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DIARY
Book 226
December 1 - December 5, 1939
-ABook
Page
226
29
Alsop-Kintner
Newsmen assigned to Treasury Press Room ask for same
sort of service Alsop and Kintner are getting from
Treasury - 12/1/39
a) Duffield consults with Early who recommends
"parity of treatment" to all - 12/4/39
State Department section of proposed article transmitted
by Berle to Hanes for review - 12/1/39
Hanes' resignation not mentioned in column on
Treasury-White House tax situation - 12/5/39
314
30
342
Annenberg, Moe
See Tax Evasion
-B Budget
Haas tells HMJr "1941 will show something under
$6 billion receipts" - 12/4/39
224
Imaginary conversation between FDR and Smith reported
in H. I. Phillips' column, New York Sun and
Washington Post - 12/4/39
234
12/4/39
271
Bell estimates of receipts and expenditures for
fiscal year 1941: FDR considers them pessimistic -
-cCrowley, Leo T.
Letter to HMJr concerning possible association with
Standard Gas and Electric Company - 12/1/39
79
a) Crowley informs HMJr FDR and he have reached
mutual understanding: Crowley to continue
with Federal Deposit Insurance Corporation
until present problems are disposed of 12/5/39
386
-DDemocratic Party
Candidates, 1940: Crowley tells HMJr FDR has stated
he will not run again unless foreign situation gets
worse; thinks ticket should be Hull and Bob Jackson
or Hull and Bill Douglas; FDR willing to assume post
of Secretary of State - 12/5/39
-GGreat Britain
Taxes (War): See War Conditions - Great Britain
411
-H-Book
Page
226
84
Hanes, John W.
Texas trip and speech discussed by HMJr and Farley 12/1/39
Hanes' resignation not mentioned in Alsop-Kintner
column on Treasury-White House tax situation 12/5/39
342
Overtime Work
Procurement Division: Graves' memorandum on overtime
work - 12/4/39
a) HMJr discusses at 9:30 meeting: does not approve
of women working such long hours - 12/5/39
238
406
-Pan-American Bank
See War Conditions: Latin America
Parker, George B.
See also Book 227, page 11
Munitions contracts discussed by HMJr and Parker 12/5/39
Post Office - Poughkeepsie, New York
Appraisal value ($83,000) by Procurement Division
in response to FDR's request - 12/4/39
Procurement Division
Graves' memorandum on overtime work - 12/4/39
a) HMJr discusses at 9:30 meeting: does not approve
of women working such long hours - 12/5/39
347,387
241
238
406
-RReceipts and Expenditures
See Budget
Revenue Revision
Obsolescence and depreciation features of airplane and
airplane motor increased production: See War Conditions:
Airplanes and airplane motors
Paul (Randolph) memorandum:
Hanes' memorandum showing that all 46 suggestions have
received consideration from Treasury for many years
past - 12/1/39
Magill opinion of Paul memorandum - 12/5/39
Roosevelt, Franklin D.
Democratic Party - 1940 Candidates: Crowley tells HMJr
FDR has stated he will not run again unless foreign
situation gets worse; thinks ticket should be Hull and
Bob Jackson or Hull and Bill Douglas; FDR willing to
assume post of Secretary of State - 12/5/39
75
343
411
-SBook
Page
226
141
Somary, Felix
See War Conditions: Switzerland
Standard Gas and Electric Company
See Crowley, Leo T.
-T-
Tax Evasion
Annenberg, Moe:
FDR tells HMJr he wants every dollar collected and
Annenberg put in jail - 12/1/39
Campbell and HMJr discuss situation; Campbell "will
make absolutely no deal at all for a plea and
Attorney General backs him up" - 12/4/39
218
Taxation
See Revenue Revision
War Conditions
Airplanes and airplane motors: HMJr's answer to FDR's
request (Book 222, pages 44 and 95) - 12/1/39
a) Closing agreements on tools possible now
b) Obsolescence problem of new buildings cannot
be solved by Treasury; Congressional action
necessary and should be initiated by War and
113
Navy Departments since it is part of national
defense program
1) Memorandum read at Cabinet; copies sent
to Woodring and Edison
Business situation for week ending 12/2/39:
Haas memorandum
Business outlook meeting in Haas' office attended by
Currie, representatives of Bureau of Budget,
Federal Reserve, Agriculture, Commerce, and Labor 12/4/39
196
326
China: American Embassy, Chungking, reports formation
by Ministry of Communications of a China Transportation
Company which will take over Foo Shing motor transport
organization but not Southwestern Transportation
Company - 12/2/39
a) Interview between Sheahan and press representatives
12/4/39
b) Keeshin plan as given to Chen (Universal Trading
Corporation) - 12/4/39
c) Meaux (Colonel of Engineers) demobilized from
French Army at urgent request of Soong for
immediate duty in Indo-China on construction
projects - 12/5/39
Zinc: Hochschild tells HMJr he is helping Chen to secure12/4/39
171
235
358
412
233
Closing Agreements:
Consolidated Aircraft Corporation: FDR asks Edison at
Cabinet whether "he just wants to give Consolidated
a handout" - 12/4/39
Colt Patent Firearms Company: If closing agreement is
signed, HMJr wants to thank head of company personally
and make an announcement - 12/4/39
a) Attorney General's opinion requested as to whether
proposed press release violates Internal Revenue
Code - 12/4/39
182
183
292
- W - (Continued)
Book
Page
226
145
War Conditions (Continued)
Customs, Bureau of:
Harris (Basil) does not advise removing restriction
on publication of import and export manifests
(T.D. 49970 dated 9/22/39) - 12/1/39
Exchange market resume - 12/1/39, et cetera
Finland:
See also War Conditions - Gold Movements
Proposed statement by FDR in connection with Finnish
debt payment - 12/4/39
73,169,
189,413
278
Germany:
American Embassy, Berlin, provides report on food
conditions - 12/4/39
280
Gold Movements:
Navy thanked by HMJr for assistance rendered in quick
transfer of large amount of gold from England to
United States in September 1938; medals forwarded
for captains of the three ships - 12/1/39
France and Great Britain transfer gold by warship to
Canada and thence to Federal Reserve Bank of New York 12/4/39
Treasury proposes new procedure subject to approval of
FDR: will buy any amount of Finnish gold in Stockholm
provided that ***** - 12/4/39
a) FDR OK's plan - so HMJr tells Swedish Minister
Bostrom - 12/4/39
b) Federal Reserve Bank of New York advised 12/5/39
134
213
215,274
232,254
345
Great Britain:
Taxes (War)
a) Currie memorandum to FDR (in response to
Budget Director Smith's request) - 12/1/39
b) FDR's request that HMJr review - 12/4/39
341-B
341-A
(See also Book 227, page 174-A)
Hochschild, Harold:
See War Conditions: China; Strategic War Materials
(Molybdenum)
Latin America:
Colombia:
Foreign Bondholders Protective Council: HMJr appreciates
their cooperation; now advocates that "they get best
deal they can, leaving Treasury to act as unpire" -
2
12/1/39
HMJr, Jones, and Welles confer by 'phone with Traphagen -
393
12/5/39
a) HMJr does not believe any Government department
or agency should negotiate directly with respect
to debt adjustment if question of future credits
might fall to same agency - 12/5/39
409
- W - (Continued)
Book
Page
War Conditions (Continued)
Latin America (Continued):
Pan American Bank: Treasury list of questions given
Berle as prepared by Treasury and Federal Reserve
Board - 12/4/39
226
205,321
a) Group feels that each member of subcommittee
should formulate list of questions, lists then
to be coordinated and submitted to all 21 of
the republica
1) Cochran list of questions provided White
on "proposed Latin American BIS* 12/4/39
329
b) For Berle-HMJr conversation concerning,
see Book 228, page 155 (12/22/39)
Neutrality Act of 1939:
Treasury plan for circulation of information in regard
to suspected violations and conduct of any investigations
considered necessary
a) Cairns memorandum concerning delivery by
Coast Guard to Saugstad (Assistant Chief Division of International Communications,
State Department) - 12/2/39
Purchasing Mission (British-French):
155
France:
Jaoul, Andre (director of an important French electrochemical and electro-metallurgical concern), to go
to London as French member of the permanent executive
committee on armaments and raw materials: has great
expectations of coordination agreement between
British and French - 12/4/39
Great Britain:
300,319
Delay by British Government discussed by Whigham,
Gifford, Pinsent, Hanes, Cochran, Butterworth,
and Stewart - 12/1/39
a) Outcome of discussion at Securities and Exchange
Commission reported to Treasury
88
97
Ship Movements:
French mine sweepers (deep-sea trawlers sold to French
Government by Portland Trawling Company) reported by
Coast Guard station on Cape Cod; Gaston calls attention
to "what appears to be clear violation of U.S. Criminal
Code" - 12/1/39
a) Hull's comment at Cabinet meeting
b) Hull informed of Treasury Counsel's opinion 12/2/39
1) Hull advises that three mine sweepers be
allowed to proceed by degrees but if they
put into an American port they should be
held and Attorney General consulted - 12/2/39
2) HMJr proposes calling Attorney General immediately
stating that Hull and he wish an opinion
a) Informal opinion discussed by Cairns and
116
115
147
153
Berle (United States justified in
detaining remainder of vessels transferred
to French Line) - 12/5/39
c) Discussion at 9:30 meeting - 12/4/39
d) Gaston memorandum providing resume - 12/4/39
350
178
251,252
- W - (Continued)
Book
Page
226
297
War Conditions (Continued)
Ship Movements (Continued):
Harris proposal to substitute American flagships
on trade routes now covered by British ships
(where neutrality law does not prevent) - 12/4/39
Strategic War Materials:
Armor Plate: Edison at Cabinet meeting denies HMJr's
statement that no part of $6 million especially
granted by Congress has been spent; Edison states
that some of the money had been spent for the Navy's
own plant in West Virginia - 12/4/39
182
Molybdenum:
Hochschild (Harold), of Climax Molybdenum Company,
asked to confer with HMJr concerning recent sales
to Amtorg (U.S.S.R.) - 12/4/39
a) White memorandum on uses, world production,
et cetera - 12/4/39
b) Collins memorandum giving officers of
Climax Molybdenum Company - 12/4/39
228,261,264
268
270
c) Hochschild memorandum giving world production
and consumption by certain countries -
12/5/39
Bullitt and Jaoul confer concerning supplies -
12/4/39
Surplus Commodities:
Wheat data, 11/20-30/39, provided in Haas memorandum 11/4/39
352
319
211
Sweden: See War Conditions - Gold Movements
Switzerland: Somary (Felix) confers with HMJr and Cochran 12/1/39
18,99
a) Payment in gold of purchases of foodstuffs and
other commodities available in United States
discussed
U.S.S.R.:
New York Times article on "moral embargo" against U.S.S.R. 12/2/39
Knoke reports on balances in United States banks - 12/5/39.
172
415
(See also Book 227, page 426)
Aluminum: FDR tells HMJr he wants purchases by U.S.S.R.
stopped; HMJr discusses with Wilson and Irey and later
with Collins, Gaston, and White - 12/4/39
261,264
1
December 1, 1939.
9:30 a.m.
GROUP MEETING
Present:
Mr. Hanes
Mr. Graves
Mr. Thompson
Mr. Haas
Mr. Riefler
Mr. Cotton
Mr. Stewart
Mr. Gaston
Mr. Bell
Mr. Foley
Mr. Duffield
Mr. White
Mr. Harris
Mr. Cochran
Mrs Klotz
H.M.Jr:
Dan Bell, be here at 11:30. This thing I gave
the President, I wasn't quite sure I had the
right answer. Has Dan seen that one?
H.M.Jr:
No. We will get together after the meeting.
I couldn't tell whether - what is his name has written to the Comptroller or not.
Foley:
Yes, he has.
H.M.Jr:
I see the General Counsel over there resigned.
Bell:
No, Assistant General Counsel.
Foley:
But Carmody wrote another letter. The letter
Foley:
we asked him to give, he gave.
Bell:
It hasn't been entered on the record yet. It
H.M.Jr:
Why not?
Bell:
We told him we would have another meeting with
is on Mr. Farley's desk.
him and see if there was anything that could
be done in another way and then we would go
back and see him again.
H.M.Jr:
Well, we will talk about it later. You (Foley)
and Dan can get together.
2
-2Foley:
Yes.
H.M.Jr:
Gene, where did all this stuff in the paper come
from about securities, Federal Reserve going to
do something, et cetera? Has Walter Stewart been
talking?
Stewart:
Yes.
Duffield:
I had several calls yesterday from newspaper men
who said that New York was a hotbed of rumors of
what was going to be done to cushion the market
against foreign selling. They didn't seem to
know what had caused them all of a sudden. In
response to any questions about the Government
taking any action, I was pretty blunt, said that
we would not.
H.M.Jr:
Well
Duffield:
But in spite of that - well, of course I had to
be interested in doing. But I was pretty sure
H.M.Jr:
admit that I didn't know what private groups might
there was nothing brewing.
I don't think the English have anybody to blame
but themselves for this constant postponement.
Everything was set for them, doing a two months
job for them in two days. They are coming in at
10:30.
Hanes:
All right.
H.M.Jr:
One other thing, I kind of thought I might - the
gentlemen thought it would be well if we might
ask those men who met with you and Traphagen yesterday to meet with me Monday afternoon. The
thing that I would like to put up to them is this:
It seems to me that now that the Bondholders Com-
mittee has met us halfway, my own feeling is, I
would say to them, "Now go ahead and get the best
deal that you can and then come and tell us about
"
it and leave us in the background as the umpire,
rather than do the thing that some of the people
want. Let us go ahead and see the Colombians and
let Jesse Jones see them. He tells them one thing
and different people in the State Department tell
3
-3them something else and one day we are told that
Jaramillo is to represent them and the next day
we are told that the Ambassador is to represent
them, and I just wondered whether we couldn't
say to Mr. Traphagen, "Now you go ahead and you
get the best you can and then come and tell us
about it. If you feel that - and if we feel
that you are too hard, we will tell you so. If
you think the Colombians are not being generous
enough - but use us as an umpire." That is the
way I envisage the thing. How do you feel about
it, John?
Hanes:
Well, I assume that the Colombians will have to before they can make any deal with us they have
got to make a deal with the bondholders. I assume
that is the way this thing has to be done, but it
is more or less a simultaneous operation, it seems
to me. They have got to find out from two ends,
first what we will do here in Washington and second
what the bondholders will do, or vice versa, what
the bondholders will do, and try to work us around
to that point of view. It seems like a simultaneous
operation that has got to be carried on both sides
together. This is the first experience I have had
with it and I don't know whether that is the correct
viewpoint or not, but it seems to me to be putting
the cart before the horse for us to make a deal
and then go to them and say, "Here it is, buttoned
up," rather than - I would think the constructive
way to do would be, as we are having our conversations with the Colombians, to keep these people
posted on what the thought of the Government was
in going to Colombia with this or that sort of
proposition.
I don't know if that is correct or not, but it
seems to me to be a thing that has got to be
carried on concurrently with the Bondholders
Council and keep them posted on what we are doing,
and we to be kept posted on what they are doing.
Does that make sense?
H.M.Jr:
It would, John, if the President told me, "All right,
the Treasury does it." But in the room here, the
State Department won't let us do it, see.
4
4Hanes:
The only agency that I can find out in the Government that has any money that you can tap is the
Import-Export Bank or the RFC, one or the other.
I guess it is through the Import-Export Bank, and
it seems to me that the negotiation has got to
ultimately be with the Import-Export Bank, so it
seemed the part of wisdom to get one person to
deal for the Government and have the other agencies
advise with them all the time.
For instance, if you said to the Import-Export
Bank, "You work this thing out along these lines" and as I understand the Committee is yourself and
Mr. Jones and Mr. Welles, the three of you. You
are the final court that this thing has got to go
before. So it would seem to me that you and Welles
and Jones could agree upon one of you to do the
negotiating with the Colombians and the other two
stay out of it, let the staffs of the various
places know the details and the negotiations as
it was going along and either object or agree as
you go and keep the Bondholders Council posted
each step of the way. It would seem to me that
would avoid getting into this awful confusion that
we got into before. We were out of it, but the
rest of them certainly got in enough confusion,
because there were too many cooks there, it seemed
to me.
H.M.Jr:
Hanes:
The only indication on that is, I don't think that
the Import-Export Bank ought to come into this thing
until they have settled it. In other words, I don't
think we ought to hold the thing out as a bait,
"If you do this, we will give you ten million dollars."
I don't think that is right.
Well, I didn't have that so much in mind as I did
narrowing the negotiations down to one person to
avoid what - the Brazilian was shifted from one to
the other and the other and back here again. We
finally got in and straightened the thing out;
I think you did, the last morning they were here.
H.M.Jr:
I felt - I rather - I am going to say - I don't want
to decide - I don't make myself plain, but after
what we are trying - I agree with Cotton. Cotton
5
-5said that the Bondholders Committee expects us
to harrow this field and fertilize it for them,
but that isn't setting a pattern. I would like,
if I had nothing else in this half hour, to
finish this up. It would be well spent. That
isn't setting a pattern and that is what we are
trying to do. Therefore, what I would - if we
are trying to set a pattern, I would say to
Mr. Traphagen, "Now, Mr. Traphagen, you do this
negotiating and as you proceed come down and
see Welles, Jones and me and talk it over and
we will advise you. Then you go back and see
them again and keep us informed."
Hanes:
That would suit me first rate, because that would
keep them from running from one department to
the other. That would be swell.
H.M.Jr:
Hanes:
What would you think of that?
That would be fine.
H.M.Jr:
"And anytime, Mr. Traphagen, you want something
and you feel that you are not making progress,
you keep us informed. This is your responsibility,
and we would like you to keep telling us - if we
hear anything we will pass it on to you, but it
is your responsibility and Mr. Welles and Mr.
Jones and I are available any time you want to
see us." Just think that one over.
Now, I mean, I realize that we are in a sort of
center of the thing, but we are trying to work
out a pattern, how we are going to do it - what
are the two countries, Harry?
White:
Peru and Ecuador.
H.M.Jr:
See?
Cotton:
That is certainly right, Mr. Morgenthau, but the
trouble is the U. S. Government asked this fellow
up here for talks.
H.M.Jr:
Who?
Cotton:
They asked Jaramillo to come up here and you have
got him right in the middle of something. I think
6
6-
you have to see whether he will make an offer
and then turn it over.
Cotton:
He has been here - evidently it is only during
the last 48 hours it was decided he is the
fellow. Up to 48 hours ago, you tell me that
he didn't have the authority.
Well, there were two fellows. They are together
H.M.Jr:
But they weren't 48 hours ago.
Cotton:
Well, that is what I heard.
You and I differ, but that is what we are here
H.M.Jr:
H.M.Jr:
all right, now, I think.
for - not to differ, but for you to tell me what
you think.
Riefler:
I like your pattern, but in this particular case
there is the background that when the bondholders
and the Colombian Government got to a complete
stalemate this summer and negotiations seemed to
be broken, the State Department said to the
Colombians, "If you come up with a real offer
and show it to us, we will then, if we think it
is right, refuse to support anything higher above before the bondholders. Now, it does seem to
me that that is where we are picking this thing
up now and it seems to me that does imply that
we hear their offer and then turn them over to
the bondholders. I do think that the Government
in this case is rather committed to hearing
the offer they are prepared to make. I should
think that we would hear it without commitment
and then turn them over.
H.M.Jr:
Where is the documentary stuff on this, that they
were invited to come up here, and all the rest
of it?
Riefler:
It is all
White:
Don't look at me.
Riefler:
That is what we have out of the conversations.
7
7Cotton:
Well, Mr. Welles in this office said, "I will
go right back and send a wire and ask them to
send him up. "
H.M.Jr:
Cotton:
H.M.Jr:
Cotton:
H.M.Jr:
Well, he didn't, did he?
oh yes, he said that to you.
But he didn't do it, did he?
Well, the fellow is here.
Well, isn't he here as one of the twenty-one delegates?
Riefler:
He is here as both, I believe.
Hanes:
All I am trying to say, I probably said it badly,
is that if we had one person, if you and Jones
and Welles could decide between the three of
you that one person would be charged with the
responsibility of conducting all negotiations
on the part of the Government, keeping the Depart-
ment of Commerce - I imagine you wanted to keep
them posted on the situation. I don't know if
you do or not. I have got something to report
to you on that, but if you had one man who was
charged with the responsibility of the negotiations
as far as the Government was concerned, and let that
man be the intermediary between Colombia and passing
the information along to the Bondholders Council,
then you would narrow the thing down to where you
would have the Government, Bondholders Council
and Colombia - three people - to a position where
you could either make a trade or not.
H.M.Jr:
But in formulating a pattern, I don't think the
Hanes:
You understand, just one person doing the talking,
Government should have one person.
the other three with their departments in the
background, but all I am trying to avoid is what
was such a disastrous experience in that other
thing. It seems to me it was so badly conducted.
It gave us an awful black eye when that man - I
would have thought this Government didn't know
what it was doing.
8
-8H.M.Jr:
And if you say it to Mr. Jones, the same thing
Hanes:
Unless you and Welles agreed to stay off, and
when I say stay off, I mean to stay calm and
will happen to him that happened to me.
quiet.
H.M.Jr:
It is easy enough for Jones and me to agree,
done business and never had any trouble, but I
because we have always agreed. We have always
still say that the chances are nine out of ten
if it amounts to anything that the same thing
will happen - and that is why I think the three
of us have to act all in the same room.
Hanes:
I mean in the same room, but talk separately
because when you get three departments trying
to talk at the same time with one man it is just
confusing.
White:
John, I think that overlooks one point and I
think the Secretary's position is the correct
one with one slight modification. I don't feel
that you can leave the negotiations in the hands
of the lending agency, because that inevitably
means that the terms of his loan, the discussion
which takes place, is in terms of quid pro quo
and I take it that the Secretary wants to keep
the two independent, as I think they should be
kept independent. It is Jesse Jones' business
to make a loan and to set the terms. The sole
consideration that he should have prior to that
is that there has been an adjustment made and
that he can go ahead, or that the bondholders
are so unreasonable in their demands that the
Government is going to go ahead in any case.
But he should have, it appears to me, nothing
to do with the terms upon which the adjustment
should take place, because that immediately
introduces a tie-up between the loan and the
adjustment, which is the very thing the Govern-
ment wishes to avoid, so that it appears to me
that so far as the extension of the loan is concerned, I think you are right. One man, possibly,
should handle it after an agreement has been
reached elsewhere, but so far as contact between
this Government and the Colombian Government is
9
-9concerned, I think the way to do it, as the
Secretary suggests, is to let the bondholders
be the negotiating instrument but at every
stage - this is where I differ with the Secretary - instead of their informing us when they
have reached an impasse, that they should keep
the Government informed at every step of the
conference so that if any time this Government
feels they might be unreasonable - and they
might be unreasonable because Mr. Traphagen's
final remark yesterday was, "Yes, but the Government doesn't dare extend a loan unless they
first make a debt adjustment." I don't know
if those were the exact words, but they were
very close to it, which means they will also
try to use that as a lever to extract as much
as they can. That is why I think at every stage
in the progress they should keep this Government
informed so that this Government at any point
it feels desirable can step in and say, "This
position is unreasonable."
Hanes:
I agree with everything you say, but I want to
correct one impression. I am suggesting that
the lending agency be that one person - I don't
mean to suggest that. All I mean to suggest is
that one of the three - I don't care which one
it is, I think those men are intelligent men and
can decide between themselves who is going to do
the talking, but all agree they will keep quiet
and talk to themselves and let nobody else. And
let the one man they decide on do the talking
for the Government wherever they decide to talk.
Let the Bondholders Council do it as you suggest,
I agree. All I am saying is that we got in a
terrific confusion over the Brazilian thing, be-
cause we were shifting that fellow back and forth
and finally the Secretary had to come in on the
last morning he was here when he threw up his
hands and said, "I have got to go home; I can't
stay here any longer. The thing is a flop.
White:
of course, the rock upon which that broke was
something quite other and it is the very thing
we wanted to avoid. They tied up the extension
with the assistance of a debt adjustment. That
is the very thing we would like to avoid if
10
- 10 -
possible. Keep the two separate outwardly in
any case and the Government to step in only
when it becomes unreasonable.
Hanes:
H.M.Jr:
Cochran:
I don't know anything about the details of that
thing, because we were left out of it completely.
So far as I was concerned, I didn't know anything
about it until Welles came over here and said to
the Secretary, "For God's sake, help us."
You and I know as much or as little about it - I
mean, I don't know anything more than you do
except that morning when you were here.
Mr. Secretary, I think you still are able to
follow your pattern on this. I think you will
profit in having this man come in and call on all
three of you. He is talking to all three men on
the committee. You, as chairman, have broken the
ice with the bondholders committee. They have
been down and talked and had our views. It seems
to me now you could refer this man, whoever is
negotiating, to the Bondholders Council in New
York, let them handle it. There won't be a lot
of story to tell, because it shouldn't go on very
many days and then they can report to you.
H.M.Jr:
Cochran:
Who report to us?
The bondholders report to you. And I think you
have contact now with Traphagen, either you or
Mr. Hanes.
H.M.Jr:
Cochran:
Hanes:
Do you take the position I am taking?
Yes, I do.
I don't think there is any difference in what any
of us is saying. We are all trying to narrow it
down to the least number of people. It isn't a
question of who does it, it is just to get it
down to one agency doing the talking and the other
agencies doing the advising.
H.M.Jr:
Johnny, if you and I are in business and I said,
"Johnny, will you please go ahead and do this
thing, you would know that I would tend to my
11
- 11 business and you would go ahead. You know
perfectly well that of the three, unless I
designate myself - enough said?
H.M.Jr:
I think you can designate yourself.
But I don't want to.
Hanes:
I think all you have got to do is tell Jesse and
Hanes:
H.M.Jr:
Stewart:
Jesse and you will both agree on it right away.
You can vote for yourself.
I want to hear from Walter Stewart on it.
I don't believe I have enough immediate background on this. I agree with Harry White's
statements and with Cochran's statement. There
seems to be two sets of negotiations that ought
to be conducted separately with the parties
kept informed. It seems to me not unreasonable
that the Export-Import Bank should say, "We will
make a loan to you on the condition you clear
up your other obligations." We are not entering
into details on that. The Colombian can talk to
the New York bankers and say, "We want to clear
up with you, but it is conditional because we
are negotiating somewhere else."
I would like to see the responsibility left with
the bondholders to conduct the negotiation after
the introduction had been made.
H.M.Jr:
I am going to give Cotton a chance for rebuttal
on this.
Cotton:
I agree, except I am sure these fellows are going
together and tell Mr. Welles what they are prepared to do, or if you have a meeting with them
Monday they are going to talk about it and then
you can turn them over or you can call off this
meeting and turn them over now, but somebody in
the Government is going to be told whether they
are going to do something or not and Mr. Traphagen
certainly expects, after being beaten over the
head and brought down here, that the Government
will try to exact an offer from these people.
12
- 12 -
H.M.Jr:
In view of the fact that their
I still don't agree with you, but I am going
to think about it and I am going to have a
talk
Stewart:
I think it is a delicate point as to which one
gets the offer first, because somebody is to
blame then for the terms not being better than
they otherwise would be.
H.M.Jr:
That is just why I want Traphagen to handle it.
I am going to think about it, and thank you all.
I don't think there is an awful lot of difference,
but there is one fundamental difference. I would
like Traphagen to conduct the negotiation and report to the three of us when we are all in the
same room at the same time. O. K., John?
Hanes:
H.M.Jr:
That is fine. And lock the door.
I will stand in that corner with my back against
the wall and the others can stand in any posture
they want.
Cotton:
When is your meeting set for, sometime Monday?
H.M.Jr:
No, it will be Tuesday, but Jones will be over
here Monday to see me, I am sure. Tuesday at
3:00 o'clock. All right, thank you.
Who has got something important?
Hanes:
I think this has to be done; whether now or later,
it is all right with me. Ed Noble asked for a
conference for himself and O'Connell and for me to
transmit to you certain information which he didn't
in that telegram, requested him to give you and I
have got a memorandum here - I told him a copy of
the letter he wrote to the President and a copy
of the plan which they were working on at this so-
give you when he was here and which the President,
called secret meeting about which the President
telegraphed him - and as a result of which he
called you and he called the Undersecretary of
State and the Undersecretary of State has held
13
- 13 -
him off and doesn't want to talk to him until
he, the Undersecretary of State, had talked with
you and Jesse Jones. I think this information
that I am transmitting to you, you might want
to look over and then pass it on to White and
Joe Cotton and whoever else is interested.
H.M.Jr:
I will do that.
Hanes:
He was terribly anxious that you have the whole
story of everything that he has done up to this
date.
There is only one other thing that I have got to
clear with you. Roy Blough had made arrangements
to go to Milwaukee. Gene Duffield, I think, had
some speech out there that he wanted him to make
and that is Tuesday and Wednesday. On account of
this Paul memorandum, I wanted to make sure whether
you think it is all right for him to go those two
days. I don't know if you will need him for anything, but I thought I had better, on account of
this thing
H.M.Jr:
I would let him go.
What else?
Hanes:
That is all I have got.
H.M.Jr:
Hanes:
We are meeting at 10:00.
10:00 o'clock.
H.M.Jr:
Herbert?
Gaston:
Nothing.
H.M.Jr:
Ed?
Foley:
I am writing a letter.
H.M.Jr:
Has Hanes seen it?
Foley:
No.
H.M.Jr:
I would like him to see it.
Harry?
14
- 14 White:
Gaston:
H.M.Jr:
The boys are back from Guatemala and they reported that Mr. Gaston made a great personal
success, made a lot of friends for the Treasury.
My thanks to the boys. I reported that they
made a great personal success. It was a
collective enterprise.
I see that between you (Bell) and Duffield, you
have discovered there was a loophole in the debt
limit.
Duffield:
H.M.Jr:
Duffield:
That thing was variously reported. The trouble
was that most of the boys have taken the trouble
to look into this thing and they had their notes
all in their pockets when they were in here to
see you, and when you mentioned it, they thought
they had better write it and then they did.
They had their notes, but they didn't have the
debt limit correct, did they?
I don't think anybody can figure it out exactly
and I don't think they had it exactly.
H.M.Jr:
Have they got it now?
Bell:
Approximately, yes. They can take the gross debt
and the 45 billion and it will come out about
right. That isn't the way to figure it. We have
got to add to the amount of debt outstanding
the unaccumulated discount on Savings bonds. We
have got to deduct, of course, the war debt and
currency debt.
H.M.Jr:
But you gave it to them?
Bell:
Yes, and Monday after the preliminary debt limit
Thompson:
comes out, we will have it mimeographed.
I just wanted to report a bunch of allowances for
1940 came in. I am having them analyzed. I think
there will have to be some protests.
Gaston:
Yes, we have got to make a protest.
Thompson:
Well, I will be getting up statements of protests
on the items disallowed.
15
- 15 H.M.Jr:
Well, Harold Smith implied that to you, didn't
he?
Thompson:
The only item I might consider serious would
be the cut on the funds provided for moving
gold bullion.
H.M.Jr:
How much?
Thompson:
About 21 million.
Bell:
I wouldn't protest that, I don't think. It isn't
as important as some of the items you want to
protest, and I think if the gold does come in
we will have to remove it and we can get a deficiency much easier.
H.M.Jr:
With the exception of Coast Guard, is everybody
clear now?
Thompson:
Well, there are some protests which should go in.
Hanes:
They cut 3 million dollars from the request, but
not from the last year. Last year they had 59
million and this year they had 60 million.
It is an average of about a six percent cut on
our estimates. It is only two percent on our
Thompson:
appropriations.
H.M.Jr:
If you think I should worry, you tell me.
Thompson:
I think we will take care of it.
H.M.Jr:
Now, Merle, you and Walter Stewart come in at
Cochran:
Yes, sir, we will be here then.
10:30.
TREASURY DEPARTMENT
18
INTER OFFICE COMMUNICATION
DATE December 1, 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
By appointment Messrs. Whigham, Gifford and Pinsent were received at 10:40
this morning by Secretary Morgenthau, Messrs. Stewart, Cochran and Butterworth
were present. Mrs. Klotz and Miss Chauncey followed the conversation, the latter taking notes.
The general trend of the conversation was to the effect that the Secretary
thought it unfortunate that the British Government had not taken over the vest-
ing of securities promptly as Messrs. Whigham and Gifford had recommended. He
thought that the publicity which has occurred could have been largely avoided
by prompt action, and that the chances of further undesirable publicity will continue to grow if the delay increases. The British representatives were equally
disappointed but stated that they had been as vigorous as possible in their cablegrams to London setting forth their recommendations. They still have no final
word as to when the vesting will begin.
The Secretary recalled the promise which he had undertaken, to the effect
that the Treasury would use any information in regard to security sales given to
it in confidence by the British authorities, except to the degree that the British
themselves might specifically authorize. Furthermore, the Secretary maintained
his promise of continuing the usual lag, namely, of three months, before giving
out Treasury figures on foreign security transactions. The Secretary said he
could not speak, however, for the Securities and Exchange Commission, and it was
his suggestion that they see Mr. Frank personally on this point. When the question arose as to whether any one from the Treasury WELS accompanying the British
visitors to the appointment with Mr. Frank for 11:45 this forenoon, I replied
that I had recommended to Mr. Pinsent that he seek the appointment directly,
which Mr. Pinsent had done, and that I had not communicated with or heard from
Mr. Frank,
The Secretary mentioned our unhappiness over the delay in setting up the
special account of the Bank of England with the Federal Reserve Bank of New York,
to carry war material purchases, and the visitors promised to do what they could
to expedite the matter.
After the visitors, except Mr. Pinsent and myself, had left, I handed to
Secretary Morgenthau a copy of a note which Mr. Pinsent had given me before we
entered the room. The note had been delivered to Under Secretary of State Welles
on November 30 by the British Ambassador. It referred to the Anglo-French set-up
for joint purchasing commissions and to their desire to learn the proper officials
of this Government with whom they could cooperate. The Secretary was happy to
see that the British had taken this matter up through the State Department.
Mr. Welles had promised the British to give an early reply. There was no mention
in the note, but Mr. Pinsent let us know that oral reference had been made to
-2-
17
approaching the President on this matter.
After the meeting, Messrs. Stewart and Butterworth talked further with the
visitors and Mr. Stewart pressed them for action, especially on the bank account.
While this talk was going on, Governor Harrison of the Federal Reserve Bank of
New York, was with me. When Messre. Stewart and Butterworth joined us, I had him
go over our conversation again. It was principally in regard to the delay in setting up the British account with Governor Harrison's bank. He seemed rather hopeless, feeling that he did not know what was wanted, and that the British themselves
on this side could not speak authoritatively and messages from the Bank of England
to his bank suggested lack of decision or plans which he did not consider workable.
reminded him that our desires had been explained when he sat in meetings here.
Furthermore, I read him the message of October 21, which we had sent to the Embassy
in London, letting them know of our expression of desires to Pinsent with respect
to the setting up of the special account. I showed him a copy of the formal communication of October 30, in which the British Embassy informed us that the Chancellor of the Exchequer had approved of our suggestion.
I told Governor Harrison that for several days I had been urging Pinsent to
press his people for action. I offered to go further. Mr. Stewart thought it
night be better if Harrison himself would use pressure on the British officials
in this country now toward getting the Bank of England to consummate the desired
arrangement. Mr. Stewart thought that the technical point raised by Under-Governor
Catterns in a conversation with Vice President Sproul should not be taken as a
cause for delaying the account. Governor Harrison had given the British no definite
answer on this point. He promised to give me a memorandum of the conversation under reference. Mr. Stewart and I stressed to Governor Harrison the Secretary's
desire that all of these matters with the British be concluded as quickly as possible. Mr. Stewart added his own opinion that everything should certainly be concluded before Congress reconvenes. In the conversation, Governor Harrison referred
to the unhappiness of New York bankers because of their being deprived of business,
and the possibility of bankers and economists launching an attack against the
Federal Reserve action as being unneutral. It was understood that Governor Harrison
would keep in touch with me and report progress. I told him the Secretary was willing to take this matter up with the Chancellor of the Exchequer again if we did not
get action.
B.M.P.
TREASURY DEPARTMENT
18
INTER OFFICE COMMUNICATION
DATE December 1, 1939.
TO
Secretary Morgenthau
FROM
Mr. Cochran
At 11:00 this morning the Secretary received Dr. Felix Somary,
concerning whom Dr. Feis of the State Department had written the Secretary
on November 30, enclosing a copy of a communication dated November 28 from
the Legation of Switzerland to the Department of State, and a copy of the
latter's reply. Mr. Cochran was present during the conversation.
It should be explained that Dr. Somary is a naturalized Swiss citizen,
with homes in both Zurich and Geneva. His card indicates that he is
President of Blankart & Cie. It is known that he has been an advisor to
certain capitalists, including the Rothschilds, in moving funds from one
country to another. The letter under reference was sent by Dr. Feis to
Secretary Morgenthau after Dr. Feis had mentioned the matter personally
to the Secretary.
Dr. Senary explained to Secretary Morgenthau the interest of Switzerland
in building up reserves of commodities which they hoped to purchase in this
country. The question was how the Swiss officials should keep American
officials informed as to what they were doing and how to procure advice and
assistance from the American officials who might be willing to consult with
them. The Secretary explained to Dr. Somary that he was not acting as the
contact official with foreign Governments. He added that recently steps
had been taken to make arrangements for our Government to have designated
officials receive the purchasing missions from foreign countries. He
suggested that Dr. Somary, through the Swiss Legation, learn from the
State Department what steps should be taken to get in touch with these
officials. The Secretary repeated that he was not the official to contact.
Dr. Somary stated that he would follow this advice. In closing he remarked
that he might have one question with respect to gold. The Secretary
stated it would be proper for him to bring this up with Mr. Cochran.
At noon Dr. Somary called, by telephone, for an appointment and
came to see me at 3 o'clock today. Dr. Somary described, in some detail,
the economic situation in Switzerland and also gave some interesting
observations of Germany. Incidentally, he expects no early internal breakdown in Germany and no invasion of Switzerland by Germany. He stressed
the difficulty of transporting the materials to Switzerland which that
country requires for its present needs and desires to store up for future
possible use. For this purpose they have chartered a small fleet of
Greek ships. These vessels travel light from Mediterranean ports to
the United States since Swiss exports to our country are not large in
bulk, consisting of such things as watches, embroideries and chemicals
19
2
which do not take up much space. One of the ships carrying a cargo of
cotton from the United States to the Mediterranean was taken to a British
port for examination and after being held for two weeks was finally cleared
but sank after striking a floating mine near the British port. The State
Department is helping Switzerland to get a clearance for direct shipment
from the United States to Mediterranean ports without the vessels being
brought into English ports.
It was my advice that the Swiss Legation and Dr. Somary continue to
look to the State Department for assistance in such problems, and for
general advice on neutrality, etc.
Dr. Somary then raised the question of gold. He asked if it would
be possible for American exports of foodstuffs and other commodities,
which Switzerland now desires to buy, be paid in gold in Switzerland. That
is, the gold would be put in American name in Switzerland, for delivery to
the United States after the war terminates, or within a fixed period of time
after such termination, or after shipping has become so normal that excessive
insurance rates would not be demanded and risks would not be hazardous.
The Swiss Government would be willing to pledge the gold which it has
in the United States. That is, if the gold in Switzerland should be seized,
or could not be delivered to the United States within the specified period,
Switzerland would pay to the United States the equivalent amount of gold
held under earmark in this country. The whole scheme is to avoid the
expense of shipping gold from Switzerland to the United States, which
Dr. Somary estimates at three per cent. (The insurance rate today is five
per cent, this rate having been established since Dr. Somary evidently
made his calculations.)
I asked Dr. Senary if it would not be preferable for Switzerland to
continue to transfer gold from Switzerland to this country while vessels
are still available, such as the Italian ships and perhaps the American
vessels, Washington and Manhattan. He remarked that this channel might
be closed shortly and again complained about the expense.
I told Dr. Somary that it has been our practice since the war began
not to accept gold except on delivery at New York. That is, the United
States Government will not acquire title to gold abroad. In this present
instance such a plan as he contemplated would oblige this Government or
an agency thereof to take title to the gold and in turn make dollars
available to the American exporters. There is no way of knowing how much
time it would take before the gold in Switzerland could be transported here.
I told Dr. Somary that my immediate reaction was that the Stabilization
Fund would not undertake such a proposition as he submitted. I told him
however, that I would think over the question and give him such answer as
I could when he might telephone me again on Monday or after his return from
a contemplated visit to Ottawa. He said that he did not desire to press
this point if it might be too difficult.
20
-3Since Switzerland, one of the few remaining democracies in Europe has
cooperated with us under the Tripartite Monetary Agreement and is still
standing loyally by the gold standard, we naturally should be inclined to
do anything we can to help these people, especially when they are going to
purchase important amounts of farm products from us, and have the gold with
which to pay for these commodities. I believe the Stabilization Fund
should not take title to the gold abroad. If it did, we would have to
request the segregation of Swiss gold held at New York, sufficient to
cover our risk. This would tie up the pledged gold in New York so that it
could not be transferred into dollars to pay for Swiss purchases. That is,
the Swiss cannot make the two supplies of gold, one in Switzerland and one
in the United States, function simultaneously as the basis for credit. If
the Treasury is willing, and I recommend it, that the Federal Reserve Bank
continue to grant credits to central banks against gold pledged with the
Federal Reserve Bank in New York, this might be the best way to help the
Swiss, if they are not disposed to sell their gold now in New York. I
still think they should continue to transfer gold here from Switzerland.
I could discuss the proposition with Governor Harison or Mr. Knoke,
provided there is no question in our mind as to any other policy.
December 4, 1939.
At 12:50 noon Saturday, December 2, I spoke to the Secretary in
regard to the gold proposition advanced by Dr. Somary. The Secretary
agreed with me that the Stabilization Fund should not take title to gold
in Europe and could not be of assistance in the contemplated operation.
The Secretary authorized me to take the matter up with Mr. Knoke. In
this connection, the Secretary approved my idea that the Treasury should
not now take any steps towards changing the practice which has been
followed by the Federal Reserve Bank of New York in granting credits
against gold earmarked with it by central banks. We do not want to get
the Treasury into the business of granting credits to central banks,
and certainly prefer not to have the Treasury involved in credits either
to central banks or Treasuries in European countries which might be
occupied, with resultant difficulties or litigation over the operations.
At 10:30 this morning I told Mr. Knoke by telephone of Dr. Somary's
proposition. I told him that I had not submitted a formal memorandum
upon the subject, and had not even suggested to Dr. Somary the possibility
of the Federal Reserve Bank of New York doing something in the premises,
since I first desired to learn whether the matter was one which the
Federal Reserve Bank would desire to touch. Mr. Knoke thought the
conditions for repayment of the loan so uncertain and complicated that
his bank would not be interested therein. Furthermore, the credits which
21
the Federal Reserve Bank has given in the past to contral banks against
gold earmarked in New York have been almost exclusively for the purpose
of providing foreign exchange needed seasonally. I agreed with
Mr. Knoke that this did not seem to be a proper case to refer to his
bank, and I told him that I would simply advise Dr. Somary that there
was nothing I could suggest, except to continue to ship gold to this
country, irrespective of cost, if it appears that his purchases on this
market will require further funds than he now has available here.
KMR
OFFICIAL COMMUNICATION TO
SECRETARY OF STATE
WASHINGTON D.C.
22
DEPARTMENT OF STATE
Name.
WASHINGTON
November 30, 1939
My dear Mr. Secretary:
I am enclosing herewith the exchange of correspondence
with the Minister of Switzerland about which I spoke to
you. I have requested an appointment from your office for
you to see Mr. Somary on this matter.
Sincerely yours,
Morked Fed
Herbert Feis
Adviser on International
Economic Affairs
Enclosures:
Correspondence.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Department of State
EA
BUREAU
DIVISION
ENCLOSURE
TO
Letter drafted
11/30
ADDRESSED TO
Sec. of Treasury
- 1-1033
23
Sir:
In your note of November 28, 1939 you inform me
that the Swiss Government is disposed to begin the purchase
in the United States of Various commodities under option
contracts concluded earlier in this year. I also note
that the Swiss Government is considering the creation
in the United States of an organization for the purpose
of supervising these purchases and the storage and transportation of the commodities so acquired.
You suggest that 18 seems to you desirable that the
United States Government should agree to examine and dissuss appropriate means by which this Government could keep
in permanent touch with the projected Swiss organisation.
This Government will be glad through appropriate channels
to
The Honorable
Charles Bruggmann,
Minister of Switzerland.
24
-2-
to maintain contact with the Swiss organization to con-
sider all matters of autual interest in order to eliminate,
as far as possible, difficulties that may arise in conneetion with the organization's operations. The specific
transactions of purchasing, storage and transportation
would, of course, be matters between the Swiss Government
and private American interests.
So far as I understand the nature and general terms
of the proposed transactions, they would appear to encounter
no difficulty by reason of any existing legislation in the
United States. As I stated in my note to you of May 27,
1939, it is the desire of the Government and people of the
United States to maintain the friendliest and fullest
possible commercial relations with the Government and
people of Switzerland. As I stated at that time, however,
the action that this Government may be compelled to take
under any future sets of circumstances cannot be determined
in advance and would have to fall within the rules of
international law and the course of domestic legislation.
Accept,
25
Accept, Bir, the recoved assurances of my highest.
diseases ise.
COPY
LEGATION OF SWITZERLAND
26
WASHINGTON, D. C.
November 28, 1939.
file
Sir:
The European war has created for Switzerland the
situation which had been foreseen when, with the know-
ledge of the Department of State, option contracts for
the purchase of different important commodities have
been concluded in 1939 between the Swiss Government and
outstanding American suppliers.
with your note of May 27, 1939, you gave the
assurance that in the future as in the past, both the
Government and the people of the United States will
have the steady desire to maintain the friendliest and
fullest possible commercial relations with the Government
and the people of Switzerland. You expressed confidence
that this desire would be present under all circumstances.
Your assurance has been highly appreciated by the Swiss
Government
The Honorable
Cordell Hull,
Secretary of State,
Washington.
27
-2Government and has no doubt influenced the intention of
my country to purchase and to store in the United States
an important reserve of commodities most vital to its
existence.
Relying on these option contracts with American
suppliers and on this assurance of the Department of
State, the Swiss Government is disposed to begin now the
necessary purchasing transactions. Simultaneously, it
is weighing the creation in the United States of an
organization with the purpose of supervising these purchases as well as the necessary storing transactions in
this country and the transportation of such commodities
oversea.
To secure a useful operation of the organization
which the Swiss Government has in mind, it seems to me
very desirable that the United States Government would
agree to examine and discuss appropriate steps with a
view to keeping itself in permanent touch with such a
Swiss
.3 -
28
Swiss organization and to consider all matters of
mutual interest in order to eliminate as far as possible
difficultion that may arise in connection with the or
ganization's operations.
Arrangements to this effect would undoubtedly
materially influence the extent of Swiss purchasing
transactions in this country.
Accept, Sir, the assurances of my highest consideration.
(81g.) c. Bruggrann.
Minister of Switzerland.
C. 1-3.
Fr/WB
December 1, 1939
FOR THE SECRETARY:
For your information, a delegation of five of the newspapermen
from the Press Room called on me this morning saying that they wanted to
see the Treasury's records on events during the period prior to the out-
break of the war, so that they could write stories for their respective
papers and news services. Although they did not say so at first, they
eventually conceded that their request was stimulated by knowledge of the
activities of Alsop and Kintner. I did not argue with them but merely
told them that I would consider their request and they spent considerable
time with me getting off their chest a lot of discussion about their
day-in-day-out loyalty to the Treasury Department.
Mr. Gaston, to whom I told the incident, says that he remembers
promising the Press Room boys, after the Tripartite stories were published,
that they would have access to any records given to any special writers.
Joe Alsop was greatly disturbed when I told him what had
happened and was unable to tell me where the word of his activities may
have leaked.
My suggestion is that, if anything is done, we prepare a summary
of the information covered by the Alsop and Kintner notes and that we
merely make it available to whomever is interested on the days that the
Alsop and Kintner articles appear. This would conform with our procedure
in making available summaries of cases such as the Pendergast case.
In any event, I think that nothing need be done at once, although you
may be asked about it at your Monday press conference.
ESD
29
30
COPY
DEPARTMENT OF STATE
Assistant Secretary
December 1, 1939.
Memorandum to Mr. Banes,
Under Secretary of the Treasury:
As agreed. - Please return, when you are through with it.
The agreement calls for submission of the manuscript to
Steve Early and to A.A.B.
31
APRIL 5: Informal morning meeting at Department in Hull's
office. Italian mobilization on Brenner, preparations to invade
Albania anxiously discussed. In the evening, after meeting confirmation came of the Italian preparations.
APRIL 7: Evening of April 6 very mild hope drawn from Italian
failure to land troops in Albania. Then the Italians decided to
go ahead in the night, and did so on a.m. of 7th.
On 7th Albanian Minister was to come in in afternoon. Hull
insisted that irrespective of technical position, Italian move one
more blow at peace of world and should be treated as such. Move
regarded as partly an attack on encirclement, partly desire to get
possession of roads running across to Salonica. French reports indicating German movement against Poland before end of month, plus
Italian activity led AAB at least to conclusion that Italians had
decided to throw in their lots with Germans for summer.
APRIL 8: Statement on Italian invasion of Albania, following
line indicated by Hull.
APRIL 10: In the days between April 8 and this one, idea had
been conceived, apparently at White House, of personal letter from
President to Hitler and Mussolini, warning them of the shadow of
war, asking them to promise no further aggressions. The President
himself made the first rough draft, sending it over to Hull at the
State Department on the morning of the 10th. It was simple in
-2language, and occasionally rather pedestrian and homely. "You
will realize I am sure that throughout the world hundreds of
millions of human beings are deeply disturbed by the belief that
a new war or a series of wars may now or in the near future
threaten humanity. Such a belief, such a possibility is of
definite concern to the USA, to the people of the twenty other
American Republics and to the people of our next door neighbor,
Canada". Went on to mention previous aggressions, "reports,
which we trust are not true, that further acts of aggression
are contemplated", ends by suggesting frank statement guarantee
no attack or invasion of Finland, Estonia, Latvia, Lithuania,
Sweden, Norway, Denmark, The Netherlands, Belgium, Great Britain
and Ireland, France, Portugal, Spain, Switzerland, Lichtenstein,
Poland, Hungary, Rumania, Yugoslavia, Bulgaria, Greece, Turkey,
the Arabias, "Palestine, Egypt and Persia. Finally, say that
other nations glad to offer similar guarantees, that thereafter
such problems as disarmament may be discussed profitably.
Hull passes draft on to AAB, who then makes two redrafts.
One, addressed not to the dictators but to their peoples, is a
frankly propagandist document.
Besides this stirring plea, is a redraft of President's own
effort, more eloquent, "through the world hundreds of millions
of human beings live under the shadow which a vast new war now
casts over humanity. This uncertainty cannot last; its more
existence of itself hastens the catastrophe" - less honey,
32
-3-
33
no next door before neighbor - shorter, and without the President's listing of nations to receive pledges - and more specific,
as to disarmament and the like, including statement, "I stand
ready to prepare at once the holding of such a conference." AAB
handed this redraft to CH at 5 p.m., and CH presumably took it to
the White House.
(Returning to April 10:) President's draft was given to Hull
at 5:15 that afternoon. General agreement 1) that some such move
should be made; 2) that the communication ought to be as much ad-
dressed to the peoples of Germany and Italy as to Hitler and
Mussolini; 3) that the timing was all important, and that above
all, move should be made when German and Italian peoples were waking
to gravity of their situations; and 4) certain changes in drafting
were required.
APRIL 12: The President digests the drafts and produces remarkable one of his own, bringing whole into well-coordinated re-
lation -; see annotated release. "It is equally clear to me that
no solution can be arrived at by council and negotiation if one
party to the conversation carries a gun in one hand and a grenade
in the other. In the pioneer days of America, courts of justice
followed the frontiersmen but it was a well-established rule that
all arms were left outside the courtroom". Final draft, cutting
out above and revising whole, is evidently prepared on April 13.
On April 14, telegrams go out to heads of govts - "The President
desires me to communicate this message to your excellency in his
name" - and signed, as the form is, by Hull. It is published April 15.
-4-
34
APRIL 15: AAB left for NY midnight Wednesday, dictates memo
today, during Thursday and Friday drafting and redrafting of message to M and H continued. AAB's redraft was superseded by a
Presidential redraft, and this in turn was put in final shape at
a conference between President and SW who had just returned from
trip. AAB records, "It is immensely improved. Specifically, the
word "Russia" was included in the list of countries. It had been
omitted by President only by oversight. Second, it was made plain
US was acting only as friendly intermediary. Third, the word pos-
sessions was included with the territory of the countries. Fourth,
Iraq and Iran were added. Number of other textual changes. "The
general outline, however, of a general conference regarding economics
and disarmament accompanied by similtaneous conferences in regard to
political matters was preserved. There was some question as to the
timing, the SEC believing it might wait another day or so, the
President feeling that time was of the essence. It was released
accordingly at 10:30 this a.m. Authorship President's own. "no one
added anything to it other than the necessary technical development
of the ideas which he had distinctly and definitely worked out".
APRIL 19: AAB records that wide radio publicity to President's
message has been effective, leading Hitler to forego contemptuous
answer, delay reply till April 28. McDermott arranged to have Latin
American reaction radioed to Germany and Italy, spiking propaganda
that Latin America was against our move.
On April 14, meanwhile Secretary Hull delivered a Pan-American
-5-
35
day speech, as does President. "Common understanding of the real
values of civilisation, rather than the development of the longest
range cannon or the most destructive bomb, represents the aim of
Pan-American culture. Its flowering is the goal of Pan-American
desire." "Unchangeable purpose to guarantee and maintain security
of hemisphere" etc. (Hull) "Were it necessary to repel force with
greater force, we are quite able to do so". "None can harbor the
illusion that our insistence upon international justice is an appeal which springs from weakness". These cut out. But both
President and Hull speak very clear.
APRIL 19: War seemed to imminent that AAB compiled memo,
setting out his notion of war - Italian attack on Turkey, from
Albania, Dodecanese and Rhodes, simultaneous with attack on Tunis
and French Morocco, with troops partly drawn from Spain. German
attacks down through the corridor and up from Slovakia, driving
towards Warsaw and Krakow. No action in West save defense of
French frontiers and aerial warfare, but French invasion of Italy
through Alps. "The reports as to a possible seizure of Portugal
seem highly probably". "The combined German-Italian fleet off
Gibraltar is unpleasantly near to equality with the British-French
fleet there". "The main naval engagement would be, probably, in
the Eastern Mediterranean".
APRIL 24: Berle works late at State Department. Hitler is
to reply to President's letter in Reichstag speech four days later.
President hoped to listen to Hitler's speech in library at Hyde Park,
-6wanted Berle to telephone him summary, in case of poor reception,
as soon as speech was finished, so that he would have it before
arrival of Norwegian Crown Prince. Berle suggests that as Hitler
is replying only in a speech, it may be well to call in Thomsen,
ask for an answer in form. Also observes that it is "gift of God"
to be able to talk to peoples direct, and that if Hitler is to
turn diplomacy into stump speaking campaign, the President can
easily beat him at it. It is AAB personal opinion that Hitler
will propose something in the nature of Munich, with US left out.
MAT 8: In afternoon Department meeting May 7 Hull's state-
ment on neutrality act is finally completed. In morning, having
corrected draft, Hull invites Pittman down to talk matters over.
MAY 16: AAB writes "The neutrality act moves along." Secretary Hull is now taking up matters personally with Sol Bloom and
I think in time will quietly get the kind of neutrality act he
wants.
MAY 23: "This morning work on a redraft of the Neutrality
statement".
MAY 26: "Yesterday at work, partly on the proposed neutrality
statement, with the SEC is not too anxious to deliver, feeling it
may do more harm than good". Also sees President this day. "Regard-
ing neutrality, he said he had taken a strong line with the Congressmen to whom he had talked. He had pointed out that in the event of
war, there was at least an even chance that the Germans and Italians
might win. In that case, their first action would be either to
36
7-
37
seize the British Navy or to put it out of action. They would
then go ahead and establish trade relations withSA countries
and Mexico, put instructors in their armies and the like. They
would probably not touch the British or French or Dutch islands
in this hemisphere. But at the end of a very short time we might
find ourselves surrounded by hostile states in this hemisphere.
This he described as a possibility only, but a possibility
no far-sighted statesman could afford to overlook. His job was
to make sure that that kind of possibility could not happen.
Accordingly he had urged repeal of Section I of the present
Neutrality Act (arms embargo) as the greatest single step the
Congress could take towards the preservation of peace. He had
already talked over the line which the Secretary is taking and
wholly approved it.
MAY 27: "Mr. Hull put the neutrality statement in final form
and shipped it along to the White House, where I thought it would
be well received. This morning, in fact, it came back; the President thought it excellent and so we can clear on that. I presume
it will go to the public today. In the late afternoon we cleared
the Secretary's Chicago speech".
JUNE 23: "Various jobs, chiefly in connection with neutrality
and the Far Eastern situation. There are a great many letters
coming in to Congressmen, chiefly from Coughlin's crowd and from
the Irish districts, especially Brooklyn.
JUNE 26: AAB notes, "The cables this morning are disturbing.
8-
38
My guess is that in Germany they are beginning to beat the tom-
toms for a final work-up to a war psychology. Hitler has had
his generals at Berchtesgaden, and I vaguely suspect that we are
heading into the coda that leads to the final crash chord".
JUNE 28: "At work yesterday on the Far Eastern situation
which is shifting with great rapidity; likewise a somewhat dis-
turbing situation in Europe. There is at least ground for belief
that the British and French are preparing to "appease" the Germans,
this time on the theory that they were unable to get the necessary
assurances from the US. of course they cannot get any such assurances, and are not going to.
"My own emotions are pretty mixed about this. Readjustments
in Central Europe are apparently necessary. On the other hand, they
will inevitably be the basis for a still greater imperialist movement. If the result is to create an intolerably strong GermanItalian empire, I should guess that it would be only a question of
time-two or three years, perhaps - before they undertook to crush
England, with whom they must inevitably come in conflict both on
commercial and imperial matters. We have no necessary interest in
defending the British Empire, aside from the fact that we prefer
the British to the German method of running an Empire. But we do
have a very real and solid interest in having the British, not the
Germans, dominant in the Atlantic. The minute that starts we shall
be meeting imperialist schemes in South and Central America, not on
a paper basis, as we do now, but backed up by an extremely strong
naval and military force.
-9JUNE 29: More work on Far Eastern note.
JUNE 30: "Still on Far Eastern matters and on Western Europe,
which looks as though the pot were beginning to boil over. Some do
not see a war in this - merely a Dansig coup - but I personally
am not so certain.
"The debate on the neutrality act went on yesterday; and last
night an amendment was adopted putting in the arms embargo. It is
one of these things that makes you tired. The night session had
lasted until 11:30; a hundred Democratic members had gone home;
half of those there had not discovered what it was all about; and
the whole thing has to be untangled again this morning-if it can
be.
"The horrible thing about all this is that about all the Germans
need to know to consider that their hour has arrived is a) that the
Anglo-Russian alliance has failed; b) that supplies cannot be had
from here. I think that they are pretty clear about a) already;
and the Congress of the US is doing its level best to demonstrate b).
How many people do we have to kill on this kind of foolishness?
AAB then goes away for a three weeks holiday, makes first memo
on return JULY 27: "The immediate question up is that of Japanese
relations. During my holiday, decision has been reached to abrogate
the trade treaty with Japan, which incidentally prevents any embargo
on shipments to Japan. There is a six months waiting period. This
is due partly to fear lest we be suspected of the same weakness
39
- 10 -
40
which the British are forced into by their Mediterranean position; partly because of the fact that the Tokyo government,
despite its fair words, is wholly unable to control the armies
in China; partly because of the growing sentiment in the United
States for embargo on shipments to Japan. It is a curious fact
that the United States, which bolts like a frightened rabbit from
remote contact with Europe, will take vigorous steps in the Far
East.
"Theoretically there has been dead calm in Europe. I do not
believe so, but then I doubt if we are as fully informed as we
ought to be on the troop movements on the continent, and particu-
larly in Italy and the Balkans. Last night, Tony Muto called to
say that their Berlin representative was told that Hitler was to
go to Dansig by automobile on Sunday; he was making preparations
to take movies on the march.
AUGUST 7: A quiet few days, with nothing apparent save the
steady piling up of military pressures in Europe. The Congress
exploded and finally adjourned Saturday night. *** Another week
is about all we can count on so far as quiet is concerned on the
international front; the so-called crisis is obviously beginning
to be built up already and should reach a high point in a relatively
short time."
AUGUST 15: "The question of peace or war is being decided;
the jury is out". "The hesitation of the Axis powers is perhaps the
most hopeful element."
41
- 11 AUGUST 17: "Yesterday at Summer Welles' call, we considered
the general situation, which looked bad. I thought we ought not
to let the coordination of neutrality matters run as was done before Munich, when we hastily got together groups to bring into
existence the necessary regulations, etc., for the organising of
American neutrality under the acts; and that we have some people
get started on the general job of doing it. It appears that before
he left for his vacation the President left Summer very wide author-
ity to prepare for neutrality in case of trouble. (Full was away).
Accordingly, we had a meeting today, consisting of Welles, Louis
Johnson, Charles Edison, J. Hanes, General Marshall, Admiral Stark,
Thurman Arnold, Messersmith, Moffat, Feis and myself. Danny Bell
was also there. This was a typical crisis meeting. From a long
experience in this administration, crises always happen when everybody is away on vacation; and the seconds in command show up.
"We reviewed the various acts, especially the neutrality act,
the emergency banking act, and such of the old war legislation as
is still in force. The technical job of taking care of travel
control, repatriation of American refugees, arms licenses, etc.,
falls on the State Department and would normally stay there. The
Treasury is the normal depository of the powers under the banking
acts.
"There is already in existence a War Resources Board which takes
care of the acts for shipment of goods, etc., and in whose jurisdiction
- 12 falls the task of price control. (Question, about personnel).
That would become in large measure the economic administration
of the country. It is really, however, a war board - and has
no application to neutrality.
A committee was set up covering the credit end, under the
general jurisdiction of the Treasury but including representatives from State, Treasury, Federal Reserve, Justice and possibly Commerce and Agriculture. This has to determine how far
credits between the US and belligerent countries are to be
stopped - that is, the difference between war credits and legitimate commercial credits, unless it is decided to limit these later.
I likewise stuck up for having this committee at least see that
there is an adequate line of credit supplied so that SA is not
wiped out in this business. My private belief is that we will
have to go a good deal farther.
"In addition to that it was decided to have a general or
overall committee which, as nearly as I can make out, is to consist of those present. Summer is arranging to make this last
committee official by sending a radio to the President; J.Hanes
is arranging to set up the credit committee by similar radio.
AUGUST 18: "It is perfectly plain that the European crisis
is fairly rushing on; that the plan is to invade and seize all of
Poland, and to do so before effective allied assistance can be
brought to bear. Thus Slovakia reports concentrations plainly
42
43
- 13 for attack towards Cracow; Paris reports that German interests
are buying all the oil they can get, at any price, for immediate
delivery - which means immediate and not next week - there are
continuous reports of troop movements in Berlin. The Italians are
getting up a little steam but obviously without any real interest
in the transaction. Nobody proposes to do anything about it, and
indeed it is difficult to know what, if anything, can be done.
Danzig is already forgotten.
AUGUST 21: A full day, chiefly occupied in getting things
ship-shape in the event that war should break out. In the morning,
getting at the various collective orders, regulations, etc. We
have drawn some, the Navy has drawn some, and the Treasury. I went
over the collective list with the Treasury. Likewise arranging to
have some sort of control of the ships leaving our ports in the
event war breaks out.
"The question has come up of warning American residents to
leave Poland; likewise evacuating the dependents of our foreign
service officers there. We decided to do this and it was accordingly done. Further arrangements with the Treasury in respect of
ships leaving our ports.
"The major fight is ahead. It will be to try to prevent some
of our friends from using the emergency in the event of war to try
to take over price and other control of the entire United States at
a single bound.
- 14 -
44
Also August 21 - Memorandum to Summer Welles.
"Pursuant to appointment I went to see Mr. Gaston, Acting
Secretary of Treasury, and Mr. Cairns at 11 a.m. today.
Treasury has:
1) Telegrams and orders to the Collectors of Customs to study
and stand by to enforce the customs regulations drawn up in connec-
tion with observance of the so-called neutrality act. These are to
be sent out at some time preceding the actual outbreak of hostilities
or the proclamation of existence of a state of war by the President.
2) Substantially equivalent telegrams and orders to the Coast
Guard.
Upon issuance of a neutrality proclamation, telegrams and orders
are prepared
1) Ordering collectors of customs and port officials to use all
possible care in enforcing the neutrality act in accordance with regulations which have already been drawn up.
2) Directing careful enforcement of the passport and travel rules.
3) Directing the prevention of departure of armed vessels for
trade with belligerents, etc.
Treasury likewise has a set of orders giving instructions to
proceed under Section 191 of title 50, permitting seizure of vessels
to "secure observance of the obligations of the United States". The
instruction provides for the seizure of all belligerent vessels. The
timing under this proposed procedure is not set forth. The Treasury
thinks that the only right is to inspect and insure that the obligations
- 15 of the United States have been fulfilled. After that presumably
the belligerent vessels would have to be released. This step
raises some very solid questions.
AUGUST 22: "The announcement of the Russo-German agreement
was flashed in about the middle of yesterday afternoon. The fact
is not surprising, since it has been perfectly obvious that the
Russians were double-dealing right along; but the timing is unpleasant, for it can only be taken as an indication by the Russians
that the Termans can have a free hand as far as they are concerned.
This is as cynical a piece of international business as has happened in a long time.
"A cooler estimate, however, indicates that the situation is
not quite as open and shut as would appear.
"On its face, as taking at face value the German announcement,
there is a bloc running from the Pacific to the Rhine. The Baltic
States are turned over to Russia, to all intents and purposes;
Poland becomes an island in a huge sea, and so also do Hungary and
Rumania. Adding in Italy and Spain, it would seem that the Soviet
Nazi allies now have all Europe, with the exception of France,
England, Holland, Belgium and the Scandinavian neutrals. The picture is not unlike the picture of Europe after Napoleon had made
his famous Russian treaty at Tilsit.
"But anti-comintern pact. "The treaty just made can hardly
45
- 16 -
46
fail to shake that alliance to its very base. One would expect
therefore, as time wears on, to see the Italians shake loose and
gravitate into the West European orbit, and to see Spain do like-
wise". In the Far East, also, Japan will probably be jarred entirely loose from the axis.
"Information has been widely circulated from Germany that the
troops are ordered across the border on the 24th or 25th - so
widely circulated that it may be an additional bluff in the hope
that Poland will now decide to surrender. It is further supposed
that the appeasers in England may be strengthened. I personally
doubt this. It seems to me that whereas before the Anglo-French
combination had the option to let Poland go, they are now faced
with a situation in which either this business must be stopped,
or their own independence is so severely menaced that as to be
almost precarious.
"The President redrafted the proposed message to the King
of Italy. We still do not know the timing for its delivery:
Summer Welles asks discretion.
Meanwhile drafting of a letter to the King of Italy had begun
on August 16.
This was apparently kept in cold storage until August 21 or
22, when it was reqritten by the President, who had, of course,
been responsible for central pattern of the communication. It was
sent on August 23, and delivered to the King at Turin by Billy
Phillips.
- 19 The President arriving from his vacation, decided that he
ought to make a further attempt. Accordingly he wished to have
a message sent to Hitler and to the President of Poland, requesting them to exhaust all possible avenues and especially those of
direct negotiation, arbitration or conciliation. This to be ready
for immediate transmission. Summer tackled the one to Hitler and
I drafted the one to Poland. But I had very little stomach for it,
because the one chance is to handle it so that it does not appear
to be pressure on Poland to cave in; everybody knows that the real
difficulty lies on the other side of the border. My end of the
correspondence, therefore, is about as colorless as I could conveniently make it. Summer, having more latitude in talking to
Hitler, did considerably better.
The one certain thing in this business is that no one will be
blamed for making any attempt, however desperate, at preserving
pease.
"A meeting of the full interdepartmental committee this afternoon, under the presidency of Secretary Hull who is back (and we are
all very glad of it), with all the accountrements of Kleig lights,
etc. Louis Johnson's War Resources committee likewise got under
way to a like obligato.
AUGUST 25: The days were drawing in. Preparations everywhere
were being completed and this day Leon Henderson called Berle to
outline SEC plans. AAB noted, "Their plans for taking care of the
Stock Exchange in the event of war are as follows:
47
- 20 -
48
1) The governors of the exchange will circulate on the
floor watching the course of prices. Where there is too great
a spread between bid and asked prices, or where the bid price
is too far below the existing price, they will endeavor to work
out the situation case by case. If unable to do this, they will
use the privilege which they have of suspending trading in the
particular stock until the market has been made orderly.
2) If need be, they will establish a set of minimum prices
as a basis for opening tradings. I surmise that this is not a
flat set of minima, but rather a ruling that trading will not be
allowed in the stock unless the price is not exceeding -- points
below the existing quotation.
3) Only if as a result of the foregoing it is clear orderly
trading cannot be maintained, will they close exchange.
The behavior of the market yesterday and this morning does
not indicate there will be any panicky foreign selling. As of this
morning on the balance there was more foreign buying than selling.
AUGUST 26: "Yesterday a rather shattering day; as during it
the nerve ganglia of Europe began to decay, I have a horrible feel-
ing of seeing the breaking of a civilization dying even before its
actual death. The Polish wire went down and Moscicki had to communi-
cate with us by telephone to Moscow or any other place; stoppages
began to pile up in Berlin; direct line sailings left various points
without even mail communication, and through it all one saw how
delicate a fabric this thing we call civilisation really is. I
worked at the Department most of the day, the interdepartmental
- 21 -
49
committee put through the documents in the afternoon and directed
me to report to the President in the morning. So home late, and
then back to the Department to read the late cables.
Meanwhile Moscicki had answered President's letter and cable
was promptly got off, as agreed, advising H that M's answer was in.
As R put it in a.m., "this put the bee on Germany" - which nobody
did in 1914. Home and to bed. Then this a.m. things started fast.
We got file in order and went over to White House, where I collided
with L. Johnson coming out. The President suggested that now is the
time to get our neutrality laws changed. He indicated a couple of
speeches which he thought either I or Louis could make. Louis is
making one this afternoon and one Monday."
The President assumed the Proclamation had been gone over.
There was a suggestion, however, that proclamation of neutrality
might be delayed for a few days be necessities of redrafting. This
was subsequently decided against.
"The President had asked at the Cabinet meeting that we discover all his powers in advance of a general emergency and asked
Justice to get to work on it, with the cooperation of Treasury and
State. He was interested in a number of matters, such as whether
he could call out naval militia, as for instance he can call out
national guard, without national emergency.
He then launched into what was really on his mind. He wants
to find the historical precedents tending to show that the object
of the Monroe doctrine is actually to keep war off the American
50
- 22 were at war, both they and Spain commissioned privateers which
preyed on our commerce in the West Indies. We acted first through
the War Dept. (there being no Navy) and fitted out six frigates
to go out and drive the privateers from our waters. Later Adams created
the Navy Dept. and bought eighteen frigates. In all, we fought
104 separate naval actions before clearing out the
privateers. It would probably be found that in the time of both
Washington and Adams some statement was issued indicating that we
were supposed to keep this kind of thing out of the American
hemisphere.
Basing on this and his speech declaring that he would defend
Canada, he had in mind undertaking to prevent any hostile action
against any European colony in the new world, running all the way
from Canada to Guiana (how about the Falkland Islands?). American
nations would patrol that line. He would say to all the belligerents that they did not propose to have the European war invade
this hemisphere; therefore their vessels of war etc. ought to be
kept on the farther side of the Atlantic. Since the boundary of
the New world is no longer the three mile limit, obviously it has to
be somewhere in the middle of the Atlantic, lest airships etc.
upset American peace.
This ARB thought logical and necessary. "It does really
change the status of the New World - a kind of pax Americana."
AAB promised to tackle historical precedents, but suggested also
that Latin American states should be drawn in by way of consultation.
"Their attitude might be a complicating factor, but I am by
no
- 23 -
51
From White House AAB returned to office to report to Hall.
CH saw nothing in latest German proposal. "He is not getting
optimistic yet, and thinks that the wave of comparative hope this
a.m. is probably illusory, if indeed it is not manufactured as
another move in war of nerves."
AUGUST 27: L. Johnson speaks, coming out strongly for revision
of neutrality act: "Our embargo on arms exports was bluntly and
obviously a discrimination in favor of Germany". And talking strongly
of national defense. This speech was made before convention of
Young Dem. clubs at Roanoke, on August 26.
AUGUST 28: AAB notes, "The last couple of days have produced
almost exactly the sensation you might have waiting for a jury to
bring in a verdict of the life or death of about 10,000,000 people."
The dept. was in practically continuous session all Saturday,
watching the reaction of Britain and France to Hitler's suggestion
they sacrifice Poland. What Hitler really wanted, despite talk
of Dansig only, was Britain and France to abandon their Polish
guaranty. Daladier threw down H's suggestion and continued French
mobilization. AAB adds, "No Frenchman has any illusions that if
they buy peace now they will not have war next summer; for them,
the only point is whether they fight now, with Poland in the field,
or next year, without." There was some suspicion here that
anti-appeasers had to threaten to resign to get their way.
Saturday's
52
- 24 Saturday's Br. cabinet meeting was inconclusive. Sunday another.
On Sunday afternoon, dept. heads met again in CH's office
("once more," notes AAB, "the death watch over Europe"). Word
from Berlin was that Coulondre had seen Hitler twice, had warned both
times that the French would not yield, had emphasized the horrors
of war, and had predicted that only Communists would be the gainers.
There were also reports that the Italians, chiefly through Mussolini
and the German ambassador and by telephone between Mussolini and
Hitler, had made almost frantic efforts to persuade Hitler to a
more peaceful stand. The Italians were talking four power, or
rather five power conference, with Russia sitting in, but it was
clear from the start that this would not answer.
AAB summarizes situation as of a.m. of August 28: "The
Germans have stated a set of claims and theses which in fact amount
to the destruction of Poland. France has insisted that she would
stay by her obligations.
AAB also mentions H's publication of his letter to Daladier,
notes--"Meanwhile all the frontiers are being closed, etc." goes
on: "The devastation of the axis appears to be pretty complete.
Not only are the Italians very much wobbling, but Spain is moving
into the arms of the French."
Note of comic relief provided by arrival of Prince of
Luxembourg. Day hot, but poor Hull and P. Moffat had to come to
dept. in heavy spike tail coats.
During the previous evening meanwhile AAB had been in touch
with
- 25 -
53
with Federal Reserve, Treasury and SEC. They had all measures taken
for a lurid day, wanted the news of foreign situation. He told
them he believed they "could hold the line without too much trouble"
for another twenty-four hours. Frank was having Bill Martin of
Stock Exchange circulate the quiet word that the British ban on
foreign securities selling would probably strengthen our market.
Ronald Ransom told AAB that Eccles was on his way back and would be
in town at noon of 28th. AAB correctly prophesied highly anticlimatic day in market.
AUGUST 30: AAB notes that morning of 29th was quiet, chiefly
waiting for matters to develop and particularly for H's answer to
Chamberlain. News was that message from C to H had been redrafted
at final session of Cabinet before Henderson returned to Berlin,
which accounted for delay of two or three hours in Henderson's
departure. Answer was such that at meeting Parliament Tuesday
Chamberlain was able to say he had taken stiff line, and obtain
full support of members, which had been noted by Germans. Both
F. and Poles were fully satisfied with final text of C. message.
Such are the messages coming in in a.m.
AAB lunched with C. Taussig and S. Welles. Talk of general
Latin American consultation (often discussed before and prepared
for at Lima); (2) perhaps formation of congress of neutrals
directly on war's outbreak. AAB thought there was need of
content as well as machinery; that besides these implements of
diplomacy, there must be some intelligent plan of a New World order.
AAB
- 26 -
54
AAB suggested that precedent for such a new order in Europe might
be patterned on the new order for which they were aiming in
Western hemisphere. They talked a little of such great plans in
the past, remembering the Grand Dessin of Henri Quatre and the
rest.
Then in the afternoon, AAB Sec., N. Davis and P. Moffat went
to the croquet ground.
They finished croquet: five minutes after game was over and
Hull gone, Gray called to say that Thomsen wished to see Moffat
to present inquiry as to Bremen. AAB suggested that date be made
for after dinner at Woodley, and accordingly Thomsen presented
himself with the coffee cups. In same room where House, Spring
Rice conversations began under Bill Phillips' eye, Thomsen made
his inquiry, was told that only adequate inspection was desired.
Meeting had been friendly. The boats are clearing at 4 p.m. of
August 30 (day after preceding events) and that issue is dead.
At midnight of 29th, came in cable of H's reply to Chamberlain,
suggesting that he wished to keep the way open for negotiations.
The President and other suspected that it meant weakening in
Germany, and there were signs of trouble behind German front--
rationing, forced alliance with Communists, pacifism, etc. and it gave promise of 24 to 48 hour breathing spell. Nevertheless, AAB noted that Hitler reply all the same looked like reframing
the old proposal of having Pole come to Berlin to sign away his
country on the dotted line.
SEPTEMBER 1:
55
- 27 SEPTEMBER 1: AAB notes that on evening of Wednesday, August
30, he dropped into RFC to see J. Jones, who had a speech to make and
was not well. Made a little joke about JJ being "Rock of Gibraltar
with stomach ache." He also notes having worked during thirty-first
"idea of statement of the President. I had thought of it as a
statement before war; but it seems to be turning into a statement
after war starts. The news during the day was all bad".
He then summarizes news of thirty-first -- the sixteen points,
Lipaki's visit to the WilheImstrasse, and all that confused story,
which does not seem to have been quite fully known at this time.
On evening of thirty-first, word was received in Washington that H
had called Reichstag for following morning, likewise that Brit.
Cabinet was meeting. AAB summarizes "the situation was thus at
stalemate; the Brit-German negotiations had failed; the Poles had
declined to receive a communication although the communication was
already published."
At home he and Mrs. AAB dined with Roger Baldwin, with whom
they discussed effect of Russo-German pact on American leftists. As he
was going to bed, his servant came in to say that there were radio
reports of fighting in upper Silesia. AAB thought of them as border
patrol matters, but was uneasy and slept badly. At 3:40 a.m. Cecil
Gray telephoned from the dept., asking him to come down to office
immediately. At 2:50, as be got impression, Biddle had called from
Warsaw to say that Poland was being attacked and the city would be
bombed. At 3:10, Bullitt telephoned from Paris with the same
news,
56
- 28 news, obtained from Biddle. The pres. had thereupon called Hall,
SW and Navy and Army people, and all machinery was in motion when
AAB reached State Dept. At 4 a.m. or thereabouts, Sec., SW, AAB
and Messersmith met in Hall's office, and as they were awakened
Moffat and other bureau chiefs came in. Hitler was already speak-
ing to Reichstag, and the immediate task was to verify Biddle's
report, which some still hoped might be exaggeration of border
incident of serious type.
Telegrams were got off at once requesting that powers concerned be asked by appropriate missions not to bomb open towns.
A few minutes later, Kennedy called from London. The cable had
gone fast for he mentioned having received it.
SW and AAB then got together to discuss telegrams SW had been
drafting calling for Pan American consultation at Panama. He wanted
consultation jointly called by govts. of U.S., Argentine, Brazil,
Peru, Mexico and Panama. This was all prepared and only machinery
needed to be set in motion.
At 6 on a.m. of Sept. 1 (date of this memo) AAB got hold of
Eccles to warn him to stand by. Then Max Truitt of Maritime
Commission wanted to know about American shipping, and AAB, remember-
ing need for vessels to repatriate stranded Americans, told him whatever shipping was in Eastern harbors had better be persuaded to sail
without delay.
On the day previous, he had been called on by Lord Lothian,
who had to make his round of official visits in the middle of
the
- 29 -
57
the first act of Gotterdamerung.
SATURDAY, SEPT. 2: was apparently occupied in drafting and
redrafting President's speech to the country. AAB's draft differs
at many points from final result, which was, as usual, the
President's own work and own thought. Most striking differences-"Now that force is opposed to force: and as through suffering
truth becomes plain, I think we shall find that at last there is
only one clear issue in Europe: An issue so great and so clear
that it suggests the insvitable outcome. At long last, you will
probably find that there are ranged on one side people who believe
in an ordered world based on principles; and the other groups who
believe in little save cynical force. It is always dangerous to
propheay, but I hold the faith that the world will then resume its
age-old endeavor to re-establish the principles of justice, of
equity, of law. So it has always been) and so, I think, it will
be again."
Draft begins with discussion of problems of war, affirmation
of intent to keep out. Ends, first with relation of administration
efforts to strengthen American economy, and then, rather nobly,
with NA house so builded is builded upon a rock, and can withstand
all storms".
MONDAY, SEPT. 4: AAB describes previous two days in memo.
Saturday, 2. "was chiefly a day of waiting while F and B sparred
a
- 30 58
a little. They made a last effort to get the Germans to talk to
them; the results were ultimate as to evacuation of Polish
territory by Sunday a.m." During this period cables brought
signs that Hitler was trying to make contact with French
defeatists and British appeasers, but the last minute intrigues
did not come clearly through. Even then, H's purpose was plain.
As AAB put it, he "proposed to sop up Poland and then 'give peace',
which is another way of saying dictate peace, to the other
two." Saturday also brought news of the Russian military
mission's arrival in Berlin, along with forecasts from hysterical
quarters in France that the Russians were immediately coming in on
German side. The day ended dully, with Sec. AAB and one or two
others of the State Dept. people attempting to find rest and
distraction in croquet.
AAB could not sleep until 1 a.m., and ultimate were expiring
early in the moring. AAB slept, but Bullitt telephoned the
President about dawn that war was on; and then called Sec and SW.
They gathered at the State Dept. at 7:30 a.m. Sunday, and SW
immediately sent telegrams calling for the Pan American consulta-
tion. That morning there was a long, very gloomy meeting in
Hull's office. As AAB said, "We are ending our death-watch
over Europe.
Meanwhile on Saturday, September 2, the Dept. had been re-
drafting speech for the President, having been told that he would
take their redraft and put it in entirely new words of his own
during
- 31 -
59
during the afternoon. AAB noted, "of this I am extremely glad.
When the President really has time to draft, he can do a better
job than anyone can do for him; when he uses other people's
drafts it is commonly for lack of time." During the day there
was an inter-departmental meeting on policies to be pursued
towards American shipping in war zones (some wanted it ordered
to keep out) and a good deal of other business, but AAB managed
to send his draft to White House at 1:30 p.m. Along with it he
sent the historical precedents for barring belligerent ships from
American waters. Thus by Sunday a.m. "there was not much to do
except consider the state of a world slowly smashing itself into
fragments".
During this Sunday a.m. meeting word came from White House
that Pres. would send his proposed speech over to Dept. in afternoon to be checked by Sec. In the p.m., however, he telephoned
he wished they would come to White House, and accordingly Hull,
L. Johnson, SW, and AAB met in the Lincoln study to hear Pres.
in shirt-sleeves read "tremendously improved speech. One or
two phrases relating to origin of war were struck out, and
speech was approved. Then AAB went to swim in Pelenyi's pool.
and back to Woodley for first real night's sleep since crisis
began.
Then on Monday a.m., he was at work putting final touches
to declaration of neutrality. The President had indicated be
proposed to issue general neutrality proclamation Tuesday a.m.,
the
- 32 60
the proclamation under neutrality act, including arms embargo,
in p.m. AAB notes "he does not plan to call Congress for some
days, and the main question is whether to declare a national
emergency", thus calling into being a number of important and
needed presidential powers. AAB adds "as usual the conversation
this a.m. (apparently at White House) turned on detail; how can
you describe this curious unit known as the British Empire?"
They finally agreed on a formula embracing in a single phrase
the UK, the Dominions beyond seas, the Empire of India, etc.
AAB ends memo with very striking note:
"I have been doing a little thinking which it may be worth-
while to record. In this war we cannot, so far as I can see,
positively count on a military victory of Britain, France and
Poland. Should they be on the eve of defeat, the square
question would be presented to us whether to enter the war,
using them as our outlying defense posts; or whether to let
them go, treble our navy, and meet the ultimate issue between us
and a Russo-German Europe bent on dominating the world, some-
where in the mid-Atlantic. My mind is rather running on the
latter, which may be brutal but depends on a consideration of
national interest.
"Matters may not get to this point. The Russo-German
combination would be huge, impressive and in appearance terribly
powerful. Yet it reverses the processes of men's minds in a way
which I do not believe can be permanent. Winning or losing,
that
- 33 61
that combination must ultimately break up.
"Even if it is victorious, we should be in a position to
hold a powerful and almost impregnable line for a few years; and
those few years ought to see this tremendous combination tear
itself to pieces internally; after which Europe will tend to reemerge. But they will be ghastly years."
WEDNESDAY, SEPT. 6:- AAB picks up his history again, be-
ginning with afternoon of September 4, when he found CH still
considering formula describing empire. Law was in favor of
general formula, but Hull feared Canadian opinion. (CH proved
right, as it came out.) Finally agreed to formula as written.
Next a.m. documents were in shape and Sec. AAB and SW went to
White House where they found Pres. and Bob Jackson, at 11:45.
The general neutrality proclamation had to be signed, and the
question of the Brit. formula again came up. Jackson said
that law was, when England was at war, Canada was. If not,
Canada had technically seceded. The Pres. agreed with Hall's
view. New formula was substituted in which only dominions
which had actually declared war were included as belligerents.
Some of the career people correctly feared that this might be
interpreted as intended to allow export of arms through Canada.
This day Panama canal orders were signed by Pres. Then
at 4:30 p.m. AAB, sec. and others returned to White House for
ceremony of President's signing of second proclamation. AAB
notes "Everybody was feeling a bit glum". Plans were disclosed
to patrol Atlantic waters to a distance of 500 miles at sea,
thereby
-34thereby putting into effect substance of a suggestion made as
long ago as Jefferson's time. AAB notes "I presume this will
be brought up at the proposed conversation between the American
republic; that it is not planned to hold at Panama on the 21st."
Thereafter AAB returned to White House to get a "raft of
regulations needing Hall's signature. Hull had left White
House and gone home, but AAB was suddenly worried, tracked him
to the Carlton, and got him to sign all in order.
SEPTEMBER 7: Worrying about stranded Pax Romana delegates
and Canadian inclusion in neutrality proclamation. Meantime,
notes AAB, "the President has been at work on an emergency pro-
clamation. He wants this because it gives him power to transfer
budget items, and to bring the army and navy nearer to full peacetime strength. At the same time he does not want to create
the impression that we are getting ready for war. In this he is
entirely sincere. The German secret reports seem to indicate
that they think we will be in the war in three months; how they
know this I cannot make out, but they do know their war plans,
which may include sinking American ships. The President indicated to Bob Jackson the kind of proclamation he wanted and told
him to talk to me about it; so Bob wrote it out and talked to me
about it in the White House office yesterday. (6)
This morning up very early, because all these various proclamations have to be approved by the Attorney General. Accordingly we drew and I took down to the Justice Department
proclamations of neutrality recognising South Africa as a
belligerent
62
- 38 63
belligerent; likewise Canada. Returning, the Secretary signed
them; whence to the White House and here was Frank Murphy with
a proclamation of limited emergency. We thereupon went in to
President, who signed them: outlined a little the press conference
he planned to give designed to make the country realize that the
proclamation of emergency was not intended to put the country on
a war footing but to strengthen certain phases of neutrality and
defense policy; thence to the State Department where we released
the South African and limited emergency proclamations. Proclamations covering Canada were being kept in cold storage, meanwhile
in the safe.
Rest of the day AAB works on Secretary's Pan-American Day
speech, noting "my mind is not working very crisply".
Wednesday, SEPTEMBER 13: "A protocol dinner Monday evening
for the geophysicists, who are having a congress here, punctuated
by a strange and rather frightening incident. In the reception
line a white bearded Pole came up and I recognized him. He was
Arctowski, the technical assistant who with Professor Lord and
some cubs, had drawn the line of the Polish corridor, and indeed
the line of Silesia as well. He had then lived honored in his
own country, comes here as a delegate from Cracow University, and
while here has again lost his country as the work he and Lord did
had furnished a fuse for the new world war.
Tuesday there was long talk at the Dept. about what to do
in the matter of American ships trading in war zones. It was
thought inevitable that sooner or later one would be submarined.
There
- 36 64
There was much pressure for warning them off, but no formula
seemed available, there was the problem of the effect of such a
warning on revision of the Neutrality Act. Hackworth was actually asked to prepare a formula, however, and did so. This day
AAB went to NY to speak to Cost Accountants.
Returning to Washington Wednesday, be found enough work to
last a very long time". "The President asked that his message
be drafted in the State Department, so it comes in my direction.
He has called Congress for the 21st, which must be arranged. A
committee was formed, consisting of Messersmith, myself, Moffat,
Savage and several others, to work up material for the debate on
the Neutrality Act. Fortunately we have a lot of material
prepared for the ill-fated previous debate. A little more work
on the ship formula.
"I have been dreaming* ... The basis of facts behind the
dream are four events. The Russian Soviet authorized its govt.
to break relations with any. government which hampered trade
relations with the Soviets. The following day announcement was
made the British were hampering such relations. Meantime,
several classes of Russians were called to colors and conscripted
into service, destination unknown: actually the Polish border.
Today an unconfirmed report from Moscow (but probably correct)
says that Russian ships on route to GB have been ordered to
turn around and come back to a Russian or friendly port.
"If
- 37 -
85
"If I am right, this may mean the Russians are about to
enter on the German side. At any rate, they will seize Estonia
and Latvia in substance, if not in name. They will occupy
Poland about up to the old Breat Litovak line; and presumably
put pressure, soon after, on Roumania to surrender Bessarabia.
I cannot believe that at the same time they will omit to force
Turkey into their ambit, which they are almost able to do.
"If this nightmare proves real (and it seems only too
damnably logical) the state of the world will change over-
night. Italy is then forced into the allied side; but you
will have two men able to rule from Manchuria to the Rhine,
much as Genghis Khan once ruled; and nothing to stop the
combined Russian-German force at any point, with the possible
exception of the Himalayan mountains north of India. Put
differently, the Western world as we know it ends at the
.
Rhine river; and for the time being Europe is gone.
"Well, I thinght this poses a pretty question. For the next
phase is simply this: the Western world is beseiged on the two
Americas; and the rest of our lives, or at least most of them,
will be spent trying to defend various parts of this world from
the economic, military and propaganda attempts to establish
domination
- 38 66
domination over it. Ultimately, of course, the new empire
will break up, as Genghis Khan's did; but so many things will
break with it that it may be said, without hyperbole, that an era
in world history is literally passing before our eyes."
SEPTEMBER 14, Thursday: Getting together materials for
neutrality act fight, working on shipping problem. Also some
work on probable redraft of map of Eurpoe after Russian troops
march. "As it lies in my mind, Russia will take everything east
of the old Brest Litovak line down to the old Austrian border.
The Austrian part of Poland will either be annexed outright
or handed to the puppet state of Slovakia, and the balance will
be a puppet Polish state, probably under a German Reichsprotector.
Reports had come in telling of sending for Saracoglu to
Moscow and there were many other indications that AAB's dream
of the day before was already beginning to come true.
On Wednesday evening, he had had a rather awful experience--
a quiet dinner party at Woodley, with the Dunne, Procope, Mark
Childs, etc. He had been looking forward to relaxation, but Procope
came in, twenty minutes late, and drew AAB aside to say he had had
a cable from Helsinki that the Russians planned to enter Poland
at an early date.
On Thursday, SW left for Panama.
CH
- 39 -
67
CH delivered the Pan American Day speech on September 21,
and it was this speech, together with the President's message
to Congress that produced the important editorial in the
Osservatore Romano. Osservatore described Hull's speech as
"This brief code of civilized living which President Roosevelt
in his message to Congress supplemented by a noble appeal to
religion, this vade meaun of peaceful relationship expressed
in the simple and unadorned manner of practical people".
Meanwhile, on September 21, the President also delivered his
message to Congress, on which AAB does a memo:
SEPTEMBER 21: "The President had before him a number of
drafts, of which I had submitted one on behalf of the
State Dept: and I gather there were memoranda from other
quarters, including the department of Justice (presumably
Bob Jackson).
"On September 19 in the afternoon, the President put all
the drafts in one pile on one side and started to dictate
himself. At quarter past nine on the 19th, I went to the
WH and found him there alone, still dictating what he called
the 'penultimate paragraphs'. Norman Davis and the Secretary
had strenuously urged him to put in the arguments in favor of
the repeal of the neutrality act; and to a considerable degree
he had adopted their suggestions. The result was the draft
typewritten in blue.
"At 10:45 on the morning of the 20th, the Secretary went
to
- 40 C8
to the WH. He was courteous enough to invite me to come along.
The President went over the draft with him. The results are
the pencil changes which appear on the President's blue draft,
and the understanding that an insert would be put in on page
10--an insert known familiarly as Hull A insert.
"On the afternoon of the 20th, by direction of the Sec,
Green Hackworth, the legal adviser. and I condensed a draft
of the 'Hull A Insert'. We then had the message re-typed
with the modifications. This is the draft marked 2nd
Presidential draft'.
"The Secretary and I went to the WH at 8:30 on the 20th,
where we found the President and our old friend, Judge
Samuel Rosenman, from NY. We read the second Presidential
draft down against the President's draft, noting the changes,
which in general were approved. The President made a few changes
on the master copy. He approved, likewise, the rearrangement of
the legislative program, which Hackworth and I had rearranged
to conform to the order of the six points presented by Sec Hull
to the Congress last Spring.
"The message was to be presented in person at 2 p.m. on
the 21st. The final draft, with all checking, was being done
by the President and Judge Rosenman on the morning of the
21st."
AAB
- 41 69
AAB draft dated September 15, eloquent, but as usual less
homely than the final version. Takes a high tone--one which,
though stirring, might have seemed a little too high to the
Congress. It clearly requests (1) "The legislation
requiring an arms embargo should now be repealed. Its essential
unneutrality, and the fact that it presently discriminates between
certain groups of belligerents, is rightly to be accentuated as time
goes on, until it makes us appear as virtual partisans in the
conflict." Such a result, because it is unpredictable, is dangerous
alike to our present position as a neutral, and to our underlying
desire to remain uninvolved." (2) Retention of munitions control
board and other provisions always supported by the State. It also
suggested, but did not positively request, imposition of cash and
carry controls.
It implied very broadly, but did not definitely establish the
blame for the war. It rather firmly asked for reasonable caution in
a debate which would be an "international forum". and it warned
against propagandists and organised agitators, particularly questioning the sincerity of "an advocate who yesterday proposed to arm his
followers, or sanction the doctrine of class war". It criticized
filibuster by implication, and contained one extremely important passage as to claims of debaters--No group, no party, no bloc can claim
to be the party of peace in this debate. There is a government
of peace, resolved to do everything humanly possible to maintain
that
- 42 70
that peace. In the matter in discussion, there is no issue as to the
maintenance of peace. There will be, and should be, debate as to the
best method of safeguarding it."
President's draft an entirely new papers. (1) Rephrasing of no peace bloc plea. Says everyone "in favor of
such measures as will protect the safety and honor of our
country and at the same time keep us out of war." After night
talk with AAB, inserts "the neutrality" before "safety".
Then a short history of spring and summer, subsequently
deleted, describing "less of independence and sovereignty"
of several nations "with whom we had friendly diplimatic and
commercial relations." FDR draft went on, "During the spring
and summer the transition was definitely toward further acts
of aggression and further away from peace", which he changes
in night talk with AAB, putting "military conquest" for
"aggression".
Quotations from January message. Recital of American
adherence to international law.
Request for repeal of embargo. In night talk with AAB,
phrase "most vitally dangerous to American honor, to American
security and to American peace" is changed to read "American
neutrality," etc. instead of "Honor". Also, in next paragr.
sentence is inserted in passage discussing hypothetical prior
to 1935 case, "This would have been the normal practice under
the
- 43 -
the age-old doctrines of international law". Also "our
71
prior position accepted the facts of geography and (added) of
conditions of land and sea power alike".
In part referring to inconsistency of anti-repealists,
argument felt so strongly that a couple of tautologies, later
eliminated, were inserted.
Then stirring pp on page 4 of final "I seek a greater
consistency, etc", has curious vague insert put in, referring
to old argument about causes of world war, which was later
transmuted into highly effective, "It has been erroneously said
that return to that policy might bring us nearer to war".
After review of objectives, (on P 5 of final) Pres. inserts, "Congress can take its choice of two methods, so long as
legislation is so drawn as to meet the needs of day to day
new situation and dangers".
Fourteen pages long, mosaic of additions and inserts. Ends
with pp. "I will immediately reconvene the Congress in another
estraordinary session".
FRIDAY, SEPTEMBER 22:- AAB amplifies his history of
message, noting, "At all events, after a pretty full day's
work on the message I went to the WH at 9:15 Tuesday evening,
the 19th, to listen to the President finish up his draft. We
talked a little as he was turning in -- very sleepy -- for the
night. He was mulling over the subject which was most in his
mind-what kind of a threat to the U.S. was this war going to
be?
- 44 -
72
be? He said he had been dreaming over the map of Poland which I sent
him and putting in some more of his own. It would be logical to suppose
that Stalin and Hitler would not get over-extended but he said in view
of the kind of people they were he expected they would keep on going
while the going was good. He thought in the middle East the agreement
probably was that Germany should take a sphere of influence in everything
Southwest of the Tigrie; Russia everything northeast. How far they could
go into Persia or towards India was an open question. Likewise the Jap
solution was entirely obscure.
"He then said that undeniably the next thing would be a drive at the
west. The real objective would be to get into the Atlantic. He had been
thinking that this would be probably done by a Mediterranean drive, with
the ultimate design of getting a strong foothold on the Atlantic coast or
in some of the Atlantic islands: the Azores, Cape Verdes or the like;
possibly through pressure on Portugal. This involved having a land line,
and therefore Italy's action became highly important.
"It was a hard night's work for him and he was tired.
"A day's work in the office on the 20th: a collection of matters of
one sort or another. The Pres. and the Sec. go at things entirely differently, but they got things pretty well in shape and the evening conference at the WH revealed that the draft satisfied everyone pretty much
"The Pres. indicated that this was going to be a dirty fight.
"The 21st seemed relatively easy, because the message-for whatever
it was-was not off the ways. Late in same memo, AAB notes, "We have
intercepted messages from the Germans, who are wiring a lot of people in
the U.S. to send letters to thoir Congressmen asking they do not repeal
the arms embargo".
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Wt
DATE
TO
Secretary Morgenthau
FROM
Mr. Cochran
73
December 1, 1939
The foreign exchange market was very quiet with the volume of sterling transactions larger than yesterday's turnover. The opening quotation in New York was
3.90-1/2, as compared with last night's close of 3.88-1/4. After the opening,
very little interest was shown in sterling and the rate drifted down to 3.89.
Shortly before noon, it moved upward to 3.89-3/4. The Guaranty Trust Company
received instructions from abroad to purchase 1100,000 and, as the market was
very thin, it moved cautiously in fulfilling this order. The National City Bank
reported that it had some small orders to sell sterling at best at the close. During the afternoon the rate improved to 3.90 and closed there.
Sales of spot sterling by the four reporting banks totaled 1457,000, from
the following sources:
By commercial concerns
L 209,000
By foreign banks (Far East, South America and Europe) 248,000
Total
457,000
Purchases of spot sterling amounted to 502,000, as indicated below:
L 228,000
L 274,000
By commercial concerns
By foreign banks (Europe and Far East)
Total
502,000
The discount for sterling for one month remained unchanged at 2-1/4$ per
pound but for three months it widened to 6-1/2 per pound.
Cotton bills totaling 161,000 were sold to the British Control at the
official rate of 4.02 by the following reporting banks:
L 56,000 by the Guaranty Trust Co.
L 5,000 by the National City Bank
I 61,000 Total
The Canadian dollar was strong today and closed at 12-1/2% discount.
The other important currencies closed as follows:
French francs
Guilders
Swiss france
.2242-1/2
Belgas
.1650
.0221
.5309
CONFIDENTIAL
74
2
We purchased thefollowing amounts of gold from the earmarked accounts of the
banks indicated:
$2,500,000 from the Netherlands Bank
920,000 from the National Bank of Belgium
$3,420,000 Total
The Federal Reserve Bank of New York reported to us the following shipments
of gold:
$2,089,000 from South Africa, shipped by the South African Reserve Bank, consigned
to the Federal Reserve Bank of New York, to be earmarked for the account
of the Netherlands Bank.
1,823,000 from the Netherlands, shipped by the Netherlands Bank, consigned to the
Federal Reserve Bank of New York, to be earmarked for the account of
the Netherlands Bank.
8,000 from Canada, shipped by the Canadian Bank of Commerce, Montreal, consigned
to the Canadian Bank of Commerce, New York, for sale to the U. S. Assay
Office at New York.
$3,920,000 Total
The U. S. equivalents of London spot and forward silver were 41.30 and 41.09
respectively. Handy and Harman's price for foreign silver was unchanged at 34-3/4*.
The Treasury's price was also unchanged at 35.
In New York, we made two purchases of silver totaling 150,000 ounces, under
the Silver Purchase Act.
In talking with me by telephone this afternoon, Mr. Knoke stated that the
Reichabank had paid out $800,000 from its account with the Federal Reserve Bank
to the National City Bank. Knoke had talked with the National City, but the
latter said there was nothing significant in this transaction. Most of the total
was being paid out to various local banks. On November 30, the Federal Reserve
Bank, under telegraphic instructions from the Reichabank, made a payment of
$700,000 to the German Consulate General in New York.
BMR
CONFIDENTIAL
75
December 1, 1939
To:
The Secretary
From:
Mr. Hanes
When you are talking to the President about the Randolph Paul
memorandum I think it wise that you have before you the attached
memorandum which shows that there was nothing new in the so-called
"Paul Plan." All of the 46 suggestions made by him have been
constantly before the Treasury for many years past. As you will note
by Blough's memorandum, the problems which have not been considered
actively the past 18 months are relatively unimportant.
TwH
TREASURY DEPARTMENT
76
INTER OFFICE COMMUNICATION
DATE December 1, 1939.
TO
Mr. Hanes
FROM
Mr. Blough
The memoranda of Mr. Randolph Paul which were submitted to the Treasury
Department contain 31 points involving possible tax changes which would
increase revenues, 15 points involving changes which would decrease revenue,
and a plan for an excess profits tax. The following suggestions appearing
in the memoranda have not been under active consideration by the Treasury
Department during the last eighteen months:
I. The problems involved in the following recommendations appear
not to have been considered at least in recent years:
1. Clarify the law to make taxable any excess of the
principal sum of insurance installments above the
principal sum of the life insurance policy at the
time of the insured's death.
2. Authorize the courts and the Board of Tax Appeals to
relax the rule of res judicate in meritorious tax
cases.
II. With respect to each of the following items, the problem has
been actively considered in recent months but the solution
proposed by Mr. Paul has not been considered:
1. Impose income taxes on stock dividends heretofore
considered to be nontaxable.
2. Establish a conclusive presumption that gifts made
after the decedent reaches sixty years of age are
made in contemplation of death.
3. (a) Eliminate the tax on intercorporate dividends
where stock ownership gives no control.
(b) Stiffen the tax on intercorporate dividends in
cases of inexcusably complicated corporate
structures.
4. No plan for an excess profits tax has been prepared
in such detail as that presented by Mr. Paul, although
the general problem has been considered.
77
-2III. The following problems have not been actively considered
during the last eighteen months but were actively considered
in 1937, 1938, or both years.
1. Eliminate the deduction for nonbusiness casualty
losses or restrict them to a fixed percentage of
the taxpayer's net income, or treat them as capital
losses.
2. Limit the allowance for the deduction of interest
on noninterest borrowings to $500.
3. Limit the allowance for the deduction of nonbusiness
bad debts to $1,000 in the case of each debtor.
4. Limit the allowance for the deduction of taxes on
nonbusiness property to taxes on small homes.
5. Allow a deduction of perhaps $100 a year for medical
or dental expenses.
6. Limit the deduction for payments by the employees to
pension trusts to perhaps $5,000 for any one employee.
7. Limit exempt building and loan associations to those
of a genuine cooperative character primarily related
to financing home ownership.
8. Tax nonresident aliens and foreign corporations upon
income from sources within the United States in such
a way that there is no discrimination in their favor.
9. Provide that all tax suits and proceedings shall be
brought against the United States, eliminating the
highly artificial distinction between suits involving
the United States, the Commissioner and the Collector.
RB
December 1, 1939
To:
The Secretary
From:
Mr. Hanes
I have asked Roy Blough to complete the estimates on the Paul
tax plan as quickly as possible, getting them to you by Monday noon,
if possible. You will understand, of course, that work on several
optional plans for raising $500 million has necessarily been delayed
on account of the work on the Paul plan. However, I have instructed
them to proceed with the optional plans as rapidly as possible after
the Paul plan is out of the way.
J WH
78
79
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON
LEO T. CROWLEY
CHAIRMAN
December 1, 1939.
My dear Mr. Secretary:
This morning the late edition of the New
York Times carried a story to the effect that I was
to become associated with the Standard Ges and Elec-
tric Company. For your information I want to say
that I have been recently approached on the matter,
but have not made a decision nor indicated what my
decision might be. Furthermore, before I would make
a decision I most certainly would discuss the matter.
You may be sure that I will do nothing
that will not be to the best interests of the Federal
Deposit Insurance Corporation. At the present time
the Corporation is confronted with correcting the
situation existing in three or four sizeable institu-
tions, and it would be my purpose in any event to
attend to these matters.
Sincerely yours,
Chairman.
The Honorable
The Secretary of the Treasury
Washington, D. C.
80
MEMORANDUM
December 1, 1939.
TO:
Secretary Morgenthau
FROM: Mr. Duffield
Columbia Pictures, having made a movie of the
production of money at the Bureau of Engraving, have asked
permission to make a silent shot of you in your office
after Cabinet today.
I have indicated that you probably would not have
time, but I also agreed to let you decide yourself.
December 1, 1939.
5:32 p.m.
81
Herbert
E. He didn't know - doesn't know what his people have
Gaston:
done on this thing, it seems inconceivable to him that
they would have ruled that way and if Justice has the
contrary view but at anyrate if they're still in the
building he will get them in and in any event he will
call me back and let me know what to do. I explained
to him that the thing seemed to be in his lap so far
as the matter of hired policy was concerned that we
and Justice were clear that the law required us to
stop the sale.
H.M.Jr:
G:
Huh-huh. I think that you ought to order out a patrol
tomorrow and see whether they still are - what are
territorial waters?
Depends on - nobody knows - three miles sometimes and
twelve miles other times. For general purposes it's
three miles, for alcohol smuggling we got away with
twelve miles.
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
Well have it 80 that 1f we did want to send out we
could, see.
Huhhuh.
In the meantime -
Don't you think I'd better have those people up in
Boston if those other two vessels are there Hold them.
Use some means to hold them.
Now another thing.
Yes.
I want you to call up Frank Murphy.
Yes.
And tell him about it, tell him that - just what happened
and I'd like to have him advise me personally, on this.
Yes.
I mean personally that he should know about this.
Yes, Yes.
82
-2H.M.Jr:
And that we may any time tonight ask for a formal
opinion.
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
Yes, yes. And we may some time tonight ask for a
formal opinion.
Yes, well in fact we'd like one.
That's right. And do you want him to call you?
No , you and Cairns handle it.
Yes.
This 1s Coast Guard isn't it?
Yes.
You and Cairns handle it but you get hold of
thingmabob, -
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
Yes.
The Attorney General.
You. bet.
And Cairns, has he kept Foley posted?
Yes. Yes, that was -
I'd get hold of the Attorney General, lacking, if he's
left town get hold of Bob Jackson.
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
Yes.
And tell him that tonight we want an opinion.
All right. All right, I'11 do that.
Now this is, and I still say Herbert that from Wednesday
till Friday is a long time.
Yes, Yes.
You'd better keep very careful records of this, say Yes, I've dictated the whole thing to you and I've given
instructions to Customs as well as to Coast Guard on it.
83
-3H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
H.M.Jr:
G:
And I'd be interested to know whether Berle passed on
this legally.
Yes, yes.
Somebody must have passed on the sale.
Yes, well, I think he did himself. I think he did
himself but he won't admit it.
And - well I'd get hold of the Attorney General and
tell him we'd like to have him advise us.
Yes, I'll do that.
Good work Herbert, keep right at it.
Right, right.
December 1, 1939.
4:46 P.M.
Farley:
H.M.Jr:
taxes big and little.
(Very hearty laughter) Johnny Hanes is sitting
here with me and I was calling him up for both
of us; he's kind of on the hot spot.
F:
Yeah, about going to Texas?
H.M.Jr:
Yes.
F:
He ought to go.
H.M.Jr:
Well that's all I want to know.
F:
Yeah - really.
H.M.Jr:
What?
F:
I'm - I'm serious about that. I was going to call
about that too - I have a memor - a wire. I really
would like to see him go to Texas. I say that
sincerely.
H.M.Jr:
Well can you assure him that this meeting in Dallas
won't be turned into a meeting to
F:
To boost Garner?
H.M.Jr:
Yes.
F:
No, I think that's allright anyway.
H.M.Jr:
What?
F:
I think thats fine.
H.M.Jr:
You think thats funny or fine?
F:
Both.
(Hearty laughter on both sides)
H.M.Jr:
Johnny doesn't think its very funny.
(Hearty laughter again on both sides)
84
-2F:
Tell him not to worry about it.
H.M.Jr:
What?
85
Tell him not to worry about it but tell him to go I'm kidding - I'm not kidding about the goining but
tell him not to be worried about the Garner - tell
F:
him not to be worried about making the Garner dinner we'll make the dinner here in Washington - a McNutt
dinner - so what the hell difference does it make.
H.M.Jr:
F:
H.M.Jr:
F:
H.M.Jr:
F:
H.M.Jr:
(Hearty laughter) L Well listen - when are you going
to give a dinner to float Farley.
Well Farley isn 't floating.
Oh he's not floating.
He's not floating.
He's not sinking is he?
He's not thinking and he never did think. Maybe that
was his trouble. If he did more thinking he'd be
better off.
No I said sink - sink.
H.M.Jr:
I get you.
Sink - sink.
F:
O.K.
H.M.Jr:
With an S like
F:
I just said think - I didn't know you said sink.
H.M.Jr:
No - no.
F:
F:
O.K. everything is under control. Ickes said he'd
join the anti-McNutt club. They're giving a lot of
numbers around town.
(Hearty laughter on both sides)
F:
H.M.Jr:
I think its very funny.
I think Harold better join the anti-Sissie Patterson
club.
86
-3-
F:
Yes - its more serious - Sissie has run after him its more serious than he thinks about Sissie, you
know.
H.M.Jr:
Well I think Sissie has got him right over her knee.
Quite definitely, oh yes.
F:
H.M.Jr:
What?
F:
Right over the barrel.
H.M.Jr:
Don't you think so?
F:
Oh yes, sure. And I bumped into our friend Arthur
Krock to-day and he tells me he's going to write a
letter to the Times going after them because he said
that he that he meant - when he was in that controversy
with Hopkins - about what - well as a matter of fact
Hopkins did make that statement in the presence of
Morton Schwartz and three or four other fellows and
Max Gardner up at the race track, you see, and then
he denied it after, you see?
H.M.Jr:
F:
Yes.
And Arthur told me that he ran into Ickes about the
time it happened and Ickes said, "Well it looks to
me as if you have Hopkins by the
, see?
H.M.Jr:
Yes.
F:
And then later on he kind of changes his tune in the
book so Arthur is going to write a letter to the
Times, he told me and - that's confidential - and
let her call Ickes attention to the fact that he
thought that Arthur was right at the time.
H.M.Jr:
I see.
F:
So there you are - got to be careful of what you say
and what you write, brother.
H.M.Jr:
(Laughs)
F:
Let Hanes go to Texas and Farley will go to - ah take care of the McNutt dinner here in Washington.
-4H.M.Jr:
F:
H.M.Jr:
F:
Farley goes to Heaven.
Farley goes to Heaven; Hanes goes to Texas.
Tell Johnny its all right.
Well he's sitting right here; I'll tell him.
Allright get another Post Office in Dutchess
County and don't give anything to odds.
H.M.Jr:
O.K.
F:
Thank you very much.
H.M.Jr:
Goodbye.
F:
Goobye.
87
88
December 1, 1939
10:45 am
Present:
Mr. Wigham
Mr. Gifford
Mr. Pinsent
Mr. Hanes
Mr. Cochran
Mr. Butterworth
Mr. Stewart
Mrs. Klotz
HM,Jr: Well?
Mr. Wigham: Well, Sir, I am afraid there has
been some delay so far. I certainly was a little
optimistic that we would get Government action quicker.
And the reply to our first recommendation was that it
was impractical to do it that weekend and that they
would cable us again during the week. Then they
started cabling on the detail of the workingout of
this thing and they have been cabling us ever since,
so that it appears from the time we left the other
side they have not bworked out any machinery providing
us with a vesting order and we have had to give them
a good deal of the working on this side. And again,
a cable we got day before yesterday, again there is
so much of the detail still in discussion, they said
it would not be possible over this weekend to make a
vesting order, so I sent a cable to the Governor yes-
terday; told him I was coming up to see you and would
like word when they thought they would be ready and I
got a cable this morning saying they are sending a cable
officially through the Embassy, with details, which only
arrived as we left the Embassy to come down here and I
have not seen the contents.
HM,Jr: Let me say this, if you don't mind my
saying it.
Mr. Wigham: No, sir.
89
-2-
HM,Jr: I think it has been a most unfortunate
delay for you. You saw the papers today and the
papers yesterday, and the longer you delay, well I
think the worse the publicity is going to be and the
more people are going to blame your Government for the
fact that our market does not act better.
Mr. Wigham: Yes.
HM,Jr: Which, of course, is silly. When
things don't go well, everybody likes to look for a
goat. And it was all settled and could have been
done when you said it would. Now today there are
all kinds of new talk and Mr. Duffield tells me that
Wall Street is full of rumors and today's paper says
you are selling a million shares a day, and all that
sort of thing.
Mr. Wigham: We are just as disappointed with
the delay and we feel, too, that the right thing to
do was over the weekend and probably would have had
very little momentary effect on the market, but in
fact there must have been a slight falling off from
the time it took to get the actual vesting mechanics
of it 80 the securities would be available to us for
sale. That will take a day or two, you see.
HM,Jr: But even if you did take title, it does
not mean that you have to sell.
Mr. Wigham: No.
HM,Jr: But you simply are in the position that
you can't.
Mr. Wigham: That's the thing. And I think the
Government is back of it, because at the time we made
recommendations, sales were going on nicely with private
individuals at about a rate which would be satisfactory
for us, but, as we told them, we can't sit back and depend on these private sales always keeping along that
same level. They might fall off and the people sold
what they thought they wanted to sell; a great deal
in the fixed interest bearing securities, that they
might not sell on their own initiative, but on the Government's. Then, of course, they would have to sell.
30
-3-
HM,Jr: I am going to ask you a question. You
don't have to answer. But it was hinted to me that
somebody on this side connected with the Government
advised you or your Government to do this at this time
and I wondered if it was correct.
Mr. Wigham: Not to my knowledge, Sir; no. We
have never had that.
Mr. Gifford: No.
HM.Jr: I just wanted to know in order to get the
picture.
Mr.Wigham: Another thing we had today, for the
first time, there has been a shipment of gold from Can-
ada down here.
HM,Jr: I explained to Col. Greenley
Mr. Pinsent: I told Mr. Wigham.
Mr. Wigham: We had not heard about that and that
was not made on account of our not having enough sales
going, but for some reason we don't know.
HM,Jr: I explained to Mr. Pinsent that I did not
think it was, but if a person wanted to take an unfriendly
interpretation, he could give that. Isn't that what I
said?
Mr. Pinsent: Yes, sir.
HM,Jr: And the whole thing -- after all, if a
person was unfriendly or looking for trouble or wanting
to complain, a transaction like that would be very easy
to use. You see?
Mr. Wigham: Yes.
HM,Jr: And I simply told Col. Greenley and Mr.
Pinsent, when they were in the other day, that it seems
to me it ought to be possible for the British Government,
through the British Treasury or through some place or
other, to keep the people informed here that when there
91
is a transaction involving over $100,000,000 over a
weekend that at least somebody in the United States
Treasury, not alone their own Financial Attache, be
informed of it in advance and I am saying the same
thing again. I think it's rather ludicrous that a
thing like that can happen and Mr. Pinsent does not
know about it and nobody in the Treasury knows about
it and nobody in the Federal Reserve Bank. But certainly this tremendous transaction takes place and we
take a big gasp and we are handed $50,000,000 gold
and we are told no securities are going to be taken
over but we bought that. I can understand; I tell
myself, you people are at war; things are difficult;
you have a lot of difficulties, and I am bringing these
matters to your attention with the hope that in the not
too distant time those things should be coordinated,
whether the money 18 to cover sales of dollars or purchases or whatever it is. As large a transaction as
that I think Pinsent ought to know in advance so that
he can come down and say, "Now, Mr. Morgenthau, this
is going to take place. Don't have heart failure or
anything like that, but we are going to have a turnover of how much money?
Mr. Cochran: $120,000,000 paid out and $50,000,000
came in.
HM,Jr: Transactions involving $170,000,000, which,
in this country, is still a lot of money. I don't know
how you people feel over there.
Mr. Wigham: What they told us, they were satis-
fied with the rate of sales; did not seem to be the
hurry we seemed to put on it. Then they started getting
down to details and it has been just a week of cable,
cable, cable, back and forth, on the titles and what
they cabled on Thursday, I think it was, that they could
not take things over this weekend anyway, so I cabled
yesterday if I could get any more definite news on what
they were going to do, and that cable arrived just the
moment we left the Embassy to come down here, and if
there is anything in it we shall phone you.
HM,Jr: The other thing, I was very careful to
tell Mr. Pinsent, where I made the statement the last
02
-5-
time you were here, I could assure you no publicity.
I have to withdraw that statement because you people
will have to see Mr. Frank of the SEC, because I can't,
until you satisfy yourselves and satisfy him as to
withdraw that guarantee. I am sorry, until you clear
it up with Mr. Frank what he will or won't do.
what they will or will not say, I can't. I have to
Mr. Wigham: We are going to see Mr. Frank at
a quarter to twelve and will discuss that with him.
HM,Jr: Are you taking any Treasury people with
Any of you people going over?
you?
Mr. Stewart: We thought perhaps better not; to
let them have conversations and let us get the results
of it from Mr. Frank or from them, but as you say.
HM,Jr: Has Mr. Frank invited you?
Mr. Stewart: We have not been invited?
that
Mr. Cochran: No. I suggested to Mr. Purvis
he
make the appointment. We have not communicated
with or heard from Mr. Frank.
HM,Jr: I just want to withdraw that pledge of
mine unless you people tell me you are satisfied, that
SEC will not make any statements, but what's out in the
paper now there is not much left to say. They have
a million shares a day and pretty nearly everything else.
Mr. Hanes: One million dollars.
Mr. Wigham: One million dollars.
HM,Jr: One million dollars. But I want you to
entirely satisfy yourselves that once you take title to
these securities, what will be the attitude of the SEC.
As I told you, my word still holds true, that I won't
release any figures that have to do with your business
without first getting your permission. I have not
changed on that and won't.
Mr. Wigham: Well, we will have to discuss it
with Mr. Frank.
93
-6-
HM,Jr: Right!
Mr. Wigham: What his trouble is. As I understand, what he said, what was in the papers yesterday,
it was in the Sun yesterday, a repetition of what he
had told us, that they would resist further information
because anyway what they do get is not complete and by
the time they get it and also what they get through the
Federal Reserve, the two of them together is about two
months old.
HM,Jr: You can quote me as saying that the Treas-
ury will not give out any information about what the
British Government does about selling securities without
first getting the approval of the British Government.
Mr. Wigham: Yes, sir.
MM,Jr: So we have not changed.
Mr. Cochran: And you are willing to maintain the
promise about the lag.
HM,Jr: I am not going to change; the Treasury bulle-
tin's lag is about three months. Johnnie, you got something?
Mr. Hanes: No.
HM,Jr: Walter?
Mr. Stewart: No, sir.
as
Mr. Wigham: We regret the delay just as much/you
do over here; more 80.
HM,Jr: It's your ox. You are being gored and
I am just a bystander.
Anything on your mindt
Mr. Pinsent: No, sir. We will let you know in
the course of the date
Mr. Wigham:
don't know yet.
what's in that cable, because I
94
-7-
HM,Jr: Always glad to see you.
...
Mr. Pinsent stayed behind and left with the
Secretary the attached copy of a communication handed
to Mr. Welles by the British Ambassador on November 30th.
The Secretary read the memorandum and said:
The President is entirely familiar and what I
told you people is just what the President wants and
I think the President is sort of waiting for you people.
Mr. Pinsent: The Ambassador knew that and the
question of seeing the President was just touched upon.
It was not put on paper.
HM,Jr; This is the result of our meeting with
Purvis, you see.
Mr. Pinsent: Yes, sir.
HM.Jr: As a result of that, this was drawn up
and your Ambassador, Lord Lothian, gave it to Mr. Welles.
Mr. Pinsent: And I think the French Ambassador
was going to do the same.
HM,Jr: As a result of that meeting here. This
18 the right way to do it.
I can say this to you. Why Mr. Bullitt inter-
jected himself, I don't know, but I have never been
closer or taken ways to be closer to the President on
anything than I have on this and I know just where he
stands, and I practically sketched you the suggestion
which the President has used once before for the French
on this aluminum business.
Mr. Pinsent: Yes; the French told us.
HM,Jr: They used it. But also you might pass
this along to the French that Captain Collins told me
S5
-8-
that they are all ready on this aluminum to do something and they can't find the Frenchman to whom they
are supposed to talk. There is some Frenchman who
is supposed to be here who wants this aluminum and they
can't find the Frenchman and, second, they can't tell
whether it's for the French Government or private industry.
I
will call up Collins. I am doing this to
be helpful. You pass that on to Leroy-Beaulieu. They
used this set-up which I recommended and then they can't
do it.
(Placed a call for Capt. Collins.)
Mr. Pinsent: We were astounded at all this, were
about
the business from Paris. Did not know whether we
standing on our heads or our heels.
HM,Jr: If it were not so serious it would be funny.
(At this point, HM,Jr spoke to Capt. Collins on
the phone and the latter said the name of the Frenchman
was Col. Mario and Collins does not know 1f he is even
in this country.
This 18 another thing that came through the American Embassy. Col. Mario was supposed to want this stuff,
but they have been unable to find out who Col. Mario is
and they still don't know whether it's French industry or
the French Government and the French Ambassador has not
been able to produce the man to do the talking.
Mr. Pinsent: It does not look like I could do any
good.
HM,Jr: The French Embassy knows about it, but they
are having their troubles.
Mr. Pinsent:
I expect we shall hear today.
000-000
Hymoket Mr.
Welles by Brit Ama
Non.30
96
7
Communicated by the British Ambassador November so. 1959.
The British and French Governments have decided
upon the closest coordination of their economic war
measures. For this purpose they have set up a
Coordinating Committee in London under the chairmanship
of M. Jean Monnet and have appointed an Anglo-French
Purchasing Board in the United States, of which
Mr. Arthur B. Purvis will be Chairmen and M. Bloch-Laine
Vice-Chairman. The Board will coordinate the activities
of the British and French Purchasing Commissions in the
United States.
This Board has been instructed to establish
and maintain the closest contact with the American
Administration in order to keep the Administration
informed of its purchasing activities, with the object
of avoiding any unnecessary disturbance of American
economy.
The Governments of Great Britain and Frence
are glad to learn through the American Ambassador in
Paris that this view is shared by the United States
Government. We should therefore be glad to be informed
as to the method whereby the United States Government
desires contact to be established between itself and the
jcint Purchasing Board.
97
BRITISH EMBASSY,
THR
WASHINGTON, D.C.
December 1st, 1939
Dear Cochran,
Mr. Whigham, who returned to New York
this afternoon, wished to let the Secretary know
the substance of the cable which he received from
London this morning; and also the outcome of
his discussion at the S.E.C.
The cable does not contain a decision on
the question whether the vesting of securities
is to be proceeded with at once or not. It
gives various reasons why, from the London point
of view, there is no reason to press the matter
unduly, and asks Mr. Whigham once more whether,
in the light of these considerations and the
position as he knows it at the United States end,
he still recommends immediate vesting.
In our discussion at the S.E.C. Mr.
Whigham put the position once more to Mr.
Jerome/
Mr. H. Merle Cochran,
United States Treasury,
Washington, D. C.
98
-2-
Jerome Frank as regards the use of the
figures regarding the sale of securities which
we are to communicate to the Secretary. Mr.
Frank said that he would prefer that the figures
should not be passed on to him by the United
States Treasury, with an understanding however
that he could if he wished ask for them at any
time and that the Secretary could then make
the condition that they should not be used in
any way for purposes of publicity. If this
position is satisfactory to the Secretary,
it is quite satisfactory to us.
We discussed at some length with the
officials of the S.E.C. whether it was advisable
to make any attempt to remove some of the mis-
apprehensions which are current in the press,
but concluded that it would be wiser not to
attempt this.
Yours sincerely,
Jerry Present
.
DR. FELIX SOMARY
PRESIDENT
(BLANKART A Cred
ZERICH
99
December 1, 1939
11 a. m.
Present:
Dr. Felix Somary
Mr. Cochran
HM,Jr: What is your pleasure, Dr. Somary?
Dr. St I have been sent, for the second time,
on an official mission here for buying raw materials
and foodstuffs for Switzerland. Nearly 90% for civil
needs, only 10% for war needs.
On my card is my civil profession as a banker,
but, as you call it, I am only a dollar man at home.
I was beginning to be this in May of this year for the
second time in my life and, therefore, I am not here
in my quality as a banker, but my quality for the Swiss
Government and they asked me to come in connection with
the agreement with the State Department in May, because
we were making a lot of option contracts with different
industrial and agricultural people for wheat, corn,
rice, sugar, tobacco, automobiles and things like this.
About 90% for oivil needs; about 10% for war needs.
This proposal may be changed a little later on,
but surely the civil needs would be overwhelmingly
stronger. It is not a question of credits, because
we naturally are paying cash and it is not a question
of carry because we are obliged to hire and charter
vessels, but it is only this principal question we have
now -- the intention to buy more and greater quantities
and store it here in this United States and we want only
to be assured that no complication whatsoever should
arise or, if there should be some complication, that
they should be eliminated as soon as possible. This
is naturally in the interest of our country, because
we have it now mobilized about 80% of our male population and, therefore, we have to see that no difficulties
or complications whatsoever should arise.
This is the principal purpose of my visit here
and we are intending to organize a permanent mission
100
-2-
for these different transactions and would be extremely
interested to be in contact with the Government 80 that
any complications should be eliminated as soon as possible.
HM,Jr: Dr. Somary, I think I ought to explain
it to you that I am not the right person to see. I
think that what your Government should do, through you
and your Minister here
Dr. S: Yes.
I think they ought to ask the State
Department if your Minister could either see the PresiHM,Jr:
dent or whether the State Department would ask the President which agency or agencies of the Government this
purchasing mission, which you head, should contact.
Dr. Somary: Yes.
HM,Jr: And we are in the process of setting up
a group that the President wants to receive foreign
purchasing agencies. It is not the Treasury. It is
not me. I am not the person. I do know that the
President, Mr. Roosevelt, wants that, has something,
different in mind, and so I think that you could, if
I might make that suggestion to you and your Minister,
that they ask the State Department particularly to find
out from the President of the United States whom you
should contact and I am going to ask Mr. Cochran to call
up the Secretary of State's office and say that I am telling you this 80 that Mr. Hull will know
Dr. S: Yes.
HM.Jr:
what I have said
Dr. S: Yes.
HM.Jr:
and I am quite sure that you will be
directed to the proper people.
Some questions which may interest,
Dr. S: Yes.
I think, the Treasury; for instance, the question of
101
-3-
gold payments.
HM.Jr: That's something else.
Dr. S: Because transportation is beginning to
become a rather complicated affair, but this would entail a question of more important things.
HM,Jr: That is something you could take up
directly with Mr. Cochran.
Dr. S: Yes.
HM,Jr: If you would. Discussion of gold, that
is properly our business and Mr. Cochran is the right
man to talk to. So I think that is the most helpful
suggestion I can make to you.
Thank you very much and I hope to see you again.
000-000
Dr. Somary left and Mr. Cochran remained.
HM.Jr: Tell them, please, to tell Mr. Welles
and Mr. Feis not to send any more commissions over
here on purchasing.
Mr. Cochran: You got what he meant about the
gold payments. They want us to take gold on the other
side.
BK226
102
RE CLOSING AGREEMENT
Present:
December 1, 1939.
10:00 a.m.
Mr. Hanes
Mr. Foley
Mr. Helvering
Mr. Sullivan
Mr. Reiling
Mr. Kades
Mr. Wenchel
Mr. Duffield
Hanes:
Here is the memorandum. Perhaps you will want
H.M.Jr:
Sure.
Hanes:
This is a memorandum for the Secretary.
to read it over.
"At a conference on Wednesday, November 28, 1939,
you asked that we consider de novo the problem
of assisting the Army and Navy in the establish-
ment of additional facilities in private industries
to expedite the national defense program. We
submit the following:
"A.- 1. So far as jigs, dies, tools and factory
machinery of specialized and restricted use are
concerned, the Treasury is today able to execute
closing agreements definitely assuring the con-
tractor that he will be able to write off against
the particular contract or as a deduction for the
particular income tax year all such facilities as
are consumed or obsolete - just as any other manufacturer may.
"2. The problem of obsolescence on new factory
buildings and standard equipment presents a
different problem, one which under the present
state of the law and in view of the hearings
before and reports of the Couzens Committee and
the Nye Committee, we do not believe we can
solve. Since the greater part of 'additional
facilities seems to consist of new construction
and standard equipment it would appear that the
real assistance we can give to the Army and Navy
under the present law is so slight that no further
dependence should be placed upon it. Accordingly,
we conclude:
103
2-
"B.- Congressional action is required. Congress
can solve this problem by:
"1. A direct appropriation to the Army and to the
Navy for the construction or procurement of all
types of additional facilities to lend or to lease
to private industry or by:
"2. A statute authorizing the Treasury Department
deductions to well-defined classes of manufacturers
by definite standards and procedure outlined in
the statute.
"For example, - and merely as an illustration:
"A statute anticipating the emergency period will
run for four years, and permitting all manufacturers
to construct and install, for the purpose of fulfilling Army and Navy contracts, additional facilities which are of no useful value when the emergency
terminates, to amortize the cost of such facilities
at the rate of 25 percent per year, - provided that
the returns (both income tax and Vinson-Trammell)
of such contractors be kept open and subject to readjustment at the end of the emergency as proclaimed;
i.e., if the emergency ends in three years, then
this special deduction is to be changed to 33 1/3
percent per year - if in five years, to 20 percent
per year. "
Well, what I would suggest, after reading this is
that we ought to write a letter to the President
of the United States setting this thing forth.
"Congressional action is required. Congress only
can solve this problem." We should send a copy
of that letter to the President to the Secretary
of War and one to the Secretary of the Navy.
H.M.Jr:
Would that release us from anything we said last
July if they write us - stipulate we have got to
do so and so?
Helvering: It would
You are not repudiating what you said last July.
Foley:
104
-3H.M.Jr:
I don't want to make the recommendations. I
would rather have that come from - let the
Army and Navy or somebody else do that. I
don't want to do that.
Hanes:
I don't think your position would be any different than the one you had in July.
H.M.Jr:
Then it is all right?
Hanes:
If you agreed to do certain things in July and
you are still willing to give closing agree-
ments
Foley:
On the things that are proper subject matter for
closing agreements. We haven't changed our posi-
tion.
Hanes:
And you said then that you were willing to tell
H.M.Jr:
Any manufacturer or any business man, anybody
that wants to get out a flotation or anything
else in advance.
Hanes:
I don't think your position has changed from
that. To go further than that, I think you
are right in saying that Congressional action
is required.
And I don't want to give any example; I would
rather'let that come from the Army and Navy.
This is not the only way that Congress could
H.M.Jr:
Hanes:
Sullivan:
H.M.Jr:
the man in advance what his tax problem is.
solve this, this is just an example.
That is right.
I don't want to go too fast, but if you all
think - I will take it down through "B", simply
saying that Congressional action is required and
only Congress can solve the problem. Only Congress can solve this problem for the Army and
Navy. Period.
Then it is up to the Army and Navy to go before
them. I can take this over to the Cabinet and
105
-4just give it to the President and I wouldn't
have to send the Army and Navy a copy. You
(Foley) write me a letter or a memorandum from
me to the President. Am I going too fast?
Hanes:
No, I think it is all right.
H.M.Jr:
Guy?
Helvering:
That is all right. I thought the reason - I think
everybody thought that when we say we can, that
somebody can't do it, we ought to make some sug-
gestions. I think that is what everybody had in
mind, but I think maybe it is for you to say, let
the Army do so and so and the Navy do so and so.
H.M.Jr:
No, let the Army and Navy make this plan. That
is what they are supposed to be, fighting depart-
ments.
Sullivan:
I think the reason those are in there is because
yesterday you said we would be willing to help
them.
Hanes:
H.M.Jr:
Hanes:
H.M.Jr:
You might be called upon for a suggestion as to
how - for help.
That is something different.
"We will tell you what we require, but we have
statutory authority to do what you want to do."
I didn't know until I met these gentlemen the
other day about the Couzens Committee and the
Nye Committee, so since I have known about those
I want to shy away from the damn thing.
Sullivan:
Hanes:
H.M.Jr:
So do we, sir.
You were on sound ground for that.
The only other suggestion which I made is entirely
my own and I like it. That is that beginning with
the Colt thing any closing agreement that the
Department signs, I want to see it. of course, in
the case of Colt we have got to get permission
-5-
106
of Colt or Mrs. Colt or the little Colts.
Sullivan:
And I think the War Department, sir.
Duffield:
Mr. Secretary, last night I wrote a release
which I think most of these people will find
in their offices when they get back, a proposed
release, which in my opinion will duck most of
the legal questions which might arise about
making this thing public. That is subject to
their review.
H.M.Jr:
I had a minute to mention to the President - I
always say, in Washington you always get at
least one warning and you usually get three.
Now, Senator Bridges - is it?
Duffield:
Tobey.
H.M.Jr:
His warning is number one, see. Here is some-
thing nice and juicy for the Republicans to
put in their teeth and make a campaign issue out
of. You know he wrote me a letter. I don't
know whether you saw it, Johnny. He wanted to
know about Colt, didn't he?
Duffield:
H.M.Jr:
That is right.
That is warning number one. That is what got
what do they do in England, you have to publish
me started on it. You always get them, just like the marriage bans two weeks in advance?
Foley:
Three times.
H.M.Jr:
I am not going to say, "Hear ye, hear ye," and so
forth, but we can publish it afterwards and if we
make any mistakes, the public will know it and can
say so. I just think it takes any possible criticism off the Treasury and I think it is good
government as long as there are so many people who
have this feeling that they don't want the manufacturer to make excessive profits out of munitions.
Helvering:
Anyway, the story given from mouth to mouth attains
a significance that it doesn't when the facts are
known.
107
-6H.M.Jr:
I mentioned it to the President yesterday at
lunch and he said, "Oh, that is swell, that is
grand. That will take all the curse off the
things and I think that is swell.' "
Sullivan:
Are you publishing a resume?
Duffield:
You will get a copy.
H.M.Jr:
As I told Gene, I would like to have it by Monday
if we could do so, so that everybody can look at
it and so forth, and of course we have got to
get the Colt people's permission.
If it bothers these men, Mr. Secretary, there is
a penal statute which prohibits the publication
of information contained in any income tax return.
Now, it is a penal statute - just a waiver on the
part of the taxpayer isn't enough. It applies
generally. Now, I think that a press release
setting forth that closing agreement has been
entered into with "X" and setting forth the general
Foley:
terms of what the closing agreement purports to
do is not within the statute and I think it is
all right.
H.M.Jr:
Well now, can the Government break its own law?
Helvering: The law
Foley:
H.M.Jr:
It applies to individuals in the Government, see.
That is what the law is designed for, so that the
people in the departments cannot indiscriminately
give out this information.
Just as a matter of interest, supposing I, as
Secretary of the Treasury, wanted to do this thing.
Who could try to put me in jail?
Wenchel:
The Attorney General.
H.M.Jr:
Could he?
Foley:
H.M.Jr:
Yes. This is the statute, sir.
We will get him to okay it first.
108
-7Sullivan:
Have him endorse his approval.
Foley:
You could be removed from office, sir. I wouldn't
worry about the jail business.
H.M.Jr:
Foley:
I wouldn't worry about it either. I liked
Arizona so well
The statute says, "And if the offender be an
officer or employee of the United States, he
should be dismissed from office or discharged
from employment. "
H.M.Jr:
Well, you fellows wrestle with that.
Foley:
We can get around it.
H.M.Jr:
Can you?
Foley:
Yes.
I think this is awfully good public relations to
publish that stuff.
Helvering: I don't think
H.M.Jr:
Foley:
That is not information contained in the tax return,
Guy.
Sullivan:
That is what I was going to ask you. Have you two
gentlemen seen Colt's return in connection with
this thing?
Yes, sir.
Wenchel:
Oh, yes.
H.M.Jr:
I mean their income tax returns, have you seen the
income tax return of the Colt Manufacturing Company?
I have not.
H.M.Jr:
Sullivan:
H.M.Jr:
Foley:
The point I make is, what has it got
The information will be contained in their return,
that is the purpose of it, but I don't think the
109
8-
statute applies and I think we are on safe ground
if we put out the kind of a release that Gene has
in mind. I haven't seen it yet, but I think what
he is going to write will be all right.
Helvering:
Sullivan:
The whole purpose of that statute is that we shall
not divulge secrets as to methods, and so forth,
that companies employ.
Or sources of income.
Helvering: Yes.
Foley:
We don't have to get Colt's permission to do this.
I think the only person we have got to tell is
Senator Tobey.
H.M.Jr:
I won't do it without Colt's permission.
Foley:
How about the War Department? If we ask Colt, I
think we ought to ask the War Department.
H.M.Jr:
Right.
Foley:
Then we won't give anybody a closing agreement in
the future unless he agrees that we may put out a
release specifying general terms.
H.M.Jr:
I am sure if it is explained to Colt, he will go
along, but I won't do it without his permission.
As long as you fellows have raised this penal
statute thing, let's get a ruling on it from the
Department of Justice before we do it. We might
as well take no chances.
Helvering:
H.M.Jr:
I don't think the general statement
Well, show it to the Department of Justice. What
harm will it do?
Helvering:
I don't think the general statement
H.M.Jr:
What harm, Guy?
Foley:
I will take it over and see the A. G. and get it
endorsed.
110
-9H.M.Jr:
Do you think it is good stuff?
Hanes:
Yes.
H.M.Jr:
It will save you from going up to the Hill and
explaining these different things. If the public
doesn't like it, let them say so. I think it is
good, don't you?
Sullivan:
Yes, I do. I can appreciate the reasoning of the
Chief Counsel's office, and then we talked - you
weren't there, but we discussed this and they felt
that we never should start to edge in on publicity
of any information relating to a return. But after
all, here is a Senator who, incidentally, put in
the amendment which made the Vinson-Trammell Act
what it is today. He wants to know what we are
doing with it.
H.M. Jr:
Sullivan:
H.M. Jr:
Sullivan:
H.M.Jr:
Is he the fellow?
oh yes, that was an amendment from the floor that
never went through a committee.
I didn't know that.
I think he should be told about this in advance.
The letter you wrote to him indicated that you
couldn't give him that information.
I am more than willing to say that since writing
the letter I have reconsidered the matter and I
Sullivan:
think it is good government administration to
make this thing public and I am very glad that
he wrote to me. I am glad he brought the matter
to my attention.
Would you want to write him or would you
Foley:
Have somebody go see him.
H.M.Jr:
I think I ought to write him and somebody can take
it to him or I will ask him to come in here and
see me.
Helvering: He has been very active in this all the way through.
111
- 10 H.M.Jr:
Oh yes, and he is - how should I put it - a partisan
Helvering:
Yes.
H.M.Jr:
They are a different type of people.
I know him pretty well and I think he is pretty
Sullivan:
H.M.Jr:
Republican, as distinguished from McNary.
sincere about this Vinson-Trammell business.
I am too. I think it is all right. What else have
you got, John?
Hanes:
That is all.
H.M.Jr:
Well, this publicity thing, the earliest it will be
Duffield:
That is right.
H.M.Jr:
And only after everybody had satisfied themselves
Sullivan:
Who do you want to have get in touch with Colt?
H.M.Jr:
I think Mr. Helvering should.
Helvering:
H.M.Jr:
ready will be Monday.
that they can't give us an excuse to resign.
I think we can fix that up. I think it is in his
his interest up there just as much as anybody else's.
Sure, and the first one and - let him get all the
breaks on the thing that he wants to. It is worth
a million dollars of publicity if he will handle
it right. He can say he wants to cooperate, and
so forth and so on. I don' know who is his ad-
vertising agency, but if he sends them down and
fixes it up, he can get a lot of stuff. I am
serious. Let his advertising agency come down and
sit down here and handle it for Colt.
Helvering: There is no use of that company being under a
cloud, doing something somebody else can't do.
They just came first, that is all.
H.M.Jr:
If he would come down to the public relations man
and work it out with us, we would give him all the
breaks on it.
112
- 11 Helvering:
Well, you (Foley) will get the thing released by
Foley :
Yes.
H.M.Jr:
And you (Helvering) will talk with the Colt people?
Helvering:
Well, I think I would write them a letter.
H.M.Jr:
Ask then to come down and see you.
Foley:
We can phone.
H.M.Jr:
I would ask them down. Tell them what is about
the Attorney General?
and ask them to come down and see you.
Helvering: All right.
H.M.Jr:
I would ask them to come down and see you. All
right?
112 A
Copies sent to Woodring and
Edison on December 4, 1939.
Presented at Calinet and read outloud BIC226
by 7.10.R.
to the Cabinet.
THE SECRETARY OF THE TREASURY
113
WASHINGTON
Dec 1.1939
MEMORANDUM FOR THE PRESIDENT:
The Treasury has been considering for some time the possibility
of assisting the Army and Navy in the establishment of additional
facilities in private industries to expedite the national defense
program with special reference to your memorandum to me of November 9,
1939, copy of which is attached.
We have concluded that
1. So far as jigs, dies, tools and factory machinery
of specialized and restricted use are concerned the Treasury
is today able to execute closing agreements definitely assur-
ing the contractor that he will be able to write off against
the particular contract or as a deduction for the particular
income tax year all such facilities as are consumed or
obsolete - just as any other manufacturer may.
2. The problem of obsolesence on new factory buildings
and standard equipment presents a different problem, one which
under the present state of the law and in view of the hearings
before and reports of the Couzens Committee and the Nye Com-
mittee, we do not believe we can solve. Since the greater
part of "additional facilities" seems to consist of new con-
struction and standard equipment it would appear that the real
assistance we can give to the Army and the Navy under the
present law is so slight that no further dependence should be
placed upon it.
Hence, it is clear that congressional action is required, and that
only the Congress can solve this problem. Any action, however, in bringing this problem to the attention of the appropriate congressional committees ought to be initiated by the War and Navy Departments since it is
a part of the national defense program. Of course, I shall be happy to
cooperate.
THE WHITE HOUSE
114
WASHINGTON
C
0
P
November 9, 1939.
Y
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:
One of the obstacles to the proper equipment of our country
for national defense is the disparity between the rate of production of airplane motors and that of the airplanes themselves.
This must be synchronized as soon as possible.
You are hereby directed to work out a policy of depreciation
allowance by which the abnormal investment in plant expansion that
will be required of the airplane motors manufacturers will be
absorbed over the life of the contracts or during the emergency
period.
You are further directed to consult with the appropriate
committees of the Congress for the purpose of devising a permanent
program whereby the facilities thus created will become a permanent
part of the national defense.
(initialed) F. D. R.
115
THE WHITE HOUSE
WASHINGTON
12/1/39
Secretary Hull's note to am,Jr passed
at the Cabinet meeting today.
I will ingrim
my Defe- +
Then
will Keep in touch
in The you ar Suston
FROM: MR. GASTON'S OFFICE
TO:
och
Excerpt from a report on general conditions in Canada for the period from
November 15 to November 30. 1939. inclusive. From John Farr Simmons, Charge d'
Affaires a. i., Ottawa, Canada. December 1, 1939
117
1) War Finance.
The long awaited speech of Mr. Ralston, the Dominion Minister of Finance, did
not go as far as many persons would have liked in clarifying Canada's war financial
policy and plans. As the Montreal Gazette stated,Mr. Ralston merely filled in some
gaps.
From his speech it appears that Canada is laying plans for a three year struggle
and that the cost to Canada of the first year of the var is expected to reach
$315,000,000.
The Finance Minister gave the impression that this would be an expensive war
for the reason that highly mechanized units would be required. He said nothing new
in respect to the financial arrangements between Canada and Britain, although it had
been expected that he would do so. Conversations on this subject. it is stated, are
still in progress. He spoke on a number of other subjects not directly related to
finance and notably assured his listeners that adequate information would be forth-
coming with regard to what the Government was doing and how much they were spending.
The Toronto Globe and Mail has given some consideration to Canada's financial
position and certain of the points it brings out are of interest. The national debt
of Canada, it points out, is now over $3,000,000,000 and if to this the provincial
and municipal debts are added the grand total comes to more than $7,000,000,000. In
other words, the national debt amounts to some $280 per capita, or with the provincial and municipal obligations added to more than $500 per capita. It quotes
estimates made by the National City Bank of New York to the effect that British gold
holdings and dollar assets in the United States are approximately the same as in
1914. The combined total of British and French assets are placed at slightly more
than $8,000,000,000. It finds reason for satisfaction in the fact that the national
debt of Canada is now 75% held in Canada. This, the Globe and Mail points out,
means that it is not necessary to secure foreign exchange to the extent it was in
the last war to meet interest payments. The great increase in Canada's indebtedness
now as compared with 1914 suggests, it states, that "Canada will need to proceed
cautiously with huge expenditures of a non-productive character if she is not to
find herself financially crippled after the war".
118
GRAY
FS
Paris
Dated December 1, 1939
Rec'd 7:11 p.m.
Secretary of State,
Washington.
2882, DECEMBER 1,6p.m.
FOR THE TREASURY.
This morning's Journal Official contains two new
arretes with respect to the operation of Exchange control.
They are designed primarily to close the on E big loop hole
hitherto existing through the unrestricted liberty of action
to deposit frames to the account of foreigners. (Please
SEE our telegrams 2253, September 29, 7 p.m.; 2801,
November 21, S p.m.; and 2811, November 22, 8 p.m.) the
first arrete defines "foreign accounts in francs" as franc
accounts opened in the name of "persons considered as
foreigners" (i.E. non-resident) with local banking institutions.
(END 3ECTION ONE).
BULLITT
RR
119
GRAY
EG
Paris
Dated DECEMBER 1, 1939
REC'D 9 p.m.
Secretary of State,
Washington.
2882, December 1, 6 p.m. (SECTION TWO)
"ForEign holdings" are defined to include means of
payment in francs, property in France, foreign
negotiable securities in France, deeds to property,
or credits on foreign countries located in France
which belong to persons considered as foreigners
(1.E. non-residents) EXCEPT the above defined foreign
accounts in francs. Operations for which authorization
from the foreign Exchange office is required are amendEd to include Exportation of means of payment through
"the act of transferring abroad Either in whole or in
part an account opened on the books of a bank in France".
Similar surveillance is established for securities.
Authorization is likewise required for the transfer of
francs to the account of a (#) EXCEPT for the payment
of importer debts abroad and travel Expenditures.
BULLITT
(#) Apparent omission
HSM
120
GRAY
FS
Paris
Dated December 1,1939
Rec'd 8:44 p.m.
Secretary of State,
Washington.
2882, December 1, 6 p.m. (SECTION THREE).
Arthorization is necessary to permit a debtor to
settle in francs for Exports of merchandise or for services rendered abroad unless settlement is made by
deductions from a franc account of a foreigner or by
foreign holdings. Operations authorized upon submissi on
of proofs include: the deposit of francs to a foreign
franc account in France in settlement of imports into
France; the deposit of francs to a foreign franc account
in France in settitment of debts OWEd abroad; and collection
in francs of credits arising from Exports abroad or serVICES or income arising abroad when foreign franc accounts
in France are debited by a similar amount.
BULLITT
RR
121
GRAY
FS
Paris
Dated December 1, 1939
Rec'd 8:55 p.m.
Secretary of State,
Washington.
2882, DECEMBER 1, 6 p.m. (3ECTION FOUR).
The measure contains detailed instructions to "approved
intermediarica with regard to the foregoing and is designed
to restrict to legitimate purposes all changes in foreign
franc accounts. As indicated in our telegram 2811 of
November 22nd this particular loop hole was becoming more
and more utilized and the informal surveillance exercised
in the last fortnight or so has now been replaced by these
official measures.
There have also been considerable profitable arbitage
operations resulting from the higher quotations in Amsterdam for such shares as Royal Dutch which WERE being bought
here and sold in Holland. French Mendelssohn notes were
purchased with the proceeds and sold here as a supplemen-
tary return operation yielding SOME 8% profit in view of
the higher quotation of the latter in France.
RR
BULLITT
122
GRAY
McC
Paris
Dated December 1, 1939
Rec'd. 10:20 p.m.
Secretary. of State,
Washington.
2882, DECEMBER 1, 6p.m. (Section Five)
Today's Journal Official likewise contains a number
of other measures of varying interest: (One) A decree
provides that associations or foundations, French or
foreign, Engaged in charitable or relief work and
appealing to the public for funds must obtain prior
authorization of the authorities and must be subjected to
supervision of the latter. (Two) ThE 1.50 franc per
kilogram reduction in the Export tax on automobiles
authorized by the decree of June 17, 1938 will be
continued until December 31, 1990. (Three) A decree
provides that the increase of 8 percent in all taxes
authorized under the decree of May 2, 1938 which was due
to Expire at the End of the year, shall continue to be
applied for an unlimited period and that the general rate
of 16 percent of the Lichular tax on income and real
Estate shall be maintained during the year 1940.
(Despatch No.2238, May 6, 1938). (End Section Five)
BULLITT
PEG
123
GRAY
JR
Paris
Dated DEC EmbEr 1, 1939
Rec'd 10:25 p.m.
Secretary of State,
Washington.
2882, DECEMBER 1, 6 p.m. (SECTION SIX)
(Four) A decree providing for the creation of
special free customs zones (locations not specified)
for the duration of the war. Only grade of merchandise
designated by the Ministers of Finance and Blockade
and/or the ministers responsible for supervision of
the merchandise concerned will be admitted. Merchandise
admitted into such free ZONES will upon arrival during
their stay in the ZONES and upon reexport be EXEMPT from
all duties, taxes or surtaxes applicable to importation,
circulation, consumption and production. Entry
transshipment reexport and Exit restrictions will not
be applicable.
BULLITT
RR
124
GRAY
JI
Paris
Dated December 1, 1939
Rec'd 10:40 p.m.
Secretary of State
Washington
2882, DECEMBER 1, 6 p.m. (SECTION SEVEN)
(Five). DECREES designed to obviate certain
difficulties of application of the provisions of
the decree of September 9 which EXtEndEd to all
commercial and industrial enterprises the system
of EXCESS profits taxes applied to enterprises
Engaged in the supply to armaments under the
decree of July 29, 1939. The scale of the interest
levy is also fixed under these measures. (Embassy's
despatches numbers 4879, August 16 and 5245 of
November 6).
(Six). A decree suspending for the duration
of the war the Election or designation of general
counselors of the Bank of France,
(Seven) An arrete setting up regulations for
the Equalization of the prices of iron ore and other
mineril substances he the fund established under the
125
-2-2882, DECEMBER 1, 6 p.m. (SECTION SEVEN) from Paris
decree of October 13, 1939 (despatch No. 5304, November
17.
(Eight) A decree settling a clearing office
to work with the Foreign Exchange Office in connection with payment agreements between France and
certain foreign countries. This new institution
under the authority of the Ministry of Finance will
take over on January 19, 1940, the duties heretofore
EXERCISED by the Clearing Office attached to the
Paris Chamber of Commerce and will assume the accounts
of that office as of that date.
BULLITT
RR
126
JI
GRAY
Paris
Dated December 1, 1939
Rec'd 9:17 p.m.
Secretary of State
Washington
2882, December 1, 6 p.m. (SECTION EIGHT)
By vote of 316 to 172 the Chamber last evening
voted the special powers which Daladier requested
for the remainder of the war. It did so however
only after Daladier posed the question of confidence. The proportion is voting on the law today.
Thereunder Parliament shall EXERCISE its powers in
budgetary matters through the Government and in
case of necessity may of course take by decree
such measures as the national defense requires said
decrees to bE subject to ratification of Parliament
within one month if Parliament is sitting (which
presumably will be at rare intervals) and if
Parliament is not sitting immediately upon reassembly.
A communique of the Finance Ministry today
publishes combined August and September revenue.
(Presumably the figures for September last made such
poor
127
-2-2882, DECEMBER 1, 6 p.m. (SECTION EIGHT) from Paris
poor reading that the authorities did not desire
to make them public alone - you will recall from
our telegram No. 735, November 1, 3 p.m., that
COVE de Murville told us that September revenues
WE RE 50% under budgetary estimates).
BULLITT
RR
128
GRAY
EG
Paris
Dated December 1, 1939
REC'D 10:53 p.m.
Secretary of State,
Washington.
2882, DECEMBER 1, 6 p.m. (SECTION NINE)
Total revenue for the two months was 8,316 million francs.
REVENUE from direct taxation for this period totaled
1,819 million or 220 millions under the same period of
1938. REVENUE from indirect taxation and monopolies
totaled 6,618 million or 247 million more than budgetary Estimates. Miscellaneous revenues are not specified.
The securities market, in spite of developments in
Finland, was strong and active today, partly on the
final vote after Earlier uncertainty of the government's
special powers. Rentes advanced from 5 to 90 centimes.
There was no change in official Exchange rates.
A report from Amsterdam states that the
Mendelssohn ereditors by a large majority agreed to
grant a delay of 18 months for payments of that concern's
debts. This agreement took place before the pertinent
tribunal which will render its decision on DECEMBER 7.
The
129
-2- /2882, DECEMBER 1, 6 p.m. (SECTION NINE) from Paris
The report adds that as of October 31 the balance sheet
indicated a provisional EXCESS of liabilities OVER
assets of 40,540,485 florins as against 11,424,78
florins on August 14. (END MESSAGE)
BULLITT
PEG
038
BK226
TREASURY DEPARTMENT
WASHINGTON
130
OFFICE OF
MISSIONER OF INTERNAL REVENUE
ADDRESS REPLY
OF INTERNAL REVENUE
AND REFER TO
December 1, 1939.
IT:P:CA
CAA
REPORT FOR SECRETARY MORGENTHAU:
In regard to closing agreements which have been requested,
the following applies:
De Laval Steam Turbine Company
No word has been received from Navy Department. Case is
held in pending file in order to afford contractor full opportunity
to negotiate with the Navy Department.
The Midvale Company:
A conference, fully reported in a conference memorandum,
was held on November 27, 1939, with Navy representatives at the
suggestion of the Treasury representatives for the purpose of
clearing up fact questions. Consideration is continuing, Conference with the contractor is being put off, ostensibly because
of press of work and of necessity to study details, but actually
to afford time for a full study of the policy question involved
in the proposition to proceed via closing agreement in lieu of
anutilization of the special authorization by Congress for the
Navy to expend $6,000,000 out of its appropriation for the purposes of this armor plate case.
Camden Forge Company:
A conference, fully reported in a conference memorandum,
was held on November 27, 1939, with Navy representatives, at the
request of the Navy, for the purpose of discussing the case.
The Treasury and the Navy being in agreement, it is contemplated
to refuse the request for a closing agreement, shortly, when the
proper time has arrived, the opening of bids having been postponed
by the Navy Department for its own convenience, and so that it
may discuss the matter with the contractor.
131
Consolidated Aircraft Corporation:
There have been no developments or actions, in this case,
other than the despatch of your letter to the Navy dated
November 29, 1939, relative to the consideration of conditional
bids; the subsequent receipt of the supplemental recommendation
of the Navy dated November 27, 1939 and your immediate reply
thereto dated November 30, 1939.
Inquiries for information:
There have been no developments other than the receipt of
a request from Senator Tobey for information and your reply
thereto.
In of thloring
Commi ssioner.
132
December 1, 1939.
IT:P:CA
CAA
REPORT FOR SECRETARY MORGENTHAU
In regard to closing agreements which have been requested,
the following applies:
De Laval Steam Turbine Company
No word has been received from Navy Department. Case is
held in pending file in order to afford contractor full opportunity
to negotiate with the Havy Department.
The Midvale Company:
A conference, fully reported in a conference memorandum,
was held on November 27, 1939, with Navy representatives at the
suggestion of the Treasury representatives for the purpose of
clearing up fact questions. Consideration is continuing. Conference with the contractor is being put off, ostensibly because
of press of work and of necessity to study details, but actually
to afford time for a full study of the policy question involved
in the proposition to proceed via closing agreement in lieu of
autilization of the special authorisation by Congress for the
Navy to expend $6,000,000 out of its appropriation for the purposes of this armor plate case.
Camden Forge Company:
A conference, fully reported in a conference memorandum,
was held on November 27, 1939, with Navy representatives, at the
request of the Navy, for the purpose of discussing the case.
The Treasury and the Navy being in agreement, it is contemplated
to refuse the request for a closing agreement, shortly, when the
proper time has arrived, the opening of bids having been postponed
by the Navy Department for its own convenierce, and so that it
may discuss the matter with the contractor.
133
Consolidated Aircraft Corporation:
There have been no developments or actions, in this case,
other than the despatch of your letter to the Navy dated
November 29, 1939, relative to the consideration of conditional
bides the subsequent receipt of the supplemental recommendation
of the Navy dated November 27, 1939 and your immediate reply
thereto dated November so, 1939.
Inquiries for information
There have been no developments other than the receipt of
a request from Senator Tobay for information and your reply
thereto.
(Signed) Goy T. Helvering
Commi ssioner.
CAA/MEA
134
December 1, 1939.
My dear Mr. President:
You will recall that during the crisis in Europe in
September, 1938, it was necessary to transfer a large amount
of gold from England to the United States without delay and
without publicity. Sufficient freight space in merchant
vessels was not available. I went to you for advice and help
and you directed the Navy Department to come to our assistance.
Three ships of the Navy were detailed to transport the gold
and the mission was performed discreetly and expeditiously.
I desire to thank you, Mr. President, for thus providing
a prompt and efficacious solution of a very difficult problem.
I expressed my appreciation to the Secretary of the Navy
at the time, but I believe there should be a more permanent
record of the services rendered by the commanding officers and
the ships' companies of the three ships which participated in
the accomplishment of this difficult mission. These were the
U.S.S. Nashville, Captain W. W. Wilson commanding, the U.S.S.
Honolulu, Captain Oscar Smith commanding, and the U.S.S. Somers,
Commander J. E. Maher commanding. As I have already informed
you, I have had struck off a commemorative bronse medallion for
each commanding officer and should appreciate it if you, as
Commander-in-Chief of the Army and Navy, would have these me-
dallions forwarded through suitable channels to the officers
mentioned as an expression of my appreciation of their helpfulness in the matter.
Faithfully yours,
(Signed) H Morgenthau, Jr.
The President
The White House.
HEG/mah
By hand
135
Dear He. Secretary:
I request that you forward the enclosed
letters and the accompanying medilione to Capitals
V. Y. Wilson. U.S.S. Fashville. Gaptain Geear Smith.
U.S.S. Heaveluin. and Communica J. E. Makes, U.S.S.
Simes I suggest that these medilions be delivered
to the commanding officers concerned by the Consenter-
in-Chief of the U. S. floot with exitable ectomory.
and I request that you place & dony of each letter
OR the record of the respective commanding officer.
Very sincerely yours.
Investable Charlee Micon
Secretary of the Havy
- My Department
ViPier
12/1/39
136
Dear Commander Maher:
The Secretary of the Treasury has brought to
ay attention the service you performed during the
autuan of 1938 in conveying twenty-five million
dollars is gold from England to the United States.
No has prepared the accompanying medallion as an
expression of his appreciation of your services in
that aatter.
I forward this sedallion to you with such plea-
sure and wish to add as thanks to those of Secretary
Kergenthan for the service you readered the government on this oceasion.
I have requested the Secretary of the Navy to
place a copy of this letter in your official record.
Very sincerely yours.
Commander J. E. Maher. U.S. Havy
Commanding U.S.S. Senore
VIPPIer
12/1/39
Copy to Secretary of Havy
137
Dear Ouptain Smiths
The Secretary of the Treasury has brought to
my attention the service you performed during the
antuse of 1938 in conveying twenty-five million
dollars is gold fres England so the United States.
No has prepared the accompanying medallion as as
expression of his apprecistion of your services in
that matter.
I forward this medallion to you with such plea-
sure and with to add my thanks to those of Secretary
Mergeather for the service you readered the governmost ea this occasion.
I have requested the Secretary of the Navy to
place a copy of this letter in your official record.
Very sincerely yours.
Capitals Octor Smith. U.S. Havy
Commanding U.S.S. Senelals
VIPPer
12/1/39
Cow to Secretary of Havy
-
238
Dear Captain Wilsons
The Secretary of the Treasury has brought to
my attention the service you performed during the
autuma of 1938 in conveying twenty-five million
dollars in gold from England to the United States.
He has prepared the accompanying medallion as on
expression of his appreciation of your services in
that matter.
I forward this medallion to you with such pleasure and wish to add my thanks to those of Secretary
Morgenthan for the service you rendered the government on this occasion.
I have requested the Secretary of the Navy to
place a copy of this letter in your official record.
Very sincerely yours,
Captain V. V. Wilson, U.S. Navy
Commanding U.S.S. Nashville
WDPier
12/1/39
Copy to Secretary of Navy
Dear Captain Wilsons
The Secretary of the Treasury has brought to
my attention the service you performed during the
autuma of 1938 in conveying twenty-five million
dollars in gold from England to the United States.
He has prepared the accompanying medallion as an
expression of his appreciation of your services in
that matter.
I forward this medallion to you with such pleasure and wish to add my thanks to those of Secretary
Morgenthan for the service you rendered the government on this occasion.
I have requested the Secretary of the Navy to
place a copy of this letter in your official record.
Very sincerely yours,
Captain V. V. Wilson, U.S. Navy
Commanding U.S.S. Eashville
WDPier
12/1/39
Copy to Secretary of Navy
139
PLAIN
HSM
London
Dated DECEMBER 1, 1939
Rec'd 3 D. m.
Secretary of State,
Washingto
2518, December 1, 7 p..m.
FOR TREASURY.
1. The Russo-Finnish developments produced caution
and inactivity on the stock exchange but no wave of
selling and prices showed little change. Gilt-EdgEd
held firm with war loan closing 1/8 up at 92 1/4.
2. The belga weakened today the official rate
being fixed at 24.15-40. Finn marks WERE offered at
210 without buyers.
3. The Treasury bill rate for today's tender was
little changed at bl-3s-10.21d. as compared with
61-3s-11.46d. st WEEK. The Easy credit situation reflected in this WEEK'S Bank of England return, which
was due largely to the fact that Treasury bill payments
were concentrated into the last days of the WEEK, was
further influenced by today's 133 million payment of
war loan interest. Applications for Treasury bills
totalled 6106 million and bids dated 91 days Monday to
Saturday
140
hsm -2- No. 2518, December 1, 7 P. m., from London
Saturday at b99-14s. received about 42% and above in
full. Next WEEK'S tender will be for 665 million which
will be 615 million in EXCESS of maturities and, if
fully allotted, will bring the total tender issue to
6695 million on December 8th.
JOHNSON
KLP
Cabenet Decl, 1979
THE WHITE HOUSE
WASHINGTON
ann tong - Molyteam
where is my list?
Mussia a Jennany buying
main sources Handley
needed by have a Jermary
Have Mavy #6 millions. used dollars
any have t Its get Cogenter,
gave gasters Memo to Hall to Pre
who gave memo
at lunch Thursday Pres. said he wanted
us to collect every $ and put moe Only
in jail. II going to send sand amendary to he jail. is
Treasury Department
Division of Monetary Research
Date 12/19/39
To:
19
Miss Chauncey - Room 185
From: L. Shanahan
Mr. White noted the attached.
I did not have a record of it, but
thought you would want it returned, as
all the other material from Mr. Keeshin
was returned for your files.
COPY
EARL H. LEAF
not
24 Fifth Avenue,
142
New York, N.Y.
Dec. 1, 1939
The following cable was received in this office at 9 a.m. today
from Dr. Hollington K. Tong in Chungking, with the request that it be given to
Ambassador Hu Shih and Mr. K. P. Chen immediately, and efforts be made to secure
its widest circulation in the press and elsewhere.
CHUNGKING, NOV. 30 -(Special)- The temporary suspension of the flow
of supplies over the Nanning highway occasioned by the military operations
in that vicinity is distinctly of minor importance, it was stated today by
Mr. M. E. Sheahan, American highway transportation authority.
Mr. Sheahan, who is Vice President of the Keeshin Freight Lines of
Chicago, has recently completed a tour over the existing highway transport
routes in China, declared that with the close of the rainy season in South
China an unlimited quantity of goods may be brought into China over other
more thoroughly conditioned roads.
Throughout the rainy season, depite the heaviest rain ever recorded
which even suspended operations of the Burma Railway, the Yunnan-Burma highway
remained open and in use, he said.
After completing his inspection tour in the southwest, Mr. Sheahan
said he observed as many as forty or fifty landslides in a space of twelve
kilometers along the new highway but none were allowed to impede the smooth
flow of traffic pouring into China from the south.
"The Nanning highway was only one of the many strands in the mesh
of highways ensuring China adequate supplies of foreign goods," he stated.
"The highway has been in a state of ill repair for several months
and since the spread of war into that neighborhood has fallen into a state of
complete disuse.
The officials and people of Kwangsi Province with the past few
weeks allowed the highway to be flooded and the roadbed has reverted to its
-2-
143
original state -- paddyfields -- that preceded its construction, thus rendering
it useless for Japanese operations.
"One of the most amazing features of the South China coutryside is the
multitude of backroads and country routes that may be linked up to ship goods in
any direction desired, " Mr. Sheahan continued. "These traditional back country
roads may be linked within a few weeks to provide any imaginable detour.
"These roads consist of stone-paved paths over which animal traffic
coursed for centuries. It is only necessary to lift the stones out of their
bedding, place them on the side of the old road-bed as hard shoulders and fill
in the space with gravel, and then you have roads that are fit for motor traffic.
"The existence of such backways and paths enable some of China's new
roads in the Southeast to be built with great rapidity. The backroads and
byways constitute only a reserve insurance for the flow of supplies through
Kwansi for in addition to them, the end of December will see the completion
of a new motor road which has long been planned and almost completed as a
substitute for the old highway. It will actually shorten the distance between
the Chinese border and Cochin-China to North Kwangsi province by a couple of
hundred kilometers.
"The new road will be smoother, with fewer hairpin curves and will
be distinguished by its excellent profile engineering," Mr. Sheahan said,
adding that at least four other routes are said to be in process of construction.
"Throughout the Chinese Southwest, the work under the direction
of the Ministry of Communications is progressing rapidly. The minister,
Mr. Chang Kia-gnau, has taken personal charge of a gradual drive for increased
efficiency and speed in Chinese transport. During the past few months
preparations have been approved for centralizing the supply of spare parts
among fourteen hitherto independent Government transport agencies.
-3-
144
"By dividing the highways into sections so that individual drivers
traverse only sectors instead of the entire trips, it is expected that day and
night operations will soon commence over China's southern arterial highways,"
he said.
Mr. Sheahan also revealed that "amazing success" had been achieved in
experimental operation of duck-bottomed Chinese junks powered with American
outboard motors.
The Ministry of Communications, assisted by the American highway experts,
Mr. M. E. Sheahan, Mr. A. G. Bassi and Mr. C. W. Van Patter of the Keeshin Freight
Lines, Inc., of Chicago, has been taking full advantage of the stability within
China during 1939 to improve and construct almost all of China's principal
highways and reorganize the various regional managements into one centralized
more economic and efficient transportation agency. Chinese leaders believe a new
era of highway service is dawning for the lasting benefit of China.
- 30 -
TREASURY DEPARTMENT
WASHINGTON
December 1, 1939.
MEMORANDUM FOR THE SECRETARY:
On September 22, 1939, after very careful study,
T.D. 49970 was issued which stopped the publication of import
and export manifests.
We told the trade at that time that
when conditions warranted we would remove this restriction.
A survey has been made as of December first and we find con-
ditions do not warrant the withdrawing of this Treasury
decision.
Daniel harris
Assistant to the Secretary.
145
146
December 1, 1939.
MEMORANDUM FOR THE SECRETARY:
On September 22, 1939, after very careful study,
T.D. 49970 was issued which stopped the publication of import
and export manifests.
We told the trade at that time that
when conditions warranted we would remove this restriction.
A survey has been made as of December first and we find con-
disions do not warrant the withdrawing of this Treasury
decision.
(Signed) Basil Harris
Assistant to the Secretary.
-
147
December 2, 1939
My dear Mr. Hulls
in
regard
After
reading
to
Itadvice.
is
for that reason am nor to for
President to ICE Guston
At the December 1st meeting of the Cabinet, I gave the
I
an
a
a
from
Mr.
Numbington
of the
TreasuryDepartment
no are in
the satter. serious contained in Mr.
the to the memorandum, In enclosing the original Cairne, which view that three I of advises Assistant Bemorendum trawlers, herewith the the President addressing General Coot, what copy submitted implications my referred Brent, of myself Counsel responsibilities semerandus and it for Plover. by you you. Mr. the
Caires' a I have given instructions through Mr. Gaston
to the Count Guard that no more trawlers of aimiler type to the
three which have already sailed should be permitted to leave our
territorial waters.
Our attorneys have conferred informally with Judge Townsend
and Mr. Kemp of the Department of Justice, and on a purely informal
basis I understand that they agree entirely with the legal position
taken by Mr. Cairns.
I telephoned to Admiral Land last night at about 8:15 to
inform his what the Treasury Department had under consideration
in regard to this particular matter.
I should appreciate it if, at your earliest convenience,
you would communicate with me on what you feel is the best pro-
sedure to take in the matter in view of the fast that several
Departments are involved.
Youre sincerely,
Secretary of the Treasury
The Honorable
The Secretary of State
10/20/oy 12/2/39
148
December 2, 1939
MEMORANDUM FOR THE SECRETARY:
It appears that certain American companies have sold to
French companies a number of trawlers and tugs. In the application for
transfer of registry filed with the Maritime Commission by the vendor,
it was stated that the vessels were to be placed at the disposal of
the French Government to be used in and about French territorial waters
and waters adjacent thereto. Three of the trawlers have departed from
the territorial waters of the United States; there remain five tugs and
trawlers in ports of the United States or on route to such ports.
Officers of the Coast Guard informally advised me that the
only reasonable use to which these vessels could be put by the French
Government is as mine sweepers or patrol boats. It further appears that
newspaper accounts of the sale of the vessels have appeared in several
New England papers, and in those newspaper accounts, the vessels have
been referred to as mine sweepers. The Coast Guard advises that from
Jane's Fighting Ships it appears that the French Government arms its mine
sweepers with a 65 millimeter gun. The nine sweepers would probably also
carry machine guns for anti-aireraft purposes and some depth bonb charges.
Section 45 of title 14 of the United States Code empowers
the Coast Guard, among other things, to make seizures and arrests upon the
highesbas and the navigable waters of the United States for the prevention,
detection and suppression of violations of laws of the United States.
Executive Order No. 8233 of September 5. 1939, prescribes that the
Departments of the United States Government shall have the duty of on-
foreing neutrality in connection with their own activities.
Section 23 of title 18 of the United States Code makes it a
orine, among other things, to be conserned in the furnishing of any vessel
with intent that such vessel shall be employed in the service of any foreign
state to oruise or commit hostilities against the subjects, citizens or
property of any foreign state with whom the United States are at peace.
Vessels so furnished are subject to forfeiture. Paragraph 8 of the
President's general proclamation of neutrality of September 5, 1939,
provides that it is forbidden knowingly to be concerned in the furnishing
of any vessel with intent that such vessel shall be employed in the service
of a belligerent to cruise or commit hostilities against the subjects,
citizens or property of an opposing belligerent.
149
-2-
Under U.S.C., title 18, sec. 23 it has been held that it
is immaterial that the vessels are not armed when they leave the
United States if there is an intent that they shall be subsequently
armed and used for hostilities. (The City of Mexico, (S.D. Fla. 1886)
28 Fed. 148, 152.) Neither is it material that the sale is made to
a subject or a citizen of a foreign belligerent government if the
intent is present that the ship shall be used to cruise or commit
hostilities against a foreign power. (The Meteor, (S.D.N.Y. 1886)
17 Fed. Cases 178, 200-201.)
Under the present facts as understood it is the clear
duty of the Secretary of the Treasury to detain the vessels involved
in the transactions which have not departed from the territorial
waters of the United States until further investigation can be made
in connection with the intent with which the vessels were sold.
It is not the duty of the Secretary of the Treasury to invoke the
doctrine of extraterritorial pursuit and attempt to force the return
to the United States of the three trawlers which have departed.
SUITED (DOUSTS)
150
December 2, 1939
My dear Mr. Hulls
At the December 1st meeting of the Cabinet, I gave the
President the original memorandum submitted to me by Mr. Geston
in regard to the three trawlers, Coot, Brent, and Plover. After
reading the memorandum, the President referred it to you. It is
for that reason that I an now addressing syself to you for advice.
I an enclosing herewith a copy of a nemorendum from
Mr. Huntington Cairns, Assistant General Counsel for the Department
of the Treasury which advises me what my responsibilities are in
the matter. In view of the serious implications contained in Mr.
Cairns' memorandum, I have given instructions through Mr. Gaston
to the Coast Guard that no more trawlers of similar type to the
three which have already sailed should be permitted to leave our
territorial waters.
Our attorneys have conferred informally with Judge Townsend
and Mr. Kemp of the Department of Justice, and on c purely informal
basis I understand that they agree entirely with the legal position
taken by Mr. Cairns.
I telephoned to Admiral Land last night at about 8:15 to
inform him what the Treasury Department had under consideration
in regard to this particular matter.
I should appreciate it if, at your earliest convenience,
you would communicate with me on what you feel is the best pro-
cedure to take in the matter in view of the fact that several
Departments are involved.
Yours sincerely,
Secretary of the Treasury
The Honorable
The Secretary of State
151
December 2, 1939
MEMORANDUM FOR THE SECRETARY:
It appears that certain American companies have sold to
French companies a number of trawlers and tugs. In the application for
transfer of registry filed with the Maritime Commission by the vendor,
it was stated that the vessels were to be placed at the disposal of
the French Government to be used in and about French territorial waters
and waters adjacent thereto. Three of the trawlers have departed from
the territorial waters of the United States; there remain five tugs and
trawlers in ports of the United States or on route to such ports.
Officers of the Coast Guard informally advised no that the
only reasonable use to which these vessels could be put by the French
Government is as mine sweepers or patrol boats. It further appears that
newspaper accounts of the sale of the vessels have appeared in several
New England papers, and in those newspaper accounts, the vessels have
been referred to as mine sweepers. The Coast Guard advises that from
Jane's Fighting Ships it appears that the French Government arms its sine
sweepers with a 65 millimeter gun. The nine sweepers would probably also
carry machine guns for anti-aircraft purposes and some depth bonb charges.
Section 45 of title 14 of the United States Code empowers
the Coast Guard, among other things, to make seizures and arrests upon the
highesbas and the navigable waters of the United States for the prevention,
detection and suppression of violations of laws of the United States.
Executive Order No. 8233 of September 5. 1939, prescribes that the
Departments of the United States Government shall have the duty of on-
forcing neutrality in connection with their own activities.
Section 23 of title 18 of the United States Code makes it a
orime, among other things, to be concerned in the furnishing of any vessel
with intent that such vessel shall be employed in the service of any foreign
state to cruise or commit hostilities against the subjects, citizens or
property of any foreign state with whom the United States are at peace.
Vessels so furnished are subject to forfeiture. Paragraph 8 of the
President's general proclamation of neutrality of September 5. 1939,
provides that it is forbidden knowingly to be concerned in the furnishing
of any vessel with intent that such vessel shall be employed in the service
of a belligerent to cruise or commit hostilities against the subjects,
citizens or property of an opposing belligerent.
152
2
Under U.S.C., title 18, sec. 23 it has been hold that it
is immaterial that the vessels are not armed when they leave the
United States if there is an intent that they shall be subsequently
armed and used for hostilities. (The City of Mexico, (B.D. Fla. 1886)
28 Fed. 148, 152.) Neither is it material that the sale is made to
a subject or a citizen of a foreign belligerent government if the
intent is present that the ship shall be used to cruise or commit
hostilities against a foreign power. (The Meteor, (S.D.N.Y. 1886)
17 Fed. Cases 178, 200-201.)
Under the present fasts as understood it is the clear
duty of the Secretary of the Treasury to detain the vessels involved
in the transactions which have not departed from the territorial
waters of the United States until further investigation 662 be made
in connection with the intent with which the vessels were sold.
It is not the duty of the Secretary of the Treasury to invoke the
doctrine of extraterritorial pursuit and attempt to force the return
to the United States of the three trawlers which have departed.
(Signed) Huntington Cairns
153
December 2, 1939
2:30 pm
Present:
Huntington Cairns
Henry Morgenthau III
Mrs. Klotz
HM,Jr: Mr. Hull just called me and he said
that the facts, as he understands them, are that the
State Department was never consulted by the Maritime
Commission on this matter. He said, "If you want my
advice, I think as far as the three are concerned I
would let them go. But he agreed subsequently that
if any one of the three should put into an American
port, we hold them and then ask the Attorney General
what we should do about it.
Mr. Hull did not know until I told him that the
Maritime Commission had gotten an O. K. on this from
the President. I told him it was very broadly hinted
to me that he had and that, therefore, the Attorney
General was hesitating to give an opinion. Hull said,
"This is very much like the transfer of the American
flag ships to Panama in which the President had been
previously consulted and the State Department had not."
He kept saying at Cabinet, when I gave Gaston's
memorandum to the President ,m the President turned
it over to Mr. Hull and said, "This is something for
the State Department and the Treasury to take care of,"
which is not my recollection at all. The President
turned to Cordell and said, "Here Cordell, you take
this," without any further comment.
What I asked Hull was, "Is it all right for me
to say to the Attorney General that I have talked to
you and that it is your opinion and mine, if I may say
this, that he should give an opinion on this matter
and if he has any doubts about it, thathe should clear
it with the President. .
What I propose to do is call up the Attorney
154
-2-
General; say I have talked to Hull, and it's Hull's
opinion and mine that the Attorney General should
give an opinion and that we are going to wait for it
and if he has any doubts about it he, the Attorney
General should confer with the President. He was
at the Cabinet meeting yesterday, but did not read
the memorandum.
Hull says there is a clearance of all messages
and he gets copies of all Coast Guard instructions.
000-000
OFFICE
OF
GENERAL COUNSEL
TREASURY DEPARTMENT
155
WASHINGTON
GENERAL SECURITY
December 2, 1939
MEMORANDUM FOR THE SECRETARY:
Commander Hirschfield of the Coast Guard has just telephoned
me that the Coast Guard instructions which Secretary Hull stated
were in his possession were delivered by Commander Hirschfield
to Jesse E. Saugstad, Assistant Chief of the Division of
International Communications of the State Department at the
latter's request about 6:00 p.m. last night. Mr. Saugstad, before
requesting copies of the messages bearing upon the matter, revealed
to Commander Hirschfield that he had a fairly complete picture of
the situation.
Commander Hirschfield thought that he was authorized to
deliver these messages to Mr. Saugstad by virtue of paragraph 5
of the attached memorandum dated October 11, 1939.
Huntington Cairus
156
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 11, 1939.
TO
The Secretary
Mr. Gaston
VESS
The following plan will be made effective at once for-(a) The circulation of information in regard to suspected violations
of the Neutrality Laws coming within the jurisdiction of the
Treasury Department, or in regard to events or circumstances
pointing to the possibility of such violations; and
(b) For the conduct of any investigations of such violations which
may be considered desirable.
Information from Customs Sources
1. Reports of Customs officers in the field will be transmitted to
the Bureau of Customs at Washington.
2. The Bureau of Customs will immediately transmit copies:
(a) To Coast Guard Headquarters; and
(b) To the Coordinator, Treasury Agency Service.
Information from Coast Guard Sources
3. Reports of Coast Guard officers in the field will be transmitted
to Coast Guard Headquarters at Washington.
4. Coast Guard Headquarters will immediately transmit copies to the
Coordinator.
Transmittal of Information to Agencies
Outside the Treasury Department
5. Upon receipt of significant information from Coast Guard or
Customs field officers, as above provided, and after the Coordinator has
been advised, Coast Guard Headquarters will immediately notify the proper
Naval authorities and the State Department; and Coast Guard Headquarters
will be the sole avenue of communication for this purpose.
157
-2-
Transmittal of Information to the Secretary
and Other Interested Officers of the Treasury Department
6(a). The Coordinator will immediately transmit to Mr. Gaston, Mr.
Harris, and Mr. Foley all information received from Coast Guard Headquarters and from the Bureau of Customs, as above provided, and Mr.
Gaston will be responsible for laying it before the Secretary, or, in
the absence of the Secretary, the Under Secretary. In the event of Mr.
Gaston's absence, the Coordinator will transmit such information to the
Secretary or the Under Secretary in Mr. Gaston's stead.
(b). Important information received by Coast Guard Headquarters out
of office hours will be communicated to Mr. Gaston, or, should Mr. Gaston
be inaccessible, to the Secretary direct.
Office of the General Counsel
7. The Coordinator will specially refer to the General Counsel, or
his designated representative, any report or information which appears to
raise a legal question, or with respect to which a legal opinion is desired.
Investigations
8. If special investigations by Treasury agencies other than Coast
Guard and Customs should be considered necessary as the result of informa-
tion received from field officers, such investigations will be handled
under the direction of the Coordinator, and no such investigations will be
undertaken by field officers other than officers of Customs and Coast
Guard except as he may direct. This is not intended to preclude follow-up
and routine investigations by field officers of the Coast Guard and the
Customs Service, nor the usual interchange of information among the field
services of the Treasury Department.
Chart Showing Flow of Information
under Coordination Scheme
Field Offices
Bureau Headquarters
Customs
Customs
Department
Coordinator
(Irey)
Coast Guard
Coast Guard
Harris
To Naval Intelligence and/or to White House
and/or
State Department
Gaston
Secretary
Foley
159
REB
GRAY
Paris
Dated DECEMBER 2, 1939
Rec'd 4:35 p. m.
Secretary of State,
Washington.
2887, DECEMBER 2, 5 P. m.
FOR THE TREASURY.
As a further measure supplementing yesterday's
arretes to plug important Exchange control loophole
(our telegram No. 2882, DECEMBER 1, 6 P. m.) this
morning's JOURNAL OFFICIEL carries a lengthy "instruction"
revising existing regulations governing payments for
imports and Exports as published in the JOURNAL OFFICIEL
of September 16 (our 1999, September 76, noon, and
Enclosure No. 10 to despatch No. 5105, September 18)
and likewise carries appropriate new application forms
for imports, Exports, and foreign Exchange payments.
The main purpose of these changes is to Enable the
Foreign Exchange Office to assure itself of the bona
fides of transactions involving payments in francs for
imports and Exports.
(END SECTION ONE)
BULLITT
NPL
180
GRAY
JT
PARIS
Dated December 2, 1939
Rec'd 3:25 p.m.
Secretary of State,
Washington.
2087, December 2, 5 p.m. (SECTION TWO)
As concerns franc payments for imports the new instructions
require definite proof (as far as possible) that the amount
paid to the foreign seller really corresponds to amount
due and that the foreign seller will not be paid an amount
in EXCESS of sum due. With regard to franc payments for
Exports more definite proof is required regarding the transferable character of "foreign holdings" (francs) utilized
and that the value received by the exporter really corresponds to the Value of the merchandise sold. The new instructions also embody conditions relating to Exports not
calling for any payment.
BULLITT
NPL
161
GRAY
JT
PARIS
Dated DECEMBER 2, 1939
Rec'd 4:42 p.m.
Secretary of State,
Washington.
2887, DECEMBER 2, 5 p.m.
(SECTION THREE)
The instructions likewise indicates that these general regulations for commercial settlements may be supplemented or
modified by payment agreements concluded or to be concluded
by France with other countries where such agreements may
provide for special methods of settlement such as clearing
arrangements, private set offs, Et cetera. Under such
conditions importers and Exporters naturally must conform
to pertinent special instructions.
A further decree renders otherwise flexible the conditions under which a transshipment bond ("acquit a caution")
may be required in the case of merchandise found on ships
in French waters (telegrams No. 2148, SEptEmbEr 23, 1 p.m.
and 2259, SEptEmbEr 39 10 p.m. and despatch No. 5287 of
November 10, 1938). Henceforth the Contraband Committee
created under the decree of September 29 may fix the terms
of the transcontinental bond at not less than the value of
the merchandise and not more than five times its value.
BULLITT
NPL
162
GRAY
JT
PARIS
Dated December 2, 1939
REC'd 4:43 p.m.
Secretary of State,
Washington.
2887, DECEMBER 2, 5 p.m. (SECTION FOUR)
without debate the Senate last Evening by 259 to 23
voted the government's full powers bill in the form approved by the Chamber (telegrai: No. 2882, December 1, 6 p.m.)
The text of the sole (?) law reads in translation as followo: "Article 36 of the law of July 11, 1938 of the
organization of the nation in time of war is modified as
follows: Article 36 - for the duration of hostilities the
Chambers shall EXERCISE their legislative and budgetary
powers as in peacetime. However, in the case of immediate
necessity the government is authorized by decrees discussed
and approved in Council of Ministers to take the measures
imposed by the requirements of national defense. ThESE
decrees will be submitted to ratification of Parliament
within the ti: linit of one month and in case Parliament
is not sitting upon its reasseibly".
030
(END OF ESSAGE)
BULLITT
NPL
183
PLAIN
J1
London
Dated DECEMBER 2, 1939
Rec'd 9:15 a.m.
Secretary of State
Washington
FOR TREASURY
2522, Second.
The sale of 5-1/2 million saving certificates
representing over 4 million pounds in the first
WEEK of the campaign compares with a WEEKLY
average of 280 thousand in the 7 WEEKS in 1916
when war saving certificates COMMENCED and with
an average of 459 thousand per WEEK in the 3 months
before September 1939. In addition 5 million
pounds of the new DEfEnSE Fund were sold in the
first WEEK. The total is regarded as unexpectedly
good.
JOHNSON
ALC 3010
104
December 2, 1939.
2:48 P.M.
H.M.Jr:
Hello.
Operator:
Secretary Hull is on his way to the hotel. He'll be
H.M.Jr:
Hello
Capt.
Chalker:
H.M.Jr:
there in about five minutes.
Chalker speaking.
This is the Secretary.
Yes.
C:
H.M.Jr:
Mr. Huntington Cairns and I are here, it's about these
boats been sold to the French.
C:
Yes, sir.
H.M.Jr:
Are you familiar with it?
C:
H.M.Jr:
C:
H.M.Jr:
C:
Yes, I am.
Well now the Secretary of State tells me that they have
a copy of a message the Coast Guard sent out saying that
these three should be trailed.
Yes, sir.
Is that correct?
They ordered word to search for them within the twelve
mile zone and if found to detain them and advise headquarters.
H.M.Jr:
C:
H.M.Jr:
C:
That message still stands?
Yes, sir. I - that was the last word when I left headquarters this afternoon around one o'clock and there's
been no change that I know of.
Now, just a moment. Are they searching beyond the
twelve mile limit?
No sir. A message went out some time early this morning
to search for them outside of the twelve mile limit and
then around ten o'clock that was changed and the search
was confined to the twelve mile limit.
H.M.Jr:
I see.
-2C:
H.M.Jr:
C:
H.M.Jr:
165
But that message has been sent to all districts on
the Atlantic and Gulf including San Juan.
How does the State Department get copies of Coast Guard
messages, do you know?
I don't know sir. I can check up on that. That has been
handled mostly through the intelligence end of it.
Yes. You might, supposing you ask Lieutenant Polio and
tell him to let Mr. Cairns know. I'd like to know how
does Mr. Hull get a copy of Coast Guard instructions.
C:
Yes, sir, I'll do that.
H.M.Jr:
All right, thank you.
December 2, 1939.
2:52 P.M.
H.M.Jr:
Hello.
Operator:
Miss Baumgardner.
H.M.Jr:
Hello, Miss Baumgardner.
166
Miss
Baumgardner: Yes.
H.M.Jr:
Who is Acting Attorney General today?
B:
Well, I think Mr. Edward Kemp would be the one. the
assistant, - I don't know if he's acting, but if it's
about the matter that you were working on last night,
he's the closest to the Attorney General, and has been
working on it, with him and for him.
H.M.Jr:
Well, I've just talked with Mr. Hull and Mr. Hull
agrees with me that the Attorney General should give
us an opinion on it.
B:
Yes.
H.M.Jr:
Well now, when are we going to get it?
B:
Well, do you want me to locate Mr. Kemp and have him
H.M.Jr:
Let him get in touch with Huntington Cairns.
get in touch with you?
B:
H.M.Jr:
B:
All right.
Huntington Cairns. C-a-1-r-n-8. And I'm sitting here
in the Treasury waiting for that to appear. I thought
we were going to get it this morning.
Oh well, I - I'm sure that they were working on it very
late last night. It was my understanding too that it
would be over there.
H.M.Jr:
Yes.
B:
But maybe they're still working on it, but I'll check
because I know that Mr. Kemp and I believe Judge Townsend
has been working on it.
H.M.Jr:
B:
Well, see how good you are.
I will, and I'll call you right away.
167
-2H.M.Jr:
Well, call Mr. Cairns, he'll be here.
B:
All right, I will.
H.M.Jr:
B:
H.M.Jr:
But Mr. Hull agrees with me that we ought to have a
formal opinion.
Yes. All right.
And - you can make a note of this. The State Department
is going to ask the French Embassy what is their purpose
with the rest of these - what's left of the order, you see?
B:
Yes.
H.M.Jr:
Not the three that have escaped but the rest, whatever
B:
Yes, I see.
H.M.Jr:
You see?
B:
Yes. All right, I'll -
H.M.Jr:
B:
they are.
This is really terribly important, you know.
Yes indeed, I'll get something to you right away.
B:
I don't see why it's so difficult.
Yes. Well I'll check on it, Mr. Secretary.
H.M.Jr:
Thank you.
B:
Right away.
H.M.Jr:
December 2, 1939.
2:20 P.M.
H.M.Jr:
Hello
Operator:
Secretary Hull is on his way to the hotel
and he'll be there in about five minutes.
H.M.Jr:
He on the way to the hotel?
Yes sir.
0:
168
0:
Well you know its the dumbest thing Mrs. Spangler I was sitting right here or in the washroom and the
boy comes in and tells me that Mr. Hull's here.
I was right here.
You were in your office?
H.M.Jr:
Yes.
H.M.Jr:
H.M.Jr:
She said she rang your office twice and you
didn't answer.
Well I was in the washroom.
0:
Oh - oh well she didn't know that.
0:
0:
And Mr. Hull has gone now to the hotel?
To the hotel.
H.M.Jr:
All right well I'll do it - I'll have to do it
H.M.Jr:
0:
H.M.Jr:
thru the White House then.
All right.
All right, thank you.
169
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 2, 1939
Secretary Morgenthan
TO
FROM Mr. Cochran
The foreign exchange market was very dull with a small turnover. Sterling
opened in New York at 3.89-3/4 and after moving in a narrow range it closed at
3.90-1/4.
Sales of spot sterling by the four reporting banks totaled 1287,000, from
the following sources:
L 84,000
By commercial concerns
L 203,000
By foreign banks (Far East and Europe)
Total
L 287,000
Purchases of spot sterling amounted to 119,000, as indicated below:
L 43,000
By commercial concerns
L 76,000
By foreign banks (Europe)
Total
I 119,000
Cotton bills totaling 122,000 were sold to British Control at the official
rate of 4.02 by the following reporting banks:
I 9,000 by the Chase National Bank
L 8,000 by the National City Bank
L 5,000 by the Guaranty Trust Company
122,000 Total
The other important currencies closed as follows:
French francs
Guilders
Swiss france
Belgas
Canadian dollars
.0221-1/4
.5309
.2243
.1652
12-5/8% discount
We purchased $3,000,000 in gold from the earmarked account of the Netherlands
Bank.
The Federal Reserve Bank reported to us a shipment of gold valued at $2,107,000
by the Bank of the Republic, Colombia, consigned to the Federal Reserve Bank of
New York, The disposition of this shipment at the present time is unknown, but
shipments of gold from the Central Bank in Colombia are usually earmarked for its
account at the Federal Reserve Bank of New York,
CONFIDENTIAL
-2-
170
A Reuter's dispatch on the Dow Jones ticker stated that chaotic conditions
prevailed in all markets in Bombay today which was attributed to the sensational
rise in silver prices locally. During the past few days the price of silver in
Bombay improved considerably. On November 29. the U.S. equivalent of the Bombay
price, less the import tax, was 42.59 Today, it was 50.58 As the Bonbay
market is a highly speculative affair and the importation of silver into India is
prohibited except under license the rise in the price of silver looks like a
cornering of the silver market resulting in a squeeze of the short positions. It
was later reported that the Bombay Bullion Exchange Board passed a resolution
suspending trading in forward silver until December 5th in view of the chaotic
conditions in the market.
CONFIDENTIAL
Confidentail
PARAPHRASE
not real
171
A telegram of December 2, 1939. from the American Embassy at
Chungking reads substantially as follows:
On December 1 a member of the Embassy staff inquired of Sheahan
concerning an announcement in the press on November 29 to the effect
that the Executive Yuan passed a resolution authorizing the formation
by the Ministry of Communications of a China Transportation Company to
control all railway, highway, air and waterway transportation in China.
Sheahan said that the Foo Shing motor transport organization but not the
Southwestern Transportation Company would be taken over by the new company.
The resolution is in the nature of a charter, according to information
received by the Embassy, and amalgamation of existing transportation
agencies must be brought about through negotiation. It was necessary
to overcome a great deal of opposition in the case of the Foo Shing
Trading Corporation which is a subsidiary of the Foreign Trade
Commission and the Universal Trading Corporation.
NEW YORK TIMES - December 2, 1939.
'MORAL EMBARGO'
AGAINST MOSCOW
President Assails 'Obviously
Guilty'-Lie to Molotoff
Passed on Bombings
By BERTRAM D. HULEN
Special to THE New YORK TIMES
WASHINGTON Dec. 2-A moral
embargo that is expected to shut
off completely the sale of export to
Russia of United States airplanes,
engines. spare parts, bombs and
other equipment essential for at
tacking civilians and open cities
and towns from the air was declared by President Roosevelt to
day.
In the light of the |successful em-
bargo of this type appli d against
Japan in June, 1938, it I expected
to be complete.
The embargo was in th orm of a
public statement issued by the President after a conference with Secre-
tary of State Cordell Hull calling
for a cessation of such business
Although Russia was not mentioned
by name, any more than Japan was
a year and a half ago, Mr. Roose
velt branded the Soviet Government
by declaring that the embargo was
directed to nations "obviously
guilty" of such "unprovoked bomb
ings" as had occurred.
TEXT OF THE STATEMENT
The text of the President's state
ment follows:
The American Government and
the American people have for
some time pursued a policy of
wholeheartedly condemning the
unprovoked bombing and machine-gunning of civilian popula-
tions from the air.
This government hopes, to the
end that such unprovoked bomb-
ing shall not be given material
encouragement in the light of re
cent recurrence of such acts, that
American manufacturers and exporters of airplanes, aeronautical
equipment and materials essen-
tial to airplane manufacture will
bear this fact in mind before
negotiating contracts for the exportation of these articles to nations obviously guilty of such unprovoked bombing.
Additional emphasis was given to
the statement from the fact that
it was not strictly required. inas
much as the one issued in the case
Continued on Page Forty-nine
172
Original by air mail
173
No. 21
American Consulate
Hanoi, Indochina, December 3. 1939.
Subject: Capture of Nanning by Japanese.
The Honorable
The Secretary of State
Washington.
Sir:
I have the honor to refer to my telegram of December 3, 12 noon, reporting
that the Chinese in Hanoi and Haiphong concede that Nanning has been captured
by the Japanese and that the Japanese military activity has spread to the north
and northeast. This admission, which is substantiated by other sources of information, puts an end to a period of intense speculation and, for the time being,
clarifies the widely discussed problem of transportation to China via Indochina.
Under existing conditions, or until the Chinese can retake Nanning and clear
that region of Japanese troops, the only feasible modern means of transportation
to China via Indochina is the Indochina-Yunnan Railway.
This statement is premised upon the fact that the Caobang road is not
ready for motor traffic, that it will not be ready for some months, and that
its maximum capacity will be approximately 3 thousand tons a month. As I have
reported, the representatives of the various oil companies, who have carefully
investigated this road, estimate that it will require a major reconstruction of
certain sections to increase the road's capacity beyond that amount. The mainte-
-2-
174
nance of a traffic of 3 thousand tone a month presupposes that the Japanese
bombing planes will leave the road unmolested, which is quite unlikely.
In addition to the Indochina-Tunnan Railway, concerning which a report
is in preparation, the Chinese will undoubtedly have recourse to a coolie and
pony system of transportation. I am informed that such a system is being organized
for the mountainous routes north of Caobang and that a certain amount of tung oil
and other Chinese exports is already arriving in Indo-China by these means.
Whether any great amount can be so transported, either from or to China, is highly
speculative. For the time being, so far as I have been able to ascertain, none
of the oil companies are interested in these means of transportation.
For those sympathetic to the Chinese cause the situation must be viewed
with some pessimism. There is now little possibility that the vast store of
supplies in and around Haiphong can be transported to China with any degree of
expedition. It would appear that a portion of these supplies will have to
be transferred to Rangoon, for delivery by the Burma road, and that a portion
will probably remain at Haiphong until the issue between China and Japan is
decided.
According to many commentators, the Japanese will find it difficult to extend
their position much farther northward, except up the river valley towards Pingma,
unless the Chinese resistance collepses. At the same time, it will be difficult
for the Chinese to retake Nanning, unless a strong encircling movement threatens
the Japanese line of communications. In this connection it is stressed that
the Chinese have never retaken an important military objective. The commentators
conclude that Japanese aerial activity in Kwangsi, Kweichow and possibly Yunnan
will be intensified.
In sum, the Japanese appear to have obtained an important success - the
capture of Nanning reduces considerably the amount of supplies that can be trans-
175
- -3 -
ported to China via Indochina and the Japanese have secured an advanced base
from which bombings of Chinese positions, either civil or military, can be
directed. Moreover, unless the Chinese expedite removing the vast amounts of
gasoline now stored in and around Lungchow (estimated at at least 500 thousand
gallons), the Japanese will either destroy this vital commodity or may even capture
a substantial part.
Respectfully yours,
Charles S. Reed II,
American Consul.
Original and 4 copies to the Department
Copy to Embassy, Chungicing
Copy to Embassy, Peiping
Copy to Consulate General, Hongkong
Copy to Consulate, Saigon
800/815.4
CSR:car
Seen by Seey. 3:00pm Dec.4
M.X
PARAPHRASE OF TELEGRAM RECEIVED
176
FROM: American Legation, Helsinki
NO.: 400
DATE: December 3, 1939.
STRICTLY CONFIDENTIAL.
Today when I asked the Finnish Minister of
Foreign Affairs regarding his country's financial
situation, he informed me that the Finnish Minister at
Washington had been authorized by him yesterday to
request assistance from the United States Government in
raising $60,000,000 in the United States. The Minister
for Foreign Affairs stated that Ambassador Steinhardt
had advised him indirectly that in the United States there
was every disposition to make it easier for the Finnish
Government to secure funds. Tanner apparently hopes,
as I reported in September, that financial assistance
may be supplied by the United States Government directly.
SCHOENFELD
03V13038
ADDRESS OFFICIAL
THE SECRETARY OF STATE
177
DEPARTMENT OF STATE
WASHINGTON
December 4, 1939.
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses one copy of telegram no. 400 of December 3,
1939 from the American Legation at Helsinki (paraphrase)
having reference to financial matters.
Enclosure:
From Helsinki,
paraphrase of no.
400, December 3,
1939.
178
December 4, 1939.
9:30 a.m.
GROUP MEETING
Present:
Mr. Bell
Mr. Graves
Mr. Foley
Mr. Duffield
Mr. Thompson
Mr. Gaston
Mr. Co chran
Mr. Riefler
Mr. Viner
Mr. White
Mr. Harris
Miss Chauncey
H.M.Jr:
What have you got?
Gaston:
Nothing except your trawlers. There are still
some further facts to be found out and the
question is: who is to elicit the facts? I
expect they will come to some agreement wi th
Justice today as to who is to make a further
investigation. In the meantime, we will hold
all ships of that description.
H.V.Jr:
I am waiting for a piece of paper from Huntington
Cairns. He was at the house last night at 6:00
o'clock. Every time I hear the story it is different. I want it in writing. I have about
five different versions of it. How many ships
Gaston:
there are, where they are
I don't think we know how many there are. We
know that two ships got away. We know that
there are three in addition on which this deal
was either being made or is pending and there
may be some others.
H.M.Jr:
I want something.
Gaston:
He has dictated the memorandum.
H.M.Jr:
Will you get it to me?
Gaston:
Yes, I will.
H.M.Jr:
The Attorney General should give us a ruling now.
Gaston:
I would suppose so. Somebody has to make some
further investigation.
179
-2H.M.Jr:
Well, are you going to bring it to the attention
Gaston:
Yes, we are going to find out who is carrying
H.M.Jr:
Who will direct us what to do.
Gaston:
Yes.
H.M.Jr:
The Coast Guard isn't going to try to overhaul
Gaston:
No, we are not going to try to. The original
of the Attorney General?
the ball on this thing.
them?
order was to go out and find where they were
and keep us advised and if they should come
in the territorial waters, hold them, but we
never ordered them to bring them back. We
canceled that order and we will just let them
go.
H.M.Jr:
Gaston:
Between now and noon let me have something.
I will let you have a complete memorandum between
now and noon.
H.M.Jr:
Ed?
Foley:
I have a letter, an order to show cause on the
Bank of America, any time you would like to see
H.M.Jr:
it.
It will be sometime around 10:15. I will call
you.
Foley:
All right.
H.M.Jr:
It will be around 10:15.
Foley:
O. K.
H.M.Jr:
Herbert, I want you to sit in a meeting I have
got at 10:00 o'clock.
Ed, do you want to clear yourself at 10:15?
Foley:
Yes, that will be fine.
180
-3H.M.Jr:
While you are on it, Huntington Cairns was
talking with me about the British certificate
plan. There was a story in the Tribune that
the Customs agents were going to enforce it.
He was all upset about that. It was kind of
lonesome here Saturday. I had to take that,
too, then Sunday. He said the State Department
is quite upset about it, not our part, but the
implications. If Huntington hasn't already
brought you up to date, go and see him. Did
he bring you up to date about the State Department?
H.M.Jr:
I can't hear you for a truck going by.
I say if Cairns hasn't already brought you up
Harris:
Yes, he has.
H.M.Jr:
Will you take it from now?
Harris:
Yes.
Harris:
Duffield:
to date, he can.
I have a tentative appointment to see Steve Early
at 10:30.
H.M.Jr:
Do it before my press conference.
Duffield:
I will.
H.M.Jr:
Go get a pillow and camp there.
Did you get out the release on the
It should be downstairs about now. It had gone
to the mimeograph room before I came in here.
We made an eight percent allotment on those two
Duffield:
H.M.Jr:
percent bonds. There is about 21 million dollars
worth of five thousand or less, which isn't bad.
Gene?
Duffield:
That is all.
Cochran:
Argentina is taking another 2à million dollars of
gold today.
181
-4H.M.Jr:
Can't we kind of throw in a little silver to
Cochran:
Wish we could.
show them how kindly we feel toward them?
H.M.Jr:
Talk to these various economists that drift in
and
out of here about dropping the price of
silver down to 30 cents.
Cochran:
You don't want to talk to the State Department,
do you?
H.M.Jr:
Cochran:
Gaston:
H.M.Jr:
No, just Treasury. Will you?
I am afraid the Latin American section will be
uneasy on that just now.
That indicates we could sell another type of
baby bond pretty handily, doesn't it?
Yes. The baby bond is a better buy than this.
Gaston:
There seems to be a demand for an intersealing
security in small amounts.
B.M.Jr:
If we have a refunding, maybe we can set aside
Bell:
In small brackets.
H.M.Jr:
Yes, seriously.
I thought we should consider a new type of security
to be issued regularly after the first of the year
like the baby bonds.
I could make it for a long term and payable in
installments.
Gaston:
Bell:
H.M.Jr:
Bell:
some for cash.
Why couldn't you say that we will take all cash
subscriptions on this thing up to five thousand
dollars, same terms and everything else.
Well, you could, of course. I don't know whether
you want to start that at this time and favor
those on every financing.
182
-5
H.M.Jr:
Bell:
Think about it. It made an awfully good hit,
that Bell "loophole" plan.
Just don't overdo it. It might be a failure
next time.
H.M.Jr:
We will think about it.
Bell:
All right.
H.M.Jr:
Next time we will call it the Gaston plan.
Bell:
I prefer that.
Caston:
Danny has got some better ones than that.
At Cabinet, I got into a very heated argument
with Mr. Edison when he was very much upset over
H.M.Jr:
that letter on Consolidated, and the President the reason he got so upset is, the President
said, "Charlie, what do you want to do, just
give Consolidated a handout?"
Foley:
H.M.Jr:
Good.
"Well, I can't find any planes.' And then he
then - about there being no armor plate. I
said, "You've got six million dollars especially
and the President got into this argument and
Foley:
from Congress and you haven't used a dollar of
had used some for the Navy's own plant in West
Virginia.
For their own plant?
H.M.Jr:
Take a look at that, will you?
Foley:
Sure.
H.M.Jr:
I am kind of on a hot spot. Somebody told me
Foley:
got it. I don't know about their own plant
it." Then he told me, "That isn't so," that he
they hadn't used any of that six million.
They didn't use it for the purpose for which they
business.
183
-6H.M.Jr:
Does anybody know from Helvering whether he
heard
from Colt?
Foley:
He cleared the release with the War Department
and he
haswant
got the
Coltthem?
people down this morning.
You
didn't
to see
H.M.Jr:
Yes, if they would do it, I would like to shake
Foley:
tell him I appreciate it.
All right.
H.M.Jr:
Any time between now and 12:00 o'clock. And I
Foley:
I got the letter from the Attorney General, the
H.M.Jr:
Fine.
Foley:
That ought to go over this morning.
H.M.Jr:
Herbert, where is that letter that you fixed up?
Gaston:
I sent it in.
Duffield:
Do you want to announce the Colt thing at your
H.M.Jr:
Yes.
Foley:
What time, 4:00?
Duffield:
We will have to move fast to get it done by then.
Foley:
Yes, to get the A. G.'s approval, but I think it
H.M.Jr:
Well, see if Miss Bumgardner can locate him.
Foley:
She is all right.
Yes, she is. She is a good girl.
H.M.Jr:
hands with the head of them and thank him and
want to announce that.
opinion that it is O. K.
press conference?
is all right.
Mr. Viner, how is Chicago?
184
-7Viner:
Very
quiet. Watching you on Moe Annenberg very
closely.
H.M.Jr:
I am not the fellow to watch.
Viner:
They don't believe it is true.
H.M.Jr:
I put Mr. Foley on notice that I wanted ample
notice if there was any talk about any deal, see,
so that any deal - I mean ample notice - I want
plenty of time to run across the street.
I have got my lines out.
Foley:
H.M.Jr:
Well, the Attorney General leaned across to me
in Cabinet and said to me, "Annenberg is going
to jail."
Foley:
Didn't I tell you I had my lines out?
H.M.Jr:
And if Viner was alone he would still say he had
his fingers crossed.
I will say it even though I am not alone.
You and me both. Does Chicago - are they interested
Viner:
H.M.Jr:
Viner:
H.M.Jr:
Viner:
H.M.Jr:
in Mr. Skidmore?
Yes, they are.
So am I. What about Mr. Skidmore.
Well, they say he has plans too.
Let's ask about Skidmore. When is that coming up
to the Grand Jury? will you write that down?
Foley:
Yes.
Viner:
Some of them really hope they won't put Annenberg
H.M.Jr:
Help who?
in jail, because they think this Government - the
Republicans think this Government, when it suddenly
became righteous, didn't really mean it, but if
they did mean it, it would help them too much.
185
-8Viner:
The New Deal.
H.M.Jr:
Well,
that
doesn't
it?takes a twisting kind of a mind,
Viner:
Well, the past record was pretty bad in Chicago,
as
you know, the record of this Administration
on that.
H.M.Jr:
Viner:
After all, we made a chief offender a judge.
One of the chief offenders.
H.M.Jr:
My arch enemy.
Viner:
Adair was the worst case. He was appointed a
federal judge in southern Illinois. He had a
But they are watching him. There is lots of
interest. It is like a football game or like
the war, they don't think they can forecast it
but they see a range of possibilities. There
is lots of talk in the papers.
worse record than Igoe and a more open one.
H.M.Jr:
Anything else? There was lots going on last
Viner:
Yes, I saw the report.
H.M.Jr:
George?
Haas:
(Handing report to Secretary) Here are some routine matters.
H.M.Jr:
What did you have?
Haas:
H.M.Jr:
Haas:
H.M.Jr:
Haas:
week.
I don't know, I think it was some variety of
intestinal flu.
Are you all right now?
I feel much better.
Personally, I don't think you can hold your liquor.
That is really very bad, because I only had one.
186
-9H.M.Jr:
Eaas:
H.M.Jr:
I still say you can't hold your liquor.
I thought I could do better than that.
I think you had better go into training next
time, George.
Basil?
Harris:
No thing.
H.M.Jr:
Are you going to give me a memorandum on shipping?
Harris:
Well, I would like to but I think you have gone
off all wet on this trawler business. I think
that is the most ridiculous thing I have ever
heard in my life.
H.M.Jr:
Why?
Harris:
H.M.Jr:
Well, if you can convince me that there is any
difference between transferring a bomber with
guns or a howitzer and an offenseless little
trawler that can make possibly six knots. That
takes a long stretch of the imagination and the
lawyers may build up a case but I think it is
childish all the way through.
If you don't mind my saying so, I think you are
Harris:
Yes.
H.M.Jr:
Do you know about the Alabama case?
Harris:
Yes. Every country today is quoting international
H.M.Jr:
I am sorry, I completely disagree with you. If
we don't live up to international law, what is
there to look forward to in this world?
We are just living up to international law to
Harris:
H.M.Jr:
completely wrong. Have you read the law?
law.
refuse a couple of tugboats.
These boats happen to have been built - some of
them were anyway - during the last World War.
187
- 10 Harris:
H.M.Jr:
Several of them are over 23 years old.
The French didn't take them in 1919 because
they couldn't use them, but even I can under-
stand the law says specifically that you can't
sell these things, boats. I mean, there isn't
It is the old neutrality thing.
much difference between a boat and an airplane.
Harris:
H.M.Jr:
Harris:
H.M.Jr:
You can't sell planes and fly them over the
border, but you can push them over. They are
stretching the thing so far that it seems strange
we would struggle with that.
I am sorry to hear you say that because I don't
even think it is stretching. I don't think
there is any chance for bending the law in this
case, but if you don't want to give me a memo
on shipping, that is all right.
I am still working on that.
That is all right with me. The Treasury lawyers
and the Attorney General are not hesitating. They
say the law has been broken and we happen to be
charged with the police power.
Harry?
White:
H.M.Jr:
White:
How would you like this report on oil to be handled?
Is it to go from Currie to you or from us to you?
From you to me, I judge. Who is writing it?
One of our men wrote it and it has been passed
around to the men who are supposed to pass on
it. They have read it and Currie has now the
original to go over - with his O. K.
H.M.Jr:
I don' care who it comes from, but I am waiting
for it. I want you here at this 10:00 o'clock
meeting I am having.
White:
That is all.
Bell:
I have nothing.
- 11 Thompson:
I have nothing.
H.M.Jr:
You will have a memorandum for me? When are you
Bell:
Well, I would like to have a little time.
H.M.Jr:
Quarter of 12:00?
Bell:
I will try to be ready by then.
H.M.Jr:
Do the best you can.
Bell:
Yes, I will.
H.M.Jr:
O. K.
coming in?
188
188.A
TREASURY DEPARTMENT
PROCUREMENT DIVISION
FRICE OF THE DIRECTOR
WASHINGTON
M
December 4, 1939
MEMORANDUM FOR THE SECRETARY
In conversation with Colonel Burns this morning he informed
me that Mr. Bloch Laine had been indicated by the French
Embassy as the one who was to confer with us concerning the
French requirements of aluminum alloys.
He further stated that, although Mr. Bloch Laine was supposed
to have been at the War Department last Tuesday, nothing has
been heard from him to date and that as soon as he designates
a time for the meeting I will be further informed.
you
Director of Procurement
189
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 4, 1939
TO
FROM
Secretary Morgenthan
Mr. Coohran
The foreign exchange market was not a very exciting affair today, although
the volume of sterling transactions increased considerably over that of Saturday.
In Amsterdam, the sterling rate ranged from 3.90-7/16 to 3.91-11/16, and just
prior to our opening, it was quoted at 3.91-1/4. The initial quotation in New
York was 3.90-3/4. Shortly thereafter the Federal Reserve Bank of New York received an order from the Bank of Latvia to sell about 1252,000. As the Latvian
Bank had given the Federal only an approximate amount to sell, to be on the safe
side, the Federal sold only 1200,000, and held the balance in abeyance pending
confirmation of the actual amount to be sold. Part of this amount was sold at
3.90-3/8 and the remainder at 3.90-1/4. The sterling rate subsequently declined
to 3.89-3/4 about mid-afternoon, and remained at that level for the rest of the
day.
Sales of spot sterling by the four reporting banks and the Federal Reserve
Bank of New York totaled 1556,000, from the following sources:
L 93,000
By commercial concerns
L 263,000
By foreign banks (Far East and Europe)
L 200,000
By Federal Reserve Bank of New York (for Latvia)
Total
L 556,000
Purchases of spot sterling amounted to 1448,000, as indicated below:
By commercial concerns
By foreign banks (Europe and Far East)
Total
L 301,000
L 147,000
L 448,000
Cotton bills totaling 111,000 were sold to the British Control at the
official rate of 4.02 by the following reporting banks:
L 7,000 by the National City Bank
L 4,000 by the Guaranty Trust Company
L11,000 Total
During the past few days, the rate for the Canadian dollar strengthened to
12-1/2% discount, due to purchases of that currency by a commercial concern. As
these purchases have now been completed, the rate softened to 13-1/8% discount.
CONFIDENTIAL
a
-2-
190
The other important currencies closed as follows:
French france
Guilders
Swiss france
Belgas
.0221-1/8
.5309
.2243
.1653
We sold $2,500,000 in gold to the Central Bank of Argentina, to be added to
its earmarked account.
We purchased the following amounts of gold from the earmarked accounts of the
banks indicated:
$1,125,000 from the Bank of Mexico
850,000 from the National Bank of Belgium
750,000 from the Netherlands Bank
$2,725,000 Total
The Federal Reserve Bank of New York reported to us the following shipments
of gold:
$2,537,000 from Canada, shipped by the Bank of Canada, Ottava, consigned to the
Federal Reserve Bank of New York, for sale to the U. S. Assay Office
at New York.
2,091,000 from South Africa, shipped by the South African Reserve Bank, consigned
to the Federal Reserve Bank of New York, to be earmarked for the account
of the Netherlands Bank.
745,000 from the Netherlands, shipped by the Rotterdam Bank, consigned to the
Guaranty Trust Company of New York, for sale to the U. S. Assay Office
at New York.
$5,373,000 Total
The statement of incoming gold shipments for December 4. received from the
Federal Reserve Bank of New York, showed a total of $50,906,000 in gold en route
to this country. Of this total $35,472,000 is to be earmarked at the Federal
Reserve Bank of New York, the greater part of which, $25,878,000, is for the
account of the Netherlands Bank. The balance of about $15,000,000 is to be sold
to the U. S. Assay Office at New York or to the U. S. Mint at San Francisco.
The U. S. equivalents of London spot and forward silver prices were 41.37#
and 41.28 respectively. Handy and Harman's price for foreign silver was unchanged at 34-3/44. The Treasury's price was also unchanged at 35$.
In New York, we made five purchases of silver totaling 425,000 ounces, under
the Silver Purchase Act.
CONFIDENTIAL
191
There was no price fixed for silver in Bombay today as that market was closed.
It was reported on the Dow Jones ticker that a heavy speculative long position in
silver, already totaling 25,000,000 ounces, has been built up in Bombay. Indian
traders anticipated that Russia's action against Finland would serve to increase
the speculation, which started when Europe went to war, and that the conflict would
bring a resumption of hoarding on the part of the Indian public, as it did in
previous wars. However, the demand for silver by up-country sources has so far
been only a few thousand ounces a day.
CONFIDENTIAL
TREASURY DEPARTMENT
192
INTER OFFICE COMMUNICATION
DATE December 4, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas
BH
Works Progress Administration reports show an increase of
25,000 employee, from 1,962,000 for the week ended November 15,
1939, to 1,987,000 for the week ended November 22, 1939, as is
shown in the attached tables and chart.
Attachments
193
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week Ending
1939
Number of Workers
(In thousands)
March 1
March 8
March 15
March 22
March 29
3,032
3,009
3,015
3,009
2,980
April 5
April 12
April 19
April 26
2,906
2,761
2,752
2,751
May 10
May 17
May 24
May 31
2,736
2,660
2,623
2,609
2,600
June 7
June 14
June 21
June 28
2,593
2,590
2,578
2,551
July 5
July 12
July 19
July 26
2,388
2,289
2,250
2,200
August 2
August 9
2,082
2,054
1,977
1,898
1,842
May 3
August 16
August 23
August 30
September 6
September 13
September 20
September 27
1,662
1,696
1,735
1,790
October 4
October 11
October 18
October 25
1,903
1,875
1,898
1,902
November 1
November 8
November 15
November 22
Source: Works Progress Administration.
1,901
1,930
1,962
1,987
194
WORKS PROGRESS ADMINISTRATION
Number of United
WorkersStates
Employed - Monthly
Number of Workers
(In thousands)
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
October
Source: Works Progress Administration
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
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
2,980
2,751
2,600
2,551
2,200
1,842
1,790
1,902
185
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
United States
Monthly V.P.A. Employment
1937
1938
MILLIONS mumm /
Weekly V.P.A. Employment
1939
1938
MAR.
WILLIONS
MAY
JULY
1939
MAR.
SEPT.
MAY
JULY
or
WORKERS
WORKERS
BORKERS
3.5
3.5
3.4
3.4
3.2
3.2
3.3
3.3
3.2
3.2
2.8
2.0
3.1
3.1
3.0
3.0
2.4
2.4
2.9
2.9
2.8
2.8
2.7
2.0
2.0
2.7
2.6
2.6
2.5
2.5
1.6
2.4
2.4
2.3
2.3
1.2
2.2
2.2
2.1
2.1
2.0
.8
2.0
1.9
1.9
1.8
.4
1.8
1.7
1.7
0
1936
1937
1938
1939
1.6
mill www-will milli 11. - III 111 HV my 1939
SCFT. NOV.
JAN.
SOURCE: BORKS PROGRESS ADMINISTRATION
Office of the Secretary of the Treasury
- - and Patient
MAR.
DULY
1938
TOPY:
weet
JAN
MAN.
1.6
on
196
TREASURY DEPARTMENT
CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE
December 4, 1939
Secretary Morgenthau
TO
FROM
Mr. Haas OA
Subject: The Business Situation,
Week ending December 2, 1939.
Conclusions
I
(1) Evidence is increasing that the war in Europe is
likely to prove less of a strengthening factor to business
activity in 1940 than had previously been expected. In
addition, an unbalanced situation has been created by the
concentration of activity this fall in the durable goods
industries. This partly reflects an advancing of orders
for heavy industrial materials and equipment that would
otherwise have been placed in 1940, and to that extent will
deprive business of a certain amount of support next year.
(2) Nevertheless, aside from the unbalance in durable
goods production, the domestic situation remains strong. It
is largely upon this, plus any war orders that may come in.
that business must rely for a further recovery later in 1940.
Among various favorable influences, it may be noted that:
(a) The orders booked by manufacturers this fall
have not yet had their full influence on industrial
activity.
(b) The consumer-goods outlook is much more satis-
factory than the outlook for capital goods, and continues
to be strengthened by a rising trend of consumer incomes.
A setback in industrial production in 1940 may therefore
be largely confined to the heavy industries.
(3) The outlook, in any event, is not fully clear. An
upturn in sensitive commodity prices which occurred this week
coincident with the invasion of Finland, if continued, may
initiate a renewed buying movement.
1
197
Secretary Morgenthau - 2
The general situation
Industrial production increased further in November to
an index level of 124 or 125, against 120 in October, according to confidential data from the Federal Reserve Board. The
rise reflected chiefly an increase in the production of durable goods, raising still further the ratio of durable to non-
durable goods production.
The unbalanced situation created by an abnormally high
remains an element of weakness in the domestic business outlook. The sharp rise in heavy goods production in recent months,
out of proportion to the upturn in consumers's goods, apparently
represents a bunching of orders for steel products, machinery,
proportion of durable goods in the total industrial output
and railroad equipment in a short period, through fear of price
increases and delivery difficulties, when ordinarily they
would have been spread over several quarters. To the extent
that business has been taken from 1940 and concentrated in
1939, orders for these products may be reduced in the first
half of 1940, contributing to a reduction in business activity
at that time.
Present indications therefore point to some setback in
the FRB index during the first half of 1940, to which confirmation is added by the recent falling off in new orders, and
by the effect of seasonal adjustments on the index. The decline may be largely confined, however, to the heavy industries.
The outlook for consumers goods is strengthened by their relatively moderate production increase so far, and by a rising
trend of consumer demand generated by increased consumer in-
comes,
War orders outlook disappointing
It is becoming increasingly apparent that the war in
Europe is likely to provide far less support to American
business than had earlier been looked for. of the two sources
of increased business that had been widely expected -- war -orders from Europe and increased trade with South America
neither seems likely to develop as anticipated. European
orders have been limited by the low consumption of war materials
so far, and by the British program of confining all but necessitous buying to Empire countries, or to countries taking
British manufactured products. Even in Canada, however, not
even "educational" orders for munitions have 80 far been
placed in any recognizable quantity, according to the Financial
Post of Toronto.
198
Secretary Morgenthau - 3
On the contrary, various evidences are coming to light
that the war 18 having a harmful influence on the demand for
various American products. A seriously reduced export demand
for tobacco, apples and other fruits, passenger automobiles,
and various other products, has been directly attributable to
the war.
So far as South American trade is concerned, recent
development indicate more clearly that increased sales in
those countries in any appreciable volume will be contingent
upon increased buying of South American products in this country. Lacking such reciprocity in trade, South American purchases will necessarily be diverted to other countries where
their products will be marketed. A step was taken in that
direction last week by Argentina, in announcing that her purchases in the future will be confined as far as possible to
Great Britain and France. In turn, these countries will buy
Argentine food products. Negotiations are reported under way
to sell 40,000 tons of canned beef to Great Britain and France,
in addition to 6,000 tons for which France has already contracted.
The steel situation
Since the recent business upturn has been largely depend-
ent upon iron and steel and related industries, the situation
in these industries, as it develops during 1940, will be of
major significance in the business outlook.
Last week's announcement of practically no increase in
steel prices for first quarter delivery 16 expected to have
little effect on steel orders, though it may cause some deliv-
eries to be deferred to the first quarter. Slight price in-
creases on some products have had the net effect of raising
the Iron Age composite price for finished steel to 2.261 cents
a pound from 2.236 cents previously.
While total orders in November were substantially below
the high level of October, the substantial volume of orders
still coming in has been sufficiently close to the volume of
shipments to prevent any marked shrinkage in unfilled orders.
Consumers and distributors are still pressing for shipments steel to
meet current needs, which suggests that the volume of
going directly into consumption may be greater than generally
realized.
Secretary Morgenthau - 4
199
While the steel industry does not expect the current
record-breaking production to continue for very long, according
to the before
Iron Age,
stillyear
no indication
either
the there
end ofisthe
or in the of a sharp drop
some indication of weakness in
first
quarter.ainlast
further
But decline
early part
the ofprices.
outlook the
is
seen
week
in
steel
scrap
(See Chart 1) This has carried the Iron Age scrap composite
price
October.to $18.58, as compared with a peak of $22.50 early in
Scrap prices are often taken as a measure of demand for
steel. Recent price weakness has been due to a falling off in
scrap buying by mills to the lowest point in months, increased
production of scrap resulting from higher industrial activity,
a heavy movement out of accumulated stocks, and the partial discrediting of recent reports of huge European scrap purchases.
New orders remain down
The level of new orders during the fourth week of November,
which was affected by the Thanksgiving holiday, was slightly
lower than that of the previous week. (See Chart 2) Textile
orders declined to the lowest weekly total since June 1938, but
steel orders and other orders were well maintained despite the
holiday.
The low level of textile orders during November, with production continuing at a high level, has doubtless reduced the
industry's backlog of unfilled orders. Orders in the paper industry, on the other hand, are reported to be keeping pace with
shipments, and in machine tools and aircraft recent new orders
are said to exceed shipments.
The price situation is becoming more favorable for increased ordering, judging from improved price trends last week
in various futures markets. The Dow-Jones futures index (see
Chart 3) turned sharply upward, with notable strength in cotton,
wheat, and silk prices, and upturns in prices of various other
commodities. This follows a rise in British prices which began
several weeks ago, as indicated by Reuters' index.
While the upturn in cotton prices has not yet brought
increased buying of goods, mills are impressed by the fact that
buyers are pressing for delivery on previous orders, which suggests
a rapid movement into retail channels. A strengthening factor
in the cotton market has been a recent boom in prices at Bombay,
which has carried prices for Indian cotton to the highest levels
in many years as compared with American. This will strengthen
the export demand for our cotton.
200
Secretary Morgenthau - 5
Current business news
The New York Times index declined 0.3 point to 105.6
during the week ended November 25, representing a setback
of 1.6 points from the high reached two weeks previously.
While seasonal adjustments for the Thanksgiving holiday make
changes in the index of doubtful significance, the adjusted
figures show that substantial declines in the indices of
lumber production, miscellaneous carloadings and "all other"
carloadings were not quite offset by upturns.
Railroad earnings increased in October to the highest
level since about 1930. (See Chart 4) Net operating income was far above that in any month of 1936 or 1937, although carloadings this year were not much higher.
Chart 1
201
STEEL OUTPUT AND SCRAP PRICES
Ingot Output inWEEKLY
Percent Capacity
M
J
J
A
N
DOLLARS
S
PER TON
PER
CENT
20
80
Scrap Prices
15
60
10
40
Ingot Output
5
20
0
A
N
F
M
A
M
1937
J
D
J
F
0
A
M
1938
N
J
F
D
O
M
S
o
N
D
1939
C-190-A
Secretary
INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1939
1940
PERCENTAGE
POINTS
PERCENTAGE
POINTS
160
160
150
150
140
140
130
130
120
120
TOTAL (COMB INCD INDEX)
1936 100
110
110
100
100
90
90
80
80
70
70
60
60
TOTAL EXCLUDING STEEL AND TEXTILES
50
50
40
40
STEEL ORDERS
30
M
30
20
20
10
10
TEXTILE ORDERS
0
M
J
0
A
1938
---
Office the Secretary of the Treasury
1939
1940
I as B
COMMODITY PRICE INDEXES IN U.S. AND U.K.
NOVEMBER
22
15
I
8
24
29
12
5
17
10
940
DECEMBER
19
24
17
10
26
FEBRUARY
JANUARY
31
1404 21 28
11
25
18
3
27
3
20
13
OCTOBER
7
30
6
23
10
SEPTEMBER
4
AUGUST
JULY
Daily
1939
9
2
PER
CENT
MOODY
150
183
180
M
177
COMMODITY FUTURES (DOW-JONES)
1924 '26 100
174
171
166
165
162
159
MOODY INDEX IN U.S.
DEC. 31, 1931 = 100
156
153
150
REUTER'S INDEX IN U.K.
SEPT. 18, 1931 = 100
147
144
141
138
135
132
SEPTEMBER
24
I
3
20
17
1939
8
6
y
Secretary the Treasury
13
AUGUST
10
15
OCTOBER
22
29
5
-
30
27
12
19
NOVEMBER
26
3
JULY
23
10
17
DECEMBER
24
31
7
16
14
JANUARY
21
28
4
129
11
18
FEBRUARY
1940
25
MONTHLY RAILROAD EARNINGS
1937
DOLLARS
MILLIONS
DOLLARS
MILLIONS
400
400
375
375
350
350
GROSS OPERATING REVENUES
325
325
300
300
100
275
75
250
50
50
25
25
NET OPERATING INCOME
0
DOLLARS
WILLIONS
0
DOLLARS
MILLIONS
CHANGE FROM CORRESPONDING MONTH OF PREVIOUS YEAR
50
50
GROSS OPERATING
NET OPERATING
REVENUES
INCOME
25
25
INGREASE
0
0
2
0
25
25
DECREASE
50
50
75
75
100
100
1938
*141 CLASS I STEAM RAILROADS
c 262
Office of the Secretary of the Treasury
Dweiger of - - States
205
is
December 4, 1939
Dear Mr. Berles
Our informal committee of Federal Reserve Board and
Treasury technicians net this afternoon to review a list
of suggested questions which we had agreed to furnish you.
On further consideration of the questions formulated
we feel strongly that the questions to be submitted to the
21 republics should stem from your subcommittee and should
not be identified as coming from any one country, particulerly the United States. Accordingly we suggest that each
member of your subcommittee be asked to formulate a list of
questions, that the subcommittee go over all of the lists
with a view to formulating a single list of questions which
the subconmittee will submit to all the countries.
with this reservation we are attaching a list of questions for your guidance in discussing the matter with your
subcosmittee. In view of the shortness of time, we have
not sought to obtain the Secretary's approval to the questions, nor do we submit these as a final, exhaustive, or
appropriate list of questions for circulation among the
members of the committee.
While awaiting an indication of further developments
from you, we will proceed with our study of a plan.
Respectfully,
H. D. White,
Director of Monetary Research.
The Honorable,
The Assastant Secretary of State.
HDW:1rs
12/4/39
206
If an inter-American banking institution would agree to buy
prime commercial bills from your Central Bank, how large a volume of
business do you estimate this institution would obtain from your coun1.
try? How such of that business would be new and how such is now being
handled by existing financial institutions: (a) foreign banks located
within your country? (b) foreign banks located outside the country?
and (c) domestic banks?
2. What are the prevailing rates of interest (a) for prime cona paper (b) for ordinary commercial paper, of 60- 90- 120- and
360-day saturities?
3. Is there a market in your country for short-term bills of
less than 1 year saturity?
If an inter-American institution were to guarantee the prime
commercial paper, do you think the rates of interest would be lower and
could a demand for such bills on the part of local institutions and in4.
dividuals be developed?
5. Is your banking system subject to such sessional desands for
financing that temporary credits extended by an inter-American institation would help to 6 tabilise financial and economic conditions within
your country? Do foreign banks adequately perform that function now?
If these foreign banks do not meet your seasonal demands how are they
not?
6. About a tenth of Latin American trade consists of trade among
the Latin American countries themselves, - is this intra-continental
trade of your country materially obstructed at present by the lack of
short-term credits? Are available banking facilities adequate for rediscounting export bills of intra-continental trade?
7. A group of service functions has been suggested for the interAmerican institution such as: (1) To function as a clearing house for
inter-American payments, (2) to function as fiscal agent and trustee
for Central Banks and government.
How are your inter-American payments now cleared? To what extent
are they carried out by private domestic banks? By foreign banks with
Latin American agencies? Could the mechanism be improved by Central
Banks in each country clearing directly through balances asintained
with one another? That improvements might be effected by an interAmerican Bank
207
-28. Would an inter-American institution which confined itself
to providing short-term credits and performing routine services be
of sufficient value to your country to warrant the support of the
project by your country?
9. Would provision for personal contacts and collaboration be
tween fiscal and banking officials of the various governments and for
the purpose of studying and exchanging views on fiscal and banking
problems be best provided for by the establishment of a Pen-American
Bank?
10. It has been suggested that there is a considerable outflow
of capital funds from the bable American countries to New York and
other money centers for investment and security. How large do you
estimate the volume of this outflow from your country in the past
five years? What is the estimate of such funds now being held abroad?
11. To what extent do you feel that the creation of such an institution would reduce the fluctuations of the rates of exchange in
your country on other bette American countries, or narrow the spread
between the cross rates of better American currencies and also narrow
the spread between the buying and selling price of foreign exchange?
12. To what extent do you think that restrictions on transfer
of funds are due to shortages of short-term credit, and could be
resedied by provision of moderately greater short-term credit facilities
than now exist?
13. that have been the significant developments during the past
three months in the volume of your exports and imports, and in the gold
and foreign exchange resources of your central bank? .0 you consider
these tendencies as temporary; are they likely to continue for the
duration of the warj or, are they likely to be reversed as the war
continues?
14. To what degree do you consider trade within this hemisphere
capable of expansion, and in what ways do you consider that a new interAmerican financial institution might increase the expansibility?
15. What specific dislocations and economic losses that your
country is experiencing do you attribute directly to the war conditions
now prevailing? What effect is the war having on the commercial and
financial problems of your country and to the extent that such probless are being aggravated by the war, what steps can be taken to counteract the effect of the war?
208
-316. If an inter-American institution were to be developed, would
your country prefer that it (a) deal directly with the government or
its agencies, or (b) with the central banks, or with the public at
large?
Would your country wish such an institution to have relations
with government-omed mortgage banks of your country with a view
toward broadening the mortgage facilities in your country? Does your
country have any preference or view with respect to the proportion
subscribed by your country to a bank were one initiated?
17. What formulse do you suggest for allocating to the countries
the amounts of capital to be invested in the organisation of the bank?
18. If your country is in need of capital, how much capital do
you contemplat to that they would borrow through the medium of such an
institution during the next five years?
19. Would your government be willing to submit its program of
the uses of such fund to a special committee of such an institution
created for the purpose of passing on the wisdom and security of such
loans in order to protect the repayment?
20. What are your country's needs, if any, for long-term investments relating to rehabilitation of industries? Public works?
21. That are your country's needs for a long-term loan of gold
or other foreign exchange assets for purposes of currency s tabilisation?
If your country has such need, does your government contesplate using
up those resources within & year or two or more? What does the rate
of utilisation of those resources depend upon?
What criterion or criteria would your government use as to the
rate of utilisation of funds borrowed for purposes of stabilisation
of their currency?
If it is your opinion that the now institution is to be employed,
among other purposes, for the stabilisation of currency of the American
countries, what limit would your government feel it desirable to impose
upon the amount of the funds expended for any one country for that
purpose?
22. What are your country's prospects for working out a program
of lifting foreign exchange control? To what extent will the establishment of a Pan-American bank help in this direction?
209
4-
23. To what extent would an institution that confined itself to
short-term operations without putting more funds into your country
than it took out - except for limited periods - meet the financial
needs of your country?
24. In your opinion what criteria would be suitable for the
institution to use in allocating its lending resources to the various
American countries?
25. What role if any does your government feel silver should
play in the functioning of an inter-American bank schese and as a means
of settlement of balance of payments among American countries?
26. What criteria should the bank use to determine when to openate to prevent short-term fluctuations in the value of any American
currency? Is it expected that the various countries appeal to the
bank to engage in operations or should the bank arrive at its decision
entirely independent from the wishes and beliefs of the government
whose currency is in question?
12/4/39