Full text of Diaries of Henry Morgenthau, Jr. : Volume 233 : Part 2

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242

January 5, 1940
10:50 a.m.
Present:

Mr. Leroy-Beaulieu
Mr. Cochram

HM,Jr: They don't they run you over on the boat?
Mr. Leroy-Beaulieu: Boats have been delayed. The
airplane is the safest way to travel nowadays.

HM,Jr: I wanted to see you for this reason. On

the message I gave you to carry to Ambassador Bullitt, the

whole picture has changed.

Mr. L-B: I know that; yes.
HM,Jr: So I really have no message right now.

Mr. L-3: I see.
HM,Jr: Because I don't know just -- I an not even
up to date. I don't know what's happened in the last
day or two. You most likely know more than I do.
Mr. L-3: I SEW Mr. Pleven this morning before
coming here and they have a meeting just now with Capt.
Collins and they have very definite ideas about what they
want.

HM,Jr: Maybe you will tell me what is the situation.
Hr. L-B: Yes.
HM,Jr: I would like to know what is the situation.
Mr. L-E: I think they have a meeting this morning
with Capt. Collins and that's with the representatives of
the two big engine manufacturers, Curtiss and United Aircraft, Pratt Withney and General Motors. Our people are
telling them what me want is, if possible, 10,000 Curtiss-

243
-2-

Wright engines and 7,000 Pratt-Whitney United Aircraft
and 2,000 General Motors.

HM,Jr: I see.
Mr. L-B: Of course they will receive the reaction.
HM,Jr: So there is really no need
Mr. L-B: No. They very clearly now know what

they want.

HM,Jr: So this message I gave you, don't deliver.
It's no longer true.
Mr. L-B: Of course. Mr. Secretary, I TES very

glad that yesterday the Federal Reserve account TES quite
settled and I was sorry that there was delay, but you know
with the New Year's holiday -- I see traditions are very
strong even in war time -- so the Minister of Finance was
in one spot and the Government in another and I think they
wanted it formally and in writing before sending the message to Governor Harrison.

HM,Jr: I see. I have nothing. When do they

think you are going?
Mr. L-B: On Tuesday or Wednesday.

There was one question I was asking Mr. Cochran.

I think perhaps I can ask it of you, although I don't
think you will be able to give me a definite answer now.
That is about the question of selling our securities and
that is only in a personal way I thought of handling that.
I have not been entrusted at all to tell you about it.
It is purely a personal idea.
I was wondering, because I think my people may

have it in mind over there, although I don't know that
they would like to sell securities once they will have
been vested in the French Treasury, to sell them to French
banks, private banks, and tell the banks, 'Well, now, you

go on and sell them' because then they would have france
immediately and they would have dollar exchange as it comes

in and perhaps they would think that by doing so the banks
having the real property and having both the securities
would be able to sell them slower and in a better way,

244
-3-

because they might use them as collateral here to get
a loan on them from the American banks.

31,32 I am not going to comment on that. But

I have an alternative suggestion to make.
Mr. L-B: You have one?

Yes; which I had hoped that either you

OZ the Emplish would try out.

E-. L-B: Yes.

And that is this. Let's say, for instance,

you know the English have given us a list of the securi ties
they have. We have never had the French list.
Mr. L-B: We have not yet made our inventory.

Let's say they have 10,000 shares of the
LILL 31,Jr:
Company. Well, what I had thought would be possible

is this: that the French Government designate somebody here

and he has the 10,000 shares of the X.Y.Z. Company and he
goes to the Company, the American company, and says 'We
have 10,000 shares of your company. We have been to see

the S.E.C. and we have explained the thing to the S.E.C.
and it will be entirely agreeable and will be accepted by
the S.E.C. if your Company would give us, let's say the

average price for the last three months, or something like
that. You see?
Z. L-B: Uhm.

31,Jr: I would like to see you try it. I have

talked it over. You see, our American companies, most of
them, the good ones, have large bank balances.

of

Er. L-3: Yes.
Mr.,Jr: And I think that you would find in two out

three cases - I may be wrong -- that these American
compenies would buy their own securities at once.

Mr. L-3: I see.
31,Jr: You then get the money and I think you would

245

-4-

get a better price than if you would do it the way
you are suggesting.

Mr. L-3: I see.
HDL,Jr: Furthermore, I think it will be better

for our market. You see?
Mr. L-B: Yes.

HI,Jr: Because it would immediately take the
whole block off, and what I tried to net over to the
English, unsuccessfully -- I did get it over here;
they were in complete accord - they were coing to vest
so many stocks and announce it. The English. One of
the things the matter with our market is nobody knows
how many British and French securities are going to be
dumped on the market tonorrow.

Mr. L-B: Yes, I know that.
HM,Jr: But, for instance, if they announce in
fairly rapid succession that all Pennsylvania Railroad
had been taken over, all New York Central bad been
bought up, all United States Steel, gradually those
stocks would be strong and would go abead and would
give strength to our market so we could absorb more

of your securities. The English gentlemen who were
here agreed with me. They consulted with J. P. Morgan

and they agreed, and it's this cloud that is hanging
over our market that is holding the market Bown. It's
in the interest of the French and the Emclish to have
us have a strong market, but the way you are handling
it I think -- I mean the way the English are handling
it -- is just plain stupid; just plain stupid. So
I an suggesting -- you have been at it so lone - it
could be tried out in 30 days and in 30 days or less

you would have the answer, and what they curht to do,
the English and French, using the New York Dentral as
an example, the English and French ought to combine.

We own so many thousand shares of New York Dentral, so
many thousand shares of Pennsylvania Reilrond and so

many thousand shares of United States Steel and go to
the company, with the sanction and approval of the

S.E.C., and ask them will they buy it or form a group

246
-5-

to buy 11 and I think they will do it and you immedi-

ately
here.

get cash You get dollars and deposit it right

The other thing, the may you are suggesting, I
because they would still be pedfling the stuff out but

don't think it well be as good if IF - would work,

the French and Enclish would be able to ammunce *We have
just consumated am arrangement with the Dew York Central

- the Pennsylvania Bailroad. They have boucht all our

stock."
Imediately
freezes that stock - at least
1:
freeses
it froz thisitclous.

Er. L-3: But it goes - after - have sold it.
31,Jr: True, but BD does the rest of the stock.
E-. L-3: I see. You mean only by announcing
- have sold Ter York Central = Bethlehen Steel, the
stock which we still here rises, also creates a boom bet.
31,Jr: For instance, you have 300 or 400. What
you are interested in - the average of the stock does

not 8 down. It goes - So you - liquidate. You

say lose on Der York Central or Permaylvania Bailroad

and United States Steel, but if the average continues
to go = you can liquidate replictly and my be able to
liquidate the whole group in a fer months.

Er. L-3: Eat is the British answer?
They recommended 11 be done, that they
Test
62 or 53 stares of different stocks, mi their home
office turned them down.

Er. L-3: Mr. Whigham approved 117

31,Jr: Fr. Whirhan and Mr. Giffert approved it
ani they consulted with J. P. Morgan and J. P. Morran,
advising them, also approved it. That occured on this
side and their home office turned 1$ dora and left me,
as I told them, with a very bad taste in IF month because
I stopped everything. Mr. Frenk, Chairman of the S.E.C.,
came OVER here, Walter Stewart, - all just jumped into it

247
-5and devoted a week to it and then recommended that

they go ahead and Test and it would be good. What

happened? Nothing! It left a very bad taste in
IF mouth.

Er. L-3: Yes. I remember you told me that.

But the latest idea, I think if the
English amt French together would say, 'Well, let's
see if THE can't sell all of this stock and all of this'
and do it em bloc.

Er. L-3: Yes.
For, the idea may not be any good, but
it's certainly worth trying, and what you need in this
country is a good market.

Mr. L-3: Surely. No doubt about it.
And - moule here a good market, I think,
today 1. it TEST'S for these securities hanging over the
market.

1- L-3: I don't know what the British idea is.
I TES once whether that they had in mind was

not that perizes they have better wait to start their
selling until they had places their orders, because they

might here thought by placing their orders the market

would to -

El,Jr: I can't explain to you what happened, but

I as THE The you are going back and you can tell them
just how I feel. I think the thing has been handled
very bedly SD far.

Kr. L-3: Yes. I see.
From your standpoint and from ours, and

I am not saying that it can be a success, but the only
TRAT you can find out is to try it.

E. L-3: Yes. I see.
And you will get your dollars in this
country, deposited here, if IF way worked.

248
-7-

Mr. L-3: Well, I will make the suggestion.

HN.Jr: At least it's in the interest of the

two Governments, isn't it?

Mr. L-B: Oh, I think we are both interested

in having a boom market.

HM,Jr: That can be lost by trying it? Their

treasuries are full. We would love to buy our stocks.
These companies are just filthy with money and a man
cones along and offers them a block of their own stock,
they are going to buy it. They are their own best
customers. They will pay you more than anybody else.

The only may to find out if I an right or wrong
is to try it. You don't even have to do anything publicly. Take ten companies, but have it so that it
would be a percent of the stock that the English and

French own in this particular company.

Mr. L-3: I think the British have far more than

we have so they my think they want to be independent of
the French.

HM,Jr: Personally, I would like to see something
like this started one way or the other, and when I speak
like this I an speaking for the President and myself, not

just for myself.

o0o-a0o

249
Treasury Department

Division of Monetary Research
Date
To:

Jan. 5, 1940

1938

Secretary Morgenthau

Appended are the latest drafts of By-laws,
Convention and Charter of the proposed Inter-American
Bank.

The Inter-American Subcommittee will have

completed its task by tomorrow. I have indicated
clearly to Mr. Berle and to the Subcommittee that
these drafts represent the work of the technical men
C cooperating with the Subcommittee and in no way commit

the Treasury Department, or other participating departments, or the Government, to approval of any of

the details.

MR. WHITE

250

INTER-AMERICAN FINANCIAL AND SCOGUNIC ADVISORY COMMITTEE

FOURTE
PRELIMITARY EXTRADUR
DRAFT OF BY-LAWS OF THE
INTER AMERICAN BANK

Pen American Union

Washington, a c

251
Betruary 2. 2940.

Draft of En-Lave of = Bank to be

called the Bank.
L

The principal office of the Birth small be in the United States of

America and branches - be established anythere in the Terminate

2. Capital Streeture - Participation
L The capital stock stail - agreement in United States

(nother referred to as dollars) and shill be authorized = - of $100,000,000 comitating of 1000 asting E per value If - to be paid for in gold OFF in milkers, The parties = = urine of each share shall be pass = is the time of missing I
belance my be called If at a later taste - astes = the issue of
the Bourd of Directors of the The months' motion - - = my such calls. Upon the formation = the Beat - same of studio
shell be salf st J. Thereafter - issue price of saures - first by E four-fifts rejorted TOTOL = the Bourt of Sincerely

if Stock shall be available the may = = Governments
of = American Expablies. For = - to participate = = Bank

= must subscribe for = minimum - = shares, determined = program

= the dollar value of the total - - = - = =

Republica during the year 1905, -

from kc Tip to 25 million dollarse

Costa Birs, Structure, III Submitter

Bitt, Fondures, Mcarngra Purgas

Group Al Over 25 million doilors - IF to
50 million dollars
Dumizion Regublic, Naturally Group c: Over 50 million dollars - IF to
75 million dollors:
Enline

Broup DE Over 75 million dollars - 100 million dollarse
Drugung

Group E: Over 100 million = to
150 million dollarse

Para

Group #: Over 150 million dollars 250 million dollarse
Chile, Calcubin - Cubas

#20 -

===30 -

252

2Group a Over 250 million dollars and up to
500 million dollars:
Mexico and Tenezuela

Group #: Over 500 million dollars:
Argentine, Brazil and United States

35 shares
50 shares

Bank participating country may subscribe for stock in addition to

the minimum There the demand for such additional stock exceeds the
amount available for issue by the Bank, such demand will be net on on
equal basis from such available shares.

in Eligible governments which do not participate in the Bank at the
the of its formation shall be permitted to participate in the Bank upon
shace for the minimum number of shares, subscribing to the Convention
relating to the Bank and after complying with my other terms and
conditions designated in regulations of the Bank

a Liability of a shareholder on its shares shall be limited to the
issue price of the shares held by it.
E (1) The shares of stock held by each government shall be security
for all the obligations of such government to the Bank, and shall not be
otherwise pledged or uncumbered by the shoreholder.

(2) If = government fails to pay any call I = share on the day

appointed for the payment thereof, the Bank my, after giving reasonable

notice to such government, revest in itself title to such share, paying
= the defunding shareholder an amount equal to the fair value of such
stars = determined by the Bank less the amount ungaid can such share and

lans any amount which the Bank considers necessity as additional collateral
for my outstanding obligation or liability of such government to the Bank.
Failure to PET any call on a share on the day appointed for the payment
thereof shall degrive the defaulting government of its right to exercise
I write in respect of such share so long as such government remins in do-

fault, provided that the failure of a government to R any call on the

minimum number of shares required to be subscribed by it shall deprive
such government of the right to exercise my voting power during the period

of default

(3) If E government defaults on any other obligation to the
Burn, the Bank my, after taking reasonable action to realize on my other
millateral given to secure such obligation and after giving reasonable
notice to such government, revest in itself title to = appropriate number

of shores belonging to such government and apply to the defaulted obligation
the fair value of such shares, as determined by the Boni, less the amount
unpaid - such stares. Any amount remaining, less any amount which the
Bank considers necessary as additional collateral for my outstanding

utiligation - liability of such government to the Bunk, shall be paid by

the Bank to the defaulting government.

253

-3(4) If, after a government has had a reasonable opportunity

to present its position to the Board, the Board by a four-fifths majority

vote finds that such government has violated any provision of the
Convention relating to the Bank such government shall cease to participate
in the Bank and the Bank may revest in itself title to an appropriate
number of shares belonging to such government and apply the fair value
of such shares as determined by the Bank, less the amount unpaid on such
shares, to compensate the Bank for such damages as it determines it

suffered by reason of such violation. Any amount remaining, less any
amount which the Bank considers necessary as additional collateral for
any outstanding loan or liability of such government to the Bank shall
be paid by the Bank to such government.

F. Shares of stock may be transferred only to the Bank or to other
participating governments at a price to be agreed upon between the parties

and upon the approval of the transfer by a four-fifths majority vote of

the Board of Directors. If, as a result of the transfer of shares of

stock or reacquisition by the Bank, or for any other reason, a government
holds less than the minimum amount of shares of stock required of it,
such government shall cease to participate in the Bank, but its
obligations and duties with respect to the Bank shall continue.
G. The capital structure of the Bank, including the number and
par value of shares, may be increased or decreased by a four-fifths
majority vote of the Board of Directors, except that c unanimous vote
shall be required to increase or decrease the minimum holdings of
participating governments.

3. Management

A. The administration of the Bank shall be vested in the Board
of Directors composed of one director and one alternate appointed by oach
participating government. Each government shall appoint its director and
alternate in a manner to be dotermined by it. Such director shall serve
for a period of two years. An alternate shall serve for such period
as shall be determined by his government. The Bank shall pay such reasonable expenses as are incurred by the directors and alterntos in attending
any mootings of the Board or any committee of the Bank. The voting power

held by a participating government shall be exercised by the director and
in his absonce by the alternate or a nominoe or proxy. The alternate may

othersise participate in the activities of the Board.

B. Meetings of the Board of Directors shall be hold not loss than
four times a your and may be hold either at the principal or any branch
office or at any other city in a participating country as the Board of
Directors may determine. The Prosidont may call special or extraordinary meetings of the Board of Directors at any time,
C. The Board shall select a president of the Bank who will be
the chief of the operating staff of the Bank and who also shall be
ex-officio chairman of the Board of Directors, and one or more vice
presidents, who shall be ex-officio vice chairmon of the Board of Directors.
The president and vice presidents of the Bank shall hold office for two

254

-4years and shall be eligible for reelection.
D. The departmental organization of the Bank shall be determined
by the Board. The heads of departments and other similar officers
shall be appointed by the Board on the recommendation of the president.

The reminder of the staff shall be appointed by the president.

E. The Board may also appoint from among its members on executive
committee to perform such duties and to act in such manner as my be

determined by a four-fifths mijority vote of the Board of Directors.
The Board may, by a four-fifths mcjority vote, delegate to designated

officers and committees of the Bank power and authority to make looms
and extend credit in such small amounts as my be fixed by the Board

of Directors. The Board may at any meeting, by a four-fifths majority
vote, authorize the President or = committee of the Bank to exercise any
of the Board's powers or authority until the noxt meeting of the Board.
F. The Board my appoint advisory committees chosen wholly or
partially from persons not regularly employed by the Bank.

G. The Board, before the and of the first year of its existance,

shall by regulations prescribe the reserves to be established and
maintained against demand deposits and other obligations of the Bank
and shall prescribe a limitation on the amount of intermediate and longterm assets in rolation to capital and surplus; and such regulations shall
not be amended, modified or revoked except by a four-fifths majority
vote of the Board.

H. Before the Bank finally approves an intermediate or long-term loan

or extension of credit, a full written report on the merits of the proposed
transaction shell be prepared by a committee of experts which my include
persons other than officers and employees of the Bank.

I. Except as herein otherwise provided, decisions of the Board shall
be by simple mjority of the votes cast. In the case of equality of votes,

the chairman shall have a deciding vote. A Government may vote at meetings

either through the director or alternate or through = nominee or proxy in
such nonner as the Board my provide by regulations. Then deemed by the

president to be in the best interests of the Bank, decisions of the Board
of Directors my be mode without = meeting by polling the directors on
specific questions submitted to them in such manner as the Board of

Directors shall by regulations provide. The Board of Directors shall by
regulations determine what constitutes a quorum for c mooting.

J. Approval by four-fifths mojority vote of the Board of Directors

shall be required for the making and greating of intermediate and long-term
loans and credits, including the assumption of the obligation of a
guarantor on intermodiate and long-term loans and credits; the acquisition
and sale of intermediate and long-torm obligations and securities; the
discounting or rediscounting of intermediate or long-term paper; engaging
in bullion and foreign exchange transactions and othersis incurring

255

-5foreign exchange risks; the issuance of debentures and other securities
and obligations of the Bank; the determination of the functions and duties
of the officers and principal employees of the Bank and the executive
and other committees; the calling up of the balances due on stock; the
creation of branches of the Bank, and for amending the By-laws, except
that Article 5A of these By-laws may not be amended. Four-fifths majority
vote of the Board of Directors, as used in these By-laws, means four-fifths
of the votes cast.
4. Accounts and Profits.

A. The financial year of the Bank shall end - December 31.
3. The books and accounts of the Bank shall be expressed in terms

of the United States dollar.

C. The Bank shall publish an annual report and at least once a
month a statement of account in such form as the Board may prescribe. The
Board shall cause to be prepared a profit and loss account and a balance
sheet for each financial year. All published documents shall be printed
in the official languages of the participating governments, The Board shall
designate a committee of Directors to arrange for examination, at least
caree a year, of the books and accounts of the Bank by competent experts
to be selected by the committoe.

D. The yearly net profits of the Bank shall be applied as follows:
1. Not less than 25 o/o of such not profits shall be paid into
surplus until the surplus is equal in amount to the par value
of the authorized capital stock of the Bank.
2. The remainder of such net profits stall be applied towards

the payment of a dividend of not more than 3 o/o por annus
on the paid up amount of the stock of the Bank: Provided,
however, that dividends shall be noncumulative and no dividends

shall be paid so long as the capital of the Bank is impaired.

3. The balance of such profits shall be paid into surplus and
be designated a dividend reserve.

E. The Board of Directors by a four-fifths mjority vote may declare

dividends out of the dividend reserve in surplus of the Bank,
provided, however, that total dividends in any one year shall not
be more than 3 o/o of the paid-up amount of the stock.

F. The Bank may not be liquidated except by a four-fifths majority
vote of the Board of Directors. Upon liquidation of the Bank and after
discharge of all the liabilities of the Bank, the assets romaining shall
be divided among the shareholders.

256

-6is The shares shall carry equal rights to participate in the

profits of the Bank and in any distributions of assets upon liquidation
of the Bonk.

5. Purposes and Powers

4 The Bank is crested by the American States to carry out the
following purposes:

(2) Fumilitate the predent inrestment of funds and stimulate the

fill productive use of capital.

(2) Assist in stabilizing the currencies of American States;

encourage the mintanure of adequate monetary reserves, promote the use

and distribution of gold and silver; and furilitate monetary equilibrium.

(3) Function as = clearing house for, - in other ways facilitate,

the truster of international payments,

(4) Increase international trade, trural and exchange of services

in the Testern Emisphere.

(5) Promote the development of industry, public utilities, mining,
agriculture, commerce and finance in the Restazo Samisphere.

(5) Faster cooperative action among the American States in the

fields of agriculture, industry, public utilities, mining, marketing,

- transportation and related economic and financial mitters.

(7) Encourage and promote research in the technology of agriculture,
industry, public utilities, mining and commerce.
() Engage in research and contribute export advice on problems
of public finance, exchange, banking and money as they relate specifically
to the problems of American States.

(9) Promote publication of date and information relating to the
purposes of the Bank.

if In order to carry out the foregoing purposes, the Bank shall have
specific power to:
(1) Make short-torm, intermediate and long-term loans in any
currency and in gold or silver to participating governments and to fiscal
agencies, central banks, political subdivisions and nationals thereof
- such security as the Bank my require; provided that the government
of the burrower shall guarantee any such loan to such fiscal agency,

central bank, political subdivision and antional.

(2) Buy, sell and can in the obligations and securities of
participating governments and of fiscal agencies, central banks, political

257
-7-

subdivisions and naticnalsthereof provided such obligations and securities
are guaranteed by participating governments; and provided, further, that the
Bank shall not but obligations and securities that are in default in whole of

in part as to principal ar interest.

(3) Guarante in whole or in part loans made from any source to participating governments and to fiscal agencies, central banks, political subdivisions
and nationals thereof, provided that the loans are guaranteed by the government
of the borrower.

(4) Act as a clearing house of funds, balances, checks, drafts, and
acceptances.

(5) Buy, sell, hold and deal in precious metals, currencies and foreign

exchange for its own account and for the account of others; and guarantee the

availability and the rates of exchange of the currencies of participating
governments.

(6) Issue or sell debentures and other securities and obligations of the
Bank to obtain assets for the purposes of the Bank, provided that such debentures
and other securities and obligations shall not be issued or sold by the Bank
in the territory of any participating government which makes a timely objection.
The Bank may also borrow in any other manner from participating governments and

political subdivisions and banking institutions thereof unless the government
of the lender makes a timely objection.

(7) Accept demand and time deposits and custody accounts from governments

and fiscal agencies, central banks, political subdivisions and nationals thereof

unless the government makes a timely objection. Provided that the Bank shall pay

interest, if any, only on deposits og governments, fiscal agencies and political
subdivisions thereof and central banks.

(8) Discount or rediscount bills, acceptances and other shortterm bbligations and instruments of credit of participating governments and fiscal agencies,
central banks, political subdivisions and nationals thereof, provided that such
paper, as is not the direct obligation of such government, is guaranteed by the
government.

(9) Rediscount with any government, fiscal agency or banking institution
bills, acceptances and instruments of credit taken from the Banks portfolio; provided, however, that the Bank may not rediscount with a fiscal agency or a banking institution in the territory of a participating government which makes a
timely objection.
(10) Spen and maintain time and demand deposits and custody accounts with
governments and banking institutions and arrange with governments and banking in-

stitutions to act as agent or correspondent for the Bank.

(11) Act as agent or correspondent for any participating government and fiscal agencies, central banks and political subdivisions thereof, unless the
government makes a timely objection.

(12) Engage in financial and economic studies and publish reports thereof.

258

-8 (13) Buy, sell, negotiate and deal in cable transfers, accept bills and
drafts drawn upon it, and issue letters of credit; all subject to the limitations

herein provided with respect to loans, extensions of credit, discounting and
rediscounting of paper, and dealing in obligations and securities.

(14) Exercise incidental powers necessary and proper to carry out the powers

expressly authorized herein.

C. The Board of Directors shall determine the nature of the operations

which may be undertaken by the Bank in the exercise of its powers and in order

to effectuate its purposes. The operations of the Bank shall at all times be
conducted in conformity with the laws of the territory where the Bank is acting
and, so far as possible, be conducted in conformity with the policies of the

participating government directly concerned.

6. Definitions
A. As used herein "national" shall include any person who is domiciled in
or a citizen or resident of a participating country, and shall also include any
individual, partnership, association, corporation or other entity organized under
the laws of a participating country or engaged in business in the territory of a

participating country.

B. As used herein "short-term" shall mean a period less than one year;
"intermediate" shall mean a period from one to five years; and "long-term" shall

mean a period longer than five years.

C. As used herein "political subdivision" shall include territories, de-

pendencies, possessions, and also states, departments, provinces, counties,

municipalities, districts, and other governmental organizations and authorities.
D. Within the meaning of these By-Laws a government shall be deemed

"to make a timely objection only if such government, after its director is

notified of proposed action by the Bank and within the reasonable period
of time fixed by the Board, presents to the Board through such government's
director, nominee or proxy its objection to such action. The Bank shall
notify the directors representing the governments concerned when action is
contemplated by the Bank under Article 5 B (6), (7), (9) and (11) of these
By-Laws.

6178

259

INTER NUMBER AND AND -

SECOND

IRST OF I

TO The 338

Pax Aucrienn Union

Testington, as

260
February 3, 1940
Second

Preliminary draft of Convention
Relating to the Inter-American Bank
The contracting Governments of the American Ropublies
CONSIDERING

First, that economic end financial comparation among the American Republics

is an essential factor in fostering the walfure of and maintaining solidarity
EMONE these Republies:

Second, that such cooperation would be greatly facilitated by the este-

blishment of as Inter-American Bank;

here resolved to eccelude a exprention an the following lines:

First Article
The contracting parties agree to the creation of an institution to be

km as the Inter-American Beak to carry out the purposes and to have the
powers stated in the proposed charter and by-laws annexed hereto. The contracting parties agree that the benk still be accorded the powers, rights

and privilages under their laws to in all types of activities, trens-

actions and operations arrisaged in spen churter and by-laws and further agree

to emart any legislation and to trim - other action necessary to accord

such powers, rights end privileges to the bank The United States of America
also agrees to great to the bank = charter substantially in accordance with
the proposed charter assered hereto. Each contracting party hereby agrees to
subscribe for the minimum number = stares required of such government for
participation in the Bank as provided in. the annual by-laws.
Second Article

The contracting perties great within their respective territories, the
following rights, privileges, immunities and exections, in time of peece or
wis and in - period of emergency = otherwise; and agree to enect any legillation and to take any other action necessiry to effectuate such rights,

privileges, immunities and exeptions.

he The bank, its assets, obligations to it and its real and personal

property of whatsoever sature, including city property deposited with it on =

custody basis or otherwise, shall, wheresoever loanted and by whomsoever held,

be exempt and issuance from

(1) requisition. seizure, attachment, execution, confiscation,
morateria of expropriation;

(ii) prhibitions, restrictions, regulations and controls of withdrunk, transfer, or export; and
(iii) currency, monetary and exchange and debt regulation and control

by the contracting party or any political subdivisions thereof, whether or not
compensation is offered,

-2-

261

B. Where restrictions, regulations, prohibitions or controls exist or
are imposed in the territory of the contracting party in regard to the con-

version or exchange of its currency into foreign currencies, the contracting
party shall grant, sell, or otherwise make available to the Bank, foreign exchange, including precious metals, desired by the Bank for such local currency held by the Bank on a basis, as to amount and rate as well as to all
other factors, no less favorable than the most favored treatment extended by
the contracting party to any government or political subdivision the reof, or
to any individual, partnership, association, corporation/or other organization
or entity of whatsoever nature.
C. The Bank, its assets and roal and personal property of whatsoever

nature, including, without limitation of the forogoing, its charter, capital,
reserves, surplus, income and profits, its activities, transactions and

operations, and shares of stock and all notos, dobentures, bonds and other
such obligations issued by the Bank including dividends and interest the roon,
by whomsoever held, and any romunerations or sclaries paid by the Bank, and

also any individual, partnership, corporation, association or other entity
in its donlings and relations with the Bank in any of the foregoing matters
and in its acquisitions, holdings, transfers or dispositions of any such shares
and obligations of the Bank, shall be exempt and immune from all taxtion by
a contracting party or a political subdivision thereof now of hereafter imposed
and by whatever name described, including, without limitation of the forogoing,
excises and imposts; provided, however, that the foregaing shall not be cons-

trued as proventing the imposition by a contracting party or any political
subdivision thereof of non-discriminntory texos upon nationals of such con-

tracting party wi respect to any of the foregoing. As used heroin, "ntional"

shall include any person who is domiciled in or a citizen or resident of a
contracting party; and shall also include any individual, partnership, associction, corporation or other entity organized under the laws of the contracting
party or engaged in business in the territory of the contracting party otherwise than exclusively with the Bank; but "national" shall not include the Bank.
Notwithstanding any of the foregoing neither a contracting party nor any
political subdivision thereof shall impose any tax on or measured by salaries
or rumunerations of any other contracting party. Nothing in this paragraph
shall make the Bank or any other party referred to above exempt or immune
from any customs duties or other taxes, fees, charges. or exections imposed

on or in connection with the importation or exportation of any article; provided,
however, that the exportation of intangible property, including, without
limitation of the foregcing, stocks, crodit instruments, securities and evidences the

of indobtedness, and coin, currency and procious metcls, owned or held whomsoever by

Bank or deposited with it on a custody basis or othersise, and by

held, shall be exempt and immune from any customs duties or other taxes, fees,
charges or excritions.

The Bank, its assots, obligations to it and its real and personal
property D. of whatsoover nature, including any property deposited with it on hold, a
custody basis or otherwise, shall, wheresoovor located and by whomsoever final

be subjoct to attachment or execution by a private party only after
judgment or docree in a suit, action, or procooding in a court of a contracting

party or political subdivision thereof.

E. The stock and the notes, debentures, bonds and other obligation
issued by the Bank shall be exompt and immune from prohibitions, restrictions, or
regulations or controls, now or hereafter imposed by a contracting party issue

any political subdivision thereof, with respect to the registration,
and sale of stock and securities and other obligations.

262
s

As used in this Article "political subdivision" shall include territories,
dependencies, possessions, and also states, departments, provinces, counties,
mucipalities, districts, and other governmental organizations and authorities.
Third Article
The present convention shall be ratified and effectuated by the contract-

ing parties in conformity with their respective constitutional methods. The

original instrument shall be deposited in the Pan American Union, in Washington,

which shall transmit authentic certified copies to the contracting parties for
the purpose of ratification. The instaurment of ratification shall also be
deposited in the archives of the Pan American Union, which shall notify the
signatory governments of such deposit. This notification shall be considered
as an exchange of ratifications.
a

4/spife atter I

Fourth Article

The present convention shall come into force and effect as between such 2Bq

ratifying parties if and when ratifications of this convention shall have been
personal
deposited with the Pan American Union by at least five of the contracting
parties/which have agreed to subscribe for at least a total of 110 shares of
stock of the bank) Each deposit of ratification shall be accompanied by the
designation of a person to serve on the Organizing Committee of the bank, which
Committee shall meet forthwith after the convention shall have come into force
and effect as provided herein and proceed with all arrangements necessary for

eye

prompt organization of the bank.

Fifth Article
A contracting party shall remain bound under this convention for one
year after such party ceases to participate in the bank and ceases to be in
any way obligated to the bank.

Sixth Article
This convention shall remain open to the adherence or accession of
American Republics which are not now signatories. The corresponding instruments
shall be deposited in the archives of the Pan American Union which shall
communicate them to the other contracting parties.

6184

263
February 2, 1960.

Draft of Charter of the Inter-American Bank,
(Such Charter would be granted by an Act of the
Congress of the United States of America)

Sec. 1. There is hereby created a body corporate with the name
"Inter-American Bank" (hereinafter referred to as "the Bank") which
shall have the powers hereinafter granted.

Sec. 2. The structure, operations and activities of the Bank
are defined and governed by the By-laws,
which
areBank.
summer
the
relating
to the
ThetoBank
Convention of
shall have all incidental powers necessary and proper to carry out
the powers now or hereafter expressly authorized herein or in the
By-laws of the Bank.

Sec. 3. The Bank may begin operations when at least a total
of 110 shares of stock of the Bank are subscribed for by at least
five governments which have also deposited their retifications of the
aforementioned Convention with the Pan American Union.

Sec. 4. The Bank shall have succession for = period of twenty
years from the date of enactment hereof or until such time as it shall
be lawfully dissolved. The United States agrees not to repeal or
amend this charter except upon the request of the Bank pursuant to
= four-fifths majority vote of the Board of Directors of the Bank.
The United States may extend the charter for additional twenty year
periods upon the request of the Bank pursuant to = four-fifths
majority vote of the Board of Directors of the Bank.
Soc. 5. Amendmonts to the By-laws of the Bank, consistent with
the aforemontioned Convention, this Charter, and the purposes of the
Bank as now set out in Article 5 A of the By-Lows of the Bank, may be
adopted by the Bank pursuant to a four-fifths majority vote of the
Board of Directors, provided, however, that article 5 A of the By-laws
my not be amended.

Sec. 6. The Bank shall have power to adopt, alter and use a
corporate soal; to make contracts; and to acquire, own, hold, use or
dispose of such real and personal property as may be necessary for the
transaction of its business,
Sec. 7. The Bank any sue and be sued, complain and defond, in any

court of competent jurisdiction. Any civil suit at law or at equity,
brought within the United States, its territories and possessions, to

which the Bank shall be a party shall be deemed to arise under the laws

of the United States, and the district courts of the United States shall
have original jurisdiction of all such suits; and the Bank in any such
suit may, at any time before the trial thereof, remove such suit into

the district court of the United States for the proper district by

following the procedure for the removal of causes otherwise provided
by Law.

264

January 5, 1940

(Immediately following the

visit of Mr. Leroy-Beaulieu)

Present:

Dr. Feis

Hr. Cotton

HM,Jr: I had Leroy-Besulieu in here. It will
just take a minute to tell you. This thing of vesting

these securities -- you see, that's what we were talking about -- and because he's going back, I told him
that I thought they had made a great mistake -- the
English had -- in not doing this thing that we had worked
out, but he said they were thinking of selling their securities to the French banks and then let the French
banks borrow. I said I did not want to pass on that,
but I said I wish you would make this suggestion: that
there is no question our market is being held down be-

cause people don't know how much securities are going
to come on the market and if the English and French would

take the stocks of ten well-known companies -- say they
own so many shares of United States Steel, and then go
to U. S. Steel and say'we own 10,000 or 100,000 or U.S.
Steel. Does the United States Steel want to buy it?'
they are your best customers. All of these companies
are filthy with money and don't know what to do with it.

I said the S.E.C. would make it easy to do it and they
would pay you more than anybody else. I said try it
with ten companies. Well, he was very much interested
and is taking it back, but I did not pass on his message.
I have had this in mind for sometime. But the
other thing I got over to him -- not this time, another
time -- that we would like to know when we get through
with this show, are we going to own all the gold or not.
I said it very gently. He has that and I took great
pains when he was here, ten days ago, to goover that
whole business with him. His answer was it would be

hard to change the opinion of 45,000,000 Frenchmen; that
45,000,000 Frenchmen could not be wrong.

265

CABLE
FROM: Treasury Attache Ficholson
Shanghai, China
DATE: January 5. 1939

For the Secretary of the Treasury
Current situation Shanghai for week ending December 30, 1939.
Exchange business during week was not large, rates were steady on

rather larger than usual Hong Kong business owing to belief that
Eong Kong dollar was to be devalued. There was good deal change

over business and January overbought position estimated at U. S.
$10,000,000. Stock exchange was active despite holidays and price
level advanced substantially. During week a Japanese bank lent
$10,000,000 local call money at 66. In November compared with
October, number of ships entered and cleared at Chinese ports
down 72% while tonnage was down 2x,compared with November, 1938
number of ships was down 44% while tennage was down 18%

266

January 5, 1940

Congressman Doughton was here and he said that he

felt that this asking a lot of questions of people to make

suggestions about taxes was a mistake and it would come
back on his Committee; that he had never been consulted

by Hanes and that he felt that this writing out for a lot
of suggestions had been a mistake.

I said, "Well, I sent this report up to you.' Se
said, "I know you did and I am going to read it when I get
to it." I said, "What are you going to do with it? and
he said, *Well, I will turn it over to the Committee.
And he kept repeating, two or three times, that he
thought it was a mistake ever to have done it.
I gave him a copy of the letter from Hanes to Congressman Boehne, but did not give him the personal letter which
went along with it as I thought it was unnecessary.
(Above was dictated while Mr. Sullivan was present.)

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

M

January 5, 1940

MEMORANDUM FOR THE SECRETARY

There is attached hereto statement of contracts made by
the French and British for airplanes, engines, propellers
and other equipment, showing the status of these contracts
as of January 2, 1940.

The British contracts are included on the last page of the

attached statement.

Director of Procurement

267

Contractor

Description

North American Aviation, Inc.

Basic Trainers

230

0

Douglas Aircraft Company, Inc.

2 engine Bomber DB-7

170

0

Curties-Wright Corporation

1 engine Pursuit 75-A

200

200

Glenn L. Martin Company

2 engine Bomber 167-F

215

120

Dec. 31, 1939

Douglas Aircraft Company, Inc.

2 engine Bomber DB-7

100

27

Jan. 31, 1940

North American Aviation, Inc.

Basic Trainer

230

230

Nov. 15, 1939

40

40

Nov. 30, 1939

Ordered

Delivered

Comple

Delivery
Aug., 1940

Aug. 31, 1940

United Aircraft Corporation
Chance-Vought Division

Curtise-Wright Corporation

Dive Bomber V-156

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

530

0

100

0

Glenn L. Martin Company

2 engine Bomber 167-F

150

0

Douglas Aircraft Company, Inc.

2 engine Bomber DB-7A
2600 Wright

100

0

Curtiss-Wright Corporation

1 engine Pursuit 75-A

20

0

Consolidated Aircraft Corp.

2 engine Boats 28/5MF

30

0

2,095

Jan 2, 1940 (F)

617

Dec., 1940
Dec., 1940
June, 1940

Dec. 31, 1940

Jan. 30, 1940
May 31, 1941

ENGINES

Contractor

Description

Curtiss-Wright Corporation
Wright Aeronautical

R2600 Twin Row Cyclone

1,440

United Aircraft Corporation
Pratt & Whitney Division

P&W 1830 Twin Wasp

1,821

1,349

United Aircraft Corporation
Pratt & Whitney Division

P&W 1535 Twin Wasp, Jr.

1,100

8

Curtiss-Wright Corporation

CW OR2600 Twin Cyclone

42

14

United Aircraft Corporation
Pratt & Whitney Division

P&W 1830 Twin Wasp, 2 speed

2,250

0

United Aircraft Corporation
Pratt & Whitney Division

P&M 1830 Twin Wasp, 5-30-40

6

0

Curtisn-Wright Corporation

OR1020 Cyclone

455

0

General Motors Corporation

Allison V-17-10-1710-0-15

115

0

Curtiso-Wright Corporation

OR-1820 Cyclone

20

0

Curtiss-Wright Corporation

CW R-975-E Single Row Whirlwind, 450 HP

Jan. 2, 1940 (F)

for North American Basic Trainers

Ordered

Delivered

0

115

20

7,372

1,397

Complete

Delivery

Dec. 31, 1940

July, 1940
Dec., 1940

Mar. 15, 1940
Dec., 1940
Dec. 31, 1940
Dec. 31, 1940

Oct. 31, 1940
Dec. 31, 1940
May 31, 1940

PROPELLERS

Complete

Contractor

Description

United Aircraft Corporation
Hamilton Division

Standard

350

0

April 50, 1940

Standard

200

0

Jan. 31, 1940

36

0

Standard

450

0

July 31, 1940

Standard

600

0

Dec. 31, 1940

Standard

900

0

Dec. 31, 1940

Hydromatic

905

0

Dec. 31, 1940

1210

0

Dec. 31, 1940

Hydromatic

Curties-Wright Corporation

Standard
Hydromatic

Ordered

800
or

5,451

Jan. 2, 1940 (F)

Delivered

0

Delivery

May 31, 1940

Feb. 28, 1941

OTHER EQUIPMENT

Complete

Ordered

Delivered

Delivery

Contractor

Description

General Electric

Searchlight Equipment
Trucks (General Motors)
Portable Power Plants

128
640
304

0

Searchlight Equipment

256

11

256

11

115

80

400

400

5000

400

20

0

400

0

May 31, 1940

400

0

May 31, 1940

345

0

June 30, 1940

8,344

902

Sperry Gyroscope Company

Fairchild Aeronautical
Camera Corporation

Sound Locators

Cameras

Colt Patent Firearm Company

Machine Guns

Air Associates, Inc.

Flares

J-V-W Corporation
Sperry Oyroscope Company

Pioneer Instrument Company

Jan. 2, 1940 (F)

Link Trainers
Oyro-Horizons

Directional Qyros
Compasses

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

0

0

Nov., 1940
Nov., 1940

May 31, 1940

AIRPLANES

Complete
Ordered

Delivered

Bomber Reconnaissance

200

200

North American Aviation, Inc.

Advanced Training

200

200

Lockheed Aircraft Corporation

Bomber Reconnaissance

50

50

North American Aviation, Inc.

Advanced Training

200

200

Lockheed Aircraft Corporation

Bomber Recce

200

0

North American Aviation, Inc.

Advanced Training

600

0

1,450

650

Contractor

Description

Lockheed Aircraft Corporation

Note - Engines in Lookheed Bomber Reconnaissance planes are Wright G-102
Recce planes are: 130 Wright G-102
If

#

"

70 Wright G-205

Engines in North American Advanced Training planes are Pratt & Whitney Wasp, 550 HP

Jan. 2, 1940 (B)

Delivery

M

CONFIDENTIAL
WAR DEPARTMENT

JM/ECT

WAR DEPARTMENT GENERAL STAFF

G-2/183-320

273

G-2

MILITARY INTERNATIONAL INSULES

January 5, 1940.

MEMORANDUD! FOR THE ASSISTANT CETER OF STAFF, G-2:

Subject: Estimate of Airplane Production in
Great Britain and France.

1. Airplane Production.

a. France. It is estimated that France at the pres-

ent time is producing approximately 400 conbat airplanes per month.

The breakdown by types follows:
Pursuit

240

Bombardment

80

Observation

80

Training planes

Unknown.

The performance of the bulk of the above produc-

tion, especially pursuit and bombardment, is believed to be definitely
inferior to the similar types now being produced by Germany. The

French appear to be a cycle behind Germany in the performance of
airplanes in production.

b. Great Britain. It is estimated that Great Britain
is producing approximately 800 combat airplanes per month and 200
training and miscellaneous types.

The performance of the British pursuit (singleseater, single-engine) compares favorably with German models of the

same class. However, this class has been in quantity production in

England since early in 1939, wherees in Germany the same class has

been in quantity production since the latter part of 1937. So far
as known the British have no twin-engine pursuit (fighter) in pro-

duction, while Germany has a high performance airplane of this class
which has been in production for a year.
In bombardment, British models are considered def-

initely inferior to Gernan types now being produced. The British
twin-engine bombing airplanes, believed to be in production nos, com-

pare favorably with the older German nodels which are believed now to

CONFIDENTIAL

CONFIDENTIAL

274

have been superseded in Germany. Both France and Great Britain are
believed to be a cycle behind Germany in the performance of the bulk
of the combat airplanes being produced.

2. Airplane Production Capacity. The airplane production
estimated in the foregoing paragraph is believed to be their maximum
capacity of Britain and France at the present time, provided new types

of airplanes are not being put into production. If a change over to

new nodels is in progress, then the production would be very much less

than that estimated in paragraph 1. It is believed that a minimum of
eight to tem months would be required to bring the production rate on
a new nodel of airplane up to maximum especity.

Airplane production is expending in both Great Britain

and France, especially in Great Britain, as added plant facilities

become available. The rate should increase materially during 1940
unless, however, new nodels are put into production. The status with
respect to the production of new nodels is not known. There is definite evidence of a shortage of engines in France. The situation with
respect to engines is better in Great Britain than in France. However,
Great Britain is believed capable of producing more airplanes than
she can build engines for.

S. General. It is believed that Great Britain's limitstions in the air are affected more by personnel than quantity of airplanes. Germany's lead in the production of superior types, combined
with Great Britain's trained personnel shortage, creates a more serious
situation than the discrepancy in the number of airplanes being produced by each country.

Imm Maguele,
JOHN MAGRUDER,

Colonel, F. A.,
Chief, Intelligence Branch.
td

CONFIDENTIAL

275

413

COPY
HSM

GRAY

Berlin
Dated January 5, 1940

Rec'd 8:40 a. m., 6th
Secretary of State,
Washington.

26, January 5. 4 p. m.
My 12, January 3. 4 P. m.

Details of a reorganization of Germany's Mar Economy Administration

briefly outlined in the last paragraph of my telegram under reference were
made public today in the form of an article by State Secretary Koerner,
Goering's assistant in the Four Year Plan Administration published in this
administration's official nagasine Der Vier Jahres Plan and reprinted by
all daily papers this morning of which the following is a summary.
The experience of the first month of the war has shown that German

national economy will remain a "field of military operations" for the

duration of the war and that therefore all available industrial capacity,
labor, raw materials and transportation must be currently directed and
adjusted to the changing requirements of the conduct of the war on land, on

sea and in the air. It is also necessary to meet "the brutal methods of
the British blockade by superior chess moves". German war economy must

therefore be made more elastic, inventive and bold in finding new ways
and means and also more relentless in pursuing the supreme goal of national

defense. This policy is predicated on three conditions: 1st, clear authority

276

has 2- To. 26, January 5. p. n., from Berlin
to issue orders and a strict authoritarian lendership of the entire WET
economy: 2nd, close current cooperation of all agencies whether of state
or party which have a relation to war economy problems; 3rd. discipline
and cooperation of the whole nation of producers as well as CONSUMERS.
These were the motives which caused Goering in December to undertake a

unification in the conducting of Germany's war economy. Spering takes
the administration of war economy wholly in his hands' and the General
Commissioner for the Four Year Plan thus becomes the supreme authority for

German war economic measures while Funk's activities will forth with be

limited to commercial policy and war financing.

In fulfilling his task Goering will avail himself of existing governnext departments and the administrative organisation of the Four Year Plan

and thus has no intention of creating a new war economic board. In order,
however, to ensure the absolutely necessary cooperation of all government
departments concerned with the policy of economic war contact these depart-

nents will be represented in a "general rat" or general council, state
secretaries of the following ministries and departments are members of the
new council: Office of the General Commissioner for the Four Year Plan and
ministries for Economics, Food, Labor, Transportation and Interior, and the
Reigh Forestry Board. The Reich Price Control Commissioner, the Chief of
the Economic Department of the Army Command and a representative of Deputy

Fuehrer Eass are also members of the new board.

Goaring is the President of the General Council and will also
represent Goering in all matters relating to the administration of Germany's
war economy. But according to an explanatory statement issued by the Official
News Agency Pask will be Goering's deputy in all questions of general economic

277
list

No. 26, January 5. 4p. E., from Berlin

military The Agency also states that the DOM council will not change the

authority and functions of the Council of Ministers for National Defense
- of the Reigh Defense Commissioners.

KIRK

278

STRICTLY CONFIDENTIAL
January 5. 1940

Dear Rr. President:

I was considerably disturbal - receiving the enclosed

message free Bullitt. Is order to forestall as
situstion peoribly arising. I took the steps

described is the attached manate to - free Cochum

is your current I would 1 to have the opportunity
of discussing with you the abriability of having Professor Rist

and Rr. Ovethia - to the limited States at this time.

I

Sincerely yours,

The President,
the White Issues.

Paraphrase of teleghes To 7 free Paris:

pms

279

STRICTLY CONFIDENTIAL
January 5. 1940
Secretary Morgenthes
Mr. Cockran

At 9 o'clock last night I reached Er. Arthur 3. Purvis at the Empohire
House is New York by telephone from my hotel. I told his that I had just

seen the Secretary of the Treasury st his residence for five simulee as he
was leaving for the White House. I had boss instructed to telephone
Mr. Pervis and to request the latter to telephone Nonnet. in turn. as early as
possible on Friday morning, to the effect that the Secretary desired that
the contemplated early departure of Professor Rist and Mr. Gwatkia be postposed.
When Purvis asked who Guntkin was. I identified his as the economic oz-

part in the British Foreign Office who had been associated with staties of
Crechoslovakia, etc. Mr. Pervis then asked if the postponement meant that
Guntkin was persona non grate or that there had been any blunder in this

choice. I assured his that this was not the case. adding that the Secretary
had not been aware of Ovethin's identity, and took so exception to his when I
explained who he was. Ky only information was that the Secretary had learned

last evening that the early departure of Rist and at least one British expert

was contemplated, and that the Secretary desired that such visit be postponed,

irrespective of the identity of the visitors.

Mr. Purvis said he would get this manage through to Meanet the first
thing this morning and assumed that he would be hearing further from the
Secretary in the premises, since he I his people would be saxious for more
word. I assured his that we would keep is teach

280

CONFIDENTIAL
- - - RECEIVED

-- -mimin
/ Parts, /

-- - m. 1

- - is - - strictly /

- - - of State and the - of -

- is - to telegist No. 3099 of - 30
- Bad I withing today with the Maister

of / - his Chat de Cobinet - Mat.

To - - - - of - 32 -

to - in this Pervis reported Me Interview with -

- - - a - December 30. - Me -

w - / - - 29. - - -

- w as I have very certial, - mid
- to - - of family be found a deatre to

- all 1 - be also found . -

to 1 - - of - list of - - - 1 of - - mate of - for - -

-- - -- of-the- mobile
be ass
to
Perris was thas -

- 1 for - 1 of costing - - affiliat
exports - this - done quite mefficially -

/ - and I seld, to midd, the Met - to

- - 1 - seld this to a - -

Net were - - via clipper along with the Brittsh -

281

- Address Da Friday Rist will leave for
- - a salage to that effect has been cost to
butterers w letters.
Daily - brief reference to sicked was made w Pervies

to - - - should be consulted, and that
- - agree to seeing a representative free Ganada

for - purpose of dismening the a NOTE: Do you
- - salagram free Pervis before they are transmitted -

of you - - stall of - refreis free cabling the

- of these ambles to m
= appetition was - by Matthews that probably you

1 be - Interested is as outline of the policy of the
Alliso reporting - curfare as concerns the montals
of Sange - of aggitiations with them in this regard.
is attache was mile by his to explain the importance from

- - paint of vise of having a complete picture of
- stintia. The the Minister of Declare turned to
Rist - mill that since they had last talked be had changed

Ma sists that be thought a full - of their position

- - and should be gives w Mr. Net to the

Indian - Ball and Secretary and said
to was - - a 1 from the confidential expood
to ( had - before the Foreign Affairs Committee

of - - a for days age. The Maister - - to my
that the affilias were fully prepared to give to the neutrals

282

everything they seeded for thats - - provided difficult
- against responsibilities were provided. Those

- is - eases took the fees of /
- and that of Supertant Infestrial application

is others. The Allies, be said, have their of - eithin the mentral countries, with to
account larger system" is the ease of Italy. Per the most

part be said that the montale were relating to sim
agreements for fear there would be reaction from

- in the face of threats from Genesay.

E declared, libraise, that - for email. is the
case of Suitserland, the Individual segationals all always take "the breader point of vise* - that is, a

realisation of the allies' of the continued
integendent existence of the country concerned - is is

- to . over the head of the sugotiaters. reserving
to the only difficulty they were having with metrol we with the Betherlands, though be sold share -

. - tentusary for the metrols to thisk only with
longing of the been prosperity of the days before the

Mediado during the last - - be mid and really

continued useil the United States - Bage me w the Mestado stateter that - atalier to the
Presse-Belgian one signed neveral weeks - would be entered

tate w other has be feared that Generay -

283

. presental deterrent. As for the Scandinevies countries.

the Fresch are leaving the segotiating to the British.
Deference was also made by Permat to the differences
regarding questions of blockade within the French Government

Itself. Included is the Blockade Committee are representatives

of the Ministry of of the Navy, Foreign Affairs.
Celenies. of colors, withis the Committee 11 is usually
possible to reach agreement, has exheaquently the segarate

simistries frequently sake stimpto to overrule the decision,
and the *final authority has not been determined as yet.
the Minister sold that of source the Havy water to seise

everything. saying that they didn't realise you exales't

speet a whole diplomatic - for a few bage of coffee.
the Minister confirmed the freedom with which eval

exporte are being add to Italy from Germany by ⑉ - partly
because of the leak of allied OF neutral transport facilities but be expressed the hope that 1 freedom would not last

long. in a report they received free Rose this sorning.
from Ambrounder Francis-Posset. the Ambressder had indicated

that particular efforts were being node by Germany to got

fate and oil, is Italy: be also said that recently there
were receased shippents of says beans free Measurine for

Germany via Italy.
There were expressions of general ammoyance at the

attitude of the French press (center of information) is

284

in playting - alleged chortages and disconsiona is -

- in publiching fontestic figures in the - Risister said 18 we to believe what was
written in - article is the Paris SOIN today, by its

Bestan a to the effect that Germany has
sufficient potrolean to last only three months: be cald he
we quite opposed to giving the public such continually
stalentine ideas with regard to the weakness of the Germane.

a talk me had by Matthews with Rist with regard to

the destrability this his visit to the United States be
beailed with the street discretion and the sinteen of

publication 21st severa to be is full accord with this idea.
Before be leaves for Mishes he will call at the Tobaccy.
A reply and been received by Dayrue to his eable so

the Pyench authorities in indicating that
there are retually in French Indo-Chies - 4500 tone of
tongotes and 4200 time of antinery. Dayree said that be

ambled casts eaking for a list of the consignees - those

materials. 10 seemed he felt more confident that
as regards chiperate to the United States there would be

as difficulty. to intigated that for the meet part the
State that - or save brokers is New York would reesport

to Stborts case from the British. and they would love 19 a

the British to clear - the matter.
- or MESSAGE.
BULLITT.

Make

(Gagg)

285

STRICTLY CONFIDENTIAL
January 5. 1940

Dear Mr. President:

I was considerably disturbed ea receiving the enclosed

message free Ambassador Bullitt. In order to forestall as
embarrassing situation possibly arising. I took the stope

described in the attached to - from Cochum.
As your convenience I would like to have the opportunity

of discussing with you the activatibility of having Prefesser Rist

and Mr. Guntkin - to the United States at this time.
Sincerely yours,

The President.
the White Bouse.

Inclusive
Paraphrase of teleghes No. 7 from Paris:
Reservation

Kmg

Correstation FOR SECRETARY

----

CONFIDENTIAL
- - - Seria, Transe

-no.I1 it The

-

the Sa 1 - strictly confidential.
Year the Standary of State and the Secretary of the

Information is - to telegist No. 3099 of December 30

from the (Medical) - I privately today with the Maister
of Medicine - Me and do Gobdact Bayree. - Bist.
Be me - - - select of December 31 from Pervis
to Hospets to this Pervis separated his Interview with Secretary

- - - a - December 30. and his reception
w the Product - December a n strophere was
committed w Revis as heading base very certifies. and mild

- is - - of as found a desire to
- all 1 compensions be also found a willing

to - - - of - list of - securities or
- 1800 of - - appetals of - for which expert

Memes - - - so ass not entit to explacise
the delivere - d - problem. Pervis sold that be

Sound - - - 100 of miling over general allied
exporte. provided this - - quite mefficially and
primary . and Base seld. be said. that Rist would be

initially - - will that in a for days
Not will so - - alleges along with - British -

286

+
resertative, Addies a Briday Rist will leave for
Section and a telegram to that effect has been sent to
Batterworth by Batthres.

Only - brief reference to sickal was made by Pervisity

he a that Cassia be consulted, and that
- were agreeable to seeing a representative from Ganada

for the purpose of Hortening the atten. NOTE: Do you

- the telegrans free Pervis before they are transmitted -

If you do. - shall of - refrain from cabling the

e of those embles to m
The suggestion - - by Batthews that probably you
would be such interested is - outline of the policy of the

Allies regarding - expire as concerns the neutrals
of Surape and of segatiations with them is this regard.
As attages was unde by his to explain the importance from
the American point of vise of basing a complete picture of

the situation. These the Haister of Electrodo turned to
Rist and said that stage they had last talked he had changed

Ms minds that to thought a fall - of their position
towards the should be gives by Mr. Bist to the

Prosident, Secretary Ball - Secretary and said
be would - 1 a 1 from the confidential expect
be (Purset) had mile before the Burden Affairs Committee

of the a fee days age. The Maister want on to my
that the Allies were fully prepared to give to the neutrals

287

288

-3
everything they anoted for their our use provided sufficient
guarantees against reexportation were provided. These

guarantees is - casse took the form of governmental
assurease, and that of important industrial symdicates

is others. the Allies, be said, have their "little system
of surveillance within the neutral countries, with "a
account larger system" is the case of Italy. For the most
part he said that the neutrals were relustant to sign
agreements for fear there would be reaction from Geresay.

or is the face of threats from Germany.

No declared, libraise, that when, for example, in the
case of Suitserland, the individual negotiators did not

always take "the breader point of view - that is, a
realisation of the allies' insurance of the continued
independent existence of the country concerned - is is

accessary to . over the head of the negotiators. recording
to Dayree. the only difficulty they were having with any
neutral was with the Netherlands, though he said there was

a general tentosey for the neutrals to think only with
leaging of the been prosperity of the days before the
blockade during the last war - which he said had really

continued util the United States entered. Hope - expressed
by the Mechada Minister that agreements similar to the
Presse-Bolgian one signed several weeks ago would be entered

into by other mentrole, but he feared that Germany was

289

. I determent. As for the contribes,
m Premises are serving the segetiating to the British.
Informace we also made w Permet to the differences
regarding questions of blockndo within the Premises Government

shell. Included is the Connittee are representatives

of - History of of the Mary, Foreign Affairs,
Osienies, of colores within the Consistee " is usually
possible to reach agreement, has abonquently the coperate

sinistrites frequently sake attempte to morrale the desision.
and the *final authority" has not been determined as yet.

s Maister cold that of words the Bany wate to wise
everything. saying that they item's realise you ovalin's

speet a whole diplemette - for a fee hage of coffee.
- Minister configued the freedom with which eval
exports are being made to Italy from Community by - - partly

I of the look of allied or metrol treasport facilities but be expressed the hope that - freedom would not last

long. In a supert they received from I this sursing.

free Indecender the had indicated
that particular efforts were being - by - to got
fate and oils is Italys be also said that recently there
were - shippente of sage beens free Restrictions for

- via Italy.
Share were expressions of general - as the
attitude of the French press (center of information) in

290

is playing - alleged shortages and disconsiona in and is publishing fantastic figures in the
The Minister said it was "nonsense" to believe what -

written in - article is the Paris SOIR today. by its
Baries correspondent, to the effect that Germany Inc

sufficient petroleen to last only three months be said to
was quite opposed to giving the public such continually

sisleading ideas with regard to the weakness of the terms
A talk use had by Matthews with Rist with regard to

the desirability that his visit to the United States be
hamiled with the about discretion and the minimum of

publicity; Rist seened to be is full accord with this idea.
Before be leaves for Lisben he will call at the Televery.
A reply had boes received by Dayrns to his eable to

the French authorities is Indo-Chine. indicating that
there are retually is French Indo-China now 4500 teas of
tangstes and 4200 tons of antimony. Dayree said that be

cabled again asking for a list of the consignees - these
materials. Reverses, 18 seemed he felt more confident that
as regards shipments to the United States there would be

no difficulty. Be intigated that for the most part the
fears that - or more brekers in New York would resport
to Siboria case free the British, and they would love 18 to

the British Be clear - the aster.
- or KESSAGE.
BULLITT.
(Copy)

291

STRICTLY CONFIDENTIAL
January 5. 1940

Secretary Margentina
Mr. Cockres

At 9 o'clock last night I reached Mr. Arthur 3. Parvis at the Exapshire
House in New York by telephone from my hotel. I told his that I had just
seen the Secretary of the Treasury at his residence for five minutes as he
was leaving for the White House. I had been instructed to telephone
Mr. Purvis and to request the latter to telephone Mannet, in turn, as early as
possible on Friday morning. to the effect that the Secretary desired that

the contexplated early departure of Professor Rist and Mr. Gwatkia be postposed.

When Parvis saked who Quatkin was, I identified his as the economic expert is the British Foreign Office who had been associated with studies of
Crechoslovakia, etc. Er. Parvis then saked if the postponement meant that
Gysticia was persons DOB grata or that there had been any blunder in this

choice. I assured his that this was not the case, adding that the Secretary
had not been aware of Dunthia's identity, and took no exception to his when I
explained who be was. By only information was that the Secretary had learned

last overing that the early departure of Rist and at least one British expert

vas contemplated, and that the Secretary desired that rash visit be postponed,

irrespective of the identity of the visitors.

Mr. Purvis said be would get this message through to Mennet the first
thing this morning and assumed that he would be hearing further from the
Secretary in the premises, since he know his people would be saxious for more
verd. I assured his that we would keep in touch.

13mg

BMC/

292

TREASURY DEPARTMENT
WASHINGTON
OFFICE OF
COMMISSIONER OF INTERNALREVENUE

January 5, 1940.

ADDRESS

IONER OF INTERNAL
AND REFER TO

REVENUE

IT:P:CA
CAA

REPORT FOR SECRETARY MORGENTHAU:

In regard to closing agreements under the
Vinson-Trannell Act, there were no developments during
the week.

Jeasun
Acting Commissioner.

293

January 5, 1940.
ITsPaCA
CAA

REPORT FOR SECRETARY MORGENTHAUS

In regard to closing agreements under the
Vinson-Trannell Act, there were no developments during
the week.

(Signed) John L. Sullivan
Acting Commissioner.

294
GRAY

CK

London

Dated January 5, 1940
Rec'd 11:25 a.m.

Secretary of State
Washington

28, January 5, 3 p.m.
FOR THE SECRETARY OF THE TREASURY FROM BUTTERWORTH

STRIOTLY CONFIDENTIAL

The British Treasury states that it is most unlikely
that Wigham, due to his wife's serious illness, will be able
to return to the United States in the near future but that
Gifford is scheduled to leave England about the middle of
this month. While arrangements are still under consideration
I do not gather that any vesting order will be made until
Gifford has arrived in the United States.
JOHNSON
NWC

03/13038

295

DEPARTMENT OF STATE
WASHINGTON

January 5, 1940.

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury, and
encloses one copy of telegram No. 28 of January 5
from the American Embassy, London.

296

GRAY

EG

Berlin
Dated January 5, 1940
Rec'd 1:23 p.m.

Secretary of State,
Washington.

23, January 5, 9 a.m.
My number 2412, DECEMBER 20, 1939.

Total Reichsbank investments in bills, collateral,
loans and Eligible securities showed the usual sharp inCREASE during the last WEEK of DECEMBER by 963 million

marks to 12,619 million marks. Bill holdings alone increased by 970 million marks to 11,392 million marks while
collateral loans and Eligible securities registered a
small decrease. The Reichsbank continued to take advantage of Easy money conditions and unloaded during the
last WEEK of DECEMBER 13 million marks of Eligible

securities though this process is now going on at a
manifestly slower rate than in the preceding WEEKS.
Holdings of Eligible securities totaled 804 million
marks at the End of December against a war-time peak of

1,440 million marks on October 31.
Miscellaneous assets which include direct advances

of the Reichsbank to the Treasury increased in the last
WEEK of DECEMBER by 310,000,000 marks to 2,003 million
marks

297

-2- #23, January 5, 9 a.m. from Berlin
marks reaching a new war time record. In the second WEEK
of DECEMBER the Reichsbank's advances to the Treasury had

been temporarily reduced by 647 million marks owing to
record tax maturities on DECEMBER 10 which, according to

official estimates, WERE little short of 2 billion marks
and consisted of quarterly advance payments of income,
corporation and turnover taxes.

Reversing the almost uninterrupted absorption of
silver coin by the Reichsbank during the preceding months,
the holiday demand for currency in the last WEEK of
December caused the bank's coin holdings to decline
slightly by 29,000,000 marks to 350,000,000 marks.
Note circulation reached at the year End a new
war time record of 11,798 million marks which compares
with 10,974 million marks on November 30 and 8,710

million marks on. August 23. Against a year ago note
circulation showed an increase of 3,575 million marks or
43 percent.
(END SECTION ONE)
KIRK
WNC

298
PARAPHRASE, SECTION TWO, TELEGRAM NO. 23 OF JANUARY 5,
1940, FROM THE AMERICAN EMBASSY, BERLIN, GERMANY

Since the outbreak of the war, publication of the Reiche-

bank's official figures of total currency circulation
has been discontinued. However, it can be estimated that

for the year the total currency circulation was 14,500 million
marks; this consisted of Reichsbank notes in the amount
of 11,800 million marks, rentenbank notes of approximately
1,000 marks, and coin in the amount of 1700 million marks.
For the end of the year 1938 the comparable figure was

10,389 million marks, 80 that there was a rise of 4,111

million marks, or 39 percent, for total currency circulation
for the year. There was an increase since the twenty-third
of August of 3,635 million marks, or 33 percent. The
figures for December 1939 do not include an unknown amount

of army promissory notes; these may be considered in

part as a substitute currency, though ten thousand mark
denominations are the only ones issued. The above figures
likewise do not include the Reichs Kassen Scheine which

have been issued in the occupied Polish territory.
Note should also be taken of the fact that while there
was an increase of 33 percent in the visible currency circulation since the beginning of the war, the quantity of goods
that can be bought with such money has substantially diminished

because of the food rationing, as well as rationing of footwear
and textiles; also, many other consumer goods have almost
completely disappeared because of reserve purchasing on the

part of the public.
END MESSAGE.

KIRK.

299

PLAIN

EDA

LONDON

Dated January 5, 1940
RECEIVED 1:48 p.m.

Secretary of State
Washington

29, January 5, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.

OnE. With further reference to No. 2692, DECEMBER 21,
6 p.m. and 2707 of DECEMBER 22, details regarding the new

regulations affecting transfers of sterling from the accounts
of residents to non-residents are available in the form of
two new statutory rules applying (1) to credits and (2) to
the EXEMPTION of the sterling accounts of non-residents from

the restrictions as affecting the proceeds of sterling SEcurities sold here and interest Etc., on such securities.
There have also become available the new form E. 1 which

now becomes an application for permission to transfer sterling
from the account of a resident to that of a non-resident

instead of the former simple declaration that such a transfer
did not contravene the defence (finance) regulations. The
new form requires detailed information similar to that
required for form E (application for foreign Exchange)
regarding the purpose of the transfer, the names of the
transferor and transferee, country of shipment of the goods
to

300

EDA - 2 - #29, January 5, 6 p.m. from London

to be paid for Etc. Form E. 1 can only be approved after
January 8 by specified appointed banks which include the
English, Scottish, Irish and Dominion banks previously
appointed as authorized dealers and the British Eastern
banks and French banks together with several banks operating
in such southeastern European countries as GREECE, Rumania

and Turkey. A new form E2 will from the 8th of January be
required in connection with applications for permission to

establish bankers credits which also required similar information as to the purpose of the credit. As distributed to
banks the forms have been accompanied by lengthy memoranda

from the Bank of England explaining the procedure in full.
The list of transactions for which the appointed banks may
approve transfers of sterling include payments for imports
into the United Kingdom, imports into the sterling area
other than the United Kingdom not EXCEEDING 15,000, freights

for goods shipped to and from the countries of the sterling
area, canal dues and ships' disbursements, insurance premia respecting policies taken out prior to September 3 and
insurance claims, royalties, patent fees and licence fees
on pre-war contracts, travelling EXPENSES, legacies and
payments under trusts, Etc., rents, mortgages, Etc., on pre-

war trusts, and annuities. In all cases, however, applications in respect of payments for tobacco, films and diamonds
must be referred to the Bank of England. Copiesmemoranda
of the

301

EDA - 3 - #29, January 5, 6 p.m. from London
memoranda and orders go forward by pouch tomorrow.

The purpose of the new regulations as previously re-

ported is to tighten the British Exchange control by
reducing the transfers of sterling to the accounts of
non-residents and to confine such transfers to the purposes
for which foreign Exchange is obtainable. HOWEVER, the
special EXEMPTION order under which non-residents remain

free to dispose of any sterling in thtir accounts and of
any sterling securities they may wish to sell in this market
without any formalities, is issued with a view to simplifying
the procedure of non-residents in their transactions with
respect to their sterling accounts, their sterling security
holdings and their receipt of interest Etc., on such holdings.
The market has hardly had time to digest the NEW

regulations but approval is widespread and hopes that the
amount of sterling becoming available in the unofficial market
will be reduced are generally Expressed. NeverthElEss, these
new measures do not meet the type of criticism which is ably
put forward by Einzig in the DECEMBER Economic Journal page 670.

Two. An increase of 10.7 million in "other deposits"
(comprising largely accounts of Dominion and other central banks)

in this WEEK'S Bank of England return, is attributed in today's
Financial Press to clearing delays in respect of the redemption
of 11 million of NEW Zealand stock, though the DAILY EXPRESS
EPPONEOUSLY

302

EDA - 4 - #29, January 5, 6 p.m. from London

erroneously jumped to the conclusion that this figure might
indicate an unannounced loan to Finland.
Three Today's Treasury bill rate at 61.23.3.54D. as
compared with £1.4s.4.67D. last WEEK reflects the Easy

credit situation, the lowest bid receiving 63 per cent
allotments. Next WEEKS Treasury bill offer is to be for
$65 million which will be L15 million in EXCESS over
maturities and will bring the total tender issue to 1785
million.
JOHNSON
DDM

303
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: January 5, 1940, 6 p.m.

NO.: 18
FROM MATTHEWS.

FOR THE TREASURY DEPARTMENT.

The British financial counselor, Norman Young, lunched
at my house today. He spoke of how busy he had been recently,
having to sit in on French negotiations for commercial

and payments agreements, in addition to his ordinary duties
and the meetings of the Suez Canal Board. This afternoon
he said he had two meetings, one with the Turks and one
with the Greeks. The latter meetings have recently struck
a snag through a reversal of position on the part of the
Greeks, although the former discussions have been progressing

smoothly. Because of the difficulty in the Greek discussions,
the French have suggested that the negotiations might be
transferred entirely to London, where at the present time

there are now being carried on discussions for a BritishGreek war trade agreement.

Mr. Young said that it was still too soon to form any
definite impressions as to the working of the financial
accord between Great Britain and France; he said the

effect has been "largely psychological" 80 far. In reply
to my question as to when they might undertake discussions

of the relative price levels of the two countries, he said
that

304

-2that probably they would begin in two weeks - reference:

Article XVII of the financial accord, telegrams Nos. 2951
of December 11 and 3024 of December 21 from the Embassy.

Daan Jay of Morgans had lunch with us also. He said
that he was on the verge of optimism because financial and
economic conditions in France were so much better than
he had feared they would be last September. He believes
there has been a pick-up in French industry, and he can
foresee no early financial pinch. He mentioned that money
is easy, and prices have been kept down pretty well, and
it had not been anticipated that the exchange control would
work so successfully and smoothly. He knew of no big
subject to large-scale abuse

loopholes in the latter/since the restrictions on frane
deposits to the accounts of foreigners. In the matter of
invoicing exports and imports, he has seen no effdence of
evasion of the regulations - probably excepting certain
French diamond purchase operations conducted with interests

in Amsterdam - but he admitted that it was very difficult
to keep a check on this matter.
Dean Jay believes that in the administration of the
exchange control measures the Bank of France and the French

Foreign Exchange Office have shown both a realistic and

a liberal attitude - as I have stressed in previous cables.
He attributes such action largely to the fact that at
heart exchange control is looked on as a repugnant war

305

-3necessity by Reynaud, Fourmier, Rueff and others who are

charged with its administration. For instance, to show
that the control really takes a liberal attitude, he cited
the example that his Bank recently obtained without delay
permission for one of its clients to remit dividends to the
United States once he gave proof that for a number of
years past he had paid similar dividends - that is, the
payment was a bona fide dividend and not an attempt at

capital export. Barrett of the Guaranty Trust had told me
that recently closer scrutiny was made of applications for
exchange; Dean Jay however said he personally has not seen

any evidence of this. He said he was particularly careful
never to recommend anything but operations which were most

clearly permissible. He said that he had discouraged the
case of a French subsidiary of the International Telephone
and Telegraph Company; they had wanted to declare a dividend

for remission to the United States. He had discouraged it
since this company has substantial franc credits - working
on war orders - outstanding with his and other Paris banks,
and obviously needs francs.

Dean Jay does not see any indication of a long term
loan being floated soon in France; he does not think that

the time is ripe for such a loan as yet.
END SECTIONS ONE TO FIVE, INCLUSIVE.
BULLITT.

306
GRAY

lw

Paris

Dated January 5, 1940
Rec'd 5:55 p.m.

Secretary of State
Washington

18, January 5, 6 p.m. (SECTION SIX)

The Paris financial press reports that the Swedish
Government has requested declarations of gold and foreign

Exchange holdings and that in the future the Riksbank

will furnish foreign Exchange only for "imports, freight,
insurance, commissions, Etc.". It is stated that these
measures have been taken owing to the "progressive

weakening of the country's trade balance and the reduction in gold reserves (450,000,000 crowns or 22% from

last year)".
Under a decree published in the Journal Official
of today stocks of jute sacks must be declared to the
Government by owners or holders. Under an arrete in the
Same Journal Official holders of waste paper and cardboard
containers in EXCESS of 1000 kilograms must declare such

stocks before January 15th.

The securities market was fairly active and firm today.
Rentes closed with small fractional gains and losses
EXCEPT

307

lw

-2-

No. 18, January 5, 6 p.m. (SECTION SIX) from Paris

EXCEPT the 1925 and 1937 Exchange guarantee issues, which

gained 1.30 francs and 1.50 francs respectively. Changes

in the rest of the list WERE unimportant. Official
Exchange rates remained at the same level.
(END OF MESSAGE)

BULLITT

EMB

308

AM
GRAY

RFP

London

Dated January 5, 1940
Rec'd 7 p.m.

Secretary of State
Washington

34, January 5, 7 p.m.
FOR TREASURY FROM BUTTERMORTH.

STRICTLY CONFIDENTIAL.

I was given by the British Treasury under conditions
of strict confidence a copy of the agreement between the
Bank of England and Sveriges Riksbank relating to payments

between Sweden and the United Kingdom. Its secret character
was emphasized both because, being an agreement between two

central banks, it was not "a government document* (sic) and

because "it was important that it should 20T fall into the
hands of the

1 as catles this in toto since it 321 no doub be
followed in its general form by other payment arrangements

and because Articles XII and XIII are of particular interest
to us. "One. Payments to Sweden by or for account of His
Majesty's Government (other than payments in respect of

goods purchased in behalf of a third country) will be made...
"(A) If the debt is expressed in sterling, by payment
to a 'special account' of Sveriges Riksbank at the Bank of
England;

309

RFP -2- #34, January 5, 7 p.m. from London
England;

"(B) If the debt is expressed in Swedish kroner, in
kroner purchased from the Bank of England.

"Two. In the case of other debts expressed in Swedish
kroner due to persons in Steedem from persons in the United
Kingdom, Swedish kroner may be bought by the United Kingdom

debtors from the Bank of England through the ordinary

channels. Debts covered by this article are those in
respect of trade, freight, insurance and of financial payments of = recurrent nature which, in the opinion of
Sveriges Riksbank and the Bank of England, are reasonable
in character and amount.

"Three. The Bank of England will use for the purpose
set out in Articles I(b) and II any Swedish kroner balances
coming into their possession: insofar as such balances are
inadequate Sveriges Riksbank will sell Swedish kroner to the
Bank of England at the London middle rate for Swedish kroner
on the day of purchase against credit of sterling to the
special account. This rate should continue to correspond
approximately to a parity calculated with the London middle

rate for United States dollars and the official rate for
United States dollars in Stockholm.

"Four. Sveriges Riksbank may credit to the special
account sterling purchased from Swedish commercial banks or
other

310

RFP -3- #34, January 5, 7 p.m. from London

other sellers in Sweden arising, as from the date of the
agreement, out of payments between Sweden and the United

States in respect of trade freight and insurance, and of
financial transactions of a recurrent nature which, in the
opinion of Svoriges Riksbank and the Bank of England, are
reasonable in character and amount, provided that the
exchange has not already been covered. Sverigos Riksbank

will arrange, as far as possible, that sterling obtained by
Swedish commercial banks from these sources will not be

used otherwise except for the purposes set out in
Article V below.
"Five. The special account may be used for all kinds
of commercial or financial payments by persons in Swedon
within the British Empire "except Canada, Now Zoaland and

Hong Kong" and in Brazil, Egypt, and Bolgium. Sverigos

Riksbank Till take stops to ensure as far 35 my be possible
that the Smidish payments in sterling referred to above
shall be made by uso of the special account and not otherwise subject to the provisions of Articles IV and X.

"Six. If at any time after the existing storling balances of Svorigos Riksbank have been used in accordance

with the provisions of Article X the balance on the special
account should be tumporarily insufficient to moot the
noods

311

RFP -4- #34, January 5, 7 p.m. from London

noods of Sverigos Riksbank the Bank of England will soll
to Svorigos Riksbank against Swodish kroner the sterling
required at the London middle rate on the day of sale.
Sverigos Riksbank will agree to re-purchase against
storling at the same rate or rates the Swedish kroner thus
sold as and when moneys are received for the credit of the
special account.

"Seven. Amounts in excess of 1100,000 standing to the

crodit of the special account may at the option of Svorigos
Riksbank be transferred to a special money employed account

in multiples of 125,000 where amounts so transforred will
be employed by the Bank of England for Svorigos Riksbank

in the usual manner. Such amounts may be rc-transforred

to the special account.
"Eight. On expiry of the agreement Svorigos Riksbank

will have the right to obtain payment in gold for any bclonco on the special ^count and the special money employed
account and the Bank of England will have the right to
obtain payment in gold for any Swedish kroner balance held
with Sverigos Riksbank.
"Nino. When the balance on the special money employed
account has reached and so long 0.5 it remains at 13,500,000

Svorigos Riksbank will have the right to obtain payment in
gold for any amount in EXCESS of 100,000 on the special
account.

312

RFP -5- #34, January 5, 7 p.m. from London

account. Similarly the Bank of England shall have the
right to obtain payment in gold for any Swedish kroner standing to the credit of its account at Sveriges Riksbank in
excess of Swedish kroner 56,800,000.

"Ten. Sveriges Riksbank will have the right to
transfer up to 6200,000 every month from its existing
sterling balances to the special account. Sveriges Riksbank

will not sell its existing sterling balances to third parties
but if at any time the balance on the special account is
insufficient they may be used for the purposes set out in
Article V. Forward sterling arising from contracts entered
into by Sveriges Riksbank before the date on which this
agreement enters into force and proceeds of sterling securities held by Sveriges Riksbank on that date will be considered
as part of their existing sterling balances.
"Eleven. All gold sold to Sveriges Riksbank under any
of the terms of this agreement will be provided by the Bank
of England in London or in South Africa at the option of
Sveriges Riksbank. Gold sold to the Bank of England will
be provided by Sveriges Riksbank in London. The Bank of

England will, however, accept delivery in South Africa to
the extent that Sveriges Riksbank had exercised its option
to receive gold there in accordance with the terms of this

article.
"Twelve.

313

RFP -6- #34, January 5, 7 p.m. from London

"Twelve. Throughout this agreement the price of
gold will be reckoned at 168.6 per fine ounce against
sterling and at Swedish kroner 142.3825 per ounce fine against
Swedish kroner.

"Thirteen. This agreement will enter into force or the
20th December, 1959 and if not renewed will expire or the
20th June, 1940.

Signed Coversor of the Bank of England. Governor of
the Sveriges Riksbank."

Incidentally, I gather that the United Kingdom's
adverse balance of payments with Sweden (calculated on title

same basis as the American figure given in the third
paragraph of my 2695, December 21, 7 p.m.) is estimated
to amount during the first year of war to about £7,000,000.
JOHNSON
EMB

314

TREASURY DEPARTMENT
WASHINGTON

JAN 5- 1940
MEMORANDUM CONCERNING FINAND

The following bills were introduced in the House of Representatives
on January 3. 1940 providing for financial assistance to Finland:
H. R. 7630 - Mr. Hook (Den., Mich.)

To authorize the Secretary of the Treasury. with the
approval of the President, to negotiate a loan to
Finland for the sun of $60,000,000, with such rate of

interest, terms and conditions as will be in the best
interest of the United States and Finland, said loss
to be greated without restriction so as to meet Finland's
general requirements. The bill authorizes an appropriation to carry out its provisions.

H. 3. 7631 - Mr. Hook

The Secretary of the Treasury is authorized and directed
to pay to Finland am amount equal to all interest heretofore paid on its debt to the United States in connection

with or arising out of the World War. (Note - This bill
does not provide an appropriation).

H. 3. 7659 - Mr. Smith (Dem., Wash.)

Finland would be relieved of making further payments on

its indebtedness to the United States until such time as

by Act of Congress the resumption of payments thereon
shall be required, and the sums of money heretofore paid
on such indebtedness would be reloaned to Finland upon
such terms and conditions as may be agreed upon with the

United States. (Tota - This bill does not contain an
appropriation).

The President early in December announced that he had directed the
Secretary of the Treasury to hold in suspense the amount of $234,693. to
be received from Finland am December 15. 1939. and that he would recormend to the Congress that such amount be used for the benefit of the
Finnish people.

315

Data on Finnish indebtedness:
Original indebtedness

$8,281,626.17

Indebtedness as funded December 15. 1922

Payments received from Finland:
Principal
957.533.23
Interest
14,933,758.54
Balance of indebtedness:
Principal
.8.042.466.77
Interest
21 100,423.44

$2,000,000.00

V
5,142,591.21

In view of the President's announcement with respect to the - of

the amount received from Finland on December 15. 1939. for

the benefit of the Finnish people, does the President desire that .

message be drafted transmitting such recommendation to the Congress.

- 1 Includes $309,315.27 interest received prior to funding 2 Represents interest postponed under moratorium agreement.

own

316

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

III

DATE January 5. 1940.

TO

Semetary liprgentheu

FROM

Mr. Hard DC
Subject: of shipping facilities hindering the export
nowment of agricultural products.

In with your request of this morning, I made

an inquiry the the Department of Agriculture to ascertain the
amount of uppliciltural products which have been sold for export but ISSUE not been shipped because of the lack of shipping
facilities..

Mr. I. 4. Theeler, Director of Foreign Agricultural
Relations, this me that the Department of Agriculture did
not have any retistics to indicate the volume of agricultural commontities which were held up because of the unavilability of BIRTHE, but he felt that the difficulty centered
almost entities in cotton. He said that no inquiries had

come to titless with regard to any other products. The other
producta, Itee mile, such E.E apples and tobacco which the British
have concert duging and other agricultural products such as

dried from etc. remire less shipping space than does cotton,
and cotton at the moment happens to be the commodity which the
British are lingting in volume.

Mr. se10 that Mr. Creekmore, of the American Cotton

Growers Commercitive Association, had brought several specific

cases to little attention, asking for assistance. One of these
was the and of E British ship which expected to take a cargo
of catton amt TETELE ordered by the Ministry of Shipping to return
with a caregoo of steel. Mr. Wheeler pointed out that the cotton

shippers and WELLS to make the shipments on British beats because

the COSTS are much less than on the neutral boats.
Mr. Wheeler allard indicated that the British shipping interests
are giving to the movement of the barter cotton rather
than the premier commercial crop, despite all efforts of the

Commodity Tructs Corporation to prevent this.
I asites Iir. Theeler what the Department of Agriculture WEB

doing tics the export difficulties. He said that on
this profiles they had to work through the State Department,

317

Secretary Margenthan -2which they had direme. The British representatives in this
country, both in the Embasey and in New York, are courteous
but operate only under instructions from their government.
The American Sababey in London has been working on the case
but with little SUDDESS. He says the situation is somewhat
like this: The American Embassy representative interviews

the Ministry of Supply and is told that the problem is one
that concerns the Finistry of Shipping; the Ministry of
Shipping says 12 is B problem of the Board of Trade, as that
is the organization which determines what the country needs;
the Board of Trade seys that Great Britain is at war and that
is their first consideration, although they realize and appreciate the difficulties of the American cotton growers and
shippers; the American representative tries to convince them
that from the Brittah WET standpoint it 18 to the British
interest to name American cotton to the United Kingdom; but,
Mr. Wheeler said, the results so far have not been fruitful
and the Brittah have been rather "hard-boiled" in the matter.
In this country, the Maritime Commission has been working
on the shipping problem, Mr. Wheeler added, and the recent sale
of American ressels to Norway was an attempt to improve the

export shipping situation. These ships, he understood, were to
be used in exporting cotton, etc. to the belligerents. He also
felt that the lazitime Commission, through their Traffic Department, probably but BE much information as any organization in
the government EL to the magnitude of this difficulty. Mr.
Wheeler said he and not telked to Mr. Max Truitt, a member of
the Maritime Commission, for about a week, but would call him

again and would let me know if there were any new developments.

318

December 28, 1939

The President told us at Cabinet that he saw

John Bankhead yesterday and told him that he wanted

to wait and see what happened to agricultural prices
and 1f they did not reach parity then he, the President, would be willing to have him introduce a bill
for parity payments. Bankhead agreed to this.

319

Form

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

Jan. 5, 1940.

Secretary Morgenthau

TO

FROM

Mr.
Has OA.
The Wheat Situation

Subject:

Winter wheat prospect reduced by drought

Due largely to a severe drought, the December 1 condition

of winter wheat in this country was the lowest on record for
that date, and indicates a winter wheat crop in 1940 of about
399 million bushels. This compares with 563 million bushels
harvested in 1939 and with a ten-year average of 569 millions.
Total 1940 crop probably below domestic requirements

An increase of about 10 percent in spring wheat acreage
is expected, which would give a spring wheat crop of about
200 million bushels, if yields are average, making a total wheat
production of about 600 million bushels. This compares with a

total crop of 755 million bushels in 1939, and is about 60 million bushels less than estimated domestic requirements for food,
feed and seed.

Indicates reduction of 105 million bushels in wheat supply
The carryover of old-crop wheat in the United States at the
beginning of the next crop year, July 1, 1940, is expected to be
about 50 million bushels larger than the previous year's carryover, hence the total domestic wheat supply (crop plus carryover)
will show less of a decline than the reduction in the crop. The
prospective total supply of about 904 million bushels in 1940
will be 105 million bushels less than the supply of 1,009 millions
in 1939.

Crop handicapped by shortage of subsoil moisture

The final outturn of the winter and spring wheat crops may,
of course, be greater or less than now indicated. In both areas,
however, the crop prospect is handicapped by a shortage of subsoil moisture, resulting from the driest fall season in Weather
Bureau records. Subsoil moisture is a major factor in wheat

320
Secretary Morgenthau - 2

yields in the western part of the wheat belt. Recent substantial snowfall over a large part of the winter wheat area has
been a favorable influence, but is viewed by the Weather Bureau
as making little change in the general wheat situation.
World wheat supplies largest on record

While the total world wheat crop (outside of Russia and
China) for the crop year beginning July 1, 1939, is now estinated at about 335 million bushels less than the previous year's
record crop, the world carryover has increased by about 590 million bushels, raising the estimated world supply of wheat to
5,442 million bushels, a new high record.

Wheat prices in this country relatively high
Wheat prices rose sharply during December, reflecting the
reduced prospects for the domestic crop, severe deterioration
of the Argentine crop, poor moisture supplies in Canada, and
buying by European countries.

The combination of heavy foreign wheat supplies and a

prospective small crop in this country has raised domestic
prices to a high level relative to prices in other countries.
A closing price of 106-1/8 cents for May wheat futures at
Chicago on January 3 compares with 89-5/8 cents for May futures
at Winnipeg and with an equivalent of 67 cents for February
futures at Buenos Aires.
Farm incomes maintained by higher wheat prices
Farm incomes from wheat in 1940 may not be reduced by the
smaller prospective crop, as compared with 1939 incomes, but on

the contrary seem more likely to be increased because of the

offsetting effect of higher wheat prices. Cash prices at

Kansas City are now about 60 percent higher than they were last
July, when the 1939 winter wheat crop was harvested, while the

indicated crop is only 29 percent lover. Prices at Minneapolis
are about 30 percent higher than they were during the spring
wheat harvest months of August and September, while the indicated crop is also higher by 4 percent.

321

Secretary Morgenthau - 3

Farmers hold wheat off saritec

The withholding of wheat from market the antidipation of
higher prices because of the war and the drought. encouraged
by Government loan facilities, may have been an important price
factor. The quantity of wheat under Government loan on Decem-

ber 18 totaled approximately 165 million of which about

32
millions
were stored on farms and 133 mililitions in country and
terminal
warehouses.
All loans secured by wheat in warehouse! and mature on
April 30, 1940, and the Commodity Credit Commention has

announced its intention to take title to what millateral on

which loans have not been paid at that data... This whent can be

sold for not less than the loan value plua Interest and charges,

or transferred to the Federal Surolus Commodities Corporation
ing 20 to 25 cents above loan values, farmers are reported to be
repossessing and selling some of their lgan wherett.

for export sale or for relief uses. With when currently sell-

The Secretary of Agriculture has announter the suspension
of wheat and flour export programs, excent III dilun from the

Pacific Coast to the Philippine Islands.

Drought will affect crop insurance understand

The Federal Crop Insurance Corporation, just getting under.
way with its insurance program on wheat, will be called upon to
meet very heavy insurance claims as a result of the drought,
without having had time to build up an adequatie reserve through
premiums paid by growers. A severe impairment of capital,
requiring an appropriation of additional DED doubtless
be anticipated.

Prepared by:

o

Mr. Murphy

Mr. Lindow

Mr. Turner

322

Mr. Haas

TREASURY DEPARTMENT

323
CONFIDENTIAL

INTER OFFICE COMMUNICATION

DATE January 5, 1940
TO

FROM

Secretary Mergenthau
Mr. Hase

OR

Subject: Current
Developments in the High-Grade Securities
Markets
SUMMARY

(1) The upward movement in the Government securities market
slackened somewhat in the last two weeks. Short-term se-

curities are now at about the same level as on June 5 the all-time high for the Government market - while

medium- and long-term bonds are lower (their yields

higher) than at that time (Chart I).

(2) Weekly reporting banks increased their Treasury bond holdings by $389 millions and reduced their note holdings by
$345 millions in the week in which new securities were 1s-

sued in exchange for the March notes (Chart II). Out of

a total of $1,100 millions of the new 2-1/4's, it is esti-

asted that weekly reporting member banks acquired about

$350 millions. Federal Reserve banks received $100 millions, and almost $75 millions were issued directly to
governmental trust accounts. A substantial part of the
remaining $575 millions was doubtless acquired by banks

not covered in the weekly reporting group, although individuals probably obtained more than might hare been

expected.

(3) High-grade corporate and municipal bonds have continued

their advance during the past two weeks, although at &
slackened pace. Municipal bonds have reached a new alltime high (Chart III). New issues of securities last week
were accounted for principally by bonds of the Louisville
and Nashville Railroad totaling $60 millions. The Don-

sumers Power issue, delayed several weeks by SEC hearings,
vas offered on Wednesday, January 3.

(4) The year-end statements of condition of New York City banks
appeared this week. All but one of the largest banks have
increased their Government security holdings since Septem-

ber 30 (Chart IV). Government security holdings of all
weekly reporting banks in New York City are now below the
new all-time high established last month, but are still

higher than the previous peak made in June 1936.
(5) British consols made a new high since June 1 on Thursday,
January 4 (Chart V). French rentes OF Wednesday established
a new high since June 27.

Secretary Morgenthau - 2

324

I. United States Government Securities
United States Government security prices have continued
their upward tendency during the past two weeks, but at a
considerably slackened pace. The average yield of long-term
Treasury bonds, which declined nine basis points in the twoweek period ended December 20, has fallen only four basis
points in the two weeks since that date, closing on Thursday
at 2.28 percent, a new low level for the present recovery.
All classes of Government securities have shared in the
rise. The relative movements in the last two weeks are shown

by maturity classes in the following table:
:

Average Price Change
December 21 - January 4

:
:

(In thirty-seconds)
Notes

1 to 3 years
3 to 5 years

2
+

8

Bonds

Under 5 years to call
5 to 15 years to call
15 years and over to call

+

6

14
16

It will be noted that the longer matarities, both of bonds
and of notes, experienced the greatest gains. The rise in the
price of the intermediate class of bonds, however, was almost
as great as that of the longest term bonds (over 15 years to
call).
Long-term Treasury securities have now regained about

71 percent of the decline from the all-time high of June 5 to
the low of September 25, following the outbreak of war.
Chart I compares the yields of Treasury securities on June 5,
September 25, and January 3.

It will be noted that the yields of short-term securities

are about as low now as they were on June 5. Medium- and long-

term bonds, however, still have higher yields than last June.

325

Secretary Morgenthau - 3

II. Distribution of the New 2-1/4's of 1951-53
Figures are now available showing changes in the Government
security holdings of weekly reporting member banks during the
week which included December 22, the date of issue of the securi-

ties offered in exchange for the March notes. Weekly reporting
lions and reduced their holdings of Treasury notes by $345 millions during that week (Chart II).
Although these data do not provide us with information
specifically relating to the exchange offering, they would seem
to indicate that reporting banks exchanged about $350 millions

member banks increased their Treasury bond holdings by $389 mil-

of the March notes for the new 1951-53 bonds. Of this amount,
New York City banks accounted for about $100 millions, and banks
outside of New York City for about $250 millions.
The Federal Reserve banks acquired $100 millions of the new
bonds by exchange, and $73 millions were issued directly to
government agencies and trust funds.

Out of a total of almost $1100 millions of bonds issued,
we have thus accounted for about $525 millions. Of the remaining $575 millions, other banks (those not included as weekly
reporting member banks) probably accounted for a substantial
amount.

Individuals probably acquired a larger amount of the new
bonds than might have been expected. They are believed to have
held an unusually large amount of the rights, and they may have
taken the new bond instead of the new note because of the
difference in the coupon, notwithstanding the difference in taxexemption and the difference in term.

III. Other Domestic Securities Markets
High-grade corporate bonds have continued strong in the
past two weeks. The Treasury average of the yields on highgrade corporate bonds closed Thursday at 2.82 percent, a new low

yield (high price) for the war recovery movement. Municipal
bonds were unchanged in the week ended December 30 from the

previous week when the Dow-Jones average of the yields on twenty
20-year bonds reached 2.56 percent (Chart III). This marks a new

all-time low yield (high price) for municipal bonds.

The usual seasonal decline in the volume of new security
issues was checked by the offering on Friday, December 29, of

$60.0 millions of bonds of the Louisville and Nashville Railroad, which brought to $70.7 millions the aggregate of new

326

Secretary Morgenthau - 4

issues offered publicly in the New York market during the week
ended December 30.

The Louisville and Nashville issues consisted of $30.0 millions of 10-year, 3-1/2 percent bonds offered at 101 to yield
about 3.40 percent, and a like amount of 20-year, 4 percent bonds
offered at 100-1/2 to yield about 3.95 percent. It is understood
that both issues were sold out on the offering day and they are
now quoted at small premiums over their offering prices.

This is the largest publicly offered railroad financing since
1936 when the Southern Pacific and the Virginian Railway each marketed $60 millions, and, with these exceptions, the largest since
1931. All three issues were for refunding purposes. The Louisville and Nashville securities were offered by Morgan, Stanley and
Company, subject to ICC approval, and a competing underwriting
house (Halsey, Stuart and Company) complained to the ICC because

the issues were not opened to competitive bidding.
It was announced late on Thursday, December 28, that the
SEC had authorized the Consumers Power Company to proceed with
the marketing of its bonds. This issue had been delayed for

several weeks by hearings before the Commission, occasioned in
part by the demand of Otis and Company that the issue be opened

to competitive bidding. The amount of the issue was ordered
reduced from $28.6 millions to $18.6 millions, the remaining
$10.0 millions to be raised by the sale of COMMON stock. In
accordance with this decision, $18.6 millions of 30-year,

3-1/4 percent bonds were offered on Wednesday, January 3, priced

at 105-1/2, to yield about 2.97 percent. The issue was well
received and went to a small premium on the offering day. No
action was taken, however, with respect to the remaining $10 millions.

IV. New York City Bank Statements

In the past few days the large New York City banks have pub-

lished their statements of condition as of the end of the year,
and it 1s now possible to see what these banks individually have
been doing with respect to Government securities in the last
three months.

Chart IV shows, for selected dates, the holdings of direct
and guaranteed Government securities of eight of the largest

reporting member banks in New York City. These banks account for
about 85 percent of the Government holdings of all New York City
weekly reporting member banks. The chart also shows, for the
same dates, the holdings of all weekly reporting member banks in
New York City. The combined holdings of J. P. Morgan & Co. and
Drexel and Co. are also shown, although these institutions are,
of course, not weekly reporting member banks.

327

Secretary Morgenthau - 5

The dates used in the chart are June 30, 1936, when the
Government security holdings of New York City weekly reporting
member banks reached their highest level prior to the latter
part of 1939; September 30, 1937, the date which marked the subsequent low point; December 31, 1938; and the two most recent
quarterly dates.
In the last three months, weekly reporting New York City
member banks increased their holdings of Government securities
by $255 millions, of which $249 millions was accounted for by
the eight member banks shown separately in the chart. The
National City Bank alone accounted for $127 millions of the
increase, and all but one of the other banks shown separately in
the chart reported some increase during the period.
The holdings of J. P. Morgan and Co. increased by $93 millions during the quarter, the largest percentage gain (29 percent)
reported by any of the banks shown in the chart. Morgan now has
about 67 cents in Governments for every dollar of deposits.

The following table (arranged in order of percentage increase) shows the net changes during the quarter for each of the

banks shown in the chart.

Percent
Change

:

to Dec. 31, 1939

:

Change Sept. 30

:

Bank

(Millions of dollars)
J. P. Morgan & Co.

+ 93

Guaranty Trust
Central Hanover

+ 20
+ 80
+ 24

National City
Irving Trust

All New York City reporting banks

First National
Manufacturers Trust
Chase National
Bankers Trust

+127

+255

+ 12

+9

+ 11

- 34

+ 29
+ 19
+ 13
+ 12

+8
+6
+4
+3
+1
-

6

It was noted a few weeks ago that the Bank of Manhattan was

reducing its holdings of Governments, in contrast with New York
City reporting banks as a group. The year-end statement shows
that since September 30, this bank (not shown in the chart) has
reduced its Government portfolio by $35 millions, or by 30 percent.

328

Secretary Morgenthau - 6

This is a larger percentage change than is shown by any bank in
the chart.

During the calendar year 1939, all but one of the banks
shown in the chart increased their holdings of Government securi-

ties. The exception was Irving Trust, which reduced its portfolio by $23 millions, or 12 percent. The largest percentage increase (118 percent) was shown by Central Hanover, which raised
its Government portfolio from $153 millions to $334 millions.
Guaranty Trust showed the largest dollar increase $244 millions),
representing a gain of approximately 50 percent during the year.
At the present time, the Government security holdings of all
weekly reporting member banks in New York City are below the new
all-time peak established last month (December 13), but are still
higher than the June 1936 peak. Four of the reporting banks shown
in Chart IV and J. P. Morgan and Co. hold more Governments now

than in June 1936, while the other four banks hold less.
V. Foreign Securities Markets

British 2-1/2 percent consols, after showing little activity
for several weeks, rose one point on Thursday, January 4, to
69-5/8, equivalent to a yield of 3.60 percent. This is the
highest price since June 1, (Chart V). French 3 percent rentes
reached a new high since June 27, selling on Wednesday, January 3,
at 77.10, to yield 3.89 percent. On Thursday they fell back
about half a point.

329

Chart I
YIELDS OF TREASURY BONDS AND NOTES
Based on Closing Prices
CALL

TO
IS

10

20

25

PER
PER
GENT

CENT

3.2

3.2

SEPTEMBER 25, 1939

2.8

2.8

2.4

2.4

JANUARY 3. 1940

2.0

2.0

1.6

1.6

JUNE 5. 1939

1.2

1.2

.8

.8

.4
.4

0

0

10

15

20

25

YEARS T o A T U O # GALL

I of I - -

Official the Secretary of the Treasury

, 110 - B

330

Chart II
U. a. GOVERNMENT SECURITY HOLDINGS, FREELY REPORTING NEWSER BANKS
Cumulative Net Change from September 27. 1030
DECENSED

JANUARY

MARCH

FEBRUARY

APRIL

IS

1

20

1

T

DOLLARS

1940

1939

INVOICE

OCTOBER

MILLIONS

DOLLARS

BILLIONS

New York City
800
800

600
600

TOTAL

400
400

BILLS
200
200

SUARANTEED
NOTES.

0
0

BONDS

-200
200

-400
400

OCTOBER

NOVEMBER

DECEMBLR

JANUARY

FEBRUARY

MADER

APRIL

400

400

All Other
200
200
TOTAL

GUARANTEED

BILLS

0
0

DONOR

NOTES

-200

200

-400
400

OCTOBER

NOVEMBER

DECEMBER

JANUARY

FEBRUARY

MARCH

APRIL

1200
1200

All Cities
1000
1000

500
500

600
600

TOTAL

400
400

BILLS
200
200

GUARANTEED
NOTES

0

0

BONDS

-200
200

-400
29

400
13

27

10

24

4

21

I 939

----

DECEMBER

JANUARY

.

IS

NOVEMBER

FEBRUARY

20

MARGH

,

18

OCTOBER

17

APRIL

1940

Office of the Secretary of the Treasury

, 146

COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY

AND Dow-JONES AVERAGE OF MUNICIPAL BONDS
Yields Based on Saturday Quotations
1938

1939

JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC JAN " MAR APR MAY JUNE JULY AUG SEPT " OCT .. NOV DEC
Inverted Scale
"

-

"

"

Inverted Scale

PER CENT

PER CENT

22

Long Term Treasury" (12 years or to call date)

2.2

2.4

2.4

26

2.6

2.8

2.8

Twenty 20-Year Municipal Bonds

30

30

32

3.2

3.4

30

PER

PER

CENT

CENT

80

80

60

60

Differential
40

40

20

20

---

MAR

.

FEB

-

APR

...

MAY

11

"

JUNE

JULY

"

-

AUG

1938

III

.

.."
JAN

-in

0

0

1939

"Break - line indicates change composition of Long Term Treasury average

Office of the Secretary al the Treatury
F-184

332

Chart IV
NEW YORK CITY BANK HOLDINGS OF U.S. SECURITIES
including Guaranteed Obligations
DOLLARS

Billions

DOLLARS

Billions

All Weekly Supering Member

Barka - NYC

5

5

4

4

3

3

2

2

I

I

0

o

Selected

New York City Banks
DOLLARS

DOLLARS

Chass National

National City

Millions

900

DOLLARS

Guaranty Trust

900

400

800

see

sec

800

700

700

700

700

.00

600

600

600

100

see

500

500

400

400

300

300

300

200

200

200

DO

100

100

600

600

500

500

o

0

600

Benkers Trust
500

500

-

400

400

300

100

300

200

200

200

100

DC

300

200

200

00

100

IIIII-

400

400

300

100

200

200

100

100

.

-

400

in

0

333
Chart V
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY

BONDS AND U.K. 21% CONSOLS
1939

DEC

Inverted Scole
PER CENT

PER CENT

WEEKLY Friday Quotations

Daily
22

22

24

24

24

24

12

24

24

Long Term Treasury "(a

28

28
28

Long Term Treasury
10

30
10

32

12
32

14

24
14

34
14

U.K. 2%X Console
as
18

as

Console

40

42
42

42

42
42

PER

PER

PER

CENT

CENT

CENT
1.6

14

12
12
12

NOV

OCT

1939

DEC

334

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE January 5. 1940
TO

X

Secretary Morgenthau

FROM Mr. Cochran

At 3:15 this afternoon, Mr. Purcell of the Securities and Exchange
Commission telephoned me that the President of the Curb Exchange of

New York had been pressing him for an indication as to the attitude of
interested Government departments and agencies toward the proposition

which was advanced earlier this Fall of adding certain Canadian securities
to those listed on the New York Curb Exchange. Mr. Purcell wanted an
explanation of the Treasury's attitude to enable him to reply further to
the President of the New York Curb Exchange.

I reminded Mr. Purcell that the conversation between representatives
of his Commission and Mr. Dietrich (as reported in my daily memorandum of
October 18. 1939) had been purely informal, and that the official views of
this Department had not been requested. I added further that the Treasury
Department would have no veto, as I understood it, on the proposed opera-

tions. I admitted Mr. Purcell's contention that there might be something
in the matter of interest to the Treasury. and I promised to see the
matter studied if he cared to send us a written letter or memorandum setting
forth the points in question. He agreed to do this.

B. m.P.

335

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE January 5. 1940
TO

Secretary Morgenthan

FROM Mr. Cochran

Mr. Knoke told me by telephone yesterday. and confirmed by his memorandum
dated January 3. 1940, of the inquiry made by the Consul General in New York
of the Sovereign Prince of Monaco in regard to the Federal accepting a gold
deposit from the Prince of Monaco.

At Mr. Knoke's suggestion, I telephoned Dr. Feis in the State Department

today and summarized Knoke's memorandum to Feis. I explained that the Consul

General had made inquiry and was reporting to his Government. I thought that
no action was required on the part of the State Department until such time as
a formal inquiry might be received as to the identity of the accredited representative of Monaco in this country. since such individual will presumably have
some authority, perhaps full authority, over the account under contemplation.
Dr. Feis agreed with this; told me that he would pass on the word of this
inquiry to his colleagues in the Department: and that nothing further was required by the Department of State from the Treasury or from the Federal Reserve
Bank at present.

I told Mr. Knoke by telephone this afternoon of my conversation with
Dr. Feis, which satisfied him.
I see no reason why the account should not be opened, provided the
Federal Reserve Bank and Board are satisfied. and I should favor the Treasury

selling gold to Monaco if it has the dollars here with which to make the pur-

chase.

BMR.

336

in Cream

FEDERAL RESERVE BANK
OF NEW YORK

CORRESPONDENCE
Files
L. E. Knoke

DATE January 2, 1940.

SUBJECT Gold deposit by the

III

Principality of Monaco.

Mr. Paul Fuller, Jr., Consul General in New York of the
Sovereign Prince of Monaco, called this afternoon at 2 o'clock by
appointment and inquired whether it would in principle be possible
for the Principality of Monaco to make a gold deposit with this bank.
Mr. Puller explained that there was no central bank in Monaco;
that there was & caisse des depots, etc., in whose name the deposit

night be established if that were possible; that although the
country had its own money, French currency was the one generally

in circulation; and that the country was very jealous of its
privilege to have its own money. I replied that in isolated instances
is the past this bank had accepted gold deposits from foreign
governments in cases where there was no central bank in existence

but that such deposits had to be approved by our board of directors
as well as the Board of Governors of the Federal Reserve System.
Under the circumstances I could not, of course, answer his questions

either in the affirmative or in the negative.
Mr. Fuller then inquired whether it would be possible
for the Principality to buy gold in this country and I explained
that such purchases were possible only with the approval of the
Treasury Department.

His third question was as to our general conditions for
this kind of business and I explained that in cases where no account
was kept with us (and we could not keep an account for a foreign
government) our charge was 1/2 per all per annum.

337
FEDERAL RESERVE BANK
OF NEW YORK

DATE January 3, 1940.

OFFICE CORRESPONDENCE

SUBJECT Sold deposit by the

Files

Principality of Monaco.

L. N. Knoke
2

Mr. Fuller inquired whether an attorney could be appointed
here to issue instructions to us in case we accepted the deposit
and I explained that one possible way would be for the diplomatic

representative in this country of the Principality, if and when
his government was ready, to make formal request of us through the

State Department in Washington. Mr. Fuller replied that he is the
representative of his country and duly accredited to the State
Department. I repeated that as stated at the outset any request if
received by us would be submitted to our board of directors and to
the Board of Governors in Washington.

Mr. Fuller is going to pass this information on to Monaco.

LEKIKI

338

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE January 5. 2940
Secretary Morgenthan

TO

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL

When I talked with Mr. Knoke at 2:50 this afternoon I mentioned the
order received today for the sale of $25,000,000 from the earmarked gold
account of the Sveriges Riksbank,

In this connection Knoke told me that - January 3 the Federal Reserve
Bunk had cabled Governor Rooth further with respect to the latter's inquiry

of last month, to the effect that after consideration by the Directors

of the Federal Reserve Bank of New York and by the Board of Governors of
the Federal Reserve System it had been decided that the See York bank should

arthere to its present policy under which the only my it could accomodate the
Bveriges Riksbank would be through loans against gold held in this country.
(This closed out the possibility of Rooth borrowing against gold held in
Scandinavia, or upon Swedish commercial bills held is Scandinavia.)
A reply to Governor Harrison came this afternoon to the effect that
Rooth WBS at present not interested is berrowing against gold in the United
States.

Enoke told me that he had informed the Swedish Minister in Washington
of the above message from the Federal Reserve Bank of Few York to Governor

Rooth.

At 4 o'clock this afternoon Mr. Bricken, Commercial Counselar of the
Swedish Legation telephoned me and gare me practically the same report as
Enoke in regard to the Federal Reserve Beak's reply to Rooth. The Swedish
logation has not yet received any further information from Rooth in the
premises, and is not aware whether be desires that the Legation pursue its

efforts to obtain a credit from the Expert-Import Bank Brickson remarked

that the $75,000,000 which he understood was to be requested from Congress
for the Export-Import Bank would obviously be insteguate to meet the many
demands for loans which he presumed the United States was now receiving from

all of latin America and many other countries.

Mr. Erickson promised to let me know if be received further instructions
from Governor Rooth with respect to obtaining credits in the United States.

BMR.

339
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

TO

Mr. Cochran

FROM

Mr. Dietrich

DATE January 5. 1940

The following is a comparison of the holdings of the Bank of Sweden
at the Federal Reserve Bank of New York as of August 30, 1939, the peak of

their holdings, and the close of business tonight:
August 30, 1939

Balance
Gold

Securities
Total

$ 114,948,000
87,794,000
101,000

$ 202,843,000

January 5. 1940

73,000,000
26,600,000
-00

$ 99,600,000

The Swedish Bank has on the water about $13,800,000 in gold consigned
to the Federal Reserve Bank.

$

340
TREASURY DEPARTMENTT
INTER OFFICE

DATE - 3. 190
TO

Secretary Morgenthan

FROM

Mr. Cochran

CONFIDENTIAL

The feature of the foreign exchange maint - - - = the price =
sterling. In Amsterdam the opening starling - - 35-7/2 but later =

receded to 3.91-7/16. In New York, starling I = - - 1
buying by commercial concerns, including miller I - - strengthened
to 3.94-1/4 in the early afternoon. It - mailie # - better I
and subsequently the quotation softened = close - 38-75

It appears that the recent improvement in starting - 3534 - December 30

was caused by short covering for the per ent. # - of - make - state.
but on January 3 it started to decline - yesterday - - stiend . Issue =
about two cents. The recession in the rate continued - - # touched the
low of 3.91-3/8. The movements of the starting - inconclusive - method

fellowed the pattern which has been evident several time adien. that is. where

the rate rises, the demand for starling distintates - - - decline =

fair proportions in the price brings into - a = - lagging - for
that currency.

Sales of spot sterling by the four reporting - and 235,000, from the

following sources:

By commercial concerns

By foreign banks (Europe and South America

341.000

14.00
365.000

Purchases of spot sterling amounted to 247.000. - initiate below:
By commercial concerns

By foreign banks (Europe, Far East - Smith immediate
Brail

386,000

$351.00

$47.00

The following reporting banks sold continue mile familing 461,000 = the

British Control at the official rate of LIFE

L 87,000 by the Guarante State s

4,000 by the Tational East

I 91,000 Total

The price for the Mexican pesc received further - 16685 = - 1 level for

that currency.

---

-- ==

at

= - - - closed as follows:

-

0223-1/4
5325
2243
1675

12% discount

. 1 ELE and from the earmarked account of the -

- - 3 - addit has sold a total of approximately
= - - - - Serio received a cable from the LIS -

$9,000.00 = - = = millings at the Federal Beserve Fank of Time -

- i = - transfer
tilesofofthe
mid.
approximately
= - - the1,000
account
Bank
of Tatenta.

1.12F.100.

=

that
in
the
I
Its - - - - - = gold by the B.L.S. to the -

- - -=military
requesting
that
the
amount
sections
- - ID=-=account
45. = be opened in the - = this new account -

-stanta
- = -- =change
of
instructions
was
- = - with the Federal Reserve Bank of Team - - - = - and - by Estonia, for gill held - the

- - = -=transferring
some of the Estanian I=-- <<<
- operations.

I- - -= - representing two shipments from the

A - - - - Spri reported to - the following -

--

I
=
June
127,000 - - - the thank of Forway = the Federal Reserve - = = 1 - - of New York, to be carracted for -

-= =- -=- which
is microwa at present.
hant of Borway to the Federal Experte - - = - - for account of the Bank of
I = - -THE
- IN -the
Souththe
African
Reserve
Bankis- - - Eart.
disposition
of virticit

- = - - -=1- =
bank
of account
Norway to
-- - for
of the
the Federal
NationalInsurance
Esmit

- = - -- 1- -- -hand
of
Borway
to
the
Federal
for account of the Bank of

-

27,000 - 1 - - Bunk of Italy to the Federal Essays -

= - 1 - - for account of the B.L.S.

1 - - - $0.00 cables informing = of the failoring

signature = -

- = - -- Bannel
& Co.Office.
= the Tationni - - - theMontage
U. S. Assay
- - = - the Central Bank of Malla to the Federal -

- = - - - for account of the Central - -

LINE STATE

CONFIDENTIAL

-3-

342

The - San # I the - - forward silver were 21-9/16 -

- are - you segatively. The U.S. equivalents figured est

- The - 31 - - in the prices was attributed to - wall

qualities -

Sale - 1 first fordign silver - uncharged at 3-3/4 =

Insurances 1 - also - - 354.

- - 1 of alive totaling 390,000 SURCES water the Silver
Purchase Act. - of - stire - - production from foreign countries -

- purchased for Street

RR.

CONFIDENTIAL

GROUP MEETING

Present:

January 5, 1940.
9:30 a.m.

Mr. Bell

Mr. Foley

Mr. Sullivan
Mr. Gaston
Mr. Schwarz

Mr. Harris
Mr. Haas

Mr. Cochran
Mr. Thompson

Mr. White
Mr. Cotton

Mrs. Klotz

H.M.Jr:

Herbert, Mr. Lepke seems to have been in the

Gaston:

Yes, quite a little.

H.M.Jr:

Gaston:

H.M.Jr:

narcotic business. Are you at all interested
in that?
Could you prepare for me on Mr. Lepke a similar
do with the development of the case?

kind of story, what the U. S. Treasury had to

Yes, it is strictly a narcotics case.
Well, nobody knows it. I didn't. I thought
that this - what is the fellow that goes on
the air every Sunday night, this columnist?

Foley:

Walter Winchell?

H.M.Jr:

Walter Vinchell. I thought this was Walter
Winchell's case. Didn't he handle Lepke?

Gaston:

He turned him over to J. Edgar Hoover.

H.N.Jr:

The only thing they had to arrest him on
was a narcotics charge and he was charged
on a narcotics charge against the advice
of our people, because he offered to plead
guilty and take fifteen years and he finally
got a sentence of fourteen.
Yell, who does this - he got fourteen?

Gaston:

Yes. He offered to take fifteen without

H.M.Jr:

Anyway, somebody prepares these cases for

trial.
me.

343

344
2Gaston:

Yes.

H.M.Jr:

Who does that, is that done in your office?

We had a nice one, for instance, done on the

Kansas City case.
Schwarz:

Pendergast?

Foley:

No, that wasn't done in my office.

Gaston:

Elmer and Harry Anslinger prepare them.

H.M.Jr:

The point is - I want Chick to note this on the Pendergast case we had a factual
statement prepared as to just what the
Treasury had done from beginning to end,
which was only released after he was found

guilty and people constantly keep referring
to it and they see that it takes time
and that Governor Stark had nothing to do
with it and Mr. Murphy had nothing to do
with it. After the man was convicted,
we did that. On these important cases,
I just want a factual statement gotten
out, what the Treasury did or didn't have

Schwarz:

to do with the case and then distribute it.
It takes time, but gradually they realize
that the Treasury keeps its mouth shut
until the man is found guilty and then
gives the story out afterwards.
What we did in that case, the agent, the
agent in charge of the investigation,
prepared a report.

H.M.Jr:
Schwarz:

Why isn't it done in narcotics as well,
why isn't it done with Lepke?
I think that in this case that consciously
we have held some of our fire because of the
fact that he was not the major violator in
this conspiracy and we don't want it to
boomerang. We don't want a "Wallace".

Gaston:

We will get up the memorandum. We have

Schwarz:

We have a good memorandum on the conspiracy
of which he was a member.

all the material.

345
H.M.Jr:

-3Well, look, let's do this thing and have it

ready the day the indictment is handed down.
That would go for customs, too, see. Then
gradually the newspaper men will look for

those things. O.K., gentlemen? And lady?

Gaston:

H.M.Jr:

Herbert, anything?
No, nothing.

I see that this man Amen is finished. It
looks as though he is finished. It is on
the front page of the Times. The story
looks as though he has reported in.

Sullivan:

Who is that, Jake Amen?

Foley:

I think he is just preparing for a preeentation this spring. I am pretty
sure, but I will check it.

H.M.Jr:

Find out, because he is a good man.

Foley:

He hasn't really started yet.

H.M.Jr:

What about the man I suggested?

Foley:

He looks pretty good. I haven't finished,
but he is about thirty-nine years old and

he was Assistant Solicitor General under
Tom Thatcher in the Republican administration.
He is a member of Thatcher's firm, Thatcher
and Bartlett. He does a good deal of appellate
court work.

H.M.Jr:

Mention his name.

Foley:

Whitney Seynour.

H.M.Jr:

Do you know him?

Foley:

He graduated from Columbia Law School in

H.M.Jr:

How many of these -

Foley:

He went to Misconsin College. I talked to

1924.

Lloyd Garrison and Lloyd said he was swell
and I gave the name to Eddie's secretary
and to Jim Landis' secretary and asked them

346

to call me some time today and tell me what
they know about him.

H.M.Jr:

Ee is Tale?

Foley:

No, Columbia Law School, Misconsin, L3.

H.M.Jr:

Sounds good.

Foley:

Yes.

H.M.Jr:

Is be a Democrat?

Foley:

No, he is a Republican.

H.M.Jr:

H.M.Jr:

That is all right. He has been down here
as an Assistant Solicitor General? They
tell me he is a liberal Republican.
They say on matters of civil liberties,
be is. Ee defended some negro in the South
and did a pretty good job. On matters of
economics and other things will you push hard on that?

Foley:

Yes.

H.M.Jr:

Ee has had trial work?

Foley:

Yes. Tom Thatcher in that firm is the outstanding trial lawyer in New York now.
Ee gets all the good stuff. I suppose this
fellow is an understudy to Tom Thatcher and
gets a great deal of stuff Thatcher can't

Foley:

handle.

Foley:

Did you talk to John Cahill about his?
No, I haven't.

Cotton:

Ee would know.

Foley:

Ee is a little younger than John, but be

H.M.Jr:

This is in connection with the Bank of America.
I should think that might be worthwhile.

Cotton:

Cotton:

might know.

347

-5 Gaston:

There is some advantage that he is a

Republican.

E.K.Jr:

He is related somehow or other to Llays

Foley:

Well, Garrison didn't say that. Be

Garrison.

E.L.Jr:

said he was swell and he didn't Imper
why he hadn't thought of him.
Good. Will you push on that?

Foley:

Yes.

348

-6H.M.Jr:

Could you (Cotton) inquire up in New York a
little
bit?

Cotton:

Yes, but Ed - I mean if he'd - if you would
like
anybody's
opinion, I can get it. I will
talk to
Ed.

H.M.Jr:

O.K.

Foley:

Dean Bates is coming in this morning at half
past ten. Would you like to see him?
I have got every minute sewed up. I will have
to leave it with you.
The deficiency letter on Darryl Zanuck and his
wife is ready and will probably go out today.

H.M.Jr:
Foley:

We are through with it. The total tax, interest
and penalty are $875,000.

H.M.Jr:

You would be interested to know that last night
when I congratulated the Attorney-General, he
said, "There is only one thing in the six months
that I have been Attorney-General that I an
not satisfied with, and that is what I have
done for the Treasury." And my wife thought

that my answer wasn't too hot. I said,
*Don't let it worry you." Don't anybody
repeat any of this stuff.

Gaston:

You can't argue with the Attorney-General, you

H.M.Jr:

So he said, "Don't worry, Henry, I an going to
take care of you before I leave that office."

Foley:

He is going to stay a month more.

H.M.Jr:

And San Clark came up and thanked me, threw his
arm around me, and thought it was wonderful what

know.

I had done for him. So I told San Clark that
it was unfortunate we hadn't met earlier. So
maybe we will get somewhere.

Cochran:

Knoke sent word this morning that the Consul
General in New York of the Soverign Prince of
Monaco had called on him in regard to establishing
a gold deposit with the Federal Reserve Bank of
New York.

H.M.Jr:

Did Miss Henricks talk to you about LeroyBeaulieu?

-7
Cochran:

Yes sir.

H.M.Jr:

Incidentally, Mr. McKay takes over as of
Monday. He will be here regularly, so everybody
who wants anything can see him. I am afraid

349

that Kieley isn't going to be well enough. If

Kieley comes back, fine, but pending his coming
back we will have McKay out there. Be can be
very helpful because he knows my peculiarities.
He has traveled around the world with me.

George? George, Mr. Harris tells me that

there are three million bales of cotton swaiting

shipment, which have been sold. Supposing
you ask the Department of Agriculture how
many bales of cotton they admit have been
sold and are waiting shipment and what provisions

they are making to get it out of the country,
see. Don't mention Mr. Earris' name, but

just say we understand there are three million
bales of cotton which have been sold swaiting
shipment and what are they doing to get it
moved.
Farris:

I understand that Mr. Wallace asked Admiral Land
for a statement of commodities that were backing
up and he wrote Mr. Nallace and they have

Haas:

promised to send me over a copy of that letter.
Why not then say all commodities that are
awaiting shipment, George, will you?
Yes. I wonder who is who on that.

H.M.Jr:

Ask Wheeler, wouldn't you?

Haas:

I think so.

H.M.Jr:

Basil?

Harris:

No, I haven't anything.

E.M.Jr:

Harry?

White:

Nothing.

H.M.Jr:

Present?

White:

And accounted for.

H.M.Jr:

How are you feeling?

H.M.Jr:

- -8 White:

White:

Very well, thanks.
I don't get any more from you until Monday!
ISaturday
am hoping
to have something for the week-end,
noon.

E.F.Jr:
White:

E.F.I.:
White:

E.F.Jr:
Unite:

Eat are you going to do, mail it to me?
Aren't you going to be in town
If
the
weather permits, I am going to fly
this
evening.

I will know better tonight.
Don't strain anything.
If
we have something, we can get it to you
somehow.

Chick! I WAS interested in the story that

Senator Harrison advocated this committee.
You know the story about my originally
advocating
it, but just whether it is the
same I don't know.
Subward:

Well, we will ask the boys for & fuller
report on what he said.

Bell:

Yes. Ny own impression is to let it ride.
That wouldn't help it or hurt it.
I think it is the same thing. Be talked to

Johnny yesterday. He said he had to make
some sort of a statement on this thing and
Johnny called his attention to your recommendation
for the committee to look over the whole budget

situation. He said he would lock that up,

your
statement, and probably include that in
his
statement.
E.E.Jr:

Bell:

Well, that is the way it happened.

I think so, yes.
That else?

Bell:

I called Mr. Noble and he didn't seem to know
just exactly what you had in mind. Be WES
wondering if it was the statement be takes to
Cabinet
every week. He said be would be glad
to

furnish it to you. He asked for nothing
in return.

350

351

9H.M.Jr:

Bell:

Good. That is the statement I meant. You
told him I was impressed with it?
Yes, I did.

Mr.
twoSpencer
will not. will be here Monday and the other
H.M.Jr:

That is all right. How many lawyers have you

got here Monday?
Foley:

H.M.Jr:

Two.

Eddie and Jim.

If it is possible that you two fellows could

agree on this fellow Seymour and have him
down here Monday it would be swell.
Foley:

Why not ask him to come down? We can look

him over.

H.M.Jr:

With
the recomendstion of Dean Garrison, I
don't see what we need.

Foley:

I don't think we can tell much more without
talking to him and seeing him and telling him
what
we have
in mind and seeing whether he is
available
or not.

H.M.Jr:

Are you busy Sunday night?
over the week-end?

Foley:

No.

H.M.Jr:

Couldn't you have him come down and spend
Sunday evening with you!

Foley:

Yes.

H.M.Jr:

Are you going away

You could then talk to me the first thing

Monday morning.
Foley:

Yes.

H.M.Jr:

Could you do that?

Foley:

Yes.

Gaston:

Want to look up his tax returns?

H.M.Jr:

Yes.

Bell:

Have you set a time Monday so that when
Spencer comes in we can tell him?

352

- 10 H.M.Jr:

Yes. This meeting - yes, 10:30. I think that --

Bell:

He wants to get back.

H.M.Jr:

10:30. will you let Preston Delano know!

Bell:

Yes.

The matter between the Federal Reserve and

the Comptroller's office is more or less at
& standstill. Preston couldn't get hold of
Marriner all day yesterday. He got hold of

John McKee and told John he would have to
come or somebody would have to come with the

technicians and he said he wouldn't come.

E.M.Jr:

The wouldn't?

Bell:

He wouldn't.

H.M.Jr:

McKee?

Bell:

Yes, unless he was ordered to by the Board
and suggested they call - Delano call Eccles.

H.M.Jr:

Why not!

Bell:

I think it is a matter of dignity, a member of

the Board coming over and talking to the
technicians. We impressed Delano with the
importance of letting him know that the

Comptroller would sit in, if that would help
matters any.

H.M.Jr:

Does the Comptroller agree with the view I

Bell:

Yes, I think he does. At first he didn't think

H.M.Jr:

Well, if we deprive the Federal Reserve Board
members of their dignity, what would happen?

expressed to you yesterday?

it was so important, but when we raised these
questions he said he thought you were right.

- 11 Bell:

I think that somebody said here yesterday

that two directors had called the office
of the examiners and gotten their letters.
H.M.Jr:

Bell:

No,
are my sale source of information.
Two you
directors?
Two directors called and picked up the

letter. They wanted to see the contents.

H.M.Jr:

You
mean112
the Secretary of the Board has not
forwarded

Bell:

Apparently not up to that time.

Foley:

He telegrambed and said that his counsel

was thinking about it further and it was
before the meeting of the Board of Directors
on the 9th of January, but he had not distributed the letters when he sent the
possible they night reach some decision

telegram.
H.M.Jr:

What else, Dam?

Bell:

There have been . number of bills introduced
in Congress regarding Finland, going all the
way from cancelling the debt to the loaning
of sixty million dollars. I am wondering
if the President wants to send up any special

message on it.
H.M.Jr:

Will you give me a memorandum on that to
take to Cabinet, please?

Bell:

Yes.

H.M.Jr:

I just have the number of the bills. Will
you
give me a little short description of
them?

Bell:

All right.

Thompson:

Here is your annual report to Congress that
you sign.

H.M.Jr:

Any snappy stories in it?
Chick, what are you doing about those names

of the distinguished few who got seventy-five
thousand dollars or over?

353

354

- 12 Schwars:

The lucky seven hundred fifty-nine?

H.M.Jr:

Yes.

Schwarz:

I wanted to talk to Mr. Sullivan. They
are all prepared at the Bureau. They

are awaiting orders from the Treasury.
They were awaiting orders from Mr. Hanes
and this transition means they are waiting
orders from Mr. Sullivan.

H.M.Jr:

I will be back Monday morning. I an
leaving some time this afternoon, weather
permitting.

355

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

January 6, 1940

Confidence
VEHORANDUL FOR THE SECRETARY

Supplementing information concerning deliveries of the Curtiss P-40,

I learned from an officer of the Curtiss-Wright Corporation that this is

not the ship which was shown at the review attended by the President
in October, 1938.

That ship was practically a converted P-36 with one of the original
Allison motors installed. It was an experimental type in every sense
of the word. The ship was further developed for the competition at

Wright Field in Dayton which beran in May 1939, and submitted by

Curtiss-Wright as their entry. After an agreement on their part to

make certain changes in the wines and fuselage which were made neces-

sary by the installation of the improved Allison motor at present

being produced, they were given a contract in June, 1939, one month
after the ship had been shown and flight-tested at Dayton.

The first ship was completed and flown last week, and it is anticipated
that two more will be completed by the latter part of next month in
order that the three indicated for March delivery, 1940, which are for
flight and static tests may be delivered to Wright Field in Dayton on
schedule.

Director Procurement

for of

356

Receipt acknowledged and copy of material

sent to Mr. Blough 1/8/40.

357

NEW YORK STATE COLLEGE OF AGRICULTURE
AGRICULTURAL EXPERIMENT STATION

CORNELL UNIVERSITY
ITHACA. NEW YORK

DEPARTMENT OF AGRICULTURAL ECONOMICS AND FARM MANAGEMENT

January 6, 1940
Personal

The Honorable Henry Morgenthau Jr.

Secretary of the Treasury

Washington, D. C.
Dear Henry:

I am returning the memorandum that you sent me several days ago together with some comments on the Income-Certificate Plan. I have retained
the photostat copies of the memorandum and of the Department of Agriculture
Sales Prospectus for my confidential files, but if you wish to have them
returned I will do so at once on word from you.

The memorandum is an excellent statement of the distribution of the
burden of the proposed Income-Certificate Plan for agriculture. It seens
to be essentially accurate, and I am in agreement with the major conclusions.
In the comments that I am sending I have added a few additional points that
seem to me to be worthy of consideration.
Most of the work in analyzing this proposal has been done by M. Slade
Kendrick and M. P. Catherwood, who are Professors of Public Administration
and Finance in this Department. I have combined the major points which they
have suggested into one brief statement. This can be expanded with a fuller

discussion if it would be helpful to you.

I expect to be in Washington on Wednesday and Thursday of next week,

January 10 and 11, and if you have time to spare I would be glad of as op-

portunity to see you for a few minutes. In any event, I'll call your office
when I arrive between 11 and 12 Wednesday morning.

The Income-Certificate Plan is in effect a concealed tax on the bread
and overalls of many families who are in as great distress as the families

it is intended to benefit. In my opinion, it would work a serious injustice

to the farmers and city people of the Northeast without any compensating
public benefit.

I - very glad to have the opportunity of giving even minor assistance
in bringing out the true facts of this situation. with warm personal regards,
I am,

Yours sincerely,

W. I. Myers
WIN:EA

Enc.

cc. Ladd, Kendrick
Catherwood, Babcock

January 6, 1940

358

CONDENTS ON THE PROPOSED INCOME-CERTIFICATE PLAN FOR AGRICULTURE

1. The Income-Certificate Plan would, in effect, be a highly
regressive tax and would bear most heavily on low income families.

a. Persons with small incomes spend a larger proportion
of their incomes for wheat, cotton and rice products than do
persons with large incomes.
b. Persons with low incomes commonly buy low priced

articles. Since this tax is based on weight, its cost would
be greater in relation to price for low priced articles than
for high priced ones.
2. Although proposed as a means for increasing farm incomes

the Income-Certificate Plan would benefit a group of about three million
farm families engaged in the production of wheat, cotton and rice at
the expense of four million other farm families and twenty-two million
non-farm families. The number of families in the two latter groups who
are in distress greatly exceeds the number of distressed families in the
group benefitted.

3. The benefits of the Income-Certificate Plan would go to

these three million farm families in proportion to their production of
wheat, cotton and rice and not in proportion to their need. Large
producers would get the greatest payments and small producers, the lowest.
4. Since the Plan makes no provision for compensatory taxes

there would be a definite tendency to increase the use of competing products and discourage the consumption of cotton, rice and wheat. This

-2-

359
would be especially true in the case of cotton. Rayon would be expected to make further inroads on cotton consumption thereby increasing

the problem of marketing the crop and adding to the difficulties of the
control program.

5. The Plan contains no provision for the exemption of wheat

processed for feed for poultry, cattle and other farm animals. Unless
the tax were allocated by processors entirely to wheat products used

for human food - a most unlikely proceeding - this tax would result in
increasing the cost of feed purchased by other farmers as well as in

adding to the cost of the wheat, rice and cotton used in their households.
6. The Income-Certificate Plan is avowedly advocated as a

method of deception. It provides funds for benefit payments to certain
farmers outside the regular budget and without annual appropriation.
Such an evasive method is in direct conflict with the attempts being
made to simplify and improve federal and state tax systems. Moreover,

it is in conflict with democratic procedure as applied to public finance.
Regardless of the type of taxation used, such expenditures should be

included in the budget and subject to annual appropriation since it is
only by this means that they can be subjected effectively to public
opinion.

7. No floor stock tax is levied. In view of the shifting of
the tax forward to consumers, advantage will attach tc processing and

stocking up in advance of the effective date of the Plan or of any increase in the tax. Conversely, disadvantage will attach to the holders
of stock on any decrease in that rate.

-3-

360

At the beginning of each crop year when a change in the rate
might be expected, the processing and handling trades will experience

a period of great uncertainty. Adjustment of their operations to this
uncertainty would result in increased margina to meet the cost of

carrying the increased risk. Thus public action in the adoption of this
plan would result in increasing the sgread between producer and consumer
and would make the marketing system more inefficient.

8. Even if adopted the results of this plan to raise and main-

tain the unit return from single agricultural products substantially
above the general level of prices of other farm products will probably
be disappointing. Increased substitution from competing products will
reduce demand while farmers will strive to raise more of the profitable
product through increased intensity of production or increased acreage,
or both.

9. The Income-Certificate Plan emphasizes the return per unit
from wheat, cotton and rice and ignores the fact that a farmer's income

is the result of production times price. If, as seems probable, production would have to be curtailed to maintain a relatively high return per
unit, the increase in net income of the farmer would be small without any
dimination in the increased cost to consumers. with E reasonably stable
price level the gross returns from large and small crops of staple farm
products are approximately equal.
Conclusions

The disparity between the prices received by farmers for their
products and the prices paid by them for goods and services remains as

361

the basic cause of agricultural distress. It is also a major cause
of unemployment. This disparity will not be corrected until the price
level of farm products rises enough to restore the equilibrium that
was destroyed by the decline of 1929-33.

The situation has been improved by the general upward trend
of recent months since, as always happens, farm prices rise more rapidly

than retail prices. Further improvement can be expected as long as the
trend of the price level continues upward.
If payments are to be made to farmers as a partial corrective

of this price disparity, they should be distributed as fairly as possible
among all farmers who suffer from it. The funds should be obtained from
general taxation and should be appropriated by the Congress.

Whyy

362

Spee led

House
December 28, 1939

MEMORANDUM FOR THE SECRETARY:

In response to your request there is attached a
memorandum on "The Distribution of the Burden of the Pro-

posed Income Certificate Plan for Agriculture," which

indicates reasons for believing that the net effect of
the plan would not be appreciably "progressive," if at
all.
It would seem that emphasis should not be placed

on the "progressiveness" or "regressiveness" of the

plan as a whole, since the fiscal problem of agricultural
benefit payments is not substantially different from that
of any other type of governmental service or expenditure.
Emphasis might properly be placed rather on the burden of

the tax itself as is the case in considering taxes for
other purposes. Our original memorandum pointed out the

high degree of regressiveness of the income certificate
tax. No one has denied this conclusion.

RB

363

The Distribution of the Burden of the Proposed
Income Certificate Plan for Agriculture

The proposed income certificate plan for agriculture
is a combination of processing taxes and farm benefit payments. Certificates would be employed to collect taxes on
the occasion of the first domestic sale of certain agricultural commodities in processed condition, for the purpose
of distributing benefit payments to the producers of these
commodities.

The plan is a device to provide one type of agricultural benefits - parity payments - outside the Budget,
without direct recourse to the general fund of the Government, and without annual appropriation by the Congress. The

method is such that it can be applied successfully to only
a few agricultural commodities. The Department of Agriculture
has proposed to make the plan applicable to wheat cotton and
rice.

The certificate plan would impose a tax on certain
necessities. It would tax the consumption of wheat, cotton
and rice. Experience with the processing taxes under the
Agricultural Adjustment Act of 1933, invalidated in 1936,
indicates that the burden of taxes cm these commodities would
fall, in large part, on consumers. Inasmuch as the consumer
expenditures for the products of these agricultural commodi-

ties account for a such greater proportion of the total

364

-2 expenditures of individuals and families with small incomes
than of the total expenditures of those with larger incomes,
the burden of the tax would be regressive. It would bear
more heavily on those with small incomes than can those with
larger incomes.

The tax would be unusually regressive for it would be
imposed on physical units of an agricultural commudity, without regard to the price of the product consumed. Unlike a
sales tax which is imposed on the basis of value, the certificate tax would be imposed on the basis of weight or volume.
Low income consumers purchasing low-priced articles, such

as overalls would pay a higher tax with each dollar spent
than higher income consumers purchasing high-grimed cotton

articles.
It may be that in some cases processors would find it
necessary and practical to transfer some of the tax burden
from their low-priced to their high-priced products. Under
the invalidated processing taxes cigarettes for instance,
appear to have borne more than their share of the tobacco

taxes. This type of adjustment, however, is very unpertain
and cannot be predicted as a likely occurrence in the case of
other products.

The rate of taxation contemplated by the proposed certi-

ficate plan would be far heavier than the rates which in the

365

-3past usually have been applied to necessities in the United
States. The general sales taxes imposed by States in no
instance exceed 3 percent of the amount of the transaction,
and moreover in many cases exempt food items from taxation.

The rate of the tax under the proposed certificate plan
would be equal to the difference between estimated parity
prices and the average farm prices of the particular agricultural commodities affected. In some instances, the rates
of these taxes would be even higher than those imposed under

the invalidated processing taxes. A 6-cent tax on 9-cent
cotton, for instance would be equal to 66 percent of the

selling price. The imposition of indirect taxes of this
magnitude, superimposed on an already regressive Federal-

State-local tax system, would severely affect the already
limited purchasing power of the low-income families. They
would bear a large part of the heavy burden which a tax on
wheat would impose annually on domestic consumption of bread
and other wheat products.

The effects of the certificate plan would be especially
burdensome to those who, just like wheat, cotton and rice

farmers, are receiving less than "parity" incomes. There are
large numbers of other persons on farms and in the cities who
have incomes and standards of living as low as the growers of

366
4

wheat, cotton and rice. The whole body of the unemployed
and the under-employed laborers in all industries have less
than "parity" incomes and would be subjected to a heavy
burden on account of the tax.

There is general agreement that the adoption of the

certificate plan would constitute in effect, a tax on consumption. It, nevertheless, has been maintained that the
regressive effects of the tax would be offset by the
"progressive" effects of the expenditures and that the net
result would be "progressive." Underlying this position is
the assumption that the plan would benefit a low-income
farm group largely at the expense of a higher-income nonfarm group.

At the outset, it should be noted that this distinction
between farm and non-farm population is not relevant to the

issue at hand. The certificate plan has been designed for
the benefit of wheat, cotton and rice (and possibly some
tobacco) growers only. It cannot be employed successfully,

and it is not proposed for the benefit of the growers of
the many other farm commodities. In consequence, the plan

does not propose to benefit the entire farm population at
the expense of the entire non-farm population. It proposes,
rather, to benefit wheat, sotton and rice growers as distinct
from all other farm groups as well as all the non-farm
groups.

367

-5There are at present in the United States approximately

7 million farm families. About 3 million of these are engaged, to a small or large extent, in the growing of wheat,
cotton and rice. Thus, even 1f all wheat, cotton and rice
growers cooperated in the AAA production and soil conserva-

tion programs and were eligible for parity payments, the
certificate plan would benefit not more than 3 million farm
families, at the expense of another group consisting of
4 million farm families and more than 22 million non-farm

families, not to mention several million single individuals.
Moreover, the plan, if adopted, may not be of much

help to some wheat and cotton growers. That likelihood

is indicated by the fact that a portion of these 3 million
wheat, cotton and rice growers produce these commodities

in such small quantities that the benefits they would receive from their share of the certificates, if they complied
with the farm program would be offset largely by their share
of the tax burden as purchasers of wheat, cotton and rice
products.

The certificate plan is said to have progressive effects
because the average income of the farm population which
would be benefited is lower than the average income of the

non-farm population which would be taxed. However, a
comparison between farm and non-farm population on the basis

368

-6of per capita incomes is subject to misinterpretation.
The incomes of the two groups are not comparable. A

dollar of income in a rural area is something entirely different from a dollar of income in an industrial area. Its
purchasing power is different because the cost of living
generally is lower in rural than in urban areas. For those
on farms, food and clothing, two important elements in the
budget of the low-income groups, require a smaller expendi-

(thousing)

ture than for those in the cities.
In comparing the income of the farm and the non-farm

population it is emphasized that a larger proportion of the
farm population falls in the low-income group than is the

case in the non-farm population. It is pointed out, for
instance, that a considerably larger percentage of the
families on cotton farms have low annual incomes than is

the case with an industrial population. Such use of percentages, however, does not bring out some of the important
aspects of the low-income problem. The percentages relate

to entirely different magnitudes. In 1935/36, one-third
of American families are estimated to have had incomes of

less than $780. No information is available on the income
distribution among wheat, cotton and rice farmers. However,

in that year, 37.6 percent of all non-relief farm families

369

-7were estimated to have had annual incomes under $780.

For all non-relief families, the corresponding proportion
was only 23.5 percent. However, in actual numbers,

almost 6 million non-relief families had incomes less than

$780. Non-relief farm families accounted for a little over
2 million of the six. However, families of wage earners
also accounted for over 2 million. Even if the percentage
of wheat, cotton and rice growers falling in this low income
group were mach larger than that reported for all farm
families - am extreme assumption - the adoption of the

certificate plan would result in the taxation of at least
5 million non-relief families with incomes of less than
$780, for the benefit of wheat, cotton and rice growers,
only part of whom have such low incomes. In other words,

it is at least not evident that the net effect of the plan
would be a distribution of income from higher to low income
groups.

Moreover, we are here dealing with families whose incomes range from minus quantities upward. In consequence,

even if, om the average, the families taxed had a higher
income than those which received the benefits, the families
taxed would still include a number whose incomes would be

lower than the incomes of many receiving the benefits. In

370

-8other words, despite the fact that on the average farm
families have lower incomes than urban families, the plan
would tax some consumers with little or no income for the

benefit of farmers with relatively larger incomes. This is
the converse of progressiveness.

Finally, it should be noted that the benefits under the
certificate plan would be distributed among farmers approximately in proportion to the present distribution of incomes.
Wheat, cotton and rice growers would benefit in proportion

to their normal production. Therefore, in general, farmers
with large farms, producing large amounts of wheat, cotton
or rice would receive more money from the plan than small
farmers producing smaller amounts.

This analysis indicates that the certificate plan would
not have progressive effects. The cost of the plan would
be distributed inversely to tax paying ability. The benefits
of the plan for these commodities would be apportioned

roughly according to the present distribution of incomes
among the growers. Moreover, some purchasing power would be

transferred from low income families to higher income

families. At all events, if the effects of the certificate
tax on consumers for the benefit of producers would have

progressive effects, then the degree of that progressiveness
certainly would be less than could be achieved by the use of
almost any other taxing device.

371

-9These conclusions, however, concern only the distribu-

tion of the burden of the proposed certificate plan and, of
course, have no necessary bearing on the case for increased

partly payments to farmers. These conclusions do imply that
if the Congress elects to make additional appropriations
for such parity payments, it would be undesirable to finance
such appropriations from taxes falling exclusively on the
COMPUTERS of necessities.

M

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

372

DATE January 6. 1940
TO

Secretary

FROM

Mr. Contrast

CONFIDENTIAL

The fareign exchange market was very dull. Sterling opened at 3.93 and,
some Japanese and Test coast buying, the rate appreciated to 3.93-7/8. It
subsequently repaint to close at 3.93-1/4.

on

Sales of spot starling by the four reporting banks totaled 1223,000, from
the following SHIPPING:

L 91,000

By comercial concerns
By fareign banis (Europe)

L 132,000

Total L 223,000

Purchases of spot starling amounted to 185,000, as indicated below:

I 45,000

By commercial CONDETED

L 40,000

By foreign banika (Europe)

Total L 85,000

The following reporting banits sold cotton bills totaling 135,000 to the

British Control at the official rate of 4.02:

1 24,000 by the Guaranty Trust Co.
11,000 by the National City Bank
1 35,000 Total

The other important currencies closed as follows:
French france
Builders
Seles france
Belger
Deneilism dollars

.0223
.5327
.2243
.1674

12-1/16% discount

There were - galf transactions consummated by us today.

The State Department forwarded to us a cable stating that the National City
Bank at Calcutta shipped gold valued at $360,000 to its office at New York. This

shipment, an antial. will be sold to the U. S. Assay Office.

Mr. Insite telephoned - Friday evening that as of the opening of business on
that morning, January 5. the balance of the State Bank of Russia with the Chase
Bank had descendent the a new low level of $500,000. Balances for letters of credit

373

amounted to $5,900,000. The Astarg balance with the Chase was $2,200,000. During
the day $2,000,000 was received from the Rotterdam Bank, this increasing the balance from $500,000 to $2,500,000 for the State Bank account with the Chase. The

following indicates the source of the $2,000,000: under instructions from the B.I.S.,

the Federal Reserve Beak this week paid $4,300,000 to the Chase Bank, in favor of
the Retterdan Bank. The Chase Bank was yesterday instructed by the Batterdan Beak

to transfer the $2,000,000 to the Russians. Since the last information on these
balances was provided - on December 26, there have been fee in - out payments of

much interest. One in payment of $750,000 was received free the Swiss Bank Derporation in New York and one of $750,000 from the Union Bank in Shitearland. The
State paid to the Antorg three lats of $750,000 each. A few local pagments had been

min, but of only small importance.

CONFIDENTIAL

374

January 6, 1940

(Dictated by Mr. Cochran in
HM,Jr's office 1-8-40.)
Purvis telephoned at 11 o'clock on Saturday and

he stated that be would like to arrange to see you as
soon as he could; that he had two or three things to

tell you. First, after some difficulty, it had been

arranged that those deliveries would be extended over

three months instead of two. (That refers to nickel to
Japan.) But be said the cablegrams which he got back
indicated
that done. that this had been a pretty hard fight to get
He said further that Monnet was anxious to get
some idea as to the reason for the delay, for the postponement, of the Frenchmen from Europe and Purvis said
he did not want to press you for that; presumed you
would tell him in good time.
Then he referred to a letter to you of January 2nd,
in regard to copper and another letter in regard to stocks
in China and be said there was something already started
in regard to control of one other factor mentioned. In
this whole conversation he was rather indefinite because
that must have been some other metal. What it was, I don't
know.

And be gave me his private number in his apartment
in the Hampshire House -- Columbus 5-0667.

I did not phone you Saturday noon because I did not

want you to be bothered with this and I told him that if I
did speak to you I would convey his message.

(HM,Jr's comments: I don't want to see Purvis un-

til I have seen the President, so we will let him stall a
little
bit.

The other thing I had you in for was, I would like
to get over to Pinsent -- I suppose he's the only fellow
here -- this thing of the English and the French, or the
English, indicating ten securities that we could see whether
we can't get -- I mean, for instance, U.S.Steel to buy its
stock, the 3.I.Central R.R. to buy its stock, that the English
offer.
Mr. Cochran: There is one thing on that. I an no

375

-2-

lawyer. I think some of these companies may have a provision against buying in their own securities.
HM.Jr: That's what I want to clear with Jerome
Frank. I will get hold of Jerome Frank and ask him if it
is convenient to come over at 11:30 o'clock.
000-000

INFORMATION COPY

FOR Mr.

Knoke

RESERVE BANK
RAL
OF NEW YORK

376

INCOMING CABLEGRAM-SERIAL NO.

153

RECEIVED January 6,2040

London, Ja may 6, 1940.

Federal Reserve Bank of New York
New York

No. 25/40 CONFIDENTIAL FOR KNOKE

We intend to quote dollars here 408 1/2 to 603 1/8
as from Monday Margin for certain other exchanges will also
be reduced.
Bolton

Bank of suglami.

03V13038

--

one & HAL
NY BCA 38

ABLE DIVISION

TAUGANT
to

100

1

June 1940

377

HOPEWELL JUNCTION

DUTCHESE COUNTY - YORK
TELEPHONE - am

/ English and Free oh

should place a deco
so that they take every

other
me
of
army
.
many
flames
now in production that

they can are

I am afraid now they are

getting
Hanes,
which
will
be one cy cle behind their everite
2. English French should combine

their security Aales along the
lines outlined by me to ligay Bas

Ishould
first
clear
this
flain
with generic Frenk and pack it lower hand.

A

final business loans take
the leadership Bring Fisher

from Chicago to study flan

378
REB

GRAY

Paris

Dated January 8, 1940
REC'D 2:45 p. m.

Secretary of State,
Washington.

25, January 8, 4 P. m. (SECTION ONE)
FOR THE TREASURY FROM MATTHEWS.

As you are sware from my previous telegrams much is

being written and said here of the "closed capital circuit"
and the importance of its smooth and rapid functioning to
French financing of the war. I bEliEVE it worth cabling you,
therefore the following full summary of an article by
Frederic Jenny in last night's TEMPS entitled "Reflections

on the 'circuit'*:
HE bases his article on a speech during the budget
debate in the Chamber of Deputies by former Finance

Minister Pictri on the necessity of maintaining the capital
circuit, in the course of which the latter observed
"correctly" that "If it WERE necessary to pay out definitively
only half of the gigantic sum which the state will have to
spend in 1940 the whole monetary Edifice would crash and

fall in pieces".
BULLITT
KLP

379

GRAY

HSM

Paris

Dated January 8, 1940

Rec'd 2:18 p. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION TWO).

It is therefore ESSENTIAL that as large a part as pos-

sible of "the huge sums put in circulation by the state
return to its coffers in the form of loan subscriptions
to be utilized for new Expenditures which, in their turn,

will feed circuit.". In theory this can continue
indefinitely but only if all of certain ESSENTIAL conditions are fulfilled and it is these which the authorities must closely watch.
BULLITT
KLP

380

GRAY

HSM

Paris

Dated January 8, 1940

Rec'd 2:55 P. I.
Secretary of State,
Washington.

25, January 8, 4 2. = (SECTION THREE).

As a first condition there must be no Export of

capital. Such export of capital produces a contraction
in the quantity of internal means of payment to the
Extent that the outflow of funds breaking the Equilibrium
on foreign Exchange markets involves gold Exports and to

the EXTENT that the latter in turn requires the bank of
issue to withiraw its notes from circulation. An Export
of capital would soon bring about a fall in the frane and

shortly thereafter a rise in prices which, in turn if
sufficiently great world Minder the functioning of the
capital circuit. HOWEVER exchange control and the natural
tendency of OWNERS of capital to bring back their funds
in time of war assure he says (with perhaps undue optimism

from the long term point of vice) that there will be no
export of capital.
BULLITT

CSB

381

GRAY

Paris

Dated January 8, 1940

Rec'd 3:10 P. I.
Secretary of State,
Treathington.

25, January B, 4 P. m. (SECTION FOUR)

The SECOND Essential condition of the capital circuit

is a relative stability of prices. If the internal purcheating gover of money is reduced the EXPENSES of the public

will insub B greater part of the sums poured into circulatime its the state and consequently a smaller part will
return the the Treasury. Thus the Government must logically
flight against an increase in living costs. BE continues
"talks struggle, however, POSES delicate problems. If the
authorities wish to stabilize prices by sheer force

without taiking into consideration the Elements for a rise
stungling Weir action nor the grievances in which the
still can be replaced, production and interchange
of gunDa will DE EXPOSED to a progressive paralysis from

withight the Treasury itself would in the End inevitably suffer.
BULLITT

382

HSN

GRAY

Paris

Dated January 8, 1940

Rec'd 4:45 P. m.

Secretary of State,
Washington.

25, January 8, 4 P. m. (SECTION FIVE).

If on the other hand no brake is placed on a rise in
prices the mechanism on which the Finance Ministry

depends steadily to feed the state's coffers will be
broken sooner or later. What is necessary in this
question therefore is a middle course; this is MOTEover what the Minister of Finance has implicitly
admitted in his reply to Pistri when he indicates that
if the GOVERNMENT cannot prevent the repercussion on

internal prices of factors such as rises in freights
and raw materials on the world market he will continue

on the other hand his Efforts on points where his acti on
can be Effective."
A third ESSENTIAL of the capital circuit is that
the banknotes poured out by the state must not be
hoarded.
BULLITT

IPL
EMB

383

REB

GRAY

Paris

Dated January 8, 1940
REC'D 4:30 p. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION SIX)
Pietri asked somewhat paradoxically whether the government

does not risk having its money hoarded if it inspires confidence while on the other hand would not it SEE banknotes
flowing back to the treasury windows if depreciation WERE

feared? The reply, says Jenny, is in the negative. If the
public has confidence in the franc it will likewise have
confidence in the credit of the state; it will therefore
subscribe to loans. If on the contrary it distrusts the
currency it would be tempted Either to hoard because of the
EXTREME liquidity of banknotes or to purchase goods or

acquire real property of SOME sort.
BULLITT
NPL

384

REB

GRAY

Paris

Dated January 8, 1940
REC'D 5 p. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION SEVEN)

HE adds: "This latter very significant phenomenon which
Konsieur Pietri considers as an indirect form of hoarding
and which constitutes in fact a fluctuation from money (*)
has recently been in Germany." Fortunately he says

for the past year the return of capital bears witness of
French confidence in its currency and the immense majority

of the investing public know that in lending their resources
to the state they are aiding the government retire this
money and at the SAME time hastening a victory. Furthermore,

an intelligent campaign of publicity should convince hoarders
that armement bonds "the principal vehicle by which sums
are coming back to the treasury" are almost as liquid as
money and that therefore it would be absurd to deprive
themselves of interest by hoarding banknotes.
BULLITT
NPL
EMB

(*) Apparent omission

385
REB
GRAY

Paris

Dated January 8, 1940
Rec'd 5:02 P. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION EIGHT)

This leads him to point out that while the Government

properly is solicitous that interest rates be as low as
possible to KEEP down public debt service charges neverthe-

less he would not go as far as M. Pietri in saying that the
state is master of interest rates in a regime of the closed
capital circuit. What the government must do as Reynaud
has so well done is to raise public credit and fortify
the confidence of savers so that interest will fluctuate
by the sole play of supply and demand; but it must not
arbitrarily impose rates judged too low by the public for
if an abnormally high interest rate creates doubts with
respect to the credit of the state an interest rate considered by the investor as insufficient runs the risk of
Encouraging hoarding. HERE again the circuit requires a
middle course.
BULLITT
EMB

386
REB
GRAY

Paris

Dated January 8, 1940

Rec'd 5:40 P. m.

Secretary of State,
Washington.

25, January 8, 4 P. m. (SECTION NINE)

HE warns, however, against any illusions that the closed
circuit is one of total and mathematical perpetual movement.
There are bound to be leakages: prices cannot remain

absolutely stable and there will always be SOME hoarding.
Furthermore, there is an inevitable though variable time

lag. The circuit must be stimulated therefore. HE warns
against any massive injections of paper money but advocates

periodical long term loans. The latter consolidate a more
or less important part of armament bonds and treasury bills
in circulation thus creating for these issues new subscription demand and also draw to the treasury capital
reserves capable of supplementing at least in part the

insufficiency of the circuit.
BULLITT
NPL

387

REB

GRAY

Paris

Dated January 8, 1940

Rec'd 5:47 p. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION TEN)

Finally he joins in the plea of AbEl Gardey for a "rational
policy of bank deposits and a greater USE of checks by the
public". The advantage would be double: on the one hand
a much greater credit base than Exists today would be
built up and "the treasury would find as at London much

greater facilities for short term borrowing". On the
other hand obligations of the floating debt would be to
a greater EXtEnt in the hands of banks thus assuring this

debt a greater stability. (He omits any reference to
the inflationary dangers of encouraging too great a ratio
of bank to private subscriptions).
The LONDON ECONOMIST for January 6 in commending

Reynaud for presenting a budget which is "both courageous

and clearly arranged" contains the following interesting
paragraphs:
BULLITT
NPL
EMB

388

REB
GRAY

Paris

Dated January 8, 1940

Rec'd 5:05 p. m.

Secretary of State,
Washington.

25, January 8, 4 P. I. (SECTION ELEVEN)

"All the EVIDENCE goes to show that the treasury is

not overestimating the yield of taxation. Estimates of the
direct taxes are based on the year 1938 -- a dull business
year -- and the aggregate value of income declarations

for 1940 is anticipated to be 20% less than the corresponding figure for 1938. The actual proceeds of taxation are
assumed as only 60 to 70% of the 1938 declaration total.
This compares with an assumption of 77% for the 1939 (*).
In the same way the Estimates of indirect taxation are
considerably reduced in comparison with those for 1939.

It is intended that the yield of DEW taxation shall fill
the gap. As far as war Experience goes the outlook is

favorable. The payments on direct taxation fell short of
the Estimates by 31% in September and 30% in October.
BULLITT
NPL

(#) Apparent omission

389

REB

GRAY

Paris

Dated January 8, 1940
Rec'd 5:55 P. m.

Secretary of State,
Washington.

25, January 8, 4 p. m. (SECTION TWELVE)

If these percentages are reckoned against the EXPECTED yield

for 1939 of 77-1/2% they produce a return of about 55% of
the nominal assessment figure for 1939: the 1940 Estimates

do not in fact EXCEED this proportion.

"As far as any opinion is possible yet it may be said
that the problem of financing the war is in the hands of
a man whose competence is beyond any doubt. But his task

will be hard. HE will have to steer a course bEtwEEn the
:

scylla of budgetary deficit and the charybdis of OVER-

taxation and to strike Either of these will be to sink all
immediate hope of regaining prewar levels of prosperity."
BULLITT

NiL

390
REB
GRAY

Paris

Dated January 8, 1940

Rec'd 6:10 p. m.

Secretary of State,
Washington.

25, January 8, 4 P. =. (SECTION THIRTEEN)

The conditions of application of the decrees of October
27 and 30, 1939 under which 40% of pay for overtime must be
deducted by the Employer and paid OVER to the treasury by
the latter (Embassy's despatch No. 5339 of November 21,
1939) WERE published in the JOURNAL OFFICIEL of January 7.

An arrete published in the JOURNAL OFFICIEL of January

(*) sets up a technical committee to study various problems

connected with the production and utilization of flax.
The securities market was unfavorably influenced today
by foreign developments such as the resignation of HoreBelisha and renewed German threats against the neutrals.
LOSSES in rentes ranged from 50 centimes to 1 franc but
loss in industrial issues ran in SOME cases OVER 5%
Official Exchange rates WETE unchanged.
(END OF MESSAGE)
BULLITT
NPL

(*) Apparent omission

The President read this and was
amazed.
1

391

TREASURY DEPARTMENT

392

INTER OFFICE COMMUNICATION

DATE January 8, 1940
TO

FROM

Secretary Morgenthau
Mr. White

From December 19, 1939 through January 3, 1940, there

were no exports from the United States to the U.S.S.R. (There
was a trivial item of $55 exported.) During December, prior
to December 19th, we exported $5.3 million to the U.S.S.R.
Exports in October, 1939 were $5.5 million, and in November,

1939, $7.0 million.

393

January 8, 1910
I rode down with Collins and showed him the memoran-

dum that I made yesterday. (This is HM,Jr notes in his
own handwriting written on Farm stationery, dated 1-7-40
and filed that date.)

I told him that I wanted him to prepare charts show-

ing what deliveries, by months, for 1940 the Army and Navy
expected and what deliveries the English and French expected

in this country. I said that I wanted to take over these
two sets of figures to the President as he will have to de-

cide what part of our own production he wants to give up to
the Allies because otherwise I seriously question whether
the Allies can get very many more planes in 1940 than they
now have on order.
When I finished, Collins said that he had come to the
same conclusion after having spent all of last week on this

problem.

394

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

January 8, 1940
MEMORANDUM FOR THE SECRETARY

à meeting was held in the Office of the President at 1:50 this afternoon at which
were present, in addition to the President, the Secretary of the Treasury and the
Director of Procurement.

At the suggestion of the Secretary, the Director of Procurement explained to the
President the meeting that had been held on Friday, January 5th, at which were
present Colonel Greenley, M. Plevan, Colonel Jacquin, and the presidents of the
three engine manufacturing companies.

It TES further explained to the President that the engine manufacturers were informed that it was fully realized that the engines would probably prove the bottleneck of any aviation program; that the Allies were making a survey to determine
that were the possibilities of obtaining 6,666 bombers and 3,333 pursuit ships
which, with spares, would account for approximately 20,000 engines; and that it
was desired, if possible, that this program be completed during the year 1940.
Both Colonel Greenley and y. Plevan emphasized the urgency of obtaining at the

earliest possible date the airplanes being discussed.

The meeting was recessed for three hours during which time the engine manufacturers
made some estimates of what might be done in the way of furnishing engines during

the calendar year 1940. The estimate provided for only 4,000, or 20%, of the
notors desired. Colonel Greenley expressed a desire that the period of providing
planes be extended, for estimating purposes, into the calendar year 1941 and asked
that, inasmuch as these estimates had been hurriedly prepared, whether or not a
more detailed study might change the schedule of deliveries. The manufacturers
felt that they would prefer to make a further study, and the meeting was thereupon
adjourned to meet again on Thursday, January 11th.

During the meeting the proposal to utilize automobile factories for the production
of parts was discussed, but Mr. Evans, President of Allison Motors and Vice President of General Motors, related an experience they had recently had wherein
$180,000 worth of available machinery in the Cadillac plant TES examined to see
that of it might be utilized in the new Allison Motor plant, and of that amount
but $9,000 worth of machinery was obtained, and that of a seni-precision type.
It was the reaction of Mr. Evans that no great amount of help might be expected
from the automobile industry owing to the high precision character of work done
on aeronautical engines.

-2

395

The President salted if - efforts had been made to see that night be done by such

first as Allis-Chalmers, International Barvester, Inline Flow, etc. The Director

of Procurement stated that these THREE would be borne in mind for use at the
Thursday meeting.

The Secretary stated the the President that it was his optimém that if deliveries
to the Allies TELE the be supedited, some action looking toward the diversion of
places to title Millie would have to be taken and suggested with reference to
the 3-4 Curtian preside, for which the Army has a contract, that 25 out of the
first of be allimentad the the French. To this the President agreed and suggested
to the Secretary that the matter be handled by his through General Tatson.

Director = Procurement

reference

January 3, 1940.
4:52 p.n.

T.V.Jr:

Hello.

Operator:

Mr. Parvis. Go ahead.

H.M.Jr:
Arthur
Purvis:

Hello. Hello Mr. Purvis.

H.M.Jr:

How are you?

P:

Very well thank you.

H.M.Jr:

?:

396

Good afternoon Mr. Secretary.

Mr. Purvis, the reason I'm calling is that we had
a chance to clear this matter with the President
today, on the twenty-five planes.
I'm sorry, I - it's funny, there's something gone
wrong with the wire. I don't quite hear.

T.M.Jr:

Hello.

P:

Yes.

E.M.Jr:

Hear me better?

P:

Oh that's better. I'm sorry.

H.M.Jr:

You remember you asked the President, when you saw

P:

him, about twenty-five planes.
I do.

H.M.Jr:

Yell I saw him again today.

P:

Yes.

E.M.Jr:

And he's given the orders directly to the Army.

P:

Oh!

H.M.Jr:

That's between the - I believe the first of April

P:

Yes.

H.M.Jr:

That the French be given, during those three months,

P:

Yes. Thank you very much.

and June 30.

twenty-five of these P-40's.

397

-2H.M.Jr:

Well now, the reason I'm calling you is that the
Army
is taking it up directly with Curtis Wright,
you see?

P:

Yes.

H.M.Jr:

And I suggest that your people also take it up with

P:

Yes.

H.M.Jr:

Be - when we - the figures - I don't think the

Curtis Wright, you see?

Frenchwere to get any of these P-40's before the

first of July.

P:

Oh, I see.

H.M.Jr:

So now they're to get, I mean their contract didn't

P:

No, exactly.

H.M.Jr:

Well now they're going to get twenty-five, scattered,

P:

Thank you very much indeed. That's simply excellent.

H.M.Jr:

And, as I say, this will be handled just the way

call for any before the first of July.
see, April, May and June.

the searchlight thing was.

H.M.Jr:

Yes. I see.
It is handled -

P:

One and one.

H.M.Jr:

Well almost.

P:

Almost.

H.M.Jr:

Almost. But I mean the method of handling it will

P:

Yes.

H.M.Jr:

The orders go right from the President, to the Army.

P:

Yes.

H.M.Jr:

But -

P:

be the same and I keep out of it you see.

-3P:

398

I understand exactly. So what are have to do 18 to
establish the appropriate channel and find out that
it's possible in the ordinary commercial course,
you might say.

H.M.Jr:

That's what I want.

P:

I understand exactly.

H.M.Jr:

And if - repeat - as far as you know, you don't know
how it happened.

H.M.Jr:

No, exactly.
And - hello.

P:

Yes.

H.M.Jr:

And may I suggest that you don't cable this until

P:

P:

E.M.Jr:
P:

you've got it all finished.
Exactly. I pronise that.

I mean, because - I'll explain to you why sometime.
I was going to ask you one of these days whether I
could have - if you could mark certain things with
an "X" that you wanted to remain for a time entirely
between two people.

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:

Well -

I would mark - mark them with an "I" accordingly.
Well this one I would not put on the cable.

No I won't do it.
And wait until it's all finished and then it's just

something that happened. You don't know how, it just

happened.
P:

Exactly.

H.M.Jr:

But that the French order VES pashed forward to that

P:

Yes, exactly. Thank you so much.

H.M.Jr:

Do I make it clear?

extent.

399

-4P:

Completely. Er. Secretary, there's one thing,
while I'm on the telephone, I'd like to say to you.

E.M.Jr:

Right.

P:

I wrote you E letter on January 2nd, in regard to
a certain alloy tangsten.

E.M.Jr:

Yes.

P:

That TES bused on some preliminary information

that Termet felt I should send to you because that
was what they had. I have just received a varing
cable from him saying that he has found that the
information given in that preliminary 6th December
despetch locks as 1f it's far from accurate and
that be will get me the more accurate information
as quickly BE I can get it. I thought I ought to

tell you

Tell thank you very much, and I'm seeing you, as I

not, this week

P:

Yes, at three p.m. on Wednesday.

E.M.Jr:

Is that convenient?

P:

Yes, a yes, absolutely.

E.M.Jr:

Fine.

P:

I shall look forward to it.

E.M.Jr:

Thank you.

P:

Thank FILL BooEbye.

400
PARAPHRASE OF

FROM: American Legation, Stockholm, Sweden

DATE: January 8, 1940, 4 P.E.

NO.: 8
Reference is made to telegram No. 1 of January 3
from the Department.

The following is for the Secretary of the Treasury:
Rooth has just given to Greene a summary of his views

on the present economic situation in the three countries,
Sweden, Finland and Forway. There follows a paraphrase
of this Summary:
The general economy of Sweden has been affected to

an astonishingly small degree by the European war. In
industry production has gome on at about the same rate as

went on before the war bruite out; it is only in limited
fields that disturbances in supplies of foreign raw materials,
coal and coke have been felt. There has been a remarkably

high level of imports, with only a limited decrease in
exports from Sweden. It has been possible to keep a
good level for employment.

Shipping difficulties have led to increased costs
for freight and insurance, which in turn have caused the
prices of imported goods to g up. There has not been

much of a rise in f.a.b. export prices. The increase in
costs of freight is partly reflected in income to shipping
companies of Sweden.

Governor Rooth said the money market is fairly tight,

401

-2and gave the following reasons for this 1. Forced imports, part of which are prepaid but
have not been delivered as yet.
2. Withdrawal of foreign money from Sweden.
3. Deposits in banks and savings banks have been

reduced, and there have been increased loans, particularly
because of the hoarding of Swedish banknotes.

4. A certain amount of capital has left the country.
Rooth stated that local banks are cooperating in privately
restricting the export of Swedish capital, and that it
may be advisable to impose some restriction on imports
into Sweden.

He said that during the coming months the general
economic situation will be influenced by the developments

resulting from the var, and by the necessity of adapting

industry, at least in part, to producing material for
the war.

A budget deficit for Sweden will be unavoidable.

He stated that this year the interest on government debt
will equal about half of the income from State investments.
In Norway and in Sweden foreign exchange holdings have been

greatly reduced. The foreign exchange reserve and gold
which the Riksbank holds abroad amounts to about $150,000,000

in U.S. currency. The gold in Sweden amounts to about

$225,000,000, with a lover book value. As of the end

of

402
-

DEVISOBA

3 - TRINTRATED YOU

of 1939, declarations of private hwedish3holdings of
foreign assets are to be made.
The position of Norway is similar to Sweden's, under

conditions prevailing at present.
Approximately 160,000,000 Norwegian crowns are held

abroad as Norway's reserve of gold and foreign exchange.
It 18 estimated that 230,000,000 crowns in gold are held
by Norway at home. The export trade of Norway has been

facilitated by her geographical location compared with
the other Sandinavian countries.
The mercantile marine of Norway, which is relatively
much greater than that of Sweden, has been and will continue
to be of the greatest importance to Norway's exchange

situation. Through close cooperation between the central
bank and the private banks, there is exercised an effective
unofficial control of foreign exchange
imports.
As for Finland, every reserve has to be devoted to
defense of the country. Because of German control of the

Baltic Sea, it is extremely difficult to ship exports from
Finland to England. Exports were at a very satisfactory
level before the Russians began their attack on the country.
As for the foreign exchange reserve of Finland there is no

information available. To a great extent industry in Finland
is on a war basis.
END OF MESSAGE.
EA:LWW

STERLING.

403
DEPARTMENT OF STATE
WASHINGTON

IM

January 9, 1940.

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury, and
encloses one copy of paraphrase of telegram No. 8
of January 8, 1940 from the American Legation, Stockholm.

404
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: January 8, 1940, noon

NO.: 23
FOR THE TREASURY.
FROM MATTHEWS.

On Saturday I dined alone with the Rists. Rist said
that his trip to the United States has been postponed in
view of word he received from Purvis; I understand that this
is in accordance with your desire. However, on Tuesday Rist
18 going to London.

I asked Rist about the progress of negotiations with the
Greeks and the Turks; he said that about 210,000 tons of
crude chromite are produced each year by the Turks, and they

have agreed to furnish 200,000 tons to the Allies, and to

limit to 250,000 tons their total production. In return,
however, the Turks insist that the Allies shall buy their
raisins, figs and hazel nuts, which Rist says are not in
the least needed by the Allies. They have continued their
discussions on this question, but he said there was no
doubt in his mind that the Allies would have to agree to

buy these products - but the British financial counselor,
Norman Young, was aghast at the prospect of purchasing

large quantities of these products which they do not need.
Rist did not know how the negotiations with the Greeks were

going - it is reported in the press yesterday that a succesiful conclusion

405

-2ful conclusion was reached.

Rist said that they were experiencing difficulty with
the Swiss - reference: telegram No. 7 of January 3 from
the Embassy - and they were still carrying on negotiations.
He said that the agreement with the Belgians recently
completed was very complicated, but was satisfactory, on
the whole. The agreement is that the French will continue

to furnish iron ore and other raw materials so essential
to Belgian industry, and the Belgians agreed that they
would not sell to Germany any of the products produced from

these materials. Rist said that the Germans were very much
annoyed by this provision; they have threatened to cut off
coal shipments to Belgium because they say that through the
use of German coal Belgium produces articles which are sold

to the Allies. Another provision of the agreement is that
the Allies will permit normal Belgian exports to neutrals.
Furthermore, the Allies have agreed that as far as Belgium
or any other neutrals contiguous to Germany are concerned,

they will not try to prevent normal exports to Germany of

industrial or agricultural products, provided such products
are not derived from imports which come through the blockade

of the Allies.
I asked Rist about payments in dollars, and he replied
that the neutrals naturally were trying to get part payment

for their exports in dollars, at least; However, I gather

that

406

-3that they are not being very successful in this - Rist
spoke of how much could be bought in the sterling and frane

areas. h dealings with Yugoslavia, Rist said, the Allies
have experienced particular success; extremely little amounts
are to be paid for in dollar exchange, most of the exports
to the Allies are to be paid for in blocked disers. Arms
and munitions are sought from the Allies by the mentrals,
but he said it was difficult to furnish them because the
Allies had need for them themselves.

Incidentally, Rist told me that Royal L. Tyler, in
view of the "improvement* in the attitude of Sungary reference: telegram No. 3 of January 2 from the Embassy -

is very anxious to have the Allies buy substantial quantities

of the exports of that country. However, it was difficult
for the Allies to see their way clear to doing so, because
they do not really need most of such products, and because
they must make heavy expenditures elsewhere. Eist made

reference to a theory he previously expressed- reference:
telegram No. 2587 of October 26 from the Enbassy - that
the Allies should encourage "competition" in Europe by
the United States for all those products which cannot be

furnished to the neutrals by the Allies because of their
concentration on arms and belated production, and which

are being bought from Germany by the neutrals. Infortunately,

he said, there is considerable opposition to this thesis

407

-4coming from those who are afraid that this competition
from the United States might prove to be more than

temporary. Rist himself was not worried about this point,
taking the view that after the var we could not continue
such competition in most instances because of our higher

costs of production, freight, insurance, and other costs.
I asked about shipments of coal from Germany to Italy.

Rist said that it was his hope that such shipments would

soon be replaced by British coal to the extent of 4 million
tons; he went on to say that unfortunately coal cannot be
supplied to the world by Great Britain. There has necessarily
been an increase in British exports to France, in view of
the shutting off of the heavy German imports for the
industrial eastern part of France, and there has also
been increase in shipments elsewhere in competition with

Germany, but unfortunately there are limits and difficulties
in transporting the goods.
END SECTIONS ONE TO SIX, INCLUSIVE.
BULLITT.

EA:LNW

408
PARAPHRASE OF SECTIONS SEVEN AND EIGHT, TELEGRAM

NO. 23 OF JANUARY 8, 1940, FROM THE AMERICAN EMBASSY, PARIS

We spoke of the holding up of American mails on

neutral vessels, and I remarked that quite aside from
the legal merits of the question, it seemed to me that

psychologically it was very shortsighted on the part of the

Allies, particularly the British. I made reference to the
growing public criticism of this procedure in the United
States, and tried to explain the attitude of people in
the United States toward the war, and the possible reper-

cussions on politics in the United States. I said that I
could not believe that the material harm the Allies did
to Germany by such action was in any way commensurate with

the psychological harm such procedure did to their own

cause. In answer he said that of course the idea of the
Allies was to prevent all possible remittances of dollars
to Germany, though he admitted that there was probably a

very small amount involved. Incidentally, he said (as had
Pernot, the Blockade Minister - reference: telegram No. 7
of January 3 from the Embassy) that there is constant
pressure from the Navy for a "tougher" blockade attitude
on the theory that the war 18 shortened by every seizure
of products destined for Germany, no matter how small the
amount.

I was again told by Rist that his work on blockade
measures had kept him so busy that as to financial questions
he has no real information - reference: telegram No. 1958
of

409

-2of September 14 from the Embassy; I believe that Rist has
resigned from the Advisory Committee on Foreign Exchange

Control on the ground that he does not have the necessary
time to give to the Committee.

Rist said that he did not have any idea as to whether
it will be found when the war 18 over that French requirements in sterling have exceeded those of the British in
francs or the other way around, but he suspects that when

it is all over "the Bank of France will have to present
the Bank of England with a substantial sum of gold".

Rist does not anticipate any serious French financial
difficulties over the next few months, which is in accordance
with views expressed by others, both French and American,

with whom I have spoken, and this is my own feeling.
END SECTIONS SEVEN AND EIGHT.
BULLITT.

EA:LMW

410
GRAY

HSM

Paris

Dated January 8, 1940

Rec'd 1 P. =.

Secretary of State,
Washington.

23, January 8, noon. (SECTION NINE)

Under an arrete published in the Journal Official
of January 12 the declarations required from dealers

in foodstuffs and agricultural products under the decree
published in the Journal Official of November 1 (my
telegram Nos. 2632, November 1, 7 P. n., and 2544,
November 2, 6 p. n., and Embassy's despatch 5339, HOVED-

ber 21) are to be checked and SEVETE penalties may be

applied to those who have not fully declared their stocks
or who have otherwise made faulty declarations.

All further arrete holders of stocks of coffee of
more than 100 kilograms rust declare such stocks as of
the first Saturday of each month as well as stocks ED
route.
Under a decree published in the SANE Journal Official

the stamp duty code is modified will th respect to the cost

and conditions of the issuance of identity cards to
foreigners. Under this measure Article 203 of the code
is

411

hs -2- No. 23, January 8, noon (Section 9) from Paris
is replaced by NEW provisions which, among others, increase

the cost of renewal or delivery of identity cards (with
certain EXCEPTIONS) from 260 francs to 400 francs.
(END MESSAGE).
BULLITT
KLP

412

McL

Plain.
London.

Dated January 8, 1940.
RECEIVED 12.45 p.m.

Secretary of State,
Washington.

54, January 8, 5 p.m.
FOR TREASURY FROM BUTTERWORTH.

The margin between buying and selling rates of all

the officially fixed currebeies was narrowed today with the
EXCEPTION of the currencies of Canada, Norway and Sweden.

The dollar and the French frane had not been altered since
mid-September and the Swiss franc since October 25. The
Dutch and Belgium rates WERE last altered OC January 2 and
the Norwegian and Swedish on DECEMBER 21 when the magin

between the buying and selling rates was narrowed. The
Argentine rate was altered last on DECEMBER 16.

Commenting on this the British Treasury recalled
that when these rates WERE first fixed on the declaration of
war it was an Experimental and somewhat haphazard step and

that since then the trend had been towards narrowing the

spread. As regards the dollar it was pointed out that theorotically there was no reason for any spread at all and that
the Existing spread really had the Effect of a tax but that
a

413

# 54, January 8, 4 p.m. from London.
a spread was necessary as regards most of the other CUTTED

cies if the British fund was to avoid losses since they tendEd to move against the dollar. The British Treasury also
stated that the reason both the buying and selling rates for
the dollar WERE changed one half a point was in order to
make clear to the market that the intention was not so much

to alter the rate as to narrow the spread. The alteration
in the French franc rate was to PEROVE disparity between the

London and Paris rates. Presumably under official inspiration the London Evening press plays up this step under such
headlines as: "Sterling strong under NEW Exchange control".
JOHNSON.
HPD

414

TREASURY DEPARTMENT
INTER OFFICE COMNEUINICATION

DATE January S. 1940
TO

Secretary Morgeathan

FROM

Mr. Cochraz

CONFIDENTIAL

There was considerable strength in the sterling rate in New York, with the

volume of sterling transactions slightly less them that of the last full working

day on Friday. After the rate was qusted in Ansterdam at 3.93-1/15, it opened
is Sew York at 3.93-1/4. There was good commercial buying of sterling, especially
by the rubber houses, and this demand BET have been due to the alteration of the

British Control's selling rate for dollars from 4.02 to 4.02-1/2. This change
by the Control I have created a fear in the market that such further upward

adjustments would result in higher quotations for sterling in the outside market.

is explanation of the British Central's action is given further on in the report.

During the day. the sterling rate advanced steadily, with the exception of a
slight reaction in the mid-aftermoon. Just before the close, the high of 3.95
YES reached, and the final quotation was 3-94-3/4.
Sales of spot sterling by the four reporting banks totaled 4303,000, from

the following sources:

I 55,000
By foreign banks (Europe, Far East and South America)
215,000
Total. 303,000

By commercial concerns

Purchases of spot sterling amounted to 2459.000, as indicated below:
By commercial concerns

By foreign banks (Far East and Europe)

1 351,000
105,000

Total. 459,000

The British Control today changed its selling and buying prices for dollars
to 4.02-1/2 and 4.03-1/2, respectively. The former prices were 4.02 and 4.04.
The Control also changed the buying and selling prices for several other currencies.
Comment by the British Treasury on this action was reported in the cable sent by
Butterworth today. The British Treasury recalled that when these rates were first
fixed it was am experimental and somewhat haphazard step and that since then the

trend had been toward narrowing the spread. As regards the dollar. the British
Treasury pointed out that theoretically there was no reason for - spread at all
and that the existing spread really had the effect of a tax, but that a spread was
necessary as regards most of the other currencies if the British fani was to avoid
losses, since they tended to DOTE against the dollar. The British Treasury also
stated that the reason both the buying and selling rates for the dollar were changed
one half a point was in order to make clear to the market that the intention was
not so such to alter the rate as to BATTOV the spread.

415

-2 -

The Guaranty Trust Co. sold cotton bills totaling 116,000 to the British
Control on the basis of the official rate of 4.02-1/2.
The other important currencies closed as follows:
French france
Guilders
Swiss france
Belgas

Canadian dollars

.0223-1/2
.5328
.2243
.1677

12-1/8% discount

The rates for the Cuban and Mexican pesos were steady at 10-7/8% discount
and .1672, respectively.
The Federal Reserve Bank purchased 20,000 belgas for the account of the Bank
of Latvia.
There were no gold transactions consummated by us today.

The Federal Reserve Bank of New York received cables from the B.I.S. and the
Bank of Sweden requesting it to apply for a license to transfer approximately
16,000 ounces of gold (about $560,000) from B.I.S. Account #2 to the account of
the Bank of Sweden at the Federal Reserve Bank of New York. B.I.S. Account #2

is gold owned by that institution. The Treasury granted permission to the Federal
to make this transfer.
The Federal Reserve Bank of New York reported to us the following gold shipments:

$1,125,000 from Norway, shipped by the Bank of Norway to the Federal Reserve Bank
of New York, to be earmarked for account of the Bank of Norway.
1,013,000 from Norway, shipped by the Bank of Norway to the Federal Reserve Bank

of New York, for account of the Bank of Finland. The disposition of

this shipment is unknown at present.
11,000 from Canada, shipped by the Royal Bank of Canada, Montreal, to its
New York agency for sale to the U. S. Assay Office at New York.
$2,149,000 Total

The State Department forwarded to us cables stating that the following gold
shipments would be made:

$6,027,000 from Australia, shipped by the Commonweal th Bank of Australia to the
Federal Reserve Bank of San Francisco, to be sold to the U. S. Mint.
2,245,000 from England, shipped by the Bank of England to the Federal Reserve
Bank of New York, to be earmarked for account of the Swiss National
Bank.

134,000 from Australia, shipped by the Bank of New South Wales to the American

Trust Co., San Francisco, to be sold to the U. S. Mint.

14,000 from England, shipped by Pixley & Abell to the Chase National Bank, New

York, to be sold to the U. S. Assay Office at New York.

$8,420,000 Total

CONFIDENTIAL

-3- -

416

Spot silver in London was fixed at 21-13/16d, up 1/4d, and forward silver at
21-3/4d, up 1/16d. The U. S. equivalents figured out to 38.58 and 38.17#. respectively. This is the first time since November 6, 1939 that the spot price has been
fixed higher than the forward price.
The prices fixed for foreign silver by both Handy and Harman and the Treasury
were unchanged at 34-3/44 and 35$ respectively.
We made seven purchases of silver totaling 750,000 ounces under the Silver
Purchase Act. Of this amount, 200,000 ounces represented a sale from inventory by
one of the refining companies and 100,000 ounces was trading silver purchased some
time ago by one of the New York banks. Both of these purchases were for delivery
tomorrow. The remaining 450,000 ounces was new production silver from foreign
countries purchased for forward delivery.

KmZ.

CONFIDENTIAL

GROUP MEETING

Present:

January 8, 1940.
9:30 a.m.

Mr. Bell

Mr. Cotton

Mr. Schwarz
Mr. Thompson

Mr. Foley

Mr. White
Mr. Cochran

Mr. Sullivan
Mr. Gaston
Mrs. Klotz

H.M.Jr:

Bell?

Bell:

I have nothing this morning.

H.M.Jr:

Harry?

White:

We will have a study ready on Brazilian debts,

a very careful and detailed study. I think
probably that it is the best that has been

done. I take it it is all right to send it
around to the State Department.

H.M.Jr:

Yes.

White:

If you can set --

H.M.Jr:

You might send it over my signature or

White:

Yes, as we did last time.

H.M.Jr:

Yes.

White:

If you can save half an hour or an hour to
go over the draft of the proposed bank tomorrow
afternoon --

H.M.Jr:

Tomorrow afternoon what?

White:

Any time. To go over the proposed draft of the

H.M.Jr:

Three o'clock!

White:

Yes, three o'clock Tuesday.
Who else comes in on that?

H.M.Jr:

Gaston's.

Inter-American Bank.

417

-2Write:

Well
that, I thought, would be just Treasury
people.

E.K.Ir:

Will you arrange this meeting?

White:

Yes.

E.K.Ir:

Give you an hour?

White:

I think we will want an hour. That is all.

E.K.Jr:

New Hampshire?

Sullivan:

The Glenn Martin people wrote to you about or rather they sent you a copy of a letter
they sent to Mr. Timeon on a proposed amendment to the Tinsoo-Trammell Bill. Did you
want to answer that?

E.K.Jr:

No, you answer it.

Bullivan:

All right, very well sir.

E.M.Jr:

You handle it.

Sullivan:

Sulliven:

Well, it wasn't a letter to us, it was merely
a copy of a letter that was sent to Mr. Vinson.
Dispose of it in the way you think is proper.
Very well, sir.

E.E.Jr:

Now, on the release of the salaries, we have
two different forms which may be used and I
haven't discussed 11 with Mr. Schwarz, but
in facilitating this for the Press, do you
want the addresses of the corporations?
Work it out with Selwars, I am not interested.

Sullivan:

Yes, sir.

E.3.Jr:

Could you let me know whether the following

E.M.Jr:

418

Is that all?

companies have done anything about plant
expansion, I mean whether Curtiss Wright Engine
Factory somewhere in New Jersey and the Curtiss -

I guess it is the same thing in Buffalo, Glenn

Martin and Douglas, how they handle their plant

419

-3expansion. They implied to us that they just
In other words, is there anything in the records?
go ahead and add to their plant, you see.

Sullivan:

I will find out, sir.

H.M.Jr:

Oh yes, and Pratt and Whitney.

Sullivan:

There is something on Pratt and Whitney.
Well, none of those have

H.M.Jr:

Sullivan:

H.M.Jr:

They asked us to let them write off six and
a half million dollars and we weren't interested
and they went ahead and I think they are moving
into that building this week.
I think all of them have spent considerable
money and I am just curious if there is any
request of any kind for those people in the
Treasury.

Gaston:

I think Hamilton Standard is a separate corporation, although it is housed under the
same roof, from Pratt and Whitney.

H.M.Jr:

All right.

Sullivan:

Yes, sir.

Cotton:
H.M.Jr:

I talked to Mr. Traphagen on Saturday.
That is more than I have.

Cotton:

And he went to see the Colombians. I don't
know what has happened.

H.M.Jr:

I will call Traphagen later and ask him.

Cotton:

All right.

H.M.Jr:

Well now, this afternoon when Welles comes,

I would like you here and I would like White
here, at 3:00 o'clock. Welles and Jones are
coming.

White:

Are we going to take up anything new?

H.M.Jr:

No, just Colombia. Do you sit in on that?

-4Cochran:

I have been, yes sir.

E.M.Jr:

O.K.

Gaston:

Do you mind if I get in on that?

E.M.Jr:

Swell.

Cochran:

The British sent word through the Bank of

England to Knoke on Saturday that they were

changing as of this morning their official
rate for sterling. It had been 402 to 406
from the 5th of September when they reopened
until about the 9th, then they changed to
402-04. Now, this last change is 4021 to .
That narrows the spread quite a bit and
raises by a half a cent the price that
people would get here for free sterling
balances.

E.M.Jr:

Anything else?

Cotton:

No, sir.

Foley:

Marvin Jones called up Saturday and asked

questions relative to shipment of gold from
lation and the press release.
Jim Treanor of the S.E.C., who is handling

Mexico and we sent him a copy of the Reguthe Trans-America case, has asked us

specifically for a copy of our letter of
April 14th and our letter of July 31st on

Bank of America. Those are the two letters
of criticism based on the March and July
examination.

H.M.rr:

What do you recommend?

Foley:

I think we ought to send them.

H.M.Jr:

O.K.

Foley:

Leon Henderson has spoken to Joe O'Connell
about designating Kades as the Treasury
Alternate on the Economic Committee, since
Peoples left the Department we have had no

Alternate and they are going to clean up it looks as though the Committee isn't going

to get any more money and it will be necessary

420

421

-5to hold dual hearings and they would like to
have Kades as well as O'Connell available to
vote, if necessary.
H.M.Jr:

What do you recommend?

Foley:

I think that is the thing we ought to do.

H.M.Jr:

O.K.

Foley:

Jim Landis came in at 9:00 o'clock and he is
down in my office. We are coming in at half
past ten?

H.M.Jr:

Right.

Gaston:

Both Harry White and Bill Johnson spoke to

me about the difficulty of giving literal

application to that order that was framed
the other day about reporting meetings of
the State Department, and if it is all right
with you we will sort of feel our way and give
a broad application to it until we find the
best means of working it out.

H.M.Jr:

Would you keep Bell and Thompson posted?

Gaston:

Yes.

H.M.Jr:

Then whatever the three of you agree on is
agreeable to me. But God help somebody the

first time that I jump on the State Department,

because they jumped on me and now the Treasury
Gaston:

is in the wrong.
To protect myself I have got to horn in on
a lot of these meetings.

H.M.Jr:

All right.

White:

There is a good deal of misunderstanding,

H.M.Jr:

but I wanted to wait until we had cleared it
through, although that order -Harry, excuse me. I am not interested. You
have got the Under Secretary, the Assistant
Secretary, the Administrative Assistant, three
men, all capable people, and they are a committee
of three and they can pass on it and if you don't

-6-

422

mind, I don't want to hear about it again.
White:

Not until you write a different order,

because we can't be breaking orders here.

H.M.Jr:

You have got three gentlemen to talk to and
they are very nice people, very reasonable,
much more 80 than I an, so I will leave you

at their tender mercy, but I still say I don't

want to be in the position of defending the
Treasury unless I an in the right.
White:

H.M.Jr:

I hope you haven't assumed that you have been

in the wrong in this yet.
Itcase.
is up to you and Harris to prove on that

White:

You are just suspending judgment, I take it?

H.M.Jr:

Oh, yes. You are feeling all right, Harry?

White:

Fine from the neck up.

H.M.Jr:

Harry, I just didn't want to be picking on a

Gaston:

We got a hurry-up urgent letter from the
Maritime Commission, Admiral Land, Saturday,
asking that we give telegraphic instructions
to our people on the Pacific Coast to work

cripple that is all.

with agents of the Maritime Commission in

getting evidence to indicate the falsification

of bills of lading by Japanese shippers and by
Japanese shipping lines. It seemed best to
comply with it. It seemed to be within their
jurisdiction and they wanted rush action, so
I told Bill Johnson that on his own authority,
to use his own judgment in agreeing to it and
giving the telegraphic instructions.
H.M.Jr:

O.K.

Gaston:

It seems they believed the bills of lading were
falsified, although the inward manifests are not.

H.M.Jr:

Anything else?

Gaston:

The Coast Guard, in cooperation with Customs,
has prepared an executive order abolishing

423
7-

the Bureau
of Mine
about
all ready
to -- Inspection. It is just
E.M.Jr:

Oh.

Gaston:

Would you like to take it up or do you have
any objections to our taking it up with the
Director of the Bureau of the Budget?
You can do it direct.

E.M.Jr:
Gaston:

All right. We will go over there in a body
and talk to him about it.

E.N.Jr:

Sure. Is that all?
That is all.

Gaston:

White:

(

There is an item of passing interest that
I forgot to mention. Exports to Russia
have stopped entirely since the 19th.
Nothing at all except one little shipment

of fifty-five dollars. Very unusual.

E.K.Jr:

Since the 19th?

White:

19th of December.

H.K.Jr:

Will you give me a little memorandum on that?

White:

All right, I will do that.

E.M.Jr:

Today, this morning. I would like to give it

White:

I will have it ready.

H.M.Jr:

Who would I ask in the Treasury, as your
(Bell's) successor, I mean in the old days I
would ask Bell - I don't know who to ask now -

out to the Press.

how the silver certificates are going now.

How far behind were you when you used to let
me have that?

Bell:

We were right up, almost current.

H.M.rr:

How many millions now?

Bell:

Last time I looked at it it was only six million.

424

-8H.M.Jr:

Would you report to me?

Bell:

I will get you the figures on it.

H.K.Jr:

Who does it now?

Bell:

Well, I get a report. It will come to my
office
down there. Phil can tell you about
it.

E.M.Jr:

Six or seven million?

Bell:

That 1s the last time I looked at it.

H.M.Jr:

All right.

January
2:47 p.m. 8, 1940. 425
H.M.Jr:

Hello

Operator:

All right. Go ahead.

H.M.Jr:

Hello.

Traphagen:

Hello.

H.M.Jr:

Hello Mr. Traphagen.

T:

Hello Mr. Secretary.

E.M.Jr:

IColombian
was curious
to know how you got along with the
Ambassador.

Well I didn't make a great deal of progress with

him. It was all very friendly but I couldn't I couldn't storm beyond the point where we had gone
in our previous talk. He says that he is definitely
limited to two million dollars, a million seven
hundred and fifty is in the budget for 1940 and
he says he has no authority to in beyond that point
and he doubts that his Government will give him
authority to RO beyond that point but that the
only thing that he can do 1s to go back to them
with a proposal from us. He says to go back to
them and try to get them to raise it without a
proposal from us , in his opinion, is out of the
question.

H.M.Jr:
T:

I see.
And he said, "I have made a proposal to you".

He said, "I've told you how far I can 30". "Nov",
he said, "If you want to make it a little easier
for me, make it possible for me to go back", he
said, "I wish you'd come to me with an offer of
some kind". So I told him I thought that was a
reasonable request on his part and that I would
endeavor to develop an offer.

H.M.Jr:

Good.

T:

I felt him out on the - on this flexible plan which

H.M.Jr:

The one of - that Riefler memorandum.

I went - I talked to Cotton about and I must say
it rather appeals to me.

-2 -

426

T:

Yes, that Riefler memorandum. I thought that was
very interesting and had some possibilities.

H.M.Jr:

Good.

T:

But the Ambassador is quite opposed to it.

H.M.Jr:

Uh-huh.

T:

He feels that it would be a very difficult thing
to get through his Congress.

T.M.Jr:

Well, as I understand it, the President of Colombia
has full power to do anything he wants.

Well I think that's so, but I think on the other
hand he feels that Congress would look very much
askance upon it.

H.M.Jr:

What's the use of being a President of a South

:

(laughs) I don't know. I don't know. I thought

American Republic.

if he had full powers he could do as he please&

and work it out later.

Well T:

But apparently they don't like it, and I'm afraid

H.M.Jr:

Well I'll tell you what I'll do. I'll have

there isn't such chance there.

Mr. Welles, see if he can educate the Ambassador

T:

from Colombia on the flexible plan.
I think that would be a very good scheme.

H.M.Jr:

I do I called up Cotton this morning.

H.M.Jr:

He gave me a memo on his conversation.

T:

And I told him that I thought that if that Riefler
plan could be modified so that the minimus sun
could be brought up something in the naturehood nature of a million seven fifty or somewhere along

there, that we might be able to get him to really
give some thought to it.

- 3-

427

H.M.Jr:

Well now, when am I going to hear from you again.

T:

Well, what I would like to do Er. Secretary, is to
- is to get from you some idea of how you and
your committee would feel on a return offer to that.

H.M.Jr:

Well -

T:

And 1f I could get your ideas.

H.M.Jr:

All right.

T:

However informally you might want to put them to
me, I would get the counsel together and see if
we couldn't go to the Ambassador and offer him
something.

H.M.Jr:

Yell Mr. Welles and Mr. Jones are coming here at

three and that's why I wanted to talk to you.

T:

Yes.

H.M.Jr:
T:

And after I've talked to them, If I have a
suggestion, I'll call you tomorrow.
First rate. Thank you very much.

H.M.Jr:

Thank you.

T:

Goodbye.

H.M.Jr:

Goodbye.

428

January E, 1940.
4:15 p.m.
Frank

Murphy:

E.M.Jr:

Hello Henry.
Hello Frank.
How are you my boy?

E.M.Jr:

H.M.Jr:
M:

H.M.Jr:
Y:

E.M.Jr:

I'm fine Grandpa.

That's right. (laughs) You're going to make me
a stuffed shirt completely, aren't your
I think I'm three or four years older than you.
Henry -

Only in the age, not in experience.
I called you Saturday.
Yes.

You were in the country.
Right.

I wanted to tell you that we had the infictment all

drawn on this bozo out there.
E.M.Jr:

On the who?

On that bozo out on the coast.
H.M.Jr:

Known as Bioff eh?

V:

You bet your life.

H.M.Jr:

Yes.

M:

And it will be out by Wednesday.

E.M.Jr:

Wonderful.

And I'm striking now to get the other one cleared up.
H.M.Jr:

Yell, Mr. and Mrs - whatever these people's name are the producer, you know, Metro-Goldwy Eayer, I

can't think - 20th Century.

-2M:

Ter.

E.M.Jee

It I DEIF: United

M:

I know the DITE you mean. Starts with z.

H.M.Jr:
M:

429

Tell they got E little bill this morning

from - for $572,000.
That's a nice item

E.M.I.:

They get that this morning. That went out
Thursday = Friday. So the next couple of weeks,
why I Think That The movie colony may realize
that this is a temporary.
Yes. Dan't be hamflet. But I couldn't have left
here without getting that cleared up.
Tell It's schelly pleased.

Y:

All right. = water you to be Senry.

E.M.Jr:

31.00 will so out about Wednesday.

M:

It'22 be DUE by Telmenday. It's in the mail now.

E.M.Jr:

It it's in The mill RDE.

M:

Yes. = - ESE 11 here.

E.M.Jr:

For that will that do to him?

E.M.Jr:

M:

H.M.Jr:

Tell the Grand Jury will return it on Wednesday.
I see.

1:

Sert

N.Y.Jr:

I see. That's E original indictment.
Yes. Cristinal.

M:

M:

M:

Eight.
is 11 ought to The

H.M.Jr:

Right. It yes. He's a had boy.

E.M.Jr:

430

-3M:

And it'll be a great relief to people there. I'm

only doing it because it's one of those things that
I know has to be done.

E.M.Jr:

Yell I'm awfully glad you called me, and at that

1:

Oh
yes.
about
it. 3e in fine stage. You'll be very happy

H.M.Jr:
M:

Well I'm sure Mr. and Yrs. Zanuek were surprised
when they opened their mail this morning.
Too bad you didn't send it on Christmas Eve.

H.M.Jr:

Well I couldn't do that.

rate we ought to clean thome things up in another
week or ten days.

M:

(laughs)

H.M.Jr:

All right Frank.

M:

All right.

H.M.Jr:

Goodbye.

M:

Goodbye.

431

The University of Chicago
September of Economics

Swart 8, 1940

Thank him

Please and gain city
Secretary Serry J.
Treasury Department

Tashington, D.C.

to Roy Blough

Dear Sensy,

Saving been EVERY from If Chicago job for over six months, I
DATE naturally found . great accumulation of matters and a large manber of persons saling uncent demands upon my time. I was therefore

not able until Sunday arrived = complete my reading of the material
you sent the I the Certificate Tax plan. I have given this subject
DO study before, so that the material is essentially new to me. I cannot therefore undertain any detailed comments, and must confine myself
to the general impression which the THE Treasury memoranda have made
upon me.

They both seem to = expellent in substance and manner. They
are closely-reasoned documents, written in the right tone, and taking
what seens to - = be unquestionably the sound position from the point
of ries of national policy. The action that the government must accept

responsibility for maintaining any specific income-parities, or priceparities, for any specific occupational group, seems to me absurd. It

could not possibly be generalized TID all groups without freezing the
whole ecceong and without prementing absolutely essential adjustment to

changed technological and market conditions. If proper for the farmers,

= not also for soft-coal miners, millinery-workers, retail grocers,
etc. If the farmers need relief, they should be given it according to
their needs, and not = an urinary busis. and the relief granted

should be financed from taxes which do not make the tax system press with

special severity = other groups who are = the whole less well off than

the furners. There my be poists of detail in the two Treasury memoranda
to which the Department of Agriculture our make an effective rejoinder.

But : feel sure that the member as & whole constitute first-class state
papers, which are a credit to the Treasury, and that you can safely stand
= them. I believe yes will be serving the administration - and ETED
more so, the country - well, if per throw all your weight against the
present scheme. I suggest that you asi, BE E minimum, that the scheme be

revised (a) so as = be financed from the general fund of the Treasury,

the necessary tax adjustments = be planned by Congress and the Executive

= the light of the tax-structure as E whole, and (b) so as to limit the

payments to farmers by some formula which makes certain that only farmers
in reasonable need of relief receive payments.
Thank you very much for your very generous letter to me, which

432

Secretary Henry J. Morgenthau

Page 2.

I deeply appreciate. I hope things are going well with the Department. I was delighted at the news of Dan Bell's promotion.
Cordially yours

JV-W

Jacob Viner

Jackbluer

to

433

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE Jan. 8. 1940

Secretary Morgenthau

TO

FROM

D.

Mr. Haas

Employment under the Works Projects Administration
increased by 8,000 persons, from 2,144,000 persons during
the week ended December 20, 1939, to 2,152,000 persons
during the week ended December 27, 1939. This represents
an increase of 128,000 persons over the 2,024,000 reported

for the end of the preceding month.

Attachments

434

ICE FORM
Number Inited
of Markers
States - Teamly
Vesit Shilling
1939

May If
May IDD

May III

May =

lay 300

June 77

June It
June a
June If

Number of Markers

Da thousands
2.7%
2.000
2,623
2,699
2,600
2,595
2,590

257

July IN
July 20

July ICE

2,388
2.390
2,550
2,200

August I

2,062

August If

1,977
1,597

July if

August 9

August IS
August 30

September 6
September 13
Sectanther 20
September 27

October it
October III

October ILE

October IS

November II
November $
November 25
November HP
November 29

December 6
December 13
December 20
December 27

Source: limite Projects -

2.00

1,54

1,662

1.6
1.75

1,790

1.89

1,575

1,59

1,900

1,900

1.32
1.95
1,95
2,00

2,05

2,55

435
KOREACE PROJECTS ADMINISTRATION

Number of Workers Employed - Monthly

United States

Number of Workers
1937

January
February

(In thousands)

March

April

say
June

July
American

September
October
November
December

2,138
2,146
2,115
2,070
1,999
1,821
1,569
1,480
1,451
1.476
1,520
1,629

1938

January
February
March

April

1,901
2,075
2.395
2,582

July

2,678
2,767
3.053

August
September

3.219

lay
June

October

November
December

3,153
3.346
3.319
3.094

January

2,986
3.043

Karch

2,980
2.751

February

April

May

June

July
August
September

October

November
December

Source: Torita ministration.
Monthly flaures - medility figures for the latest
week of the month

They include - and noncertified workers.

2,600
2,551

2,200
1,842
1,790
1,901
2,024

2,152

436

WORKS PROGRESS ADMINISTRATION
Monthly V.P.A. Employment

Number of Borkers Employed
United States
Feekly U.P.A. Employment
1930
MAR

MAY

MAY

1939
SPF.

MY

JAN.

MAS.

MAY

JULY

SEPT.

NOV.

my

BILLIONS

of

WORKERS

3.5

3.5

3.4

3.4

3.3

1.3

3.2

3.2

3.1

3.1

3.0

3.0

2.9

2.9

2.6

2.8

2.7

2.7

2.6

2.6

2.5

2.5

2.4

2.4

2.3

2.3

2.2

2.2

2.1

2.1

2.0

2.0

1.9

1.9

1.4
1.8

1.7
1.7

1.6

)--

Office of the Secretary of the Treatery

-

MAY.

019

JULY

1938

tor:

-

JAN

IIV1939
CCPP:

1.6
NOV.

SOUNDER BORKS PRODUCTS ADMINISTRATION

Z - 22L

437

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

CONFIDENTIAL
DATE

TO

January 8, 1940

Secretary Morgenthau

FROM

Mr. Haas CA.
Subject: The Business Situation,

Week ending January 6, 1940
Summary

(1) Seasonally adjusted business indices were well maintained through the last week of December, the New York Times

index for that week rising 1.0 point to 106.7. In early January,
however, steel activity has been declining. The recovery in the
steel output rate after Christmas failed by 4.3 points to reach
the pre-holiday level, and declines are scheduled for several
districts during the current week.
(2) Our unfilled order index declined slightly in November,
but the unfilled orders apparently remain high enough to maintain production for several months above the level of new orders.
The volume of new orders in November was equivalent to a production rate of about 114, in terms of the FRB index. New
orders in December, however, according to our less-inclusive
weekly data, were below the November level.
(3) Our estimate of inventories at the end of November
shows a moderate upturn, but not sufficient as yet to be considered an important business factor. Commercial loans, which

in the past have closely followed the trend of inventories,
part of this expansion appears to represent an increase in
'tern' loans for various business purposes.

have expanded sharply in recent months, but a considerable

(4) Stock prices have shown an improving tendency since

the first of the year, but remain low in relation both to current industrial activity and corporation earnings.

438

Secretary Morgenthan - 2

The general situation

The New Year starts out with steel activity in a declining
orders sufficient to restore the output rate to its early December Level. The rate for the first week of January, at 85.7
per cent If Dapacity, compares with 90.0 per cent for the week
before Christmas. Tentative schedules for several districts
call fur moderate further reductions for the second week of
January- In contrast, the normal trend of steel activity is
trend, and IDD indication as yet of an immediate upturn in new

strongly upward during January.

Jeverthelene, the volume of unfilled orders for steel
and other industrial products provides a cushion against any
immediate shurp setback in industrial production, and appears
sufficiently large to maintain production for several months
above the level of incoming orders.
New urfiers received during November, according to our
composite indez (in physical volume), dropped to the equivalent of ELT THE index of about 114 (see Chart 1), while produetion TERM at a level of 124. Thus unfilled orders (lover
section of rhert) have been reduced somewhat from the October
estimate. While some further reduction has doubtless occurred
during December, since new orders have declined, the backlog

of unfilled uriers at the beginning of 1940, according to our
approximate index, will about equal the peak reached in early

1937.

Inventories somewhat higher

Our estimate of inventories as of the end of November
shows am increase of 2 per cent over the October figure.

(See Chart 2) The fact that most potential inventories of

finished products are still in the form of unfilled orders,
however, miker any figures at this time of minor significance.
Inventory accumulation usually becomes most noticeable after
business activity has started to decline.
In unitrast with the moderate rise in estimated isremtories, nonnercial loans in recent months have sharply increased. (Shown on Chart 2) While these loans in the past
have alonely followed the trend of inventories, they have
apparently deviated from that trend recently because of am
increasing proportion of "term" loans.

439

Secretary Morgenthau - 3

Such loans, having maturities running from one to five
years or more, usually with amortization provisions, are
being contracted by business concerns for such purposes as
retiring outstanding debt, purchasing equipment, and financing
improvements. According to the National City Bank, a good
part of the increase under the commercial loan classification
since August has been in loans of this type, while the demand

for genuine commercial loans continues very moderate.

The price situation

Sensitive price indices have flattened out over the past
two weeks, following their substantial upturn during the
first half of December. (See Chart 3) Extensive snowfall
over the mid-western drought area has been somewhat bearish

for grain prices. In addition, both wheat and cotton prices
have reached levels where they are meeting pressure from the
liquidation of loan stocks by farmers. This will tend to
restrict further gains in prices of these two commodities.
Silk prices, which have recently been raised to high levels
by a speculative boom, are meeting heavy selling. Industrial
materials for the most part continue to reflect current slackness in industrial demand, partly of a seasonal nature.
The pressure of loan stock liquidation, in the case of
wheat, may shortly become accelerated if prices remain around
current levels, since farmers have only until April 30 to

take advantage of any profit above loan values plus accrued
charges. On that date the Commodity Credit Corporation will
take title to wheat held as collateral against unpaid loans.
Liquidation of wheat loans during December is reflected in a
reduction of nearly 4,000,000 bushels in wheat collateral
held by the Commodity Credit Corporation, from 164,987,735
bushels on November 30 to a tentative figure of 161,159,165
bushels on December 26. Owing to a considerable lag in reports from interior banks, which carry most of the loans,
the actual reduction to date has probably been considerably
greater.

In the case of cotton, it is estimated in the trade that

farmers may have actually repossessed as much as 50 per cent
of the 1938-39 loan stock, which on November 30 amounted to
3,941,881 bales. Repossession notices received by the
Commodity Credit Corporation through December 28, however,

totalled only 101,837 bales. In addition, the Commodity
Credit Corporation holds 6,867,441 bales from prior loans,

to which it has acquired title.

440

Secretary Morgenthau - 4
Stock prices improve

Somewhat greater optimism in speculative circles,

first reflected in a sharp rally in second grade rail bonds
late in December, was shown last week by a moderate upturn
in stock prices. Among the factors favoring the market
have been the usual cessation in tax selling after the end
of the year, and a recent shift in foreign transactions on
our markets to small net purchase balances.

A background factor has been a relatively low level of
stock prices during the past half year or more, as compared

both with the level of business activity and with corporate
earnings. In view of this disparity, it is conceivable
that stock prices might gradually work higher even with
business activity temporarily declining. In early 1936,
it will be noted, stock prices moved contrary to the trend
of business.

In Chart 4 (upper section) we compare the movement of
industrial stock prices monthly since 1935 with the movement

of industrial production, plotted on scales that represent
an average relationship between the two. It will be noted

that during the latter part of 1939 stock prices failed to
reflect the sharp upturn in industrial production. This
action is in marked contrast with the rise in stock prices
which accompanied the business recovery in 1935 and 1936.
In the lower section of Chart 4, it will be noted that stock
prices have also failed to follow the marked improvement in
earnings of industrial corporations during the last quarter

of 1939.

There has been some tendency for corporation earnings

to lag behind industrial production on the recovery which
began in 1938. (See Chart 5) This lag may have been due
to a number of factors, among them being a lag in shipments
of goods as compared with production.
New orders lower

Our new orders index for the last week of December,

affected by the Christmas holiday, dropped to 80.7 from
100.3 the previous week, reaching the lowest figure since
the week of the fourth of July holiday. Steel orders accounted for most of the drop, textile and other orders being
rather well maintained.

441

Secretary Morgenthau - 5

Of interest to the steel industry during the week was
for 20 locomotives, the first important locomotive purchase
by this road since 1918. Railroad equipment buying was also
featured by orders for 50,000 tons of new steel rails from
the Pennsylvania Railroad for early delivery, which follows
a similar order placed last September. Substantial rail
a $4,000,000 order from the Delaware and Hudson Railroad

orders
from the
Northern Pacific and the Southern Railway
are
expected
soon.
New York Times index higher

The New York Times index for the week ended December 30

rose 1.0 point to 106.7, keeping within the range established
over the past two months. Year-end seasonal influences,
however, tend to obscure underlying trends in business activity, despite attempts at seasonal adjustment. During the
week under review, the 1.0-point upturn was due to fairly
substantial increases in the adjusted indices of automobile
production, steel production, lumber production, and miscellaneous carloadings, which were partly offset by a drop in
the index of electric power production.

442

INDICES OF NEW ORDERS AND INDUSTRIAL PRODUCTION
APPROXIMATE UNFILLED ORDERS

SHOWING

1923 '25 = 100
1935

1934

1933

1932

1936

1937

1938

1939

1940
PER

PER

CENT

GENT
150
150

140
140

130
130

NEW ORDERS,

120

PRODUCTION EQUIVALENT

120

110

110

100
100

90

90

80

80

70

70

F.R.B. INDUSTRIAL PRODUCTION,

60

UNADJUSTED

60

50

50

1933

1932

1934

1935

1936

1937

1938

1939

1940

PERCENTAGE
PERCENTAGE
POINTS

POINTS

Approximate Unfilled Orders

100

CUMULATED DEVIATIONS BETWEEN

100

NEW ORDERS AND PRODUCTION
80

80

60
60

40
40

20
20

0
0

-20

-20

-40

-40

-60

-60
1932

1933

1934

1935

1936

1937

1938

1939

1940

442
Office of the Secretary of the Treasury

Division of - and Stationes

C 286

Chart 1
CONF ID

ENTIAL

ESTIMATED INVENTORIES AND COMMERCIAL

LOANS

At End of Month

1937

1935

1938

1939
DOLLARS

MILLIONS
DOLLARS

BILLIONS
6,500
22

6,250
21

6,000
20

5,750
19

5,500
18

TOTAL INVENTORIES, ESTIMATED

(BILLIONS OF DOLLARS)

COMMERCIAL LOANS ,
WEEKLY REPORTING MEMBER BANKS

(MILLIONS OF DOLLARS)

5,250

17

5,000
16

4,750
19

4,500
14

4,250
13
J

1935

1936

1937

1938

1939

If

to

CHANGE IN COMPOSITION OF SERIES ON COMMERCIAL LOANS BEGINNING MAY 1937

SERIES INCLUDES COMMERCIAL, INDUSTRIAL, AGRICULTURAL AND REAL ESTATE LOANS,
AND OPEN MARKET PAPER
Office the Secretary
- of Research - Individual

Charge

C - 216 - A

COMMODITY PRICE INDEXES IN U.S. AND U.E.
Daily

183

100

177

FUTURES (DON-JONES)

1924 26-100
174

171

168

165

162

159

156

153

150

REUTER'S
1931=10 -

147

144

141

138

135

132

129

1939

Chart 4

444

CONFIDENTIAL

STOCK PRICES COMPARED WITH INDUSTRIAL PRODUCTION
AND CORPORATE BARNINGS

1935

1936

1937

1938

1939

PERCENT

1940
PERCENT

Stock Prices and

(PRODUCTION)

(PRICES)

Industrial Production, Monthly
130

170

RICES, 350 INDUSTRIAL STOCKS

1926 - 100, STAND. STAT.
120

150

110

130

100

110

90

90

80

70

PRODUCTION F.R.B.

1923-125=100. ADJ.
70

1935

1932

1936

1933

PERCENT

1937

1934

1935

1939

1938

1936

1937

1938

50

1940

1939

1940
PERCENT

Stock Prices and

(CARMINGS)

(PRICES)

Corporate Earnings, Quarterly

146

120

130
100

114
80

98
60

82

40

PRICES. 350 INDUSTRIAL STOCKS

1926=100. STAND. STAT.

66

20

EASNINGS OF 120 INDUSTRIAL CORPORATIONS

50

1926=100, STAND. STAT.

0

34

-20

1932

1933

1934

1935

1936

1937

1938

1939

1940

SAVE. or OCT. AND NOV.

----

Office af the Secretary of the Treasure

C - 294

CORPORATE BARNINGS AND INDUSTRIAL PRODUCTION
1932

PER GENT

1933

1934

1936

1935

1937

1930

1939

1240

PER GENT

(PRODUCTION)

(CARRINGS)

119
120

110
100

CARNINGS, 120 INDUSTRIAL CORPORATIONS
.

STAND. STAT., 1926-100

101
80

92
60

83
40

IMDUSTRIAL PRODUCTION F.R.B.

1923-25 100 ADJ.

74

20

65
0

-20

56

1932

1933

1934

1935

1936

1937

1938

1939

1940

MG
Office of the Secretary of the Treasury

Division of - - I

c 295

446

January 8, 1940
4:30 p.m.
PRESENT:

Mexican Ambassador, Najera

Mexican Minister of Finance Eduardo Suarez
Dr. Feis
Mr. Cochran

Ambassador: How are you?

HM,Jr: Fine.
Mr. Suarez: How do you do, Mr. Secretary?

HM,Jr: It has been quite a while since you have

been here.

Mr. Suarez: Yes, Mr. Secretary.
HM,Jr: I am sorry there was a misunderstanding
on Friday about the appointment.

Ambassador: It was the fault of the secretary
who wrote it down. He put four o'clock. Mistake in

the lines. He said, "Well, I don't know it was eleven
but I am sure I wrote it in the line to correspond.
HM,Jr: Well, I am sorry.
Ambassador: It was his mistake.

HM,Jr: Well, Mr. Minister, what have you got on

your mind today?

Mr. Suarez: Just to present my respects, Mr.

Secretary. Nothing particular in mind, just present

my respects.

HM,Jr: That's nice. Things going along pretty

well with you?

447

-2Mr. Suarez: Not very well.
HM,Jr: You are here on a sort of vacation?
Mr. Suarez: Yes, Mr. Secretary. Taking advantage

of my stay here to have some conferences on governmental
matters here and in New York. Just present
our respects.

HM,Jr: I was in Nogales on the Mexican side
about a month ago. Saw a bull fight, had a very
good dinner at the inn. You don't know Nogales?

Mr. Suarez: Yes, I do.
Ambassador: I fought all down there. I was

married down there.

HM,Jr: He married and fought. You won the battle

first and then got married.
Ambassador: I was there the first time about

25 years ago.

HM,Jr: You know, Herbert, Merle Cochran and the
Ambassador after a certain battle must have been
in the town some time.

Mr. Cochran: We went to dinner there about 1915.

Ambassador: 1916 at the end of the year.
Dr. Feis: And whose battle were you fighting?
Ambassador: We were fighting with Obregon. I was

Sergeant of the Obregon forces. It was on the 25th
of November.

Mr. Cochran: The night before, the Governor

wanted to come across the line, you remember? And
you had a barbed wire fence and he had been permitted

to arrange a private matter for us and you sent word
to us, "You have the only key, Cochran. will you
come down and open the gates so the Governor can
cross the border?" The next day the battle took
place.

448

-3Ambassador: Later I was 16 years without

going.

Mr. Suarez: Mrs. Morgenthau is well?

HM,Jr: Yes, fine thank you. We enjoyed the china
that you sent us. The silver plates were very nice.
Ambassador: Will you not decide to have holidays
in Mexico?

HM,Jr: I an afraid not. I would like to have

gone very much but I as afraid until I an out of

office -- then go down there and enjoy some of the
good things that I have missed.
Ambassador: Well, next summer -- you always go

to Europe. It may be very bad. You were there when
the war started?
HM,Jr: I was in Norway.
Ambassador: But you had been in France a little

before?

HM,Jr: Not this year. The year before.
here.

Well, I hope you have a nice stay while you are
Mr. Suarez: Thank you, Mr. Secretary.

HM,Jr: And I take it there is nothing you care

to discuss with me?

Mr. Suarez: I have nothing particular, Mr.
Secretary. The only problem that worries us is

future sale of silver but I don't think you can tell

us anything about that.

HM,Jr: If that's your only worry you are very
fortunate. No, we still operate here on a day to

day basis and as long as world conditions stay the
way they are we must continue to have to operate
that way -- from one day to the next.
Mr. Suarez: Very happy to have seen you again,
Mr. Secretary.
00 0 00 0 00 0 00

us

449 or

TREASURY DEPARTMENT
WASHINGTON

JAN 8 - 1940
TO THE SECONDAY

Sale of Government Ammities

In accordance with your request the following report is submitted
DE the matter of the Treasury arranging for the sale of Government
annuities.
Recent Developments - Apparently the President has asked the

Treasury, the Department of Labor and the Post Office Department to

study this matter and to noice a report to him. It also appears that
or or about November 14th the President suggested the matter to Senator
Wagner, because shortly after the Senstor left the White House he an-

nounced to the press that be planned to introduce into the next session
of Congress an amendment to the Social Security Act which would provide

for the sale of annuity insurance to individuals at much cheaper rates
than such insurance is nov obtainable from private companies. He said
that his amendments would permit individuals to take out insurance which

would pay annuities up to $100 per month during their old age and that
his program, as contemplated. would not provide competition with private companies because of the stall size of the income insurance policies proposed. Ee said that be had been advised by one insurance

official that such am assality program would do little harm to the private insurance business as the insurance companies are interested primarily in annuities paying more than $100 per month.

450

-2- Following Senator Wagner's announcement, Mr. Holgar J. Johnson,

President of the Institute of Life Insurance declared, in commenting
on Senstor Wagner's proposal, that while it might be possible for the
Government to sell such annuities or any other form of service or conmodity through the Post Office cheaper than they could be handled

through private enterprise, this could only be accomplished at the erpense of the taxpayer and the Treasury. He contended that annuities are
part of the complete service provided the American public by life insursince companies and that these companies are prepared to continue to offer

this kind of service. In commenting upon Senstor Wagner's reported

statement that insurance companies are interested only in annuities of
$100 per month or more, he pointed cut that the average annuity payment

of the life insurance companies last year was considerably less than
$100 a month. He indicated that the figures of 137 companies, represent-

ing ninety-two per cent of the life insurance in force in this country,
averaged approximately $349 annually for each contract. Mr. Johnson

indicated that more than 1,500,000 annuity contracts are now in force
with insurance companies representing an ultimate annual income to
individuals of more than $550,000,000.

Social Aspect - I think it is fair to say that those individuals in
the Congress and outside of the Treasury who have been urging the sale

of voluntary annuities have approached the matter purely from a social

angle. Of course from the Treasury viewpoint this is primerily a fiscal
problem and must be considered as such.

451
-3In any discussion of annuities and other forms of savings certificates, it should be recognized that from the viewpoint of the individual
"Thrift" is the primary objective. The Government should do everything
possible to encourage thrift and to offer inducements so that the average

citizen can provide for his old age.

The difficulty with an approach from a purely social seems
to be that, in practice, very few people actually purchase such ammities
voluntarily and without sales pressure. This is amply shown by foreign
experience. The few who do, furthermore, are the more provident group
who would have adequately provided for their own old age in any event.

This is true if the annuities are sold by the Government at cost.
On the other hand, if annuities are subsidized, a subsidy, even if large.
probably would not be as effective in promoting their widespread sale as

might be supposed. Also, the benefit of the subsidy goes primarily to

the more well-to-do persons who have the ability and initative to fulfill
their part of the contract, while the poorer and more improvident persons,

most likely to become public charges, are not in a position to afford the
purchase of annuities. Consequently, as a rule, this class of persons
is unable to obtain the benefit of a subsidy ostensibly made for them.
Previous consideration - The Treasury has discussed the subject of

annuities for a number of years. They were under discussion during the
period when the Treasury was selling war savings and thrift stangs. Again
in 1934 they were under discussion and we drew up at that time a plan

whereby a person could save as little as $7 a month for a period of three

452

months and could then with those savings obtain a servings certificate

valued at $21, which bore interest at the rate of 3) per cent per compounded semi-annually, so that at the end of five years this certifitate would have a saturity value of $25. These certificates would con-

time to bear interest after the fire year period until such time as the
holder decided to convert his savings certificates into - seruity. Ve
prepared various tables showing the values of these contributions over

a period of years at varying rates of interest. For example, if a person
should SATE $7 a month for a period = forty years be would have accuret-

lated, with interest at per cent per - compounded semi-assmally
for the first five years and annually thereafter, a - of approximately
$7,200. This accumulated - would purchase for a person having reached
the age of 65 an annuity, computed in accurdance with the American

Annuitants Selected Mortality Table, at act interest rate of 3 per cent
compounded annually, of approximately $730. = about $50 a month. You

will recall that this discussion developed the United States Seriage
Bonds.

You will also recall that when the Social Security bill V24 first
under consideration by the Congress in 1935. it contained a provision
whereby the Department of Labor (Social Insurance Board) could sell
Government annuities. You appeared before the Ways and Means Committee

and made a statement, without taking & definite position for or agriest
ammities, that Government annuities, as contemplated by the bill then

pending. were in effect public debt obligations and should for that

453

-5- TESTER be under the administration of the Treasury Department. Following your statement the Treasury submitted a draft provision amending the
Second Liberty Bond Act which would have authorised the Secretary of the
Treasury to sell Government annuities. After the Ways and Means Committee

had considered the matter it reported the Social Security bill without
any provision for the sale of Government annuities, but after the bill had
passed the House and had been referred to the Senate Finance Committee,

this latter committee added substantially the same acquity provisions as
rubmitted by the Treasury. When the bill vas under consideration on the
floor of the Senate, Senator Harrison asked that this particular amendment

be laid - the table and not considered, so it was eliminated from the
final bill. The Treasury was not advised as to why this provision was

eliminated from the Social Security bill in its various stages, but we
thought at the time that it might have been because of pressure from insurance companies.

Immediately fellowing your request to consider this matter, I appointed
a committee consisting of Mr. Julian, Mr. Broughten and Mr. Sloan to study

the subject and submit a report thereon. As a basis for discussion this
Committee has submitted a draft of an amendment to the Second Liberty

Bone Act, which it recommends and which would authorize the Secretary of

the Treasury to issue *United States Annuity Bonds". The various issues
and series of annuity bonds under this proposed legislation would be

offered in such amounts, within the debt limits established by that Act,
would be issued and payable in such manner, subject to such terms and

454
6-

conditions, and based upon such standard tables of mortality as the
Secretary may from time to time prescribe. The language proposed is
broad in scope as it should be in emberking upon a new undertaking of

this kind. The annuities payable would be for (a) a term of years fixed;

(b) life of one annuitant; (c) the lives of two (but not more than two)

annuitants with continuation of all or part of the acaily to the survivor:
(d) a term of years fixed, or the life of the assuitant, whichever period
may be longer, or (e) a term of years fixed, or the lives of two annuitants

with continuation of all or part of the annuity to the servivor, whichever
period may be longer. The rate of interest specified is this draft is
three per cent, and annuities shall be not less than $60 not more than
$3,000 in any one year.

However, the rate of interest to be used in determining the amount of
the annuities and the maximum amount of an annuity are questions which you

will have to determine, if it is decided as a matter of policy to sell
annuities. The rate of 3 per cent seemsfair, although it contains on the
basis of present rates some element of subsidy, but the maximum samity of
$3,000 probably should be lowered to around $1,200.

Another question of policy to be determined in connection with this
plan is the one concerning administrative expenses. So doubt when Congress

considers this matter it will decide that the Government should stand all
administrative expenses and that such expenses should not be londed onto

the annuity costs to the individual. While there is always a tendency on

-7-

455

the part of the Government to give the individual a break in matters of
this character, it should be borne in mind that whenever there is any

criticism of the Government for its activities in the field of private
enterprise, it is always contended that the Government's costs BETER in-

clude its administrative expenses covering the venture and therefore the
Government cost figures on performing a function of this character are

never comparable with the cost figures of private enterprise. By not
adding the administrative expenses to the cost of the annuities to the
individuals, it might give the insurance compenies further grounds for

criticism.
Another important matter for decision, if annuities are decided
upon, is whether the purchaser shall have the privilege of paying in
monthly, quarterly or annual installments amounts in the form of premiums
necessary to accumulate funds upon which their annuities will be based.

If this method is adopted, as distinguished from that of purchases of
annuities by lump-sum payments, the cost will undoubtedly be very heavy

in relation to the funds raised.
Whatever policies are determined upon with respect to the sale of
annuities, I feel strongly that any scheme adopted should be sound financially and one that a private company could undertake from a business

point of view. If we start a scheme with part of the costs loaded cate
the Government I am quite certain that the matter will socner or later
attract the attention of Congress and from time to time the scheme will

be liberalized so as to increase the rates of interest allowed in the

456

-9fixed maturity of 25 years for a bond purchased by anyone under the age

of 55 with interest at 3 per cent (this rate may be too high on basis of
current money rates), or for anyone over that age different maturities and

different interest rates would have to be fixed. Some provision could also
be made whereby an individual could pay in a lamp SUN and have it returned

to him over a specified number of years, payments to begin at such time as

the purchaser might indicate, with interest but at a rate lower than the
rate for the long-term band. In order for a person with small means to accumulate his savings to the point where he could buy a $500 bond he could

place his money in postal savings, or be could by a United States Savings
Bond for as little as $18.75. Under this scheme he would be permitted to

turn in any other Government securities which he including United
States Savings Bonds and Postal Savings deposits, in the purchase of these
income bonds,

It is realised that in permitting people to inrest in bonds of this
character it would be necessary to make some arrangements whereby cash

could be gotten for these securities, although anyone purchasing an

annuity does not expect the return of his money. I believe, however, that
in the purchase of a bond we could permit its redemption under certain

conditions such as complete failure in business, sideness and death of
someone in the family other than the owner or beneficiary. Determination
as to the circumstances under which redemption could be made would have

to be left with the Secretary of the Treasury and under such circumstances

the purchaser should not, of course, get the benefit of a 3 per cent rate.
The rate should therefore be graduated somewhat along the lines of United

457

-8computation of the annuities and liberalise the payments to be made

under the acaily contracts. I think it is important that a matter
of this sature be kept at all times on a strictly business basis and
never in any manner subsidized.

Alternate Bond Plan - If it is decided that as a matter of policy
the Government should not enter a field which competes with private insurance companies, the Treasury could adopt, without any new legislation,

a scheme under which it would sell "income bonds While it is possible
to proceed along these lines under our present authority you my deen it
advisable to submit the matter to Congress for its approval in order that
any program undertaken would be permanent. These securities would be sold

only to individuals in registered form; they would bear a definite rate of
interest and have a definite maturity date, with a condition that the bonds
would nature before that definite date upon the happening of some con-

tingency, such as death or total disability. The purchaser would have
the right to name one primary beneficiary and possibly one contingent bene-

ficiary. Provision could be made so that the purchaser could get his

interest send-annually as it accrues, if he so desires, or he could let
it accumulate with interest thereon at the same rate as the bond bears,

and at maturity or upon his prior death he could stipulate that he or his
beneficiary would receive the full amount due in one lamp sun or would

receive the amount over a fixed term with interest at the same rate. A
minimum limit of $500 and a maximum limit of $100,000 should be fixed as
the amount which could be invested in these bonds. There should be a

458
- 10 States Savings Bonds. For example, if it were redeemed within the first
five years he would get, say. 1 per cent; second five years 1-1/2 per

cent: third five years 2 per cent and so on and if he had received his
interest currently, the difference between the 3 per cent rate and the
rate that he would be entitled to under this advance redemption scheme

would be deducted from the principal proceeds of his security.
It seems to me that a bend of this character might be popular,
especially to that class of persons who must rely on their accumulated

savings to furnish current income for their support, as well as to for
nish a bulwark against went in their old age. It might also furnish a
means of eliminating some of the outstanding demand obligations hanging
over the Treasury such as United States Savings Bonds and Postal Savings

deposits, and also keep the Treasury out of the insurance field. The
Department could be in a position to issue them in E relatively short
time, and we could promote them in conjuction with our Savings Bond
campaign.

Foreign Experience - Other Governments have sold annuities to individuals, but the amount of outstanding contracts does not seez to have

reached any significant proportions. The British Government has sold

annuities in various forms for a period of about 130 years. Their sale
originally was started to accelerate the reduction of the public debt, but
later they were regarded as a facility for persons of small means to invest

their savings. The total estimated capital liability outstanding as of
March 31, 1938, was approximately twelve and a half million pounds

459
- 11 ($62,000,000). The Canadian Government has sold annuities for almost

thirty years and the aggregate net present value as of March 31, 1938, of
about 39,000 contracts, of which 16,200 represent immediate annuities and
22,800 represent deferred annuities, was $107,644,000. The purpose of the
Canadian system is to encourage and aid the people of Canada in the forma-

tion of habits of thrift ao that voluntary provision may be made for their
old age.

The British Government sells annuities through the offices of the
National Debt Commissioners and through the savings banks. Apparently
the differences between the annuities purchased through these two offices
are in the size and method of payment. Under the National Debt Commission-

ers annuities may be either immediate or deferred annuities for life or for
a term of years, and are granted upon single lives or upon two joint lives

and the life of the survivor, or on the joint continuation of two lives.
They have the full security of the Government behind them. These annuities
may be purchased by various methods; (1) by payment in cash: (2) by transfer of Government stocks, 2-1/25 Consols, perpetual annuities payable as

part of the permanent annual charge or any war security; (3) by transfer
of annuities chargeable to the national debt. The minimum annuity to be
purchased through this office is 100 pounds, for immediate annuities,
although additions as small as 20 pounds may be added to this annuity.
Amounts not less than 5 pounds a year may be paid for deferred annuities.

- 12 -

460

There is so marium limitation and they are sold only to persons fifteen

years of age or older. The rate of interest used in determining the
annuity is based - the price of Consols, with a marimum rate of 5 per
cent.

Savings Bank ammities are sold through the Trustees Savings Bank

and the Post Office Savings Banks. These annuities are paid for only is
cash, cannot exceed a maximum of 100 pounds on any one life, and are

granted to any person not under the age of five years. The purchaser of
an assuity may make use of his savings pass book, by having the amount be

desires to use is purchasing an annuity charged to his account, whereopon

the bank notifies the proper authorities who issue the assuity contract.
The Canadian system of selling annuities is rather interesting.
While the number and present value of the contracts now outstanding are

not large, yet they have shown substantial increases since 1927. It is
important to note that the Canadian system is based upon an interest rate
of 4 per cent compounded. For the year ended March 31, 1938, interest on

the fund at 4 per cent amounted to $3,600,000. and in addition it was secessary to transfer $8,941,000 from the Consolidated Revenue Fund to main-

tain the annuity fund reserve.
These annuity contracts my be entered into by the Government of

Canada with any person over the age of five, resident or domiciled in
Cazada. Any acaily sold by the Canadian Government under this system

represents a fixed yearly income paid by the Government to an individual.

It may be paid in quarterly installments (unless otherwise expressly

461

- 13 provided) for life, but may be guaranteed for 10, 15 or 20 years in any
event. The minimum amount of annuity obtainable on the life of one person

or on the lives of two persons jointly is $10 a year and the Barism is
$1,200 a year. The annuity contracts are of two classes: (1) deferred,
which is a plan whereby a younger person provides for his old age, and
(2) immediate annuity is a plan whereby older persons wish to obtain
immediate incomes through the investment of their accumulated savings.
The Canadian Government also has a system whereby industry can

participate in Canadian Government annuities. Under this system the en-

ployer contributes a sum equal to each dollar paid in by an employee if
to a maximum of approximately 3 per cent of the employee's rate of
earnings. Employees may deposit additional sums if they SC wish (which
are not matched by the employer) and thereby secure largerannuities. As
an example of the way this system works with industry, an employee whose

weekly wage rate is $23.50 would contribute to the annuity fund 70 cents
a week and the company would also contribute 70 cents, or $1.40 weekly

premium. If the employee and the company contribute this weekly - from
age 26 until the employee reaches age 65. he can then retire with se
annuity, in the case of a male employee, of $593 per annum, and in the

case of a female employee, with a salary of $20.00 per week, if like contributions are made from age 22 to age 60. she would receive an annuity
at 60 of $458 per annum.

It would be questionable whether any such scheme for industry could
now be inauguarated in the United States because the contributions under

462

- 14 such a system in addition to the contributions under the Social Security
Act would probably be too burdensome for the employer and employee.

Other countries which also issue amount are: France, Japan.
New Zealand, the Fetherlands and Italy, but it does not appear in any

case that the amounts of amuities in force, either from a financial or
social standpoint, are substantial, notwithstanding the fact that most
of the systems have been in operation for a long period of time.

I should like to discuss the various phases of this report and after
you have determined the matters of policy involved, we would proceed to
draft a set-ap for whatever scheme you approve.

Devifall

Assistant to the Secretary.

way

TREASURY DEPARTMENT

463

INTER OFFICE COMMUNICATION

DATE January 8, 1940
TO

FROM

Secretary Morgenthau
Mr. White

Subject: Preliminary Report on Columbius and Tantalum

1. Uses - Both metals are used in steel alloys. Columbiumbearing stainless steels are more weldable than ordinary
stainless steel and are more resistant to corrosion. The great
affinity of both metals for all common gases has led to an extensive use of both metals in the vacuum tube industry.
2. Production - World production of tantslum and columbium
ores rose from about 6 tons in 1930 to 220 tons in 1934, and
probably to about 750 tons annually in 1937 and 1938. This expansion is due almost entirely to increased output of columbite.

The only country producing a large quantity of tantalite
is Australia, which produces 20 or 30 tons yearly. Nigeria is
the only large producer of columbite, reporting shipments of

707 tons in 1937 and with reserves approximating 10,000 tons.
Belgian Congo is said to be a possible producer of both metals.

3. Position of the United States - The United States produces
only a part of its domestic consumption, and imports tantalum
ore from Australia and raw material for making ferrocolumbium

from Nigeria. In 1938 the imports of tantelite rose to 42,000
at $40,000 in 1937; the imports of columbite declined to

pounds, valued at $80,000 compared with 21,000 pounds, valued

645,000 pounds, valued at $228,000 from 923,000 pounds, valued
at $306,000 in 1937.

4. Position of Germany, Japan and U.S.S.R. - None of these
countries have any known supplies of these metals but they are

apparently not essential and their present use is still in the
experimental stage.

TREASURY DEPARTMENT

464

Office of the Secretary
Technical Assistant to the Secretary

Date 1/8/40
TO:

The Secretary
Room

data
on

Herewith aquested d

Russis Metais

mg

From: MR. COCHRAN

465

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE January 8, 1939
Secretary Morgenthau

TO

FROM

Mr. Cochran

It will be recailed that the cablegram from the Chinese Ministry of

Foreign Affairs which the Chinese Ambassador here made available to you
stated that 7,000 tons of tungsten and antimony had been seized by the
French in Indo-China. When we asked the Chinese Embassy to get a break-

dow. of this figure, they reported to us on January 4 that 4,000 tons
represented tungsten and 3,000 antimony. They confirmed that all of this
metal was in French Indo-China, stored at Haiphong, and that to date the
French authorities had not removed any part of it.
of

Under date of December 28, Matthews quoted Dayras as stating that as
December 6 there were some 3,000 odd tons of tungsten in French Indo-

China, and on the Chinese side of the frontier there still remained a
further 3500 tons. Dayras stated that antimony did not interest France,
but that it was the hope of the French Minister of Blockade that all exports
of rungsten from China would go through French Indo-China which would give

the French complete control over it.

In a cablegram dated January 3 from Paris it was reported that Dayras
had received a reply to his inquiry made of the French authorities in IndoChina, indicating that there are actually in French Indo-China now 4500
ton: of tungsten and 4200 tons of antimony. Dayras said that he had cabled

again asking for a list of the consignees of these materials.

486
January & 1939

Secretary Margostina
Mr. Cechras

It will be recalled that the cablegram from the Chinese Ministry of

Foreign Affairs which the Chinese Ambassador here made available to you
stated that 7,000 tens of tangstes and antimony had been seised by the
French is Indo-Chim. Whos we asked the Chinese Enhancy to get a break-

down of this figure, they reported to as on January 4 that 4,000 teas
represented tangstes and 3,000 antimony. They confirmed that all of this
metal was is French Indo-Chim, stared at Exiphong. and that to date the
French authorities had not recoved any part of it.

Under date of December 28, Matthews quoted Dayras as stating that as
of December 6 there were some 3.000 odd tons of tungsten in Freach Inte-

Chim, and - the Chinese side of the frontier there still reasised a

further 3500 teas. Dayras stated that antimony did not interest Prace,
but that it was the hope of the French Minister of Blockade that all experts
of tangetes from Chima would go through French Indo-China which would give

the French complete central over it.

In a cablegram dated January 3 from Paris it was reported that Dayres

had received a reply to his inquiry made of the French authorities is IndoShim, indicating that there are actually is French Indo-China nov 4500
teas of tangstes and 4200 tens of antimony. Dayras said that be had cabled
sgate asking for a list of the consignees of these materials.

KMK

-

AIR MAIL

(COPT:FE:XEF)

Ic.39

467

AMERICAN CONSULATE GENERAL

American Foreign Service, Hanoi, Indochina,
January 8, 1940

Voodail shipments.

Subject:
The Honorable

The Secretary of State,
Washington.
Sir:

I have the honor to report, as of possible interest to the Department, that
the exportations of wood oil by the Foo Shing Trading Company, from Eaiphong to
Hongkong for refining and reshipment, amounted to approximately 11,700 tens during

the last six months of 1939. By months the exportations were roughly as follows:
July, 1,485 tens: August, 1,261 tons; September, 1,808 tons; October, 2,271 tons;
November, 1,951 tons; and December, 2,919 tons.

The containers used in these exportations were 280,413 time (1 tim equals
16.7 Hilograms), 30,245 tubs (1 tub equals 100 kilograms), and 23.939 drums
(1 drum equals 166.7 kilograms).

Because of the had condition of the containers arriving from China, there is
an appreciable loss through leakage. To renedy this situation, the Foo Shing
Trading Company is endeavoring to secure permission from the Indochina Customs

to import without payment of duty empty steel druns from Hongtong, to place these
druns in a bonded varehouse, and to transfer to these druns, for immediate exports-

tion, the wood oil from leaky containers. So far the Customs have not agreed to
this procedure.

It would appear that, despite the closing of the Dong Dang-Janning read, wood

oil is entering Indochina in at least normal quantities. However, I an informed
by the Fee Shing Trading Company that deliveries under the Universal Trading

468

-2Company loan are about 600 tons in arrears.

Respectfully yours,
For the Consul at Saigon,

CHARLES S. RECORD

Charles S. Reed II,
American Consul.

Original and 2 copies to the Department
Complete to Embassy, Chungking and Peiping

Condition to Consulates, Kunning and Saigon
Carp to the Consulate General, Hongkong
525.4

Sizen

RE COLOMBIAN FINANCE

Present:

January 8, 1940.
3:00 p.m.

Mr. Jones
Mr. White

Mr. Cotton

Mr. Gaston
Mr. Cochran

Mr. Welles
Mr. Feis

H.M.Jr:

Would you like me to report on what Mr.
Traphagen did with the Ambassador?

Welles:

I think it would be exceedingly helpful.
Would you like me first just to tell you
what the Ambassador's views are?

H.M.Jr:

Please.

Welles:

The Ambassador tells me that he and Dr.
Jaramillo are somewhat nonplussed and somewhat discouraged because they thought that

when they had the next interview with

Mr. Traphagen that Mr. Traphagen would
make known to them what his group's point

of view was. They had so informed their
Government. They found that all that Mr.
Traphagen in essence, according to them,
wanted was to have them say again what
their position was as announced by them

in a previous interview. However, at the
end of the interview the Ambassador tells

me Mr. Traphagen said he would have a

further meeting with them the latter part
of this week and then after talking with you
and the Secretary of the Treasury, make known
to them what the point of view of his organization might be.

H.M.Jr:

Well, I talked to Traphagen but what I talked
with him wasn't nearly as complete as what

Cotton talked with him this morning. I will

read what Cotton wrote to me.

"Mr. Traphagen called saying that he had
heard the Treasury had been trying to reach

him. I told him that you said you were going
to call him this morning. He said that since
he was leaving for Philadelphia about 3:00

o'clock today, he would like to tell me, for

469

470

-2your information, about the upshot of his
talk with Turbay last Saturday.
"The conversation was amicable but still
more or less in generalities. Turbay said
he was formerly authorized to offer one
million seven hundred fifty thousand dollars

for the first year and two million dollars

thereafter. Mr. Traphagen got the impression
that these sums would not necessarily have to
include the British debt. Mr. Traphagen reiterated that the guaranteed mortgage bank
debt should be included in any settlement
and there was some talk of how the sums
mentioned should be applied as between

interest and amortization on the basis of
fifty million dollars of bonds, which would
include the guaranteed debt on the assumption
that it has been reduced to five million

dollars, since the direct debt totalled
forty-five million dollars. However, the
sums offered for service were in general
talked of as applying only to the direct
Government debt.

"Turbay said that he understood that the
one million seven hundred fifty thousand

dollars to two million dollars which he
was offering was not acceptable to the
Council. He therefore asked that the

Council formulate a counter-proposal
which he could be assured would be acceptable

to it and which he would submit to his

Government.

"Mr. Traphagen raised in principle the

possibility of a flexible provision,

geared to export volume to increase service
above a fixed minimum. Turbay expressed the

view that this would be very difficult
politically and would not be understood in
Colombia, and generally opposed the idea.
For this reason Mr. Traphagen would not be

inclined to push the idea further, but

nevertheless mentioned the possibility
that if Turbay were given something in
writing along the lines of the Riefler
memorandum (but with a higher figure for

-3minimum
service), he might take more kindly
to the proposal.
"Mr. Traphagen said he thought the time had
come when a minimum counter-proposal would

have to be formulated to give the Colombians.
He would hope to secure the backing of the
committee of three in this matter and would

like information of its views as to the

nature of such counter-proposal. On the
whole, Mr. Traphagen expressed moderate
optimism."

Well, in talking with me he said, one,
that he liked very much what I called

a Riefler Plan, for lack of a better

name, having a basic amount and then

changing it depending upon the exports.

Jones:

H.M.Jr:

Is this Traphagen or the other fellowt
Traphagen. He liked it. We were all
afraid they wouldn't like it. He said
that he would like to be advised if we

cared to advise them whether we thought
he ought to make them a counter-proposal,

that he would do nothing until he heard
further from us. I made the suggestion that

Welles:

if you, Mr. Welles, thought well of it and
liked the so-called Riefler Plan, that you
might send for the Colombian Ambassador and
try to sell it to him. Then Traphagen said
if you would do that, he would consider it
very helpful.
I would like to clarify one point in this
memorandum. The Colombian Ambassador stated
to me specifically that the British debt
was not to be regarded as a part of this
one million seven hundred fifty thousand.

In this memorandum, Mr. Traphagen says that

he doesn't think it is and it specifically
is not.

H.M.Jr:

Herbert, have you seen the Riefler memorandum?

Feis:

Yes.

471

472
H.M.Jr:

What do you think about it?

Feis:

I approach it wholly and solely from the

practical view-point of practicability.
If by the use of it we can more easily
arrive at terms, I would use it, the
flexible idea. If we found that the
use of the flexible idea was an added
impediment in giving an adjustment, I
would drop it.

H.M.Jr:

The thing that I like about it - I was

very slow to say I liked it. I felt it
was throwing something new in. I got

the impression the committee in New York

wouldn't like it. It seemed to me that 1:
they agreed on the flexible basis the
chances for the thing lasting a year or
two would be much better. Right now
Colombia is going to have trouble on

account of its coffee. If it was on at

flexible basis and could go up and down,
always having a basis, it seemed to me

the chances of its lasting ten years
would be better. Of course, on the

Riefler thing it would only start at
one million three fifty, wouldn't it?

Jones:

Yes, I think Mr. Traphagen was a little
afraid of that being shown.
One, three fifty?

H.M.Jr:

It started with that, yes. But on a

Cotton:

basis of ten years average - you check
me - if this had been enforced for the
last ten years, the Colombians would
have paid over two million dollars a

year. Is that right?

Cotton:

Yes.

H.M.Jr:

What?

Cotton:

Yes, that is right.
On the basis of the last ten years, if

H.M.Jr:

that had been enforced they would have

-5Welles:

473

paid over an average of two million a year.
From the Colombians' standpoint, I think

probably their objection politically would

be that they want to be able to budget
in advance, know exactly what their figures
are going to be each year. They don't want
to have to make their yearly budget contingent

upon an "X" quantity. I think you are advised

correctly when he said that politically it
would be very difficult to put over. I am
not questioning the merits of it, I am just

H.M.Jr:

talking about the expediency.
Do you want to try it on him?

Welles:

I would be very glad to speak to him about it.

H.M.Jr:

Then if you thought it was hopeless, we
could drop it, Summer.

Welles:

H.M.Jr:

Itothink
do it.that is all right. I would be glad
Then, would this be all right, to say to Mr.

Traphagen that you were going to try this on
him and that we would not offer any advice
until after you have seen the Colombian
Ambassador?

Welles:

I would make an amendment to that suggestion.

I would be glad to do that. Wouldn't it be

wise in the meantime to telegraph Traphagen to formulate
what he thinks his counter-proposal should
be so not to waste any more time on this?

Three weeks have gone and absolutely nothing
has been done.
Jones:

I question the advisibility of that procedure
on the ground that the State Department is

trying to prevail upon the Colombian Government

to do something that they have indicated they
don't want to do and I also believe we would
be better off under a fixed amount rather than
something which is going to have to be interpreted
and determined by audits and controversies and

things of that kind. I don't believe there is
to warrant that. It von't be just an easy thing

going to be enough improvement to the bondholders

474

-6to state how much 1s available under this

formula. There could be controversy all
the time on that, requiring all these
delays and so forth and so on, and if
you could agree upon a fixed amount
I think it would be better for us and
for the Colombian Government and from
the standpoint of our two countries
getting along amicably. That would be
my judgment. You gentlemen are two and

Welles:

I am one. I am just giving you the
benefit of my views and I feel then
pretty strongly.
I didn't understand, Jesse, that the

suggestion was that I should try and

sell this to him, but that I should

try and find out whether he really
understood it and whether he vanted
to take the matter up with his Govern-

ment. The reason I suggested the amendment --

Jones:

It looks to me like they are getting along
pretty well. I mean they are not so far

apart. This fellow is up to two million
dollars.

Welles:
Jones:

After the first year.
Yes. Well, it doesn't matter much. A
year is a short time. My suggestion of
a million eight in my letter I wrote you

gentlemen would gradually PO up. I still

believe that some such formula as that

would be better. I think that if these

people get the impression from this
committee that this is what we think they
ought to do and they go and they do that

because we thought so - now, ve have persuaded them to do something that they have

indicated they would rather not do. It
gives them an excuse to say later, "Well,
we are sorry, we didn't like that at the
beginning but we agreed to it," and so
forth and so on. I think it would be a
lot better if we could take the form they
like and try to agree on the figures.
That is my --

-7H.M.Jr:

What do you think, Harry?

White:

Well, I am inclined to agree with Herbert
Feis that it has advantages and it has
some disadvantages. Mr. Jones has pointed
out - I think the decisive consideration
should be whether it enables them to get
together, because it does provide for a

475

little more leeway, flexibility and bargain-

ing and it may be possible that they may
get together on a flexible provision which
may - when it may be impossible to get

together on a straight provision, but I

think the difficulty is sufficiently un-

important 80 as to make the decisive consideration that which Herbert Feis points
out, namely, will it enable them to get
together.
Cotton:

It would be very difficult to present it
without having the figures, which might
be misinterpreted one way or another.

H.M.Jr:

It is not my child. I have no --

Jones:

No pet ideas about it?

H.M.Jr:

No.

Gaston:

This budgetary difficulty might be over-

come. The difficulty of budgeting the

payments might be overcome by adjusting

in a subsequent year to take care of

transactions in the prior year so that
they could always budget it by that figure.

White:

I think there is little doubt but what the
idea of flexibility is an excellent one to
introduce into these settlements. It is

fair and it makes possible larger payments
to the bondholders if the country prospers,
particularly when the adjustment is being
made at a time when things aren't any too
well.
On the other hand, if the attempt to achieve

that principle is going to cause difficulties,
I think it should be set aside, but I think
an attempt might be made to throw it into the

476

-8pot to see whether it will aid in the adjustment. I should imagine that Colombia should
be the one who would wish such a flexible

arrangement. If they don't, it probably
suggests that the idea is not so good as it
seems. I should think it is more to their
interest to have a flexible provision.

Jones:

But they can always pay more.

White:

But they might be able to settle for less now
in promise of paying more if things improve.

Jones:

Well, suppose we --

White:

For example, coffee has dropped as the Secretary
has said, three cents a pound, almost a twenty-

five percent drop in the last month. It makes
a difference of over five million dollars a
year in exchange available. That is an important consideration for them. That must
be a factor in their determining at this

time how much they are willing to pay, how
much of a settlement they are willing to pay.
Now, it would be unfair to the bondholders

to permit the present low coffee price to
be an important factor in determining pay-

ments indefinitely, whereas the bondholders

might be willing to accept the lower payment with the hope and expectation that if
that improved they would get some of the

benefits thereof, so I should think it would

make some sort of a compromise easier, but

Cotton:

again it is a matter purely of negotiation.
Mr. Jones, you are also interested in the
treatment of the arrears. There is some
idea this might help that. The Counsel,
I take it, was unwilling to agree to
just recognition of the arrears and wanted

a sixth of it. You thought it ought to be

more. Perhaps that idea would have some

virtue.

Jones:

I would be willing to accept the total
amount that you arrive at by taking onesixth for the five years and then the
three and the three and a half and the

four, but run it straight through and

477

9-

not have such a low rate to begin with.
I would be willing to accept, if I
represented the bondholders, the
amount of dollars that Colombia would
pay over that period under that formula.
But I think from our standpoint we would

be in better light to concur in or aid
in a settlement where there wasn't such
a terrible cut in this past due interest.
That is just a different way of saying
the same thing and saying something that
we can defend. When we say we are going
to lend Colombia money and she is only
proposing to pay one percent where she

promised to pay six, it is a little bit
hard to defend, to justify.

Welles:

May I make a concrete suggestion?

H.M.Jr:

Please.

Velles:

That I see the Ambassador early tomorrow

morning. If I find that he von't even
consider this Riefler plan, I will then
let you know on the telephone.

H.M.Jr:

All right.

Welles:

I will not undertake any salesmanship at

all, simply get his point of view. If

I find, AS I anticipate, that he doesn't
want to consider it, then I suggest that
Mr. Traphagen be requested to formulate
his counter-proposal and to take it up with
the Colombians on Friday.

H.M.Jr:

Well, if you would speak to him in the
morning, I will get in touch with Traphagen
at once, so there is no time lost.

Welles:

Right.

Jones:

I think that is good. I certainly would

avoid saying anything that would prevent

him some time in the future to say, "Well,
I am repeating what I said a while ago,

that we didn't like this and that it was

your suggestion and it doesn't work.'

- 10 Velles:
H.M.Jr:

I think all three of us have agreed that
none of us should take that position.
Well, isn't that about as far as we can
go today?

Welles:

Yes.

Feis:

You might want to clarify the question
of whether the conversation leads into
the question of amount.

Jones:

How was that?

Feis:

Mother if the conversation leads likewise
into the question of amount. What if the
Ambassador says, "Well, perhaps if you

start from a low enough point or something _"
whether any suggestion is to be given to

him as to what we consider the minimum
Welles:

starting point.
I should prefer to leave that with Mr.
Traphagen.

H.M.Jr:

Traphagen keeps saying two, three and they

said one, seven five to two. Now, the

thing is - they are not 80 terribly far
apart.

Welles:

I think we might as well agree and I think
it is perfectly fair, just as was indicated
in your own suggestion, that in view of their
situation they ought to be allowed for the
first year to make a smaller offer than for
the subsequent years. Traphagen, so far as
I know, hasn't agreed to that in principle,
has he?

H.M.Jr:
Cotton:
H.M.Jr:

Well, he has said two, three, hasn't he?
That is what he said. I think he would be
accommodating on the first year all right.
Up to date, he has said not a penny less
than two, three. Today he says, "If you
people could throw out a hint that you
think we might do so and so, we would

478

- 11 -

be glad to consider it.' I the

feeling, don't you, Joe, of Timminagen,

as far as I can tell, is tita: the 1F

absolutely playing straight with us?
Cotton:

Oh, I think so, yes sir.

Welles:

Then I think what you said a minute ago

is quite right. I think the Dollomibians
like him and have confidence the 11m.

They are only disappointed The no
brass tacks have come out SC far.

White:

Well, they are closer together than any
previous discussion has brought them.

H.M.Jr:

Are you perfectly happy?

Jones:

I would like to - for Transangez to get
my point of view on this settlement and
I would like for this Ambasander to get

it, about this three percent stuff,

because I know what is going tip happen
when we go on the Hill to get minney for
the Export Bank and my judgment is what

I have stated here. There amemently
doesn't seem to have been TELT much

consideration given to it. I would
like for these men who are really interested, Colonbia and Trapitaries, DO
get that point of view.

H.M.Jr:

How about what you said entilier, that you

didn't think we ought to try the nell them
anything.

Jones:

I don't. But I don't see why - well,

Welles:

not have the right idea.
Why not think about this: If Tranhagen

I have got that pretty deen in my system
and I may be all wrong about 11. I may
comes down on Friday, as the Dolombians

think he is coming, and that then have
what amounts to a satisfactory conversation
and they still have details DD work out,
why couldn't both sides them DODE into an
informal meeting with you me Benry right
here --

479

480

- 12 H.M.Jr:

And you.

Welles:

And myself, and from our standpoint express
that point of view, because the Colombians

are as keenly interested in getting the
Export-Import Bank additional capital as any
of us are, 8.8 you know.

Jones:

Yes.

Welles:

Do you see any objection to that, Henry?

H.M.Jr:

I think it would be good. I think if Jesse
has this - I mean, let these people come in
and then they feel that it is a united front
here and that the three of us are moving
together and I don't want them to sort of
get the idea that we are not and --

Jones:

Feis:
0

We are together. If I can't get my wife to
agree with me, I agree with her. That relationship isn't quite the same here, but it is
pretty intimate.
I have an idea that you will find that you
are putting them up against the hardest thing
politically, to fund those interest arrears.
It is usually the hardest thing to get through
a Congress.

Welles:

The President of Colombia nov, Doctor, has the

ability to make any settlement. He has full

powers to make the settlement.
Jones:

Not only that, Doctor, when you approach this
thing you have got to add uo over a period
of years, you have got "X" dollars. Now,
when you take the same amount of dollars
and you can call so many dollars for debt
service.

Feis:

I realize that.

Jones:

You can write this up. You are pretty
good at writing things so that you don't

spell it out entirely in the lines. Some
of it will be between the lines. I think

this thing can be put black on white to do

- 13 -

the thing I am talking about so that it will
make our problem a little bit simpler. I may

481

be wrong about the - how much interest Congress

is going to take, those Committees are going

to take about it. It is 1940 now and not

1939 or 1938.
H.M.Jr:

If ve were going to have these people in,
the Cabinet is usually Friday so we would
have to have some idea before.

Velles:

I suggest Saturday morning, because I imagine
Traphagen would be having his talks with the

Colombians Friday afternoon. My thought is
to have our meeting afterward.

H.N.Jr:

C Jones:
H.M.Jr:

Then, Joe, after Mr. Welles calls me tomorrow
I will send for you and you remind me when I
talk with Traphagen to ask him if he would
come in Saturday morning. Would that be all
right?
Any time.

Shall we make it tentatively 10:00 o'clock

Saturday morning?

Velles:

All right.

White:

Mr. Welles, are you waiting for us in any
way in going forward with the other, Brazilian
and Ecuador and Peru things, or is that still

Welles:

in abeyance until Colombia is cleared up?
Dr. White, I was asking for postponement of

adjournment until I could pick up the
Brazilian dollar. In principle, I think we
all agreed that nothing could be done until
the Colombian matter was established with
a good precedent. There have been certain
developments with regard to the Brazilian

debt situation. I wonder, Doctor, if you
would just give the statement of the situation
as of the moment.

Feis:

The holders of the sterling and the French
bonds have been very active. They are very
discontented with the continuous default.

- 14 They are prepared to take a very small
range of payment. Now, they have got
resident representatives in Rio and

those resident representatives, particularly
the British, are very intimate connections
with their Embassy and the British representative, in fact, of the Council is now
actually on the staff of the Embassy, so that
the British succeeded then so that their
Government
is now controlling all their purchases.

Jones:

The British and the French?

Feis:

The British and the French. The Governments

are in a direct position to say to the Brazilian Government, "We may buy this or we may
not and if you should settle with our bond-

holders, we would be more inclined to buy
and there would be an offset, an exchange
offset, give us the exchange that would

enable us to do it." With that background,
they have been able apparently to interest
Souza Costa, the Finance Minister. He has
talked with them rather actively and
apparently terms were suggested which both
parties at interest were prepared to accept.
It was for Federal bonds only and the
suggestion was fifteen million - no, three
million pounds, I believe, twelve million
dollars a year, for all Federal bonds.
All of this developed rather rapidly and
was reported to us.

Now, our chief holdings are State and
Municipal bonds. We hold a far larger
percentage of State and Municipal than
we held of Federal. That is why in the
settlement of 1934 we had a classified
settlement of six grades and the better
State and Municipal bonds did fairly well

in their relative positions. Our Ambassador
warned us that if we continued a purely

passive attitude toward this, it wasn't

impossible that some deal might be consummated
and that Aranha was persuading himself by
that and trying to persuade the Ambassador

that that would be favorable to us, because
once the Federal debt was out of the way he
would be in a better position to do something

482

483

- 15 -

for State and Municipal and in the light of
that fact and our Ambassador's warning that
we shouldn't sit passively, that mething
very unpleasant might develop, the Ambassador
was instructed to tell the Brazilian Government
that if they put through a settlement for
sterling and French securities without at the
same time reckoning with dollar securities,
it would leave a very unsatisfactory sense
here and was instructed to tell them also that
any settlements to be equitable to the American
interests would have to include the dollar for
the State and Municipal bonds.

Apparently the Ambassador was very glad to

get the instruction, felt that we had

avoided a very unpleasant surprise.
He then has come back since, at least once
and perhaps twice, with a recommendation that

we have got to take a positive role in this
matter right now, at least make it clear to
the Brazilian Government that if they are

ready to move ahead and talk debts, we are.

Now, one last point and I think that about
covers it. The Brazilian situation is disturbed, although their exchange situation has
at times been much worse. The best Brazilian

offer is likely to be a very low level of fer.

For that reason, it seemed that the chances
of working something out on a temporary basis

were far better than working it out on a

permanent basis and that idea, too, has been
passed on to Rio.

Now, I think as far as my understanding of the
situation goes, we are rather waiting to hear
from the Ambassador.

Welles:

The situation as of today is that Aranha tells
us definitely that they will not conclude
negotiations with the British and the French

without having reached an agreement with us.

The point that I want to make is that if any
progress is to be made, the Council has got
to send somebody down to Rio. Exactly the
same thing happened last autumn and it

484

- 16 happened in the case of Colombia two pers
ago. The man they sent down had to get back

to Princeton University to undertake the
classes and I don't see that the Council
can possibly do business that may.

H.M.Jr:

Why, if Traphagen is in Saturday, couldn't
we talk to him about this?

Welles:

That is the reason I brought is = today.

H.M.Jr:

Jesse?

Jones:

All right. Can I get out of the book all

White:

No, but we are just preparing something DOE

that dope about Brazil?

and within a few days you will zet E comlete
story of the debt, to which will DATE DD be
added pending information which is in obspession
of the State Department, this last 11: which
hasn't been available to us and I thought you
would be able to get it or they could give 25
a memorandum to go with it.

Jones:

Will I have it before Friday?

White:

Oh, yes.

Welles:

That is all.

COPY

485

January 8, 1940
Secretary Morgenthan

Joseph P. Cotton, Jr.
Re: Colombian debt.

Kr. Traphagen called saying that he had heard the Treasury

had been trying to reach him. I told him that you said you
vere going to call him this morning. He said since he was
leaving for Philadelmhia about three o'clock today, he would
liketalk
to tell
me,
for your
his
with
Turbay
lastinformation,
Saturday. about the upshot of

The conversation was amicable but still more or less in
generalities. Turbay said he was formally authorized to offer
1,750,000 for the first year and $2,000,000 thereafter. Mr.
Traphagen got the impression that these sums would not
necessarily have to include the British debt. Mr. Traphagen

reiterated that the guaranteed mortgage bank debt should be
included in any settlement and there was some talk of how the
same mentione? should be applied as between interest and
amortization on the basis of $50,000,000 of bonds, which would
include the guaranteed debt on the assumption that it has been
reduced to $5,000,000, since the direct debt totals $45,000,000.

Forever, the suns offered for service were in general talked
of as applying only to the direct government debt.
Turbay said that be understood that the $1,750,000 to
$2,000,000 which be YES offering was not acceptable to the

Council. Be therefore asked that the Council formulate a

counter-proposal which be could be assured would be acceptable
to it and which be would submit to his government.

Kr. Traphagen raised in principle the possibility of a
flexible provision, geared to export volume to increase service
above E fixed minimum. Turbay expressed the view that this
would be very difficult politically and would not be understood

in Colombia, and generally opposed the idea. For this reason
Mr. Traphagen would not be inclined to push the idea further,
but nevertheless mentioned the possibility that if Turbay
vere given something in writing along the lines of the Riefler

memorandum (but with a higher figure for minimum service), be

sight take more kindly to the proposal.

o

486

-2Mr. Traphagen said he thought the time had come when a
minimum counter-proposal would have to be formulated to give

the Colombians. He would hope to secure the backing of the

committee of three in this matter and would like intimation
of its views as to the nature of such counter proposal.

On the whole, Mr. Traphagen expressed moderate optimism.

(initialed) J.P.C.,Jr.
JPC,JR:BJ

TREASURY DEPARTMENT

487

INTER OFFICE COMMUNICATION

DATE January 8, 1940
TO

Secretary Morgenthau

FROM

Joseph P. Cotton, Jr.
Re: Colombian debt.

Mr. Traphagen called saying that he had heard the Treasury had been

trying to reach him. I told him that you said you were going to call

him this morning. He said since he was leaving for Philadelphia about

three o'clock today, he would like to tell me, for your information,
about the upshot of his talk with Turbay last Saturday.

The conversation was amicable but still more or less in generalities.
Turbay said he was formally authorized to offer $1,750,000 for the first
year and $2,000,000 thereafter. Mr. Traphagen got the impression that
these sums would not necessarily have to include the British debt. Mr.
Traphagen reiterated that the guaranteed mortgage bank debt should be
included in any settlement and there was some talk of how the sums mentioned should be applied as between interest and amortization on the
basis of $50,000,000 of bonds, which would include the guaranteed debt
on the assumption that it has been reduced to $5,000,000, since the

direct debt totals $45,000,000. However, the sums offered for service
were in general talked of as applying only to the direct government debt.
Turbay said that he understood that the $1,750,000 to $2,000,000
which he was offering was not acceptable to the Council. He therefore
asked that the Council formulate a counter-proposal which he could be
assured would be acceptable to it and which he would submit to his
government.

Mr. Traphagen raised in principle the possibility of a flexible pro-

vision, geared to export volume to increase service above a fixed minimum. Turbay expressed the view that this would be very difficult politi-

cally and would not be understood in Colombia, and generally opposed the
idea. For this reason Mr. Traphagen would not be inclined to push the
idea further, but nevertheless mentioned the possibility that if Turbay
were given something in writing along the lines of the Riefler memorandum (but with a higher figure for minimum service), he might take more
kindly to the proposal.

488

-2Mr. Traphagen said he thought the time had come when a minimum

counter-proposal would have to be formulated to give the Colombians.
He would hope to secure the backing of the committee of three in

this matter and would like intimation of its views as to the nature

of such counter-proposal. On the whole, Mr. Traphagen expressed
moderate optimism.

p.p.

489

For release worning papers

Tuesday, Jan 9th, ,

A R or
JOHN Y. EATS

JACKSON DAY DINUER

DALLAS TEXAS

JAINART 5. 1940

FUTURE RELEASE
OBSERVE DATE

490
I an very grateful to IF good friend Anon Carter for his kind and

generous introduction. Of course, I import what he says about are is a

generous distortica of the truth but I appreciate it the zore for that.
Governor Aycock of North Carolina used to say it never tade a pretty WORK

happy to tell her she is beautiful. She knows it already. But, sait in.
if you want to see joy and bliss irradiate & Moman's face. get an well
voitan
and
tell her
creature
under
theshe
sun.is beautiful and you will make her the hangiest

Ky friend might have taken less chance with you and I might have Threat
more comfortably happy if be had put me up here on my over until you Ind

tested the fruits of If effort and observed the rough spots of If political

pulchritude.

: an sure you are smare of IF deep appreciation of your invitation to
participate with you in this Jachson Day dinner. Then it Yas first suggested

that : speak to you tonight. I disubted = ability to provide the time of talk
that this occasion ordinarily calls for. I have never attempted to make I
political sneech. I could not mike a cartisaz political sneech if : VEDE
foolish enough to try. 3st I hare been told that you ni it monetheLess be
willing to take the same chance that I do.
In this connection I vast to S& that by birth, inheritance and breeting

I as a North Carolina denocrat, by preference an indemendent liberal. and

by practice a political group - the lever that is.

I YES also born = Methodist but I reserve the right to become a Emply

Roller if I so desire is this last of freedom of religion and freedom of
steech. Thile proud of If political independence frecuently I have
mortified at - bad jodgment. I 2025 invited to Washington not as a remail
for party service but to take an active hart in is government. And I tell
you with all sincerity that. while it times I my have brea a political
heretic I have always tried to place the welfare of it country before the
welfare of any political party.
Do not misunderstock ze. I recognise that government in this country

is administered through olitical parties. and the policies of government
are determined by the party is control. I think this system is decided
;referable to government controlled by blocs and groups and dependent =

coulitions in order to effecture desired results.

It is a distinguished homer to visit this amazing city in the great
State of Texas. I have enjoyed the helprul privilege of working with of
counting as = sincere friends. several of the outstanding members of your
distinguished delegation is the Congress. I love and adhire as do you. the
courage, the integrity, and the hersonality of the distinguished and able
Vice-President of the United States. John Tance Garner - of Texas. In 35a
confession of faith a for years ago. Mr. Surper gave utterance to It
conception of government is America Ec said:

*There are just tro things to this Government as I 500 it. the first
is to safoguard the lives and properties of our people. The second is the ton

insure that e of as has a chases to work out his destiny according

his trients.

491
-2-

If I were called upon to write a political platform today I would give
liberal interprotation to this thought.and with full confidence in the
destiny of my country.

I have also had the privilege of knowing and on accasion Morkin most
harmoniously with your distinguished Senator on the Finance Committee.
Ton Connolly, Sonator Shoppard, Chairman of the Scante Comittee on Military
Affairs, cad with the exporienced and alort Loader of the House of
Representatives. San Rayburn, and also with not good friend on the "ays and
Moans Committee. Milton Most. Short's a two-fisted American citizen who is

doing a magnificent jnb. It is proper that people of Texts have great pride
in the contribution of their representatives in the legislative breach of
our government. I might go so far as to say that Texas has the second best
delogation in the Congress - I innow you wouldn't expect a North Carolinian

to surrender the first place to anyone.

In the administrativo side of government, I can ot pass without a word
about one other famous Texan, by MEITH friend Josso Jones. When the history

of this ora is written the sane of Jesse Jones is sure to be outstanding
among those who have made real contributions to sound and constructive
overnment.

In an area that is now part of = neighboring state, a great American
general one hundred and fifteen years ago showed to the world the determin-

ation of a young republic to stick togother. to work out its own salvation.

Androw Jackson. Old Hickory, the seventh Prosident of those United States -it is in hishonor that MC most tonight under such happy auspices. not to
observo his birthday but to pay honor to his contributions to democratic
government in the United Statos. To symbolize that contribution MC commenorate the most spectacular monest in his colorful career -- his dranatic

victory at the Battle of : or Orlcase.
It is an interesting commission on the progress of our nation since that
time that the victory NO observe tonight -- the only inhortant American

militar victor in the war of 1812 - was won after the war was over. Inc
treaty of 001.00 had boom signed is Europe but the HOME had not yet reached

Louisiane and Old Eichory and his troomcre still thought they and fighting
to do.

I have just stid that I on not a politician. "o more a I an Historian.
Yet, to my thinking Androw Jackson is one of the nicturesotic, fascinating.
venctchable. great figures of our country.
Form of humble marnts but of good stock. on the line Subwoon by active

state of North Carolina and South Corolina, his birth dis uted by each and
claimed by both of the Carolinas. a casualty of the Revolutionary "ar whom
he was but fourtoon years of age: by dint of his undefeatable spirit, be got

sone education. tau,St school. because a lawyer. omigrated to bo-

case local prosceuting attornoy; surried c resuriable woman. fought chickens.

fou the duels because the first of Tennessee in Congress. was
elected sonator, was associated to the Suprenc Court of Tomossee because

major general of the Tennessee ilitia. fourt the Indians and whipped than,
because c acjor general 01 the United States regular army. saved the orido and

492

prostigo of the army cad of the country at For Orlonas and returned to
Tennessco as a private citizen suffering from old wounds and ill health to
put his affairs in shape because he bolieved that his time MAS not far off;
then characteristically refused to dic, was defected for the presidency in
1824 after he had received the largest popular vote and electoral vote of

any of the four candidates, and than como back and YES overwhelmingly elected
President in 1828 because he was the idol of the mosses of the corron people,
and was overwhelmingly reelected in 1832. Ec selected and elected his
successor in 1836 and then vent back in his lonc liness to his beloved
Hormitago in Tennessee and waited for eight yours for the sutions to call
him.

As a man, he was adored by his friends and hoted and feared by his
onomics. As a genoral be was enorgetic, decisive. and know how to control
his non and defent his cacmics. AS = layyer he MCS. according to his own
admission without much learning. Ec was a good farner and generally a

poor business and As a politician he first and: really effective the doctrino that "to the victors belong the spoils." As an opponent he svung a
battlo-exc and never touched the repier.

It YES his fate to live on the frontier. Ec was a great actor. On the
national scono he staged the most couregoous and romentic show in American

history. Ec had actually become legendary before he boorne Prosidont. Hc
conformed to no known rules. Tot he YES intensely human. Hc Mrs President
in a glomorous ora. He MCS President at c time when r. frscincting groun of

acn of unusual ability played their parts in the actional forun. There were
Colhoun and Clay. "obstor and 7 Buren, 31-ir of Tracy. The greatest of
these wrs Jackson.

As President he and his way. I- his very he no mistoros. big ones. He
also ando c great action. Actually he and: this government C government of
the people. His grentest fight MOS with Clay -ad Chlhoun. priorrily Chlhoun.
In 1332, the logisInture of C-lhour's active state. South+Chroline, pressod
the nullification resolutions. Co November 19. 1832, the from ordinance

of sccession YOUS adonted by South Coroline. nessed the lovs
cavisaged in the ordinance. President Jackson's vos: "Our federal

Union: it must be preserved.F and preserved it YCS -- at lonst for thirty

yours. Andrew Jackson. the seventh President, = great democrat and = great

American. I salute him:

Today, just more thru = round 100 yours +fter Old Hickory passed off the

national stage. in world beact with struggle and uncortninty with civili-

sation S we know it out to the utmost test. with no ASSURANCE that democracy
CO: ride the storm, his example and his CO.1102 $0260 should bring encourage-

mont and hope to all of us.

I have confessed as inexporience in politics. 3r this confession. I do
not morn to imply that I do not recognize the vital force of political power
and political control in American donocrecy. Not only in this country, but
throughout the world, business. continues and trade study with cute encity
the charactor and trouds of our political moods. This intervoven rolationship
between government and busir SS docl-res CS necessity for the public good
that there exist the most intimeto understanding and oquitable balance
botwoon the politic-1 action rad the business policy of the American poople.

493

There is one Mistoric action 1 fact concerning which -11 political
partics agree. That is the fixed custom of the America voter to hold the
party in power responsible for cconomic rad social stability. For DOES them
one hundred years. since the Jricksonir.m CFC. actional elections revelved
around the issue of which political party is most likel to promote and
maintain national prospority and actional economic woll-boing This issue

is always dreamtized in polition1 slognas. Work in 1896 contected

with Bryon's crucifixion of the American people "On : Cross of Gold" by
direct shot at the stounch of the American voriman with his spoon1 of the

"Full Dinner Phil.* = tariff is debated in considoration of its

ultimate off 02 the American worldon. And I remember that in 1924. the
Republic slogna MAS *Zoop Cool with Coolidop" the Donocratic rilly,

"Keep Cold with In 1932. thore YES always the underlying isrue

of "Chickens - Pots* nod "Fots and Chichons." The bad said
"A Chicken in Every Fot* - the Domocrate claimed that direct result
of Republicon rale the chickens th selves MORE the only since
cach chickon DON had = claim of two note 1

In 1936. President Engace:1 id not hositate is his moverful to

call the everage in ric to to:to insurance of Mis norsonn1 wilfore, not to
mastror in is colselened this simple question: "Are you not in bottor con-

dition today them 702 VCT March 1933 2. castor MCS

and overvit Inime. 2:10 these issues any be rantori listic and devoid of
ido 1s they sorve to illustrit. how both: injor political portica home

persistently trui the America voter to use ctional prospority is the

york stick for rin th made Misdom required to mango
the finira side business of this tion.

Beyond the invoide politic 1 that CO.ICS from actions1

prospority, you - : that the SUCCESS happiness, and progress of people in ago hocsure rest @@@@ the High standards of living gracelly

provriling in th: United Stat s. - that this standards recold - fill

in periods of depression +=5 dronce and now forward in seriods of treamority.
" $000 to operate in cycles in America. From 1920 to 1929. wc MARC :period of escending devolo meat without SUPAR at limit. >Ithough 1: is true

that agriculture YOS sick 100 befor the gonoral collepse that took nine
in October. 1929. This doordo - be truly described is th: - of
It 103 period of excesses in everything -24 extranged
indulging in most things. -c -11 thought MC MOT endomed with moter
prospority. "hon the loc you broite MC WCF all insuidnted. De period

fro: 1329 to 1939 has the stack with blighted house ad 3 noncoful revolution. The last SOVER profit of : have be devoted to =

lost solitics1, soci 1 - connoric this has occurred
since
the of Lincoln.

4 is
this rec 70123 : vourd distrust ith in 0^" S$
*ithout to discuss the vide r for $ and brand nonsure of

America citize if : as not sr. that will not are

-11

= don: : this Afri istrution do this idea Mestice no 100% of
cross th: world are wit 193 the injusticis, hourt- chos, are

millions, there is CO : ritive confort in our siturtic of today. the

And I for one stord resit and willing to recribe to too Co Tress

494
-5-

United St..t and to Frenklin Roosevolt = full monsure of dovotion for the

fight this has been mode for the right of the littl: non to live, and for
the fight that hrs been ando for the right of the little nation to live.

Throughtout these recent yours - both before I child to Wrishington and

during I service i the government -- I have folt that the biggost issue in

this country the 18910 taking precedence over reform and ovor politics,
is countie recovory. I have never ando c. public statement hold a private
conference or discussed public policy without having in mind the question,
*Docs it on tributo to recovery?" Today I or more firnly convinced thrn

over that this is the correct approach to the solution of the anjority of
our donestic problems to which the Administration and the Congress have

,ives their thought and offort.

By this I do not 1002 to indicato thrit reform and recovery are
accessarily catagonistic. Any fair and intelligent appraisal of the achieveneuts of the Administration must admit that cortain important piccos of
logisletics could bc classified b. one perso. C.S reform mensures and by
person ns recovory consures. It is noinly C netter of where you put
the emphasis. For exemplo, th: important busing logislation connected during

this Ministration, secure the funds of dopositors, you night

consider is 7. reform. I believe I would classify it r.s n recovery nonsure.
The nronotion of cantional recovery is a task of many respects. "c are
not going to achieve complete economic recovery by any known or unknown

colition1 "Eat Tricks." I v humble opinion, MC or going to knuckle

day. creatually and achieve it the hr.d very -- the sound way -- or NO

cris's going to achieve it at all. It is plnin to no that the root of our
nroblem is uncomployment. To have several million people in this country

toding meeting to work, and fining nothing to do. Their idloness is not
only subtracting from the croductivity of the nation, but is crusing in

honey Amain 02 the resources of those at work in the for. of great expenditurns for reliof and public works programs. The cost of our unomployed to
the coston, of the country is CORS rvetively estimated at nor than 620

billion annually.

must free and solvo this croblem. both publicly and srivet ly. That
YO word to roomll today, almost as much ns MO nood nothing, is that both
Government and Business ARC stitutions sot up by the people for the smoother

functioning of thoir operations. "hot MC the authority

of the two establishments springs fro: the $ 2710 source, NO are able to
bro den astorially our Cros of agreement on the problem of national recovery.
to Externine how MC can -11 so br.ck to work to vilto the most of our
resources -- hungs and natural.

Just is it is nzionatic that the actorial volfare of the ; hrs

direct effect used political action, so is it oqually truc that the

:lectorito is always more kocnly conscious of its governicital structure

i.. tince of economic rossion then in periods of roletive prosocrity. If
nothing elso, the st Locade it lorst has gives us c revival of the kind

of public i torest rad discussion that gives life to democracy. Loss
Approved perhaps in the wilter of activity essontinl to the solution of
our problems. but c trend which I believe is overy bit 1.5 important, has
been the recent confiscation by lenders of business of the ronli-ation that

495
-6-

they, too, are stewards for th: public just ns are leaders in politics.
From my own donlings with corosontativos of American business during

my stay in I on firnly convinced that MO are entering = now

doordo of economic, social, and political history with the adventage of on
clort, conscientious industrial management. "ith the worker and the public
generally continuing to pay close attention to the processos of Government
and the processos of Business, I know that MO are in n position to solve
the proble. of unoccuried non. These millions must either be fed and clothed
or out back to work. Thoycnanot be ignored. You would have a hard job
selling no the kind of system which could not provide C. living for those
writing to work and unable to find work.
The primary solution of this problem must lic in the increase of

industrial production -- the crostion of additional national worlth. This

cc. result only from the mintenence of conditions under which private
enterprise may price reasonable profits. Profits carned by business. or

the prospects of profits to bc carned, form the brsis for attracting
additional crcdit resources and investment by th public.

During the tax hoarings before tho Mays and Loans Cornittcc last spring,
I stated: "There are ct botton only two ways of producing worlth. One way
is to conscript labor and capit 1 and put thom to work under Government
compulsion. This MOT is unthinkable in America. The other way is to provide
is
the incentive of vogos, interest. dividends, and profits. This is the way
to which we rro consitted, the only why MC cra think of taking *** It

incorativo that WC direct every offort towards encouraging investment in
enterprises which will provide employment.

Now the question criscs what can the Federal government do which will
encourage invest nont in entorpriso? There are many ways government can

help; I will mention but C few.

First, MC CCT do everything possible to rostore confidence in the
business non. I would like to quote a fow words from the Dos Moinos speech
of Ferry Hopkins. Ho said: "Arion: enny business non there exists . vidosprend lack of confidence. I 07 prepared to account that pronisc. nor would
I underrate its importance. Lack of business confidence is and hrs boon
hard, stubborn fact, and nov be CS roal : deterrent to restored business
health CS my MO have to dorl with."

There is, I believe, general accoptance of the fact that NO nood to
restor: confidence. Another MAY 10 on help is through a sanc,a honost
sporonch to our tax problems. This, I believe, the Crocsury hrs con-

scientiously tried to do. Lost August, we invited suggestions and
recovendations fro more than 1500 representativ londers and groups in
business, industry labor, ngriculture end education. "o naked for sug-

gestions and idors of whatever nature any of those groups believed would
be constructive and fair and would improve the trat structure. The response
was Host encouraging A co.pl.to digost of this trappyyer opinion hrs been
compiled in the Trensury and hrs been submitted by Secretary Korgonthnu to
the Neys and lionns Committoo for its consideration whom tax revision is again
taken up. Another MON MC can help is by taking an honest effort at gotting

our federal outgo and income at lorst in adjoining countics - nothi is would
so revivo business confidence CS that.

496
-7-

this fat: of Jackson to liv ON the frontier.
the fro tior when he lived
States ns he was whom ho

1cm fou 2 the India as in southorn Alchang.

to hi 1:00. To him it state of find.

The

the vic CS rossed the is suffori

^ntured this
OUR disappoared
fronti
is

longer

no

if restricted

25

It

enterorisc.

for

It
desire and denead of the America people
committe

of our

sconle.

living. the achievements
enter
for
Yet.

out
thing
Attention

ill
(4)

activo

cover

of

fro

(3)
cture
the

the

on

thous

ther

COB

in

A

to

if
to

11

of

OUR

cric
bri

--

citizens

bottor food, bottor

incr and production blo trices.
should
1cm

industr
right t
level.

producti

effect busi
with

sons

ct

tions.

of

rectionl

497
-3-

to continue 7. spirit of tolorrace of cooperation between business cad
government, between industry and Inbor. One factor that has boen dreams
but that is now definitely increved is the low level of prices received
for for and other corrioditics. Chis buoynney in form prices is
I have confidence to believe that the American people have the will to
carry out the cooperation I have just spoken of.
" my be disposed to Attributo C. considerable part of the ingressment

in conditions to the var. In some fields it is undoubtedly truc that the
war has contributed something to recovery. I think MC would = nistako,

however, if MC lost sight of the fact that ve MOT already in = seriod of
CHO adin recovery befor the first our wrs fired. Indend. NO sure on the

road to economic recovery prior to Poland. Business had bogue to show by

July = definitely rising trend. In August the Feder 1 Resort Toard indez
of industrial production And rison to 102. as concered with low of 92.
in April and king. It rosc to 110 in September - due I think only partly
to the actual and psycholo tcol effects of the ver. It has climbod to
: little more thrn 120 today. Production in the heavy industries hrs
b gun to roll.
To 7 mind the war carries the grontest throat to our present
security in safety. But, if I understand the American mind at -11 the
United States is not join; to become involved in what looks like the
cventual destruction of the property, the mornic, end the lives of the best
of anny of the Europea: nations. But for us - in the prisent vorldrido
conflict of idoolo ios - MC must never forgot the day by day importance of
our domostic problems. I can think of no sounder _uide for America's
actional dostiny than that uttered by the cloquent Denicl Tobstor in

Jackson's spoch, had in of the nation's stru 10 for freedom
before it was over is action. These matchless words fro: his Email Fill
orntion: "Lot our object be our country. our whole country. end nothing
but our country. And, by the blossia. of God, may that country itself
bocomo : vost and splendid morninant. not of oppression end terror. but of
wisdom, of peace, and of liberty, 2002 which the world is gase with
Admiration forever."

Op. No. 417-a
498
January 8. 1940

Secretary Morganthan

Mr. Polar

In a letter to you, dated December 27. 1939. Mr. Leachlin

Carrie, Ministrative Assistant to the President, made the folloving request:
"will you please advise me as to whether you

possess authority to sell the Treasury's holdings

of shares is Federal Savings and Loan Associations
and whother 11 is year belief that the Home Owners
Less Corporation has authority to purchase such
shares free the Treasury!"

It is assumed that Mr. Carrie is referring to full paid iscase
shares of Federal Savings and Loan Associations, of which the Treasway Department holds approximately $40,000,000. You are advised that

11 is my opinion that the Secretary of the Treasury is not authorised

to sell the full paid income shares of Federal Savings and Less is
sociations hold by his (except that the shares may be reparchased w
the Leasing associations as authorised by law), and that the Home
Genera' Loss Corporation is not authorised to purchase such shares

free the Secretary of the Treasury.
with respect to the subscription by the Secretary of the Treasway for fall paid income shares of Federal Savings and Losa Associations,
subsection 5(3) of the Name Orners' Loan Act of 1933. as assended,

(U.S.C. title 12, sec. 1404(1)). as it appears in the Code provides
as follows:

-2-

499

"In addition to the authority to subscribe for

preferred shares in Federal savings and leas associations, the Secretary of the Treasury is authorised DE
behalf of the United States to subscribe for any amount

of full paid income shares in such associations, and it
shall be the duty of the Secretary of the Treasury to

subscribe for such full paid income shares the re-

quest of the Federal Home Loan Bank Board. Payment on

such shares may be called from time to time by the as
sociation, subject to the approval of said Board and
the Secretary of the Treasury and such payments shall
be made from the funds appropriated pursuant to and
section (g) of this section; but the amount paid is by
the Secretary of the Treasury for shares under this subsection and such subsection (g). together shall at no
time exceed 75 per centus of the total investment in
the shares of such association by the Secretary of the
Treasury and other shareholders. Each such association
shall issue receipts for such payments by the Secretary
of the Treasury in such form as may be approved by said
Beard and such receipts shall be evidence of the interest of the United States in such fall paid income shares
to the extent of the amount so paid. To request for the
repurchase of the full paid income shares purchased by
the Secretary of the Treasury shall be ands for & period
of five years from the date of such purchase, and thereafter requests by the Secretary of the Treasury for the
reparchase of such shares by such associations shall be
made at the discretion of the Board: but as such association shall be requested to repurchase any road shares in
any one year in an amount in excess of 10 per centur of
the total amount invested in such shares by the Secretary
of the Treasury. Such repurchases shall be made is accordance with the rules and regulations prescribed by the
Board for such associations. (Uncersearing supplied.)
with respect to the authority of the Home Owners' Loss Corpora-

tion to purchase full paid income share in Federal Savings and Loan
Associations, subsection 4(n) of the Home Owners' Love Let of 1933.

as amended, (U.S.C. Sup. IV, title 12, sec. 1463(a)). as it appears

in the Code provides in part as follows:

-3-

500

"The Corporation is also authorised to purchase full-

paid-income shares of Federal Savings and Lean Associations

after the funds made available to the Secretary of the

Treasury for the purchase of such shares have been exhansted.

Such purchases of shares shall be on the same terms and dillions as have been heretefore authorized by law for the
purchase of such shares A the Secretary of the Treasury
Provided, that the total amount of such shares is any one
association held by the Secretary of the Treasury and the
Corporation shall not exceed the total amount of such shares
heretefore authorized to be held by the Secretary of the

Treasury in any one association. .. (Underscoring sup=
plied.)

Subsection 5(1) of the Home Owners' Loan Act of 1933. as mended,

supre, contains no authority for the Secretary of the Treasury to
sell full paid income shares of Federal Savings and Loan Associations

held by the Treasury Department to any third party. On the other
hand, that section sets forth the procedure which is to be followed by
the Secretary of the Treasury in disposing of such shares, namely,
through reparehase by the respective issuing Federal Savings and Loan

Associations. The section contemplates that the shares will be retained

by the Secretary of the Treasury until they are reparchased by the spective associations. It provides that requests for reparchase of the
shares hold by the Secretary of the Treasury shall not be made for a

period of five years from the date of their purchase from the associatimes and thereafter requests by the Secretary of the Treasury for
the reparente of such shares by such associations shall be made at

the discretion of the Board! (Underscoring supplied.)
Although subsection 4(a) of the Home Owners' Loan Act of 1933.
as amended, supra, authorises the Home Owners' Loan Corporation to

501

purchase full paid income shares of Federal Savings and Loan Associa-

tions, that section does not authorise the Corporation to purchase the
shares new hold by the Secretary of the Treasury. Subsection 4(a)
provides that the Corporation may purchase full paid income shares

only "after the funds made available to the Secretary of the Treasury
for the purchase of such shares have been exhausted." The most reason-

able interpretation of that provision is that the Corporation was sutherised to purchase full paid income shares in order to threish the spective associations with additional funds, after funds made available to the Secretary of the Treasury by appropriation for the parchase of full paid income shares had been exhausted. It does not appear to have been the intention of Gongress in enacting subsection
4(a) to authorise the Corporation to purchase full paid income shares
hold by the Treasury Department, since such a purchase would not make

available, without a new appropriation by Congress, additional funds

for the use of the associations. If the Secretary of the Treasury
sold the full paid income shares held by him to the Home Owners' Losa

Corporation, the procests of such a sale would be covered into sis-

collanous receipts and could net be used for the purchase of additional shares from Federal Savings and Lean Associations. The fund mtherised to be appropriated w subsection 5(s) of the Home Owners' Loan

Act, as amended, (U.S.C. title 12, sec. 146((s)). from which the Secretary of the Treasury was authorised to purchase full paid income shares,

is not a revolving fund.

502

-5Further indication that subsection 4(a) of the None Owners' Less
Act, as amended, wars. does not appear to contemplate the purchase
by the None Owners' Loan Corporation of the shares held by the Secre-

tary of the Treasury is found in the provision limiting the amount of
full paid income shares in any one association which may be "held by
the Secretary of the Treasury and the Corporation."
Finally, subsection 4(a) of the Home Owners' Loan Act of 1933.

as amended, same. provides that purchases of full paid income shares
by the Corporation "shall be on the same terms and conditions as have

been heretofore authorised by law for the purchase of such shares by
the Secretary of the Treasury." The Secretary of the Treasury has
been authorised by law to purchase fall paid income shares only by

'subscribing' for such shares. The subscription for securities is
generally understood as applying to a purchase fres the original 1 issuer

or his agent. "Subscription" is defined in Nana's Encyclepedia of
Banking and Finance (1937) as "An offer to purchase stocks or bends

given to a corporation, or its authorised trustee or representative,
by a subscriber." That Congress intended that purchases by the
Secretary of the Treasury should be purchases from the issuing associa-

tions is further indicated by the provision in section 5(s) of the None
Owners' Loan Act of 1933. as amenied, - that *Payment ea such
shayes may be called from time to time by the association, subject to
the approval of said Board [Federal Home Loan Bank Board] and the

Secretary of the Treasury."

503

-6State the House Omare' Lean Corporation must purchase full

paid inconc sharee - the "game terms and contitions as the
Secretary of the Treasury, it would seen that the Corporation is
authorised to paralase such shares from the issuing associations,

and not free the Secretary of the Treasury.

I attach a proposed draft of a reply to Mr. Currie's letter
of December 27. 1939.

1173.

NStee types 12.29.39

504
THE WHITE HOUSE
WASHINGTON

December 27, 1939.

My dear Mr. Secretary:
Will you please advise me as to whether

you possess authority to sell the Treasury's

holdings of shares in Federal Savings and Loan

Associations and whether it is your belief

that the Home Owners Loan Corporation has auth-

ority to purchase such shares from the Treasury?
Yours sincerely,

Landling
Lauchlin Currie
Administrative Assistant
to the President.
The Honorable Henry Morgentham, Jr.,

Secretary of the Treasury,

Washington, D. C.

Bell take care
of this for me

M.M.Jr.