The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DIARY
Book 151
November 15 - November 19, 1938
-ABook Page
Agriculture
FDR asks HMJr to see Wallace on surplus crops;
HMJr does not feel Wallace has any plan;
entire situation discussed at 9:30 meeting 11/15/38
151
16-E
Airplanes
See also War Conditions
HMJr advises 9:30 group to divest themselves of
airplane stock - 11/15/38
Alsop-Kintner Articles
16-H
Oliphant memorandum on statements involved therein
("The Mountain from the Molehill Point of View") -
11/18/38
220
Associated Gas and Electric Company
Hopson, Howard C.: Oliphant memorandum on report from
Canadian Inspector of Income Tax of failure to
locate books of Hopson's four Newfoundland companies 206
11/17/38
-BBank of America
HMJr tells FDR that Securities and Exchange Commission
is prepared to move on Transamerica - 11/18/38
a) HMJr's note to FDR at Cabinet
HMJr thanks Douglas for cooperation of Securities and
Exchange Commission - 11/19/38
Budget, 1940
Conference concerning; present: HMJr, Hanes, Bell, and
Gaston - 11/17/38
Business Conditions
Haas memorandum on meeting on business outlook; present:
White, Seltzer, O'Donnell, Daggit, Haas, Lichtenstein,
Naess, Andrew, Hayford, Crum, and Roberts - 11/15/38
213
273
292
129
235
-CChina
Tung Oil Loan: HMJr tells Taylor, White, and Lochhead
that Hull will not approve - 11/15/38
Buck reports on interviews with various Chinese officials
and on wool exports to Russia - 11/15/38
HMJr and Lochhead confer with Chen and Chao (Director of
National Railways) - 11/19/38
19-A
31-A
299
Coast Guard
Waesche memorandum giving data on twin-engine long-range
patrol flying boats - 11/18/38
280
- C - (Continued)
Cochran, H. Merle
Requested to come to Washington - 11/19/38
Book
Page
151
298
Community Chest
Tremaine, in Ithaca, asks ruling on contributions by
state banks - 11/16/38
Countervailing Duties
Germany: Oliphant memorandum - 11/23/38
91
321
1) Proposed letter to Secretary of State
2) HMJr's letter to State and memorandum of law
referred to therein - 10/31/38
a) Hull's answer concerning reexamination of
entire situation - 11/19/38
318
3) Proposed letter to FDR
4) Proposed Treasury Decision
-EEngraving and Printing, Bureau of
Dedication of Annex - 11/18/38
258
a) Program.
b) HMJr's remarks (not used; spoke extemporaneously)
c) HMJr's notes made while on platform
259
257
-FFirst Boston Corporation
Haas memorandum on charts - 11/18/38
Foreign Trade
See Trading-with-the-Enemy Act
232
France
See Stabilization
-GGermany
See Countervailing Duties
Government Securities
Haas memorandum: "Importance of Non-Market Absorption
of Public Debt in 1937 and 1938" - 11/17/38
Great Britain
See Stabilization
Guianas, British and French
200
See Refugees
HHopson, Howard C.
See Associated Gas and Electric Company
Housing
United States Housing Authority: Conference on tax-exempt
feature of local Housing Authority bonds - 11/15/38
28-A
-LBook Page
Louisiana
Income Tax Cases: Oliphant memorandum giving comparative
analysis of the handling by Treasury and Department
of Justice - 11/16/38
151
87
-MMcGuire, Constantine
See Refugees
-NNarcotics
See Taybank, Steamship (British)
-RRefugees
Constantine McGuire's question of settlement of war debt
with Great Britain and France for the Guianas discussed
by HMJr and FDR - 11/16/38
a) HMJr confers with Isaiah Bowman - 11/16/38
32
70,104
Revenue Revision
Conference with FDR; present: HMJr, Hanes, and Bell 79
11/16/38
-S-
Stabilization
France: Cochran chronology relating to Monnet mission
(10/31/38--11/17/38)
Great Britain:
Material prepared by advisory group for interview with
Bewley on sterling exchange rate
FDR and HMJr confer in view of proximity of signing
British trade agreement - 11/15/38
a) FDR confers with Sayre (State Department)
b) Sayre consults HMJr and immediately thereafter
calls on British Ambassador
1) Memorandum of conversation between
Sir Ronald Lindsay and Sayre
as transmitted by Sayre to Taylor
Hull to HMJr
a) HMJr's proposed answer to Hull
134
1
2,6
3
4
12
29
53,55
1) Discussed at conference; present:
HMJr, Taylor, White, Lochhead, and
McReynolds - 11/16/38
2) Final draft - 11/16/38
2) Sayre-HMJr telephone conversation
Bolton and Knoke confer on decline of sterling - 11/15/38.
Possible restrictions discussed by Knoke and Bolton 11/16/38
93
109
28-L
17
57,61
- S - (Continued)
Book Page
Statements by HMJr
See Engraving and Printing, Bureau of
Surplus Commodities
See Agriculture
-T Taxation
See Revenue Revision
Taybank, Steamship (British)
Hull confers with HMJr concerning acceptance of
adjusted fine by Treasury - 11/16/38
151
68
Temporary National Economic Committee
Oliphant memorandum explaining public hearings which
will begin December 1st
Peoples' memorandum of meeting - 11/18/38
226
278
Trade Agreements
See Stabilization: Great Britain
Trading-with-the-Enemy Act
Hull memorandum to HMJr transmitting draft of possible
bill giving Executive more power in dealing with
payments by Americans to creditors abroad and asking
Treasury assistance - 11/18/38
244
Transamerica
See Bank of America
-UUnderhill, Stewart
Farley asks HMJr to see in connection with regulations
in wine industry - 11/17/38
116
Unemployment Relief
Works Progress Administration overdraft on funds
discussed by FDR and Hopkins and reported to
Treasury group by HMJr - 11/18/38
a) FDR's note to Hopkins transmitting budget
statement
b) HMJr fears that Hopkins will "lay off a
million people just like that"; if so, HMJr
will publish stenographic notes of meetings
Lubin-Haas memorandum: "Relationship between regular
employment and WPA rolls" - 11/18/38
207
274
209
229
United States Housing Authority
See Housing
-WWar Conditions
Airplanes: HMJr tells Louis Johnson he has not the time
to attend conferences with manufacturers - 11/19/38
Works Progress Administration
See Unemployment Relief
295
1
1
CONTENTS
Memo no.
Explanatory note
1.
2.
3.
4.
5.
6.
Draft of Statement to be presented to Bewley,
either orally or in written form.
Decline in sterling is jeopardizing confidence
in the effectiveness of the Tripartite Accord.
British press statements on the presumed over-
valuation of sterling.
Loss of gold because of capital outflow vs. loss
of gold due to changes in "current account".
Does the British balance of payments on current
account justify lower sterling at this time?
Balance of payments between United States and
United Kingdom vs. that between United States
and British Empire.
7.
Trend of United States and British foreign trade
compared.
S.
Some pertinent comments on the United States-United
Kingdom trade agreement.
9.
10.
11.
12.
Currencies that followed sterling down.
Business conditions in United Kingdom.
United States and United Kingdom wholesale price foreign exchange aspects of international competitive position compared.
Information we would like to exchange with the
British Treasury.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 14, 1938
TO
FROM
Secretary Morgenthau
Mr. White
Subject: Interview with Bewley on dollar-sterling rate.
This folio contains first a copy of the statement that
the group felt you might have before you when talking to Bewley.
The intent was to include nothing in the statement which you
would not wish the British to see in the event you decided to
read it aloud or pass the notes to Bewley. The statement, as
usual, presents a compromise. Some members wished to make it
a little stiffer and others milder, but all agreed upon this
formulation as a preliminary draft. It was expected, I believe,
that you would supplement the statement with comments - possibly
somewhat less circumspect in spots.
The remainder of the folio contains some condensed
material relating to points which may arise in your discussion
with Bewley. The material includes only a minimum amount of
information and comment necessary to justify the position you
would be taking, namely the pressing need for consultation and
exchange of information and views.
This material is not an attempt to justify the view that
sterling should not go lower. The pros and cons of that issue
will be examined in a comprehensive memorandum which is now in
preparation.
1
No. 1
Preliminary Draft of Statement to be presented to Bewley either
orally or in written form -- and supplemented with your own
comments.
(Draft prepared by Viner, Williams, Hansen, Riefler, Goldenweiser,
Taylor and White, November 10, 1938.)
We are concerned by the decline in sterling.
1. This decline if it should continue is likely to raise
questions in this country concerning the meaning and usefulness
of the Tripartite Accord.
2. We feel there is an important difference between a
movement in exchange rates caused by sustained changes in current
income account of the balance of payments (1.e., trade, shipping,
tourist, interest, etc.) and a movement caused by capital transfers.
The former movement is not necessarily inconsistent with the
purpose of the Tripartite Accord, but a decline due to capital
transfers seems to us much less justifiable and much more likely
to be injurious to our trade, to the price structure, and to
the stability of world currencies in general.
3. Given a continuance of the present economic recovery
and the increase in American commodity purchases abroad likely
to accompany it, we do not at present find in the trade positions of the two countries any apparent fundamental reason for
the apprecia tion of the dollar with reference to sterling. Moreover, it appears to us that there are substantial reasons why a
decline of sterling may not be in the British interests.
4. We feel that a continued decline may seriously endanger
the world economic situation just at a time when American recovery is tending to check the general decline of trade now
affecting most countries.
5. It seems to us to be in our mutual interests and entirely in accord with the spirit of the Tripartite Agreement
to discuss with you capital movements and to endeavor to formulate a more definite policy with respect to such movement and
to devise more effective techniques for protecting exchanges
from the undesirable influences of such movements.
6. The seriousness of this problem is increased by the
fact that so many of the world currencies are tied in effect
to sterling. Because of this, movement of sterling with respect
to the dollar means in effect a movement of world currencies
with respect to the dollar, including the currencies of countries
whose international balances, whether on income or on capital
account, certainly do not warrant a fall in their currencies.
No. 1 - continued
-27. In dealing with the se questions, we find ourselves
so me what handicapped by the lack of information concerning the
short-term capital and gold position of England corresponding
to the information which we collect and periodically publish
for the United States, and of inf ormation not published that
we would be glad to exchange with the adherents of the Tripartite
Accord.
2
No. 2
The decline in sterling is jeopardizing confidence in the
effectiveness of the Tripartite Accord.
The Tripartite Accord has been widely interpreted in
this country a.e an instrument designed to effectively stabilize exchange rates with particular attention to the relationship of the dollar to sterling. The behavior of
sterling in the past few months is giving rise to feeling
here that the effectiveness of the Tripartite Accord is
weakening. (A table showing the course of sterling since
January 1, 1938 is appended.) The successive declines in
the French franc did not weaken the confidence of the American
people in the effectiveness of the Tripartite Accord because
(a) while the franc depreciated, sterling, which was so much
more important, remained firm; and (b) the declines in the
franc were regarded by the public as due to weakness in the
French economic situation and not as an attempt to obtain
a competitive advantage. If now, however, in addition to
the recent declines of the franc, there is added the decline
of the whole sterling bloc, then the American Congress and
the American public will inevitably raise the question of
the workability and effectiveness of the Tripartite Accord.
The American public, especially at this time, will be
particularly sensitive to a changed monetary relationship
which is favorable to England and unfavorable to us. The
public's sensitivity at this time is due to (a) the intense
interest in foreign affairs as a result of the recent politi-
cal crises in Europe and (b) the trade agreement with England
involves concessions granted by the United States in return
for which we will receive concessions from England, parti-
cularly with regard to agricultural commodities. A decline
in sterling, it will be claimed, will nullify the tariff
concessions we have obtained from the trade agreement and
make more valuable the concessions we have granted.
Unless the American public can be offered an adequate
explanation for further declines in sterling -- an explanation
has been a careful evaluation by the British authorities and
the United States Treasury of all factors concerned in a decline of sterling and that England's greater freedom with
respect to the price of gold is not being employed to obtain
presumed advantages at the expense of the United States and
of currency stability -- then both the Accord and the present
dollar price for gold are jeopardized.
which can satisfy the American people and Congress that there
Pound-dollar exchange rates - high and low of each month, 1938
(In cents per b)
High
501.0625
503.8125
502.0625
498.9375
500.5625
494.6875
501.2500
499.8750
498.2500
496.1250
493.4375
494.1250
August
September
495.8125
491.7500
485.8125
491.3125
485.3750
461.0000
October
November 1/
482.7500
476.6250
473.1250
472.8750
1938 January
February
March
April
May
June
July
1
Low
Through November 12, 1938.
3
/
No. 3
British Press on the Presumed Overvaluation of Sterling
1. An examination of the comment on sterling-dollar
rates appearing in the British financial press ever since
June indicated a support of the view that sterling was overvalued. It seems clear that the widespread comment in the
British financial mediums to the effect that sterling is
overvalued, unopposed as it is by any statement on the part
of the British Treasury or the publication of any study by
the British Treasury, cannot but have been an important
factor contributing to the flight of capital from England.
2. These comments continue with increasing frequency
and as sterling declined the tone becomes a little more partial
to the view that sterling would reach lower levels. Much of
the comment is purported to be based on an appraisal of
the underlying basic factors which in their opinion justified lower sterling.
3. Appended are excerpts from the British press indicating a widespread expectancy that sterling might easily
go lower than the then prevailing rate. Some of them should
probably be interpreted as semi-officially inspired.
July 11, 1938 ($4.928) - The Financial Times
the old parity of $4.866 would today imply an overvalued
pound. On this basis $4.60 would be 'about right'.
"This suggests that even the recent recovery in the dollar leaves
the pound still overvalued."
July 16, 1938 ($4.927) - The Economist
"It is intimated that on purely economic grounds sterling at $4.866
may be a more natural level than $4.90."
July 19, 1938 ($4.918) - The Financial News
"Market quarters suspect that continental quarters with large sterling balances are becoming alive to the manifest undervaluation of the
dollar in relation to sterling, and foreseeing a prolonged period of
pressure on the pound, are already removing funds from London to New York."
July 20, 1938 ($4.921) - The Financial News
It is reasonable that the Exchange Account should release gold
11
to offset the movement of capital, but only if the dollar is in equilibrium
on income account. And that can only be when the dollar rate stands considerably lower than it does today."
August 10, 1938 ($4.883) - The Evening Standard
"Towards 4.50. The view has often been attributed to our authorities
that the $5.00 to the pound rate seriously overvalues our currency, and
that a rate nearer 4.50 is more in keeping with the true situation."
August 13, 1938 ($4.872) - The Statist
Perhaps the retreat from that stabilization level [4.86-2/3]
11
had become inevitable by reason of fundamental readjustments in the balances of payments of the sterling and dollar areas."
2
August 17, 1938 ($4.881) - The Financial News
"There is at any rate a strong presumption, backed up by the actual
pressure on the pound, that sterling is overvalued."
August 20, 1938 ($4.880) - The Statist
"As regards the dollar, recent experience in the exchange market
strongly supports the view that sterling is also overvalued in that
direction."
August 26, 1938 ($4.877) - The Financial News
the [Tripartite Agreement still prevents the overvaluation
of sterling against the dollar from being corrected."
"
August 29, 1938 ($4.870) - The Financial News
the view was gaining ground that, despite the heavy decline
of the past month or two, the overvaluation of sterling against the
dollar has not yet been remedied and that the authorities will thus in
the long run be forced to permit a further substantial depreciation."
September 1, 1938 ($4.854) - The Financial Times
"The theoretical position today thus appears to be roughly as follows:
1. The pound is overvalued by not quite 15 percent against
the dollar.
2. The dollar is overvalued by 15 percent against the
franc.
3. The pound is overvalued by 30 percent against the franc."
September 6, 1938 ($4.823) - The Financial Times
11
the pound might be held to be overvalued by some 10 percent
and therefore bound, say, for a point in the neighborhood of $4.40."
"Such probabilities lend powerful support to the views of those
authorities who limit their expectation of sterling's fall to, say, the
neighborhood of $4.70."
- -3September 10, 1938 ($4.811) - The Economist
"It [sterling/ has indeed been overvalued against the dollar ever
since American prices began to fall in the autumn of 1937. As a longterm view, therefore, and quite apart from the immediate pressure on the
pound $4.36-2/3 has ceased to be an appropriate rate. On this argument,
the pound's decline below that rate is not competitive depreciation,
but quite the reverse
11
September 17, 1938 ($4.81) - The Economist
in times of recession, particularly in the opening stages,
the primary producer is hit worst by a fall in his prices, whereas the
manufacturer finds that he is unable to reduce his prices and so is unable to sell his goods. The present overvaluation of sterling against
11
the dollar is, so far as England is concerned, nothing more than a
particular though striking symptom of this general disease, and so must
be regarded as one of the necessary and automatic consequences of the
world recession."
October 12, 1938 ($4.75) - The Times
"Those who are convinced by the evidence that sterling has been and
is overvalued - and they are in a majority - see in this movement a
possible adjustment of the exchange value of sterling in accordance with
our real commercial needs It certainly seens probable enough that
the demands of expanded rearmament will tend to increase rather than lower
the costs and prices of British goods relatively to those of our competitors.
And the desirability of a lower rate for sterling is thus likely to increase
rather than diminish during the next year or two."
October 24, 1938 ($4.759) - The Financial Times
"Finally, sterling is certainly overvalued at $4.86, and probably
overvalued at $4.75."
October 27, 1938 ($4.768) - The Financial News
"The general view in London is that the b is still considerably overvalued against the dollar at its present level."
-4October 27, 1938 ($4.768) - The Financial Times
The adverse trade position of the sterling area vis-a-vis
"
America has been another weight on the pound, and there is no sign that
this influence will soon be relaxed. There are thus strong reasons for
a relatively low dollar exchange rate
"
October 31, 1938 ($4.756) - The Financial News
"Evidence of sterling's overvaluation indeed is so strong today
that prospects of a rising trend in the price of gold must form part
of the background of any investment calculations."
November 1, 1938 ($4.7525) - The Financial Times
"
It is satisfactory to note that further City support was
forthcoming yesterday for the opinion expressed here last Friday that
the American authorities must by now have realised that it is undesirable
to attempt to maintain exchanges at uneconomic levels."
November 12, 1938 ($4.7375) - The Financial News
"Market circles in London still cling strongly to the view that
the British authorities will not agree to de facto or de jure stabilization of the sterling dollar rate at the present time."
4
No. 4
Loss of gold because of capital outflow vs. loss of gold due
to changes in "our ent account".
A clear distinction must be drawn between the pressure
upon exchanges arising from capital outflows, and the pressure
arising from adverse balances on "current account". It is
important to note the distinction not only because the effects
of the two types of movement differ but because the remedy
called for in each case is frequently different.
When there is pressure on the exchanges arising from a
sustained adverse balance of payments on current account, an
alteration in the exchange rates may be necessary to attain
equilibrium. Alterations in exchange rates, when necessitated
by a shift in fundamental economic factors, are not necessarily
inconsistent with the terms of the Tripartite Accord.
Outflows of gold which are small in comparison with the
gold holdings of the country in question do not need the
corrective factor of a change in the exchange rate. The outflow may be checked within future months by unforeseen changes
in the general situation or by the slow operation of economic
forces which are sometimes set in motion by the existence of
the adverse balance. In any case one of the important advantages of large gold holdings is to make feasible small gold
losses for a long time 1 thou t requiring drastic measures
which have widespread repercussions.
A large loss of gold, induced chiefly by capital outflows
rather than by an adverse balance of payments on current account, is not likely to be corrected by alteration in exchange
rates except under special circumstances. It is necessary to
study all the circumstances which are giving rise to the outflow of capital before a conclusion can be reached on this
point.
When the capital outflow occurs chiefly as a consequence
of anticipated exchange profit due to an expected decline in
the country's currency, then the justifiable and correct method
of checking that outflow is to dispel the expectancy of the
exchange profit.
If, however, the capital outflow is taking place because
of political instability at home and more attractive economic
conditions abroad, then an alteration in the exchange rate may
have an effect contrary to that which is desired and may serve
only to expedite the emigration of capital. If a country cannot withstand the loss of gold occurring under such circumstances, and if there is no expectation that political stability
will be restored or the economic situation improved within the
near future, a corrective change may be called for but it need
No. 4 - continued
-2not be alteration of the exchange rate.
It is claimed by some that the net outward movement of
British capital from the United Kingdom is due largely to
the growing belief that present trends in the underlying
basic factors will in the near future force a decline in
sterling. Our studies do not indicate that this belief is
clearly justified. If discussion and analysis leads to the
joint conclusion that the basic factors in the current income
account of the British balance of payments do not justify a
decline in sterling in the near future, it would be important
that the British Treasury place that conclusion and its supporting analyses before the public. By 80 doing those fears which
are contributing to the outflow of capital would be dispelled.
This points to the importance of consultation in order to
ascertain whether our view is correct or not.
The first essential task is, therefore, an analysis of
the British balance of payments to determine whether the
loss of gold is due chiefly to items on current account or
whether it results chiefly from losses on capital account.
After having determined the cause and extent of the adverse
balance, it will be possible to determine more intelligently
whe ther the remedy lies in a lower sterling rate or not.
5
No. 5
British balance of payments on current account does not
appear to clearly justify lower sterling at this time.
1. An examination of such information as is available to us on the British balance of payments does not,
in our opinion, justify a lower sterling rate at this time.
The adverse balance on current account is hardly large
enough, nor is the trend certain enough, to warrant the
conclusion that drastic corrective measures such as a
decline in sterling are called for now.
We estimate that for 1938 the United Kingdom will
have an unfavorable balance of about L60 million on current account. This unfavorable balance will probably be
made up in the following way:
Net
Outpayment
(a) Net imports of merchandise
and silver
(b) Net government foreign pay-
4
100
210
(c) Net shipping income
foreign investment income
(d)
receipts from commissions
(e)
#
35
10
II
"
receipts from other sources
Totals
Inpayment
410
ments
(f)
Net
415
355
The unfavorable balance of 660 million compares with
an unfavorable balance of L52 million for last year and
618 million the year before. (Table of balance sheets for
previous years is appended.)
This sum of L60 million ($285 million) must be com-
pared with total British holdings of gold in order to get
a proper prospective of its magnitude. At present the
British Equalization Account has probably about $31 billion. An annual loss of $285 million with holdings of
$3,500 can very easily be sustained for another year or
two without serious consequences. The present adverse
balance of payments on "current account" by .itself hardly
calls for lower sterling rates as a means of protecting
her necessary gold holdings. Though we cannot estimate with
No. 5 - Continued
any degree of accuracy British balance of payments for
next year there is reason to believe that, assuming a continuation of present trends and stability in the sterling
rate, it will be no more unfavorable in 1939 than in 1938
and possibly less.
We have made the analysis using the official British
data that is available to us. It is quite possible that
the information needs to be more carefully compiled. In
fact, numerous competent British authorities themselves
have criticized these figures as containing a large element
of error. The British Treasury has doubtless attempted
to make such modifications and corrections as they have
regarded warranted by the facts and they have also surely
compiled a balance of payments for the year 1938 and possibly estimated the trend likely to prevail for 1939. We
ought to know what their conclusions are so that we could
compare them with ours to see whether any significant
difference exists between their estimates and ours and if
so, how much and why. Here we have an important exchange
of information that is highly desirable if there 18 to be
any agreement as to the solution of the problem in hand.
Mr. White - 2
British Balance of International Payments
on Current Income Account 1
(In millions of Ls)
:
1934
1935
1936
:
:
1933
1937
:
:
:
1932
:
:
:
1931
:
:
1930
:
:
Excess imports of
merchandise and
silver (-)
408
287
263
294
261
345
443
19
+ 14
- 24
-2
+7
-2
-3
-4
80
70
65
70
70
85
130
105
170
150
160
170
185
205
220
220
25
30
30
30
35
30
30
55
10
10
10
15
10
10
10
15
386
Estimated net government foreign payments
(-) or receipts (+)
2
Estimated net nat-
ional shipping income (+)
Estimated net income
from foreign investments (+)
Estimated net receipts
from commissions,
etc., (+)
Estimated net receipts
from other sources
(+)
Estimated net "favor-
able" (+) or "un-
favorable" (-) balance
on current account + 28 - 104 - 51
0 -7 + 32 - 18 - 52
The accuracy of these estimates has been seriously questioned. The
Macmillan Committee on Finance and Industry recommended strongly 3 that
these figures be put on a more exact basis, because "there is so much
guesswork in them as to render them liable to an unduly wide margin of
inevitable error". Nevertheless the figures are still compiled in the old
Balance of Payments 1936 Geneva (1937) p. 201 and Board of Trade
Journal, Feb. 17, 1938.
1
2
This figure includes some capital items.
3 Committee on Finance and Industry Report, Cmd. 3897 of 1931, pp. 179-180
6
No. 6
Balance of payments between United States and United Kingdom
vs. that between United States and British Empire.
The balance of trade between the United States and the
United Kingdom, which is heavily in our favor, is frequently
cited as an obvious reason why the United States has to be
lenient in its attitude toward the dollar-sterling rate.
This is an elementary fallacy In the first place,
it is not the balance of trade that signifies, but the
balance of payments between the two countries that is
relevant. Whereas we had a favorable balance of trade with
the United Kingdom in 1937 of $300 million, the balance of
payments -- excluding capital -- coming to us was only half
that amount.
In the second place, it is not the balance of payments
between the United States and United Kingdom which is the
important factor in this connection; it is the balance of
payments between the United States and the whole British
Empire Though United Kingdom alone owed us on balance of
current account about $150 million, the balance due us in
1937 from the whole British Empire was negligible It has
been estimated by a competent British writer to have been
only $24 million in 1937, and this includes Canada. Without Canada in the picture, the balance would have been the
other way; we would have had an unfavorable balance of
about $60 million Canada, after all, is not in the ster-
ling bloc, and therefore should not be included in the
computations for the purpose in hand.
Below is a table of the estimated balance of payments
between the United States and various portions of the
British Empire. It is taken from a recent study made by a
British economist. (Table attached)
No. 6 - Cont.
British-American Balance of payments, 1937
(In $ millions. A plus sign indicates a net balance to the credit,
minus sign a net balance to the debit, of the United State.)
a
Total
:Canada
:
: United : Crown
Total
Other
:King- : Colonies: Cols. (1) :: and : Dome.& British
and (2) : :Newf'ld: India : Empire
: dom :
(6)
Freight and
shipping
Tourists
Immigrants' re-
+298
- 34
- 36
:
(Inc. silver)
(3)
-174
+124
- 15
- 34
- 51
::
(4)
+104
-2
-178
:
Merchandise
(2)
(5)
:
(1)
18
+210
-2
36
-231
- 11
- 16
mittances
Insurance
-5
- 28
-5
dividends
-50
-50
+160
+ 15
+125
Interest and
Total invisible
items
Total
- 28
- 28
-153
- 15
-168
20
+2
-186
+145
-189
- 44
+ 84
- 16
+ 24
7
No. 7
Comparison of Recent Trade Trends of United States and
United Kingdom
1. The trend of trade between the United States and the
United Kingdom is changing. Our exports to the United
Kingdom, which were 40 percent higher in the first quarter
of 1938 compared with 1937, were TO percent lower in the
third quarter of 1938 than in the preceding year. Our imports from the United Kingdom are still at a lower level
than last year but the percentage decreases, as compared
with last year, are growing less.
United States Exports to United Kingdom
(In millions of $)
1st Quarter
2nd Quarter
3rd Quarter
July
August
September
Percent Change
1937
1938
108.3
99.4
135.2
152.9
100.4
124.3
+ 41.2
32.1
42.4
60.7
32.2
41.4
50.7
+ 0.3
+ 1.0
- 8.1
- 2.4
- 16.5
United States Imports From United Kingdom
(In millions of $)
1st Quarter
2nd Quarter
3rd Quarter
July
August
September
Percent Change
1937
1938
58.9
53.4
45.9
27.5
24.2
27.8
- 53.3
- 54.7
- 39.4
15.2
15.9
14.8
7.3
10.1
10.4
- 52.0
- 36.5
- 29.7
No. 7 - Continued
2. When the total export trade for this year is compared
with last year's, United States makes a poorer showing
than the United Kingdom. British exports during July,
August and September indicate that the decrease in exports,
compared with last year, is growing smaller. In contrast,
export trade for the United States over the same months
shows that the decrease, over last year's figures, is not
growing smaller.
United Kingdom Exports
(Millions of b)
1st Quarter
2nd Quarter
3rd Quarter
July
August
September
1937
1938
139.9
151.9
153.1
136.7
129.5
127.2
54.4
49.2
49.5
42.0
41.4
43.8
Percent Change
- 2.3
- 14.7
- 16.9
- 22.8
- 15.9
- 11.5
United States Exports
(Millions of $)
1st Quarter
2nd Quarter
3rd Quarter
July
August
September
1937
1938
723
824
843
828
764
705
268
278
297
228
231
246
Percent Change
+ 14.5
- 7.3
- 16.4
- 14.9
- 16.9
- 17.2
No. 7 - Continued
3. When the import figures of the United Kingdom and the
United States are compared no clear picture is obtained.
The imports of both countries are substantially lower
than 1937, but the percentage decline compared with last
year has been greater for the United States than the percentage decline for the United Kingdom.
United Kingdom Imports
(Millions of b)
1st Quarter
2nd Quarter
3rd Quarter
July
August
September
1937
1938
230.3
254.3
260.0
245.6
225.6
223.0
85.5
86.7
87.8
73.9
74.1
75.0
Percent Change
+ 6.6
- 11.3
- 14.2
- 13.6
- 14.5
- 14.6
United States Imports
(Millions of $)
1937
1938
1st Quarter
827
858
507
4454
3rd Quarter
744
475
265
246
233
141
166
168
2nd Quarter
July
August
September
Percent Change
- 38.7
- 47.1
- 36.2
- 46.8
- 32.5
- 27.9
8
No. 8
Pertinent comments on United States - United Kingdom trade
agreement.
(1) Since January 1934 the British have shown a tendency
to raise rather than lower duties on imported articles.
Total dutiable
Total items on
Total items on
Year
which duties
were raised
which duties
were lowered
items placed on
free list
2
1934
1935
1936
1937
1938
32
28
22
to
7.
4
6
1
none
5
me
none
2
5
In addition, some administrative orders were issued which
had the effect of making dutiable some few items which were not
previously included as dutiable.
(2) In contrast United States tariffs have been reduced
on a great number of items. Reductions ranging up to 50 percent of the existing tariff rates have been made through our
trade agreements program. The reductions in duties which
were embodied in the seventeen trade agreements signed by the
United States have been extended to the British Empire by the
most-favored-nation treaties.
(3) The United States gave its full proposal of con-
cessions offered and concessions expected to be granted, to
the United Kingdom on April 26, 1938. On that date the ster-
ling rate was $4.95. The April 26 offer represented the basis
of negotiations and this basis was not changed throughout the
period of negotiations
(4) Appended is a summary analysis of the concessions
granted and obtained in the proposed Agreement.
No. 8 - Cont.
Summary of Concessions in United Kingdom United States Trade Agreement
1. Summary of concessions granted by the United States
Concessions granted by the United States cover about 88 percent
of our imports from the United Kingdom, Newfoundland and the British
colonies. Approximately 75 percent of the value of our imports from
the United Kingdom is covered by the agreement, about 95 percent of
the imports from the British colonies and about 20 percent of the
imports from Newfoundiana.
(a) Duties are reduced on 400 items. Imports of these items
from British areas during 1937 amounted to $63 millions, and
covered about 11 percent of our imports from these areas. Total
imports from all countries of these items was about $100 millions
in 1937.
(b) Existing rates of duties are bound on 49 items. Imports
in 1937 from British areas of these items amounted to $40 millions, and covered about 7 percent of our imports from these
areas. Total imports from all countries of these items was
about $100 millions in 1937.
(c) One hundred and six items are bound on the free list; imports in 1937 of these items from British areas amounted to
$355 millions, and covered 70 percent of our imports from these
areas. Total imports from all countries of these items was
about $600 millions in 1937.
Percentage Reduc-
Major classes of items reduced
Textile machinery - various types
Furniture
Kaolin or China clay
Varieties of fish
Mustard and mustard seeds
tion of present
rate of duty
37 50%
38%
30%
50%
12 25%
Total U. S.
Imports in 1937
(In millions)
$1.2
1.0
1.2
2.0
1.4
Cotton yarns and cotton cloths
(carefully restricted to thread
counts and types of which U.K.
is the principal supplier)
Flax and flax yarns
Woven fabrics of flax, hemp, jute
vegetable fibre, except cotton,
of selected products and specified characteristics
10 30%
25 - 50%
6.3
3.9
21.0
6.8
Wool products
25 - 50%
10 - 50%
10 - 32%
Leather and leather products
17 - 50%
14.5
Wool waste
14.3
-2Major items bound at present duties
Whiskey, rum and gin
Jute woven fabrics
Bound at $2.50 per gal.
Total U. S.
Imports in 1937
(In millions)
$ 55.0
Bound at 1 per 1b. (unprocessed)
41.1
Major items bound on the free list
Rubber, crude
Tin
Cocoa or cacao beans
Furs and fur skins, undressed
247.5
104.3
52.3
41.0
21.4
17.9
Tea
Copra
Artistic antiquities, works of art, etc.
produced prior to the year 1830
Diamonds
15.5
14.3
Coal tar crude
10.0
Chrome ore or chromite
Pulp and waste material used for paper making
Platinum
Original paintings, pastels, drawings and sketches
7.3
7.2
5.9
4.5
2. Summary of concessions granted to the United States
The concessions granted to the United States cover about 62 percent of the total value of our exports to the United Kingdom, Newfoundland
and the British colonies. Reductions in duty were secured on about
12 percent of the total value of our exports to these countries, and
50 percent of the trade is covered by bindings against increases in
duty or bindings on the free list. Binding of the present tariff status
is considered as being important to the United States because it modifies or reverses the policy followed by the United Kingdom in recent
years of granted preferences in duties to British colonies and dominions. The following are considered as being important concessions
granted to us:
(a) The granting of free entry of wheat (there is a 4.8 percent
ad valorem preferential duty against United States wheat now)
and lard.
(b) Increased quota on hams.
(c) Reductions in duties on rice, apples, and other fresh and
canned fruits.
-3(d) Concessions on lumber which will permit increased volume
of exports to the United Kingdom.
(e) Reductions in duties on numerous Machinery and Apparatus
items, such as office machinery, typewriters, refrigerators,
etc. Most of these reductions are from 20 percent ad valorem
to 15 percent. Patent leather duty is reduced from 15 percent
to 72 percent ad valorem and duties on items of paper manufactures are reduced.
(f) The duty on automobiles is bound at existing levels.
1.
9
No. 9
Course of world currencies since August 1, 1938
The table below shows how large a portion of the world
currencies have followed sterling down.
(In U. S. cents per unit of foreign currency)
Peru
Uruguay
Uruguay
Peso
32.7670
Sol
22.87
Free peso
42.50
64-7016
Peso
France
Franc
2.7588
New Zealand
Pound
394-7687
Straits Settlements
Dollar
57.3625
Hong Kong
Dollar
30.7187
British India
Rupee
Finland
Markica
Sweden
Krona
Australia
Pound
Denmark
Krone
Yen
Japan
Norway
Krone
Pound
Greece
Drachma
38 (Shanghai)
Portugal
Yuan
ion of South Africa
o
Ecuador
Escudo
Sucre
Yugoslavia
Netherlands
Dinar
Switzerland
Franc
Guilder
5.1000
23.30
31.5280
20.80
38.75
62.2617
2.6428
378.0875
55.0000
24.6962
486.6666
21.1125
27.5615
23.7656
468.1875
.9010
.8683
- 3.8
- 3.8
- 3.8
- 3.8
- 3.6
16.3281
4-4433
15.7625
36.7362
2.1681
25-3403
391.6000
21.9389
28.6485
2.3175
54-8533
2.2787
54.1466
- 3.5
- 3.5
- 3.5
- 1.7
- 1.3
- 1.1
- 0.5
- 0.5
- 0.2
- 0.2
7.25
4.2900
7.00
Canada
Dollar
Czechoglovakia
lgaria
Lev
Hungary
Pengo
19.6650
Poland
Zloty
Chile
Chile
Colombia
Colombia
Official peso
Export peso
Free peso
18.8300
5.1716
4.0000
49.00
56.1800
18.7950
5.1700
4.0000
49.00
57.1500
Cuba
Peso
Italy
Lira
99.9333
5.2606
100.00
31.50
16.9025
99.9500
5.2600
100.00
5.8540
5.8625
Guatemala
Bolivar
Brazil
Milreis
Rumania
Leu
xico
Belga
Silver peso
mexico
Peso
Germany 1
Free mark
Germany
Germany
Germany
Germany
Germany
TERRY
Germany
Germany
O
Quetzal
Venezuela
Belgium
1/
Credit mark
Registered mark
Emigrant mark
Securities mark
Support mark
Hasvara mark
Travel mark
- 4.1
- 4.0
- 3.9
- 3.9
- 3.9
- 3.8
22.6469
99.2167
3-4337
1.2325
19.6250
Peso
- 3.8
- 9.1
- 8.8
- 3.8
- 4.2
- 4.2
29.4987
35.3160
2.0845
24.3646
376.7562
22.9069
99.6855
3-4508
1.2350
Koruna
- 30.0
- 11.3
- 10.7
31.50
16.9116
7292
.7300
20.40
19.8333
20.75
20.1300
40.1718
5.00
18.45
4.13
40.0400
4.98
17.96
4.91
4.13
4-54
19.18
19.18
18.49
18.49
21.49
20.92
- 0.2
- 0.1
+ 1.7
-
Argentina
Argentina
Peseta
Free peso
3.50
- 3.8
-
Spain
5.00
5.7500
26.10
472.9652
-
Boliviano
491.5000
change
-
Bolivia
August 1, 1938 November 12, 1938
Percent
-
Pound
:
United Kingdom
:
unit
Country
Rate on -
:
Monetary
+ 0.1
+ 0.1
+ 0.1
+ 1.7
+ 1.5
- 0.3
- -4
- 2.7
+ 18.9
+ 9.9
- 3.6
- 3.6
- 2.7
German rates - free mark from Federal Reserve Board. Blocked mark rates from The Financial Times
London, for August 3. and November 3. 1938. converted from marks per pound.
10
No. 10
Business Conditions in the United Kingdom
Summary Statement
There seems to be a growing feeling in England
that the recession has reached its low point and that
business conditions will improve in the coming months.
The most recent business statistics may be interpreted
as indicating that the recession has been halted in
its downward course, but the indexes do not, on the
whole, indicate an upturn as yet.
The recovery in the United States is considered
to be the most important factor presaging an upturn
in England, and it is the major factor on which
optimists in England base their claims.
Appended are the most recent indexes of business
activity in the United Kingdom that are available to us.
No. 10 - Cont.
Indexes of Business Activity in the United Kingdom
1. Industrial production. The Board of Trade index of industrial
production for the second quarter was down almost 10 percent on the
first quarter of 1938 and more than 10 percent on the second quarter
of 1937.
Board of Trade Index of
Industrial Production
1937
1st quarter
131.3
133.8
130.4
136.6
2nd "
3rd
"
4th
"
1938
1st quarter
2nd
132.4
122.1
"
a. Iron and steel. While seasonal upswing in steel production
continues - it rose from 658,900 tons in August to 754,700 tons
in September - September 1938 production is 35 percent less than
September 1937, and the production of steel in the third quarter
of this year is 34.7 percent below the third quarter of 1937.
Crude Steel Production
(In thousand tons)
1937
Percent
1938
Change
1st quarter
"
"
3rd
4th
"
2nd
3,105
3,234
3,210
3,417
+ 4.8
3,255
2,673
2,097
- 17.3
- 34.7
-
-
The nine months output of steel for 1938 is 15.6 percent less
than during the same period of last year. Since the armament
program probably entailed heavier demands for steel in 1938,
it is likely that steel production for civil and export pur-
poses declined much sharper proportionately than total steel
production.
October figures show a further increase. Steel production
rose to 854,000 tons, an increase of 12.3 percent over September
and the highest since May, though it was still about 25 percent
less than October 1937.
Pig iron production reached the lowest level of the year in
September 1938; 430,000 tons. Production in October was 469,400
tons, which is the first increase since July, though again still
39 percent below October of last year.
-2b. Shipbuilding. At the end of the third quarter of 1938
there were only 885,481 tons in construction as compared
with over a million tons in the previous quarter and almost
1,200,000 tons in the corresponding quarter of 1937. Tonnage
of vessels commenced shows an even sharper drop. Vessels
commenced totaled only 87,463 tons at the end of the third
quarter as compared with 156,970 tons in the second quarter
and 218,557 tons in the third quarter of 1937. It is re-
ported that 46 percent of the shipbuilding yards are now
empty. These figures include construction of ships for the
British Admiralty.
C. Building plans approved. Building plans approved totaled
16,877,000 in September as compared with 16,302,000 in August a less than normal seasonal increase. Compared with September
of 1937, there is a drop in building plans approved of over
25 percent.
d. Automobiles. An estimate by The Statist based on figures
for the first nine months of the year showed that automobile
production will be 12 percent less this year than in 1937.
2. Unemployment. The number unemployed in September 1938 totaled
1,728,000, an increase of 30,000 over the previous month and an increase of 337,000 over September last year. The total number of regis-
tered employed in September was 11,380,000, a decrease of 20,000 compared
with August 1938 and of 310,000 compared with September 1937.
However, Chamberlain indicated, in a statement reported by cable
yesterday, that the figures to be published that day, (which are not yet
available to us) would indicate a revival of employment.
The rise in unemployment seems to have been greatest in iron and
steel and textile industries, i.e., the industries which are most ad-
versely affected by a decline in exports. There had already been a
heavy concentration of unemployment in the textile industries before the
present recession set in.
3. Foreign trade. The unfavorable balance of trade in the second and
third quarter of 1938 is less than the unfavorable balance in the same
quarters of 1937. Exports are running about 15 percent less than last
year, and imports, particularly of raw materials, are 13 percent lower
than last year.
-3United Kingdom - Foreign Trade
Exports of
U. K. goods
Retained
Import
Imports
Balance
(In millions of pounds)
1937
1st quarter
2nd quarter
3rd
4th
121.1
130.1
134.4
135.9
211.2
232.4
239.6
271.4
90.1
102.3
105.2
135.5
120.9
112.3
113.5
229.4
207.3
208.0
108.5
95.0
94.5
1938
11
2nd
"
1st
3rd
"
The favorable balance of United States trade with United Kingdom
remained at high levels. Our exports to United Kingdom are running less
than last year, and our imports from United Kingdom are almost half of
the level of last year.
United States trade with United Kingdom
Export
Exports
Imports
Balance
(In millions of dollars)
1937
1st quarter
"
"
3rd
4th
"
2nd
108.1
99.3
135.2
191.8
58.1
53.4
45.9
44.6
50.0
45.9
89.3
147.2
152.9
100.4
124.3
27.5
24.2
27.8
125.4
76.2
96.5
1938
1st
"
"
3rd
"
2nd
4. Trend of prices. The Board of Trade wholesale price index for
September was 98.4, a drop of 11.5 percent compared with Septmeber 1937.
Reuter's index of sensitive commodity prices, which fell sharply at the
beginning of September, and then rose as the prospects of war increased,
is now back to the low levels prevailing at the beginning of September.
-4While the Board of Trade wholesale price index has fallen 11.5 per-
cent in the last year, cost of living index has fallen only three points,
from 158 in September 1937 to 155 in September 1938.
5. Retail trade. The Bank of England index of retail sales was 111 in
August, 1938 but increased to 120 in September 1938. The money value of
the total daily sales reported for September 1938 was slightly higher than
for September 1937.
6. New capital issues. New capital issues, excluding conversions, were
6218 million during the nine months of 1938, compared with L 411 millions
in the same period of 1937.
U. K.
British Empire
excluding U.K.
9 months of 1937
9 months of 1938
351
167
57
48
Foreign
Countries
2
3
All except L20 million of the 6218 million new issues of 1938 were
issued in the first half of the year.
7. Security prices. The index of 56 industrial stocks has undergone sharp
fluctuations in the last two months. It reached a low of 91.2 on September
28, recovered by September 30 to 104.5, but since then has shown a tendency
to sag. The index as of November 9 was 102.1.
Consols also underwent strong fluctuation in spite of the fact that
for a few days before September 28 the market was being regulated. 21/2020 percent consols were down to 65 on September 26. They then recovered to
74-1/4 by September 30. Since then they have been falling and on November 9
were quoted at 72-7/16. The market for government securities is somewhat
nervous, faced as it is with the prospect of new government issues for the
armament program.
8. Government revenues and expenditure. Total ordinary revenue for the
six months ending September 30th was 306.2 millions, a decline of 12.7 million on 1937. Expenditure rose from 1443.3 to 6510.3 in the same period,
while the deficit for the first six months of the current fiscal year is
L166.3, compared with 198.5 during the same period last year. In addition
to this deficit must be added armament expenditures from the National Defense loan, budgeted for 6112 million for the whole of this fiscal year.
The amount spent so far this year has not been reported.
11
No. 11 -
United States and United Kingdom wholesale prices - foreign
exchange aspects of international competitive position
compared.
The table on the following page contains the indexes
of foreign exchange - wholesale price relationships for the
United States and for the United Kingdom. There are three
various methods of weighting as indicated in the tables.
Though the indexes vary somewhat according to the method of
weighting, they all show that the situation from the point
of view of foreign exchange - wholesale prices has become
less favorable for the United States since February 1938.
The average of the indexes arrived at by the use of varying
systems of weights dropped from 113 in February 1938 to
106 in October 1938. This is to be contrasted with an increase in the index for United Kingdom of from 98 to 104
during the same period.
In 80 far as exchange rates and wholesale price indexes
are an indication of the altered international competitive
position of each country with respect to its foreign markets,
our calculations show that the situation for the United
States is becoming substantially and steadily less favorable
while that for the United Kingdom is becoming substantially
and steadily more favorable.
Of course, the exchange rate - wholesale price relationships show only one aspect of the picture. Nonetheless, it
is an important aspect, and one that casts serious doubt on the
validity
of the claim that a lower sterling rate is called
for.
There are also appended two other tables - one showing
the so-called "purchasing-power-parity" between the leading
countries and the United States and a similar table between
the leading countries and the United Kingdom. Though these
indexes are much less significant than the ones referred to
above, they are the ones which are frequently employed to
demonstrate undervaluation or overvaluation of currencies.
These figures indicate in general that this aspect of the
international competitive situation of the leading foreign
countries is growing more favorable relative to the United
States. Despite their limited significance, these indexes
constitute additional evidence to support our contention.
These latter indexes are not included because of their
real importance; they are included only because they are
frequently used by others as being important -- much more
important than we think they are.
Immary Table
Indexes of Foreign Exchange - Wholesale Price Relationships
for the United States and for the United Kingdom
(Weighted (a) by Imports, (b) by Exports,
(c) by Total World Imports, and (d) by
an Average of the three Weights)
(1936 = 100)
United States
:
: Weights
Import
:
World :
: Import :Average
Export
: World
:
:
:
:
:
:
Import
Export
Weights
Weights
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
104.7
105.7
106.9
108.9
109.4
111.1
113.2
115.1
101.6
103.2
105.2
107.0
105.2
106.7
108.4
110.3
94.4
94.4
94.6
94.7
103.0
103.0
103.6
104.3
91.7
91.2
91,6
92.1
96.4
96.2
96.6
97.0
110.6
112,2
111.0
112.6
117.2
118.0
116.0
116.0
108.3
109.1
107.6
108.2
112.0
113.1
111.5
112.3
94.6
95.4
96.0
96.5
104.0
105.0
105.6
106.1
91.9
92.9
93.7
94.3
96.8
97.8
98.4
99.0
110.5
110.2
108.7
107.9
115.0
113.9
112.5
111.6
107.6
106.9
105.4
105.2
111.0
110.3
108.9
108.2
96.6
97.6
98.2
99.4
106.6
107.5
108.7
109.4
94.4
95.6
96.1
97.1
97.2
100.2
101.0
102.0
106.1
109.8
109.4
103.3
102.9
106.4
106.1
101,0
101.6
111.2
111.5
99.1
99.5
103.8
104.2
Weights
: Import
: Weights
: Average
:
Weights
:
:
:
1936
United Kingdom
1937
September
October
November
December
1938
January
February
March
April
May
June
July
August
September
October
105.9
For explanations and notes, see Appendix.
Table X
Indexes of "Purchasing-Power-Parity" between Leading
Countries and the United States for Selected Months
of 1937 and 1938
(1936 - 100)
Italy
China
Japan
Belgium
Denmark
Netherlands
Germany
Formula:
:September : December :
1937
March
:
France
:
Canada
: Average
:
United Kingdom
: 1936
1938
June
: September
100.0
100.0
100.0
100.0
100.0
92.3
94.8
122.4
125.1
90.7
88.4
91.2
118.6
111,2
78.4
89.1
88.7
125.1
111.5
81,1
91.1
91.1
132.5
106.8
114.4
96.4
97.5
138.7
106,1
110.6
100.0
100.0
100.0
100.0
100.0
90.0
92.9
94.3
105.1
106.5
82.7
89.9
88.1
99.1
100.1
77.9
90.2
89.7
99.8
97.1
76.2
90.4
91.9
100.7
95.7
78.7
91,8
95.7
104.8
96.4
Index of Wholesale Prices in the United States
Index of Wholesale Prices in Second Country
X Index of Rate of Foreign Exchange on Second Country in New York
A decline in the index indicates presumably a less favorable competitive position of the country
cited relatively to the United States in anch other country,
An increase in the index indicates presumably a more favorable competitive position of the country
cited relatively to the United States
Table XI
Indexes of "Purchasing-Power-Parity" between Leading
Countries and the United Kingdom for Selected Months
of 1937 and 1938
(1936 = 100)
Canada
France
Germany
Japan
Belgium
Switzerland
Italy
Denmark
1938
:September : December : March
:
:
United States
:
: Average
1937
:
1936
June
:September
100.0
100.0
100.0
108.5
102.8
132.8
113.3
103.2
134.4
111.9
99.5
140.2
109.8
100.0
145.5
103.7
101.2
144.0
100.0
100.0
100.0
115.5
97.7
100.7
113.3
93.7
101.8
109.0
87.3
101.1
105.0
83.7
99.3
100.0
81.7
95.3
100.0
100.0
100.0
133.3
135.6
102.3
130.4
125.9
99.7
128.2
124.7
100.6
125.3
117.3
100.9
121.8
110.1
99.3
Formila: Index of Wholesale Prices in the United Kingdom
Index of Wholesale Prices in Second Country
X
Index of Rate of Exchange of Pounds in terms of Dollars
Index of Rate of Exchange of Currency of Second Country
in terms of Dollars
A decline in the index indicates presumably a less favorable competitive position of the country cited
relatively to the United Kingdom,
An increase in the index indicates presumably a more favorable competitive position of the country cited
book countries,
relatively to the United Kingdom,
C
12
No. 12
Information we Would Like to get from the British
In general we would like to learn the criterion, or
criteria, by which the British Treasury is guided in its
decisions with respect to the sterling price of gold.
Does the British Treasury wish to achieve a lower sterling
rate? How much gold does it regard as reasonable to lose
before permitting the price of gold to rise one penny? Do
they intend to permit sterling to rise 8.8 gold flows in in
the same proportion as they let it fall when gold was flowing out? If the outflow of gold from England to France 18
the consequence of the improved situation which we have all
been eager to promote, would an outflow of gold from London
to France be regarded as justification for further declines
of sterling with reference to the dollar?
It is probably too much to expect comprehensive answers
from the British on the above questions even if they can
give them -- and I think their technicians can. Yet these
questions do not go beyond the spirit of the Tripartite
Accord.
We would also like to have such of the following information as is available to the British Treasury. In all cases
the information for which we are asking 18 either now available to the British Treasury or we would be glad to supply
such information as we have that is not now available.
1. The loss of gold sustained by the Equalization
Fund by weeks during the past three months and the
amount the Fund contains now.
2. Estimate of the amount of gold in hoards in England
and the amount estimated as added to the hoards since
August 1, 1938.
3. Amount of gold earmarked in the United Kingdom for
foreign account.
4. Information with respect to the foreign short-term
banking funds now held in the London market broken down
by leading countries, and changes which have occurred
since August 1.
5. British short-term funds held in foreign countries
other
than the United States, classified by leading
countries.
No. 12 - Continued
6. Monthly or quarterly figures showing security
transactions in the London market for account of
foreigners in British domestic securities and foreign securities.
7. Confidential estimate of the British balance of
payments for 1938 as drawn up by the British Treasury.
8. Their position on forward exchange of leading cur-
rencies.
Appendix
Net Capital Movements
(In millions of dollars)
From Dec. 29, 1937 : From July 20, 1938 :
:
Oct. 26, 1938
:
:
:
:
Oct. 26, 1938
Week ending
: Oct. 19, 1938
:
to
:
to
Week ending
: Oct. 26, 1938
:
Net flow of capital consisting of:
Inflow
249.3
Inflow
649.4
Inflow
105.9
Inflow
22.1
1. Banking funds
(a) Change in balances of foreign
central banks and governments with
the Federal Reserve Bank of N.Y.
Inflow
167.7
Inflow
620.0
Inflow
94.4
Inflow
13.3
Outflow
47.5
Inflow
83.4
Outflow
Inflow
215.2
Inflow
536.6
Inflow
Inflow
Inflow
73.0
19.1
53.9
Inflow
Inflow
Inflow
35.4
23.5
11.9
Inflow
8.8
Outflow
(b) Change in all other short-term
balances (mostly private funds)
2. Net security transactions
(a) Domestic securities
(b) Foreign securities
3. Brokerage balances
Net security transactions reported by
the S.E.C.
Oct. 20 to 26
Inflow
to 10/28/38
Oct. 26 to Nov. 8
.8 Inflow
Addition to monetary gold stock, 12/31/37
+ 1,300.3
Net gold imports through October 28, 1938
+ 1,507.8
Net release of gold held under earmark for
foreign account 12/29/37 to 10/26/38
- 240.1
5.8
.7
.7
Inflow
15.5
Inflow
95.1
Outflow
2.2
Inflow
Inflow
Inflow
11.6
Inflow
Inflow
Outflow
Outflow
9.9
11.8
1.9
.04 Outflow
1.0
8.7
2.9
2
November 15, 1938.
MEMORANDUM
Re: Sterling rate and
British trade agreement.
Yesterday at lunch I gave the President a copy of the
talk between Bolton and Knoke that took place at 10:30. I
said to the President, "I thought you ought to know this in
view of the proximity of our signing the British trade treaty."
I said, "My own feeling is that I'd like to wait until the
British trade treaty is signed, because it means so much to
Mr. Hull; but we're watching it from day to day and the drop
which took place today and their attitude is very serious."
I said, "I don't want you to feel that in any sense I'm
putting you on notice, but I do want your advice as to how
I can put the State Department on notice."
So he said, "Let me keep the memorandum."
Then I explained to him that the treaty was worked out
on the basis of around 4.93 and now it was 4.70. He said,
"Well, how low do you think it can go before it really hurts
us, because so far our import-export business hasn't fallen
off."
I said, "No, but that (sterling) falls off slowly
(at first), to
butstop."
it gains momentum very rapidly and it's very
difficult
Sodrops?"
he said, "Well, just how low can the pound go before
it (trade)
I said, "Well, we've been doing a lot of work on it."
said, "Very confidentially, it might go to 4.60 or it might
even go to four dollars and a half without hurting us; but I
don't
that
to anybody
we'vewant
donetoasay
lot of
work
on it." else. We don't know. But
I
So he said, "Well, how about the Canadian dollar? That
isn't affected."
I said, "Not particularly. But from a competition
standpoint, I said, "for example, it might help the Swedes
to have a low sterling - they might get a distinct trade
advantage where the English mightn't - or some other country
in the sterling area." I said, "Furthermore, the sterling
area does approximately one-third of the world's business."
3
-2-
So the President said, "Very much between us" - he
said, "I'd like to sign it." He said, "I can't get a trade
treaty with Canada unless I get one with England, and I very
much want one with Canada." And he said, "If you'll tell me
that the Canadian dollar is all right, let's let this thing
go." And he said, "We'11 sign the British trade treaty, but
when we sign it - and at the time of signing we'll put the
British on notice."
Then, much to my surprise, Taylor phoned me at a
quarter to seven last night, and it seemed that immediately
after the four o'clock meeting the President sent for Mr.
Sayre and asked him about this whole sterling business and
put Sayre on notice, and told Sayre to put the British on
notice; and we'11 get the details from Taylor. Taylor asked
me whether I was at the bottom of this. I said, why, yes,
but I hadn't asked the President to do anything. And he said,
well, he told Sayre - he, Taylor, told Sayre that my attitude
was that I wanted to wait before doing anything until the
British trade treaty was signed, I didn't want to interfere.
H.M.Jr.
(Following dictated by Mr. Taylor:)
Mr. Sayre called me over about a quarter of five last
night and said that he had something that he'd appreciate if
I'd come over for, but it was so important that he didn't
want to tell me about it on the telephone. I went over to
his office, and he and Hawkins and Pasvolsky were there. Mr.
Sayre said that the President had called him over, called his
attention to the sterling rates, and said that he was very
seriously disturbed about it, and asked Sayre what he would do
if the rate, for example, went to 4.55 on the day that the
trade treaty was signed."
Mr. Sayre was apparently asking for my advice as to
what to do. I described to him what had happened in the
market today, that the pressure had come largely from the
conversion of sterling into francs: repatriation; told him
the amount of business that had been done, but also said
that there were a great many rumors going on, such as that
there was a figure of 4.50 contained in the trade agreement;
that we had had a great many inquiries over the past few days
and quite a few of them today about the same rumor; and that
until those rumors were stopped, which could probably only
take place actually at the time that the trade treaty was
4
-3-
published, we didn't know very much what to do about it.
And he asked me what could be done about it, and I
said, "Naturally, the British can hold the thing, unless it
gets completely out of hand. If it gets completely out of
hand, why, there isn't money enough in the stabilization fund
to do it, on account of the large amount of foreign balances
that they have there." I said, "However, that's - if they
really want to try, why, they probably can. The other thing
that could be done is that we - that we do it and they say,
'All right,' or a combination of those two."
He then wanted to know about seeing the British
Ambassador, and I said, well, I felt that that would be
certainly agreeable to us as it came up in connection with
the trade treaty, and the President had spoken to him in
connection with the trade treaty; but that we would be
rather reluctant to do it at this time unless they asked us
to, because your (H.M.Jr) feeling was that you wished to have
a long conversation with the British after the trade treaty
was signed. However, if, having talked to the British
Ambassador, who in turn would naturally be asked to get the
British on the other side to make a statement in connection
with denying the fact that there was any exchange clause in
the agreement - I mean any specific mention of a figure in
the agreement - why, we'd see what happened, and that, having
seen what happened, if they wished us to take it up with the
British through another channel, why, I said naturally I
thought we would be glad to do so but that that was entirely
up to you and that I was merely giving them as far as the
trade treaty part of it any suggestions which I could give.
He went to see the British Ambassador last night. He
went there right after I left.
5
Telephone conversation between
Mr. Bolton of Bank of England.
London and Mr. Knoke of Federal
Reserve Bank of New York.
November 14, 1938
10:30 A. N.
Bolton: We are having a rousing time here as usual. We have decided to let the
rate fall a little bit. Can't stand up very such longer. One of the
POGROM
reasons is the Jewish program in Germany. There are a great number of
people on the Continent and in England who believe that the Government
policy towards Germany will fail. There are a great number of persons
who believe the coming by-elections will lead to a Government loss. The
war fears are beginning to return to Europe. Foreign money is still
leaving London and there is a development of large speculative account
too. Having lost a very large part of our resources we have decided to
try and reserve them a little. Can't afford to lose $40 to $50 million
every day. Must conserve our resources. We feel that we can't at any
rate keep the market as quiet and as orderly as we have in the past. We
have shipped about $150,000,000 gold to you and the fact that sterling is
apparently on the down-grade is all very disappointing. We shall do
everything we can to prevent the rate depreciating. I wanted to tell
you this first before we do anything. Shall hold the rate above 4.70
today. We shall put in support at different levels. We shall send you
a full and complete cable tonight.
Knoke: Shall we operate against your order?
Boltons Yes, please.
6
RE FOREIGN EXCHANGE DEVELOPMENTS
Present:
Mr. White
November 15, 1938.
9:15 a.m.
Mr. Lochhead
Mr. Taylor
H.M.Jr:
Now, I told Taylor - he called me up - I told him
I'd dictate this for my diary - said that he'd be
here. I can't wait for him.
(Following material has also been transcribed
separately in memorandum form, including that
dictated by Mr. Taylor on pages 3 and 4)
Yesterday at lunch I gave the President a copy of
the talk between Bolton and Knoke that took place
at 10:30. I said to the President, "I thought you
ought to know this in view of the proximity of our
signing the British trade treaty." I said, "My own
feeling is that I'd like to wait until the British
trade treaty is signed, because it means so much to
Mr. Hull. But we're watching it from day to day
and the drop which took place today and their atti-
tude is very serious." I said, "I don't want you
to feel that in any sense I'm putting you on notice,
but I do want your advice as to how I can put the
State Department on notice."
So he said, "Let me keep the memorandum." He said -
then I explained to him that the treaty was worked
out on the basis of around 4.93 and now it was 4.70.
He said, "Well, how low do you think it can go before
it really hurts us; because so far our import-export
business hasn't fallen off."
I said, "No, but that falls off slowly, because it
(sterling rate drop) gains momentum very rapidly and
it's very difficult to stop."
Do you agree with me, Harry?
White:
Yes.
H.M.Jr:
So he said, "Well, just how low can the pound go
before it (trade) drops?"
7
-2-
I said, "Well, we've been doing a lot of work on
it." I said, "Very confidentially, it might go to
4.60 or it might even go to four dollars and a
half without even hurting; but I don't want to say
that
to anybody
We don't
"we've
done a lotelse.
of work
on it."know, but," I said,
So he said, "Well, now about the Canadian dollar?"
So he said, "That isn't affected."
I said, "Not particularly, but," I said, "from a
competition standpoint," I said, "for example,
it might help the Swedes to have a low sterling.
They might get a distinct trade advantage, where
the English mightn't; or some other country in the
sterling area."
I said, "Furthermore, the sterling area does
approximately one-third of the world's business."
White:
I'm using Dorothy Thompson's figures.
That's roughly
H.M.Jr:
I said approximately.
So the President said, "Very much between us..'
ne said, "I'd like to sign it." He said, "I can't
get a trade treaty with Canada unless I get one with
he said, "If you will tell me that the Canadian
dollar is all right," he said, "let's let this thing
go and we'll sign the British trade treaty, but when
we sign them and at the time of signing we'11 put the
British on notice."
England, and I very much want one with Canada." And
Then, much to my surprise, Taylor phoned me at quarter
to seven last night, and it seemed immediately after
the four o'clock meeting the President sent for Mr.
Sayre and asked him about this whole sterling business
and put Sayre on notice, and told Sayre to put the
British on notice; and we'll get the details from
Taylor.
Taylor asked me whether I was at the bottom of this.
I said, why, yes, but I hadn't asked the President
to do anything. And he said, well, he told Sayre he, Taylor, told Sayre that my attitude was that I
wanted to wait before doing anything until the British
8
-3-
trade treaty was signed, I didn't want to interfere.
(Taylor comes in)
H.M.Jr:
(On phone) Hello. Miss Chauncey on the phone.
Tell Taylor just, Archie, very briefly what
(On phone) The letter I wrote Mr. Hull, a letter
forwarding a memorandum from Oliphant.
White:
The British delegation have made another last
minute request to change some of the terms of the
agreement of a minor - rather minor importance.
But that they have asked us about; I won't raise
the question, because it's too minor, but it's
interesting to know.
H.M.Jr:
Do
you
(Taylor) want to tell the boy now? You got
what
I did
Taylor:
Yes.
H.M.Jr:
... with the President. And do you want to tell him
of your conversation?
Taylor:
Yes.
Mr. Sayre called me over about quarter of five last
night and said that he had something that he'd
appreciate if I came over for, but it was so important that he didn't want to tell me about it on the
telephone. I went over to his office, and he and
Hawkins and Pasvolsky were there. Mr. Sayre said
that the President had called him over, called
his attention to the sterling rates, and said that
he was very seriously disturbed about it, and asked
Sayre what he would do if the rates, for example,
went to 4.55 on the day that the trade treaty was
signed.
Mr. Sayre was apparently asking for my advice as to
what to do. I described to him what had happened
in the market today; that the pressure had come
largely from the conversion of sterling into francs,
repatriation; told him the amount of business that
had been done, but also said that there were a great
many rumors going on, such as that there was a figure
9
-4-
of 4.50 contained in the trade agreement; that we had
had a great many inquiries over the past few days
and quite a few of them today about the same rumor,
and that until those rumors were stopped, which could
probably only take place actually at the time that
the trade
published,
we didn't know very
much
whattreaty
to dowas
about
it.
And he asked me what could be done about it, and I
said, "Naturally, the British can hold the thing
unless it gets completely out of hand. If it gets
completely out of hand, why, there isn't money enough
in the stabilization fund to do it, on account of
the large amount of foreign balances that they have
there.' I said, however, that if they really want to
try, why, they probably can; that the other thing that
could be done is that we do it and they said "All
right," or a combination of those two.
He then wanted to know about seeing the British
Ambassador and I said, well, I felt that that would
be certainly agreeable to us as it came up in connection with the trade treaty, and the President had
spoken to him in connection with the trade treaty;
but that we would be rather reluctant to do it at
this time unless they asked us to, because your
feeling was that you wished to have a long conversation with the British after the trade treaty was
signed. However, if, having talked to the British
Ambassador, who in turn would naturally be asked to
get the British on the other side to make a statement
in connection with denying the fact that there was
any exchange clause in the agreement - I mean any
specific mention of a figure in the agreement - why,
we'd see what happened, and that, having seen what
happened, if they wished us to take it up with the
British through another channel, why, I said naturally I thought we would be glad to do so, but that
that was entirely up to you and that I was merely
giving them, as far as the trade treaty part of it,
any suggestions which I could give.
H.M.Jr:
Well, did you gather he would or would not see the
British Ambassador?
Taylor:
Oh, he went to see him last night. He went there
right after I
10
-5-
H.M.Jr:
Well, would you ask him to let me have a copy of the
memorandum which he undoubtedly made of his conversation with the British Ambassador? I'd like - because
the State Department does that; I'd like to have that.
Taylor:
Yes.
H.M.Jr:
You see? What he did and what he said. I'd like a
copy of that memorandum.
Taylor:
He went right over there after I left.
H.M.Jr:
(Quoting from attached clipping) "Officials Expect
Anglo Trade Pact To Bolster Pound." This is the
Wall Street Journal. "No Devaluation Provision in
U. S. Treaty. Announcement Due Thursday. - As
the British pound sank yesterday under the heaviest
selling wave since the September war scare, it was
stated on the highest authority in Washington that
the forthcoming Anglo-American trade agreement would
contain no provision for devaluation of sterling.
Rumors of such action have agitated foreign exchange
markets for some time past."
Now where does that come from?
Taylor:
They put out a leak there yesterday evening.
H.M.Jr:
But that's not for me; that's State Department.
Taylor:
State Department leak.
H.M.Jr:
Well, that's that.
Then - "French Decrees
Reaction of the
foreign exchange market and the Bourse to the new
decree laws promulgated over the week-end was very
favorable.
strong demand."
-
French Treasury bills were in
Now, one other thing before this other group comes
in. In this envelope to me - it's significant how
it was addressed, so keep it - at one o'clock, Mr.
Hamilton, of the Far East Division of the State
Department, delivered to me a two-page memoran-
dum (this deals with another subject transcribed separately)
DEPARTMENT OF STATE
I
ASSISTANT SECRETARY
Dear Wayne, /
Here's the
memo. you asked
for. F. B.S.
also not swth -6-22)
n
(su Hms,
to
11
If
12
DEPARTMENT OF STATE
Memorandum of Conversation
infidential
SUBJECT:
DATE:
Signing of the British trade agreement
and deeline of pound-dollar rate.
PARTICIPANTS:
November 14, 1938.
Sir Ronald Lindsay, British Ambassador;
Mr. Sayre.
COPIES TO:
... 1-1400
I called on the British Ambassador very informally
at the British Embassy at 5:30 this afternoon. I told
the Ambassador that I wanted to speak with him unofficially
and informally, and then proceeded to tell him of my conversation with the President this afternoon in which the
President expressed his anxiety concerning the decline of
the pound-dollar rate. The rate fell today to $4.70 and
the President had said to me: "What will we do if the
pound should drop to $4.55 on Thursday morning?" After
telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to
see if steps could not be taken to sustain the pound,
particularly during the coming few days. The Ambassador
said
13
-2said that he would gladly do so at once.
I also spoke to the Ambassador about the rumor which
is circulating to the effect that the trade agreement contains a provision stabilizing the rate of the pound at
$4.50. In order to prevent the depressing effect of such
a rumor, I said to the Ambassador that with his permission
we would give out a statement this evening denying that the
trade agreement contains any such provision. I suggested
that he might also think it advisable to have such a state.
ment given out at once in London. The Ambassador at once
agreed.
I also gave to the Ambassador a copy of the statement
which Secretary Full expects to read at the time of the
signing of the trade agreement.
I told the Ambassador that we plan to have the trade
agreement signed at the White House on Thursday afternoon
and that the President had requested that the hour be set
at four o'clock.
A-S FBS:ABN
Officials Expect
Anglo Trade Pact
To Bolster Pound
Sterling Dropped in Markets
Anglo Trade Pact
Continued from First Page)
stated that no word had been received by him
from Great Britain of any change in the pound
He further stated that the French revaluation
of gold holdings was a domestic matter and
would not interfere with the operation of the
Yesterday-No Devaluation
tri-partite agreement.
Provision in Treaty
Heaviest Selling Since
War Scare Hits Pound
Announcement Due Thursday
As the British pound sank yesterday under the
heaviest selling wave since the September
Sterling declined yesterday under the heavi-
est selling wave to sweep over the foreign exchange market since the European war scare
in September
Heaviest gold losses by British authorities
war scare, It was stated on the highest authority In Washington that the forthcoming
since that period were indicated as large official
tain no provision for devaluation of sterling.
Rumors of such action have agitated foreign
of the British pound.
Anglo-American trade agreement would con-
exchange markets for some time past and
contributed substantially to the weakness in
the pound.
Two other major factors contributed to yester-
day's break in sterling which closed in the
New York market at $4.71 1-16, off 1 13-16 on
the day: (1) fear that the anti-Semetic outbreak in Germany would render Impossible
any policy of Anglo-German cooperation; (2)
heavy selling of sterling and purchase of
francs by French interests as a result of
favorable interpretation of the Daladier Cabinet's new economic decrees
From THE WALL STREET JOCENAL Washington Bureas
buying orders for sterling were thrown into the
markets both here and abroad to stem the fall
Four factors were held responsible for the
sterling break:
1. Fast growing belief that the latest antiSemitic excesses in Germany make continuance
of the "appeasement" policy of Prime Minister
Chamberlain almost impossible
tinent, which were scouted in London and
categorically denied in Washington that the
terms of the Anglo-American trade treaty will
contain a minimum level of around $4.50 beyond
which the pound will not be allowed to fall-if
not some sort of stabilization at that level.
French Revaluation Factor
3. Considerable selling of sterling and buying of francs by French interests during the
morning, following announcement of the decree
day of this week- have a stabilizing effect
Early morning cables from London and Paris
were confusing as rates were received showing
upon the pound sterling which has been slipping
badly in terms of dollars
It was stated on excellent authority here
last night that the text of the pact will contain
no specific mention of monetary matters other
than the usual "escape" clause whereby concessions may be cancelled in the event of abnormal-
ly wide exchange fluctuations. This statement
effectually disposes of recurrent rumora that the
trade pact would provide for further devalua.
tion of the pound.
At the same time, highly placed officials
emphasized that they believed the U. 8.-Britian
agreement will be a strengthening factor in the
existing tri-partite monetary accord between the
laws
as high as $4.74% in London and as low as
$4.72% In Paris The market opened here at
$4.73 14. which later proved to be the high for
the day. sold down to $4.70 5-16 and closed at
$4.71 1-16 for a net loss of 1 13-16 cents.
So heavy was the selling pressure that the
American stabilization fund was forced to intervene in the morning. The fund was forced
to lower its bid several times so great
was the volume This is unusual Inasmuch
ordinary technique is for British authorities
control the market so long as London is op
with American authorities coming in if need
in the afternoon here.
Unofficial estimates indicated that the Amer
United States, Great Britain and France.
can stabilization fund bought at least £2,000,000
Watching Exchange Situation
an unusually large amount for this market. The
Officials here are giving constant attention
to the foreign exchange situation, and it is indicated that in the event the publication of the
trade agreement fails to lift pressure on the
pound, some other ideas might be brought into
play to relieve the situation.
So far as can be ascertained here. no official
word of any change in the relationship in the
dollar and pound in foreign exchange is contem-
plated by London Persistent rumors of a devaluation of the pound to $4.50 are not taken
seriously by Washington
The Washington opinion is based upon two
important considerations:
1. It is stated here Great Britain stands to
lose more than she will gain by a devaluation
because of the need to buy abroad for her arms
ment program.
2. Probably more important. a devaluation
by Great Britain would cause countries whose
currencies are now tied to the pound to with
draw balances from London in favor of some
other currency. implying probably that the dol
lar might be the alternative.
Secretary of the Treasury Morgenthau at his
regular bi-weekly press conference yesterday
Please turn to page 6. column
WALL
STREET
JOURNAL
--
NOV. 15
2. Persistent reports largely from the Con
WASHINGTON - High Administration officials hope that announcement of an Anglo-
American trade agreement-expected by Thurs-
14
British control, it la believed absorbed consid
erably more which indicates large official gold
loases.
In addition, official reports showed that
$6,700,000 gold was engaged in England yes
terday for shipment to New York on private
account, the largest taking for any one day
since the war crisis abated Engagement
$700,000 from Holland also was announced.
The local market placed particular emphasis
upon the political repercussions arising from the
Jewish persecutions in Germany. The obstacle
which is offers to Chamberlain's appeasement
program means rearmament in England must
be accelerated still further and in view of the
current heavy deficit in British government ac.
counts and state of Britain's balance of inter-
national payments, this means still heavier
pressure upon the pound sterling in world
markets
Cabled advices from the London correspon-
dent of The Wall Street Journal abowed that
financial London concurs in this view and it was
noted here that the heaviest selling came from
London itself.
1938
WALL STREET JOURNAL
NOV 15 1938
French Decrees
Viewed Favorably;
Capital Returns
Sterling Sold Throughout Day
-Rentes Active and Higher
On Bourse
Labor's Reaction Is Awaited
15
Labor's Reaction Awalted
Labor's reaction to the decree laws is
awaited here with interest but the Labor Federation, which is holding its annual Congress,
has not yet determined upon its attitude. It is
certain to protest the fiscal burden which has
been laid upon the workers, including especially
the special 2% income tax levy on wages without basic deductions or abatements
Hitherto, annual wages up to 10,000 francs
had been exempt while the tax on the second
ten thousand had been only 1% and actually,
owing to family and other deductions, the vast
majority of workers escaped entirely.
The workers are also hit hard by an average
15% increase in coffee, sugar, wine, tobacco and
gasoline taxes and subway and omnibus fares.
Nevertheless opposition to the fiscal and so-
cial reforms is not expected to be serious if
Reynaud's plan brings capital home and stimu-
By CHARLES R. HARGROVE
PARISReaction of the foreign exchange
market and the Bourse to the new decree laws
promulgated over the week-end was very favorable. The market sold sterling throughout the
day and the French Exchange Control is estimated to have acquired £3,000,000 to £5,000,-
lates business which registered a distinct revival in certain branches, including textiles,
during October.
French Budget Estimates
Estimate for the 1939 national and local
budgets in France prior to the Reynaud plan
show total expenditures of 137,000,000,000
000. Premiums on forward sterling sank to
francs.
months.
dinary budget accounts for 64,500,000,000 francs
Early sales of dollars in London were also
attributed to repatriation of French balances via
francs of which 25,000,000,000 are for armament
around 50 and 250 centimes for one and three
London and it was noted that when these
ceased, the dollar gained immediately on ster-
ling under selling of sterling from English,
American and other accounts.
The decree laws abolish virtually all remnants of the rigid and compulsory 40-hour week
and repeal government control of wholesale and
industrial prices, retaining retail price control,
however. Extraordinary armament expenditure
will be financed by loans. Additional direct and
indirect taxes are provided. Drastic reduction
in swollen government and railway personnel is
planned.
Treasury Bills Strong
French Treasury bills were in strong demand
Monday. Expectation prevails that French capi-
tal will continue to return and to produce an
appreciable cheapening of short and then long
term money rates, The rate on one year Treasury bonds was reduced to 3% % from 4% during
the morning and it is likely that the discount
rate of the Bank of France and the Treasury
bill rate will be lowered soon.
The main activity on the Bourse was in
Rentes where rises of 1 to 51/2 francs were reg-
istered. The 1920 redeemable fours were up
4.50 franca owing to the dissipation of fears of
suspension of annual drawings and the 1925 exchange guaranteed 4's were up 5.40 france ow.
ing to their restoration into the category of
bearer securities.
French equities were firm, especially Bank
of France shares, while internationals were
weak.
The government announced there will be no
further decree laws. Pensions for aged workers
and other measures involving new expenditure
will be submitted in the ordinary legislative
processes.
This is made up as follows: The state's orand extraordinary expenditures 29,500,000,000
In addition are T,500,000,000 francs for the
sinking fund, 24,000,000,000 france for local goverments, 5,500,000,000 francs for public works
while the railroad deficit will call for 6,000,000,000 francs more.
Ordinary budget revenues of the state are
estimated at 56,000,000,000 franca, while sink-
ing fund will bring in 7,500,000,000 and local
revenues are estimated at 22,000,000,000 franca,
or a total révenue, state and local, of 85,500,000,000 francs.
The deficit, therefore, amounts to 51,500,000,000 to which must be added sundry charges
bringing the total somewhere between 54,000,000,000 and 55,000,000,000 franca.
Yield of New Taxes
The new taxes imposed by Finance Minister
Reynaud are expected to yield 10,000,000,000
franca additional revenue and progressive economies will lop off about 5,000,000,000 francs from
expenditures mainly through public works sua
pension and eventual debt retirement. The
normal increase in revenue due to recovery is
expected to bring in another 5,000,000,000 to
6,000,000,000 francs of revenue, leaving 34,000,000,000 francs including the 25,000,000,000 arma-
ment expenditure to be covered by loans.
Of the ordinary budget expenditure totaling
64,500,000,000 francs, debt service amounts to
15,100,000,000 francs and pensions 13,500,000,000
france, or together 29% of total expenditure
Civil and military personnel will cost 16,770.000,000 francs, subsidies 7,640,000,000 france
and military and civil supplies 8,000,000,000
francs.
The Finance Minister points out that debt
service, pensions and wages amount to 60% and
military expenditure 22% of expenditures.
16
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
FROM
November 15, 1938
Secretary Morgenthau
Mr. Taylor
The French Financial Attache called at noon today to say good-bye,
as this time he is really sailing. He explained that his sailing before
had been delayed as Marchandeau had felt that his presence was desirable
here in case Marchandeau were able to announce decrees embodying his
policy before November 15th. He then stated that the Reynaud program
represented the last chance for a free economy and that if this attempt
failed, exchange control and other forms of control were inevitable.
He then discussed the position of the pound at some length,
the various rumors which were in circulation and possible methods which
could be evolved to guard against or discourage the type of capital movement
which has marked the past few years. He indicated that inasmuch as the
frane was very closely tied to the pound that weakness or instability in
the pound could not fail to affect french economy; that we were not affected
to the same extent, but that in the field of our agricultural exports the
value of the pound was extremely important to us.
In return, I explained to him the fact that the exchange clauses
in the proposed British agreement were similar to those contained in the
French agreement, that all these clauses had been evolved prior to the
Tri-Partite Agreement and that our feeling WAS that the Tri-Partite Agreement
offered a much more satisfactory and flexible mechanism for discussing
currency relationships than the trade agreement, particularly as capital
movements had played such an important part in the currency fluctuations
of recent years.
wet.
16-A
November 15, 1938.
GROUP MEETING
Present:
9:30 A. M.
Mr. Oliphant
Mr. Gaston
Mr. Haas
Mr. Taylor
Mr. Gibbons
Mr. Duffield
Mr. White
Mr. Lochhead
Mr. McReynolds
Miss Chauncey
H.M.Jr:
Does anybody know - White, listen to this, please why I shouldn't ask Mr. Hull when I may expect a
letter in answer to my letter of October 31,
which is: "Recent information coming to the
Treasury Department from responsible quarters,
indicating that practices in connection with
exports from Germany to the United States
Oliphant:
Is there any reason why I shouldn't ask him?
I think we should ask for an answer.
H.M.Jr:
Just a question - "When may I expect an answer?"
Huh, Wayne?
Taylor:
(Nods "Yes.")
H.M.Jr:
(To Mr. Kieley:) Would you call up Mr. Hull's
office and say, "When may I expect an answer to
that letter?" And then give that letter back to
Miss Chauncey, please.
Taylor:
In the conversation I had with him, I emphasized
a great desire to have an answer on it. That was
last Wednesday.
H.M.Jr:
Well, the thirty-first was - well, it's sixteen
days.
Taylor:
Last Wednesday was the day I went to this meeting.
H.M.Jr:
This doesn't in any way embarrass you?
16-B
-2Taylor:
Not a bit.
White:
There was a sub-committee appointed to examine that.
Taylor:
That's all right. That is, they are going to give
H.M.Jr:
But I am entitled to an answer, unless Wayne
said to me, "I am carrying the ball for you," or
something like that.
Taylor:
I particularly emphasized that you did want an
answer, and they sat in at - in March when they
were studying certain other aspects of it, that
was agreeable to you too.
H.M.Jr:
They put the pressure on me all the time, and
when I said I wanted it by one o'clock yesterday,
at five minutes past one, I got Mr. Hull's
answer on these things.
White:
H.M.Jr:
It is my understanding that Secretary Wallace
favors the step.
He favors it?
White:
Favors your contemplated step, inasmuch as he is
H.M.Jr:
a first answer, which
definitely affected by the cotton phase; I mean
the definite situation.
Wayne, are you doing anything at ten thirty this
morning?
Taylor:
No.
H.M.Jr:
Well, you go with me to Wallace; I think Hull's
going to be there, on this Agriculture - it's a
combination of State, Agriculture, etc. Have a
piece of pencil in your pocket, and paper, so you
can write up what happens for me when we come back.
One other thing here - Bond Market Gossip, New
York Journal (of Commerce) comments, "U. S. Housing
Issue. With a twenty-five million dollar issue of
United States Housing Authority bonds expected in
the next few weeks " Mr. Oliphant, you were
going to see their lawyer.
16-C
-3Oliphant:
He was over to see me Saturday; he had nothing new
to offer. He didn't - we couldn't get any bid Ed (Foley) saw him with me - we couldn't get him
to face the fact for the bonds to sell - talking
about local bonds now - to sell at any such rates.
The public would have to be mislead, and it was
left like that. He is coming back to see me today.
H.M.Jr:
Well, you
Oliphant:
We're still discussing the letter you propose to
H.M.Jr:
All right. I've waited again two and a half
weeks, and at tomorrow morning's meeting, I'll
send a letter to the President. I mean, if you
send the President.
Oliphant:
will bring in a letter.
I'll bring it in tomorrow.
H.M.Jr:
And before you bring it in, let Taylor see it,
Oliphant:
I'll have it around, and have it initialed.
H.M.Jr:
Twenty-four hours from now I want a letter to send
to the President.
Oliphant:
I'll have it around; have it initialed, and in
H.M.Jr:
and perhaps let it work around.
by nine thirty in the morning.
Will you tell him to tell Mr. Straus I am going
to send a letter tomorrow morning?
Oliphant: Yes.
H.M.Jr:
Or should I tell Straus?
Oliphant:
I think you'd better tell Straus, since he
Chauncey:
(Low to H.M.Jr:) Mr. Straus telephoned you yesterday to say he had just gotten back in town, and
in the meantime Mr. Keyserling was discussing it
with Mr. Oliphant.
H.M.Jr:
Will you call up Mr. Straus' secretary and tell
him at nine thirty tomorrow morning - I am meeting
with my staff at that time and we are going to
16-D
-4decide on a letter, and if he wants to see me
between now and nine thirty tomorrow morning I am
available. I am available if he wants to see
me. Between now and tomorrow morning it will she blows.
Oliphant:
H.M.Jr:
I have here a memorandum of our conversation with
Herring, and if you want it for your files
(Nods "No.") Yes. Yes, please. Just a second.
(Reads memorandum.)
Gene, does it do anything except just put me on
notice? This memorandum.
Duffield:
No. I was going to bring it up in the bank meeting.
H.M.Jr:
Duffield:
H.M.Jr:
Do I do anything about it?
I shouldn't think so.
(To Miss Chauncey:) Better send it to the house
so I'll read it.
Duffield:
I was going to bring it up in the bank meeting.
H.M.Jr:
While we're on the banking thing, what about Cy?
Duffield:
Is he waiting, or are we waiting.
meeting of the banking group
There is to be a
on Wednesday. Mr. Hanes called it before he left.
At that time we will try to get an answer to
the Director's letter, and as much else as we
can do. We've got quite a number of things to
do.
H.M.Jr:
(To Miss Chauncey:) Will you call up Mr. Kannee
and tell him
(low)
Duffield:
Mr. Hanes will be absent from that banking meeting
H.M.Jr:
If we go at two? Isn't he back tomorrow morning?
Duffield:
Yes.
H.M.Jr:
Can't we meet some other time?
for a while.
-5Duffield:
H.M.Jr:
16-E
Yes.
And, Mac, I think we ought to tell that National
Resources Fiscal Committee to come back at ten
fifteen next Monday.
McReynolds: Yes.
And the President took that memorandum, and liked
H.M.Jr:
it, and I think he will give it out this after-
noon, on the National Fiscal Committee, and he
gave me a fifteen minute rehearsal on what he would
say - tried it out on me.
White:
In addition?
Gaston:
Was he going to use the text exactly or was he
going to talk off-hand?
H.M.Jr:
I think he's going to have it formal.
White:
And supplemented with his own remarks?
H.M.Jr:
Yes. He is very much interested.
Gaston:
Did you change it much? Was it an entirely new
H.M.Jr:
Yeah. (To Miss Chauncey, low)
draft?
Give one
to Gaston.
It's half a page - but he likes it. He thinks
it's all right.
Just to keep you people informed, you know Friday
I was a bad boy at Cabinet, because I kept asking
Wallace what was the two-price plan, and the
President was very much annoyed at me, but I was
doing it to protect him, because Wallace had it
all fixed. Wallace was going to see these
mattress people and give them hell because they
wouldn't cooperate, and the President was going
on the air. The President got quite annoyed
because I kept saying, "What is the plan?"
Wallace couldn't say because he had no plan.
This is, naturally, nine-thirty stuff. Then he
sends for Wallace Saturday and goes through what
I did. He's very much annoyed with him. He asks
me Monday, "What has Wallace got in mind?"
-6-
16-F
I said, "Mr. President, I was trying to demonstrate to you at Cabinet Friday. I know you didn't
like it. Wallace didn't know himself." He said,
"You'd better go over there this morning and help
him out." So I've got to go over there. I said
to the President that I never knew very much
about corn and hogs; I never could understand it;
I know wheat and cotton. And he said, "You've got
to do something, so I said, "Well, if I am
going to do anything, the first thing I am going
to do is insist that the plan we had last summer,
where the surplus products were given to the three
million people on relief, be reestablished. Because
the minute my back was turned, that plan was
cancelled, and if I followed the technique of the
other people, I would rush in and tell Kintner
and Alsop the minute they turned their backs.
The minute I turned my back Harry went to Wallace
and said they couldn't do it because that is
admitting everything you have done is wrong, and,
naturally, that is right. On the basis of what
Hopkins said
H.M.Jr:
That was after it was fully developed, wasn't it?
(To Mr. Haas:) You heard it; wasn't you there?
Haas:
(Nods "No.")
H.M.Jr:
Well, Miss Lonigan was there; she heard Hopkins
Haas:
H.M.Jr:
I think the notes are complete on that meeting.
If we feed the undernourished the surplus food
stuffs, that was admitting the plan was a flop,
and we'd better not do it.
Haas:
They had a conversation afterward.
Oliphant:
Oliphant:
H.M.Jr:
start?
tell this.
The truth was - it was admitting it, and we had
better do it.
I told the President yesterday that any plans would
have to stop with taking care of the people; I
said we have still got three million families and
haven't got enough.
7-
16-G
Gibbons:
So did the E. R. B.
H.M.Jr:
What?
Gibbons:
So did the E. R. B., - said it in New York
H.M.Jr:
You can underwrite that, can't you, Wayne?
yesterday.
That they should be taken care of first? If
we've got surplus food let's take care of them
first.
Taylor:
God yes!
McReynolds:out
Andof
give
it. it to them; don't make a two-price plan
H.M.Jr:
We gave away a million mattresses last year to
Taylor:
On that subject, I refer you to some remarks that
I made about little pigs, back in 1933.
H.M.Jr:
Well, I go back to the fall of 132, when Bill
Myers and I had a program. I still think it would
those people.
have worked.
Oliphant:
Well, I have
H.M.Jr:
This is - when I got to talking yesterday about
this other thing, all this barter trade stuff don't ever breathe any of this -he said - talking
to the President- "What do you think I'd better do?"
I said, "You'd better send for George Peek, Mr.
President."
Taylor:
I think he's coming back to town this week. (Laughter)
H.M.Jr:
Oliphant:
I said, "You'd better send for George Peek."
That's that note of the conversation, and then
H.M.Jr:
Very much.
Oliphant:
And then, here are a couple memoranda we worked
H.M.Jr:
Fine. I think - don't you think we ought to send
here is a full file on yesterday, if you want it.
out in conference.
Johnson a copy of this?
-8Oliphant:
16-H
I said I'd like not to until I go over it with
these technicians because I didn't have much
time to go over policies.
H.M.Jr:
All right.
While we're on this Army stuff, I suppose it's
unnecessary to say this, but if by chance anybody
in the nine-thirty group should happen to own
any airplane stock, I'd appreciate it if they would
divest themselves of it. I don't suppose anybody
does, but inasmuch as I am up to the thing to
here (indicates lower lip) with the President, it
would be embarrassing to me if anybody who worked
closely with me had any. As I say, it is most
likely unnecessary, but it is just to protect
myself, and I just pass it out. I am not looking
at anybody; I am just
Haas:
The market's good for anything.
Taylor:
I've got three shares of it I've had since 1937,
I haven't changed; will I have to change it?
H.M.Jr:
Yeah.
McReynolds:
I made my wife sell ten shares of airplane stock
H.M.Jr:
Did you? Good.
Oliphant:
I wish you'd looked at me.
she had the other day.
That's all I have.
H.M.Jr:
You made your wife sell ten shares?
McReynolds:
Yes. I didn't - I don't know that it amounted
to anything, but I just thought the situation
might
Oliphant:
Sounds like control to me.
H.M.Jr:
What?
Oliphant:
Sounds like control to me.
H.M.Jr:
How?
-9Oliphant:
She had control of ten shares.
H.M.Jr:
Well, I just thought I'd mention it.
That's all I have.
Oliphant:
16-I
Gaston:
I haven't anything.
What time is the President's press conference?
Four o'clock.
H.M.Jr:
(Nods to Haas.)
Haas:
These are the
H.M.Jr:
Excuse me a minute. I saw Kintner at this dinner
last night, and I said I would work with him. He
asked me. And if they want to come up to the house
at four o'clock Saturday - and then if you'd
confirm it, and send a little note so I'd know
Gaston:
H.M.Jr:
of it.
Gaston:
Four o'clock, Saturday. Yes.
H.M.Jr:
I'll be there.
Haas:
These are the men that are coming down for this
H.M.Jr:
meeting at ten o'clock.
George, I don't know whether I want to see that
group or not.
Haas:
All right.
H.M.Jr:
You care whether I see them or not?
Haas:
No. I think it would be nice if you drop in, but
H.M.Jr:
Well, let's see how the day goes by, huh? See
Haas:
There are two who couldn't come. Colonel Ayers
is down at the bankers meeting at Houston, and
it
how long Mr. Wallace keeps me.
Mr. Edie's daughter is ill.
- 10 -
16-J
H.M.Jr:
Incidentally, I thought your report on business
this week is particularly good, and I am sending
the President a copy of it.
Haas:
Thank you.
H.M.Jr:
I am surprised to see how the new orders have
jumped.
Haas:
Yes, they have jumped considerably.
H.M.Jr:
After I get the story from Curry -Iam going to
have him over sometime this week - I wonder if
anything that he's got is in conflict with what
we are doing, or whether it is supplemented, or
is his stuff too far ahead?
Haas:
No conflict at all; it is of a little different
H.M.Jr:
But does it supplement?
Haas:
I think it supplements the underlying philosophy
of the thing. I think "supplement" would be the
best word. Some of the curves he's got are probably
some we've got, and some of the other ones he's
got we haven't attempted to estimate.
What I am getting at, was there anything he's got
that could be incorporated into my weekly business
H.M.Jr:
nature - a little different approach.
forecast?
H.M.Jr:
At certain times, yes.
Will you take a look at it?
Haas:
Yes.
H.M.Jr:
And in return, if he wants to look at what we've
got let him do it.
Haas:
You asked the other
Haas:
McReynolds: I was just going to remark that probably your
current information wouldn't be reflected in his
predicted curves, would they?
Haas:
No, not those that he was running away along, but
the underneath - if there is an underlying funda-
- 11 -
16-K
mental development which he is talking about, which
is more in the longer term trend of the present
situation.
McReynolds: Well, there couldn't possibly be any conflict.
H.M.Jr:
No, but this is here; why not get together with
him? "This is what I am doing for Mr. Morgenthau;
if you've got any suggestion - anything you've
got that could feed in through my weekly report,
I am sure he'd be tickled to death to have it."
Haas:
I have been using some stuff that Turbo is preparing for him.
H.M.Jr:
Fine.
Haas:
There is a question - you asked for the other day you may not need it now; you asked if I'd look
up the notes - how these men estimated business,
etc. Here they are. The average for this six
months, which ends December 31, Lichtenstein,
80 ; Hayford, 81; Naess, 812; Ayres, 81; Roberts,
82 That would run the ones that said 80 about 80 - it would make December about 85. See?
The group - the average for the group is 81,
which would run somewhere, 85, 86, somewhere
for December.
H.M.Jr:
Well, they'd be off about fifteen points, wouldn't
they?
Haas:
They'd be off quite a little.
H.M.Jr:
Well - I mean, the Federal Reserve Index will
certainly cross a hundred in December.
It wouldn't be off that much in the average.
They'd be off a substantial amount, because you
are dealing with perspective changes, and there-
White:
fore, an error of ten per cent in the total is an
enormous error.
H.M.Jr:
They will be off ten per cent easily, because ten
per cent of ninety would be nine points.
Haas:
They are much too conservative, but, I mean, as
business forecasting goes, they could have been
- 12 16.1
worse, going in the other direction. I am not
putting any case up for them, but working in this
field for a long time, I don't think it is what I was disappointed in is that all of them they were too uniform in their guesses; there
wasn't more variations was the disappointment.
H.M.Jr:
Anything else, George?
Haas:
They will be interested in knowing how the receipts
are running with the estimates. Have you any
objection to my showing them that, on those bubble
charts.
Oliphant:
The stuff on those charts are already published
material.
H.M.Jr:
Well, you know; if you think it's all right,
it's all right with me.
Haas:
Show them the number one - I mean, the number one,
H.M.Jr:
Haas:
The totals. All right. Anything else?
That's all.
H.M.Jr:
Harry?
White:
(Nods "Nothing.")
We had the conference on the Czechoslovak marking
Gibbons:
the one that has the totals.
yesterday - about thirteen different individuals
representing a number of associations and
manufacturers- importers rather, and we let them
H.M.Jr:
Gibbons:
talk themselves out, and told them that just that the marking was in accordance with the law.
I read the Times. The Times had a good story on
it. I gather that you stood pat?
Yes; we simply told them
(Mr. Oliphant picks up Times.)
H.M.Jr:
It's toward the back. Did they go away moderately
happy?
- 13 Gibbons:
16-M
Yes, the meeting was very agreeable. One of them
said, "Well, of course, we thought we'd have sixty
days, and I told- our people to hum it up and turn
out a hundred per cent." About a hundred twenty,
he said. He was importing gloves, but he just
simply thought we were going to give them thirty
or ninety, or sixty days, you know, and that he'd
bring all this stuff in. Some of them are going
to take an awful licking, of course. It isn't
our fault.
H.M.Jr:
It's all right? I can forget it?
Gibbons:
Yes.
H.M.Jr:
Thank you.
Taylor:
(Nods "No.")
H.M.Jr:
Leave about ten thirty?
Taylor:
(Nods "Yes.")
H.M.Jr:
Archie?
Lochhead:
Sterling has been improving a little bit since
the morning figure of 4.64; it's up to 4.69 3/4
on the bid side just now, and
For Pete's sake stay here, Archie, if it goes
H.M.Jr:*
Wayne?
up while you're away from your desk.
Lochhead:
The interesting point is that the French who have
been keeping their rates against sterling at
178.90, are shifting their rates down from 178.90
to 178.31, which, in my opinion, is a much better
technique than before. They are making the
fellows pay up who are trying to get back in.
H.M.Jr:
All right.
Incidentally, I think the Lauer investigation is
Gibbons:
going to involve this Central American envoy in
New York.
H.M.Jr:
Gibbons:
Is it?
It's beginning to look as though it will.
16-N
- 14 Duffield:
I don't have anything. I plan to be away from
the building most of the day, unless you want me
here. I want to do some scouting around.
H.M.Jr:
Good. The newspaper men were going to ask me
yesterday - that they criticized me in this A. B. A.
I didn't see it.
Duffield:
I've read the American Banker's stories; I didn't
see it either.
H.M.Jr:
I thought my answer was good.
Duffield:
I did too.
I didn't see the story. I told them the Secretary
of the Treasury could never take too much interest
in the depositors in banks. I just couldn't
take too much interest in protecting their interests.
Incidentally, I see this fellow Smith sounded off -
H.M.Jr:
the cashier of something.
Duffield:
Yes. He's the Chairman of the National Bank
H.M.Jr:
Section of the A. B. A. this year.
I see he gave Mr. Oliphant quite a boost.
Oliphant:
Where is that?
H.M.Jr:
Today. He gave you a boost.
Oliphant:
New York Times?
Duffield:
That's all.
H.M.Jr:
He's the cashier of the Bank of America, in case
you don't know.
(Nods to Mr. McReynolds.)
McReynolds: (Nods "No.")
H.M.Jr:
Haas:
All right.
I forgot to report on one thing. I had a long
talk with Lubin yesterday.
- 15 -
16-0
H.M.Jr:
Yes ?
Haas:
I am going to try to get out a memorandum we can
H.M.Jr:
Is he interested?
Haas:
H.M.Jr:
Yes. I am going to have an interesting chart.
Is there such a chart in existence?
Haas:
I had one when I took over, that we worked up,
jointly sign.
and then he made some suggestions, and so on.
I was afraid of the figures, but he doesn't seem
to be disturbed. He says there may be some errors,
but they illustrate the points.
H.M.Jr:
Haas:
H.M.Jr:
Haas:
H.M.Jr:
On that, they tell me there is a very good
statistical section over in Social Security.
That's right.
They are running the figures on all people who
get Government checks.
We are using the figures.
What I'd asked George to do was to work out some-
thing for me to show the relation of private
employment to the number of people on the
Government unemployment rolls. See? I mean, I
got nothing that - I mean, I want to see if there
is no correlation - as private employment goes up,
do our rolls - number of people getting checks go down? Is there any relation? I asked him to
work out something.
Haas:
There is no relation.
H.M.Jr:
What?
Haas:
There is no relation.
White:
Well, have you noticed the monthly bulletins Social
Security is putting out?
H.M.Jr:
In the papers, yes.
- 16 -
16-P
White:
I mean their monthly bulletin. It is a, very
nice bulletin.
H.M.Jr:
I only see press excerpts.
Haas:
I'll send you in a copy of the bulletin.
H.M.Jr:
Will you?
Haas:
Yes.
H.M.Jr:
All right, everybody.
5(e)
17
C. 1.2 60M 9.37
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 15, 1988.
OFFICE CORRESPONDENCE
CONFIDENTIAL FILES
FROM L. W. Knoke
SUBJECT: TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
I called Bolton at 9:50 this morning. Things were still
very disappointing, he said. The dollar market had opened at 4.70 1/2;
he had sold $2,000,000 at that figure and another $2,000,000 at 4.70
and had given £1,000,000 worth of gold at fixing. As the pressure
against sterling continued, they had let the rate drop down to 4.69
and sold another $1,000,000 there which had seemed to help matters.
Since then the rate had picked up a little to about 4.70. His total
losses for gold and dollars so far had been about $11,000,000 compared
with total losses yesterday of £11,000,000.
It was quite apparent from what he heard on the Continent
that it was primarily the Jewish question which today was depressing
the sterling rate. Some people were convinced that the British policy
of appeasement with Germany had broken down and that as a result
thereof a disturbing and anxious political situation was likely to
prevail which, of course, would continue to cause the transfer of
capital to the United States. If it weren't for these latest developments, Bolton seemed to think that they might have been able to hold
sterling between 4.75 and 4.80 but now the expense of holding it there
was too much for them to bear. He asked whether I had any indications
as to whether Washington was seriously disturbed over this continued
weakness of the sterling rate. I replied that I simply didn't know,
not having been to Washington in many weeks, but that in my opinion
our exporters would very definitely be disturbed and would almost
inevitably press for heaven knew what kind of legislative measures
18
SC . 12 60M 1-37
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 15, 1938.
FFICE CORRESPONDENCE
CONFIDENTIAL FILES
ROM
SUBJECT
TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
L. W. Knoke
2
if sterling continued to drop. Bolton said that they fully realised
all this, but the fund's reserves were getting low and close to the
danger level and if they had to use the gold of the Bank of England
the markets would become still more disturbed. He told me very
confidentially that they were discussing certain restrictions now
but that naturally they didn't want to introduce any measures which
would upset the freedom of their markets. The question had been
under discussion for many days and they would probably adopt one or
two restrictive measures very shortly which they hoped would have
no bad effect. They were by now definitely convinced that the
reason for the weakness of sterling was of a political nature and
that economic reasons at the moment were negligible. They were
fully aware, he continued, that if sterling depreciated very much
further it would upset the whole present economic structure and
whatever they might decide upon now would be done only after the
most deliberate consideration. However, as far as they could see
now, there was no real hope of sterling becoming stronger until
there was a real improvement in the political situation. It was
getting more and more difficult for Chamberlain to carry out his
present policy with Germany and, worse yet, there was a possibility
of a political split in England in case the opposition should continue to be victorious at the polls at the coming by-elections.
He was very anxious to discuss the present situation with me, he said,
18
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 15, 1938.
FFICE CORRESPONDENCE
CONFIDENTIAL FILES
ROM
SUBJECT:
TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
L. W. Knoke
2
if sterling continued to drop. Bolton said that they fully realised
all this, but the fund's reserves were getting low and close to the
danger level and if they had to use the gold of the Bank of England
the markets would become still more disturbed. He told me very
confidentially that they were discussing certain restrictions now
but that naturally they didn't want to introduce any measures which
would upset the freedom of their markets. The question had been
under discussion for many days and they would probably adopt one or
two restrictive measures very shortly which they hoped would have
no bad effect. They were by now definitely convinced that the
reason for the weakness of sterling was of a political nature and
that economic reasons at the moment were negligible. They were
fully aware, he continued, that if sterling depreciated very much
further it would upset the whole present economic structure and
whatever they might decide upon now would be done only after the
most deliberate consideration. However, as far as they could see
now, there was no real hope of sterling becoming stronger until
there was a real improvement in the political situation. It was
getting more and more difficult for Chamberlain to carry out his
present policy with Germany and, worse yet, there was a possibility
of a political split in England in case the opposition should continue to be victorious at the polls at the coming by-elections.
He was very anxious to discuss the present situation with me, he said,
19
3.2 60M 9.37
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 15, 1988.
FFICE CORRESPONDENCE
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
o
ROM
BANK OF ENGLAND.
L. W. Knoke
3
and keep us as fully posted as he could but had so much to do just now
that he wasn't entirely free to call me all the time. I should, therefore, not hesitate to call him either at the bank or at home whenever
I wanted further information.
As far as the franc was concerned, Bolton thought it was
still firm and that Cariguel was still gaining though less than
yesterday.
LWK:KW
03/13038
VOW
YAURAZHT
19-A
RE PROPOSED CHINESE TUNG OIL LOAN
Present:
Mr. Taylor
November 15, 1938.
9:40 a.m.
Mr. "nite
Mr. Lochhead
H.M.Jr:
In this envelope to me - it's significant how it
was addressed, so keep it - at one o'clock, Mr.
Hamilton, of the Far East Division of the State
Department, delivered to me a two-page memorandum
of Mr. Hull's comments on my proposed loan against
tung oil.
There was also, backing up Mr. Hull's memorandum,
a long letter from Dr. Hornbeck.
The President read it. He was very much disturbed.
Mr. Hull would not go along. Was very emphatic.
And the President said, "Let me keep it, and I'll
discuss it with Mr. Hull."
But in Mr. Hull's memorandum there was nothing new
that he didn't say to us at the time we called on
him. But I've got nothing here now - I mean I've
got nothing to go by. So the matter now rests with
Mr. Hull.
and the President.
to the Secutary of the Transy
I
From the Secretary of state
9-bl Urgent
A
1 - bi
20
REB
PLAIN
London
Dated November 15, 1938
Rec'd 3:25 p. m.
Secretary of State,
Washington.
1317, November 15, 7 p. m.
FOR TREASURY FROM BUTTERWORTH.
Available statistics for October including the OVERSEAS
trade returns published today are being widely scrutinized
for signs of trade revival but it is still difficult to
disentangle the crisis effects from more fundamental
trends and seasonal fluctuations. A slight drop in unEmployment between September 14 and October 17 was less
than the usual seasonal movement though it included small
improvements regarded as encouraging in the coal, cotton,
wool, iron and steel trades. Railway traffic continues to
decline and the shipyards continue to launch tonnage
which is not replaced by new orders. The Export returns
recorded a seasonal increase which was less than usual
with figures for Exports of ships and machinery still at
high levels reflecting the length of time between orders
and deliveries rather than a maintenance of business at
last year's high levels. Imports seasonally increased
but
21
REB
2-/1317, From London, Nov. 15, 7p.m.
but by less than usual especially in the case of raw
materials. The more favorable terms of trade combined
with the high level of engineering Exports produced a
reduction in the total adverse merchandise balance for
the ten months which WO.3 6329 million as compared with
6341 million for the corresponding period of 1937, an
improvement undoubtedly more than offset by reductions in
shipping and investment income.
The second successive increase in steel output brought
the October figures to 854 thousand tons or about 75 per
cent of the figure for October 1937 as compared with the
low of August of 658 thousand tono or about 66 per cent
of August 1937. This upturn in steel output must be
regarded as due to restocking, arnament activity having
gradually influenced the inventory position. This MOVEment is doubtless typical (though more marked) of certain
other industries, Especially those affected by armcment
demand. In the absence of a genuine upturn in commodity
prices, the influence of restocking on industrial
activity generally must be regarded C.S temporary. While
wholescle prices have practically recovered to August
levels any stimulus of rising prices on the business
situation
22
REB
3-/1317, From London, Nov .15, 7p.m.
situation is absent while the cost of living remains high
with no tendency for wage rates to decline.
The improvement in unemployment, Export and steel
figures is indicative of no more than a check in the
basic downward trend, due in substantial measure to
armament activity, without which general business would
certainly be at much lower levels.
The policy of interfering as little as possible with
industry in pursuing the armament program, together with
the Prime Minister's optimistic statements regarding trade
at the End of his Guildhall speech on November 9 gave
rise to SOME improvement in stock Exchange sentiment
resulting especially in higher prices for gilt EdgEd
securities. This improvement in sentiment is now however
practically wiped out by reactions to the EVENTS in Germany
OVER the WEEK-End.
KENNEDY
HPD
23
REB
an
PLAIN
London
Dated November 15, 1938
Rec'd 3:35 p. m.
Secretary of State,
Washington.
1318, November 15, 7 p. m.
FOR TREASURY FROM BUTTERWORE
(1). The dollar opened at 4.70 3/4 strongly bid
particularly from Holland and Sweden and although the
British authorities gave dollars freely at that rate the
buying pressure did not immediately CEASE and about
10:30 A. II. they went out of the market. The rate moved
to 4.69 and they came in again just as the Paris Bourse
was closing and held the rate. When the Bourse reopened
the French authorities changed their buying rate from 178
3/4 to 1/2 and this created SOME offering of dollars. Furthermore the strengthening of the pound in NEW York last night
and the Trade Agreement announcement had made its mark
and the rate gradually moved to close at 4.70 1/4. The
heavy buying of dollars in the morning SEEMS to have
been mainly (a) speculative testing of the intentions of
the British authorities after their precipitous retreat
of yesterday and (b) the result of the overcast political
horizon.
24
REB
2-/1318, From London, Nov. 15, 7p.m.
horizon. Sterling has become to an Extraordinary degree
a political currency which is made to register Exchange
traders Estimates of the significance of political
developments in terms of the United Kingdom's future
prospects.
(2). The French fund acquired less sterling today
than yesterday and EVEN though it stimulated the movement
into francs by lowering the buying rate from 178 3/4 1/2 - 1/4. Among city banking firms interested in France
one aspect of Reynaud's measures is being particularly
discussed, namely, whether the 301.d profit used to
extinguish the Bank of France's advances still remains
legally a facility which the French Treasury can draw
on at SOME future date should the need arise. Incidentally
it was EXPECTED here that Reynaud would USE this gold
profit largely as a means to meet future needs for the
extraordinary budget and it is believed that he was
prevented from so doing merely by the fact that Fournier
put his foot down and got away with it. The conclusion
is naturally drawn that Reynaud is in Effect gambling to
an important EXTENT on the possibility that through French
capital repatriation he will be able to obtain enough short
term noney to finance the extreordinary budget requirements for SOME time to COME.
KENNEDY
HPD
PARAPHRASE OF TELEGRAM RECEIVED
of
25
FROM: American Embassy, Paris, France
DATE: November 15, 1938, 6 p.m.
NO.: 1925
FROM COCHRAN.
This morning at half-past eleven I had a talk
with the Bank of France. The French control had gained
only 5,000 pounds by that hour. This evening at halfpast five when I visited the Bank of France the control had
taken in for the day the amount of 1,100,000 pounds, but
in late trading it had been obliged to give up 100,000
pounds, leaving 1,000,000 for the net gain for the day.
The Ministry of Finance had instructed that they were
to improve the franc, lest it would be made to look too
basically feeble by close adherence to a weak pound.
It was believed that the merits of such tactics were
quite questionable. Most of the trading yesterday and
today my friend told me was professional, and it is
too early to say what will be the effects in the monetary
field of the program of Reynaud.
The rich people are vexed as it is because of higher
taxes, and the poor people because the cost of living has
increased. Blum's criticisms of the Government's plan
have fanned the smoldering unhappiness of the poor people.
There is greater strength in the forward franc. Only
slight gains in French rentes. Weaker French shares.
The Government's program has therefore not had any
26
-2any enthusiastic and spontaneous reaction. The serious
people nevertheless believe that it is the best thing that
can be advanced in the circumstances, and that it will
have to be accepted by the country, or there will be
worse coming.
The representative of the Bank of Italy doubts the
efficacy of the new plan. He fears a political crisis
which would bring a Blum Government in power again,
which in turn would result in riots and control of
exchange.
Inside gossip of differences of opinion between two
groups in the British Cabinet are the cause of part
of the continental distrust of sterling; it is understood that 13,000,000 pounds were lost by the British
control yesterday.
Today I was informed by Rueff that as yet no
decision had been taken to set the date for convoking
Parliament. In the press it is mentioned that this
may take place soon after December 1.
END MESSAGE.
WILSON.
EA:LWW
27
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 15, 1938, 7 p.m.
NO.: 1926
Mary
Comment on the recovery program of Reynaud in the
press today is virtually the first based upon the actual
texts of the decree laws and is definitely tinged with
pessimism, even in the papers favoring the Right and
Center. There is active hostility to the program on the
part of the mouthpieces of the Socialist and Communist
parties on the grounds that only the interests of capital
are favored and the welfare of labor is completely
ignored.
In the Right and Center press the pessimism is based
largely upon the instability of the political and psychological factors in French life today, rather than upon
alleged shortoomings of the Government's plan. These
papers in fact by and large make reference to the upswing
on the stock exchange yesterday as proof that the necessary
ingredients of an effective remedy are contained in the
decree laws. However, these sections of the press also
observe that there is resolute opposition to the program
on the part of at least 30 of the Radical Socialist deputies,
and that a new Parliamentary majority must be found or
a way of continuing without such a majority must be found
by
28
-2by the Government.
In general the newspapers are agreed that the
French people will bear with resigned approval the burden
imposed by the program of Daladier and Reynaud, provided
there can be any assurance that the tribute to be paid
will actually bring about recovery in its broadest sense.
The only exception to this view is contained in the Left
press.
END MESSAGE.
WILSON.
A:LWW
28-A
RE TAX-EXEMPT FEATURE ON LOCAL
HOUSING AUTHORITY BONDS
Present:
November 15, 1938.
3:30 p.m.
Mr. Taylor
Mr. Bell
Mr. Oliphant
Mr. Foley
Mr. Straus
Mr. Keyserling
H.M.Jr:
I'm going to take this position with Straus, Ed.
I haven't read this stuff that you prepared for
me; can't even lay my hands on it.
Foley:
Yes.
H.M.Jr:
I'm simply going to say this: "You say I have no
Foley:
legal authority to say 'Yes' or 'No.''' That's what
he says, isn't it: that I have no legal authority?
H.M.Jr:
Straus says that about you; oh, I think so.
I think ne submitted it here because (a) he wanted
to get some help from you in connection with submitting the plan to the Attorney General for his
approval; and (b) he wanted to have something behind
him in the event the thing slipped and there was some
criticism, he wanted to be able to tell the President
that you had approved it first.
Well, therefore,
Foley:
He didn't have to come here, of course.
H.M.Jr:
Therefore, there is no use my arguing about it with
him.
Foley:
That's right. what I would do if I were in your
place: ask him to submit the bond form, the contract
and prospectus after he's worked it out with the
syndicate, and then you'd like to have Taylor and
Bell and your experts go over it, perhaps talk it
over with your experts in the Federal Reserve Bank
to see whether or not it would have any effect on
your borrowing.
H.M.Jr:
No, that isn't the angle I'm going to take. This is
28-B
-2-
what I wanted the advice on. I'm going to say,
"Nathan, you say I have no authority. O.K. But
you have submitted this to me; therefore, I'm going
to send the letter which we wrote originally to
the President, with my ecommendation to him that that this is the way the Treasury feels about it.
If you decide to go ahead with it, the Treasury
will have nothing to do with it; we completely
wash our hands of it. We don't want to be connected with a failure; we can't afford to be. We
can't recommend it to the public."
Foley:
Well, that's pretty rough, but it's
Kieley:
Mr. Straus wants to bring his legal counsel in -
H.M.Jr:
Sure, but I'm not quite ready.
Mr. Keyserling.
(Oliphant comes in)
H.M.Jr:
I'm going to say to Mr. Straus - this is where mine
differs with Ed's (Taylor comes in)
H.M.Jr:
This is what I propose to say to Straus: "You have
written me that I have no legal authority over this
thing. Granted. But I have my responsibility to
the President of the United States. Therefore,
unless there's some particular words that you'd
like us to change - we've been waiting here for
two and a half weeks - I'm going to send that
letter to the President. If there is something
which is unfair, which isn't true
(Bell comes in)
H.M.Jr:
We'11 do it again. What I'm saying to Straus is:
"You say I have no legal authority over your thing.
O.K., granted. But I have a responsibility to the
President of the United States, so I'm s ending this
letter to him.'
Oliphant:
Well now, did you (Foley) tell the Secretary how
the discussion had developed?
28-C
-3-
Foley:
Well, I just started to tell him.
Oliphant:
Let me say this. Keyserling was over again this
morning and he in effect is saying this: that when
we say that these bonds will not sell on such favorable terms, at such low rates, without the people
having the feeling that they are equivalent to
Government-guaranteed - he says, "We take issue
on that question of fact, because we've got people
in our syndicate who say that they can market them
at three percent or less, because of the way we
have safeguarded these various contingencies to
which the promises are subject."
Isn't that where the discussion stands?
Foley:
That's right.
Bell:
what does he mean by promises - a subsidy?
Oliphant:
No, you see, the promise to pay the subsidy is con-
Bell:
... on an appropriation.
Oliphant:
We said, "We've gone through and say that each one
ditioned
those many conditions ..." - and he says, "These
financiers" - he didn't name them to me - "with whom
of
we are in conversation say they can market these
bonds at three percent or less."
H.M.Jr:
Well, what I'm going to say to him is: "I, the
Treasury, all of us, unless they have changed, feel
that this shouldn't be done, and I want to let the
President know, and the President can decide. Now,
if there is any word or phrase in that letter which
you don't think is fair, all right; that's what I
want. I don't want to argue with you about your
god-damned bond. But if there is some statement
that isn't fair, all right. But, outside of that,
Foley:
H.M.Jr:
I'm going to send the letter and the President can
do what he wants. I'm not going to a rgue with you
whether I have the authority or not."
Well, the only - may I say
That's what you're here for, damn it, not for your
handsome face.
28-D
-4-
Taylor:
That's extra.
H.M.Jr:
You can save that for night work.
Oliphant:
If he was here on that basis, he'd have to pay to
get in.
Bell:
Have to pay a cover charge.
Foley:
Unfair advantage.
H.M.Jr:
Dan says you'd have to pay a cover charge.
Oliphant:
Wear a mask.
Foley:
I think the plan is going to break down under its
own weight. Unless you want to take on with him
the ill will that may be engendered because you
head it off, perhaps you could accomplish the same
purpose by accepting the contract from him, accepting
the bond form, accepting the prospectus, and then
talking it over with the experts in the Federal Reserve
in New York and here.
H.M.Jr:
Ed, we don't do business that way. Cards on the
table, straight from the shoulder. Either you say
to me as Secretary of the Treasury, "I can recommend
Foley:
that bond to you and to my friends ff - can you?
No, sir, not on what I've seen so far.
H.M.Jr:
All right, then, I put it right straight across the
Foley:
O.K.
Bell:
Does the Secretary have to approve the bond that's
table and I don't pull my punches.
sold?
Foley:
Doesn't have to approve anything.
H.M.Jr:
I'm saying to you, I know that the President doesn't
want this thing, so I'm not going to say what I said
to you, that I won't have anything to do with it;
I'm just going to write this thing to the President.
But I'm telling you if the United States Treasury if you won't recommend this to your friends, I won't
have anything to do with the god-damn thing. I don't
28-E
-5-
Foley:
H.M.Jr:
Oliphant:
H.M.Jr:
have to play politics on the bond.
Well, I was just thinking of your relationship to
Straus, that's all, Mr. Secretary. I mean he's a
friend of yours and so on.
Sure, that's why I treat him rough.
He's your friend.
Never say they got special treatment around here.
That's just exactly the point.
(Straus and Keyserling come in)
Hello, Nathan.
Straus:
H.M.Jr:
Hello, Mr. Secretary. You know Mr. Keyserling.
I know him very well. Sit down.
Well, we've both been out of town, so we've kind
of missed out on this and I was trying to - I hadn't
done any - I'm trying to pick up the threads from
these gentlemen. That's why I kept you waiting a
minute.
What I'd like to know is - I mean I think it's about
two and a half weeks since we said we'd send this
letter - whether your organization finds any objection
to any sentence or paragraph in the letter as being
unfair or untrue.
Straus:
Mr. Keyserling, you've had - you don't mind his
answering, because he's been in on this legal thing you had some discussion on that; I'd like to have you
point out the way in which you thought the statements
weren't at least clear.
Keyserling: Well, the point I'd like to present about the letter
is not primarily that the letter is unfair or untrue,
but rather that if the letter should go over to the
President and he should sign it, I don't think that
a conclusion will have been reached that will be
particularly helpful either to the Treasury or to
us, because as the letter is now phrased, if the
President approved the recommendations of the
Treasury the real problem before the United States
28.F
-6-
Housing Authority would remain unsolved; that is,
the problem of working out some method satisfactory
both to the Treasury and to the United States
Housing Authority for gradually bringing about a
wider distribution of these securities. And the
only suggestion I would like to make, directed to
the letter, would be that, the United States Housing
Authority not being in any hurry to go ahead - that
there might be some advantages in the Treasury and
the United States Housing Authority going ahead,
working on the problem, and trying to find something
that they are in complete agreement on.
H.M.Jr:
Well, Mr. Straus has informed me, and my people
agree, as far as our having the legal right to say
"Yes" or "No," we don't have it. But I have my
responsibilities as fiscal officer and my relationship with the President. Now, all I want to do is
to fulfill that relationship.
I am quite confident - I mean I - since this has
happened, I haven't discussed this with the President, so the fact that he's had your letter - I
mean I haven't been in any way advised; I am quite
confident that once the tax features are explained
to him, leaving out everything else - just the tax
feature - in view of the action that he took in
connection with the proposal of Mr. Lambert, that
in order for him to be consistent he'd have to say
"No" to you people.
Now, if you - I'm more than willing to let you
continue the discussion with the people in the
Treasury just as long as you want and as long as
they've got wind left to discuss it with you. But
all I want to reserve for myself is that if you
say you're going to go ahead, then I have a
responsibility - not legal, but a moral respon-
sibility - to bring this to the President's
attention, and I want to fulfill it, that's all.
Keyserling: Well, I didn't mean to indicate anything
H.M.Jr:
I mean is that plain?
Straus:
Very.
H.M.Jr:
All I want to ask Mr. Straus is for his word that he
28-G
-7-
won't make any offering without giving me first a
chance to bring this matter to the President's
attention.
Straus:
H.M.Jr:
Mr. Secretary, I have already assured you of that,
and I can assure you again as solemnly as I know
how, that nothing is going to be done until and
unless you know all about it; and if you are not
able at present to recommend your approval of the
plan,
it. I want to say again I will not go ahead with
What I'd like to work out is - not personally work
out - I'd like to get these legal gentlemen to agree
upon something which is not only in conformity with
the statute but which will be satisfactory to them
as your legal - as your financial experts, and to
you, so that something may be taken to the President
for his approval and not for his disapproval; and
that pending that we let it ride.
Well, the people here - I asked them - I think I'm
correct, for everybody - "Are you unanimous?" I
think that we disapprove of the offering of the
bond through local authorities as it is set up now.
Is that right, Wayne?
Taylor:
Certainly as it is set up now.
H.M.Jr:
With the present set-up.
Herman?
Oliphant:
That's right.
H.M.Jr:
Dan?
Bell:
H.M.Jr:
Well, I haven't been in on it, Mr. Secretary.
Well, it's nothing different than what it was.
Bell:
I am opposed to the issuance of the bond under the
present set-up.
H.M.Jr:
There you are.
Now, Keyserling, Foley hasn't got anything to do, and
he's at your disposal.
28- H
-8-
Keyserling: Well, I'm at his disposal, as ever.
H.M.Jr:
Well, so I mean I'm - we want to be constructive
if we can. But the way the matter stands, you've
got everybody in the Treasury that has anything to
say about it, and we're unanimous. We feel that in
view of the President's position - never mind the
other stuff, which is another thing - but just from
his standpoint, we just go on that idea that once
it is explained
Now, what happened in the
case of Mr. Lambert? When we came there and we
explained the thing to the President, he said, "No" Iall.
mean in view of his position on tax-exempts, that's
Now there's another whole thing, and besides that I
think if you can successfully sell us, you'll have
to also sell our fiscal agents in New York. I don't
think that this is breaking any confidence, but Mr.
Randolph Burgess called up and he says, "As a friend
of the Treasury, for heaven's sakes don't let's try
to sell those bonds through the local authorities."
Now there's a man of great responsibility and who for
while I've been here managed - I mean he just called
up purely voluntarily, he said, "Don't let them do
that." He said, "It's a great mistake.
So we won't send any letter, I'll sit tight, until
Mr. Straus says I've either got to do this or - fish
or cut bait; as a fisherman he knows what that means.
Straus:
And I think temporarily we'll simply proceed on the
understanding that the Treasury does not approve
anything beyond the sale of the bonds locally, I
suppose, as we have been doing. We've got to sell
10 percent of the bonds. We know that.
H.M.Jr:
Yes, there's no argument about those - Dan?
Bell:
No argument.
Straus:
But you don't want for the time being to go beyond
that.
Foley:
Well, not on the basis proposed, with this nationwide
syndicate, Mr. Straus. That's the thing that bothers
us: the creation of a syndicate that will market these
28-I
-9-
obligations on a high-pressure basis and perhaps
Straus:
create in the minds of the public an impression
that the obligations are either guaranteed by the
United States or are the equivalent of Governmentguaranteed obligations. That's what bothers us.
Mr. Secretary, I don't like to go on to an answer;
you don't want an argument. But in the first place,
I dislike the expression "high-pressure salesmanship"
and secondly I don't want to leave it go unchallenged
that there will be anything which will misrepresent.
I have endeavored, if I may say this, since I have
taken over this job, to do two things with regard to
the financing; in the first place, to do what was said
to be impossible, sell 10 percent of the bonds
locally; and in the second place, having done the
impossible in that respect, to do the thing which
seemed to me next most important, and that is to
establish a broad market for that portion of the
bonds which are sold locally, that's not taken up
by us, not taken up by the Treasury. Now, the
second part of that task is as yet unfulfilled.
To my mind, it's got to be done, because looking
ahead from the broad fiscal aspects of the country
as a whole, I can't think of anything more harmful
than to have a lot of these little unrelated issues
kicking around unsupported, selling at a discount,
which they will be all over the country - from
$200,000 in one city to $2,000,000 in another. I
believe the establishment of a broad market, widely
supported, on a uniform basis, is absolutely essential. I am only saying that inasmuch as this particular plan has been disapproved by the Treasury,
I'm not going ahead without the Treasury.
H.M.Jr:
who would support them?
Straus:
Who would support them?
H.M.Jr:
Yes.
Straus:
This issue of bonds contemplated would be a large
issue which would have a general market and would
obviously have the general marketability of any
security where there is a large issue outstanding.
Who supports United States Steel bonds, who supports
the bonds of New York City?
28-J
-10-
Oliphant: There's Cities Service too.
Straus:
Foley:
Well, where you have a large nationwide market, you'll
find buyers; where you have a small isolated issue,
there are many times when you will not find buyers
and you will have to have racketeering. It is just
to avoid those things, Mr. Foley, that I believe it
is essential we establish this broad market. And I
believe it is essential, further, that we extend the
local participation beyond the minimum set forth in
the statute of 10 percent, as widely as possible.
I don't recede a bit from that position.
Well, I'm for getting local capital into the program.
I think that is essential, too, for the success of
the financing as your act is set up. But I do think
that when you transform the credit behind these obligations from a local basis to a national basis, which
you are doing when you set up this nationwide syndicate that's interested only in the national aspect,
the Federal pledge behind these obligations, I think
we're running into danger, and I think that we have
to be very, very careful in so far as the scrutiny
goes that we give it, before we give it our approval.
That's my point.
Straus:
I a hundred percent endorse that. I think we have
to be very, very careful, and I know that you must
give it your closest scrutiny before you give it
your endorsement.
H.M.Jr:
Well now, look, I'm more than willing to go along on
your suggestion that we continue the discussion with
the understanding that if the basis is changed and
you feel that you people have got to go ahead anyway,
I'll simply be put on notice - "I'm sorry" - which
you say you won't do without the Treasury's endorsement. So see what you can do.
But
Foley's available, isn't he? Huh? Big broadminded fellow.
Oliphant: Broad-shouldered.
H.M.Jr:
What?
Oliphant:
Broad-shouldered.
28. K
-11-
Straus:
This thing is so essentially sound that once it is
understood there can't be any objection; but it's
going to take time and nothing is going to be done
in the meanwhile, Mr. Secretary.
H.M.Jr:
All right.
Straus:
Thank you, sir.
28-L
Tuesday
November 15, 1938
3:58 p.m.
HMJr:
Hello.
Operator:
HMJr:
Mr. Sayre
Hello.
Sayre:
Oh, how is Mr. Secretary?
HMJr:
How are you?
S:
All right. Fine.
HMJr:
Ah - Wayne Taylor gave me a copy of the memorandum
F.B.
of the conversations you had with the British
Ambassador.
S:
Oh yes. I sent it over.
HMJr:
And I wanted to thank you for it.
S:
Well,
I - I'm - I'm only too happy for you to
have it.
HMJr:
Well, do you mind if I just let - you know how
I felt about a sentence in there?
S:
Yes.
HMJr:
The sentence that sort of bothered me was - it
said - "See if steps could not be taken to
sustain - sus - sustain the pound, particularly
during the coming few days".
S:
Yes.
HMJr:
Well, of course, from your standpoint I can see
that but what we're interested in is what's going
to happen to the pound after you sign it.
S:
Yes.
HMJr:
And that sort of bothered me because ah - ah -
well, it - and I think from the long run standpoint it's just as important for you that the
pound -
S:
Yes.
28-M
-2HMJr:
S:
- be maintained afterwards and I would get
the drift that you were - well, to take care
of the pound the next couple of days and
everything would be all right.
Yes, well I - I think maybe I phrased that
badly, Mr. Secretary. I ah - ah - I talked
to him ofcourse about the President's concern -
HMJr:
S:
Yes.
- particularly during those - these next few
days - that was the whole subject of our conversation.
HMJr:
Yes.
S:
And I did not say - or - and I think I didn't
give the idea that of course we're not concerned
as to what happens after the expiration of this
week.
HMJr:
Yes.
S:
I think probably I phrased that a little badly
in that memorandum.
HMJr:
But you did give them the impression that we are
worried what happens afterwards as well?
S:
I - I think - well, I didn't discuss that as a
HMJr:
matter of fact.
Didn't discuss it?
S:
No.
HMJr:
Oh.
S:
We were discussing only the President's anxiety
concerning these next few days.
HMJr:
I see.
S:
That's all we were discussing. Now, ah - we just
HMJr:
I see.
didn't refer to the other thing.
28-N
-3S:
HMJr:
So I think, probably my phrasing in that memorandum
was a little unfortunate in giving a contrary idea.
Well, the Treasury - we're not particularly worried
what happens from day to day, what we are worried
about 18 that if this thing is done on Thursday
and then the pound begins to fall rapidly, what are
we going to do about it?
S:
Quite. And that's - that -
HMJr:
And I wanted to get over to you, while there was
S:
Yes.
HMJr:
S:
HMJr:
still time how I felt.
And particularly it's my responsibility.
I - I share your feelings wholly.
And the other point was that unless something happens
much worse than it has, we don't propose to do
anything and ask any questions until the Treaty is
signed.
S:
HMJr:
S:
HMJr:
Yes.
But as soon as it's signed, we are going to ask some
questions, and Herbert Feis knows all about that.
Yes.
So, but I want to make my position very clear to you
that the minute the trading treaty is signed I
expect to send for Bewley and put up a series of
questions.
S:
HMJr:
S:
HMJr:
Uh-huh.
As to the future of the pound.
Yes. And Feis knows about that?
Feis sat in at the meeting while the questions were
being -
S:
Yes.
HMJr:
- put up.
28-0
-4S:
HMJr:
Yes.
He knows all about it. And for your own information,
I had present at that meeting Dr. Jacob Viner,
Professor Williams of Harvard, Professor Hanson -
S:
Uh-huh.
HMJr:
And Dr. Goldenweiser.
S:
Yes.
HMJr:
Dr. Feis and my own people, and we worked on that
S:
Yes.
HMJr:
And they assisted us in preparing the questions.
S:
Yes.
HMJr:
So there's been three weeks work go into it.
S:
Yes.
HMJr:
So it's no fly by night scheme.
S:
Right. All right, Mr. Secretary, I - I don't think
HMJr:
No. It's quite clear that you were talking about
S:
Yes.
HMJr:
And it's also quite clear what I'm worrying about is the
day after.
two different times.
there's a word, I said to the Ambassador that would the next couple days.
S:
All right. About a week, sir.
HMJr:
Pardon me.
S:
I say, and the week after - the weeks after.
HMJr:
Weeks after?
S:
Yes.
HMJr:
But I don't want to be put in the position that through
28-P
-
-5the drop in the pound, that I've got to write you
fellows letters.
S:
HMJr:
S:
Yes. Well I - I been - I think
But it's 80 important that I wanted by word of mouth
to tell you 80 that you knew exactly where I stood.
Yes. First rate. All right, and thank you very much
Mr. Secretary, I appreciate you clling me up.
HMJr:
Thank you.
S:
All right.
29
OFFICIAL COMMUNICAT TIONS TO
THE SECRETARY OF STATE
WASHINGTON c.
DEPARTMENT OF STATE
WASHINGTON
November 15, 1938.
My dear Mr. Secretary:
I am enclosing a copy of a memorandum of conversa-
tion between Sir Ronald Lindsay, the British Ambassador,
and Assistant Secretary of State Sayre, held on the
afternoon of November 14.
On the basis of Mr. Feis's reports of connected
di scussions on the subject that have taken place over in
the Treasury, I understand that this action runs completely
in accord with the Treasury interest and in fact merely
repeats an initiative of the same kind made in accord
with an understanding with the Treasury.
Sincerely yours,
Enclosure:
Memorandum.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
with of is
("
Department of State
EA
IREAU
}
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
TREASURY
U.S. GOVERNMENT PRINTING OFFICE
1-1003
Department of State
EA
REAU
}
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
TREASURY
U.S. GOVERNMENT PRINTING OFFICE
1-1033
30
COPY
Department of State
Memorandum of Conversation
November 14, 1938.
Signing of the British trade agreement
and decline of pound-dollar rate
ticipants: Sir Ronald Lindsay, British Ambassador;
Mr. Sayre.
I called on the British Ambassador very informally
at the British Embassy at 5:30 this afternoon. I told
the Ambassador that I wanted to speak with him unofficially
and informally, and then proceeded to tell him of my conversation with the President this afternoon in which the
President expressed his anxiety concerning the decline of
the pound-dollar rate. The rate fell today to $4.70 and
the President had said to me: "What will we do if the
pound should drop to $4.55 on Thursday morning?" After
telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to
see if steps could not be taken to sustain the pound,
particularly during the coming few days. The Ambassador
said that he would gladly do so at once.
I also spoke to the Ambassador about the rumor which
is circulating to the effect that the trade agreement contains a provision stabilizing the rate of the pound at
$4.50. In order to prevent the depressing effect of such
a rumor, I said to the Ambassador that with his permissi on
31
-2we would give out a statement this evening denying that the
trade agreement contains any such provision. I suggested
that he might also think it advisable to have such a state
ment given out at once in London. The Ambassador at once
agreed.
31-A
Yunnanfu, Yunnan,
15th November, 1938.
The Honorable
Secretary Henry Morgenthau, Jr.,
Department of Treasury,
Washington, D.C.
Dear Mr. Secretary,
I enclose reports typed from notes sent me by Dr. Buck
from Lanchow.
Respectfully,
Elid Saunders
Enid Saunders
Secretary to Dr. Buck
31-B
INDEX
Page
Interview with a secretary to a high official
1
Interview with the Manager of a large bank in
Sian
2
Interview with Governor Chu Hsiao-liang of
Kansu
3
Interview with the Manager of the Central Bank,
Lanchow
5
.
Kansu Wool Export to Russia
7
31. C
1
Sian, November 5th, 1938
To Secretary Morgenthau
From J. Lossing Buck
INTERVIEW WITH A SECRETARY TO A HIGH OFFICIAL
"There is a congestion of military supplies at Paochi, the railhead,
72 miles west of Sian, awaiting transportation inland.
"Gasoline is nearly 6.00 yuan a gallon in Sian, and is being used very
sparingly, even by officials. The province has only 40,000 gallons. First preference is given the military and commercial planes. Second rank officials are
allowed only 25 gallons per month. Gasoline supplies have been moved to Pingliang, Kansu.
"We are short of coal - the price has already trebled. We are giving
special attention to the transportation problem, and we are now organizing transport by horse and ox cart. At present something like 3000 carts are employed by
the government transport bureau.
"The alcohol factory at Sian has been moved to Szechwan. The two
flour mills and the one cotton mill are still operating.
"Sian has been emptied of all military supplies.
"Five thousand refugees at Paochi are awaiting transportation to
Szechwan."
31- D /
2
Sian, November 6th, 1938
To Secretary Morgenthau
From J. Lossing Buck
INTERVIEW WITH THE MANAGER OF A LARGE BANK IN SIAN
"The Chinese Soviet Government appeals to large numbers of people
because of its clean government and the selflessness of its leaders, and be-
cause it is weeding out the parasitic elements in society, such as the rotten
gentry. Thousands of students are going to this area in spite of attempts to
check the movement in that direction.
"The Governor of Shensi is opposed to the Chinese Soviets and accord-
ingly takes a non-cooperative attitude, except as is necessary to prosecute
the war. He does not like people to visit that area." (His secretary, when
I mentioned going there, discouraged the idea by saying I would find nothing
different there. J.L.B.)
"There is little talk about closer relations with Russia.
"I am attending a meeting at the Central Bank tomorrow, to discuss
with gold merchants the problem of collecting more gold for the Government.
The market rate is higher than the purchasing rate of the Government, and we
shall probably have to pay a higher price."
His wife, in discussing the general situation with me, states:
"We feel desperate, and we would rather go on fighting and even die than
accept the yoke Japan would impose upon us."
31- E
3
Lanchow, November 8th, 1938
To Secretary Morgenthau
From J. Lossing Buck
INTERVIEW WITH GOVERNOR CHU HSIAO-LIANG OF KANSU,
MILITARY COMMANDER FOR THE PROVINCES OF NINGHSIA, KANSU AND TSINGHAI
"Small scale industry and handicrafts are the chief points of the
provincial program of this province, in view of the fact that we cannot import
machinery. Woollen goods from local wool are already being made on a small
scale, and the industry will be extended.
"The paper industry will be developed for local consumption by the
utilization of a local wild grass, from which paper of medium quality can be
manufactured.
"The relations with Russia remain the same." (He was very reticent
about discussing anything Russian. J.L.B.)
"The only new road has been the one to Sinkiang, but the other roads
are being improved: the one to Sian, and the one to Szechwan via Tienshui and
Paochi.
"The currency situation is satisfactory, there is no shortage of notes.
There is still considerable silver in the province, and we are still collecting
it." (The assistant chief of the Foreign Trade Commission, however, states that
there is a shortage in the country districts of both one yuan notes and of subsidiary notes. J.L.B.)
31-F
4
(One of the lower officials in the Governor's office, who called
on me, states that Kansu is recruiting 10,000 men per month - over 300,000
are now in training at Meinyang, Szechwen. J.L.B.)
31 G
5
Lanchow, November 8th, 1938
To Secretary Morgenthau
From J. Lossing Buck
INTERVIEW WITH THE MANAGER OF THE CENTRAL BANK, LANCHOW
Currency, Silver and Gold
"Kansu, like other northwestern provinces, has a preference for silver,
and silver dollars are still in circulation in interior parts of the province.
Government notes, however, are also accepted in most parts. Silver and gold are
still hoarded, and since the beginning of the war hoarding has increased. Gold
has advanced in price with the depreciation of the yuan in terms of foreign exchange. There is no shipment of gold between Chengtu and Lanchow now, as occurred
a few months ago, as the price is nearly the same in both places.
"There are few Russians in the capital of Sinkiang, nothing like the
number engaged in the Russian air training force in Lanchow. The Chinese poli-
tical relations with Sinkiang are now good. There is no special Russian political
influence or economic control in Sinkiang." (This is contrary to other opinions
and intimations from other sources. J.L.B.)
"The Russian foreign representative in Lanchow is here to look after
the interests of the Russians in the air force.
"There is some talk here about the necessity of a closer alliance with
Russia, but if that were possible it would have come about earlier.
31- H
6
"Everyone is afraid of the Eighth Route Red Army. Former Governor
Yen Hsi-shan of Shansi, who is now in west Shansi with his troops, is disliked
because of his cooperative attitude toward the Reds. Civilians in his territory
are antagonistic to the Reds, even to the point of wanting to fight them. The
political government of the Reds is not acceptable to the Chinese." (The Manager
is a native of Shansi, and is therefore in a position to know something of the
reaction of Shansi people to the Reds. He is also a close personal friend of
Minister Kung. J.L.B.)
31-I
7
Lanchow, November 8th, 1938
To Secretary Morgenthau
From J. Lossing Buck
KANSU WOOL EXPORTS TO RUSSIA
The following information is from officials of the Foreign Trade
Commission in Lanchow:-
The Commission has purchased 35,000 piculs of wool to fulfill contracts
with Russia. The problem is now one of transportation. Camel caravan is the
method adopted, and 3,500 camels with wool have already been dispatched. The
Commission is certain of being able to obtain 2,500 more camels, making 6,000
in all. Twelve thousand men are needed, and the Commission has been assured
by camel brokers that this large number can be procured, since the Commission
is paying enough to make it profitable for the caravans. The seven camel broker
firms have now been united into one to handle the Commission's business. In the
past the military have gained control of these caravens, and the owners have been
hesitant to accept the Commission's business for fear of trouble with the mili-
tary officials.
Kansu wool was purchased at 36 yuan per picul, and Tsinghai wool at
43 yuan. The Russians paid only 36 yuan at first, plus transportation, but now
are paying 43 yuan per picul. The cost of transportation from Lanchow to
Sinsinghaia (on the western boundary of Kansu) and Sinkiang, a distance of 711
miles, is 22.50 yuan. China pays the Russian import tax of 1.65 yuan per picul.
31-J
8
Gasoline will be brought back, as the Government has borrowed
15,000 gallons of gas from the Sinkiang government. The Russians also
want the caravans transporting the wool to bring Russian commodities into
China on their return trip. Negotiations are now taking place. The price
of the commodities is the major issue. These negotiations are not connected
with the first Russian contract for war supplies.
There are three Russian government representatives in Lanchow:
consular, commercial, and aviation.
It is a question how much help a Russian railway would be if built
to Lanchow. Kansu has only wool to export. This is a bulky product for its
value, and the actual production is not large. Perhaps the Japanese would
come from Paotow in Suiyuan and take it. The Central Government has no
troops in Ninghsia province. There are only poorly trained Mohammedan troops
there, and the Japanese could dispose of them easily.
SSSN I 330
--
YAUGA3HT
of to
SHORTAND vs
SECRESVEL. CONTERBORDENCE DIAIRION
31-K
November 15, 1938.
4:17 p.m.
HMJr:
Hello.
Operator:
Mr. Burlew
HMJr:
Hello.
Hello, this is Burlew.
B
HMJr:
B:
HMJr:
How are you?
All right, Mr. Secretary. I hope you are.
I'm fine. Burlew I want you to do for me, a
special special.
B:
All right, sir.
HMJr:
I'd like you to send a telegram or cable to
B:
Yes.
HMJr:
Secretary Ickee.
And tell him that I find myself very much
embarrassed having this artist for ten days and
I would consider it a favor if Mr. Ickes would
leave it to you or me.
B:
Yes.
HMJr:
To go ahead with it and that this man has been
B:
HMJr:
here for ten days, 80 You know we didn't realize that, I didn't know
until this minute he was still here.
Well, he's been sitting here, 80 to speak, on
my doorstep.
B:
HMJr:
That's a terrible situation.
And if you would - you could put it in the
telegram.
B:
Well, I'm going to talk to him tomorrow morning
at eight o'clock, on the phone.
HMJr:
Well, if you'll tell Mr. Ickes that I'd consider
B:
Yes.
it a vote of confidence.
31- L
-2HMJr:
B:
If he'd let you and me go ahead with it.
All right. Now the other thing to straighten
out. of course I guess I could do with Bruce,
and that is, in the Procurement Division, that
is the space the darned things are in. You see,
there was - the Procurement Division laid out
that space for the Secretary's - the portraits
of the Secretaries of the Interior, you know.
HMJr:
Yes.
B:
And then we decided we weren't going to hang
them there, and Rowan said the Secretary
and I gave approval to put these murals in that
space.
HMJr:
Yes.
B:
Then after that, there was no other place to hang
the pictures and we got them up there.
HMJr:
Well, why don't you - is that where this fellow
B:
Yes.
HMJr:
wants to paint?
Well, look. Why don't you say this to Mr. Ickes?
If he'd leave it to you and me.
B:
Yes.
HMJr:
with power to act, see?
B:
Yes.
HMJr:
How would that be?
B:
Yes. That's what I'11 ask him.
HMJr:
See. And then I - I -
B:
I think we can get along that way. of course he is
taking such an intense interest himself, in these
things, -
HMJr:
B:
I know.
And that's the trouble, it came up, you see I didn't
know that this man was down here even and expect
31-M
3-
us to look at them. We - put those up on
Friday - Thursday or Friday.
HMJr:
Yes.
B:
And he put them up and then the Secretary was
getting ready to go away and he just simply
couldn't get down, even to the second floor.
HMJr:
I understand. Well, the point is that this
fellow has been here for ten days, he's literally
on my doorstep.
B:
Well that's terrible, we'11 have to do something.
HMJr:
And I would like to say yes or no, and I'd like
B:
to say yes.
Yes. I told Mac this morning that I'd get Rowan
over here and we'd try and get ahead on this
question of space, but Rowan
HMJr:
B:
away,
And you spoke to Ned Bruce.
No, I didn't call him back, because it was a
question of getting him down here and I didn't
like to ask him to come down here.
HMJr:
Well I'll tell you the way we'll leave it.
After you've talked to Mr. Ickes, will you call
me?
B:
Yes, sir. I will.
HMJr:
And, then if it's a question of deciding, e'll
B:
take the time - the whole Treasury Department will
come over and pay you a call.
Well, now, I expect - he arrives at Miami at
seven o'clock and he's got an hour there before
the aeroplane leaves for Cuba, and I'm sending a
wire down to have him call me on another matter,
and I'll take this up with him.
B:
Thank you. You understand the spirit in which Oh, I'm sure -
HMJr:
If Mr. Iokes, the thing I'm wondering about, will
HMJr:
he leave it to you and me.
31-N
B:
Yes. I understand.
HMJr:
with power to act.
B:
Yes.
HMJr:
B:
And then I'11 tell Ned Bruce to sit tight until I
hear from you. I'll hear from you You'll hear from me promptly tomorrow morning,
by the time you get to your office.
HMJr:
Fine.
B:
All right, sir.
HMJr:
Thank you 80 much.
B:
Goodbye.
HMJr:
Goodbye.
FEDERAL RESERVE BANK
31-0
of New York
OFFICE CORRESPONDENCE
To: Confidential Files
From:L. W. Enoke
78M
Date: Nov. 15. 1938.
Subject: Telephone Conversation with Blr. of Reg.
I called Bolton at 9:50 this morning. Things were still very
disappointing, he said. The dollar market had opened at 4.70-1/2; he had sold
$2,000,000 at that figure and another $2,000,000 at 4.70 and had given
$1,000,000 worth of gold at fixing. As the pressure against sterling continued,
they had let the rate drop down to 4.69 and sold another $1,000,000 there which
had seemed to help satters. Since then the rate had picked up a little to
about 4.70. His total lesses for gold and dollars so far had been about
$11,000,000 compared with total losses yesterday of $11,000,000.
It was quite apparent from what he heard on the Continent that 11 was
primarily the Jewish question which today was depressing the sterling rate.
Some people were convinced that the British policy of appeasement with Germany
had broken down and that as a result thereof a disturbing and saxious political
situation was likely to prevail which, of course, would continue to cause the
transfer of capital to the United States. If 11 woren't for these latest
developments, Bolton seemed to think that they night have been able to hold
sterling between 4.75 and 4.80 but now the expense of holding 18 there was too
such for them to bear. No asked whether I had any indications as to whether
Washington was seriously disturbed over this continued weakness of the sterling
rate. I replied that I simply didn't know, not having been to Bashington in
many weeks, but that in my opinion our exporters would very definitely be
distarbed and would almost inevitably press for heaven know what kind of
legislative measures 1f sterling continued to drop. Bolton said that they
fully realised all this, but the fund's reserves were getting low and close
to the danger level and if they had to use the gold of the Beak of England
-2
31.P
the sarkets would become still more distarbed. He told me very confidentially
that they were discussing certain restrictions now but that naturally they
didn't want to introduce any measures which would upset the freedam of their
markets. The question had been under discussion for many days and they would
probably adopt one or two restrictive measures very shortly which they hoped
would have no bad effect. They were by now definitely convinced that the
reason for the weakness of sterling was of a political nature and that economic
reasons at the moment were negligible. They were fully aware, he continued,
that if sterling depreciated very much further it would upset the whole
present economic structure and whatever they might decide upon now would be
done only after the most deliberate consideration. However, as far as they
could see now, there was no real hope of sterling becoming stronger until
there was a real improvement in the political situation. It was getting
more and more difficult for Chamberlain to carry out his present policy with
Germany and, worse yet, there was a possibility of a political split in England
in case the opposition should continue to be victorious at the pells at the
coming by-elections. He was very anxious to discuss the present situation
with me, he said, and keep us as fully posted as he could but had se such to do
just now that he wasn't entirely free to call me all the time. I should,
therefore, not hesitate to call him either at the bank or at home whenever
I wanted further information.
As far as the franc was concerned, Bolton thought it was still firm
and that Cariguel was still gaining though less than yesterday.
LWK:KW
32
November 16, 1938
I called up the President this morning at a
quarter of ten to congratulate him. I said, "Mr.
President, I want to take this opportunity to congratulate you on your two statements that you made
last night, (1) on the recall of Ambassador Wilsonthe
and (2) on national defense. He said, "I think
one on Wilson was good," and I said, "I certainly do."
He said, "Cordell Hull was good also," and I said,
"He certainly was. . (He then was kind enough to say
"I used your suggestion on national defense and it
seemed to go over big." It certainly was nice of him
to say it.)
He then said, "But I have got to get over somehow
those figures of how many planes the Germans, the British
and the French have on the first of October in order to
get our appropriation through Congress." I said, "Yes,
Mr. President, but isn't there some other way of doing
it than having you give out the figures?" He said,
"Yes, I have an idea. He said, "I will try to get
the opposition to give it out. I said, "That will be
swell if you let it come from the other side, but don't
you give it out because," I said, "if you give out the
figures you will simply be justifying Chamberlain's
position. He said, "Repeat that," and I repeated it.
I said, "I have got the first concrete suggestion
to make for the Jewish refugees. He said, "Well, for
Heaven's sake, what is it?" I said, "Constantin Maguire
has sent me a letter suggesting that we make a settlement
with Great Britain and France on their war debts for
British Guinea and French Guinea, and then somehow or
other raise enough money to buy off Holland for Dutch
Guinea.
He said, "It would
He said, "It's no good.
take the Jews from 25 to 50 years to overcome the fever
and," he said, "it's just no good. He said, "What's
the matter with the idea I have been talking to you
about for a long time and,' he said, "that's the Cameroons."
If
He said, "The Cameroons was a former German colony and
now belongs to France and" he said "the same suggestion
that you have of giving these countries a credit on their
debt to us would apply there and "he said "I know from
explorations that have been made in the Cameroons that they
have some very wonderful high land, table land, wonderful
33
-2-
grass and very thinly populated and" he said "all of
that country has been explored and it's ready."
Then he said, "Adjacent to the Cameroons, the
Portugese have a territory and" he said "that could be
included." But he said all the Cameroons have been explored and he said it's a good climate.
The thing to do is for us to get some geographer
that Mr. Bowman can recommend and look over all of the
colonies belonging to France and England wherever they
are and see which of those could take a populationand I
want to say here that in discussing this with Mrs. Morgenthau I think it is most important that whatever is done
is opened up to all refugees irrespective of religion;
that it should not be just for the Jews.
****
I called up Cordell Hull to congratulate him on
his statement also and he said, "Well, there was very
good cooperation between the State Department and the
White House. II Hull's statement was stronger than the
President's.
****
The thing to do is to get a list of the colonies
which they took away from Germany and see which are the
good ones. Before the Germans get them back let us give
them back and forgive part of the National debt. I am
thinking in terms of $500,000,000. The President and
I
figured it out. In the first place, the most difficult
thing is to get the land. Assuming that we have that,
we are talking in terms of $500,000,000 raised privately.
If we are going to pick something new, pick some---
thing that is so good and so rich in natural resources
one of the richest countries in the world which is unexplored is Turkey. They have everything. They have
copper, oil, coal, timber. They have coal right on the
surface and all they do is a fellow goes out with pick
and shovel and buries it, but they never let them mine it.
That's the sort of thing I mean.
I think I could go to the Vice President and he
would say "What the hell. You want to knock off $25,000,000?
ahead." The temper of the people today we can make this
Go
34
-3-
a
political refuge for all creeds. I think the public
is ready. My motto 1s "Nothing ventured, nothing gained."
Nobody is
The point is the President has this.
helping him. I am going at least to do the spade work.
The thing to do is have it ready before Congress comes.
NEW YORK TIMES - November 16, 1938.
35
ROOSEVELT CONDEMNS NAZI OUTBREAK;
COULD SCARCELY BELIEVE' IT, HE SAYS;
LONDON STUDIES JEWISH COLONIZATION
New York Times
It was difficult to conceive of tack from another continent. solmore forceful expression of this idarity among the countries in this
country's displeasure short of sever- purpose would be his aim, he de-
ing diplomatie relations. It clared.
lowed by less than twenty-four The denunciation of Germany
the summoning from Berlin was uttered only after thorough
STATEMENT SHARP hours
of Hugh R. Wilson, the United consideration. The more than 200
Language Is as Strong as
a President Ever Used
to a Friendly Nation
NOV 16 1938
OPINION 'DEEPLY SHOCKED'
States Ambassador, for the tech-correspondents who crowded the
ically phrased purpose of report and President's office knew it was to
consultation here, but for the actual be made, for they had had advance
purpose of dramatically franked notice that he would speak
method of protest, calculated to be mind on the subject.
more emphatic than any diplomatic As they entered his office, they
note could be.
found Mr. Rosevelt in high good
humor.
He leaned back in his
STATEMENT OF PRESIDENT
chair, puffed at a cigaret from a
The President's statement fol- long holder and exchanged banterlows:
ing remarks with the front row of
The news of the past few days
correspondents until all had entfrom Germany has deeply shocked
ered. Then he disposed of a few
public opinion in the United
President Stresses the Word
'Technically' in Terming
Wilson's Return No Recall
his
States. Such news from any part
of the world/would inevitably produce a similar profound reaction
among American people in every
part of the nation.
I myself could scarcely believe
that such things could occur in a
twentieth century civilization.
incidental questions that were has-
tily asked in the realization that
otherwise they would be lost in a
discussion of more serious problems.
Eager to Get to Main Business
But the President was eager to
get to the main business and in a
With a view to gaining a first- moment he picked up a sheet of
By BERTRAM D. HULEN
hand picture of the situation in paper and announced that had just
Special to THE New YORK Toms
WASHINGTON Nov. 15.-Presi- Germany I asked the Secretary of finished dictating a statement he
dent Roosevelt voiced the con- State to order our Ambassador in had to make on Germany.
demnation of the American people Berlin to return at once for re- He then
read It to the correspondents, quoting each sentence rapidly,
and their government of Germany's port and consultation
attacks on the Jews today in one Because of its unusual characterbut pausing once to gaze toward the
of the most vigorous statements and its vigor the statement imme-ceiling blow a ring of smoke and
that It was possible to make in pro-diately posed the question of whattranspose a sentence from its order
test of the events of the past few/would be the reaction of Chancellor&8 he had originally dictated what
Hitler. As to this. President Roose- had to say.
days
In a statement that he read at his velt did not appear to be worried. Departing from custom that govpress conference Mr. Roosevelt de- Instead, after concluding his disnounced the attacks in language as cussion of the German situation, he
sharp as had ever been employed turned in response to questions to
by A President against the course national defense and made It known
pursued by a foreign government that he was considering adequate
with which the United States had measures in collaboration with the
friendly diplomatic relations.
twenty other / merican republica
"I myself could scarcely believe and Canada for defense of this con-
that such things could occur in *tinent-North Central and South
twentleth-century
civilization," he America-against any threat of atdeclared
6
erns the White House press confer- While not referring directly to re to facilitate the emigration of Jews
ences, he announced as a prelim-ports that the United States hadfrom Germany, Mr. Hull said that
that the statement was forsubmitted a refugee plan to Britain he had no information on that quesinary
Mr. Roosevelt said that he knewtion himself and had seen nothing
direct quotation in the press.
nothing of what had been happen-on it from Ambassador Kennedy.
When he concluded there was ing in London the past twenty-four The National Council for Prevenrush of questions from the corre-hours He did know, he added. tion of War in a statement today
spondents. The first was a request the Intergovernmental Com-urged not only that the United
for
The President mittee on Refugees, which has itsStates appropriate funds and modanelaboration.
headquarters
in London, was bend-ify the immigration laws to facilisaying
declined,
the statement ing its efforts toward enlarging the late the emigration of Jews from
scope of its work in view of theGermany but also that as a further
Asked whether a note of protestincreasing seriousness of the Ger-step the problem of refugee aid be
taken
the
Pan American Conhad been sent to Germany, he re- man situation.
that none had been sent yet. Asked
whether
he had considered ference
in Lima.
plied
the
where
the
refugees might go,
Opposed
He did not indicate whether one President replied that he had given Relch Trade Accords
spoke for itself.
up
at
would be dispatched. a great deal of thought to it, but A delegation representing religAmbassador Wilson, he said, that the time was not ripe for -lous and other organizations in
sailing from Havre ThursdayWhen
on announcement
Eastern cities called at the State
a correspondent inquired Department today and urged the
the steamship Manhattan. The whether he would recommend to United States not to enter into trade
Its
Ambassador, he explained, was *Congress modification of the Immi-Agreements with Germany.
turning by his orders to report andgration laws in order to permit members were informed that no
consult. Technically under diplo-larger number of refugees to ente-contemplation was being given to
matic procedure, he added, It .this country,
Mr. Roosevelt replied the negotiation
of a Germany.
reciprocal trade
the
agreement with
negative.
not a recall, but in so saying he This, however, did not remove the Voicing their indignation "at the
in
gave sharp emphasis to the possibility of some adjustment against the helpless Jews
quotas under existing law. Alreadyand the leaders and members of
The Manhattan is due in Newthe German quota has been In-other faiths in Germany, the delebefore Sec_creased by the inclusion of Austriagation also said that if the United
Yoork Nov. 24. the day and it may be enlarged still more States decided to impose economic
retary of State Cordell Hull is toby making allowances for immigra-sanctic against Germany it would
sail for the Pan-American Confer-tion from the Sudeten areas that support such a step.
ence at Lima, Peru, and so pre-have recently been taken over from Members of the delegation includsumably Ambassador Wilson w/IICzechoslovakia
by Germany. Itoniged
William
F. Cochran
Baltiexpected that an announcement
more,
vice president
of theofChurch
Democracy
have
an
opportunity
to
confer
with
this
subject
may
be
made
soon.
League
for
Industrial
Mr. Hull. That he will remain in
the Rev. Joseph Novak, PresbyHull Declines to Comment
nically.
terian clergyman of Baltimore: the
this country indefinitely was clearly indicated by the Secretary of Secretary Hull was even less Illu-Rev. Clarence Bleakney, president
State earlier in the day when minating
on this point at his press of the
Jersey Dr.
Baptist
Ministers New
Council:
Benjamin
conference.
said he did not have anything in Asked about reports from London Crawford of the First Methodist
mind as to the duration of his stay.that the embassies of the United Church of Carnegie, Pa.: Harry C.
Refugee Plan Not Confirmed States, Great Britain and France Lamberton of Washington, D. C.,
recently planned to seek a relaxa- representing the American League
Concerning London reports thattion of financial restrictions on for Peace and Democracy, and the
the United States had broached aJews leaving Germany, Mr. Hull Rev. William Howard Melish
plan to Great Britain for locatingreferred questioners to the Inter- Cincinnati.
600,000 Jews from Germany in e-governmental Committee on Ref- Announcement was made today
cific places,
ugees
in London.
It was
betterontothat
that
Catholic
dignitaries.
President
Roosevelt,
all information
sub-high
cluding
members of
the hierarchy Inwas indefinite at his press confer-ject come from that source, he and leaders among Catholic layF.
of
ence. The State Department saidplained. men. would join in a joint protest
that it knew nothing about it. Asked concerning another London against Nazi persecution of German
In the first place, the Presidentreport that Prime Minister Neville Jews in a program broadcast towould make no comment on reportsChamberlain was contemplating an morrow from 9 to 9:30 P. M. overComof activity in this connection by Joapproach to President Roosevelt for the National Broadcasting
seph P. Kennedy, the United StatesAnglo-American cooperation outside pany blue network.
Condemnation of the persecution
the
Committee
Ambassador in London.
Intergovernmental
will be heard from coast to coast
on the program, which will originate in Washington and end at San
Francisco, with pickups at New
York and other points. Among the
speakers will be Archbishop Mitty
of San Francisco and Alfred E.
Smith.
NEW YORK HERALD TRIBUNE - November 16, 1938.
ext of President's Statement
Cock Herald
116
Eribuseron the Herald Fribund Bureas
WASHINGTON, Non/15-The text of the statement on
Germany's treatment of the Jetus which President Roosevelt read
roday at his press conference follows:
The news of the lastifew days from Germany has deeply
shocked public opinion in the United States. Such news from any
part of the world would inevitably produce a similar profound reaction among American people in every PAYS of the nation.
r myself could scarcely believe that such things could occur
in a twentjeth century civilization
10
With a view to gaining # first-hand picture of the situation in
Germany I asked the Secretary of State to order our Ambassador
in Berlin to return at once for report and consultation
FORES
37
38
JOURNAL OF GOMMERCE - November 16, 1938.
hand picture of the situation in Gercountry, the President indicated has
ROOSEVELT CHARTS
NEW COURSE AIMED
AT GERMAN POLICIES
Journal of Commerce
Vigorously Condemns Drive
Against Jews, Accounts
for Recall of Wilson
NOV 16 1938
many I asked the Secretary ojan entirely new concept of our own
State to order our Ambassador ignational defense for, with the advent
Berlin to return at once for reportor the airplane we have lost much
and consultation of our isolation from Old World po-
Just as American Ambassador WyJitical machinations an must consider
son is being called home to discussour own defense from the Canadian
the matter with the President. so (ine to Terra Del Fuego, to use his
la expected that the German Ambas expression.
Refers to Airplane
sador will be "invited" home from
Washington similarly to acquaint his Since the airplane is such a factor
Government with the adverse publicin both offense and defense. it was
reaction in the United States but natural that he should give parWhile the President gave no hintticular attention to air services of
any contemplated action on thethis country, the subject of yesterpart of the Washington Governmentday's national defense conference at
to show its displeasure in anythingthe White House. The President
more marked than the straining ofwould not go into details. such as
diplomatic relations, nevertheless itwould revealt he number of airwas believed that his tterancesplanes that would be built to protect
would give further impetus to a de-the estimated 30,000 miles of seacoast
termination on the part of Americanfrom Arctic Circle to Cape Horn and
"made
goods
bearingwouldthewhere
ing from
WANTS LATIN AMERICA consumers to refrain
purchas-back
be constructed, or how many whether airports or
or
CANADA IN DEFENSE PLAN
not $500,000,000 would be spent in the
label.
Germany"
The President, it was revealed, has effort, as has been rumored
been giving considerable thought to The president explained that be.
the situation in Germany, not only ;cause world events of the past 10%
Joint Protection of American respect of the Jewish problem years and scientific advancement
but with regard to economic the waging of wars, the whole orienthe Reich On November 10. thistation of this country in relation to
Is Objective-Possible Boy
country required that goods from the the continent on which we live has
cott of Reich Products Seensudeten area intended for entry mas changed. There is today a con-
in
By CLARENCE L. LINZ
the United States be marked made cinental solidarity among the twentyIn Germany and take full rates onone Pan American republica and Canduty.
Yesterday
a delegation
is more
definite
more
importers
were
told it beads
wouldunanimous
not thanwhich
ever
before
in the
WASHINGTON, Nov. 15. possible to suspend this order that last 120 years sincewere
the Latin Amet-for
President Roosevelt today joinedBoods prior to contracted its issuance for by might Americans be al- independence republics struggling
in public condemnation of Ger lowed to come in with the marking Therefore. on this continent, he
many's treatment of its Jewish 'made in Czechoslovakia"
and
we belief are substantially that as a continental unanimous
favorable
morein the
the >ald,
accorded
population and took personal duty provided under the "doctrine we must be prepared
to
continental
sponsibility for the calling home of agreement with that country. carry
out thewhich
outlines
solidarity
wasofestablished at
Little Can Be Done
Buenos Aires He insisted that it to
American Ambassador Wilson that
he might get a true picture of con There
does not appear
thatvery important
to get the conception
the Administration
can much
do in retalla-that
this is a continental
solidarity
ditions in that country.
tion against Germany, since we al-into which we fit as one of the reAt the same time, the President ready impose upon its exports to theoublics.
made public for the first time United
States
full rates
nations of duty
while
competing
are
Check Made Necessary
ac.
plan of continental defense involv- corded very favorable rates. How- The United States therefore has
ing both Latin-America and Canadaever. it is considered here that pub- had to check up and see what is
with the United States, while at thelic opinion in the richest nation in necessary :ontinental in order to maintain this
State Department preparations werethe world anddesirable
one that offers
a possible
threat
for
market
foreignsolidarity from any against other con- any
being made for the signing of the very "merchandise, will do more than any inent, the President explained Yes. AsSecretary
British and the Canadian tradelaw on the subject could accomplish ristant erday's conference
in War which Johnson
Chief
the
of
agreements more closely linking Surprised by Denunciation and his
aides,
including
those areas with this country than ence At the the outset President of his warned press he confer- would the Army Aair Corps, Secretary
ever
before make plenty of copy for them. but General Treasury Jackson Morgenthau, and Relief Solicitor Admin.
President
Roosevelt anticipated the the manner in which he plunged
questions of newspaper correspond-int his denunciation
of Germany
confined
almost entirely participated to the prob- was
of Hopkins
deal
surprise.
caused
great
a
ents at his semi-weekly conference When he freely stated his plans for of aircraft
this afternoon by reading the tol-continental defense. that surprise in- Congress It was on determined the subject to of approach legisla. of
the
defenses
the
tion
place
lowing prepared statement with creased
him
what
led
expand
Askedmeasurably
much vehemence
the program of national defense in United States and the Continent
such a manner. the President tartlyagainst any possible crists from outDenounces Jewish Attacks
told inquiring reporters to read theside on a safer basis
"The news of the past few days newspapers over the past five years. This may mean establishment
to
to
in
from Germany has deeply shocked/Thus he avoided giving further men.other countries of access airports under to which
treaty
public opinion in the United States tion to Germany, but distinctly battwe would have and for construction
wasarrangements
Such news from any part of the the impression
the new Pan
maintenance of which we may
directlyAncontribute
American that coalition
financially while also proworld would Inevitably produce aimed at the Reich,
assistance and other technisimilar profound reaction among The plan is not to be one-sided by viding engineering
to hecal
believerellef
American nation. people in every part of theany was very means
he
intimated
in his reason
statement and
It may funds mean. and also, employment diversion of
to
had
he
every
that certain
further-
"I myself could scarcely believerhar all of the Central and SouthProvide assistance in the plans.
that such things could occur in american
countries
and CanadaRnce
national
defense
would do
their share
in the fulfill- . of
May
Ask Huge
Sams
twentieth century civilization
ment of the objective for collective The President is under compulsion
"With a view to gaining a first defense of this hemisphere Thisto gowith
to Congress
early next year
proposals for appropriation of
huge sums for unemployment relief
and it is said to be the belief of
some here that this will be justified
on the linking of relief with national
defense.
NEW YORK HERALD TRIBUNE - November 16, 1938.
39
Roosevelt Says Germany Shocks America:
Powers Discuss Havens for Refugee Jews
Berlin Sees Catholics as Next Nazi Target
addach
York
Has Statement for Press
The President was ready to make
Talk of New Home for Jews
public his views when the newsThere were strong indications in
that
today
interna+
paper men arrived at the White Washington
President,
Statement
'Can at 4 p. m There were one or tional consideration was being given
to Press,inSays
He House
two questions about local govern- to a new home for a mass emigraI
Tribune
ment activities in the District of tion of Jews from Germany. The
Columbia, but the President dis- possibility of a home in Central or
Scarcely Believe That
conference
get
down
Things Can Occur posed of them that
quickly,thesuggesting
British South
America
colonies
is or under in one discussion of the
to
Wilson Is Starting
Home Tomorrow
more serious things He said that he here. What Mr. Roosevelt went on
had before him several matters to say
at histhispress conference confirmed
general
idea,
about Therefore, which he he would expected shoot questions, first, he the refused to be specific.
The
said.
President
said
Neither Roosevelt
written
paper
and
read
although
had
he
not
his
Roosevelt sheet of picked up n type- heard from Ambassador in the last twenty-four Joseph P. hours KenHull Will Say He'll NorGoMr.statement
slowly enough to be taken nedy in London, but he did know,
down
Back ;ImmigrationQuo-
longhand.
in
vigorous
read
He
then
tones.
it
picked
in
his
up
that
said,
he
Committee
the
Intergovernmental
Refugees,
on
tas Not To Be Increased cigarette holder in which a lighted the United States
But
WASHINGTON Nov. 15.PubRoosevelt
German
Nazi
the
ment's
persecution
that
ing
States
"could
scarcely
things
believe
that
was
Am-
Asked about possible sites for a big
Jewish settlement, the President declined
name
to
claring
United
States
was
not
places,
ripe.
ds.
Mr. Roosevelt said definitely that
relaxation
be
specific
time
the
laws
to
American
of
allow
influx
an
immigration
here
Ger-
of
man Jews was not contemplated.
Asked If Mr. Wilson's return cone In other quarters it was pointed
he
A
speaking. It was a summons to omallcommodated in this country under
first-hand
people,
added. *home, he added. A newspaper man the existing quota law. which allows
he
to
had ifasked
situation
get inquired
Mr.
the
represented,
said.
a stituted
a recall. the President de.out that a considerable number of
reaction"
had
stirred clared that it did not, German-Jewish refugees could be
"profound
American
Therefore.
of
would
the
in
for
spoke
Manhattan
liner
such
twentieth<
in
civilization.
occur
the
ture
that
Thursday
subject.
American
the
Berlin,
at
dis-
not
this
understanding
Wilson,
R.
was
statement
the
His
in
opinion
"shocked."
could
century
said
rebuked
Jews,
of
public
United
the
to
President
tion
today
Roosevelt
elaborate on
Mr.
deliberate
with
and
which
on
cigarette was fitted and leaned back was
at work to extend help increas.
ingly
for further questions.
By Albert L. Warner
Licly
is
he
Ambassador
Wilson would remain 27,370 persons to come here annually
Berlin in
American
indefinitely
Germany
including Austria.
It
siblethis
return
signcountry--a
official ,from
once
the
contention
officials
displeasureis
here
to
in
of
at
The
President
of
here over the policies of the Ger-that other countries throughout the
read
slowly
press
statement
atregular
his government.
re-world
should render
similar assistplied The
that President
had
allowed
nothing
further ance.
This
it
veroal
blow
the
government
head
the
of
aimed
at
has
secution
of
and
Catholic
statement
act
German
the
initiated
suppression
such.
had
precedent
no
in
complete
recent
he
quoted.
be
to
and
times.
say
Secretary
State
of
conference
answer.
considered
not
surance
that
an
Hulladoes
his
also
had
which
in
avoided
itself was
Mr.
opening
Mr.
Wilson
to
Hull
did
give
as-
would
be
returning to Berlin. He simply said
he had nothing in mind or this
and
added
that
he
would
not undertake to speculate about
the future.
wish
not
resimmigration
earlier
significant
accept
told
however
government,
Cordell
had
little
Hull
Secretary
direct
what
beyond
a
and
It
change
to
policy.
its
especially
general
in
a
ference
time of large unemployment in this
country.
to
sponsibility
take
for
handed
German
Jews.
single
the
re-
40
Complaints against German poll-every effort toward bringing about
cles continued to rain in on the conditions which will permit lasting
peace to be established throughout
State Department. The National the world can only hope that the exCouncil for Prevention of War voiced pression of indignation on the part
its "horror" at the "brutality" of of civilized man universally will
the persecutions and urged special bring to a prompt halt a retrogreshad hoped had died in the
American aid. It proposed modifica-Hark
tion of the immigration laws and
appropriation of public money to No War Cause, Says Norris
give relief to the Jews. It also urged
that the problem of refugee aid be SPRINGFIELD Mo. Nov. 5.00
taken up at the Lima conference Senator George W. Norris, Inde
pendent Republican of Nebroska
of the American republics.
Churchmen Protest
said taday the prosecution of Jews
in Germany was "outrageous, inhu-
A delegation of churchmen andman Indefensible and incompreheneducational leaders from varioussible." but the United States could
Eastern cities left a statement with not tell the Germans "that they
the State Department protestingcan't do it." The Senator passed
"atrocities against the helpless Jewslast night here en route to Washand the leaders and members of Ington.
other faiths in Germany. An official "A nation has the right to put
American protest was urged.
Jews out. or to put the Irish out, or
The German Embassy here ex- the Americans out." he said. "And
pressed surprise at developmentsunt!] they try to do something to
and awaited word from Berlin. The us. there is no reason for us to go
possibility was suggested that Hans to war about it.'
Heinrich Dieckhoff. German Ambassador, would be asked by his
Ashurst Suggests Break
government to return to Berlin, but
no such word was received today. PHOENIX Aris., Nov. 15 (AP).
On the contrary. the Embassy said Severance of diplomatic relations
Mr. Dieckhoff would continue at his between the United States and
postware adidas that no change in Germany because of Nazi anti-Jewhis plans was contemplated ish outrages was suggested here toAmong the precedents for present day by Senator Henry F. Ashurst.
White House policy is a letter which Democrat of Arizona.
John Hay, Secretary of State. wrote Describing Chancellor Adolf Hiton July 17. 1902, protesting Ruman-16 as a "madman." the veteran
ian persecution of Jews. He called Arizona Senator said, "As far as
it "repugnant to the moral sense of the Administration is concerned, it
liberal modern peoples" and an at- should sever diplomatic relations
tack on "the inherent right of man with Germany
as a breadwinner in the ways of
agriculture and trade." He said
Rumania was reducing the Jews to
a "state of wretched misery." However, Mr. Hay said that while Jewish
refugees would be welcomed here
when coming equipped to make
their living, such immigration would
not be acceptable or beneficial If
the refugees came as outcasts and
paupers thrown upon the generosity
of the country.
In 1911, a treaty with Russia was
abrogated because of the treatment
of Jews there,
McReynolds Protests
WASHINGTON, Nov. 15 (P),
Representative Sam D. McReynolds
Democrat, of Tennessee, chairman
of the House Foreign Affairs Committee. said today in a statement:
"Those of us who are exerting
BALTIMORE SUN - November 16, 1938.
41
ROOSEVELT
DENOUNCES
NAZIS
PRESIDENT SHOCKED
BY ATTACK ON JEWS
GIVES DEFENSE DOCTRINE
FOR ALL OF NEW WORLD
Points To Need Of Continental Solidarity,Among
United States, Canada And Twenty-One
Latin-American Republics
American Envoy To Berlin Not Expected To Return
To Post Soon - Wilson's Absence May Be
Regarded As Semi-Quarantine Against Reich
President's Statement
(Washington Bureau of The Sun)
Washington, Nov. 15-President Roosevelt statement
on thanpersecution of Jews in Germany follows:
deeply in Sueh
from Germany has
The shocked news of public the opinion last few days the United States.
news from any part of the world/would inevitably produeena similar profound reaction among American
peoplefin every part of the nation.
I myself could scareely believe that such things
could occur in a twentieth century civilization
42
With & View to gaining a first-band pieture alethe
situation in Germany, I asked the Secretary of State
to order our Ambassador in Berlin to return at once for
report and consultation.
the
Seeks Solidarity In Defense
But it is far too soon to assert that
the quarantine idea, first mentioned
by the President in connection with
Japan's conquest of China, is definitely
in the President's mind again.
What positively is in his mind; he
said candidly today, is a "solidarity
between all the nations of the Western
FEED
Hemisphere on the side of common
defense.
Washington, Nov. 15-In one breath today President Root
velt seathingly condemned Germany's maltreatment of Jew
He came to this at a moment when
correspondents were impatient to
leave the press conference room to
ish population.
flash his statement assailing Germany
These news writer paused, however,
when Mr. Roosevelt said that he would
In the next he outlined an American doctrine of national de
fense which he expanded to cover the entire Western Hemisphere
now take up the national defense
status.
The coincidence of these two utterances - equally sensational - has a significance that was well understood in every
quarter of Washington tonight.
Outlines Conclusions
All the correspondents expected
there he would merely refer to some
of the well-know phases of that problem but were startled as be proceeded
Shocked By Events In Germany
to outline the conclusions he and his
associates had reached.
Mr. Roosevelt made it plain that he was profoundly shocked
He talked in general terms for a
as are the American people generally by what is happening
in few minutes, as when he mentioned the
fact that world events and the scientifide advancement in the processes of
Germany.
And he made it equally plain that he is preparing to meet making
with had changed the position
of this country in relation to other
force with force if Germany or any other power turns resentful continents
From that observation he passed to
or covetous eyes toward the western Continents,
the need of continental solidarity of
His two utterances were reserved for today's press confer- the United States Canada and the
twenty-one Western republics, in conence. One followed quickly upon the heels of the other
sidering defense policies.
Says U. S. Fits In Program
Explains National Defense Program
He thought we should carry on the
continental solidarity worked out at
First he read aloud his brief but caustic statement in ex
the Buenos Aires Pan-American conference. It is, he said, a solidarity into
which the United States fits
planation of his summons home of Ambassador Hugh R. Wilson
from Berlin.
Then the President asked himself
Then, when he had discussed somewhat grimly the back. the question:
What is necessary to
maintain that solidarity?
ground of that incident, he launched into an exposition of his
national defense program as dealt, with at yesterday's White
House conference with his military legal and fin ficial adviser's
Right there Mr. Roosevelt explained
that by "continental" union, he meant
union of forces in the whole Western Hemisphere.
He said it was necessary for all
He did not discuss directly the plan of Ambassador Joseph Western interests to be prepared to
P. Kennedy, reported from London. for a amovement
Jewish refugees to this and other
western countries.
of
resist any possible attack from any
other continent
May Mean Temporary Break
It seemed to most of the writers that
Ambassador Wilson, will not return he was thinking of the penetration of
But he did say in that connection
that he would not recommend
soon to his post. He may remain here the American continents of Naziism,
lowering of the tramigration bars for
much Also he said the envoy had not point.
the benefit of sught refugées. He said
be would adhere to the quota system,
been "recalled" in a technical sense,
Looks To London Group
For the time being Mr Boorevelt,
said.othis country looks the In'
termational Refuge Committee sitting to London for some Medioration
the acute plight of German Jews
seeking elagwhere.
but had merely been orders : home for
consultation
This may, however, mean a tempo-
rary severance of diplomatic contact
with the German Government. There
were suggestions tonight that it may
even imply a "quarantine" or an effort
to quarantine Germany.
Next Week Cordell Hull, Secretary
of State, leaves as head of the Amer
added that as yes no protests lcan delegation to the Pan-American
had come from Americans who may conference at Lima, Peru. It is easy to
Injury, imprisonment or believe that he will i'sel out the Latin.
property during the recent American officials whom he will meet
there whether they will join the
upheaval against German Jews.
United States in such a move.
Safety For All Is Aim
He said safety for all was the aim
of the United States, which seemed to
mean that he had in mind a definite
military extension of the Monroe
Doctrine.
it was to discuss all this he said.
that he called in his advisers yesterday. He had called in many of them
everal times before, but there was
o
now in effect
indefinitely. The President said abut he said nothing directly on that
intimation then that he was think-
ng in terms of r-continental
afety in working out his defense
plans.
He said that this country was prepared to take steps with such resources
are now available to the end he
had in view and would call upon
Congress early in the year for other
resources.
is
43
was approaching the Munich agreeConfident of Cooperation
He said he had no thought there ment, this country. although deeply
were any defections on the part of concerned and uneasy, took the posiother Western governments. He tion that it was not involved.
Cannot Ignore Jewish Issue
seemed assured that all of them would
Just now, however. the Government
cooperate in the defense "dectrine"
of the United States
at least, feels that It is so closely tied
into the Jewish problem that it cannot
Again and again he referred to this isolate itself.
not a policy but as . doctrine. The o.her fact is that the President
A
word which all Eastern countries feels that rearmament must be carried
of course, know by heart.
out on a vast scale and that it should
Right there, he was asked If the include protection of the interests of
Philippines came within the purview all Western countries.
of his doctrine.
His answer was brief but pointed.
In that connection Mr. Roosevelt
Y.AS asked today if be had in mind a
He said that il American flag illifeet that would adequately safeguard
flies over the Philippines.
simultaneously both coasts.
Relations With Relch Acute
He paused for a moment before he
Two highly important facts were replied; then said, no. the cal4,2
made impressive by this press conDouble Purpose in Move
ference.
It is well understood that there was
The first is that American rela-a double purpose in the two uttertions with Germany are more acute stances of the White House today,
this moment than at any time since One was to warn Germany and give
the Armistice was signed.
notice to other powers of American
In earlier international controver-feeling and American determination
sies involving Germany. the United to safeguard herself and her neighbors.
States was severely aloof. That was The other was to Jet Congress have
true of the invasion of the Ruhr, the some idea this far in advance that it
occupation of the Rhineland
be called upon to back up the
They seemed to be distinctly Euro- will new "doctrine" by heavy expendipean problems. Even when Europe tures.
The only specific information the
President gave today regarding the
national defense program was his
statement that more aircraft was the
one urgent need of the moment.
Group Asks Economic Action
A delegation of churchmen and educators from nearby States presented a
petition calling for economic action
against Germany to James Clement
Dunn, political adviser in the State
Department.
Chairman McReynolds (Dem. Tenn.)
of the House Foreign Affairs Committee said in a statement:
"Those of us who are exerting every
effort toward bringing about conditions which will permit lasting peace
to be established throughout the
world can only hope that the expression of indignation on the part of
civilized man universally will bring
to a prompt halt a retrogression we
had hoped had died in the Dark Ages.
A nation-wide broadcast by Catholic
clergy and laymen was arranged for
tomorrow night, 9 to 9.30 o'clock.
Speakers will include former Gover-
nor Alfred E Smith in New York
and Archbishop John J. Mitty in San
Francisco.
44
NEW YORK TIMES - November 16, 1938.
The
WILSON TO DEPART
press declares that Mr. WII. thorities, to whom they must now
son is merely beginning a little ear- turn, will assign them to special
a trip that he
lier had planned since sections not of it the were called -which,
whether
ghetto,
one
in
effect.
Summer but had postponed because would still be a
of the recent European erisis, and
Many Businesses to Be Closed
FROM REICH TODAY the advance of his date of deparIt was likewise revealed today
ture is explained by Mr. Hull's de
that only about one-third of the
New York Times
sire to consult him before leaving
Nov. 25 for the Pan American Con- roughly
100,000
Jewish
businesswould
enterprises
in Great
Germany
U. S. Envoy Bids Ribbentrop ference in Lima, Peru.
be 'Aryanised' and the rest would
Farewell-Germans Insist
Despite this, there is some very be liquidated in order to contract
the somewhat inflated retail and
interesting speculation both in German and American quarters as to handleraft trades. This, on the one
His Trip Js 'Normal'
whether Mr. Wilson will come back hand, will release workers for
'more urgent national tasks, and
at all, and If so, how soon.
on the other will reduce the conNOV 16 1938
By OTTO D. TOLISCHUS Regarding
yesterday's British pro- sumption
goods of which Germany isof
short.
test against the newspaper Angriff's
Wireless to THE New YORK TIMES
Whether
"Aryanization"
liquiBERLIN, Nov. 15.-As a result of article linking Winston Churchill,
greater
Secretary of State Cordell Hull's Anthony Eden, Alfred Duff Cooper er dation in will
involvelossthe Jewish ownor
published instructions to Hugh R. and Clement R. Atlee with the mur- tance than the fact is that of less hundreds impor-
Wilson, the United States Ambas der of Ernat vom Rath, German of thousands will lose their livelisador, to go to Washington for re Embassy
Secretary
of- hood
support
and thus incidenBureau the
ficial German
Newsin Paris,
evict
tally or
themselves
today
port and consultation on the "cloud-Issue a communique saying that ter kind of homes that from they the may bet-
ed'' relations between the United this protest had been settled by an have had heretofore.
will
States and Germany, Mr. Wilson interview that Dr. Joseph Goebbels, At the same time, while Jews
announced today a change in his theBritish
Minister
of Propaganda,
gave tomans,
be strictly
segregated
from Gercorrespondent,
disapprovin every
other
original vacation plans and will nowing of such publication and promis- many shops and restaurants respect now and
leave Berlin tomorrow and sail ing a correction. But the British flaunt the sign 'Jews not wel-
the liner Manhattan from Havre authorities are by no means ready come, the newspaper Lokal-An-
to accept such a casual settlement. zeiger asserts tonight that Jews will
Jews and
will
haveshops
to trade
Today the Ambassador called on and further. the protest is being pressed befor
forbidden
to run
special
with
"the
German
merchant.
Foreign Minister Joachim von RibHitler to Speak Tomorrow
bentrop to say farewell and inform
Germany's final and most author Meanwhile the National Socialist
Thursday
him officially of the order for on-Itative answer to the foreign press continues to play up the at
sultation, while at the same time cries against her treatment of the leged vast riches of the Jews in
the Foreign Office received the cus-Jews, however, may come on Thurs. Germany and the official German
tomary note that Prentiss Gilbert day. when Chancellor Adolf Hitler News Bureau today states that in
would be Charge d'Affaires. is expected
to funeral
speak at
Herr Berlin,registration
revealed by
the property
Rath's State
in Duesseldorf
35,802
Jews posThe conversation between Herr he did at the State funeral of sessed 5,000 marks or more.
von Ribbentrop and Mr. Wilson'Wilbelm Gustloff, murdered Nazi In addition, it discloses. 125 Jews
lasted for about twenty minutes leader in Switzerland. had more than 1,000,000 marks, 37
than
and it is assumed that they went Herr
conferred
more
than 2,000,000.
17 1,000,000,
more
withHitler
District
Leadersyesterday
Adolf Wag3,000,000,
7 more than
8
over the points that have beclouded ner in Munich and Joseph Streicher more than 5,000,000 and 1 each
German-American relations, includ- In Nuremberg, and was on his way more than six, seven, eight, ten and
ing the anti-Jewish drive, which to Berlin tonight. twelve million
has not only wrecked American Meanwhile, the measures for the These wealthy Jews presumably
owned property and imposed dis complete
elimination
of the Jewswill be required to pay most of the
from
German
political,
abilities on Americans regarded as and cultural life proceed with murder of Herr fine von levied Rath and for
contrary to the German-American creasing rigor. the damages from the recent viotreaty of friendship and consular Although Dr. Goebbels has denied lence from a special tax or levy
relations, but by increasing the thattos.
Germany
to create
ghet-on
are
now
tenants
Jewish plans
being their fortunes.
stream of Jewish emigrés and refu- notified by their landlords that in- thse But fortune It is known represent that merely many the of
gees will also create a serious in- asmuch as many 'Aryan' familiescapitalization of earnings and that
ternational problem.
still lack homes, Jewish tenantswith the disappearance of earnings
Trip Held "Perfectly Normal" will have to vacate their homes soonthe fortunes likewise disappear.
and they are advised to look around In so far as they represent actual
On the other hand, It was empha-as soon as possible for a place tophysical
assets
andthey
the
underor securities,
control,
are firmly
sized in both embassy and German live.
official quarters that the Ambassa- German courts hold that land-banks refuse credit on them.
theJews to Get "Annulty
whoa dutynotto evict Jewish
dor's farewell call on Herr von Rib- tenants
lords have
Bonda"
do
bentrop preceding his lengthy G-German racial community belong to which Besides that, however, Economics
sence was entirely customary and duty supersedes all lease contracts Minister Walther Funk, in a speech
there was nothing unusual about it. This applies to cooperative apart-before German industrialists anForeign Office spokesmen especial- ment houses in which the tenant nounced tonight that all Jewish to
ly characterized Mr. Wilson's trip
owns
his of
apartment.
property
would
"transferred
The
question
where evicted
German
hands,be
that
is to say, exto headquarters as "perfectly nor- Jews are now going to live is stillpropriated in return for Indemnimai and without any sensational unclarified. Some suggest that theyFication in "annuity
which
meansbonds'
government
will
import."
be
sent
to
the
dark
ackyard presumably
The German press further under sections of tenements Some thatpaper.
Jewish property,
lines this view denouncing
they will beowned
quartered
Funk stated
that thethattotal
,registered
dwellings.In Jewish- Herr
by
the
"brazen attack of the International But this would leave them within't say, property above 5,000 marks,
well-poisoners to draw the strang-th "German housing community, 'amounted to 7,000,000,000 marks
est conclusions from the Ambassa and the final arrangement is ex-and that 2,000,000,000 of it had
dor's homeward trip.' pected to be that the housing au-ready been "Aryanized." Presus
is
5
ably the proceeds of this "Aryani-the Death Head Elite Guard unitister Walther Funk struck a warnzation' will be likewise expropriat-guarding the concentration camp ing note in a speech tonight, ased for similar indemnification where Jews are lodged, concludes serting that "the Jows cannot be
In any case, the Jews fully realize "Whoever wishes to know shall wholly eradicated from the life of
that the liquidation and levy entailknow that-If you like with 'sinister the State, but they can be made
such impoverishmen for them thatNetermination'-w will make use of to live and work in the economic
the continuation of cultural andthe hostages Jewry has furnished interest.
other organizations is out of theus according to the Jewish princi- The staff of the United States
question, and after the burning of ple an eye for an eye, a tooth for Consulate was almost at the end of
its endurance after five days of atthe synagogues even the continua-a tooth.
tion of religious life represents a "There exists only one right here temptingto solace frantle Jews who
problem, made more difficult byand that is our right, the right of sought comfort and safety near the
the fact that many rabbia are underour self-defense. And we alone shall American flag. The lines of Jews
determine when and how it is to be and others seeking Immigration
arrest.
visas or other help have often exIncidentally, not only synagoguesapplied.
tended far out into the street bebut also a mission house for Chris
tian Jews maintained by the Ger- Destruction Angers Goering fore the consulate Consulates of
man
Protestant
burned
down inChurch
Berlin has been BERLIN, Nov. 15 P.-Field Mar other likewise nations have been besieged
Although the number Jewish sul shal Hermann Goering was reported "I am through one consular
cides mounts and police blottersin reliable quarters tonight to have official said in despair as he
contain mainly Jewish names, thebeen in an angry mood when he emerged for lunch with several
official German News Bureau today.learned of the new wave of Nazi compatriots
issued a statement that in Berlinanti-Semitio violence, on the Just as I was leaving two
the total nuumber of daily suicidesgrounds that it severely folted the mothers plaintively held their
had not increased economic
Four-Year Plan he di-bables'For
upGod's
to me
sake give us visas
rects.
Press Flays Britain The Marshal, whose dozen we can find our husbands, they
The German press continues to-sitions include the Premiership of said. That was the final straw. It
day to flay both the United StatesPrussia and supreme dictatorship got me.
and Britain for the waves of indig-over foreign exchange and raw ma- Adding to the despair of some
nation aroused by the Germanterials, was reported to have given Jewish parents was their difficulty
measures, although for the momentstrict orders to cease property finding their sons. Under new
it is concentrating especially onstruction like that of last Thursday decrees, Jewish educational homes
Britain. The front pages of thewhen Jewish stores and synagogues been dissolved and boys in
newspapers and the Diplomatischethroughout Germany were damaged them
have
been taken away.
for
At
farm
the
experimental
Korrespondenz, organ of the For-and burned.
eign Office are being monopolized He was said also to have rebated Jewish boys
at Neuendorf, near
where
farming
with
the
German
counteroffensive.
those
responsible
for
damage
training
Berlin,
in
The Lokal-Anzeiger, for instance amounting to millions of dollars and gardening was offered. the endescribes in special articles on Brit-but the smashing of a laundry and tire student body of fifty was seized
ish measures in Palestine British& grocery near Tempelhof Airdrome sent to
frontier
fortifications
said
sources
colonial history generally under their Berlin last night indicated dis reliable
Men
of
high
standing
in the Gerheadline "Britain's Bloody Road toregard for his orders.
community-scientists, bankPower.' topping it off with a front- Marshat Goering has been admon-mai business men-reported that
page picture of Indian soldiers tiedishing the nation to save every they were being importuned for as
to the mouths of cannon for execu-scrap of paper, every sheet of sistance by Jewish friends, but that
tion in 1857. And the Stuttgartfoll, every meat bone, tooth they were unable to help.
Kurler reminds Britain that she toolube and potato peeling He now One new restrictive measure for
out the Jews- In 1290. finds last week's destruction was Jews came in the form of an order
But the harshest words are the worst setback his Four-Year) banks to permit Jews to withserved for those Germans who ,Plan for self-sufficiency has draw not more than 100 marks
approve and turn away from theceived since its inception.
day.
il-Jewish measures in diagust
became known that one
Wilson Sees Colleagues
The Schwarze Korps, organ of the A'mbassador Hugh R. Wilson wealthy Berlin Jew, the owner of a
drove
a
It
secret its front police, page devotes to them, the and whole though of ferred with several diplomatic col_department 1,000,000 store. marks had by been the Jaw- as
It denounces them as "miserable leagues today prior to his depart-nes community organization as his
cowards on whom a muzzle will? for the United States tomor- that part of the levy for last week's
now be put, It admits that they ow, and It was undertsood damages.
are present "In every butcher shop one possible solution of the Jewish
at every newspaper stand and problem under consideration was Wireless to THE New YORK
TIMES.
every cafe.' that some former German colony MUNICH, Nov. -The bodies of
The only proper way of treating now under mandate to another three Jews arrested in the general
them. says this police organ, is to power
be opened for a mass Jewish round-up last week were returned
hold "a well-built fist under their emigration
informed to their relatives today for burial.
Official Next
nose.
The
spokesmen.
organ.
The
fate
of
the
others
is
unknown
of a reported plan to move most of but reports indicate that the mawhich also represents Germany's
600,000
remaining Jews jorityare in the concentration camp
to new lands,
commented:
at Dachau,
"Fine. let them get on with
The only Jewish bank in Munich
The more the better.
that of H. Aufhaeuser which was
Marshal
In connection with
placed under a Nazi commissioner
Goering's ,stand, Economics Minlast Thursday has now been
'Aryanized and will reopen next
It.
Thursday under the name of Seller
& Co. Herr Seiler is a partner in
the Hamburg bank of Thompson &
Co. and is well known in London
and New York banking circles
Martin Aufhaeuser, senior partner in the Munich firm, has been
released from Dachau-the first
Jew recently arrested here who has
been allowed to return home.
Draft of a telegram sent to Mrs. Roosevelt by the
Secretary from his home, the evening of Wedneslay, Nov. 16th,19
Mrs Franklin II. Roosevelt
20 East
u. y City
forthat
one
nickel
I had not known
I learned a lot A by
reading Kint Kitner
and alsoh's article
in this weeks
Saturday evening
host Stiff Suggest
you che also Best, invest
H, Regards
M, Jr a
47
November 16. 1938
To:
The Secretary
From
Mr. Hanos
I attach hereto telegram from James Could which is self-explane
tory. The glove merchants maintain that they are the only ones in
the United States affected adversely by this rule due to the fast that
these gloves were purchased last June-July by the deposit of irrevenable
letters of credit making cancellation of the orders impossible. I
feel that if after investigation we find that they are the only people
affected that we should explore the possibility of getting Herman
Oliphant to find some way of granting relief to these people who are
suffering a great loss through no fault of their own.
JWH: Ce
oug to Seciy - pouch11/18/38
File
THE FIRST BOSTON CORPORATION
ALLAN M. POPE
ONE HUNDRED BROADWAY
PRESIDENT
NEW YORK
November 16, 1938.
My dear Mr. Secretary:We were very glad to have
the pleasure of having Mr. Henry Murphy of your
Division of Research and Statistics with us during
the day recently. I think that he rather enjoyed
himself in going over the charts which we were
very glad to explain to him, and I trust that the
time he spent with us may be of help both to him-
self and to your office.
If at any time in the near future or just
prior to a new issue you would like to have some
one in your office check these charts we should
be very glad to make them available.
Very sincerely yours,
alean Sin
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
48
TREASURY DEPARTMENT
49
INTER OFFICE COMMUNICATION
DATE
November 16, 1938
TO
FROM
Secretary Morgenthau
Herman Oliphant
For your information
Five years and eight months in Washington and my first invitation from Corcoran. He asked me to lunch today to recite some ancient
history. It was how that gold opinion got into the Herald Tribune five
years ago.
The bare outline of Tom's recital was that Lew Douglas was
heading the fight against you and the gold movement; that Acheson had
asked one of Tom's boys, Watson, for a legal memorandum on the Reed-Oliphant
proposal. Tom doubted Acheson ever saw this memorandum, but said Lew
Douglas sent Elliott Thurston (who had long had such a free run of the
whole Treasury that he was looked upon as the Treasury's unofficial Gaston)
down to Tom's office to learn what the fight was all about. Tom said
Thurston told him this and also falsely represented that the difference
between you and Acheson had been patched up, and it was Thurston's job to
work out a plan in terms of which Acheson could back up. Tom said he
turned Thurston over to Watson, and that Thurston wheedled a copy of the
memorandum out of Watson, and then covered up his tracks by having it
published through Ernest Lindley, who also was on the Herald Tribune.
Tom said that, to protect Watson, he had kept quiet ever since, thinking
that the truth was so improbable that no one would believe it.
That is the outline of Tom's story, although there were a lot of
other details, such as Brandeis' part in the gold fight.
Incidentally, Tom recited his and Ben's conversation after they
left your house recently. What he said they said about you would sound
extravagant if I repeated it.
All of which for whatever it may be worth.
to
50
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
H4
November 17, 1938
TO
FROM
Secretary Morgenthau
Herman Oliphant
For your information
Jackson and I met Johnson in his office. Jackson opened by
saying that the three of us should be sure we understood each other, and
understood alike what the President desired.
He then referred to the earlier study being carried on by
Morris of Justice, with the cooperation of Army, Navy, Agriculture and
Peoples for the Treasury. That study considered what we would do, if a
European war broke out, to prevent the dislocation of our economy. Jackson
said he understood the present study was entirely distinct from this
earlier one. Johnson said he agreed emphatically that the two studies
should not be confused, and those working on the older one should not
participate in this one. He said he understood the very purpose of the
President's suggestion that he work with Jackson and me was to avoid the
delays and opposition which would come if the problem was handled between
the Judge Advocate's office and the routine technicians of the Army and
Navy.
The conference ended with an agreement that Johnson would have
prepared immediately a descriptive statement of just what he would like
the law to be in order to get lots of good production quickly if he
could have a completely free hand and could write his own ticket. This
he is to give to us to work on in order to iron out difficulties with
reference to competitive bidding, excessive prices and patent restrictions.
There was agreement that the problem of securing acceptable designs or
models was distinct from the problem of quantity production and should be
so treated.
Jackson and I had lunch together over the problem and began
to canvass some of the difficulties. He is to put his best man, Paul
Freund, to work on the job with my man, Oscar Cox.
HO
51
NOV 17 1938
cretary Morgenthau:
For your information.
HO
a
52
GENERAL COUNSEL
TREASURY DEPARTMENT
WASHINGTON
At
C
0
P
November 16, 1938
Y
Memorandum to Solicitor General Jackson
Pursuant to your suggestion that I carry on, I had a conference today with Col. James H. Burns of the Army and Capt. Sydney
M. Kraus, designated to represent the Navy, for the purpose of con-
tinuing a discussion of the general objectives of the proposed
legislation.
Their thought, however, at the beginning of the conference,
was that the committee of four designated by the President should turn
the whole matter over to a subcommittee of technicians of the Army
and Navy Departments, the committee of four later reviewing whatever
the subcommittee might present. On further discussion, it was agreed
that the work should begin with the formulation of a statement of the
general objectives by the committee of four. They undertook to prepare
a first draft of such a statement for consideration by the committee
of four.
(Initialed) 10
Hon. Robert H. Jackson
Solicitor General
Department of Justice
Washington, D. C.
53
November 16, 1938
W
My dear Mr. Secretary:
I beg to acknowledge receipt of your letter of
the
copyofa
describing
November 15th with
inclosed
mémorandum
of a conversation between the British Ambassador and Assistant
Secretary of State Sayre.
You say in this letter: "I understand that this
action runs completely in accord with Treasury interest."
November
Late Tuesday afternoon, September 15th, I called
Mr. Sayre, having a copy of his memorandum before me
which he had furnished Mr. I read to him
the
following sentence from his memorandum:
"After telling the Ambassador of
the President's anxiety, I suggested
that he might want to cable at once
to London to see if steps could not
be taken to sustain the pount, particularly during the coming few days."
level explained to Mr. Sayre that our interest in
the + enfine to the
that also
few days were concerned, but we were vitally interested
the Pound was no more on/no less as for asethe next
in what might happen to the Pound after the Trade
Treaty and between the United States and Great Britain
was signed.
N
-2-
Dexplained to living
alsorphist
with
We have postponeddiscussing
talking w the British
Treasury in regard to our grave concern in connection
with the continued fall of the Pound until after the
Trade Treaty has been signed/as we did not in any way
wish to introduce an element which might be controversial.
However, if after the signing of the
Treaty the Pound should continue to fall
I
question with
abses
mild wish todiscuss
talk to athis
representative
of the British
possible
Treasury at the earliest moment.
Sincerely yours,
The Honorable
The Secretary of State.
54
draft
declated
by Hon
November 16, 1938
My dear Mr. Secretary:
I beg to acknowledge receipt of your letter of
November 15th with inclosed memorandum of a conversa-
tion between the British Ambassador and Assistant
Secretary of State Sayre.
You say in this letter: "I understand that this
action runs completely in accord with Treasury interest."
Late Tuesday afternoon, September 15th, I called
Mr. Sayre, having a copy of his memorandum before me
which he had furnished Mr. Taylor. I read to him the
following sentence from his memorandum:
"After telling the Ambassador of
the President's anxiety, I suggested
that he might want to cable at once
to London to see if steps could not
be taken to sustain the pount, particularly during the coming few days."
I explained to Mr. Sayre that our interest in
the Pound was no more or no less as far as the next
few days were concerned, but we were vitally interested
would
in what should happen to the Pound after the Trade
Treaty but between the United States and Great Britain
was signed.
55
58
-2-
We have postponed talking to the British
Treasury in regard to our grave concern in connection
with the continued fall of the Pound until after the
Trade Treaty had been signed as we did not in any way
wish to introduce an element which might be controversial.
However, if after the signing of the
Treaty the Pound should continue to fall rapidly,
I will wish to talk to a representative of the British
Treasury at the earliest moment.
Sincerely yours,
The Honorable
The Secretary of State.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
AA
57
DATE November 16, 1938
To
FROM
Secretary Morgenthau
A. Lochhead
Knoke, of the Federal Reserve Bank, informed me that he had
today telephoned to Bolton at the Bank of England and referred to
their telephone conversation of November 15. Knoke told Bolton that he
personally thought that if the British were thinking of putting in some
forms of restrictions, in connection with exchange, that it would be a
good idea for the British Treasury to get in touch direct with the
American Treasury. Bolton intimated that his reference regarding possible
restrictions was something that had only been discussed in the Bank of
England and had not gone as far as the British Treasury yet.
Knoke also gave Bolton as his personal opinion that if after
the signing of the trade treaty the pound sterling declined sharply
that it would look very bad on this side, and thought that the Bank of
England should keep this very much in mind. Bolton did not give any
intimation as to his reaction to this comment.
58
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 16, 1938, 11 a.m.
NO.: 1929
CONFIDENTIAL.
During the past two days I have had talks with a
number of well-informed people about the situation created
by the decree laws issued by Reynaud. The following is
my information in the matter:
In the main, conservative banking and business people
are sympathetic, despite the fear that taxes will be higher,
and they hope the plan will work. There is of course enthusiasm on the part of stock market operators. There is
skepticism, disappointment or open opposition in practically
all other sections of the population. There is a feeling
on the part of the working classes, organized labor, the
small Bourgeoisie, that they have been sacrificed to the
interests controlling the money. There is a widespread
feeling - though it is perhaps unfair - that the plan does
not have imagination and that it is mediocre. It was said
by one critic that the plan was the work of the old group
of experts at the Ministry of Finance who have not learned
anything the past decade, and that Cheron or Laval when
Minister of Finance used to hand out the same sort of thing;
he said that since that time there had been a change in
the world.
There is a particular unfavorable reaction in
political
59
-2political circles; the Socialists have been driven into the
opposition with the Communists, and leaders of the Socialist
party tell me that they are greatly disappointed in the
program. It was not their wish to come out in opposition
to Reynaud, who in the past has favored an enlarged government with the Socialists taking part, and who has advocated
a foreign policy which they like much better than that of
Bonnet. It has been found necessary, however, that they
oppose the heavy increases in indirect taxation, and the
sarcastic reference by Reynaud to the "week of two Sundays"
has angered them. It is apparent that several Radical
Socialist deputies are in opposition to the decrees;
many deputies of the Center and Right who have no con-
fidence in Reynaud and who dislike the higher direct
taxes express open dissatisfaction. There are some
factors which, if the political situation would allow
enough time for them to develop, would seem to favor the
success of the plan. In as much as the franc is undervalued in world markets, the plan rests on a satisfactory
monetary basis. Moreover, improvement of business in
other countries, notably the United States, ought to be
of some assistance. There are, however, as against these,
a number of definitely unfavorable factors which one can
well
60
-3-
well illustrate by a comparison of the situation at the
present time with the one in existence under Poincare in
1926. The devastated regions had been rebuilt at that
time and France was equipped with a modern industrial
plant. Today it is doubtful whether the physical equipment
is sufficient to produce the necessary increased output,
as since that time French industry, relying on exaggerated
protection of high quotas and tariffs, has steadily
deteriorated. Moreover, the existing political situation
compares very unfavorably with that in existence in 1926.
WILSON
CSB
EA:MEG
C1 e(e)
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 16, 1938.
FFICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
SUBJECT:
TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
I called Mr. Bolton at 11:30 this morning and explained
that I wanted to talk to him entirely off the record and leave these
two thoughts with him: firstly, he had mentioned to me very confiden-
tially yesterday that they were discussing certain restrictions and
that one or two restrictive measures would probably be adopted shortly.
Might I not point out to him how very helpful it would be if he would
get his Treasury to drop a hint of these measures to Mr. Butterworth
in London or else to send Mr. Bewly to see our Treasury people in
Washington in that connection before it was put through rather than
after it was an accomplished fact. This it seemed to me was simply
in line with the spirit of the Tripertite understanding which seemed
to call for just that kind of discussion. Secondly, would he please
try to vizualize what the effect would be on our people if the British
would let the sterling rate break the moment the trade treaty was
signed tomorrow. In my opinion that
would be a most undesirable development and the effect of that on our
people, to say the least, most unfortunate. I strongly emphasized
that both these thoughts were my personal thoughts, that I was speak-
ing to him off the record and that I simply wanted him to let these
two thoughts go through his mind.
Mr. Bolton replied that as far as the first thought was
concerned, he might have mislead me yesterday by not making it suf-
ficiently clear that these were thoughts which hadn't gone outside
of his room and had not as yet been approved by the Treasury people.
82
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE November 16, 1938.
CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
L. W. Knoke
2
At any rate what they had in mind were not legal powers that they
might seek. Nevertheless, he continued, he appreciated what I had
said on both scores, would give it most careful thought and keep me
posted as to further developments. Just how the announcement of the
signature of the treaty would be received by the markets he had no
idea. A week ago it would most probably have helped sterling con-
siderably. In the light of the latest developments, however, it was
quite possible that the effect of it would be lost.
He had done nothing more today in the market in addition
to the sale of $6,000,000 which he had mentioned in his cable this
morning. The situation was practically unchangeds they were still
called upon to supply gold to the market and there wasn't the
slightest hope of getting anything back from the market. As far as
the franc situation was concerned, there was no deterioration in
that picture and everybody seemed to prefer to wait until the
Chamberlain-Halifax meeting with Daladier, scheduled for a week from
today, had taken place.
LWK:KW
1(f)
03
FEDERAL RESERVE BANK
OF NEW YORK
DATE November 16, 1938.
FICE CORRESPONDENCE
CONFIDENTIAL FILES
SUBJECT
L. W. Knoke
TELEPHONE CONVERSATION WITH
BANK OF FRANCE.
I called Mr. Cariguel at 12:20 today. They were doing
pretty well under the circumstances, he said, and were so far
satisfied but the present political situation didn't appear to be
good. On Monday they had had a very good day, yesterday a good one,
and today he had bought a small amount in excess of his sales. He
agreed with me that Reynaud's program as published so far seemed to
be a good one and that above everything else Reynaud was probably
the best Minister of Finance France had had in a number of years.
It remained, however, to be seen whether he would get parliamentary
support for his plans when the Chamber met on December 6. Mean-
while we would have to bide our time.
Sterling, he thought, was rather weak again today. WAS
you know they are doing their very best to hold it."
LWK:KW
84
November 16, 1938.
11:30 a.m.
HMJr:
Hello.
Merriam:
Good morning, Mr. Secretary.
HMJr:
Hello Professor Merriam, how are you?
M:
I was just writing you a note. I waited until I
Professor
got back to Chicago to look up that matter you
were talking to me over the phone about.
HMJr:
M:
Yes. Yes.
The man that I had in mind, particularly, comes
up now pertaining to the milk producers.
HMJr:
Yes.
M:
George I. Hakes
HMJr:
Why?
M:
Well he's got to be the defense and offense too.
HMJr:
Oh! Oh!
M:
He's attorney against the Government and this
so he's out of it.
HMJr:
indictment on the milk producers trust.
Oh, oh, on the big thing?
M:
Yes.
HMJr:
Oh, I thought you were thinking in terms of Chicago.
I - you mean the thing that broke out in the paper
today?
M:
Yes.
HMJr:
I get you.
M:
Yes.
HMJr:
M:
All right. Who else have you got?
Well now, the best men, there's no use giving them
to you, they're tied up, I don't think you'd want
to use them, like Frank Bush, former corporation
counsel, good Democrat, Floyd Thompson, formerly
on the Illinois Supreme Court, Democrat, but they're
both, while they're cold to the Government,
C5
-2-
HMJr:
and they're - Administration, and they are tied
up with all kinds of special interests.
Does it have to be a resident of Chicago?
M:
Well, if it's going to be a jury trial it would
HMJr:
I see.
M:
Now here's a suggestion.
HMJr:
Yes.
M:
Of a man named Bowden.
HMJr:
Wait a minute. B -
M:
Bow - Bow
HMJr:
Yes.
M:
-den. Bowden.
HMJr:
Yes, I got it.
M:
George. First name is George.
HMJr:
Yes.
M:
His middle name is K.
HMJr:
K.
M:
Yes.
HMJr:
M:
almost have to be.
K like in "kitty"?
K as in "kitty".
HMJr:
Yes.
M:
He's a prominent member of the Lawyers' Guild.
HMJr:
Yes.
M:
He is likely to be their next President, I've heard.
HMJr:
Yes.
66
-3M:
And he has been - he is an honor man in the Law
HMJr:
Yes.
M:
Has made quite a little money and perhaps would
School, about forty years old.
like to - might be a man you could use.
HMJr:
M:
Uhhuh.
He has been, however, a sort of a braintruster
in a quiet way for Igoe.
HMJr:
Well, that's just what I wouldn't want then.
M:
Well, but if he's all right.
HMJr:
No.
M:
He might give you a brushorer.
HMJr:
M:
No. Anybody that's with Igoe I don't want.
Well, he's the only -
HMJr:
No. No.
M:
He's just on his staff you know.
HMJr:
M:
Well, of course with the change that took place
yesterday, things may be easier for us now.
Yes. Of course, I thought - I always thought
fairly well of Igoe in certain lines of cases.
HMJr:
No.
M:
Except where he touched certain matters.
HMJr:
No.
M:
But you have your own -
HMJr:
No. No. Well, do a little more thinking, will you?
M:
Yes, I'm going down town now to talk to some one
HMJr:
or two people. Hello.
I want incipient Dewey.
67
-4.
M:
Yes. I'm not so sure but this fellow Bowden
might be your man.
HMJr:
M:
HMJr:
Not if he's a friend of Igoe.
Well. I'll - I am going down town
There's no hurry. There's no hurry. When you
come back to Washington will be time enough.
M:
HMJr:
M:
HMJr:
Oh there's no hurry. Oh, I thoughtyou - matter of days.
No, no, no. We've got plenty of time.
Oh well then, I'11 take my time, then.
No, we've got plenty of time.
M:
All right.
HMJr:
Thank you 80 much.
M:
Thank you.
88
November 16, 1938.
1:02 p.m.
HMJr:
Hello.
Operator:
Secretary Hull calling.
HMJr:
Thank you.
Secy.
Hull's Op:
Yes.
HMJr:
Secy.
Hello.
Hull's Op:
Hello, Mr. Secretary. Yes, sir.
Cordell
Hull:
Hello, Henry?
HMJr:
Hello Cordell.
H:
What sort of humor are you in?
HMJr:
I?
H:
Yes.
HMJr:
When you call me, always a good humor.
H:
Well, I used to, when I held court, I imposed
very severe fines and sometimes I was criticized
for being too severe.
What are you going to do now?
HMJr:
Yes.
H:
I-
HMJr:
Commit me to life imprisonment?
H:
Back about a year ago, there was a British ship
known as the Tayback.
HMJr:
Yes.
H:
Which had an opium case.
HMJr:
Yes.
H:
And the Department of Justice and the British the British interests entered into an adjustment
at $25,000.
HMJr:
Yes.
89
-2H:
Now, there's some - still some kind of misunderstanding or something.
HMJr:
Yes.
H:
The Treasury accepted - they received and cashed
a check, I suppose it must have been through some
kind of inadvertence. Anyhow, the British
Ambassador is awfully worried because it's - he's
fixing to leave - he feels that this is a meritorious
proposition,
closed out. but he's awfully anxious to get this
HMJr:
H:
HMJr:
H:
What are we doing, hold - asking them to pay twice?
You people are holding up for the original amount
of the fine instead of the adjusted amount. That
was entered into between the Department of Justice
and - for some - in some way the Treasury received
the check for $25,000.
And we cashed it?
Yes. Now, that's - the point about that 18 it's a
little hard to - the British Ambassador to explain
to his Government or for us to explain to him.
HMJr:
H:
Yes.
little, little bit of tendency toward
hard feelings, and I don't know what you can do
consistently, but if you could see your way clear
to clear that up while we're signing the British
Trade Agreement and the Canadian Trade Agreement
tomorrow, it would - I think it would be worth
considering.
HMJr:
I'11 do the best I can.
H:
All right, Henry. Thank you.
HMJr:
I'll call you back.
70
November 16, 1938.
1:06 p.m.
HMJr:
Dr.
Bowman:
Hello.
HMJr:
Dr. Bowman?
B:
Yes.
HMJr:
Henry Morgenthau, Jr.
B:
Yes Mr. Morgenthau.
HMJr:
I hope I haven't disturbed you at lunch?
B:
No,
call.I came home a little early expecting your
HMJr:
Oh! Dr. Bowman, in talking with the President
this morning, he was talking about the former
Yes.
German colony known as the Kemorum.
B:
HMJr:
Yes.
Cameroon
In connection with the possible land for political
refugees from Europe.
B:
Yes.
HMJr:
Now, I've got your book that you've written and I
wanted to come to you -
B:
HMJr:
I can not quite hear you.
I want to get somebody to help me in going into
the economic geography of these - this particular
colony and any other colony that might be used
for that purpose.
B:
Yes.
HMJr:
And who can I get to help me?
B:
HMJr:
Well, is it Africa primarily?
Well, it's any place that offers a possibility
for these refugees to go and settle and make a
decent livelihood.
-2B:
71
Yes. I think you know of the exchange of letters
between President Roosevelt and myself.
HMJr:
No, I don't.
B:
Well, he asked me about the claims of the Orinoco.
HMJr:
No, he didn't, no.
HMJr:
I sent him a two thousand word letter summarizing
about twenty or twenty five books and articles,
and the report 18 unfavorable there.
Well -
B:
But he returned
B:
with the request, of course and
no need to say to you that it's confidential. He
didn't 80 label it but he said it was a personal
inquiry because he was just looking around the
map at the present time.
HMJr:
Well, the point was, I -
B:
He wanted to know whether Columbia and Western
Venezuela had any possibilities outside the grass
lands of Venezuela.
HMJr:
B:
Yes.
I'm sending him within the next few days a large
map about fourteen by ten upon which I will have
indicated all the land in Northern South America
that has capacity for settlement, and summary
statements pasted on the map which indicate what
the advantages and disadvantages may be.
HMJr:
B:
This is in South America?
That's in Northern South America.
B:
Well, you see, but Now in direct answer to the question that you have
asked about Africa, there is a man at the University
of California, whose name is Karl Delzer.
HMJr:
Karl.
B:
Delzer.
HMJr:
72
-3HMJr:
Delzer, yes.
B:
Karl.
HMJr:
Yes.
B:
And he can be addressed simply, "Department of
Geography, University of California, Berkeley,
California.
B:
Of Berkeley, California?
Yes. Now, he helped me in that book of mine
HMJr:
Yes, which I have.
B:
Now, he wrote the section on
HMJr:
I see.
B:
And he's a German.
HMJr:
Yes.
B:
He's not a Jew.
HMJr:
Yes.
B:
But he decided to come to this country not liking
HMJr:
entitled "Limits of Land Settlement".
in Asia.
the prospects.
HMJr:
B:
HMJr:
B:
HMJr:
B:
Not liking the His family is still living in Germany, and it is if he were connected with it in any way, I'm quite
sure that he'd have to be reassured in advance that
his part in it would be entirely unknown.
Oh!
For the protection of his family. You see?
Isn't there anybody else that could I was going to suggest that if you wanted to have
the advantage of his -of his knowledge, and of
course his command of languages, and his quick
facility in getting at everything, he's a well
trained man that I've tried out/Know intimately.
HMJr:
Yes.
73
-4And if you wanted that, you could - you could
B:
HMJr:
deal with him through me.
I see.
B:
And I would be your buffer. I would be his buffer
HMJr:
Well, I'm doing it first for the President and
in other words.
second on account of my own personal interest,
see? Hello.
B:
HMJr:
Yes.
And as I say, the President - I was talking to him
this morning, I raised the question about the
French, English and Dutch Guineas, and - Hello.
B:
HMJr:
Yes.
And - because a man by the name of, oh I forget
the man's name, but, what is his name, was
written - who wrote a lot about the
you see?
B:
HMJr:
B:
HMJr:
Yes.
Wrote this letter tying us up with the - with our
war debt.
Oh, yes.
And the possibility of settling some of the war
debt and taking colonies.
B:
Yes.
HMJr:
See?
B:
Yes.
HMJr:
So that's why I'm in on it.
B:
Oh, yes.
HMJr:
Now, when I mentioned these other countries the
B:
President oh, no, from a standpoint of future,
you can't do anything with those countries because
there's too much fever and so forth and 80 on.
Yes.
74
-5HMJr:
But I don't know whether that's right or not.
He seemed to be quite positive about it.
B:
Yes.
HMJr:
Then he said, "Why don't you look at the Kameruns,
and - because both England and France own those.
B:
Yes.
HMJr:
In other words, what I was trying to explore for
him was some colony that belonged to a country
who owed us some money.
B:
That's right.
HMJr:
You see?
B:
HMJr:
B:
HMJr:
In other words forgive them for part of
the obligation if they '11 take part of this job.
Exactly.
Yes. That's a good idea.
Now, it was new to me, and Mr. Bell here in the
Treasury, 18 very much interested in that. I
wondered if it couldn't, we couldn't explore at
first from that standpoint, no matter where
England or France or any of the Allies had a
colony.
B:
Yes.
HMJr:
HMJr:
Let's see if they're any good.
Oh, that's grand. That's a good idea.
Is that new to you?
B:
Yes.
HMJr:
Well that was new to me.
B:
Yes.
HMJr:
Compton D. McQuire is the man.
B:
Yes.
B:
-6
HMJr:
B:
75
You know he wrote the first book on the war debt,
about the idea that we never would collect them
or should collect them.
That's right. I've met him sometime, I think he
came up to talk on foreign relations when I was
in New York.
HMJr:
Well, he gave the first talk that was ever given
on the foreign relations.
B:
I see.
HMJr:
And this is his idea. Now if you'd be willing to
explore it from that angle and then 1f we'could get
together somewhere I'd be glad to come over, or if
you happen to be coming here, we could meet here.
B:
HMJr:
B:
HMJr:
B:
Well, that's fine.
But I'd like to do it fairly promptly.
Yes.
Yes. Well, now While the subject is in the minds of the people,
before it cools Suppose I wire for this man Delzer to come on, and
see whether - see whether he'd be willing to come
and do some work here.
HMJr:
Well, that would be wonderful.
B:
How would I - how would I cover his expenses?
HMJr:
B:
HMJr:
I can let you know this afternoon. I'11 ask the
President.
All right.
I'll ask the President and I'll call you back. I'm
going over there at two. That's why I was 80
anxious to speak to you.
B:
Yes.
HMJr:
And I'll - I'11 find out from the President how
B:
we can do that.
Yes. That'11 be fine. Now -
76
-7HMJr:
B:
But I thought if we could examine all of those
colonies first.
Yes. All right. I could put him right on to that
and his command of languages is such that he can do
a splendid job in very short order if we had him
here.
HMJr:
Is he one of those refugee professors?
B:
No.
HMJr:
He's not.
B:
He's a young fellow. He took his training in - in
the University of California - a fellow
who is of German origin.
HMJr:
B:
Yes.
And Delzer married an American girl and has taken
out his papers and 18 an American citizen.
HMJr:
Oh!
B:
But all this has happened just within the past few
years.
HMJr:
B:
Oh, yes.
Now he's lying very low. He is never getting into
anything, he's never doing anything that in any
way will disturb his people.
HMJr:
Uhhuh.
B:
But I could ask him to come on, and do a piece of
work for me, and we never need mention the word
refugee.
HMJr:
B:
Yes. How is he on I can just call him along and say, "Look here, # I
want to know about Germany's foreign colonies.
HMJr:
Yes.
B:
Information on population capacity.
77
-8HMJr:
Yes.
B:
See?
HMJr:
B:
HMJr:
I get you. Did you say he is anti-Nazi?
Oh, quite definitely.
Quite definitely.
B:
Oh, yes. There's no question about that, and he's
not in any least degree a Jew.
HMJr:
Uhhuh.
B:
He's just a thorough going liberal German of the
1848 vintage.
HMJr:
BP
HMJr:
B:
HMJr:
B:
Well, he - in other words he's a Karl Schultz.
Yes. Yes. Exactly. He's a Karl Schultz.
Well, I think he'd be ideal.
And he's not a man who - who is interested in
anything politically, you see?
Yes.
He's a student, but he did a magnificent job for
in Asia thing and 18 editing
me on that
the other papers in that volume.
HMJr:
Well.
B:
He did the checking up and everything.
HMJr:
Well, I'm keenly interested in this myself, and as
soon as you have something I'd love to sit down
with you, and I'm going to suggest this to the
President he give you an evening.
B:
HMJr:
B:
Yes.
Where the three of us could sit down.
That would be best. Now, when you work around to
that question why don't you - why don't you touch
the edge of that South American thing and then let
him speak.
78
-9HMJr:
B:
Do what?
Why don't you talk South America a little bit and
get him to mention the fact that he's asked me
these questions?
HMJr:
Right.
B:
And without telling him that you know, would you?
HMJr:
Yes. I see.
B:
HMJr:
B:
I've kept it strictly confidential though he didn't
ask that, you see?
Well, it shows that the President and I are both got good ideas to go to the same man.
(laughter) Well that's awfully nice of you
Mr. Morgenthau.
B:
All right.
I'll do anything for you.
HMJr:
Thank you.
B:
For you personally and because of your old man.
HMJr:
So do I.
B:
Good. So, I'm getting that Northern South America
HMJr:
HMJr:
B:
I like him.
stuff within a few days.
All right.
And if you'll - if you'll give me the word.
HMJr:
Fine.
B:
I'11 see what I can do with Delzer and if I can't
get him, I'11 get somebody else.
B:
I'll let you know tonight.
All right. Fine.
HMJr:
Thank you.
B:
Goodbye.
HMJr:
79
COMPERANCE WITH THE PRESIDENT ON NOVEMBER 16, 1938,
REGARDING TAX PROGRAM TO BE SURMITTED TO THE NEXT CONGRESS
Those present besides the President were Secretary Morgenthan,
Under Secretary Hames and Mr. Bell,
Mr. Hanes started the conversation by telling the President that in
order to work out a definite program the Treasury would have to know how
such revenue the President wanted to raise. He said that to get 2 billion
dollars additional revenue 11 would be necessary to go deeply into the tax
structure of the country. Some of the taxes might have an adverse effect
on business conditions. He explained that the estimated revenue amounting
to 5 billion dollars, was based on a national income of 60 billion dollars.
He is inclined to believe that these estimates are conservative and that
in all probability the national income will be in excess of that figure.
in which case we should get more revenue than now estimated. He explained
to the President also that there were other indices, such as the price
level and the Federal Reserve Board index of production, which are factors
in these estimates.
The President asked the question as to how such revenue would the
Treasury get if the national income should go to 70 billion dollars. Mr.
Hanes said that it was his opinion that 11 would amount to approximately
5 billion, 600 million dollars. exclusive of Social Security taxes, and
that if you add the latter you should get around 6 billion, 700 million
dollars.
The President then said that he thought that we sight make two kinds
of estimates: one for current revenue on the basis of 60 billion dollars
national income. which on the basis of the present tax rates would amount
80
to 5 billion dollars. Assume then that we would have expenditures on
ordinary account of 7 billion dollars and on account of relief of 1
billion 500 million dollars, which would result in a a) billion dollar
deficit. The President said then to make another estimate of revenue
based on new taxes to be levied, say up to 2 billion dollars. This would
reduce the deficit to 1) billion dollars. We could then state in our
budget message that if the national income increases to 70 billion dollars,
we should get additional revenue of approximately 1 billion 700 million
dollars. which would give more than a balanced budget in 1941. These
estimates of expenditures de not include any amount for debt retirement.
The President then asked mo to give him rough figures of 1940 estinates of expenditures. I had NO estimates with me so the figures in the
first column below represent rough figures which I stimitted from memory
and the second column shows the figures that should have been givens
Bough Estimates
Figures should
have been
M
Regular Departments
780
National defense
Veterans' Administration
AAA (Inc. Farm Tenancy)
$
1,000
1,155
550
546
650
850
500
649
-
General Public Works
U. S. Maritine Commission
Interest
Social Security and Railroad Retirement
PWA (lag)
Emergency Public Works (1ag)
Miscellaneous
Total
300
135
1,025
1,030
875
943
-780)
800
)
CCC
795
333
300
200
$ 6,400
$ 7,426
81
The President then said to assume that the total
regular expenditures as given above for 1940 should
M
8 6,700
amount to as much as
1,000
add for WPA. which he thought was very low, another
800
and then add for national defense
8,200
making a total of
deducting from this figure the official revenue estiM
mate of
5,000
and then add new taxes of
2,000
we got total revenue of
leaving a deficit of
7,000
$ 1,200
Then we could say that if the national income should 8 to 70 billion
dollars, instead of getting 5 billion dollars in revenue as the present estimates indicate, we would get 6 billion. 700 million dollars. which with
the new revenue to be raised would make 8 billion. 700 million dollars
revenue, leaving no deficit. This would give us a balanced budget and
500 million dollars for debt retirement.
Mr. Names then went over his statement of possible new sourees of
revenue with the President, showing that by increasing the rates set out
on this statement and making other changes in the tax structure, as such
as he could get in the form of new revenue for a full fiscal year's openation under a new revenue act embodying these suggestions would be 1
billion 000 million dollars based upon the current indices used by the
Treasury in determining its revenue estimates.
The President then said assuming - have expenditures of 7 billions
82
and receipts of 8 and we wanted to Faise 2 billion dollars of additional
revenue to balance the budget, what class of people would pay under the
proposal set out on this statement. Mr. Names replied that the middleincome groups would be hit the hardest; those receiving incomes between
8 thousand and 70 thousand would be hit very hard.
The Secretary told the President that he had an idea as to some of
the additional taxes that might be levied. He said that he realised that
the President had always been against a sales tax but many states in the
Union have adopted it and he thought that the Federal Government might
also resort to 11 for special reasons. He also explained that our socalled excise taxes which we have today are nothing more than sales taxes.
He said that what he had in mind WAS a special form of tax stamp with the
picture of a battleship and a bomber on the face of it, which would bring
home to every American that he is helping to pay for the expenditures made
necessary by World conditions, to put his country in a position where it
can defend itself against the outside world. The President then asked
him how about exemptions. The Secretary replied that, of course, in discussing sales taxes in the past he had always thought of exempting food
stuffs, and clothing up to a certain point, but that in this case he was
of the opinion that there should be no exemptions and that every one from
the highest to the lowest should help pay this additional cost.
The President said that he would like to have Mr. Hanes work on this
matter and see what be could do to make just one exemption and that would
be on food stuffs not in containers, that is. food stuffs in the raw state.
This would certainly have the effect of increasing the consumption of fresh
vegetables which would be a good thing for the American people.
83
The Secretary then said that he thought that as long as we were discassing the special kind of tax for a special purpose, why would 11 not
be an excellent thing if we should have a specially designed stamp to show
that the taxes paid are for the purpose of financing the additional national defense expenditures and other special taxes specifically levied
to take care of relief. It was explained to the President that if we did
not have any exemptions whatever that according to old estimates based on
lever business levels a rate of 1% on manufacturers' not sales not subject
to present excises would have produced annual revenue of approximately
338 million dollars and that a 4% rate would have produced a little less
than 1 billion dollars a year.
The President said that he was thinking of national defense in terms
of 1 billion 800 million dollars which would be spent over a period of two
and possibly three years.
The President then asked Mr. Names if he could get up for him a simple
comparative table containing data on the 100 richest individuals in the
United States for the calendar year 1938 OF 1929, whichever is the higher.
showing the tax rate for that year and the grees income less dedmotible
lesses. This would show what those individuals had as spendable income is
that year. Then show how much of that spendable income they paid to the
Federal Government. He would then like to have this same information for
1932 and for 1937 or the latest year for which the information is available.
He would then like to show as to whether funds of those individuals have
gone into tax-exempt securities or into other lines of investment. If
they have gone into tax-exempte, he would like to use 11 in a recommendation
84
to Congress, immediately after its opening for the elimination of the
issuance of tax-excupt securities. No would like to recommend that this
elimination be cocured by legislation and not by the long route of a
constitutional amendment.
The President said that he would also like to have us work on a
budget with the revenue based upon the national income of 60 billion
dollars which would be no more than 2 billion dollars out of balance.
And then he would like for us to work on raising revenue of say 1 billion
dollars under additional taxes and then we could make the statement that
if the national income increases to TO billion dollars we would have a
balanced budget for 1941. Getting the expenditures down to 7 billion
dollars will be a difficult task for 1940.
owns
THE WHITE HOUSE
WASHINGTON
Orth
y
to
A
W Kij
T.
Wh
the
7.7
I
6.40
THE WHITE HOUSE
WASHINGTON
T
I
8,200
1cml
May
5,111
Mobi 2
Dif 7 /
QV10
do
6, am, FBC and
2
DI <10,
put 1000
87
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM
Herman Oliphant
NOV 16 1938
The following is a comparative analysis of the handling of the
so-called Louisiana income tax cases by this Department and the
Department of Justice.
Certain disclosures volunteered by a resident of New Orleans
in 1932 prompted investigation by the Bureau of Internal Revenue,
which extended from July 18, 1932 practically to November, 1937,
interrupted only between February and December, 1933 by the change in
administration. Some 300 individuals and corporations were involved.
On evidence obtained and referred to the Department of Justice,
criminal indictments were returned in the United States District
Court at New Orleans against 26 individuals and two corporations,
comprising two conspiracy charges involving corporations and individusls and 19 evasion, perjury and false return charges against individuals.
On the same evidence the Bureau issued deficiency notices, including
fraud, negligence and delinquency penalties, against 21 individuals.
These filed appeals with the Board of Tax Appeals under 34 docket
numbers.
The criminal cases were tried first. One defendant, State
Senator Joseph Fisher, was convicted, receiving an 18-month penitentiary
sentence. One other case (A. L. Shushan), which was regarded as strong,
was then tried and resulted in acquittal. Two corporations and 10
individuals pleaded guilty or nolo contendere and were sentenced to
pay moderate fines. The remaining indictments against 13 individuals
were thereupon dismissed on motion of the United States Attorney, without
adequate consultation with Bureau representatives and without their
approval. This Department was convinced, despite the acquittal of
A. L. Shushan under very unusual circumstances, that the other cases
merited trial, notably the conspiracy charge against Seymour Weiss, in
which all four of his co-defendants had pleaded nolo contendere. One of
the dismissed indictments was against the United States Attorney's
brother-in-law.
Hearings in the civil proceedings against the indicted individuals
and corporations began under obvious handicap in January, 1938, and
continued for three weeks to final disposition of the whole list except
the cases against A. L. Shusban and Seymour Weiss, in which essential
witnesses were temporarily absent. No case was lost or dismissed.
88
-2Nineteen docket numbers were disposed of by default or stipulations
of deficiencies, including penalties, accounting for $146,809.29 plus
interest, an 83% recovery, all of which has been or will be paid.
Fifteen docket numbers were vigorously tried, resulting in judgments
aggregating $69,719.22 plus interest, all of which has been or will
be paid. No appeals have been filed. In addition, other civil
proceedings against taxpayers in this group who had not been indicted
were tried or settled with similar results. Two insolvency cases
were compromised for more than could have been recovered. Except
as to the untried cases against Shushan and Weiss, every civil
deficiency asserted against this entire list of taxpayers has thus
been satisfactorily accounted for. The Shushan and Weiss cases have
not been set for trial but this office will insist on their being
docketed and tried at the Spring hearings of the Board at New Orleans.
the
89
PLAIN
MJD
London
Dated November 16, 1938.
Rec'd. 3:47 p. m.
Secretary of State,
Washinjton.
1323, November 16, 6 p. m.
FOR CREASURY FROM BUTTER TORTE.
The volume of trading in the London foreign Exchange
market has been less than yesterday but the market is ner-
vous and undecided. The dollar opened strongly bid and
LOVE to 4.70 with almost no dealings at which point the
British authorities gave dollars for a short time. As soon
as they CEASED the rate fell to 4.69 at which point they
gave freely again. DUE to SOME prefixing sales of dollars
the rate LIOVED up to 4.69 and gradually but eratically
moved up to close at 4.70 1/8. In the later afternoon there
was no EVIDENCE of intervention on the part of the Critish
authorities. The Continental demand for dollars slackened
today.
The franc has also had a two-way market but on balance
the French fund has lost a moderate amount of sterling.
Second thoughts SEEM to be leading to the conclusion that
Reynaud's measures will produce little beneficial result in
the
90
MJD -2- No. 1323, November 16, 6 p. m. from London
the near future.
Of the 251 bars sold at gold fixing at 148s. 1d.
almost 200 were supplied by the British fund.
KENNEDY
HPD
91
November 16, 1938.
4:03 p.m.
HMJr:
Robert
Hello.
Treman:
Hello.
HMJr:
Morgenthau speaking.
T:
This is Bob Treman.
HMJr:
Yes.
T:
Up in Ithaca.
HMJr:
Yes.
T:
I'm sorry to bother you, but I just left Vic
Underwood, and we wanted to ask you a proposition.
HMJr:
Yes.
T:
We have our big Community Chest drive at Ithaca
right now, and it means a great deal to the
community, the University gives and so forth, and
they raise a lot of money. Well, we've always
been able to get a thousand dollars from each of
the banks, state banks up until last year, and
this year the First National Banks say that there's
a ruling in your Department they cannot give to a
Community Chest in Elmira and Syracuse and all the
other places they do give and it may seem unimportant
HMJr:
and silly to call you up about it, but Vic Underwood
and Curry and the rest of them thought if we'd
call you up that you could tell us offhand but
nobody seems to know whether they can or whether
they can't.
I couldn't do it offhand, but if you'll send me a
telegram I'll get you an answer in twenty four
hours.
T:
HMJr:
Well, that'11 be fine, and it seems to me that one
of the finest things I could do in the country would
be to let the banks contribute if there's any way
it could be done whether they - the State Banks
all do, and for the build up of - in these times,
for Well, put it all into a telegram and go into plenty
of detail and I'll get you a ruling.
92
-2T:
HMJr:
T:
HMJr:
T:
HMJr:
T:
HMJr:
All right, that's fine. I'm awfully sorry to
bother you, and it seems, with all you've got
on your
mind,mind
an /important
thing, but I thought
you
wouldn't
it.
No. Nothing bother you with it.
No, nothing is unimportant.
And I'll send you a telegram this afternoon and
if you could do what you can, I think the whole
principle is, the President do it, would be, I
don't mean now, but - would be a thing that would
be a very advantageous thing for the whole
country if they could be allowed to do it.
Well, you send me a telegram and I'll get you a
ruling.
I hope you'll come up and visit us again.
All right.
That's fine.
HMJr:
Thank you.
T:
Goodbye.
93
RD STERLING RATE AND BRITISH TRADE
AGREEMENT
Present:
Mr. Taylor
November 16, 1938.
4:30 p.m.
Mr. White
Mr. Lochhead
Mr. McReynolds
Mrs Klotz
Miss Chauncey
H.M.Jr:
Here is this letter from Hull.
"I am enclosing a copy of a memorandum of conversation
between Sir Ronald Lindsay, the British Ambassador,
and Assistant Secretary of State Sayre, held on the
afternoon of November 14.
"On the basis of Mr. Feis's reports of connected
discussions on the subject that have taken place
over in the Treasury, I understand that this action
runs completely in accord with the Treasury interest
and in fact merely repeats an initiative of the same
kind made in accord with an understanding with the
Treasury."
"... and in fact merely repeats an initiative of the
same kind made in accord with an understanding with
the treasury."
well, when Taylor was in here last night I called up
Mr. Sayre and told him that this does not run in
accord with what I wish, for this reason. This is
the conversation between Sayre and the British
Ambassador. See, he's quoting the President - "What
will we do if the pound should drop to 4.55 on Thursday
morning?" End of quote.
"After telling the Ambassador of the President's
anxiety, I suggested that he might want to cable at
once to London to see if steps could not be taken
to sustain the pound, particularly during the coming
few days."
Now, what I told Mr. Sayre was that I was not
particularly interested in what happened to the
pound during the next few days, but I was vitally
interested in what happened to the pound after the
thing was signed. So therefore I'm going to try
this, and I want this to go tonight.
94
-2-
(Dictating to Miss Chauncey)
My dear Mr. Secretary:
I beg to acknowledge receipt of your letter of
November 15, with enclosed memorandum of a conversation between the British Ambassador and
Assistant Secretary of State Sayre.
You say in this letter:
"I understand that this action runs completely in accord with Treasury interest."
Late Tuesday afternoon, September 15, I called Mr.
Sayre, having a copy of his memorandum before me
which he had furnished Mr. Taylor. I read to him
the following sentence from his memorandum:
"After telling the Ambassador of the
President's anxiety, I suggested that
he might want to cable at once to
London to see if steps could not be
taken to sustain the pound, particularly during the coming few days."
I explained to Mr. Sayre that our interest in the
pound was no more or no less as far as the next
few days were concerned, but we were vitally
interested in what might happen to the pound after
the trade treaty between the United States and
Great Britain was signed.
We have postponed talking to the British Treasury
in regard to our grave concern in connection with
the continued fall of the pound until after the
trade treaty nas been signed, as we did not in
any way wish to introduce an element which might
be controversial. However, if after the signing
of the treaty the pound should continue to fall
rapidly, I will wish to talk to a representative
of the British Treasury at the earliest moment.
Lochhead: In this connection, I thought you might want
H.M.Jr:
What I want her to do is type it; these three men
(Taylor, White, Lochhead) can take a look at it;
they can send it with a messenger to the house, and
95
-3-
I want this - so you can wait for me to sign it I want this delivered to Mr. Hull here tonight at
his apartment.
White:
Can we make some small suggestions?
H.M.Jr:
Yes, but not very much, not very much. A word or two,
but I don't want much. See, Harry?
White:
Well, there were certain - then let me speak of them
now. The emphasis there apparently is that you don't
wish any substantial decline after the trade agreement
is signed, and I take it your thought is, irrespective
of the trade agreement, that your interest is in main-
tenance of the rate. I wouldn't relate it so closely
to the trade agreement. You merely postponed taking
action to do nothing to jeopardize the confirmation
of the trade agreement, but subsequently you will take
such action as you feel is called for should sterling
continue to decline.
H.M.Jr:
That's what I said. What I want to get over to him
is that I'm concerned now because it's falling now,
but I didn't want to do anything to introduce the
controversial thing, but if the fall continues I'll
have to do something.
white:
H.M.Jr:
White:
That's right.
And I wanted to write it and I wanted him to get it
tonight, see, because that letter does not represent
I thought you were going to talk to the British representative in any case.
H.M.Jr:
White:
H.M.Jr:
White:
H.M.Jr:
Yes, but this - this is a letter in which Mr. Hull
puts me on the spot, and I want him to get this
tonight, I mean ne definitely puts me on the spot.
then you could say you're going to speak to the
British Treasury soon after
"If."
Only "if." I see.
I mean I'm not - let's say she stays around 4.70 and
should stay that way for a month. What's the use of
S6
-4-
talking to them?
Taylor:
H.M.Jr:
Well, I think you probably want to talk to them
anyhow, and you - and there are certain things
that are - it's appropriate to
Well, if you people want to say that, the point no, let me get this: don't change it too much and
don't argue with me. The point that I want to get
over to Hull and I want to put him on notice is
this: that if the thing continues to fall after
the signing, I want to talk, and I want to get
that over now. Just do it my way, will you? I
don't want to say, "I want to talk anyway." The
point I want to make: I'm putting him on notice that
if there is a sharp fall then I've got to talk. It
doesn't serve my purpose to say, "As soon as the
trade treaty is signed, I'm going to talk." I want
it - he's put me on notice; I want to put him on notice.
If you don't mind, do it my way, unless you violently
disagree with me.
White:
Just some language changes.
H.M.Jr:
H.M.Jr:
I don't want to say, "I'm going to talk to them no
I want to put him on notice that if there is a continued sinking of the pound after the trade treaty
is signed, then I'm going to talk; I've kept quiet
in order to help him get his trade treaty through.
That's the philosophy I want to get over. If you
want to change a few words, all right, but please
don't change the philosophy, please don't say I'm
going to talk in any event.
that's clear.
Is that clear?
White:
Quite. I don't agree, but it's quite clear.
Taylor:
You told Sayre that you were going to talk in any
H.M.Jr:
Well - did I?
Taylor:
Uh-huh.
matter what happens." Mr. Hull has put me on notice;
White:
case.
97
-5-
Taylor:
I thought I said only if the pound sinks.
You told him that you had a whole list of questions
that were prepared for discussion.
H.M.Jr:
All right; anyway ...
White:
You can always change your mind later; it doesn't
H.M.Jr:
commit you.
H.M.Jr:
Mr. Hull for some reason has done something which I
think is tricky, and I'm going to - this is my
opportunity to put him on notice that if the pound this is what you want - if the pound falls sharply,
I'11 have to cancel - use the clause. And I want to
do it now, so ne can't say, "I wrote you
McR:
He misrepresented the Treasury attitude.
H.M.Jr:
He misrepresented the Treasury attitude.
Taylor:
There is something funny about that.
H.M.Jr:
You bet your sweet life there is.
Please, Harry.
White:
O.K.
H.M.Jr:
Once in a while I get the old elbow. We'11 see.
Now, for your information, I talk anyway.
white:
Well, that's all right; that's all I want to know.
H.M.Jr:
For your information, as soon as the trade treaty
white:
O.K.
H.M.Jr:
I talk.
White:
O.K.
H.M.Jr:
Put Mr. Hull, whom you mustn't forget is a mountaineer
what do they call the fellows - a feudist - plus former
Chairman of the National Democratic Party, plus an
is over and the body is slightly cooled, I talk.
office-holder for thirty years - he can teach me cards
98
-6-
and spades, see? I admit it. But when he writes
me "On the basis of Mr. Feis's reports of connected
discussions on the subject that have taken place
over in the Treasury, I understand that this action
runs completely in accord with the Treasury interest
and in fact merely repeats an initiative of the same
kind made in accord with an understanding with the
Treasury"
and this sentence in here does not represent what I- want.
White:
No, definitely not.
H.M.Jr:
And I assure you that as soon as the body is moderately
cool and the celebration is over and we have had our
banquet, I'll talk.
White:
O.K.
H.M.Jr:
"hite:
Are you satisfied?
Perfectly.
Entirely?
Satisfied.
H.M.Jr:
Wayne?
Taylor:
H.M.Jr:
No, that's ...
"hat? Are you?
Lochhead:
I'm satisfied, but I've got something very interesting
White:
H.M.Jr:
in connection with this and with that memorandum you
have there of Knoke's telephone conversation with the
Bank of England yesterday. You remember yesterday the
Bank of England said to the Federal Reserve Bank, "We
may have to put in certain restrictions; we're thinking about them." I think I probably raised my eyebrows
over the telephone to Knoke, saying that it was rather
queer, the Bank of England doing all this talking to
Federal Reserve Bank of New York. So Knoke told me
this afternoon - he said entirely on his own account
and not mentioning the Treasury, he had called up
Bolton, Bank of England, this morning and said that
if they were taking any steps over there in regard
99
-7-
to regulations
(On White House phone) Hello. - Sure. - Hello.
Yes. - How do you do. Tom, before youget started,
there must be some misunderstanding with whoever
handles your calls, because Mrs. Klotz said you were
a little upset about that - well, there's no record on
my switchboard that you called. - No. - No. No, no, she didn't; she was bothered because she
likes to give service. And there is no record of
any call on our switchboard, and I didn't ask Secret
Service to check either. - No. - On this Civil
Service? - Oh, really? - Oh. - Oh. - Well, I
don't - I haven't seen Herman, so I don't know what
it's all about.
McR:
Herman tells me he agrees with me instead of Tom.
H.M.Jr:
(On W. H. phone) All you need is about ten minutes?
- Well, are you up by nine o'clock? What?
Well, I'll be delighted to see you here by nine. Fine. Thank you. (Conversation with Corcoran finished)
-
Go ahead.
Lochhead:
so Knoke intimated to the Bank of England if they were
considering any changes in doing anything, he thought
the British Treasury might very well approach the
American Treasury. Secondly - and this is rather
interesting - Knoke also told the Bank of England
he thought if the trade treaty was signed and sterling
dropped that it would look like the deuce.
H.M.Jr:
who said that?
Lochhead:
Knoke said that, which was rather interesting. See,
that's gone back to the Bank of England - the Federal
Reserve saying it would look terrible if sterling
drops after the trade treaty is signed. So they've
got another notch from another angle.
H.M.Jr:
Am I getting this in writing? I'm not getting anything
through the ears.
Lochhead: That was made today; it'11 be coming through.
H.M.Jr:
You better send it up to me. Can't you get it over
the phone?
100
-8Lochhead:
Yes.
H.M.Jr:
Now, I want the President of the United States to get
a copy of this tonight, and send me a copy to the
house. Will you?
Lochhead:
Yes.
H.M.Jr:
I didn't get what you said.
Lochhead:
Well,
I'll send a copy of this and also a copy of the
new conversation.
H.M.Jr:
Yes, please. And if you gentlemen will do that.
Now, "ayne, are you - don't you think I ought to do
something?
H.M.Jr:
Absolutely. There's something screwy about that.
Yes, and Mr. Hull doesn't do things accidentally.
Taylor:
I think that's correct, sir.
H.M.Jr:
And he's a good marksman.
Taylor:
Now, Mr. Hull called me up and asked me to do him
a personal favor.
Taylor:
whether Sayre got him to do it or not is something
else again.
H.M.Jr:
well, I haven't got time or the inclination ...
Taylor:
That I don't know.
H.M.Jr:
But I want to go on record that I'm not satisfied,
I've stood by and kept my peace in order that the
blankety-blank trade treaty can be signed; but if
the pound should continue to fall rapidly, then the
United States Treasury goes into action with a
broadside. And, for Harry White's sake, we go
into action anyway.
Come on there, you errand boy for Hull.
McR:
That's your copy of your conversation.
101
-9H.M.Jr:
McR:
H.M.Jr:
McR:
H.A.Jr:
McR:
H.M.Jr:
Yes, but what can I do for him? Can I do it or not?
Sure you can do it, if you like.
"ell, he wants to tell the British Ambassador tomorrow
morning you've accepted the check and all that. Can
you clear it at 9:30, Mac?
Well, you can clear it. Ths British company, in
which the Ambassador is financially interested,
Whasassattt!
...is one of the offenders on opium smuggling. They
claim that they have guards in Hongkong and various
other places, and our boys, Harry Anslinger and his
gang, say that the guards are just a set-up. And
what they're trying to do is to trade them into saying
they're satisfied to take twenty-five thousand that
they've already got and let it go so far as the
fine is concerned. But they want to make this
shipping compromise to follow the Canadian Pacific
System, which is to guard their stuff while it's
in their jurisdiction, so that - search their seamen
when they come on and all that sort of thing, so they
can stop the snuggling, which hasn't been stopped.
And that's all they want in addition to this.
Now, that's the only objection they've got. Now, if
you need to, you can go ahead and tell them they can
go ahead and continue to ride them on their guarding;
but unless they guard, they're going to catch them in
another case and they're going to fine them, and
Well, of course, that isn't what Mr. Hull told me,
and I'm sure Mr. Hull is only telling me what he was
told.
ACR:
H.M.Jr:
MCR:
H.M.Jr:
Yes. They can tell the best story in the world about
how well they take care of their ships.
"ell, what should ne tell the British Ambassador
tomorrow? I mean is the $25,000 - is that settled?
We've got the 25.
We've banked it?
102
-10McR:
We've banked it.
H.M.Jr:
Now, what else we going to do?
McR:
H.M.Jr:
McR:
Of course, negotiations are now going on - two conferences have been held today - ...
Yes.
... trying to get them to a ssent to an entirely new
arrangement with respect to guarding their ships
from smuggling.
H.M.Jr:
Are we going to fine them any more?
McR:
No, nobody wants to fine them any more.
H.M.Jr:
That's what I'll tell Mr. Hull. Is that right? No
more fine?
MCR:
No more fine.
Klotz:
Wasn't he concerned about this $25,000?
H.M.Jr:
No.
Taylor:
"ell, if you catch them again, you'll fine them.
As to this particular case, nobody is excited about
this particular fine. They're satisfied with that.
$91, would have been the penalty if they had let
McR:
it go; now they made an offer in compromise of
$25,000.
H.M.Jr:
MCR:
H.M.Jr:
And we accepted it?
Accidentally. Julian's boys put the wrong stamp on
the check. They've got a deposit account.
I better go into the thing. I'm sorry. I better
go
Klotz:
I think so, because he was terribly upset about it,
and I don't think the man was informed. Really I
don't. He hasn't got the story.
H.M.Jr:
No, we better go into the thing. And the Ambassador
himself is interested?
103
-11McR:
H.M.Jr:
McR.
"ell,
to it.that's what Steve tells me. I wouldn't swear
I don't know. You'll see whether we have time. No,
Itomorrow.
want - I'm tired now - we'll go into the thing
All right.
104
November 16, 1938.
4:31 p.m.
HMJr:
Hello.
Operator:
Dr. Bowman in Baltimore.
HMJr:
Thank you.
0:
Go ahead.
Hello.
HMJr:
Dr.
Bowman:
Yes.
HMJr:
Morgenthau speaking
B:
Yes, how do you do Mr. Secretary.
HMJr:
Fine. I had a chance to talk to the President.
B:
Yes.
HMJr:
And he told me about his work with you and was
quite amused and pleased that we both went to
the same source.
B:
HMJr:
That's nice.
And - I asked about bringing on that man from
California, and the Treasury paying for him and
he said, "That'11 be fine. .
B:
Yes.
HMJr:
So if you would do that, and let me know what it
B:
HMJr:
B:
is, anything within reason we'll pay.
Well, that's fine. He's a young man and he won't
require any fancy salary.
Good.
Probably getting, not more than two hundred or
two hundred and fifty a month now, and his traveling
expenses, and if that'11 be all right with you.
HMJr:
Fine.
B:
That'11 be fine.
-2HMJr:
Now the President wrote me out, in his own
handwriting,
interested in. a list of countries that he was
B:
Yes.
HMJr:
And tomorrow I'11 send you a photostat of it.
B:
HMJr:
B:
HMJr:
B:
105
Oh, I'd like that.
And - you'd like that,
I'd like that as a souvenir.
All right.
As well as marching orders.
HMJr:
And I'11 explain, he has these countries particularly
in mind, but we could do all of them.
B:
Yes.
HMJr:
In South Africa.
B:
Yes.
HMJr:
But, and you come over to Washington any regular
intervals?
B:
HMJr:
No I don't, but I can come over at any time.
You could. Well maybe I'll get in touch with you
B:
and possibly we could have lunch together.
That would be fine.
HMJr:
Thank you.
HMJr:
I'11 get right after that man.
Because the President is keenly interested in this.
B:
Yes.
HMJr:
Yes.
B:
And what - what are your time limits now?
B:
-3-
106
HMJr:
Well -
B:
You see I have to bring that man from California.
HMJr:
Well,
I'd say - I'd do it as quickly as is
feasible.
B:
Yes.
HMJr:
Yes.
B:
Yes. All right, we'll go right to it.
HMJr:
Fine.
B:
Thanks. I'll send off a telegram tonight.
HMJr:
Thank you.
B:
See you soon.
HMJr:
Right.
B:
Goodbye.
107
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 16, 1938, 6 p.m.
NO.: 1936
FROM COCHRAN.
At half-past five I visited the Under Governor of
the Bank of France, de Boisanger. Today's unfavorable
trend both in French rentes and security market and the
check in franc recovery he told me was because of the
opposition to Reynaud's program by organized labor, the
Communists, Socialists - under the influence of Blum - and
some veterans of the War. The French atmosphere is
moreover disturbed by the international tension from the
anti-Jewish campaign on the part of Germany.
It was the Under Governor's opinion that it was to
be expected that there would be some opposition. It is
his belief that Reynaud's program is the right one, and
that it will have to be accepted by the French. He thinks
that Parliament will have to convene before there is any
real recovery, 80 that Daladier may show that he has a
(omission) which will guarantee a government of some
permanency and may then demonstrate real force in the
carrying out of his program. Should the present issue
cause an upset in the Government, the Under Governor hesi-
tates to envisage what might take place. He does not
think that Parliament will convene until after the British
ministerial visit.
At
108
-2At 6 o'clock this evening I visited another section
of the Bank of France. I was told that during the morning
the French fund had lost sterling while following a policy
of strategy of adhering to the dollar rather than to
sterling, the broker Maurice Rueff apparently having sold
this idea to the Minister of Finance. The Bank of France
technicians advised that the franc should be kept in line
with sterling, and this afternoon the control had gained
enough pounds to break a little better than even for the
whole day. I am told that industrialists who are becoming concerned about the growing agitation among those who
work for them state confidentially that if Daladier were
strong enough to place under arrest 50 or 100 of the
main agitators - who are for the most part foreign
troublemakers - the whole opposition movement in these
circles could be stopped.
END MESSAGE.
WILSON.
EA:LWW
at 8. P.M.
November 16, 1938
My dear Mr. Secretary:
I beg to acknowledge receipt of your letter
dum describing a conversation between the British
of November 15th with the inclosed copy of a memoran-
Ambassador and Assistant Secretary of State Sayre.
You say in this letter: "I understand that
this action
interest.
a runs completely in accord with Treasury
Late Tuesday afternoon, November 15th, I
called Mr. Sayre, having a copy of his memorandum
before me which he had furnished Mr. Taylor at my
request. I read to him the following sentence from
his memorandum:
"After telling the Ambassador of
the President's anxiety, I suggested
that he might want to anble at once
to London to see if stepa could not
be taken to sustain the Pound, particularly during the coming few days.
I explained to Mr. Sayre that our interest in
the level of the Pound was not confined to the next
few days, but that we were also vitally interested
in what might happen to the Pound after the Trade
Treaty between the United States and Great Britain
was signed.
I explained to him also that we have postponed
discussing with the British Treasury our grave concern
in connection with the continued fall of the Pound as
we did not in any way wish to introduce an element
which might be controversial until after the Trade
Treaty has been signed. However, if after the signing of the Treaty the Pound should continue to fall,
109
110
I shall wish to discuss this question with a representative of the British Treasury at the earliest
possible moment.
Sincerely yours,
The Honorable
The Secretary of State.
111
November 16, 1938
My dear Mr. Secretary:
I beg to acknowledge receipt of your letter
of November 15th with the inclosed copy of a memorandum describing a conversation between the British
Ambassador and Assistant Secretary of State Sayre.
You say in this letter: "I understand that
interest.
this action runs completely in accord with Treasury
Late Tuesday afternoon, November 15th, I
called Mr. Sayre, having a copy of his memorandum
before me which he had furnished Mr. Taylor at my
request. I read to him the following sentence from
his memorandum:
"After telling the Ambassador of
the President's anxiety, I suggested
that he might want to anble at once
to London to see if steps could not
be taken to sustain the Pound, particularly during the coming few days.
I explained to Mr. Sayre that our interest in
the level of the Pound was not confined to the next
few days, but that we were also vitally interested
in what might happen to the Pound after the Trade
Treaty between the United States and Great Britain
was signed.
I explained to him also that we have postponed
discussing with the British Treasury our grave concern
in connection with the continued fall of the Found as
we did not in any way wish to introduce an element
which might be controversial until after the Trade
Treaty has been signed. However, if after the signing of the Treaty the Pound should continue to fall,
112
I shall wish to discuss this question with a representative of the British Treasury at the earliest
possible moment.
Sincerely yours,
The Honorable
The Secretary of State.
113
November 17, 1938.
11:52 a.m.
Wayne C.
Yesterday afternoon tea, this was the trade
delegations, British and Canadian gave a tea.
HMJr:
Oh, yes. Did they really drink tea?
Well that, I didn't ask about. That was, but
technically it was. The British Ambassador came
up to Sayre and said that they had - had received
a reply to his cables about Japan.
Taylor:
T:
HMJr:
Yes.
T:
That he gave it to him and let him glance through
HMJr:
Yes.
T:
HMJr:
T:
it.
It was about a page and a 'half and the sense of it
was they were - they were doing the best they could
and would continue to do so.
Yes.
And they asked me whether, first if it had come
over here in any fashion and I said, "Not as far
as I knew."
HMJr:
You mean this last one?
T:
This last one.
HMJr:
Yes.
T:
HMJr:
T:
And also whether, during the day, if it didn't come
over we wanted them to ask for something more
formal than that. I said that, unless heard from
the contrary, we'd, we'd let nature takentts
course today until they got the damned/sign8d up.
That's right.
And then if we hadn't heard, say by tomorrow,
about this thing, why then we'd prod them on it.
HMJr:
Well, I'd let her ride today.
T:
Yes.
114
-2 HMJr:
And then tomorrow we - we can talk about it.
Right.
HMJr:
How's that?
Well, that's - I think if we, say, get them to
say, "Well, where the hell is this message",
because they have showed-to Sayre, you see,
HMJr:
at a tea, and they didn't give him a copy of it.
Oh you mean that the British - that the State -
well ask the Ambassador for a copy of the message.
HMJr:
Yes. But, he didn't want to do it necessarily
today, unless we felt that it was very urgent.
No, and especially in view of my letter to
Mr. Hull last night.
Yes. Yes.
HMJr:
Did they know about that?
No. Didn't seem to.
HMJr:
No. I'd let herSee?
ride today. The pound it still
4.70
Yes.
HMJr:
And tomorrow, if they want to ask the Ambassador
for a copy, O.K.
Well, that was what I thought your feeling would
HMJr:
be, and I said we'd leave it like that unless you
wanted to do it differently.
No. I'm more than willing tolaveit that way.
O.K.
HMJr:
Thank you.
Right.
115
November 17, 1938.
1:01 p.m.
HMJr:
Hello.
Operator:
Postmaster General.
HMJr:
Thank you.
0:
Just a moment, Mr. Farley.
0:
Go ahead.
HMJr:
James
Farley:
HMJr:
F:
HMJr:
F:
HMJr:
Hello.
Don't believe what you read in papers, I haven't
resigned yet.
(laughter) What a man. What a man.
I was having breakfast this morning, and I was
startled, for a moment, at the news.
Well, the Times only prints the news that's fit -
that isn't fit to print, uh?
Yes. Well, that's all right.
Well I wasn't worrying about you, but I thought
that Danny Roper was a little vigorous in his
denial.
F:
Yes, I was interested in reading, in one of the
newspapers about Danny being suggested he might maybe he'd go to Russia.
HMJr:
No.
F:
And for your information that didn't come out of
the air. You can imagine where that one came
from.
HMJr:
Really.
F:
oh, yes.
HMJr:
They are thinking of sending him to Siberia.
F:
Going to offer it to him - to you.
HMJr:
No.
F:
Really.
116
-2
HMJr:
Well I'll be damned. God he must have it in
for the Bolsheviks.
That's very funny, but I was amused when I saw
F:
F:
it in print, 80 somebody must have talked.
Uhhuh. Well is everything as it was?
As far as I know.
HMJr:
Uhhuh.
F:
I'11 tell you why I'm bothering you now.
HMJr:
Yes.
F:
Stewart Underhill whom you undoubtedly know.
HMJr:
Yes.
F:
From Corning, New York.
HMJr:
Oh, sure.
F:
Came in to see me today and started talking to me
HMJr:
about some regulations, all of which I'm not
familiar with.
HMJr:
Yes.
HMJr:
He tells rather a plausible and rather an interesting
story of events of the last ten or fifteen years
in connection with their industry.
What industry is that?
F:
The wine industry
HMJr:
Wine?
F:
Wine.
HMJr:
Oh, yes.
F:
They control a big wine -
F:
HMJr:
F:
I didn't know that.
And Henry, I'd like very much if you'd at least
let Stewart -
-3HMJr:
F:
HMJr:
F:
HMJr:
F:
117
Sure.
Tell you the story and then maybe I - I think he's
entitled to help as I listened to his story Well, tell him to come on down.
I don't much about - anything about regulations.
Well, tell him to send me a telegram and I'll see him.
Well when would you want to see him? He's here in
HMJr:
New York. When would it be convenient for you?
Oh, - you mean his business is in New York?
F:
No, he's in New York now. He's here in my office.
Not in the office while I'm calling, but he's
outside.
HMJr:
Oh. That's a hell of a day tomorrow.
F:
Would Monday be all right?
HMJr:
Well, yes. Just a moment. Hello.
F:
Yes.
HMJr:
Tell him at three o'clock Monday.
F:
Now, - will you hold on one second, and I'11 -
HMJr:
Sure.
F:
I'll get him right here and find out if that's
all right, and we can settle it right now.
HMJr:
Sure.
F:
Meanwhile you hold Danny's hand and Harry's hand
tomorrow, I won't show up at the meeting.
HMJr:
You won't.
F:
No.
HMJr:
F:
I can't hold both their hands at the same time.
Well, you settle the farm problem for Wallace and
that'11 be all right.
118
-4HMJr:
F:
HMJr:
Yes, and how.
Get
in on that mattress business. That's a good
business.
(laughter) Well at least I saved the President
from being foolish about it.
F:
Yes. Well it's all very funny to me.
HMJr:
Yes.
F:
Just a minute. (aside - Stewart, will three
HMJr:
Stewart Underhill?
F:
o'clock Monday be all right? )
That'11 be all right Henry.
Stewart Under - Just a minute. Now, would it
be all right if he brought his attorney with him,
who might be more familiar with some of the
regulations than Stewart?
HMJr:
Oh -
F:
One man with him.
HMJr:
If he wants to, but I'd rather - I don't understand
F:
You'd rather he come alone would you?
HMJr:
Yes.
F:
O.K.
HMJr:
Yes, let him leave his lawyer home.
F:
O.K.
HMJr:
They're no damned good anyway.
anything legal.
HMJr:
O.K. That's all right.
All right.
F:
Thanks a lot.
HMJr:
Thank you.
F: