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Volume 649, July 15 – July 20, 1943
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Volume 649, July 15 – July 20, 1943
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 649
July 15-20, 1943
Regraded Unclassified
- A -
Book Page
American Bankers' Association
See Financing. Government: War Savings Bonds
(3rd War Loan Drive)
Appointments and Resignations
Maguire, John M. Consulting Expert on simplification of
Internal Revenue laws - 7/15/43
649
48
Tenwell, Lewis (Collector of Internal Revenue, Montana):
FDR-HMJr correspondence concerning reappointment -
7/20/43
333
Arabia, Saudi
See Saudi Arabia
- C - -
China
See also Foreign Funds Control
Chiang Kai-shek's book on economics - Adler's review of -
7/17/43
182
(Written by Tao, Chiang's aide)
Clark, Bennett C. (Senator, Missouri)
See Missouri
Compulsory Savings
See Revenue Revision
Contracts, Renegotiation of
See Post-war Planning
Correspondence
Mrs. Forbush's mail report - 7/16/43
120
- D - -
Doob, Oscar
See Financing, Government: War Savings Bonds
(3rd War Loan Drive)
- F -
Financing, Government
Federal Reserve proposal for issuance of 9-months Treasury
bills discussed in Haas memorandum - 7/19/43
191
August refunding discussed by Open Market Committee and
Treasury group - - 7/20/43
277
a) Press release - 7/22/43: See Book 650, pages 201 and 290
War Savings Bonds:
3rd War Loan Drive:
Conference: present: HMJr, Bell, and Tickton - 7/15/43
1
a) Ten key States: Allotment for discussed
American Bankers' Association confers with Treasury on
type of securities for drive - 7/15/43
56.59
a) Memorandum for HMJr - 7/16/43
111
b) Discussion by Treasury group - 7/20/43
297
Regraded Unclassified
- y - (Continued)
Book Page
Financing, Government (Continued)
War Savings Bonds (Continued):
3rd War Loan Drive (Continued):
Conference of Treasury group, Burgess and Rouse -
7/21/43: See Book 650, page 4
a) American Bankers' Association/discussed memorandum
b) Eccles fears "tremendous oversubscriptions":
wants small banks given a break: Book 650, page 10
Conference of Treasury group and War Finance Committee
officers - 7/21/43: Book 650, pages 26 and 61
a) Burgess spokesman for suggestions: Book 650,
page 40
b) Comparison of original Treasury goals and those
proposed by War Finance group: Book 650, page 43
c) War Finance Committee suggestions accepted:
Book 650, page 61
d) Open Market Committee told of acceptance:
Book 650, page 68
e) Securities decided upon: Book 650, page 204
Conference of Treasury group and Rouse - 7/21/43:
Book 650, page 44
Proclamation by FDR - draft of - 7/15/43
649
69
Halifax script on "We the People" program
73
State Committeemen confer on type of securities -
7/20/43
226
Doob, Oscar: HMJr asks Schenck to lend - 7/22/43
31,295
a) HMJr thanks Schenck - 7/28/43: Book 652, page 52
Food
See Office of Price Administration
Foreign Funds Control
Effect of FDR's Order settling Wallace-Jones dispute -
Paul memorandum - 7/16/43
142
"Crowley will endeavor to get Foreign Funds Control under
Office of Economic Warfare" - HMJr's prophecy - 7/20/43
267
China: Remittances to enemy-occupied China - alternative
proposal sent by Kung - 7/16/43
146
French North Africa
See Occupied Territories
- G -
Garrison, Lloyd K.
See United Mine Workers
- H -
Halifax, Lord
See Financing, Government: War Savings Bonds
(3rd War Loan Drive)
Hotels
See Office of Price Administration
Regraded Unclassified
- I -
Book Page
Inflation
Compulsory Savings: See Revenue Revision
Italy
See Occupied Territories
- L - -
Latin America
Mexico: See Silver
Lend-Lease
United Kingdom:
Federal Reserve Bank of New York statement showing dollar
disbursements, week ending July 7, 1943 - - 7/15/43
649
103
Aircraft despatched, week ending July 13, 1943 - British
Air Commission report . - 7/19/43
216
- M - -
Mager, Harold
See Public Relations, Division of
Maguire, John M.
See Appointments and Resignations
Mexico
See Silver
Missouri
Truman, Harry S. (Senator, Missouri): War Finance Committee
headquarters move from Jefferson City to St. Louis - -
HMJr-Truman correspondence - 7/20/43
315
(See also Book 650, page 97 - 7/21/43)
a) Clark (Senator, Missouri)-HMJr conversation - 7/23/43:
Book 650, page 260
b) HMJr decides on branch office at Jefferson City -
7/24/43: Book 651, page 10
- N -
North Africa, French
See Occupied Territories
- 0 -
Occupied Territories
French North Africa:
Tangiers: State Department's authorization to Legation
to act as intermediary for cashing United States
Government checks disapproved by Treasury in letter to
State Department - 7/20/43
341
Italy: Military operation expenditures - HMJr recommends
to Hull unison in negotiations between United States and
United Kingdom - 7/15/43
97
Regraded Unclassified
- 0 - (Continued)
Book Page
Office of Price Administration
Hotels and Restaurants - amounts of food served: Kades
memorandum - 7/19/43
649
209
a) HMJr's letter to Brown (OPA) - 7/29/43: See Book 652,
page 211
- P -
Post-War Planning
Renegotiation of Contracts: Patterson-HMJr conversation on
Attorney General's memorandum - 7/20/43
268
a) Memorandum for FDR from Patterson with HMJr's
approval - - 7/20/43
273
Public Relations, Division of
To clear through Fred Smith - - 7/20/43
246
(Mager, Harold
(Schwarz, Charles
Order signed by HMJr - 7/20/43
336
- R - -
Renegotiation of Contracts
See Post-war Planning
Restaurants
See Office of Price Administration
Revenue Revision
Vinson conference described to Treasury group by Paul
(memorandum on page 42)- 7/15/43
22
a) Excess profits tax (two types) discussed
b) Compulsory savings strongly advocated by Vinson
44
Stam's (Joint Committee on Taxation) request for all
Treasury plans under consideration discussed by Treasury
group - 7/20/43
253
d) Paul memorandum and copy of memorandum to Stam -
7/20/43
326
b) Richard Gilbert (Department of Commerce) also
approached by Stam - 7/21/43: See Book 650, page 86
c) Treasury answer to Stam's request 7/23/43: Book 650,
page 291
Withholding Tax: FDR's exemption certificate sent over for
signature - 7/20/43
329
a) Treasury's instructions - 7/29/43: Book 652, page 164
Roosevelt, Franklin D.
See Revenue Revision: Withholding Tax
- S -
Saudi Arabia
Strengthening of ties discussed by White and Treasury group -
7/20/43
256
Schwarz, Charles
See Public Relations, Division of
Silver
Mexico: Purchase of Mexicansilver by Bank of Mexico for
7/20/43 coinage purposes discussed in Treasury letter to Crowley -
344
Regraded Unclassified
- S - (Continued)
Book Page
Stabilization Fund
Earnings and expenses, May and June - White memorandum -
7/17/43
649
173
- T - -
Tangiers
See Occupied Territories: French North Africa
Taxation
See Revenue Revision
Tenwell, Lewis (Collector of Internal Revenue, Montana)
See Appointments and Resignations
Truman, Harry S. (Senator, Missouri)
See Missouri
- U - -
United Mine Workers
Department of Justice investigation discussed by Treasury
group - 7/15/43
16,35
a) HMJr-Byrnes conversation - 7/20/43
224
b) FDR's talk with HMJr reported to Treasury group -
7/20/43
238
- W -
War Savings Bonds
See Financing, Government
"We the People"
See Financing, Government: War Savings Bonds
(3rd War Loan Drive)
*
Wartime 7/19/43 Reserves: Division of Tax Research report concerning
195-B
Regraded Unclassified
1
July 15, 1943
8:40 a.m.
THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Tickton
H.M.JR: The thought that is running through my mind
is, they tell me all the time that there are ten key
States where we have to get the money. How much money
do you have to get out of the ten key States?
MR. TICKTON: Three-quarters of the money, pretty
near.
H.M.JR: I think what we ought to do is, we ought
to have whatever they call them - the chairmen of these
ten States - in next week, and lay this thing before them
and find out on a quota basis. Say, "Now look, if we
give Michigan so much, can you do it? If we give New
York so much, can you do it?"
Now, there is no use - if I were chairman of the
State of New York and they gave me a thing which I felt
was impossible, it would kill my enthusiasm. On the
other hand, if they gave me a quota which I thought was
possible, I would go out to beat it and get more. I
just put myself in the place - now, this is very nice -
with all due respect to Tickton, Lindow, and the rest
of them - it is their job to set up the statistics, but
it is somebody else's job to get it. I mean, after
reading this thing, it just leaves me with the shudders.
It just leaves me with the shudders.
Now, I told them yesterday that it was no good to
have four, and they put it down to three. Then they
come back this morning with four again.
MR. BELL: I told you what you were up against
yesterday was this increase in percentage.
Regraded Unclassified
2
- 2 -
H.M.JR: Well, that is all right, but the thing to
do is this: It is very nice to fix a quota. Any business
house can fix a quota. Then the next thing to do is to
get in your district sales managers and say, "Boys, what
can you do?" Before we fix this basket or anything else
we have got to find out and have these ten fellows in.
You take a fellow like Frank Isbey who did a real
job in Michigan. He had sixty thousand people out selling,
you know. He may say to these fellows, "Hell, I can do it.
Why don't you do what I do in Michigan?"
MR. TICKTON: That was Frank's argument when I talked
to him a few weeks ago. He said among other things he
pulled his punches. He was afraid of trying to do so
many things. He did things you didn't get around to
approve; he went ahead and did them. He was handing out
bonds to people. He was having people take money; that
wasn't approved by the Treasury.
MR. BELL: As a matter of fact, it was disapproved.
MR. TICKTON: It was against regulations.
H.M.JR: He did it. We have do things like that.
We have to cut corners; we have to take chances. Un-
fortunately I am all tied up with these damned foreigners
this morning - Panama and Uruguay - I have to waste my
time shaking hands with them and all the rest of this
stuff.
MR. BELL: I would like to have the ten people in.
I just hate, at this stage of the game, to withdraw
them from their organization program. That is the most
important thing they have.
H.M.JR: Well, two days are better - they had better
be in here two days.
MR. BELL: You are taking them right out of their
organization program. That is the important thing, Mr.
Secretary.
Regraded Unclassified
3
- 3 -
H.M.JR: It is very nice. You fellows - it is very
nice to do the thing, but the trouble is, supposing I
say to Burgess, "You are going to have forty percent.
Four times seven are twenty-eight; you are going to have
two billion eight of individual subscriptions in New York
State.
He will say, "Mr. Morgenthau, the least you can do
is ask me."
MR. BELL: You have fifty-one chairmen; it is going
to be difficult to get an agreement.
H.M.JR: I am not going to, but I want the ten key
States in.
MR. BELL: I would like to have them in. I am just
hesitating because I know how important it is that they
get this organization working.
H.M.JR: Now, we are behind schedule on this basket,
and it is not my fault. I hear that we are not going to
get together with the Fed until Friday.
MR. BELL: We have the bankers here today, and I
couldn't get together with them today.
H.M.JR: They ought to read that thing. They ought
to read it before they see me. (Indicating financing memoranda.)
MR. TICKTON: We made ten photostats of that last
night for distribution this morning, yes, sir.
MR. BELL: We are going to give a copy of that to
Eccles.
H.M.JR: Yes, sure.
MR. BELL: But we are going over to see Eccles
tomorrow at ten-thirty. That will be just two hours of
talk.
Regraded Unclassified
4
- 4 -
Burgess will be here Monday - he will be here
Tuesday and Wednesday - come down Monday night. That
is crowding it a little, but you could have these others
in, and we could--
H.M.JR: He is coming when?
MR. BELL: He will be here Tuesday and wednesday.
H.M.JR: Maybe we ought to have the others here, too.
MR. BELL: We could give them an hour--
H.M.JR: Suppose you had the other nine in here.
MR. BELL: All right.
H.M.JR: I am being very honest and frank with you
fellows. That has got me scared. I am not saying this
is wonderful and we can do this thing, and all the rest
of this business, but I want the thing set up, so I am
letting my emotions run me so that - gee, this is wonderful,
we can put this over and get two or three billion over -
instead of that, it is just impossible.
I want a quota which these fellows - which eight out
of ten will say we can get - nine out of ten - "And we
will do better, Mr. Morgenthau." But I don't want ten out
of ten to say it is impossible. They will say, "What is
the use, we can't do it anyway?" I know sales psychology.
MR. BELL: In your own mind, how sacred is this
increased percentage?
H.M.JR: Nothing is sacred.
MR. BELL: Then I would make the goal fifteen billion,
and the individual five and a half.
H.M.JR: Nothing is sacred.
MR. BELL: I think the figures are going to be hard
to make when you jump from three billion two to seven
billion.
Regraded Unclassified
5
- 5 -
MR. TICKTON: It is a tough jump; it isn't just
tough on E bonds alone, it isn't easy for the others.
H.M.JR: Tickton, you have worked around me, and you
are doing a beautiful job, but it is one thing to do the
thing, if you don't mind, on a theoretically ideal basis,
and it is another thing to give it to them on a basis that
they can accomplish it.
MR. TICKTON: This has been set up, really, with the
idea that it is very important to be able to explain this
to Mr. Byrnes and Mr. Baruch to show that we have a program
that is making progress. That is the fundamental assumption.
If you go on from there, you change it.
H.M.JR: That is very nice, but--
MR. TICKTON: It is a practical problem.
H.M.JR: I am enough of a salesman, and I have done
enough 8 elling in my life to know that you have to give
a fellow a chance to say, "I can do at least as well or
better,' and you can't have him licked, the way I feel
right now, before you start.
Now, I tell you what we can do: We will go into the
nine o'clock meeting. That won't take SO long. As soon
as that is through, I will go into War Finance.
Regraded Unclassified
S
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 14,1943
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: The Third War Loan
Summary
1. The first section of this memorandum out-
lines a suggested financing program designed to
yield $16.2 billions in a nonbenking drive conducted
between September 9 and October 2, of which $7 b11-
lions would come from individuals. This financing
program plus the interim financing program set forth
in our memorandum entitled "A Suggested Program for
Market Financing Prior to the Sentember Drive" would
provide a volume of funds sufficient to carry the
Treasury until December. They would accuire for in-
vestment in Gov rnment securities a volume of funds
from individuals which would recresent 65 percent of
the amount of their new savings accumulating between
May 1 and September 30 (in place of the 60 percent
which was 80 invested between Janu ry 1 and April 30),
2.8 set forth in our memorandum entitled "Financing
Requirements and Sources of Funds for This Summer
and the Third War Loan".
2. A number of technical and policy matters
which recuire воше attention during your considera-
tion of the September financing program are 018-
cuss a in the second section of this memorandum.
Regraded Unclassified
7
- 2 -
I. General Outline of the Program
The financing program set forth below is designed
to raise $16.2 billions of new money between September 9
and October 2. These funds plus (1) the amounts of new
money provided according to our memorandum entitled "A
Suggested Program for Market Financing Prior to the
September Drive", and (2) the amounts derived from savings
bonds and Treasury savinge notes sold after the September
drive should be sufficient -- if bill and certificate
maturities are rolled over -- to provide the Treasury with
a comfortable working balance until Docember.
Financing Program - Third War Loan Drive
:
Amount
Period and Offering
:
(In billions
:
of dollars)
A. September 9 to October 2
1. Individuals:
(a) E bonds
4.0
(b) F and G bonds
.8
(c) 2 percent bonds
.8
(d) 2-1/2 percent bonds
1.0
(e) Treasury savings notes
.4
(f) Subtotal
7.0
B. September 27 to October 2
1. Insurance companies and mutual
savings banks:
(a) 2 nercent bonds
.6
(b) 2-1/2 percent bonds
1.7
(c) 7/8 percent certificates
.2
(d) Subtotal
2.5
2. "Other" corporations:
(a) F and G bonds
.2
(b) 2 percent bonds
1.1
(c) 2-1/2 percent bonds
.7
(d) 7/8 percent certificates
3.0
(e) Treasury savings notes
1.7
(f) Subtotal
6.7
C. Total program - Third War Loan
16.2
It is pro osed to count all receipts from Treasury savings
notes and savings bonds deposited with the Treasury between
Se tember 1 and October 9 as hart of the drive.
Regraded Unclassified
8
- 3 -
In the financing program set forth above it is sug-
gested that the entire $16.2 billions of new money raised
by the Third War Loan come from a nonbanking drive, and
that about $7 billions of this amount be obtained directly
from individuals. E bonds at 04 billions would provide
the major share of the individual money. Bank borrowing
would be divorced entirely from the drive,
In order to accomplish a war loan drive of the fore-
going magnitude and composition it will be necessary, it
appears at this time, to change the mechanics of the
operation from those employed heretofore 80 as to place
the entire emphasis of the loan squarely on "individual
money". It is suggested in this connection that the
individual part of the loan be set off by itself to be
handled as separately from the other parts of the loan
as possible -- separately as to (a) the type of approach
(b) the timing, end (c) the particular securities offered,
(a) The type of approach
(1) The individual part of the Third War Loan will,
it appears, have to involve an intensified selling cam-
paign that will dwarf all previous efforts to sell
Government securities to individuals. The smount that
will have to be raised is huge when considered from the
point of view of subscriptions by the average man, but
the figures are disarming in their simplicity. The
difficulty of the accomplishment of the job is illustrated
by the following example:
Assume that all persons who buy any of
the issues other than E bonds have taken
their share of the loan -- $3 billions as
shown in the table above. Then every one of
the 60 million remaining Americans who will
earn an income during the month of September
(including the members of the armed forces)
will, on the average, have to ut up about
$70 cash during that month for E bonds if
the gorl is to be renched. If the market
cannot be expanded to beyond, say 40 million
persons because of the impossibility of ob-
taining extended amounts from most of the
persons with inc mes of $1,000 a year or
Regraded Unclassified
9
- 4 -
less (including most of the members of the
armed forces), then the average requirement
for each of the 40 million persons will be
About $100 oash during the period of the
drive.
A drive that will reach tens of millions of persons
and will obtain from them funds in the magnitudes set
forth above will have to be a drive that is really b1g.
It will have to be a campaign which will involve house-
to-house canverses in every one of the nation's counties;
bench-to-bench canvasses in every one of the nation's
factories; and desk-to-desk CANVASSES nt every one
of the nation's offices. Many people will have to be
canvassed three or four times and urged to subscribe
three or four times.
It is likely that a drive such as this will have
to involve sales pressure such as has not been used
heretofore in a war bond campaign. Security sales to
individuals in volumes AB large as those contemplated
can be accomplished only on the basis of a series of
dramatic Appeals to patriotism. Accordingly, every
person must be urged to subscribe until it really hurts
his spending power -- a level of subscription which would
be far above the level a person would ordinarily consider
as being representative of his ability to buy war bonds.
A drive such as has been described will, in all
likelihood, require public approval by the Treasury and
the Federal Reserve of local activities encouraging
individuals to withdraw large portions of their bank
accounts for investment in E bonds. The need for a
policy approving bank deposit withdrawals has become
more and more evident as the war financing program has
progressed, and it should be formulated completely
before the start of the Third War Loan, inasmuch as
the success of the drive may well depend upon it.
Some bankers question whether they can
afford the drain on their deposits which
will result from a vigorous program of
sales of Government securities to their
depositors, but their leaders, as repre-
sented by the members of the Economic
Policy Commission of the American Bankers
Association, are in favor of a deposit-
withdrawal-for-Government-security-invest-
ment policy. In the Commission's report
on the "$100 Billions Budget, and The Banks"
Regraded Unclassified
10
- 5 -
a copy of which was sent you some months ago
by Mr. Randolph Burgess, bankers were advised
to look upon such deposit withdrawale with
complacency. The report explained, you will
recall, that "as the deposits go out through
customer subscriptions for bonds or through
Government withdrawals, there is reasonable
certainty that over A veriod they will return,
though usually under different ownership".
(2) The corporation eart of the Third War Loan will
involve a different type of approach from the foregoing
and might well be handled as a custom-made "Special
names" Job. The patriotic nopeal might be used, but
the investment approach would probably be adequate.
It is important, however, that every corporation that
might be a candidate for A subscription to the Third
War Loan be listed before the campaign starts and be
assigned by name to a particular "drive solicitor".
This would eliminate duplicate solicitation, and would
provide an economy of effort. These representatives
should, moreover, be matched to the corporations in a
manner which would achieve the most effective use of
sales personnel.
The Job of preparing lists of corporations and dis-
tributing the names among salesmen 18 considerable, but
it sounds larger than it really 18. There are, it is
likely, less than 100,000 corporations whose names would
appear on lists of likely candidates for subscriptions
to the issues offered in the Third War Loan, and 8. con-
siderable proportion of the names could be obtained
from past records of subscriptions and from other sources.
(b) Timing
The Third War Loan will involve some new angles
with respect to timing if the operation is divided as
set forth above, because the two parte of the operation
will not be similar to each other. The corporation
part will be one that can be accom lished within a
relatively short period of time - A week would prob-
ably be sufficient -- for there should be no obstacle
to obtaining corporation subscriptions promotly. The
situation WAB well illustrated in April when 60 percent
of the money obtained from nonbanking corporations was
received during the first week of the drive, notwith-
standing the fact that there was an interest advantage
to postponing the purchase of tax notes to the month end.
Regraded Unclassified
11
- 6 -
The individual part of the Third War Loan will, on
the other hand, require three or four weeks to complete
if the extensive canvasses that are suggested are to be
accomplished. With this in mind, it is suggested that
the individual drive start on Thursday, September 9, and
extend to Saturday, October 2, with accounting permitted
until Saturday, October 9, to take in all the savings
bonds sold during the drive. Books for the corporation
offering might be opened on Nonday, September 27, it 1s
suggested, and close on Saturday, October 2, Advertising
could be coordinated so that it would introduce the cor-
poration part of the drive at the same time that it
served to sour the wind-up of the drive for individual
subscriptions.
Timing in the foregoing manner would make it pos-
sible to conduct the individual campaign unclouded for
three weeks by a coincident appeal to corporation in-
vestors. The public would thereby be spared the con-
fusion that results when large figures are announced
in a combined campaign as early subscriptions from
insurance companies and other corporations roll in.
(c) The particular securities offered.
In a campaign directed toward extensive purchases of
Government securities by individual investors it would be
desirable to offer as many securities as is necessary to
cover the market. In the Third War Loan drive it is Bug-
gested that individuals be offered:
1. E, F, and G savings bonds for the
smaller purchasers;
2. Scries C savings notes for the large
investor who wishes a short-term security;
3. An intermediate bond -- say a 2 percent
issue -- for medium termed investment, and
4. À 2-1/2 percent bond for the individual
investor who desires a long-term instrument.
These Issues would satisfy the re uirements of most
individual investors. Two of them -- the E Lonis and
2-1/2 percent issue -- accounted for 10 percent of the
individual money in April.
Regraded Unclassified
12
- 7 -
Corporations would be adequately provided for by an
offer of:
1. 7/8 percent certificates,
2. Series C savings notes,
3. F and G bonds,
4. 2 percent bonds, and
5. 2-1/2 percent bonds.
Bills are removed from the basket, it is noted and,
if used at all, would be considered outside of the drive.
II. Technical and Policy Matters Which
Will Require Some Attention
There are a number of important technical and policy
matters which will require some attention during your con-
sideration of the September financing. They are discussed
briefly in the following paragraphs.
(1) Certificates in the basket. A 7/8 percent certi-
ficate is suggested for the basket in order to attract the
funds arising from current corporate accumulations -- funds
accumulating in depreciation reserves which cannot Le rein-
vested in new equipment, arisin from accounts receivable
repayments and 601ng into tax reserves. These accumulations
are short-termed in nature and it cannot be expected that
corporations will wish to keep them invested beyond the
duration of the war. Many corporations consiler a three or
four year note too long for these funds and accordingly,
such a security 18 unlikely to attract as large E proportion
of the funds available as a one ye 1" certificate. Moreover,
even if corporations were persuaded to purchase such a
security, the Treasury would have gained no real advantage
from their action. Instead a future market problem would
have been insured should corporations wish to licuidate the
bulk of the issue at some period prior to its maturity Le-
cause of the termination of the war. With respect to
Series C notes, they too do not seem to be a wholly setio-
factory security for all corporate accumulations. Many
corporations prefer the certificate type of instrument and
their wishes on this account mi ht well be respected. In
April, it 1s recalled, the certificates outsold Series C
notes by nearly vl billions.
(2) Leakage to commercial tanks. Eliminative commer-
cirl banks from participation in t.e T..ird Mar Loan will
rise to a technical prollem with rer ect to the 1ssue of
2 percent bonds and certificates -- ..SW to prevent banks from
setting out to acquire the 1sewer 13 entering subscriptions
Regraded Unclassified
13
- 8 -
indirectly through dealers and brokers or other inter-
mediaries. This matter could be controlled, it 18 su_-
gested, by eliming ting dealers and brokers from the
drive as far as the certificate and 2 percent issues are
concerned -- they could, however, enter subscriptions
for the 2-1/2 percent bonds. With respect to other in-
vestors who m1,ht act as intermediaries, it is sug ested
that the matter be controlled by Federal Reserve policing,
operating under a public announcement by the Secretary
that the certificates and : percent tonds issued during
the drive were intended only for nonbanking investors and
that one or both of the issues would Le offered to banks
after the drive closed.
(3) Details of the 2-1/2's. The 2-1/2 agreent lond
su - ested for inclusion in the Fusket mint be a December
1964-69 or a March 1965-70. The issue should Vear the
conditions, includin restrictions as the ownership, AE the
2-1/2 percent bond issued in April, and should Le dated
September 15 BO that interest calculations during the first
week of the drive might be eliminated. The September 15
dating would, of course, mean that subscriptions for all
P-1/2's sold during the corporation part of the drive would
have to be tendered at par and accrued interest. Some cor-
porations might, of course, prefer that the issue be dated
September 30 and offered for subscription at par, lut it is
expected that no considerable objection to the suggested
dating 1s likely to arise on this account. The September 15
dating would permit sales of this issue to individuals to be
definitely tied down during the early part of the drive.
(4) 2-1/2's to refund the 1943-45 bonds. The 2-1/2
percent bond offered in the drive would be made available to
refund such portion of the 3-1/4 percent bonds of 1943-45
called for payment on October 15, as were tendered for ex-
change as discussed in our memorandum on "A Subjested Program
for Market Financing Prior to the September Drive. The
amount of 2-1/2 percent bonds for which subscriptions were
so entered would be excluded from the ures on the drive.
(5) Free ride on the 2-1/2 percent bonds. The separate
timing of the individual part and the corporation part of the
Third War Loan 80 that corporation subscriptions will be held
off for about three weeks may give rise to a minor "free ride"
problem. Some individuals and dealers and brokers might buy
the 2-1/2 percent bond for the purpose of transferring the
securities obtained immediately at & slight profit to insur-
ance companies and other corporations whose investment funds
would be waiting in the market. A deferment-in-trading-while-
the-books-are-open request may serve to reduce the volume of
such transactions. With respect to large subscriptions, more-
over, the Treasury could further control the problem by delay-
ing delivery on subscriptions specifying large denomination
Regraded Unclassified
14
a I I
1.000 -- BES, 1000s of 100,000 or over -- until the
100% of the cor voration portion of the Third War Loan
mid Leen opened.
(o) 2 tond ownership. It 1£ su gested th t con-
sileration be Iven egain to opening E lon's to all
investors other then commercial banks IIF of September 1,
2947. No change in the limitation on the amount avail-
alle for urchase from the present 13,750 issue price
will Le made. This proposal is in line with the ol Jeo-
live of mekin the E bond the "poor man's" security, and
of sellin_ only E bonds to investors of this class until
the 11:11 of sure ases has been re: ched. Many clubs,
associations, unions, church or animations, women's _roups,
olitional or unisations, Lenefit societies, and Craternal,
Copel and recil roups, as well as many corporations
...1c.. are the sursonal Businesses of small merchants, sales-
me, endors have funce mich can well be placed in
Hany of the social and volitical Junes are active-
:, remoting E jon's, and their efforts are likely to Le
11.11 ted in the September drive. The availability of E bonds
for urchase by their own or animations may to much to gain
entraciasm among colemen telen from these groups.
(7) E bond promotion. The amount set forth as the
Stone yoal in September -- 24 billions -- 16 ore than
2-1/2 times the amount of such bonds sold urine the Second
Mr Loan, This proposed volume of sales can Le accountished
only by concentr. ting the selling effort on $100 bonds for
the average man in place of 425 bonds. It would Le poor
sales psychology and an obvious lack of economy in sales
remotion and advertising effort to Luild a compaign that
needs to raise 24 billions around a denomination bringing
DE little as 218. 75 from each viece sold.
(=) E Lond delivery. Assuming that substantial pro-
ress 18 made in raising t..e number of $100 and higher de-
nomination E bonds sold, the Third War Loan may still
involve the issuance of as many as twice the number of
vieces sold during the April drive. Accordingly, the Treas-
ury should be prepared for the issuance of more than 60
million separate bends in the 3 or it weeks of the drive.
This 1s no small order and it will be made no easier by the
fact that door-to-door compaigns depend for their success
on rapid delivery of Londs -- certainly delivery no later
than 48 hours after the application has been made. It 1s
likely that the operation will have to be still further
decentralized, and in large cities may have to be carried
down as for as to local neighborhoods. This extension of
the issuing operation may involve some liberalization in
the procedures new being followed.
Regraded Unclassified
15
- 10 -
(9) F and G bonds. We are withdrawing for the
moment our recommendation that F and G bonds be dis-
continued and are, you will have noted, proposing that
they De included in the drive. We make this new recom-
mendation because we feel that the proponents of a small-
denomination coupon bond would use the withdrawal of F
And 3 bonds as a signal to intensify their demands for
such denominations.
It is noted in this connection, there are a great
ny persons who have $5,000 to $10,000 idle cash avail-
able, out whose income is less than $5,000 a year. Store-
keepere who have suffered inventory declines or reductions
in their accounts receivable are in this class; so are
many members of the armed forces who have licuidated their
businesses and disposed of their personal property or
forms: nno any war workers who have moved to new commu-
nitice ano are living in trailers or furnished rooms and
nola in the bank the funds derived from the sale of their
nomes and furniture. There eoble are not equipped to
face the arket rick involved in the purchase of negoti-
rule securities. The Third War Loan will, however, make
an effort to obtain their funcs for investment in
Joy rement obli tions -- if withorewel of bank balances
19 nevocated. A security available in small denominations
beyond the E bond limit appears to be necessary, there-
fore, incrmuch as aevoce tes of a low-denomination coupon
is no will submit there Deople 80 examples of the market
that 1e not covered by a $500 minimum denomination nego-
tiable bone.
(10) Federal agencies and trust funds. The program
for the Third War Loan drive, set forth in this memorandum,
excludes any amounts that might be obtained in September
from subscriptions by Federal agencies and trust funds.
Regraded Unclassified
16
July 15, 1943
9:00 a.m.
GROUP
Present: Mr. Bell
Mr. Gaston
Mr. Sullivan
Mr. White
Mr. Haas
Mr. Thompson
Mr. Paul
Mr. Smith
Mr. Gamble
Captain Kades
Mrs. Klotz
H.M.JR: Paul, have you seen this? (Indicating
July 10 Chicago News clipping regarding United Mine
workers.)
MR. PAUL: Yes, I sent it in to you yesterday.
H.M.JR: Did you ever consult with that labor man?
MR. PAUL: I just went over that letter yesterday -
it proves--
H.M.JR: What?
MR. PAUL: It proves that there were plenty of other
motivations besides - concealment besides the income tax.
H.M.JR: Is there any case?
MR. PAUL: No income tax case.
H.M.JR: No, but are there others?
MR. PAUL: Yes, I think there are others.
Regraded Unclassified
17
- 2 -
H.M.JR: Where is the memorandum?
MR. PAUL: It is on the way in.
H.M.JR: To me?
MR. PAUL: Yes. I told her to make a copy.
H.M.JR: What I want to ask is this: I will be asked
at press conference about the Chicago Daily News story which
says that--
MR. FAUL: Read particularly the last paragraph.
H.M.JR: Anyway, the gist of it is that there is a
report of an investigation of Mine B - you summarize the
thing - there is a Treasury report investigating this whole
question of Mine B, United Mine Workers, over in the
Department of Justice. Now, I am going to be--
MR. PAUL: There is 8 little implication that the
Justice Department has been dilatory about it or is block-
ing it, or something of that sort.
H.M.JR: That doesn't for the moment interest me. What
I want to know is when the press asks me at ten-thirty, "Is
there such a report, Mr. Morgenthau; is it over at the Depart-
ment of Justice, can I say, "Yes"?
MR. PAUL: I don't see what else you can say if you
say anything. That is true.
H.M.JR: Is it illegal to say yes? Any reason why I
can't say yes?
MR. GASTON: The Department of Justice has already
confirmed that there is such a report over there through
their Public Relations man. I would be inclined to say,
"I am sorry, I can't say anything about it."
H.M.JR: That doesn't satisfy me, Herbert.
MR. PAUL: I got a report yesterday that the Justice
Department, which must have leaked this story - I don't
Regraded Unclassified
18
- 3 -
know where it could have been leaked otherwise - is very
sore about the way they have been treated here in this
story.
H.M.JR: Who is sore?
MR. PAUL: Justice, including the Attorney General.
H.M.JR: And there must be a leak, you say, in the--
MR. PAUL: I surmised that owing to the methods they
have of not taking care of papers and everything - our
assistant general counsel was over there for six months,
and he says that you can get anything out of the Justice
Department just by walking around and looking on people's
desks.
H.M.JR: I still come back to the fact that this is
important, and I don't want to do anything - did you send
me this?
MR. PAUL: Yes, I sent that in to you. I had a lot
of trouble getting a copy of it.
H.M.JR: Now, is there any reason - if they ask me,
"Mr. Morgenthau, is there such a report, and is it over
at the Department of Justice,' is there any reason why I
can't simply say, "Yes. If you want to know anything about
it you have to see the Department of Justice"? What harm
is there in that? Do you mind for one minute - before we
come to the public relations, let's get the law straight
on this thing.
MR. PAUL: I am not sure. I think I had better check
on that legal end of it; I am not sure. I think that only
covers the disclosure of anything in returns and doesn't
refer to pendency of investigation. I think in view of the
importance of this I had better check.
H.M.JR: Could you be back at ten-twenty-five and
let me know - you and Kades?
MR. PAUL: We can check that in ten minutes.
Regraded Unclassified
19
- 4 -
H.M.JR: Yes, but I am going to be busy. I want to
know, because the St. Louis Post-Dispatch, which is just
across the border from this B Mine, and P.M., want to
know about it. They are going to ask me.
I want to know if I can simply say, "Yes, there is
such a report." If they say, "Where is it?" I will say,
"Over at the Department of Justice." That is all I
can say, gentlemen. That is all I want to say.
MR. PAUL: There is only one thing that might be
suggested. It hasn't been over there very long. One
might almost give the date if you are going to give
anything.
H.M.JR: No, I don't want to do that.
MR. PAUL: That is only for their protection.
H.M.JR: Why should I worry about protecting them?
MR. PAUL: You shouldn't - you should; they would
appreciate it.
H.M.JR: What?
MR. PAUL: I think they would appreciate your
saying that much about this, because this story sounds as
if it has been over there for a year or something like
that and they were very dilatory.
H.M.JR: Well, don't worry too much about the Depart-
ment of Justice on this thing. I mean, right in the room,
I don't want to do anything to dampen this story. And I
am not using my imagination. Now, Herbert?
MR. GASTON: In the first place, you can't tell them
anything they don't know. The Post-Dispatch man ran across
our man while he was investigating the case. He knew from
other sources that we were investigating. Hartman admitted
to him that we were investigating the case. That has all
been printed in the Post-Dispatch. Yesterday they confirmed
Regraded Unclassified
20
- 5 -
it at the Department of Justice that the Treasury had
delivered 8 report over there. It was officially con-
firmed through the Public Relations Office in the Depart-
ment of Justice.
I don't think there is anything you can tell them
that they don't know. I think you can tell them, "You
know everything about this case that I am able to tell you.
There is nothing I can ell you about the case that you
don't already know."
H.M.JR: Now, Herbert, you are a newspaperman; this
isn't going to satisfy you at all.
MR. GASTON: As far as I can see, it has been admitted
by the Department of Justice that the thing is over there,
so there probably isn't any practical difficulty in your
admitting that it is over there. Whether there is a legal
difficulty or not if you wanted to admit - as I say, you
can't tell them anything they don't know.
H.M.JR: Let's say, "My General Counsel and my Special
Assistant, Mr. Kades, tell me, legally, it is over at the
"
Department of Justice, and that is all I can say, gentlemen.
Is there any objection to that?
MR. GASTON: Not the slightest.
H.M.JR: Fred?
MR. SMITH: If it is true they confirmed it, say, "I
understand they confirmed it."
H.M.JR: I don't know; I haven't been advised officially
that they have or have not confirmed it.
MR. GASTON: My only objection to that is that that
will lead to their asking -some more questions, "What did
you find? Is there & tax case?" and so on.
H.M.JR: "No, we followed the usual procedure and the
matter has been forwarded to the Department of Justice for
action, or "for such action as they deem fit." That is
all I can say.
Regraded Unclassified
21
- 6 -
MR. PAUL: Mr. Garrison points out that there is a
pretty clear case against the employer for violation of
the Wagner Act. There might be a conspiracy on the part
of labor to assist in the violation of that Act, and there
is a possibility of conspiracy to restrain commerce in
violation of the Sherman Act, and there might be some
violation of some State prohibition against bribery.
H.M.JR: Can I forward that to the President? (Indicating
letter dated July 7, 1943, from Lloyd Gattison to Mr. Paul)
MR. PAUL: Sure. I see that copies haven't been
made. I will rush a copy off to you.
H.M.JR: Is there only one copy?
MR. PAUL: That is all I have.
MR. GASTON: If here is bribery, I don't see how
you can escape the conclusion that there is also tax
evasion. If there is bribery, it seems to me there is
conspiracy. If there is conspiracy, there is evasion of
taxes.
MR. WHITE: He might have reported income under some
other head.
MR. GASTON: No he didn't; he admits it.
MR. SULLIVAN: Of course, as you know, I agree with
Herb. I thought we had a case of conspiracy to avoid the
tax laws. I have nothing new to add.
H.M.JR: I have been waiting for this (Indicating
Mr. Garrison's letter).
MR. PAUL: I didn't know about it until yesterday.
H.M.JR: This is hot, and I have been waiting for it.
MR. PAUL: I think you might send along with it the
letter to which this is an answer which summarizes the
facts.
H.M.JR: All right.
Regraded Unclassified
22
- 7 -
MR. PAUL: You see, we have presented hypothetical
questions; otherwise we would be violating the law about
disclosure of returns.
H.M.JR: Get it in. I have been awfully keen on
this thing. If I had had this earlier it would have been
helpful. Anyway, you come in at ten twenty-five, will you -
you and Kades - and let me know?
MR. PAUL: All right.
H.M.JR: And Kades, I tell you what you might do.
Between now and ten-thirty you might read both of those
letters.
CAPT. KADES: Yes, sir.
H.M.JR: Now would you, Mr. Paul, tell this group -
because I have the group down now to where we can talk
about important things - I would like to know what happened
yesterday over with Fred Vinson. I would like the whole
story.
MR. PAUL: I was going to write up 8 memorandum this
morning. The conference lasted from two-thirty to five-
thirty. Vinson was there. Stam brought with him two of
his assistants - Pete - whatever his name is - and Randolph.
H.M.JR: Talk a little louder.
MR. PAUL: Stam brought with him two of his assistants.
There was a man there who was a new assistant to Vinson;
I forget his name. There was 8 man named Stark, whom I
thought was still with Byrnes; but it seems, when I raised
the point, that he has been assigned over to Vinson, at
least on tax matters.
MR. BELL: He is the Federal Reserve man.
MR. PAUL: Yes. He has been with Byrnes for some
time.
Regraded Unclassified
23
- 8 -
A long speech was made by Vinson about a united
front on taxation, and at the end of that I said, "Well,
since Mr. Stark is here and we want to think about a
united front, I wonder what about Mr." - the Budget man -
"and also, would Marriner Eccles be interested in a con-
ference.' I was doing that partly to see if I could
lead Vinson into a disclosure - more of 8. disclosure of
what his position was.
He rose to that and seemed very annoyed. He said
that he didn't want to have any town meeting - the he
was always glad to hear from any of these people, but he
didn't see any reason for calling them into a conference.
After that episode we went on and discussed the tax
problem.
H.M.JR: That annoyed him?
MR. PAUL: Yes, it did annoy him.
H.M.JR: That is funny, isn't it?
MR. PAUL: And he acted as if he was annoyed on the
ground that I was trying to tell him something about how
you operate on the tax bill. He referred at one time to
a postgraduate course - that he had to take time to take
a postgraduate course in getting a tax bill through.
I said that we in the Treasury had always been careful
to discuss these matters with all the different people in
the Administration who had a legitimate interest.
Then we went into a long discussion of the excess
profits tax. We discussed two types of individual excess
profits taxes, the one that is usually thought of by people,
which is a tax on increase in income; and also a tax from
another angle, putting the rates up, but giving relief to
people who had no increase in income, or decrease, or who
had debts to pay, or high medical expenses and such things.
Stark was very much in favor of the latter type.
Stam made the point that he - that the ways and
Means Committee had passed a resolution calling for a
Regraded Unclassified
24
- 9 -
report from us and Stam on the possibility of such a tax.
The only references - I have never seen anything from the
Committee about that. The only thing I have ever seen
about it was in the newspapers.
H.M.JR: May I interrupt you?
MR. PAUL: But--
H.M.JR: May I interrupt you, because I get the feeling -
I am more interested in the personal relations angle. Did
you get the feeling that Vinson has sort of assumed the
role of leadership in this thing?
MR. PAUL: I tried my best - at one time he made the
statement - and I noted it in my memory - - "I don't want to
dictate what is in the tax bill."
H.M.JR: Could I again interrupt you? You see - let's
go back a little bit. Some of you know about this very
unpleasant incident at Cabinet last week where the President
called on Vinson and I thought he would say something about
prices or something. Instead, he started to give 8 report
on the tax bill, how he had done this and done that. Well,
I felt that the President had had enough fights 80 I kept
quiet. It turned out all right. The President more or less
picked up my fight for me before the thing got through.
I have asked Paul to sort of sound this thing out,
because I feel - and I think Paul agrees with me - that
it is much better to have a showdown now with Vinson rather
than work all summer and find after we do all the work he
has no assistant - he uses our brain. Because, if he is
going to do it, the time to know it is now.
Now, I want to sit down and have a face-to-face talk
with him, because that isn't my understanding with the
President at all.
MR. PAUL: I couldn't tell; I tried several leading
questions--
H.M.JR: Well, he is smart.
Regraded Unclassified
25
- 10 -
MR. PAUL:
to get him to tell what he considered
his function, and the only word that he used that gave me
any lead was this, that he didn't want to dictate the tax
bill.
H.M.JR: I think next week I had better just get hold
of him some way or other and just have 8 face-to-face talk
with him. If necessary, I will go call on him, because I
am not going to be in this--
MR. PAUL: I got kind of an unpleasant taste in my
mouth all through the conference. I felt that Vinson was
being terrifically political about the thing and wasn't
thinking - he made a lot of speeches against inflation,
true, and he seemed to be at odds with Stam in that he
wanted more taxes than Stam. But he didn't seem to have
any grasp of the problem at all as he had seemed to have
at the previous conferences when there have been two or
three of us at lunch together.
H.M.JR: I am going to let you dictate this thing and I
will read it. If anybody in this group wants to read it,
you can lend them a copy. That will save time. They
can apply to you to borrow a copy if they want to read
it. They can read it and then return it to your office.
I think that will save time. But I would like a copy,
and if you would - somebody - George and somebody else -
is going to come up and see me Saturday on the farm.
I want you (Haas) there Saturday morning and Sunday. You
had better get to Poughkeepsie Friday night, if you don't
mind. Who will you take with you?
MR. HAAS: I think I had better take the Source of
Funds man, Lindow, probably.
H.M.JR: What about Tickton?
MR. HAAS: O.K. He is specializing on the quota
arrangement.
H.M.JR: I think you had better have both. If you
don't mind getting there Friday night I will work with you
Regraded Unclassified
26
- 11 -
Saturday morning. Maybe we can put in a couple of hours
Saturday morning, and then I will let you get through and
go to New York to see a show.
MR. HAAS: That will be fine.
H.M.JR: So I think - then if you could give it to
George, he can bring it up.
MR. PAUL: All right.
H.M.JR: What I would like to do is this: You give
me that; I want to read it. Then if anybody else wants
to read it, they can borrow it and read it.
Let me go around briefly. How long would it take -
I want, immediately after this meeting - I would like to
take ten or fifteen minutes - I have something which I
think is important to say to you people in connection
with War Finance.
Who do you want over here from your organization?
MR. GAMBLE: Louis and Coyne.
H.M.JR: Herbert?
MR. GASTON: I haven't anything special. I have a
letter that I want to talk with you about sometime when
it is convenient which you sent to me to talk to you
about.
H.M.JR: Now, just so we know, I have told Mr. Bell
because he will be Acting Secretary tomorrow and Saturday.
He knows the whole inside story about this John L. Lewis
thing. I have told it to one person, so if anything
breaks on it or anything happens, Bell knows. He has to
know, because he is going to Cabinet.
MR. BELL: I would like to read that report, if I
may, before I go.
H.M.JR: All right. I think you ought to read the
report I send to the President.
Regraded Unclassified
27
- 12 -
MR. BELL: Is that Paul?
H.M.JR: Elmer Irey. I think you had better send
for Elmer. There is some stuff going on which is all to
the good.
MR. SULLIVAN: I don't understand. Last fall Biddle
said, "For heaven's sake, why can't we get this fellow
Lewis?"
H.M.JR: Who?
MR. SULLIVAN: Biddle, to me in his own office.
H.M.JR: They tell me he wants to run for Senator
for Pennsylvania. They also tell me there are quite a
few coal miners in Pennsylvania. (Laughter)
MR. SULLIVAN: So I heard.
H.M.JR: The unfortunate thing in this town, if I may
moralize a little bit, is that there are so many people
who have lightning rods up, and they are looking at the
lightning, waiting for it to strike. If they only realized
that if they took a thing like this and did a bang-up job,
that would elect them to office. Instead of that, they
are doing this and that - they are shadow-boxing. On the
other hand, if they did a bang-up thing, hell, the people
of Pennsylvania would sweep them into office. But he will
never be swept in if he dodges this one.
Herbert, if it isn't too late, could you write to
your friend Saul Haas - I think it would be better to have
that special, special stuff sent here.
MR. GASTON: All right.
H.M.JR: You might send him another airmail letter.
John?
MR. SULLIVAN: I reached the Chief Justice. It was a
very good thing I did, because he was appalled at the idea
Regraded Unclassified
28
- 13 -
of his picture being used. As 8 matter of fact, he said,
"I am not too happy about the letter in an advertisement."
I said, "You remember I told you we were using the
President's letter.'
He said, "Oh yes, I can't object to that. I just would
feel happier - but I am not going to object to that." He
very definitely objected to the use of the picture.
H.M.JR: O.K. Anything else?
MR. SULLIVAN: I had lunch with Donald Nelson Tuesday.
We discussed the Procurement matter, and he was heartily
in accord with my plans on that and offered the use of all
of his facilities.
H.M.JR: Thatis the surplus to be handled--
MR. SULLIVAN: during the war on everything except
Army and Navy and such things as Army and Navy turn over.
He seemed particularly interested in my desire to talk
with the Army and Navy and see if we couldn't have a real
survey of their inventories and shake loose from them the
things that they really don't need, at least for the present.
He feels very strongly that we, and not the Army and
Navy, should dispose of it.
MR. BELL: Does that include the plants?
MR. SULLIVAN: We don't know, Dan. There are a lot
of things on the fringe there.
I had lunch with Jim Scott of the Bureau of the Budget.
The Budget and Mack hadn't been getting along too well. It
looked as though Budget was trying to horn in. I am pretty
well satisfied, after my conversation with Scott that we
won't have any substantial trouble with them for the time
being--
H.M.JR: I hope you are right.
Regraded Unclassified
29
- 14 -
MR. SULLIVAN:
on the disposal of the huge
stocks after the war, but that is something else. But
I think if we do a good job between now and the armistice
and have a real plan and are ready to go to town, then
it will have to come to us.
Fred and I have been talking about publicity on the
September 15 matter, and the Bureau and I feel very
strongly that there should be no publicity until the
forms are out. Whenever there is any publicity, they
come after us for forms. If they are not there, they
write to their Congressmen, and we have quite a time.
Fred feels that this should be divided into two
parts: first start in now, telling them there is something
coming September 15; and when the tax forms come out,
give them the technical advice about filling them out.
I understand he is getting out a memorandum on that today.
MR. SMITH: Yes. The only thing is, you have two
surprises coming to the bulk of the people.
The first is that you have to do something on September
15. Then what you are going to have to do - there are
two separate and distinct surprises. Rather than wait
and load them both on at once, it seemed to me there
ought to be some way we could break the news that on
September 15 something is going to happen, you are going
to have to file and pay a tax. Some people are, and tell
who is and who isn't.
But, don't get into the details of it, and maybe not
issue very much from the Treasury directly until you have
really got the forms and get into the discussion of what
you do about it.
H.M.JR: My hunch is that we ought to begin to break
the news to them.
Regraded Unclassified
30
- 15 -
MR. SULLIVAN: I am just wondering what that is
going to do to your payroll allotment. The forms aren't
ready - they won't be ready.
H.M.JR: If you don't mind, after Smith gets into
it, whatever he advises on that I am going to take his
advice.
MR. SULLIVAN: That is all right, but I think that the
people who have been running this year in and year out
ought to have an opportunity to state their case, Mr.
Secretary.
H.M.JR: Oh, John, sure. And if I had followed
what the people have been doing who have been running the
thing I would be in such hot water - I mean, I would be
as bad off as OPA.
MR. SULLIVAN: What do you mean?
H.M. JR: Just that. I mean, I gave the people a
chance who have been running the thing, you and Internal
Revenue, and look where I was on this business as of two
days ago.
MR. SULLIVAN: I am the one who stopped it, Mr.
Secretary.
H.M.JR: How?
MR. SULLIVAN: I am the one who brought it to your
attention.
H.M.JR: Oh, John, don't kid me.
MR. SULLIVAN: Mr. Secretary, that form came to me
for the first time on Monday afternoon. It had gone
through your shop on Thursday, hadn't it?
MR. SMITH: The front page.
Regraded Unclassified
31
- 16 -
H.M.JR: And what did you do? You said, "Here it is
if you want to make out yours - it took me an hour and
thirty-two minutes.'
MR. SULLIVAN: Is there any more graphic way I
could describe to you what the ordinary person is going
to be up against? Mr. Secretary, I have been a hundred
percent with you in your reaction to what this was going
to do to the people, and I have been a hundred percent
with you in your desire to get this thing cleaned up,
and as a result of it--
H.M.JR: What did you do about it? The so-called
people who are regular people - what did they do about it?
It was in the Bureau of Engraving. If I hadn't stepped
in, what would have happened?
MR. SULLIVAN: If you hadn't--
H.M.JR: If I hadn't stepped in, what would have
happened?
MR. SULLIVAN: It would have been printed as it was.
That is why I brought it to your attention.
H.M.JR: You didn't say anything about it, John. You
simply said, "Here it is. If you want to make out one
of your own, here it is."
MR. SULLIVAN: I beg your pardon. We were discussing
this, and in the discussion you said you wanted Fred and
me to get together, and we got together.
H.M.JR: In the morning - I don't know what the
occasion was - Mrs. McHugh was here - and you said, "Here
is the thing. It took me an hour and thirty-two minutes
to make it out. If you want to make it out, here is
yours.
MR. SULLIVAN: I think I told you what the reaction
was going to be to this thing, and in the course of that
discussion you asked Fred and me to get together.
Regraded Unclassified
32
- 17 -
H.M.JR: If, in your mind, you feel that you did, I
will take your word for it because I have got too many
things--
MR. SULLIVAN: I am not claiming any credit for it
at all.
H.M.JR: O.K. Fine. You brought it to my attention.
Let's leave it that way.
MR. SULLIVAN: I should have been fired if I hadn't.
H.M.JR: Let's leave it that way. You are on my
side. What about the people in the Bureau?
MR. SULLIVAN: I think the people in the Bureau did
what they were legally required to do. I think that the
minute Randolph told them in here that afternoon that
the legality of the situation should be disregarded in the
interest of the convenience of the taxpayer - and from
that time on I think they have done a swell job. We
will have a form here where he will have to make seven
computations instead of fifty-five.
MR. PAUL: John, we told them a week or ten days ago
we were trying to get them to simplify that thing.
MR. SULLIVAN: Surrey had approved it.
H.M.JR: What I am getting back to is this. I don't
know who you refer to as the regular people, but if you
refer to Norman Cann, they were perfectly willing to let
the thing go through as is.
MR. SULLIVAN: That is right.
H.M.JR: They didn't have the initiative or the
imagination to see what this would do to the Treasury.
MR. SULLIVAN: That is right.
Regraded Unclassified
33
- 18 -
H.M.JR: So why is their advice any good to me?
MR. SULLIVAN: I am talking about the publicity.
H.M.JR: Who?
MR. SULLIVAN: I an talking about the publicity
we give out every year before March 15.
H.M.JR: Who were the people?
MR. SULLIVAN: Bill Horne is the fellow who has
been helping me on it.
H.M.JR: He is not here.
MR. SULLIVAN: I beg your pardon, if he isn't here
he will be here before noon.
H.M.JR: I thought he went away.
MR. SULLIVAN: He did.
H.M.JR: And you sent for him?
MR. SULLIVAN: Yes, sir.
H.M.JR: How should I know that?
MR. SULLIVAN: I was going to tell you.
H.M.JR: I couldn't dream it. (Laughter) Look,
let's leave it this way. Don't let's either of us get
excited.
MR. SULLIVAN: I am not.
H.M.JR: We are both excited. We have got a very
difficult job to do. If you see this thing my way, or,
I am glad you see it my way - either way you want to put
it - if Bill Horne is around and can help, fine. But we
Regraded Unclassified
34
- 19 -
have almost made one of the worst boners since I have
been Secretary of the Treasury.
Now, let's get together with Fred Smith and 'et's
decide what is the best way to approach the public.
MR. SULLIVAN: That is right. I was merely trying
to tell you that there was an issue coming up.
H.M.JR: You didn't say Bill Horne; I thought what
you said was that I should sit down and be advised by
Norman Cann as to how to approach the public. I didn't
think that that was very good. I am talking about the
radio, the newspapers, the trade papers - all of the
things we do before March 15 - like the job we did on
withholding.
All right, bearing this in mind, that just as soon
as we can coordinate this thing - not under Fred Smith,
but under the advertising manager for the Treasury -
the whole business - I want to get it under the whole
thing so each one will all flow through the same person.
I don't suppose Louis is ready for that.
MR. SMITH: I think we will have to set it up--
MR. SULLIVAN: Horne will be here this week end. He
will map out the program.
H.M.JR: All right. Just so I don't have to get in
on it. The committee on the level of the Office of the
Secretary of the Treasury will be you and Gaston and
Fred Smith and whatever the three of you decide is O.K.,
but I don't want it referred back to me.
MR. SULLIVAN: That is perfectly all right. The
only issue at all between Fred and me is one of time -
whether we shall start in now or whether we shall wait
until these forms are available. When 1 spoke about
the people who have been handling these things, I mean,
every time there has been any publicity about a tax,
Regraded Unclassified
35
- 20 -
before the instructions and the forms are ready, in come
hundreds and hundreds of letters and then a week later
in come the letters from the Congressmen and Senators.
H.M.JR: All right. Now, there is the committee.
You fellows handle it and I don't want to hear about it
again.
All right?
MR. SULLIVAN: Sure.
H.M.JR: Finished?
MR. SULLIVAN: Yes, sir.
H.M.JR: Good.
Fred?
MR. SMITH: Nothing.
H.M.JR: Ted?
MR. GAMBLE: I have nothing.
H.M.JR: Kades?
CAPT. KADES: Nothing.
H.M.JR: Paul, would you take this back and give me
the complete thing? (Indicating material regarding United
Mine Workers.)
MR. PAUL: Yes. I want to get a man named Maguire
in to study simplification of the tax. He is a Harvard
Law School man. I think it will be a good thing to make
a short press announcement. If Herb and I get something
up on it, will that be all right? - or Fred Smith or
anybody you say?
Regraded Unclassified
36
- 21 -
H.M.JR: Yes, you don't have to bother Herbert on
that. Smith will do it. I don't want to start the
whole controversy again, but I take it you heard the
remark that Sullivan made that Surrey passed on this
thing ten days ago?
MR. PAUL: He did not. If he passed on it, it must
have been the last couple of days because I had a. conver-
sation with Surrey over the phone about a week ago
telling him to hold this up until I got back. So he may
have passed on it in the last couple of days - I don't
know.
MR. SULLIVAN: The reason I was sharp, Randolph,
was because when I inquired into it I was told that your
fellows and Blough's were--
MR. SMITH: The suggestions made by Blough, and made
by these other people, were about forty percent taken by
the Bureau. That is the answer.
H.M.JR: Anyway, let's let it - from now on, we will
do it - we will pull ourselves out good.
MR. SULLIVAN: The fault is in my shop, Mr. Secretary.
This thing never was brought to me until Monday afternoon.
They should have had me in on it in the first place.
H.M.JR: The Commissioner, I gathered, didn't get it
until Tuesday, according to him on the telephone.
Your shop - what do you mean by your shop?
MR. SULLIVAN: I mean the Bureau. They shouldn't
have waited until they had proofs at the printers before
they submitted to me.
H.M.JR: Anyway, through combined efforts we caught
it.
MR. SULLIVAN: It is a narrow escape.
Regraded Unclassified
37
- 22 -
H.M.JR: Are you all right?
MR. PAUL: I have a couple of things - no hurry about
them.
H.M.JR: You (Haas) be at the Nelson House Friday
night.
MR. HAAS: Yes, sir.
H.M.JR: Harry?
MR. WHITE: There are several things but they can
wait. There is just one thing I want to get your reaction
to. One Ethiopian has been in & number of times. We
have been going over their monetary plans which Britain
has outlined for them after we got permission from the
State Department we could discuss it freely with them, be-
cause there is some severe criticism we have of the British
proposal.
H.M.JR: Is there a nigger in the woodpile? (Laughter)
MR. WHITE: There is a whole flock of them in this
one - thirteen million, to be exact. (Laughter)
H.M.JR: Known as "The Ethiopian"? (Laughter)
MR. WHITE: "The Ethiopian." For obvious reasons
they want to do business with us. There are two obvious
reasons. One is the possibility of lend-leasing them
silver, and the other is the possibility of a stabiliza-
tion loan.
But the third thing I wanted to get your reaction to
now was that they have, he claims, a very substantial
food surplus there and if only they had some trucks they
could get some of that out and they could produce - they
have two crops a year, and they could produce a lot more
if they had technicians, and so forth.
Regraded Unclassified
38
- 23 -
Now, they have approached Lend-Lease - first they
approached the British and got nowhere; they approached
Lend-Lease and got nowhere, and you are the only one who
could do something if you are interested.
H.M.JR: Yes, I am; you to Captain Kades to Marvin Jones.
He has an avenue to Marvin Jones, and Marvin Jones operates.
I want to say so far, for Marvin Jones, that he is no
Fred Vinson. He likes help and wants help and welcomes it.
I mean, he is an entirely different kind of fellow. So
will you tell Chuck the story? He can get it to Marvin
Jones.
MR. WHITE: O.K.
The British Treasury would like to know whether the
four million ounce part--
H.M.JR: If you don't know, Kades is an expert on
food - pigs and everything else. (Laughter)
MR. WHITE: Every week he gets a new title. He
must be good. It is amazing what the Army will do with &
man. (Laughter)
What about the four million ounce part? Are you, in
your negotiations with Halifax, also including the four
million?
H.M.JR: I would hold everything on India.
MR. WHITE: All right. They asked me, incidentally,
what possibility there was of their getting an answer
soon. I suggested that they might speak to Halifax, who
may know something about it.
H.M.JR: Wonderful. I think you got a memo, or will,
from me this morning.
MR. WHITE: On the Chinese gold?
Regraded Unclassified
39
- 24 -
H.M.JR: Letting the President know. You fix up
some letters for me. Get them to Mrs. Klotz by two
o'clock, please.
MR. WHITE: We didn't have that meeting this week.
H.M.JR: I know.
MR. WHITE: Are you going to be back next week?
H.M.JR: Yes, I will be here.
MR. WHITE: We may not have it next week. We ought
to have it.
H.M.JR: We will have it.
MR. BELL: Walter Stewart couldn't come. Bob Warren
has been down here working with us on these matters. If
you wanted him to go over the week end and discuss it
with Walter it might save time. My inclination is to just
forget it as far as Walter is concerned.
H.M.JR: All right.
MR. BELL: Can I get your initial on this? (The Secre-
tary initialed letter dated July 7, 1943, signed by
Archibald MacLeish, approving sale of ground rent in Philadelphia.)
Just as a matter of interest, the London, Midland,
and Scottish Railway Company donated to the United States
Army the Coronation Scott train that was on exhibition
here. I don't know what they are going to do with it -
probably use it for troops.
MR. SULLIVAN: The railroad expert, Kaptain Kades,
worked it out. That was before he obtained the exalted
position of returning to the Treasury. (Laughter)
CAPT. KADES: They will use it to house officers at
Jeffersonville Depot.
Regraded Unclassified
40
- 25 -
MR. BELL: We have a rather nice letter from Mr.Wood,
who is president of the company.
H.M.JR: Let somebody take it up with General Suries.
CAPT KADES: Mr. Secretary, when I was in the Army
I cleared the fact that the Treasury could handle the
publicity with General Gregory. (Laughter)
MR. BELL: O.K.
H.M.JR: All right?
MR. BELL: I have got about a three-page memo on my
desk describing a very famous rug that has been donated.
Whether we ought to waste paper putting out the publicity
or not--
H.M.JR: All right.
MR. THOMPSON: Would you be willing to sign, without
reading, this circular? (Department Circular No. 244,
"Supervision of Bureaus, Offices, and Divisions" signed
by the Secretary.)
H.M.JR: John, I can't overemphasize the importance -
this thing is two o'clock in your office?
MR. SULLIVAN: That is right.
H.M.JR: I am leaving the Treasury promptly at three-
thirty.
MR. SULLIVAN: You want me to call you as soon as--
H.M.JR: As soon as you need me.
Those of you who are interested in Mrs. Morgenthau,
she had the best night she has had, and this third attack
of phlebitis in her right leg seems to be disappearing.
Regraded Unclassified
41
- 26 -
MR. SULLIVAN: I just talked with Fred here a minute,
Mr. Secretary, and he and Herbert and Bill and I will sit
down with whoever the Bureau wants. They will present
their side. Fred will have the memorandum. We will
vote and it will be decided before I leave Friday after-
noon.
H.M.JR: The reason I got excited, I thought I had
to consult Norman Cann to get good ideas out. You didn't
tell me you had Bill Horne.
MR. SULLIVAN: How could I tell you? I didn't have
him.
H.M.JR: You also notified me you are leaving Friday
night?
MR. SULLIVAN: No, you were notified and signed a
memo on that two weeks ago.
H.M.JR: Where are you going?
MR. SULLIVAN: Home.
H.MJR: For how long?
MR. SULLIVAN: Two weeks.
MR. BELL: Is that approved? (Laughter)
Regraded Unclassified
42-
42
July 15, 1943
MA
MEMORANDUM FOR THE SECRETARY'S FILE:
I attended & conference yesterday afternoon at
Judge Vinson's office, 2:30 p.m. The conference was attended
by Judge Vinson and his assistant Mr. Underwood, Mr. Stam
and his two assistants, Mr. Burgess and Mr. Price, Mr. Stark,
and by myself and Mr. Surrey. (Mr. Surrey had to leave at
about 3:30 in order to attend a conference with you on the
September declaration forms.) The conference lasted until
almost 5:30.
You will remember that Mr. Doughton had recently
suggested to me that between now and September Mr. Stam
and I (and our staffs) should confer from time to time on
matters to arise in connection with the forthcoming tax bill.
Mr. Doughton told me that at a recent luncheon in his Capitol
office attended by Senator George and Judge Vinson, the
latter had expressed a desire to be at the first meeting
between Stam and me. Later, Judge Vinson, after a telephone
conversation with me, arranged with Mr. Stam to hold a meeting
at his office yesterday.
1. At the beginning of the conference Judge Vinson
made 8. statement, apparently along the line of justification
for the meeting, as to the need of a united front. At this
point, thinking that Mr. Stark was connected as he formerly
was with Justice Byrnes' office, I raised the point as to
the propriety of having attendance from Mr. Smith's office
and Marriner Eccles' office. Judge Vinson seemed somewhat
annoyed at this suggestion saying that he did not want to
have B. town meeting, and once or twice later he referred
with some annoyance to post graduate courses in tax bills.
While he said that he would be glad to discuss tax matters
with Harold Smith and Marriner Eccles he clearly evinced
his objection to having their representatives attend any
further meetings. I pointed out to him that I was bringing
the matter to his attention partly on the basis of my mis-
apprehension as to Mr. Stark's status and that the Treasury
Regraded Unclassified
43
- 2 -
had been very careful in the past to consult with other
legitimately interested agencies in connection with tax
matters.
2. The first general point discussed was the
individual excess profits tax. This tax problem was raised
by Mr. Stam and I gave a statement as to the difficulties
of such 8. tax, including the administrative difficulties
and the many injustices that would be involved. Mr. Surrey
supplemented this statement with one or two points including
the problem of over time.
Mr. Stam then brought out the point that under a
resolution of the Ways and Means Committee introduced by
Robertson, his staff and the Treasury staff had been asked
to report to Congress in September on the practicability
of an individual excess profits tax. Judge Vinson said he
had not heard of this resolution and I said that the Treasury
received no notification from the Committee though I personally
had read something to this general effect in the newspapers.
The discussion of the individual excess profits tax
procesded at first along the lines of the conventional tax
on income increases over a pre-war period and Stam evinced
a great deal of interest and pre-possession in favor of such
a tax, though as usual he did not commit himself on the point.
Mr. Stark introduced into the discussion a point made by
Roy Blough (and evidenced in the Times' recent story on this
subject) that the approach to such a tax should rather be
from the standpoint of increasing rates by allowing for relief
where there had been no increase or a decrease in income or
extraordinary payments on account of fixed commitments or
misfortune or otherwise. Stark seemed to approve of this
approach and I indicated that the Treasury would prefer such
an approach to the subject. No decision was reached as to
which approach was preferable.
There was some discussion in connection with the
individual excess profits tax of employing the expedient
of compulsory saving. The thought was that what was taken
out of increased incomes would not be taken as a tax but 8.8
a compulsory loan.
Regraded Unclassified
44
- 3 -
3. There was then 8 good deal of discussion of
the income tax rate increases. Stam and Price indicated
a good deal of doubt about the feasibility of increases.
Stam made his usual point about the necessity of consulting
burden tables. He said that he doubted very much whether
any substantial increases could be put through Congress.
Judge Vinson here took a pretty firm position in favor of
increases though he seemed rather confused about 8. compulsory
saving aspect of the matter which will be referred to below.
On the whole, it seemed pretty clear that Judge Vinson is
for 8 substantial increase in individual income tax rates
though not of the magnitudes which seem to be called for
from the inflation standpoint.
4. Às an offshoot on the increased individual rate
problem there was some discussion of the matter of exemptions.
I indicated the possibility that we would have to resort to
a lowering of the exemptions. Stam did not commit himself
on this point but he did come out strongly in favor of a
change in the exemption technique 80 that exemptions would be
a tax credit instead of a credit against income subject to
the normal tax. I suggested that the discussion continue to
the point of reduced exemptions leaving the problem of conver-
sion to the credit against tax form to a later discussion
but Stark seemed to be the only person who completely grasped
this distinction.
5. In connection with the discussion of individual
increases, Judge Vinson came out strongly for compulsory
saving. I must say that I had difficultyin following some
of his reasoning in this respect. I pointed out the Treasury's
objection to compulsory saving and suggested that it was a
basic policy matter which should be discussed with the
Secretary. Judge Vinson said he would be glad to have a.
discussion with the Secretary on the point.
So far as I could understand Judge Vinson's approach
to the question of compulsory saving, he thought in terms
of a certain rate increase in terms of dollars and then
seemed to believe that the more compulsory saving we had the
less we would need in taxes. I pressed the point of view
Regraded Unclassified
45
- 4 -
that we should get all we could in taxes and then (if we
had compulsory saving) it should be added to the highest
possible tax rate increase.
6. I brought up the question of the sales tax.
Burgess gave some figures on sales tax yield which were
pretty much in line with although a little higher than
Treasury estimates (I believe Mr. O'Donnell's office is
revising our estimates upward). Stam made perfectly clear
his belief that a sales tax should be enacted partly because
he did not believe that substantial individual income tax
rate increases could be enacted. Indeed, he stated that
many people on the Hill talked in terms of B. $2 billion
revenue bill.
I argued against the sales tax and Judge Vinson, so
far as I could tell, was pretty definitely opposed to such
a tax. His opposition was not based particularly on
administrative difficulties, but rather on the consideration
that the yield of such a tax would not be great, particularly
the net yield if we considered that such a tax would fore-
close the possibility of substantial excise tax increases.
Judge Vinson also pressed the point in response to a sug-
gestion made by Price that a sales tax would be a very bad
tax to pass immediately before the year 1944.
2
7. We discussed excises to some extent though not
in any real detail. The only specific excisesmentioned
were increase of the tax on distilled spirits and tobacco.
Stam was skeptical as to whether there could be any sub-
stantial increases. Judge Vinson was quite confident that
rates could be increased, particularly, I think, the rate on
distilled spirits.
8. Corporation rate increases were not discussed
in any great detail though, if my memory does not fail me,
Mr. Stam said at one point that he did not think the rate
could be increased beyond 45%. Judge Vinson said that both
George and Doughton, at the luncheon referred to above, had
indicated tentative approval of corporate rate increases
Regraded Unclassified
46
- 5 -
yielding about a billion more revenue. This somewhat
surprised me but Judge Vinson was very clear on the point.
9. There was considerable discussion of loophole
plugging. Vinson expressed a strong objection to any
recommendations as to plugging of loopholes. I told the
conference about a telephone call I had had the day before
from Jere Cooper in which he suggested that it would be
unwise to bring up loophole legislation in the next bill
saying it would start the bill off "with & bad taste" in
everybody's mouth. I said I was inclined to agree in the
loophole matter wholly about depletion because of the general
oil situation at this time. I said that I was very doubtful
on the point of tax exempts but that certainly serious con-
sideration should be given to the whole matter of "joint
returns." I said that I did not think we should advance the
subject of joint returns in exactly the same form as we did
last year but that we had a good plan which might be suggested
to Congress. I explained the plan briefly. Price was
familiar with the plan. I made the point that two additional
States had adopted the community property system, Oregon
being the last State and that this fact might somewhat change
the picture. Vinson thought it would change the picture for
the worse since there would now be 20 Senators opposed to
any change in the community property income tax requirements.
10. There was no discussion of increases in the estate
and gift tax rates or of social security. There was no
discussion of the spendings tax except a collateral reference
of a remark by Vinson that he did not think too many new
things should be sprung on Congress. I interpreted this
remark to refer to the spendings tax.
11. Stam suggested the possibility of additional revenue
by limiting deductions. I asked him what deductions he
referred to and briefly indicated the problem arising in
connection with the interest deduction. Stam apparently had
in mind limitations on advertising. I referred to the
difficulties which would be encountered with the press and
Judge Vinson's assistant, Mr. Underwood, agreed on this point.
Judge Vinson then recalled his attempt to limit depreciation
deduction by 25%.
12. When the conference broke up, I made no attempt to
Regraded Unclassified
47
- 6 -
fix any date for further conference and none was suggested
by anyone else. Judge Vinson suggested further consideration
of the problem by the respective groups, particularly some
pencil pushing considerations.
13. I find it difficult to summarize my impression
of the conference from the angle of Judge Vinson's estimate
of his function in the tax picture. Mr. Surrey had the
impression from the Judge's annoyance at the point I raised
about who should attend that the Judge thought himself
considerably in charge of the tax front. I would not deny
this interpretation though B. possible other interpretation
is that the Judge thought that no upstart like Randolph Paul
could tell him much about putting & tax bill through Congress.
The two reactions may go together. In spite of several
attempts made by me to draw out the Judge, he said nothing
further one way or the other except that incidentally at one
point he said something about not wanting to dictate the
tax bill.
From the standpoint of progress toward achieving a
tax policy, I think very little was accomplished at the
meeting. Stam was evasive and non-committal though his
skepticism as to the possibility of large additional taxes
(except sales taxes) was clearly indicated. Judge Vinson
was more hopeful basing his hope upon his conversation with
Doughton and George and the "courage" of Congress when
"the chips are on the table." But I gathered the impression
that Judge Vinson was much less aware of the problems and
realities of the tax picture than I had supposed from
previous conferences with him.
R.E.P.
Regraded Unclassified
48
JUL 15 1943
MEMORANDUM
TO:
Secretary Morgenthau
FROM:
Randolph E. Paul
I am recommending the appointment of John M.
Maguire, Professor of Law, Harvard University Law
School, and member of the law firm of Hale & Dorr
in Boston, Massachusetts, as consulting expert to
the Treasury Department. Mr. Maguire would be
engaged to prepare a report on the simplification
of the internal revenue laws. This report would
be the basis of recommendations to the Congress
on this subject. It is expected that the report
will be finished the first part of 1944.
BA
Secretary
Regraded Unclassified
49
July 15, 1943
9:50 a.m.
THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Smith
Mr. Gaston
Mr. Gemble
Mr. Thompson
Mr. Louis
Mr. Coyne
Mr. Haas
Mr. Lindow
Mrs. Klotz
Mr. Tickton
H.M.JR: What I want to do, Ted, is this: I have
been fussing with this thing since six o'clock this
morning. I tried to get you at seven, but they said
you wouldn't be in.
MR. GAMBLE: You could have gotten me at three. I
missed the train in Philadelphia and didn't get home
until three o'clock.
H.M.JR: I read this report from Esas on the Third
421° Loan and what they have got in it.
Now, I think in my official family I can afford to
be honest, I hope. I know I can. And the thing - after
they read it I had to take a triple bromide, because, as
I told Tickton - he was here - it is very nice for Tickton
and Lindow and Haas to set up a theoretically perfect
objective, but the next thing is to give it to our sales-
men and tell them to go out and sell it. There is no
sense in giving these people something they just can't
sell.
I should be here saying, "You go out and do it,"
and all that. Now I am talking realities here. I don't
Regraded Unclassified
50
- 2 -
believe - they have got you down for four billion of E
bonds. I don't think you can do it.
MR. GAMBLE: I have contended that for three weeks.
H.M.JR: Now, we have to make the basket. We have
to get going, have a field organization. I am not going
to give you this. I have sold - I have been out and
sold space, and I know what it means. And if I am told
to do this job, my reaction would be, "It is too impossible;
I am not even going to get started.
I want to get you fellows in a frame of mind that,
"This is fair and we are going to show Morgenthau we can
beat it." But I don't want you licked before you start.
That is a language you can understand, isn't it?
MR. COYNE: Right.
H.M.JR: Now, with that in mind - I mean, it is all
right for these fellows to set up something. There are
two things; one is the quotas, and the other is the kind
of merchandise.
The reason I called this meeting is that I want - I
talked to Bell, and he is convinced. I want the chairmen -
or whatever you call them - the number one men in the ten
States that do the seventy-five - I want them here Tuesday
and wednesday. Bell says it is going to take them away -
well, there is nothing more importent.
The reason I make it Tuesday and Wednesday is because
those two days we will be making up our minds both on the
basket and on the quota, and I think - and if you don't
agree with me-- (Mr. Tickton and Mr. Lindow entered the
conference.)
Tickton, I told them about our conversation this
morning. I only seid behind your back what I said to
your face. I think that these ten fellows in these States
should have 8 chance to sit in on the basket and on the quote
Regraded Unclassified
51
- 3 -
I want them to go out of here saying - all ten of them -
"Mr. Morgenthau, we will get you this."
Then we will get people like Frank Isbey. He will
say, "Don't tell me you can't do it in Pennsylvania. I
did it in Michigan. I broke all the Treasury regulations,
and I delivered the bonds. I did what Mr. Bell said I
couldn't do, but I had sixty thousand people, and I did
it."
In here they have down sixty million pieces. Let's
say it is fifty million pieces that have to ne delivered.
If it is true, Rell, who has the Bureau of Engraving under
him, had better put Mr. Hall on notice.
But the thing that I want, starting with me, all of
us dragging our feet on this thing - we have got to lick
this thing into shape so we know where Ke are by the 23rd.
Then we can leave you fellows alone and you can go out and
sell. If you agree - and for God's sake, don't sit there
like a bump on a log if you don't agree with me, because
I think - this is my idea, and I am just raising it - I
sold it to Bell - that these fellows should be in here
Tuesday and Wednesday both to sit in on the basket and
on the quota.
MR. GAMBLE: I have only one qualification, and that
is that in some instances you bring in two men instead of
just the chairman, in New Jersey, for instance--
H.M.JR: That is immaterial.
MR. GAMBLE: I agree they should be here. We have
had several meetings on this, and I am completely in your
corner on it. We have been arguing violently a bout this
seven billion dollars.
H.M.JR: Bell was opposed right along that I give out
these figures. I said that the public has to know them,
and all the rest of that, and we did it. well, all right,
that is water over the dam. But I would much rather have
to apologize to a few of these sharp-shooters in the left
wing of the White House than I would to fall down with the
Regraded Unclassified
52
- 4 -
American public or make the American public fall down by
giving them a hurdle that nobody can clear. You just
can't clear it.
All right, I made my speech in Newark, and I made this
speech and talked about twenty-five percent out of the
seventy-eight billion dollars and all the rest. All right,
maybe it was wrong. I made my Kingston speech. Maybe
that was wrong, but it is water over the dam.
Now I am faced right up against a reality, and that
reality is, what is 8 fair amount to ask these fellows
to give me. Then I want them to go out and beat it, but
I don't want to do what Tickton gave me this morning, which
completely sunk me. I told them yesterday that four billion
was impossible. They put it back to three, and they came
right back with four this morning. Gosh, they are terrible.
What we have to do is put those fellows out on the firing
line and let them sell. (Laughter)
MR. HAAS: Put them right here, Mr. Secretary. (Laughter)
H.M.JR: I mean, the attack line - back the attack.
liere it is right here. You corrected it to three billion
dollars and they come right back this morning--
MR. TICKTON: They tore me apart for doing it, for
pulling that down yesterday.
H.M.JR: Tore you apart?
MR. TICKTON: For putting that down to three.
H.M.JR: Well, you will get torn apart if it stays
at four. Well, anyway-- (Laughter)
MR. BELL: That is all right on the basis of which
you have been traveling. Those figures are all right.
H.M.JR: Bell asked if there was anything holy about
what I have said. No. Now we are up against a grim
reality. We have to go out. I have always said that I
Regraded Unclassified
53
- 5 -
wasn't going to make forecasts. Here I made some dumb
forecasts. Well, it is too bad.
MR. GAMBLE: I don't think it is too bad. You talked
about a second front just as we talked about a second front
on the military side. We don't have to get tied down on
it.
H.M.JR: The bankers are coming in. You (Gamble)
should be in at eleven o'clock and listen to this.
Haas and his fellows are coming up Saturday and are
going to have another run over this thing.
I think you ought to get your people in. Do you
agree, Coyne?
MR. COYNE: Yes, sir.
H.M.JR: Tuesday and wednesday. You be here.
MR. LOUIS: I will be listening.
H.M.JR: What I have said so far- does it make sense?
MR. LOUIS: It certainly makes it essier.
H.M.JR: Don't let any speeches I made bother you.
If they are wrong, O.K. To hell with them.
MR. GASTON: They are not wrong, not in the way at
all. But I believe in making a quota now that you can
make and go out and beat it a lot.
MR. GAMBLE: To do what the Secretary has been talking
about, I suggest that we break down for them this seven-
billion-dollar goal; give it to them as an ideal goal, but
give them a quote they can make, not demoralize them.
H.M.JR: Don't you see how completely demoralized I
am? I had to give Tickton a second cup of coffee to
revive him. (Laughter)
MR. TICKTON: You missed that first cup of coffee.
(Laughter)
Regraded Unclassified
54
- 6 -
H.M.JR: O.K. Is everybody happy?
From now through Tuesday and Wednesday I am going
to settle the basket; we are going to settle the quota.
Then we are going to town, and these fellows are going to
run a chart out here as to how your organization goes
along SO I can walk in there and see it. But I am going
to give you a quota that you can make and beat, and these
fellows have got to be willing to say SO. If it gets
down to fifteen billion, O.K., fifteen billion. Does
that satisfy you?
MR. COYNE: Swell.
H.M.JR: Just one split second - is it too early to
say anything about MoNamara?
MR. COYNE: We put him in yesterday; he is doing
fine. We got him right up to his neck. He seems to like
the job and seems to relish it.
H.M.JR: Don't get him up to his nose. (Laughter)
MR. COYNE: All right.
H.M.JR: What did you do yesterday?
MR. GAMBLE: We had a very good meeting with all
these entertainment councils. They have committed them-
selves to a very fine program in September. There are a
few details to be worked out. For example, they have
agreed to use three newsreel subjects, dates during the
drive, and to use all five of the newsreels every week
during the drive - each of them - that is just one thing
they have agreed to. They have a caravan that they want
to send out.
H.M.JR: What you want to do is to tag somebody in
your organization to give me spot bulletins of important
things, whether it is once a day or once & week, 50 I
know what is going on. If you can keep it on one page,
I will read it.
Regraded Unclassified
55
- 7 -
MR. GAMBLE: Why don't I just talk to Fred Smith?
Let him give it to you and keep you advised. We will
use him as a liaison.
H.M.JR: That is all right. He sees me occasionally.
(Laughter)
MR. GAMBLE: I am not claiming him as a War Bond man.
(Laughter)
Regraded Unclassified
56
July 15, 1943
11:00 a.m.
THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Haas
Mr. Gamble
Mr. Lindow
Mr. Murphy
Mr. Tickton
Mr. Tom Smith
Mr. Spencer
Mr. Newell
Mr. Strickland
Mr. Fleming
Mr. Hemingway
Mr. Stonier
Mr. Brown
H.M.JR: The reason that I asked you gentlemen to
come down to this very uncomfortable city in the middle
of July was to help us on the question of what kind of
securities we should offer in September, how much, and
the question of quotas.
I think whatever we do we ought to fix it so that the
people in the field can be enthusiastic about the kind
of securities and the amounts 80 they will say, "It is
possible to do it, and we will go out and do a little bit
better" - which they have every time.
There are some honest differences of opinion, as
usual, between the Federal Reserve Board and ourselves as
to this thing, the rate pattern, as they call it.
I don't know how much Mr. Bell has told you or how
much time you had. I have an open mind. I like to think
I always have one. But I think the most difficult thing,
Dan, is this question of this rate pattern. Have you
discussed this with them?
Regraded Unclassified
57
- 2 -
MR. BELL: They just came in and I had about five
minutes with them. I think what--
H.M.JR: You couldn't do it in five minutes. (Laughter)
MR. BELL: I think what we should do is let them go
to a room and look over the material we have - the memoran-
dum from Marriner and our memorandum - and I think they
would like to talk to Marriner for a few minutes on the
memorandum and get the background. We should go over the
figures and then possibly you should see them right after
lunch.
H.M.JR: Here is my trouble. I don't like to talk
about personal things, but Mrs. Morgenthau is still in
the hospital in New York, and I have to leave at three-
thirty this afternoon. But I an available right after
lunch.
MR. HEMINGWAY: What hour would you suggest?
MR. STONIER: Is two o'clock all right?
H.M.JR: Two-thirty would be a little bit better.
I would have from two -thirty to three-thirty.
MR. HEMINGWAY: Let's make it two-thirty, then.
H.M.JR: Would that be a little bit better?
Those are the things that I would like to get some
advice on.
They just got in now?
Mil. BELL: Yes.
H.M.JR: Well, there is plenty of room in the Treasury.
MR. BELL: Yes.
Regraded Unclassified
58
- 3 -
MR. HEMINGWAY: Then the sooner we get at it the
better.
MR. BELL: All right. I will call Eccles and have
him come over here.
H.M.JR: Then they can hear both sides. This rate
pattern thing - I lay great stress on that because they
do, you see.
I am sorry to sort of rush you this way--
MR. FLEMING: I don't think that rushes us. It is
eleven o'clock now and we are all accustomed to taking 8.
sandwich and eating in.
H.M.JR: Shall we say two-thirty, gentlemen?
MR. HEMINGWAY: All right.
Regraded Unclassified
59
July 15, 1943
2:30 p.m.
THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Haas
Mr. Lindow
Mr. Tickton
Mr. Gamble
Mr. Murphy
Mr. Smith
Mr. Spencer
Mr. Newell
Mr. Strickland
Mr. Fleming
Mr. Hemingway
Mr. Stonier
Mr. Brown
H.M.JR: I might look to you as President of the ABA--
MR. HEMINGWAY: Mr. Secretary, we haven't very much
to report. We have been in session ever since we left
you. Mr. Eccles came over and went over the recommenda-
tions that he had made to you, and he posed two problems
which we have been discussing. One is the undesirability
of the bond market getting too strong 8.8 well as being
too weak; and the other the danger that the banks will
extend their maturities too much, being pressed into it
by the decline in their loans and the need of earnings.
We have been talking about his suggestion of a three-
quarters percent Treasury bill in view of those points
that he made. We talked it over with Mr. Bell and these
other gentlemen, but our committee hasn't yet had an
opportunity to get off to itself and talk it out in the
committee. So we haven't yet crystallized our opinions.
H.M.JR: Well, I am not surprised, because certainly
mine aren't crystallized, and it is not--
Regraded Unclassified
80
- 2 -
MR. HEMINGWAY: not easy.
H.M.JR: It is not easy. Have you people - why
not make this use of me, anyway - would you like to
ask me any questions?
MR. HEMINGWAY: I think possibly some of the gentle-
men here would like to ask you some questions.
H.M.JR: Supposing we go around the room.
MR. HEMINGWAY: I would like to start it by asking
one question, and that is, to what extent do you feel the
Treasury is obligated to help maintain the bank position
as against having an easier bond market position?
H.M.JR: You will have to explain that. I don't
know what you mean by helping the banks.
MR. HEMINGWAY: What I am trying to say is, in order
to hold the bank position, perhaps, in the strongest way -
keep the banks from going into the long maturities and
keeping them in shorter maturities - would require, per-
haps, some expenditure in the way of higher interest
rates for the short maturities on the part of the Treasury.
How would you feel about that?
H.M.JR: Let me answer it & little differently and
see if I can give you what you want without answering -
you've got me within too narrow a range. (Laughter)
I think I can give you what you want. we are looking
to the banks as underwriters of Federal financing to
see us through this war. We want to go to them just as
little as possible, but we do look to you as underwriters,
just as a matter of good common sense, to see that we
keep you fellows healthy. By that I mean, let you make
a good living. Now - I am being very frank - I want you
people to make & reasonable profit on your capital and
surplus. Now, that is why I don't want to answer.
Regraded Unclassified
61
- 3 -
Now, at the same time, I would like to hook on one
other thing. We here in the Treasury think that & ten-
year security is long enough for the banks, and we don't
feel that because we don't want to increase interest
rates - lowering them, rather - that the thing to do is
to extend the life of a bond.
By that I mean, if this doesn't call for a ten-year
two, then make it a twelve-year two, and the first thing
you know we will be way out. We don't think that a bank
with deposits should have more than a ten-year bond.
Now, that is the way I look at the thing, and I am
not looking at it, just whether it should be a bill or a
three-quarters, nine-months, and so forth. That is why
I didn't answer you. I would rather give you my over-
all feeling.
Doesn't that answer you better than telling you -
does that answer what you have in mind?
MR. HEMINGWAY: No, I don't believe I made my ques-
tion very clear. What I was trying to say was this, that
if the pressure to earn money continues, the tendency
of the banks will be to extend maturities. Now then,
those who believe that the banks should not extend maturities
much further, suggesting that it would perhaps be advisable
for the Treasury to offer them & shorter maturity - a real
short maturity - at a higher rate in order to keep some of
that money in the short bracket--
MR. BELL: You mean a higher rate than the market, or
a higher coupon than what we have been offering?
MR. HEMINGWAY: I am speaking now of these three-
quarter bills.
MR. BELL: I mean, do you want more certificates and
less bills?
MR. HEMINGWAY: More certificates and - well, we
taled about a nine-months certificate or & bill - call it
whatever you please.
Regraded Unclassified
62
- 4 -
MR. BELL: And less of the three-eighths?
MR. HEMINGWAY: Yes.
MR. BELL: Certainly they will get a lot of certifi-
cates; there isn't any question about that.
H.M.JR: I don't like to say this without Mr. Eccles
being here, but I think I am being a little more realistic
about the thing than they are. They are talking about
a rate curb which doesn't particularly interest me. They
want to establish this rate curb. I want, as much as is
in my power, as I say, to keep you fellows in a healthy
condition on the basis that you can make an honest living.
Let's do the thing which is best to accomplish it. I
don't care what it is.
Mit. SMITH: Suppose that cost the Treasury a little
more money.
H.M.JR: That is all right.
MR.SMITH: That answers your question.
MR. HEMINGWAY: That is what I was trying to draw out.
H.M.JR: I can't have an ideal and then say I am
not willing to pay for it.
MR. HEMINGWAY: That answers the question.
H.M.JR: I am willing to pay for it because I think
whoever sits here after the war is "over, I owe that much
to the country to see that that is done in a wholesome
manner. If I have to pay 8. little more for that, I
think it is worth it.
MR. NEWELL: I have no questions, Mr. Secretary.
H.M.JR: I could trim it up and talk about - give a
ten-page memorandum on the thing, and when I got all
through and done - why not deal it right across the table?
Regraded Unclassified
63
- 5 -
MR. HEMINGWAY: I think that is the answer.
MR. STRICKLAND: I think the Secretary's statement
covers all the fundamentals. The group ought to be able
to work within that, satisfactorily.
I do think, Mr. Secretary, that it would be helpful
if the banks would do more on their own part to keep
down some of the speculation in offerings because they
expect a little bit firmer terms on the part of the
Treasury. I think this last one and a half - the terms
were conducive to speculation, and we ought to have a
meeting of minds on a mutual measure and try to make the
initial offerings a little more healthy. I don't think
it is well for you to be able, or to have to report seven
and eight times over subscriptions of that type of issue
in the face of a constant pressure to sell small amounts
of bonds to individual buyers.
H.M.JR: We made a mistake in the amount we asked
and we recognize it. We shouldn't ask anybody to sub-
scribe with a two percent deposit. The mistake was ours.
We recognize it and won't do it again.
MR. STRICKLAND: I think & healthful situation can
be created, and sounder, from the Treasury standpoint.
H.M.JR: We made a mistake there and we recognize it.
MR. STRICKLAND: That is the only comment I have, sir.
MR. FLEMING: Mr. Secretary, I think your policy of
trying to keep within a certain range - the pattern of
rates that you have devised - is a very wise one, but I
think there is just as much danger in having those rates
get away from you on a lower basis, particularly the post-
war era and the sale of subsequent issues, than you have
of a rising rate of interest which was unhappily done in
the first World War.
Now, to the extent that means have got to be taken
to control that, I think we have all got to get our
Regraded Unclassified
64
- 6 -
heads together and try to do that, because I think there
is a certain amount of confidence that the public has
now gotten in the pattern of rates that are being put
out, and I think that is the most priceless thing we
have in the huge sums that you have the obligation of
floating.
H.M.JR: I thank my lucky stars that with all this
talk of inflation there is this steady demand for Govern-
ment bonds. That is something we want to nurture carefully.
We have to nurture that very carefully because it is
aviully easy to lose it.
MR. FLEMING: Very. And it can be lost on the side
of the rates getting down lower and lower all the time
until they get - the top falls off, and then nobody wants
to buy.
H.M.JR: On the other hand, my having been entirely
frank - you fellows don't want to ride a good thing to
death, and so forth. I mean, you want to see both sides
of the picture.
MR. FLEMING: Oh, yes.
MR. BROWN : Nothing from me.
MR. SPENCER: I think everything has been covered
that I have in mind.
MR. SMITH: Nothing except that it will take a lot
of will power, at times, to resist the temptation to
reduce rates and extend maturities because when you have
established this splendid bond market, buyers will go
out - step out too far - banks will step out too far, buy
long-term bonds and force the prices up, and it will re-
quire a lot of will power not to want to issue--
H.M.JR: Well, I think the American Bankers Association
and other State organizations can be very heipful.
Regraded Unclassified
65
- 7 -
MR. SMITH: I think so, too.
H.M.JR: I think they can be very helpful, parti-
cularly as the deposits constantly go up.
MR. SPENCER: It wasn't more than six or seven months
ago when these two percent bonds weren't too generously
taken. That condition might come around again. (Laughter)
MR. BELL: We haven't forgotten it, either. (Laughter)
H.M.JR: And that was the fight that I made to
establish the two percent rate.
MR. BELL: The ten-year maturity.
H.M.JR: I know. And then I had my fight on the
three-eighths note.
Well, we have been successful, and having been
successful, I haven't been pushed too hard - pushed the
rates down, you know. When I came here in the middle
of November, '33 - I think you (Smith) were here - I--
MR. SMITH: I was thinking about that today.
H.M.JR: The first issue I sold they told me I could
sell a nine-months note. Then I remember they said, "Now,
the next one we are going to sell a long one.
I said, "What is that? We can sell a long issue
now." The next one was thirteen months. That was the
second issue I sold.
MR. SMITH: Scared to death about the nine-month
note, too.
H.M.JR: We sold a real long one; we sold a thirteen-
months, and I don't forget those things. So I am very
happy at the present situation. If we can go through
and finance this war - the public debt of the Government
now is just a little under two percent.
Regraded Unclassified
66
- 8 -
Now, if you people will continue to play as fair with
me in the future as you have in the past, I will play fair.
MR. SMITH: That is all that is necessary.
H.M.JR: And don't let's either try to do the other.
Now, we haven't in the past and we have got to raise &
lot of money, and I think this picture that we have now -
getting less and less from the banks - each war loan
looks good.
Mr. HEMINGWAY: We have stressed that in all of our
statements and publications.
Well, Mr. Secretary, if it is agreeable to you, we
will continue our discussions and leave a written memoran-
dum with Mr. Bell
H.M.JR: Would you do that?
MR. HEMINGWAY:
...on the conclusions that we reach.
H.M.JR: Fine.
Regraded Unclassified
S7
July 15, 1943
3:30 D.M.
John
Sullivan:
substantial accord on the form. There were one
or two very minor points that nobody's willing to
die for
HMJr:
Yeah.
S:
and I think that I can assure you that this
form will go to the printer tonight.
HMJr:
Wonderful.
S:
Mr. Cann has already made those arrangements. He and
Mr. Mooney, Captain Kades, Fred Smith, Surrey and Tom
Atkinson are with me now and Judge Opper has just left.
HMJr:
Well, I'm delighted. I think that's 8 great job and
shows that we still can pull ourselves out.
is
Yes, it's still - it's still going to be somewhat
complicated but it's an infinitely easier document
HMJr:
Well, I appreciate all your help, John.
S:
That's what-I'm here for.
HMJr:
What?
S:
That's what I'm here for.
HMJr:
And I hope you have A swell vacation.
S:
Thank you, sir, I appreciate that and I hope you
find Mrs. Morgenthau very much better.
HMJr:
Thank you.
S:
All right.
HMJr:
Good bye.
Regraded Unclassified
S8
July 15, 1943
3:32 D.M.
Ted
Gamble:
Mr. Secretary, I just wanted to let you know that
I was going to be away tomorrow afternoon for three
hours.
HMJr:
Yeah.
3:
I'm going to New York to meet with the Presidents
of the victure companies to get them to prove
their budget for the September drive of about
e half million dollars.
HMJr:
Okey.
G:
I juet wented you to know that.
HMJr:
All right.
G:
I'm flying uo and back and will be here other than
during those hours.
HMJr:
All right.
G:
Thank you.
Regraded Unclassified
89
July 15, 1943
My dear Mr. President:
I am sending you herewith a
draft of a proclamation which we
would like to use in connection
with our Third War Loan Drive.
I hope that this appeals to
you 8.8 we are rapidly crystallizing
our plans for our publicity, and
we would like to feature your procla-
mation in our newspaper advertising
and all other forms of publicity
throughout the country.
Yours sincerely,
(Signed) H. Morgenthau, JT
The President,
The White House.
Regraded Unclassified
70
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA
A PROCLAMATION
Recognising the fact that in carrying the war into enemy territory,
we shall need greater amounts of money than any nation has ever asked from
its citizens in all history, I, FRANKLIN D. ROOSEVELT, President of the
United States of America, do officially proclaim that on Thursday, the
ninth of September, 1943, the Third War Loan shall be launched.
As Commander-in-Chief, I hereby invoke every citimen to give all
possible aid and support to this Third War Loan drive, not only so that our
financial goal may be reached, but to encourage and inspire those of our
husbands and fathers and sons who are under fire on a dosen fronts all over
the world. It is my earnest hope that every American will realise that in
buying War Bonds in this Third War Loan he has an opportunity to express
voluntarily and under the guidance of his conscience, the extent to which
he will "back the attack."
The American people supported well the first and second War Loan
drives and in fact did even more than was asked of them. Our need for money
now is greater than ever, and will continue to grow until the very day that
Victory is won; so we must ask far more sacrifice, far more cooperation even than
in the past.
IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal
of the United States of America to be affixed.
DONE at the City of Washington, this fourteenth day of July, in
the year of our Lord, nineteen hundred and forty-three, and of
the Independence of the United States of America the one hundred
and sixty-seventh.
FRANKLIN D. ROOSEVELT
BY the President
Regraded Unclassified
71
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA
À PROCLAMATION
Recognizing the fact that in carrying the war into enemy territory,
we shall need greater amounts of money than any nation has ever asked from
its citizens in all history, I, FRANKLIN D. ROOSEVELT, President of the
United States of America, do officially proclaim that on Thursday, the
ninth of September, 1943, the Third War Loan shall be launched.
As Commander-in-Chief, I hereby invoke every citizen to give all
possible aid and support to this Third War Loan drive, not only so that our
financial goal may be reached, but to encourage and inspire those of our
husbands and fathers and sons who are under fire on a dozen fronts all over
the world. It is my earnest hope that every American will realize that in
buying War Bonds in this Third War Loan he has an opportunity to express
voluntarily and under the guidance of his conscience, the extent to which
he will "back the attack."
The American people supported well the first and second War Loan
drives and in fact did even more than was asked of them. Our need for money
now 1s greater than ever, and will continue to grow until the very day that
than ever before
Victory is won; so we must ask far more sacrifice, far more cooperation oven than
in the past,
IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal
of the United States of America to be affixed.
DONE at the City of Washington, this fourteenth day of July, in
the year of our Lord, nineteen hundred and forty-three, and of
the Independence of the United States of America the one hundred
and sixty-seventh.
FRANKLIN D. ROOSEVELT
BY the President
Regraded Unclassified
72
JUL 15 1943
Dear Dave:
I wish I had heard Lord Helifax on "No the
People", but unfortunately I was in New York and
missed it.
I'm glad to know, however, that he agreed to
8° on, and I can see from the script that it must
have made an interesting sequence.
As an ex-master of ceremonies, I am very much
interested in "We the People", and will keep it in
mind, as you suggested.
Perhaps there is something we can do together
again during the Third War Loan drive.
Sincerely,
(Signed) M. Mergenthau, Jr.
Mr. David Levy,
Young & Rubicam, Inc.,
285 Madison Avenue,
New York, New York.
FS:mlf
7-15-43
Regraded Unclassified
73
YOUNG 5 RUBICAM, INC
Advertising
NEW YORK CHICAGO - DETROIT SAN FRANCISCO HOLLYWOOD MONTREAL TONONTO
NEW YORK 285 Madison Avenue
June 30, 1943
Mr. Henry Morgenthau, Jr.
Secretary of the Treasury
Treasury Department
Washington, D. C.
My dear Mr. Morgenthau:
I don't know whether or not you were able to
find time to listen to "We the People" this past Sunday,
but inasmuch as we presented Lord Halifax, I thought
you might like to see & copy of his script.
I feel that to a large degree we owe
Lord Halifax's acceptance to appear on "We the People"
to the conversation you held with him before your
recent trip to Cedar Rapids.
The statement which Lord Halifax delivered
to the American people I think you will find a very
timely one which will do a great deal to cement
British-American relationships. Knowing that you are
interested in the general aims of "We the People",
namely to confirm better relations between us and our
Allies and a better understanding of the war, we hope
that you will feel free to further the appearance on
"We the People" of any other leaders, such as Lord
Halifax, whenever you so desire.
I hope to have the pleasure of working
with you again.
Kindest personal regards.
Sincerely,
YOUNG & RUBICAM, INC.
Director, "We the People
David Levy/jmp
Enclosure
Regraded Unclassified
-25-
74
BOULTON
Ladies and gentlemen, WE THE PEOPLE present the British Ambassador to
the United States, Lord Halifax, in an exclusive interview. Lord
Halifax speaks from the British Embassy in Washington. He will be
interviewed by Leigh White. We take you nov. to Washington.
WHITE
I suppose that's one of your favorite companions - that handsome
little dachshund you have, Lord Halifax. Does your dachshund always
stay in the study here with you?
LORD HALIFAX.
Only when my wife is away. Then he spends his time dozing in that
big arm-chair across the desk from me. He probably hears as many
secrets as the President's scottie - Falla.
WHITE
Well, Lord Halifax, I see we're on the air now. Ladies and gentlemen,
we're in the beautifully panelled, spacious study of the British
Ambassador to the United States here in the British Embassy. It's
just as you would imagine the friendly living-room of an English
country home to be - with a great fireplace, books lining the walls,
and deep red hangings at the windows. From its windows you can
look out over the Embassy garden and across the countryside beyond,
for the Embassy is on the outskirts of Washington. Lord Halifax,
I know that only recently Mr. Churchill was a visitor here in this
very study. Can you tell US what form he was in during his visit?
Regraded Unclassified
75
-26-
LORD HALIFAX,
In grand form, Mr. White. He rightly feels that he enjoys from
the British people greater confidence than any other Prime Minister
in our history. Not only Britain, but the whole world, owes him an
unpayable debt for the courage, tenacity and vision he showed in
the dark days of 1940 and has been showing ever since. On the
human side, there could be no more genial friend. I like to
remember how, the other evening, I looked down into the Embassy
garden, and there was the Prime Minister, surrounded by Members of
both Houses, to whom he was telling stories with great gusto,
brandishing the usual cigar in one hand and some light refreshment
in the other.
WHITE
In contrast with that wonderful picture one thinks of what kind of
appearance Hitler must make these days. Lord Halifax, did you
ever talk with him?
LORD HALIFAX.
Yes, I did - at Berchtesgaden in 1937.
WHITE
What were your impressions of him then?
LORD HALIFAX.
He talked at me, as if I were a party rally. I think Hitler was
and is a fanatic. He seemed obsessed with a great sense of his
own mission in the world. He believed he was a man of destiny.
Regraded Unclassified
-27-
76
LORD HALIFAX. (CONT'D)
So he is - but not quite in the sense in which he originally
meant it.
WHITE...
What do you suppose his feelings are about the talk of impending
invasion?
LORD HALIFAX.
Mr. White, nothing delights me more than to imagine the contrast in
his mind and in the German mind between today and three years ago,
when the Naxis were signing "We Are Sailing Against England. If At
that time they were promised summer holidays in Hastings - since
then the only German visitors near Hastings have been occasional
nuisance bombers. We talk about reciprocal lend-lease; I like
to think of forthcoming events as "reciprocal invasion."
WHITE.
.
Have you anything to say about where that invasion might come, Lord
Halifax?
LORD HALIFAX.
Mr. White, let's all of us guess as much and as often as we like
where the Allies' blow will fall. Because the more we guess, the
more guessing Hitler himself will have to do. And when we hear
Axis propagandists talk about the fortress of Europe and the
difficulties of invasion, it is useful to recall this fact. There
was once a Maginot Line.
Regraded Unclassified
-28-
77'
WHITE.
As British Ambassador to the United States, what thought do you
feel is most important to express to the millions of people listening
tonight about the relations between your country and ours?
LORD HALIFAX.
There is one great purpose which I as His Majesty's Ambassador here
naturally feel, and which goes for the war, and for all time
afterwards. That is the building up of an unlimited understanding
between your great country and mine. The future of the world is
going to depend largely on the four great powers and, within that
quadrilateral, on the close friendship of the United States and the
British Commonwealth. It is an inescapable law of life that, whether
you are a millionaire or a great nation, you cannot have power
without responsibility. America has great power; so has the British
Commonwealth; and it will be for each of our peoples to make up
their minds how best they can discharge the great responsibility
which goes with power.
WHITE.
Lord Halifax, do you feel our nations will be drawn together more
closely even than they already have been?
LORD HALIFAX.
Yes, I do. I have had reports of how British and American soldiers
fighting side by side in North Africa have expressed admiration
for each other's ability and this is bound to reflect itself in the
Regraded Unclassified
78
-29-
LORD HALIFAX. (CONT'D)
feelings of those of US who have stayed home. The other day Drew
Middleton, the New York Times correspondent in Tunisia, remarked
that your boys now say "we" when speaking of British troops, and
that's just the way we all want to think of each other, in the
fighting line and behind it, now and after the war. I do not
suppose that all the British and all the Americans are ever going
to like each other all the time, but I do think that the best
relations between our peoples will be built on the mutual respect,
which this war will bring.
WHITE.
How about lend-lease? Do you think that has helped to strengthen
the feeling between our two nations?
LORD HALIFAX
The British people will always be grateful for the impetus given
our war effort by having America's gigantic production machine
behind them. But I am not sure that all Americans know that in
England we have our own British lend-lease. In one war year alone
we exported to our allies four times as many aircraft as we
received from other countries and fifteen times as many tanks.
WHITE
Lord Halifax, what would you say was the feeling today of those
countries who are still neutral?
Regraded Unclassified
-30-
79
LORD HALIFAX.
I can answer that best in this way, Mr. White. The wind has changed.
In 1940, most people, outside the British Commonwealth, were
convinced that Germany would win; later on they came to realize
that the forces against the Axis could not be beaten. Now I
believe that everybody feels, the world over, that however long it
may take, the war will end with the utter defeat of Germany, Japan
and Italy.
WHITE.
Lord Halifax, I think Americans know that in addition to your own
untiring efforts in furthering the accord between your country and
ours, your personal sacrifice in the loss of your son, Lieutenant
Peter Wood, at El Alamein last October, is one which you have shared
with many British and American parents. In the months to come, great
and heart-breaking sacrifices will be asked of the parents of America -
the people to whom you are talking tonight. Have you any words that
you feel would have a personal meaning for them?
LORD HALIFAX.
When we measure OUT cause, with all that it means for the future
of the world, against our losses, grievous as these must be, we
can only be proud for our sons and for ourselves. And we can find
some comfort, surely, in the thought that all those from whom
much is asked share the pride and the sorrow together. I would
like to say this, too. When my youngest son came back badly
Regraded Unclassified
80
-31-
LORD HALIFAX. (CONT'D)
wounded from North Africa the other day - for he has lost both his
legs - it was heartening to find that he - and I think he is
typical - is as much alive as your President or our Prime Minister
to the necessity of keeping the unity between our two countries
as close in peace as in war. For his is the generation that must
do this. I do not say that we can easily solve all our major
problems by cooperation; but I do say that there will be very few
that we can solve without it.
(MUSIC CURTAIN)
Regraded Unclassified
81
Regraded Unclassified
JUL 15 1943'
My dear Mr. Secretary:
The Treasury Department is now revitalising the Mar Bond program
to increase the sale of Har Bonds to the wage earners of this country
through the Payroll Savings Plan. The financial demands of this war
have forced us to raise our sights and seek to increase the income from
the sale of Mar Bonds through the Payroll Savings Plan from approximately
$420,000,000 a month to over $600,000,000 a month.
To reach this goal, it is vitally necessary that all employers in
the country engaged on war production make an earnest attempt to
increase by 50 percent their present record on War Bond sales.
with that in mind, I - writing you with & request that hereafter
the issuance of the Army-Navy Production Award include as one of the
conditions of award the operation of a Payroll Savings Plan that
compares favorably with the national average, which is now approximately
9.1% of payroll. (See in this connection attached copy of the President's
letter dated June 24, 1943).
All too often we find employers engaged on governmental war contracts
reluctant to provide the facil^ties for, or to conduct, an efficient
campaign to encourage their employees to invest as much as possible from
their current income in War Bonds. It has been our experience that a
properly conducted vigorous Payroll Savings War Bond campaign invariably
results in increased production and at the same time decreases absenteeism
among employees.
Because of the close relationship of the war financing program with
the war production program, I believe the honorary award issued for
excellence in production should be granted on condition that the company
is also making & good record in the sale of Mar Bonds to its employees
through the Payroll Savings Plan. Therefore, I would like to 800 a
directive issued to the officials of the Havy Department in charge of
these awards, instructing them that, before a company is nominated for
the Army-Havy Production Award, the company have in operation & successful
Payroll Savings Plan for the sale of War Bonds.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable,
File copies to Thompson,
The Secretary of the Navy,
Copy of ltr. and enclosure
Washington, D. C.
in Diary.
RHO'Mard
Typed 7/13/43
82
THE WHITE HOUSE
WASHINGTON
June 24, 1943
My dear Mr. Secretary:
Through you, as Secretary of the Treasury, I want to congratulate
the American people on the way in which they have supported the volun-
tary payroll savings plan.
I am proud of the fact that 27,000,000 patriotic Americans are
regularly investing more than $420,000,000 a month to help pay the
cost of the war. And since all of this money comes from wages and
salaries - nearly 90 percent from people earning less than $5,000,
and the bulk of it from those working in war plants - I do not hesi-
tate to say that the payroll savings plan is the greatest single
factor we now have in protecting ourselves against inflationary
spending.
This is a great record, both from the standpoint of curbing
inflation and from the standpoint of financing the war. However,
I heartily endorse your present drive to improve that record, and
I agree it must be improved if we are to keep pace with the
increasing demands of the war.
I therefore join you in calling upon the American people --
and upon labor and management particularly - to do still more. Addi-
tional people should be convinced of the necessity of participating.
Everyone now on the payroll savings plan should materially increase
the amount of bonds he is buying. We originally asked for 10 percent,
but now we need considerably more.
I hope every American on a payroll will figure out for himself
the extent to which he can curtail his spending, and will put every
dollar of additional- saving thus made into the payroll savings plan.
Sincerely yours,
Finalitan Informato
The Honorable,
The Secretary of the Treasury
Regraded Unclassified
83
JUL 15 1943
By dear Mr. Secretary:
The Treasury Department is now revitalising the War Bond program
to increase the sale of War Bonds to the wage earners of this country
through the Payroll Savings Plan. The financial demands of this war
have forced us to raise our sights and seek to increase the income
from the sale of War Bonds through the Payroll Savings Plan from ap-
proximately $420,000,000 a month to over $600,000,000 a month.
To reach this goal, it is vitally necessary that all employers
in the country engaged on war production make an earnest attempt to
increase by 50 percent their present record on War Bond sales.
With that in mind, I an writing you with a request that hereafter
the issuance of the Army-Navy Production Award include as one of the
conditions of award the operation of a Payroll Savings Plan that com-
pares favorably with the national average, which is now approximately
9.1% of payroll. (See in this connection attached copy of the Presi-
dent's letter dated June 24, 1943).
All too often we find employers engaged on governmental war oon-
tracts reluctant to provide the facilities for, or to conduct, an
efficient campaign to encourage their employees to invest as such as
possible from their current income in War Bonds. It has been our 61-
perience that a properly conducted vigerous Payroll Savings War Bond
campaign invariably results in increased production and at the same
time decreases absenteeism among employees.
Because of the close relationship of the war financing program
with the war production program I believe that the honorary award is-
sued for excellence in production should be granted on condition that
the company is also making a good record in the sale of War Bonds to
its employees through the Payroll Savings Plan. Therefore, I would
like to ⑉ a directive issued to the officials of the War Department
in charge of these awards, instructing them that, before a company is
nominated for the Aray-Navy Production Award, the company have in op-
eration a successful Payroll Savings Plan for the sale of War Bonds.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
The Honorable,
The Secretary of War,
File Copies to Thompson,
Copy of ltr. and enclosures
Washington, D. C.
in Diary.
Regraded Unclassified
84
THE WHITE HOUSE
WASHINGTON
June 24, 1943
My dear Mr. Secretary:
Through you, as Secretary of the Treasury, I want to congratulate
the American people on the way in which they have supported the volun-
tary payroll savings plan.
I am proud of the fact that 27,000,000 patriotic Americans are
regularly investing more than $420,000,000 a month to help pay the
cost of the war. And since all of this money comes from wages and
salaries - nearly 90 percent from people earning less than $5,000,
and the bulk of it from those working in war plants - I do not hesi-
tate to say that the payroll savings plan is the greatest single
factor we now have in protecting ourselves against inflationary
spending.
This is a great record, both from the standpoint of curbing
inflation and from the standpoint of financing the war. However,
I heartily endorse your present drive to improve that record, and
I agree it must be improved if we are to keep pace with the
increasing demands of the war.
I therefore join you in calling upon the American people --
and upon labor and management particularly - to do still more. Addi-
tional people should be convinced of the necessity of participating.
Everyone now on the payroll savings plan should materially increase
the amount of bonds he is buying. We originally asked for 10 percent,
but now we need considerably more.
I hope every American on a payroll will figure out for himself
the extent to which he can curtail his spending, and will put every
dollar of additional. saving thus made into the payroll savings plan.
Sincerely yours,
Fination Informato
The Honorable,
The Secretary of the Treasury
Regraded Unclassified
85
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 14, 1943
TO Secretary Morgenthau
FROM Fred Smith RS
Payroll Savings people would like you to sign the attached letters
to the Secretaries of War and Navy, asking them to make payroll deduction
plans a part of the conditions upon which Army-Navy flags are awarded
industries.
I asked for some research on present Army-Navy plants, and found
that less than a quarter of the sample taken can equal the National
average. About a quarter of them have no payroll plan at all. The
rest are somewhere in between.
This is not very good, and we will probably have a job selling the
Army and Navy on putting this extra hurdle in the way of awarding flags.
Regraded Unclassified
86
TREASURY DEPARTMENT
FISCAL SERVICE
WASHINGTON
BUREAU OF ACCOUNTS
OFFICE OF THE COMMISSIONER
July 15, 1943
TO MISS CHAUNCEY:
With Mr. Bell's approval, I am going to be out of
the city from July 18 to August 1. In case the Secretary
should want to know about the follow-up on his desire
to stimulate War Bond sales among American citizens em-
ployed by foreign missions, tell him that I have already
made plans for follow-up and he can be assured that it
will be done.
If we get a favorable reply to the Secretary's letter
to Secretary Hull, Miss White will send down to you identical
letters addressed to the heads of the various missions. I
have procured a complete list of the persons in charge of
the various foreign missions.
Commissioner of Accounts
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
87
\
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 15, 1943
TO:
Secretary Morgenthau
FROM: John J. Louis
AM
I have sent your suggestions on "Oklahoma" to Roy Welch who
is on his way West to supervise some Star Parade productions.
Regraded Unclassified
88
7/15/43
Harry White
The Secretary.
Please fix me up a memorandum that I can sign by noon
Thursday to the President notifying him what we have done with
China in regard to letting them have $200 million worth of
gold. I want to send a copy of it to Mr. Cordell Hull.
I'd like to have this by two o'clock, the latest -
two oblock.
I think we also ought to ask the State Department
to send 8. cable to the American Minister or Ambassador, which
ever it is, in China, letting him know. I also think we ought
to let T. v. Soong, too.
Franched
)
Regraded Unclassified
89
Treasury Department
o
Division of Monetary Research
Date July 15, 1943
19
To:
Secretary Morgenthau
From:
Mr. White
China
1. Attached hereto are:
(a) Memorandum to the President.
(b) Copy of memorandum for Secretary Hull
together with covering letter.
(I had already informed Mr. Berle
of this matter by telephone.)
2. In accordance with your suggestion, I
have informed Dr. T. V. Soong of this
matter by telephone.
3. With respect to the American Ambassador
in Chungking, I am enclosing copy of
cable which was sent to Treasury repre-
sentative in China, which cable would
automatically be brought to the attention
of the Ambassador.
90
JUL 15 1943
My dear Cordell:
I an enclosing herewith, for your infor-
mation, a copy of a memorandum I have presented
to the President dealing with the Chinese №
quest to purchase $200 million x gold out of
the $500 milliem finamcial aid as & means of
helping to check inflation in China.
I an also enclosing & copy of cable, dated
July 14. 1943, dealing with this matter sent to
the Treasury representative in China through
your Department.
Sincerely,
(Signed) E. Mergenthou, Jr.
Secretary of the Treasury
The Henerable
The Secretary of State
Enclosure
File copies ret to White.
Copy of ltr. and enclosures
in Diary.
ISF/efs 7/15/43
By Messenger Sabey 4.10
Regraded Unclassified
31
MEMORANDUM TO THE PRESIDENT:
on July 14, 1943, we sent a mossije to Dr. H. H. Kuns, the
Chinese Ninister of Finance, informing him that the Treasury is
prepared in principle to agree to the Chinese request to purchase
$200 million of gold out of the 8500 million financial aid as a moans
of helping to cheek inflation in China. Dr. Kung was also informed
that & formal request was, of course, necessary before any definitive
decision and action could be taken.
The Chinese Government has already drawn on the Treasury to the
extent of 4240 million out of the $500 million financial aid:- $200
million has been set aside as backing for Chinese Government savings
certificates and bond issues; $20 million vas used to purchase gold,
and $20 million is being used for the printing of banknotes and the
purchase of relative materials. The perchase of gold with an addi-
tional $200 million will mean that in total the Chinese will have
used 8440 million out of the $500 million financial aid.
In the message to Dr. Kums, as well as in discussions with the
representatives of the Chinese Government in Washington, it has been
made clear that the Treasury is acquieseing to the Chinese proposal
because the Government of China deems that the sale of gold to the
public will aid its war effort by helping to fight inflation and
hoarding and that, therefore, the desision to purchase the gold is
primarily the respensibility of the Chinese Government. Furthermore,
the Chinese have been urged to give careful consideration to the
best ways of using the gold, particularly because of the great costs,
difficulties and dangers inherent in the use of gold as a means of
checking inflation under sonditions existing in China at present.
16 especially stressed the fact that the Chinese Government will by
this step be scorificing large amounts of foreign xchange, which
could be used in the post-war period to pay for imports needed for
reconstruction and rehabilitation.
The use of gold coins as against bullion for the purpose W&B
carefully considered. It was felt both by us and by the Chinese
Government that this technique for selling the gold to the public
would not be feasible in the present instance, primarily because it
would be necessary to give the gold coins a fixed monetary value,
while it is contemplated that the price of gold in terms of yuan
will change frequently and substantially as time goes on.
The suggestion was therefore made to the Chinese representatives
in Washington that the gold might be sold to the public in China in
small bars of one or two ounses in order to reach the widest pos-
sible sestion of the Chinese public and such bare might have some
engraving which might suggest the United States origin of the f1-
mancial sid, If the Government of China 80 wished.
Secretary of the Treasury
Regraded Unclassified
92
SECRET
July 14, 1943
To:
Adler, Changking, China.
From: Secretary of the Treasury.
Please transmit the following message to Dr. Kung:
1. The Treasury has considered the proposal of the Government
of China to purchase $200 million of gold from the U. S. Treasury
out of the 8500 million financial aid, which gold will be sent to
China for sale to the public as a means of helping to check
inflation.
2. Be presume that the costs, difficulties and dangers inherent
in the use of gold as a means of checking the present inflation in
China have been fully taken into consideration.
3. Since the Government of Chima doess that the sale of gold
to the public will sid its war effort by helping to achieve greater
monetary stability, the Treasury is prepared in principle to agree
to its proposal. It will be necessary, of course, for the Treasury
to have a formal request from you before any definitive decision
and action can be taben.
Regraded Unclassified
93
July 15, 1943
My dear Mr. President:
Undoubtedly you will remember
that when you had Madame Chiang
Kai-shek for lunch, you asked me
to see representatives of China in
regard to giving them assistance.
The enclosed memorandum is the re-
sult of several conferences with
them, and I understand they are
very pleased.
Sincerely yours,
(Signed) H. Mergenthau, Jr.
The President,
The White House.
Copy of ltr. and
enclosure in Diary.
Regraded Unclassified
94
MEMORANDUM TO THE PRESIDENT:
On July 14. 1943, -- sent a message to Dr. H. H. Kung, the
Chinese Minister of Finance, informing him that the Treasury is
prepared in principle to agree to the Chinese request to purchase
$200 million of gold out of the $500 million financial aid as a means
of helping to sheek inflation in China. Dr. Kung was also informed
that a formal request vas, of course, necessary before any definitive
decision and action could be taken.
The Chinese Government has already drawn on the Treasury to the
extent of $240 million out of the $500 million financial aid:- $200
million has been set aside as backing for Chinese Government savings
certificates and bond issues; $20 million was used to purchase gold,
and $20 million is being used for the printing of banknotes and the
purchase of relative materials. The purchase of gold with an addi-
tional $200 million will mean that in total the Chinese will have
used $440 million out of the $500 million financial aid.
In the message to Dr. Kung, as well as in discussions with the
representatives of the Chinese Government in Washington, it has been
made clear that the Treasury is acquieseing to the Chinese proposal
because the Government of China doems that the sale of gold to the
public will aid its var effort by helping to fight inflation and
hearding and that, therefore, the decision to purchase the gold is
primarily the responsibility of the Chinase Government. Furthermore,
the Chinese have been urged to give careful consideration to the
best ways of using the gold, particularly because of the great costs,
difficulties and dangers inherent in the use of gold as & meme of
checking inflation under senditions existing in Chima at present.
Ve especially stressed the fact that the Chinese Government will by
this step be sacrificing large amounts of foreign exchange, which
is
could be used in the post-war period to pay for imports needed for
reconstruction and rehabilitation.
The use of gold soins as against bullien for the purpose was
carefully considered. It was I alt both by 18 and by the Chinese
Government that this technique for selling the gold to the public
would net be feasible in the present instance, primarily because it
would be meassary to give the gold coins a fixed monstary value,
while it is contemplated that the price of gold in terms of yuan
will change frequently and substantially as time goes on,
The suggestion was therefore made to the Chinese representatives
in Washingtom that the gold might be sold to the public in Chima in
mall bare of one or two comeo in order to reach the videst pos-
sible section of the Chinese public and such hars might have some
engraving which might suggest the United States origin of the fi-
nancial aid, if the Government of @hina ao wished.
(Signed) E. Morgenthau, Jr.
Secretary of the Treasury
I/ISF/efs 7/15/43
Regraded Unclassified
95
SECRET
July 14, 1943
To:
Adler, Chungking, China.
From: Secretary of the Treasury.
Please transmit the following message to Dr. Kung:
1. The Treasury has considered the proposal of the Government
of China to purchase $200 million of gold from the U. S. Treasury
out of the $500 million financial aid, which gold will be sent to
China for sale to the public as a means of helping to check
inflation.
2. We presume that the costs, difficulties and dangers inherent
in the use of gold as a means of checking the present inflation in
China have been fully taken into consideration.
3. Since the Government of China deems that the sale of gold
to the public will aid its war effort by helping to achieve greater
monetary stability, the Treasury is prepared in principle to agree
to its proposal. It will be necessary, of course, for the Treasury
to have a formal request from you before any definitive decision
and action can be taken.
ISF/efs 7/12/43
Regraded Unclassified
96
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
25
OFFICE OF THE CHAIRMAN
July 15, 1943.
Dear Dan:
This is in response to your letter of June 25, 1943, con-
cerning the tentative Executive Order, "Regulation of Credit Under
National Stabilization Program".
If the Order should be issued, the Board and its staff
would wish to keep in close touch with the Treasury on any points
where regulations under the Order would touch functions of the
Treasury and its operations. I think this is evident from the
ready acceptance of the suggestion made by the Treasury at the meet-
ing in the office of the Director of Economic Stabilization. How-
ever, when the matter of an order was first broached to me, I stated,
and I think you will agree, that, because of the difficulty of ad-
ministering an order of such breadth, there would have to be some
freedom of action subject, of course, to the overall control of the
Director of Economic Stabilization as contemplated in the Executive
Order which created that office. Accordingly, if the Order is is-
sued, I doubt if it would be practicable for the technical staff of
all of the agencies which night be affected to work on the regula-
tions with our staff, although the Board, of course, would expect
its staff to consult with the staff of any agency whose functions
would be affected by a proposed regulation. Furthermore, I am sure
that satisfactory liaison could be established and maintained with
the Treasury without unnecessarily burdening your technical staff
with work on all regulations. Within these limitations I am sure
we can set up an entirely satisfactory working arrangement and you
have my assurances that we would do SO.
Marrimer Sincerely yours,
Honorable D. W. Bell,
Under Secretary of the Treasury,
Washington, D. C.
Regraded Unclassified
97
JUL 15 1943
ky dear Mr. Secretary:
In connection with the financial directives for the
Operation Itusky, I propose, with your concurrance, to
obtain through the British Treasury the agreement of the
British Covernment to the following understandin
The United States and British Dovernments will not
in unison in negotiations with occupied Italy concerning
the allocation 05 the tarden of military occupation ex-
penditures. Haither Covernment will undertake separate
negotiations or conversations with Italy and will, through
advice and consultation, keep each other fully informed on
current and prospective developments.
This matter has already boon discussed with 115. Vete
of your Department and be is familiar with its background.
I would appreciate being advised of your concurrance M
nonts as possible.
Very truly yours,
(Signed) E. Mergesthan, Jr.
Secretary of the Treasury
The Honorable,
The Secretary of State,
By Messenger Givens
File copies ret to
White's office -
Copy in Diary.
STATE
1/12/43
Regraded Unclassified
38
JUL 15 1943
by dear Senator:
This 18 to acknowledge your letter of July 9, 1943, enclosing a
letter to you from Senator McCarran regarding the lend-leasing of 100
million ounces of silver to the Government of India to be returned to
the Treasury after the war on an ounce-for-ounce basis.
Le I explained in the meeting with the Senate Special Silver Com-
mittee, it is my opinion that the lend-leasing of this silver bullion
to the Government of India will be helpful to the war effort of the
United Nations. India is an important source of supplies for the forces
of the United Nations in the Pacific areas. Large forces are now
stationed in India, and it is quite likely that India will soon become
the base for important military operations. Under such circumstances,
everything necessary should be done to assure the fullest possible
utilization of the resources of India in the war.
The people of India have from time immemorial been accustomed to
holding art of their savings in the form of silver. If silver bullion
18 not available for this purpose, silver coin will be hoarded. Already
large quantities of the old silver rupee coins have been melted down.
Any substantial and further rise in the price of silver will lead to
the withdrawal and disappearance of even the new rupee coins which
have a much higher selting point than the old rupee coins.
In some of the rural areas of India, the hearding of silver coin
and the consequent shortage has resulted in a premium on silver coin
and has to some extent haspered the production and marketing of crops.
if the rural public cannot get silver bullion or silver coin to heard,
they will tend to heard more wheat and other agricultural products
that are essential to supply the people and the armies in the Pacific
areas. Furthermore, the hearding of coin, according to the Indian
Government has increased the difficulty of meeting industrial payrolls
and has led to dissatisfaction among factory workers. It is expected
that the sale of additional amounts of silver bullion to the public
will help stop the hearding of coin and reduce the hearding of goods.
There is another important aspect to the provision of silver
bullion. The people of India are extremely sensitive psychologically
to the price of silver. A repidly rising price of silver would mean
to them & deterioration in the quality of Indian currency. If the
By Messenger Givens
PHOTO File in Diary.
Oris.
" ret'd to White's Office
Regraded Unclassified
99
Indian public should loss confidence in the soundness of their currency,
the effect would likely be an extremely sharp inflation, with unfortunate
consequences on industrial and agricultural production BO important for
civil and military supplies in India and in other Pacific areas. To have
been informed that the rise in prices in India has been accelerated in
recent conths, in DONO part due to the sharp rise in the price of silver.
It is the opinion of persons /amiliar with the economy of India that the
rise is prices and the deterioration in the supply situation can be
retarded by the sale of silver to the Indian people.
it LB the intention of the Indian Government to sell silver bullion
exclusively for the purpose of limiting an inflationary rise in commonity
prices and in the continued production of agricultural and
industrial (code. This can 16 accomplished by preventing a FUNNARY end
panteky rise in the price of silver without at U.S same time depressing
the price of silver to undestrable levels. For several years it has bean
the policy of the Indian Government to saintain the price of silver in
India as a level considerably above that in other parts of the world.
The lend-leasing of silver bullion to india will not modify this policy
of saintaining & high price for silver in India.
It should be pointed out that the lend-leasing or silver to india,
for from impairing the world position of silver, will certainly
strengthen it. The silver that is lend-leased to the Indian Devermment
must - returned on an ounce-for-ounce tests after the war. Any silver
sold by the Indian Government will have to be repurchased after the was.
This will serve to sustain and strengthen the world demand for silver
after wartine industrial uses have declined. Further are, the waintenance
of - high regard for silver arong the peoples of the last Le not without
its advantages to all silver-producing countries.
The Government of India, through its representatives here, have
sade strong presentation of the importance of obtaining the additional
amount of silver as - means of preventing a deterioration of the Indian
economy. The importance of celutaining a strong economy in India in the
interest of the war effort of the United Nations impels we to the con-
clusion that it is desirable to lend-lease silver bullion to India, and
1 an recommending such setion to the Land-Lease Administration. You
will remember that the general consensus of the senbors of the Senate
Special Consittee on Silver who ware present visin 1/7. Stettinium and I
appeared before then to discuss this natter last week was that vis step
was worranted in the light of the situation. in 4 opinion nothing in
Senator McCarran's letter warrants B change in that conclusion.
Sincerely yours,
(Migned) M. Morgenthon, Jr.
Secretary of the Treasury.
concrable Amer Thomas,
United States Senate,
Techington, 2, C.
7/15/43
Regraded Unclassified
United States Senate
F
COMMITTEE ON APPROJRIATIONS
July 9, 1943
ble Henry Morgenthau, Jr.,
cretary of the Treasury,
gton, D. C.
Dear Mr. Secretary:
our conference on Wednesday Senator McCarran addressed a
unication to me giving his viewpoint with respect to one of
the
issues raised. The letter is self-explanatory and in order
that you may know of his viewpoint I am forwarding the letter
you.
Ith every good wish, I am
Yours most cordially,
Eleum thomas
Elmer Thomas
TH 1800 GR
required VIDARST'L
EACH
Regraded Unclassified
101
MARK
United States Senate
F
COMMITTEE ON APPROPRIATIONS
July 7, 1943
morable Elmer Thomas, Chairman
mate Special Silver Committee
wington, D. C.
dear Senator:
At our meeting with the Secretary of the Treasury and
Robert
Lend-Lease Administrator this morning I was greatly shocked
Jum of the proposal to lend-lease 100 million ounces of Treasury
Filver to the Government of India for the purpose of "stabilizing"
the market price of silver in India.
I wish to go on record as opposing any such proposition.
Buch a. large amount of silver-more than twice the amount now
tarried as a. reserve by the Government of India--is sufficient,
in
opinion, to depress the market price of silver in India.
I
Dayo it is intended to be used for that purpose, rather than
to
abilize the present price in the Bombay market
I invite your attention to the fact that the Bombay bai-
Les: market quite recently passed a resolution restricting forward
Titon deals for the purpose of reenforcing the anti-inflation
senres previously taken by the Government of India. The result
Dis resolution has been to check speculation on the Bombay bul4
in mrket.
Within the past year the price of silver in Bombay has
stuated from 60 cents to $1.20 an ounce, United States money
&
the exchange value of the rupee has fluctuated very State
that period, it is noteworthy that the current exchange will
frection over 30 cents, while the par value of the rupee 14
/2 cents. At the present rate of exchange silver is quote? in
at approximately $1.02 an ounce. If the rupee were
gaable at parity, silver would be selling in Bombay
valent of $1.20 in our money.
The British Government thinks this price is too kigh. 2b
in given. Sometimes we hear that the price of stime to on
Regraded Unclassified
102
Klmor Thomas
spproaches the melting point of the coin. In this in-
vian of the reduction of the fineness of the rupee in 1940
to .500 (ine, this excuse would be inappropriate.
the truth is that the authorities in India are disappointed
E
ter quantities of the rupees of .916 fineness were not de-
prior to May of this your when those rupees were deprived of
status, especially in view of the fact that the Bombay
price of silver has risen considerably higher than the melting
increximately 87 cents) of those coins. The authorities were
they counting on large receipts of these coins in order to in-
Last reserve stocks of silver used to swamp the market.
This is simply another occasion of furnishing the materials
eidek to build our own guillotine. As I have stated on many
scions, I M heartily in favor of utilizing a substantial part of
Treasury silver B.S. a means of aiding the war effort. I do not
that the 100-million-cunce stockpile now desired by the Govern-
RIN < mations. I on agreeable to lend-leasing reasonable amounts
India would aid, to any appreciable degree, in the defeat of
minary from silver for legitimate coinage purposes to Governments
Stated with the United States in our common cause, but I am
to placing in the hands of Government officials of other
any of our Treasury silver to be used by bullion brokers and
williaborators whose chief aim is to relegate silver to the
of an industrial metal and deprive it of its monetary status.
Yo should not put our Treasury at the disposal of any foreign
ninent to be used for the purpose of beating down the currency of
friendly nation,
ST I have no objection to the submission by you to the Secretary
masury and to the Lend-Lease Administrator of copies of this
Tat Sincerely, miCarran
Regraded Unclassified
103
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
July 15, 1943
CONFIDENTIAL
Received this date from the Federal Reserve
Bank of New York, for the confidential informa-
tion of the Secretary of the Treasury, compila-
tion for the week ended July 7, 1943, showing
dollar disbursements out of the British Empire
and French accounts at the Federal Reserve Bank
of New York and the means by which these ex-
penditures were financed.
8MB
Regraded Unclassified
104
FEDERAL RESERVE BANK
of NEW YORK
July 14, 1943
CONFIDENTIAL
Dear Mr. Secretary:
Attention: Mr. H. D, White
I am enclosing our compilation for the week ended
July 7, 1943, 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,
/s/ L. W. Knoke
L. W. Knoke,
Vice President.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
Enclosure
Regraded Unclassified
ANALYSIS UF CANADIAN AND AUSTRALIAN ACCOUNTS
Strictly
(In Millions of Dollars)
Work Ended July 7, 1943
Confidential
BANK
OF
CANADA (and Canadian Government)
DEBITS
COMMONWEALTH BANK OF AUSTRALIA (and Australian Government)
CREDITS
DEBITS
CREDITO
Transfers
Transfers from Official
Transfers
to
Proceeds
British A/C
Net Incr.
to
Proceeds
Net Incr.
Official
of
(+) or
Official
of
(+) or
PERIOD
Total
British
Others
Total
Gold
For Own
For French
Other
Decr.(-) (-)
Total
British
Other
Total
Gold
Other Dec. (-)
Debits
A/C
Debita
Credits
Sales
A/C
A/C
Credits
First year of war (a)
n$ Funds(c)
Debits
A/C
Debits
Credits Sales Credits in $ Funds (d)
323.0
16.6
306.4
504.7
412.7
20.9
38.7
War period through
32.4
+ 181.7
31,2
3,9
27.3
36.1
30.0
6.1
+ 6.9
December, 1940
477.2
16.6
460.6
707.4
534.8
20.9
110.7
41.0
+ 230,2
57.9
14.5
43.4
62.4
50.1
12,3
+ 4.5
Second year of war(b)
460.4
-
460.4
462.0
246.2
3.4
123.9
Third year of war (c)
88.5
+ 1.6
72.2
16.7
55.5
81.2
62,9
16,3
+ 9.0
525.8
0.3
525.5
566.3
198.6
7.7
-
1942
360.0
+ 40.5
107.2
57.6
49.8
112,2
17.2
95.0
- 5.0
Sept. 3- Sept. 30
46.3
-
46.3
53.6
13.2
-
1
40.4
+ 7.3
28.0
20.5
7.5
18.1
-
18.1
- 9.9
Oct, 1 - Oct, 28
44.9
-
44.9
51.5
16.6
-
1
36.9
+ 6.6
14.3
12.0
2.3
14.6
-
14.6
+ 0.3
Oct. 29 - Dec: 2
56.5
-
56.5
80.8
14.4
-
I
66.4
+ 24.3
10,2
5.5
4.7
9.4
-
9.4
- 0.8
Dec. 3- Dec. 30
48.2
-
48.2
43.9
2,9
-
-
41.0
- 4.3
14.1
8.0
6.1
11.7
-
11.7
- 2.4
1943
Dec. 31 - Feb. 3
52.5
-
52.5
217.1
-
125.0
-
92.1
. 164.6
16.2
8.0
8.2
17.3
-
17.3
+ 1.1
Feb, 4- Mar. 3
35.1
-
35.1
101.2
-
37.7
-
63.5
+ 66,1
15.9
15.0
0,9
16.0
-
16,0
+ 0.1
Mara 4- Har, 31
36.2
-
36.2
51.6
-
-
-
51.6
+ 15.4
7.1
5.0
2.1
6.7
-
6.7
- 0.4
Apr- 1 - Apr. 28
29.0
-
29.0
39.6
-
-
in
39.6
+ 10.6
16.4
15.1
13
19.3
-
19.3
- 2.9
Apr. 29 - June 2
79.9
.
79.9
95.8
.
Il
95.8
+ 15,9
21.8
19.0
2.8
20.1
-
20.1
- 1.7
June 3 June 30
53.8
I
53.8
77.2
-
If
I
77.2
+ 23.4
20.0
20.0
H.
27.3
-
27.3
+ 7.3
WEEK ENDED:
June 16
17.3
-
17.3
14.6
-
-
-
14.6
- 2.2
4.0
4.0
I
0.1
-
0.1
- 3.9
23
9.0
If
9.0
10.3
.
.
If
10.3
+ 13
If
*
0.3
E
0.3
+ 0.3
30
19,9
Il
19,9
16.5
4
.
I
16.5
- 3.4
1.0
1.0
-
8.6
I
8.6
+ 2-6
July 7
15.7(a)
-
15.7
18.6(e)
-
-
-
18.6(f)+ 2,9
8.3
7.0
1,3
11.6(d)
-
11.6() + 3,3
6,2 million.
(a) For monthly breakdown see tabulations prior to April 23, 1941
8.9 million.
(b) For monthly breakdown see tabulations
8,
1971
10.1 million.
(c) For monthly breakdown
8,9 million.
(d) Reflects changes
(c) Does not
(c) Itoludes
from New York accounts
banks,
(g) Includes $5.0 million held for credit of S,
and $6.0 willion-grodited to
to
against 0 Ja currency
ANALYSIS OF BRITISH AND FRENCH ACCOUNTS
(In Millions of Dollars)
Strictly
Week Ended July 7, 1943
Confidential
BANK OF ENGLAND (BRITISH GOVERNMENT)
DEBITS
BANK OF FRANCE
PERIOD
Gov't
CREDITS
Transfers to
Proceeds or
Expendi-
Transfers
Net Incr (+)
Official
Sales of
Net Incr, (+)
Total
from offi-
Other
tures
Canadian
or Decr.(-)
Total
Other
Total
Total
Securities
cial Aus-
or Decr. (-)
Debits
(a)
(Official)
tralian
Credits
in $ Funds
Debits
Account
Debits
Credits
Credits
in $ Funds
Gold
First year of war (g)
1,793.2
605.6
(b)
Account
(c)
(d)
20,9
1,166.7
(e)
(e)
1,828,2
(d)
War period through
1,356,1
52.0
3.9
416,2
+ 35.0
866,3(f)
1,095.3(f)
+299.0
December, 1940
2,782.3
1,425.6
20.9
1,335.8
2,793.1
2,109.5
108.0
Second year of war (h)
2,203.0
14.5
1,792,2
561.1
+ 10.8
878.3
3.4
407.4
1,098.4
+220.1
2,189.8
Third year of war (1)
1,193.7
274.0
1,235.6
16.7
904.8
705.4
- 13.2
7.7
223,1
38.9
1,361.5
8.8
- 10.1
21,8
1942
5.5
57.4
1,276.8
+125.9
18.5
4.4
- 16.1
Sept. 3- 3 - Sept, 30
56.1
37.1
-
19.0
81.6
-
Oct, 1- Oct, 28
0,5
46.7
20.5
60.6
27.4
+ 25.5
10.1
19.3
0.4
-
57.5
- 9.7
-
-
Oct, 29 - Dec. 2
12,0
96.6
45.5
+ 10.8
I
35.5
61.1
0,3
63.7
+ 0.3
-
-
-
Dec. 3 - Dec. 30
5.5
30.4
78.2
13.3
- -12.9
17.1
0,2
0.3
+ 0.1
-
1943
51.9
-
-
8.0
43.9
+ 21.5
-
-
Dec. 31 - Feb. 3
168,6
-
20.9
125.0
22.7
58.9
-
-
Feb. 4- Mar. 3
8.0
87.2
17.8
50.9
37.7
-109.7
I
32.7
-
120.8
-
-
-
15.0
105.8
Her. 4- Har. 31
35.3
12,9
+ 33.6
-
22,4
-
64.4
-
-
-
-
5.0
Apr. 1- Apr. 28
37.0
59.4
16.3
+29.1
.
1
20.7
-
-
87.4
-
-
15.1
Apr. 29 - June 2
90.4
72.3
74.3
+ 50.4
16.1
E
-
-
103.4
IN
-
E
June 3 - June 30
19.0
31.6
8/4/20
11.6
+ 33.0
E
.
20.0
E
R
130.7
E
-
20.0
110.7
+ 99.1
-
-
a
WEEK ENDED:
June 16
6.7
3,2
-
3.5
32.0
-
-
4.0
28,0
23
6.2
+ 25.3
,
E
1,9
-
4.3
38.3
-
il
-
30
6.3
38.3
# 32.1
3.5
-
-
-
2.8
19,2
Il
-
1.0
July 7
18.2
5.1
2.9
+ 12.9
#
2,2
18.2(f)
-
-
Il
-
7.0
11,2(1)
+ 13.7
-
5
Weekly Expenditures Since Outbreak of Bar
June allice
See attached sheet for foolastes.
19/0) $27.6 willion
$56.3
million
Regraded Unclassified
(a) Includes payments for account of British Ministry of Supply Mission, 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 British 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
of our securities through December, 1940 amounted to $334 million.
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation
(c) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks,
presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
1939 receipts. apparently represent current acquisitions of proceeds of exports from the sterling area and other accruing dollar
(d) Reflects net change in all dollar holdings payable on demand or maturing in one year.
(e) For breakdown by types of debits and credits see tabulations prior to March 10, 1943.
(f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(g) For monthly breakdown see tabulations prior to April 23, 1941.
(h) For monthly breakdown see tabulations prior to October 8, 1941.
(1) For monthly breakdown see tabulations prior to October 14, 1942,
(j) Includes $4.3 million apparently representing current and accumulated dollar proceeds of sterling area services and merchandise.
Regraded Unclassified
108
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Chungking, China
DATE: July 15, 1943, 2. D.M.
10.: 1189
This is Adler's cable no. TF-139 which is a secret
And strictly confidential massage for the Secretary of
the Treasury only.
From n reliable source I learn that Dr. Kung announced
et & meeting of monetary experts which he called yesterday
that the Chinese reoresentatives at the monetary discus-
sions in Washington informed him that until the Allied
Covernments are in agreement on the following points no
conference will be held:
1. That 1t 18 vital that an international rund be
#stablished and that the contribution of the U, S. to
the fund should be limited to 02 or 13 billion;
2, That contribution to the fund should be made by
every country that participates;
3. That the initial rate of exchange between members
be fixed;
4, That the quota be the basis, not wholly but to
8 certain extent, of the voting nower.
Strong opposition 428 expressed to ouint S around
which most of the discussion at the meeting centered. The
majority present spid that until some internal stability,
both financial And economic, wer assured 1% would be 1m-
poesible to decide rationally upon the Chinese exchange
rate. However, Dr. Kung insisted that China agree to All
four points and overrode All objections. Re argued that
it would not be appropriate for China, because it would
not assent to point 3, to hold us the conference.
It VAR also apreed At the menting that instructions
be given to the Chinese delegation to recommend that
only two-thirds instead of three-cuarters of 30 percent
of the gold holdings of the member nations which have
been wholly or partically oscupied ty the enemy be required,
The
Regraded Unclassified
109
-2-
The fact that the Generalissimo is strongly in favor
of & stringent foreign exchange control and foreign trade
in the post-wer period P8 well AB at present WAB indicated
by Dr. Kung during the course of the meeting.
ATCHESON
Regraded Unclassified
110
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No, 232
Information received up to 7 A.M., 15th July, 1943.
1. AIR OPERATIONS
WESTERN FRONT. 13th/14th.
AACHEN. 812 tons dropped including 10 8,000 pound and a few
4,000 pound H.E. and 505 tons of incendiaries. In spite of considerable
cloud many crews could see the ground marker bombs which had been well placed,
but results cannot yet be estimated in absence of photographs. A photographic
aircraft at about 8 A.M. following morning however reported heavy smoke up
to 20,000 feet which almost hid the town and stretched as far east as he could
sec. Many fires were still burning.
14th. Following raids on airfields by U.S. Fortresses:
VILLACOUBLAY. 96 aircraft dropped 198 tons. Excellent
weather, bombing good, moderate A.A. and fairly strong fighter opposition,
3 missing.
LE BOURGET. 55 aircraft dropped 118 tons. Clear weather,
bombing on whole good, moderate A.A., strong fighter opposition. 4 missing.
AMTENS. 53 aircraft dropped 57 tons, Bombing good, moderate
A.A. some enemy fighters, 2 missing, one crew safe,
Enemy casualties reported:
Fortresses
48, 35, 13
By supporting fighters
6, 3, 5
5 fighters missing.
Beaufighter and Typhoon bombers attacked airfields at ABBEVILLE
and TRICQUEVILLE. A trainer Beaufighter destroyed a German bomber over the
North Sea.
SICILY AND SOUTHWEST ITALY. On 12th/13th and 13th heavy
bombers attacked airfields at VIBO VALENTIA, CROTONE, CATANIA, GERBINI and
TRAPANI, dropping a total of about 400 tons, Several aircraft were destroyed
or damaged on the ground. 13th. 921 fighter and 141 bomber sorties were
flown, Enemy communications were attacked and many vehicles destroyed.
Enemy casualties during these operations:
26, 5, 24
Allied
6 missing.
All airfields in SICILY are now reported clear of enemy air-
craft. Our aircraft are now operating from PACHINO, COMISO and LICATA.
EASURY DEPARTMENT
S 21 Wd 91 100 29
Regraded Unclassified
7/16/70
MEMORANDUM
For The
SECRETARY OF THE TREASURY
By The
SPECIAL COMMITTEE ON TREASURY WAR BORROWING
Of The
AMERICAN BANKERS ASSOCIATION
As requested by you we have reviewed the memorandum submitted by
the Federal Reserve Board, and in this connection discussed the matter with
Mr. Eccles and also with Mr. Bell, Mr. Haas and their associates in the
Treasury Department. The Federal Reserve and the Treasury both agreed that
the general present pattern of rates on government securities should be
maintained within limits that, while permitting some market fluctuations,
will not vary up or down to a degree that will shake the confidence of the
public in the general stability of the rate structure. With this be fully
agree.
Federal Reserve Memorandum
At the present time the supply of short-term Government securities
running up to 10 years which are particularly suitable for bank investment
is not, except in the case of 90-day bills, equal to the demand. The supply
of 90-day bills at the present rate of 3/8 of 1%, even with the agreement of
the Federal Reserve banks to purchase them at this rate, has reached the
saturation point. At the present time it is obvious that any increase in
the amount of bills outstending will find their way into the Federal Reserve
banks. This lack of short-term investments, other than 90-day bills, suit-
able for bank's investment, has caused many banks to buy long-term government
Regraded Unclassified
112
2,
securities which were designed primarily for other investors and has put an
undesirable pressure on the whole rate structure, tending to dislocate it
and to lower the rate on long-term government securities to a point where
investors other than banks will not buy them.
The Federal Reserve suggests that no more bills or year certifi-
cates be issued, but that instead 9 months bills or certificates, bearing
3/4% interest, be issued into which the present outstanding bills and 1-year
certificates would be refunded as they mature and that the Federal Reserve
banks would agree to purchase such 9-month bills or certificates at 3/4 of 1%.
While the proposal of the Federal Reserve System would tend to
alloviate the present pressure for short-term securities available for bank
investment, we believe that the same result might be obtained by not enlarg-
ing the amount of 90-day bills outstanding until the market has clearly
demonstrated its ability to absorb them, and increasing the supply of 1-year
7/8 certificates, and supplying more 1 1/2% notes having a maturity of
5 years or less and of 2% bonds having a maturity of 10 years or less when
the next offers designed primarily for banks are made by the Treasury. We
believe it better to try this program to see if it would not remedy the
situation rather than at this time adopt the Federal Reserve Board's sug-
gestion.
If this does not remedy the situation, then some plan slong the
lines of the Federal Reserve should be given serious consideration. The
objectives of the Federal Reserve and the Treasury are so nearly identical
that close cooperation between the two in adopting a common objective and
making effective a program should bring success.
In regard to the specific questions which are contained in the
Regraded Unclassified
113
3.
memorandum submitted by the Under Secretary and on which we were requested
to give our recommendations, they are made in the general light of the fore-
going conclusion.
THIRD WAR LOAN
1.
What securities should be in the basket for each
class of investor?
We recommend for the basket the following:
7/8% 1 year Certificates of Indebtedness
2% Bond due 10 years callable 8 years
2 1/2% Bond due Dec. 15, 1969 callable Dec. 15, 1964
E, F, and G Savings Bonds
Present Series C Tax Savings Notes
We recommend the inclusion of 7/8 one year certificates because we
believe that without them, it would be difficult and probably impossible to
get corporate subscriptions to the amount estimated.
Simultaneously with the announcement of the basket we think that
FL statement should be made that the 7/8% Certificates of Indebtedness and the
2% Bonds will be offered to banks only not earlier than October 15 nor later
than November 1 in a minimum amount of 2 1/2 billions, this amount to be in-
creased as may be needed, of which a substantial amount will be of the 2%
bonds. We believe such an announcement would tend to reduce the pressure
from banks seeking to invest excess reserves during and immediately after
the period of the drive.
2.
Should the timing of the corporation part of the
drive be separated from the individual part?
Answering question two we think that the corporation part of the
drive should not be separate from the individual part.
Regraded Unclassified
114
4.
3.
Should banks be offered the marketable securities
issued in the drive after the close of the drive?
The third question has been answered in connection with question
one.
4.
Should a partial payment system be established for
the 2-1/2's; for large denomination E bonds?
Answering the fourth question there should be no partial payment
plan for the 2 1/2's particularly if G's are offered and we see no practi-
cal way to provide for partial payment of E bonds on account of administrative
expense, shortage of manpower and difficulty of policing.
5.
Should the Treasury and the Federal Reserve publicly
encourage the withdrawals of bank deposits for the
purchase of war bonds during the drive?
Answering number five we recommend that that question be left
to the State Chairmen and their committees acting in collaboration with the
banks and because of the varied conditions that prevail throughout the
country. This is particularly important in states where there are Mutual
Savings Banks.
INTERIM FINANCING
Should a limitation on bank and other subscriptions
be established on the August 1 issue; should sub-
scriptions of $100,000 be allotted in full with 100
percent down payment required; should this offering
be open only to banks?
We recommend that 3 billion of new 7/8% 1-year Certificates of
Indebtedness be issued to take up the certificates maturing August 1, 1943
and to provide one and one-half billion new money. We suggest that holders
of maturing certificates be permitted to exchange them for the new ones,
Regraded Unclassified
115
5.
Answering your question, we suggest that bank subscriptions be
limited to 100% of capital funds or 5% of deposits, whichever is higher,
as shown by the last published figures, except that bank subscriptions up
to $100,000 be alloted in full. As to subscribers other than banks, we
think subscriptions of $100,000 should be allotted in full and down payment
of 100% be required and that above $100,000 10% be required. Subscriptions
should not be limited to banks.
QUOTAS
No. 1 - Over-all quotas.
There should be an overall quota. We haven't sufficient
information to advise as to the amount, but it should not be set higher than
you can reasonably expect to attain. It appears to us that the amount of
7 billions for individuals is too high.
No. 2 - Should over-all quota be broken down
by States and other political sub-divisions?
We think state quotas should be fixed and that any further
breakdown should be left to the State Chairmen and their committees.
No. 3 - Should any quota or quotas be broken
down by types of securities?
No. We think impractical.
No. 4 - Should the total be broken down by classes
of investors?
We think should be done for benefit of State Chairmen but not
made public.
No. 5 - What quota or quotas should be made
public?
Total quota should be announced and any other publicity on
quotas should be left to the State Chairmen.
Filed 4:00 p.m. 7-16-43
Regraded Unclassified
116
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1943
TO
Mr. George Haas
FROM Fred Smith BE
Attached is copy for the third issue of the War Finance bulletin.
The Secretary asked that you take it with you to the farm so he can
check it before we go any further.
If you will notice, there are some figures in piece, based upon
the $25 billion goal for the year. If you change the figures at the
farm, this will have to be changed.
Attachment
Regraded Unclassified
117
Issue No. 3
July 16, 1943
Compulsory Lending
Few things that might happen can cause us as much trouble
in the Third War Loan Drive starting September 9 as the
publicity which is appearing at this time about compulsory
lending.
Congress having decided that there are to be no additional
levies this year, either 88 additional income tax or in the
form of a refundable tax such as compulsory lending, there is
nothing to be gained, and much to be lost, by discussing com-
pulsory saving and failing to give the voluntary bond program
the support it needs and deserves. Publicity for the compulsory
purchase of War Bonds, while it will raise not one dollar toward
the financing of the war, can -- and 1s -- doing great harm to
the voluntary bond program.
To talk 8.8 if compulsory lending could be substituted
for voluntary lending, which 1s happening in some places, is
to endanger & going concern for one which even if established
could not reasonably be expected to do the job we have to do,
if we are to raise the funds needed to finance the war from
non-inflationary sources. No plan for compulsory lending that
might conceivably be adopted would eliminate the necessity for
a steady and periodically intensive appeal by the Treasury to
individuals to invest in War Bonds -- an appeal that might be
fruitless in the face of compulsory savings.
Compulsory savings can't get us as much money net; nor
will it reach the inflationary money in the magnitude that is
required, and perhaps even in the magnitude which we are now
reaching it.
By its very nature compulsory lending is forced to
operate like a tax, and because it operates like a tax the
amount that can be levied on any income group is limited by
the capacity to pay of those in the group least able, not
most able, to pay. Our goal this year 18 to raise $25 billion
from the sale of War Bonds to individuals and an estimated
814 billion in taxes from individuals -- $39 billion in all.
To obtain $39 billion through taxes and compulsory loans
present tax rates would have to be multiplied on the average
almost three times. What is more, it would be impossible to
levy such high rates in the upper brackets without going over
100 per cent, with the result that levies in the lower brackets
would have to be more than three times present rates on the
average - and this of course 1s obviously impractical when you
consider that many people in the lower brackets still get
pre-war incomes.
Regraded Unclassified
118
ra
While a goal of $25 billion in War Bonds for individuals
in 1943 is simply the height of fantasy on B. compulsory basis,
it 18 sound and sensible on & voluntary basis. Why? Because
the voluntary method offers 8 flexibility of adaptation to the
individual's varying circumstances utterly lacking in the com-
pulsory method. The voluntary method differentiates between
the var worker whose income has skyrocketed in recent years and
the worker on fixed salary whose income has increased little if
at all; between the individual already burened with heavy life
insurance premiums and mortgage debt and the individual free
of such contractual obligations; between the individual who is
c. member of B. family of employed workers all living under the
same roof and the individual who is the sole breadwinner of
the family.
Making none of these distinctions, the compulsory method
is bound to be clumsy and inequitable; a method designed to
produce & minimum rather than a maximum of funds for the
Government. The voluntary method 1s capable of making these
vitally important distinctions, and thus of obtaining a maxi-
mum of funds with a minimum of hardship.
In much of the current popular discussion in favor of
compulsory lending there has been a deplorable tendency to
ignore these considerations. It 18 our job to bring them to
the fore. Only by so doing can we demonstrate that there are
no simple solutions to complex problems and, more importantly,
that there 1s no substitute for the voluntary program.
A recent Gallup poll indicates that while 81 per cent
of American familles have purchased bonds and stamps "since
the Treasury first began to issue them several years ago,"
only 60 per cent of America's families have purchased War
Bonds or stamps since January 1 and that, from the point of
view of the Treasury, the results "may be disappointing."
Whatever the truth of the figures, the impression they leave
1s false and misleading. Advocates of compulsion may think
this 1e grist for their mill. We don't. The 81 per cent
figure is for two years; the 60 per cent for 5 months --
hardly comparable periods. What 18 more, millions of American
business men and farmers, whose source of income is not as
regular as that of salaried and working people, may well be
expected to purchase War Bonds as income becomes available to
them later in the year.
In the final analysis, the real answer to compulsory
lending will be the success of the Third War Loan drive --
go let's get on with the job!
Regraded Unclassified
119
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1943
TO
Mrs. Klots
FROM Fred Smith
The Secretary asked me to remind him to see that no new tax bill
is introduced during the Third War Loan Drive, or at least not on
September 8, which is the present Congressional schedule.
I don't know what he intends to do about this, and my function
consists solely in reminding him. I am gladly sharing this function
with you.
Hast
Regraded Unclassified
120
MEMORANDUM FOR THE SECRETARY.
July 16, 1943.
Mail Report
Slogans for the Third War Bond Drive were
sprinkled thickly through this week's mail, which
was even heavier than that of last week. A few
letters last Saturday, 30 on Monday, and 15 or 20
each day thereafter, contained from one to a dozen
slogans each. The recent announcement of the slogan
selected has not deterred those with others to offer.
One writer amended the adopted slogan to read: "Back
the attack with a barrage of Bonds". Altogether,
several hundred, including some also working out
poster suggestions in detail, have gone to the War
Savings Division for acknowledgment and consideration.
Bonds of smaller denomination, not redeemable
until maturity, continue to be suggested as an
especially appropriate gift while goods are scarce,
and further inflation is a threat.
Fewer Bonds were submitted for redemption, and
reports of failure to receive interest due on Bonds
were only a third of the number received last week.
On the other hand, complaints about delayed delivery
of Bonds purchased through various branches of the
War Department jumped from 44 to 72 during the past
week. One letter on the subject, from the Office of
the Area Engineer, Oakland, California, carried 17
signatures. A number of the letters spoke of the
writer's complaint as being made on behalf of many
others in the same group.
Most of the correspondence in regard to taxes
dealt with questions about the withholding tax, or
personal problems in connection with tax payment.
During the first part of the week the proposed tax
Regraded Unclassified
121
- 2 -
Memorandum for the Secretary.
July 16, 1943.
on excess profits of individuals threatened to be-
come a general controversy but interest seemed to
fade quickly, leaving the score even as to pros and
cons. Aside from the high rates of the withholding
tax, subjects of complaint included the discontin-
uance of tax notes of low denominations, loopholes
open to corporations converting to partnerships,
and the necessity for notarizing certain tax forms.
Letters dealing with Foreign Fund matters in-
creased considerably during the week. There was a
slight falling off in the objections to the new
pennies, while protests about fees charged for cash-
ing Federal checks, or for redeeming Bonds remained
about as usual.
Gabritte E. Fortust
Regraded Unclassified
122
General Comments
Dr. Richard Altgenug, Norwood, Mass. Enclosed please
find check of $10.00 as a small contribution for the
war effort. I shall repeat sending checks to you for
the same purpose as often as I have the possibility
to do SO. Although we, my wife and myself, are enemy
aliens, coming almost five years ago to the U.S.A.
from Germany, we do not feel like enemies of this
wonderful country, and to tell the truth, we even do
not feel like aliens any more. Being over the draft
age and not in the best of health, I can only do a
little bit to help the war effort, such as buying War
Bonds and helping in the civilian defense, but we feel
that this isnot enough done for the privilege to be
able to live in this blessed country. * # # Will
you
therefore please accept this money and may it help to
speed the victory for the United Nations?
G. O. Thacher, Corvallis, Mont. I have recently
learned that I have the privilege of contributing to
the cost of purchase ofwar munitions for my country.
I therefore take very real pleasure in enclosing my
check to your order for $50.00, toward same, as an
unconditional gift. May it help lick the Japs!
The faithful Melchor Leòn is with us as usual -- With
reference to your letter #7092, I take the pleasure
to inclose herewith New York draft in the amount of
$187.48, equivalent to $909.27 Mexican pesos (at the
rate of exchange of $4.85 pesos for $1.00), to which
amounted the 25% of all purchases made by American
citizens in this store, during the month of June, 1943,
that is donated to the United States Government for
"National Defense".
Regraded Unclassified
123
- 2 -
F. G. Davidson, Seattle, Wash. I wish to enter a
protest, brief so as not to waste your time, but just
as seriously felt as if I should write a long letter.
The protest is about your new penny. There is not 8.
week that passes that I can now say I have no loss on
change. I honestly believe that these errors are real
mistakes due to speed and poor lighting, yet I am out
just as definitely as if a "con" man were dipping into
my small cash each week. Won't you please do some-
thing to make the penny readily distinguishable from
a dime? I'll gladly use wood or a coin with a hole
in it -- which will stretch the metal supply -- or any
other material that is for the assistance of our war
effort. The only request is please do not continue
our present losses by confusion.
Regraded Unclassified
124
- 3 -
Favorable Comments on Bonds
Madame Blanche, (Specialist in Wedding Cakes), N.Y.C.
I have a valuable idea in regard as to the Bond sell-
ing campaign for the month of July. Trying to do my
part in this effort I wish to offer you this sug-
gestion -- I will very gladly donate a three tiered
wedding cake to any bride in any part of the country
whose family will buy the largest Bond for either the
month of July or August, and will send it anywhere to
her in the United States in time for her wedding.
H. Beatrice Logan, Toronto, Canada. A newspaper item
re your War Savings Staff's search for a slogan for
your Third War Loan Drive stirred a bit of 8. whimsy
within me to offer these in the spirit of friendli-
ness from one United Nations member to another.
Should the idea back of any of them appeal, a member
of your staff could give the necessary "twist" for
publicity uses. # * % With every good wish for success
in that Third War Loan Drive. " * #
Regraded Unclassified
125
- 4 -
Unfavorable Comments on Bonds
Alfred A. E. Hansen, Attorney & Counselor at Law,
Detroit, Mich. This morning the writer appeared at
the U. S. Post Office Station, Fisher Building,
Detroit, Michigan, to buy fourteen $100 Defense Bonds
and was told by Mr. Birch, Acting Station Manager,
that they could not issue that amount, but that the
writer would have to obtain them at the Main Post
Office (which is about a two hours' round trip by
street car). " * * However, when we wanted to invest
$1,050.00 in Defense Bonds at one time at the Bank,
we were told that we must buy a $1,000 Bond, and they
refused to sell us any lesser denomination. Not
succeeding in buying at the Post Office, I put the
application through the Red Cross Booth in the lobby
of the Fisher Building, and they were quite happy to
add as large B. purchase as $1,050.00 to their credit,
but when the Red Cross applied for them at the Wabeck
State Bank, the same thing happened over again -- the
Bank refused to issue less than a $1,000.00 Bond on
a purchase involving $1,050.00. It appears to me
that the attitude of both the Post Office Station in
the Fisher Building, and that of the Wabeck State
Bank is one that would discourage a great many people
from investing their savings, when the right to choose
the size of Bonds they desire is denied them.
C. E. Broughton, Sheboygan, Wis. (Telegram) I am
advised this afternoon that upon your order Mr. Walter
Kasson becomes the State Chairman of the War Bond
sales in Wisconsin, replacing myself. This information
was given to me by Frank J. Kuhl, Collector of Internal
Revenue, who acted as State Administrator with me.
This seems & round-about way to replace a Chairman.
I am very happy to have served in that position because
it was a patriotic duty, and yet there are some things
one cannot understand, and this happens to be one of
them. As a member of the Elks Board of Grand Trustees,
Regraded Unclassified
126
- 5 -
I am leaving for Boston. Hence, this telegram rather
than 8. letter. I think Wisconsin can be more than
proud of the record it has made, and I am proud of
the Committee that I had to serve with me, as Chairman.
I had every opportunity to bring the radio stations
and the newspapers into line because that was my forte.
We have given thousands of dollars of space in my news-
paper, and time over my radio station, for the cause
of the Government, but it seems these things don't
count. With events transpiring as they are, perhaps
there is no need of tendering my resignation, but in
order to keep the record straight, I em as of this
date resigning as State Chairman of the Wisconsin War
Savings Staff.
Cleve H. Park, San Diego, Calif. In an effort to
comply with "pressure requests", I was induced to
agree to deductions from my meager salary for sub-
scriptions to one $18.75 War Bond each month while
working for the U. S. Engineers during the time I was
assigned at the Deming, New Mexico, Air Base last
year. This was handled by the Albuquerque, N. M.,
Office of the U. S. Engineers, and deductions were
made for June, July, August, and September of 1942.
When no Bonds were received, I cancelled the obliga-
tion and purchased at the Post Office where I got the
Bonds on purchase, same as postage stamps, and without
delay. These Bonds have never been received and I am
greatly concerned and much disappointed at the care-
less manner in which this matter has been handled, for
I have written many letters without results and now am
determined to write several more, but not to you un-
less a satisfactory reply is forthcoming. There is
no sense in this delay, and if you cannot handle this
kind of transaction -- why don't you let them alone?
I propose to have these Bonds and am determined to
write letters to parties there who will look into such
matters and get them for me.
Yours for better
service and fewer bureaus.
Regraded Unclassified
127
- 6 -
Albert A. Fair, President, California Builders Company,
Inc., Oakland, Calif. Stories have been passed around
the Bay Region to the effect that, in a conversation
between you and a prominent citizen recently, you
stated to him that if you had your way, after the war
is successfully concluded, you would say to the pur-
chasers and holders of your present Defense Bonds,
"Thank you very much; you have made a fine contribu-
tion to the war effort". First, let me say that I am
sure you have made no such statement; and I am equally
sure that you have never had any such thought in your
mind. This does not alter the fact, however, that if
the story should be passed around quite generally,
great harm would be done to our war effort. I am there-
fore passing it on to you quickly so that you may take
any steps you deem necessary to counteract such an
absurd rumor.
Arthur H. Jones, Berkeley, Calif. One of the handi-
caps we Democrats will carry in the 1944 campaign
will be that we will be held accountable for a jillion
mistakes being made by round pegs in square holes. %
Early in 1942 I was employed as a Civilian (Civil
Service) by the U. S. Engineers, Galveston, Texas,
and was assigned to Ellington Field. " * * On advice
from the Galveston Office, Major Olmstead called a
meeting of the personnel (civilian employees), out-
lining to us the advisability of all employees to buy
Victory Bonds. We responded to his offer to collect
on the salary deduction plan, he promising that delivery
would be made as Bonds were paid for. I signed up be-
cause I have confidence in our Government, our President,
our Secretary of the Treasury. # # " I worked for $600
a year less than I was offered in nonessential war work.
After I had paid for five $25 Bonds and didn't get any
of them, and after getting three letters stating I
should buy more Bonds, that those already paid for
would be delivered soon -- I became discouraged and put
8. "stop" on my deduction plan, and thereupon started
buying for cash from my bank -- which seems to be able
Regraded Unclassified
128
- 7 -
to deliver what they collect for. Well, my dear Mr.
Secretary, when I left Ellington Field on June 15,
1943, I could get no authentic information on my
Bonds. Many rumors exist there, all the way from the
story that they are stored in Ft. Knox, to the story
that they are "frozen" for the duration as a guarantee
for payment of income taxes. In response to 8. letter
I wrote, I am informed the whole matter is in the hands
of the Commanding Centralized Field Offices, F.D. 366
West Adams Street, Chicago, where a force of 2,500
people have been employed! # # # I wonder, Mr. Secretary,
if this thing has worked out this way: that I worked
for the Government for $600 less than I could have
earned; that this $600 yearly helped support a Govern-
ment Agency; that I paid income taxes which also helped
support the Government Agency; that I paid cash in
advance for Victory Bonds to support the Agency still
further; and now the Agency tells me they have passed
the matter along to a new Agency which has been set up?
Regraded Unclassified
129
- 8 -
Unfavorable Comments on Taxation
John P. Gaty, Vice President-General Manager, Beech
Aircraft Corporation, Wichita, Kan. * # # The Manage-
ment of this corporation is very proud of its record
of its cooperation with the Treasury to further the
sale of War Bonds to its employees. # # * This amounts
to an average of almost $730.00 per employee, which
we consider to be an outstanding record. However,
our employees are quite disturbed about recent actions
of the Treasury and the vacillating policy of the
Treasury agents upon two occasions. There is a con-
siderable amount of talk of cancellation of payroll
deduction authorizations, and of other acts of
reprisal by our employees. * The first action
which they resent is that taken in January to make
8. deduction of 5% Victory Tax from their efficiency
incentive payment that month, after advices previously
were received from the Treasury Department that no
such deduction would be made. The second is the recent
reversal of the Treasury's ruling that payments of
wages made after July 1 for the periods prior to
July 1 would not be subject to the 20% deduction. In
both cases, the employees were interested in these
matters and at their behest we obtained advice from
the local office of the Treasury and submitted this
information to the employees through the medium of
our open house organ. On both occasions, later rul-
ings of the Treasury reversed the decisions to the
disadvantage of the employees, Therefore, our em-
ployees feel that the Treasury Department makes up
its own rules as it goes along, in accordance with
its own advantage, and that it is not proceeding in
accordance with law. They feel that no law can be SO
loosely written that you can say one thing one day
and exactly reverse yourself the next day. 4i- * #
It is our opinion that the Treasury would gain if they
adopted the most consistent attitude possible and
refrained from these disturbing reversals of policy.
# *
Regraded Unclassified
130
- 9 -
Mrs. John C. Duane, Brooklyn, New York. When I filed
my income tax in March this year, I sent a letter
with same stating my inability to pay my tax. Reason
being that I had to leave my position last November
to stay at home to take care of my small daughter.
4b H In previous years I have always paid my tax out
of my income. I have no resources to meet $389.42
as tax on the $2,255.00 I earned in the first 11
months of 1942. Isn't there some way this amount of
tax could be charged to me to be paid when and if
I were able to be employed again -- that is, without
interest piling up into 8. stupendous sum? My husband
merely has his income as 8. New York City policeman,
so it is impossible for him to help me. # # # I have
received several communications from the Collector of
Internal Revenue, and have replied to the same each
time. Today I received a notice and demand for my tax.
It is impossible to get blood out of a stone, and
I have no money. I'm certain I'm not the only American
in some such position -- isn't there some provision for
us? I'm not attempting to evade my tax. If I had had
the money, it would have been paid.
William G. Thumm, Jr., Certified Public Accountant,
Baltimore, Md. I understand from the local branch of
the Federal Reserve Bank that the sale of Tax Notes in
denominations of less than $1,000 has been discontinued.
To individuals like myself, who are not subject to with-
holding, this is a decided hardship. I could, of
course, put so much aside every month to take care of
my income taxes; but I am sure you understand human
nature well enough to know that this doesn't work.
Therefore, the only thing I see to do is to buy War
Bonds monthly, and then cash them in when the time
comes to pay my income taxes. I am sure that sufficient
consideration was not given to those who are in my
position (and there must be thousands of us) by those
who were responsible for the discontinuance of the sale
of the small denomination Tax Notes, and I trust some-
thing will be done to aid us in meeting our obligations
to the Government.
Regraded Unclassified
131
- 10 -
C. Harrison Mann, Jacksonville, Fla. I have been
most interested for some time in the brillient
literature issued from your office -- now I feel it
would be unfair if I failed to compliment you on the
last paragraph of page 10, of your latest issue,
under the title, "Collection of Income Tax at Source
on Wages", as follows: (Quotes above-mentioned para-
graph.) Certainly this is a masterpiece that will
live forever. The composer should take his place in
our Hall of Fame -- and his glorious achievement
heralded from the housetops of America. # # # Fearful
that this marvelous composition escape the attention
of the literary world, I am taking the liberty of send-
ing a copy of this letter to the Honorable Senator
George, Chairman of the Senate Finance Committee, our
local Collector of Internal Revenue, and "Time". #
John J. Kessel, Miami, Fla. You will probably never
see this because you are either too busy, or some
secretary will throw it in the waste basket for you,
but I'd like to "get it off my chest", and put in my
two cents. I have just finished trying to get some-
thing out of the pay-as-you-go tax plan as furnished
by my employer. If you know what it's all about,
please tell me. Don't keep it 8. secret. I don't know
where I stand. I don't mind paying taxes. I'm glad
I live in a country where I can pay them. Glad that
I don't live somewhere where they just take all your
money. Here's what I'm griping about -- why make it
so complicated? # * * Why make a lot of bookkeepers
out of us? I should have said chiselers. You know
damn well a lot of income tax reports show a lot of
money given to churches and charities which stayed
right in the taxpayers' pockets. I can't see how such
loopholes should be allowed. Maybe a straight 20% in-
come tax (less exemptions of course) would hit the
little fellow too hard, or the big fellow not hard
enough. Well, why not get more out of the big fellow?
Sock him for 30, 40, 50%, or whatever you need. Ho'll
get along. Maybe I didn't make any sense in this
letter but I feel better.
Regraded Unclassified
132
- 11 -
Albert I. Stix, Jr., Life Insurance Estates, St. Louis,
Mo. Many corporations are interested at the present
time in providing Pension Plans for their employees.
A great many of these companies have fiscal years
ending in the middle of the calendar year, and they
would like to complete these Plans before their fiscal
year ends. However, since the regulations with respect
to the 1942 tax law have never been issued, they do not
feel justified in going ahead with these Pension Plans,
since the penalties for violating the wage regulations
are very severe. It has now been seven months since
the last Revenue Act was passed, and it would seem
reasonable to suppose that the regulations concerning
it should be published by now. Anything you can do to
expedite this matter will be of great assistance to
both employers and employees. # # #
Regraded Unclassified
133
IMPEDIATE RELEASE
JULY 16, 1943
STATEMENT BY THE PRESIDENT
I have today signed House Joint Resolution No. 147,
which continues the Commodity Credit Corporation.
The bill includes an amendment to the Emergency Price
Control Act of 1942 which prohibits the use of grade labeling
to inform consumers and which restricts the use of standards in
maximum price regulations.
The language in the bill relating to standards is
so ambiguous that misconceptions have already arisen as to its
effect. The matters involved are of the utmost public concern.
The legislation was adopted after only fragmentary debate. In
view of the uncortainty created, I feel it necessary to state
my own understanding of the amendment, as drawn from the ex-
pressed intent of its sponsors.
The language of the bill appropriating funds for
the Office of Price Administration was construed as prohibiting
the Administrator from making use of standards in any case re-
gardless of how essential they were to price control unless
such standards had been previously established by industry
acceptance or by government action. Such a construction would
cripple price control because trade standards are frequently
lacking or, as in the case of the grades of meats, incompletely
established.
I am satisfied this bill has no such meaning. It
was presented to the Senate and House to avoid the consequences
that would have followed the adoption of the language in the
appropriation bill. Senator Taft, who sponsored the language
in the appropriation bill and the modification in this bill,
stated expressly that the modification preserved power in the
Administrator to "standardize" & commodity in any case in which
this was "absolutely essential to an offective system of fix-
ing prices". Them assurances are in accord with the purpose
and the terms of the compromise amendment and must be taken as
controlling. It is with this understanding that I have signed
the bill.
Regraded Unclassified
134
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO Secretary Morgenthau
July 16, 1943
FROM Ir. O'Connell
If you have an opportunity between now and your
landlieon date with Mr. McConnell next Tuesday, I think
yua sught to read the attached memorandum which he pre-
pered some weeks ago.
As you will see, it makes some interesting suggestions
with respect to ways of keeping the peace after the termina-
lion of present hostilities. In general, McConnell believes
that by taking away Germany's facilities for the production
of synthetic gasoline and nitrogen, and by prohibiting
it from accumulating stockpiles of raw materials essential
for the prosecution of a war, we will render Germany
impotent, militarily speaking, regardless of what the will
of the people in the country may be.
I realize that this is a far cry from the post wer
problems that have been concerning you, but it will give
you something of a slant on the way McConnell has been
thinking.
lle is what you might call a "raw material" man, and
believes very sincerely that control of raw materials is
the key to a lasting peace. His whole background has helped
to produce this. He is, as you know, a mining engineer by
profession; has been, over the years, very active in the
development of oil properties; played an importent part, at
the end of the last war, in getting out of Germany the
technical information which formed the basis for the German
.ynthetic nitrogen industry during the last war; was one of
a group of engineers who urged the stockpiling of stragetic
and critical materials as long ago as 1935; and in the early
says of CP. was one of those who took the lead in urging that
DID supplies of strategic and critical materials, such 8.8
rulier, quinine, quartz crystals, and the like, be built up.
Regraded Unclassified
135
COPY
June 25, 1943
The first interest of Americans today is in a victory
as & means to the end of establishing and maintaining a lasting
peace. We do not want an armistice or a peace agreement which
is designed for any other purpose than a lasting peace on earth.
...e do not wish to reap vengeance on the German people. We do
not want to restrict or interfere with the lives of German
people except to preclude in SO far as possible their ability
to start another war. We are honestly anxious to establish
world conditions which will effectively prevent another war,
with as little disturbance to German economy and the German's
way of life as possible.
The technicians and the industrialists who know
the requirements of modern war in essential raw materials can
point out procedure which will prevent Germans from equipping
for war for generations, but such procedure must be practical
to administrate. To initiate and firmly establish the system
of administrating, it will be necessary to extend the armis-
tice period over a long enough period of years to firmly estab-
lish the succeeding civilian administration. There will always
be grave danger of eventually relaxing control measures as
Regraded Unclassified
136
- 2 -
years go by. The more firmly any control is established during
the armistice period the longer that control will function.
Therefore, the longer the armistice period, within reason, the
longer the succeeding peace will last. The perquisiteof a
lasting peace is the acceptance of the concept of a long armis-
tice.
An examination of the essential raw materials for war leads
to the inescapable conclusion that there are several materials
without any one of which a successful war could not be waged.
If such materials do not occur in the natural state within the
territorial limits of a country, that country to start a war
must either (1) conquer a country at the outset that does have
the essential material or (2) manufacture that material synthetic-
ally or (3) import a stockpile in peacetimes sufficient to last
for the duration of the war.
The outstanding example pertaining to Germany, of course,
is oil. It is essentialin large quantities. Germany has
practically no production and there is very little available in
all of Europe. Further, it is essential in such large quantities
that it cannot be stockpiled in sufficient quantities to meet
war requirements. Synthetic oil and gasoline is produced from
coal in Cormany in quantities sufficient to supplement the
relatively small supply obtained from the Rumanian oil fields.
Regraded Unclassified:
137
- 3 -
The synthetic product is of poor quality, it is expensive to
produce and requires large and complicated chemical plants.
Synthetic gasoline of an inferior quality costs Germany
about four times as much as the superior gasoline costs the
Allies who have access to the world's oil fields. However,
without the existence of these non-commercial German synthetic
jasoline plants to augment the meager production from Rumania,
Germany would have been defeated in 1940.
These plants are war plants built for war purposes. Ger-
nan submarines, airplanes, tanks, trucks and guns would be
useless without gasoline and oil. It is inconceivable that
the next Allied peace commission will allow such plants to
remain. They should be dismantled and removed out of reach
of the German government. Also the plants which are necessary
to make the equipment required by a synthetic gasoline plant
should be restricted in their equipment and. operations so that
even after restrictions are relaxed after a long term of peace
years, it would still require several years to reinstall
gasoline plants in Germany.
The Germans can sustain the operations of such uneconomical
gasoline production only through government subsidy. Either
by direct subsidy or through exorbitant tariffs on imports of
Easoline and oil. There is no purpose of such subsidy except
Regraded Unclassified
138
- 4 -
a war purpose. The German people pay for such subsidy either
in taxes or in higher prices for gasoline and oil. The elimi-
nation of such a burden on the German people would benefit the
national economy and raise the German standard of living. So
that this essential war preventative measure is an actual material
benefit to the German people.
Now this credit may be applied toward another war preven-
tion measure -- the removal of all NITROGEN fixation plants
from the continent of Europe. No nation could now conduct a
large scale war without using a large tonnage of atmospheric
fixed nitrogen, even though she could import nitrates freely.
The entire production of all Chile's capacity in natural ni-
trates would not supply one half Germany's present wartime
requirements. Nitrogen in one combination or another is the
essential base for practically all modern explosives and
propellants. There are only two ways to get it -- from the
mines in Chile or by fixation of the nitrogen in the air. In
1914 Germany prefected efficient and economical processes of
nitrogen fixation by combining nitrogen with hydrogen at very
high pressures to form ammonia which is easy to convert into
T.N.T., gun cotton, nitrocellulose and all propellants and
explosives. High pressures and heavy equipment are essential
to handle gasses at high pressures. This requires heavy forgings
Regraded Unclassified
139
- 5 -
of special steels. The same plants that make the equipment for
the nitrogen plants can make the big guns and heavy plate for
the army.
Fixed nitrogen is also universally used in peace times for
fertilizer and many other uses. For many purposes and in many
places the artificial atmospheric nitrogen may be produced at
much lower costs than the natural Chilean nitrate can be imported.
The fixation plants are complicated to build but require but
little labor or power to operate. The dismantled German plants
could be readily moved to Allied countries and their production
sold competitively to fulfill German peacetime requirements.
While a few hundred German operators and technicians would
be thrown out of work and be required to find similar occupa-
tions in other plants, such a disturbance would effect only a
fraction of one percent of German economy and to the German
people would be outweighted many times by the advantages gained
through cheaper gasoline and oil. The fact that ocean freight
from the Western hemisphere or Asia may increase by 10% or 20%,
the cost of fixed nitrogen to Germany may be offset every year
by one day of war.
The third freedom from threat of war is the prohibition of
stockriling of materials beyond normal efficient peacetime re-
quirements. Every industrialist knows the unnecessary burden of
Regraded Unclassified
140
- 6 -
carrying excessive inventories. Large inventories and slow turn
over increases costs of production, increases the hazard of price
fluctuations and is in every way. an uneconomical policy which
has been resorted to by the central powers for war purposes.
In times of peace the Germans, Japanese, and the Italians
have accumulated immense stockpiles of essential war raw ma-
terials. Germany waged World War No. 1 on stock piles. When
the stockpiles were exhausted the war was ended. World War No.
2 is being fought by Germany on her stockpiles accumulated in
the thirties. When they are exhausted this war will be over.
A partial list of important raw materials of which Germany
requires large quantities in stockpiles before starting a war
will include iron and steel, scrap iron, copper, nickel, mica,
tin, sulphur, tungsten or molybdnum, manganese, platinum,
bauxite, antimony, quartz, crystals, chromite, diamonds, graphite,
lead, mercury and vanadium.
Germany, Italy and Japan are "Have not" nations in the
sense they do not have within their own territories a great
majority of the minerals and materials essential for the con-
duct of war.
Control of the Allied sea power of the sea transport and
import of these minerals and materials above peacetime requirements
Regraded Unclassified
141
- 7 -
would not be complicated or expensive.
[sic from]
In resume the four requirements for freedom/for future wars
are:
1. A long armistice.
2. Dismantle and remove synthetic gaso-
line plants which would reduce the
cost of gasoline to Germany from $1
to 20c
3. Dismantle and remove synthetic nitro-
gen plants which will increase the
cost of fertilizer to Germans 10% to
20%.
4. Prohibition of excessive stockpiles of
certain raw materials which will lower
the cost of production of many products.
Regraded Unclassified
142⁻
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1943
TO
Secretary Morgenthau
FROM Randolph Paul
Effect on Foreign Funds Control of
President's Order Settling Wallace-Jones Dispute
Foreign Funds Control is not directly affected by the
Executive Order of July 15, 1943. The Order contains no
reference to either the Treasury Department or Foreign
Funds Control. It relates primarily to defining the
respective functions and responsibilities of the Board of
Economic Warfare (now Office of Economic Warfare), the
Reconstruction Finance Corporation (and its subordinate
agencies), Office of War Mobilization and State Department
in the field of foreign economic matters.
The Order does affect the Treasury (and Foreign Funds
Control) in the following respects:
(1) It abolishes the Board of Economic Warfare
on which you were a member and makes Leo
Crowley the Director of the Office of
Economic Warfare with the powers formerly
vested in the Board.
(2) It gives Leo Crowley control of the Export
Import Bank (Harry White is a member of the
Board of Trustees), with the power to
reconstitute such board.
(3) It provides in section (4):
"The functions of the Office of War
Mobilization shall include the authority
to arrange for the unification and co-
ordination of the activities of the
Federal Government relating to foreign
Regraded Unclassified
143
- 2 -
supply, foreign procurement and other foreign
economic affairs in conformity with the
foreign policy of the United States as
defined by the Secretary of State. In
providing for such unification the Office of
War Mobilization may utilize the facilities
of other departments and agencies, including
the machinery for the coordination of foreign
economic affairs established in the Department
of State." (Underscoring added)
Under this provision it is at least theoretically
possible for the Office of War Mobilization, with
the approval of State, to arrange for the
unification of Foreign Funds Control with the
Office of Economic Warfare or to arbitrate
policy disputes between such agencies. In the
same sense, however, the Office of War Mobiliza-
tion has the theoretical powers over all of
Treasury's functions in the foreign economic
field.
Of course, the implications of the Order may be much
broader. For example:
(1) Crowley could say that both Foreign Funds
and the Office of the Alien Property
Custodian should be made a part of the
Office of Economic Warfare and push for a
new Executive Order to such effect. On the
other hand he may find himself so absorbed
in his new responsibilities that the
Foreign Funds Control-Alien Property
Custodian friction will disappear.
(2) Crowley may very well play the State Department
line against Treasury. There has been recent
indications of this and the Order certainly
reflects that possibility.
Regraded Unclassified
144
- 3 -
(3) Crowley, through the Office of Economic
Warfare, will now be in on the reoccupation
program and this may have repercussions on
the cooperative attitude toward Treasury
which BEW has in the past evinced in this
field.
(4) Crowley no doubt will want a larger voice
in the field of post-war planning in the
foreign economic Bro field.
Regraded Unclassified
145
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Chungking, China.
DATE: July 16, 1943, 9 p.m.
NO.: 911
FOR ADLER FROM THE SECRETARY OF THE TREASURY.
Please transmit the following message to Dr. Kung:
1. The Treasury has considered the proposal of the
Government of China to purchase $200 million of gold from
the U. s, Treasury out of the $500 million financial aid,
which gold will be sent to China for sale to the public
na n means of helping to check inflation.
2. We presume that the costs, difficulties and dangers
inherent in the use of gold RB n means of checking the present
inflation in China have been fully taken into consideration.
2. Since the Government of China deems that the sale of
gold to the public will aid its war effort by helping to
schieve greater monetary stability, the Treasury 16 prepared
in principle to agree to its proposal. It will be necessary,
of course, for the Treasury to have a formal request from
you before any definitive decision and action can be taken.
HULL
(ЛАВ)
Regraded Unclassified
146
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Chungking, China
DATE:
July 16, 1943, 1 p.m.
NO.:
1200
This refers to the Department's telegram no. 658,
dated May 24, 1943.
This is a. strictly confidential message, TF 38, from
Mr. Adler for the Secretary of the Treasury only.
1. I have been requested by Dr. Kung to submit for
your consideration an alternative proposal outlined as
follows:
(a) The Bank of China in Chungking is to be allowed
to transmit remittances, including airmail and telegraphic
transfers, to people in enemy occupied China from the Bank
of China in New York, these two banks being the Central
Bank of China's designated agents.
(b) The procedure prescribed in General License 75
would be observed in effecting these remittances. It
would be the function of the Central Bank of China in
Chungking, as the designated agent of the Chinese National
Government, to be accountable for determining the desira-
bility of the beneficiaries receiving these remittances
and for reviewing each remittance. Caution to make sure
that hostile forces would not derive benefit from the
remittances would be exercised by the Government of China
through its designated agent, the Central Bank of China,
or such other agent or agents as the Chinese Government
may deem proper to designate from time to time.
(o) The same as outlined in the Treasury proposal.
(a) In the event the Hong Kong Bank makes a direct
application to the Central Bank, the Central Bank of China
will at that time take under consideration the designation
or the Hong Kong Bank as an agent to make remittances as
set forth in paragraphs (a) and (b).
2. Dr. Kung's proposal will be seen to project the
entral Bank into the most prominent position and stress
its importance as the Ohinese Government's appointed agent,
which
Regraded Unclassified
107
-2-
which is the chief deviation from the Treasury proposal.
This fortifying of the strength of the Central Bank is
in accord with a present tendency which has heretofore
been reported.
3. The Chinese members refrained from commenting on
the proposal when it was presented for disoussion at the
most recent Board meeting, because the Board members knew
that Dr. Kung had previously made known his thoughts on
the proposal. The Chinese members abstained from commit-
ting themselves other than to state that the plan was
taken note of by the Board. In private talks prior to
the meeting, however, the Chairman suggested general
approval of the Treasury proposal, while Pei recommended
that the Board be named reviewing agent, with the Bank
of China extending its facilities to the Board to meet
its requirements. A compromise might be to retain the
essentials of the Treasury proposal, while adding the
provision that the Board act as reviewing agent and
according some recognition to the Central Bank by refer-
ring to it in one or two places.
4. Because of doubt as the the Board's future
Chairman, the meeting was called more than a month late,
thus occasioning delay in replying to your telegram.
ATCHESON
Regraded Unclassified
148
NOT TO BE RE-TRANS
COPY NO. 13
BRITISH LOST SECRET
U.S. SECRET
OPTIL 20. 233.
Information received up to 7 a.m., 16th July, 1943.
1. AIR OPERATIONS
ESTERN FRONT. 15th. Escorted Typhoon and Boston Bombers
attacked POIX and ABBIVILLE Airfields. On these and other operations enemy
casualties - s, 2, 6. Ours - 7 missing.
15th/16th. Aircraft despatched: MONTBELIARD near BELFORT
(Peugoot Lotor Works) - 165 Halifax's (5 missing), MUNICH - 6 Losquitos,
Intruders - 3B, Anti-shipping - 4 (1 missing). Proliminary reports indicate
successful attack on eontbeliard. 8 Enery aircraft operated over kint and
LS.EX. One was destroyed by a hosquito.
SICILY and SOUTHERN ITALY. 13th/14th. Night Fighters shot
down 6 enemy aircraft. Wellingtons dropped 55 tons at PALERMO and also bombed
ESSINA, 3 missing. 28 medium and light bombers raided ENNA and 48 attacked
road targets and M.T. in CENTRAL SICILY.
14th. 184 heavy and 86 medium bombers with escort were sent
to ISSINA where 525 tons were dropped. 74 tons were dropped at INIA by
medium bombers. PALERIO, Northwest of CATANIA, was also bombed. 143 Mustangs
attacked objectives at ILAZZO, SCALIETA, SAN CATERINA and BRONTE. Beaufighter
sank a ship in convoy off CORSICA and destroyed a tanker and left another on
fire off SARDINIA. Spitfires flew 264 Sorties over beaches and on escort
duty. Enemy casualties: 5, 2, 1. Allied: 9 missing.
Regraded Unclassified
149-
July 17, 1943
10:00 a.m.
HMJr:
Are we making a record?
D. W.
Bell:
Yes, sir.
HMJr:
Well, now I've got these boys here and we're getting
along. Now the main thing I wanted to say to you
and Gamble
Hello?
B:
Yes, sir.
HMJr:
When Haas gets back - they started to tell me - it's
the only - they had a steak at half past one in the
morning in Poughkeepsie - I don't what they did before
or after
B:
A steak?
HMJr:
Yeah.
B:
My God! They can't get that in Washington.
HMJr:
George looks good, too.
B:
That's fine.
HMJr:
When he gets back to Washington Monday I think if
you and Ted and whoever Ted wants should sit down
and have an agenda for Tuesday and Wednesday.
B:
Oh, yes.
HMJr:
Hello?
B:
Yes, sir.
HMJr:
I'm very anxious to have that
B:
All right.
HMJr:
and particularly on the quotas.
B:
Yes, sir.
HMJr:
Now, what we're talking about here 1e - the boys
have got a State quota - and then I used the example -
take the steel industry for the State of New York.
I suppose there'll be some one person representing
the steel industry - and then each steel mill in New
York, I think, should have a quota. Hello?
Regraded Unclassified
150
- 2 -
B:
Yes.
HMJr:
And then after all - we get this industry going and
if the Lackawanna Steel in Buffalo has a quota, those
people know what's expected of them, they'll go to
town and they'll generate their own salesmanship
which is far better than anything - pressure we could
put on them from the outside.
B:
Well, isn't that something that the State Chairman
should work out with the steel
HMJr:
Yes, but we should give it to them as a policy.
B:
oh, in the meeting on Wednesday you mean.
HMJr:
Tuesday isn't it?
B:
Tuesday and Wednesday they'll be here.
HMJr:
Yeah but we should have that as a policy. I think
we should not only tell them we expect to have a
state quota but we ought to tell them that every
factory in the state should have a quota.
B:
All right.
HMJr:
And every industry should have a quota. The boys will
tell you. They're with me on it - I think Gamble will
be too.
B:
I think Gamble has already done something on it.
HMJr:
Is he there?
B:
He's shaking his head. He has already had some thoughts
on it.
HMJr:
Well, let me just talk to him 8 minute.
B:
All right.
Ted
Gamble:
Hello.
HMJr:
Ted.
G:
Good morning, sir.
HMJr:
Good morning. If - - I don't know there are five steel
mills in the State of New York - I don't know where
they are
Regraded Unclassified
151
- 3 -
G:
Yes.
HMJr:
and one man 1s appointed chairman for the five
steel mills
G:
Yes, sir.
HMJr:
and each steel mill has a quota
G:
Yes, sir.
HMJr:
those boys can generate far more enthusiasm and
salesmanship than we could ever organize between
now and September 9th.
G:
We couldn't even do a job on them if you didn't give
them a quota.
HMJr:
Right.
G:
They wouldn't - it wouldn't mean anything - the whole
drive would be meaningless as far as those plants are
concerned.
HMJr:
Well, we didn't have it last time
G:
And that was the missing link.
HMJr:
All right.
G:
For we had it in the Kaiser Ship Building Company
and we did a good job.
HMJr:
You're with me on it?
G:
Well, 100%. I talked to Tickton about it, too.
HMJr:
Yeah. The boye here are with me.
G:
Yes.
HMJr:
And they say that that's the way they got the payroll
savings thing up.
G:
Well, that's correct.
HMJr:
They said the only industry that's behind
G:
Yeah.
HMJr:
in proportion 1s the railroad industry.
Regraded Unclassified
- 4 -
152
G:
That's correct.
HMJr:
Well - my bean is working as good 8.8 it can this
morning.
G:
Well, I'm not only with you on that but do you know
the hope that we have with these two organizations
that we're bringing in - the retailers and the movies -
is to hang a quota on every one of them.
HMJr:
Well, I - I think that they - I may repeat myself -
each industry within a state should have a chairman.
G:
That's
HMJr:
Each - uh - say there are five steel mills and each
steel mill should have an independent quota.
G:
That's correct.
HMJr:
And then we can say to Mr. Jones who is looking after
five mills, "How are you going?"
G:
That's right. And anything short of his quota - he's
not going 80 well.
HMJr:
Right.
G:
That's right.
HMJr:
And I think that all of Monday should be spent on this.
G:
Yes.
HMJr:
Getting it ready for Tuesday.
G:
I agree with that.
HMJr:
Now, the boys tell me the thing that they are really
worrying the most about 1s the farming thing.
G:
Yes.
HMJr:
And I wonder if Bill Meyers is going to be down Monday,
Tuesday and Wednesday.
G:
Well, we'll see if we can get him here.
HMJr:
Order him here.
G:
Yes.
Regraded Unclassified
- 5 -
153
HMJr:
I mean, if he's going to be there, he just - now is
the time.
G:
Yes.
HMJr:
And I'm very much interested in this partial payment
plan for farmers
G:
Yes.
HMJr:
that the boys had.
G:
Yes.
HMJr:
See?
G:
Yes.
HMJr:
But as I say, I think all of Monday I'd forget about
posters and every other thing and just get ready for
your Tuesday meeting.
G:
That's correct. Although you have no objection on
Tuesday and Wednesday if we also plan as a part of
this agenda to show these people how far we've ad-
vanced with the promotional material?
HMJr:
I - I - if you don't mind, I'd do that at the end.
G:
Well, I'll do it - that's fine.
HMJr:
I want to get them
G:
You want to get them saturated with this first?
HMJr:
Well, I want to get the quota thing
G:
Yes.
HMJr:
and the basket settled first.
G:
I'm agreeable to that, sir.
HMJr:
And then whatever time you've got left over you can
do on the other.
G:
Fine.
HMJr:
How's that?
G:
Fine.
Regraded Unclassified
154
- 6 -
HMJr:
What?
6:
We added a little word of warning to these fellows
when sending these invitations to be here that we
also wanted to find out how far along they Were with
their organization plans.
HMJr:
Well, that's all right. But I think the first crack
out of the box should be on the baskets and on the
quotas.
G:
I agree on that, sir.
HMJr:
And then we should have a plan and I'm all for this
plan for every factory and every industry in every
state.
G:
Right. It's the only ultimate solution, Mr. Secre-
tary.
HMJr:
I don't see anything else.
G:
There's no other answer to it. You'll do more - then
it doesn't make any difference regardless of what
anybody says, how many quotas you have within a state
for industries or for businesses.
HMJr:
Right.
G:
Because they won't work without them.
HMJr:
Right. Well, now that was my reaction. The main
thing I wanted was to have you fellows set aside Monday
to work on an agenda.
G:
Right.
HMJr:
and then to get Meyers down.
G:
Well, we'll do that. We'll do both of those things.
HMJr:
Anybody want to say anything to me?
G:
Yes, I do. I want to tell you that I have an idea
that I'd like for you to be turning over in your mind
about an advertising man.
HMJr:
Go ahead.
G:
I - when I was in New York yesterday - I talked to these
people - we had the representatives there of 8200 theatres.
Regraded Unclassified
155
- 7 -
HMJr:
What's that?
G:
We had the representatives there of 8200 theatres.
HMJr:
8200 dead?
G:
Theatres.
HMJr:
Theatres?
G:
Yes, sir. In New York - this meeting yesterday
HMJr:
Yeah.
G:
as well as the presidents of this company - these
various picture companies.
HMJr:
Yeah.
G:
They voted these funds to do this job - the industry
itself.
HMJr:
Yeah.
G:
They're going to put up the money.
HMJr:
Yeah.
G:
The 8200 theatres, representing over half the theatres
in America
HMJr:
Yeah.
G:
as well as the Trade Association representatives
were there of the other 8000 theatres
HMJr:
Yeah.
G:
pledged their 16,000 theatres to go all out in
this September drive.
HMJr:
Yeah.
G:
I tell you this just by way of background. At this
meeting also were the leading advertising men of the
motion picture industry
HMJr:
Yeah.
G:
as well as the theatre industry and I got an idea
there about the possibility of taking the head of the
Loew's Theatre Advertising Department for this job
Regraded Unclassified
- 8 -
156
HMJr:
Head of Loew's Theatres?
G:
Advertising Department.
HMJr:
Yes.
G:
It's the most successful chain of theatres in
America.
HMJr:
Yes.
G:
They have all - nothing but metropolitan theatres
in large cities.
HMJr:
Yeah.
G:
They are great users of space - they are the people
who originated years ago Major Bowes' Program, The
Capital Theatre Program.
HMJr:
Yeah.
G:
They've owned portions of radio stations in various
cities. They are great users of radio space. They
are great users of newspaper space. They are great
purchasers and users of outdoor advertising.
HMJr:
Yeah.
G:
They use all the media.
HMJr:
Yeah.
G:
The men are not people who have been specialized in
one field or the other but they have general back-
ground of knowledge and information in the advertising
field, because they have to use all the media.
HMJr:
Yeah.
G:
In other words, they know how to turn to good people
in these different fields to get what they want.
HMJr:
Yeah.
G:
Now, this man that I'm thinking of will require, I
think, a call from you if we're going to get him.
HMJr:
Yeah.
G:
His name is Oscar Doob.
Regraded Unclassified
- 9 -
157
HMJr:
Oscar who?
G:
Doob. D-o-o-b.
HMJr:
D?
G:
D-o-o-b.
HMJr:
The second or fourth letter in the alphabet?
G:
D is the fourth.
HMJr:
Yeah. That's D double-0?
G:
D double-o-b.
HMJr:
It ien't Boob?
6:
No, it's Doob.
HMJr:
(Laughs)
G:
And he is the dean of all of the practical advertising
people in the theatre industry.
HMJr:
Yeah.
G:
And in addition to that, he 18 a very cultured little
fellow, and I think a happy balance of the kind of 8.
man that we want for the job.
HMJr:
Well, why not telegraph him and see whether he wouldn't
come down to see me.
G:
Well, I can get Doob if you could get Nick Schenck to
let him come, but I don't think we can get him - I don't
think we can even
HMJr:
Oh, I don't think Schenck can afford to turn me down.
G:
He wouldn't turn you down.
HMJr:
No.
G:
He wouldn't turn you down, but he would - I think - turn
anybody else down, Mr. Secretary.
HMJr:
Look what Schenck did on that picture - you know
G:
Yes, inflation film.
Regraded Unclassified
158
- 10 -
HMJr:
Well, what did - where did Howard Dietz figure
G:
Well, you see Howard is in the publicity department
of the picture company.
HMJr:
Yes.
G:
Howard is the director of publicity for Metro-Goldwyn-
Mayer.
HMJr:
Well, is Doob under him?
G:
Doob is in the theatre department.
HMJr:
But does Doob come under Dietz?
G:
Not - not - no, they are two different departments,
Mr. Secretary. Doob is the - as a matter of fact -
Doob would be a greater loss to Schenck than Dietz would
be, because Dietz has kind of graduated into the elder
statesmen's class. He's not one of the working men.
HMJr:
How old a man 18 Doob?
G:
I should say Doob is 46 years old - Or 47 years.
HMJr:
Well, get him down and we'll talk to him.
G:
And, I'll have him come down Monday 80 you can see
him.
HMJr:
I won't be there Monday.
G:
Tuesday. If you can squeeze in a minute.
HMJr:
Yeah.
G:
I think we ought to get him 8.8 quickly as we can. Now,
that's the only nomination I have made for this job.
HMJr:
Yeah.
G:
And I do it with some apprehension because
HMJr:
Let's have him down Tuesday.
G:
All right, sir. I'll have him here.
HMJr:
Let's say Tuesday afternoon.
G:
I've talked to Fred about him. Fred thinks that he's
got Just the kind of background - - he thinks that's the
answer to the kind of a fellow we want.
Regraded Unclassified
- 11 -
159
HMJr:
Well, it sounds interesting to me.
G:
Yes.
HMJr:
Fred likes the idea?
G:
He likes the idea because he knows this fellow has a
nose for news and he's got some showmanship and that -
we've got all the counterbalancing effects we need
with the groups that we've set up like the Advertising
Council.
HMJr:
Well, you've told me enough now.
G:
All right, sir. (Laughs)
HMJr:
What else?
G:
That's all I have to say to you this morning. You
might be interested to know we settled our application
forms and our training manuals and our descriptive
folder problems and have them all going into the mill
today.
HMJr:
Good. Now let me talk to Fred a minute.
G:
All right, sir.
Fred
Smith:
Hello.
HMJr:
Fred.
S:
Yeah.
HMJr:
Do you like the sound of Doob?
S:
I like the sound of the job that the guy's got. I
don't know him but if he's a good man - his background,
I think, is made to order.
HMJr:
Now, one thing that I want to have you be thinking -
you to be thinking about over the week-end.
S:
Yeah.
HMJr:
and that is once we get these forms out on the
withholding tax
S:
Yeah.
Regraded Unclassified
160
- 12 -
HMJr:
what we're going to do to bring that to the people
and educate them.
S:
That's right. Well, that already has been - we're
worried about - we're worrying about that. I had a
meeting yesterday for about three hours with Bill
Horne and Chick Schwartz and three men from the O.W.I.
HMJr:
Good.
S:
And We are planning a - a campaign that will - uh - do
a good job after the forms are out and then we are
considering a campaign early in August before the
forms are available just on the business of taxes and
why taxes and war finance - and why people ought to pay
taxes and like to pay them and stuff like that - without
particularly referring to the - to the September 15th
operation. See?
HMJr:
You're on top of it? What?
S:
What? Sure, we're on top of it.
HMJr:
All right then I'll forget about it 'till I get back.
S:
Okay.
HMJr:
Has Mr. Bell got anything.
S:
(Aside: Mr. Bell, you got anything?) He'd just like
to know how Mrs. Morgenthau 1s.
HMJr:
Well, she's coming along nicely, thank you.
S:
All right.
HMJr:
That's all, thank you.
S:
Okay.
HMJr:
All right.
S:
All right.
Regraded Unclassified
161
July 17, 1943.
11:54 a.m.
Operator: All right, sir.
Dan
Bell:
Hello.
HMJr:
Hello, Dan?
B:
Yes, sir.
HMJr:
Is - uh - is
B:
Ted and Smith?
HMJr:
Yeah. Is
B:
Right here.
HMJr:
Is Charlie Bell in there?
B:
Not in here. No.
HMJr:
Well, just - would you have somebody just ask for
him to come in? I want to ask him a question.
B:
All right. Done.
HMJr:
What?
B:
It's already done.
H
HMJr:
All right. Now, the boys have left and the reason
we're 80 short is because BO much progress has been
made
B:
Uh huh.
HMJr:
....and I'm very much pleased.
B:
Good.
HMJr:
One thing - uh - I think is terribly important and
I know - is Gamble around?
B:
Yes, right here.
HMJr:
I'm going to have a little trouble with him but he's
a nice fellow and I think he'll be amenable - and that
1s, I think that we're going to be able to say, "This
1s going to be an intermediate bond - say, somewhere
between seven and ten years or something like that -
you see?
Regraded Unclassified
162
- 2 -
B:
Uh huh.
HMJr:
And we're able - going to be able to say, "It's going
to be a 22% long bond." See?
B:
Yeah.
HMJr:
But I dont think we're going to be able to tell them
on the 23rd the exact terms. I think it's too dangerous
because it's two months off and we just don't - we can't
hit it, and I think he'll have to be thinking about -
after all it's instructing the salesmen. If they want to
teach them how to sell a long 21 whether it's 65, 69 or
64, 68 doesn't make an awful lot of difference.- - if it's
an intermediate bond as long 8.8 they know how to sell a
bond between seven and nine years. But I think we ought
to not fix the definite price for another month. At
least that's the way I feel today.
B:
Oh - I - - uh-uh - no.
HMJr:
Well, sleep on it. That's
B:
Yeah. I will. I don't like that.
HMJr:
All right.
B:
Uh - the only thing I'd like to see done 1s - have this
wait and the types of securities rest on the market for
a couple of days and then see what reaction we get.
HMJr:
Well, you think about this one, will you?
B:
Yep.
HMJr:
Because, as they pointed out, this situation in the
bill market has all developed in the last two months.
B:
Yeah, but that really doesn't affect this bond a bit -
uh - 80 much.
HMJr:
Well, you got - think about it over the week-end.
B:
I will.
HMJr:
Yeah.
B:
Well, I have already thought about it as a matter of
fact, and
Regraded Unclassified
163
- 3 -
HMJr:
And you're also going to have trouble with me to
selling more than 21 billion of notes in August -
that's certificates, I mean.
B:
You won't have any trouble with me.
HMJr:
(Laughs) Wonderful.
B:
(Laughs) Because that was my recommendation but I -
I wouldn't feel too strong about going to three
billion.
HMJr:
Well, I want them to go into September with their
tongues hanging out.
B:
(Laughs) They will have to wait 'till October.
HMJr:
Uh
Bi
But that's all right. I don't think that a half a
billion dollars makes a lot of difference to tell you
the truth.
HMJr:
I feel lote better since I've had this - the progress
all of you made - I can see daylight now.
B:
Uh huh. Well, I think we're in pretty good shape as
far as our end of it's concerned. I have a little
feeling here for Ted. He's being crowded into 8 very
short space of time to do an awful lot of work - par-
ticularly on the printing and you know every printing
house in the country is sewed up
HMJr:
Well, We
B:
and we're having a little trouble with that but I
think that
HMJr:
I'll bet you I could go into New York City and find
fellows that haven't got any work.
B:
Well, not to do - not to put out ten million pamphlets.
HMJr:
Well, on the lower east side they'd just grab some of
this work.
B:
Yeah. The Government Printing Office has pretty well got
the printing plants of any size sewed up through October.
HMJr:
Well, there are a lot of little jobbers. I'll bet you
if we went to New York we could find 8. flock of little
fellows - they'd each take a piece of it.
Regraded Unclassified
- 4 -
164
B:
Uh huh.
HMJr:
I'm serious.
B:
Well, maybe.
HMJr:
Have - let Hall look into that for us in New York.
B:
Well, I think the Government Printing Office has
already had a complete report on the printing facili-
ties of the country.
HMJr:
Well, let them take
B:
(Clears throat) Hall has seen that report.
HMJr:
Little fellows?
B:
Well, Hall has seen the full survey.
HMJr:
All right. Uh
B:
And that's the reason I went to Boston last week to
see about Forbes Company. We got that from the
Printing Office report.
HMJr:
Is Charlie Bell there?
B:
Yeah.
HMJr:
Let me
B:
Okay.
Charlie
Bell:
Yes, sir.
HMJr:
Charlie.
B:
Yes, sir.
HMJr:
By God, you had me embarrassed this morning.
B:
How?
HMJr:
Well, George Haas and the boye thanked me so
profusely for my treating them to tickets Sunday
night.
B:
(Laughs) Well, you know, I got an indirect order that
they wanted to go to a show.
Regraded Unclassified
165
in I I
HMJr:
Well, how indirect was it?
B:
Very indirect. You said that you would release them
Sunday in time to go to a show.
HMJr:
Well, who told you that?
B:
What?
HMJr:
Who told you that?
B:
The grapevine.
HMJr:
Well, who's the grapevine?
B:
I guess Norman Thompson
HMJr:
Well, anyway, they thanked me first for getting the
tickets and second for treating them.
B:
Well
HMJr:
So I said, "Well, I'll be honest. I don't know any-
thing about it but it's on me and I'm delighted."
B:
Well, swell. It's not on you though.
HMJr:
Oh, yes.
B:
Oh, we don't do all of this for Milton Schubert who
owns that theatre for nothing - - he's just giving them
passes.
HMJr:
Oh.
B:
You know Milton Schubert?
HMJr:
No.
B:
He's the fellow we've been working with on the Theatre
Wing Canteen.
HMJr:
Oh.
B:
So there's no cost on it.
HMJr:
Well I didn't know. I told them that if that's what
you said, I'd stand by them and I was delighted. We
had quite a lot of fun about it.
B:
(Laughs) Okay, sir.
Regraded Unclassified
166
- 6 -
HMJr:
Well, if they cost or don't cost - either way - I told
them I'd be glad to pay for them.
B:
Okay, sir. The move 1s coming along good.
HMJr:
The what?
B:
The move.
HMJr:
Good.
B:
He gave me seven days. I'll give you two of them back.
HMJr:
Wonderful. But we had a lot of fun joking about it.
As a matter of fact - Is Bell listening?
B:
Yes, sir.
HMJr:
The boys didn't get in until - last night until I don't
know what time in Poughkeepsie and they had a supper-
breakfast at 1:30 in the morning. They had steak and,
of course, George has a weak stomach
B:
(Laughs)
HMJr:
and then the American Legion were there singing all
night. So George wanted to know couldn't he show up
Monday noon. I told him, "No", I was very sorry. He
doesn't like to ride on a sleeper, 80 I told him I
needed him there Monday morning. and he could stay over
some other time. I don't know whether the man will
speak to me or not.
B:
So they'll be back Monday morning.
HMJr:
Well, yeah. I can't - if George gets sick on a sleeper,
that's just his bad luck.
B:
Well, we'll get them fixed up on that 12:50.
HMJr:
Yeah, but George won't ride on a bleeper. I think the
other boys will.
B:
Well, if he wants to fly down, I'll fly him down.
HMJr:
Well, let him - he's up at the Nelson House. I don't
know that he flies. Let him work it out himself, will
you?
B:
All right, sir.
Regraded Unclassified
167
- 7 -
HMJr:
But anyway, thanks for looking after them.
B:
Okay, sir. Anything more?
HMJr:
That's all, thank you.
B:
Well, here's Fred Smith.
HMJr:
All right.
Fred
Smith:
Hello.
HMJr:
Yeah.
S:
Say, you remember that stock telegram that you have
been signing a lot of about 10% payroll?
HMJr:
Yeah.
S:
Well, I rewrote it and I want to check it with you
so Ted can get it out.
HMJr:
Well, how long is it?
S:
Oh, about ten lines.
HMJr:
Well, if you fellows agree on it it's all right.
S:
Okay.
HMJr:
I don't want to do any more business. I'm exhausted.
S:
All right. That's fine.
HMJr:
If you and Dan Bell and
S:
Ted.
HMJr:
it's all right with me. You can show it to me
Tuesday.
S:
All right.
HMJr:
Cheeric.
S:
Cheerio.
Regraded Unclassified
7am 168-
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE JUL 17 1943
TO
Secretary Morgenthau
FROM Captain Kades
Attached hereto is a draft of a letter to Judge Jones
sending him a copy of the cable from Casaday on the food
distribution system used in England.
In my memorandum to you of July 14th, I stated that
the schemes used in England for the purchase and distribu-
tion of various food items differ widely from commodity to
commodity, but that in general the British use area or re-
gional or local offices in allocating supplies. You asked
me to expand on this local allocation method. The purpose
of this memorandum is to indicate the method used in con-
trolling the distribution of meat.
As you know, the Ministry of Food is the sole purchaser
and distributor of all meat in the United Kingdom. Meat is
distributed on the basis of the actual number of individuals
registered with retail butchers in each local food area,
but not on any broad regional or county basis. The indi-
vidual ration is fixed according to value. The mechanism
for distributing meat to consumers is complex but operates
roughly in the manner described below.
Retail butchers have set up voluntary organizations
known as retail buying committees. There is usually one
committee for each local food office. All retail butchers,
large caterers and other groups which normally buy meat at
wholesale are members of this committee. The main functions
of the committee are (1) to appoint allocation officers,
and (2) to supervise generally the process of all sales and
payments to be made by retailers.
The allocation officer of the retail buying committee
makes known to the manager of the wholesale depot how much
meat the retailers in his committee will require for the
week. There are 913 wholesale meat depots in the United
Regraded Unclassified
169
- 2 -
Kingdom. The functions of these depots include (1) split-
ting carcasses into sides and quarters, (2) making working
arrangements for transporting meat to retailers' shops,
and (3) keeping track of the amounts of meat sent and money
owed.
These wholesale meat depots operate on behalf of whole-
sale meat supply associations. There are 8 such associa-
tions in the United Kingdom. These associations are made
up of all firms and individuals who were engaged in the
wholesale meat trade just prior to the war. They function
as agents of the Ministry of Food and they are reimbursed
on a fixed commission for the volume of meat they handle.
This commission is sufficient to cover all reasonable ex-
penses of the associations and to leave a small surplus
for the reimbursement of its members on a pro rata basis,
based on the proportion of the total turnover which each
firm handled during a prewar period.
When the manager of one of the wholesale meat depots,
carrying out the actual work of such an association, re-
ceives from the allocation officer of the retail buying
committee the amount required for the week, he forwards
this requirement, together with others, for his collection
of butchers (normally 50) a week in advance to the area
meat and livestock officer. This officer in turn computes
the total demand for his area and forwards it to the cen-
tral office of the Meat and Livestock Division of the Min-
istry of Food. These requirements are reasonably accurate
because they are based upon amounts determined by the num-
ber of individuals rationed with the retailers of each
retail buying committee.
The area meat and livestock officer then tries to fill
the needs of the wholesale depots with the forthcoming sup-
ply of meat from collection centers nearest the depots.
This officer knows how much domestic meat will be coming
forward in each locality from notices compiled by collec-
tion centers. These collection centers, of which there are
about 600 in the country, are places to which farmers bring
their livestock for the purpose of having it graded by a
"certifying authority". This authority is made up of the
Regraded Unclassified
170
- 3 -
auctioneer, a farmer and a butcher. The grading is done
to ascertain the deadweights of the live animals and not
for quality, since payment is made on a liveweight basis
except in the case of pigs.
The farmers must make it known to the head officer
of the nearest collection center that they desire to bring
forward livestock at least 12 days before it is scheduled
to be sold for slaughter. All such notices are summarized
in each collection center and are passed on to the area
meat and livestock officers. These officers make summaries
for the whole area under their jurisdiction and pass them
on to the central office of the Meat and Livestock Division
of the Ministry of Food. It is from these notices that the
area meat and livestock officer knows whether the forth-
coming supply of each collection center will meet or exceed
the needs of the wholesale depots nearest to it, and if
there is a surplus, arrangements are made to have the excess
meat sent to the next nearest depot in the area which has
a deficiency. If there is a deficiency which cannot be
filled by surplus of a depot, the area meat and livestock
officer then gives directions for imported meat to be
delivered from nearby stores of the Meat Importers National
Defense Association, Ltd. to the wholesale depots. Since
home-killed supplies are usually less than demand, it is
usually necessary to introduce imported meat to the distri-
bution system through this Association which is made up of
all prewar importers of meat and is responsible for handling
the meat on arrival, storing it and finally delivering it
to the wholesale meat depots as needed. This Association
is under control of the Ministry of Food which acquires
the meat abroad.
After the wholesale meat depot manager physically
collects the necessary home-killed and imported meat to
satisfy the requirements of the butchers in his area, the
allocation officer of the retail buying committee decides
just which kinds and qualities of meat and which specific
sides or quarters or whole carcasses are to go to each re-
tailer. The retailers rely on the allocation officers'
Regraded Unclassified
171
- 4 -
judgment entirely and express no choice with regard to the
type of meat they would like, but the allocation officers
try to secure an equitable adjustment of the proportion of
good and poor meat going to each retailer over a period.
Some retail buying committees at their own expense
have established reallocation depots where some of the
meat may be cut up more meticulously than at the depot.
For example, a butcher who wants to concentrate on steaks
can get steaks by swapping at a reallocation center other
meat which he obtains there with a fellow retail butcher
who wants fewer steaks and more soup bones.
It is noteworthy that, when the meat is sold to the
retail buying committee, it leaves the direct ownership of
the Ministry of Food for the first time. The Ministry of
Food purchases the livestock either abroad or at the col-
lection center (through county auctioneers who act as agents
for the Ministry of Food) and slaughters such livestock at
slaughter houses managed by full time officers appointed by
the Ministry. The actual slaughtering is done by contrac-
tors working on a fee basis. There are only 700 slaughter
houses now in the United Kingdom, as against 16,000 before
the war.
This results in a bottleneck through which the whole
supply of meat flows. This bottleneck, combined with the
licensing of all handlers of meat through the mechanism
summarized above, permits manageable and efficient control
of the distribution of meat there.
Attachment
&.K.
Regraded Unclassified
1724
July 17, 1943.
MEMORANDUM FOR THE FILES:
A letter dated June 29, 1943 was received by Mr. White,
signed by Secretary Hull, advising that he believed special
attention should be given to problems of international arrange-
ments relating to long-term international investment. The
letter stated Secretary Hull was asking Warren Lee Pierson,
Marriner S. Eccles, Lauchlin Currie and Mr. White to accept
membership on a Special Committee on Long-Term International
Investment and report conclusions to the Interdepartmental
Committee on Post-War Foreign Economic Policy, and that
Mr. Berle would maintain contact between the State Department
and the Committee. Secretary Hull said he would appreciate
Mr. White's acceptance.
Mr. White brought the letter to the attention of Secretary
Morgenthau, telling him he thought this was a Treasury matter
which required decision by the Secretary. The Secretary stated
that he would take the matter up with Mr. Hull personally. When
he subsequently called on Secretary Hull he took the letter with
him. Secretary Hull asked him to leave the letter, which
Secretary Morgenthau did. We therefore do not have a copy of
the letter in our files.
H. D. White
Regraded Unclassified
173
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 17, 1943
TO
Secretary Morgenthau
FROM
Mr. White HDW
This is a comparative statement of the earnings and
expenses of the Stabilization Fund for the months of May
and June, 1943.
Earnings
May, 1943
June, 1943
Interest earned on investments
$ 20,220.69
$ 19,514.93
Profits on handling charges on
gold
111,678.62
112,464.41
Handling charges on gold
(Stabilization) accrued
---
12,500.00
Miscellaneous profits
3.92
6.03
Total
$131,903.23
$144,485.37
Expenses
Salaries
$ 21,845.49
$ 22,123.66
Travel
82.57
159.89
Subsistence
389.00
216.50
Telephone and telegraph
1,143.71
3,977.73
Stationery
21.91
105.40
All others
469.71
516.73
Total
$ 23,952.39
$ 27,099.91
Net earnings
$107,950.84
$117,385.46
This report was completed from figures supplied by
Mr. O'Daniel.
Regraded Unclassified
174
JUL 17 1943
To: Adler, Changicing, China.
From: Secretary of the Treasury.
Reference is made to your sable of March 28, 1943,
No. TF-103.
1. Treasury has received a under of applications to
release U. S. dellar presseds of U. So dollar-backed
savings certificates. Some of the applications would
1 1 $ 1 x I
2. The Treasury would, therefore, appreciate receiving
a definitive reply to its eable of March 50 1943,
No. 300. Treasury is holding - these applications
and no action has been taken with regard to 1
ISF/efe 7/16/43
Regraded Unclassified
175
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Chungking
DATE:
July 17, 1943, 1 p.m.
NO.:
1209
1
From Adler to Secretary of Treasury only. Strictly
confidential and urgent. TF141.
Reference is Section 2 of State Department's telegram
882 of July 9.
SECTION I
(a) Beneficial effects in checking inflation would
undoubtedly be produced by the institution of an effective
scheme for this use of gold in China - with adequate controls.
For the scheme to yield significant advantages, it is
clear that the gold would have to be sold in China at a
price or prices which must never fall below approximately
5000 on dollars per ounce. Also, it is impossible to
make even a rough estimate on the basis of existing information:
1. or the scale on which there would be absorption
of gold by the Chinese public at a price or prices which
would make the sales a worthwhile means of combatting inflation;
tentatively it is suggested that sale of gold at less than,
say, 7 to 10 times the price equivalent at the official rate
of exchange to 35 U. S. dollars per ounce would not be
worthwhile.
2. of the extent of decline in current prices of gold
(see D, 2, below) which would be caused by substantial
imports of gold.
Necessarily, therefore, in its initial stages a ra-
tional scheme for selling gold in China would have to be
experimental,
In view of this and in order to increase the
chances of maximum advantages accruing to China, I would
venture to suggest that before the Treasury agrees in prin-
ciple, and certainly before it makes any specific commitment
to sell substantial amounts of gold to China, it should
await the submittal by the Chinese Government of a concrete
plan to the Treasury. It appears from the information
available
Regraded Unclassified
178
-2-
available here that as yet the Chinese authorities have
not worked out any such plan. Perhaps the Treasury could
discreetly ask the Chinese Government for information con-
cerning its specific plans.
(b) 1. Reference your (b) 1. It is my impression
that there 1s a rather vague anticipation of selling the
gold to bullion dealers and the banks as well as to the public.
(a) As the Central Bank could expand the note issue
for the specific purpose of acquiring gold, a course which
would defeat the whole point of selling gold to China, and
the other Government banks could use their facilities for
borrowing from the Central Bank to acquire gold, which also
would lead to an increased issue of notes by the Central
Bank, it would be desirable from the point of view of obtain-
ing the maximum anti-inflationary effects to prohibit the
Government banks from buying gold except as intermediaries
for reselling it to the public. The Chinese Government
would probably be reluctant to adopt a measure prohibiting
all Government banks from buying gold to hold - this is
especially the case because of the current trend to strengthen-
ing all Government banks in relation to commercial and private
banks and to strengthening the Central Bank in relation to
the other Government banks. Such a prohibition could be
circumvented by the Government banks having private agents
buy the gold for them, but to some extent the prohibition
might serve as a deterrent.
(b) The sale of gold to modern style commercial banks and
to native style private banks or to the bullion dealers, or
to the public, would not be open to the above objection.
Your (b) 2. Watertight controls to prohibit any
(repeat any) of the gold from getting into Japanese hands
would be impossible to adopt. However, given the whole-
hearted cooperation of the central Government's special
services and of the various authorities of the provincial
governments, such leakage could be kept to fairly low levels.
How far such wholehearted cooperation would be received is
doubtful, particularly in the case of such provincial govern-
ments as that of Yunnan. The registration of all purchasers
is an additional suggested check. However, some prospective
purchasers might fear that the information in the registra-
tion records might subsequently be used by the authorities
to obtain the gold from them on terms disadvantageous to
them but advantageous to the authorities, and this fear
would tend to discourage purchasers.
ATCHESON
Regraded Unclassified
177
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Chungking, China
DATE: July 17, 1943, 2 p.m.
NO.1 1209
CONTINUED FROM SECTION I.
For your relevant information:
(a) It is reliably reported that recently there has
been smuggling of formall amounts of @ld from India to
Yunnan and thenee into Indo-China.
(b) It is currently reported that recently an agent
or agents were sent into Free China by Chinese in Shanghei
with 25 million a Mollars with which United States dollar
backed savings certificates were to be bought.
3. Reference is siede to your (b) 3. On this point
also no clear view 19 held here as to whother gold should
be sold in form of bare or should be winted into gold coins,
In view of the difficulties of giving gold eeins a fixed
value in OH dollars and in view of the danger that coins
would probably be in smaller denominations than bars and
would have a tendency to displace FAPI as a medium of
exchange and circulation, sale in the form of bare would
appear to be preferable. Some indication that the gold
coin or bare constitute part of U. S. financial aid to
China might most appropriately be imprinted on them.
SECTION II.
I would like to submit the following for your con-
sideration in view of the fact that in its first stages
A antisfactory scheme would be experimental and in view
of the need for cheeks and safeguards:
1. If and when decision was taken by the Treasury
to agree in principle to sell gold to China, it might
suggest that R beginning be made by the Chinese Govern-
ment by selling the 48,000 cunces of gold which is now
in the possession of the Contral Bank and such other
amounts of gold acquired from current production as the
Government now has. (See D, 3, below).
2, During
Regraded Unclassified
1/8
-2-
2. During the sale of the gold now in China the
Treasury might agree to sell say U. 8. $10,000,000 of
gold to the Chinese Government and (?) observe how the
sale in China of this gold good before it makes any
further sale of gold to the Chinese Government. As a
saving in transportation expenses, a swap, preferably
with the Indian authorities and alternatively with the
Australian or South African authorities, whereby India
or South Africa or Australia would send the gold to
China while the same amount could be earmarked with the
Federal Reserve Bank of New York for the sender would
be desirable.
3. It would certainly be desirable from the point
of view of the interests of China, and it might be
possible, to tie up the Board with any arrangement for
selling gold to China and to give power to the Board to
fix price or prices of the gold and to have some super-
vision over its sale. The Board is goven power by para-
graph one (c) of the 1941 Agreement to deal in gold for
account of the fund; in any revision of the 1941 Agree-
ment this power could perhaps be breadened to onable
the Bourd to exercise these functions.
Bringing the Board into the picture would have
advantages which are obvious as its participation would
increase the chances of success and curtail abuses of
any scheme that is worked out. In case objection were
raised by the Chinese Government to participation of the
Board in any plan for selling gold in China on the ground
that the British member had nothing to do with the sale
of the gold, the objection sould perhaps be overoome by
having a committee or the Board consisting of the American
representative and the Chinese member function for this
purpose
ATCHIS ON
Regraded Unclassified
1/9
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Chungking, China
DATE: July 17, 1943, 1 p.m.
NO.1 1209
SECTION III.
I have been gathering together all the scenty informa-
tion on gold market in China that is available but it is
not such as to illuminate the main question of how much
the market can absorb at a price or prices which would
make the project worthwhile. I shall of sourse transmit
any further data that can be obtained. I summarize as
follows the main items which are of interest:
1. Gold markets exist in Chungking, Kunming, Kweilin,
Chengtu, Kweiyang and Sian.
2. At Chungling the "agreed" price of gold currently
is 11,500 ON dollars buying and 13,000 ON dollars selling
(the unit being the sueliang or Chinese sunce equal to
1.00471 troy ounces). At Kunsing the price 10 about the
same as at Chungking. The Price at Kwailin is lower.
There is a drain of gold from these centers to Chengtu
where the price is now 12,000 ON dollars buying and
15,200 selling. It is safe to assume that the price in
Free China will continue to & up concomitantly with other
rising prices unless and until it leaks out that siseable
imports of gold are impending or there is actual importation
of gold for sale.
Recent reports from Shanghai indicate that recently
the Shanghai gold market has become more active as the
result of relaxation of Japanese control over it. The
price there is 6,500 CRB dollars per Chinese ounee. At
last reports the Central Reserve dollar was exchanging
in Shanghai for 1.4 on dollars.
5. No ostimates are available on the amount of gold
traded in in Free Ohina. However, the amount is quite
small absolutely and in comparison to other amounts which
China contemplates purchasing the volume traded in is
negligible. Neither is there any estimate of the actual
amount of gold in Free China.
A. The supply that goes into the markets comes from
private hearders of jewelry and gold bars plus what can
be
Regraded Unclassified
180
-8-
be smuggled from current Chinese production and some
smuggling from India.
B. I am forwarding by pouch & translation of an
article published by the Head of the Chinese Geological
Survey in December 1942 in the magazine MINING AND
METALLURGY. According to the article there was an increase
in production of gold in Kweiehow, Szechwan, Yunnan, Kwangei
and Sikang from 39,200 Chinese ounces in 1935 to 69,200
ounces in 1939. Gold is also purchased in Kiangei, Hupch,
Fukish and Hunan and the northwestern provinces. The
article states that efforts of the Government since 1937
to encourage gold production have resulted in annual gold
production reaching 300,000 Chinese ounces in 1939 and
1940, but it is not indicated whether production of
Shanghai and Sinkiang, where control of gold supply
was and still is monopolized exclusively by the provincial
governments, is included in this figure. As a result of
the maintenance of the official price of gold while all
other prices were rising since the outbreak of the Pacifie
War, gold prices have fallen off. But--the article suggests--
annual production might again reach 300,000 Chinese ouness
with the lifting of the old official price.
The article also indicates that in the last few years
the Government banks have bought about 1 willion ounces
of Chinese gold which the author assumes would be now at
the disposal of the Government in China. This assumption,
however, is at variance with statements of a number of
responsible officials to the effect that no gold is at
the Government's disposal except the 48,000 eunoes in the
Central Banking Division. These officials say that the
rest of the gold was transported before the Pacific Ver
broke out and that the Government has since purchased little
or none.
0. I on reliably informed that Dr. Kung 10 quite con-
fident that large amounts of gold will be sold to China
by the Treasury, the basis of his confidence being his under-
standing that when Madam Chinng Kai-Shek submitted the
proposal to the President that China purchase large amounts
of gold from the United States the President gave his
consent.
END OF MESSAGE
ATCHESON
Regraded Unclassified
181
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Chungking, China
DATE:
July 17, 1943, 3 p.m.
NO.1
1211
Reference State Department's 882 of July 9, Part 1.
During a call on Dr. Kung on July 15, I took the
opportunity, in accordance with your suggestion, to have
an informal discussion with him to make sure he fully
understands the position of the Treasury with regard to
the revision of the 1941 agreement. The impression he
gave - deliberately, I think - was that China was not par-
ticularly anxious to have & stabilization loan. In this
I presume he may largely be jockeying for a bargaining
position. He intimated also that certain specific
changes in the 1941 agreement would be asked for by
China, but he gave no indication what these changes
would be.
ATCHESON
Regraded Unclassified
COPY
182
STRICTLY CONFIDENTIAL
PARAPHRASE
A telegram of July 17, 1943 from the American Embassy at Chungking reads
substantielly as follows:
Mr. Adler of the Treasury Department has been kind enough to furnish us
with a summary of Generalissimo Chiang Kai-shek's book on economics. We expect
to send this summary to the Department by mail soon and also to send our
translation of the book in due course when it is completed. In the meantime,
the following memorandum of comment on the book has also been furnished to us
by Mr. Adler.
(BEGINNING OF COMMENT).
1. The book was written by Tao, a graduate of the Imperial University
of Tokyo and former Professor of Economic History at the National University
of Peking. He is also the author of China's Destiny. Tao feels entipathy
toward both Westerners and returned Western students, which may be due to his
being a. Japanese returned student. His book on Chinese Economic History is very
uneven. He has a reputation in the academic world of being somewhat crack-
brained and of being plagiaristic and sciolistic. Both of these books, Chinese
Economics and China's Destiny, are poorly written.
At the present time Tao is living with Chang Kai-shek's closest secretary,
P.L. Chen. During the early 1930's he was the right-hand man of Wang Ching Wei.
In 1940 he came back to the Chungking fold. His reason for doing so was that
the Central Government gave him more money than he received from the puppet
government, according to popular report. The revelations which he made concerning
Nanking sold successfully.
2. Tao's latest book and also the one which preceded it are a part of e.
systematic and deliberate campaign to maintain that the culture of China is
superior to that of Western countries. The Government is actively promoting
this campaign, and Tao is its chief theorist. It is another reflection of the
phases of mordant and morbid nationalism which are being currently experienced
by the Kuomintang. If this kind of nationalism is persisted in and encouraged,
it will not be very conducive to China's wholehearted cooperation in the period
following the war. Those who take part in this campaign, it should be noted, do
not take the trouble to assay proofs but stick to assertion and reiteration.
3. The book shows a definite Fasciatic tendency in ideology. Mention of
official attitudes with which the book is permeated is not encouraging from the
standpoint of the development of China's democracy." Romantic idealism is the
dominant note with ludicrous falsification of the history of China. There is sig-
nificance in this connection in the fact that the Western economist whom the author
*Repetition has been requested.
Regraded Unclassified
183
singles out for praise is the Austrian fascist who discovered in Adam Muller's
romantic mediaevalism e. justification for a Fascist stand. Adam Muller was an
extreme German nationalist of the early nineteenth century, and, incidentally,
bis doctrine is considered as beneath contempt by all competent Western economists.
4. The intellectual level of the book 18 extremely low. It contains no
sign of any appreciation that economics is an integrated and coherent discipline
and no sign of reasoned or systematic analysis. The whole approach is pre-
scientific. Following are the most important points which are worth commenting
upon!
A. In general the economics discussion is based on Chi Wu Chi, Chinese
characters which were first used by the Japanese to translate economics into
their language. Translated literally, these characters mean the supply of
things and the management of the world. When these characters are taken
litterally, as is done in Tao's book, the result is an erronsous impression
concerning the content and scope of economics as the Western world understands
them.
B. The book bases its discussion of economics in China principally on
scattered comments concerning economic policy contained in the classics and
histories of China. By no means systematic, these comments do not justify in
any way the thesis that there was a school of economics in China or that this
school of economics is superior to the economics of the West. Using the Old
Testament's sporadic comments on economic policy as a basis for an inference that
a Hebrew school of economics existed would be just as logical, and it would be
more logical to infer from Plato's and Aristotle's discussions concerning the
theory of value and of economic policy that B. Greek school of economies existed.
A complete lack of understanding of economics as a science is also betrayed by
the listing of a few prime ministers as typifying Chinese economics. Besides,
Sun Yat Sen's writings and their bearing on economic policy are frequently
referred to. However, that & separate Chinese science of economics_existed
would never have been claimed by Sun Yat Sen.
(c) The book's discussion of economics in the West is little more than a
catalog and is sophomoric if not infantile. The conclusion reached by the reader
is that Tao did not take the trouble to become familiar with the actual works of
the principal economists of the West but merely leafed through an elementary
textbook on the history of economic theory. He makes no effort to classify
Western economics according to schools, and his discussion is insccurate in the
detailed evaluation of individual Western economics as well as on general principle.
5. The publication of this book would add nothing to the reputation of its
actual author or its ostensible author, and it is not surprising that it has been
withdrawn from limited circulation.
(END OF COMMENT).
A paraphrase of this telegram should be sent to the Treasury Department.
Copy:bj:7-27-43
Regraded Unclassified
194
NOT TO BE TRANSMITTED
COPY NO.
13
HRITISH MOST SECRET
U.S. SECRET
OPTEL No. 234
Information received up to 7 a.m. 17th July, 1943.
1. NAVAL.
Early this morning Motor Torpedo Boats torpedoed an
Italian Cruiser which had passed through MESSINA Strait
making for TARANTO. One E-Boat has been sunk; one
probably sunk and two severely damaged by Motor Torpedo
Boats in actions in the Strait of MESSINA. On 15th
one of H.M. Destroyers drove off E-Boats attacking shipping
east of Sicily and sank one of them. Anti-aircraft and
Coastal Defence Batteries are now operating at AUGUSTA.
One of H.M. Cruisers was torpedoed 16th east of SICILY but
reached port under her own power. 14th/15th one of our
Motor Gun Boats was sunk by gunfire from shore batteries
in MESSINA Strait.
2. AIR OPERATIONS.
WESTERN FRONT. 15th/16th.
MONTEBELLIARD. 374 tons dropped. Bright moonlight
clear visibility. Bombing well concentrated on markers
ground defences negligible no searchlights. Four transformer
stations in Northern Italy each attacked by six Lancasters,
two of which were lost by collision over objective. The
remainder landed safely in North West Africa. 16th.
Marauders dropped fifteen tons on ABBEVILLE Railway Centre
and Spitfires provided cover and flew diversionary sweeps
scoring 3. 1. 5. without loss. 16th/17th. Aircraft
despatched transformer stations near MILAN 18 MUNICH 6
Leaflets 7 intruders 12. No landing reports yet from MILAN
Aircraft. All others returned safely.
SICILY AND SOUTHERN ITALY
14th/15th and 15th Allied Bombers dropped total of 324
tons on NAPLES Harbour and Airfields causing considerable
damage. 14th/15th. 48 Medium Bombers attacked PALERMO.
Wellingtons sank a ship and set on fire a destroyer North
East of SARDINIA. Twenty fighters patrolling over Eastern
SICILY destroyed 12 enemy aircraft. 15th. 595 Bomber
and Fighter sorties flown, Radio Location Station MARSALA
bombed and communications continuously attacked, many enemy
vehicles destroyed or damaged. TORMINA Harbour also
bombed.
CASURY DEPARTMENT
2 6 MY 6 inc
Regraded Unclassified
185
NOT TO BE RE-TRANSMITTED OFFICE
SECRETARY OF TREASURY
COPY
NO.
13
PM
12
MILISH NOST SECRET
21
U.S. SECRET
THE No. 237
CASURT DEPARTMENT
Following in supplementary resume of operational evente covering the
period 10th to 17th July, 1943.
1. NAVAL
The Home Fleet operated off NORWAY 83 E diversion to Sicilian opera-
Lions. It WELL sighted and reported by a reconnaissance aircraft which was later
shot derm by in aircraft from one of H.M. Ships. Sicilian landings were covered to
westmind and in IONIAN SEA by H.M. Battleships, aircraft carriers and cruisers.
Clore (pun support was provided by H.M. and U.S. cruisers, destroyers and light
forces. CATANIA, AUGUSTA and many smaller targets have been bombarded as required.
Although heavy chips have been seen with steam up nt GENOA, SPEZZIA and TARAN TO, the
has been no interference by the Italian Fleet. H.M. Destroyers Bank one E-boat er.en.
of SICILY. H.M. M.T.B's. torpedoed one Italian Cruiser, destroyed three E-boats
probably sank another and damaged three. Enomy aircraft sank one U.S. Destroyor
one Fully lighted British hospital ship 10th (all patients rescued), and there have
been a few casualties among transports and light craft. H.M. Submarinos report two
shipo sunk cast of CORSICA, one escorted tanker sunk off DARDANELLES, three caiques
sunk in DODECANESE.
SUBMARINE WARFARE. Summary of anti-culmarine attacks in July report
up to noon 14th July. Number of attacks by aircraft 38, by carrier-borne aircraft
all, by warships 25. Sunk and probably aunk by aircraft 9, by warships nil. PoB-
(1bly zunk by warships 2, probably damaged by aircraft 7, by warships 3. Possibly
danaged by aircraft 4.
SHIPPING CASUALTIES. From 10th to 16th 10 ships were reported to have
brien torpodood. A British ship east of the CANARY ISLANDS; a U.S. ship, probably
by submarine in the South Atlantic; a British, B. Greek and a U.S. ship in South
Indian Occan; in the Moditorranean & British ship was sunk probably by submarine;
one Uritish and 2 0,8. ships in convoy were torpedood but reached port safely and B.
annil Turkish ship was sunk in Turkish territorial waters. The U.S. ship reported
last woek torpedoed with a Norwegian ship in convoy off the ST. LAWRENCE but still
efloat was torpodoed off the AMAZON and has now sunk. Two largo British linors and
snother British ship in convoy were set on fire by aircraft west-southwest of CAPE
FINISTERRE. The first two wore sunk by our forces but the third reached port. A
British ship was damaged by aircraft off CAPE ST. VINCENT but able to proceed. In
June, EL Norwegian ship in now known to have boen sunk by a Raider northwest of
and a Portuguese ship was sunk by mine or torpodo near the HAIPHONG Estuar
In Sicilian operations casualties by aircraft were one British Hospital
Ship sunk and another damaged, one British, one Dutch and one U.S. Ship sunk, and
ano U.S. ship damaged in convoy and one U.S. ship sunk by an unknown cause. Ship,d.:
loanes in June from enemy action at 118,000 tons were the lowest since November, 196
T-bosts accounted for 101,000 tons of total. Only one ship sunk by U-boat in Noral
attantic. 5 tankers lost, totalling 33,000 tons. 32 ocean convoys arrived at den-
:ination without loss.
TRADE. Imports in convoy into UNITED KINGDOM week ending 9th -
947,000 tons, of which 330,000 oil. Gorman tanker which entered AEGEAN 6th reporto
Alank off TENEDOS on 7th.
2. MILITARY
SICILY. Gurman forcus in SICILY at start of operations amounted to
two divisions with about 200 tanks. Herman Gouring Division in Eastern SICILY
recently reconstituted aftur losing half its strongth in TUNISIA.
15th Ponsor Division in Westorn SICILY bolloved to be formed from
various units, most of which arrived in Island during past tro months. Hovival of
15th Panger Division which was totally Lort in Tunicia prosumibly duo to reasons ot
prostige. At outbrenk of operations Italian Garrison In SICILY concisted of 5 Piold
Divisions situsted strategical joints inland in counter attack rolo and la first 11m
defence provided by five Constal Divisions, strongth of latter estimated at 114,000
Regraded Unclassified
186
2
10 far one Field Division and at least one Coastal Division routed. Solection of
Couthoust cornor of SICILY due to necessity of having continuous fighter cover over
Suches during initial landings. U.K. and Canadian Forces (reconstituted 8th Army
under general MONTGOMERY) given task of seizing East Coast southward from SYRACUST
to include PACHINO Poninsula. U.S. 7th Army under GENERAL PATTON given the task
of landing further west and saizing airficlds at COMISO, BISCAAI, PONTZ-OLIVO and
LICATA. Assoult proceded by landing of British glider-borno troops buhind SYRACUSE,
all 0.3. perschutists north of GELA. In spite of high wind lossos remarkably light
and most objectives coptured. Seaborne landings slightly dolayed but within 3 hour
of landing tanks and artillery were boing put ashore. Enemy undoubtedly unprojr
and confused NS to extent of attack. Resistance small on beaches and only slight
opposition encountored and that chiafly by U.S. troops in GELA arca. Shipping
losses unexpectedly light.
BURMA. Successful raid on MAUNGDAW on 8th by one company of U.K.
troops. About 20 Japanese killed.
3. AIR OPERATIONS
WESTERN FRONT. Night. 1,084 cortion, 42 aircraft missing. Vury
successful attacks on AACHEN and TURIN. Latter the heaviest operation by home-
and aircraft on ITALY yet undertaken. MONTBELLIARD raid also successful.
Several direct hits on essential parts of Pougoot Works.
Day. Hoavy attacks by Fortrasses on Franch airfields, total tonnago
droppod exceeded 500 tons. Smaller raid by R.A.F. light and fighter-bombers on air
fields and ruilway centres in FRANCE. Beaufighters struck constal shipping off
NORWAY and Northarn FRANCE.
Enemy. Over 3 nights total of about 56 aircraft operated over
(estom and Southeastern Counties, No effective concentration was achieved and 5
my aircraft were shot down.
MEDITERRANEAN. In support of our landing operations upwards of 1,000
morties a day were flown by fightors, protocting convoys, patrolling landing beacher
and herbours, escorting bombers and attacking enemy troops, M/T and gun concentra-
lions, Alliod Bomber Forcos maintained heavy attacks against airfields, ports,
Porty terminals, railways and military concentrations in ITALY and SICILY, and in
Mupport of military operations, Outstanding were the successful attacks on MESSINA,
WPLES, REGGIO and SAN GIOVANNI, and the destruction by U.S. Liberators of the
memy's Sicilian R.Q. at TAORMINA. Of the very small bomber forces which the enemy
operated at night, 6 aircraft were destroyed by night fighters. At ses aircraft
Mrk this cargo ships and one tanker and loft another tanker and one destroyer on
fire, From all these operations 47 Alliod aircraft are missing.
RUSSIA. Over the KURSK Salient the Russian Air Force was heavily
in defensive fighter operations and in close support of their ground troops
Great activity was maintained until the and of the week when bad weather set in.
The Russians have succeeded in holding their OWTL against the German Air Force.
Curren cir operations wore also intenso and during the first few days of their
offensive probably oxcooded 1500 corties por 24 hours, Although later reports
E-RB this senlo has subsequently fallon by half.
des EXPRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS OF ALLIED AIR ATTACKS
WUPPERTAL. Now confirmed that rimost antiro moight of honvy atten
on 29th/30th May fell on BARMEN where damage is among grantont yot soon. 90 per
cent of the fully Muilt up areas and more than half of the loss congosted srone
120 dovantated.
DUSSELDORF. Final assessment of damage shows that the town hus been
havily dovastated by firo end H.E., especially in the business centre. Out of An
damaged inctorive, 5 are of greet Importance and include londing producers of now
machins tools and hanvy armements. Entimated 35 per cunt of built up urons des-
troyad and 26,000 familios homeless.
AACHEN. Although in first photographs After attack the town is
largely hiddon by smoke 16 is obvious that drimi g in vory heavy especially to in
ductry and includes Inclorios saking taxtile machinery, option1 glass and visatrin
squipment.
VILLACOUPLAY. Day attack 14th July, About 420 cratera within the
irficld boundary. Severe damage to large hanger and 10 damaged aircraft Rmong
wreckage Direct hits on runway and an air raid shelter.
LE BOURGET. Day attack 12th July. thany crators on Airfield and
TARMAC. Some Hangura damaged.
5/ HOME SECURITY
2stimated civilian cosunities muck miling Regraded Unclassified
only vounded 256,
187
NOT TO BE RE-TRANS, ITTED
COPY NO.
13
SECRETARY OF OF TREASURY
BRITISH OST SECRET
U.S. STCRET
1913 JUL 19 AM 11 55
TIL 110, 235
up to 7 a.m., 18th July, 1943.
1. RAVAL
Early 17th, our light forces attacked a convoy of 3 Coasters
escorted by 2 Trowlers off the DUTCH Coast and sank 1 ship. Later other
enemy vessols apparently engaged survivors of enemy convoy and set 2 on fire.
On the night of the 15th, 2 of H.M. inesweopers were slightly damaged in
an air raid on SYRACLSE. 2 U.S. Cruisers with one of H... Monitore bombarded
PLDOCL and AGRIGENTO. During the action with the Italion Cruiser in TESSINA
Strait 17th morning, referred to in Optel No. 234, one of our ::otor Torpodo
Boats was sunk by gun fire.
2. AIR OPERATIONS
TSTERN FRONT. 17th. At 4.30 a.e., escorto( Special Beau-
fighters off NOR AY made several hits smidships on a 2,000 ton ship which
vaa left will on fire. A total of 329 Fortresses were sent out but owing to
adverse weather were recalled and 275 made no attack. 31 dropped 65 tons
on objectives in Northwest GERRANY and 21 dropped 45 tons at the Fokker air-
craft factory, a sterdai . 1 Fortress missing and 1 crashed. Crew safe.
17th/18th. Aircraft despatched: Intruders - 23 (1 missing),
Anti-shipping - 7, Leaflets - 4.
NORTHERN ITALY. 16th/17th. Rome based Lancasters dropped a
total of d'out 48 tons on transformer stations nor ILAN and PAR A. One
aircraft bombed SPEZZIA Harbour causing two large fires. Crows report
succussful attacks. 1 aircraft missing.
SICILY and SOUTHEAN ITALY. 15th/16th. ellingtons attacked
4 sirfields on the mainland. 110 medium bombors attacked railway communications
and bombed and machine gunned motor transport in Central and Northeast SICILY.
Railway crossing at ADRANO was hit.
16th. Liberutors dropped 100 tons at BARI airficld. 102
Fortressus bombed the ferry terminus at SAN GIOVAINI. [scortoc Atchnilla
attacked VIDO VALE TUA airfield and Ritchells bonbed VALGUARITA. Enery
cesualties: 13,7,2. Allied: 5 daming.
1. HAVAL (Additional)
16th/17th. In enemy air raid on AUTOSTA, houvy service casual-
thes caused in one of L.S's.I.
Regraded Unclassified
188
July 19, 1943
Dear George:
I have referred your letter of July 5, to Fred,
Ted and fellow members of the last minute planning
committee for speeches. Tie all think the plan set
forth is a good one, and hope it works.
We all know you are not complaining, and we all
share your desire to have them done shead of time.
However, there seem always to be complications that
keep us from doing it, but it is a. worthy aim.
I think we will have to get together very soon
to get ready for the first speech in the Third War
Loan. As soon as we decide under what circumstance
the speech will be made, Fred will give you a call.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mr. George Albee
copyito of reply Thompson.
White Stone House
File in Diary.
Route 1
Accord, New York
FS:gr
7-19-43
Regraded Unclassified
189
WHITE STONE HOUSE ROUTE 1 ACCORD, NEW YORK
5 July 1943
Hon. Henry Morgenthau Jr.,
Secretary of the Treasury
Main Treasury Bldg.,
Washington, D. C.
Dear Mr. Secretary:
I have received your kind notes - with
my usual astonishment that you should be able
to find the time to dictate them.
If THE CLUE TO HISTORY does as much for
you as it did for me, in revealing the deep
springs of motive underlying this war, perhaps
you will also care to read another book I have
found helpful. CONDITIONS OF PEACE, by Carr
-- both of the authors, 1 believe, are Scotsmen
- Is the exact opposite of this first book.
It is as objective as an engineer's blueprint;
In fact, it is exactly that: a blueprint of
a plan for the postwar world. There have been
plans aplenty; but Carr tells how we may arrive
as a pos twar balance. He offers a method and a
'state of mind' necessary for the method's suc-
cess.
I wonder If you will ask Fred, Ted and
fellow members of the Last-Minute-Planning Com-
mittee For Speeches (speaking of plans) If the
following meets with their approval:
As soon as It becomes clear what points
you wish to get across in the first speech open-
ing the new drive, I would be very happy to come
to Washington and work with Fred roughing them
Regraded Unclassified
190
WHITE STONE HOUSE ROUTE 1 ACCORD, NEW YORK
-2-
out. Then, taking them home with me, I would
prepare a sort of basic manuscript, crammed
with Churchillian figures of speech and sundry
other splendid bits of literature.
It would then be possible to use this
basic manuscript as the central foundation-pier
on which to build the actual speech, with its
new material, when we all go to work later.
I hope nobody will Interpret this offer
as a complaint, on my part. Fred knows me well
enough to know that it is nothing of that sort.
It is only that speeches put together at the last
minute sometimes sound as If they were put to-
gether at the last minute -- and that is some-
thing we do not want to happen to anything re-
presenting the Treasury Department, of all Depart-
ments! The Treasury, like the Supreme Court,
stands for solidity.
I may be in Washington on Wednesday the 7th.
If I get there I'll try to telephone to you. I
have a new story for you.
Kindest
8 wishes Jern
George Albee
Regraded Unclassified
191
TREASURY DEPARTMENT X
INTER OFFICE COMMUNICATION
DATE July 19, 1943
TO
FROM
Mr. Secretary Haas GA
Margenthau
Subject The Proposal of the Federal Reserve Board for the
Issuance of 9-Month Treasury Bills
The Federal Reserve memorandum of July 13 recommends
that the entire outstanding amount of bills and certificates
combined be stabilized, for the time being, at ite present
level and be refunded into B. new series of 9-month bills, for
which a buying rate of 3/4 of 1 percent would be established.
The new bills would be issued a.8 the outstanding securities
mature, but at a rate not to exceed $1 billion a week. The
memorandum also recommends that the maturity of new 2 percent
bonds be extended from 7-1/2 - 9-1/2 years to 8-10 years and,
if necessary, to 9-11 or 10-12 years.
The purpose of these changes 18 to narrow the total
spread in the pattern of rates of securities available for
bank purchase by increasing short rates and decreasing long
rates (or at least increasing the term of long securities
of the same rate). Such a reduction in the spread between
short and long rates 18 stated to be necessary in order to
maintain the existing pattern to which the System 18 com-
mitted.
Ae evidence of the necessity of a reduction in the spread
of rates, the memorandum points out (1) that the Federal Re-
serve System has had to absorb the entire increase in the
supply of Treasury bills (about $2 billions) since the end of
April, and (2) that the 2 percent sector of the market has
been very strong during the same period and has now absorbed
the entire Federal Reserve portfolio of long 2 percent taxable
bonds.
In our opinion, the proposed consolidation of outstanding
bills and certificates into new 9-month 3/4 percent bills
would be an unwise move for the following reasons:
(1) The pattern of rates is & means and not an end. It
was generally agreed by the Treasury and the Federal Reserve
System e. long time before Pearl Harbor that this war, if it
Regraded Unclassified
192
Secretary Morgenthau - 2
should occur, should not be financed upon the basis of rising
interest rates, as was the case in World War I. Rising rates
during a wartime period not only increase war costs directly,
but also discourage subscriptions to Government securities as
purchasers tend to await more favorable terms on later issues.
This desire to avoid a. progressive increase in interest rates
during the wartime period is the cornerstone for the mutually-
agreed-upon policy of the Treasury and the Federal Reserve
System. In order to implement this policy, the Federal Reserve
System has established and maintained a "pattern of rates" in
the Government security market. This pattern of rates, how-
ever, should be viewed strictly as a means and not B.B an end.
The end is orderly and economical war finance, not the main-
tenance of any particular pattern of rates.
(2) The difficulty alleged to exist in the present
pattern of rates 18 not new. The difficulty inherent in a
rigid "pattern of rates" has been recognized by both the
Treasury and the Federal Reserve System from the beginning
and, in consequence, the Treasury has consistently urged that
the rigidity of the pattern be de-emphasized and that the pat-
tern be kept a.s fluid 8.8 consistent with the underlying ob-
jectives of financing the war 8.8 cheaply as possible and of
maintaining the demand for Government securities.
The fundamental difficulty of a pattern of rates is, of
course, that if confidence in the pattern becomes perfectly
established in the market, buyers will tend to crowd into the
longer maturities where the return 16 higher, while the shorter
maturities at lower returns will find no purchasers. The effect
of this would be to increase substantially the average cost of
borrowing without reducing the real obligation of the Govern-
ment to maintain the liquid character of the outstanding debt.
This difficulty is a long-run difficulty, however. It
has existed ever since the pattern of rates was established,
and its importance at the present time is unduly magnified
in the Federal Reserve memorandum. Actually, the spread
between short and long rates 18 much less now than it was
during most of the Thirties, and the profits from "rolling
down the curve" are consequently smaller. While it 18 true
that such profits are more certain than they were in a free
market, it must be recognized that B. great many investors
have not adapted their market policy to the existence of a
pattern of rates; and others, who have thought the matter
through, are simply unwilling to take & chance on the
Regraded Unclassified
193
Secretary Morgenthau - 3
permanence of the pattern, and consequently prefer the con-
tractual protection of & short-term obligation. Such fric-
tions and doubts will probably continue for a long time to
come and will make possible the continuance of a. substantial
spread between short and long rates.
(3) The recent absorption of Treasury bills by the
Federal Reserve System is not conclusive evidence of unwill-
ingness of the market to absorb additional short securities.
The fact that the Federal Reserve System has absorbed the
entire increase in the amount of Treasury bills since the
end of April does not mean that the market wants no more
short securities. The market for certificates and notes
continues very strong -- in fact, as strong, relative to
the pattern of rates, as that for bonds. The current eit-
uation in bills does indicate that the market has enough,
at least for the time being, but this situation does not
extend to short paper generally. Treasury bills have become
a sort of secondary excess reserves, and commercial bank
holdings of them vary inversely with their need for reserve
funds. It is not surprising, therefore, that commercial bank
holdings of Treasury bills have run off during the past two
months as their required reserves have risen, due to the
drawing down of War Loan Deposits, while the Federal Reserve
System was supplying additional reserve funds in no other
way than by purchasing bills at the posted rate. As of
July 14, the most recent reporting date, 65 percent of the
outstanding amount of Treasury bille Was still held outside
of the Federal Reserve Banks.
The evidence submitted in the Federal Reserve memorandum
seems to indicate that the bill market needs a rest, but goes
no further.
(4) The Federal Reserve Banks ought to purchase at
least enough bills to cover the increase in Federal Reserve
notes outstanding. The Federal Reserve Banks must acquire
some asset dollar-for-dollar for every increase in Federal
Reserve notes outstanding. Sound central banking policy
dictates that the assets 80 acquired should have a low earning
rate, or none at all. During the Thirties the asset acquired
by the Federal Reserve Banks per contra to the increase in
Federal Reserve notes was gold. During the war period 3/8 per-
cent Treasury bills provide a satisfactory alternative. Fifty-
four percent of the increase in Federal Reserve holdings of
bills 80 far this year can be set off against the increase in
Regraded Unclassified
184
Secretary Morgenthau - 4
Federal Reserve notes outstanding. If the proposal to issue
9-month bills were adopted, the lowest rate in the market
and the rate against which currency would be issued would be
3/4 of 1 percent. This 1s an unconscionable rate to pay for
issuing paper money.
(5) The proposed bills would reduce the effectiveness
of Federal Reserve control of the money market. As was pointed
out above, Treasury bills are being used to an increasing
extent as quasi-reserves. Treasury bills are now outstanding
in the amount of about $12 billions, thus providing potential
quasi-reserves of this amount. Certificates of indeptedness,
which are not at the present time considered equivalent to
reserve funds, are outstanding in the amount of more than $16
billions. If the present amount of bills and certificates
were converted into 9-month Treasury bills with a. posted rate,
the potential amount of quasi-reserves would be increased to
about $28 billions, or more than double the present amount.
Obviously, the existence of such an increased amount of instru-
ments available for use B.8 quasi-reserves would increase the
difficulty of changing the reserve position of member banks
by the use of the customary instruments of Federal Reserve
policy.
(6) The issuance of the proposed bills would weaken the
position of the New York and Chicago money markets. The pro-
posed use of 9-month Treasury bills would create an important
incentive for the removal of bankers' and other balances from
New York City and Chicago by providing an alternative employ-
ment for these balances at a guaranteed rate of 3/4 of 1 per-
cent. Such withdrawals might well be sufficiently large to
remove the New York City and Chicago banks from the market for
Government securities for some time to come. This would have
consequences beyond its dollar amount, because of the position
of leadership in the Government securities market customarily
exercised by central reserve city banks.
(7) Bank earnings are adequate. The Federal Reserve
memorandum states that one reason for the proposed change 18
an extension of maturities by commercial banks because
of the need for larger earnings, particularly by the smaller
banks.' A press release by Mr. Crowley, dated June 22, refer-
ring to all insured commercial banks, states:
"At $441 million, net profits after taxes but
before dividends represented 8. return of 6.3 percent
on total capital funds. This rate of return has
Regraded Unclassified
195
Secretary Morgenthau - 5
been exceeded only twice since the establishment
of the Federal Deposit Insurance Corporation:
in 1936 when unusually large profits and recov-
eries on securities were reported, and in 1941.
It 18 estimated that net profits before income
taxes were higher than in any other year of
deposit insurance except 1936."
As far as the situation of small banks is concerned, the net
profit for 1942, after income taxes, for all insured commer-
cial banks with deposits of under $1 million amounted to 6.5
percent of capital funds.
(8) The issuance of the proposed bills would itself
constitute a substantial "breach" in the pattern of rates.
Finally, it is important to note that, although the stated
purpose of the issuance of the proposed bills is to preserve
the existing pattern of rates, such issuance would, in fact,
breach the existing pattern very materially. The argument
seems to be that it is necessary to change the pattern in
order to maintain it. We see no merit in this argument. The
whole business of maintaining & pattern with a substantial
difference between short and long rates is essentially B. rear-
guard action, in which it is unwise for the rear guard to
retreat any faster than necessary -- since, when it does, it
must recommence the action all over again on the new line.
The longer the retreat from 3/8 to 3/4 can be postponed, the
longer it will be before a new action will have to be started
to defend the 3/4 line against a further retreat to 1 or 1-1/4.
There is no point in taking time by the forelook, for time is
of the essence, and & successful rear-guard action will greatly
reduce the ultimate cost of war finance.
Regraded Unclassified
195 - A
original was returned to Mr. Paul
Not read by the Secretary and the
195-
-
B
Statement on special wartine reserves
Table of Contents
Page
1, Summary of statement
1
II. The accounting approach
2
A. Reserves recommended by American Institute of
Accountants
2
B. Bearing of accountants' recommendations on tax
practice
4
C. Discussion of proposed specific reserves
5
1. Items deductible for tax purposes under present
law
5
(a) Losses from destruction of property as a
result of the action of armed forces or
from seizure thereof by the enemy
5
(b) Amortization of the cost of additional
facilities acquired red, the usefulness of
which is expected to be substantially
reduced at the termination of the war
5
(c) Amortization of the cost of rearrangement
and alteration of existing facilities
which will probably be rearranged in the
postwar period
6
(d) Accelerated depreciation of facilities as
a result of intensive use and of opera-
tion by less experienced personnel
7
(e) Accelerated obsolescence of facilities due
to intensive research during the war in an
effort to increase productive efficiency
7
2. Items of an immeasurable character non-deductible
for tax purposes
9
a. Decline in the useful value of plant and
equipment due to excess capacity resulting
from war construction
9
Regraded Unclassified
195 - C
- 11 -
Page
b. Losses which may be sustained at the end
of the war in the disposal of inven-
tories useful only for war purposes, or
in the adjustment of purchase commitments
then open, including any amounts paid for
the cancellation of such commitments
10
0. Deferred advertising
11
3. Items non-deductible for tax purposes for which
the establishment of reserves should be oon-
sidered
11
a. Losses which may be sustained in the disposal
of inventories not necessarily applicable to
war production, due to decline in the price
level, which, on the busis of past experience,
usually follows a pronounced rise in prices
11
b. Repairs and maintenance deferred as a result
of pressure for war production
12
0. Restoration or alteration of facilities to
peacetime production at the end of the war,
if it is reasonable to assume that such
restoration and alteration will then be
made
13
d. Separations allowances which may be paid to
employees who are discharged at the termi-
nation of the war
14
III. The cash approach
14
IV. The incentive approach
16
V. Implications of reserves for the postwar competitive
structure
17
Regraded Unclassified
195 D
Statement on special wortine reserves
1. Summary of statement
This statement consists primarily of an analysis of specific
reserves which have been advocated as allowable deductions in the
computation of taxable income. As a. background for the discussion
of these specific reserves, the general reasons for which special
wartime reserves have been proposed are considered. Reserves have
teen advocated: (1) to secure equitable taxation by allowing costs
clearly attributable to the war to be charged against war revenues;
(2) to make certain that the resumption of peacetime production will
not be retarded by cash shortages; and (3) to weaker. incentives for
mking uneconomic expenditures during the war. These three approaches
are identified in this statement as the accounting approach, the cash
approach, and the incentive approach.
At. authoritative statement on the accounting approach to the
problem of postwar reserves has been made by the American Institute
of Accountants. The desirability of recognising their proposed list
of 11 specific reserves, plus one other, as deductions in computing
taxable income is given detailed consideration. The basic test which
such reserves must satisfy is that of accounting acceptability in
principle and feasibility in practice.
Most of the present statement consists of a discussion of the
extent to which the proposed specific reserves meet this test. Con-
sideration is also given, however, to the other two general approaches
under which reserves have been proposed and to the probable effect of
reserves on the competitive structure of industry.
The principal conclusions of the statement are that: (1) ade-
quate statutory authority is now available for the deduction of the
costs and losses for which five of these specific reserves have been
proposed; (2) of the remaining specific reserves, three provide for
costs and losses which are not sufficiently measurable to constitute
allowable deductions for tax purposes; and (3) further detailed
examination should be given the four remaining reserves, namely, (a)
& reserve for inventory price declines, (b) a reserve for deferred
minterance, (o) a reserve for postwar reconversion costs, and (d) a
reserve for separation allowances to employees discharged at the
termination of the war. The case for these four reserves is suffi-
ciently strong that the Treasury may desire, after further examina-
tion, to propose that they be authorized as allowable deductions for
Regraded Unclassified
195-E
- 2 -
tax purposes. 1/
These conclusions have been based primarily on an accounting
analysis, but they receive additional support from an examination of
the effect of reserves on the cash problems and prospective postwar
competitive structure of industry.
II. The accounting approach
A. Reserves recommended by American Institute of Accountants
The accounting approach is the basic test which any reserve for
6. specific purpose must meet. Unless the costs or losses for which
reserves are set up can be measured and allocated to fiscal periods
with reasonable precision, they do not constitute legitimate account-
ing charges to ourrent income. 2/ Deductible reserves for tax pur-
poses which cannot be 80 allooated partake of the character of general
subsidies and must be judged on grounds entirely different from re-
serves designed to refine the definition of taxable income. Indeed,
non-allocable reserves would probably create more inequities than they
would alleviate, since no objective oriteria for the amount of reserve
to be given to each taxpayer would be available.
An authoritative statement on the accounting approach to the
problem of postwar reserves has been made by the Committee on Account-
ing Procedure of the American Institute of Accountants. 3/ The Com-
mittee recommends, primarily as a guide to the accounting policies of
individual enterprises, that serious consideration be given to the
establishment of special reserves for costs and losses arising out of
the war. The Committee further recommends that at least some of these
reserves be recognised by the Government as deductions in the determina-
tion of taxable income.
1/ The reserves for inventory price and for deferred maintenance were
proposed by the Treasury in 1942 but were not accepted in Congress.
2/
wartine revenues should be charged with all reasonably deter-
minable costs and losses fairly applicable thereto. Specific charges
in the income statement should, however, have a. reasonable basis of
measurement and of allocation to fiscal periods." Accounting Research
Bulletin No. 13, published in The Journal of Accountancy, February
1942, P. 158.
3/ Loc. cit.
Regraded Unclassified
195- F
- 3 -
Eleven specific reserves are recommended. 1/ They may be
classified as follows:
Reserves for depreciation, obsolescence, and maintenance
:
1. Accelerated depreciation of facilities as & result of in-
tensive use and of operation by less experienced personnel.
2. Accelerated obsolescence of facilities due to intensive
research during the war in an effort to increase productive offi-
ciency.
3. Amortization of the cost of additional facilities acquired,
the usefulness of which is expected to be substantially reduced at
the termination of the war.
4. Decline in the useful value of plant and equipment due to
excess capacity resulting from was construction.
5. Repairs and maintenance deferred as a result of pressure
for war production.
Inventory reserves
6. Losses which may be sustained at the end of the war in the
disposal of inventories useful only for war purposes, or in the ad-
justment of purchase commitments then open, including any amounts
which may be paid for the cancellation of such commitments.
7. Losses which may be sustained in the disposal of inventories
not necessarily applicable to war production, due to decline in the
price level, which, on the basis of past experience, usually follows
a pronounced rise in prices.
Rearrangement and alteration of facilities
8. Amortisation of cost of rearrangement and alteration of
existing facilities which will probably be rearranged in the postmar
period.
9. Restoration or alteration of facilities to peacetime pro-
duotion at the end of the mar, if it is reasonable to assume that
such restoration and alteration will then be made.
V
The order in which these reserves are listed in the Bulletin has
been revised. However, the description of the individual reserves
has been directly quoted. The Bulletin states that these suggested
reserves are presented as an illustrative list rather than as an
exhaustive compilation.
Regraded Unclassified
195- G
- 4 -
Other reserves
10. Separation allowances which may be paid to employees who
are discharged at the termination of the war.
11. Losses from destruction of property as a result of the
action of armed forces or from seisure thereof by the enemy.
One other proposal, namely, a reserve for deferred advertising,
will also be considered in this statement.
B. Bearing of accountants' recommendations on tax practice
Some of the proposed reserves are allowable under the existing
law. However, special legislative authority would be necessary for
others. From the point of view of accounting theory, the suggested
reserves are, for the most part, reasonable. The most difficult
problem in the use of these reserves, as the accountants emphasize,
is the determination by acceptable, objective oriteria of the amounts
properly applicable to ourrent revenues. The accountants, themselves,
state that some of the listed reserves do not meet this requirement
even for the published or internal accounts of individual firms. For
tax allowances more severe standards of measurability must be required.
If the decisions of individual firm for their own reports are unduly
conservative, competitors will not be harmed. Excessive tax deductions
by one taxpayer, however, mean that a disproportionate relative burden
is placed on other taxpayers.
Nevertheless, too rigid insistence on the danger of tax avoidance
my impede rather than further the cause of tax equity. A reserve
which would improve the definition of taxable income for most taxpayers
should not be refused recognition merely because under it relatively
small numbers of taxpayers would receive somewhat excessive deductions.
In this regard, it should be recognized that errors in amounts deducted
as reserves are partially self-corrective. Since all allowable deduo-
tions in the form of credits to a reserve must eventually be offset by
equivalent charges against the reserve, excessive deductions in one
year will result in higher incomes or smaller losses in a later year.
With this background the specific reserves previously listed may be dis-
cussed.
1/
However, if excessive mounts credited to the reserve are eventually
taxed at loss than wartine rates, or perhaps not at all if postwar
losses exceed these amounts, tax liabilities may be unjustifiably
reduced. Moreover, regardless of the rates at which the unused re-
serve balance is taxed, expenditures properly allocable to postwar
revenues will actually be offset against wartine revenues to the
extent that excessive amounts are accumulated in the reserve.
Regraded Unclassified
195-H
- 5. -
C. Discussion of proposed specific reserves
The proposed specific reserves my be divided into the following
categories: (1) items deductible for tax purposes under present law,
(2) items of an immessurable character non-deductible for tax purposes,
and ($) items non-deductible for tax purposes for which the establish-
ment of reserves should be considered.
1. Items deductible for tax purposes under present law
(a) Losses from destruction of property as & result of
the action of armed forces or from seisure thereof
by the energy
The deduction of war loases was provided for in the Revenue Aot
of 1942. Under this Act property destroyed or seized by military
operations after December 6, 1941, and property within or under con-
trol of enemy countries, may be treated as an allowable deduction in
the computation of taxable income. However, if such property is sub-
sequently recovered, it must be included in gross income in the year
of recovery.
(b) Amortization of the cost of additional facilities
acquired, the usefulness of which is expected to
be substantially reduced at the termination of the
war
Adequate provision for amortization of emergency facilities is
provided in Section 124 of the Internal Revenue Code. Reserves are
not needed for this purpose. Indeed, excessive amortigation deduc-
tions against war revenues are allowed if the facilities have any post-
was value, since the law allows amortisation against war revenues of
the full oost of the facilities.
The anomalous situations arising from this provision in the event
that the emergency facilities do have a substantial postwar value are
illustrated by the following examples. Suppose that a manufacturer
continues in peacetine to produce his warting product with his emer-
genoy facilities and scraps his old facilities. Under the present law
the cost of conversion to wartime production is deductible from wartine
1/ This statement is highly simplified. The details of the statutory
requirements are given in Section 127 of the Internal Revenue Code
and in Section 19.127 of Regulations 103 as amended by T.D. 5258.
It should be noted that taxpayers may receive a. substantial wind-
fall under Section 127. If the tax rate is lower in the year of
recovery than in the year of loss the taxpayer will receive a tax
benefit that may amount to a substantial percentage of the value
of his property.
Regraded Unclassified
195-1
- 6 -
revenue, the new facilities are completely amortisable against such
revenues, and the value of the old facilities my be deducted when
scrapped. The manufacturer would enter the pascetime period with
the depreciable basis of his facilities reduced to sero, Clearly,
this practice does not result in a correct accounting allocation of
costs against revenue.
The manufacturer my decide to sell his emergency facilities
rather than to continue to operate them in the postwar period. Since
the basis of these assets will have been reduced to sero by the amor-
tisation claimed, the full sales price will be reported as a capital
gain and taxed at the rates applied to capital gains. The manufacturer
obtains a substantial windfall. Be is allowed to write off the full
cost of the assets against wartine revenues and probably to reduce his
taxable excess profits by this amount, even though the assets have a
substantial postwar value. When the assets are sold in the postwar
period, he will be taxed only at the relatively low capital-gains rate.
This windfall conceivably may amount to more than 50 percent of the
sales value of the asset. 1,
(o) Amortisation of the oost of rearrangement and
alteration of existing facilities which will
probably be rearranged in the postwar period
The cost of rearranging and altering existing facilities in the
transition from peacetime production to wartine production constitute
deductible expenses in the year of rearrangement if they do not add to
the life of the rearranged assets. 2/ Section 19.23(a)-4 of Regula-
tions 103 provides: "The cost of incidental repairs which neither
materially add to the value of the property nor appreciably prolong
its life, but keep it in an ordinarily efficient operating condition,
may be deducted as expense.. ⑇ The costs of rearranging property
for war production are wholly analogous to such incidental repairs.
1/ For example, the full oost of the asset may have been offeet
against revenues that otherwise would have been taxed at an 81-
percent rate. Under present law gain from the sale of this asset
is taxable at 25 percent. The windfall to the taxpayer under those
conditions will be 56 percent of the sales value of the asset.
2/
Conceivably sufficient wartine revenues may not be available in the
year of rearrangement to absorb these costs. However, the carry-
over of net-operating losses and unused excess-profits credits will
almost always make adequate adjustment for this temporary inequity.
Regraded Unclassified
195-J
- 7 -
(d) Accelerated depreciation of facilities as a
result of intensive use and of operation by
less experienced personnel
The present law is broad enough to allow deductions for accel-
crated depreciation. The Bureau of Internal Revenue has specifically
recognised this fact. 1/ However, cases undoubtedly will arise where
the Bureau and the taxpayer will differ as to the reasonable amount
of accelerated depreciation. Such differences in judgment, however,
cannot be completely removed by additional statutory provisions.
An attempt to resolve these differences by an arbitrary statu-
tory formula providing for increased depreciation allowances would
create more inequities than it would remove. Such a formula would
give 60399 taxpayers more adequate allowances but only at the OX-
pense of granting grossly excessive deductions to many other taxpayers.
By their very nature, equitable accelerated-depreoiation allowances
must be based on careful investigations of individual cases and not on
& rigid overall formula.
(o) Accelerated obsolescence of facilities due to
intensive research during the war in an effort to
increase productive efficiency
Extraordinary obsolescence resulting from war research presents
substantially more difficult conceptual problem than accelerated
depreciation of equipment resulting from more intensive use. Acceler-
ated depreciation obviously takes place at a definite time, while the
specific date at which obsolescence actually occurs is much more diffi-
oult to determine. Generally speaking, if the retirement of old equip-
ment is mandatory within a short time because superior new equipment is
1/
The following statement of the Bureau position is taken from
Bulletin "P" (pp. 3-4) on depresiation and obsolessence, revised
January 1942:
"It is recognized that the useful life of some depreciable
property, or items thereof, may be affected by a radioal
increase or decrease in plant activity, or diversion in use,
extending over a period of time so that depreciation in ex-
0000 of, or less than, the amounts allowable under normal
operating conditions or use may be sustained. Such increase
or decrease in depreciation is dependent upon the decrease or
increase, respectively, in the normal useful life resulting
from the exceptional operating conditions or use. However,
where factors of obsolescence and inadequacy and decay oon-
trol the useful life of property, no increase or decrease
from norml depreciation will be allowed."
Regraded Unclassified
195-K
- a -
being introduced by competitors, current charges for the obsolescence
of the old equipment are justified. However, under more complex oon-
ditions the appropriate allocation of obsolescence is much less deter-
minate.
Suppose, for example, that material shortages have forced the
temporary discontinuance of the production of a given peacetime product,
and that the peacetime productive equipment has been stored. During the
war advances in technique make the early replacement of the peacetime
equipment almost certain, once production is resumed. However, this
equipment is not scrapped, since it may be useful for a. year or two while
the improved equipment is coming on the market and changeovers are taking
place. Is the obsolescence properly charged to the year in which the new
invention 1s made or to the year in which the new equipment is actually
installed, either by the taxpayer or by his competitors? The problem is
difficult to decide on logical grounds. The case for delayed recognition
of such obsolescence is at least as strong as that for its immediate
recognition.
The Internal Revenue Code is sufficiently inclusive to allow at
least the first of these instances of unusual obsolescence. However, the
Bureau places rigid restrictions upon the allowance of unusual obsoles-
cence charges. The Bureau requires that the taxpayer prove his claim for
obsolescence "by facts and evidence that are definite and indisputable."
Moreover, the date at which the facilities will be retired must be
clearly predictable. Finally, no obsolescence can be allowed retro-
spectively in the light of subsequent events not anticipated during the
period for which obsolescence is claimed.
1
1/
This quotation, taken from Bulletin "P" (pp. 1, 3), States the Bureau
position with reference to obsolescence deductions.
"Obsolescence may be defined as the process of becoming obsolete
due to progress of the arts and sciences, changed soonomic eon-
ditions, legislation, or otherwise, which ultimately results in
the retirement or other disposition of property.
"Extraordinary or special obsolescence rarely can be predicted
prior to its occurrence. However, this does not necessarily
imply that the asset already must have been completely dis-
carded or become useless, but nerely that a point has been
reached where it can be definitely predicted that its use for
its present purpose will be discontinued at a certain future
date. Deductions for obsolescence of this type my be taken
over the period beginning with the time such obsolescence is
apparent and ending with the time the property will become
obsolete. In every case the burden of proof is entirely upon
the taxpayer to establish a claim for obsolescence by facts
and evidence that are definite and indisputable. No amount
my be charged off in any year merely because, in the opinion
of the taxpayer, property my become obsolete a number of years
later. Nor can obsolescence be allowed retrospectively in
the light of subsequent events or happenings not anticipated
during the period for which the obsolescence is claimed. In no
case may the deduction for obsolescence be extended to include
shrinkage in value due to other causes, as, for instance, a
general drop in the price of commodities.
Regraded Unclassified
195-
- 9 -
If these requirements are strictly enforced, many legitimate
deductions for obsolescence will be denied by the Bureau. Obsoles-
cence, by its nature, often cannot be demonstrated by "facts and
evidence that are definite and indisputable." Moreover, sufficient
obsolescence may 000 ur to reduce substantially the value of an asset
without making the date when the asset will be discarded definitely
predictable. On the other hand, if the Bureau did not judge claims
for obsolescence by severe standards, many taxpayers would be allowed
excessive deductions.
At the present time, when tax rates are highly variable and
obsolescence may be expected in unusually large amounts, the possi-
bility that obsolescence may be inadequately recognised should be
reflected in the formulation of tax policies. However, a. specific
reserve for obsolescence would not remedy the situation. The basic
problem are not legal but administrative in nature.
2. Items of an immeasurable character non-deductible for
tax purposes
a. Decline in the useful value of plant and equipment
due to excess capacity resulting from war construo-
tion
Decline in value of plant and equipment may result directly from
the excessive quantity of plant and equipment, itself, or indirectly
from the excessive output of such plant and equipment. In the latter
event, the loss due to the decline in the price of the product as a
result of its oversupply cannot be imputed with even moderate preoi-
sion to individual assets or classes of assets. In the former event,
excess capacity of the facilities themselves would probably result
directly in a decline in the market value of the plant and equipment.
This situation may develop in many areas if wartime facilities are
thrown on the market.
The Bureau does not allow deductions for shrinkage in value
resulting solely from price fluotuations. The disallowance of such
deductions is consistent with accounting principles and tax proce-
dures, both of which base depreciation deductions on cost rather than
on current market value.
On theoretical grounds, it is doubtful if deolines in value be-
cause of excess capacity should be recognised when the additional
capacity was built, or when it became excessive, that is, when demand
fell back to a. pescetime level. Moreover, if such deductions were to
be allowed at all, consistency would demand that income be reported
for increments in value as a result of decreases in capacity, increases
in cost of production, and even, perhaps, increases in demand.
Regraded Unclassified
195-M
- 10 -
Declines in the value of facilities resulting from excess
capacity could not even be approximately measured. 2/ To segregate
such declines, full knowledge of the other economic variables affect-
ing the problem, such as conditions affecting the demand for the
assets, would be necessary. The administrative difficulties that
would be encountered in such an endeavor would be insuperable. The
accountants themselves list losses due to excess capacity after the
war as not constituting legitimate deductions from income computed
in the oustomary manner. 21 If such losses are not sufficiently
determinable to constitute legitimate accounting deductions, clearly
they would not satisfy the more rigorous requirements which must be
set for tax deductions.
b. Losses which may be sustained at the end of the
war in the disposal of inventories useful only
for was purposes, or in the adjustment of pur-
chase commitments then open, including any amounts
paid for the cancellation of such commitments
Losses on surplus inventory stocks are clearly chargeable to war
revenues. However, the taxpayer will suffer such losses only if the
Government fails to reimburse him for them on war-contract termination.
Since contractors operating under cost-plus-fixed-fee contracts
will ordinarily suffer no inventory losses, no reserves need be ⑉
tablished for such losses. Inventories held by these contractors are
actually owned by the Government.
However, contractors operating under fixed-price contracts may
suffer inventory losses. The present termination clauses in contracts
1/ For example, in recent testimony on renegotiation before the House
Naval Affairs Comittee, Mr. Gibbons, Senior Vice-President of the
Aluminum Company of America, stated that the two major postwar
problems of this company would result from:
(1) overexpansion of facilities; and
(2) wartime growth of substitute products.
Be was asked: Do you think it is possible at the present time
to anticipate and forecast the exact amount, or to an approximate
degree, of reconversion and adjustment whi 6 company such as
yours will have to go through?"
Mr. Gibbons replied: "In the case of our own company, I could
unqualifiedly answer that in the negative." (Underscoring sup-
plied.) Proceedings of Committee on Naval Affairs of House of
Representatives, June 22, 1943, as published by The Bureau of
National Affairs, Ino., P. 765.
The Journal of Accountancy, op. cit, P. 158.
Regraded Unclassified
195 N
- 11 -
provide that reimbursement will be mde for inventories as well as for
settlement of comitaints to subcontractors; that is, fixed-price
contracts become cost-plus contracts. However, the Government may
refuse to reimburse contractors for some inventories, olaiming that
the inventories are sub-standard, that the purchase price was too high,
or that the purchase of an item for & specific contract has not been
proved. The extent of these losses, therefore, will depend upon the
rigor of the contraet-termination audit. In principle, contractors
operating under fixed-price contracts may legitimately establish re-
serves for their inventory losses. However, since the magnitude of
these losses will be determined by the auditing policies of the mili-
tary establishment, their amount cannot now be ascertained with suffi-
cient precision to justify a ourrent deduction for tax purposes.
0. Deferred advertising
If normal advertising expenditures are ourtailed during the war
because of material and manpower shortages, it may be equitable to
allow a deductible reserve for deferred advertising. Such adver-
tising may be necessary in order to keep a company's name in the pub-
lio wind.
Although a reserve for deferred advertising my be acceptable in
principle, the insoluble administrative problems which it raises
necessitate its rejection. In the first place, it would be impossible
to define advertising expenditures. Advertising takes multifarious
forms, such as, newspaper and periodical advertisements, extensive
reliance on salesmen, pleasant shopping environments, special services,
special discounts, and special packaging. In the second place, even
if advertising could be defined, the amount necessary to maintain a
firm's goodwill without improving it could not be determined. Such a
determination would be necessary to administer the reserve in an
equitable manner. Because of these administrative difficulties such
a reserve is impracticable.
3. Items non-deductible for tax purposes for which the
establishment of reserves should be considered
a. Losses which may be sustained in the disposal of
inventories not necessarily applicable to war
production, due to deoline in the price level,
which, on the basic of past experience, usually
follows a pronounced rise in prices
During consideration of the Revenue Act of 1942 the Treasury
proposed that a deductible reserve for inventory price declines be
established. Such a reserve, if operated efficiently, would clearly
improve the definition of taxable income. The Treasury proposal was
not accepted by Congress, largely because of its administrative diffi-
culties. In place of an inventory reserve, and of other specific
reserves, Congress enacted & general carry-back of losses and unused
Regraded Unclassified
195- 0
- 12 -
excess-profits credits.
The theoretical case for an inventory reserve 10 as strong now
as it was in 1942. In practice, however, in many industries the need
for such a reserve is now at least temporarily less acute. In large
areas of the economy, partial inventory liquidations are taking place
because of the shortage of peacetime commodities. Moreover, price
rises in 1943 will probably not be large because of Government price
controls. If the anti-inflationary program should prove to be in-
adequate, however, the need for inventory reserves may again become
aoute. Unless the inflationary controls do break down, the carry-
back of net-operating losses and of unused excess-profits credits
should constitute an adequate substitute for an inventory reserve,
provided that they are not also foroed to offset too many other
losses.
b. Repairs and maintenance deferred as a result of
pressure for war production
Maintenance expenditures are necessary to insure an asset's
productivity over its economic life. These expenditures represent
reasonable charges against current revenues, if they do not prolong
an asset's life or increase its capacity. If maintenance expendi=
tures are postponed as a result of material or manpower shortages,
or because the pressure for production does not permit maintenance
work, reasonable maintenance expenses will not be charged against
ourrent revenues. Current income will be overstated during the war
and understated in the postwar period, provided that the previously
postponed maintenance is then made good.
The problem may be even more severe for railroads and other
industries employing replacement, rather than depreciation, account-
ing. Under replacement accounting, the replacement cost of assets
is deducted in the year of replacement and not depreciated over the
life of the asset. Inability to replace as well as to maintain
assets may result in a sharper distortion of income in the war period
than mere postponement of mintenance.
Accountants and informed Government officials have expressed
the opinion that ourrent undermaintenance is limited to particular
assets and firms and does not constitute a general problem of signi-
ficant magnitude. Undoubtedly, many individual assets are being
operated under such pressure that adequate maintenance is impossible.
However, other assets of a firm may receive more than adequate main-
tenance. Undermmintenance of specific assets will result in an
overstatement of taxable income during the war period only if it is
not offset by overmaintenance of other assets owned by the same firm.
In those instances where net undermintenance is present, it will
probably be limited in amount.
Regraded Unclassified
195- P
- 13 -
0. Restoration or alteration of facilities to
peacetime production at the end of the mar, if
it is reasonable to assume that such restors-
tion and alteration will then be made
Recomversion costs, in the narrow sense of the term, are clearly
proper charges against war revenues. Such costs would be limited in
the simplest situation to the restoration of a plant to its prewar
condition in order to produce the prewar product. No increase in the
capacity or life of an asset would be involved in the pure case. For
example, the band-instrument industry has shifted its production
almost completely to war products, necessitating the removal and
storage of the band-instrument equipment. At the end of the war,
resumption of peacetime production will require the removal of war
equipment, partitioning and space reallocation in the plant, and re-
installation of machinery.
The situation is slightly different, however, if wartine facili-
ties remain in use during the postwar period. Even though these
facilities remain in use, reconversion oosts may be necessary before
peacetime production can be resumed. The disoussion of the deduction
for the amortisation of emergency facilities has pointed out the ex-
cossively generous treatment which taxpayers may be allowed. For this
reason, it may be desirable to require taxpayers to capitalize recon-
version costs pertaining to martine facilities, NO distinot from peace-
time facilities, even though such reconversion costs do not prolong the
life of the wartine facilities. However, reconversion costs in the
technical sense would often constitute only & small percentage of the
postwar value of wartine facilities. In such instances the recommended
treatment would only partially offset the excessive deduction against
wartine revenues allowed on emergency facilities with substantial peace-
time values.
The proper treatment of reconversion dosts becomes more and more
difficult to determine as situations such as improved productive
organisations, outlays for recapturing markets, and developmental
costs necessary for new peacetime products, are considered.
These broader reconversion costs will undoubtedly be of much
greater quantitative importance than more narrowly conceived recon-
version costs. However, the uncertainty with respect to the nature
and size of such costs makes the establishment of reserves meeting
minimum accounting standards of measurability administratively in-
possible. Aside from these administrative difficulties, many of these
1/
For this and similar examples of reconversion, ... Hearings before
the House Naval Affairs Committee on Renegotiation, June 10 1943-
June 30, 1943.
Regraded Unclassified
195- G
- 14 -
reconversion costs in the broad sense do not constitute appropriate
charges against wartine revenues and should be regarded as new capi-
tal expenditures to be written off against subsequent peacetime pro-
duction. Moreover, diaregarding these objections, reconversion oosts
in the broad sense could be consistently charged to war revenues only
if offsets to such deductions were made for the creation of new mar-
kets by the war, for developmental costs of war products which will
have peacetime uses, for benefits from improved productive techniques
developed during the war, and for other similar benefits derived from
the firm's wartine activities.
In summary, reconversion costs in the narrow sense of restoring
facilities to their prewer condition clearly constitute appropriate
charges to war revenues. Moreover, such costs may be sufficiently
definite to make the accumulation of reserves to meet them feasible.
If the reconversion costs pertain to wartine facilities, however, it
may be preferable to capitalize them rather than to charge them
against war revenues. Às soon as the concept of reconversion is
broadened, the administrative and conceptual difficulties to an ac-
ceptable accounting reserve become insurmountable.
d. Separations allowances which may be paid to
employees who are discharged at the termination
of the war
Diemissal compensation for workers in war industries may consti-
tute & postwar expense of major magnitude. Wartine employment in
many industries is greatly in excess of the levels of employment
which can be expected to prevail in peacetime. Workers who have been
brought into defense centers to take war jobs will, in many instances,
have to look elsewhere Tor work once war orders cease. Whether or not
& wartime employer has entered into contracts to pay separation allow-
ances to workers dropped from his payroll at the end of the war, social
pressures may require such payments.
Dismissal compensation paid to workers no longer needed in war
jobs constitutes a proper charge against wartine revenues, since it is
an expense which 1a directly attributable to war production. No -
ployer can, of course, predict either the date of termination of the
war or the exact number of employees whom he will be obliged to diemiss
at that time. Nevertheless, if reserves for dismissal compensation
were allowed as a. deduction for tax purposes, rough approximations of
the probable magnitude of dismissal wages could be made. Furthermore,
taxpayers' accounts could easily be audited after the war to determine
whether the reserves set aside for separation allowances were actually
used for this purpose.
III. The cash approach
The cash approach to the problem of special wartine reserves sees
Regraded Unclassified
195 - R
- 15 -
in such reserves a. guarantee that the resumption of peacetime produc-
tion will not be impeded by cash shortages in the immediate postwar
period. Business firms will need funds at that time for a multitude
of purposes. Unless adequate funds are readily available, the smooth
transition to a peacetime economy will be impaired.
While corporations in general appear to be in an unusually liquid
position at the present time, undoubtedly cash shortages will present
serious difficulties to many individual firms and to specialized in-
dustries. Firms which have expanded many times their peacetime level,
and are consequently operating with 9. very small margin of equity capi-
tal, are most likely to be in a stringent cash position in the ime-
diate postwar period if their inflow of funds is even temporarily held
up. Such firms my find it difficult or impossible to meet their
current liabilities immediately after the termination of their wartime
production. The need for cash will, therefore, depend largely on the
promptness with which contract-termination payments are made.
Wartins reserves to provide for postwar cash needs have been
advocated on two sharply divergent principles. The first approach
emphasises the necessity of mking funds available to firms out of
wartine revenues to the full extent of their claims on the basis of
equity and accounting principle. The second approach, emphasizing
the economic importance of large business expenditures in the postwar
period, advocates large-soale distribution of funds to business,
irrespective of equity considerations. In this way, it is hoped that
these funds will be used for employment-oreating purposes.
Reserves recommended for consideration on an accounting basis in
the preceding section receive additional support from the cash ap-
proach. Cash needs for separation allowances, in particular, will be
aoute immediately upon the cessation of war production. Funds will
also be needed, although generally in much smaller amounts, for re-
conversion purposes, narrowly conceived, and for restoring under-
maintained plants. On the other hand, an inventory reserve for price
declines would relieve cash shortages when prices are rising rather
than in a. postwar period of declining prices. Indirectly, however,
such a reserve would strengthen the postwar financial position of busi-
nees. The taxpayer has a legitimte claim on funds to be used for all
of these purposes, since such expenditures constitute costs properly
chargeable to wartime revenues.
Postwar needs for cash will not be limited to the above purposes.
Additional funds will be needed for the purchase of new machinery and
other equipment, for the development of products for peacetime markets,
and for the aoquisition of inventories. These needs will be no less
real than those mentioned above. However, funds spent for these pur-
poses constitute costs which should be borns by peacetime products. If
such funds were provided tax-free out of wartine revenues, they would
amount to aubsidies.
Regraded Unclassified
195-S
- 16 -
If the postwar needs of enterprise are to be net by Government
subsidies, reserves providing for expenditures allocable to peacetime
production constitute one method of administering such subsidies.
Similar results could be achieved by partial cancellation of wartine
taxes levied on business profits, or by overt Government grants to
enterprise. The essential difference between these methods of sub-
sidizing business lies in the extent of Government control over the
use of funds.
Direct cancellation of tax liabilities would place no restrio-
tion on the use of funds by the taxpayer. Taxpayers would receive
such funds even though the funds were not needed and were not used
for employment-oreating purposes. Subsidies in the form of reserves,
however, could be restricted to employment-oreating uses. Although
the Government could control the employment-oreating uses of such
funds, it would be impossible to delimit the areas in which the in-
vestment could be mde.
Neither of these two methods of subsidization would limit funds
to taxpayers with no alternative financial resources. Consequently,
the amounts expended from accumulated reserves would not all repre-
sent net additions to employment-creating expenditures.
As opposed to these two methods, the Government might make direct
grants to specific enterprises for investment in designated areas.
This method of subsidization provides the Government with the maximum
opportunity to determine the areas in which investment will be made
and to control the amount of this investment.
Regardless of the position taken on granting subsidies to private
enterprise for postwar uses, if the need for cash in the immediate
postwar period arises primaril from delays in settlement and payment
of terminated war contracts, interim loans and not subsidies consti-
tute the proper corrective.
IV. The incentive approach
Another possible objective of special wartine reserves is to
remove incentives which lead taxpayers to make socially unnecessary
expenditures during the war. Incentive considerations apply only to
two of the proposed specific reserves, namely, the reserve for de-
ferred maintenance and the reserve for deferred advertising. Expendi-
tures for maintenance and advertising constitute deductible expenses
under the existing tax law. With tax rates as high as 81 percent,
taxpayers may be induced to spend more than the absolute minimum neces-
sary to maintain wartins production. If deductible reserves could be
established for deferred maintenance and deferred advertising, the
incentive to make these particular expenditures in excessive amounts
during the war would be reduced or eliminated. Às a result, badly
Regraded Unclassified
195-T
- 17 -
needed resources might be released for more useful participation in
the war effort.
However, there are serious limitations to the efficacy of special
reserves in inducing the postponement of expenditures for advertising
and maintenance. If a firm can obtain the resources necessary for such
purposes, its tax liabilities will be the same as if it postponed them
and took a reserve deduction. Moreover, its productive equipment and
goodwill will be benefited at least to some extent by these outlays.
Maximum postponement of this type of outlay would probably require some
form of tax premium, such as an allowance of, say, 120 percent of the
postponed outlays as a deduction from wartine revenues.
V. Implications of reserves for the postwar competitive structure
The allowance of postwar reserves may have an important bearing
on the competitive structure of industry. Consequently, final judg-
ment of these reserve proposals must take these effects into account,
The refinement of the definition of taxable income resulting
from appropriate reserve deductions would be particularly beneficial
to firms with highly fluctuating incomes, In general, the incomes
of small firms tend to fluctuate more severely than those of large
enterprises. Moreover, small firms have less accoss to outside onpi-
tal resources, and consequently their expansion tands to be more
nearly limited to their retained earnings. Discriminatory taxation
will also have particularly severe effects on firms that have greatly
expanded on a small margin of equity and have, therefore, been placed
in a highly unstable financial condition. If discriminatory tax bur-
dens are removed, additional funds will be made awailable to such
firms as these and will enable them to compete more effectively for
postwar markets.
Unless the cash approach is extended to include subsidies, it
differs from the accounting approach only as it emphasizes the impor-
tance of the prompt availability of funds. However, subsidies in the
form of reserves, granted in the name of the oash approach, may have
marked effects on the industrial competitive structure. Firms with
the highest rate of wartime profite will receive relatively larger
subsidies than firms with more moderate profits. War-casualty con-
cerns and concerns with wartime losses will receive no funds whatso-
ever from these indirect tax reductions; thus they must compete under
a double handicap with prosperous firms for postwar business. New
firms organized after the war will also have to overcome the competi-
tion of entrenched enterprises receiving subsidies.
It seems clear that the maintenance of a competitive structure
in the postwar years can be furthered by G. judicious use of special
wartime reserves. Reserves set aside out of wartime revenues will
Regraded Unclassified
195- U
- 18 -
undoubtedly be of help in effecting a smooth and speedy transition
from wartime to peacetime production. Without such a cushion, small
business, in particular, may find its competitive position weakened,
or even its survival threatened.
On the other hand, the allowance of excessive reserves as deduo-
tions against wartime profits would be likely to enhance the position
of those firms which profited most from the war, while denying equal
opportunities to those adversely affected by wartime conditions. Even
after paying high wartime taxes, current business profits are at
record levels. The further subsidization of war businesses by allow-
ing them a larger share of their war profits may therefore be unjusti-
fied.
July 19, 1943
Treasury Department
Division of Tax Research
ECB:JKB
Regraded Unclassified
196
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE July 19, 1943
TO
Secretary Morgenthau
FROM
Mr. 900
Subject: The Situation,
Week ending July 17, 1943.
Summary
Price control: Further efforts to reduce living costs are
indicated in Price Administrator Brown's recent statement
that 8 fundamental aim of the OPA 18 to resstablish the
general relationship of prices and wages which prevailed
on September 15, 1942. Despite C: decline in food costa
in June, the BLS index of living costs for the month will
stand at least 5 percent above last September's levels.
Commodity prices: Although prices of whest, steers and
cotton declined further last week, the RLS index of basic
commodity orices showed only & slight decrease. After
declining 1 percent in the previous 3 weeks, the BLS
all-commodity index in the week ended July 10 VAS un-
changed at 103.0 percent of the 1926 average.
Stock prices: Industrial, railroad and utility stock price
averages all rose to new highs for the year last week,
although the net advance was relatively moderate despite
increased trading activity. Insustrial stock prices in
London, after an extended period of narrow price changes,
advenced last week to the highest level since September
1937.
Department store stocks: At the end of May, department store
stocks were 30 percent below last year's level, with ell
unjor items showing declines except furs and women's
dresses. The WPB has launched E) six-point program designed
to forestall the necessity of clothes retioning. In addition
to other features, retailers will be expected to discontinue
"scere" skles talks and undue advertising and promotional
activity.
Oil supplies: East Coast stocks of petroleum products available
for civilians have continued to rise, end in the week ended
record low of 25.5 percent in the first vee% of May. Sharp
July 10 reached 34.0 percent of normal, 88 compared to D.
differences of ovinion continue to exist between the OPA and
the PAW with respect to gasoline rationing and the need for
higher crude oil prices.
-
-
Regraded Unclassified
197
- 2 -
Purther outs in living costs sought by Price Administrator
In reply to charges of confusion and lack of policy in the
OPA, Price Administrator Brown indicated last week that the
basic aim of the OPA 18 to reestablish the general relation-
ship of prices and wages which prevailed on September 15, 1942.
This will obviously be a difficult task. Despite some re-
duction in June resulting from lower food costs, the BLS
index of living costs for the month will still show an
increase of at least 5 percent over last September. The
Price Administrator states that this increase must be
erased to avoid unfairness to labor; consequently he will
press the subsidy rollback program on meats and butter,
along with other measures, in order to out back living costs.
In this connection, President Murray of the CIO stated
loot week that his organization will withhold for the present
a threatened campaign against the "Little Steel" formula
and the hold-the-line order. Last month the CIO leader
issued a virtual ultimatum to the effect that unless an
effective rollback of prices were carried out by mid-July
hie union would demand that the "Little Steel" formula be
scrapped.
Commodity prices stendy
Commodity price averages show little net change in the
latest weeks reported. The BLS index of basic commodity
prices sagged fractionally last week, with further declines
in wheat, steers, and cotton, which were largely offset by
RA upturn in hog prices and a continued advance in the price
of rosin. (See Chart 1.)
Wheat prices declined last week under increased hedge
selling, more favorable crop reports, and on the Price
A ministrator's statement that no increase in the corn
ceiling was contemplated. A group of wheat state senators,
however, led by Senator Reed of Kansas, last week called for
en increase in the present "clearly illegal" flour ceiling
and an advance of about 20 cents in wheat prices to the
parity level. Apparently influenced by this pressure, the
Price Administrator said at 8. press conference on Thursday
that forces beyond his control might bring about a price
increase on wheat, but that Commodity Credit funds would be
used, if necessary, to stabilize bread prices within hold-
the-line limits.
Regraded Unclassified
198
- 3 -
The BLS all-commodity index in the week ended July 10
held unchanged at 103.0 percent of the 1926 average, after
the substantial decline of 1 percent in the previous three
veeko. (Bee Chart 2.) The earlier downturn had been due
Almost entirely to the rollbacks in meat and butter prices,
together with weakness in live hog prices and a seasonal
rice decline for fruits and vegetables.
Corn-hog price problem somewhat less urgent
A decline of fully 2 cents E pound in hog prices over
time onst 3 months has reduced the profit in feeding corn to
4056, and should thereby help, at least temporarily, to make
more corn available for other uses. The waning of agitation
for E hicher cash price for corn may also bring some increase
in sales by farmers. Price Administrator Brown said last week
that the corn price ceiling would be kept at the present level,
and that corn is moving to market "now that price uncertainties
have been eliminated." Food Administrator Jones also mentioned
an accelerated movement of corn from farms. However, the
etatistics on corn receipts at leading mid-western markets
show no recent increase.
As an aid in correcting the corn-hog price disparity,
preco reports last week indicated that the OPA and WFA may
announce soon that they do not intend to support hog prices
at 13.75 after September 30, 1944, when the present commitment
expires. An announcement of this intention nov would tend to
discourage a further expansion in the hog crop, and perhaps to
discourage the feeding of hoge to heavy weights. Some such
change in feeding habits, and probably even more drastic changes,
will be necessary to prevent a more serious corn shortage
next year.
Heavy hog marketings congest packing plants
The continued heavy marketings of hogs, which have been
chiefly responsible for the declining trend of hog prices over
the past three months, reached proportions early this month
that taxed the capacity of packing plants. The situation
over the Fourth of July holiday, according to the latest
Department of Agriculture report, "proved too much for many
plants throughout the country, when capacity became congested,
and prices declined badly. Not in years has such a condition
existed, evidencing the toll of war in man-power from the
macking industry, labor apparently being the main bottleneck. If
The extent of the decline in hog prices over the best 3
months is indicated in Chart 3, which shows also the effect
Regraded Unclassified
199
- 4. -
of recent rollback on wholesale prices of hog products.
The packers' gross margin on pork products for civilian use,
P.E. shown by the lower line on the chart, has again reached
" relatively profitable level after allowance for the subsidy
payment.
Increased food goals for 1944 announced
The Department of Agriculture announced last week its
voneral food production goals for 1944, apparently those
for ely formulated under the previous Food Administrator.
A record croo area of 380,000,000 acres is called for, as
compared with 364,000,000 acres this year. The principal
increase will be in the acreage of wheat--an increase
probably easiest to attain--for which the goal is set at
20 percent above that of the current year.
Specific goals for other crops and for livestock will
be announced later, when the feed supply and crop production
figures for the current year are more accurately known.
Further sharp acreage increases for such important war
croos as beanuts, soy beans, flaxseed, and potatoes are
expected. Press reports indicate that the Food Administrator
intends to present the detailed plans to Congress before
outting the program into effect.
Stock prices advance to new highs
The Dov-Jones average of railroad stock prices finally
rose above the previous 1943 high on Tuesday of last week,
following previous new highe for the industrial and utility
groups. Some observers interpreted this move as a signal
for a further general rise in stock prices, but despite
fairly active trading, prices on the whole were unable to
make any further real headway during the week. At the
close on Saturday industrials were only fractionally higher
than a week earlier, while railroad and utility stocks showed
gains of 2 percent and 1 percent, respectively. (See Chart 4.)
Since last January, industrial stock prices in the
London market have levelled out, while industrials on the
New York exchange have continued to advance. As a result,
1941 has now been substantially reduced. (See Chart 5.)
the disparity which began to develop in the closing months of
However, aided by the favorable course of war developments,
the London market recently has shown some signe of resuming
its earlier rise. Thus 0.8 a result of steady gains last
Regraded Unclassified
200
- 5 -
rock, industrial stock prices in London on Friday touched
the highest level since September 1937. (The persistent
rise in our market since early May last year, when the war
news took & more favorable turn in the battle of the Coral
des, 1111 be particularly noted on the chart.)
Department store stocks much below 1942 levels
Although seasonally-adjusted department store sales in
recent months have fallen below the boom levels of the early
of the year, they have continued to make E strong showing,
11th to FRB index of sales in June rising to 129 from 125
in May. (See Chart 6.) The continuing strong pace of sales
140 operented any significant recovery in the FRB index of
department store stocks, which on an adjusted basis declined
almost without interruption from the peak of 140 last July
to 07 in April. A slight recovery carried the adjusted index
of stocks up to 89 in May, with figures for June not yet
available. (Refer to Chart 6.)
At the end of May, department store stocks were 30 per-
cent below the corresponding date in 1942. The widest decline
occurred in stocks of major household a pliances, which were
form 73 percent from last year's level. Of all items
severately classified, only women's dresses and furs showed
pins over stocks on hand at the end of May 1942.
WPB launches program to forestall clothes rationing
Asserting that there 18 a supply of textiles end textile
products adequate to meet all military and essential civilian
needs, WPB Chairman Nelson last week announced E. six-point
program intended to make clothing rationing unnecessary. A
feature of the program will be an attempt to accelerate output
of mass produced low-priced clothing, in contrast with recent
trenda toward emphasis on expensive fabrics. Production of
casential textiles 18 expected to be maintained at present
record levels, and wherever possible it will be stepped up.
In addition to other measures, burlap imports are to be
increased DB a result of the reopening of the Mediterraneen,
and this 18 expected to release cotton now going into the
manufacture of bage for farm crops. In order to achieve
adecuate and orderly distribution of available goods, a
orogram 16 also under way in the retail field whereby stores
Hill agree to discontinue "scare" sales talks as well as ac-
vertising and promotional activity designed to incite un-
varrented consumer buying.
Regraded Unclassified
201
- 6 -
East Coast oil supplies improved
After falling to a record low of 25.5 percent of
normal in the first week in May, East Coast stocks of
vetroleum products available for civilians have shown a
stendy rise in recent weeks and reached 34.0 percent of
normal in the week ended July 10. (See Chart 7.) In
view of the recent improvement in supplies, Price Administrator
Brown expressed the opinion last week that gasoline supplies
of Eastern motorists have been cut too sharply. However,
this point of view was promptly challenged by the Petroleum
Administrator, who stated emphatically that East Coast
civilian consumption of gasoline cannot be increased except
nt the expense of military operations. To further emphasize
the divergence of viewpoints on the East Coast gasoline
situation, Transportation Coordinator Eastman has just
stated that the present reduced gasoline allotment for
civilians impairs essential transportation, and that he is
in favor of doubling the present A coupon allotment.
In a new effort to get at the root of the problem, the
Director of War Nobilization last week opened what vas
described 2.8 & thorough investigation of the domestic
gasoline and fuel-oil situations. In addition to conflicts
over rationing, the controversy over crude oil prices 18
still hanging fire. Two Congressional committees recently
added their recommendations to that of the Petroleum
Administrator that crude oil prices be raised as a
stimulus to production. However, OPA has refused to
recede from its position that EL general crude oil price
advance is unwarranted, and would constitute a violation
of the hold-the-line policy.
Regraded Unclassified
MOVEMENT OF BASIC COMMODITY PRICES
1942
1943
1944
PERCENT
PERCENT
AUGUST 1939-100
220
220
210
210
200
200
9 Uncontrolled Commodities
190
190
180
180
28 Commodities
170
170
19 Controlled Commodities
160
160
OCT
DEC
FEB
APR.
JUNE
AUG
OCT
DEC.
FEB
1942
1943
1944
PERCENTAGE CHANGE DEC 6, 1941 TO JULY 9, AND JULY 16, 1943
PERCENT
PERCENT
19 Controlled
9 Uncontrolled
Flaxseed 6462
Commodities
Commodities
+60
+60
+50
+50
Barley 46/2
Carn 44,6%
+40
.40
Mage 3752
-30
Lord 288%
+30
Resin 28.2%
Wheat 2222
Shallac 12.3%
Steem 21.4%
Lood IIIX
Print Cloth 782
Cotton 2002
.20
.20
Sugar 69%
Butter 188%
202
Wool Tope 62 :
Cottonseed ON 59%
line 3 I
+10
0% Change
.10
Mides. S.A.
Tin, Rubber,
Coffee, Copper,
St Screptom,
o
o
It Screp.exp
Cocoo -8%
Vallow 4/2
Burlop 4,3 2
10
10
Dec 6
July 9
July 16
Dec. 6
July 9
July 16
1941
1943
1943
1941
1943
1943
"20 Controlled 8 Uncontrolled previous to June 26, 1942
Office of N Secretary of the Treasery
Services el Reserved - term
P-244-A
Regraded Chart 1 Unclass
COMMODITY PRICES
1926 . 100
PERCENT
PERCENT
Weekly
110
110
108
108
106
106
104
104
889 Commodities, B.L.S.
102
102
100
100
98
98
28 Basic Commodities, B.L.S.
96
96
94
94
Chart 2
92
APR.
JUNE
AUG.
OCT.
DEC.
FEB.
APR.
JUNE
AUG.
OCT.
92
DEC.
FEB.
1942
1943
1944
of the Sunday of the Incory
- of - - -
P-198-F
203
Regraded Unclassified
HOG PRICES, VALUE OF PORK PRODUCTS, AND GROSS MARGINS
Weekly, January 1942 to date
1942
1943
APR.
JUNE
AUG.
OCT.
DEC.
FEB.
APR.
JUNE
FLB.
DOLLARS
DOLLARS
PER
PCA
100 LBS.
100 LBS.
16
16
COMPOSITE WHOLESALE
VALUE OF HOG PRODUCTS*
15
15
⑇
14
14
..
WHOLESALE PRICE or LIVE Hous
13
13
12
12
11
11
10
10
GROSS
GROSS
MARGIN
MARGIN
(CENTS)
(CENTS)
MARGIN
100
AFTER SUBSIDY
100
0
o
APPARENT
MARGIN
100-
-100
JUNE
AUG.
OCT.
DEC.
FEB.
i
JUNE
FEB.
APR.
Chart 3
1942
1543
. WHOLESALE VALUE or ALL COIBLE PRODUCTS IN 100 LS. OF LIVE HOGS.
.. GOOD CHOICE, 180-200 LBS.
SOURCE: U.S.D.A
Office of the Secretary of the Treasury
204
Division of Research and Statement
P. 246 - A
Regraded Unclassified
205
STOCK PRICES, DOW-JONES AVERAGES
1 I
Daily
1941
1962
i
(
-
MAY
1943
MPT.
-
(
-
MPI,
-
-
1943
-
and
-
-
14
-
JULY
AUBIET
REFTERBER
MALARE
21
HILLARS
16
39
13
N
If
is
is
is
"
M.M.
&
- Industrial Blocks
180
Chart 4
155
139
-
150
30 Industrial Stecks
130
_________________________
150
-
140
-
1.30
145
140
5
130
HD
140
19
110
IM
1.35
-
-
.
so
use
130
.
-
us
us
.
se
120
120
45
45
- Refirents
-
38
40
-
30
~~~~~~~~~~~~~~~~~~~~~~~~~
.
M
#
#
x
20
a
24
a
a
as
M
20
20
su
-
IN
18
28
a
.
so
15 Utilities
24
1
a
a
If Vilities
a
.
a
X
20
R
a
19
-
18
III
16
-
BARRES
-
Volume of Trading
-
RILLISM
I
! I I
Name of truitag
I
- MILT)
a
,
a
I
I
1
E
.
a
a
a
1
-
i
MPT.
I
7
14
a
.
25
/
DI
13
20
27
.
II
.
25
.
=
1941
BEFT.
22
29
.
12
19
a
1943
APRIL
-
-
ANY
-
SEPTEMBER
....
-
I
el
I
-
-
I
les
Regraded Unclassified
INDUSTRIAL STOCK FRICES IN U.S. AND U.K.
AUGUST 1936 . 100
1941
1942
1943
PERCENT
PERCENT
Weekly (Average of Daily)
115
115
110
110
105
105
100
100
95
95
90
90
U.K. 56 Industrial-
85
Stocks
85
80
80
75
75
U.S. 30 Industrial
70
Stocks (Dow-Jones)
70
65
65
60
60
55
55
Chart 5
50
OCT.
DEC.
FEB.
APR.
JUNE
AUG.
OCT.
DEC.
FEB.
APR.
JUNE
AUG.
50
OCT.
DEC.
1941
1942
1943
208
Office of the Secretary of - Insury
- - - - -
Regraded Unclassified
DEPARTMENT STORE SALES AND STOCKS
Dollar Values, 1923-25 - 100, Adjusted
PERCENT
PERCENT
160
160
150
150
140
140
130
130
120
120
110
110
100
100
Sales
90
90
80
80
Stocks
70
70
60
60
50
1936
1937
1938
1939
1940
1941
1942
1943
50
Source: Federal Reserve Board
- - the Security - - Income
Chart 6 20
- - -
C-430
Regraded Unclassified
PETROLEUM PRODUCTS SUPPLY
Civilian Supply on East Coast as Percentage of "Normal"." * July 1942 to Date
1942
1943
PERCENT
PERCENT
60
60
55
55
50
50
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
Chart
o
o
OCT.
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
1942
1943
"Normol" Supply for corresponding month in year beginning July 1940.
7 20
Office of the Secretary of the Treasury
Division of - Statistics
C-474 Regraded Unclassified
Farm
TREASURY DEPARTMENT
209
INTER OFFICE COMMUNICATION
AM
DATE
JUL 19 1943
TO Secretary Morgenthau
FROM Captain Kades
1. You have asked how much beef, pork, and lamb is
eaten at hotels and restaurants. It has been roughly esti-
mated at OPA that about 13% of the existing total civilian
supply of meat is consumed at restaurants and by institu-
tional and industrial users. In other words, about 171,000,000
pounds of meat (carcass basis) out of a total of 1,273,000,000
pounds (carcass basis), is eaten at meals served at hotels,
restaurants, cafeterias, hospitals, and other institutions.
2. You have also asked about the possibilities of put-
ting restaurants on a point ration system so far as beef,
pork, and lamb are concerned. There seem to be four main
reasons why this has not been done, as follows:
a. There is a definite recreational value
inherent in eating out during wartime. If meat
were rationed in restaurants, it would be less
desirable to eat out and this form of recreation
would be discouraged.
b. Many administrative difficulties are
involved, such as weighing portions of meat
served and requiring fractional points.
0. The meat situation is not sufficiently
critical to warrant point rationing in restaurants.
a. Communal feeding, such as takes place in
hotels, restaurants, and cafeterias, is the least
wasteful method of utilizing food supplies because
the waste per person served is less than at meals
served at home.
3. OPA regulations restrict the amount of meat
and other rationed foods which may be obtained by any
Regraded Unclassified
210
- 2 -
institutional user. A base has been established for each
institutional user for rationed foods based upon the amount
of such food used and the total number of persons served
during December 1942.
In addition, no wholesaler, hotel supply house, or other
similar selling institution is allowed to sell fabricated meat
cuts exceeding in volume 70% of the total volume by weight of
all kinds of meat sold from September 15, 1942 through Decem-
ber 15, 1942. Hotel supply houses which customarily select,
age, bone, and fabricate primal cuts into roasts, steaks, and
stews, may, however, charge 20% more than the zone price for
these services.
In the case of lamb and mutton, fabricated cuts are not
available to retailers.
4. Any solution of the problem of eliminating the dis-
crimination between those who eat at hotels and those who eat
at home tends to become very complicated as an administrative
matter and might well encourage black market operations on
the part of expensive hotels and restaurants which would seek
to keep their well-to-do clientele satisfied.
It is difficult to suggest a substitute for OPA's policy
of allowing restaurants to serve rationed food without requir-
ing coupons. The principal objection to this policy is that
it tends to favor higher income groups. This criticism would
lose considerable force if industrial canteens and communal
feeding centers were subsidized, as in England, because this
would bring eating out within the means of practically every
income group.
As a possible alternative, it is suggested that the
amount of choice cuts of meat available in hotels and restau-
rants could be reduced by imposing price ceilings on the
meals served. This would probably result in limiting the
number of courses, the size of the portion, and the quality
of the meat.
look
Regraded Unclassified
211
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE 7/14/43
TO
Captain Kades.
FROM The Secretary.
All of these people who live at hotels or eat at lunch
rooms are getting away with murder and I don't see why they
shouldn't have to give up points, more particularly for meat.
I remember during World War I when I was in Paris if you wanted
bread when you went to a restaurant or hotel you had to give up
noints before you could get bread and it would be interesting
if you could find out from O.P.A. how much beef, pork and lamb
is eaten, in other words are consumed at hotels and restaurants
end the posibilities of putting those on points if it would
help the shortage situation greatly. It seems to me that they
have left a great big wide gap in the dem which ought to be
stopped up. I'd appreciate it if you would look into this
promptly and let me know.
Regraded Unclassified
you plane
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
JUL 19 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
The Attorney General has written the President
criticizing the action taken by the Secretaries of
War, Navy and Treasury and the Chairman of the Maritime
Commission in defining the so-called "raw materials"
provision in the renegotiation statute.
The President sent the Attorney General's letter
and memorandum to Under Secretary of War Patterson
with instructions to "clear" it with the other interested
agencies. Judge Patterson is to talk with the President
about the matter Wednesday morning.
Mr. Marbury, Chief Counsel of the Purchase Division
of the War Department, and Mr. McIntosh, Counsel for the
War Department Price Adjustment Board, were in to see
me this afternoon about the matter and I told them I
would try to have some word for them as to your position
before Judge Patterson talks with the President.
It seems to me very important that the agencies
responsible for the interpretation with which the
Attorney General has taken issue present 8. united front
in this matter. The interpretation in question was made
last January, after several weeks of discussion, during
which time the interpretation suggested by the Attorney
General was given careful consideration and discarded.
Have I your permission to tell the Under Secretary
of War that the Treasury Department is in its corner on
this matter?
Art
Regraded Unclassified
213
SECRE
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
July 19, 1943
EMORANDUM TO THE SECRETARY:
Supplementing report to you of July 12, 1943,
the purchases against the African Program from
July 12, 1943, to July 18, 1943, totaled $1,886,964.20
or 8. total of purchases for the program thus far of
$43,850,007.94.
Please note the commodities on the attached report
giving status of shipping against these purchases have
been consolidated under certain headings, due to the
diversified and numerous items now being reported.
Future reports will be submitted in this manner
as the list of items will increase from week to week.
June Crifton E. Mack
Director of Procurement
POBVICTORY
BUY
UNITED
STATES
persons
BONDS
ARS
STAMPS
(37861)
Regraded Unclassified
214
IPPING REFORT AS OF JULY 17, 1943
SECRE
Tonnage
Tonnage
Tonnage
Tonnage
Shipped to Date
Under Load
On land at Yort
n Route
Commodity
From U. S. A.
At Port
Waiting Vessels
To Port
Agricultural achinery &
1234
305.63
473.33
Implements
Automotive Eq ipment it Parts
558.74
45
155.92
93.51
Batteries
82.76
42.99
7
Bearings
1.5
1.57
1.26
Brass or Bronze
288.4
64.5
75.6
Brushes & Brooms
.75
Building Hardware & Material
174.71
4.5
23.54
57.5
Chemicals
13,641.21
1668.72
2417.27
4757
Clothing, notions & Textiles
14,831.19
223.62
1754.9
4282.45
Copper in Various Forms
208.04
106.6
56.07
Electrical Equipment & Supplies
48.82
7
15.2
16.8
Explosives
1.4
Ferro-Alloys
44
Food & Food Products
6032.25
Furniture & Office Equipment
.5
Glass
99.6
28
38
195.3
Graphite Products
18.41
10.78
5.5
Hand & Cutting Tools
586.32
18.5
421.7
564.8
Industrial achinery
25.16
4.5
18.12
Iron
65
490
121
Jute Bags
751.19
33.55
555
Lead & Lead Alloys
53.85
Medical Supplies
41.12
28
Non-Ferrous etals, Other
64
322
24
Paper Faper Products
2861
190.6
581.49
128.67
Rope & Twine
241.65
28.95
26
Subber
599.57
76.87
256.21
372.66
Shoes soots
226.75
24
173.18
105.5
Stoel, Carbon
144.34
211.5
3421.43
1250.79
classified
215
-2-
SECRE
Tonnage
Tonnage
Tonnage
Tonnage
Shipped to Date
Under Load
On Hand at Port
En Route
Commodity
From U. S. A.
At Port
Waiting Vessels
To Port
Steel, Pipe & Tubing
200
16
27.91
Tin Plate
845
Zinc
27.5
Totals
48,973.18
3,393.76
10,470.69
12,638.26
Regraded Un classified
216
BRITISH air COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D. C.
TELEPHONE HOBART 9000
ASE QUOTE
ERENCE NO
With the compliments of British Air Commission
who enclose Statement No. 94 - Aircraft Despatched
- for week ended July 13, 1943.
=
The Honourable Henry Mergenthau, Jr.
Secretary of the Treasury
WASHINGTON, D. C.
July 19, 1943.
Regraded Unclassified
217
OST SECRET
STATEMENT NO.94
Aircraft Despatched from the United States
Week Ended July 13, 1943
ASSEMBLY
BY
BY
FLIGHT DELIVERED
TYPE
DESTINATION
POINT
SEA
AIR
FOR USE IN CANAT
DA
CONSOLIDATED
Liberator GR V
U.K.
U.K.
1
CURTISS
Kittyhawk
Australia
Melbourne
30
Kittyhawk
Australia
Sydney
8
{ittyhawk
M.E.
Port Sudan
61
DOUGLAS
Dakota III
N.E.
M.E.
3
FAIRCHILD
Cornell PT 26
India
Bombay
1
GRUMMAN
Hellcat
U.K.
U.K.
2
LICKHEED
Lodestar
New Zealand
Auckland
1
GENN MARTIN
altimore V
M.E.
M.E.
3
WRTH AMERICAN
Mitchell II
U.K.
U.K.
1
Hargard
N.E.
Port Sudan
6
Harvard
U.K.
U.K.
4
Mustang
U.K.
U.K.
1
VEGA
Ventura GR V
Canada
Canada
6
VULTEE
Vengeance
India
Karachi
6
British Air Commission
Total : 120
8
6
Movements Division
July 17, 1943.
Regraded Unclassified
218
TREASURY DEPARTMENT
M
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
JUL 19 1943
FROM
Randolph Paul
Reference is made to the previous memorandum
sent to you on July 1, 1943, with respect to the
proposal of the World Jewish Congress dealing with
the evacuation of several thousand Jews from Rumania.
This matter has been thoroughly discussed here
in the Treasury and we have advised State informally
that Treasury is prepared to approve the necessary
transactions on the basis of the facts now before us.
We shall keep you advised of developments.
Her
Regraded Unclassified
COPY
219
PARAPHRASE OF TELEGRAM RECEIVED
FROM: AMERICAN EMBASSY, CHUNGKING
TO:
SECRETARY OF STATE, WASHINGTON
DATED: JULY 19, 1943
NUMBER: 1199
CONFIDENTIAL
Given below is the summary by the Commercial Attache of the newly instituted
monthly economic review for Free China.
Throughout Free China crop prospects were greatly improved by the widespread
rains in June, thus relieving fears of a shortage of food and causing prices of rice
and wheat to decline from the extreme peaks reached in early June. Although an
increased production of cotton has been expected in 1943 as results of efforts by
the Government, the prices of cloth continued to rise with an advance in the
Chungking black market prices of 17% in June, Prices of food in Chungking were
generally moderate and there was a 20% advance in coal prices. It was reported
that price advances were greater in other centers notably Honan and Shensi where
large numbers of troops were stationed. Although figures for June were lacking it
ie estimated that monthly (*) while increase continued around 10% in the general
price index and 7 to 8% in note circulation.
On June 1 the Chinese Government offered a new victory bond issue of three
billion Chinese dollars at 6% interest. It will probably remain largely in
Government bank portfolies like previous issues and have no significant effect on
inflation. A temporary suspension of restrictions against domestic trading in gold
and organization by Central Trust of an investment trust were among other moves
undertaken in June to stem inflation but neither of these ie expected to be very
effective. Currency inflation continued in the mean time to increase at a rate
of over three billion Chinese dollars monthly.
New industrial enterprises started in June included a cigarette factory and a
ten thousand spindle cotton mill, both at Yunnan. In Yunnan several small alcohol
distilleries were closed and it was reported that the remaining distilleries in
Yunnan were operating at a small fraction of capacity because of shortages of raw
material. On June 3 a complete reorganization of Chinese industrial cooperatives
was begun.
It was announced that on July 1, two leading government owned bue companies,
Southwest Transport Company and China Transport Company, would merge in the interest
of economy and efficiency. There has been a. suspension of commercial air service
to Kweilin. The 1943 export quota for tea was fixed to 200,000 chests but the
quantity shipped will depend on shipping priority and markets. On June 1 chartered
bank opened Chungking branch making the second British bank branch in Chungking.
From June 1 to June 9, the production conference which the Government called
means of increasing production. During the conference many resolutions were passed
met at Chungking with a. prependerance of the private industrial delegates to diemuss
but it is doubtful if they will carry much weight with the Government. Preparatory
to drawing up comprehensive post-war reconstruction plans for the northwest provinces,
a commission of twenty experts in various fields was sent by the Central Planning
Board to make a thorough study of those provinces.
ATCHESON
(*) Apparent ommission
Regraded Unclassified
220
JUL 19 1943
Tos Mr. Livesey
From: Mr. White
Will you please send the following telegram to the American
Eabasay, Chungking, Chinas
SECRET
TO ADLER FROM THE SECRETARY OF THE TREASURE:
1. A number of reports have been received to the effect
that Japanese have gone in for large scale counterfeiting of
Chinese currency.
2. If the reports are true, have there been, as yet, any
observable consequences and what neasures lave been taken by the
Chinese Government to cope with the problem?
3. The Treasury would appreciate receiving my information
and views you my have regarding this matter.
ISF/efe 7/17/43
Regraded Unclassified
221
SECRETARY OFFICE OF TREASURY
93 JUL 20 AM 11 37
NOT TO BE RE-TRANSIVITED
CASURY DEPARTMENT COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL NO. 236.
Information received up to 7 a.m., 19th July, 1943.
1. NAVAL
Considerable damage and casualties were caused when a ship
loading mines and other captured German war material blew up in ALGIERS
Harbour on the 16th. Two Norwegian ships of 7,000 and 2,000 tons respectively
became total losses as result of explosion.
2. AIR OPERATIONS.
WESTERN FRONT. 18th. Escorted Typhoons bombed ABBEVILLE
Airfield and Railway Centre and escorted Beaufighters attacked a convoy off
DEN HELDER, damaging 1 ship. Enemy casualties - 8, 0, 3. Ours - 9 missing.
18th/19th. Aircraft despatched: Sea-mining - 16,
Intruders - 12. All returned safely.
SICILY AND SOUTHERN ITALY. On 16th/17th and 17th, 6. total
of 693 tons were dropped on NAPLES. Night attack by "ellingtons. Day
attack by Fortresses, Liberators and Medium Bombers with escort of 174
Lightnings. Hit registered on Railway Centre Royal Arsenal and Oil Storage
Area.
16th/17th. Our fighter S damaged 2 schooners in the GULF
OF TARANTO and light and medium bombers dropped 55 tons on CAPODICHINO
Airfield and 32 tons on CATANIA.
17th. Mitchells dropped 34 tons on PATERNO. During these
operations enemy casualties - 39, 10, 13. Allied - 9 Bombors missing.
Regraded Unclassified
July 20, 1943
222
9:50 a.m.
HMJr:
Hello.
James
Byrnes:
Henry?
HMJr:
In person.
B:
How are you?
HMJr:
Fine.
B:
Yesterday I had the representatives - the heads of
these agencies buying stuff abroad - BEW and Rocke-
feller and Ed Stettinius here with State Department
HMJr:
Yeah.
B:
and State Department had 8 suggestion as to the
relations existing between those agencies and the
State Department which when I considered them, I saw
would also affect some of the departments like Army
and Navy and Treasury
HMJr:
Right.
B:
and I'm going to send - I asked them to put in
writing
HMJr:
Yeah.
B:
that
what they had in mind after the discussion
yesterday. I'm going to send you a copy of it and
then I thought next Monday when we meet, I would like
to ask you, or if you don't want to come to send
somebody to represent your views.
HMJr:
Good.
B:
In sending it I was going to ask though that you ask
your fellows if they wouldn't send me in letter form,
as promptly as they could, before the meeting because
I want to get these fellows working and they 11 probably
get together on it among themselves this week
HMJr:
Good.
B:
and I wanted the departments like Army, Navy and
Treasury to see if they had any objections
HMJr:
When will I receive it, Jimmie?
Regraded Unclassified
223
- 2 -
in
They were to send it to me today and
HMJr:
Yeah.
B:
I'll promptly send it over to you.
HMJr:
Well, we'll give you twenty-four hour service.
B:
All right. I telephoned you yesterday and they
said you were out of town.
HMJr:
Well, I've been . - I'm up there with Mrs. Morgenthau
B:
Tell me, how is she?
HMJr:
She's still at the hospital. I try to spend Mondays
there.
B:
Right you are.
HMJr:
Well, we hope
B:
Is she improving?
HMJr:
Yes, we hope she will go up home Saturday.
B:
Good.
HMJr:
And I'll most likely stay up there over Monday again
with her.
B:
Well, after a long stay
HMJr:
It's almost.
B:
she'll be delighted to get back home.
HMJr:
It's almost nine weeks now.
B:
Good gracious.
HMJr:
It's been terrible for her.
B:
Yeah. I everybody has - it's been terrible on you
and everybody else, too.
HMJr:
Well, I - it's worse on her.
B:
Oh, the person in the hospital has my sympathy always.
Henry.
Regraded Unclassified
224
- 3 -
HMJr:
Yes.
B:
I sent you - I got Mr. Russell to take over to Fitz-
Gerald
HMJr:
Yes.
B:
that - those papers.
HMJr:
Oh, yeah.
B:
I determined that - after I had read them through -
that
HMJr:
Yeah.
B:
I'd better not do - better not talk to those
fellows about it.
HMJr:
I see.
B:
It's one of those things you - you never know how they
HMJr:
Yeah.
3:
they get mad about an appointment tomorrow
HMJr:
Yeah.
B:
and with the Boss
HMJr:
Yeah.
B:
and then they - you don't know how they act and
you better not - I think we better let them alone.
HMJr:
Did you get a - did you get a - I sent you a copy of
what I sent to the President on this - uh - from the
Labor Council.
B:
I didn't get....
HMJr:
Last week
B:
Well, I'll inquire.
HMJr:
What's his name - the man who's counsel for the - oh,
he comes from Wisconsin. He was the dean out there.
B:
With who?
Regraded Unclassified
225
- 4 -
HMJr:
The dean of Wisconsin Law School.
B:
Oh, Lloyd Garrison?
HMJr:
Yeah. I sent you a memorandum from him.
B:
On this?
HMJr:
Yep.
B:
I didn't - I'll get my secretary here. It must be
HMJr:
Yeah. I sent copies to the President and then
B:
Fine.
HMJr:
I wrote the President and I sent you copies of
what I sent him and I marked it"Extra Confidential. If
B:
Fine.
HMJr:
And
B:
I bet it's in my lock drawer.
HMJr:
And there was a hypothetical question we put up to
Lloyd Garrison and he answered
B:
Yes.
HMJr:
and when you see what he said, I think you'll be
interested.
B:
I will. Thanks, Henry.
HMJr:
Right.
B:
I'll look for it. Good bye.
HMJr:
Good bye.
Regraded Unclassified
226
July 20, 1943
10:20 a.m.
THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Gamble
Mr. Smith
Mr. Haas
Mr. Coyne
Mr. Burgess
Mr. Myers
Mr. Moore
Mr. Trounstine
Mr. Pulliam
Mr. Head
Mr. McClintic
Mr. Isbey
Mr. Roberts
Mr. Collins
Mr. James
Mr. Mayer
Mr. Ball
Mr. Corbin
Mr. Kelley
Mr. Potter
H.M.JR: We asked you gentlemen to come in today to
really work with us. We are trying, between now and
Friday, to fix what we call the basket and, after all, if
we don't give you the right kind of merchandise, the
best salesman in the world can't sell it. We wanted to
be sure that it was right.
Now, we have two objectives here; one is to get the
right kind of money from the right people. By that we
mean the people who have incomes of five thousand dollars
or less, and they will show you that that takes care of
about seven-eighths of the people.
Regraded Unclassified
227
- 2 -
The other thing in getting this money, we want to
get the money from the people who have gotten the
greatest increase in salary since Pearl Harbor. In that
way we can siphon it off into the Government and keep
them from spending it and competing for the scarcity of
goods.
So we have asked you - I am sure you will, anyway -
please to keep that in mind. It was demonstrated that
we can get all the money we wanted in the offering of
two weeks ago when we asked for two and & half billion
and got bids for nineteen and a half. So there is no
trouble getting the money. But that isn't the kind of
money we want.
Now, the other thing is, Mr. Haas and his group have
set up a quota which I would like very much to get. In
fact, I have made public statements to the effect that we
would get eighteen billion dollars. I don't know whether
we can get it or not, but we are going to put all the
cards on the table and what I want you men to do when you
get ready to leave town is to be in this frame of mind:
We can get that, and we will show him how much more we
can get, rather than to give you something 80 that you
leave town saying, "It is just impossible; they are
asking too much. So we would like to feel that when you
leave town you are saying, "Well, that at least is fair,
and we will show him how much more" - when I say "him"
I mean the country - it all gets down to what the people
can do. I am not going to spoil Haas' and his crowd's
story, but they will show it to you. I mean, I am
saturated with it myself, but at the first blush, some
of the figures will stagger you.
And I asked Myers to be here particularly because,
after all - if he doesn't mind my saying so - we have been
making the slowest progress in getting the farmers. I
think that is true, isn't it?
MR. MYERS: Sure.
Regraded Unclassified
228
- 3 -
H.M.JR: And his advice I regard as the best of
anybody in the country as to how to get it. I hope
you will speak up the way he always does. But we have
got to do something about the farmers. Whether it is
letting them buy a five hundred dollar bondand give
them three or four months to pay for it, if that is
the way to do it - I don't know. We certainly don't
want them to go into another orgy of buying land and
then go through all those troubles. Those from Ohio,
Illinois, and Iowa know what I am talking about.
Bill Myers and I took the repercussion on the chin in
Farm Credit on that one, and 30 did the insurance com-
panies and all other savings institutions. So we
have got that.
This is very serious business, but I feel with your
help - and, after all, all we can do is lay down the facts -
whether New York or Ohio, the way it is set up now - and
we want to give you all the autonomy - all the responsi-
bility you will take. That is why we have forty-eight
State chairmen. That is why we set this thing up.
We are not going to sit here and say, "This is it
and you have to do it." We want you to tell us and we
are ready to listen.
We didn't ask you here to sweat in Washington; we
can do that for you. (Laughter) So you tell us what
you think you can do. I know you will be fair. We
want at least the minimum that you can guarantee us.
I won't get mad if Frank Isbey goes out and gets a
hundred thousand people and delivers them the bond and
breaks all the Treasury regulations, as long as he comes
through the way he did last time. I mean, more power
to him.
As I say, don't hesitate - and I am sure you won't -
if we don't get out the material to you in time, you tell
us. That is our job. If you don't think we are printing
enough bonds, or there are enough issuing agents, tell us.
Regraded Unclassified
229
- 4 -
This is your field day and we have asked you to
come down. And Gamble is young and energetic, and he
wants to be told. Isn't that right?
MR. GAMBLE: That is correct.
H.M.JR: So this is a partnership, and as the day
goes on, if there is something that you want to ask me,
particularly, it is just across the hall and I will be
glad to step in there.
One thing, just before you get on to your work,
and that is this; there seems to be a misunderstanding
which we might just as well clean up in the beginning.
I did it in New York but it came up again.
You men, and the men in the other States - and women -
are going to be held responsible for the entire selling
job this time. The Federal Reserve presidents and
their organizations aren't going to sell anything in the
Third War Loan. It is all you people. I mean, if there
is something to sell the insurance companies, you are
going to sell it.
I mean, the Federal Reserve in this Third War Loan,
have no part in this drive other than to cooperate and
give us all the assistance, all the mechanics, and all
the facilities that they have, which they have promised,
and I know they are going to live up to it. I am not
worried a bit about the Federal Reserve, and whatever
little arguments we have, I think they have forgotten.
Certainly the Federal Reserve Board is acting fine.
Mr. Gamble and Mr. Gaston did most of the work.
Wherever they went the bank presidents have been fine.
So we can forget that and lean heavily on them. But
the actual selling in this thing is entirely your job -
not theirs, yours.
So, with those few remarks I think Mr. Bell will
take over.
Regraded Unclassified
230
- 5 -
MR. BELL: Right.
H.M.JR: And if there is something - which I can't
imagine - that you can't understand, you can call on
me any time during the day and I will step across the
hall.
MR. BELL: All right.
Regraded Unclassified
231
July 20, 1943.
10:38 a.m.
HMJr:
Hello.
Operator:
Here 18 Mr. Schenck.
HMJr:
Hello. Hello.
Nick
Schenck:
Hello. Good morning, sir.
HMJr:
How are you?
S:
I'm fine, thank you, sir.
HMJr:
Mr. Schenck.
S:
Yeah.
HMJr:
I'm calling up on behalf of your government
S:
Yep.
HMJr:
in regard to Mr. Doob
S:
Yeah.
HMJr:
who I like very much
S:
Yeah.
HMJr:
and I like his frankness when he said to me that
he thought he could do the Treasury a better job
than anybody else in America.
S:
Yeah.
HMJr:
Now, we've got the biggest selling job here in the
world.
S:
That's right.
HMJr:
And we've got to reach every man, woman and child.
S:
Yeah.
HMJr:
and I want you to lend this fellow to your govern-
ment - to help us now.
S:
For how long?
Regraded Unclassified
- 2 -
232
HMJr:
Well, I'll tell you what we'll do. I'll "hundle"
a little with you. How's that?
S:
(Laughs) Yeah.
HMJr:
You know what that 1s, don't you?
S:
Yes, indeed.
HMJr:
What?
S:
Yes, indeed I do.
HMJr:
Well, we'll start - say, we'll go through the Third
War Loan and then we'll talk about it afterwards.
S:
Uh huh. Well, let me think about that
HMJr:
No, it's just
8:
How fast must you have an answer?
HMJr:
Excuse me.
S:
How fast must you have an answer?
HMJr:
Oh, you don't have to think it over very long.
S:
Oh, yes I do. It's a question - I'll tell you -
it's a very serious thing for us, too. He's a very
valuable man.
HMJr:
Yeah.
S:
We have given up a lot of our people, you know.
HMJr:
Surely.
S:
A lot of our people
HMJr:
Well, you just
S:
I'd be glad to do it. Of course, I'm not
HMJr:
I know.
S:
trying to use that 88 a - you're glad to do it
when you can, but there comes a point where you -
where you ought to stop. There are some very good
men in other companies
Regraded Unclassified
233
- 3 -
HMJr:
Yeah.
8:
and it seems that we are the ones that are
continually giving up.
HMJr:
Well, maybe that's because you make more money than
any other company.
S:
(Laughs) Anyway, you give me a couple of days
HMJr:
I want an answer tonight.
S:
You want an answer tonight.
HMJr:
Sure, yes.
S:
That's awfully hard.
HMJr:
Oh, sure.
S:
Well, how does he himself - you realize that he hasn't
got very much to live on, you know.
HMJr:
Well, he can - if you are willing to give him 8. leave
of absence
8:
Yeah.
HMJr:
and - but - listen, we've got the enemy on the
run and let's keep him that way.
=
S:
Yes, there's no doubt about that.
HMJr:
What?
S:
And glad to do it
HMJr:
You and I have got lots to be thankful for.
S:
Yeah.
HMJr:
Now, this fellow's got a peculiar training
S:
Yeah.
HMJr:
and from your business standpoint you don't have
to advertise. You can't find a seat in your theatres
anyway.
S:
Yeah. Well, that ien't connected. There's a lot of
fine work outside of advertising.
Regraded Unclassified
- 4 -
234
HMJr:
I know. But this fellow, they tell me, is the best
type in the profession and if you don't mind my saying
so, I think I'm paying your company a compliment.
S:
That's true, you are.
HMJr:
And we've got to sell forty million people 8. $100
bond in September.
S:
Yeah.
HMJr:
Now, that's our job.
3:
Yeah.
HMJr:
And it almost sounds impossible but if everybody
pitches in and helps the Government, we can do it.
S:
Yeah. Well, I'll call you back.
HMJr:
You do
S:
I'll call you back, sir.
HMJr:
And make it "yes" now.
3:
Well, I'm going to do the best I know how.
HMJr:
Well
S:
I'm going to call a quick meeting about that
HMJr:
Yeah.
S:
because he'e under a contract and that means that
I have to get my board to consent, you know.
HMJr:
Well
S:
It is not just a one-man job.
HMJr:
I know, but they - they'll listen to you.
S:
I beg your pardon.
HMJr:
They'll listen to you.
S:
I hope 80. I hope 80. I'll - I'll - I'm going to
call you back, sir.
HMJr:
Do that.
S:
Thank you, sir.
Regraded Unclassified
- 5 -
235
HMJr:
Good bye.
S:
Bye bye.
Regraded Unclassified
236
July 20, 1943
11:00 a.m.
GROUP
Present: Mr. Bell
Mr. Paul
Mr. Gaston
Mr. Gamble
Mr. Smith
Mr. White
Mr. Charles Bell
Mr. Haas
Captain Kades
Mrs. Klotz
H.M.JR: I said that I would do Gamble first 80 he
can go back.
MR. GAMBLE: I don't have a great deal to report
other than what I mentioned to you this morning.
I might say that we moved into the Washington Build-
ing. The quarters are very good.
H.M.JR: You have moved?
MR. GAMBLE: We have moved in. Several departments
are completely moved in and are operating. We had two
staff meetings yesterday of all the employees, including
stenographers and clerks. I think we have our people
pretty well stabilized.
H.M.JR: Wonderful.
MR. GAMBLE: I think Mr. Charles Bell is entitled
to some credit for his good job of moving us in.
H.M.JR: If I say anything more nice to him I will
spoil him. (Laughter) He said he was going to beat my
request by two days. Are they all in now?
Regraded Unclassified
237
. 2 -
MR. CHARLES BELL: They are all in but one unit -
the Women's Division upstairs.
H.M.JR: They are going?
MR. CHARLES BELL: Yes, they are going; we have the
space for them.
MR. GAMBLE: We have some air-conditioned units for
the women. We have all of our top people together.
H.M.JR: I am sure Mr. Paul is pleased. (Laughter)
MR. PAUL: I like to see you have good space, but I
think there is a problem on Foreign Funds, and I was think-
ing of that - the possibility of grabbing away from Ickes
that building on Fifteenth Street. The Bituminous Coal
Division had that.
H.M.JR: They mentioned that to me.
MR. PAUL: Has Ickes got that?
MR. CHARLES BELL: We are afraid he is going to take
down the coal sign and put up a petroleum sign. (Laughter)
MR. PAUL: I was wondering if we could beat him to it.
MR. CHARLES BELL: I am working on it with Bill
Reynolds, and if there is a Chinaman's chance, we will get
it.
H.M.JR: Here is a very interesting thing. It is for
you, Ted. (The Sunday New Yorker, dated July 18, 1943,
handed to Mr. Gamble.) This one plant in Poughkeepsie
gets an E flag and every other advertiser in town advertises
the fact that this one plant - those things just don't
happen on their own.
MR. GAMBLE: That is very good.
H.M.JR: Somebody has done an awfully good selling
job up there. I wondered who and how. Here this one plant
gets an E and every merchant in town congratulates him.
Regraded Unclassified
238
- 3 -
MR. SMITH: They have special people who go out from
the Army and Navy and work those things up.
H.M.JR: That is what I wondered.
MR. SMITH: They tell you how much you can spend on
a celebration and everything.
H.M.JR: If they have that, I wonder if we couldn't
get a free ride.
What else, Ted?
MR. GAMBLE: I don't want to change the subject, but
did you see the eight New York newspapers yesterday?
H.M.JR: Yes.
MR. GAMBLE: Did you see the President's letter in all
eight of them?
H.M.JR: Very nice.
What about Chicago - did it happen in Chicago?
MR. GAMBLE: Yes, but not as uniform. This new
advertising program of ours is an outgrowth of Don
Bridge's program. They now have lined up the New York
newspapers 80 we will be able to use them from time to
time for such special advertisements as we want to run.
H.M.JR: Will you want me this afternoon at any time?
MR. GAMBLE: I think not; I think tomorrow morning
at eleven o'clock.
H.M.JR: You will let him (Smith) know about the show?
MR. GAMBLE: Yes, sir.
(Mr. Gamble left the conference.)
H.M.JR: I wanted to tell you people about this; this
is the John L. Lewis thing. The President asked me to
see the Attorney General.
Regraded Unclassified
239
- 4 -
MR. PAUL: I have another thing with the Attorney
General.
H.M.JR: So he said would I please personally see the
Attorney General. I immediately got in touch with his
office, and they said they thought he would be out of
town. I gave him practically all afternoon in which he
could come over to see me. You heard Fitz - he said he
was terribly busy.
MR. PAUL: I have another item that the Attorney
General--
H.M.JR: Excuse me, do you think I should go any
further? I sent the President this thing of Lloyd
Garrison's - your hypothetical questions of Lloyd Garrison
and the answers.
The President said, "I wish you would talk this over
with Francis Biddle in person.
I gave him all afternoon to come over and see me. If
he isn't going to come, I don't think I will do anything
else unless you people advise me to do something else.
MR. PAUL: You have made your motion. I wouldn't
advise you to I wouldn't advise you to do anything. It
is his move.
MR. GASTON: Did this statement that he is terribly
busy apply to your effort to speak to him on the telephone?
H.M.JR: No. I gave him an hour and a half Saturday
afternoon - whether he could come over at any time between
three and four-thirty this afternoon. The answer was that
he was most likely going to go out to Colorado and they
wouldn't know.
So I told Fitz this morning to find out whether the
Attorney General was in town and whether he was coming
over. The answer is, they thought I was going to phone
him or something.
Regraded Unclassified
240
- 5 -
MR. PAUL: I think it is his move.
MR. D.W.BELL: When is he going to Colorado, today?
H.M.JR: He didn't go. So that our record is clear,
I am going to check with Miss Chauncey.
MR. PAUL: If you are going to see the Attorney
General I want to catch up on this other thing.
H.M.JR: All right, let's catch up. That is the pur-
pose of staff.
MR. PAUL: The Attorney General has written a memorandum
to the President without consulting either the War Department
or the Navy Department, or us.
H.M.JR: Talk a little louder.
MR. PAUL: The Attorney General wrote E memorandum
to the President criticizing our interpretation of the
renegotiation statute. Our interpretation, which was a
joint interpretation, as the statute requires, by War,
Navy, Maritime Commission and the Treasury, all being
concerned - our interpretation was in connection with the
aluminum industry, and it ruled out of renegotiations a
part of the raw materials phase of the business. The War
Department was very strong for that interpretation.
We were a little - at first me considered it rather
arguable.
H.M.JR: May I interrupt you? I thought you said
George Haas couldn't come to this meeting.
MR. D.W.BELL: He sneaked out. Lindow is going on.
H.M.JR: I think you had better go back, George. Lindow
is in the middle of his stuff, isn't he?
MR. HAAS: Lindow or Murphy.
H.M.JR: You had better go back.
Regraded Unclassified
241
- 6 -
(Mr. Haas left the conference.)
MR. PAUL: This interpretation was made last January,
I think, but anyway, quite a while ago. Thousands of
these contracts have been renegotiated on that basis -
all forty-two contracts that they renegotiated. I don't
know how it happens, but the Attorney General communicates
directly with the President criticizing this interpretation.
He didn't consult us at all.
The President then got in touch with Patterson. He
sent the Attorney General's letter and a memorandum to
Patterson, saying that he would like to talk with him
Wednesday morning . - that is tomorrow morning - he would
like to have Patterson talk with him.
H.M.JR: The President would?
MR. PAUL: Yes - talk with him tomorrow morning about
this thing. Patterson sent Marbury, the Chief Counsel of
the Purchasing Divison, and Mr. Mackintosh, Counsel for the
War Price Adjustment Board, over to see us yesterday after-
noon.
H.M.JR: To see you?
MR. PAUL: Yes. And Patterson wants to know if we
are with him on that interpretation. He wants - the
President said to clear it with you. That is, instructions
in the memorandum to the Under Secretary are to clear it
with the other interested agencies. He has cleared it
with the Maritime Commission and Navy, and they are all in
agreement.
He wants permission to say that you stand by this
interpretation.
H.M.JR: How do you advise me?
MR. PAUL: I advise you to stand by it, I think, for
this reason, that it is somewhat arguable; it was one of
those things you couldn't be absolutely sure about. We
Regraded Unclassified
242
- 7 -
did the best we could to determine what was the intent of
Congress, but now with thousands of contracts renegotiated
on this basis--
H.M.JR: You mean they already have been?
MR. PAUL: Already have been, for months and months.
You would upset all these renegotiations, and I think you
would endanger the whole renegotiation statute if you
stirred up that mess now, because you would provide exactly
the kind of fuel these people want who want to eliminate
that provision from the statute. They would run up to
Congress in the fall.
H.M.JR: Now, would you mind, so it is clear in my
mind - this is something that Sullivan has or has not had
anything to do with?
MR. PAUL: I don't think Sullivan was in that meeting.
Eddie Greenbaum was in it.
H.M.JR: That would be Army.
MR. PAUL: I think - as I recollect, we had & big
conference, but Joe O'Connell and I were the ones who
worked on it.
MR. D.W. BELL: I think Sullivan is just beginning
to get in on the renegotiations.
MR. PAUL: He was on the other end of it.
MR. D.W.BELL: Since he has taken charge, I mean. But
I don't know whether he was in on the original conference
or not.
MR. PAUL: I remember the conference.
MR. GASTON: He had been in on some other renegotiations
before he got in on the Procurement picture.
H.M.JR: What I was trying to get at - he hasn't
committed us in any way?
Regraded Unclassified
243
- 8 -
MR. PAUL: No, I am sure not. As a result of this
big meeting - we had a meeting attended by - there must
have been twenty-five people there - all these agencies -
as a result, we published and distributed thirty thousand
sets of instructions to these boards on how to renegotiate.
It was a joint enterprise of the four Departments.
We at first, in this particular issue, took the other
point of view, and then we felt that it was so close and
the War Department was 80 insistent and 80 much more inter-
ested than we were and they conceded to us on another more
important issue.
MR. GASTON: You haven't talked to Biddle 80 he
would know what you want to talk about?
H.M.JR: I would almost swear that I told Chauncey,
who is on a holiday - - that I told her to say what the
President had said.
MR. GASTON: Would it be advisable to get Biddle
on the phone?
H.M.JR: No, I am willing to gamble he knows what
this is about. He doesn't want to come to my office. He
is standing on his dignity.
MR. GASTON: Grant went over to talk to him - he had
8. story in the Post Dispatch. He said that Biddle was
very, very much incensed at the Treasury.
H.M.JR: And in the meantime a letter went over to
his office in which I said that there was no leak in the
Treasury. He asked me - he said that he had investigated
his place. He said that there was no leak there. I sent
him a letter saying that I had investigated and there was
no leak in the Treasury.
MR. GASTON: I am satisfied there.
H.M.JR: So all I want to be able to do is - I am
willing to wait - I want to wait; and if Chauncey says
Regraded Unclassified
244
- 9 -
that she told him that, as far as I am concerned the next
move is up to him. I have asked him to come over here.
If he is too busy, I should worry. Let it ride. If the
President ever says anything - well, I asked Biddle to
come over and I never heard.
MR. D.W.BELL: You are carrying out his instructions;
he said to get in touch with him.
H.M.JR: "I wish you would talk this over with Biddle
in person." I can't do any more than ask him if he will
come over to see me.
MR. GASTON: You would be doing one thing more if
you got him on the phone and told him you would like him
to come over and talk a bout it.
H.M.JR: I don't think it is necessary. He has told
my office that he is too busy.
MR. D.W.BELL: I think I would wait. Is he going to
be gone tomorrow? I think I would wait until tomorrow.
H.M.JR: What can you do? Supposing it was the other
way around? Supposing Mr. Hull, who ranks me in Cabinet,
says, "I have a letter from the President saying he would
like us to get together. Could you come over any time
next Tuesday?" Then I send word back that I am too busy.
MR. GASTON: Wouldn't you expect Hull to call you
yourself and tell you that?
H.M.JR: Not if I am out of town.
MR. WHITE: Might it not be appropriate to give him
a little leeway? You said next Tuesday. Maybe he is
very busy Tuesday.
H.M.JR: But he didn't say - look, let's wait and
find out what Chauncey says.
MRS. KLOTZ: It could be that he is busy.
Regraded Unclassified
245
- 10 -
H.M.JR: Well anyway, I will back you up. What I
think you should tell Bob Patterson is this - I would be
glad to call Bob - that I think it would have much more
weight with the President if when he goes to 800 the
President he has a document signed by War, Navy, and
the Treasury. The President likes those kinds of things.
MR. PAUL: If you can get such a document.
H.M.JR: Let me call up Patterson. Do you mind?
MR. PAUL: No.
MR. GASTON: Would Biddle be able to show that the
Aluminum Company of America is making extortionate profits
by reason of this ruling?
MR. PAUL: Perhaps in the raw material end of the
thing, but the War Department was unwilling to undertake
all that, and I don't know - what they are interested in
is this Canadian thing that appeared in the newspaper.
H.M.JR: Who is interested?
MR. PAUL: That is what the Attorney General and the
President are really interested in, I think. They couldn't
do anything about that anyway, because that was all a
Canadian operation. So as soon as they find that out they
will lose interest in this.
H.M.JR: Why is the President 80 interested in that
if he is not interested in telling the Attorney General
to do something about John L. Lewis? That doesn't make
sense.
(The Secretary held 8. telephone conversation with
Under Secretary of War Patterson.)
MR. PAUL: Mr. Marbury said yesterday that this whole
deal was made very carefully - everything about it was
Canadian - that you couldn't touch it with our statute.
They were very careful to make the contract up there,
Regraded Unclassified
246
- 11 -
8 Canadian company, completely beyond our jurisdiction.
H.M.JR: Well, you got your answer, didn't you?
MR. PAUL: Yes, I will go over that memorandum
with Patterson.
H.M.JR: Mr. Gaston?
MR. GASTON: I haven't anything except two or
three matters that you sent in to me to talk to you
about.
You may have read a story in the papers about
Customs holding up the import of thrashing crews from
Canada.
H.M.JR: No, sir.
MR. GASTON: Well, it isn't worth bothering you
about. Anyway, the Agriculture Department got all
tangled up in their own coordination.
H.M.JR: Can I do this semi-publicly, or semi-
privately - may I thank you publicly for having carried
the ball on Chick Schwarz from Kuhn on, and is it
agreeable to you if I now turn it over to him (Smith) ?
MR. GASTON: I would be delighted. I think that
is 8. much more logical setup.
H.M.JR: That is all right with you?
MR. GASTON: Yes, indeed.
H.M.JR: I held up a memorandum until I could
talk to you. You carried that additional--
MR. GASTON: I didn't carry much, but--
H.M.JR: Have you seen the memo - I think you
initialed it - giving Schwarz and Mager to this fellow
(Smith)
Regraded Unclassified
247
- 12 -
MR. GASTON: Yes. I think you might want to
consider making it more general.
H.M.JR: We will see, But that is all right with
you?
MR. GASTON: Yes.
H.M.JR: Fred?
MR. SMITH: The only thing I have here is that Mr.
Houghteling is very anxious to have you address the
National Negro Business League in August.
H.M.JR: In August?
MR. GASTON: In Baltimore.
MR. SMITH: It isn't far away. Mr. Gaston thinks
maybe it would be - that there would be something to be
gained here on Treasury morale.
H.M.JR: A Negro league in Baltimore in August?
MR. SMITH: It is the big Negro business league. It
is the number one group.
MR. WHITE: I think you ought to make another speech
something like the one you made a couple of years ago in
a different field. I think that the President has been
quiet on this Negro question when he shouldn't be quiet
on it, and I think that somebody ought to speak up and I
think you should begin.
Fred canwrite & whacking good speech on it, and it
should have nothing to do with war bonds.
MR. SMITH: They bought fifteen million dollars'
worth of bonds.
Regraded Unclassified
248
- 13 -
MR. WHITE: Well, that is all right. That is un-
important. The other is very important. (Laughter)
MR. SMITH: They claim they can have a thousand to
two thousand people there.
MR. WHITE: They will buy bonds, anyway. They will
buy more.
H.M.JR: You are sacrilegious when you say fifteen
million dollars is nothing. (Laughter)
MR. WHITE: I thought he said fifteen million.
MR. SMITH: "Fifteen million dollars' worth of
war bonds have been sold through its efforts and its
influence."
MR. WHITE: I thought that was small compared with
what you expected to sell. (Laughter)
Speaking for myself, I am serious. I think you
ought to make a great speech. There is room for it
there.
H.M.JR: Don't you think that we might have--
MR. WHITE: I don't know what is coming, but it
is going to be good. (Laughter)
H.M.JR: I was going to say we might have a little
trouble with our legislation next fall, with the southern
Congressmen.
I tell you what let's do. You think I should do
it?
MR. WHITE: It is an opportunity for a great speech,
and I think you ought to do it; and it ought not to be on
bonds except very indirectly, if at all. But I think the
effect on bonds will be very excellent, though I again
Regraded Unclassified
249
- 14 -
repeat I think that is of minor consequence compared to
the - nobody has spoken up, Mr. Secretary.
H.M.JR: How about Ickes? Hasn't Ickes talked?
MR. WHITE: If he has, it escaped my attention. I
didn't see it. It may be.
MR. GASTON: It has to be handled carefully, but
the appearance would count for a great deal.
H.M.JR: When is it in August?
MR. SMITH: They say the 26th, but that wasn't
definite. That was just an indication.
H.M.JR: I tell you what I would like to do if I
were going to do it. I would like Tydings to be on the
platform with me. What do you think?
MR. GASTON: You could certainly get them to
invite him.
MR. BELL: Radcliffe, too. He is the administra-
tion man.
MR. PAUL: Radcliffe is on the Finance Committee.
I hope you won't slight him.
MR. GASTON: You might get one of the southerners
to be on the platform with you - Walter George or
somebody.
MR. PAUL: Did you read "Time" this week on Walter
George?
H.M.JR: I didn't read it, no.
MR. PAUL: I seem to recall some sentence of his
about Negroes. I would like to check it before I asked
him to be on that platform.
Regraded Unclassified
250
- 15 -
MR. WHITE: It is a chore, Mr. Secretary, and I
think it is a courageous act. Everybody has dodged it
for that reason.
H.M.JR: Is that 8. national thing, or a State?
MR. SMITH: It is national.
MR. GASTON: The organization was formed by Booker
T. Washington.
MR. SMITH: It is the best colored group there is.
MR. GASTON: It is the Negro Businessmen's League.
H.M.JR: I would kind of like to do it.
MR. GASTON: I kind of thought you would.
H.M.JR: Let's call it a deal. Would you fuss around
with the two Senators or not?
MR. WHITE: I think it would be nice if you could get
them on there. I don't know how they might feel about it.
I don't know enough about the political situation there,
but I think it would certainly add dignity to the occasion.
MR. PAUL: I wonder if Huntington Cairns would know
about that.
MR. SMITH: It might be somebody good not representative
of the Administration. The only fear I have is that if you
make a speech to them, then it is the Administration inciting
a riot again as far as the underground discussion is con-
cerned.
H.M.JR: All right, let's ask Wendell Willkie to go
on the platform. What do you think?
MR. SMITH: That would be good. It would take care
of the only objection I have to it.
MR. GASTON: I think not. They will think that we have
to have a bodyguard before we speak to the Negroes.
Regraded Unclassified
251
- 16 -
H.M.JR: Have to have what?
MR. GASTON: A bodyguard. We have to have somebody
to take the curse off before we speak to them. I don't
think that is good.
H.M.JR: I don't follow.
MR. GASTON: Taking Wendell Willkie would be obviously
a device to divide the burden - the onus - the stigma of
having spoken to a group of Negroes. I don't think you
want that.
MR. PAUL: I agree with that, with Herb there. He
says it is a device to divide the stigma, and we ought to
do it ourselves. We ought to take the rap on it.
MR. SMITH: I don't agree. The reason I don't agree
is because I know the minute that the Administration steps
out again, then you have got thirty thousand people in the
Republican party who are going to be handed something under
the table to go out and spread. I don't think that that is
8. good thing.
MR. WHITE: Willkie wouldn't stop them, certainly.
MR. SMITH: Yes, he would.
MR. WHITE: I think there is something in your idea,
but if you could pick on somebody besides Willkie - Willkie
has 80 obviously taken a position of this kind coupled
with his relationship to the Republican party that I think
there might be a better choice - some other Republican, if
you like - some other local Republican.
MR. BELL: How about Hoover?
H.M.JR: No, he knows the tricks of the trade, and I
am going to take his advice (Smith's.)
MR. SMITH: I don't believe that you would get the
oriticism of the onus, as you say, half so much as you
Regraded Unclassified
252
- 17 -
would get awfully patted on the back for building up this
meeting by bringing another good man to it. Why don't we
really do & job on it?
You could approach it that way, through our crowd
that has been working with them, and really do a good job
for them.
MR. WHITE: Is it your idea that he would make 8
speech, too?
MR. SMITH: Whoever is there ought to make some kind
of a speech, not just have him sit there.
H.M.JR: All right.
If you don't want - how about Senator Ball of
Minnesota to talk about post-war?
MR. SMITH: He is 8. good Republican.
H.M.JR: Liberal.
MR. WHITE: How about smoking out Senator Vandenberg
or Senator Taft?
MR. SMITH: If you smoke out Senator Taft you are
doing pretty good.
H.M.JR: He (Smith) knows the tricks of the trade,
because he has used them. I will leave it with you, Fred.
MR. PAUL: If you decide on Vandenberg, will you talk
with me about it?
MR. GASTON: The invitation would come through by
suggestion by our men to the leaders of this group, and
of course they would invite him.
H.M.JR: I would much rather have somebody like Ball,
who is a liberal, talk on post-war, and 80 forth.
MR. SMITH: Somebody who would have good reason to
talk. I wouldn't hold out for Willkie.
Regraded Unclassified
253
- 18 -
H.M.JR: I would much rather have Ball than a pro-
fessional like Vandenberg. You would have a reason, take
a good stand on the post-war, and so forth, and so on.
Vandenberg would think - well, he would laugh. He would
say, "Well, Henry is just trying to duck this thing."
Think about it; I will talk to you about it.
What else?
MR. SMITH: That is all.
CAPT. KADES: I don't have anything, Mr. Secretary.
MR. PAUL: I received a summons from Mr. Stam to pro-
duce all the revenue plans that we have in gestation here
now. I took it up - I worked out an answer that wasn't
completely evasive and put it up to Dan. I am about to
send it off today. I didn't think it was propitious to
start a constitutional fight with Stam at this time.
H.M.JR: Are you going to give it to him?
MR. PAUL: We are going to give him a lot of material,
but we say that they are not plans, they have not - that
they are being studied.
H.M.JR: He just wrote it, Stam?
MR. PAUL: It is really in the form of a summons.
MR. BELL: Approved by George, too.
MR. PAUL: It has to be approved by George or
Doughton. He quotes this statute that they passed last
year.
H.M.JR: How do you know it is approved by George?
MR. PAUL: It is signed by him.
Regraded Unclassified
254
- 19 -
MR. GASTON: Why would it not be well to have the
Secretary sign that letter and say, "I have your request
directed to Mr. Paul for this information and I am happy
to supply it," and evade putting us in the position of
complying with an unconstitutional statute.
H.M.JR: I think he is right.
MR. PAUL: There isn't an unconstitutional statute;
that is the only difficulty. It is only unconstitutional
if applied in certain ways, and it is only unconstitu-
tional when it would be against public interest to give
this information.
MR. GASTON: My opinion is that when the committee
addresses an inferior officer of the Treasury - the law
wouldn't permit them to go to any clerk or assistant
commissioner and say, "You supply us this stuff as
provided by this statute."
My opinion is that they are demanding something
which they have not 8. right to demand, and that we should
not comply with it in that form as a compliance with that
demand by that man.
H.M.JR: What do you think, Chuck?
CAPT. KADES: I agree with Randolph, Mr. Secretary.
I think that Herbert's suggestion might be & good sugges-
tion, but I don't think it is unconstitutional to ask for
the material.
H.M.JR: No, but I like Gaston's way of doing it and
keeping it on that level so that they can't say, Here is
a precedent; you did it once, what are you kicking about
now?"
This is the first time?
MR. PAUL: Yes, but my objection to the statute is
not based on that point. It is based on the point that
they shouldn't go down to the Bureau.
Regraded Unclassified
255
- 20 -
H.M.JR: But I am not--
MR. PAUL: So we can't coordinate our work.
H.M.JR: Purely aside from the legality, I don't
want to establish the precedent.
MR. PAUL: I can simply write this letter from you.
The thing is addressed to me.
H.M.JR: I would do it just the way - why don't you
collaborate with Herbert?
MR. PAUL: I will send him the letter and he can
write it.
H.M.JR: That is the advantage of these staff meetings.
O.K. Anything else?
MR. PAUL: That is the main thing.
H.M.JR: Harry?
MR. WHITE: I thought there never was any question
about the propriety of any outside agency communicating
on anything of any significance to anybody except the
head of the Department.
H.M.JR: You had better read the statute. They have
got a special statute.
MR. PAUL: The Chief Counsel of the Bureau mentioned in
the statute - he is mentioned.
H.M.JR: There is a special statute.
MR. WHITE: The Dutch request for three hundred
million dollars has been tentatively considered by the
group here and I think that we are going to not be in
favor of it. Would you like to receive a memorandum or
suggestions in the form of 8 memorandum, or would you like
to have a meeting and listen to the pros and cons?
Regraded Unclassified
256
- 21 -
H.M.JR: I haven't got time, Harry. I would rather
take a memorandum, and if you bring it in I will read it
with you present. If I don't understand it--
MR. WHITE: There will probably be a little bit of a
fight on it later. That is why I thought you might want
to get in on it, because they have got Jones' approval
and they are pushing it.
H.M.JR: In the first instance, let's do it via
memorandum.
MR. WHITE: All right.
We had a meeting with the head of the Middle East
and several of the men in the State Department here on
some problems with respect to the Middle East. One of
them was with regard to Saudi Arabia.
H.M.JR: How do you spell "Saudi"?
MR. WHITE: I spell it S-a-u-d-i. Apparently the
President and the State Department are both keenly
interested in strengthening the ties between the two
countries.
I suggested certain ways in which it might be done,
and the State Department was terribly enthusiastic about
us doing it. They say that the stakes are infinitely
larger than any of the small financial risk that would
be involved.
Saudi Arabia doesn't have any representative here
at all. We were sending & man, Treasury man - one of my
men - to Turkey. He was waiting for the boat on which
he was to leave that next morning. The State Department
asked us to pull him off, and they would send him by
plane.
He is going to Saudi Arabia and make certain in-
quiries with regard to a lend-leasing of silver which
they requested; but in the course of those inquiries
Regraded Unclassified
257
- 22 -
other things are going to develop. If that happens,
we will hear more about it. But there is no decision
being made yet.
He is also going to visit Iran, in which the
President and the State Department are likewise inter-
ested in strengthening the ties, from a different point
of view. We will hear more about it. I am letting
you know 80 that in the event the subject comes up you
will know we are in on the matter.
The British are interested in what we are going
to do for Saudi Arabia and asking questions, and we
are giving evasive answers in the meantime.
There are a couple of other things. We have the
draft of the letter that we would like you to sign for
the various Congressmen and Senators. This is just a
draft. If you are satisfied with the draft, then we
will prepare the letters. (Draft of letter regarding
International Stabilization Fund handed to the Secretary.)
H.M.JR: It is all right with me, but do you mind
letting Fred Smith take a look at it?
MR. WHITE: He has already. We will let him look
over the final draft.
Do you know a Mr. Herman Wells? We are to vote
on him, whether he is to be the area director for Italy.
No one knows him here, 80 we are going to go along.
Mr. McCollester is going to be voted on for France,
and we are going to support him.
MR. PAUL: I think you ought to know before this
last decision is reached that this man was formerly a
partner of mine. That is pretty bad. (Laughter)
Regraded Unclassified
258
- 23 -
MR. WHITE: But he was recommended by Randolph,
and he came down here and several of us talked with
him. Dean Acheson talked with him. We think he is
all right, notwithstanding his background. (Laughter)
H.M.JR: Well, I appreciate Randolph's standard
of ethics. If you fellows think he is all right, it
is all right with me.
MR. WHITE: He is a very nice fellow, a very
staunch liberal, and he has been in France a good
deal. He knows the language and has had a good deal
of experience running railways in France, and so on.
Mr. Royce, who is the man who was appointed, you
remember, in charge of North Africa, has returned here
to take up B. large number of matters. In discussion
before a large group he complimented the Treasury on
the competence of the men, and he said that the Treasury
was the only agency that was greatly understaffed.
H.M.JR: I got that the first time you told it to
me last week. (Laughter)
MR. WHITE: I wasn't sure you read it.
The South African Minister of Finance is here. He
came up special from South Africa to discuss these
matters and some others. I think it would be a nice
thing if you could see him for a few minutes.
H.M.JR: How about ten o'clock Friday?
MR. WHITE: You couldn't make it Thursday? It
wouldn't take more than five minutes.
H.M.JR: Eleven-thirty, Thursday.
MR. WHITE: Fine.
Regraded Unclassified
259
- 24 -
We haven't heard from China on the revision of
their stabilization arrangement.
We would like to send a cable to Adler asking
him to resign from the board - stabilization board -
which has no status now. Our keeping him on there is
rather undignified on our part, I think. Is that all
right?
H.M.JR: Yes.
MR. WHITE: Mr. Soong is leaving for England to
reopen the question of the fifty-million-pound loan
which was never effected, and he asked me to be sure and
pay his respects to you. He inquired very closely about
Mrs. Morgenthau.
H.M.JR: Does he want to come in?
MR. WHITE: He has gone - this morning.
MR. PAUL: Is Mrs. Morgenthau better?
H.M.JR: Mrs. Morgenthau is well enough, we hope,
30 that she will move to the country Saturday morning.
MR. WHITE: There is one bill here that you might
want to know about, if you don't already. Senator
McCarran submitted a resolution creating this committee.
Nothing has been done about it.
That is all I have.
MR. BELL: Harry, do you want to tell the Secretary
about that silver arrangement with WPB?
MR. WHITE: Yes, I think we might want to inform
him about it.
MR. BELL: Go ahead.
Regraded Unclassified
260
- 25 -
MR. WHITE: We had a large meeting in Mr. Bell's
office in which we discussed a request of the WPB
Silver Committee that I think you would like to know
about because it will be the first instance of the
sale of silver by the Treasury and because it also repre-
sents a somewhat new departure.
They are going to sell silver - the seventy-one cent
silver - under the Green bill, but there will not be
enough of the forty-five cent silver to go around to all
the important users. They want to give some of them the
seventy-one cent silver.
There are & number of ways of working it out. Most
of them are very troublesome. The simplest way is that
they will pick out three concerns and give them the
seventy-one cent silver. They in turn, producing for the
Army and Navy, will add the additional cost onto the
prices as & routine thing. It is nothing to do with this;
they do that anyhow. That has nothing to do with the
Treasury. But this has to do with the Treasury, and
this is the new departure, that in order to prevent those
particular concerns from kicking about discrimination
against them, the Treasury has agreed to repurchase from
them the silver in their inventory which they have left
at the end of the war. There are a number of safeguards
so that they can't buy more than the amount that they
need tokeep up their production.
H.M.JR: It sounds like a phoney to me. Has Paul
reviewed this thing?
MR. WHITE: His man was in the meeting.
H.M.JR: Supposing you take a look at this from the
standpoint of ethics and daylight.
MR. BELL: It is just a matter of protecting the
contractors.
H.M.JR: Take 8. look at it personally, will you please?
MR. PAUL: Yes.
Regraded Unclassified
261
- 26 -
MR. BELL: It looked about the only way to do it to
protect the contractors.
H.M.JR: I don't like it. Let Paul take a look at
it. He may agree with you, I don't know.
MR. BELL: The lawyers said you had ample authority
under the law to make such a contract providing, of
course, the authority is there at the end of the contract.
You would have to put something in the contract to that
effect.
MR. WHITE: WPB has asked us to re-examine with the
hope that we will change our mind about the thirty million
ounces of silver. We will answer them in another letter
for your signature - it is concerning thirty million ounces
of silver to Mexico - turning them down.
MR. BELL: Mr. Young from Chicago and Paddock and
Rouse of the Executive Committee are in town. You remem-
ber, you asked them to be here. They are waiting in the
Board for further instructions.
H.M.JR: Well, not having heard from the Attorney
General, I will be glad to see them at three o'clock.
MR. BELL: I don't know whether we could make 8
decision today or not on the August 1 refunding, but
time is rather short. We ought to announce it Thursday
morning. If we leave it open three days--
H.M.JR: Let's talk about that - I will do that this
afternoon.
MR. BELL: If we could get the wires out tonight SO
they get it tomorrow, which has been the usual custom, I
would like to do that.
H.M.JR: From three o'clock - the Attorney General
won't come - I am confident he isn't coming.
MR. BELL: I have some letters here - the editor of
"Field and Stream" has been putting on quite a campaign
Regraded Unclassified
262
- 27 -
to get donations to the Government, particularly to pur-
chase Garand rifles. Here is a lady that sent in eighty-
five dollars to purchase one. She wants a certificate.
He would like a letter signed by you. He also would like
you to say you would award similar citations to any citi-
zen who donates money. I see no objections to stating it.
(Letter to Mr. David Newell signed by the Secretary.)
I am signing it as Ex-Conservation Commissioner of
New York State.
MR. BELL: You know him?
H.M.JR: We used to have all kinds of troubles.
MR. BELL: This is a memorandum to the President
sending him 8 draft of the letter which he should sign
and return to you on the withholding tax. (Memorandum
to the President dated July 20, 1943, signed by the
Secretary.)
And this is a letter to Frank Walker on the Payroll
Savings in the Post Office. (Letter to Mr. Frank Walker
signed by the Secretary.)
H.M.JR: He is not very good, is he?
MR. BELL: No, we have written him several letters
and had several conferences.
We want to announce changing the size of the Savings
Bonds from the present size to about one-half. (Draft
of press release handed to the Secretary.)
H.M.JR: Who didn't want that - Army and Navy, or somebody?
MR. BELL: Yes, but we are going to give them the old
size until such time as they can rearrange their equipment.
H.M.JR: You are really going to do this?
MR. BELL: Yes, we will be ready by the end of August to
start on production of the small size. We have the plates
ready.
Regraded Unclassified
263
- 28 -
H.M.JR: We have to get in there something about
saving money and the number of hours saved.
MR. BELL: Do you want to do all that?
H.M.JR: Sure.
MR. SMITH: Make the best of it.
H.M.JR: Make a nice build-up - "How to save money -
good old conservative Morgenthau - the next thing he is
going to do is cut the dollar in half" - if they haven't
already done it for us. (Press release handed to Mr.Smith.)
Is it below ninety cents?
MR. WHITE: Compared with the cost of living, I
suppose it would be an appropriate comparison.
H.M.JR: This is just & matter of interest about
people having their points when they go to hotels or
restaurants.
We were in a restaurant yesterday and Henry said to
them, "Do you still send food out to private homes?"
They said, "Oh, yes, anything you want."
He said, "Would you have to have your points?"
"No, just tell us what you want, where you live, and
we will send your meals to your home."
If a person has the money he can call the restaurant
and order a couple of steaks and have them sent up to
have at the house.
Have you had your answer on that?
CAPT. KADES: Yes, sir. It is not an answer, but
the answer that is given.
Regraded Unclassified
264
- 29 -
There are four main reasons why they won't point
ration in restaurants. One is the administrative diffi-
culties, which I thought they would mention. For example,
they say they would need fractional points and have to
weigh the portions of meat in order to determine what
points should be required.
Secondly, they want to encourage people eating out.
They say it is good for morale purposes to have people
eat away from home. It would discourage them eating out,
otherwise.
MR. WHITE: Nothing breaks morale quicker thaneating
out these days. (Laughter)
CAPT. KADES: The reasons get worse. Thirdly, they
say that the situation isn't critical.
H.M.JR: It is not critical? Have they said this
in writing?
CAPT. KADES: No, sir. And fourth, they ration
restaurants now on allocation basis, based upon the number
of meals served and the number of persons served in
December 1942, 60 there is a ceiling over which restaurants
can't go.
H.M.JR: Well, I will read the memorandum and I am
going to write a letter to Mr. Brown on the thing. But
I am convinced of the fact that the people have got the
money and they certainly - in New York they can eat
anything and just as much as they want. And it certainly
is discrimination in favor of the rich.
CAPT. KADES: Thirteen percent of the meat goes to
restaurants and hotels and hospitals and institutional
users. In England the only way that they tried to solve
the problem was by having restaurants available to the
lower income groups where they could eat off the ration;
and the English use the same argument, that it is & good
thing for people to eat out rather than at home during
war time.
Regraded Unclassified
265
- 30 -
H.M.JR: We will talk about it some more. I am
not satisfied.
MR. GASTON: That was Walter George's chief argument
against the spendings tax. He didn't want to stop people
from spending money in the good restaurants and night
clubs in New York.
MR. PAUL: I wrote you 8. memorandum about this
practice - about the business of controlling who are em-
ployed as Treasury attorneys. I have talked it over
with Herbert.
H.M.JR: I approved that memorandum.
MR. PAUL: I didn't get it.
H.M.JR: Last week.
MR. PAUL: I didn't get it.
H.M.JR: I approved it, definitely. I approved your
memorandum.
MRS. KLOTZ: Thursday.
MR. PAUL: I don't understand why it isn't back.
H.M.JR: Better look at your desk.
MR. PAUL: My desk is clean.
H.M.JR: Jimmy Byrnes called me up. I said, "Have
you got my letter about the correspondence between Randolph
Paul and Lloyd Garrison?" He said, "No, did you write me?"
I said, "Yes, I sent it over by hand last week." He said,
"I never got it."
I said, "It is on your desk somewhere," and he said,
"Most likely."
MR. PAUL: You are not comparing me with Jimmy Byrnes,
are you? (Laughter)
Regraded Unclassified
266
- 31 -
H.M.JR: Well, what he did - it seems that at this
meeting yesterday, due to certain questions raised by
the State Department, they suddenly discovered that the
War, Navy, and Treasury have an interest in Europe.
(Laughter) And he has asked the State Department to put
it in writing and he will send it over to me - certain
questions that were raised - and he would like to have
an answer. I promised him it would be answered.
He wants somebody from the Treasury - he said, "I
suppose you won't want to come to our meeting." I said
that I would be out of town but that we would send somebody.
So when they come I will see what the questions are.
But I am going to make a little prophesy: You (Paul) said
that you wanted to take a personal interest in Foreign
Funds. I will make you a little bet that there will be an
Executive Order transferring Foreign Funds to Crowley.
MR. PAUL: I wrote you a memorandum to that effect.
H.M.JR: That it would come?
MR. PAUL: That it might come. It is on your desk.
MRS. KLOTZ: No.
MR. PAUL: You will find it. It is already written,
anyway.
H.M.JR: You mean you dictated it. (Laughter)
MR. PAUL: No, I signed it and sent it out yesterday.
CAPT. KADES: Mr. Secretary, Randolph wants me to
make a matter of record that I got 8 copy of the memoran-
dum he signed. (Laughter)
Regraded Unclassified
267 -
July 20, 1943
HM Jr prophesied today that Crowley's next
move will be to try to get an Executive Order to
transfer Foreign Funds to the Office of Economic
Warfare.
Regraded Unclassified
268
July 20, 1943.
11:23 a.m.
HMJr:
Hello.
Derator: Mr. Patterson.
MJr:
Hello.
Robert
Patterson: Hello, Henry.
EMJr:
How are you, Bob?
e:
I'm fine.
4XJr:
Well, Randolph Paul has been telling me about this
memorandum that the Attorney General has written
on renegotiation of contracts.
P:
Yep. We discussed it yesterday.
HMJr:
Yeah. Now, I understand you're seeing the President
tomorrow.
P:
I think, Henry, that 1t 18 part of the meeting of
the office of War Mobilization.
HXJr:
Uh huh.
n.
The Jimmy Byrnes outfit.
HMJr:
Yesh.
P:
I think that is the meeting that the President
referred to in his little memorandum.
MJr:
I see. Well
is
There is a meetin of that Board tomorrow, and
HMJr:
Well, now Paul
5:
on the assumption that it was that, I took the
thing up with Jimmy Byrnes 88 well as the people
he mentioned in this memorandum.
HMJr:
Uh huh. Well, we're ready to back you up.
e:
Thanks. That's good.
HMJr:
Now
Regraded Unclassified
- 2 -
269
P:
It's unanimous.
HMJr:
Well, what I was going to suggest to your consideration
was that you present a written opinion and let us all
sign it.
P:
That's right. I think that's a good thing to do.
HMJr:
I think that's better.
?:
I do, too. I'll see that we get it up.
HMJr:
Now, just one thing
el
The whole thing, in my opinion, 1s this, the power
to adopt that definition, no matter what the memorandum
from Biddle says, 18 very plain and clear. Now, the
wisdom of it 1A this, I've always viewed this contract
renegotiation as a Valuable thing if kept within proper
bounds.
HMJr:
Uh huh.
2.
But if they want to dish on to us the job of oricing
every eingle thing in the whole economic structure
HMJr:
Yeah.
P:
why it's a flop - another flop - and my tendency
has always been in everything having to do with any
price adjustment work by the War Department to narrow
the bounds of it and keep - confine ourselves AB
nearly as we can to immediate contracts We have and
with the bigger concerns and let the small fry go.
The job's too big.
HMJr:
Now, that's
P:
And, along these lines, if we adopt definitions that
chase everything back to the forest or the mine
HMJr:
Uh huh.
P:
or the farm - well, We might 63 well throw up our
hands and call it a day.
MJr:
Well, OPA tried to do it and couldn't get anywhere.
P:
Don't you agree?
HMJr:
Well, I don't know an swful lot about it. Paul's
handling it and I'm perfectly willing to let him
Regraded Unclassified
270
- 3 -
HMJr:
(Cont'd)
handle it, you see?
2:
Yeah.
HMJr:
Now, I've just got - I want to arrange it - somebody
in my office said that the President, they thought,
was gunning out - after this aluminum company up in
Canada.
F:
Well, that may be.
HMJr:
Well, can he do it through renegotiatiation?
P:
No.
HMJr:
He can not?
P:
I don't think SO.
RMJr:
I see.
P:
I don't know anything about the terms of that con-
tract. It was made between Jesse Jones end
HMJr:
Yeah.
P:
that company. Now
HMJr:
Well, could
P:
I'm satiefied of this, though - that if there's
enything raw in the contract
HMJr:
Yeah.
P:
I think that Jesse, as a voluntary matter, can
get them to renegotiate.
HMJr:
Well - I mean - couldn't Jesse do it anyway? I mean,
if the President wants that, can't he simply tell Jones
to renegotiate that?
P:
Well, I don't - I don't know, Henry.
HMJr:
Huh.
P:
I don't know. The thing 1s bound up with Canadian
interests and the Canadian Government to some degree
and - uh - it was, 8.9 I understand it, kind of a
payment he made down to promote aluminum production
Regraded Unclassified
- 4
271
P:
(Cont's)
in Cenada - uh - to spur it on
HMJr:
Well, he
P:
I don't know enough about it.
HMJr:
Well, the easiest way - the Canadian minister here
in Washington was a former General Counsel for the
aluminum company, so you could take it up with him.
?:
McCarthy?
HMJr:
Sure.
P:
All right.
HMJr:
Sure.
P:
Well, there's no doubt of the fact - we've had no
trouble ourselves with the Canadians on any deals
We have had with them. They came in and gave me
8 check that I sent over to you for fifty million
dollars
HMJr:
Yesh.
P:
the other day. They found that on some contracts
we'd placed there on lend-lease account for production
in munitions, they'd made too much money
HMJr:
Well
Pt
end they just voluntarily came in and
HMJr:
Yeah.
P:
gave me the check.
HMJr:
Well, I think if
P:
They don't need to - they don't need to goto law and
all that kind of stuff about a thing like that.
HNJr:
Well, from what Paul tells me, rather than to upset
all these contracts which you have renegotiated, that
they want to just aim at the Aluminum Company of Canada.
I think there's 8 much easier way to do it.
P:
I have no doubt at all that it can be handled amicably.
HMJr:
Yeah.
Regraded Unclassified
- 5 -
272
P:
without any disruption like this. The - the man
who drew that memorandum for Biddle just didn't know
enything of the practical situation.
HMJr:
Yeah.
P:
I think I will write a little memoranda.
HMJr:
Okay.
P:
Thank you, Henry.
HMJr:
Good bye.
Regraded Unclassified
273
July 20, 1943
MEMORANDUM FOR THE PRESIDENT
Careful consideration has been given to the memo-
randa from the Attorney General relative to the exemption of
aluminum ingots from contract renegotiation. The following
comments are submitted for your information and consideration.
1. With respect to the authority of the Departments
to make the exemptions, including the exemption of aluminum
ingot, embodied in the Joint Statement by the War, Navy and
Treasury Departments and the Maritime Commission, it is our
considered judgment that these exemptions are clearly within
the authority granted to these agencies under the Renegotia-
tion Statute. In the case of aluminum the uses of bauxite
and alumi
referred to by the Attorney General were con-
sidered, but they were of such a minor and incidental character
that they did not affect the primary conclusion that aluminum
ingots represent in a broad sense the first stage at which the
product is suitable for industrial use. At no time during the
months that this matter was under active consideration was
Coubt expressed by any of those concerned with regard to the
legal authority of the Secretaries to fix the exemptions
Regraded Unclassified
274
embodied in the Joint Statement, particularly in the light
of the broad authority granted by Congress to the Secretaries
to "define, interpret and apply" this particular provision of
the Statute.
2. There were, in addition, strong practical reasons
which supported the decision of the Secretaries to place the
exemption stage where they did place it. In the first place,
it appeared to be desirable and in accord with the intent of
Congress to eliminate from renegotiation industries concerned
primarily with the extraction and severance of raw materials
mill the early stages of refining or processing, thereby avoiding
the necessity of grappling with the many problems connected with
the determination of costs and profits on these basic processes.
Purthermore, this interpretation eliminated the danger of con-
fliet with OPA policies and price objectives with respect to
wh products.
3. As to a possible modification of the Joint
Statement on aluminum ingots, there are further objections.
In the first place, the exemption of aluminum ingots was made
00 the basis of a policy of interpretation which included the
exemption of numerous other products. It would not be prac-
ticuble to change the a luminum ingot exemption without changing
the status of many other products.
Regraded Unclassified
275
The Joint Statement of March 31, 1943 was issued
not only for the guidance of the Price Adjustment Boards but
also for the use and information of war contractors generally.
Over thirty thousand copies of the statement have been dis-
tributed, and these statements have been applied in a large
number of renegotiations and are now being used and applied
in substantially all pending renegotiations. It is believed
that a change in the Joint Statement of the scope and character
suggested would have the effect of irretrievably confusing
thousands of pending cases. Such a change would not only
impair the progress of renegotiation but would constitute &
powerful argument for repeal of the act in the hands of those
in industry who are trying to persuade Congress that the act
is impossible of administrative accomplishment and therefore
should be repealed.
For the reasons indicated, the undersigned respect-
fully submit that the suggested amendment to the Joint State-
ment is not required as a matter of law and is altogether
undesirable as a matter of policy.
Respectfully,
/s/ ROBERT P. PATTERSON
Acting Secretary of War
Regraded Unclassified
276
Secretary of Navy
/s/ H. MORGENTHAU, JR.
Secretary of Treasury
Chairman of Maritime Commission
Regraded Unclassified
277
July 20, 1943
3:10 p.m.
FINANCING; THIRD WAR LOAN DRIVE
Present: Mr. Bell
Mr. Haas
Mr. Murphy
Mr. Viner
Mr. Eccles
Mr. Young
Mr. Evans
Mr. Paddock
Mr. Rouse
Mr. Piser
Mr. Ransom
Mr. Goldenweiser
H.M.JR: If we could settle this afternoon this
August refunding, I think it would be very helpful to me.
Bell, do you want to state the problem?
MR. BELL: I think the first problem is what amount
of certificates we are going to issue to refund - or pay
off - the August maturity amounting to one billion six
hundred nine million dollars. The question is whether
it should be two and a half or three billion dollars.
Another question in connection with that is as to
whether we should pay off the certificate in cash or allow
exchange privileges to the holders of the maturing certifi-
cates.
Then there are other questions, once those are settled.
H.M.JR: You think this should be announced when?
Regraded Unclassified
278
- 2 -
MR. BELL: I, would like to see it go out to the
Federal Reserve Banks tonight in order to give them 8.
day to have it printed and in the mail, and announce it
Thursday morning.
MR. ECCLES: Since I talked to you, Dan, I agree
with that, because--
MR. BELL: The mail is really terrible.
MR. ECCLES: That is right. The time element - if
it goes out tomorrow night, Friday and Saturday just
isn't enough. It would be better to let it run over to
Monday. You would have to do it, I think - you would
have to leave it open Friday and Saturday, and stragglers
on Monday could get in because there will be some of it -
most of it can get in on Friday and Saturday, but I think
because of the mail you would find you couldn't close it
until Monday.
MR. BELL: We can't do it Monday because that just
gives us a week and then after you leave the books open
two days, or three days, which even cramps us more be-
cause we couldn't make allotments before Thursday or Fri-
day--
MR. ECCLES: If you closed it Monday you couldn't
make allotments before when?
MR. BELL: You mean to open it Monday? I don't
think it would give us time enough either.
H.M.JR: Is it your idea to announce it Thursday
morning?
MR. BELL: Yes, and close it Saturday night.
H.M.JR: Would there be any harm of announcing it
in the papers tomorrow morning for Thursday and in that
way get an extra day?
Regraded Unclassified
279
- 3 -
MR. BELL: You mean announce it before the circulars
are printed and mailed?
MR. ECCLES: I don't see any harm.
MR. YOUNG: It would be helpful.
H.M.JR: That just helps.
MR. BELL: That would be helpful.
MR. ECCLES: I don't think it needs any help.
MR. BELL: I wonder if you would confine the sub-
scriptions to two days, Thursday and Friday, or would you
want three days? I think twois enough on the certificate.
H.M.JR: I would have it in the papers tomorrow and
then they would get their circulars Thursday, wouldn't
they?
MR. BELL: Thursday morning.
MR. ECCLES: Those that didn't get them Thursday,
they would get them Friday. Some won't get them before
Friday - a lot of places. But that gives them a day.
MR. YOUNG: We will wire about a hundred banks,
anyway.
MR. ECCLES: The worst is down in the South and the
West Coast.
MR. BELL: We always send night letters to those
banks that are beyond twelve hours.
H.M.JR: You wouldn't have to settle it tonight if
you felt - if everything was all right you could close
it Friday; if not, Saturday. You would like to close it
Friday?
Regraded Unclassified
280
- 4 -
MR. BELL: It gives us a little more time and two
days is enough, I think. Practically all of these certi-
ficates are held by the banks. Three hundred million,
I think, are outside of the banks.
MR. ROUSE: You have the possibility of processing
the mail subscriptions at the close of the books on
Saturday and Sunday instead of having to do it on Monday
and Tuesday. You get the benefit of Sunday, which will
facilitate the reserve bank operation.
H.M.JR: As far as I am concerned, it is all right
to have it in the papers tomorrow night, have it open
Thursday and Friday, close it Friday midnight. Is that
all right with you?
MR. PADDOCK: O.K.
H.M.JR: At least we got one idea here anyway.
(Laughter)
Now, how much is it going to be?
MR. BELL: Two and a half or three. I had in my cash
estimates two and a half billion dollars extra money, but
there have been suggestions of adding another half a
billion to that in order to help our balance a little
going into the next drive. The bankers recommend a three
billion dollar offering, and also it would help the market
a little by giving a little larger amount.
H.M.JR: Let's start and go around the room.
Chairman Eccles?
MR. ECCLES: I would like to discuss this in connec-
tion with the basket because I think they are so closely
related. In other words, if you are going to include a
seven-eighths certificate in the basket, then I would
have one recommendation; if you weren't going to include
it, I would have another. I think that it makes a very
important difference.
Regraded Unclassified
281
- 5 -
MR. BELL: I might say before Mr. Eccles starts that
we sent out two hundred and twenty-five telegrams to
corporations and others buying securities in the April
drive;and we got 8. hundred and fifty replies up to date,
and a hundred and twenty-five of them wanted certificates.
Some wanted both certificates and notes; some wanted just
notes. But a hundred and twenty-five definitely wanted
certificates to put their funds into. Particularly they
stressed the fact that these were short-term funds and
they didn't want to tie them up for more than a year.
H.M.JR: These were people who had bought before?
MR. BELL: Yes, they were the people who bought in
the April drive.
MR. ECCLES: My answer to that was this, that naturally
they would prefer the certificate, but I think that they
would take the Series C tax note because they have got
short paper - either six months, nine months, 8 year, what-
ever they want it. If you took the thirty-day notice out
of it after the year - and, of course, on that they can't
speculate - they can't get a profit out of it except the
actual interest that they are entitled to for the time they
leave their money with the Government.
MR. BELL: I question whether we ought to force them
into something they don't want to go to. Now, all of these
people in here this morning--
MR. ECCLES: We forced the insurance companies into
two and a half when they wanted three. (Laughter)
MR. BELL: It is not analogous. (Laughter)
MR. ECCLES: I agree that it makes & little easier
selling job, but is it a sounder long-range program? I
don't think we have ever made 8 real sale of the savings
notes. I don't think we have ever done a lot to sell it.
The last time we had the certificate in the basket. That
is perfectly easy to sell because it immediately sells
at a premium on the market whenever they buy it, so a
corporation would be foolish to buy a C Note if they can
get a year paper like the certificate.
Regraded Unclassified
282
- 6 -
I think that the great majority of them would pre-
fer the certificate. On the other hand, I do think that
a real selling job could be done on the Series C note
and then you wouldn't have to sell every year. The thing
would carry through for the life of the note as long as
they had the money. You would only get it at such time as
they needed the money, which is, of course, when you want
them to have it.
I do think the thirty-day notice after six months -
as it is now we provide they have to hold it six months
which I think is proper. They shouldn't just buy it and
then turn it in. But I don't think the six months is the
deterrent. In fact, the fact they have to give & notice
is somewhat of a deterrent. If they could turn it in--
MR. BELL: Some of the men said the deterrent is
the fact they have to come to Washington any time they
want their money.
MR. ECCLES: Just send it through the banks for
collections if you didn't have the notice.
MR. BELL: That is what they do, send it through the
banks, but the fact that it is recorded in "ashington or
recorded some place along the line is a deterrent to the
sales.
H.M.JR: They don't like Washington?
MR. BELL: They don't like to come to Washington and
let you know every time they want a few dollars to spend.
They want a negotiable security, 80 the salesmen tell us.
MR. ECCLES: They prefer it, but they have bought
quite & lot. There are seven or eight billion out without
very much selling effort.
Well, I would say this, that if you are going to
put the quota at sixteen billion on 8. non-bank thing--
Regraded Unclassified
283
- 7 -
H.M.JR: Well, that hasn't been fixed, Marriner.
MR. ECCLES: If you do, I would include the certifi-
cate. I think if you are going to try to raise sixteen
billion that you possibly need the certificate in the
basket. You would need the easiest way to get 8. lot of
money.
But I would personally like to see the quota set at
substantially less the first time so that the next time
you have a drive - this is the first time when you have
a non-bank drive. It is the time that you have got a new
State organization. You would be thoroughly justified
in putting it, say, to thirteen billion.
Now, thirteen billion was the quota last time in-
cluding the banks. That is all you had including the
banks, last time. And if you put your quota at, say,
thirteen billion, and then maybe run over a little and
leave the certificate out, then the next time you have a
drive you could increase it to, say, fifteen billion
if the situation warranted, instead of establishing it
with a - if you establish it at sixteen with a certifi-
cate, it seems to me you have established a pattern for
the future. Then the next drive that you have you can't
well have it less than sixteen billion. You possibly
would want to go to seventeen or eighteen billion and
you would have to include a certificate again.
You are establishing a pattern now for the first
time with a non-bank drive, and I would be conservative.
I would put it down to the point where I could raise it
next time, and I would get it on a basis of 8. sound pro-
gram of really selling a security that doesn't come
back at you in a year, and do a selling job - A real non-
bank financing job.
Now, if you do that - if you follow that sort of a
pattern and you don't put a certificate in, then you
would - with the certificate, now, I would make it three
billion, if it wasn't going to be in the basket, and I
would offer it to everyone.
Regraded Unclassified
284
- 8 -
I don't think it makes much difference whether you
give an exchange for the outstanding certificates or
whether you pay them. I wouldn't care one way or the
other. I would make it three billion dollars because
your quota would be a little less for the basket and
therefore, if the certificate isn't in it, I would make
it three now.
That would be a billion and a half of new certifi-
cates on the market which I think would pretty largely
meet your certificate situation. And I would allocate
in full up to a hundred thousand, and I would make
them pay in full with the subscriptions up to a hun-
dred thousand 80 that there won't be any speculating
in it.
If they are going to be allocated in full there
is no reason they shouldn't pay for them. The subscrip-
tions above a hundred thousand, I would require a pay-
ment of at least ten percent, so that the thing that
happened when the last issue was made of one and a half
percent notes couldn't happen here.
I think that had a very bad effect. When you get
a huge over-subscription I think it has this psychology -
I have heard it from quite a number of sources - it gives
the impression to a lot of people that this huge over-
subscription is a legitimate sale - that it is a natural
demand on the part of the public for Government securities.
They don't realize that it is a padding process and it
really doesn't represent a legitimate sale or a legiti-
mate demand.
Regraded Unclassified
285
- 9 -
A lot of the little people - the rank and file of
the people say, "My gosh, if the Government can get all
of this money that easy, then why all this appeal to
us?" I think it has that effect.
So, in putting out the certificate now, three billion,
I think I would hold it down - not only hold it down by
requiring cash up to a hundred thousand, which would get
rid of the speculator, but possibly provide a formila
for banks so that the banks' subscriptions would be
limited.
And subscribers outside of banks, we should under-
take to limit those as well, and police them, and possibly
leave the dealers out because they only buy to resell,
and thus--
MR. BELL: In other words, you would go back to the
old restriction.
MR. ECCLES: I think 80. Go further than the re-
striction because you never did have a hundred thousand
cash payment before and an allocation to the banks.
MR. BELL: Would you have exchanges?
MR. ECCLES: I don't care. I don't think it makes
much difference.
MR. BELL: If it is going to be in the basket, what
would you do, cut down the amount?
Regraded Unclassified
286
- 10 -
MR. ECCLES: No, if you were going to put it in the
basket - yes, I think I would. If it is going to be in
the basket I wouldn't put out more than two and a half.
I wouldn't offer it to the public at all. I would give
an exchange for the billion six hundred million that is
out, and I would give to the banks only the other billion,
because the public is going to come in and get it in the
basket, and I think that if you are going to expect the
banks to not try to indirectly buy the certificates out
of the basket - they will do that anyway to a certain
extent. But certainly if you are going to offer this
to the public now, it will cut the banks' allotment down
very greatly, and I think there would possibly be more
reason for the banks indirectly buying certificates out
of the basket.
MR. BELL: You would throw that three hundred million
dollars already outside of the banks into the banking system?
MR. ECCLES: Well, two and a half billion, and keep
them out of the basket. I mean, keep them from getting
their directors to subscribe for them, their affiliated
companies to subscribe for them, or brokers to subscribe
for them. What I am afraid of is, if you put the cer-
tificate in the basket you will likely have 8. lot of
certificates which were sold last time - you will have &
lot of certificates sold last time - at least some of
them - bought by corporations now sold to buy the new
ones again.
H.M.JR: I gather you haven't had any preliminary
talk on this?
MR. BELL: Yes, we had one the other day and discussed
this whole thing. We had one over in the Board. I feel
that the certificate should be in the basket, because I
think there is some money there that we should go after in
that form of investment.
I don't think that the salesmen ought to go around
to a corporation and ask them to subscribe and let them
say, You haven't got the kind of paper that I want. We
Regraded Unclassified
-2
287
- 11 -
don't want your tax notes; we have all those we need to
pay our taxes. We want a negotiable security, and it
shouldn't be over a year.' I think you will find a lot
of them that will say that.
H.M.JR: What is the hurry? You didn't tell me there
was such a hurry about this refinancing.
MR. BELL: August 1 is coming along here.
H.M.JR: Yes, but I haven't had any warning on this
thing.
MR. BELL: Yes, I warned you last week. I said that
we had to do this this week - the middle of this week.
MR. ECCLES: You talked of the 19th as the date.
MR. BELL: We talked about it last week.
H.M.JR: It didn't register.
MR. BELL: I am sorry. I said we would have to make
this decision this week.
H.M.JR: It is just coming to me out of 8. clear sky.
You didn't talk to me about this, Haas, up on the farm
Saturday.
MR. HAAS: No, that didn't come up.
MR. BELL: That is in his memorandum.
H.M.JR: I had the three men up there Saturday. They
never mentioned it to me.
MR. BELL: It was mentioned at our conference last
week that this was one thing we had to do the middle of
this week.
H.M.JR: They never discussed it with me.
Regraded Unclassified
3
288
- 12 -
MR. HAAS: We discussed it here, but not up at the
farm.
H.M.JR: I think it rushes me 80. It is a lot of
money. I don't want to make any mistakes. We have these
other people in here and are waiting to get their advice.
I don't know how they are going to advise me.
MR. BELL: That is on the basket.
H.M.JR: Yes, but Eccles says--
MR. ECCLES: I think it makes a real difference.
H.M.JR: He says how he advises us makes a difference
on how we go on the basket. We haven't decided it.
MR. ECCLES: I think we all feel that way - the Fed,
Hap, and all feel the same way, that if the certificate
is to be in the basket it calls for a different program
than if it is going to be left out of the basket.
MR. RANSOM: Mr. Secretary, I don't see how you can
decide one without deciding the other.
H.M.JR: I can't decide the basket for another day
or two.
MR. BELL: I don't see as they are tied in so closely.
H.M.JR: You have all of next week.
MR. BELL: Yes, but remember, if you are going to
leave it open Monday and Tuesday and then you close the
books, you don't make your allotment until all of your
mail subscriptions are in, which is about Thursday. Then
you mail that to your banks and they have to mail out their
notices of allotment and you have to get your money back
by the following Monday. There just isn't time enough.
H.M.JR: Where is Viner? Somebody said he was here.
Regraded Unclassified
289
- 13 -
MR. BELL: He is in the meeting across the hall.
H.M.JR: Eccles, do you mind if I ask some other
people?
MR. ECCLES: Not at all. Maybe I have taken up too
much time now.
H.M.JR: Frankly, I didn't know this was - as I say,
I didn't know I had to decide this today. I don't see
how we can decide it today.
Goldenweiser?
MR. GOLDENWEISER: I haven't given it a great deal
of thought. I confess I don't think that the difference
between the two and a half billions and the three billions
to be offered now is as big a difference as that, and
you could decide either way without making a mistake,
regardless of what you decide for your basket.
I would be rather favorable to & larger subscription,
make it three billions, and then because you have an
awfully lot of money to get anyway, you might as well get
it.
I would favor, of course, not including it in the
basket; but if you are not prepared to make your decision,
I would decide on three billions now, anyway.
MR. ECCLES: Would you offer it to the banks only?
MR. GOLDENWEISER: Yes.
H.M.JR: How about you?
MR. EVANS: We talked this over this morning, Mr.
Secretary, and I agreed exactly with the Chairman's point
of view on the whole thing.
H.M.JR: You have nothing else to offer?
Regraded Unclassified
290
- 14 -
MR. EVANS: Nothing else, no, sir.
H.M.JR: How about Boston?
MR. PADDOCK: As far as details are concerned, I
agree with the Chairman. I think three billion dollars'
worth of certificates if you put it out at this time -
I think that is what the salesmen want. I would leave
the certificate out of the drive, and I would have a
smaller total in the drive. I think that is 8 pretty
large amount to figure on getting without the banks.
H.M.JR: Would you open it to the public, or just
confine it to the banks?
MR. PADDOCK: Banks.
MR. RANSOM: I have no different opinion than the
views the Chairman has expressed. We have given a lot
of thought to it, Mr. Secretary, and I feel that the
certificate ought not to be in the basket. I think
that that being the case you come out at the other con-
clusion that Mr. Goldenweiser says, you might as well
offer the three billion now. Frankly, I think that
will contribute to keeping it out of the basket.
M.JR: George, what do you people think?
MR. HAAS: I would go two and a half and then I
would put rights on it - I would put some controls on
it - a formula on it - and also full cash for the hundred
thousand, and ten percent on the other outside the banks.
H.M.JR: You mean open it to the public?
MR. HAAS: Yes, not banks alone. And I would stay
at two and a half, on the smaller side, because we are
experimenting with the new controls and I would favor
putting - another reason I would favor putting it in
the basket - I do recall you did discuss this up there.
You raised it up at the farm. What I outlined there is
identical to the bankers' recommendation, except that
they ask for three. Isn't that right, Dan?
Regraded Unclassified
6
281
- 15 -
MR. BELL: They ask for three, yes.
MR. HAAS: But the only difference in my recommenda-
tion was to drop the amount.
MR. PISER: I have nothing to add to what the Chairman
said.
H.M.JR: Murphy?
MR. MURPHY: I would agree with what Mr. Haas said,
except that I think I would lean toward the three. The
consideration that would cause me to lean toward the
three is that I would like to see somewhat more of a
balance right at the beginning of the drive than we would
have otherwise. That is, I wouldn't like to see us come
right down and scrape bottom on our working balance.
I don't think, however, that there will be much
market difference between two and a half and the three,
and it may be that Mr. Haas' caution would be justified
by the circumstances, although personally I would be
quite confident of the three.
MR. YOUNG: I would rather see you put out three
billion dollars and confine it solely to the banks with
a formula of about seven percent of their net demand -
net deposits, with the same restrictions that Chairman
Eccles mentioned.
H.M.JR: Seven percent?
MR. YOUNG: Yes, as far as banks are concerned. Seven
net on net demand deposits would be about seven percent -
about eighty-five million - - 80 that won't be too much out
of line with three billion dollars. That would be fifteen
percent, then allotment if they all came in and subscribed
for what they were allowed to.
If you sell the three billion dollars then and reduced
your estimated quota - your proposed quota - then I don't
think it is necessary to have it in the drive. But it is
Regraded Unclassified
2S2
- 16 -
true that the corporations that we have talked to would
rather have the seven-eighths - that is, for their current
funds.
MR. ECCLES: Don't you think, Hap, that as to whether
it is in the drive or not depends on what you are going to
raise? I mean, that is the big factor.
(The Secretary left the conference temporarily.)
H.M.JR: Got it all settled?
MR. BELL: Do you want to ask Rouse?
MR. ROUSE: In view of the situation as it has pre-
vailed here this afternoon, Mr. Secretary, it seems to me
that a decision has to be made on this before you decide
on your basket. In the light of that, either amount, two
and a half or three billion, seems to me not material.
H.M.JR: I agree with you.
MR. ROUSE: You can easily go to the three and have
the assurance that Mr. Murphy mentioned. In view of that
and the other situation, I would be inclined to give rights
on the - give an exchange against the billion six to any
holder, whether it is a bank, a corporation, or an individual,
as the case may be. I would offer the balance to the banks
for subscription on a yardstick basis.
H.M.JR: May I interrupt you? How did we do the last
one, give rights or pay it off?
MR. ROUSE: On the last one we gave rights.
MR. BELL: That was in the drive.
MR. ROUSE: During this subscription this week you
would announce the terms of the basket so that others
would know they were going to be taken care of and how.
It seems to me you could make that decision tonight or
the first thing in the morning.
Regraded Unclassified
293
- 17 -
H.M.JR: On what?
MR. ROUSE: On this offering, without having to
decide the basket at the same time. You have to decide
that in the next day or two. That is what I was referring
to as circumstances.
If you do it on the basis I suggest I don't see as
you are compromising anyway.
H.M.JR: You are suggesting that we give people the
rights for the billion six?
MR. ROUSE: Yes, sir.
H.M.JR: And then offer the nine hundred or a billion?
MR. ROUSE: Yes, for cash subscriptions.
H.M.JR: What basis would you do it on?
MR. ROUSE: I would do that on the basis of only
bank subscriptions.
MR. ECCLES: On the formula.
H.M.JR: What was the formula?
MR. ROUSE: I didn't suggest & formula. You have any
number here. As long as there is one, it is all right
with me. I would do it on the basis of a percentage of
net deposits, and capital and surplus; whichever is greater
would be the one I prefer, designed at the maximum to
produce an allotment of forty to sixty percent in relation
to the amount offered. If you choose the seven percent
of assets, it is equally good with me.
H.M.JR: What about the old formula, fifty percent
of capital and surplus?
MR. ROUSE: It doesn't meet the situation in the
banks, the new big banks, the banks in the southwest,
Regraded Unclassified
234
- 18 -
on the Coast, and the south generally where the new deposits
are going. It isn't 8 fair thing to those banks.
MR. ECCLES: They have had the big growth and not the
money, 80 you have to base it on the deposits, I think.
MR. BELL: The bankers suggested a hundred percent of
capital funds, or five percent of deposits, whichever is
higher, for the formula.
MR. ECCLES: That would meet it. It is 8 little more
complicated having two different formulas.
MR. BELL: It gives the high capital ratio banks 8
little--
MR. ROUSE: There is no problem about it, because I
think generally speaking, bankers read and figure it--
(Laughter)
MR. ECCLES: Generally speaking - (Laughter) I agree
with Bob. If you can't decide the basket, I think that is
the other alternative.
H.M.JR: Well, how long will you be at your office
this evening?
MR. ECCLES: Until seven.
H.M.JR: If I could - I am at 8. disadvantage - if I
could go into a huddle with my own people, then either Bell
or I call you a little later - I will try my best to settle
this this afternoon.
MR. ECCLES: All right.
H.M.JR: Could you stay around in Bell's room and wait
a little bit?
MR. ROUSE: I will be glad to.
Regraded Unclassified
co-Mr. Gamble.
2S5
July 20, 1943.
3:46 p.m.
Operator:
Go ahead.
HMJr:
Hello.
Nick
Schenck:
Hello, Mr. Secretary.
HMJr:
Yes, Mr. Schenck.
S:
of course, it's all right.
HMJr:
Good.
8:
When do you want him?
HMJr:
Oh, I want him today but what's reasonable?
is
Well, I don't think that he can get there today
but how about tomorrow?
HMJr:
Tomorrow would be wonderful.
S:
I beg your pardon?
HMJr:
Tomorrow would be wonderful.
in
Well, I'll see to it that he closes his things up
as fast 88 he can and gets there and reports to
you
HMJr:
Is he coming to me tomorrow - can he get here
tomorrow morning?
S:
Well, I don't 1 know if he can there, but I'll try it.
HMJr:
If he needs any helo on a seat on A plane, we'll get
it for him.
S:
Fine.
HMJr:
Let him call up Gamble. He'll get him a seat on the
plane.
S:
All right. I'll do that.
HMJr:
Well, I appreciate that very much.
3:
Yes, Well, you know how I feel about the whole thing
and especially since you called me for it
Regraded Unclassified
296
- 2 -
HMJr:
Well, I
S:
I appreciate a great deal what you did, you know.
HMJr:
Well, it helps.
S:
All right, sir. I'll get him over then and you give
him a few minutes 80 he can talk to you.
HMJr:
Tomorrow.
S:
Yes.
HMJr:
Oh, definitely.
S:
All right, sir.
HMJr:
Thank you.
S:
Good bye.
HMJr:
Good bye.
Regraded Unclassified
297
July 20, 1943
3:50 p.m.
FINANCING
Present: Mr. Bell
Mr. Haas
Mr. Gamble
Mr. Murphy
Mr. Lindow
Mr. Tickton
Mr. Rouse
Mrs. Klotz
MR. BELL: Can I read the bankers' recommendations
just the interim financing? (Copy of Memorandum of American on
Bankers Association attached.)
H.M.JR: I wish you would.
MR. BELL: This was the question, "Should a limitation
on bank and other subscriptions be established on the
August 1 issue; should subscriptions of $100,000 be allotted
in full with 100 percent down payment required; should this
offering be open only to banks?"
"We recommend that 3 billion of new 7/8% 1-year Certifi-
cates of Indebtedness be issued to take up the certificates
maturing August 1, 1943 and to provide one and one-half bil-
lion new money. We suggest that holders of maturing certifi-
cates"
H.M.JR: What did they say?
MR. BELL: Three billion dollars, which would be a
billion and a half new money. "We suggest that holders of
maturing certificates be permitted to exchange them for
the new ones.
"Answering your question, we suggest that bank sub-
scriptions be limited to 100% of capital funds or 5% of
deposits, whichever is higher, as shown by the last published
figures, except that bank subscriptions up to $100,000 be
allotted in full. As to subscribers other than banks, we
think subscriptions of $100,000 should be allotted in full
and down payment of 100% be required and that above $100,000
10% be required. Subscriptions should not be limited to
banks.
Regraded Unclassified
298
- 2 -
H.M.JR: Well, look, let's go along point by point.
My own opinion is that it should be - when I say my own
opinion - I think it should be limited to the banks.
MR. BELL: You think it should?
H.M.JR: I do.
MR. BELL: I don't have as much objection to it as I
did. I was opposed to the other one, and I think that
the fact that you are going to announce the basket about
the same time or in a day or two takes that curse off of
a banking issue only. I wouldn't feel badly if it went
to banks only, although I was opposed to it strenuously
before.
H.M.JR: Let's each one say what he thinks. Don't
say, "I agree with Chairman Eccles." Either have 8 mind
of your own, or you are of no use around here. (Laughter)
MR. LINDOW: I think it is better to let everybody
come in. I think the public effect is better than to
have an offering at this time solely confined to banks.
Now, after the drive I think it might be all right
to have an offering confined to banks, that is, within
two or three weeks; but I think it may be misinterpreted
and that the Treasury may be criticized. I don't see any
particular gain in trying it.
H.M.JR: All right, Henry?
MR. MURPHY: Is it permissible for me to agree with
Lindow? He is different from Chairman Eccles. (Laughter)
I go along with him. I think it might be unfortunately
interpreted. I think the public is - after the emphasis
we have had on trying to reduce bank subscriptions, I
doubt if an offering solely to banks would be correctly
interpreted. After the drive, yes, but I prefer it not
now.
H.M.JR: Say it again.
Regraded Unclassified
299
- 3 -
MR. MURPHY: You will notice, Mr. Chairman, that
the bankers themselves-- (Laughter)
H.M.JR: Pardon me - Mr. Chairman? (Laughter)
(Mrs. Klotz entered the conference.)
MR. MURPHY: You will notice the bankers themselves,
who would be the principal beneficiaries in an offering
directed solely to banks, are afraid of the psychological
effect, and that their official committee has recommended
to you that they should not be singled out. They feel
that the psychological effect would be unfortunate. I
am inclined to believe they are the best judges. There
is nothing wrong with it mechancially or intrinsically;
it is just that I don't think it would strike the public
right.
MR. BELL: I think it would need explaining, too.
MR. HAAS: You would have to say that the banks are
not going to be in the drive, and try to hook it up. It
would bring up the question--
MR. MURPHY: An offering to the people of the United
States does not have to be explained, but an offering
just to the banks will. It seems to me that the thing
that should be done would be the thing that requires - that
doesn't have to be explained away, rather than the thing
that has to be explained away.
H.M.JR: All right, Mr. Piser. (Laughter)
Now, Doctor Goldenweiser, what have you got to say?
(Laughter)
MR. HAAS: I think that before you do a job solely
for banks you must have first done a real job on individuals.
Then I think it will go ahead all right. What I think is
a perfectly safe thing to do is the thing I suggested, keep
the two and a half and take the bankers' suggestion - the
whole thing, except the three billion - cut it down. And I
Regraded Unclassified
300
- 4 -
think it leaves you open - you undoubtedly will put the
seven-eighths in the basket.
H.M.JR: Yes.
MR. HAAS: Everybody is recommending that, except
this - I mean - I won't mention it. (Laughter)
H.M.JR: I am just doing one thing at B. time. It
has been crowded here. So much for this for the minute.
MR. TICKTON: The only reason that you would have it
for banks is the assumption that you are going to sell an
important portion of this to non-banks and take it away
from the drive. There is no evidence that & very important
volume of these certificates gets sold to non-banks in &
two-day offering.
Also, I gather from having listened to these salesmen
for 8. little bit this afternoon, and after talking about
quotas, that as soon 88 the idea gets around that there are
going to be very large quotas in September, your corporations
will want the publicity of coming in on the drive and will
not show up for a seven-eighths-percent certificate the 1st
of August. So the advantage that might otherwise seem a
large one, really will be discounted by the activities of
these salesmen who are amazed at the size of the quotas and
are going to be telling everybody, "Boys, wait for September."
They discussed a few minutes ago how the pay-roll
savings drive is getting in the way of September. They
think that is bad. There shouldn't be anything to take
off of September. I think they will get that around.
H.M.JR: Pay-roll savings is bad; I will agree with
that.
MR. TICKTON: There was a union statement on Sunday.
They said that that was going to get in the way of the
drive. But they are BO bowled over by the size of the
figures that they will get the word around pretty soon,
"Please save your subscriptions for the September drive."
I think that will prevent, in some important cases, any
subscription for certificates in August.
Regraded Unclassified
301
- 5 -
H.M.JR: Now wait & minute. The consensus here is -
plus this report from the Bankers which I just got now -
that we should have the billion six; it should be turned
over.
MR. BELL: Exchanged.
H.M.JR: We agree on that?
MR. MURPHY: Check.
MR. HAAS: I do.
MR. LINDOW: Yes.
MR. TICKTON: That is all right.
H.M.JR: Then my own feeling is that we make it
nine hundred million for cash. If we make it, how much
would you have? Let's call it a billion. Why don't we
call it a billion cash?
MR. BELL: It would be two billion six. That is
what you would get out of it really.
H.M.JR: Say a billion cash; if you had that, how
much would you have?
MR. BELL: We would go into September with a little
over three billion dollars.
H.M.JR: Is that all right?
MR. BELL: Yes, that will last us. But in the next
period - in the cash estimates there is an increase of
five hundred million in the November certificate. I
don't know whether we can increase the certificate of five
hundred million any more the way theysubscribe for it.
H.M.JR: Why not - let's say we will offer them the
rights. That is simple, isn't it? They just exchange
the billion six for--
Regraded Unclassified
302
- 6 -
MR. HAAS: That gives the banks a break, because
most of them are now held by banks, and they just turn
over.
H.M.JR: Then we are going to offer a billion dollars
more for cash. Is that right?
MR. BELL: Yes.
H.M.JR: A billion dollars?
MR. BELL: That is all right.
H.M.JR: A billion dollars for cash, all right?
MR. BELL: Yes.
MR. MURPHY: Or a billion and a half, it doesn't
matter.
H.M.JR: That extra half a billion dollars may look
awfully good in September.
MR. MURPHY: Could I raise a question? Mr. Bell
speaks of going into September with three billion. What
I am thinking of is the working balance on the 15th. I
have the theory - which may not be a good one - that
even immediately upon the eve of the receipt of the large
amount of money we ought to keep a more or less appreciable
working balance.
H.M.JR: The drive opens on the 9th - don't we begin--
MR. BELL: We don't get any money until the 15th,
but the three billion three will be ample to carry us
through the 15th. I haven t figured just what it will be,
but we ought to spend possibly two and & half billion up
to that date, and we will begin to get taxes along about
the 10th. Your taxes will come in heavy between the 10th
and the 20th.
H.M.JR: Are you satisfied?
Regraded Unclassified
303
- 7 -
MR. BELL: Yes, I am satisfied. It wouldn't worry
me any if we had to borrow a little at that point.
H.M.JR: I mean, half a billion dollars may not sound
so important here; but if we are going to need it for the
drive, I would rather-
MR. HAAS: You want this to go over with a bang
preceding the drive.
H.M.JR: Let's keep it to 8. billion dollars, a
billion dollars of certificates for cash, everybody can
subscribe.
MR. BELL: Open to everybody?
H.M.JR: Open to everybody?
(Group indicated affirmatively.)
H.M.JR: Why give any preferred allotment?
MR. BELL: I would rather not make any preferred
allotment - ten percent downpayment on all.
H.M.JR: I would make it--
MR. BELL: If you are going to give any preferred
allotment, I would like to reduce the hundred thousand
to fifty thousand, and I would like to use our old wording
of "preferred allotment," rather than "allotment in full.
H.M.JR: No, I wouldn't give any preferred allotment.
MR. MURPHY: One difficulty with a billion is that
the allotment for general allotment is liable to be zero;
that is, preferred allotment may take up the whole billion.
It will look kind of foolish.
H.M.JR: No preferred allotment?
MR. MURPHY: At a billion I think you are more or
less forced to abandon it because there is an important
document for it - you are squeezed out of it.
Regraded Unclassified
304
- 8 -
H.M.JR: You are taking care of the banks that have
already subscribed. If the fellow wants to get something
he can go out and buy & few rights, can't he?
MR. BELL: Yes.
H.M.JR: My inclination is for no preferred allotments
and twenty-five percent down.
MR. BELL: Twenty-five? I had ten. Twenty-five
percent ondown payment?
H.M.JR: Yes, sir.
MR. BELL: The trouble with that is you have to
refund a lot of money if the allotments are less than
twenty-five percent.
MR. MURPHY: One purely psychological difficulty
with it, it seems to me, is that the allotment - the down
payment is 80 small this time; and to put it from way
down here (indicating) to way up here (indicating) sort
of looks as if you are--
H.M.JR: Ten percent - I will go along with ten
percent. How are you going to let banks subscribe,
use this formula of the bankers?
MR. BELL: The bankers suggest a hundred percent of
capital funds or five percent of deposits, whichever is
higher. I take it the Board liked that. That deposits
means total deposits, I take it, including the war loan
and including inter-bank.
MR. MURPHY: And capital funds includes undivided
profits.
H.M.JR: How much would we get under that?
MR. BELL: A hundred percent would give you about
eight billion.
Regraded Unclassified
305
- 9 -
MR. MURPHY: We figure the deposits were about a
hundred million and the capital funds seven billion,
about, 80 you get five billion on one basis and seven on
the other. But each bank can elect to take the higher of
the two bases, 80 your total permissible subscriptions
would be seven and a half to eight billion with only a
billion of new cash. That is a pretty loose-fitting
garment.
MR. BELL: It would be somewhere between S even and
five.
MR. MURPHY: They would have to be a bit higher than
seven, because they have the choice of the two bases. In
one it is seven because capital surplus and undivided
profits will be about seven.
MR. BELL: This certainly would be ample for the
amount of money.
MR. MURPHY: Of course, you won't get that many sub-
scriptions; but if everybody subscribed their limit, you
could get between seven and eight billions.
MR. HAAS: That is just for the banks alone, too.
MR. MURPHY: That is right, and only a billion to go
for, 80 you are all right.
MR. BELL: If you are going to open it to the public,
it wouldn't do any harm to take a billion and a half.
H.M.JR: A billion is plenty.
MR. BELL: From the standpoint of the cash I think
it is. From the standpoint of allotting and subscribing--
H.M.JR: Well, it will be eleven hundred million.
I think what I am going to do 80 we don't get this
thing - last time we let something get through our fingers.
I am going to ask Mr. Bell and his staff to write this
Regraded Unclassified
306
- 10 -
thing up tonight. We will meet here again at nine o'clock
tomorrow. Everybody sleep on it and get a chance - we
will review the thing again at nine tomorrow. If it is
all right, we can give it out by ten o'clock.
(Mr. Rouse entered the conference.)
H.M.JR: Do you think that is all right?
MR. BELL: Yes. I think it crowds us a little tomorrow.
H.M.JR: You mean you want to get it out tonight?
MR. BELL: I did.
H.M.JR: I won't stop you. I am all right if you
fellows are all right.
If we got it to you by ten o'clock, could you print
it and get it in the mail tomorrow afternoon?
MR. ROUSE: I believe SO.
H.M.JR: You might send them the preliminaries
tonight and get ready for final word by ten tomorrow morn-
ing.
MR. ROUSE: We could do that, Mr. Secretary. They
could have it put in type for the form you sent up, which
we received yesterday - which I recall the banks received -
have that put in type, and any changes you have ready
tonight, and then the final thing the first thing in the
morning would be all right.
H.M.JR: As I say, it is nobody's fault but my own,
but they rushed me a little bit. I want to get it in
shape and then have a fresh look at it tomorrow morning.
It is a lot of money. I would feel better about it.
MR. ROUSE: We can handle it.
H.M.JR: Give it for immediate release to the
newspapers at ten o'clock.
Regraded Unclassified
307
- 11 -
MR. ROUSE: The thing will be very widely spread
promptly over the telephone wires.
(Mr. Gamble entered the conference.)
H.M.JR: I want you to know about this. Rouse
hasn't heard about it. What we think of doing is - a
billion six hundred million dollars' worth of certificates
come due on August 2. We are offering to present holders
the right to subscribe to a new issue of the same amount.
That is number one.
Then, number two, we are proposing to offer a billion
dollars for cash of new certificates, one-year, seven-
eighths, with no preferred allotment to anybody. Everybody
has 8 right - open it to the public.
MR. BELL: Down payment--
H.M.JR: Down payment of ten percent. And then for
the banks, five percent of their total deposits or their
surplus deposits, either one, whichever is the higher.
They can have their choice. They say this roughly makes
available about eight billion dollars' worth of subscriptions.
MR. ROUSE: From a Reserve Bank standpoint, would you
want us to place - have any ceilings on subscribers other
than banks?
H.M.JR: I don't think I understand. You mean, do we
expect you to do policing?
MR. ROUSE: Yes, to have restrictions on subscriptions
from other than banks.
H.M.JR: Yes, you make your house rules.
MR. ROUSE: We had rules which Dan has there that
you published about a year and a half ago before the
advent of war financing.
Regraded Unclassified
308
- 12 -
H.M.JR: Look, if it is all right with you fellows,
it is all right with me.
MR. BELL: I hate to go back to those restrictions.
MR. HAAS: Let's try the ten percent first.
MR. ROUSE: I am willing to try it and see if we have
to do it.
H.M.JR: What I would do is this - are you satisfied
so far?
MR. ROUSE: Yes, sir.
H.M.JR: Are you satisfied?
MR. GAMBLE: Yes, sir.
H.M.JR: They wanted three billion, but I want to keep
it down to two billion six so we will have them with their
tongues hanging out in September.
If you will adjourn this meeting to your (Bell's)
room and get the thing all fixed up, Mrs. Klotz will put
it down for nine o'clock tomorrow morning and we will
have a fresh look at it.
MR. BELL: You want a formal release tomorrow by ten
or just an informal one?
H.M.JR: You mean all?
MR. BELL: Yes.
H.M.JR: I think just the stuff for Schwarz to give.
MR. BELL: Then a formal release Thursday morning
announcing it in the usual way, or would you rather have
a complete release?
MR. ROUSE: I would put a little more in than usual,
but you mean the substance of the terms tomorrow morning
with all the additions Thursday morning - that is fine.
Regraded Unclassified
309
- 13 -
MR. BELL: It will probably get a little better play
because your morning papers will carry it.
H.M.JR: Are you satisfied on this?
MR. ROUSE: Yes. It isn't exactly what I suggested.
Regraded Unclassified
310
MEMORANIUM
For The
SECRETARY OF THE TREASURY
By The
SPECIAL COMMITTEE ON THEASURY HAR DORROWING
or The
AMERICAN BANKERS ASSOCIATION
is requested by you 10 have reviewed the memorandum submitted by
the Federal Reserve Board, and in this commestion discussed the matter with
Mr. Feeles and also with Mr. Bell, Mr. Heas and their associates in the
Treasury Department. The Federal Reserve and the Treasury both agreed that
the general present pattern of rates on government securities should be
waintained within limits that, while permitting some market fluctuations,
will not very up or down to a degree that will shake the confidence of the
public in the general stability of the rate structure. with this we fully
agree.
Inderal Reserve
At the present time the emply of short-torm Government securities
running up to 10 years which nzo porticularly subtable for bank investment
1s not, except in the one of 90-day bills, equal to the demand. The supply
of 90-day bills at the payment rate of 3/8 of 18, - with the agreement of
the Federal Reserve banks to purchase them at this rate, has reached the
saturation point. At the present time it to obvious that any increase in
the amount of bills outstanding will find their my into the Federal Reserve
banks. This lask of abort-term investments, other then 90-day bills, sult-
able for bank's investment, has enused may banks to buy long-term covernment
Regraded Unclassified
2.
311
securities which were designed primarily for other investore and has put -
undesirable (wessure on the whole rate structure, tending to dialcoate it
and to lower the rate on long-term government securities to & point where
Investore other the banks will not buy them.
The Federal Reserve suggests that no nore bills or year certifi-
ontes be 1ssued, but that instead 9 months bille or certificates, bearing
3/45 interest, be issued into which the present outstanding bills end leyear
certificates would be refunded as they mature and that the Federal Reserve
banks would agree to purchase such 9-month bills or certificates at 3/4 of 1%.
While the proposs] of the Federal Receive System would tend to
allevinte the present pressure for short=torm securities available for bank
investment, we believe that the - result wight be obtained by not onlarg-
ing the amount of 90-day bills outstanding until the mrket has clearly
demonstrated its ability to absorb them, end increasing the supply of 1-year
7/8 certificates, end supplying more 1 1/26 notes having a naturity of
5 years or less and of 25 bonds having a musity of 10 years or less when
the next offers designed primarily for banks nre made by the Trensury. le
believe it better to try this program to see if it would not remedy the
situation rather than at this time adopt the Federal Beserve Board's sug-
gestion.
If this does not remady the situation, then sono plan clang the
lines of the Federal Reserve should be given serious consideration. The
objectives of the Federal Reserve and the Treasury are 80 nearly identical
that close cooperation between the two in adopting a a objective and
mking effective a progres should bring success.
In regard to the specific questions which are contained in the
Regraded Unclassified
312
3.
executive submitted by the Univer Secretary and on which 16 were requested
to give our recommendations, they are made in the (mere) light of the fore-
going consumsion.
THING WAR LOAN
1.
Nost securities should be in the basket for each
class of investor?
no resormend for the basket the following:
7/85 1 year Certificates of Indebtedness
2% Bond due 10 years callable 8 years
2 1/2% Bond due Dec. 15, 1969 callable Dec. 15, 1964
B, F, and G Sevings Bonds
Present Series C Tax Sevings Notes
no recommend the inclusion of 7/8 one year certificates because -
believe that without them, it would be difficult and probably impossible to
get corporate subscriptions to the amount estimated.
Simultensously with the amountment of the banket we think that
e statement should be made that the 7/8% Certificates of Indebtodness and the
2% Bonds will to offered to banks only not ecrlier then Detober 15 ner later
then November 2 in a minimum - of 2 1/2 billions, this amount to be in-
creased as may be needed, of which a substantial amount will be of the 2%
bonds. No believe such en amount would tend to reduce the pressure
from banks seeking to invest I reserved during and imediately after
the period of the drive.
2.
Should the timing of the corporation part of the
drive be seperated from the individual part?
Answering question two W think that the corporation part of the
drive should not be separate from the individual parts
Regraded Unclassified
313
4.
3.
Should banks be offered the marketable securities
issued in the drive after the cless of the drive?
The third question has been answered in commotion with question
one.
4.
Should a partial payment system be established for
the 2-1/2'01 for large demoxization = bonds?
hameering the fourth question there should be no partial payment
plan for the 2 1/2's particularly if 0's are offered and 10 000 no prooti-
cel my to provide for partial payment of 24 bonds on account of administrative
expense, shortage of mapower and difficulty of policing.
5.
Should the Treasury and the Federal Reserve publicly
encourage the withdrawale of bank deposits for the
purchase of was bonds during the drive?
Answering number five we recement that that question be left
to the State Chatresn and their comittees soting in collaboration with the
banks end because of the varied conditions that provail throughout the
country. This is particularly important in states where there are Natual
Savings Banks.
INTERIM PIRANCING
Should a limitation on bank and other subscriptions
be established on the August 1 Lanues should ab-
coriptions of $100,000 be allotted in full with 100
persent down payments required; should this offering
be open only to banks?
No recommend that 3 billion of new 7/8% 1-year Certificates of
Indebtedness be issued to take up the certificates enturing August 1, 1943
and to provide one and one-half billion now many. Re suggest that holders
of naturing certificates be permitted to enchange them for the new -
Regraded Unclassified
314
5.
Answering your question, - suggest that bank subscriptions be
Regraded Unclassified
limited to 100% of capital funds of se of deposits, whichever 10 bigher,
as shown by the last published figures, except that bank subscriptions up
to $100,000 be alloted in full. As to subscribers other than benks, we
think subscriptions of $100,000 should be allotted in full and down payment
of 100% be required and that above $100,000 10% be required. Subscriptions
should not be limited to banks. clokect
No. 1 - Overwall quotas.
There should be - overall quota. He haven't sufficient
information to advise as to the amount, but it should not be not higher than
you can reasonably expect to attain. It appears to us that the amount of
7 billions for individuals is too high.
no. 2 - Should over-all quota be broken dom
by States and other politionl sub-divisions)
The think state quotes should be fixed and that any further
broakdown shown be left to the State Chairmen and their comittees.
No. 3 - Should any quota or quotas be
doen by types of securities?
No. le think imprectical.
No. 4 - Should the total be broken down by classes
of invetors?
Fe think should be done for benefit of State Chairman but not
ende public.
No. 5 - that quota of quotas should be made
public?
Total quota should be ennounced and any other publicity on
quotas should be left to the State Chairman.
Filed 4:00 Della 7=16=43
315
July 20, 1943
4:15 p.m.
Re: Request of Senator Truman regarding
location of War Finance headquarters.
Present: Mr. Gamble
Mrs. Klotz
H.M.JR: I got all excited. Senator Truman
called me up - this is from the sublime to the
ridiculous - and said he would consider it a great,
great favor if I would not move the War Finance
office from Jefferson City to St. Louis.
How important is it to you?
MR. GAMBLE: It is very important. We have al-
ready moved it, as a matter of fact.
H.M.JR: You already moved it?
MR. GAMBLE: But we can keep a district office -
as a result of his interest we can keep an office in
Jefferson City. We have already rented the space in
St. Louis.
H.M.JR: Have you given up the other?
MR. GAMBLE: I don't know that we have given up
the other space, but even if we have we can maintain
8 district office.
H.M.JR: I wouldn't do it if it is--
MR. GAMBLE: It is very impractical. I will tell
you what happened. There was a little bit of a political
Regraded Unclassified
316
- 2 -
situation. Our man located this office in Jefferson
City, with the story they didn't want to be in either
Kansas City or St. Louis. It is ridiculous, with St.
Louis one of the financial centers of the country, not
having State headquarters there. But Mr. Head is
chairman, and we moved the--
H.M.JR: I will send him a telegram. Say, "Have
looked into the question that you telephoned me about
and find that the decision had already been made to
move the State headquarters of War Finance to St. Louis.
I find that this is in the interest of efficiency and
economy. Kindest regards."
Regraded Unclassified
EXPENSES OF LOANS
July 20, 1943
SENATOR HARRY S. TRUMAN
PRESIDENT HOTEL
KANSAS CITY, MISSOURI
AM SORRY I DID NOT HAVE YOUR VIEWS BEFORE TODAY CONCERNING LOCATION OF
THE WAR FINANCE HEADQUARTERS, I FIND THAT CONSIDERATIONS OF ECONOMY
AND EFFICIENCY HAD DICTATED THE MOVE TO ST.LOUIS WHICH IS NOW UNDERWAY
AND WHICH COULD NOT BE RECONSIDERED WITHOUT SETBACK TO THE ORGANIZATION
WHICH IS IN ADVANCED STATE OF FORMATION. KINDEST REGARDS
HENRY MORGENTHAU, JR.
SECRETARY OF THE TREASURY
Regraded Unclassified
318
July 20, 1943
4:15 p.m.
Mrs.
Four:
Hello, Mr. Secretary.
HMJr:
Tell Mr. Smith this, that he should get in touch
with Mr. Bell when he gets in - we'll have a release
on - financing which should be typed tonight - we're
having a meeting at nine c'clock on It tomorrow
morning but I want all the work done tonight.
F:
Yes, sir.
HMJr:
He should see Mr. Bell BE soon 85 he comes over
because I want the thing released before ten o'clock
tomorrow.
F:
All right, sir. I certainly will.
HMJr:
Have you got that?
F:
Yes, sir, I have.
HMJr:
Thank you.
F:
Thank you.
Regraded Unclassified
319
25
JUL 20 1943
Dear Frank:
The Third War Loan Drive, beginning September 9. 1943. will
air at raising the largest amount of money from individuals that
any drive has raised in the history of the world.
Between July first and the end of the calendar year, ve will
spend about 35 billions of dollars more than we will take in.
It is costing $240 millions a day to equip our armed forces and
take care of other necessary war expenditures. This is nearly
$100 million a day more than we were spending last year at this
time.
In the September drive, we vant to get from individuals a
substantial part of the money necessary to carry on the war.
Selling the huge amount in bonds called for in our new pro-
gram vill require a. more determined effort than we have ever
exerted before. We will have to well bonds to nearly every can,
VOMAR, and child in America.
We will have to promote the sale of bonds 24 hours a day
and solicit - and follow up these solicitations - from house to
house, from bench to bench in factories, and from desk to desk
in offices, Ve need the cooperation of all the people every-
where, for to do the job ahend ve must not only extend the pay-
roll anvings plan, but ve must also sell more extra bonds every
pay day to more people.
During the last six months of this calender year, we must
sell more than twice as much in bonde to individuals as we did
in the first of the year. Asking for twice as much money from
individuals may look at though we are setting an impossible
task, but it is possible. The earnings of individuals during
the last half of the year will be about $72 billions and the
available savings from these earnings of individuals will be
about 823 billions. We are going after the greater portion of
these savings because it is necessary for us to get this money
either through bonds or taxes, not only to finance the var,
but also to protect ourselves against inflationary spending.
One of the main channels for selling bonds to salaried
and wage earners is through the pay-roll givings
employees system. At the present time, 27,000,000 employees in Government
Initialed copy to Thompson.
Copy of ltr and enclosure
in diary.
Regraded Unclassified
320
- 2 -
ment and industry are purchasing $420 millions of War Savings
Bonds a month through the pay-roll savings plan. Our new objec-
tive 10 to increase this to $600 millions a month.
Civilian employees of the Federal Government are now invest-
ing approximately $35 millions a month through the pay-roll savings
system. This does not include bond purchases by employees of the
post offices throughout the country because they have not as yet
installed the pay-roll allotment method. However, I am informed
that you have approved the installation of the pay-roll savings
plan in the post offices at Washington, D. C. and Baltimore with
the understanding that 12 it proves successful in operation it
will be extended to other post offices.
The purpose of this letter is to ask if you would be good
enough to release a. statement in the near future concerning the
Washington, D. C. and Baltimore installations, and that you would
consider extension of the plan to post offices in other cities as
rapidly no possible. In this connection, I as enclosing for your
convenient reference a copy of & letter recently addressed to ne
by the President saying that "the pay-roll savings plan 1s the
greatest single factor ve now have in protecting ourselves against
inflationary spending." In an sorlier letter, the President said
that "The wholehearted support of the voluntary system of pay-roll
savings by employees of the Federal Government will have a most
stimulating effect on our soldiers, mailore, and marines, ne well
as the millions of war workers in private industry: while our
indifference seriously affects the support of those who look to
us for guidance." The President then added that "It would please
me very much if the employees of the Federal Government should
lend the vay in the development of n. systematic nethod of sus-
tained savings through the pay-roll allotment plan."
In the absence of a general pay-roll savings plan in the
post offices, I would appreciate it if you would designate some-
one to confer with Mr. E. F. Bartelt, Chairman of the Interdepart-
mental War Savings Bond Committee with a view to stimulating cash
males of war Bonds to Postal employees during the Third Var Loan
Drive.
I hope you will give this matter your personal consideration.
Sincerely yours,
(Rigned) M. Morgenthau, J)
Secretary of the Treasury
Honorable Frank 0. Walker
Postmaster General of the U. S.
Washington, D. 0.
artelt:JM
16/43
Enclosure
Regraded Unclassified
321
THE WHITE HOUSE
WASHINGTON
June 24, 1943.
Ky dear Hr. Secretary:
Through you, as Secretary of the Treasury, I want to congratulate
the American people on the way in which they have supported the volun-
tar. payroll savings plan.
I An proud of the fact that 27,000,000 patriotic Americans are
regularly investing more than $420,000,000 a month to help pay the
cost of the war. And since all of this money comes from wages and
salaries -- nearly 90 percent from people carning less than $5,000.
and the bulk of it from those working in war plants -- I do not hesi-
tate to say that the payroll savings plan is the greatest single
factor we now have in protecting ourselves against inflationary
spending.
This is a great record, both from the standpoint of curbing
inflation and from the standpoint of financing the war, However,
I heartily endorse your present drive to improve that record, and
I agree it must be improved if we are to keep pace with the
increasing demands of the war.
I therefore join you in calling upon the American people - and
upon labor and management particularly - to do still more. Addi-
tional people should be convinced of the necessity of participating.
Everyone now on the payroll savings plan should materially increase
the amount of bonds he 1e buying. We originally asked for 10 percent,
but now we need considerably more.
I hope every American on a payroll will figure out for himself
the extent to which he can curtail his spending, and will put every
dollar of additional saving thus made into the payroll savings plan.
Sincerely yours,
Finalitan Informato
The Honorable,
The Secretary of the Treasury.
Regraded Unclassified
322
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO:
The Secretary's Office
July 20, 1943
FROM:
Mr. Delehanty
I am attaching E copy of the material included in the
promotion built sround the letters from the Chief Justice and
the members of the Internal Revenue Taxation Committee.
1. The full-page newspaper ad together with the 1000 line,
adaptation wore sint to 3,000 newspapers, with a
request to insert this advertisement at the very first
possible moment.
2. 250,000 copies of the attached postor were mailed
from Chiongo to every plant on the Tickton list.
Additional copies were sont to each State Administrator
for 6. supplementary distribution in his State.
3. The three-column rat release of each lotter was railed
to approximately 2500 company publications und 50
Labor Pross papara.
L. Reproductions of each letter were cont to approximately
30,000 plants throughout the country using the Tickton
list.
Regraded Unclassified
To Newspaper Advertising Manager
Here is an important message concerning the
Payroll Savings Plan. It will obtain an unusually high
readership because it will be of interest to every
American. We suggest that you insert it in the
earliest convenient issue as a replacement for another
advertisement in your War Bond advertising schedule.
War Finance Division
U.S. Treasury Department
TO THE AMERICAN PEOPLE
SUBJECT:
A RECOMMENDATION
FROM THE CHIEF JUSTICE OF THE U.S.
FROM THE CONGRESS OF THE U.S.
/
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Dear Mr. Secretary
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Lated deal' - goth Decretary - and - - country of UM are voluntary williem Payrell -
survices earners - - - $620,000,000 ** PLan. - are of of virtaine replarit primary - tapertance - Lawesting " sgainst $4 - as " - - all une Government all non - to of withing citizens per - use " - - se - -
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also - that - an of - - 10 my
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PRIVINE - - Treatment DP - of to - -
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FIGURE IT OUT
Yourself! BUYING THE PAYROLL SAVINGS PLAN
BOOST YOUR BOND
SPONSORS NAMES HERE
Regraded Unclassified
To Newspaper Advertising Manager
Here is an important message concerning the
Payroll Savings Plan. It will obtain an unusually high
readership because it will be of interest to every
American. We suggest that you insert it in the
earliest convenient issue as a replacement for another
advertisement in your War Bond advertising schedule.
War Finance Division
U.S. Treasury Department
TO THE AMERICAN PEOPLE
SUBJECT:
A RECOMMENDATION
FROM THE CHIEF JUSTICE OF THE U.S.
FROM THE CONGRESS OF THE U.S.
//
-
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campular to directed Not financing the les - miy " Apr percess - they from No sillia does or - Attes have the this - of the American la my purchasing with Treasury - that inflation, Too, should Pay the wickings - survaloge hower, American rine be " added - . lato 4Nd that fine Niet people and funds, m and - public record. be - bist statemed by - la participation my The assure in - contribution - fart this dollar Service asterially. uside that for In Plan, - the
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Members
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FIGURE IT OUT
Yourself! BUYING THE PAYROLL SAVINGS PLAN
BOOST YOUR BOND
-
SPONSORS NAMES HERE
Regraded Unclassified
324
To Newspaper Advertising Managers:
Here is an important message concerning the
Payroll Savings Plan. It will obtain an unusually high
readership because it will be of interest to every
American. We suggest that you insert it in the
earliest convenient issue as a replacement for another
advertisement in your War Bond advertising schedule.
War Finance Division
U.S. Treasury Department
TO THE AMERICAN PEOPLE
SUBJECT: A RECOMMENDATION
FROM THE CHIEF JUSTICE OF THE U.S.
FROM THE CONGRESS OF THE U.S.
- - - - -
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Members of the Joint
Committee on Internal
Revenue Texation whose
signatures appear above
ares Senator Walter F.
IF F.
lim.
L
Minnesse
George, Semater Arthur
Chairman,
Ways
II. Vändenberg, Hoa,
Committee
1
Robert L Doughton, and
Has
Harold
Koutson.
FIGURE IT OUT!!
Yourself! BUYING THROUGH THE PAYROLL SAVINGS PLAN
BOOST YOUR BOND
SPONSORS NAMES HERE
Regraded Unclassified
TO THE AMERICAN PEOPLE
SUBJECT:
A RECOMMENDATION
FROM THE CHIEF JUSTICE OF THE U.S.
- FROM - THE CONGRESS OF THE U.S.
/
/
from
Suprese - of the "Amil+8 B.C. Sixtre
Congress COMMITTEE of the United
/
- Mastington On INTERNAL REVENUE States TAXATION
In THE
June 29, 1943
-
Dear Mr, Secretary:
June 29, 1963
/
E- 0.
of
the
Treasury
My dest Mr.
purchases Committee roll or are Thank au happy you Sevings to #ipport Moans the Committee propert and the It Senate Out Increase fourselfs, Finance
savings the House drive for based and sending - the us theme the description "Figure of your expanded pay-
Secretary's and the country are to - congratur Payrell
Both striking you success of the Voluntary million n°
lated an Flan. the regularly Through invoice it twenty-seven in the Dovernment 000% et hands not
tan terms percest - or agree has or American may - already you, pay achieved workingson however, envelope a through and fine end salary - record. the are check Payroll The notting fact Sevings and that Plan. almost twenty- the
earners than This war and $420,000,000 1ª are of " primary . sefeguard that & importance sonth ed against sany to anot of " siving inflation. our an fellow aid [rom to citizens winning earning* But is " - - DOB
diverted Not materially.
Pinamaine only for In Stamir. the
This from does Also the the this purchasing Treasury mar should New be Bonds added 4nd are that funds, be public stepped participation drive contribution up speaks to
also important forgotten art of " by
reviving securing the freedom from ent in today. she two
any saving of something (TOM the plenty of
appeal campaign to the 4a fight and Way - have against know 4a that the inflation. Past, the American otreas No Wish into people you assings *ill success but 1a respond every 4n à this dollar to this
Yours sincerely,
their
Sincerely,
Harian
7.
stone
Members of the Juint Committee on
Internal Revenue Taxation whose
signatures are Senator
Walter F. George. Segator Arthur H.
Vandenberg, Hon- Habert L. Dough
Sending # offer George (Ga)
Signature dether N. Fundenberg,
fan, and How. Harold
Chairmen
Non. Return L (X.E.)
Michigan
Non. Harold Knurson (Minn.)
Sente France Committee
Chairman
Vinerily Ranking Member
Member House Ways and
Nouse Vegional Means Commiter
Mana Committee
FIGURE IT OUT
BOOST YOUR BOND
Yourself! BUYING THROUGH THE PAYROLL SAVINGS PLAN
Regraded Unclassified
326
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 20, 1943
TO
Secretary Morgenthau
FROM
Mr. Paul
For your information, on July 14, 1943, Mr. Colin Stam,
Chief of Staff of the Joint Committee on Internal Revenue
Taxation, submitted three formal requests to obtain data
under the additional powers which were conferred upon him
by the Revenue Act of 1942, Section 5012 of the Internal
Revenue Code.) The requests are as follows:
1. Within five days from July 14, 1943 furnish "Any
suggested alternative plans already prepared by the Treasury
Department in 1943 for raising additional revenue or combat-
ing inflation, together with accompanying schedules."
2. Within seven days from July 14, 1943 furnish for
the calendar year 1943 a series of detailed estimates relat-
ing to the number of returns, income tax base, and tax yield
of the individual income tax, corporation income tax, declared
value excess profits tax, and the capital stock tax, distributed
by income classes.
3. Within five days from July 14, 1943 furnish for the
calendar years 1940, 1941 and 1942, a series of detailed data
relating to the number of returns, tax base, and tax for the
individual income tax, corporation income tax, declared value
excess profits tax, the excess profite tax, and capital stock
tax, distributed by income classes.
The attached copy of the letter to Mr. Stam was cleared
with Under Secretary Bell and indicates the material which I
am forwarding to him in compliance with his first request.
So far as practicable, the data for the two remaining
requests are being prepared and will be submitted as soon
as they are ready.
BP
Attachment
Regraded Unclassified
327
JUL 20
Dear Mr. Stam:
In accordance with your request of July 14, 1943,
addressed to Mr. Paul, I am enclosing material that is
being studied by the Treasury Department respecting
possible alternative plans for raising additional reve-
nue or combatting inflation.
This material consists of (1) two possible cor-
poration surtax schedules; (2) four possible individual
income tax schedules; (3) 8. series of possible excise
tax changes and additions; (4) a possible schedule of
rate increases and exemption decreases for the estate
and gift tax; (5) memoranda and three tables covering
various aspects of 8. Federal retail sales tax; and (6)
three possible spendings tax schedules.
I trust that this material will be helpful for
study purposes by your staff. In this Department the
material is at the study and discussion stage, and does
not represent a program officially sponsored by the
Treasury Department. Rather it is a collection of some
of the materials out of which a revenue program might
ultimately be constructed. It does not cover all the
materials that will be relevant since the Treasury is
continuing its intensive research in this field. The
material is, of course, confidential not only as to
source but also as to contents.
I should be greatly obliged if you could, on your
part, supply Mr. Paul with whatever estimates and memo-
randa you may have prepared on alternative plans for
raising additional revenue. This reciprocal inter-
change of information would expedite the work on the
forthcoming revenue act. As with the material that
you have requested, these estimates and memoranda would
Sent by Messenger from Paul's office
at 5:15 - File retained in Paul's
Office - Copy of reply in Diary.
Regraded Unclassified
328
- 2 -
be used only for purposes of study by the research
staff and would be kept confidential.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Mr. Colin F. Stam
Joint Committee on Internal Revenue Taxation
Room 1336, House Office Building
Washington, D.C.
Enclosures.
Regraded Unclassified
329
July 20, 1943
TO THE PRESIDENT:
There are attached hereto draft
of a letter addressed to me and an
employee's withholding exemption
certificate, both for your signature
and return, in order that we may take
steps with respect to your salary to
comply with the applicable provisions
of the Current Tax Payment Act of 1943.
*Signed) I. Morgenthau, Jr.
DWB: NLE
File in Diary.
decle, by sa ast 7/21 at 10:33 am.
DWB
sent by I agent
14 th reseive
in to wa 4/-
Regraded Unclassified
330
Dear Mr. Secretary:
In order to comply with applicable provisions of
the Current Tax Payment Act of 1943 (Public Law 68-
75th Congress). approved June 9. 1943, I am enclosing
a duly executed Employee's Withholding Exemption Certi-
ficate for use in connection with deductions from my
salary as President.
I would thank you to handle future payments of
my salary so as to comply with the above-cited law.
Very truly yours,
Enclosure
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
&
LLCollie:JM
7/15/43
N7 DWB
Regraded Unclassified
331
Dear Mr. Secretary:
In order to comply with applicable provisions of
the Current Tax Payment Act of 1943 (Public Law 68-
78th Congress), approved June 9. 1943. I as enclosing
a duly executed Employee's Withholding Exemption Certi-
ficate for use in connection with deductions from my
salary as President.
I would thank you to handle future payments of
my salary so as to comply with the above-cited law.
Very truly yours,
Enclosure
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
LLCollie:JM
7/15/43
Regraded Unclassified
FORM W-4
U. S. TREASURY DEPARTMENT
EMPLOYEE'S WITHHOLDING EXEMPTION CERTIFICATE
332
INTERNAL REVENUE SERVICE
(Collection of Income Tax at Source on Wages)
Name
(Print full name)
Address
Social
(Print home address)
Security
No.
I. Check the box in the line below which applies to you on the date this form is filled in:
Married person living with husband or wife but claiming none of the personal exemption
(1)
Married person living with husband or wife but claiming half of the personal exemption
(2)
Single person (not head of a family) or married person not living with husband or wife (not head of a family)
(3)
Married person living with husband or wife and claiming all of the personal exemption (spouse claiming
none of the exemption)
(4)
Head of a family (a single person or married person not living with husband or wife who exercises family
control and supports closely connected dependent relative(s) in one household)
(5)
II. Number of dependents receiving chief support from you who are either under 18 years of age or incapable of self
support because mentally or physically defective
I declare that the entries made herein are a true and complete statement as of the date indicated, pursuant to the Internal
Revenue Code and the regulations issued under authority thereof.
Date
194
10-34596-1
(Signature)
Regraded Unclassified
The personal exemption for withholding is an amount of wages on which no tax is withheld. The
exemption is larger for married persons living together and for heads of families than for single persons
who are not heads of families or married persons not living together and not heads of families. If a hus-
band and wife living together both receive wages, they may divide the exemption equally, or one may take
all and the other none, as they agree. An additional exemption for certain dependents is allowable to the
person furnishing the chief support of such dependents.
An Employee's Withholding Exemption Certificate shall be filled in by the employee and furnished
immediately to each employer. In case of a change in marital or dependency status, a new exemption cer-
tificate shall be filled in and furnished to the employer not later than 10 days after such change occurs.
Upon commencement or change of employment, an exemption certificate shall be furnished the new
employer on or before the date of such employment.
If no exemption certificate is filed by the employee with the employer, no withholding exemption is
allowable.
Severe penalties are imposed for willfully supplying false or fraudulent information or for willful
failure to supply information which would reduce the withholding exemption.
U.S. GOVERNMENT PRINTING OFFICE 1943 16-34500-1
Regraded Unclassified
333
July 20, 1943.
Memorandum to The President:
This is in reference to your pencil memorandum
about Lewis Penwell, Collector of Internal Revenue in
Montana.
Penwell is not regarded as a first rank collector
and we see no objection to his displacement. Senator
Murray, in a letter to you dated December 30, 1942, sug-
gested the appointment of Iver M. Brandjord of Ronan,
Montana, to succeed Penwell. We were informed that the
National Committee a few days later sent you a memorandum
to the effect that they had no recommendation to make,
that the matter was up to the Senators and that there
would be no objection on the part of the Committee to
any action taken. Subsequently, however, Frank Walker
asked that the matter be held in suspense. We are now
informed that Chairman Walker is on his way out to
Montana, where he is to arrive tomorrow, Wednesday,
July 21, and that his hope is that he may compose the
differences between the Senators so that 8. number of ap-
pointments may be cleared. Ambrose 0' Connell suggests
that nothing be done until we have some word from Walker.
(Signed) I. Morgenthau, Jr.
Secretary of the Treasury.
wr
Deldy agent 7/01/13 10:33
Regraded Unclassified
Hmg
Jhonson L. Pensonal les kift
he Jrthr fall. in Illentone
He is old a faith X We should
Change if he is
a blo Xdi to jrb =
335
7/20/43
Mr. Fred Smith.
The Secretary.
I'm writing this memo to you as though I had already put
Chick Schwarz under you.
Over the week-end I read & little squib in the paper that
somebody in the Treasury had announced that the goal for the
third war loan drive 18 going to be sixteen billion dollars.
T don't know where they not it but I do wish the people in the
Treasury who don't know what they are talking about would keep
quiet.
This morning on the financial page of the New York Tribune
under "Wall Street Comments" there was a long squib saying the
September Drive would be about sixteen billion dollars. I think
this 18 most unfortunate and I wish you would trace down where
the "Sixteen Billion Doller" story comes from. The first time
you see me this morning let me know.
I think that Schwarz ought to tell the boys that the amount
for the September Drive has not yet been set and when it 18 I
will give out a formal statement over my own name. Until that
appears, anything that they hear 18 just pure unadulterated gossip.
This information came
from Wilcox of the
american Bankeis association
Regraded Unclassified
336
THE SECRETARY OF THE TREASURY
WASHINGTON
JUL 20 1943
ORDER
Effective this date, Mr. Charles S. Schwarz, Director
of Public Relations, and Mr. Harold Mager, Consulting Expert,
will perform their official duties under the general super-
vision of Mr. Fred Smith, Assistant to the Secretary, to whom they
will report directly. Order of February 24, 1943, placing these
assignments under the general supervision of Assistant Secretary
Gaston is hereby rescinded.
Paragraph 2 of Order of April 1, 1943, on the subject of
speeches or public addresses, provides that the text of a
speech or public address for which clearance has been obtained
for delivery shall be submitted before release to Assistant
Secretary Gaston for approval. The text of any such speech
or public address before it is submitted to Mr. Gaston for
approval shall first be submitted to and cleared by Mr. Fred Smith,
Assistant to the Secretary.
Secretary of the Treasury.
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
336
THE SECRETARY OF THE TREASURY
WASHINGTON
JUL 20 1943
ORDER
Effective this date, Mr. Charles S. Schwarz, Director
of Public Relations, and Mr. Harold Mager, Consulting Expert,
will perform their official duties under the general super-
vision of Mr. Fred Smith, Assistant to the Secretary, to whom they
will report directly. Order of February 24, 1943, placing these
assignments under the general supervision of Assistant Secretary
Gaston is hereby rescinded.
Paragraph 2 of Order of April 1, 1943, on the subject of
speeches or public addresses, provides that the text of a
speech or public address for which clearance has been obtained
for delivery shall be submitted before release to Assistant
Secretary Gaston for approval. The text of any such speech
or public address before it is submitted to Mr. Gaston for
approval shall first be submitted to and cleared by Mr. Fred Smith,
Assistant to the Secretary.
Secretary of the Treasury.
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
337
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 20, 1943
TO
Secretary Morgenthau
FROM Fred Smith TRSD
One man who doesn't want to stay with the Bureau of Economic Warfare
under the new set-up might be a good fellow for us, on a dollar a year
basis, to take over the project of Socialized Medicine (which you mentioned
to me once) or to help on the Business Group. He is No Wharton. He is
a New York lawyer, about fifty, very liberal and very patriotic. He could
probably bring together a good group of people to investigate any of our
projects. He is Bob Sherwood's lawyer, if I recall correctly, so you
could get a pretty honest line on him from Sherwood.
I saw him the other day, and he was bemoaning the fact that "the
Treasury is about the only liberal and thoroughly honest agency or Govern-
ment department that we have left."
He 18 no Communist, and in fact is apparently very wealthy. He raised
most of the money to start PM because he felt it was a "needed" institution.
He has since been very unhappy about PM because he feels it hasn't fulfilled
its promise.
If you would like to take a look at him, I could get him around almost
any time. He looks like a farmer.
Du for A
Regraded Unclassified
SECRET 338
TREASURY department
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
July 20, 1943
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating
report of Lend-Lease purchases for the week
ended July 17, 1943.
It is anticipated that there will be in-
creased shipping facilities available in the
near future, in which event materials now in
store can be released to the extent space is
provided.
ton E. Mack
Director of Procurement
FORVICTORY
BUY
UNITED
STATES
BONDS
AND
STAMPS
(37861)
Regraded Unclassified
339
SECRET
LEND-LEASE
TREASURY DEPARTMENT, PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
AS OF JULY 14, 1943
(In Millions of Dollars)
Administrative
Miscellaneous &
Total
U. K.
Russia
China
Expenses
Undistributed
Allocations
$3958.5
$1926.8
$1557.0
$103.4
$10.9
$360.4
(3958.5)
(1926.8)
(1557.0)
(103.4)
(10.2)
(361.1)
Purchase Authoriza-
$2880.1
$1545.7
$1181.4
$40.3
-
$112.7
tions (Requisitions)
(2834.1)
(1543.1)
(1140.2)
(40.5)
-
(110.3)
Requisitions Cleared
$2761.9
$1500.8
$1116.2
$40.2
-
$104.7
for Purchase
(2750.2)
(1493.1)
(1112.5)
(40.0)
-
(104.6)
Obligations
$2680.7
$1471.3
$1078.8
$40.0
$6.6
$84.0
(Purchases)
(2660.4)
(1461.0)
(1070.7)
(40.0)
(6.6)
(82.1)
Deliveries to Foreign
$1169.0
$817.0
$320.6
$18.6
-
$12.8
Governments at U. S.
(1160.3)
(811.6)
(317.3)
(18.6)
-
(12.8)
Ports*
*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 July 7, 1943.
Regraded Unclassified
340
SECRET
EXPLANATION OF DIFFERENCE.
The decrease in China requisitions is a
result of the cancellation of three requisitions.
Regraded Unclassified
341⁻
JUL 20 1943
My dear Mr. Secretary:
I - enclosing herewith copies of a letter, dated June 7,
1943, written w a Treasury Department representative in French
North Africa. It is stated in this letter that shortly after
the fall of France, on July 4, 1940, your Department cabled
authorization to the Legation in Tangiers to act as intermediary
for the cashing of U.S. Government checks on behalf of State
Department personnel located in other areas in Africa. In usage
this authorization has been extended to include Army-Nevy per-
connol and locally-hired employees in French North Africa. U.S.
Government checks have been sold at the black market rates in
Tanglers and, on eccasion, the checks have been officially
routed to the Lisbon black markets because of the attractiveness
of higher rates,
The facts u net forth in this letter have been verified
through dismissions with members of the U.S. Consulate General
in Casablance end Mr. Childs of the Tangiers Legation.
Since November 8, 1942, the French African frano-Acierican
dollar rate has been established under Presidential approval.
This Department is working with the French African financial
authorities to chamelise transactions through approved banks
at the official rates, and it is our view that no agency or
officer of our Government should incourage transactions outside
of the official rate.
It would be appresiated if you would keep 20 advised about
any action that you may take concerning this matter.
Very truly yours,
(Signed) M. Mergunthau, Jr.
Secretary of the Treasury
The Henerable,
The Secretary of State.
By Messenger Bundy 5:15
File copies ret. to White.
HT:Drl-7/15/43 inclesure.
Copy of ltr. and enclosure
in Diary.
Regraded Unclassified
342
HEADQUAINEIRS ATLANTIC MASE EXCTION
OFFICE OF CIVIL AFFAIRS
A. P. O₂ 759
June 7s 1943.
Mr. Harold classer,
Finance and Checkens's Division,
A.F.E.G.,
A.P.O. 52.
Dear Harold,
There has - to my attention a situation in commetion with Covern-
- checks and drafts that I think I should bring to your notice,
It appears that the markers Legation in Tangier is cashing at the
provailing free market rate in Tenigier United States Covernment chesks
and drafts sent to the Legation w State Department and other personal
conneted with considates throughout North and Heat Africa,
I have discussed this netter with Mr. Hamely the Consul Owneral in
Casablanca and with me. Brooks, also of the Consulate in Camblenea -
wall as with Mr. Childs, Charge d'Affaires at our Legation in Tangiar.
The adtustion us I underwtand 1t 1s th BI
On July 4 1940, serve than two years before the condung of the Allies
into Harth Africano the State Department, by a telegram, authorised the
Legation in Tenanter to ast - an internation for the cashing of State
Department drufts ats. on bohalf of the State Department personal in
other areas in Africa. These instructions, which have never been resultated,
were 1ssued visits the rate on American checks - extremely favorable in
Tangier and when the official ruben provat.ling in other areas botre little
or no relationship to the true worth of the fram vis a vis the dollar.
up untill emparatively recently, checks and drafts were brought into
Tangier from time to time by personal of the State Department who, them
selves, shopped around for the nost favorable rate for their checks and who
sold them personally to the highest bidder. This prastice has now been die-
centinued, in a result of instructions issued by Mr. Childs, all checks
now earing into Tengless for sming are handled w a designated person in
the Legation, Mr. Childs has also insued instructions which INSN prohibit
Any and Mary personal from sending drafts to Tangier for cashing by the
Hilitary and Naval Attention. (A certain mmber of such cheeks had been finding
thair way to Tangier).
In dissussing this unster with Mr. Childs, he told - that, at the
present time, all chestes and drafts are sold to either Moment Pariente, the
Dank of British 1 Africa, David 8. Hargal or Jospah Toledano (the last
two being Amriem protegon).
Regraded Unclassified
343
- 2 -
It appears that the vast bulk of the checks are sold to Moden Pariente.
The rate of sale various, but at the present time is committe around 86
france to the dollar.
Hr. Childs told 110 that be was sure that the Treasury Department and the
State Department ware Ally with the sibuation. in said that 18
was his underwtanding that Homes Parlente had undertakens to purchase State
Department drafts from the Legation in order to build up dollar balances to
be used in the United States and that he had undertains to send directly to
the United States all drafts which he purchased and not to re-negosiate them
in Tangier or elembere.
At the present time, the consulates outside of Zangler nost a cortain
amounts of thair regular expenses from the proceeds of chesks negociated in
Vengiar. It su also sustomery for the subaries of State Department employees
(including locally hired help) to be paid in drafts which are then sent up
to leagier for sale, the result of this procedure is that the expenses of
the consulates are, to a certain actent, leasened and the salaries of people
working for them are accombed enhanced. In polish of faot, 11 - probable
that for of the State Department personsed receive their entire sularies in
this - I underwarted that most of them have a certain proportion of
their pay deposited for them in the United States and, therefore, any advantage
in the rate of exchange obtained in Tengfer is only applicable to a part of
their salaries and expense. Any change in the present cet-up would probably
be 12019 important in its offects on locally hired personal than on personnel
conding from the States.
Inthis consection, as further thing should to address. Tres time to time,
in the past, it has boen possible to obtain the best combinings rate by conding
the drafts from Tengior to Lisbon, melling then there for essudos, and then
bringing the esoudos to Tangiar to be sold for france. At the present time,
however, this davide is not profitable and It is not now being wood by the
Legations
I told Mr. Childa that I would lay this nater before you for transfertion
to Washington ao that the State Department and the Treasury wight have the
opportunity to consider Jointly whether the presently outstanting State
Department should in revised.
Regards
signed m
7. -
U. 3. Treasury Representative
Civil Affairs -
Regraded Unclassified
344
Regraded Unclassified
JUL 20 1943
Dear Mr.
A recent airgram from the American Embassy at Mexico (A-1517,
June 29) refers to an oral understanding between Mr. Bateman of
the Board of Reonomic Marfare and the Bank of Hexico on the purchase
of liexi.can silver by the Bank for coinage purposes to meet Mexico's
need for additional silver coins.
As we are informed, it was proposed by Mr. Bateman that the
Bank of Mexico refrain from purchasing part of the output of silver
in Mexico. Otherwise, the absorption of some 40 million ounces of
silver for Mexican coinage would seriously reduce the supply of
silver for industrial uses in the United States. To provide Mexico
with the silver needed for coinage, it was proposed by Mr. Bateman
that an equivalent amount of silver be lond-leased to Mexico for
its coinage needs out of the Treasury's stock of frue silver bullion
in the General Fund, the silver to be returned to the Treasury after
the war on an ounce-for-ounce basis.
The necessity of any such arrangement has definitely passed
with the enactment of the law permitting the sale of Treasury
silver by the Secretary of the Treasury for purposes approved by
the Mar Production Board. If imports of Mexican silver fall off
because of the acquisition of silver by the Bank of Hexico for
coinage purposes, it will be possible for the Treasury to offeet
the deficiency in the supply of silver from abroad.
There is no sound reason for lond-leasing silver to Mexico
now that the law permits the sale of treasury silver for war
purposes. The Treasury could not justify the lend-leasing of
40 million ounces of silver to Mexico to enable that country to
sell a corresponding amount of silver in the United States when
the law permits the Treasury to sell all the silver needed at
71.11 cents an ounce. The sale of the silver by the Treasury
would bring some $28 million in funds that could be used to
neet the wartine expenditures of the Covernment.
Copy of ltr. and copy of
Airgram from Am. Embassy,
Mexico City, in Diary.
File copics ret'd to White soffee
345
- 2 -
For these reasons 1 believe 16 is necessary_not to encourage the
ments. Hundrean deverment to request Treasury silver under lond-lesse arrange-
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Trunsury
Mr. Leo To Crawley,
Director, Office of Reonamic
Warfare,
d s
18/jm
7/19/43
Regraded Unclassified
C
o
AIRGRAM
346
P
Y
From: American Embassy
Mexico City, Mexico
Dated: June 29, 1943.
Rec'd. July 1, 11 a.m.
CONFIDENTIAL
Secretary of State,
Washington, D.C.
A-1517, June 29, 11 a.m.
Reference Embassy's despatch No. 10,627 of June
23, 1943, concerning silver.
Bank of Mexico's confidential daily reports of
silver coins held by central bank and branches showed
total on June 26th of 1,230,000 pesos. Comparative totals
during last year were: 52,800,000 pesos on January 3rd;
43,200,000 pesos on June 27th; 42,500,000 pesos on July
3lst; and 19,200,000 pesos on December 30th.
The present shortage is particularly severe in
50-centavo and 20-centavo silver pieces, of which the
Bank of Mexico had only 160 pesos' worth on June 26th.
The public is necessarily being turned away in whole-
sale fashion.
The Mint has silver on hand with which to continue
operations for approximately 20 days, after which it
will be compelled to close for lack of silver deliveries
from the mines. Bank of Mexico is refraining to buy
silver for the present, in accordance with oral under-
standing with Dr. Bateman.
Please inform Dr. Bateman, Board of Economic War-
fare, and caution that above information is not for
publication.
MESSERSMITH
File 863.5
WFB:RK:EU
Copy:bj:7-6-43
Regraded Unclassified
347
NOTICE
RBS:jm:90- R-4-2
Wright Field, Dayton, Ohio
Date 20 July 1943
TO:
All Concerned.
SUBJECT: Correction of A. E.P.C.R., Combined Propeller Report,
Book 103, data as of May 31, 1943.
1. The summary of 23E50 Propellers ahown on page 42 of the subject
report should be corrected to include "23EX Nash" requirements found on
page 41.
a. Add total "Nash 23EX" monthly requirement (page 41) to
total 23E50 Monthly Requirement (page 42).
b. Recompute total 23E50 cumulative requirements.
0. Subtract revised total cumulative requirements line
from total cumulative capacity line to obtain revised
cumulative surplus or deficit.
for Corps captac
Chief, Resources
Control Section
Regraded Unclassified
C
348
0
P
Y
TELEGRAM SENT
MC
July 20, 1943
This telegfam must be
paraphrased before being
1 p.m.
communicated to anyone
other than & Governmental
agency. (BR)
AMERICAN EMBASSY,
CHUNGKING.
925
FOR ADLER FROM THE SECRETARY OF THE TREASURY
Your cable of March 28, 1943, No. TF-103.
1. Treasury has received a number of applications
to release U.S. dollar proceeds of U.S. dollar-backed
savings certificates. Some of the applications would
involve transfer of funds to London.
2. The Treasury would, therefore, appreciate re-
ceiving a definite reply to its cable of March 5, 1943,
No. 300. Treasury is holding up these applications
and no action has been taken with regard to them.
HULL
(FL)
FD:FL:JD FL EA
Regraded Unclassified
349
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH hOST SECRET
U.S. SECRET
OPTEL NO. 238
Information received up to 7 a.m., 20th July, 1943.
1. NAVAL
Discharge of ships at AUGUSTA has begun satisfactorily but
at SYRACUSE a petrol fire delayed unloading. Discharge of vessels has been
speeded up by the use of EMPEDOCLE and LICATA as well as GELA.
2. MILITARY
RUSSIA. The Russians have recaptured among many other
localities MALOARKHANGELSK on the railway 40 miles South of OREL.
3. AIR OPERATIONS.
WESTERN FRONT. 19th. Fighters damaged two 1,000 ton ships
off TEXEL.
ITALY. No dotails have yet been received regarding the
bombing of 2 railway centres and the CLAMPIRO Airport at ROME.
SICILY AND SOUTHERN ITALY. 17th/18th. 57 Wellingtons bombed
airfields near NAPLES. On the same night and next day a total of 203 medium
and light bombers attacked CATANIA and transport in SICILY. Lightnings scorting
an Air-Sea rescue Sunderland intercepted and destroyed 14 JU 52's off Northern
SICILY.
BURMA. 18th. Fighters damaged 64 trucks and 10 locomotives
in the MANDALAY area and about 50 small river craft near AKYAB.
CASURY DEPARTMENT
Regraded Unclassified