Full text of Diaries of Henry Morgenthau, Jr. : Volume 216 : Part 2

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197

October 1, 1939

MEMORANDUM

Re: Credits to Belligerents

Section 7 of the Senate neutrality bill relates to financial
transactions with belligerents. It continues the existing provisions
of the neutrality statute which prohibits the making of loans and

credits to belligerents and persons acting on their behalf. It is
also to be noted that the existing neutrality law authorises the
President, when he finds it in the interest of the United States, to
except from this prohibition "ordinary commercial credits and short-

term obligations in aid of legal transactions and of a character
customarily used in normal peacetime commercial transactions." The

Senate Committee apparently felt that the existing provision could
be strengthened, without sacrificing American interests, by limiting
the discretion of the President and by confining to a more limited
category the permissible forus of short-term commercial credits.
Accordingly, the Senate bill provides that (1) the short-term commercial
credits any not be for a period more than 90 days without reneval;

(11) if any belligerent or person acting for a belligerent defaults
on any such 90-day credit, no new commercial credit may be extended;

and (111) the President report to Congress every six months full information as to each commercial credit which has thus been permitted.

198

It is thus entirely clear that Presidential authority to permit
short-term commercial credits to belligerents has been a part of the
neutrality law continuously since February, 1936, and that the only
changes which the Senate bill makes in the existing law are in the

direction of additional restrictions on the Presidential discretion
to permit short-term commercial credits.

It has been charged that the provision in the present bill
relating to short-term commercial credits to belligerents is inconsistent
with the Johnson Act of 1934, and is the opening wedge for the granting

of loans to belligerents. I think that an examination of the history
of the Johnson Act and the Neutrality Act will show these charges
to be unfounded.
JOHNSON ACT

The Johnson Act provided in part as follows:

"That hereafter it shall be unlawful within
the United States or any place subject to the
jurisdiction of the United States for any person
to purchase or sell the bonds, securities, or other
obligations of, any foreign government or political

subdivision thereof or any organization or association
acting for or on behalf of a foreign government or
political subdivision thereof, issued after the passage
of this Act, or to make any loan to such foreign
government, political subdivision, organization, OF
association, except a renewal or adjustment of existing
indebtedness while such government, political sub-

division, organization, or association, is in default
in the payment of its obligations, or any part thereof,
to the Government of the United States.

Within a few weeks after the passage of the Johnson Act a

number of problems arose necessitating the interpretation of that
statute. On April 27, 1934, a conference was held at the Treasury

199
S

Department attended by Senator Johnson, the Attorney General, the

Secretary of State, the Secretary of the Treasury and a number of
other officials of the State, Treasury and Justice Departments.
During the conference, Senator Johnson was asked if he thought that

the statute applied to such every-day commercial instruments as time
drafts, bankers' acceptances, etc. Senator Johnson stated that he did

not think that the statute could be interpreted in any such manner

and that it was not the intention of the statute to interfere in any
way with ordinary commercial transactions. It also appeared to have

been the view of the participants in the conference, including Senator
Johnson, that the Johnson Act did not apply to time drafts, acceptances,
etc., employed in connection with ordinary commercial transactions.
A nemorandum of the conference 10 in the Treasury Department's files.
A copy of the memorandum is attached.

On the same day the State Department issued the following
press releases

"Enquiries have been received at the Department of
State as to whether the Act of Congress approved April

13, 1934, to prohibit financial transactions with foreign
governments in default on their obligations to the
United States, applies to ordinary commercial 'acceptances
or time drafts, such as are used by foreign governments
to finance the current requirements of their embassies
and consulates in the United States.
"The Department of State and the Attorney General
are in agreement that such instruments do not constitute

obligations within the purview of the Act.

=

"Certain other questions that have been presented

regarding the interpretation of the Act are under consideration."
On May 5, 1934, the Attorney General, in response to a request

200

from the Secretary of State, rendered an opinion on a number of questions

relating to the Johnson Act, which opinion stated in part as follows:
**(2) To what types of transactions does the
Act applyps

"The Committee Reports (s. Rept. 20 and House Rept. 974,

734 Cong.) recite that the bill was introduced following an
investigation by the Senate Committee on Finance and the

revelation therein that 'billions of dollars of securities

... offered for sale to the American people' were overdue

and unpaid; that some of these 'foreign bonds and obligations
were sold by the American financiers to make outregeously high profits'; and stated a purpose 'to prevent
a recurrence of the practices which were shown by the

investigation to be little less then a fraud upon the
American people to curb the Papacity of those engaged
in the sale of foreign obligations

"This, I think, is indicative of . purpose to deal

with such 'bonds' and 'Securities' and with 'other
obligations' of like nature, observing the rule of
ejusdem generis - that is, obligations such as those which
had been sold to the American public to raise money for
the use of the foreign government issuing them - not
contemplating foreign currency, postal money orders,
drufts, checks and other ordinary aids to banking and
commercial transactions, which are 'obligations' in a
broad sense but not in the sense intended. It was
obviously not the purpose of the Congress to discontinue

all commercial relations with the defaulting countries."

(4) Does the Act apply to acceptences or time
drafts?'
"This question appears to be sufficiently answered
by the comments under Question No. 2, supra. It appears
proper to add, however, that such transactions must be

conducted in good faith, in order to be within the law,
and not as more subterfuges to circumvent its purpose."

In other words, the Attorney General found that while the
Johnson Act prohibited the sale of bonds and securities of countries

201

in default it did not prohibit those ordinary short-term commercial

credit devices customerily used in international trade. The entire
text of the opinion of the Attorney General was quoted in a State
Department press release dated May 5, 1934 which also included the
statement that the State Department concurred in the Attorney General's

interpretation of the Johnson Act. Unquestionably this opinion has
been relied upon by American business interests in their commercial

transactions with defaulting countries and persons on their behalf.
In the light of this background and at this late date, the Johnson
Act should not be construed as making illegal short-term credit
transactions with defaulting governments relating to otherwise permissible trade and commercial transactions.
NEUTRALITY ACT

In February, 1936, Congress in amending the then existing

Neutrelity Act included the following provisions
"SEC. la Whenever the President shall have

issued his proclamation as provided for in section 1

of this Act, 18 shall thereafter during the period of

the war be unlawful for any person within the United
States to purchase, sell, or exchange bonds, securities,
or other obligations of the government of any belligerent

country, OF of any political subdivision thereof, or of

any person asting for or on behalf of such government,
issued after the date of such proclamation, or to make
any loan or extend any credit to any such government
or persons Provided. That if the President shall find
that such action will serve to protect the commercial OF

other interests of the United States or in nationale,
he may, in his discretion. and to such extent and under

such regulation as he may preseribe. except from the
operation of this section ordinary commercial credits
and short-term obligations in old of legal transactions
and of . character customerily used in normal peace-

202

time commercial transactions."

It will be noted that this provision, which has been the law since
February, 1936, specifically authorized the President to permit shortterm ordinary commercial loans to belligerents and persons acting on

their behalf. The debate in Congress reveals no feeling that this

provision was inconsistent or in conflict with the provisions of the
Johnson Act. The view of Congress was quite the controry. The House
report on this provision in the 1936 amendment stated:
. . It is the law now under the Johnson Act

-

that it is unlawful to sell bonds, securities, etc.,
in this country of any foreign country that is in

default of its indebtedness to the United States.
This covers most of the greater powers in Europe.
This section, however, goes much futher and makes

it unlawful, as before stated, to all belligerent
countries. Now, there is a provision in this section
that if the President shall find that such action
will serve to protect the commercial or other interests
of the United States or its nationals, he may, in his
discretion, and to such extent and under such regulation
as be may prescribe, except from the operation of
this section ordinary commercial credits and short-time

obligations in aid of legal transactions and of a

character customerily used in normal peacetime commercial

transactions. There is also another provision that

this section does not apply to renewal or adjustment
of indebtedness which may exist on the date of the
President's proclamation. The only discretion given
the President under this section is in reference to
such medits used in normal peacetime commercial transactions."

By specifically prohibiting in the Neutrality Act the extension of
"any credit" (which words do not appear in the Johnson Act) Congress,

in view of the purposes of the Neutrality Act, apparently intended
thereby to prohibit even short-term commercial credits unless the

203

President found that the making of such short-term commercial credits

to belligerents was in the public interest, in which event, such credits
would be lawful.

No change was made in this provision of the Neutrality Act when
the Neutrality Act was otherwise amended in 1937. When the neutrality
legislation was considered in the House of Representatives last July,
it was proposed to circumscribe further the President's power to

permit short-term commercial credits to belligerents by limiting such
credits to 90 days without renewal, and requiring the President to
make periodic reports to Congress of such transactions. These

limitations on the power given to the President by the existing

statutory provision are included in the Senate bill, and in addition

the Senate bill prohibits further 90-day credits if a belligerent
defaults on prior 90-day credits given to it.

04

April 28, 1934
Commissioner of
Accounts and Deposits
CONFERENCE RE: JOHNSON BILL:

(Public No. 151, 73rd Congress)

The Secretary of the Treasury called a conference at 11 o'clock
Friday, April 27, 1934, for the purpose of considering some of the difficulties in interpreting the provisions of the 80-called Johnson Bill,
which prohibits the flotation of loans in the United States by governments
in default on their indebtedness to the United States Government. Those
present more the Secretary of the Treasury, the Attorney General of the
United States, Senator Johnson of California, Under Secretary Phillips

and Assistant Secretary Moore of the State Department, Mr. Hackworth,
Solicitor of the State Department, Mr. MacLean, Assistant Solicitor General,

Mr. Coolidge, Mr. Oliphant, and Mr. Bell, of the Treasury. Secretary Hull
came in at 11:20.

The Secretary asked Senator Johnson to outline to the meeting
the objectives which he had in mind in presenting the bill to the Congress.
Senator Johnson went into the history of the measure and stated
that as it was first introduced and passed the Senate more than a year ago,

he had in mind definitely the protection of the American citizen in his
purchases of foreign securities in the United States issued by foreign governsents which are in default on any of their indebtedness to the United States
Government or its nationals. He stated that he had definitely in mind
at that time the South American governments. He stated that just after the
bill first passed the Senate, Senator Robinson asked that it be laid on the
table and reconsidered. At a conference between him and Senator Robinson

at a later date, he agreed to further amendments, after which it vas referred

back to the Foreign Relations Committee and was there amended to its present

form. He thought as the bill now stands, its sain objective was to preclude
the flotation in this country of any securities of those governments or any
subdivisions thereof which are in default on their indebtedness to the

United States Government.

The Secretary asked him just what he meant by the term "default*
did he have definitely in mind including those governments which have
made token payments as a result of which the President had stated that be
did not consider those governments in default?
and

Senator Johnson said that it was his personal opinion that if
these governments did not pay the full amount due they were certainly

in default as to the remaining balance. However, he realised that this
was largely an administrative matter and the President under the powers
granted by the Constitution to handle foreign affairs, certainly default had the

authority to state whether or not a particular government was in
on its indebtedness to the United States Government. He did not think

205
2.

that the act was intended to disturb the action already taken by the President in declaring those governments not in default.
The Attorney General stated to the Simeltor that he thought the

President's previous action was quite in line with his authority, but asked
the Senator if be thought the President could take similar action on future
token payments in view of the act.

The Senator stated that his personal opinion was that the President
had no authority after the passage of this act to accept from our debtors
token payments and then consider them not in default.

The Secretary then asked the Senator if he thought the bill included
such everyday commercial transactions as time drafts and bankers' acceptances

etc. The Senator said he did not think it could be interpreted in any
such manner and that it was not the intention of the bill to interfere in

any way with ordinary commercial transactions. The question was then raised
as to what was seant by time drafts, acceptances, etc. Mr. Coolidge explained an ordinary commercial transaction with respect to the purchase of
cotton in the United States by the national of some foreign government that the concern selling the cotton might draw a bill of exchange on the
purchaser, which would be honored in thirty days more or less and that this
bill of exchange could be sold on various terms. It was the concensus of
opinion that such a transaction would not fall within the provisions of the
act.

The Attorney General then asked the Senator if he thought that a fair
interpretation of the act was that it ddd not intend in any way to limit
the ordinary everyday commercial transaction, and the Senator said that, certainly, was the interpretation he would put on it.
Mr. MacLean, Assistant Solicitor General, then called attention to
the fact that France exercised a monopoly in tobacco, and that the organisations in this monopoly would no doubt in the course of business sell their
drafts and other instruments of credit in this country. The Senator said
that he did not have such transactions in mind and that the words "organisetions or associations" in the act were not his language. It seemed to be
the concensus of opinion that these transactions would fall within a commercial transaction and not within the provisions of the Act.
Mr. Hackworth brought up the question that had been presented to him

just before he came to the Treasury, 1. e., as to whether the operations
in coupons on German bonds would fall within the provisions of the act. He
explained that coupons falling due on many of the German bonds were paid

partly in cash and partly in scrip, and that later the scrip was purchased
by a bank in Germany which was sore or less under the supervision of the
Reichabank and the German Government.

Senator Johnson thought that such a transaction would clearly fall of

within the exception in the act with respect to renewal or adjustment
existing indebtedness.

206

3.

Mr. Coolidge said that he thought that one way in which to
interpret the act was to decide whether or not any of the transactions
passed upon involved new American money and that this should be a do-

siding factor. This seemed to be agreed to by the Attorney General

and Mr. Backworth.

(Initialed) D.W.B.

206A
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

October 6, 1939

MEMORANDUM FOR THE SECRETARY

In the course of conversation this afternoon with M. Leroy-Beaulieu,
he informed me that the French Naval Attache is negotiating a contract with the E. W. Bliss Company for the purchase of 100 torpedoes,
the price of each being approximately $1,800.

Director of Procurement

Oct. 6. 1939 206B

French purchases in the United States

Since the war broke out, the French Air Mission has

placed the following orders, subject to a contingent clause
in case the embargo on arms should not be lifted:
1° - Contracts signed:

General Electric (reflectors and trucks) (1) $ 5.650.000

" detectors) 5.950.000

Sperry Gyroscope (
Banters

United Aircraft (2.250 engines)

41.000.000

Glenn Martin (130 planes)

13.400.000

2° - Contracts to be signed within a week:
Curtiss (630 planes)

$23.500.000

Wright (1440 engines)

28.000.000

Beechcraft (500 planes)

27.000.000

North American (200 planes)

4.400.000
10,400,000

Douglas (130 planes)

$ 159.300.000

In addition to these orders, the French Naval Attaché
is negotiating the purchase of an order of torpedoes from
the E.W. Bliss Company for delivery of 100 torpedoes, subject

to an additional option, the price of each torpedo being
$1,800.00 roughly.

(1) 138 searchlights. 384 power plants, 640 trucks)
(2) 256

"

256 sound locators

206C

TREASURY DEPARTMENT
PROCUREMENT DIVISION
WASHINGTON

OFFICE OF THE DIRECTOR

October 7, 1939

MEMORANDUM FOR THE SECRETARY

There is attached hereto a statement indicating the present status of
those contracts reported by memorandum to you under date of September

19th.

There is also attached a statement of new contracts that have been
made between the French State and the contractors indicated since
September 29, 1939.

The contract with the Pratt and Whitney division of United Aircraft
indicated above provides for the French State's furnishing approximately $3,600,000 for additional plant facilities.
The 100 one-engine pursuits, P-40, are to be powered with Allison

Motors.

From information received this morning it is indicated that contracts
are also pending with the Wright Aeronautical Corporation, the
Beechcraft Corporation, North American Aviation, Inc., and the
Douglas Aircraft Company, further information concerning which will
be furnished promptly upon its receipt.

Director of Procurement

Hear
W

AIRPLANES

Complete

Ordered

Delivered

Delivery

Contractor

Description

Curtiss-Wright Corporation

1 engine Pursuit 75-A

200

200

Glenn L. Martin Company

2 engine Bomber 167-F

215

13

Douglas Aircraft Company, Inc.

2 engine Bomber DB-7

100

North American Aviation, Inc.

Basic Trainer

230

198

Nov. 15, 1959

40

20

Nov. 30, 1959

785

431

United Aircraft Corporation
Chance-Vought Division

Dive Bomber V-156

Dec. 31, 1959

Jan. 31, 1940

0

ENGINES

Complete

Delivered

Delivery

Contractor

Description

Ordered

United Aircraft Corporation
Pratt & Whitney Division

P&W 1830 Twin Wasp

1,821

818

July, 1940

United Aircraft Corporation
Pratt & Whitney Division

P&W 1535 Twin Wasp, Jr.

520

10

July, 1940

Curtiss-Wright Corporation

CW GR2600 Twin Cyclone

42

3

2,383

831

SPARE ENGINES ORDERED BY NORTH AMERICAN AVIATION. INC.. FOR BASIC TRAINER CONTRACT

Contractor

Description

Curtise-Wright Corporation

CW R-975-E Single Row Whirlwind

Oct. 7, 1959 (F)

Ordered
115

Mar. 15, 1940

Delivered
30

Complete

Delivery
Dec. 31, 1939

AIRPLANES

Complete

Contractor

Description

Curtiss-Wright Corporation

1 engine Pursuit 75-A
1 engine Pursuit P-40

100

2 engine Bomber 167-F

130

Glenn L. Martin Company

Ordered
530

Delivered

Delivery
Dec.,1940
Dec.,1940

0

0

June, 1940

0

ENGINES

United Aircraft Corporation
Pratt & Whitney Division

P&W 1830 Twin Wasp, 2 speed

2,250

Dec.,1940

0

OTHER EQUIPMENT

General Electric

Sperry Gyroscope Company

Oct. 7, 1939 (F)

Searchlight Equipment
Trucks (General Motors)
Portable Power Plants

128

Searchlight Equipment
Sound Locators

256

0

640

0

384

0

256

0

0

Nov.,1940
Nov.,1940
Nov.,1940
Nov.,1940
Nov.,1940

206F

President kept copy at buch
said Rewould have several that water call Woo thing

and Johnson and ou trunch Jotevey

its g.E. and & g. they have on order October
9, 1939.
Hm2
French purchases in the United States

Since the war broke out, the French Air Mis-

sion has placed to date the following orders, subject to
a contingent clause in case the embargo on arms should

not be lifted:
1) Contracts signed:
Not affected
the embargo

General Electric (128 searchlights, 384 power
plants 640 trucks $ 5,650.000
Sperry Giroscope (256 searchlights
256
5,950.000
sound locators

United Aircraft (2.250 engines, latest

model Pratt Whitney SC4G) 41.000.000

Glenn Martin

(130 planes, bombers 167) 13,400.000

Curtiss

(630 planes: 530 P. 36 and

Wright

(1440 engines)

100 P 40

23.500.000
28.000.000

2) Contracts to be signed within a week:
27.000.000
Beechcraft (500 planes)
North American (200 planes Model BT9 same

as pre war order)

Douglas

(150 planes DB 7

4,400.000
10,400,000
159.300.000

The Curtiss, Glenn Martin and Douglas are
to be equipped with engines Pratt Whitney SC4G.

206G

The French Air mission contemplates to purchase

100 more Douglas. If the U.S. Army gives the release

for the latest Douglas A 20, the additional purchase
would be 150 ships. General Arnold's decision will be
known in a few days.
Searchlights,

The French Government needs very

badly the searchlights which are not subject to the
embargo, and would be of the utmost value for the

anti aircraft defense of the big cities. Under the
contracts the deliveries are to start in February but
will not be important before April. The U.S. Army has
placed a large order for the same searchlights, and
the deliveries will start in November. Would it be
possible to shift the deliveries from the American to
the French contract.

206

Orders placed in Paris
(Contracts to be signed here)

1) Maphine tools

Cincinnati Milling - 120 machine tools $ 800.000
Brown & Sharp

350

National Acme

2.500.000

#

50

400.000

.

2) Trucks and motorbicicles
White

2.500 trucks

Studebaker

2.500

Indian

5.000 motorbycicles

Price not yet
settled
"

.

H

BK 216
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 7, 1939

TO

FROM

Secretary Morgenthau
Mr. White

Subject: The Present Situation Re. Quicksilver

1. The stocks of quicksilver in the United States were

probably exhausted when war broke out in September. The
stocks were reported at only 550 flasks in December 1938,
and evidently were no larger in September 1939, since imports,

which usually supply a large part of our needs, were negli-

gible during the first eight months of this year.
The price of quicksilver fluctuated around $90 per flask

from April through August 1939. When war broke out, the price
rose very quickly, reaching $170 per flask on September 18,
1939 and the price has remained at that level since.

2. The consumption of quicksilver in the United States
in the last few years has ranged from 25,000 to 35,000 flasks.
Consumption in 1938 when industrial activity was relatively
low was approximately 25,000 flasks, and in 1937, a year of

high industrial activity, 35,000 flasks.

The Procurement Division estimates that in the case of
8 national emergency 36,200 flasks of quicksilver would be
required each year by military service and civilian industries.

Quicksilver is listed as one of the strategic materials by the
military services but it is in the third priority and no recommendations concerning its purchase have been made.

Quicksilver is a necessary material in munitions produc-

tion, in gold mining, in medicine, in ship building and for
the production of scientific instruments. No substitutes are

available for most of the uses.

3. In the past few years the domestic industry has yielded
from 15,000 to 18,000 flasks of quicksilver per year (which
is about one-half of our domestic needs).

Secretary Morgenthau - 2

Domestic Production of Quicksilver

(In flasks)
15,445
17,518
16,569
16,508
17,991

1934
1935
1936
1937
1938

The expansion of the domestic production is dependent pri-

marily upon the scovery of new sources of quicksilver or
upon a great increase in the price which would make profitable the more intensive exploitation of low yield ores.
The Bureau of Mines estimates that if. the price of
quicksilver were maintained at $100 per flask or more the

production would be increased by some 7,000 to 12,000 flasks

per year within a two or three year period. If the price of

quicksilver is maintained at the present high level our domestic output, plus the Mexican output could -- if the state-

ment of the Bureau of Mines is correct -- meet our emergency
needs as estimated by our Procurement Division.

However, the domestic sources of quicksilver are uncertain because the reserves of quicksilver are unknown and
because the richest known deposits were exhausted in the past
half century. The operating mercury mines are high cost, and
the ores have a low yield in comparison with mines of European

countries. At the present time there are only 90 producing

mercury mines, although there are a large number of mines
which have yielded mercury in the past but which are now inactive.

4. The United States has relied on foreign sources for
half its needs of quicksilver, the bulk of which came from
Italy and Spain. In addition to the recorded imports of quicksilver, we have been buying Mexican quicksilver in the form of
ore concentrates which do not appear in the import statistics
as quicksilver but amounted to 2,600 flasks in 1938.
Imports of Quicksilver
(In flasks)
1934
1935
1936
1937
1938
1939

1st 8 months

10,192
7,815
18,088
18,918
2,362
220

209
Secretary Morgenthau - 3

5. The principal sources of quicksilver are Italy and

Spain, and significant quantities are also produced in the

U.S.S.R., Germany, Mexico and China.

Approximate Production of Quicksilver by Countries
in 1937-38

(In flasks of 76 pounds)

Italy
Spain

United States

U.S.S.R.
Mexico
Germany

China 2/

1937

1938

66,963
28,357
16,508
8,700
4,963
2,150
1,736

66,719
40,000
17,991

Japan

Turkey

Algeria & Tunisia
Not available
2

580
484
139

1

8,519
1/
65

1/

331

Exports

There 1s no information to indicate the extent to which
the production of quicksilver in foreign countries will be
expanded as a result of the higher prices now prevailing.
6. World stocks of quicksilver seem to be held principally in London and Italy. At the end of 1937 London held
22,000 flasks of Spanish quicksilver. In 1938 Italy produced
67,000 flasks and exported only 55,000 flasks, indicating
that Italy's stocks of quicksilver at the present time are
probably relatively high. The stocks in the United States,
which, since 1934, have varied from 2,400 to 4, 300 flasks
were only 550 flasks at the end of 1938 and probably declined
during 1939. We have no information with respect to the
stocks that may be held by Germany.

7. The duty on imports of quicksilver is a specific

rate of $19 a flask.

if Expt- Impat get some quick silver
payment of cotton loan.

October 7, 1939.

210

Memorandum to Secretary Morgenthau
From:

Mr. Haas BA.

Subject: Meeting of Atlantic States Shippers Advisory Board,
held in Newark, N. J. on October 4 and 5, 1939.

Carloadings Forecast. For the last three months of 1939, as
compared with the same period in 1938, it 18 estimated that the
Atlantic States Region will show an increase of 14.6 percent. For
the country as a whole a 13.8 percent increase is estimated.
Railway Equipment Situation. The 13.8 percent increase estimated
for the country as a whole is equivalent to average weekly carloadings

for the last three months of this year of 715,000 cars. The latest
figure available on actual weekly carloadings is 834,600 cars for the
week ended Sept. 30, 1939. The seasonal peak will probably be reached
in the first half of October. The 715,000 cars, which is the average
weekly figure forecast for the remaining three months of the year,

may be compared with 729,000 cars, the average for the whole year of
1937, and 819,000 cars, the average for the month of October, 1936.
Carloadings in the highest week in October, 1936 were 826,000 cars.

Mr. Gray and Mr. Willard estimated in their report to you last
Spring that the cars in good order at that time were sufficient to
take care of a 25 percent increase in traffic, which would be equivalent to average weekly carloadings of 741,000 cars per week. This
report also contained an estimate that if the bad order cars were
put in good order a 45 percent increase in traffic could be handled.
This estimate was later raised to 50 percent by the Executive Committee
of the Association of American Railroads. The 50 percent estimate is
equivalent to about 889,000 cars per week. With the Sept. 30, 1939
weekly figure now having already reached 834,000 cars, which is an
increase of about 40 percent over the level last May, it appears that
the Gray and Willard estimate was conservative as a large number of
the bad order cars have not as yet been put in good condition.
New car orders by the railroads have increased sharply since

the first of September. New car orders from the first of the year

to October 3 amount to 59,560, and of this amount 38,000 have been
ordered since Sept. 1, 1939.

The outbreak of the European War cut off British coal shipments
to Canada and the New England states. This resulted in a very sudden
increased demand for coal cars to make coal shipments into those areas
The Canadian shipments involve particularly long hauls but the railroad representatives at the meeting felt confident that they would

be able to satisfactorily meet this situation.

The representatives of 13 railroads who reported at the meeting
all gave reassuring statements that they could meet the increased
traffic situation which has developed. Each of them said that bad
order equipment is being placed in good order immediately and all of
them recited lists of new orders for equipment which their particular
roads have placed. They also urged the shippers to discourage buyers
from inflating orders. It was more or less generally felt that and many that
buyers were apprehensive of a possible freight car shortage

this was one factor resulting in the sharply increased current traffic.
A paper read by a representative of the Association of American
Railroads sharply criticized analyses of railway equipment needs made

by "sharp pencil statisticians. He stated that the number of cars

now available, as compared with those available during the war period,
is not an adequate measure of the traffic which railroads can now

handle. They fail, he pointed out, to take into consideration the in-

creased efficiency of operation resulting from larger average tonnage
carried per car now as compared with then, increased train speed, etc.

V

211

THE UNDER SECRETARY OF THE TREA

elly

wo-

Is there any car shortage

# 10
Is there conjection at

any ports ?
None at any porte

none any where834.000 carboarings

last week

t rate of 43 million
our yr. against 1918

rate of 44 million

12

To: Secretary Morgenthau
From: Mr. Cochran

October 7. 1939
MEMORANDUM

The Secretary telephoned me from his home at 9 A.M. I gave
him the news. He stated that if Leroy-Beaulieu telephoned wanting
an
appointment, he would be available at his home a little before
12 o'clock.

At 11:30 the Secretary telephoned me again. I reported the

morning's transactions. In answer to his inquiry, I said LeroyBeaulieu had not telephoned. If he did later this morning, I was
to get in touch with the Secretary at his home.

The Secretary told me that if Foley, White, Bernstein and I
would get together on the Brazilian matter and O.K. the cablegram
which was drafted yesterday, he would leave the matter in our hands.
He told me that he thought he had cleared this matter with me on
Thursday and had told me to go ahead. I replied that this was my
definite understanding and that I had gone ahead and thought the
matter was finished as far as the Treasury was immediately concerned.
I explained that the dollars had been received by the Federal Reserve
Bank from commercial banks in New York: that the Federal Reserve Bank
had purchased gold therewith and had deposited it in an earmarked
account held by the Federal Reserve Bank as fiscal agent of the

United States Treasury for the Bank of Brazil as fiscal agent of the

Brazilian Government. I told him that we had let Knoke know that we
preferred a bank to bank deposit but that Knoke had insisted

that. with the Bank of Brazil not having such an account at present,

it was impossible to take care of the immediate transaction other

than through the fiscal agency method. I told him that I had agreed
to this, with the definite understanding that the Federal Reserve
Bank would take the initiative with the view to opening the bank to
bank account. into which the present account would be eventually

transferred. I told the Secretary that I contemplated doing nothing

more until I learned yesterday that Mr. Bailie had telephoned from
the Federal Reserve Bank in New York to Foley, suggesting the lines

of the cablegram which was drafted. I told the Secretary further
that I did not want the cablegram to go out today as drafted. I
said there was no urgency in the matter and that he should bother
no more about it until Mr. Bailie came back and those of us who

were interested
approval.

therein had thrashed out a solution for the Secretary's

345

H. Merle Céchran

CONFIDENTIAL

TREASURY DEPARTMENT

213

INTER OFFICE COMMUNICATION

DATE October 7, 1939

TO

Secretary Morgenthau

FROM Mr. Cochran

The foreign exchange market was very dull today with decreased volume

in sterling transactions. The opening quotation for sterling was 4.02-1/4;
it rose to 4.02-5/8, and eased off to close at 4.02-1/8.
The discount on the Canadian dollar at the close last night was 11-3/4%

and improved today to close at 11-1/8%.

Reporting banks in New York and the Federal Reserve Bank reported sales

totaling 1244,000, from the following sources:
Commercial concerns

L 46,000

Foreign banks (Europe and Far East)
Fed.Res.Bk. (50,000 for Sweden)

L 50,000

L 148,000
Total

L 244,000

Purchases of sterling amounted to 1130,000, as indicated below:
By commercial concerns

By foreign banks (Far East, Europe and South America)
Total

L 50,000
L 80,000
L 130,000

The National Bank of Belgium sold to us $100,000 gold from their earmarked
account.

Three gold shipments, totaling $783,000, from Canada were reported.

KMR
CONFIDENTIAL

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

M

DATE October 7, 1939
12 Noon

TO Secretary Morganthau

214

FROM W.H. Hadley

Possible Treasury Note Offering

The market had a very f1 m tone today so that the bases for these
estimates appear more satisfactory than yesterday.
Market Price

Coupon

Yield

2 yrs. 8 mos.

3/4%

(June 1942)

7/8%

0.60
0.60
0.60

100.13
100.24
101.3

13/32nds
24/32nds

0.90
0.90
0.90

100.11
100.25
101.6

11/32nds
25/32nds

Maturity

1%

3 yrs. 5 mos.

1%

Premium

1 pt. 3/32

(March 1943)

1-1/8%
1-1/4%

4 yrs.

1-1/4%

1.03
1.05

100.26
100.25

26/32nds
25/32nds

1-3/8%

1.03
1.05

101.11
101.9

1 pt. 11/32
1 pt. 9/32

1-1/4%

1.08
1.11

100.26
100.22

26/32nds
22/32nds

1-3/8%

1.08
1.11

101.13
101.9

1 pt. 13/32
1 pt. 9/32

1-1/2%

1.08
1.11

102.1
101.28

2 pts. 1/32
1 pt. 28/32

5 yrs.

1 pt. 6/32

Note: Estimates on the 5-year notes, al though somewhat conservative

on the basis of outstanding issues, continue to be less certain than
shorter maturities and by no means as accurate as estimates on similar
issues in the past.

Bis 216
TREASURY DEPARTMENT
WASHINGTON

M

OFFICE OF
INVESSIONER OF INTERNAL REVENUE
ADDRESS REPLY TO
INTERNAL REVENUE
AND REPER TO

IT:P:CA
CAA

your
215

October 7, 1939.

REPORT FOR SECRETARY MORGENTHAU:

During the week ended October 6, 1939, no new requests for
closing agreements under the Vinson-Trammell Act were received.

In regard to closing agreements which have been requested
and are now under consideration, the following applies:
Colt's Patent Fire Arms Manufacturing Company

The tentative draft of the proposed agreement in this case
was completed and during the week was considered by the various

reviewing officers, reaching Mr. Wenchel's desk on October 5,
1939. On October 6, 1939, Mr. Wenchel held a hearing in his
office which was attended by Messrs. Kades, Ryan, Reiling,
Hazard, Appel and Reddish. Intensive consideration was given
to the proposed agreement and decisions were made as to the

final form under which it would be referred to the Secretary's
office. These changes are being incorporated in a revised

draft at the time of the writing of this report.

Representatives of the company were in Washington on

October 5, 1939 and they came over to the Bureau to ask if
matters had progressed to the point where they might receive
a copy of the draft of agreement. They were informed that the
draft was not quite completed.

Consolidated Aircraft Corporation
The formal copy of the expected certificate from the Navy
Department has not been received at this writing but a carbon
copy thereof was forwarded to Mr. Reiling on Thursday. In the
meantime, work has been under way in the preparation of a
tentative form of agreement and has not yet been finished.
There were no other transactions in regard to closing
agreements. Nothing has been heard from the Bethlehem Steel

Corporation in this regard.

Guy Helening
Commissioner.

216
IT:P:CA
CAS

October 7, 1939.
REPORT FOR SECRETARY MORGENTHAU

During the week ended October 6. 1939, no new requests for
closing agreements under the Vinson-Tremnell Act were received.
In regard to closing agreements which have been requested

and are now under consideration, the following applies:
Colt's Patent Fire Armo Manufacturing Company

The tentative draft of the proposed agreement in this case
was completed and during the week was considered by the various

reviewing officers, reaching Mr. Wenchel's desk on October 5,
1939. On October 6, 1939, Mr. Wenchel held a hearing in his
office which was attended by Messrs. Kades, Eyan, Reiling,
Hazard, Appel and Reddish. Intensive consideration was given
to the proposed agreement and decisions were made as to the

final form under which it would be referred to the Secretary's
office. These changes are being incorporated in a revised

draft at the time of the writing of this report.

Representatives of the company were in Washington on

October 5, 1939 and they came over to the Bureau to ask if
matters had progressed to the point where they might receive
a copy of the draft of agreement. They were informed that the
draft was not quite completed.

Consolidated Aircraft Corporation
The formal copy of the expected certificate from the Navy
Department has not been received at this writing but a carbon
copy thereof was forwarded to Mr. Reiling on Thursday. In the
meantime, work has been under way in the preparation of a

tentative form of agreement - has finished.
There were no other transactions in regard to closing

agreements. Nothing has been Bearg from the Bethlehem Steel

Corporation in this regard.

RECEEVER
OFFICE

Commissioner.

Copy for Commissioner.
CAA/MEA

217
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Berlin, Germany

DATE: October 7, 1939, 3 p.m.

NO.: 1626
Certain experts in the Reich monetary and banking

control authorities are still alarmed over the inflationary
possibilities in Germany, despite reassuring stories from
the Reichsbank and in the German press that Germany can

avoid inflation by reason of the additional taxes that
have been imposed, control of price, and the rationing
measures which have been imposed, and because of the "dis-

cipline and patriotism" of the German consumer and bank

depositor. During the past six weeks there has developed

a fairly substantial domestic flight from the mark, although
because of the rationing restrictions and the severe penalties
for hoarding, withdrawal of funds and goods purchases have

not reached anything like panic proportions.
Germany has not recently published savings bank

statistics, and during the war they will probably not be
published. However, reliable sources of information estimate
that net withdrawals of savings accounts since the last week
of August have amounted to about 600,000,000 Reichemarks.
Net withdrawals from savings amounted to 158,000,000 Reichsmarks

during the war scare in September 1938. Furthermore, it is
understood that there may have been just as heavy withdrawals
from

218

-2from non-savings deposits (term deposits and demand deposits)
but the commercial bank statements will not show these since

the withdrawals have been in the form of checks which the

seller of the merchandise in turn has deposited to his own
account. There has been a steady increase in the list of
goods which is subject to buying permits (bezugsscheine).

It was recently discovered that consumers were investing in
carpets, and 80 this commodity was added to the list. Reports
have been received of the formation of carpet-buying companies,
the members of the groups pooling their individually insuf-

ficient resources to purchase oriental rugs of a large size.
The Embassy is informed that higher authorities have

as yet given no serious consideration to further tax increases,
although individual experts have memorialized their superiors
to impose higher taxes in order to absorb excess income and
prevent inflationary developments.

It is requested that this message be repeated to the
Treasury Department.
END OF MESSAGE.
KIRK.

EA:LWW

TREASURY DEPARTMENT

ml

INTER OFFICE COMMUNICATION
DATE

October 7, 1939
12 Noon

TO

FROM

Secretary Morgenthau
W. H. Hadley

Guaranteed Note Issues
CCC Notes

Maturity

Coupon

1-1/2 yrs.

3/4%
7/8%
1%

1-1/8%
2 yrs.

1%

1-1/9%

1-1/49

Premium

Yield

Market Price

0.63
0.63
0.63
0.63

100.5
100.11
100.16
100.23

5/32nds
11/32nda
16/32nda
23/32nds

0.81
0.81
0.81

100.12
100.19
100.27

12/32nda
19/32nds
27/32nda

RFC Notes

3 yrs.

1-1/84

1.05
1.08

100.7
100.4

7/32nda
4/32nda

1-1/4%

1.05
1.08

100.19
100.16

19/32nda
16/32nds

1-3/8%

1.05
1.08

100.31
100.28

31/32nds
28/32nda

219

October 9, 1939
8:55 a.m.

HMJr:

Hello.

Harold
Ickes:

Henry.

HMJr:

Good morning, Harold.

I:

HMJr:

I:

220

Do you know anything about these Jewish medical
students from Scotland?

Well, I -- I just heard something; I haven't been
in on it -- about going back to study.
Well, what I know about it is this. They went over

there originally because the medical schools here
wouldn't take them in.
HMJr:
I:

Yes.

Some of them had been one year, some of them two,

and I think some of them three.

HMJr:

Yeah.

I:

Now, they want to go back. They're willing to run
the risk - about four hundred of them.

HMJr:

Yeah.

I:

They're willing to run the risk.

HMJr:

Yeah.

I:

And the State Department won't issue them passports.

HMJr:

I see.

I:

Which I think 18 God damned rotten

HMJr:

Yeah.

I:

between you and me.

HMJr:

Yeah.

I:

Now we've been -- there's been a good deal of senti-

ment and we're willing over here to help all that we
can, although the office of education isn't under me
any more

-2-

HMJr:

221

Yeah.

to bring pressure to bear on the Medical
Americans -- the American Medical schools to dis-

tribute -- hell, there'd be only three or four a
school. It wouldn't hurt them at all.

HMJr:

No.

It's just -- it's just one terrible outrage.
HMJr:
I:

HMJr:
I:

HMJr:

Well

Now the American Medical Association is -- is
standing in the way.
Yeah.

That insists that the standards in the Scotish medical
schools aren't high enough, although if these people
had passed -- had finished their courses over here
they could -- they would have been eligible to come
back and take the state examinations for admission
to practice.
Yeah.

But I think it's just -- it's just racial discrimination there too.

HMJr:

Well Harold, let me ask you this. Do they have a
spokesman?

I:

Wait a minute. (Aside: Have they a spokesman?
Who's representing them here?) I think they have
but we don't know who it 18.

HMJr:

I see. And is it too late to let them go to Scotland?

I:

No, it isn't too late to let them go to Scotland.

HMJr:

I mean, would Scotland take them still?

I:

Oh, I understand Scotland is willing to take them.

HMJr:

Yeah -- I mean, I saw or heard somewhere that now
that they haven't gone, Scotland doesn't want them
any more.

222

-3-

I:

Well, that might be. Lord only knows; that's the
way those things happen, but if that is true then
think we ought to -- if I were running the office
of education what I'd do would be this, Henry.
I'd call in here the presidents of the universities
and -- that have medical schools -- have separate
medical schools -- and I'd just put it up to them
I

HMJr:

cold turkey
Where is the office

to distribute these -- why, it's under McNutt.

I:

HMJr:

McNutt. Well, Harold

I:

Yeah.

HMJr:

You -- you don't -- as I say, you don't know who
their spokesman 1s?

I:

No, but I'll try to find out and let you know.

HMJr:

Would you?

I:

Yeah.

HMJr:

And do you -- and do you know whether the boss has

I:

been brought into it or not?
No, that's the reason I called you. I was wondering
1f you were going to see him today.

HMJr:

I am.

I:

Well then I wish you'd take it up with him.

HMJr:

Well, there's nothing more for me to learn besides

I:

If there 18 I'll get it to you.

HMJr:

Would you before one o'clock?

I:

Yeah.

HMJr:

It's damn decent of you to have taken an interest

yourself in it.

223

-4-

I:

Why
it isn't at all. If a -- the thing has outraged
me.

HMJr:

Yeah.

I:

I'll see if I can get you any additional information.

HMJr:

I --

Well, if you

I:

And if they have a spokesman in Washington do you

HMJr:

Yes.

I:

All right.

HMJr:

Yes.

I:

I'll get him to you.

HMJr:

Thank you, Harold.

I:

All right.

want to talk to him?

224

RE FINANCING

Present:

Mr. Hanes

October 9, 1939.
11:50 a.m.

Mr. Bell
Mr. Duffield
Mr. Bailie
Mr. Haas

Mr. Hadley
Mr. Murphy

H.M.Jr:

(On phone) Hello. (Telephone conversation with
George Harrison follows:)

October 9, 1939

225

11:48 a.m.

HMJr:

Hello.

Operator:

Mr. Harrison.

HMJr:

Hello.

0:

Go ahead.

HMJr:

Hello.

George

Harrison:

Hello, Henry.

HMJr:

Iinwasn't
quite ready before. My gang hadn't gotten
here.

H:

HMJr:
H:

I see.

They're all here

I just want to record the fact that I called you

promptly at 11:45.
HMJr:
H:

HMJr:
H:

You're very good, George.

(Laughs) Well, Henry, we've had a stronger bond
market this morning.
Yeah.

And the longer bonds went up as high as seven to
eleven -- a hundred and one seven to eleven.

HMJr:

Yeah.

H:

They're down now to four eight again

HMJr:

Yeah.

which is up eleven points from Saturday's close.

H:

HMJr:

Yeah.

H:

I think you can do your refunding.

HMJr:

What do you want me to do - get out a long bond?

226

-2-

H:

HMJr:

No. Not yet.
Uh-huh.

No, I think I would put out a short note. I think
itfate.
better in all the circumstances, than to tempt
HMJr:

What's the short note? How many years?

Well, we were thinking in the terms of two years
and eight months.

HMJr:

Oh-oh. No, George.

Which you can put out perhaps on a seven-eighths
basis -- or a seven-eighths coupon.
HMJr:

No. It doesn't taste good.
Why I thought that would be very tasty to you this
morning.

HMJr:

No.

Because last week we were thinking more on terms of

one percent for it.

HMJr:

No. Well -- no. It doesn't attract me at all.

H:

Well, what -- what's in your mind?

HMJr:

Well, as a matter of fact, I don't want to particularly
get down today to years or interest rates. See?

H:

HMJr:

H:

HMJr:

Yeah.

Because I'm not at all convinced that Tuesday and
Wednesday are the days to do it.
I see.

See? Ah -- with Mr. Chamberlain's speech coming

sometime Wednesday everybody seems to think that

there's teeth in the air if he should by any chance

give a bellicose speech, why we might see our bonds
go the other way because they seem very sensitive
to peace and war news.

-3-

227

Yes. Yes they do.
HMJr:

What

I think you've got the advantage in your short note.

That will go whatever happens.
HMJr:

Yeah.

And it's the biggest and best insurance you can have
and you' re not paying very much for it.
HMJr:

Yeah.

That's the advantage of it.
HMJr:

Well

That 8 the thing that everybody will want and take.
HMJr:

Yeah.

And anyone who 18 holding these other notes would

take that rather than not because otherwise they'11
lose their three-quarters of a point premium on their
rights. All things considered, we felt here that
the short note was the wise thing to do and I think
I'd go ahead and do it.

HMJr:

Well

HMJr:

Here -- here -- your experts here though, I think,
are closer to it than I am. They've been debating
it all morning.
Well, let's hear them.

I'll let Mr. Burgess talk to you first.
HMJr:
H:

Randolph
Burgess:

Well, he's one of those longhaired fellows, huh?
Yeah. I don't know whether he's in the category of
quick-thinkers or not, but
No, I'm a slow thinker, Henry.

-4-

HMJr:

228

I see. Longhaired and bow necktie. What?

Well, I've been giving this powerful thought, Henry,
for -- over the weekend, and this morning and canvassing it with Sproul and with Rouse and

HMJr:

Can you talk a little louder?
I say, we've been canvassing this here very carefully
with Sproul and Ro u se, and four of the dealers who
are in this morning, and we went over the whole thing.
Now of course the -- the thing one obviously thinks

about is the -- the first thing is the foreign
situation; that's the first thing we have to consider.

The question there first is what kind of week this 18.
Now these fellows abroad have been giving us a wrong

steer pretty consistently. They were completely wrong
about last week. As it turns out, last week would have
been an ideal week to do our financing.
HMJr:

Uh-huh.

Now anybody's guess is as good as anybody else's.
Yeah.

My own feeling is that this 16 another such week.
HMJr:

I see.

B:

That it's a good week for financing.

HMJr:

Yeah.

B:

That this is a week when people are talking peace.

HMJr:

Yeah.

B:

I think next week 16 likely to be a very bad week.

HMJr:

I see.

B:

Because next week there's a very good chance they'11

be starting fighting again.

HMJr:

Yeah.

-5B:

229

But I think Chamberlain is bound to state their war
aims in as conciliatory way as Hitler did. Otherwise
he isn't playing for the neutral groups and he isn't
playing for his own people. He's got a great problem
of morale, 80 it seems to me that -- that the chances
are good if this 18 a peace week.

HMJr:

All right. Well now let's say that you're right.
Yeah.

HMJr:
B:

And

And now I'd -- I'd rather start from there and say,
"Now suppose I'm wrong. If

HMJr:
B:

HMJr:

Yeah.

Now I'd like to see us do some financing that is all
right if I'm wrong
Right.

about that.

B:

HMJr:

Right.

And suppose Mr. Chamberlain makes a very bellicose
speech.
HMJr:

Yes.

B:

Now I think what we ought to do is to do some financing

that is safe under those conditions.

HMJr:
B:

HMJr:
B:

HMJr:

Yeah.

Have a bomb-proof, and a Hitler-proof, and a Chamberlainproof financing.
Right.

And for that reason I'm driven away from a five-year
note and a four-year note, because I think the market
isn't quite sure on those and if they blew up Paris
in the morning they wouldn't go.
Yeah.

-6 -

230

At the same time I'm convinced through studying it
here that a three-year note or around in there would
go even if Mr. Chamberlain made a bellicose speech.
HMJr:

Yeah.

I think it's a bomb-proof -- it's the kind of thing

we talked about last year when we talked about an
all-summer bond.

HM*r:

Yeah.

That is, something you can do in your stride as we've
done it before when there was a -- a banking holiday

or some damn thing happening. We went ahead and we
-- and we did something because we didn't know whether

the next week would be better or worse.

HMJr:
B:

Yeah.

Now I think it is important, Henry, to get this out

of the way. I was much interested in the dealers
this morning. We didn't suggest the word "new
financing" to them at all, but three of them volun-

tarily and out of the blue said, "This market will

behave better when the Treasury has gotten this out
of the way because people have it in mind and they

think if the Treasury doesn't get going on it, it's

going to be in a kind of a Jam."
HMJr:

Yeah.

So that -- that I'm very strongly of the opinion that

we ought to go ahead.
HMJr:
B:

Yeah.

That is, I definitely recommend it, and these fellows

here do too
HMJr:

Yeah.

for tomorrow morning.
HMJr:
B:

Yeah.

Because I think if you just let it go that you're
running a more grave risk than doing it.

231

-7HMJr:
B:

HMJr:
B:

HMJr:

Yeah.

And I think we can put out an issue that will be
sure to go.

Well

That is our recommendation.

Yeah. Well, I'll give it serious consideration.
I'm going to talk with Mr. Eccles now if he's in
town and I'll talk with the President at one
o'clock

B:

HMJr:

B:

HMJr:
B:

Yeah.

and I'll come back and see our crowd. Then

we'll make up our mind. We'll let you know unless
you want us to talk with you again after lunch.
No, just as you say.
Well, it'11 be
If you call again, why we're here.

HMJr:

Well, it'11 be sometime between 2:15 and 2:30.

B:

Yes.

HMJr:

Sometime between 2:15 and 2:30.

B:

Yeah.

HMJr:

B:

HMJr:

But in the meantime you might be thinking of this:
That if I decide not to do any refunding this week
Yeah.

then I'm seriously thinking of increasing the
bill issue by 50 million dollars next Monday.

I would do that. If you decide not to do this financing

B:

I

HMJr:

-- I'm definitely sure I'd increase the bill.

Right.

-8-

232

B:

But financing. I -- I -- I'm very strongly recommending doing the
HMJr:
B:

HMJr:

O. K.

First rate, Henry.
I'll be talking to you between 2:15 and 2:30.

B:

I'll be over here then - 2:15 to 2:30.

HMJr:

Righto.

B:

Very good.

HMJr:

Thank you very much.

B:

Right.

233
2Bell:

The Federal Reserve Board is in conference over
there from 11:30 on and said they would be avail-

able if you wanted to discuss this matter with
them and they have discussed it already. John
McKee says that twelve gentlemen who represent
them in an advisory capacity are also in town.
If you would like to see them, he is sure they
would be glad to come over. They are rather enthusiastic for a five-year note. They represent
banks outside of the District. He said they are

talking a five-year note with 1 coupon. That is
thinner than we have been talking about.

H.M.Jr:

Who said 1 3/8ths?

Hadley:

I said 1 3/8ths will give you the needed insurance.

Bailie:

What insurance does that mean?

Hadley:

We will have a possible premium of as much as 11
up to 1g.

Bell:

It also means this, Earle, that if the market should
go off as much as it did at the lowest point when
the notes - long notes sold on a 129 basis, this

new note would still sell somewhere between 9 and
13/32nds.
H.M.Jr:

The five-year note?

Bell:

Yes, sir.
On that point, the thing I was impressed about,
Mr. Secretary, when I was at the Federal, was the
strong feeling of the fellows there that while
mathematically the five-year note does exactly
what you (Hadley) say, that the volume of the
market and the temper of the market is not so
good in the fourth and fifth year as it is in the
third and that therefore you can't be sure that

Bailies

your mathematics would work in the five-year

groups. Those fellows think it will in the

three-year group. They doubt it on the five.

That news can upset the five-year obligation and
the three-year obligation is very near bomb-proof.
Bell:

Well, we have got previous facts on which to go

that the long notes did, as a matter of fact,

234

3-

sell on a 129 basis in the worst news. They
had a little support in discount notes.
Bailie:

Adding another 500 million, it is a little bit

H.M.Jr:

Well, let me get Eccles. (Places call to Mr. Eccles)

different when you take something new. The will
to take something new is different from the
deciding not to sell something old. It is quite
a different psychology and often has different
market effects.

That is something new, isn't it? Am I right? I

mean Burgess talking about years.
Bailie:

No, he was talking about the year when Mr. Bell and

I were here the other night and he talked it to

you on the telephone from New York the other morning.
Bell:
H.M.Jr:

Bailie:
H.M.Jr:
Hadley:

Bailie:

I think he has been a three-year man all along.
It didn't make any impression.
I heard him talk.

I will take your word for it, but it sort of brought

me up short this morning.

I think he changed sometime last week, about ten

days or so ago. Five years look pretty good to him.
He changed, Hadley, after his and Bell's visit to
New York when they became aware of the fact that
the fellows who were actually working in the market

felt that the market was thoroughly healthy in a
big way in the one, two and three-year sections,
that the fourth and fifth year were not so good.

Now, that was impressed on my mind very strongly
on Friday morning when I talked to him.
Bell:

Yes, I think you will recall, Mr. Secretary, that
when he came back he said, "I will admit that I

have been wrong about this five-year market." He
switched then.

H.M.Jr:

(On phone) Hello. (Telephone coversation with
Mr. Eccles follows:)

October 9, 1939
12:28 p.m.

HMJr:

Hello.

Operator:

Chairman Ecoles. Go ahead.

HMJr:

Hello.

Marriner
Eccles:

Hello, Henry.

HMJr:

Yes, Marriner.

E:

We were just discussing this matter when I talked to
you so we hadn't had very much opportunity. We
discussed it again after I had hung up and I wanted
to clarify a matter or two for the other members
of the committee.

HMJr:
E:

HMJr:
E:

Please.

And the members of the board are here who aren't
members of the -- that's Mr. Chester and Ronald.
Right.

And they all feel that the financing -- it would be
desirable to get the financing out of the way this
week.

HMJr:

Yeah.

E:

If it is going to be anticipated at some definite

date next week or the following week, see? Unless
it was going to be put over, and could be put over
indefinitely, depending upon conditions, you see,

that it would be desirable to get it out of the

way this week.
HMJr:
E:

Yeah.

The reason being that - assume a bad market should

develop.
HMJr:

Yeah.

E:

And from a standpoint of the open market committee

we may feel that -- that we should get into the
market.

235

-2HMJr:
E:

HMJr:
E:

HMJr:

236

Yeah.

That, in turn, would -- would conflict, of course,
with the -- the -- possibly the Treasury's desire
to do financing in that particular week.
Yeah.

And
inasmuch as we have been out now for nearly
two weeks
Yeah.

the market is in good shape -- nearly three

E:

weeks -- there was some feeling that 1f it -- if
it would -- it should get out of the way this week
or put off until such time as -- in case of war,
until such a time as it could be done in an
orderly market again.

HMJr:

Well that doesn't click with what you told me, that
if I wanted to do it next Monday or Tuesday and

had to pay more, you'd feel perfectly satisfied.
E:

Well, that's right. I'd feel perfectly satisfied
80 far as -- as the cost of financing.

HMJr:
E:

Yeah.

There's only this question, that -- that comes up,
and that is - assume that the market is pretty bad.

HMJr:

Yeah.

E:

And we went into the market.

HMJr:

Yeah.

E:

You wouldn't want to do financing at the time we

were in the market.
HMJr:

No.

E:

That's the only point.

HMJr:

Well, I don't think in these times a person can be -see every possible angle to a thing like this.

-3-

That's right. I agree.
It's impossible. I don't know how the President
feels
but I think
it's terribly important to keep
our
customers
satisfied.
Yes.
HMJr:

E:

HMJr:

I don't think there's any question I could get by
with an issue this week, but it might sell off
within three or four days sharply and then I'd have
a -- a line of dissatisfied customers.

Well of course if it's very short it'11 sell off
less, that's a certainty.
Yeah.

And even when the bond market has been pretty weak

the last several weeks, the note market was only
bad for a few days and straightened out.

HMJr:

That's right.
And in our operations we bought no notes except

about the first week. After that the note market
took care of itself.

HMJr:

Yeah.

And SO that a very short note, and especially a
refunding note, does not of course create the
problem that the bonds create.
HMJr:

But you personally haven't changed, as I gathered

E:

you, I gathered you wouldn't do it this week.
Well, unless it would be on a very short issue.
Yeah. Well I don't

HMJr:
E:

from when I talked to you, that if it was left to

Now, if you could do it on the -- on the -- on the
two

HMJr:
E:

I don't

-year eight months, on the -- on the three

fourth -- three quarter yield

237

-4HMJr:

238

Yeah.

which gives them eight thirty-seconds premium.

See? Eighteen thirty-seconds, over a half a point,

then I -- I'd be favorable to that.

HMJr:

Well, I don't want to use up my
open dates at this time.

E:

Yes.

HMJr:

Because I'd like to keep those for sometime when

things are really bad, which I don't consider they

are
E:

HMJr:

E:

Well then I'd say I wouldn't be favorable to -- to
doing this week -- to financing this week on the
longer term issue, because I think that you've got
to over-price it.
Well, if I was going to do it this week, I'd want
to go four or five years.
Um-hm. Well I -- now my position would be I wouldn't

favor it. McKee, on the other hand, does favor it.

Sir Draper doesn't furnish it -- favor it.

HMJr:

I see.

E:

Now it

HMJr:

I appreciate

E:

But

HMJr:

E:

your calling me back and after I've seen the

President I'll call you.
O. K.

HMJr:

Thank you.

E:

Goodbye.

239
4H.M.Jr:

Well, the thing that I was afraid of was that he
might say, "Well, if he had only done it when we
told him to why he could have done it so much
cheaper."

Now, let's just go around a minute and - what do

you
think, Bell?
They are highly interesting
conversations.
Dan?

Bell:

Well, I would like to see the refunding out of the
way just as quickly as possible and I think the
market is strong and I think we can do it now and
I think we can do it at a price which will stay
above par and it is certainly the worse situation
we have had in the last six weeks.

H.M.Jr:

How much did we have to pay?

Bell:

H.M.Jr:

Seven-cighths, which would be 28/32nds. I think
all Eccles said was true, that three-quarters is
probably enough, but he forgot to mention that we
were in a war and I think 7/8 costing you about
$600,000 for the thirty-seconds is pretty good.
What I would like to see done is issue a 3-year
note at 12.
But you are leaning which way, this week?

Bell:

Yes. I like the market tone today and I would like

H.M.Jr:

Gene?

to see it done.

Hadley?
Hadley:

I would like to see it out of the way this week.

I think your market looks good and I am in favor
you should save for your - you may want cash in
December. You have got a big maturity coming due
in March. This is a comparatively small one, only
about 400 million, when you consider the Federal's

of five years. I think that these shorter dates

amount in it, and if you can get this out on a
five-year basis you have still got those short
dates for big amounts you may have coming in in
the future. In the papers this morning, both the
high-grade corporate market and the other investors
markets are just holding fire waiting to see if

the Treasury goes in this week and if they do, they
may come forward with some of their issues. If we

240

-5hold it up too long they may get more jitters
than they have now.

Bell:

I understood the British corporate market was

pretty strong.

Hadley:

Yes.

Murphy:

I am just sitting on the wrong side of Mr. Haas.
I am sorry for the commotion that it caused. I

think a little in favor of going this week. I
think Mr. Haas is a little in favor of going next

week, but if we went this week
H.M.Jr:
Murphy:

That is what makes "hoss races."

However, I don't believe that it is a very wide
margin one way or the other. I feel this week
is probably safer but there is a chance that it
may go to a discount shortly thereafter, which
tends to be a factor in the other direction. If
we go this week, however, I would like to see it

3 years or shorter. However, I don't think that

a 36 year would be a good choice.
Bell:

That is March, 19437

Murphy:

Yes.

H.M.Jr:
Haas:

George?

As Henry says, there is not much difference. We
were discussing this thing for several days. I
would put it this way, that if you were running a
corporation, that I would do it this week because
you get in and get out. Maybe you don't have to
do it for a year or two, any more financing, but

the fact that this is a Treasury operation, that
you have to come in repeatedly in the market, I
think it is important that the issue be put out
if you can wait a week and it is on a war basis,

put it out on a war basis, and I think it is of

fundamental importance that you keep this in mind.

I think today it could be done very easily the
have got is what it might look like next week.

way the market looks but the only apprehension I

241
6-

I think it is important that this first one which

was done after the European war started, sets well

in the market's mind, even if we have to pay a little
bit more, so I would like to see the bills started
just as soon as you can, because if you start them you have got eight weeks starting next Monday to
December 15th and that would keep you on the basis

of Bell's figures; that would keep your balance at

a billion. At that time you would get 400 million
dollars in. The net of mine is, I think ycu can do
it today without any trouble. If you do do it, I
would favor a short one, probably 3g years, but I
would be inclined not to do it this week and wait
until you find out whether it is a war or peace

market.
H.M.Jr:

John?

Hanes:

I think George expounded my speech. I don't think
there is any doubt about your being able to do it.
I think it is something we should all get behind as
quickly as possible because it is blanketing the
whole market and it is highly desirable to get it
out of the way. My only fear has been all along

that we put something out which we can do today but

which isn't going to rest well in the market in the
future. Now, we have got a lot of opinion as to
whether the thing can be done immediately but we

haven't had very much on the side of the thing
George mentioned, which is, what is it going to look
like next week. I am impressed by what Burgess said
about making the short one bomb proof. That is fine.

He is thinking in terms of what it is going to look
like if it has to have that shock absorber on it.
My own preference is - and this is based largely

on a hunch - my hunch for last week was not good.
A good many people think that was wrong. My hunch

was not good this week. My hunch is to do it this
week when we will know the worst, and if it is bad
conditions we can put it out under circumstances

which we know and now we do not know what is going
to happen unless Chamberlain's speech along with

all the other peace gestures which might come in the
market gives me cause just to hold back.

H.M.Jr:

Well, a decision now.

242

-7Hanes:

H.M.Jr:

It isn't adding much to the conversation.
The decision now is that I want to talk to the
President this week or some other week but not
about years and rates. Recently I have never
bothered him with that, but I do want to talk to
him because he could very well have some information about the European situation that I don't.
But
I am not going to bother him about the years
or rates.

Let me ask you one important thing, John. If I
wanted to do it next week and had to pay a little
bit through the nose, would that bother you at
all?
Hanes:

H.M.Jr:
Hanes:

Not a bit.
It wouldn't me either.
No, I think we are in that kind of time now when
nobody knows from day to day what the next thing
is going to be and I think you have got to adjust
yourself accordingly. I wouldn't worry a bit about

it.

H.M.Jr:
Hanes:

I was surprised to hear Eccles say he wouldn't be

bothered about next week.

I hope we can do it on an advantageous basis, cer-

tainly, but it wouldn't bother me if we had to pay

more.
H.M.Jr:

I wanted to nail Eccles on that, so that he wouldn't
say that we should have done it last week and, "I
told you this and that and the other thing and you
can't pay this and that and the other thing."
Earle?

Bailie:

Mr. Secretary, the thing that I think makes me plump
on the side of what Burgess said on the telephone is
because I don't believe we are going to know whether
it is a war world or a peace world next Monday. I
think the one thing that we have got to recognize
is that the pattern is from week to week always going

to be a little different and we expect it is going

to be. There was good reason last week to think it

343

-8was going to boil up fast. Actually, it had been
brewing much more slowly. Now, as I read my paper
this morning, I have a feeling this is just a perfect week to do it, not because I want to sock the

market with something which next week is going to
look wrong but because if you put out what I think
Burgess is suggesting, which is a two year and eight

months bill, I don't believe the premium will be
lost and I feel that so long as we sit here not
doing our financing, we are blanketing the high-grade
bond market, which was Hadley's point, very definitely.
The moment this is done, there are lots of forces
going to be released which are going to tend to make
the market better rather than tend to make it worse,
and we can help ourselves if we can get it out. I
would only be in favor of putting it out, however,

if we pressed it. In other words, I don't want to
see us shave pennies on Mr. Eccles' suggestion. You
will be taking the responsibility

H.M.Jr:

I have never done that.

Bailie:

And this would be the last time to do it.

H.K.Jr:

I have never done that.

Bailie:

We want to price it generously because we always got
back in the next issue what we paid in premium in

the present issue. We will do it again. I would
like to see us do it. I don't think there is any

risk in it beyond the one risk which we all have to
face, which is that if a tremendous catastrophe
happened you may find any offer we make look wrong.
Well, there are worse things than that and a two year
and eight months thing would take a bellicose reply
by Chamberlain in its stride. I think the market
just blows from one side to the other.
H.M.Jr:

Well, thank you all. When I come back from the
White House, I will let you know.

Bailie:

I am very interested in hearing you say that you are
pleased about doing bills if we don't do this, because

I think that is essential.

H.M.Jr:

Oh, yes. When I take a look at my balance I think

we have got to go ahead.

244

-9Bailie:

I do too.

H.M.Jr:

Thanks, everybody.

245

October 9, 1939
12:00 Noon

HMJr:

Hello.

Operator:

Chairman Eocles.

HMJr:

Hello.

Marriner
Eccles:

Hello.

HMJr:

Hello, Marriner.

E:

Good morning, Henry.

HMJr:

How are you?

E:

I'm fine, how are you?

HMJr:

I'm pretty well; Marriner, we're sitting around here
talking about the possibility of doing a refunding

Tuesday and Wednesday and I just got through talking
with Harrison and Burgess who are in New York.
E:

Yes.

HMJr:

And they both recommend that we do it.

E:

Yes.

HMJr:

Burgess recommends that we do a three-year note.

E:

(Talks aside) Seven-eighths.

That's two years and eight months.

HMJr:

Yes.

E:

A two-year and eight months note.

HMJr:

Yes.

E:

Yeah.

HMJr:

Now, I don't know how you people feel over there whether you want to say how you feel first or
whether you want to ask me how I feel - either way.

-2E:

HMJr:
E:

246

Well
I -- how
we were
just discussing it now and I can
tell you
I feel.

Well I'd like to know, please.
I can tell you how some of the others feel.
It seems to me that with this uncertainty this

week - we've waited this long to finance, Chamberlain's speech coming on Wednesday, and if it's
HMJr:

peace -- if the peace efforts continue you're going
to get more favorable financing.
That's right.

And we've waited as long as we have, it would seem to

me that -- I'd just as soon wait another week.

HMJr:

I see.

Now -- however, I wouldn't feel very strongly about
that 1f very short financing was done.
HMJr:

Yeah.

I think long financing -- that 1s, by long I mean
either four or five years, you're -- you're going to

pay too much for it, certainly, if peace developments
continue. Now the two-year and eight months - seven
eighths, there -- that -- there's a premium on that
of twenty-eight thirty-seconds.
HMJr:

Yeah.

That figures about a -- nearly five million dollars

on the maturity for two-year eight month financing,
which is a pretty good sized premium.
HMJr:

Yeah.

For two-year eight month financing.
Yeah.

I think that a two-year and eight month financingi

can be done at three-quarters. The premium on that

is -- at the present time is eighteen-thirty-seconds.

HMJr:

Yeah.

247

-3E:

HMJr:

Which 18 a little more than a half a point. A half

a point is a pretty good premium on less than threeyear maturity.

Yeah.

And you would save an eighth of a point current interest on that, and you would at the same time save
ten thirty-seconds in premium.
HMJr:

Yeah.

So that my -- my first choice would be that - we've
waited this long and it's got -- always a very big
bill market available; your balances are still comparatively high; and I would -- I would just as soon
let this thing ride along. However, as I say, I
don't feel strongly and I would be -- would be willing to vote for a two-year eight months three-quarters
to eighteen thirty-seconds. If that was new money it

would be a little different but it's -- it's a refunding. The Federal Reserve has a very large amount of

that, so that the actual amount that the market is
going to have to take in refunding is comparatively
small. And a -- a premium of eighteen thirty-seconds
seems to me to be adequate to absolutely assured
success.

HMrr

Well

Now that's the -- that's the way I feel about the
thing. Now I just -- the other members -- some heof
the other members -- John McKee favors -- he -looks at it somewhat differently than I do. He

favors the four and a half year at one and a quarter
percent which gives you a twenty-eight thirty-second

premium.
HMJr:

Yeah.

He figures that a twenty-eight thirty-second premium,

which would be the same as the seven-eighths, would
be the same premium as you'd pay on the two years and
eight months.

HMJr:
E:

Yeah.

And that if you're going to pay that premium you half ought

to get longer financing. And a -- a four and a if

year at one and a quarter -- I feel that if --

248

you wanted to finance that long that you certainly

could -- I feel like John does, that it could be done.

HMJr:
E:

Yeah.

Now that -- that's just -- if you want to wait just a
second I'll ask Mr. Draper - he's here - if he wants

to express himself and then you'll have the opinion
of the three members of the committee.
HMJr:

Righto.

E:

Just a minute.
(Brief pause)

E:

HMJr:

He favors the shorter, the two and eight months.
Right. Well now, but -- but you said Thursday that
your feeling was rather not do it this week.

E:

That's right.

HMJr:

Yeah.

E:

The -- the -- Chamberlain 1s going to speak here
Wednesday.

HMJr:
E:

Yeah.

And -- and I don't think that makes any particular
difference if you put the two-year -- the very short

issue out though. I don't think that would be dif-

ficult. I think that -- that I wouldn't.favor this

week the longer one.
HMJr:

Well now, let me give you this to think about because
I'm lunching with the President and I want to get his
advice.

E:

HMJr:

Yes.

And while we're doing this you people think this
thing over: One, that if we do nothing this week
we might increase our bill issue Monday by 50 million,
up to 150.

E:

Fine !

-5HMJr:
E:

HMJr:

Because
Be

Right. Now, -- then we might also, no matter what
the hell the war news was, we might want to Monday
force the refunding through, whatever the situation
18.

E:

Yeah.

HMJr:

And pay whatever the price is.

E:

That's right.

HMJr:

See?

E:

HMJr:
E:

That wouldn't be any problem.
What's that?

That wouldn't be a problem, I don't think, no matter

what the news 18.
HMJr:

I mean, if there's -- let's say that after Chamber-

lain's speech Wednesday we knew -- well, what we
were going to have.
E:

Um-hm.

HMJr:

War or peace.

E:

Um-hm.

HMJr:

Whatever the situa -- situation was. If there was a
situation

E:

Yeah.

HMJr:

And that Monday, being the sixteenth, we might say,

"Well all right, we're going to go through. We know

now and
E:

HMJr:

That's......

"......

--

with it. .

and whatever the price is, we'll go through

249

250
--6--

Yeah.

E:

HMJr:

Now, would -- would that bother you?

No, not at all.

E:

HMJr:

What?

Neither one would bother me at all.

E:

HMJr:

Neither one would bother you?

E:

Neither one would bother me at all because I think

that as far as putting bills out immediately, increasing the bills weekly, it would be a fine thing.
I think the market is short of short-term paper.

HMJr:

Yes.

And you could get them at all the money you need at

E:

certainly not more than a tenth of one percent if you

put out several billions.
HMJr:

E:

HMJr:
E:

Now, let's say that for arguments'sake that as a result of his Wednesday speech

this 18 going to be -- this 18 a war now.
That's right. Well then that -- next Monday wouldn't
worry me at all on the -- on the question of refund-

ing notes. You may pay a little more for it.
That's right.

But --but -- but after all, to have put it out this

week and -- and then next week it went off you'd

feel -- you wouldn't feel too good about that.

HMJr:
E:

I'd feel very -- I'd feel very unhappy about it.
It would -- that would be bad. If you put it out a
put it out on a basis of the market this week

HMJr:

Yes.

and then next week it was discount -- it was off

E:

HMJr:

Yeah.

7-

E:

HMJr:

E:

HMJr:
E:

251

......it would look like we had put one over on the
public.
Yeah,
and we've
got to keep
after.got a line of customers that we've

And -- and therefore the -- there's no desire to
take advantage of a market that isn't a stable
market.

Yeah. Well -- you -- I
So I wouldn't worry at all next week if -- if it

looked like war then you would -- we could pay the
price, whatever itseemed to be, and I don't think
on a short issue it would be very much greater
anyway.

HMJr:

E:

Well
then there's no difference in your thinking and
mine.

Uh-huh. Well, that's -- that's the way -- that's
the way we feel here.

HMJr:

And if it was war, and we knew it was war Monday

E:

It wouldn't worry me at all.
I might have to pay a quarter more and so forth

HMJr:

and so on, but I -- I'd feel then
E:

HMJr:

That's right.
that I wanted to go through with it and get it
behind me.

E:

That's right

HMJr:

Because I'm

E:

You may pay a little more - you pay an eighth - or
as you say, as much as a quarter more for -- for
notes.

HMJr:

Because on the 24th we' ve got to do Commodity Credit.

E:

Yes, in any case.

-8-

HMJr:

Yes, in any case.

E:

Yes.

HMJr:
E:

HMJr:

E:

252

See?

So that
case

you'd want to finance next week in any

Not definitely but -- I mean, I'm just putting it

up to you to give you the worst possible picture.
Well of course you could -- you could issue, as you
say, -- you could -- if you issued more bills, you
could post -- you could postpone it even later if
you wanted to.

HMJr:

Oh yes, but -- I mean, I'm just -- wanted to see how
you felt if on the 16th we said, "Now, we've got war
and I've got to pay a quarter of a percent more,"
whether you'd feel happy over at the Fed. about it.

E:

Yes.

HMJr:

See? You say you would.

E:

That's right.

HMJr:

0. K.

E:

All right then.

HMJr:

Thank you. I'11 call you up when I come back from
the White House.

E:

All right, I'11 appreciate that.

HMJr:

Thank you.

E:

Thank you. Boodbye.

253

October 9, 1939.

RE FINANCING

Present:

Mr. Hanes

2:40 p.m.

Mr. Bailie

Mr. Haas
Mr. Murphy

Mr. Hadley

Mr. Duffield
Mr. Bell
H.M.Jr:

The President of the United States says that he
can't guarantee any more than the rest of us what
will happen this week. There are several things
which are pointing up. The only thing where he

takes a little different viewpoint than I have
is this, that if there should be peace, then he
isn't going to be worried about what the market
will do. With this assumption, if there is peace

in the Government bond market the rest of the
market should be strengthened up and he can't

subscribe to that at all.

Bailie:

I agree with the President.

H.M.Jr:

He said just what will happen to the market if

there really was peace and the assumption that

the Government bond market would continue to

strengthen if there really is peace, he said,
"This is a thought which I cannot subscribe to,"
since he doesn't know. If there is war, it is
going to harden and if there is peace everything
is going to be lovely as far as the bond market
is concerned. Just what is going to happen

Bailie:

Remember how we all talked a few days before the

war came on?
H.M.Jr:

So the upshot of it is that we will postpone it.
I thought you (Duffield) ought to have something
at 4:00 o'clock.

Duffield:
H.M.Jr:

Do you want a press release or just something to
tell the boys?
You and Bell decide.

Bell:

I would be inclined to do it just in the regular

way, just say we are going to increase our regular

bills.

254

2-

Duffield: I will talk to them.
H.M.Jr:

That
give
something at my press conference
that Iwill
can
talkme
about.

Bailie:

So it won't be exciting.

H.M.Jr:

The New York Times fellow last time went away and
showed
his notebook and said, "There is your press
conference."

Bailie:

It wouldahave
to be the Secretary of the Treasury
without
headline.

H.M.Jr:

I would rather be without a headline and without the
heading. I am perfectly happy.
I guess I had better call Eccles. You know, Eccles
called me back a few minutes after you fellows left
and said he had been talking it over with his people
and they just wanted to let me know that they thought
it was better to do it this way but if it got bad
they would have to go in the market and then I couldn't
finance, so I said, "Well, Marriner, I don't know how
you are over at the Federal Reserve Board, but I can't
foresee all the angles and I am not going to prophesy
what I can or cannot do next Monday if I want to do it."
But you see they are sort of serving notice on me
that they want to go back in the market and if the

market goes flooie, they will. I had it on the tip
of my tongue to say - he made a speech about that,
saying that since they had been out for two weeks

the bond market was so good. I felt like saying,
"Which comes first, the chicken or the egg?' But I
didn't. I was very good, Johnny. You would be proud
of me. When he said they served notice on me if the
market cracked they would go in, I also didn't say,

"Well, do your refunding and then you can do the
explaining." I was very good this morning. Supposing
we go ahead with our refunding and then they go in

and do the buying, let them do the explaining. Isn't
that right? But there was a little meanness coming
back. They just served notice if the market cracks

Bell:

next Monday they are going back into it.
While you are waiting, the Home Owners Loan still

lacks about 10 million dollars of the les. In talking

255

-3it over with Earle and Randolph last week, we
thought it was better to stay out of the market

H.M.Jr:

completely. That would still hold for this week.
Definitely. You don't want to give Eccles a
handle.

Bell:

We came to the conclusion we ought to leave the
market completely alone.

H.M.Jr:

It would be terrible, a calamity.
The worst thing about that is that it wouldn't help

Bailie:
H.M.Jr:

the market any.

(On phone) Hello. (Telephone conversation with
George Harrison follows:)

256

October 9, 1939
2:45 p.m.

HMJr:

Hello.

Operator:

Governor Harrison.

HMJr:

Hello.

George

Harrison:

Hello, Henry.

HMJr:

George

H:

HMJr:
H:

HMJr:

Yes, sir.
The decision 18, no refunding this week.
I see.

And we will announce at four o'clock, though an in-

crease of 50 million dollars in our bills.

I see. Well, I lost ten cents.
HMJr:

(Laughe)
(Laughs)

HMJr:

H:

HMJr:

Well, you're five cents cheaper than Tom Smith.
Tom will only bet me fifteen cents these days.

(Laughter) Well, I'm sorry but you have -- no doubt
you've got good reasons for it.
Well, I don't know how good they are, but at least
you can underline that they're sincere.

H:

Yes. All right, sir.

HMJr:

And the rest 18 in the laps of the gods.

H:

HMJr:

I see. All right, Henry.
All right.

H:

First-rate.

HMJr:

Thank you.

-2H:

Goodbye.

HMJr:

Randolph be down tomorrow?

Randolph
Burgesa:

I'm right here, Henry.

HMJr:

Are you coming down?

B:

Well, I wanted to. I was just talking with Earle

Bailie about that. I'd rather like to stay up

here tomorrow but he'll go over it with you.
HMJr:

0. K. All right.

B:

0. K., Henry.

HMJr:

Thank you.

B:

Goodbye.

257

October 9, 1939
2:43 p.m.

HMJr:

Hello.

Operator:

Chairman Eccles 18 at a meeting in the dining room.

HMJr:

It will take me a few minutes to get him.
Well, while he's -- getting out of the dining room,
get me George Harrison.

0:

All right.

HMJr:

Please.

258

October 9, 1939
2:47 p.m.

HMJr:

259

Hello.

Operator: Chairman Eccles. Go ahead.
HMJr:

Marriner

Hello.

Eccles:

Hello.

HMJr:

Marriner, the President feels this way on this thing,
that of course nobody can tell what will happen this

week, you see?
E:

HMJr:

Yes.

But this theory that some of us have been holding
that if there should be peace, that everything will
be lovely in the government bond market. He doesn't
subscribe to that at all because he says he isn't -at all sure
what would happen to all of our
markets. See?

E:

Well, I -- I'm -- I feel that if we should get a

chance there would be peace, that certainly certain
markets, stocks and commodities, might break pretty

badly and that may temporarily, I agree -- it may

influence the government bond market, but I'd be
more inclined to think that the government bond market,

in view of that, would likely show her strength.

HMJr:

Well

E:

But as you say, and as he says, that after all, there
is some uncertainty.

HMJr:

Well, he said that he had no strong feelings, but he
was perfectly willing to let the thing go for another
week and also perfectly willing that we announce this
evening increasing the bills next week by 50 million
dollars.

E:

Um-hm. Um-hm.

HMJr:

So unless you have some

E:

But he doesn't feel that -- that we should do financing
this week?

-2260
HMJr:

No.

He thinks it should be put off?
HMJr:

Yeah.

E:

And you feel the same way about it?

HMJr:

Definitely I I feel definitely.

E:

HMJr:

Yes. And you likely will announce then there will
be some bill offering this week -- or next week.
We'll announce that tonight.

E:

Yes.

HMJr:

For tomorrow morning.

E:

Yes. Well that

HMJr:

How does that leave you?

E:

That leaves me all right.

HMJr:

On the whole program?

E:

HMJr:

That leaves me all right. There's only this question
that -- that I -- that I raised when I called you the
second time; and that is, if there should be war
Yes.

and I don't personally think that the thing

E:

can be decided that clearly this week
HMJr:

Yeah.

but if it apparently-- but -- but if it should

E:

be interpreted after Chamberlain's speech or other
developments that war was more or less inevitable,
and the bond market should get -- should be rather
bad again
HMJr:
E:

Yeah.

we -- we may feel that -- that we ought to do
something about it. Certainly we've been out and
we want to stay out and we would stay out unless

-3-

261

it looks like there is very little selling and practically no buying, and the net result is it's -- it's

-- they permit it to show a great weakness which in
that case we may want to do something about it. I'll
call you, however, before we do.

HMJr:
E:

Three cheers.

(Laughs) Under those -- under that situation -- of
course that would make it difficult to finance next

week.
HMJr:

Yeah.

E:

But

HMJr:

Well, let 'B hope it won't be an irresistible body
meeting an immovable one.

E:

Well, we -- we certainly don't want to go into the

market at all if we can keep out of it, I can tell
you that.

HMJr:
E:

Yes. Well

And -- and unless the market shows that there is real
lack of confidence throughout the country because -and unnecessarily so, as we felt there was before,
certainly we want to stay out of it just as long as
we can. And we've been out of it, as you know now,

for some little time.

HMJr:
E:

That's right.
And we -- when we went in we -- we bought practically
nothing but the psychology on the part of the banks

throughout the country was that -- well, they just
if we had confidence in it. See?

didn't want to sell. They've got confidence in it
HMJr:

Yeah.

E:

And we wouldn't want them to lose that confidence

again due to our failure to do what we think is
possibly our duty if that market got bad.

HMJr:

Well, as I told you earlier today, I don't pretend to
be able to forecast a day in advance what's going to
happen and -- well, we consult you on your financing

-4-

and you're
market.
E:

HMJr:

E:

262

going to talk to us about going in the

That's right.
We,
after all -- I think we can get together without
any trouble.
Well I -- I think so and as I explained to you before
that it wasn't any intention on our part of -- was a
misunderstanding and I -- I blamed Burgess and Dan
as much as I did ourselves. I think we were all

maybe a little derelict there in the -- in the excite-

ment of that day or two.
HMJr:

Well

E:

But we'11 do what we can to see that it's avoided.
And

HMJr:

After all, we -- we can learn by

E:

We live and -- we live and learn, don't we?

HMJr:

Right, old man.

E:

All right. Well, thanks for calling.

HMJr:

Thank you.

E:

Goodbye.

263

-4H.M.Jr:

Well, when we hear Eccles, we will have the whole

Bell:

Want to change the subject for a minute?

H.M.Jr:

Love to.

Bell:

There are 3,000 postmasters in town holding their
convention. Gene Sloan thought it would be a nice
thing if you would appear on the platform for one
minute, you and Farley, to thank them for the help

story.

they have given you in the U. S. Savings bonds. It
would do a wonderful lot of good, they thought. I
am inclined to think it would.

Bell:

Is it agreeable with Farley?
I think so. That will have to be checked, of course.

H.M.Jr:

What is that song.

Bell:

"Roll out the barrel"?

H.M.Jr:

No, "Buy a baby bond's baby.' I will get up and

H.M.Jr:

sing it.

(On phone) Hello. (Telephone conversation with
Marriner Eccles follows:)

264

October 9, 1939
2:57 p.m.

HMJr:

Hello.

Operator:

Mr. White. Go ahead.

HMJr:

Hello.

Harry
White:

Yes. Yes, sir.

HMJr:

Harry

W:

HMJr:

Yes, sir.

I talked to the President about this oil situation,
and made the suggestion that we include in the group
Lauch Currie. He said he'd be delighted. So I -to save my time call up Lauch and tell him it's my
suggestion and I'd like him to work with you on it

and the President would too.
W:

All right, sir; I'll do that right away.

HMJr:

Then I can forget about it.

W:

HMJr:

Yes, I'll take care of it.
All right.

265

October 9, 1939
2:58 p.m.

HMJr:
Ed

Foley:
HMJr:

F:

On this English plane.
Yeah.

The
President
forget
about itsaid to do just what we're doing,
O. K. (Laughs)

and if the Army wants to take a look at it in

HMJr:

storage, O.K. but, you know they're just scared to
death in the Army about it.
F:

Yes, I know they are.

HMJr:

So he said put it away and forget about it. Now if
anybody asks about it, why it's interned for the
duration of the war.

F:

O. K.

HMJr:

See?

F:

Thank you very much. I'm sorry that it same up the
way it did, Mr. Secretary.

HMJr:

It's all right, but it's a little difficult at three

F:

I know.

minutes of one

something new.

HMJr:
F:

HMJr:

F:

HMJr:

I know that.

And I'm a little bit below par, but I'd rather have
you get me a little off my footing and give to me
rather than not give it to me.
Well, I -- I -- I faced that decision and I decided
that that's what you'd rather have and I -- I.
If it comes up again, do the same thing, but try to

do it a little sooner.

2

266
F:

All right, Mr. Secretary. Thank you very much.

HMJr:

Goodbye.

October 9, 1939
4:47 p.m.

HMJr:

267

Hello.

Operator:
HMJr:

George

Hello.

Harrison:

Hello, Henry.

HMJr:

Yes, George.

H:

Thomas MoKittrick -- M-o-K-1-t-t-r-1-o-k, who 18 an

American
HMJr:

Yes.

but who has lived in London a great many years

H:

has recently been made President of the B.I.S. to take

office the end of this year.

HMJr:

Yeah.

H:

He had lunch with me today and he's going to Washington

and would like to have the privilege of calling on
you.

HMJr:

Fine.

H:

And I think it would be awfully nice if you would oare
to see him.

HMJr:
H:

HMJr:

I would.

Let's see, he'11 be there Thursday and Friday. Could
he call up Mrs. Klotz and arrange for an appointment?
He could but it's what we call a bank holiday.

H:

What 18?

HMJr:

Thursday and Friday.

H:

Oh -- oh, are you going out of town?

HMJr:

I'm going up to the farm. It's a bank holiday.

H:

(Laughs) Good for you.

-2-

HMJr:

268

I says, to hell with it.
(Laughs) Well that's -- that's the best reason for

not having a new issue I know.
HMJr:

(Hearty laughter) Well, I was going to do it Tuesday

and Wednesday, 80 I could have had my bank holiday.
And if it had gone well I could have had a swell
bank holiday.
H:

Well, you plan to be there today though. I don't know
when he's leaving. Would you be back by Monday?

HMJr:

Yes.

Well, I'll check with him on that and ask him then

if he'11 call you Monday 1f that's all right.

HMJr:
H:

HMJr:
H:

Delighted to see him.

All right. Thank you very much.

All right, sir.
Fine! Well I hope you have a good holiday, whether

it's a bankers holiday or a farmers' holiday.

HMJr:

Well, it's going to be a -- a tired old farmer's

holiday.
H:

HMJr:
H:

HMJr:
H:

Good.
Yeah.

You deserve a rest.
Thank you.

All right. Goodbye.

269

October 9, 1939
4:59 p.m.

HMJr:

Yes.

Robert
Wagner:

You and I -- this is Bob Wagner.

HMJr:

Yes, Bob.

W:

You and I have got a lunch engagement tomorrow.

HMJr:

That's right.

W:

But I've got to go -- I've got to speak tomorrow.

HMJr:

Oh, gosh I

W:

I was to speak today but Downey took all day long.

HMJr:

Oh, for heavens sake !

.

W:

And -- and I want to get on at twelve o'clock, and

we vote at two o'clock on the Tobe motion.
HMJr:

Oh, yes.

W:

So I wonder if I could have lunch with you -1 I think

it's rather important that I talk to you.

HMJr:

Yeah.

W:

Would Wednesday or Thursday be all right for you?

HMJr:

Here's the thing, Wednesday I've got -- I meet every

week with Eccles and Jerome Frank and Jesse Jones
at lunch.
W:

Oh, gee 1 Well, I don't want to be in there with
that bunch.

HMJr:

And I was going to go up and take a bankers' holiday
on Thursday.

W:

Well -- I'll tell you, Henry, let's

HMJr:

Well

W:

One day next week.

-2HMJr:

270

Well, I eat with the President Monday. I'd be delighted to eat with Wagner on Tuesday.

W:

HMJr:

Next
-- well that -- we'll make it a week then from
tomorrow.
How's that?

That's swell.
HMJr:
W:

Is that all -- will it keep until then?

And with it -- huh?

HMJr:

Will it keep until then?

W:

Oh, yes. It's -- I want to talk this general situation over with you, you know.

HMJr:

All right.

W:

The study and all that business.

HMJr:

Well, let's let it go until the 17th.

W:

What?

HMJr:

Let it go until October 17th.

W:

When is that?

HMJr:

That's the following Tuesday.

W:

Tomorrow a week.

HMJr:

Yes.

W:

All right. You and I will meet at one o'clock in the
Treasury at -- at -- next -- if you don't forget, on
October 17th.

HMJr:
W:

HMJr:
W:

What the hell do you mean, if I don't forget?
(Laughs)

Did I ever forget?

No, you never do, by God. You're a -- you're a star.

271

-3HMJr:
W:

HMJr:
W:

HMJr:

How -- how's everything going on the Hill?

Oh, we're all right.
Are we?

Oh, yes. Oh, yes.
What?

W:

I think by a darn good vote.

HMJr:

What do you mean

W:

Tomorrow will be a test.

HMJr:

What do you think we've got?

W:

Well, I don't know - I should say anywhere between
61 and 64.

HMJr:
W:

I see.

That's what it looks like to me.

HMJr:

Swell. Thank you, Bob. I'll see you on the 17th.

W:

Yeah.

HMJr:

Right.

W:

Goodbye.

272

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

October 9, 1939.

Secretary Morgenthau

FROM

Mr. Haas HOA
The number of persons employed on WPA projects for the
week ended September 27, 1939 was 1,788,000, an increase of
55,000 over the preceding week, but a decrease of 53,000 from
the number at the end of the previous month, as shown in the
attached tables and chart.

Attachments

273

WORKS PROGRESS ADMINISTRATION

Number of Workers
Employed - Monthly
United States
Number of Workers
1936

June

July
August
September

October

November
December
1937

January
February
March

April
May

June

July
August
September
October
November
December
1938

January
February

March

April
May

June

July
August
September

October

November
December
1939

January
February

March

April

May

June

July
August
September

(In thousands)
2,256
2,249
2,377
2,482
2,581
2,483
2,192

2,138
2,146
2,115
2,070
1,999
1,821
1,569
1,480
1,451
1,476
1,520
1,629
1,901
2,075
2,395
2,582
2,678
2,767
3,053
3,153
3,219
3,346

3,319
3,094
2,986
3,043
3,009
2,751
2,598
2,551
2,200
1,841
1,788

Source: Works Progress Administration.

Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.

274

WORKS PROGRESS ADMINISTRATION

Number of Workers
Employed - Weekly
United States
Week ending

Number of Workers

1939

January 7
January 14
January 21
January 28

(In thousands)
3,070
3,030
3,001
2,986

February 4
February 11
February 18
February 25

2,966
2,966
3,011
3,043

March 4
March 11
March 18
March 25

3,032
3,009
3,015
3,009

April 1
April 5
April 12
April 19
April 26

2,980
2,906
2,761
2,752
2,751

May 3
May 10
May 17
May 24
May 31

2,734
2,660
2,622
2,609
2,598

June 7
June 14
June 21
June 28

2,594
2,590
2,578
2,551

July 5
July 12
July 19
July 26

2,388
2,290
2,250
2,200

August 2
August 9
August 16
August 23
August 30

2,081
2,053
1,976

September 6
September 13

September 20
September 27

Source: Works Progress Administration.

1,896
1,841
1,661
1,694
1,733
1,788

275

WORKS PROGRESS ADMINISTRATION
Number of Workers Employed

United States

1936

1935

Monthly V.P.A. Employment
1937
1938

Weekly V.P.A. Employment

1939

MILLIONS MAR

TIMILLIONS
of

1938
MAY

1939

JULY

JAN.

SEPT.

MAY

MY

SEPT. NOV.
WILLIONS

WORKERS

WORKERS

WORKERS
BURKERS

3.5

3.5

3.4

3.2

3.4

3.2

3.3
3.3

3.2
3.2

2.8

3.1

3.1

3.0

3.0

2.9

2.9

2.8

2.8

2.7

2.7

2.6

2.6

2.4

2.0

2.4

2.3
1.2

2.2

2.1

.8

2.0

1.9

.4

1.8

1.7

0
J

1935

1936

1937

1938

1939

2.5

2.5

1.6

1.6

2.4

i

JAN.

2.3

2.2

2.

2.0

1.9

1.8

1.7

111

m
MAY

DULY

1938

DOY:

WHILL

469.

11/111
JAN.

www.

MAY.

MAY

JOCY

tept.

m

amail
NOV.

1939

SOURCES WORKS PROGRESS ADMINISTRATION

Office of the Secretary of the Treasury
Division, Research and Statistics

.221.8

1.6

276

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 9, 1939.

TO

FROM

Subject:

Secretary Morgenthau

Mr. Haas Of

Wheat export sales and other market data as
reported by the Federal Surplus Commodities
Corporation.

Sept. 26: Some small lots of Canadian wheat reported sold
for export. The Devon City, a British ship,
which was expected to load wheat at Portland,
has cancelled its charter and proceeded to
Vancouver, B.C., to load general cargo for
London.

Sept. 27: Foreign demand for grain was very disappointing.
Export sales of Canadian wheat estimated at
around 300,000 bushels. The Department of
Commerce reported that only 366,000 bushels of

grain were exported from the United States during

the week ending September 23, with 1,479,000
bushels the previous week and 2,779,000 bushels

in the same period last year. It is thought that
considerable export business will be done in corn
soon.

Sept. 28: It was reported yesterday that a ship at New
Orleans chartered to take wheat to Europe and
also one at Houston had cancelled their charters.
No reason given.

A cargo of corn was reported sold to Antwerp from
Albany. It was estimated that 1,500,000 bushels
of corn had been bought for deferred shipment

from this country. This is the largest single

Sept. 30:

day's business in several years.
It is estimated that possibly 2,000,000 bushels of
corn were sold during the week from stocks now in
storage in Canadian ports. England is said to have
bought about 1,500,000 bushels of Argentine corn
during the week.

277

Secretary Morgenthau - 2
Oct. 2:

World shipments of wheat for the week totaled
8,541,000 bushels compared with 7,613,000 the
previous week. North America last week shipped
5,010,000 bushels.

Exporters have inquiries for several cargoes
of wheat if freight space can be arranged.
Flour exports from Australia have slowed down

and millers are badly in need of export orders
to maintain their overseas trade.

Oct. 3:

The Winnipeg market was helped some by the sale
of two eargoes of Manitoba wheat to Scandinavian
countries. Argentina shipped 3,000,000 bushels
of wheat last week to England, a long and
dangerous haul.

Two cargoes of corn were reported sold to the

United Kingdom amounting to about 500,000 bushels.

278

October 9, 1939

I spoke to Hanes about the tax situation this
the Technical Staff of the Joint Committee in his of-

morning and he said that he had numerous meeting with

fice and that there were positively no commitments made;
that when they were ready, they would talk to me.

I told him that I was counting on him to look
after our interests.

279

GROUP MEETING

Present:

Mr. Hanes

October 9, 1939.
9:30 a.m.

Mr. Gaston

Mr. Viner

Mr. Haas

Mr. Cotton
Mr. Foley

Mr. Duffield
Mr. Cochran
Mr. Graves

Mr. Thompson

Mr. Bailie
Mr. White
Mr. Bell
Mrs Klotz

H.M.Jr:

Ed, would you hang on to this thing about Rudolph
Hecht and the Universal Trading? I have never

done anything like that. It seems such a dirty
piece of business. This crowd is suing Universal
for commission on the 25 million dollar loan. Instead of their taking a deposition from me, what
I would like to see first is get him on record as
to what Wang says he did to me on that trip to

New York, because here is the thing: Wang says
that I came to New York. I never saw Wang in New

York in my whole life.
Foley:
H.M.Jr:

And you never called him.

No. I would like to have a copy of a sworn state-

ment of the Chinese Consul General and Wang that

I met Wang in New York at the Ambassador Hotel. I
never saw Wang in New York in my life. I can say

this is a lie, but when he gets into my conversation

with Bill Bullitt, I can't give my conversation to
Bill Bullitt without asking Bullitt's permission.

I don't know what the law is. Can you say, "Well,
before the Secretary will do anything, he wants to
see a sworn signed statement, not what you say that

Wang said but the actual statement that Wang and
the Chinese Consul General say about his meeting
Wang in New York"?
Foley:

H.M.Jr:

There is no reason why I can't say that. I don't
know whether they will do it or not.
Then if they won't, I won't.

280

-2Foley:

Yes, but that is helping them, Mr. Secretary.

H.M.Jr:

But they say this now, first, that I met them

Foley:

of it. As long as they don't know what I did or
didn't do, they are just groping.
That is right.

H.M.Jr:

Foley:

H.M.Jr:
Foley:

H.M.Jr:

Foley:

H.M.Jr:

at the Ambassador Hotel. They didn't say anything about the Consul General and all the rest

Now, I can ask the Chinese Ambassador here to find
out what is Wang's sworn statement and what is the
Chinese Consul General's statement about me.

That is the better way to approach it.
And where is Wang, is he in the United States?
I don't know.

Let's do it that way, because after all, the principle thing is they claim that I met this fellow and
we went on from there. I don't mind nailing that
as a lie, but I am not going into what I said to
Bullitt and what I didn't say to Bullitt. They are
trying to find out. As a matter of fact, that telephone conversation they have been talking about
with Bullitt never took place.
All I did was to say if they would frame the inter-

rogatories they would like to submit to you, I would
be glad to look them over and let them know your
wishes in the matter.
Ask Larry Morris to try to find out what Wang has
said and what the Chinese Consul has done, about
my meeting Wang in New York. They even claim
they know what took place in Cabinet. You (Hanes)
and I know when the Chinese loan was consummated
and when a certain gentleman got on a boat to go

to South America and not until then.

Hanes:

They can't sue you for that.

H.M.Jr:

It is such a filthy thing, I hate to get into it.

Hanes:

They are suing Universal for

281

-3H.M.Jr:

One million dollars commission for the 25 million
dollar loan, saying that this group got influence
on Wang and Wang on me, see. The facts are, I
distrusted Wang so that I wouldn't discuss it with
him and I launched it from Europe through Wellington
Koo, whom I trusted and I wouldn't talk to Wang,
but I would talk to Wellington Koo and we sent the
message from Wellington Koo that way rather than
doing it through Wang, because I didn't trust him.
They are trying to find the thing out and they just
don't know. They want to cross-examine me and I
have never permitted it.

Foley:

They can't - this interrogatory business is not a
cross-examination, Mr. Secretary. They just ask
these questions in front of a Commissioner and you
answer anything you want to, but counsel isn't in

the room at all. It may save appearance of witnesses

H.M.Jr:

at the trial.
Try it this way first.

Foley:

Yes.

H.M.Jr:

O. K.

What have you got?
Hanes:

Nothing.

H.M.Jr:

We are having a meeting at a quarter of 12:00 on
Government bonds.

Herbert?
Gaston:

Waesche has some figures ready on the power plants

for the cutters and he is going to be in my office
a little before 10:00 and wanted - do you want to
see him this morning?

H.M.Jr:

I can't do it. You will have to try him again to-

morrow.

Gaston:

He is going to New York today but he can leave the
date of the meeting and we can get Johnson over.

H.M.Jr:

That is all right.

282

-4Very confidentially, to make a record of it, I

called the President last night and said I was so
bold as to make a suggestion that the patrol which
is under the Navy would make a systematic search

for the next - today and tomorrow - over the path
which the Iroquois is going to sail, with airplanes.
So he said, "Well, I think that is being done," and
I said, "No, Mr. President, I am pretty sure it is
not being done and I think it should be. Every
square mile should be flown over in advance in view
of their having sighted a submarine off Nantucket,
supposedly, and one off Maine." He was extremely
nice and said he was going to talk to someone
about it in a few minutes and raise the question,
because you and I know that there isn't any systematic patrol.

Gaston:

H.M.Jr:

Gaston:

H.M.Jr:

Gaston:

I don't think so.
He said he thought so, but having got the idea, I
wasn't going to bed without getting it over to him
and he was extremely nice. I was fearful that he

might say, "You run the Treasury and let me run the
Navy," but he was glad to have the suggestion.
Don't you think whether we give any orders to start
or not, it would be a good Idea for our people
within a limited range off the Coast to make that

search? of course, their regular patrol will cover
part of that.
Herbert, it is the responsibility of the President
and the Secretary of the Navy and Chief of Operations.
This free-lance stuff in times like this, I don't
want to do it, especially since I spoke to the
President. He took the responsibility and it is
his, so I don't want
They will just keep on their regular cruises, then.

Gaston:

Yes. What I was thinking of, you might ask Waesche
if any new orders have been issued.
Shall I tell him what your suggestion was?

H.M.Jr:

Yes. Ask him whether there have been any new orders

H.M.Jr:

issued.

283

-5Gaston:

H.M.Jr:

I will.
I had my nerve with me making the suggestion, but

having made it I don't want to jump in and then do

it. It is the President's responsibility. I think

I am right on the procedure that - there is always
a question every day that they are going to take
over the Coast Guard. By giving them full cooperation, we don't raise that question.
Gaston:

Did
had?

H.M.Jr:

No. I didn't want to bring that up.

you give the President the information that you

Anything else?
Gaston:

That is all.

H.M.Jr:

Say something, gentlemen.

On the record, Cotton, I asked Viner last night to

make a study for me of the ten or eleven percent
distribution on the Canadian dollar and what, if any-

thing, we can do about it. I don't think anybody
suited for it because for three years he has been

in the Treasury is doing it. Viner is peculiarly
doing it for the Canadian Government.
Viner:

I have just been thinking that that might be a reason

White:

why somebody else ought to do it.
What was the alibi?

Gaston:

He wants you to interview him, Harry.

Viner:

Harry will do it anyway if I take it on.

White:

No, I will do another one, you mean.

H.M.Jr:

It is still your baby, Jake.
George?

Haas:

Here are three memoranda (handing report to Secretary).

284

-6One of them is the memo on railway equipment which

you asked for at 12:00 o'clock today.
H.M.Jr:

Harry?

White:

There is a memorandum here on quicksilver.

H.M.Jr:

Yes.

White:

And there is a memorandum here on a request to purchase Liberian silver which - I mean for Liberia
to purchase some of our silver.

H.M.Jr:

Which do you mean?

White:

The latter. Copies have gone to Mr. Cotton and he
will spread them around. The State Department would

like an answer today. I take it the group will consider it today. There is an item in Mr. Cochran's
cable that I take it is going to receive consideration today. I think that was one that Viner was also
specifically interested in, the request of foreign
central banks to invest part of their dollar assets
in American Governments and possibly in securities.

We had that question before us about a year ago. Is
that the one you were interested in?
Viner:

Yes.

White:

But it needs re-examination.

H.M.Jr:

Cotton, see that somebody does it, will you? Your
answer is, "Aye, aye, sir." You are in the Coast

Guard now.
White:

That is all I have and I take it that probably sometime after the meeting you will want to see the
summary statement of the oil situation.

H.M.Jr:

Yes. I will give you the - didn't I tell somebody

Haas:

You wanted something at 11:30.

H.M.Jr:

Well, Viner and White at 11:30.

White:

Yes.

I would see them at 11:30? I didn't.

285

-7Bailie:

Bell:

Mr. Secretary, you said a quarter of 12:00, bonds.
Yes, they are just going to give me something which
really
oughtn't
take fifteen.
them more than three minutes,
but
I am
givingtothem
I thought that was 4:15.

H.M.Jr:

George Harrison at 11:15.

H.M.Jr:

All right, Harry?
White:

Yes. Possibly it would be best to indicate now, not
a no or yes answer. With that in mind, the time is

knowing exactly what you have in mind, there is not

all right.

H.M.Jr:

I have got to learn this story about the doctor, the

lawyer and the economist. Do you fellows know that?
Duffield:

Yes.

H.M.Jr:

Tell it to them.

Duffield:

They were arguing about which was the oldest of the
professions and the doctor insisted his was because

it was a medical operation that took the rib out of
Adam to make Eve, and the lawyer said, "Why, of course
not, because the Bible said that in the first place
they brought order out of chaos, and that was the
function of the lawyer," " and the economist said, "Who
do you suppose created that chaos?"

White:

That is like the fly and the action story. "Look
at the dust I raise.
That story is very true.

H.M.Jr:

All right.

Viner:

"

I want to talk to you (Graves)
White:

But you couldn't have order without previously having
chaos.

H.M.Jr:

.... minute after this.

286

-8Bell:

The average rate on these Treasury bills outstanding
us about $750,000 a year. That is $188,000 a quarter
for ninety days.

H.M.Jr:

But on a yielding basis

Bell:

$188,000 every ninety days.

H.M.Jr:

One billion one...

Bell:

One billion three and an average rate of .058. It

H.M.Jr:

$752,000 a year.

Bell:

That has that higher rate in there, of course. At
the rate we got on the last bills, .036, it cost us

at the present time is .058. At that rate, it costs

cost us $752,000.

$470,000 a year.
H.M.Jr:

But the stuff that is outstanding now is 750?

Bell:

750. It looks as though our cash balance on Decem-

ber 1st will be about 800 million, including the
Commodity Credit material.

H.M.Jr:

But counting on the refunding?

Bell:

If you pay off the Commodity Credit it would be down

H.M.Jr:

If we refunded?

Bell:

About 800 million December 1st. On December 15th,

H.M.Jr:

we get some income taxes in there.
Then I will make it the 14th on my notebook.

Bell:

There is a memorandum giving a summation.

H.M.Jr:

Is that all?
That is all I have.

Bell:
H.M.Jr:

to about 600.

it will probably be down to about 650 and if you
pay off the Commodity Credit, it will go down to
about 450. That 650 might be up a little because

I would like to talk to Hanes and I am announcing
now we are talking at a quarter to 12:00 on financing,
so it is expected you will be here.

287

TREASURY DEPARTMENT
WASHINGTON

October 9, 1939.

MEMORANDUM FOR THE SECRETARY:

Re: Government Requirements for Electric Current.

I submit herewith a statement showing the essential facts regarding
the volume and cost of electric current purchased for Government facili-

ties at the principal cities. Corresponding facts are not available for
the cities not listed.

This statement is based upon data supplied by the Procurement Division, supplemented by conferences with the Procurement Division engineer

in charge of the studies made by that Division, who appears to be highly
competent.

The following facts and conclusions are stated for your information:
(1) Navy yards and Federal prisons, for reasons of policy or economy,
manufacture their own current. The Brooklyn Navy Yard, contrary to the
statement earlier made to you, is not included in the consolidated New
York contract.

(2) The rates chargeable to the Government in all localities are the
same as the rates charged to private customers for service of similar

classifications. Rates fall within the regulatory jurisdiction of public
utility authorities, and preferential rates can not be obtained for the

Government, for the reason that they would be held discriminatory against
other users.

(3) The only appreach which can be made in any area to the matter of

securing lower rates for the Government is to attempt to aggregate the
Government's scattered requirements in a single contract and a single

billing, with a view to securing a more favorable rate classification

based upon total consumption. The possibilities of success are very
limited. Regulatory authorities generally have disapproved requests
from chain stores, chain filling stations, and other similar commercial
organizations for consolidated billing, and the utility companies appear
to regard the Government as being in the same category.
(4) Broadly speaking, the rates charged the Government, as shown in

the attached statement, are considered reasonable. There appears to be
no possibility of reductions which would result in savings of any consequence.

In view of these facts, I believe that I should confer with you again
before proceeding further.
GRAVES.

288

STATEMENT SHOWING, FOR EIGHTERS METROPOLITAN CENTERS STUDIED BY
PROCUREMENT DIVISION. THE NUMBER OF LOCATIONS PROVIDED WITH
ELECTRIC CURRENT BY PUBLIC UTIALLY COMPANIES, THE APPROXIMA
ANNUAL CONSUMPTION, THE AVERAGE RATE PAID FOR CURRENT. AND THE
APPROXIMATE TOTAL ANNUAL COST

: Estimated :
served

total
: Estimated
annual saverage rate: Approximate
:consumption: (per k.w.h.) annual cost
(k.w.h.)
:

:

:

:

:

Area

Locations,

:

:

(a) Areas covered by consolidated, or partly consolidated, contracts made by
Procurement Division:

:
:

Philadelphia
Baltimore

109

: 40,300,000:
: 14,400,000:
: 11,250,000:

85

$.01468
.01248
.01520

:

170

:

New York

$591,604
179,712
171,000

:

Totals

: 65,950,000:

Average rate

942,316
$.01429

:

(b) The District of Columbia, Government service at public rates, separate

billing:

Washington, D. c

.01153 $1,585,600

:120,000,000:

668

(c) Areas surveyed by Procurement Division, Government service at public rates,
separate billing:
:

15

Cleveland

28

:

Detroit

43

1

: 17,600,000:

28

Chicago
Milwaukee

850,000:

: 1,800,000:
: 3,000,000:
: 2,600,000:

12

15 : 470,000:

Atlanta

: 1,900,000:

5

Denver

265,000:

: 1,400,000:
: 3,500,000:
: 1,700,000:
: 1,500,000:

22

125
22
13

:

: 45,785,000:
:

Totals
Average rate

.01910 :
.01370 :
.01890 :
.01130 :
.02750 :
.02270 :
.02190 :
.02650 :
.02410 :
.01870 :
.02350

:

Oklahoma City
Kansas City

7

:

Birmingham
New Orleans

$.02157
.02870
.01567

:

Average rate

$163,932
51,660
13,319
34,380
41,100
49,140
198,880
12,925
43,150
5,803

37,100
84,350
31,790
30,550
$798,059

$.01743

:

:231,755,000:

Grand totals

:

Staten Island
Buffalo
Cincinnati

: 7,600,000:
: 1,800,000:

:

61

:

:

Boston

$3,123,975
$.01348

:

Not available.

NOTE: The figures given are as of varying dates, but are believed
to represent approximately the current situation.

289

October 9, 1939.

MEMORANDUM FOR THE SECRETARY:

Re: Government Requirements for Electric Current.

I submit herewith a statement showing the essential facts regarding
the volume and cost of electric current purchased for Government facili-

ties at the principal cities. Corresponding facts are not available for
the cities not listed.

This statement is based upon data supplied by the Procurement Division, supplemented by conferences with the Procurement Division engineer

in charge of the studies made by that Division, who appears to be highly
competent.

The following facts and conclusions are stated for your information:
(1) Navy yards and Federal prisons, for reasons of policy or economy,
manufacture their own current. The Brooklyn Navy Yard, contrary to the
statement earlier made to you, is not included in the consolidated New

York contract.

(2) The rates chargeable to the Government in all localities are the
same as the rates charged to private customers for service of similar

classifications. Rates fall within the regulatory jurisdiction of public
utility authorities, and preferential rates can not be ined for the
Government, for the reason that they would be held discriminatory against
other users.

(3) The only approach which can be made in any area to the matter of
securing lower rates for the Government is to attempt to aggregate the
Government's scattered requirements in a single contract and a single

billing, with a view to securing a more favorable rate classification
based upon total consumption. The possibilities of success are very
limited. Regulatory authorities generally have disapproved requests
from chain stores, chain filling stations, and other similar commercial
organizations for consolidated billing, and the utility companies appear
to regard the Government as being in the same category.

(4) Broadly speaking, the rates charged the Government, as shown in
the attached statement, are considered reasonable. There appears to be
no possibility of reductions which would result in savings of any cousequance.

In view of these facts, I believe that I should confer with you again
before proceeding further.
GRAVES.

HNG/mff

290
STATEMENT SHOWING, FOR NIGHTERM METROPOLITAN CENTERS STUDIED BY

LEGALC
CURRENT.

CONSUMPTIC
COST

Estimated :
Area

total

Locations

: Estimated

annual saverage Approximate
annual cost

served

(a) Areas covered by consolidated. or partly consolidated. contracts made by
Procurement Divisions

40,300,000:
14,400,000:
11,250,000:

170

New York

Philadelphia.
Baltimore

109
85

65,950,000

Totals
Average rate

0.01468
.01248
.01880

$591,606
199,712
191,000
942,316

$.01489

(b) The District of Columbia, Government service at public rates, separate
billing:
Washington, D. 0

1.20.000.000

668

$.01155

385,600

(e) Areas surveyed by Procurement Division, Government service at public rates,
coparate billings
:

Boston

61

States Island
Buffalo
Cincinnati

43

7,600,000:
1,800,000:
850,000:
1,800,000:
3,000,000:
2,600,000:
17,600,000:
470,000:
1,900,000:
265,000:
1,400,000:
3,500,000:
1,700,000:
1,300,000:

15
12
28

Cleveland

Detroit
28

Chicago

15

Milwaukee

Atlanta

5

Birmingham
New Orleans

7

22

Oklahoma City
Kansas City
Deaver

125
22

13

Totals
Average rate

45,785,000:

Grand totals

1231,735,000:

$.02157
.02870
.01567
01910

01370
01890

01130
08750
08270
02190

02650
02410

01870
02350

$165,932
51,660
15,319
34,360
41,100
48,140
198,880
12,925
45,150
5,803
37,100
84,350
31,790
30,550
$798,050

$3,123,975
$.01348

Average rate
1

Not available.

NOTE: The figures given are as of verying dates, but are believed
to represent approximately the current situation.
Oct. 9, 1939
HNG/mff

291

PLAIN

London

JI

Dated October 9, 1939

Rec'd 1:10 p.m.

Secretary of State
Washington

1981, October 9, 5 p.m.
FOR TREASURY FROM BUTTERFORTH.

1. With reference to penultimate paragraph
of my 1631 of September 13, 6 p.m. it is of interest
that the Prime Minister was asked in the House of
Commons today what authority had been appointed for

the Economic planning of the nation's war Effort,
including such aspects as finance, supply of commodities,
Economic warfare and the stimulus of exports, and whether

it was proposed to set up a body to plan the Economic

war Efforts of the Allies. HE replied:
"The responsibility for coordination of all
branches of the nation's war Effort in whatEver sphere

rests, of course, with the War Cabinet as a whole. In
practice, the method adopted is to effect the solution
of particular problems by means of consultation between

the ministers concerned and, in order that the results
may be brought before the War Cabinet SOME member of the

Cabinet is entrusted with the general direction
of these
consultations.

292

-2- 1981, October 9, 5 p.m., from London
consultations. In the case of Economic and financial
policy a committee has been set up under the chairmanship of the Chancellor of the Exchequer, composed of

ministers concerned with the various aspects of the
subject. The duty of this Committee is to KEEP under
review and to coordinate the working of departments

in relation to the Economic Effort of the country as
a whole. This committee is also responsible for
supervising the arrangements which have been made

for Anglo-French Economic cooperation.

Lord Stamp has been asked to assist this committee
by becoming adviser on Economic coordination.

Assisted by Mr. Henry Clay and Mr. H. D. Henderson,
Lord Stamp had for SOME time prior to the outbreak
of war been advising upon the Economic war plans of

the Government, giving midance and assistance to the
departments concerned. In association with the

Ministerial Committee, to which I have just referred,
he will continue to review our current Economic plans

and activities in order to propose to the minister or
ministers concerned ways of filling any gaps that may be
found to Exist or remedies for any inconsistencies that
may be discovered. There has also been set up under
the

293

-3- 1981, October 9, 5 p.m., from London
the ministerial committee an inter-departmental
committee of officials, composed of the permanent heads

of the departments concerned. Lord Stamp will be

president of this official committee.
As regards Anglo-French Economic cooperation,

arrangements already Exist for discussion between
representatives of the two governments on many common

problems. Further arrangements are under considera-

tion with a view to establishing the requisite degree
of consultation as well as the means for joint action."
Asked further whether, in view of the need for
drive and direction in the Economic Effort, Lord
Stamp would be giving his whole time to this work
or was anyone to be responsible for the whole-time

direction of these activities, the Prime Minister
replied that while Lord Stamp would not be a wholetime worker, he would be able to give a very large part

of his time to this work.
2. Changes in official rates of Exchange during
the past WEEK (SEE my no. 1890 of October 2, 4 p.m.)

were confined to the Belgian, Dutch and Swiss currencies
which WEAKENED in terms of sterling as a result of fears

of possible German invasion. The fall in the guilder
was checked on Friday after being 7.52--60 the previous
Cay

294

-4-

1981, October 9, 5 p.m., from London

day, and this currency has now returned to within

one point of last Monday's rate, being fixed today at
7.50 - 58. The Swiss franc was fixed lower on Each
day last WEEK until Friday when it touched 17.90 18.05; and after remaining unchanged on Saturday it
was fixed at 17.82 - 97 today as compared with 17.65 85 a WEEK ago. The belga was also lowered each day

until Friday, declining from 23.60-90 last Monday
to 24.00-30 on Friday but was fixed at 23.85 - 24.10
today. The forward rates contained in my telegram
referred to above WERE quoted daily throughout the
WEEK.

3. The stock Exchange is slowly unthawing,

although dealings in Equities are small brokers state

that it is at the moment harder to buy than to sell.
There are dealings in the shorter dated government
securities at the minimum prices but war loan is

virtually frozen, awaiting a reduction of the bank
rate and until two-way dealings in war loan 343038
place a real market in British Government securities
00
eeer
cannot be said to Exist.
e

KENNEDY

ALC

295
JIL

GRAY

PARIS

Dated October 9, 1939
REC'd 4:10 P.M.

Secretary of State,
Washington.

2394, October 9, 7 p.m.
FOR THE TREASURY

This morning's JOURNAL OFFICIAL carries two decrees

clarifying certain aspects of the Exchange control
measures of September 9 and the foreign assets decree
published on September 17 (our telegram 2028, Septem-

ber 18, 1 p.m.). The first of these stipulates that
all French moral persons must declare to the Foreign
Exchange Office all holdings which they possess on
November 15, 1939 "in all foreign countries wherein
such holdings amount to at least 30% of the capital
of said companies wherever the pertinent securities

may be located" i.E., whether held in France or abroad.
The date on which the required declarations of holdings
abroad specified in telegram No. 2028 must be based is
postponed from October 15 to November 15. The date for
submission of declarations remains fixed at DECEMBER.
(END SECTION ONE)
BULLITT
NPL:EMB

296
GRAY
VM

Paris

Dated October 9, 1939
REC'D 4:20 p.m.

Secretary of State
Washington.

2394, October 9, 7 p.m.
(SECTION TWO)

The second decree defines persons required to make

declarations of assets abroad and the nature of the assets.
The former includes (one) French physical persons residing
habitually in France and (two) French and foreign moral
persons possessing establishments in France.
There has been SOME slight doubt among foreign

residents in the past in VIEW of a statement in the
amble of the decree of September 17 whether foreign phyci-

cal persons residing in France WERE similarly required to
make such declarations. "The Preamble spoke of the NEC-

essity of requiring statements from "all physical or moral
persons having their habitual residence or possessing

establishments in the territory of the French Empire").
The clear wording of the pertinent Article One of the
decree itself, however, indicated that such was not the
intention at the present time and WE WERE so assured
verbally

297

VM -2- 2594, October 9, 7 p.m., to Paris. (SECTION TVO)

verbally at the Finance Ministry and this decree of this
morning again omitting any reference to foreign physical
persons affords further confirmation of that view.
(END SECTION TWO).

BULLITT
NPL

298
GRAY

JJ

PARIS

Dated October 9, 1939
Rec'd 8:33 p.m.

Secretary of State,
Washington.

2394, October 9, 7 p.m. (SECTION THREE).

As to assets to declare the decree stipulates that for
(French) physical persons all holdings abroad of whatEver
nature EXCEPT those securities acquired before November

15, 1939 carried in the foreign dossier of a French bank
for the account of the owner (please SEE our telegram
No. 2340, October 5, 6 p.m.); for French and foreign

moral persons having their principal field of activity in
France all assets held abroad and in addition all gold
and foreign Exchange held in France (as well as the above
mentioned shares in foreign companies where such holdings

EXCEED 30% of the capital thereof regardless of the physical

location of such shares).
BULLITT
EMB

299
GRAY

JIL

FARIS

rated October 9, 1939
F.E.'d 8:04 p.M.

Secretary of State,
Washington.

2394, October 9, 7 p.m. (SECTION FOUR)

As a further means of speeding up and facilitating
foreign Exchange operations the Bank of France announces

that beginning today branch agencies of the Foreign
Exchange Office will be opened at branches of the Bank

of France in Bordeaux, Dunkirque, Havri, Lille, Lyon,
Marseille, Mazamet, Nantes, Roubaix, Rou,tn St. Etienne.

These agencies may deliver authorizations for the purchase and Export of foreign Exchange in pa,ment for merchandise imports on condition that such tra. \sactions do
not EXCEED 5,000,000 francs. For sums in EXCESS of

that figure the dossier must be referred to the head of-

fice at Paris. Furthermore it is indicated that all the
branches of the Bank of France as well as "approved in-

termediaries" are now permitted to grant authorizations
for the Export of currency, checks, banknotes, cash,

and letters of credit for travellers going abroad and the
foreign Exchange which it may bE necessary for them within

the limits fixed by the decree of September 9.
(END SECTION FOUR)
BULLITT

300

JIL

GRAY

PARIS

Dated October 9, 1939
REC'D 6:55 p.m.

Secretary of State,
Washington.

2394, October 9, 7 p.m. (SECTION FIVE)

The French financial press this morning carries
accounts of Sir John Simon's written reply to Mander

to the Effect that the British Treasury under the
pertinent international agreements has not the right
to demand the return of its annuity trust deposit in the
amount of 26 million gold marks which the B.I.S. has
placed in Germany. AGENCE ECONOMIQUE ET FINANCIERE

likewise refers to British press criticism of the
Chancellor of the Exchequer's "tardiness and vagueness"

in replying to Mander and its contention that the B.I.S.
itself admits that its obligations towards the treasuries
of countries which have made deposits under the annuity

trust account "are not clearly defined". WE understand
that the monthly meeting of the B.I.S. which was scheduled for today has been postponed. When, as, and if the

next meeting is held it SEEMS clear that it will not be
attended by representatives of the Bank of England nor
the

301

JIL -2- #2394, October 9, 7 p.m. (SECTION FIVE)
from Paris
the Bank of France.

The securities market was firm today and rentes
advanced. ForEign Exchange rates WERE unchanged.
(END OF MESSAGE)

BULLITT
NPL

03/13038
eeer 01 00

1

302

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

Confidential

October 9, 1939

MEMORANDUM FOR THE SECRETARY

Mr. Philippe Schereschewsky, Chief of the Public Works Department

of France, which embraces all phases of transportation, including
roads and motor vehicles, as well as the control of the production
of minerals in France, called concerning a proposed purchase of
1,000 railway tank cars, 6,000 gallons capacity, 2 axles each, estimated price $2,300 each, for which tenders have been received by
him from the Pullman Company and the American Car and Foundry Company.

He stated that this action had been taken before he was cognizant
of the desire of the American Government that this office be contacted in connection with purchases of the French Government.

He stated that the purchase of any further equipment in which they
were interested would be discussed with this office prior to the
time that tenders are asked for pertaining thereto of any manufacturers in this country.

Director of Procurement

303

peing pand toforget
October 9, 1939
FOR THE SECRETARY:

You asked me to inquire about the possibility
of a release on the Anti-Malaria Commission being sent
to Yunnan Province. The Acting Surgeon-General appeared

very reluctant to issue a release or to approve one and
said he would not do 80 without State Department

approval. Mr. McDermott, Press Agent of the State
Department, indicated that the State Department would
issue a statement when the Chinese Government has sent
its'formal acceptance of the Commission and Mr. McDermott

said your interest in the project would be pointed out.

ESD

The Commissioner of Internal ru

304

October 9,1939.

Memorandum for Mrs.Klotz:

In accordance with your request
over the telephone this morning, I am
enclosing a brief resume of the proposed
closing agreement in the case of the
Colt's Patent Fire Arms Manufacturing Co.

Guy Walning
Commi issioner.

BK 216

House
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF

my

SSIONER OF INTERNAL REVENUE
ADDRESS REPLY TO
OF INTERNAL REVENUE
AND REFER TO

October 9, 1939.

IT:P:CA
CAA

REPORT FOR SECRETARY MORGENTHAU

Supplementing the regular weekly report dated October 7, 1939,
in regard to closing agreements under the Vinson-Trammell Act, the

following refers to provisions of the latest tentative draft of the
proposed agreement with the Colt's Patent Fire Arms Manufacturing
Company:

Paragraph 2: this paragraph deals, for income tax purposes,
with "special tools, jigs, dies, fixtures and gauges" adapted only
for use in the manufacture of the guns and provides for a charge-off
of the cost thereof on a unit of production basis for the period of
performance of the contract.
Paragraph 3: this paragraph deals, for Vinson-Trammell Act
purposes, with the special tools referred to in paragraph 2 and

provides that a portion of the cost thereof will constitute
indirect factory expense and will be allocated to the cost of

performing the contract on the basis of the proportion of the
number of guns covered by the contract bears to the sum of the
guns covered by the contract and any other guns contracted for
other than the United States Government.

Paragraph 4: this paragraph deals, for income tax purposes,
with additional machinery and provides that it will be depreciated
at the rate of 10% per annum with further provision for a limited
additional allowance upon completion of contract if conditions at

that time justify it, but not in excess (for all allowances) of

one-half the reasonable cost.

Paragraph 5: this paragraph deals, for Vinson-Trammell Act
purposes, with the machinery referred to in paragraph 4 and pro-

vides that a portion of the depreciation allowed and of the
additional allowance, if any, will be included in the cost of
performing the contract on the basis of the proportion of time
used in performing the contract to the total use of such machinery.
Paragraphs 6, 7 and 8: provide that for all purposes the above
allowances are the only allowances which will be made; that the

allowances shall constitute a reduction of the cost or other basis
of the assets; that for income tax purposes the deductions shall be
located in the income tax years in which charged off

Commissioner.

305

306

October 9, 1939.
IT:P:CA
CAA

REPORT FOR SECRETARY MORGENTHAU,

Supplementing the regular weekly report dated October 7. 1939,

in regard to closing agreements under the Vinson-Tranmell Act, the

following refers to provisions of the latest testative draft of the
proposed agreement with the Celt's Patent Fire Arms Manufacturing
Company:

Paragraph 21 this paragraph deals, for income tax purposes,

with "special tools, jigs, dies, fixtures and gauges" adopted only
for use in the manufacture of the guns and provides for a charge-off
of the cost thereof on a unit of production basis for the period of
performance of the contract.

Paragraph S, this paragraph deals, for Vinson-Trannell Act
purposes, with the special tools referred to in paragraph 2 and

provides that a portion of the cost thereof will constitute
indirect factory expense and will be allocated to the cost of

performing the contract on the basis of the proportion of the
number of guns covered by the contract bears to the sum of the
guns covered by the contract and any other guns contracted for
other than the United States Government.

Paragraph 4. this paragraph deals, for income tax purposes,
with additional machinery and provides that it will be depreciated
at the rate of 10% per annum with further provision for a limited
additional allowance upon completion of contract if conditions at

that time justify it, but not in excess (for all allowances) of
one-half the reasonable cost.

Paragraph 51 this paragraph deals, for Vinson-Tranmell Act
purposes, with the machinery referred to in paragraph 4 and provides that a perties of the depreciation allowed and of the

additional allowance, if any, will be included in the cost of

performing the contract on the basis of the proportion of time
used in performing the contract to the total use of such aschinery.
Paragraphs 6, T and 81 provide that for all purposes the above
allowances are the only allowances which will be made; that the
allowances shall constitute a reduction of the cost or other basis
of the assets, that for income tax purposes the deductions shall be
located in the income tax years in which charged off.
(Signod) Guy T. Helvering

Copy for Contrissioner.
CAA/MEA

Commissioner.

has

TREASURY DEPARTMENT

people
307

INTER OFFICE COMMUNICATION
DATE October 9. 1939

TO

FROM

Secretary Morgenthau
Mr. Cochran

At 9 o'clock this morning Mr. Bailie telephoned me in regard to the
Brazilian matter. I told him that I had held up the cable on Saturday which
had been drafted by our Legal Department along the lines discussed with him

by telephone. I thought the first part of the cablegram in regard to the

wording of the fiscal agent authority was unnecessary, or should at least be

postponed until the original letter from Brazil arrived. The second part, I
thought, would confuse the Brazilian authorities and would complicate ar-

rangements which have already been sufficiently complicated. Our conversation

was interrupted by a call from the Secretary.

While with Secretary Morgenthau, he asked me about the Brazilian trans-

action, and I briefly summarized the events that had transpired since he had
given me authority on Thursday to clear the matter. I emphasized that
Messrs. Foley, Bernstein and Dietrich had been with me and had participated
in the conversations with New York on Thursday evening when, as I had said,

we had definitely closed the matter. Knoke had then agreed that the Federal
Reserve Bank of New York would initiate the next step with the Bank of Brazil.
The Secretary agreed that the matter should not be further complicated and

told me that he wanted it straightened out in this sense.

After coming out of the Secretary's office, I telephoned Mr. Bailie at

9:10 and offered to come down to discuss the matter. He preferred to see me
after the 9:30 meeting, and it was agreed that we would not bring up this
question during that meeting.

At 10:45 Mr. Foley called me to his office where he, Mr. Bailie and
Mr. Bernstein were consulting on the Brazilian matter. From his review of
the case, Mr. Bernstein thought it better to let the matter rest at present,
sending no cablegram of inquiry to Rio with respect to the fiscal agent
authority conferred on the Bank of Brazil, and neither the Treasury nor the
Federal Reserve Bank of New York taking any steps now toward the opening of a
bank to bank account between the Bank of Brazil and the Federal Reserve Bank,

The recommendation on this latter point came from the fact that we do not
desire to raise the question, perhaps still undecided in Brazil, as to making
the Bank of Brasil a straight Central Bank, or setting up some other organization for this purpose. Incidentally, we might, under the Aranha Agreement, be called upon for a $50,000,000 gold loan and the provision of technical
assistants if a Central Bank were recognised in Brazil. It was agreed between
the four of us that no further action by the American authorities should now be
taken and no cablegram sent. Mr. Bernstein telephoned this decision to Mr.
Tiebout of the Federal Reserve Bank in my presence, and I gave the same infor-

CONFIDENTIAL

October 9. 1939.

-2-

.

308

Secretary Morgenthan.

ration to Mr. Knoke from my office a few minutes later. The Secretary called
no in at 11 o'clock, when I was terminating my call with Mr. Knoke. I told
the Secretary the Brazilian matter seemed at least provisionally settled and
that no cablegram was being sent. He said O.K.
Mr. Collado of the State Department telephoned me at 12:55 to ask what
final decision had been taken in regard to holding the Brazilian deposit.
When I told him, he was disappointed. He said this would complicate our
bookkeeping. He much preferred bank to bank arrangements as followed in
our business with China and Mexico. He thought we could recognize the Bank

of Brazil as a Central Bank as easily as several now carrying deposits with
the Federal Reserve Bank of New York. He would not be worried if this did
lead Brazil to raise the question of the gold loan. He hoped we could yet
get this account on a bank to bank basis.

CONFIDENTIAL

309

SEEX

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Subasay, Rio de Jenniro, Brazil
DATE: September 16, 1939, 8 Pollo

NO. # 330
Reference is made to my telegram No. 236 of October 10,
1936, 1 Demo

The following is the substance of translation of a
mentarandum which the Director of Exchange of the Bank of

Brasil furnished to me today -

It is the desire of the Bank of Brasil, as agent for
the Brazilian Government, to establish a gold reserve with
the New York Federal Reserve Bank in accordance with the terms

of the agreement with the Secretary of the Treasury of
the United States and the Minister of Finance of Breail.
The Bank of Breail desires to obtain permission to
buy gold in the United States, for this purpose the Bank's
available funds in American currency would be wood.
If the New York Federal Reserve Bank is in agreement,

the Bank of Brasil will deposit the amounts in dollars and
the Federal Reserve Bank will undertake to make the gold
purchases.

The Bank of Brazil will be authorised by the Federal
Reserve Bank to use the dollar credits which are guaranteed by

the gold deposits, the customary rate of interest being
collected by the Federal Reserve Bank. Does the Federal
Reserve

-2310
Reserve Bank wish to have the Bank of Brazil establish here

corresponding milreis credits?

Note: It is the belief of the Bank of Brazil that it
would be possible for it to purchase six to eight million
dollars in gold immediately, and monthly thereafter to purchase one and one-half million dollars. The Bank of Brazil

thinks it is unlikely that they would have to drew against
the credits very soon.

It is the wish of the Exchange Director that be be
informed by telegraph whether such an agreement with the

Bank of Brasil, on the basis of the above plan, would be
agreeable to the Federal Reserve Bank of New York,

END OF MESSAGE.

CAFFEEX.

EA.LOW

311

COPY

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro, Brazil
DATE: September 16, 1939, 7 p.m.

NO.: 329
A very favorable exchange situation prevails here. Prompt
payment for imports from the United States is possible because there

is adequate cover. The Bank of Brazil is augmenting its reserve of
foreign exchange as a result of the sharp increase in sales of export

bills and the current decline in the import trade. Export bills are
being bought by banks at quotations of 19.780 to 19.880 milreis - and

selling at 19.980 milreis. On the curb market the milreis continues
firm, purchases being reported at 21.700 to 22.0 milreis.

The following is strictly confidential:
On the fifteenth of September the foreign exchange balance of
the Bank of Brazil amounted to $16,792,000 as compared with the balance

on the thirty-first of August, when it was approximately $7,000,000.

There is continuation of the Bank's liquidation of the "bought"
position (omission) German compensation marks. On the fifteenth of
September there was a balance in compensation marks in the amount of
5,450,000.
CAFFERY.

EA:IMW

C

0

P

Y

PARAPHRASE OF TELEGRAM SENT

TO:

American Embassy, Rio de Janeiro

NO.: 187
DATE: September 20, 1939, 7 p.m.

Reference is made to your telegram no. 330 of
September 16, 8 p.m.

You are requested to inform the Director of Exchange

of the Banco do Brasil that, as set forth in the letter
of July 15, 1937 from the United States Secretary of the
Treasury to the Brazilian Ministry of Finance, as supplemented and modified by the letter of September 2,
1938 from the Federal Reserve Bank of New York to the Banco

do Brasil, which was transmitted through the Department of
State in Washington by cable, the Treasury Department will be
glad to sell gold through the Federal Reserve Bank of New York,

acting as the fiscal agent of the United States, to the Banco do

Brasil, acting as the fiscal agent of the Government of Brazil.
As was stated by the Federal Reserve Bank of New York in its

cablegram of October 19, 1938 to the Banco do Brasil, it is
prepared, as the fiscal agent of the United States Government,
to act in accordance with the above-mentioned letters when

it shall have received from the Banco do Brasil, by cable,

312

-2-

313

acceptance of the terms contained in these letters and

confirmation on the part of the United States of Brazil
that it has designated the Banco do Brasil to act as its

fiscal agent with the authority to enter into the arrangement referred to in these letters.

EA:EB

314
September 20, 1939.
MEMORANDUM

Mr. Livesy

To:

From: Mr. Cochran

Will you kindly transmit the attached cablegram to the
American Embassy at Rio de Janeiro.

It occurs to the Treasury Department that the State
Department may also desire to inform Undersecretary of State
Welles at Panana of the arrangement mentioned in the cablegran.

H. Merle Cochran

O.K. - H.M. Jr.

HMC/rmm

315
September go ,1939

Draft of cable to be sent by Department of State
to American Ambassador at Rio de Janetiro, Brasil.

Referring to your cable #330 of September 16, you may advise the
Director of Exchange of the Bango do Brasil that the Treasury Department
will be pleased to sell gold through the Federal Reserve Bank of New

York as fiscal agent of the United States to the Banco do Brasil as fiscal agent of the Brasilian Government, all as provided in the letter
dated July 15, 1937 from the Secretary of the Treasury of the United
States to the Minister of Finance of Brasil as supplemented and modified by the letter dated September 2, 1938 from the Federal Reserve
Bank of New York to Banco do Brasil transmitted by cable through the
Department of State in Washington. As stated in the cablegram dated
October 19, 1938 from the Federal Reserve Bank of Now York to the Banco

do Brasil, the Federal Reserve Bank of New York as fiscal agent of the

United States is prepared to act in accordance with these letters upon
receipt by it of (a) the cabled acceptance by the Banco do Brasil of the
torms thereof and (b) the confirmation by the United States of Brasil
that Banoo do Brasil has been designated as fiscal agent of the United
States of Brasil to enter into the arrangement contemplated by such

letters.

Initialed:

316

CABLE
From:

Rio de Janeiro
Brazil

To:

Federal Reserve Bank of N.Y.
Sent

Date:

September 26, 1939.

Rec'd. September 27, 1939.

With reference telegram September 21 to American Embassy Rio Janeiro
concerning purchase gold by Bank of Brazil through Federal Reserve Bank

the Bank of Brazil accepts terms letter July 15, 1937 to Minister Finance
Brazil from the Secretary Treasury United States as supplemented and modified
by letter September 2, 1938 to Bank of Brasil from Federal Reserve Bank.
Government Brazil is sending to you through American Embassy here letter

confirming designations Bank of Brazil as its fiscal agent.
Within few days Bankers Trust will turn over to you in our name gold
which we are transferring from London to New York.

(Signed) Francisco Alves Santos Filho
Director Carteira Cambial

317
PARAPHRASE OF TELEGRAM RECEIVED

FROM:

American Embassy, Rio de Janeiro

NO.:

340

DATE:

September 27, 1939, 11 a.m.

Reference is made to your telegram no. 187 of
September 20, 7 p.m.

Last night the Bank of Brazil sent a telegram to
the Federal Reserve Bank of New York in which it stated

that it accepted the terms of the gold plan.
CAFFERY

EA:EB

COPY

September 27, 1939.

318

Mr. Bernstein

Mr. Dietrich

You will note that the attached cable is signed by the Director
of Foreign Exchange Control who is also listed in the signature list
of the Banco do Brazil as a Director of that Bank. A director in the
sense that he is the manager of the foreign department of the Banco

do Brazil.

Furthermore I should like to point out that this cable is not

tested.

In discussing this matter with Cameron in New York, I said that
would pass this information on to you and that he would pass it on

I

to Tiebout. I expect that you will receive a call from Tiebout

regarding this cable.

FB:fa

9.27.39

COPY
319
INCOMING CABLEGRAM

REC'D SEPT. 27. 1939

RIO DE JANE IRO, Sept. 26, 1939.

Federal Reserve Bank of New York
New York
#1

With reference telegram September 21 to American Embassy

Rio Janeiro concerning purchase gold by Bank Brazil through
Federal Reserve Bank the Bank Brazil accepts terms letter July 15, 1937

to Minister Finance Brazil from the Secretary Treasury United States
as supplemented and modified by letter September 2, 1938 to Bank
Brazil from Federal Reserve Bank.
Government Brazil is sending to you through American Embassy

here letter confirming designation Bank Brazil as its fiscal agent.
Within few days Bankers Trust Co. will turn over to you in
our name gold which we are transferring from London to New York.

Francisco Alves Santos Filho
Director Carteira Cambial
Test O.K. using Cable Number
and test system of
Banco do Brazil.

COPY

320
OUTGOING CABLEGRAM

September 27, 1939

Banco do Brasil
Rio de Janeiro
FOR FRANCISCO ALVES SANTOS FILHO

May we request that for regularity's
sake you authenticate your message

of today by using test arrangement

forwarded to you in our letter of
November 1, 1938.

FEDERAL RESERVE BANK OF NEW YORK

Cable, Sept. 26
Serviced and given number

and test by Banco do Brasil.

COPY

321

CABLE

From: Banco do Brazil,
Rio de Janeiro

To:

Federal Reserve Bank,
New York

Date: October 4, 1939.

#2

Our #1

We are remitting $3,000,000 which please apply purchase gold
in accordance terms Brazilian Government agreement crediting our

account. Our credentials as fiscal agent for Brazilian Government
has been handed to your Embassy here.

(Signed) Banco do Brazil

Rec'd by phone from Mr. Lang, Oct. 5. 1939
RMM

cc BB

322
COPY

CABLE
To: Banco do Brazil,
Rio de Janeiro

Date:October 4, 1939.

The following payments were tended to us today for your
account: Guaranty Trust Company, $1,000,000; Irving Trust
Company, $1,200,000; Chase National Bank, $400,000; Chemical
Bank & Trust Company, $400,000.

Please cable us whether you wish us to receive the above

payments to be utilized to cover sales of gold to you as fiscal
agent of the Brazilian Government in accordance with the cable
sent on September 21, 1939 by our State Department, Washington,

D.C. to the American Ambassador in Rio de Janeiro.
(Signed) Federal Reserve Bank of N.Y.

Rec'd by phone from Mr. Lang, Oct. 5/39
RMM

cc BB

323

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

October 9. 1939

DATE

TO

FROM

Secretary Morgenthau
Mr. Cochran

The foreign exchange market was quiet today, with increased volume in
sterling transactions. After the opening quotation of 4.02, some commercial
and Japanese demand appeared for sterling in the afternoon, and the rate moved

up to 4.03-3/4, where it remained for the balance of the day.

The discount on the Canadian dollar decreased again and at the close it

was quoted at 10-1/25.

Reporting banks in New York and the Federal Reserve Bank reported sales

totaling 1548,000, from the following sources:

L 293,000
L 205,000

Commercial concerns

Foreign banks (Europe and Far East)
Fed. Res. Bk. (For Sweden)

£ 50,000

Total £ 548,000

Purchases of sterling amounted to 1504,000. as indicated below:
By commercial concerns

By foreign banks (Far East, Europe and South America) Total

I 275,000
1229,000
L 504,000

The National Bank of Belgium sold to us $165,000 gold from their earmarked
account.

Gold valued at $261,000 was reported shipped from India to the National

City Bank of New York and $42,000 from England to the Bank Belge pour 1'Etanger
New York.

With reference to the last paragraph on page 1 of my report of October 5,
after further discussion today it was decided that the account of Banco do Brasil
remain provisionally as a fiscal agency account of the U. S. on the books of the

Federal Reserve Bank of New York, and that no communication be sent to Brazil for
the present.

HMP

324

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

CONFIDENTIAL

DATE October 9, 1939

Secretary Morgenthau

TO

FROM

Subject:

Mr. Haas BA.

The Business Situation,

M

Week ending October 7, 1939.
Conclusions

(1) Industrial production continues to rise, although

the commodity price trend has flattened out and the volume
of new orders has declined.

(2) Chancellor Hitler's peace proposal appears to mark
a turning point in the economic trend, which will depend
largely upon whether an intensified war or a movement toward
peace is in prospect. While the outcome is unpredictable at
this time, a considerable section of business opinion has

turned to the belief that a peaceful solution of the war

problem may be worked out. The more cautious buying policies
in evidence during the past week or more have partly reflected
this change in sentiment.

In the event that important steps are taken looking
toward the establishment of peace, and large-scale war operations are further postponed, a levelling-out of the business

trend may become evident before the end of the year, despite
the present huge volume of unfilled orders on manufacturers'

books. Some setback in business during the first half of
1940 seems likely in either event.
(3) While the rapid upturn in business activity, coineident with a seasonal peak in demand for freight cars, has
brought some strain on transportation facilities, no freight
car shortage seems in immediate prospect. The seasonal trend
is passing its peak, and by next year a substantial addition
to the number of serviceable freight ears will have been made.
Relatively fewer oars now are required than in earlier years,
owing to increased transportation by truck and pipe line,
larger capacity of freight cars, speedier train service, and
other factors.

325

Secretary Morgenthau - 2

The general situation
The peace proposal of Chancellor Hitler last week appears
to mark a change in the economic trend, the direction of which

cannot at this time be predicted. Either (1) the war in

Europe will enter a new and perhaps intensified stage, in which
event a renewed upturn in commodity prices would be likely, and
business activity in the United States would be supported by
the rising prices and by increased war orders, or (2) negotiations may be begun looking toward an eventual peaceful settlement of European difficulties, in which event war activities
would doubtless be indefinitely held back, and a weakening of
the business trend could be expected.

Business opinion in various quarters is turning to the
belief that the latter alternative is more probable, and this

has been reflected in more cautious buying policies during the
past week or more. The stalemate on the western front to date,
and the possibility of its continuing for a prolonged period,
has also tended to restrain buyers. Business commentators hold
this to be a healthy development, since it is tending to prevent
a serious maladjustment in production.
The stock and commodity markets over the next few weeks will
be sensitive to any indication that peace negotiations may have
a chance of success, and the underlying trend of business

activity will, as usual, be influenced by the direction taken

by commodity and stock prices.

Production rising rapidly
An 8-point rise in the FRB index in September to about 110
has carried it to the highest level since September 1937, when
it stood at 111, according to preliminary estimates of the
Federal Reserve Board. A still higher production level was
reached at the end of the month, and current expectations in
some quarters are that before the end of the year the index
will rise to between 120 and 125. The highest figure on record
was 125, reached in June 1929.

Whether these levels will be reached or not will depend
to a considerable extent on the outlook for a prolonged war.

While the volume of unfilled orders in steel, textiles, and
various other industries is so large as to virtually assure
a high rate of operations through the remainder of the year,

Secretary Morgenthau - 3

326

nevertheless, in the event of definite action toward an early
termination of the war, a levelling off in industrial produc-

tion would probably soon become evident. Some of the orders
predicated on a long war would be cancelled, delivery on many

others would be indefinitely postponed, industrial expansion

plans would be reconsidered, and manufacturers would lengthen
out
their production schedules rather than temporarily adding
new workers and speeding up production.

Railroad car situation
The sudden expansion in freight carloadings in recent
weeks has caused considerable discussion of a possible car

shortage as a restraining factor in business activity. During

the week ended September 30, earloadings rose to approximately
the 1937 peak, which had been the highest since 1930. (See
Chart 1.)

The possibility of a freight car shortage is probably more

remote than would appear from various current comments. As
suggested by Chart 1, the seasonal trend after early October is
sharply downward, even in a year of rapidly expanding business

activity like 1938, hence the critical period for this year is

probably already being passed. The extensive rehabilitation
program on which the railroads have now entered will provide an

increased supply of freight oars to take care of traffic next

year.

To an appreciable extent the recent increase in shipments
has reflected an abnormal and non-recurring demand for goods
and materials for inventory accumulation, which may be followed
to some extent by an abnormal slackening. Fear of price

increases and of possible delivery difficulties, including the
fear of a freight car shortage, has apparently led to a widespread padding of orders, which has created a temporary tightness in the supply of oars since it coinoided with the peak

of the farm crop movement.

A casual comparison of the number of freight cars owned
by railroads now with the considerably larger number owned
in earlier years (See Chart 2) might give some ground for
apprehension over the adequacy of our present freight car
supply. Such apprehension is largely removed, however, when

various qualifying factors are taken into consideration. In

327

Secretary Morgenthau - 4

the first place, for a given level of industrial production

the volume of freight hauled on railroads is now substantially
less than in earlier years (See lower section of Chart 2),
due to such factors as increased truck transportation, increased
transportation
by pipe lines, and the substitution of oil and
electricity for coal.
Secondly, fewer cars are required for hauling a given
volume of freight, due to an increased capacity per car and
an increased efficiency in freight hauling. Between 1929 and
1937 the average capacity of freight cars rose from 46.3 tons
to 49.2 tons, and freight trains were speeded up from an average
of 13.2 miles per hour (including all stops) to an average of
16.1 miles per hour. Owing to these improvements, the average
service performed per day by each serviceable freight car
increased from 582 ton-miles in 1929 to 625 ton-miles in 1937.
Net freight car surplus
During the latter part of the World War and in the years
immediately afterward a severe freight car shortage was one of

the limiting factors in industrial activity. Whereas a net
surplus of freight care is normally necessary to guard against
deficits in individual areas, practically no surplus existed

during this period, and in 1920 an average net deficit was
reported for the year as a whole.
In Chart 3 we show the net freight car surplus as compiled
by the Association of American Railroads (reported surpluses
less reported shortages) in comparison with the volume of
freight hauled. In the upper section of the chart (annual
data) it will be noted that in none of the years since 1920
have we experienced a real freight car shortage, though some

tightness developed in 1937. Monthly data (lower section of
chart) show in more detail the trends leading up to the present
situation, which apparently compares closely with that in 1937.
In that year, no shortages were reported from any region,
though some strain developed during the crop moving season.

Freight car orders sharply increased

Periods of increasing demand for freight oars, threatening car shortages, have usually been met by heavy ordering of
new cars by the railroads, and the shortages have been averted.
During the World War, however, the tying up of industrial
capacity by war orders, and other factors, prevented an adequate
increase in freight capacity when needed.

Secretary Morgenthau - 5

328

In the present situation, the railroads are acting quickly

to prevent a repetition of this experience. The number of new

freight cars ordered during September sharply exceeded the peak

figures of both 1929 and 1937. (See Chart 4.) Since the first

of the year, up to October 3, orders had been placed for 59,560
new cars, of which 38,000 were ordered since September 1.
Orders for locomotives and for steel rails were likewise increased substantially.
Steel operations

It is estimated by the Iron Age that the enlarged railroad
buying programs will require well over 1,000,000 tons of steel.
This has been an important source of demand in the steel industry, contributing to the unprecedented rise of 29 points in the
rate of steel operations in five weeks.
All of the major steel companies are reported to be virtually sold out for the remainder of the year on their principal
steel products; and pressure is increasing for an announcement

of prices for delivery during the first quarter of 1940, in

order that consumers may place an additional volume of orders.

Indications are accumulating that an important increase in
steel prices may be made at that time. Producers of various
steel products have already raised prices, and steel sorap, an
important raw material, rose further last week to the highest

price since 1923.

The price situation
After rising to a new level in the early weeks of September,
the BLS all-commodity index is now levelling off. The component

groups of raw materials, semi-manufactured, and finished goods,
however, show divergent movements. (See Chart 5.) Prices of
semi-manufactured goods have increased proportionately more than
the others and have continued to increase when prices for the

other two groups have tapered off. It is of interest that a

similar wide discrepancy arose during the period of rapid price
advance in 1915 to 1918, and again in the post-war price rise
of 1919-20. The current action of prices of semi-finished goods
represents a general movement on the part of a great many
individual items, including vegetable oils, non-ferrous metals,
yarns and print cloth.

Secretary Morgenthau - 6

329

Although for the month of September agricultural products
show a greater percentage increase than non-agricultural produots, the entire increase was registered in the first two weeks
of the month, and some of it has since been lost. Some agri-

cultural prices are beginning to reflect reports of serious

drought extending over a wide area from the Mississippi Valley
to the Rocky Mountains. It is reported that only a small proportion of the farmers in this area has been able to seed wheat
for next year's crop, and in some quarters a drought situation
similar to those of 1934 and 1936 is feared.
Among the non-agricultural commodities, the group of industrial materials has shown enormous increase for the month of
September, with some falling off in the early days of October.
Copper prices last week were advanced to 12 1/2 cents, the
maximum price suggested informally by President Roosevelt. For
the rest of this month, trade commentators anticipate no further
occasion to increase the price of copper, because the very large
sales of recent months leave little scope for extensive new

orders. A change in peace prospects, or the granting of tariff
concessions to Chile, however, might lower the price.
Current business news

A downturn in reported steel orders has reduced our
weekly new orders index (See Chart 6) despite small upturns in
orders for textiles and for products other than steel and
textiles. While current trade reports mention some increase in
buying of certain products during the past week, the volume of
buying generally remains substantially below that of early
September.

The New York Times business index for the week ended

September 30 recorded its eighth consecutive advance, rising

.9 point to 102.0, the highest since October 2, 1937. All

components were moderately higher except the index of electric
power production, which was unchanged, and the miscellaneous

carloadings index, which declined fractionally.

The Government forecast of the cotton crop released this
morning, 11,928,000 bales, shows a reduction of 452,000 bales
from the September figure. Official comments mention that the
indicated production declined in Oklahoma and Texas because of

hot weather, and in the central portion of the belt because of
long periods of dry weather which were unfavorable for late

fruiting.

FREIGHT CAR LOADINGS
CARS

Total

THOUSANDS
900

'37

800

700
'39

600

500
38

400

Am. Ry. Assn.

JAN.

MAR.

MAY

JULY

SEPT.

NOV.

Office of the Secretary of the Treasury
Division of Research and Statistics

C-233

Chart 2
331

FREIGHT CARB OWNED, FREIGHT TRAFFIC
AND INDUSTRIAL PRODUCTION

CARS

MILLIONS

CARS

MILLIONS

Freight Care Owned by Class I Railroads
2.4

2.4

2.2

2.2

2.0
2.0

1.8
1.8

to

1.6

1.6

1.4

1.4

'30

'28

'26

1924

'40

'38

'36

'34

'32

PER

CENT

(PRODUCTION)

TONS

BILLIONS

Industrial Production and Freight Traffic

140

.

(FREIGHT)

52

F.R.B. INDUSTRIAL PRODUCTION

1923 '25 # 100

120

46

100

40

80

34

1st

FREIGHT CARRIED ONE MILE

60

(BILLIONS or TONS)
28

40

22

20

it

1917

19

'21

'23

'25

'27

'29

'31

'33

'35

'37

'39

*FIGURLS FOR 1939 BASED ON 1ST 9 MONTHS.

C 281
74 Secretary of the Treasury

Cream of - - location

Chart 3

FREIGHT CAR NET SURPLUS COMPARED WITH FREIGHT TRAFFIC
'23

'21

19

1917

'25

'27

'29

'31

'33

'35

37

332

39

CARS

TONS

THOUSANDS

BILLIONS

By Years

1200

45

(MONTHLY AVERAGE)
1000

40

FREIGHT CARRIED ONE WILE

(BILLIONS OF TONS)
800

35

=

600

30

FREIGHT CAR NET SURPLUS
(THOUSANDS OF CARS)
400

25

200

20

o
15

0

-200

10

1917

1932

'19

'23

'21

1933

1934

'25

'29

'27

1935

1936

'33

'31

1937

'35

1938

'39

'37

1939

1940
TOMS

CARS

BILLIONS

HOUSANDS

By Months
36

750

FREIGHT CARRIED ONE MILE
(BILLIONS OF TONS)
32

600

28

450

24

300

20
150

FREIGHT CAR NET SURPLUS
(THOUSANDS of CARS)
16

0

1932

- of - - -

Office of the Secretary of the Treasury

1933

1934

1935

1936

1937

1938

1939

1940

c 282

RAILROAD EQUIPMENT ORDERS

1928

1929

1930

1931

1932

1934

1933

1935

1936

1937

1938

1939

1940
NUMBER

THOUSANDS

OF
OF

LOCOMOTIVES

FREIGHT CARS

200
20

180

18

LOCOMOT IVES
160

16

140

14

120

12

100

10

80

8

FREIGHT CARST
60

6

40

2

20

0
0

1928

1929

1930

1931

1932

1934

1933

SOURCE:

- of - - -

Office al the Secretary of the Treasury

1935

1936

1937

1938

1939

1940

RAILWAY AGE

C . 141 1

Chart

-

PCA

PEN

CENT

CENT

All Commodity Prices
82

82

80
80

78
78

76
76

74

74

72

72

JAN.

MAR.

MAY

JULY

1938

SEPT.

NOV.

JAN.

MAR.

MAY

JULY

1939

SEPT.

NOV.

PER

PER

CENT

CENT

Component Groupe
84
84

82

82

FINISHED PRODUCTS
80

80

78
78

SCHI-MANUF-CTURES
76
76

74

74

72
72

70
70

Raw MATERIALS

68
68

with

66

JAN.

MAR.

MAY

1938

JAY

SEPT.

NOV.

66

JAN.

MAR.

MAY

JULY

SEPT.

NOV.

1939

334
Office of the Secretary of the Treasury

- of Research - State

F 173-A

Chart 5

INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components

1938

1940
PERCENTAGE
POINTS

PERCENTAGE

POINTS

160

160

150

150

140

140

130

130

120

120

TOTAL (COMBINED INDEX)

1936 100

110

110

100

100

90

90

80

80

70

70

My

60

60

TOTAL EXCLUDING STEEL AND TEXTILES
50

40

50

40

STEEL ORDERS

30

M

30

20

20

10

10

TEXTILE ORDERS
0

0
M

A

J

J

M
J

1938

- of - - -

Office of the Secretary of the Treasury

1939

1940

1-85-B

336
October 9, 1939.
4:35 p.m.

Telephone conversation between Mr. White and Mr. Luthringer, of
the State Department, in response to telephone request by the
latter for an answer regarding Liberian currency.
Mr. White:

The Department has no objection to the export of silver
coins by the Firestones. As you yourself said, there

are no legal restrictions on the export of silver coins.

However, on the question of broader import, as to
whether it is desirable for Liberia to change her currency system from sterling to dollars, I presume you
are not raising that question, are you?
Mr. Luthringer: No.
Mr. White:

If you want us to comment on that we would need more

data on the situation in Liberia.

Mr. Luthringer: We don't particularly want to raise any questions as to

the merits of the thing. It is solely as to whether

the Treasury has objection to the thing as a matter of
policy. Just genera! decision to use American currency.
Mr. White:

I can see where it might be desirable for the U. S. to
have Liberia adopt dollars, but whether it is for
Liberia's interest, we wouldn't be able to tell unless
we went into the matter more. This is the first problem
on Liberia we have had occasion to consider and we are

working only from information in the cables - and it
is inadequate.

If it is understood that we are not commenting on
that larger question, but rather only on the sale of
silver, there is no objection.

Mr. Luthringer: As I understand it, that would also mean that on a
similar basis you wouldn't object if they continue to
do this?

Mr. White:

If they continue to do it, and if you raise the question

as to whether they ought to substitute our currency for
sterling, then we would have to go into it more.

Mr. Luthringer: Well that, of course, I suppose is a matter open to
some discussion. Does your answer confine itself solely
to this one purchase of $100,000? My point was that
suppose the Firestones go ahead and eventually purchase

$2 million of American currency; would you want further
consultation on that point?

-2Mr. White:

Well, as long as we are not asked as to the merits
of Liberia's policy, I would say that we have no
objection. But once the State Department raises the
question with us as to whether we regard it as desirable, then we would have to go into it more care-

fully. There are no restrictions and they can buy all
the U. S. silver coins they wish. It depends largely

on the State Department, and if they feel they want our
opinion on it we would be glad to cooperate and examine
the merits of their monetary program.
Dr. Luthringer: There was general feeling here among people in Near
Eastern Division that since the Liberian Government
was anxious to go ahead with it, and since it was
apparently desired quite as much by the Firestones,
we should probably impose no objection to it unless
we saw some very good reason for doing so, which we

didn't. That is, the thing has been discussed from
time to time privately by our people out there and also
by the Firestones, so it is something they have wanted
to do for some time. It is quite possible they lose
seigniorage by using this currency, but they are al-

ready losing that to the British. But I think that in

so far as we have gone into it I can see no strong
objection.
Mr. White;

It is quite possible - quite probable, in fact - that

we would come out at the same end that you do, but
that question has not been considered here. If the
State Department is ever interested in our comments on
that aspect they can raise the question and give us
more time to go into the problem more exhaustively.

Mr. Luthringer: Your answer is simply that you are not passing on
economic merits of the proposal to buy?
Mr. White:

Yes, that is right.

337

TREASURY DEPARTMENT

338

INTER OFFICE COMMUNICATION

DATE October 9, 1939

TO

FROM

Secretary Morgenthau
Mr. White

(Copies to Mr. Cochran and to Mr. Cotton as liason officer%.)
Subject: Liberian proposal to purchase U. S. currency.
(Cables attached. An additional cable referring
to a desire by Liberia to purchase $100 thousand
of U. S. silver has not yet been received by me
but the gist of it was telephoned by Mr. Luthringer
of the State Department.)

1. The situation
Liberia has hitherto used British coins but according

to the appended report there is a shortage of coins for hand
to hand circulation reportedly due to the British embargo

on currency exports.

Moreover it appears that the Secretary of the Treasury
of Liberia believes that a substitution of American currency
for British currency as the medium of hand to hand circulation
is desirable in view of the general situation.
The Secretary of the Treasury of Liberia has granted the
Firestone Company (owners of the only bank in Liberia) the
privilege of purchasing $100 thousand in United States silver
coins (the denominations not specified) presumably as a first
step in the replacement of some 6200,000 to 6250,00 of
British coins and currency now in circulation in Liberia, and
I believe the Firestone Company has requested the view of the
State Department and the latter has asked our opinion.

2. The problem

Do we have any objections to the acquisition by the

of
silver
coins
as
a
the
$100
thousand
in
first
by
step
American toward
a replacement of her British coins and currency

Liberian Government (via importation by the Firestone Company)
currency? The State Department would like an answer at once,
if possible, inasmuch as the Firestone Company appears to

lack money for payrolls.

339

Secretary Morgenthau - 2

3. Considerations

a. There are no legal restrictions on the export of

United States currency. Therefore Liberia does not need
our permission to purchase our currency nor does the Fire-

stone Company need our permission to export that currency.

b. The economic effects of the measure are negligible
because the amount involved is so small. Since the coins
that will be acquired will be subsidiary coins, the Treasury
will make a seigniorage profit of 75 cents for every dollar
Liberia purchases, a profit which otherwise would not be
made. This transaction is a profitable one for the United
States.

C. The economic advantage of Liberia using United
States currency and pegging her currency to United States

currency is negligible in view of the very small trade and
financial dealings we have with Liberia. Our exports to

Liberia were in 1938 $800 thousand and our imports $1 million.

(

d. We understand from the Department of State that
they have no objection to the Liberian Government replacing
British coins with American coins. If the State Department
doesn't mind, there probably are no objections from England's
point of view.

e. From the point of view of our monetary policy the
matter is unimportant but it may be worth something politically for us to be able to say that another country has

adopted American currency.
Conclusion

The answer to the State Department should, in my
opinion, be that we have no objections.

OK

im Z

TO:

MR. WHITE

(

This is the answer of the sages,
tempered by your conversation with Mr.

Bailie. I take it you are handling
the matter.
JPC, Jr.

From:

MR. COTTON

349

As you know, there are no legal restrictions on the

export of U. S. or other silver coins from the U. S., and
such export can be freely arranged through any bank. The
Treasury sees no ground for objecting to such purchase
by Liberia.

go

2B

Treasury Department

Division of Monetary Research
Date

10/9/39

1939

To: Mr Cotton Room 120
From: the Dr White

To D Vuner
From Mr Cotton

Please add to

Liberian file
f TCL

MR. MORGENTHAU'S OFFICE TOMr. Hanes

Mr. Bell

1. Gibbons

Mr. McReynolds

Mr. Gaston

Mr. Foley

Mr. Alexander
Mr. Allen

Mr. Hanna

Mr. Bartelt

Mr. Helvering

Mr. Batchelder
Mr. Berkshire
Mr. Bernard
Mrs. Betts

Mr. Birgfeld
Mr. Blough
Mr. Broughton
Mr. Bryan

Capt. Collins
Mr. Delano
Miss Diamond

Mr. Duffield
Miss Flanagan
Mr. Graves

Mr. Harper

Mr. Irey
Mr. Julian
Mr. Kilby

Mr. Lochhead
Miss Lonigan
Mr. Maxwell
Mr. Rose
Mrs. Ross

Mr. Sloan
Mr. Spangler
Mr. Tarleau
Mr. Thompson
Mr. Upham

Mr. Haas

Mr. White
Mr. Wilson

Mr. Hall

Mr. Young

(

341

SECRETARY OF STATE
WASHINGTON

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

October 7. 1939

EA 882. 515/40

The Secretary of State presents his compliments to

the Honorable the Secretary of the Treasury and, referring to a telephone conversation with Mr. White of the
Treasury Department, encloses herewith a paraphrase of

telegram no. 79 of October 4 from Monrovia, relating to
the possible use of United States currency in Liberia.

Enclosure:

Paraphrase of telegram.

BEEN

> interview

of

Department of State
EA
BUREAU

DIVISION

ENCLOSURE
TO

Letter drafted

10/6
ADDRESSED TO

Sec. of Treasury.

- PERTINS - 1-1011

342

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Monrovia, Liberia.
DATE: October 4, 1939, noon.
NO.:

79.

The Firestone Plantations Company has been given per-

mission by the Secretary of the Treasury to import United
States coins and currency amounting to one hundred thousand

dollars. A definitive reply at an early date to the Government of Liberia's inquiry as to the availability of U.S.
currency and coins to displace British coins would be much

appreciated by the Liberian authorities.
WALTON

EA:MSG

Treasury Department

Division of Monetary Research
0

Date 10/9/39

To:

Mr. Cotton - Room 124

From: H. D. White

The only copies of the
cables that we have are appended.

1939

October 9, 1939
Secretary Morgenthau
Mr. White

(Copies to Mr. Cochran and to Mr. Cotton as liason officers.)
Subject: Liberian proposal to purchase U. S. currency.
(Cables attached. An additional cable referring
to a desire by Liberia to purchase $100 thousand
of U. S. silver has not yet been received by me
but the gist of it was telephoned by Mr. Luthringer
of the State Department.)

1. The situation
Liberia has hitherto used British coins but according

to the appended report there is a shortage of coins for hand
to hand circulation reportedly due to the British embargo

on currency exports.

Moreover it appears that the Secretary of the Treasury
of Liberia believes that a substitution of American currency
for British currency as the medium of hand to hand circulation

is desirable in view of the general situation.

The Secretary of the Treasury of Liberia has granted the
Firestone Company (owners of the only bank in Liberia) the
privilege of purchasing $100 thousand in United States silver
coins (the denominations not specified) presumably as a first
step in the replacement of some 6200,000 to 6250,000 of
British coins and currency now in circulation in Liberia, and
I believe the Firestone Company has requested the view of the
State Department and the latter has asked our opinion.
2. The problem

Do we have any objections to the acquisition by the

Liberian Government (via importation by the Firestone Company)

of the $100 thousand in silver coins as a first step toward

a replacement of her British coins and currency by American
currency? The State Department would like an answer at once,
1f possible, inasmuch as the Firestone Company appears to
lack money for payrolls.

344

Secretary Morgenthau - 2

3. Considerations

a. There are no legal restrictions on the export of

United States currency. Therefore Liberia does not need
our permission to purchase our currency nor does the Fire-

stone Company need our permission to export that currency.

D. The economic effects of the measure are negligible
because the amount involved is so small. Since the coins
that will be acquired will be subsidiary coins, the Treasury
will make a seigniorage profit of 75 cents for every dollar
Liberia purchases, a profit which otherwise would not be

made. This transaction is a profitable one for the United
States.

C. The economic advantage of Liberia using United
States currency and pegging her currency to United States

currency is negligible in view of the very small trade and
financial dealings we have with Liberia. Our exports to

Liberia were in 1938 $800 shousand and our imports $1 million.

d. We understand from the Department of State that
they have no objection to the Liberian Government replacing

British coins with American coins. If the State Depa tment
doesn't mind, there probably are no objections from England's
point of view.
From the point of view of our monetary policy the
matter is unimportant but it may be worth something politically for us to be able to say that another country has
e.

adopted American currency.

Conclusion

The answer to the State Department should, in my
opinion, be that we have no objections.

HDWimh

10/9/39

MR. McREYNOLDS OFFICE TO
Mr. Hanes

r. Gibbons

Mr. McReynolds

Mr. Bell

Mr. Gaston

Mr. Graves

Mr. Foley

Mr. Duffield

Mr. Allen
Mr. Anslinger

Mr. Ballinger

Mr. Barnes

Mr. Bartelt
Mr. Batchelder
Mr. Chas. Bell
Mr. Berkshire
Mr. Bernard
Mr. Bernstein

Mr. Birgfeld
Mr. Blough
Mr. Broughton
Mr. Burdette
Mr. Burns
Mr. Cairns

Miss Chatfield
Miss Coleman

Collie
Capt. Collins
Mr. Cox
Mr. Cunningham
Mr. Delano

Mr. Helvering
Mr. Howard
Mr. Hyland

Mr. Julian
Mr. Kieley
Mr. Kilby
Mrs. Klotz
Mr. Lochhead
Mr. Marks
Miss Michener
Judge Moyle
Mr. Nussear

Mr. O'Connell
Mr. O'Caniel
Mr. Perry
Mr. Rehlaender
Mr. Rose
Mrs. Ross
Mr. Schoeneman
Mr. Schwalm
Mr. Sheppard

Mr. Sloan
Mr. Spangler

Mr. Ellis

Mr. Stutler

Mrs. Forbush
Mr. Fox
Mr. Greenberg
Mr. Haas

Mr. Tarleau

Mr. Hall
Mr. Hanna

Mr. Harper

Mr. Heffelfinger

Mr. Thompson
Mr. Upham
Adm. Waesche

Mr. Wenchel
Mr. White

Mr. Wilson
Mr. Wollner

10-6-39

A.n.Janggests this go to

m starry D white
nm s

1

MR. MORGENTHAU'S OFFICE TOMr. Hanes
Mr. Gibbons
Mr. Gaston

Mr. McReynolds

Mr. Alexander

Mr. Graves

Mr. Allen

Mr. Bell
Mr. Foley

Mr. Haas

Mr. Bartelt

Mr. Hall

Mr. Batchelder

Mr. Hanna

Mr. C. S. Bell
Mr. Berkshire
Mr. Bernard
Mrs. Betts

Mr. Birgfeld
Mr. Blough
Mr. Broughton
Mr. Bryan
Mr. Cochran

Mr. Harper

Mr. Helvering
Mr. Irey
Mr. Julian
Mr. Kilby
Miss Lonigan
Mr. Rose
Mrs. Ross

Mr. Collie
Capt. Collins

Mr. Sloan
Mr. Spangler
Mr. Tarleau

Mr. Delano
Miss Diamond

Mr. Thompson
Mr. Upham

Mr. Duffield

Mr. White
Mr. Wilson

Miss Flanagan

Mr. Young

TO:

MR. THOMPSON
J

October 6, 1939.

As the contents of the letter

from the State Department indicate
that the Liberian Government wishes

to substitute United States coin
and currency for the British coin
currency now
as

and and this subject in seems circulation, to be

outside the jurisdiction of the
Mint, I am returning the letter to
you for appropriate attention.

I am also attaching the Bureau

file and request that it be returned.

HH
(10/12/39 - Returned to Mr. Howard's
o

ice by Mr. White's office)
MR. HOWARD

OFFICIAL COMMUNICATIONS TO

THE SECRETARY OF STATE
WASHINGTON D.C.

&

or ? A

DEPARTMENT OF STATE
WASHINGTON

October 3. 1939

In reply refer to

345

EA 882. 515/33

My dear Mr. Secretary:
The Government of Liberia has on several occasions

expressed an interest in substituting American silver
ooin for the British silver coin which now constitutes

the principal circulating medium of Liberia. According
to reports received by this Department, the British exchange control is preventing the Bank of Monrovia from

obtaining additional British silver coin which is urgently
needed to meet pay rolls and for hand-to-hand circulation
in Liberia.
In the opinion of this Department the adoption of
American silver coin by Liberia will probably be advantageous to both the people of Liberia and to American interests in that country, but before communicating further
with the Government of Liberia, this Department wishes to
ascertain
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

346

ascertain if the Treasury Department perceives any objec-

tions to such a plan.
For your information I am enclosing paraphrases of
two telegrams from Monrovia and a memorandum which has

recently been received by this Department entitled
"Substitution of United States Coin for British Coin in

Circulation in Liberia".
Sincerely yours,

6

Enclosures:

1. Telegram no. 75, from Monrovia,
September 20, 1939, (paraphrased).
2. Telegram no. 77, from Monrovia,
September 25, 1939, (paraphrased).
3. Memorandum.

polatvic
gistonoM

Department of State
BUREAU

DIVISION

ENCLOSURE
TO

Letter drafted

9/26
ADDRESSED TO

Sec. of Treasury.

-

1-1003

347

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Monrovia, Liberia.
DATE: September 20, 1939, noon.

NO.: 75
I have been requested by the Government of Liberia to

explore the possibility of arranging with the Government
of the United States for the transfer of U.S. coins and a

limited quantity of currency notes to be circulated in
this country.
Already a shortage of British coins in Liberia has
been created by Great Britain's embargo on pounds. At a

cabinet meeting on the 19th of September the practicability
of replacing United States coins for sterling was discussed.
A statement that "there seems to be some opposition

(to plan) in certain quarters" is made in a note sent me
from the Secretary of the Treasury.
WALTON

EA:MSG

PARAPHRASE OF TELEGRAM RECEIVED

348

FROM: American Legation, Monrovia, Liberia
DATE:

September 25, 1939, 6 p.m.

NO.: 77.
Reference 18 made to telegram No. 45 of September 22,

7 p.m., from the Department.

The Government of Liberia desires, at the earliest convenience, to begin using coins of the United States instead
of British coins. The Government of Liberia would devise

a practical plan for withdrawing the British coins from
circulation.
There 18 a rapidly diminishing supply of British coins
in Liberia now, and the circulation of such coins is no
longer favorable to the trade and commerce and fiscal trans-

actions of this country. Sixty percent of the total trade
of Liberia was formerly with Germany; this German trade
has been reduced to nil. There has been serious curtailment

of British credits and trade with the Netherlands.

It is the opinion of Liberians that the most available
market for supplies 18 the United States, and the Liberian
Secretary of the Treasury informally suggests that the
Commerce Department of the United States cooperate with them

in formulating a program designed to promote trade and (omission)
between

349

-2between the United States and Liberia.

the mail,

Since there are no mail boats calling at Monrovia,

I could send a copy of the note from the Liberian Secretary

of the Treasury and of my comments only by air 1f
Department sanctions this method of transmission.
WALTON.

davieums

company

BEEN aTOO

& W 8 22

30 sobilities

document EudonoM
ABEVENBA

350

MEMORANDUM

September 26, 1939.
SUBSTITUTION OF UNITED STATES COIN FOR BRITISH COIN IN
CIRCULATION IN LIBERIA

It seems to be the desire of the Secretary of the
Treasury of Liberia to import enough American currency to

buy up and put out of circulation all British silver coin.
His ideas are not very definite as to the period of time
over which this transaction would extend and he seems to

expect that the capital would be advanced by the Firestone
interests and also that the mechanism of the transaction
would be handled by the Bank of Monrovia. The Secretary

of the Treasury further desires a concrete proposal as to
the methods by which this could be accomplished. This
would necessarily imply fixing a conversion rate between
British and American currency based on the current exchange

rates between them, such rate to include the cost and risks
involved in shipping currency from America and returning the
British currency from Liberia to London, assuming that such
currency can be imported into England at face value for an
indefinite time. Before such a scheme could be put into
operation, the following information would be necessary:

1.

-2351

1. Addition whether ourrency can be exported
From the United States;

2. Whether British silver in circulation in

Liberta could be imported into England;
3. Other details as to who would finance the
operation; and
tend.

4. The period of time over which it would ex-

This plan would imply immediate conversion of silver held
by the bank at the rate agreed upon, together with a corresponding reduction in government and other deposit
accounts. The bank would make all payments in American

currency at this rate, which would also apply to future

deposits of British silver. on the effective date for
the introduction of the American dollar, British silver
would have to be demonetized and only the American dol-

lar made legal tender.
The Liberian silver and copper in circulation would
remain legal tender and would necessarily appreciate to

the American dollar level. No accurate information is

available as to the total British silver in circulation,
but it probably amounts to between 200,000 and 250,000
is

pounds sterling. H believed that approximately 20 percent

of the coins in circulation are West African palm-tree silver, which are not legal tender in England.
It would probably require $250,000 for the first
shipment. Aside from the costs such as freight, insurance,

and war risk, there is the possibility of a further deelime
in

352

-3-

in sterling between the date of conversion and the date

of arrival in London for credit, which possibly might be
covered by forward selling of sterling. No one is now in
a position to estimate the total cost involved. This
plan would necessitate certain changes in the loan and
depositary agreement between the government and the Bank

of Monrovia, Inc., covering the Libertan foreign debt.
If the above plan does not seen feasible because of the

various risks, costs and conditions outlined, then as a
temporary expedient to relieve the current shortage of
currency it would probably be acceptable to the govern-

ment to bring in sufficient American silver to be put into
circulation at a value equivalent to the Liberian dollar
and to British silver. It would then be advisable to pre-

vent further importation of British silver and to prohibit
by law the deportation of American currency except under

permit and by the Bank of Monrovia only. A possible
weakness in this plan would be the lack of effectiveness

in preventing silver from leaving the country by the
operation of Gresham's Law.

is
lasa OCL V MW 8 22
SECBELVHA OF LUEV208A
OFLICE

EA:LUTHRIIGER:MSG

CAVEIONS
manneqo

eeer 0100
to golatvia
downson gratedoM

353

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

October 10, 1939

MEMORANDUM FOR THE SECRETARY

With reference to memorandum from this office under date of
September 26th concerning the tonnage of coal used by the

Federal Government, there is attached hereto a statement
concerning coal used by the Tennessee Valley Authority.

Director of Procurement

att.

both

grown

*

15
Steam Plant
Steam Plant
Steam Plant
Steam Plant
Steam Plant

Hales Bar Dam

Fertilizer Works,

Oneida, Tennessee

Locations where coal

Wilson Dam, Alabama

Wilson Dam, Alabama
Jamestown, Tennessee

Nashville, Tennessee
Hales Bar, Tennessee

Parksville, Tennessee

is used by TVA

Daily

60 Tons

45 Tons
400 Tons

1,260 Tons

1,100 Tons

720 Tons

50 Tons

Consumption
*** - Probably will not operate

** - 10/1/39 to 12/31/39 Estimated Requirements 78,500 Tons

- New plant starting October 1, 1939

Storage

45 Tons
Facilities

45 Tons

10,000 Tons

20,000 Tons

3,200 Tons

70,000 Tons

10,000 Tons

*

None

None

84%

Storage

40%

100%

Filled

12.5%

Capacity

**

***

ments from

127,000 Tons

85,000 Tons

13,000 Tons

1,755 Tons

2,540 Tons

Estimated Require-

10/1/39 to 6/30/40

Alabama
Alabama
District

Kentucky
Northern

Northern

Received

from which

Tennessee
Tennessee

S.E. Tennessee

S.B. Tennessee

Form of

Delivery
Rail only
Rail only

Rail only

Rail only
Rail only

Rail or truck

Rail on truck

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 10, 1939

TO

FROM

Secretary Morgenthau

Basil Harris
For your information
Captain Sherman of Naval Operations telephoned us at 12:15 today

and read the following oablegram from the American Minister at
Santo Domingo to the Secretary of State:
"My Number 75, September 30. I was informed today

by the Foreign Minister that he had learned that the
SS HISPANIOLA arrived in Fort de France, Martinique,

about October 2 with heavy eargo tanks and bunkers, but
has since been detained. A consignment of 150 barrels

of Diesel oil for this city loaded at St. Thomas
September 21 was presumably discharged somewhere

between the last-named port and Martinique. Since
none was unloaded at the intermediary ports of

Guayanilla, Porto Rico, or Ciudad Trujillo, the

inference has been drawn that the oargo was transferred
at sea.

"According to the Foreign Minister, the Dominican
Government has taken a serious view of this question

and has already issued instructions recalling by air

for consultation the Dominican Consul at Fort de France.
The Foreign Minister assured me, moreover, that every

effort would be made to trace the matter to a final
conclusion.

"with reference to my telegram 78 of October 7,
4 p.m., it is learned that the HISPANIOLA is of
Dominican registry and of German-Porto Rican ownership."

Captain Sherman wanted to know if the Collector of Customs at

St. Thomas was responsible for the clearance of the vessel and if he
was under the jurisdiction of the Treasury Department. He was advised

355

356
that the Collector was responsible and was under Treasury

jurisdiction. Captain Sherman stated that the request had come
from the President and that the Treasury should take no further

action in the matter until it received further advice.

Bame Mario

357

October 10, 1939

Submarine Diary
BOSTON.--NAVY COAST GUARD PATROLS ARE REPORTED TO HAVE BROADENED

THEIR SEARCH BY SEA AND AIR FOR A "FOREIGN" SUBMARINE REPUTEDLY LURKING
ALONG THE EXPECTED ROUTE OF THE THREATENED AMERICAN REFUGEE SHIP
IROQUOIS IN NEW ENGLAND WATERS.
THOUGH ORDERS WERE SECRET, AN AMPHIBIAN WHICH LEFT SALEM COAST
GUARD AIR BASE WAS UNDERSTOOD TO HAVE REJOINED THE SEARCH WHICH
PROVED FUTILE YESTERDAY.

10/10--R1120A

358
October 10, 1939.

At 2:40 p.m. the following message was dictated over phone by Commander

Hirschfield, Duty Officer of Coast Guard, to M.E.L. Robertson:

On Sunday 8 October the Associated Press informed Headquarters

that the EDITH, a fishing vessel out of New York upon arrival at New
Bedford, Mass., reported that she had sighted a submarine being fueled

by a tanker or freighter west of George's Banks, which is east of
Nantucket Island and Northeast of Nantucket Light Vessel. This information
was given to the Commander, Boston District, with instructions to investigate and advise headquarters.

Today, 10 October, received the following from Boston District
in answer to Headquarters' message giving the aforesaid information:
"Deductions indicate that the S.S. THOMAS TRACY

while bound Norfolk passed EDITH in reported position

of contact sixteen miles east northeast of Nantucket Light
Vessel at about 3:00 a.m., reported time contact and that
dragger or other craft mistaken by EDITH for subnarine passed

astern of her. Request Norfolk District contact TRACY to

determine if theory substantial.
From the quoted message it would seem that a dragger or other craft
was mistaken by the EDITH for a submarine and which also assumed that the
THOMAS TRACY was fueling the submarine. This is all based on deduction
and should not attach any present suspicion to the THOMAS TRACY. The

information received from Norfolk District will be disseminated upon its
receipt.

PLAIN

JI

359

London

Dated October 10, 1939
Rec'd 2:22 p.m.

Secretary of State
.

Washington

1994, October 10.
FOR PURCELL FROM BUTTERWORTH.

The Stock Exchange Committee for general

purposes has announced that it has been officially
informed that the Canadian authorities have arranged
that the Canadian stock Exchange is to allow nonresident owners of Canadian domestic securities to
sell their holdings provided they buy other domestic
securities of Equal value.
In the circumstances, the British authorities
have decided to relax the Embargo on switches from

one security to another insofar as Canadian domestic

securities are concerned if the formalities required
by the Canadian authorities are complied with.
Accordingly, British residents must make applicati on

for permission to sell such securities in Canada and
to invest the proceeds to the Stock Exchange Committee
on special forms and the security purchase

registered.
Please inform Treasury.
KENNEDY
KLP
KLP

N

returned

at

360
GRAY

CJ

PARIS

Dated October 10, 1939

Rec'd 4:03 p.m.

Secretary of State,
Washington.

2408, October 10, 6 p.m.
FOR THE TREASURY

In commenting this morning on Bourse conversation
about the B.I.S. the Agence Economique Et Financiere

says it would be difficult to imagine the Governor of the
Bank of France meeting with the President of the Reichsbank, Dr. Funk. "What good can French participation

SERVE any longer in this institution which has frozen part
of its assets in Germany and the activity of which SEEMS
to decline more markedly from month to month."

It then mentions the further reduction in the B.I.S.
balance sheet from 512,000,000 Swiss francs to
493,000,000 from August 31 to September 30. The foregoing

would SEEM to portray accurately the present French attitude toward the B.I.S. Incidentally B.I.S. shares WERE
last quoted on the Paris Bourse (at 2,300 French francs)
on August 22.
(END OF SECTION ONE).
BULLITT

EMB

361
VRH

GRAY

Paris

Dated October 10, 1939

Rec'd. 3:25 p.m.

Secretary of State,
Washington.

2408, October 10, 6 p.m.
SECTION TWO.

Some favorable attention has been attracted in

French financial circles to the meeting yesterday under
the auspices of Daladier and Dautry on the question of
speeding up French armament production whereat Jouhaux,

the Batenoire of French Employers of the now unlamented
days of the Popular Front government, Expressed on

behalf of the CGC full agreement with the industrialists'
program and pledged the full cooperation of organized
labor toward the common aim of winning the war. The
Government's vigorous action in the arrest of SOME 40
odd Communist deputies has likewise apparently met with

general approval in labor circles.
The securities market was again firm and most issues

improved. Most rentes issues continued to advance
fractionally

362

-2-

2408, October 10, 6 p.m.

to Paris

fractionally and the foreign Exchange guaranty issues
of 1925 and 1937 advanced 1.55 and 2.10 respectively.
No change in foreign Exchange rates. (End of message)
BULLITT.
CSB

eeer 11

principal

00

Prepared by:

0

Mr. Murphy
Mr. Lindow
Mr. Tickton
Mr. Haas

TREASURY DEPARTMENT
CONFIDENTIAL

INTER OFFICE COMMUNICATION

DATE October 10, 1939

TO

FROM

Secretary Morgenthau

Mr. Haas DH.

Subject: Current
Developments in the High-Grade Securities
Markets
SUMMARY

(1) Treasury securities advanced during the past week
(Chart I). All maturities participated in the
rise (Chart II). The medium- and long-term 18sues rose somewhat more than the short issues,
and acted more in accordance with normal expec-

tation during a rally than they did last week.
Federal Reserve banks permitted their bill port-

folio to decline further (Chart III).

(2) High-grade corporate bond prices rose last week
and yields dropped to the lowest point since
September 2 (Chart I). The volume of corporate

financing continued at a low level. Private

placements of more than twice the amount of the
public offerings were reported, however.
(3) The September 30 statements of condition of New
York City banks appeared during the past week.
Three of the nine of the largest banks have decreased their Government security holdings since
June 30. Bankers Trust increased its Governments
by 19.8 percent, whereas J. P. Morgan and Co.
(including Drexel and Co.) showed a decrease of
18.3 percent (Chart IV). Three of the banks
showed a decline in the volume of loans outstanding (Chart V), but Morgan was the only bank of
the group to show a decrease in both Governments

and total loans. (Its cash more than doubled.)
(4) Both the British and French security markets
showed some recovery last week. British 2-1/2
percent consols rose above the official minimum.
French rentes also improved. British money rates
remained easy, and, while the Bank Rate was main-

tained at 3 percent all week, a further out was

expected.

364

Secretary Morgenthau - 2

I. Current Developments in United States Securities
All Treasury securities rose during last week and on
Monday, October 9. The average yield on all long-term
Treasury bonds stood at 2.67 percent on Monday as compared
with 2.74 percent a week before (Chart I).
The relative movement of different maturities of Treasury
securities during the past eight days is shown in the fol-

lowing table:

Average price change

:

Week ended: Monday

Notes

1 to 3 years
3 to 5 years

: October7 :October 9: Total
(In thirty-seconds)
+1
+4
+5
+
2
+7
+5

Bonds

Under 5 years to call

5 to 15 years to call

15 years and over to call

+ 10
+ 19
+ 20

+3
+8
+ 10

+ 13
+ 27
+ 30

Medium- and long-term securities, as may be observed in
the table, have risen somewhat more than short securities
(Chart II). Relatively, they have moved considerably more
than they had in the preceding week when their sluggish
movement was noted. Their action this week was more in accord with normal expectation in a rally covering the whole

market.

The rate on this week's offering of Treasury bills was at
a new low for the current crisis period -- .022 percent as oompared with .036 percent last week, and .082 percent the previous week. Press dispatches during the week called atten-

tion to the fact that last week's issue was the first matur-

ing after the year-end statement date, and suggested that the
lowered rate might have been the result of purchases for

window-dressing and tax purposes.

Bills issued last week went mainly to New York City banks

- $51 millions to Guaranty Trust, and $23 millions to other

New York City member banks. Bills issued the previous week

is

Secretary Morgenthau - 3

went mainly to Bankers Trust Company ($50 millions) and to

two large corporations -- General Motors ($18 millions)
and National Power and Light ($16 millions).

During the statement week ended last Wednesday, the

Federal Reserve banks permitted another $19 millions of

their holdings of Treasury bills to run off (Chart III).

This reduction continues the decline in bill holdings,

which has occurred over recent months. Since June 21,
when the Federal Reserve banks commenced their policy of

allowing some of their Treasury bills to mature without

replacement, the total reduction has amounted to $253

millions -- 53 percent of their bill holdings on that

date.

II. High-Grade Corporate Bond Market
High-grade corporate bond prices advanced during the
past week and yields dropped to the lowest point since
September 2. The Treasury average of high-grade corporate
bonds decreased in yield from 3.29 percent on Saturday,
September 30, to 3.22 percent on Saturday, October 7, and
decreased further to 3.21 percent on Monday (Chart I).
This change is about the same as that enjoyed by longterm Treasury bonds during the same period.

The volume of corporate financing continued at a low
level for the seventh consecutive week, involving the
public offering during the week of only one new issue -$6.3 millions of convertible debentures of Affiliated
Fund, Inc., an investment trust.
A private placing was revealed in addition to the
above flotation, however. The Philadelphia Electric Co.
announced plans to sell $10 millions of serial notes, and
$5 millions of preferred stock to three insurance companies.

An interesting measure of the change in the corporate
market since the beginning of the war crisis is provided
by the behavior of new issues sold during the spring and
summer. Virtually all of such issues are now selling below their offering prices. by a very substantial margin.

365

366

Secretary Morgenthau - 4

Current quotations on a few representative issues are shown

in the table below. A Canadian issue has been included to
indicate the more drastic declines which have been suffered
by such securities.
Offering Offering Current
:

Issue

date

price

price

:

Southern Bell Tel. & Tel.

7/20/39 107-1/2 96-3/4

Shell Union 011 Company

7/19/39

97-3/4

92-921

Gatineau Power Co. (Canadian)
3-3/418, 1969

4/24/39

98-1/4

83-85

3's, 1979

2-1/2's, 1954

Terminal Railroad Ass'n of St. Louis 8/16/39 102.60

94-951

3-3/8's, 1974

III. New York City Bank Statements
In the past few days the large New York City banks have
published their statements of condition as of September 30,
1939, and it is now possible to see what these banks individually have been doing with respect to Government securities
and loans in the last three months.

Charts IV and V show for selected dates the holdings of
direct and guaranteed Government securities and the total
loans for each of eight of the largest reporting member banks
in New York City. These banks account for about 80 percent
of the Government holdings and about the same proportion of
the total loans of all New York City weekly reporting member
banks. The charts also show, for the same dates as for the
individual banks, the Government holdings and the total loans
of all weekly reporting member banks in New York City. The
Governments and the loans of J. P. Morgan and Co.* are also
shown, although this company is not, of course, a weekly reporting member bank.

*Including Drexel and Co.

367

Secretary Morgenthau - 5

Although Charts IV and V are similar, the dates used
are not identical. Chart IV shows data for June 30, 1936,
the quarterly date nearest the all-time peak in the Govern-

ment security holdings of New York City banks; September 30,
1937, the quarterly date which marked the subsequent low
point of these holdings; December 31, 1938; and the two most

recent quarterly dates. The total loans of weekly reporting
peak, however, fifteen months later than the peak in their

member banks in New York City reached their post-depression

Government holdings -- in the same month, as a matter of fact,
that the Government holdings reached their low. Chart V
shows, therefore, data for September 30, 1937, the quarterly
date nearest the post-depression peak of loans of New York
City banks; June 30, 1938, the approximate date when loans
stabilized after the sharp decline from the 1937 high;
December 31, 1938; and the two most recent quarterly dates.

The pattern of United States security holdings of individual banks does not conform neatly to the pattern presented by the holdings of all reporting member banks in New

York City. In the three months since June all such reporting

member banks increased their holdings of Governments by

$89 millions, or 2.1 percent. Among the individual banks,
however, three decreased their holdings of Governments, offsetting in part the substantial percentage increases registered by other banks in the City. As is shown in the following table (arranged in order of percentage increase), the holdings of the Bankers Trust Co. showed the greatest relative
increase whereas J. P. Morgan and Co. showed the greatest
relative decrease.
Change, June 30 -

Bankers Trust

First National
National City

Central Hanover

September 30, 1939

(millions of dollars)
+ 88
+ 16
+ 30

+6

change
:

Bank

Percent

+

+

+

+

Guaranty Trust
Manufacturers Trust
Chase National

Irving Trust

J. P. Morgan & Co.

+3

- 26
- 11
- 72

6.3
4.9
2.1

+ 2.1

ALL NEW YORK CITY REPORTING BANKS + 89

+ 13

19.8

2.0

+ 1.1
+

- 3.1
- 6.6

- 18.3

368

Secretary Morgenthau - 6

The loans of the individual banks, in contrast with their

Government security holdings, have, in general, conformed to
about the same pattern as that of all reporting banks during
the period under consideration, with the exception of Morgan
and First National. Only these two banks and Central Hanover

have shown a decline in loans since June 30. It is interesting to note that J. P. Morgan and Co. is the only bank in the
group which has shown a decrease in both Governments and loans
during
past quarter. (Its cash has more than doubled during
thethe
period.)
The data on individual banks shown in Chart V refer to

total loans, these figures being the only ones available in
the statements of the individual banks. These data do not
adequately show developments during the quarter because the
sharp increase in commercial, industrial, and agricultural
loans -- as shown by data for all reporting member banks -was offset in part by the sharp contraction of loans on securities during the middle of September. During the third
quarter, commercial, industrial, and agricultural loans of
all weekly reporting New York City banks increased $268 millione, whereas total loans increased only $128 millions.
IV. Foreign Money Markets

Both the British and French security markets gave indications of a return to more normal conditions last week.
Gilt-edge prices recovered a little and were accompanied by
a somewhat greater revival in the stock market. On Thursday,
British consol prices rose one-eighth above the official
minimum of 62 for the first time since September S. By

Monday, a further improvement to 63 had occurred.
#

It should be noted that the character of the business of
J. P. Morgan and Co., particularly in its foreign accounts,
may be somewhat different from that of the other banks, and
that consequently its cash requirements may differ correspondingly. It should also be noted that the decrease in

the Government bond holdings of this firm might be accounted
for entirely by an excess of maturities over new purchases
of Treasury bills and guaranteed securities, or might be
accounted for in whole or in part by sales of Government

securities made during July and in August prior to the be-

ginning of the war crisis.

369

Secretary Morgenthau - 7

The Bank Rate was maintained at the level of 3 percent
all week, but the market continued to expect that there would
be a further out preparatory to the issuance of new war loans.
Market opinion, according to the press, is that another reduction in the Bank Rate would greatly stimulate the "thawing"
out process in the gilt-edge market. It is also felt that
such a step would be in line with prevailing money conditions.
Money rates remained at, or fell slightly below, the
easier levels established the previous week. The plentiful
supply of funds enabled the British Government to borrow at
a reduced rate, the average rate on Treasury bills dropping
from 2.44 percent to 2.13 percent.
High-grade securities on the French Bourse also gained

last week. Perpetual rentes closed at 68.15 on Monday to
yield 4.40 percent, as compared with a price of 67.10 (yield
4.47 percent) on Wednesday, the low last week.

Attachments.

370

Chart I
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
JAN

are

-

MAY
..

(

AND AVERAGE OF HIGH GRADE CORPORATE BONDS

1938

you

AUG

OCT

NOV

1939

PEC

AVE

PER CENT

get

NOV

LESS

DEC

OCT

PER CANT

PER CENT

WEEKLY, Wednesday Quotations

DAILY

2.2

22
22

Long Term Treasury" (is years more

24

2.4

2.4

Long Term

Treasury
26

26
2.6

-

28
28

30

30

32

32

Corporates

20

30

32

Corporate
3.4
1.4

14

3.4
3.6

36

38
38

38

40
40
40

PER
CENT

PER

CENT

PM

CENT

100
100
100

80
80
80

Spread Between Long Term

Spread

Treasury and Corporate

60
60

60

40
40
40

20

20

20

-

.

ANY

AUS

SEPT

OCT.

FEB

JAN

MAR

"great

of

MAY

JUNE

in

"

-

OCT

1939

1939

1938
compension

APR.

0

Am

DEC

.

T

MAY

NOV

..

Aug

.

APP

-

..

AUS

0

JAN a MAR

-

- -

Farm

Treasury

average

P-60-8

o

371

Chart II
CHANGE IN THE PRICES OF U.S. SECURITIES SINCE SEPT. 6, 1939
Points Plotted Represent Differences from Average Price of Each Maturity Class on Sept. 6
SEPTEMBER

OCTOBER
23

POINTS

30

20

14

POINTS

(NET CHANGE)

(NET CHANGE)

Daily
+1

+1)

NOTES, 3-5 YEARS

+1

*14

...

*1

NOTES, 1-3 YEARS

.

.1

.,

.,

.
1 BONDS, UNDER 5 YEARS TO CALL
0

BONDS, 5-15 YEARS TO CALL

-

-I

-1.

BONDS, OVER 15 YEARS TO CALL

-11

-11

-11
-11

-11
-2

-2
-21

-21
-21

-21
-21

-21
3

-3

-31

-31

SEPT. 6

-31

-31

31

-31

4

21

28

14

30

4
16

23

OCTOBER

SEPTEMBER

-

Office the Secretary of the Treasury

NOTE: BREAK IN LINE INDICATES ONANGE IN COMPOSITION OF A NATURITY CLASS

121-

372

Chart III

FEDERAL RESERVE BANK HOLDINGS OF U.S. SECURITIES
1929

1930

1931

DOLLARS

Billions

1932

1933

1934

1935

1936

1937

1938

1939

1939

1940

MONTHLY

DOLLARS

MAY

MAR

JULY

SEPT

NOV

DOLLARS

Billions

Billions

WEEKLY
Wednesday Figures
28

28

28

Total

Total
2.4

2.4

2.4

Certificates and Bills

Certificates and Bills
20

20

2.0

1.6

1.6

16

Notes
1.2

1.2

1.2

8
8

8

Bonds
4

4

Bonds
0
o

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

1940

0

1929

JAN

MAR

MAY

JULY

SEPT

NOV

1939

F-015-1

373

Chart IV

NEW YORK CITY BANK HOLDINGS OF U.S. SECURITIES
Including Guaranteed Obligations
DOLLARS
Billions

DOLLARS

Billions

All Weekly Reporting Member
Banks in N.Y.C

5

5
4

4

3

3

2

2

I

I

o

Sept

Dec

1936

1937

1938

June
1939

Sept
1939

0

Selected New York City Banks
DOLLARS

DOLLARS

DOLLARS

Millions

June

Millions

Chass National

900

900

800

800

700

700

900

900

800

800

700

700

600

500

500

500

100

Milliens

Guaranty Trust

600

600

600

DOLLARS

Millions

National City

400

400
400

400

300

300

300

300

200

200

200

200

100
100
100

o
0

The

Dec

June

Seat

1938

1939

1939

Dec

Seet

Sept

June

June

1937

1938

1989

1939

1934

o

June
1934

-

June

Dec

1434

-

Seat

400
600

Central Hanover
J P Morgan a Co.
Drexel & Co

Bankers Trust
500

500

least
1997

1934

400

600

June

0

100

100

500
400

400
400

400

300
300

300

100

200
200

200

200

100
100
100

100

o
Dec

1936

1937

1938

--

o

Sept

0

June

June

Sept

Dec

1934

1937

1938

June
1939

1934

June

Sept

1936

1937

Dec

1938

June

Best

1939

1934

400

400

0

400

400

Irving Trust

First National

Manu facturers Trust

100

300

300

200

100

200

200

100

200
100
100
o

o

June
1934

Seat

Dec

1937

1934

June

Seat

1939

1939

June
1934

Beat
1937

Dec
1938

Note Figures are for and of month indicated
terms

- -

June

Seat

Dec.

o

100

Nine
1939

Sept
PEG
1939

UHAA

o

Chart V

374

TOTAL LOANS OF NEW YORK CITY BANKS
DOLLARS
Billions

DOLLARS
Billions

All Weekly Reporting Member
Banks in N.Y.C.

5

5
4
4

3

3
2

2

I

I

0

June

Dec

June

Sept

1937

1938

1938

1939

1934

0

Sept

Selected New York City Banks
DOLLARS

DOLLARS

Chose National

Millions

DOLLARS

Millions

DOLLARS

Millions

National City

Millions

Guaranty Trust

900

900

900

900

800

800

800

800

700

700

700

700

600

600

600

400

500

500

500

500

400

400

400

400

300

300

300

200

200

200

100

100

200

100

100

0

0
Des

June

Sept

Sept

1938

1934

1939

1939

1437

1938

0

June

1937

0

Sept

Sept

June

Des

June

1937

1938

1934

1994

Sept

1934

500

500

500

500

300

Central Hanover

Morgan a Co.

Bankers Trust
400

400

300

300

200

200

100

100

Drexel Co

400

400

300

300
200
200
100

100

0
o
0

Sent

0

1937

1938

Sept

June

June

1937

1938

500

1938
1934

1924

500

500

500

Irving Trust

First National

Manufacturers' Trust
400

400

300

300

200

200

400

400
300
300
200
200
100
100

100

100

0

o

0

1937

1937

1934

June

Dec

1938

1934

June
1939

-

an

0

Sept

an

110

1939

Note Figures are for and of month indicated

F-12

COPY

October 10. 1939.

Gentlemen:

Attention: Mr. D. J. Cameron
Reference is made to the arrangement with the Banco do Brasil

as fiscal agent of the Brasilian Government, set forth in the
enclosures with the Department's letters to you dated July 15, 1937 and
September 2, 1938.
It is my understanding that in accordance with the advice contained in Banco do Brasil's cable No. 1 to you dated September 26, 1939.

the Bankers Trust Company, New York has informed you that 52 gold bars
valued at approximately $767,500.00 have been shipped by their London

Office, consigned to you, for account of the Banco do Brasil on the
S. S. Washington scheduled to arrive in New York on or about October 13.
1939.

This will confirm authorisation, telephoned to you, to take

delivery of the abovementioned gold bars and to earmark such gold in
your vaults as fiscal agent of the United States for account of the Banco
do Brasil as fiscal agent of the Brasilian Government in accordance
with the terms and conditions of the letter dated July 15. 1937 from the
Secretary of the Treasury of the United States to the Minister of Finance
of Brasil, as modified and supplemented by your letter dated September 2,
1938 transmitted to Banco do Brasil by cable through the Department of
State, Washington, D. C.

No liability will be incurred by you in connection with any acts,
arrangements, or agreements entered into or performed in accordance

with this authorization except for your own negligence.

The transaction authorised in this letter has been approved by
the President.

Very truly yours,
(Signed) Herbert E. Gaston
Secretary of the Treasury.
Federal Reserve Bank of New York,

33 Liberty Street,

New York, N. Y.

FDikma 1/12/40

Init.: H.M.C FD RB WH DWB BELL HH

TREASURY DEPARTMENT

376

INTER OFFICE COMMUNICATION

DATE October 10, 1939

TO

FROM

Secretary Morgenthau
Mr. Cochran

Upon an appointment made some days ago, Mr. Pinsent, Financial Counselor

of the British Embassy, called this afternoon at 3 o'clock to present Sir
James Rae and Lieut.-Col. J. H. M. Greenley, both members of the British

Purchasing Commission. These two gentlemen had just arrived from Canada.

Lieut.-Col. Greenley is from the industrial concern of Babcock and Wilcox
and Sir James Ray is an undersecretary in the British Treasury. The former
is acting as controller-general of the Mission, and the latter as chairman
and administrative executive.

The two visitors, for whom Lieut.-Col. Greenley did most of the talking,
stated at the opening of the conversation that they did not desire to be
indiscreet or to cause the Secretary any embarrassment.

The Secretary asked them about Canadian industrial plants. Col. Greenley

stated that automotive plants were helping the British quite a bit, but the
latter were making the effort not to interfere with these plants meeting
Canada's own requirements. Aeroplane manufacturing in Canada was on only

a small scale; this could be advantageously supplemented by aeroplane parts,
especially engines, exported from the United States to Canada.
Pinsent had learned from Leroy-Beaulieu of the Secretary's conversa-

tions with the latter in regard to the opening of accounts with the Federal

Reserve Bank of New York as fiscal agency of the United States. The Secretary

explained the possible action of the Treasury as a "buffer" in protecting
such an account from publicity. It was understood that Mr. Osborne, from
the Bank of England, and now in Canada, is the member of the Commission who

will discuss this phase of their negotiations. The Secretary stated that he

would welcome him at any time and a visit early next week was mentioned. The
two members expressed their personal approval of the fiscal agency account
idea and continued to show a desire, moreover, to discuss this matter with
the Secretary today. Consequently, Captain Collins and I withdrew so that
the conversation could be continued by the Secretary and the British visitors.

KMS
CONFIDENTIAL

377

October 10, 1939
10:36 a.m.
HMJr:

Harold
Ickes:

Hello.

HMJr:

Hello, Henry.
Hello.

I:

Hello.

HMJr:

Harold

I:

Yeah.

HMJr:

Henry talking.

I:

Yeah.

HMJr:

Can you hear me?

I:

Yes.

HMJr:

I don't hear you very well.

I:
HMJr:

All right.
I talked to the -- hello?

I:

Yes.

HMJr:

I talked to the President at lunch yesterday about
the point you raised about the visas for these 400

Jewish students.
I:

Yeah.

HMJr:

And he said that he was opposed to giving any visas
to any Americans.

I:

Yeah.

HMJr:

Whether they wanted to go to Scotland or whether
they wanted to go to complete their studies of the
or to go back to complete their studies

in Germany. And --hello.

I:

Yes, I get you.

-2HMJr:

In view of his position I called up Ben Cohen

I:

Yes.

HMJr:

378

and asked him if he wouldn't help you and me

by getting into the thing and see what could be
done to get them into the American universities.
I:

Yes.

HMJr:

I just wanted to again thank you for bringing it to
my attention and hope it's agreeable to you that I
asked Ben Cohen to help out.

I:

Certainly. Ben

HMJr:

What?

I:

called me up and said you had talked with him,

and that's quite all right.

I:

Well, I -- I just wanted to tell you because
All right, Henry.

HMJr:

Thank you, Harold.

I:

Goodbye.

HMJr:

379

OCT 10 1939

My dear Mr. President,
Upon inquiry at the Bureau of the Budget as to when we could
expect the 1940 Budget Summation to be released, I was informed that
there was no date set and that there is some doubt in your mind as
to whether this should be issued. In your Budget Message of January,

1935, you stated in part as follows:

"In order to promote more satisfactory methods
of budgetary control in the Government, I propose

this year to inaugurate the policy of having a

Summation of the Budget prepared for publication
immediately after the Congress has acted on all

financial matters.

You then said that the Summation would exhibit the revenue
estimates as revised by the Treasury so as to reflect any changes
in the economic situation during the preceding months, also any
revisions in the tax laws made by Congress and any revision of the
estimates of expenditures based upon the appropriations actually
made by the closing Congress.
In accordance with the announcement in your Budget Message of

January, 1935, the first Summation was issued in September, 1935,
covering that fiscal year and it has been published each fiscal year
since that time. The public in general and the newspapers in particu-

lar expect this publication to be issued shortly after the closing
days of Congress. This year there is unusual interest in it because

of the changes made by Congress in the appropriation estimates and
the recent Executive Orders enlarging the military branches of the
Government. Because of the delay in issuing the Summation, the newspapers are now beginning to make their own estimates of receipts and
expenditures and I believe it would be much better for all concerned
if these estimates could be obtained from an official document rather
than have various estimates made by outside people. Furthermore, I
believe that it would be most unfortunate to break the precedent of
issuing the annual Budget Summation.

I hope, therefore, that you will reconsider this matter and
allow the Summation to be published in the regular manner. I should
File to Mr. Thompson

380

-2 be pleased, however, if it c uld be timed so as not to come during
or immediately preceding a Treasury financing operation.

Faithfully yours,
(Signed) H Morgenthan, Jr.

Secretary of the Treasury.

The President
The White House.

DWB, OW

381

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

FROM

October 10, 1939

Secretary Morgenthau
Mr. Cochran

The foreign exchange market was dull today. Sterling opened at
4.03-1/4; in the early afternoon touched the high of 4.03-3/4, and closed at
4.03-1/2.

The other important European currencies have moved in a narrow

range during the last few days and closed today as follows:
Belgium

.1673

France

.0228-3/4

Holland

Switzerland

.5313
.2245

The Canadian dollar continued to show further strength and closed
at 10-3/16% discount.

Reporting banks in New York and the Federal Reserve Bank reported

sales totaling 1435,000, from the following sources:
Commercial concerns
Foreign banks (Europe)
Fed.Res.Bk. (For Sweden)

I 93,000
L 292,000

L 50,000
Total L 435,000

Purchases of sterling amounted to 1303,000, as indicated below:
By commercial concerns

By foreign banks (Europe and Far East)

L 185,000

I 118,000

Total I 303,000

The Bank of Latvia purchased in this market 238,000 belgas and
10,000 guilders.

The National Bank of Belgium sold to us $320,000 gold from their
earmarked account.

We received, through the Federal Reserve Bank of New York, a request

from the Central Bank of Ecuador to purchase $350,000 in gold. This transaction
was approved by the Treasury, provided the gold is to be used to increase the
monetary reserves of Ecuador, and subject to confirmation by the Central Bank of
that country. This gold is to be held at the Federal Reserve Bank of New York

under earmark for Ecuador and is the first sale of gold to that country.
There were no engagements of gold for shipment to this country
reported today.

CONFIDENTIAL

-2-

382

Knoke telephoned me at 3:15 p.m. that, as of October 10, the
balances of the Russian State Bank with the Chase Bank had risen to $4,900,000
as a result of the addition of $2,000,000 advanced by the Chase Bank against
the Russian gold shipment in transit from Oslo. The Amtorg's account with the
Chase
had declined to around $500,000, following heavy payments to the market
for purchases.
Knoke stated that the Federal Reserve Bank of New York contemplated

reducing its customary deposit of 150,000 with the Bank of England to 15,000.

He asked if this would upset any Treasury plans. I replied that it would not;
that the Stabilization Fund had already reduced its sterling balance to a very
small sum; that the decision was entirely with the Federal; and that the Treasury
would not take the responsibility of suggesting that they retain their usual
balance.

7B R.

CONFIDENTIAL

Bx216
October 10, 1939
2:57 p.m.

383

HMJr:

Hello.

Operator:

Mr. Cotton. Go ahead.

HMJr:

Hello.

Joseph P.
Cotton:

Yes.

HMJr:

Cotton.

C:

Yeah.

HMJr:

The President is very much interested in getting some

c:

Yeah.

HMJr:

And one of the suggestions he's made 18 that we should
take it up with Warren Pierson

quicksilver as strategic material.

Yeah.

C:

HMJr:

that Spain might accelerate its payments to us
for the cotton that they've gotten by giving us some
quicksilver.

C:

Yeah.

HMJr:

See? They've got a lot of quicksilver there.

C:

Yeah.

HMJr:

C:

Now, tell the -- Warren Pierson the President 18 very
much interested in it and is there something he can
do along those lines.

I see. Does -- shall we look into it too or just

hand that on?

HMJr:

How do you mean, look into it too?

C:

Well, I mean, shall we -- do we want to look into

HMJr:

what they have and what they might do or just
Who?

-2C:

HMJr:

Spain.

Well, Harry White wrote me a memorandum on quick-

silver, where it is and all the rest of it, which

I showed to the President.
C:

HMJr:
C:

HMJr:

C:

HMJr:

Um-hm.

And you could get a copy from Harry White.

Sure. All right, sir.
When you talk to Harry White tell him to send one
over, a copy, also of his memorandum on quicksilver
to Captain Collins by hand right away.
To Captain Collins.
Collins - head of Procurement.

C:

All right. Fine.

HMJr:

Will you?

C:

Fine.

HMJr:

Thank you.

384

House
385
October 10, 1939
To:

Secretary Morgenthau
Under Secretary Hanes

Mr. Bailie
Dr. White

From: Joseph P. Cotton, Jr.
MEMORANDUM: RE LATIN AMERICAN PROBLEMS

The Guatemala Conference of treasury experts and the meeting

of the Committee of Economic Experts, the creation of the Panama Conference which is to meet contemporaneously in Washington beginning

November 15, are impending. The President has announced he will ask

Congress at the forthcoming regular session to increase the lending
capital of the Export-Import Bank from $100 millions to $500 millions,
to enable the Bank to render assistance in Latin America. Welles and
Feis will have returned from Panama by Thursday.
Under the circumstances, it seems expedient for the Treasury to

attempt to think out the role it may be called upon to play.
I. Background.

In the past couple of years, in addition to the relatively
small amount of financing of trade with Latin America undertaken by

the Export-Import Bank at the initiative of United States exporters or
importers, the United States, through the Bank, has undertaken finan-

cial commitments in Latin America as follows:

1. Haiti.

$5,000,000 for a public works program

involving purchases in the United States.

-22. Nicaragua.

386

$500,000 for purchases in the United
States, plus an agreement to consider

applications for further purchases up
to $2,000,000.

3. Brazil.

A $19,000,000 credit to liquidate blocked
balances of United States exporters; and
an agreement to consider applications for
financing purchases in the United States;

no definite amount specified but $50,000,000

mentioned. In addition, the President agreed
to recommend to Congress a $50,000,000 gold

loan; and the 1937 agreement by the Treasury

with respect to gold exists.
4. Paraguay.

$500,000 for purchases in the United States,
plus an agreement to consider applications

for further purchases up to $3,000,000.

5. Uruguay.

$4,000,000 for purchases in the United

States.

The commitments are generally in the form of an agreement by the

Bank to consider, within the general limits prescribed and presumably

in consultation with the authorities of the country concerned, individual applications by United States interests for the financing of purchases in the United States, including United States services and, in
some cases, incidental local labor and material costs. Except in the
case of Haiti, where a public works program undertaken by J. G. White
and Company is in progress, and in Nicaragua where a road-building program is being studied by an RFC man, and with the exception of the
portion of Nicaraguan and Brazilian credits advanced to unfreeze

blocked balances of United States exporters, no definite plans or arrangements for utilization of the credits have been formulated. Gen-

-3-

387

eral objectives in terms of the development of communication facilities
and of productive facilities along lines complementary to the economy
of the United States are stated.

Apart from general political objectives and the desire in certain cases to help United States export trade in competition with
Germany, I am not aware that definite economic or other concessions
were sought or obtained in these agreements except as regards treatment

of private United States bondholders in the case of Brazil under the
Aranha agreement. As regards the other countries with which agreements
have been made, either no debt problem exists or obligations are being

met. It is clear that selectivity on the basis of treatment of United
States private creditors was exercised when entering into these agreements.

Since the War and in order to fortify the position of the United
States at the Panama Conference, in addition to the general statement

of what the United States is prepared to do in the matter of rendering
financial assistance, which was cleared with Mr. Jones and the Treasury,
definite promises have been made to Chile and Panama. The Export-Import

Bank has approved, upon condition that it has available funds:
1. A $5,000,000 credit to a Chilean Government corporation,
2. A $2,500,000 credit to Panama,
3. Two applications aggregating about $3,250,000 to finance

the sale of ships and steel rails to Brazil.

It should be noted that under the pressure of the Panama Confer-

ence situation, the fact that Brazil has done little to adjust the

388

-4private debt situation as promised in the Aranha agreement except to
deposit $1,000,000 in New York and initiate meetings with the United
States, British and French bondholders' representatives in Rio, which
were terminated upon the outbreak of the War, and the fact that Chile

is servicing her external debt only in part, have been disregarded.

II. Treasury position.
In recent years the Treasury has favored, as part of any general
settlement of outstanding questions by bilateral negotiations between
the United States and Latin American countries, a program of financial

assistance aimed primarily at building up the long-run productivity of
those countries. The Treasury does not feel that it can properly concern

itself directly with the private debt problem, but feels there must be an
assurance that, as part of any general settlement, there will be an adjustment of the private debt situation on a reasonable basis in harmony

with the primary objective. This Treasury position was set forth in the
Secretary's letter of August 1 to Mr. Welles, taking occasion to draw a
moral from the Aranha fiasco and to insinuate our view that the State
Department is permitting the Foreign Bondholders' Protective Council

to obstruct any constructive approach to the debt problem.
The results of the War, so far as known, do not seem to require
modification of the above views, and the emphasis placed upon exchange

stability in the discussions in preparation for the Panama Conference
would seem misplaced. The Treasury advocated caution in committing the

389

-5United States at Panama and told the State Department definitely that
there would be no departure from precedent in the use of the Stabilization Fund. The increased dependence of Latin America on the United
States, due to loss of German trade and the improved domestic economic

situation in the United States, should make it easier to pursue longterm objectives. From the standpoint of trade policy in harmony with
the financial policy sketched above, the United States should be in a
better position to encourage imports from Latin America and trade

policies on the part of Latin American countries favorable to the
import of capital goods as opposed to consumption goods. As regards

the latter, I take it Dr. White has urged this view upon the Executive
Committee on Commercial Policy. The Department of Commerce is giving

considerable attention to the possibilities of increasing imports from
Latin America.

III. Immediate problems.
1. Guatemala Conference. This conference, called pursuant to

a provision in the Lima Conference resolution, was designed for the
purpose of establishing contact between treasury officials and to lay
a basis for further regular contacts. Since then the War supervened,
and the Panama Conference has resulted in the meeting of economic ex-

perts here where presumably the major objective of the Latin American

countries will be to lay a basis for borrowing as much money as they
can from the United States.

-6Under the circumstances, a contemporaneous meeting at Guatemala

to discuss a thoroughly academic agenda would seem absurd, and presumably

the Treasury will want to do what it can to put off this meeting.
2. Meeting of economic experts - Washington. The Treasury may

be asked to participate in this work and should make up its mind whether

itwishes

or not to do so. The agenda covers about everything under the sun. Perhaps the best that could be hoped for would be that the committee might

develop the essential facts as to the problems confronting individual

countries. Conceivably, if guided in this direction, the committee might
develop some ideas as to how United States capital might be loaned safely

in Latin America, protected by some multilateral sanction or otherwise.
3. Cooperation between interested United States agencies. Mr.
Welles' answer to the Secretary's letter of August 1 was clearly Mr.

Hull's letter suggesting an interdepartmental triuavirate consisting of
the Secretary, Mr. Jones and Mr. Welles to consider Latin American financial problems. This idea will undoubtedly be pressed again by the
State Department and presumably something of the sort is advisable.
It should be noted that the difference between the Treasury
and the State Department approach may be aggravated by Mr. Welles'

insistence that this is an emergency in which the problem of rendering
financial assistance should not be tied up with any general settlement

of outstanding problems. Personally, I feel that the most constructive
contribution the Treasury can make is to press the State Department

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- -7to take advantage of the War situation and do everything possible to

force an adjustment of the private debt defaults.
4. Export-Import Bank situation. As indicated above, commitments to Chile, Panama and Brazil were rushed through the Bank to help

out the Panama situation without the Bank's financial position being

really clarified. In addition, there have been recently indications
that there will be pressure from American export interests to get the
Bank to finance propositions in which the American exporter, on account

of the recent pickup in business, is unwilling to assure a share of the
risk.
It is recommended that the Treasury oppose any further commit-

ments on the part of the Bank until its financial position is clarified.

J.P.C.P.