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172 May 11, 1939 My dear Mr. President: Mr. Hanes, Mr. Bell and I met with Mr. Jean Monnet Monday night, at my house, and discussed the French debt to the United States. The French pre-armistice cash loans, as you will notice from the inclosed statement, amounted to $1,970,000,000. Her post-armistice debt for cash loans amounted to $1,027,000,000, and for war These figures and relief supplies, $407,000,000. represent the original debts and do not take into consideration the accrued and unpaid interest nor repayments made by France before and after refund- ing of its debt. If we should follow the very tentative suggestion of Mr. Monnet and forgive the pre-armistice debt of $1,970,000,000, this would leave France still owing us $1,434,000,000. Mr. Monnet's thought was that we might arrange some barter deal for the $407 7,000,000 of war and relief supplies, leaving a net $1,027,000,000 to be repaid us in cash. If we should follow through with Mr. Monnet's suggestion and take up the British debt, we find that their pre-armistics cash loans amounted to $3,696,000,000 and their post-armistics cash loans only $581,000,000. Therefore, I Faise the question at this time, before we proceed further with Mr. Monnet, whether it would be feasible to apply the Monnet formula to the British and other Governmental debts to the United States. Mr. Monnet has grave doubts as to the wisdom of raising the French debt question at this time and we share his doubts. 173 Mr. Monnet is waiting to hear from me and I shall be conversations. glad to have your views before proceeding in these Faithfully yours, The President, The White House. 174 May 11, 1939 ity dear Mr. President: Mr. Hanes, Mr. Bell and I met with Mr. Jean Monnet Monday night, at my house, and discussed the French debt to the United States. The French pre-armistice cash loans, as you will notice from the inclosed statement, amounted to $1,970,000,000. Her post-armistice debt for cash loans amounted to $1,027,000,000, and for war and relief supplies, $407,000,000. These figures represent the original debts and do not take into consideration the accrued and unpaid interest nor repayments made by France before and after refund- ing of its debt. If we should follow the very tentative suggestion of Mr. Monnet and forgive the pre-armistice debt of $1,970,000,000, this would leave France still owing us $1,434,000,000. Mr. Monnet's thought was that we might arrange some barter deal for the $407 1000,000 of war and re- lief supplies, leaving a net $1,027,000,000 to be repaid us in cash. If we should follow through with Mr. Monnet's suggestion and take up the British debt, we find that their pre-armistics cash loans amounted to $3,696,000,000 and their post-armistics cash loans only $581,000,000. Therefore, I raise the question at this time, before we proceed further with Mr. Monnet, whether it would be feasible to apply the Monnet formula to the British and other Governmental debts to the United States. Mr. Monnet has grave doubts as to the wisdom of share his doubts. raising the French debt question at this time and we 175 Mr. Monnet is waiting to hear from me and I shall be conversations. glad to have your views before proceeding in these Faithfully yours, The President, The White House. whome My dear Mr. President: 176 anging the That Mr. Hanes, Mr. Bell and I met with Mr. Jean Monnet nov Monday night at my house and discussed the French debt to the United States. The French pre-Armistice cash loans, as you will notice from the inclosed statement, amounted to $1,970,000,000. Her post-Armistice debt for cash loans amounted to $1,027,000,000/ and for war and relief, supplies, $407,000,000. Therefigines do var take the intovery consideration the refarments made If we should follow tentative suggestion by Frame of Mr. Monnet and forgive the pre-Armistice debt of before and $1,970,000,000, this would leave France still owing us after refunda. $1,434,000,000. Mr. Monnet's thought was that we might arrange some barter deal for the $407,000,000 of war and relief supplies, leaving a net $1,027,000,000 to be repaid us in cash. If we should follow through with Mr. Monnet's suggestion and take up the British debt, we find that their pre-Armistice cash loans amounted to $3,696,000,000 and their post-Armistice cash loans only $581,000,000. There- fore, I raise the question at this time, before we proceed further with Mr. Monnet, whether it would be feasible to apply the Monnet formula to the British and other Govern- mental debts to the united state. Mr. Monnet has grave doubts as to the wisdom of his doubt raising the French debt question at this time and we share 177 -2- in his opinion. Mr. Monnet 18 waiting to hear from me and I shall be glad to have your views before proceeding any further in these conversations. Respectfully yours, STATEMENT SHOWING AMOUNT OF FOREION TO THE UNITED STATES UNDER TARIOUS CLASSIFICATIONS (In thousands of dollars) Prearmistics cash loans obligations lief supplies originally - Extents - - Fialand 1,970,000 France Germany (Austrian indebtainess) - -- 3,696,000 Great Britain - Greece 1,031,000 Italy Latvis - Lithmania Poland Busania 10,605 Tugoslavis 6,879,385 Total 24,066 24,056 617,034 - 25,000 16,175 2,533,263 13,999 8,282 64,689 202,182 4,277,000 27,167 1,686 - -- 3,404,819 - -- -- 8,282 - 377,030 91,880 - 407,341 1,686 1,648,034 -- - refunded Principal Interest Principal Interest 14,490 26,600 17,670 43,356 364 417,780 135,071 16,466 17,100 19,830 4,309 38,550 1,247 9,000 4,025,000 161,350 24,056 24,615 863 4,074,818 4,600,000 232,000 1,232,770 202,000 27,164 981 1,897 5,440 1,686 32,497 1,983 74 423 1,647,570 2,042,000 37,100 5,767 80,200 621 346 12,945 1,420 1,230 150 46,065 5,018 284,344 - 1,840 6,432 235 1,002 1,287 19,311 10,350 1,799 51,758 728 51,030 66,560 62,950 2,700 1,225 10,135,460 271,822 9,863,638 11,704,487 475,632 159,667 37,911 722,812 29 -- 1,320,516 -- -- 10,000 Dube 11,960 -- - Liberts 26 - Nicaragua 187,730 Bussia Total 7,077,115 Total -- 10,000 10,000 -- 26 26 -- 432 432 -- 4,871 192,601 197,730 17,263 26 740,075 2,533,289 11,960 11,960 215,019 10,350,479 -290 142 192,601 -- 204,851 10,168 10,068,489 281,990 - - -- -- -- -- -- -- -- -- -- 641,283 - -- - -- Appayments: 2,003 54 - 10,000 France Great Britain 130,011 Greece -- Italy - 64,689 72,171 364 Liberta -- Nicaragua -- - - 1,799 Auments - Tugoalavia Total 140,011 2,067 - 10.000 64.689 202,182 - - -- -- - -- -- - -- 3 Cube - 3 -- Belgium 26 141,783 26 -- - 1,799 - - 728 - 281,990 142 728 364 196 142 1/ Includes $1,715,556,244.38 on account of interest accrued prior to funding and $127,226,578.44 interest funded under debt agreements. ACCOUNTS AND DEPOSITS May 11, 1939 - 1,255,427 - -- 192,771 - 204,114 -- - 449,080 166,729 20,737 8,249 4,160,825 139 26,012 106,928 5,413,388 46 34,268 2,365 9,858 2,022,745 752 166 8,546 7,650 259,502 536 63,991 61,741 164,854 12,710,628 - 23,303 -- - - - - -- - 115 - -- 33,515 388 11,343 -- - 833,599 1,929 2,275 -- - - 9,000 -- - 250,399 93 207,344 -- - 402 3,340,130 4,982 159,687 36,112 4,982 5,329 - 264 4,982 159,667 12,911 24,978 May 1. 3,835 annuities 2,011 3,681 859 - 6,889 5,132 Moratorium 878 Infunded debte: Armenia - 5,132 5,132 Total debt debt debt - 13,999 8,282 - 581,000 27,167 - - Bungary 1,027,478 91,880 13,999 principal 2,067 379,087 29,906 prior to 3 Belgium Deadhoslovakia 29,873 177,434 61,974 Debt as net refunding acquired 171,780 of principal Issued For and unpaid Payments Original Repayments Total VAT and To- 9 Postarmistice Cash loans -- -- - 385,372 - 408,675 - 13,119,304 Dising Sec. 179 (a) There is hereby created in the Treasury Department an office of Administrative Assistant to the Secretary of the Treasury, and an office of Fiscal Assistant to the Secretary of the Treasury. The Administrative Assistant to the Secretary of the Treasury and the Fiscal Assistant to the Secretary of the Treasury shall be appointed by the Secretary of the Treasury in accordance with the civil service laws, and shall each receive a salary of $10,000 a year. (b) The Administrative Assistant to the Secretary shall perform such duties in respect of the administration of the Treasury Department as the Secretary of the Treasury may prescribe. The Secretary of the Treasury is authorized to delegate to the Administrative Assistant to the Secretary of the Treasury any authority, duty, or function relating to the administration of the Treasury Department. (c) The Fiscal Assistant to the Secretary of the Treasury shall perform such duties in respect of the fiscal operations of the Treasury Department as the Secretary of the Treasury shall prescribe. The Secretary of the Treasury is hereby authorized to delegate to the Fiscal Assistant to the Secretary of the Treasury any authority, duty, or function relating to the fiscal operations of the Treasury Department, which the Secretary of the Treasury is authorized or required to exercise or perform. 11,1939 May 11, 1939 180 NEW YORK. --THE STOCK MARKET WAS UNABLE TO DEVELOP A DEFINITE TREND TODAY AND PRICES SWUNG UNCERTAINLY AROUND YESTERDAY'S CLOSING LEVELS IN SLOW TRADING. BONDS WERE MIXED IN QUIET TRADE. WHEAT FUTURES REACHED NEW SEASONAL HIGHS ON GAINS EXTENDING TO 2 CENTS A BUSHEL AND THEN SLIPPED OFF TO CLOSE 1/8 CENT HIGHER TO 3/8 LOWER. OATS ALSO REACHED NEW SEASONAL PEAKS AND THEN BACKED DOWN TO SHOW MINOR FINAL LOSSES. CORN WAS FIRM AND RYE MIXED. COTTON FUTURES WERE SOMEWHAT EASIER, AND NEW CROPS SHOWING SOME RESISTANCE. RUBBER, HIDES AND SUGAR DECLINED. SILK RALLIED MILDLY. THERE WAS LITTLE IN THE NEWS TO SWAY PRICE MOVEMENTS, ALTHOUGH TRADERS WERE SOMEWHAT DISAPPOINTED OVER CONTINUANCE OF THE SOFT COAL DEADLOCK. SECRETARY MORGENTHAU'S REITERATION OF HIS DESIRE TO REMOVE TAX DETERRENTS TO BUSINESS ACTIVITY, IMPROVED PROSPECTS FOR RAIL-AID LEGISLATION AND LABOR ACT REVISION, AND THE RECENT STRENGTH IN COMMODI TY PRICES -- THE UNITED PRESS - DUN BRADSTREET INDEX YESTERDAY REACHED THE BEST LEVEL IN A YEAR -- WERE AMONG THE MORE ENCOURAGING FACTORS. BUSINESS NEWS, HOWEVER, WAS UNFAVORABLE. CARLOADINGS FOR LAST WEEK WERE REPORTED DOWN MORE THAN SEASONALLY, WEAKNESS IN THE SHEET STEEL PRICE STRUCTURE WAS REPORTED AND ENGINEERING CONSTRUCTION AWARDS WERE DOWN. 5/11--R209P 181 May 11, 1939 12:00 noon Operator: HMJr: James A. Go ahead. Hello. Farley: Happy birthday ! HMJr: Thank you very much. F: By gosh, you don't look half your age. HMJr: Well, I feel sixty. F: Really? HMJr: Yeah. Well, I was just -- I didn't have anything special the other day. I was just calling you to find out how you were doing on taxes, that's all. F: HMJr: F: HMJr: Well, you're a son-of-a-gun. (Laughter) Well, I came out with a statement today and told them I just was where I was on March 3rd when I told the Committee I'd be ready to come up when they wanted me. F: That's fair enough. HMJr: And I was still interested in removing any taxes that F: Are you and Harry fairly in accord on the tax situation? HMJr: Well as far as I know -- and this is just gossip, that were business deterrents. -- as I say -- I -- I'm told that Harry is no longer interested in taxes. F: Really? HMJr: Yeah. F: That's very funny. HMJr: Now that -- that's gossip. I didn't get it straight. F: That's very funny. -2- HMJr: 182 But I was told that that was why General Wood went home because Hopkins was no longer interested in the tax program but that -- I am -- that is through a third party. F: Yeah, when I -- next time when I get back home I'll tell you the conversation I had with Wood. He came over to see me last week and he told me he was getting out. I won't talk to you now, but I'll tell you when I see you. HMJr: But it's very easy, because the last time they asked Harry about taxes, he said he stood just where Johnny Hanes stood. F: I see. HMJr: And they asked him the question on Monday and he ducked F: He did, eh? HMJr: Harry did. F: I understand. HMJr: So F: HMJr: it. Well, I'll tell you about my conversation with Wood the next time I see you. But, Jim, I -- do you see how I can back down? F: Beg pardon? HMJr: Should I back down? F: Not very well, Henry. HMJr: No. No. F: Of course, I don't know enough about your problem and you know it. You -- you've always done what you thought was best and that's all that's necessary. HMJr: Well, I'm trying to do what I think is best for the country as far as the Treasury goes. F: I know. You always did that and I understand that. -3 HMJr: 183 And we here in the Treasury think that there are certain taxes which are harder on business than certain others. I know. F: HMJr: And we think it would be good to make adjustments. F: Yeah, well you know -- you know your job there and you know what's best, and whatever you do is all right with me, Colonel. HMJr: Well..... F: Well, I hope you have fifty more birthdays just like this one. HMJr: Thank you so much. F: Good luck : I'll see you in a couple of weeks. HMJr: F: Thank you. Good bye. 184 May 11, 1939 12:51 p.m. HMJr: Hello. Operator: Mr. Krock. Go ahead. HMJr: Arthur Hello. Krock: Hello, Henry. HMJr: Yes, Arthur. I want to ask you a question you occasionally ask me. Now, will you accept a confidence? K: HMJr: K: HMJr: K: HMJr: Yes. If you will I'll tell you where Mr. Catledge got his story because I understand there was some disposition to blame John Hanes for it. It isn't true and I don't think it should be permitted to rest in anybody's mind, including yours, if you thought -- if you thought so. We got -- he got his "tip" from the Chamber of Commerce and he plentifully -- plentifully supplied himself from Pat Harrison and Doughton. Now there is no reason for the Treasury to feel it's got any responsibility for this story. I just hope you -- you will -- will accept my statement to that effect. You can make it to anybody and if the President should be in any way doubtful of it, Mr. Catledge is perfectly willing to tell the President. Well There you are. I -- I -- I've never done this before. Well, I -- I don't know why you do it now. Because I -- I had a feeling -- Turner had a feeling that John thought he'd be blamed for it and I -- I didn't want him blamed for it by anybody since he is not guilty. HMJr: Uh-huh. Well, I appreciate the spirit in which you called me and unless somebody does blame John we'll bury it between us, how's that? K: All right, thank you. I just wanted you to know because it -- I -- I've never done this before. I don't think I've ever told anybody where we got a story that we hadn't attributed, but I -- I wanted to do it in this case. 185 -2- HMJr: K: So far -- so far nobody has asked me. O. K. HMJr: And unless John is on the spot, I will not use it. K: All right, sir. HMJr: And as far as I know, the way it stands now, he isn't because outside of my press conference and inside the Treasury, we haven't discussed it. K: You haven't what? HMJr: No -- No one has raised the point. K: I see. All right, Henry. HMJr: Thank you. K: You're welcome. 186 MAY 11 1939 TREASURY DEPARTMENT ORDER NO. 21. Effective from and after this date, the following assignments to Mr. Daniel W. Bell, Assistant to the Secretary, are hereby ordereds 1. The Finances. 2. Commissioner of Accounts and Deposites (a) Division of Bookkeeping and Warrants. (b) Division of Disbursement. (e) Division of Deposits. (d) Section of Surety Bonds. 3. Commissioner of the Public:Debt. (a) Division of Loans and Currency. (b) Office of the Register of the Treasury. (e) Division of Public Debt Accounts and Audit. (d) Division of Paper Oustedy. 4. Office of the Treasurer of the United States. 5. Division of Savings Bonds. Mr. Bell will maistain contacts with departments, boards, corporations, and other branches of the Government with respect to their financial operations and the coordination of such operations with those of the Treasury. He will represent the Secretary in such contacts in a liaison capacity, keeping the Secretary fully informed in such matters at all times. Department Circular No. 244 of February 1, 1937, is modified accordingly. (Signed) H. Morgenthan. Jr Secretary of the Treasury. WNY x 187 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 11, 1939 Secretary Morgenthau E. H. Foley, Jr. For your information I have tried to contact Emil Schram at the RFC but learned that he is out of town and will not return to his office until Monday. I shall get in touch with him at that time. I read the Coughlin letter to Eddie Greenbaum and he gave it his blessing. Accordingly, I have mailed the letters to Father Coughlin, Archbishop Mooney and Cardinal Mundelein. At Eddie's request I sent copies of the letters to him. Copies have also been sent, at your suggestion, to your father. E.N th 88 May 11, 1939 Secretary Morgenthau 3. H. Foley, Jr. For your information I have tried to contact Emil Sehrea at the RFC but learned that be is out of town and will not return to his office until Monday. I shall get in touch with him at that time. I read the Coughlin letter to Eddie Greenbaus and he gave it his blessing. Accordingly, I have mailed the letters to Father Coughlin, Archbishop Mooney and Cardinal Mundelein. At Eddie's request I sent copies of the letters to him. Copies have also been sent, at your suggestion, to your father. (Initialed) L.E.F., Fr. EHF18 Typed 5/11/39 189 THE NEW YORK HERALD TRIBUNE May 11, 1939 5/11'39 Mr. Secretary: Annenberg-Guffey Suits Dropped in Philadelphia Both Sides Withdraw Charges Based on Election Campaign PHILADELPHIA May 10 in.-In- I thought you dietments charging libel and suits might be interested courts today with mutual apologies for damages growing out of the 1938 Pennsylvania election campaign were dropped in the criminal and civil and explanations in seeing this. E.H. F. Jr. The indictments against M L Annenberg publisher of "The Phila. delphia Inquirer E Z Dimitman city editor. and Daniel G Murphy a lawver and Republican stump speaker. were nolle prossed Immediately after the dropping of the criminal charges there was A private conference between lawyers both sides in the civil SUITH brougnt by Mr. Annenberg means Democratic Senator Joseph F Guffer J David Stern, publisher of "The Record . The Record Comstation WFIL Samuel R president of the sta Item art Albert M Greenfield Two political speeches, one by Senator Guiles which was broadcast over station WFIL the night before 1110 Allit was tited. and the other by Mr Greenfield, broadcast over the NATULAT Nation on Sep: 21. were the cause of the libel AUGHS 190 May 11, 1939. Around 12 o'clock yesterday Hanes was up to see Senator Harrison because he sent for him. At 1 o'clock Harrison saw Doughton because Doughton told me that. Harrison says that Turner Catledge called him last night and told him that Harrison had given Turner Catledge this story and that he (Hanes) confirmed the story to Catledge. He said that he would not lie. Hanes had Congressman Lindsay Warren of North Carolina contact the Vice-President to find out whether the Vice-President had really said Monday morning to the President that he does not want any tax bill and the Vice-President told Lindsay Warren that quite the contrary he wanted a tax bill. He also told me that Lindsay Warren is one of the campaign managers for Garner and that Garner has the North Carolina delegates for President. Hanes told me that Tuesday he had lunch with General Wood and that General Wood asked him about our tax program and that Wood said that that was the most important thing. I gather that that afternoon Wood turned in his resignation to Hopkins. When Doughton was with the President Tuesday morning he told the President that Monday night Max Gardner called him up and gave him a terrific sales talk on the tax program and undoubtedly Hanes, knowing that Doughton was going to see the President Tuesday morning, got Max Gardner to do this the night before. Hanes yesterday said to me, "Don't think that I have not been busy nights and I have got about 24 friends in the House and about the same number in the Senate that will stand with me on a fight on the tax program. Hanes also said, "I do not like Mr. Roosevelt". I asked Hanes to go to Cabinet for me on Friday as I was leaving for the farm and he refused to go. 191 Return to Room 28 FEDERAL RESERVE BANK OF NEW YORK May 11, 1939. Dear Henry: Thank you so much for your note of yesterday re- ferring to my letter of May 6. I was in Washington on Tuesday and called your office about lunch time in the hope that I might have an opportunity to see you sometime that day, but they told me that you had left for the day. I was sorry to miss you, especially as I had Mr. Roelse with me and would have liked to have talked with you about our gold announcements. However, I understand that Dr. White has called a meeting of all interested parties for three o'clock this afternoon in Washington and I have asked Mr. Roelse to stay over for the purpose of attending the meeting. That may cover what you have in mind but, even so, I hope you will let me see you the next time I am down there. Faithfully yours, hap Harrison Hon. Henry Morgenthau, Secretary of the Treasury, Treasury Department, Washington, D. C. 192 Washington, D. C. Treasury Department, Secretary of the Treasury, Hon. Henry Morgenthau, 3577 193 May 10. 1980. Dear Georges Thank you very mach for your letter of May 6th. I appreciate your writing - as you did, and I shall be very gind to talk with you when you are in Washington. Just let - know when you expect to be here in order that we my make an appointment convenient to us both. with all good wishes, Sincerely, Any Mr. George L. Harrison, President, Federal Reserve Beak of New York, New York, New York. GEF/dbs a 8/5 Treasury Department ision of Monetary Research Date 5/10/39 1939 194 To: Mr. McHugh From: L. Shanahan This has been the rounds. TREASURY DEPARTMENT Office of the Secretary Date TO: Mr HD white Room 208 195 From: MR. LOCHHEAD TO: mr Lorelesed 196 us From: Mr. GASTON S 197 MR. MORGENTHAU'S OFFICE Mr. Gaston Mr MoReynoldo Mr. Hanes Mr. Gibbons ..... Mr. Alexander Mr. Harper Mr. Allen Mr. Helvering Mr. Irey Mr. Julian Mr. Kilby Mr. Bartelt Mr. Batchelder Mr. Bell Mr. Berkshire Mr. Bernard Mr. Birgfeld Mr. Blough Mr. Broughton Mr. Bryan Mr. Lochhead, Miss Lonigan Mr. MarweII Adm. Peoples Miss Reynolds Mr. Cannon Mr. Rose Mrs. Ross Mr. Davis Mr. Delano Mr. Sloan Mr. Spangler Miss Diamond Miss Flanagan Miss Switzer Mr. Tarleau Mr. Foley Mr. Graves Mr. Thompson Mr. Upham Mr. Haas Mr. (1) A Mr. Wilson Mr. Hall Mr. Hanna PLEASE RETURN TO MRS. KLOTZ WHEN FINISHED THANK YOU. Clear sulti 198 gaston heelhead FEDERAL RESERVE BANK OF NEW YORK Then return to risk May 6, 1939. Dear Henry: I am sorry that Mr. Roelse's advice of our change in form of gold report did not come to the a ttention of your people until after the new form of report had been issued. Mr. Roelse's letter was mailed to reach Mr. Gaston on Monday morning, and the new form of report was not given out until Monday afternoon. We either had to go ahead with our old form of report, which had become very misleading, or issue a new one which would more accurately record imports and earmarks of gold without, of course, divulging confidential data. The newspapers made quite a bit more of it than it deserved. I agree with you, however, that it would be desirable to canvass this whole matter of reports on gold movements. I am going to be in Washington this next week, and, if you have some time, perhaps we could go over it then. Faithfully yours, CEVERON Identified KAUGHT notaboo Y YAM VII a = Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. To ta George L. Harrison President. 199 May 5, 1939. My dear George: I noticed in the Tuesday morning New York papers the first announcement of your new system of reporting gold receipts, and Archie Lochhead tells me that Knoke talked to him about it over the telephone on Thursday of last week and was advised to discuss it with Gaston. The result was a letter from Roelse to Gaston, dated Saturday, which was an outline of your decision and the reasons for it. It came to Gaston's attention and to mine after your Monday's announcement had been made. It seems to me, frankly, that this is the sort of thing that calls for somewhat fuller consultation with us in advance of decision and action on your part. It is, to say the least, a matter of mutual concern. Your objective of eliminating confusion with respect to figures on gold movements is one with which I agree, but I am not sure that your new policy moves in that direction. We now have unreconciled information coming from three or more different sources other than the Treasury. I think we need to get together and I should like to talk the matter over with you some time. Sincerely, Secretary of the Treasury. Mr. George Harrison, President, Federal Reserve Bank of New York, New York, N.Y. 200 May 5, 1939. My dear George: I noticed in the Tuesday morning New York papers the first announcement of your new system of reporting gold receipts, and Archie Lochhead tells me that Knoke talked to him about it over the telephone on Thursday of last week and was advised to discuss it with Gaston. The result was a letter from Roelse to Gaston, dated Saturday, which was an outline of your decision and the reasons for it. It came to Gaston's attention and to mine after your Monday!s announcement had been made. It seems to me, frankly, that this is the sort of thing that calls for somewhat fuller consultation with us in advance of decision and action on your part. It is, to say the least, a matter of mutual concern. Your objective of eliminating confusion with respect to figures on gold movements is one with which I agree, but I am not sure that your new policy moves in that direction. We now have unreconciled information coming from three or more different sources other than the Treasury. I think we need to get together and I should like to talk the matter over with you some time. Sincerely, Secretary of the Treasury. Mr. George Harrison, President, Federal Reserve Bank of New York, New York, N.Y. 201 May 4, 1939. TO: (1) Mr. boonword (2) Mr. Harry Wnite (For approval before signature.) FROM: Mr. Gaston Please return to Room 288 202 lly dear George: I noticed in the Tuesday morning New York papers the first announcement of your new system of reporting gold receipts, Archie on and Thursday of Lochhead tells me the Emoke talked to him about it over the telephone last week and WD.S advised to discuss it with Gaston. The result was a letter from Roelse to outline Gaston, dated Saturday, which and wastoan / of your decision and the mine V your Monday's reasons for it. It came to Gaston's attention After - M announcement had been made. It .seems to me, frankly, that this is the sort of thing that calls for somewhat fuller consultation with us in advance of decision and action on your part. It is, to say the least, a matter of mutual concern. the Objective 01 Your objective of eliminating confusion with respect to figures on gold one with which I agree, but I am not sure that- your new policy moves in that movements is 6 unriconciled direction. We now have information coming from three or more different sources ^ other than the Treasury. I think we need to get together and I should like to talk the matter over with you some time. Sincerely, 203 THE SECRETARY OF THE TREASURY WASHINGTON My dear George: I noticed in yesterday morning's New York papers your announcement of a system of more complete reports of receipts of gold from abroad. I was also told during the morning that Mr. Knoke nad reported your intention over the telephone to Archie Loonhead last week and that Mr. Gaston had received a letter from Mr. Roelse containing the same information. Frankly, I am unable to discern any good reason for your making this announcement. The newspapers are already well supplied with information on the subject from several sources. They have access, I am told, to the ships' manifests at the Custom House, which cover all shipments to New York. Gold that is received by the mints and assay offices shows up within a few days on the Daily Treasury Statement. Then, the Department of Commerce reports, with only about ten days lag, the complete import and ex- port figures. It seems to me that your reports of imports at the Port of New York will only add to the confusion rather than clarify it. I am not asking you to change a procedure which you have publicly announced, but I do suggest that matters of this kind, which have such a close and vital relation to Treasury operations, should be discussed with us before rather than after a decision has been made. Sincerely yours, Secretary of the Treasury. Mr. George Harrison, President, Federal Reserve Bank of New York, Now York, N.Y. 204 My dear Georges I noticed in yesterday morning's New York papers your announcement of a system of more complete reports of reseipts of gold from abroad. I was also told during the morning that Mr. Knoke had reported your intention over the telephone to Archie Lochhead last week and that Mr. Gaston had received a letter from Mr. Reelse containing the same information. Frankly, I an unable to discorn any good reason for your making this announcement. The newspapers are already well sup- plied with information on the subject from several sources. They have access, I am told, to the ships' manifests at the Custom House, which cover all shipments to New York. Gold that is oeived by the mints and assay offices shows up within a few days on the Daily Treasury Statement. Then, the Department of Commerce reports, with only about ten days Inc. the complete import and port figures. It seems to no that your reports of imports at the Port of New York will only add to the confusion Father than clarify it. I am not asking you to change a procedure which you have publicly announced, but I do suggest that matters of this kind, which have such a close and vital relation to Treasury operations, should be discussed with us before rather than after a decision has been nade. Sincerely yours, Secretary of the Treasury. Mr. George Barrison, President, Federal Reserve Bank of New York, New York, N.Y. HEG/mah 205 My dear George: I noticed in yesterday morning's New York papers your announcement of a system of more complete reports of receipts of gold from abroad. I was also told during the morning that Mr. Knoke had reported your intention over the telephone to Archie Lochhead last week and that Mr. Gaston had received a letter from Mr. Roelse containing the same information. Frankly, I am unable to discern any good reason for your making this announcement. The newspapers are already well supplied with information on the subject from several sources. They have access, I am told, to the ships' manifests at the Custom House, which cover all shipments to New York. Gold that is received by the nints and assay offices shows up within a few days on the Daily Treasury Statement. Then, the Department of Commerce reports, with only about ten days leg. the complete import and ex- port figures. It seems to ne that your reports of importe at the Port of New York will only add to the confusion rather than clarify it. I am not asking you to change a procedure which you have publicly announced, but I do suggest that matters of this kind, which have such a cloce and vital relation to Treasury operations, should be discussed with us before rather than after a decision has been made. Sincerely yours, Secretary of the Treasury. Mr. George Harrison, President, Federal Reserve Bank of New York, New York, N.Y. HEG/mah 206 My dear George: I noticed in yesterday morning's New York papers your announcement of a system of more complete reports of receipts of gold from abroad. I was also told during the morning that Mr. Knoke had reported your intention over the telephone to Archie Lochhead last week and that Mr. Gaston had received a letter from Mr. Reelse containing the same information. Frankly, I am unable to discorn any good reason for your making this announesment. The newspapers are already well supplied with information on the subject from several sources. They have access, I am told, to the ships' manifests at the Custom House, which cover all shipments to New York. Gold that is received by the mints and assay offices shows up within a few days on the Daily Treasury Statement. Then, the Department of Commerce reports, with only about ten days lag, the complete import and ex- port figures. It seems to no that your reports of imports at the Port of New York will only add to the confusion rather than clarify it. I am not asking you to change a procedure which you have publicly announced, but I do suggest that Batters of this kind, which have such a close and vital relation to Treasury operations, should be discussed with us before rather than after a decision has been made. Sincerely yours, Secretary of the Treasury. Mr. George Harrison, President, Federal Reserve Bank of New York, New York, N.Y. HKG/mah 207 May 3, 1939. Mr. H. V. Roelse, Assistant Vice President, Federal Reserve Bank of New York, New York, N.Y. My dear Mr. Roelses I have received your letter of April 29th and I thank you for informing me as to the purposes of your new procedure with respect to the announcement of gold data. Very truly yours, (Statemed) Herbeah Herbert E. Gaston Assistant to the Secretary. HEG/mah e 208 FEDERAL RESERVE BANK OF NEW YORK April 29, 1939. Mr. Herbert E. Gaston, Assistant to the Secretary, Treasury Department, Washington, D. C. Dear Mr. Gaston: As you probably know, this bank has been issuing to the press for a number of years daily and weekly reports on gold transactions, and monthly summaries have been included in our Monthly Review on Credit and Business Conditions. In recent years these reports have been on a basis which was designed to account for changes in the gold stock of the United States, but because of the changes in the handling of gold that have taken place, it has developed that our reports have become quite inadequate and frequently misleading, especially with respect to gold imports. Information that is available to the public through other channels has indicated that our reports were very incomplete. We have followed the practice of reporting only gold imports which were sold directly to the Assay Office, as such gold is added directly to the gold stock of the country. In recent months, however, there have been a number of occasions when information obtained by the newspapers from steamship manifests or other sources has indicated much larger gold imports, thus giving the basis for the presumption that large amounts of gold were being imported for official accounts. Our reports also fell far short of accounting for changes in the gold stock reported in the daily Treasury statement and in the weekly reports issued by the Board of Governors of the Federal Reserve System. For these reasons it was decided that a revision of our reports would be highly desirable. A Committee of officers was therefore appointed by Mr. Harrison to study the problem, and after careful considera- tion of the matter, the Committee made a report and presented recommendations with respect to the form of reports on gold transactions to be issued by this bank, which were approved by our Officers Council at a meeting on Thursday, the new program to become effective next Monday. I understand that Mr. Knoke informed Mr. Lochhead concerning the change in our reports in the course of a telephone conversation yesterday, and that Mr. Lochhead requested that we advise you concerning the matter. It was decided that in the future our reports should be made on the same general basis as the figures reported in the Federal Reserve Bulletin, although our reports will be somewhat less inclusive, in that they will represent chiefly transactions at New York and will include no data on domestic production of gold. 2 Mr. . Herbert E. Gaston 4/29/39 209 FEDERAL RESERVE BANK OF NEW YORK Daily, weekly, and monthly reports are to show total imports by countries of origin, but with no indication as to the accounts for which the gold is imported. These data, therefore, will correspond to the information now available through steamship manifests and other sources. The daily reports in the future are to omit any reference to earmarking transactions, but the weekly reports and our Monthly Review will show net changes in the total amount of gold held under earmark for foreign accounts, and the Review will indicate the approximate amount of gold held under earmark at the end of each month. Reports on this basis will not purport to account for all changes. in the gold stock of this country, but will give a truer picture of the amount of gold coming to this country through New York from other countries, and will thus end the confusion that now exists with respect to this matter, without making public any information as to the accounts for which gold is being brought in. Very truly yours, Roelse H. V. Roelse, Assistant Vice President. HVR.LS 210 Earmarked Stock Rises At the same time, however, $115. UYTimes 5/2/39 ICIAL In April the monetary gold stock of the United States increased about $530,000,000 to a new record high of approximately $15,790,000,000. This rise compared with $385,000,000 in March and $624,000,000 during the heavy gold inflow last September. In commenting on the foreign exchange market the bank said: MORE DATA ON GOLD Tension in Europe during April REPORTED BY BANK caused a heavy inflow of short-term funds to New York from abroad and in turn a large inflow of gold to this country. Pressure on the Federal Reserve Gives Total of $29,012,000 COMES IN DAY the metal set aside here for for- eign account, increasing the total of this earmarked stock to $77,000,000. 35 Imports Instead of Additions to Monetary Stock Only 000,000 was added to the stock of principal European exchanges was intensified early in the month when Italian troops occupied Albania. 210 The market was afforded temporary respite in the middle of the month when President Roosevelt's message was sent to Chancellor Hitler and Premier Mussolini asking for a peace commitment. British de termination further to strengthen her military forces, as evidenced in the budget estimates for the coming fiscal year and plans for British Receipts at New York in April conscription, similarly added impe- Put at $575,000,000-De- ment in most currencies. Herr Hit- mand for Large Bills Noted mentary hesitation in the market. tus to a month-end covering move- ler's speech Itself caused some mo- but subsequently the firmer ten- dency in Continental currencies was The Federal Reserve Bank began yesterday a system of more com- plate reports on foreign gold re ceipts by giving total gold imports ead of merely those directly ating the monetary gold stock of the United States. The bank's daily statement showed arrival of $29.012,000 of the metal from Europe, * including $22,337,000 from England and $6,675,000 from Belgium. The banks will not report until Wednes- day the net changes in the stock of the metal held here under earmark for foreign account, so that some measure of secrecy will be provided in connection with operations of the Stabilization Fund and foreign central banks. The bank reported yesterday engagement of an additional $9,230,000 of gold in England for shipment here In its monthly review, issued yes terday, the Reserve Bank reported that imports of gold at New York in April aggregated $575,000,000. a monthly total exceeded only in Feb- ruary. 1934, and in September and October, 1938. Of last month's im- resumed. Demand for Dollar Noted "Further evidence of a desire on the part of foreigners to hold their funds in dollars rather than in European currencies has appeared unusual demands for large-dehination Federal Reserve notes at this bank during the past two months Substantial amounts of such notes have been shipped abroad and smaller amounts ap- parently have been placed in safe deposit boxes for foreign accounts in New York banks. "In March ten of the principal New York City banks shipped $25,- 000,000 of United States currency abroad, the largest amount for any month since the reports were initiated in 1923. and in April the amount appears to have been sub- stantially larger. At this bank unusual withdrawals of Federal Re serve notes of $50 to $10,000 denom- inations by New York City banks amounted to well over $50,000,000 in April. Despite the large withdrawals of currency for foreign accounts in recent weeks, excess reserves of New York city member banks have reached successive new high levels in recent weeks. Reserves of these banks increased nearly $600,000,000 land, although much of this amount in the five weeks ended April 26. a total of more than $5,000,000,000. probably originated in Continental funds and although there has been ports. $371,400,000 came from Eng- Europe: $84,600,000 from Belgium, $55,500,000 from Switzerland, $44. 300,000 from the Netherlands. $7,000,000 from Canada, $4,600,000 from India, $4,500,000 from ArgenIna and $2,100,000 from Colombia On the West Coast, $5,600,000 was received from Japan. $4,200,000 from Australia and $300,000 from China due to the heavy inflow of foreign an accompanying increase in de- posita and a consequent increase in reserve requirements, excess reserves have risen $445,000,000 to more than $2,400,000,000. In other parts of the country also there has been a substantial a of the large Treasury balances previto apa government ber increase ka to in have in excess spending recent been reserves weeks, due of chiefly of part which mem- ously accumulated in the Federal Reserve Banks. Monnet, Murnane & Co. COPY OF INCOMING CABLEGRAM 211 CODE From COMONTANE Paris No. May 12th, 1939. Friday No. 87 Your 18 Done Your 19 Report mailed you yesterday New Amsterdam STOP Transit duties have been now eliminated Also understand confidentially French Ambassador has advised Tivi war material would be accepted for transit and designated indastrial supplies. Tivi considers the matter satisfactorily settled STOP There remains question of reorganization and improving efficiency Haiphong harbor and seeing local administration works right spirit STOP Have written Normandie plans for appointment new governor and new trip Laurent accompanying him probably in June. confidental given me by m inset 212 Treasury Department Division of Tax Research Date To: May 26, 1939 Miss Chauncey. I am returning herewith the paper on tax revision which you loaned me. Thank you very much. MR. BLOUGH g are me this on may 12, 1939 accohing from Ben cohen 7oley said Cohen prepared TAX REVISION this over 213 six month There is a not altogether unjustified feeling that our tax system is arbitrary and inequitable in that the amount of taxes an individual pays depends less upon his actual income or upon the actual increase in his net worth than upon the artificial forms under which his business or financial activities are conducted. There is particular inequity in the operation of the individual surtaxes. They hit hardest the individual who does not or cannot conduct his business under the protection of the corporate form. They fall much more heavily upon those, whether in business or in the professions, who earn their incomes, than upon those who receive their income from as- cumulated wealth. Undistributed corporate profits, income from taxexempt securities, and even the special treatment of capital gains afford seans of escape from individual surtaxes available only to those with accusulated wealth. It is quite possible that the individual surtaxos are too high to yield their maximus productivity and to encourage the assumption of business risks. The very severity of the surtaxes in a sense puts a N 214 premine on their evasion. The retention of very high individual surtaxes and the virtual repeal of the undistributed profits tax suggest that there is a school of political thought which favors high surtaxes only because they can be evaded. A substantial moderation of the surtaxes on the highest bracket income would be justified if the surtaxes were made really effective by closing all avenues of evasion. The maximus surtax on individual income could be reduced to 60 per cent, possibly even 50 per cent without loss of revenues and with a fair possibility of an increase in revenues if there were a real willing ness to close all avenues of opision. To close all avenues of evasions (a) The present tax exemption of income from federal, state and menicipal securities should be abolished. This should mean the prompt elimination of all future tax-exempt securities. This should also moan the application of the so-called Class plan to existing tax-excapt occurities so that the fact of the existence of tax-except income should not be sholly ignored is assessing the sartazes against income from other 215 sources. That is, a taxpayer with an income of $200,000, one-half of which comes from existing tax-exempt securities, ought to pay surtaxes on the other non-exempt half at the rates applicable to incomes between $100,000 and $200,000. (b) There should be a tax on all undistributed corporate profits high enough and comprehensive enough to ensure that corporate stockholders will pay surtaxos on their full share of the corporate profits. This does not mean that a corporation which really needs cash for debt-retirement, working capital or expension should be required to distribute its profits in form of cash dividends. Stock dividends of all sorts should be treated as distributions of profits and made taxable in the hands of the stockholders. Although in Eigner v. Macomber 252 U. S. 189, the Supreme Court held that COMMON stock dividends to common stockholders could not be taxed as income, the reconstructed Supreme Court today would undoubtedly follow the dissenting opinion of Mr. Justice Brandeis in that case rather than the majority opinion, and uphold a tax on stock-dividends. Any corporation, therefore, with an unispaired 216 capital would be in a position to distribute its profits in stockdividends and could not complain that the tax forced it to deplete itself of cash reserves. Exceptional treatment with proper safeguards against abuse would be required only for corporations in arrears on their preferred stocks or having impaired capital. (c) The appropriate individual surtaxes should be made ap- plicable to capital gains, although special provision for relief from the capital gains tax might be made if the gains are prouptly reinvested in unsecured equities in new enterprises. There is no reason for the exceptionally favored treatment aocorded to all capital gains on assets held for more than 18 months. Generally speaking, capital gains are entitled to special treatment only to the extent necessary to protect the taxpayer from paying higher ourtaxes than he would be obliged to take if he were allowed to pro-rate his profits over the years during which he held his investment. But the present capital gains tax relieves the wealthy taxpayer of surtaxes which he would have to pay if his capital gains were pro-rated over a period of years. There is no justification for a taxpayer with a regular 217 annual income, exclusive of capital gains, of a quarter of a million dollars being allowed to escape with a 15 per cent tax on his profits from ordinary stock market speculations. Capital gains on assets held for a long or short period ought to be taxed at a rate not lower then the highest surtax rate that the taxpayer pays on his income, exclusive of capital gains. Greater liberality, however, sight be allowed in carrying over capital losses to be applied against capital gains in subsequent years. Attempts are made to justify the favored treatment of capital gains on the ground that the capital gains tax makes it more difficult for new enterprise to obtain capital. The validity of this contention is open to grave question. If we want to help new enterprise, the way to do it is modify the tax as it relates to the assumption of equity risks in new enterprise and not to put a further premium on speculation in old securities which say make it harder for new enterprise to get risk-assuming capital. If we want to encourage the assumption of risks in new enterprise we might permit capital gains to be invested within a given period 218 is unsecured equities in new enterprises (as defined under Treasury regulations) without those gains being taxed until after the now invest nent in the new enterprise is liquidated. This privilege could be continued indefinitely so that there would be is effect nd tax collected on capital gains as long as those gains continued to be promptly invested in new enterprise. Such a law would create a reservoir of funds specifically seeking outlet is now enterprises. of course there are administrative difficulties in the application of such a tax, but certainly it is better to meet those difficulties than to continue the present irrational treatment of capital gains which enables the wealthy to escape their curtaxes but which does not encourage investment is new enterprise. 219 May 12, 1939. TO: FROM: Secretary Morgenthau Mr. Blough RB SUBJECT: What are the tax deterrents to business? I. Introduction The question of what are tax deterrents to business cannot be answered in a few words. In its fundamental issues it is nearly as difficult to answer as the larger question, why have we not had full recovery? For example, almost all the theoretical arguments between the spenders and economizers are involved. A limited discussion, however, may be presented without deciding these points of theory. Taxes may deter business in one or more of three ways: First, they may reduce consumers' purchasing power and thus diminish the present and prospective markets for consumers' goods. This may not only limit the immediate level of production but may make investors believe there are no opportunities for profitable investment. 220 -2Second, taxes may reduce private savings to such an extent that business will be deterred by lack of sufficient funds. This is not an important issue at the present time as there appear to be plenty of idle funds. Third, taxes may reduce the willingness to invest by reducing the chances of making profit to such an extent that the owner of funds would rather maintain his principal than risk losing it on the chance of making a profit. If a tax thus discourages an investment in equity capital the result may be the lack of investment oppor- tunities for a much larger volume of senior capital. The deterring effects of any tax feature cannot be considered profitably without comparing them with the deterring effects of possible replacement taxes. Such comparison may he very diffi- cult if the replacement taxes have different effects on consumers' purchasing power. If, however, the replacement taxes are of such a nature that consumers' purchasing power is not affected by the change, a fairly intelligent estimate can be made of the effect of the change on willingness to invest. Most of the proposals made recently can be analyzed in this manner. 221 May 12, 1939. MEMORANDUM TO: Secretary Morgentnau FROM: Mr. Gaston The faults of the present tax structure are: (1) Inadequacy of revenue (2) Inequities as between taxpayers (3) Deterrents to business I suggest the following immediate program: (1) Renew present corporate taxes unchanged. (2) Provide a two or three year loss carryover for individuals and partnerships as well as corporations. (3) Allow an individual credit against taxes on dividends received of an amount not less than the normal individual tax. (4) Consolidate gift and estate taxes to prevent loss of revenue through distribution of estates before death. Also increase rates to yield substantially greater revenue. (5) Lower exemptions and increase rates on middle range of incomes. One possible device would be to lower exemptions to $500 single and $1,000 married and provide a very low rate, say one-half of one per cent, on the brackets $500-$1,000 for single persons and $1,000-$2,000 for married persons. changes. The need of more revenue is made urgent by pending Social Security The injustice of the single year tax accounting period is most glaring in tne case of continuing businesses. Present nigh flat corporate taxes without of fset against dividends received are grossly unfair to small minority stockholders. Some additional tax on profits not distributed is fully justified. As it seems impracticable to increase it, I would leave it alone. In view of the great volume of tax exempts, I think notning is to be gained by reducing high surtaxes. 222 -3In the following section are discussed each of the prominently mentioned proposals for removing tax deterrents. An attempt is made to indicate whether the deterrent is a real one, how important it is and whether the proposal actually remove it. II. Analysis of proposals whether will in dehawl compounts or 1. Allow business losses to be carried forward and offset against income in a limited number of subsequent years. specified The replacement tax would presumably be an increase in the corporation income tax rate. The allowance of a business loss carry-over with the revenue loss to government made up by an increase in the corporation rate would have no material effect on consumers purchasing power since the tax removed and the tax imposed would fall on corporate stockholders with little or no relation to the size of their income. Failure to allow a carry-forward of losses is a deterrent because the government treats the taxpayer on the basis of "Heads I win - tails you lose." Most new enterprises face a period of loss before they can expect to make income and often have highly irregular incomes for some time after their organization. Our income tax as applied at present may impose taxes amounting to 50 or 60 percent or more of the real income of a corporation measured over a period of time. It is 1 223 - -7- - 2 6. Decrease the top rates in the individual surtax schedule. The replacement tax should presumably be an increase in the individual surtaxes on medium bracket incomes although some persons think no replacement tax would be necessary. High tax rates are undoubtedly a deterrent to investment. In view of the volume of tax-exempt securities available to large investors, however, it appears unlikely that any action to reduce the higher surtax rates moderately -- for example to 60 percent -- would remove the deterrent except as it might cheer business psychologically. Any diminution of the surtax rates to very low levels would involve the question of replacement taxes imposed on consumers' purchasing power, which question is being avoided in the present discussion. If the revision program is to be limited to clear and easily defensible changes, I think the provisions for loss deduction are much the most important and most easily defended, both on grounds of justice and on grounds of their deterrent effects. RB Elimination tax - exempt Securities for the future 3 224 -4- believed that the willingness to venture would be increased more by allowing loss carry-overs than it would be decreased by raising the corporation income tax rate. In my opinion the failure to allow loss carry-over is one of the most serious deterrents in the present method of applying taxes to corporations. 2. Allow corporations to deduct capital losses from their ordinary income. It is assumed that the replacement tax would be an increase in the corporation income tax rate. Much the same argument applies to this proposal as to the loss carry-over. If corporations were allowed to deduct their net capital losses from other income or to carry them forward against future capital gains it is believed they would be less cautious in investing in the securities of other corporations and in undertaking expansion of their own plants. In my opinion the failure to allow more adequate deduction of corporate capital losses is a deterrent but that it is somewhat less important than the allowance of a loss carry-over. However, I think there would be a net reduction in business deterrents by allowing further capital loss deductions and increasing the corporate rate by the necessary amount to replace revenue. 225 -5 - magill ? 5. Allow 3. individuals greater deductions for capital losses. It is assumed that the replacement tax would be an increase in the middle corporation brackets or else in the taxes applied to capital gains. Failure to allow adequate deduction of capital losses to individuals is a deterrent to the investor because it reduces the chances for profit.. This appears to be a real deterrent and perhaps one of considerable importance. It would appear that the deterrent that would be removed by allowing such capital losses is greater than the deterrent that would be imposed either by higher rates on the middle brackets or by higher taxes on capital gains. One objection to proposing a revision of these deductions that is.some members of Congress may try to secure even more favor- able tax rates than now apply to capital gains. I am inclined to think that the tax on capital gains should be increased rather than decreased. 4. Repeal of the capital stock and excess profits tax. It is assumed that the replacement tax would be an increase in the corporate rate. The capital stock and excess profits taxes as they are imposed at present constitute a mild business deterrent. The uncertain and erratic character mageth ? 226 -6- of the tax are particularly noticeable in the case of new and expanding businesses. It is probable that the net effect of the repeal of these taxes and the substitution of a sufficiently higher replacement tax on corporation income would have a net effect of reducing business deterrents. The taxes are not. however, as important deterrents as the items previously mentioned, in my opinion. 5. Repeal the undistributed profits tax features of the present law. The replacement tax,which would not need to be large, would presumably be an increase in the corporation normal rate. Although many of the effects of the undistributed profits tax are stimulative in character so far as consumers' purchas- ing power is concerned, the tax is deterring insofar as it deprives corporations of the funds with which to expand. The present tax is so minor in character that it should have little or no effect of this kind. The psychological hostility of business to the undistributed profits tax may make that tax a real deterrent but this is difficult to judge. In any event, the deterring character of the tax is probably of relatively minor importance. TREASURY DEPARTMENT 227 INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM E. H. Foley, Jr. May 12, 1939 For your information The Executive Order to continue the authority conferred upon Dies' Committee to examine income tax returns was drafted last February and submitted through the Budget to the Attorney General. I understand that the Attorney General has had the Order on his desk pending a determina- tion of the policy involved in reissuing this kind of authority for this Committee. Judge Townsend informs me that the Attorney General referred the draft Order to Jim Morris yesterday for his views. Since a copy of the President's memorandum was forwarded to the Attorney General and he has the information as to the delay, Judge Townsend has promised that the Department of Justice will prepare the reply to Congressman Thomas' telegram. Under the circumstances, I don't think there is anything further for us to do. E.N.Th. 228 THE WHITE HOUSE WASHINGTON May 10, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY THE ATTORNEY GENERAL FOR PREPARATION OF REPLY FOR MY SIGNATURE. F. D. R. A similar memorandum and copy of the telegram from Hon. J. Parnell Thomas was sent to the Attorney General. 03 TELEGRAM 229 The White House 3PO. RA. 105-D.L. 11:05 G HF. Washington, D. C., May 9, 1939 THE PRESIDENT. Upon inquiry of the Secretary of the House Committee to Investigate uneAm Activities I learned with amazement that you had not yet reissued the executive order to permit our Committee to examine income tax returns. Further it is my understanding that our Committee requested such an executive order as far back as February twenty third of this year. May I therefore strongly recommend that the order be issued at an early date in order to permit our investigators to make an immediate search of the income tax returns this country. of certain notorious Bund leaders now residing within J. Parnell Thomas, M. C., Member Special Committee to Investigate un-American Activities 230 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1939 TO Mr. White FROM Mr. Hanson Subject: Data on Argentina A. Public Finance 1. Deficits are the characteristic feature of Argentine budgets. There were deficits every year from 1920 to 1930 during which time total debt increased from 850 million pesos to 1,600 million. Since 1930 deficits probably reached these figures: 1930 - 328 million pesos 1931 - 106 " " 1932 - 27 1933 - 20 1934 - Balanced 1935 - 130 million pesos (including public works) 1936 - 179 1937 - 240 If . 1938 - 77 (not including public works) 2. Revenues budgeted for 1939 may be taken as typical of recent years. Note that about 30 percent of ordinary revenues come from customs, that the income tax has developed into a good source of over 10 percent, that the tax structure has been strengthened by unification of internal taxes in 1935, and that inheritance and land taxes are still low enough to prevent breaking up of the large landed estates. 1939 Revenue Estimates (In millions of pesos) Customs 330 Unified internal taxes 161 Income tax Land tax 100 28 Sales tax 33 Stamp tax 60 Inheritance tax Posts and telegraphs Charity lottery 15 40 15 Miscellaneous 854 231 Mr. White - 2 3. Budgeted figures fail to show total government revenue, for exchange control profits have been running very heavy, as follows: 1933 - 3,000,000 1934 - 113,000,000 1935 - 118,000,000 1936 - 88,000,000 1937 - 65,000,000 Out of exchange control profits up to 1937 there had been spent some 70,000,000 pesos to assist and promote agriculture and live- stock industries. Exact allocation of remaining profits cannot be stated here. 4. Budgeted expenditures by percentages: 1934 Public debt National defense Education Miscellaneous 1935 1936 1937 1938 24.6% 19.4% 19.3% 19.8% 17.1% 12.7 7.0 13.1 7.4 18.5 10.4 14.8 9.5 14.2 11.3 B. Public Debt 1. In the tables that follow, note the growth of internal financing. National Consolidated Debt (In millions paper pesos) External (at par) Internal Total Issued Net outstanding 1937 1936 934 1224 1935 1248 1934 1234 1933 1217 1932 942 2859 2655 2242 1811 1823 1811 3793 3880 3491 3050 3040 2753 3787 3607 3350 2771 2659 2390 2398 2262 2214 2295 2208 1930 1034 1403 1227 1929 1071 1224 1931 994 2230 National Floating Debt (In millions of pesos) 1938 1937 1936 300 1935 103 1934 890 170 80 1933 1932 1931 1930 1929 900 1070 1170 1054 737 232 Mr. White - 3 2. Argentina did not default on the external debt of the national government. 3. The ergentine provinces and municipalities did default, however. is late as December 31, 1937, 10 percent of provincial external issues were still in default. of the dollar bonds ($250 to $300 million) issued in the 1920's, 54 percent were obligations of the national government, 40 percent were provincial, 6 percent municipal. The undiscriminating interest of the New York bond market and the efforts of travelling salesmen seeking borrowers for New York bond houses in the 1920's had stimulated provincial and local governments to borrow unduly. 4. Not more than 40 percent of bonds floated in the 1920's were used for productive purposes. Productive purposes are defined as public works and sanitary works here. Forty-five percent went for consolidation of floating debts incurred by customary annual deficits, and 12 percent went for armaments; 3 percent were for unbudgeted expenditures. 5. Growth of the internal market is important in assessing Argentina's future. Traditional idea has been that wealthy Argentines either buy land or spend money abroad. In 1914, 14 percent of funded debt was held in Argentina. But today probably two-thirds of funded debt is held in Argentina. As early as 1927 it was noted that over 90 percent of Mortgage Bank cedulas (1,100 million pesos) were now held locally. 6. Borrowing by provincial and municipal governments internally is now effectively controlled by a National Securities Commission. Technically, Provinces can borrow without authority because they are autonomous. Actually, however, the Securities Commission can refuse to authorize listing on the Exchange and permission to registered brokers to deal in such bonds. Thus, national government can restrict excessive local issues. 7. Internal market has absorption capacity of 250 million pesos at a yield suitable for ordinary borrowing purposes (to yield to maturity 4 to 5 percent). In 1937, however, the speculative boom caused 560 million pesos of internal issues to be taken up, thus overloading the market. National government did no financing locally in 1938, although some of the provinces attempted to float small issues (probably well under 100 million peso total for 1938). In March 1939 an internal issue of 150,000,000 pesos direct obli rations of national government were readily taken up to yield to maturity 5.1 percent. Half of the issue was for ten years and mostly taken in the capital. Half was for twenty-five years and taken in the interior provinces. $ 233 Mr. White - 4 Internal market is probably capable of further absorption of 100,000,000 pesos in 1939 but current uncertain economic situation prompts carefulness on part of Securities Commission. 8. External governmental debt may be estimated at $175,000,000 obligations, $175,000,000 sterling, and $60,000,000 other currencies. Internal debt is about $1,000,000,000. Floating debt may be about $100,000,000. Total governmental indebtedness about $1,500,000,000. The Argentine National Government guarantees obligations of the National Mortgage Bank cedulas to the amount of 1,500 million pesos. In connection with unification of internal taxes in 1935. the National Government assumed provincial debt of 190,000,000(Which it redeemed or converted in internal market. But the remaining provincial and municipal obligations of 1,500,000,000 (as of December 1937) are not guaranteed and do not constitute obligations of the national government. 9. The good record of the national government has enabled several profitable conversions of the external debt. In 1937, for instance, 10 6 percent issues were converted into 3 new issues, one at 45 percent and 2 at 4 percent. In 1937 extraordinary amortizations to the extent of 475,000,000 pesos were made. 10. Since middle 1937 National Government borrowings have been small. The internal market was overloaded in 1937, making internal issues undesirable. Externally, operations were confined to 60,000,000 pesos of a 2 year loan in Dutch and Swiss currencies in 1938, and $25,000,000 loan in New York in November 1938. It was reported that 40 percent of the New York loan had been spent before issue in support of the peso. It had been intended for use by the City of Buenos Aires to clean up the 200,000,000 peso deficit-extravagances of the former mayor. C. Foreign Exchange and Exchange Control System 1. The exchange value of the peso in both the "free" market and the "official" market are given in the following table. 234 Mr. White - 5 Exchange Value in Argentine Pesos of the American Dollar Official market Buying Free market Selling Yearly average: 1934 1935 1936 1937 1938 2.98 3.06 3.01 3.03 3.07 3.39 3.46 3.41 3.23 3.31 3.95 3.80 3.59 3.33 3.92 3.12 3.15 3.19 3.21 3.21 3.33 3.35 3.57 3.64 3.64 3.95 3.98 4.29 4.40 4.37 Monthly average: 1938 - Sept. Oct. Nov. Dec. 1939 - Jan. Feb. 2. Exchange control has been in effect in Argentina since 1931. 3. The aim of the Argentine exchange control and treaty arrangements is to balance Argentine foreign trade on bilateral bases. Exchange control therefore seeks to direct trade to those countries with which Argentina has favorable balances or trade agreements. The United States is not such a country and consequently only 50 percent approximately of its shipments to Argentina have been admitted at the favored official rate since exchange controls were instituted. The basis of the Argentine bilateral system is the Anglo- Argentine treaty whereby Argentina agreed to grant exchange created by a country's purchases less a reasonable amount for debt service. The bilateral system is not universally favored in Argentina and failure to renew the British treaty when it expires in December 1939 might lead to abandonment of the bilateral system. 4. A chronology of exchange control measures follows: 1931 (Oct. 13) - Exchange control was adopted whereby prior permits to purchase exchange were required. The background was three adverse years. In 1929 agricultural exports fell 9 percent in 235 Mr. White - 6 volume while agricultural prices were falling too; imports rose 3 percent; balance of payments seriously adverse; Argentina went off gold in December 1929; peso depreciated. In 1930 harvests were poor, debt flotation by government and railways total 583,000,000 pesos and short-term repayments 233,000,000; balance of trade unfavorable. In 1931, imports fell badly be- cause higher duties and lower purchasing power on a depreciated peso; harvests good but agricultural prices low; small favorable balance of trade; balance of payments adverse. Situation critical when exchange control adopted. 1931-1933 - Up to November 10, 1933 exchange was allotted on prin- ciple of meeting first the governmental debt service, secondly, essential imports, etc. But Argentina continued to import more than a vailable ex- change and blocked balances accumulated (most simable of which were United States and United Kingdom's. Rate of exchange was fixed too low, stimulating imports and demand for exchange. An illegal exchange market soon appeared for those unable to secure permits. So, corrective measures had to be taken: 1933 - (1) Funded the blocked peso balances. (2) Established free market as regulating valve to prevent reappearance of blocked funds. Hoped higher quotations in free market would discourage excessive imports. (3) Required importers expecting to use official exchange to obtain "prior permits* before bringing in merchandise. With- out permits, must use free market. (4) In first two years of control they had maintained fixed rate of exchange. In 1933 decided to fix rate periodically after considering bids of holders of prior permits. But a peso depreciated because demand for exchange was excessive. Thus in January 1934, peso was tied to pound sterling and fixed official buying rate at 15 pesos to pound and selling rate at 17 to pound. (5) Anglo-Argentine (Roca-Runciman) Agreement of 1933 pro- vided for the unfreezing of British blocked balances and adoption of a bilateral trade policy by Argentina. 236 Mr. White - 7 a. Sterling exchange equal to 12 million pesos arising from sale of Argentine products to United Kingdom in 1933 was to be reserved for spot payment of British claims awaiting payment on May 1, 1933. b. Other British peso balances were to be funded into 4 percent 20 year sterling bonds of Argentine Government. (Note: October 1933 issued $13,500,000 sterling bonds for this purpose. C. Argentina agreed to make available exchange at official rate for payment of imports from the United Kingdom in amount equal to the value of Argentine exports to the United Kingdom minus 10 percent to be used for service on the Argentine external debt. (Note: This treaty was re- newed in 1936. Expires December 1939.) (6) Blocked balances of United States and other countries were subsequently unfrozen under similar arrangements. In November 1933 an agreement was concluded between Council of Inter-American Relations (an association of American financial and commercial interests) and the Argentine Government, whereby eligible blocked dollar balances were to be converted into Argentine Treasury Bills payable in dollars in 180 monthly installments and bearing interest at 2 percent. Holders of these bills did not exercise their option of converting them into 20 year 4 percent bonds. Note: A total of $23 million of Treasury Bonds was issued under this agreement but holders of a substantial amount of American balances failed to exer- cise this funding privilege. Same terms were accorded holders of French, Belgian, Swiss, Dutch, Italian and Spanish blocked balances, and Treasury bills totaling 100 million Swiss francs were issued to them. In 1934 and 1935 European Governments occupying strong bargaining positions negotiated with Argentina agreements similar to the Anglo pact. In this fashion, Switzerland, Netherlands, Rigium, Germany, Spain, Finland and Austria were assured official exchange up to amount equal to their purchases from Argentina, minus small proportion for debt service. 1933-34-35 - Exchange control profits were used to finance guarantee of minimum prices of grain for farmers. 1935 (April 13) - Imposed an exchange surcharge of 20 percent for those unable to obtain official exchange. In the preceding 17 months the differential had averaged 16.2 percent; in the 237 Mr. White - 8 preceding 10 months 12.3 percent. The surcharge was inclusive of the exchange differential between official and free market selling rates. Thus, while differential was under 20 percent, surcharge would be added to reach that level; when differential was above 20 percent, no surcharge need be levied. The purpose of the surcharge was to favor trade agreement countries, discourage unfavorable balances with countries tending to sell more than their purchases in Argentina, promote a desire for trade agreements, add to exchange control profits. 1936 (Dec. 10) - Lowered official selling rate from 17 to pound to 16 to pound. Up to this time the free market rate had averaged 12 percent above official selling rate. Thereafter in 1937 there was little difference, so that the obstruction of fair competition centered on the surcharge. 1938 - Minimum surcharge was reduced from 20 percent to 10 percent. But central bank purchases in free market kept the differential at about 16 percent so that the 10 percent minimum was ineffective. 1938 (Nov. 7) - Required a prior exchange permit for ALL imports. Previously imports could always be brought in without governmental authorization provided that the importer was willing to buy exchange at the free rate. Hereafter ALL imports required a prior exchange permit even though the granting of permits did not necessarily signify granting of exchange. 1938 (Nov. 7) - Raised selling rate from 16 to 17 pesos per sterling pound but did not change buying rate. Thus doubled profits. Immediately the free rate rose from 19 to 20. 5. The official exchange market has been absorbing about 90 percent of the export exchange. Full export exchange is not available because exports to neighboring countries need not be handled through official markets (neighboring countries took 9 percent of exports in 1937) and some of the German credits, for instance, are blocked. 6. In 1937 out of the official exchange market was paid the entire service on the exterral public debt and 83 percent of the country's imports. 7. Into the free market has come exchange arising out of exports to neighboring countries, new investment of capital, and sales of official exchange by the Central Bank. 238 Mr. White - 9 8. Order of claims on exchange created by exports is: First, foreign debt service; Second, private financial service and dividends for countries granted official exchange for this purpose by trade agreements (United Kingdom, etc.) Third, allocations for merchandise imports, in which priority is given to trade agreement countries and to essential imports. 9. Allocation of official exchange created by export: (In millions of pesos) External Govt. Private Dividends, mainly R.R., etc. Merchandise Imports Total Year Debt 198 141 788 1932 191 722 1933 91 1356 1090 201 1331 223 826 1934 1935 175 205 1936 1937 185 208 912 945 167 1338 1396 1406 2085 190 Note: Miscellaneous items are not shown here. D. Exchange Control Profits Have Been Large 1. Chief sources of exchange control profits: (1) Differential between official buying and official selling rates represents profit on all remittances through official market, except those for debt service and government expenditures abroad. This differential was 1933 to Dec. 10, 1936 - 2 pesos per pound sterling Dec. 10, 1936 - Nov. 7, 1938 - 1 peso Nov. 7, 1938 - to date - 2 pesos (2) Profit on exchange surcharge for those unable to obtain permits for official exchange: April 13, 1935 to Jan. 29, 1938 - 20 10percent percent January 29, 1938 (3) Sale of official exchange in the free market. 233 Mr. White - 10 2. Income and expenditure from Exchange Control Profits: Up to December 31, 1937, in millions of pesos Revenue Collection of profits 421 Sales in free market 81 Debt redemption 27 Transfer in dollars and francs Interest, etc. 5 1 Purchase and sale of gold and foreign exchange 21 Total 556 Expenditures Transfers and accounts to general Treasury 212 Grain Board Dairy Board Cotton Board Meat Export Board 7 7 2 2 ine Board 39 Meat Board 10 Purchase and sale of gold and foreign 252 exchange To the 20 percent surcharge fund Total Balance 4 538 17 3. Exchange control profits: 1933 (Nov. 28 on) 1934 1935 1936 1937 6,000,000 pesos 113,000,000 118,000,000 88,000,000 65,000,000 E. Gold Holdings The Central Bank is required to maintain minimum reserves of gold and exchange amounting to 25 percent of sight obligations. Note the high proportions actually held as shown in the following table. 240 Mr. White - 11 Gold and Exchange Holdings of the Argentine Central Bank and Their Ratios to Demand Liabilities (Units of 1,000,000 pesos) : : Gold Notes in : : :Exchange: :Gold and exchange as a percent of fund :circulation: Notes in :Total sight :circulation:obligations : : : : : Year End 1935 1936 1937 1938 1,224 1,224 1,224 1,224 129.3 303.2 197.3 71.4 1,224 1,224 1,224 1,224 1,224 1,224 1,224 110.8 95.0 93.6 71.4 74.2 69.5 66.7 981.8 1,093.9 1,149.8 1,118.0 137.9 139.7 123.7 115.9 80.1 92.8 86.9 83.6 1,106.7 1,053.0 1,059.4 1,118.0 1,124.6 1,146.1 1,133.2 120.7 125.3 124.4 115.9 115.5 112.9 113.9 86.5 86.0 85.1 83.6 78.6 75.2 77.3 End of month 1938 - Sept. Oct. Nov. Dec. 1939 - Jan. Feb. . F. Mar. 15 Trade Comparison of Pre-war and Post-war Proportions of Argentine Trade by Three Leading Competitors. (In percent) United States Germany Argentime Imports United Kingdom United States Germany 1935 9.3 37.1 6.5 31.8 10.5 8.8 10.8 8.2 34.3 12.0 6.9 23.5 21.7 12.2 19.0 23.0 11.6 22.5 13.4 9.7 24.7 13.6 8.5 20.4 14.6 9.2 : 1919 : 1924 : 1930 26.1 23.3 10.2 32.5 12.2 31.9 22.8 0.3 30.5 14.8 17.2 23.5 35.2 0.1 6.3 1936 : 1934 : 1913 : Argentine Exports United Kingdom : : 1911- : 1917- : 1922- : 1928- : 1932-: 5.7 241 Mr. white - 12 G. United States - Argentine Relations 1. Of 1934-1938 shipments from United States to Argentina, about 50 percent have entered at the official exchange rate. This means 50 percent suffered the free market surcharge differential. Percent American Exports Allocated Official Exchange: 1934 - 47 percent 1935 - 42 1936 - 49 1937 - 60 2. In 1934, 1935, 1936, we shipped 14.8 percent, 14.4 percent and 14.6 percent of total Argentine imports, but they allowed us only 7.15 percent, 6.9 percent and 9.0 percent of the official exchange allocated for total merchandise imports. The burden of maintaining imports in 1938 from the United States at the 1937 level fell largely upon the free market. 3. While only about 50 percent of our shipments have enjoyed official exchange, note the larger proportion for British, German and other competitors that was cleared at the official rates. Argentine Allocation of Official Exchange for Merchandise Imports from the United States and Five Other Countries and the Percent of Total Imports from Each Country Liquidated Through the Official Market (Values in units of 1,000,000 pesos) : : Germany Belgium France Holland 58.0 258 93 71 49 38 34.8 95.9 86.1 97.1 85.8 96.9 Percent : : : United Kingdom Value : : United States : Percent : Value : First 9 months 1936 81.8 263 110 73 46 49 : 1935 of 1937 Value : Percent 45.8 121 57.1 98.5 95.7 99.2 91.5 98.8 244 99.6 97.1 99.8 93.5 99.6 111 90 51 52 242 Mr. White - 13 United Kingdom - Argentina Balance of Payments (In millions of dollars) 1938 Argentine exports 167.8 Argentine imports from U.K. 90.6 51.5 50.6 Freight, insurance, etc. Yield on English investments 167.8 192.7 United States - Argentine Balance of Payments (In millions of dollars) 1938 Estimates Argentine exports Government borrowing Port dues Private investments 41 Argentine imports 87 Service and investment yield 21 23 2 5 71 108 H. Industry 1. Argentine production is largely agricultural and pastoral. hout 95 percent of her exports are agricultural and pastoral. Argentina is world's largest exporter of beef, accounting for three-fourths of total world trade. Argentina is second largest exporter of wool and third largest producer of wool. Argentina runs first or second with Canada as wheat producer and exporter. Argentina is world's largest exporter of corn. Argentina is second largest exporter of mutton. Argentina produces two-thirds of world's linseed. Argentina is largest fruit producing and export ing country in South America. 2. Thirty-five to 45 percent of Argentine production is for export. 3. Industrialization has been proceeding rapidly. Already it has cost foreign manufacturers much of this market; in pre-war days 50 percent of domestic consumption was supplied by foreign manu- facturers. Today the figure is nearer 25 percent. 243 Mr. White - 14 4. Of a total investment in domestic industry in 1935 amounting to $1,400,000,000, about 45 percent is foreign capital under foreign control and administration. British and American direct investment in manufacturing and utilities excluding railways is $500,000,000. Meat plants are American and British; utilities are American and Swiss, construction firms are German and Danish, automobiles are American. 5. The relative British and American investments in Argentine are: United Kingdom $400,000,000 sterling in direct investments I 50,000,000 sterling in government obligations United States $350,000,000 in direct investments 250,000,000 in government obligations. British railways are 70 percent or more of total network and British investment in railways is $1,250,000,000 to $1,500,000,000. 6. Argentine industrialization is most notable in textiles, knit goods, prepared foodstuffs, etc., on which she is approaching selfsufficiency. Argentine textile industry can supply 85 percent of total demand for woolen goods, 40 percent of cotton goods, 95 to 100 percent of hosiery, knit goods and silk or rayon goods. Domestic industry already heavily protected by tariffs is proving a sturdy obstacle to trade inroads by Japanese, Italian low-cost producers, and by compensation currency countries; i.e., vested interests protest vigorously at such competition. In 1938, for instance, textiles were depressed by excessive imports of cheap cotton textiles, woolen goods, etc. Enormous anti-dumping agitation arose. England is not averse to seeing domestic industry make such demands since it will be hurt less than Japan etc., by such legislation. Note, however, how high the tariffs already are. Duties run 40 to 60 percent on cotton goods, 38 to 52 percent on woolen goods, 100 to 120 percent on rayon. And for goods financed through free market there is a 20 percent exchange surcharge. And yet, domestic industry claims protection is inadequate. 244 Argentine Balance of Payments with the United States 1935-1938 (Millions of dollars) : 1935 1936 1937 1938 139 41 : : Goods and Services: Argentine Income: (+) Merchandise exports Port dues and fees 60 65 2 2 Total 62 67 143 43 56 59 94 87 + 49 44 2(e) 4(e) Argentine Outgo: (-) Merchandise imports Balance (Goods and services)+ + 6 8 Debts and Investments: Argentine Income: (+) Private investments 20 20 - - - 23 20 20 28 9 33 39 164 15 Government borrowings Total Argentine Outgo: (-) Debt services (including repatriation) Profits and dividends Total 5(e) 9 6 9 6(e) 12(e) 48 176 21 - 28 - 156 .7 - 24 - 20 - 107 - 37 - - 39 Balance (Debts & investments)-30 Balance: Minus indicates payments of Argentina to U.S. in excess of U.S. payments to Argentina (exclusive of gold flows). Net Gold Exports: - + 32 (e) designates estimate. Note: It has been assumed that minor items such as tourist expenditures, immigrant remittances, and government expenditures on account of their diplomatic staffs approximately offset each other. 8.1 Not 31.8 17.6 11.5 18.3 10.1 Percent Available : Percent :To U. S. 33,301 113,821 1938 445,625 250,462 161,173 260,154 Total 143,996 30,579 44,767 83,597 166,693 94,344 153,752 180,477 183,410 181,189 287,826 229,047 322,228 220,139 181,714 173,612 272,779 183,230 126,754 103,938 129,550 226,747 1,419,438 1,400,294 : : : .03 .1 .1 .5 6.8 12.8 16.4 29.1 18.9 21.6 19.1 11.3 126,880 1 171,188 598,473 30.1 29.5 20.4 12.0 22,016 91,264 1 151,405 445,270 26.4 10.4 37.0 Percent : :To U.S. (20) : Percent : : 28,683 (31) 294,866 1937 671,878 248,140 157,182 285,719 Total 157,485 31,618 34,045 170,419 475,541 275,284 113,906 1,515,121 2,310,998 : .04 5.8 12.2 .6 .2 .03 9.3 14.6 35.1 20.4 : Percent, (57) : Percent: :To U.S. : 24.6 (52) : 9,366 96,650 1936 201,517 30,325 581,660 170,065 238,656 Total 108,065 169,464 95,300 170,043 211,296 1,655,712 1,168,211 : Argentina - Foreign Trade 1936-1938 Exports - Market values (In thousands of pesos m/n) : : : Imports - Tariff values Commodities United Kingdom United Kingdom Germany Germany Percent of salted hides. Foodstuffs Textiles and manufactures Iron, steel and manufactures Fuels and lubricants Cattle hides To United States Chilled beef Frozen beef Frozen mutton Canned Meat Wool Corn Wheat Machinery and vehicles Linseed From United States 1 Imports Total Exports Total Imports Exports 246 United States Trade with Argentina (In millions of dollars) Exports Imports Balance of Trade 1933 37 34 1934 43 30 13 1935 49 65 - 16 1936 57 66 -9 1937 94 139 45 1938 87 41 + 46 1st quarter 1938 24 12 + 12 1st quarter 1939 12 18 -6 + 3 TREASURY DEPARTMENT 247 INTER OFFICE COMMUNICATION DATE May 12, 1939 TO FROM Secretary Morgenthau Mr. White Subject: Argentina 1. Is Argentina a good business risk for loans from the United States? Yes, Argentina is an excellent credit risk and by far the best in South America. (a) Argentina has an excellent record in meeting obligations. She has been servicing her foreign debt in full and uninterruptedly (except for certain provincial governments and municipalities) since 1900. This record has been maintained in spite of the fact that Argentina borrowed large sums during the 1920's, and only 40 percent of these borrowings were used productively. In the past three years skillful conversions and amortization of her foreign debt has reduced the burden of external debt service. In December 1936, her external debt was $370 millions. In 1937 the external debt was reduced by $90 millions. In 1938 two new foreign issues were handled by private bankers, one in Switzerland, for $12 millions, and one in the United States, for $25 million, bringing the total external debt, at the present time, up to $300 - $325 millions. (b) Argentina normally needs an export excess of $140 million to meet an unfavorable balance of payments on capital and service account. In 1937 she had an export excess of $240 million and accordingly was able to repatriate much of her external debt. In 1938, however, exports fell 40 percent while of trade was unfavorable by $15 million, and her balance of payments was heavily unfavorable. Argentina lost $40 millions of her visible gold stocks, and probably as much as $100 millions of her secret holdings of gold imports were reduced less than 6 percent and her balance and foreign exchange. Prepared chiefly by Mr. Hanson Secretary Morgenthau - 2 248 This situation was remedied in January 1939, however, by imposition of strict control over ALL imports (whether handled through official exchange or free exchange market) Imports have been sharply ourtailed during the first few months of 1939, and the balance of trade was favorable by $20 million in the first quarter. (c) Argentina has large reserves of foreign exchange resources. The visible stock of gold is $400 millions and the secret holdings are at least $50 millions, perhaps more, even after the heavy losses in the bad year of 1938. In recent years Argentina has sought a stable ex- change rate for the peso. When sterling left gold in 1931, the peso was pegged to the dollar; when the dollar left gold in 1933, the peso was pegged to the franc. In 1934, when the exchange situation became acute, Argentina again pegged the peso to the pound, where it has remained to the present. 2. Argentina's economy is well organized for future development and her long-run exchange prospects are good. (a) The excellent competitive position of Argentina in the world markets is fundamentally the best guarantee of the soundness of the foreign exchange position of Argentina. Exports in 1936 were $550 millions, in 1937, $750 millions and in 1938, $420 millions. Argentina produces the largest exportable surplus of beef in quality and at prices with which none can compete on equal terms; she leads the world in the production of exportable surpluses of corn and linseed; she produces wheat as cheaply as any country and prob- ably cheaper; she is the third largest exporter of wool and the second largest exporter of mutton. Diversification of industry is making her less de- pendent upon imports for manufactured goods. For her needs of hosiery, knit goods, rayon goods, woolens, she has recently become almost self-sufficient, and 40 percent of cotton goods requirements are now locally produced. The export trade is becoming more diversified and less dependent upon single crops and single markets. Cotton and fruits are among the growing agricultural industries. (b) The future prospects of the foreign exchange position are more optimistic because of the policy of the government with regard to foreign ownership of public utilities in Argentina. 249 Secretary Morgenthau - 3 The government's objective is government owner- ship of all railroads and public utilities but there is no indication that Argentina will acquire these properties by unilateral action. Argentina has re- cently purchased from the British owners an important railroad line, and now own s and operates 25 percent of the railroads. The government has predominate control and ownership of the oil industry. However, the government is careful not to discourage deliberately private foreign investment in other industries. There is between $2,000 - $2,500 millions of private foreign investments in Argentina, of which 65 percent is British, 15-20 percent is American and 15-20 percent, other nationalities. It has been estimated that about 45 percent of domestic industry -- excluding railroads -- 18 foreign owned. However, these foreign investments are principally in public utilities, meats, automobiles and construction firms. The new and rapidly developing consumption goods industries, such as textiles, foodstuffs and leather, are almost entirely domestically controlled. The government is actively and successfully developing diversification of industry. The exchange control profits are used to finance this program. (c) There has been an inflow of capital into Argentina in recent years, but no information is available as to the dimensions of the movement. Some Argentine capital has been repatriated. Current savings of the large landowners, which formerly were invested abroad, are now being devoted in greater measure, to domestic invest- ments. In 1936 and 1937 there was an influx of "hot money" from Europe, although the movement was reversed in 1938. 3. The government's domestic budget is administered conservatively even though the domestic debt has been increasing steadily. (a) Although the National Government has been incurring budgetary deficits, these deficits have arisen from productive investments in part, and the volume of unproductive deficits has been relatively small. The internal debt of the National Government rose continuously from 1929 to 1938, from the equivalent of $650 millions to the equivalent of $1,000 millions. The deficits during these years represented an absorption of provincial debts of $65 million, public works of about $160 millions, and deficit financing of about $125 millions. 250 Secretary Morgenthau - 4 The public works expenditures, which are now about $40 million per year, include armament expenditures of about $15 millions and productive investments for the balance. The public works are not unemployment relief (Argentina has no unemployment problem) but genuinely productive investments, such as sanitation, railroads and highways. (b) The tax base has been broadened by greater use of the income tax and with less emphasis on customs revenue. All internal taxes of national and local governments are consolidated, and the issuance of securities by local governments are under the control of the National Government. The National Government's debt service takes 20 percent of budgeted expenditures, and national defense 15 percent to 20 percent. 4. The present is an excellent opportunity for the United States to take a decisive step in the Latin American program by granting substantial credits to Argentina. (a) Argentina's dependence on Great Britain is slowly diminishing. The British are not increasing their investments in Argentina but rather have been repatriating investments during recent years. The British Dominions are putting pressure on England to increase imports from the Dominion of beef, mutton, wool, grains, and conse- quently to reduce Argentina's share of the British market. An intangible but not unimportant factor in the lessened importance of England in Argentina has been the waning prestige of England in international politics. (b) Although the percentage of Argentina's exports which go to the United Kingdom has not declined in recent years, the Argentine Government has no hope of increasing the volume of exports and can only look forward to a diminishing share of that market. On the other hand, Argentina hopes, by diversification of her export industries, to increase the volume of her exports to the United States and to Latin America. Furthermore, by development of domestic manufacturing industry, Argentina hopes to d1minish the volume of her imports of consumption goods which would consequently result in an increased volume of machine imports of which the United States is a favorite supplier. (c) Since January 1939, the import control has resulted in a severe curtailment of imports from the United States. The discrimination against the United States will probably be ameliorated if not entirely removed by substantial financial assistance. Secretary Morgenthau - 5 251 5. Argentina is not suffering any stringency requiring immediate financial aid. The Brazilian-American arrangement of this year stimu- lated interest in the possibility of a similar arrangement for Argentina. Governmental circles and the press showed particular interest. 6. For what purposes would the Agentine Government borrow from the United States at this time? (a) Argentina needs to borrow about $50 million a year for its public works program, the bulk of which is expended for productive investments. Argentina would prefer to borrow these funds in foreign markets although she is able to borrow the funds domestically, because she is anxious to preserve the domestic sources of capital for the use of provincial governments and for the newly emerging domestic industries. It has been estimated that domestic savings available for the purchase of securities amounts to the equivalent of $65-$75 millions. Borrowing abroad would improve the immediate foreign exchange position and permit Argentina to relax to some extent the present restrictions on imports. Foreign borrowing would permit Argentina to indulge in a less favorable balance of trade during the present period of low agricultural prices. (b) The Argentine Government would probably be interested in raising a foreign loan at a low rate of interest for the purpose of buying out additional foreign owned railroads and other public utilities. The Argentine Government is anxious to proceed with its long-run objective of government ownership of public utilities and would undoubtedly welcome the cooperation and assistance of the United States in furthering this program. 7. What other financial assistance would especially interest American exporters? Argentina would welcome foreign long-term financing of her imports of products such as automobiles, industrial equipment and machinery and agricultural machinery. While the bulk of Argentine importers are in sound financial condition, the country generally would be helped in the expansion of domestic industries if the equipment could be purchased on long-term credits. Furthermore long-term credits of foreign goods would help the Argentine Government in overcoming the present period of foreign exchange stringency. 252 Secretary Morgenthau - 6 Private negotiations are now under way in which American automobile exporters are being asked to extend credits in exchange for an increased quota of imports. 8. The present economic and trade relations between the United States and Argentina are not good. (a) The United States had 25 percent of the Argentine market during the decade 1920-1929. During the depression years, our share of the market fell to a low of 13 percent in 1933 and although this percentage has been increasing since 1933, it was only 17.5 percent in 1938. The shares of the Argentine market going to the United Kingdom and Germany have also been declining over the past twenty years, but they have lost less than the United States. Britain's share of the Argentine market is now slightly higher than ours -- about 18 percent -- and Germany, 10 percent. Japan entered the Argentine market for the first time during the 1920's and now has about 4 percent of the trade. Other Latin American countries have gained. (b) Since 1934 Argentina has discriminated against United States exports through its method of foreign exchange control. The Argentine Government has been granting official exchange on a bilateral balancing basis and transfers of foreign exchange outside of the official control pay a 20 percent differential. More than 50 percent of United States exports to Argentina in previous years were forced to pay the additional 20 percent while the exporters of our principal competitors were able to obtain the bulk, if not all, of their exchange through the official market. (c) The Argentine Government makes large purchases abroad for its government enterprises and in granting contracts for large orders has been partial to firms of other nationalities according to consular reports. 9. We are in urgent need of improved trade relations with Argentina. (a) Argentina is attempting to follow a policy of bilateral balancing of trade which can be carried out against the United States only by forcibly cutting down imports from the United States. United States exports to Argentina would normally, in the absence of discrimination against the United States, be greatly in excess of our imports from Argentina. 253 Secretary Morgenthau - 7 The establishment of control over imports in January 1939 was aimed at reducing the total volume of imports into Argentina but the reduction was principally at the expense of the United States. It is reported that Argentina has been granting import permits for automobiles from the United States only to the extent of 10 percent of the amounts imported last year. Other manufactured items have been discriminated against in the same fashion. In the first quarter of 1939, our exports were down 37 percent. According to Argentine trade statistics, which are subject to administrative valuation and therefore unreliable, our exports just about balanced our imports in this first quarter. Our trade figures for this quarter, however, indicate an unfavorable balance for the United States of $6 millions, with total exports of $12 millions and imports of $18 millions. (b) A trade agreement between the United States and Argentins has been discussed for almost three years. The barriers to the consummation of this agreement are the un- willingness of Argentina to discard its practices which discriminate against United States trade and the inability of the United States to open its market to agricultural imports from Argentina. (c) Argentina has a deep grievance against the United States because the United States embargoes beef imports from Argentina under the terms of the sanitary clause in which the Department of Agriculture proclaims that Argentine beef is subject to the hoof and mouth disease (which it is not). Until this embargo is lifted and Argentine beef can find a market in the United States, this will be an important barrier to the improvement of United States-Argentine relations. 10. Argentina is ambitious to become the economic and industrial leader in South America, and her only rival for this position is Brazil. There is consequently continuous rivalry and competition between these two countries. Politically, this is reflected in any American act to aid Brazil which is not also extended to Argentina. Argentina is, of course, generally suspicious of United States activity in Latin America, and in the past has tended to oppose action which is favored by the United States. 11. Our bargaining position in Argentina has usually been weak, compared with the bargaining position of Britain, Germany or Italy. Britain's investment in Argentina is three times ours 254 Secretary Morgenthau - on and her share of Argentine exports is three times ours. At least 1/6 of the Argentine population is of Italian descent and many Italians are influential. Germany cultivates Argentina systematically and solicits the support of the influential meat- growers by importing Argentine frozen meat. with the Argentine people, however, the United States has a more favorable position, and we have become even more popular in the last few years. 255 GROUP MEETING Present: Mr. Hanes May 12, 1939. 10:00 A. M. Mrs. Klotz Mr. MoReynolds Mr. Bell Mr. Gibbons Mr. Graves Mr. Lochhead Mr. White Mr. Gaston Mr. Foley Mr. Duffield H.M.Jr: Herbert, you were going to give me on one page what you'd do on taxes? Gaston: Yes, I'll give you that. H.M.Jr: Please, will you? Gaston: I'll do that, yes. Hanes: Good morning. H.M.Jr: Hello, Johnny. Hanes: How are you? H.M.Jr: Fine. Got anything? Hanes: Not a thing, no. H.M.Jr: Herbert? Gaston: No, I haven't anything. Duffield: (Node nothing). Foley: About half past nine Mr. Kieley sent a messenger from Kirkland, Green, Fleming and Martin with a letter from Annenberg to you. H.M.Jr: (Pointing to cigarette burns on letter) It's that way - it's so hot it sizzles. McR: Ed has already prepared your reply. 256 -2H.M.Jr: I'd better read it out loud. "M. L. Annenberg. "My dear Mr. Secretary: "In connection with the pending investigation of I want you to know, as I have heretofore informed the representatives of your Department and the Department of Justice, that it is my intention and desire that the Treasury Department shall receive payment for all income or other taxes due from me, any of the members of my family, or any of the my income taxes covering the years 1933 to 1936 corporations with which I am in any manner associated. "I have always had this intention and I certainly thing improper in connection with the tax returns had never authorized or had any knowledge of any- of myself, the members of my family, or my companies. "Our tax returns for prior years were examined regularly by the Treasury Department and, 80 far as I am informed, the only return as to which there was any controversy was that for the year 1932. With reference to the 1932 return, which involved, as I understood it, a debatable question with respect to the accumulation of surplus, just as soon as the amount of additional taxes was determined it was promptly paid. From this I had con- cluded that our income had been properly reported and our taxes paid. "It is my earnest desire to pay immediately any taxes which may be due but it is impossible for me at this time to determine the amount due. Upon seeking this information from the Treasury Department my attorneys have been advised that the Department is unable to indicate the amount until its investigation has been concluded. I have sought myself to determine the amount but find in order to do this an audit will be required which will take some time. I am told that even then there are likely to be some controversial questions. 257 3- "Under the circumstances it seems impracticable if not futile for me to attempt to make any offer to the Government at this time. As soon as the amount properly due to the Government is determined upon I stand ready to make payment thereof. "I am sending a copy of this letter to the Attorney General." "My dear Mr. Annenberg: "I have your letter of May 11 in connection with the pending investigation of your income taxes covering the years 1933 to 1936." Foley: H.M.Jr: But it only came in this morning, didn't it? Yes. It was delivered this morning at half past nine. "I have your letter dated May 11, which was received - I mean. Foley: (Node approval). H.M.Jr: Is that necessary? Foley: I don't think it's necessary. H.M.Jr: "As you know, this matter has been turned over to the Department of Justice for such action as it deems advisable. Since the case is no longer in our hands, all correspondence and discussion in connection with it should be had with the Attorney General. This is the uniform practice followed by this Department in all such cases. "I note that you have sent a copy of your letter to the Attorney General. Accordingly, I am transmitting to him a copy of my letter." O. K.t What? Hanes: All you can do. 258 -4H.M.Jr: What? Hanes: All we can do. It's out of our hands. It's out of our hands. H.M.Jr: (H.M.Jr. signs letter to Annenberg) (Oh phone) Hello. - When do you (probably Professor Viner) think you can come down and see me next week for a day or two? - No, that's too far off. - You going to be in New York next week? - If you were here just for a day - That would be perfect. - It would be perfect. - Thank you. - Thank you. - Family all right? - That's good. I'll look forward to seeing you. - Goodbye. Foley: It Game to Kieley and Kieley wouldn't open it. He didn't want to take it. He sent the messenger down to me. The outside envelope was addressed to Kirkland, Green, Fleming and Martin and had been sent by a messenger from Philadelphia this morning, and the office sent it over here without opening it and Kieley didn't want to open it because it wasn't addressed to the Secretary. And I took the liberty of opening it and preparing that reply. You might be interested to know that Chaffetz, who used to be with the Department of Justice and who is now of Counsel in this case for Annenberg, told a friend of mine - and it was reported to me - that Moe Annenberg said to Chaffetz, "When I'm indicted, how long can you keep me out of jail?" Chaffetz said, "Oh, about three years." He said, "That's all right. I'll be dead then." H.M.Jr: Well, I have no comment. Foley: Apparently he's a sick man. H.M.Jr: Well, I'm sorry. Anything else? Harry? White: I have a ohart here that I think is rather interesting. It shows the relationship of new security 259 -5issues in those five foreign countries to business activity. H.M.Jr: Would you give a copy of that to Mr. Hanes? What White: In the case of England that hump in '35 and '36 has a special explanation. It merely indicates that the pattern in these countries is very much the same, 80 that it's a little dubious to allocate the low new security issues to any special circumstances prevailing in the United States. H.M.Jr: Anything else? White: I'd like to see you just for a minute afterwards. H.M.Jr: All right. Lochhead: England gained five million dollars yesterday. That's the first time they've gained net on balance else? for over a month. Lochhead: I'd like to tell that to Cabinet. Give me - give it to Mrs. Klotz. That's all. Graves: (Node nothing). Gibbons: (Node nothing). H.M.Jr: Dan? Bell: The RFC is selling one million dollars worth of railroad securities Monday. H.M.Jr: O. K. Bell: The State Department called yesterday about H.M.Jr: Exouse me. H.M.Jr: (On phone) Hello. (Holds conversation with Attorney General Murphy). 260 6- The Attorney General is leaving on the night of the 19th for Los Angeles; he's to be there on the 23rd. And he wants something - said if it's only on the labor union angle, he'd like someitthing is. - the labor bribe. You (Hanes) know what So I said at least we'd give him a memorandum letting him know where we stand. But if it isn't ready, it isn't ready. But at least he's entitled to arest? memorandum. Is the bribe part separate from the Graves: Yes, it is, but I think it would be covered in our report to from the Attorney General. But it's entirely separate it. H.M.Jr: Well, he's leaving here on the 19th to be in Los Angeles on the 23rd. You can talk to Mr. Hanes and me about it again next week. Graves: H.M.Jr: Yes. You want something in any case. Well, he's entitled to a memorandum as between departments, letting him know where we stand, so when he goes out there and the people say, "What 18 the Administration doing?" at least he ought action, at least he's entitled to know where the thing stands, see? And he leaves here on the night of the 19th. to know; even though we are not ready to take any Dan? Bell: Last week we sent to the State Department the usual notices of the amounts due from foreign governments on June 15. Yesterday they called up and wanted to know what they should do with Czechoslovakia - the notice. I said I thought that was a decision for the Secretary of State to make, and finally they agreed. Then they said, "What are we going to do about publicity?" I said, well, I thought the Secretary of State would probably be asked just what was done with the notice for Czechoslovakia, and that in making the reply to the Treasury they really ought to couch it in such terms that it could be given out. And they said they would consider 261 -7- that. I suppose that's all right, isn't it the reply? H.M.Jr: Sure. Bell: The other thing is the Rumanian debt proposal which has been over here. They wanted a reply to that - first they wanted to give it out. That was cleared with Mr. Gaston several days ago, has been made public. I suppose several people here are interested in the reply - draft of the reply. May I read it? H.M.Jr: Please. Bell: This goes to the Secretary of State. "I have your letter of May 3 enclosing a copy of the note from the Rumanian Minister to the United States advising that he has been designated by his government to commence immediate negotiations with the United States Government for the purpose of reaching a new agreement with respect to the debt owed by the Rumanian Government to the United States. In this connection he requests the State him to appear before the appropriate authority qualified either to accept or reject the proposals which he will submit or to formulate counter proposals. Department to make the necessary arrangements for "This is your reply: "While the Secretary of the Treasury does not have the authority without the approval of the Congress to conclude an agreement with any foreign government regarding its indebtedness to the United States, I shall be glad to discuss the matter with the Rumanian Minister to ascertain what he has in mind and try to determine whether the President should at this time submit to the Congress any debt proposal the Rumanian Government might wish to submit." H.M.Jr: That's all right. 262 -8Bell: O. K. (H. M. Jr. signs letter) I don't know what else you can say. That's all I have. McR: I know what this is. Taber wants - he's asked Eddie Bartelt to give him copies of WPA payrolls. I told Eddie to tell him we couldn't do that. If the Chairman of the Committee wanted to make formal request that would be something different. And of course, WPA has got the payrolls the same as we have. He ought to get them from them, unless he makes a formal request. H.M.Jr: Yes. Now, Mac, what about Berney, that matter that I brought up the other day? McR: Well, I haven't got the report. Harold's getting a report. Graves: I have that report all ready for Mr. Mac. H.M.Jr: Well, give me verbally what happened. Graves: Well, I have examined all of Mr. Berney's files because you wanted to know what other telegrams might have been sent, and I found only one other telegram which I thought might be criticized as being unduly long. Now, as to the justification for telegrame at all, I think it ought to be understood that Mr. Berney was in the field setting up these offices that I spoke to you about the other day for the technical staff. He had to have the offices open and ready for business on given dates, and that meant not only that the lease had to be prepared and space ready but he had to have the furniture in. The furniture, of course, was gotten through Procurement. 263 -9Now, since we had announced publicly that these offices would be open on the given dates, he had to be ready to go out and rent furniture in the event Procurement was late in getting delivery of the furniture which they were buying. That meant he had to have last minute information as to the status of these furniture deliveries. And that, I think, accounts for and explains these telegrams. Now, I don't see anything to criticize in the whole transaction except possibly that this secretary of his used more words than more experienced people might have used. Berney was on the firing line in the field. He had a definite job to do which was a hard job, and he did it in very fine shape. And I don't think H.M.Jr: there 18 any warrant for any criticism of him. But there was this one extravagant thing. Graves: Yes, involving maybe a couple dollars. Now, I'd like to say this further: that this particular transaction was reported to me at the time. The people in the Bureau of Internal Revenue noticed that long telegram and they called me about it. My secretary called Mrs. Lucas and asked her to guard against any undue prolixity in telegrams. The matter was all disposed of. I know of no reason why that should have been brought up again. H.M.Jr: Hanes: H.M.Jr: Hanes: I don't know who brought it to Mr. Hanes. I don't know who brought it. What's that? This is the same telegram - this 18 Mrs. Lucas the long telegram. Oh, it came from the Department of Internal Revenue, because Guy is upset because this thing is charged to his budget. That's the reason he's upset about it. 264 - 10 H.M.Jr: Graves: McR: Well, of course - I mean the story as I get it somebody is - I don't know, isn't it the same thing, that somebody is trying to make trouble for Berney? Is it? That's right. No question about that. Quite evident that that office down there has been jealous of what Berney has been doing. H.M.Jr: McR: It's a job that they couldn't themselves do, fell down on, and Harold had to pick Berney up and send him out to set those offices up, to get them going. They didn't like it very much and they're just sniping at him. He did a good job. The offices were opened - never late, not a single one - and all equipped. It was quite a job. Well, just tell them what you told me, that when these offices expire - what are they going to do? One incident that I told the boss as an explanation yesterday was that these leases that had to be gotten on some thirty-seven field offices were gotten with authority to extend for an additional year. The boys down in Evans's office picked up a Comptroller's ruling with respect to extension which they entirely misinterpreted, and sent out a mimeograph in which they used the Commissioner's name, I think without his knowledge, notifying the field offices that they couldn't take advantage of these extension authorities, that they'd have to readvertise and recanvass the whole thing when the leases expired on the 30th of June. And that was out before Graves knew anything about it and he called the men and they admitted their error and they cancelled that mimeograph, 80 that the thing went smoothly. Graves: I think that this should be said in that connection. That was found out by Mr. Berney, and had it not been for his bringing the matter to my attention, the Bureau would have had to do all over again the job that we had just completed of making leases for the thirty-eight offices. And you talk about Mr. Helvering being concerned about this dollar or two that was charged to his appropriation; that particular activity would have cost us thousands and thousands of dollars if it had not been solved. 265 - 11 H.M.Jr: Well, it's pretty small stuff. Hanes: I don't think it was the dollar or two he was complaining about. It was the fact that he had no control over the expenditures from this office, which I think he's justified in if these expenses are being charged to him. I suggested to Guy that he have those kinds of things routed through his office. He ought to have some control of the people that are working for him. McR: Well, these people are working directly for Graves on this particular thing. He understands that. Hanes: I think there's a little feeling on Guy's part that he hasn't got these things - they are charged to him and he has no control over them. I think he has a little feeling on his part which could be McR: rectified quickly. I've talked to him a time or two; be glad to talk to him again. But the feeling has started down there in Evans's office. H.M.Jr: We crossed that with Guy Helvering when we waited for weeks for him to O. K. this plan. And now he's very proud of it. Hanes: And I think he's done everything he can to make it work; apparently very sympathetic with it. But he said that his expenses outside - he has no control in his budget over about $300,000. Now, where that comes from I don't know, but I know he's telling me - he had a figure of about $300,000 in his budget that he said he had no control over, and that's what he was complaining about. This was just an example. I told him to get you up a report, Mac, and make a complete report of all his complaints 80 that we would have some record of it, and that, I presume, is coming along to you. McR: Well, of course, I know what's in it. Roy Blough and Tommy 266 - 12 Hanes: McR: Tarleau? Both of those offices are paid for from Guy's appropriation. Those fellows are working under your jurisdiction over here. They are just as much Revenue expenditures - just as properly a Revenue expenditure as though they were down there, but he hasn't direct control over them. There's no allotment set up for them and there ought to be an allotment. He can't have control over them as long as there is an Undersecretary for which these people are working. And it is merely the question of whether that is part of the Revenue appropriation or separate, whether it belongs as part of the Revenue appropriation and shouldn't be any place else. And Guy willbe entirely satisfied when we talk about it. I'm not worried about his personal attitude. Once in a while we have to sit down and talk. Hanes: That's what he needs to do now. H.M.Jr: It isn't fair to take it out on Berney. He's done a good job. Graves: Berney has done a very fine job of work. Gibbons: I've had the same complaint from the Commissioner of Customs - simply these picayune things. H.M.Jr: What I'd like to do - I'd like to talk to Mr. Hanes a minute. And if Mr. Foley and White and Gibbons would wait outside, I'd like to see each one of them also. 267 FEDERAL RESERVE BANK OF NEW YORK May 12, 1939. Dear Mr. Secretary: Private placements with insurance companies returned to the fore this week. Announcement was made of arrangements to place $114,500,000 of Common- wealth Edison Company bonds privately with fifteen insurance companies. It is reported to be the largest private sale on record. To refund into a lower interest rate two issues, sold in 1931 and 1935, these bonds bring total financing by this company in the last twelve months to $424,000,000, much the greater part of which was for refunding. Sold as first mortgage 3 1/4s of 1979 at 102, to yield about 3.16 per cent, the latest issue has rekindled the debate on the advantages of private sales versus public offerings registered with the Securities and Exchange Commission. It has also been reported that the United States Rubber Company has obtained a reduction of interest from 4 1/4 to 5/8 per cent on $45,000,000 of bonds placed privately last March. This transaction is not included in our financing totals, as it involves only a change of rate on obligations the ownership of which remains undisturbed. It does, however, raise another question about the advantages and disadvantages of private sales. The Pacific Lighting Corporation is also refunding an issue, a $5 dividend preferred stock, plus $3 a share, being offered in exchange for a $6 dividend preferred stock. Although mention is made of one or two pending private placements, there are no additions to be made to the list of issues in registration. Two fair-sized issues totaling $19,000,000 remain in registration, and filing of the $135,000,000 Pennsylvania Power & Light Companyissue, so frequently promised, has now been postponed to next week. Municipal bond offerings have been somewhat more active than usual, if one excepts the weeks when single large issues appear. Some $16,000,000 was awarded this week. A number of borrowers have obtained the lowest interest rates they have ever received for issues of similar maturity. Yours faithfully, Man Sproul, First Vice President. Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. 268 May 15, 1939. Dear Mr. Sprouls On behalf of the Secretary I - seknowledging your letter of May 13th, commenting on the various bond offerings of the past week. Mr. Morgenthen is always most interested in your reports. Sincerely yours, H. S. Niets, Private Secretary. Mr. Allan Spreal, First Vice President, Federal Reserve Bank of New York, New York, New York. Return to Room 286 GEF/dbs ec tobs 269 May 12, 1939 General Watson phoned the Secretary today at about 12:10, and the following is HM,Jr's part of their conversation: "Hello, old dollar Watson. What about General McCoy? When I ask the President's secretary to do some- thing for me tion? Wasn't General McCoy head of the A.E.F. transporta- Well, maybe we will have to take an active officer and order him. Would you take that up with the President? Why, sure we can. Aren't we sending General Marshall down to You ask the President. They tell me they have just sent as Military Attache, the Chief of Staff told me, a fellow to Roumania, one of the best transportation men in the Army. It just gets down to how much is the President interested. I know that Craig thinks it's a mistake because he told me 80. You and I are both working for one Roosevelt and will you ask him if we can't get somebody;detail him on leave of absence? I don't know now they do in the Army. A real good motor truck transportation fellow, if we only let him go for three months. Well, they are not at war. Say if you knew what the President told me the messages he had given me to give the Chinese -- he' the fellow who has laid down his own campaign. Do you know that he has told them how to do their warfare and how to do the stuff and everything else? You ask, Pa. You ask the Boss whether he is enough interested to detail an active officer for three months to do this job and we will let him decide it. Fair enough? 000-000 270 May 12, 1939 10:09 a.m. Frank Murphy: Hello. HMJr: Frank? M: Yes. HMJr: M: You must be a mind-reader. How's that? HMJr: I was thinking about you. M: Were you really? HMJr: Yeah. M: Say, Henry..... HMJr: Yeah. M: Both our Skidmore case and Annenberg case are in Chicago. HMJr: Good 1 M: It's been built up in fine shape in this office HMJr: Good ! M: highly organized, instructions of the most careful kind have been given to the local District Attorney and they are both in excellent shape. HMJr: Yes. M: As a consequence it's felt in all directions. Now, I am going to go to California a week from Tuesday. HMJr: Lucky man ! M: Yeah. I've got to be out there, and I'm going to be there three or four days. That'11 be around the 21st and 22nd. HMJr: Yeah. -2- 271 If, between now and then, anything develops that's sufficient for us to take any action on in the matter that you phoned me about recently, I'd like to have it M: ready; if it's possible to have it ready by that date. HMJr: You'll have to be more explicit. M: You know that matter of the money that was paid to the labor unions. HMJr: Oh, yeah -- oh, yeah. M: I just thought that you ought to have the information. I'm going to be there a week from Tuesday or Wednesday. HMJr: I get you. M: And be thinking about it in the meantime, and if it is practicable HMJr: I get you. if it isn't, we don't need to, you see? M: HMJr: M: HMJr: Well...... If it 18, it might be helpful. Well, they -- the boys told me the earliest that they could let me have something was the 22nd. M: HMJr: M: HMJr: Yeah. And -- now, when are you going to be there? -- Hello? I'll be there a week from Tuesday. Now that's what -- the 23rd? Yes. HMJr: What? M: That's the twenty -- twenty-second I think. HMJr: M: Well... Twenty-third -- no, the twenty-third. 272 -3- M: Well, -- and you'll be in San Francisco. Later on I'm going to San Francisco. HMJr: Where do you go first? M: I'll go to Los Angeles first. HMJr: HMJr: Well, I'll -- if it's physically possible, I'll -- I'll get it to you in your hands so that you' 11 have it when you' re there. M: HMJr: All right. I'll make every effort to have -- in any event, I'll have a review bringing you up-to-date how far we are. M: Yeah. HMJr: Now when do you leave here? M: I leave here a week from Monday night. I -- I'm going HMJr: M: HMJr: M: HMJr: to New Mexico first. What date is that that you're leaving? That's the nineteenth. And you're flying? -- Hello? -- Hello? Yes, I'm flying. Well, I'll do everything possible to -- I'11 certainly give you a memorandum bringing you up-to-date. M: All right. Thank you, Henry. HMJr: Now, just a minute. M: Yeah. HMJr: I've just gotten a letter delivered to me this morning by Moe Annenberg M: HMJr: Yeah. at nine thirty asking -- saying he wants to settle and that he sent you a copy of this letter. -4- M: HMJr: M: HMJr: M: HMJr: M: Yeah. Now this is what I've just written and signed to him, see? Yeah. "I have your letter of May 11th et cetra ----, As you know, this matter has been turned over to the Department of Justice for such action as it deems advisable. Since the case is no longer in our hands all correspondence and discussion in connection with it should be had with the Attorney General." Um-hm. "This is a uniform practice followed by this department in all such cases. I note that you have sent a copy of your letter to the Attorney General. Accordingly, I am transmitting to him a copy of my letter." That's exactly correct. HMJr: See? O.K.? M: That's fine. HMJr: 273 And I'll do the -- I'll certainly give you a memorandum and -- and I'll see how far we can go for you so that you'll have something when you are in Los Angeles. M: All right. Thank you very much. HMJr: Good bye. M: Good bye. 274 May 12, 1939 12:02 p.m. HMJr: Sumner Hello, Sumner. How are you? Welles: Fine, Thanks. HMJr: Sumner W: HMJr: W: HMJr: W: HMJr: W: HMJr: I hope my letter wasn't too long delayed. No. I sent it over to the President. I don't know what he's going to do with it. I see. A Harry Durning came down -- a Collector of Custome of New York. What's his name? Durning -- D -- well, it's just -- just -- let's say the Collector of Customs for New York. I see. The point is that he understood that the State Department was considering appointing Ira Nelson Morris to some position -- I'm just quoting him. And he said if the State Department had any position in mind for Ira Nelson Morris, why he thought the State Department ought to know verbally that he has just paid up a hundred and thirty thousand dollars for the last five or six years' smuggling of jewelry. W: Good God ! HMJr: But that he did this voluntarily. They say he did it voluntarily. Well, I appreciate very much your telling me, Henry, and I may tell you perfectly frankly that the State Department has never had any such idea. When poor old Jim 'Ham' Lewis was moving heaven and earth and bombarding us all with telegrams every day on the subject of an appointment for him, the State Department anonymously told the President that they hoped very emphatically that he would not be offered any appointment and the President never has offered him any appointment and has no intention of offering him an appointment. 275 -2HMJr: Well then, forget it. Well, I'm very glad you told me. HMJr: Well I mean, the man voluntarily -- evidently this Mrs. Lauer's case, you see, scared him. W: HMJr: W: I see. I understand this is an accumulation of, I don't know, five or six years. Golly ! HMJr: And so he comes in and with the fine. It comes to a hundred and thirty thousand dollars. W: Well, I'm glad the Government is getting it anyhow. HMJr: So am I ! W: HMJr: Well, I'm very grateful to you for telling me, but there's absolutely nothing in the report. All right. Thank you. W: Many thanks to you, Henry. HMJr: Good bye. W: Good bye. 276 MAY 1 2 1939 My dear Mr. Attorney General: I am enclosing a copy of a letter which was delivered to my office this morning by Mr. N.L. Annenberg, together with a copy of my reply. This is the matter I spoke to you about over the telephone this morning. Very truly yours, Secretary The Honorable, The Attorney General. Enclosures MF/aka 5-12-39 277 MAY 12 1939 My dear Mr. Annenberg: I have your letter of May 11th in connection with the pending investigation of your income taxes covering the years 1933 to 1936. As you know, this satter has been turned over to the Department of Justice for such action as it doess advisable. Since the case is no longer in our bands, all correspondence and discussion in connection with it should be had with the Attorney General. This is the uniform practice followed by this Department in all such cases. I note that you have sent a copy of your letter to the Attorney General. Accordingly, I am transmitting to him a copy of my letter. Very truly yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Hr. M. L. Annenberg, The Philadelphia Inquirer, 400 North Broad Street, Philadelphia, Penna. (Initialed) E. a. 2.2 are ESF/alm 5-12-39 278 M.L. ANNENBERG May 11, 1939 Hon. Henry Morgenthau Secretary of the Treasury Treasury Building Washington, D. C. My dear Mr. Secretary: In connection with the pending investigation of my income taxes covering the years 1933 to 1936 I want you to know, as I have heretofore informed the representatives of your Department and the Department of Justice, that it is my intention and desire that the Treasury Department shall receive payment for all income or other taxes due from me, any of the members of my family, or any of the corporations with which I an in any manner associated. I have always had this intention and I certainly have never authorized or had any knowledge of, anything improper in connection with the tax returns of myself, the members of my family, or my companies. Our tax returns for prior years were examined regularly by the Treasury Department and, so far as I am informed, the only return as to which there was any controversy was that for the year 1932. With reference to the 1932 return, which involved, as I understood it, a debatable question with respect to the accumulation of surplus, just as soon as the amount of additional taxes was determined it was promptly paid. From this I had concluded that our income had been properly reported and our taxes paid. It is my earnest desire to pay immediately any taxes which may be due but it is impossible for me at this time to determine the amount due. Upon seeking this information from the Treasury Department my attorneys have been advised that the Department is unable to indicate the amount until its investigation has been concluded. I have sought myself to determine the amount but find that in order to do this an audit will be required which will take some time. I am told that even then there are likely to be some controversial questions. ANNENBERG -2Under the circumstances it seems impracticable if not futile for me to attempt to make any offer to the Government at this time. As soon as the amount properly due to the Government is determined upon I stand ready to make payment thereof. the Attorney General. I am sending a copy of this letter to Respectfully yours, M. L. Annenberg The Philadelphia Inquirer 400 N. Broad Street Philadelphia, Penna. yeary 279 Hon. Henry Morgenthau Washington Treasury Building Secretary of the Treasury 280 MAY 12 1939 My dear Mr. Secretary: I have your letter of May 3. 1939, enclosing a copy of a note from the Rumanian Minister to the United States advising that he has been designated by his Government to commence immediate degotiations with the United States Government for the purpose of reaching a new agreement with respect to the debt owed w the Humanian Government to the Government of the United States. In this connection he requests the State Department to make the necessary arrangements for him to appear before the appropriate authority qualified either to accept or reject the proposals he will submit or to formulate counterproposals. While the Secretary of the Treasury does not have the authority, without the approval of the Congress. to conclude an agreewant with any foreign government regarding its indebtodness to the United States, I shall be glad to discuss the matter with the Humanian Minister to ascertain what he has in mind and by to determine whether the President should at this time submit to the Congress any debt proposal the Humanian Government might wish to submit. Sincerely yours, Secretary of the Treasury Honorable Oordell Hall, Secretary of State. State Department, Washington. D. c. 5/12/39 281 282 MAY 12 1939 My dear Mr. Secretary: I have your letter of May 3. 1939, enclosing a copy of a note from the Humanian Minister to the United States advising that he has been designated by his Government to commence immediate negotiations with the United States Government for the purpose of reaching a new agreement with respect to the debt owed by the Rumanian Government to the Government of the United States. In this connection he requests the State Department to make the necessary arrangements for him to appear before the appropriate authority qualified either to accept or reject the proposale he will submit or to formulate counterproposals. While the Secretary of the Treasury does not have the authority, without the approval of the Congress, to conclude an agreement with any foreign government regarding its indebtedness to the Uni ted States. I shall be glad to discuss the matter with the Humanian Minister to ascertain what he has in mind and try to determine whether the President should at this time submit to the Congress any debt proposal the Rumanian Government might wish to submit. Sincerely yours. Secretary of the Treasury Honorable Cordell Hull. Secretary of State. State Department. Washington. D. C. DEBINLE/gwa 8/12/39 283 MAY 12 1939 My dear Mr. Secretary: I have your letter of May 3. 1939. enclosing a copy of a note from the Humanian Minister to the United States advising that he has been designated by his Government to commence immediate negotiations with the United States Government for the purpose of reaching a new agreement with respect to the debt owed by the Rumanian Government to the Government of the United States. In this connection he requests the State Department to make the necessary arrangements for him to appear before the appropriate authority qualified either to accept or reject the proposals he will submit or to formulate counterproposals. While the Secretary of the Treasury does not have the authority, without the approval of the Congress, to conclude an agreement with any foreign government regarding its indebtedness to the United States, I shall be glad to discuss the matter with the Humanian Minister to ascertain what he has in mind and try to determine whether the President should at this time submit to the Congress any debt proposal the Rumanian Government might wish to submit. Sincerely yours, Secretary of the Treasury Honorable Cordell Hall. Secretary of State, State Department. Washington. D. C. DEB:NLE/gen 5/12/39 284 OFFICE OF TREASURY DEPARTMENT WASHINGTON ECRESIAN My dear Mr. Secretary: I have your letter of May 3, 1939, enclosing a copy of a note from the Rumanian Minister to the United States advising that he has been designated by his Government to commence immediate negotiations with the United States Government for the purpose of reaching a new agreement with respect to the debt owed by the Rumanian Government to the Government of the United States. In this connection he requests the State Department to make the necessary arrangements for him to appear before the appropriate authority qualified matter either to accept or reject the proposals he will submit or to formulate counter-proposals. neworganization other or happles not have Treasury is the authorityMinister to accept or reject proposals which authority without the as upon any counter formulated, I shall be glad to discuss with The affroval of executive While proposals might any noblier brench submit which the person of Secretary the the night pass Government struction be finally of the the Rumanian Minister to ascertain emarily what the Congress to he has in mind and try to determine 14 possible conclude an whether 14 would be feasible for the President agreement with ta ask Congress for authority to negotiate or debt agreement with Rumania Sincerely yours, any foreign gonsonment regarding its undebtidness to Secretary of the Treasury The Metrol Honorable Cordell Hull, Secretary of State, Status State Department, Washington, D. C. as the shawed whether submit at To Inve The and Nu White 285 (by homel advised, m. Dermott hief origination ,State Raw) at we had no objection publication of Rounanian fte. other write in the I energe require fitted rebly, The From: Mr. GASTON 286 OFFICIAL TIONS TO SECRETARY OF STATE WASHINGTON D.C. DEPARTMENT OF STATE WASHINGTON May 3, 1939. My dear Mr. Secretary: The Rumanian Minister called upon me this morning and presented a note from his Government containing an offer to initiate discussions looking towards a new debt settlement. I enclose a copy of the note. The Minister then asked what arrangements would be made for publication. I informed him that correspondence on the subject of the intergovernmental debt was ordinarily published and I was agreeable to giving out the text of this note, but that I should have to first consult with you and make sure that you agree. Would you kindly advise me, today if possible, whether this is agreeable to you? The Minister asked whether there was anything in the note which raised a question in my mind. Attention was called to the wording of paragraph one, which might give rise to a public belief that in connection with a debt settlement some form of trade agreement would be discussed. I pointed out to the Minister that under the The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. Department of State EA ENCLOSURE TO drafted ADDRESSED TO TREASURY 287 288 -2the terms of the Trade Agreements Act, the Department was prohibited from any such discussions. The Minister said he so understood it, and it was arranged that when and as the note was published and questions were asked of me in press conference, I should say that the Rumanian Minister of course understood that there is no possibility of undertaking trade discussions in connection with debt discussions. The Rumanian Minister also brought up the question of procedure in negotiations. He stated vigorously that his Government did not want to be put in the position of Hungary, of having made an offer which remained indef- initely suspended. This explains the wording of the final paragraph, in which he says his Government wishes to deal with some authority that could finally accept or reject their offer. What he has in mind is the possibility of the creation of a new debt commission. I explained to him that I could not indicate to him whether that might be possible or not, and that certainly it would require full prior consultation with you and the President, and action on the part of Congress. Sincerely yours, Enclosure: From the Rumanian Minister, May 3, 1939. 289 No. 1651/P-3-I-10 May 3, 1939 Sir: I have the honor to inform you that I have been instructed by my Government to transmit to you an English translation of a Note which the Romanian Ministry of Finance has communicated to the American Minister in Bucharest: "The Romanian Government, being desirous to regularise the situation of its external debt by mutual agreement with its creditors, taking at the same time into account the prospects of Remanian foreign trade and certain arrangements in sonnection therewith to be made with the United States Government, is disposed to formulate proposals with regard to the future mode of payment of its indebtedness to the United States. "with regard to the Romanian debt to the United States resulting from the World War, the Romanian Government has decided to propose a mode of payment giving due consideration to the general economic situation and the possibilities of payment and transfer which exist at present, or those to e -2 <90 be arranged between the United States and Romania. "Insofar as Romanian bonds held by American bondholders are concerned, it should be pointed out that at the time when the Romanian Government concluded agreements with various European bondholders' associations, there was no similar organisation authorised to represent the interests of American bond. holders. Since the Romanian Government understands that such an organization exists at present, it has decided to propose an arrangement establishing regu- lar permanent servicing of its bonds held by United States nationals, taking into account Romania's capacity of payment and transfer. "To this effect, the Romanian Government has instructed the Romanian Minister at Washington to acm- minicate with the United States Treasury and the Foreigh Bondholders Protective Council, Incorporated." I have, therefore, been designated by my Government to accemence immediate negotiationswith the United State Government for the purpose of reaching a new agreement in respect to the debt owed by the Romanian Government to the Government of the United States. This action on the part of my Government is prompt ed by its desire to fulfill its obligations and constitutes 291 s part of its financial rehabilitation plan in course of execution. For obvious reasons beyond my Government's con- trol, which I - prepared to submit in detail, my Government finds it impossible to carry out the terms of the debt settlement agreement reached in December 1925. As a consequence of this de facto situation, its debt toward the United States Government continues to increase from year to year. It is evidently imperative to eliminate the present existing situation and the paremount question in the view of my Government is the negotiation of a new debt settlement agreement, suitually agreed upon, to replace the agreement signed in December 1985. I have the honor, therefore, to ask you to be so good as to make the necessary arrangements for - to appear before the appropriate authority qualified to either accept or reject the proposals I shall submit, or formulate 292 counter proposals. Accept, Sir, the renoved assurances of my high- est consideration. Radu Irinosou, Minister of Romania. The Honorable Cordell Hull, Secretary of State, Washington, D. C. 293 lost SECRETARY OF STATE c. DEPARTMENT OF STATE WASHINGTON In reply refer to EA May 6, 1939 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and en- closes for his information a copy of a statement issued to the press on May 4 containing a note from the Minister of Rumania, dated May 3, 1939, regarding the indebtedness of the Government of Rumania to the Govern- ment of the United States. Enclosure: Press release No. 177, May 4, 1939. H.F. Department of State EA BUREAU DIVISION ENCLOSURE TO Letter drafted ADDRESSED TO TREASURY 193-A - 1-1083 DEPARTMENT OF STATE FOR THE PRESS MAY 4, 1939 No. 177 TEXT OF NOTE FROM THE MINISTER OF RUMANIA AT WASHINGTON TO THE SECRETARY OF STATE, MAY 3, 1939 "Royal Legation of Romania Washington, D.C. May 3, 1939. "The Honorable Cordell Hull, Secretary of State, Washington, D.C. "Sir: "I have the honor to inform you that I have been instructed by my Government to transmit to you an English translation of to the American Minister in Bucharest: a Note which the Romanian Ministry of Finance has communicated The Romanian Government, being desirous to regularize the situation of its external debt by mutual agreement with its creditors, taking at the same time into account the prospects of Romanian foreign trade and certain arrangements in connec- tion therewith to be made with the United States Government, is disposed to formulate proposals with regard to the future mode of payment of its indebtedness to the United States. 'with regard to the Romanian debt to the United States resulting from the World War, the Romanian Government has decided to propose a mode of payment giving due consideration to the general economic situation and the possibilities of payment and transfer which exist at present, or those to be arranged between the United States and Romania 'Insofar as Romanian bonds held by American bondholders are concerned, it should be pointed out that at the time when the Romanian Government concluded agreements with various European bondholders' associations, there was no similar organization authorized to represent the interests of American bondholders. Since the Romanian Government understands that such an organization exists at present, it has decided to propose an arrangement ostablishing regular permanent servicing of its bonds hold by United States nationals, taking into account Romania's capacity of payment and transfer. "To this effect, the Romanian Government has instructed the Romanian Minister at Washington to communicate with the United States Treasury and the Foreign Bondholders Protective Council, Incorporated. "I have, therefore, been designated by my Government Gov- to commence immediate negotiations with the United States ernment for the purpose of reaching a new agreement in respect to the debt owed by the Romanian Government to the Government of the United States. 295 -2- "This action on the part of my Government is prompted by its desire to fulfill its obligations and constitutes part of its financial rehabilitation plan in course of execution. "For obvious reasons beyond my Government's control, which I am prepared to submit in detail, my Government finds it impossible to carry out the terms of the debt settlement agreement reached in December 1925. "As a consequence of this de facto situation, its debt toward the United States Government continues to increase from year to year. "It is evidently imperative to eliminate the present existing situation and the paramount question in the view of my Government 18 the negotiation of a new debt settlement agreement, mutually agreed upon, to replace the agreement signed in December 1925. "I have the honor, therefore, to ask you to be so good as to make the necessary arrangements for me to appear before the appropriate authority qualified to either accept or reject the proposals I shall submit, or formulate counter-proposals. "Accept, Sir, the renowed assurances of my highest consideration. (Signed) R. IRIMESCU Radu Irimoscu, Minister of Romania." ** 296 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE To FROM May 12, 1939 Secretary Morgenthau A. Lochhead During the past week the undertone in the foreign exchange market has been much steadier, and the market is not under the tension experienced in the previous few weeks. Yesterday, for the first time in over a month, the British Equalization Fund gained dollar exchange. This gain amounted to $5,000,000, and although small compared to the recent losses, is an indication of the improved sentiment. 297 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris DATE: May 12, 4 p.m., 1939 NO.: 931 At I was informed today by Paul Reynaud that Daladier's speech coupled with Chamberlain's had produced a most excellent effect on the financial position and that gold had flowed in at an increased rate this morning. When I asked Reynaud what the present position with respect to the contemplated French loan to China was, he told me that the demands of the army had increased recently so greatly that it was now uncertain whether a loan would be given or whether the French Government would merely guarantee long-term credits in France for the Chinese Government, although it had been decided at one time to give this loan to China. I asked Reynaud about the current report that the House of Mendelssohn in Amsterdam and various French banks were considering giving a loan to General Franco. Reynaud replied that he had told the House of Mendelssohn that French banks could not be expected to participate in any loan to Franco under the present circumstances. He added that until a loan should be agreeable to the French Government, the House of Mendelssohn would not give such a loan to Franco. 298 -2- Reynaud told me that he had been in communication with the British Government on this matter and that he had told Mannheimer, in full accord with the British, that the question of loans to Franco Spain could only be taken up after it should be definitely determined that Franco Spain did not intend to adopt a totalitarian system of economy similar to the systems of Italy and Germany, but definitely intended to attach itself tot to the free system of economy of France, the United States, England, Holland, Belgium, and the Dominion of Canada. Reynaud told me that he had made the suggestion to the British Government that Van Zeeland who will be Belgian Prime Minister should be sent to Spain as agent of the British and French Governments to discuss the question of Spain's economic future with the Spanish financial authorities and Franco. Reynaud added that the British Government appeared to be reluctant to accept this suggestion. Please repeat the above to the Treasury. BULLITT 03V13038 0001 £1 YGM EA:DJW 299 Paraphrase of Telegram Received From: American Embassy, Paris onor DATE: May 12, 5 p.m., 1939 934 NO.: 03V13038 All FOR THE TREASURY Very little business took place today on the exchange market. Swiss franc and Florin are slightly weakened. Otherwise there is almost no change in rates. It was observed that the fund stayed aloof from the market here. The security market was dull and without interest. This condition is apparently caused by the circulation of vague political rumors of a less favorable nature. An article appeared in AGENCE ECONOMIQUE quoting London reports that private advices received from Amsterdam and Paris confirm rumors about negotiations for a twenty million pound credit to Spain. According to the statement, the Spanish Ministry of Finance has approached a continental banking group headed by Mendelssohn of Ameterdam and including The Banque de Paris et des Pays bas, Lazard Freres, the Swiss Banking Corporation of Basel and Drey fus. The official who handles such questions in the French Finance Ministry said this afternoon that the Ministry was not aware of such a development and believed that the French Government might not at this time favorably regard the extension of a French credit to Spain. BULLITT EA:DJW 300 GRAY LMS Berlin Dated May 13, 1939 Rec'd 3:50 P. m. Secretary of State, Washington. 359, May 13, 3 p. m. No. 28. FOR TREASURY FROM HEATH. The tax certificates provided for in the "new financial plan" have made their appearance on the German Bourses. Yesterday about 100,000 marks of the certificates of class two WERE offered on the Berlin BoursE at a quotation of 99.05. They are.redeemable three years after date of issuance at 112. After initial confusion due to large demand and small offerings there is now an unofficial quotation for the six months non-interest bearing tax certificates of class one. Continued possession of class one certificates enables the holders to make deductions from taxable income for additional amortization of plant and Equipment and in the case of firms working for Export to make outright deductions April 1 from taxable income (SEE my telegrams No. 8, Hayoits, 11 a. m. and No. 22, April 29, 10 a. m.). Class one certificates WERE quoted off the EX- change at 102 and higher. It cannot yet be stated whether or not the 301 REB 2-#359, From Berlin, May 13, 3p.m. the present premium of 2% plus represents the final Estimate of the value of the tax privileges attached to possession of these certificates. It is to be noted that the money market is quite liquid at this time due to the cessation of long term government issues and the fact that private share and bond issues have not yet been floated to any great Extent. KIRK NPL JRL 03V13038 0001 al Y&M 302 EXPORT-IMPORT BANK OF WASHINGTON OFFICE OF THE PRESIDENT WASHINGTON hack Confidential May 13, 1939 My dear Mr. Secretary: Enclosed is a memorandum of the conversation which Mr. Jones and I had with General Somoza and his colleagues on May 10. Sincerely, Warrant. Given President The Honorable Henry Morgenthau, Jr. Secretary of the Treasury 303 CONFIDENTIAL May 10, 1939 MEMORANDUM Re: Nicaragua - Conference at Nicaraguan Legation, Wednesday, May 10, 1939 at 6:00 o'clock, P. M. Present: President of Nicaragua, General Anastasio Somoza; The Minister of Foreign Affairs of Nicaragua, Dr. Manuel Cordero Reyes, Minister to United States from Nicaragua, Dr. Don Leon De Bayle; Mr. Jesse H. Jones, Chairman, Reconstruction Finance Corporation, and Mr. Warren Lee Pierson, President of the Export-Import Bank of Washington. The President of Nicaragua repeated briefly the substance of remarks he had previously made at the conference held at the Reconstruction Finance Corporation on the afternoon of May 8, 1939. He expressed his great desire to improve the economic condition of Nicaragua and the Nicaraguan people, in the accomplishment of which he sought the financial assistance of the United States Government. The first matter discussed by the President was the need for a credit of $1,000,000 for the National Bank of Nicaragua to be available for use from time to time in meeting demands upon the Bank for dollar exchange. Mr. Jones and Mr. Pierson expressed the view that because of the amount of business ordinarily handled by the Bank any demands which might normally be expected could be met with a sum substantially less than $1,000,000. Although Dr. Reyes and Dr. De Bayle insisted that such credit should not be less than $1,000,000, the President agreed with Mr. Jones and Mr. Pierson that a $500,000 credit would be ample. The President said several times that he saw no immediate reason which would require any use of this credit but the fact that it was available would strengthen the Bank and permit its officers to operate the institution more efficiently. The President then outlined again the major projects which he hoped to undertake for the benefit of Nicaragua. He referred to the necessity for building highways in order to facilitate the exportation of Nicaraguan products. He said also that a minor addition to the existing railways would result in large savings to coffee producers, and in this connection he recommended the development of a new Pacific Coast port in the Southern part of Nicaragua. He also said that an additional steamer drawing not more than five feet of water was urgently required to handle current traffic on Lake Nicaragua. 304 2- In reply to Mr. Jones' inquiry regarding the specific uses to which the President expected any loans to be expended, the President answered that Nicaragua needed portable stone crushers, steam-rollers, trucks, bulldowers, scrapers, hand tools, and surfacing materials. He said he did not know the exact number required because that depended upon the speed with which the work could be accomplished. The President said he had no desire to borrow money for the "pleasure of borrowing but wanted it only as it could be advantageously employed to carry out an approved program. The President said he was especially anxious to get value received for everything he spent and to that end was willing wherever possible to use second-hand equipment if this would result in spreading improvements over a greater area. He reiterated again and again his wish to save money and to see that his countrymen did the same. In this connection he remarked he held in his hand "a big hammer" which could be used "if necessary" to curb the enthusiasm of his fellow countrymen. In reply to a question regarding the amount which would be required the President answered that Nicaragua "could use $100,000,000" if that were available. However, he said he felt that $5,000,000 or $6,000,000" would complete the most urgently needed improvement. Mr. Jones replied that it was important first to determine the particular improvements of most advantage to Nicaragua, the cost of which would be within the ability of the country to meet before trying to settle upon any fixed amount. The President indicated that this coincided with his own idea. Mr. Jones then recommended that arrangements be made to provide immediately the credit of $500,000 for the Bank of Nicaragua upon conditions to be worked out by the Export-Import Bank. Regarding the public works program, Mr. Jones suggested that a first-class engineer be sent to Nicaragua to cooperate with the President and the engineers of the Bureau of Public Roads in outlining a definite program. Mr. Jones said that as soon as the President and the engineers decided upon a specific job, orders could be promptly placed in the United States for the necessary equipment and the work could proceed without delay. It was pointed out to the President that it would be impossible to spend any large sum within a short time and for that reason nothing would be accomplished by designating a particular sum which would be expended. At this point Dr. Reyes and Dr. De Bayle (speaking in Spanish) both urged upon the President the necessity of advising the people of Nicaragua that there would be instituted a public works program costing a certain amount of money. Following their statements the President remarked that it might be difficult for him to determine upon a program unless he knew within what financial limits it must fall. He again stated that there was use for $100,000,000 but perhaps $5,000,000 or $6,000,000 would be sufficient as well as within the ability of the country to repay. 305 3- Mr. Jones replied that it was impossible at this time for the Bank to allocate $6,000,000, $5,000,000, or even $4,000,000, to Nicaragua and that there was no necessity for such action since it would not be feasible to expend any considerable sum during the next year. The President admitted that annual expenditures would probably never exceed $1,000,000. At this point Mr. Pierson called attention to the limited capital of the Bank and expressed the hope that no action would be taken which would make it necessary for him to set up a present commitment which could not be utilized except over a period of several years. Mr. Jones added that the most important thing was the establishment of "the principle" that the United States Government was willing to assist Nicaragua in carrying out productive enterprises. Although Dr. Reyes and Dr. De Bayle kept insisting to the President that he should obtain a commitment of a fixed sum, for the purpose of impressing the Nicaraguan people, the President stated that be was fully in sympathy with Mr. Jones' attitude and would be wellsatisfied if such an arrangement were carried into effect. He said he hoped that the Bank would send an engineer to Nicaragua in time to be there when the President returned, and added that someone able to advise upon harbor developments would be particularly welcome. He said he was so interested in the prompt development of Nicaragua that he not only would appoint the best people available in Nicaragua to assist but that he himself would "work on the job" with the Bank's engineer to expedite progress of the work. He repeated that he understood the reasons advanced by Mr. Jones and Mr. Pierson in not wishing to authorise a commitment at this time in a fixed amount and said he was quite content with the establishment of the "principle of cooperation". Mr. Jones then summarized the whole arrangement and the President assured him that he understood it and was in complete agreement. At the conclusion of the conference it was agreed that letters outlining the plan would be drafted for submission to Dr. De Bayle a day or two before Wednesday, May 17, at which time the President expected to return to Washington. 306 May 13, 1939 To: The Secretary From: Miss Lonigan E.L. The total number of WPA workers on May 3, 1939, is 2,733,699. The decrease from the week ending April 26 to the week ending May 3 was 14,841 workers. 307 WORKS PROGRESS ADMINISTRATION Number of Workers Employed United States Monthly V.P.A. Employment 1938 1937 Weekly W.P.A. Employment 1939 1938 1939 MAR. JULY MAY MAY MAR. JAN. NOV. SEPT. JULY SEPT. NOV WILLIONS MILLIONS BURKERS WORKERS WORKERS 3.5 3.5 WORKERS 3.4 3.4 3.2 3.3 3.2 3.3 3.2 3.2 2.8 3.1 3.1 2.0 3.0 3.0 2.9 2.4 2.9 2.4 2.8 2.8 2.7 2.0 2.7 2.6 2.0 2.6 2.5 2.5 1.6 2.4 1.6 2.4 2.3 2.3 2.2 1.2 2.2 1.2 2.1 2.1 2.0 .8 2.0 1.9 1.9 1.8 .4 1.8 1.7 1.7 1.6 1939 IIIIIIIII 1111938will mu MAY JOY SEPT. NOV SEPT. 0 1935 1936 1937 1938 1.6 JAN. 1939 SOURCES WORKS PROGRESS ADMINISTRATION - and Office of the Secretary of the Treasury MAR. MAY NOV. JAN. MAR. WORKS PROGRESS ADMINISTRATION Number of Workers Employed - Weekly United States Number of Workers Week ending (In thousands) 1938 August 6 August 13 August 20 August 27 2,993 3,017 3,039 3,067 September 3 3,086 3,102 3,114 3,120 October 1 October 8 3,129 3,137 3,167 September 10 September 17 September 24 October 15 October 22 October 29 November 5 November 12 November 19 November 26 December 3 December 10 December 17 December 24 December 31 1939 3,201 3,245 3,263 3,258 3,244 3,216 3,185 3,139 3,083 3,021 2,986 January 7 2,967 January 14 January 21 January 28 2,927 2,898 2,883 February 4 2,966 2,964 3,010 3,043 March 4 3,034 3,009 3,012 3,006 April 1 April 5 2,976 2,901 April 12 April 19 April 26 2,757 2,750 2,749 May 3 2,734 Feburary 11 February 18 February 25 March 11 March 18 March 25 Source: Works Progress Administration. Reporting date changed. Confidential. 308 WORKS PROGRESS ADMINISTRATION 309 Number of Workers Employed - Monthly United States 1936 January February March April May June July August September October November December Number of Workers (In thousands) 2,926 3,036 2,872 2,570 2,340 2,256 2,249 2,377 2,482 2,581 2,483 2,192 1937 January February March April May June July August September October November December 2,138 2,146 2,115 2,070 1,999 1,821 1,569 1,480 1,451 1,476 1,520 1,629 1938 January February August September 1,901 2,075 2,395 2,582 2,678 2,767 2,967 3,067 3,120 October 3,245 November December 3,216 2,986 March April May June July 1939 January February March 2,883 3,043 3,006 2,749 April Source: Works Progress Administration. a Confidential. a Monthly figures are weekly figures for the latest week of the month. They include certified and non-certified workers. 310 Monday, May 15, 1939 I gave this to the President when I saw him at lunch today. 311 Tax Leg. HOUSE MINORITY LEADER MARTIN DEMANDED OF THE HOUSE DEMOCRATIC LEADERSHIP TODAY WHETHER THERE WOULD BE ANY REMOVAL OF DETERRENT TAXES" AT THIS SESSION. TAPES, HOUSE "THERE IS A GENERAL DEMAND THROUGHOUT THE COUNTRY FOR TAX REVISION TO HELP BUSINESS AND PUT THE AMERICAN PEOPLE BACK TO WORK," MARTIN BE SAID. 'THERE ARE MANY CONFLICTING REPORTS, SOME THAT TAXES With REVISED OTHERS THAT THEY WILL NOT. I AM ASKING THE MAJORITY LEADER THERE WIEL BE REVISION." MAJORITY LEADER RAYBURN TOLD MARTIN HE COULD NOT SPEAK FOR THE WAYS AND MEANS COMMITTEE "OR THE PRESIDENT." THEN HE POINTED OUT THAT NUISANCE TAXES RAISING $1,000,000,000 A YEAR MUST BE REENACTED, AND THE CORPORATION TAXES WHICH EXPIRE NEXT DEC. 31, WHICH RAISE $250,000,000 A YEAR "JUST WHAT WILL BE REPORTED BY THE WAYS AND MEANS COMMITTEE I AM NOT POSITION TO ANSWER," KE SAID, ADDIES THAT WHEN A BILL is BROUGHT OUT HE BELIEVED EVERY MEMBER WOULD "HAVE A CHANCE TO OFFER HIS AMENDMENTS.* HE SAID OF "DETERRENT TAXES THAT "THERE IS NOT A TAX ON THE STATUTE BOOKS, LOCAL, STATE OR FEDERAL, THAT IS/NOT A DETERRENT TO CAPITAL IN SOME RESPECTS, MAKING THE POINT THAT ALL TAXES WERE LIKED. WELL, CAN YOU GIVE SOME ASSURANT MAT WHEN A TAXTBILL IS PORTED IT WILL NOT BE BROUGHT OUT UNDER A GAG RULE, AND THAT WE STAY IN SESSION UNTIL THERE IS SOME ACTION?" MARTIN DEMANDED. AYBURN ANSWERED THAT HE DID NOT EXPECT THE MAJORITY TO MAKE ANY TO BLOCK AMENDMENTS ON TAX LEGISLATION OR IMPOSE A GAG RULE. 5/15 ON1255P 312 RAYBURN ON TAXES MAY 15 1939 WASHN - IN THE MIDST OF A SPIRITED DISCUSSON ON TAXATION AT THE OPENING OF THE HOUSE OF REPRESENTATIVES TODAY REPV SAM RAYBURN DECLARED THAT IF ALL BUSINESS DETERRENT TAXES WERE WIPED OUT THERE WOULD BE NO TAXES LEFT INDICATING THAT ANY TAX IS MORE OR LESS DETERRENT - HE SAID FLATLY -THERE WILL BE A TAX BILL- BUT ADDED THAT HE DID NOT KNOW EXACTLY WHAT NTURE IT WOULD TAKE - HE SAID THERE WOULD BE A PROBABLE REVISION OF CORPORATE TAXES -0- 12.45 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION 313 2- CONFIDENTIAL DATE May 15, 1939 TO Secretary Morgenthau FROM Mr. Haas FOR Subject: The Business Situation, Week ending May 13, 1939. Conclusions (1) The resumption of coal mining in the bituminous fields this week should provide some stimulus to business, and will help clarify the outlook for the steel industry. A recent weakening of steel prices, on the eve of expected volume buying by automobile companies for 1940 models, may foreshadow within a few weeks a repetition of last November's experience -- heavy steel buying at cut prices, concentrated in a short period, followed by a marked improvement in steel activity. Assurance of adequate coal supplies will facilitate this improvement. (2) Continued evidence of a satisfactory business foundation, with some recent indications of further improvement, suggests that business recovery should shortly be renewed if no new restrictive developments appear. The similarity of the recent business trend with that of early 1938 carries a suggestion -- borne out in part by somewhat similar basic conditions -- that the later business trend may also bear some resemblance to that of 1938. (3) Commodity and security prices made further gains during the past week, though reactionary tendencies have appeared in commodity prices abroad. Wheat and cotton prices have reached new highs for the year, and spot cotton is selling at levels where growers in some sections can repossess their loan cotton at a profit. The general situation The trend of industrial production during the first four months of this year has followed closely that of the same period last year, though at a higher level, and various components of business activity have likewise followed trends 314 Secretary Morgenthau - 2 closely similar. The sharp break in stock prices at the end year early in April, and in both instances these have been followed by a prolonged period of relative inactivity in the stock market, with prices well supported in the face of of March in 1938 18 matched by a corresponding break this bearish news. While these various similarities with developments in 1938 have no definite forecasting value, they do carry a suggestion that the ground may be laid for a business upturn later in the year bearing some resemblance to that of last year, particularly in the light of basic indications which point in the same direction. As in the spring of 1938, goods are now moving into consumption at a higher rate than they are currently being produced, as indicated by our index of "consumer buying" and suggested by our index of "basic demand". National income payments have been well maintained, as in 1938, which suggests that the movement of goods into consumption is not likely to show any material decline in the months immediately ahead. Stocks of manufactured goods, from which any discrepancy between production and consumer buying must be drawn, have apparently in most industries been held at conservative levels, hence any such discrepancy must shortly be corrected. Steel production outlook improved A contra-seasonal upturn in steel production during the summer seems a distinct possibility as a result of several recent developments: (1) The settlement of the coal strike, by relieving anxiety over fuel supplies, may cause some upturn in activity through reopening of steel production facilities closed down as a precautionary measure. (2) Increased orders from steel consumers that were affected by the coal strike, notably the eastern railroads, seem likely. (3) Automobile steel buying will probably again come into the market in large volume during the next few weeks, following recent steel price weakness. 315 Secretary Morgenthau - 3 (4) An unusually early changeover to 1940 automobile models, designed to utilize the two World Fairs as showplaces, may advance the fall upturns in steel production and automobile production by about a month. Steel prices weaken Price weakness similar to that of last fall is apparently developing in the steel market, and the resulting uncertainty has doubtless been a factor recently in discouraging new steel ordering. It has been confined principally to automobile steel products, where price concessions reported are about as great as those made temporarily last fall. This development seems a favorable one in the business outlook, and may mark a turning point in steel activity. The price weakness appears closely associated with buying policies of the automobile industry. It will be recalled that last fall the automobile companies kept out of the steel market until late in the season, and did not buy until prices were sharply marked down, when they ordered in a few days practically the entire supply needed for 1939 models. This spring the aloofness of the automobile companies has frequently been commented upon as an important factor in preventing a normal spring increase in steel orders. In the past few weeks, when buying of steel in heavy volume for the 1940 models appears imminent, the price structure for automobile types of steel has again weakened. If the experience of last fall is to be repeated, one may expect in the near future a sharply expanded volume of steel buying from the automobile companies, followed during the next several months by increased production in the steel industry. Automobile output last week held close to the low level of the week previous, totalling 72,375 units versus 71,420. (See Chart 1.) It will be noted that the production trend this year has followed closely (at a higher level) the trend of 1938. Recent reports indicate that the automobile companies are striving to change their models a month earlier than last year, to take advantage of the publicity value of the two World Fairs during the vacation season. This would evidently mean a contra-seasonal upturn in automobile production late in August, with a corresponding early upturn in steel production. 316 Secretary Morgenthau - 4 Building costs increasing One reason for the disappointing volume of residential contract awards during April may have been the rising trend of construction costs, at a time when consumer incomes were tending in the other direction. Prices of important materials entering into residential construction have been gradually rising since last summer, and wages of skilled labor in build- ing trades have been increasing. In Chart 2 we show the price trends for lumber, brick and tile, and cement, by months beginning in 1935 (based on 1926=100). Lumber is materially cheaper now than it was during the 1937 price boom, which was a factor in reducing construction activity in that year, but during the past 9 months lumber prices have again been rising. The price of cement has risen gradually in recent months to the highest average level since 1936. Brick prices have risen more rapidly than cement. The increasing cost of skilled labor in the construction industry is illustrated in the lower section of Chart 2. This shows (on the same 1926 base) an index of hourly wage rates compiled by the Engineering News Record, covering union and non-union wages actually paid to carpenters, brick- layers, and structural iron workers. While wage rates in residential building may not be exactly similar, the trends should be closely comparable. Despite increasing building costs, however, new orders for lumber continue to improve sharply. (See Chart 3.) Since the first of the year, with one exception, new lumber orders reported by mills weekly to the National Lumber Manufacturers' Association have been above the total mill production reported. While such an excess is normal during the first quarter of the year, the upturn in new orders recently has been sharper than is usual in this period. It will be noted that an excess of orders over production has usually been followed by increased production, and vice versa. Prices improve further Sensitive commodity prices made further gains this week, though a reactionary tendency in prices abroad has been reflected in a moderate downturn in Reuter's index. British buying of wheat in world markets, which was heavy throughout 317 Secretary Morgenthau - 5 the previous week, has been sharply reduced. Domestic wheat prices, however, continue to be supported by adverse crop news. A second heavy buying wave in copper developed during the week, reflecting increased demand from fabricators, as prices sagged again to the 10-cent level. A factor in the demand situation has been a noticeable increase in confidence abroad, particularly in Great Britain, during the past week or two. This is reflected in more optimistic news comments, in a rising trend of stock prices in both Great Britain and France, and in a lowering of war risk rates on ocean shipments. Cotton prices improve Spot cotton prices rose this week to the 9-cent level (average at 10 markets), the highest since last July, owing to dwindling supplies available for domestic mills. The rise has brought spot prices in some sections to levels where growers can sell their loan cotton at a small profit. At Augusta, Georgia, for example, the spot price last Wednesday rose to 9.41 cents, which compares with an average repossession price (including carrying charges) of about 8.75. Some pressure on July futures last week was credited in the trade to hedging of cotton released from loan stocks. The Reconstruction Finance Corporation advises us that their agents in Memphis and Dallas have mentioned that cotton is beginning to move out of the loan stocks. The actual amount repossessed by growers so far is not known, since about 90 per cent of the 1938 stocks is held by banks and other lending agencies, which report to the RFC only at the end of each month. The tightness in the spot situation created by the 1938 the more distant months in the futures market. With the New Government loan program is evidenced by severe discounts on York spot price quoted Wednesday at 9.46 cents, for example, July futures were 8.46 and December futures 7.69. We doubt, however, that the scarcity of spot cotton has in any important degree resulted in a ourtailment of mill activity, as claimed in some quarters. Textile production during the first quarter of the year (as shown in Chart 4) 318 Secretary Morgenthau - 6 has been maintained fully in line with our estimated basic demand. Cotton mill activity, according to the New York Times adjusted index, has held very steady over the past several months. During the week ended May 6, the adjusted index remained at a new high for the year established in the preceding week. Current business news The effect of the recent coal strike on bituminous coal production, through the week ended May 6, 1s shown in Chart 5. of particular note is the fact that no step-up in production preceded the strike, which makes the depletion of coal reserves more serious, and suggests a quick resumption of heavy production. Bituminous coal has a weight of 5.6 per cent in the FRB index. The strike caused a decline of approximately 2 points in the combined FRB index for April, which will be down 3 to 4 points from the March figure of 98. The New York Times index of business activity for the week ended May 6 declined fractionally to 86.3 from the revised previous figure of 86.7. The decline resulted from substantial downturns in automobile production and "all other" carloadings, the latter reflecting reduced coal loadings. The adjusted index of lumber production was sharply higher, while little or no change was registered in other components. New orders reported last week showed an upturn in all three groups, raising our composite index to a new high since the second week of March. Orders reported by the U. S. Steel Corporation increased slightly to 49 per cent of capacity from 47 per cent the previous week. This com- pares with a current operating rate of 47 per cent for the industry. Textile orders, and orders for products other than steel and textiles, also showed significant impro vement. AUTOMOBILE PRODUCTION CARS U.S. and Canada THOUSANDS 150 '37 125 100 39 75 50 25 '38 Ward's Est. o JAN. MAR. Office of the Secretary of the Treasury Dividion of Research and Statistics MAY JULY SEPT. NOV. C-233 PRICES OF SELECTED CONSTRUCTION MATERIALS AND WAGE RATES IN BUILDING INDUSTRY 1926 100 1936 1935 PER I 938 1937 939 PER CENT CENT Construction Materials 105 105 100 100 1926 LEVEL LUMBER 95 95 90 90 PORTLAND CEMENT BRICK AND TILE 85 85 80 80 75 75 1936 1935 1937 1938 1939 120 120 Wage Rates 115 115 110 110 105 105 100 100 1926 LEVEL 95 95 90 90 85 85 80 80 1936 1935 1937 1938 1939 . 320 UNION OR NON-UNION HOURLY RATES ACTUALLY PAID TO CARPENTERS, BRICKLAYERS. AND STRUCTURAL IRONWORKERS IN HEAVY CONSTRUCTION IN 20 CITIES. Office of the Secretary of the Treasury Division of - and I c 271 Chart 2 CONFIDE 2 8 321 Chart 3 TEXTILE PRODUCTION AND ESTIMATED BASIC DEMAND 1923 '25 - 100 TT PER 1932 1933 1934 1935 1936 1937 1939 1938 PER CENT CENT 140 140 130 130 120 120 Production, F.R.B. P 110 110 (SEASONALLY ADJUSTED) 100 100 Estimated Basic Demand 90 90 80 80 70 70 60 60 50 - 1932 - - and I the Secretary of the Treasury 1933 1934 1935 1936 1937 1938 1939 50 c 189 A 323 Chart 5 BITUMINOUS COAL PRODUCTION SHORT TONS MILLIONS 1.8 '37 1.6 1.4 1.2 1.0 .8 38 39 .6 .4 .2 Bit. Coal Comm. 0 JAN. MAR. Office of the Secretary of the Treasury Division of Research and Statistics MAY JULY SEPT. NOV. C-233 324 Revenue estimates On the basis of 1939 calendar year business levels unless otherwise noted (In millions of dollars) ior deterrents to business: Absence of provision for carrying over net business losses, personal and corporate, to be deducted from business profits of future years. Loss from 3-year carry-forward: Individuals The surtax rates in the top Loss from limiting top surtax rate to 60% brackets. Corporations Total Tax-exempt securities. average 100. 7.5 - 10.8 17.8 - 167.2 25.3 - 178.0 1/ 11.5 2 The complicated tax structure, State and Federal; the increasing cost of computing taxes. irritants: For example: the undistributed profits tax. fair tax provisions: Limitation on deductions of corporate capital losses. The double taxation of corporate dividends paid to individuals corporate normal tax payable by corporations on their earnings, and individual normal tax payable by individuals from dividends Loss from repeal 17.5 Loss from eliminating the limitation 65.2 Loss from eliminating dividends from the normal individual income tax 105.5 received. Consolidated returns of affiliated corporations. Loss from restoration of consolidated returns, including the repeal of intercor- porate dividends tax 54.3 to 47.6 Other detailed suggestions to be made by Treasury Legislative Counsel. The range of the estimates is based on years like 1932 and 1936, preceded by several years of declining and rising business. In the near future there will be very little gain in revenue from eliminating future issues of tax-exempt securities. After the outstanding tax-exempt securities are completely retired, the gain in revenue is estimated to amount to from $179 million to $377 million. and the additional cost in Federal interest is estimated from $19 million to $50 million. leaving a net gain in revenue of from $160 million to $287 million. 5/15/39 325 May 15, 1939. MEMORANDUM FOR: Secretary Morgenthau I would like to bring the following three matters to your attention in connection with the current discussion of tax revision: 1. Newspaper reports indicate that some members of Congress are considering a compromise tax revision program, the main elements of which would be: (a) An annual declaration of capital stock value instead of the present declaration every three years; (b) A 3-year loss carry-over; and (c) An 18 percent flat corporate income tax applicable to all corporations. The undistributed profits tax feature would be eliminated. While no formal revenue estimate has been secured for this combination of proposals, the net result would be a loss of revenue of about $75,000,000 to $100,000,000 annually on the basis of 1939 levels of business. To insure the same revenue as is produced by the existing law, a corporation rate of perhaps 19 percent rather than 18 percent would be required. 2. It is reported that the President has expressed a willingness to have the undistributed profits tax provision of the corporate income tax repealed if an adequate substitute is introduced to prevent tax avoidance through the piling up of corporate earnings. 326 -On careful consideration, the members of our staff do not know of any constitutional substitute except the possible extension of personal holding company taxation to include closely held corporations of all kinds. Considerable difficulty would be faced in such an extension which would need to be explored, perhaps in cooperation with the Securities and Exchange Commission. 3. It is not imperative that the corporation income tax be renewed during this session. It does not expire until December 31, 1939. and renewal in the 1940 session of Congress would not result in any loss of revenue to the government. It would, however, be very desirable to have next year's corporation taxes made definite at this session as the uncertainty occasioned by delay would be unsettling to business. Rong Blough 327 May 15,1939 MEMORANDUM FOR THE SECRETARY'S FILES: As requested by the President recently, the Secretary took with him to the White House at 1:00 P.M. today, bound volumes I and II of a memorandum entitled "Incomes and income taxes for 1929,1932 and 1937 of 100 individuals reporting spendable incomes of $1,000,000 and over in 1929." dated December 15. 1938, pre- pared by Mr. Blough - including supporting tables. (This is often referred to as "the 100 richest persons material".) The Secretary states that he offered the material to the President, but that he did not seem to want it. During the course of the 3:45 P.M. conference in the Secretary's office today, he handed Mr. Blough this material and asked him to take care of it. Following the conference Mr. Blough returned it to Mr. Hanes' office, from whom it had been borrowed for the Secretary. 328 May 15.1939 KEMORANDOM FOR THE FILES: As requested by the President recently, the Secretary took with him to the White House at 1:00 P.M. today. bound volumes I and II of a memorantum entitled *Incomes and income taxes for 1929.1932 and 1937 of 100 individuals reporting spendable incomes of $1,000,000 and over in 1929. dated December 15. 1938. pre- pared by Mr. Blough - including supporting tables. (This is often referred to as "the 100 richest persons material".) The Secretary states that he offered the material to the President, but that he did not seen to want it. During the course of the 3:45 P.M. conference in the Secretary's office today, he handed Mr. Blough this material and asked him to take care of 10. Following the conference Mr. Blough returned as to Mr. Hanes' office, from whom 11 had been borrowed for the Secretary. whiteHouse - may 15- 4,30 RM. th é Renew June 30 taxes 2. Social Security 329 3. Future issues taxexempts reduce Autakes by/2% a year 4. undistributed earningtax o a. . make ah loss of revine these present blought ms-Harrism coofer. - Hares - H.m.g. 330 Dictated by Magill over the phone from NY 5/15/39 KAJOR DETERMENTS TO BUSINESS: 1. Absence of provision for carrying over net business losses, personal and corporate, to be deducted from business profits of future years. 2. The surtax rates in the top brackets. S. Tax-exempt securities. 4. The complicated tax structure, State and Federal; the increasing cost of computing taxes. TAX IRRITANTS. 1. For examples the undistributed profits tax. UNFAIR TAX PROVISIONS For examples 1. Limitation on deductions of corporate capital losses. 2. The double taxation of corporate dividends paid to individuals foorporate normal tax payable by corporations on their earnings, and individual normal tax payable by individuals from dividends received. 3. Consolidated returns of affiliated corporations. 4. Other detailed suggestions to be made by Treasury Legislative Counsel. 331 (INSERTION IN THE ADDRESS) As an example of a tax irritant, I would mention the undistributed profits tax. In its present form, it is quite unimportant and does not accomplish the objectives which the original proposal was intended to accomplish. The tax produces little revenue and has little effect on business. It has acquired prominence as a psychological irritant, largely because of the widespread and emotional oriticism which has been 31- reeted against it. The end which which law sought to attain was to prevent the accumulation of excessive corporate surpluses. This is still an important, and to my mind, a sound objective. The law in its present form does not attain it. Since the income tax on corporations, of which the undistributed prefits tax is a minor segment, expires by its own terms at the end of this year, the solution of this problem immediate is a necessary part of the task of your Committee. The Treasury stands ready to work with you on it. 1 332 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION AM DATE May 15, 1939 TO Secretary Morgentham FROM V. H. Hadley Review of the Government Market Yook ending May 13. 1939 The government security market was strong and moderately active during the first half of the week but levelled off toward the end of the week. Demand was far in excess of supply during the early period and forced Treasury bond prices up as such as 3/4 of a point in intermediate and long issues. During the balance of the week there was a slight reaction from these high levels and intermediate and long term Treasury bonds closed about 1/2 to 5/8 of a point above the previous week. Treasury notes were practically unchanged, while guaranteed issues, in sympathy with the direct issues, were from 6 to 13/32nds higher. During the last month Treasury bond prices have gained more than 2 points and continue at record levels. The offering on Monday of 3/8% 1-year and 5/8% 2-year N.O.L.C. bonds in exchange for the maturing 1-1/26 June 1 bonds was well received in the market. Exchange subscriptions were received for about 98% of the naturing issue. These two issues closed the week at 100.8 bid for the 1-year and 100.16 bid for the 2-year bonds. The entire short term guaranteed list moved up considerably as a result of this offering and the interest thus developed in this maturity area. 333 -2- Dealers' Portfolios Dealers' total holdings showed no net change on balance for the week as a whole. However, Treasury bond holdings were up about $10 million during the early part of the week and closed the week $6 million above the previous week. Home Owners Loan holdings were up $15 million on Monday but closed the week down about $3 million. Other changes were of no special significance. (in Millions) Week ended May 6 Treasury bonds Treasury notes (1 year) Treasury notes (1-5 yrs.) Treasury bills H. O. L. c. bonds F. F. M. 0. bonds 15.1 20.2 28.2 3.2 29.0 Week ended May 13 20.8 21.7 27.3 0.1 26.6 0.4 1.2 96.1 96.7 Net Chance + 5.7 + 1.5 - 0.9 - 3.1 - 3.4 + 0.8 + 0.6 Dealers' volume averaged about $180 million daily for the first half of the week but slackened off to about $120 million at the end of the week, Treasury bond volume was about $100 million daily for the week as a whole. New Security Ismee The only new corporate bond issue was a private sale to 15 insurance companies of $114,500,000 long term bonds by Commonwealth Edison Company. This issue, which was for refunding purposes, was the largest private sale on record. Corporate Bond Market Principal feature of the corporate bond market during the week was continued domand for high grade issues. Gilt-edged corporate bonds have recovered practically all of their losses sustained in the 334 March-April reaction. Medium grade bonds (Moody's BAA) moved slightly higher during the week but remain a little more than 3 points below the high level prior to the March-April reaction. They are, however, almost 3 points above the April low. Treasury Investment Accounts There were no purchases or sales in the New York market for Treasury investment account during the period May 8 through May 13. Federal Reserve System Account Federal Reserve replaced $44 million naturing Treasury bills with new Treasury bills. In addition there were two Treasury bond shifts in the account, one of $1-1/2 million 2-3/45 of 1960-65 into intermediate bonds of 1948-51 and 1949-53, and another of $2 million from 2s of 1947 into the 2-1/20 of 1948. Archdiscess of Detroit 335 CHANCERY BUILDING 1984 WASHINGTON BOULEVARD DETROIT . MICHIGAN ARCHBISHOP'S OFFICE May 15, 1939 My dear Mr. Morgenthau: I beg to acknowledge receipt of your letter of May 11th enclosing a copy of your communication to Father Coughlin under the same date. You have every right to expect that "Social Justice" will give to Mr. Taylor's correction of May 9th the same prominence accorded to his erroneous statement of April 18th. I earnestly hope that your letter to Father Coughlin will have the desired effect. Sincerely yours, Archbishop of Detroit The Honorable H. Morgenthau Jr., Secretary of the Treasury, Washington, D.C. 336 RE CURRENT FARM BILL Present: Mr. Hanes May 15, 1939. 11:00 A. M. Mr. Bell Mr. Donald C. Smith Mr. Wallace H.M.Jr: I asked these gentlemen to come in because I figured it would save your time if we had everyone who had any interest in this building. Wallace: Maybe I should have brought some assistants too, I don't know. H.M.Jr: Well, the way you went at me at Cabinet, I don't think you need any assistants. Wallace: Think I'm adequate? H.M.Jr: I could have answered you, but I thought I'd postpone it until we got here. Wallace: Would you care to have this (attached release con- sisting of letter to Senator Smith and various tables)? Sorry I don't H.M.Jr: You want me to look at this now? Wallace: No, not this second. I would like to call your attention to certain tables here, though, if I might. H.M.Jr: Does Mr. Kieley know that Smith is coming? Bell: I told him to check up. Wallace: In the first instance, I'd like to call your atten- H.M.Jr: (To Kieley) Mr. Smith? Kieley: I just checked. Wallace: In the first instance, I'd like to call your atten- tion. tion to Table 6, which is continued over to the second page. As long as you're keeping a record, I'11 leave a copy of this 80 it will be properly introduced into the record according to the true Senatorial style. 337 -2H.M.Jr: Wallace: All right. The summary of Table 6 is on the second page, and the point of it is this, that the farmers per capita relative to the non-farmers per capita have steadily been getting less than their fair share of the national income since - well, ever since 1921; that they got up in 1925 to 89 percent of their fair share, but they Bank in 1932 to 34 percent of their fair share. In that case it was their fair share of a greatly reduced national income. And, with benefit payments included, they rose in 1936 and 1937 to 84 percent of their fair share. And this last year, '38, they were down to 78 percent. With ordinary weather, without at least appropriations equivalent to those of last year, prospects are that they would be materially below the percentage of 1938. The two great problems, as I see it, in our economy are - one is the unemployment problem and two, this unfair share of national income going to agriculture. The unfair share going to agriculture is due primarily to events growing out of the Great War, to the way in which the tariff system acts, the way in which monopoly practices of the great corporations act. It is necessary for agriculture to have some offsetting device. If the Treasury doesn't like processing taxes, possibly they can figure out something else they like better. H.M.Jr: Well, I can't - excuse me, I don't want to go over this ground (On phone) Is the Director of the Budget coming? What? - See whether he's left, please. Excuse me, but I mean - I asked him to sit in, you see, because as I get it there's something more I mean in the first place, I'm not going to get into a discussion of the policy - I mean whether this is a good bill or a bad bill or whether it will accomplish your objective or whether it won't, because I haven't seen an analysis of the bill. But if - I mean I want to discuss from our standpoint 338 3- the 370-odd millions over and above the President's budget. And then, as the President said - didn't he say there were three things we could do, one of which - didn't he theask billus whether we recommend that he should veto Wallace: I think he was asking the Vice President whether he should veto it, whether he should veto it saying the money should be found, or - what was the third whether he should sign it without any statement. (Smith comes in) Smith: Hello, how are you? H.M.Jr: Do you know Mr. Wallace, Mr. Smith? Smith: Yes, I do. Sorry to be late. H.M.Jr: The reason I asked you to come in - Mr. Wallace asked to see me as a result of the discussion which took place in Cabinet between himself and the President, and which I foolishly asked to get in on. And last I drew the public's attention to the fact that the present bill that's going through the Senate is week, with the President's knowledge and approval, 371 million dollars above the President's budget. Now it's passed the Senate. And Mr. Wallace understood the President was asking the Vice President I understood he was asking us as well: Mr. Wallace and myself as well - if it should pass, what should he do? He did ask the Vice President what would be the chances of its being passed. Wallace: I think that question which he addressed to the Vice President - I think that came before I had asked to see you. H.M.Jr: Yes, but he asked the Vice President what would be the chances, if he vetoed it, of the veto being overridden. And then he did ask somebody, should he veto it, should he let it pass without his veto, or should he approve it? 339 -4Wallace: H.M.Jr: Well, the other was in case he signed it.... (On phone) Hello. - Well, I'm in the middle of a conference; I'll have to call him back. And don't let - let Mrs. Klotz take all the calls now. Wallace: in case he signed it, should he come out with a statement that Congress would have to find the money? That was one of the three. H.M.Jr: Well, if I could put it the way I see my responsibility as of this morning - I mean I was very careful to state that I didn't want to discuss whether this was a good bill or a bad bill. I am only interested in the amount of money it will take over and above the President's budget, which I'd like to discuss. Mr. Wallace's position, which he can express for Wallace: H.M.Jr: himself - as I understand it, he doesn't want to discuss that, but he wants to discuss with us how we're going to get additional revenue to meet this increase over and above the budget. Is that right? That's right. Now, he being my guest, I'll let him say what he wants to first, but - I mean he's taking the assump- tion that there is a bill for 371 million dollars approaching it from a different side, that the bill more, for which we must raise additional money. I'm shouldn't be above the budget estimate. Therefore, I'm not interested in additional revenue. But please, would you - now you see why I thought Smith: it would be helpful to me if you (Smith) would be here, and I thought you might like to know. I'd be glad to know what the issues are - very much, indeed. Wallace: Well, in the first place, last year, if I remember correctly, the total appropriations for these extraordinary purposes, with 500 million for the Soil Conservation 340 -5H.M.Jr: Smith, this (attached sheet of figures and titles "Actual and Estimated Funds Available and Expended for Agriculture") might be helpful. Bell: He's got a copy. H.M.Jr: Well, have you (Wallace) got a copy? Wallace: No. H.M.Jr: Well, I'11 give it to you. Wallace: the 212 million for parity payments I haven't seen this. H.M.Jr: and the 144 million from Section 32 I don't Wallace: know whether that's your presentation here or not. Bell: It's about that. They had some reappropriations, but Bell: It all about added up to that, didn't it? Yes, I think so. You're about right. Wallace: What would that add up to as you've got it there? Bell: For 1939, including good roads, you had a billion 333 million. Wallace: Let's center our attention on the special items. I didn't want to get into a discussion of roads. I think that's irrelevant. Roads is no longer with Agriculture anyway. And I'd rather not discuss the main part of the agriculture bill; I think it will save us time if we focus on the special items. Bell: You want to leave out the Farm Security program Wallace: then. The three-A program was 612. Wallace: That's what is up at the moment, when you get down to it. 341 -6Bell: These two here Wallace: Is it 144 for Section 32? Smith: That's 856. Wallace: That gives 856. This year, as I get it - and you correct me 1f I'm wrong - the Senate bill has in it 500 for the Soil Conservation, same as last year; has 225 instead of 212; and then it has in the 90 plus 113 - is it? Bell: Yes. Wallace: And that would add up to 928, is that right? Well, I have 895 on this sheet. I have 805 million for the Agricultural Adjustment program, which includes 338 million dollars for surplus payments Bell: and parity payments. Smith: Your figures are correct. Bell: This should have been split. And then there is 90 million of - 30 percent of customs. It's about 900 million. Wallace: As I make it, it's 928 in the Senate bill as against 856 last year as passed by both Houses. Bell: 756 - 612 and 144. Wallace: It should be 712. Bell: 712? H.M.Jr: You've got the figurers here; I don't know. Smith: 212. Bell: They're very hard to figure on an appropriation basis. Got to keep them on an expenditure basis. Wallace: 212 is the parity payment last year, and your 500 was what they actually made available. I don't remember just what funds they came from. 342 7Bell: They reappropriated a lot of money. They did that every year. Awfully hard to figure on an appropriation basis. H.M.Jr: How do you figure it? Bell: I figure it on a basis of expenditures. The three-A program in 1939 would be about 508 million. Smith: Three-A has 200 million of Customs, which includes also some of the 212 million. It includes some carry-over from 1938 under Customs. There's 200 million expenditures, making 708 million expenditures on those two counts. Wallace: Well, I'm talking about appropriations this year and appropriations last year; and as I make it out, there was 856 appropriated last year and the Senate bill has 928 this year. Bell: Well, O. K. Then let's picture that. We have 500, 212 and 144 - 856. There are some reappropriations in there, though. H.M.Jr: As against what? Bell: As against 928 for 1940. Wallace: Now, I don't know whether you care to talk about H.M.Jr: the expenditures this year vis-a-vis last year from the standpoint of policy or not. Well, Henry, if I get into policy I'm beyond my depth. Now, as I say, I haven't even had a summary of this bill and I don't even know whether you and the President are for this bill. I mean I only heard what the President said at Cabinet, and as far as he was concerned he was in a fog as far as the bill was concerned. And I don't know whether you're for this bill. And I think that I'm only as we say around the Treasury here, our back yard is big enough, and our back yard is the raising and the protecting of the revenue. When we get outside of that, begin to talk about farm policy, I think we're sunk. I mean I'm in no position to debate it. 343 8Wallace: H.M.Jr: Well, I'm not sure but what that would be the only way in which you could make yourself of service would be to talk about policy. Not as Secretary of the Treasury. I never have. If, for instance, the President says he wants a billion and a half for relief and the Congress is going to vote two billion dollars, then I begin to raise my voice; but I don't know whether a billion and a half is adequate, I don't know whether two billion is adequate, for relief. Wallace: H.M.Jr: Well, this whole thing belongs I don't know whether even a billion and a half or two billions are adequate or too much. I don't know. I wouldn't debate whether a billion and a half is too much or too little. But if they raised it five hundred million over and above his budget, then I think it's time for me to raise my voice. Smith: Would it be pertinent for me to - I don't want to inject extraneous things into this, but I don't have very much background on this problem. Would it be pertinent to raise the question as to what are the issues in Congress or what are the problems out of which arose this situation here where Congress has exceeded apparently the budgetary request? I mean I address that question to you, Mr. Wallace. Just what are those? Wallace: H.M.Jr: Well, it goes back to that long fight through the twenties for what they call agricultural equality. May I interrupt you a minute? If you want to invite anybody, call them over here. I don't think you need anybody, but I mean if you feel uncomfortable with four of us.... Wallace: No, it's all right. H.M.Jr: After all, we're all friends, all working for Wallace: No, I was just kidding you. Mr. Roosevelt. But if you feel that way 344 9H.M.Jr: I was just trying to save your time, because the people here will have to advise the President on the financial end, and instead of seeing us all separately I thought it would be helpful Smith: I understand that thesis there, but I was wondering about the more immediate problem. Wallace: All right. So what that counts up to in the twenties was embodied in legislation known as the McNary-Haugen bill. In '33 it was embodied - it twice passed the Congress - in 1933 it was embodied into the Agricultural Adjustment Act, with the stated objective of obtaining parity prices. In the Agricultural Adjustment program I endeavored, may I say, steadily to get the farmers away from the concept of parity prices and to accept the concept of parity income, which I felt was much sounder from the standpoint of the economy. I wanted to get them to the idea of - concept of balance in the economy. I did get some acceptance for the idea of parity of income and that was written into the legislation of '38. Well, steadily as the agricultural bills came up, why, you would find - or as political campaigns were waged, you'd find the statement made that "We haven't yet attained parity price; we need a parity payment in order to attain parity price; 1f we can't get parity price that way, we propose to get parity price by means of price-fixing legislation. Thus far we have endeavored to divert their attention as much as possible from price-fixing legislation. We felt that that would tend to get away from our whole capitalistic and democratic approach, get us into regimentation of rather an extreme order. Now, in the endeavor to get the parity income which the farm leaders have been striving for steadily for so many years and which many speeches have been made about in all the agricultural regions, especially the Middle West and the South, so-called parity payments were proposed, and some of them were passed. One of these was the cotton adjustment payment, which I think was put through in the 345 - 10 closing days of Congress in '37, which took out one-half of Section 32 for two successive years. Then that was - well, you can't do anything for one of these commodities without the other people immediately serving notice. Smith: Have new commodities entered this particular picture, or are these payments designed to increase the cost of the cotton commodities, which has been accepted in the picture? Wallace: Well, the 80-called basic commodities are those which have been foremost in their askings - the cotton and the wheat and the corn and the rice and the tobacco. They were stated as basic commodities in the Agricultural Adjustment Act of '38, 80 they worked out in the Agricultural Adjustment legislation in '38 a formula for dividing parity payments between these five commodities; and in 1938 they appropriated for carrying out the purposes of the legislation this 212 which was above the President's budget in 1938, and on which the President had informed Congressional leaders that if they passed the appropriation he would be forced to ask them for a new source of funds in order to carry it out, in order to make the payments. They did not get the funds in 1938. The legislation was signed. The President has felt steadily that Congress did not keep faith with him in that particular. And I haven't gotten this first-hand from the President; I think I've been informed by some of the farm leaders that his view with regard to this year is that they would find the funds, and he hasn't taken an absolutely thumbs-down 80 far as I know against the additional payments if Congress found the funds. It happens that I personally stood for quite a while, more than a year, I suspect for two years, for processing taxes as a method of raising the funds. It also happens that the Treasury has been against processing taxes, that the Secretary of the Treasury has 80 stated after a White House conference early in January. So I suspect that 346 - 11 - from a practical point of view - it would seem to me that it all would boil down to this, that it would be up to the Treasury to indicate, in case Congress is going to pass an extra amount of money similar in principle to what it passed last year - to suggest what method of raising it would be most - raising funds would be most satisfactory to the Treasury. H.M.Jr: Wallace: No, that isn't the Treasury's position. That's what I wanted to explain. The Treasury's position is that if the Congress passes a bill which is within the President's budget and which is 371 million dollars less than the present bill, we don't ask for any new taxes. And those are the I mean I'm using the figures which Mr. Bell gave me, and I think that they're correct and they haven't been challenged yet that I know of. But 1f the Congress decides to pass a bill which costs 371 million dollars more than the President's budget, it is up to Congress to find the revenue, not the Treasury. That's where you and I differ. Yes, we do differ. H.M.Jr: I mean that's - Johnny, I don't know whether you I haven't had a chance, because this came up late Friday, to discuss it with you; I don't know whether you agree on that or not. Hanes: I do. H.M.Jr: I mean if the bill is within the President's budget, as far as we're concerned we're not going to ask for any new revenue. If Congress decides they want to up it three or four hundred million dollars, then it's up to Congress to find the revenue, we're not going to bother with it. Because - I mean every time Congress upped the bill, whether it was a hundred million, two hundred million, or fifty million, we were just running around like chickens with our heads off. Wallace: Well now, in conformity with that principle, you do feel it is your function, however, to indicate a processing tax is bad. Is that it? 347 - 12 H.M.Jr: I feel this way. The President has a very informal committee called the Fiscal and Monetary Committee on which the Chairman of the Federal Reserve Board, Chairman of the Natural Resources Board, Director of the Budget and myself sit; and we made a list of what we considered the most repressive taxes and everybody agreed that the most repressive tax of all was a processing tax. And whatever that group's opinion 18 worth - I don't know whether the new Director of the Budget was given the list of taxes which are the most repressive, whether he'd agree or not - haven't had a chance to discuss it. But I think that the feeling is certainly that the tax on the consumer now is over 60 percent and if we increase that we are moving in the wrong direction. But I'm not Wallace: Well, do you feel it is repressive for the cotton farmers of this country to get as large a share of the national income as they got before the war? H.M.Jr: Wallace: H.M.Jr: Wallace: H.M.Jr: Wallace: That gets into policy. It's the same thing exactly as you're talking about right now. Well, that's where I No, no, it's exactly the same thing. Well, I haven't been asked to write an agricultural bill, you see, and if I did What you're actually saying is that it's repressive for the cotton farmer to get as large a share of the national income as he should get. H.M.Jr: You can't make me say that. Hanes: That isn't what he said. It would be ridiculous to say that. H.M.Jr: Hanes: He's saying that the tax you put on the consumer for purchasing the products made from the cotton 348 - 13 - farmers' material is a repressive tax. I think that's what the Secretary's position is rather than saying that the farmer shouldn't have his fair share. Wallace: It gets exactly down to that in terms of action. It gets exactly down to that, Henry. H.M.Jr: Well, of course, that's your opinion. I differ with you a hundred percent. Wallace: You can't differ with me. H.M.Jr: Because there is somebody else in the country besides the people that make their living out of farming. Wallace: Is it repressive on those people who don't make their living out of farming to enable the farmer to get the same share in the national income per capita as he got before the war? H.M.Jr: You see, you don't, for instance, give any credit Wallace: going to create work for people who largely live in the cities but who are the market for your farmers. Now, you just wipe that off the slate. No, that's in here as well. H.M.Jr: You just wipe that off the slate. Wallace: 1 don't wipe that off the slate at all. It's in H.M.Jr: Wallace: to the fact that over two billion dollars 18 the tables, on page 6. Well, the President hasn't asked my advice. I mean there is included as a part of the income of the non-farming population these expenditures in the cities. If you will study that table on page 6, the fourth column, giving income of the non-farm people H.M.Jr: Well, let me ask you a question. As Secretary of Agriculture, are you endorsing this present bill? 349 - 14 Wallace: I think it is absolutely necessary in order to avoid very serious national unbalance to have funds available in addition to the five hundred million and in addition to the ninety million. I think you're going to find yourself in a very difficult a of if situation a year hence unless there 18 such money available. to operate this As food plan matter stamp infact, the you're way ingoing which you and I would like to see it operated, it would be necessary to have more than that. H.M.Jr: Well, how about the unemployment situation a year from now? Where are we going to find ourselves in relation to that? Wallace: As a matter of fact, Mr. Perkins was telling me this morning that, now that we're cutting down on the relief, there is a very strong drive from the various municipalities to get larger amounts of food from the Federal Surplus Commodities Corporation. So if you out down on relief in order to take care of those people that are being out off on the WPA you're going to have to have larger sums of money, or you're going to have people starving to death in the cities. H.M.Jr: Well, you see, the expenditures are, they figure, around nine billion dollars for 1940. Bell: Nine four. H.M.Jr: Nine billion four. Bell: Yes. H.M.Jr: Now, it's up to the President of the United States and the Director of the Budget to advise me, to say, "We want to make that six hundred million dollars more." Now, if the President and the Director of the Budget say to the Treasury, "We're going to increase our total expenditures by six hundred million dollars," I've got to accept it. And then if the President says, "I want six hundred million dollars more revenue," all right. But how he divides the six hundred million dollars, I've always maintained, is none of my business. I mean 350 - 15 I'm saying knows how Ithis as much for Mr. Smith, 80 he Wallace: Who does determine it? H.M.Jr: The President and the Director of the Budget. Wallace: Well then, it's the Director of the Budget's business. H.M.Jr: Bell: H.M.Jr: I'll say this. I never have considered it mine. He can talk for himself. Have to correct those figures. It's nine billion four this year and about nine billion next year. Nine billion next year. But I'm making the point that if the President wants to say to me, "Henry, I've decided, in view of the situation, that I want to increase expenditures by five hundred million dollars, and will you please tell me how you can finance them?" then it's up to me to give him an answer. But where he wants to spend the five hundred million and how he wants to divide it is his business. Now, this is just one segment. Wallace: Now, whoever does make the decision, I'd like to have the privilege of appearing before that tribunal, whoever it may be. H.M.Jr: I don't make it and I never have. That's right, Dan, isn't it? Bell: (Nods yes). H.M.Jr: Anymore than I knew until I read in the paper that the message on relief was going to be a billion and a half. I mean it's particularly - now since the Budget has been transferred over to the President - the dividing up - I don't know whether I'm interpreting your functions as you see them or not. Smith: Well, you're speaking of the division in the relief message? 351 - 16 H.M.Jr: No, I'm simply saying this, that whatever the figure is for next year - what's the top figure for the coming year? Bell: For relief? H.M.Jr: Bell: No, total expenditures. About nine billion. H.M.Jr: Nine billion. All right. Now, Mr. Wallace's bill increases that by 370-odd million. Mr. Wallace says Wallace: I think you'd be more accurate in referring to that as the Senate draft. H.M.Jr: All right, the Senate draft increases it by 370. Mr. Wallace comes over here today, as I understand it, and says to me, "You don't like this kind of tax, you don't like that kind of tax. Tell me what kind of tax you do like." Now, what I say is this, that as Secretary of the Treasury I stand on the President's nine billion. If he wants to up it X amount, then I certainly would have an opportunity to discuss with him whether we should raise it through additional deficit financing or additional new taxes. Once that's settled, I'm out of it. But as long as he tells me and as long as publicly he sticks by the nine billion, I'm going to continue to shout about nine billion. Wallace: All right, suppose it gets down to this. Suppose a bill like that passes the House. Then the question comes up that he put up to the Vice President. Shall he veto it? Shall he veto it with a request that the money be raised? Or I mean sign it with a request that the money be raised? Or should he sign it with no statement? H.M.Jr: You're making a - just raising the question. Wallace: Yes. Would he ask the Secretary of the Treasury about that, or would he ask you and me and Director Smith about it? 352 - 17 H.M.Jr: I don't know, but I think that he'd ask the Treasury and I can't answer because I haven't discussed it with these people. It only happened Friday and I left town and I haven't seen them before this meeting. I did call Bell yesterday and asked him if he would have some figures ready. Other discuss it. than that I have had no chance to Wallace: There is this rather interesting thing, Henry. You do have to - I think it is wise for the Treasury to reckon with political forces, and I'm not using that word now in the sense of between the two parties, but with the political forces that come to the surface by way of economic situations. I really think that the Treasury has gotten into lots of difficulty because to some extent it hasn't reckoned with those forces. I think the Treasury has been faced eventually by increased payments rather than lessening payments as a result of those forces. And I think it is appropriate for you to consider to some extent what the inevitable forces will be if this situation 18 handled in one way and if it's handled in another way. I think you ought to know about them. H.M.Jr: Well, the only way I know about them is by reading the newspapers, because otherwise I have no other way of knowing what's going on. But I can't I can't shift; I mean here a bill goes through the Senate carrying this terrific increase and as far as I can tell the President wasn't consulted as to whether he was for or against this increase. Wallace: I think that's also true of the 212 million of last H.M.Jr: And so the only way I can try to keep some sense year and of that cotton adjustment payment of the year previous. of financial sanity is to stick by the President's budget. Now, I can't - every time Congress passes an extra hundred million dollars, I'm not going to propose a new kind of a tax; it isn't up to me. In the first place, I've never recommended new taxes. I can say what kind of taxes I don't like. I have said 80. 353 - 18 Smith: I am about in this position, I think, in this con- ference here: that the President has not mentioned this subject to me; consequently I don't know just what has been asked of us, whether we are to advise him with respect to policy here, as to what should be done immediately, if anything should be done, to keep the amounts of money within the budget, or whether, assuming that the bill passes the House, the President wishes then to be advised as to what the policy ought to be or what we think it ought to be. I am not sure of our prescription, in other words. I'm not sure of the references with which we operate this morning, and what our assignment 18. Wallace: There is this, I think, that I should point out to the Secretary of the Treasury with regard to cotton. When Mr. Perkins and myself called on him in the evening some six weeks or 80 ago H.M.Jr: Called on the President? Wallace: No, called on you. You may remember that you were kind enough to invite us out there; I think the four of us were present on that occasion, weren't we, with Mr. Perkins in addition and your father. H.M.Jr: Yes. Wallace: And I came out on the assumption we were talking about the food stamp plan, and you wanted to talk cotton to me, so we talked both, had a very delightful time. You expressed your belief at that time that you felt the most economical way of getting out of the cotton situation was by means of an export subsidy which might cost as much as ninety million dollars. Now, under the President's budgetary askings as they now stand, there could be available for cotton export subsidy a total of only one-fourth of Section 32, which would be fifteen million dollars. H.M.Jr: Why only one-fourth? Wallace: Because that's written into the legislation, that only one-fourth of Section 32 can be used for only one commodity. 354 - 19 H.M.Jr: Oh, in the Senate bill. Bell: In Section 32. Wallace: That's in Section 32; it's in the Agricultural Adjustment Act of '38 as it stands. Bell: Be one-fourthof ninety or twenty-two million. Wallace: One-fourth of ninety plus any money that might be left over from the Soil Conservation payments. And the prospect for having money left over from the Soil Conservation payments this coming year is not great, because the participation is unusually good this year. It was low last year because farmers had exaggerated ideas about what they thought prices were going to be and they thought they would stand to profit most by taking a chance, producing a lot, and not cooperating. Now that they are faced with the facts of the price situation, why, they're tickled to death to cooperate and they are cooperating, which means that the Soil Conservation money will be used up quite completely. At any rate it will be well along toward the close of the season before we know what is left over; be a certain amount invariably. But the point I'm making merely is that with the situation as it stands now there isn't money to carry out a cotton subsidy. There isn't adequate money to carry out a wheat subsidy. There isn't adequate money to carry out, to the same degree as we carried it out last year, the distribution of food to the people on State relief, let alone operate the food stamp plan. Of course, we would figure on shifting over to the food stamp plan as soon as possible, but we would figure also that it would be desirable to do a somewhat larger distribution than we have done there, too, on the stamp plan. With the bill as it passed the House you just can't do a job with cotton exports, wheat exports, or the food stamp plan or the old- fashioned method under Federal Surplus Commodities Corporation. 355 - 20 - Now, I'm not saying that I can see your position, Henry, that you just feel you have to stand pat on the budget recommendations as they are. H.M.Jr: Well, if I don't, I think I ought to be fired. Wallace: H.M.Jr: Well, that's your function. I mean that's what I'm hired for. Wallace: Yes. But the over-all situation requires some- what broader considerations, and I'm wondering if perhaps Mr. Smith and I should be seeing the President about those broader over-all considerations. Look down the future on your cotton. Next year you're going to be paying, I suppose, sixty million carrying charges on it. This year it was fortyfive million. H.M.Jr: I want to ask, if I could, one thing. Is the statement that Senator Russell made correct or isn't it? He made a statement that this bill practically was no more expensive than the previous ones. Wallace: My guess would be - I didn't see his statement my guess would be that it is based on something like that that we were giving earlier about the 856 versus the 928. Bell: What he is trying to do is just put back into the agricultural bill 225 million to take the place of 212 last year, which was not in the budget message or in the budget document this year for 1940. Now, the 113 million was added on top of that. Wallace: Frankly, I think you can do a fair job with less H.M.Jr: But just 80 I know where I stand - I mean is Senator Russell right or isn't he right? Well, he was right so far as the parity payments were concerned. That is, what he was talking Bell: than 225. 356 - 21 about mainly was the 212 in 1939 and 225 for 1940. H.M.Jr: But taking the whole picture - I mean if they pass the Senate bill, where would that leave the Treasury out of pocket in 40 as compared with 397 That's what I'm interested in. How much more would we pay out of pocket? Bell: Increase your total expenditures by 371 million dollars over the 1940 estimate. Wallace: How much over last year's? Bell: Bring it up almost to the 1939 expenditure as an over-all budgetary proposition; the agricultural expenditure won't be materially different. Wallace: Be about the same as last year. Bell: Be about a hundred million - where you lose 18 that you only get ninety million dollars of customs receipts in 1940 whereas you had a hundred forty- four in 1939; that's fifty million dollars. Now, to make up that difference and add some more, they put on a 113 appropriation, which makes it 203 for purposes of Section 32 instead of 144; you've got something like a hundred million dollars additional on agriculture. H.M.Jr: Well, isn't the thing. Wallace: It's about seventy-two million on these special H.M.Jr: items. Well, Henry, isn't the thing to do to ask the his total expenditures for 1940 above nine billion President to decide whether he wants to increase dollars? Wallace: H.M.Jr: Well, of course, I'm talking - don't like to limit your field of discussion, but if I talk, why, I talk about the agricultural situation. Well, I'll be glad to be there representing what I'm here for, and if we can have Mr. Smith there, 357 - 22 why, then we'd have everybody represented. But it isn't something that you and I can lock ourselves up in a room and decide on. Wallace: I'm sure you can't. Bell: I can't decide that the nine billion should be question is, how do we want to raise it? Mr. Secretary, don't you think the restoration of Wallace: When it comes over to Agriculture it undoubtedly Bell: Doesn't make any difference where it is. It seems H.M.Jr: made nine billion four. If it is, then the next the capital of Commodity Credit should be added to your figures? will be. to me it's a subsidy, isn't it? It will be 113 million in 1939. Smith: That's the restoration of the.... Bell: Impairment of capital. Smith: impairment of the capital of Commodity Credit Corporation. Bell: That's your loans on wheat and cotton, which are in effect subsidy payments. Wallace: It's cotton primarily. Bell: Some wheat too; some corn, I expect, too. Wallace: There may be - what percentage of it would be Bell: I don't know. But it seemed to me to be subsidy payments and along the same lines as your first cotton? two items. Wallace: Oh yes, I think so. H.M.Jr: Does that up it another hundred? 358 - 23 Bell: Yes, sir. Wallace: of course, making a fair comparison with the previous year, why, it belongs in the previous year just as much as the present year. Bell: Well, there is 94 million dollars in the previous year, '38, but that took care of about three years' accumulation - the 94 million. Wallace: I mean any fair analysis would prorate it over the three years. Bell: H.M.Jr: That's down on that sheet - 94 million for 1938. Is that down on that sheet? Bell: Separate item. Then we put down an estimate of fifty million dollars for 1940, which I expect will be low in the end. H.M.Jr: Smith: Smith, do you think we can go any further today on this without seeing the Great White Father? I don't see how we can. I mean I don't see anything I can do about it today. It seems to me the President has to give us some definite decision, or decision in terms of alternates, and say, "Explore this problem for me." Don't you think? I mean we can talk around in circles. Wallace: I think you're quite right. Smith: But we can't get the answer. H.M.Jr: He can't just dish it in your lap and mine and Smith's without really facing this thing. I mean we might be up against this same thing in a month if they up his relief thing 250 or 300 million dollars. Up against the same thing. Bell: Each one of these brings on another one. The reason we paid the bonus to the soldiers in 1936 was be- cause we had an appropriation of four billion eight for relief. The people said, "If you're going to spend all that money for that, you can spend this two billion dollars for the soldier boys." We 359 - 24 - sent up a five hundred million dollar national defense program this year. I've seen a good many Congressmen and Senators the last two or three weeks and they tell me the reason they voted for this farm bill was because you had a five hundred million dollar national defense program, and people in the House say they're going to vote for it on the same ground. This 18 going to bring on an on a I on One education appropriation and education 18 to to stop. That's the pass Another group says, "You proved that. If you can prove that, we can prove this. We're just voting." where bring and feel they you're the health Hill. going it. appropriation. group presses don't something way going know they Wallace: Well, from the standpoint of the figures agricul- Bell: But you compare agriculture with all the rest of the population, do you not? Can't you pick out groups in the population just as bad off as the agricultural group? H.M.Jr: I can pick a lot a darn sight worse off. I don't think you can pick any that are worse off than about a million of the families in the Wallace: ture is at the tag end of the lot. Southeast. I really don't. H.M.Jr: Well, worse or worser, it gets Wallace: I just don't see how you can get them any worse Hanes: It's pretty bad. H.M.Jr: In the Southeast. Bell: Not all farmers either, are they, down there? Wallace: Well, I'm talking - no, they're not all farmers. Bell: Compare everybody else in the same community with off than that outfit. Do you, Hanes? the farmers in that community and I dare say that you'll find them as bad off. 360 - 25 H.M.Jr: Well, Henry, I'm going to lunch with the President. Wallace: No, I'll tell you, they're not, Danny. Really, their situation when they get into that factory town is just no end better than it 18 on the farms. You look at the - it just seems like paradise to those fellows when they get into the factory towns It's hard for us to appreciate that. Don't you (Hanes) feel that they Hanes: Some of them, different sections there - some of them are pretty bad, but by and large the farmers in my section of the country are not 80 very bad off. They've got tobacco crops. Wallace: Of course, North Carolina actually, relative to the past, is in better position than any other State in the Union. Hanes: On account of tobacco. They've had a good money crop. About the only section I know of in which they've had such a good money crop - which has been averagely good. Wallace: But leaving out the tobacco section in South Carolina take South Carolina, Georgia, Alabama, Mississippi run across that country; it's about the worst ever. H.M.Jr: Well, will you speak to the President, and I'11 speak to him too. I'm seeing him You'll be seeing him. Just suppose you ask for an appointment for the three of us. Wallace: H.M.Jr: Sure. Wallace: I don't know whether - in some ways I'd like to have Perkins and Evans present, but maybe we'd better hold it down to three. What do you think? H.M.Jr: It's up to the President. I don't know. It's his meeting. Wallace: They're the administrators immediately concerned. H.M.Jr: Who is Evans? 361 - 26 Wallace: Evans is Administrator of Triple A. If you don't mind including them, I'd like to have them present just so they could see what's going on. H.M.Jr: What I'll do 18 this: just give him a thumbnail sketch of what happened and say we need a meeting with him. And I'm not going to get down, if you don't mind - I'11 simply say Wallace: I'd like to have them there not for the purpose of speaking but 80 they could get the feel of it. H.M.Jr: Well I'm not going - I'll simply say that - I'll explain why - I mean that locking us up in a room doesn't answer the thing. He's got to look at this thing from three angles - at least three - and we Wallace: H.M.Jr: think it's worthy of an hour of his time. I think very definitely it is worthy of an hour of his time, to really get into it and satisfy himself. I think it is worth an hour. And would you do this for me before the meeting? I'd love to have a very much boiled-down summary of what the bill does and doesn't do. Wallace: Well, it isn't a bill, Henry, it's just an item in H.M.Jr: No, the whole bill. Oh, the whole agricultural appropriation bill. Yes, I can get that for you readily enough. As a matter of fact, Jump has that. You mean relative to the Wallace: the appropriation. increases item by item. H.M.Jr: No, what does the bill do? Wallace: Oh, just the regular agricultural appropriation bill. I think, Henry, for the purpose of the President it boils down essentially Bell: These are the main items: General, and Agricultural Adjustment, Section 32, Farm Security, 362 - 27 Wallace: They upped the tenancy provision twenty-five million, which wasdidn't it? they, in that, or fifteen million; Bell: Twenty-five million on tenancy and 113 million. H.M.Jr: Well, I'll give him a thumbnail sketch and tell him I think for the peace of everybody's mind, the sooner he sees us the better. Wallace: I think it will be helpful if we confine the discussion to those four items. That increase in the tenancy he might be interested in. We might bring in, by the way, this Farm Security thing, although at the moment that's not up in this appropriation bill, is it? Bell: No. You mean the Smith: No, that's in the Relief. It will be in the Relief. Wallace: I'd like to talk to him sometime about that, but I think it will be better not to bring it up at this time. Smith: Perhaps you'd want to talk about it. I wouldn't want to say. Wallace: All right, we'll leave that out. Why not confine it just to the four items, the upping of the tenancy, the upping of Section 32, the price adjustments, the parity payments, huh? Bell: Uh-huh. Wallace: That's three items. But how about confining it well, there's an upping of fifteen million in the Soil Conservation over the budget. H.M.Jr: Well, and then the question 18 from our standpoint, does he want to readjust his budget figures on expenditures? Wallace: I would think from the standpoint of practical - that he wouldn't want to make any readjustments, want to stand as he is, leave the burden on 363 - 28 Congress; but there is a question of how firm a stand he wants to take relative to Congress if it comes through. That is, what is his eventual strategy? H.M.Jr: Wallace: Yes. He can take the position, as far as all public but there hits it. is a question of just how he actually purposes are concerned, that he's against this; H.M.Jr: All right, we'll ask him. Wallace: All right. 364 the ACTUAL AND ESTIMATED FUNDS AVAILABLE AND 807-928 EXPENDED FOR AGRICULTURE (In millions of dollars) 1936 1937 1938 1939 1940 DEPARTMENT OF AGRICULTURE 1 Funds available: General 180.8 158.1 159.9 200.5 497.7 470.0 380.0 611.8 (30% of Customs) 92.1 251.1 109.1 195.6 125.1 131.7 144.0 175.0 90.0 123.0 roads) 666.1 74.8 180.0 201.5 205.0 1,687.8 1,007.6 976.7 1,332.8 1,418.0 131.6 163.4 143.2 183.0 161.2 508.4 484.8 323.6 508.0 604.0 24.2 138.0 42.3 200.0 209.7 38.2 180.1 179.9 90.0 125.0 243.9 350.6 236.6 231.5 212.3 1,046.1 1,250.8 921.7 1,302.4 3/1,192.5 Agricultural Adjustment Program Act of August 24, 1935 Farm Security Administration Good roads (including forest Total Expenditures: 195.0 2/ 805.0 1/ General Agricultural Adjustment Program Act of August 24, 1935 (30% of Customs) Farm Security Administration Good roads (including forest roads) Total 1070.9 980.8 OMMODITY CREDIT CORPORATION Restoration of capital impairment - 94.3 113.0 50.0 Includes regular appropriations and allocations of emergency funds Includes $338M for parity payments and disposal of surplus commodities and #212 # 1940 Budget extimate for party fruits in 1939 365 Department of Agriculture Washington, D. C. March 2, 1939 Hon. Ellison D. Smith. United States Senate. Dear Senator Smith: I am sending you herewith the statement that I presented before your Committee on February 23, together with a set of tables containing material requested by Senators Bankhead, Hatch, Thonas and yourself. Please note that Tables 27 to 30. inclusive, and the accompanying comments entitled "The Cotton Situation and Outlook" constitute the brief summary I referred to at the beginning of my testimony. The following comments are in the nature of a brief summary of the statistical material submitted herewith: Table 1. Cash income from the cotton crop, including paymonts, has exceeded $850,000,000 in every scason since the 1932-33 season when the cash income amounted to only $464,000,000. A sub- stantial part of the income from the 1938-39 crop is represented by payments. The exchange value of the 1938-39 crop. including payments, was 79 percent of the exchange value of the annual crops of 1909-13. In the past 19 years there have been only 6 years when the purchasing power of the cotton crop has approximated or exceeded the pre-war exchange value. Table la shows the annual farm cash income from cotton and cottonseed on a calendar year basis contrasted with national income. No allowance has here been made for the increasing population in the cities and the relatively stable population engaged in producing cotton. The effect of such an adjustment would be to lower the pro-war ratios of income from cotton to the national income. Similar data for wheat. hogs. cattle. and tobacco are contained in Tables 2 to 5. inclusivo, and these too are subject to the qualification that they are not on a por capita basis. Table 6 contains a comparison of income from farm production available for family living with similar nonfarm income on a per capita basis. The qualification to be borne in mind in connection with this table is that it deals with income from farm production only and does not include income that the farm population may receive from sources other than farm production. There are no data available which would indicate whether or not such supplementary income constitutes a different proportion of total farm income than in the'pre-war years. Table 7 shows the marked increase in the production of con- tinuous filament rayon and rayon staple fibor in spocified countries from 1920 to 1937. It is significant to observa that the two countrios where our exports have boon greatly curtailod, namoly Japan and Gormany, now produco more rayon than doos the United States and that substantial portions of rayon products in those countries are now boing used as substitutos for cotton. The rayon output of Japa: and Germany constitutos approximately half of the world total. In 1937 the world production of rayon was oquivalent to 4-1/4 million balos of cotton. Table 8 shows the approximate value of cotton products at various stagos of manufacture and distribution por bale of cotton. While the cost of manufacturing different fabrics varios widely, somo idoa of this cost can be detorminol from Tablo 8. The wholesalo value of white broadcloth for making men's shirts is 3-1/2 times the value of lint cotton, whereas the value of denim for making overalls is 2-1/4 times the value of the lint. The average retail value of garments includes the handling charges and profits between wholesale and retail, as well as manufacturing cost for converting the goods, such as denim, into the finished products, such as overalls. Tables 9, 10, and 11 show spot cotton prices for Brazilian, Indian, and Egyptian cotton both in local currency and in prices at Liverpool in terms of gold. In 1938 cotton prices in Brazil in local currency were supported at a level above that of 1929 and equal to 86 percent of the 10-year average in the 1920 s, whereas in India and in Egypt 1938 prices were substantially below those of 1929 and only about 40 percent of the 10-year average. This support given to internal prices in Brazil through currency operations is the basic factor in the rapid expansion in cotton acreage. On the other hand there has boon no similar acreage expansion in India and Egypt. Tablo 12 contains spot pricos of American, Indian, Egyptian, and 3razilian cotton at Liverpool and comparisons of those throo pricos of American cotton. In 1938 the cotton was inwith normal rolation toJanuary but by January Growths of Indian American, price 1939 in Indian cotton bocamo rolativoly choap: in fact, it was lower relation to Amorican than in any year from 1920 to 1938 on an annual bnsis. Tho same chango took place botwoon January 1938 and 366 1939 in tho caso of Egyptian cotton in relation to American. In the caso of Brazilian cotton, which usually sells at only a slight discount in comparison with American, pricos in January 1939 wore also somowhat below the usual relationship. Table 13 shows exports from the Unitod States annually for the seasons 1920 to 1937 and for the first half of the 1937 and 1938 seasons, togother with pricos of foreign cotton rolativo to American. Table 14 contains prico spreads between the monthly average futuro and spot prices for the months of September, December, and March for each of the soasons from 1920 to date. In recont years in which thore have boon relatively low exports, spot pricos have boon higher than futures in the months of December and March. Tablo 15 deals with the total supply of American cotton in the Unitod States and with consumption, exports, and stocks to indicate the amount of "free" cotton available as of August 1 and February 1 of each season from 1922 to date. Thus, for the 1938-39 season we had available a total supply of 23,000,000 balos; by the ond of January we had consumed domestically 3,332,000; WO had exported 2,192,000; there wore in mill stocks 1,589,000, and in government stooks 11,011,000, making a total thus accounted for of 18,124,000 balos. This leaves a supply of "froo" cotton as of January 31, 1939, of 4,943,000 bales available for domestic consumption and exports for the balance of the season in addition to mill stocks. This supply is lower than for any comparable date in the past 15 years except 1922, 1923, and 1935. If domestic consumption should total 3,300,000 bales during the second half of the present season, and if mill stocks are worked down to 1,250,000 by July 31, and no further increase in loan stocks, there would be available for export less than 2,000,000 bales during the remainder of the present marketing season. Even some of this small supply for export may be untenderable and unspinaable. Tables 16 and 17. Total foreign cotton acreage increased from 29,000,000 acres in 1921 to 59,000,000 acros in 1937. Most of the increase in recent years has occurred in Russia, China, Brazil, Uganda, and Argontina. In India the acronge was largor in 1925 than it has beon in any your sinco that timo, and in Egypt the acronge was larger in 1930 than it has boon in any your since. Increased production has parallolod the increase in acreage, with most of the increase taking placo in the fivo abovo-montioned countrios. Tables 18 and 19. A normal ratio of world carry-over of American cotton to normal production or consumption of American cotton is about 40 percent. The carry-over of American cotton at the end of the 1937-38 season was 74 percent of production. If the carry-over of American cotton at the end of the 1938-39 season is 14.5 million bales, this carry-over will be 122.4 percent of production. -4A normal carry-over of foreign cotton is 45 to 50 percent production. At the end of the 1937-38 season the carry-over of foreign cotton was 49.3 percent of production. While the production and carry-over of foreign cotton have boon increasing, the ratio of carry-over to production has not materially increased. of At prosont lovels of production a normal carry-over of foreign cotton would appear to be between 7 and 8 million balos, which would indicate that the carry-over of foreign cotton is about 1 million balos in excess of normal, whoreas the carry+over of Amorican cotton is 8 to 9 million balos in OXCOSS of normal. The carry-over of Indian cotton at the ond of last soason was in excess of normal, but the carry-over of Egyptian cotton was somowhat bolow normal compared to production, while sundry growths word abovo normal. Tablos 20 to 24, inclusive, show the imports of cotton, by countrios of origin, for the Unitod Kingdom, Gormany, Japan, France, and Italy. In the caso of the Unitod Kingdom, the 1938 imports from the United States amounted to 650,000 balos loss than in 1933, of which about 400,000 wore displaced by the importation from other countries. In the caso of Gormany, the 1938 imports of American cotton amounted to 1,236,000 bales loss than in 1933, of which nearly ono-half was made up by increased imports from other sources, chiefly South America. In the case of Japan, the 1937 imports woro about 890,000 balos less than in 1933. This reduction was more than offset by importation from other countrios, including India, Egypt, and South America. Inports of American cotton into Franco in 1937 wore about 365,000 balos loss than in 1933 and only about 60,000 bales of this roduction was replacod by imports from other sourcos. In the caso of Italy, imports of American cotton in 1938 amounted to 320,000 bales loss than in 1933 and only about 50,000 balos of this roduction was replaced by increased imports from othor countrios. Table 25. Prior to the World War, more then half of the cotton exported from the United Statos wont to two countries the Unitod Kingdon and Gormany. Exports to Gormany included cotton rooxported to other countries, which is no longer truc to anything like the samo oxtont. With the shifting of some of the toxtile industry to the Oriont since the oarly 1920's, Japan has bocomo an important custonor for American cotton. Franco and Italy are countries which have usually takon more than a half million balos of American cotton annually. In the 1937-38 soason WO omported a total of 5,598,000 balos compared with 8,419,000 bales in the 1932-33 season. It is significant to obsorvo that 2,500,000 balos of this 3,000,000 balo reduction in exports occurred in our trade with Gormany, Japan, and Spain. Howover, in 1932 about 300,000 balos of cotton imported by Gormany wore rooxported, while in 1937-38 loss than 500 balos woro rooxportod. 367 -5Table 26 shows the downward drift in our share of cotton consumption abroad and the basic factor related thereto, namely the share of American cotton in the supply available to foreign 1920' our share in world outside between and 49consumption Our supcountries. the United fluctuated States During the 39 percent. plies available for foreign consumption fluctuated between 39 and 55 percent; the year-to-year fluctuation shows close correspondence, In recent years when substantial quantities of American cotton have been impounded under government loans. American cotton available for foreign consumption constituted only a third to a fourth of all cotton available for foreign consumption and this decline in our share in the free supply has been accompanied by a similar decline in our share in total foreign consumption. In 1938, for example, it is estimated that the total supply of American cotton, excluding domestic consumption, is 19 million bales, and the total of all cotton available for foreign consumption about 44 million balos, the supply of American constituting about 43 percent of the total available for foreign markets. But the fact that 11 million bales of the 19 million were hold under government loan reduced the amount of American cotton available to foreign countries to less than 8 million bales and this constitutes only 24 percent of the total supply of all cotton available for foreign consumption. Consequantly. our share in foreign consumption is estimated at less than 23 percent. While our share of supplios available for foreign consumption is thus a basic factor in determining our share in total foreign consumption, there are other factors involved and a release of all government-hold cotton would not moan a proportionate increase in our sharo of world consumption. On the basis of the relationships in this table, it appears that a reduction in government-hold cotton of say 5 million bales would, under normal conditions, increase foreign consumption of American cotton by perhaps as much as 2 million bales, and under presont restrictions on world trado by something less than that amount. It should also be recognized that tho release of 5 million balos would depress the world price of ontton to some extent. It is clear that if we are to regain and hold our fair share of the foreign markot for cotton, WC shall have to adopt such policies as will make available to foreign markets a larger supply than is now available and at prices that are competitive with foreign growths. Sincerely yours, /s/ H. A. WALLACE Secretary 368 LIST OF TABLES Table 1 - Cotton: Cash income from lint, cottonscod and paymonts, purchasing power of crop, and indox of purchasing power, 1909-10 to dato. Table la - Cash farm income from cotton and cottonsood and national income paid out, and ratio of form income from cotton and cottonsood to national income. 1909-38. Tablo 2 - Cash and gross form income from whoat and national income paid out, and ratio of farm income from whoat to national income, 1909-38. Table 3 - Cash and gross farm incomo from hogs and national incomo paid out, and ratio of farm incomo from hogs to national incomo, 1909-38. Tablo 4 - Cash and gross farm income from cattlo and calves and national income paid out, and ratio of farm incono from cattlo and calvos to national income. 1909-38. Table 5 - Cash farm incomo from tobacco and national income paid out, and ratio of farm inconc from tobacco to national incomo, 1909-38. Table 6 - Form and nonform incomo available for living, 1909-38. Table 7 - Production of continuous filanent rayon and rayon staple fiber, in specified countries, 1920 to date. Table 8 - Approximate value of lint cotton and approximate value of cotton products at various stages of manufacture and distribution por balo of cotton. - Spot cotton prices of Brazilion at Sao Paulo and Livorpool. Table 10 - Spot cotton pricos of Indian Oonra No. 1 Finc at Bombay Tablo 9 and Livorpool. Table 11 - Spot cotton pricos of Egyptian Uppers. Fully Good Fair, at Aloxandria and Livorpool. Tablo 12 - Spot price por pound of specified growths at Livorpool. and percentage each growth is of American Middling, 1920-21 to date. Table 13 - Spot prico por pound of specified growths of cotton at Livorpool expressed as a porcentage each growth is of American Middling and exports from the Unitod States. Table 14 - Spread between monthly average future and spot prices during the months of September, December and March, 1920-21 to date. Table 15 - Supply of American cotton in the United States and distribution of American cotton. Table 16 - Cotton: Acreage in specified countries and world total, 1920-21 to date. Table 17 - Cotton: Production in specified countries. and world total, 1920-21 to date. LIST OF TABLES (Cont'd) Table 18 - Cotton, American and Foreign: Production, end of season carry-over, and percentage carry-over of production, 1920-21 to date. Table 19 - Cotton, Indian, Egyptian and Sundry: Production, end of season carry-over, and percentage carry-over is of production, 1924-25 to date. Table 20 - United Kingdom: Imports of cotton by countries, re- exports and net imports, 1921 to date. Table 21 - Germany: Imports of cotton by countries, exports and net imports, 1921 to date. Table 22 - Japan: Imports of cotton by countries, 1921 to date. Table 23 - France: Imports of cotton by countries, exports and Table 24 net imports, 1921 to date. - Italy: Imports of cotton by countries, exports and net imports, Table 25 - Cotton, American: United States, by countries, (1,000 running bales). Table 26 - Available cotton, supply of all cotton consumption, and supply ratio. Table 27 - Cotton: Mill specified growths, specified supply available ratio locations. consumption 1899-1900 1921 and of Exports American consumption for to date. foreign to of from date Table 28 - Cotton: Supplies of specified growths, exports from the United States and price of American. Table 29 - Cotton: Commercial production of specified growths, specified periods. Table 30 - Cotton: Stocks (carry-over) of specified growths on August 1, specified periods. Cotton, Cash income from lint, cottonseed and payments, purchasing power of a and index of purchasing power. 1909-10 to date. : crop Payments . . Million Million Million Million dollars dollars dollars dollars 71.8 748.4 910.6 834.0 676.5 810.5 756.9 787.7 100.1 77.1 . 1910-11 1911-12 1912-13 1913-14 seed Index of Crop, inol.: orices paid . payments by farmers Million dollars 4/ 97 100 100 882.4 98.7 864.7 981.1 1909-10 to 1918-14 782.8 84.9 867.8 4/ 1914-16 1915-16 1916-17 1917-18 1918-19 1919-20 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1979-30 592.0 626.9 162.5 118.3 193.6 674.5 101 745.2 107 77.0 5-year ave. 10-year are., 1920-21 to 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-ST 1937-38 1938-39 6-year are.. 1933-34 to 1938-39 993.8 1,528.4 1,735.2 2,016.2 262.1 275.6 244.7 1,066.7 91.3 675.5 74.4 88.2 1,116.2 1,454.0 1,561.6 1,578.7 1,121.1 1,306.1 1,302.1 1,245.3 124.2 142.5 162.6 150.8 146.2 162.1 145.7 102 1,187.3 1,790.5 2,010.7 2,260.9 1,188.0 124 749.9 164 1,204.4 162 1,678.2 1,704.1 1,741.4 1,251.8 1,456.3 1,464.2 164 148 174 201 206 168 169 Purchasing power of 2/ Total crop payments Million Million dollars dollars 110.8 4/ 77.0 667.8 696.4 957.5 80.2 110.3 130.4 1,209.8 1,155.6 1,124.0 135.2 129.5 65.1 564.9 457.2 743.5 962.3 52.7 85.7 110.9 116.9 118.7 86.4 1,014.3 1,030.4 100.5 101.0 93.4 98.3 1,242.9 127.0 1,369.9 169 610.6 659.2 92.8 752.0 148 808.1 88.6 526.1 454.4 128 47.4 483.6 424.1 630.0 42.4 40.4 48.5 115 411.0 403.8 676.5 5/ 179.7 858.2 125 542.8 115.2 160.2 82.0 63.7 880.1 855.4 987.7 981.7 181 561.0 266.0 566.0 144.5 899.9 629.1 590.2 764.4 105.9 734.9 105.0 141.5 695.2 795.0 123.0 905.7 500.0 8, 100.0 918.0 600.0 651.4 103.9 755.4 payments 96.1 99.6 y 163 167 eropa v 108.2 4/ 1,391.0 167 Index of purchasing power or-ST Total Crop. incl. 938.8 834.0 864.7 961.9 749.6 872.0 876.8 853.4 167 Crop. incl. , 1909-10 lint Total . Crop year Cotton- # Cash income fromCotton 1 Table 1. 46.5 62.5 79.1 64.6 63.1 77.9 76.8 127 547.4 686.5 646.9 673.5 154 675.9 737.1 131 700.8 476.2 749.4 687.3 80.8 126 54.9 84.9 86.4 79.2 129 585.6 697.6 67.5 80.4 77.6 Includes interest and taxes, 1910-14 = 100. Prior to 1923-24 season, index on calendar year basis, 1923-24 season to date, averages of monthly index, August-July, Cash income divided by index of prices paid by fanure. Purchasing power as parent of 1909-18 each income. Comparable data not smilable. Rental and bendfit payments as of Doc. 31, 1937, profite on cotton options as of June 30, 1938. As of Dec. 31, 1937. 7 Preliminary estimates. 8/ Estimated. Source: Income from Agricultural Outlook Charts (Cotton), 1939. U.S.D.A. - AAA - Southern Division January 5. 1930. Includes 1937 Price Adjustment payments and 1938 A.C.P. 3 o 9 Table la. P.H.B. 2-3-39 CASH FARM INCOME FROM COTTON AND COTTONSEED AND NATIONAL INCOME PAID OUT. AND RATIO OF FARM INCOME FROM COTTON AND COTTONSEED TO NATIONAL INCOME, 1909-38 Ratio of Farm cash income from National cotton and income cottonseed paid out Million dollars 1909 880.5 854.7 851.7 968.2 602.0 830.0 1910 1911 1912 1913 1914 1915 1920 1,148.3 1,603.7 1,784.5 2,282.0 1,475.8 1921 852.2 1922 1,147.9 1,568.8 1,663.5 1,762.4 1,222.3 1,500.0 1,452.6 1,512.0 1916 1917 1918 1919 1923 1924 1925 1926 1927 1928 1929 1930 824.1 497.0 460.7 577.6 862.9 711.8 904.9 883.6 667.2 1931 1932 1933 1934 1935 1936 1937 1938 Including Government payments: 26,235 27,924 28,284 30,178 31,890 31,694 32,997 38,794 47,192 55,097 60,150 64,115 53,644 57,037 64,501 68,160 72,580 74,795 75,685 77,359 79,704 73,542 61,609 48,644 46,089 53,172 57,564 64,809 71,013 65,991 income from cotton and cottonsoed to national income Percent 3.15 3.02 2.82 3.04 1.90 2.52 2.96 3.40 3.24 3.79 2.30 1.59 2.01 2.43 2.44 2.43 1.63 1.98 1.88 1.90 1.12 0.81 0.95 1.25 1.62 1.24 1.40 1.24 1.01 1933 689.0 1.49 1934 1,005.2 1.89 1935 1936 1937 1938 857.7 990.9 952.8 933.2 1.49 1.53 1.34 1.41 Sources: Farm income, Bureau of Agricultural Economics, except that Government esti- payments since 1935 are Agricultural Adjustment Administration mates of payments applicable toyear's the production rather than cal Admir endar year payments; national income, Agricultural Adjustment tration estimates based on Department of Commerce national income studies and Bureau of Agricultural Economics farm income data. AAA, Division of Program Planning, Agricultural-Industrial Relations Section P.H.B. Table 2 2-3-39 370 CASH AND CROSS FARM INCOME FROM WHEAT AND NATIONAL INCOME PAID OUT. AND RATIO OF FARM INCOME FROM WHEAT TO NATIONAL INCOME, 1909-36 Farm income from wheat Gross Cash National income paid out Ratio of income from wheat to national income Gross income Million dollars 1909 1910 1911 1913 1913 1914 1915 1916 1917 1916 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 505.5 456.9 503.4 503.8 684.3 786.4 844.3 494.6 446.0 493.3 492.9 674.0 773.4 828.6 1,092.0 1,560.7 1,597.8 1,394.0 1,066.9 1,532.7 1,572.4 1,367.8 880.4 673.5 616.9 811.5 860.8 857.9 907.2 780.7 735.0 460.5 273.7 207.0 316.3 330.6 386.0 464.5 617.5 440.0 866.0 661.0 605.0 798.8 843.6 842.9 895.0 770.5 726.9 451.4 265.7 199.8 304.0 316.7 372.2 450.8 603.0 430.4 Including Government Payments: 322.4 1933 1934 1935 1936 1937 1938 334.7 459.0 494.9 519.5 647.5 500.0 445.1 481.1 505.8 633.0 490.4 Cash income Percent 26,235 27,924 28,284 30,178 31,890 31,694 32,997 38,794 47,192 55,097 60,150 64,115 53,644 57,037 64,501 68,160 72,580 74,795 75,685 77,359 79,704 73,542 61,609 48,644 46,089 53,172 57,564 64,809 71,013 65,991 1.81 1.62 1.67 1.58 2.16 3.38 2.18 2.31 2.83 2.66 2.17 1.64 1.18 0.96 1.19 1.19 1.15 1.20 1.01 0.92 0.63 0.44 0.43 0.69 0.62 0.67 0.72 0.87 0.67 0.73 0.86 0.86 0.80 0.91 0.76 1.77 1.58 1.63 1.55 2.13 2.34 2.14 2.26 2.78 2.61 2.13 1.61 1.16 0.94 1.17 1.16 1.13 1.18 1.00 0.91 0.61 0.43 0.41 0.66 0.60 0.65 0.70 0.85 0.65 0.70 0.84 0.84 0.78 0.89 0.74 Sources: Farm income, Bureau of Agricultural Economics, except that Government payments since 1935 are Agricultural Adjustment Administration estimates of payments applicable to the year's production rather than calendar year payments; national income. Agricultural Adjustment Administration estimates based on Department of Commerce national income studies and Bureau of Agricultural Economics farm income data. 111 AAA, Division of Program Planning, vicultural-Industrial Relations Section. coffee GKA P.H.B. 2-3-39 Table 3 CASH AND GROSS FARM INCOME FROM HOGS AND NATIONAL INCOME PAID OUT, AND RATIO OF FARM INCOME FROM HOGS TO NATIONAL INCOME. 1909-38 Ratio of income Farm income National from hogs income Gross 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 292.3 907.3 797.0 829.4 947.7 921.4 885.6 1,185.9 1,692.7 2,371.8 2,433.3 1,803.1 1,105.1 1,271.4 1,238.5 1,283.4 1,621.1 1,729.7 1,510.2 1,447.9 1,540.6 1,368.7 Cash paid out Million dollars 592.8 669.9 617.0 647.5 740.5 712.5 691.2 949.0 1,298.9 1.866.3 1.911.2 1,384.9 856.9 1,023.6 1,027.1 1,064.0 1,318.6 1,407.2 1,237.5 1,218.5 1,296.8 1,135.5 949.8 557.2 631.5 646.0 877.6 774.2 444.6 1,211.4 1,140.7 1,090.0 964.7 906.5 856.0 523.9 520.6 671.4 749.0 1935 1,011.6 1,246.4 1,150.7 1,124.0 1936 1937 1938 623.6 805.4 999.7 916.5 890.0 national income Gross Cash income income Percent 26,235 27,924 28,284 30,178 31,890 31,694 32,997 3.02 3.25 2.62 2.75 2.97 2.91 2.18 2.68 2.09 38,794 47,192 3.06 3.59 4.30 4.05 2.82 2.06 2.45 2.23 1.92 1.88 2.23 2.31 2.00 1.87 1.93 1.86 1.54 1.15 1.37 1.21 1.52 1.87 1.61 1.65 1.79 55,097 60,150 64,115 53,644 57,037 64,501 8,160 72,580 74,795 75,685 77,369 79,704 73,542 61,609 48,644 46,089 53,172 57,564 64,809 71,013 65,991 Including Government payments: 1934 from hogs to 0.888 1.41 1.76 1.92 1.62 1.70 2.26 2.40 2.15 2.32 2.25 2.75 3.39 3.18 2.16 1.60 1.59 1.56 1.82 1.88 1.64 1.58 1.63 1.54 1.26 0.91 1.14 0.98 1.17 1.49 1.28 1.30 1.17 1.40 1.54 1.29 1.35 Sources: Farm income, Bureau of Agricultural Economics, except that Government payments since 1935 are Agricultural Adjustment Administration estimates; national income, Agricultural Ad- justment Administration estimates based on Department of Commerce national income studies and Bureau of Agricultural Economics farm income data. assays 30 AAA, Div. of Program Planning, Agricultural-Industrial Relations Section. 371 HAS P.H.B. Table 4 2-3-39 CASH AND GROSS FARM INCOME FROM CATTLE AND CALVES AND NATIONAL INCOME PAID OUT, AND RATIO OF FARM INCOME FROM CATTLE AND CALVES TO NATIONAL INCOME, 1909-38 Ratio of income from cattle Farm income from cattle National and calves income Gross Cash paid out and calves to national income Gross income 1911 814.3 882.6 812.7 1912 917.1 1910 1914 1,035.6 1,022.6 1915 998.9 1913 785.4 851.0 783.7 884.6 999.3 985.5 965.6 1,131.7 1920 1,166.5 1,693.0 2,076.6 1,967.7 1,569.5 1,650.8 2,028.8 1,920.8 1,528.4 1921 902.8 875.9 1922 1,063.4 1,068.5 1,148.8 1,275.7 1,294.1 1,359.6 1,581.1 1,519.2 1,204.3 1,037.1 1,042.5 1,118.8 1,252.1 1,271.3 1,335.9 1,555.8 1,494.8 1,183.6 1916 1917 1918 1919 1923 1924 1925 1926 1927 1928 1929 1930 854.1 635.5 613.5 830.2 838.0 620.6 599.5 815.4 1936 1,382.5 1,118.5 1937 1,240.2 1938 932.0 1,061.8 1,097.8 1,217.2 909.0 1931 1932 1933 1934 1935 26,235 27,924 28,284 30,178 31,890 31,694 32,997 38,794 47,192 55,097 60,150 64,115 53,644 57,037 64,501 68,160 72,580 74,795 75,685 77,359 79,704 73,542 61,609 48,644 46,089 53,172 57,564 64,809 71,013 65,991 income Percent Million dollars 1909 Cash 3.10 3.16 2.87 3.04 3.25 3.23 3.03 3.01 3.59 3.77 3.27 2.45 1.68 1.86 1.66 1.68 1.76 1.73 1.80 2.04 1.91 1.64 1.39 1.31 1.33 1.56 1.88 1.73 1.75 1.41 2.99 3.05 2.77 2.93 3.13 3.11 2.93 2.92 3.50 3.66 3.19 2.38 1.63 1.82 1.62 1.64 1.73 1.70 1.77 2.01 1.88 1.61 1.36 1.28 1.30 1.53 1.84 1.69 1.71 1.38 Source: Farm income, Bureau of Agricultural Economics: national income Agricultural Adjustment Administration estimates based on Department of Commerce national income studies and Bureau of Agricultural Economics farm income data. scoont Innotent AAA, Div. of Program Planning, Agricultural-Industria Relations vic Section. action anothing AAR Table 5. P.H.B. 2-3-39 CASH FARM INCOME FROM TOBACCO AND NATIONAL INCOME PAID OUT, AND RATIO OF FARM INCOME FROM TOBACCO TO NATIONAL INCOME, 1909-38 Ratio of Farm cash National income from income tobacco paid out Million dollars 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 87.8 101.9 95.8 108.5 134.9 99.2 93.2 138.8 241.5 343.2 499.9 294.7 252.4 248.8 275.6 260.1 259.6 239.6 245.6 247.5 278.7 243.9 156.8 115.2 156.5 235.9 242.5 243.2 318.3 294.1 Including Government payments: 1933 1934 1935 1936 1937 1938 157.8 252.5 275.6 259.2 329.3 303.1 26,235 27,924 28,284 30,178 31,890 31,694 32,997 38,794 47,192 55,097 60,150 64,115 53,644 57,037 64,501 68,160 72,580 74,795 75,685 77,359 79,704 73,542 61,609 48,644 46,089 53,172 57,564 64,809 71,013 65,991 income from tobacco to national income -Percent-0.33 0.36 0.34 0.36 0.42 0.31 0.28 0.36 0.51 0.62 0.83 0.46 0.47 0.44 0.43 0.38 0.36 0.32 0.32 0.32 0.35 0.33 0.25 0.24 0.34 0.44 0.42 0.38 0.45 0.45 0.34 0.47 0.48 0.40 0.46 0.46 Sources: Farm income, Bureau of Agricultural Economics, except that Government payments since 1935 are Agricultural Adjustment Administration estimates of payments applicable to the year's production rather than calendar year payments; national income, Agricultural Adjustment Administration estimates based on Department of Commerce national income studies and Bureau of Agricultural Economics farm income data. AAA, Div. of Program Planning, Agricultural-Industrial Relations Section 372 2-18-59 Table 6. FARM AND NONFARM INCOME AVAILABLE FOR LIVING, 1909-1938 Selected Gross farm income 1 Tarm income business available expenditures 2 for living 3/ (Mil.) 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938(P) Nonfarm farm (Mil.) (Mil.) 1934 1935 1936 1937 1938(P) for living 4 (000) Farm nonfarm (Mil.) $6,238 6,643 6,372 6,784 6,975 7,028 $1,893 2,003 2,143 2,188 2,408 2,478 $4,345 4,640 4,229 4,596 4,573 4,552 $21,442 22,806 23,561 25,064 26,776 26,598 32,000 32,007 32,110 32,120 32,120 32,100 57,882 59,402 60,865 62,270 63,685 65,120 7,395 8,914 12,832 15,101 16,935 13,566 2,587 3,076 3,929 4,600 5,337 5,492 4,806 5,838 8,903 10,501 11,598 8,074 27,595 32,253 37,387 43,579 47,368 54,871 32,050 31,990 31,930 31,820 31,730 31,614 66,566 68,060 69,535 71,060 72,566 74,097 8,927 9,944 11,041 11,483 12,243 11,791 4,600 4,507 4,490 4,557 4,817 4,922 4,327 5,437 6,551 6,926 7,426 6,869 48,463 50,626 57,923 60,136 63,978 66,740 31,763 31,749 31,138 30,817 30,830 30,619 11,753 12,016 12,049 9,847 7,042 5,284 5,980 6,836 7,817 9,030 9,611 8,400 4,914 5,108 5,219 4,732 3,961 3,480 6,839 6,908 6,830 5,115 3,081 1,804 3,383 3,460 3,580 3,725 3,900 3,650 2,147 3,376 4,237 5,305 5,711 4,750 67,636 69,182 71,526 67,169 57,317 45,456 41,878 47,630 50,837 57,556 63,047 58,745 30,170 30,188 30,220 30,169 30,497 30,971 31,693 31,770 31,801 31,809 31,729 31,819 75,612 77,291 79,575 81,553 83,205 85,081 87,194 88,841 90,474 92,328 93,190 93,608 93,694 94,464 95,351 96,215 97,148 97,881 Including benefits: 1933 Population5 national income avail. 6,142 7,392 8,400 9,317 9,978 8,882 (P) Preliminary estimates. 2,759 3,932 4,820 5,592 6,078 5,232 Table 6 Cont. FARM AND NONFARM INCOME AVAILABLE FOR LIVING, 1809-1938 (Continued) Index numbers: 1910-14=100 Per capita income Ratio farm available for living 6 Farm 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938(P) Nonfarm 96.8 121.6 149.5 159.7 171.2 159.4 92.5 95.9 95.7 100.5 105.0 102.0 103.5 118.3 134.3 153.2 163.0 184.9 160.0 163.6 181.8 184.1 192.0 195.9 161.1 162.6 160.6 120.4 71.8 41.3 193.7 194.5 197.4 181.7 153.6 121.3 48.1 75.5 94.6 118.5 127.9 106.1 111.6 125.9 133.2 149.4 162.1 149.9 96.5 102.8 93.6 101.7 101.2 100.7 106.6 129.7 198.1 234.5 259.7 181.5 to nonfarm 104.3 107.2 96.8 101.2 96.4 98.7 103.0 109.6 147.5 153.1 159.3 98.2 , essa 60.5 74.3 82.2 86.7 89.2 81.4 83.2 83.6 81.4 66.3 46.7 34.0 43.1 60.0 71.0 79.3 78.9 70.8 Including benefits: 1933 1934 1935 1936 1937 1938(P) 61.9 88.0 107.7 124.9 136.1 116.8 (P) Preliminary estimates. 55.5 69.9 80.9 83.6 84.0 77.9 373 3- FARM AND NONFARM INCOME AVAILABLE FOR LIVING, 1909-1938 (continuod) 1 Exclusive of all incomo arising from nonfarm sources, such as wagos, interest, ponsions, etc., received by persons living on farms. From production prior to 1924 and for calendar yours thorcaftor. 2/ The solocted expenditures include: Food, fortilizor, machinory oporation, doprociation and obsolosconco of machinery and buildings, harnoss and aaddlery, seed, rents to nonfarmers, ginning costs, short-term interest, and 90 percent of property taxes and mortgage interest (the other 10 percent is assumed to be chargeable to the farm home). For published estimates of indivudual expense items see "Agricultural Statistics, 1938," pago 434. 3 Column one minus column two. Nonfarm national income available for living includes: componsation of employees, withdrawals of ontropronours, dividends, interest, and not ronts and royaltios. Excludor all incomo arising from agricultural sources received by nonfarmors; but offsctting 4 this, in part at loast, is the inclusion of incomo received by farmors from their nonagricultural pursuits and investments. From 1909 to 1928 inclusivo, national "Ronlized Incomo from Production of Goods and Services," minus roolized agricultural income, pagos 152-3, Amorica's Capacity to Consumo, a Brookings Institution publication. Willford I. King's ostinatos of national incomo woro used by Brookings in arriving at thoso ostimatos of roolizod income. From 1929 to 1937 inclusivo, national income "Paid Out," ninus agricultural income paid out and not farm rontal payments as estimated by the U. 8. Department of Commerce. Some of the basic data used appear on page 12 of the June 1938 Survey of Current Business. The net farm rental payments (that is, gross payments minus taxes, drpreciation, and other costs of maintaining farm property rented out) which were also subtracted, in arriving at nonfarm national income, are unpublished estimatos furnished by the U. S. Department of Commorco. Thoso not farm rontal payments are included as a portion of total not ronts and royaltics in 5 the published U. S. Department of Commorco national income studios. The 1938 estimates are those of the Agricultural Adjustment Administration. January 1st ostimatos. As doterminod by uso of data explained undor footnotos 3, 4, and 5. AAA, Div. of Program Planning, Agricultural - Industrial Relations Section. Tablo 7. Production of continuous filamont rayon and rayon staple fibor, in specified countries, 1920 to date Year Unitod Statos Japan Gormany Italy Great Britain: Franco Othor World total Equivalon in Million Million Million Million Million Million Million Million pounds pounds pounds pounds pounds pounds pounds pounds 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 10.1 15.0 24.1 35.0 36.3 51.0 62.7 75.6 97.2 121.9 127.7 151.8 135.8 215.6 210.5 262.2 289.9 341.9 10.5 16.5 27.0 5.2 7.7 11.0 14.3 23.2 26.0 24.7 41.3 48.9 60.8 36.6 49.0 70.2 99.3 157.8 237.9 320.8 509.1 63.4 60.3 60.9 71.6 100.6 135.5 193.6 345.0 .2 .2 .5 .8 1.4 3.2 5.0 11.0 17.6 30.8 36.8 53.8 57.3 73.0 6.0 9.0 14.5 17.0 24.7 29.8 25.5 38.8 52.1 55.3 3.4 4.4 6.8 7.7 13.2 14.3 19.2 24.2 29.9 41.8 6.6 8.7 13.1 17.2 21.9 30.2 37.8 50.9 58.5 62.6 67.0 75.6 71.7 84.4 107.4 153.4 196.1 262.9 17.8 53.9 71.1 82.5 91.3 121.5 143.0 152.4 50.6 41.5 52.2 59.2 61.6 66.7 65.9 77.7 64.3 67.6 72.5 78.6 95.1 101.7 109.8 129.3 1.6 3.2 6.6 33.1 cotto 1,000 bales 77.3 48.2 113.4 76.6 180.2 103.0 242.4 138.3 325 185.3 436.1 211.7 498.1 295.1 694.4 360.4 848.0 442.4 1,040.8 437.4 1,076.1 508.7 1.19 534.4 1,25 691.2 1,626 824.3 1,939 1,078.9 1,319.1 1,818.3 2,538. 3,108 4,278. Rayon staple fiber production not given prior to 1929. 1 On basis of 425 1b. rayon to 500 1b. gross weight bale of cotton. Source: Compiled from the Rayon Organon by the Bureau of Agricultural Fibers', "Report on Development and Use of Rayon and other Synthetic October 1938. Southern Division December 30, 1938 21 TOXIMATE Table 8. Approximate value of lint cotton and at various stages of manufacture and distribution por bale of cotton. retail Wholes ale Average retail High value of Item Cost of Lint cotton value of fabric value of garments 3/ 2/ garments 3/ Low retail value of garments 3 Dollars per bale Men's shirts, 4.10 yard, White Broadcloth Pajamas, printed, 3.35 yard print cloth $40.00 40.00 $ 133.00 - $775.00 $ 1,000.00 $ 580.00 600.00 650.00 550.00 Men's pajamas, 4.10 yard Solid Color 40.00 159.00 580.00 680.00 435.00 Men's shirts, 3.90 yard Chambrey, 40.00 144.00 540.00 650.00 440.00 Men's shirts, 5.90 yard covert, 40.00 - 530.00 660.00 400.00 Trousers, work, 8 ounce Khaki drill, 40.00 114.00 530.00 610.00 420.00 520.00 650.00 400.00 460.00 650.00 360.00 420.00 610.00 350.00 270.00 360.00 185.00 Broadcloth sanforized sanforized sanforised Trousers, work, 2.50 yard Khaki drill, regular finish 40.00 Men's shirts. 3.90 yard chambray 40.00 Men's shorts, printed, 80 x 60 Broad- 40.00 regular finish cloth Overalls, 2.20 Denim 40.00 - 110.00 - 90.00 1/ No allowance saue for seconds. 2/ Based on W.P.A. purchases and Daily News Record Prices June, 1938. 3/ Based on proliminary government data, March, 1938. Oct. 17. 1938. E 374 Table 9. Spot Cotton Prices of Brazilian 8 at Sao Paulo and Liverpool Sao Paulo Price 1 Local currency Percentage Sao Paulo price of Liverpool price: (Sao Paulo Fair 10-year average (Milrois per Arroba) of 15 kilograms ) 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926.27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 2/ 10-yoar average 1920-21 to 1930-31 (Cents per pound) 64.4 68.0 131.2 178.7 132.1 73.3 72.1 105.0 96.2 78.9 68.2 81.8 109.4 79.3 114.8 106,9 107.9 88.6 86.0 18.28 19.36 27.58 32.31 56.53 as percentage of American Middling (Percent) 36.41 38.46 74.14 101.04 74.67 41.46 40.77 59.37 56.40 44.62 38.54 46.25 61.86 44.85 64.90 60.44 61.02 50.07 48.64 Liverpool price 27.22 20.48 15.13 21.72 20.64 17.27 11.36 7.50 8.61 12.28 13.86 13.45 (Percent) 92.2 95.9 96.0 97.9 100.6 93.7 91.2 95.9 96.6 93.6 98.1 99.4 101.0 98.8 97.4 99.8 14.12 10.18 9.54 96.6 22.00 95.4 98.7 96.2 Source: Relatorio prior da Diroctoria Contas, Documentos Pavecor da Commissao Fiscal, American to Dec. 1934. From Jan. 1935 to date, monthly reports of the Association. 1 Type 5 cotton. Consul General at Sao Paulo. Reports of the Liverpool Cotton Average of 4 months August November. Southern Division February 24, 1939 375 Table 10. Spot Cotton Prices of Indian Oomra No. 1 Fine at Bombay and Liverpool Bombay price, Local currency Percentage Bombay price of 10-year average (Rupees per Candy) (Percent) 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926.27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1 10-year average 1920.21 to 1939-30 168 71.7 112.0 124.2 146.7 122.0 95.9 78.0 97.8 84.2 66.3 45.7 174 47.3 264 412 457 540 449 353 287 360 310 244 189 175 208 198 212 152 139 51.4 47.6 56.5 53.8 57.6 41.3 37.8 368 Liverpool price (Cents per pound) Liverpool price as percentage of American Middling (Percent) 14.14 16.71 21.26 24.37 23.49 18.15 14.58 18.66 16.30 12.95 8.19 6.76 7.29 9.35 10.78 10.78 10.87 7.96 7.12 71.6 82.6 74.2 73.9 86.7 83.2 88.0 82.4 76.4 70.2 70.6 90.0 86.1 75.1 75.8 79.9 74.4 77.1 71.9 18.06 78.9 Source: 3ombay Cotton Annual, and Reports of the Liverpool Cotton Association. 1 Average of 4 months, August-November. Southern Division, February 24, 1939 Table 11. Spot Cotton Prices of Egyptian Uppers, Fully Good Fair, At Alexandria and Liverpool Alexandria price Local currency (Tallaris por Cantar) 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928.29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1 10-your average 1920-21 to 1929-30 28.90 26.32 28.28 38.38 33.38 24.86 20.09 27.08 22.35 19.57 12.10 9.72 12.45 11.61 13.31 13.58 15.14 10.62 10.76 Percent Alexandria price of 10-year average (Percent) 107.4 97.8 105.1 142.6 124.0 92.3 74.6 100.6 83.0 72.7 44.9 56.1 46.2 43.1 49.4 50.4 56.2 39.5 40.0 26.92 Liverpool price Liverpoolpria as percentage of American Middling (Conts por pound) 28.20 26.63 29.96 38.19 38.30 29.14 23.55 29.71 24.57 21.25 13.95 8.93 10.61 13.77 15.49 15.49 17.40 13.10 12.56 28.95 (Percent) 139.7 132.4 104.6 116.0 141.4 133.1 142.5 131.3 115.0 115.7 119.9 118.5 125.2 110.8 108.8 114.8 119.0 126.7 126.7 127.2 Source: Annunire Statistiquo de L'Egypt, and Reports of the Liverpool Cotton Asst ciation. 1 Average of 4 months, August - November. Southern Division February 24, 1939 Table 12. Season beginning August 1 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 American Middling 7/8 Inch Cents 19.73 20.19 28.70 32.99 27.09 21.82 16.57 22.65 21.36 18.44 bling. 1920-21 to date. growth is of American As percentage of American Middling Actual price per pound Brazilian Indian Egyptian Brazilian Indian Sao Paulo Egyptian Oomra Uppers Fair F. G. F. No. 1 Fine cents 14.14 16.71 21.26 24.37 23.49 18.15 14.58 18.66 16.30 12.95 8.19 6.76 7.29 Cents 28.20 26.63 29.96 38.19 38.30 29.14 23.55 29.71 24.57 21.25 Cents 18.28 19.36 27.58 32.31 27.22 20.48 15.13 21.72 20.64 17.27 11.36 7.50 8.61 12.28 13.86 13.45 14.12 10.18 9.55 Percent 123.3 76.5 72.2 133.8 128.0 98.1 96.7 10.29 9.61 78.3 69.0 126.7 113.9 100.0 95.2 22.00 78.7 126.1 95.9 1938-39 1 14.24 13.50 14.62 10.31 9.96 10.78 10.78 10.87 7.96 7.08 Sept. 1937 Sept. 1938 11.06 9.59 8.46 6.93 14.80 12.27 10.86 9.27 Jan. 1938 Jan. 1939 10.29 10.10 8.06 6.97 13.04 11.54 28.95 9.35 10-yr. ave. 16.06 1920-21 to 1929-30 22.95 1 Average of b months, August-January 139.7 132.4 Percent 92.2 95.9 96.0 97.9 100.6 93.7 91.2 95.9 96.6 93.6 98.1 99.4 101.0 98.8 97.4 99.8 96.6 98.7 95.9 13.95 8.93 10.61 13.77 15.49 15.49 17.40 13.10 12.28 11.61 7.54 8.52 12.47 71.6 82.6 74.2 73.9 86.7 83.2 68.0 82.4 76.4 70.2 70.6 90.0 86.1 75.1 75.8 79.9 74.4 77.1 71.1 Percent 104.6 116.0 141.4 133.1 142.5 131.3 115.0 115.7 119.9 118.5 125.2 110.8 108.8 114.8 119.0 126.7 Source: Bureau of Agricultural Economics from reports of the Liverpool Cotton Association. Southern Division February 24, 1939 kc Table 13. Spot Price Per Pound of Specified Growths of Cotton as Liverpool Expressed as a Percentage Each Growth is of American Middling and Exports from the United States Season As Percentage of American Middling Indian I (Percent) 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1936-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1926-37 1937-38 1937-38 1938-39 Egyptian (Percent) Brazilian (Percent) 92.2 95.9 96.0 Exports from the United States (1,000 running bales) 86.1 75.1 75.8 79.9 74.4 77.1 139.7 132.4 104.6 116.0 141.4 133.1 142.5 131.3 115.0 115.7 119.9 118.5 125.2 110.8 108.8 114.8 119.0 126.7 97.9 100.6 93.7 91.2 95.9 96.6 93.6 98.1 99.4 101.0 98.8 97.4 99.8 96.6 98.7 5,745 6,184 4,823 5,666 8,005 8,051 10,927 7,542 8,044 6,690 6,760 8,707 8,419 7,534 4,798 5,973 5,440 5,598 78.4 71.1 132.0 123.3 98.9 95.9 3,832 2,192 71.6 82.6 74.2 73.9 86.7 83.2 88.0 82.4 76.4 70.2 70.6 90.0 Source: Compiled from reports of the Liverpool Cotton Association, Bureau of the Census, and New York Cotton Exchange. 1/ 2 Indian Oomra No. 1 Fine, Egyptian Uppers F.G.F., and Brazilian Sao Paulo Fair. Percentages are averages of 6 months, August-January Exports, total 6 months, August-January. Southern Division February 24, 1939 1 1930-31 10-spot Markets (Cents per (Cents per pound) pound) 21.00 26.77 23.14 23.48 16.78 22.12 28.24 19.50 20.72 27.57 22.74 23.23 15.96 21.19 (Hundredths of a cent) 5.80 .38 .28 .90 .40 .25 .82 .93 .37 17.72 7.27 8.07 5.83 1.25 1.44 1.44 7.40 .67 10.26 9.19 1.07 13.08 10.68 12.85 .23 10.48 12.05 .20 11.82 9.04 7.92 18.01 10.15 8.10 and (Cents per pound) pound) 15.35 16.35 23.76 28.42 23.59 18.10 12.99 18.89 19.42 17.75 10.84 6.90 6.31 .23 .18 8.32 7.54 .32 10-spot (Cents per 10.58 12.39 10.80 11.59 8.72 Spots above Markets 1 18.09 19.26 11.59 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1/ below futures Average 14.63 17.47 25.40 .70 1.12 1.64 19.31 11.81 1.21 18.99 19.07 16.64 .19 below futures (Cents per (Cents per pound) pound) (Hundredths of a cent) .10 .35 1.11 1.68 1.12 .66 30.21 4.51 24.82 25.12 28.54 3.72 14.57 18.41 20.25 15.21 11.72 7.34 .59 6.80 .71 12.44 12.60 .21 11.70 .90 10.18 12.60 1.01 13.12 8.99 .16 8.45 Source: Bureau of Agricultural Economics and New York Cotton Exchange Service. .91 1.94 11.19 17.12 11.19 8.16 and 13.13 16.48 25.70 17.17 1.18 9.16 5.78 5.72 9.87 Most distant month Southurn Division February 25, 1939 (Hundredths of a cent) 5.97 Spots above Futures below futures 34.39 23.40 Average 10-spot Markets New York 1 1921-22 1922-23 1023-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 Futures and : 1920-21 New York Spots above Futures 22.44 19.12 March December September New York Average Season Spread between Monthly Average Future and Spot Prices during the Months of September, December and March, 1920-21 to Date. : Table 141 25.51 .39 18.33 13.74 1.16 18.76 19.78 .35 .83 .47 .47 14.74 10.15 1.57 6.44 6.19 .61 12.09 11.57 11.38 14.15 8.89 .90 .35 .38 1.20 1.03 .10 Table 15. Supply of American Cotton in the United States and Distribution of American Cotton For Two Periods Aug. 1 - Jan. 31 and Feb. 1 - July 31 Supply Period and Season Distribution in the Con- United sump- States 1/ Exports tion Mill2/ Stocks Gov't. Total Stocks "Free Cotton' (In Thousands of Running Bales) Aug. 1 to Jan. 31 1922-23 13,168 3,272 3,362 1,909 8,543 4,625 Aug. 1 to Jan. 31 1923-24 12,521 3,096 3,832 1,553 8,481 4,040 Aug. 1 to Jan. 31 1924-25 15,267 2,953 5,342 1,371 9,666 5,601 Aug. 1 to Jan. 31 1925-26 17,651 3,180 5,382 1,745 10,307 7,344 Aug. 1 to Jan. 31 1926-27 21,344 3,429 6,645 1,787 11,861 9,483 Aug. 1 to Jan. 31 1927-28 16,499 3,627 4,534 1,625 9,786 6,713 Aug. 1 to Jan. 31 1928-29 16,844 3,448 5,557 1,697 10,702 6,142 Aug. 1 to Jan. 31 1929-30 16,843 3,314 4,893 1,730 1,315 11,252 5,591 Aug. 1 to Jan. 31 1930-31 18,292 2,460 4,466 1,522 3,592 12,040 6,252 Aug. 1 to Jan. 31 1931-32 23,087 2,626 4,897 1,583 3,389 12,495 10,592 Aug. 1 to Jan. 31 1932-33 22,390 2,812 4,968 1,455 2,579 11,814 10,576 Aug. 1 to Jan. 31 1933-34 20,728 2,923 4,902 1,557 4,004 13,386 7,342 Aug. 1 to Jan. 31 1934-35 17,196 2,622 2,874 1,148 5,531 12,175 5,021 Aug. 1 to Jan. 31 Aug. 1 to Jan. 31 1935-36 17,528 2,954 4,002 1,406 5,095 13,457 4,071 1936-37 1937-38 1938-39 17,498 22,544 23,067 3.773 3.003 3.332 3,464 3,866 2.192 2,041 1.716 1.589 3,018 6,513 11.011 12,296 15,098 18.124 5,202 7.446 4.943 Aua 1 to Jan. 31 And Table 15. Continued - Supply of American Cotton in the United States and Distribution of American Cotton Distribution Supply Period and Season in the Con- United sump- States 1 tion "Free Exports Mill Gov't Stocks 2/ Stocks (In Thousands of Running Bales) Total cotton" 3/ Feb. 1 to July 31 1922-23 7,003 3,394 1,427 981 5,802 1,201 Feb. 1 to July 31 Feb. 1 to July 31 1923-24 5,821 2,585 1,815 638 5,038 783 1924-25 7,383 3,240 2,657 787 6,684 699 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 Feb. 1 to July 31 1925-26 9.377 3,276 2,663 1,010 6,949 2,428 1926-27 11,721 3,761 4,318 1,325 9,404 2,317 1927-28 8,723 3,207 3,105 935 7,247 1,476 1928-29 8,234 3,643 2,495 932 333 7,404 830 1929-30 8,968 2,792 1,804 1,048 1,312 6,956 2,012 1930-31 11,486 2,803 2,354 922 3.393 9,472 2,014 1931-32 15,762 2,240 3,857 1,163 2,379 9,639 6,123 1932-33 14,909 3,325 3,458 1,298 1,129 9,210 5,699 1933-34 13,133 2,777 2,650 1,172 3,002 9,601 3.532 1934-35 12,560 2,619 1,942 749 5,088 10,398 2,162 1935-36 10,641 3,267 2,038 855 3,237 9.397 1,244 1936-37 10,429 3,995 2,047 1,218 1,665 8,925 1,504 1937-38 15,865 2,613 1,806 1,223 6,964 12,605 3,259 1 Supply first half of season includes carryover August 1, plus ginnings from August 1 to January 31 plus 2/ city crop accumulations. Stocks in consuming establishments on January 31 and July 31. "Free Cotton" is defined as that cotton which is available for trade channels and does not include mill stocks. Supply minus total distribution equals "Free Cotton". Southern Division Table 16. - Cotton: Acreage in specified countries and world total, 1920-21 to date Crop year 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 2 1938-39 2 United States India China 1 1,000 acres 1,000 acres 1,000 acres 34,408 28,678 31,361 35,550 39,501 44,386 44,608 38,342 42,434 43,232 43,414 38,704 35,891 29,383 26,866 27,640 30,028 34,001 25,346 21,339 18,451 21,804 23,631 26,801 28,403 24,822 24,761 27,053 25,922 23,812 23,722 22,483 24,137 23,972 25,999 25,219 26,084 25,180 5,503 5,834 5,504 5,425 5,041 5,000 5,500 6,000 5,351 5,964 6,068 5,618 6,772 6,721 7,078 6,250 8,447 9,300 5,580 Russia Egypt Brazil 1,000 acres 1,000 acres 1,000 acros 1,897 1,239 1,869 1,780 1,856 1,998 1,854 1,574 1,805 1,911 2,162 1,747 1,135 1,873 1,798 1,733 1,781 2,053 1,852 948 242 258 1,257 1,511 1,550 1,912 1,542 1,422 1,376 1,393 1,726 1,694 2,000 1,703 2,851 3,981 5,054 5,220 6,672 165 268 346 275 419 281 574 272 611 293 570 316 315 296 174 527 1,244 1,464 1,631 1,981 2,400 2,608 3,911 5,281 5,367 5,070 4,787 4,827 5,023 5,163 5,108 Uganda Peru 1,000 acres 1,000 acres 533 316 700 283 663 316 740 330 866 314 1,071 1,091 1,186 1,366 1,487 1,759 1,502 1939-40 1940-41 Includes Manchuria. Preliminary. Continued 304 322 368 400 409 388 1 379 Table 16.--Cotton: Acreage in specified countries, and world total, 1920-21 to date-continued Mexico Argen- tina year Sudan 1,000 1,000 acres 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 2 1938-39 2 Chosen Turkey acres 1,000 acres 1,000 1,000 Belgian Congo garia foreign 1.000 1,000 74 59 85 359 241 39 87 362 1 343 56 64 370 1/ 124 155 116 389 1/ 185 292 958 174 418 396 148 346 272 239 485 392 173 425 177 216 529 346 235 613 210 239 503 235 272 326 245 284 503 407 265 502 301 369 456 301 314 492 387 473 337 315 609 390 336 472 368 336 491 319 325 390 472 342 358 192 482 333 432 401 539 424 365 474 062 707 486 418 392 514 751 763 520 599 561 852 713 475 627 845 443 792 1,035 1,018 548 830 576 483 1/ Total Bul- 1,000 World 1,000 acres acres acres acres acres acres 1 Crop AngloEgyptian 86 5 32,092 66,500 4 29,322 58,000 4 33,539 64,900 4 36,300 71,850 5 41,199 80,200 7 43,314 87,700 7 39,942 84,550 13 39,758 78,100 13 42,866 85,300 14 43,168 86,400 13 43,006 85,450 14 43,396 82,100 20 42,609 78,500 51 46,717 76,100 48 48,634 75,500 89 51,820 79,460 77 54,882 84,910 114 59,399 93,400 143 50,144 75,490 1939-40 1940-41 1 Comparable data not available 2 Preliminary. Bureau of Agricultural Economics. Compiled from official sources and reports of the International Institute of Agriculture or estimates of the Bureau of Agricultural Economics. Table 17. Cotton: Production in specified countries, and world total, 1920-21 to date United States Crop year 1,000 bales 2 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 3 3 13,429 7,945 9,755 10,140 13,630 16,105 17,978 12,956 14,477 14,825 13,932 17,097 13,003 13,047 9,636 10,638 12,399 18,946 12,008 India China 1 Russia Egypt 1,000 beless 1,000 bales? 1,000 bales? bales2 3,013 3,752 4,245 4,320 5,095 5,201 4,205 4,990 4,838 4,387 4,373 3,353 3,897 4,374 4,065 4,965 5,285 4,867 2,406 2,197 2,510 2,406 2,510 2,458 3,301 2,834 2,720 2,458 2,615 2,092 2,720 2,981 3,243 2,667 3,870 3,600 2,300 1939-40 1940-41 Includes Manchuria. 1 2 3 Bales of 478 pounds net weight. Preliminary. 1,000 Brazil 1,000 bales? Uganda Peru 1,000 bales? 1,000 bales2 58 1,251 476 68 43 902 459 40 186 1,391 1,353 1,507 1,650 1.586 1,261 1,672 1,768 1,715 1,323 1,028 1,777 1,566 1,769 1,887 2,282 1,523 484 74 199 522 108 212 740 164 215 561 151 210 593 110 246 464 116 246 430 171 225 571 108 303 483 158 271 555 173 234 481 247 242 1,014 1,328 1,757 1,824 2,108 239 278 212 345 272 393 269 386 349 376 55 197 453 782 830 1,096 1,174 1,229 1,587 1,845 1,816 1,887 1,738 2,250 3,250 3,500 177 380 Table 17. Cotton: Production in specified countries, and world total, 1920-21 to date - continued 1 1,000 1,000 bales bales foreign 1,000 1,000 bales bales 1,000 bales- 26 26 101 147 17 20 82 30 202 26 24 103 30 175 59 38 112 57 16 67 41 123 78 14 196 106 123 105 16 23 2 200 135 5 7 2 2 360 58 130 143 97 115 111 133 54 28 179 118 142 150 113 31 278 150 139 139 101 34 246 106 149 67 139 74 178 101 91 210 206 40 169 121 134 64 150 28 102 200 138 138 80 260 131 11 223 136 162 18 227 105 295 39 201 188 124 373 241 251 145 395 144 209 288 30 268 41 340 213 170 264 206 237 194 113 260 World 1,000 7,921 8,025 9,545 9,880 3 2 1 1937-38 3 1938-39 3 1,000 bales garia 1 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1938-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1,000 bales: Congo 1 1920-21 1921-22 1 1,000 bal tina Bul- 1 year Sudan Total Belgian 1 Mexico Chosen Turkey 1 Argen- 1 Crop AngloEgyptian 3 3 4 4 4 6 35 11,530 12,135 10,942 11,934 12,403 12,035 12,298 10,723 11,357 13,843 14,204 16,112 18,921 19,279 16,392 bales 21,350 15,970 19,300 20,020 25,160 28,200 28,920 24,890 26,880 26,860 26,230 27,820 24,360 26,890 23,840 26,750 31,320 38,225 28,400 1939-40 1940-41 1 2 Bales of 478 pounds net weight Comparable data not available 3 Preliminary. Bureau of Agricultural Economics. Compiled from official sources and reports of the International Institute of Agriculture or estimates of the Bureau of Agricultural Economics, Table 18. Cotton, American and Foreign: Production, End of Season Carry-Over and Percentage Carry-over of Production, 1920-21 to Date. Foreign American Crop year U.S. Production Foreign World carry- Percentage over, end of carry-over :Production of production season 1 World carryover, end of season 1 Percental carry-ove of product tion 1,000 bales 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 13,664 8,285 10,124 10,330 14,006 16,181 18,162 12,957 14,555 14,716 13,873 16,877 12,961 12,712 9,576 10,495 12,375 18,412 11,850 1,000 bales 9,674 5,680 3,318 2,711 3,380 5,501 7,845 5,206 4,517 6,187 8,976 13,263 11,809 10,701 9,041 5,998 6,235 13,652 1,000 Percent 70.8 68.6 32.8 26.2 24.1 34.0 43.2 40.2 31.0 42.0 64.7 78.6 91.1 84.2 94.4 66.7 50.4 74.1 bales 6,964 6,888 8,327 8,760 10,089 10,562 9,768 10,386 11,247 11,535 11,503 9,602 10,500 13,354 13,474 15,825 18,476 18,164 16,000 1,000 bales 5,495 4,814 4,253 3,903 4,568 4,972 4,809 5,329 6,024 5,705 5,832 5,073 5,307 6,839 6,031 6,651 7,531 8,960 Percent 78.9 69.9 51.1 44.6 45.3 47.1 49.2 51.3 53.6 49.5 50. 52.8 50.5 51.2 44.8 42.0 40.8 49.3 1 The carry-over at the end of the season cannot be added to the production season to get the supply. To get the supply. production is added to the can over at the end of the preceding season. Compiled from reports of New York Cotton Exchange Service. Southern Division February 27, 1939 is Table 19. Crop Produc- Indian End season tion carry-over 1,000 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 1,000 bales 1 bales 1 5,920 2,830 2,737 2,470 3,341 5,723 5.002 5,611 5,899 6,222 5.738 3,722 3,380 3,035 4,178 5,138 6,042 5,248 6,654 7,076 6,178 2,354 3,168 4,185 3,117 3,518 4,011 4,033 Cotton, Indian, Egyptian and Sundry: Production, End of Season, Carry-over, and Percentage Carry-ovor is of Production, 1924-25 to date. Sundry Egyptian Percentage carry-over of Produc- tion production Percent 47.8 47.8 49.4 59.5 63.1 54.3 52.9 56.3 61.7 69.3 59.4 52.9 56.7 65.3 End season carry-over 1,000 1,000 bales a bales 2 963 366 1,140 1,085 605 814 557 1,089 1,145 1,117 650 861 683 1,144 1,002 1,156 1,225 1,477 702 845 1,098 951 716 710 Percentage carry-over of production Percent 38.0 53.1 64.7 68.4 59.7 73.8 98.3 110.5 104.8 62.1 544 529 461 717 1 Bales of approximately 400 pounds average net weight. 2/ Running bales of approximately 750 pounds average gross weight. 3/ Equivalent bales of 478 pounds net weight. Compiled from reports of New York Cotton Exchange Service. Southern Division February 27, 1939 54.3 45.8 37.6 48.5 Produc- tion 1,000 balos 3 3,888 4,251 4,117 4,660 4,873 4,817 5,215 4,951 5,352 6,781 7,753 8,744 10,952 10,963 End season Percentage carry-over carry-over of 1,000 bales 3. 1,748 1,862 1,766 1,809 2,058 1,717 1,735 1,744 1,685 2,412 2,711 3,032 3,621 4,639 production Percent 45.0 43.8 42.9 38.8 42.2 35.5 33.3 35.2 31.5 35.6 35.0 34.7 33.1 42.3 Table 20. - United Kingdom: Imports of cotton by countries, reexports and net imports, 1921 to date 1 Imported from Calendar year United States British Egypt India Peru Anglo-Egyp- tian Sudan Brazil 1,000 1,000 1,000 1,000 1,000 bales 2 bales 2/ 1,000 bales 2 beles 2 bales 2 bales 484 32 125 22 34 661 92 162 17 77 729 227 162 27 44 722 209 160 40 35 638 207 177 35 78 657 140 183 101 67 662 101 225 130 45 636 202 168 102 29 619 222 169 128 139 1930 1,676 1,910 1,400 1,986 2,564 2,238 1,922 1,816 1,749 1,235 441 255 176 102 145 1931 927 535 221 138 24 77 1932 503 112 138 129 1933 1,529 1,584 669 229 167 93 1934 960 577 322 184 108 1935 1,197 1,293 1,601 569 345 140 130 126 591 487 165 121 307 608 483 194 165 225 928 540 365 180 176 221 1922 1923 1924 1925 1926 1927 1928 1929 1936 1937 3 1938 3 3 1921 29 302 1939 1940 Continued 382 Table 20. - United Kingdom: Imports of cotton by countries, reexports and net imports, 1921 to date - Continued 1 Imported from - British Argen- Africa tina countries Net Reexports imports Total 1,000 1,000 1,000 1,000 1,000 1,000 bales 2 bales 2 bales 2 bales 2 bales 2 bales 2 50 1921 Other 1922 39 1923 55 30 1 Calendar year 33 5 51 8 1924 80 10 59 1925 157 26 79 1926 139 48 68 1927 74 12 70 1928 86 49 66 1929 83 60 51 1930 69 51 65 1931 46 79 234 1932 31 81 104 1933 84 49 35 1934 60 90 39 1935 60 51 44 1936 74 92 107 1937 3 1938 3 60 39 91 55 4 56 2,453 2,996 2,703 3,301 3,963 3,641 3,239 3,154 3,221 2,538 2,282 2,531 2,939 2,641 2,661 3,235 3,473 2,526 316 178 220 297 286 308 277 143 164 153 85 111 114 135 156 128 125 96 2,137 2,818 2,483 3,003 3,676 3,333 2,963 3,011 3,058 2,385 2,196 2,520 2,825 2,507 2,505 3,107 3,348 2,430 1939 1940 1 Excludes linters. No domestic exports reported. 2 Bales of 478 pounds net weight. 3 Preliminary. Statistics relating to international trade in cotton and linters, 1921-35. Bureau of Agricultural Economics, December 1936. 1935 to date from records of the Bureau of Agricultural Economics. Southern Division, February 20, 1939. Table 21. - Cermany: Imports of cotton by countries, exports and not imports, 1921 to date 1/ Imported from - 1,000 balos 2 :Argentina: Brazil Peru 1,000 1,000 bales 2/ bales 2 1,000 bales Belgia Congo 1,000 2/ bales i 1921 1,167 210 56 4 1922 1923 1924 931 152 57 4 703 123 50 1,010 1,405 1,286 1,946 1,414 1,411 1,271 1,092 1,365 1,444 154 85 205 86 121 60 157 106 11 209 84 10 257 108 16 251 112 15 17 28 166 135 10 11 47 95 152 22 165 180 24 (4) 875 160 204 26 38 52 1935 345 129 181 66 380 116 24 1936 1937 326 136 134 44 159 86 12 302 117 182 27 288 85 1938 6 208 102 209 75 374 66 1932 1933 1934 2 2 (3) 4 9 (3) 2 (3) 3 3 9 2 2 (3) 5 3 3 1 13 (3) 12 2 1931 3 10 6 1930 3 1 1929 (3) 8 0 1926 1927 1928 1 1925 4 17 39 45 1939 1940 Continued 5 : bales 2 Egypt : bales 2 1,000 : 1,000 India : States British : United : Calendar year 383 Table 21. - Germany: Imports of cotton by countries, exports and not imports, 1921 to date - Continued 1 Imported from China : : : Turkey Iran (Persia) : Calendar year : Net Exports Other countries :imports Total 1,000 1,000 1,000 1,000 1,000 1,000 1,000 bales 2 balos 2 bales 2/ bales 2/ bales 2 bales 2 bales 2 1921 (3) 1922 (3) 1923 (3) 1924 (3) 1925 (3) 1926 (3) 1927 (3) 1928 (4) 1929 (4) 2 8 0 1 0 6 (3) 6 4 2 3 14 5 11 1931 4 2 7 1932 11 1933 14 16 (4) 15 (4) 24 (4) 12 (4) 22 (4) 15 (4) 14 26 1935 70 18 1936 74 13 1937 38 1938 6 16 2 9 13 17 24 9 1934 14 (4) (4) 3 3 11 1,454 1,163 5/76 157 1,378 1,007 900 129 771 (2) 1 1930 11 29 27 24 76 98 8 (3) 15 75 70 1,276 1,732 1,497 2,266 1,760 1,839 1,827 1,501 1,728 1,921 1,462 1,430 1,092 1,129 1,153 120 178 236 376 344 388 400 354 310 253 231 190 34 (3) (3) 1,156 1,555 1,260 1,890 1,416 1,452 1,328 1,147 1,418 1,669 1,231 1,240 1,059 1,129 1,153 1939 1940 1 Excludes linters. 2 Bales of 478 pounds net weight. 3 Less than 500 bales. 4 If any, included in "other countries." 5 8 months, May - December. 6 Preliminary. Statistics relating to international trade in cotton and linters, 1921-35, Bureau of Agricultural Economics. December 1936. 1936 to date from records of the Bureau of Agricultural Economics. tests oftogra Ed hearthand Table 22.- Japan: Imports of cotton by countries, 1921 to date Imported from - 1,000 1,000 bales 2 bales 2 643 1923 613 1924 1925 1926 656 1930 1931 1932 1933 1934 1935 1936 5 1937 5 1938 1,051 1,251 1,760 1,071 1,241 1,075 1,472 2,519 2,057 1,795 1,594 1,641 1,169 1,219 1,282 1,354 1,256 1,702 1,623 1,381 1,274 1,421 1,308 1,330 759 1,101 1,603 1,442 1,862 1,942 East French Indies Indo-Cell Egypt 1,000 bales 2 154 106 174 26 278 37 191 52 241 71 1,000 bales 2 bales 41 10 288 66 285 49 214 65 10 4 1 1 2 3 2 6 194 197 147 51 79 91 1 2 (3) 2 (3) 3 156 78 91 152 117 149 128 123 (4) 111 186 18 1 2 4 6 (4) 1939 1940 Continued to 1,000 1 1922 1929 Netherland China bales 2 965 1928 India 1,000 1921 1927 British 1 United States 2 Calendar year abross to 384 Table 22. - Japan: Importe of cotton by countries, 1921 to date - Continued 1/ TOD Imported from lendar Straits East year Africa Brazil Peru Settlements 1,000 1,000 1,000 1,000 bales 2 bales 2 Dales 2 bales 2/ Other countries 1,000 1,000 bales a/ bales 2 reind 922 as 0 333 0 257 0 0 5 1 0 (3) 4 at 0 923 (3) 9 0 921 as 4 0 0 4 0 924 8.1 (3) 925 (4) 926 (4) 927 (4) 928 11 (3) 929 36 (3) 930 10 (3) 1 (3) 931 2 (4) 1 NS (4) 1 (3) TE (3) Bes ESS oes zer TOX (4) 13 (4) 25 (3) 28 (4) (4) 881 2 3 (3) 0 0 RES 08 (3) RE: 1 0 ABI 0 (3) 0 32 1 1 933 32 (3) 934 54 (3) 935 3 936 110 937 76 (8) (c) (&) (3) (4) (3) 938 3 (3) 20 32 8 6 ES 42 (8) (8) (c) 11 Total 28 (4) (4) 346 (4) (4) 305 2,401 2,389 2,434 2,239 3,018 3,215 3,531 2,695 2,981 2,644 3,083 3,521 3,450 3,746 3,392 4,209 3,809 (8) 939 940 Excludes linters. No exports reported. Bales of 478 pounds net weight. Less than 500 bales. If any, included in "other countries." Preliminary. Statistics relating to international trade in cotton and linters, 1921-35. ureau of Agricultural Economics. December 1936. 1936 to date from records of the ureau of Agricultural Economics. Southern Division February 21, 1939. Table 23.- - France: Imports of cotton by countries, exports andnet imports, 1921 to date 1 Calendar year Imported from United States British United Belgium India Egypt 1,000 1,000 1,000 1,000 1,000 bales 2 bales 2 bales 2 bales 2 bales 2 Kingdom Nether- Turkey lands West Afric 1,000 1,000 1,000 bales 2/baela 2/ 1921 771 1922 846 121 135 16 1923 750 156 198 18 15 11 1924 845 190 223 20 27 21 1925 180 190 26 34 25 11 177 191 37 28 25 18 1927 1,016 1,109 1,120 120 187 37 45 11 25 1928 931 214 185 29 13 31 25 13 31 19 22 16 59 82 17 10 French bales 1 1 49 1929 949 251 1930 1,044 260 196 39 1931 622 137 182 21 1932 802 64 239 158 1933 1,062 217 1934 542 193 213 1935 492 194 214 1936 870 237 234 1937 4 696 211 255 1938 228 30 22 23 (3) (3) (3) (3) (E) (c) (8) 4 (8) (8) (8) (E) 18 9 8 4 (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) 1939 1940 Continued 1000 11 (E) 9 (6) 7 (A) 7 7 1926 (8) 15 385 Table 23. - France: Imports of cotton by countries, exports and net imports. 1921 to date - Continued 1 Imported from - alendar year Germany Brazil Argentina countries 1,000 1,000 1,000 bales 2 bales 2 bales 2/ 1,000 bales (3) 921 922 (3) 18 27 28 3 1923 (3) 12 6 32 11 3 41 3 3 1924 5 17 52 4 13 1927 10 (3) 1928 26 (3) 929 28 (3) 19 30 12 (3) 24 1931 11 10 7 65 4 88 9 12 (3) 14 1934 (3) 47 1935 (3) 52 (3) 67 (3) 63 1933 1936 1937 4 68 49 13 7 92 9 (3) 1932 62 15 1926 36 43 53 13 10 61 64 59 imports Total 2/ Net 1,000 1,000 1,000 bales 2 bales 2 bales2 976 100 876 106 1,111 1,091 1,302 1,469 1,592 1,516 1,454 1,217 1,206 1,393 1,569 1,698 1,640 1,589 1,696 1,721 1,074 1,129 1,606 1,071 1,032 1,491 1,300 115 91 100 106 124 136 61 56 41 32 16 22 30 19 18 1,635 1,665 1,033 1,097 1,589 1,048 1,002 1,472 1,282 6 6 7 1925 Exports Other 1938 1939 1940 Excludes linters. Beginning 1929, classified as "ginned" and "unginned": prior to 1929, classified as "cotton, including waste. II Unginned has been reduced to terms of ginned. 1 Bales of 478 pounds net weight. 2 3 If any, included in "other countires." Preliminary. Statistics relating to international trade in cotton and linters, 1921-35. Bureau of Agricultural Economics. December 1936. 1935 to date from records of the Bureau of Agricultural Economics. uthern Division, February 20, 1939. Table 24.- Italy: Imports of cotton by countries, exports and not imports, 1921 to date 1 Imported from - 1001 1,000 Ceylon 1,000 bales 2 bales 2 (3) 1921 Other Exports 1,000 1,000 bales 2 bales 1,000 1,000 bales 2 bales 2 bales 2 (3) (3) 728 820 1922 173 58 1923 529 221 95 11 855 539 286 90 14 929 1925 728 258 84 23 1926 791 210 77 27 1,093 1,104 79 16 964 1927 739 130 9 779 183 93 17 1929 767 222 111 29 1,072 1,128 1930 613 221 86 25 944 1928 726 3 581 1924 imports countries 1,000 (3) Net 2 818 852 926 3 1,090 3 1,104 1 United States British Indian and Egypt Total imports 3 Calendar year 963 1 (4) 1,072 1,126 1 943 1 1931 483 168 99 35 786 1932 676 67 106 28 877 1933 761 121 118 14 1,014 1934 532 148 155 30 864 1935 401 122 134 29 686 (4) (4) (4) 768 (4) 724 1936 339 32 64 33 468 1937 453 82 138 95 768 1938 5 439 (4) 872 1,017 1 1 724 101 122 63 786 1 468 1939 1940 1 Excludes linters. 2 Bales of 478 pounds net weight. 3 Not available by countries. 4 .Less than 500 bales. 5 Preliminary. Bearity to Statistics relating to international trade in cotton and linters, 1921-35, of Agricultural Economics. December 1936. 1934 to date from records of the of Agricultural Economics. charts of to rednood Lawes to Cotton, United Crop American: Exports from United States, by countries, 1899-1900 to date (1,000 rening bales) Ital; France lands KingSon 1900-01 1901-02 1902-03 1903-04 1904-06 1905-06 1906-07 1907-06 1908-09 1909-10 1910-11 1911-12 1912-13 1913-14 1914-15 1915-16 1916-17 1917-18 1918-19 1919-20 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 3,040.7 439.4 2,986.9 422.5 2,752.9 363.1 2,451.4 526.7 3,925.1 477.7 2,990.9 542.8 3,770.5 421.4 2,900.0 547.7 1,071.7 3,564.9 363.4 930.6 2,368.3 421.5 964.5 3,336.1 624.7 1,183.0 4,213.9 485.5 1,019.0 3,570.1 515.2 1,066.5 3,455.8 1,109.5 682.6 3,771.6 788.9 921.9 2,852.4 643.6 994.1 2,682.2 349.2 509.4 2,275.4 574.6 702.2 2,634.3 577.8 571.1 3,059.5 508.2 603.3 1,746.9 509.7 761.0 1,766.4 496.7 634.5 1,285.1 545.6 703.9 1,704.0 726.3 887.8 2,527.1 745.3 902.6 2,257.2 779.0 999.3 2,530.2 686.8 865.2 1,411.4 716.6 774.6 1,830.8 652.4 811.5 1,256.0 476.5 914.2 1,053.8 649.1 463.1 1,344.4 803.9 863.8 1,491.9 649.0 709.0 1,278.4 738.2 1,409.5 1,144.4 1,551.9 372.7 680.9 655.2 718.5 Included in other countries Canada 1,634.9 1,651.1 1,862.4 1,778.0 21.8 272.3 129.6 150.3 104.8 146.5 106.0 144.8 249.0 116.6 293.2 148.8 27.7 28.8 2,016.7 1,801.6 2,226.8 2,333.9 2,353.7 2,156.4 3,056.3 2,352.3 2,786.0 166.4 240.6 297.4 301.3 279.4 242.7 444.1 1,852.1 0 0 436.1 1,280.3 1,343.8 920.9 1,190.0 1,733.8 1,641.8 2,738.0 1,987.7 1,796.8 1,687.4 1,639.9 1,570.3 1,848.9 1,318.1 474.1 341.9 765.5 649.7 655.9 16.4 164.6 46.4 30.2 17.7 28.2 123.8 110.8 323.6 113.1 94.8 92.8 76.7 69.2 249.5 189.0 197.6 18.5 17.8 35.0 13.9 34.6 144.7 202.4 213.3 218.6 1.2 319.1 376.1 o 41.3 96.3 o 0 232.6 300.7 237.7 253.9 308.3 217.9 203.7 271.1 305.7 339.0 304.6 273.2 260.4 250.9 305.6 312.7 275.4 240.2 207.1 .3 India Others Total 1,189.7 6,065.0 1,087.7 6,559.0 6,763.1 6,885.3 6,035.8 8,559.5 6,906.3 8,616.5 7,465.4 123.0 93.6 152.8 149.4 459.9 373.5 336.9 433.0 176.3 73.3 90.8 149.2 509.1 200.6 183.3 113.9 54.0 285.6 193.1 194.4 200.2 176.0 204.9 148.6 185.6 o 89.1 74.7 182.8 160.2 170.0 167.2 154.1 208.0 200.5 273.5 201.6 202.1 169.7 137.9 135.9 182.6 163.4 121.3 97.2 157.2 154.0 189.5 111.2 146.6 111.6 15.0 .3 0 99.4 78.8 68.8 6.6 194.7 203.1 184.7 138.6 111.9 140.4 140.2 152.7 253.1 145.5 197.8 240.9 259.8 223.4 254.4 132.0 135.2 147.4 125.7 57.4 67.2 86.9 116.9 619.7 733.4 412.2 633.1 502.8 325.4 267.4 130.1 107.9 o China Japan 310.4 86.0 162.1 138.0 1 379.9 397.6 505.5 11 Europe 1,598.2 703.4 739.7 752.5 784.5 698.9 833.8 768.7 943.1 865.6 o 1899-1900 2,263.3 Russia :Nether- Belgium Spain Germany o 233.2 501.1 424.3 317.7 o 43.0 50.0 110.9 10.2 11.6 79.6 100.7 20.7 37.6 113.5 271.7 118.3 1,124.8 1,615.8 959.3 306.6 1,550.5 246.0 690.5 o 0 o o 6.5 5.0 o 27.0 862.1 1,479.2 269.5 0 4.7 817.8 635.6 543.9 248.3 176.4 12.6 4.0 637.5 225.5 189.6 186.9 of 491.4 481.3 604.3 784.5 673.0 1,309.2 1,020.0 1,228.4 2,293.8 1,743.3 1,845.6 1,524.4 181.6 128.7 29.9 o 0 Table 25. 236.5 225.6 428.7 1,111.7 Source: Compiled from floial records of the Bureau of Foreign and 300.5 375.3 108.1 36.5 14.0 22.8 o 3.5 335.9 8,635.1 117.1 6,206.0 135.5 7,788.5 362.5 10,719.3 194.7 200.4 8,746.1 9,150.8 8,544.6 6,191.1 5,739.0 4,288.4 5,592.4 6,545.3 5,744.7 6,164.1 4,822.6 5,655.9 8,005.2 8,051.5 10,926.6 7,542.4 8,043.6 966.9 212.2 197.7 97.6 245.8 227.4 220.3 136.6 173.9 50.4 168.1 19.1 155.0 299.5 179.5 57.4 152.2 10.4 7.7 168.4 156.8 6,689.8 168.0 6,759.9 8,707.6 8,419.4 106.9 236.1 263.2 59.1 467.6 18.4 48.4 6.5 13.0 513.2 459.5 467.1 141.3 760.7 7,534.4 4,798.5 5,972.6 5,440.0 5,595.4 534.1 by P.R.E. 3 8 6 Table 26, Available Supply of American Cotton, Supply of all Cotton Available for Foreign Consumption and Supply Ratio and Consumption Ratio. United States World Supply Season . Consumption of (1) (1,000 bales) 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1527-28 1926-29 1929-30 193G-31 1931-32 1932-33 1933-34 1934-35 1935-36 1936-37 1937-38 1938-39 . American World Supply of American Col. (1) - Col. (2), on January 31 (2) (8) (1,000 bales) (1,000 bales) 4,677 15,325 17,959 15,804 13,648 5,613 6,325 5,355 5,917 6,176 12,346 19,561 23,663 20,802 19,761 19,233 20,060 25,853 26,724 24,521 20,277 19,536 19,373 24,647 25,502 6,880 6,535 6,778 5,805 5,064 4,744 6,004 5,553 5,241 6,221 7,768 5,616 6,500 Available Supply of American (less less Consumption Financed Cotton Consumption and 20,002 16,717 Government 9,479 21,109 20,220 18,968 15,036 13,315 11,606 19,051 19,002 (5) (6) Col. (s) Col. (4) (1,000 bales) 8,296 10,800 13,385 16,783 13,385 16,783 14,267 12,983 13,430 14,976 Foreign 15,325 12,346 9,479 8,295 10,800 14,267 4,004 12,963 12,115 11,584 17,720 16,641 14,964 5,531 9,506 1,315 3,592 3,389 3,579 of Government Stocks) (4) (1,000 bales) World Supply of World Supply (1,000 bales) Foreign Plus Available Supply of American Supply Ratio y Col.(6) . Col. (7) (7) (1,000 bales) (8) (9) (Percent) (Percent) 12,378 27,705 55.3 24,729 13,141 18,013 13,991 22,620 49.9 41.9 15,150 14,740 16,195 16,576 17,559 28,515 31,523 15,573 5,095 8,220 18,661 20,312 21,856 3,018 6,613 8,587 25,127 12,518 25,695 11,011 7,991 25,210 Ratio Col. (5) Col. (6) 12,383 17,208 15,434 Consumption 21,306 24,791 38.9. 43.6 46.9 53.2 29,462 48.4 29,559 29,674 28,592 43.9 40.8 33,164 53.4 32,214 35,625 51.7 39.8 45.6 47.8 41.7 38.8 44.7 44.2 48.0 48.6 45.2 38.5 34.8 43.2 45.3 44.5 41.3 29,818 30,076 33,714 31.9 29.6 38,213 33,201 32.8 24.4 24.1 22.6 27.3 29.4 25.5 23.4 American Cotton in Punning Balec. Foreign Cotton in Equivalent Bales of 476 Pounds Net Feight, Sources Bureau of Agricultural Fecnordos, Team York Cotton Exchange Service, Bureau of the Census, Reports of the Compodity Credit Corporation and records in the Southern Division, Agricultural Adjustment Administration. /Supply retio is the ratio of the available supply of American cotton to the world supply of foreign cotton plue the available supply of American. /Consumption retio is the ratio of foreign consumption of American cotton to foreign consumption of all kinds of cotton, /Estimated. Southern Division February 28, 1939. 387 U. S. DEPARTMENT OF AGRICULTURE Washington, D. C. lease - Inmediate STATEMENT BY THE SECRETARY OF AGRICULTURE. HENRY A, WALLACE Before the Senate Agriculture Committee, February 23, 1939, The basic principles of the current farm program, in my opinion, are sound. far as cotton is concerned, the program has maintained producer income at al- twice that of the 1932 level, Had it not been for the farm program, the huge ton surplus which followed the 19 million bale crop in 1937 would have resulted a disaster for the cotton growers even more severe than that of 1932. It should be kept in mind that much of our huge cotton surplus resulted from lack of an effective control program in 1937, although unusually favorable ther for the crop also was an important factor in the production that year. r the control provisions of the original Agricultural Adjustment Act were indated by the Supreme Court, production increased sharply. By August 1, 1937 13 million bale carryover of 1932 had been reduced to 6,200,000 bales. But I the 19 million bale crop in 1937 the carryover of August 1, 1938, had insed again to 13,600,000 bales. We should see to it that we retain the gains already made but at the same we should make any additions which may be necessary to improve the present ram. The situation confronting the cotton industry indicates that some addimay be desirable. Among the factors entering into this situation are the ence of huge surpluses of cotton; the continued accumulation of cotton under fal loan and the decrease in exports for the current season. I do not believe we can continue indefinitely a cotton program which results ual additions to already formidable loan stocks, nor can we ignore our de1406-39 2- clining export markets. It is ossential that wo retain our fair share of the world markot for cotton. At the samo time I do not bolievo producers will consent to reduction or abolition of the present loan unless something is done to prevent such action from decreasing an already inadequate income. Abandonment of the loan program for 1939 without a plan to maintain the come of cotton producers near 1938 levels might be interpreted as breaking faith with the growers who voted for cotton marketing quotas in the reforendum on Deces ber 10. In voting, cotton producers understood that if marketing quotas were is effect for 1939 a loan was mandatory under the provisions of the Agricultural M justment Act of 1938. If we accept the assumptions made regarding the loan and exports, WO are faced with a number of alternatives. Among them are: 1. Continuance of the present loan rate with some means of making cotton available for export at prices competitive with foreign growths. 2. An increase in payments sufficient to koop cotton from being placed under the loan. This is one of the principal features of S. 1303 which is before you for consideration. 3. Somo form of price fixing or price supporting plan which would estable a comparatively high rate on the domostically consumed portion of the crop and would soll the remainder of the crop for what it would bring in the world market Under the loan plans, most of the cotton consumed domostically probably would be handled by the private trade as it is now haniled. On the other hand, now the government would have more supervision over the cotton exported than it has, although the actual exportation of the cotton could be done through regular trade channels as is being done in the case of wheat. To be successful, any loan plan must be accompanied by effective products control. 1406-592 388 - The bill under consideration provides for payments to producers who keep their cotton out of the loan. This plan would result in an increased supply of cotton available for export and domestic consumption at prices lower than the present loan rate. S. 1303, however, authorizes no definite appropriation for carrying out the payment provisions and a considerable sum of money will be needed to keep the cotton from going into the loan. The growers would not sebl their cotton in the open market unless the market price and the extra payments amounted to more than the loan rate. at If this proposal became effective, cotton would flow into commercial chanmels as it did when there was no loan which had price pegging effects. So far as cotton is concerned, the price fixing proposals would require a comparatively high rate on the domestically consumed portion of the crop if the income is to be maintained near present levels. This is true because under ordinary circumstances, more than half the crop is exported. In considering any price fixing plan, attention should be given to the effects of the domestic price on substitutes for cotton. These effects might be offset by a compensatory tax on competing products. Any price fixing plan might require a government license for all cotton ginners and handlers. If sufficient funds can be raised to make it effective, the proposal tn increase payments so that cotton would be kept out of the loan in 1939 would seem desirable. This plan, which is embodied in S. 1303, would allow cotton to be handled in ordinary commercial channels and, at the same time, would preserve the income of the cotton producers. It should be recognized, however, that it may be difficult to raise the necessary funds in the absence of some special source of revenue. If1406-39-3 a processing -tax cannot be obtained, careful consideration should be given any proposal which would achieve the results of the tax and would not require direct appropriations. The objectives of the plan embodied in S. 1303, it should be emphasized, cannot be attained unless enough money is provided to keep all breabut a comparatively small quantity of cotton out of the loan. I have discussed these various alternatives in their broad outlines. The bill under consideration proposes to liquidate stocks already under loan by turning a part of them over to the Federal Surplus Commodities Corporation for new uses and for relief needs; by releasing cotton into commercial channels; and by paying producers for further reductions in acreage with cotton now in the loan. I agree with the objectives of these provisions. I would suggest, however, that any practicable method of increasing exports and domestic consumption and of reducing the loan stocks should be put into operation as soon as possible. In particular, I would like to emphasize the necessity for an increased consumption of cotton by our own people. A move in this direction is the proposal for turning over a portion of the loan cotton to Federal Surplus Commodities Corporation. It should be pointed out, however, that the result sought can not be obtained usaoatos 302 less funds are provided to process and distributo this cotton. In my opinion, it is important that any new logislation for cotton should ml embody provisions that will be applicable to other commodities in a similar situshis Chand tion. This is desirable from the standpoint of fairness and from the standpoint des abites of the unity of farm groups which is a proroquisite to the continuance of a sound tedt farm program. The seriousness of the cotton situation is aggrevated by the dense farm population in the South and the dependence of Southern oconomy upon cotton. Over long time period it may be desirable and necessary for many of those now engaged the production of cotton to shift to other pursuits. This transition is not poss:of ble in a brief space of time. Consequently, it is imperative that the realities the present problem be faced and that whatever action necessary to maintain y income of cotton producers, and to keep our fair share of the world market for cotton, be taken as speedily as possible. 1406-39-1 above at and 389 THE COTTON SITUATION AND OUTLOOK (Brief Summary as of Mid-February, 1939) (Accompanying Tables 27-30) The world supply of American cotton for the current (1938-39) season is 25 1/2 million bales, slightly smaller than the peak supply of 1931-32 and 1932-33 and 1/4 larger than the average for the 6 years beginning August 1924. The total supply of all cottons -- 50 1/2 million bales -- is a little larger than last season and much larger than any previous. season. It is 15 million bales or 2/5 larger than the 6-year pre-depression average. Domestic cotton consumption from August through January, of 3,400,000 bales, was 10 percent larger than a year earlier and, except in 1936-37, the largest for the period since 1928-29. Consumption for the season should total between 6 1/2 and 6 3/4 million bales. Exports of American cotton for the 12 months ending July next probably will be between 3 1/2 and 4 million bales. Exports for the first half of the current season were 2,200,000 running bales, only 57 percent as large as in the same months last sonson, and wore the smallest for the period since 1881-82. Factors contributing to the small exports: (1) record stocks of foreign cotton on hand at the beginning of the current season toTORYAL gether with the near record foreign production, (2) the smallest total consumption of cotton in foreign countries so far this season, since 1935-36, and (3) an exceptionally large degree of hand-to-mouth pur- chases by foreign countries. The unusually high spot price of American -2cotton relative to futures contracts and relative to foreign growths, is undoubtedly an important factor in this hand-to-mouth purchasing. Efforts on the part of certain foreign powers to conserve their foreign exchange, along with the greater emphasis placed on products considered more essential for military purposes, are also contributing factors. Government loan stocks now total About 11 1/4 million bales including 4 1/4 million bales of the 1938 crop, nearly 5 1/4 million bales of the 1937 crop and almost 1 3/4 million bales from earlier crops, As of February 1, stocks of "free" American cotton in the United States including mill stocks amounted to about 6 1/4 million balos which is the third smallest in 15 years, and by August 1 such stocks may easily be the smallest since 1925, World consumption of cotton. The consumption of American cotton in foreign countries may be about 4 1/2 million bales which, added to the estimate for the United States, would amount to only about 11 million bales. The consumption of foreign cottons may fall short of the high levels of the past 2 years and amount to roughly 16 million balos. Thus the world consumption of all cotton would amount to some- thing around 27 million bales. World carry-over of American cotton on August 1, 1939, probably will be close to 14 1/2 million bales, nearly 1 million balos larger than the record high of 1938 and 9 2/3 million bales above the 1924-29 average. The world carry-ovor of foreign cotton seems likely to be E about the same as in August 1938. Total stocks of all cottons seem likely to oxcood 23 million bales, the largost on record. 390 able 27. Cotton: Mill consumption of specified growths, specified locations beginning August 6-yr.av. 1924-29 1930 1931 1932 1933 1934 1935 1936 1937 In In In foreign countrios Unitod States World 1000 1000 1000 bales 1 balos 1 6,348 5,084 4,744 6,004 5,553 5,241 6,221 7,768 5,616 8,134 5,972 7,784 8,381 8,227 5,965 6,282 5,325 5,314 balos 14,482 11,056 1 In World 1000 1000 balos 1/ balos 10,297 11,376 10,361 10,266 11,822 14,282 15,205 17,596 16,635 10,000 11,197 10,239 10,133 11,678 14,162 15,075 17,414 16,503 12,528 14,385 13,780 11,206 12,503 13,093 10,930 In In foreign countrios In Unitod States foreign countrios 1000 1000 balos 6,645 5,263 4,866 6,136 5,700 balos 18,134 17,169 18,023 18,514 19,902 20,127 21,357 22,739 21,817 1 Yoar All kinds of cottons Foreign cottons 5,361 6,351 7,950 5,748 In World 1000 1 American cottons balos 1 24,779 22,432 22,889 24,650 25,602 25,488 27,708 30,689 27,565 Bureau of Agricultural Economics. Compiled from reports of the Burcau of the Consus and of the Now York Cotton Exchange Sorvice. 1 Amorican in running balos (counting round balos as half balos), foreign in balos of approximately 478 pounds not. Table 28. Cotton: Supplica of spocified growths, exports from the Unitod Statos and prico of American World supplios of commorcial Amorican Cotton Boginning August 1924-29 1930 1931 1932 1933 1934 1935 1936 1937 1938 from In Unitod States 1000 6-yr.av Exports Supply Year balos 1 17,525 18,195 23,140 22,541 20,793 17,224 17,632 17,711 22,799 23,296 In World 1000 balos 1 19,956 20,060 25,853 26,224 24,521 20,277 19,536 19,373 24,647 25,502 United States Weightod av. U. S. farm prico por pound 1000 bales 1 8,210 6,760 8,708 8,419 7,534 4,799 5,973 5,440 5,598 Conts 18.3 9.5 5.7 6.5 10.2 12.4 11.1 12.3 8.4 - cottons Foreign cottons 1000 balos 1 15,532 17,208 15,434 15,573 18,661 20,313 21,856 25,127 25,695 24,960 All cottons 1000 balos 1 35,488 37,268 41,287 41,797 43,182 40,590 41,392 44,500 50,342 50,462 - Bureau of Agricultural Economics, Compiled from reports of the New York Cotton Exchange Service except farm price which is from the Crop Reporting Board and exports which are from reports of the Bureau of the Census. 1/ American in running bales (counting round bales as half bales), foreign in bales of approximately 478 pounds net. Table 29. Cotton: Commercial production of specified growths, specifiedperi American Year beginning Foreign cottons cotton August 1924-29 1930 1931 1932 1933 1934 1935 1936 1937 1938 cottons 1000 1000 6-year av. All 1000 bales 1 bales 15,096 13,873 16,877 12,961 12,712 9,576 10,495 12,375 18,412 11,850 10,598 11,503 9,602 10,500 balos 25,694 25,376 26,479 23,461 13,354 26,066 13,474 15,825 18,476 18,164 16,000 23,050 26,320 30,851 36,576 27,850 Bureau of Agricultural Economics. Compiled from reports of the New York Cotton Exchange Service. 1 Amorican in running bal os (counting round bales as half bal os) foreign in balon of approximately 478 pounds not. Table 30. Cotton: Stocks (carry-ovor) of specified growths on August 1, specif periods Foreign Cottons Amorican Cotton In United States Year 1000 bales 1 In In foreign countries 1000 bales 1 6-year aw 1924-29 1930 1931 1932 1933 1934 1935 1936 1937 1938 2,429 4,322 6,263 9,580 8,081 7,648 7,137 5,336 4,387 11,446 2,431 1,865 2,713 3,683 3,728 3,053 1,904 1,662 1,848 2,206 All kinds of cottons In In foreign countries 1000 World United States World United States 1000 1000 1000 1000 In bales / bales 4,860 6,187 8,976 13,263 11,809 10,701 9,041 6,998 6,235 13,652 124 208 107 98 83 96 71 73 112 87 In 1 bales 1 oales 1 4,934 5,705 5,832 5,073 5,307 6,839 2,553 4,530 6,370 9,678 8,164 7,744 7,208 5,409 4,499 11,533 6,031 6,651 7,531 8,960 bales 1 In World 1000 bales 9,796 7,241 7,362 8,438 8,658 8,952 9,796 7,864 8,240 9,267 11,079. 11,892 14,808 18,336 17,116 17,540 15,072 13,649 13,766 22,612 Bureau of Agricultural Economics. Compiled from reports of the Bureau Census and of the New York Cotton Exchange Service. 1 American in running bales (counting round bales as half bales) foreign in of approximately 478 pounds net. ED 2-21-39 however 391 4939 May 15, 1939 The Secretary asked the President whether he could approach Jesse Jones in regard to having Shram as an As- sistant Secretary of the Treasury and the President said, "no; nothing doing on that because Schram is too valuable in the R.F.C. where he is." The Secretary also asked the President whether Hanes was included in the 4:30 tax meeting at the White House today and the President's reply was "You will know when my list of appointments comes over the ticker." P. S. Hanes was included. 392 May 15, 1939 11:02 a.m. HMJr: Sumner Hello. Welles: Hello. Good morning, Henry. HMJr: How are you? W: Fine ! I tried to reach you on Friday afternoon, but you had wisely gone away. HMJr: Right ! And the matter I wanted to talk to you about is the fact that I received that day a letter from the President -memorandum rather -- enclosing your letter to him. HMJr: W: Yes. With this statement, "Will you take this up with the Secretary of the Treasury and let me have a joint re- commendation"? Well, I wanted to ask you what you wanted to do in the matter because, so far as we here are concerned, my recommendations, or rather Mr. Hull and my recommendations were contained in my letter to you. HMJr: Well, the President spoke to me about it. He said, "If you people would fix up a joint memorandum, what- ever it is," he said, "I promise to put it in the bottom of my basket and I won't get at it for a couple of months." I mean, that was his idea. W: I see. HMJr: So what I would do is -- I mean -- because I'm going to be guided by you -- if you'll simply put it in the form of a recommendation I don't think he read your letter very carefully. As a matter of fact, when he talked to me he didn't seem to have read your letter at all, you see? W: Well, probably not. He probably thought that it was simply some comment made to you and that there wasn't anything specific about it. HMJr: Well W: I have not spoken to him about it. -2HMJr: 393 If you'll fix up a one-page memo and leave a place for me it to sign it, and sign it yourself, or Mr. Hull sign W: HMJr: Uh-huh. I'll send it over just the way you write it. All right. And I'll simply, then, crystalize the former memorandum -- the suggestion I made in this letter. HMJr: Yes, because when he talked to me, I -- he was sort of, oh, a little sarcastic about it -- "Why didn't we get together"? And SO I said, "Well, if you read Sumner Welles' letter, I think we are." Well then, he came out that he really hadn't read your letter. W: HMJr: I see. I suppose in his haste, so I think we'll just send him over one page, based on whatever-your letter, if you don't mind drafting it and signing it; leave a place for me, and we'll send it over and see what he does. W: HMJr: W: HMJr: W: I'll be very happy to do that and I'll send it over to you as soon as I can get it done. But that's exactly what happened. All right. All right? Yes, indeed. I'll be glad to do that. HMJr: And if you tell your man in charge of the western division W: In charge of what? Western division. HMJr: W: Yes. HMJr: What's his name? W: Moffat. HMJr: Yeah -- that sometime today or tomorrow I'm going to ask him if he'll drop over and just give me a thumbnail 394 -3- W: HMJr: W: sketch of the situation as it is. All right. Is that all right with you? Yes, indeed. I'll speak to him about it. HMJr: I mean, I want the political background. W: Yeah. HMJr: Thank you. W: HMJr: All right, Henry. I think that's just what happened, now -- with the President. W: Yeah. HMJr: All right. W: All right, thanks. Good bye. 395 May 15, 1939 12:33 p.m. Harry Hopkins: Hello, Henry. HMJr: Harry. H: Yeah. HMJr: I was sorry I couldn't talk but I had Wallace H: Yeah. and Bell and Harold Smith. HMJr: H: HMJr: Well, that's what Mrs. Klotz told me. That's all right. But -- well, I just wanted to say "hello". H: Yeah. HMJr: How are you feeling? H: Well, I'm feeling fine, Henry, and I'm very anxious to see you. HMJr: Well H: And I've not been working any afternoons yet. I've been working HMJr: Do you want to come over for lunch tomorrow? H: Yeah. HMJr: One o'clock? H: Yeah. Fine 1 HMJr: One o'clock. H: HMJr: H: HMJr: All right. And I'll be delighted to see...... All right. ........the head of the lighthouse service and I'll arrange it. 396 -2H: Fine. HMJr: Thank you. H: Good bye. HMJr: Good bye. x 397 May 15, 1939 12:44 p.m. HMJr: Hello. Operator: Mr. Parker. HMJr: Thank you. Hello. G. B. Parker: Yes? HMJr: Morgenthau speaking. P: Well, how are you? HMJr: I'm fine. How are you? P: HMJr: Well, I'm very well, thank you, sir. I called you up because I thought that your editorial last Friday entitled "Green Light on Tax Reforms" was a peach. P: Well, I'm very glad to hear you say that and I'll pass the compliment on to the author. I, unfortunately, didn't write that. HMJr: P: HMJr: Well, whoever the author is, from my standpoint in trying to get something done, struck exactly the right tone. Well, I appreciate your calling very much indeed, and I'll -- Walker Stone, as you know Yes. was the author of that and I'll see that he gets P: the comment. HMJr: P: Because there's been BO much written which simply makes it more difficult for me to do my job. Well, we're tremendously interested in the job you're trying to do, as I guess you know. HMJr: Yeah. P: And I certainly hope it works out, and keep a stiff upper lip. HMJr: Well, my upper lip is all right. As I told my wife, my chin is up but I'm not sticking it out unnecessarily. 398 2- P: Yeah. Not getting bloody but unbound. HMJr: Right. P: Well, I hope to see you soon. HMJr: I will. I -- I'll give you a ring. P: Well, that's fine, and thanks for calling. HMJr: Good bye. P: Bye bye. 399 May 15, 1939. E. S. Land, Chai rman Huntington T. Morse, Assistant to Chairman. Emergency Plans Reference is made to my memorandum of April 7, 1938 to the Commission; memorandum of July 26 from Commander H. L. Vickery to the Commission to which was attached my informal memorandum of July 20 addressed to you and Commander Vickery; and my memo- randum of December 30 to the Commission. The aforementioned memoranda are on the subject of plans for a national emergency. There follows a resume' of the general situation in respect to planning for a national emergency and indicating the progress which has been made: 1. Requisition Procedure Under cover of memorandum of February 10, 1939, there was submitted to the Legal Division for approval a draft of an administrative order comprising a method of procedure to be followed in requisitioning vessels for the Navy Department under the authority contained in section 902 of the Merchant Marine Act, 1936, as amended. The order in question, together with forms and attachments, has been drawn up in conjunction with the various interested divisions of the Maritime Commission and with the designated representatives of the Navy Department. It has been submitted for consideration and recommendations to committees representative of the various branches of the shipping industry on the East and West Coasts, and these committees have indicated by letter that the principles of the method of procedure outlined are reasonable and satisfactory to them. The order and forms have also been considered and discussed in a conference held in New York at which were present representatives of the Third Naval District and the District Manager of the Maritime Commission. In view of the doubts expressed by the Legal Division as to whether the Commission now possesses authority to do all the things contemplated by the procedure in question, and in accordance with their suggestion the plan has not been formally submitted to the Commission pending action by the Congress on amendments to section 902, incorporated in H. R. 4983. However, a comprehensive method of procedure is prepared and ready for issuance, complete with the 400 E. S. Land, Chairman, - 2 - 5-15-39. exception of the charter party forms, and in the event of a national emergency it is my opinion it could be used pending enactment of emergency legislation. The old war time charter party forms and a new draft submitted by a committee from the industry are being revised and re-drafted by a committee composed of various interested divisions of the Commission and should be completed within a reasonable time. The aforementioned proposed amendments to H. R. 4983 are designed to accomplish several important objectives: First, to broaden the Commission's emergency powers and promote their execution; second, to simplify and clarify the procedure for determining and paying just compensation; third, to accord fair treatment to the private citizens whose property may be taken for public use. Dealing with the provisions of this bill which make it lawful for the Maritime Commission to requisition vessels whenever the President shall proclaim that the security of the national defense makes it advisable, a review of international affairs clearly shows that wars nowadays have been and can be started without preliminaries, warnings, or the formality of declaration. Accordingly it seems essential to the defense of the nation, when in the judgment of the President war is iminent, that steps can be taken to meet the danger in advance of a proclamation of national emergency or the actual commencement of hostilities. At such a juncture time is of the essence and the Navy and War Departments should be in position to obtain promptly and without negotiation at the time they are required, vessels to serve as auxiliaries and support our combatant forces, both afloat and ashore. In time of war merchant shipping is one of the most essential elements of combat. I am of the opinion that this bill is of great importance to the national defense program and that it should without fail be enacted into law during this session of Congress. 2. War Risk Insurance As a result of discussions with the American underwriters and from studies in connection with the plans for a national emergency it has become increasingly evident that adequate facilities to meet war time requirements for marine insurance should be provided in advance of an emergency and that there is a present need for authority in the Government to provide insurance against war risk because of the recurring threats of war and the possibility of a sudden breakdown of the world insurance market. In consideration of all the facts and circumstances the Commission decided to recommend to the Congress the passage of necessary legislation to provide Government marine war risk insurance. Accordingly, there has been submitted to the Bureau of the Budget 401 E. S. Land, Chairman, - 3 - - 5-15-39 a proposed letter to Congress submitting recommendations of the Maritime Commission for legislation to provide Government marine war risk insurance and draft of a proposed bill to carry out such recommendations. When this matter has been approved by the Bureau of the Budget it is understood that it will be promptly submitted to the Congress. I am of the opinion that it is of vital importance that this legislation should be enacted as promptly as possible, and certainly during this session of Congress. 3. Ship Yards and Ship Repair Yards For well over a year comprehensive survey of all existing ship yards on the East Coast, West Coast. and Gulf has been under way. Data has been gathered showing the present capacity of these yards, their potential capacity under emergency conditions, together with concomitant detailed information in respect to labor, power, housing facilities, etc. Plans showing general layout, area, and location of shops have been or are being obtained and will be kept up to date. This study also includes survey and similar information on old ship yards to the end that prompt decision, dependent upon the circumstances can be made as to whether or not it would be practical to rehabilitate and put such yards in operation in the event of a war emergency. There is also under way survey of all ship repair yards so that comprehensive information on the same will be immediately available in the event of an emergency. While these studies have not as yet been completed they are being handled by men especially assigned to this task and there is available at the present time sufficient data and information to enable determination to be made in respect to their use or rehabilitation in the event it became necessary to do so on short notice. 4. Data on Existing Tonnage There is on record with the Maritime Commission the general particulars of all American and foreign flag vessels of over 1,000 gross tons. This record does not incorporate in every instance all details such as booms, heaviest lifts, and size of hatches. However, at the present time there is in the Navy Department a record on all American flag vessels of over 1,000 gross tons showing in great detail the characteristics of these vessels. This data has been compiled as a result of surveys made by the Joint Merchant Vessel Board. 5. Concentration and Coordination of Data In connection with the acquisition and compilation of the aforementioned and related data on vessels, ship yards, and repair yards, it is considered important and desirable that a complete record should be concentrated and kept avai lable in one place. Accordingly the Commission has and is obtaining from the Navy Department and other sources such 402 E. S. Land, Chairman, - 4 - - 5-15-39 data and information, and through mutual cooperation coordinating the acquisition and keeping up to date of complete records. 6. Laid-up Fleet In 1935 a complete physical survey was made of all vessels in the reserve fleets owned by the Government and then under the control of the former Shipping Board Bureau of the Department of Commerce. This survey was accomplished by a joint committee composed of representatives of the U.S. Navy, American Bureau of Shipping, and the former Shipping Board Bureau of the Department of Commerce. As a result of this survey a determination was reached on each vessel as to whether the ship posses- sed sufficient or insufficient value for commercial or military operation to warrant its further preservation. Based on the findings of the survey in question all the vessels in the reserve fleets were classified into three groups as follows: Class 1 - A first reserve for restricted operation, charter or sale Class II - A second reserve for national emergency Class III - Vessels suitable only for scrapping The survey committee referred to above was kept in being, and in 1937 by direction of the Maritime Commission there was a further survey and dry docking program during which doubtful vessels were dry docked for under water survey. At the present time there is a complete up to date record of the 119 odd vessels now in the Commission's laid up fleets comprising not only the general particulars of the vessels in question showing tonnage, dimensions, decks, booms, winches, heaviest lifts, draft, cargo capacity, boilers, engines, fuel capacity, fuel consumption. steaming radius, speed, etc., but also condition surveys, estimated costs of repairs, and approximate time required to accomplish the same under normal conditions. The vessels in layup are being maintained in a sufficient state of preservation to insure their value for use in national emergencies 7. Sales Policy on Obsolete Vessels in Reserve Fleets After the completion of a sales program during which all vessels in Class III were disposed of, the Commission in November, 1937, as a stimulus to new ship construction announced as a matter of policy that it would make no further sales of surplus vessels in its laid-up fleet of World War origin and that these vessels would be held in reserve indefinitely for possible use in the event of a commercial or military emergency. This announcement also stated that any vessels in the reserve fleets which might be subsequently found to have insufficient military or commercial value to warrant their further preservation would be sold for scrapping, or for any other use that will take them out of operation. The Commission further announced that taking these old and idle 403 E. S. Land, Chairman, - 5 - - 5-15-39 vessels off the market would remove one serious obstacle to the building of modern, fast vessels by private shipmerchant operators, which are imperatively needed for the rehabilitation of the marine. 8. Emergency Ship Construction One of the principal functions of the Maritime Commission for national defense is providing for a merchant marine capable of serving as a naval and military auxilliary in time of war or national emergency. This involves not only planning in peace time for the development of a merchant marine which will insure speedy adaptation to national defense requirements during war time, but also arranging for such emergency ship construction as may be essential to carry out a war program. After conferences with representatives of the Navy Department it has been ascertained that in the event of an emergency involving a major effort naval needs will require the construction of 225 new cargo vessels of the latest C-1, C-2, C-3 Design and tankers, and that the Navy program is predicated on the delivery of these vessels within a period of three years, the first vessel to be delivered in eighteen months after the dommencement of construction in a ship yard. This program is subject to modification dependent upon conditions existing at the time and possibly upon the amount of suitable tonnage which has been constructed for Commission or private account before an emergency occurs. Conferences with officials of the Navy Department reveal it will be necessary in the event war is declared for the Navy to make use of all shipyard facilities and take over all ways in existing ship yards to meet the immediate requirements for naval work. Accordingly it will be necessary for the Maritime Commission to arrange for additional shipbuilding facilities to carry out the aforementioned emergency construction program. In planning for such an emergency program we have reviewed and accepted certain studies and estimates made by the Navy Department in respect to the most economical and satisfactory method, whereby taking into consideration the required building and delivery periods the greatest number of vessels can be constructed with the least number of ways. These studies indicate that the greatest number of ships which can be constructed with the least number of ways can be accomplished in yards which have seven ways or multiples thereof. Accordingly it is believed that an emergency construction program calling for 200 odd vessels is possible of accomplishment within the time limit by the establishment of two properly located ship yards, each comprising 42 ship ways. In this connection it should be stated that this plan is predicated upon the assumption that all the vessels to be constructed will follow the Maritime Commission standard design merchant vessel for the various types required, and will be built in so far as practicable under the socalled "assembly method", 1. e., to as great a per cent as possible 404 E. S. Land, Chairman, - 6 - - 5-15-39 the material going into the construction of the vessels will be fabricated at some inland point and transported to the yard for assembly. Taking under advisement strategic sites for the establishment of the two yards in question, it is believed that the following principal factors should be taken into consideration: 1 - Approximate amount of land that will be required and its availability; 2 - Proximity to material required for construction; 3 - Availability of necessary labor; 4 - Source, nature, availability, and proximity of power; 5 - Depth of water available and amount of dredging which will be required; 6 - Transportation facilities available for transporting supplies, equipment, and material - railroad, water, and highway; 7 - Housing facilities for labor; 8 - Climatic conditions which would effect the progress of the work; 9 - Location of site selected with regard to: (a) theatre of war; (b) protection from attack by air or water; (c) sanitation. In advance of inspection and upon very general consideration of the above-mentioned factors based upon such information as is immediately available, it is believed that one of the ship yards in question should be located in the Gulf of Mexico, either in the proximity of Mobile, Alabama or the Gulf Coast of Mississippi; the most desirable location for the other would appear to be on the East Coast on Delaware or Chesapeake Bay. 9. Productio: Schedule The Maritime Commission's program for rehabilitation of the American Merchant Marine, of which at the present time 85% of the ships will be obsolete by 1942, is well under way. This program contemplates new construction on a ten-year schedule during which time it is planned to build a minimum of 500 new vessels, and provision for a systematic and orderly replacement of the old vessels now in operation. The present record of this program includes 66 ships of various types, several of which have already been launched. Four of a series of 12 high speed tankers have also been launched. These vessels were ordered by the Standard Oil Company of New Jersey and the national defense features which have been built into these vessels have been paid for by the U. S. Maritime Commission. It is almost certain that more high speed tankers 405 E. S. Land, Chairman, - 7 - - 5-15-39 will be under construction for private companies on the same general basis of agreement. In accordance with provisions of the Merchant Marine Act, 1936, as amended, the plans and specifications of all vessels built under the provisions of this Act are submitted to the Navy Department for examination. approval, and suggestion for such changes as may be deemed necessary or proper in order that such vessels shall be suitable for economical and speedy conversion into naval or military auxiliaries, or otherwise suitable for use of the United States Government in time of war or national emergency. The Commission in the course of its own construction program has and will continue to obtain requisite data on tonnage suitable for use during a national war emergency which is now under construction or will be constructed in this country. 10. Trade-in Provisions as incorporated in H. R. 5130 (new Section 510) now under consideration by the Congress In March 1939 the Commission recommended to Congress a series of amendments to the shipping laws. which were designed to perfect the Merchant Marine Act, 1936. The principal recommendation involves a plan to stimulate ship construction, particularly in the coastwise and intercoastal services. This proposal was described in detail in the Commission's Report to Congress on Domestic Shipping and in Chairman Emory S. Land's statement covering that study. Briefly, the plan requests Congress to authorize the Commission to acquire obsolete vessels not less than 17 years old which have been owned by citizens of the United States for at least three years prior to the date of such acquisition, in exchange for a credit on the purchase of a new vessel from the Commission or on a new vessel constructed in a domestic ship yard and documented under the laws of the United States. In order to provide against the menace of continued operation of the older vessels in competition with vastly more expensive new ships this legislation provides a measure of sterilization of older vessels preserved for national defense. The prudent shipowner when contemplating new construction must look ahead not only into the immediate future but also must weigh possible eventualities which may occur during the entire economic life of the new vessel. In this connection to the extent that competition is probable or possible from written-down vessels which may be released by the Government, new construction is retarded. Accordingly as indicated above the Commission's recommendations for new legislation incorporate provisions prohibiting the return to commercial operation of vessels acquired under the "trade-in" provisions or of vessels now in the Commission's laid-up fleet after any such 406 E. S. Land, Chairman, - 8 - - 5-15-39 vessel becomes twenty years old, except during a period in which the vessels may be requisitioned for national defense, or except as otherwise provided for in the Merchant Marine Act for the employment of the Commission's vessels in steamship lines on trade routes exclusively serving the foreign trade of the United States. The advantages and effect of legislation along the lines heretofore outlined from a national defense standpoint would in my opinion be as follows: (a) - It would insure the private owners in the domestic and those operating with or without benefit of government aid in the foreign trade, a fair and reasonable credit under normal conditions for old tonnage turned in to the Government on account of new vessels and encourage owners to plan for and effect the replacement of older vessels with new more efficient units, suitable for use as naval auxiliaries in the event of a national emergency; (b) - It would permit the Maritime Commission to hold in reserve all old and obsolete vessels owned or acquired, possessing sufficient commercial and military value to warrant their further preservation, thereby insuring an additional and much needed supply of merchant tonnage suitable for use in the event of a war emergency. The cost of maintaining these vessels in a reasonable state of preservation would be a very small premium to pay for such a valuable form of national insurance, particularly when consideration is given to the effort, cost. and time element which would be involved in the construction of new vessels during a national emergency; (c) - All vessels owned or acquired by the Commission determined to be of insufficient value for commercial or military operation to warrant their further preservation could be held afloat as a reserve for scrap or sold for scrapping, dependent upon governing conditions; (d) - It will permit the Commission to continue the wise policy of considering applications covering the disposition of American flag vessels to foreign interests upon their individual merit in the light of the need in this country of such tonnage for peace-time or war-time purposes, without working a hardship on private owners who wish to dispose of their surplus or obsolete tonnage to best advantage and use the credits obtained for the construction of new ships. 11. Merchant Marine Personnel In the event of a national emergency a large number of privatelyowned vessels will be required for war-time purposes by the Navy and War Departments. The Maritime Commission will also control and operate other vessels engaged in the transportation of strategic and critical materials 407 E. S. Land, Chairman, - 9 - - 5-15-39 and essential water-borne commerce of the United States. At the start of an emergency many of the vessels requisitioned and assigned to the Navy and War Departments will of necessity have to be operated under Time Charter form with civilian crews until they can be transferred to Bare Boat Charter with naval personnel. In all probability the remaining vessels in commercial operation will be manned by civilians. Under the circumstances the importance of obtaining loyal, trained, and efficient crews and exercising adequate personnel control is self-evident, particularly during the critical period between the proclamation of a national emergency and the enactment of any emergency legislation considered necessary to accomplish these purposes. The Commission's system for training citizens of the United States to serve as licensed and unlicensed personnel on merchant ves- sels and plans for a future procedure are incorporated in its report to Congress dated January 1, 1939. While at present the Commission is not attempting to train new unlicensed personnel it is anticipated that the U. S. Maritime Service will eventually train a reasonable number of competent young Americans without previous sea experience. I am of the opinion that this should be done as soon as possible. The present situation in the merchant marine as regards unlicensed personnel is unsatisfactory and it is confidently anticipated that the training system which has been inaugurated will contribute towards its stabilization. Contacts with representatives of the Navy and War Departments have clearly demonstrated the concern with which officials of these De- partments view matters affecting the loyalty, discipline, training, and proper control of maritime personnel because of their importance in the national defense program. The stablization of merchant marine personnel is considered a most material factor of this program. The personnel situation in regard to licensed officers as distinguished from unlicensed personnel is more satisfactory and our experience in 1917 and 1918, when the Navy took over a large number of merchant marine vessels, showed us that in practically every instance the ships officers were willing and anxious to come into the naval service in the positions they held. Even though they were at that time unfamiliar with naval procedure satisfactory results were obtained. By statutory provisions all the deck and engineer officers employed on vessels on which an operating-differential subsidy is paid or which are employed on the Commission's vessels shall if eligible be members of the United States Naval Reserve. In view of the fact, as heretofore stated, that at the start of an emergency a great many merchant marine vessels will have to be taken over on a Time Charter basis and operated for naval or commercial account 408 E. S. Land, Chairman, - 10 - - 5-15-39 with civilian crews, there has been considerable discussion and speculation as to whether or not the vessels can be manned with loyal, trained, and efficient crews. In this respect, I am of the opinion that whereas there undoubtedly exists a radical and undesirable element among the unlicensed personnel of our merchant vessels whose loyalty could not be absolutely counted upon in the event of a national emergency, that this element is very much in the minority and that generally speaking the rank and file are loyal, capable American citizens who can be relied upon to serve their country during a war. Furthermore, I am of the opinion that in an emergency with the assistance of the operators and officers of our vessels undesirables can be weeded out and the ships safely operated in whatever service they may be required. It is contemplated in so far as vessels operated for Navy or War Department account that whenever possible vessels will be taken over on a Bare Boat basis and commissioned as full naval units, as was the case in 1917. and ultimately all vessels operated for Navy or War Department account will be transferred to a Bare Boat basis with naval crews. 12. Key Men whose Services will be required during a National Emergency In view of the fact that the Maritime Commission and some of the emergency establishments which will be created under plans for industrial mobilization will require during a national emergency the services of certain key men in the shipping industry, as well as a considerable number of subordinate officials in order to carry out war time functions, it is considered desirable in the general interest of national defense that individuals from the shipping industry should be available for selection for positions in all such agencies for which their experience and qualifications make them best suited. Furthermore, the Navy Department in preparing for the expansion of naval facilities entailed in the event of war or national emergency considers it desirable that individuals familiar with the shipping industry be available at that time to augment the personnel of the regular navy. In order to be assured of the services of the individuals desired it is considered necessary that they should be commissioned in the Naval Reserve. In consideration of the above-mentioned emergency personnel re- quirements it is recognized that it would not be prudent by requiring the services of certain individuals for purely naval use, to disturb the proper operation of the shipping industry as it is of the greatest importance that the efficiency of existing shipping companies whose services will be required for the operation of the merchant vessels not under the control of the Navy or War Departments will not be impaired by the with- 409 E. S. Land, Chairman, - 11 - - 5-15-39 drawal of experienced personnel necessary to carry on such operation. Accordingly an agreement has been reached between the Navy Department and the Maritime Commission, whereby before any such individual heretofore mentioned is appointed in the Naval Reserve a designated representative of the Navy Department and the Commission will confer concerning the ad- visability of appointment in the Naval Reserve of the individuals in question and jointly determine that the services of applicants will be available to the Navy in the event of an emergency without disruption of other essential maritime functions. In this connection the Bureau of Navigation has designated the Director of Naval Reserves, Captain Felix Gygax, USN., as its representative to effect such determination and the Maritime Commission has likewise designated Huntington T. Morse, Assistant to the Chairman, as its representative. 13. Emergency Legislation In planning for an emergency consideration must be given to the establishment and definition of the extent and scope of authorities under which emergency plans and control will be carried out and exercised. Accordingly it is important that drafts of bills which can be presented to Congress upon proclamation of an emergency, or when one is iminent, be prepared and ready for presentation. Such drafts cannot in advance of the fact do other than cover broad principles and provide for con- tingencies which can be foreseen with a reasonable degree of accuracy. Details can be filled in at the time required. In this connection the Navy and the War Department have already prepared drafts of enabling legislation which will be necessary in order to carry out their war time plans. The Maritime Commission is also engaged in the preparation of such additional legislation considered necessary by the Legal Division in order to obtain authority to carry out its war time functions. In working out and coordinating the emergency plans of the Commission with those of the War and Navy Departments it has become evident that there has been some duplication in the preparation of advance emer- gency legislation. In order to correct this situation, provide against overlapping authorities, expedite passage and insure that necessary authority will be correctly located, the legislative programs of the War, Navy, and Maritime Commission are in the process of being coordinated. 14. Shipping Controls The necessities for shipping control and the nature and scope of this problem have been outlined and briefly discussed in the previous memoranda under reference. As stated therein the importance of having centralized control of shipping in order to unify shipping resources of 410 E. S. Land, Chairman, - 12 -- 5-15-39 the country and insure the most efficient use and operation of available ocean transportation facilities was clearly demonstrated during the World War and it is essential that there be set up in advance an adequate and practicable system to accomplish such control during a national emergency. This problem is one of the first magnitude and involves questions of national policy requiring intensive study and careful consideration and should be worked out in conjunction with all the government agencies which are or will be concerned. It can be divided into two parts as follows: (a) Control during the. critical transitory period between the pro- clamation of the national emergency and the enactment of legislation necessary to set in motion the machinery to carry out the national defense program for industrial mobilization and control; (b) Control of shipping after the enactment of enabling emergency legislation. Dealing with (a), it is contemplated that through the authority con- tained in the Merchant Marine Act, 1936, as amended, and H. R. 4983 now under consideration by the Congress, a measure of control over shipping can be attained at the start of an emergency by the blanket requisitioning of all American flag vessels over certain tonnage, say, 2500 deadweight tons. This can be accomplished by the requisition procedure which has already been prepared and by subsequent agreement providing that vessels so requisitioned, except in so far as they are actually required for direct operation in Government service, remain in the hands of their owners to be managed and operated for Government account subject at all times to such disposition as the United States may direct. Under this agreement owners whose vessels are operating in regular established services could be permitted to continue their operation for account of the Government until they receive furthe instructions. Furthermore, as vessels are requisitioned and taken out of commercial service for naval or military use it will undoubtedly become necessary, as was the case in the World War, to rearrange services, shift vessels, to other trade routes, and effect some control over rates, all of which would not be practicably possible unless the ships were operated for government account and subject at all times to the disposition and direction of the United States. This entire matter has been discussed very thoroughly with the committees from the shipping industry on the East Coast, Gulf, and West Coast, who concur with the necessity for immediate action along these lines at the start of a war emergency. Dealing with (b). control of shipping during a war emergency in order to be effective should be centralized in a small independent committee, possibly one individual, with full authority over all tonnage owned, acquired, or coming under the control of the United States, subject to 411 E. S. Land, Chairman, - 13 - - 5-15-39 the dictates of national policy promulgated by the individual or establishment to whom or to which Presidential authority has been delegated. and guided by the policies laid down by the various emergency establishments to be set up under an Industrial Mobilization Plan as they apply to ocean transportation. Problems and questions arising in connection with routing will, of course, have to be worked out in conjunction with the Navy Department which is charged with protection of trade routes and merchant shipping in general. The fundamental functions of such a Control Committee would be: (a) To unify all shipping resources of the nation and make existing shipping as liquid as possible; (b) To control, allocate, and operate all ships under its jurisdiction so as to use the available tonnage to the maximum efficiency in the most essential trades in such a way most advantageous from the standpoint of war use. During the period of transition between the time of proclamation of a national emergency and the passage of emergency legislation the shipping control committee, which should be set up as soon as an emergency ap- pears iminent, will have the important duty of exercising existing authority to insure efficient and economic use of available merchant shipping. During a war emergency one of the functions of the Commission will be to exercise control over charters, charter rates, and ocean freight rates. It is believed that this can best be accomplished by the formation in the Commission of a committee authorized to approve all charter parties and regulate basic charter rates and berth rates. The principal objectives to be attained through such a control would be to prevent the unconscionable high rates which are likely to prevail at the commencement and during a national emergency. This control would be exercised not only over American flag tonnage but also neutral tonnage engaged in the American trade and coming under the jurisdiction of the United States. It will be necessary to enact emergency legislation to accomplish com- plete control over rates as this authority at present does not exist under the law. This committee should be separate and distinct from the shipping control committee. As heretofore indicated, planning for an adequate and comprehensive system of shipping control in advance of an emergency is complicated by many important considerations and unpredictable conditions which may exist at the time the emergency occurs and influence the situation. It is obvious under the circumstances that such plans or method of procedure drawn up in advance, which are intended to be operative under leaders and conditions of the future, must necessarily be elastic in their provisions. However, it is at the same time important that an attempt be made to fore- see the essential parts of a general plan of control so that responsibilities and authorities may be definitely established and the relationships with other agencies in regard thereto may be clearly defined. Fundamental 412 E. S. Land, Chairman, -14 - - 5-15-39 policies and principles can and should be established in advance to serve as a guide and facilitate the organizing and functioning of control machinery upon the outbreak of war. Careful and intensive study is being given to this problem and conferences with the various government agencies interested and concerned are being held with regard thereto. Plans for shipping control extending beyond the general synchronism of government requirements and resources to be effected by a controlling emergency establishment, such as the former War Industries Board, tie in and are concomitant with plans for control of war trade such as exercised by the former War Trade Board through acquisition of shipping bunker control, import restrictions, and priority control over export shipments. It is obvious that comprehensive control of war trade involves functions and activities requiring cooperation between existing government agencies and the emergency establishments to be set up during the war and may affect materially the strategic plans of the War and Navy Departments. Counterparts of the War Industries Board and the War Trade Board established during the World War are found in the Resources Administration and War Trade Administration provided for in the Industrial Mobilization Plan of 1936. This plan is at present being revised and in the process the emergency plans of the Maritime Commission will be coordinated with those set forth in the new Industrial Mobilization Plan. While a considerable amount of study and work has been done in connection with drafting plans for a comprehensive system of shipping control these are in consideration of the above-mentioned circumstances necessarily tentative and still in a formative state. Accordingly there are not submitted at this time other than the broad general ideas heretofore outlined as the features in respect to authorities, functions, and activities must be worked out in conjunction and coordinated with the plans of the other government agencies concerned. (Signed) Huntington T. Morse Assistant to the Chairman Evhibit m a4 413 confirented May 15, 1939. E. S. Land, Chairman. Huntington T. Morse. Assistant to Chairman. Emergency Plans. Reference is made to my memorandum of April 7. 1938 to the Commission: memorandum of July 26 from Commander H. L. Vickery to the Commission to which was attached my informal memorandum of July 20 addressed to you and Commander Vickery; and my memorandum of December 30 to the Commission. The aforementioned memoranda are on the subject of plans for a national emergency. There follows a resume' of the general situation in respect to planning for a national emergency and indicating the progress which has been made: 1. Requisition Procedure Under cover of memorandum of February 10, 1939 there was submitted to the Legal Division for approval a draft of an administrative order comprising a method of procedure to be followed in requisitioning vessels for the Navy Department under the authority contained in section 902 of the Merchant Marine Act, 1936, as amended. The order in question. together with forms and attachments. has been drawn up in conjunction with the various interested divisions of the Maritime Commission and with the designated representatives of the Navy Department. It has been submitted for consideration and recommendations to committees representative of the various branches of the shipping industry on the East and West Coasts. and these committees have indicated by letter that the principles of the method of procedure outlined are reasonable and satisfactory to them. The order and forms have also been considered and discussed in a conference held in New York at which were present representatives of the Third Naval District and the District Manager of the Maritime Commission. In view of the doubts expressed by the Legal Division as to whether the Commission now possesses authority to do all the things contemplated by the procedure in question. and in accordance with their suggestion the plan 414 E.S.Land. Chairman. -2 - 5/15/39. has not been formally submitted to the Commission pending action by the Congress on amendments to section 902, incorporated in H.R.4983. How ever, a comprehensive method of procedure is prepared and ready for issuance, complete with the exception of the charter party forms. and in the event of a national emergency it is my opinion it could be used pending enactment of emergency legislation. The old war time charter party forms and a new draft submitted by a committee from the industry are being revised and re-drafted by a committee composed of various interested divisions of the Commission and should be completed within a reasonable time. The aforementioned proposed amendments to H.R.4983 are designed to accomplich several important objectives: First, to broaden the Commission's emergency powers and promote their executium: second, to simplify and clarify the procedure for determining and paying just compensation: third. to accord fair treatment to the private citizens whose property say be taken for public use. Dealing with the provisions of this bill which make it lawful for the Maritime Commission to requisition vessels whenever the President shall proclaim that the security of the national defense makes it advisable. a review of international affairs clearly shows that wars nowadays have been and can be started without preliminaries. warnings. or the formality of declaration. Accordingly it seems essential to the defense of the nation, then in the judgment of the President war is imminent. that steps can be taken to meet the danger in advance of a proclamation of national emergency or the actual commencement of hostilities. At such a juncture time is of the essence and the Navy and Var Departments should be in position to ob- tain promptly and without negotiation at the time they are required. vessels to serve as auxiliaries and support our combatant forces, both afloat and ashore. In time of war merchant shipping is one of the most essential elements of combat. I - of the opinion that this bill is of great importance to the national defense program and that it should without fail be enacted into law during this session of Congress. 3. War Risk Insurance As a result of discussions with the American underwriters and from studies in connection with the plans for a national emergency it has become increasingly evident that adequate facilities to meet war time requirements for marine insurance should be provided in advance of an emergency and that there is a present need for authority in the Government to provide insurance against war risk because of the recurring threats of war and the possibility of a sudden breakdown of the world insurance market. In consideration of all the facts and circumstances the Commission decided to recommend to the Congress the passage of necessary legislation to provide Government marine war risk insurance. 415 E. S. Land, Chairman.-3 - 5/15/39 Accordingly there has been submitted to the Bureau of the Budget a proposed letter to Congress submitting recommendations of the Maritime Commission for legislation to provide Government marine war risk insurance and draft of a proposed bill to carry out such recommendations. When this matter has been approved by the Bureau of the Budget 18 is understood that it will be promptly submitted to the Congress. I an of the opinion that it is of vital importance that this legislation should be enacted as promptly as possible, and certainly during this session of Congress. 3. Ship Yards and Ship Repair Yards. For well over a year comprehensive survey of all existing ship yards on the East Coast, West Coast, and Gulf has been under way. Data has been gathered showing the present capacity of these yards. their potential capacity under emergency conditions, together with concomitant detailed information in respect to labor, power. housing facilities. etc. Plans showing general layout, area, and location of shope have been or are being obtained and will be kept up to date. This study also includes survey and similar information on old ship yards to the and that prompt decision. dependent upon the circumstances can be made as to whether or not it would be practical to rehabilitate and put such yards in operation in the event of a war emergency. There is also under way survey of all ship repair yards so that comprehensive information on the same will be immediately available in the event of an emergency. While these studies have not as yet been completed they are being handled by men especially assigned to this task and there is available at the present time sufficient data and information to enable determination to be made in respect to their use or rehabilitation in the event it became necessary to do so on short notice. 4. Data on Existing Tonnage There is on record with the Maritime Commission the general particulars of all American and foreign flag vessels of over 1,000 gross tons. This record does not incorporate in every instance all details such as booms. heaviest lifts, and sise of hatches. However, at the present time there is in the Navy Department a record on all American flag vessels of over 1,000 gross tons showing in great detail the characteristics of these vessels. This data has been compiled as a result of surveys made by the Joint Merchant Vessel Board. 5. Concentration and Coordination of Data. In connection with the acquisition and compilation of the aforementioned and related data on vessels, ship yards, and repair yards, it is considered important and desirable that a complete record should be concentrated and kept available in one place. Accordingly the Commission has and is obtaining from the Navy Department and other sources such data and information. and through mutual cooperation coordinating the acquisition and keeping up to date of complete records. 416 K.S.Land.Chairman. -4 - 5/15/39. 6. Laid-up Fleet In 1935 a complete physical survey was made of all vessels in the reserve fleets owned by the Government and then under the control of the former Shipping Board Bureau of the Department of Commerce. This survey was accomplished by a joint committee composed of representatives of the U.S.Navy, American Bureau of Shipping. and the former Shipping Board Bureau of the Department of Commerce. As a result of this survey a determination was reached on each vessel as to whether the ship pomesed sufficient OF insufficient value for commercial or military operation to warrant its further preservation. Based on the findings of the survey in question all the vessels in the reserve fleets were classified into three groups as follows: Class I - A first reserve for restricted operation. charter, or sale Class II - A second reserve for national emergency Class III - Vessels suitable only for scrapping The survey committee referred to above was kept in being, and in 1937 by direction of the Maritime Commission there was a further survey and dry docking program during which doubtful vessels were dry docked for under water survey. At the present time there is a complete up to date record of the 119 odd vessels now in the Commission's laid-up fleets comprising not only the general particulars of the vessels in question showing tomage, dimensions. decks. booms, winches, heaviest lifts, draft, cargo capacity, boilers, enginee. fuel capacity, fuel consumption. steaming radius, speed, etc. but also condition surveys, estimated cost of repairs, and approximate time required to accomplish the same under normal conditions. The vessels in layup are being maintained in a sufficient state of preservetion to insure their value for use in national emergencies. 7. Sales Policy on Obsolete Vessels in Reserve Fleets After the completion of a sales program during which all vessels in Class III were disposed of, the Commission in November, 1937 as a stimulus to new ship construction announced as a matter of policy that 18 would make no further sales of surplus vessels in its laid-up fleet of World Var origin and that these vessels would be held in reserve indefinitely for possible use in the event of a commercial or military emergency. This announcement also stated that any vessels in the reserve fleets which might be subsequently found to have insufficient military or commercial value to warrant their further preservation would be sold for scrapping, or for any other use that will take them out of operation. The Commission further announced that taking these old and idle vessels off the market would remove one serious obstacle to the building of modern. fast vessels by private ship operators, which are imperatively needed for the rehabilitation of the merchant marine. 417 E.S.Land,Chairman,-5 - 5/15/39. 8. Emergency Ship Construction One of the principal functions of the Maritime Commission for national defense is providing for a merchant marine capable of serving a naval and military auxiliary in time of war or national emergency. This involves not only planning in peace time for the development of a merchant marine which will insure speedy adaptation to national defense requirements during war time. but also arranging for such emergency ship construction as may be essential to carry out a war program. as After conferences with representatives of the Navy Department it has been ascertained that in the event of an emergency involving a major effort naval needs will require the construction of 225 new cargo vessels of the latest C-1, C-2, C-3 Design and tankers. and that the Navy program is predicated on the delivery of these vessels within a period of three years, the first vessel to be delivered in eighteen months after the commencement of construction in a ship yard. This program is subject to modification dependent upon conditions existing at the time and possibly upon the amount of suitable tonnage which has been constructed for Commission or private account before an emergency occurs. Conferences with officials of the Navy Department reveal it will be necessary in the event war is declared for the Navy to make use of all shipyard facilities and take over all ways in existing ship yards to meet the immediate requirements for naval work. Accordingly it will be necessary for the Maritime Commission to arrange for additional shipbuilding facilities to carry out the aforementioned emergency construction program. In planning for such an emergency program we have reviewed and accepted certain studies and estimates made by the Navy Department in respect to the most economical and satisfactory method. whereby taking into consideration the required building and delivery periods the greatest number of vessels can be constructed with the least number of ways. These studies indicate that the greatest number of ships which can be constructed with the least number of ways can be accomplished in yards which have seven ways or multiples thereof. Accordingly it is believed that an emergency construction program calling for 200 odd vessels is possible of accomplishment within the time limit by the establishment of two properly located ship yards, each comprising 42 ship ways. In this connection it should be stated that this plan is predicated upon the assumption that all the vessels to be constructed will follow the Maritime Commission standard design merchant vessel for the various types required. and will be built in so far as practicable under the so-called "assembly method", i.e., to as great a per cent as possible the material going into the construction of the vessels will be fabricated at some inland point and transported to the yard for assembly. 418 S.S.Land. Chairman,-6 - 5/15/39. Taking under advisement strategic sites for the establishment of the two yards in question, is is believed that the following principal factors should be taken into consideration: 1 - Approximate amount of land that will be required and its avail- ability; 2 - Proxisity to material required for construction: 3 - Availability of necessary labor: 4 - Source, nature, availability, and proximity of power: 5 - Depth of water available and mount of dredging which will be required: 6 - Transportation facilities available for transporting supplies. equipment, and material - railroad. water, and highway: 7 Housing facilities for labor: 8 Climatic conditions which would affect the progress of the work; 9 - Location of site selected with regard to: (a) theatre of wart (b) protection from attack by air or water: (c) senitation. In advance of inspection and upon very general consideration of the above-mentioned factors based upon such information as is immediately available, it is believed that one of the ship yards in question should be located in the Gulf of Mexico, either in the proximity of Mobile, Alabama or the Gulf Coast of Mississippi: the most desirable location for the other would appear to be on the East Coast on Delaware or Cheespeake Bay. 9. Production Schedule. The Maritime Commission's program for rehabilitation of the American Merchant Marine. of which at the present time 85% of the ships will be obsolete by 1943, is will under way. This program contexplates new construction on a ten-year schedule during which time it is planned to build a mistaus of 800 new vessels, and provision for a standing and orderly replacement of the old vessels now in operation. The present record of this program includes 66 shipe of various types, several of which have already been leanched. Four of ameries of 12 high speed tankers have also been leanched. These vessels were ordered by the Standard 011 Company of New Jersey and the national defense features which have been built into these vessels have been paid for by the U.S.Maritime Commission. It is almost certain that more high speed tankers will be under construction for private companies on the same general basis of agreement. In accordance with provisions of the Merchant Marine Act, 1936, as amended. the plane and specifications of all vessels built under the provisions of this Act are submitted to the Havy Department for examinetion, approval. and suggestion for such changes as may be deemed necessary or proper in order that such vessels shall be suitable for economical and speedy conversion into naval or military anxiliation, or otherwise suitable for use of the United States Government in time of war or national emergency. 419 S.Land,Chairman. - 5/15/39. The Commission in the course of its own construction program has and will continue to obtain requisite data on tonnage suitable for use during a national war emergency which is now under construction or will be constructed in this country. 10. Trade-in Provisions as incorporated in H.R.5130 (new Section 510) now under consideration by the Congress. In March 1939 the Commission recommended to Congress a series of amendments to the shipping laws which were designed to perfect the Merchant Marine Act, 1936. The principal recommendation involves a plan to stimulate ship construction. particularly in the coastwise and intercoastal services. This proposal was described in detail in the Commission's Report to Congress on Domestic Shipping and in Chairman Emory S. Land's statement covering that study. Briefly. the plan requests Congress to authorize the Commission to acquire obsolete vessels not less than 17 years old which have been owned by citizens of the United States for at least three years prior to the date of such acquisition. in exchange for a credit on the purchase of a new vessel from the Commission or on a new vessel constructed in a domestic ship yard and documented under the laws of the United States. In order to provide against the menace of continued operation of the older vessels in competition with vastly more expensive new ships this legislation provides a measure of sterilization of older vessels preserved for national defense. The prudent shipowner when contemplating new construction must look ahead not only into the immediate future, but also must weigh possible eventualities which may occur during the entire economic life of the new vessel. In this connection to the extent that competition is probable or possible from written-down vessels which may be released by the Government, new construction is retarded. Accordingly as indicated above the Commission's recommendations for new legislation in- corporate provisions prohibiting the return to commercial operation of vessels acquired under the "trade-in" provisions or of vessels now in the Commission's laid-up fleet after any such vessel becomes twenty years old, except during a period in which the vessels may be requisitioned for national defense, or except as otherwise provided for in the Merchant Marine Act for the employment of the Commission's vessels in steamship lines on trade routes exclusively serving the foreign trade of the United States. The advantages and effect of legislation along the lines heretofore outlined from a national defense standpoint would in my opinion be as follows: (a) - It would insure the private owners in the domestic and those operating with or without benefit of government aid in the foreign trade. a fair and reasonable credit under normal conditions for old 420 H.S.Land.Ohairman.-8 - 5/15/39. tonnage turned in to the Government on account of new vessels and encourage outlers to plan for and effect the replacement of older vessels with new more efficient units, suitable for use as naval auxiliaries in the event of a national emergency; (b) - It would permit the Maritime Commission to hold in reserve all old and obsolete vessels owned or acquired, possessing sufficient commercial and military value to warrant their further preservation, thereby insuring an additional and such needed supply of merchant tonnage suitable for use in the event of a war emergency. The cost of maintaining these vessels in a reasonable state of preservation would be a very small premium to pay for such a valuable form of national insurance. particularly when consideration is given to the effort, cost, and time element which would be involved in the construction of new vessels during a national emergency: (e) - All vessels owned or acquired by the Commission determined to be of insufficient value for commercial or military operation to warrant their further preservation could be held afloat as a reserve for scrap or sold for scrapping, dependent upon governing conditions: (d) - It will permit the Commission to continue the wise policy of considering applications covering the disposition of American flag vessels to foreign interests upon their individual merit in the light of the need in this country of such tonnage for peace-time or war-time purposes, without working a hardship on private owners who wish to dispose of their surplus or obsolete tomage to best advantage and use the credits obtained for the construction of new ships. 11. Merchant Marine Personnel In the event of a national emergency a large number of privatelyowned vessels will be required for war-time purposes by the Navy and Var Departments. The Maritime Commission will also control and operate other vessels engaged in the transportation of strategic and critical materials and essential water-borne commerce of the United States. At the start of an emergency many of the vessels requisitioned and assigned to the Navy and Var Departments will of necessity here to be operated under Time Charter form with civilian crows until they can be transferred to Bare Beat Charter with naval personnel. In all probability the remaining vessels in commercial operation will be manned by civilians. Under the circumstances the importance of obtaining loyal. trained, and efficient crews and exercising adequate personnel control is self-evident, particularly during the critical period between the proclamation of a national emergency and the enactment of any emergency legislation considered necessary to accomplish these purposes. 421 R.S.Land. Chairman-9 5/15/39. The Commission's system for training citisens of the United States to serve as licensed and unlicensed personnel on merchant vessels and plans for a future procedure are incorporated in its report to Congress dated January 1, 1939. While at present the Commission is not attempting to train new unlicensed personnel it is anticipated that the U.S. Maritime Service will eventually train a reasonable number of competent young Americans without previous sea experience. I am of the opinion that this should be done as soon as possiBle. The present situation in the merchant marine as regards unlicensed personnel is unsatisfactory and it is confidently anticipated that the training system which has been inaugurated will contribute towards its stabilisation. Contacts with representatives of the Navy and Var Departments have clearly demonstrated the concern with which officials of these De- partments view matters affecting the loyalty, discipline, training, and proper control of maritime personnel because of their importance in the national defense program. The stabilisation of merchant marine personnel is considered a most material factor of this program. The personnel situation in regard to licensed officers as distinguished from unlicensed personnel is more satisfactory and our experience in 1917 and 1918. when the Navy took over a large number of merchant marine vessels, showed us that in practically every instance the ships' officers were willing and anxious to come into the naval service in the positions they held. Even though they were at that time unfamiliar with naval procedure satisfactory results were obtained. By statutory provision all the deck and engineer officers enployed on vessels on which an operating-differential subsidy is paid or which are employed on the Commission's vessels shall if eligible be members of the United States Naval Reserve. In view of the fact, as heretofore stated, that at the start of an emergency a great many merchant marine vessels will have to be taken over on a Time Charter basis and operated for naval or commercial account with civilian crows, there has been considerable discussion and speculation as to whether or not the vessels can be manned with loyal. trained, and efficient crews. In this respect, I am of the opinion that whereas there undoubtedly exists a radical and undesirable element among the unlicensed personnel of our merchant vessels whose loyalty could not be absolutely counted upon in the event of a national emergency. that this element is very much in the mimority and that generally speaking the rank and file are loyal. capable American citizens who can be relied upon to serve their country during a war. Furthermore. I am of the opinion that in an emergency with the assistance of the operators and officers of our vessels undesirables can be weeded out and the ships safely operated in whatever service they may be required. 422 S.S.Land, Chairman -10 - 5/15/39. It is contemplated in se far as vessels operated for Navy or War Department account that whonever possible vessels will be taken over on a Bare Boat basis and commissioned as full naval units, as was the case in 1917, and ultimately all vessels operated for Navy or far Department account will be transferred to a Bare Boat basis with naval crews. 13. Key Men whose Services will be required during a National Emergency. In view of the fact that the Maritime Commission and some of the emergency establishments which will be created under plane for industrial mobilisation will require during a national emergency the services of certain key men in the shipping industry, as well as a considerable number of subordinate officials in order to carry out war time functions. it is considered desirable in the general interest of national defende that individuals from the shipping industry should be available for selection for positions in all such agencies for which their experience and qualifications make them best suited. Furthermore, the Navy Department in preparing for the expension of naval facilities entailed in the event of war or national emergency considers it desirable that individuals familiar with the shipping industry be available at that time to augment the personnel of the regular navy. In order to be assured of the services of the individuals desired it is considered necessary that they should be commissioned in the Naval Reserve. In consideration of the above-mentioned emergency personnel re- quirements it is recognised that it would not be prudent by requiring the services of certain individuals for purely naval use, to disturb the proper operation of the shipping industry as it is of the greatest inportance that the efficiency of existing shipping companies whose services will be required for the operation of the merchant vessels not under the control of the Navy or War Departments will not be impaired by the withdrawal of experienced personnel necessary to carry on such operation. Accordingly an agreement has been reached between the Navy Department and the Maritime Commission. whereby before any such individual heretofore mentioned is appointed in the Naval Reserve a designated representative of the Navy Department and the Commission will confer concerning the ad- visability of appointment in the Naval Reserve of the individuals in question and jointly determine that the services of applicants will be available to the Havy in the event of an emergency without disruption of other essential maritime functions. In this connection the Bureau of Navigation has designated the Director of Naval Reserves. Captain Felix Gygax. USE.. as its representative to effect such determination and the Maritime Commission has likewise designated Huntington T. Morse, Assistant to Chairman. as its representative. 423 E.S.Land.Chairman. -11 - 5/15/39. 13. Emergency Legislation In planning for an emergency consideration must be given to the establishment and definition of the extent and scope of authorities under which emergency plans and control will be carried out and exercised. Accordingly it is important that drafts of bills which can be presented to Congress upon proclamation of an emergency. or when one is inminent, be prepared and ready for presentation. Such drafts cannot in advance of the fact do other than cover broad principles and provide for con- tingencies which can be foreseen with a reasonable degree of accuracy. Details can be filled in at the time required. In this connection the Navy and the War Department have already prepared drafts of enabling legislation which will be necessary in order to carry out their war time plans. The Maritime Commission is also engaged in the preparation of such additional legislation considered necessary by the Legal Division in order to obtain authority to carry out its war time functions. In working out and coordinating the emergency plans of the Commission with those of the War and Navy Departments it has become evident that there has been some duplication in the preparation of advance emer- geney legislation. In order to correct this situation. provide against overlapping authorities. expedite passage, and insure that necessary authority will be correctly located, the legislative programs of the Vara Navy. and Maritime Commission are in the process of being coordinated. 14. Shipping Controls The necessities for shipping control and the nature and scope of this problem have been outlined and briefly discussed in the previous aemoranda under reference. As stated therein the importance of having centralized control of shipping in order to unify shipping resources of the country and insure the most efficient use and operation of available ocean transportation facilities was clearly demonstrated during the World War and it is essential that there be set up in advance an adequate and practicable system to accomplish such control during a national emergency. This problem is one of the first magnitude and involves questions of national policy requiring intensive study and careful consideration and should be worked out in conjunction with all the government agencies which are or will be concerned. It can be divided into two parts as follows: (a) Control during the critical transitory period between the proclamation of the national emergency and the enactment of legislation necessary to set in motion the machinery to carry out the national defense program for industrial mobilisation and control; 424 .S.Land,Chairman.-12 - 5/15/39. (b) Control of shipping after the efactment of enabling emergency legislation. Dealing with (a) it is contemplate that through the authority con- tained in the Merchant Marine Act. 1936. as assended. and 1.4983 now under consideration by the Congress. a measure of control over shipping can be attained at the start of an emergency by the blanket requisitioning of all American flag vessels over certain tomage, say. 2500 deadweight tone. This can be accomplished by the requisition procedure which has already been prepared and by subsequent agreement providing that vessels so requi- sitioned, except in so far as they are actually required for direct opera- tion in Government service. remain in the hands of their owners to be managed and operated for Government account subject at all times to such disposition as the United States may direct. Under this arrangement owners whose vessels are operating in regular established services could be permitted to continue their operation for account of the government until they receive further instructions. Furthermore, as vessels are requisitioned and taken out of commercial service for naval or military use it will w doubtedly become necessary. as was the case in the Yorld War, to rearrange services. shift vessels. to other trade roubes. and effect some control over rates, all of which would not be practicably possible unless the ships were operated for government account and subject at all times to the disposition and direction of the United States. This entire matter has been discussed very thoroughly with the committees from the shipping industry on the East Coast, Gulf. and West Coast. who concur with the necessity for immediate action along these lines at the start of a war emergency. Dealing with (b). control of shipping during a war emergency in order to be effective should be centralised in a small independent committee, possibly one individual. with full authority over all tonnage owned, required. or coming under the control of the United States, subject to the dictates of national policy promulgated by the individual or establishment to whom or to which Presidential authority has been delegated. and guided by the policies laid down by the various emergency establishments to be set up under an Indiatrial Mobilisation Plan an they apply to ocean transportation. Problems and questions arising in connection with routing will, of course, have to be worked out in conjunction with the Navy Department which is charged with protection of trade routes and merchant shipping in general. The fundamental functions of such a Control Committee would bet (a) To unify all shipping resources of the nation and make existing shipping as liquid as possible: (b) To control. allocate, and operate all ships under its jurisdiction so as to use the available tonnage to the magista efficiency in the most essential trades in such a way most advantageous from the standpoint of mar use. 425 E.S.Land,Chaira,-13 - 5/15/39. During the period of transition between the time of proclamation of a national emergency and the passage of emergency legislation theshipping control committee. which should be set up as soon as an emergency appears issinent, will have the important duty of exercising existing authority to insure efficient and economic use of available merchant shipping. During a war emergency one of the functions of the Commission will be to exercise control over chartere, charter rates, and ocean freight rates. It is believed that this can best be accomplished by the forms tion in the Commission of a committee authorised to approve all charter parties and regulate basic charter rates and borth rates. The principal objectives to be attained through such a control would be to prevent the unconscionable high rates which are likely to prevail at the commencement and during a national emergency. This control would be exercised not only over American flag tonnage but also neutral tomage engaged in the American trade and coming under the Jurisdiction of the United States. It will be necessary to enact emergency legislation to accomplish conplate control over rates as this authority at present does not exist under the law. This committee should be separate and distinct from the shipping control committee. As heretofore indicated. planning for an adequate and comprehensive system of shipping control in advance of an emergency is complicated by many important considerations and unpredictable conditions which may exist at the time the emergency occurs and influence the situation. It is obvious under the circumstances that such plans or method of procedure drawn up in advance. which are intended to be operative under leaders and conditions of the future. must necessarily be elastic in their provisions. However, 11 is at the same time important that an attempt be made to fore- see the essential parts of a general plan of control so that responsibilities and authorities may be definitely established and the relationships with other agencies in regard thereto may be clearly defined. Fundamental policies and principles can and should be established in advance to serve as a guide and facilitate the organising and functioning of control machinery upon the outbreak of war. Careful and intensive study is being given to this problem and conferences with the various evernment agencies interested and concerned are being held with regard thereto. Mane for shipping control extending beyond the general synchronism of government requirements and resources to be effected by a controlling emergency establishment. such as the former Var Industries Broad, tie in and are consomitant with plans for control of war trade such as exercised by the former War Trade Board through acquisition of shipping bunker control. import restrictions, and priority control over export shipments. It is obvious that comprehensive control of war trade involves functions and activities requiring cooperation between existing government agencies and the emergency establishments to be set up during the war and may affect materially the strategic plans of the War and Harry Departments. Counterparts of the far Industries Board and the Var Trade Board established during the World War are found in the Resources Ministration and War 426 - 14 - 5/15/39. Trade Administration provided for in the Industrial Mobilization Plan of 1936. This plan is at present being revised and in the process the energency plans of the Maritime Commission will be ocordinate with those set forth in the new Industrial Mobilisation Plan. While a considerable amount of study and work has been done in con- a with drafting plans for a comprehensive system of shipping control these are in consideration of the above-nentioned circumstances necessarily tentative and still in a formative state. Accordingly there are not submitted at this time other then the broad general ideas heretefore outlined as the features in respect to authorities. functions. and activities meet be worked out in conjunction and coordinated with the plane of the other government agencies concerned. SIGNED Huntington T. Morse Hustington T. Morse Assistant to Chairman HTMerse/ns 427 GRAY JR Paris Dated May 15, 1939 Rec'd 12:04 p.m. Secretary of State, Washington. 940,May 15, 4 p.m. FOR THE TREASURY. It is understood that the new 5% loan issue which opened today has met - with great SUCCESS and that the Ministry of Finance will announce the fact that the limit of cash subscriptions namely six billion francs has been covered. Business in foreign Exchange today was small. The belga was firm and WE are told by our market contact that the Belgian control obtained an important amount of sterling. The security market was inactive, with rentes showing fractional losses. BULLITT WWC 03V13038 COOLEI Y4M MONTHARE YAURA+1 ad sime containing 14 texent 428 PLAIN EG London Dated May 15, 1939 Rec'd 3:10 p.m. Secretary of State, Washington. 685, May 15, 6 p.m. FOR TREASURY FROM BUTTERYORTH. 1. Mussolini's speech which was generally characterised as "relatively peaceful" Cave the city a slightly more cheerful tone, the stock market closing slightly better on the day. On a very inactive Exchange market sterling was firm and when bid from NEW York went to 4.68 9/32 at which rate the British fund bought a few dollars but continued to sell the three months' forward at 1 13/32. The firmness of sterling was influenced in part by sales of dollars against guilders in connection with a French guilder loan which is coming due, the guilder being bid from 8.72 1/2 to 8.68 1/2. 80 bars of Gold were dralt in, 28 of which WERE married, the British fund supplying about 50 bars. The principal buyer was pro-rated at 75 percent of requirements. 2. 429 -2- 685, May 15, 6 p.m. from London 2. The OVERSERS trade returns for April published today show that though the trade balance position continues better than a year ago the margin of improvement was narrowed owing to a smaller reduction in imports and a rather sharp decline in Exports. The import surplus for the first four months of 1939 at pounds 115 million compares with nearly pounds 139.6 million for the corresponding period in 1938; but for the month of April the import surplus was pounds 30 million or only pounds 1 million less than in April 1938. Unless a decided increase in exports occurs armament demand may be EXPECT- Ed to carry the year's import surplus to more than the 1938 figure. 3. The following authoritative announcement in the city column of today's TIMES may be of interest: "With a VIEW to pooling and gradually realizing certain types of immobilized claims on central European debtors a company has been formed, with the full approval and sympathy of official quarters, under the title of the continental assets realization trust. The trust will acquire any type of financi 1 claims at a valuation issuing shares in Exchange and will deal with them in any way which SEEMS likely to lead to their EVENTUAL realization 430 -3- #685, liay 15, 6 p.m. from London realization in free currency without EXCESSIVE loss. At present the company still has only its nominal registration capital of pounds 100 but will increase its capital in the first instance in proportion to the amount of claims which are tendered to it on acceptable terms. To what EXTENT creditors will avail themselves of the offer is of course rather a matter of conjecture but it is understood that a substantial amount of business has already been provisionally arranged including it is believed SOME of the claims formerly held by the London Merchant Bank. It is felt that cash advances under the German credit agreement and claims under the Hungarian standstill agreement may provide a particularly suitable field. So far as the German standstill is concerned the leading acceptance houses are naturally more interested in the rEcommercialization of their credits - EVEN if it looks like being a matter of many years - than in liquidating them. The clearing banks again usually prefer to retain any claims they may have. None the less there is a reasonably wide field within which the trust should fulfil a useful function. The management is skilled and Experienced in the normal methods of SE- curing realization of frozen claims (naturally at the inevitable 431 -6- #685, May 15, 6 p.m., from London inevitable discount) and its operations are with the entire concurrence of the Reichabank which has assented to the transfer to the trust of any claims subject to the German credit agreement." KENNEDY CSB 432 H PARTIAL PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Berlin, Germany DATE: May 15, 1939, 5 p.m. NO.: 369 No. 29 FOR TREASURY FROM HEATH. A renewal of the "standstill agreement* will be signed at six o'clock this afternoon by representatives of British, American, Swiss, Dutch, Belgian, and French short term creditors of Germany and representatives of German banks following negotiations which have lasted two weeks. A press release will be issued here a substantial part of which it is understood will be cabled by American correspondents. The short term credits outstanding in all countries are understood to have been reduced to the equivalent of $276,000,000 on February 28, 1939 plus additional unused lines of credit amounting to $34,000,000. of this total there is outstanding to American creditors approximately $67,000,000 plus $14,000,000 unavailed lines of credit. The net reduction in total credit lines during twelve months ending February 28, 1939 was $77,000,000 of which roughly $11,440,000 represented payment of full value of the credit and the rest payment at a discount through the travel mark procedure. The 433 -2The agreement contains several new features. For example, the license fee collected by the bankers for selling travel marks which was fixed last fall at $3.75 per hundred marks will be on a sliding scale. On the basis of the present discount of registered marks of 60% the license fee will be $4.58; $3.75 if the discount falls to 50% thereafter progressively decreasing to a minimum of $2.50. Further the Germans agreed to make an additional re- payment at full value of 20 to 25% (about 10,000,000,000 marks) of those credit lines which were guaranteed by the gold discount bank. Last year some 30,000,000 marks of short term credits were recommercialized. This year the gold discount bank will provide its share of the foreign exchange received from the sale of travel marks to provide recommercialization of the indebtedness of creditors willing to continue lines 80 recommercialized for three years or more. Permission was also granted to continue the Haavara mark used for remittance to Jewish people in Germany and permission was granted to holders of the Lee-Higginson credit to transfer a further percentage if they desire by calling registered marks. The next mid-year standstill meeting will be held in New York in October, 1939, It will be the first meeting 434 -3meeting to be held in the United States. From discussions with American representatives, it is my impression that while they hoped to profit by the firmer stand which the British representatives took to gain even further concessions, they are fairly well satisfied with which they actually received, under the circumstances. KIRK. EA:LWW 435 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: May 15, 1939, 7 p.m. NO.: 946 CONFIDENTIAL. I had a visit today from Mr. Van Zeeland, the former Prime Minister of Belgium. With regard to my telegram No. 931 of May 12, 4 p.m.: Van Zeeland said he had not yet decided definitely to undertake the mission to Spain mentioned therein. This afternoon he expected to see Leger, Paul Reynaud, the Spanish Ambassador, and the British Ambassador. It was his intention to tell the Spanish Ambassador that he would have to get three positive assurances from the Spanish Government before he would undertake the mission; i.e., (1) that it had not been decided that the Spanish Government would adopt a total itarian regime or a system of economy which was totalitarian; (2) Spain had not made any commitments to either Germany or Italy which would bind Spain to economic measures that would make the building up of a free system of economy impossible in Spain; (3) that the authorities in Spain would accord him full access to all documents and information that he might need to get a complete and thorough view of the economic and financial 436 -2situation in Spain. The project, Van Zeeland said, had been conceived originally by Mannheimer, who in reality has complete control of Mendelssohn of Amsterdam; nothing would be done by Mannheimer unless the French and Dutch Governments approved. The Dutch and French Governments were eager to go ahead with the mission, and then the British were some- what reluctant and had stated that they felt it might be premature for him to make inquiry at the present time. However, Van Zeeland expressed the belief that this afternoon he would be told by the British Ambassador that the British Government approved the investigation he planned to make. According to Van Zeeland, Mannheimer had been able to interest an extremely strong group of banks in the Netherlands, Switzerland, England and France. In case Van Zeeland could work out something satisfactory with the Spanish Government, he said, at least twenty million pounds would be available. Because of the fact that the financial position of Belgium at the present time would not permit Belgian participation, no Belgian banks would be represented. Van Zeeland expects to return to Brussels after his talks in Paris today and tomorrow. He wants to leave for Spain 437 -3Spain about May 25, if everything goes well. Van Zeeland told me that recently he had gathered all the information that he could on the situation in Spain. He expressed the belief that the hot heads of the Phalangista movement were now having their ardor cooled by the cool realities of the economic, financial and social difficulties which Spain was facing. The job he would have would be to try to work out a plan for the orderly development of Spain on free economy lines. Then, when it became clearly evident that common sense and not Fascistideology was dominant in Spain, the plan could be put into operation. Van Zeeland said, incidentally, that he was in com- plete disapproval of the economic and financial policies which the present Belgian Government is following. He did not think that there would be any immediate or spectacular crash, but was of the opinion that, until the present policies should be altered, the national economy of Belgium would sink slowly. Van Zeeland expressed extreme apprehension lest the question of Dansig may bring on a war. It is requested that this telegram be repeated to the Treasury. END MESSAGE. BULLITT.