The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DIARY
Book 154
December 1 - December 5, 1938
-ABook
Page
154
153
Annenberg, Moe
Now that Campbell has succeeded Igoe as United States
District Attorney, Treasury will not ask for
special lawyer - 12/2/38
a) Corcoran recommends highly; Campbell is
Cardinal Mundelein's personal counsel
Antidumping Act of 1921
HMJr plans reexamination of responsibilities;
group invited to advise him - 12/2/38
123
149
-B
Banking Legislation
Eccles' bank plan: Gaston memorandum on questioning
by Mike Flynn, et cetera - 12/5/38
258
Bonds
Oliphant memorandum on Supreme Court case concerned
with discharge of a bond payable, not in gold only
but also in a named foreign currency at bondholder's
election - 12/1/38
Business Conditions
Haas memorandum on situation for week ending 12/3/38
20
371
-0China
Conference with Chen - 12/1/38
1
a) HMJr suggests that publicity on purchases in
United States may help with proposed loan;
Chen agrees
Suggestion that Freda Utley (Far Eastern correspondent
of London News Chronicle) call on HMJr - 12/2/38
Conference with Bewley accompanied by Hall-Patch
(British Financial Attache to China); Butterworth
also present - 12/3/38
Sketch map of Yunnan-Burma road
Memorandum on eventual truck selections for use on
Yunnan-Burna road - 12/5/38
Burma Government states policy in regard to transit
shipment of war materials - 12/5/38
Tung oil loan: Oliphant memorandum that arrangement
does not violate United States Treaty with China
of 1844 and International Treaty concerning China
of 1922 (question raised by State Department) 12/5/38
102
212
257
263
265
347
Comptroller of Currency
Oliphant memorandum on authority for Office of General
Counsel to take over legal work of Comptroller of
Currency - 12/1/38
47,103
-FBook Page
Farley, James
Discusses with HMJr over telephone political situation,
advice to FDR, business conditions, et cetera 12/5/38
154
Financing, Government
12/15/38:
365
Suggestions by Discount Corporation, Salomon Brothers,
et cetera - 12/1/38
6,64
Parkinson (Thomas) consulted - 12/1/38
34
Haas memorandum on probable yield bases and market
prices - 12/1/38
Sproul reports on market reception of announcement 12/2/38
Burgess reports on proposed issue - 12/2/38
Conference with Treasury people and Ronald Ransom 12/2/38
a) Conversation with Sproul - 12/2/38
Conference of Treasury group (Ransom, Piser, and
Hadley join group later) - 12/3/38
a) Conversation with Sproul
b) Conversation with Walter Cummings
c)
Eccles (in New York)
d) Later conversation with Ransom
Announcement of offering - 12/5/38
45
120,139
141
165
174
179,219
181,186,208,
219,226
191
"
"
a) Sproul reports on market reaction - 12/5/38
Fiscal and Monetary Advisory Board
202
229
255-A
361
Meeting; present: HMJr, Eccles, Delano, Bell, Currie,
Ruml, Taylor, White, Haas, Sanford (Federal Reserve
Bank of New York), and McReynolds - 12/5/38
a) Problems considered: Potential national income
and probable Federal revenue; effect of budget
282
items on national income; Federal fiscal
operations outside the budget; flexibility
b) Memorandum on railroad and automobile demands
for steel
c) Memorandum on estimates of national income
for 1939
331
344
France
See Stabilization: Great Britain
-GGermany
White, with assistance of May (Treasury Attache assigned
to Berlin office), instructed by HMJr to prepare
comprehensive report on methods employed in carrying
Gold
on foreign trade - 12/1/38
See Stabilization: Great Britain
Great Britain
See Stabilization
18
-H
Hanes, John W.
HMJr warns Hanes on hatred of Krock for FDR - 12/5/38
Housing
Book
Page
154
349
Keyserling (Leon H.) memorandum to HMJr concerning
United States Housing Authority proposal to enlist
private capital for larger participation - 12/2/38
178-A
-IItaly
See Stabilization: Great Britain
-JJapan
Arakawa calls on HMJr; also present: Lochhead, Cochran,
and Butterworth - 12/2/38
a) HMJr
amused at Arakawa meeting Chen on his way
out
Suggestion that Freda Utley (Far Eastern correspondent
of London News Chronicle) call on HMJr - 12/2/38
101
127
102
Conference on memorandum to FDR concerning discrimination
against American trade and enterprise in Chinese areas
now under Japanese control; present: HMJr, Gibbons,
Taylor, Oliphant, Cairns, and White - 12/2/38
a) Actual memorandum
128
135
-K---
Kennedy, Joseph P.
Farley and HMJr discuss FDR's attitude toward - 12/5/38..
Krock, Arthur
367
See Hanes, John W.
-N
National Income
Estimates for 1939 (unsigned)
Numismatists and Philatelists
Oliphant memorandum on revision and codification of all
laws in furtherance of FDR's interest - 12/1/38
87
19
P-
Philatelists and Numismatists
Oliphant memorandum on revision and codification of all
laws in furtherance of FDR's interest, - 12/1/38
19
Poughkeepsie, New York, Post Office
See Procurement Division
Procurement Division
Landscaping Division: HMJr upset about painting done at
Poughkeepsie Post Office; asks investigation - 12/1/38..
28
R-
Book Page
Railroads
Report on United States Railroad Equipment Authority
(unsigned) - 12/2/38
154
108
-SStabilization
Great Britain:
Letter to FDR from HMJr concerning proposal to
impose embargo on gold imports as a way to protect
position of dollar against further depreciation of
sterling currencies sent to Viner and Hansen for
criticism - 12/1/38
Bolton gives market resume to Knoke: difficult and
anxious times due partly to unpleasant French
21
relations with Italy - 12/1/38
25
Cochran memorandum concerning conference with Bewley
in which Bewley gave specific figures concerning
gold holdings of exchange equalization account -
12/3/38
231
-T Temporary National Economic Committee
Oliphant memorandum on opening of public hearings 12/1/38
42
Verbatim record of first public meeting; testimony of
O'Mahoney, Arnold, Borah, Lubin, Oliphant, Douglas,
et cetera - 12/1/38
177
-UUnemployment Relief
National income estimates for 1939 (unsi gned)
Oliphant memorandum regarding letter to Acting
Comptroller General asking reconsideration of
decision concerning Works Progress Administration
relief workers sent to United States Employees
Compensation Commission with regard to continuation
of medical services - 12/3/38
United States Employees Compensation Commission
See Unemployment Relief
United States Housing Authority
See Housing
-W-
Works Progress Administration
See Unemployment Relief
87
231
1
December 1, 1938
10:45 a. m.
Present:
Mr. Chen
Mr. Ts1-mou
Mr. Ren
Mr. Lochhead
Dr. White
HM,Jr: I see a little break in the clouds. I
don't want to be too encouraging, but I see a little
break in the clouds. And I am trying very much to
help the sun come out.
Mr. Chen: Thank you very much. I know you
have been working very hard.
HM,Jr: And I am trying to make the sun shine.
It is difficult, but I have received a little enouragement and I wanted you to know that.
Mr. Chen: I am glad to hear that.
HM,Jr: And I wondered if you care to tell me
how you are getting along with your motor trucks.
Mr. Chen: We have received all the bids from
the manufacturers, I think seven altogether, and it
will take about three days more to tabulate it. Capt.
Collins, who has helped us to get specificati one, is
helping us to tabulate it and then we will make decision, probably next Monday.
HM,Jr: I see.
Mr. Chen: And then we will proceed to ship it
to Rangoon. From Rangoon to Burma Road.
HM,Jr: I think -- I want you to think this
over I think it would be helpful to you -- and I
want you to think it over -- that if and when you do
decide to buy, thatyou give it publicity.
Mr. Chen: Yes.
Yes.
2
-2-
HM,Jr: I think it would be helpful to me in
trying to get this loan for you.
Mr. Chen: Yes. Yes.
HM,Jr: In other words, the fact that China is
spending money here plus the fact that you are getting
trucks for this road, unless there 18 some military
reason that they don't want it known -- there may be
some military reason why they want to keep it secret;
the Japanese might find it out.
Dr. White: They know it already.
HM,Jr: But I think with the public and right
here in Washington it would be helpful to know that
there are 1,000 trucks going over the Burma Road, because I still can't convince the people that the Burma
Road is open. Now, they keep te lling me it isn't open.
Mr. Chen : Well, the engineer is here.
HM,Jr: I know. I told them that. So you
think it over, but my own feeling would be unless there
is some military reason
Mr. Chen: I can see because when we decide the
bids we have also transportation on commercial boats,
to open this trade.
HM,Jr: One other thing, if I may make this suggestion, which also would be helpful: that in shipping
these trucks, you use American flag ships.
Mr. Chen: Oh, yes! Oh, yes! That we have
already decided to do that.
HM,Jr: Because all that helps build up sentiment for China.
Mr. Chen: Yes. Yes. Yes.
HM,Jr: I mean, that Americans are getting the
shipping. Have we a line to Rangoon?
Mr. Lochhead: There are two things, first of all,
for instance, like the Eagle Line, it does not run direct
3
-3-
to Rangoon, but it 18 just a question of whether it
would be enough on one boat, otherwise they would transship at Manila. And then there is, second, the Roosevelt
Line.
there.
HM,Jr: There is a line?
Mr. Lochhead: There is another line that runs
HM,Jr: And if there is a ship -- Basil Harris,
Vice President of that line (he's United States Lines)
Mr. Lochhead: Two lines. One does more business
on the Pacific.
HM,Jr: Either one, 1f they knew there were 1,000
trucks to transport, they would fill up a boat and send
it direct.
Mr. Lochhead: Mr. Chen has spoken to me and in
talking about it up in New York, the question of handling
transportation came up and decision was reached by Mr.
Chen that they are to be American bottome and, of course,
They
the question 18 how deliveries are to be made.
probably won't get 1,000 trucks -- they probably won't
be able to make deliveries just as fast as that, but however they go, they will go American bottom.
HM,Jr: Is it your inclination to do business with
just one company?
Mr. Chen: We don't know yet.
HM,Jr: Depends upon prices.
Mr. Chen: Yes. So far, the General Motors has
been completed, 80 we have not made any decision.
HM,Jr: Ig it 2 or 3 tons?
2 tons.
Mr. Chen: Three tons. We had to change from
Dr. White: How soon do you anticipate making a
final decision on that?
Mr. Chen: Monday. I think we will work on Sunday.
4
-4-
Mr. Lochhead: Mr. Chen explained the trouble
is not just a question of laid-down price on the trucks.
The interesting part is what service these people can
give them once they get over there.
HM,Jr: You have asked all that?
Dr. White: Such a big order, you could get a
big story. Perhaps it would be a good idea to start
now on the story if it is to be finished on Monday, start
tomorrow or Saturday.
HM,Jr: Oh, I wouldn't do anything
Dr. White: Gaston mightdo this.
HM,Jr: I don't think it should come from us. It
should come from the Chinese. My feeling is -- I may
be wrong -- that it would be helpful to you.
Mr. Chen: Sure. I think 80 too.
HM,Jr: But I am working very hard on the loan
I am not discouraged.
thing.
Mr. Chen: I am glad to hear that.
HM,Jr: I am not discouraged, but, as I say, I do
see a little bit of sunshine and I want you to know that
and I wanted the newspaper men to see you were here.
Mr. Chen: When we were in New York, we completed
the organization of the new company and officers have been
elected.
HM,Jr: Fine:
Mr. Chen: And we have some names, 80 that as soon
as those are finished, we will have the operation of the
company.
HM,Jr: Good! You find Capt. Collins helpful?
Mr. Chen: Very! Very! Our engineer had confer-
ence with him yesterday.
HM,Jr: Good! Anything else I can do?
5
-5-
Mr. Chen: You have been kind already. Thank
you 80 much.
HM,Jr: Let's hope one of these days I can go
to China and have a visit.
Mr. Chen: We will be glad to welcome you.
00o-o0o
S
his cant Bays
2 3/4
60-65 #400
2% 81/2 #300,
uffer 1/8 notes
you think / William of2%
150-200/1/8
Dec/st
7
Ecker -metr ohcilan
would take D25 millin
of 2014
50 0 million of ay.
not intrasted in 5yr,
Dect
8
Llevine
2
3/4
the
2
Hg
60-6
J
1015
9
years
10138 - 101'n
for rightornly
Level
9
Levi. 60- - 64
q-
14mg, 2 1/2
June 1th
Sign 1'8 would go
does not like Syr 2%
alainch
1. note
10
2, 7yr.
3, lung term Bind
said Bank of Frame
consulted Reich bank
recently an ex shark
untul - Brinkman
adviced French not to
use
go into exchange
centrol
decist
11
games
:
1960-5= 1.5/19
274
8'n 2%
might give a note
tasked him about
2 1/2 1952-4 a little their
23/49 500
from
6-65 158-r
20%
1-8% $200.00
62-67
18/8-10/4
12
Hmg.
200-14
200-2%
300.07
250-17 302 20
602-2 700
750-23 6 40
Repp
mill
13
Dec
225 1/g
850 2
625 234
14
w
Dec
15
200 5 year 14 100
200 9 year 2
500
300 606523/4 340
942
700
Neet
16
REB
Nanking via N. R.
Dated December 1, 1938
REC'D 3:45 p. m.
Secretary 01 State,
Washington.
190, DECEMBER 1, 2 p. m.
My 189, Novmmer 29, 3 p. m.
The "National PEOPLES Representatives Congress" closed
yesterday. The ongress passed a number of resolutions,
including one recommending the constitution of a Confederate
Government for China. During the "discussions" which WERE
beld in the congress, it was emphasized that a strong Central
Government would not be suited to present conditions in
China and that a confederate form of government, with
provinces retaining a large measure of autonomy, would be
prefereble
pagress issued a manifesto, which included a
of Grians Kai Shek and Communism, an expression
or apprecuation of Japanese assistance, and a recommendation
tha Comissions Govirument be organized.
: a LICENSE arter the closing of the congress,
Hiang Hung Chin stated than it was possible that the form
of
17
REB
2-#190, From Nanking, Dec.1,2p.m.
of Central Government to be established in China might be
determined at the third meeting of the "Joint Commission of
the Republic of China" which he said would probably be held
sometime in December, but that a decision on the matter
might be postponed until the fourth meeting of the joint
commission.
Sent to Shanghai, Peiping.
SMYTH
CSB
18
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 1, 1938
TO
FROM
Miss Chauncey
Mr. White
HOW
Subject: For the Secretary's Record
On Tuesday, November 29, 1938, the Secretary, after con-
ferring with Mr. May, Treasury Attache (assigned to the Berlin
office), called Mr. White and instructed him to prepare a
comprehensive report describing exactly the methods employed
by Germany in carrying on foreign trade. He assigned Mr. May
to Mr. White and said that Mr. Miller would soon arrive in the
United States and would be available as an additional source
of information. If it were necessary to get additional infor-
mation in Germany in order to complete the report he stated
that Mr. May could return and send us the needed material.
He emphasized that he wanted a complete picture of German
trade practices describing exactly how German trade was con-
ducted. He expressed the opinion that if the United States
was to maintain or strengthen its hold upon foreign markets,
it was essential that all the tactics employed by countries
who were operating on clearing arrangements, barter arrangements, multiple currency, etc., be known and understood here.
TREASURY DEPARTMENT
19
INTER OFFICE COMMUNICATION
DATE DEC 1 1936
TO
FROM
A
Secretary Morgenthau
Herman Oliphant
For your information
You recall the President's interest in permission to reproduce stamped envelopes, and in other problems of interest to philatelists
and numismatists. The present statute law on these and related matters
is unsatisfactory. Its purpose to guard against counterfeiting is carried
to the extent that Treasury rulings on particular cases often seem highly
technical and arbitrary.
Consequently, I have asked Mr. Bernard, in charge of the Legis-
lative Section, to revise and codify all of the law on the subject and
put it into satisfactory form for enactment at the coming session.
do
TREASURY DEPARTMENT
20
INTER OFFICE COMMUNICATION
DATE
TO
FROM
DEC 1 1938
AH
Secretary Morgenthau
Herman Oliphant
For your information
There has now reached the Supreme Court a case on how much must
be paid to discharge a bond payable, not in gold only, but also in a
named foreign currency at the bondholder's election.
In the absence of any substantial Treasury interest in the status
of outstanding private bonds on which the bondholders can demand payment
in a foreign currency, we are concurring in what the Department of Justice's
position will probably be, viz., that the Government should not get into
this case.
to
flat
December 1, 1938
Dear Jacks
I am enclosing draft of a proposed letter to the
President which the Secretary has asked me to submit
to you for coment. It appears that this suggestion
has cropped up several times and apparently has impressed the President so such that the Secretary thinks
it worth while to send has a brief statement of the
Secretary's views on the proposal. The intent was not
to include all the ramifications of the proposal but
only the more important ones in as abbreviated a form
as the subject will permit.
At the conference on Tuesday, November 27, that
you were unable to attend, a letter roughly in this form
was passed upon.
As the Secretary wishes to send the letter off
on Saturday, he would appreciate it if you would telephone your comments to me sometime before Saturday noon.
Sincerely,
(Signed) II. D. White
H. D. White
Dr. Jacob Viner,
Mount Royal Hotel,
Montreal, Canada.
Enclosure
HDW sith
21
22
December 1, 1938
Dear Alvins
I am enclosing draft of a proposed letter to the
President which the Secretary has asked ue to submit
to you for comment. It appears that this suggestion
has cropped up several times and apparently has inpressed the President so such that the Secretary thinks
it worth while to send him a brief statement of the
Secretary's views on the proposal. The intent was not
to include all the ranifications of the proposal but
only the more important ones in as abbreviated a form
as the subject will permit.
At the conference on Tuesday, November 27, that
you were unable to attend, a letter roughly in this
form was passed upon.
As the Secretary wishes to send the letter off
on Saturday, he would appreciate it if you would telephone your comments to me sometime before Saturday noon.
Sincerely,
(Signed) II. D. THAN
H. D. White.
Prof. Alvin H. Hansen,
Harvard University,
Cambridge, Mass.
Enclosure
HDW smh
23
I understand that a proposal to impose an embargo on gold
imports has been suggested to you as being an effective measure
to protect the position of the dollar against further depreciation of sterling currencies. Such a step, in my opinion, might
well have an effect on the exchange rates opposite to the one
desired, and in addition would have consequences which would increase economic instability throughout the world.
in embargo on gold imports would probably increase the pressure against foreign currencies. During the past year the demand
for dollar exchange has exceeded the supply arising from all international transactions, other than gold shipments, by almost $110 million a month. The importation of about $1,500 million of gold into
the United States this year has been the means of supplying the
additional dollars necessary to satisfy the demand at the prevailing rates of exchange. If the demand for dollar exchange continues
to be in excess of the supply and if, further, dollars could not be
acquired by the sale of gold to the United States, such dollars as
are available on the foreign e xchange market would become more valuable.
In other words, numerous currencies would depreciate still further
vis-a-vis the dollar. Since there does not seem to be any immediate
prospect of a substantial shift in the demand-supply relationship
for dollars an embargo on the imports of gold at this time would be
a step in the direction of aggravating the very condition the proposal
seeks to alleviate.
Furthermore, the declaration of an embargo on gold imports
would - quite apart from its political repercussions both domestic
and foreign - constitute a very disturbing factor in international
economic relations. The Tripertite Accord would,-of-course,108 auto- probably
matically terminated and the instability in exchange rates would be
much intensified. Grave uncertainties with respect to international
monetary and commercial matters would be introduced, the full consequences of which cannot be entirely foreseen.
By curtailing the possibility of employing gold as a compensatory mechanism in the settlement of international balances, we would
be promoting greater reliance on substitute devices. The cushioning
effect that gold movements exert on exchange rates would be reduced
and still more countries resort to clearing agreements and the more
undesirable forms of exchange control for the purpose of narrowing
the fluctuations in exchange rates.
FILE COPY
24
-2Finally, an embargo on gold would deal a blow to the prestige
of gold which now rests almost wholly on its use as an international
medium of exchange. As a nation possessing more than half the
world's monetary gold stock, and as the third largest gold producer,
we have a vital interest in the future of gold. Any step which would
undermine confidence in gold and endanger its use as an international
medium of exchange should be taken only with the greatest relactance
and only after less drastic alternatives have been fully explored.
HDW:1rs
12/1/38
FILE COPY
25 12(e)
SC. 3.2 60M-6-38
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
DATE December 1, 1988.
SUBJECT: TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
I called Mr. Bolton at 12:15 today. They had had a very
difficult and anxious day, he said. The dollar had opened quite high
and he had managed to pick up about $1,000,000 but shortly afterwards
sterling dropped to 4.67 1/4 and they had to sell $5,000,000 in sup-
port. Cariguel likewise had to support the franc and sold substantial amounts of dollars in Paris (I think he mentioned $5,000,000
but his subsequent cable asking us to convert $8,000,000 of his gold
into dollars would indicate that his sales were in the neighborhood
of the latter figure).
As far as they could judge the sudden change in the market
was due to the fact that French relations with Italy had become
very unpleasant. Be had, of course, in mind the scene in yesterday's
Chamber of Deputies in Rome when after a speech by Ciano the Deputies
staged a demonstration clamoring for the realization of Italy's as
yet unsatisfied national aspirations in Nice, Savoy, Corsica and
Tunisia. Be ascribed the sudden outbreak to the fact that the French
Government is offering naturalisation in Tunisis to Italian Jews who
want to leave Italy. Later on in the day, Bolton said, the demand
for dollars dried up somewhat and the sterling rate recovered to
about 4.68 where the market seemed to be steady at the moment he spoke.
Their squeese, he thought, was beginning to take effect with 3 months
dollars now up to 2 cents. People like Kleinwort, Bankers Trust,
3.2 60M-6-38
26
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATEDecember 1, 1938.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
2
Swiss Bank Corporation, Lazard and others were all trying to buy
forward dollars without success. The big maturities had not really
started running off yet and we should be able to see the effect
better towards the beginning of next week. The British Treasury had
given Washington an outline of the steps contemplated in London and
had pointed out that this was, of course, purely of a temporary
character and could last only during the present conditions. They
had asked the clearing banks not to refuse any forward business but
if they received orders to execute them in the market rather than to
use their own means for financing such swaps.
I referred to our cable of last night offering to give
them gold against our operations of the day at the approximate
equivalent of the sterling rate obtained by us on our sterling sales
rather than at his gold points. Bolton stated that he appreciated
the gesture and that it was extremely considerate of us but hoped
that we did not feel that we had created a precedent that we would
have to stick to. Meanwhile, everybody was very happy about the set-
up and thankful to us. I stated that the next renewal of our weekly
gold order would be at what we now figured to be the exact shipping
point from London to New York, that is, 34.76 1/4 instead of 84.75
as heretofore. Incidentally, 54.76 1/4, Bolton said, was exactly the
point according to their calculations. I think Bolton also appreciated
27
USC. 3.2 60M-6-38
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATE December 1, 1938.
CONFIDENTIAL FILES
M
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
8
this step of ours; he added that as long as he had gold in New York
he would, of course, use that rather than fill us up with gold in
London.
LWK:KW
28
December 1, 1938.
2:43 p.m.
HMJr:
Hello.
Operator: Mr. Barton. Go ahead.
HMJr:
Leroy
Hello.
Barton:
Hello.
HMJr:
How are you?
B:
Fine, Mr. Secretary.
HMJr:
Barton?
B:
Yes, sir.
HMJr:
I asked for the Admiral, he's up on the Hill.
Miss Ann Baker made an investigation for me of the
work done by a contractor in the planting around the
Poughkeepsie Post Office.
B:
Yes.
HMJr:
And she found that the fellow did not live up to his
contract. Now what I want is, I want you to find out
how many other jobs he did for us, the same contractor,
see?
B:
HMJr:
B:
All right, sir.
And then I want Miss Baker employed to investigate all
the other work that he did, see?
Yes, sir.
HMJr:
Is it clear?
B:
Yes.
HMJr:
Let's say that contractors Smith and Smith did the job
at Poughkeepsie, well she found and they agree over
there that his work, he didn't live up to his contract.
Now I want to know how many other jobs the same contractor did for us, landscape fellow, and I want
Miss Baker employed to go and visit all the jobs that
he did and compare them against the specifications
and see whether he cheated as badly on the others as
he did at Poughkeepsie.
B:
All right. How far back would you go?
29
-2HMJr:
Oh, well I'd go -
B:
About four years?
HMJr:
What?
B:
About four years?
HMJr:
No. Well let's go back - well let's take, let's - I
don't know - it depends on how many he did. I don't
think I'd go back more than two years.
B:
Two years. All right, sir.
HMJr:
What?
B:
HMJr:
All right.
And I wouldn't - I would say this, I'd put it this way,
if they 'd examine three other jobs that he did.
B:
That makes it
HMJr:
If he's done three other jobs I'd examine three other
jobs that he's done.
B:
Yes.
HMJr:
And frankly if I find that those are phoney then I'm
going to have a complete investigation of the whole
landscaping. I think there's something lousy in the
landscaping department. I think there's something
crooked there the way it looks to me. I'm very much
upset about it.
B:
I'll get a hold of it and -
HMJr:
Take a look at Ann Baker's report and then - what it
said. Now why do I have to employ somebody from the
outside.
B:
All right.
HMJr:
There's something - there's something radically wrong
in the landscape end of Procurement, and I'll start if this contractor had three other jobs I want her to
do those, and then if those aren't right, I'm going to
have the whole thing examined.
30
-3B:
All right, sir.
HMJr:
Will you give it your personal interest?
B:
Yes.
HMJr:
And tell Admiral Peoples about it.
Do it right away.
B:
HMJr:
Thank you very much.
B:
All right, sir. Goodbye.
CORRECTED COPY, page 1.
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 1, 1938, 4 p.m.
NO.: 2033
Today on the exchange market trading has been very
active, with france being in large demand. The present rate
for sterling is 178.20, at rates varying from 178.32 to
178.20 the fund has again been able to obtain substantial
amounts of sterling. During the morning it acquired
2,900,000 pounds. The dollar-sterling rate has varied
between 4.69 at opening and 4.67-5/8, the rate at present.
One month forward sterling rate ranges between ten and sixteen centimes, and one franc for three months; following
this movement the dollar-franc rate has been erratic. Our
market contact has told us that the fund is controlling the
present rate.
Profit taking was in evidence on the security market
today, showing a less favorable tendency.
There are no important changes in the bank statement
for November 24 which was issued today. No change in the
gold reserves is shown; the portfolio increased by
562,000,000; there was a decrease of 500,000,000 in thirty
day advances, deposits are up 340,000,000, and there was
a decrease in note circulation of 550,000,000. Total of
3,915,000,000 for Treasury account. Gold coverage ratio
moved up to 60.21 from the former ration of 60.28.
General feeling here is one of profound relief, satis
faction and quiet optimism, as a result of the very important
success of the Government yesterday in enforcing law and
31
32
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 1, 1938, 4 p.m.
NO.: 2033
Today on the exchange market trading has been very
active, with francs being in large demand. The present
rate for sterling is 178.20; at rates varying from 178.32
to 178.20 the fund has again been able to obtain substantial
amounts of sterling. During the morning it acquired
2,900,000 pounds. The dollar-sterling rate has varied
between ten and sixteen centimes and one franc for three
months; following this movement the dollar-franc rate has
been erratic. Our market contact has told us that the
fund is controlling the present rate.
Profit taking was in evidence on the security market
today, showing a less favorable tendency.
There are no important changes in the bank statement
for November 24 which was issued today. No change in the
gold reserves is shown; the portfolio increased by
562,000,000; there was a decrease of 500,000,000 in thirty
day advances, deposits are up 340,000,000, and there was
a decrease in note circulation of 550,000,000. Total of
3,915,000,000 for Treasury account. Gold coverage ratio
moved up to 60.21 from the former ratio of 60.13.
General feeling here is one of profound relief, satisfaction and quiet optimism, as a result of the very important
success of the Government yesterday in enforcing law and
33
-2order and because the strike was practically a complete
failure. The Government is urged in the financial press
to take advantage at once of the opportunity held out by
the prestige which it gained, and to carry on its reconstruction program energetically.
END MESSAGE.
WILSON.
EA:LWW
34
December 1, 1938.
4:10 p.m.
Operator: Go ahead.
HMJr:
Thomas
Hello,
HMJr:
How are you?
P:
Fine, thank you. I just got back from the President's
Parkinson: Hello Mr. Secretary.
meeting and found your note.
HMJr:
P:
HMJr:
P:
Right. We're going to sell seven hundred million
dollars worth of Government merchandise on Monday.
So I hear.
And I wondered how you felt about it.
Well, we're in need of just such merchandise.
HMJr:
You do.
P:
Yes.
HMJr:
Well, we're kind of thinking of a two and three quarter
long bond and we haven't gone much beyond that, I mean
it'11 be - we'11 have something else, but we don't know
yet what.
P:
HMJr:
P:
I see. How long?
60.65 that's what it looks like tonight.
I see. With the usual normal tax exemption.
HMJr:
The usual.
P:
Yes.
HMJr:
Yes.
P:
Well, such is our condition that we'll have to subscribe
to most anything you offer us.
HMJr:
You would.
P:
Yes.
-2-
35
HMJr:
About what would you need, I mean not the way, what you
put in for subscription, but about what do - how many
would you want approximately?
P:
We'd be delighted to get about fifty million.
HMJr:
You would.
P:
Yes.
HMJr:
I see. Would a nine year two interest you?
Nine year two. Yes.
It would.
P:
HMJr:
P:
HMJr:
P:
HMJr:
Yes. More than the five year tax exempt.
It would.
Yes.
Well I mean would you, for instance if we offered both
a nine year two and a two and three quarters 60.65,
would you subscribe to both?
P:
HMJr:
P:
HMJr:
P:
HMJr:
Yes.
Would you take, what, about twenty -
I think if you - I think if you made it - I think the
banks would probably take that.
The nine year two.
Yes.
Which would be more preferable to your company, the
two and three quarter long or the nine year two?
P:
I think I'd prefer the nine year two.
HMJr:
The nine year two.
P:
Yes.
HMJr:
Uh-huh.
P:
But only on that old theory that some day you've got to
come around to giving us a taxable three per cent
coupon.
-3HMJr:
I see.
P:
I don'tthree.
want to load up too much with long terms
under
HMJr:
I see.
P:
But we need the investments.
HMJr:
But
the nine year two is a little bit more attractive
to you.
P:
Yes I think so, for us.
But if we offered both you'd take both.
HMJr:
36
P:
Yes.
HMJr:
Uh-huh.
P:
If
I were
in your
so,
I'd offer
all position,
three. if you don't mind my saying
HMJr:
That is what?
P:
The five year -
HMJr:
The
five year, the nine year and the long two and three
quarter.
P:
Yes, this is going to be a pretty large amount you know.
HMJr:
It' a billion seven.
P:
Yes.
HMJr:
Yes.
P:
And we'd all be happy if it's thoroughly successful.
Yes, well it's got to be.
HMJr:
P:
HMJr:
P:
Yes, that's it.
It's got to be.
That's it.
37
-4HMJr:
P:
Well, that's what I want to talk to you about.
Well I think that you can get away with that if your
rates
are as you always have made them, adjusted to
the markets.
HMJr:
Yes. We can have them 80 that they'11 sell at a
comfortable premium.
P:
HMJr:
P:
HMJr:
Well sir, we'11 be on your list.
All right. Thank you 80 much.
Not a bit.
If you come to Washington let me know, I'd like to
have you have lunch with me.
P:
HMJr:
I'd
like a lot to see you even for a moment. I'll do
that.
Well, when you come down, let me know.
P:
I'll do that.
HMJr:
Thank you 80 much.
P:
Thank you. Goodbye.
CABLE
38
From: Bankers Trust Co., N. Y.
London Office
Date: December 1, 1938
DE CASTELLANE REPORTS CONTROL TOOK IN 12,000,000 THIS
MORNING THIS AFTERNOON EXCHANGE MARKET VERY QUIET BOURSE
WEAKER. ITALIAN DEPUTYS OUTBURST YESTERDAY CREATED UNFAVORABLE
IMPRESSION. NEW FRENCH AMBASSADOR so FAR RECEIVED COLD RECEPTION
FROM ITALIAN GOVERNMENT. ITALIAN CHARGE D'AFFAIRES IN PARIS
DESCRIBED DEMONSTRATION AS NONSENSE AND CLAIMS ITALY'S ONLY
ASPIRATION END SPANISH WAR. RELATIONS BETWEEN POPE AND
FASCIST GOVERNMENT VERY UNSATISFACTORY. CHAMBER WILL PROBABLY
MEET DECEMBER 9TH DALADIER'S POSITION DEFINITELY STRENGTHENED
AND MAJORITY NOW ALSMOST ASSURED. WHILST PROBLEMS CONNECTED
WITH EXTERNAL SITUATION STILL SERIOUS GENERALLY BELIEVED
CORNER TURNED.
LIQUIDATION LONG DOLLARS POSITIONS SEEMS ENDING AND SINCE
NOON UNDERTONE DOLLAR RATHER WANTED. FORWARDS WANTED. DEMAND
FOR FRENCH FRANCS ALSO SLOWING DOWN. FORWARDS INCLINED BE OFFERED.
CONFIDENTIAL
39
REB
PLAIN
Shanghai via N. R.
Dated DECEMBER 1, 1938
Rec'd 8:28 p. m.
Secretary of State,
Washington.
1456, First.
November thirtieth Chungking. Concerning Admiral Oikawa's
memorandum to senior Naval officer concerning movement of
foreign naval VESSELS on the Yangtze.
SHANGHAI TIMES commenting editorially points out that
Admiral Oikawa's memorandum leaves no doubt that the Yangtze
will remain closed so long as Chinese resistance continues
but EXPRESSES the opinion that is "a clear military duty
of the Japanese to safeguard the arteries of communication
which they have opened." The paper concludes that the
foreign powers clear cut issue which must be met Either by
concrete opposition or recognition of Japan's point of view.
The SHANGHAI EVENING POST and MERCURY described the
Japanese Admiral's memorandum and the recent statement
reported to have been made by the Japanese Vice-Minister of
War as "a drive against foreign neutrality in China" and
states that apparently the only way any foreign country can
preserve its rights in China is bow before Japan.
The
40
REB
2-#1456, From Shanghai, DEC. 1
The CHINA PRESS remarks that the Vice-Minister of War
has neither wasted nor minced words regarding Japan's attitude toward Great Britain while Oikawa has reaffirmed
Japan's decision to KEEP the Yangtze closed. This journal
states further that because of the inactivity and lack of
co-operation among the democratic countries, Japan has
gathered sufficient courage to speak out her mind regarding
British and French interests. It concludes with the hope
that these developments will stir Great Britain to firm
action Either alone or together with other powers similarly
situated.
Repeated to Peiping, Chungking Hankow.
GAUSS
ROW
I
41
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
fee 11DATE December 1, 1938
TO
FROM
Secretary Morgenthau
Mr. White
Subject: Meeting of the National Munitions Control Board,
November 30, 1938, 2:30 P. M.
The meeting was called to consider the procedure govern-
ing the issuance of licenses for the exportation of tin-
plate scrap during the calender year 1939. However, a representative of one of the de-tinning plants requested to
appear in person before the Board in order to make a statement
before a final decision was made on the procedure for the
coming year. The Board voted not to hear the representative's
testimony but to give him and all other interested concerns
an opportunity to present additional written statements to
the Board before a final decision was reached. The meeting
was adjourned for two weeks, during which time an opportunity
would be given for the presentation of statements by various
interested concerns.
A copy of this is being sent to Mr. Oliphant and Mr. Taylor.
m
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEDecember 1, 1938
TO
FROM
Secretary Morgenthau
Herman Oliphant
For your information The public hearings of the Monopoly Committee opened this
morning with a full attendance and a large crowd. After an introductory statement by Senator O'Mahoney, Lubin took the floor, and,
with pointer in hend, stated the meaning of a multitude of charts on
how our economic machine has not been operating at a rate sufficient
to absorb the unemployed. He did not go into the reasons, but his
exposition of the facts was impressive. The large crowd was silent
with intent attention. The atmosphere of the whole proceeding was that
of the first lecture in a first class university course in elementary,
descriptive economics. Peoples was present during the forenoon, and
was to attend during the afternoon in my absence.
no
42
43
Thursday afternoon, December 1st, the Secretary of the Treasury
and Mrs. Morgenthan will be at home to officials of the Treasury
Department, and all allied Bureaus. Two teas will be given, one from
five to six, the other from six to seven, p.m.
Receiving with the Secretary and Mrs. Morgenthan will be Undersecretary of the Treasury and Mrs. John W. Hanen, Assistant Secretary
of the Treasury and Mrs. Wayne Chatfield Taylor, Assistant Secretary
of the Treasury and Mrs. Stephen B. Gibbons.
Those who will assist at the tea table include Mrs. H. J. Analinger,
Mrs. Blair Banister, Mrs. Daniel W. Bell, Mrs. Preston Delano, Mrs.
Eugene S. Duffield, Mrs. Herbert E. Gaston, Mrs. George C. Hane,
Mrs. A. W. Hall, Mrs. Guy T. Helvering, Mrs. Archie Lochhead, Mrs. Wm. H.
McReynolds, Mrs. James H. Moyle, Mrs. Herman Oliphant, Mrs. Thomas Parran,
Mrs. 0. J. Peoples, Mrs. Nellie Tayloe Ross, Mrs. R. R. Waesche, Mrs.
Harry D. White, Mrs. F. J. Wilson.
Generally assisting during the course of the afternoon will be Mrs.
Herman Klots, Miss Nell Chauncey, Miss Mary E. Switser, Miss Isabella S.
Diamond, and Mrs. Arthur R. Forbush.
44
OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON D.C.
DEPARTMENT OF STATE
WASHINGTON
December 1. 1938
My dear Mr. Secretary:
I acknowledge with thanks the receipt of your
letter of November 30 forwarding for my confidential
information copies of various memoranda and maps which
have been furnished you by Mr. K. P. Chen.
Your thoughtfulness in sending me copies of this
material is very much appreciated.
Sincerely yours,
Netto
The Honorable
Henry Morgenthau, Jr. ,
Secretary of the Treasury.
TREASURY DEPARTMENT
45
INTER OFFICE COMMUNICATION
DATE December 1, 1938
TO
FROM
Secretary Morgenthau
Mr. Haas
With a total offering divided among three differ-
ent securities, we would estimate the probable yield
bases and market prices thereof substantially as follows:
(1) 1-1/8 percent 5-year note, probable
yield basis about .95, probable premium 27/32.
(2) 2 percent 8--year bond, probable
yield basis about 1.80 to 1.85, probable
premium 1-6/32 to 1-18/32.
(3) 2-3/4 percent 22-27 year bond, probable yield basis 2.65, probable premium 1-21/32.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
M
46
DATE
December 1, 1938.
TO
Mr. Oliphant
FROM Mr. O'Connell
At my request, this afternoon Mr. Henderson asked
Dr. Lubin the following question:
Itold box
to has this
"Did I understand you to say this morning that
in your opinion we have never produced too much
wheat or cotton to satisfy our real needs?"
question to asked
Dr. Lubin's reply was substantially to the effect that he
had not been speaking merely of wheat and cotton, but that he did
not think we could suffer from over-production in any field as
long as there were people in the country who did not get an
adequate share of the goods produced. In reply to a question from
Senator Borah as to whether or not he thought that that situation
existed to-day, Dr. Lubin answered "of course".
This afternoon's hearing was uniformly quiet and followed
along the same general lines as this morning, with Senator King
asking most of the questions. The Senator attempted to develop
to some extent the thesis that our economic system did not break
down in 1929, but rather that due to some certain external causes,
particularly world indebtedness, it was prevented from functioning
in a satisfactory manner. He also suggested the importance of
speculation prior to 1929 as being a major contributing cause of the
depression.
While a chart of cement production was under discussion
Dr. Lubin pointed out that in recent years 50 per cent or more of
all of the cement produced was for public works. Senator Borah
asked Dr. Lubin whether there had been any reduction in cement prices
during the period shown by the chart, to which Dr. Lubin replied,
"You will have to speak to Mr. Oliphant about that."
Dr. Lubin finished this afternoon, and Dr. Thorp goes on at
10.30 tomorrow morning.
wee
47 he 11-28-38
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
FROM
DEC 1 1938
Secretary Morgenthau
Herman Oliphant
This opinion is for your files. Copies are being sent to
p.103
Messrs. Hanes, Delano, Duffield, Upham, and Gaston.
48
GENERAL COUNSEL
TREASURY DEPARTMENT
WASHINGTON
NOV 28 1938
My dear Mr. Secretary:
Consideration has been given to the authority for and the
operation of Department Circular No. 595, issued by you on September
13, 1938. That Circular provides:
"The operating control of, and responsibility
for, the legal work of the Office of the Comptroller
of the Currency is hereby transferred to the General
Counsel for the Department of the Treasury. Respon-
sibility for decisions on all legal matters, includ-
ing matters of general legal policy, as well as on
any legal aspects of specific cases or instances
shall rest with the General Counsel or those he
designates for this work.
"The Secretary of the Treasury shall pass upon
all changes in the legal staff and in their salaries,
upon the recommendation of the General Counsel. The
General Counsel will be responsible for the assignment of work to various members of the legal staff
and for other matters mentioned in Department Circular No. 519, dated June 20, 1934."
I am of the opinion that the Circular is in every respect
within your legal authority as Secretary of the Treasury. Stated in
summary form, my conclusions are as follows:
I. The Secretary of the Treasury has control over the administrative
functions of the Comptroller of the Currency. This appears from:
A. The debates in Congress relating to the legislation creating
the office of the Comptroller of the Currency and establishing a system of national banks;
B. The legislation itself, the interpretations thereof, and the
interpretations of parallel laws.
49
-2II. The supervision and control of the personnel and the work of
the legal staff are a part of the general regulatory powers of the
Secretary. These powers include:
A. The re-arrangement of the legal machinery of the Department
and the general supervision of legal activities;
B. The appointment of attorneys or the approval thereof.
III. The foregoing propositions are fortified by a consideration
of the statute creating the Office of the General Counsel for the
Department of the Treasury.
I.
A. The Congressional debates which preceded the passage
of the act creating the office of the Comptroller of the Currency
reveal the clear intention of Congress to invest substantial control
over the functionings of that office in the Secretary of the Treasury.
During the course of these debates there was a persistent effort made
by a group in the House of Representatives to secure the independence
of the proposed bureau from the authority of the Secretary. Representatives Brooks and Pruyn, the leaders of the opposition, did succeed in having the House strike out a provision which made the appro-
val of the Secretary a condition to the appointment of the Comptroller
by the President. Thereafter, amendments designed to strike from the
bill the various provisions for supervision and control by the Secretary were regularly introduced and as regularly rejected. The debates
50
-3make it certain that the question as to what should be the relation
between the Comptroller and the Secretary was clearly presented to
Congress and that Congress deliberately chose to make the Comptroller
subordinate to the Secretary and subject to a considerable extent to
control by the Secretary. Ultimately the House acceded to the Senate
Bill and approved a provision making the Secretary's recommendation
a factor in the appointment of the Comptroller.
The understanding of Congress as to the relation which would
be created between the two officers appears from the following excerpts
from the debates:
Rep. Pruyn in (1864) 64 Cong. Globe 1272: "I think
that sufficient prominence and sufficient position
is not given by this bill to the head of this depart-
ment [Comptroller of the Currency]. It should be
made, not a bureau of the Treasury Department--the
Treasury has enough to attend to already--but it
should be made a separate administrative Department
of the Government, and it should be located at the
commercial center of the Government, at New York,
and not at Washington."
Rep. Brooks (objecting to the requirement of the approval of the Secretary in the case of the organiza-
tion of banks, etc.) (p. 1288): "I suggest that,
especially under existing circumstances, that is a
power which ought not to be lodged in the Secretary
of the Treasury, however safe it might be to lodge
it in the Comptroller of the Currency. Indeed, it
seems to me that the whole bill, undesignedly without doubt, concentrates extraordinary powers in the
hands of the Secretary of the Treasury. This is a
high and dangerous power to give to any one man, par-
ticularly to the Secretary of the Treasury at this
moment, standing in the peculiar relation to the
country that he does."
-4-
51
Rep. Stevens (p. 1350) pointed out that the "whole
bill goes upon the supposition that the comptrollership is a part of the Treasury Department."
B. The Act was passed on June 3, 1864, and section 1, 13
Stat. 99, provided as follows:
there shall be established in the treasury
department a separate bureau, * * *. The chief
officer of the said bureau shall be denominated
the comptroller of the currency, and shall be under
the general direction of the Secretary of the
Treasury." (Underscoring supplied.)
it s
The above-quoted language was reenacted with slight grammatical changes
as section 324 of the Revised Statutes of 1873, and although that section has been amended, the language above quoted is substantially that
found in U.S.C. title 12, sec. 1. The following interpretation of this
provision is contained in Frelinghuysen V. Baldwin, (D. N.J. 1882) 12
Fed. 395, 396:
"The Secretary of the Treasury is the head of the
Treasury Department. Section 233 [U.S.C. title 5,
sec. 244]. By section 324 [U.S.C. title 12, sec. 1]
the Comptroller of the Currency is the chief officer
of a bureau of the Treasury Department, charged with
the execution of all laws passed by Congress relating
to the issue and regulation of a national currency,
secured by United States bonds. This officer, in
cases of the insolvency of the association, appoints
a receiver, through whose instrumentality the assets
are turned into the Treasury of the United States;
but the Comptroller performs this, as well as all
other duties, under the general direction of the
Secretary of the Treasury." (Underscoring supplied.)
In Bank of Bethel V. Pahquioque Bank, (U.S. 1871) 14 Wall. 383,
394, the court refers to:
"the conceded fact that such associations (national
banks) are created by an Act of Congress and that
52
-5they are instruments of the National Government
intrusted with the power of carrying on the busi-
ness of banking and of employing and circulating
Treasury notes as a National currency, subject to
the supervision and direction of the Comptroller
of the Currency and of the Secretary of the Treasury." (Underscoring supplied.)
Other statutes containing similar language have been sim-
ilarly interpreted. In the case of Knight V. U.S. Land Association,
(1891) 142 U.S. 161, the authority of the Secretary of the Interior
to set aside a certain survey and order a new survey was contested,
and in deciding the issue it was necessary for the court to determine
the meaning of a provision which placed the Commissioner of the Gen-
eral Land Office "under the direction of the Secretary of the Interior.'
The court's determination is contained in the following language (at
pages 177-178):
"The phrase 'under the direction of the Secre-
tary of the Interior as used in these sections of
the statutes, is not meaningless, but was intended
as an expression in general terms of the power of the
Secretary to supervise and control the extensive operations of the Land Department of which he is the
head. It means that in important matters relating
to the sale and disposition of the public domain, the
surveying of private lands claims and the issuing of
patents thereon, and the administration of the trusts
devolving upon the government, by reason of the laws
of Congress or under treaty stipulations, respecting
the public domain, the Secretary of the Interior is
the supervising agent of the government to do justice
to
all claimants
and preserve the rights of the people
of the
United States."
Continuing, the court quoted (at page 178) with approval the following
statement made by the Secretary of the Interior:
53
-6-
"The statutes in placing the whole business of
the Department under the supervision of the Secre-
tary, invest him with authority to review, reverse,
amend, annul, or affirm all proceedings in the Department *. The mode in which the supervision
shall be exercised in the absence of the statutory
direction may be prescribed by such rules and reguThe
rules
lations as the Secretary may adopt
prescribed are designed to facilitate the Department
in the despatch of business, not to defeat the super*."
vision of the Secretary
It pointed out further that the powers of direction and supervision
are given in general terms to the Secretary, in order to obviate the
necessity of a statutory particularization of each duty and power resting with hrim. See also Stoneroad V. Stoneroad, (1895) 158 U.S. 240.
The interpretation of this same provision was again involved
in Orchard V. Alexander, (1895) 157 U.S. 372. In that case, the court
said, at page 385:
"Nevertheless the section contemplates that the
proceedings shall not be wholly withdrawn from the
control of the Secretary, and implies that they are
but part and parcel of the general administrative
system for the disposal of public lands. While it
is within the discretion of Congress to segregate any
particular step in the proceedings from the
scope of the general system, and place it outside of
and beyond any supervising control of the higher of-
ficers, yet the courts should be satisfied that the
language indicates an intention on the part of Congress so to do before any such break in the harmony
of the system is adjudged
From the interpretations contained in these decisions there
would appear to be little doubt that the Bureau of the Comptroller is
merely one division in the Treasury Department, and that the Comptroller
is a subordinate of the Secretary quite as much as division and bureau
54
-7chiefs in the various executive departments are subordinates of the
heads of those departments. Any other conclusion would do violence
to the provision that the Bureau of the Comptroller of the Currency
is a bureau of the Treasury Department, and would nullify that provision which gives the Secretary "general direction" over the Comp-
troller in the performance of his duties.
Since, therefore, it may be taken as established that the
Secretary has some control over the activities of the Comptroller,
it becomes important to define the nature of that control.
In an opinion to the President by Attorney General Wickersham,
(1912) 29 Op. Atty. Gen. 555, it was said (at page 562)
"It is true that while the Comptroller is performing quasi-judicial functions his discretion can
not be controlled by you (Butterworth V. Hoe, 112
U.S. 50), yet this is not so of all his duties, other-
wise the provision in the statute that he perform his
duties under the general direction of the Secretary of
the Treasury would amount to nothing. Certainly, broad
general lines of policy may be laid down by you to be
followed by the Comptroller; and you may direct him to
make inquiries along certain lines and to consider the
data thus acquired in determining whether individual
banks are in sound condition and are obeying the existing law, and whether amendments thereto should be
recommended. (Underscoring supplied.)
Likewise, in Butterworth V. Hoe, (1884) 112 U.S. 50, the
court, while recognizing and applying a distinction between the "quasi-
judicial" and executive or administrative functions of bureau officers,
impliedly concedes that the head of a department, under his general
powers of supervision, may direct the latter type of activity. (Pages
56 and 67.)
55
-8 The statements contained in these authorities with reference to the "quasi-judicial" functions of the subordinate bodies are
of no relevance here; the important fact in each is the recognition
of the control over bureau chiefs which rests with the heads of departments in connection with executive or administrative functions.
II.
The question may now be conveniently rephrased to read as
follows: Is the action of the Secretary in issuing Department Circular No. 595 anything more than an exercise of this recognized right
to control administrative functions? Under the Circular, the legal
staff and the legal work of the Bureau is transferred to the office
of the General Counsel, and the power to appoint and remove legal
personnel is vested in the Secretary. In other words, there has
taken place an intradepartmental rearrangement of legal machinery
which coordinates the legal work of the Department and promotes its
efficiency.
A. Upon analysis it appears that this redistribution of
work involves nothing more than an administrative question. Before
the issuance of the Circular, the Comptroller, prior to reaching a
final determination in any case lying within his jurisdiction, was
advised by the legal staff of his bureau. Under the new arrangement,
the Comptroller is advised by the legal staff of the General Counsel.
56
-9The power of the Secretary to effect this redistribution
is expressly recognized in section 161 of the Revised Statutes of
1873 (U.S.C. title 5, sec. 22), which provides as follows:
"The head of each department is authorized to
prescribe regulations, not inconsistent with law,
for the government of his department, the conduct
of its officers and clerks, the distribution and
performance of its business, and the custody, use,
and preservation of the records, papers, and prop-
erty appertaining to it." (Underscoring supplied.)
The Attorney General, in (1903) 24 Op. Atty. Gen. 697,
interpreting this provision in an opinion addressed to the Secretary
of the Treasury, has said (at page 698):
#*
* * I do not think that Congress, in en-
trusting you with certain machinery to be employed
in executing the laws, desired to restrict your
freedom in designating the divisions of what was
of course intended to be an organized Executive
Department and not a mere gathering together of
distinct institutions."
B. That the appointment and removal of members of the
legal staff is the exercise of an administrative or executive function has been frequently held by the courts. Myers V. United States,
(1926) 272 U.S. 52, 161 ("The power to remove inferior executive of-
ficers, like that to remove superior executive officers, is an incident of the power to appoint them, and is in its nature an executive power.") State V. Denny, (Ind. 1889) 21 N.E. 252; State V. Rose,
(Wis. 1909) 122 N.W. 751; People V. Griffing, (App. Div. 2nd Dept.
1915) 152 N.Y.S. 113. Such officers are employed in the administrative branch of the Government, and their appointment or discharge is
the exercise of an administrative power.
57
- 10 -
In the absence of an express provision for the appointment
of particular subordinate officers of a bureau, the authority to
appoint such officers will be presumed to be in the head of the department rather than in the head of the bureau. Nishimura Ekiu V.
United States, (1891) 142 U.S. 651, 663. The same thing undoubtedly
is true with respect to the fixing of salaries. Having those powers
as head of the Treasury Department, the Secretary of the Treasury
may, of course, require the recommendation of the General Counsel.
In those limited situations with respect to which there
are specific statutes, the legal position is substantially the same.
Only three such statutes have been found.
Section 328 of the Revised Statutes of 1873 (U.S.C. title
12, sec. 8), provides:
"The Comptroller of the Currency shall employ,
from time to time, the necessary clerks, to be appointed and classified by the Secretary of the Treasury, to discharge such duties as the Comptroller
shall direct." (Underscoring supplied.)
Section 5240 of the Revised Statutes of 1873, as amended
(U.S.C., Sup. III, title 12, sec. 481), as it appears in the Code,
provides, in part, as follows:
"The examiners and assistant examiners making the
examinations of national banking associations and
affiliates thereof herein provided for and the chief
examiners, reviewing examiners and other persons
whose services may be required in connection with
such examinations or the reports thereof, shall be
employed by the Comptroller of the Currency with the
approval of the Secretary of the Treasury:
(Underscoring supplied.)
58
11 -
It will be observed that both of those statutes expressly
refer to the power of the Secretary of the Treasury. Since the first
statute expressly gives the power of appointment and classification
to the Secretary, the language, "The Comptroller of the Currency shall
employ," is intended to direct the Comptroller to make use of the
services of persons who are appointed by the Secretary. There can,
therefore, be no question about the Secretary's power to appoint and
fix salaries, insofar as that statute refers at all to members of the
legal staff. The second statute expressly requires the approval of
the Secretary of the Treasury for the employment of the persons men-
tioned, including, by clear implication, the fixing of salaries. Thus,
with respect to persons employed under that statute, the Secretary
clearly may "pass upon all changes in the legal staff and in their
salaries" and may do 80 "upon the recommendation of the General Coun-
sel", as provided for in Department Circular No. 595.
Section 209(b). title II (providing for National Agricultural Credit Corporations), of the Agricultural Credits Act of 1923,
42 Stat. 1467 (U.S.C. title 12, secs. 9, 9(a)). provides, in part,
as follows:
"The Comptroller of the Currency is hereby authorized to employ such additional examiners, clerks,
and other employees as he deems necessary to carry
out the provisions of this title and to assign to
duty in the office of his bureau in Washington such
examiners and assistant examiners as he shall deem
necessary to assist in the performance of the work
59
- 12 -
of that bureau. The salaries of the Deputy Comptrollers of the Currency and of such additional
examiners, assistant examiners, clerks, and other
employees shall be fixed in advance by the Comp-
troller of the Currency."
It should be noted at the outset that that statute has a very limited
application, vis., to persons employed to carry out the provisions of
law relating to National Agricultural Credit Corporations. Moreover,
section 77 of the Farm Credit Act of 1933, 48 Stat. 272 (U.S.C. title
12, sec. 1151a), provides:
"After the date of the enactment of this Act,
no national agricultural credit corporation shall
be formed under the provisions of the title II of
the Agricultural Credits Act of 1923."
It is understood that all the National Agricultural Credit Corporations
have been liquidated except one. The liquidation of that one has been
almost completed, and it involves no legal work. Thus, section 209(b)
of the Agricultural Credits Act of 1923 is no longer applicable to mem-
bers of the staff doing the legal work of the Office of the Comptroller
of the Currency.
In any event, appointments under that section had to be ap-
proved by the Secretary of the Treasury. Section 1 of the Act of June
30, 1876, 19 Stat. 63 (U.S.C. title 12, sec. 191) and section 5234 of
the Revised Statutes of 1873, as amended (U.S.C. title 12, sec. 192),
authorizing the appointment of receivers in certain cases by the Comp-
troller, do not refer to the Secretary. In spite of this omission,
the conclusion resulting from a line of holdings is that the approval
60
- 13 -
of the Secretary is a prerequisite to the valid appointment of receivers. Frelinghuysen V. Baldwin, (D. N.J. 1882) 12 Fed. 395;
Price V. Abbott, (c.c. D. Mass. 1883) 17 Fed. 506; United States V.
Schlierholz, (E.D. Ark. 1905) 137 Fed. 616: Gibson V. Peters, (1893)
150 U.S. 342; In re Chetwood, (1897) 165 U.S. 443; Auten V. United
States National Bank, (1899) 174 U.S. 125; United States V. Weitzel,
(1918) 246 U.S. 533. The question in these cases was whether re-
ceivers are "officers of the United States" for the purpose of jurisdiction of the lower Federal courts, and it was held that appointments
of receivers are to be presumed to have been made with the concurrence
or approval of the Secretary, and, therefore, are made by the head of
a department within the meaning of Article 2, section 2, of the Constitution. Such a presumption would be unjustified except upon the
ground that the Secretary had the power to approve or disapprove ap-
pointments. The theory of the courts apparently is that powers of
this nature vested in the Comptroller are modified by section 324 of
the Revised Statutes of 1873, as amended (U.S.C. title 12, sec. 1),
which provides, as it appears in the Code, as follows:
"There shall be in the Department of the Treasury a bureau charged with the execution of all laws
passed by Congress relating to the issue and regulation of a national currency secured by United States
bonds and, under the general supervision of the Board
of Governors of the Federal Reserve System, of all
Federal reserve notes, the chief officer of which
bureau shall be called the Comptroller of the Currency
and shall perform his duties under the general directions of the Secretary of the Treasury." (Underscoring supplied.)
61
- 14 -
The same theory applied to employment under section 209(b) of the
Agricultural Credits Act of 1923, with regard to salaries as well as
appointments. Since, then, employment and salaries under this statute were subject to the approval of the Secretary, the same conclusion
follows as was reached above in connection with the second statute
discussed.
It should be observed that the result reached in the foregoing cases leads to the conclusion that the Secretary also has regulatory powers over administration, since his control over appointments
is predicated upon his general supervision of the Comptroller's functions and the administration of receiverships is one of these.
III.
By section 512 of the Revenue Act of 1934, 48 Stat. 758
(U.S.C. title 26, secs. 1720-1726) there was created in the Treasury
Department the office of General Counsel. That it was the intention
of Congress, in enacting this provision, to include the legal work of
the Comptroller's office within the scope of the General Counsel's
control and responsibility, clearly appears both from the report of
the Committee on Finance of the Senate and the report of the Committee
on Ways and Means of the House. The Senate report contains the following statement ((1934) Sen. Rep. No. 558, 73d Cong., 2d Sess. 50;
to accompany H. R. 7835)
02
- 15 -
"The legal activities of the Treasury Depart-
ment are now handled by separate, uncoordinated
legal units in the various divisions, bureaus, and
offices of the Department. A single responsible
law officer, having the necessary power, can co-
ordinate the activities of these distinct legal
units and prevent inconsistency of action, duplication of effort, delays, and waste of public
funds." (Underscoring supplied.)
A similar statement appears in the House report (1934) H. R. Rep.
No. 704, 73d Cong., 2d Sess. 40; to accompany H. R. 7835)
"Section 512. General Counsel for the Treasury: At the present time a number of the bureaus
and divisions of the Treasury have separate legal
staffs, operating independently of each other.
Although the law provides for a Solicitor of the
Treasury, he is vested with power only over a
limited field, not assigned to other legal offi-
cers in the Department. There is no responsible
legal officer in the Treasury with power to coordinate the legal work of these separate groups of
lawyers and to prevent waste and duplication of
effort among them." (Underscoring supplied.)
Section 512, as finally enacted, provided, in part:
"The General Counsel shall be the chief law officer
of the Department, and shall perform such duties in
respect of the legal activities thereof as may be
prescribed by the Secretary or required by law."
Pursuant to the authority of this section, the Secretary of the Treasury, by Department Circular No. 519, of June 20, 1934, provided as
follows:
"The General Counsel is hereby authorized to
perform all duties and functions incident to the
administration of the legal activities of the Treasury Department, including the signing of letters
and approval in my stead of such documents as may
come before him in the legal course of his administration of the Legal Division of the Treasury
Department, and such other duties as may be assigned
to him by me from time to time.
63
- 16 -
"All matters relating to personnel in the
Legal Division, including recommendations for new
appointments, transfers, promotions, or other
matters relating to changes in personnel, and all
matters relating to the purchase of books and sup-
plies for the Legal Division shall be referred to
the General Counsel for approval before any action
is taken thereon."
This order of the Secretary placed in the General Counsel's
office the active supervision of all Treasury legal matters and referred to the General Counsel the appointment of all personnel in
the Legal Division for approval before final action by the Secretary
of the Treasury.
Since the effective date of this order, the General Counsel
has supervised the legal work of the Bureau of Narcotics, the Coast
Guard, the Bureau of Customs, the Procurement Division, etc. It seems
obvious that the control of the General Counsel was properly extended
by the order under consideration, Department Circular No. 595, of
September 13, 1938, to the legal business of the Bureau of the Comp-
troller of the Currency, since, in its relationship to the Treasury
Department, that bureau would seem to occupy a position no different
from any of the other bureaus enumerated above.
Very truly yours,
General Counsel.
The Honorable
The Secretary of the Treasury.
84
TREASURY DEPARTMENT
WASHINGTON
December 1, 1938
CONFERENCES IN THE SECRETARY'S OFFICE
REGARDING THE DECEMBER 15 FINANCING
(The Secretary, Mr. Allan Sproul of the
Federal Reserve Bank of New York and
Mr. Bell, present.)
Mr. Levy,
Salomon Brothers and Hutzler
9:15 a.m.
The Secretary asked Mr. Levy what he would advise the
Treasury to do in connection with the forthcoming financing.
Mr. Levy said that he would have three issues, a 2-3/4%
bond of 1960-64; a 2-1/2% straight 14-year bond; and a Treasury
note, either an additional issue of the last June notes or a
4-year note maturing December 15, 1942. He said that the insurance
companies will take both the 2-1/2% and the 2-3/4% bonds and the
banks will certainly take the 2-1/2s.
Mr. Sproul asked him how much there is in the investment
market for a 2-3/4% bond. Mr. Levy said it was his opinion that
the amount was relatively small compared with the total investment
funds available. He thought the savings banks would take the
2-1/2% bond rather than the 2-3/4%
The Secretary asked Mr. Levy if he thought there would be
any market trouble in the 2-3/4%. He said absolutely none. Then
the Secretary asked him about a 5-year note.
65
2-
Mr. Levy said he had not considered a note at all, but
looking over his yield sheet he thought we might want to go to as
much as 1-1/4% for five years; that 1-1/8% would go but it is not
quite rich enough, while the 1-1/4% might be considered a little
too rich. He said a 2-3/4% bond would certainly go and every one
would subscribe to it, but there is always the question of subsequent
redistribution, which makes a bad market for a period of two or three
weeks following an issue.
The Secretary then asked him if we could sell a 25-30 year
bond at 2-3/4%. Mr. Levy did not feel that such a bond would be
certain of success although the insurance companies would take an
issue of this kind. He thought it would be much better to reduce
the period to 20-24 or 22-25 years.
Mr. Sproul asked how much the market would absorb in long-
term bonds, whether the market would take as much as one billion
dollars of a 2-3/4% issue. Mr. Levy seemed to evade the question
and said it was hard to tell, he did not know whether it would go
as much as a billion or not.
-000-
Mr. Aldrich,
Chase National Bank
9:45 a.m.
The Secretary told Mr. Aldrich that he assumed he had seen
the announcement in the morning papers to the effect that the
66
-3 Treasury was offering some kind of new security for $700,000,000
in cash and exchange offerings to the holders of the March maturities
in the amount of $942,000,000. He said he would like Mr. Aldrich's
advice on what would be proper for the Treasury to do, not only from
the standpoint of the country but from the standpoint of the banks.
Mr. Aldrich said that from his observation the commercial
banks would certainly prefer a relatively short-termed obligation.
He was quite familiar with the current talk in New York and he was
inclined to agree that a three-way proposition is the better course
to pursue; that is, a note of some kind, a 7-year bond and a longterm bond. As an alternate, the Treasury could certainly get by with
a long-term bond and an intermediate bond. He does not feel that the
note should be issued. As a matter of fiscal policy he thinks the
Treasury should make every attempt to extend the present maturities
and get the present heavy debt program in the next five years extended
over a much longer period.
He said there seemed to be no question about a 2-3/4% bond
and that a substantial amount of subscriptions for this security will
come from insurance companies, while the banks would be heavy sub-
scribers in an intermediate bond if one is offered.
Mr. Aldrich asked about the deficit. He said he thought that
was an uncertain factor and when I told him that the latest official
67
-
estimate indicated that the deficit for the current fiscal year
would be about $3,985,000,000, the only uncertain factor in that
estimate being the additional funds required for the Works Progress
Administration program for the period from February 1 to June 30,
1939, he said he thought the figure was too low. He felt it would
be nearer 4} billion dollars. In reply to his question as to the
estimate of revenues, I told him $5,000,000,000 He seemed surprised
and said he had a figure in mind of about 4) billion for revenue.
The Secretary asked Mr. Haas to come in and bring the so-
called "bubble charts" which he explained to Mr. Aldrich. They
showed that for the first four months of this fiscal year the receipts
are about 8% above the estimates and the expenditures about 6% below.
Mr. Aldrich then went into a discussion of deficit financing.
He said he believed that the responsibility of those who buy Government bonds and advise others to buy them is about as great as the
responsibility of the Secretary of the Treasury in carrying out the
fiscal policies of the Administration. With a program of deficit
financing and no possibility in sight of a balanced budget, he
questioned whether the banks should buy long-term Government's.
He said he did not believe in the pump-priming theory and he was
quite certain that it had not produced the results which its advocates
had promised. He believes that the influx of gold will continue and
that there will be some pressure in the next Congress for further
68
5-
devaluation of the dollar. These will have a tremendous influence
on our economic situation.
Mr. Aldrich said he is amazed at the amount of money that
continues to flow from abroad. His bank has from 50 to 60 new accounts
every month, many of which are opened by German refugees, and sub-
stantial amounts of money are constantly being deposited to the credit
of these accounts. Foreign deposits with the Chase National Bank
today stand at about $256,000,000.
Then he went into a rather lengthy discussion of the foreign
situation as he viewed it from his trip this fall. He said he had
a number of conferences with high government and banking officials
and came away with the feeling that it is only a question of time
until the situation in central Europe will be brought to a crisis,
which may result in a much better situation than has prevailed in
the past. He said he was surprised when he got to France to learn
that French officials had conferred with German officials on the
question of how to handle the French situation. The advice given
by the Germans urged the French not to put on any kind of exchange
controls because that was the first step that Germany took, which, in
the opinion of these officials, later led to the various steps that
were taken, namely. regimentation, control of the Jews, control of
prices, control of production and prohibition against free speech,
all of which in turn led to larger expenditures for national defense.
09
-6 Another point stressed was the feeling abroad of every country
watching the experiments being made in the United States and the
urge on the part of many politicians over there to adopt many of
these experiments. It was his opinion that the United States can
not go on indefinitely with deficit financing; that if it does the
day is certainly approaching when we also will drift further towards
regimentation and control of the whole economic situation, which
in turn will have a far-reaching effect upon the European situation,
each country following what we are doing, and eventually all will go
over the precipice together. He said he assumed that the Secretary
was just as worried about the situation as he is and that he probably
is constantly thinking about it. He feels that something will have
to be done to stop the very definite trend in this country toward
regimentation and control.
Mr. Aldrich continued by saying that he realizes the next
Congress will have to air its political views and make some attempt
to carry out some of the many political promises made during the
last campaign and that there will be a great deal said about Social
security programs such as the Townsend Plan and others. However he
hopes the Administration will be successful in opposing all of these
Utopian schemes.
After we got out in the corridor Mr. Aldrich handed me a
memorandum covering the December 15 financing. A copy is attached.
70
MEMORANDUM
to
Mr. Aldrich
Re: U. S. Treasury December Financing
The Treasury Department has announced that the December financing
will include the sale of $700,000,000 of securities for cash and the refunding of $942,000,000 1 1/2% Notes due March 15, 1939. This latter issue is
non selling at approximately 101 18/32, which theoretically establishes the
price of at least one of the issues to be offered in the refunding operation.
Various opinions are given as to the types of new issues to be offered both for cash and in exchange for the notes to be refunded. Combinations
of at least four types of securities are being discussed.
1. A five-year note having a coupon of 1 1/8% or an additional
issue of the notes presently outstanding due in four and onehalf years having a coupon of 1 1/8%, now selling at 101 6/32
to yield .85%
2. A 2% bond due in eight or nine years. Bonds optional in seven
and one-half years are presently selling at about a 1.87% basis,
and bonds optional in nine years at approximately 1.96% This
obligation and the issue next described, it is thought, would be
in demand on the part of commercial banks.
3. A 2 1/2% bond due in 1952 or 1953. This bond at 100 would compare with a 2 1/2% bond due 1952/50, which was sold at 100 in
September and is now selling at around 102 to yield 2.30% The
2 3/4's due 1954/51 at 103 1/2 now yield 2.42%
4. A 2 3/4% bond due in the neighborhood of twenty-five years.
There is an issue outstanding of 2 3/4's due 1963/58 which was
given in exchange in June, 1938, and is now selling at 102 6/32
to yield 2.60% This type of bond would probably be more suitable
for insurance companies.
The general discussions of the various combinations of the four abovementioned securities include a combination of the note issue and the 2 3/4% bonds
due in about twenty-five years, both of which would be exchangeable for the issue
to be refunded.
Another program includes the sale for cash of equal amounts of 2% bonds
due in eight years and long 2 3/4% bonds, these two issues to be offered also in
exchange for the 1 1/2% notes, with an additional offering on an exchange basis
only of 4 1/2 year 1 1/8% notes.
A third program would consist of three securities offered for cash:
(1) a four and one-half or five-year 1 1/8% note, (2) a bond due in fourteen
-271
years, or in place of this issue a 2% bond due in eight or nine years. As the
third part of the program, they could offer a 2 3/4% bond due in approximately
twenty-five years. All of these issues would be exchangeable for the 1 1/2% notes
due in 1939.
I feel that a good program for the Treasury to follow would be to offer
for cash four and one-half or five-year 1 1/8% notes and 2 1/2% bonds due in fourteen years. Both of these issues would be offered in exchange for the 1 1/2%
notes due March 15, 1939, and this latter issue could also be turned in for the
2 3/4% bonds due 1963/58 which are presently outstanding and sell at 102 1/8 to
yield 2.60%
Nov. 30, 1938
Shellob R. Green
72
-7Mr. Garner,
Guaranty Trust Company,
11 a.m.
The Secretary asked Mr. Garner what he would do if he
were sitting in his chair with respect to the December financing.
Mr. Garner said he had given the matter quite a bit of
thought and had talked with people in New York, and if he were
writing the ticket he would have three issues: (1) a 2-3/4%
1960 - 65 bond (possibly the maturity date could be brought down
to 1964 or 1963 and would go better); (2) an 8-1/2 year (June 15,
1947) 2% bond; and (3) a note, possibly 1-1/8% for 5 years. The
note, however, is not essential.
Mr. Garner said there is a good but somewhat limited demand
for long-term bonds. Insurance companies, savings banks and some
commercial banks will take the long bond, and no doubt it will be
many times over-subscribed as it will command a premium of from
1-5/8% to 1-3/4%. He feels that the commercial banks will take the
8-1/2 year bond and that it will be largely over-subscribed as it
will sell at a premium of from 1-1/2% to 1-5/8%. This latter bond
is in line with the longer bond and would not throw a larger percentage of the offering to one or the other. He thought the subscriptions might be on an even keel. To offer a note in connection
with this program is not essential but there are always note buyers
in the market and he believes the Secretary should satisfy the
73
-8-
market to that extent. It is necessary to bear in mind that we
are eliminating from the market some $942,000,000 in notes and it
is only fair to replace them in part by a small note issue.
Mr. Garner continued by saying that if the Treasury should
desire to issue a long-term bond and a note, he was quite satisfied
that we would get an over-subscription for the note for cash but
we would get very few exchanges; that a large part of the exchange
subscriptions would go into the long-term bonds even by those who
would not hold them but would take them for sale in order to get
the premium. This would raise a rather serious problem of subsequent
distribution, whereas if we have an 8-1/2 year bond this would fit
in very nicely with the banks' portfolios and would give the banks
a nice maturity for which they would exchange the notes, the majority
of which are held by commercial banks. By issuing a 2% bond and a
2-3/4% bond the effect would be to eliminate the speculator from the
market because the issues would go exactly where they belong and
would be kept and not disposed of.
The Secretary then asked Mr. Garner how far the Treasury
could go with a 2-1/2% bond. He said we could probably go to 1952
and might even extend it to 1953 with a definite maturity. We
could make it a 1951-53 bond but he would not put out a 2-1/2%
and a 2-3/4% bond. He believes the 2-1/2% would very definitely
detract from the 2-3/4% and might give rise to an even more serious
74
-9problem of distribution. He believes there are two distinct demands
in the market -- one by the banks for the shorter bond and one by
the insurance companies for the longer bonds.
The Secretary then asked him whether, if the Treasury put
out three issues, a 2-3/4%, a 2% and a 1-1/8%, it would be taken by
the market as a sign of weakness. He said he did not think so but
on the other-hand would be interpreted as an attempt on the part of
the Treasury to meet the desires of the investors.
The Secretary requested his opinion on an offering of a
2-3/4% bond and a 1-1/8% note. He said there would not be any question
about its success, but the majority of the exchanges would certainly
go into the bonds. There was then quite a discussion of how a program
of $300,000,000 2-3/4% bonds, $200,000,000 2% bonds and $200,000,000
1-1/8% notes, all for cash with the privilege to the holders of the
March maturity of exchanging for any of the three issues, would go.
Mr. Garner said a program of this kind in his opinion would exactly
fit the situation as it exists today and would be pleasant news to
the whole market.
We then discussed the length of bond we could issue with a
2-3/4% coupon. Mr. Harris, who had just come into the room, thought
we might go as far 68-67-67 and that it might command a premium of
from 1-3/8% to 1-3/4%. He and Mr. Garner both agreed that it might
be weak. They thought a 960-65 would command a premium of 1-5/8% and
might work up to 2% Mr. Garner said he preferred, if the Secretary
75
- 10 wanted to get beyond the 1960 period, a 1961-65 and we might even
go to 1962-65. He did not feel the Secretary ought to go beyond
1965 as a maturity date but that he could fix the call period any
place between 1960 and 1963.
He was then asked how he thought the exchanges would go on
the three-way proposition. He said he did not think the notes would
get any exchanges to amount to much but that the two bonds might
split evenly within a range of from $350,000,000 to $500,000,000.
Mr. Harris raised the question of how the exchanges would go if
the note issue bore a rate of interest of 1-1/4%. He said that
would make some difference but he still thought the large majority
of the exchange subscriptions would go into the bonds. The Secretary
then said he was very definitely not in favor of a 1-1/4% note. Such
a security would command a premium of almost as much as the two bonds
and he did not think the Treasury should pay that much for its money
when it could get it at 1-1/8%.
-00o-
Dr. Burgess,
National City Bank, New York City
Luncheon conference.
Others present were Under Secretary Hanes, Assistant
Secretary Taylor and Mr. Haas.
The Secretary asked Dr. Burgess to give his views on the
forthcoming financing. He started out by saying that the Treasury
76
- 11 -
could sell almost any kind of security as the market is in excellent
condition. He thought, however, that we ought to arrange our issues
so that they will just about fit the market requirements. What we
should try to do is to arrange our maturities and rates so that not
more than $750,000,000 will go into any one issue. He thought a
2-3/4% bond of 1960-65 and a 2% bond of June, 1947 (8) years) would
just about take care of the market requirements. He said that we
could open up the notes of last June to satisfy those who want to
continue their investment in notes, but he did not think we would
get more than $50,000,000 in exchanges. Making this statement,
Dr. Burgess was under the impression that the total financing, including the exchange offering for the maturities in March, would
aggregate about 1-1/2 billion. He was told that the total financing
would be about $1,700,000,000 so that the $750,000,000 limit pre-
viously referred to would probably have to be raised to around
$850,000,000.
Dr. Burgess was quite certain that if the two bonds indicated
were issued, the insurance companies and savings banks would be heavy
subscribers to the long-term bond, while the commercial banks would
be the heavy subscribers in the shorter-term bond. Furthermore, he
thought we would not have a subsequent redistribution problem as
both insurance companies and the banks would take these bonds for
permanent investment. He thought that if we confined it to a longer
77
- 12 term bond, such as the 2-3/4% 1960-65 or 1-1/8% 5-year note, the
banks would subscribe to the bonds, not with a view to holding
them permanently but with a view to selling them on the market as
soon as it was possible in order to realize the profit.
The Secretary then said that in the morning conference he
had thrown out, just for discussion, the suggestion that we offer
a 2-3/4% 1960-65 bond in the amount of $300,000,000; an 8-1/2-year
2% bond for $200,000,000; and a 1-1/8% 5-year note for $200,000,000
all for cash with the option to be granted to the holders of the
March 15 maturities to exchange them for any one of the three issues.
He asked Dr. Burgess what he thought of this suggestion.
Dr. Burgess said he thought it was very good and that it
would suit the market perfectly. He did not think we would get many
exchanges on the notes, probably $50,000,000. Of course we would
get the cash subscriptions which would make a note issue of about
$250,000,000. He thought the exchanges for the other two issues
would go about fifty-fifty. The only objection he had to this proposal was the maturity date of December, 1943. He called attention
to the fact that we already have in this year a $600,000,000 note
maturity in June. It is also the call date for the 1943-47 bonds
in the amount of $450,000,000. October is the call date for the
1943-45 bonds in the amount of $1,400,000,000. He thought it might
be well to consider selling a 4-year note. The Secretary stated
78
- 13 that he would like to have the December, 1942 date kept as it is
with the small maturity. Dr. Burgess and Mr. Sproul both indicated
that the Secretary's suggestion of a three-way issue of new securities
would suit market conditions perfectly and that there is not much
argument between the 5-year note, the 4-year note and reopening of
an old issue.
79
- 14 Mr. Devine,
Devine and Company,
3 p.m.
Mr. Hanes and Mr. Taylor also joined this conference as
well as the one following.
The Secretary asked Mr. Devine what he would do with the
forthcoming financing. He said that he would issue a 2-3/4% of
1960-65, a 2% 9-year bond all for cash and allow the privilege
to the March holders to exchange into these securities, and in
addition, he would reopen the 1-1/8% 5-year notes for exchange
purposes only. He says there is some talk about a 21% bond,
period 51-53, but he does not feel that this is the proper place
to put a bond as there are already heavy maturities in this
period.
He says the market is now just right for the program he
has suggested. The banks are staying out of the market and have
been for two months and cash is piled up and there will be ready
investors as soon as the December financing is out of the way.
He thinks that a 9-year 2% bond will sell at about 101-3/8 to
101-1/2. He believes that you might get as much as $600,000,000
conversion and if on Saturday morning the term seems a little
too long the period can be reduced to 8-1/2 years. He says
there has also been some suggestion in the market that the short
bond be an 8 year obligation but he thinks this is ridiculous
and entirely too rich.
80
- 15 -
The Secretary then explained to him that during the
day we had discussed the possibilities of an issue for cash of
$300,000,000 2-3/4% long bond, $200,000,000 2% short bond and
$200,000,000 1-1/8% notes with exchanges in all three. He
asked Mr. Devine how many exchanges out of the $942,000,000
maturing notes he thought we would get and how would they be
divided. Mr. Devine said that he believed that possibly as
much as $500,000,000 of the long bond would go into exchanges,
$400,000,000 of the short bond, and a negligible amount, 50
to 75 million dollars, would go into notes.
The Secretary then asked him if there was involved any
question of confidence in this program. Mr. Devine said he
did not believe that was a serious factor although he did not
believe the Treasury would show a great amount of confidence
by issuing notes for cash. He thought it would be much better
to have $400,000,000 long bonds and $300,000,000 short bonds
for cash, both of which would go well.
The Secretary then explained that the note market was
thin. We would take $942,000,000 of notes out of the market
and that the people who have purchased notes have been very
good to the Treasury in the past and he did not see why we
should not put out something in this financing, particularly
in view of its size, that would please those who would prefer
notes. Furthermore, the Secretary said there is a large
- 16 -
81
maturing issue in June, $1,294,000,000, and we may want another
500 or 600 million dollars in cash in which case it would make
a total financing of about $2,000,000,000 and that he might want
to try this three way proposition again either at that time or in
March.
Mr. Devine said that the market, he thought, would be quite
surprised to get three issues and for that reason he argued for the
reopening of an outstanding issue but in this connection the Secretary was adamant. Mr. Devine said that if the Secretary would
issue $500,000,000 in long bonds and $200,000,000 in short bonds
to a fixed date it would help a great deal. It would also have
the effect, in his opinion, of not getting too much on a fixed
maturity date and, at the same time, not getting too large an amount
into the long maturity which might come back upon the market.
The Secretary then asked him if there was any question in
his mind as to the success of the three issues he had suggested.
Mr. Devine said there was none whatever, that it would go and go
big.
Mr. Mills and Mr. Repp.
Discount Corporation,
3:30 p.m.
The Secretary asked these gentlemen what kind of a program
they had mapped out for the Treasury in the forthcoming December
financing. Mr. Mills said the market certainly expected a 2-3/4%
82
- 17 bond 1960-65 period. It seemed to him about the only question involved with respect to this issue was to how many long term bonds
the market can absorb. We certainly don't want a large bond of this
issue to be indigestible later on. He said the insurance companies
will be in the market for bonds although their balances are not
quite as large as they were in September, declining possibly
$100,000,000. Savings banks and trust companies will take the long
bonds and so will many of the other banks as they are now interested
in earnings. He thought there were several sources of this
character which would certainly take the long bond. He also
thought we would have to write the ticket of the long bond in
such fashion that we would get about the amount we would like to
have outstanding in this issue then couple it with a short bond,
say 2% for 8-1/2 years. Then he would have a note issue pos-
sibly for exchange purposes only and for this purpose he thought
the reopening of an old issue would be preferable. Specifically
he recommended $400,000,000 2-3/4% long bond, $300,000,000 2%
short bond, all for cash wi th exchange privileges, and a reopening
of the 1-1/8% of last June for exchange purposes only. He thought
this program would give us possibly a large conversion into the 2's.
In writing down the figures he thought we might get as much as
$600,000,000 in exchanges and $200,000,000 in cash on the 2%,
$400,000,000 in cash and $300,000,000 in exchanges on the 2-3/4%
and on the 1-1/8% notes the conversion would be negligible.
83
- 18 The Secretary then explained to them that he would
not want a billion dollars falling due on a fixed maturity
date and that something would have to be done to hold the short
term bond down to 5, 6, or 7, and not more than $700,000,000.
Mr. Mills suggested that we have the note for cash and that
might take the pressure off the intermediate bond.
The Secretary then asked him what he thought of the
proposition that we had been discussing throughout the day,
namely, $300,000,000 2-3/4% long bonds, $200,000,000 2% 9-years,
and $200,000,000 1-1/8% new 5-year notes, all for cash with exchange privileges. The Secretary asked him what the Treasury
would get under this program. Mr. Mills said he thought we would
get on cash and exchanges $300,000,000 on the notes, $700,000,000
on the 2% bonds, and $640,000,000 on the 2-3/4% bonds. Mr. Repp
thought we would get $250,000,000 on the notes, $600,000,000 in
short bonds, and $750,000,000 in 2-3/4% bonds. Mr. Repp's esti-
mate would be ideal if we could get that division.
Mr. Mills said that he would not, just speaking in a
broad way, offer the financing in a three way proposition. He
would put out $300,000,000 in notes and $400,000,000 in long
bonds for cash and then an intermediate bond for exchange only.
The Secretary said that was new and very interesting and wanted
to know what he thought we would get on exchange if we offered
a 2% 9-year bond. There was a great deal of discussion about
this last suggestion. The Secretary asked them to consider
84
- 19 -
this suggestion of Mr. Mills in its relation to the other
maturities and other securities that would have to be offered
and come to his house at 8:30 p.m. for a further conference.
He made it plain before they left that he doesn't
particularly like a fixed maturity date; that he wants to
satisfy to some extent the note holders and asked them to
keep these things in mind for the 8:30 discussion.
Messrs. Mills, Repp, Hanes
Sproul and Bell,
8:30 p.m.
Mr. Mills said that they had considered the matter
for about an hour and then had had dinner with Mr. Sproul and
further discussed it. Mr. Mills went on to explain at great
length why they thought that the Secretary ought to put out
two bonds for cash. He stated that putting the cash on the
long term bond and no cash on the note might have the effect
of pressing the prices on the long term bonds and throwing
the conversion rights into the shorter term bonds and might
get a large proportion of your notes converted into the short
term bonds.
After a great deal of discussion on this point the
Secretary stated that there were two things that he did not
want. He did not want as much as a billion dollars maturing
at a fixed date and he did not want more than $750,000,000
85
- 20 -
of long term bonds to be put out at this time for the simple
reason that Federal Reserve System representatives feel that
that is about the limit the market can absorb and anything in
excess of that would no doubt be thrown back on the market for
sale. This would have an adverse effect on the market and
would require the Federal Reserve System to support the market.
He wanted the cooperation of the Federal Reserve System in
supporting the market. He wanted to confine the long term
bond to about the amount suggested by the Federal Reserve an-
thorities.
Mr. Mills said they had considered the proposition of
the Secretary and had come to the conclusion that he could put
out a 2-3/4% bond 1960-65 which would sell from 1-12/32 to
1-20/32 premium, a 2% 9-year bond, without cash, which would
sell just about on the same basis, and a 1-1/8% 5-year note
would sell about 1 point premium.
Mr. Mills thought that this program would produce about
$640,000,000 long term bonds with $440,000,000 cash and
$200,000,000 exchanges, $380,000,000 notes with $330,000,000
cash and $50,000,000 exchanges, and $690,000,000 of short terms
on exchanges. Mr. Repp thought this was a fairly good program
but he thought you might get as much as $300,000,000 exchanges
on the long bond.
86
- 21 The Secretary then called Dr. Burgess of the National
City Bank of New York on the telephone and made the suggestion
to him and asked his advice on it. Dr. Burgess said he thought
the 9-year 2% bond was a little thin and it would probably throw
more weight toward the long term bond. The Secretary answered
that by saying he thought we possibly could stand another
$200,000,000 on the long term bond without in any way hurting
the situation. Dr. Burgess also questioned the compilations
made by Messrs. Mills and Repp that the short bond for exchange
purposes only would sell on about the same basis as the long
bond, namely 101-12/32 to 101-20/32.
The Secretary said that in conclusion he was satisfied
in general with the program and that he intended to announce
before the market opened the next morning the following:
The Treasury would offer $400,000,000 2-3/4%
long bond and $300,000,000 5-year note, all for
cash, with the right of the March maturity holders
to convert into either one of those securities,
plus the right to convert into a 2% short bond.
He then called Mr. Haas on the telephone and told him
what he had decided and requested that he get Mr. Seltzer and
Mr. Harris together the following morning and discuss the relative
yields of these various securities and then discuss it with him
at nine o'clock.
short
is
approx e 2/11/38 date 87
ESTIMATES OF NATIONAL INCOME IN 1939
It is estimated that national income produced will be approximately
$68 billion in 1939. This compares with an indicated $62 billion in 1938
(on the basis of data available for ten months only) and $70 billion in
1937. On this basis approximately three-fourths of the loss from 1937 to 1938
should be recovered in 1939.
The above estimate is based upon analysis of underlying conditions and
current trends. This analysis indicated a probable average of 106 for the
Federal Reserve Index of Production in 1939. In December of 1938, the
index is expected to be in the neighborhood of 100 and after a levelling
out, or perhaps even a small decline, in the early part of 1939, to increase
rapidly in the later part of the year.
The estimated rise in national income produced from $62 billion to $68
billion is approximately ten percent, which reflects in part the improved
position with reference to business savings. This item, after payments of
dividends and withdrawals by entrepreneurs, is expected to show only a
small net loss in 1939, as compared with an estimated net loss of more than
$2 billion in 1938. National income paid out is expected to rise approximately six percent from $64 billion in 1938 to $68 billion in 1939. Since
income payments are running at about an annual rate of $66 billion at the
present time, ** will be necessary for them to increase to an estimated
rate of approximately $71 billion at the end of 1939 in order that the estimated average for the year can be attained.
88
Estimates of National Income in 1939
2.
The accompanying table summarizes the above estimates and gives the
comparable figures for 1937 and 1938, the latter being partly estimated
also.
1937
*1938
E 1939
National Income Produced
Business Savings
69.8
+0.5
62.0
68.0
-2.3
-0.3
National Income Paid Out
69.3
64.3
68.3
45.4
42.1
44.6
Transportation and utilities
15.9
4.8
15.1
4.6
Government, Service, Other
Work Relief
15.0
1.8
12.9
4.4
7.6
14.9
2.2
9.5
8.2
9.0
10.4
9.8
10.3
Net Rents and Royalties
2.5
2.6
2.5
Social Security Contributions, etc.
1.4
1.6
1.8
Compensation of Employees
Manufacturing, mining, construction
Trade and Finance
Dividends and Interest
Entrepreneurial Withdrawals
*Partly estimated
E- Estimated
7.9
7.9
15.1
1.9
U. S. GOVERNMENT RECEIPTS AND EXP DITURES ( HERAL AND SPECIAL ACCOUNTS ONLY)
89
(Fiscal Year Ended June 30, 1938-Dollar Amounts in Millions
EXPENDITURES
RECEIPTS
Visible Budget
Invisible Budget
Visible Budget Invisible Budget
(Dollar Amounts)
(Dollar Amounts)
x
.
Multiplier (Dollar Amounts)
Multiplier
Multiplier (Dollar Amounts)
Multiplier
L GENERAL
INTERNAL REVENUE
Departmental
2 1/2
2
1
0
2 1/2
Employment Tax (Title VIII--Old Age)
Tax on employees
Tax on employers
813
203
508
352
704
397
397
1,476
Harbor Work and Flood Control
Tax on employees
Tax on employers
2 1/2
272
950
2.1
974
2,653
582
1,989
3 1/2
362
1,266
3.2
326
1,035
926
1,389
National Defense
Veterans Administration
3,749
568
1,430
257
890
2 1/2
257
643
3.4
ever
Agricultural Adjustment Program
I
D
Civilian Conservation Corps
Interest on Public Debt
aver.
1 1/2
II. RECOVERY AND RELIEF
90
Public Highways; River and Harbor Work,
270
and Flood Control
1/2
3.5
3 1/2
75
2 1/2
75
1.2
945
3 1/2
W.P.A.
263
311
296
118
1,473
5,122
224
591
ever.
188
2.6
other
ever.
1,078
3
III. ALL OTHER RECEIPTS (inc. adj.)
378
aver.
1,071
359
II. CUSTOMS
1,932
Social Security Act (grants to states for
3
Railroad Employment Compensation Taxes
644
Public Buildings: Highways: River and
3,690
3 1/2
Tax on Employers of 8 or More (Title IX-Unemployment
271
417
Alcoholic, Mnfre. Excise, and Misc. Taxes 3 1/2
Tobacco Taxes
220
needy persons, etc.)
Corporation Income and Capital Stock Taxes 2 1/2
Datate and Gift Taxes
63
0
Net income under $5,000
Net income of $5,000 and under $25,000
Net income of $25,000 and under $50,000
Net income of $50,000 and under $150,000
Net income of $150,000 and over
3 1/2
3
Individual Income Tax
Aid to Home Owners (including Farm Security
Administration
342
aver.
3.2
240
778
aver.
III. REVOLVING FUNDS (NET)
134
335
Public Works--Loans and Grants to States, etc. 2 1/2
607
0
0
IV. TRANSFERS TO TRUST ACCOUNTS. ETC.
1.7
366
aver.
V. ALL OTHER EXPENDITURES
1,626
Total receipts
6,242
Total expenditures (excl. debt retirement)
15,207
o
Visible Balance (Deficit)
Invisible Balance (Income Effect) +
610
1,384
4,684
19,891
U. 8. GOVERNMENT RECEIPTS AND EXPENDITURES (GENERAL AND SPECIAL ACCOUNTS ONLY)
(Fiscal Year Ended June 30 -Dollar Amounts in Millions)
90
RECEIPTS
Visible Budget
EXPENDITURES
Invisible Budget
(Dollar Amounts)
Visible Budget Invisible Budget
(Dollar Amounts)
x
Multiplier)
x
Multiplier (Dollar Amounts)
Multiplier (Dollar Amounts)
L GENERAL
INTERNAL REVENUE
189
229
681
2 1/2
172
430
299
598
1
337
337
1,220
3,050
2 1/2
0
needy persons, etc.)
306
Veterans Administration
Leoholic, Mnfrs., Excise and Misc. Taxes
3 1/2
1,124
3,934
Tobacco Taxes
2 1/2
552
1,380
Tax on employees
Tax on employers
3 1/2
97
340
97
242
1,680
2 1/2
264
660
3 1/2
167
585
2.8
851
2,356
580
1,983
3 1/2
527
1,845
3.2
386
1,233
1 1/2
866
1,299
2 1/2
355
889
1,896
6,606
384
1,007
298
932
221
553
aver.
3.4
aver,
Agricultural Adjustment Program
Civilian Conservation Corps
2 1/2
560
Social Security Act (grants to states for
National Defense
state and Gift Taxes
Employment Tax (Title VIII--Old Age)
Public bldge.; highways; river and harbor
work, and flood control
0
corporation Income and Capital Stock Taxes
54
2
Net income of 3,000 and under $25,000
Net income of $25,000 and under $50,000
Net income of $50,000 and under $150,000
Net income of $150,000 and over
Departmental
3 1/2
3
Net income under $5,000
3
individual Income Tax
Multiplier)
0
Int
not on Public Debt
aver,
II. RECOVERY AND RELIEF
fax on Employers of 8 or More (Title IX-Unexployment
58
174
486
1,458
263
263
3
DISTOMS
Public highways, river and harbor work, and
flood control
3
W.P.A.
1
ALL OTHER RECEIPTS (incl, adj.)
3.5
aver.
other
aver,
2.6
aver,
Aid to home owners (inc. Farm Security Adm.)
3.1
aver.
III. REVOLVING FUNDS (NET)
V. ALL OTHER EXPENDITURES
Visible Balance (Deficit)
0
IV. TRANSFERS TO TRUST ACCOUNTS. ETC.
1/2
2.3
868
213
0
Public Yorks, loans and grants to states, etc. 2
498
aver.
3,148
Invisible Balance (Income effect) +9,044
Total receipts
5,294
13,082
Total expenditures (excl. debt retirement)
8,442
22,126
2
91
Summary
1. On a reasonably optimistic estimate, industrial production may
rise to 106 by the second quarter of 1939, and about 115 to 120
for the fiscal year 1939-40.
2. If such a rise in industrial production does take place, it would
reduce non-farm unemployment from about 8.6 millions now to about
7.3 for the 1939-40 fiscal year.
3. To continue to provide relief to the same proportion of the unemployed now covered, W.P.A. expenditures of one billion fifty million
dollars would be needed for the first half of 1939, and 1.85 billion
for the 1939-40 fiscal year.
4. 600,000 cases now certified to W.P.A. are not now employed because
of limited funds. Their families are without support except for
direct relief, which is usually very meager. Increasing unemployment insurance payments offset only a portion of this deficiency in
W.P.A. To care for the se cases as well as those already covered,
W.P.A. funds would have to be increased materially above the amounts
stated.
5. On a very optimistic forecast, industrial production might rise to
116 by the second quarter of 1939 and to about the 125 to 130 level
for the fiscal year 1939-40. Even in that extreme case, W.P.A.
expenditures needed to maintain merely the present level of adequacy
would be one billion dollars for the first half of 1939, and 1.6
billions for the 1939-40 fiscal year.
6. Judging from past periods of recovery, industrial production for the
1940-41 fiscal year might average between 105 and 130. Such a level
of production would reduce unemployment to between 5.7 and 7.8 millions,
and require W.P.A. appropriations of between 1.45 and 2.0 billions for
the 1940-41 fiscal year to maintain the present level of adequacy.
92
How much will it be safe to reduce W.P.A.
during 1939, 1939-40, and 1940-41?
How fast can W.P.A. rolls be reduced without increasing the
number without food and clothing?
The answer depends on our appraisal of a number of subordinate
questions, as follows:
1. How fast and far will industrial recovery go?
Careful appraisals of the immediate prospects, and a reason-
ably optimistic appraisal of the possible speed of continued recovery
over the years ahead, based on similar recovery periods in the past,
give the following forecasts as a basis for our estimates:
Forecast of Industrial Production
(Federal Reserve Index, 1923-25 - 100)
Actual to date
1929 average
1937 average
1938 June
November (preliminary)
Index
119
110
77
102
Estimated 1
1938 4th quarter
1939 1st quarter
1939 2nd quarter
1939-40 fiscal year
1
101
100
106
120
Estimated by Agricultural Industrial Relations Section,
Division of Program Planning, A.A.A.
These forecasts, in comparison with the annual data since
1920, are shown in the upper portion of Figure 1.
-2-
93
2. How rapidly will employment rise?
In the past, changes in industrial production have been reflected in employment in non-farm employment, with some lag between
them. This is also shown in Figure 1, by the employment data charted.
On the basis of previous relations between production and employment, the non-farm employment which would be produced if the forecasted production is realized has been estimated, as shown below:
Actual to date
Industrial production index 1
Non-farm employment 2
Millions
(Seasonally adjusted)
1929 average
1932 average
1937 average
36.1
27.7
34.6
31.8
119
64
110
1938 June
77
1938 October
96
32.7 (Preliminary)
Forecasts
1938 4th quarter
1939 1st quarter
1939 2nd quarter
1939-40 fiscal year
1/
2
100
33.5
33.3
106
34.4
120
35.3
101
3
Federal Reserve index, 1923-25 = 100
Department of Labor. Excludes W.P.A., c.c.c., and other
relief employment.
3
The reduction is due to the usual seasonal decline in employment during the winter.
These estimates are also shown on Figure 1.
3. How rapidly will unemployment fall?
Figures on the persons available for non-farm employment have
been compiled from previous data on employment and age composition of the
population. Comparing these with the estimates of non-farm employment,
the numbers of non-farm unemployed may be projected as follows:
94
3Non-farm unemployment
(in millions)
Non-farm labor
Actual
supply 1/
1929 average
1932 average
1937 average
1938 June
October
Non-farm
employment
Non-farm
unemployment
37.7
39.1
41.3
41.8
41.9
36.1
27.7
34.6
31.8
32.7 (p)
9.2 (p)
42.0
33.5
33.3
34.4
35.3
8.5
8.8
7.8
7.3
1.6
11.4
6.7
10.0
Forecasts
1938 4th quarter
1939 1st quarter
2nd quarter
42.1
42.2
1939-40 fiscal year 42.6
This excludes the number of wives or daughters seeking work
because their husbands or fathers are unemployed. Biggers'
census indicated that in November, 1937, there were over
1
2 1/2 million such persons looking for work, in addition to
those ordinarily available for work.
The changes in the number of persons actually employed at any
one time reflect many other factors besides industrial production. 1
If these estimates are fulfilled, non-farm unemployment will
change from its present levels (for the 4th quarter of 1938) about as
follows:
1st quarter, 1939 3.5 per cent increase over present
2nd quarter, 1939 8 per cent decrease below present
1939-40 fiscal year 14 per cent decrease below present
In addition to industrial production, the number of persons actually
employed will be influenced by changes in the usual work week, in the
output per person employed, and in the extent of part-time or overtime work. If it were possible to account for the se factors as well,
the above forecasts might be modified somewhat and made Lightly more
reliable. Such perfections of the data, however, would probably be
small compared to the total unemployment shown below, and therefore
would change the estimated relief needs only alightly. Shifts from
part-time to full-time will tend to increase the average hours worked
per week, but the wage s and hours law and other pressures toward
a shorter full-time week will work in the opposite direction. The
estimates presented are on the basis of the present levels of production and the present average hours.
1
-4- -
95
4. How rapidly will the need for relief decline?
Aid to the unemployed and needy is provided through public
assistance, old-age assistance, and unemployment compensation.
Unemployment compensation payments are taking care of an increasing number of the unemployed, as more and more states reach the
stage where their outpayments begin. The cases taken care of and the
sums disbursed, however, represent as yet only a very small fraction
of those in need because of unemployment. At the peak of their fall
program, W.P.A. had 600,000 cases certified for W.P.A. employment who
could not be taken on because of inadequate funds. Increasing unemployment insurance payments in 1939 may close about one quarter to one
half of this gap between needs for W.P.A. jobs and funds available, but
that is about all they can be counted on for in the immediate future.
Old-age assistance has expanded until 1,735,000 persons are
now receiving old-age payments, while aid to the blind and to dependent
children is providing for an additional 330,000. These special types
of public assistance care for only a small portion of the distress due
to unemployment, however, and will continue to expand regardless of
business conditions. 1
General relief, although presumably for non-employables, shows
some tendency to vary with business conditions. It expanded rapidly in
the winter of 1937-38, before the increased W.P.A. appropriations became
available, and shrank again as W.P.A. began expanding. Since July,
however, general relief expenditures have remained relatively constant
at about 36 million dollars a month. C.C.C. expenditures, too, remain
1/ Old age insurance may have reduced the number of persons over 65 who
are seeking employment by about 100,000 to 200,000 cases, judging from
Biggers' census. This may make the following estimates high to this
slight extent. If further studies confirm this shift, the estimates
of persons employable will be revised accordingly.
96
-
relatively stable, showing little reflection of business conditions.
W.P.A. has constituted the most important source of relief for
the unemployed since it replaced F.E.R.A. This is evident in the following tabulation:
Period
Estimated nonfarm unemployment
Thousands
1933
1934
1935
1936
1937
1938 nine mos.
September
1
Estimated undupli-
cated relief cases 1
Thousands
11,841
9,738
8,943
7,654
6,744
9,733
9,478
W.P.A. employment 2
Thousands
4,212
4,706
4,677
4,116
3,262
4,297
4,567
-
-
-
2,530
1,785
2,562
3,111
Excludes assistance granted under the Social Security program and under some other smaller programs whose recipients,
in general, are not employable. Also, excludes emergency
drought relief in 1936.
Excludes N.Y.A. employment.
2
W.P.A. thus constitutes the major method of relief, now caring
for 33 per cent of the unemployed, or for two-thirds of all relief cases.
The proportion of the non-farm unemployed on W.P.A. jobs dropped
from 33.1 per cent in 1936 to 26.5 per cent in 1937, and then rose again
to 32.8 per cent by September, 1938. The drop in 1937 was explained in
part by the sharp cut in the budget during that year.
The number needing relief in 1939 and 1939-40, may be estimated
on the assumption that W.P.A. will continue to be needed for the same proportion of the unemployed as in 1936 and in September, 1938. These fore-
casts are as follows:
Non-farm
Period
Actual
1938 September
Unemployment
W.P.A. employment
Millions
Millions
9.5
3.11
8.8
7.8
7.3
2.90
2.57
2.41
Forecast
1939 1st quarter
2nd quarter
1939-40 fiscal year
-6 -
97
These estimates are based on the assumption that as employ-
ment rises the same proportion of the unemployed, 33 per cent, will
continue to need W.P.A. help. In the past the major relief to the unemployed has been provided from their own resources or thatoof relatives,
and that is why as low a per cent as 33 have been on W.P.A. As unemployment decreases, it may be that the proportion of the unemployed who
can get along without relief help will increase, so that the proportion
in need of W.P.A. will diminish. On the other hand, the long duration
of heavy unemployment for many may so exhaust their resources as to make
still a larger proportion in need of relief. In the absence of any clear
basis for judging between these two alternative possibilities, the estimated need has been based on the existing coverage.
5. What Federal W.P.A. funds will be needed to meet the 1939 needs?
Total W.P.A. expenditures during recent calendar years have
varied from $847 per relief worker down to $770 per worker for September,
1938. Assuming that this latter rate is maintained over the period,
Federal W.P.A. funds will be required as follows to provide for the
cases estimated:
Federal W.P.A.
expenditures
Actual
(annual equivalent)
Millions
1936
1937
1938 September
W.P.A. employment
Millions
$2,069
1,510
2,400
2.53
1.79
3.11
2,230
1,980
1,850
2.90
2.57
2.41
Forecasted
1939 1st quarter
2nd quarter
1939-40 fiscal year
98
-
For the first six months of 1939, this would require W.P.A.
expenditure running at about 2.1 billions annually, or about $1,050,000,000
for the six-month period, to maintain the present level of relief, compared to unemployment. For every $100,000,000 that W.P.A. expenditures
are cut below this level during the first half of 1939, about 260,000
families in need of relief will be cut off W.P.A. rolls. That means
that 800 to 900 million dollars in addition to present funds will be
needed by W.P.A. for the rest of the current fiscal year, to continue
relief merely on the present level. Even more would be needed to enable
W.P.A. to care for the several hundred thousand families certified to it
which it cannot now employ.
For 1939-40, W.P.A. appropriations of about 1.85 billions will
be needed if production, employment, and relief needs develop as estimated here.
Effect of a more rapid recovery
These estimates are based upon a reasonably optimistic fore-
cast of continued recovery. Even if the recovery should go much faster
than that, however, the relief problem would still be heavy. For example, if industrial production should exceed that previously estimated
by a full 10 points throughout, the forecasts would then be as follows:
Period
Industrial Non-farm Non-farm W.P.A.
production employ- unemploy- cases
ment
Millions
1939 1st quarter
110
2nd quarter
116
1939-40 fiscal year
130
33.6
35.0
36.4
ment
Millions Millions
8.5
7.2
6.2
2.80
2.38
2.04
W.P.A. ex-
penditures
(annual rate)
Millions
2,160
1,830
1,570
-8-
89
Even on this most optimistic basis, W.P.A. expenditures of
just about one billion dollars for the first half of 1939, and of 1.6
billions for the succeeding fiscal year, would be needed to maintain
unemployment relief on its present level of adequacy.
Possible relief needs during the
1940-41 fiscal year
The 1940-41 fiscal year is 18 to 30 months ahead, and any
forecast now as to conditions then will be necessarily largely con-
jectural. In past recovery periods following sharp depressions like
that of 1938, however, industrial activity two to three years later
has varied widely, the most rapid progress showing over 50 per cent
recovery from the low year, and the least, less than 25 per cent re-
covery. If this time the recovery falls within the same pattern, it
would result in a level of industrial activity for the 1940-41 fiscal
year somewhere between 105 and 130.
Such production in 1940-41 would mean a non-farm unemployment
of between 5.7 and 7.8 million. W.P.A. expenditures of between 1.45 and
2.0 billions would be needed to care for such unemployment, on the
present basis of adequacy.
46 26
28
66
for fiscal years
Forecasts,
30
Production
st
100 32
34
120
-Employment
mext
ton
Product. Employ-
Figure 1. Industrial Production and Non-form Employment
101
December 2, 1938.
MEMORANDUM
At 3 P.M. December 2, 1938, Mr. Shoji Arakawa, Financial Commissioner
of the Imperial Japanese Government, Financial Attache to his Imperial
Majesty's Embassies at London, Paris and Washington, was received by the
Secretary of the Treasury. Also present were Messrs. Lochhead, Cochran
and Butterworth, whom the Secretary presented to the caller.
Mr. Arakawa began the conversation by telling the Secretary that he
had talked with Mr. Taylor, and by asking that the Secretary learn of the
conversation from the Assistant Secretary rather than have him repeat it
at this time. He explained that he was assigned to the three capitals
of London, Paris and Washington, but spends most of his time in London.
The Minister of Finance of Japan, whose friendship the visitor enjoys,
had instructed him to visit the United States at this time and he is
consequently spending ten days in New York and ten days in Washington.
He stated that the Minister of Finance, a Harvard man well
acquainted with the United States and enjoying a splendid reputation
in his own country, was interested in hearing from the Secretary of the
American Treasury in regard to the general situation in the United States.
Secretary Morgenthau replied that it was difficult to know where to
begin in describing the American situation. He would gladly be helpful
but the Treasury itself had such a variety of activities and wide range
of interests that to undertake to discuss them was impossible. There
were no problems up between the Japanese and American Treasuries to
discuss.
The visitor said that his Minister would be especially interested in
the broad lines of the American impressions of the Sino-Japanese war.
The Secretary said this was not in his field to discuss and that the
Press gave the American reaction fully.
Again the Secretary said there were no Treasury problems between the
two countries. There had arisen at one time a question in regard to
Japanese gold shipment, but this had been satisfactorily adjusted and
the Federal Reserve Bank of New York, the fiscal agent of the Treasury,
and the Central Bank of Japan and were in touch with each other and
cooperating.
This reminded the visitor that he had failed to thank the Secretary
for this cooperation in the past. In this connection he said he knew
that American Ambassador Grew was informed by the Minister of Finance
of Japan as to the latter's interest in having the cooperation of the
United States in the development of territory which the Japanese occupied
in China. Secretary Morgenthau said it would be interesting to see what
might transpire in this phase of the matter, but this was a subject for
discussion between the Japanese Ministry for Foreign Affairs and our
Department of State.
102
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
S7I
Imm ( IS
DATE December 2, 1938
TO
FROM
Secretary Morgenthau
Herman Oliphant
burns says:
Miss Freda Utley will be in Washington on December 12
or 13, and it occurred to me that you might welcome the opportunity
to talk to her. She is the Far Eastern correspondent of the
London News Chronicle and is now on her way to London from China.
She is the author of Japan's Feet of Clay (1937), Japan's Gamble
in China (1938) and numerous other books. She is also a frequent
contributor on Far Eastern subjects to journals of foreign affairs.
She is coming to Washington to address the National Press
Association and for a conference with Mrs. Roosevelt. She is
deeply sympathetic to the Chinese cause. I hope that she will
be available for discussion during the lunch hour, but it is
possible that she may be free only in the evening.
10
103
December 2, 1938
To:
Mr. Oliphant
From
Mr. Duffield
The position of the Comptroller of the Currency and
his Office as units within the Treasury Department is clearly
set forth in the law, debates of Congress, opinions of the
Attorney General and court decisions. The law sets up
"in the Department of the Treasury a bureau" to be headed by
a Comptroller of the Currency who "shall perform his duties
under the general directions of the Secretary of the Treasury."
This language 15 similar to that used in setting up other
bureaus within the Treasury Department, as, for instance,
Bureau of the Mint.
That the Congress intended this law to mean that
the Comptroller's Office should be a unit within the Treasury
was further demonstrated by the debates which preceded enact-
ment of the National Banking Act. Amendments to the Act
which would have struck from it various provisions of super-
vision and control of the Comptroller's Office by the Secretary
were introduced and rejected except one making the Comptroller
the appointee of the President rather than of the Secretary.
This appointment feature is also typical of other Treasury
officials, such as the Commissioner of Internal Revenue, the
104
2-
Director of the Mint, the Surgeon General, all of whom are
clearly under direction of the Secretary.
A district dourt has held that the Comptroller
performs his duties "under the general direction of the
Secretary of the Treasury," and the Supreme Court has spoken
of the national banks as being "subject to the supervision
and direction of the Comptroller of the Currency and of the
Secretary of the Treasury."
The Attorney General informed the President in 1912
that, although the Secretary can not control the Comptroller's
discretion in performing quasi-judicial functions, the
Secretary must obviously superfise the administrative and
executive functions of the office 1f the law is to have any
meaning when it says that the Comptroller performs his duties
"under the general directions of the Secretary.
Since the Comptroller's Office is by law a bureau
within the Treasury, the Secretary has authority to provide
for "the distribution and performance of its business* under
the laws which give each Cabinet Officer the power to operate
his own Department. The action of the Secretary on
September 13th, placing the legal work of the Comptroller's
Office under the General Counsel for the Treasury Department,
was an action providing for distribution and performance of
the business of a unit of the Treasury Department.
105
-3The portion of the September 13th order providing
that the Secretary shall pass upon all changes in the legal
staff and upon salaries paid that staff is not prohibited by
any specific portion of law. Therefore, it is within his
power because appointment of executive officers and employees
of a unit within the Department remains with the Secretary
unless otherwise provided.
The authority for this action is further supported
by the law creating the position of General Counsel for the
Treasury Department which states that the General Counsel shall
be the chief law officer of the Department and shall perform
such duties as the Secretary may require of him.
TRIPLICATE
NO.130.
the
AMERICAN CONSULATE
Rangoon, Burma, December 2, 1938.
subject:
Shipments of War Materials.
strictly Confidential.
The Honorable
The Secretary of State,
Washington.
Sir:
I have the honor to report that the war supplies for
China brought from Odessa to Rangoon by the British steamor STANHALL have been unloaded at this port, and that,
with the exception of explosives, they have been placed in
warehouses of the Port Commission, where they are being
guarded by Military Police. The explosives are being
held on a barge in the Rangoon river below the port.
The supplies in the warehouses are being checked by
the Customs authorities. A manifest of the Gargo was not
obtained, and detailed Customs inspection WES ordered. No
Customs statistics are yet available.
The STANHALL arrived here on November 8th, but un-
loading was not commenced until November 21st, pending
attempts to obtain a manifest, the preparation of a report by the Customs for the Government, and the Govern-
ment's decision in the matter. The ship was granted
clearance and left this port yesterday.
Report of American Supplies.
There is a report that some motor-truck parts and
some
107
-2 some munitions of American origin are included in the
supplies brought by the STANHALL, all of which were load-
ed at Odessa. This report has not yet been verified.
All of the cargo from the STANHALL will be transported to Lashio by the Burma Railways. Some special
freight cars for the carriage of ammunition and explosives
have been built in the railway shops, and others are build-
ing. It is planned to establish a transit depot at
Lashio, on ground owned by the Burma Railways, the required
storage facilities to be provided by the Chinese, together
with a garage and repair shop.
In oreer to reduce the danger of explosions and at
the same time to obtain a lower freight rate from the
Burma Railways detenators are being removed from shells,
preliminary to shipment. Shipment of the supplies now
stored here will not be commenced until motor-transport
arrangements are completed and it is apparent that trucks
can get through from Lashio to Yunnanfu. Chinese representatives are now at Lashio in connection with transportation arrangements.
Respectfully yours,
Austin C. Brady
American Consul
Distribution:
1.
2.
3.
original and four copies to the Department.
Copy to the American Embassy, London.
Copy to the Consulate General, Caloutta.
800.
AGB/1sh
A true copy S
the sioned original
Confidential
108
December 2, 1938.
UNITED STATES RAILROAD EQUIPMENT AUTHORITY
Proposal: Establish a railroad equipment authority, with
capital stock owned by the Treasury, empowered to issue guaran-
teed debentures for the purpose of contracting for the purchase
of new railroad rolling stock to be rented or leased to railroads.
1. The Stimulation of Recovery
Expenditures of some $500 million on railroad equipment could
be assured in the first year of operation. Apart from the stimulaion this would afford the economy in general, it would provide
work for the railroads' own car shops and increased traffic for
the roads themselves.
2. The Removal of Future Bottlenecks
Preliminary estimates indicate that in order to handle the
volume of traffic consequent upon the continuance of recovery at
a desirable rate, yearly expenditures on rolling stock of about
$800 million at present prices would have to be incurred in the
period 1939-41. From the standpoint of the national economy it
would obviously be to our interest to utilize idle plant and labor
in the immediate future in order to relieve the shortages, stoppages,
and bottlenecks that will arise in freight traffic, the railroad
equipment industry and in the steel industry with the continuance
of recovery.
3. A Contribution to Future Stability
The railroad equipment field has traditionally a feast and
famine character and is consequently an important source of economic
109
-2-
instability. A federal authority, not pressed by financial considerations or immediate profit considerations, could level off the peaks
and valleys of railroad equipment buying.
In addition, variation in rental rates for equipment would
offer a highly desirable alternative to variations in freight rates
as a means of bringing about greater stability in railroad net earnings.
4. National Defense
A modernized supply of rolling stock adequate to handle the
volume of traffic incident upon war appears to be an indispensable
element in any comprehensive program of national defense. Moreover,
experience in the handling of a national car pool will be invaluable
in the event of war.
5. Betterment of the Financial Structure of Railroads
The gradual substitution of rented and leased rolling stock
for owned equipment would permit a reduction in the debt of railroads
and a substitution of variable for fixed charges. Moreover, the proposal offers a means whereby the Government could stimulate private
expenditures without getting deeper involved in the complicated finan-
cial structure of the railroads.
6. Improved Efficiency
The proposal, through making possible continuous buying, greater
standardization, and more liberal provisions for research, should per-
mit very substantial reductions in costs to be achieved. It should
also permit more efficient utilization of rolling stock in the handling of empties, etc.
110
-3-
7. Relation to the "Railroad Problem"
The proposal could be adopted independently and without
prejudice to any comprehensive program of reorganization and
consolidation of the railroads, which may take a long time to
accomplish.
111
-4-
Objections to the Proposal:
1. Government Ownership.
The proposal does, of course, involve a degree of Government
ownership, so far as rolling stock is concerned. It may be
pointed out here, however that
(a) it is only a degree removed from the present practice of making loans to financially shaky roads,
(b) it is far removed from the actual Government opera-
tion of railroads as is practiced in certain other democratic
countries such as Canada and Sweden,
(c) it is proposed that the Government operations be
confined to research and ordering, renting or leasing equipment and that no construction or repair be undertaken in
Government shops.
2. Loss to the Government
It may be objected that the Authority's equipment will be
used only during peak periods and years of exceptionally high
traffic volume and that for the rest "the Government will be left
holding the bag."
This objection can easily be disposed of by pointing out
that this all depends on the terms of leasing or daily rentals.
If they are set sufficiently low, it will pay the railroads to
use the Authority's equipment, and rely on old high - repair- cost
equipment for peak requirements. Low rental rates will also
112
-5-
constitute an inducement to retire old equipment.
This way out, however, raises another objection. If rentals
are set too low, the revenues of the Authority will be inadequate
to service its obligations and keep its equipment in good repair.
It should, however, for the following reasons, prove possible for
the authority to set sufficiently low rentals to induce the railroads to use its equipment and yet not suffer a loss:
(a) It will have the advantage of borrowing at lower
interest rates than the railroads can secure;
(b) being a very large and continuous buyer of standardized equipment it should be able to secure greater price concessions than any individual road could obtain;
(c) there should be economies consequent upon the growth
of a national car pool;
(d) it will be in a position to charge higher rentals
in good years to recoup any losses sustained in bad years.
Finally, it must be kept in mind that even though the Authority
should actually show a loss, this would not be incompatible with
a large net national gain in more stable and higher national income,
production and employment.
3. Technical Difficulties
The proposal has been examined by a number of operating railroad men and although problems have been pointed out in connection
with repairs, zoning, storage, etc., it appeared to be the general
113
-6-
consensus that the problems would be similar to those now encount-
ered in connection with "foreign" cars and the private leasing
companies, such as Pacific Fruit Express, and various ways of
meeting these problems were at hand.
In connection with the determination of the volume of new
equipment of various types, it would appear feasible to make for
better national estimates of the number of different types of
freight cars and locomotives that 8 certain volume of traffic will
require than could possibly be arrived at as the sum of individual
estimates made independently by the various roads.
4. Inequities as Between Roads
Some companies have normally an excess of cars and others
a deficiency. Some companies, therefore, would be in a better
position to take advantage of low rentals on new equipment while
others might suffer a loss of revenue now derived from the use
of their cars by other lines.
Again, many roads now build a substantial amount of equip-
ment in their own shops and individual hardships might result
from the inevitable changes in the location of work consequent
upon national bidding for a single buyer. These changes might
be tempered by policies of the Authority in distributing new
equipment, repair and reconditioning work.
-7-
114
Alternatives:
The alternatives appear to be either to do nothing or to
stimulate railroad equipment purchases through loans to railroads
from the R. F. C., on favorable terms.
It is said that if the R. F. C. should announce that it was
prepared to purchase equipment trust certificates
(a) up to 100 percent of the cost of new equipment,
(b) at a 2} percent rate,
(c) for comparatively long maturities,
(d) the offer to be available for a limited period only,
a very large amount of anticipatory railroad equipment buying would
be induced.
While this alternative is far better than doing nothing at all,
it appears inferior on various counts to the proposal under discussion.
1. It Lacks Flexibility.
The chief objection, from the compensatory fiscal policy viewpoint, is that an emergency loan operation does not provide a mechanism through which the Government could operate continuously, and
outside the budget, to smooth out fluctuations in expenditures in an
important field.
With reference to the immediate situation, it is almost impossible
to forecast the extent to which a favorable loan offer would be taken
up. Once announced, it would be difficult to change the terms. If
a big rush of orders ensued, deliveries would have to be spread over
a future period, or else a temporary bottleneck would occur. If few
115
-8-
orders came in, the terms could not be lowered further or the offer
extended without arousing a sense of grievance on the part of those
who had already availed themselves of the offer.
2. There are definite obstacles in the way of offering terms
that will really be effective.
The R. F. C. must consider the soundness of each individual loan
and cannot explicitly rely upon averaging and upon higher interest
returns in good years offsetting low returns in bad, as could the
proposed Authority. The most favorable terms offered to date by
the R. F. C. were in connection with the purchase of equipment trust
certificates of the Southern Railroad for 100 percent of the cost of
freight cars, at 4 per cent, and for fifteen years.
In bad years, when on national economic grounds expenditures
on railroad equipment are most desirable, the credit of the railroads
is weakest and, confronted with surplus equipment on the one hand
and financial difficulties on the other, they would be most reluctant
to borrow and purchase new equipment even on the most favorable terms.
3. A loan operation does not offer a good possibility for
securing cost reductions and efficiencies.
Each loan being an individual loan, there does not exist the
same opportunity to derive the economies arising from large, continuous orders of standardized equipment, or from research, or from car
pooling.
4. Other implications
Further large loans to the railroads would involve the Government
still more in the complex financial structure of railroads, and would
-9-
result in a further increase in railroad debt and fixed charges.
Moreover, it would be difficult to refuse to other borrowers the
particularly favorable terms that would have to be offered to
the railroads.
116
117
December 2, 1938.
9:30 a.m.
Operator: Operator.
HMJr:
Allan Sproul, Fed. New York please.
O:
Right.
HMJr:
Hello.
0:
Mr. Sproul. Go ahead.
HMJr:
Hello.
Allan
Sproul:
Good morning Mr. Secretary.
HMJr:
Good morning. You have an audience here.
S:
Yes.
HMJr:
Including Mr. Ronald Ransom.
S:
Yes.
HMJr:
S:
How do you feel this morning on what we did last talked about last night?
I feel all right about it.
HMJr:
Now, I tell you what I'd like you to do a minute,
supposing you talk to Mr. Ransom, will you? I think
he'd like to talk to you.
S:
Yes.
Ronald
Ransom:
Allan, I just raised a question with the Secretary as
to the three way plan as being somewhat different from
there a day or two ago.
what we were discussing in the Board room, when we were
S:
Yes.
R:
He says that you think the three-way plan is entirely
satisfactory.
That's right.
S:
R:
And you share Wayne Taylor's view that he's just
expressed that it's just right.
118
-2 S:
R:
S:
The way we figured out the prices again this morning,
and it looks as if it would be just about right.
I see.
The two and three-quarters, the long two and threequarters and the nine year too, on the basis of present
markets would sell for about the same premiums, the
trading arrangements could be about 101.8 to 101.20.
R:
Yee.
S:
But on both of them.
R:
Yes.
S:
And so that there would be no great advantage in going
into either one from a speculative standpoint.
R:
Yes.
S:
with four hundred cash on the long bond, but conversion
there of anything up to say four hundred million, you
wouldn't get an unwieldy amount of long bonds in the
market and yet you'd achieve the objective of putting
out a substantial amount for as long a period as possible
of this good market.
R:
S:
Yes.
The two per cent nine-year bond on that basis would be
around five hundred million, a little more, satisfying
what all our checks indicate is a strong bank demand
for that sort of obligation.
R:
Yes.
and
S:
And the five year note with three hundred cash,/perhaps
fifty conversion would give you a decent size issue in
the five year note and it looks as if the prices there
would be around - the price there would be around 101.
R:
Yes.
S:
So that the whole thing seems to fit together pretty well.
R:
Yes. The Secretary wants to know how many long bonds
in all you think you would have on this.
119
-3S:
Rt
S:
Well, it looks to me as if you'd have about threequarters of a billion to eight hundred million on it.
Uh-huh. Seven fifty to eight.
What's that?
R:
From seven hundred and fifty to eight.
S:
Yes.
Rr
(aside) (Does that answer your question. Is there anything
else you want to say.) - The Secretary says he is
going to put this right on the ticker. Now did you
have anything else Allan?
S:
Not a thing.
R:
O.K. The Secretary says many thanks.
S:
R:
All right.
All right.
120
December 2, 1938.
10:55 a.m.
HMJr:
Hello.
Operator:
Mr. Sproul.
HMJr:
Hello,
Allan
Sproul:
Hello Mr. Secretary.
HMJr:
How did the market take the announcement please?
S:
Very well, 80 far.
HMJr:
Very well.
S:
Yes.
HMJr:
Uh-huh.
S:
HMJr:
S:
HMJr:
S:
HMJr:
S:
HMJr:
S:
HMJr:
S:
HMJr:
The - there's been a little moving around, but not a
great deal, there's a two way market in most obligations
and in the rights.
I see.
The notes have gone off - went off a sixteenth about at
the opening and then some buying came in and they've
come back a little.
Uh-huh.
The intermediate - the bonds in the intermediate areas
have held with a firm tone.
Uh-huh.
The long bonds are off about a sixteenth, there's been
some selling of the long bonds and buying of rights.
Well that's good isn't it? That's all right isn't
That's all right. Yes.
I say that's all right.
it?
Yes, I think it is. The rights are quoted now at 19.21
and that's up a little.
You mean a hundred - one nineteen twenty one.
-2S:
That's right.
HMJr:
They're up a little bit.
S:
HMJr:
S:
HMJr:
S:
121
A
hundred
nineteen
to twenty one. That's up a
little
from and
lastone
night's
close.
They're up a little bit.
Yes.
Well, that's the best answer isn't it?
I think it's been taken very well so far.
HMJr:
Now -
S:
The one thing the market seems to be talking about and
figuring on is just where these twos fit in and whether
it's going to be an eight and a half or a nine year and
I think that's what we'11 watchtoday to see how the
market finally dopes that out and what sort of an answer
it gives and then that will give us a cue as to what
should be done.
HMJr:
S:
HMJr:
S:
HMJr:
S:
HMJr:
That's - well that's really the only thing we've left
for the market to guess on, isn't it?
That's right.
The reason that I gave as much information as I did was
on account of that leak yesterday.
You didn't want - you mean favored individuals around.
That's right. Now on going over it I found that we
also told Garner yesterday that it was 322.
Garner, yes. That's right.
He knew that in the morning when he left here.
S:
Yes.
HMJr:
So - there's two people it could have come from. It
could have come from either Garner or Devine.
S:
That's right.
122
-3HMJr:
And
I didn't
want
leave the impression that it might
only have
come
fromtoDevine.
S:
No.
Well,
I think
of them
next
time.we might keep that in mind on both
HMJr:
Yes. One or the other must have talked.
S:
Yes.
HMJr:
Well, I think it sounds all right for eleven o' clock.
S:
HMJr:
S:
It does.
And
you out
fellows
willtwo.
all have to sharpen your pencils
and find
on the
That's right.
HMJr:
And Ronald Ransom is perfectly happy.
S:
Good.
HMJr:
Yes.
S:
That's good.
HMJr:
Well, I'll talk to you again between four and five.
All
right, and I'll have a full check up made after
the close of the market.
S:
HMJr:
Thank you.
S:
All right.
123
December 2, 1938.
3:28 p.m.
HMJr:
Hello.
Operator:
Mr.Corcoran. Go ahead.
Hello.
HMJr:
Tom
Corcoran:
HMJr:
C:
Mr. Secretary, this is Tom Corcoran, sir.
No, really.
Harry Hopkins talked to me the other day about a talk
you had with him about the present District Attorney
in Chicago.
HMJr:
Yes.
C:
The new one.
HMJr:
That's right.
C:
That fellow is the Cardinal's personal counsel.
HMJr:
So I understand.
C:
Is absolutely straight.
HMJr:
Grand.
C:
And absolutely honest.
HMJr:
Fine.
C:
And has got the nerve of a lion.
HMJr:
He'll need it.
C:
Now, what I wanted to suggest was this. What you were
talking about is such precious freight that you don't
want to take any chances unless you re absolutely
sure.
HMJr:
Right.
C:
I'm going to meet the Cardinal on that cutter that's
being sent out to meet him on Sunday.
HMJr:
Fine.
124
-2C:
I'll bring that fellow back here on Monday.
HMJr:
Fine.
C:
To see Bob Jackson and to see Ickes about some other
things, and I wondered if without your telling him what
you wanted, I could bring him in to you, and you could
take a look at him and talk to him long enough to get
your
ownwith
feeling
Bob and
- of him, and then you can talk with
Operator: Hello.
C:
HMJr:
C:
HMJr:
Hello, please. You could talk with Bob and with
Harold Ickes, and get an idea of whether you want to
take your chances.
Well, it's very funny that our minds should be running
in the same channel because this morning I told Herman
Oliphant to get in touch with Bob Jackson.
Yes.
And tell Campbell to come down, I wanted to get
acquainted.
C:
Yes.
HMJr:
I wanted to have a heart to heart talk with him.
C:
Well, he'11 be in on Monday, sir.
HMJr:
Fine.
C:
All right, sir, and I'll call you when we get in?
HMJr:
Will you?
C:
Thank you.
HMJr:
Now wait a minute, you'd better let me give you an
appointment now, because -
C:
All right, sir.
HMJr:
I've got, I've got a very tight day on Monday.
C:
What I thought was you might want to make the appoint-
ment pretty late 80 that you could get a check on him
from the other two people that talked to him before
you talked to him.
125
-3HMJr:
C:
Well,
it's a question of - I can see him around - you
mean late?
I thought you might want to sir. I mean anytime, of
course, that you want to see him, but I thought you
might want to have a telephone contact with Bob
Jackson and Ickes after they'd talked to him.
HMJr:
Oh!
C:
Before you talked to him. So you'd have a pretty
decent judgment of what other people thought of him
before you spoke to him.
HMJr:
Well, I've got to do business with him anyway.
C:
That's right.
HMJr:
And what I want to do 18 to paint the picture to him.
C:
Yes.
HMJr:
And show him that inside of twelve months if he will
take this opportunity which I'm putting on his doorstep.
C:
Yes.
HMJr:
He - his name will be as well or better known than
Tom Dewey.
C:
HMJr:
C:
HMJr:
That's right.
It's entirely up to him.
Yes, sir.
But if he will play along with us and see this
opportunity his name will be known as well as Tom
Dewey, inside of twelve months.
C:
That's right, it's the greatest chance he's ever - a
fellow has ever had.
HMJr:
If - and we need a Democratic Tom Dewey.
C:
Yes.
HMJr:
Right?
126
4
C:
And there he 18. He's handsome and he was the head of
the Youth Administration out there and an excellent
trial lawyer.
HMJr:
C:
HMJr:
I'm very glad he's handsome.
Well I mean that helps.
(laughter. )
C:
That helps like the deuce.
HMJr:
All right.
C:
In front of a jury, sir, -
HMJr:
Listen, you're a little serious tonight.
C:
(laughter)
HMJr:
That's better, that's better. Listen I can't be
serious all day long. You fellows come in here, I tell
you what you'd better do, it'11 be either three-thirty
or four-thirty.
C:
All right, sir. Either one.
HMJr:
You call up Monday morning.
C:
All right, sir.
HMJr:
And has he got blue eyes?
C:
He's got blue eyes.
HMJr:
Wonderful.
C:
(laughter)
HMJr:
All right, that's better.
C:
All right. Thank you, thank you.
127
Mr. Arakawa's visit.
December 2, 1938
3:30 p. m.
Present:
Mr. Gibbons
Mr. Taylor
Mr. Oliphant
Mr. Cairns
Dr. White
HM,Jr: I have just seen Mr. Arakawa and I made
the poor fellow sweat by not answering any of his questions, and as he went out he bumped into Mr. Chen.
And Mr. Arakawa said if I will just tell him what
I have on my mind, he will be glad to communicate it to
the Minister of Finance, who is a very important person.
So I said, "You write out some questions you want to know
nice for you to meet Mr. Butterworth, who was our Financial Attache in London, and Mr. Cochran. And then he
goes out and trips over Mr. K. P. Chen!
and I will be glad to consider it. I think it would be
(Note: The above group came in to discuss a mem-
orandum addressed to the President on the possibility of
imposing German countervailing duties. That meeting 18
transcribed separately.)
128
December 2, 1938
3:30 P. m.
Present:
Mr. Gibbons
Mr. Taylor
Mr. Cliphant
Mr. Cairns
Dr. White
HM,Jr: (Reading memorandum to the President, attached hereto).
"In the course of the Treasury Department's administration of the customs laws, there has come to my
attention, particularly in reports made available to
the Treasury by the Departments of State and Commerce,
evidence that American trade and enterprise in the
areas of China now under Japanese control are being
discriminated against
If you don't mind, Mr. Cairns, if you wrote
this, I would like to start it definitely. Instead
of saying "In the course of the Treasury Department's
administration" I would like to say about my responsibility under the law.
Mr. Oliphant: I worked that formula up there
and the reason for putting it that way is as follows.
What you are doing is calling the President's attention
to facts, on the basis of which he may want to exercise
his pwoer and authority under the law. This is the
case of the policeman on the beat.
HM,Jr: It's not up to me to act, like we did
on the German situation?
Mr.Oliphant: No. It's different. You observe
these facts.
HM,Jr:
Right. That does make a difference.
Tell me -- oh, here are instances. Here is the appendix.
Mr. Oliphant: Referred to as an appendix in page
129
-2-
one.
"Instances of the foregoing. If
HM,Jr: And have these never been called to his
attention?
Mr. Oliphant: No, not in this form. I suppose
they showed him before the note was sent to Japan.
HM,Jr: Well, now, let me put myself mentally
in the President's place. Aren't we putting him sort
of on the spot when I send him this thing? I will put
the question another way. In the case of Austria, or
any other, have we ever followed the procedure to bring
it to the President's attention this way?
Mr. Cairns: Not that I am aware of. The President is not required to act upon receip of this memorandum by any duty imposed on him by Statute. He has
to be satisfied it's in the public interest.
Mr. Oliphant: And you are not authorized to act
even though you have the information. The only thing
you are authorized to do is call it to the President's
attention 80 he will have a chance to make up his mind
whether he wants to act.
HM,Jr: You mean to say in the whole world there
has never been any occasion like this before?
Dr. White: Many instances where there have been
discriminations and Tariff has cooperated with the State
Department and the State Department has had discussions
with the respective Governments and it has never been
necessary to invoke this and modification made consequent
upon the discussion usually satisfied the State Department and action usually not taken -- has never been taken
under 338.
HM,Jr: In no case?
Dr. White: No negotiations have taken place.
Mr. Cairns: Section 338 was not enacted until
1922 and when it was enacted even the situation as it
In
exists in China was unknown to the legislators.
130
-3-
drafting 338 they had no situation in mind. It's
unique.
HM,Jr: Where is it unique?
Mr. Cairns: Japanese operations in China.
HM,Jr: 338 was not passed with that in mind be-
cause it did not exist at that time?
Mr. Cairns: It had not existed and you can see
it was not in mind in 1922.
Dr. White: No precedent. There 18 a distinction -if communication of that kind were made public, that would
definitely put him on the spot; if it 18 merely between
you
and the President, if he does not want to take action,
it dies.
HM,Jr: I ought to hand it to him.
Mr. Gibbons: I think you ought to hand it to him.
HM,Jr: "Do you want this, Mr. Prsident?"
Mr. Gibbons: When will he be back?
HM,Jr: Tuesday.
Mr. Taylor: Funny situation here, haven't you? Because you have got all the puppet States, etc., which supposedly have an entity of their own. No one has recognized them as existing, but they supposedly have. Actually
they will be the people who would be discriminating
against our commerce.
Mr. Cairns: The law covers any foreign country, county,
subidivision, part. We had up to 22 discriminations in a
country against another country. Japan in Japan against the
United States. Now we have Japan in North China against the
United States.
own.
Mr. Taylor: Which, supposedly, has an entity of its
131
-4-
Mr. Gibbons: The State Department has not recognized
ment does not recognize the
the Japanese. Same thing in Ethiopia, the State Depart-
Dr. White: That's true and that's the interpretation
of the Legal Department.
HM,Jr: I think the thing to do 1s show it to the Pres-
ident and show him there is such a thing as Section 338, 80
when he gets into the discussion he can or cannot use it if
he wants it. But I would not want to send it down to Warm
Springs cold, especially when we know this thing 18 coming
to
a head.
just
think,
hand it to him and say here it is;
if you
wantI it,
it is
available.
Mr. Cairns: It's a powerful weapon.
Dr. White: If they withdraw the most favored nation
clause it would have no effect against Japan because all
imports thereby affected is less than 1% of our imports from
Japan.
HM,Jr: Why should that not be included? Why this is
more preferable than to impose the most favored nation. It
seems to me the argument, when he sends it over, Well this
is all too drastic. The thing to do is the most favored
nation clause. That there is no reason for doing that because it a ffects only 1% of the goods.
Dr. White: We can put it in one paragraph and include
it in the appendix. Very important also, would be a study,
if he is interested, how we would be affected, how our economy would be affected, and we have a study partly prepared and
can easily finish it in two or three days.
HM,Jr: He only gets back on Tuesday. I have no plans,
but the earliest I could see him would be Tuesday. Could
you have it all by Tuesday?
Dr. White: Have that ready in case he asks for it?
HM,Jr: Yes, the whole business. Say this: Mr. President, here are alternatives. If you are going to act, you
can invoke the most favored nation clause which would only
affect 1%; (2) you can use Section 338. This is what it
132
-5-
will do to Japan and this 18 what it will do to us. I
think you have the whole thing complete.
And put a little cover on it and give him the whole
thing.
Mr. Taylor: Haven't you got enough cases about Japan?
It's discriminating.
Dr. White: Just one, possibly one good case. The
State Department may have more. We didn't want to go there
for additional information.
Mr. Taylor: You did send over some stuff sometime ago
about the Japanese themselves.
Dr. White: It was their discrimination in Manchukuo
and North China. One case in Japan. Strength of the case
would have to rest on the interpretation that Japan is responsible for what's happening in North China, despite, or
in view of the fact they are puppet Governments. They might
technically
their
fault. claim that if Manchukuo does something, it's not
HM,Jr: Have we recognized Manchukuo?
Dr. White: No. Even our import statistics still call
itit.Manchuria, but that does not weaken the case; it strengthens
HM,Jr: Anyway, I would get it in, wrapped with pink
ribbon for the outside.
Dr. White: (presenting list of names) Those namesof
men are selected from the list given us by the Tariff Commission.
Mr. Oliphant: What's the idea?
Dr. White: To get a group of men down, leaders in
their field, who will come to an opinion of economic criterion. In most cases we are not finding injury, and we
want to protect the Secretary against any future claims
that he is not acting legally.
133
-6-
Mr. Oliphant: There is a question, I think, of the
wisdom of calling in a group of outsiders for your own
protection.
HM,Jr: That's all right. I will walk part way home
and
(Dr.
White) can explain it to me. I will be ready
in 10you
or 15
minutes.
000-000
134
Note:
Appendix A, referred to in
paragraph
of this
first
memorandum,
18 attached to complete memorandum
for the President dated 12/5/38.
135
C
0
P
Y
MEMORANDUM FOR THE PRESIDENT
In the course of the Treasury Department's administration
of the customs laws, there has come to my attention, particularly
in reports made available to the Treasury by the Departments of
State and Commerce, evidence that American trade and enterprise
in the areas of China now under Japanese control are being dis-
criminated against, directly and indirectly, by Japan through ex-
change control, the establishment of monopolies, the granting of
special preferences and by the imposition of restrictions upon
American trade and shipping, all of which operate to favor Japanese
commerce and to hamper American commerce. Instances of the foregoing
are set forth in the attached list marked Appendix A.
This evidence having come to my attention, I deem it my
duty to lay it before you in order that you may consider its sufficiencey and, if deemed sufficient, to determine whether to take
that action you are authorized to take in the premises. Inasmuch as
those reports show that Japan discriminates in fact against the
commerce of the United States in areas of China under Japanese con-
trol, there is occasion for you to determine whether, under the
authority of section 338 of the Tariff Act of 1930 (U.S.C. title 19,
sec. 1338), new or additional duties should be imposed upon Japanese
products imported into the United States. The Treasury Department
construes this section to mean, in its applicability to the present
situation, that whenever the President finds that Japan discriminates
in fact in China against the commerce of the United States, directly
or indirectly, in such manner as to place the commerce of the United
States at a disadvantage compared with the commerce of Japan, or of
any other country foreign to China, he shall by proclamation declare
new or additional duties upon articles wholly or in part the growth
or product of Japan if he finds that the public interest will be
served thereby.
Section 338 further provides that, if the foreign country
maintains or increases its discrimination against the commerce of
the United States after the issuance of the proclamation authorized
by section 338, the President, if he deems it consistent with the
interests of the United States, may issue a further proclamation
directing that such products of the foreign country or such articles
imported in its vessels as he shall deem consistent with the public
interests shall be excluded from importation into the United States.
-2In addition, it seems clear that the acts and policies of
Japan in evidence tend to defeat the expension of foreign markets
for products of the United States. Therefore, there is also occasion
for you to determine whether, under the authority of section 350 of
the Tariff Act of 1930, as amended, (U.S.C. title 19, sec. 1351),
the application of the reduced rates of duties established pursuant
to the trade agreements entered into under that Act should be made
inapplicable to the products of Japan. You have exercised this
authority on fourteen occasions in connection with discrimination
by Germany and the higher duties so imposed are still in effect.
It was exercised in the case of Australia on five occasions. The
discrimination in this case has been discontinued.
Confirmatory of my impression of the existence, the wide
extent, and the serious effects of the practices to which I have
referred is the text of the note of October 6, 1938, in which the
United States protested to Japan against the direct and indirect
discrimination now being applied by Japan to American commerce in
the areas of China under Japanese control. The intention of Japan
to adhere to the policies and practices complained of by the United
States in its note of October 6 is evidenced by the Japanese reply
of November 18 to that note, as published in the press.
Attached is a list of:
(a) Leading items of import from Japan that would be
affected if all goods imported from Japan now free of duty were
made subject to 50 percent ad valorem duty under section 338 of
the Tariff Act of 1930.
(b) Leading items now imported from Japan under existing
tariff rates which would be subject to a duty of 50 percent ad
valorem under section 338 of the Tariff Act of 1930 in addition
to the duty now imposed by law.
(c) The percentage of Japanese imports that would be
subject to higher rates if trade agreement rates were withdrawn
from Japan under Section 350 of the Tariff Act.
(d) Items imported from Japan indispensable for the
United States and difficult to obtain directly form sources other
than Japan.
HC/cp 12/2'38
136
137
December 2, 1938.
4:09 p.m.
HMJr:
Hello.
Operator:
Mrs. Wathey.
HMJr:
Oh. Mrs?
0:
Mrs. Yes.
HMJr:
Mrs.
Hello
W:
Hello.
HMJr:
Mrs. Wathey?
W:
Yes.
HMJr:
This 18 Mr. Morgenthau.
W:
Yes Mr. Morgenthau.
HMJr:
I'm 80 sorry to hear that my dog stepped on your dog.
W:
Yes.
HMJr:
W:
HMJr:
W:
And if the dog is at all ill, or there's anything that
I can do, I'd like to do it.
Well, that's awfully kind of you Mr. Morgenthau. So far
the dog seems to be all right.
Yes.
I took her to the doctor immediately afterwards and had
her examined.
HMJr:
Yes.
W:
And other than the scratch and a little sprained ligament
in her side that he says will be all right unless it
abscesses.
HMJr:
Yes.
W:
And 80 far there has been no signs of anything else.
HMJr:
Well if anything turns up I wish you'd let me know, or
if there's anything that I can do.
138
-2W:
HMJr:
W:
Well that's quite nice Mr. Morgenthau and Mr.
thought that you'd like to know about the dog.
Yes.
So I appreciate you calling and I think the dog is
going to be all right.
HMJr:
Well I hope 80.
W:
Thank you 80 much.
HMJr:
Goodbye.
139
December 2, 1938.
4:21 p.m.
HMJr:
Hello.
Operator: Mr. Sproul.
HMJr:
Allan
Hello.
Sproul:
Hello, Mr. Secretary. Sorry I wasn't - couldn't get on
HMJr:
I supposed you had somebody with you.
S:
That's right.
HMJr:
I wanted to go home.
S:
Yes.
HMJr:
Tell me, how does it look tonight?
S:
the phone before.
Well the market acted very well today I think. There's
no question about it. It took the announcement very
well. It was strong in all parts of the market.
HMJr:
Good.
S:
And it looks good to me tonight.
HMJr:
Good.
S:
As I see it tonight we could go ahead on the basis we
discussed last night.
HMJr:
Nine years?
S:
Yes.
HMJr:
S:
HMJr:
S:
You still think 80.
Yes. I could take another look at it in the morning,
but that's the way I see it now.
Good for you. I thought maybe somebody had been giving
you the works today.
Well I've heard 80 much talk on the other side I must
admit.
HMJr:
Well you're a better man than I thought Gunga Din.
140
-2S:
(laughter)
HMJr:
It's all right.
S:
There's been some pressure on the other side but I
HMJr:
Good for you. I thought you might succumb.
S:
Well, I haven't yet.
HMJr:
All right. Well, we'll be talking in the morning.
S:
Right.
HMJr:
But certainly everything that happened today makes
S:
I think 80. I think it was taken very well. The
still see it that way.
the thing - the proposal that much sweeter.
market acted very well today.
HMJr:
Did you hear anything about the leak, about yesterday
S:
No, I stirred around here a little but I haven't
afternoon?
been able to/cover anything on it.
HMJr:
S:
All right. Well I'll be talking to you in the morning.
As of tonight I haven't changed.
Well, neither have I.
HMJr:
Fine.
S:
All right.
HMJr:
Thank you.
S:
Goodbye.
141
December 2, 1938.
4:26 p.m.
HMJr:
Hello
Operator:
Dr. Burgess. Go ahead.
HMJr:
Hello.
Randolph
Burgess:
Hello Henry.
HMJr:
How are you?
B:
I'm pretty well.
HMJr:
What did you hear about our proposed issue?
B:
Well the market - the market says that it likes it.
HMJr:
Yes they do don't they.
B:
That is all the prices went up.
HMJr:
Yes.
B:
Right along the line, almost frightens me, it went up
too much.
HMJr:
B:
HMJr:
B:
You don't frighten as easy as all that do you?
Well I don't really, not really frightened about it,
80 they'11 take - they'11 take it all right.
Well the only really place for an argument right now
is, as is between an eight and a half and a nine year.
Yes, that's the only question I should think.
HMJr:
Have you got any feelings?
B:
Well, I'd lean toward the eight and a half, Henry.
HMJr:
Uh-huh.
B:
Because I think it's a little bit safer.
HMJr:
Yes.
B:
As far as the long bond is concerned.
HMJr:
How do you mean?
-2B:
142
That 18 I think with the nine year you might get too
heavy subscriptions for the long bond.
HMJr:
Yes.
B:
That is, a lot of people would figure it out, say, well,
HMJr:
Yes.
B:
the long bond is worth a hundred and two.
And the nine year is only worth a hundred and one and
a quarter.
HMJr:
Uh-huh.
B:
So I'll take the long bond and then sell it again.
HMJr:
Uh-huh.
B:
Just thinking what we'd do for example.
HMJr:
And what would you do?
B:
With a nine year I'm inclined to think we might take
the long bond and try to make three quarters of a point.
HMJr:
Uh-huh.
B:
Or a point.
HMJr:
Uh-huh.
B:
So there's a little danger of getting too many of the
long bonds.
HMJr:
B:
I see.
I think they like the short one pretty well. There'd
be a llt of fellows who'11 take it even if it's nine
years in preference, but I think you'd be just a little
bit safer on an eight and a half, and then you'd avoid
the possible danger of too large a subscription for the
long bond.
HMJr:
B:
Uh-huh.
Which might he a little bit subject to some sort of a
jam 1f something happens. I don't think it's a great
matter, but I would think the eight and a half a little
bit safer.
143
-3HMJr:
Are you going to be in your office tomorrow?
B:
What's that?
HMJr:
Are you going to be in your office tomorrow?
B:
I wasn't going to be but I will be if you'd like me to.
HMJr:
No. No.
B:
I'11 be at home, I'll be in touch with things.
HMJr:
You will be.
B:
HMJr:
B:
HMJr:
I'll be in my apartment, yes.
Well, I may give you a ring.
All right. Fine. I'11 be in touch.
But the market certainly took the thing awfully well,
didn't it?
B:
Oh very well indeed.
HMJr:
Yes. I think it's all right.
B:
HMJr:
B:
HMJr:
So it's going to be a success either way you do it.
Oh yes, it's just a question That's right.
- of, I mean eight and a half or nine, which way we
throw it.
B:
Yes. That's right.
HMJr:
Righto.
B:
All right, sir.
HMJr:
Thank you.
144
GABLE
From: Bankers Trust Company of N. Y.
London Office
Date:
December 2, 1938
Friday
#369.
No pronounced tendency spot dollars forwards strongly
wanted. Spot forward Paris wanted. Estimated Banque de France
obtained about 8,000,000 pounds. Spot forward belgas strongly
offered on rumors possible Cabinet crisis and suggestion
Belgium might enter sterling bloc. De Castellane reports
sanctions taken by Government against strikers causing
agitation by Left Parties to create unrest. Gold beginning
flow to banks exchange being sold by all classes including
individuals and commercial firms. Bourse stocks and bonds
very strong call money 1/2-0-0. Talk further lowering bank
rate.
CONFIDENTIAL
145
REB
GRAY
London
Dated DECEMBER 2, 1938
Rec'd 3:03 p. m.
Secretary of State,
Washington
1385, DECEMBER 2, 6 p. m.
FOR TREASURY.
After yesterday when the British fund operated both
ways but lost dollars on balance the rate falling from
4.69 to 4.68, today SOME support was given to sterling until
gold fixing when the rate was 4.67-1/8. Since the fixing
the British fund has apparently not operated, the dollar
being offered around 4.67-1/2 to 3/4 most of the afternoon
and latterly going to 4.68-5/8 on NEW York dollar sales.
Gold turnover was heavy today 546 bars being sold as
compared with 267 yesterday. The price was increased by
four and a half PENCE to 148 shillings 11 pence giving a
premium of one-half PENCE. 208 bars WERE married the
remainder being supplied by the British fund. About 340
WERE taken for arbitrage.
The French authorities bought probably OVER pounds
6,000,000 of sterling today moving the price from 178.18 by
stages
146
REB
2- #1385, From London, DEC. 2,6p.m.
stages to 177.80.
The rate reacted, however, slightly after
the Bank of France's operations closed down in the late
afternoon to 177.93.
The treasury bill rate at today's tender was about
18 shillings 1 penny per cent as compared with 17 shillings
7.8 PENCE per cent last WEEK.
KENNEDY
WWC
HTM
147
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 2, 1938, 4 p.m.
No.: 2036
On the Paris market today there was again a very
strong demand for francs because of the covering of short
positions in francs and substantial French capital repatriation. This morning at the Bank of France it was
learned that before 11 a.m. almost 3,000,000 pounds
had been acquired by the fund. It was also learned that
about 3 billion francs in gold had been retrieved since
the beginning of the present favorable movement. The
Bank could not foresee that there would be any immediate
slackening of this movement.
The rate for sterling is now 177.80, having been
178.20. The fund is the principal supplier of francs.
One month sterling is par and the rate for three months
is 50 centimes. In today's transactions the belga showed
some weakness. Good tone for security market. Fair
progress in rentes and other French securities.
December 8 is the date for the reassembling of
Parliament. It is believed that by that date the preparation of the budget for 1939 will be sufficiently advanced
to permit discussion. However, it is not believed that
Parliament will give final approval before the end of
1938. It will be necessary, under such circumstances,
to
148
-2to get parliamentary approval of one or two "provisional
monthly credits" for the Government.
In financial circles the opinion appears to prevail
that when the Government appears before Parliament it will
secure a comfortable majority; nevertheless, the press is
urging the administration as well as private employers to
avoid harshness in applying sanctions to strikers as
it is feared that otherwise there may result troublesome
labor unrest.
Today a decree was published reducing the interest
rate for 75 to 105 day ordinary Treasury bonds to 2-1/4%;
it was formerly 2-3/8%. The new rate is 1/4% under the
official discount rate.
END MESSAGE.
WILSON.
EA:LWW
12/2138
(Drast.)
149
Dear Sir:
The Secretary of the Treasury is reexamining his responsi-
bilities under the Antidumping Act of 1921. To aid him in the
formulation of policy with respect to the administration of that
Act, he is calling to Washington a small group of experts and
businessmen whom he feels would be helpful in advising him.
The Secretary has asked me to invite you to participate in
a conference to be held at the Treasury on
at
o'clock.
A copy of the Antidumping Act of 1921 is enclosed for your
information. You will note that Section 201(a) of that Act requires that when the Secretary of the Treasury "finds that an in-
dustry in the United States is being or is likely to be injured
or is prevented from being established" by reason of the importa-
tion of merchandise of a kind which is being sold or likely to be
sold at less than its "fair value" (as defined in the Act), then
he shall issue a public finding of dumping. This conference is
being called to consider only those problems concerned with the
determination of injury to the domestic industry.
The Secretary desires to keep highly confidential both the
fact of the conference and the nature of the subject matter.
150
Prof. Melvin G. de Chazeau - University of Virginia
Prof. Alvin H. Hansen - Harvard University
Prof. Frank A. Southard - Cornell University
Prof. Jacob Viner - University of Chicago
Sewell B. Avery, President, Montgomery Ward Company, Chicago, Ill.
President, U. S. Cypsum Co. Member of Board, U. S. Steel Corp.
Col. Harry L. Pailey, Wellington, Sears Co., 65 Worth Street, New York, N.Y.
Is in charge of operations of this firm which reputedly processes
about 5 percent of domestic cotton crop.
An outstanding figure in the industry; is generally fair-minded but
inclined to a protectionist view.
Is very active in the Cotton Textile Institute and in activities bearing on relationship of the cotton textile industry to the public.
Company a leading exporter of cotton textiles.
Carl F. Danner, President, American Hide and Leather Co., Boston, Mass.
An outstanding personality in the tanning industry and highly
respected in the business world.
Has been president of his company since 1925.
Mechanical engineer by training, was in the steel business until
called in to reorganize Continental Leather Co.
Was president of the Tanners' Council of America in 1936-37.
The industry with which Mr. Danner is connected is both an important
importer and exporter of hides and leather.
The Commission has found Mr. Danner well able to understand both
sides of the import question.
W. J. Donald, Managing Director, National Electrical Manufacturers Association, 155 E. 44th St., New York, N. Y.
Progressive trade association executive. Leader in his field.
Enjoys the highest reputation among manufacturers and trade association
executives.
Wide knowledge in problems of domestic production, import and export.
Canadian by birth; naturalized American citizen.
Ph.D. in economics, University of Chicago, 1914.
Curt G. Pfeiffer, President, National Council of American Importers, New York, N.Y.
Although the designation given here is that of a trade association,
Mr. Pfeiffer is more properly identified as a businessman.
Was for many years vice president of George Borgfeldt and Co., New
York City, one of the largest houses in the United States importing
general lines of merchandise.
He had studied practically all phases of the import trade and is also
familiar with conditions in domestic manufacture.
Is very well informed on tariff problems and matters of customs
administration.
151
-2-
Q. F. Walker, Economist, Macy Department Store, New York, N.Y.
Well versed in merchandising problems. Familiar with import problems
and also conditions in domestic industry.
Able; fair.
Walter S. Tower, American Iron and Steel Institute, 350 - 5th Ave., New York, N.Y.
Secretary, American Iron and Steel Institute since 1933. Former
professor of economics at the University of Chicago.
Trade expert, U. S. Shipping Board, 1918-19.
Served with Peace Commission, 1919.
Commercial Attache, American Embassy in London, 1921-24
Advisor, Consolidated Steel Corp., 1919-21
Executive, Bethlehem Steel Corp., 1924-33
Republican
Commission believes Mr. Tower one of the best informed persons
on general conditions in the steel industry in the United States
and foreign countries; his opinions are fair and well balanced.
Mr. Oscar Ryder - Tariff Commission
Mr. Leslie Wheeler - Department of Agriculture
Hon. Francis B. Sayre, Department of State
Mr. Alexander V. Dye, Department of Commerce.
152
December 2, 1938.
GROUP MEETING
Present:
9:45 A. M.
Mr. Oliphant
Mr. Gaston
Mr. Taylor
Mr. Haas
Mr. Duffield
Mr. Hanes
Mr. Gibbons
Mr. Lochhead
Mr. White
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Herman, I may - I think I am responsible for this.
Hanes isn't here, is he?
Duffield:
He's coming in.
(Mr. Hanes comes in.)
H.M.Jr:
I'll read it out loud.
"Treasury to offer 2 3/4 per cent bonds and five
year notes for cash in December financing program.
"The Treasury announced today that it will offer
2 3/4 per cent long term bonds.
"The Treasury announced today that it will offer
2 3/4 per cent long term bonds for 400,000,000
dollars of the new cash to be borrowed in the
December 15 financing and five year notes for
$300,000,000 of the cash required.
"In connection with the conversion of the March
15 note maturities of 942,000,000 dollars the
Treasury is making a three-way offer including
the 2 3/4 per cent long term bonds, the five year
notes and in addition a bond of a shorter maturity
bearing two per cent.
"The final announcement of the financing program
will cover the term of the bonds and the interest
coupon on the notes.
153
-2"The coupon on the 2 3/4 per cent bonds offered
for cash is 1/4 of a per cent greater than the
interest given on the 10-12 year bonds sold in
the September financing."
That is 0. K., Herbert; a good job. Here is
the U. P.
Gaston:
Not one and a quarter; it's a quarter per cent.
H.M.Jr:
"The Treasury announced that the cash offering ..."
That is U. P. "
of its December financing
program will consist of $400,000,000 two-and-threequarters
They've just got a "bee" in it here. Dow Jones
is all right. That 942, that is O.K. Just a
nice little job.
What I wanted to say was this, Herman. Is Hanes
here?
Hanes:
Yes sir.
H.M.Jr:
I asked, some time ago, - this is one of these
triple confidential things - to get me a lawyer,
was when Mr. Igoe was still United States District
Attorney. It was on that assumption I asked for
who could try the Moe Annenberg case, and that
someone. Since then they have designated Mr.
Campbell. I suppose Campbell doesn't take office
until - when?
H.M.Jr:
I think he has taken office.
All right. Therefore, the reason I had to get a
special attorney, I think, has disappeared. Well,
this fellow isn't - who is - who's going to appoint
the other fellow?
Oliphant:
Well, they have appointed him Special Assistant
Oliphant:
H.M.Jr:
Attorney General. The other fellow is a nice
man, a capable young fellow, but this requires
a technical, criminal
I don't want, if you don't mind, - this is the way
I'd
like to doit, and I'd like to talk to Bob
Jackson.
154
-3Oliphant:
That requires a technical lawyer.
H.M.Jr:
I'd like to tell Robert Jackson to invite Campbell to come down; I'd like to meet him next week;
I'd like to sit down with him and tell him the
whole thing; I'd like to paint the picture of
it, and explain to him that in a year he can be
an international figure in law enforcement; and
let him pick his own assistants. I want to tell
him that Henry Morgenthau, Jr. is counting on
Mr. Campbell to do this, and I don't want to put
anybody in his hands. I want to appeal to him,
this being his first case, he can be as good or
better than Dewey in one year. I want to put
it right up to him and not tell him who his
assistants should be. "No one told Dewey who he
should pick as his assistants; you don't want me
to tell you who to pick for your assistants."
I say, let Bob Jackson bring Campbell down here
next week. I'd like to talk to him personally.
The whole picture is changed since Igoe is out.
I want to appeal to him, "This is your responsibility; you go to it," and not have us pick
special fellows, and I don't like the fellows you
picked, anyway. I don't want some fellow who
is a partner - even though he is not a partner,
he was on the payroll
Mrs. Klotz: You talking about Anderson?
H.M.Jr:
I want to appeal to Campbell in that way, and
I want to get to know Campbell and work with
Campbell and show him the horizon.
Gibbons:
You know anything about Campbell's political
background? I don't. The only thing I know, he's
head of the National Catholic Youth movement.
H.M.Jr:
Not only that, but he is the President of
(organization not heard); he's a grand young fellow.
Gibbons:
The only thing I had in mind was the fact that anybody might get in on his former practice and
bring pressure to bear on him.
-4H.M.Jr:
155
They tell me he's as clean as a whistle. Of
course, time only can tell.
This having a special attorney was my idea. I
want
withdraw it; I want to meet Campbell and
talk totohim.
Gibbons:
H.M.Jr:
Oliphant:
I think you can get a good idea, based on his
antecedents. He's all right. He is not a
trial lawyer.
In other words, I want to withdraw my suggestion.
Does it make sense?
Yes, it does. It is subject to this qualification.
You have to bear in mind, in order to win a case
you have to have a technician. It's like picking
a man for a formal appendix operation; a groceryman
just can't do it. Regardless of how good Campbell's
heart is
H.M.Jr:
All true, but the Superintendent of the hospital
Oliphant:
Yes.
H.M.Jr:
I want to talk to the Superintendent of the hos-
doesn't want a surgeon forced on him.
pital, and when he comes down, in a very nice way,
we can say, "We'd appreciate it if you let us go
over with you who you are going to have, because
it means so much, but we are looking to you,
Mr. Campbell."
Oliphant:
I think it's a good idea and I'll talk to Bob
H.M.Jr:
(To Mrs. Klotz:) And will you tell Irey I've
as to when he can be down.
changed my position on this idea.
Everybody happy?
And Hanes, this comes under you.
Hanes:
Oliphant:
Yes, fine.
The more reports we get about Campbell, the better
they are.
-5H.M.Jr:
Taylor:
156
(To Mr. Taylor:) Remember the fellow at your
house?
Absolutely, and he mentioned to me - for instance,
I think I told you, or Dan - no, Herman it was,
that Bill Douglas knows him extremely well and
thinks he is just tops, and that's good enough for
me.
H.M.Jr:
Right. Well, I think - well, I am going to put
myself in the position - I wouldn't want to start
out and have him feel the Treasury is suspicious
of him, which we are not, but if we have him come
on down and take him into the Treasury family
Oliphant:
We ought to visit with him a while, and maybe have
lunch with him.
H.M.Jr:
Check, Herman?
Oliphant:
Sure; I'll have lunch with him and arrange a
dinner for him with some of the lawyers.
H.M.Jr:
If he will be here next Thursday I'd like to have
him for lunch - next Thursday.
(To Mr. Gaston:) Merger accepted?
Gaston:
I didn't telephone him; I wrote to him. I expect
to hear from him today. I also sent him that
other material.
H.M.Jr:
Mr. Bell?
Bell:
I have nothing.
H.M.Jr:
Aren't you a little nervous, with all the people
down at Warm Springs?
Bell:
No, I have kind of gotten used to that.
H.M.Jr:
All right.
Oliphant:
(Nods "Nothing.")
H.M.Jr:
I hear there were empty seats yesterday afternoon.
Were you there?
Mr. Oliphant?
-6-
157
Oliphant:
Not in the afternoon.
H.M.Jr:
Just as the papers said?
Oliphant:
It was just like a university lecture, elementary.
Wasn't what they expected. Being strictly in
the room, I preferred Professor Lubin's lecture
to Professor Eccles' lecture. He did a much
H.M.Jr:
better job than Professor Eccles.
Oliphant:
Yes, I think so. My only objection was, he
crowded
into one day what should have been spread
over
three.
Bell:
Both got their figures on the air.
H.M.Jr:
That is the way they make nitrates. (Laughter)
That's what was expected, I think.
Wonderful, Dan. That takes - we ought to have a
prize for the week.
(H.M.Jr. pins paper clip on Mr. Bell's
lapel.)
Well, I certainly ought to get one of those
Taylor:
H.M.Jr:
Bell:
springs.
Gaston:
That is clipping; that isn't allowed on the 1938
rolls.
Klotz:
You have been decorated.
Bell:
All right.
All right.
Oliphant:
H.M.Jr:
Gaston:
(Points to Mr. Gaston.)
I have a letter from the Treasury Correspondents
Association on the subject of Mr. Wilcox.
H.M.Jr:
All right.
Gaston:
And they went over the situation with Mr. Wilcox,
with the result Mr. Wilcox made certain changes
and he says - and he has a letter from his
-7-
158
publisher saying this is not his private venture;
that it is a publication of the American Banker.
They have changed the title of the thing to show
it is by The American Banker, and not by
U. B. Wilcox and associates. He has agreed to
give me copies, and anybody else in the Treasury
who wants copies; he has agreed to post copies on
the Treasury bulletin board in the press room.
I had a talk with Mr. Wilcox and he agreed he
would give me a chance to talk with him about
anything he proposed to include, which was
questionable, and he would let me see it regularly,
and he would be very careful in what he said.
The Treasury Correspondents Association, in view
of these changes, recommends that - says that they
believe Mr. Wilcox is still entitled to a status
as a reporter and representative of the American
Banker in the Treasury Department and that this
letter, in the new form which he is getting out,
is not any violation of ethics or rules.
And I think that in view of Wilcox' different
attitude and the changes made in the publication,
it would be better to let him go along with it
and see how it works out, rather than to throw him
out and make a real enemy.
H.M.Jr:
Gaston:
What will the new letter be called?
It is called the same as it has been called.
The November 27 is the first sample of the new
style issued from the Washington A. B. Bureau
and is still called "Weekly Review of Washington
Banking Trends and Backgrounds", and he tells me
it is their purpose, eventually, to print this
thing. It is not going to be secret any more;
it is going to be available to anyone who wants
to see it. It is practically a weekly publication.
H.M.Jr:
And you recommend we let him stay on?
Gaston:
I recommend we let him stay on. I cautioned him
on this paragraph (indicating) - said it was a
dangerous thing. It isthe last thrust at Giannini;
that's what made Giannini mad.
159
8H.M.Jr:
Well, I accept your recommendation.
Herbert, read this, will you, and see what it is
all about. Excuse me just a minute, will you, and
let me read these.
(Pause)
Gaston:
0. K.
H.M.Jr:
Oliphant:
Uh huh. I'll talk to you about that afterward.
Can I get copies of that, Herbert?
Gaston:
Yes; yes.
H.M.Jr:
Is U. P. all right?
U. P. is all right. The last sentence is
all right; it says, "The term of the two per cent
bond in the conversion offering, a Treasury
official said, obviously will be shorter than the
Gaston:
one offered for cash."
H.M.Jr:
What is that?
Gaston:
The term of the two per cent bond in the Treasury
will be shorter. That is, a two per cent bond is
bound to be shorter than the two and three/quarters.
H.M.Jr:
(Aside, to Mrs. Klotz.)
Klotz:
Yes, uh huh.
H.M.Jr:
0. K. Anything else, Herbert?
Gaston:
That is all.
H.M.Jr:
George?
Haas:
I have nothing this morning.
H.M.Jr:
(Nods to Mr. Duffield.)
Duffield:
Nothing.
-9-
160
Taylor:
It seems that the nineteenth is a Monday and the
twentieth is a Tuesday.
H.M.Jr:
Taylor:
That is right.
So I said the twentieth.
H.M.Jr:
Tuesday; that is all right.
Taylor:
Right.
H.M.Jr:
Tuesday.
Did you ever take up with Agriculture the question
of this mang- how do you pronounce it?
Taylor:
Manganese.
H.M.Jr:
Manganese. I am always thinking of magnesium.
the question of swapping. Have you opened
that up at all?
Taylor:
I didn't push it; I just mentioned it in this
rather long conversation I had.
H.M.Jr:
Can you give it a little push? Whether they are
talking to them or not?
Taylor:
Yeah.
H.M.Jr:
Huh?
Taylor:
H.M.Jr:
I think you're going to be disappointed on it.
Well, I'd just like to find out whether they
are or not, you see. Huh?
Taylor:
Yes.
H.M.Jr:
Will you ask them?
Taylor:
Uh huh?
H.M.Jr:
Let me know?
Taylor:
(Nods "Yes.")
H.M.Jr:
(Nods to Mr. Hanes.)
- 10 -
161
Hanes:
(Nods "Nothing.' ")
H.M.Jr:
(Nods to Mr. Gibbons.)
Gibbons:
Monday the C. I. 0. crowd is coming in - another
conference on this training by the Coast Guard
for the Maritime. I am having Waesche and
Gardner Jackson, preliminary, for lunch tomorrow.
H.M.Jr:
Good. Good.
Gibbons:
I don't know where we will get, but Waesche
hasn't been able to find anybody agreeable to both
sides; one crowd says he is no good and the other
crowd says he's fine.
H.M.Jr:
Just do the best we can.
Gibbons:
It is a very delicate thing; we don't want to
move too fast on it.
White:
H.M.Jr:
Some time ago you spoke of having a group of men
down to consider our responsibility under the
Anti-Dumping Act. I have drawn up a group of
names and a letter, and I'd like to check with
Gaston and McReynolds; then, if you'd like to
see the list that emerges after that, it will
be ready to go forward.
Let me see it now. No, not today. But before we
do that, when are you and Oliphant going to be
ready on the Japanese dumping?
Oliphant:
Today, or any time you want.
White:
Today.
Oliphant:
You said Monday.
H.M.Jr:
Are you ready today?
Oliphant:
Yes.
H.M.Jr:
How would three thirty be?
Oliphant:
Fine.
H.M.Jr:
Three thirty.
White:
(Nods assent.)
162
- 11 Gibbons:
I got a letter yesterday from Max Wold, which
I sent Oliphant, through Johnson, to be acknowledged,
asking how soon we could have anything on this
situation that is going down to the President -
you know.
Oliphant:
I didn't see it; if you'd send it to me it
would be a little better, Steve.
Gibbons:
I sent it to Cairns' office.
H.M.Jr:
We'll do Japanese dumping at three thirty. Wayne,
you'd better be here.
Gibbons:
Three thirty, today.
And (Mr. White) bring up that thing at that time.
Will you, Harry?
H.M.Jr:
White:
At three thirty.
H.M.Jr:
Yes. I mean, that is my last appointment today.
Archie may have told you about the continued inflow of capital for the weekend of November 23;
White:
it was thirty-eight million dollars. It keeps
Lochhead:
White:
H.M.Jr:
rising.
I have a report on it.
If you are interested - increasing continued.
All right. Mr. Aldridge told us yesterday that
the Chase was averaging sixty or sixty-five new
accounts a week.
White:
Foreign?
H.M.Jr:
of refugees, that average from a hundred to a
hundred fifty thousand dollars a piece. Sixty
or sixty-five accounts a week - new accounts,
averaging from a hundred to a hundred fifty
thousand dollars a piece - refugeed.
Gibbons:
White:
(Simultaneously) How do they get out? (Laughter)
Taylor:
Sounds like that thing you gave Dan the clip for,
doesn't it?
- 12 -
163
Lochhead:
Refugee money?
H.M.Jr:
Refugees' money.
Gibbons:
How many a week?
H.M.Jr:
Sixty
to sixty-five new accounts a week - sixty
to sixty-five.
Lochhead:
I think I'll have Knoke check with that, because
if that is German refugees money they probably
want to carry it on-refugee ledger; it won't
show up in "Foreign Capital."
He told me his foreign deposits were
Two fifty-six.
H.M.Jr:
Bell:
H.M.Jr:
Two fifty-six. You were here; was my figure -
what did he say?
Bell:
That he had sixty or sixty-five; I thought it
was a month instead of weekly; I may be wrong.
H.M.Jr:
Bell:
Lochhead:
Get this: He was here; two hundred fifty-six
million was the aggregate of the foreign deposits
at the present time in the Chase National Bank.
And did he say sixty or sixty-five?
That is right; I thought he said a month; you
said a week. Definitely German refugees.
My experience has been, in banking, that a fellow
over there in Germany who puts his money over
here, he's beating the laws and regulations of
Germany; he takes care it is not listed as a
German account. He comes in and gives a New
York address, sets it up as a New York address
White:
so it can't be reported back. That is why I
say I'd like to check on that.
We'd also like to find out, if possible, how that
transaction is consummated.
H.M.Jr:
Well, anyway, we are passing it along for what it
is worth. Without saying which bank - I don't
like to tell one bank from another - I asked
Burgess, but Burgess didn't seem to know.
164
- 13 For you Bank of America fellows - check me on this
Aldridge told me that the Chase National Bank has
a very large loan to Transamerica, and the col-
lateral for this loan is National City Bank stock.
But he said a very large loan - a frozen loan.
It is a frozen loan - been on for years. And I
pass that along to you fellows.
Aldridge was swell on everything except the Government bond market.
Bell:
And policies.
H.M.Jr:
We are just one step behind France and he is not
sure we are not abreast of them.
White:
He and Viner ought to get together.
Taylor:
Maybe they have.
Oliphant:
Got any more clips?
H.M.Jr:
(Nods to Mr. Lochhead.)
Lochhead:
No change in the rates; sterling is still at
about 4.67 3/8. France is still making their
rates strong, but can't prove yet whether they
are getting exchange in today, but the rate is
strong; and Merle Cochran arrived this `morning.
H.M.Jr:
Hurray I'll see him.
Lochhead:
I did tell him we found what we wanted in France,
and that was Merle Cochran.
H.M.Jr:
I'd like Oliphant, and Gaston to stay, please.
185
December 15th Financing
December 2, 1938
Present:
Mr. Hanes
Mr. Taylor
Mr. Bell
Mr. Haas
Mr. Seltzer
Mr. Harris
Mr. Hadley
Mrs. Klotz
Mr. Ronald Ransom
Mr. Gaston
Mr. Haas: Start with $400,000,000 cash. That's
And the rest of the cash is in the $300,000,000
note. Then you have $942,000,000 to divide. We divide
the $942,000,000 this way: $100,000,000 only in the 9fixed.
year.
HM,Jr: What? How much?
Mr. Haas: Only $100,000,000.
And $642,000,000
in the long bond and $200,000,000 into the note.
Mr. Bell: I can' see that.
Mr. Murphy: That's chiefly because you have such
a big spread in the premiums.
Mr. Haas: These other two are just alike.
HM,Jr: I am listening, but they don't agree with
you at all on the 9-year.
Mr. Harris: I don't see how under any circumstance
you can expect a 2% 9-year to sell at less on the basis
we have. It will probably go to a point, but I can't
If you give a 18% 8-year, the
see a 2% 9-year going.
bulk will go into
166
-2-
HM,Jr: How many points do you give to a fixed
maturity? Now these people figure 15 or 16 points ex-
tra to the fixed maturity.
Mr. Haas: That's about right.
Mr. Saltzer: But on the curve -- we took alower
curve for those. What is the basis, George?
Mr. Haas: 190.
Mr. Bell: I figure 182.
Mr. Haas: We are allowing 19 points below the
curve for maturity.
HM,Jr: They figure 16. Do it once more, George.
You figure on the conversion we are giving people the
right to convert into three things.
Mr. Haas: That's right.
HM,Jr: And you figure $100,000,000 will go into
the note.
Mr. Haas: No. $200,000,000 into the note.
Mr. Bell: No, $100,000,000 into the bond, Mr.
Secretary.
HM,Jr: How much to the note?
Mr. Haas: $200,000,000. $100,000,000 into the
9-year bond and the balance in the long, $642,000,000.
HM,Jr: Tell you how the Discount people figured.
That is, before they talked to Burgess. They said:
the note, $50,000,000. They said: into the long,
$200,000,000 and the balance into the $652,000,000 9-year.
the 9.
Mr. Haas: I would agree on the 81, but not on
HM,Jr: I have Ronald Ransom coming in at 9:30.
(Mr. Gaston came in at this point.) This is what I
can say at 9:30, because there was a leak on the street
yesterday. I can say at 9:30 that for cash, $400,000,000,
187
-32-3/4%
bond. You don't have to give the years.
This
18 what I am proposing to announce at 9:30.
(Mr. Ransom came in at this point.)
Ronald, the reason I asked you to come, this
picture shifted up to 11 o' clock last night and this 18
the way the picture looks now. We are proposing for
cash to offer $400,000,000. This is what I propose
to have Gaston say to the newspaper men at 9:30 or a
quarter of ten: $400,000,000 for cash, a 2-3/4% long
bond. I will leave the yearage open. Could make it
a 60-65, 1f everything looks all right by tomorrow. 5That's what we have in mind. $300,000,000 cash, a
year note. Then on the conversions, the fellows can
convert into a 2-3/4% long bond, into a 5-year note and
either an 81 or 9-year 2% bond. Now the reason for
that 1s, in my announcement, I will just say a 2% bond.
Mr. Hanes: "new".
HM,Jr: New. The reason we are doing that 1s
to please you fellows (Federal Reserve) and the rest,
to keep the number of long bonds down, but not to exceed three-quarters of a billion, because that was the
sentiment of your people. I want your support and help.
There is complete disagreement between Burgess, the Dis-
count boys, my people, your people, as to the effect of
whether it's an 81 or 9. They are off $600,000,000 in
their estimate. One crowd, the Discount boys, said on
a 9-year bond the conversions would be $692,000,000, into
the 2%. These boys have been here since 8 clock and
say that into the 2% I will only get $100,000,000 So
we all have to re-sharpen our pencils, because the whole
purpose of the 2% is to keep faith with you fellows (Federal Reserve) and to try to keep it down. So on this
announcement, if I just say a 2% bond we have until tomorrow to argue and fight over whether it's an 8 or 9.
But I am trying -- I want to keep you fellows happy so
that we don't get over three-quarters of a billion. If
it $800,000,000 or $850,000,000, you are not going to
get excited, but if it's $1,000,000,000 you are not go-
ing to like it. Check?
Mr. Ransom: Yes.
HM,Jr: As to the 9:30 announcement, leaving it
open whether it's 8j or 9, as I have explained?
188
-4-
Mr. Ransom: I think it's all right.
HM,Jr: It's different from anything we have been
talking about.
Mr. Ransom: Yes, entirely different.
HM,Jr: Entirely different. And the reason why
I am doing three things, it's $1,700,000,000. It's a
lot of money.
Herbert, phone your office and tell them to have
the men in your office at 9:35.
Then come back.
But with such a difference as between 8j or 9,
these fellows have got all today; you fellows (Federal
Reserve) have time; the Fed in New York have time. They
canoplay with that from now until 11 o' clock tomorrow.
Mr. Ransom: I don't see why there is that wide
difference of opinion.
HM,Jr: Niether do I.
Mr. Seltzer: The reason for the discrepancy was
the 1 point premium against the 7/8ths point. Both the
note and short bond you gave 7/8ths of a point; on the
long bond, 1. And we figured that was too great for
people to take the short bond.
Mr. Taylor: The 81 one figured that?
Mr. Seltzer: On the 81, O. k.
HM,Jr: Well, I am not going to sweat between now
and 9:30, because on our announcement I am all right,
this.
Mr. Seltzer: You don't commit yourself on any of
HM,Jr: I am not committing myself as to the
length of the new bond and so you fellows have got to
get together. We can't be $600,000,000 off, I mean, as
between this office, the Federal Reserve office here and
the one in New York. They have got to get together.
Mr. Ransom: I should think they could.
189
-5-
Mr. Seltzer: I wonder if you would consider one
other point: making your note a little sweeter by giving
overlapping interest on the refunding. You want some
pretty good note subscriptions on the refundings.
HM,Jr: You mean pay double interest?
Mr. Seltzer: Amount to about 11/32nds. The coupon
is only 1-1/8th.
Mr. Bell: 1.
HM,Jr: I don't think so, but that also would not
in any way interfere with my announcement. That's a refinement that could go in.
The main thing I am trying to get is this: the
quarters of a billion of this long bond out. I have got
to rely on this man (Ransom) to help me. Therefore, I
want to keep it as near three-quarters of a billion as the
Federal Reserve would rather not see more than three-
human brain can forecast. Right, Ronald?
Mr. Ransom: Yes.
HM,Jr: Knowing the picture, see what this does
to the market, we can come back tomorrow morning and get
our pencils out between 10 and 11 and take another look
at it, but knowing what the picture is we can all do some
figuring. Somebody is wrong. Somebody is off. Because here's the Discount fellows figure on the 9-year
bond the bulk will go into the 2% You fellows figure
on the 9-year note, the bulk will go into the long bond.
Somebody is wrong.
Mr. Haas: We think the 9-year makes it too narrow
in the premium.
Mr. Harris: I think the market, after this an-
nouncement, ought to help us get the answer.
HM,Jr; Herbert, see if I can word it properly.
Mr. Gaston: Do you want me to say it?
HM,Jr: Please.
Mr. Gaston: You want to announce that the offering
170
-6-
for cash will be divided between a long term bond and
a five year note. $400,000,000 cash
HM,Jr: Herbert, will you wait a minute, please.
I want to give the coupon.
Mr. Gaston: Yes. I was going to add that. You
want to give them the coupon rate on the long bond, which
is 2/34s. You don't want to give them the coupon on the
5-year note. There will be three ways. They will have
the opportunity to take this long bond, also the opportunity to take this note and also the opportunity to take a
shortern term bond, 81 or 9.
HM,Jr: No. No.
Mr. Gaston: A 2% bond and you don't want to say
anything about the term?
Mr. Bell: "A 2% new short bond."
HM,Jr: It's a new 2% bond.
Mr. Hanes: "Short"bond.
HM,Jr: A new 2% short bond.
Mr. Gaston: Of course, a bond can be 5 years.
HM,Jr: A new.
Mr. Bell: We said new short bond.
Mr. Gaston: What I said -- a shorter term. You
have already talked about long term.
HM,Jr: I want to say 2%.
Mr. Bell: I think that's fine when things are
But I would like to take you back to September
when we were afraid to let loose everything on Saturday
and have it lie in the mails Monday and announce Tuesday,
80 we deferred our announcement. Here you are in effect
normal.
announcing Friday morning and you have Saturday and Sun-
day and you announce it officially Monday and you are
tying yourself to your rates. I am afraid of giving
the market everything we can in normal conditions, but
171
-7-
I am afraid something might happen over the week-end
and you might want to change it.
HM,Jr: Suppose I say 2% and we go an 8 year.
Mr. Bell: Yes, but you say a long 2-3/48.
HM,Jr: Right.
Mr. Taylor: That's all right.
Mr. Bell: Supposing you wanted to come down to
21.
HM,Jr: I don't.
Mr. Bell: Of course you don't. I am thinking
of the worst.
HM,Jr: The reason I am doing this 18 unfortunately
there was a leak and I want to give the market the most
accurate information I aan.
Mr. Bell: I realize that.
HM,Jr: On account of the leak. That's why. It
was all over the Street it was to be 300, 200, 200. I
am willing, with the way it 18 now, to say this, Herbert:
that we are going to offer $400,000,000 long 2-3/4s bond
for cash; we are going to offer $300,000,000 5-year note
for cash
Mr. Gaston: Not naming the coupon.
HM,Jr:
not naming the coupon. And on con-
version they will have the right to convert into the long
8-3/4 bond, the right to convert into the five-year note
and the right to convert into a new 2% short bond. Do
you have to put in "short"?
Mr. Gaston: It's a shorter bond.
HM,Jr: I am very much annoyed over this leak and,
therefore, I want to get this thing out and I am not
worried about this week-end, because if the market goes
to pot today or tomorrow, I can make it a 7 year or make
it 55-60, anything within that range, at 2-3/4s.
172
-8-
Mr. Gaston: There is no 2% issue. Leave out
the word new.
HM,Jr: Leave it out. Is that all right with
you?
right.
Mr. Ransom: Leave out the word new? That's all
HM,Jr: Do you think I am taking an undue risk
by naming the coupon?
Mr. Ransom: I don't think 80. I don't see why
that you are taking a needless risk.
HM,Jr: You see, the reason Dan is asking -- last
night we all agreed we shouldn't, but on sleeping on
this over night I want to give the market all the infor-
mation we had last night because when the Discount fellows
go up they don't know anything we don't know and the other
way round, everybody knows what they know. The Discount
boys were there until 10 o'clock. Haven't got an advantage over anybody. I want to kill any advantage for
them.
Mr. Ransom: I want to ask one question. When
we met, the other morning, before the Committee came over
here there was discussion as to whether there would be a
three-way choice or not and I don't recall anything that
was said at our meeting particularly on that subject.
My impression was that the weight of opinion favored
only two issues as a choice rather than three, 80 I don't
know what took place over here in your conference with the
Committee.
phone.
him.
HM,Jr: I am going to get Allan Aproul on the
Last night he was at the house and you can hear
At 9:30 the next voice will be Allan Sproul!
Mr. Bell: I raise one question. On the note
you are going to give the 5 year note with norate; in
the other cases, you are going to give them out with no
rate?
HM,Jr: I thought that through purposely, because
I am a little doubtful about 1-1/8. I want that much
flexibility. I can put it up to 1-1/4. Unfortunately
173
-9-
my brain has been working all night. When this 18
on the ticker, the fellows in the street will know
just as much as the Discount boys.
Mr. Bell: That's right. That's very good.
HM,Jr: And I am not mentioning the rate on the
note because it is just a possibility I might make it
1-1/4.
Mr. Haas: That's right.
HM,Jr: You fellows got any doubts?
Mr. Hanes: All right with me.
Mr. Taylor: I think it's just right.
(At this point, HM,Jr and Mr. Ransom spoke to
Sproul and copy of their conversation is attached.
HM,Jr: Anybody got any last doubts?
Mr. Ransom: I have none, Sir.
HM,Jr: Ag I say, my fellows don't agree and they
have to figure, and will you have your people figure?
Mr. Ransom: Yes, I will.
HM,Jr: But you are perfectly satisfied?
Mr. Ransom: Yes.
HM,Jr: If he (Sproul) is right, $750,000,000 or
$800, 000, 000, it will get you just about what you want.
Last call as far as the announcement goes.
Mr. Gaston: We are giving the coupon on both bonds,
but not the term. We are giving the term on the note,
but not the coupon.
HM,Jr: That's right.
Mr. Ransom: Do you want a conference tomorrow?
HM,Jr: I think if you will come over here tomorrow
about 10:30.
Mr. Ransom: I will.
000-000
174
December 2, 1938.
9:30 a.m.
Operator: Operator.
HMJr:
Allan Sproul, Fed. New York please.
0:
Right.
HMJr:
Hello.
0:
Mr. Sproul. Go ahead.
HMJr:
Hello.
Allan
Sproul:
Good morning Mr. Secretary.
HMJr:
Good. morning. You have an audience here.
S:
Yes.
HMJr:
Including Mr. Ronald Ransom.
S:
Yes.
HMJr:
S:
How do you feel this morning on what we did last talked about last night?
I feel all right about it.
HMJr:
Now, I tell you what I'd like you to do a minute,
supposing you talk to Mr. Ransom, will you? I think
he'd like to talk to you.
S:
Yes.
Ronald
Ransom:
Allan, I just raised a question with the Secretary as
to the three way plan as being somewhat different from
what we were discussing in the Board room, when we were
there a day or two ago.
S:
R:
S:
R:
Yes.
He says that you think the three-way plan is entirely
satisfactory.
That's right.
And you share Wayne Taylor's view that he's just
expressed that it's just right.
175
-2S:
The way we figured out the prices again this morning,
and it looks as if it would be just about right.
R:
S:
I see.
The two and three-quarters, the long two and threequarters and the nine year too, on the basis of present
markets would sell for about the same premiums, the
trading arrangements could be about 101.8 to 101.20.
R:
Yes.
S:
But on both of them.
R:
Yes.
S:
And so that there would be no great advantage in going
into either one from a speculative standpoint.
R:
Yes.
S:
With four hundred cash on the long bond, but conversion
there of anything up to say four hundred million, you
wouldn't get an unwieldy amount of long bonds in the
market and yet you'd achieve the objective of putting
out a substantial amount for as Long a period as possible
of this good market.
R:
S:
Yes.
The two per cent nine-year bond on that basis would be
around five hundred million, a little more, satisfying
what all our checks indicate is a strong bank demand
for that sort of obligation.
R:
Yes.
and
S:
And the five year note with three hundred cash, /perhaps
fifty conversion would give you a decent size issue in
the five year note and it looks as if the prices there
would be around - the price there would be around 101.
R:
Yes.
S:
So that the whole thing seems to fit together pretty well.
R:
Yes. The Secretary wants to know how many long bonds
in all you think you would have on this.
176
-3S:
Well, it looks to me as if you'd have about threequarters of a billion to eight hundred million on it.
R:
Uh-huh. Seven fifty to eight.
S:
What's that?
R:
From seven hundred and fifty to eight.
S:
Yes.
R:
(aside) (Does that answer your question. Is there anything
else you want to say.) - The Secretary says he is
going to put this right on the ticker. Now did you
have anything else Allan?
S:
R:
S:
R:
Not a thing.
O.K. The Secretary says many thanks.
All right.
All right.
177
TREASURY DEPARTMENT
PROCUREMENT DIVISION
WASHINGTON
OFFICE OF THE DIRECTOR
December 2, 1938
themach
MEMO. TO MR. MC REYNOLDS:
Subject: Meeting of Temporary National Economic
Committee
The first public meeting of the Temporary National Economic
Committee was held at 10:30 A.M. in the caucus room, Senate Office
Building, December 1, 1938. The meeting adjourned about 4:00 P.M.
The entire day was taken up in the presentation by Dr. Lubin.of
the economic situation as presented in the accompanying minutes.
The Committee adjourned to meet at 10:30 A.M. today and
adjourned at 5:15 P.M. to meet again tomorrow, Saturday, December 3.
The entire day was devoted to a testimony of Dr. Willard L.
Thorpe, Advisor on Economic studies in the Department of Commerce
as shown in the accompanying minutes of the proceedings.
Director of Procurement
178
Verbatim Record
of the Proceedings of the
Temporary National Economic Committee
WASHINGTON, D. C.
Vol. 1. No. I-Section 1.
THURSDAY, DECEMBER, 1, 1938.
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE MET AT 10:30
A M., PURSUANT TO CALL ON THURSDAY, DEC. 1, 1938, IN THE OLD
CAUCUS ROOM. SENATE OFFICE BUILDING, WASHINGTON D. C.,
SENATOR JOSEPH C. O'MAHONEY, PRESIDING COMMITTEE MEM.
BERS PRESENT:
Dec. 1, 1938
]
hibit No. 1' and is included in the
appendix to this issue.)
(The resolution was received in evi-
dence and marked "Exhibit No. 2"
and is included in the appendix to
this issue.)
The President, in his message, declared
that:
SENATOR JOSEPH C. O'MAHONEY OF WYOMING, CHAIRMAN.
REPRESENTATIVE HATTON W. SUMNERS, VICE-CHAIRMAN.
MR THURMAN W. ARNOLD. ASSISTANT ATTORNEY GENERAL REP.
RESENTING THE DEPARTMENT OF JUSTICE: ALTERNATE MR.
WENDELL BERGE SPECIAL ASSISTANT TO THE ATTORNEY
"Generally over the field of industry
and finance we must revive and
strengthen competition if we wish to
preserve and make workable our traditional system of free. private enterprise.
GENERAL
TWO METHODS
SENATOR WILLIAM E. BORAH, OF IDAHO.
MR WILLIAM O. DOUGLAS, CHAIRMAN, SEC. REPRESENTING THE
SECURITIES & EXCHANGE COMMISSION ALTERNATE: JEROME N.
FRANK COMMISSIONER, SEC.
REPRESENTATIVE EDWARD C. EICHER OF IOWA.
MR. GARLAND S. FERGUSON. CHAIRMAN FTC. REPRESENTING THE
FEDERAL TRADE COMMISSION: ALTERNATE: MR. EWIN L. DAVIS.
To accomplish this purpose, the President, in his message. recommended: First,
an increased appropriation to enable the
Department of Justice to enforce more
effectively existing anti-trust laws: and,
second a comprehensive study of concen-
tration in industry of industrial price policies and of existing Government policies,
and the effect of both of these policies
COMMISSIONER FTC.
SENATOR WILLIAM H. KING. OF UTAH.
DR. ISADOR LUBIN. COMMISSIONER OF LABOR STATISTICS REPRESENTING THE DEPARTMENT OF LABOR: ALTERNATE: A. FORD
HINRICHS
MR. HERMAN OLIPHANT GENERAL COUNSEL TREASURY DEPART.
MENT. REPRESENTING THE TREASURY DEPARTMENT ALTERNATE: REAR ADMIRAL CHRISTIAN J. PEOPLES DIRECTOR OF PRO.
CUREMENT DIVISION
MR RICHARD C. PATTERSON JR. ASSISTANT SECRETARY OF COMMERCE. REPRESENTING THE DEPARTMENT OF COMMERCE
REPRESENTATIVE B. CARROLL REECE OF TENNESSEE
MR LEON HENDERSON EXECUTIVE SECRETARY.
ALSO PRESENT
HUGH B. OX-JUSTICE: MR. WILLIS J. BALLINGER-F.T.C. MR.
THOMAS C. BLAISDELL-S.E.C.: MR. J. J. O'CONNELL-TREASURY
SENATOR O'MAHONEY,
Chairman of the Committee
The CHAIRMAN I will call the meetto order
the beginning of this, the first pubsession of the Temporary National
dent recommending the study which is
now in progress, and second. the text of
the resolution itself.
June 16. 1938, it is appropriate
cord first. the message of the Presi-
to do Law enforcement is the function
of the Department of Justice. not of this
Committee, though we are authorized to
make recommendations with respect to
anti-trust policy and procedure The
function of the Committee is merely to
study facts and to make report thereon
with its findings and recommendations
The Committee is comprised of twelve
members. six from the legislative and six
from the executive branth of the Government. The Executive Departments and
tee are. by the resolution. directed to appear before the Committee or its designee,
and present evidence or reports on mat-
ters within their jurisdiction under exist.
ing law.
It is this phase of the work which is
now beginning
SOURCES OF EVIDENCE
The presentation of any evidence or re-
I offer these documents so that there
may be, at the outset, a clear understand-
ing of the nature and the function of this
Committee as well as of the purpose for
which it was called into existence
(The President's message was received in evidence and marked "Ex-
Committee which was formally
tablished by resolution of Congress ap.
there should be incorporated in the
-the better enforcement of existing anti-
trust -this Committee has nothing
Commissions represented on the Commit-
ENATOR JOHN G. TOWNSEND JR., OF DELAWARE
DIRECTORS OF STUDIES: DR. WILLARD THORP-COMMERCE: MR.
STATEMENT BY
upon trade and commerce
With the first of these recommendations
See Last Page For
INDEX OF CONTENTS
on same any
receive
of evidence port does the by not, full any of the committee agency course, of exhaust subjects the It may Government the from power
other source or from any other witnesses
In due course, that will be done
In the meantime it should be clearly
understood that no Department or Commission, no member of the Committee. no
employe or agent, no witness speaks for
the Committee Such evidence as is pre-
sented is either on the authority of the
agency which offers It or is received be-
(Published by Bureau of National Affairs, Inc., 2201 M St., N.W., Washington, D. C.)
2
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
cause the Committee believes it will be use-
ful in developing the facts which are later
to be analyzed when the Committee under-
takes to make its report.
Whether this study will be fruitful of
benefit to society or altogether futile depends largely upon two factors:
1. The manner in which it is conducted,
and
2. The manner in which it is received
by the public.
COMMITTEE OBJECTIVES
lecting official information with respect
to our economic structure
measured in terms of our national
undertaken to answer with the testimony
first of Dr. Lubin and then of these other
gentlemen is: "What exactly has been the
effect of our industrial and economic sys-
come increased from $2,000,000,000
The question, which it is now to be
tem upon the community life of the
nation?
I now introduce Dr. Lubin as the first
witness of this public hearing.
Let me say, therefore, in the language
of a resolution unanimously adopted by
TESTIMONY OF DR. ISADOR
That it is the unanimous sense of
this Committee that its function and
LABOR STATISTICS, DEPARTMENT OF LABOR, WASHING-
the Committee at its last session
purpose is to collect and analyze
through the medium of reports and
public hearings, available facts per-
LUBIN, COMMISSIONER OF
TON, C.
Dr. LUBIN. Mr. Chairman Members
taining to the items specified in Public
Resolution 113 (75th Congress). in an
objective. unblased and dispassionate
of the Committee Any attempt to meas-
the Committee to pursue its work
solely from this point of view.
The members of the Committee are
quirements of our citizens To maintain
our standards as our population grows
manner. and that it is the purpose of
deeply sensible of the responsibility that
rests upon them to utilize the broad
powers with which they have been invested solely for the public good. No per-
sonal partisar or factional program is
controlling here. The processes of the
Committee will not be used for any pur-
pose save to develop economic facts which
in the very nature of things must be
widely comprehended before any constructive recommendations may be outlined
WIDE LATITUDE
The Committee has approached its task
with an open mind and with the intention to afford to interested persons the
widest possible latitude for the presentation of evidence or suggestions
The hearings begin today with a preparatory presentation to be made by Dr.
Isador Lubin of the Bureau of Labor Sta-
tistics, He will be followed by Dr. Willard
Thorp. who has been associated with the
Department of Commerce and by Mr.
Dec.
ure the performance of our economy
must be in terms of meeting the rewe must increase the output of the goods
and services produced at least proportionately with the incoming population.
I shall attempt to portray the growth
of our population and attempt to measure the amount of goods and services
that have been available to that population over a period of years. for which
official and unofficial but authoritative
data are avalable
POPULATION GROWTH
I want to first turn to this chart, which
deals with the population of the United
States, and I want to point out a few
significant facts
(The chart referred to was received
come, you will note that our national
year But the
to $61,500,000,000. which is our estimate 180m
is that
average annual
thing and for the 1919 there the again 1938. between national significant 1908
come was $42,500,000,000 Between 1931
and 1929. however, the national income
averaged $69,000,000,000 per year or "
increase in that period of ten years
approximately 55 per cent.
INCOME DEFINED
The CHAIRMAN Dr. Lubin, won't FR
for the benefit of all who may hear
read what is testified here, give 10g
definition of the national income? I find
sometimes that that phrase is confirm
with the income of the Government
Dr. LUBIN. The national income th
total amount of goods. namely, clothes
automobiles, food. houses, and things
that sort, the total sum of all the goods
plus the total sum of all the services
which means laundries, garages, electric
utilities. and every service sold-the sub
total of all the goods and services per
duced in the United States in any our
year, and in terms of dollars this chart
portrays what has happened to the TAX
of all of those things that were made and
all the things-
Senator KING (interposing). Including
agriculture, of course.
Dr. LUBIN. Goods, of course.
Senator KING. Agricultural commod
ties and production.
Dr. LUBIN. Anything that is produced
The CHAIRMAN. That covers all mis
ing production, all agricultural production
in evidence and marked "Exhibit No.
all industrial production and all the ACU
vities of trade and commerce
Dr. LUBIN. Yes.
If you go back to 1850 the middle of
the last century. you will note that the
the average annual income was 55
cent greater than it was in the decals
4" and is printed on Page 3.)
increase in population from there to 1935.
the last year for which official estimates
of the Department of the Census are
As I was saying. between 1920 and 193
preceding
DECLINING TREND
If you go from 1930 to 1938. that national
income averaged $50,000,000,000. In other
words, there was a decrease in the income
Leon Henderson Executive Secretary of
available was from 23,000,000 people at
presentation of evidence will be begun
by the Department of Justice
When that presentation is undertaken
estimates as are available place the popproximately 132,000,000 people.
average of $69,000,000,000 per year between
of procedure which were adopted at the
last meeting of the Committee to apply
brought out is that between 1850 and 1880
'20 and "29, to $50,000,000,000 per yes
between 1930 and 1938.
carried on under Sec. 3(b) of the resolution It seems appropriate that these
rules of procedure should also be filed
at this point in the record
increased by 80 per cent
FUTURE TRENDS
the Committee Next week the formal
the Committee will be acting under rules
to those portions of the hearing which are
(The rules referred to were received
in evidence and marked "Exhibit No
3
are included in the appendix
to and
this issue.)
The prefatory statement which is about
to be made by Dr. Lubin was undertaken
breause in the judgement of the Com-
mittee it was desirable that there should
be first an analysis of the facts of
to economic system as they have appeared our
the various government bureaus
As everybody connected with the Gov.
ernment and most of those connected with
business understand the Department of
as Commerce and the Department of Labor,
well as other departments in the Gov-
ernment have for many years been col-
this point to 127,000,000 in 1935 and such
ulation in 1940, two years hence, at ap-
The significant fact that should be
our population doubled Between 1880
and 1910, thirty years later. population
Between 1910 and estimated 1940 a
similar period of thirty years. it is estimated our population will have increased
43 per cent and the estmated increase
in population from 1940 to 1960 will be
less than ten per cent In other words
the rate of increase of our population
has been steadily going downward so
that in 1960 it is estimated that there
will be but ten per cent more people in
the
United States than there will be in
1940
(A chart depicting growth in na-
tional income was received in evidence
and marked "Exhibit No. 5" and is
printed on Page 4.)
Contrasting that growth of population
with the goods and services that are
available for that population, which is
available, goods and services product
available to the American people, from
Of course we want to bear in mind
that in 1937 our national income 11
estimated by the Department of Coff
merce at $69,000,000,000 For this year
the estimate is about $62,000,000.00
roughly, so that despite the fact that
national income was relatively high
compared to the past, when you take #
consideration the drop in national
come during the early years of the decade
you find that mark fell from $69,000.00
000 to $50,000,000,000
THE CHAIRMAN How reliable IT
those estimates?
Dr. LUBIN. They are the most reliable
are available They are
of Commerce
accepted by economists ml
estimates by the Department that statisticians and
business people of the country as the
reliable figures that are available.
BASIS OF ESTIMATES
The CHAIRMAN. What is the basis
the various estimates?
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
3
(Exhibit No. 4)
UNITED STATES POPULATION
MILLIONS
WILLIONS OF
PERSONS
PERSONS
150
150
100
100
50
50
0
o
1850
6G
70
80
90
1900
10
20
30
40
50
60
NATIONAL RESOURCES COMMITTEE ESTIMATES
America's population is increasing much more slowly at present than in the past.
From 1870 to 1900 population doubled, increasing at an average rate of two and one-third
percent a year. From 1900 to 1920, just before the new immigration laws became effective, the average annual rate of increase was one and two-thirds percent; from 1920 to
1935, slightly over one percent. From 1940 to 1960 it is estimated that the rate of gain
will be only one-half of one percent per year.
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
4
(Exhibit No. 53
Dr LUBIN What the Department
UNITED STATES NATIONAL INCOME
TOTAL
BILLIONS
to get such figures as are avail
does the amount paid out in wages, the
able paid out salaries the amount
amount in interest the amount paid
estimate the total amount of in-
DOLLARS
90
1935-29
1930-34
The question arises as to what the increase in national income has meant to
Representative SUMNERS Thank you
lower chart shows the trend of Lional
from there to there (indicating on chart)
times and otherwise What they is
80
add up the value of everything they know of
the agriculty output manufacturing
output. and so forth
70
has the Department of Commerce been
distributed
Dr LUBIN 1 think they originally
in since
40
Senator KING The Census Bureau
has also made contribution to the determination
30
30
the
of
income
20
Agriculture
1PT every two years now, formerly five
10
0
PER CAPITA
DOLLARS
700
DOLLARS
700
that income per capita the amount
You had to divide your national income
for man, woman and child in the
among more people The result that
cant to notice. however, is that we
$150 more than was available in 1932
Congressman SUMNERS You raised
the question about prices What we have
done here is try to eliminate the changes
we were increasing our population In
caused price changes As said,
creased by 40 per cent But the signin.
available to the country do not increase
question please Take the construction
house for instance The people who
tional income yes: in other words the
the
of
figured
LUBIN
Dr.
value of the tree when the
form
of
Number
Representative SUMNERS Do they
subtract from the price of the lumber the
value of the tree?
Dr LUBIN Yes
Representative SUMNERS There is no
100
100
0
0
NATIONAL
60
70
80
90
1900
10
20
30
The
total net volume national of income is . reasonably accurate measure in dollar terms of the
is each year. There goods and services made available to the people of the United States
total national income was an almost uninterrupted increase from 1850 until 1929 both is
dropped off sharply and and in per capita national income. After 1929, however, both figures
lowance is made for price have in no succeeding year approached the 1929 level. Even if al-
pression was impressive. changes, the decline in national income during the recent de-
that you have the trees plus the value
added turning them into lumber plus
put
value that was added when labor was
build
house
does the value of labor and the value of
been broken down so you can really speak
113 here almost doubled the amount
quantity?
Dr LUBIN Due to the fact that WE
our
statistical
like
methods
to.
in dollars value. My next chart will show
but
physical goods to get the change of
prices up
Representative SUMNERS While you
are interrupted would you mind Indicat-
Dr LUBIN We have the figures that
is showing the relative per cent of in-
crease in the population that is attributto
Immigration
Representative SUMMERS You
have
broken that down?
Dr. LUBIN Yes it is as follows: Net
1934
duplications
refined
Dr. LUBIN This of course is entirely
sigration into the United States 1910-
Senator KING There are bound to be
the
and it was 96 per cent In other
words, we almost doubled the amount
of goods and products- am sorry.
attributed
house appears in the picture in the sense
ap
great
10 per cent Between 1920
in
able to natural growth and the percentage
Dr LUBIN No In other words that
the
more
and
migration laws had to do with the increase
in total?
AND
as
cal now - are forgetting the
you just stated that the charts show there
of population Do you have that?
$6,000, but that is not regarded as income
not
between 1910 and 1219 the increase
were more and more goods Now does
more
were
in national income in terms of physi-
Representative SUMNERS Dr Lubin
Ing if you have the figures to what extent
build house. the house is worth say
BREAU
1935 that shows the per capita.
necessarily
changes
peared the preceding chart. In other
the volume immigration and the policy
of this Government with regard to im-
duplication?
Dr LUBIN No there is no duplication
presentative SUMNERS When you
1850
the
I have some figures for the year 1934
you what it means in terms of actual
DUPLICATION AVOIDED
200
price changes You will note although
there was sharp rise decorte this fact
Dr. LUBIN There are very few, sir
in
added
the
into 1936 dollar and thrown out all
to other nations?
mean
would
changes in national income caused
enter in at all? Has that
the
is
income
volume and more and more in days' work
Number sold the total the
Number
exactly the same amount
available but if prices doubled. the
What we have done is converted this
The CHAIRMAN Have any estimates
that
tree
esentative SUMNERS When the
200
in this big chart have here that were
of this character been made with respect
tree manufact into
300
$68 than was available last year and
income goes up 100 per cent. but the goods
value
300
country will be about $472 which is about
your total income increased as
the fact that the number of those citi-
Dr LUBIN That is part of the na-
400
in terms of goods and services
tens increasing
will the tree that income
400
1920 to 1929
Today. for this year. it was estimated
being produced If the price level the
following year is twice as high if prices
have gone up 100 per cent. the national
600
500
the decade from 1910 to 1919 and the de-
other words, there were more and more
goods available for our citizens despite
Representative SUMNERS May ask
500
total
to
words part of that increase differ.
ence between the two was to
in amount
600
had fallen to $320 which you will notice
is considerably less than it had been in
per
opposed
Dr LUBIN After all one thing should
be borne in mind that the national in.
come can increase without more goods
0
as
were increasing our output faster than
and before that ten
10
Dr. LUBIN Yes In 1932 the per
capital national income of this country
that available for each person in-
Senator KING They make up sur-
20
The CHAIRMAN 19387
said, per cent. whereas the amount
Dr LUBIN Very definitely because of
the Census of Manufactures and Census
of
Dr LUBIN (interposing) 1938
fact that the population was
CENSUS FIGURES
40
to-
crease of 55 per cent In other
either 30 or -and have been keeping
50
increased
period.
started in 1930 but they worked back-
50
THE AVERAGE INCOME
man woman and child were equally
making these estimates
60
as individuals fell to an average of $397.
The CHAIRMAN That was from 1930
erage was 1606 per person other
words the income available every
The CHAIRMAN Over what period
60
that per capital income. the amount of
goods and services available to our people
There again you will note that between
1910 and 1919 the average was $428 per
person Between 1920 and 1929 that AT.
of that has been produced the value
70
Dr LUBIN Between 1930 and 1938
for person in the country
because some of it is aved by corpora80
56,000
very much
country namely how much is available
not always equal to the income
1,239,000
our people in terms of the amount of
income in terms the people of the
come sort. paid out. The income
90
amount of duplication is relatively insignificant
goods that has been available to us. This
in out dividends and other things of that
BILLIONS
OF DOLLARS
5
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
1913-14
3,316,000
1915-19
432,000
1920-24
1,968,000
94 cent Pifty-nine at this point
of goods over that period of ten years
(Chart No. National Income in
Constant was received evidence and marked Exhibit No 6"
and as printed on Page 6)
Between 1930 and 37 the difference
an increase of only per cent
Representative SUMNERS Dr Lubin
do you have anything to indicate the rel.
ative amount of carry-over from year to
year? support you wouldn't
Dr. LUBIN I think there are
figures: of course of certain types
products we have certain inventory fig.
ures for certain industries
(Chart No 4. representing National
income
1919
received
evidence
and
marked
hibit No and printed on Page
11
This chart gives you the picture of the
what you ask in the way the
answer form did but gives you both curves
this black one being the change terms
of the current price level the dotted one
being terms of actual physical units
forgetting what happened to the price
system
Senator KING Wouldn't it be wine
Dec. 1. 1938
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
6
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1, 1938
to identify your charts the first one No. 1
and on?
(Exhibit No. 6)
Dr LUBIN I think this is No 1
will identity them have list of them
Chart No representing 1934-35 S U. S. capits
nations income was
Germany England and France
ustion is in the United States as code-
7
than many of these foreign countries At
pared with other countries The most
a matter of fact. If - had the figures
tries are for 1934-5 and they are only
for 1937. this line would be even larger.
Senator KING. Wouldn't you strike out
recent authoritative data of other coun.
available for four countries You will
note the average income in 24 and 31
in the United States was $433. as com-
the word "many" and say "all"
Dr. LUBIN think these are the tour
pared to $401 in England $345 Ger-
important ones
France In other words despite that
been eliminated?
mendous drop that took place in contrast
and services available to our people over
other words you adjust your relative
to the tremendous rise in the last decside a is interesting to see what the sit-
usls, we are will in far better position
received in evidence and marked Ex-
hibit No and printed on Page a)
After portraying what had happened
to our national income in this tre-
many. $321 Sweden and $267 in
marked decline in the amount of goods
the past nine years in terms of individ-
Mr. OLIPHANT Has the price factor
Dr. LUBIN. They are adjusted In
price levels between your different coun-
tries but is is for one year We adjust
(Exhibit No "
NATIONAL INCOME
NATIONAL INCOME IN CONSTANT PRICES
1926-100
ADJUSTMENT FOR PRICE CHANGES
INDEX
ADEX
120
120
BILLIONS
BILLIONS
DOLLARS
OF DOLLARS
100
100
100
00
90
90
80
80
80
80
70
70
60
60
40
40
1929 PRICES
60
20
60
20
CURRENT PRICES
0
1860
1870
50
50
40
40
0
1850
1880
1890
1900
1910
1920
1930
SOURCE U.S DEPARTMENT OF COMMERCE NATIONAL BUREAU or ECONOMIC RESEARCH KING. AND BUREAL OF LABOR STATISTICS
1919 1920
1925
1930
1935
1939
Prepared by the staffs of the Central Statistical Board and the Nigional Resources Committee
Source-National Bureau of Economic Research
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
8
(Exhibit No. 9)
tively higher Allowing for most of the
them the basis of the
figures
MY
other
don't
We
are
they
are
How
the
for
LUBIN
Dr
bugs that might get into 11. no matter how
time
the
at
The CHAIRMAN
the
the
countries?
know
AT
most
figures ** can
estimates and private
for
this
national
THE
the
ACCOUNT
43,435
of
program
everybody
working
who
WAS
during
nine
of
wage
IN NON-AGRICULTURAL OCCUPATIONS
PROGRAM
There
regard
stop
the
art
work
the
the
gainfully
workers
LUBIN
m.
make
year
40
EMPLOYMENT
40
and
EMPLOYMENT LOST
been
just
place
since
MAK YEARS
effect
net
that
EMPLOYMENT LOST IN DEPRESSION
has
effect
the
the
the
employ.
has
the
nity
under
and
Now. the question to what
kind
year
have
capita income in the United States despite the depression of those
years than other countries
LOSSES IN EMPLOYMENT
upon
KING
Senator
mination
nine years. ofvacation
who were working
you calculate it we do come out in terms
effect
FOREIGN WAGE
Dr.
9
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
Dee. 1, 1938
during
of
SUMNERS
the
Labia
Dr
that
fact
came
Sunners
30
Now
30
employment
and salaries?
gainfour
showing
chart
(The
time.
salaries
depression in non-agri-
there
you
and printed on Page
time
was
thirtywords,
suming
that
the
total
amount
aries,
here
of
had
mained
not
past
portrayed
That
man
of
occurred
would
have
that
been
that
dollars
20
20
(Exhibit No. 8)
PER CAPITA NATIONAL INCOME, 1934-5
UNITED STATES
432
ENGLAND
401
GERMANY
345
10
10
0
1929
SWEDE
21
1930
1931
1932
1933
1934
1935
1936
1937
1938
TOTAL LOSS
1930-38
STATISTICS
The reduced level of industrial activity since 1929 is equal to the loss of more
than
FRANCE
one full year of employment for the entire working population engaged is non-egricul-
tural occupations. The loss above, . full year's work for 43,000,000 non, is conservative.
It does not allow for the addition since 1929 of about 5 million to the potential working
267
population nor for the nearly 2 million persons unemployed in 1929.
SOURCE TAX SYSTEMS of THE WORLD
Dec. 1. 1938
Dec. 1938
wage been $119 000,000,000 more than
have
actually
(Exhibit No. 10)
The
How
(Interposing).
CHAIRMAN
have them all
The CHAIRMAN
Dr dollars In other words, our
billion these years was 240 per cent of
from
read
Dr. LUBIN This is throwing out all
could
price changes: this is quantitative Senbe
000: it was $11,941,000,000 in 1930
It was $9,800,000,000 that 1928 and
Dr. LUBIN. Yes.
If those
labor.
during actual amount that was paid out in
the and wages in 1929. and that loss
1929 were about In 30
losses
losses
the
to
level
with
permit me, that in 1928 and 1929 the
in
1
effect
the
come 19297
dealing
words,
Dr LUBIN Approximately eighty-one
units
physical
of
changes
billion
from
The CHAIRMAN And what is this
Page
billion you MAY?
everybody
off they were in 30.
The CHAIRMAN Eighty-ope billion. the
largest single year in the history of the
the loss only to wage
I
Dr. LUBIN That question, Sension
hearings but don't want
why this happened
do to say what did actually
KING. Speaking objectively.
LUBIN. Getting chart,
total
the
The
This stable dollar, the 1929 dollar
The CHAIRMAN Now you
terring to the chart entitled
again
paid
this
years
which
163%
point
of
1937
In
Lost in Depression
50
actually
divi-
large
dollars
LUBIN.
Dr
(The
paid
and
became
and
back
got
this
pro-
for
Taking
into
the
This
fact
the
Senator,
that
came
The
Dr. LURIN Yes
Senator KING Taking into
that the gold dollar had certain
tity? has been inflated
three
income
loss
terms of the purchasing power of the
Now in terms of
40
our foreign market
Dr LUBIN. I did here. yes definitely
INVESTORS, FARMERS' LOSSES
40
the factor to the decline to
agriculture resulting from diminution
dollar?
printed on Page
June
determine- probably would
be the scope of your activities
prices the fact that we had changed our
lost
showing
and
50
years
KING suppose you haven't
take account in determining these
arted workers.
chart
the loss in gross income
Senator KING That last answer you
made didn't quite understand Did you
Dr LUBIN Exactly right, and this
agri-
the
will probably be discussed later in the
CHANGE IN THE DOLLAR
country
suf-
plus further loss that
14.1
Dr. LUBIN Yes right here. air
Sension BORAH And then in 19297
The farmers were pretty nearly as bad
Dr. LUBIN Eighty-one for
the
in
29
there
maintain
for
have
you
and
that
price
BORAH Dr. Lubin have you
compared
loss,
in
in
the income or agricultural income
The CHAIRMAN 80 is one hundred
eighty
The
existed
that
alone
nineteen billion
double
you
of
Dr LUBIN One hundred and nineteen
billion for wage and salarted workers
SALARIES AND WAGES LOST
come agriculture was not sufficient for
agriculture to maintain itself
Dr LUBIN. Exactly so. In other words
chart referred National
total of the lost income?
SALARIES AND WAGES
came
drop
Senator BORAH The point is If you
amounts
1939
The CHAIRMAN. Let me ask it this
way What was the total national in-
first
the
time
national chanta and business men and labor and
everybody else in 1929
ator Borah, in reply to your question the
gross income of was $11,741,000.-
charts?
these
salaries 40 per cent greater than the total
income paid to farmers and mer-
19,354
GROSS FARM INCOME
Dr. LUBIN. We haven't such . chart
but could easily add them together We
LUBIN One hundred and nineteen loss
IN NON-AGRICULTURAL OCCUPATIONS
but upon prices
farmers?
much?
SALARIES & WAGES LOST IN DEPRESSION
based upon the quantity of production,
compared with the loss incurred by
a
10
all into the price level of single year
Senator KING Your figures are not
with the other. as for example, the loss
incurred by investors as compared with
the loss incurred by wage earners.
and salaried workers would It
it
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
11
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
into
dollar
words
1929
prices
1929
that
got
using
in
amount
times
child
figures
the
those prices and
hundred
20
the
Representative
these
20
today
are
o
income
o
1930
193
1932
1933
1934
1935
1936
1937
1938
TOTAL LOSS
are
1930-38
and
permit clarifying statement?
matter of fact in 29 prices
lated beyond where they ought
doesn't
talking
these
would
about
the
are
laborers
and
to
$120,000,000,000 The pay from loss 1930 to American to wage-earners and salaried workers was nearly
show
1929 pay rates and 1929 levels 1938. of This email two and one-third years' earnings at
three
chart
allow for the addition since 1929 of employment about 5 and million yet to the conservative potential working figure. population. It does not
each
groups
The CHAIRMAN
comparing
it
Representative SUMNERS Would you
doesn't
LUBIN The fact is this that when
1929
was
that
of
Have
made
of
to
be
calculate
structural
these
base
other
Dr. LUBIN. It doesn't difference,
you
pick as long you keep the thing con-
stant In other words, we have
taken 24 and gotten same result. or
them
The
to
convert
during
actually
nine
years
FARM vs FACTORY
Would
SUMNERS
interrupt this
Whether
which
dollars
thousand
to
been
SUMNERS
child.
man
every
they were higher relatively than they had
1929
10
been
have
Dr. LUBIN Well of
want discuss the concept
10
income
of
not
situation
got
this
normal
above
"29
you
chart
have
study
or
that would indicate the relationship between
breaking
the
down
purchas-
the
ing power of one group and the general
effect upon the whole group for the total?
Dr. LUBIN We do have that relation
out
ship
workers
come
between
in
That
the
paid
amount
and
factories
do
farm
gross
have
I
30
if
30
the
in-
haven't
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
12
but
brought
that sort are primarily local, they are very
bittle affected by world price
chart
that
out by the Department
tie situation where the
same
Representative SUMMERS But
close
very
dairy
to
the
trucking
and
the
-
wages
volume
ralard by Senator O'Mahoney as to what
that
because
significant
Dr
your
somebods
EFFECT OF INFLATION
The important thing
Senator
monetary
of dollars that are available
they do more and down with
number of dollars available to wage
hasp's much to Malus
earner. which gives you some idea of the
Dr.
economy
WORLD
Senator KING don't want to inter-
have
lan't fact going
the
farmer's
Dr.
back for many years prior the
quantity?
LUBIN
deter-
metals
prices
had
paralyzed
that
low
power
the
of
the
over
In
national
chart.
circulatory
paralysis
about 11.3 billion in
appras
Dr.
nificant
thing
Payments
Month
words,
the
business
factor
paid
It
that
course
amount
from
1929
to
LUBIN
Dr
BILLIONS
Now
the
question
the earlier years
Senator KING didn't quite under-
out
That
The CHAIRMAN In other words this
pardon me for anticipating that dis-
is an analysis of the distribution in-
statement as the precentage
wages and salaries for 1935
Did you give that?
Dr. LUBIN No. it was AS per cent
In 1929 labor got $1.5 billion dollars: in
1938 October the rate would be about
" billion year.
Senator KING In precentage would
come payments during the years from
was
and
relief and other.
of
1929,
DIVIDENDS LOST IN DEPRESSION
farmers
interest.
and
years altho you note there
indices
lacbr.
month
country
and
went
going
51.5
which less than with of
Back in per
date
(Exhibit No 11)
men
amount
from
and the amount being paid out
direct relief. of course. growing larger
shows
to veterans by the Gov-
mary
the
Dividends
10.4
as direct relief.
from
that
is
say.
the
chart
This
know
lief veterans The
numbered
be
LUBIN
about
receive
you
The
business
That
they
asked
Yes
billion
and
dividends
fiftern
got
who
chart
KING
that
sort
well
be
each
only
they
they
will
that
chart
what
1937
The
when
had
been
that
The CHAIRMAN May interrupt
the
billion
twelve
that
business
The
there
that to differ
agricultural
NO
the
your
LUBIN
prices
they
Mr. LIPHANT
great output of
the
inflation
historically
Lion
discovery for in Califor
course
Dr
LUBIN
the
marked
in
the
monetary
as an authority on
Senator KING
part the domestic market plays in our
SUMNERS
situation
that
and forth
Page
on
notice
You
If
because
they
fact
put
that
fact
Isn't
put
shown
It
salaried
KING
I
largest single group in the
up
wish
that
into
Dr LUBIN would point out
and
record
record
to
much
The
starts
Our market primarily
products the United
would
was
evidence marked Exhibit No
point
One
It
As payrolls go up agriculture
SUMNERS
chart
be 67 per cent The next group.
farmers
get
standard
Dr. LUBIN Yes In 1937. it la esti.
in
human
both
The
1929 to 1938 among the various groups?
ours
the different groups
year
peak
income
this
of
capacity?
to
and
13
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
same
vicinity which for agricultural
pay
Dee. 1, 1938
BLUONS
DOLLARS
(Exhibit No. 12)
DOLLARS
20
20
III
GROSS FARM INCOME LOST IN DEPRESSION
19.8
DIVIDENDS
DIVIDENDS LOST
ILLIONS
DOLLARS
DOLLARS
40
38.6
40
'll
GROSS FARM INCOME
6
6
GROSS FARM INCOME LOST
12
12
4
4
8
8
,
2
4
0
193
1932
1933
1934
1935
1936
1937
1938
the
the
1930-38
ries
in
shows
the
Mg
that
level
20
1929
billion
dollars
more
to
divio
The
TOTAL LOSS
1930-38
COMMERCE
o
1930
0
1929
1929
were probably for price sore adjusted changes, for price #tockholders changes since lesses 1929, over adjustment which would had make been the saintained. loss smaller. The figured Even
than twice their total dividends in this
1929, period free the relative inectivity of industry
1930
us DEPARTMENT I
1931
1932
1933
1934
1935
936
1937
1938
TOTAL LOSS
1930-38
- - NOT NO
14
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
and
salaries
clarified
better
cent
if
wages
not
ahead
you
duced
About
there ought to con.
half
the
by
which
The
and
the
the
cred without interruption unless it should
Dr.
for
Senater
mining
the
quickly as other prices lot of other
minedity prices. and the result is
that the total value here
(other
than
industries)
becomes
shift
and
tion only and omits agriculture in
that industry was growing at much
small proportion of the total as compared
result that you had gotten to the point
Now this
INDUSTRIAL PRODUCTION
chart
industries,
the
where each person had more goods
to the year but there was very
ufacturing and mining that peried of time As matter fact. the
In 1929 our manufacturing industries
marked increase in the growth of man-
were producing approximately three times
as much as they had been in 1899 and
despite the increase in our population. the
per capita production also increased with
the result that twice as much goods were
increase in the total goods produced by
our was1910
from
100 in 1899
whereas the capital
our Industries increased from
being produced for each person in the
135. In other words, our factories
year 1929 as had been produced for each
and were growing rate
much
with
faster
the
in
that
in 1910 in this
was using about 35 per cent more
than
re-
than in 1899 In other words the
commed-
CHAIRMAN
more rapid rate than population with the
dustries in 1936 produced relatively
greater relatively to the there
in
this
type
The
On the other hand too. there is price
factor there that must be borne in mind
service prices de not go down as quickly
LUBIN this
of
fact
important
Public utility rates don't go down as
jection will permit Dr Lubin
have
been in 1899. the abswer of course being
and to forth this is Industrial produc-
tionately these industries become much
more
Industries
octs than it had
greater. least in terms of prod.
On
country
of
of
mind
1919
things
produced in the United pro-
about where we had been in 1914
in 1932. so that in terms of the products
factories and our mines the aver-
thing
(Exhibit No. 14)
curtail
factories
is
fell back to 171, which put us back to
production fell from 197 in 1929 to 102
usis this country per capita was 35
come
1899.
In 1932 however, our total production
In terms of per capita. the amount of
goods available to the individ-
In-
that
showing "National
15
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
other
Physical
the
The CHAIRMAN If there
1
KING
of
Dec. 1938
no-called
timits statement from his
Senator
factories
that
asked
LUBIN
by
Dee. 1, 1938
MONTHLY INCOME PAYMENTS
other
electricity:
(Exhibit No. 13)
INDFX NUMBER 1929 100 (Adjusted for Seasonal Variation)
NATIONAL INCOME LOST IN DEPRESSION
110
BILLIONS
of DOLLARS
BILLIONS
OF DOLLARS
135
135
100
1331
NATIONAL INCOME
NATIONAL INCOME LOST
90
PAYMENTS VETERANS
PAYMENTS VETERANS
80
80
80
70
60
60
60
40
50
40
40
20
30
20
20
0
1930
93
DEPARTMENT COMMERCE
1933
1934
1935
1936
1937
1938
--
ececante
had. The American people lost have had 132 Million dollars real income than they actually
is 1929. approximately one and one-half times .. such goods and services as - pre-
0
our
1929, people of this system country had would functional as effectively is the nine years from 1930 to 1934 as it 414
dated
10
TOTAL LOSS
1930-38
If
La
1932
0
1929
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
SOURCE $ DEPARTMENT OF COMMERCE
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
available
to
exactly
the
pro.
factories
and
terms
thirty-th
of
and
duction
were
that
produced
the
people
reached
about
time
present
which
the
at
128
puts the of about 1965
Now
durable
goods as we define them
any
goods
that
per cent of the peak of 1929 Then fol-
automobiles
locomotives
tion during which the actual amount produced fell to approx mately the level of
1922 back here and for this year we es-
things
some
timate that the level will run ething
sumers
are
lowed another decline in physical produc.
ing
around 85 or 86 As matter of fact,
printed on Page ID
In chart on Physical Volume of
If with 1919 which is the
cent
and
where
250
250
producing
cent
the
mines
our
Mr
Chair
this
chart,
prepared
National
by
nomic Burrau of Research
durable
in
below where had been at the beginning goods and the 10-called non-durable goods.
150
150
the
for
man
in
Am-
to
200
200
facturing chart.
Here attempted to break down the
and
our
say that the amount they produced which
accounts for that other drop in the mass.
received
printed on Page 19.3
importance
so-called
half
BY 1933 however their
dence and marked Exhibit No 18"
factories
300
79.
they
economy had fallen relatively with
shouldn't say their importance
VII
per
per
the
(The chart showing "Output of
per
this
1923
output
300
between
curve physical production fall as it did
were
1922
dent
350
that
It
producing
1929
350
INDEX
most
again
INDEX
by
think
I
and
revived
1921.
factors
directly
of
goods
industries which contributed durale
cent
output
had
Item
drops but what made that
first you notice that our
TOTAL
COUTH
the
drops terms what was respon-
physical production rose in 1920 followed
the
significant
being
used
them
1879 and 1929 the importance
Senator KING Physical production?
Dr. LUBIN Physical production
Now the question is what caused these
clearly tremendous drogs that have
taken during the last twents years
most
them
in
to repeat Line preceding chart. but to plity in order that YOU might see more
UNITED STATES INDUSTRIAL
PRODUCTION
1899-100
houses
can economy You will note that Ames
last decade
Industrial Production" have attempted
(Exhibit No. 16)
the so-called durable the
which more or less period of the
No
words
machinery
note
did during this period here (1923-25)
Exhibit
marked
the
period
other
that
of
17
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
My
over
time
of
during other goods
for last month estimated pro-
duced 101 per cent of what we formerly
and
consumed
period
years
of
I
back
other
Dec. 1. 1938
Dec. 1, 1938
of the decade By December 1936 how.
ever we had regained virtually all of the
less from 1929 and we were within three
of
about
had
this
age
as
16
100
Ect
100
New York, and made available to
(Exhibit No 15)
50
50
NATIONAL INCOME BY TYPE OF INDUSTRY
0
0
PERCENT
PER CAPITA
100
100
350
350
300
300
80
80
250
250
200
60
200
60
150
150
100
40
40
100
50
50
20
0
20
0 186365 70 75 80 85 90 95 1900 05 10 15 20 25 30 35
From the Civil Far to 1929 output of factories and sines increased Since such 1929, more des-
rapidly than the population, with the exception of a few scattered 1870 years. to 1900 total out-
0
SOURCE
20
21
22
23
24
0
1919
25
26
27
28
29
30
31
32
33
34
1935
COMMODITY PRODUCING INDUSTRIES
ALL OTHER INDUSTRIES (EXCL GOVT)
36
37
pite an increasing population, production has been smaller. From curve). From
put (upper curve) multiplied five times; per capita output 2) times (lower capita basis. In
1900 to 1929 output increased three-fold, and nearly doubled on per than in the
the nine years, 1930-38, industrial production has averaged nearly 15% smaller
preceding nine years.
Mitchell
and
for
that
feel
chart
Now compare this line here of the output of our factories and mines with this
and
line here which shows the output of
weak
agriculture
factory
Dring
going
LUBIN
to
to
On the other hand the
brailt in the United
that
received
No
has
Page 20.)
start
Mr.
pro-
producing
that
Here
is.
the
differ-
see
of
differ
and
rough
fact.
there
the
actual
declines
South moving faster in
than part of the United
to
this
various
Yes
may
KING
senator
or
States
Northeast and
number
LUBIN
Central
in terms of the speed of development the
been
has
clearly
That
OLIPHANT
there
hardly
we
find
North
small
zero
is
Exhibit
going
where
the
230,000 or 240,000
that
break
(The Chart showing United States
Production
back
line?
other
approximately 8,000 units per year. but
proportionate to the other although
rise had been not great and
mattern of the lower one and also
durabie goods which follow the
really
11
Wesley
of
Director
19
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
Dee. 1, 1938
in
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
18
pardoned
1910
the
Mills,
printed
the
Dr.
This
volume?
REECE
your
Dr. Mr. Thorp to
with
the
For
demand
for
instance
The
chart
cause
the
agricultural
the
those
that
give
and
the
United
showing
(Exhibit No 18)
Have
CHAIRMAN
agricultural
in
goods
in
and
very
LUBIN
Yes
capita
per
the
OUTPUT OF COMMODITIES
commodities?
Dr. LUBIN We have the figures.
de-
of them could them
the
explain
living
Mr. OLIPHANT
in
this
the
word
of
CHAIRMAN Don't that
thing
record?
the
Dr. LUBIN Yes It that
Index
Production
that
Index of
Are
the
PERCENT
PERCENT
80
I
to
I
KING
Compare
on
Page
The
which
for
The
Mr.
straight
curve
Oliphant
raised
(Exhibit No. 17)
as
the
industries
to
whether
the
of
60
PHYSICAL VOLUME OF INDUSTRIAL PRODUCTION
ABJUSTED FOR SEASONAL VARIATION
1923-25-100
hele Number
prak
Inder Number
All
point
in
33-34
or
40
in
other
a
building
plants
three
so
20
20
&
A
Units
4
"
this
figure
which after
factor in the
..
as
the
an
American Aven an on on SV are an on not /9/9 an as AN ass 534 1985 1936 1957 1938
0
/
inport
territtic
94,000
was
etc.
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1, 1938
(Exhibit No. 19)
-
flattened out Production varied up and
You will note that starting out with the
capacity of approximately hundred miltion barrels year. that capacity kept increasing steadily up through 1932 when
FEDERAL RESERVE INDEX OF MANUFACTURING PRODUCTION
the capacity was 225 000,000 barrels year
On the other hand the production reached
its peak in 1938 went down then and has
ADJUSTED FOR SEASONAL VARIATION
-
down. reached a peak of 42,000,000 gross
tona in 1929 fell from 42,000,000 to 9,000.-
000 for last year and for the first ten
months of this year will probably be close
to 14,000,000
whole came back where you note income
came back almost to the level of 1929
Similarly pir Iron is exactly the same in
1916 or 17 production exceeded capacity?
chart would indicate that some time in
Dr. LUBIN War orders You had a
status
(Chart entitled "Pie Iron Produc-
tion and Capacity of Blast Furnaces
1910-1937," was received and marked
Exhibit Exhibit No 24" and is printed on
Page 23.)
There capacity kept increasing and then
SENATOR KING. There were demands
from abroad from the warring nations,
and then we took It on ourselves
THE CHAIRMAN My thought
000 by 1933. and is now back to 27,000.-
THE CHAIRMAN Dr. Lubin what is
your explanation of the fact that this
not come back as fast as Industry as
- " APERAGE FOR TOTAL POINTS
21
Dec. 1, 1938 THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
.
20
tremendous demand for steel with was
to produce?
Dr. LUBIN My amistant days that la
"practical" capacity-In other words
working efficiently this is what produetion would
THE CHAIRMAN I see. I couldn't
see the word "practical" from this point
(Chart No. 25. "Annual Prod etion
of was received evi-
orders from all over the country, and
dence and marked Exhibe No 25
especity was stepped up to take care of
and
them They opened blast furnaces that
had been abut down for years in order
to fill the orders
was
how could production exceed capacity
printed
on
Page
24.)
Dr. LUBIN You find the same thing
true of automobiles rising from less than
2,000,000 in 1919 to 5,350,000 in 1929. fall-
(Exhibit No. 21)
BILLIONS DOLLARS
PER AMOUNT
BILLIONS R.DOLLARS
VALUE OF ALL CONSTRUCTION
PLE
12
12
TOTAL
10
10
8
.
a
6
4
4
2
2
0
0
6
6
(Exhibit No. 20)
RESIDENTIAL
4
4
UNITED STATES AGRICULTURAL PRODUCTION
2
2
1923-25-100
NO NUMBERS
INDER -
120
0
0
80
6
6
100
00
4
4
AMERICAN
PRIVATE Now RESIDENTIAL
80
2
2
2
40
906
so
se
920
025
930
-
0
899 900
1939
-
NO 1920
1925
1930
I1935
1939
o
4
PUBLIC
40
2
0
60
4
60
0
80
22
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dee. 1, 1938
ing to only 1,370,000 in 1932 which was
less than they produced even in 1919
thirteen years previously and back again
1937 to 4,800,000 and much less than
that for the present year.
-
(Exhibit No. 22)
RESIDENTIAL UNITS PROVIDED FOR
industry 1935 and 37 than produced even in 29
300
in you have non-durable consumer
There something that wears out fast. plus
Dr LUBIN There inn't really close
100
correlation for the simple reason that
during perioda of high activity the de-
-
mand for steel caused not only by auto
-
things of that seet Your
100
relatively than the de-
-
industry
100
100
PRODUCTION
retrigerator chart. that would be inclined
50
to comparable in consumer durable
50
.
.
Dr LUBIN Yes It is new product
800
FOR
caming into the market
000,000 toms less in spite of the fact that
-
Industry was producing something
per cent more goods or course the
there competition of other fuels
power. oil and things of that
production
1000
to 310,000,000 which la slightly
than half what It had been
1937 was and we estimate
300,000,000 for 1938
on the Wage and Hour Bin, the question
took 14 at that time that It was about
-
1,000,000 pairs per year that they were im.
porting while on the other hand we were
producing something in excess of 400,000.000 pairs
Senator KING And it has been reduced during the past year. on imports
from Czechnolovakia particuarly
Dr LUBIN We could go on through
.
The significant thing is that physical
1937 when they were holding hearings
of shoe importations was raised and T
0
-
-
know the exact figures but know in
1000
production has been going up during the
Dr. LUBIN. There were surplus Inven-
tories in textiles very definitely this past
fall,
sumed more cotton in the year 1937 in
our factories than in any other year in
our history despite the fact that at the
same time silk was going up and rayon
was taking this tremendous jump here.
and wool also, was expanding in terms of
production
you. please have you any figures to show
near
that
other
Eventioned
tion
the
800
given
do
of
"Annual
No
and is printed on Page 28.1
Now I would like to go to one more
50
50
goods namely cigarettes where
PRACTICAL
000
you have the astounding situation that in
see
and
marked
"Exhibit
CAPACITY
No
printed on Page
mondowsly
significant
lumber
making them: we produced and consumed
40
40
tre-
the same amount in 1930 and last year
Forty-en
we used 163,000,000 lbs. As matter of
EYES
fact. there slight drop in those two
400
fell
400
1932
even
1929 WY used 119,000,000 libe of tobacco in
have
Here another Industry that
still
Chart No. 28 "Annual Productioneviof dence Cigarettes and marked was "Exhibit No. 30
MILLIONS of GROSS TOMS
ILLIONS OF
formerly did
Chart
Lumber:
also partly true in wool.
BLAST FURNACES - 1910-1937
up
coal
absorbing our production think It was
PIG IRON PRODUCTION AND CAPACITY OF
800
efficiency
gree
has
should
and
years but there otherwise has been perfeetly straight line in cigarette consump-
1937
30
back
30
level
that
There
difference
tion and know of no more non-durable
here
consumer goods than cigarettes
is
and that despite the fact that Industry
whole was up here. or course build
the factor there on lumber
-
000
Finally in contrast with what hap-
PRODUCTION
20
20
pro.
for wood particularis paper
printed on Page
store sales Let's forget the red lines
which are Christmas and this la August
displaced
10
10
and the National Resources Committee
Source-National Bureau of Economic Research
and September
(Chart No 29 Department Store and
Sales." was received in evidence
Prepared by the staffs of the Central Statistical Board
marked Exchibit No. 31 and "
0
entirely
0
almost
wood boxes the past ten years
Chart No. 26 Annual Production
of Shoes." was received evidence
and marked Exhibit No. 29 and is
pened in the manufacturing Industries
we have this chart, with this tremendous
up and down showing your department
dueties of course there is this other
factor. that there have been substitutes
tons.
is over given period.
Dr LUBIN think very definitely that
(Exhibit No. 24)
same
or
surplus UD beyond what your consumption
happened in 1937. in cotton We were not
did
be
in
where
any WAY to show what percentage of those
turn of production so that you run your
consumption
period 1933 to 1937 but the increase
coal
Representative SUMNERS : am afraid
didn't ask my question properly Is there
increases added to the surplus? Do you
show whether there geta to be momen.
Representative SUMNERS May I ask
Chart No 27. Textile Fibre Con-
1940
over, added to the surplus?
29
and is printed on Page 27.1
Here is the case of cotton another nondurable goods made into clothes We con-
whole series of these
1935
whether or not that increase of production
in any of those years added to the carry-
sumption by United States Manufacturers 1870 1937 was received in evi-
dence and marked "Exhibit No.
1930
1925
1920
1985
T
.
1929 when Industrial activity far
.
-
greater than in 1923 we produced 30.-
0
Dr LUBIN This 36 and 37. don't
Page
800
RIO
there on importations
00
produced 564,000,000 tons of coal
c
Senator BORAH What are the figures
IDC
No.
You situation where in 1923
the
used the nutacture of shoes than
-
SOUTH
of
Coal. was received
evidence
1932
-
goods
Dr. LUBIN You see the same thing of
course in the case of bituminous coal
Chart No. 24. "Annual Production
on
PRACTICE
Mr. HENDERSON I think if you had a
300
than at the present time
printed
150
150
- years ago
effect of will be even
and
Mr. OLIPHANT Do you knaw of ADT
durable goods that will follow that line?
100
levels previous years course the rela.
Exhibit
which certain styles are available, and the
Senator KING There is less leather
where other industries played tremendously important part in the production
If these other Industries get back to the
marked
200
200
also has been a tremendous change in
the technic of shoemaking the price at
-
000
becoming important as factor
production there was long period here
and
change the industry If you want
number of new styles
products
other
the
250
250
mutically create new demand; there
.
much
MILLIONS OF BARRELS
MILLIONS of BARRELS
the goods fact that there has been very marked
style wear out shoe fast change the style
14 that women use quickly and they auto-
00
mobiles but by building railroads other big users of and
moved
CEMENT MILLS 1910-1937
most which produced far more shoes
of
has
PRODUCTION AND CAPACITY OF PORTLAND
been showing part durable goods. look at the shore
NORTH
pig iron and the increase the preduction
In you. which produce for the
400
Senator KING Those 100 charts show
close relation between the production
(Exhibit No. 23)
contrast to these industries I have
IN NEW NON-FARM CONSTRUCTION
23
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
1910
86
1920
825
1930
1933
1940
printed on Page 28.)
The CHAIRMAN You are now rell
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
24
ring
Store
the
Sales?
Dr
LUBIN
Yes
Yes
that
will
cent stores and drug stores. the activities
Der. 1. 1938
trucks of question
of appear to have been widened
THE CHAIRMAN If
very greatly in the last few years?
you.
Dr. LUBIN No Smatter of fact
(Exhibit No. 26)
ANNUAL PRODUCTION OF BITUMINOUS COAL
will
this
600
statistics
there
but
Dec. 1, 1938
25
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
going very far showshowing
depart-
also
sales
These
600
only
The
the
selected in the coun-
The CHAIRMAN
please
Federal
Reserve
begin. Dr. Lubint
there
The
the
500
of
Testimony of Dr. Isador Lubin,
rela-
Commissioner
line
have
affected
500
order
ties,
here
Department
durable
by
Labor
of
of
Statis
400
400
Later
Washington, D. (Resumed).
Dr.
Freight-
LUBIN
300
just
300
cities
chart
chain
200
LUBIN
200
would
the
The CHAIRMAN
100
100
0
1919 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 '35 '36 1937 38 39 40
0
touses BREA MACS
(Exhibit No 25)
(Exhibit No. 27)
ANNUAL PRODUCTION OF LUMBER
ANNUAL PRODUCTION OF AUTOMOBILES
NEW
50
name
50
6
40
5
40
5
4
30
4
30
3
3
20
20
2
2
-10
I
10
di
0
0
o
28
32
35
36
1937
38
39
0
25
1919
40
SOURCE
FEDERAL
20
21
RESERVE
22
BOARD
23
24
25
26
27
28
29
30
31
32
33
'34
35
361937
38 39 40
26
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1, 1938
unturn
What
The CHAIRMAN
that
without ad
Dr. LUBIN
was
people
$223
then
and
1938
employed
have
we
in
Indus-
7,000,000
people
today
here
12.
these
It
The
pay
leave
treasury
trade
was
1929
in
the
that
line
these
That
tion
other
and
regular
Septem
the
of
state
city
and
the
rolls
pay
and
county
does
others
proprietors
not
include
on
relict
Mr. ARNOLD Your is that If
takes
of people to get
particular
pared
there
job
that
What
REECE
(Chart
does
mean?
Page
the
employment
work
month
in
have
that
the
the
after
they
same
industry
manufac-
gradual
steady
not
who
people
The CHAIRMAN How the con-
Total
you
Federal
decline
struction industry? A good deal of that
work casual
State
Source Bureau of Labor
the
was
in
of
things
doing
SENATOR KING. Greater use of ma.
chiner
Dr LUBIN And greater use of man-
have taken these three years. 23. 24
25. as an average to compare them. and
the thing like to point out is that despite the fact that our index of physical
rose
rose
ods
perceptibly,
agement procedure not necessarily put-
ting new machine but reorganizing
your flow goods and processes and
things of that sert.
SENATOR KING Better distribution
THE CHAIRMAN In other words,
by
is per cent, during the decade the
what you are demonstrating that both
ployed in the manufacturing Industries
production have been
the to produce andincreased
efficiency of
twenties, the total number of people em-
hardly rose all (Referring to Exhibit
No 19. As matter of fact. only with
the exception of short period 1929
the manufacturing industries
country were employing just about the
same number they were earlier
decade, although for short period they
reached point where they were employIng 10 per cent more workers than they
Dr. LUBIN Exactly
question
the
arises
time
to
account
situation
for
the
domestic
LUBIN
Dr
and
the industries
in this country during recent years For
the sake of mathematical simplicity
production
any
Dr. LUBIN New technology. new meth-
ing. but want shift. now. from this
group here has happened in em.
very
and
result part of new technology
and
people
trantporta-
Dr. LUBIN Exactly that
SENATOR KING That constant output.
: am SOFTY I haven't a larger chart on
and pay rolls in manufactur-
num-
the
in
stant output
Page 31)
organ-
other
and
received
necessary to produce con-
marked
Exhibit No 34 and is printed on
enormous
the
the
was
rolls
pay
of
Rolls,
permanent
2,000,000
than
there was constantly decreasing number
(Chart No. 33.facturing
"Employs & Pay
fact that
Isn't
KING
In
27
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
the
this
when
in
the
stable.
the
did earlier in the decade while the Index
of physical productions very
markedly
Dr LUBIN Some of that is included
The CHAIRMAN In other
here
the
and
adding
same
of working age-a net increase after you
deduct people who retire and die some-
thing like 600,000 people year
Sension KING In part women?
Dr. LUBIN Proportionately about the
(Exhibit No NY
(Exhibit No. 28)
TEXTILE FIBRE CONSUMPTION
BY U.S. MANUFACTURERS 1870-1937
ANNUAL PRODUCTION OF SHOES
MILLIONS
MILLIONS
500
1000
500
600
800
600
400
ACTUAL WOOL CONSUMPTION
APPARENT WOOK CONSUMPTION
400
400
100
(POUNDS)
(POUNDS)
200
100
100
no
60
300
40
300
10
NET NEW sex MINISTRY
(POLITIES)
10
200
.
200
4
TOTAL name CONSUMPTION
(POUNTY)
z
100
COTTON (DALES)
I
100
0
25
26
27
28
29
30
31
32
33
34
35
36
1937
38
39
,
24
2
23
0
1919
I970
1974
1850
1855
1890
1845
900
not
1910
1920
1915
1925
NAO
to
people
that
labor
our
1935
NO
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1938
Dee. 1, 1938
number of women as in the previous
same the net growth in the
ANNUAL PRODUCTION OF CIGARETTES
decede of That people was of working age who
normally number would to work after then
reached certain age.
WILLIONS FOUNDS
The CHAIRMAN How many per year?
MILLIONS
180
180
LUBIN. Approximately 600,000 and
Dr. were not being absorbed by manuthey
facturing Industries
The CHAIRMAN That is a net in-
160
crease?
Dr. LURIN Net increase The answer
160
they went in the garages beauty parlock hotels, !sundrie dyeing and cleanestablishments We developed whole
140
Inc
140
120
120
series of services which added to our
100
and
Dr LUBIN would say over the last
yes
The CHAIRMAN Has the expension
80
happened to that employment situation
after 1929 so we may follow It through
of the service group of activities absorbed
The CHAIRMAN In other words the
compensation of industrial workers, fac-
it reached peak of 110 in 1929 It fell
tory workers dropped to much greater
extent that the number of persons em-
in
1932 In other words, for every 110 peo-
ploved
pie who had jobs in factories in 1929
only 61 had jobs the bottom of the depression Those workers were absorbed
and last year we were employing in our
factories just about the same number
people as we employed at the peak of
1929 In other words the manufactur-
well in terms of employment as they had
decade
80
42 per cent less than they had been getting in the 1923-25 period
If may point for a moment to what
market each year
have absorbed several million
actual pay rolls each week. approximately
been doing that at all.
ing Industries of the country had got back
developed during the past few years which
100
rate up until 1929 Since 1929 It has not
standard of living during that period and
furnished the labor supply for a through
this excess that was entering the labor
Sension KING Isn't it contended that
there are about eighteen new industries
In other words. as far as the vage earnera were concerned they were getting in
Dr LUBIN It did at a pretty good
to 61 at the bottom of the depre
to the point where they were doing as
29
period in the early part of the decade.
this increased available labor population
(Exhibit No. 30)
Dr. LUBIN Yes That of course was
due in part to wage slashes but for the
most part to Irregular employment The
man who had job had only one or two
of
28
days. where formerly he worked six.
The CHAIRMAN Apparently from that
chart the compensation remained far be-
low the employment level for several
years
Dr. LUBIN Yes. very definitely As
been doing in 1929 On the other hand
. matter of fact it remained below it until
your pay rolls which had got up to a
early 1937
this average period of 23. 24 25. fell
to 38 which meant that our factories
aggregate number of employees rather
point where they were 14 per cent above
were paying out 3dc each week for every
Sension KING. You are speaking of the
than the compensation per unit?
Dr LUBIN. Yes. As said. we did get
dollar that they were paying out in this back in employment We also got back
60
(Exhibit No. 32)
60
INDEX OF FREIGHT- - CAR LOADINGS
40
40
INDEX
act's
20
120
120
20
0
1919 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 0
100
100
SOURCE BUREAU or INTERNAL REVENUE
ESTIMATED
(Exhibit No 31)
PERCENT
DEPARTMENT STORE SALES
200
80
F.R. INDEX BASED ON DOLLAR VOLUME 1923-25-100
PERCENT
80
200
180
180
160
60
160
140
60
140
120
40
20
100
40
100
80
20
AO
60
20
60
40
ADVUSTED FOR MAKE -
20
40
o
WITHOUT MASONAL ADJUNTMENT
O
20
0
1920
BOARD EMERGONS
1922
1924
or THE FEDERAL REMEVE SYSTEM
0
1926
1928
1930
1932
1934
1936
1936
1919 20 '21 22 23 24 5 26 27 28 29 30 31 '32 33 34 35 36 37 38 39
SOURCE BOARD OF GOVERNORS OF FEDERAL ICEN BOARD
30
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1, 1938
understand
:
REECE
industries
salaries
(Exhibit No 34)
progressed
other
hand
at
other
pay
EMPLOYMENT AND PAY ROLLS
DURABLE GOODS GROUP
their
in
proper
31
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Der. 1. 1938
to
You
since
mining
that
found
instance
textile
the
in
period
MA
in-
years
of
per
in
this
the
plant
that
That
The
had
had
Per Malls
the
06'5
This
to drop in durable goods
vary
53 cent from the 1923-25 level
This
LABOR
du
You will find that pay rolls dropped in
have food baking slaughtering leather
boots and shoes paper pulp rubber produets textiles tobanna things of that sort
The CHAIRMAN In the
goods the point of just
about half what they had been: here pay
ter.
in the durable goods fell to about
quarter of what they had been again
and
to
labor
relative
very
it
that
All
would
significant
they
factor
do
materials
and
Pay Rells Durable Goods Group
have
received
specify
and
Exhibit
marked
that
100
would
three four different
at
The CHAIRMAN
beer
had
take
Dr LUBIN Again, we emphasize the
the
If
NON-AGRICULTURAL EMPLOYMENT
LUBIN
of our durable goods indus-
includes
want to point one fur-
the
then fact that in May of 1937 referring
IN THE UNITED STATES
40
con-
are
call durable goods? You have
to
past
past
give of exactly
people
where
the
refrigerators
history
electric
terms
The CHAIRMAN Don't you think
No.
and printed on Page 31.
You will that employment fell
(Exhibir 333
the
industries play in keeping the machine
and
were
and
group go the
Dr. LUBIN won't agree that furniture
emphasizing the part the durable goods
Dr. LUBIN
in
It
and
in
group
of
that
efficient
Employment and Pay Rolls in Durable
all
housing
40
steel
steel
lumber
and
furniture:
Pay
automoproducts
allied
pro-
machinery
including agricultural electrical engines.
foundries, etc. stone. clay and glass
nondur30
cent
30
20
-
brick. tile: transportation equipment in.
cluding not only railroads but automo
biles And among the nondurables you
Goods Group) the durable
tries
employing
were
about
same
the
number people they 1929 and
almost
they
paying
were
money
the
paying
nondurable goods referring
ment
Pay
and
been
had
they
However
1929
out
rolls
pay
in
Goods
Rolls
after
the
(Exhibit No. 35)
EMPLOYMENT 8 PAY ROLLS
ALL MANUFACTURING INDUSTRIES
20
this
being
that
10
the
fastest
and
10
Pay Relis
The CHAIRMAN
furnished
The
reem
far
that
industries
nondurable
fairly constant level
0
durable
1929
1930
States
1931
1438
1932
1954
decline
industries
Now
you
has
are
shown
giving
ference between the wages and
1933
1935
193F
0
1937
1938
1939
very
this
the
32
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dee. 1, 1938
(Exhibit No. 36)
That
Dec. 1,1938
EMPLOYMENT & PAY ROLLS
-
PRICE OF CEMENT
NONDURABLE GOODS
em.
Senator BORAH Did the price of orment change significantly?
Dr LUBIN Mr Oliphant. think can
tell you more about that
EMPLOYMENT
mummer
(Exhibit No. 38)
EMPLOYMENT AND PAY ROLLS
LUMBER SAWMILLS
923
The CHAIRMAN What is the answer
month
to the Senator's question
mum
Dr. LUBIN It didn't change.
The CHAIRMAN - fact that
very larg? proportion of the output of
cement
now being used in the con-
struction of roads?
Dr. LUBIN As matter of fact your
PAY ROLLS
Public Works Program and w A. pro-
Employment
gram are big consumers of cement even
today.
The CHAIRMAN 80 that this chart on
cement should not be taken to indicate
that construction has come back to the
extent that the use of cement has come
IND
Pay Run
20
back
printed on Page
Senator KING
Isn't = true however,
fair
that
to
cement
and
they
On
they
Industry
other
the
where
twice
If
the
an
Dr LUBIN We want to bear in mind
458
that public construction state, federal and
LUBIN
Dr.
belong
Dr. LUBIN. Technically, yes In other
Inter effect during the early part of the
depression and stayed in effect in A good
many parts of the country
the
ship
The
Worsteds
and
Exhibit
throughout
Page
the
1935
where
34)
until
up
last
they
year.
had
reason
is
Page
ing
the
because
never
matter
As
cement
Benator KING I might say the BOY-
mm
did
back
of
1935
other bag of cement in the United States
was purchased either by the
or
by contractor on government construction
(Exhibit No. 37)
EMPLOYMENT AND PAY ROLLS
LOCOMOTIVES
ernment gets nearly $600,000,000 in taxes
out of the tobacco industry through the
tax on cigarettes each year
Dr LUBIN On the other hand bear
this in mind, that your pay roll level has
never gone back where WAA. This
pay roll line has kept consistently below
Employment
Pay Rolly
1923-25-100
- Number
with the exception of that point there
TWM
whereas it moved along with employment
prior to that time.
Now if we move from these specific industries back to the general economic pro-
dueing system again we have these fig.
ures in terms of not only what has hap-
pened to the number of people at work
but in terms of the amount of work that
they have got to do. and their hours of
200
TOTAL
180
work
80
municipal has always been a relatively
40
ASO
NO
small portion of the total but very im-
portant the
480
&
(Exhibit No. 40)
Senator.
The
NO
your
cigars and cigarettes
EMPLOYMENT AND PAY ROLLS
COT TON GOODS
Chart 42. and Pay
Rolls Cigare and Cigarettes
celved evidence and marked Ex-
hibis No. 41 and printed on Page 34.)
100
100
00
80
told you what happened to cigar and
cigarette production Here is your em
playment It has never got back to its
1931 level, despite the fact that output
has been going up Some of this la accounted for by cigars going from hand
60
60
work to machine work
Mr. HENDERSON You have Dr. Lu40
Employment
AN
Senator KING That is the most con-
Pay Rolls
Nearly 99 per cent of the production is
in
the hands of six or seven big producers
910
SEA
1917
A
934
1935
1936
1937
1938
1939
1940
:
N
bin the chart on production of cigarettes
centrated all industries isn't 117
DO
was
words your two-for -A-quarter price went
EMPLOYMENT AND PAY ROLLS
CEMENT
thing
trying
Pay
an
cigarettes?
transportation
That
2018
Mr ARNOLD Have prices dropped on
(Exhibit No. 39)
the
above
reached
times
in
what
of
Compare
33
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE-Section 2.
-
Dr LUBIN. Here la your production
cure and here is your employment and
pay rolls
471
m
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Chart No
Average Weekly
turing. Mining and Steam
Railroads,
and marked
evidence
was received
and
or
No
is
Exhibit
printed
EMPLOYMENT AND PAY ROLLS
CIGARS AND CIGARETTES
on
reservoir
operate
think
rather
in
that
significant
to
wage
and
in
railreads
was
This
namma
and never got back again In other
and
words
manufacturing
the
mining
steam railreads together never back
levels
employment
get
was
in
they
closest
The
Employment
their people put together has never got
an
back that level accounted for in part
of course by the shorter workwork that
cent
workweek having fallen by 26
during this period from 1914 1937
some they had to work
other
Senator KING From hours down
weeks
fluctuations
the
You
production
hours
MA maximum
Dr LUBIN Some of them even more
than that in certain parts of the petroand refining industry
that
as
included
accounted
hours
sheetness
vol-
fart
Inte entirely
was
other
and
32
wage rate from less than fifty cents
between
and
34
27
there
received
marked
notice
was
an
the hours worked the
fact that there was more work done
and
worked
quality
hour on the average in 1932 to sixty-
the best are gets out
sever cents on the Average last year. at
the high point of production falling down
the
of
You
know that only too well Senator
-
The first thing want point out
that in the low politi of the depression
the people in our factories were averaging
an
Senator KING Have your investiga-
tions demonstrated that that classification
has been generally fair?
Dr LUBIN Yes or course every now
again to sixty-three cents now. affected
and then we try to get extra data on and-
the weekly income of our
families Whereas they were earning $20
week in early 1932 their earnings had
aried
fallen to $15.70 a week during the depres-
workers
Senator KING You don't include salaried workers in the figures you have just
been giving?
Chart showing "All Manufacturing
works
the
will
mining
and
official
of hours worked plus the increase in the
vaning resource The is true of
number
of
Dr. LUBIN Exactly At the same time
This
and one-half for overtime over 40 professional supervisory forces and we
all industries dealing with A
Raile
the number of hours worked all of
hours
of these industries they were paying time earners, and leave out certain types of
wages and number of hours worked
the was and the prift-war problem
under mining
was there. they did work as much as 41
to the employer himself We ask the
find hours week on the average for all man- employers to give us the number of peofacturing industries last year. In many ple actually on their pay roll as wage
producTexas
Dr. LUBIN or course. that is just as
1920
Senator KING That was because
part in the activities of the day's work?
Dr. LUBIN We have to leave that up
the reserveirs that there would be whereas in these early days they weren't have to trust their judgement as to whom
flurtuation not only in production
they think wage earner or supervisory
doing that That change in the amount
1929
Pay
Senator KING Where do you draw the
line between wage earners, entrepreneurs
representatives directors who are taking
of work available because when work
and finally the drying
to
gretty close in 120-88 compared to 124
which means then, that this decrease in
hours is primarily affected by the amount
now
to
oil
the
et-
industry
revive
expect
1914 and 1920 by 26boom
Then
to
and
greater
be
fell
will
may
United
the
number
the
will
many
and
the
Page 35.
averaged 41 year ago last spring when
industry was moving at A very fast rate
drained
been
has
they are averaging 37 hours week They
boom
great
will
There
sion and rose to $26 approximately at the
peak of last year. and are back to $23.32
almost 38 hours of work . week: today
the fact that the oil
industry fluctuworked out like the
in
35
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
(Exhibit No. 41)
and
Employment
ManufacHours
43
Dee. 1, 1938
is
34
longer
: want to translate that into the earn-
ings which are function of the hours
The
worked average hours worked per week
that
and average hourly earnings
ed Page 26.)
No
evidence
and
(Exhibit No. 43)
and
The distinction, however that
be made that this is how much you
should
CHAR D
an hour. this la how much get
hour times the number of hours
tted to work this being affected
EMPLOYMENT AND AVERAGE WEEKLY HOURS
by the wage rate and the amount of
available this being affected only by the
wage rates
Senator KING Doubtless your reports
IN MANUFACTURING, MINING AND STEAM RAILROADS
1914=100
(Exhibit No. 42)
INDEX
INDEX
140
140
--
EMPLOYMENT AND PAY ROLLS
WOOLEN AND WORSTED GOODS
AVERAGE NUMBER
OF WAGE EARNERS
1923 - 25 *100
140
120
120
IED
100
100
100
00
Employment
AVERAGE WEEKLY HOURS
so
80
80
60
TOTAL MAN-HOURS
40
40
60
60
Pay Rolls
20
NO
40
-
923
40
0
o
1924
925 026 927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
1914
1919
1924
1929
1934
1938
1914 to 1923 Date for
1914,1919,1923
in
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
36
Dee. 1. 1938
Dec. 1. 1938
37
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Exhibit No. 45)
Dr. LUBIN These are PARTIES
(Fehibit No. 46)
The question is how has a become posrates
wage
higher
the
DAY
per
here
revealed
in
amount
ALL MANUFACTURING INDUSTRIES
of
today.
showing
Chart
Hour."
AVERAGE WEEKLY EARNINGS
Dollars
marked
printed
OUTPUT PER MAN-HOUR
1923 25=100
Dellar
40
Page
40
You will notice the manufacturing
30
30
increase 130 per cent between the years
and 1938 In years the
doubled
than
cent
130
0
20
80
1914
1923
0
0
increased
these
quality
reason
AVERAGE HOURS WORKED PER WEEK
Hours
that
Industry
60
60
50
50
1929
1932
1936
1937
more
have
BITUMINOUS-COAL MINING
anthracite
large
They
40
40
1909
1914
part
Senator
KING
Before
bitu-
of
30
30
1923
that
leave
Isn't the fact of greater production
20
20
in part due to the methods
coal They have cutting MA-
chines and the loading machines that,
10
10
whereas AE9 the work was
largely hand great deal of
largely machinery
1929
1932
1936
1937
0
0
LUBIN
ANTHRACITE MINING
bituminous
have
In
artificial
bad
and
this
collieries
AVERAGE HOURLY EARNINGS
Cents
Card
90
have
90
1909
1914
80
80
70
70
60
60
50
1923
1929
1932
1936
1937
50
STEAM RAILROADS
LUBIN
1914
143
slightly
1937.
lew
you
have
freight
KING
Better
30
30
20
20
that
the
trains
1923
1929
1932
1936
tracks
everything
1914
10
else
1937
that
0
Senator
Dr
40
KING
0
crewed
40
ID
Dr.
100
10
these
increased
the
60
1909
20
tremen-
during
40
1937
In
will
20
10
had
MANUFACTURING
INDEX
Industry as whole the output per man
increased from to 140. which
1932
which
1933
1934
1935
1936
1937
1938
have
U.S
BUREAU
or
STATISTICS
BUREAU OF LABOR STATISTICS
120
140
160
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
38
two three or four times as high
than
LUBIN
wages
are
they were in 19097
also
are
Dr. LUBIN means what $12 would
The
this
of
39
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Exhibit No. 47)
will
real
below
what
you
buy 1914 takes $16.50 to buy today.
ARNOLD No. no
Dr LUBIN No the difference between
the
Dec. 1. 1938
Dee. 1, 1938
REAL WAGES
have
indicated
weekly cash wages and weekly real wages
IN MANUFACTURING, MINING, & STEAM RAILROADS
represents price increases The actual
flaure this that required today
what 00 would buy in 1914
HENDERSON Point out the sig.
Dr.
LUBIN
DOLLARS
DOLLARS
that for the person
26
26
weekly wage now the
higher than they have
ADT period
LUBIN Yes be can more with
his weekly wages now than could be-
Representative
fore because his value in goods much
SUMNERS
Labin
will
than any other time. but the
actual increase in the cost of living has
per cent. It jumped 173 per
24
24
commodities
LUBIN
WEEKLY CASH WAGES
Dr.
1919
that
do
Senator KING I wish you could furyou do have them in the office
of articles: take the various
Sin.
forms textile and cotton goods and
Dr
and clothing and articles and com.
LUBIN
We
and
and the prices for number of years
The
The
fact
foods
the
in
prices
processed
and nonprocessed foods
LUBIN We will break this down
Representative SUMNERS In
agricultural breakdown course. there
of clothing renta, and
the
that
ANNUAL
EARNERS
that
can
them
break
modities that enter into daily lives
GOODS
OF
22
22
20
20
WADE
AND
18
18
16
16
14
14
WEEKLY REAL WAGES
12
June
1920
many
in
to
will only the question of price
the
low
consider.
from
did
but
if
price
drop
back
rise
Dr
what you have shown thus far.
that
up.
state.
were
hours
You
have
that
average
weekly
hourly
the
but that the average
week
shown
is
compared
the
slightly
that
real
significant
the
10
10
1914
agricultural
you
the
together
hasn't
together,
total
fact
of
in
1939
For those who had jobs in factories, since and on railroads, average weekly
earnings in 1937 were not far below the level of the 1920's, although hourly working
value
schedules were such shorter Since the cost of living was lower in 1937 than is the 1920's,
the real races of those who actually had jobs (1.e. earnings adjusted for the cost of live
ing) were the highest in the history of American industry. At the sage time there were &
Railroads."
and
and marked "Exhibit No
printed on Page 39.
real
1934
BUREAU LABOR
been
has
Chart showing "Real Wages
your
1929
units
Manufacturing
Mining State
evidence
received
WM
Representative
1924
any
probably
this
is.
1919
produced
down
it
ever
if understand
these charts you
that
demonstrated
course
or
restriction
taking
CHAIRMAN Now, Dr. Lubin. to
and
KING
that
to
LUBIN.
that point that despite that
cent
consideration
into
This
the
country
of
still
living
pro-
of
a Blowed
higher
LUBIN
12
statistics
Labor
of
REECE
ATTININE
In
at
point
1929
to 10 million people unemployed.
40
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
ity the same relative weight in the con-
and above, do you include the children
who are working on the farm, or do you
weight as it bears to the cost of living
that is say 50 per cent of ones wages
exclude those?
siderations which make up the real
goes for rent and food, Is rent and food
given a 50 per cent relative importance
in your real weights?
Dr. LUBIN Relatively so. Rent gets
Dr. LUBIN. Those are people who
actually came and registered as unemployed when the census was taken, which
Senator KING. Were there many
istered
as unemployed between 15 and reg. 16.
say?
Dr. LUBIN. A relatively small number
(Exhibit No. 48)
ESTIMATED NUMBER AND AGE OF THE UNEMPLOYED
cational activities get a weight We rate
11
Mr. HENDERSON. Was it your opinion this morning as expreessd that we
well
as industrial if they registered as
unemployed
includes people in agricultural areas as of this total 1,245,000 of males,
a weight, food gets a weight, recreation
gets a weight, church activities and edueverything in the terms of its importance
Dec. 1,1938
Fruces a NUMBER OF PERSONS IN UNEMPLOYMENT CLASSES, BY SEX AND AGE FOR THE UNITEDSTAT
UNEMPLOTED (INCLUDING ENERGENCY WORKERS
MALE
FEMALE
ADE
have never produced too much cotton to
satisfy our real needs?
Dr. LUBIN. The question was raised
+
as to whether is was too much agricul-
tural production or too little industrial
production I said that as far as I was
60-64
concerned I couldn't conceive of too much
10-00
of anything being produced as far as
there was a portion of the population
that wasn't getting enough of those
00-54
an
-
things
Representative REECE. This is beside
the particular phase of the question which
you are now discussing but is it your intention to include in your discussion any
20-34
figures to indicate the percentage of em-
ployment that is so occasioned by the
large corporations compared to the
smaller corporations? Take for instance
the number of people employed by corporations who have a net income of less
than a hundred thousand dollars, is that
00-24
MAIL
1,000
1,200
-
-
-
question going to be covered?
Pater of - Parents, is -
that is coming into the picture definitely.
Now. if you add up all these factors
together and ask what does it all mean
in terms of loss of national income in
terms of loss of employment, and so forth
I suppose that the question that you ultimately ask yourself is what is happen-
ing to the people of this country and
what effect has it had upon the number
of unemployed people
(The chart showing "Estimated
Senator KING. Is there any indication
as to their habitat, whether they were in
sure. The extent to which that is true
Dr. LUBIN. We have them by states as
ease it very much The rightficant problem is right there. These are the folks,
The CHAIRMAN This chart is pre-
between 15-19, who are going to be our
future citizens. They are the folks whose
urban or suburban districts?
well as counties
pared by the statistics on the unemploy-
ment census?
Dr LUBIN. Yes. Now. that raises a
terms of the part that government playa
in attempting to maintain our population.
In this chart we have attempted to
other chart. may I ask. Dr. Lubin, If it
show the number of unemployed as shown
by the census of unemployment last No.
vember. We not only show the number
of unemployed but the number of ages
that have been most hit by the situation
I think it la rather significant that you
have got in this group of 15-19
The CHAIRMAN (Interposing) That
is the age group 15-19
Dr. LUBIN Yes, and males You have
got in this group approximately 1,900,000
people who are unemployed
In the 20-24 age group among the
males, the number is slightly larger. 1.-
245,000 Here you have little over 800 000
males between 25-29 and you will notice
the number remains just about the same
between 30 and 54. and then the number
becomes smaller as the age group goes up
You can expect it to be smaller because
of that
the age
fact in
that
there are fewer people
of
existence
Senator BORAH What about age 607
Dr. LUBIN Between 55 and 64 125.
000 males and 184,000 females
Senator KING, In that lower line, 15
is so insignificant that I wouldn't say you
morale we have got to maintain
CHAIRMAN. An effort is being
to
question as to what this all has meant in
Number and Age of the Unemployed.
was received in evidence and marked
"Exhibit No. 48" and is printed on
Page 40.)
-
SOURCE apput . - EMPLOYMENT AND OCCUPATION -
Dr. LUBIN. Yes: it is not going to be
covered in the introductory hearings, but
-
PEOPLE OVER 60
The CHAIRMAN Before you go to that
isn't a fact that there is a larger percentage of our people over 60 years of age now
than at any time in our history?
Dr. LUBIN Yes, and the number is
going to keep increasing steadily for the
next twenty years. so that by 1960 I think
the figure will be one-twelfth of the popu-
under
made, those The in of course, the group provide 20. education the and part irre- for of
spective
of any effort upon
government, isn't it true that a much
larger proportion of young people go to
school today than did ten years ago?
Dr. LUUBIN. Definitely so. If you
had kept the same rate that you had ten
years ago, there would be more unemployed.
The CHAIRMAN So that the real
question of unemployment begins with the 15-
20-year group rather than with the
lation or something like that, I want to
year group.
check that figure. But the estimate made
by the Social Security Board shows that
Dr. LUBIN. No. I would say it began of
even below that because even more the
number is increasing definitely because of
them are going to school than in them
past. but there are still plenty of The
improved sanitary conditions and so forth
The CHAIRMAN. What is the fact with
respect to the lower age group below 20?
Dr. LUBIN That number is getting
gradually smaller because of the fact that
the birth rate has been falling steadily
and the
of people becoming 15
each
yearnumber
is smaller
The CHAIRMAN So that the problem of finding employment for those. say,
above 40 is constantly growing greater.
Dr. LUUBIN Well in a sense, yes. On
the other hand, with fewer and fewer
people coming into the labor market to
take their jobs away, you ease that pres-
who still need work. I will say this: have
problem is not as bad as It would
been otherwise.
KING. Has your department
or any survey
number of women. if any. who
made Sinator any inquiry that have as extent to taken the
the place of males, and to
have placed on the list of unemployed otherwise
a larger number of males than
would have been in that category?
Dr. LUBIN. Such data as are available rate of
from the census shows that the the
increase of women in industry during greater.
past, up to 1930. anyway. was no to
in fact, it wasn't as great as compared
Dec. 1938
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
the total number of people in the country
as it had been in the "70's, '80's, and
'90's In other words, although more women were going to work. there were more
women in the country to go to work, but
the proportion to men wasn't any greater.
In other words, there wasn't a trend for
more and proportionately more and more
women. What has happened in the last
six or seven years we won't know until we
get our census for 1940.
Senator KING. There are new fields
of employment (I will call It industry)
open now to women which did not exist
10. 15. or 20 years ago. You mentioned
this morning the beauty parlors, cosmetology, stenography and typing. and
so on
Dr. LUBIN. On the other hand, we
ought to bear in mind during 1920 we
had a host of opportunities for women
which disappeared after the war. They
were doing all kinds of work that women
never did before. Some stayed on but
others disappeared. We used to have
women as street car conductors, and
things of that sort
Senator KING Many women were actively employed in conducting railroad
stations
Representative SUMNERS. Dr. Lubin,
does the disposition or policy of employ-
ers of large groups of people to discharge employees after they get along
about 45 or 50 years have anything to
do with those figures there? I am afraid
I am asking my question wrong. What
I mean to ask is, is there any increase
in the disposition of employers to discharge their employees when they get
along about 45 or 50?
Dr. LUBIN. We are right in the
midst. now, of a study of that very prob-
lom. We have surveyed a group of industrall centers in New England and we
have had the cooperation of other
firms in getting their actual employment
records to see what has happened not
only to the employed but who is first
fired of the people who are left and who
is hired first. Some time between now and
the end of these hearings we will have
that study shaped up and we will know
on the basis of authoritative information There is very little authorative information It is a guess, and statements
that one hears everywhere, but nobody
has ever checked it through the corporations Incidentally, Senator King,
you raised that question about these 15year-old youngsters here. There were 20
times as manly at 19 as there were one
who was 15 years of age in that group.
Senator KING. May I interrupt again,
in view of the question of Judge Summers
would get $156 a month under the pension
plans that were set up by a large number
of employers, and that they opposed the
Social Security because they would only get
for the same kind of work, $69 to $75 a
month. I was wondering if your organization had any data showing the number of
employers who did have provision for retirement of their employees.
Dr. LUBIN. Yes, there is a study made
by the man who is now head of the Railroad Retirement Board for the Industrial
Relations Councillors who are advisers to
firm and managers of that sort of all the
plants in existence as to their financial
status, and things of that sort. The only
answer one can give to an employer when
he says, "I am giving more than anyone
else," is, "Keep on giving it. If you say it
is going to cost too much. cut your plan
by an amount equal to what you are going
to have to pay the Government.
Senator KING. But when he refuses to
do that, we stated If they continued their
plan. they would have to continue to make
their payment to the government
Dr. LUBIN. True, but with a difference
in their payment. they could still continue.
If they were paying two dollars a week,
now they are paying the Government a
dollar a week. they could still continue
paying that extra dollar. There is nothing
to stop them from continuing it.
Senator KING. The Government policy,
as I recall, (It has been a year or two
since we had the matter before the F1nance Committee) our plan was hostile to
theirs, and they felt they could not assume
both responsibilities.
Dr. LUBIN. They could continue to assume part of it. Some firms did.
The question is, what has this meant in
terms of the tax system and in terms of
telling us that while there are about six
and a half million of households directly
affected by some phase of the emergency
program. there are in excess of twenty-
two million persons benefiting directly
by that program.
Dr. LUBIN. That is right.
The CHAIRMAN May I ask what relation does that twenty-two million of persons affected there have to the number of
employed? When we speak of the number
of unemployed, we are speaking of wage
earners, chiefly
Dr. LUBIN. They are looking for work.
The CHAIRMAN. Available for work.
and when we are speaking for the number
of persons who are directly affected by re-
lief to households, we are referring not
alone to the wage earners, but all the
members of their families.
Dr. LUBIN. Yes, everybody in the family.
including the baby.
The CHAIRMAN Of course, you are
not referring to pensions which are paid
to ex-soldiers
Dr. LUBIN. No.
Senator KING. Going back for many,
many years, and for other forms of relief
that are given that do not fall under the
term "emergency relief
COST OF RELIEF
Dr. LUBIN. It doesn't include any of
the private reliefs or anything of that
sort.
pears on Page 43.)
Now in terms of cost, the estimate for
hibit
No. 49 and is printed on Page
42.)
000,000-and incidentally, this figure in-
THE RELIEF FIGURES
that is used either for direct assistance
which is the upper line, or for the works
program: the striped or for public works
I have here one chart showing the number of households and persons who are recelving relief under the works program and
the emergency employment You will note
it is estimated that approximately 6,990.
cludes all state, Federal and local money
which includes not nly the PWA but
also such public work as is undertaken
directly by the Federal Government.
The significant thing in this chart is
000 households are at the present time at
fected by either the works program, emer.
that we reached our peak of public works
gency program. or direct relief programs
of The Federal Government. That many
families are getting some income in one
of those three categories at the present
time. In terms of the number of persons
two-thirds billion dollars, and in 1938 we
effected, it is estimated that approximately
are spending just about the same. whereas
employers, to continue their policies un-
Dr. LUBIN. These are, not widows
mothers and unemployment insurance
retirement privilege for them. Some of
those who came before us represented
that provisions were made so that they
Dr. LUBIN. Yes.
The CHAIRMAN. So that you are
1938 carries these programs on as $5,638,-
ceiving relief. work program employ-
Finance to the fact that they did not approve of or rather they preferred to per-
panies and other trustees. so that when
persons got old, there was a pension or
the other side refer to millions of persons,
and they apply to the upper line.
ment and emergency employment was
received in evidence and marked Ex-
(Chart showing estimated net total
hundred thirty thousand.
der which they had large reserves, which
were held by the leading insurance com-
Dr. LUBIN. Exactly
The CHAIRMAN. And the figures on
number of households and persons re-
22,230,000 people are affected.
mit the manufacturing companies, the
plies only to the lower line. Is that cor-
rect?
(The chart showing "Estimated Total Funds Used for Relief and Work
Programs" was received in evidence
and marked "Exhibit No. 50" and ap-
cost to government.
When the Social Security Bill was under
consideration. a number of employers of
labor. as well as some of the employees,
brought the attention of the Committee of
41
The CHAIRMAN. What was that
figure again?
Dr. LUBIN. Twenty-two million, two
Senator KING. That includes those
who would get social relief.
recipients. Public assistance under the
Social Secirity Act does come into this
picture.
The CHAIRMAN. May I interrupt? On
this side of the chart are the figures. the
lines millions of households, but that ap-
in 1936. We came down in 1937 and it
just about held its own in 1938. On the
other hand. in terms of work programs.
we were spending in 1936 about two and
in 1937 it was somewhat lower.
The way that money has been spent for
the most part will roughly be shown by
this chart.
(The chart of "Persons Employed by
the Federal Government and on Work
Programs" was received in evidence
and marked "Exhibit No. 51' and appears on Page 44.)
This includes however, no: only expenditures on emergency relief. PWA.
WPA. but also all Federal expenditures
such as the Army and Navy. civil employes, construction from regular Federal
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
42
Dec. 1, 1938
43
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
(Exhibit No. 49)
(Exhibit No. 50)
ESTIMATED NET TOTAL NUMBER OF HOUSEHOLDS AND PERSONS
RECEIVING RELIEF, WORK PROGRAM EMPLOYMENT
AND EMERGENCY EMPLOYMENT
MILLIONS
MILLIONS
ESTIMATED TOTAL FUNDS USED FOR RELIEF
AND WORK PROGRAMS, BY MAJOR PROGRAMS
(CALENDAR YEARS)
OF HOUSEHOLDS
OF PERSONS
BILLIONS
BILLIONS
30
OF DOLLARS
12
OF DOLLARS
6.0
6.0
DIRECT ASSISTANCE
10
25
5.0
WORK PROGRAMS
5.0
PERSONS
PUBLIC WORKS
20
4.0
8
4.0
HOUSEHOLDS
15
6
10
3.0
3.0
2.0
2.0
1.0
4
1.0
5
2
0
0
19b.
0
0
1934
1935
1936
1937
1938
1939
1935
INCLUDES FEDERAL, STATE AND LOCAL FUNDS.
WORKS PROGRESS MR
1936
1937
1938
1939
WORKS PROGRESS ADMINISTRATION 3034
.
1933
1934
Dec. 1, 1938
(Exhibit No. 51)
this
relief
emergency
and
COC.
PERSONS EMPLOYED BY THE FEDERAL GOVERNMENT
morning
monthly
on
AND ON WORK PROGRAMS
was
programs
works
other
Dr.
great
leave
nute
put
Take
charts
of
these
OF EMPLOYEES
Federal
understood
the
you increase this two or three
be
Senator
22,000,000
$6,000,000
you
1938
the
and
of gross income of all the people of the
taken by the Government
execu-
fact-1
Would
you
you
LUBIN
them
per
are
assigned
New York City
6
your attention to this other
6
5
Exhibit
No
entitled
the
forty billion. would swell
Senator KING You think bs the Federal
would
fifty
5
Dr. LUBIN. Definitely
from
away
a
KING It includes
LUBIN
said
fifty
spending
Yes
KING
you
national
the
entire
the
the
tained from them the
for
4
they have made for relief
4
Dr LUBIN The Works
would
has
The CHAIRMAN
basis
the
of
indicate
apparent
WPA AND OTHER
KING
you
Do
WORKS
Federal
the
Households
from
Works Programs" for the
3
3
EMERGENCY
people
people?
depends
the
LUBIN.
Governspends
and
the
for
signif-
It
of
that indicated in the chart
Employed by the Federal
everybody
working
is
ber
the
WORK RELIEF
private
LUBIN
Dr
but
the
other
and
spending
by
if
fac
money
these
4,946,000
ployed
things
and
military
and
small
the
profits
In
of
hand
KINO
You
not
are
2
2
larger
the
the
the
fact
CONSTRUCTION FROM
and
degree
1929
LUBIN
this
CHAIRMAN
REGULAR FEDERAL FUNDS
bucket
which
the
cities,
forth
This
Very
by
we
in
prosperity
definitely
entirely
depends
under
made,
pay
upon
which
the
ex-
which
extent
the
capacity.
sort
that
of
KING
KING
We
Federal
study
1935
1936
1937
1938
1939
relief.
large
Your
figures
would
not
has
NATIONAL
RESOURCES
The
might
assistants
that
used
terms
dol-
lars but making table
Jobs
come
all
the
ten
to
and
of
of
down
and
was
going
to
sug-
going
was
this
Industrial
living
course
significant
ployees)
that
do
Well
or
very
Dr LUBIN
THE
CHAIRMAN.
national
the
LUBIN.
to raise over two million dollars
what
in
PREPARED
Navy
what
Dr LUBIN No.
Senator KING For instance. this city
I
1934
covered
like
by
I
1933
have
LUBIN
I
0
field
rather
the charial
PRIVATE FUNDS
MILITARY
are
CHAIRMAN Dr Lubin, have you
Yes
Benator KING Would these figures include the amount which the Chest
0
entering
argument
and
Dr LUBIN
by
investment
14).
Federal
the
income
the
CHAIRMAN Now. then, Doctor
ment
made
in-
people?
of
did
been
has
private
would give to a
say spend.
KING The fact is they are
Senator KING Would
fountains
the
in?
which
policy
them
paying
SUMNERS
Dr.
of per cent
KING
LUBIN The answer. they tell
you
that
of
in judging whether not these
whereas
OF EMPLOYEES
dollar
every
for
or four. think that is the criterion
moving over to this other line
MILLIONS
these
keep
to
here
up
about 27,000,000
MILLIONS
effect
then would that the
before
question
Lubin
for
That
stimulating
SUMNERS
was
place
measure of its real significance. If
pay-
(Exhibit No. 14.)
funds PWA 1934 we had the CWA
That
taken
Its
45
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1.1938
a
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
if
44
em-
in-
profits
That
me
efficiency
future
and
the
general
outlook
for
the
POPULATION TRENDS
Dr. LUBIN. I am not going to proph-
46
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Senator
going
that
those
on
said
rolls
Pay
exceeding twenty -five hundred
THE SURPLUS PROBLES
the
that
47
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
1.1938
Dee. 1, 1938
tre-
bring findings to
brief
going
continue
up-
to
want
and
that
up
of
State
all
In
this
say
the
face
by
work.
than
the
for
to
to
the
problem
first
the
in.
for
it
prob-
would
rising
one
standard
income
The
back
avail.
child
the
to
that
dollars
PRODUCTION
and
think
living
more
It
just
course
got
and
of
way
in
another
that
important
12
equitable
which
will
products
family
other
-
BUDGETS
national
these
goods
produce
vage
more
higher
standard
higher
standard
of
a
rim
of
more
and
around
taking
in
goods
turn
means
increased
this
way:
nation
the
more
stand-
rising
this
definitely
that
our
$61.
up
going
taking
it
our
methods
goods
THE
family
earner
there
special
oranges
the
family
As
that
expended
average
the
increase
families
increase
for
just
$162
little
the
amount
the
by
that
the
eleven
-
Item
Producers of cosmetics and totlet prepar
aggregates
half
billion
have
labor
and
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dee. 1,1938
49
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
Appendix
money
That
(Exhibit No. 1)
Message From the President of the United States
TRANSMITTING RECOMMENDATIONS RELATIVE TO THE STRENGTHENING
AND ENFORCEMENT OF THE ANTI-TRUST LAWS
RECEIVED BY THE CONGRESS APRIL 20 (CALENDAR DAY APRIL 29). 1938-READ:
REFERRED TO THE COMMITTEE ON THE JUDICIARY OF SENATE
in danger justified by the factal
the average
To the Congress of the United States:
coan.
the
would
simple
of
it
48
the
sise
their
years
nine
that
is
that
from
power
Financial Control Over Industry
do
use
Close
the
financial
large
The Growing Concentration of
Industry
Economic Power
Statistics
be
free
growth
Appendix Will Be Found on Page 49
finan
The
danger
safety
50
requires
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
other
the
comes blurred and distorted if it
Dec. 1938
The contractor pays more
the
com
builder
bined with the conflicting duts of controll.
more
more
pays
rent:
duction
markets
and
(a) Investment Trusts
The study should be
A Program
work
Investment trusts should be brought
strict control to insure their
not
the of their
to
Interlocking
taken
51
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
than their anagers
The and Exchange Com.
the
from
the
report
make
to
results
Con-
to
of trusts and
of
ability
carried
Invest-
needs
company
the
cap-
been
and
not
(1)
Men
delayed,
be
Improvement
anti-Trust
of
Industry
but
funds
existing
III. The Decline of Competition
kinship
And Its Effect on
to
these
in
facts
the
the
should
price
The Choice Before Us
Investigation
of
among
Invest-
the
relation
eco-
of
the
The
than
their
those
(b) Bank Holding Companies
point
power
out
that
which
by
in
con.
of
the
That
dangerous
distance,
control
effective
responsibil-
multiplied
of
of
evils
holding
public
the
IV.
repeated
should
Competition Does Not Mean
they
are
Exploitation
hold
fields
field
-
a
are
The
Interlocking
the
Re-
of
and
hours
that
methods
of
and
favor
by
When
levels
mined
paya
(3) Financial Controls
of
cope
probcan
The
should
power
The of free
avoided by disseminating the best regulation business can expect
firls The effects
policies cannot be ignored
of
financial
directed
against abuses which promote
tions of power over American industry
company control
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
52
reasonable
lowing
Bureau of Industrial Eco.
(1)
nomies
orderly
an
ence memoranda. contracts agreements
of
make
living
that
This
Creation of Bureau of Industrial Eco-
la hereby authorized
to out(a)ofThere
any
money in
the not otherwise
POWERS
industrial
of
of
engaged in commerce
adequate powers to and
by
sum
shall
(4) Trade Associations
Supervision
activities
of
(a)
this
to
shall
$400,000
among
shall
thereof
$500,000.
agencies
and
their joint resolution
carry
to
to
joint
Approved June 16. 1938
trade
activity
(Exhibit No. 3)
Procedure Adopted by the T.N.E.C.
of
practices
Patent laws
Amendment
under
or other records and documents before the
policy national and procedure stand-
and with foreign
noesies should be endowed with
to
⑉
53
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
Dee. 1938
the
Procedure With Respect to Hear
patent
ings Before Temporary National
the Committee be con-
durted following manner
hearings will be before the full
as the
Economic Committee Conducted
by Various Member Departments
and Commissions Under Section
3 (b) Joint Resolution No. 113,
and presented by the repre-
of the department or commishas conducted the investiga-
The witnesses to be called
and submitted by the
75th Congress.
(6) Correctives
They
which
Hearings Reports
the
con-
has
will appear under subunder oath
Executive
of witnesses the
shall
observed
be
D ROOSEVELT
but
sub-
to
The White House
April 29. 1938
and
for
based
at
dealing
public
at
report
(Exhibit No. 2)
the
the
to
Joint Resolution Creating the Committee
PUBLIC RESOLUTION NO
orders.
of
CONGRESS
CHAPTER
300
JOINT RESOLUTION Create
the
prepared
Senate and House
COMMITTEE'S DUTIES
United
the
desirable
the
filled
and
and
Congress
That
established
three
Members
by
for approval before such
temporary
brainer are held
and
in
the
three
For Extra Copies of the
House
the
VERBATIM RECORD
by
the
of the Proceedings of the
the
TEMPORARY NATIONAL
and
Federal
ECONOMIC COMMITTEE
Address the Official Reporter:
1935
shall
hs
and
testifs
of
the
the
in
de-
The Bureau of National Affairs, Inc.
2201 M Street, N. W.
Washington, D.C.
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
54
Dee. 1, 1988
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dec. 1. 1938
55
DISTRIBUTION OF FAMILY INCOMES
1935 1936
GROSS DURABLE CAPITAL FORMATION
BILLIONS
BILLIONS
OF DOLLARS
OF DOLLAIN
30
30
20
.5
$$$55 $$$$$
$$$$$
20
TOTAL GROSS DURABLE CAPITAL FORMATION
SSSS
10
10
SSS
$$
#
0
0
10
EACH BANRET . MELION FAMILIES
10
tack DOLLAR , 1,000 BOLLARS
GROSS ADDITIONS To Houses
0
0
--10
10
NATIONAL RESOURCES COMMITTEE
GROSS ADDITIONS To OTHER CONSUMER DURABLE 00004
0
In 1935 and 1936 industrial production averaged 20% less than in 1929. In those years over tealve
0
million families. or more than forty per cost of the total number of families in the United States, had is-
coses of less than $1,000. Eleven million more had between $1,000 and $2,000 to spend. Even if the national
income were again at the 1929 level, most of the families in the lowest income group would receive too little
20
20
for the standard of good living Americans expect.
GROSS ADDITIONS To BUSNESS PLANT AND EQUIPMENT
EMPLOYMENT AND PAY ROLLS
10
10
IRON a STEEL a THEIR PRODUCTS, NOT INCLUDING MACHINERY
201-11-00
0
0
Employment
10
10
Per Rella
V
GROSS ADDITIONS To Public BULDNGE OTHER DURABLE
IMPROVEMENTS
0
99 320
0
1925
1935
1939
o
1930
NOURCE-NATIONAL BUREAU OF ECONOMIC RESEARCH
any and MUS WITH 417 AN as an OF an HII
56
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE
Dee. 1, 1938
Index of Contents of This Issue
Page
24
Income payments monthly, chart.
Industrial production physical vol33
Cigarettes annual production chart
President's
use of chart
18
Industrial production United States.
28
34
Coal bituminous annual production
Production and capacity of Partian
cement mills 1910-1937 chart
rell chart
32
Labor
Committee members present
45
Construction value. chart
23
Cost of goods purchased by which
Lumber sawmills employment and
pay rolls chart
33
Manufacturing industries chart
earners and inver-relaried workers
table
36
Manufacturing mining and steam
38
rolls chart
35
"
Reserve index
Department store sales chart
20
28
1
Dividends lost in depression chart
weekly hours chart
35
Monthly income payments chart
15
Annually 1919 to 1935. chart
rolls chart
holds and persons receiving relief
work program employment and
Estimated total funds used for relat
Residential units provided for it new
Resolution adopted by the committee
on its function and purpose
Resolution authorizing study
31
Employment and average weekly hours
Constant perioes, chart
2
35
Employment and Pay rolls
Definition
Effect on wage and salaried work-
All manufacturing industries chart
Sawmill employment and pay roll
Growth
31
ment of Chairman
many England and France, chart
Type of industry chart
United States chart
Shoes annual production chart
14
14
Non-agricultural employment chart
non-agricultures rhart
Employment rhart
Textile flbre consumptio. by U. $
manufacturers 1870-1937 chart
man opening statement on scope of
Unemployed estimated number and
age of chart
1-2
Output of commodities chart
19
United States agricultural production
to
Output per man-hour chart
Federal Reverse
37
PAY 10114 see Employment and pay
inc productive
and programs chart.
Freight-car
44
Physicalchart
volume of industrial produc-
Function
Immigration increase in
attributable to
1910.
Growth
United States chart
23
3
Housing MY Construction
Immigration
of
2
capacity
$
and
furnaces 1930-1937 chart
Wage and salaried workers. effect
decline in national income
Wages, real, in manufacturing
18
production
chart
United States population chart
Value of all construction chart
Persons employed by Federal Govern-
Foreign
average weekly hours chart
30
Mahoney 8rn Joseph c. Chair
and steam railroads chart
Woolen and worsted goods
ment and pay rolls chart
mining
employ-
Work programs persons employed by
Federal Government
Workers wage and salaried effect of
decline in national income on
24
Employment loss depression
Steam railroads employment and
of
32
Woolen and wristed goods chart
Per capéta 1934-35 in U. 8. Ger-
Scope of the hearings, opening state-
21
"
11
Nondurable goods chart
14
T
11
Durabir goods than
chart
Lest in depension chart
4
Cigars and cigarettes chart
Cotion goods rigart
income
in non-agricultural occupations
chart
ers
31
Cement chart
that
Rules of procedure
Salaries and wages lost in depression
If
manufacturing mining and
stram railroads chart
1934
Relief: Estimated number of house.
Roosevelt, President, message recenmending study
National Income
Farm
Railways in manufacturing mining
and steam railroads chart
non-farm construction chart
Mining employment and average
12
Durable goods employment and pay
hour,
and work programs chart
Manufacturing production Federal
Directors of study
HAD
emergency employment chart
railroads employment and average
workly hours chart
Cotton goods, employment and pay
per
2-48
25
study
output
Railroads
Lumber annual production, chart
Congressional resolution authorizing
Production
chart
Lubin Dr. Isador, Commissioner of
Labor Statistics, Department of
chart
recommending
17
Locomotive employment and pay
Cigars and cigarettes employment and
pay rolls, chart
message
study
1
chart
Portland cement mills 2910-1927 duction and capacity. chart
#
Central employment and pay rolls
15
0
Autoenobiles production chart
Income defined
2
20
a
Page
Agricultural production U.S. chart
Treasury Department
Office of the Under Secretary
Date: 12-13-38
To:
Mr. Foley
From: Mr. Hanes
ackn.
Will you please prepare answer for
Secretary's signature.
a
s
BA
DEPARTMENT OF THE INTERIOR
UNITED STATES HOUSING AUTHORITY
Homes
WASHINGTON
December 2, 1938
should energing hassening
My dear Mr. Secretary:
n conditions should milfault
At my conference with you on November 15 regarding the friendship
procedure by which this Authority proposes, as intended by
the Statute under which we operate, to enlist private capital
for a larger participation in the public housing program, it
was understood that we would submit to you our rough draft
of the Agreement providing for the payment of the annual con-
tributions authorized by the United States Housing Act. I am
enclosing two copies of this Agreement and of a local housing
authority bond form, together with a memorandum which I
received from my General Counsel describing some of the se-
curity arrangements which will be made for the protection of
the holders of local authority bonds.
These documents are being submitted to you so that the
Treasury Department may have the same basis for determining
the value of these securities as the private purchasers who
are ready to buy the local housing authority bonds at an
average interest cost to the local authority of less than 3
per centum. As you know, at least 10% of each local authority
bond issue must be sold to private purchasers and our Act
requires that these bonds be secured by a pledge of the payments under the Annual Contributions Agreement. In view of
our Act and its history and in view of the consistent policy
of other Government lending agencies, this Authority has at
all times emphasized its determination to follow a policy of
permitting local authorities to raise as much more of the
project cost as is possible by the sale of their bonds to
others, provided that private capital could be obtained at an
interest cost to the borrower as low or lower than the minimum
rates we can charge.
It now appears that it will be possible for local authorities to sell (at public sale with full opportunity for
competitive bidding) their bond issues to private purchasers
at less than this minimum interest rate which we can charge.
Certain prospective purchasers, who have had wide and exten-
sive experience in dealing with securities, have evaluated
the risks involved in the proposed local authority bonds and
0
-2-
8B
are convinced that these bonds are worth the price reflected
by the contemplated low interest rates. In the marketing of
these bonds, we have every assurance that their true nature
will be fully and fairly represented. We are advised that
the prospectus will call attention to the conditions in the
Annual Contribution Agreements and to the provisions made to
protect the bondholders with respect to these conditions.
We are agreeable to obtaining and submitting for your approval,
a copy of the proposed prospectus. From the enclosed draft of
a local housing authority bond, you will see that the bond expressly states that it is not an obligation of the United States
Government or any of its agencies.
In view of all of these facts, we see no reason to
assume that the truth about these securities will not be told,
nor do we feel that it is fair to assume that these securities
cannot be sold at the interest rates which responsible
prospective private purchasers are offering. In fact there
is no justification for any such assumption of misrepresentation, particularly since this Authority will exercise the
closest scrutiny over all matters relating to the sale and
description of the bonds, including the prospectus, the bond
form, and other relevant documents. There is no reason to
feel that the Government's financial program will be prejudiced
because of an assumption that these local authority bonds cannot be sold at the contemplated low interest rates. These
local authority bonds are to be offered at public sale under
provisions for alternate bidding on 10 percent of the issue
or on substantially the entire issue. If the expected low
interest rates are not offered for the larger block of bonds,
the alternate bids will be accepted for the smaller part of
the issue. Since these local authority bonds are in no way
an obligation of the Government, the failure to receive the
anticipated low bids for substantially the entire issue cannot possibly be construed as a reflection on Government credit.
With respect to the question of tax exemption of the bonds
of public housing authorities, these bonds are in the same
category as to tax-exemption as municipal and other local
government bonds, and in addition have been made expressly
exempt from Federal taxes. by a provision in the United States
Housing Act. It was suggested that since the President looked
with disfavor on tax exemption of the bonds contemplated by
the so-called Lambert Housing Plan, a similar view should be
taken with respect to the bonds of local public housing authorities. However, there is no similarity whatsoever between
0
78C
-3-
the bonds contemplated by the Lambert Plan and those to be
sold to finance projects aided under the United States Housing
Act. Under the Lambert Plan, the bonds would be those of a
private limited-dividend corporation and their exemption
would represent an extension of existing exemptions and would
necessitate Congressional action at a session when repeal of
see
tax exemptions of public securities is contemplated. On the lines
other hand, the bonds sold to finance projects aided under
the United States Housing Act would be issued by local housing authorities which have been declared by state legislatures and courts to be public bodies in every respect.
While it is desirable to remove tax exemption from all
municipal and Federal securities, there does not seem to be any
reason why the Government should, through administrative policy,
discriminate against the sale to private purchasers of local
housing authorities bonds. No such policy has been in effect
to discourage the outside sale of public obligations which
would otherwise be purchased by the Public Works Administra-
tion or the Reconstruction Finance Corporation. If it is
argued that the private financing of public housing projects
should be held up because of anticipated Congressional removal
of tax exemption, then the Government should logically discourage all local government and other financing involving
tax exempt securities. This is clearly not the policy which
the Government is pursuing, for public works and other projects
involving such financing continue to be undertaken daily with
Government assistance and encouragement. The bonds of local
public housing authorities now have the same tax exemption as
other local government bonds and, therefore, are in no way
comparable to the private securities involved in the Lambert
Plan.
In accordance with the discussion at our conference, it
is my understanding that you now propose to refer the enclosed
material to Mr. Foley, so that my General Counsel may continue
his conferences with him. I am confident that when this matter
has been fully studied by the Treasury Department you will
agree with the procedure which I am proposing to follow.
Respectfully yours,
Narhan Ham
NATHAN STRAUS,
Administrator.
The Honorable,
The Secretary of the Treasury.
DEPARTMENT OF THE INTERIOR
8LI
UNITED STATES HOUSING AUTHORITY
178P
WASHINGTON
December 2, 1938.
MEMORANDUM to the Administrator:
Subject:
Attached rough draft of Proposed Annual
Contributions Agreement and suggested
Terms, Covenants and Conditions to accompany such Agreement.
Introduction
In our discussions of the financing of local housing
programs through the sale to private purchasers by local
housing authorities of their bonds in the amount of 95%
(instead of 10%) of the cost of their projects, the Treasury
Department raised some questions regarding the possibility
of a sale of such bonds (if the true nature of the bonds
were fully represented to the purchasers) at an average
interest rate of less than 3% per annum. These questions
were apparently based upon a feeling that the local housing
authority bonds could not be made sufficiently attractive
to justify such an interest rate. In order that the Treasury
Department might have the same basis for determining the
value of these securities as the private purchasers who are
ready to buy these bonds at the above low interest rates,
you are submitting to that Department a rough draft of the
proposed Annual Contributions Agreement the payments under
francing
abses
insubed
which are pledged as security for the local authority bonds.
It is also recommended that you submit this memorandum to
that Department as it describes various arrangements which
will be made for the protection of the bondholders.
Before entering upon a consideration of the details of
the attached Agreement, we should consider this matter in
relation to the functions and duties of this Authority under
the United States Housing Act. That Act requires the
financing of part of the development cost of projects by
others than the Government. This Authority is limited to a
maximum loan of 90 percent of the development cost of projects
aided by annual contributions. (Sec. 9). The local authorities
o
178E
-2are proposing to raise all or part of the remaining
10 percent by the sale of their bonds to private purchasers or other investors. Many of the local authorities
have indicated their intention to raise as much more of
this cost as is possible by the sale of their bonds to
others than the Government.
Congress was anxious to assure that all local authority bonds, whether sold to private purchasers or the
Government, would be sufficiently attractive investments
to induce the low interest rates which are necessary to intare
achieve projects of a low rent character. In 1938, the
United States Housing Act was amended for the purpose of
improving the attractiveness and marketability of these
bonds, the following provisions having been inserted in
the Act for that purpose:
"payments under annual contributions contracts
shall be pledged as security for any loans obtained by a public-housing agency to assist the
development of the housing project to which the
annual contributions relate " (Sec. o(f),
Underscoring added).
It should be noted that this amendment makes it
mandatory that payments under annual contributions con-
tracts be pledged as security for local housing authority
bonds. The desire of Congress to assure that the Government loan participation in housing projects be reduced
as quickly as possible is evidenced by the following
statements in the report of the Senate Committee on Education and Labor which considered and approved the 1938 amendments:
also contains
provisions which would aid the resale and
marketability of bonds purchased by the USHA
"The proposed amendment
from local housing agencies. This follows from
the fact that the addition of the new subsection (f) to section 10 of the act makes it
clear that payments under the annual contributions
contract may be pledged as security for any loan
obtained by a public housing agency to assist the
development of the housing project to which the
ate
o
-3annual contributions relate; also by
providing that when bonds of local public
housing agencies are resold by the Authority,
they do not lose the pledge of the annual
contributions but continue to have the benefit
of this pledge on a parity with the bonds retained by the USHA. Such a pledge of annual
contributions will substantially aid the marketability of the bonds purchased by the USHA, because
under the act the faith of the Government is now
solemnly pledged to the payment of all annual
(Page 5, Report
contributions contracted for
of Above Committee, Dated April 20, 1938).
From the foregoing it is clear that at least 10 percent of the local authority bond issues must be sold to
private purchasers and that these bonds must be secured
by a pledge of the payments under the annual contributions
contracts. This Authority has no discretion to waive this
requirement of at least 10 percent outside participation
or to waive the requirements regarding the pledge of payments under the annual contributions contracts as security
for local authority loans. It also seems evident from the
Act and its history that this Authority should take those
steps (consistent with the Act and other Federal laws) which
are necessary to make it possible to reduce the USHA loan
participation in the development of projects. It is
significant that most of the Congressional discussion con-
cerned the USHA loans in the amount of $800,000,000 and that
many provisions were included in the Act to protect the
Government against loss on such loans. It is certainly
clear that Congress was most anxious to reduce the Govern-
ment's loan participation to the smallest possible per-
centage of the project cost. The 90 percent maximum was
allowed only because Congress was led to believe that the
localities would be unable to raise more than 10 percent of
the project cost. Congress refused to increase the maximum
USHA loan to 100% by expressly rejecting a proposed amend-
ment to that effect.
It has always been the policy of Government agencies
lending money to public agencies to encourage borrowing of
private capital on reasonable terms. Thus, PWA and the
-4RFC (even though they had binding contracts for the
purchase of bonds) have never insisted that public agencies
sell their bonds to the Government when they could find
a private purchaser at the same or a lower interest rate.
On the contrary, these and other government lending
agencies have always been glad to step out of the lending
picture when private capital was willing to come in. Again
and again, this Authority has emphasized its determination
to follow a similar policy and to make every effort to enlist private capital at even lower interest rates than the
minimum which we can charge. Lower interest rates on local
authority bonds will mean lower rentals and lower income
tenants.
In view of the provisions of the Act and its history
and in view of the practice of other Government lending
agencies, this Authority can hardly refuse to permit
local authorities to sell 95 percent (instead of 10 percent)
of their bond issues to private purchasers at a lower
interest rate than that which we can charge. There is
certainly nothing in the Act which expressly or impliedly
requires the USHA to lend 90 percent; rather, the whole
tenor of the Act and of Government policy has been to
reduce Federal loan participation in favor of private loan
participation.
I
o
Annual Contributions as Security Upon Which
Bondholders May Rely
As explained above, the annual contributions must be
pledged as security for the payment of local authority bonds
issued to assist the development of the housing projects to
which the annual contributions relate. (Sec. 10(f)). with
respect to the risk taken by prospective purchasers of the
bonds of local housing authorities, it is, of course, evident
that there are no risks so long as the annual contributions
are sufficient to cover debt-service requirements on bonds
of the local authorities and so long as such annual contributions are paid. First, let us consider the question of the
sufficiency of the annual contributions to cover completely
the debt-service requirements on a bond issue to finance
100% of the cost of a project. If 95% of the bond issue is
sold to private purchasers, the average proposed interest
rate on the local authority bonds will be low enough to permit
the debt service to be fully covered by the Federal annual
contributions. In fact, it is expected that a small part of
each annual contribution will not be needed for debt service
and may be applied to the payment of part of the operating
expenses which would otherwise, together with part of debtservice requirements, have to be met from rentals.
This brings us to the question as to whether the annual
contributions will be paid. Sec. 10(e) of the United States
Housing Act Amendments of 1938, provides in part that:
"The faith of the United States is solemnly
pledged to the payment of all annual con-
tributions contracted for pursuant to this
Section, and there is hereby authorized to
be appropriated in each fiscal year, out of
any money in the Treasury not otherwise
appropriated, the amounts necessary to provide for such payments."
This language was apparently modeled after the provisions
of that act relating to obligations of the United States which
provides that "the faith of the United States is solemnly
pledged to the payment of such obligations. (Sec. 731,
Chapter 12, Title 31, U.S.C.A.). The report of the Senate
Committee on Education and Labor (Report No. 1944, Seventy-
Fifth Congress, Third Session) with reference to the United
States Housing Act Amendments of 1938 contains at the top
of page 6 a statement to the effect that:
-6 -
o
the faith of the Government is now
solemnly pledged to the payment of all
annual contributions contracted for, and
appropriations are authorized in each year
to meet such payments (thus recognizing
that the Government's obligation under an
Annual Contributions Contract is the same
as the direct obligation of the Government
on its own bonds)."
If
and, as mentioned above, Sec. 10(f) requires that such annual
contributions be pledged to the payment of the local authorities
bonds. Because of the foregoing provisions in the United States
Housing Act and the Committee Report on the 1938 Amendments
thereto, no prospective purchaser of bonds of local authorities
has questioned the obligation of the Government to pay annually
the amount due to a local authority under an Annual Contributions Agreement, nor has any such prospective investor questioned whether such amount would be paid when due under such an
Agreement. From a study of this matter, it is our opinion
that a local authority (and presumably the bondholders to whom
the Annual Contributions Agreement is pledged as security for
the bonds) may obtain a judgment against the United States if
annual contributions are not paid when due under the Agreement.
It is true that payment of the judgment will depend upon an
appropriation by Congress, but this is true of all claims
against the Government including claims representing principal
or interest on direct obligations issued by the Treasury in
the form of bonds or notes.
II
Annual Contributions Agreement and
Conditions Therein
The Annual Contributions Agreement contains provisions
permitting the termination of the Agreement under certain
conditions or the withholding or reduction of annual contributions under other conditions. It is the primary purpose
of this memorandum to discuss and analyze these conditions
and the provisions relating thereto in the Agreement or
collateral documents.
The attached Annual Contributions Agreement has been
drafted in a manner which is designed to achieve the Congress-
ional objective of maintaining the low-rent character of projects. It is clear that the continuance of annual contributions
is essential to the maintenance of the low-rent character of
-7
0
178 J
a project, for the termination of such contributions would
make it necessary to increase the rentals to an amount sufficient to meet debt service and operating expenses with the
result that the project would serve the higher income groups
which private enterprise now serves. It is, therefore,
erroneous to assume that the continuance of the low-rent
chracter of projects can best be assured by a contract which
would permit USHA to terminate all annual contributions on
any breach -- for if we are to have and use this threat of
termination, we must be prepared to exercise the threat; yet
the very exercise of the right would result in the complete
defeat of the low-rent character of a project and its loss
to the low-income group intended to be served.
The attached Agreement provides methods of payment,
remedies, and controls which this Authority has determined would
will achieve the greatest degree of maintenance of the lowrent character of projects. Under this Agreement, the USHA
retains at all times effective controls to assure the continuance of the low-rent character of housing projects. At the
same time, this Agreement reduces the possibilities of loss
to prospective purchasers of local authority bonds to the
extent that the interest rate on such bonds will be low enough
to aid in achieving the low rents contemplated by the Act.
While we are fully convinced of the validity of the
attached draft of the Agreement, there are certain legal
questions concerning its provisions which (because of the
importance of this matter) are being referred to the Attorney
General for his opinion and which it is therefore not necessary to discuss in this memorandum.
As explained above there are certain conditions in the
Annual Contribution Agreement permitting the termination of
the Agreement or the withholding or the reduction of the
annual contributions. It is to these conditions that we must
turn our attention in order to determine whether they present
any real risks to the bondholders for which adequate protection
will not be provided.
The conditions to which the annual contributions are
subject are contained in Part III of the attached Terms,
Covenants and Conditions. These conditions are: failure to
let contracts; failure to complete project; failure to eliminate
unsafe or insanitary dwellings; destruction of project; failure
of local contributions; breach of covenant; substantial breach
of low-rent character; and acquisition of project by third
party. These conditions will be discussed in the order mentioned.
8
O
1. Failure to let contracts (Sec. 3.01). The Agree-
ment provides that it may be completely terminated by the
USHA in the event all the contracts necessary (as determined
by the USHA) for the substantial completion of the buildings
in the project have not been let to such contractors, in such
forms and with such security, as shall be approved by the
USHA within one year from the date of the bonds or within
such longer period as the USHA shall have approved. In the
Agreement, the local authority makes an enforceable covenant
that it will proceed promptly with the letting of these
construction contracts and the construction of the project.
It is proposed that the prospective purchasers of the
local authority's bonds will deposit the purchase price of
the bonds in escrow, and that none of these funds will be
released until such-time as the USHA has actually given the
approval of construction contracts provided for in Sec. 2.01.
During the period prior to the release of such funds from escrow, the USHA will finance the development of the project
by the purchase of notes, which are exchangeable for definitive
bonds or payable in cash at the option of the USHA. Interest
on the bonds will be treated as other interest during construction and will be paid as a development cost from the proceeds
of the loan. Thus, the bondholders will be fully protected,
as they will receive interest on their money while it is in
escrow and, in the event that the project should be abandoned
for any reason after the bonds have been sold, but before
the money in escrow has been released, the principal amount
of the bonds will be returned to the holders thereof. Based
upon the experience of PWA, we are confident that there will
be no projects abandoned after the bonds are sold, particularly
since the sale of bonds will be approved by the USHA only at
such time as a project has progressed sufficiently (through
optioning of land and preparation of plans and specifications)
so that no difficulties are anticipated.
2. Failure to complete project (Sec. 3.02). Under the
Agreement, annual contributions may be withheld in case of
the failure to complete substantially the entire project within
two years of the date of the release of the bond proceeds from
escrow. The local authority will make an enforceable covenant
to complete the project within this specified time. However,
the actual completion time which has been specified in construction contracts averages somewhat less than 12 months with respect
to the contracts let under USHA's decentralized program, and
partial occupancy, at least, should be possible before that
time. The average period specified for completion in construction contracts for PWA Housing Division Projects was 12 months.
-9 -
o
In the case of some of the PWA Housing Division Projects,
extensions were granted totalling about 3 months. These
were largely due to strikes. On the USHA Projects, the
hazard of strikes has been very greatly reduced because of
the agreements we have sponsored between local authorities
and labor unions and building trades councils. Under these
agreements (such agreements have been obtained to date in
83 cities), labor agrees to continue to work throughout the
construction of a project at the same wage rate as the one
in effect when contracts are let; also to submit all jurisdictional disputes to arbitration and to avoid strikes or
other work interruption.
The two-year completion period allowed in the Agreement
is, as a matter of safety, automatically extended in the event
of delays beyond the control and without the fault or negligence of, the local authority (the reasons for such extensions
being the same as those provided for in the construction
contracts). In addition, the completion time may be extended
in the discretion of the USHA for a longer period. In the
event the project is not substantially completed within the
time limits permitted, even with all the assurances mentioned
above, and the USHA withholds annual contributions as provided
by the Agreement, it nevertheless agrees that when the project
becomes substantially completed in its determination, the
annual contributions which have been withheld will be restored
to the local authority.
The bondholders will be fully protected against this
contingency of failure to complete within the period permitted
under the Agreement. The contractor will be under a contractual
obligation to build within about one-half the time specified in
the Agreement. This obligation will be secured by a performance
bond of a surety company guaranteeing performance of the contract.
The performance bond will be in an amount at least sufficient,
in the opinion of the USHA, to assure completion of the project
in any event, and the surety company will doubtless be one of
those appearing on Treasury List No. 356 (List of companies
acceptable as sureties on Federal bonds). Moreover, the bond
proceeds will be held intact and released from time to time
only as funds are needed to pay for work already done. These
bond proceeds will be released from the Bond Fund into the
Development Fund only as requisitions are approved by the USHA.
Funds will be paid out of the Development Fund only for work
done, and there will always be a retained percentage of contrac-
tors' estimates. In view of these facts and the further fact
that the contractor's work will always be approximately 30 days
ahead of his estimates, the amount remaining in the Bond and
Development Fund at any time should be ample to complete the
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178M
project even if a new contractor has to take over the job.
In case any deficit should arise due to the failure of a
contractor, the surety company would be obligated to meet
this deficit and cause the project to be completed. As a
practical matter, there is no risk to the bondholder. On
no PWA Housing Division Project has it been necessary to
call upon the surety company, even in the case of the
Indianapolis project which involved certain work the Govern-
ment claims to be defective.
o
- 11 -
3. Failure to eliminate unsafe and insanitary
dwellings (Sec. 3.03). Under the Agreement, annual
contributions may be withheld in the event the demolition,
condemnation, vacation, compulsory repair, etc., required
by the Act is not completed within the time (which is
usually one year after the completion of the project, but
is sometimes two or three years after such completion)
prescribed in the Equivalent Elimination Contract
between the local authority and the city in which the
local authority is located. In the Agreement, the local
authority makes an enforceable covenant to accomplish
this elimination within the prescribed period.
In some cases, the requisite equivalent elimination
has been accomplished off the site prior to the execution
of the Agreement or will be accomplished on the site or
sites in the course of the development of the project. In
the other cases where the elimination will not be fully
accomplished in this manner, the Equivalent Elimination
Contract described in the attached Agreement will be re-
quired as a condition precedent to the purchase of bonds
or the payment of annual contributions by the USHA. Under
the terms of this contract between the local authority and
the city, the city will agree to accomplish the necessary
elimination within the time prescribed therein, which period
will be satisfactory to the USHA and will be consistent with
the period permitted in the Agreement. The bondholders In may
properly rely on the Equivalent Elimination Contract.
the event of a threatened breach of such contract, the bondholders may force the local authority to compel the city
to comply with its contract. The validity of such a
contract has been sustained by the highest courts of Florida
and South Carolina (Marvin V. Housing Authority of Jacksonville, et al, 183 So. 145, July 27, 1938, and McNulty V.
Owens, et al,
199 S.E. , October 13, 1938, respectively)
These Equivalent Elimination Contracts have been A made
only after a careful study of the local situation.
survey has frequently been made by the WPA or some other suf-
fact-finding agency to determine the existence of which a
of unsafe or insanitary dwellings
the
of
the
required
the prescribed period.
would elimination ficient permit number within accomplishment Moreover, or equivalent other a
study of the city's past record of demolition
elimination is frequently used to help us make an accurate to per-
forecast of the time when the city may be expected
form the necessary equivalent elimination obligations.
o
- 12 Statistics of past demolition and slum elimination are
usually available in the office of the city building
inspector or some other city official. These statistics,
together with other data regarding existing housing conditions and shortages, must be furnished to us in connection
with the application for financial assistance. Since the
Equivalent Elimination Contracts are based upon a careful
analysis of the problems of the particular community, we
are confident that it will not be necessary for us to resort
to the remedy of reducing or withholding annual contributions in order to compel the performance of those contracts,
particularly since those contracts and the Annual Contributions Agreements have been made sufficiently flexible to
enable adjustments to meet any changing circumstances. If
there is a substantial change in conditions in a city to the
extent that deferment of elimination becomes necessary
because of a sudden growth in population, a major fire or
other unforeseeable circumstances, the USHA is authorized
to extend the time specified in the Annual Contributions
Agreement within which the local authority must accomplish
such elimination and, in turn, the local authority may
then extend the time in their Equivalent Elimination Contract
with the city.
If for any reason the equivalent elimination is not
accomplished within the time fixed by the USHA, the USHA
may withhold future contributions until such time as the
elimination has been accomplished, at which time the
contributions to withheld will be restored.
4. Destruction of project (Sec. 3.04). Under the
Agreement, annual contributions may be withheld in the
event that more than half the dwelling units originally
in the project are destroyed or rendered untenantable, and
are not restored within two years after all insurance
claims have been established by litigation or by settlement
approved by the USHA. In the Agreement, the local authority
makes an enforceable covenant to carry insurance to the
full insurable value of the project against all losses
which it is customary to insure in the vicinity of the
project. If such insurance is not carried, the USHA or the
bondholders may place it. The local authority also makes
an enforceable covenant to proceed promptly with the repair
or restoration of any dwellings destroyed or rendered untenantable.
- 13 Because most of the low-rent housing projects are
designed with one or two-story buildings, with large
open areas in-between, with fire-proof or semi-fire-proof
construction, and with ample fire protection, it is
extremely doubtful whether a major fire or other catastrophe
is likely to occur. In addition, the extent of such
projects over several city blocks and the presence at all
times of a large number of tenants and of janitors or watchmen should prevent the spread of any fire. If any loss
should occur from fire or other hazards, it will be fully
covered by insurance. The insurance companies are to be
satisfactory to the USHA, and the USHA will make a review
of insurance coverage at least once a year. As you know,
the USHA has just executed a contract with an association
composed of practically all the stock fire-insurance
companies in the United States, by the terms of which
contract local authorities will be able to obtain complete
fire and supplemental insurance policies under which all
these companies will be jointly and severally liable. In
view of the joint liability of all these companies, there
is no risk of inability to collect insurance claims due to
the financial condition of any particular insurance company
or companies. Each insurance policy will carry an endorsement for the benefit of the bondholders.
A period of two years after settlement of insurance
claims should be ample time for restoration of the project
to the extent of 51% of the dwelling units originally
constructed. However, if such time should prove insufficient
for some unforeseeable reason, the annual contributions
withheld for failure so to restore would be paid to the
local authority if the project is subsequently restored.
In the meantime, the bondholders and the USHA would be
exercising their rights to force the local authority to
comply with the local authority's covenants to restore and
render safe and sanitary any dwelling units whatsoever
which are destroyed or rendered untenantable.
5. Failure of local contributions (Sec. 3.05). Under
the Agreement, annual contributions may be withheld to
the extent that the State and its political subdivisions
have not contributed 20% of the Federal annual contribution,
such 20% to be in the form of cash or tax exemptions or
remissions. In order to achieve the necessary low rentals,
it is the policy of the USHA never to enter into an
Agreement with reference to a project unless the project
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782
will be entitled to tax exemption under the State Statutes
or a self-executing provision in a State constitution. Thus
no bonds will be sold except on projects which are exempt
from taxation. These exemptions are based upon a well-recognized custom to grant such exemption to public property used
for public purposes--& policy which has been expressly adopted
with respect to public housing projects by 31 of the 33 states
having housing legislation. (No projects are being undertaken in the two states lacking tax exemption legislation).
In addition, such tax exemption provisions have been considered
and upheld by the courts of last resort of 8 of the 31 states
mentioned above.
(Spahn, et al V. Stewart et al, 103 S.W. (2d) 651,
Kentucky, 1937; In re Opinions of the Justices,
179 So. 535, Alabama, 1938; Marvin V. Housing Au-
thority of Jacksonville, et al, supra; Williamson
V. Housing Authority of Augusta, et al, 199 S.E.
43, Georgia 1938; State ex rel. Porterie, Attorney
General V. Housing Authority of New Orleans, et al,
182 So. 725, Louisiana 1938; Wells V. Housing Au-
thority of Wilmington. et al, 197 S.E. 693, North
Carolina 1938; Dornan V. Philadelphia Housing Authority, 200 Atl. 834, Penna. 1938; and McNulty V.
Owens, et al, supra.)
There have been no adverse decisions on the constitutionality
of local tax exemption of public housing projects.
In addition to the statutory or constitutional provi-
sions under which tax exemption is granted to public housing
projects, the USHA obtains a cooperation contract between the
local authority and the city in which the project is located.
Under this Cooperation Contract, the city recognizes the taxexempt character of the project and agrees to furnish, without
cost or charge (or, for a relatively small service charge),
to the project and the tenants thereof municipal services and
facilities of the same type ordinarily furnished to other
dwellings and inhabitants of the city. The Cooperation Contract
extends over the life of the bond issue and is expressly authorized by the provisions of state enabling legislation.
With respect to the amount of the contribution represented
by this local real estate tax exemption, we have found that
it averages about 60% of the Federal annual contribution. In
other words the local contributions represented by real estate
tax exemption (apart from the local contribution represented
- 15 by cash capital donations, and exemptions from sales taxes,
special assessments and other local taxes) is generally about
three times the 20% statutory requirement. The attached
Agreement provides for an accumulation of this excess over
20% and a subsequent credit in later years so long as no other
burdensome taxes are substituted. This provision is designed
to take care of situations where the amount of real-estate
taxes may be reduced or where such taxes are replaced by other
taxes. In such cases, the local authority will be able to
apply the accumulated surplus of local contributions (as well
as the exemption from the new taxes) to match future Federal
contributions so long as the total taxes and service charges
collected from the project do not exceed 5% of the total rentals
collected for dwellings in the project during the preceding year.
From the foregoing explanation it is evident that adequate provisions are made to assure that local annual contributions will be available in an amount sufficient to meet the
20% requirements of the Act. If for any reason such contributions are not available on an annual contribution payment date,
the sole remedy of the USHA is to withhold future contributions
in proportion to the insufficiency of the local contribution.
When the deficit in the local contribution is cured, the Federal
annual contributions so withheld will be restored.
6. Breach of Covenant (Sec. 3.06). Under the Agreement,
annual contributions may be reduced for a breach of any covenants in the Agreement, but such a reduction will not be made
below the amount of the Allotted Annual Contribution. Since
the Allotted Annual Contribution is the level amount necessary
to meet principal and interest requirements as the same become
due and payable, it is clear that this provision cannot affect
the bondholders in any way. This provision is designed to encourage compliance by the local authority with all the covenants
of the Agreement, no matter how minor. The amount of the penalty
for these minor breaches of covenant has properly been fixed
at a small sum--small enough so that the exercise of this right
will not change the nature of the low-rent character of the
project by necessitating a substantial increase in rentals and
a consequent change in the tenancy.
- 16 7. Substantial Breach of Low-Rent Character under the
Agreement (Sec. 3.08). Annual contributions may be reduced
or terminated for a substantial breach of the low-rent character of the project, the amount of the penalty being related
to the severity of the breach. If the local authority violates
its covenant to operate the project without profit, the resulting available profit from excess rentals is deducted from
the annual contribution next payable. This provision, although
involving a real penalty upon the local authority which is
well adjusted to the severity of the breach, will not harm
the bondholders, since the available amount of profits will
be required to be applied first to the debt service on the
bonds. To the extent that such profits are applied to debt service, the annual contributions will not be necessary for that
purpose. As an additional assurance that such profits will be
applied to debt service on the bonds, the USHA and the bondholders will be authorized to withdraw an amount equal to such
profits from any funds or reserve accounts of the local authority and to deposit such amounts with the local authority's
fiscal agent for application to debt service on the bonds.
Substantially similar provisions are made so far as
Ineligible Tenants are concerned. If the local authority
violates its covenant to exclude Ineligible Tenants from the
project and more than 5% of the tenants in the project are
ineligible, annual contributions may be reduced or terminated
by an amount equal to the Available Ineligible Tenancy Refunds.
As in the case of available profits from excess rentals, this
provision (which provides for a penalty similarly adjusted to
the severity of the breach) will not harm the bondholders since
the Available Ineligible Tenancy Refunds will be required to
be applied first to the debt service on the bonds. Various
provisions are to be included in the documents as an assurance
that the Ineligible Tenancy Refunds will be collected and
available. The USHA and the bondholders will be authorized to
withdraw an amount equal to such Refunds from any funds or
reserve accounts of the local authority and to deposit such
amounts with the Fiscal Agent for application to debt service
on the bonds; also, the USHA and the bondholders will have all
of the affirmative remedies in the Agreement to effect the
collection and deposit of such Refunds. Furthermore, the local
authority will be required to obtain a lease from each prospective tenant containing a covenant to the effect that such
tenant is eligible and that if subsequent events disclose such
tenant to be ineligible, the tenant will be liable to repay to
the local authority the proportionate share of the annual contributions which was applied to the reduction of his rent.
- 17 -
other words, the tenant will be obligated to restore the
In of the Annual Contributions which was diverted from its
part of benefitting eligible low income families; such propurpose in tenant leases will "take the profit out of Ineligible
and
thus help
remove
any
Tenancy"
visions
motive
for collection
ineligible of fami- such
lies to seek admission to the project. The
from ineligible tenants will be required and such
monies damages (along with the other monies mentioned above) will be
the source of the Ineligible Tenancy Refunds to be made by
the local authority.
If in any year the total amount of Excess Rentals plus
Ineligible Tenancy Refunds then available exceeds the amount
of the annual contribution in such year, the USHA is authorized to terminate the annual contribution in any such year
because, in such event, the project will have lost entirely
its low-rent character for such year. This provision, like
those described above, will not harm the bondholders, since
the Excess Rentals and Ineligible Tenancy Refunds must first
be available for application to the debt service on the bonds.
It should be noted that in addition to these remedies
(and the remedy described in 6) for maintaining the low-rent
character of the project, the USHA will 11 have ample affirmative the
remedies under the Agreement to enforce the covenants of
local authority to operate the project without profit or excess
rentals and to exclude ineligible tenants.
8. Acquisition of project by third party (Sec. 3.09).
Under the Agreement, annual contributions will be terminated
in the event the project is acquired in any manner (including
a bona fide foreclosure or other lien held by a third party)
by any third party other than a public housing agency as such
agency is defined in the Act.
This provision does not involve any risk to the bondholders will
because of the steps taken to assure that the project
continue in the ownership of the public housing agency. contain The
resolution providing for the issuance of the bonds will or
a covenant by the local authority that it will not outstanding. convey
mortgage the property so long as the bonds are enabling
Such covenant is expressly authorized by the state con- the
housing a legislation. The passage of such a resolution in addition,
stitutes notice of such a covenant but, for the
covenant will public be placed on record in the usual office real
recording of conveyances or incumbrances relating to estate.
- 18 -
For a breach of such covenant, the bondholders will have a
right to force an immediate re-conveyance.
In view of the fact that the project will be owned by
a public agency and that these notices will be made a matter
of public record, it seems inconceivable that any third party
would purchase or otherwise acquire the property from a housing authority. As you know, no bonds of the housing authority
are to be secured by a mortgage or other foreclosable instrument.
With respect to each of the eight conditions listed above,
the local authority will covenant to comply wi th such conditions precedent to the payment of the annual contributions.
In accordance with the objective of the Act to assure the continuance of the low-rent character of projects, the USHA has
retained many affirmative remedies which will make it possible
to compel the continued maintenance of such low-rent character,
including the remedies of mandamus, injunction, appointment
of a receiver, taking of possession, etc. These remedies are
cumulative and not in substitution for the remedies relating
to the reduction or withholding of the annual contributions.
Our experience with local housing authorities to date
leads us to feel confident that these authorities will be conscientious in the observance of their duties, particularly
since the state laws almost invariably impose duties similar
to those contained in the Annual Contributions Agreement. We
merely wish to mention this in passing, since it is our belief
that as a practical matter there are likely to be few occasions
for using remedies to compel observance of the statutory and
contractual duties of local authorities in the operation of
their projects.
CONCLUSION
From the foregoing discussion, it is evident that although
the payment of the annual contributions is subject to various
conditions in the Annual Contributions Agreement, adequate provisions are to be made either in that Agreement or in collateral
documents to eliminate any material risks or otherwise to protect the bondholders. Private purchasers who have had wide
and extensive experience in dealing with securities have evaluated the risks involved in the proposed bonds of the local authorities and are ready to buy these bonds at the low interest
rates mentioned above.
o
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It is, of course, contemplated that any prospectus will
call attention to the conditions in the Annual Contributions
Agreement and to the provisions therein or elsewhere made to
protect the bondholders with respect to such conditions. In
our conferences with the Treasury Department, we have indicated that we are agreeable to obtaining and submitting for
their approval the proposed prospectus. A rough draft of the
proposed local housing authority bond form is being submitted
to the Treasury Department. From the face of this bond, it
appears that there is an express statement that the bonds are
not an obligation of the United States Government, or any of
its agencies.
Certainly this Authority is interested in taking every
step necessary to assure that the prospective purchasers or
repurchasers of bonds of local housing authorities will be
fully advised of the facts regarding such securities. We see
no reason to assume that the true nature of these securities
will not be fully and accurately represented, and we are prepared to take every step necessary to assure that this will
be the case.
LEON H. KEYSERLING,
Deputy Administrator
and General Counsel.