Full text of Diaries of Henry Morgenthau, Jr. : Volume 209 : Part 2

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184

CHARTER

and

AMENDED BY-LANS

of the
PAKAMA RAIL ROAD
COMPANY

York

1907

85

AN ACT

TO INCORPORATE THE
PANAMA RAIL ROAD COMPANY

Passed April 7. 1849.

The People of the State of New York, represented in Senate and
Assembly, do enact as follows
SECTION 1. - WILLIAM H. ASPINALL, JOHN L. STEPHENS, HENRY CHAUNCKY,
JAMES BROWN, CORNELIUS W. LAWRENCE, GOUVERNEUR KEMBLE, THOMAS R. LUDLOW,
DAVID THOMPSON, JOSEPH B. VARNUM, SAMUEL S. HOWLAND, PROSPER M. BETMORE,

EDWIN BARTLETT, HORATIONALLEN, and their associates, successors and assigns,

are hereby constituted a body corporate, by the name of the "PANANA RAILROAD COMPANY," for the purpose of constructing and saintaining a railroad,

with one or zore tracks, and all convenient buildings, fixtures, machinery

and appurtenances, aeros the Isthmus of Panama, in the Republic of New
Granada, under the grant made by the said Republic to the said WILLIAM H.
ASPINWALL, JOHN L. STEPHENS, and HENRY CHAUNCEY, and of purchasing and navi-

gating such steam or sailing vessels as may be proper and convenient to be
used in connection with the said road; and for such purposes all the necessary
and incidental power in hereby granted to the said corporation.

SEC. 2.- The capital stock of the seic corporation shall be fixed by

the directors at a sum not les than one million of dohlars, with liberty to

increase the same at any time to a sum not exceeding five millions of dellars. Sai stock shall be divided into shares of one hundred dollars each,
and shall be deemed orsonal property, transferable in such manner as the bylaws of the said corporation shall direct. The said corporation may commence
operations when five hundred thousand dollars shall have been subscribed,
and twenty per cent. on each share subscribed for, paid in. The said
WILLIAM H. ASPINALI, JOHN do STEPHENS, AND HENRY CHAUNCKY, shall be con-

missioners to receive subscriptions for the said capital stock, and if the
whole capital stock shall not be subscribed at the time first appointed,
other subscriptions say be at any time received, until the whole amount
shall be subscribed, at such times and under such rules and regulations as
they shall prescribe.
SEC. 3.- The concerns or the said corporation shall be managed by
thirteen directors, who shall be stockholders, and who (except the first

directors hereby appointed) shall hold their offices for one year, and until
others are ohosen in their places. The persons named in the first section

of this act shall be the first directors, and shall hold their offices until

the first Monday of April, in the year one thousand eight hundred and fifty- for

one, and until others are chosen in their places. The directors, except the
the first two years, shall be annually chocen at such time and place in
City of Ner York, and on such notice, as shall be directed by the by-lave share

of the said corporation. In all meetings of the stockholders each
shall entitle the holder to one vote, to be given in person or by proxy.
In casa it should at any tim happen that an election of directors shall not

186

-2be made on the day appointed by the by-laws of the said corporation,
the said corporation shall not for that cause be deemed to be dissolved,
but such election shall be hold on any other day which shall be appointed
by the directors of said association.

SEC. 4.- The directors (of whoz five shall constitute & quorum for
the transaction of business) shall appoint one of their number to be resident, and may appoint such other officers and agents as they shall does.
necessary, and they may make and establish such by-laws, rules and regula-

tion as they shall think proper and expedient, touching the disposition
and management of the property, estate and effects of the said corpora-

tion; the transfer of shares, the duties and conduct of their officers and
servants, the election and meeting of the directors, and all Latters what-

soaver which may appertain to the concerns of said corporation. hen any
vecancy shall happen among the directors. it may b filled by the remainin directors; and the directors may remove all officers appointed by them,
and appoint others in their place, and fill all vacancies in the offices.
SEC. 5.- The directors may require payments of subscriptions to the
stock at such times and in such proportions as they may deem reper under
the penalty of forfeiting all stock and previous payments made thereon,
and may sue for and recover all such subscriptions. Notice of the time
and place of such payments shall be published for four veeks revious
to such time, at least once in each week, in two newspapers published in
the City of New York.
SEC. 6.- The said corporation may DATE a common seal, and the same

may alter or renew at pleasure; and all contracts made may be either verbal

or under the signature of the president, secretary, or other officer or
agent of the said corporation, and with or without the corporate seal.
SEC. 7.- It shall be lawful for the said corporation to contract

with the said WILLIAM H. ASPINWALL, JOHN L. STEPHENS, AND HENRY CHAUNCEY

for the purchase of all the rights, privileges and immunities granted to

them by the said Republic of New Grenada, and for the purchase of the lands
greated to them by the said Republic, and to receive a conveyance of and
hold the same in like manner as the said WILLIAM H. ASPINALI, JOHN L.
STEPHENS AND HENRY CHAUNCEY not do or can do; and to lesse, or sell and

convey any of such lends which the said corporation shall not deem 11

necessary to retain, and to build and construct all such buildings, piers,
docks, basins and harbors on the said lands as the said corporation may
deem expedient, in like manner as the said WILLIAM H. ASPINALI, JOHN L.
STEPHENS AND HENRY CHAUNCEY can do under the said grant.

SEC. 8.- The said corporation may borro from time to time such sum
or susa of money as may be necessary to complete said road, and for the
other purposes authorized by this act, in the whole not exceeding the amount

.3-

187

of the capital stoc actually paid in, and may issue end dispose of their
bonds for any amount so borrowed; and are hereby authorized to sortgage

any part of their corporate property and privileges to secure the payment of
such bonds; and the said directors may confer on the holder of any bond
they say issue, for any money so borrowed, the right to convert the principal
due thereon into stock of the said corporation at any time not exceeding
five years from the date of said bond, under such regulations as the directors say see fit to adopt; and for such purpose, the said corporation
are authorized to increase its capital stock to the amount 80 borrowed, whenever the persons, or any of them, to whom such money is due, shall elect to
convert the same into stock: but nothing herein contained shall be construed to authorize an increase or the capital stock of said company beyond

the our of five millions of dollars.

SEC. 9.- Each and every stockholder shall be individually liable to
the creditors of said corporation, for all debts that may be due and owing
by said corporation, to their laborers and servants for services performed,
and for all other debts and liabilities of the said corporation, to an
amount equal to the amount of stock held by him, until he shall have paid
in full the amount of such stock so held. But no stockholder shall be persomally liable for the payment of any debt contracted by the said corporation hich 13 not to be paid within one year from the time the debt 1. contracted, nor unless a suit for the collection of such debt shall be brought
against said corporation within one year after the debt shall become due;
and no suit shall be brought against any stockholder in said corporation for
any debt so contracted, unless the same shall be commenced within two years

from the time he shall have cessed to be a stockholder in said corporation,
nor until an execution against the corporation shall have been returned unsatisfied in whole or in part. No person holding stock in said company as
executor, administrator, guardian or trustee, and no person holding such

stock as collateral security, shall be personally subject to any liability

as a stockholder of said company, but the person pledging such stock shall
be considered as holding the some, and shall be liable as a stockholder
accordingly, and the estate and funds in the hands of such executor, admin-

istrator, guardian or trustee, shall be liable in like monner and to the
same extent as the testator, or intestate, or the word, or person interested

in such fund, would have been if be had been living and competent to act,
and held the stock in hie own name. Every such executor, administrator,
guardian or trustee, shall represent the abares of stock owned by him as
such administrator, guardian OF trustee, at all meetings of the company, and
zay vote no a stockholder, and every person pledging his stock as aforesaid
may in like manner represent the some and vote accordingly.

SEC. 10.- This act shall take effect immediately.

.4-

188

AN ACT to amount the Act entitled "An Act to incorporate the Panama Railroad Company,"

passed April 7, 1849.

Passed April 12, 1855.

The People of the State of New York, represented in
Senate and Assembly do enact as follows:

I 1.- It shall be lawful for the Panama Railroad Company
to borrow, from time to time, in addition to the amount
limited by the act to incorporate said Company, passed
April 7, 1849, such sum or sums of money as may be necessary

to complete their road, and for other purposes authorized by said
cot; to issue and dispose of their bonds for the reimburse-

ment of any amount to be borrowed, or which may have been

borrowed by them, and to mortgage any art of their corporate
property and privileges to secure the payment of said bonds;
and they may confer upon the holder of any bond which they
may ao issue the right to convert the principal represented
thereby into the stock of said corporation, at any time
not exceeding five years from the date of said bond, under
such regulations as the directors may see fit to adopt, whenever any person or persons holding any such bond shall elect
to convert the same into stock; and for such purpose, the said
incorporation are hereby authorized to increase their capital
stock from time to time; so, however, that the whole capital
of said Company shall not exceed the sum of seven millions of

dollars, anything in said act to the contrary notwithstanding.
g 2.- This act shell take effect immediately.

189
PANAMA RAIL ROAD
COMPANY

AMENDED

BY-LAWS

Corrected to January 21, 1927.

ARTICLE I

The election for Directors of this Company shall
be held at the office of the Company, in the City of New York,
on the first Monday of April in each year.
Three stockholders shall be chosen by the Board, at a
preceding meeting, to act as Inspectors. The polls shall be
opened at noon, and continue open until two o'clock in the
afternoon.

The Board of Directors shall consist of thirteen stockholders, five of whom shall constitute a quorun for the transaction of business at the meetings of the Board.
ARTICLE II

The Officers of this Company shall consist of a President,
a Vice-President, a Second Vice-President, a Secretary and a

Treasurer.

The President, She Vice-President, and the Second VicePresident shall always be members of the Board of Directors,

and the said officers shall be elected by the Board annually

within eight days after the election of the Directors. The vote
shall be by ballot, and a majority of all the members of the

Board shall be necessary to a choice.
In addition to the Officers before named, the Board may from
time to time appoint additional officers, engineers and agents
as the business of the Company may require, and define their
duties.

The salaries of the several officers shall be fixed by the

Board and no extra allowance or compensation shall be made, ex-

cept with the approbation of the Board.
In case of any failure to hold any election for officers,
those in office shell hold their places and be legally qualified

to act, until an election shall be held.

190
10)

ARTICLE III.

The duties of the President shall be, to preside at the
meetings, and to exercise a general supervision over the affairs
of the Company. He shall have power to call meetings of the D1rectors at such time or times as he shall think proper, and it
shall be his duty to call such meetings upon the written requisition
of two or more of the Directors, stating the object for which
they wish such meetings convened.

The Vice-President shall, in the absence of the President,
exercise all of the powers and functions which may in any way be
to the President.
The Second Vice-President shall reside on the Isthmus, and,
in the absence of the President from the Isthmus, shall exercise

such duties of the President as relate to the operations of the

Company at the Isthaus.

ARTICLE IV.

It shall be the duty of the Secretary to be present at the

meetings of the Board, to keep a record of all its proceedings,
and to enter the same in the minute book; to send notices to the
Directors of all meetings which are to be held, and to attend
to such other duties as may be directed by the President, or the
Vice-President.

ARTICLE V.

It shall be the duty of the Treasurer to receive and disburse under the direction of the Board, all moneys belonging
to the Company, and to keep regular and systematic accounts of
all such receipts and disbursements, and to make detailed reports
of such receipts and disbursements to the Directors at each
stated meeting of the Board. He shall cause to be deposited
all moneys received by him for or on account of the Company, in
such bank or banks as the Board may select, or to make such disposition of the funds as the Board of Directors may direct; and
all deposits in banks shall be entered in a book in the usual way,
to the credit of the Company.
All checks and orders upon the funds of the Company shall be
drawn on the bank or institution in which the money of the Company
may be deposited, and such checks and orders shall be signed by the

191

(7)

President, the Vice-President, or in their absence the Assistant
to Vice-President, and the Treasurer; or by the President, or VicePresident, or in their absence the Assistant to Vice-President, and
the Auditor; or in the absence of the President, Vice-President and
the Assistant to Vice-President by the Treasurer and the Auditory and

be drawn to the order of the party to whom the payment is made.
However, in cases of payment for wages due persons in the employ of the Company, the checks drawn upon a special deposit in bank,
called the Isthmus Draft Account, shall be signed by either one of

the
following persons: The President, the Vice-President or the
Treasurer.

The Treasurer shall register all transfers of stocks, and for

this purpose he shall keep the account of the stock registered and
transferred, in such form and manner, and under such regulations as
the Board of Directors may from time to time prescribe, and he shall
attend to such other duties as may be designated by the President
or Vice-President.
The Treasurer shall also keep the dividend books and record of
bonds, attend to the payment of dividends and interest money.

It shall be the duty of the General Auditor to have charge of

and audit all accounts of the Company.

ARTICLE VI. - Repealed.

ARTICLE VII

All transfers 66 stock shall be made in the usual form, by
stockholders signing in proper person or by attorney, in a book
to be prepared and kept by the Treasurer for that purpose, a declaretion of sale or transfer, setting forth the number of shares transthe

ferred, the person to whom, and the time when, the same are so trans-

ferred; and at the time of such transfer, the old certificates of the
shares 80 transferred shall in all cases be surrendered and cancelled,
and a new certificate shall be issued in lieu thereof.
All certificates issued shall be signed by the President or the

Vice-President, and the Secretary.

192
(8)

ARTICLE VIII

There shall be held quarterly mostings of the Board of Directors, on the second Monday in the months of February, May,
August and November in each year.

A full and complete statement of the affairs of the Company,
showing the result of operations for the preceding fiscal year
ending June 30th, shall be submitted to the Board of Directors at
any regular or special meeting held after August first.
Dividends may be declared at any meeting of the Board of
Directors, stated or otherwise, payable at such tinesses the Board
may appoint,
ARTICLE IX

All books and papers of the Company shall be at all times
open to the inspection of the Board, or any member thereof.
ARTICLE X

The order of proceedings at the meetings of the Board shall
but

First - Heading of the Minutes.
Second- Reports of the Standing Committee.

Third - Seports of Select Committees.
Fourth- Miscellaneous Business.
ARTICLE II.

These By-Laws may be amended at any meeting of the Board,

provided such amendment shall have been previously handed to the

President or Vice-President in writing, and that a majority of all
the members of the Board consent thereto.

193

194

WAR DEPARTMENT
WASHINGTON

SEP 8 1938

*the following is a brief history of the Panana Failroad Company:
The Panasa Bailroad Company was incorporated under the laws

of the State of New York by an Act passed on April 7, 1849, that gave
it permission to construct and maintain a railroad across the Isthmus

of Panana, with all convenient buildings, fixtures, machinery, etc.,
under the grant made by the Republic of New Granada to William H. Aspinwell,
John L. Stephens, and Henry Chauncey; to purchase and navigate steam

or sailing vessels in connection with the Boad, and to purchase all the
rights, privileges, and immunities that bad been greated by the Republic
of New Granada to said Aspinwell, Stephens, and Chauncey.

Purchase of this concession was effected, and & contract was
entered into between the Panana Bailroad Company and the Republic of
New Granada by which the Company was given the exclusive right to

195

construct and operate a railroad across the Isthmus of Panama. The
construction was begun in 1850 and completed in 1855. The French
Canal Company secured control of the Panama Railroad Company in 1881,

and ownership of the railroad and all of its rights and holdings came
into the hands of the United States Government in 1904 as part of the
purchase of the Panana Canal route and associated property. The Com-

pany is operated by a board of directors appointed by the Secretary

of War, who holds all the stock except the qualifying shares of the
directors. The Governor of The Panama Canal is President of the
Panama Railroad Company.

In 1851 the Company began the operation of a line of sailing
vessels between New York and its Atlantic terminal, then called Aspin-

wall, and also between its Pacific terminal to Central America and
Mexico and later to California. It has since operated ocean service on

the Atlantic and Pacific coasts in connection with its railroad terminals,
or provided for such service by contracts with other companies. The
present steamship service of the Company between New York and the Canal

Zone was inaugurated in 1893 with vessels of American registry, and

has been in continuous existence for forty-five years.
The Company is now operating two steamers of approximately

9,600 gross tons and two of 2,600 gross tons between New York and

Cristobal, via Port au Prince, Haiti; the two larger vessels carry
passengers as well as cargo. Commercial cargo is handled at conference

196
-3=

tariff rates but the principal utility of the line is in the carriage
of supplies to the Panana Canal and Panama Bailroad activities on the
Isthmus and in transporting employees of the two organisations between

the Canal Zone and the United States, in fact, the line is considered
a necessary adjunet to the Canal operations through its furnishing
economical and reliable transportation for the Government and its ea-

ployees. Three new passenger-on vessels are being constructed at
Quincy, Massachusetts, to replace the steamers now in service.
The Panama Railroad Company has operated & commissary divi-

sion for its employees since 1849 and when the United States Government

acquired the Canal Zone the division was enlarged to include the sale

of foodstuffs, clothing, household supplies, etc., to the Ganal employees
and to other United States Government forces on the Isthmus. A further
extension was later made to permit the furnishing of necessary supplies

to vessels transiting the Canal or calling at its ports. This division
now embraces the operation of so-called wholesale warehouses, bakery,

sausage factory, abattoir, ice areas plant, industrial laboratory, etc.,
and distribution and sale through retail stores in the principal Canal
Zone towns.

The Panasa Genal Act of August 24, 1912, authorized the

President to "establish, maintain, and operate, through the Panama
Failroad Company or otherwise, dry docks, repair shope, yards, docks,

wharves, warehouses, storehouses, and other necessary facilities and

197

-4appartenances for the purpose of providing coal and other materials,

labor, repairs and supplies for vessels of the Government of the United
States and, incidentally, for supplying such at reasonable prices to
passing vessels." Under this provision, and due to the ownership of

all land in the Canal Zone by the United States with the resultant lack
of reliable private organisations, the Panama Bailroad Company operates
various activities which would be conducted by private companies in the
usual residential and business communities.

In addition to the operation of the railroad proper, the
steamship line, and the Commissary Division, the business activities
of the Panana Bailroad Company include the operation and maintenance

of harbor terminals with the transfer and stevedoring of cargoj- baggage transfer coaling plants; Canal Zone telephone system; hotels

Tivoli and Washington, plantations; cattle industry dairy and the
leasing of lots and rental of buildings on land owned by the railroad
in the cities of Panama and Colon.

September 4, 1939
5:50 p.m.
HMJr:

Hello.

Operator:

Mr. Jones. Go ahead.

HMJr:

Hello.

Jesse
Jones:

198

Hello. Well, you finally made it, huh?

HMJr:

I made it, Jesse.

J:

God, you -- you had quite a time, didn't you?

HMJr:

Listen, anytime you've got somebody you don't like,
let me know, and I'll send hi m across the ocean
in a Coast Guard cutter. (Laughs.)

J:

(Laughs) In a Coast Guard cutter. Well, you've got

more courage than I would have had.
HMJr:

Well

HMJr:

I wouldn't try to cross that pond in one of those things.
Well, I think I'm pretty good myself. Well, you just
let me know sometime anybody is bothering you and I'll
send hi m over

J:

All right, I -- I'll (laughs) get up a list, Henry.

HMJr:

(Laughs)

J:

I think I could get a list.

HMJr:

I think maybe I need two cutters.

J:

Yeah. I think it would take at least two.

HMJr:

(Laughs)

J:

Well, I'm delighted you're back.
Yes.

J:

And I hope you're feeling all right. I know you must
have had a devil of a trip.

HMJr:

Yeah, well I want to see you soon.

J:

I hope to see you just as soon as you're -- it's

convenient for you.

-2HMJr:

Well, how about Wednesday for lunch?

HMJr:

It will be fine for me.
All right, we'll have your favorite food.

J:

I'll come by.

HMJr:

Wednesday for lunch.
Wednesday for lunch.

HMJr:

Do you want
O. K.

HMJr:

Goodbye.

Thanks.

199

200

PLAIN

PAP

BERLIN

Dated September 4, 1939

Rec'd 1:30 a.m. Sept. 5

Secretary of State
Washington

1049, September 4, 9 a.m.
The German press quotes Reichsbank President and

Economics Minister Funk as saying that because of the

confidence of the public and the present strong system
of control the Reichnbank needs to take no special measures

to protect the value of the mark or to insure regularity
in monetary and credit transactions. It is asserted that
the increase in the note circulation is entirely normal
given the circumstances and that the German Government

has full control over prices and wages. As confirmation
Funk referred to the firm tone of German stock exchanges.
Funk's remarks are amplified by presumably approved Editorials in certain papers notably in the BOERSEN ZEITUNG

of yesterday morning which asserts that in contrast to
England's action Germany will not Engage in "policy of
monetary adventure" and that the German Government will

"maintain wages and guide prices". Then a curiously
worded statement appears that "where free purchasing power
makes

201

PAP -2- 1049, September 4, 9 a.m. from Berlin
makes its appearance WE will stop (inflation?) through
lowering prices - to take away any adventage from speculators - and through taxes and also through bond issues
in order that purchasing power released shall not go
estray".
The Reichsbank statement for August 31 shows an

increase in Reichsbank note circulation during the last
WEEK of the month of 2,197,000,000 marks to a total of

10,907,000,000 marks. For the first time in years, howEVER, no estimate of the total currency circulation is
given, figures for the circulation of coinage and renten
bank notes being omitted. Normally the circulation of
subsidiary notes and coins totals about 2,200,000,000
marks. It is probable however that an EVEN greater amount

of such currency is now in circulation since the Reichsbank statement of assets shows a dECREASE during the past

WEEK in holdings of fractional currency of 102,000,000
marks and in renten bank note currency of 5,000,000 marks.

AltogEthEr it would SEEM probable that the total currency
circulation was well in EXCESS of 13,000,000 marks as com-

pared with 11,200,000,000 at the End of July.
The Reichabank clearings which are the chief index
of monetary velocity in Germany WERE 102,985,000,000

marks in August as compared with 103,905,000,000 marks in
July and 115,058,000,000 marks in June. The Reichabank's
holdings

202

PAP -3- 1049, September 4, 9 a.m. from Berlin
holdings of bills and checks had a record increase during
the WEEK of 2,132,000,000 marks to a total of 10,272,000,000

marks which compares with a figure of 8,460,000,000 on
July 31.

Repeat to Treasury.
KIRK
JRL:CFW

203
PLAIN

MDM

London

Dated September 4, 1939

Rec'd 2:00 p.m.

Secretary of State,
Washington.

1440, September 4, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.

1. The official rate for the pound tomorrow will be
4.02 - 6.

2. A brief summary of the more important recent
British financial measures may be useful. They have had

two distinct objects: (A), to facilitate the transition
from a peacetime to a wartime basis of organization of the

City and (B), the strengthening of the financial sinews of
war. In the former category fall the prewar measures of
raising the bank rate, unpegging sterling, compulsory
listing of foreign securities, closing of the stock exchange,
the decentralization of City institutions as between London
and the country and the arrangement whereby the Bank of

England will advance, if necessary, the funds to pay at
maturity all approved bills accepted before September 3.
In the second category falls the extension of the resources
and powers of the British Equalization Fund, the loan
provision

204

-2- 1440, September 4, 7 p.m., from London.

provision of L500 million, the prohibition, except by
permission, of the export of bank notes, gold, securities
and foreign exchange--with the complementary measures

restricting the availability of exchange to reasonable
trade requirements and requiring persons resident in the
Uniter Kingdom to sell to the Treasury any gold or free
foreign exchange at their disposal and the prohibiting of
fresh capital issues involving new money unless it can be
shown to be in the national interest.
The text of the order to help the London discount
market is as follows:
"The Chancellor of the Exchequer announces that the
following arrangements have been made with a view to main-

taining essential financial services in the present
emergency.

These arrangements apply to approved acceptors whose

bills are normally discounted in the London discount market
and are intended to supplement the general provisions
embodied in the Courts (Emergency Powers) Act 1939:

1. The Bank of England will advance where required
to such acceptors through their bankers the funds neces-

sary to pay at maturity all approved bills accepted before
September 3, 1939. This course will release the drawers

and endorsers of such bills from their liabilities as
parties

205

-3- 1440, September 4, 7 p.m., from London.

parties to these bills but their liability under any agreement with the acceptors for payment or cover will be
retained.

2. The acceptors will be under obligation to collect
as soon as possible any amounts recoverable by them in

respect of the transactions to which the bills relate and
to apply such amounts to repayment of the advances made by

the Bank of England. Interest will be charged upon these
advances at 2 percent above the ruling bank rate from time

to time and in no case loss than 6 percent. The first
interest payment will be on March 1, 1940, and thereafter
half-yearly on September 1 and March 1. Interest if unpaid
on the due dates will be capitalised forthwith and interest

thereon will be charged at the prevailing rate for the
advance.

3. Advances and interest will constitute a floating
charge on all the assets of acceptors in favour of the Bank

of England ranking in priority to all other floating
charges, whether under statuto or otherwise on their assets.
The Bank of England undertake, however, not (except in

cases of insolvency or liquidation) to claim repayment of
any amounts not recovered by the acceptors for a period

of six months after such date as His Majesty may, by order
in

206

-4 1440, September 4, 7 p.m., from London.

in Council, declare to be the date on which a state of
war emergency has ceased to exist."
A similar provision was made in 1914 when outstanding
acceptances of acceptance houses, foreign banks and the

joint stock banks totalled perhaps as much as L400 million.
During August the combined acceptances, endorsements,

et cetera of the clearing banks, which today represent a

much larger proportion of the total business, were little
more than L122 million. Therefore, the advances by the
Bank of England may not be large; most institutions have

built up reserves against standstill but some discount

houses will be seriously affected. How far the Bank will
help in this matter remains to be seen. No date has yet
been set for the opening of the stock exchange.
KENNEDY

ALC

207
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: September 4, 1939, 7 p.m.

NO.: 1780
FOR THE TREASURY.

This afternoon we called at the Bank of France and

found that for the most part it was deserted; we were doubtful that most of the Bank personnel had already been transferred to the area around Buyelguyon, Puydedome in Central

France - this location to be kept in the strictest confidence. However, the Governor and our contact and other

higher officers are planning to remain in Paris for the time
being.

There was less pessimism on the part of our friend

than on Reynaud's part concerning the ability of the British
to maintain the pound at 4.04. He felt that they would not
have much difficulty with that rate for some time in the
future. He mentioned that the British had undoubtedly been
prevented from seeking a lower rate because of the necessity

of large purchases of war stocks abroad. He said that the
franc-pound rate would be about 175, and about 43-45 would be

the dollar rate. The fund had not had a bad day today, he said.
Deppite the payments abroad for war stocks, the loss on balance

for the day will be small, he said.
There was discussion with him about plans for financing

the war. A liberal policy of direct discouns by the Bank of
France is favored by our friend, rather than advances on too
large

208

-2large a scale by the Bank to the Treasury. He said that
such advances would of course never be repaid, whereas they
had about one chance in a hundred of collecting something on

the discounts. Our friend would not make any predictions on
the amount of money which could be raised through defense bond

subscriptions. The rapidity with which war expenditure money

flows into circulation would determine this. In this regard,
he said that the British were fortunate because it was a
national habit in Great Britain not to hoard banknotes. For
two days of last week, in France more than ten billions

feels

of deposits were withdrawn. However, the worst is over now, he/
and today actually withdrawals were not as great as deposits.
It is also our understanding that some 11,000,000 france
of the Caisse de Depots et Consignations are available to
the Treasury.

He talked at length with pride and emotion of the sparit
displayed by the French people at this critical time and of
his complete confidence in the ultimate outcome, a confidence
which he based not on comparative military strength but on the
moral issues involved and the quiet determination of France.
We can only emphatically agree that his pride in the remarkable
calm and unanimous determination of the people of this country
has been amply justified.
Reference the Embassy's telegram No. 1742 of September

2, 7 p.m. - therein it 18 stated that the Bank of France plans
to

209

-3to set up an office in the Loire Valley to handle service
in foreign exchange and operations in central rediscounting.
The greater part of the personnel of American banks will

remain after mobilization here in Paris, but in order to
maintain direct relations with their clients, these banks
will transfer to the Loire Valley their actual physical assets,

bills, and 80 on. The Paris offices, 1.0., will be the
"branches" and in Paris only paper work will be done. Morgans

has deposit vaults at Niort, also, and most of their assets
have already been moved there. At Nantes Guaranty has similar

facilities.
END SECTIONS ONE, TWO AND THREE.

BULLITT.

EA:LWW

210

GRAY

VM

Paris
Dated

September 4, 1939

Rec'd 8:15 p.m.
Secretary of State
Washington.

1780, SEptEmbEr 4, 7 p.m.
SECTION FOUR

The Bourse opene d as usual but there was little or
no trading. The Bank of France was still a buyer of
dollars at 41 point SEVENTY five and sterling at hundred

and 75 point fifty five. The rates WERE largely nominal
however and there were practically no transactions.
Brussels was the only point with which communication
could be maintained and the rates announced to the National
Bank of Belgium WERE quite out of line with the foregoing.
They made the Equivalent of forty four point sixty French

francs for the dollar and three point Eighty five to three
point ninety five for the dollar pound cross rate. The
belga was quoted in Brussels at SEVEN point sixty three
against the French franc compared with the bank operated

quotation of SEVEN point twelve. Quotations here on the
Securities Exchange held up well on light turnover falling
around

211
VM

-2- #1780, SEPTEMBER 4, 7 p.m., from Paris.

around five percent. REntES WERE down about two francs.

The market was surprisingly calm.
BULLITT

KLP

212

GRAY

PAP

PARIS

Dated SEptEmbEr 4, 1939

Rec'd 10:15 p.m.

Secretary of State
Washington

1780, September 4, 7 p.m. (SECTION FIVE)

The law authorizing the supplementary national defense credits approved by Parlicment on September 2 (SEE

our telegram No. 1742, September 2, 7 p.m.) was published
in the JOURNAL OFFICIAL dated September 3. Specifically

(one) a credit ("credit de paiement") of approximately
28,000,000,000 francs is authorized under the special
armoment budget for 1939, (?) (two) under the SAME
heading the National DEFENCE Ministries are empowered

to "contact" expenditures totaling approximately

25,000,000,000 france, to be charged to credits that
will be opened under the 1939 budget and future budgets.
Under the SOME law a supplementary credit of about

17,000,000,000 france is authorized for the national
defense SERVICES and the colonies under a general budget
for 1939.
BULLITT
CFW:NPL

213

HED

GRAY

PARIS

Dated September 4, 1939

Rec'd 6:21 p.m.

Secretary of State,
Washington.

1780, September 4, 7 p.m.
(SECTION SIX)

In presenting the Government's supplementary credits
demands to the Senate Gardey, President of the Senate
Finance Committee, pointed out that while the Government
possessed the right under the special powers of March 19
last to dooree these financial measures it was considered

desirable, in view of the importance of the amounts involved,
to obtain the explicit approval of Parliament.
Other measures decreed in the same JOURNAL OFFICIAL

include arrangements for the requisition of enterprises,
restrictions concerning relations with the enemy, declarations to be made by holders or guardians of enemy property,
the soquestration of enemy property and notifications
relating to articles considered as war contraband.
(END OF MESSAGE)

BULLITT
KLP

63(e)
Noted

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
CONFIDENTIAL FILES
To

L. W. Knoke
FROM

A Lockhood
DATE

SUBJECT

214

September 4, 1939

Telephone Conversation with
Bank of England

I telephoned Mr. Bolton at 12:05 p.m. and in his
absence spoke with Mr. Hawker. I referred to our cables Nos.
464/39 and 465/39 sent by us on September 1 and Nos. 466/39,
467/39, and 468/39 sent September 2, and Hawker confirmed that

they had been received. The last cable we had from them was

No. 884/39. Was that correct? Hawker said that was all right.
I then referred to an article which had appeared in one
of our morning newspapers to the effect that exchange regulations
in England would become effective today. Hawker stated that they
h d already gone into effect yesterday. Banks were closed for
general business today but would reopen tomorrow. The new office
hours would be from 10 a.m. to 2 p.m. daily, except Saturdays when
the hours would be from 10 a.m. to 1 p.m. Tomorrow the exchange
control would fix exchange rates.

What were their plans in connection with forward contracts

in sterling and other currencies? Hawker said that all contracts
entered into prior to September 3 would be fulfilled.
I informed Hawker that the Queen Mary had arrived in

New York this morning and that the Samaria had left Boston at
11 a.m. our time today and was due to arrive in New York tomorrow
morning at 8 o'clock.
Hawker thanked me for calling and asked me to keep in touch
with him.
JRMCK:BOC

TREASURY DEPARTMENT

file 215

INTER OFFICE COMMUNICATION
DATE

Sep 2. 5.1939
Secretary Morgenthau

TO

E. H. Foley, Jr.

FROM

For your information

You have asked over the telephone this afternoon if the United
States has power to purchase the Normandie and apply the purchase price

against the French war debt. The amount of the French war indebtedness
is more than $4,000,000,000. No power has been found for accepting
property other than cash or French obligations in payment of such indebtedness.

While the Maritime Commission has power to purchase vessels under

certain circumstances this power is limited to vessels owned by citizens

of the United States. It is possible, however, that the purchase of the
Normandie might be effected in the following manner:

1. The American President Lines Inc., ninety percent of the stock of
which is owned by the United States, (or some other American steamship
company) would purchase the Normandie from the French Line or the French
Government under an agreement which would provide that the French Govern-

ment would apply the purchase price on its war debt simultaneously with
passage of title to the Normandie.

2. Whenever the President proclaims that the security of the national
defense makes it advisable, the Maritime Commission would have power under
section 902 of the Merchant Marine Act, as amended, to purchase the Normandie

from the American President Lines Inc., (or some other American steamship

-2-

216

company). The Maritime Commission would pay the American President

Lines Inc. (or some other American steamship company) the agreed pur-

chase price for the vessel. It may be necessary for the Maritime Commission to obtain additional appropriations from Congress to effect this
purchase.

3. If Government financing of the original purchase of the Normandie
is necessary it would be possible to accomplish the purchase by a loan
from R.F.C. to the American President Lines Inc. (or some other American
steamship company). The R.F.C. has power to make loans to any business

enterprise under section 5d of the R.F.C. Act, as amended. The R.F.C.
could take a ship mortgage from the American President Lines Inc. (or
some other American steamship company) upon the Normandie as security for

its loan, and the money paid by the Maritime Commission to the American
President Lines Inc. (or some other American steamship company) would then
be used to repay the R.F.C.

Obviously, it will be necessary for the French Line or the French

Government to satisfy us that it is in a position to pass good title to
the Normandie and that there are no paramount claims of foreign or domestic
creditors.

Ex Joly I

file

217

September to 1939

Secretary Morgenthau

E. H. Foley, Jr.
For your information

You have asked over the telephone this afternoon if the United
States has power to purchase the Normandie and apply the purchase price

against the French war debt. The amount of the French war indebtedness
is more than $4,000,000,000. No power has been found for accepting
property other than cash or French obligations in payment of such indebtedness.

While the Maritime Commission has power to purchase vessels under

certain circumstances this power is limited to vessels owned by citizens

of the United States. It is possible, however, that the purchase of the
Normandie might be effected in the following manner:

1. The American President Lines Inc., ninety percent of the stock of
which is owned by the United States, (or some other American steamship
company) would purchase the Normandie from the French Line or the French
Government under an agreement which would provide that the French Govern-

ment would apply the purchase price on its war debt simultaneously with
passage of title to the Normandie.

2. Whenever the President proclaims that the security of the national
defense makes it advisable, the Maritime Commission would have power under
section 902 of the Merchant Marine Act, as amended, to purchase the Normandie

from the American President Lines Inc., (or some other American steamship

- 2-

218

company). The Maritime Commission would pay the American President

Lines Inc. (or some other American steamship company) the agreed pur-

chase price for the vessel. It may be necessary for the Maritime Commission to obtain additional appropriations from Congress to effect this
purchase.

3. If Government financing of the original purchase of the Normandie
is necessary it would be possible to accomplish the purchase by a loan
from R.F.C. to the American President Lines Inc. (or some other American
steamship company). The R.F.C. has power to make loans to any business

enterprise under section 5d of the R.F.C. Act, as amended. The R.F.C.
could take a ship mortgage from the American President Lines Inc. (or
some other American steamship company) upon the Normandie as security for
its loan, and the money paid by the Maritime Commission to the American
President Lines Inc. (or some other American steamship company) would then
be used to repay the R.F.C.

Obviously, it will be necessary for the French Line or the French

Government to satisfy us that it is in a position to pass good title to
the Normandie and that there are no paramount claims of foreign or domestic
creditors.

(Signed) E. H. Foley, Jr.

219

SEP 4 1939
Secretary Morgenthau

E. H. Foley, Jr.
For your information
You have asked over the telephone this afternoon if the United
States has power to purchase the Normandie and apply the purchase price
against the French war debt. The amount of the French war indebtedness
is more than $4,000,000,000. No power has been found for accepting

property other than cash or French obligations in payment of such indebtedness.

While the Maritine Commission has power to purchase vessels under

certain circumstances this power is limited to vessels owned by citizens

of the United States: It is possible, however, that the purchase of the
Normandie might be effected in the following manners

1. The American President Lines Inc., ninety persent of the stock of
which is owned by the United States, (or some other American steamship
company) would purchase the Normandie from the French Line or the French
Government under an agreement which would provide that the French Govern-

ment would apply the purchase price on its war debt simultaneously with
passage of title to the Normandie.

2. Whenever the President proclaims that the security of the national
defense makes it advisable, the Maritime Commission would have power under
section 902 of the Merchant Marine Act, as amended, to purchase the Normandie
from the American President Lines Inc., (or some other American steamship

-220
company). The Maritime Commission would pay the American President

Lines Inc. (or some other American steamship company) the agreed pur-

chase price for the vessel. It may be necessary for the Maritime Commission to obtain additional appropriations from Congress to effect this
purchase.

3. If Government financing of the original purchase of the Normandie
is necessary it would be possible to accomplish the purchase by a loan
from R.F.C. to the American President Lines Inc. (or some other American
steamship company). The R.F.C. has power to make loans to any business

enterprise under section 5d of the R.F.C. Act, as amended. The R.F.C.
could take a ship mortgage from the American President Lines Inc. (or
some other American steamship company) upon the Normandie as security for

its loan, and the money paid by the Maritime Commission to the American
President Lines Inc. (or some other American steamship company) would then
be used to repay the R.F.C.

Obviously, it will be necessary for the French Line or the French

Government to satisfy us that it is in a position to pass good title to
the Normandie and that there are no paramount claims of foreign or domestic
creditors.
8.

EHF18 Typed 9/4/39

Conversation with Mr. Frankin in New York City
September 5, 1939
2:25 p.m.
HMJr:

Hello.

Operator:

Mr. Franklin.

HMJr:

Hello.

John M.

Franklin:

Hello.

HMJr:

Mr. Franklin.

221

Yes.

Henry Morgenthau, Jr.

Hello, Mr. Morgenthau.

I hope you're in a good humor.
I'm in a good humor.

Fine! Well, I've got an associate of yours sitting

here, Basil Harris.
Yeah.
HMJr:

And we need him desperately down here to handle the

shipping thing for us -- all the ports, customs and
that's the key position to make sure that some of
these countries don't break the Neutrality Act and
go out with munitions and all the rest of that sort
of thing, and the ports are the key places. And I
don't know anybody that is as well-fitted as he is
to handle that situation. And I've asked him to

all the rest of that sort of thing, and right now

come down, and he's going to take the three o'clock
train and go back and see you. And I hope your
company is going to let us have him.

F:

HMJr:
F:

HMJr:

I can't hear you very well.
I hope your company is going to let us have him.
Yeah. Well, you couldn't get a better man.

That's what I think.

-2F:

222

And -- I know, because he's been down there and

he's done a good deal of talking with you all and

HMJr:

we rather expected it. I'd like very much, if I
may, to just go over it. Of course, you' ve got to
have in these days just what you want, which is
only right, and I'd like to be able to think it
over and see what we're going to do here, and I'd
like to have a little talk with him.
Well, he's coming back tonight. He's sitting at

my desk now -- to see you.
Yes.

But this thing is popping every minute. We've got
ships in our ports and the question -- we've got

Coast Guard boats guarding them, and we don't want
our ports abused.
Yeah.

And while we're neutral this question of handling

the ports is the key thing.

F:

Yeah.

HMJr:

And at the same time we want American ships to be

able to go out. And

Well, why not -- would it be all right with you if
he and I had a talk the first thing in the morning?
HMJr:

Well, I don't -- let me just talk to him. (Talks

aside.) Yes, he saye he expects to see you in the

morning.
F:

Yes.

HMJr:

But I -- I hope to have him back here tomorrow on
the job.

F:

All right, sir.

HMJr:

And I hope you' re going to say, "Yes".

F:

All right. I don't -- I don't think I can possibly
do anything else under the circumstances.

HMJr:

Well, that's fine.

-3F:

Thank you, but I do -- I would like to talk to him
before absolutely commiting ourselves.

HMJr:

Well, I understand. That -- that's only fair.

F:

Yeah. Thank you very much.

HMJr:
F:

HMJr:

223

Thank you so much and I hope to see you soon.
Thank you. Goodbye.
Goodbye.

Conversation with Commissioner Moyle in Salt Lake City

224

September 5, 1939
3:20 p.m.

Mr. Moyle.
James H.
Koyle:

This is Moyle.

HMJr:

Can you hear me?
Yes.

This is Morgenthau.
Yes.

Commissioner, I hate to do this on the telephone,
but conditions in the world are so bad and our job

is so difficult that I didn't know whether you
intended to stay on as Commissioner or not.

Well, I would. I've never had better health; I've
never enjoyed work more; and I never was better
prepared to do the work.

Well

Therefore, I am on hand.

Well, of course, you're not on hand -- I mean, you're
out there and

tomorrow. I've already notified Mr.
Johnson. I left it with Mr. Johnson to advise me

when I'd be needed there and I got a telegram from

him this morning, and I answered it that I'd be
there tomorrow.

Yeah. Well, I don't -- I hardly think it's fair

to me, in view of -- well, if I may say, your age.
Well, I'll be there tomorrow, and I can talk to you
about it.

All right. All right. Well then, when you get in
let's talk it over because

Very well, sir.
All right. Thank you.

225
September 5, 1939
5:22 p.m.
HMJr:

Hello.

Operator:

Mr. Frank.

HMJr:

Hello.

0:

Go ahead.

Jerome

Frank:

Hello.

HMJr:

Hello, Jerome Frank.

F:

How are you, sir?

HMJr:
F:

HMJr:
F:

HMJr:
F:

I'm fine.
Glad to know you're back.
Fine.

Although I -- I think Johnny did a marvelous job.
He did a fine job.
It was a pleasure to have him around.

HMJr:

That's good.

F:

I -- I've got a note from the President today

HMJr:

Yeah.

asking me to have a confidential talk with you
soon. I don't know if he said anything to you about

it.
HMrr
F:

No, he didn't.
I wonder if tomorrow sometime you could find a few
minutes for me?

HMJr:

Of course I can. Can you give me an inkling?

F:

Yes, I'll tell you -- it -- I'll read you the note.
It's responsive to a note I sent him. "I wish you

would have a confidential talk with Henry Morgenthau
who is just back and explain to him the present

-2-

226

situation in regard to the stock exchange, Mr.

Martin's letter, and especially the creation of
George Harrison's committee now headed by Mr.

Potter. Tell H.M.Jr. that all of us are distinctly

from Missouri and to watch out for a double play or
a doublecross or something similar.

Now, that's got a background. It ties up with some
efforts being made by the -- some of the boys on
the stock exchange. I'll have to give you a background of it.
HJr:

Do you want anybody here when you see me?

No, I'd rather just talk to you alone.
How -- is ten thirty a good time?
Ten thirty would be fine.

I'll be delighted.
I'll be over then. Thank you.
Ah -- you don't mind my sending that message, but

I've talked to Eccles before and I know

and so

Oh, I was -- I mean -- we both know about that.
Ah

By -- by the way, one thing is that cockeyed idea
that I had.
Yes.

You noticed how the market boiled today.
Right.

One -- one reason may well be that these boys think

the British are out of the market with that huge bloc

of American securities.
Yeah.

And I just wondered whether -- now may be too soon --

whether it might not be good to say to the British

-3-

HMJr:
F:

HMJr:
F:

227

that maybe
their
stuff. they ought to begin to unload a little of
I see. That's an idea.
Because if they -- they're just gambling on the

market staying there. I'm not sure it will.
Well

And -- and they're better off with cash than with -if -- if -- at a good price than with securities on
which they have to borrow. Well, I'll be over at
ten thirty then.

HMJr:

And I -- I want to see you anyway.

F:

All right. Fine.,

MJr:

Thank you.

228

September 5. 1939
The Honorable

The Director of the Mint.
Dear Madam:

The President has indicated his approval of the Treasury's
recommendation for the use for/subsidiary coinage, to the extent
necessary. of silver bullion received pursuant to proclamation by
the President of December 21, 1933. and the proclamations modifying it, which has not been coined and which is not held as securi ty

for silver certificates.

This communication shall be your authority to use such
silver up to the amount of 20,000,000 ounces for the purpose of
coining subsidiary silver ooins.

Please arrange to furnish notification to Mr. D. W. Bell
monthly of the amount of silver bullion received pursuant to
proclamation by the President of December 21, 1933. as modified,
which has not been coined and which is not held as security for

silver certificates. and the amount of silver bullion used under
this authorisation for the purpose of coining subsidiary silver

coins.

Your attention is directed to paragraph 2 of the memorandum of the Commissioner of Accounter and Deposits, dated September

28, 193b. which I approved. In accordance with this memorandum.

all seigniorage resulting from the coinage of subsidiary silver
coins shall be covered into the Treasury as an ordinary receipt
and shall appear in the Budget.

Very truly yours,
(Signed) John W. Hanes

ABLING Secretary of the Treasury.

WTH:HBW

11
229
THE WHITE HOUSE
WASHINGTON

August 31, 1939.
MEMORANDUM FOR

THE ACTING SECRETARY OF THE TREASURY

I heartily approve using

this silver bullion to meet
coinage needs. Coin and put

out into circulation all the
country can stand -- up to the
saturation point!
F. D. R.

5

-ITE

230

THE SECRETARY OF THE TREASURY

Moist 39

WASHINGTON

AUG 30 1939

My dear Mr. President:

On November 11, 1935 you indicated your approval of the use for

subsidiary coinage, to the extent necessary, of silver bullion acquired
pursuant to section 7 of the Silver Purchase Act of 1934, and which is
not held as security for silver certificates. (See attached copy of
letter dated November 8, 1935 to you.)

The stocks of silver bullion available for subsidiary coinage
(including the silver allocated to that purpose pursuant to your
approval above mentioned) are running low and should be replenished.

It seems to the Treasury now, as it did in November 1935, that it
would be preferable to use for subsidiary silver coinage bullion now
held by the Treasury rather than to purchase for this purpose silver
in the open market by means of advertisement.

The Treasury is holding a large stock of silver bullion which was

received pursuant to the Proclamation by the President of December 21,
1933, and the proclamations modifying it, which has not been coined and

which is not held as security for silver certificates. Such silver may,
subject to your approval, be used for subsidiary coinage.

Accordingly, it is intended, with your approval, to authorise the
Director of the Mint to use, to the extent necessary, silver bullion
received pursuant to the Proclamation by the President of December 21,
1933, and the proclamations modifying it, which has not been coined and

which is not held as security for silver certificates. If the foregoing

meets with your approval it will be appreciated if you will so indicate
by signing the notation at the foot hereof.
Faithfully yours,

John WHAME
Actins Secretary of the Treasury.
Approved:

The White House.

Noted

62(e)
231

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
CONFIDENTIAL FILES

L. W. Knoke

FROM

DATE September 5, 1939.
SUBJECT TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.

I called Mr. Bolton at 10:02 a.m. We had an order from

a foreign central bank to sell sterling in this market. Would it
be necessary under the new regulations for the American buyer, or

for that matter, for the European seller to furnish any kind of
declaration as to purpose, etc? Bolton replied that if we had a
counterparty which would take the sterling, there was no reason why

the sale could not be made and that transfers of sterling between
two foreign accounts were not subject to control.

They were having a very difficult time in the London
market today which was kind of chaotic as a result of the new
regulations and it would probably take a week or two before the
city found its bearing. He asked what the New York quotations were

for sterling and I told him that some was wanted at 4.02.

LAK:KW

22(2)

232 AL

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
CONFIDENTIAL FILES

L. W. Knoke

FROM

DATE September 5, 1989.
SUBJECT TELEPHONE CONVERSATION WITH
BANK OF FRANCE.

Mr. Cariguel called at 11:55 a.m. He was sending us an
order AS usual but hoped that we would understand that he naturally

wished to preserve their reserves for the national defense. Accordingly he wanted us to deal only 1f it was absolutely necessary. I

pointed out that his franc order based on the sterling rate in Paris
would be a difficult one to execute because of the fluctuations of

sterling itself. I made sure that it was his intention that we should
continue to conduct any executions over his dollar account with us and

he confirmed. He repeated that he would not want to sell dollars in
this market if he could help it because he needed all they had.

LWK:KW

233

THE COMMANDANT OF THE UNITED STATES COAST GUARD
WASHINGTON

5 September 1939.

MEMORANDUM FOR - The Secretary of the Treasury

Confirming our telephone conversation of this
evening, the cutter SPENCER (permanent station Cordova,

Alaska) now in the Bering Sea; the cutter INGHAM (permanent station Port Angeles, Washington) now in Prince
William Sound, Alaska; and the outter DUANE (permanent

station San Francisco, California) now in San Francisco,

have been directed by di spatch to proceed immediately

to permanent stations on the East Coast. Two of these
cutters will be permanently stationed in Boston, and
one in New York - so that, we will then have on the East
Coast - two new cutters at Boston, two new cutters at
New York, and one new cutter at Norfolk.
One new cutter will remain at Honolulu, and one
at San Francisco.

prevauche
R. R. WAESCHE

Rear Admiral, U.S. Coast Guard,
Commandant.

prin

BK209
TREASURY DEPARTMENT

234

INTER OFFICE COMMUNICATION
DATE

Sept. 5.1939
TO Secretary Morgenthau
FROM Edward H. Foley, Jr.

Functions of the Treasury Department upon the

Promulgation of the Documents relating to Neutrality

1. General proclamation relating to neutrality.

2. Executive order prescribing regulations governing the enforcement of

the neutrality of the United States.

The Executive order assigns to the Treasury Department
and the Commerce Department (under such further division of

responsibility as the Secretary of the Treasury and the
Secretary of Commerce may mutually agree upon) enforcement

of the neutrality of the United States as prescribed in the

proclamation so far as concerns all vessels except vessels
of the naval establishments of neutral and belligerent powers
and vessels of belligerent powers operating for hostile or
military purposes, and except in the Philippine Islands, the
Canal Zone, and the outlying possessions under the jurisdiction of the Navy Department. The proclamation itself forbids
certain unneutral acts which are prohibited by the penal code
of the United States, but does not cover violations of the
Neutrality Act of 1937. The proclamation also prohibits

certain activities by vessels of a belligerent in waters
within the territorial jurisdiction of the United States.

(Note: Customs and Coast Guard will prevent the departure
of merchant vessels and inspect exports to the extent necessary to enforce. compliance with the order. Two circular
telegrams to Collectors of Customs and District Commanders
of Coast Guard respectively are prepared for your signature

to advise the officers concerned of their duties.)

3. Proclamation prescribing regulations concerning neutrality in the Canal
Zono.

4. Executive Order - Prescribing regulations governing the passage and
control of vessels through the Panama Canal in any war in which the
United States is neutral.
The Treasury Department has no functions under these
documents.

-2-

235

5. Proclamation relating to the Export of arms, ammunition, and implements of war, under section 1 of the Joint Resolution of May 1, 1937.
6. Supplement to the pamphlet "International Traffic in Arms-Laws and
Regulations administered by the Secretary of State", et cetera.
7. Regulations under section 9 (travel) of the Joint Resolution of Congress
approved May 1, 1937.

The proclamation brings into operation section 1 of
the Neutrality Act of 1937, which forbids the exportation
to belligerents in any case and to others without a license

of arms, ammunition, implements of war, which are enumerated

in the proclamation. The supplement also invokes section 6
of the Neutrality Act of 1937, which forbids any American
vessel to carry arms, etc. to belligerents. The supplement
also invokes section 10 of the Act, which forbids any American
vessel engaged in commerce with any belligerent to carry arms,
etc., except such as the masters thereof deem indispensable
for the preservation of discipline. The regulations under
section 9 prohibit travel by American citizens on the
vessels of belligerents except under certain conditions.
Customs and Coast Guard officers will enforce compliance
with the above.

(Note: Customs officers will inspect exports and examine
passengers to enforce the above, and Customs and Coast

Guard will prevent the movement of vessels in violation of
the above. Circular telegrams for your signature have been
drafted to advise collectors of customs and inspectors of
Coast Guard, respectively, of their duties.)

8. Proclamation concerning aircraft.
9. Executive order prescribing regulations governing the enforcement of

neutrality in connection with aircraft.

The proclamation prescribes detailed regulations with

respect to belligerent military aircraft, belligerent nonmilitary aircraft, and other aircraft. The Executive order

assigns the following functions to the Treasury Department:
"Enforcing neutrality, except in the Canal Zone, in connec-

tion with civil aircraft which land within the jurisdiction

of the United States, and, to the extent necessary and

practicable, in connection with such aircraft while in flight.

(Note: Customs and Coast Guard will enforce these regulations as to civil (non-Governmental) aircraft in accordance
with laws, regulations and instructions relating to the

movement of vessels and vehicles.)

10. Proclamation concerning communications.

11. Executive order prescribing regulations governing the enforcement of
neutrality in connection with communications.

-3-

236

The proclamation provides detailed regulations with respect to radio and other communications. The Executive order
assigns the following functions to the Treasury Department:
"Suppression of unauthorized means of communi-

cation on board all vessels other than vessels of
the naval establishments of neutral and belligerent
powers or vessels operating for hostile or military
purposes, and such inspection, supervision, and use

or control of the means of communication on board
the vessels herein allotted to the Treasury Department
as may be necessary to carry out the provisions of

said treaties and proclamations."

The Treasury Department will have no functions in the Philippine
Islands, the Canal Zone, and the outlying possessions under the
jurisdiction of the Navy Department.
(Note: Coast Guard officers, where available, and Customs

officials elsewhere, will enforce the above with respect
to merchant vessels and civil aircraft. Regulations to
this end are being drafted for your signature.)

Entaby

237

to
Sent

September 5, 1939.

MEMORANDUR TO THE PRESIDENT

FROM: Secretary Morgenthau

Admiral Waesche, Commandant of the Coast Guard, received an

appeal this afternoon from the Maritime Commission for assistance in
bringing home American survivors of the British ship ATHENIA, which

was torpedoed and sunk by a German submarine Sunday. The Maritime

Consission's steamer PLINT has aboard 148 survivors of the ATHENIA of

whom eight are reported injured. Confusion in the original reports
had led to the belief that she had only eight. The FLINT is a slow
ship and has inadequate accommodations and supplies to care for this

number of passengers. After consultation with this office Admiral
Waesche has given direct orders to the Cutter SIBB, which was scheduled

to sail from Norfolk today, to take a station in the North Atlantic

under Navy direction, to proceed instead directly to meet the FLINT
to take off a portion of the survivors aboard (the BIBS can probably
accomodate about half of then with reasonable comfort) and to return

with them to New York.

The Cutter GEORGE W. CAMPBELL, expected to arrive in New York

tomorrow, will be provisioned and turned around as rapidly as possible

and, if later advices indicate this necessity, will be directed to meet

either the FLINT or the BIBS, whichever seems advisable, unless we receive contrary directions.

The BIBB had one physician aboard and we gave orders to add
another physician.

38

September 5, 1939.

MEMORANDUM TO THE PRESIDENT

FROM: Secretary Morgenthan

Admiral Waesche, Commandant of the Coast Guard, received an

appeal this afternoon from the Maritime Commission for assistance in
bringing home American survivors of the British ship ATHENIA, which

was torpedoed and sunk by a German submarine Sunday. The Maritime
Commission's steamer PLINT has aboard 148 survivors of the ATHENIA of

whom eight are reported injured. Confusion in the original reports
had led to the belief that she had only eight. The FLINT is a slow
ship and has inadequate accommodations and supplies to care for this

number of passengers. After consultation with this office Admiral

Waesche has given direct orders to the Cutter BIBB, which was scheduled

to sail from Norfolk today, to take a station in the North Atlantic

under Navy direction, to proceed instead directly to meet the FLINT
to take off a portion of the survivors aboard (the BIBB can probably
accommodate about half of them with reasonable comfort) and to return
with them to New York.
The Cutter GEORGE W. CAMPBELL, expected to arrive in New York

tomorrow, will be provisioned and turned around as rapidly as possible

and, if later advices indicate this necessity, will be directed to meet

either the FLINT or the BIBB, whichever seems advisable, unless we receive contrary directions.

The BIBB had one physician aboard and we gave orders to add
another physician.

wr.

39

September 5, 1939.

MEMORANDOR TO THE PRESIDENT

FROM: Secretary Morgenthau

Admiral Waesche, Commandant of the Coast Guard, received an

appeal this afternoon from the Maritime Commission for assistance in
bringing home American survivors of the British ship ATHENIA, which
was torpedoed and sunk by a German submitte Sunday. The Maritime
Commission's steamer PLINT has aboard 148 survivors of the ATHENIA of

whom eight are reported injured. Confusion in the original reports
had led to the belief that she had only eight. The PLINT is a slow
ship and has inadequate accountations and supplies to care for this
member of passengers. After consultation with this office Admiral

Waosche has given direct orders to the Cutter BIBB, which was scheduled

to sail from Norfolk today, to take a station in the North Atlantic

under Navy direction, to proceed instead directly to meet the PLINT
to take off a portion of the survivors aboard (the BIBD can probably
accommodate alout half of them with reasonable comfort) and to return
with then to New York.
The Cutter GEORGE W. CAM BEIL, expected to arrive in New York

tomorrow, will be provisioned and turned around as rapidly as possible

and, if later advices indicate this necessity, will be directed to meet

either the FLINT or the BIBS, whichever seens advisable, unless we recoive contrary directions.
The BIDD had one physician aboard and we gave orders to add
another physician.

240

Sep - 5 1989

Dear Mr. Secretary:

In reply to your letter of September 4, 1939

relative to the validation of American passports for travel
in Europe I attach hereto a copy of the telegras sent today
to collectors of customs, seaboard districts.

You will note the action taken did not provide for
a review of the passports of travelers departing by way of
Canadian ports.

Sincerely yours,
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury

The Honorable

The Secretary of State.

WRJ1c Typed 9/5/59

NDARD FORM NO. 14

FROM

MOVED BY THE PRESIDENT
MARCH 10. 1926

TELEGRAM

BUREAU

CUSTOMS

241

CHG. APPROPRIATION

OFFICIAL BUSINESS-GOVERNMENT RATES
10-1730

SEP -5 1989
TO COLLECTORS OF CUSTOMS

(See attached list)
State Department order declares all passports heretofore issued by

this Government invalid for travel to any country in Turope unless first
validated by State Department STOP Station customs officers at departing
vessels to examine passports travelers destined to Europe and take up
from such travelers for immediate transmittal to State Department
American passports not validated after September 4 1939
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury

Ric Typed 9/5/39

242

OF STATE

THIS

DEPARTMENT OF
WASHINGTON

NO.

STARFFAR
PINK

SLIP

TAKEN

12182
MUST

ON

GENERAL

SHOWING

COUNTRIES

"ACTION

September 4, 1939

Dear Mr. Secretary:

In view of the existing state of affairs in Europe
this Department has deemed it necessary to issue an

order declaring all passports which have heretofore
been issued by this Government invalid for travel to
any country in Europe unless such passports have first
been validated by the Department of State. This information is being made public and is being communi- -

cated to various steamship lines and travel agencies.
However, since many persons in this country are

in possession of passports which appear to be valid

on their face, it is thought possible that some of
such persons may attempt to depart from the United

States for a European country without first submitting
their passports to this Department. Inasmuch as it is
understood that all ships are required to receive
clearance papers from the appropriate collectors of
customs before departing from the ports in this
country
The Honorable

The Acting Secretary of the Treasury.

243
-2-

country, I would appreciate it if you would advise me
whether it would be possible for the customs officers
at the various ports to check up on the passports of
all American citizens departing from this country for
Europe with a view of ascertaining whether the passports of such persone have been validated by this Department. While there appears to be no statute requiring that American citizens be in possession of
valid passports to enable them to depart from the
United States, this Department has authority under
the provisions of Section I of the Act of July 3, 1926,
44 Stat. 887 (U.S.C., Title 22, Section 211a) and paragraphs 124 and 126 of the Executive Order of March 31,

1938, prescribing rules governing the granting and
issuing of passports, to take up or withdraw any passports which have been issued.

In the circumstances it is desired that the American passports of all persone who attempt to leave the

United States for Europe without first having their
passports validated be taken up and forwarded directly
and promptly to the Passport Division, Department of
State. The bearers of such passports should be advised
to communicate with the Passport Division regarding the
matter.

244
-3matter.

I would appreciate it if you would advise this
Department whether the Customs Service is in a position

to undertake these duties and, if so, whether such a
practice can be put into effect immediately.
Sincerely yours,

Correctine

Enclosure:

Copy of this letter.

Diary
September 5. 1939

To:

The Secretary

From: Mr. Hanes

In accordance with my verbal conversation with you concerning

the request of Mr. Messersmith of the State Department that the
Treasury officials in Germany be assigned for temporary duty with

the State Department, I find that all of the Treasury staff in
Berlin are under our Bureau of Customs. Accordingly, I have taken
the matter up with W. R. Johnson, Acting Commissioner of Customs,

who agrees that the men can be spared at least temporarily, and he

is issuing instructions to them to put themselves at the disposal
of the State Department. I have advised Mr. Messersmith that we
have put the machinery in motion and that from now on our staff in

Berlin will be subject to the orders of the State Department.

J w H.

245

10

-

Sept 5,1939

due day

Earle Bailie

- New York

Randolph Burgess

- New York

Tom K. Smith

- New Bedford, Massachusetts

Mr. Riefler

- Orleans, Massachusetts

Basil Harris

- Southampton, Long Island, New York

Walter Stewart

- Princeton, New Jersey

secretary morg with an

246

I got in

touch with all the above and

they can be locates today if
you wish to speak with J. w.tt. them

athuch O.K
Pre. saw this memer and said
Suggested putting James Forestal head of

Hillen Read at the head of this list.

414th

247

House

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

M
DATE

TO

FROM

Secretary Morgenthau
Mr. Gaston

September 5, 1939.

Subject: Atlantic Weather Patrol.

Juan Trippe, President of Pan-American Airways, appealed to
Admiral Waesche, to Assistant Secretary Gibbons and to the State De-

partment last week for assistance in supplying weather reports from

mid-Atlantic so as to make possible the continuance of trans-Atlantic
passenger air service. Pan-American has been getting frequent weather

reports from ships of all nations in passage across the Atlantic. These
reports have been indispensable in timing and charting their flights.
These reports have been rapidly dwindling within the last week and will
probably be almost completely eliminated now that France and Great Britain
are at war with Germany. Trippe says Pan-American cannot continue the

flights unless weather information is supplied by the United States. He
asked Waesche about the possibility of stationing four cutters on the
Atlantic routes, one between Newfoundland and Ireland and three on the

southern route. Waesche replied that we simply did not have the ships
and the men to do it.

At one of the meetings last week in Secretary Hull's office where
Army, Navy and the Treasury were represented, I told Secretary Hull about

Trippe's application and he said Trippe had made a similar application to
the State Department. His understanding was that Trippe was asking their

aid in getting this information from British ships, but the comment was

248
Secretary Morgenthau

-2-

9-5-39

made that if Great Britain entered the war, as she now has, there
would be a radio black-out which would make it impossible for them
to render assistance.

Waesche now suggests that if the Administration is greatly

interested in maintaining trans-Atlantic air service, the necessary
weather service could be supplied by obtaining five or six merchant
vessels, now laid up, from the Maritime Commission. It would take

probably six ships for the service if we were to maintain four oonstantly on station. Waesche estimates it would cost about $250,000
apiece to put the ships in commission, after which probably $35,000
a year apiece would be sufficient to man and operate them. Contemplating
the use of Coast Guard crows, the service would require not less than 300

men including officers. Altogether the maintenance of this service
would cost the Government in the first year probably about $1,750,000.
The President would probably have to authorize decision to
do this.

49

September 5, 1939

My dear Mr. President:

After leaving Cabinet I had in my office,
at 5 o'clock, Admiral Land and Mr. Truitt of the

Maritime Commission, Mr. Hackworth, Legal Advisor
of the State Department, and Treasury representa-

tives. We discussed the question of buying the
NORMANDIE and the QUEEN MARY and giving them a
credit on their respective war debts.

At 5:30 p. M. the British and French Ambassadors called at my office and I told them of
the proposal. The British Ambassador asked if
they were going to get any money which they could
use for war materials in this country and I told
him no: the idea was simply to give them a credit

on their debt to us.
I also, yesterday afternoon, instructed

Admiral Waesche to get two of our large cutters
ready to sail immediately, when we receive word
from the Navy.

Respectfully yours,

The President,
The White House.

250

September 5, 1939

My dear Mr. President:

After leaving Cabinet I had in my office,
at 5 o'clock, Admiral Land and Mr. Truitt of the

Maritime Commission, Mr. Hackworth, Legal Advisor
of the State Department, and Treasury representa-

tives. We discussed the question of buying the
NORMANDIE and the QUEEN MARY and giving them a
credit on their respective war debts.

At 5:30 p. M. the British and French Ambassadora called at my office and I told them of
the proposal. The British Ambassador asked if
they were going to get any money which they could

use for war materials in this country and I told
him no: the idea was simply to give them a credit
on their debt to us.
I also, yesterday afternoon, instructed
Admiral Waesche to get two of our large outters
ready to sail immediately, when we receive word
from the Navy.

Respectfully yours,

The President,
The White House.

51

September 5, 1939

My dear Mr. President:

After leaving Cabinet I had in my office,
at 5 o'clock, Admiral Land and Mr. Truitt of the

Maritime Commission, Mr. Hackworth, Legal Advisor
of the State Department, and Treasury representa-

tives. We discussed the question of buying the
credit on their respective war debts.
At 5:30 D. N. the British and French Ambassadora called at my office and I told them of
the proposal. The British Ambasaador asked if
they were going to get any money which they could
use for war materials in this country and I told
him no: the idea was simply to give them a credit
on their debt to us.
I also, yesterday afternoon, instructed
Admiral Waesche to get two of our larke gutters

NORMANDIE and the QUEEN KARY and giving them a

ready to sail immediately, when we receive word
from the Navy.

Respectfully yours,

The President,
The White House.

252

September 5, 1939

My dear Mr. President:

After leaving Cabinet I had in my office,
at 5 o' clock, Admiral Land and Mr. Truitt of the

Maritime Commission, Mr. Hackworth, Legal Advisor
of the State Department, and Treasury represents-

tives. We discussed the question of buying the
credit on their respective war debts.

NORNANDIE and the QUEEN MARY and giving them a

At 5:30 D. m. the British and French Ambassadora called at my office and I told them of
the proposal. The British Ambasaador asked if
they were going to get any money which they could
use for war materials in this country and I told
him no: the idea was simply to give them a credit

on their debt to us.
I also, yesterday afternoon, instructed

Admiral Waesche to get two of our large outters
ready to sail immediately, when we receive word
from the Navy.

Respectfully yours,

The President,
The White House.

MEMORANDUM

AM.

253

September 5, 1939.
To:

Secretary Morgenthau

From:

Mr. Duffield

Subject: President's
4:00 P.M. Press Conference, Tuesday, September 5, 1939,
NEUTRALITY PROCLAMATION - The President said that

immediately after the press conference he was going to take

final action on the proclamation under the "80-called Neutrality
Act.' This proclamation, he said, will supersede all contracts
between private American munitions manufacturers and foreign
Governments and will prevent the delivery of any additional aircraft under contracts between American manufacturers and Britain
and France. The President said he was unaequainted with
provisions for damages or escape clauses which might be included
in these contracts.
SPECIAL SESSION - The President said he had no news

on calling a special session of Congress. He said the more

that he studied these problems the less need there seemed to be

for additional legislation except neutrality legislation.

He went on to say that he was now working on details of certain
matters that can be done without legislation and should be done
before Congress meets. These matters include filling out the
gaps in our national defense and arranging stricter enforcement

of neutrality. For instance, the Navy's enlisted strength 18

15 per cent short of a peacetime basis and that 15 per cent
probably should be made up. Moreover, there are problems of
patrolling our own waters, commissioning destroyers, increasing
Army strength in the Canal Zone and Puerto Rico, taking added
precautions against propaganda in this country aimed at our
system of Government or fostering communism and dictatorship,
and of taking precaution against the use of this country as

a center for gathering information helpful to the belligerents.
No additional appropriations will be necessary
until the regular session meets in January, the President
said.

AMERICAN SHIPPING - The President said the consensus

at the London Embassy and here is that it is probably safer for
American liners with flags painted on them to run on their
usual courses and with all lights on and on announced sailing
datesthen
and to institute a convoy system. If this 18 done,

254

-2there will be no way, if any care is taken, for mistaking them
for belligerent ships, whereas a warship looks like a warship
and is more likely to be attacked. Under international law,

Americans can return on belligerent ships because it was agreed
-- and Germany adhered to the agreement in 1936 -- that any
merchant ship would be stopped and the passengers given a chance
to escape before the ship was torpedoed. Also, under the
present neutrality law Americans have 90 days after issuance

of the proclamation during which they may travel on belligerent
ships. of course the President added, they are being told
that by doing 80 they take greater risks than they would coming
on American ships. He said he had no official word from the
Embassies in England or Ireland on the Athenia.

PROFITEERING - The President said he had nothing new

on preventing profiteering except that Justice was studying the
matter.

ESD

255
September 5. 1939

To:

The Secretary

From:

Mr. Hanes

There was a meeting held in my office this morning to discuss the
depreciation policy with respect to private corporations engaged in war
contracts with the Government. The following were in attendance:
Mr. John Burrus, Chairman of the Committee on Depreciation in the
Internal Revenue Bureau, Mr. Edward H. Foley, General Counsel, and
Mr. Eugene Duffield.

The purpose of this meeting was to advise the Secretary upon the
present status of negotiations between the Navy and the Bureau of
Internal Revenue with specific regard to the $6 million cost item to
certain manufacturers who were forced to buy additional equipment in
order to hasten completion of the work under certain Navy contracts.

I find that the Bureau of Internal Revenue has agreed with the
Navy that upon certification by the Secretary of the Navy to the
Department of Internal Revenue that equipment had been purchased by

certain corporations in excess of their normal requirements, and at
the request of the Navy in order to expedite delivery on certain Naval
contracts, that the Bureau of Internal Revenue would allow such manufacturer to take into his depreciation account 50 percent of the cost
of such equipment, which could be charged against profits made upon
the Navy work.

We have not effected any agreement with the Army to this effect,
but we understand there is a similar problem to be worked out with the
General Motors in conjunction with their reported investment of
$15 million for the purpose of supplying the Army and the Navy with
their newly developed high-speed Allison motor. I am now engaged in
studying the regulations issued pursuant to the agreement with the
Navy. Mr. Burrus is having a meeting with Colonel Schultz, who represents the Army in these matters, this afternoon. I will report further until
when I have the results of this meeting and will pursue the matter
arrangements have been completed with the Army on their General Motors
contract.

For your information, the Navy requested in the last Deficiency by
Bill an appropriation of $6 million which was earmarked for use order that the

Navy in the purchase of certain manufacturing equipment, in
delivery on Navy contracts might be expedited. This request was granted.

256

-2The Navy has the $6 million and wants to keep it_and is now engaged

in trying to persuade the manufacturers to invest the $6 million themselves and take the benefit of the agreement with the Bureau of
Internal Revenue on the depreciation of 50 percent per year. While
I do not know whether or not the manufacturers will agree to this,
it occurs to me that we should be willing to stand by our agreement
in either event.
In all these matters I am dealing with Mr. John Burrus of the
Bureau of Internal Revenue, Admiral Robinson, representing the Navy,
and Colonel Schults, representing the Army.

J.W.H

257

September 5, 1939

To:

The Secretary

From: Mr. Hanes

The President called me on the telephone at my house on
Monday evening, September 4th, at 8:30 P.M. and instructed me

to get all the information concerning the arrival in Boston of
the German ship Pauline Friederich. I secured this information
and today addressed the following memorandum to the President:

"The German tanker, Pauline Friederich, out of Port Arthur.

Texas, with a full cargo of lubricating oil, bound for Hamburg,
Germany, put into Boston yesterday. Her Master, Henrick Heitman,

has not asked for formal entry, but has notified the Collector that
he will do so this morning. A Coast Guard cutter is lying alongside
of her, and the Collector of Customs has been notified not to give
her clearance papers until he has received formal instructions
from Washington."

signed H.m. Jr. Sept. 5-

The President told me further to advise Collectors of all ports
not to issue clearance papers to German ships without instructions
from us.

The President further instructed me to make a complete survey

of all German property in this country, including cash balances,
securities and fixed investments; to ascertain the owners of such
property, and to have catalogued the location and whereabouts of such
investments.

J. w.t.

257A

September 5. 1939

The Secretary

To:

From: Mr. Hanes

The President called me on the telephone at my house on
Monday evening, September 4th, at 8:30 P.M. and instructed me

to get all the information concerning the arrival in Boston of
the German ship Pauline Friederich. I secured this information

and today addressed the following memorandum to the President:

"The German tanker, Pauline Friederich, out of Port Arthur,
Texas, with a full cargo of lubricating oil, bound for Hamburg,
Germany, put into Boston yesterday. Her Master, Henrick Heitman,

has not asked for formal entry, but has notified the Collector that
he will do 80 this morning. A Coast Guard cutter is lying alongside
of her, and the Collector of Customs has been notified not to give
her clearance papers until he has received formal instructions
from Washington."

Signed H. m., JR. Sysv.5/39

The President told me further to advise Collectors of all ports
not to issue clearance papers to German ships without instructions
from us.

The President further instructed me to make a complete survey
of all German property in this country. including cash balances,
securities and fixed investments; to ascertain the owners of such
property, and to have catalogued the location and whereabouts of such
investments.

JWH:jr

258

September 5. 1939

MYMORANDUM FOR THE PRESIDENT:

The German tanker, Pauline Friederich, out of Port Arthur,

Texas, with a full cargo of lubricating oil, bound for Hamburg,
Germany, put into Boston yesterday. Her Master, Henrick

Heitsman, has not asked for formal entry, but has notified the

Collector that he will do so this morning. A Coast Guard cutter
is lying alongside of her, and the Collector of Customs has
been notified not to give her clearance papers until he has
received formal instructions from Washington.

( Ages

EHF Jricice -

258A

September 5. 1939

KENDRANDUM FOR THE PRESIDENT:

The German tanker, Pauline Friederich, out of Port

Arthur, Texas, with a full cargo of lubricating oil, bound
for Hamburg, Germany, put into Boston yesterday. Her Master,

Henrick Heitman, has not asked for formal entry. but has

notified the Collector that he will do so this morning. A
Coast Guard cutter is lying alongside of her, and the
Collector of Customs has been notified not to give her
clearance papers until he has received formal instructions
from Washington.

Note:- sent from Secy's office
cc - Miss Chauncey
4 copies made

EHF,JR:c:ce

259

9-5-39

MEMORANDUM TO THE PRESIDENT:

The German Tanker PAULINE FRIEDERICH, with a full cargo

of 6228.35 long tons of lubricating oil laden at Port Arthur,
Texas, for Germany, turned back from the high seas off the Nova
Seotia Capes and came into port at Boston, Massachusetts, Sunday,
September 3, 1939. The secretary to the German Consul in Boston
went on board the boat and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on a London bank. A representative of the seller has indicated that the draft may not
be honored and that a libel may be filed against the cargo on
Tuesday, September 5, to protect the seller.
A Coast Guard cutter is lying along side the tanker
and customs officers have been instructed to prevent departure
of the vessel without instructions from the Bureau of Customs.

Secretary of the Treasury

we P.N. th.

Typed 9/5/39 abc

260

MEMORANDUM TO THE PRESIDENT:

The German Tanker PAULINE FRIEDERICH, with a full eargo

of 6228.55 long tons of lubricating oil laden at Port Arthur,

Texas, for Germany, turned back from the high seas off the Nova
Scotin Capes and came into port at Boston, Massachusetts, Sunday,
September 3, 1939. The accretary to the German Consul in Boston
went on board the boat and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on & London bank, A repre-

sentative of the seller has indicated that the draft any not
be honored and that a libel may be filed against the cargo on
Tuesday, September 5, to protect the seller.

A Coast Guard cutter is lying along side the tanker
and customs officers have been instructed to prevent departure
of the vessel without instructions from the Bureau of Customs.

Secretary of the Treasury

Typed 9/5/39 abc

261

MEMORANDUM TO THE PRESIDENT:

The German Tanker PAULINE FRIEDERICH, with a full cargo

of 6228.55 long tons of lubricating oil laden at Port Arthur,

Texas, for Germany, turned back from the high seas off the Nova
Seotia Capes and came into port at Boston, Massachusetts, Sunday,
September 3, 1939. The secretary to the German Consul in Boston
went on board the best and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on a London bank. A repre-

sentative of the seller has indicated that the draft say not

be honored and that a libel may be filed against the COFEO on
Tuesday, September 5, to protect the seller.

A Coast Guard cutter is lying along side the tanker
and customs officers have been instructed to prevent departure
of the vessel without instructions free the Bureau of Customs.

Secretary of the Treasury

Typed 9/5/39 abc

262

MEMORANDUN TO THE PRESIDENT:

The German Tanker PAULINE FRINDERICH, with a full cargo

of 6228.35 long tons of lubricating oil laden at Port Arthur,

Texas, for Germany, turned back from the high seas off the Nova
Seotia Capes and came into port at Boston, Massachusetts, Sunday,
September 3, 1939. The socretary to the German Consul in Seston
went on board the best and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on a London bank. A repre-

sentative of the seller has indicated that the draft may not
be honored and that a libel may be filed against the enro on
Tuesday, September 5, to protect the seller.

A Coast Guard cutter is lying along side the tanker
and customs officers have been instructed to prevent departure
of the vessel without instructions from the Bureau of Customs.

Secretary of the Treasury

Typed 9/5/89 abc

263

MEMORANDUM TO THE PRESIDENT:

The German Tanker PAULINE FRINDERICH, with a full cargo

of 6228.35 long tons of lubricating oil laden at Port Arthur,

Texas, for Germany, turned back from the high seas off the Nova
Seotie Capes and came into port at Boston, Massachusetts, Sunday,
September 3, 1939. The secretary to the German Consul in Boston
went on board the boat and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on 6 London bank. A repre-

sentative of the seller has indicated that the dreft may not

be honored and that a libel may be filed against the cargo on
Tuesday, September 5, to protect the seller.

A Coast Cuard cutter is lying along side the tanker
and customs officers have been instructed to prevent departure
of the vessel without instructions free the Bureau of Customs.

Secretary of the Treasury

Typed 9/5/39 abc

263A
COPY

9-5-39

MEMORANDUM TO THE PRESIDENT:

The German Tanker PAULINE FRIEDERICH, with a full cargo

of 6228.35 long tons of lubricating oil laden at Port Arthur,

Texas, for Germany, turned back from the high seas off the Nova
Scotia Capes and came into port at Boston, Massachusetts, Sunday,
September 3. 1939. The secretary to the German Consul in Boston
went on board the boat and talked to the Captain who then made

preliminary entry for the vessel. It is the Captain's intention
to make regular entry of the vessel today, September 5.

The oil was sold by the Gulf Exporting & Refining
Company against a letter of credit on a London bank. A representative of the seller has indicated that the draft may not
be honored and that a libel may be filed against the cargo on
Tuesday, September 5. to protect the seller.
A Coast Guard cutter is lying along side the tanker
and custome officers have been instructed to prevent departure
of the vessel without instructions from the Bureau of Customs.

10/3H.Margentlau Ja
Secretary of the Treasury

To Miss Chauncey formalling

Typed 9/5/39 abc

264
RE HANDLING OF GOVERNMENT
BOND MARKET

Present:

September 5, 1939.
8:30 a.m.

Mr. Hanes

Mr. Bell

Mr. Burgess
Mr. Ronald Ransom

H.M.Jr:

Would somebody tell me, so I know, what will they
do today for us, because I don't know. You see,
Harrison - I didn't know that Harrison was outside
for
toldtwo
me.hours yesterday wanting to see me. Nobody

Bell:

Mr. Secretary, he had gone before you came.

Hanes:

I told him you would want to see him, but he stayed

H.M.Jr:

around here until just before you left that meeting.
Last night he said he had sat in my outer office
for two hours, said hadn't you or Kieley told me.
I said, "No."

Hanes:

I was watching for you to come. He wasn't in your

H.M.Jr:

office. I was talking to him there myself.

He called me up last night, very much disturbed.

A little later Marriner called up; he's very much

disturbed.
Ransom:

That's disturbing their usual serenity.

H.M.Jr:

So I just wondered what was going to happen at

9:00 o'clock this morning. I mean what's the
what's the order, Johnny? What will happen?
Well, I don't know what the orders - what orders
-

Hanes:

the Federal has given.

Renson:

That's what they're deciding at this 8:30 meeting
this morning, as I understand.

Fanes:

Yes.

H.M.Jr:

Excuse me one second. I'll be right back.
(H.M.Jr. leaves and returns soon with
Randolph Burgess)

265

-2-

Beginning with this morning, this fellow is

working for the United States Treasury.
Ransom:

Well,
I think he's always worked for the public
interest.

H.M.Jr:

On Government finances. He's going to

Ransom:

Yes.

H.M.Jr:

This is an arrangement all worked out last spring.

Ransom:

Well, that's fine. Back in harness.

H.M.Jr:

Going to let the National City pay him and we're
going to get his services.
Pretty soft for the National City Bank.
Now, Johnny, tell me where we are at as of this

Hanes:

H.M.Jr:

morning.

Hanes:

I was talking to Ronald. I think there is some
difference of opinion. I don't know how strong

it is; I don't feel so very strongly myself. But

there is some difference of opinion between us on
think that the Government bond market ought to be
protected but not held or not pegged until the

it - between us and the Fed. We're inclined to

point that they are out of line with the corporate
securities. In other words, we think that as long
as it is more attractive to the banks to buy cor-

porates, they're not only not going. to buy Governments, but they're going to sell Governments and

buy corporates. Our opinion is that we ought to
let that bond market seek its own level, not backing
away and leaving air pockets, not letting the market
go to hell, so to speak, but to keep it as steady
as possible but let it seek its normal, natural
level, and at some point - I don't know what that
point is, but at some point along this line here,
where it's going to become extremely attractive to
the big banks to come in and buy Governments wherever that point is, I think we ought to find
it as quickly as we can and get the help from the
outside rather than the Government going in and
creating the market and making an artificial
situation, which I believe is going to make the
banks back away from the Government market as long

as they feel there is that artificiality about it.

286

-3Ithat.
don't know whether you (Burgess) agree with
Burgess:

H.M.Jr:
Hanes:

H.M.Jr:

Bell:

That's a hundred percent right, John. That's
exactly the

Can you people talk a little louder? My ears

are stopped up.

You understood what I said?

I understood, but it's an effort. They're still

stopped up.

Doc, what is this volume of corporate securities?
Are they there in any volume for the banks to
pick up?

Burgess:

Well, there are some available. There hasn't
been a very heavy volume of trading in corporates.
But Johnny is absolutely right; the banks are
going to $ tand off on the Governments until they
think it's got a natural level, and as long as
the Fed is the sole market and as long as there

are artificial things introduced, like asking the

names of sellers, why, the buyers are not going
to be attracted.
Ransom:

That idea, as I recall, was one of the trading desk
in the New York bank rather than anyone here in

Washington.
Burgess:

Well, I think it was a mistake.

M.M.Jr:

They want the names of sellers?

Burgess:

Asking the dealers to reveal the names of customers.
That's a violation of every customer relation that
the dealer has had.

H.M.Jr:

Why do they do that?

Burgess:

The name of your customer is sacred. When you do

H.M.Jr:

Where did that order come from?

that, it makes it look very artificial.

267

-4Ransom:

The Fed in New York.

H.M.Jr:

Where did - who initiated it?

Ransom:

Well

H.M.Jr:

Will you make a note to find out?

Ransom:

Burgess:

Yes. I'll recall that. I'll remember that.
I think it arose out of the attempt to peg. If

you attempt to peg a market, then you are reduced
to the question of choosing whom you will buy
from and whom you won't. Otherwise, you take

all the bonds there are. I think anybody would
be glad to sell almost all his bonds at the
prices on the day war was declared, because it
creates an entirely new situation.

Ransom:

I think both you and John have used the expression

"peg the market," which might be the effect of a
policy carried out at the present time, but which
certainly was not the intent of anyone that I

know of connected with the operations of the Federal,
either from the New York bank end or from the Board

here.
Burgess:

Now, that - of course, that's a relative term.

Ransom:

A relative term. I would say there seems to be a
continuing and never-ceasing difference of opinion
between people who look at the market from time
to time, and I would say that it has seemed to me,
sitting as an observer for the last few days rather
than as a participant in it, because I'm not, as you
know, on the Executive Committee when Marriner is
here - the feeling has been that if you don't have
a bid in somewhere and take something as it goes
down, you do allow these unnecessary air pockets

to be created. Now, on last Monday I recall a
specific case in which one issue was marked down on
the board three quarters of a point, with no bid

in at all. Well, of course, if you follow that

theory of it to its ultimate conclusion, the market

does find some level at some point at which I think
unquestionably buyers will come into it. Now,
in order to maintain this orderly market about
which we all talk, it has seemed necessary that

268

-5there should be some bid in somewhere down the

line. And as I understand the attitude of the

New York bank towards the problem, they felt

that they could be somewhat selective in their
purchases. In other words, they would decide
whether or not a block that was being offered
was a distress block or a block which was being
offered from a group of people who knew nothing
about what they were doing, and they would take

a certain percentage, say, of that and let it
go.

H.M.Jr:

Well now, may I interrupt?

Ransom:

Yes.

H.M.Jr:

George Harrison doesn't feel that way at all. He
feels that his orders are to spend a hundred million

dollars if necessary to keep the bond market from
going down one point.

H.M.Jr:

Well, of course, I don't know, Mr. Secretary, what
his orders have been, or the detail of it, as of
Saturday, except what I learned over the telephone.
I had to leave town and I only got back last night.
And he feels he has absolutely no discretion.

Ransom:

Well, I think it would be very effective if you

Ransom:

gentlemen met with these men, who are all here the Executive Committee of the Open Market Committee

is here in Washington this morning, and it would

seem to me very desirable that those five men and
you gentlemen should get together and decide what

is a joint policy.

H.M.Jr:
Rensom:

Well, supposing I call Marriner on the phone now

and let's listen and see what he's got to say.
I think that's tremendously helpful. The Treasury

and the Federal should certainly have a complete
understanding of what they're doing and why they're

doing it. There isn't any disposition on anyone's
part in the Federal to fail to try to understand
one another.

H.M.Jr:

(On phone) Chairman Eccles. - Who is this? - Good morning. Chairman Eccles.
-

269

-6Would you fellows come closer; then I can see you.
Come up, Johnny, closer and I can see you.
Ransom:

K.M.Jr:

I said that I anticipated that this was the meeting
8:30. I had notice of that when your office called

of the Executive Committee which was scheduled for

me. I supposed the two groups were meeting together.
This is a good break for me.

Bell:

Did Governor Harrison say that he had any new instructions?

H.M.Jr:

No. I've got to talk a little frankly and I'm

going to ask Ronald Ransom not to take this back.
I mean George is terribly upset, and we've worked

together under tremendous strain the last five or
six years and he's wore his heart out and he

shouldn't be upset. He shouldn't. I mean after
all he's fiscal agent for us and he's operating
for you and a fellow upset as he is - if nothing
Ransom:

H.M.Jr:
Burgess:

else, we ought to get him straightened out.
I think he's done a remarkably good job.
I think since the crisis began - for over two weeks
I think George has handled himself very well.

I think up to Friday, up until the time fighting
started, they did a hell of a good job. They

backed away, they kept an orderly market, but they

let the readjustment take place and did a fine
job. I think the difficulty from there on was
the feeling that it should be pegged. And the

minute you try to peg a market, then you're bound
to be selective in your buyers. That is, the
selective question arises because of the basic

thing of trying to peg.

Ranson:

Randolph, may I try to express it a little differently. I think the thought hasn't been to peg
it but to put an elastic barrier across it just
like you put one across a road for the wild
automobilist to hit; it cases him a certain distance and then hurls him back. I think nobody

connected with the Federal has had the remotest

idea that they could or should peg the market,
or wanted to peg the market.

270

7Hanes:

I think you and Danny and I, until Marriner came

back - until Marriner came back, you and Danny

and I had a perfect understanding of this thing;
but when Marriner came back, everything seemed

to go a little differently.

Ransom:

Hanes:

Don't you think the situation changed somewhat?

It didn't change enough to warrant the great change
that took place in the market. Frankly, I think
the thing that did the most damage to this market
was when you issued those instructions to hold
that market even at the expense of a hundred million
dollars or two hundred million dollars. Whenever

you get that - that's an intangible thing you're
talking about, this peg. When you say "peg," that's
a relative term. It may mean pegged at a given
price.

Ransom:

Or an elastic price.

lanes:

Yes, or pegged down. Just always standing there,

H.M.Jr:

trying to hold the market, creating the attitude
in the buyer "well, I'd better look out now, this
is an artificial market, so I'd better stay out
or, even better, sell."
(On phone) Hello. - - Tell him to send in a slip.

I'd like to t alk to him.

He's talking on the wire.
Hanes:

I don't want to be critical of Marriner, but I

just say that the idea from your shop seemed to
after Marriner got back.

get so violently different than it was before,
Ransom:

I don't think, John, there was any difference of
opinion between Marriner and any of his associates
over there in relation to this whole problem. I
think there was a feeling that the situation had
changed and that the time had come when there

should be some aggressive action in this market,
that we shouldn't just continually back away from

it. It seemed to me that up to Friday, when there
was definitely a change in the picture - that is,
the crash had really come; I think all of us
anticipated it, but then we knew it at that point,

271

8-

and it seemed to everyone connected with it over
there that there should be some stepping in, some
activity, and that we could well afford to support
the market to the extent of purchasing as much as

was purchased on Friday.

Now, the execution of these orders seems to me to

be the difficult problem, not the formulation of

a policy, and I have the greatest sympathy for
George Harrison and his associates. They're right

out on the firing line and all of us stand in the

background and we debate these things and give
them somewhat necessarily confused orders, and

they've got to execute them rather more rigidly
perhaps than the instructions were intended to be
executed. All of those things are operating
problems.

lanes:

They are, but my point is that you can't hold the

Government market out like a sore thumb by itself;

it's a relative market, and its relationship with

the rest of the market has got to be taken into
consideration. That's where I think we made our

mistake, in not keeping that relationship at the
point where it was a normal, natural decline.
New conditions, I agree, do demand new remedies.
We had a new condition there. The new condition
was that your corporate bond market had gone down

rather rapidly, and maybe too rapidly, but that's
something that we can't help. And the Government
bond market held up by itself is not going to
pull the corporate market back up; rather, the
reverse.

Fansom:

My charts then must be all wrong. They indicate
to me that the Government bond market has been
much more erratic than the corporate bond market,
and that it followed almost exactly the pattern
of the stock market from day to day rather than

the pattern of the corporate bond market. I'd
be glad to check that chart with you particularly,
Randolph, to see wherein it's wrong, because the
corporate line is a much steadier line and hasn't

this zig-zag that developed in the Government bond

market.
Hanes:

Well,
that may be so. Maybe it took its initial
shock rather quickly.

272

9Ransom:

That may be. I'd like, Randolph, during the
day to go over that with you.

H.M.Jr:

(To Hadley) Get a chart comparing the Government
bond market with the corporate bond market. Have

you got one?
Hadley:

All right.

Bell:

Have you got Haas's sheet?

H.M.Jr:

(To Hadley) Get it.

Bell:

Because he had a chart.

H.M.Jr:

Look in that yellow envelope. - - Oh, that's busi-

ness.

I functioned for a month without any chart.
Burgess:

Pretty tough break.

Ransom:

I think you were lucky, probably.
What's-his-name will get it.
Couldn't have read a chart on the damn boat. You
didn't know whether you were standing up or sitting

H.M.Jr:
Burgess:

down.

H.M.Jr:

This Government bond market - I mean a fellow can't

sit here - we never have been able to do it - and
tell them every split second what to do. When I
was working with Burgess for six years I'd say,
"Now, I've got so much money. Go ahead. If you've
got any doubts, give me a ring." He was on the

firing line, and he'd do it.

Hanes:

Burgess:

That was my suggestion. If I had the sole
responsibility for doing it, I'd pick out the man

to do it in New York and I wouldn't say a damn
word to him until he had done something I thought
was very, very bad.
That's the only way you can do it. You cannot run
the market

273

- 10 Bell:

I thought we told him on Thursday, "You've got

all the flexibility you need."

H.K.Jr:

Told who?

Bell:

George Harrison.

H.M.Jr:

No.

Bell:

We certainly told him we had flexibility.
At 8:15 last night - I don't think in my whole
experience I have ever - now, this is not to be
repeated - I have never knownHarrison as upset
as he was last night, in six years.

H.M.Jr:

I've seen the United States Government build up

until they've got 11 million bales of cotton,

and I don't want the same thing happening - I don't
want 11 billion dollars worth of bonds.
Burgess:

They didn't succeed in raising the price of cotton

H.M.Jr:

No. I've been all through this thing. My record -

Ransom:

very much, either.

hell, when we used to handle it, we handled this
thing 90 percent of the time without you fellows.
And I went in here in November, 133, and the Government bond market was all shot, and you fellows the Open Market Committee stepped out, and from
that time until last summer we handled that thing
all by ourselves.
You mean since 133 up to this past summer we haven't

H.M.Jr:

participated with you?
Not very much. Am I right, Randolph?

Burgess:

Well, I wouldn't say that.

Ransom:

We seemed to be in there with you at times.

Burgess:

For a long time we handled the notes and you

H.M.Jr:

Well, how long had your thing been frozen? That's
the answer. I mean selling notes and buying bonds,
or vice versa, never did anything.

handled the bonds.

274

- 11 (Hadley returns)
Hadley:

That's your New York chart - shows the price
directions; and here's some interesting comparisons which they had in the Wall Street
Journal this morning. High grade Governments,
high grade corporates, and so forth. Shows a

drop of six points there.

H.M.Jr:

There isn't so much difference.

Hanes:

Harrison is calling me.

H.M.Jr:

Harrison calling you? All right. Well, why

Hanes:

All right.

don't you take it in here?

(On phone) There's a call on my wire from Governor

Harrison. will you put it in here, please?
Mr. Hanes.

Ransom:

There must be something wrong with my chart.

H.M.Jr:

With your job?

Ransom:

With my chart.

H.M.Jr:

Why?

Ransom:

Because it doesn't show quite that pattern. That

makes almost a complete pattern. Long-term
Treasuries and corporates have stuck together
very much, haven't they?

Burgess:

Very much.

H.M.Jr:

I'd say practically the same.
I'll get some more of them.
We're talking about relatively small differences.
I don't - as a matter of fact, I'm not very much

Burgess:

Hanes:

bothered by this market. I think it's going to
straighten itself out very nicely.
I'm not bothered a bit about it if we let it

alone. This market is not going down very much.
There's too damn much money going into it, if you

let it alone.

275

- 12 Burgess:

They're full of cash. I know one insurance

company is going to buy 50 million Governments

when they think they're properly priced.
Hanes:

I had two insurance companies and I had four

banks tell me, "If you fellows leave the bond
market alone and let it find its own level,
we'll go in and help you with it; but until you
do, we won't touch it."

Burgess:

The bank which I represented until a few hours
ago felt the same way.

Bell:

How do they feel now?

Burgess:

They're waiting.

H.M.Jr:

For fifteen minutes I've been trying to get

Eccles; can't get him on the phone.

Bell:

They changed their mind?

Burgess:

No, haven't changed their mind a bit.

Rensom:

If you'll put me on the wire, I'll get him on the

phone.

H.M.Jr:
Hanes:

Well, there's Harrison first.
(On phone) Hello. (Conversation with Governor

Harrison follows:)

Conversation with Harrison in New York

276

September 5, 1939
8:57 a.m.
Operator:
John

Hanes:
George

Go ahead.

Hello.

Harrison:

Hello, John.

Hanes:

Hello, George.

H:

Well, I've just had my debate with my executive
committee.

Hanes:
H:

Yeah.

And recommended, in view of conditions in the
market and conditions in the world, that we open up
a half point down. They voted me down three to two.

Hanes:

Yeah.

H:

And said I mustn't open up lower than a quarter off.

Hanes:

Yeah.

H:

Hanes:

H:

That's what we are doing. I don't know how long
we'11 have to stay there. We've got to stay there

until they approve it.
I see. Well, what -- you're going to hold -- you're
going to hold the mar -- try to hold the market at
a quarter off.
Well, we've just got to keep putting bids in at a
quarter

Hanes:

Yeah.

until they authorize us to go lower.
Hanes:

Yeah.

Now, it's a hell of a way to run a bond market. The
impression that I've gotten from everybody up here
is that they think while we've done a good job -the impression has gone all over the country that we
are pe gging and that we are the only ones that are
buying, which is also true.

-2Hanes:

Hanes:

277

Yeah.

Now there are transactions that are going on outside
of us, because of the amounts involved, at a point to
a point and a half below our prices.
Now wait a minute. Let me understand that. You --

you say that there's -- transactions going on outside of the market at a point below your price?
A point to a point and a half below our price. And
they say well, they don't give a damn about those
transactions. We're not going to get buyers into
this market until we get down pretty nearly to the
point where people are willing to buy them.

Hanes:

Yeah. But, George, wait a minute. Ronald Ransom,
and Randolph Burgess, and Danny Bell, and the Secretary,
and I are here together. Would you mind repeating

that if I turn on the loud speaker?

Sure.
Hanes:

(Turns on loud speaker) All right.
Well, I was just saying that in our canvass of the

market this morning, while there was general approval of the way we handled the market, there was
some feeling that we've been too vigorous; we have
not let it ease off rapidly enough; that we -- they
-- the unanimous recommendation of all the dealers
with whom we talked today was that we open a -- a
half below last Saturday. I recommended that to the
Open Market Committee and they voted me down three

to two. They took so long doing it that I don't

know that I got bids in on the stock exchange in

time to have any bids in,on some of them. We may
have gotten them, I don't know.
Oh, and another reason for our reconmendation was

that we 're getting advice from all around that there
are swaps, or trades, or sales outside of the Federal
at anywhere from a point to a point and a half below
our prices. I think with that going on, even though
we shouldn't necessarily be concerned about somebody
who wants to sell his bonds at any price, with that
going on it is evidence that we are being too vigorous
and are not easing it off quickly enough.

-3-

278

There is a good deal of evidence also that insurance
companies and savings banks are doing their best to
sell their bonds, even at a point below if they can,
because they are swapping into corporates that are

off eight to ten points of the prime corporates.

Hanes:

Yeah.

And it just doesn't make any sense to me because
admitting that we want to have an orderly market,

I think on the morning after a declaration of a
general war a half point down 18 not disorderly.

Hanes:

Well, I agree with that, certainly. Anything --

wait a minute. (talks aside) George, you're in New
York, aren't you?
H:

Yeah. Oh, yeah.
(Brief pause)

Hanes:

Just a minute, George, here's the Secretary.
(Secretary takes the phone.)

HMJr:

George

Yes, Henry.
1MJr:

I've been trying to get Eccles for fifteen minutes

and have been unable to.
Yeah.

HMJr:

And I'll call him and
Well, that was because I was debating with him.

And -- ah -- I'm going to see if I can't get that
Committee to come over and see me.

Well, I -- I -- of course, I'm sitting here between
the devil and the deep blue sea. I'm perfectly
willing to do what they order me to do.
Yeah.

But on the other hand, I regard it my responsibility

to give them my best judgment as to how to handle it.

279

HMJr:

H:

HMJr:

Well, let me get ahold of Eccles and we'll see what

will happen.

All right.
But for the time being I'm here and -- ah -- well,
let's see what's happened. I mean, I' -- I've been
unable to get Eccles.

H:

Yes. All right.

HMJr:

O. K.

H:

First rate.

280

- 13 Burgess:

Silly situation.

H.M.Jr:

(On phone) Operator, what about Eccles?

Operator:

I'll get him in just a second.
I think that's the only criticism that I've had
of the operation. You just can't tell; you've
got to sit on the desk to know it. But that is

Bell:

that they've been so vigorous; on Friday they
held this market at a price 12/32nds below for
about two hours. I think they'd have done much
better if they had dropped it below that. They
were on the job.

H.M.Jr:

(On phone) Hello. (Conversation with Mr. Eccles
follows: )

281

September 5, 1939
9:02 a.m.

HMJr:

Marriner

Hello.

Eccles:

Hello.

HMJr:

Hello, Marriner.

I was -- when you called before I was on the line
talking to New York with the other members of the

Committee here.
HMJr:

Well, we are here and I've got your Vice-Chairman

here. (Laughingly) I told him to stay.
Oh, Ronald.
Yeah.

Fine.
HMJr:

He didn't know that you weren't coming.
Yes.

HMJr:

E:

HMJr:
E:

So he's here and it may be just as well to have him

as a liaison officer in this thing.

Well, I had to be over here, because we had agreed,
as I said
I

to talk to New York and the other members of
the committee that you reach. You see, there's a
committee of five - George, and the other four were
here.

HMJr:

E:

Well now, Ronald made the suggestion that we try to
get together. Do you want to do it by phone or
what -- what would you like to do?

Well, I'll do whatever you say. You -- you mean you

would like me to come over there?
HMJr:

Well, and bring -- and Ronald is saying bring the
members of your committee with you.

Well, the

282

-2 HMJr:

And let's have a joint meeting.

Well, we can do that. There's only one thing, we're
-- that darn market is operating and -- and we've -we're in touch with New York here every few minutes,

that's the only difficulty. They're calling up.

HMJr:

Well, they can call here too.
you

Well, -- you -- you -- would/like us -- you'd like
the committee to come over there?

Yeah, because I -- I'm not -- I don't want to say
I'm unhappy about the situation, but I -- I'm -- I

E:

just -- I'm -- we're not quite
You'd like to -- you'd like to discuss it.
I'd like to discuss it.
Yeah. Well, I'll -- let me see -- let me get -- let

me get in touch with the committee.
HMJr:

Ah

And -- are you in session over there?
Yeah.

O. K.
HMJr:

E:

And as I say -- Hanes is here and Ran -- your man,
your Vice-Chairman, Bell, and Randolph Burgess, who
is working for the Treasury now.

Yeah. Well, O. K. then. We'11 come right over; well,

that is, I think they will. I'll see. I think they'11

come right over.
HMJr:

Well, if there's any formality, let me know.

Well, I (laughs) -- it's just a question -- as far as

I'm concerned I'll come over anyway whether the others
stay here or not.

HMJr:

Well, I didn't make the suggestion. Your Vice-Chair-

man made the suggestion that the whole committee cone
over.

-3E:

HMJr:

283

Yeah. Well, I think that's a good idea.
Well, we're here and if I don't hear from you again

I'll take it you're on the way over.

E:

O. K.

HMJr:

Goodbye.

284

- 14 (Mrs. Klotz comes in)
H.M.Jr:

Good morning.

Klotz:

Good morning.

H.M.Jr:

Let me just - you people just stay here a minute -

no, I want you to stay all right here. I want to

write a letter to the President. I'll do it in
Mrs. Klotz's room.

(H.M.Jr. and Mrs. Klotz step out; informal
discussion continues for several minutes;
subsequent conference with Executive
Committee of Open Market Committee is

transcribed separately.)

285
MEETING WITH EXECUTIVE COMMITTEE
OF OPEN MARKET COMMITTEE

Present:

September 5, 1939.

9:25 a. m.

Mr. Hanes

Mr. Bell

Mr. Burgess
Mr. Eccles
Mr. Ransom

Mr. McKee

Mr. Draper
Mr. Leach

Mr. Morrill

H.M.Jr:

Well, thank you all very much for coming over.

Ransom:

Mr. Secretary, Itd like to explain to these

This is very nice of you.

gentlemen that, getting a call from your office

asking me to be here at 8:30, I assumed that this
group was meeting - I knew it was meeting at 8:30 assumed it was meeting with you, and. when I
arrived I found that only your boys and not the
Federal were here.

Eccles:
Ransom:

I ought to explain that
The Secretary said, "All right, as long as you're

here And, discovering that there might be

not a complete understanding of what policies were,

I suggested to the Secretary that we all get to-

gether and see if we understood one another.
Eccles:

I explained to the Secretary that we planned this

morning to meet before the market opened and - the
five members of the Committee - four are here, and
George was at the other end in New York - and talk
to him.

H.M.Jr:

Well, I want to also explain that in this half hour

Ranson:

I was either completely contaminated or have completely contaminated you.
The virus is working.

Draper:

H.M.Jr:

Ronald Ransom has been completely contaminated.

Well, we talked - Harrison called up here. As long
as we've got this meeting, after we're through
talking about the minute-to-minute operation, we

-2-

286

might just as well decide about the refunding, too.
Eccles:

Yes, that's right.

H.M.Jr:

What?

Eccles:

That's all right.

H.M.Jr:

Well, do you want to tell me and the rest of us
what is the program this morning? Harrison called
us up after he talked to you, see, and told us something about it.
Yes. In order to talk about the program this morning,
I think that it may be necessary to discuss the

Eccles:

general philosophy.

H.M.Jr:

You know about Burgess coming to work for us, don't
you?

Eccles:

Yes.

H.M.Jr:

He's detached himself.

Eccles:

George told me about it last Friday - that he was
coming.

We may well argue that, due to the very large volume
of deposits and the excess reserves, there is a
supply of money on deposit and a supply of reserves
in the possession of the bank very much in excess
of any amount that is needed or could be used, and
therefore from that standpoint that an open market

operation may be entirely unnecessary at all; that
we could let the security markets go where they would

and that it does not call for any operation or action
on our part. Now, you could - that's a pretty strong
case, and that has been my view of the thing. And
until - except when we discuss the dealing with an
emergency - I mean under normal conditions, if we
didn't have a war emergency, I would say that it is
perfectly senseless for the Open Market Committee to
operate at all in the security market, so long as
you have the excessively easy money situation that
is now created. See?

But we met last spring at the President's request

and discussed what we would do in the event of war,

and as a result of that meeting I called the full

287

-3Committee - the full meeting of the Open Market
Committee and the bank presidents, and after
considerable discussion we decided upon two things.
One was that we would buy up to 500 million of
securities in the market, as a means of cushioning

a decline and preventing too rapid selling and
panicky conditions that may develop in the market.
The other was that the Board would announce that

each Federal Reserve Bank was prepared to advance

par on all Government securities to not only member
but non-member banks as well at the discount rate.
Each bank took that matter up with the directors
and after a good deal of discussion - and we had

some little difficulty before that thing was all

Ecclos:

worked out with the twelve banks; but finally
they were all in line and prepared to do it, so
that when the trouble broke out the Board was in
a position to make the statement they did, in order
to help cushion the thing.
For your information, right there, they made that
statement publicly.
Made that statement last Friday.

H.M.Jr:

About the 500 million?

Eccles:

No, no - every bank.

H.M.Jr:

That's - well, I gradually got it, and the part that

Seeles:

See, we've never loaned to a non-member bank at the

H.M.Jp:

That's the part I didn't know.

Eccles:

And there was no commitment to loan at par, see?

Hanes:

I didn't know was

discount rate.

Now we're committed to loan at par to not only

members, but non-members, at the discount rate,

which is one percent in New York, one percent in
Boston, and not to exceed one-half anywhere else.

H.M.Jr:

I think that's an excellent move.

Eccles:

That's been done.

Now, in the operation of the market, there has been
already a substantial decline before we bought -

288

-4we bought practically nothing for the first point
and a half. The market had declined a point and
a half and there was - I'm speaking of the longer
bonds, and there was purchased, I think, around

five or six million of bonds in that whole decline.
So - I mean the thing was pretty well - letting
down rather rapidly. That was all right, because
the market was excessively high and it would have
been rather unwise to put any resistance on a

market decline from that very high point.
Then the market - as it receded from that point,
we increased the - we increased the resistance to
the decline.

Now, a very good job was done by bringing in the
banks and getting the banks to agree - that is, the
big banks in New York to agree not to sell and to
put out the word over the country of what they

were doing. I talked to every one of the bank
presidents, as well, through all of the other
districts about the situation.
H.M.Jr:

The Federal Reserve Bank presidents.

Eccles:

The Federal Reserve Bank presidents. I talked to
every one of them and kept them advised as to

what we were doing, and found out from them what
the gossip was, and suggested to them what they

might say to some of the bankers in the districts
in case there was some feeling on the part of
some of the bankers that they ought to sell. And
they were unanimous in reporting that all of the
reserve city bankers - that is, the bankers in
the larger centers where the great bulk of the
bonds were held - were not worried about the market,
that they had no intention of dumping their bonds.
And they all knew that the Fed was in the market
trying to maintain a condition of stability in
the market; so that it morely meant that the sellers
in the market were - the selling would largely come
from the smaller individual holders and smaller
banks, and there would be small deals, largely,
and they would be scattered over a very large
area.

Now, the majority of the Committee has felt that
under those circumstances, that it was our - it

was our judgment that purchasing should be made

289

-5as the market declined. Now, true, we can put
bids in under the market an eighth or a quarter
or a half or some point under the market, and
if you're beginning to get many bonds you can
move away from it; in other words, you could
drop the market a whole point, and if you moved
fast enough you'd buy damn few bonds. Well,
under those circums tances you're not really
putting very much support under your market.
It's just a question of how fast you want to
drop. Do you want the market to go up two or
three points in a day or do you want to have it
go up a half to one point in a day? Now, you
can move your bids fast enough and pull away

from it and it possibly could go off a point
or point and a half or two points. Well, if
that's going to be the case, why support the

market?

Now, I feel that on Friday, which was the crucial
day - that's the day we put out this public
announcement - and on Friday, when Poland and
Germany were at war and when it seemed to be

imminent that the French and British would soon

be at war, we felt that that was the day we should
attempt to help the market give, under the circumstances, a pretty good account of itself, if we
wanted to create the public psychology on the

part of the little banks and the public generally.
would loan par. We then followed it up by taking
out all of the dealers. Now, the purchases on
So we put out the announcement that the banks

Saturday, which were about three-fourths of all
we have purchased up to date - over half of those
that were purchased on Saturday were bonds in the
hands of the dealers; we took out not only the
dealers but the dealers' banks.

Hanes:

That was Friday or Saturday?

Eccles:

Friday. We took out all of them, and that cost
us about 61 million dollars. Now, that was the
recommendation of George and Sproul, because

they said that until you take - many of those
dealers were borrowing on the bonds - that the
dealer holdings would be likely the weaker bonds,
and they hadn't bought them for investment, and
that we would get much better cooperation from

290
6-

the dealers if we took the dealers out and they
had no bonds to sell. So that's what was done.

Now, that isn't a recurrent matter at all.
And then, outside of that, for the rest of the

S.M.Jr:
Eccles:

day, as I recall, we bought something like
fifty some odd millions
of course, Hanes has given me all this - I mean,
so - he's brought me up to date.

Well, I - well then, that's what we did for the

entire day, and the market went off about a point.
The next morning we purchased twenty some odd
millions and the market went off - of course,
it was only a two-hour session - three-eighths
of a point.
So that the market now - here, have you seen this
chart? Have you got the same one?

H.M.J2:

We have the corporates too.

Eccles:

This is your longest bonds. There's where the
decline came. And in that period, including the
60 million from the dealers, we 've only bought
about 80 million dollars - less than 80 million
dollars in bonds. So no one can say that - here's
a drop of fully three points in which we bought
less than 80 million dollars out of an authority
of 500. Now, I don't know how the hell we could
have done much less and maintained any kind of
cushion.

Now, they talk about the spread from the corporate
K.M.Jr:

This shows it a little bit better.

Eccles:

It's practically balanced here.

H.M.Jr:

Here are the two - here's the spread.

Eccles:
H.M.Jr:

There's very little.
Very little.

Eccles:

That's right.

291

7-

Ransom:

It's averaged; it's averaged.
John, can I see that chart?

McKee:

Here you are.

H.M.Jr:

Well now, as of this morning

Eccles:

This morning it was the feeling of the majority
that we should put bids in not more than a quarter
under. George wanted to put them at a half under.
We disagreed. We figured to put them at a quarter
and if there was a big flood of orders you could
pull away. But to pull away immediately and put
them a half under didn't seem to be justified.

McKee:

I think I might amend that by saying there was some

Recles:

An eighth, some thought.

McKee:

An eighth. Excuse me.

Eccles:

But the majority thought we'd put it in at a quarter
and see what the situation was, see if it would
gradually recede from that point, and if there
was a flood of orders

H.M.Jr:

I don't know where I got the impression, but I got

Eccles:

tried to peg the market.
Does that look like a pegging? We bought 80 million

McKee:

thought of putting it in at a quarter.

the impression that you people more or less have

dollars worth of bonds and the market dropped

three points. There's the answer. Now, does that
look like any pegging of the market - going off
three points, and we bought - outside of what we
took from the dealers, we bought less than 80 million
dollars worth of bonds.

H.M.Jr:

Well, let me ask another question. This thing of

making the dealers give the names of the people
who are selling seems to be disturbing the people
there.

Ransom:

Those instructions came from the New York bank.

Draper:

That was George's idea.

292

-8Eccles:

That was his idea and we agreed to it. I think

it's all right. I do for this reason, that there

is some - always plenty of chiselers, and you take
some of these big banks and some of the corporations,

who have felt that if they might have been able to
sell some bonds and not be known in the picture,
they possibly would have done so.

Now, I found in talking to all of the bank presidents,
they thought that was a damn good thing. They said
it was having this effect, that many of these - said
that some of the would-be sellers were not would-be
sellers when it came to divulging their names; that
they were sellers who would like to sell but wouldn't
want anybody to know about it.

That only applies to the big deals. If somebody's
got a lot of - a big holder of bonds - then we want
to know who it is that's offering that large block
of bonds.

H.M.Jr:

Well, Randolph, does that give people reassurance as

Burgess:

I think just the opposite, Marriner. of course, it

to the Government market?

goes back to the dealer-customer relationship, which
is supposed, under the whole code in the Street, to

be a sacred relationship. That is, you are not

Eccles:

supposed to reveal your principals.
of course, you're in entire disagreement with Sproul
and with George and with the dealers, because this
whole idea came from them and not from us. It was
their judgment and we acquiesced in it when they
mentioned it. We thought, well, under the circumstances, that possibly was all right. And I was
interested to find out the reaction from the Federal
Reserve banks with reference to it, and I found out
that all of the bank presidents outside seemed to

favor it. So I'm just giving you that.

Draper:

E.M.Jr:

Randolph, we didn't know anything about it until it

was suggested to us by George. It emanated from
New York. Excuse me, Mr. Secretary.

Well, would it be agreeable to you if I call up
Harrison and say we're all here together?

293

-9McKee:

We're not all here together. Some are back at the

H.M.Jr:

Well, may I say the group is here?

Eccles:

The Committee is here.

H.M.Jr:

There are men here.

LcKee:

Board. The Executive Committee is here as far
as operation is concerned.

Before you talk to him I'd like to tell you of an

experience I saw personally - was it last Monday
Ransom:

Monday.

McKee:

After they had all agreed to furnish the names, there
was some hesitancy in giving the names, Randolph,
as you know, and they hem-hawed around.

Burgess:

McKee:

Well, the reason for that, you understand, is that
the dealer is very hesitant about giving the names
of the traders.
But they had agreed in the morning with George to do
so, and finally when one dealer was pinned down,

and I'm not - I can't quote names at this time - but
I do know that he was - he finally admitted that he
was selling a block for Childs.
Burgess:

For Childs?

McKee:

He was offering a block of bonds for Childs.

Burgess:

For Childs?

McKee:

C. F. Childs & Company.

Burgess:

But they had been taken out, hadn't they?

McKee:

No, they had not last Monday.

Ransom:

Monday a week ago.

McKee:

Excuse me - there wasn't any market yesterday -

I forgot this was Tuesday. But there was that
hesitation in giving that information.

294

- 10 And Devine, irrespective of what confidence you
gentlemen here have in Devine, offered a block

of a million '60-'65s, and the action of his bid
after that offer - and we took half of thom like

that and he reduced his figures and did his
damndest to get those bonds; and you couldn't
make me believe anything else but that he sold
them short. Now, he said it was the accumulation
of a lot of small issues. And the other dealers
ran up their prices on the 160-165s.
Burgess:

When was this, John?

McKee:

Monday, about

Banson:

Yesterday a week ago.

McKee:

Monday a week, about

Ransom:

I can't tell you just when.

Burgess:
McKee:

That was before they'd got the dealers in.
on yes, the dealers had been in that morning.

Seeles:

Every type of dealer except Government bond dealers

H.M.Jr:

That's right.

Eccles:

The Government bond dealers can do any damn thing

are under regulations.

they please so far as - if you couldn't get cooperation - it depends entirely on cooperation. Now,
I've thought for a long while that this whole

Government bond dealer relationship was wrong and

if we're going to - if this war situation is going

to continue for some time, I think one of the things
that needs to be gotten by way of legislation is
that the Board ought to be given power to regulate
the Government bond dealers. They shouldn't have
this free hand. And no other dealers in any other

type of security - all of them are subject to
short selling and things of that sort.

regulation. It doesn't make sense. And then
McKee:

I think it is wise for you to tell the Secretary in
confidence of our experience in cleaning out the
dealers. The first report I got was - what was it,
forty some odd million? It took

295

- 11 Eccles:
McKee:

Forty-one million. Then, finally, when the thing

was cleaned up we had over 60 million.

Anybody that can lose 20 million dollars in a portfolio - there's something wrong, Randolph. They
may lose two million dollars - being in the field
or commitments under way. But 20 million dollars

is a hell of a lot of bonds.

Hanes:

How much of that was guaranteed and how much bonds?

Eccles:

Most of it was guaranteed.

H.M.Jr:

How do you mean lose 20 million?

McKee:

Lost sight of it in their portfolio. They said they

were long 40 million dollars and finally came out
and it was 60.

Eccles:

We had 20 million dollars more at the end of the
day than we expected to have when we agreed to

take them out, when we started.

I don't think that - I don't know about the facts,

Burgess:

but I know that

Eccles:
McKee:

We never raised any question about it, just took it.
That's right.

Eccles:

We've got no way of

Burgess:

Yes, but, Marriner - excuse me, but you get daily

McKee:

On their borrowing position.

Burgess:

On the position of their inventory and their holdings.

McKee:

Who checks that?

Burgess:

Well, you've got - they can't fool you very long.
You've got it from day to day.

Eccles:

There's never any auditing or checking of the records.

Burgess:

They certify it to you. They give you a certified

reports from the dealers on their position.

296

- 12 statement from time to time.
Excles:
H.M.Jr:

Well, I think we ought to talk to New York.

I've put the call in. There is certainly no

disposition on the part of the Federal Reserve
Committee to freeze this thing, is there?

Eacles:

No, heavens no!

Draper:

Mr. Secretary, I think there's a misapprehension
about that word "peg." It seems to me that if
the Federal 'is the only purchaser and you put
a price in and hold it for fifteen minutes, then
you've pogged the price, but that isn't what we
really mean by pegging. We really mean, as I
understand it, to hold it, freeze it indefinitely.
Now, there certainly hasn't been any intention
of the Committee, I don't believe, to do that.
I can only in my small way believe - or refresh
your memory, because you've just come into circulation and been in conversation with him the only one I've heard talk about pegging the
market is George Harrison. Now, I know he's
talked to you (Hanes); I was in his office when
he talked to you. And he had that idea at our

ReKee:

first operation of - on last Monday. Now, it's

just a common word that George uses, and George

H.M.Jr:

doesn't have a whole lot of market sense, in
my opinion, but nevertheless that's what he
considers pegging: if you go in there taking so
many bonds, an unknown quantity at a price, why
(To Hadley) Is that the total purchases? - Excuse me. They purchased eight million up until

10:35. Bonds off 8/32nds. That's not bad.

Bell:

That's the Federal.

Iccles:

Now, the point we've pegged - we put a - the thing

was opened at a quarter off, so there it is 8/32nds. Now he's buying all of the offerings
at that price, and he's got eight million dollars
worth of securities. So for all practical purposes
the market is pegged at that price. But that doesn't
necessarily mean that we'll take all the bonds that

were offered indefinitely at that price. If by

297

- 13 holding that price throughout the day we maybe

only get 20 or 25 million dollars worth of bonds,
then that's one thing. But on the other hand,
if there should be a flood of orders, we'd
gradually pull away from that, possibly drop
that an eighth, drop another eighth; but during
the fifteen minutes or half hour that you're
buying at that price, you can say you'v pegged
forhour.
fifteen minutes or you've pegged
ittheformarket
half an

Draper:

H.M.Jr:
Eccles:
McKee:

But you haven't frozen it, though.
You attempt - this order is to buy everything at
one quarter off the closing.

That's right. He opens it up and takes it a
quarter off until
Let's look at the market. Let's go back. Wait

a minute, Marriner. Let's go back to last Monday
and look at the prices of last Monday and figure

what we've taken and where the market is today.
Now, how anybody can say that the market has been
pegged, I can't understand.
Eccles:

We're off three points and we've taken 80 million
dollars worth of bonds.

McKee:

If the market was pegged, it would be still at the

Hanes:

price it was last Monday. Now, you know what
pegging the market is.
I think there perhaps is a misunderstanding of the

term. I think the market is - this thing is largely

psychological. When you get a market where you are
the only market, then it's pegged
McKee:

You can avoid that situation.

Draper:

But you mean for an indefinite length of time. You
wouldn't say holding it for fifteen minutes or twenty
minutes was pegging it.

Eccles:

Then if you don't do that, then what are you to do,
then what operation are you to have? What is the
alternative to that operation? That's what I'd
like to know.

238

- 14 H.M.Jr:

(On phone) Hello. (Conversation with Governor

Harrison follows:)

Conversation with Harrison in New York.

299

September 5, 1939
9:51 a.m.
HMJr:

Hello.

Operator:

Governor Harrison.

MMr:

Hello.

George

Herrison:

Hello, Henry.

HAJr:

George, there's a group here and you're on the loudspeaker. Mr. Eccles and some of his associates are
here, and our people.
Yeah.

HMJr:

How -- how is the market?

Well, frankly, I left the trading desk about twentyfive minutes ago

Yeah.

and haven't had a report since then.
Yeah.

And there's a great deal of confusion at the outset
at the outset, but not very much doing. In fact,
the dealers through whom we are working had offered
us very little at that time, but as on Saturday, most
of the business seems to be going through the stock
exchange.
Yeah.

And it raises some question whether perhaps we are

not forcing it through the exchange because of our
request to the dealers that they give us names of
any large offerings.
Well, the people here tell me that that was your
suggestion.

That's quite right.
Yeah.

And we all agreed and thought it was wise and I talked
to my committee up here of bankers and others, and they
all thought it was wise. That as long as we were

-2-

300

going to be the only buyer we didn't want some big

HMJr:

investors to offer us, say a million dollars in
bonds and have us bail them out when there's no reason
whatever for their selling.
You still think
Now,
it did discourage large offerings at the outset
Yes.

It's a query whether it isn't now just forcing

the business over the exchange rather than through
the market channels.

HMJr:

I see.

That I mention just for consideration.

Well, let me ask you this. Are you satisfied as to
your sailing orders?

As to what?
HMJr:

As to your sailing orders.
No, I -- I would think we would do better, regardless
of how much we have bought, to lower the price a
little.

Well, I mean sailing -- s-a-1-1-i-n-g, sailing.
Yeah.
HMJr:

I mean, your -- your instructions, are you satisfied?

No, that's what I say. I think I'd rather drop the

price a little.
I see.

And I say that regardless of the amount of offerings
we get for this reason: that the market outside is
about three-eighths under.
I see.

And we've heard of several transactions at threeeighths under our price.

-3HMJr:

301

Well, now

We had offerings from one -- that came through one
bank, that were under our price.
HMJr:

Yeah.

We took them at our price in spite of the fact that
they offered us at a lower price. That doesn't seem
to make much sense. Then there's evidence of some
tendency to trade through brokers and others quite

apart from us, due first to the fact that big blocs
we don't take in total at once, and due to the fact
also that I think there's some concern about the

names.

INJr:

Well now

H:

The theory of whether we want to abandon that prac-

HMJr:

Well, would you hold the wire a minute?

tice or not.

(Brief pause.)

Marriner
Eccles:

George
Yeah.

E:

I don't know why you should be concerned about this -the securities going over the stock exchange or
outside deals under our price so long 8.8 you' re not
getting any more than apparently you're getting.
Yes.

Now, I can well understand that if there was a huge

flood of orders and that if it -- at a quarter under
you were taking an awful lot of bonds

Yes.

that -- that certainly you'd want to be --

you I d want to be dropping faster than you are.
Yeah.

But as I understand it, the -- the market is fairly
quiet; there's not a great many offerines this

-4-

302

morning. Therefore, I don't know why we should be
so concerned in running away from the thing merely
because some orders are going over the exchange.

Well, no, that -- that's quite all right. You see

now there was a -- one order for a -- for a -purchase for a million that went over on the exchange and our brokers were taking it up, not all
in one bloc but in lots of twenty-five at our price.

Yes.

Now, a query whether we should take that all at once.
When we bought about a hundred and fifty thousand
that way and knowing there was still nine hundred
thousand to go, we finally took the whole thing to
get it off the market anyway.
Yeah.

Which I think is -- is quite right. The offerings
are not coming through our dealers as rapidly as
they have. I think partly because of the reason

that I mentioned, that they don't like to give up
the names -- that is, the big offerers don't.

E:

Well, are you -- are you opposed to that now? Would
you like to waive that requirement?

Well, I don't know. I'd like to rock alone a little
longer with it and get so that -- more advice here.

I'm having a meeting of my committee here at eleven

thirty, that's in about a half hour.
Well, George, I'm -- I, personally, feel that it's
been helpful. I'm for it, unless there's something

Well, I think
else develops other than I have heard. Now,
I talked to the bank presidents outside last week.
Yeah.

And there was no one who seemed to object at all to

it. They seemed to think that it was helpful.

Yeah.

-5 -

303

So that the -- the general -- the general feeling
of the -- of the banks, as well as the reserve
banks, recognized that -- that they don't want
somebody to be able to chisel on them.

Yeah.

And -- and these big bankers in the reserve cities
are all more or less agreed to stand together; and
that the names have to be divulged, and they know
darn well they are going to stand together.
But I don't recommend any change yet.

I don't either.
Now

Well now on this -- would -- you -- do you recommend

that we drop that -- drop the price below the

quarter?

I -- I'd drop it below, Marriner, for this reason:

I just got the latest report. We've bought now
sixteen million sterling in one hour.
Yeah. Well, I think maybe -- just a minute, our
committee is here. Just
(Brief pause)

I've got a report here. The offerings are coming

in more heavy now, especially over on the Board.

(Speaking to group in Secy's office:)

I think that we -- he wanted to put it in at a

half and we fixed it at a quarter. I'd -- I'd,

personally, vote for a half at the present time
and then let's see what 1 t looks like. ---Yes, that's the way I feel about it.
(Brief pause)

on the full committee. (Pause) John,

do you want to
O. K., George.

All right, I think that's better.
I'vebanker
got
an Now,
important
from Boston called me up representing one of the big
banks and also a small trust company and he says,

-6-

304

"Frankly, we want to buy some bonds but we want to

wait for a natural market." He says, "The rumor is

that the Federal is taking the market. If that's
true, we don't want to go in, but," he said, "if
you'll
tell me that's not true, we'll begin to buy
now.

George, do you remember in the spring of '37 when -when we let the market break so badly here and the
Treasury was going to desterilize
Yeah.

and all of our fun?
Yeah.

The same thing was that we - - the market ought to
be permitted to continue to go down until it got
to be a natural market.

Well, it didn't go very far.
E:

About five points. (Laughs) Well, anyway, the question of a natural market, I don't disagree that -that a natural market is possibly what we ought to
have in view of the excess reserves, and therefore
why not completely stay out of the market and let
the market get down to where it is natural just as
soon as possible and do absolutely no buying.

Well

Why should we buy -- why should we buy at all

thought it was orderly to let it go down
as it's been going.
Well, but -- when you're talking about a natural

market it's a question of degree. It's just a

question of how fast you go and how much you ought
to buy.

Surely. I mean, I suppose we'd all differ on that.
But that's purely a question of degree.
&

-7-

305

Yeah. You know -- but, Marriner, when you get a
a situation like this: Some brokers are buying
bonds that we know they've bought at & half or
more below the market. We -- we are con -- fairly

convinced of it; we can't prove it.

Yes.

That the bonds that they are now offering us are
bonds that they have already bought below the
market and that we are taking them at our price.
It gets right down to the question again, just how

fast and how far Now, ah

Well, I think we've got
I'm willing to vote that we completely get out and

let the market go where it wants to as far 8.9 I' m
concerned. Why the hell do anything about them -with the excess reserves and so forth. I -- that's
been my position right along.

We'l, I think we've crossed that bridge.

Well, all right then. Then if we're -- if we're
going to

You don't object to going down a quarter?

No, no, we're - everybody's for, it.

All right: Well, I -- I want to give the order then.
0. K.

First rate.
Right.

306

- 15 Eccles:

It's just a question of degree, just a question of

how fast you buy and how much you drop. Now, the
thing

H.M.Jr:

Well, could I just say this to make life a little
easier, because I feel this thing - that this is a
matter of weeks, and I'm afraid It's going to be a
matter of years. And what I'd like to do is this,
so that we can all get along and not have to pay
too many doctor's bills. I've never attempted I mean this isn't the first - to run the Government
bond market. I can't do it. But I got Burgess and

he's severed his connections and he's here. Now,
he can come over to you or you can meet here, and
if you fellows will talk with him - if that's agreeable; you all know him.

Eccles:

Oh, fine, fine.

H.M.Jr:

And even occasionally, if it's agreeable, have your

Vice Chairman come over and see me, or vice versa -

I mean - and sit with us occasionally. Is that
all right?

Eccles:

That's fine.

H.M.Jr:

What?

Eccles:

That's fine.

K.M.Jr:

And if there's something on which we're in disagreement, why, we'll know.

But the only thing that I'd like to say is, the
don't want to end up, if I can help it, holding
all the Government bonds. And I'm looking at this
thing as a thing that's going - this isn't a day,

Government owns 11 million bales of cotton and I

week, or month - I think we are in for years.

McKee:

Mr. Secretary, how do you mean you're going to own

H.M.Jr:

Well, I mean between the Fed and the Treasury we

Government bonds?

buy them all back. That's what I mean - that we
buy them all back.

307

- 16 Eccles:

of course, the Fed up to date are the only pur-

chasers, and we don't of course expect and want

to own all of them. I feel that with the huge

volume of funds we're not - we can't possibly
own them. The banks have got - they' got no
place to put their money, and this idea of think-

ing that this Government bond market is going
down to the depths that some people seem to think
it is, is perfectly ridiculous, to my way of
thinking.
H.M.Jr:

Well, I'm not making any forecasts, but I'm just
looking at this thing - I'm afraid we're in for.
a long, long spell, and if our outlook is the
same, then that's that. And I take it from
listening this morning that neither your agency
nor this wants to put an artificial floor under
this market. Well then, we're operating on the
same basis.

Eccles:

That's
right. It's purely a question of degree,
of how fast.

H.M.Jr:

All right. Now, on that thing, Burgess will act
for the Treasury. He's here, and there's no

difference

But as I say, I've never attempted - I've always
felt - I say, "Here, we've got so much money. You
fellows do the best you can. When you've got a
doubt, give us a ring. When we're not satisfied,
we'11 give you hell.
McKee:

H.M.Jr:

Well, you're not taking any of these bonds.
Yes, we're taking half.

McKee:

Well, I've been out of circulation too.

H.M.Jr:

We're taking half of them right now.

Bell:

No, we're taking the longer bonds, some of them.
We take whatever they say at the end of the day.

H.M.Jr:

Bell:

We make a deal with them at the end of the day.
We have taken all the long bonds, Mr. Secretary,
we can.

308

- 17 H.M.Jr:

We're not making mouth bets here, we're playing cash.

Eccles:

Ithis
understood
reason that we were taking all of them, for

H.M.Jr:

That's wrong.

McKee:

This is an agreement that came out of your office,

was reported to our Committee.

H.M.Jr:

There's our fellow (Bell).

Eccles:

The record will show this. When the matter came up,
you said that you would be willing to go on a 50-50
basis, the Treasury taking a hundred million and we
would take a hundred million, and then you would
take a hundred. When we took it up, it was agreed
that we would take up to 500 million before you took

anything. That is, we got authority to buy up to
500 million and we said it wouldn't be necessary
for the Treasury to come in at all; that if we

needed some help, we'd have you come in later. That
was the agreement last spring.
Bell:

I don't think it is in the record just that way.

There was an agreement - they had authority to buy
500 million and you said you'd go a hundred million.

H.M.Jr:

What's happened, then? What's happened?

Bell:

Fed has bought 139 million since last Wednesday Wednesday of last week, and we have taken 13 million
of them - long bonds.

H.M.Jr:

Is that half of the long bonds?
That's a little more than half of the bonds - '60-'65s.

Bell:
Ransom:

Bell:

But that isn't half of the bonds.
No, it isn't half of the bonds they bought. The

whole list - they bought notes, bought bonds, bought
guarantees, some of which we'll want for the trust
funds.

H.M.Jr:

Who decided this thing?

Bell:

Bob Rouse and I decided to close the business every
day, in agreement with the Federal Reserve Board;

309

- 18 they said they didn't care whether we did it at
the end of the day or
McKee:

May I ask our secretary, what is the commitment
to the Executive Committee by the full Open Market
Committee on the bonds that we're buying for our
own account up to 500 million dollars?

Morrill:

So far as the full Committee is concerned, it
500 million dollars, with another possible 500
million dollars beyond that. But the arrangement
Mr. Bell is speaking of is one entirely between
the Executive Committee and the Treasury, and I
understand the facts to be just as Mr. Bell states
authorized the Executive Committee to buy up to

them.

Eccles:

There isn't a commitment that the Treasury is

obligated to take one-half of all the bonds purchased, which was the thing that you wanted to do
last spring. Now, as I understand it, now the
Treasury wants to invest some of their funds,

that is, their

Hanes:

Trust funds.

Eccles:

trust funds, and they don't want to operate
separately in the market. Therefore we say, "All
right, you come in and take half of all the long
bonds you want at the end of each day."

H.M.Jr:

Well, Bell will have to talk for himself. Just

what is the understanding?

Bell:

Well

H.M.Jr:

I mean what do you tell this man Rouse?

Bell:

Well, at the close of the day, Bob Rouse gives me

H.M.Jr:

Who is Bob Rouse?

Bell:

He's the man that took Matteson's place.

Eccles:

New fellow, from the Guaranty.

the list of the purchases by issues.

310

- 19 Bell:

And then we agree as to what the Treasury will
take60-165s.
on the long bonds - '56-'59 and '60, '58-163s,
and
Now, of those long bonds, we've taken $12,925,000.00
for trust funds. of the Home Owners Loan bonds,

we've taken $777,000 for the retirement fund of
the Home Owners Loan Corporation, making a total of
$13,700,000.00 in securities that we've taken. And
the Federal has taken $125,995,000. That's since
Wednesday and doesn't include the 5 million previously
bought.

Eccles:

That's less than the amount of bills we have let run

Bell:

Oh yes.

H.M.Jr:

Well, Marriner, as far as I'm concerned, it's O. K.
Is it O. K. with you?

Eccles:

O. K. with me.

McKee:

O. K. with me to continue on that basis, if you

Eccles:

Well, that's it, John.

H.M.Jr:

Well, that would be stupid. It would be the height
of stupidity.

McKee:

But any time that our purchases continue and you want
to drop out, why, I think it would be well for you to
let us know.

Bell:

We don't purchase until the end of the day. We give

off.

gentlemen have trust funds and don't desire to go
in the market separately.

them an order at the end of the day based on what you

have done.
H.M.Jr:

There's never been any conflict, because we're using
the same purchasing agency.

Well, Marriner, I'm satisfied as of this morning.
We've got Burgess here, we've got Bell, and Hanes
and I are available at any time, and I think it's
been a good meeting.

311

- 20 -

Now, I'd like to ask the meeting one thing. It

doesn't seem - as long as we're here, let's decide
whether we will or won't attempt any refunding,
see?
Excuse me. (Reads note brought in by Hadley)

Federal bid marked down another 8/32nds, making

it 16/32nds from Saturday. Total of 18 million,
with 10 million over counter, 8 million on stock
exchange.

Eccles:

That's an Exchange activity, all right.

H.M.Jr:

Well now, does anybody think we ought to try to

McKee:

May I ask a question that I don't know the answer
to, Mr. Secretary?

H.M.Jr:

Please.

McKee:

How much new money do you need between now and

do a refunding now?

December?

H.M.Jr:

We can get along without any.

Burgess:

And you've got two resources; you've got some RFC,

H.M.Jr:

their borrowing of 275 million - you can have an
RFC issue, and you've got the bills. You can sell
any amount of bills.
For over a year we've been on a basis that we could

skip any quarterly financing in case of just this

kind of an emergency.
Eccles:

That was the purpose of the thing.

McKee:

And you only have about 500 million in December,

Hanes:

526.

H.M.Jr:

We've been on this basis for over a year, just for
this kind of a thing, and now we can reap the

is that right?

fruit.

Eccles:

Personally, I wouldn't do any refunding. We were
over here last week and the majority seemed to think
we shouldn't make a decision and should wait until

312

- 21 -

this week. So I acquiesced in that view. But I
felt last week and I felt now that there would be

no point in doing any refunding, with the cash
balances you have, with the very large amount of
bills that you could sell if you needed money,

with the RFC issues that can be put out between
now and December, and with the fact that you have

passed up the period - that is, you anticipated
a financing just to meet such a situation, and
there's no reason at all to put any new securities
in the market. We're trying on the one hand, we
say to steady and stabilize the market, so why
undertake to try to price an issue of securities?

H.M.Jr:

Well, what I'd like to do, if it's agreeable to

you people and you go along with me, is to say
that we're not going to do anything on the 15th
of September, but no commitment beyond that, be-

cause if on the first of October it looks good

Burgess:

I think it's important to leave it open.

Eccles:

Leave it open.

H.M.Jr:

But we're not going to do anything on the 15th of
September.

Eccles:
H.M.Jr:

Then you can do a refunding any time you want between
now and then.

Or new money. But I'd like to say I met with the -

may I say the Executive Committee of the Federal
Reserve

Bell:

The Open Market.

H.M.Jr:

Is that all right?

McKee:

The Open Market Committee.

H.M.Jr:

That I met with the Executive Committee of the Open

Market Committee and we decided that the Treasury
would do nothing on the 15th of September - between
now and the 15th.

Burgess:

Just check with George on that.

Ranson:

Subject to checking with George Harrison, who is
also one of the members.

313

- 22 Leach:

He's on the Committee.

H.M.Jr:

Check with George?

Ransom:

He's on the Committee.

McKee:

George had that thought today, unless he's had a
change of heart.

Burgess:

I suspect he feels the same way, but I think it
would be nice to talk to him.

Eccles:

He felt that way Friday.
Might say, Mr. Secretary, for the benefit of those
who haven't been over the figures, that in this
three-months period there was new financing of
900 million dollars scheduled: 500 million for
the Treasury, a hundred million in October for
.

Sell:

United States Housing,

H.M.Jr:

But we could get through.

Bell:

....and 300 million for the RFC.

H.M.Jr:

(On phone) Hello. (Conversation with Governor
Harrison follows:)

Conversation with Harrison in New York.

314

September 5, 1939
10:14 a.m.

HMJr:

Hello.

Operator:

Governor Harrison. Go ahead.

HMJr:

George

George

Harrison:

Hello, Henry.

HMJr:

we're now sitting, the Treasury and the
of which I understand that you' re a member.

executive committee of the Open Market Committee,

H:

Yes.

HMr:

And we're proposing to announce that on the 15th of
September the Treasury will not do any financing.

H:

Ah

HMJr:

Or refunding.

H:

I -- I would recommend that if you'd have asked me.

HMJr:

Well, we are asking you.

First rate. I think that's quite right.
HMJr:

All right, we'11 have it out in five minutes.
It -- truly, there's not -- there's 80 much boiling
around here; it'd just be a confusion; it could
probably be done at a price, but with prices so
uncertain I wouldn't attempt to fix a price.

HMJr:

No, we're not -- you see, we -- we worded it so that
there'd be no commitments, and 1f we want to do
something on the first of October, why maybe we

will.
Quite right. Well, I -- I congratulate you. I
think that's the right decision.
HMJr:

O. K., George.

If the Committee is there, there's one thing I

would like to ask them.
HMJr:

Go ahead.

-2H:

315

Whether they have any objection to taking the bonds
that we buy today for delivery on Thursday instead

of tomorrow. I ask that for two reasons. First,

the volume of work here is so bad that I'd rather
push it over until Thursday, and it makes it easier
for us to handle, tonight especially, as we are
clearing the dealers' positions that we negotiated
last week today.

HMJr:

Well now, listen, I'll let Chairman Ecoles answer

that. That's -- I'll let him talk to you.
(Chairman Eccles takes the phone.)

Eccles:

George
Yeah.

They -- they won't show up in the statement this

week then, would they?
H:

E:

They wouldn't show up in the statement this week and
I asked whether there might not be some disadvantage
in the next week doing that but we could announce
next week that whatever proportion of that we show
in next week's statement was -- was purchased today.

Well, personally, I'd sooner see the statement show

the facts. Now, 1f -- if the mechanics of doing
the job are such that it can't be done, that's

another thing.
Well

But if it can -- if it -- if -- if you could take

delivery and show them in the statement, then that
after all, the statement then represents the facts.
Otherwise it doesn't represent the facts.

Well

And I would prefer to see the statement this week

certainly show the facts if -- 1f it -- if you can
if it can be done.

Well, it will be contrary to -- if we can do it,

all right, but all that we have been buying the
last few days, we've been taking on two days'
delivery rather than the next day's delivery for
that same reason.

-3-

316

Yes.

So we would be doing just what we have been doing.

Yes. Just a second. Let me see if any of the
(Brief pause.)
George
Yeah.

Do we understand that -- that you've been doing
most of the buying on two days?
Well, you see, this has been a badly congested week
because you had Monday a holiday.

Yeah.

And you don't have delivery on Saturday anyway, so
everything that we bought on Friday and Saturday

we bought for delivery today.

Yes. Yes. Well
You've -- you've got quite a congestion up here.
If there's really strong feeling about it we'11
handle it, but the operating men called me up and
asked if they couldn't please be given that

permission.

Well, the majority of the Conmittee would -- would -if -- if it can be done, without too much inconvenience, would like to see this statement show
the amount of -- of purchases this week.

Um-hm.

And especially until we see what the bill market
does tomorrow. Is it tomorrow?
Well, no you've done

We've got the bills this week.
You've done that already.

Let's see, that's right. They've already -- we've -replaced them all last week on account of the
holiday, didn't we?

317

-4H:

Yes. Uh-huh. The bidding was on Friday.
Well, then this statement, though, would show really
what we've purchased and I think it may be a good
thing to -- to actually show it, because rather
than show a smaller purchase this week, with the
possibility of an increasing purchase next week,
I'd sooner have the statement next week, if anything, show less than to have the
Well, that was the reason I said you could explain
that if necessary.

But it's much more difficult to explain and if you
can just do it without the explanation. Well,
anyway you just do what -- what you please.

Well, will you give me just a little leeway? I
agree with you

Yeah.

And I'll try and handle it through today.
O. K. Goodbye.

318

- 23 H.M.Jr:

Marriner, just so I get this thing (confers with

Eccles on statement to be made to the press)

(To Duffield) Will you tell the press that we met

with the Executive Committee of the Open Market
Committee and that we decided that there would be

no financing on the 15th of September. Now, for
background, that doesn't commit us as to what we'll
do beyond the 15th of September. Is that right?

Eccles:
H.M.Jr:

That's right.
That's right.

Eccles:

Doesn't mean you're going to wait until December 15th;
might do something in between.

H.M.Jr:

Might do something on the first of October.
Might say for their own background that we have had

Burgess:

this big balance for such a kind of situation, in

mind.

Eccles:

H.M.Jr:

I don't know whether you want to mention the fact

that there is three or four hundred million of RFC
and other financing.

I think not. Just that from now until the 15th of

September we're not going to do anything.
Duffield:

No refunding.

Eccles:

I think it's well to get the fact out for background
that the bill market is available.

Burgess:

The bills held now are considerably less than half

Eccles:

what they were.

From two nine to one three; we're off one six.

318 A
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

September 5, 1939.

coffee

MEMORANDUM FOR THE SECRETARY

As a matter of possible interest, there is attached
a statement showing total airplanes and engines ordered by

and delivered to the French State.

Director of Procurement.

AIR
Ordered

Delivered

Contractor

Description

Glenn L. Martin Company

2 engine Bomber 167-F

200

Glenn L. Martin Company

2 engine Bomber 167-F

215

Douglas Aircraft Company, Inc.

2 engine Bomber DB-7

100

North American Aviation, Inc.

Basic Trainer

230

119

40

20

785

340

Ordered

Delivered

United Aircraft Corporation
Chance-Vought Division

Dive Bomber V-156

200

1

0

ENGINES

Contractor

Description

United Aircraft Corporation
Pratt & Whitney Division

P&W 1830 Twin Wasp

United Aircraft Corporation
Pratt & Whitney Division

P&W 1535 Twin Wasp, Jr.

Curtiss-Wright Corporation

CW GR2600 Twin Cyclone

Curtiss-Wright Corporation

CW R-975-E Single Row Whirlwind

1,821

698

520

10

42

115

2,498

0

no record
approx. 20
approx. 728

$158

319

September 5, 1939
11 a. m.
Present:
Mr. Hanes

Mr. Earle Bailie

HM,Jr: Earle, if you don't mind, the reason
I am having this sort of official talk of what I hope

to have you do -- you don't mind my having notes taken?

Mr. Bailie: Not a bit.
HM,Jr: What I want to know 1s whether you are

ready to do what we talked about last spring or last

summer and come down here, I suppose as a dollar a
year man, divorce yourself from your own

Mr. Bailie: Take leave of absence was the
phrase we used, because I can't divorce myself in
the sense when I was down here

HM,Jr: Leave of absence.

Mr. Bailie: Yes.
HM,Jr: That's the word.

Mr. Bailie: Right.
HM,Jr: And the best way I have to describe it
18 for the Treasury to have you look after international
capital movements.

Mr. Bailie: Yes. I am not quite sure what

that means, but I am sure we will find out after we

have worked on the job.

HM,Jr: That's movement of money in and out of

the United States. I think that's the best way to
describe it.

320
-2-

Mr. Bailie: Henry, what I would like to say
18 this: the answer is yes to your question, but I

would like to put it this way: that it may be as

the next few weeks go along that you will find you

don't need me on the full time job. It may be you
will find that I don't fit in as well as you remember
I did the last time and I would rather feel this way

about it: I suggest I come down, take temporary leave
from all my affairs, do any job you want me to do
without having people in general feel that if at the
end of a few weeks there isn't a job or 1f you find
out somebody else would do it better or if I don't
happen to handle it right, that there would be no
embarrassment on your side or my side to say it isn't

working out. I think that's a much smoother relationship. What I am asking, what I am saying, in effect,
don let's say Mr. Bailie is coming down to move international capital about but just say Mr. Bailie is
coming down to help out for a few weeks in the Treasury and then see how it works. I would rather let
the job grow

HM,Jr: As far as I am concerned, I am ready

to make a commitment.

Mr. Bailie: I don't want you to. You see?
HM,Jr: I am willing to do it anyway you want

to do it.

Mr. Bailie: Right.
HM,Jr: But I do think just the way I have told

Randolph Burgess. We started at 8:30 this morning,
because we had a show with the Federal on the Government bond market and Mr. Eccles has been here. I will

do it on any basis you want, but I think it is much
better to make some kind of formal announcement.

Mr. Bailie: I think that's right.
HM,Jr: And what I told Randolph was to get hold
of Duffield, sit down with him and write out something
that he thought he liked and then let me go over it with

321
-3-

him, rather than have them smell that you are here.

Mr. Bailie: I agree with you.
HM,Jr: Check, Johnnie?
Mr. Hanes: Yes.

Mr. Bailie: Does Randolph feel that it 18 a

good idea to come down here at once on a full time
basis?

HM,Jr: Well, let me explain it, Earle. Ran-

dolph had had it arranged for some time. He has ardown. I don't know what his arrangement 18, but he

rangements with the National City that he can come
made it months ago.

Mr. Bailie: Just at the time I talked to my

partners.

HM,Jr: He called up Gordon Rentachler this

morning and told him, "Please don't talk to me. I
am cut off from the National City Bank. I am out."

I take it -- I don't know; I haven't asked him -- I
take it he made some arrangement about salary.
have not asked him. But I don't want you to kid
yourself. I am not kidding. We are in for something which I think is for years. I don't mean you
I

are going to be here for years.

Mr. Bailie: Right.
HM,Jr: I think it is a matter of years and not

of weeks. I don't want you to come on the thought that
it's a matter of two or three weeks.

Mr. Bailie: No, I don't.
HM,Jr: I don't say I want you for two or three
After all, I don't know whether I will be here
years.
after January 1941. But it would be a mistake for you,

Hanes and me 1f you came down for two or three weeks and
then have to go back.

322

-4-

Mr. Bailie: That's not my feeling. Just want

to develop -- I have got a health record which is not
wonderful. Now I think and my doctor thinks that a
world war will be just the making of me and my wife

agrees. Maybe it won't. In which case, that's that.
I find that I can do as much work as I ever did and a
little bit more, but I have to do it on a certain basis
of time off and time on. That might not work into the
Treasury schedule. That's why I want to be a little
tentative in not letting you fellows think that I can do
something I can't do.

closes HM,Jr:
at one Handling
o'clock. world capital movements -- London

Mr. Bailie: Yes.
HM,Jr: So if you don't want to be here in the

afternoon, you don't have to be.

Mr. Bailie: You get my point, Henry? I don't

want to let you sell yourself that I can do a job which
I might not find I could do. I have every confidence
that I will be in excellent health; that I have never
been in better health than at the moment. That's one

factor. There is another factor. My affairs at 54

Wall Street now are in condition where they can be
handled without my aid. If, for instance, Randolph
should die that would not be true and I would then have

to say to you "I have certain obligations to the

people

HM,Jr: I understand.
Mr. Bailie:
various people that I would
have to hold paramount. Having said those things --

I am trying to say everything that is in my mind --

then I say to you if you want me to come down, of course
I will come. I want to ask one other thing. Do you
think that putting Randolph and me in separate departments is better than for us to try to some degree to
work together?

HM,Jr: That's up to you. Randolph expressed
the wish he would like to share a room with you.

Mr. Bailie: I feel the same way about it because

323
-5-

I feel if we know what each other is doing, we ought
to be much more useful to you and John than if I am
just doiug

HM,Jr: That's up to you fellows.

Mr. Bailie: All right. Fine.
Mr. Hanes: That appeals to me. The two ought
to be together.
HM,Jr: He expressed the wish he would like to

share a room with you.

Mr. Bailie: I had not thought of it just that

way, but I like it very much.
HM,Jr: I won't take the time -- Randolph can
tell you what went on this morning. It's a big fight
to keep Wall Street from having control. But the
thing that Randolph has to do, he has got to sit and

wear out Mr. Eccles. John and I can't do it. We

succeeded this morning. He has to handle George
Harrison and in the six years I have been hear I never
heard George Harrison as excited as he was last night.
Mr. Bailie: Randolph and I both know George

Harrison intimately. I could handle George Harrison
on foreign exchange while he was on the bond side.
I think we could handle George Harrison to your com-

fort together than separately. I think the same thing
about Eccles. Don't know him so well, but I think 1f

you and John regard Randolph and me as a firm who, be-

tween us, attempt to bring to you the stuff you need
on those two concerned, I think you will get better
service out of us than if you try to put us separately.

For instance, Randolph's long presence in the Federal
Reserve would make him tremendously helpful to me in

my first discussions on foreign exchange. Now, if
may say so, Randolph and I worked under you on the bond
market to our triple satisfaction
I

HM,Jr: Yes.

Mr. Bailie:

long ago, and I think we could

324
-6-

work together again for Morgenthau, Hanes & Company.

HM,Jr: The point 1s, I say international
capital movements. That's just what I mean.
mean movement in and out. That also will eventually
get into the question of, 1f any foreign power wishes
to raise money in this country.
I

Mr. Bailie: Exactly. In other words, what

are you going to do? Are you going to have Jesse
Jones lend money against securities or securities
sold in this market and have constant trouble
HM,Jr: The whole question.

Mr. Bailie: The whole question, and it all

comes in -- how much money will you have to raise
in order to let Jesse Jones do those things and how
much America will have to take in foreign exchange.

HM,Jr: On that thing, I want to bring up

something which is along the same line, but I want

to first wait. If you are satisfied as to this

Mr. Bailie: Yes, I am satisfied as to myself.

When I was here before I would have been embarrassed

to talk to anybody in my own office while I was here
change. We are not in either of those businesses

because we were in the bond business and foreign ex-

today. Therefore I will feel that 1f my people want

to come down and ask my advice on some investment

problem, as long as it does not have anything to do
with Treasury except what I read in the newspapers,

I can do it.

HM,Jr: My hunch is you can sit here and let

things freeze and make more money.

Mr. Bailie: That's my own view.
000-000

325

September 5, 1939
11:20 am

Present:
Mr. Hanes

Mr. Basil Harris

HM,Jr: Now, Mr. Harris, what I want to know
is this: I would like to make you Commissioner of
Customs and Assistant to the Secretary of the Treasury and turning that over to you in toto.

Mr. Harris: I thought you were not going to

get me down here.

HM,Jr: No, sir! The President called up
Johnnie. He's worried about two things -- wants
us to hold up all German boats. This and that is
popping every minute. Johnnie and I will do the
best we can, but this is a big job. This morning
I have seen Randolph Burgess, Vice President, National City Bank. He's down here. So is Earle
Bailie. He's down here. You are the very man.

All are taking leave of absence and are coming. But
this is no shock to you.

Mr. Harris: But I was trying to build this

up for someone else.

HM,Jr: Oh, no! No! No! I want you to

do it, and the thing is moving so damn fast it needs
courage, experience, and you have got everything.

Mr. Hanes: It's a whale of a job, that Customs
job, and it means handling of ships in every port all
over the world, not just the United States.
Customs

Mr. Harris: You want me to be Commissioner of

and in order to give you additional
prestige I want to call you Assistant to the Secretary.
Not Assistant Secretary. If you want to be Assistant
HM Jr:

326
-2-

Secretary I will make you that.

But the reason I
want to make you Commissioner of Customs, I don't
want to have you have to ask anybody anything. Say

in the middle of the night you want to do something.
made you Assistant Secretary or Assistant to the
Secretary, then you would have to work with another

You are it and you have all the authority. If

I

fellow. And this is a matter of split seconds.
I want you to have all the authority. Moyle is

82 and I am going to send for him and say, "Mr. Moyle
you are 82. I am going to ask for your resignation.
And this does not have to be confirmed by the Senate.

It's purely an appointment by the Secretary of the
Treasury. I hear you have not been well and this
18 fine for you.
Mr. Harris: I have not been well.

HM,Jr: You want to do something in the middle

of the night. You are the boss. You don't have to
call up anybody. All this authority in all these

powers is yours.

Mr. Harris: How long a job does this have to
be? How long 18 the war going to last?
HM,Jr: I am not kidding myself.
Mr. Hanes: We think it is going to be some time.
Mr. Harris: Must I sever my connections with
my company?

HM,Jr: I would have to ask my General Counsel.

Mr. Harris: It has assumed serious proportions

since half my income comes from England and that has

been cut off. From the British-America.
HM,Jr: I don't know.

Mr. Harris: Heretofore my salary has not meant

so very much. Not it's a little more serious than it

was.

HM,Jr: What's British-America?

327

-3-

Mr. Hanes: British-American Tobacco Company.

HM,Jr: You are not getting your money?

Mr. Harris: I don't believe we are going to

be able to get our money out of England.

HM,Jr: You will have to see Earle Bailie.
He's in charge of the movement of capital.
Mr. Harris: oh, then I had better come down!
Mr. Hanes: You had better come or you won't
get anything out.
Mr. Harris: When do you want me here?

HM,Jr: Now! Right now!
Mr. Harris: I have to go back this afternoon.
I will be back tomorrow morning. But this has come
at a very bad time.
HM,Jr: What I would want you to do is to sit

down with Ed Foley. Tell him the story. I just don't

know about the salary business.

Mr. Harris: -h, for that matter it's not quite

that serious. I could waive that salary for six months

to see how this thing is heading and 1f it got anyway
pressing I could open it up then.

Mr. Hanes: If this thing lasts long, I have to

find somebody to divide with me. I want to find somebody with a big income to divide with me!
000-000

328

TREASURY DEPARTMENT

Have

INTER OFFICE COMMUNICATION
DATE

TO

FROM

Secretary Morgenthau
Mr. Gaston

September 5, 1939.

WALL

Subject: Coast Guard Participation in Scientific Expeditions.
1. The ALEXANDER HAMILTON, one of the new 327-foot cutters,

is scheduled to sail from San Francisco in about two weeks in a scien-

tific expedition to the South Seas. This is a cooperative expedition
of the United States Government, the National Geographic Society and

the University of Virginia. The scientific investigations are to be
and Geodetic Survey

magnetic, geophysical and geographical. The Coast Guard Service is to

contribute one or more soientists, the Navy an oceanographer. The
Coast Guard would use some of its best navigation students for a part

of the observations. The expedition is expected to be gone for a year
cruising the South Pacific.
2. The Coast Guard arctic ship NORTHLAND is now at Boston Navy

Yard being refitted to take the Byrd Expedition to the Antarctic in
November. The NORTHLAND suffered considerable damage in a tropical

storm enroute from the Pacific Coast. The Antarotic Expedition would
consume at least six months' time and the services of a large Coast
Guard crew.

3. Waesche raises the point that we can ill-afford to spare either
of these ships and the personnel for such long cruises at this time. In
view of the demands that are being made on the Coast Guard, notably for

North Atlantic patrol work and the necessity for additional Coast Guard
personnel in merchant marine inspection work, I agree with him that both
these expeditions should be cancelled if possible.

Secretary Morgenthau

329

-2-

9-5-39

Since the President has been personally interested in both
expeditions, I assume you may wish to speak directly to him if you
agree with Waesche and me.

No

330
PLAIN

BJS

London

Dated SEptEmbEr 5, 1939

Rec'd 1:40 p. m.

Secretary of State,
Washington

1458 September 5, 7 p. m.
FOR TREASURY FROM BUTTERWORTH

The banks opened today. There was no unusual with-

drawals of balances and the main activity was confined to

acquiring foreign exchange from British residents for the
account of the British Treasury. As reported yesterday, the
pound was quoted 4.02-6. and gold was purchased at 168s.

An unofficial stock market developed in the street today.
The turnover was small and dealings WERE on a cash basis.

The crowd, however, became sufficiently large so that the Air
Raids Precautions Department eventually put a stop to the
practice and arrangements are now being made to carry on

inter-office dealings for cash by telephone. The committee
of stock Exchange announce that the Exchange will PEOPEN on
Thursday September 7th.
KENNEDY

ALC

331
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate General, Buenos Aires,
Argentina
DATE:

September 5, 1939, 5 p.m.

NO.:

(unnumbered)

We have received information from unofficial (but

well-informed) sources to the effect that they believe there
is a tendency to dissociate the peso from the pound, and
instead to assumed a fixed relationship to the dollar, in
view of the continuance for several days of the official
buying rate in the case of Argentine exports at 3.5715 pesos

to the dollar - this quotation is now substantially above
the fixed rate of fifteen pesos to the pound - and in view of
the cessation today of purchase of sterling. The free market
rate for the dollar 18 fluctuating around 4.35 buying, and

4.38 selling for actual transactions. The official selling
rate for dollars is now 4.0477 (lower rate) and 4.7620 (higher
rate).
DAVIS.

EA:EMV

COPY

332

PARIS

Dated September 5, 1939

Rec'd 10 a.m.

Secretary of State
Washington

1784, September 5, 1 p.m. (SECTION ONE).
FOR THE TREASURY.

We took Mr. Pearson, President of the Export-Import

Bank, to call on Rueff this morning. The latter seemed
quite pleased with the performance of the Bourse yesterday

as well as that of the foreign exchange market. He said that
he had been a strong advocate of keeping the Bourse open

and of convincing people that there would be no moratorium

in contrast to the situation which developed in 1914; he
felt that yesterday's performance of the Bourse and the

return flow of deposits had fully vindicated his judgment.
(END SECTION ONE).

BULLITT.

333
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1784 OF
SEPTEMBER 5, 1939, FROM THE AMERICAN EMBASSY, PARIS.

Rueff told Mr. Pearson that of course France would
have to make very heavy purchases of war materials in the
United States and that he would probably want some

definite information as to the possibilities of securing
long term credits in the relatively near future. In this
connection he made reference to the statement recently

attributed to Mr. Jesse Jones (reference, telegram No.
1727 of September 2 from the Embassy). Rueff was told by

Mr. Pearson that for the time being the loan facilities
of the Export-Import Bank are being utilized fairly close
to the legal limit. However, he said that of course they
are constantly getting in repayments. Rueff asked whether
there was any definite policy about not extending credits
for exports of armaments or munitions, including airplanes;

Mr. Pearson replied that it had been a definite policy
not to do so, but that for credits for raw commodities
and/or machinery, there were no (repeat no) restrictions.
BULLITT.

EA:LWW

334
PARAPHRASE OF SECTION THREE OF TELEGRAM NO. 1784
OF SEPTEMBER 5, 1939, FROM THE AMERICAN EMBASSY, PARIS.

Rueff indicated to us in conclusion that he would
be glad to be given any information as to the Bank's

future policies and/or facilities - as well as of the
R.F.C. itself.
The Bank of France this morning quotes an official

buying rate for the pound of 175.00 and for the dollar of

41.75. No sterling dollar rate is quoted. Private banks
are cautiously quoting the dollar at 40 and the pound at
174; very little exchange business is being done. The
Bourse here will open this afternoon as usual.
END MESSAGE.

BULLITT.

EA:LWW

335
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: September 5, 1939, 5 p.m.

NO.: 1794
FOR THE TREASURY.

Trading was again very light on the exchange market
this afternoon. The dollar was quoted at 4330 and the

pound at 175. The belga was quoted at 7.45, the florin
at 23.05 and the Swiss franc at 9.68. The Bank of France
was an actual buyer of dollars at 43.10. The securities
market was naturally heavy again with electric power issues
being particularly affected. Turnover was, however, once
more very light and operations were conducted in complete
calm. Rentes were down for the most only fractions and the
four and one-half of 1937 actually improved slightly.

It is difficult to estimate how much if any official
support is being given to government issues.

It is our understanding that the partial move to the
Loire Valley of the Bank has been definitely decided upon,
and it is probable that sometime next week the move will
take place. (Reference: No. 1780 of September 4 from the
Embassy )

EA:LWW

BULLITT.

336
PLAIN

MJD

Berlin
Dated September 5, 1939.

Rec'd. 10:14 P. m.

Secretary of State,
Washington.

1079, September 5, 3 p. m. (SECTION ONE).
The new Reich DEfEnSE Council has issued a comprehensive "war Economy decree" dated September four

regulating basis phases of Economic activity in Germany

of which following is a summary:
One. The destruction or hoarding of materials
goods and money is prohibited under penalty of im-

prisonment, penal servitude or, in Extreme cases, of
death.

Two. The following new taxes are established:

(A) A war surtax of fifty per cent of the normal income
tax on incomes in EXCESS of twenty-four hundred marks

but this surtax not to EXCEED fifteen per cent of the
total income and the income tax plus surtax not to EX-

CEED sixty-five per cent of the total income. This tax
will be collected on a calendar year basis and is first
payable for the period September 4 to December 31, 1939.

(B) A surtax Equal to twenty per cent of the retail
price

337

MJD -2- No. 1079, September
5, 3 p. m. (SECTION ONE)
from Berlin

price on sales of beer and tobacco products but the
Finance Minister may accord Exemptions, abatements,

and refunds of this tax. (c) An increase of the tax
on spirits from 275 marks per hectoliter to 375 marks.
(D) A surtax of one mark per bottle on sparkling grape

wines and on other sparkling wines fifty pfennig per
bottle.
Three. Contributions to the central government by
the states and municipalities and other public corporations are provided for as follows: The states inclusive
of the city of Hamburg but not Austria or the Sudetenland for which special regulations will be issued to provide a war contribution equal to fiftEEn per cent of
their share of the revenue from the Reich income tax

corporation tax and turnover tax; the municipalities to
furnish monthly a war contribution of two point five
per cent of the proceeds of the tax on agricultural
and forest land, five per cent of the tax on real EState, SEVEN point five per cent of the trade tax on
capital and profits, and ten per cent of the basic rate
of the residence tax. Other public corporations also
to make war contributions in accordance with regulations

later to bE issued.

Four.

338

MJD -3- No. 1079, September 5, 3 p. m. (SECTION ONE)
from Berlin

Four. Increase of municipal property and residence
taxes is prohibited.

Five. The following conditions as regards labor
and wages are established: The Reich trustee and special
trustee for labor will adapt wages, salaries, and conditions of labor to the exigencies of war and fix
maximum wage scales. Extra pay for overtime Sunday,

holiday, and night work are abolished; this provision
also to apply to the remuneration and other terms of
cottage labor. Regulations and agreements regarding
vacations are temporarily suspended. The Reich Labor
Minister is empowered to authorize EXCEPTIONS to wage

rates and hours of labor as well as to existing legisla-

tion for the protection of labor.
KIRK
NPL

339

PLAIN

EG

Berlin
Dated September 5, 1939

Rec'd 10:31 p.m.

Secretary of State,
Washington.

1079, September 5, 3 p.m. (SECTION TWO).

Promises or payment of wages or salaries or the
acceptance of such promises or payment of wages and

salaries in violation of the foregoing provisions to
be punished by a disciplinary fine the amount of which

is left to the discretion of the Reich trustee or special
trustee for labor. Similar penalties will be visited on
anyone demanding or granting more favorable other condi-

tions of labor than provided for above. In Extreme cases
the guilty party may to sentenced to imprisonment or penal
servitude.

Six, reductions in all prices and payments for goods
and services are provided for to correspond with the

savings in labor costs resulting from the abolition of
Extra wage payments and vacations. Expenditures for the

social welfare of the labor force not absolutely required
by laws, decrees, or wage scales only to be included in
computing prices insofar as they are customary in the

concern or industry and do not violate the principles
of
Economical

340

-2- #1079, SEPTEMBER 5, 3 p.m. (SECTION TWO) from Berlin

Economical management. Prices shall also be decreased

if based on the calculation of costs of factories which
WERE able to maintain production only because of these

fixed prices or because of the over-burdening of their
industry and concerns which by reason of special legal
or actual conditions or through their Economic importance
are not subjected to aufficient competition must also
lower prices. All price reductions must have the previous consent of the Reich Price Commissioner and will

apply Equally to all members of the industrial associa-

tion. In general all sellers of goods or suppliers of
SERVICES must lower their prices to the extent that they

benefit from the chrapening of goods or services resulting
from the wage and price provisions of the decree. The
Reich Price Commissioner and his appointees are authorized,
however, to allow or decree exceptions to the foregoing
provisions.
Seven. Goods and SERVICES are not to be made more

EXPENSIVE by the USE of materials, methods, accessories,

or amenities not consistent with the principle of Economic
manufacture or performance.
Repeat to Treasury and Commerce.
(END OF MESSAGE)
KIRK
NPL

341
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro
DATE:

September 5, 1 p.m.

NO.:

301

The Bank of Brazil has been instructed by the Ministry

of Finance that, for the present, it is to make no important changes in the exchange régime. Other banks are

selling dollars at milreis 20.100, whereas the Bank of

Brazil is selling dollars at milreis 19.980 for collections, and quotas.
Reduction to ten thousand dollars has occurred in

the authorized "bought" position of banks. This morning all the banks reopened.
I have been informed by the director of exchange
that the government has decided that the plan to license
imports should be postponed. The Director of Exchange

has been reminded of the provisions of article 2 of the
reciprocal trade agreement between the United States
and Brazil.
Purchases by German interests which are being held

in Brazil for account of German buyers include, accord-

ing to definite statements of the Director, about
2,000,000 compensation marks worth of cotton, four hundred
thousand compensation marks worth of coffee and sizeable

quantities of 00008 and meats.
DAFFERY

EA:MBG

342
REB
GRAY

Berlin
Dated September 5, 1939

Rec'd 5:22 p. m.

Secretary of State,
Washington.

1078, September 5, 2 p. m.

Possible preliminary to a withdrawal of silver and
perhaps EVEN baser metal coinage from circulation, the
Government today announced the introduction of rentenmark notes of one and two marks denominations and the

reintroduction of 5 mark rentenmark notes.
Repeat to Treasury.
KIRK
NPL

TREASURY DEPARTMENT

343

INTER OFFICE COMMUNICATION

DATE September 6, 1939
TO

FROM

The Secretary
Mr. Bryan

Early in May in the year 1917, Secretary McAdoo sent

for me and in our talk I heard for the first time the words

"Liberty Loan". He had sent for me because at the time I
was publishing a number of magazines of considerable
circulation and had had some experience in the creation and

distribution of distinctive literature. He accepted my
offer to compile and, from listings in my possession, to
distribute the first Liberty Bond literature -- of such were
the small beginnings of the great Liberty Loan Campaign.

In the five loans which followed during the next two

years $23, 972, 111, 400 was subscribed, and $21, 477, 335, 850

of this amount was accepted by the Treasury Department.

There were 66,289,900 individual subscribers. The bulk of
Liberty Bond subscriptions came from the patriotic everyday
citizen--the small investors who today are buying United
States Savings Bonds.

Should the need arise, we are in a position vastly

superior to that in which Mr. McAdoo found himself when I
talked with him on that spring morning 22 years ago.
Secretary Morgenthau, in his Division of Savings Bonds, has
already set up and in working condition, the machinery, the
listings and the trained personnel to initiate and consummate
most any campaign which he might command.

Through the Division of Savings Bonds, and'at the rate
of approximately 500,000 each 24 hours, the Secretary could

reach with literature and personalized and individually
signed letters Every person who makes an income tax return.
Every postmaster.
Every bank president.
Approximately 2,000,000 owners of United States

Savings Bonds, in every walk of life and

residing in every section and part of this
country.

2-

344

New listings could be plated at the rate of 100,000 each
day.

United States Savings Bonds do not sell themselves,
any more than did Liberty Bonds despite the war fervor.
It took the most intensive campaign ever known to move
Liberty Bonds, but if the demand came again, the Secretary,
through the work already accomplished for Savings Bonds,

could dispense with much of this mighty effort.

More than 5,000,000 individual subscriptions to Savings

Bonds have been made. Approximately 2,000,000 people own

Savings Bonds. These investors could be mobilized over-

night and, if properly directed, would form the world's
greatest selling organization. They could be counted on to
do yeoman service in putting over any loan that the Secretary
might demand.

Through the Division of Savings Bonds, the Secretary

may, at any time, write a personal letter to the American
public.

gua

345

GRAY
NC

PARIS

Dated September 6, 1939
Rec'd 10:37 a.m.

Secretary of State
Washington

1801, September 6, 1 p.m.
FOR THE TREASURY.

The Bank of France this morning has quoted a buy-

ing rate for pounds of 175 and dollars at 43.10. No
dollar pound cross rate is quoted. American banks are
quoting 174 and 41.50 for the same currencies respectively.

Practically no business is being done this morning as
may bE illustrated by the fact that during the mornings

air raid alarm there were only five clients in the
National City Bank in addition to the bank Employees

at the time of descent to the shelter. The Guaranty
Trust had a similar number.
American banks in Paris this morning received

formal notice that all mail will be censored in the future
and were requested not to seal their correspondence.
They were also requested not to undertake to transmit

letters for their clients.
PEG

BULLITT

346

September 6, 1939.

Admiral Waesche, Coast Guard
Mr. Gaston

Confirming my telephone message of 12:25 today you are

instructed to cancel the projected South Sea scientific cruise of
the Cutter ALEXANDER HAMILTON and to assign the ship to regular

duty. You are to inform the cooperating institutions and I will
notify Assistant Secretary of State Messersmith.

CC to Secretary Morgenthau

yes

7

I

Mrs Klotz
memo furnished

Dr Burgus
and m Barlie
I

Deorg

8

September 6, 1939
MEMORANDUM ON TREASURY FINANCING OPERATIONS

FOR THE PERIOD SEPTEMBER 1 TO DECEMBER 31. 1939

Treasury Requirements

In our cash position estimates, the Treasury contemplated
selling on September 15. $500,000,000 of new securities for cash
and refunding $526,000,000 of Treasury notes maturing on December 15.
This would have given the Treasury ample cash balances to carry it
through to March 15th without any further financing for new cash
and would have left December 15 open for refunding of $1,376,000,000
of Treasury notes maturing March 15.
The Secretary has decided to abandon the plans for any
financing on September 15, but has not committed himself beyond

that date so that if market conditions permit, the Treasury might

still be able to carry through its original program by financing

for new cash in the amount of $500,000,000 and refunding the Treasury
notes amounting to $526,000,000 maturing December 15 some time in
October or November.

These operations do not include Treasury Bill financing which
involves an issue of $100,000,000 in ninety-day bills each week for
cash with which to meet a maturing issue of that amount. There are
outstanding $1,300,000,000 of Treasury bills.
Corporate Financing Included in Treasury
Cash Position Estimates

As a part of this program it was contemplated that the
Treasury would sell during the month of October for account of the
U. S. Housing Authority $100,000,000 of its guaranteed obligations
to provide it with funds to meet its commitments for a period of
about four months. Also it contemplated selling for account of
either the Reconstruction Finance Corporation or the Commodity Credit
Corporation, or both, $300,000,000 of their guaranteed obligations
during the month of November, and in addition refund $206,000,000
2.
of the Commodity Credit Corporation's notes maturing November

Missellaneous There are other miscellaneous items in small
amounts included in this cash position estimate representing maturing obligations which will be paid off out of Treasury balances.

.49

-2These include $11,000,000 of Treasury notes maturing September 15.
$100,000,000 of Federal Farm Mortgage Corporation obligations maturing September 1, and $10,000,000 of that Corporation's obligations
maturing November 1.

Balances

If the Treasury's plans had been carried out as originally

contemplated we would have had on December 1 a cash balance of

approximately $1,600,000,000, but if there is no financing at all
between now and December 1 and the $206,000,000 of naturing Commodity

Credit Corporation notes are paid off from Treasury funds, then our

balance on December 1 will be approximately $500,000,000. This balance
would be further reduced by any purchases made in this declining market
for account of Government investment accounts. To date we have purchased about $27,000,000. including Home Owners' Loan Corporation bonds.

Other Financiag which was not Included
in our Cash Position Estimate

Federal Intermediate Credit Banks: Mr. Snow of the Farm
Credit Administration advises me that they would like to raise new
cash for the Federal Intermediate Credit Banks of approximately
$10,000,000 a month for the next three months in addition to their
refunding operations. This would make a total financing on September
15 of $41,000,600; on October 15 of $40,000,000; on November 1 of
$39,000,000; and on December 1 of $27,000,000. The last figure

represents the saturity on that date. The refunding of $21,000,000

saturing September 15 and the raising of an additional $10,000,000

in cash will be the first test of this market.

Other Farm Credit Financing: There are a number of interagency transactions which involve either cash payments out of the
Treasury or the sale of investments by these agencies to other agencies
in order that cash may be made available to some to meet their opera-

tions. If the present market condition prevails throughout this
period, these situations can be net without in any way affecting
the market. These transactions involve the Federal Farm Mortgage
Corporation, the Production Credit Corporations, and the Banks for
Cooperatives.

Home Owners' Loan Corporation: The Home Owners' Loan Corpora-

tion pays out approximately $15,000,000 a month for administrative
expenses, investments in savings and loans shares. and taxes, repairs,

350

-3etc., and will pay out on November 1 $12,000,000 in interest on
its outstanding obligations and on December 1 about $6,000,000,
but this organisation is getting each month in receipts approximately
$17,000,000 in principal repayments and approximately $11,000,000

in interest, rentals, etc., so that it has a total monthly income of

$28,000,000 against a monthly expenditure of approximately $15,000,000

together with the periodic payments of interest. IS has, therefore,
more than sufficient funds to meet its accruing obligations.

Tennessee Valley Authority: The Tennessee Valley Authority
recently received an authorisation from Congress to issue guaranteed
obligations in the amount of about $61,000,000 to enable it to purchase certain properties in the Tennessee Valley. One of these
transactions was carried through on August 15. the funds for which
were made available by the Treasury through its purchase of an obligation of the Tennessee Valley Authority in the amount of $45,000,000.
We are committed to purchase an additional $16,000,000 of these

obligations, after which the Tennessee Valley Authority will deliver
to the Treasury definitive securities in such form and bearing such
rates of interest as the Secretary may approve, which obligations can,
at a preper time, be sold on the market and the Treasury reinbursed.

swB
DWB:NLE

351
NEW CASE AND REFUNDING OPERATIONS

SEPTEMBER

Treasury
New Cash

Refunding
RFC and 000
New Cash

N/A

OCTORER

DECEMBER

NOVEMBER

$ 500

-

-

526

-

-

-

-

$ 300

-

206

2/61,378

TOTAL

$ 500
1,904

300

-

206

Refunding

U.S. Housing Authority
You Cash

$ 100

-

100

-

-

Federal Intermediate
Credit Banks
New Cash

Refunding

10

10

10

21

30

29

30

-

27

1/ Financing operations, including refunding of notes naturing December
15th, contemplated for September 15th, has been positional.
2/ It was contemplated that these notes naturing March 15th would be
refunded on December 15th. If financing and refunding operations
originally contemplated for September 15th are carried out before
December 15th, the refunding operation of the March 15th notes can

still be carried through.

DWB
ACCOUNTS AND DEPOSITS

SEPTROLLER 6, 1939

107

Mrs. Klatz.
For the Suy's

files.

DWB
of

TREASURY DEPARTMENT

352

WASHINGTON

September 6, 1939

MEMORANDUM REGARDING THE GOVERNMENT BOND MARKET

11:30 a.m., SEPTEMBER 6. 1939

A telephone report from the Federal Reserve Bank of

New York showed that that bank had purchased in the first one
and one-half hours operation of the bond market this morning
a total of $47,000,000 of Government obligations, of which
$26,000,000 were purchased through the stock exchange and

$21,000,000 over the counter. The prices are down about 3/4

of a point from last night and the volume is a great deal heavier
than yesterday's.

Upon receipt of this report, Dr. Burgess and Mr. Bailie
talked over the telephone with Governor Harrison regarding the
situation. They came to the conclusion that Governor Harrison
should have more than the one-point leeway which the Board gave

him this morning and that possibly other measures should be taken

before the day is over. It was decided that they would talk to
Governor Eccles about the matter, but before doing so would lay

it before the Secretary for his approval.
They briefly discussed the situation with the Secretary
and told him they felt that they should be permitted to discuss

it with Governor Eccles and get, if possible, some more flexibility
of operation for Governor Harrison. The Secretary approved this
procedure.

swo

353

September 6, 1939
MEMORANDUM REGARDING THE GOVERNMENT BOND MARKET

SUPPLEMENTING MR. BELL'S MEMORANDUM

Mr. Bailie and I discussed this question with Chairman
Eccles, who said he would report it to his Executive Committee.
Later on, we were told that the Committee had agreed to give
the New York bank another half point leeway in accordance with
our suggestion, though the extra authority was not used today.

wht

September 6, 1939
10:33 a.m.
HMJr:

354

How are you?

Sumner

Welles:

I'm all right. I'd hoped to have a chance to shake

you by the hand before now, but you've been busy
and SO have I and I haven't seen you.

Jr:

Well

Tell me, where 16 Mrs. Morgenthau?
She gets in Friday morning on the Bergensf. Jord.

Well, I'm glad of that.
Yes, and so will I be.
You certainly have had the hell of a trip.
(Laughs) It's been -- it was rough, but I wanted
to get back.

Oh, naturally.
Sumner, the reason I'm calling you, at Cabinet the
President said that you had an idea about forming
a Tripartite Agreement with the twenty-one Latin
American countries. Hello?
Yeah.

And if you'll tell me what time tomorrow, I'd like
to send Cotton and Bailie over to see you to see
what you had in mind.

I tell you, Henry, I'll be delighted to. I've been
working on that problem. It's just about formulated
now. I want to take it up with Mr. Hull this afternoon and I'll be all ready tomorrow morning.

Do you want to set a time?

HiJr:

You bet. Could you hold the wire just a minute?
Who is it you want to send over?
Mr. Cotton and Earl Bailie, who is with me now.

-2355
W:

Yeah.

HMJr:

It will be all right.

pause)
tomorrow (Brief
morning?

Is ten o'clock all right

Right. I'll be delighted to see them.
HMJr:

Thank you.

HMJr:

Well, I'll hope to see you soon.
Yeah. We'll have to.
Right.

HMJr:

All right.
Goodbye.

HMJr:

Goodbye.

September 6, 1939
11:15 a.m.
HMJr:

Hello.

Operator:

Delano. Go ahead.

HNJ:

Hello.

Preston
Delano:

Yes, Mr. Secretary.

HMJr:

Hello, Preston.

D:

Well now, we're all aboard.

HMJr:

Fine !

D:

356

One -- one thing I just want to ask - if I can do it
the other way. I'd like to do it some place other
than Salt Lake.

HMJr:

I see.

D:

It would become imperative that he should -- that he

do that because I'll just have to sit in there if I

do that, and I don't like that, you know.
HMJr:
D:

No, what could you do?

Well, I can bring him here to Washington and put

him in the insolvent division.

HMJr:

Insolvent?

D:

I'll put him in the insolvent division here.

HMJr:

Yeah.

D:

And, if necessary, I know that I can get Leo to help

HMJr:
D:

carry the load, you see?
Yes. Well, what could you pay him?
Well, I can pay him whatever you say he has to be
paid.

HMJr:
D:

I get you.

Now, I'd like to pay him less than five just because
of the morale of the organization.

-2HMJr:
D:

357

I see.

But I'll do -- we -- we'll make -- we'll make it
go anyway.

HMJr:

I sec. Well, what could -- what could be fairer?

D:

Well, I -- I picked this, Mr. Secretary. I -- I

understand the situation. I think this is one of
these things that we just ought to do.

HMJr:

D:

HMJr:

Well, it's a question of clearing the decks in order
to take care of all the ports of the United States.
Why of course, I understand the emergency and I
think this is just a case where we've got to be
good soldiers.

Righto. Well, I won't use him unless I have to,
because I've got a job in Washington where I can
place him on this -- we've got a Board of Appeals

on process taxes.
D:

HMJr:
D:

Well, you understand I could put him in Salt Lake
but what I'd have to do
Yeah.

I'd have to give him a research job and -- with no
office.

HMJr:

No, no.

D:

And I think that might look a little bit bad.

HMJr:

Bad, yes. I agree with you. Ever so much obliged.

D:

Right.

HMJr:

Thank you.

D:

Goodbye.

358

September 6, 1939
12:21 p.m.
Herbert
Gaston:

Yes.

HMJr:

I talked to the President about the ALEXANDER
HAMILTON going down on a South Seas expedition.

G:

HMJr:
G:

Yes.

Call it off.
All right.

104Jr:

And on the NORTHLAND

G:

Yes.

G:

he's inquired -- he's asked the Navy to find
out whether Byrd is -- is ready and if he's not
ready to postpone it for a year.
Uh-huh. That's fine.

HMJr:

But call off the ALEXANDER HAMILTON.

HMJr:

G:

Yes. I'm sending you in a little memorandum of the

message that came from the city of FLINT.
HMJr:
G:

Yes.

They have 216 people aboard; there were over 100 of

Americans; they have four doctors there; they have

several injurAed but no -- nobody in -- in an

extremely serious condition and the master thinks

it's best for them to put right into Halifax. He's

got enough oil and supplies to get him there, and
Waesche simply told the -- here -- the skippers of
the two cutters to keep in touch with the FLINT
and follow their own judgment but he -- he thinks
he'll have one or more of the cutters follow the FLINT
into Halifax and take the Americans there and bring
them to New York.

HMJr:

I thought one of the children had concussion.

G:

Yes, one of the children has a concussion.

HMJr:

Right.

-2359
G:

Yeah.

HMJr:

All right. Everything else all right?

G:

Everything's under control. I'm going to have a

meeting with the Commerce people at three o'clock.
We -- we saw the newspaper men this morning.
HMJ:

Yes.

G:

Having
a little labor trouble on the American ships
at New York.

HMJr:

O. K., Herbert.

G:

Right.

September
12:24 p.m. 6, 1939 360
HMJr:

Hello.

Operator:

Dr. Burgess. Go ahead.

HMJr:

Hello.

Randolph
Surgess:

Yes, Henry.

Jr:

How are things going, Randolph?

Well, we bought 81 million. They' e -- they've
dropped down another quarter. They're still a
quarter above their -- their margin. We told the
story to Marriner. They're having a session on it
shortly.

Jr:

I see.

I haven't heard their results yet.
I see.

The buying is a little letter, particularly in the
short issues.

HMJr:

Right.

There's some outside demand right up through ten

years.

Jr:

Yes.

Beyond that it's still a little heavy
Right.

and we're getting a good -- good deal of stuff.
Right.

But I think on the whole it begins to look better,
as though we're beginning to -- to find the market.
Mor:
B:

Right. Thank you.
The stock market is indeterminant, as you know.

-2361
HMJr:

Thank you.

B:

Yes.

September 6, 1939
12:30 p.m.
HMJr:

Hello.

Operator:

Admiral Waesche. Go ahead.

10/Jr:

Hello.

Admiral
Wassche:

Yes, Mr. Secretary.

HMJr:

Admiral, for your own confidential information,
the President's naval aide told me that he had a
discussion with the President this morning and
the President had it in mind to take a part of
the Coast Guard over on this detail. The naval
aide argued with him that if we just assigned
them and that they took orders from the division
commanding, it ought to work out all right.

362

Yeah.
HMJr:

The President is worried about refueling, and he

said they thought they could handle it. The naval
aide said you had cooperated splendidly and he
assured the President that if he did it this way
rather than taking over part of the Coast Guard,

it would work out all right.
I see.

And on the basis of that, the President is going

to do it this way, so it's up to you to give him

a hundred percent cooperation.

Yes, sir.
HMJr:

So that's that, and I told Gaston. I guess he'll
tell you in a few minutes. I got the ALEXANDER

HAMILTON released.

Yes, I just got word from Gaston. I was certainly
glad to hear that.
HMJr:

All right. So just keep it in mind and give the

Navy a hundred percent cooperation and they'11
leave you alone.

Very good, sir. All right. Thank you.
Goodbye.

83

September 6, 1939.

My dear Steve:

I thank you most sincerely for the expression
of pride in the record of this Department which was
contained in your letter of September 1, transmitting
your resignation. It is a record in which you may
well take pride, for you have played an essential part

in the making of it.

Although you told me some time ago of your

intention to leave about the end of this month, I
take formal note of your resignation with real regret.

No one could have rendered more loyal and faithful
service to his government in your post than you have

rendered. It has been a great source of satisfaction
to me to have in a position of such responsibility one
of your ability, your devotion to duty and your complete
integrity.
For the fine service you have rendered and for
the pleasure of association with you I am deeply grateful.

We shall all miss you, but shall wish for you the

greatest success and satisfaction in your new work.
Sincerely,

Honorable Stephen B. Gibbons

Assistant Secretary of the Treasury.

in

364

September 6, 1939.

My dear Stores

I thank you most sincerely for the expression
of pride in the record of this Department which was
contained in your letter of September 1, transmitting
your resignation. It is a record in which you may
well take pride, for you have played an essential part

in the making of it.

Although you told me some time age of your

intention to leave about the end of this month, I
take formal note of your resignation with real regret.

No one could have rendered more loyal and faithful
service to his government in your post than you have

rendered. It has been a great source of satisfaction
to me to have in a position of such responsibility one
of your ability, your devotion to duty and your complete

integrity.

For the fine service you have rendered and for
the pleasure of association with you I am deeply grateful.

To shall all miss you, but shall wish for you the

greatest success and satisfaction in your new work,
Sincerely,

Honorable Stephen B. Gibbons

Assistant Secretary of the Treasury.
HEGsew

85

September 6, 1939.

My dear Steves

I thank you most sincerely for the expression
of pride in the record of this Department which was
contained in your letter of September 1, transmitting
your resignation. It is a record in which you may
well take pride, for you have played an essential part

in the making of it.

Although you told me some time age of your

intention to leave about the end of this month, I
take formal note of your resignation with real regret.

No one could have rendered more loyal and faithful
service to his government in your post than you have

rendered. It has been a great source of satisfaction
to me to have in a position of such responsibility one
of your ability, your devotion to duty and your complete
integrity.
For the fine service you have rendered and for
the pleasure of association with you I am deeply grateful.
To shall all miss you, but shall will sh for you the
greatest success and satisfaction in your new work.
Sincerely,

Honorable Stephen B. Gibbons

Assistant Secretary of the Treasury.
HEG Sew

366

September 6, 1939

My dear Steve:

I thank you most sincerely for the expression
of pride in the record of this Department which was
contained in your letter of September 1, transmitting
your resignation. It is a record in which you may
well take pride, for you have played an essential part

in the making of it.

Although you told me some time ago of your

intention to leave about the end of this month, I
take formal note of your resignation with real regret.

No one could have rendered more loyal and faithful
service to his government in your post than you have

rendered. It has been a great source of satisfaction
to me to have in a position of such responsibility one
of your ability, your devotion to duty and your complete
integrity.

For the fine service you have rendered and for
the pleasure of association with you I am deeply grateful.
We shall all miss you, but shall wish for you the
greatest success and satisfaction in your new work.
Sincerely,
(Signed) U. Morgorthea, Jr.

Honorable Stephen B. Gibbons

Assistant Secretary of the Treasury.
HEG:ew

TREASURY DEPARTMENT

67

Washington, September 1st, 1939.
ASSISTANT SECRETARY

My dear Mr. Secretary:

I am submitting herewith my resignation as one of
your Assistants, effective September 30th, 1939 if that date
is agreeable to you.

As I explained to you, I regret I cannot see my
way clear, longer to continue in Government service, as I
have not only enjoyed my work tremenduously but I shall
always regard my association with you as one of the high
spots of my career.
Your ability to immediately grasp details; your
capacity for work; your open-minded consideration of any
constructive suggestion and your fearlessness in making
decisions on public questions which have frequently required more than ordinary courage, are but a few of your

many worthwhile endowments.

The improvements you have effected in the
Coast Guard alone, would in themselves be an accomplish-

ment of a lifetime, not to mention many others, some of
which I am familiar with. The coordination of the Investigative Units of the Department, which has resulted
in increased efficiency, required considerable courage
in my opinion as it represented a major departmental
adjustment. You displayed even more courage when you
determined to consumate an improvement which, in my

opinion, only lack of moral courage had delayed for at

least fifteen years. I refer to the decentralization

effected in the Internal Revenue Bureau which will result in a great saving of time and expense to the taxpaying public.

If I have been of any slight assistance in
relieving your burdensome task during the past six years,
I feel fully compensated and I trust you will command me,

if at any time I may be of service.

With assurances of my high regard and best wishes for
a continued successful career, I remain,
Sincerely yours,
Hon. Henry Morgenthau,

Secretary of the Treasury,
Washington, D. C.

Stephen Blychome

ASSISTANT SECRETARY OF THE TREASURY

368

September 4th, 1939.

Dear Mr. Secretary:

There is attached to the letter of
resignation herewith, a copy of letter addressed

to the President, which I didn't want to deliver

unless the time and other elements meet with

your approval. What I would like to do is take
leave for part of the month as I am all set to
start on my new job mot later than October 1st.
Will you please let me know?

Steve

C9

September 1st, 1939.

My dear Mr. President:

As I advised you last April that I would be obliged in the

very near future to relinquish my appointment as an Assistant Secretary

of the Treasury and return to private life, I am submitting my resignation,
effective at the close of business September 30th, 1939.

I wish it were possible for no to continue in my humble capacity
as one of Secretary Morgenthau's assistants, but as I have explained to

you and him, after six years of continuous service, I find necessity
far outweighing my desires in the matter.
Having had considerable experience in the business world,

I believe I am qualified to vouch for the efficient organization and
excellent businesslike administration I found on entering the Treasury

Department. But I have witnessed many improvements, most of which
have been due to the keen discerment of Secretary Morgenthum and his
ready compliance with any name constructive suggestion. And one of

his admirable traits has been his ready response to any request effecting any improvement in the condition of the Department's personnel.
If I have been able, in my humble capacity, to add one iota
to the efficiency of this great Department of our government or have

been of the slightest help in - fulfilling - any of the ideals of

your leitislative program for the betterment of our fellow man, I am
truly grateful for the opportunity, and the honor you have conferred
on mo.

With assurance of my high regard and best wishes, and trusting
you will command me if at any time I can be of service, I remain,

Faithfully yours,

Sept-13.

noted

word

BK 209
TREASURY DEPARTMENT

370

PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

September 6, 1939.

MEMORANDUM FOR THE SECRETARY

In compliance with your instructions of this morning with
reference to critical materials, there are attached hereto three
memoranda pertaining to quinine, tin and quartz crystals.

In addition to these items, the other critical materials
in which the Army and Navy are interested are manila hemp, chromium, tungsten, optical glass and manganese.
Public No. 361 passed by the last session of Congress ap-

propriated $10,000,000 for the purchase of critical materials which
are being acquired in accordance with the directions of the Army
and Navy Munitions Board.

This amount also includes cost of establishing storage
facilities which will be located on Army and Navy reservations, as
well as freight and cost of maintenance of stock piles.

Director of Procurement.

June

371
QUININE

SOURCE OF SUPPLY

The Netherlands East Indies produce between 95 and 97 per

cent of the cinchona (quinine) bark entering into world trade. Shipments from this center of production are customarily marketed to
Continental Europe and the United States through the Netherlands.
CONTROL

The production of quinine is controlled by private enterprise regulated by the Netherlands Government. This control takes
the form of regulating both the amount of trees on the plantations
and the tonnage and quinine contents of cinchona bark harvested, as
well as quotas of bark released for world consumption. The United
States is required to include certain amounts of quinine sulphate

with all importations of cinchona bark.
USES

Quinine is essential as a specific in the treatment of malaria,

and no substitute has been found which is acceptable to the medical
profession for this purpose.

Four hundred thousand dollars ($400,000) has been allocated

for the purchase of quinine, which is to be stored at St. Louis Medical Depot, St. Louis, Missouri.
The State Department has dispatched a cablegram to the American

Minister at the Hague, requesting that he discuss with the appropriate

officials of the Netherlands Government whether the Quinine Syndicate
can be persuaded to make a special release of cinchona bark to American
quinine manufacturers (Merck and Company and the New York Drug Company)

for conversion into quinine sulphate in such amounts as the American

-2 -

372

Government may wish to secure as a strategic reserve and also to
discuss the possibility of the Dutch Syndicate making a special price
for furnishing quinine sulphate direct to the American Government for
stock pile purposes. To-date no information is available as to the
outcome of these negotiations. Specifications for quinine sulphate
have been approved by the Army and Navy Munitions Board and proposals

for purchase will be released as soon as satisfactory arrangements
can be made.

373
TIN

SOURCES OF SUPPLY

The three principal tin producing countries of the world are
Malaya, Bolivia, and Netherland East Indies. The Straits Settlements
and Great Britain, respectively, lead the world in smelter production.
Although tin has been found in the United States in a number of places,
most of the occurrences are of no economic value.
CONTROL

In 1931, the Governments of British Malaya, Bolivia, Netherland India, and Nigeria agreed to a production-curtailment plan. Later
in 1931 Siam joined the plan. An organization called the International
Tin Committee, with headquarters at the Hague, was set up to carry out
the plans of production curtailment. The Committee assigned export
quotas to each of the participating countries, which quotas were to be
translated into production control.
At the expiration of the original plan a new agreement was ac-

cepted to run for three years from January 1, 1934. In July, 1934, it

was announced that Belgian Congo, Indo-China, the United Kingdom, and

Portugal had joined the output restriction scheme.
At the expiration of this agreement in January, 1937, the third
International Production Control agreement was signed in Brussels. Late
in 1937 the signatory countries created a "buffer pool" by contributing
7.5% of their standard tonnages which were to be forfeited and redistributed proportionately among the other signatories if any one failed

to produce its quota. The pool will remain operative until January 1,
1942, or until the end of the third restriction agreement.
USES

Tin is essential in the manufacture of solder, bronze and bearing metals.

For the purchase of tin, $4,500,000 has been allocated. Such
tin as is procured will be stored at the Columbus General Depot, Columbus, Ohio.

-2Inasmuch as the quantity of tin allowed the United States is
considered totally insufficient to meet its needs, a cablegram has

been sent by the State Department to the Ambassador at London for the
purpose of ascertaining whether a special quota of tin might be had

from the International Tin Committee for the purpose of creating a
stock pile in this country. Pending the receipt of information from
the State Department, it is planned not to issue any invitations for

the purchase of tin. It is understood there is practically no tin
available in the United States.

374

QUARTZ CRYSTALS

375

SOURCES OF SUPPLY

The only commercial sources of supply of the crude quartz
crystals are in the states of Minas Geraes and Goyaz in the interior
of Brazil. Sorted crystals ready for export probably may be had at
the Brazilian ports of Santos and Rio de Janerio.
CONTROL

The Brazilian mines are either owned by the miners, leased

from individuals, or from the state. The only controlling factors
in the production are the relative small percentage of this production which is suitable for radio and optical work, and the export

taxes imposed by the states upon minerals. No quotas for production
or consumption have been set by the government or producers. The Bra-

zilian export statistics, however, show the United States to be the
chief consumers followed closely by Germany and Japan.
USES

Quartz crystals are used in radio and transmitter receivers,
depth sounding apparatus, range finding instruments, precision instruments, in the manufacture of special lenses and prisms and the manu-

facture of jewelry.

In the distribution of the $10,000,000 appropriation by Congress, $100,000 has been allocated for the purchase of quartz crystals,

which will be stored, when procured, at the New Cumberland General Depot, New Cumberland, Pennsylvania, and the Washington Navy Yard, Wash-

ington, D. C.

Until recently quartz crystals were quoted at $6.00 per pound.
It is understood that England has gone in the market for all quartz
crystals available, as a result of which the price has advanced to
$12.00 a pound.

376

SEP 6 1939

My dear Mr. President:

I received your letter of August 31. 1939, and
shall be gind to continue to serve as a member of
the Committee ea Beononic Security.

Faithfully yours,

(Signed) H. Morgenthau, Jr.

The President,
The White House.

-

File to Mr. Thompson

Byhana

377

SEP 6 1939

My dear Mr. Presidents

I received your letter of August 31, 1939, and
shall be glad to continue to serve as a member of
the Committee on Economic Security.

Faithfully yours,

(Signed) H. Morgenthau, Jr.

The President.
The White House.

-

File to Mr. Thompson

By hand

78

September 6, 1939.
REGULATION CONCERNING CREDITS TO BELLIGHANTS

Section 3 of the joint resolution of Congress approved
May 1, 1937, reads in part as followes
*Sec. 3. (a) thomaver the President shall have
issued a proelanation under the authority of section

1 of this Act, it shall thereafter be unlawful for any

person within the United Status to purchase, sell, or
exchange bonds, securities, or other obligations of the

government or any

tion,
or
of
any
state,
or
of
or
on
governmont such or any or assorted
sheroin

wherein of

government within such state strife
exists,
of setingany
or on
any
factionor
asserted
state
such or to make any or any
credit to any such government, political subdivision,
of proclauation, any or any civil civil person of any any strife any strife political state, acting bolligerent person say government exists, exists, for subdivision of nased issued state within for sherein behalf loan faction in after of such of of civil behalf extend such the procleas the such state date of

faction, asserted government, or person, or to solicit
or receive any contribution for any such government,
political subdivision, faction, asserted government, or
persons Provided. That if the President shall find that
such action will SERVO to protect the commercial or other

interests of the United States or its citisons, he may, in
his diservica, and to such extent and under such regula-

tions as be any preseribe, except from the operation of
this section ordinary commercial credits and short-time
obligations in aid of legal transactions and of E character
customerily used in normal peacetime commercial transactions. Nothing in this subsection shall be construed be to
prohibit the solicitation or collection of funds and to
used for medical aid and assistance, or for food
clothing to relieve human suffering, when such solicitation by
collection of funds is made on behalf of and for use on

or person or organization which is not neting for or
any of any such government, political subdivision,

behalf or asserted government, but all such solicitations approval
and faction, collections of funds shall be subject to the rules and

of the President and shall be made under such

regulations as he shall prescribe.
The provisions of this section shall not apply
reneral *(b) or adjustment of such indebtadness as may exist

on to a the date of the President's procleation.
Whoever shall violate the provisions of this upon
*(e) of any regulations issued harsunder shall, or
section or thereof, be fined not more then or $50,000 both.
imprisoned conviction for not more then five years,

Should

379

-2Should the violation be by a corporation,
organization, or association, each officer or agent
thereof participating in the violation may be liable
to the penalty herein prescribed."

I hereby find that it will serve to protect the
consercial and other interests of the United States and its
citizens to except from the operation of Section 3 of the
joint resolution of Congress approved May 1, 1937, as made
applicable to Germany and France, Poland, and the United
Kingdom, India, Australia and New Zealand by the Proclamation
of the President of September 5, 1939 issued under the

authority of Section 1 of such joint resolution, ordinary
commercial credits and short-time obligations in aid of legal
transactions and of a character customerily used in normal
pencetimo conservial transactions; and they are therefore
hereby excepted.

I hereby authorise the Secretary of the Treasury to

administer the provisions of this regulation and to promilgate
such rules and regulations not inconsistent with law as may
be necessary and proper to carry out such provisions.

This regulation shall continue in full force and effect
unless and until modified, revoked, or otherwise terminated,
pursuant to law.
(Signed/ Franklin D. Roosevelt

THE WHITE HOUSE,

September 6, 1939.

BK 209
TREASURY DEPARTMENT

380

INTER OFFICE COMMUNICATION

DATE September 6, 1939.
TO

secretary Morgenthau

FROM

Mr. Gaston

was

After leaving your office this morning I discussed with Waesche

preparedness both in view of the existing situation and in view of

situations which might later arise. He is working along both lines.
He can supply enough commissioned officers to take care of the

enlarged personnel now in contemplation for the present situation,

but if circumstances later require a much larger expansion of the
Coast Guard force, he would have to adopt emergency measures to

increase the number of commissioned officers. This expansion could
be accomplished in three ways:
1. By increasing the output of the Coast Guard Academy
through

(a) increased enrollments;
(b) more rapid promotion and earlier graduation.

2. Procuring graduates of first-class engineering schools
who could be given brief, intensive courses at the
Academy and on the ships.

The present enrollment of first year men at the Academy is
88. From among the applicants who have passed the physical examina-

tions we could probably select as many as twenty who could still be

entered in the new class within the next two weeks. I think it would

-2-

381

be wise to instruct the Superintendent of the Academy to take on

all the unsuccessful applicants up to forty who, in his opinion,
are good officer material. With your consent, I should like to
tell Waesche to have this done.

I also instructed Waesche to work up a detailed plan for

increasing the output of trained officers.
He believes the warrant officer situation is not a problem
as he has plenty of material aboard the ships. I asked him about

the number of aged officers not in first-class condition for active
work. He said they were few and that headquarters and shore work
could be found for them in positions where they would be useful and
would not gum up the works.
Newspaper and newsreel men asked for permission to go out

on the CAMPBELL. We refused it.

382

September 6, 1939.

secretary Morgenthau
Mr. Gaston

After leaving your office this morning I discussed with Waesche

preparedness both in view of the existing situation and in view of

situations which might later arise. He is working along both lines.
He can supply enough commissioned officers to take care of the

nelarged personnel now in contemplation for the present situation,

but if circumstances later require a much larger expansion of the
Coast Guard force, he would have to adopt emergency measures to

increase the number of commissioned officers. This expansion could
be accomplished in three ways
1. By increasing the output of the Coast Guard Academy
through

(a) increased enrollments)

(b) more rapid promotion and earlier graduation.

2. Procuring graduates of first-class engineering schools
who could be given brief, intensive courses at the
Academy and on the ships.

The present enrollment of first year men at the Academy is
88. From among the applicants who have passed the physical examina-

tions we could probably select as many as twenty who could still be

entered in the new class within the next two weeks. I think it would

.2.
be wise to instruct the Superintendent of the Academy to take on

all the unsuccessful applicants up to forty who, in his opinion,

are good officer material. with your consent, I should like to
tell Waesche to have this done.
I also instructed Taeache to work up a detailed plan for

increasing the output of trained officers.
He believes the warrant officer situation is not a problem
as he has plenty of material aboard the ships. I asked him about

the number of aged officers not in first-class condition for active
work. He said they were few and that headquarters and shore work
could be found for them in positions where they would be useful and
would not gum up the works.
Newspaper and nevereal mon asked for permission to go out
on the CAMPBELL. The refused it.

383

384
RE DUTIES OF CUSTOMS BUREAU AND COAST
GUARD UNDER NEUTRALITY PROCLAMATIONS

Present:

September 6, 1939.
8:30 a.m.

Mr. Hanes

Mr. Gaston

Mr. Foley
Mr. Cairns

Mr. Johnson

Mr. Waesche

Mr. Duffield

H.M.Jr:

Now, I read this thing, and would it be Customs why not do it this way? Can you tell me verbally
what are you doing, beginning with today, in
the ports in regard to foreign vessels? What's
the thing that you do? And Waesche can tell me
what he does. These two teachers will look to
you.

Johnson:

As the vessel arrives, the Collector of Customs

will send his representatives on board, if it is
claimed to be a merchant vessel, to determine

whether or not it is armed for offensive purposes
to work for any of the belligerents. If that is
determined in the affirmative, the boat will be

turned over immediately to naval officers. If it

is determined in the negative, they will proceed
with the regular Customs treatment of the boat.
Secondly, as the boat goes out, the boat and its

cargo will be examined to determine whether there

are any violations of the neutrality, either in
the operation of the boat itself or aid to the

military purposes of belligerents or whether the
cargo contains munitions in violation of the
Neutrality Act.
(Hanes comes in)
H.M.Jr:

Hello, John.

Hanes:

Good morning.

H.M.Jr:

How are you?

I'm just going to school.
Johnson, do you mind starting once more? I was
just asking him to see what he's doing as of today.
Start in once more.

385

-2Johnson:

As a boat claimed to be a merchant vessel comes

in, the Collector of Customs will send his representative on board to determine whether or not

it is armed for offensive purposes. If that is
determined in the affirmative, the boat will be
turned over to the Navy. If it is determined in
the negative, we will proceed with our regular

Customs and Commerce treatment of the boat.

As the boats go out, they will again be inspected
to determine whether they are to be used for any
military purpose for belligerents, and the cargo
will be inspected to determine whether there is
any violation of the arms embargo.
Johnson:

Now, is it as simple as that?
That's rather complex in detail.

H.M.Jr:

Yes, but

Johnson:

But in broad outline it is as simple as that.

H.M.Jr:

Do you fellows agree?

Cairns:

Well, you're going to take up the passports, you're
going to look at the passenger list, details of that

H.M.Jr:

sort.

Johnson:

For the State Department we are taking up passports
issued by the United States which have not been

validated since September 4th of this year.

Foley:

That's the letter you signed last night.

H.M.Jr:
Johnson:

Now, how much of this has been given out to the public what you're telling me?
We've released nothing to the public ourselves.

H.M.Jr:

Why don't you

Gaston:

of course, it'3 all in the President's proclamation.
The first proclamation of yesterday describes what
our function is. The President's two proclamations.

386

-3Cairns:

Did Duffield give out the Customs telegram last

night?

Gaston:

On the passports?

Cairns:

No, to enforce the Neutrality Act - the summary
telegram that we sent the Collectors last night.

Caston:

I don't think so.

H.M.Jr:

(On phone) Send Duffield in, please.

Johnson:

Another incidental detail is that it will be up to
the Collectors of Customs to see that citizens of
the United States do not travel on vessels of the

belligerents in violation of the neutrality laws.
Hanes:

You mean they can't leave our ports on any foreign

Johnson:

On any vessel of a belligerent.

Hanes:

That's what I mean.

Johnson:

And they can come in for the next ninety days, if

Caston:

The question of whether armament is defensive or
offensive might in certain circumstances be rather

vessel.

the voyage has begun before that period.

a tricky question. We sent out a letter several

days ago giving them instructions on how to decide
whether armament is offensive or defensive. For
defensive purposes they can carry as many as four

guns up to a calibre of six inches. There are a

great many other circumstances to take into consideration to decide whether that armament is for

offense or defense. And that is in part a duty of

the Coast Guard in cooperation with the Collectors

of Customs, and the Coast Guard also has to go

aboard merchant ships and seal their radio - that

is, if their ships are belligerent - seal their
radio while in port.

H.M.Jr:

Now, what are you - are you (Johnson) through?

Johnson:

Yes, sir.

387
4-

H.M.Jr:

Now, what are your (Waesche) duties?

Waesche:

of course, we will assist the Collector of Customs
in carrying out all his duties, as that may be
necessary, as far as inspection of ships is con-

cerned. Specifically, in addition to that, when

Customs boards a merchant vessel of a belligerent,
a Coast Guard officer will go aboard with the
Customs people and will seal the radio and will be

in full charge of the radio while it is in port,

and the seal will not be broken except by permission

of a Coast Guard officer. We have made arrangements
with the Federal Communications Commission, or will
make arrangements, so that they can break the seal

with a Coast Guard officer present, to carry on
their routine duties with respect to radio. If
the vessel is a merchant vessel of a non-belligerent,
then it is up to the District Commander of Coast
Guard to determine from circumstances whether the
radio should or should not be sealed. And the seal
will not be broken until the vossel leaves the port,
and it will be up to the Coast Guard to see that
that is done.

In addition to that, the Coast Guard will be in an
advisory capacity to Collectors of Customs as to
whether an artiament is offensive or defensive.

Now, if it develops that munitions to any great
extent are loaded at port, then the duty will

devolve on Coast Guard of +supervising the loading

of those explosives and also the supervising of
the anchorages of the port. During the World War

we had over 1400 men in New York alone doing nothing

but acting as armed guards on vessels, looking at
explosives and supervising the anchorages. One
of the things that always appealed to me was that
nobody could wear nails in their shoes if the ship
had explosives. That would make a very large and
important duty of the Coast Guard if the situation
develops.

Caston:

Only in case of the repeal of the arms embargo of

H.M.Jr:

Now, in this thing that Foley gave me, he says

the Neutrality Act.

"The Executive Order assigns to the Treasury and

388

-5Commerce Departments, under such further division

of responsibility as the Secretary of the Treasury
and Secretary of Commerce may mutually agree upon,
responsibility for the enforcement of the Neutrality
Act."
Now, where does Commerce come in on this?

Johnson:

Unfortunately, the last reorganization order did
not transfer the functions of the Navigation Bureau

to Customs, Coast Guard and the Maritime Commission,

as was recommended. Therefore, our Collectors of

Customs act directly under the Department of Commerce

in entry and clearance of vessels.

H.M.Jr:

Well, again, as far as I know - has anybody from the
office of the Secretary of the Treasury consulted
with the Secretary of Commerce to see that this
thing would be smoothed?

Gaston:

Well, we've had three or four different conferences
with Colonel Johnson and some other people of the

Bureau of Navigation on particular points, not on
this - general duties under the proclamation.

Foley:

Johnson, Assistant Secretary of Commerce.

H.M.Jr:

Now, how about as of this morning? I mean so there
won't be any confusion.

Foley:

Well

Gaston:

I think it would be very desirable to have another

lanes:

As a practical matter, Herbert, they take their

Folcy:
Hanes:

Caston:

talk with Commerce and get straightened out. There's
really nothing that Commerce ought to do in this
situation.
orders from us.

generally from us.

Everything preliminary to clearance - the Collector
of Customs in his capacity as Collector of Customs

certifies to himself, as agent for the Department

of Commerce, that it is all right to clear this
boat; then he clears it.

389

-6H.M.Jr:
Hanes:

But I just - who's been contacting Commerce?
Johnson and Herbert.

H.M.Jr:

Then would you contact them this morning to make

Gaston:

Yes, yes.

H.M.Jr:

But there is a Bureau of Navigation which should be
transferred to Customs?

Waesche:

Bureau of Navigation and Steamboat Inspection.

Caston:

The whole thing ought to be split up; the three
different functions ought to go to Coast Guard,

sure everything is all right?

Customs, and the Maritime Commission.

Waesche:

You (H.M.Jr.) approved that.

H.M.Jr:

You can't do it with Congress not here?

Waesche:

No, sir.

H.M.Jr:

He has no war-time powers?

Hanes:

You could do it administratively, make it work a
lot smoother. The President - I think he could
issue an order - that is, off the record, he could

issue an order that Commerce Department take their

H.M.Jr:

instructions from this Department, and ease the
way of administration.
Well, Herbert, why don't you talk with the President's Administrative Assistant, Mr. McReynolds?

Gaston:

He's a tough man to talk to.

H.M.Jr:

What?

Gaston:

He's a tough man to talk to, but I'll try it.

Johnson:

He is not hard on this point.

H.M.Jr:

What?

Johnson:

He is not hard to talk to on this point. I think
he is very much in favor of it.

390

-7H.M.Jr:

Well, will you talk to Commerce?

Gaston:

Yes.

H.M.Jr:

H.M.Jr:

It sounds as though everything is all right.
It is. The functions of Commerce are just as
Mr. Gaston described them, to clear the vessel
when Customs says it is all right to clear it.
Well, just so everything clicks, will you talk

Gaston:

We'11 get Monroe Johnson over here today.

H.M.Jr:

And talk to him.

Johnson:

to....

Well, what else is there? I just wanted to make
sure.

Johnson:

Now, in general, Mr. Secretary, we will treat aircraft in the same manner as vessels. We don't
anticipate very many aircraft to deal with.

Hanes:

What does it mean that Canada is not included?
Does that mean we can ship to Canada?

Foley:

Until she declares war.

Johnson:

Except for transit purposes. For her own armament
purposes we can ship - for Canadian military and
naval forces.

Foley:

And if it becomes necessary to bar shipments, we
can do it by adding Canada's name to the neutrality
proclamation.

H.M.Jr:

On the orders - I've got here the deliveries on the
French - they've taken so far

Foley:

Airplanes.

H.M.Jr:

Gaston:

airplanes. And the English I haven't got. I've

got the French orders here. What's going to happen
to those orders?

Can't deliver another plane until the neutrality
embargo is lifted.

391

-8H.M.Jr:

Couldn't
they send the parts to Canada and send
them from Canada?

Johnson:

Parts of airplanes are in the same limitations.

H.M.Jr:

The
could.President kept saying consistently that they

Foley:

Well, he signed an order saying they couldn't

Hanes:

yesterday.

This says the Martin Company delivered 200 bombers;

Douglas hasn't delivered any.

(Foley explains to H.M.Jr. portion of proclamation
regarding parts)
H.M.Jr:

He's consistently told me, told Bullitt, told the
French - you (Hanes) must have heard him in the

various discussions - that they could do it.

Hanes:

That's right - at the last Cabinet meeting.

H.M.Jr:

Yes; only said so yesterday.
(Duffield comes in)

H.M.Jr:

Come in, Duffield. Gene, there are two things; maybe

you've taken care of them. First, has all the stuff
gone out to the press on what we've done in Customs

and Coast Guard as a result of the President's signing
the proclamation?

Duffield:

There were only two telegrams, weren't there?

Cairns:

That's all.

Duffield:

Yes, that's gone out.

H.M.Jr:

Well, these people gave a very clear exposition of
it. I wonder if the press understands what we're
going to do, and our responsibility.

Duffield:

I'm pretty sure they don't.

H.M.Jr:

Well now, Herbert

392

-9Gaston:

Let
it tothem
them.come into my office and we'll explain

H.M.Jr:

Fine. Will you do that?

Duffield:

Yes.

H.M.Jr:

Because I think - and I'd tell them about the passports. My theory is this. I wish you'd all listen.
It's much better to explain publicly what you're
going to do than to have an American citizen get
on the gangplank and say, "This blankety-blank what's he holding me up for?" If he reads it in
the paper, he knows what he's going to have to go
through. Don't you agree, John?

Hanes:

Yes.

H.M.Jr:

So I think I'd much rather explain these rules and

regulations in advance, so a man - an American citizen
knows what he is expected to do, rather than have
him on the gangplank and have a fellow say, "Well,
your passports are not in order and we're sorry,

you can't sail." So I think if you'd get the boys

together and let Herbert, whoever else is necessary,

explain it, see?
Duffield:

Fine.

H.M.Jr:

Then, the Admiral has got a human interest story
for you, about sending these two cutters out and
taking these poor people off these merchant men;
I mean the people are hungry, haven't got enough
food to bring them back. He's sending two cutters.
Human interest story there.

Duffield: Good.
H.M.Jr:

John, anything else?

Hanes:

(Nods no).

H.M.Jr:

Want to ask anything?

Gaston:

(Handing H.M.Jr. a telegram) That confirms your
telephone conversation.

393

- 10 H.M.Jr:

I spoke to him.

Gaston:

Yes, that just confirms what he told you.

H.M.Jr:

Well, that's all I've got. Hanes and I would

like to talk to Johnson a minute, unless somebody else wants to shoot something at us.

Foley:

Although nobody knows where the Bremen is, I

think it would be a pretty good idea if we got
our record in shape so if we ever are sued by
the North Bremen Lloyd Line or the German Government, we will have our facts together in one

place. And if it's all right with you, I'd like
to have Tom Manning go to New York and interview

Harry Durning and the other people up there, get

the story from the people here, so that we will
will ever be sued or not, but it's possible we

have a paper record. I don't know whether we
might be.
H.M.Jr:

Good idea.

Duffield:

I know where she is. She's out on the ocean somewhere getting "For Sale" painted on her side; then
she's going to come back to New York.

H.M.Jr:

What else?

Foley:

After the Cabinet meeting the other day you said

that the President wanted to know what emergency
powers he had, and it sounded as though somebody
was talking about issuing a general proclamation
of emergency to invoke all of the war powers. Well,
I have a memorandum here that catches up everything

that would affect the Treasury that we can think

of, or your powers. And I don't think it is a good

idea to issue any general proclamation of emergency.
I think as we need each of these specific powers
we ought to make the particular finding under that
statute and we ought to invoke those powers, but we
ought not to alarm anybody by putting out a general
finding, which would have to be so broad and sweeping
in its terms that it might disturb public confidence
and at the same time might not legally meet the

specific requirements of each statute in so far as
those detailed findings are concerned. I think it
is much better to deal with the matter as the

occasion arises and we need the powers, instead of
the general proclamation.

394

- 11 H.M.Jr:

The impression I got is that he - he did what he
did yesterday and now he's going to rest and let
the country catch up with him. That's the feeling
that I got, and I hope that's what he'll do. So
will you hang on to that?
Now, you (Waesche) are going to recruit up to full
strength, aren't you?

Waesche:

Yes,
sir, I understand the President approved the
thousand men.

H.M.Jr:

Yes.

Waesche:

Well, to get full strength, we'll need more than
a thousand, but by that time we'll have another
apportionment request. We're going to go ahead
and include another thousand.

Gaston:

Dan Bell was going to prepare a request to the
Budget.

Waesche:

Danny Bell talked to me last night. We're sending
over a reapportionment appropriation which the
President has already approved, to enlist one
thousand additional men. That will not be enough

to bring us up to strength, particularly if we

should need to supervise explosives.
H.M.Jr:

Well, I got you what you want. You said to me

Waesche:

I thought I said two thousand.

H.M.Jr:

No, you didn't - excuse me.

Waesche:

But anyway, a thousand will do us a good start.
I mean to say we can't

H.M.Jr:

I got you what you asked for.

a thousand.

Now, a year ago you had a damn good suggestion.

You wanted to take on at that time five thousand
CCC boys. Couldn't you use a thousand or so if
you can pick them - NYA?

Waesche:

Oh yes, and enlist them in the Coast Guard.

395

- 12 H.M.Jr:

Well, no, keep them on the payroll

Waesche:

of the CCC.

H.M.Jr:

CCC.

Wnesche:

We'd have a little - I think we'd have some difficulty in handling those boys.

H.M.Jr:

Wouldn't be any use now?

Waesche:

No, sir. But we can enlist them if we put them on
our payroll.
You can enlist anybody. But I didn't know whether
a thousand or five thousand - I mean whether you could
some of them in life saving-stations, something like
that, relieve those people.
No, sir, I feel that we wouldn't have very much control over them. They could leave any time they

H.M.Jr:

Waesche:

wanted to.

Gaston:

All right. Anything else?
No, I think not.

H.M.Jr:

You take care of explaining this thing.

Gaston:

Yes, yes.

H.M.Jr:

O. K.

H.M.Jr:

TREASURY DEPARTMENT

396

INTER OFFICE COMMUNICATION

DATE September 6, 1939.
TO

Secretary Morgenthau

FROM

Mr. Gaston

The

Admiral Waesche called me at 11:25 to report a message from

the CITY OF FLINT in response to our inquiry. The CITY OF FLINT has

on board 216 survivors of the Athenia disaster, of whom 106 are
Americans and 110 aliens. The ship's master reported that the
survivors were "not too uncomfortable" and that none of the injured
was in serious condition. There is one concussion and several broken

limbs. There are four doctors aboard. The master had food and fuel

for reaching Halifax and thought it best to put in there with all
survivors rather than to attempt a transfer at sea.
Waesohe has instructed the BIBB and the CAMPBELL to proceed

as ordered, to keep in contact with the FLINT and to use their discretion. It is his present intention to have the BIBB accompany
the FLINT into Halifax and to bring the American survivors from
Halifax to New York.

397

MJD

GRAY

Berlin
Dated September 6, 1939.

Rec'd. 2 p. m.

Secretary of State,
Washington.

1095, September 6, 10 a. m.

As outlined by the decree of September 4 and by
presumably approved articles by financial writers German

war financing vill be along the following lines:
One. Drastic increase of taxes.
Two. The lowering of prices and wages which will
reduce the cost of war supplies.
Three. A saving of 50% according to financial
writers on all non-military government expenditures including the suspension of all public construction which
has no military significance.
Four. Short and long term borrowing.
The new taxes and the contributions levied on the
states and municipalities by the war economy decree of
September 3 may be expected to yield the following amounts

of additional annual revenue (rough estimate):
(1) Surtax on incomes 1.5 billion marks.
(2) Tobacco and beer surtaxes 1.0 billion marks.
(3) Increased excise on spirits 0.1 billion marks.
(4) Refund of 15 per cent of the state and municipal
shares

398

MJD -2- No. 1095, September 6, 10 a. m. from Berlin
shares in the Reich income corporation and turnover tax

0.4 billion marks.
No estimate is available at this time as to the
amount of contribution of the municipalities of from 2.5
per cent to 10 per cent of their real property taxes and
trading and residence taxes but it would appear that together the foregoing additional tax measures would
yield the Reich something over 3 billion marks per annum.
The amount which the Reich Government will save through

the reduction of prices and lowering of wages cannot be
estimated even approximately at this time since the
Price Commissars are given latitude in enforcing wage

cuts and price reductions. The abolition of extra payments for overtime, Sunday work, et cetera, will be felt,
most severely in the building, munitions and machinery
industries where
(END OF SECTION ONE)
KIRK

CSB

399
NC

GRAY

BERLIN

Dated September 6, 1939

Rec'd 1:45 p.m.

Secretary of State
Washington

1095, September 6, 10 a.m. (SECTION TWO)

of late it is estimated that probably close to
one fourth of the total wages paid consisted of such
Extra payments. As regards possible savings by

eliminating 50 per cent of public construction which in
1938 totaled 7.9 billion marks it is doubted that
this can immediately be achieved since there would be
an unemployment problem until the workers could be
absorbed into military SERVICE or an expanded munitions

industry. Suspension of work on the autibahns and
city reconstruction would permit a saving of two to
three b illion marks per annum.
At what rate and in what form the Reich Expects

to borrow the next few months is not known yet. The
EXCESS purchasing power created by the various rationing
measures would SEEM to make the moment propitious for

floating a public loan if public sentiment is favorable.
The general anticipation of financial commentators has
been that in case of war the rather complicated EXPENSIVE

and unequal system of financing through the "new

finance

400

NC -2- #1095 from Berlin, September 6, 1939

finance plan of issuing tax anticipation certificates
would be discontinued but no official indication of
early action along this line has yet been forthcoming
although Finance Under Secretary Reinhard said that

after March 1940 the unfortunate three year tax
certificates of class two which had been selling at a
discount of 5 to 7 per cent would be discontinued.
The action in increasing taxes and lowering
wages is considered urgently necessary not mersly to
cover war Expenditure but to absorb the additional
purchasing power released through the restrictive rationing of consumption goods of vital necessity which otherwise would have led to an EXCESSIVE demand for non-

ESSEntial goods which could only with great difficulty

be subjected to rationing. A private Estimate places
the "EXCESS purchasing power" which will be created

by the present rationing measures at from Eleven to
twelve billion marks per annum. This estimate is based
on the view that present restrictions on more EXPENSIVE
foods may reduce by as much as two and a half or three

billion marks retail sales of foodstuffs which in 1938
amounted to 13.8 billion marks; textiles and clothing
sales by 4 billion marks (1938 sales 10 billion marks)
furniture and utensils by 3 billion marks (1938 sales 5
billion)

401

NC -3- #1095, September 6, 1939 from Berlin (Section Two)

billion) and miscellaneous articles by 1.5 billion
(1938 sales 5.1 billion)
Repeat to Treasury from Heath and to Commerce.
(END OF MESSAGE)
KIRK
CSB

03V13038
BEE! a C72
TM3MTRA930 YHU2A3HT

nations will to

- - at testillers -

402
REB

PLAIN

London

Dated September 6, 1939

Rec'd 2:05 p. m.

Secretary of State,
Washington.

1487, September 6, 8 p. m.
FOR TREASURY FROM BUTTERWORTH.

1. The city seems to be adjusting itself to its new
controlled life fairly well. The main provisions of the
recent regulations and orders are being effectively
administered and complied with but innumerable cases have

arisen which do not fall clearly within the four corners
of the enactments and upon which official decision has to

be rendered, It seems likely that the next month will be
consumed in liquidating positions in compliance with the

regulations and in ironing out the most obvious of the
special cases, The more difficult ones in which legal
advice may well be required will no doust take many
months.

2. My own feeling is, particularly with reference to
the subject matter of my 1344 of September 1, 1 p. m. that
the sooner controversial cases affecting Americans are

dealt with by the British authorities the better treatment
they

403

REB -3- #1487, From London, Sept.6,8p.m.

they will enjoy. At the present time both American and
other foreign banks, although they may be critical of
certain provisions of the recent enactments, are satisfied
that they are being administered in a fair and equitable
manner. As the war develops into a life and death struggle
it is to be expected that the peace-time regard for equity
may be modified by the war-time necessity of survival.

3. The following are the official rates for today:
United States 4.02-6; Canada 4.40-44; France 174-5;

Belgium 23.42-72; Holland 7.57-64; Switzerland 17.93-18.11;
Sweden 16.88-17.05. The only changes as compared with
yesterday are with respect to Canada and Belgium; in the
case of the former the rate was 4,47-51 and in the case of

the latter there was only a buying rate of 24.16.
4. Authorized dealers may sell exchange to other banks

or the public (a) to comply with pre-war contracts (b) to
meet reasonable requirements of a business carried on in

the United Kingdom and (c) to defray reasonable travelling

expenses, Other applications must be referred individually
to the Bank of England. The Bank of England is to open
accounts in the currencies affected with the authorized
dealers who have been advised to preserve normal relations

with their foreign correspondents. Responsibility is to be
accepted by the Bank of England for balances held by

dealers

404

REB -3- 41887, From London, Sept.6,8p.m.

dealers with their foreign correspondente as its agents
but foreign balances held by dealers for their own account
will not be so covered. To prevent disturbances in the
London money market the Bank of England will sell spot
exchange to dealers and buy back for forward delivery.
Authorized dealers doing business with other banks are
permitted to change a commission of 1/8 percent which is

equivalent to about 1/2 a cent in the dollar rate as fixed
yesterday.
KENNEDY
CSB

BEEN a C22

of -

TM3MTRA930 YAUGABAI

reserved and in soith

405
PARAPHRASE OF TELEGRAM RECEIVED
FROM:

American Embassy Paris
1939

DATE:

September 6,/5 p.m.

NO.: 1806.
FOR THE TREASURY

Today at noon we were informed by Reynaud that

France had really gained some gold yesterday and that
she seemed pleased about it.

Nevertheless, it is growing more difficult to make
exchange transactions. This was apparent in this
afternoon's market. Bank of France continues to buy
dollars at 43.30 and pounds at 175.30. It also buys
continental currency at rates which differ make very
little from those of yesterday. However, today at
least the bank is selling neither pounds nor dollars,
although, upon presentation of authenticated merchandise

import contracts, it will consider selling necessary
exchange. Until yesterday there was almost a
balande of purchases of foreign exchange and sales.
(END SECTION ONE)

406
RAW

PARIS
GRAY

Dated September 6, 1939.

Rec'd. 4:30 p.m.

Secretary of State,
Washington,

1806, September 6, 5 p.m. (Section Two). Today, how-

ever, there are few sellers of foreign currencies and operations are becoming more difficult. There is naturally uncertainty as to the Government's future exchange policies
as the banks are in the dark and no repouncement of the

British control's rate policy has beon made as far as is
known here. The banks here are accordingly very cautious

though they will sell small amounts of dollars and pounds
to their own clients where convinced that the transaction

is "logitimate". They are merely feeling their way however,
and are not acting on any suggestion either verbal or otherwise from the authorities.
03
There was 1234 very small turnover of securities on
the Boures with a heavy tone. There was good resistance

ear C32

howover and rentos dropped but 70 centimos to 1 franc. InBIRTHAR30

tornat

Rio Tinto and Royal Dutch were naturally

up.

The donth cftor a short illness of Bizot Undor Governor
of the Bank of France is announced today.
BULLITT

csb

07

PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, London, England

DATE: September 6, 1939, 8 pm

NO.: 1485
FOR THE SECRETARY OF THE TREASURY FROM BUTTERWORTH.

The Chancellor of the Exchequer announced in the House

of Commons today that with a view to concentrating all the
British Government's foreign resources in one reserve, the
British Treasury and the Bank of England have agreed to

transfer the whole of the gold now held in the Issue Department of the Bank of England (except for a nominal amount) to
the exchange equalization account as now constituted under

the currency (defence) act and that gold to the approximate
value of pounds 280,000,000 will accordingly be transferred

today involving an increase in the fiduciary note issue of
the Bank of England from pounds 300,000,000 to pounds

580,000,000. Thus the fundamental orthodox basis of the

British currency system providing a gold backing to the note

issue with a fixed marginal fiduciary issue is completely
abandoned and this step may be regarded as the most revolu-

tionary departure om-precedent in the various war finance
measures. The note issue will be all "Fiduciary issue" with
no gold backing in the Bank of England.
The memorandum on British overseas assets dated

August 29, 1939 mentioned the possibility of such a step
on

08

-2on pages two and three. Therefore it now appears more than

likely that Britain might prefer to use this gold for war
purchases before disposing of securities. Re your telegram
No. 687 of August 24, 8 p.m., in accordance with your instruc-

tion the situation is being closely watched. However, it
would appear that unless the United States Government is

prepared to take the initiative at the appropriate time by
limiting - if that proves necessary - the amount of gold
imports in some such way as suggested in my telegram No. 1248

of August 25, paragraph three, we may well be faced with the

question of liquidation of mobilized American securities
only after a substantial amount of British gold resources
has been used. On pages 20-21 of the memorandum mentioned

above the possible consequences of such action were suggested.

03412038

EA:LWW

KENNEDY.