes clearly require the Secretary to make recom- mendations concerning revenue measures as well as other matters per- taining to his office, unless they are limited, with respect to revenue 6/ The debate in the House on the bill which became the Act of May 10, 1800, C. 58, 2 Stat. 79 (from which the above section was ultimately derived) shows that: "Mr. GALLATIN and Mr. NICHOLAS opposed the passing of the bill, on Constitutional principles. They observed, that as all money bills were to originate in the House of Representatives, the Senate had no right to propose any bill by which that pro- vision was changed; nor could the Secretary of the Treasury, upon the same ground, propose anything that should originate any money bill. Heretofore, it had been usual, when information was wanting by the House, to call for it from that Department, and the same could be done again." (Annals, 6th Cong., lst Sess., 709). Regraded Unclassified - 12 - measures, by sections 202 and 206 of the Budget and Accounting Act, 1921, supra. Those latter sections provide, as they appear in the Code: "Sec. 202. (a) If the estimated receipts for the ensuing fiscal year contained in the Budget, on the basis of laws existing at the time the Budget is transmitted, plus the estimated amounts in the Treasury at the close of the fiscal year in progress, available for expenditure in the ensuing fiscal year are less than the estimated expenditures for the en- suing fiscal year contained in the Budget, the Presi- dent in the Budget shall make recommendations to Congress for new taxes, loans, or other appropriate action to meet the estimated deficiency. "(b) If the aggregate of such estimated receipts and such estimated /amounts in the Treasury is greater than such estimated expenditures for the ensuing fis- cal year, he shall make such recommendations as in his opinion the public interests require." "Sec. 206. No estimate or request for an appro- priation and no request for an increase in an item of any such estimate or request, and no recommendation as to how the revenue needs of the Government should be met, shall be submitted to Congress or any com- mittee thereof by any officer or employee of any de- partment or establishment, unless at the request of either House of Congress." It is not believed that those sections worked a repeal of the requirements of sections 248 and 257 of the Revised Statutes. All those statutes are codified in the United States Code and are, there- fore, prima facie the law. Act of May 29, 1928, C. 910, sec. 4, 45 Stat. 1007, as amended (U.S.C., 1940 ed., title 1, sec. 54(b)). The Budget and Accounting Act, 1921, contained no repealing provision; the provisions of section 206 are general, relating to recommendations as to revenue needs from officers or employees of all the departments and Regraded Unclassified - 13 - establishments, whereas the earlier provisions of sections 248 and 257 of the Revised Statutes are specific, requiring the Secretary of the Treasury to make reports and recommendations concerning revenue matters to the Congress; and, as will be hereafter shown, the provisions of section 206 are not absolutely incompatible with the provisions of sections 248 and 257 of the Revised Statutes. In that situation the language of the Supreme Court in Washington V. Miller, (1914) 235 U.S. 422, is particularly pertinent. The Court was there considering the effect of the Act of April 28, 1904, C. 1824, 33 Stat. 573, which pro- vided that "All the laws of Arkansas heretofore put in force in the Indian Territory are hereby continued and extended in their operation, so as to embrace all persons and estates in said Territory, whether Indian, freedmen, or otherwise, * ⑈ upon the Act of June 30, 1902, C. 1323, 32 State 500, which provided that descent of Creek property should be in accordance with Arkansas law except that only citizens of the Creek Nation and their Creek descendants should inherit lands of the Creek Nation. The Court said (at P. 427): "No repealing clause accompanied this provision, so the question is, did it repeal the provisos by implication. There is no doubt that, if taken liter- ally, it would subject the Creek lands to the Arkansas law of descent and distribution without any qualifi- cation or restriction. But this would be only by reason of the generality of its terms, for it made no mention of that law or of those lands. In short, it was plainly a general statute and did not show that the attention of Congress was then particularly directed to the descent of the lands of the Creeks. Regraded Unclassified - 14 - On the other hand, 5 6 of the supplemental agreement and its two provisos dealt with that subject in specific and positive terms which made it certain that the Creeks and their lands were particularly in mind at the time. In these circumstances we think there was no implied repeal, and for these reasonst First, such repeals are not favored, and usually occur only where there is such an irreconcilable conflict between an earlier and a later statute that effect reasonably cannot be given to both (United States V. Healey, 160 U.S. 136, 146; United States V. Greathouse, 166 U.S. 601, 605); second, where there are two statutes upon the same subject, the earlier being special and the later general, the presumption is, in the absence of an express repeal, or an absolute incompatibility, that the special is intended to remain in force as an exception to the general (Townsend V. Little, 109 U.S. 504, 512; Ex parte Crow Dog, Id. 556, 570; Rodgers V. United States, 185 U.S. 83, 87-89); and, third, there was in this instance no irreconcilable conflict or absolute incompatibility, for both statutes could be given reasonable operation if the presumption just named were recognized. "No doubt there was a purpose to extend the operation of the Arkansas laws in various ways, but we think it was not intended that they should super- sede or displace special statutory provisions enacted by Congress with particular regard for the Indians whose affairs were peculiarly within its control.* * **7/ It would appear, than, that the earlier provisions of sections 248 and 257 of the Revised Statutes are not repealed by section 206 77 See also, (a) Repeals by implication not favored: Posadas V4 National City Bank, (1936) 296 U.S. 497; United States V. Jackson, (1938) 302 U.S. 629; (b) Special law not repealed by general law: Townsend V. Little, (1883) 109 U.S. 504; Rodgers V. United States, (1902) 185 U.S. 83; United States V. Nix, (1903) 189 U.S. 199; XX parte United States, (1913) 226 U.S. 420; Baltimore National Bank Vs State Tax ission of Maryland, (1936) 297 U.S. 209. Regraded Unclassified - 15 - of the Budget and Accounting Act unless there is an "absolute incompatibility* in their provisions. Such an incompatibility does not exist if the qualifying phrase of section 206, "unless at the re- quest of either House of Congress" is read to include requests of the two Houses of Congress and the President acting together, for the pro- visions of sections 248 and 257 of the Revised Statutes constitute both a requirement and a request that the Secretary of the Treasury report revenue plans to the Congress. Nor would it appear improper 80 to read section 206, for the request of both Houses of Congress and the President acting together is certainly of as great force as the request of a single House.8/ That such construction is proper is indicated by the fact that for eleven years (1922 to 1932 inclusive) after the passage of the Budget and Accounting Act, 1921, the Secretary's Annual Report contained recomendations relating to the revenue. Such administrative 8/ An indication that the Congress itself did not regard section 206 as incompatible with the earlier statutes is the fact that it took no action on the report made to it by the President pursuant to section 210 of the Budget and Accounting Act, 1921. That section provided: "The Bureau shall prepare for the President a codi- fication of all laws or parts of laws relating to the prepa- ration and transmission to Congress of statements of receipts and expenditures of the Government and of estimates of appropriations. The President shall transmit the same to Congress on or before the first Monday in December, 1921, with a recomendation as to the changes which, in his opinion, should be made in such laws or parts of laws." The report quoted verbatim sections 248 and 257 of the Revised Statutes (House Doc. No. 129, 67th Cong., 2d. Seas, 164) Regraded Unclassified - 16 - practice 18 entitled to great weight in the construction of et statute Bor 10 the force of that practice weakened by reason of the fact that the Secretary's Reports from 1933 to date have not contained such recommendations, for that resulted from the fact that since that date they have been contained in the President's Budget Message or in separate messages of the President dealing with tax matters. However, even assuming arguendo that the construction of sections 248 and 257 of Rev. Stat. end of section 206 of the Budget and Accounting Act, which 1M here set forth 1s incorrect, section 206 cannot be reed as anything more than 8 limitation on the powers of the Secretary requiring him to obtein the President's approval of his recommendations before presenting them to Congress. The legislative history of the Budget and Accounting Act, 1921,10/ shows that the Congress recognized the constitutional duty of the President and sought 9/ United States Y. Philbrick, (1887) 120 U.S. 52; Pennoyer V. McConnaughy, (1891) 140 U.S. 1; United States V. Jackson, (1930) 280 U.S. 183. 10/ H.R. 9783, 66th Cong., lat Seas. was the original bill and refer- ences are to its legislative history. It was vetoed by President Wilson because of the provisions concerning removal of the Comptroller General. On the last day of the Second Session of the 66th Congress, H.P.- 14441, identical with H.R. 9783 except for those provisions, was introduced but failed of passage. At the first session of the 67th Congress, the Bill 8.1084, which finally became the Budget and Accounting Act, 1921, was introduced and passed. Its provisions in all respects here material were the same as those of H.P.. 9783. The legislative history of 8.1084 contains the following interesting, though not authoritative, passage: "Mr. Montague. ***I hope much from the successful accomplishment of this legislation, but have not the exuberent optimism that some Members seem to entertain as resulting from its enactment. Perhaps suriliary end supplementary legislation may be necessary to (continued) perfect Regraded Unclassified - 17 - by the statutory provisions simply to center responsibility in the President for the appropriation estimates and revenue recommendations Time, the reports on H.R. 9783 contain the following pertinent state- ments: "A_budget system thus contemplates that a document corresponding to the foregoing will annually be pre- pared by the Chief Executive; that this document will be submitted to the legislative branch, and that the latter will make use of it as a basis for all of its action looking toward the making of provision for the financing of the Government for the future. In a word, a budgetary system has as its prime character- istic that the Government in providing for its finan- cial needs will have a definite financial and work program; that responsibility will rest upon the admin- istrative branch for the formulation of this program in the first instance and upon the legislative branch for subjecting it to such revision as in its opinion is deemed desirable. 10/ (continued) the plan. Time will decide this, In my own view I an happy to see that the Treasury Department has some- what to do with this law. I think the budget system will only work in its maximum efficiency when the Sec- retary of the Treasury himself has a seat on the floor of this House and on the floor of the Senate to debate any matter in relation to the budget, and to answer any interrogatories that may be propounded by Members of the respective bodies. Long since I offered a bill to that effect. The Congress will with greatest dif- ficulty avail itself of the benefits of the budget system, or control that system as it should do, unless the Secretary or his assistants cooperate on the floor of the House in the actual consideration of the measure. In course of time I predict such mutual consideration debate, and cooperation will come to pass." (1921) 61 Cong. Rec. 1858. 11/ The debates show that there was before the Congress the rule of the House of Commons providing that: "This House will receive no petition for any sum relating to the public service or proceed upon eary motion for a grant or charge upon the public revenue * * # unless recommended by the Crown." (1919) 58 Cong. Rec. 7137. Apparently the Congressional purpose was to emulate that rule. Regraded Unclassified - 18 - "If increased economy and efficiency in the expenditure of funds is to be secured, it is thus imperative that the evils should be attacked at their source. The only way by which this can be done is by placing definite responsibility upon some officer of the Government to receive the requests for funds as originally formulated by bureau and departmental chiefs and subjecting them to that scrutiny, revision, and correlation that has been described. In the National Government there can be no question but that the officer upon whom should be placed this responsi- bility is the President of the United States. He is the only officer who is superior to the heads of de- partments and independent establishments, He is the only officer of the administrative branch who is in- terested in the Government as & whole rather than in one particular part. He is the only administrative officer who is elected by the people and thus can be held politically responsible for his actions. Further- more, as head of the administration it is to him that Congress and the people should look for a clear and definite statement of what provision in his opinion should be made for the revenue and expenditure needs of the Government. The requirement that the Presi- dent shall prepare and submit to Congress annually upon its convening in regular session a budget will thus definitely locate upon him responsibility for the formulation and recommendation of a financial and work program for the year to ensue. "If duplication, waste, extravagance, and inefficiency exist in any branch of the service, the President will be responsible for them if he includes in his budget an estimate for their continuance. The members of his Cabinet and their assistants would aid the President in preparing a budget for which his administration is will- ing to be charged. It substitutes teamwork in the executive departments for the unorganised work of each of the members of his Cabinet. "The primary purpose of the bill that is submitted with this report is thus to insure the preparation and submission of such a program by the Chief Executive." (H.R. Dep. No. 362, 66th Cong., 1st Seas, 5.) Regraded Unclassified - 19 - "The bill, if it become law, in no sense will impair either the authority or the responsibility of Congress. It presumes that the President, in confer- sace with his Cabinet, will adopt a fiscal policy con- formable to his general program; it presumes that there will be laid before the Cabinet the estimates of the revenues for the ensuing fiscal year, as well as pre- liminary and tentative estimates for expenditure by the several departments. The President, in conference with his Cabinet, must determine the sum of the bud- get-the total of expenditure to be proposed to Con- prom-u well as the sums proposed to be expended by the several executive departments of the Government. This will require at the same time decision whether recos endation shall be made to Congress to continue the existing sum of taxation, to reduce, or to increase 16.0 (Underscoring supplied.) (Sen. Rep. No. 524, ooth Cong., 2d Sees. 4.) "It provides in section 202 that the President shall recommend to Congress new taxes, leans, or other appropriate action to meet the deficiency, if the Budget shows a deficit, or, if it shows a surplus, he is required to make such recommendation as he believes the public interests required. This section 1s in lieu of corresponding matter contained in each bill but is more specific and definite than the correspond- ing matter in either of them. "It provides in section 206 that no estimate or request for an appropriation and no request for an increase in any item of any such estimate or request, and no recomendation as to how the revenue needs of the Government should be met, shall be submitted to Congress or any comittee thereof by any person in the executive branch of the Government except the President, unless upon the request of either House. This section is in lieu of a similar section in the House bill and a similar section in the Senate bill, except that the Senate bill provided that estimates of appropriations or recomendation for raising revenue could be submitted to Congress by any official or employee in the executive branch of the Government, upon request of any comittee of either House having Regraded Unclassified - 20 - jurisdiction over appropriations or revenues." (Underscoring supplied.) (Conference Report, H.R. Rep. No. 1044, 66th Cong., 2d Sess., 10, 11.) Again, there are set forth in Appendix B hereto, collequies between the various members of the House Committee and other members of the House, which support the conclusion that the only purpose of the Dr quoted sections was to center responsibility in the President. It follows that the only effect, if any, of section 206 of the Budget and Accounting Act, 1921 on the previously existing authority of the Sec- retary of the Treasury was to require approval of the President of all revenue matters presented by the Secretary to the Congress. There is, therefore, no violation12/ of that section if the Secretary, at the direction, and as the agent of the President, presents recomends- tions to the Congress for revenue legislation 12/ Whether if the section is construed to prevent the President from making recommendations through Executive officers it would be consti- tutional, need not be discussed. 13/ The only contrary indication in the legislative history of H.R. 9783 is the following colloquy between Representative Elston and Rep- resentative Good (Chairman of the House Committee): "Mr. ELSTON. Every executive officer is the mere agent of the Chief Executive, and this measure merely provides that every recommendation for expendi- ture should come from the Chief Executive and not through his agents. That is, you do not want his agents to do it, but the President himself? "Mr. GOOD. Yes." It is submitted, however, that Representative Good's answer indicates only that an executive officer could not present recommendations with- out first obtaining approval from the President on the theory that he was the President's alter ego. It does not necessarily imply that the President, having approved and adopted the recomendation, could not present it through an executive officer as his agent. Regraded Unclassified APPENDIX A À 615 OF DEBATES IN CONGRESS. 92 616 Just $5, 1789.] We Department. (H. OF R. DEPARTMENT OF WAR The Heart then went into a committee on plans for the improvement and management the bill for establishing the Department of War. of the revenue, and the support of the public Mr. TERNOULL in the chair. credits" observing that it might be well Mr. BENSON proposed, with respect to the to enjoin upon him the duty of making out and Secretary's being removable by the President, preparing estimates: but to go any further to that which had been would be a dangerous innovation upon the com- stitutional privilege of this House: it would in the bill establishing the Department Affeirs. because members might be led, by the defer- create an undue influence within these walls, BURRMAN thought it unnecessary to load ence commonly paid to men of abilities, who die all with any words on that subject; be con- crivell the gentleman ought to be natisfied with give an opinion in a case they have thoroughly had the principle established in the studied, to support the minister's plan, even against their own judgment. Nor would the Pass was of the same opinion, but fur- mischief stop here; it would establish a prece- dent which might be extended, until we ad- thought it argued a doubt, even in the mitted all the ministers of the Government on of the majority, of the truth of their prin- the floor, to explain and support the plans they and they wanted, by repetition, to force have digested and reported: thus laying a foun- did spott the mind which was not impressed W right remo. The question on the amend- dation narchy. for an aristocracy or a delestable No- nient was taken without further debate, and Mr. Tecken.-The objection made by the - in the allirmative, twenty-four to twen- gentleman near me in, undoubtedly, well founded. I think it proper to strike out all the Bate other small alterations being made, the words alloded to, because the following are - and reported the bill as amend- sufficient to answer every valuable purpose, which being partly considered, the House namely, to prepare and report estimates of the public revenue and public expenditures." If we authorize him to prepare and report TRURSDAY, June 95, plans, it will create an interference of the ex- WYREOOF presented the petition of 8a- ecutive with the legislative powers; it will of Philadelphia, praying for the abridge the particular privilege of this Houses of constructing and vending for the constitution expressly declares, that all king mails by mill-work. Or- bills for raising revenue shall originate in the lie the table. House of Representatives. How can the be- siness originate in this House, if we have it DEPARTMENT OF WAR reported to us by the Minister of Finance? All Have returned the consideration of the the information that can be required, may be by the Committee of the called for, without adopting a clause that may for establishing the War De- undermine the authority of this House, and the being agreed to, the bill was security of the people. The constitution las pointed out the proper method of communica- the Benete informed the tion between the executive and legislative de. agree la the amendment pro- partments; it in made the daty of the President House se their amendment to the to give, from time to time. information to Cap- a deter on goods, wares, and gress of the state of the Union, and to late the United States; mend to their consideration such Diceasures an fourth and fifth amendments to he shall Judge necessary and espedient. If to the proposed conference revenue plans are to be prepared and reported of de other amendments to Congress, here is the proper person to de its have their managers to be in responsible to the people for what be no- the and Afth amend- commends, and will be more cautions than any Segata likewise agree to the other person to whom a less degree of respon- by this House to their sibility is attached. Under this classe, you assendments to the bill impos- give the Secretary of the Treasury a right to testage) and sin to the proposed obtrude upon you plans, not only undigisted, of the other but even improper to be taken up. to the and MIL I hope the House is not already weary of ex- ecuting and sustaining the powers vested in DEPARTMENT. them by the constitution; and yet it would ar- reselved itself into a Com- gee that we thought ourselves less adoquate to - the bill for establishing determine than any individual what berthens Department, Mr. TREMSULL in our constituents are equal to bear. This is geornd classe being under con- not answering the high expectations that were formed of our exertions for the general good, objected to the words making it or of our vigilance in geording our own and the daily of the Secretary to digest and report people's rights. In short, Mr. Chairman, 1 617 GALES & SEATONS HISTORY 93 H. or R.] Terminy Department. University, can never agree in have money bills originated forced this House by a man destitute legislative authority, while the constitution should introduce such a novelty in legislation, I we, in the free republic of the United States, am at a loss to conceive. The constitution gives such power sulely to the House of Repre- sentatives; for this reason, I cheerfully second pressly delegates to us the business of the reve. a. the motion for striking ogi the words. nue; our constituents have confidence in Mr. Benson.-If the proposed amendment because they suppose us acquainted with they Us, prevail. the bill will be nearly nugatory. The circumstances; they expect, in conserpurace most important service that can be rendered by of this knowledge, we will not attempt to had a goutlemen who is at the head of the Depart them with injudy un oppressive lases bus ment of Finance, is that of digesting and IV- follow pechaps an unskilful minister. Is does by they have no such security, if we are bloodly porting plans for the improvement of the reve- nue, and supporting public credit; and, for my not answer me, Mr. Chairman, to may the Home part, I shall despair of ever seeing your reve- has a right of deliberating and deciding upon are improved, or the national credit supported, these plans, because we may be told, if you unless the business is submitted into the hands prune away this part or that part of the 1)Hem, of an able individual. I thought this subject you de-troy its efficiency. Therefore we Nex was well understood, from the debate en the act with caution: we must either take or reject original notion. It wasthen insisted upon by the whole; but if we reject the whole, Mr, - an honorable gentleman, Mr. GERRY. who are to depend upon ourselves for a solestitute appeal the appointment of a Secretary of the How are we to form one? For my part, I above not despair, that the united wisdom of this Transury, that his important duties ought to be House could procure one: but if we are is to consider of the means of improving the this in the second instance, why cannot of revenue, and introducing economy into the tempt it in the first? 1 have no objection to - expenditures, and to recommend general sys- calling upon this or any other officer for infor. tenas of revenue." Now, what more than this mation: but it is certainly improper to have him is required by the clause? authorized by law to intrude upon us whatever For my part, I am at a loss to see how the he may think proper. I presume, sir, it in - privilege of the House in infringed. Can any supposed by the worthy gentleman from New of the Secretary's plane be called bills? Will York (Mr. BENNON) that we shall be at & has they be reported in such a form even? But ad- to conceive what information would be useful mitting they were, they do not become bills, un- or proper for us to require, that we must have less they are sanctioned by the House: much this officer to present us with what he chooses. less is the danger that they will pass into laws When the President requires an epinion of him, without full examination by both Houses and the constitution demands him to give it; to us. the President. From this view of the subject, der the law, let him send his opinion in here, la the clause from appearing dangerous, when it is asked for. If any further power is inlieve it discovers itself to be not only given him, it will come to this at last: we, like onle, but ementially necessary; and the Parliament of Paris, shall meet to register K is retained, the great object of the what he dictates. Either these reports of de bill will be defeated. Secretary are to have weight, or they an - Mr. Goodwor.-W certainly carry our dig. if they are to have weight, the House acts lb- sity to the extreme, when we refuse to receive der a foreign influence, which is altogether in. information from any but ourselves. It must be proper and impolitic; if they are to have - mindsted, that the Secretary of the Treasury weight, we impose a useless duty upon de from the nature of his office, be better ac- officer, and such as is no mark of our windom, with the subject of improving the re- Mr. AMES hoped the subject might be treat. cartailing expense, than any other ed with candor and liberality: he supposed the be is thes capable of affording useful objections were made on those principles, and stall we reckon it hazardous to re- therefore required a serious answer. The war. For my part, when I want to attain a thy gentleman who first expressed his averaise abject, I never shut my ears against to the clause seemed to be apprehensive for likely to enable me to secure it. the power of reporting plans by the Secretary CAD never consent to establish, would be improper, because it appeared to is interference of an executive offi- to interfere with the legislative daty of des of legislation] it may be well House, which the House ought not to relinguish - 65 monarchy. for a minister Whenever it in a question, Mr. Speaker, 1 M am to a Parliament with his plans in his he, whether this House ought, or ought not, and order them is be enregistered or en- establish offices to exercise a part of the permit de practice does not obtain even in of either branch of the Government, there are marchy like Britain. The minis- two points which I take into consideration, in - introduces his plans, reast be 6 order to lead my mind to a just decision) first, of the House of Commons. The men whether the proposed disposition is usefuls and, world - treated with indignation, who should second, whether it can be safely guarded from - that country to bring his schemes be- abuse. Now I take it, air, that the House, by fin Parkament in any other way. Now, why their order for bringing in a bill to establish the Regraded Unclassified 31 GIV OF DEBATES IN CONGRESS. 690 Just 13. 1780.) Treasury Department. (H. OF B. Treasury Department in this way. have deter- mared the point of utility: or, have they erred is with an intention to let . little southing - adopting that opinion, I will slightly make an the business that the present AITER enjuiry, How does it lend to general utility? proposed; I hope it may be successful, The relary is presented to acquire the best doubt the event. I an confident knowledge of the subject of finance of any are equal to the demand, if they NO member of the community. Now, if this House brought into operation; but a bad is to act ou the best knowledge of circumstan- of the finances will prove our greatest on it secios to follow logically, that the House But is our proposed arrangement guest obtain evidence from that officer; the best the guards sufficient to prevent way of doing this will be publicly from the offi- perfectly satisfied it can be made so, a himself, by making it his duty to furnish us the united exertions of both Houses with it. It will not be denied, sir, that this offi- it. How is the power complained orr will be better acquainted with his business honorable gentlemen over the my than other people can be. It lies within his de- and Mr. TUCKER) unsafe? We partment, to have a comprehensive view of the plans reported may have as under state of the public revenues and expenditures. Upon what ground is this opinisa He will, by his superintending power over the the gentlemen apprehend the facts ciously stated? If so, I would sak, collection, be able to discover abuses, if any, in be detected? If facts are faithfully that department, and to form the most eligible the deductions are fair, no doubt the plan to remedy or prevent the evil. From his be patronized; and will gentlement information respecting money transactions, he ought not? I believe there is little any be able to point out the best mode for sup- imposition, for a person in this porting the public credit; indeed, these seem to hardly run the risk of detection - to be the great objects of bis appointment. where detection might be w Itis, perhaps, a misfortune incident to public tion of the books and veschers, anemblies, that from their nature they are more tion be destroyed. incompetent to a complete investigation of ac- What improper influence could counts than a few individuals; perhaps in a Go- ed openly and officially have or versment se extended, and replete with variety any member, more than if the is its mode of expenditure as this, the subject formation were given privately at may be more perplexing than in countries of tary's office? smaller extent, and less variety of objects to Nor, Mr. Chairman, do I - geard. The science of accounts is at best but gentlemen my with respect to all abstruse and dry study; it is searcely to be Secretary for information; it will understood but by an unwearied assiduity for a insttention or neglect, if be take time long time; how then can a public body, elected sider the questions you propeunds X easually, and in session for a few months, un- make it his duty to furnish you plans dertake the ardoors task with a full prospect mation on the improvement of the increas? If our plans are formed upon these support of public credit, and he issumplete investigations, we can expect little form it, his conduct or capacity improvement; for I venture to my, that our impeached. This will be furnishing knowledge will be Car inferior to that of an in- al check. devided, like the present ufficer. Hence I con- It has been complained of M a 1 sir, that the Secretary is a useful and in- let me ask gentlemen, if it is and valuable part of the Government. tion of & similar kind that due I would not have it understood that 1 am the finances of Britain is the days agriest an inquiry being made into this subject It is true, the Chancellor of the at every seasion of the Legislature. I think member of the House that has the sech a practice bighly salutary. bet I would not originating money bills but is that treat to a hasty, or perhaps injudicious exam- we should pol have the information instion of a business of this magnitude; on the be obtained from our officer, who celrary, I would take every precaution in M- means of acquiring equally importes certaining the foundation upon which our reve- knowledge? The nation, - will - are to stand. mest of Britain, holds a check one и 10 consider the present situation of our cellar: if his budget contains false fienaces, owing to 4 variety of causes, we shall they are corrected; if be attempts - desbt perceive a great, although unavoida- or even unpopelar his bic confuaion throughout the whole ocene; it tion becomes adious, and be M presenta to the imagination & deep, dark, and we spore readon to four the deary chaosi impossible to be reduced to order less responsibility or amounty - without the mind of the architect is clear and ment of de Treasury department? repacious, and his power to the let us improve it, but sil delaige accession: be rest not be the Bitting creature of and most anful power, Date a day. be must have time given him competent will refere their approvation for the successful exercise of his authority. It 41 Regraded Unclassified 621 GALES & SEATONS HISTORY 35 H. OF R.] Department. Urs. Mr. shall vole for striking curraiting this part of the Surretary's daty. opt the clause, because I conceive it essentially -hall lose the advantages which the propose secessary so to do The power of originating system Mile intended to acquire, The improved money bills within these walls, I look upon as ment and management of the revenue in a a sered deposite which we may neither violate jeet that must be investigated by a man of and nor divest ourselves of, although at first yes il tips and indelatigable industry, if We mean may appear of little importance who shall Form have our business advantageously thine. a plan for the improvement of the revenue, Innorable gentlemen will for a months consider Although every information tending to effict the prediar concumstances of this country. 02 this great object may be gratefully received 1.3 means of information attainable by the this House, yet it beloaves us In runsules to dad members this House, and compare time what this chause may lead, and where it may with the object they have be pousue, they terminate. Might it not, by construction, be Mandy perceive the necessity of calling for the said, that the Secretary of the Treasury has the auf the advantages resulting from an establish sole right of digesting and regarting plans for thent like the une contemplated in the bell; the improvement of the revenue? This on- they weigh these circumstances carefully, they struction may appear a little extraordinary, hot objections. I truel. will vanish. Coming. Mr. is is net more MI than some constructions here- Chairman. a- we do, from different parts of the tofore put upon other words; but however PX: Union, Iron States where the objects il level traordinary it may be, if may take place, and I nur are different, where the circumstation. and think the best way to avoid il, will he to leave views of the people are different. and in a sut the words altogether. It is certainly im- degree local, it appear- tome that income proper that any person, not expressly entrusted Fall be su fortunate -- to process the by our constituents with the privilege of taking knowledge attainable by this officer, their money, should direct the quantum and the induces me to draw the Name - manner in which to take it. clusion, We shall find systems adopted But if there in pet the danger thave toratom- defeat the collection of the revenue, hai it will ed, of giving power exclusively to this officer, I be impossible for any of us to become an would ask gentlemen, and I submit if to their acquinted with these that Signature - to defen candor to say, whether it must Ind have a len their algert l/ut from the advantageous Irsi dency to rember the minds of the members in tim WP ove the Secretary of the Treasury, different on the subject, if the business is to be the multitarions objects of his allention, be arranged and conducted by another, who, we watch over and detect their plans; he will has are told. is beiter capable of uniled standing it a better capacity to propose A remedy than with than ourselves? Certainly, shall hardly think member of the Legislature, it worth while to truble nor heads about the I do not apprehend any malue influence npo basiness. How far this will disapport the eda- rating un the menders of this House. become ject of our election, may be plainly seen. For am persuaded there will ever prevail au inde my part, 1 think the power fine great to be en- pendent and indignant spirit within the walled trusted in any hands but those of the represent Congress, hostile to every venal attenge. tatives of the people, where the constitution has do I believe il possible to color, with a - deposited it, unless if be to a committee *pe- blance of justice, either take ni forw cially appointed by the Hower for that purpose, against the public welfare: the window of the Some allusions, Mr. Chairman, have been Howe can never las thought su usually of I made with respect to the organ of this power. trust a majority will always les found the nel Gentlemen have intimated Heat it Mas copied virtuous enough to resist made the help from the powers vested in the First Land of the of a corrupt administration. 1, therefory, Treasury. Lam I not of this opinion. I rather contidence, approve the object of the claim believe the committee, in searching for prece- I will mention unr corumstant of dents, have turned In the former appointment meminderable force, in latter of the tell. Com of a Superintement of Finance under the lane 1112. as I said we dis, from districts with Confederation, and, having discovered thesent- end uleas, perhaps different objects to private merated among his powers, have copied it into much time will necessarily be con-unied India the bill, not adverting to the different a urrent is found in who la the wind of the no stances of the present and former Congress) for jurity will THIS and FYCU them gentlement will to them alone was not confined the power of not les certain they have prior and all the video riginating revenue plans. Besides, " must be mation that canld the obtained. II oppears, sale in them, because they possessed the legis- therefore, by no. from the reason and nature of lative and executive power; they could alrolich dans. 1.1 last our daily. as wine legislatore his plans and his office together, if they thought form such A the information a. will proper: but we are restrained by a Schale, and supply us with what - recessary and 0-viv) all and the negative of the President. We have all Titue* no power over him, therefore WP night to be Mr. Bow DISTRICT for the cautions of putting dangerous powers into In hirrly of the people 1. commendable in the hands. who are appointed and swirn fre Im its Mr. the principle prevails for prandiant ho when the -prit is carried eu far Regraded Unclassified OF DEBATES IN CONGRESS. 96 624 Department (If. OF R. and mont of well might supply omissions or defects without will the proper From Invable and this in half the time we could have We Da frame . -) -tem. if left to reduce the chaus into the interly, that 14 M: Dive to express his senti- ndered and property will the sponts. - less every occasion, with diffi- the appointe ⑈⑈ dener his own abdities; but he looked upon lo the after to adopt plan- we the claims de both Biogle and inconsistent with rejusts For my part, love the constitution. lle thought the gentleman ÷ al theorpro last up provid too much by his arguments; he prople Hob in dread any such proved that the House of Representatives was, DE Gel, universary and useless; that une Whether this power in person could lee a better judge of the means to ------------------------- to the Linko 11 and manage the revenue. and support lo the that - The national credit, than the whole body of Con- They -1) they are withing In green, The kind of doctrine, Mr. Chair- the Informations died it may be SUT mah. is indelicate in a republic, and strikes but do hot chorge to have it community at the Poot of all legelation founded upon the this may. = the Secretary of the great democratic principle of representation. Teams is the propet person to give the (ufur D -- True. mistakes, and very injurious ones, um - no other mode of obtaining if have here maile on the subject of finance by world Do gentlement theati State Legislatures: but I would rather visit for -halt givent personal, by way of ques submit to this evil, than, by my voice, establish will and mower? This will fetal mare In midead tenets subversive of the liberties of my country. that for inform us If we would judge upon Notwithstanding what I have said, I am clear- (1) it would be better to have it IN one 11 of opinion it is necessary and useful to take int and complete view, than in inspect Il by measures for obtaining other information than We should live the great whole ⑉ what unembers can acquire in their characters the minuture. and, instead of a system, she uld as citizens; therefore, I am in favor of the pre- snif institutions with a ture com- sent bill: but I think these words too strong. If poil divertant ports. counteractic and des it was modified so as to oblige him to have his invoice the operation of each other properties. plans realy for this House when they are asked Make your officer responsible, and the pres for, I should be satisfied; but to establish a legal 1% that plans and information are pro right in an officer to obtrude his sentiments periy diseated: line if he can service himself serpetually on this body, is disagreeable, and it the curtain, he wight create a muximus is dangerous, inasmench as the right is conveyed and Not las answerable for the infor- in words of doubtful import. and conveying mind he gives, I conceite this great principle powers exclusively vested by the constitution of responsability fin be essentially necessary to in the House. the public welfare: make il his duty to One gentleman (Mr. AMES) has said, that andy the subject well. and put the nivairs ⑉ the Secretary would be responsible for the plans has powers we can then draw from Inm all the he introduces. Very true; but how are we to her has acquired. and apply it to detect the impositutions they contain; for, he says, (§ proper use. Without such all officer, our WP require more time and leisure to make the plans will be ineffectual and invoicestent. I scrutiny than falls iu our lut, so that it does not have sen too much the want of a like officer in afford the degree of responsibility which his de- the State Legislatures, not to make un very de- servations supposed. of adopting the present plan. " has been Mr. GERRY expressed himself in favor of the said, that the members cinning from the differ- object of the clause: that was, to get all the in- ent parts of the Inno are the must proper per- formation possible for the purpose of improving to give information. I deny the principle. the revenue, because he thought this informa- There are BO persons in the Government to tiun would be much required, if he judged from when we could look with less propriety for in- the load of public debt. and the present inability formation on this subject than to the of the people to contribute largely toward its of this House. We are called from the pursuit reduction. of our different occupations, and come without He could not help observing, however, the the least preparation to bring forward IN subject great degree of importance they were giving that requires a great degree of assidums appli- this, and the other executive officers. If the calon in understand: add to this the locality of doctrine of having prime and great ministers of our ideas, which in too community the case, and state was unce well established, he did not we shall appear not very fit to answer the end doubt but we should soon see them distinguished of our appaintment. ifness the difficulty and by a green or red ribbon, or other insignia of embarrasaments with which we have hitherto court favor and intronage. He wished gentle- been surrounded. If we had the subject digest- men were aware of what consequences these el and prepared. we should determine with ease things lead to, that they might exert a greater in its fitnes, its combination. and its principles, degree of caution. Regraded Unclassified 625 GALES & SEATONS HISTORY 97 626 H. OF R.) Treasury Department. (Jess BY, The practice of Parliament in Britain is first to determine the sum they will grant, and then sume our time to tio avail. Umler there refer the subject to a Committee of Ways and cumstances. it will be patrintic to lay down THE we Means: this might be a proper mode to be pur- authority, and vest it ⑉ the great minuter we have established. seed in this House. Do gentlemen, said he, consider the impor- Mr. do not ser conseque law Isnce of the power they give the officer by the % dangerous as sume gentlemen PPPIR to Appre- class? la it not part of our legislative author hend: nur did they appear to them, I believe, when the subject Was last under rity? And does not the constitution expressly declare that the House solely whall exercise the was made about establishing this office, be alléer I recullect, Mr. Chairman, that some ddlia with power of originating revenue bills? Now. what is must by reporting plans? It surely includes it was feared we could not had men of with the idea of originating money bills, that in, a cient abilities to fill it. The duties Were they MII for improving the revenue, ur, in other properly deemed of a high and important Aa. words, for bringing revenue into the treasury. lure, and enumerated as those proposed in the For if be is to report plans, they ought to be re- bill. It was supposed by an honorable gentle. ported in a proper form, and complete. This man, that the powers here expressed thight lar is giving - indirect voice in irgisiative busi- lodged in a buard, because an individual was - $ - Cleative officer. If this be not the incompetent to undertake the whole, But Nuw of the clause, let gentlemen say what we have the wonderful sagarity of discovering. - and is what extent it shall gos but if my that if an individual in appointed. he will have is true, we are giving up the most capacity to form plans for improving the fe. privilege vested in as by the constitu- venue in such an advantageous Inablier, $ tax, Bet what does this signify? The officer is supersede the necessity of having the repre. required and we are secure, This responsi- sentatives of the people consulted on the boy billy is made an argument in favor of every ness: he will not only perform the usual duties outrasion of power. I should be glail to under- of a Treasury Board, but be adequate to all par stand the term. Gentlemen my the Secretary poses of legislation I appeal to the gentleigan of the Treasury in responsible for the informa- for his usual candor on this occasion, which time be gives the House-in what manner does guments. will aware us that he has wire-drawn his an this esponsibility act? Suppose he reports a plan for improving the revenue, by 8 las which I hope, NO, if we give this power to an unit. be thinks Judicious, and one that will be agree- vidual, we shall have judgement enough to die able to the people of the United States: but he cover whether his plans are consistent with the to be deceived in his opinion. that his public happiness and prosperity; and while We and excites & pupular clamor exercise this judgment, there can be no Cause minister-what is the advantage of bility? Nothing Vew men de- by the gentleman last up. to apprehend the chimerical effects pentrayed limest for the error of opinion; all It is said to be giving him the power of legs- to done would be to repeal the law, lation. Do we give him the power of decaling what shall be law? While we retain this cautions in future in depending - the judgment of a man who had er, he may give us all the information provible. late as impolitic measure. Suppose the but can never be said to participate in legisla. PUTESSE abould fall short of his estimate, is he tive business; be has no control whatever VITY responsible for the balance? This will be car- this House. I see no danger, but a great deal min the idea further than any Government of benefit, arising from the clause: by making it hitheris bas done. What then is the officer to be his duty to study the subject, we may fraving bly expect information. requestble for, which should induce the House le val is him such extraorilisary powers? How is it said, that the power of reporting It - well observed by the honorable gen- plans for the improvement of the revenue, is themas over the way, (Mr. PAOE,) that when the power of originating money hills? The constitution declares that power In be Test- his WII or plan is before the House, we must et solely in this House. Now. will geallemen the or reject the whole: for if the individual say a money bill is originated by an individual are so uninformed on the subject as member if be brings it forward? In catinut le they have been represented, it will be next to originated, in my opinion, until the setise of the premaçãos to prepare an alteration; we should House is declared; much less can a plan for the R val his duty officially to present plans, improvement of the revenue be said to be a They our duty officially to pasa them; that he is ney bill. better informed then any other man, nay, bet- Mr. GERRY admitted that he gave it as his - line the collective wisdom of the country. opinion, that it was not an easy thing to find a But this argiment (Des further still, and it may proper person for conducting the finances in be Justly saked, what occasion is there for & this country there were but few in Europe who - if Congres? It incumbers the nation possessed abilities equal to the undertaking. with . havy expense, without rendering it any He said before, that he knew but one in Ame- service. For, if we can neither alter nor im- rica, and believed there were net many to be prote the Becretary's plans, we can only con- found. These were his sentiments then, of Regraded Unclassified 98 627 OF DEBATES IN CONGRESS. 028 JIME 15, 1759.) Treasury Department. [If. OF R. he had made TIU discoveries since that warranted which is but another word for bills, for the . change of opinion. But perhaps the advocates management and improvement of the revenue, of the bill are acquainted with a gentleman and supporting public credit. To what an es- fit for the business; if they are, il is more tent these last words may reach, I about not than lee pretended to be, unless, as he said be pretend to say) trus certainly they may include fore, it was an honorable member of the Senate, the operations of Dure departments than one. If who had made more progress in acquiring a the clause will bear the construction I have knowledge of this difficult acience, than any mentioned, it is allogether unwarrantable. I wher person be had heard of. He would not proceed un this subject, be- said, I differed from the gentleman with respect calle the House had determined to appoint to the origin of bills, but perhaps this phrase each an officer, and thereby put an end to the may be applicable to a bill on its passage: all bills, from the time they are admitted before the details. By that vote, they supposed they could fied a IDEA equal to the tank: he hoped they House, may be said to be on their passages but might, but he was really apprehensive of a dis- duction. they are originated, as I take it, at their intro- appointment, when he considered the confused and embarrassed state of our public debts and Mr. FITZMMONS was not certain that he en- accounts) however, he submitted to the voice derstood the objections which were made spint the clause; but if he did, it was - jealousy aris- of his country. The geotleman last up, maid he, did me the ing from the power given the Secretary to re- befor of noticing what I mid on a former ocea- port plans of revenue to the House. No 814 tleman, he believed, had objected to his pro- - bet 1 appeal to himself whether my words paring a plan, and giving it in when it was call- were conveyed in the language of the bill. Did ed for. If this were the case, perhaps harmony I advise any thing like this? Has not the gen- might be restored to the committee by changing ( sagacity enough to discover that my ar- the word report into prepare; be would there- genents went no further than this, that be was fore nuve that amendment, in order to try the the proper person to give information respecting the sense of the House. de public revenues and expenses, the mode of Mr. MADISON.-After hearing and weighing collecting, and the probable remedy for abuses? the various observations of gentlemen, I em at Bet certainly, this House contains more infor- a loss to ace where the danger lies, These are nation relative to the proper means of support- precisely the words used by the furmer Con- of the national credit, and how far our con- gress, on two occasions, one in 1783, the other stitents are capable of sustaining an increase in A subsequent ordinance, which established of uses, or which mode of assessment would the Revenue Board. The same power was also yield most atisfaction. Yet gentlemen pro- annexed to the office of Superintendent of - to give the power of advising the House, Finance, but I never yet heard that any incon- is all these cases, to the Secretary of the Trea- venience or danger was experienced from the my. It was always my opinion, that the re- regulation; perhaps, if the power had been presentative body, from their sense of feeling, more fully and frequently exercised, it might - a better judge of taxation than any indivi- have contributed more to the public good. del, however great his sagacity, or extensive There is a small probability, though it is but is - of information. small, that an officer may derive a weight from The gentleman says, we only give him power this circumstance, and have name degree of in- to give information: that is what I wish, but the fluence upon the deliberations of the Legísla- dime goes further. Is digesting and reporting ture; but compare the danger likely to result - merely giving information? These plans from this clause, with the danger and inconveni- will have to undergo the consideration of the ence of not having well-formed and digested Besse, I grant) but they must have some in- plans, and we shall find infinitely more to ap- Beence coming from such high authority, and prehend. Inconsistent, unproductive, and ex- il they have this in any degree whatever, it is pensive schemes, will be more injurious to our abrosive of the principles laid down in the constituents than the undue influence which crestitution. the well-digested plans of & well-informed of- The gestleman mys, - bill is not originated ficer can have. From a bad administration of setil it has obtained the sense of the House: the Government, more detriment will arise than what is it then? The bill now under conside- from any other source. The want of informa- núm has not obtained the sense of the House, tion has occasioned much inconvenience and yet I believe that gentleman bimself conceives unnecereary burthens under some of the State N to be à bills be Daes the term when he is Governments. Let it be our care to avoid quaking of it, and will hardly deny that it has those rocks and shouls in our political ariginated. I think, sir, whenever the House which have injured, and nearly proved fatal is, under . committee to bring in a bill, or give many of our cotemporary navigators. lesse to 4 member to read ODE in his place, that A gentleman has asked, what is most by - is that order they originate the bill; and here sponsibility? I will answer him. There will be it in that I am apprehensive of a. diminution of responsibility in point of reputation, at lest off privilege. By this law you give the Secreta- responsibility to the public opinion við respect 7 the right of digesting and reporting all plans, to his abilities; and supposing there is NO - Regraded Unclassified GALES & SEATONS HISTORY 39 629 630 H. of R1 Treasury Department. (June 26, 1789, sunal responsibility, yet we know that men of be effected, without the plans are always broady talents and ability take as much care for the before us? halever the House shall pressure preservation of their reputation as any other to do on independent principles, may break in species of property of which they are possess- upon the Secretary's system, or make him vary eil. If a superior degree of wisdom is expected his propositions, in order to accommodate the to be displayed by them, they take pains to give to what we have done. If we intel adopt plane proofs that they possess it in the most unequi- for the sake of uniformity, we must vocal manner; this of itself will ensure us no at all times, or lose our object. small degree of exertion. However useful it may be to obtain informa With respect to originating money bills, the tion from this officer, I am by DO Better for House has the sole right to do it; but if the making it a matter of right in him to intrado power of reporting plans can be construed to his advice. I admit, information my at all imply the power of originating revenue bills, times be acceptable, bot I think advice - the constitution is inconsistent with itself, in never come but when required. Are We le be giving the Paesident authority to recommend advisedo all occasions, because we don't know such measures as be may think expedient or when to require it? Are the members of necessary: but the construction is too unnatu- House incapable of asking for assistance who ral to require further investigation. they want it? Why have we not allronted the I have admitted there is a small probability other branches of the Government, AS well to of a small inconvenience, bet I do not think it this House? Why have we not aid that the any more an argument against the clause, than Secretary of Foreign Affairs should prepare it would be an argument against having win- digest plans for the formation of treatie dows in a house, that it is pussible the wind and report them to the President and Senate the rain may get in through the crevices. are exclusively to manage that concern? The Mr. LIVERMORE expressed an apprehension cases are exactly similar; but we did not change that the clause originated from a clause in an to offer them such an indignity. If it is right in ordinance of the former Congress; he found one instance, it is equally an in every other now be was not mistaken; but he wished gen- We eight to have given the Secretary at We tlemen to distinguish, in the manner he had at- an opportunity of exercising his ingresity tempted to do, between properties of this Con- devising plans of fortifications to wirengthe gress and that, from which they might discover our shores and harburs; we engly, is every the impropriety of adopting it. where we have to decide, appoint officers with He thought gentlemen had sufficiently ex- the same view to aid our deliberations, delled the excellence of this office, and its ad- fine, to perform the whole duties for which vantages. He remembered that the grant of this were elected. power to the officer who formerly presided at Mr. HARTLEY expressed himdel the head of the finances, had produced some the amendment proposed by Mr. moreels of this kind; the five per cent. impost, Mr. STONE was not afraid of giving 4 poll tax, and a land tax, if his memory served ficer the power of reporting plans, him right, were submitted how for these were was sure Cungress would, in every likely to meet the approbation of the Union, he upon their OWN judgment. A folare did not my; bet certainly one of them would would not pay such a deference, meet few patrons. From this specimen, he did predecessors, as to follow in their not form so favorable an opinion as some gen- less they were convinced of the timen expressed of the revenue plans, pre- their name. He those the pared, digested, and reported by a Secretary of wanted to make use of the in the Treasury. by the Secretary, they ought to give Mr. PAGE added, that the late Congress of their intention; consequently, were abligad to submit their plans to the State this kind was proper in the bill. Legislatores consequently, there was less dan- Mr. SHERMAN thought the principle et of undue influence. As this was his princi- by the clause, was absolutely pal for, be would vote against every thing like received. It was of such 4 nature giving is authority to bring his plans before itself upon them; therefore it - de Hous. tempt to clude it by subterfuge. Mr. Levenuose declared the amendment to the great abilities of a Brancier, der proposed by Mr. FITESTMONS unsatisfactory, had been able to make the enertiens and by - - removing the ground of com- witnesses of a few years ago, without plaint. ing the nation. This able man, after Tomas likewise objected to the amend- ably impreving the national remain, its effect would be precisely the placed; bet such was the importance the words standing the bill. Why, officer, that he has been restores should the Secretary be directed to The honorable maileman, unless it is intended that the Carolina, (Mr. Ticen, bee regularly call for them? The not unlis visiter provision of the gustleme are le have 5 uniformi- Department Terrips (be min of Stances but how can this the Prosident Regraded Unclassified Regraded Unclassified OF DEBATES IN CONGRESS. 100 632 Timnage Bill. (H. OF R. he would have found it unnecessary REVENUE BILL H. 1-there made the duty of the heads of Mr. Box DINOT. from the managers on the departments to answer the inquiries of the Pre part of this House in the conference with the in writing. It is the proper business of Senate, DEI the -ubject of the amendments to the House to originate revenue laws; but as we the Impost bill. reported that the conference ght information to act upon, we must procure had agreed to pass the bill as amended by the if where it is to be had. consequently we must Senate, with some additional amendments, viz: get it put of this officer, and the best way of doing so, must be by making it his duty to bring the duty on distilled spirits of Jamaica proof, to be reduced from fiftern cents to ten cents if forward. per gallon. The duty on all other spirits, to I do not content for a word; if the spirit of be reduced from twelve to eight ents per gallon. the classe is retained. I am satisfied. The duty no beer. ale, porter, or cider, impor ted Mr. do not see what we are in casks, ham eight be five cents per gallon. panding against by striking out the words, un- The duty on beer imported in bottles, from Inc. gentlemen mean to go su far as to intriabace (wenty five to twenty cells pr gallon. The 4 probibitory clause, and des lare that the Sex dury on coul. Irom there to two cents per online of the Trea-ury shall be restrained Instel. bone digesting or preparing plans for the IIII- TONNAGE DULL penement of the revenue. II there is any evil isi having him attend to this branch of the has Mr. reported further with respect cannot -ue how to avoid it. Suppose the to the Tonnage bill, and the House agreed to the afficer 14 4 bad man. and there are others like Senates in the third section, where birth ... this House, (for this must las what the by Invigh vessels are allowed to carry 2014 contlement are afraid oft) and suppose he has reastwer, upon paying filly cents per ton at perpared a scheme for production, which les each entry. hopes to cut adopted by making dopes of the And in the lical section, whereby all ships honest parts low are you to hunder it From built within the I nited States, and afterwards twice brought for want? € annual his friends in muld In foreigners, pay twenty cents per him at maduce it 11% their by making and seconds each entry less than il such ressel had been one , for that purposez all you Dº built in A foreign country. stratts him From having access to the members The Home then took up the amendment out of doors? Not cannot he infuse his dan proposed for strike usit the clause discriminating and specious arguments and internation between the fonnage of vessels belong to na- min Chemi 119 will in the closet. a- by a public Holi- in realy. and these not in treaty. and official communication? But, Mr. Chair- On this claim " was observed by Mr. Ms quarte can thus House, or il it can, will H. per that notling had Income used at the CODE send any of their constituents from bringing bure P. by the on the part of the the plans for the rebet of attexations Settale, in favor ul the constalment. limit what if oppressions: Every individual of the com had been reported - over 9200. by the munity van bring business before n- by opjects to the class 0,00 original form in - THE remonstration. provided it be this Home that il 11.14 that contended by the dome 111 a devent manner. How then do you Senate, that the principle Was unproper: ser far propose THE restrain the Secretary of the Trea- from if, they thought invasure of a similar tendency to le necessary, and were inclined think the clanse in very well as if stands, to take the -ubject up. but on a different scale, and shall therefore he against the amend and to extend il don the House had mile bither contemplated. had. however, some Mr. motion for striking out the claim doubt- whether it world not The nume prodent part and negatived: to white the moderate alyle of the full, than The question IIII Mr. Fn motion To apply to casher expedients: il the end could the hill, by striking out the word reports be attained. without deputing from the prom. and monthly prepare, Was taken and i anied by ciples of medication. it would reduced to the sent majority. human of the Governments hot. al all events, After whil do Home adjusted. it --- prodent to begin with newsures ni this tempers if they were formal metter real, " might then les Titlet enough por attempt curreive FROM June 26. regulations, For these requiriting he Was in favor under of the members attending the 141 ed the hill as if attend, without the Senate's mosting conderence which toolar took place with der Senate on the import and hill. amendment, There was another that had - basiness was done in this Homse, considerable weight un his mind: it W/I+ mi- versity admitted, that something night to be 8111 BOSY. June 27, done this session, both ha the dignity of the The engrowed bill for estable hing the Depart Finted States, and (ii answer de high expec- mint of War was read the third now. payml. fation of the people: last if the proposed dis and selit to the Senate for it- concurrence. crimination be refinipuished, there is little pro- Regraded Unclassified APPENDIX B (1919) 58 Cong. Rec. 7130. "Xr. LONGWORTH. I should like to know how the committee con- stres section 4, particularly that portion of it which gives to the Fresident the recommendation as to revenues. Is this budget, in addition to suggestions as to appropriations, to contain suggestions for the imposition or raising of revenues? "Mr. TAYLOR of Colorado. Why, yes; in so far as the President - fit to advise Congress. In other words, we want to put the duty and the responsibility upon the President of the United States to outline and present to Congress, as we feel he ought to, the fiscal policy of this Government; in other words, to show how and where the money is com- ing from and where he thinks every dollar of it ought to go. In other words, we want to make him put all his financial cards on the table here and before the whole country and be officially responsible for them. "Mr. LONGWORTH. For instance, take the case of this year, where the total expenses for the fiscal year exceeds the sources of revenue from all known sources by more than $3,000,000,000. Would it be the duty under this plan for the President to recommend to Congress how that deficit can be made up? "Mr. TAYLOR of Colorado. Yes, absolutely. He ought to tell Congress what his financial policy and ideas are, and then, if necessary, go before the American people and back them up. If we differ with him and change his budget, we will have to answer to our constituents when We go home for reelection. "Mr. GOOD. If the gentleman will allow me, that is the law now, under the act of March 4, 1909. "Xr. LONGWORTH. I understand the purpose of making this provision is to make it the duty of the President to make suggestions and recom endations as to revenue and recommendations as to expendi- ture? "Mr. TAYLOR of Colorado. Yes; we feel that he ought to frankly and fully let the country know what his policy is. He will have the necessary machinery, and he should do the work and give the country the benefit of his power and opportunity to save the people's money and get the credit for it if he does and be blamed for it if he does not. "Mr. LONGWORTH. In other words, the budget is, so far as the Executive is concerned, a complete recommendation to Congress as to the finances of the Government? Regraded Unclassified - 2 - "Mr. TAYLOR of Colorado. Absolutely. In other words, we put the responsibility on the executive departments of this Government to tell Congress and the American people what that financial policy is and how to carry out what he promised during the campaign, what his party stands for, and present it to the American people in a way that everybody can understand. Then Congress will take up his recom- mendations, and we have' the absolute power to indorse them or disregard them. If we disregard them we have to answer to the American people for it, whether we raise or lower it." (1919) 58 Cong. Rec. 7229. "Mr. STEGALL. Mr. Chairman, I move to strike out section 7. "The CHAIRMAN. The Clerk will report the amendment. "The Clerk read as follows: "Amendment offered by Mr. STEAGALL: Page 6, line 3, strike out all of section 7. "Mr. STEAGALL. Mr. Chairman, this section provides "That after June 30, 1920, no estimate or request for any appropriation, and no recom- mendation as to how the revenue needs of the Government should be met, shall be submitted to Congress* by any officer of the executive branch of the Government except the President, unless at the request of either House of Con- gress. "Now, there may be some necessity for this that I do not see, but I can not understand why the various committees of the House, which, at least 80 far as anything we know at the present is concerned, are to continue to exist and function, should not have the right to the estimates and recommendations of the various departments of the Govern- ment just as they have had heretofore. I do not see what harm can come even if everything is done that has been suggested or contempla- ted in connection with this bill. Even if we have the supercommittee 1/ Note that as finally enacted the words "or any committee thereof" were inserted. That insertion was made by a Senate amendment which also authorised committees to request information, Sen. Rep. No. 524, 66th Cong., 2nd Sess. 12. The Conference Committee retained the first part but struck out the second part of the Senate amendment. H.R. Rep. No. 1044, 46th Cong., 2nd Sess. 11 (quoted in the text of this memorandum at p. 19). As finally enacted the bill contained, in section 212, a provision requiring the Bureau of the Budget to make information available to committees upon request and, in section 213, a provision requiring the various departments and agencies to make information available to the Bureau of the Budget. Regraded Unclassified - 3 - affort is to be made to create, there is no reason to prohibit tting of these estimates to the various committees of the MR. BLANTON. will the gentleman yield? MR. STEAGALL. And certainly so long as those committees 5 continue as they are now and to perform the same duties they M perform, there is no reason why they should not have this informa- the from the various departments in connection with which they serve. MR. BLANTON. Will the gentleman yield? "MR. STEAGALL. In a minute I will yield. "And as this section is drawn the Committee on Naval Affairs wold have no right to call upon the Navy Department or the Secretary of the Havy for these estimates or figures or recommendations, or any information; at least no right to require such reports to be submitted. The time as to the Committee on Military Affairs, or any other committee of this House, No committee will under this section be allowed to re- exive this information, or at least if they may receive it they will not have the right to require it, and the House will not have that information except at its own request or in response to a resolution of the whole House making such request. As I understand, this section would mean that nothing could be done until the House itself took motion looking toward obtaining those recommendations and statements from these various departments, "MR. MADDEN. Will the gentleman yield? "MR. STEAGALL. Yes, "MR, MADDEN. The gentleman probably has overlooked the fact that the President under this bill is charged with the responsi- bility of reporting all the budget appropriations for every branch of MM Government. "MR, STEAGALL. Yes; that is true, that he is charged with such responsibility. "MR. MADDEN. And if the President is not made the sole Instru sntality through which these reports are to be made, we would LEVE chaos warse than we ever had before. MR. STEAGALL. I understand thoroughly that the President supposed to have the final say on all these matters, but I do not Regraded Unclassified - 4 - zeo why the various Members of this House should not still have the right to pursue their inquiries into every department as far as they please, in order to get all the information they can from the depart- ments or from any other source. Unless these various appropriation committees are to be dispensed with, it seems to me no law should be passed preventing the executive heads of the departments from furnish- ing these estimates and recommendations or any information desired. But the paragraph reads that this 'shall not' be done. "MR. BLANTON. Mr. Chairman, will the gentleman yield now? "MR. MADDEN. This does not take away from anybody any right of inquiry. It simply gives to the President exclusively the right to make estimates and requests for appropriations and imposes on him the duty of making recommendations as to revenue needs in the budget. "The CHAIRMAN. The time of the gentleman from Alabama has expired. "MR. STEAGALL. Mr. Chairman, I ask unanimous consent for five minutes more, "The CHAIRMAN. The gentleman from Alabama asks unanimous consent to proceed for five minutes more. Is there objection? "MR. BLANTON. I object. "MR. GOOD. Mr. Chairman, the present law provides for the manner in which the estimates shall be submitted, and then it provides that all the supplementary estimates shall be transmitted to the Con- gress by the Secretary of the Treasury. Now, let us read very care- fully section 7, to which the gentleman from Alabama objects. It provides- "That after June 30, 1920, no estimate or request for any appropriation, and no recom- mendation as to how the revenue needs of the Government should be met, shall be submitted to Congress by any officer of the executive branch of the Government except the President, unless at the request of either House of Con- gress. "MR. STEAGALL. Mr. Chairman, may I ask the gentleman a question? Regraded Unclassified - 5 - MR. GOOD. Certainly. MR. STEAGALL. Does it not say that no estimate or recom- mandation or request for any appropriation shall be submitted by any executive head except the President, unless Congress especially re- quires it? "MR. GOOD. Absolutely, of course. "MR. STEAGALL. Then how can we get it unless Congress it- self as a body requests it, as distinguished from a committee of Con- gross as heretofore? "MR. GOOD. The gentleman has based his argument on the fact that none of the executive officers could come before committees of Congress. This does not attempt in any way to control the execu- tive departments 60 far as their appearing before committees for hearings is concerned, This determines the manner in which estimates are to come before the Congress, through the Speaker's desk, for appropriations. If you are going to have a budget and make the Presi- dent responsible for it, you can not have every Tom, Dick, and Harry coming in every day, sending in requests through the Speaker's desk for an appropriation. The purpose of this bill is to make the Presi- dent responsible for every request for money that comes to Congress. That is all this bill does. It simply provides that this provision of law that now obtains, which requires the Secretary of the Treasury to transmit estimates from the several departments to the Speaker or to the Vice President, shall be superseded by an act that requires the President himself to send it. "MR. CANNON. Mr. Chairman, will the gentleman yield right there? "MR. GOOD. Yes, MR. CANNON. It does not prevent Congress from putting an appropriation authorised by law on a bill, even though there is no astimate? MR. GOOD. Not at all, "MR. STEAGALL. I ask the gentleman as a lawyer if this does not say that no estimate or request for an appropriation and no recom- mention as to how the revenue needs should be met shall be submitted to Congress by the executive branch of the Government, except through the President, unless Congress requests it? Regraded Unclassified - 6 - "MR. GOOD. Yes. "MR. STEAGALL. None of these things shall be submitted to Congress? "MR. GOOD. Yes. "VR. TEMPLE. Mr. Chairman, will the gentleman yield? "MR. GOOD. Yes. "MR. TEMPLE. Does not the existing law make exactly the same provision about estimates that are now sent through the Secretary of the Treasury? "MR. GOOD. Yes. "MR. TEMPLE. They must be sent in that way, and in no other way. This law will in no way interfere with the committees or Members than does the present law? "MR. GOOD. No. "MR. RAMSEYER. Mr. Chairman, will the gentleman yield? MR. GOOD. les. "MR. RAMSEYER. This not only refers to requests for appropri= ations, but to recommendations as to how the revenue needs of the Government should be met? "MR. GOOD. Yes. "MR. RAMSEYER. Would that preclude the Tariff Commission from recommending to the Committee on Ways and Means methods of raising revenue? "MR. GOOD. They have not that authority now. All that the Tariff Board has authority to do is to investigate as to the cost of production and things of that kind and to report to Congress, They have no power to make recommendations. "MR. RAMSEYER. They are all experts. Suppose the committee wants them to make recommendations? Regraded Unclassified - 7 - "MR, GOOD. No committee ought, to ask them to do that. All post they have now is to investigate and make findings of fact. "MR. ELSTON. Mr. Chairman, will the gentleman yield? "MR. GOOD. Yes, "MR. ELSTON. Every executive officer 18 the mere agent of the Chief Executive, and this measure merely provides that every recom- immition for expenditure should come from the Chief Executive and not brough his agents. That is, you do not want his agents to do it, but List President himself? MR. GOOD. Yes. "The CHAIRMAN. The time of the gentleman from Iowa has expired. "MR. MADDEN. Mr. Chairman, I move to strike out the last word. I simply want to call the attention of the gentleman from Alabama (Mr. STEAGALL] to the fact that his fears are not well founded, This does not in any wise prevent any Member of Congress, either in the House or in the Senate, from making any inquiry that he may wish to make or acquiring any information that he may need for the proper discharge of his duties. It simply transfers the power of reporting estimates for appropriations from the Secretary of the Treasury to the President of the United States, and provides that the President shall make his reports; in other words, that the President shall furnish to the Congress of the United States a complete photograph of the annual needs of the Government in advance; and it does away with the piecemeal reports of items of appropriation in the various departments and makes the President supply the information complete as to the needs of the whole Nation. "Now, the question arises, do we want that? If we do not want it we ought to stand where we are. The purpose of this section 1a to do away with the present slipshod method of doing business and to institute a systematic, scientific mode of supplying information to the Congress, upon which Congress can base intelligent and economical sotion, and incidentally to supply to the American people information upon which the administration can base its claims for economy or extravagance, as the case may be. That is the whole story. There 1s to danger in this thing. There is nothing hidden in it. It simply good to the American people with the statement that we are in favor at a reform that is likely in the long run to help to economize in public expenditures. Regraded Unclassified - 8 - "The CHAIRMAN. The question is on the amendment offered by the gentleman from Alabama. [Mr. STEAGALL]. "The amendment was rejected." (Underscoring supplied.) Regraded Unclassified TIMES-HERALD 109 DEC 21 1942 8 Broadway The Roaring 40's W ASHINGTON hears that Leon Henderson will become Secretary of Labor as soon as his health permits Senator Prentiss Brown will be only temporarily head of the OPA, the job for which he will be groomed being that of assistant to Economic Stabilizer James F. Byrnes, who is now being referred to as the "Assistant Presi- dent" It will be Byrnes, and not Secretary of the Treasury who will father the next tax legislation to be presented or Con- gress came This justeak to Regraded Unclassified 110 December 21, 1942 2:00 p.m. HMJr: Hello. Operator: Mr. Pehle. Go ahead. HMJr: John? John Pehle: Yes, Mr. Secretary. HMJr: Are you at all familiar with Sterling Products? P: I think 80. HMJr: How - how is the management there now? P: They seem to be very clean here. HMJr: Yes. P: ....and our rec.. - our investigation here showed that they were clean, but we wanted to satisfy ourselves as to what they were doing in Latin America. We have two people down there now check- ing into that. HMJr: Well, you know about Harold Thomas helping us in War Bonds? P: No, I don't. HMJr: Did they ever talk to you about it? P: They didn't talk to me, no, sir. HMJr: I see. But as far - is there - is there any reason - well - I mean he's given us about half of his time. P: Is he with Sterling? HMJr: No, he's with one of the subsidiaries. P: I see. HMJr: But it's part of Sterling. Regraded Unclassified 111 - 2 - P: I see. HMJr: But he's been with us helping Harold Graves now for six months. P: Probably perfectly all right. They're doing an awful lot of work helpful to us on the advertis- ing side in Latin America. HMJr: They are? P: They're plugging the American line very strongly. HMJr: Yes. P: But we can just check this discreetly if you want us to. HMJr: Well - no, because I just wanted your impression. P: Yes. HMJr: How about - but the American company? P: The American companies were always pretty clean. HMJr: How about Mr. Hill? P: Well, we have fundamental doubts as to them, but right now I think that their interests and ours are the same. HMJr: I see. But it - it's Harold Thomas who'll be down here helping us. P: Yes. HMJr: And Graves never spoke to you? P: Not - no, sir. I'm sure he didn't speak to me. HMJr: I see. I see. P: He may have spoken to someone else, however. HMJr: Okay. P: Right. Regraded Unclassified 112 No. 28 SUPPLEMENT TO PUBLIC POLICY DIGEST October, 1942 THE INFLATION PROBLEM Business Teres a Reserves Income Payments Inventories to Individuals Capital Wer Goods Formation and Services Personal Tames Savings Non Her Gov't 0 Consumer Civilian 0 Expenditures Goods and Services 0 0 0 PRICES $70 Billions $85 Billions Inflation The chart, reproduced above, was prepared in the war Government expenditures, as indicated by the Tax Research Division of the Treasury Department. chart, are relatively small in contrast to the larger In it the Division presents forecasts of the amount that problem of consumer income and demand. consumers will try to spend in 1943 and the value at The chart reveals a serious lack of balance between present prices of the goods and services they will find consumer expenditures and the supply of goods and on the market. Business capital formation and non- services. The implication here seems to be that the Regraded Unclassified SUPPLEMENT TO PUBLIC POLICY DIGEST October, 1942 October, 1942 SUPPLEMENT TO PUBLIC POLICY DIGEST No. 28 No. 28 supply of goods and services must be increased or the Unfortunately none of the addresses from which Taxation amount of money coming on the market for consumer these figures are taken include the General Counsel's goods decreased in order to prevent a serious pressure estimates for business taxes and reserves, for capital One of date addresses, before the Iowa Bankers Association retail sales as would to sise extent aftern price cellings and us an price ceilings and a sharp rise in prios. A sizable formation, or inventories. Neither is there a definite Des Moon en October 27. includes . particularly conclue administration would require il targe form of highly skilled and incrome in goods available for civilian amsumption figure showing expenditures for war goods and Mry. description e of Mi Paul's views registing the adequary of the scatre audisors and the use of machinery and equipment that 1982 Revenue Ast and bis opinims regarding various pro cannot be spared at this time Mr. Paul street # further deft- obviously can be obtained only at the expense of re- ices. Mr. Paul does point out, however, that the total paints - increasing taxes. Under the Act major reliance will ciency of the sales tas which he says is not ordinarily recognized- of during the volume of war production. If war produc- war budget, requested in the 1942 Budget Message and le an burrowing to ruise wit funds. Instead of placing graver "Its inadequacy a - revenue protucing measure". He believes tion goals are to be realized little can be added to the in subsequent budget revisions, now stands at 576 bil- emploin DIL revation-which Mr. Paul forth is the beit wrapon that the siles as don DOC coe within pumbo( of solving our civilian goods side of the scale. Presumably. the lion, "which together with non-war Governmental a at error command for distributing fairly the economic trundens of present national problem. despire the fait that it was a productive amount on the money side of the scale can be reduced penditures makes a total for the fiscal year 1943 of $85 the war. He in encouraged to note that the Act furthers the source of revenue to lbs valor unglu in the financial dificilio of converting the tas to I mas a In 1940, of the depression years only by withdrawing income before it gets on the billion. With tax revenue augmented by the 1912 Act. dell [mit mEllion expayers paid tax m the 1959 Income, but Post/War Ordita market for manumer goods by sueans of increased taxes which will be in operation for only part of the year, - 1045 there will be more than 27 million nes income taxpayers of increased savings or both we shall still be left with the necessity of borrowing in under the established Income as system and close in 40 A device for post-war credito should be assuring the fiscal year 1945 more than $60 billion." uspayers under the por Victory no to Mr. Paul. einher in conjunction with a further expansion of While the Chard's main Mory is the unbalance which the income tax or by use of ED independent compulary lending exists between the $85 billion for consumer expendi- While Mr. Paul states the inflation problem in mn- Collection-at-Source program. This insure of taising fundi will le am detin at sures and the 870 billion for civilian goods and serv- ventional monetary terms, be emphasizes that the basic suggestion put forward by the Treasury, which Mr. Paul the luwer incime levels. It would viridraw purchasing im. it will be interesting to some persons to see esti- problem is more fundamental. More people will have believes has an important bearing upon initation, has to do with during the war, has would pain il as after the var - maics for the other terms. Additional information to work longer and more intensively next year than allection of the regular net income tax al the source. This was possible. It would persit an requisable adjustment. by allowing recommed in Treasury officials because collection-at-source officials against pat-war gelit. en person with duf menmil- which is presented in this Supplement is taken from a this year. "Harder work and the exhaustion of our number of recent public address by Randolph Paul, capital, on the one hand, and a smaller supply of goods wild up the income stream M " Bows into the bands of Indi- ments. Orberting points which numerbalame line a provides a raspaying machinery which lin into the however, sociude the East (Sei ruch a program General Counsel of the Treasury. These mimeo- and services on the other hand contribute the price mily W monthly tamily budget of the new taxpayers the which IDEADA large government liabilities alier the war, and the graphed statements may be obtained upon application civilians must pay to win the war. They constitute the administrative difficulty will out be great-as may be judged by further tact that these may he the danger el vehicing sho to the Treasury Department. Washington. inescapable economic cost of the war. English. Canadian and other experience. "The 1942 Revenue forms of savings and that e may not le se effective as unation in Ad provides for collection-ai-sour under the Victory It de reducing current comment expenditures. Mr. Pasil believes that the passage of the Second "We should not delude ourselves into thinking that esenial dui be extended is the regular net Spending Tax Price Control Act by Congres and the creation by the we have complete freedom in the distribution of this income un a well." real cost of the war. We must compensate individuals The spendings tax is one of the most Important hand in the President of the Office of Economic Stabilization will Mr. Paul thinks OCT increased taxies stould be considered in Treasury program for meeting the carrest problem, according make an invaluable contribution to the successful coo- who are working when they have not previously been relation to those of other montries He plaches to his address IM Mr. Paul Sach a las heare Total heavily an thise who can unl of inflation. He goes into some detail regarding working or who are working longer or who have III inversing durt which compares our raies with those of affort a. The spendings tax is Inici - the actount of money the increased use of taxation and savings as a further changed from positions in the civilian economy to poi- Canada and Greit Britain, which are will hr bigher shan than de individual spenda for goods and services tinns in the war economy. We can compensate them in his seginium we may won need to supplement the Image as (ver and sture the amounts considerel necessary 16 maintain a means of diminishing the inflation threat. According our of a diminishing supply of goods and services only with other elements "mive capable of recognizing the facior of minimum standant - living. Those who spend only enough to to Mr. Paul, the dimensions of the inflation problem licentive in the was effort and designed to recognite the to provide à manded of Living sufficient to maintain working effi- are revealed by careful examination of the following through the sacrifices of others who for one reason in that may individuals assumed subscantial long-term obliga- ciency would have no ps to pay. Than view questions ementud figures: another are not being asked, OF are not able, to work time when (A) nie were ai prace-time levels." Three have more 16 live liss moderate comfort world have a moderaie las to harder, longer, or in a new capacity, These persons aliernatives are described by Mr. Paul: (1) the sales tax. (R) the ENT. But the who maintain a bigh level of personal expenditure "The total of the insume currently being received often described as the fixed income group, have no credit device or "compolers saving") and (3) a spendings and make incrdinate demands upon the reduced naturnal supply choice. No financial legerdemain, no tas paraces. BO HL of sopenners goods and services would be required to pay heavy by all individuals in the nation is running at more uses The cax. - other words, would be progressive It will than $115 billion a year It is likely to reach $125 verbal evasions, can protect the whole of the lived in Sales Tax wrike al both loon of the influsionary pressure the excessive billion in the calendar year 1943. Even after all indi- come group from a larger than proportionate dimine The Treasury's sund against the alo tax is well known volome of consumer spending and the retriced vulume of - vistual lases payable directly to Federal, State and tion of their standard of living. Mr. Paul gives as the reasons for this disapprinti the Facia that sument grods and services". This form of caration leaves no the a places the economic (0K of the war on them least able (o new individual . wide scope of choice in deciding how mudi be local governments, there will remain for spending or "If we do nothing, the physical realities of unley will Gal cont: the casicil Type of ain DA ID administer, the manu- will - and hand what as he will 197. Moor the spendings saving more than $110 billion inevitably develop into a disastrous inflation of UND licizen or wholesaless tax. would rain our price adlings a Las ENSURE would be combined with the regular Income tax row. We may as well recognize that individuals will resurn and collected in the same way there would the Untle adili "The supply of goods and services available to con- The Revelue Act of DE. FROM CPO. 200 Pages Prim: like. administrative mathinery (x) trouble for the sisparer. sumers is currently running at the rale of $80 billion not of their own choice save close in half of the in year. An optimistic figure for 1943 is 370 billion. come that is available for spending or saving. The The difference between $110 billion and $70 billion, are human beings and they will inevitably KY BI pel or 540 billion, is the Inflation threat. more than the value at present prices. of the goods and The best Additional copies from services that will be available. Il consumer incomes estimates of annual current saving run at lesi than $25 are not withdrawn by taxes and borrowing, they will National Planning duncistion. billion. Il this rate of saving is maintained there will flow to the market in a stream that will break the 800-21A St., N. IF., Waihington, D. C., still be left 115 billion of purchasing power in excess dam of price control and rationing. When a dam of consumer guode available." " a cupy; 100 or more full one address, $1.00 a hundred breaks, the floods are not far away," Regraded Unclassified 113 MEMORANDUM December 21, 1942. TO: The Secretary FROM: Mr. Sullivan Is Eight additional men from the Technical Staff Office in Chicago have been assigned to the Salary Stabilize- tion Unit in that city. Commissioner Helvering tells me he believes this will enable the force to handle the problem of Christmas bonuses expeditiously. Regraded Unclassified A, KAY: Charles S. Ellis, Peabody Coal Co., Chicago Ill. telegram of 12/14 was sent to Commissioner of Internal Revenue. The Commissioner replied by telegram on 12/18/42 as follows: "Retel December 14 to Secretary. As all pertinent facts have been Turnished Chicago office believe they can make ruling more expeditiously since congestion here equally heavy." - 2 - 114 and are going to public work or moving into the small towns, to live on what they have accumulated in past years. Most of them are man and wife who are past middle age and just not able to do the heavy farm work which they carried on while they had their boys with them. As a banker, I am not making any suggestion as to what can be done or what remedy can be applied to relieve the situation. I am just giving you the in- formation for whatever it may be worth to your Depart- ment and to the Department of Agriculture. Charles S. Ellis, Peabody Coal Company, Chicago, Ill. (Telegram) # HH On Friday, December 11, we filed ap- plication with your salary stabilization division at Chicago, Ill., for approval of proposed Christmas bonus. Our representatives who filed such applica- tions do not believe your Chicago office has sufficient personnel to handle the number of similar applications which have been recently filed in time to permit pay- ment before Christmas. Matter is of vital interest to our company and its employees. Is there any way our application can be approved before Christmas, either at Chicago or Washington? If necessary, will be glad to send representative to Washington at any time appointed by you. Can you help please? It has been some months since mention was made of the fact that Mr. Melchor León of Mexico has continued his donations in accordance with his promise. It will be remembered that he is part Mexican and part Chinese. He makes a monthly donation of $200, and in addition, sends a draft covering 25% of all purchases made by American citizens in his store. The two checks received this week were therefore for $200.00 and $192.01. Corydon L. Baker, Shop Steward, United Electrical, Radio and Machine Workers of America, Local 257, CIO, Lynn, Mass., sends copy of Resolution recently adopted by that Union -- *** Be it Resolved: That the members Regraded Unclassified 115 December 21, 1942 My dear Chester: Thank you very much for your telegram of December 19th, a copy of which I have forwarded to Secretary Wickard with a recom- mendation that he look into this matter. I will let you know what happens. Yours sincerely, (Signed) Henry Mr. Chester Davis, President, Federal Reserve Bank, St. Louis, Mo. File in Diary Regraded Unclassified 116 No one in Secretary's office to receive this. 117 W29G73WASH (LONG) H63 STL 19-1143 HON HENRY MORGENTHAU JR 1942 DEC 19 DM I 19 SECRETARY OF THE TREASURY AS YOU KNOW THE BANKERS HAVE BEEN MAINSTAY IN WAR SAVINGS BOND SALES AND THROUGHOUT MUCH OF RURAL AREAS AARE OUR LEADERS IN VICTORY FUND CAMPAIGN. THEY ARE ALSO READY AND ANXIOUS TO DO THEIR FULL PART IN FINANCING AGRICULTURAL PRODUCTION FOR WAR IN 1943 STOP I HAVE JUST READ THE HANDBOOK FOR AGRICULTURAL WORKERS IN CONNECTION WITH FOOD FOR FREEDOM CAMPAIGN 1943 WHICH STRESSES FARM CREDIT AND FARM SECURITY AS SOURCES OF LOCAL CREDIT FOR PROGRAM AND NOWHERE REFERS TO BANK CREDIT AS AVAILABLE TO AID PROGRAM. AM INFORMED THAT SIMILAR PRESENTATION IS BEING MADE IN REGIONAL AND LOCAL MEETINGS STOP MR. HEMINGWAY, PRESIDENT A.B.A. IS RECEIVING MANY COMPLAINTS FROM BANKS AND IS FILING STATEMENT ON MATTER WITH SECRETARY WICKARD STOP IT OCCURRED TO ME YOU MIGHT WISH TO MAKE REPRESENTATION TO SECRETARY WICKARD SINCE I AM SURE HE DOES NOT INTEND NON-RECOGNITION OF COUNTRY BANKS IN FOOD FOR FREEDOM PROGRAM. CHESTER C. DAVIS PRESIDENT, FEDERAL RESERVE BANK OF STLOUIS. Regraded Unclassified 118 COPY TELEGRAM WAA163 144/142 2EXTRA ST LOUIS MO DEC 19 1942 1243 P HON CLAUDE R WICKARD SECRETARY OF AGRICULTURE THE NATIONS BANKS ARE READY AND ANXIOUS TO SUPPORT FOOD-FOR-FREEDOM PROGRAM WITH CREDIT SERVICE AGAIN NEXT YEAR STOP REGRET TO STATE HOWEVER THAT IN DISCUSSIONS AT RECENT REGIONAL CONFERENCES TO CONSIDER FOOD PRODUCTION GOALS FOR 1943 BANKS WERE NOT INCLUDED AS SOURCES OF CREDIT TO SUPPORT THE PROGRAM STOP ACCORDING TO MOBILIZATION PLAN TO BE FOLLOWED BY WAR BOARDS IN EVERY COUNTY OF THE COUNTRY IT WOULD APPEAR THAT FARMERS ARE TO BE GIVEN THE IMPRESSION THAT THE ONLY SOURCE OF CREDIT AVAILABLE TO THEM IS THAT OF CREDIT AGENCIES OF THE DEPARTMENT OF AGRICULTURE STOP RESPECTFULLY URGE THAT THIS PROGRAM BE AMENDED TO RECOGNIZE THE COUNTRY BANKS AND THE IMPORTANT PART THEY PLAY IN THE FARM ECONOMY STOP THE FOOD FOR FREEDOM COMMITTEES OF THE AMERICAN BANKERS ASSOCIATION ARE AVAILABLE FOR ASSISTANCE IN YOUR PROGRAM AND SHOULD BE USED WL HEMINGWAY PRESIDENT AMERICAN BANKERS ASSOCIATION AND PRESIDENT MERCANTILE COMMERCE BANK AND TRUST COMPANY STLOUIS MERCANTILE COMMERCE BANK AND TRUST COMPANY Regraded Unclassified 119 December 21, 1942 Dear Claude: I am sending you herewith a copy of a telegram I have received from Chester Devis. Knowing how much you are interested in being helpful on our sale of War Bonds, I am sure you would be glad to personally look into this complaint and let me know, first, is it a justifiable one and, second, if so, if there is anything you can do about it. Yours sincerely, (Stened) Henry Honorable Claude R. Wickard, Secretary of Agriculture. File in Diary Regraded Unclassified 120 December 31, 1942. Dear Mr. Dallman: It was very good of you to write - as you did under date of December 14, and I vast to thank you both for your letter and for the editorial which accompanied 18. This also gives so an opportunity to extend the Season's Grestings and best wishes for the New Year. Sincerely, (Signed) H. Morgenthan, Jr. Nonorable V. T. Dallmen, Collector of Internal Revenue, Bighth District of Illinois, Springfield, Illinois. File in Diary GEF/d be (Orig. clipping in clipping Book) Regraded Unclassified Morgenthau's Inspiring Words Descriptions - an y - nit - - 11. et - n mily and man- ::- now the Internal web it 3. - HI as 1216 J:, un < the VERIFY Las - / - of en - and reque 10 with - User No, non undered in IT-A 2000 personal N° 40 15mg the 2019 your -- THE it the Kenger of the Th.4 30 means may himes and n° The y-D- and - .n. provide P.O. have @ Name at are an They (in - to in in 311-1 -- and enter o, Just a A - IM Wield develved - .. - mayor de - to 101+ esan Congression have non of the provider Was and Memo inne m will D. 1. A - decrease the head of of Tive No -- the of buzher taxes when - fined the NM 'ant willing and - promote of - an myter a of 11 - and I - 5- of our in NON and 14 Do all nattle (cont- - with 12th V 45 Lawra DEAR 1% at a 4 " no day Our - Al- thene ser of e and in - eject of of 10:00 Day die -NE the un - ho-Her 8/4 and /DF 2500 2040 of :- I- 10% and plat tax - - I 115, - - 100 - (+) IN - B.D. 3,,00 mer only and Xº - 107 No. in - no -11 and Tigur are DE and un del They nake of 1000 and 11 an Anna dusti me-mer 111 : 48 the pervides procedure of "IN which 12r n.imê of var und Aleabam Land :- state -- all Yes and we may net (7) - unly a. Mr. campus of that When and for - - and - 3rd familier D-5 "A" - - V. its 1.00 Date =:X AND EDILIONS - to " for way to - : - and P is any 1200 der - - is 2º Die the - de 18 - - n° with Ling " VALID a di - our - M in out you 411 12 will With that n mm/ who 10 DATE fe: n answer to the Volumy the Drive call 10 duty? NO REAL AMERICAN! Regraded Unclassified 122 TREASURY DEPARTMENT INTERNAL REVENUE SERVICE SPRINGFIELD, ILL. OFFICE OF THE COLLECTOR DONTH DISTRICT OF ILLINOIS December 14, 1942. IM REPLYING REFER TO PERSONAL Honorable Henry Morgenthau, Jr., Secretary of the U. S. Treasury, Washington, D. C. Dear Secretary Morgenthau: Your Saturday night broadcast was perfect. Sunday I wrote an editorial which today headed the editorial columns of all issues of the Illinois State Register. Hoping this meets with your approval, and with congratulations, I remain Yours very truly, - V.I. Dallman COLLECTOR. VYD:AD Enc. FORDEFENSE BUY UNITED STATES SAVINGS BONDS AND STAMPS Regraded Unclassified 123 pubmitted 12/21/42 SHIELD'S REPORT becaused Copies to: Graves with (V16. Bell Buffington Harold Thomas Mr. Thomas' copy mailed to his home, Fox Run Road, Norwalk, Connecticut. see also Reports by Knott att to t 315 Woodward meeting 12/7. 124 Field Survey of Bond Drive in Ohio, December 7-9, 1942 Scope Conversations were held with one or more bankers in eleven communities, east, northeast, and south of Columbus, Ohio, ranging in population from 6,300 to 40,000. The communities visited were Newark, Zanesville, Cambridge, Coshocton, Dover, Wooster, Ashland, Portsmouth, Jackson, Chillicothe and Lancaster. The survey included no community experiencing a war boom. Each town visited had some manufacturing activity but was also the center of & substantial agricultural area. The county populations ranged from 27,000 to 70,000. Findings In most of the communities it was not until the week ending December 7 that the organization effort was started and solicitation was not scheduled to be under way in any large extent until the week beginning December 14. The sales made before December 14 represent the use of the same sales tech- niques as were applied in the October financing, namely, a few telephone calls by individuals connected with the Victory Loan organizations to, mainly, the institutional type of buyer in the community. A few investors have responded to the advertising and come into the banks voluntarily; but the real test of the selling techniques used for the first time in the December drive cannot be measured until later in the month. December is not an easy month to start a campaign because retailers are busy, and many communities are in the midst of their Community Chest drives. But from the point of view of the Treasury's need for a field sales organization ready at any time to participate in drives, the December campaign can be regarded as fairly successful, for it is clear from the conversations I held that it was not until the Treasury opened the December campaign that any effort was made to form a real selling organization. Therefore, the decision to have a December campaign was justifiable, no matter what the financial results in that month, for the second campaign can deal more with actual solicitation and less with the building of an organization. Regraded Unclassified - 2 - 125 some of the county chairmen seemed to me to be doing a splendid job. Many of them have worked night and day. They have arranged daily meetings of salesmen and others. They have worked with Rotary and other clubs. They have been busy in selecting salesmen and in preparing prospect lists, which is difficult. The conventional practice, apparently, was not to 60 over the lists of bank depositors, but, rather, to work from the telephone books. The organization effort from the top seemed to me to have been & realistic one, for the county chairmen have been allowed considerable latitude so that the particular situation in each community could determine the form of the organization actually put to use. Thus in one community the sales effort was organized by professional and industrial groups. In another it was built around a particularly active Rotary club. In another it leaned heavily on the labor organizations. In another it was handled almost entirely by the investment banking groups. In another it was handled by the commercial bankers. In some cases the farm organizations were used for solicitation. It is clear that it would be futile to set up a fixed pattern of organization because here and there there are no labor organizations, some of the farm organizations appear to be unpopular and in some cities the Rotary clubs are not very active. The banks have been perticipating splendidly in the cam- paign. Their banking floors are full of advertising. They were telephoning customers who have funds. They represent the organizing agencies in most communities. They have spent 8 good deal of money in advertising the obligations and handling the transactions. The "basket" of securities, in the view of every individual interviewed, seemed to include about the right number and variety of issues for bank and institutional, as well as for individual investors. However, a survey of opinion after the drive 18 over might yield more reliable information on this point. I gathered that the G'S may very well make it more difficult to sell the 26's in most small and medium- sized communities. The difficulty of educating the salesmen concerning the various issues in the December drive might make it a good idea to use the same basic issues for the next cam- paign so that more effort could be placed on selling and less on educating the salesmen. The advertising job is generally regarded as a good one. One criticism expressed was with regard to failure of the advertisements to feature the whole "basket". Most of the Regraded Unclassified 126 - 3 - advertisements apparently overstressed the 2½'s, which are difficult to sell in the smaller communities in competition with the E's and G's. There was some talk about lack of zip in the advertisements. The people out on the firing line seemed to sense that the conventional form of security adver- tising would work all right with the high-bracket investors but that something a little more popular is desirable if the low-bracket people are to be brought into the picture. The talk of forced savings in several communities seems to have frightened some investors, who interpret that term to mean the conscripting of present savings. More than one of the bankers interviewed stated that some prospects were fear- ful that 1f they held their savings where the Government could lay its hands on them the savings would be taken away. While most local chairmen appear to be doing a splendid job in the very short period they had available, they can do a still better job if they are given some professional assis- tance. In one community it might be desirable to lean a little more heavily on the direct mail approach, while in snother it might improve the sales effort to bring the labor unions or the professional groups a little more actively into the campaigns. I think it was a help to a few of the men I interviewed to find out what some of the other communities were doing. one man said that he had neglected entirely & very active Rotary club and would have a meeting the next day at which the whole program could be given a little zip. It is clear in all of these communities that one group of savers is not being reached at all, in either the Victory Loan Committee or the War Savings Staff drives. The former is & very efficient means of reaching the middle and upper- income brackets. The latter is effective only in pay roll deduction. Many workers, even in the non-boom communities, such as those visited, have funds which are not reached with the ten per cent pay roll deduction, and most such individuals are not on the Victory Committee prospect lists. Such individuals are believed to have a substantial amount of funds. They are hard to locate since they are not on the books of the banks and in some cases they are not even in the telephone or the city directories. These people whose savings have increased workers sharply in the past year or so because of two or three first per family, overtime, increased wages, and work for the be time for the full year instead of just for part of it, can reached only through a house-to-house campaign. Every banker with whom I discussed the question agreed with that. Regraded Unclassified 127 Even in these non-boom towns the maldistribution of the increases in incomes which originate in the war effort 1s striking. While many families have two, three, or even five times the incomes they had two years ago, there are other individuals whose dollar incomes are not up at all and whose real purchasing power and saving ability has been curtailed by the rise in the cost of living. It may be that the meldistribution of these increases in incomes 18, from the Treasury's point of view, quite important; for 1f in bringing the communities' savings to the Treasury forced savings or tax devices are used in such a way as to "take the hide off" the millions of people whose incomes have not increased at all while they leave the chief beneficiaries of the war effort enough money to increase their scale of living materially or to spend lavishly at the local beer parlors, as & great many of them are doing, a great injustice will have been done. I found in these small non-boom communities further evidence of the maldistribution of increases in incomes which we had dis- covered in certain other analyses. I found the same thing in the Far West states, in Michigan, in Illinois, and in Massa- chusetts, where I have taken the trouble to S tudy the situation. Furthermore, I have obtained - on a confidential basis - from the chief employment executives of a number of the largest corporations in the country evidence that while thousands of their employees are making a very good thing out of the war the white-collar groups are caught between rising costs and stabilized incomes. This maldistribution of increases in incomes which I saw in each of these small cities must be allowed for in setting up the next Treasury drive, for it is far better to use the techniques of high pressure salesmanship to induce a worker to use most of the increased income to buy War Savings Bonds than it is to put into effect a fiscal program which would require everyone, regardless of his ability to do so, to put twenty or thirty por cent of his income into War Bonds or taxes. In the one case no one would be hurt, and in the other, many good American citizens may be forced to cancel insurance, sell their homes, reduce their assistance to dependent relatives, and reduce their support of home charities and religious organizations, or curtail other socially desirable expenditures. where it money just doesn't exist, seems to me to have demonstrated get this case where it 1s, rather than try to squeeze it out The for mobilizing for a real selling campaign to Regraded Unclassified 128 - 5 - to be a very good one. And it was interesting to see that this maldistribution of increases in income 1s quite pronounced in every one of the communities I visited. As to the organization, the Victory Fund Committees some- times include the chairmen of the War Savings Committees. In certain of the towns visited, the War savings Committees do not seem to be as active as they were & few months ago, or as they ought to be. There has been 8 little difficulty because in some cases the Victory Loan Committees do not know whether they would be permitted to sell an E Bond, and because here and there the War Savings Staff people feel that when they get a man invested in E's that is all that is expected of him. But, in general, the Victory Loan Committees are promoting E's because in the small towns many of their prospects have not taken their limit in such obligations. I gained the strong impression that the sales effort 18 producing better results in those communities where the Victory Ioan Committees and the War Savings Committees are cooperating closely. Currency is flowing out in most of these communities; but in one of them the trend is inward; week by week the banks in that community are returning currency to the Federal Reserve. In one of them there was no net in or out-flow. But in every case the bankers said that their prospect lists did not include the bulk of people who hold the currency. The reasons cited for currency "hoarding" are fear of confiscation by way of forced savings schemes, unwillingness to do business with the banks which have had to initiate The money flowing into circulation 1a not evenly distributed service charges and low rates of interest on time deposits. by communities or by individuals in the community. It can be gotten out of circulation not, I think, by warning people desirability of hoarding, but by having a War Bond salesman against hoarding, for that might merely advertise the point out that there is an attractive alternative available, and that is investment in United States Savings Bonds. more currency will be returned from current circulation. stronger the appeal addressed to the lower income groups, the The more potent the salesmanship for bonds and the Suggestions for Consideration in Connection with Campaign No. 2 1. That investigations such as that just completed in Ohio, Illinois, and Indiana be conducted in the first two or three weeks of January by fifteen to thirty trained Regraded Unclassified - 6 - 129 investigators covering every state in the Union to dis- cover what improvements in drive technique are called for from the experience of the December campaign. One of the market research agencies can do that job quite easily. 2. That on the basis of these reports, a sales manual be prepared, listing the most effective organizational set-ups, the best sales appeals, the methods of training salesmen, and 80 forth. 3. That the fifteen to thirty investigators be sent to spend one day with the chairmen of each of the largest counties to counsel with them in perfecting their organizations, not to force uniformity of organization, but to make sure that each community organization head knows the tricks of the trade. 4. That the Victory Loan Committees and the War Savings Committees be brought into one selling organization, perhaps with the chairmen of the Victory Loan Committees and the chairmen of War Savings Committees serving as co-chairmen of the new committee. The Victory Loan Committee might be in charge of solicitation of the larger investors in each community and the War Savings Staff could have charge of house-to-house solicitation of all individuals not on the Victory Loan Committee list, and, of course, in charge of any further pay roll deduction drives. But both groups must sell the entire "basket" - concentrating, of course, on the securities its prospects are interested in. 5. That consideration be given to the payment of B. commission of 1/8 to the individual salesmen on the house-to house staff. In the communities visited I found that the banks and many business concerns are understaffed and are unable to free individuals for door-to-door solicitation. The Victory Loan Committee people need not be compensated, for they will be recruited from the well-to-do people in each community. All that is required is a call from the bank president to the head of some local industrial con- cern. But the War Savings Staff salesmen may be young lawyers, real estate agents, or insurance agents who will do their job better if there is some small compensation. The larger security houses can, as did one in New York dealers and the banks in the small community simply can't City, pay an eighth to their salesmen, but the smaller do it. 6. That the Treasury pay for much, if not all, of the War Bond advertising. The Treasury cannot expect an adequate advertising campaign to be contributed locally for the Regraded Unclassified 130 - 7 - Treasury needs to advertise where the prospects are, not where some public-spirited group is willing to contribute the funds. The advertising should not be in the form of the conventional announcement, for the masses, not the classes need to be sold. I believe a campaign along the lines I have described will yield ten to twenty billion dollars per annum from people who will not be reached through the pay roll deduction or the Victory Loan Campaign type of approach. A successful campaign to sell securities voluntarily to the people who have increased their savings sharply in the past two years, and to those who have hoarded currency, may make it unnecessary to resort to the device of forced savings in any vicious form. The first campaign had to be experimental and organiza- tional, and in the smaller communities I visited it was success- ful in that sense, way beyond my expectation. I came back convinced that the directional effort from the top must have represented one of the finest jobs of its kind ever done. D. Murray Shields Regraded Unclassified CONFIDENTIAL 131 UNITED STATES SAVINGS BONDS - SERIES X Comparison of December sales to date with sales during the name number of business days in November and October, 1942 (At issue price in thousands of dollars) : December : Cumulative sales by business days Date : daily : December : November : October : December as : sales : : : :percent of November December 1942 1 $ 4,116 $ 4,116 $ 5,164 - 79.7% 92.8 2 4,489 8,605 9,272 - 3 10,042 18,647 20,460 $ 5,045 91.1 4 39,690 58,337 31,309 42,285 186.3 5 16,648 74,984 53,076 52,984 141.3 7 46,424 121,408 62,326 73,919 194.8 8 11,887 133,295 96,366 98,490 138.3 9 17,857 151,152 111,002 117,077 136.2 10 13,607 164,759 146,494 131,593 112.5 11 38,664 203,423 161,929 169,859 125.6 12 17,480 220,903 181,120 179,232 122.0 14 52,056 272,959 188,497 194,811 144.8 15 288,488 230,083 222,243 125.4 15,530 16 22,764 311,252 241,624 239,891 128.8 17 24,848 336,100 262,274 254,201 128.1 18 25,260 361,359 287,409 290,282 125.7 19 17,907 379,266 314,568 312,386 120.6 December 21, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of males of United States savings bonds. These figures have been adjusted on the basis of wire reports and therefore will not agree with the Treasurer's accounts. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL 132 UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED Comparison of December sales to date with sales during the same number of business days in November and October, 1942 (At issue price in thousands of dollars) : December : Cumulative sales by business days Date : daily : : I : December as December November October : sales : : : :percent of November lecember 1942 1 $ 197 $ 197 $ 303 1 65.0% 2 329 527 1,115 - 47.3 3 2,688 3,214 7,846 $ 2,218 41.0 4 13,947 17,161 14,720 20,322 116.6 5 12,303 29,464 31,425 24,325 93.8 7 17,522 46,986 34,030 31,922 138.1 to 2,872 49,858 43,940 46,695 113.5 9 9.576 59,434 49,326 55,998 120.5 10 5,651 65,085 58,842 59,711 110.6 11 14,274 79.359 64,157 74,275 123.7 12 7,135 86,495 71,352 76,430 121.2 14 15,430 101,924 73,989 83,857 137.8 15 7.719 109,644 83,246 91,884 131.7 16 5,146 114,789 88,888 98,457 129.1 17 11,654 126,443 97,154 101,252 130.1 18 6,466 132,909 104,487 110,052 127.2 19 7.992 140,901 113,191 115,757 124.5 Office of the Secretary of the Treasury, December 21, 1942. Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. These figures have been adjusted on the basis of wire reports and therefore will not agree with the Treasurer's accounts. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 133 December 21, 1942 MEMORANDUM FOR THE SECRETARY: At 10:30 A. M. Friday, December 18, 1942, Secretary Morgenthau received Senator Downey of Cali- fornia, and 8. discussion ensued concerning Treasury policy in regard to applications for additional branches by the Bank of America National Trust and Savings Association. Under Secretary Bell and Comptroller Delano were present. Senator Downey opened the discussion by stating the Bank of America had requested that he present to he Secretary & brief outlining the position of the bank. He stated he had not read the brief himself as yet but would like to leave it with the Secretary for study and answer. He further stated the Giannini interests felt that under the law they were entitled to certain new branches and that they were being discriminated against by continual denial of their applications. Senator Downey made it clear that he was not undertaking to substitute his judgment for that of Treasury officials but that he Regraded Unclassified 131 - 2 - was presenting a viewpoint. Secretary Morgenthau replied that he would like to take a few minutes to inform the Senator as to the background of this controversy and the present attitude of the Treasury. He then made a brief summary of the Treasury supervisory policy in this case, pointing out that in 1933, his predecessor, Secretary Woodin, had decided to permit the Bank of America to reopen against the advice of every one concerned and that ever since he (Secretary Morgenthau) had been Secretary of the Treasury he had been attempting to improve the condition of the bank and to force the Gianninis to abandon policies and practices which were universally condemned by all who knew the facts. The Secretary stated that this campaign to restore the asset condition of the institution and to improve the management had been met with sullen opposition at every step from the Gianninis and their officers, and that this opposition included personal attacks on himself and attempts to have him removed from office. Regraded Unclassified 135 - 3 - Secretary Morgenthau continued that finally Mr. L. M. Giannini had called on him personally and alone. Mr. Giannini was then told that, despite their many attacks and discourtesies, the Secretary of the Treasury had no interest in either A. P. or L. M. Giannini, but that his interest was unflagging in preventing a further expansion of a banking organization already over-extended. Mr. Giannini was also firmly in- formed at this conference that the policies and practices which had proved so damaging to the bank and the general financial situation on the Pacific Coast must not be resumed and that there would be no weakening of super- visory pressure toward that end. Subsequent to this conversation with Mr. Giannini, the attitude of the Bank of America underwent a change and steady improvement has continued up to the present time. At the Secretary's request, Mr. Delano explained somewhat more in detail the Treasury policy as to branch removals and transfers. It was explained to Senator Downey that while any increase in the number of branches had been consistently denied, a substantial number of Regraded Unclassified 136 - 4 - transfers of existing branches from one location to another had been authorized. These transfers fell into two classes -- routine transfers of a short distance to permit improvement in the convenience of locations; and transfers permitted in those cases where both the public and the bank would be served by moving from an uneconomic to a more profitable and more useful location. It was explained that such transfers were always handled on a case basis, and that they would not be permitted where the result was simply expansion or intrusion into the field of any small independent bank. Senator Downey expressed himself as apprecia- tive of the courtesy shown him and of the temper of the explanation. The subject was then changed to one of taxes, the Senator pointing out the difficulties which will be encountered in attempting to collect taxes from certain piece work farm laborers. The conference then terminated. The brief presented by the Bank of America through the good offices of the Senator was turned over Regraded Unclassified 137 - 5 - to Mr. Delano for study with the understanding there should be further discussion as to what action should be taken in regard to it. Presider Elano Preston Delano DWB Regraded Unclassified 138 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 21, 1942 TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. Regarding the distribution of the work I have been doing, I would suggest that you give the following assignments: Savington Crampton: (1) To handle the correspondence that has been coming to me from Miss Chauncey's office, some of it con- sisting of letters for your signature and a larger number of letters to be written and signed on your behalf. (2) To receive visitors sent by your office. (3) To continue as executive secretary of the committee that has been working on public- information on taxes and inflation. Peter Odegard: (1) To direct the writing of public messages signed by the Secretary in connection with War Bonds. All such messages, whether requested from the outside or by the War Savings Staff, should come up to the Secretary through Mr. Odegard. (2) To handle all Treasury relations with O.W.I. except speech clearance. Regraded Unclassified - 2 - 139 Harold Mager: (1) To prepare the Secretary's public speeches and to assist in the preparation of all other formal statements. (2) To write or assist in the writing of speeches or articles for other Treasury officials who ask for his help. (3) To read Government reports that may be sent to him by Miss Chauncey and to mark passages if he thinks the Secretary would be interested in them. Herbert Gaston: To edit, for style and content, all Treasury speeches, other than the Secretary's, and to approve them for policy. These speeches shall not be made unless Mr. Gaston approves the manuscript. Charles Schwarz: To handle the clearance of speeches with O.W.I. All Treasury speeches by the Secretary, Under Secretary, Assistant Secretaries and the General Counsel, should, after leaving Mr. Gaston, be referred to Mr. Schwarz, who will clear them with Mr. John R. Fleming's office at O.W.I. Mr. Fleming's office, in turn, will refer to Mr. Schwarz all Government speeches bearing on Treasury problems. Mr. Schwarz will circulate them among the appropriate Treasury officials and will send their comments or suggestions back to Mr. Fleming. 7.k Regraded Unclassified 140 December 21, 1942. MEMORANDUM FOR THE PRESIDENT Mr. Temple Seay has been engaged by the Division of Foreign Funds Control of the Treasury Department as an attorney in its Washington office at $6400 a year. He will start his new work on January 1, 1943. (Signed) H. Morgenthau. Jr Sent by Sturgis 12:20 12/19/42 File in Diary JLStkb Regraded Unclassified 141 MEMORANDUM December 5, 1942. TO: The Secretary This FROM: Mr. Sullivan Mr. Wenchel has an appointment with Temple Seay Monday morning at 11 O'clock. Mr. Wenchel is prepared to offer Mr. Seay a position at $6400 a year trying income tax cases in his choice of Boston, Pittsburgh, Kansas City, Houston or Chicago. ( Regraded Unclassified 142 MEMORANDUM December 3, 1942. TO: The Secretary JLS FROM: Mr. Sullivan Upon receipt of the memorandum from the President to you relating to a position for Mr. Temple W. Seay, I phoned Commissioner Helvering who suggested that Mr. Seay communicate with Mr. Wenchel. I then phoned Mr. Seay and Mr. Wenchel and they are to get together this week. monday of latest Regraded Unclassified 143 THE WHITE HOUSE WASHINGTON November 30, 1942. MEMORANDUM FOR THE SECRETARY OF THE TREASURY What can you do about Temple W. Seay whose term on the Processing Tax Board expires on January first? F. D. R. are to white THE ASSISTANT SOLICITOR GENERAL WASHINGTON 12/22 December 21, 1942 Dear Secretary Morgenthau: If it has not already been done, what about the idea of the Treasury's minting some gold coins for use in occupied territories? American gold pieces used now and in the near future may have some interesting implications in the conduct of the war and after. For the course of the war, the advantages of gold coin are obvious. If Europe should get to a common currency after the war, it may well be that it ought to be tied to the dollar. The people of Europe know the dollar and would doubtless rather have it than any other form of currency. Sincerely yours, Orcar lot The Honorable The Secretary of the Treasury. 145 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE December 21, 1942 TO Secretary Morgenthau FROM Mr. Have Bubject: The Business Situation, Week ending December 19, 1942. Summary Industrial production: Industrial activity declined less than sersonally in November and the FRB adjusted index rose to 191 OR compared with 189 (revised) in October and 167 in November 1941. Recent reported cancellations of various Army munitions contracts are causing dislocations currently. Construction activity: Decline in construction next year expected to release one million men for other lines of work. This 1s more than the additional number of workers expected to he needed in the shipbuilding industry. Garoline shortage: Only 365,000 barrels daily available for detribution in rest of December in 17 Eastern states, as compared with recent consumption rate of 450,000 barrels Vily. Further drop in supplies to 331,000 barrels daily estimated for January. molesale prices: BLS all-commodity index rose 0.4 to & new 11gh at 100.5 in the week ended December 12. Led by grains, basic commodity prices moved higher last week, with bullish inclications seen in Henderson resignation. letsil trade: Department store sales rose to & new peak in reek ended December 12, with gain over year-earlier levels widening to 16 percent 8.8 compared with 10 percent in crevious week. Department store stocks: Stocks in New York Federal Reserve District declined in November, and gain over year-earlier levels narrowed for fourth consecutive month. At the end of November, stocks were 13 percent above the corresponding date in 1941. The higher price level vould account for a rise of about 6 percent. Regraded Unclassified 146 - 2 - Industrial production declined less than seasonally in November Although industrial production in November receded slightly for the first time since our entry into the war, the decline WEE less than seasonal. As a consequence, the FRB seasonally- adjusted index of production for November rose to another new high at 191, ae compared with 189 in the previous month and only 167 in the pre-war month of November 1941. (See Chart 1.) However, the fast pace of industrial activity in recent nonths may be slowed down, temporarily at least, by the exten- give cancellation of Army munitions contracts reported in recent weeks. Shifts made necessary by changing war require- ments, na well as an under-estimation of plant capacity, have been cited as the principal factors underlying cancellation OI' reduction of orders for various items, including large and medium tanks. In addition to the dislocations caused by shifts in production schedules, evidence continues to accumulate that the construction and tooling-up phases of the war effort have passed their peak. In connection with the prospective decline in construction during 1943, the Secretary of Labor said last week that the tapering-off in construction activity in the coming year will be sufficient to release 1,000,000 men for other lines of work. Employment on privately-financed con- struction is expected to drop to only 40 percent of the 1942 level, while employment on publicly-financed construction 1s expected to recede to 60 percent of the 1942 level. It was nointed out that the number of men released from construction work will more than offset the number of additional workers expected to be required in the shipbuilding industry. Production of machine tools 1s reported to have been de- clining from the peak reached in October, and the present out- look is for lower production in 1943 than during the current year. Partly due to cancellations, new orders for machine tools in October are said to have fallen for short of produc- tion. Gasoline and fuel oil shortage may affect war effort Although shifts in production schedules are causing some dislocations, the greatest immediate threat to the war program appears to be the acute shortage of gasoline and fuel oil in the Atlantic Coast area. Regraded Unclassified 147 - 3 - Coincident with the temporary stoppage of all non-emer- gency gasoline sales for A, B, and C coupons on Friday, it 1/28 revealed that only 365,000 barrels of gasoline daily would be available for distribution in 17 Eastern states in the rest of December, as compared with a recent consumption rate of 450,000 barrels daily. Furthermore, the daily rate available during January is expected to drop to 331,000 barrels. Fuel oil stocks are reported to have dropped to perilously low levels under the impact of unexpectedly large consumer demands and export requirements, and oil trade circles are said to be fearful of an imminent break-down of the fuel oil rationing program. The fuel oil shortage is not confined to the Eastern states, but 1s also reported serious at many noints in the mid-West. In view of the disrupting ramifications of acute gasoline and fuel oil shortages, it 18 obvious that prompt and effective handling of the problem will be necessary to avoid impairment of the war effort. Commodity prices continue to rise Momentum was added to the rise in prices of form and food products last week as the resignation of Price Admin- istrator Henderson was interpreted as a major victory for the form bloc. Members of Congress were reported to be forecasting " renewed and successful drive in the next session to revise the parity formula and thereby ensure higher agricultural prices. In addition to this latest blow to Administration efforts to control farm and food prices, new evidence appeared of current advances in retail food costs and curtailed food supplies. To these various factors, prices of staple commodities not subject to controls responded buoyantly. Higher prices for commodities not subject to control carried the BLS index of 9 uncontrolled commodities to D. new peak, together with the BLS index of 28 basic commodities. (See Chart 2, upper section.) Grains led the price advance last week. Cash wheat reached a new high since the 1936-1937 peak, and was 11 per- Oilseed prices were buoyed by a report from the Department of cent higher than a year ago. Feed grains were also strong. Agriculture indicating & shortage of fats and vegetable oils for food and industrial purposes in 1943 estimated at 7 to 9 percent of present requirements. Flaxseed sold at highest levels since April, and cottonseed oil remained at its ceiling. Regraded Unclassified 148 11. - Hoge sold for their highest prices since the first week in Movember. Although receipts are now about in proportion to supplies on farms, demand continues heavy. Beginning with the week ended November 28, the Department of Agriculture MULE resumed its pork and lard purchase program in quantities equivalent to the high rate of early summer. Shorp advances in wholesale prices in the week ended December 12 for grains, cotton, peanuts, and certain fruits and vegetables lifted the BLS all-commodity wholesale price index to 100.5 (1926-100), a new high since the outbreak of the var in August 1939. The index now stands 34.0 percent above the level of August 1939. Food prices still rising Both wholesale and retail food prices continue their marked rise begun early in 1941. (See Chart 3.) In explan- ation of the 1.2 percent rise in retail food costs in the month ended November 17, the Bureau of Labor Statistics has stated that increases in the uncontrolled items of fresh fruits, vegetables, and fish amounted to 6.6 percent. These products alone, as of November 17, were 21 percent higher than in May of this year. The rise compares with an increase of 7.8 percent in total food costs during that period. Additional advances in retail food prices were disclosed officially last week. Price increases for 21 food items were allowed by the OPA, to afford relief to wholesalers and re- toilers. Increases were allowed on such staples as rice, dry beans and dried fruits. An increase of one cent a half pint in the retail price of light cream, the OPA said, was expected to halt "any abnormal" diversion of butterfat from cream to butter. Ceilings in dollars and cents were placed on all types of domestic poultry at wholesale prices elightly higher than those which have prevailed this year, The new wholesale prices, according to the OPA, are designed to encourage producers to meet the Department of Agriculture's production goals. Retail prices, except for turkeys, for the present are still under the ceiling of the seller's highest price from September 28 to October 2. Food supplies tighten Food distribution showed no improvement last week. The Executive Secretary of the New York State Food Merchants Association said that the butter situation now resembles in Regraded Unclassified 149 - 5 - many respects the sugar and coffee situations just before those staples were officially rationed. Grocers continue to limit sales to customers, while hoping that the OPA will take immediate steps to add butter to the list of rationed commodities. Factory butter production in 1942 through October W&B 5.3 percent less than in the first ten months of 1941. Cold storage holdings of butter (see Chart 4, lower section) have continued to run less than a year ago beginning with the July 1 holdings, and in more recent months they have been less thrin in 1940. On December 1, they were 70 percent below the holdings of a year earlier, and the lowest for that date since 1932. Milk production (upper section of Chart 11) has continued its more than seasonal decline, and for the month of November Aropped practically to the level of production of 1941, al- though there were more COMB in the herds. A decrease of about 2% percent in milk production per cow on December 1, as compared with a year earlier, was offset by the greater number of milk COWS on farms. Record feeding of grains and concentrates was not sufficient to overcome the adverse influences of labor shortages and perhaps other factors, which have reduced the percentage of cows milked to the lowest December 1 figure since 1934. Supplies of other foods in storage have also declined. Cold storage holdings of cheese during November dropped below their 1941 levels for the first time this year. Storage holdings of meat on December 1 continued lower than a year earlier, and this decline, as heretofore, was due entirely to decreases in holdings of pork. Civilian supplies of pork, veal, lamb, and mutton have been ordered cut about 13 percent, effective during the first quarter of 1943. The reduction was ordered for the purpose of filling expanding wer needs. New civilian quotas for meats Civilians who are now being asked to restrict per capita consumption of meats to 40 ounces & week, after the first of the year will be out to 35 ounces through further limitations on packer deliveries of meats for civilian use. A comparison of the current and new quotas for packer deliveries 1s as follows: Regraded Unclassified 150 - 6 - Last quarter First quarter of 1942 of 1943 (Percent of deliveries in corres- ponding quarter of 1941) Beef 70 70 Pork 75 70 Veal 100 70 Lamb and mutton 95 75 In order to relieve local meat shortages, packers are to be allowed to distribute 10 percent of their quotas for the first quarter of 1943 during the last 12 days of December. Department store sales at record levels With the customary peak in Christmas buying still one week away, department store sales in the week ended December 12 rose to within 1 percent of the all-time record set in the third week in December last year. Moreover, the gain over year-earlier levels rose to 16 percent, from 10 percent in the week ended December 5. (See Chart 5.) Sales gains over the corresponding week in 1941 ranged from 10 percent in the New York, Philadelphia and Chicago districts to 2121 percent in the San Francisco district, where sales in the 1941 week were especially hard hit as a result of the attack on Pearl Harbor. Although sales last week probably fell somewhat short of earlier expectations, due to the adverse effects of the gasoline crisis on automobile driving in the Eastern states, Dun and Bradstreet report that sales rose to B new peak for the year and reached record-brecking figures. As B. result of the heavy buying, retail stocks in general were said to be down to around last year's levels. New York department store stocks declined in November Department store stocks in the New York Federal Reserve District (in dollar value) declined during November, and the adjusted index of stocks fell to 134 from 145 in the previous month. The gain in stocks over year-earlier levels was re- duced for the fourth consecutive month. By the end of November, stocks were only 13 percent above the corresponding date in 1941, as compared with 22 percent at the end of October of and no less than 82 percent at the end of July. Stocks Regraded Unclassified 151 - 7 - department stores in New York City showed a similar trend and at the end of November were only 16 percent above year- earlier levels, thus lending support to some predictions that with the conclusion of Christmas trade stocks will be down to or even below 1941 levels. Prices of typical department store items at the beginning of November averaged about 6 percent higher than last year, according to the Fairchild index. Industrial stock prices rise to year's high The customary year-end rally in stock prices, which has occurred in 41 out of the last 44-24- years, appeared to be get- ting under way earlier than usual last week, 8.8 industrial stock prices on Thursday moved up to a new peak for the year on the heaviest volume of trading recorded thus far in 1942. Utility stocks advanced to within 2. fraction of their high for the year, while railroad shares, which have been sagging recently in reflection of threatened wage increases and rate cuts, also strengthened. (See Chart 6.) The volume of year- end tax selling 19 reported to have been considerably lighter than last year, and this factor undoubtedly has contributed to the recent improvement in prices. This will be the first time since 1928 that the average of industrial stock prices reached its year's high in December. Regraded Unclassified F.R.B. INDEX OF INDUSTRIAL PRODUCTION 1935-39=100, Seasonally Adjusted 1939 1940 1941 1942 1943 PERCENT PERCENT 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 J J A SONDJFMAMJJASONDJ F A M J J A 5 o N D J F M A M $ A 3 J M J A F S o N D J F 3 J 152 Chart 1 1939 1940 1941 1942 1943 Office of the Secretary of the Transury Division of Resert - Setation 'Regraded Unclassifie MOVEMENT OF BASIC COMMODITY PRICES 1941 1942 PERCENT PERCENT August 1939-100 190 190 185 185 9 Uncontrolled Commodities 180 180 175 175 170 170 28 Commodities 165 165 160 160 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 DEC. II AND DEC. 18. 1942 PERCENT PERCENT 19 Controlled 9 Uncontrolled +45 Commodities +45 Commodities +40 +40 Hoge 40.0x +35 +35 Butter 32 6x +30 +30 Lard an +25 +25 Bonker 117% Commar Com +20 +20 "Abain an : Whet 154% +15 Shellec 12.3% +15 Lood 111% Totton 1232 Cottonesed Oil 97% +10 (Print Cloth TAX +10 Sugar 4,9% Zine 2%. 0% Change .5 :5 Hides. Salk, Tin, Rubber, Coffee, Copper: o o St Scrap,dom, &t Screp.exp Coooo " - 5 - 5 Tallow 4/X Bunksp 48% Who/ Tope-5.4% -10 -10 Dec 6 Dec. II Dec. IS Dec 6 Dec.li Dec. 18 1942 1942 1941 1942 1942 1941 # 20 Controlled and / Uncontrolled previous to June N 153 Office of the Secretary of the Transury P-244-24 -14 - of - - Regraded Unclassified 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 5/ CITIES. B.L.S. 105 105 100 100 95 95 90 JAN. MAR. MAY JULY SEPT. NOV. JAN. MAR. MAY JULY SEPT. NOV. JAN. 90 MAR. MAY JULY SEPT. 1940 NOV. 1941 1942 154 Chart 3 Other of the Secretary of - Transfy - - - - P-730 Regraded Unclassified Chart 4 155 MILK PRODUCTION AND BUTTER STOCKS Pounds Pounde Billions Billions Total Form Milk Production 12 12 1942 II II 10 1941 10 9 1940 9 8 8 7 7 JAN FEB. MAR. APR MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. Pounds Pounds Millions Millions Creamery Butter Cold Storage Holdings 200 200 1941 1942 150 150 100 100 1940 50 50 o o JAN FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT NOV DEC. Source: us Dept of Apriculture Office of the Secretary of the Treasury Daman al Reserved w - C-445 Regraded Unclassified Chart 5 156 DEPARTMENT STORE SALES 1935 - '39=100, Unadjusted JAN. FEB. MAR. APR. . MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. PERCENT 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 Reasarch and Statistics Regraded Unclassified STOCE PRICES, DOW-JONES AVERAGES 157 Chart 6 Weekly Range Daily 1942 SEPTEMBER (A) a BILLARS - 30 Industrial Stocks 30 Industrial Stocks 160 125 125 IN 150 129 120 140 140 130 115 113 IN 120 120 110 110 no 110 100 105 - 100 90 100 100 so ao 80 $ as 50 so or so 45. 45 20 Railroads 20 Railroads 36 8 40 8 R e 35 as & 30 N a as 25 = % % % 27 22 is is & 20 x 10 15 Utilities 15 Utilities is 16 A a 14 14 29 R 12 12 is is 10 12 a 10 - SHAPES MARES MILLIONS SHARES MILLIONS Volume of Trading MILLIONS Volume of Trading (AFERAGE or MILY) / I 2 , - I 1 I 9 4- o e 1 14 19 > 2 9 = 23 a 6 13 20 n 4 11 18 25 - . 15 22 y . 13 X 27 i JAT AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 1942 - Secretary - Treasury 144 Regraded Unclassified December 21, 1942 158 HIGH-LIGHTS OF THE WAR NEWS (10:00 A. M.) North Africa 1. Libya - British contact fleeing Axis troops 225 miles west of El Agheila as Rommel's forces reach Sirte. 2. Tunisia - French troops and U. S. fighter planes re- captured Pichon, 50 miles inland from port of Sousse. Allies also attacked Axis Sfax Railroad yards. Con- tinued rainy weather prevented much ground activity. 3. Nazis reported massing reinforcements on the French Mediterranean. India 1. Wavell's troops, unopposed, pushed along Bay of Bengal over 30 miles into Burma and 60 miles from Akyab. Ahead of ground forces, R.A.F. bombed Toungoo airdrome on railroad between Rangoon and Burma Road. 2, Only slight damage was done in Jap retaliatory attack on Calcutta, British claim. 3. Japs also opened drive on China in the East. Russia 1. The Red army opened its third great winter offensive on the Don front with the Germans counterattacking. Already astride the strategic Moscow-Rostov railroad, Red troops are reported bearing down on key railroad junction of Millerovo. 2. At the same time the Russians continued to drive for- ward in the Rzhev area (the central front) and in the Stalingrad area. The Pacific Area 1. Allies, using tanks (light General Stuarts) for the first time, smashed Jap pill boxes and other defenses which had held up ground forces for more than a month and drove to within 3,000 yards of Buna mission. 2. Jap commander reported killed. 3. With the capture of Buna, Gona, and Cape Endaiadere, Buna mission and Cape Sanananda remain last 2 Jap poc- kets on New Guinea. Europe 1. London - Continuing their round-the-clock raids on Germany and occupied France, British and American planes bombed Duisberg, important German inland post on the junction of the Rhine and Ruhr rivers. Regraded Unclassified 159 2. London - American flying fortresses and liberators in a Sunday raid on Romilly, 70 miles east of Paris, were understood to have shot down at least 46 German fighters and damaged 30 more. 3. Explosive developments were expected to follow the week-end conference of almost every European Axis leader except Mussolini at Adolf Hitler's eastern front headquarters. -2- Regraded Unclassified 160 NOT TO BL RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET 0.3. SECRET OPTIL do. 440 Information received 07 to 7 A.M., 21st December, 1942. 1. NAVAL A 2,000 ton ship was sunk by H.M. Destroyers in the Gulf of Hynnumet, Tunisia, on night 20th/21st. One of H.M. Corvettes sank off B.NCHAZI on 19th From unknown cause but probebly mine. 60 survivors picked up. h 23,700 ton transport in convoy to MEDITERRANEAN was torpedoed north of ORAN 20th/List. Attemots are being made to tow her into port. 2. MILITARY LIBYA. Indications that Panzer Army is making great offorts to develop communications through TUNISIA but shortage of M.T. is likely to prove an obstacle. It is believed that shortage of M.T. fuel in LIBYA persists. 3. AIR OPERATIONS WESTERN FRONT. 20th. 101 U.S. Fortresses and Liberators supported by 16 Squadrons of Spitfires were sent to ROMILLY SUR SEINE Airficld and airpark. 71 aircraft attacked in good visibility dropping 145 tons of H.S. and Incen- diaries. One hangar was probably destroyed and many hits were seen on buildings and <ircraft on the ground. Enemy casualties (provisional by Bombers) 45, 26, 5. 5 Fortresses missing. 9 Mosquitos attacked objectives including railway commu- nications in Northwest GERMANY. One is missing. 9 enemy aircruft flew over K.WT and EAST ANGLIA. Enemy casualties 1, nil, 2. Two Beaufighters were dos- troyed by F.V. 190's west of BREST. 20th/21st. 259 aircraft sent out - -RISBURG 232 (11 missing, 4 croshed), Intruders 17, leaflets 4, anti-shipping 6. At DUISBURG weather was good and attack is considered successful. A few enemy aircraft operated over YORKSHIRE and LINCOLNUHIRE. Some damage With caused nb HULL. TUNISIA. 18th. 36 escorted U.S. Fortresses bombed BIZERT) Harbour. One ship believed n. cruiser was hit. Other U.S. bombern successfully attacked BOUSSE railway centre and on 19th escorted Bostons attacked SFAX rail- Way centre. Enemy casualties 4, nil, 1. Ours 7 missing. Regraded Unclassified 161 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 21, 1942 TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. Here are a few items of interest from the latest Intelligence Report (public opinion survey) of the O.W.I. 1. Eighty-three percent of the public feel that the work week should be 48 hours or more; forty-seven percent think that over-time pay should start after a forty-eight hour minimum. Most of the public seem to be aware of the fact that the Wage-Hour law does not restrict war workers to a 40-hour week. (pages 5 and 6 of the attached report.) 2. More than half of the American people feel that organized labor should be represented on the War Production Board. (page 8 of the attached report.) 3. Lots of morale work needs to be done in communities near Army camps. Pages 12 to 15 of this report contain a survey that I think will be of special interest to you and Mrs. Morgenthau. 4. Public thinking is still very fuzzy on the subject of the post-war world. The isolationists are in 8. minority of only 20%, but the majority have hardly begun to think in concrete terms about our role in post-war years. (pages 16 and 17) J.K. Regraded Unclassified 162 162 12.18.42 INTELLIGENCE REPORT 54 ENTIAL 1 \ 5 N % $ & 3 I TO LOVE SEAL 8 of 1 AUD 5 information % V THE of % E OFFICE OF WAR INFORMATION BUREAU OF INTELLIGENCE COPY No. 7 Henry Morgenthau, Jr. Regraded Unclassified CONTENTS Page EDITORIAL ATTITUDES 1 Battlefronts 1 Labor 3 United Nations 4 POPULAR REACTIONS 5 The Work Week and Overtime Pay 5 Labor Representation on the WPB 8 DEVELOPING SITUATIONS 12 Soldiers and Civilians 12 America and the Post-War World 16 Regraded Unclassified EDITORIAL ATTITUDES BATTLEFRONTS Editorial optimism adjusted itself this week to the nodified tempo of allied progress. The news from Tunisia, Russia and the Pacific led commentators to nore sober appraisals of the war as a long, tough struggle against deter- mined, resourceful adversaries. The increased length of allied supply lines and the necessity of construct- ing advance air bases were the chief reasons offered to account for the reduced speed of the allied offensive in North Africa. Rommel's flight from El Agheila offset earlier uneasiness. Most of those analyzing the situation regarded it as the prelude to a decisive air duel between the contending forces. The prevailing judgment was that the United Nations, because of their superior resources, would be able in time to bring up overwhelming aerial power. Much of the comment on North Africa continued to deal with Admiral Darlan. Editors seemed to feel some obligation to justify the "military expediency" involved in the arrangement with the Vichy leader. They insisted vehemently that it will prove only temporary in character and pointed redundantly to the benefits which have accrued from it. A summary of investigation and analysis conducted for certain OWI officials, Interest in Darlan has been superseded, however, by anxiety over Spain's issued for OMI and the interest of other members of the Government. General Franco. The Generalissimo's speech to the Spanish Falange Decem- ber 8 was widely interpreted as indicating that Spain intends to stay out The period covered by this report is the week of December 10 through December 16, of the war. The Atlanta Constitution remarked cheerfully, "It 1a not except where otherwise specifically stated. - 1 - Regraded Unclassified likely that Franco of Spain will abandon the neutral position his country Dutch East Indies, the Philippines and Wake and to subdue Japan proper?" has so far held in the war, despite his outright approval of the fascist The development of the week which proved most heartening to the news system of Government given in his speech of a few days ago." interpreters was the announcement that General Zeitzler had replaced But some observers were more apprehensive. According to the Christian General Halder as chief of the German general staff. The dominant judg- Science Monitor, "Those who think they see in General Francisco Franco's nent was that this shift indicates the Nazification of the German army latest public pronouncements assurances that Spain is not going to permit and the eclipse of the regular military commanders. Some suggested that the Nazis to strike from Gibraltar at the flank of British-American forces it signified a change in German military strategy from the offensive to in North Africa are fooling themselves. The fact is that Spain is on the the defensive. The Scripps-Howard newspapers went so far as to state that brink of war and General Franco is bargaining with both sides. However, "Hitler's substitution of a Gestapo 'yes man' as head of the German army the chances of his coming to terms with Britain and America seem slight." in place of the Junker General Halder may be the beginning of the end." Like others, however, this editorial went on to say, "But it is safer to Editors were disturbed, too, by Franco's assertion that the choice of the assume instead that the change presages even nore vigorous enemy warfare." world lies between fascism and communism. "The fallacy of his speech," said the Pittsburgh Post Gasette, "lies in the fact that there are not LABOR two, but at least three, possible courses for post-war Europe." The press was very nearly unaninous in condenning President Roosevelt's Comparatively little coment appeared during the week on developments in intercession in the Montgomery Ward situation. Mark Sullivan's comment Russia. Stiffened German resistance and counterattacks have dissipated on this score was fairly typical: "Montgomery Ward cannot be considered the nore extravagant hopes for a decisive victory on the eastern front. a war industry. If the President can successfully make this demand on Montgomery Ward, he can make it on any citizen or group." There was no more than subdued applause for General MacArthur's gains in New Guinea. The stubbornness of Japanese resistance and the long delay in Similarly, editorial sympathy was very much on the side of the railroad our capture of Buna and Gona added to the avarences that triumph is not managements and against the demands of the railroad brotherhoods for a quite around the corner. The Richmond Times Dispatch expressed the pre- pay raise. Most commentators argued that the railroads had suffered vailing view when it asked; "If it has taken from early August until mid- severely until the war brought them unexpected prosperity and that now December for us to get and to maintain footholds on remote and lightly they should have an opportunity to build up needed reserves. The demands defended Pacific islands. how long will it take us to recover the of the brotherhoods were taken as an occasion for attacking the "featherbed - 3 - 2 Regraded Unclassified rules* which the unione have allegedly maintained in the face of the war dissension between America and her allies. The liew York Times warned that effort. Comentators fairly friendly to labor argued that the demand for "any attempt to dictate terms to our allies instead of to our menies is higher wages would serve only to alienate the public more than ever from sure to be self-defeating." Nevertheless, the discussion of post-mar workers in general. problems has, for the first time, been couched in concrete terms and in regard to fairly specific proposals. The principal argument leveled against the granting of pay increases to the railroad employees was that it would have an inflationary effect. Some newspapers employed this same reasoning to support approval of the lowering POPULAR REACTIONS of railroad rates. THE WORK WEEK AND OVERTIME PAY In comments on labor problems in general, editors continued to inveigh Kewspaper agitation for anendment of the Wage and Hour Law is reflected against the iniquities of the 40-hour week. There has been no diminution in a widespread popular belief that the weekly hours of labor should be of the pressure for amendment of the Wage and Hour Law to have overtime pay lengthened for workers in war industries. Eighty-three per cent of the begin only after a work week of 48 hours. public feel that the work week should be 48 hours or more; 47 per cent think that overtime pay should start only after a 48-hour minimum. UNITED NATIONS The speech recently delivered by Queen Wilhelmina of the Netherlands elicited In the latter part of November, the Bureau of Intelligence asked a a good deal of editorial comment on post-war problems. Most of the comment national sample three questions concerning the working hours of war plant praised the speech highly and accepted it as a Workable scheme for the post- employees: war world. The Louisville Courier Journal, for example, called it "a ABOUT POW NANY HOURS A YEEK, ON THE AVERAGE, beartening example of the anxious willingness of the world's greatest DO YOU THINK WORKERS IN MAR INDUSTRIES ARE ACTUALLY WORKING NOW? democracies to make the Atlantic Charter a living reality." HOW MANY HOURS A WEEK, INCLUDING ALL OVERTIME, DO YOU THINK WORKERS IN WAR INDUSTRIES SHOULD A minority, however, dissented - generally on the ground that pre-war in- PUT IN? perial arrangements could never be restored. Attacks on this speech and AND HOW VANY HOURS À VEEK DO YOU THINK WORKERS IN WAR INDUSTRIES SHOULD FUT Ill BEFORE THEY on Prime Minister Churchill's assertion that the British empire would be GET EXTRA AY FOR overtime? preserved have been so sharp as to make some commentators fear serious 5 Regraded Unclassified Should Should work before Are working Be working Overtime Pay Then estimates of the actual work week are compared with estimates of what Under 48 hours 29% 5% 28% the work week ought to be, it appears that 30 per cent of the public be- 48 hours 28 ) 34 ) 37 49 to 59 hours 14 ) 51 24 ) 83 6 47 lieved that workers were putting in as many hours as they should and 40 60 hours or more 9 ) 25 ) 4 per cent felt that workers were putting in fewer hours than they should; No overtime pay 14 Not ascertainable 20 12 11 only six per cent expressed the view that the actual work week is longer than it ought to be, while 24 per cent were without opinions on this score. According to the Bureau of Labor Statistics, the concept "war industry"is too elastic for use in the construction of statistics respecting the actual About a quarter of the whole sample supported the provision of the Wage and work week. The B.L.S. reports, however, that in September the average Hour Law that overtime pay should begin after 40 hours. Slightly more than work week in all manufacturing industries was 42.4 hours; in the durable half of the sample desired a longer work week before the commencement of goods industries, the average work week was 44.6. overtime pay, the bulk of these people centering on 45 hours as the proper dividing point. In addition, 14 per cent said that no overtime should be As the foregoing table indicates, only a minority of the public was under paid at all. the misapprehension that the Wage and Hour Law restricts war workers to a LO-hour week; more than half of the people interviewed believed that the Retention of the 40-hour provision of the Wage and Hour Law was most popu- men in war industries were working 48 hours a week or more. Farmers were lar, naturally, among nanual workers, least popular among farners, Even more prone than other people to hold the view that the employees of war among manual workers, however, a full third felt that overtime pay should plants are limited to la hours. begin at 48 hours. Farmers were more prone than other groups to say that there should be no overtime at all or that it should begin only after a Very few persons in any occupational group thought that the average work work week of 60 hours or more. week should be less than 40 hours. A third of the manual workers them- selves felt that the optinum work week is 46 hours; and nearly half o them Apparently a sense of urgency about the war has impelled the general pub- said that the work week should be more than 48 hours. Farmers, accustomed lie to think in terms of a minimm work week of 48 hours. And considerable to working extremely long hours themselves, were considerably more prono resistance has developed to the principle of overtime pay before this nin- than any other occupational group to declare that war plant employees imum has been net. The impact upon wage scales of a sudden change in the ought to put in 60 hours or more each week. Wage and Hour Law is perhaps inadequately appreciated. People are not fully aware, moreover, of the fact that in most essential war 6 7 Regraded Unclassified industries the hours of labor are limited only by the availability of ran It was found that sone people felt as they did out of a general sense of materials, machinery and plant facilities; in many phases of production, fair play. They believed that all groups deserve representation on so in- workers are already putting in more than 48 hours a week. The public needs portant a Government agency as NPY. But most people's viewpoints appeared to be informed that workers themselves are not primarily responsible for the to be even more strongly influenced by three other factors: (1) their length of the work week and that revision of the Wage and Hour Law would mean general attitude toward labor; (2) their occupation; and (3) union member- & cut in their earnings without necessarily increasing the weekly hours of ship. labor. thany people ovidently make little effort to weigh the merits of the speci- LABOR REPRESENTATION ON THE WPB fic issue of labor representation on the JPB. Their opinion is based, Interviewing conducted with a small national sample in late November indi- rather, on their general attitude toward organized labor. The sample was cates that half of the American people feel that organized labor should be asked a question which in the past has been found to be a useful index represented on the War Production Board, to pro- or anti-labor feeling: "Do you think the Government's attitude toward labor unions is too strict, about right, or not strict enough?" AS YOU PROBABLY KNOW, THE WAR PRODUCTION BOARD IS A GOVERNMENT AGENCY IN CHARGE OF ALL WAR PRO- DUCTION IN THIS COUNTRY. DO YOU THINK THERE of those who stated SHOULD BE REPRESENTATIVES OF UNION LABOR ON that the Government's This percentage THIS BOARD? attitude toward favored labor labor unions is: representation on WP9 Yes 52% No Too strict 76% 30 Don't know 18 About right 60 Not strict enough 45 Three-fourths of those who wanted labor to be represented felt that it should Occupation also plays an important part in determining people's attitudes have as much to say as management. These people comprised 38 per cent of the toward giving labor a voice on the WPB. Forty-four per cent of the entire sample. executives in the sample, and 30 per cent of the farners, were opposed to An effort was made to discover why people felt as they did about this is- granting labor representation on the JP9. In contrast, only 21 per cent sue. Their responses were carefully analyzed in the light of information of the industrial workers felt that labor should not be represented they gave about themselves and the viewpoints they expressed on related mat- on the Board. ters. A smaller sample was questioned intensively. - 8 - - y Regraded Unclassified Only ten per cent of the union members in the sample felt that labor should They feel that workers, as a result of their practical experience, can not be represented on the 3oard. Thirty-four per cent of the non-union contribute to the solution of production problems and deserve a place in members were of this opinion. the policy-making structure of WP3. The following statement by a militant New York labor leader is typical: To get additional insight into the more extreme viewpoints, intensive interviews were conducted with 30 men in the managerial group and 24 labor "Labor wants more participation in helping to plan the work. leaders. Only three of the 30 executives felt that labor should have an Labor wants to participate in the advance of government at this time. It wants to accept responsibility and not just equal voice with management on the War Production Board. Seven felt that be tolerated by business. Labor believes our participation in planning and policy making will increase production. Labor feels that it can often see how to coordinate the dif- labor's voice should be heard, but only in an advisory capacity. Twenty ferent processes in manufacturing better than an engineer felt that labor should not be given any representation whatever. can, because they are themselves doing the work... "We do not believe in casting the managers aside. We believe that it will take the teamwork of all to win the war." Most of the businessmen took the position that the management of production was their own prerogative and expressed anxiety about labor's growing Education and knowledge of the War Production Board appear to exert little power, A. number maintained that labor leaders have no managerial ability influence on people's viewpoints on labor representation. People were and do not cooperate well with management. The following remarks, by a given the names of Henderson, Nelson and Jeffers and-asked to identify the San Francisco businessman, are fairly typical: head of WPB. Only 47 per cent could do so correctly, and some of them "Production in the job for management, Some labor leaders may have guessed the right answer. The opinions of the people who did not are intensely patriotic, but they don't know production know that Nelson in the head of WPB were compared with the opinions of problems, and could contribute little. Recent moves to add labor nen to the WPS have been meroly in the nature of token representation to satisfy labor's dersands, I doubt those who did. While, as might be expected, the "don't know" answers enough concessions to labor." the windom or need of even that, There have already been regarding representation were higher among the former group, the ratio of "yes" to "no" answers was about the name among both groups. Among the The labor leaders overwhelmingly took the position that labor deserved relatively well educated people in the sample and the less well educated, equal representation with business on the WPS. Many of those interviewed too, the ratio of approval to disapproval of the idea of labor representa- were bitter because labor has been denied adequate representation for so tion was about the same. long. And they at least gave the impression that they would not be satis- fied now by nere "token" representation, carrying no real responsibility Unlike some labor leaders and executives, the general public, while:tending or power, to favor labor representation on WPB, does not feel strongly about the 10 - 11 - Regraded Unclassified question; the issue is not at present a live one. thit if it should ever Fayetteville, with a long Army camp tradition, used to regard "regular Army come to a head, these findings suggest that the division of opinion night men" as riffraff. This attitude permisted when selectees came to Fort be just about what it is revealed here. For it does not appear to matter Bragg in large numbers in 1940. greatly whether people are informed or uninformed about this question. Hattiesburg, having profited by the proximity of Camp Shelby in the last Their opinion is likely to be determined by their general attitude toward war, campaigned to have it reopened in 1940, before America was actually at labor, their occupational status, and their affiliation or non-affiliation war. with a union. The Indiana towns had no experience with or desire for an Army camp. Camp Atterbury was a real war camp, opened in the summer of 1942. DEVELOPING SITUATIONS In each camp, over $20,000,000 was spent on construction within a few months. SOLDIERS AND CIVILIANS The sudden influx of construction workers, wage differentials and union Army encampments have created serious problems for communities in which they activities precipitated hostility and suspicion. After the camps were con- have been established. They have brought about sudden increases in popula- pleted, new employment opportunities opened. Unemployment vanished, domes- tion, together with a disruption of normal community life. Cleavages have tic help became scarce and badly paid jobs went begging. developed between the regular residents and the men in uniform. The stores and restaurants of the towns were overwhelmed. Newcomers, As a means of studying the impact of Army camps upon nearby communities, opening businesses "for the duration", appeared and caused disgruntlement the Bureau of Intelligence, in cooperation with the Special Service Tranch among local businessmen by their unorthodox business practices. Civilians of the Anay, has recently conducted exploratory surveys in three medium to accused the merchants of hiking prices; soldiers complained of a two-price large-sized Army camps near towns of 10,000 to 25,000 population. Camp system which fleeced men in uniform. community problems were known to exist, though they were not considered Housing and transportation facilities were badly overtaxed in all of the exceptionally critical, in the localities selected. These were: communities, Rents skyrocketed, and established tenants were displaced, Fayetteville, N. C. - Fort Bragg in some instances, by newcomers. Inadequate bus and railway facilities Hattiesburg, Miss, Columbus - Camp Shelby brought soldiers and townspeople into close and uncomfortable contact. Edinburg Franklin ) Ind. - Camp Atterbury Conflicts over jurisdiction arose between town and military police. Indianapolis) - 12 - - 1) - Regraded Unclassified The stereotyped notion of the soldier as profligate and loose in morals Organized efforts to bridge the cap between soldiers and civilians. par- has been responsible for much of the hostility on the part of civilians. ticularly those undertaken by the USO - have not thus far met with much In the smaller communities, soldiers and vice are considered synonymous. success in the communities investigated. Before its actual appearance on Prostitution has burgeoned while attempts to control venereal disease have the local scene, the USO has regularly been the object of successful drives contributed to the schim between enlisted men and townsfolk; prophylactic for funds. Later, however, it has gained, in most places, only undisguised stations have been especially productive of ill feeling, since they con- animosity due to its operating methods and to its employment of well paid, stitute a violation of traditional reticence and are a glaring public but sometimes tactless, personnel recruited from out of town, who have symbol of the worst that the soldier means to small town civilians. failed to enlist community-wide support or to mould their activities to meet either the character of the community or the needs of the men. All of the communities studied, with the exception of Indianapolis, blamed the soldiers for an alarming increase in drinking and drunkenness, Dives Difficulties cannot fail to arise when large bodies of nen in uniform are and juke joints, slot machines and shooting galleries flourished in the suddenly placed upon the doorsteps of comunities unfaniliar with then and camp communities. The soldiers thronged to them, while the townspeople com- unprepared to meet their needs. But these difficulties can be ameliorated plained that their former places of anusement were crowded and noisy and by the encouragement of sympathetic rolations between tom and camp. that decent folk had to stay at home, Soldiers interviewed in all of the camps made it clear that they desired All three of the camps surveyed had considerable numbers of Negro troops. contact and companionship with the civilians in the comunities near which Their presence added racial tensions to the other difficulties. Normal they were located. Off duty, they often want to get away from fellow- friction between white and Negro men in uniform was aggravated by the soldiers, to meet civilians and to have some senblance of normal social local practices of segregation and discrimination. To the Negroes, the intercourse. The problem of community-camp relations revolves around the nearby towns offered almost nothing in the way of recreation or relaxation. sstablishment of this sort of friendly association between civilians and soldiers within the limits of the town's abilities. In none of the communities studied were the citizens ready psychologically or practically to cope with the problem of entertaining enlisted men. Information can play an effective part in promoting this sort of friendli- Locally sponsored hospitality has been confined to a few sporadic gestures, ness by giving civilians a sense of their responsibility toward the Army giving way to a shrugging off of all responsibility. men, The problem can best be approached through local efforts and insti- tutions. Initiative must come from the comunity itself. It must be carried on by members of the comunity. Effort must be directed toward - 14 - - 15 - Regraded Unclassified making vilians recognize that the enlisted nen, though strangers, are People's fears appear to be the greatest obstacle to the belief that peace thenselves nembers of families and communities akin to those with which the can be maintained through international cooperation. Isolationism is fro- war has brought then into involuntary contact. quently related to mistrust of England and Russia and to anxieties about the economic consequences of close ties with other nations. A tendency to AMERICA AND THE POST - WAR WORLD exagaerate the importance of America's contribution to the United Nations' Americans hope for a world in which they and their children hay live free war effort also appears to be associated with isolationism, from the threat of war. But they have scarcely begun to think realistically The belief that America should join a comprehensive organization of nations about how this goal may be achieved. is also typically part of a cluster of opinions. Those who hous this view Then asked how a better world night be brought into being, 40 per cent of tend to have confidence in America's allies, to be hopeful about the eco- di national sample could offer no suggestions. Only 25 per cent rade sug- nomic future, and to take a fairly realistic approach to war issues. The gestions of a political or economic nature. People's views about the post- people most aware of the difficult problems involved in winning both the war world are seldom crystallized or held with real conviction. war and the peace are most willing to endorse the 1dea of international collaboration. There is a general realization that isolationism no longer spells security. Fewer than 20 per cent of the American people appear to be firmly opposed (These findings summarize a Special Intelligence Report, America and the Post-War World, issued December 16, and to the principle of international collaboration. The isolationists are available to authorized individuals on request.) predominantly people with relatively low income and education and rela- tively limited contacts. The views of the people who favor some degree of U. 3. participation in world affairs fall into three broad classes. One group of people believes in full political cooperation with other nations. A second group vaguely, but potentially, sympathetic to collaboration, urges simply that the United States "be friendly" with other nations, A third group, including a number recently isolationist, wants the United States to dominate the post-war world. 17 - 16 - Regraded Unclassified 163 December 22, 1942 10:16 a.m. Edward Stettinius: Hello, Henry. HMJr: Hello, Edward. 3: How are you, sir? HMJr: I'm fine. S: Glad to hear from you. HMJr: You and Oscar Cox have been calling me. I don't know whether you've talked to each other - whether it's about the same thing or not. S: Well, now are you - are you in town? HMJr: I'm right here. I - - I got in at one o'clock this morning from Atlanta. S: When can I see you privately for five minutes? HMJr: Any time, how's that? When do you want to see me - except. S: Well, that'll be wonderful. In an hour from now? HMJr: That would be 11:15? S: Yeah. HMJr: That would be perfect. S: In your office? HMJr: In my office. There'll be nobody under the table, no dictaphones or anything. S: Thank you, Henry. HMJr: How's that? S: Right, old boy. HMJr: Thank you. Regraded Unclassified 164 December 22, 1942 11:40 a.m. BRITISH DOLLAR POSITION Present: Miss Kistler Mrs. Klotz H.M.JR: Mr. Stettinius called on me and said he had to see me alone. He told me that as & result of the Vice President calling on Jimmy Byrnes, Jimmy Byrnes told the Vice President he had taken hold of a hot potato by forming this subcommittee to discuss the financial needs of the British Empire, and as a result of which they should put the Budget in control of the thing. They suggested Wayne Coy for chairman of the committee. Evidently Stettinius thought I would fly off the handle, but it was of no consequence, as far as I am concerned. Then he was very anxious that he and I should go and see Mr. Hull and try to get this thing settled. I said I would not do it unless the Vice President was also there, because there was no use in discussing the thing unless the Vice President was there. Stettinius is very much upset because he has to testify on January 11 for additional funds. So I called up Dean Acheson in order to try to bring him back into the picture and to try to get rid of A. A. Berle. I asked him whether he would call up Mr. Hull and arrange 8 meeting for tomorrow morning between eleven and twelve, at which would be present Stettinius, the Vice President, and Harry White and myself. Regraded Unclassified 165 - 2 - Then the part that bothered me was this. He said, "Before I came over here I talked to Mr. Ecker about the South African thing." He said, "I asked Harry White, of whom I am very fond, for figures on the South African financial situation as of November 11, and to date we have never had an answer." This is Stettinius talking - trying to throw the whole blame back on White's shop. So I said, "Well, after all, you could have taken the position we won't give any goods to South Africa - and I gather they have given them forty-five million, lend-lease - until we do hear from the Treasury. But you did not do that. You just went ahead." I said, "Granted that if what you say is true, that White should have furnished these figures to you promptly, the fact still remains that you went ahead and did a lot of business." His answer was, "Well, South Africa is sort of a part of the whole British Empire, and we can't distin- guish between them.' MISS KISTLER: That is that old, fundamental question. I think that when he said on November 11 they had asked Harry White for figures and had not yet received them: One, what Mr. Ecker asked for was 8 study on South Africa, which is today being mimeographed. I was to do it and was tied up. It has been a long time, but I told Mr. Ecker - I had the figures gathered 8. long time ago - that I could give him by telephone the highlights and the figures of what they held, and what the picture looked like, without the analysis and all the supporting data. Finally, after being bothered four or five times, end with the delay, I did give-- H.M.JR: Who was bothered? Regraded Unclassified 166 - 3 - MISS KISTLER: I was. Mr. Ecker kept calling me and asking for these things, and he has had those figures for at least two weeks. He could have had them immediately when he asked if all he had wanted had been the figures. I mean, what they wanted was a study, you see, H.M. JR: What I think you had better do is this. I know how those things - six months from now they will say, "We never would have given a dollar if Harry White had given the figures." So you tell Harry White he had better write a letter - he should write the letter to Stettinius, telling them just what happened, because I can see that Stettinius is trying to look for a goat. MISS KISTLER: To the extent he has, it is my fault. H.M.JR: If you have given the figures-- MISS KISTLER: I mean if the project had been done promptly, he would not be able to come in today and-- H.M.JR: What you are telling me is that he has had the figures for over two weeks. I would spell it out with the greatest of detail and let Mrs. Klotz have a copy for my diary. These things come up two years from now, and you can't for the life of you remember. The other thing is that I have asked for this meeting between eleven and twelve tomorrow, at which time I want White to go with me. I hope to have a little time before that. I have got to be brought up to date by White. If possible, he should let me have a little memorandum tonight - just & thumbnail sketch of what the situation is on the British Empire and Canada, and should we say at this time that they should stop doing any more lend-lease to South Africa. Regraded Unclassified 167 - 4 - For instance, he gave me an example. England asked for two million Turkish towels. He said it was some kind of an obligation that they had. He said, "Let them have them." I said, "If they have got a billion dollars in gold, in American dollars, they could have bought their own Turkish towels." He said that the situation was such they could not turn them down. But there are things like that which they might very well pay cash for. MISS KISTLER: There was that memorandum we prepared for the meeting. Do you want more than that? We did cover the Empire. H.M.JR: What you have got to do between now and tomorrow morning - you and Mr. White - is to give me this kind of a memorandum. This is what I want: England, their dollar balances, in lump sum, and don't try to explain it. You could begin to taper off on non-military items. Then South Africa, balance 80 much - no reason that they should not pay entire cash; then Canada 80 much. We could begin to taper off on non- military items. MISS KISTLER: Country by country and an expression of opinion? H.M.JR: Yes. The fact that Cairo is loaded up with a lot of sterling and does not know what to do with it - I don't think that is our concern. Do you agree with me? MISS KISTLER: Yes. H.M.JR: The fact that they have got a lot of sterling, that is just too bad. But as I listened to these people, I just wondered if maybe we hadn't been a little bit slow, maybe, on advising them to shut off on this thing. I think we are a little bit to blame. Regraded Unclassified 168 - 5 - MISS KISTLER: I do, too. H.M.JR: I think White and you are a little bit to blame for not bringing this to my attention. MISS KISTLER: Yes, that is quite possible. We may be. H.M.JR: I like your attitude, anyway. Tell White, and he will have a chance to see me this afternoon. There was one other thing that Stettinius said, that he had had a telephone conversation with Hopkins. He could not even see him. He told him what had happened, but that he, Stettinius, looked to the Treasury to tell him when the balances were too great and that he was relying on us to advise him. So Hopkins said, "If that is the case" - you see what they are going to do, and that is they are going to go up on the Hill and say, "That is the Treasury's responsibility; they did not say anything." MISS KISTLER: We were not aggressive enough. Mr. White, as early as June and July, expressed opinions to Ecker and questioned lend-lease to South Africa when it was brought up. H.M.JR: He had better get into this whole thing. But I could just see what is going to happen. They will say, "Well, Mr. Morgenthau is the chief fiscal officer." MISS KISTLER: Of course the unfortunate aspect is that we ever got into that relief thing. Some of this flows from - you remember when Mr. Keynes was here last summer and he wanted five hundred dollars in cash from Lend-Lease appropriation - he wanted 8 six-hundred-dollar kitty. Regraded Unclassified 169 - 6 - H.M.JR: Six hundred million? MISS KISTLER: Yes. (The Secretary held a telephone conversation with Mr. Oscar Cox, as follows:) 170 December 22, 1942 11:55 a.m. HMJr: Hello. Operator: Mr. Cox. HMJr: Oscar? Oscar Cox: How are you, sir? HMJr: I'm fine. C: I wanted to tell you two things after that meeting on Friday. HMJr: Yeah. C: One was that apparently B.E.W. got worried about it, and have suggested that Wayne Coy head up an Intergovernmental Committee... HMJr: Yeah. C: merely as an impartial chairman, with the idea in mind that on specific problems like the dollar balance thing if you were good enough, you'd be the chairman, and 80 forth. HMJr: Yeah. C: Secondly, I think Stettinius is very disturbed about the thing like the South African business and thought he ought to take the bull by the horns and ask you if you wouldn't head up a group for that, 80 he'll probably be in touch with you if he hasn't already. HMJr: He has. C: Good. HMJr: Well, as a result of his being here, I've asked Dean Acheson C: Yeah. Regraded Unclassified 171 - 2 - HMJr: and have done it very advisedly, to ask - tell Mr. Hull that I'd very much like to call on him tomorrow with Wallace and with Stettinius and Harry White and myself. C: Good. HMJr: Between eleven and twelve tomorrow. C: Well, that's fine. HMJr: And get it on that level. C: oh, I think you're very wise. HMJr: See? C: Yeah. HMJr: What else? C: The only other thing was this screwball idea I dropped you a note about on the question of minting gold coin. HMJr: For minting gold coin? C: Yeah. HMJr: I don't think we can. C: Well, I should think some bright lawyers could probably figure out a way for you to do it. HMJr: Well, I suppose the answer is I should ask you then. C: No.... HMJr: (Laughs) C: ....no, I would say - I would say Randolph Paul ought to be up to that one.... HMJr: (Laughs) C: because I'm Regraded Unclassified 172 - 3 - HMJr: You don't think that's too difficult for Randolph? C: No, sir! HMJr: Well, you know we can get quite a few more up in Canada if we want.... C: I know, but you've got to look forward to the future thing on this thing, where the European people think a hell of a lot of the American dollar, you know, and it's an educational HMJr: Yeah, you're going - you're going to let the people on the - is the Blue Danube or the Volga River have gold coins and. C: Well, no.... HMJr: T.V.A. but you're not going to let the U.S.A. fellows have them. C: No, I'm - I'm with Witherow on that. HMJr: You are with Witherow on this. C: Well, but I think when you get to the reoccupa- tion of places like Italy or France, American gold pieces will have certain strategic advan- tages not only presently but in the future. HMJr: Well, with what's left behind in the Treasury, we'll see what we can do.... C: All right, friend. HMJr: with your screwball ideas. C: Right. HMJr: Have you already got an opinion written on this? C: No, but we start off on the curious premise that anything can be done if you know how. HMJr: Where'd you learn that? Regraded Unclassified 173 - 4 - C: Learned it from you. HMJr: Okay. C: Right. HMJr: Pass - grade "A". C: Right. (Laughs) Goodbye. 174 - 7 - H.M.JR: You might tell Harry White about that last thing, whether we can coin five-dollar gold pieces. That is that, and you have your work cut out for you for this afternoon. You people have to go out on the end of a limb now and say - I can just see how this thing is shaping up. Hopkins is really re- sponsible; Stettinius is. They have all made a mistake. They will say, "Well, Morgenthau should have told us." All right. Regraded Unclassified 175 December 22, 1942 11:30 a.m. HMJr: Hello. Operator: Mr. Acheson. HMJr: Hello. Dean Acheson: Yes, Henry. HMJr: Dean. A: Good morning. HMJr: Good morning. Ed Stettinius is here with me now, and we've been talking things over, and he's made the suggestion -- and which I agree -- that he - he - we think that he and I and Wallace and yourself should see Mr. Hull tomor row on this business aná try to get this thing straightened out, because he's saying that his hearings start on the 11th of January - hello? A: Yes. HMJr: Now what we'd like you to do is to see if you can't arrange a meeting for Mr. Hull, which he would call, say, between eleven and twelve tomorrow, because I - I can't do it earlier because I'm going to the White House. A: Uh huh. HMJr: Hello? A: Yes, between eleven and twelve. HMJr: Ed Stettinius lays great stress on the prompt- ness of this meeting, you see? A: Yes. Do you want to decide anything at this, because I'm - I don't think Mr. Hull will know very much about it. HMJr: Well, no, the point is sim.. - the point is simply this: how should we proceed in our relationship opposite the British Empire. That's the question. Regraded Unclassified 176 - 2 - A: Yes, yeah. HMJr: I mean should we, for instance, out - cut down on Lend-Lease to Great Britain? Should we stop doing anything with South Africa? A: Yeah. HMJr: Those are the two imminent things. Hello? A: Yes, sir. HMJr: Now I'm ready to say that I think that right now the English - Great Britain seems - dollar position seems to be more than ample, and I think that everything should be examined very carefully before - as to whether they couldn't buy some of this stuff with cash. A: Yes, I haven't had a HMJr: And another thing A: good look at all the figures, including... HMJr: What? A: One of the things I think we ought to go into very carefully is their sterling obligations. HMJr: Yes, well, what Ed really wants is to have this meeting and then what he'd like is to have - and Mr. Hull says "Al right, you fellows go out and work this out and come back." But this would really be a - a committee of - of the principals rather than of & sub-sub-subcommittee. A: Yes. HMJr: You see? A: Yes. I should think that HMJr: And also it would bring Wallace into the picture; Wallace has been over to see Jimmy Byrnes about this - I don't know why; and - but it would put it on a level which I think the importance calls for. A: Yes. Regraded Unclassified 177 - 3 - HMJr: And I - I can - Stettinius 16 sitting here opposite me. He's worried, and I think he has a right to be worried because he's got to face the Congress on the 11th of January. A: Yes. Now there'd be you and, HMJr: Stettinius. A: Stettinius and Wallace and Mr. Hull. HMJr: Yeah, and yourself. A: All right. HMJr: And you can say I called you up and I'm doing it - and I'm doing this thing advisedly through you because I want to bring you back into the picture. A: All right, Henry, I HMJr: I mean I - I mean this 1sn't just an accident that I'm calling you. A: (Laughs) HMJr: And Stettinius feels the same way that I do, because A: Fine. HMJr: he says you're his man over there. A: All right, I think I can get back into it. HMJr: And I told him that I thought that you were my man too, but A: (Laughs) I'll be both your men. HMJr: But that was the idea that you were supposed to look after us, and as long as you looked after us the State Department had very little trouble with me. A: Yeah, you - you were behaving very well for quite.... Regraded Unclassified 178 - 4 - HMJr: I was behaving A: ....a long time. HMJr: I was behaving very well - I mean - and just think of all the less headaches they had while you looked after me. A: (Laughs) HMJr: So you can tell that to Mr. Hull.... A: (Laughs) Well, I don't - I think I'll skip that part of it. HMJr: And I - - I'll bring White with me, because I have to somebody that knows the figures. A: Yes. All right, fine. HMJr: Okay? A: I'll try to fix it up. HMJr: Try to make it between eleven and twelve tomor- row. Tell him this 18 really urgent. A: Yes. HMJr: He can Bee one less ambassador. A: (Laughs) All right, Henry. I'll - I'll fix it up right away. HMJr: And - and I included the Vice President, did I? A: Yes. Should - does he know about it? HMJr: No, because this just happened across the table right now between. A: Yes. HMJr: There's just Stettinius and I sitting here, and - and - and we decided we thought this was the way to do it, and the urgency 18 Stettinius' testi- mony. A: Yes. All right, fine. I'll speak to Mr. Hull now. Regraded Unclassified 179 - 5 - HMJr: Okay. A: Un huh. HMJr: But wait... (talks aside: What?) He says the urgency is the testimony asking for new funds. A: Yes. HMJr: See? And he says he thinks it - what he said was - earlier - that if he's going to do this there'll be a lot of cabling back and forth, and the whole question comes in at this time, is this a good time to tell England, "You're going to have to pay cash for something" and 80 forth, and do we want to shut South Africa off from Lend-Lease? A: Yes. HMJr: I mean 1t's - this is high policy stuff and there's no committee with a fellow like Coe sitting at the head of it should even consider this stuff. A: Yeah. HMJr: It's just damn nonsense. I mean it's damn nonsense. A: I - I think it 1s. I think you - you fellows have got to decide it yourselves. HMJr: Sure, we got to decide it, and then we got to make up our mind, and in the final analysis the Commander-in-Chief's got to say "yes" or "no" anyway. A: Yes. HMJr: But Mr. Hull ought to get in on it now. A: All right. I will try to get this meeting called about eleven-thirty tomorrow. HMJr: Right, and I expect to see you there and not a fellow who's about five-foot-two. Regraded Unclassified 180 - 6 - A: (Laughs) All right, you won't see him. HMJr: All right. A: (Laughs) HMJr: Thanks. A: Goodbye. 181 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 22, 1942 TO Secretary Morgenthau FROM Mr. White 1. As of the close of November 1942, British Empire countries (excluding Canada) held 1.8 billion of gold and U.S. dollars, as follows: (Millions) United Kingdom $ 930 South Africa 590 British India 275 New Zealand 25 Australia 10 In audition, the above countries hold an aggregate of more than 300 million of private dollar balances in the United States. On the basis of information available, we estimate that the gold and U.S. dollar holdings of British Empire CO ntries (excluding Canada) will increase a further 200 million by March 31, 1943. 2. On the assumption that the Empire (excluding Canada) Is to be considered as & unit. Aggregate holdings of $1.8 billion are likely to prove em- barrassing. Certainly they should not be allowed to rise any higher and serious consideration should be given to the advisa- bility of reducing it. 3. On the assumption that the members of the British Empire are to be treated separately: a. The United Kingdom. U.K. now has gold and dollar balances of more than rate of approximately 30 million a month. NI believe 930 million and her holdings are increasing at the that Congress will be reluctant to permit appropria- tions to be used to increase those holdings much beyond their present level. Regraded Unclassified 182 Division of Monetary Research - 2 - The British Treasury claims that her sterling liabilities are mounting rapidly and that for this reason, even though her gold and dollar assets are increasing, her net position is not improving. It is true that Britain's sterling liabili- ties will doubtless operate to reduce her foreign exchange acquisitions after the war, butwe do not believe that this is sufficient justification to continue to permit England to accumulate gold and dollars at the rate of several hundred million dollars a year beyond the current level. b. Union of South Africa. South Africa now has bout $600 million -- practically all in gold. She is accumulating it at the rate of $20 million a month. In the cb- sence of overwhelming political considerations, it seems to us that lend-lease assistance to South Africa would be extremely difficult to justify in view of her ability to pay for what she buys. C. British India. India has about $275 million of gold. Political considerations may preclude any other policy than that being pursued at the present. Otherwise reexamination of the present policy is in order in view of the amount of gold held by British India. d. New Zealand and Australia. The gold and dollar exchange assets of these countries are very small in comparison to other Empire countries. But, as in the case of South Africa and India, if the decision is to consider the Empire countries separately, their dollar exchange position and our policy with respect to them should be reexamined. Regraded Unclassified 183 Division of Monetary Research - 3 - 4. Canada. Canada's holdings of gold and U.S. dollars have in- creased steadily since the beginning of 1942 and now amount to about $300 million. In the absence of any reversal of U.S. Government policy, the prospects are for a continued increase. In view of the fact that the Canadian Government's holdings of gold and U.S. dollars are now as high as they were at the out- break of war, we think it is time to consider the advisability of levelling off these holdings and maintaining them at their current levels. In accordance with Dr. Currie's understanding, I am making arrangement to discuss his suggestion with Canadian authorities. 5. Other Countries. Lend-Lease aid is now being gran ted to more than a score of countries. Many of these have substantial gold and dollar balances. The data we have on most of them are incomplete. I think that the procedure should be that before any country is given lend-lease aid, that we here should contact the Treasury Department of that particular country with a view to getting a complete picture of the country's foreign exchange assets and balance of payments, as we do in the case of the United Kingdom and Canada. The appropriate officials here would then have before them the information necessary to make policy decisions. If you will authorize this procedure, I will proceed forth- with. Regraded Unclassified 184 December 22, 1942 3:21 p.m. HMJr: Hello. Operator: Mr. Welles. HMJr: Hello. Sumner Welles: Hello. HMJr: Sumner? W: Yes, Henry. HMJr: Good afternoon. W: How are you? HMJr: I'm fine. And you? W: Good, all right. HMJr: Sumner, Mrs. Morgenthau had a letter from Mrs. de Sola Pool W: Oh, yes, I know her. HMJr: about the chi.. - I think there's 700 children of the Youth Aliyah in Tehran that they're trying to get into Palestine. W: I know all about that case, Henry. I've been working on it for two months. HMJr: Right. W: The difficulty there is that the Prime Minister of Iraq HMJr: Yes. W: has not yet been willing, notwithstanding repeated British representations and very strong representations from us to permit those children to go through. HMJr: Yes. Regraded Unclassified 185 - 2 - W: At one time the British said that they'd ar- range to have them sent by plane, but apparently they haven't been able to get the plane HMJr: Yes. W: and we are now working on the proposition with the idea of getting an arrangement made 80 that they wouldn't stay more than twenty- four hours. HMJr: In W: In Iraq.... HMJr: In Iraq. W: on the way through. HMJr: They said something about having a sealed train or something. W: Yeah. HMJr: Did Mrs. Roosevelt speak to you about it, because my wife took it up with Mrs. Roosevelt. W: Not that I - no, she hasn't - not with me directly, no. HMJr: I see. W: Well, this first came to my attention about - oh, easily two months ago, and I've been working on it ever since. HMJr: Well, would it be a lot of trouble if you wrote me a little note and that Mrs. Morgenthau could say that she's - that you're working on this? W: I'd be delighted to, Henry. HMJr: Would you do that? W: Yes, be glad to. Regraded Unclassified 186 - 3 - HMJr: And then could she show that to these people? W: Surely. HMJr: Well, that would help a lot, and that would show your interest in the matter. W: All right, Henry, I'll be glad to send it to you this afternoon. HMJr: Thank you 80 much. W: Not a bit. Goodbye. HMJr: Goodbye. Regraded Unclassified STANDARD FORM No. 14A APPROVED BY THE PRESIDENT MARCH 10. 1925 FROM The White House 187 Mashington TELEGRAM OFFICIAL BUSINESS-GOVERNMENT RATES DEC. 22, 1942 ... THE PRESIDENT: BLEW Flew DOWN MONDAY AFTERNOON TO ATLANTA HAD SUPPER WITH WALTER JONES VERY SUCCESSFUL PARTY GOT BACK TO WASHINGTON ONE A.M. THIS MORNING, HAVING LUNCH WITH BoB DOUGHTON TODAY. LOOKING FORWARD TO BEING YOU WEDNESDAY MORNING. HENRY. Copy TO MISS KLOTZ. Regraded Unclassified 188 DEC 2 2 1942 My dear Senator: This will acknowledge with appreciation your letter of December 17, 1942, in which you set out the legislative history of the amend- ment to section 740 (d) of the Internal Revenue Code made by section 228 of the Revenue Act of 1942. You indicate that the purpose of that amendment was to preserve, in the case of ac- quiring corporations, for all excess profits tax taxable years the base period established for the first taxable year ending in 1941 under Supplement A as originally enacted. while the Regulations are still in tentative Regraded Unclassified 189 - 2 - form, it is my understanding that they will embody the purpose and legislative intent, as you describe them, with which this pro- vision of the 1942 Act was passed. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Honorable Walter F. George, United States Senate, Washington, D. C. Photo file in Diary CEH:blr File to Thompson 12-22-42 Regraded Unclassified SA. CHARMAN - a. LA POLLETTE, a. wis. ARTHIR CAPPER, KAMS. ARTHUR K. - MICH. JAMES 4. DAVIS, PL. - CABOT LOOSE, M., MARE - A. DAMANER, COMM. United States Senate AGIENT A. YAFT. - - COMMITTEE ON FINANCE in - - I December 17, 1942 a a. assective CLEIM Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: Among the amendments made to Supplement A of the Internal Revenue Code by section 228 of the Revenue Act of 1942 was a redefinition of the base period applicable in the case of acquiring corporations (sec- tion 740(d) of the Code). I think you will be interested in certain elemente of the legislative history of this amendment which are not fully set forth either in the Congressional Record or in the Conference Report. Under the law prior to its amendment by the Revenue Act of 1942, the base period of an acquiring corporation was defined in section 740(d) of the Code as follows: "(d) Base Period, --In the case of a taxpayer which 1a an acquiring corporation the base period shall be: "(1) If the tax is being computed for any taxable year beginning in 1940, the forty-eight months preceding the beginning of such taxable year; or "(2) If the tax is being computed for any taxable year beginning after December 31, 1940, the forty-eight months preceding what would have been its first taxable year beginning in 1940 if it had had a taxable year be- ginning in 1940 on the date on which the taxable year for which the tax 18 being computed began." Regraded Unclassified #. - SA., QUARMAN DOBERT M. LA POLLETTE, Ja., wis. - - & w. - a ARTHUR CAMPER, KANS. ARTIAR is. WANDENBERG, MICH. - - TER. JAMES 4. DAVIS, PA. but W. MTT - - - HENRY CABOT LODGE, Ja., MASS. JOHN A. DANAMER, CORN. United States Senate run - VA. A. TAPT. OHIO PETER a. and e 6 - F, am - COMMITTEE ON FINANCE - a - MOL are L - IDWA - c. - COLO. - L AMOUNT MD. WILLIAM 16, - 16. A CHRISTINE a. EDWEDY, CLEAN Mr. Morgenthau -2- December 17, 1942 These provisions were retained in the Revenue Bill of 1942 as passed by the House and as reported by the Finance Committee of the Senate, but paragraph (2) was limited to taxable years beginning in 1941 and a new paragraph (3), reading as follows, was added to cover 1942 and future years: "(3) If the tax is being computed for any taxable year beginning after December 31, 1941, the four calender years 1936 to 1939, both inclusive." While the Bill was under consideration in the Senate, however, Senator Connally felt very strongly -- and I agreed with him -- that a corporation which became an acquiring corporation prior to September 1, 1940, and therefore prior to the enactment of the Excess Profits Tax Act, and which under the provisions of section 740(d) BD originally enacted was entitled to a fiscal year base period, should be allowed to retain such base period for future years as well. Senator Connally therefore prepared an amendment adding the following language to section 740(d)(3) as it appeared in the Bill: "except that, if the taxpayer became any acquiring corporation the prior as that applicable to its first taxable year ending in 1941." to September 1, 1940, the base period shall be same The effect of this amendment was to preserve the base period established under subsections (d)(1) and (d)(2) of both the Bill and existing law. Regraded Unclassified - CHAIRMAN - M. LAFELLETTE, M. wis. - - ARTISP CAPPER, KANS, ! ARTHOR IL SANDENBERG, MICH, JAMIER A DANIE, PR. - CABITY LICHA, M., MARE. - A. DANAMER, CONN. United States Senate - A. TAPT. CHIO PETER COMMITTEE ON FINANCE cure - a 1 - a CLESS Mr. Morgenthau -3- December 17, 1942 A copy of the amendment was given to me and I offered it in Senator Connally's behalf, since he was not present on the floor of the Senate when the matter came up. I neglected, however, to insert his explana- tory statement in the Record which, if it had appeared, would have made it very clear that the purpose of the amendment was as I have stated it to be. At the time the amendment was introduced and adopted, however, an- other amendment, sponsored by the Treasury, eliminated paragraphs (1) and (2) and removed the date limitation from paragraph (3), so that section 740(a) as finally adopted read as follows: "(d) In the case of a taxpayer which 18 an acquiring corporation the base period shall be the four calendar years 1936 to 1939, both inclusive, except that, if the taxpayer became an acquiring corporation prior to September 1, 1940, the base period shall be the same as that applicable to its first taxable year ending in 1941." The except clause, originally prepared to apply to 1942 and sub- sequent years (those being the only years with respect to which the rule was changed), thus became part of a new provision applicable to all years. Its purpose remained the same, however -- to preserve for all excess profits tax taxable years the base period established for the first taxable year ending in 1941 under Supplement A as originally enacted. Regraded Unclassified WILTON F. - GA., CHAIRMAN HONERT M. LA POLLETTE. a., wis. - & ARTHUR CAPPER, KANN. - - ARTHUR H. VANDENSERS, MICK. 1 JAMES 4. DAVIE, PA. - - - MO. HENRY CANDY LIDGE, a., MARE. - va. JOHN A. DANAHER, COMM. United States Senate a - AGGERT A. TAPT, GHIO - F. - PA. 1 F I I COMMITTEE ON FINANCE - L - NRMA - & - DOLO. - L MO. - a authors, a. 4. comins a. KENNEDY, CLERK Mr. Morgenthau -4- December 17, 1942 It was so understood by the Conferees. It was intended to have this effect even though an election was made under section 228(f) of the Revenue Act of 1942 to apply the Supplement A amendments retroactively. I have no doubt that the forthcoming regulations will interpret this provision in accordance with its manifest intent and purpose, but, in order that the Treasury may have as full an understanding as possible of the background of the amendment, I have thought it worth while to give you a complete picture of the steps leading to the enactment of section 740(d) in its present form. Respectfully, France Regraded Unclassified 194 GENERAL COUNSEL TREASURY DEPARTMENT WASHINGTON DEC 2 2 1942 To: Mr. Morgenthau From: Randolph Paul On October 9, 1942, on the floor of the Senate, Senator Barkley strongly criticized the section which be- came section 512 of the Revenue Act of 1942. The grounds of his oriticism were that the language as it was eventually enacted into law enabled the Joint Committee on Internal Revenue Taxation and the chief of its staff, with the ap- proval of the chairman or vice chairman of the Committee, to circumvent the head of a department by securing informa- tion directly from a subordinate board, bureau, or agency. Senator Barkley introduced an amendment (88 Cong. Rec. D.I. 8268) that would have required the Committee or its chief of staff to secure the information from the head of the Department or independent establishment, agency, or instrumentality concerned. The amendment-was defeated after debate by a vote of 74 to 10. Attached are pages (commencing on page 8268) of the Congressional Record showing the proceedings, debate, and vote. Attachment her Regraded Unclassified ommeme page 195 1942 CONGRESSIONAL RECORD-SENATE 8267 east. 1 will support such increases under The PRESIDING OFFICER. The Ben- Murdnek Pepper Themas, Utah such circumstances: but this 16 wholly ator will state it. Murray Reyoolds Tunneis Norris Brewart beside the present point. Any reference Mr. TAFT. As I understand, a vote of Wellared Overton Thomas Okis. to the espansion of the Social Security "yes" la a vote to keep the committee NOT VOTING-1) Bystem naelf, and the increase in bene- amendment in the bill, and freeze the Andrews Oren Tobey Bis. is morely a red herring ACTORE the social-security taxes. Bridges Hugbee Tydings The PRESIDING OFFICER. That as Clark. Idabo Russil Wagner trall. The present point is that the pending Glass correct. Smithers amendment says that pay-roll taxes The clerk will call the roll. Bo the committee amendment was shall not be increased unless and until it The Chief Clerk proceeded to call the agreed to. is necessary to create IL larger revenue to roll. Mr. DANAHER, Mr. President, B. par- pay larger benefits. That can be done Mr. REED (when his name was called). liamentary Inquiry. any time in 1943, If and when Congress I have B. general pair with the senior Sen- The PRESIDING OFFICER. The extends and expands the benefits, re- ator from New York (Mr. WAGNER). On Senator will state it. gardless of the action taken today on the this vote I transfer that pair to the junior Mr. DANAHER. Is the bill now open pending amendment. Today's action Senator from New Hampshire [Mr. to further amendment? simply decides whether the taxes shall TODEY], and will vote, I vote "yea" The PRESIDING OFFICER. There needlessly go up before the benefits rise Mr. THOMAS of Utah (when his name remains to be acted upon a committee in proportion. That la the issue in a was called). I have a general pair with amendment which was passed over ne the nutshell. the senior Benator from New Hampshire request of the Benator from Oregon. Mr. President, I wish to submit one (Mr. BRIDGES). transfer that pair to the The amendment appears on page 352. further fact. I shall not labor the point senior Senator from Rhode Island (Mr. Mr. DANAHER. I desire to offer MM further with the Benate. 1 could present GREEN), who I am informed, If present, amendment when the bill la open to (ur- testimony ad infinitum, from the best would vote "Day." I vote "nay." ther amendment. social-security sources in this country, The roll call was concluded. The PRESIDING OFFICER. The that the collateral use of needless social- Mr. RADCLIFFE The sentor Senator Clerk will state the committee amend- security revenues is the most serious pos- from Muryland (Mr. TYDINGS! is una- ment on page 352. sible assault that could be made upon the voidably absent. Were be present, his Mr. McNARY. Mr President, the Integrity and perpetuity of the social- vote would be "yea," amendment was read by the clerk shortly security fund. The greatest authority of Mr. BYRD. My colleague the senior after the luncheon hour, 1 have an all upon this subject is the social-security Benator from Virginia (Mr. GLASS] is de- amendment pending to the committee organization in New York City known as tained from the Senate on account of amendment. Action on it was deferred the American Association for Social Se- Illness. Were be present the would vote because of the absence of two Senators curity, which was operated for many "yes," who had similar amendments, I do not years by Mr. Abraham Epstein, who re- Mr. HILL I announce that the Ben- think se is necessary to rend again the cently died-an association which has ator from Delaware [Mr. HUGHES] is ab- committee amendment ut the amend- bitterly condemned, from the very mo- sent from the Senate because of fllness. ment offered by me, but, of course, I have ment Secretary Morgenthau first pro- The Benator from Florida IMr. Ast- no objection. nor do I desire to make B posed the use of social-security taxes In DREWS), the Senator from Idaho [Mr. further statement, In view of the friendly this fashion, any such diversion of the CLARK), the Senator from Rhode Island attitude of the Senator in charge of the taxing function. [Mr. GREEN]. the Senator from Georgia bill toward my amendment. Mr. President, I said I wished to refer (Mr. RUSSELL). the Senator from New Mr. GEORGE. Mr. President, 1 have to nne further fact The social-security Jersey [Mr. SMATHERS). and the Senator not had an opportunity to study the pay-roll taxes which will be collected In from New York (Mr. WAGNER] are neces- amendment offered by the Senator from 1943, at 1 percent, leaving the rate where sarily absent. Oregon, but I think that the amendment it is at this moment, will be equal to the I am advised that, if present and vot- would give to timber a benefit greater taxes which Dr. Altmeyer and his board Ing, the Senator from Rhode Island IMr. than the benefits given to other deplet- estimated a years ago they could collect GREEN), the Senator from New Jersey able assets. in 1943 at : percent on employers and [Mr. SMATHERS), and the Benator from Mr. McNARY. Mr. President, In my employees alike. New York [Mr. WAGNER] would vote amendment I desire to have no advan- In other words, when we maintain and "nay." tage. I merely want timber resources to freeze the rate where it 1a. we still are Mr. McNARY. The Senators from be on a parity of equality with other producing the revenue which the Social New Hampshire (Mr. BRIDGES and Mr. natural resources. If the Segator will Becurity Board itself prophesled would Tonay) are necessarily absent. Their suggest any amendment or improve- require a 2-percent tax in 1943 to obtain. pairs have been announced. Both Sen- ment, I shall be glad to accept it, and let Mr. President, I leave the Issue with the ators would vote "yea," if present. It be worked out in conference. I re- Senate. 1 shall be quite content, of The result WAS announced-yeas 50, peat, I do not want for timber resources course, with the verdict. I submit that anything but parity with the other re- hays 35, as follows: protection of the tax function of the sources which are specified in the bill. YEAS-50 Social Security System is vital to the Mr. GEORGE. I think the amend- Alken George Reed maintenance of the social-security prin- Austin Gerry Rosier ment the Senator has drafted would give ciple: and I submit that in the face of Balley Cillette Schwarte timber an advantage over other deplet- the tremendous $8,000,000,000 burden Ball Guffey Shipited able resources. Barbour Gurney Smith which we are now placing on the Ameri- Mr. McNARY. I do not think 50. Brewster Herring Spencer Brooks Holman Tall Mr. GEORGE. I have not had time can people, st would be not only senseless, but utterly crude, to add a needless Bulow Johnson, calif. Thomas. Idabo to check it. Burton Johnson, Colo. Truman further burden of a 100-percent increase Mr. McNARY. I may state that I Butler Eligore Vandenberg in sucial-security pay-roll taxes, which, Byrd Van Nogs would not consciously have offered the Lodge under the definitions of the Secretary of Capper McNary Waish amendment in such a fashion. The the Treasury himself, is not necessary Chaves Millikin Whenler Senator, of course, will perform his duty Clark. Mo. Nye White either to the functioning or the solvency and in conference remove the advantage, Connaily O'Daniel Wiley of the fund. Dansher O'Manoney Willie if it exista. The PRESIDING OFFICER. The ques- Davis Radcifie Mr. GEORGE, I shall be glad to let tion is on agreeing to the cogimittee NATE-10 the amendment go to conference for the amendment on page 574. after line 22. Bankhead Downey Lee purpose of ascertaining whether or not Mr. VANDENBERG. I nak for the yeas Barkley Dosey Lurse the amendment would give timber an Bilbo Ellender McCarran and nays. MoFartand advantage over other depletable re- Bone Hatch The years and nays were ordered. Brown Bayden Mettellar Mr. TAPT. Mr. President, B. parlia- Bunker mill Maluney sources. Mr. McNARY. I again assert that I do Carnway LA Pullette Maybank mentary inquiry, Chandler Langer Mend not want to have any advantage. Regraded Unclassified 196 8268 CONGRESSIONAL RECORD-SENATE OCTOBER 9 1942 CONGRESSIONAL RECORD-SENATE Mr. GEORGE. Bo far as I em on- title for the amendment un page 541, 8269 rerued, I shall be very glad, If the Becate which has just been stated. fant of anybody, We have me in the Treasury Department without any, and # centre any reference to the ADDITION the amendment to accept 19, The PRESIDING OFFICER The somewhat, in have the tax expers consulting the Secretary of the Bureau of Internal Revenue to anybody the Betretary et State with the understanding that it will be amendment in the nature of a substitute planed by the point make a (the head of the Department, Mr. BARKLEY. Yes. M the bead of the Department. studied in conference. will be stated. and investigations and Mattile the the of be cauld SECUTE the approval of the Mr. DANAHER Is 11 Ibe Beastor's I eith gatte misted that if the Date The PREEIDING OFFICER The The CHILF CLIME In the ornmittee When there in not a tax bill under Milk advise - with respect to tax date chairman of the Joint committee. purpose to Include the Bureau of Inter- Department were involved as the question is on sureting to the emind- amendment DO page 541, after line 7. it la The present chairman and vice chair- nal Bevenue to the seneric Nie of Mar Treasury Department is. or If the Depart- ment af the Benator from Oregon IMP. proposed to strike est down to and In- alderation, the foint committee mile - ear of the Juint Committee on Internal McNARY] to the amendment reported by does not function term "Benretary of the Treasury^? ment of Cortimer were Involved-thig cluding line 26 and Insert in liero thereof Review Taxalion of enstree are men who Mr. BARKLEY. or costse, the Bis- are really covered, withough Utes are the committee. The act. creating the joint committee would nut concervatily abuse or permit reas of Internal Revenue is a part of nei named in this emendment-sproval the following: The actendment to the amendment suthorizes the committee, as me, the chief of staff M abuse the authority the Treasury, last as the Bureso of Cus- must be obtained of the chairman of (A) The Committee on Internal BH- su agreed to, unuse Trantion, through the chairman, or. in make investigations and secure from to which or are propusing to sonier in the tarms 2a . burewa in the Treasury De- Vice chairman, either of when, under the The PRESIDING OFFICER The the of the chairman, iss visa chab- Don with respect to Internal-onemato internet, bus this la the permanent partment, The Bureau of Internal Rev- terms of the amendment, could approve. amendment to open to further man, to ausberized in servize true the Birth ation. It authorizes n to da a vie HE, a will be incorporated In the birty ente la a part of the Treasury ant-up. Even though the chatrman might be in amendment. tary of the Treasury er from the brad ut any speci to these matters as a Joint mail Its if Internal revenue ingreation Burever, The under et my amendment is to TO- this office here to Washington if the brad Mr. GEORGE Mr. President, there experitive department or endependent best through the chairman and the fin gira a should be repealed. It will ap- quire that Tequesta for information en of the staff no matter who la now a wire two amendments carried over, In- l'abment, agency, or instrumentality ut the Dovement, information, CATA. Milmatis, the committee chairman. The amendment reported To als to all future chairmen and all future through the beed of the Department, the may be in the future, destred to go to the cluding the one on page 351, which can chairmen of the joint commities and statistics for the purpose at making in- Becretary of the Treasury, ruther than Treasury Department or to the Com- now he closed. Mr. DANAHER Mr. D il concelvable that under the The PRESIDINO OFFICER. The vestigations, striles, and reports relating to circumventing him, soing around him, metre Department, or to the State De- Mr. BARKLEY. I Field to the You the chairman of the joint and going direc(i) to the Buresu di In- partment, of to any other department, Internal-mente tatalien. amendment on page 353 is pending na The Insta of Sie executive departments, in- for from Connecticut committe might refuse . request of the termal Revenue, or the General Course Durved division, agency, nt Instrumen- amended by the amendment of the Ben- dependent agracias, und In- Mr. DANAHER. I toguire the la lb did of the staff to go directly la the of the Buresa, who to an assistant toug- tality, under the of the amind- nior from Oregon. referred to in the above cab- chairman of the Joint enmenittee Direct Burned of Internal Revertun rather than nel In the Treasury under the direction must be would be authorized to do los Mr. GEORGE That to correct. action (a) are authorized und directed to Mr. BARELEY. The present chairman through the Treasury, or M go to some without sonsulting the load of the dell' and appointment of the Orneral Coun- The PRESIDING OFFICER. Is there furnish ruch information, data, estimates, and to Mr. chairman at the Wass lawyer in the Internal Revenge Buresu partment n to me II is unneces- BEL, or upon tite recommendation. any fürther amendment to the commit- directly to the Joint Committee on and Means Committee of the Brow of without ever gring to the general CRUD- sury to «Дорб any such assendment as Internal Berenue Trantion upon request The object of my la to pm- Representatives, and the Vice charges el of the Treasury. The chairmian that proposed tecause I am quite natis- tor ammidment on par 3527 made purment to this settia. vide, not only as to the Treasury but na Mr. GEORGE. I think there to no is the Benister from Otorgia M. refuse to do that, Then the vias Bed that any request emanating from the to every esticutive department at the thairman di the brink cummittee. or from Tunher amendment to the commitiee Mr. BARKLEY. Mr. President, 1 promi- Gacecal, chairman of the Pinance Cm. could ignore the action of the blad of which la . Cabinet officer, that, las not to detain the Senste to exceed a mitter of the Smate. the vire chairman, in bis sharence, would amendment. stairman. because the amendment pro- trutend of cirtumventine them. eving e- be complied with Both rapret act at The PRESIDING OFFICER Without lew somme in discuming the amind- The language of the retains and fits that in the abware of the chair- rently to bureau or division or the Name time, end should not The Vice ebjection, the committee amendment, on temt in the nature of 6. subititute, ment, for which I am offering a the as the Vice chafrman en st. It pro- agency within the department, requesta Date 312, as amended, la named to. tute, por beyond the authority di the ou that the chairman er the vide chairman is supposed so take the place I am always embarrased In offering shall go formally from the chairman of of the chairman when the chairman is Mr. OZONGE Now, Mr. President, withing that changes the action of the that- John committee as mil. It provide duirmag may give this authority. the Joint Commities B Internal Rave- unsvallable, but under the Impurae of there is is committee amendment on pur committee of which I am a member, but Nur only that, but it applies to all other DUE and, in his absence, from this even if the chairmen of 383 which was carried over et the request I have a foeling which I cannot recape The has Omalitive #: Internal Inco Orgariments and agencier. Under the the vine chairman of the joint committee. the Joint committes were in lite office et the Benstor from Oregon. that the language in the committee The PRESIDING OFFICER. The - Twisting or the and of the of on In language of the amendment as It to In to the bead of the department, asking every day of the year, If the via chair- accountment gow further than It ought to libe till = would be possible for the via for the information. man, whether he might be in the future, Chair la informed that that amendment RO, and, ao far as I know, further than any language in any law goes with to- In the law creating the Joint disirmen to authorize sume future chief I de not know of 6. single instanre of were there, and saw fir to authorize the bus been adreed to. ten on Twintin there is no minure di 1 at stall to to the Department el Com- the chairman or the via chairman of chief of the staff to gn to one of the Mr. GEORGE I think I vos in error; spect to employees of the Congress or the the la Investigate something in the that amendment has been agreed to. chief of staff, but the have set up a of the Joint committe ever suiting Ier ID- Bureada on agenties and Inquire into any- committees of the Congress having the and the have as a Joint supportes © Department. in the Bureau of Foreign formation from the Decretary of the thing concerning which be destred on- Mr. President, the only other commit- privilege of circumventing the head of department and finding out what directly & played and authorized the employment and Dumentio Commerce, If be thought Treasury, of from anyone to the Treat- formation he would be empowered to do tro amendment remaining la that on they WARE to know about anything per- of is chief of staff who la a very direct It bad vome relationship to Internal Tely- ury, when the request has here densed, 2 page 541 and very able las expert. muse the without ever going to the and 1 do net on why we should in this Mr. TAPT. Mr. President, will the The PRESIDING OFFICER, The taining to & subject of Investigation. Bicretary of Commerce and asking his amendment slap the Secretary of the Denstor from Kentucky yidd? amendment will be stated. We created the Joint Committee on The language of the comities permission, or getting EM clearance, or Treasury In the Dice and slap the ano- Mr. BARKLEY I girld. The Cruse CLERK On page 541, after Interna) Revenue Twisting in the set of amendment #: ment name through the bead of the Drosri- eral countries to the Due and say, "Re- Mr. TAPT. I worder If the Senator's line 2, it as proposed to insert: February 24, 1926. The Joint committee The Juint Committee - Enternal imail gardiese of you, we are going to make It experience has been the name BE mine. If - 314. Antist Committee on Internal Ben- is made up of 10 members, B from each Texation = the thief at del of 103 e I am sure " all relias that the head possible for to - down into I want any information from the Bureau - the virsin data. House. I happen to be a member of the committee, upon approval of the checken of . department, If be le to be responsible your department and octualt a bündred. of Internal Revenue I can ens st to calling or de chairma, a authorised to amos 6- Chapter 48 (relding to just committer) is Joint Committee on Internal Revenue really from the Burned of Internal Email for the department, is entitled to feel other lawyers down below the grade of up Mr. Tarleen, un somebody eine in the emación by addise st the end thereof the Taxation, but If It has EVET had & meet- (Including the sentant general namel at list be le in control of It, that be is at general counsel, or consult all the under Buresu, and I can get IL about ten times - antion: Ing aa 5. joint committee I have no knowl- the Buresu of Internal Bevenut). is (mily lie bead of IL By the amendment we arcretaries and assistant secretaries and as fast as 1 can by addressing a Intiter to "Then, seus. Additional previous to that data. The Joint Committee on Internal edge of It. I do not recell ever having from any éxécutive department. hard, to would authorize & congrestional oser- heads of truresus in the Treasury Depurt- the Secretary of the Treasury, or callms received notice of a meeting, not de I resa, Agree, establishment or miller, or do employee of a congresional ment" The same statement applies to him on the telephone, and when I moetve Remove Direction ur chief of state of such recall ever having attended a meeting of Instrumentality of the Government, informe committee. et any future chairman or any every other executive department at the the information It la the kind 1 want, communition, approval nt Like chatr- ma = Visite chairman is anthorized to the Joint Committee on Internal Revenue Non, suggestime, Data, estimates. end as fature Vice chairman sw Bi to give up- bead of which there la a Catrinet officer. whereas when I write a. letter to the Natio, for the purpose of unitipe motive directly from the Bureau of Internal Taxation The enmmittee has a force of the reports, and studies relating No birth Droval to RO to any bureau or any divi- Mr. DANAHER. It would aux be the Secretary of the Treasury and the reply (Iffirating the Assistment General experts, so far as anyone can be an ET- tasstion. Non of any department of the Govern- Benatrar's purposi, however. If informa- comes back. it missing the point, Count for the Durise of Internal Revenue). nent without ever consulting the head ben really were required from the and gives DE - entirely different in- or directly any executive department, pert DEL taxation As a matter of fact, the Juint Committee un Internal Reve- This la permanent las now being - of the department. weeking to obtain Buresu of Internal Revenue, and 5 de- formation. bound, burnet. any Independent estab- must Twention la the staff of the commit- acted, net merely a law for this us bill help ellimates, suggestions. data, any- mend for n were legded upon the Bet- Was is not quile recently that the Bec- Mahment - instrumentality of the Govern- tee. They work all the time: they are or for this administration, (IF Int a this be wanted with regard to Internal- retary of the Treasury, to have it descend resury at the Name ww mainly praised be- - Information supportions, data, will- Congress Whnever the chief of the revenue practice to the Burnett of Internal Revenue and he abolleted the rule which re- mates, and statizution, for the purpose of mak- competent men, and when 5 tax MII la the Investigations, reports, and studies relat- under consideration they, of course, dt staff may be in the future, as be no # Mr. DANAHER Mr. President, will come back up through? guired every Army officer who wagted the the - taestion. in with the Finance Committee of the cure the approval of the chairmen of the Benefor Field? Mr. BARKLEY, That is alsolinely talk to o Havy officer the earry - his bus- *(b) The Burnets of Internal Beverua (is- Benate and the Ways and Means Crm- the vice chairman-it la socceivable that Mr. BARKLEY. I vield. correct. these through the Becretary of the Navy? cluding the Americans General Contrast for the mittee of the House of Representatives, be might not le able to secure the w- Dumac of Internal Revenuel, assecuative de-, Together with the experts from the Treas- insured of lbs committee amendment Mr. DANAHER 1 notice that to the Mr. DANAHER. I thank the Benator. Was the Betretary not praised because proval of the chairman of the joint - Mr BARRLEY That la the ordinary be red tape, and made the partentia, bureaus, agroe(es, Inde- mistre in which Instance be EF Birty is no massion West the demand way in which such things are done, We whole function of enveronment operate prodent - Instrumientali- any. Sometimes they diasgree and times they agree about proposals Tur to the vide chairmise-if be service NP- for information be made upon the Betre- taxation, but neither side has any Dest- Mary of the Treasury, but rather that the all make sur requests of the heads of the with more METURN and with greater dis- time an withord end directed to furnish proval, the chief of stad could go, 1 departments. Suppose the Committee on paich? words information. data, mates and directly to the lancy in urging ta View with respect to to the Becretary of the There? the demand be made cirectly upon the hand Committee - Internal Assenue Transion or the provisions of & tax bill Bo far, how- of the Dureau of Internal Revenue in Poreum Relations destred information Mr. BARELEY Mr. President, I - head of the Department of the Treasury. with regard to any matter within the not saiking about telepitate calle which El the ablet of MONE of euch jours committee, not to the general enunsel of the Treat- lbs fine instance, ever, as the Joint committee Haelt meet- Mr. BARKLEY Yes. keeping or DATE of the Biste Department: Members of the Benute may main with upon Paquest made purment so this Ing and functioning 5.5 a Joint committee ury, bet tar anyone under them. By Mr. DANAHER. Whereas the stiluti- E would not end & member as emanating various department officials. We all can Mr. BARKLEY. Mr. President, T offer and discussing taxating is concerned. I might so to 400 lawyers below the grade do not recall that 12 has overworks staelf taxt propred by the Benator from Em- from the Committee on Poreign Rela- get. information in a department tor call- of general nounsel of the Treatury will tions to the Under Secretary of State or the up someone, if we know whom to call, en to the nature of a substs- In that meard. That may not be the ont EVER consulting the general 1 torky would cause the demand to be to the recond, third, fourth. nhh. or sixth but when e formal request goes out from be might ao to any clerk or description trade upon the Sterwary of the Treas- selltante to the Secretary of State, or committee of the Comptem of the United Regraded Unclassified 8270 CONGRESSIONAL RECORD-SENATE 197 States, If to addressed to the bead of a The PRESIDING OFFICER The OCTOBER 1942 CONGRESSIONAL RECORD-SENATE department. The language contained in the Mr. Senaiur BARKLEY visid? Mr. Predent va 8271 the amendment reported by the commit- question la - servicing to the amend- ment of the Benatur frum Emucky Mr. I mail an instance in the considers- check their views: and a will have the too, or the language in the substituie to the committee amendment Mr. Mr. CLARK of Missuri, I (Im at the VECE bill. I happened to be facilities for checking them; we will have the Benate and I wished to make this which bas been offered by too, would nut Interfere in anyway with any Benater or Mr. CLARK of Missouri, Mr. Prod- BARRLEY Drug (be This chairman of the aubountalttee of the the right to check of that when statement before the vate to taken, Improve from Missourt content that Beater France Claimittee which considered the the Ways and Means Consultive or the minity fur the purpose of making II per- Representative calline up anyone in the dent. the object, or at least the effect, of the substitute proposed by the Benster 50 employee at the Mandmum La Ue withholding lax. The views of the END- Pinante Commattee or any other Dre- facily clear that, in my judgement, there is DO occution for any feat, M far as the office of the Treasury whom be happens from Employ to to destroy wholly and that, without of the Joing accound end b-adquarters contingent, ao to epesk, mittee propeeda the determine poller @@ completely an enendment which Vas a the amail if the has 104 will have means of sur own by which Ve present chairman end vice-chairman of to know, or from whom be wishes to cb- end the "brain trast" of the Treasury the joint commities are concerned. that tain information, non Laiking sbout the adopted to the Committee - Finance in department the department? go to any burned in Nitey if Department were expressed at great can check information submittied to us. formal requests made by committees. there will Le any above of this power If after sn all-day discussion of the sub- kngth to the subcommittes. and is was Mr. President, I say again that by this the Benste - au to adogit the amend- The request would le formal If a came examily said that the Bureau of Internal amendment which was adopted unani- from the Joint sommittee ject and full consideration by a. vite of 14 Mr. CLARK of Mission 1 that ment Whise the Bureno of Internal Bevenue for and name Every member of could nut, and 1 think that la what be Bevenue vas being represented at that mously by the Pinance Committe to The PRESIDENO OFFICER The la the only one named, the language in the committee who was present-and I minille the had in mind I du not the une by . young man whom I did not reflection whatever is Intended zpon the question la on agreemine 5 the ammd- the amendment is sufficiently broad D: four raised In the horrid tax I went eat and called up the Com- Secretary of the Treasury = the General say tm all frankness that the Senstur ment offered by the Senstur from Km- from Eentucky. who la a member of the I think a la & many's nest-ttat the painted by the Behäter from Kentucky- Play minimer of Internal Revenue who had Cotinse) of the Treasury ur august visa, turky Mr. sa # substitute for Include all bureaur, and all departments, (he adal ministration uf this maissure T1 is simply to enable Congrom to per- and the effect would lu to circumvent the committee, Was detained on Important lines il to 3 in the committee attendment chairman the of the pommittee would bay the an and and suited bira to come up and furm its constitutions) duty, in tune- bistoms clarebere-every member of the (II) no 541. beads of all dicartments in Washington, sullarity of the chairman of apprar before the committee. He told timing as a policy-making buty. 1 timps committee present, and 14 were present. Mr. TAFT. I ask for the you and these responsible (If members of the Cab- Inet, by allowing an employee of the Sen- voted fee the amendment. They listened committee We know the charame the ne be could not do it without the per- very much the substttute amendment hays. men who have always been chalman of et main nil the Berretary of the Treasury. will be voted down. to the discussion for all of 1 day and The yess and DAYS were endered, and ate and Houe Joint committee to so into the committee, and who have are 1 write the Secretary of the Treasury a The PRESIDING OFFICER, The every DE BEEOCY under B Cabinet presponed action from the mirning uniti the Inglalative clerk proceeded te call the here vige chairmen or the committee or inter. The Commissioner of Internal question is on agreeing to the amod- mill. officer, and secure information It seems the afternoon fax see If there could be an I do not think there la anything the Revonue appeared and gave the commit- ment et the Senator from Kenturky Mr. Mr. REED (when his DAGE wes cellede to - in be 50 proposal, sereiment upon the matter, and finally eitber one of the other M[ this a Congress nieda to verry about to Billy the VIPWS in dbset divergence, fust as far BARKLEY 1 to the committee sound- unentimently adopted the amendment I have a. general pair with the and I de not think the circumstances at they could possibly be, from the views ment. under which " will offered or adopted in when the motino was made by the Bena- Benatie from New York (Mr. WHENE). portant enfamittee authority to ask for which had been expressed on his behalf Mr. ORORGE Mr. President. bothing I transfer that pair to the junior Benator the committee constitute a sufficient res- tor frum Pennaylvania [Mr. Geverr]. information they think to Decemary, by the Treasury officials themsdres. and could be further from my mind than to from New Nampshire IMr. Touryl, and BOD for departing from the rule of comity Mr. President, the whole nub of this as the result of the information be gave raise any bette whataoever with the Set- as between Congress and the executive diseasion tan Exp stated in this one Ht- Mr. BARKLEY. Why not will vote. vote "aij." the committee, the committee SAW n. to retary of the Treasury or the head of any The rell call was concluded. departments, or justify our saying to a tence: Does the Congress of the United then in the committee's Amendment the make a very radital change in the pro- other department or agency of the Get- the vice chatrman shall act in the as Mr. HILL I annuals that the Bena- Cabinet officer, "You an no lunger in our picture, We do net wans to deal with you, States, the policy-making tody for our possi, in fact to make & complete diver- arnment. I regres very much that lhe for from Delaware (Mr. Hours) and Government under the Constitution of of the chairman as Vice chaires gence. supendment cema to have been consid- in all enganizations always dor Wa - the Senator from Virginia Mr. GLASS! The are gning down to 5 little bureau, or the United States, Issue a right to have Mr. BARKLEY. Mr. President. will and as indicating a tack of agreement agency, or enmething et that kind, with- both given equal power? are absent from the Benate because of воседа to Information from any sovern- the Senator yield? between the present chairman and vice- unwise, are you knowing about IL" I think It la mental source whatsoever that it may see Mr. CLARK of Missouri, Bicause, as Mr. CLARK et Miscuri, 1 yield. chairman of the joint committee and the The Benator from Plarida (Mr. A#- fir to call DIL? That is the only Insue. the Senator from Kentucky very mil Mr. BARKLEY. What the Benator heads of the departments. Mr. NORRIE. Mr. President, will the knows, the committes is made up of to neawel, the Senator from Idaho (Mr. The committee amendment, as It Val MYD about that particular eptsode is true, Benator yiridy No for M the lae is repremed, let me CLARR), the Senator Inm Rhode Island reported by the committee by unanimous Representatives, Memiss of the Was and that a the practice which is indulged from Netwarks, Mr. BARKLEY I yida to the Securitor read from the law which crested the (Mr. GREEN), the Benator trom Genrgis vote. provides that the agenta of the Con- and Means Committee of the House, and in by all departments. The Internal joint committee. I refer to settion 5011 Mr. Rummil, the Benstor from New grow-and the Joint Committee en Tax- five Senature, members of the Finance Revenue Commissioner, for whom we all of the Internal Revenue Code. Amina Juney [Mr. EMATIONS), the Sensior from Mr. NORRIA I de not want the Benstor to excreder the finor until be ation is meraly an agent of Congress- Committee of the Setate, The the have the grestest admiration and re- other things, the Juint committee is - Maryland [Mr. Trincal. and the Bena- shall have necess to any Information they committees are wordinate in their no pc, and with whom the Senator and perially enjoined to do the following: for from New York (Mr. WASHER] are explains What the effect of his substitute would he Be has not yet done so. may desire by going to whatever Miney therity, and to all Intents and purpose I wared in are capacity and another in Mr. BARKLEY. My sobstitute would or board or hureau or department they the chairman and the vice chairman AZE the House the all assistants under a (a) Investiptire- necessarily absent (1) Operation and iffets of - To Mr. THOMAS of Diaft. I have I gen- may desire fur the Information codréinate in their authority. It is Cabinet officer, felt that be had no right tigate the operation and dela di the Ped- ent pair with the Senster from New Authurize the chairman of the Joint om- Mr. President, the proposal of the 5m- elimaly & question of who presides at the to specit for the Department unless be emi system of mene taxe alor from Kentucky certainly would not meeting at the committee. The Email (2) Administration To the Hampshire TMt. Buxe), hus 1 am ad- in Time absence, the vice chairman, to tall milter on Internal-revente taxation, or, MM suthortand to do so, or unless the from Connecticut says the committes administration if taxis by the vised that If present and vottag. he would upoo the Secretary et the Treasury, or improve the present practice, and la my Serviary of the Treasury, under whom opinion u would actually Wesken it. As does not meet anyway If to, If does tast the served knew that be was appearing of Internal Bevenue = any esentime depart- vote " I am about to rote. I um. there- any other executive officer, DE bead of & to the to be of any importance at before the committee. There use no de- ment. establishment, = apricy charged vita for, at Harry to vate I vale "may." department. for any data, statistics, esti- a matter of fant, the ounmittee amend- by in setting the Information. The their administration: and Mr. MINARY, The Benators from all who is chairman or who is The claim New Hampibire (Mr. and Mr. mates, or any other information which ment, a far as the Treasury Department man, Commissioner appeared and give It. (8) fither tevestigations To DATE - the Joint committee may distre which has la recerned. marely the back to what other investigations is repart et and miss TURET) are necessarily about. Their Mr. BARKLEY The committe Mr. CLARK of Missourt. I under- any tearing upon the question of was the law and what was the practice of taxis M the juint committe may - Internal-revenue taxation My amend- since the Joint Committee on Internal amendment does not require any stand that completely. 1 was using that paire hare teen announced. Both their Decemary. Benstors world vute "Day" If present. Revenue Taxation was established and of the committee, It dom not su that as is Illustration of the fact that there ment would make it the duty of all thom I bappen in be chairman of the Sinule The result was 10, officers to furnish the Information to the for years ufter that, until 4 or 5 years ago, the approval of the joint cummitte shall 5 very frequently divergent views be- Drin the heads of the bureaus or ad- Committee on Finance, and vice chair- DAYS 74, as follows: when a change RM secured in the lew, Le required. Joint anmittiee, but B would put the ministrative bends and the so-called man of the joint I have no TRAN-10 responsibility, of nourse, upon the chair- setting up the office of the General Crub- Mr. CLARK of Missouri. Mr. Presi- superset, The reason I number Uset is desire to svt an enlargement of power, two 20040, Cod. Tepper man Best to make the request as chair- and in the Treasury Department. dens, I sontend that the staff of de form that in the preparation of the bill before other than fat strictly official purposes Driver LATERT Bosine man of the Inint committe. and in his Mr. President, the Benater from Ken- committee. which serves birth the House M. MM puges long, the committee had to and duties. I think I can say to the Sen- Drazy Mad todo spets of slapping the Recretary of and the Senate, eught to have the right ate that whatever power is entrusted to me Norris absence a would pus the repressibility study a. great mass of information. We upon the vice chairman to make the the Treasury to the face, There ta noth- to ask for Information eftiber en the NO- de will be at some time surrendered NATH-N request. The would go in a for- proval of the responsible bead of the have . foint staff set up by ter for the without my having aboved n. If there to Airm own OTher Ing In the committee amendment which purprie of giving us the information Aunta Cerry mai way from the joint committee. M Alaps the Betretury of the Treasury or Home committee or the responsible beld Its members are net executive agents. anything I feat it le the abuse of power. Datiey Oversin such, to the had of the department or anyone else in the face, There la noth- of the Benste committee, beaue both They are the sents of the Congress 11- If there is anrihing on earth that would Dall oder Ouner Best to say asthcy or branch of the Govern- Ing. in the amendment which circum- tranches are coordinate bedies of the setz. We should be able to go to the ever restrain me, Il to the fist of the use Backbeed Bartour Batifi ment I missing to eliminate the authority seribes in any way the authority of the Congress. - of the information ao as to be of power in ruch a way as to cause any- Bille thyon Schwarte given in the amendment by which ao (II). Becretary of the Treasury lo conduct the Mr. President, DO are PAS any desire M one reasurably to suppore that Thad been - tirring Enipited other that We are amuiring the carred Investor smith playee of the Joint committee, If he por afairs of his department. or that of any dap the Becretary of the Treasury - information, without being dependent willing to struse D. lesds Johnson out to alther the chairman or the Pice their- other department head to any other Secretary in the be be Upm sume other office through which In- 1 hold in the highest evisen the tiesda Rom Blues their man and geta their consent, can for all sometimes questions arise id ehich the fermation will be fillered from the nib- of departiments and agencies of Govern- Buin la Poliction TMI department All that the commities his ment: and under DO wintld Benker Le Themas Mibe Name to come et) Individually down Into a attendment does la to authorise the head of an important hureal may num orderate bureeus, on office which may Butin Lade Our department, without the knowledge or of And logalit Act up representatives 210- views at variance with the Virgin of the and us whatever information It wants to anyone ever be sent to any department Butter Des Themas Dtala approval or the of the bead of lla the Congress of the United States, in "hratn trust" who may make up the gip- and withhold whatever information IL without - respectful request addressed to limit Trunas the department, and obtain whatever be policy-making expecity, to so to any eral beadquarters. so to speak. of or the not happen to agree with. the department head, with a statement at Capper may want in the way of information or auvernmental agency Usage Blease, to get department, and the Congram of are In that may, Mr. President, the Don- the purposes and the destre of the joint Chandler Millare Van this suggestion or otherwise, That fa the United States has a right to the optniges committee in obtaining Information. Mainter Wight the will have access to the official COAYE any information they think to be 16 bene- and the facts en which the opinions in Clark. Mo Marrier Walsh difference between the two proposals, fit to the committees of Congress and to Views of the head of the Treasury De- I had hoped that the ammodment white Whet Country the Congress Itself to determining policy. bund, of the men who setually have in Partment or the Commerce Department might be EXT adjusted as not to provide Montal While hand the administrative of measures. or tay other deportment. and through discussion. I have not had the oppor- David Morray Wuy our own state we will have the tachs to tunity to diactime B. but It is new before Regraded Unclassified 197 8270 CONGRESSIONAL RECORD-SENATE OCTOBER The PRESIDING OFFICER The 1942 CONGRESSIONAL RECORD-SENATE H271 States, = is addressed to the head of a department. The language contained in question 38 on agreeing to the emend- the ylvid? Mr. Renator BARKLEY, Mr. Product, va I will en Instance in the emaldera- check their views: and WN will have the the Benale and I wished to make this the amendment reported by the commit- enent of the Benater from Kentucky (Mr, Board) to the committee emendmat Mr. CLARE of Missus I ship of the NETF bill. I happened to be facilities fur shecking them: WM will have statement before In voite la takin, ben, or the Include in the substitute which Itsus been offered by me, would DOE from Misscuri contend that Benator Mr. BARKLEY Does the clan etairmati of the of the the right check statistics, of that visio mercly for the purpose of making it pr- Mr. CLARK of Mr. Prid- Finance Committee shich considered the the Ways and Means Committe or the femily clesr list, in my judgment, there intertere in anyway with any Senator or dest, the object, or at least the effect, of Depresentative celling up anynne on the an language et the supenditient is adopted the withbulding The views of the - Finance Committee or any other com- to 00 ocession fur any fear, so far - the the substitute proposed by the Benator office of the Treasury whom be happens employee of the Joint committee end contingent, so to spesk, mittee proceda to determine policy We present chairman and vire-chairman of Inter Kenturky is to destroy whilly and to know, or from whom be wishes to ob- and the "trate trust" et the Treasury will have means of our own by which ** the Inins committee are that completely an ammittment which was & net, without The consent of the bird - talo Information I am talking about the adopted In the Committee on Pinance to department, the go to any burned unly of Department. were expressed at mat can check Information estimitted to MI. there will be any abuse of this power If formal requests made by committees. department? leagth to the subcemmittee. and it was Mr. President, I my sealo that by this the Genate wes fit la adopt the amend- constration Mid that the Bureau of Internal amendment, which the adopted unans- ment. The request would be formal if d name after an all-day discription of the mb- from the Joint committee. ject and full consideration by . vote of 14 could not, and I think that is what to Mr. CLARK of I think Revenue was being represented at that mously by the Finance Committee. no The PRESIDING OFFICER The While the Bureau of Internal Revenue for and come against. Every member of ommitter the had In mind. I do nas a the time by . young man when I did not reflection wbsiever as intended upon the question is on agreeing to the smind- is the only one named, the language to the remittee who was present-and I - I went out and called up the Com- Secretary et the Treasury or the General ment offered by the Sensior from Km- the amendment is sufficiently broad to say in all trankness that the Benator painted by the Senator the Kentucky- fear rained In the herrid Deture misslorer of Internal Revenue who had Counted of the Treasury or anvoice else, tucky (Mr. BARKLET) as & substitute for include all bureses, and all departmenta, from Kenturky, who is a member of the the artual administration of this measure It is stamply to emable Congresa to per- lines a to 26 in the committee I think It is a more's next-that the form its constitutional duty, in fune- and its effect would be tu sircumvent the committee, vas detained on Important beads of all departments in Washington, chatrman of the committee would - The la mind, and naked him to come up and in page 541. business evember of the Appoint titure the crumittee. He Lold Uning SE - pollay-making bidy, 1 hope Mr. TAPT. I mk for the year and those responsible as members of the Cab- committee present, and 14 were present, the authority of the chairman M the me DE could not do is without the per- very much the substitute emendment DAYS Inet, by allowing an employee of the Ben- voted for the ammément, They listened committee. We know the character et hair of the Serviary of the Treasury. will be voted down. The years and days were ordered, and to the discussion for all of 1 day and men who have always beio chairmen of : erste the Serretary of the Treasury - The PRESIDING OFFICER The the Ingisiative derk procented to call the ate and Rouse joint committee to go Into every brancau BE agreemcy under a Cabinet postponed action from the morning until the committee, and who have always letter. The Commissioner of Internal question is on agreelog to the emend- rell. officer, and secure information. It seems the afternomy to see If there entitle be an been vice chairmen of the committe, Not T do not think there is anything the Devenue appeared and gave the commit- ment of the Benator from Emplucky (Mr. Mr. REED who bis name vas called) to inte to be en unprecedented proposal, servicent upon the matter, and finally in TITO in direct divergence, Just as far BATELET ] to the committee emend- I have a general suir with the which and I do nei think the circumstances imanimously adopted the amendment Congress nieds to wurry about in (Yg u they could possibly be, frum the views ment. Remator from New York (Mr. Works). under which It was offered or adopted In when the motion was made by the Sens- efther one of the coheade of Lia - which had bein expressed on his behalf Mr. GEORGE Mr. President, nothing 1 transfer that pair to the junior Senator the committee constitute a sufficient res- for from Pennsylvania (Mr. GUPPEY portant committee authority to ME la information they think la by de Treasury officials and could be further trues my mind than to from New Hampshire Mr. Toury!, and BOD for departing from the rule of comity Mr. President, the whole nub of this M the result of the information be gave raise any love whatever with the Ber- will vote. I vote "nay" as between Congress and the executive discression can be stated to this one - Mr. BARELEY. Why not prints the committee, the committee SBW fit to retury of the Treasury of the head of any The reil call was continuted. departments, If justify our saying to & Does the Congress of the United then in the committee's the make L very radical change in the pro- other department or any of the Get - Mr. HILL I announce that the Bena- Cabinet officer, "You are no longer in our States, the policy-making bady for our the Tice chairman shall aci in the al- passi. an fact to make a exemplete diver- ernment. I regret very much that the for from Delaware (Mr. Houses) and picture, we do not want to deal with you, Government under the Constitution of of the chairman as vise charge pco. amendment Mema to have benn trand- the Benator from Virginia (Mr. OLAM) We are soing down ou - little bureas, or the United States, have & right to have In all organizations always do? Why are Mr. BARKLEY. Mr. President, will ered La Indicating a lack of agreement are strent from the Bensta because of or semething of that kind, with- arress to information from any govern- beth given equal power? the Senstor yidd? between the present chairman and vice- illness. unwise out you knowing about IL" I think is la Mr. CLARK of Missui Decame e Mr. CLARK of Missourt. I yteld. chairman of the joint committee and the mental source whatsoever that 21 may see The Benator from Florida Mr. Att 0: to call en? That is the enty insue. the Senator from Kentucky very NO Mr. BARKLEY. What the Senator besds of the departmenta. carws], the Benater from Idabo 1Mr. Mr. NOBRIS Mr. President, will the The committee attendment, as и was knows, the committee la made up of five sua about that particular epizode la true, By far M the law is concerned. let me CLASR], the Senator from Rhode Island Beneter yield? reported by the committee by unanimous Representatives, Members of the Ways and Unit is the practice which is indulged read from the law which created the [Mr. CREEN), the Benator from Georgia Mr. BARKLEY. Iyeld to the Sension vote. provides that the agents of the Cm- and Means Committee nt the Home and in by all departments. The Internal Joint committee. I refer to section 5012 (Mr. HURSELL), the Senator from New from Nebrada. five Senators, members of the Finance Revenue Commissioner, for when we all the Juint Committee on Tax- of the Internal Revenue Code: Amoug Jersey [Mr. EMATHERS), the Benater from Mr. NORRIS I do not want the atton la merely an agent of Congress- Committee of the Benate. Those tax have the grestest administion and TE- other things, the kins committee a 15- Maryland Mr. and the Bena- Benefor to surroder the floor until he shall have SOCIAL to any Information they committees are coordinate In their No- IDS, and with whom the Senstor and pecially enjoined to do the following: tnr from New York (Mr. WAGNER] are explains what the effect of his substitute therity, and to all Intenta and payes I and In me capacity and another in would be He has rud yet donse so. may desire by wordbox to whatever agency (à) Investigation- the chairman and the Vice chairman ATD the Houm like all pasistants under B. or board or bureau or department they (1) Operation end effects of Tu invoice Mr. THOMAS of Utah 1 have . pm. Mr. BARKLEY. My substiture would may desire for the information condinate in their authority. n " Cabinet officer, felt that be had no right tigate the operation and effects of LBP Pet- eral pair with the Benate from New authorize the chairman of the Joint - atraply N question of who presides at the to qual for the Department unless be end system of internal revenue was milter un Internal-revenue taxation, z, meeting of the committee The Senaire (2) Administration: To Investigate Che Hempshire (Mr. but I em ad- Mr. President, the pruposal of the Ben- eu solhorised to do ac, or unless the administration if warb use by the Barear vised that if present and votime. he would la his alsence the vice chairman, to call einr from Kentucky certainly would not upm the Secretary of the Treasury, or improve the present practice, and to my from Connecticut an the committe Benefiture of the Treasury, under whom he served, knew that he vu appearing of Internal Revenue or any executive expert- vote as I am about to vote. 1 am, there- any other executive officer, de head of is would actually weaken It, As does not mest anyway. If a, If does all ment, establishment. - agreem dept with fare. st literty to vote. I vote "DAS" seem to the to be of any importante at before the committies. There was no de- their edministration: and Mr. MENARY. The Senstors from department, for any data, statistira, on- a a matter of fact, the committee Ninend- las a sesting the information. The New Rampshire IMr. and Mr. ment, ao far as the Treasury Department all who la chairman or who la vice chair- mates, or any other information which man. Commissioner appeared and SATE it. (9) Fiber investigations: Tu gists such the Joint committee may descre which has is cuncerned, mereis Roes back to what other investigations to respect of - Tyarr) are necessarily steent. Their Mr. BARELEY. The constitute Mr. CLARK of Missouri 1 under- of lasts a the por committee any - pairs have been annoined. Both Lhase any bearing upon the questions of was the law and what was Use practice amendment does not require any Mand thail completely. 1 vas using that since the Joint Committee on Internal packmart. Senators would vote "DAY" If present. Internal-reesus taxation, My Amend- of the committee, It doca not sy the as an illustration of the fact that there Revenue Trantion 9M established and I happen to be chairman of the Senale The result our announced-7eas 10. ment would make If the duty if all these for years after that, unto 4 or 5 years ago, the approval of the Joint committee shall are THEY Irequently divergent views be- the beads of the or ad- Committee on Pleance, and VICE chair- DATE 14. as follows: officers to furnish the information to the when . change was required to the law, be required. man of the joint committes I have 00 TEAB-19 joint committee, but It would pos the minutrative beads nod the no-eation setting up the office of the General Coun- Mr. CLARK of Minouri Mr. Presi- superser. The riason I mention that is desire to ant an enlargement of power, bickled Johnson come. Exper responsibility, of course, upon the chair- sel in the Treasury Department, dens, I emiend that the staff of the joini other than for strictly official purpuse Downey Langht Monther man first to make the required 65 chair- that in the preparation of the bill before TOAD of the Joiné committee. and in bis Mr. President, the Senator from Ken- committee, which serves both the Hour and dates I think I can ENF to the Ben- Delley Mest NA, 575 DATES line, the committee had to turky speke of tispoing the Secretary of ale that whatever part 18 entraded to EDH Rora abvence je would put the responsibility and the Senste, ought to have the right ttaly # givel mse et information. We WAYS-74 upon the vice chairman to make the the Treasury in the fars, There is noth- to ask for information either no the ID- Date . joint staff set up by law for the me will be at MATTE ume gurrendered request. The request would a in . for- proval of the responsible head of the without ml having abused LA. If there as ADDRESS Ing in the committee attendment which Nipa of giving as the information. Assistic Cerry 03/11/2017 mal way from the joint ommilites, B4 daps the Secretary of the Treasury or House committee or the responsible head lv biobers are not executive agenta anything I fear jt. is the struse of power. DATE CRIMITA Owner such, to the head of the department or autone eine in the face. There la noth- of the Benate committee, because bitth They are the agents of the Congress IL- If these is anything of earth that would Dall Outling PRICE me, is is the four of the use Bankhand Dumer Revil to any Ratricy or branch of the Govern- ing in the amendment which circum- branches are courdinate bodies of lbt will We should la able to 99 to the Barbows Bush Beyorida ment I week to eliminate the authority Becretary of the Treasury to conduct the acribes to any way the authority of the Congress any of the information DO as to be of power in such B. way as to cause any- Billo Marian Mr. President no are has my dell' le coe reasonably to suppose that Itad born Brow Herring given tn the schendment by which an em- octain that we are siguiring the current Investr Inimal Smith ployes of the Juint committee, if be Birs affairs of his department, or that of any the the Secretary of the THANKS of information, without belog dependent willing 10 abuse n. Spution I hold m the highest etem the hoads Burnet to either the chairman or the vice chair- other department hand to conduct his any other Secretary In the face w 500g some other office through which to- Drawn Bipro man and gets their consent, can for all department. All that the committee of departments and agencies of Govern- Due LA TVL substimes questions arter AD which BE formation will be fillered from the eah- Banker Im Thom. Main time to Utne DO individually down into a amendment does la to authorize the braid of 60 Important bures may have bureaus, an office which may ment: and under DO eircumstances would Lodge Thomas OEL Purton department, without the knowledge or of ognized and legally INC up representatives rec- views at variance with the virm of lbs MAIL as whatever information It wants to anyone ever be unt to any department Bale Lusa Date OTAL) MoCumin Its the Congress of the United States, in "lirain trest" who may make = the - and withhold whatever Information is without & request addressed to Byrd Tubell the department, and above whatever be approval or the request of the head of polley-making especity, to BO la any eral headquarters. 30 la speak, of UMI does not Irappen to agree with the department head, with a statement of Vandenterg #overnmental assocy they please, to are department, and the Congram et Lbf To Chat way, Mr. President, the Can- the purposes and the desire of the joint Charges Military Van Name may want MI the WAY of information or any information they think to be of bene- committee in obtaining information. Matorier Wallgres suggestion or otherwise. That la the United Blates tas - right to the epinions Charge enter will have secess to the official Clark Mo. Maymina Walls I had hoped Utal the smendment Whesler difference between the two proposals, nt to the committees of Congress sad to and the facts on which the optnions - based, of the men who getually NE a times of the bead of the Treasury De- Outsily the Congress Haelf in determining puller. partment or the Commerce Department might be an adjusted as not to provoke White Willed hand the administration of means DE any other department, and through (Iscussion. I have not had the oppor- Date sur otro MAIL TO will have the right so tunity to claim c. trut us is now before NEW Regraded Unclassified 8272 CONGRESSIONAL RECORD-SENATE OCTOBER 9 NOT VOTING-12 of offering the amendments, The clerk Andrews Green Tobey will proceed to state the amendments. Hughes Tydnes agreed to. The amendment as amended MM Bridges Clark, Idaho Russell Wagner The tamendment was, In the com- Class Smathers Wills mittee amendment beginning on page to the desk and ask to have stated a Mr. GEORGE, Mr. President, I send So Mr. BARRLEY'S amendment to the 386, to insert on page 390, line 4, after the committee amendment was rejected. word "subchapter", the following: ", or in amendment to be Inserted at the proper new The PRESIDING OFFICER. The the case of a taxable year the return for place in the bill, Let me state that the question recurs on agreeing to the com- which was filed prior to the date of the Treasury has no objection to the amend- mittee amendment on page 541, after enactment of the Revenue Act of 1942, ment. It is solely for the purpose of within 6 months after the date of the eliminating duplications and other Im- line 2. The amendment was agreed to. enactment of such act." perfections in the net-operating-loss The amendment to the amendment carry-over provisions as they apply to Mr. GEORGE. Mr. President, I had hoped that we might be able to conclude was agreed to. income. the computations of net excess-profits consideration of the bill today; but It is The next amendment was, on page obvious that we cannot do so without re- 390, at the beginning of line 8, before the The PRESIDING OFFICER. The maining here for 2 or 3 hours longer. I word "irrevocable", to insert "made in amendment submitted by the Senator from Georgia will be stated. shall ask permission to dispose of certain accordance with such regulations and technical amendments, so that tomorrow shall be." The CHIEF CLERK. At the proper place we may have the bill before us practi- The amendment to the amendment in the bill It is proposed to Insert the following new section: cally only for the consideration of WILS agreed to. amendments to be offered from the The next amendment was, on page 390, Bac. justment. (210). Net operating loss deduction ad- floor. I hope that Is agreeable to the line 9, after the word "contracts", to In- (a) Section 711 (a) (1) (relating sert "past, present, or future." the leaders of the majority and the minority. excess-profits credit computed under Mr. McNARY. It in agreeable to me. The amendment to the amendment credit) la amended by adding at the end Mr. BARKLEY. It is also agreeable to was agreed to. thereof the following new subparagraph: me, although, 80 far as I am concerned, I The next amendment was, on page 390, "(J) Net operating lose deduction adjust- line 9, after the word "which", to insert ment: The net operating Ican deduction shall think It might be well to proceed for a "required or." be adjusted as follows: little while to clear up some underbrush "(1) In computing the net operating loss and meet tomorrow and complete the The amendment to the amendment was bill. agreed to. for any taxable year under section 122 (a) and the net Income for any taxable Mr. GEORGE. Yes: I am sure we can The next amendment was, on page 390, under section 122 (b), no deduction shall be finish the bill tomorrow. line 12, after the word "subchapter", to allowed for any excess-profits tax imposed Mr. President, the Senator from Maine insert ", including the computation of by this subchapter: and asked that certain committee amend- excess profits net income in each taxable "(ii) In lleu of the reduction provided in menta be passed over. Subsequently year of the base period under section section 122 (c), such reduction shalt be in 711 (b),". the amount by which the excess-profits net those amendments were called up, and It WILD believed that amendments to them The amendment to the amendment Income computed with the exceptions and limitations specified in section 123 (d) (1), would not be necessary. Since then the was agreed to. (2), (3), and (4) exceeds the excels-profita matter has been checked, and the Sena- The next amendment was, on page net income (computed without the Del op- tor from Maine desires certain technical 390, line 13, after the word "election", erating loss deduction)." amendments agreed to. The amend- and before the period, to Insert "but for (b) Section 711 (a) (2) (relating to the ments have been checked by both the purposes of chapter 1, the tax imposed excess-profits credit computed under In- by this subchapter for any prior taxable vested capital credit) is amended by adding Treasury staff and the joint committee staff, and there is no objection to them. year on account of the adjustment re- at the end thereof the following new sub- paragraph: They are entirely technical. The first quired by this subsection shall be con- "(L) Net operating Jose deduction adjusty amendment I offer comes in on page 18, sidered a part of the tax imposed by this ment: The net operating loss deduction stall line 17. subchapter for the taxable year In which be adjusted as follows: The PRESIDING OFFICER. The such income is, without regard to this "(1) In computing the net operating loss Chair Is Informed that the amendment subsection, includible in gross Income." for any taxable year under section 122 (a), is to a committee amendment which has The amendment to the amendment and the net income for any taxable year was agreed to. under section 122 (b), no deduction shall be already been agreed to. allowed for any excess-profts tax Imposed by Without objection, the vote by which The PRESIDING OFFICER. The this subchapter, the deduction for Interest the committee amendment was agreed to question recurs on agreeing to the com- shall be reduced by the amount of any Te- is reconsidered. The clerk will state the mittee amendment as amended. duction under subparagraph (B) of this amendment to the amendment. The amendment as amended was paragraph, and the gross income shall be The CHIEF CLERK. In the committee agreed to. Increased by the amount of the adjustment amendment on page 18, in line 17, it is The next amendment was, on page 392, spectfied by subparagraph (G) of this para- to strike out lines 4. to 7. Inclusive, and graph to the extent that such adjustment proposed to delete "or"; and in line 18, Includes interest other than interest de- after the parenthesis, to insert ", or sec- Insert in lieu thereof the following: scribed in section 122 (d) (2): and tion 736 (b)." (e) Retroactive application of provisions "(II) In lieu of the reduction provided in The amendment to the amendment relative to gerieral reltef and Income from section 122 (c), such reduction shall be in long-term contracts- was agreed to. the amount by which the excess-profite pil (1) The amendments made by this section income computed with the exceptions and The amendment as amended was to section 722 shall be applicable with no- limitations provided in section 123 (d) (1), agreed to. spect to taxable years beginning after Decem- (2), (3), and (4) exceeds the excess-proûts Mr. GEORGE. Mr. President, I should ber 31, 1939. net Income (computed without the net say that all the amendments I am now (2) Subsection (b) of section THE and eo erating loss deduction). offering are to committee amendments much of subsection (e) as is applicable there- (c) The amendments made by this section which have been agreed to. I nsk unani- to shall be applicable only with respect to shall be effective as of the date of enactment mous consent that in each Instance the tarable years beginning after December B1, of the Excess Profite Tax Act of 1940. 1041, except that, If a tampayer, within e vote by which the committee amendment months after the data of enactment of this Mr. DANAHER. Mr. President, I was agreed to may be reconsidered for not and in accordance with regulations pre- should like to ask the Senator from Geor- the purpose of offering these amend- ecribed by the Commissioner with the ap- gia to explain, if he will do 80, the type ments. proval or the Recretary, elects to have such of cases which the proposed amendment The PRESIDING OFFICER. Without subsections apply retroactively to all taxable is designed to cover. objection, It is so ordered, and the votes years beginning after December 33, 1939, such by which the committee amendments amendments shall also be applicable to such Mr. GEORGE. The amendment would taxable years. apply to the excess-profits carry-over were agreed to will be considered as hav- provision. The amendment has been ing been reconsidered for the purpose The amendment to the amendment submitted to the Treasury. It is In- WILE agreed to. tended to eliminate duplications in the Regraded Unclassified 198 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Secretary Morgenthau December 22, 1942 TO FROM Randolph Paul On Friday evening at the invitation of Mr. Louis Brown, President of the Johns Manville Company, I attended dinner at Mr. Brown's apartment in the Wardman Park Hotel for the purpose of discussing the tax situation with him and with four or five other men who, according to Mr. Brown, would have most to do with the formulation of tax policy in the next Congress. There were six of us at dinner - the other four being Mr. Roswell Magill, former Undersecretary of the Treasury, Mr. Ellsworth Alvord, Washington attorney, representing the U. S. Chamber of Commerce, Mr. Chester Cowden representing the National Association of Manufac- turers and Mr. John Hanes, also former Undersecretary of the Treasury. The following will give a general summary of the matters discussed at dinner and in the evening after dinner: 1. There was considerable discussion of the Ruml plan. I explained the Treasury's substitute for the Ruml plan presented to the Senate Finance Committee last September which involved reduction of rate brackets by 10 percentage points for 1942, an increase of rate brackets for 1943 by 5 percentage points, and withholding at the source for 1943 at the rate of 15 percent. The effect of this pro- vision is summarized in the letter to the Washington Post, dated December 8, 1942, in answer to the published letter of Louis Bromfield, as follows: "The Treasury plan would have led to the collection of a large part of individual income taxes at the source for most taxpayers. About three-fourths of all income taxpayers would have been shifted to a substantially current basis, with about two-thirds of their 1943 tax liability collected at source. The taxpayers who would have the largest proportion of their tax liability placed on 8 current basis are those in the lower income brackets. In other words, the Treasury plan would meet most fully the needs of precisely those taxpayers whose budgeting habits and unfamiliarity with income taxes make a pay-as- you-go system most useful." Regraded Unclassified 199 - 2 - All expressed themselves as in favor of going at least this far; some would like to go further, forgiving entirely all taxes for 1942 whatever the rate bracket. Mr. Hanes was the only one who expressed doubt whether this was feasible politically. 2. The size of the program for the next Congress was then discussed. Mr. Cowden expressed the view that the total should be $60 billion or $30 billion additional (counting $30 billion as the present yield). He thought this should consist of $5 billion in the form of a sales tax with no exemption for food and a flat 20 percent com- pulsory lending program. I expressed my views against the sales tax and criticized the flat compulsory lending program on the ground that it would be extremely hard on the lower incomes and would represent merely a shift of saving for the upper incomes. Mr. Alvord doubted whether much could be obtained from a sales tax. I also told those present that I thought such a program would be too onerous and with this all but Cowden agreed. 3. We had some discussion of the matter of timing and it was thought advisable by those present to put in the forefront any matters that needed legislation before March 15, leaving other less urgent matters to a separate later bill. 4. We had some discussion of corporate rates. Mr. Hanes expressed the view very strongly that we should have some debt relief. I agreed with this point and said that with proper debt relief and other like provisions I thought the rate could easily go from 40 percent to 50 percent or 55 percent for the normal and surtax combined. Mr. Brown thought 50 percent with debt relief would not be too onerous. The others did not express themselves on this point. 5. Everyone present was strongly in favor of collection at the source, 6. We had some discussion of the spendings tax and Mr. Alvord expressed himself as pretty much against this Regraded Unclassified 200 - 3 - tax. The others, I am sure, were against this tax though they did not say so explicitly. 7. Some support was given, particularly by Mr. Alvord, to the so-called individual excess profits tax or tax on increased incomes of individuals, the theory of this tax being that it would reach inflationary incomes directly attributable to the war effort. Mr. Alvord advanced the idea that a levy of this sort might be put in the form of compulsory lending, and I told him that Hanson had also advanced this idea. The others did not argue for this tax, which is somewhat strange. When he first saw me, Mr. Brown strongly advocated the tax, and between that time and the time of the dinner I had given Mr. Brown several copies of & memorandum pointing out the difficulties involved in this form of taxation. Perhaps these memoranda had shaken Mr. Brown's faith in this tax. 8. I think all of the gentlemen present were in favor of some form of compulsory lending, although not all of them would go as far or as high as Mr. Cowden. As I said, the compulsory lending favored by Mr. Cowden would be 8. straight percentage requirement with no pro- gression in the schedule. 9. Although it is not strictly relevant to the above, we had some discussion of the salary limitation, and opposition was expressed by everyone except myself. RED Regraded Unclassified 201 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 22, 1942 TO Secretary Morgenthau FROM Randolph Paul The last sentence of the middle paragraph on page 5 formerly read: "Within the next few months we should be collecting from current levies one-half of the cost of the Federal Government". After conference between Mr. Bell, Mr. Blough and myself, it was changed to read as shown: "within the next few months our receipts under existing revenue laws and under any new fiscal measures adopted by the Con ress should approximate one-half the cost of the Federal Government" Brt Regraded Unclassified 202 STANDARD FORM No. 14 APPROVED BY THE PRESIDENT FROM MARCH 10, 1926 BUREAU TELEGRAM Internal Revenue CHG, APPROPRIATION OFFICIAL BUSINESS-GOVERNMENT RATES RIGHT LETTER - name - 10-1788 December 22, 1942 Mr. Jerry Racket Technicolor Laboratory Hollywood, California AS YOU KNOW IT IS VITALLY IMPORTANT TO THE TREASURY TO GET THE NEW DISNEY TAX FILM DISTRIBUTED AS EARLY IS JANUARY AS POSSIBLE. WE HAVE & TREMENDOUS JOB OF REACHING THE BILLIONS OF NEW TAXPAYERS AND WE FREL THIS FILM WILL BE ONE OF THE MOST EFFECTIVE WAYS OF GETTING OUR MESSAGE TO THEM. ANYTHING YOU CAN DO TO EXPEDITE THE PRINTING OF THE FILM WILL BE GREATLY APPRECIATED AND WILL BE A REAL SERVICE. Henry Morgenthau, Jr. Secretary of the Treasury FK/egk Instaled Hang Regraded Unclassified 203 December 22, 1942. Dear Mr. Swepes It was very good of you to send no a telegran of congratulation on the Rend campaign record. Thank you for your friendly message. with the senson's greetings, end all good wishes for the coming year, Sinserely, (Signed) H. Morgenthau, Jr. Mr. Norbert Bayard Swope, 895 Park Avenue, New York, New York. GEF/dbs File in Diary Regraded Unclassified 204 WU66 14 NSB NEWYORK NY DEC 21 1942 343P 1942 DEC 21 PM 6 15 HON HENRY MORGENTHAU SECY OF THE TREAS CONGRATULATIONS ON THE MAGNIFICIENT RECORD ON DONDS. IT IS A TRIBUTE TO YOUR ADMINISTRATION HERBERT BAYARD SWOPE. 613PM. is YY 28 Regraded Unclassified 205 December 22, 1942 Dear Mr. Kaufmann: I am glad to know that your fellow Philadelphians are honoring you on January 16th for your services in the War Savings campaign. We at the Treasury know of the outstanding War Bond advertising that appeared in the Philadelphia newspapers December 7th, and we are most grateful to you who originated the plan and to the Merchants Association which sponsored it. Your energy and resourcefulness have been an example to merchants all over the country, and I feel that you have been of real service in helping to finance the war. Sincerely, (Signed) H. Morgenthau. Jr. Mr. Arthur C. Kaufmann, President, Gimbel Brothers, Philadelphia, Pennsylvania. FK/cgk Copy in Diary File to Thompson Regraded Unclassified CONFIDENTIAL 206 UNITED STATES SAVINGS BONDS - SERIES E Comparison of December sales to date with sales during the same number of business days in November and October, 1942 (At issue price in thousands of dollars) : December : Cumulative sales by business days Date : daily : : December November : October : December as : sales : : : :percent of November December 1942 1 $ 4,116 $ 4,116 $ 5,164 - 79.7% 2 4,489 8,605 9,272 - 92.8 3 10,042 18,647 20,460 $ 5,045 91.1 4 39.690 58,337 31,309 42,285 186.3 5 16,648 74,984 53.076 52,984 141.3 7 46,424 121,408 62,326 73,919 194.8 8 11,887 133,295 96,366 98,490 138.3 9 17,857 151,152 111,002 117,077 136.2 10 13,607 164,759 146,494 131,593 112.5 11 38,664 203,423 161,929 169,859 125.6 12 17,480 220,903 181,120 179,232 122.0 14 52,056 272,959 188,497 194,811 144.8 15 15,530 288,488 230,083 222,243 125.4 16 22,764 311,252 241,624 239,891 128.8 17 24,848 336,100 262,274 254,201 128.1 18 25,260 361,359 287,409 290,282 125.7 19 17,907 379,266 314,568 312,386 120.6 21 45,716 424,982 327,418 327,928 129.8 December 22, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account have of proceeds of sales of United States savings bonde. These figures with the been adjusted on the basis of wire reports and therefore will not agree Treasurer's accounts. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 207 UNITED STATES SAVINGS BONDS - SERIES 7 AND G COMBINED Comparison of December sales to date with sales during the same number of business days in November and October, 1942 (At issue price in thousands of dollars) I December : Cumulative sales by business days Date : daily : : : December November October : December as : sales : : : :percent of November cember 1942 1 $ 197 $ 197 $ 303 - 65.0% 2 329 527 1,115 - 47.3 3 2,688 3,214 7,846 $ 2,218 41.0 L 13,947 17,161 14,720 20,322 116.6 5 12,303 29,464 31,425 24,325 93.8 7 17,522 46,986 34,030 31,922 138.1 8 2,872 49,858 43,940 46,695 113.5 9 9.576 59,434 49,326 55,998 120.5 10 5,651 65,085 58,842 59,711 110.6 11 14,274 79,359 64,157 74,275 123.7 12 7,135 86,495 71,352 76,430 121.2 14 15,430 101,924 73,989 83,857 137.8 15 7,719 109,644 83,246 91,884 131.7 16 5,146 114,789 88,888 98,457 129.1 17 11,654 126,443 97.154 101,252 130.1 18 6,466 132,909 104,487 110,052 127.2 19 7,992 140,901 113,191 115,757 124.5 21 13,451 154,352 116,880 124,610 132.1 December 22, 1942. fice of the Secretary of the Treasury, Division of Research and Statistics. Durce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. These figures have been adjusted on the basis of wire reports and therefore will not agree with the Treasurer's accounts. Note: Figures have been rounded to near ent thousand and will not necessarily add to totals. Regraded Unclassified TREASURY DEPARTMENT 208 INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau December 22, 1942 FROM Randolph Paul No luck with Grossman. The original attached letter is sent to you because of the personal references in the second paragraph. KR Regraded Unclassified 209 LAW OFFICES OF GROSSMAN AND GROSSMAN 17TH FLOOR THE NBC BUILDING LOUIS 4. GROSSMAN, 1004-1941 MARC a. GROSSMAN KENNETH o CARTER CLEVELAND JOHN WI CAMP PERRY E.HAMILTON I.V.ROBENMAN December 17, 1942. Huntington Cairns, Assistant General Counsel, Treasury Department, Washington, D. C. My dear Mr. Cairns: This will confirm my long distance telephone conversation with you, which was prompted by your letter of December 16. As stated, I am not interested in a job as such for the reasons which I explained to you. If however, I can at any time make a contribution to the war effort through the Treasury Department, I am entirely at your disposal. I have something of a sense of a personal relationship with the Treasury Department because Henry Morgenthau, III, was employed for some time by the Cleveland Metropolitan Housing Authority of which I am Chairman, and in consequence I had occasional contact with his distinguished father. I greatly appreciate your thought of me. MJG:MR B Very Fruly you Regraded Unclassified 210 December 22, 1942 Dear Mr. Davis: Beginning January 1st Mr. Charles Schwars, our Director of Public Relations, will be responsible for clearance of speeches with your office, through Mr. Fleming. I shall appreciate your telling Mr. Fleming that Mr. Schwars will clear Treasury speeches with him and will also handle the clearance in this Department of speeches from other Government agencies which bear on the Treasury's problems. If certain speeches on policy matters should produce important differences of opinion between departments, Assistant Secretary Herbert E. Gaston will be available for the Treasury and will, I know, be glad to help in any way he can. Sincerely, (Signed) H. Morgenthau, Jr Mr. Elmer Davis, Director, Office of War Information, Washington, D. C. FK/cgk Copies in Diary Copies to Schwarz and Thompson By Messenger Bundy Regraded Unclassified 211 Mr. Cherles Schwarz December 22, 1942. Secretary Morgenthau Beginning January 1st I should like you to be responsible for the clearance of speeches with the O.W.I. Treasury speeches will come to you from Mr. Gaston, who will approve them for policy, and you should then clear them with Mr. Fleming of the O.W.I. I have written Elmer Davis to tell him that other Government speeches requiring our clearance shall be sent to you, for you to circulate with the appropriate people in the Treasury. /s/ H.M.Jr FK:eg Copy in Diary Copy to Thompson Regraded Unclassified 212 TREASURY department PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON December 22, 1942 MEMORANDUM TO THE SECRETARY: There is submitted herewith the operating report of Lend-Lease purchases for the week ended December 19, 1942. There has been a decline in the dollar volume of lend-lease requisitions cleared to this Office for purchase, due primarily to lack of available shipping and adequate stores for 8 sub- stantial part of the immediate needs. The preliminary budget estimates for the balance of this fiscal year (from January 1, 1943, on) indicate an anticipated increased volume of proposed requirements. June Cariton E. Mack Director of Procurement FORVICTORY BUY UNITED STATES persons BONDS ARE STAMPS Regraded Unclassified 1 D-LEASE DEPARTMENT, DIVISION STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND DELIVERIES TO FORRIGN GOVERNMENTS AT i. S. TORYS AS OF DECEMBER 19, 1942 (In Millions of Dollars) Administrative Miscellaneous 8 Total U.K. Russia China Expenses Undistributed Allocations $2721.9 $1258.4 $842.1 $58.3 $3.7 $559.4 (2721.8) (1251.4) (826.2) (58.3) (3.7) (582.2) Purchase Authoriza- $2020.0 $1173.8 $778.6 $41.0 - $ 26.6 tions (Requisitions) (1980.1) (1149.8) (763.5) (41.0) - (25.8) Requisitions Cleared $1905.5 $1135.7 $703.6 $41.0 - $ 25.2 for Purchase (1876.8) (1123.5) (687.5) (41.0) - (24.8) Obligations $1807.3 $1074.2 $666.9 $41.0 $3.3 $ 21.9 (Purchases) (1772.8) (1080.9) (646.3) (41.0) (3.1) (21.5) Deliveries to Foreign Governments at U. S. $ 787.7 $ 623.3 $137.7 $20.3 - $ 6.4 Ports* (778.4) (615.9) (136.3) (20.3) - (5.9) #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 December 12, 1942 213 Regraded Unclas 214 DEC 2 2 1942 Centlement Reference is made to your letter of December 15, 1942, relative to the sevengement for the purpose of supplying the Republie of China with U.S. dollar enchange M outlined is your letter of July 140 1937, as amended, to the Central Bank of China. You are hereby authorized and requested as fiscal agent of the United States to and the following cable to the Central Bank of Chinas with refurence to your cable Me. n requesting a further extension of the arrengement between as for purpose of empolying Republic of China with dellar exchange the Secretary of the Treasury has authorized - as fissel agent of the United States to modify further paragraph 6 of our letter of July 14, 1937 as medified by deleting December 31, 1948' wherever such werds and figures oppear in such paragrayh as medified and incorting in lieu thereof Was 30, 1943'. Please cenfirm your agreement to such medification of the orrangement." Very truly yours, (Signed) H. Morgenthau, Jr. Secretary of the treasury. The Federal Reserve Bank of New York, New York, New Yest. Photo file in Diary File to Thompson J5G/grs 12/17/42 Regraded Unclassified FEDERAL RESERVE BANK OF NEW YORK FISCAL AGENT OF THE UNITED STATES December 15, 1942. Sir: Attention: Mr. E. M. Bernstein We are pleased to enclose a copy of a cable received today from the Central Bank of China request- ing an extension, for six months, of the arrangement for the purpose of supplying the Republic of China with dol- lar exchange as outlined in our letter of July 14, 1937, as amended. Please advise us of your wishes regarding the request of the Central Bank of China for a further renewal of the arrangement. Very truly yours, H! L. Sanford/ Manager, Foreign Department. The Honorable, The Secretary of the Treasury, Washington, D. C. Enc. Regraded Unclassified COPY INCOMING CABLEGRAM December 15, 1942 Chungking, December 15, 1942. Federal Reserve Bank of New York New York No. 31 Referring to 1937 agreement between you and us we wish to extend for further 6 months Please consult Treasury and advise. Central Bank of China Regraded Unclassified December 22, 1942 217 HIGH-LIGHTS OF THE WAR NEWS (10:00 A. M.) Russia Red Armies on the central Don front swept forward 15 miles toward Rostov on the retreating Nazis who abandoned much of their equipment. India 1. British continued to advance unopposed in Burma and occupied Alethang-Yow, 11 miles south of Maungdaw and 45 miles from the strategic port of Akyab. 2. Japs attacked Calcutta for the second time in 36 hours doing only slight damage. 3. U. S. planes attacked Lashio, terminus of the Burma Road. The Pacific Area 1. Using tanks and planes, Allies captured one of two small Jap air strips in the Buna section of New Guinea, 2. Heaviest fighting now centers in Cape Endaiadere sec- tion, about 2 miles from Buna mission. 3. Allies also are closing in from all sides on Japs on Sanananda, 4. Japs have been using aerial bombs unsuccessfully in combats with flying fortresses, Air Force Headquarters disclosed. North Africa 1. Rommel continues his retreat at an average rate of 15 miles a day. The vanguard is reported at Misurata, 120 miles from Tripoli. Montgomery's forces in pur- suit were believed to be on the outskirts of Sirte, more than 170 miles west of El Agheila. 2. Rainy weather has confined the Allies for the most part in Tunisia to air activity. 3. However, the French column which took Pichon is now near Kirouan, only 32 miles from the Axis-held port of Sousse, Tunisia. Seventy-five miles to the south, a second French column, advancing from Gafsa, is reported within striking distance of Sfax on the Tunisian coast. -1- Regraded Unclassified 218 4. Reports from London yesterday indicated that the Axis is moving forces from their station at Tripoli, diver- ting men and materials even from the Russian front, and concentrating a huge convoy in French Mediterranean ports in order to make an all-out stand in Tunisia. 5. Having an all-out fight in Tunisia seems to be the plan of both Allies and Axis. General Eisenhower has evolved the strategy, Allied Headquarters revealed, of chasing the Afrika Corps into Tunisia where the British Eighth Army close on its heels could unite with Allied forces already in Tunisia for a grand assault on the Axis. R. A. F. R.A.F. planes swarmed over Germany again last night leaving huge fires burning. in Munich. China American bombers smashed the Jap base of Tengchung in the southern Yunnan province, encountering little resistence. 11:00 A. M. Commandos from British First Army have attacked Tunisia from the sea last week and penetrated to within 5 miles of Bizerte, Reuters reported today. -2- Regraded Unclassified 219 December 22, 1942 AFTERNOON SUMMARY OF WAR NEWS The Pacific Area (Navy Noon Communique) 1. Army flying fortresses carried out 3 raids on Jap bases in the Solomons. In one raid on Jap shipping on Bougainville Island in Buin area, one Jap cargo ves- sel was struck and thought to be sinking. The other 2 attacks were directed against the Jap air base at Munda on New Georgia Island, about 150 miles northwest of Guadalcanal. 2. U. S. bombers and fighters heavily attacked shore in- stallations on Kiska Island in the Aleutians, causing explosions near a submarine base. All U. S. planes returned. Tunisia (General Report) Little important land action has taken place in last 10 days. Allies are holding Germans in check at a series of strong points while reinforcements and supplies are being brought up to assure the success of an offensive once it is launched. Air battles over Tunisia have taken a sudden turn in favor of the Allies. U. S. planes have dropoed 1,000,000 pounds of bombs on Axis targets within a seven- day period and British Beaufort night fighters have almost driven Axis night bombers from the skies. Result-while Axis bases are receiving a terrific pounding, major Allied supply bases are able to function with little disturbance. China Premier of Manchukuo General Chang Ching-Hui, Chinese Quis- ling, was reported by Chinese High Command today to have poisoned all members of his family, shot and killed a Japanese advisor and five high-ranking officials of this puppet government, and then committed suicide because he was "unable to stand any longer the Japanese oppression", the Chinese High Command reported today. England Scattered German planes, taking advantage of low clouds, carried out nuisance raids against England today. Axis The Germans are constructing new defense works on the Regraded Unclassified 220 Belgian North Sea coast in anticipation of an Allied in- vasion of the continent, according to reports received by the Belgian Government in London today. -2- NOT TO Be RE-TRANSMITTED 221 13 COPY no. BRITISH MOST SECRET U.S. SECRET OPTEL No. 441 Information received up to 7 A.M., 22nd December, 1942. I. NAVAL MEDITERRANEAN. 21st. Two ships in convoy reached MALTA. TOULON. Now estimated that 3 large destroyers, 3 destroyers, possibly two 6 inch cruisers and possibly 7 submarines are undamaged either aflont or in dock. 2. MILITARY LIBYA. On 20th our advanced troops were 7 miles west of SULTAN. RUSSIA. On Central Front heavy fighting continues. In Middle Don Russian thrust is now within 20 miles of important railway junction at MILLEROVA. 3. AIR OPERATIONS WESTERN FRONT. 20th/21st. 514 tons of H.E. and incendiary bombs dropped at DUISBURG. Many large fires in centre of town, dock area and near rail- way centre. 21st. Light and fighter bombers attacked railway and canal targets in N. FRANCE. Four enemy aircraft crossed SUSSEX Coast, some machine-gunning. 21st/22nd. 136 bombers (12 missing) despatched to MUNICH. Fairly thick cloud over target but 75% of aircraft bombed estimated position of town. LIBYA. 19th/20th. Wellingtons bombed M.I. in BEURAT EL HSUN area and fighter bombers attacked similar targets further west on 20th. 20th/21st. Wellingtons dropped 121 tons of bombs on TUNIS and LA GOULETTE with good effect. INDIA. 20th. 16 Blenheims successfully bombed MAGIVE airfield. 20th/21st. 9 enemy aircraft attacked CALCUTTA area causing slight damage. Regraded Unclassified 222 December 23, 1942 9:53 a.m. HMJr: Henry, this 1s my story. Ed Stettinius came over to see me yesterday about this whole question of - of balances of the United Kingdom, you know? Vice Presi- dent Wallace: Oh, yes. HMJr: And what would we do, and 80 I said I thought the thing to do was for you and Mr. Hull and Stettinius and Harry White and I to get to- gether. W: All right. HMJr: Now we got - oh yeah, and Dean Acheson. W: Good. HMJr: So I spoke to Dean yesterday. I only got this message late last night, that Mr. Hull will be very glad to come with the rest of us and call on you this morning. W: Well, that's fine. HMJr: Between eleven and twelve. W: That'll be swell. It's - I think it's an - I think it's the best answer. HMJr: And 80 we'll do it at that level. W: I think that's the best way to handle it really. HMJr: Now 16 - are you available between eleven and twelve? W: Yes, I'd like to be through by twelve if I could. HMJr: Well, why not - let's set it for eleven o'clock. W: We'll set it for eleven o'clock then. Regraded Unclassified 223 - 2 - HMJr: Well, now if you don't hear from me again, I'll call Mr. Hull right away.... W: Fine. HMJr: ....and arrange that we go up there - be at, I take it - at the Capitol? Hello? W: That'd be - that'll be good, and make it in the Capitol office. HMJr: Is - at - at the Capitol office. W: That's fine. HMJr: Okay, Henry. W: So it'll be. HMJr: Thank you. Dogradod 224 December 23, 1942. Conference in Vice President's Office December 23, 1942 11:00 A.M. Present: Vice President Secretary Hull Secretary Morgenthau Mr. Stettinius Mr. Dean Acheson Mr. White The conference was an outgrowth of a request by Mr. Stettinius that Secretary Morgenthau and Secretary Hull and himself confer to decide the question of further lend-lease aid to South Africa and also discuss the British dollar position and related matters. Secretary Morgenthau said that Vice President Wallace ought to be in on the meeting and suggested the meeting be held in Vice President Wallace's office. It had been left that Dean Acheson would get the meeting together but Dean Acheson telephoned Mr. White Tuesday evening stating that Secretary Hull had been unable to reach Secretary Morgenthau and Secretary Hull had asked him (Acheson) to inform Mr. White that Secretary Hull would be glad to participate in the meeting wherever it was held but did not feel that he should ask Vice President Wallace to a meeting in his (Hull's) office. The next morning Secretary Morgenthau telephoned Mr. Wallace and arranged the conference. Mr. Stettinius opened the meeting by stating that he had to appear before Congress in a couple of weeks for additional approp- riations and he felt a decision had to be made before that meeting as to whether or not to permit the United Kingdom's dollar balances to increase since, he said, they had now reached almost $1 billion. He also said that a definite policy had to be determined with respect to lend-lease aid to South Africa. South Africa had already got 845 million in lend-lease aid and he felt that possibly they should not get any more. In fact, he wondered what he was going to say in justification of the $45 million they had already been given, in view of the fact that South Africa now had $600 million and was increasing her holdings. He stated thero were political and possibly military questions involved and a decision should be made by some one. Regraded Unclassified 225 - 2 - Mr. Stettinius said that he had been given to understand that the British had stated that $600 million was the goal to shoot at so far as the British dollar balances were concerned and when he had been to London they had likewise stated $600 million was the objective. Mr. White remarked that was very interesting. He asked whether the British mentioned the $600 million to Mr. Stettinius when he was in London. Mr. Stettinius replied that they had, he had talked to Mr. Catoe and Mr. Keynes and they had both mentioned the $600 mil- lion figure. Mr. Stettinius stated that they had asked for $600 million when they had only $200 million and now that they have over $600 million they ought to go back and reduce it to $600 million by whatever measures were most feasible. He stated that it would be a great thing if the U. K. could give lend-lease in reverse to the United States of 100 million in sterling which the Army could spend for its needs in England which it now finds difficult to buy on a lend-lease in reverse basis. He thought that would make an excellent impression on the Congressional Committees. Secretary Hull began by saying that there is no intention on his part to in any way interfere with any of the responsibilities with respect to imports and exports which B.E.W. had. He said that the Treasury had the prime responsibility for financial, monetary and business matters and in fact, he remembered the Debt Commission ap- pointed by the President had the Secretary of the Treasury as Head. He said Lend-Lease had been placed in charge of lend-lease arrange- ments by the President, that he was concerned only where the matter touched a question of definite foreign policy. Mr. Wallace said that the B.E.W., having the responsibility for exports and for purchases of materials in foreign countries, was con- cerned with the problem because what was done on lend-lease had a bearing on the export situation and the dollar position and neces- sarily would have some influence on the terms under which they bought some of the strategic raw materials in the countries who were receiving lend-lease aid, It was because of that fact that it seems to be one large problem that the committee was appointed of B.E.W. technical men who would present the facts. Secretary Hull stated that he thought they ought to get all the facts before them, so that they could then make a decision on the matter. Secretary Morgenthau said he did not quite understand what additional facts were wanted before a decision was made on the South African question. He said that he was ready at this time to say that from purely a financial point of view there didn't seem to be any justification for lend-lease aid to South Africa. He said there may, Regraded Unclassified 226 - 3 - however, be circumstances which he doesn't pretend to know about - political questions, military questions -- which might justify con- tinuation of aid, but so far as their financial situation was con- cerned, he didn't see any justification for continued assistance. England's financial dollar position, too, seemed to him to be reaching a point at which we might well call a halt unless there were certain political considerations which would indicate another procedure. He said he did not know whether this would be a wise time to say to England or South Africa that we are going to whittle down our assistance to them. He would not be in a position to know what the political considerations are and Secretary Hull would be able to answer that. Secretary Hull repeated it seemed to him the thing to do was to get all the facts, set them before this group, and then they could be in a position to make a decision. Mr. Wallace replied that was exactly what the subcommittes he appointed was supposed to do but Dean Acheson had expressed some reservation at the meeting and that he had told Dean Acheson he would be glad to see Hull at any time to talk it over because if that arrangement wasn't satisfactory he would be glad to work on any arrangement that was satisfactory. Secretary Hull replied he didn't know about this Committee. Where- upon Mr. Acheson reminded him he had mentioned it to him yesterday. Secretary Hull said: "Ch, that Committee. It seems to me that - if I might say 80 - If I had been you, Henry, I would have just called up Henry and Ed and have them take care of it." Mr. Wallace then said that he had had a meeting at which Mr. White represented the Treasury Department and Mr. Acheson represented the State Department and he assumed they spoke for the Treasury Department and State Department and if they didn't, they shouldn't be on the Board. Whereupon Secretary Hull said he didn't want to comment since he wasn't at the meeting (sic). Mr. Wallace mentioned the letter he and others had received with respect to the effect of lend-lease operations on some of the exports. He said that some exporter saw an opportunity of doing business in South Africa and was complaining and seemed to be more or less a spokesman for a group of the exporters. The position this exporter took was that when they sold goods to South Africa, they had all kinds of difficulty getting priority on shipping, etc., but when this identical goods wanted by the identical concerns in South Africa was handled through lend-lease, lend-lease would do much better on priorities. As a consequence our exporters were being squeezed out of foreign markets. Mr. Hull thought that that was a bad thing and it needed attention. The Vice President pointed out that was the way he felt and that is why he suggested this Committee be formed and take up the matter. Regraded Unclassified 227 - 4 - Secretary Morgenthau then said he wanted to bring the dis- cussion back to the point at issue which was "where do we go from here?" He repeated his earlier statement with respect to his view on the South African situation and added it is not clear to him where we go from here. He asked who was going to get the military viewpoint. Mr. Hull said: "Well, there ought to be a Committee of these men here; Treasury and Lend-Lease ought to get the facts and then we can make a decision." Mr. White stated the Committee which had been appointed by the Vice President at the B.E.W. meeting were the men who would in any case be the ones who would get the facts. The Vice President wanted to know why it wouldn't be alright for that Committee to get the facts. Mr. Stettinius said he had to go before Congress and he would like a decision on the matter. Mr. White replied it wouldn't take very long to get a report on South Africa and U.K. Stettinius said there were also other countries we had to go into. On the South African business, Stettinius said: "It was one thing to say we shouldn't give them any more, but how about the $45 million we have already given them?" Secretary Morgenthau replied: "Stop worrying about Stettinius and let's get on with this." Stettinius said: "I am worrying about the Administration, not myself." Secretary Morgenthau replied he was trying to make prog- ress, he still didn't see why we can't make a decision here on this. He said: "Let's take the South African question." Secretary Hull replied: "We haven't got the facts, we don't know what the military there will need." Stettinius interrupted: "You mean that we stop lend-leasing military goods too?" Secretary Morgenthau said he didn't know there was any distinction made between lend-lease goods going for military and lend-lease goods going for civilian use. He didn't know any one had set a policy that we would continue to send lend-lease goods to any country irrespective of the fact that they had enough to pay for them. Secretary Morgenthau asked Secretary Hull if he knew of any such policy. Secretary Hull said: "No, I never knew of such policy." Stettinius replied that there were sub- stantial amounts going, including trucks, searchlights. Secretary Morgenthau then stated that it was his understanding that there was no distinction drawn between goods to be used by the civilians and by the military authorities under lend-lease arrangements. Secretary Morgenthau then again returned to the main question saying that a decision would have to be made. "Somebody's got to make the decision" he said, "as to whether or not we should continue to send goods to South Africa on lend-lease. Secretary Hull suggested Regraded Unclassified 228 - 5 - that Lend-Lease and the Treasury get together and submit the facts upon which they could make a decision. Mr. Wallace suggested that was what the committee he had appointed previously was supposed to do. Secretary Hull thought that the Committee did not need to be as broad as the one that was appointed. It was finally decided that Stettinius, Acheson, White and Coe should prepare a report with recommendations to be submitted to the same group on the following Wednesday. It was agreed that Mr. Wallace would get in touch with Secretary Stimson and ask him to have either Mr. Patterson or Mr. McCloy join the group to make the study. It was also agreed that Mr. White should act as Chairman of that committee. The meeting adjourned about 12:15, scheduled to meet the following Wednesday at the Vice-President's office at 11:00. H. D. White Regraded Unclassified 229 DEC 2 1942 Dear Mr. Stettinius: Enclosed is a copy of the memorendum on the Foreign Exchange Position of South Africa, prepared in pursuance of Mr. Eaker's request. I regret the delay, a large part of which as you may appreciate, has been due to the inadequacy of the data at hand. A careful study of the document will reveal that - had to rely almost entirely on published data. It is my understanding that the meat of the nono readum - given to Mr. Maker over the telephone some time ago. I have discussed the South African situation with him several times during the past few months and have indicated that lend-lease assistance to the Union of South Africa, in view of her large and growing gold resources, seemed to be unjustified. Sincerely yours, (Signed) H. D. White H. D. White, Assistant to the Secretary. Mr. E. R. Stettinius, Jr., Administrator, Office of Land-Lesse Administration, 515 22nd Street, N.W., Washington, D. C. Enclasure TMK-ef 12/23/42 Regraded Unclassified STRICTLY CONFIDENTIAL 230 U.S. Treasury Department Division of Conetory Research FOREIGN EXCH. NGE POSITION OF SOUTH .FRIC: Sunnary 1. ..t the outbreak of war in September 1939, South frier reported holding $222 million of gold. So do not know the procise rmount of other foreign exchange assots hold by South /frica at that time but from the information available it appears they totallod less than 50 million. 2. By October 30, 1942, South "fricr's reported gold holdings had risen to $582 million, or by 6360 million since the outbreak of wer. This is the It rgest known increase for ony country outside the United States. The increase in gold reserves is believed to represent the entire in- crement in South fricn's holdings of foreign exchange rssets during this period; holdings of sterling and dollar belences and of other foreign ex- change nesets have adnittedly been kept ct a minimum necessary to carry on business and rre believed to be no larger in aggregate then they were three years ogo. 3. In addition to the 8360 million increase in reported gold holdings, South frice h/ 5 repotricted 8162 million of U.K.-held South fricin Govern- ment securities and C° reputedly substential but unknown mount of British- held South frican gold mining stock. The sur: of these two items is -d- nitted by South African officials to be n. riensure of the inprovenent which has taken place in South Africa's international financial position since the outbreck of Mr. Prepr red by T. :. Kistler December 20, 1942 Regraded Unclassified STRICTLY CONFIDENTIAL 230 U.S. Treasury Department Division of Monetory Research FOREIGN EXCH. NGE POSITION OF SOUTH /FRIC: Sunnary 1. ..t the outbreak of wer in September 1939, South frice reported holding 1222 million of gold. Te do not know the procise amount of other foreign exchange assots hold by South /frica at that time but from the information ovailable it appears they totalled less than :50 million. 2. By October 30, 1942, South ..frien's reported gold holdings had risen to 6582 million, or by 6360 million since the outbrenk of war. This is the Is rgest known increase for any country outside the United States. The increase in gold reserves is believed to represent the entire in- crenent in South frice's holdings of foreign exchange assets during this period; holdings of sterling rnd dollar balances and of other foreign ex- change assets have admittedly been kept it = minimun necessary to carry on business and are believed to be no larger in rggregate then they were three years ago, 3+ In addition to the 8360 million increase in reported gold holdings, South frict his repatricted $162 million of U.K.-held South fricin Govern- ment securities and o reputedly substantial but unknown -nount of British- held South frican gold nining stock. The sun of these two items is rd- nitted by South frican officials to be c. measure of the inprovenent which hrs taken place in South frien's international financial position since the outbreck of icr. Prepr red by T. % Kistler December 20, 1942 Regraded Unclassified 231 - 2 - 4. South Africa is the one ..llied country in a position to do so, which no fr.r na we know, hrs not extended lonns or granted gifts to Grent Tritain na C. merins of financing that country's overseas deficit. Instead, the records show that South Africa's contribution has been limited to Britain's capacity to pay or her willingness to resell U.K.-held South ,.frican securities. 5. The prospects re for continued improvement in South frice's brilence of payments position. On the one hrnd, sharply curtailed ner- chandise imports, resulting from the tight shipping and supply situation, lend-lease assistance from the United States, end reduced interest and dividend payments following the security repatriation operations decrease South .frica's payments to foreignors. On the other hend, fevorable price and norket conditions for minorels, notals, and weel, increased receipts from shipping services and refugee expenditures, and continued gold pro- duction it or near pork levels operrto to increase South frich's receipts from foreigners end/or her holdings of foreign exchange assots. 6. or expenditures for the South fricen Government have been unusurlly 10.. It not only spent for less per capito for w.r purposes during the fiscal year 1941-42 then did the governments of the United Kinpden, Crnada or the United States, but it budgeted E' smaller increase for the current fiscal year then cither of the other three countries. The South African Government expects to spond 1,320 rulli.n for ver purposes in the curront fiscal year, -r $30 pur copite. Even if Allowance is made for the extremely 10v: standard :f living and income of four-fifths of the population, the Regraded Unclassified 232 - 3 - estinated per capita war expenditures of the Union Government during the current fiscal year fall far short of the forecast per capits disbursements of Canada, the United Kingdom or the United States. 7. The fovornble financial position and prospects of South Africa raise important policy questions for this Government. 0. Should gold held by South Africa be tree ted as part of Britain's gold and dollar assets? If the $360 million of gold added to South Africa's reported reserves since September 1939 had been nade avail- able to the United Kingdom, then Eritain would have been able to finance that much more of her gold and U.S. dollar needs to the present time or else her gold and U.S. dollar holdings would be 360 million lorgor then they now are, or 1.3 billion instend of 9930 million (excluding the 105 million of Bolgion gold). South Africa is retention of part of hor gold output any permit Eritish Empire countries rs : whole to acquire larger ".S. dollar exchange holdings than if the gold more cll transforred to the United Kingdom. b. What should our Lend-Lease policy be toward South Africa Land-Lease exports to South Africe did not assume substantirl proportions until May 1942. Since then, 40 percent of our exports to South frice have boon on Lond- Lunse account, all on c non-reimburschle basis, end one- Regraded Unclassified 233 - 4 - hclf of these through September were non-military items, principally motala, manufactures and machinery. It is our understanding that all military supplies, notel manufactures end steel going to South Africe are now being obtained under Lend-Lonse. to understand further that the present intention is to extend Lend- Lense assistance to cover shipments of lubricating oils to South Africa. The information 170 have is that the continued extonsion of Lond-Lense assistance is contrary to the wishes of many numbers of the South / frican Government; that it is being done in pursuance of the wishos of the British Government; and that it may be being used is E. neans of obtaining otherwise unrvailable supplies from this country neaded to operate the South /frican gold mines. It is difficult to understand the justification of sending 332 million of Lend-Lense girds t. the Union of South frier in view of the increasing gold reserves, the generally favorable internation nel financial positi n, the relatively low wer expenditures and the neager wer effort of the country. Regraded Unclassified STRICTLY CONFIDENTIAL 234 7. FOREIGN EXCH NGE POSITION OF SOUTH FRICA* i. Foreign Exchange Position of South frica at the Outbreak of hr. On September 1, 1939, South .frica reported holding $222 million of gold. Other foreign exchange assets hold by South frice are believed to be smrll, ,0 do not know what they amounted to in September 1939, but the in- formation evailable indicates that they totalled the equivalent of only 040-1.45 million as follows: (In millions) Discounted foreign bills $ 28 Reserve Bank balances hold abroad (est.) 3 Private balances in U.S 3 Oversers long-torm investments (est.) 5-10 Total $ 40-45 The figure of discounted bills is the amount reported held by the South fricen Reserve Bank on September 1, 1939, They apparently consist largely of storling bills and constituto n. second line reserve used to meet extra- ordinarily large demands for payments to foreigners. The Governor of the Reserve Bank in his annual address to the stockholders in July 1940, strted that the bank frils back on these discounted overseas bills "whenover we have to meet extra largo domands for sterling, for instance when mining dividends have to be paid." December 20, 1942. *Propered by T. H. Kistler Treasury Department, Division of Lonetary Research Regraded Unclassified 235 - 2 - The estimate of Reserve Bank balances held abroad at the outbreak of war is based upon figures, published in the annual reports of the Reserve Bank, of Reserve Bank balances held with overseas central banks and of Reserve Fank balances employed under the guarantee of the Bank of England, as of March 31, 1939 and March 31, 1940. The balances represent the Bank's "overseas till money". They are kept at a. minimum consistent with efficient operations. The figure of South African private balances in the United Strtes is the amount of deposits reported held on October 11, 1939 by banks in the Socond Federal Reserve District for the account of South Africans. Any balances which may have been hold at that time by banks outside the Federal Reserve District of Now York for South / fricans are thought to have been small, No balances were then hold by the Federal Reserve Bank of How York for the account of either the Government or the Reserve Bank of South frice, The Department of Commerce estima tus that LS of 1937, residents of British, frice held about $3 million of long-torm investment in the United States. (Reports made to the Treasury on TFR-300 forms indicate much larger holdings; prolimina: ry ostimatos of U.S. securities held for South frican account on June 14, 1941 total $19 million. It is expected that some part of the large discrepancy between the Department-of-Commar estimate and the figures reported on TFR-300 forms represents the transfor of Pritish and European holdings of foreign assets to South frican accounts in order to provent their capture by the onemy or, perhaps, avoid their requisitioning for sale by the British Government. Any such holdings would, of course, be Regraded Unclassified 236 - 3 - considered by the American reporting institutions ns held for South fricen account, even though the ultinate benoficiaries reside outside that country.) South frican overseas investments outside the United States are be- lioved to be negligible. Estimates, prepared by the South frican Govern- ment, of that country's balance of international payments for the years 1934 - 1937 include nothing for interust and dividend receipts on South frican invostments in overseas industrial and financial ventures and only $300 thousand to 61 million n year for interest on obligations of oversers governments held by residents of that country. These figures compare to estimated interest and dividend payments to foreigners of $90-$95 million annually during this four year period. B. Present Foreign Exchange Position of South /frica. On the Intest reporting date for which we have information, nonely on October 30, 1942, South Africa's reported gold holdings totalled $582 million. That is, South fries hrs increased its known gold reserve over one end one-half times since Soptember 1939; this is the largest acknowledged increase during this period, both in absolute and in relative terms, for any country outside the United States. The uniqueness of South frica's position lies in the fact that it is the one .'llied country in t. position to do so which, so for as we know, hrs not extended loans or granted gifts to Grent Britcin. The increase in gold reserve is believed to represent practically all, if not c11, of the in- crease in South Africa's holdings of foreign exchange assets since the Regraded Unclassified 237 - 4 - outbreak of wer. we know that South Africa's holdings of some c: tegories of foreign exchange assets other then gold are 1: rger today than they wore in Soptember 1939, but the information at hend indicates that on belance South frice Is holdings of foreign exchange assets, exclusive of gold, are roughly one-third smaller today than they were three years ago. The in- crosses which have occurred in these assets seem to have been dictated entirely by South .frice's need for larger working balances abroad to handle overseas transactions under changed conditions wrought by war developments. South Africa's holdings of foreign exchange assets other than gold are estimated to be as. follows: (In millions) Reserve Brnk belence held oversens (est.) 0 9 Other balances in the U.S 6 Discounted foreign bills 5 Oversens long-term investments (est.) 5-10 Total $25-30 Reserve Bank Inlances Held Oversons. The estimato of Reserve Bank balances held overseas is based upon figures published in the annual report of the Reserve Bank for the fiscal year ending Mirch 31, 1942 and upon data received from the Federal Reserve Bank of Now York. It is comprised of Reserve Bank balances held with oversens central banks and of Reserve Bank belances employed under the guarantee of the Bank of England. The three-fold increase in these oversons Reserve Bank balances since the outbroak of var is accounted for primarily by the depositing ef funds Regraded Unclassified 238 - 5 - with the Now York Federal Reserve Bank in June 1940. The balance in this account has fluctuated only e. for thousands of dollars from week to week; it has been consistently reported each wook to be about $5 million. This deposit was made at the time of the shift in South fricn's sources of supplies for certain essential goods from Europe t. the United States. The absence of wido fluctuations indicatos that the account is not used for clearing purposes. It dous not suen to be used oven as "till money" such as is the case of the South / frican Reserve Bank balances held in Lendon. The increase in those letter balances may also have been prompted by the rise in the volume of financial and business transactions conducted between South .frica and the United Kingden. ..1though reported to fluctuate widely from day to day, the bolances held in Londen by the South African Reserve Bank at the end of each of the last three fiscal years shm E. steady in- crease, as follows: 1.8 of (In millions) March 31, 1940 $ 2.7 1941 3.3 1942 3.7 South 1 frican Reserve Bank balmces hold outside the United Strites and the United Kingdom do not suem to have increased since September 1939. This is indicated by the figures bolow of South frican Reserve Bank brinces held with overseas central banks -- 1.0., South African Roservo Bank balances hold outside of London. Regraded Unclassified 239 - 6 - South African Reserve Bank Dalances Held With Overseas Central Banks Held with all Held with New other Overseas York Federal Central Banks - Reserve i.e., outside As of Total Bank U.S. and U.K. (In thousands) March 31, 1940 $ 652 1 -- & 652 1941 5,684 5,032 652 1942 5,576 4,994 582 Other Short-Term Falances Held in the United States. This item includes all other short-term banking funds reported held in the United States for the account of South /frica. The figure is taken from capital movements data reported to the Treasury by the twelve Federal Reserve Panks. It is the sum of $4.1 million of banking funds reported hold for 5 uth African account on October 31, 1942, by banks, other than the Foderal Reserve Bank, in the Second Federal Reserve District, and of $1.7 million of balances reported held by all banks in the other cloven Federal Reserve Districts on August 31, 1942, the Intest date for which we have data. South African short-tom balances in this country outside the Foderal :sserve Bank of New York have likewise fluctuated little during the period for which We have dota. The table below sets forth the available Treasury capital movements data on South African short-term banking funds in the United States, on E. quarterly basis for the period October 1939 - Juno 1942, and monthly June 1942 to date: Regraded Unclassified 240 - 7 - South African Other South South African Reserve Bank African de- deposits out- (.S of the Deposits with posits in side N.Y.F.R.D. end of N.Y.F.R.B. N.Y.F.R.D. (In millions) 1939, Oct. (11) I $ 3.2 1940, Mr.r. - 4.7 June 5.0 5.4 Sept 5.0 3.5 Dec 5.0 1.9 1941, Mar 5.0 2.9 June 5.0 3.2 Sept 5.0 6.2 Dec 5.0 3.2 1942, Mar 5.0 5.4 June 5.2 2.8 1942, June 5.2 5.9 1.0 July 5.3 3.9 .8 Aug 5.1 5.2 1,7 Sept 5.1 4.8 Oct 4.9 4.1 Nov 5.1 Dec. (9) 5.2 The monthly figures shown for June 30, 1942 to date are not strictly comparable with those shown for the carlier period. The quarterly figures, October 1939 through June 1942, cover only deposits reported hold by banks in the Second Federal Reserve District. The monthly series of data since Juno 30, 1942 cover all short-turn banking funds reported held in the United States for South African account. Moreover, because of the wider definition of "foreigner" to include "all those in the United States (except other Regraded Unclassified 241 - 6 - reporting institutions) to the extont that they are acting on behalf of, for the account of, or for the bonofit of, institutions or individuals domiciled outside the United Status", the figures reported for June 30, 1942 onward include some funds which were previously treated by the report- ing institutions as domestic. This is borne out by the fret that $2.9 million of the $3.1 million difference between the amount reported held for South /frican account by banks in the Second Federal Reserve District on the old unrovised reports 1.8 of July 1, 1942 and the emount reported so held en the revised forms t.S of June 30, 1942, is in se-celled "official" funds. The definition of "official foreign" account W.S breadened to in- clude funds of diplomatic and consular establishments and all branches or deportments of foreign control governments, such C.S. various Ministries, Stobilization Funds and other government exchange authoritics, and all other agents and agencius of foreign central governments, including pur- chosing commissions Inented in the United States; under the old definition such deposits were tranted as demostic. Prior to June 30, 1942, the Trunsury hrd no drtr of South ,,frican short- term banking funds held utside the Second Federal Reserve District. is the above table indicates, the belances were probably of insufficient proportions. Discounted Foreign Bills. These consist primarily, if not entiruly, of Fritish Trensury bills hold by the South African Reserve Bank. Re- ported current holdings :re only = smill fraction of the amount held during the early months of the wer. with tw- or three exceptions, responsted with Regraded Unclassified 242 - 9 - large scale inter-government financing operations, the Reserve Bank's weekly reported holdings of discounted foreign bills have not passed the $5 million mark since the summer of 1940; during the first three months of the current year they emounted to only about $1.5 million. The most conspicuous exception was in the late fall of 1941, when holdings were temporarily increased in connection with the large repatriation of British- hold South /frican securities; the mechancis of this operation are described in Section C below. In another instance, at the close of the fiscal year 1942, the Bank's holdings were temporarily inflated by the investment in British Treasury bills of funds transforred by United Kingdon authorities to meet British war expenditures in the Union. This is the explanation given, in the annual report of the Reserve Bank for the fiscal year ending March 31, 1942, for the increase in the Pank's holdings of discounted foreign bills on March 31, 1942 over March 31, 1941. The effect of this is reflected in the following reported figures of the Reserve Bank's hold- ings of discounted foreign bills: (In millions) March 31, 1941 $ 2.9 March 27, 1942 1.8 March 31, 1942 24.2 April 2, 1942 20.4 April 10, 1942 18.2 April 17, 1942 9.1 April 24, 1942 4.2 May 1, 1942 3.9 May 29, 1942 3.5 Regraded Unclassified 243 - 10 - Oversess Long-Term Investments. This is the same estimate given for South African overseas long-tern investments it the outbreck of the war. Ee have no further information on this iten but it is believed that there has been no significant change during the post three years. Foreign assets of non-South /fricans my have, as YU indicated above, boon transferred to South / frican accounts sinco Soptember 1930, but any such trensfers do not involve on improvement in South Africa's international financial posi- tion. Like Canada and other debtor countries, South Africa is expected to have decreased its foreign indobtedness instead of increasing its overseas long-torm investments. This inprussion is supported by statements mrde by officials of the control bank and government. In the annual ruport for the fiscal year ending March 31, 1942, the governer of the Bank states that the repatriction operation in December 1941 had "mopped up' the bulk of our favorable balance of payments for the year and IS the Union may rurvin in this happy position for E. long while I hope the Government, Municipalities, Public Bodies or private firms will follow up last year's example and use local funds to rodeom South African liabilities oversers." C. Repatriction of Overseas-Hold South African Securities. South ..frict has repatricted 9162 million of U.K.-hold South fricen Government securities ns well as E. substantial but unknown amount of U.K-hold South ..fricrn gold nining stock. The initial reduction in the Union Govern- ment's orternal debt ves effected in July 1940 through the repayment of - 632 million government issue which intured in Lendon. Repayment vir.s rz.de Regraded Unclassified 244 - 11 - from the South /frican Reserve Bank's -ldings of versens discounted bills. (See table on pago 12 bolow). The second official repatriction operation took place in December 1941. It was the counterpart of the special sale of $130 million of gold to the United Kingdon. (Under the Energency Finance of September 9, 1939, the Union Government, 1.8 from /ugust 31, 1939, buys through the South frican Reserve Bank all the gold produced in the Union.) AS the continued rise in South frica's gold reserves permits e. repetition of this transaction, it nay be worthwhile to review the different steps taken, as reported by the South frican Reserve Bank: (a) The South African Reserve Bank took over the requisi- tioned U.K.-held securities at the price paid by the Bank of England, in payment for the $130 million of gold transferred to the British Government. (b) The South /frican Trensury issued D 35 lonn in South Africa, the proceeds of which are ecrnarked for the purchase from the Reserve Bank of the Union stock acquired by it in London. (c) ..S these new securities are sold in South Africe, the Treasury redeens the repatriated stock held by the Reserve Bank. By the close of August 1942, all but $31 million of this "ex-London" stock had beon repur- chased and cancelled by the Union Government. Regraded Unclassified 245 - 12 - In the last annuel report of the South African Reserve Brnk, the following accounting is given of the Decomber 1941 repotriction operation, as of March 31, 1942: (In rdllions) South frican Roserve Brink hrd purchased $125 million of U.K.-hold Union Govern- nont stock for $ 130.0 Of this amount, the Treasury, by March 31, 1942, lind rotired out of proceeds from the st.le of the now internal loan and out of interest on the non-redeened "ex-London" bonds, P. total of 62.7. This leavus the Roservo Bank's holdings of "ex-Lordon" stock, C.B. of March 31, 1942 at 67.3 Other stocks hold by the Reserve Bank as of March 31, 1942 totalled 6.9 Value of investments of the Reserve Bank, as shown in the ennual statement of assets, AS of March 31, 1942 $ 74.2 Both official repatriation operations have been clearly, and so for 08 we know, accurately reflected in the public statements of the Reserve Bank's assets. This is due to the dunl function performed by the Reserve Bank - nonely, as depository of the official foreign exchange assets of South frice and CS the Foreign Exchange Control Board. The table below gives the Roservo Bank's holdings of gold, discounted foreign bills and investments as of various dates, solucted to reveal the role of the Reserve Bank in official repatriction operations. Regraded Unclassified 246 - 13 - Discounted (.S of the last weekly Foreign Invest- reporting date in: Gold Bills ments (In millions) 1939, March & 221 8 30 $ 7 August 222 26 11 December 249 32 10 1940, March 272 32 10 April 279 33 7 l'ay 298 33 7 June 302 6 39 July 305 6 38 August 308 3 38 September 314 3 38 October 328 3 38 November 351 3 14 December 367 3 14 1941, March 401 2 7 June 427 3 6 August 436 4 7 September 450 5 7 October 422 47 7 November 400 78 7 December 366 1 114 1942, March 397 2 79 June 468 4 43 September 552 4 28 October (23) 576 4 28 Public utterances of South /frican Government and Reserve Bank officials reveal a strong desire in high government and financial circles to take full advantage of the present opportunity to reduce that country's external debt. Repatriation operations are viewed both as a step toward inter- national financial security, and as a reans of combatting the threats of Regraded Unclassified 247 - 14 - inflation thin the Union. The replacement of external debt by internal issues, dravs from the public money which would otherwise be available to spend on consumption goods. The absence of any data on the amount ef-non-Government South .frican securities repatriated since the outbreak of var, precludes bringing estimates of foreign investments in South frica up to date. Published date available on the Union Government's external debt show that it has been reduced from the equivalent of 0425 million on March 31, 1940 to the equivalent of about 244 million two years later. So fir IS me know, there has boen nothing to change this figure substantially since that latter date. Estimates mnde in the Treasury at the close of 1940 placed Pritish investments in South frier at roughly $1.3 billion - 1,400 rillion in government securities, $600 million in gold nines, and $325 million in other mines and enterprises in South Africa. These holdings have been re- duoed by something nore than 162 million by the repatriation of overseas- held South ..frican securities. British investments constitute the bulk of the oversons holdings of South frican nearts. The Department of Commerce ustimates American direct invostments in [ritish South frica at the close of 1940 to have totalled only 173 million, or only 5 percent of the astimated vr.lue of Dritish in- vestrients in the Union of South frice alone. Regraded Unclassified 248 - 15 - D. Improvement in South frica's International Financial Position Since the Outbrenk of or. The accumulation of gold, together with the repatriation of South fricen securities held overseas, measure the improvement in South frict's international financial position since the outbreak of war. The known anounts of these two items total over $500 million. - 1.360 million increase in reported gold holdings and a known $162 million of repatrinted securities Prior to the outbreck of war, South / frica's production and exports of gold VIS roughly sufficient to meet the net payments due from South Africe to other countries on merchandise and service account. This is reverled by the table below setting forth not payments or net receipts for the principal items in South frica's belance of international payments for the three years, 1935 - 1937. The figures are those given in the Lengue of Nations balrnce-of-poyments study for 1938, converted et the rate of $4.90 per South frican pound. 1935 1936 1937 Net balance due to or from (-) South ..frice on account of (In millions) Merchandise $-239.6 $-292.5 $-332.2 Interest and dividends - 92.6 -106.9 -104.9 Other services - 26.9 - 28.1 - 35.2 Gold +349.8 +405.2 406.1 Net balance due on current account - 9.3 - -22.3 - 66.2 Long-term capital movements (net) - 16.9 - 49.8 + 21.7 Residual, probably largely short- term capital movements + 26.2 + 72.1 t 44.5 Regraded Unclassified 249 - 16 - Te do not have itenized data for the years following 1937. However, we do know that since the outbreak of war not only has 5360 million of newly-nined Scuth fricen cold not been needed to neet that country's cus- tonary adverse balance of international payments but that there has boun a balance due to South frica from foreigners sufficiently large to permit the repotriction of rore than 5162 million of South African securities hold oversess. In his report to the stockholders of the Reserve Bank in July 1940, the Governor stated that a small reduction in South Africa's merchandise imports conbined with C somewhs t higher value of South fricen exports to reke that country's balance of merchandise exports in 1939 (including F11 the gold produced in the Union L.S gold exports from the Union) about L41 million ( $200 million at $4.90 por South fricen pound), as compared to about 126 nillion in 1938 ($125 million it 14.90 per South ,frican pound). He stated further that South frien's increased nbility to pay for overseas conditments, other then payments for merchandise, such r.s. for inturest and redenptions, fruight, condissions, insurance, etc., is reflected in the Bank's increased holdings of gold and foreign exchange. The South African Reserve Bank's gold holdings rose $29 million during the colender year of 1939 and 51 million during the fiscal year ended March 31, 1940. It is true that South Africa's merchandise imports wore lower in value in 1939 then in 1938, and that the volue of South !frica's merchandise exports YES higher in the Intter year then in the forwer. (See tables Regraded Unclassified 250 - 17 - below, prges 20,21,22). But equally important ES this reduction in the excess of merchandise inports in accounting for the rise in South frice's gold holdings, is the $23 million increase in South / frica's gold production, 1939 over 1938. South Africa's excess of conmodity inports was larger in 1940 than in either 1938 or 1939. The 3122 million increase in the Reserve Bank's re- ported gold holdings during that your indicates that South "frice's neans of payments for thoso nerchandise inports expended by noro then the C43 million reported rise in gold production, 1940 over 1939. The inprovenent in South frica's brinnce of payments position my have reflected 5. de- crease in derend' for foreign exchange to pr.y for interest and dividends or for other services received from foreigners, but it my also have re- flected a large capital inflow; it seens reasonable to assune that the transfer of property to South African accounts for safekeeping reached e perk in 1940 and that a part of these assets consisted of gold and banking balances. Since 1940, e number of additional factors have come into play to in- prove South Africa's belance of payments position. First, the extremely tight shipping situation conbined with the increasingly critical supply problem is forcing B. sharp curtailment in South fricn's overseas inports. Merchandise inports fron the United States so fr.r this year are running less than helf LS high C.S. a year carlier. Because of the unusual position occupied by the United States in South fricn's inport trade in 1941, it is possible that the relative decline in total South fricon inports is Regraded Unclassified 251 - 18 - not so great. However, it seets reasonable to assume that a substential drop hrs occurred. Secondly, an increasingly larger portion of the smaller volune of U.S. exports to South Africa is being paid for out of lend-lesse funds. This is true of 15 million of the 635 nillion of nerchandise exported from the United States to South Africa, May through September 1942. /djusting for this fact, United Strtes exports to South Africa requiring payment in dollars totalled only $20 million, May through September 1942, as compared to about (70 million during the same period of 1941. It is reported that all vilitary supplies, nechinery, notal nanufactures and steel exported from this country to South frice nre procured under lend-lonse and that all lubric ting oils are soon to be. If South ..fricr. does not make nvail- able to Great Britnin en amount of dollars or gold equivalent in value to lend-loase assistance received from the United States, then the effect of such assistance is to incruase Couth frice's gold and foreign exchange holdings by that amount. Thirdly, security ropatriations reduce the amount South ..frice must pey to foreigners for interust and dividends. T.e do not have sufficient data to hazard a guess ns to how much of 2. reduction has buen effected to date. These three factors operate to reduce South frice's payments to foreigners. In addition, there Are a number of factors tonding to increase South / frice's receipts of foreign exchange. First, is the fevorable price and market outlook for her ninerals, notals and wool. The "ritish Govern- ment has contracted to buy the Union's exportable surplus of wool for the Regraded Unclassified 252 - 19 - duration of the war and one year thereafter; at what price is not known. Secondly, the closing of the Mediterranean has meant sharply increased income to South Africa for use of her port facilities and from the sale of ship stores. Thirdly, South Africa has received foreign exchange incone from ex- penditures of refugees finding a temporary haven within her boundaries. life have no information as to the size of these expenditures, but they are large enough to be the subject of official comment. Finally, continuation of South African gold production at current levels would increase still further South frica's ability to add to her foreign exchange resources. So for this year, the equivalent of three- fifths of South Africa's reported gold output has been added to the Reserve Bank's holdings. Continuation of the current rate of South frican gold production appears probable in the absence of any curtailment of imported supplies. The three tables below show the changes in the geographical distribu- tion of South Africa's norchandise import and export tradu, 1938 - 1941. The figures are official South African trade data. The import figures are exclusive of government stores and gold specie. Imports of the Intter were relatively small during prewar years; imports of the former totallod SAL8.6 million in 1940 (834 million nt $4.00 per South / frican pound) and SAL5.9 million in 1939, the last two years for which published data are evoilable. Regraded Unclassified 253 - 20 - Merchandise Imports of South Africa, Exclusive of Government Stores and Gold Specie, by Principal Geographic Areas, 1938 - 1941 1938 1939 1940 1941 (Millions of S.A. bs) United Kingdom. 37.2 34.7 34.6 29.7 Canada & Newfoundland 3.0 3.6 8.5 6.7 Other British Empire 5.8 7.2 10.7 13.7 Total, British Empire 46.0 45.5 53.8 50.1 United States 16.5 17.3 23.6 38.4 Other non-British Empire 23.6 22.6 19.1 12.4 Total, non-British Enpiro 40.1 39.9 42.7 50.8 Total - all countries 86.1 85.4 96.5 100.9 The principal shifts in South Africa's sources of supply, 1941 C.S com- pared to 1938, were between the various membors of the British Empire, on the one hand, and botwoen the various countries outside the Empiro, on the other. The proportion of total inports supplied by each of these two groups of countries has varied little since the outbreak of war. AS WCS to be expected, the United Kingdom lost both relatively and absolutely, while the United States surged shead as a principal supplier of South /frican imports. I.S indicated above, the rise of South African imports is expected to be reversed this year. The increase in South Africa's exports has also occurred in shipments to the United States and to British Empire countries other then the United Kingdom and Canada. The figures below do not include receipts from wool or from exports of gold bullion. Tool exports totalled SAL7.2 million Regraded Unclassified 254 - 21 - in 1939, the last year for which data were published; receipts from wool are believed to have been higher during the more recent years, Forchandise Exports of South Africa, Exclusive of Gold Duillion and Wool, by Principal Goographic Lrers, 1938 - 1941 1938 1939 1940 1941 (Hillions of S.... bs) United Kingdom 9.7 11.3 13.8 9.4 Connda C: Nowfoundlend .4 .7 .3 .2 Other British Empire 2.1 2.7 4.5 7.4 Total, British Empire 12.2 14.7 18.6 17.0 United States .7 1.3 3.0 5.4 Other non-British Empire 6.3 6.5 4.7 2.8 Total, non-Pritish Enpire. 7.0 7.8 7.7 8.2 Total - cll countries 19.2 22.5 26.3 25.2 The increaso in South Africa's excess of inports, 1941 over 1938, is more than accounted for by the rise in her unfavorable balance of ner- chandiso trado with the United States. The shorp ftll in United Status OX- ports to Scuth ..fricr. se for this your combined with the actionsion of lend- lease assistance to cover part of the smeller volune being shipped, hrs clready viped out the increase in South frice's merchandise import surplus vis-c-vis the United States, 1941 congered to 1940. Regraded Unclassified 255 - 22 - South Africa's Excess of Merchandise Imports by Principal Geographic Areas, 1938 - 1941 1938 1939 1940 1941 (Hillions of S./. Ls) United Kingdom 27.5 23.4 20.8 20.3 Conada & Nowfoundlend 2.6 2.9 8.2 6.5 Other British Expire 3.7 4.5 6.2 6.3 Total, British Enpire 33.8 30.8 35.2 33 .1 United States 15.8 16.0 20.6 33.0 Other non-British Enpiro 17.3 16.1 14.4 9.6 Total, non-British Empire. 33.1 32.1 35.0 42.6 Total - all countries 66.9 62.9 70.2 75.7 These Are the Intost South African trade date ovailable. U.S. trade figures indicate that United Strtes imports from South Africa have con- tinuod to expand. However, as revealed by the table below, the groster part of the increase recorded SU for this year represents goods shipped to this country for bonded warehouse. They consist larguly, if net entirely, of British-owned South / frican wiol being stored in this country under gree- nent with the Reconstruction Finance Corporation. To this extent, figures of United States imports fron South frica do not accurately reflect dollar receipts of that country. Regraded Unclassified 256 - 23 - United States Merchandise Trade with the Union of South Africa, 1938 - 1942 U.S. Excess U.S,Imports U.S. General of Exports for Consump- U.S. Exports to Imports From or Imports tion from South Africa South Africa (-) S.A. (In millions) 1938 $ 70.0 $ 15.9 & 54.1 $ 15.9 1939 69.1 28.7 40.4 27.8 1940 103.8 47.3 56.5 46.0 1941 186.9 66.2 120.7 60.7 1941, Jan-Sept 124.6 39.9 84.7 24.7* 1942, Jan-Sept 54.9 75.8 -20.9 36.6* * January through July. General imports from South Africa totalled 966 million, January through July 1942, and $28 million during the same period of 1941. LASS than 500 thousand of lend-lease goods were exported to South Africa in 1941 and only 0874 thousand during the first four months of 1942. Lend-Lease exports to South Africa have assumed significant proportions only since May of this year. Since then, however, they have accounted for over two-fifths of our exports to that country; they averaged $3 million & month, May through September, ES compared to ih million of exports monthly on comercial account. Lend-Lease shipments to South Africa in October are reported to be $15 million, or roughly as much as all lend-lease exports to that country up to then. Of the $32 million of lend-lease goods exported to South Africa through October 1942, (,20 million were military items and $12 million were non- Regraded Unclassified 257 - 24 - military goods, principally metals and manufactures and machinery and parts. Motor vehicles and parts, iron and steel, aircraft and aircraft parts, machinery, textile manufactures end petroleum products account for two- thirds of the total value of U.S. goods exported to South Africa in 1941. The table below gives the principal categories for the years 1940 and 1941. 1940 1941 (In millions) Motor vehicles and parts $16.9 $25.8 Iron and steel 19.4 28.7 Airplanes and parts 4.1 16.0 Enchinery and equipment 15.5 25.3 Cotton and rayon textiles 8.6 23.8 Petroleun and petroleum products 6.3 5.5 Total U.S. exports to S.A $103.7 $186.9 Dianonds, wool, furs, strategic netals, and hides and skins dominate our inport trade with the Union of South / frica. They account for all but a small portion of our total purchases from that country. This is revealed by the table below, which gives U.S. figures of imports for consumption from South /.frica by principal categories of commodities, for the three years, 1939, 1940, and 1941. 1939 1940 1941 (In millions) Dianonds $15.1 $20.9 $23.7 2.3 7.5 11.5 Vool 2.8 7.8 11.3 Furs Ores, notals and alloys 4.3 5.6 6.1 1.4 1.9 4.0 !lides end skins Total U.S. inports from S $27.8 46.0 60.7 Regraded Unclassified 258 - 25 - E. Fiscal Position of the Government of South Africa. In spite of South Africa's extremely favorable international financial position and in spite of the adventageous geographic location, the ex- ponditures of the Union Government have bown kept at an unusur.lly low lovel. Furthernore, expenditures for other than war purposes account for en ex- coptionally large proportion of the relatively small Government disburse- ments - 43 percent during the current fiscal year as conpared to less then 10 percent in the case of the United States and 15 percent in the crse of Connda and the United Kingdon. The Union Government spent far less por capita for ver "ur_oses during the fiscal year 1941-42 than did the Government of either the United Kingdon, Crneda or the United States. It nlso budgeted for c. smaller increase for the current fiscal your then did the Governments of these three countries. The South African Government's ostinated expenditures on ver account, April 1942 - March 1943, total the equivalent of 320 nillion, or only 30 per capita. This is only n. fraction of the or cr.its war expenditures of the other three governments. Even if c.llowence is mde for the extrenely low standards of living and income of the non-Europerins, who comprise four-fifths of the population of the Union, and per cripite war expenditures are calculated on the basis of 2 million Europeans, the figure is only $160. i.s shown by the table on Age 26 below, this is less than one-third as much ns the ,ro- jected or capita war expenditures of the United States Government for the current fiscal year, less then one-half as much is the British-ex;ected Regraded Unclassified 259 - 26 - per capita var expendi tures, and only c. little more than one-half t.s much as Canada expects to spend for war account during the current fiscal yorr on Γ. per capita basis. Expenditures and Receipts of Union Government of South Africa 1939-40 1940-41 1941-42 1942-43 (prol.) (est.) (Millions of U.S. S, Converted at Rate of 1 S.A. + = $4) Expenditures Defense 19 240 288 320 Other 270 240 216 239 Total 209 480 504 559 Expenditures from Revenue Account Defense 12 82 115 160 Other 173 175 180 193 Total 185 257 295 353 Expenditures from Loan Account Defense 7 158 173 160 Other 93 65 36 46 Total 100 223 209 206 Revenue charged to Revenue Account 182 257 318 353 Sources to finance expendi- tures on loan account, sundry capital receipts, etc 34 45 32 32 66 178 177 174 Borrowing Regraded Unclassified 260 - 27 - Expenditures of the Governments of Union of South il frica, Canada, the United Kingdon, and the United States; (Preliminary figures for 1941-42 end estiuates for 1942-43 in millions of U.S. dollars) har Other Expenditures Expenditures Total Expenditures in Absolute Figures Union of South frica 1941-42 5 288 3 217 S 505 1942-43 320 239 559 Canada 1941-42 2,162 489 2,651 1942-43 2,997 513 3,510 United Kingdon 1941-42 16,483 2,788 19,271 1942-43 18,150 3,172 21,330 United States 1941-42 25,953 6,538 32,491 1942-43 78,000 7,183 85,183 B. Expenditures on n. Per Capita Basis Union of South fricr (10.5 million) 1941-42 27 21 48 1942-43 30 23 53 Canada (11 million) 1941-42 197 Lake 241 47 319 1942-43 272 United Kingdon (46 million) 61 419 1941-42 358 395 69 464 1942-43 United States (132 million) 197 49 246 1941-42 591 54 645 1942-43 Regraded Unclassified 261 - 28 - The public debt of the Union Government of South Afrien increased by roughly one-third during the first three years of wor. The proportion of the debt held overseas lus been reduced from roughly one-third r.s. of March 31, 1039 to about one-sixth on Enroh 31, 1942. Gross Debt of the Union Government of South frica ..S of External Internal March 31 Debt Debt Total (!fillions of U.S. $ at $4 per S./. b) 1939 404 711 1,115 1940 425 740 1,165 1941 393 752 1,345 1942 244 1,256 1,500 per capita The/public debt of the Union of South frica at the close of the last fiscal year 1.23 less then one-fourth ns high ES that of either the United States or Conada and about one-eighth as large C.S. that of the United Kingdon. The relatively snaller deficit to be financed out of borrowing during the current fiscal year will ricke the discrepancy in the per capito debt figures even grenter. In fact the discrepancy is expected to be so Iarge that even if the South fricen population is taken ct 2 udllion - the Europern constituent, the per capita debt burden of the Union Government is r.bout 160 less/that than of the Federal Government of the United States. F. South frice's Tar Effort. The relatively low level of government expenditures on war Account, the continuence of gold production at peak lovels, and the absence of any evidence of F reversel in policy established by the Pritish and South fricon Regraded Unclassified 262 - 29 - Governments at the outbreck of w.r, that newly-nined South frican gold constitutes a primary sinew of w.r, all suggest that South frica's war effort fells considerably short of the possible maxinum. This situation exists in spite of the strategic importance of that country is on inter- media to source of supply to the /.llied armies in North frica and the Far East. :: study made by the Board of Economic Terfore lission to South frice reverls that there is considerable room for diversion of men end materials from the production of gold to nore essential war activities, such ns the production of circraft bombs, crumnition, armored cars, explosives, tex- tiles, boots and V: rious base metals. Regraded Unclassified L 263 December 23, 1942 12:28 p.m. HMJr: Mrs. morning. Morgenthau had a long talk with Bacher this Harold Graves: Yes. HMJr: He sought the interview. She didn't. Pending my hearing the story from her, see.... G: Yes. HMJr: I want everything held in abeyance. I don't want see? to sign up with Bill Murray or anything, G: All right. HMJr: And I also want to go - aside from everything else, I have another angle and that's the ques- tion of do we want to spend $5,000 a week for a program? G: Yes, sir. HMJr: So you call up Odegard in New York and don't make - tell him not to make any commitments because I may want to discontinue the whole damn thing. G: Yes, sir, I'll do it. HMJr: And also I - I just don't know, so he shouldn't make any commitments that I can't get out of. G: Yes, sir, I'll see that he understands. HMJr: And if you don't mind, if you would just type out a little something and send it in to Mrs. Klotz to give me, just what the cost of these programs are. G: Yes, I have verified the figures that - I gave you the figures last night and they turned out to be about right. HMJr: Well, that's all right. Regraded Unclassified 264 - 2 - G: And I'm going to get a memorandum -- it's on its way now. HMJr: Well, give it.... G: It gives the complete story, and I'll send it to Mrs. Klotz. HMJr: I'm leaving at sharp two. G: Yes, sir. HMJr: But, in the meantime, call up Peter in New York - and not to make any contracts with Bill Murray or anybody else pending a chance that you and Peter and I can sit down and talk about it. G: Fine. I'll take care of it. HMJr: If you don't mind. G: Yes, sir. HMJr: Thank you. G: Goodbye. Regraded Unclassified 265 copy to 12/23/42 m Bell 266 December 23, 1942 My dear Mr. President: I naturally was disappointed not to have been able to see you this morning, but I learned from Grace Tully the reasons for your postponing your return to Washington. The Morgenthau family had planned to go home this afternoon to spend our Christmas on the farm, and I am sure that you would not want me to change our plans; hence, this letter. You will find enclosed herewith three memoranda. The first one is our suggestion for your Budget Message which has been submitted to both Senator George and Congressman Doughton. The other two memoranda give a report of the visits which Paul, Blough and I had with these two gentlemen. You will remember that when we discussed how to present the tax problem to the Congress that you and I agreed that it would be best to have you diagnose the case in your Budget Message without making any specific recommendations as to how to cure the patient. After we had met with both George and Doughton we all agreed that the Budget Message should be confined to general language, whatever specific recommendations you may wish to have made later. May I remind you that you said, in discussing this matter, that it is much better to let them set up the Nine Pins and have you knock them down rather than to let them do the reverse. We here in the Treasury agree with you that this is good strategy and that you will get quicker and more satisfactory tax legislation if this procedure is followed. Regraded Unclassified 267 - 2 - Grace Tully has kindly consented to put this material in your hands tonight, and I would like very much to discuss it with you on the phone tomorrow at your convenience. Yours sincerely, (Signed) Henry The President, The White House. Enclosures Regraded Unclassified 268 December 21, 1942 During the coming fiscal year we face two related fiscal problems, one on the budgetary front and one on the economic front. On the budgetary front the fiscal problem is to supply the funds required to pay for the war. Tax legislation of the past three years, and particularly of 1942, has greatly increased revenues. But expendi- tures for war have increased vastly more. Taxes under existing law will raise less than one-third of the amount needed to pay for Federal expenditures in the fiscal year 1944. We should finance the war to a far greater extent by means of taxes. Taxes will be easier to pay during the wartime period of expanded money incomes than they are likely to be after the mr. On the economic front the fiscal problem is to pay for the war without further increases in prices and the costs of living. The people of the United States will have billions of dollars more income than they have had in the past, and there will be billions of dollars less Regraded Unclassified 269 - 2 - goods to buy. More than half of our production is going directly to the war effort. Less than half is available for civilian use. Every effort will be made to keep the supply of civilian goods and services as large as is consistent with a maximum war effort and to make them available when and where they are needed most. There will be enough for health; there will be enough for efficiency; but there will not be enough goods available at present prices for the dollars people have to spend. The excess dollars should be absorbed through taxes or increased saving. The spending of those dollars would have results which are alarmingly clear. Present shortages would be intensified and new shortages would appear. Prices and the cost of living would rise at an accelerating rate. A mad scramble for goods might ensue. Black markets would be difficult to prevent. Distribution of goods would be cruelly unfair. The war effort might be dangerously hampered. The tragedy of inflation can be prevented; it must be prevented; and it will be prevented if we take the stops necessary to meet the danger. Regraded Unclassified 270 - 3 - We have already taken many vital steps. We have in- creased taxes and stimulated voluntary saving, thus withdrawing income from the spending stream. le have set price ceilings, thus at least temporarily putting the brakes on the spiral of rising prices. % have stabilized wages and salaries, thus restraining the rise of business costs and the increase in money incomes. No have placed limits on consumer credit and have brought about a great amount of debt repayment. We have rationed some essential, scarce goods to assure everyone a necessary minimum and to help protect price ceilings. We must go further. We must greatly increase taxes. We must greatly increase net savings. de must extend rationing to all goods for which shortages now exist or impend. These measures are interrelated. Each increase in taxes and each increase in savings will lessen the upward pressure on prices and reduce the amount of rationing and other direct controls we shall need. This twofold fiscal problem c alls for action of wartime Regraded Unclassified 271 4 proportions. I have endeavored to make clear that higher taxes now are the best way to pay for the war and to do somithout inflation. Certain broad principles should guide us in raising the additional revenue we need. These principles include the encouragement of maximum war production, the protection of & basic minimum standard of living, the fair and equitable distribution of the financial cost of the war, and the provention of excessive profits from the war effort. It revenue program in harmony with these principles will retain the individual income tax as the backbone of our revenue system. The rates should be increased from top to bottom and special privileges and loopholes should be eliminated. We must adapt the income tax to war needs. We should collect a substantial part of the individual Income tax currently out of incomes when they are paid. This will make the tax easier to bear; it will bring the money into the Treasury more quickly and more certainly; while at the same time it will remove the money from the spending stream before it can be used to bid up prices. Regraded Unclassified 272 - 5 - The social security system should be expanded and extended to add to the conomic security of the nation, especially in the post-war period. This measure, justified on its own merits, would also facilitate the financing of the war. The amount and kinds of taxes Congress adopts will have a bearing on other fiscal measures it will need to take. Whatever the type of action, time is of the essence. New measures should be passed and put into operation promptly. Within the next few months our receipts under existing revenue laws and under any new fiscal measures adopted by the Congress should approximate one-half the cost of the Federal Government. (Senator George suggested the addition of the following: "To facilitate the work of the Congress, I have directed the Secretary of the Treasury to submit more specific proposals at the pleasure of the Congress") Regraded Unclassified 273 Secretary Morgenthau December 22, 1942 Randolph E. Paul Subject: Conference with Senator George regarding the 1943 Revenue Bill. At & conference in Atlanta, Georgia, December 21, between Senator George, Secretary Morgenthau and Messrs. Paul and Blough, various questions bearing on revenue legislation for 1943 were discussed. A memorandum (copy of which is attached) which the Secretary was considering for presentation to the President in connection with the Budget message was read and discussed. Senator George expressed the following ideas in connection with the memorandum and 1943 revenue legislation: 1. The general approach taken in the memorandum would be preferable to outlining any specific program in the President's Budget message. However, Senator George suggested an addition indicating that the President would direct the Treasury Department to present more specific proposals at the pleasure of Congress." (The quoted words are Senator George's exact words.) 2. Senator George expressed general agreement with the idea of the last paragraph of the attached draft statement, that the Treasury should within a few months be collecting half its expenditures from current "levies". It was explained that the word "levies" was meant to include not only taxes, but also such measures as forced lending. Precise figures were mentioned in this connection. The Senator said he had heard that the Budget would run $100 billion for the fiscal year 1944. We confirmed this figure, and it was understood that the gross collections under this formula would have to total about $50 billion. Regraded Unclassified 274 - 2 - 3. Compulsory lending would be desirable. It was not clear to Senator George whether the Congressional sentiment for compulsory lending would accept a program sufficiently great to make up for the loss of voluntary bond sales with some additional net gain. He did think, however, that the total, which Congress would provide from taxes and compulsory lending, would be larger than any total it would provide from taxes alone. 4. In response to a question Senator George said he thought it might well be desirable to select a few important items and try to get a separate bill cover- ing them through very quickly. Collection of the income tax by withholding at source at very sub- stantial rates would be one such item. 5. There was no discussion of the Ruml plan at the meeting; this plan might be an item of the type mentioned in 4 above. Mr. Paul furnished Senator George with a copy of a recent letter to the Washington Post describing the Treasury's plan of September, 1942, for putting taxpayers on a current basis. 6. Discussing a comment of Mr. Louis Brown that Mr. Brown would be willing to see corporate tax rates go to 50 percent under certain conditions, Senator George agreed that such an increase might well be made if there were proper debt relief and (he emphasized) a post war credit. 76 The Senator's tentative view was that Congressional sentiment probably continued hostile to a spendings tax and that it would be desirable, if possible, to achieve the objectives of the spendings tax in some other manner. 8. Senator George affirmatively suggested that the Treasury should consider what its attitude would be in case Congress insists on a sales tax, "as it well may". The Secretary replied that this question Regraded Unclassified 275 - 3 - should be submitted to the President. Senator George indicated that he did not think that the failure to pass a sales tax was paychologically blooking other fiscal steps. 9. Senator George said he favored an extension and expansion of the Social Security program, but that unless it was handled separately he thought it would cause great delay in the passage of the tax bill because of the many disparate views as to principles and details. 10. Senator George favored the idea of having a group from the Senate Finance Committee and the Ways and Means Committee, including Republicans, discuss the 1948 tax program with the President at an appropriate time. He also thought it would be a good ldea to have some preliminary discussions between members of the two Committees and the Treasury in advance of any discussion with the President. (Initialed) R.E.P. Regraded Unclassified 276 December 22, 1942 Secretary Morgenthau Randolph Paul Roy Blough Subject: Conference with Chairman Doughton on revenue legislation. A conference was held at the Treasury, December 22, between Chairman Doughton, Secretary Morgenthau, and Messrs. Paul and Blough. Secretary Morgenthau said that he would like to have Chairman Doughton read a memorandum which he was submitting to the President as a suggestion of what the Budget Message should contain on fiscal matters. The Secretary said he had talked with Senator George and that Senator George had liked the general approach and had made some suggestions; that the Senator had suggested that meetings with Congressional leaders be held prior to an extensive conference with the President on revenue legislation. The memorandum for the President was then read to Chairman Doughton, who made the following comments: 1. Chairman Doughton approved the view that the Budget Message should be general in character and should not go into details of a tax program, as this might seem too much like dictating to Congress in the performance of its legis- lative function. 2. Chairman Doughton said he was disappointed in the effects which the price legislation had had on the course of retail prices, and that so far as he could see they had been going up steadily without restriction. 3. Chairman Doughton said that he was not in favor of taking up social security legislation, and did not believe that any one of the continuing members of his Committee was in favor of it. He said if such legislation came up and the Committee did decide to consider it, perhaps six months would Regraded Unclassified 277 - 2 - be required; and that, in his opinion, nothing of any importance would be reported out by the Committee, or, if reported, would be passed by the House. 4. It was Chairman Doughton's belief that if one-third of the Federal expenditures were met by taxes, the country would be doing extremely well. As to compulsory lending, he stressed the adverse effect on the volunteer program, without indicating directly bis own views on whether such lending should be adopted and, if so, at what rates. 5. Chairman Doughton said he thought there were some people who could stand increased income taxes, but that he was fearful that increases in rates would be too burdensome on others. He said he was in favor of taxing as far as was reasonable without destroying enterprise or bankrupting people with heavy obligations. He did not specify, however, at what income levels he thought the income tax could be increased, or how much. 6. Chairman Doughton did not indicate any views with respect to collection at source, the Ruml plan, the spendings tax, the sales tax, or other matters. He said that this was not the time to discuss details of the tax program. (Initialed) R.B.P. " RB RB:mv Regraded Unclassified 278 DRAFT My dear Mr. President: I naturally was disappointed not to have been able to see you this morning, but I learned from Grace Tully the reasons for your postponing your return to Washington. The Morgenthau family had planned to go home this af rnoon to spend our Christmas on the farm, and I ani sure that you would not want me to change our plans; hence, this letter. You will find enclosed herewith three memoranda. The first one is our suggestion for your Budget Message which has been submitted to both Senator George and Congressman Doughton. The other two memoranda give a report of Pauly Eisugh the visit s which Paul, Blough and I had with these two gentlemen. You will remember that when we discussed how to present the tax problem to the Congress that you and I agreed that it would be best to have you diagnose the case in your bndget meroage without making any specific recommendations AS to how to / cure the patient. After we Amount A had net with both George and Doughton we all agreed that this in the best procedure. May I remind you that you said, in discussing this matter, that it is much better to let them set up the Mine Pins and have nather let them you knock them down 1 than to ^ do the reverse. Regraded Unclassified 279 - 2 - We here in the Treasury agree with you that this is good strategy and that you will get quicker and more savisfactory tax legislation if this procedure is followed. Grace Tully has kindly consented to put this material in your hands tonight, and I would like very much to dis- cuss it with you on the phone tomorrow at your convenience. Yours sincerely, Regraded Unclassified 280 A the budget message should be confined TO general language, whatever openific with to Lola made later recommendations"y may 1 have Regraded Unclassified 281 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE DEC 23 1942 TO Secretary Morgenthau FROM Mr. Haas Subject: Loan Flotations in the United States During Previous .Wars There is attached hereto the clipping from the New York Herald-Tribune on the means of financing past wars which you gave me at a staff meeting last week. There 1s also attached & marked copy of Investment Banking for December 1942, upon which the olipping was based. The article in Investment Banking is substantially correct, but & few errors have crept into the Herald-Tribune article. For example, the original article describes one of the loans floated in the War of 1812; the news- paper account takes this to be the only loan. A somewhat more detailed summary of borrowing opera- tions in previous wars follows. Accurate details on the financing of the Revolutionary War are unobtainable. Authorities differ as to amounts. Domestic financing took the form principally of inflationary issues of currency the aggregate specie value of which has been variously estimated at amounts ranging from $36 mil- lions to $70 millions. In addition, domestic loans of an aggregate specie value of about $11 millions were floated through domestic loan offices. Loan commissioners received 1/8 of 1 percent commission. Loans from foreign govern- ments amounted to slightly more than $10 millions, of which $6.4 millions came from France; $3.6 millions from the Netherlands, and about $0.2 millions from Spain. The loans from France were granted more for political reasons than in consideration of the interest return. The Dutch loans, on the other hand, were purely business transactions. The War of 1812 was an unpopular one particularly in the northern financial centers and this factor may have accounted for the financial difficulties encountered by the Treasury. Borrowing, including a loan of $11 millions authorized before the declaration of war, and two loans Regraded Unclassified 282 Secretary Morgenthau - 2 after the treaty of peace amounted to about $125 millions. Of this sum, $56 millions consisted of Treasury notes which were receivable for public dues and were transferable by endorsement and thus were able to perform most of the functions of currency. The $11 millions loan authorized in March 1812, about 3 months before war was declared, bore 6 percent interest, was issued at par, and was successful. In 1813, however, a loan of $16 millions at 6 percent had to be floated below par and subscription books had to be reopened a second time. Four other loans were floated at varying discounts and interest rates. Figures on amounts of money borrowed are further confused, however, by the fact that payment was made frequently in bank notes of varying degrees of depre- ciation -- B situation which has not existed since the creation of the National Banking System in 1863. The House Ways and Means Committee estimated, in 1830, that, measured in specie, the proceeds of more than 880 millions of borrow- ing, other than notes and temporary certificates, during the War of 1812 was only $34 millions. In the Mexican War, which was as popular as the War of 1812 was unpopular, a net indebtedness of $49 millions was created. All loans were floated at or above par for 6 percent bonds. In one loan operation bids were received for $58 millions on an offering of $18 millions. No mention 18 made in the Annual Reports of the Secretary of the Treasury of the services of E. W. Clark and Brothere (credited in the attached clipping with raising the money for the Government), but the firm 18 listed among the successful bidders for the loans of 1848 to the amount of $950,000 for a loan of $18 millions. Corcoran and Riggs of Washington were awarded $14 millions of this particular loan for their own account, that of Baring Brothers and Co., and others. The finance of the Civil War was again marked by our renoy inflation. Specie payments were suspended at the end of 1861. Small denomination, demand Treasury notes had already been issued to the amount of $60 millions in 1861, and, under authority of an Act of February 25, 1862, $150 millions of United States notes, noninterest-bearing and legal tender, were issued early in 1862. This amount was later augmented by other issues to an aggregate of nearly $500 millions (including $27 millions of paper sub- sidiary currency, "shinplasters"). In addition, Treasury Regraded Unclassified 283 Secretary Morgenthau - 3 notes bearing interest (some of it compound interest) were issued to the amount of approximately $400 millions. These, too, were legal tender. Long-term borrowing was chiefly on the basis of 5 - 20 year and 10 - 40 year bonds, the former at 6 percent and the latter at 5 percent. Approxi- mately $775 millions of these bonds were issued in the period 1861-65. The Civil War marks the first large scale popular financing of the United States Government. This was the operation for which Jay Cooke became famous. Cooke made use of 2,500 subagents who canvassed the country on behalf of the "Five-twenties" and again for the 7.3 percent notes of 1864 of which $671 millions were issued. All in all, the financing operations in which the Cooke organization was active yielded somewhat more than $1,000 millions. Cooke received a commission of 1/2 of 1 percent on the first $10 millions of subscriptions and 3/8 of 1 percent on every- thing over that amount, in selling the "Five-twenties". It should be noted that the foundation of the National Banking System in 1863 with 8. national bank note circulation of $300 millions authorized, all of which must be backed dollar-for-dollar by United States Government securities was helpful in selling bonds. The financing of the Spanish-American War in 1898 posed no important financial problems. During the first World War, in 1915, an Anglo-French loan of $500 millions was sold in this country. The original amount projected had been $1,000 millions, but bankers felt that this was more than could be floated successfully. After our own entrance into the war, five popular loans were floated, aggregating over $20 billions. Subscriptions came to about $24 billions. The oversubscriptions were greatest on the first two loans and least on the last two. On the First Liberty Loan, subscriptions were allotted only to the amount requested, oversubscriptions being allotted on a graduated basis, subscriptions of $10,000 and under being allotted in full. In the Second Liberty Loan, & por- tion of oversubscriptions was accepted, while in the last two Liberty Loans and the Victory Loan the full amount sub- scribed was allotted. Regraded Unclassified 284 Secretary Morgenthau - 4 Details of the Liberty and Victory loans are given in the following table: Tax- Coupon : Amount Loan rate exemption (billions of (percent): dollars) First Liberty, 1932-47 Full 3-1/2 2.0 Second Liberty, 1927-42 Partial 4 3.5 Third Liberty, 1928 Partial 4-1/4 3.9 Fourth Liberty, 1933-38 Partial 4-1/4 6.6 Victory notes, 1922-23 ~^ Partial 4-3/4 Full 3-3/4 3 4.4 20.4 The bonds of the First Liberty loan were fully tax- exempt, in keeping with the pattern established by previous Government security issues. The imposition of heavy surtax rates on income, however, made complete tax-exemption undesirable, and subsequent Liberty loans were made par- tially tax-exempt and the coupon rates were increased. In the Victory loan, subscribers were given & choice between fully tax-exempt notes at 3-3/4 percent and partially tax- exempt notes at 4-3/4 percent. Bonds of the First and Second Liberty loans were made convertible into the higher-coupon bonds of later loans on the ground that investors might vithhold subscriptions un- less assured that they would be eligible to receive the best rate available. Liberty and Victory loans were anticipated by the issuance of certificates of indebtedness, in an aggregate amount of $17.0 billions. In this way the difficulty of anticipating future financing requirements was avoided. Certificates were accepted subsequently in payment for bonds. Quots for bank purchases of these certificates were established by the Federal Reserve Banks under gen- eral instructions issued by the Secretary of the Treasury. Sales of Liberty bonds and Victory notes were promoted by a variety of devices designed to produce widespread popular response. "Four-minute speakers" urged bond pur- chases at nearly all public gatherings. Individuals were Regraded Unclassified 285 Secretary Morgenthau - 5 subjected to strong social pressures from a variety of directions to induce them to subscribe their quotas. How- ever, no commissions were paid for the sale of these secu- rities. The number of subscribers to each loan is given (in millions) in the following table: First Liberty 4 Second Liberty 9 Third Liberty 18 Fourth Liberty 23 Victory notes. 12 Attachments Regraded Unclassified 286 NEW YORK 42242 Herald Tribune DEC 12 1942 Wall Street Comment The Inflation Gap initial experience with Clark in the Is the "Inflation Gap" overrated? Mexican War, was appointed Gov- There are more and more persons ernment Loan Sales Agent. Hired who are beginning to wonder the 5,000 progenitors of the Victory whether this is not another of those Loan Fund salesmen and canvassed fatalistic fetiches on which inflation the country on a house-to-house fears have been nursed now for a basts. Sold more than $2,000,000,000 decade. One by one these various in securities at somewhat less than notions have fallen by the wayside: par for 6s. World War I. In 1915 and It is not inconceivable that the the Idea of a $1,000,000,000 loan for same thing will happen to the cur- the Anglo-French mission was re- rently popular creed. The plain fact garded as so big as to be out of the is that although there has been an question, and It was reduced by inflation gap for more than a year half. But by 1917, with the finan- now-that is to say, a gap between cial community all over the country the amount of spendable income putting its shoulder to the wheel, a and the amount of goods available $2,000,000,000 Liberty loan brought for. purchase-it can be demon- $3,000,000,000 in subscriptions, and started that all the inflation we have by 1918 It was found possible to had to date can be accounted for by raise almost $7,000,000,000 in a single purely political phenomena-namely, (fourth Liberty loan) drive, by the refusal of the Administration to take a firm attitude on wages and farm prices and by its refusal to make any attempt to tax, as such, Income in the lower brackets gen- erated by the war effort. Far Finance Over the Years Thumb-nail sketch of American war-time financing as amputated from "Investment Banking" for De- cember: The Revolution: Financed by "the best salesman of all time for 'the American way.' Benjamin Franklin, who raised $11,710,000 abroad. War of 1812. The only 1s- sue for this unpopular war, one of $16,000,000, was a failure. with the underwriters forced to take $10,- 000,000 of it-at 88 for 6s. Mexican War. E. W. Clark & Co., of Phila- delphia, raised the money for the government by selling bonds to . few wealthy individuals. Civil War. Wish Europe unfriendly to the Union, Jay Cooke, who had had his ty Secy as Sool Soen to Mr Has midery in 12-14-42 m.h. 287 December, 1942 Investment Banking "picked out the biggest ones and started He sold more than $2,000,000,000 of bonds, firing," and, as the U.S.S. Boise did, will averaging less than par for 6s. keep on firing until they have taken care SPANISH AMERICAN WAR-No special financ- of them all. ing was necessary. The public debt increased only $200,000,000. WORLD WAR I-The financial district was one THE REVOLUTION - Benjamin Franklin, of the few elements in the nation "prepared" probably the best salesman of all times for the when war was actually declared in April 1917. "American Way," sold $11,710,000 bonds There was no demoralization. Europe called it abroad, mostly in "uncanny." Earlier, in France and Holland. Who Sold the Bonds 1915, the proposal of (Canny English in- a $1,000,000,000 loan vestors readily forgot in Other Wars? for the Anglo-French their enmity to the mission did seem States and held most staggering and was of these bonds when they were paid off.) cut to $500,000,000, but by mid-1917 the Amer- Other than bonds sold abroad, some $40,- ican market had absorbed almost $3,000,000,000 000,000 were sold domestically. They were to of repatriated American securities. A great extent issued by the states, and Alex- It was not fully realized in 1917, however, ander Hamilton, first Secretary of the Treas- that a "nation of investors" had been created. ury, laid the firm foundation of United States There was some pessimism, "fear that a $2,000,- credit the world over by getting the federal 000,000 Liberty Loan would never succeed." government to assume the debt-at a scale-down Sceptics said, "The American people are not in interest. thrifty, have not been given the habit of buying WAR OF 1812-A $16,000,000 offering to fi- government securities." nance this unpopular war received subscriptions But financial houses all over the country shut of only $6,000,000 from the public. Stephen up shop so far as ordinary operations were Girard, John Jacob Astor, and David Parrish, concerned, put all their drive behind the $2,000,- capitalists M the day, took the balance at 88 000,000 offering, and got $3,000,000,000 in sub- for 6s. scriptions. MEXICAN WAR-E W. Clark & Co., of Phila- The same technique sold in one three-week delphia, were the government's bankers in fi- period in the fall of 1918 what is until now the nancing this war; sold moderate amounts of world's largest security issue, $7,000,000,000, the bonds to a few wealthy individuals. Fourth Liberty Loan. CIVIL WAR-In 1861; with Europe unfriendly to the Union and with "the market exhausted and the ability to raise money feared," Jay On SEC Rule Cooke, who got his initial experience with E. W. Clark & Co. in the Mexican War financ- On October 31 the IBA's comments on ing, was appointed "Government Loan Sales a rule proposed by the SEC staff for regu- Agent." lation of the over-the-counter markets, Cooke hired 5,000 salesmen who "over-ran designated Rule X-15C1-10, were sub- mitted to the Commission. Included was the countryside, every hamlet and farm, appeal- a special analysis of the way in which ing to every living person." His posters and markets for municipal securities would circulars (with pictures of eagles and mothers have been affected. Copies were sent to on one side-popular songs on the other) "were all members and are available to others in every railroad station, court house, hotel, fac- upon request. tory, toll house, post office, on every tree and telegraph pole." 4 Regraded Unclassified Investment Banking December, 1942 volved in this drive may be obtained by the fastest accumulation of surplus buying comparing it to the total of approximately power in all history. $9,000,000,000 which was raised through Of this $11,400,000,000, the people used the sale of new issues of stocks and bonds an estimated $1,950,000,000 to buy or to of domestic corporations in 1929. In con- pay off installments on automobiles and trast to this assignment for one month, the other durable goods. They used $210,000,- largest amount of new corporate financing 000 to pay on mortgages or make down- in any one month during 1929 was $1,500,- payments on new homes. Other debts were 000,000. paid down $830,000,000, and $1,370,000,- In the meantime, however, the capacity 000 was put into insurance (including social of the market to absorb securities has ex- security), building and loan associations, panded, and the nation's investment re- and similar savings plans. sources are adequate to take care of the This left a balance of $7,040,000,000, demands that will be made upon them, if with which they bought only $2,800,000,000 inflation of prices is not allowed to skyrocket worth of government bonds and barely the costs of the war. $40,000,000, on balance, of other securities. A net balance of $4,200,000,000 was re- Proof of Bond-Buying Ability tained out of this three-months' income and held in currency or in checking accounts. One indication of the country's ability This accumulation of idle money has to buy bonds is evidenced by the record gone on steadily for some time and at a level of bank deposits. Total bank balances swiftly accelerated rate recently. As install- of individuals, partnerships, and corpora- ment purchases are eliminated, old debts tions are currently in excess of $65,000,- are paid off, and new durable goods dis- 000,000, as compared with $34,000,000,000 appear completely from the markets, this at the low point in 1933, and only $50,000,- tendency is accentuated. Such large sur- 000,000 at the previous peak in 1929. It is pluses in currency and in checking accounts obvious, from these figures, that many of obviously constitute the most unstable ele- them have money in the bank over and ment in our financial situation and the above any reasonable reserve needs. It is greatest inflationary threat. part of our job to induce them to put all in excess of minimum current balance re- Pick Biggest Buyer and Fire! quirements into Victory Loan securities. Another indication of the nation's so far Converting these excess accumulations of untapped investment resources is contained cash and these idle, balances into govern- in the record-breaking current volume of ment securities is the first objective of the individuals' savings and the fact that the Victory Loan drive. The broad diversifica- money is being held in currency or in check- tion as to rate of return, maturity, redemp- ing accounts to a great extent. tion provision, and purpose, of the various A study made public recently by the SEC issues being offered makes available a sound indicates that the total income of indi- investment for any type of funds in any viduals during the three months, July, Aug- amounts. ust, and September, 1942, exceeded all liv- The investment bankers have broadened ing expenses by $11,400,000,000. This is at their lists of prospects, and in the words of the rate of almost $4,000,000,000 a month, Captain Edward J. (Iron Mike) Moran, 3 Regraded Unclassified ROOM KILBY TREA Reid 310 289 W42WASH B188 NY 23-229P m all MORGENTHAU 1942 DEC 23 DM , 40 EDERAL THE VICTORY FUND COMMITTEE OF THE SECOND RESERVE DISTRICT SENDS YOU ITS CONGRATULATIONS ON THE OUTSTANDING SUCCESS OF THE DECEM -BER TREASURY FINANCING. IN THIS FIRST BIG DRIVE OF THE WAR THE AMERICAN PEOPLE HAVE RESPONDED TO YOUR CALL FOR FINANCIAL SUPPORT OF THE WAR EFFORT IN A WAY WHICH SHOULD GIVE YOU REAL PERSONAL SATISFACTION AS WELL AS THE SATISFACTION WHICH COMES FROM DISCHARGING THE DUTIES OF YOUR HIGH OFFICE ALLAN SPROUL CHAIRMAN. Regraded Unclassified 290 1942 DEC 23 DM 2 40 W43K IN B188 FIRST LINE MAKE READ SECOND FEDERAL RESERVE DISTRICT B. Regraded Unclassified 291 Expenses of Loans A&E BOOK OF 12 (other names attached) Uscember 22, 1942 Measrs. Paddock and Stubbe and all Members of the Victory Fund Organization, First Federal Reserve District, Boston, Massachusetts. I should like to express to all members of the Victory Fund organisation my warn personal thanks for the splendid assistance rendered by all of you to the Treasury in the successful December drive. Your earnest and able response to this call of your country is as inspiring example for everyone on the home front. I feel sure that your holidays of the next few days will be all the more satisfying because of this service. May your Christmas be enjoyable and may the New Year bring our country safely and victoriously through this time of triel. HENRY MORGENTHAU, Jh. SECRETARY OF THE TREASURY. GW:dwb:7K1cgk also Exec pent mg to of the Federal NN Reserve Reserve Regraded Unclassified 292 INTERNATIONAL BUSINESS MACHINES CORPORATION 590 MADISON AVENUE NEW YORK OFFICE OF THE PRESIDENT December 23, 1942 Honorable Henry Morgenthau, Jr. Secretary of the Treasurer of the United States Treasury Department Washington, D. C. Dear Mr. Secretary: Mr. Thomas H. Lane has forwarded to me the certificates which you so generously awarded me and our Company. I thank you personally and on behalf of International Business Machines Corporation, and want you to know that it has been a real pleasure and privilege for me and all members of our organization to work with you and your staff and you can always count on us for our cooperation and help to the extent of our ability. I take this opportunity to congratulate you on the outstanding record you have made in handling the financial affairs of our country, which I realize in these trying times is a gigantic task. With my good wishes to you and yours for the holidays and the coming year, I remain Sincerely yours, President TJW:ef Regraded Unclassified 293 TREASURY department WASHINGTON December 23, 1942 MEMORANDUM FOR MRS. KLOTZ: In accordance with a request this morning from Mr. Morgenthau, I hand you the attached report showing the cost of our radio programs. Harold R 10% Graves OFFICE SECRETARY IF (REASURY 1942 DEC 23 PM 3 09 TREASURY DEPARTMENT Regraded Unclassified 294 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 23, 1942 TO: Mr. Graves FROM: Mr. Sloan In accordance with your request, there is detailed below the cost to the War Savings Staff for radio programs now running in the interest of War Savings Bonds. 1. We have a thirteen week contract with the Blue Network for a one-hour program entitled, "Over Here". The total contract cost is not to exceed $78,000, and in- cludes the cost of the script, and the union scale for musicians, actors and writers. 2. We have a twenty-six week contract for a half hour program entitled, "Bondwagon" with Station WOR, Newark, New Jersey. The cost is approximately $500 per pro- gram and expenditures are being made for the same items listed above. 3. We are now producing an average of three "Treasury Star Parade" transcriptions each week. Each of these cost approximately $1500, or a total of $4500 per week. Again, these expenditures are for the items listed above, and for stamping of sufficient records to cover distribution to radio stations. 4. We are now making transcriptions of "Treasury Song Parade" which are recordings by popular singers with messages promoting War Bonds and Stamps included. We have made 120 such programs, 8 programs being on each record, or a total of 16 records to date. The cost at this time has been $32,000. I understand from Mr. Callahan that we have received more favorable comments from the radio' stations on these recordings than any other thing we have furnished heretofore. 5. There are many programs promoting War Bonds and Stamps which are given to the Staff at no expense, such as, the present programs on Saturday and other nights dur- ing the week of the orchestras of Horace Heidt, Alvino Rey, Little Jack Little and Tommy Dorsey. 6. I also understand that there is under consideration by Mrs. Morgenthau and Professor Welch, B. series of trans- oriptions entitled "Golden Eagle". We have spent to date $1200 for four transcriptions which are being used it, now for experimental purposes to determine if this series would be beneficial. Regraded Unclassified 295 December 23, 1942 Dear Irv: I am glad to learn from you that the "Message to the American Farmer" and our War Bond booklet are not missing R.F.D. boxes up your way. I appreciate your good words about the theme of the message. Farmers are already finding that War Bonds make a good place to store their cash crop, 80 I feel confident our seed is being planted in fertile soil. Merry Christmas and all the other good wishes of the season to you and yours. Sincerely, (Signed) H. Morgenthau, Jr. Mr. Irving W. Ingalls, American Agriculturist, Savings Bank Building, Ithaca, New York. FK/cgk File in Diary Regraded Unclassified DRAFT OF LETTER FOR THE SECRETARY'S SIGNATURE 296 December 23, 1942. Dear Irv: I am glad to learn from you that the "Message to the American Farmer" and our War Bond booklet are not missing any R.F.D. boxes. your way. I appreciate your good words about the theme of the message. Farmers are already finding that War Bonds make a good place to store their cash crop, so I feel confident our seed is being planted in fertile soil. Merry Christmas and all the other good wishes of the Season to you and yours. Sincerely, Mr. Irving W. Ingalls, Advertising Manager, American Agriculturist, Savings Bank Building, Ithaca, New York. Regraded Unclassified DEC 22 M4. he Kuhzg7 AMERICAN AGRICULTURIST The Farm Paper of the Northeast OVERTISING DEPARTMENT- BOX 514 SAVINGS BANK BUILDING, ITHACA, N.Y. December 17, 1942 Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Dear Henry: Your down-to-the-earth letter- A MESSAGE TO THE AMERICAN FARMER-together with the War Bond booklet found its way to the R.F.D. box on my farm at Trumansburg. Your theme "Victory must be planted like any crop and it takes many tools to cultivate it, too" says a whole lot quickly. I am sure this letter will really register with farmers in this section and keep them buying War Bonds to the limit. With the Season's Best to you and yours. Sincerely, Irving X AMERICAN W. Regalls AGRICULTURIST Ingalls IWI:MM Advertising Manager Regraded Unclassified 298 December 23, 1942. My dear Mrs. Reid: Mr. George Wanders is now returning to you after his tour of duty here with us. Mr. Wanders was most helpful in preparing the publicity for the Victory Fund drive, and I can't begin to tell you how much we appreciated your lending his to us. He is an extremely able and patriotic gentleman. Sometime in March we will start our next Victory Fund drive, and I sincerely hope that you will let us have him to assist us in a similar manner at that time. Again thanking you for the loan of Mr. Wanders and wishing you a very Merry Christmas and & Happy New Year, I remain Yours sincerely, (Signed) H. Morgenthau, Jr. Mrs. Ogden Reid, New York Herald Tribune, New York, New York. CC in Diary 209 NEW YORK Herald the Tribune December 28, 1942 Dear Mr. Secretary: It was a pleasure to hear that all had gone well with Mr. Wanders' work for you in the Treasury and we are extremely glad to have him back. When you know more definitely about the time when you will need him in the spring we shall appreciate having a little notice so that we can plan ahead. With very many thanks for your letter and the best of wishes to you and Mrs. Morgenthau for a better New Year, I am Sincerely yours, been Ris The Hon. Henry Morgenthau Jr. Poaraded Unclas 300 TREASURY DEPARTMENT COMPTROLLER OF THE CURRENCY NAT BANK EX SAL & EXP DAY LETTER DECEMBER 23,1942 HONORABLE PRENTISS M. BROWN, ST. IGNACE, MICHIGAN. IN ACCORDANCE WITH THE REQUEST CONTAINED IN YOUR TELEGRAM OF DECEMBER 21, CAREFUL REVIEW HAS BEEN MADE OF THE DECISION DENYING THE APPLICATION OF THE MICHIGAN NATIONAL BANK FOR BRANCHES IN DETROIT AND BAY CITY. I VERY MUCH REGRET THAT WE CAN NOT MEET YOUR WISHES IN THIS MATTER BUT BE ASSURED IT IS NOT BECAUSE OF ANY LACK OF APPRECIATION OF YOUR CONTRIBUTIONS TO THE PUBLIC SERVICE. STOP. OUR POSITION BOTH AS TO DETROIT AND BAY CITY FOLLOWS PRECEDENT IN THE OFFICE OF THE COMPTROLLER OF THE CURRENCY AND RESTS UPON SOUND BANKING PRINCIPLES. EXISTING BANKING FACILITIES IN DETROIT ARE ADEQUATE. THIS CITY HAS THE SERVICES OF TWELVE BANKS WITH ONE HUNDRED OFFICES AMPLY SUFFICITN TO MEET THE REQUIREMENTS OF CREDIT AND OF COMPETITION. STOP. IN REGARD TO RELEASE OF CLOSED BANK DEPOSITS IN BAY CITY THESE DEPOSITORS HAVE ALREADY RECEIVED 75 PER CENT OF THEIR CLAIMS AND IT IS OUR OPINION THAT IT IS PREFERABLE TO PRESERVE THE INDEPENDENT STATUS OF THE NATIONAL BANK OF BAY CITY RATHER THAN TO PERMIT ITS ABSORPTION AS A BRANCH EVEN Regraded Unclassified 301 SHEET No. 2 AT THE EXPENSE OF SOME FURTHER DELAY IN LIQUIDATION. AN ADDITIONAL FACTOR IN OUR DECISION IS THAT THE WHOLE ISSUE OF EXPANSION OF BRANCH BANKING IN MICHIGAN WILL BE PRESENTED TO THE MICHIGAN STATE LEGISLATURE WHICH MEETS ON JANUARY 6, 1943. OBVIOUSLY THE APPROVAL OF THESE BRANCHES AT THIS TIME WOULD BE OPEN TO CRITICISM. H. MORGENTHAU, JR SECRETARY OF THE TREASURY ok Him. Regraded Unclassified 470 AM 67 327 (SUBJ TO CORRECTION 326) 1942 DEC 21 DM A 25 STIGNAC MICH DEC 21 1942 1140A HON HENRY MORGANTHAU SECY OF THE TREAS DEAR MR SECRETARY I AM GREATLY DISAPPOINTED AND DISTURBED wid A S ABOUT THE DECISION IN THE BRANCH BANK MATTER. STOP THERE IS A U PARAMOUNT PUBLIC INTEREST IN THE BAYCITY MATTER IN THE RELEASE OF LONG HELD CLOSED BANK DEPOSITS AND IN THE CONTINUANCE OF ADEQUATE BANK FACILITIES STOP IN THE DETROIT CASE IT HAS PUBLIC XXXXX APPEAL OF GREAT CONCERN TO DEPOSITORS AND BORROWERS G STOP. THE TWO LARGER DETROIT BANKS ARE OWNED BY TWO GREAT CORPORATE GROUPS THEY ARE WELL MANAGED BUT ADEQUATE P H COMPETITION IS VITAL IN THE PUBLIC INTEREST STOP I AMENT THINKING OF BANKER INTERESTS BUT OF THE CUSTOMER INTEREST STOP I VENTURE TO SAY I KNOW MICHIGAN AND ITS FINANCE STOP I KNOW THIS ASSENT ON YOUR PART TO A RIGHT GIVEN BY STATUTE AND ASSENTED TO BY YOUR DEPARTMENT IN MANY OTHER CASES SOME AS LATE AS A S END SHEET 1. p- 131'd H Regraded Unclassified S 1067 SHEET 2 STIGNAC MICH HON HENRY MORGANTHAU R Y T E L THE LAST FEW WEEKS ACCORDING TO THE AMERICAN BANKER MAGAZINE E VERY CLOSE TO CALIFORNIA WILL BE IN THE PUBLIC INTEREST STOP G THE OPPOSITION COMES FROM THOSE WHO ARE THE PRESIDENTS BITTER A D ENEMIES STOP ENEMIES OF BOTH HIM AND HIS PROGRAM STOP THERE H IS STILL TIME STOP THE DELAY HAS NOT BEEN ON THE T R APPLICANTS PART BAYCITY WAS REQUESTED LAST MAY DETROIT LAST E SEPTEMBER STOP THE FIRST NATIONAL RECEIVERSHIP WAS CLOSED AFTER A S MONTHS OF 'EFFORT ON MY PART AGAINST OPPOSITION IN THE DEPARTMENM U R DUE TO A FEELING THAT THE PUBLIC WOULD NOT APPROVE STOP SINCE Y THAT SALE THERE HAS BEEN ABSOLUTELY NO PUBLIC AND so FAR AS I KNOW NO PRIVATE COMPLAINT THERE HAS BEEN THE WIDEST PUBLIC L E APPROVAL STOP MY JUDGMENT WAS PROVEN IN THAT CASE IT WILL BE G IN THIS ONE STOP YOU HAVE BEEN GOOD ENOUGH TO COMMEND SOME OF R A NY PUBLIC SERVICE STOP IN THIS MATTER I AM SURE THAT MY LAST P H REQUEST OF YOU AS A SENATOR IS ON THAT SAME PLANE OF THIS PUBLIC INTEREST STOP I RESPECTFULLY URGE RECONSIDERATION AND T APPROVAL IT IS VITAL I SHOULD HAVE YOUR REPLY BY WEDNESDAY R E PRENTISS M BROWN. A 621PM. S U R Regraded Unclassified 304 WASHINGTON December 23, 1942. Dear Mr. Secretary: Just a note of Christmas greetings and best wishes for the New Year with congratulations on the outstanding performance of the Treasury Department in 1942. Your work is a very vital part of our war effort, and I speak for the entire Army in thanking you for your strong support. May the New Year bring you even greater successes. Faithfully yours, Honorable Henry Morgenthau, Jr., Secretary of the Treasury. Regraded Unclassified