Full text of Diaries of Henry Morgenthau, Jr. : Volume 245 : Part 2

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193

GROUP MEETING

Present:

Mr. Gaston

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

Mr. Sullivan
Mr. Foley

Mr. Cochran
Mr. Graves
Mr. White

Mr. Cotton

Mr. Bell

Mr. Schwarz

Mr. Thompson

Mrs Klotz

H.M.Jr:

This morning I am very serious. I read in
the Washington Post that Charlie West's pay
in the Treasury is lost in the House economy

drive.
Thompson:

H.M.Jr:
Thompson:

H.M.Jr:

Well, it is true that they cut $15,000 from
the appropriation, but that doesn't necessarily apply to his salary.
It could.
It could, yes.
By that time we will know - as Ohio goes, so
goes West.

Mr. Bell, would you get in touch with the
Federal Reserve people on this story in the
New York Tribune?

Bell:

It wasn't a bad story.

H.M.Jr:

They wrote a very good story and Clarence Linz

Bell:
H.M.Jr:

Bell:

wrote a nice story, too.
I haven't got that.

He wrote a very good story. Would you ask
Rouse, or whatever his name is? And I would
like another day, Dan. Give me another day.
Give me until noon.

Well, you ought to be able to tell pretty well

by the end of today.

194

2H.M.Jr:

Let's see. I tell you, Mr. Purvis is coming
in at 3:00 and as soon as he leaves I will
see you.

Bell:

You don't want any other discussion before

H.M.Jr:

Oh, I can't, because I have got a hell of a
day today. But sometime as soon as he leaves,
I will see you.
If the market doesn't change much, I think it
is pretty well set, but I should think the
note market might slow up. There certainly
will be some of the holders who won't want
this note. There will be some churning in
the market today, I should think.
Would you please get off a cable right after
this meeting to Butterworth? I would like
to know all about Sir Henry Self.

Bell:

H.M.Jr:

Cochran:

H.M.Jr:

that?

Yes, sir.
Just as promptly as possible, please.
What else, Dan?

Bell:

I think we are about in agreement with the Bank

of America so far as the Comptroller's office
and the Bank of America are concerned. I think
it will be wound up today.

H.M.Jr:

Wonderful.

Bell:

They worked last night until 11:00 o'clock on
that. Mr. Cushing called Mr. Giannini last
night on the telephone and they are all ready
to come down some time today.

H.M.Jr:

Who will come down?

Bell:

Mr. Cushing will come down to the Treasury today
and have a general meeting.

H.M.Jr:

I see.

195

-3Bell:

Probably this afternoon.

H.M.Jr:

Splendid.

Bell:

I think we will certainly get rid of it today

H.M.Jr:

or tomorrow, so far as we are concerned.

What I think you ought to do is this: I haven't
informed the President recently. I think you
ought to have this in mind. Before I write the
letter to Jones asking for the money, I think I
ought to send the President a summary and say I
recommend that we go ahead with this and if he

approves I will send the enclosed letter to

Mr. Jones, you see.
Bell:

All right. I think the way they want to handle
it - I don't know - is that the Bank will send
this memorandum to the Comptroller and say that

they will agree to adopt this procedure and then

the Comptroller will reply, saying that it is
all right, as far as his office is concerned.

It won't be an agreement. I understand they
don't want to come to any binding agreement.
It will be sort of an understanding between
the two offices and you ought to get that either
today or tomorrow.

Bell:

Well, you won't have any trouble with me. You
won't have any trouble with the President.
I shouldn't think so.

H.M.Jr:

He will just take my word for it.

Bell:

The other thing is, there have been a number of
bills introduced in Congress for the relief of
Finland, in one formor another, loans, returned
interest has been paid, $224,000 was paid in
December. Mr. Doughton called up yesterday and
wanted a hurried report on that and what we are

H.M.Jr:

telling him is that in view of the fact that
bills to increase the lending authority of the

Export-Import Bank have gone through and been
signed by the President, the Treasury Department

is of the opinion that these various bills on

196
4-

H.M.Jr:

this subject are not necessary at this time.
Do you want to go that strong, or just raise
the question as to whether they are necessary
in view of this legislation?
Just raise the question.

Bell:

All right. That is all I have.

H.M.Jr:

Joe, I wish that you would, through the Director
of the Export-Import Bank, begin to get for me
monthly or weekly summaries of these various of what these various countries do with the
money we lend them now, and particularly Finland.

What have they done with what they have already,
and Norway, Sweden, China. These various things -

Cotton:

I think if you would make it a part of your business - and there might even be a possibility of
going and visiting their offices where they do
business and see what they look like, whether
they are run in a businesslike manner. I think
that - now, they may be coming in here, I don't
know, with a weekly report.
Yes, I get a weekly report of the Bank condition
and pending commitments and disbursements, but
that isn't exactly what you were talking about.

You want to know the uses of the money, I suppose.

H.M.Jr:

Yes, and I have particularly Finland in mind.
I haven't the faintest idea of what they are
doing.

Cotton:

H.M.Jr:

They have drawn down very little of that 10
million, practically nothing. The Bank says
that they have made arrangements for most of
it, but it hasn't been quite closed.
The thing, for instance, that surprised me, you
see, I come in on this on several funds as sort
of informal coordinator for the President on
purchases, you see, for these various countries.
I get that through what I call the "Collins Committee." I mean the actual purchases, the
big purchases.

Cotton:

Yes.

197

-5-

Cotton:

Then, I don't know and I can't understand fully a month or two months ago Finland was
talking about buying 50 million rounds of
ammunition from Remington and then last week
they announced that - it is inexcusable. I
know Remington has it. I know they could sell
it to them. I know the amount of money that
Finland has cash on hand, which is a great
deal and which they are not using - am I right?
Yes, sir.
They are not using it. Maybe it is all committed, you see, but they have a lot of cash
on hand, so I am just curious. It just doesn't there may be an explanation, but -The explanation of that cash balance seems to

H.M.Jr:

On this other thing, on the Export-Import Bank
10 million dollar credit, of course what they
were - I imagine they were trying - I mean, everybody is very hush-hush about these things, but
they were trying to work out a trade with the
British stuff they bought so it would result in
arms shipment from Great Britain.
What kind of products are they buying here, see.

Cotton:

Right.

H.M.Jr:

And you see what I am trying to get - we are
doing this thing now on two fronts. I am going
to get through Haas - it is very interesting I can get each day the number of cars that go
for export to the port of New York and on a
weekly basis the number of cars that move to
every port with the exception of the West Coast
and they break it down as to commodities, you

H.M.Jr:

Cochran:

H.M.Jr:

be hard.

see. Haas is giving it to me in secret. Now,
if, for instance, Finland is buying any amount

of the port products which go to England and
England gives them something - in other words,
I am trying to get this thing all together.
White is doing the external thing and yesterday
somebody gave the President a figure that these

198

-6combined countries were going to buy two

billion dollars in this country, which Harry
and I don't think is so, so while Finland is
only a piece of - if Finland is buying - how
are they going to spend this money and for
what? So if you could cover the front that
has to do with money loaned by the ExportImport and what it goes for and leave - get

us an estimate the way the French and English
have given us as to what they are going to
spend, it gives me another loophole which I
haven't covered.

White:

H.M.Jr:

There may be a lag on the expenditures of anywhere from a week to two or three months in
the expenditures as compared with the shipments.
Possibly Joe might be able to go further than
that and find out from the commitments --

Yes, that is what I meant. I said that, com-

mitments.

Cotton:

Yes, well --

H.M.Jr:

Do you get the idea?

Cotton:

I get the idea.

H.M.Jr:

I talked it over with White and Cochran to make
sure we are not duplicating and I am not getting

something in here, you see - but if I knew - what
I am trying to get from White is a number of
things. I am trying to forecast the best I can
for the next year, what are these belligerents
going to buy from us, also these neutrals adjacent to belligerents. Then we are watching
the commitments. If you could cover the ExportImport, that would give us another piece.

Isn't that right, Harry?

White:

H.M.Jr:

Yes. I am wondering whether he could work
through the Export-Import or whether you
directly could ask these various agencies,
the Finnish and the Norweigan and the Chinese

to -I don't know. I want Joe to work it out. He

199

-7does it as my representative.
White:

H.M.Jr:

I say either through the Export-Import Bank,
the Directors --

You have the assignment. Talk it over with

Merle and White to make sure there is no
duplication.
In the room here, I have got a request on my

desk for 150 planes for Finland. Now, the
question comes up, how are they going to pay
for them, see, and of course the other question was a much more difficult one, where
they were going to get them. I mean, sooner
or later all of that stuff flows across my
desk, but I don't know what these countries what they are buying. There is a mission here
from Begium. There is a Swiss mission. Merle
knows all these people and he could put you
in contact. What are the Swiss doing, what
are the Belgians doing? I want you to confined yourself to those which are being financed by the Export-Import.

Cotton:

Yes.

H.M.Jr:

Incidentally, some place, somehow, Cecil Dickson

got too accurate a figure on what our secret
estimates are for tax receipts for March 15.

Is that right?

Bell:

For the month of March.

H.M.Jr:

Yes, and might I suggest again, I know the
people come in, I know it is hard to see them,

but will you do this for me, if you see these
people or the Kintners and the Alsops or the
Pearsons and the Allens, and so forth and so
on, tell Chick Schwarz about it, see. I do
when I see them. When I see them, Chick Schwarz
sits at my side and if I do it I don't see why
the other fellows can't do it. But when these
people come in, they get a little piece here
and a little piece there. You may not attach
any significance to it, but if you give it to
Chick, Chick being the funnel that it all

200

-8

Schwarz:

H.M.Jr:

flows through - I don't say that you have
to have him there when they are there, but
it would be nice if he was there, but at
least tell him afterwards and give him the
high points of the conversation so that he
knows, so at least I have some person that
I can hold responsible for information that
is going out. I know these fellows run all
over the place and I know it is difficult
not to see them, and I am not saying that
you shouldn't see them, but at least tell
Chick about it. To show how I offend myself,
I met the AP fellow here a week or ten days
ago and he is a very close friend of Mr. Hanes'
and he said something to me and I said, "Well,
if you notice, I am the first person who mentioned the word 'consumer' in connection with
the Associated Gas and Electric." Next day
he writes the story. "Morgenthau is the only
friend of the consumer," or something like that.
Something like that. That was the emphasis of
your activities.
And again showing how they emphasized it.

"Third Term Rumors Reach a New High. Morgen-

thau Remark also Held as Sign that he Does Not
Look on Chief as Candidate.
"Secretary Morgenthau, close friend and Duchess
County neighbor of President Roosevelt, made a
remark during an exchange with correspondents

at his press conference this afternoon which
indicated to some that in his own mind he
does not think the present occupant of the
White House will return next year.

"The newspaper men were pressing the Secretary

for some inkling of the purpose of a conference
at the White House this morning at which the
President, Secretary Morgenthau, Chairman
Marriner S. Eccles of the Federal Reserve Board
and some Government economists were present.

"Each time he replied that his questioners
should 'ask Steve Early.' The reference was
to Stephen Early, press secretary of the President, whose duty it has been to guard White

201

-9House secrets as well as dispense news when

duly authorized.

"When some of his questioners finally indicated
the Secretary might, in effect, go over the head
of the White House secretary, Mr. Morgenthau
said in an undertone, as a sort of afterthought:

"After all, I've got to live with Early for
the rest of the year. "

I am again saying it, please keep Schwarz ad-

vised if you do see representatives of the
press and then I can hold him responsible for
what is going on.
Haas:

Is Dickson an AP man?

H.M.Jr:

What is that?

Gaston:

International News Service.

Klotz:

Here is the --

Haas:

AP had a figure in a month ago.

H.M.Jr:

They came within 8 million dollars of being

Bell:

The only thing he did wrong, he applied it to
income taxes where the 800 million applies
to all revenues. He applied it to income taxes

right, which is too right.

alone.

Haas:

Recently?

Bell:

Three days ago, I guess.

Haas:

Before that, you remember the AP had it right

H.M.Jr:
Schwarz:

Chick, have you got anything?
Under control.

H.M.Jr:

Joe?

on the nose.

202

- 10 Cotton:

No.

H.M.Jr:

Merle?

Cochran:

Leroy-Beaulieu telephoned down last night
that Professor Rist had arrived on the
Washington and that Mr. Pleven would be on
the Clipper.

H.M.Jr:

And I sent word to Rist that he has got to
be brought in by his Ambassador. I don't
want any contact with the President without

his Ambassador.

Sullivan:

Have we received any official word on this
new air man who is taking -Mr. Purvis is coming in at 3:00 and he is
going to bring him down.
You know, I got a clearance from the President
on that Army and Navy thing.
Is that so?

H.M.Jr:

Hercules, duPont, to give them four months.

Sullivan:

They are making a request.

H.M.Jr:

Well, I have asked them to. But it isn't a
demand, but I have put it to them three times.
If he doesn't get it, they get the powder any-

Cochran:

H.M.Jr:

way, because the President never raised the
question, but I asked them only yesterday to
have it come in that way.
Sullivan:
H.M.Jr:
Foley:

H.M.Jr:

I should think he could do that, at least.
I am sure he will.
There is a letter from Justice on the Indiana
situation that I have given to Elmer. Elmer
sent out for some additional information. When
that comes in, I want to talk to you about it.
Justice?

203

- 11 Foley:

Yes.

H.M.Jr:

The boys had it yesterday that the show cause
order had gone out from Justice, the newspaper

men had it.
Foley:

H.M.Jr:
Foley:

H.M.Jr:

They weren't right.
O. K. Who is going to see me?
Well, Elmer wants to get some information. When
he gets the information, I will ask to see you.
Tell Elmer to come up and see me sometime.
Anything else?

Foley:

No.

H.M.Jr:

Herbert?

Gaston:

I have a memorandum here from our group that you

asked to consider the Brazilian Steel matter.

The substance of the memorandum is simply that

we don't think you should get into it unless you
want to have the original committee reconstituted
to consider debts and all other features of
South American finances.

Schwarz:

of course, you people didn't see Miranda. I did
last night.
I did.

Gaston:

Oh, we have got to get new guidance.

H.M.Jr:

I said to her - and she didn't get it at all -

H.M.Jr:

"Will you please send word to Dr. Aranha that

the Brazilian debt is canceled." She said,
"So?"

Klotz:

She was marvelous.

H.M.Jr:

She sang last night for the President. Since
seeing Argentina - I have never seen anything
like Miranda since I saw Argentina when I was

204

- 12 -

in Geneva. She is playing tonight - the
rest of the week. If anybody wants entertainment, she is a great artist. You know,
President Souza-Costa said she is worth all
the Ambassadors combined. As far as he is

concerned, she can fire them all.
Well, I am having lunch with Jesse Jones and

I will ask him to - I tell you what I would
like you to do, Joe, write me a letter to

Mr. Hull, based on the letter which he wrote
me, asking me to do this, you see, and say
that I don't feel that we are equipped to do
this sort of work and therefore if he wants
somebody to undertake it outside of the State
Department, I suggest he ask Mr. Jones. Have
that on my desk before 1:00 o'clock and I can
show it to Jesse and ask him if it is agreeable to him.
Cotton:

H.M.Jr:
Gaston:

H.M.Jr:

Can I have the copy of that letter? I think

you have it.

Yes, and have it on my desk before 1:00 o'clock.
Larry Duggan called me up and is anxious to know

what, if anything, we are going to do. Is there
any objection to my telling Larry that we are
not likely to do anything?
I can't see it.
O. K., gentlemen.

STRICTLY CONFIDENTIAL

205

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 6, 1940

TO Secretary Morgenthau

M

FROM Mr. Cochran

At 11:25 this forenoon, the Secretary asked me to telephone Minister
Procope of Finland in regard to his request made yesterday for 150 pursuit
planes and 36 light bombers. The Secretary said these could only be obtained if the Allied Purchasing Commission would be willing to release the
desired number of 36 P Curtiss machines and Martin or Douglas light bombers.
Consequently, the Secretary had taken this matter up with Mr. Purvis who, in
turn, was consulting his people in the premises, and would let the Secretary
know the answer within the next day or two. There is possible no other way
of obtaining the machines which the Finns desire. If these planes were to
be surrendered by the Allied Purchasing Commission, it would mean that
delivery to France would be correspondingly reduced, since these types of
planes are now on order for France.

I gave this message personally to Minister Procope by telephone at 11:35
a.m. In answer to the Minister's question as to where Purvis might be, I
gave him the address of the Washington office of the Franco-American Purchasing Board, and let him know also that Mr. Purvis will be in Washington
tomorrow. The Minister's first idea had been to rush to New York to see
Mr. Purvis, but I believe now that he will either await word from the Secretary

himself, or endeavor to get in touch with Mr. Purvis when the latter visits
Washington.

The Minister said he was also preparing the data in regard to Finnish
purchases in the United States which he promised us yesterday would be made
available. He said he would send me the documents as soon as completed.

When the Minister came to my office yesterday afternoon, following his
conference with the Secretary, I gave to him a memorandum from Mr. Bell's

office in regard to the Irish liberation loan.

K.M.R.

206

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 5. 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

The movement in the sterling rate today was very similar to that which
occurred yesterday, with a decline in Amsterdam being followed by a steadying

of the quotation in the New York market. Just before our opening, sterling

was quoted in Amsterdam at 3.89, the lowest rate since December 1, 1939.
Business was done at this rate when the market opened in New York but then
steadier tone appeared and sterling advanced to 3.90 just before noontime.
a

Until mid-afternoon, the quotation fluctuated within a narrow range. At about
that time a firmer tendency again developed and the rate reached a high of
3.90-3/8 at the close.

From the figures that follow, it will be seen that today's turnover

was not far below the greatly expanded volume recorded yesterday.

Sales of spot sterling by the six reporting banks and the Federal

Reserve Bank of New York totaled 880,000 from the following sources:
By commercial concerns

L 174,000

By foreign banks (Europe, Far East and South America)
By Federal Reserve Bank of New York (for Yugoslavia)

L 30,000

Total

L 636,000
L 840,000

Purchases of spot sterling amounted to 642,000, as indicated below:
I 426,000

By commercial concerns

By foreign banks (Europe and Far East)
Total

L 216,000
L 642,000

The quotations for one-month and three-months forward sterling widened

to 1-1/4 and 4 discount per pound respectively.

The following reporting banks sold cotton bills totaling 441,000 to the

British Control on the basis of the official rate of 4.02-1/2:
L 17,000 by the National City Bank
16,000 by the Guaranty Trust Company
4,000 by the Chase National Bank
3,000 by the Bankers Trust Company
1,000 by the Irving Trust Company
L 41,000 Total

CONFIDENTIAL

207

-2The discount for the Canadian dollar widened today to close at 14-3/8%.
This is the lowest rate for that currency recorded since mid-1933. It was
reported that a New York bank received an order from Chicago to sell about
100,000 Canadian dollars. Due to the extreme thinness of the market, this
order had a depressing effect on the rate. The marked absence of buyers of
Canadian dollars is readily explained by the fact that, under the present
Canadian Exchange Control regulations, the uses which may be made of Canadian

dollars purchased in the free market are extremely limited.
The other important currencies closed as follows:
French francs
Guilders
Swiss france

.0221-1/8
.5313-1/2
.2242-1/2

Belgas

.1690

We purchased the following amounts of gold from the earmarked accounts
of the banks indicated:
$ 1,180,000 from the National Bank of Rumania
350,000 from the Bank of the Colombian Republic
$ 1,530,000 Total

The Federal Reserve Bank of New York reported that the following shipments
of gold were being sent to it:
$ 3,292,000 from Canada, shipped by the Bank of Canada, Ottawa, for sale to the
U. S. Assay Office.
2,251,000 from Switzerland, shipped by the Swiss National Bank for its own
account.

2,246,000 from England, shipped by the Bank of England for account of the Swiss
National Bank.

2,106,000 from Colombia, shipped by the Bank of the Colombian Republic for its
own account.

$ 9,895,000 Total

The disposition of the last three shipments is unknown at the present time, but
in all probability they will be earmarked at the Federal Reserve Bank.
On the report of February 28 received from the Federal Reserve Bank of
New York giving the foreign exchange positions of banks and bankers in its

district, the total position of all currencies was short the equivalent of

$20,925,000, an increase of $622,000 in the short position. The net changes
in the positions are as follows:

CONFIDENTIAL

208

-3COUNTRY

England
Europe
Canada

Latin America
Japan*

Other Asia

All others
Total

SHORT POSITION

SHORT POSITION

INCREASE IN

FEBRUARY 21

FEBRUARY 28

SHORT POSITION

$10,414,000
5,408,000

$ 9,919,000
6,560,000

191,000
510,000

68,000
579,000

2,622,000
1,206,000
78,000 (Long)
$20,303,000

$ 495,000 (Decrease)
1,152,000
123,000 (Decrease)
69,000
113,000

2,735,000
1,065,000

171,000 (Decrease)
77,000 (Decrease in
Long Position)

1,000 (Long)
$20,925,000

$ 622,000

* Includes Korea and Manchuria

The quotation for silver in Bombay advanced by about 3/4 to an equivalent
of 41.46

Following yesterday's rise in the London silver market quotations, a mild
reaction set in today. The prices for spot and forward silver both fell 5/16d
to 20-15/16d and 20-13/16d respectively. The U. S. equivalents were 36.65$ and
36.20

Handy and Harman's price for foreign silver was unchanged at 34-3/44. The
Treasury's price was also unchanged at 35.
We made seven purchases of silver totaling 559,000 ounces under the Silver
Purchase Act. Of this amount, 300,000 ounces represented sales from inventory
and the remaining 259,000 ounces consisted of new production from foreign countries,
for forward delivery.
We also purchased 200,000 ounces of silver from the Bank of Canada under our
regular monthly agreement.

CMR.
CONFIDENTIAL

209
RE CHARGES AGAINST MR. HATHCOCK

Present:

March 5, 1940.
10:00 a.m.

Congressman Doughton

Mr. Sullivan
Mr. Schwarz

Mr. Foley

Mr. Thompson
H.M.Jr:

Well, do you (Doughton) want to state your
understanding of Hathcock's complaint, whatever his complaint is, or should we state
our complaint against Hathcock?

Doughton:

I think it would be best to do that, your
complaint made against Hathcock, and if there
are charges, I was going to suggest that if

there are charges preferred against Hathcock now, please understand I am not taking sides

in this matter. I know Hathcock very well
and if there is anything I can do to help
smooth the thing out and get it settled in
a way that the Board can function like it
should, remove the dissension, I would like
to do that. If I can't help accomplish that,

as far as I am concerned, unless it becomes
the - my duty as Chairman of the Committee to
take some action about it which I have discussed with our Chief Counsel, of course, I

will get out of it. I am not looking for any

new responsibilities. I have got some work
to do that pertains primarily to my responsibilities. My Committee has some responsibility
about some things, but I doubt if they reach
this case, but if they do, then I will come
in when I am sure that they do, but I have
been very hopeful from what I have heard that
the matter can be straightened out and smoothed
out and the disagreements settled in some way.

so that the Board could function as it should.

I don't know what the Chairman or other members
of the Board may have against Mr. Hathcock.

Mr. Hathcock has talked to me about it and
feels in some respects that he hasn't been
given the consideration due him in certain
respects. In other words, he said to me that
he knows that things are not working satisfactorily down there, smoothly.

210

-2I think this, if you will pardon the suggestion, if there are really complaints either
way that can't be settled without it, it has
to go into a general discussion and investigation, that the charges ought to be preferred
in writing and give him so long to answer
those charges. I never can deal with a case

until I get all the facts.

Thompson:

That is a good idea.

Doughton:

Of course, that is for you and not for me to
decide. I just make that suggestion for what

it is worth.

H.M.Jr:

Norman, what is the usual procedure with a

matter of a Treasury employee? Norman Thompson

is my Administrative Assistant. He is the
fellow that keeps me out of jail and sees that
I do these things properly. He has a hard time.

Thompson:

Well, if there is some disagreement between
members, we usually try to work that out, but

if it reaches a state where there are charges
going back and forth, the proper procedure is
to file charges and have them answered.

H.M.Jr:

There have been charges made to me, so talking

out loud here - we will do our homework in
front of my old friend (Doughton) here. I
don't see why that suggestion of the Chairman
isn't a good way to proceed, that these charges
be written out and presented to Mr. Hathcock
and he has a chance to answer them.

Thompson:

That is the usual procedure.

Doughton:

That is what suggested itself to me. He hasn't
preferred any charges. He has just explained
to me his situation down there.

H.M.Jr:

No, we --

Doughton:

It is very unsatisfactory. You have charges?
Well, as a matter of fact it has been recommended

H.M.J.:

211

-3to me that I dismiss this man. It has been
recommended that this man should be dismissed on account of his conduct. I mean,
it has been definitely recommended.

Doughton:

H.M.Jr:
Doughton:

H.M.Jr:
Doughton:

I got the impression of something of that
although you didn't say specifically.
Definitely, I have a recommendation that the

kind from our conversation on the phone,
man be dismissed from the Treasury.

Is this all going on the record?
There is only one copy and I get it and nobody
else gets it. There is only one copy.
I want to say this. I don't know anything
about - only what he has related to me. I

have known Hathcock a long time. He was

appointed here upon my recommendation and

request many years ago and then he resigned

to practice law and then he was reinstated.
He was up in the Chief Counsel's office quite
a while.

I think this about Hathcock: I think I am
justified in - it would take considerable

evidence - of course, evidence could be adduced that could change my mind. I think

there are two things about Hathcock. I think
he is honest and I think he is capable. I
can establish the fact that down in the Chief
Counsel's office he prevented a lot of fraud
down there. There were a lot of folks wanted
to get rid of him down there because he was

kind of in their way.
H.M.Jr:

Did Johnny Hanes ever talk to you about Hathcock?

Doughton:

He mentioned something to me about Hathcock

one time and I am satisfied that he didn't
give me any facts, but I am satisfied that
the crowd wanted to blow him up down there
and they were trying to prejudice or poison
other parties against Hathcock. I think he

212

-4has had his enemies in a lot of people because
they couldn't accomplish things in the way of
tax refunds because he was in the way. I think
it can be demonstrated. I think one man was
dismissed because he uncovered outright a case
of fraud.
H.M.Jr:
Doughton:

Johnny Hanes complained to me, not once but a

number of times, bitterly about Hathcock.
Did he base that complaint on Hathcock's treatment of him or reports that had been made to
him?

H.M.Jr:

I don't know. He came in here on a number of
occasions and complained and on account of

Hanes' complaint to me -Doughton:

I tell you where I think you would get a -

H.M.Jr:

On account of Hanes' complaint to me, he was

taken out of the Bureau and put on this Proces-

sing Tax Board.
Doughton:

I think you would find - it is strange if he

was taken out of the Bureau. I understand that it was stated to me when he was put on this
Processing Tax Board that he had no business
being appointed there. He was removed from
the Chief Counsel's office because he was unsatisfactory down there. He was promoted down
there and his salary was increased and he was
told when that was done that he would be recom-

H.M.Jr:

mended for a better job if he wanted it. So
it is strange to be promoting a man as long
as he stayed there when he was giving trouble
and was unsatisfactory. I think you will find
that in the record.
I never met Hathcock. I am only familiar with
him, as I say, on account of Hanes' complaint
about him to me and on account of that thing,
he was taken out of that position in order to
stop the friction and get him in a place where
we thought he would be harmless, but evidently
in his present position the things that he
has done are such that - if everybody acted

213

5-

the way they tell me Hathcock acts, we just
couldn't run the Treasury, but I have never
met the man. I have no feeling one way or

the other. I just like to run the Bureau on

a fair -Doughton:

H.M.Jr:

Doughton:

I think you do, so do I.
So I think your suggestion of putting everything
that we have in writing and giving it to Hathcock and give him a chance to answer it -That just occurred to me that that would be the
proper way to proceed. I tell you where you can
get some information on Hathcock that I think general information about his character and
ability and services. Mr. Cannon was - he was
Chairman of this Board. He was in the Chief
Counsel's office. He has worked with Hathcock

for years. He is a man from my district and
is outstanding in ability and character. He

knows Hathcock, I guess, better than any man
here in Washington.
H.M.Jr:
Doughton:

Well, I never met the man.
And if you called him in you would get the lowdown on Hathcock. I think this about Hathcock I may be wrong, I may have to change my views.

I think he is honest and I think he is capable.
I think he is being kicked around down there
in certain places until he has got sore and

nervous and maybe resents a lot of things he
oughtn't to and maybe - perhaps he does or says
things that are not justified on account of this
treatment that has been accorded him. That is

my opinion. I am just talking here now - I
understand that the Chairman of the Board doesn't
speak to him. I understand that he increased
the salary of all the other secretaries but
his and doesn't do that because he said he
didn't like him. He gives him one room and
gives the others two. That may not be true.
It has been reported to me. That is strange
treatment if it is so. If he is wrong, he should
be straightened out.

214

-6Sullivan:

Mr. Secretary, the Commissioner and the Chief
Counsel are in the building and I am wondering

if Mr. --

Doughton:

A little louder, please.

H.M.Jr:

I think the suggestion that Mr. Doughton made

Doughton:

H.M.Jr:

is that we get this thing in writing.
I think that is the way to proceed.

I think that is the proper way to proceed and
after all, the Chairman is a very busy man.
He has got a lot of important things up there
before him and it was very nice of him to come

down on a busy day and give us his help and we
will get this thing in writing. We will give
it to Hathcock and then when Hathcock answers

I will go over it and if you have the time, I

will come up to see you or you can come down
to see me.

Doughton:

I will be glad to take the time.

H.M.Jr:

And we will go over our charges and his answers

Doughton:

H.M.Jr:
Doughton:

together.

I want to be just as fair to one side as the

other.

And before I make up my mind, you and I will

talk it over.
That is exactly the right position, as I view
it.

H.M.Jr:

You and I will talk it over after we have the
two and we will have the thing briefed and
boiled down and you will take a look at it
and then you and I will decide what is fair.

Doughton:

I have talked to our Chief Counsel about some
of the things that Hathcock has complained about
and been complaining to him about, and my opinion

is - it may turn out differently - my opinion
is you will find cause for complaint both ways
after the record is all laid on the desk. That

215

-7

is my opinion. I may change my mind and say

it is all one way. I don't think it is a onesided question at all.

216

NOTE FOR THE SECRETARY'S

DIARY FOR MARCH 5,1940

At lunch today the Secretary discussed with Mr.

Jones the pending request of China for additional ExportImport Bank credits. Mr. Jones said that he had seen
Chen and would reach a conclusion in the matter within
the next week or so.

He will keep the Secretary informed of developments through Mr. Cotton.

J.P.er.

JPC,JR.

217

Treasury Department

Division of Monetary Research

Date 3/7/40
To:

Miss Chauncey

From:

H. D. White

19

This information was given

to the Secretary orally yesterday.
The incoming material was given

to Capt. Puleston at the Secretary's
request.

TREASURY DEPARTMENT

218

INTER-OFFICE COMMUNICATION

DATE March 5, 1940
TO

FROM

Secretary Morgenthau
Mr. White

Subject: Memoranda and Proceedings of Meetings Between the
Chinese Government Officials and the American

Advisory Transportation Experts Submitted by

Mr. M. E. Sheahan

The memoranda discuss in great detail the problems involved in a reorganization of China's motor transport com-

munications and contain the recommendations of the American

Advisory Experts concerning the training and licensing of
drivers and mechanics, the establishment of adequate repair
facilities, the means of improving existing roads, the establishment of centralized government control over the use
of the highways and the personnel required for such supervision but there is contained in the report no indication

whether or not there will soon be facilities for greatly

increased truck transportation.
Difficulties of obtaining imports into China are becoming

very serious.

Mr. Sheahan sums up the Chinese transportation situation

in his memoranda of November 13, 1939 as follows:

"The present situation in my opinion is an
for example, there are approximately 80,000 tons
of Government freight at Haiphong and about half
that amount of commercial freight awaiting movement, for the first time in over a month the

emergency one only and calling for emergency measures,

French-Indo-China Railway is ready to resume operations between Haiphong, Hanoi and Kunming. Assuming

that this Railway can only haul 500 tons a day to
Kunming, if a similar amount could be transported
via the South-eastern route to Kweiyang it would
be a matter of but 4 to 6 months before the entire
port of Haiphong will be cleared of congestion and
it is doubtful if normal traffic demands through
French Indo-China ports would exceed 10,000 to
15,000 tons per month after that time. This amount
of tonnage in my opinion could be handled by the

219

Division of Monetary

-2-

Research

French Indo-China Railway provided they could be
encouraged to operate from Laokai to Kunming during

night time hours. I do not believe night operation
over this area presents any particularly difficult
problems except perhaps during the extreme rainy
season, and even then through adequate advance

protection, night operations could undoubtedly be
continued on a reduced scale."
(Incidentally, in a consular dispatch of December 19,
from W. R. Peek, Counselor of the Embassy at Chungking,
Mr. Peek claims that Mr. Sheahan is over-optimistic in his

view of the traffic situation.)

But since the making of this statement by Mr. Sheahan

the Japanese have bombed the French-Indo-China Railway and

cabled reports state that the amount of goods transported
over this railway in January and February of this year has
been negligible. In view of these later developments it
would be interesting to learn how the Chinese expect to
import additional purchases.

220

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE

March 5, 1940

Secretary Morgenthau

TO

Mr. White

FROM

1. Gold imports during January and February totalled over $500

million.

2. (a) Our trade balance, so far as we can ascertain, will account
for less than one-half that amount, and recorded capital movements are less than $10 million.

(b) The net balance on all other service items is negligible

and we believe that even shipping should not yield any
significant revenue to the United States.

(c) According to Mr. Sullivan, to his knowledge, the British

and French have spent only small sums, probably less than $10
million as advance payments on future contracts, but Mr.
Sullivan says there may well be payments which he would not
know about.

3. There is nothing definite in the cables that we have received
which would help us explain the discrepancy of over $200 million
in net foreign expenditures in the United States in the past two
months.

Could you ask Mr. Purvis what proportion, if any, of the $87
million reported as spent out of both British and French special
accounts was for goods or plant expenditure that would not show
up in our export figures?
After receiving Mr. Purvis' answer we will be able to prepare
a set of questions to be asked of Mr. Ashton-Gwatkin, Mr. Rist
or Mr. Butterworth.

We should have more information on this to enable us to better
estimate our trade with the British and French Empires for 1940.

221

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 5, 1940

Secretary Morgenthau

TO

FROM

Mr. Cochran
BALANCES AND EARMARKED GOLD

FINLAND
(February 21)
(Thousands Omitted)

Bank of Finland gold held under earmark with N. Y. Reserve Bank. $11,800
Bank of Finland dollar balances with N. Y. Reserve Bank

10,900

Bank of Finland dollar balances with other banks

3,600

Private Finnish funds with N. Y. Banks

7,200

Total

$33,600

As of 12 noon March 5 the balances of the Bank of Finland with the
Federal Reserve Bank of New York were as follows:
$14,521,000

Gold

Dollars

8,354,800

Miscellaneous se-

curities, etc.

Total

1,284,000
$24,159,800

p.m.g.

TREASURY DEPARTMENT

222

PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

5 March 1940.

MEMORANDUM FOR HON. HENRY MORGENTHAU, JR.,
THE SECRETARY OF THE TREASURY.
SUBJECT:

Government owned powder factories (Army and Navy),

capacity of.

1.

Referring to your telephone message to Admiral Spear on Monday,

March 4th, inquiring as to the rates of production of the Army and Navy owned
powder factories, and whether or not it would be possible to increase the
production of these government-owned plants thereby releasing to commercial
plants a corresponding production of powder for sale to other Governments --

the investigation of this subject reveals the following:

The production at the Indian Head, Maryland, Powder Factory is
now at the rate of 15,000 pounds per day, or 3-1/2 million pounds per year.
Increasing this production to 25,000 pounds per day, or 10,000 pounds
2.

additional, will give an additional production of 2-1/2 million pounds per
year. In order to accomplish this, it will be necessary to take on approximately 175 more men for employment at the Indian Head Powder Factory. It
is estimated that the production at the rate of 25,000 pounds per day can

be accomplished in approximately four weeks' time. However, it will be
desirable to retain some minor production at the DuPont Plant, in order to

keep the DuPont Powder Company in line to meet the Navy's needs when the
Army is buying little or no powder. The procurement of powder from DuPont
and the manufacture of powder at Indian Head provide a very valuable yard-

stick as to price.

As regards production at the Army's Plant at Picatinny Arsenal,
this Plant is now operating at 10,000 pounds per day with existing solvent
3.

recovery equipment. The present equipment and capacity are being employed

at the maximum on current orders, and this Plant cannot increase its pro-

duction with the present equipment. It is expected that installation of
additional equipment will be completed in the fall of 1940 and that the
capacity at Picatinny will then be 18,000 pounds per day. Therefore, the

answer to the question, "Can the Picatinny Arsenal increase its production?"

must be - in the negative.

Sheeting
H. E. COLLINS,
Chaiyman,

The President's Liaison Committee.

223

March 5, 1940
3:45 p.m.
Present:

Minister of Finland, Mr. Procope
Captain Collins
Mr. Cochran

HM,Jr: You know these gentlemen.

Minister: Yes, I know them. You know what

the matter 18 about.

HM,Jr: I asked and they tell me it 18 planes.
Minister: Yes. I got from our Field Marshal,
Saturday, a telegram asking me, telling me that the

Commander-in-Chief of our air forces had contacted
your Naval Attache, Commander Pihl, and asked for 150
pursuit planes and for 36 fast two-engine bombers.
HM,Jr: I knew about the 100.

Minister: 100, yes.
HM,Jr: 150 pursuits and 36 bombers? I did not

know that.

And particularly the Pursuits
Minister: Yes.
are of great importance. An answer to the question
is extremely urgent and asked me to give reply as soon
as possible, so as the telegram was from the Field Marshal, I asked for the privilege of seeing the President
and I saw him on Sunday and he told me the man who has
to deal with this is you and that you could perhaps help
me.

HM,Jr: You don't know -- you just want a good
pursuit plane.

Minister: Good pursuit plane at once. of course,
I don't like your old pursuit plane with speed of 180.

224
-2-

The President told me you had that.

I did not know,

but your P-36 would be perfect for us. They are, of
course, not as good as the P-40, but still
HM,Jr: But they are better than what the Russians have. The P-36.

Minister: They are good for us. I think they

are splendid planes.

HM,Jr: I don't think the Russians have anything
that begin to equal them. The Russians have no German
planes?

Minister: I don't know. The Russians, in any
case, are fighting better now than at the beginning of

the fight, 80 I guess that they have got German planes.
HM,Jr: Where are we going to produce 150 planes?
Capt. Collins: I don't know of any Government
contracts outstanding on P-36's. There may be some.
I don't know how we can produce them privately.
HM,Jr: Army can't sell planes they have taken

title to.

Minister: Why not? If you get other planes

instead.

HM,Jr: Have you got the Brewster planes yet?

Minister: They are all on the other side. That
worked out in a perfect way. If they are in Finland
yet, I could not tell you, but they are on the other
side, safely.
HM,Jr: This is a tough contract.
Minister: How do you mean, tough?

HM,Jr: Well, to produce 150 planes. Where the
hell are you going to produce 150 planes? I don't see
any other possibility than just to get them in some way
from Army stocks. We replace them by better.

225
-3-

I will go to work on it right away to see what
I can do. I will give you some idea in 24 hours.

I

won't let any grass grow.
Minister: Thank you. You know, we are in a

terrible plight, but on the other hand, the fact that
the Field Marshal insists on getting them, that shows
that he is rather confident how the fight will go on.

He must have something in mind. Some attack in mind.
HM,Jr: You have got plenty of money here.

Minister: In the States? Now? How much money,

I don't know?

Minister: Balances of earmarked gold -- just forget you heard this.
Capt. Collins: Oh, yes!

HM,Jr: $33,600,000. That's right, isn't it?
Mr. Cochran: That includes private balances, the
bottom figure.
HM,Jr: Oh! $24,000,000 is Government. Bank of

Finland, $24,000,000.

Minister: Are there $9,000,000 of private funds?
They are, of course, all paid, all in the hands of the
Bank of Finland. Bank of Finland can dispose of them.
Yes, to some of them I have contributed. Some are Hoover
money, about $2,000,000.

HM,Jr: Now, Mr. Minister, let me go to work on
this right away.
Minister: Thank you.
HM,Jr: And I will talk right now with Captain
Collins.
Minister: Good! $33,000,000 is, of course, not
much money.

226

-4-

HM.Jr: If it 18 humanly possible to get it,
I will get
it for you.
Minister: Thank you. May I tell you that

I have a program for buying war materials from this

country in different ways. I did not specify how,

going up to $24,000,000, only in this country, and then of
our balances here we have to pay other countries, because
I take it we have practically no balances in Paris.

HM,Jr: If you would care to tell me, in strict
confidence, or tell Mr. Cochran about it, I would like
to know about it. I am trying to get from all countries

what they are buying and add them up.

Minister: Oh, what we are going to buy here?

Certainly!

HM,Jr: That's part of the job I am doing for

the President.

Minister: I am very glad. We had my people,
just this morning, to make up a list of what we have

to pay in the next two months here.

HM,Jr: If you would give me that in confidence.

Minister: Certainly!
Mr. Cochran: You gave me once, some months ago,

a list of what you needed.
Minister: Are you not now speaking about military?
That was civilian, Mr. Cochran. I would be very glad
to do that.

HM,Jr: O.K.
Minister: And I may again give some verbal ex-

planations to Mr. Cochran:
HM,Jr: You let Mr. Cochran know and he will

come up to your Legation whenever you want to see him.

Minister: May I ask you, what's going to happen

227

-5-

on the 80-called Hoover loan, the war loan?

HM,Jr: Ask Bell what is the status of that.
Minister: You say that you are going to work

upon this now. Can I phone you?

HM,Jr: I will phone you. I will let you know

definitely.
Minister: Because I am

.....

M,Jr: Either Captain Collins or I. Definitely

phone him tomorrow and let him know.

Minister: I can wait until tomorrow.
Capt. Collins: We will phone you tomorrow and
let you know what the status 18.

HM,Jr: You (Collins) phone the Minister definitely.

Minister: Please try to help us. I know you will.

The situation is probably this: We have got less from the
rest of the Powers that we hoped to get, because at a
certain moment, a few weeks ago, when there were some
people who tried to give us airplanes, some private people
here, and we could have bought a small quantity of any
pursuit planes but a small quantity of light bombers, this
combined Grauman and Brewster planes, ten or fifteen of
them, I got an answer from Finland that they do not like
to have them now. If I can get money, buy ammunition.
And I have a lot of orders to buy, a lot of buying orders,
I will show Mr. Coohran, are under condition that I can
financethem.

HM,Jr: Let me go to work on this, because I want
to do it now.

(At this point, the Minister and Mr. Cochran left,
Capt. Collins remaining.)
HM.Jr: I thought I would call up the President
and say how badly does he want the thing* and 1f he

228

-6-

wants it, it gets down to taking something away from
the Army and Navy and the thought I had, 1f he was
willing to do this, I understand the Army has no more
P-36's on hand?

Capt. Collins: You mean on order?

HM,Jr: On order. But would he be willing to

release some of the stuff of the Army and Navy and let
it be made up, just the way we did no the powder deal.

Capt. Collins: Defer their contracts.
HM, Jr: Yes.

Capt. Collins: Diversion of contracts is the
only way to get them; take something off of the production line. That takes engines as well as planes.
But that's the only answer to this problem of his.
HM,Jr: And if he says "yes", I thought we would
send for Arnold and Towers and the three of us talk it
over and put it up to them still tonight and let them
be thinking about it.

Capt. Collins: That's all right.
,Jr: But I am going to ask the President and
see 1f he will talk to me.
(At this point, HM,Jr placed a call for the President and the following is HM,Jr's side of the conversation. )

"Good evening.

Procope just left here. He wants to take 150

pursuit planes and 36 bombers.

Well, if you really want me to go after it, I

will see what I can get, but I am going to have to take
something away from the Army and Navy.

Well, what I thought, if you approve, I will talk

229
-7-

to General Arnold and Admiral Towers with Collins

and put it up to them and then if I have a program
I will bring it over to you, but I wanted to be sure
you really wanted me to have it.
I understand.
Thank you."

HM,Jr: He says if we can without getting into
awfully hot water, but he thought we would take it away
from the French and English. Well, that does not help
them any. He also said "What did Procope do? Take
your watch away?".

(At this point, HM,Jr placed a call for General
Arnold and one for Admiral Towers and invited them or
whoever was acting for them to be in his office at 4:30.)
HM,Jr: They could not sell their own P-36 to them?
Capt. Collins: They have some law in the Army
whereby they can sell condemned material.
HM,Jr: How can they condemn a plane?

Capt. Collins: That's just it. To condemn a

ship, some of them less than two years old, I would not
want to tell them that, because you would never be able

to laugh that off on the Hill.
I am afraid we are a little late for those boys.
It's four o'clock.
HM,Jr: Well, I have my financing to do now and
you wait around and we will meet again at 4:30.
000-000

230

March 5, 1940
4:30 p.m.
Present:

General Arnold

General Brett

General Yount
Admiral Towers

Captain Collins

HM,Jr: I appreciate you people dropping
everything to come over, but I have a tough assignment from the President.
He told our friend, Procope, to come over and

see me. I just called him up and he said he wished
we would all get together and see what we could do
to sell the Finns, for cash, 150 modern pursuit planes
and 36 two-engine bombers. There's the problem. And,
of course, they want it tomorrow.
General Arnold: They want immediate delivery?

HM,Jr: Immediate delivery.
General Arnold: Don't look at me, Jack.
HM,Jr: Who feels generous?

Admiral Towers: of course, the Navy cannot

legally, in any manner that I know of, sell planes
that they have already accepted and we furnished the
Finnish Legation with the information as to what we
have on order from the manufacturer and we have advised them that they are free to consult with the two
manufacturing firms concerned and to ask for delivery
schedules from those firms based upon the assumption
that planes now being built to Navy order can be d1verted to Finnish order.
HM,Jr: Which two companies are those?

231
-2-

Admiral Towers: That's the Grumman, of Beth

Bage, and the Brewster. The Brewster planes, incidentally, are the ones we are getting in the place
of the first ones we let the Finns have and are in
Finland today.

HM,Jr: All 43?

Admiral Towers: They all left this country

three weeks ago.

HM,Jr: He says they are there.
General Arnold: The same law that governs
your (Admiral Towers') activities governs ours, so
the only possible chance would be the P-40, because
the P-39'8 have not gone far enough to do anything.
The P-38 is along nowhere and the only other one we
have coming along is the P-40. How far along is
the P-40?

Den

General Brett: P-40's? They start in, com-

ing in quantities, along about May and June.
General Arnold: May and June. They want them

yesterday.

General Brett: There is some delay on that,
because of the Allison engines. Allison has some
accumulated shortage running along about March or
April of 40 engines that they hope to make up later

on, but they don't actually clear their skirts until

August.

General Arnold: The law is what hurts there,
because there is no way you can turn over airplanes
we now have delivered and part of our Air Corps equipment. No way you can do that.
HM,Jr: of course, talking here in the room,

strictly in the room, I don't see that it would help
or English had on order. I don't see how that helps
the situation at all.

very much if we looked to anything that the French

232

-3-

General Arnold: The French have some pursuit

planes coming through.

General Yount: Two-engine bombers.

General Brett: Wait just a minute. I will

tell you about that.

General Arnold: The Douglas Company is still

producing the two-engine bombers.

General Brett: The French, according to my
book, on the 875 which is the modified P-36, have had
550 on contract, 15 due in February, 45 in March, 62
in April
General Arnold: They are coming through right

now, about 2 a day.
General Brett:

73 in May, 60 in June and

67 in July. That's the order on the #875 which is
the P-36-c. Original order amounted to 550 airplanes.
That's in process of delivery right now. The total
they could get by the latter part of April, a total
of about 115 planes.

HM,Jr: Of the P-36?

General Arnold: P-36, "c" type.
General Brett: Norway has an order for 875, of

which they have 24 coming in February and March.

Capt. Collins: Can't touch those.
General Arnold: This is all just about six
months alo, too far along for us. Our production
was not supposed to start until late Spring.
General Brett: The French P-40's don't come

until July.
HM,Jr: I thought Allison was boasting how
they were ahead on their engine -- everything was
lovely with Allison!

233

-4-

General Arnold: Allison is behind right now
regardless of all their boasting.
HM,Jr: I mean, Allison, in all the meetings
I have had, they don't need any help; they are all
right.
General Arnold: Yes, sir; but they are not
all right, because they have not trained personnel
on the machine tools.

HM,Jr: Do you mind, on the French deliveries

of the P-36?

General Brett: According to my book, were due:

15 in February (which is over); 45, March; 62, April;

73, May; 60, June.

HM,Jr: This is French. Do you know anything
else anybody has got? Anything else?
Admiral Towers: The Belgians have a small
order with the Brewster Company and deliveries on
that should start a little ahead.
General Brett: Wait a minute. Maybe I can
The Beigians have on order 40 Brewgive you that.
sters, due: 1 in February; 10 in March; 20 in April;
9 in May, with four spares coming in during April.
HM,Jr: I could not go to the Belgians and ask
them to release them.

General Brett: Any other classes of pursuits
that are being shipped for foreign orders?
Admiral Towers: Republics, to Sweden.

General Brett: That's a Swedish order. I don't
think you can touch that. I don't think Republic has
anything except -- no, they have a total of 15 - 60 -

84 - 116 - 178 Republics under order which are being

delivered. First deliveries in February. 9 in March;

13 - 17 in April; 18 in May; 22 in June and 19 in July.

234

-5-

General Arnold: Is that Sweden?

General Brett: Those all go to Sweden. They

are similar to our P-41. They are a pursuit airplane -- no, wait a minute; they aren't, either.
They have only got 60 of the P-35, which is a pursuit
airplane. They have apparently ordered 52 of a light
bomber, single engine job. Then they have another 60
under order of the pursuit type.
General Arnold: 120 of pursuits under order?
General Brett: About 120 pursuits and 52 of
the light bomber. Now, who else might be in that
picture?

HM,Jr: What is the Navy position in the Brewsters?
Admiral Towers: Navy has 43 Brewsters on order.
Scheduled deliveries call for 16 in June and 27 in July.

Actually, I think they will begin delivering in May.
HM,Jr: But you have given away once already.

Admiral Towers: They are replacement planes for
the ones we let the Finna have.
General Brett: You had 54 of those, Admiral?
Admiral Towers: Yes.

General Brett: I have you scheduled for 54.
10 in May, 15 in June, 18 in July and 11 in August.
Admiral Towers: That's wrong. They delivered
10 before the diversion to the Finns was made, leaving
a balance of 43 which the Finns got.
HM,Jr: And you have some Grummans?

Admiral Towers: We have Grummans.

General Brett: The Belgians have an order with
the Brewster people, according to my books.

235

-6-

Admiral Towers: Yes; you read that out.
General Brett: Yes, I read that out.
Admiral Towers: We have Grummans: 2 in March,

6 in April, 6 in May, and strung along about that rate.
The rate of delivery could be greatly increased. This
represents pretty nearly the only business the Grumman
Company has. We figured Grumman to produce, to work
up to a rate of 18 per month by June, which means that

in May, instead of delivering 6, he could probably deliver 12.
HM,Jr: And then the other thing you said, about
the French, was that the only thing which is on order
are those Douglas.

General Arnold: Your Douglas delivery, George,

they are on the way now. They are right in the middle
of their order now.
out 33?

HM,Jr: How long would it take Douglas to turn

Capt. Collins: 36.
General Arnold: They were supposed to be reach-

ing about one and a half a day right now.
General Brett: The French have a total of 370
of those, and have run in where they are right in the
midst of it right now. In other words, there is 25
of the DB-7 due for March. There are 35 due in April.

HM,Jr: Well, that's enough.
General Brett: Don't you see, they are right

in the midst of deliveries. That's the light, twinengine bomber.

Capt. Collins: They are behind schedule.
HM,Jr: Martin is finished with one order?

General Arnold: He's just finished up the tail

236

end 80 has to carry it over to the next order.
HM,Jr: Could he deliver 33 planes for us?
General Arnold: Martin was doing two a day
at the peak and he's slowed up. He' doing one a
day now.

Admiral Towers: He told me yesterday he expected to hit three a day on the new order.

General Arnold: That's about three or four

months from now.

HM,Jr: You got any ideas, Harry?

Captain Collins: No, sir.
HM,Jr: I don't think there is any more chance
than a snow ball in Hell of the French giving this
thing up.

General Yount: The Minister told me he could
not do any business with the French on this other deal
and I tried to sidetrack him off to the French and

British then. They would not talk business at all.

HM,Jr: Why don't some of these people go down
to Italy and buy some planes?
General Arnold: They had a mission down there

trying to buy airplanes, but it fell through. Why it

fell through, of course I don't know.
HM,Jr: Why couldn't the Finne? Maybe they
would sell to the Finns where they would not sell to
the British and French.

General Arnold: It looks to me that would be
a much better proposition than trying to get them over
here, because the Italians, I understand, want to sell
airplanes.

General Yount: Wonder if the Germans would let
them.

237
-8-

Admiral Towers: The Italians put on to all
their offers to sell, as I understand, the requirement that the purchaser furnish a lot of raw material.
General Arnold: Is that it?
Admiral Towers: Yes. They apparently are
suffering from a shortage of raw materials.
HM,Jr: This is a tough assignment.
The Army has completed their contract on the

P-36?

General Arnold: Yes, sir. We have not bought

any for sometime.
P-40?

HM,Jr: And have they started delivery on the
General Brett: Number one is just about come out.

French?

HM,Jr: And you are giving 25 of those to the
General Brett: They come along -- I don't ex-

actly know.

HM,Jr: A couple of months, don't you?
General Arnold: As I remember, they come through
in May -- April or May.
Admiral Towers: The British also have a rather
large order with Brewster, deliveries beginning late

Spring. One hundred fifty, isn't it?
Captain Collins: I think 80.
HM,Jr: Well, I will think it over. And I don't

mind asking the French. They can laugh at me.
General Arnold: They are in better position than
anybody else, because they have planes coming through

238

-9-

and if this is a critical situation, it looks to me
they ought to be willing to play ball too.

HM,Jr: And they have the people here now.
Admiral Towers: And they have not lost many

planes in combat.

HM,Jr: Just to digress. Did you get your

mission to go abroad?

General Arnold: Not yet. We have one man in
France and have not anybody in England. England won't
clear them. England is holding back for some reason.
I don't know why.

he

HM,Jr: When I spoke to the President he said
was going to do it. How many people would the Army

want to send to France and how many to England?

General Arnold: We originally started to have
a mission, as I remember it

General Yount: about six or seven.
General Arnold: Three to France, and four to
England. Then we had to change that because for some
reason we could not get the mission idea approved and
80 we switched to the Assistant Attache idea and then
it was reduced to one to France and two to England and
we got the one on the way to France now and the two to
England have never been cleared by the British.
HM,Jr: How many does the Navy want to send?

Admiral Towers: I am afraid I can't answer that
question accurately, because the various specialities
of the Navy are involved. for-instance, the Bureau of

Ordnance wants to send some and we want to send at least
one to France and England and we have had a Naval At-

tache over there on a special mission. He's now back.
I think the last figures I heard of were a total of
about seven to the two countries.

239
-10-

HM,Jr: You gentlemen would not mind if I
took it up with the President once more.
General Arnold: I wish you would, very much,

because we need that information very much.

HM,Jr: There isn't a day the English or French
don't ask me favors and I have nothing to ask of them,
so it is very easy for me to say "How about this?".
General Arnold: I think it would be grand.
Admiral Towers: I don't think either country
has refused to, but they have not approved.
HM,Jr: Every day they ask me something special.
They can't refuse.
The other thing about which I am very curious:
when you get the Spitfire, which we worked 80 hard to
get to Canada for you; it's there, of course -- have
they assembled it?

General Arnold: I don't know. I asked this:
We have a Military Air Attache going up there tomorrow,
his first visit, to see how conditions are -- on the
tenth of this month -- and I asked him when he was up
there to make the necessary arrangements to get our

engineers up there. I thought that would be quicker.
HM,Jr: If you need any help there, I can help.
General Arnold: We have done something else.
We are trying to get two Morelan engines back here

for test; trying to buy them; may need help for them.
But if we don't get an answer very soon
General Brett: The Rolls-Royce?

General Arnold: Latest Spitfire engine. We
want to test them against Allison.
HM,Jr: Those things are comparatively easy

for me to do. Comparatively easy.

240
-11-

General Brett: I expect an answer on that
very shortly. The Rolls-Royce people were over
here to see me the other day. I finally managed
to get hold of the right people and they said they
would give me an answer very soon.

HM,Jr: We don't know yet what this new
mission has in mind, but I am going to meet with

them Thursday for the first time and after I do know
I will let you know.
General Arnold: I think that's very important,
Sir, because they asked something that 18 going to
throw the whole industry out of balance. I think

we ought to watch that very closely. I don't think
we ought to let the industry get completely out of
balance.

HM,Jr: No, no!

When I know what they want,

we will get it to you.
General Arnold: All right, Sir.

HM,Jr: But we don't know yet. And the amusing thing is there is an Englishman here and a Frenchman in New York and they have been in the same Continent
for four days and haven't met yet.
General Arnold: Is this man, Self, going to take
Purvis position?

HM,Jr: No. He's under Purvis. He's a civil

servant and evidently very close to Sir John Simon.
It was at Sir John Simon's request that he came over,

but he will work under Purvis. But they are going to
come in Thursday afternoon and tell me. Then, if they

know what they want

General Arnold: Haven't they made up their
mind?

HM,Jr: I don't think so.
General Arnold: In my opinion, time is one of

241

-12-

the most important elements they have and they are

losing it every day.
HM,Jr: From what they said today, I don't
think they know, but just as soon as I know I will
pass it along.

(At this point, all left except Captain Collins.)
HM,Jr: Much better to let these people know;

much better. It's like the machine tool people.
If they sit in on the thing at the beginning, they
feel better about it. And they ought to know. Gee

Whiz! I give them 15 minutes' notice and they come
over. Isn't it better for them to get it from me
or from a newspaper reporter or airplane engine people?
Captain Collins: On this meeting, Purvis expressed a desire, they prefer to have an informal
conversation with the manufacturers separately. They
want me in on it. Do you see any objections to that?
Not as a Board meeting. Wouldn't have members of the
Board present. They want to do it informally and then
sit down with the Board.
HM,Jr: I think I would have the Army and Navy
know right from the start what's going on.
Spear was very nice while you were gone.

Capt. Collins: Of course, you can get exactly
the same results if you could sell the French the idea
of shooting 150 pursuits and 25 bombers right over
there. That would be the answer to this fellow's
prayer.

HM,Jr: Well, let me sleep on it. I don't

know what the answer is.

000-000

ss(f)

242

FEDERAL RESERVE BANK
OF NEW YORK

DATE March 5, 1940.

OFFICE CORRESPONDENCE
TO.

CONFIDENTIAL FILES

SUBJECT: TELEPHONE CONVERSATION WITH

L. W. Knoke

BANK OF FRANCE.

FROM

Mr. Cariguel called at 10:10 a.m. today. He noticed,
he said, that the franc had been weaker in New York last night.
Was there any special reason for that? I replied that business
here in French francs was, generally speaking, small, 20/25,000,000
francs a day probably representing the volume. Yesterday's weakness

had, in my opinion, been due entirely to the weakness of sterling
which had been under some pressure from foreign banks in the Far
East, in South America and also in Europe. I suggested that I
check into the market a little and find out what had been going
on in French francs, say, for a week back and then cable him the

result of our inquiries tonight. This Cariguel gratefully
accepted.

LWK:KW

LEOHMICV

OFFICE

1040

Ave

VN
OF

LEEVE
RECEIVED

is

march tamage
RE OPEN MARKET

Present:

243
March 5, 1940.
11:30 a.m.

Mr. Haas

Mr. Hadley

Mr. Bell

Mrs Klotz

Haas:

You will be interested to know that Eccles
called up Piser and wanted the price before
the market opened and Piser called up and
said, "Have you fellows made a price on these
things?" He said they had no idea until they
saw what happened to the market, but Eccles
was pressing them for a price before the
market. They don't even know what the duPont
is.

Hadley:

H.M.Jr:

Bell:

No, but they are tying that in with a threequarter percent issue. They seem to think
that is the most logical.
It is a nice thing. Eccles will come back
and tell us 5/8ths, or something.
I hope it doesn't go any higher. As a matter
of fact, I would like to see it sink at 5/8ths.
I am afraid if that thing goes up too high,
say, 101.8 to 12/32nds, we will be giving them
too much gravy.

H.M.Jr:

How much does it - how much does the Fed own of

Hadley:

136.

H.M.Jr:

Maybe they will want cash for them. Do they

Hadley:

Yes.

Bell:

They just recently sold out their 3-3/8ths per-

H.M.Jr:

So.

Bell:

I said they might be accused of having inside
information.

these?

own 136?

cent bonds.

(Telephone conversation with Mr. Rouse)

244

-2H.M.Jr:

It pays to tell nobody nothing. Then it gets
out in the papers as little as possible. Has
your friend Goldschmidt been around?

H.M.Jr:

He is trying to get me on the phone now.
Tell him to go jump in the ocean.

Bell:

They have hooked this up with the working

Bell:

H.M.Jr:

balance, trying to reduce the working balance
by paying off 3-3/8ths.
I see.

Bell:

It isn't bad except that it is hitting the

H.M.Jr:

rights values pretty hard.
I talked to George this morning. Remind me of
my conversation. I want to pursue this thing
again and I want George to come through with a
memorandum and that is the question about the
baby bonds. I think George has got an answer.

Instead of changing the rate, there is a possibility of cutting down on the amount any one
person can hold.

Bell:

That is right. I am prepared to talk to you
about that any time you want to. I have got
a memorandum from George.

H.M.Jr:

Let's take a few minutes right now.

Bell:

I am also getting one from the Federal Reserve
of New York. They have been quite interested
and Bob Rouse is going to give me one this week.
What is the matter with this suggestion?

H.M.Jr:

Bell:

I am in favor of that. You see, we started to
discuss this before the war last August or July.

At that time we were prepared to recommend that

you reduce the $10,000 limitation to $3,000,

which would give an annuity to a person who
is buying them for that purpose of $250 a month
throughout the year and in 10 years you would

have that confined, see, to $30,000 limit for
one person.

245

-3H.M.Jr:

That is a little bit more than I wanted to
go. I was thinking in terms of cutting it
in half. You (Haas) thought that was too

much.
Haas:

No, I would just as so on go the three. But
I think it is just a matter of preference.
I look at it this way, Mr. Secretary. What
you do, it isn't the - you may do something
now that doesn't work and then you can do a
little more.

H.M.Jr:

My thought is, no person can buy more than

Bell:

Yes, that would be $37.50.

H.M.Jr:

Were you talking face amount?

Bell:

Yes, $3,000 face amount, so that they would
have an annuity in the end of $250 a month.

H.M.Jr:

You would have to give them a little notice.
It would take some time to put this into
effect.

Bell:

$5,000 face amount.

H.M.Jr:

Make it effective April first.

Bell:

When we decided last fall that we wouldn't
touch it, they started immediately to get out
new circulars. Now they are just off the press
a week ago.

Haas:

I would like to see another thing done, too.

H.M.Jr:

How long does it take to run those off?
Another thing we suggested at that time rather
than changing the rate was making it a length
of 10 years or 12 years.
Have we the right to do that?

Bell:

It is up to 20 years, I think, on the statute.

H.M.Jr:

Bell:

246

-4The thing I had running through my mind

Haas:

was a little different than that.

H.M.Jr:

Have we got the right to do that?

Bell:

I think so.

Haas:

H.M.Jr:

You might think of this: You remember, Dan,
the War Savings stamps had a strong maturity
bonus. In other words, they changed the
valuations schedule - in other words, what the
bond would be worth on redemption in two years,
and so on, so that a man has every incentive,

Mr. Secretary, to hold it for the full 10
years. Then you cut down liquidation pressure
on us for a certain interval, you see.
That is all right, but there is another new
thought.

Haas:

That is an annuity.
Increase it to 12 years.
That is another way of cutting the rate.

H.M.Jr:

You see, 12 years - how would that work out?

Bell:

Well, we would have to figure out the rate, but
it seems to me, George, you have got a pretty
strong inducement in your present rate because
a man who turns in a bond for six or seven years,
he is really sacrificing a pretty high yield on
that bond and he can't get that in the market

Bell:
H.M.Jr:

any place.
H.M.Jr:

Bell:
Haas:

Bell:

And you know that 2,9 only comes in the last
year.

That is an average. The last year he makes -

well --

We have got it all figured out in the memorandum.
Five or six percent, doesn't he?

247

-5Haas:

About six.

H.M.Jr:

But if he kept it nine years, you don't get
anything like 2,9.

Bell:

Not as an average, but in the ninth year he
is getting about five percent on his money.
I wanted to make it steeper.
I think there are two ideas here, one, to extend it, make it a 12-year period. Think about

Haas:

H.M.Jr:

it.

Bell:

Well, I have had all this material. I was getting
it in New York. I wanted to talk to you about
it after this thing was over. You see, the
argument that has been put up to us is that
as soon as this interest rate stiffens, you
are going to get a lot of these bonds cashed
in and the people are going to invest that
money in industry. I don't think that is close
to us at all, because when a person holds his
bonds three or four or five years, he is getting
a much higher rate than 2,9.

Bell:

I wanted to make it still higher.
Interest rates have got to go up materially

H.M.Jr:

All right. We will talk about it. This is a

Haas:

Bell:

before he is going to cash that bond in and
take the cash.

nice picture.
Yes. The bad feature about Savings bonds at
the present time is that it uses up a third of
our debt, your dollar security, for which you
get no cash.

H.M.Jr:

of course, the thing that I would like to do

the most would be not to change anything except
the amount.

Bell:

I think that would be very effective and it
also meets the purpose for which Savings bonds
were started, something for the small investor.

248

-6H.M.Jr:

And then, as the situation changes, you can

Haas:

You can do something else.

H.M.Jr:

Supposing we want to raise it that way, we
can always raise it again, but my thought -

always raise the limit again.

H.M.Jr:

what I am sitting here - I would just say
after the first of April nobody can buy in
any one year more than $5,000 face amount
of bonds for this year.
Yes, it is all right. A man that has $10,000
to invest every January isn't a small investor.
That would cut it. I wonder how much that would

Bell:

We have got some dope on that.

Haas:

I mean, I wonder --

Bell:

It would cut it down materially. We have got
statistics showing those facts.

H.M.Jr:

Why don't you go into that for me?

Bell:

O. K.

Haas:

Say, Mr. Secretary, I had one thing. Fred Laughton called me up and said that they would like
to have an estimate for the fiscal year '42.

H.M.Jr:

Who is Fred Laughton?

Bell:

Assistant Budget Director.

H.M.Jr:

For '42?

Haas:

Yes.

H.M.Jr:

He is crazy. Tell him to go jump in the ocean.
He said. they are - on the expenditures, they

Bell:

Haas:

cut it down.

are assuming that things would stay about as

they are. They don't know of anything else

to assume. What we could give them, we assume

249

-7that calendar year '41 is going to be as we

we would estimate '40.
H.M.Jr:

Tell him to go. buy a crystal and look in it,

Bell:

Well, they are probably working on some program.

H.M.Jr:

Let's find out what the program is. Turn them

and I say so.

You remember when we --

down and see what happens.

250

I 5. 19th
s. Date
m.

will you Mally 1 the following /

Uneries Stoom Senton. - - from - of the many
Please eable separt - security - official status of

as Bowy was

223

pm.

251

PARAPHRASE OF TELEGRAM SENT
TO:

DATE:

NO.:

American Embassy, London, England

March 5, 1940, 1 p.m.
416

FOR BUTTERWORTH FROM SECRETARY MORGENTHAU.

Sir You are requested to cable a report to the Treasury

on Henry Self's identity and his official status.
HULL

(HF)

EA:LNW

252
PLAIN

JR

London

Dated March 5, 1940

Rec'd 1:36 p.m.

Secretary of State,
Washington.

552, March 5, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.

1. Sir Robert Kindersley, President of the National
Savings Committee, announced last night that the savings

campaign had resulted in the sale of national savings
certificates and defence bonds totalling pounds 100 million
in the 100 days since the campaign began and that SOME

60,000 savings groups had been formed. Incidentally
the war is already costing about pounds 6 million a day;
taxation is producing about pounds 3 million a day and

with savings bonds and certificates bringing in pounds
1 million a day, the current per diem gap stands at about
pounds 2 million.
2. Accordingly the ChancEllor of the Exchequer
announced in the House of Commons this afternoon the

issuance at par of a pounds 300 million three per cent loan

1955/59. HE took the unusual step of announcing the
terms of a WEEK in advance of the opening of the list "in
order that the investors may have ample time to make
arrangements

253

-2- #552, March 5, 7 p.m., from London.
arrangements to subscribe the fullest possible amounts".

In referring to the rate of interest he remarked that it
"accords with the Government's avowed policy of borrowing

as cheaply as possible and at the same time is a reasonable

one from the investors point of view". HE also took the
precaution of issuing a warning that "the amounts the
Government will need to borrow during the next 12 months
will of course be considerably greater than the amount of

this loan but that a first issue for a limited amount is
convenient to the Treasury from several points of view and

I think it will also be in the general interests of the
investors. Incidentally in recent WEEKS informal
approaches have been made to the large institutional

investors to ensure their ready cooperation. The
announcement was well received in the City and in unofficial
quotations the 3-1/2 per cent perpetual war loan rose

almost a point to close at 100.
3. Asked in the HOUSE of Commons if he was aware that

under existing arrangements it was possible for British

holders of sterling to sell their sterling in the unofficial
market abroad because in certain circumstances such

transactions would only involve transfers from one inland
account to another, the Chancellor of the Exchequer stated

that the sale of sterling by residents in the United
Kingdom,

254

-3- #552, March 5, 7 p.m., from London.
Kingdom, EXCEPT through authorized dealers, was

prohibited under the defence (finance) regulations and
that any person infringing the regulations made himself
liable to penalty. Asked also if he was aware that there
WCS a wide discrepancy between official American pre-war
estimates of British dollar assets and the amount of such
assets declared since the war and if he intended to cause

investigations to be made into this discrepency, the
Chancellor of the Exchequer said it would not be in the

public interest to publish the amount of British dollar
assets which had been declared; should instances of
evasion COME to light they would DE severly dealt with

but that in saying that he must not be taken as accepting
the suggestion in the first part of the question.
JOHNSON
HPD

255

march Financing
RE OPEN-MARKET

Present:

Mr. Bell

March 5, 1940.
4:15 p.m.

Mr. Haas

Mr. Hadley
Mrs Klotz
H.M.Jr:

What is the news?

Hadley:

Well, the rights closed at par 30 with light
trading, which lines up very well with the

three-quarters percent and doesn't give them
too much premium, and in the last hour from
3:00 to 4:00 the long bonds moved up one to
two 32nds above the 3:00 o'clock close, so
the net gain on the day for them is around
10 or 11/32nds and the long notes net loss
on the day is an average of about four percent.

H.M.Jr:

Well, that is normal.

Hadley:

Yes, a very good market.

Bell:

I can give you a part of the progress at New
York as far as they have gone:
Rich, Hanseatic Corporation: The market is in
a condition where it will grumble a little but
will take what the Treasury gives them and be

grateful for it. The Treasury, by the action
speculation in rights. He thinks it would be
a mistake to go further at this time by trying

of refunding only the notes has dampened the

to cut down the premium. He therefore recommends a coupon of 3/4 of 1%, which should sell
in this market at about one point premium.
Under present conditions he thinks that would

be a fair concession. He also believes that

a practical elimination of the rights, that is,
going down lower on the coupon would be a very
bad thing at this time.
Mills and Repp, Discount Corporation: They say

the most of the talk in the Street is from a
.55 to .60 basis. They do not think the Treasury
has any problem at all. If there is no change
in the present market between now and the time
that you make up your mind, they recommend the
three-quarters percent. The present market

256

-2indicates that such a coupon would sell from
101 to 101-1/4. They feel that the added
weight of $738,000,000 on the note market
will push the market down to a lower premium
of around one point. The talk in the Street
indicates three thoughts regarding this refunding: (1) What does the Secretary of the
Treasury know about world conditions that
the market does not know; (2) appreciation
of the problem of combining a refunding of
1-1/2% coupon and a 3-3/8% coupon, and (3) an
attempt on the part of the Treasury to kill
speculation in rights.

It is interesting, isn't it?
Devine: He has no position in rights and therefore no personal interest. He recommends not
more than 3/4 of 1% and not less than 5/8 of 1%,
depending upon how generous the Treasury feels.
He says that the 3/4% coupon will sell on a
.55 basis and command a premium of from one to
one and one-eighths points. He recommends a

5/8% coupon only if the Treasury desires to
further squeeze the right values. He was asked
if he would favor a 3/4% coupon at a premium

of, say, 1/4 in order to get the right values
said absolutely no. If the Treasury wants to
get the right values down he strongly recommends
a 5/8% at par, but he wants to call attention
to the fact that the Treasury's action has cost

down between 3/4 and one point premium. He

the holders a severe penalty and he would not

recommend going any further.

Pope, First of Boston: The market, he says, is
strong today. He has no idea where it is going.
On the present basis a 3/4% coupon will sell
between a .55 and .60 basis with a premium of
3/4 to one point. He does not feel that this
premium would be giving away an unreasonable
amount and certainly would assure success. If
more assurance is needed by the Treasury he
would put on a coupon of 7/8% which would com-

mand a premium of from 1-3/8 to 1-5/8 points.
He does not, however, recommend a 7/8 coupon.

257

-3Notwithstanding his previous recommendations

regarding the cutting down of right values,
he does not feel that the holders of these
rights should receive any further jolts. He
feels the action of the Treasury has been
quite severe enough for one time.

Would you like to put this off until tomorrow
noon?

H.M.Jr:

I won't do it tomorrow.

Bell:

You won't?

H.M.Jr:

No.

Bell:

I thought you were holding this conference for
the purpose of making a decision tonight.

H.M.Jr:

No; what made you think that?

Bell:
H.M.Jr:

You told me this morning and you told me last
night.
That we would have a conference this afternoon.

Bell:

I asked you for more time and you said, "Granted,"

H.M.Jr:

Well, you don't hold a fellow when he is down,

in one of your weak moments.
do you?

H.M.Jr:

Well, I thought you would have a bad day.
Would you get a fellow down and hit him in

Bell:

I thought you had a bad day.

H.M.Jr:

A good bad day. Today or yesterday?

Bell:

Well, I thought maybe you had another one.

H.M.Jr:

Today?

Bell:

Yes.

Bell:

the jaw?

258

-4H.M.Jr:

No.

Bell:

No? I thought you were rushed.

H.M.Jr:

Well, I have had all this business but nothing

Bell:

Well, you would like to put it off until to-

H.M.Jr:

I tell you why, Dan, this thing hasn't shaken
down yet. I want to give it time to shake

unpleasant.

morrow noon?

down.

Bell:

You mean this time tomorrow?

H.M.Jr:

oh, after lunch, maybe. I want - you see after
you look at the thing it varies. It started
at par 30, went up to par 40 and it is down
to -Par 30 is what it closed.
Give it another day.
I think it was confused.

Hadley:

H.M.Jr:

Bell:
Hadley:

This was a sudden demand in the middle of the
day that pushed those rights up.

H.M.Jr:

You said they even paid 100-1/8. I would like
to let this thing shake down. Why not take
all the time we can? That is the way I feel.

Bell:

You know our work is very simple and we are

through practically. All we need to do is

get the coupon and we are ready, but the banks
have to mail these things and get them out and

that is quite a job.

H.M.Jr:

I will give you an appointment now for tomorrow,
2:15. I won't renig on that. Tell Eccles to
be available at 2:15.

Bell:

You just want to talk to him on the telephone?

259

-5H.M.Jr:

Yes.

Bell:

Is that what he wants to talk to you about?

H.M.Jr:

Sure.

Bell:

Tonight?

H.M.Jr:

Sure.

260

March 5. 1940

Telephone call from the Federal Reserve
Bank of New York
-000-

Rich, Hanseatic Corporation: The market is in a

condition where it will grumble but will take what it gets and
be grateful. The Treasury, by this action, has dampened

speculation in rights and he thinks it would be a mistake to
go further at this time. He therefore recommends a coupon of

3/4 of 1% which should sell in this market at about one point
premium. Under present conditions he thinks that that would

be a fair concession. He also believes that a practical elimination of the rights would be very bad at this time.
Mills and Repp, Discount Corporation: The most

pessimistic talk in the Street is a .60 basis and the most
optimistic is a .55 basis. They do not think that the Treasury
has any problem at all, If there is no change in the market between
now and the time the Treasury is ready to proceed, they recommend

a 3/4% coupon. While the present market indicates that such a
coupon would sell from 101 to 101-1/4, they feel that the added
weight of $738,000,000 on the note market will push the market

down to a lower premium of around one point. The talk in the

261

-market indicates three thoughts: (1) What does the Secretary
of the Treasury know about world conditions that the market does

not know; (2) appreciation of the problem of combining a refunding of 1-1/2% coupon and a 3-3/8% coupon; (3) an attempt on the

part of the Treasury to kill speculation in rights.
Devine: He has no position in rights and therefore no
personal interest. He recommends not more than 3/4 of 1% and
not less than 5/8 of 1% depending on how generous the Treasury

feels. He says that the 3/4% coupon will sell on a .55 basis and
command a premium of from one to one and one-eighths points.
He recommends a 5/8% coupon only if the Treasury desires to

further squeeze the right values. He was asked if he would favor
a 3/4% coupon at a premium of, say, 1/4 in order to get the right
values down to between 3/4 and one point premium. He said absolutely

no. If the Treasury wants to get the right values down he strongly
recommends a 5/8% at par, but he wants to call attention to the

fact that the Treasury's action has cost the holders a severe
not

penalty and that he would/recommend going any further.

Pope, First of Boston: The market, he says, is strong
today and he has no idea where it is going. On the present basis
a 3/4% coupon will sell between a .55 and .60 basis with a premium

of 3/4 to one point. He does not feel that this premium would be
giving away an unreasonable amount and certainly would assure

262

-3 success. If more assurance is needed by the Treasury he
would put on a coupon of 7/8% which would command a premium

of from 1-3/8 to 1-5/8 points. He does not, however, recommend
a 7/8% coupon. Notwithstanding his previous recommendations

regarding the cutting down of right values, he does not feel

that the holders of these rights should receive the jolt all
at once. He feels that the action of the Treasury has been
quite severe enough for this time.

263

March 5, 1940.

0RAND

TO:

FROM:

Secretary Morgenthau
Mr. Gaston

vr

Re: Brazilian Debt.

Adolf Berle called at 10:30 this morning and failing
to reach you because of the meeting in your office at that
time, talked to me. He merely wished to bring us up to date
on the developments with respect to the Brazilian debt.

In his latest conference with Caffery, Aranha said
that he had done all he could do and they could not better
their latest offer. He asked Caffery to ascertain whether
the Bondholders' Protective Council would be willing, if they
could not approve, to stand aside and make no comment if the
Brazilian Government should announce an offer to the American

bondholders in line with Aranha's latest proposal, leaving
it up to the individual bondholders to decide whether they
would accept installments on this basis. Aranha told Caffery

that since Vargas was leaving the Capital tomorrow, March 6th,
unless this proposed offer was announced the whole matter
would have to be dropped with the prospect that there would

be no new offer for some time to come. Caffery in his latest
cable strongly recommended that the Bondholders' Council

should not stand in the way of the offer, as he felt that
this was the best that could be done.

Francis White was called to Washington yesterday and

spent two hours at the State Department. Berle says the State
Department did not support the Aranha offer, but put it up
straight to the Bondholders' Protective Council to decide
whether to veto the proposition or to stand mute and let the
individual bondholders decide. White at length indicated that
he would call a meeting of the Council today and would suggest
issuing a statement which would say that the Council had not

participated in the negotiations with Aranha, and that if the

Brazilian offer was not formally made now it was questionable
whether any other offer would be made for a considerable time
to come.

264
2

This information was cabled to Caffery, with the word
that there must be no deviation by the Brazilian Government from
the terms of the offer as outlined by Aranha to Caffery.

w

265
PARAPHRASE OF TELEGRAM SENT
TO:

The American Embassy, Bogota

NO.:

46

DATE:

March 5, 1940

We have been informed by the Colombian Ambassador

in Washington that he is waiting for detailed information with reference to specific projects which is needed
to properly present the request of the Colombian Government for a loan from
the Export-Import Bank. It is our
on what Colombia desires to achieve
understanding that before offering comment/ the various
agencies in Washington who are concerned with the exten-

sion of credits prefer to receive definite information
regarding Colombia's objectives.
HULL (AAB)

266
COPY OF TELEGRAM SENT

March 5, 1940

The Honorable

Francis White,

Foreign Bondholders Protective Council,
90 Broad Street,
New York City.

Have requested Caffery to try to hold matters
open pending our receipt of further word from you.

The Department's position is that it has obtained

the best offer possible. The Council's decision as to
the course it follows must be exclusively its own
responsibility. The Department believes it should
not accept your telephone communication in view of

the fact that you coupled it with the statement that
it was taken only on the assumption that Department
had requested such action.
A. A. BERLE, JR.

Assistant Secretary of State

267

MAR 5 1940

My dear Mr. Secretary:

I have considered carefully the suggestion in

your letter to as of February 24, that the possibilities
relative to the development of a local steel industry in
Brasil should be explored by the so-called Committee of

Three.

In my view, the Committee of Three was dissolved

upon the conclusion of the temporary settlement of the
Colombian debt last month. Accordingly, I do not feel

able to participate is the Brasilian steel matter. Further,
in so far as purely technical cooperation might be desired,
I feel that, due to the press of business, the Treasury
should not assume a new additional burden of this nature.
If the Department of State desires the help of other departments or agencies of this Government in the considere-

tion of this matter, I venture to suggest that the Export

Import Bank and the Department of Commerce are the more
appropriate agencies.

I an sending copies of this letter to Mr. Jones
and Mr. Noble.

Sincerely,
(Signed) H. Morgenthan, Jr.

Secretary of the Treasury.

The Honorable

ORIGINAL FORWARDED TO ADDRESSEE

FROM OFFICE OF THE SECRETARY

The Secretary of State.

By Messenger 415/pm
JPC,JR:BJ 3/5/40

J.P.eps.

268
SECRETARY OF STATE

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

February 24,1940

RA

My dear Mr. Secretary:
The Department has had recently before it the

matter of the Brazilian steel project, on the technical
phases of which a Commission of the United States Steel

Corporation in the latter part of 1939 rendered a
favorable report. The proposal envisages a modern

steel plant with an initial capacity of 285,000 tons of
finished steel products and financed jointly in Brazil
and in the United States. Although details have not
yet been elaborated, it is estimated that Brazil would
contribute a minimum of 26,000 contos ($13,000,000) in

milreis, and United States interests, between $17,000,000
and $25,000,000, principally for equipment.
Early in January 1940 the Board of Directors of the

Steel Corporation decided against participation of the
Corporation in the venture, but the matter has been kept
alive

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

269
-2-

alive by the Brazilian Government which continues to

be very much interested in the proposal. In fact, the
Brazilian Ambassador has stated to the Department that

the establishment of a steel industry is one of the
major aspirations of President Vargas' administration.
Shortly after the decision of the United States
Steel Corporation was made known, the Department was

apprized by the Corporation of the serious consideration
which had been given the project by Ford, Bacon and
Davis, Incorporated, of New York. On February 15,
Mr. George W. Bacon, Chairman of the Board of the firm,
confirmed to the Department that his company had been

giving the matter serious thought. However, before it
could proceed with a thorough exploration of the project,
Mr. Bacon affirmed, it desired to ascertain this Government's attitude, including, it was inferred, the availability and extent of possible financial participation
by governmental agencies.

It would appear that the matter is one which might
now properly be examined by the Committee of which you,

Mr. Jesse Jones, and Mr. Welles of this Department, are
the members. I believe that a meeting of the Committee

for this purpose should be held at as early a date as
practicable and that Mr. Bacon and his associates be

heard

270

-3-

heard by the Committee following a preliminary discussion. In the absence of both Mr. Welles and Dr. Feis,
I shall request Mr. Duggan, Chief of the Division of
the American Republics, to represent this Department.
When I have heard from you concerning the convenient date

for the meeting, I shall be glad to arrange with Mr. Bacon
for his presence in Washington.
I am enclosing for your information copies of a
brief memorandum describing the Brazilian steel project,
and of a memorandum of conversation of February 23 with

the Brazilian Ambassador. The Office of the Economic
Adviser and the Division of the American Republics have

assembled a considerable file on the steel project which

is at your disposal should you wish additional information on the subject.
Sincerely yours,

Enclosures:
1. Memorandum dated

February 24, 1940.

2. Memorandum of conversa-

tion dated February 23,
1940.

Department of State
RA

BUREAU

DIVISION

ENCLOSURE
TO

Letter drafted
ADDRESSED TO

Secretary Morgenthau

INTERNATION

1-1083

271

DEPARTMENT OF STATE

Memorandum of Conversation
DATE:

Temmary m, 1940.

PARTICIPANTS:

COPIES TO:

-

Sensition steel mejour

SUBJECT:

question Administrar, m. Carlos nertimes

Pete

m. Jesse Jense

- galled at his request w 2ag
informally before the Reportment the Intent now of

President - - the stool project, - contained in

a letter the / and Just received

- Internation sald - - modillin -

was mm of a Bracilism

attending - the -

me constanting . plan w States - company with -

from ste - - I (Calme - penalties
state, - - allotam from - - - sup publiso

- - - surgeon plan. the - cash was to as follows

-

272

Gain - 400,000 contes, or

820,000,000

Pension State - 50,000 center, or
Special public works budget - 50,000
contes, or

2,800,000

Total

2,500,000
$25,000,000

The President had authorised the Ambassador to sound

out this Government on the availability of import-Import
Bank funds, from the 180,000,000 in "the agreements of
March 1999*, for aschinory and equipment to be purchased

in the United States for the plant, to the extent of sees
$17,000,000, the corresponding purchase contracts to be
guaranteed by the Bank of Bresil.
The Ashasonder concluded with the remark that in all

probability the President had not received his Intest
letter reporting to the President the interest of Ford,
Seeen and Data, Incorporated, in the steel project. The
Ambusender felt that in view of this development, of which
the President was not yet aware, the disarche along the
lines of the President's letter sight well be held in
absyrance.

Dr. Fels stated that 18 had been the concennes in

all of the motings held - the subject that a Brasilian
company was indispensable. No was accordingly pleased to
learn that the Irasilian Government was of the same opinion.

No related to the subscriber the stape which had been taken
in

273

in the - and
status
me,
/
be I as - the to the
- w. Jesse sense in commention

of - spread - this -

would possible - of - - w arrange mm tw the

sign was be deterved - after commissionation of the
project w the Committee of more, is the 11ght of the How

recently communicates to - - w m Rebert a

I / of Tors, - - Serie. w. Tate informa
the - that - offere would be - to - a
mosting of the Committee of Three - time daving m

easing - and - / in assetting w this - stated that he would - insectate - of m state

Initiated w - weas the sease of the
Commerce or Three - I

274

February 24, 1940

Summary of Brazilian Steel Project
The steel plant proposed by the United States
Steel Corporation Commission which visited Brazil in

the latter part of 1939 would call for a capital expenditure, on the basis of prices in August 1939, of
approximately $55,000,000, 63 per cent in United States

dollars, and 37 per cent in Brazilian currency. The
plant would have a capacity of 285,000 tons of finished
steel products per annum and also market about 50,000

tons of foundry a and 50,000 tons of pig. It would
use all Brazilian raw materials excepting coal, which
would be imported from the United States until the

satisfactory ooking qualities of Brazilian coal from
new mines were proven. The present Brazilian per capita
consumption of steel products is about 20 pounds per
annum, and the output of the proposed plant would double
this consumption.

The Steel Corporation's report, although optimistic
in so far as the technical aspects of the plant itself
were concerned, made it clear that certain conditions

relating to improvement of Brazilian transportation

facilities

275
-2-

facilities, and certain changes relating to mining,
immigration, and other laws, would have to be not by
the Brasilian Government to make the proposition

attractive to American capital. The improvements of
transportation facilities would require an expenditure
of between seven and fourteen million dollars, mostly
in equipment, over and above the expenditures for the
steel plant alone.
In the above cost estimates, allowance has not
been made for rise in prices since August, 1939.
Early in January 1940 the United States Steel

Corporation Board of Directors decided not to participate
in the steel development program. The Brazilian Government was keenly disappointed, and through its Ambassador

has frequently consulted the Department with a view to
ascertaining what other approaches night be open.

At the several intereDepartmental meetings held to

discuss the matter, the opinion was reached that without
a very large participation on the part of the United
States Government the venture could not be carried forward.
In the meantime, however, information reached the Depart-

ment that there was a firm which eight be interested in
the undertaking, and a few days ago the Department
learned

276

-s-

learned that this firm was Ford, Bacon and Davis,
Incorporated, which had given serious thought to the
project and which enjoys as excellent reputation.
Nessrs. Bacon and Towers of this firm, on February 15,
called at the Department and stated in substance that
the firm of Ford Bacon and Davis would be willing to

explore the matter. further with a view to finding a
formula satisfactory alike to the Brasilian Government
and to the United States interests who might advance
the capital provided it was clearly understood that the
American Government was sympathetic to the project and

that the Brasilian Government did in fact want the
industry.

RA:WHW:OBA

PLEASE RETURN TO MR. COCHRAN

277 TREASURY 4513
TRIPLICATE

Rio do Janeise, February 14, 1940
No. 2047

SUBTROT: Proposed Construction of Steel

Plant in Brasil.

ORIGINAL AND THREE COPIES BY AIRMAIL - CONFIRMATION
COPY BY STRAMER.

STRICTLY CONFIDENTIAL

STRICTLY COMPIREMENTAL

The Menarabia

The secretary of State,
Mashington, D. G.

sirs

Interring to previous correspondence concerning

the project for the construction of a steel plant in
Breath and with special reference to day despatch No. sees

of January m. 1940, I have the benor to report that

the Breathing Minister for Foreign Affairs told - this

that his is Washington had written
President Verges that he had been advised by the Under

278

6.0%

Secretary of State and Dr. Tois that it would be better
if the steel business here were not handled by the United
States Steel Corporation and that is would be better for
some other concern to handle it. I asked Dr. Aranha if
he were sure that that was the report of the Brasilian
Ambassador. He said he had not seen the letter, Sut that
he was sure that President Vargas had told his that. I
remarked that in my opinion there was possibly some mis-

understanding about this. I told him that I would write
at once to the Department.
Respectfully yours,

Jefferson Caffery.

30:ale

File No. mm.1

10 THE

LECHNICY
OLEICE OE THE

279

March 5, 1940
3:05 pm

Present:

Mr. Purvis

Mr. Cochran

Mrs. Klotz

HM,Jr: I brought Bloch-Laine in a plane,
but I warned him not to come on the plane. He
went to bed.

HM,Jr: On behalf of the Canadian Government, the Canadian Minister informed me, we have

legitimatized you.

Mr. Purvis: I feel distinctly encouraged.
do?

HM,Jr: Have you any more chores for me to
Maybe I could fix you up with Mexico.

Mr. Purvis: I am really truly grateful.

I feel very much better.
HM,Jr: This 18 absolutely in the room. We
even had to let the Canadian Minister know the form
in which you had been formalized by the British.
Mr. Purvis: I am terribly legitimate now.
HM,Jr: Yes. I thought it was very amusing.
Mr. Purvis: of course, it is very amusing.
HM,Jr: I really should not say that, but

you (Cochran) did give him the form?
Mr. Cochran: Yes.

Mr. Purvis: Mr. Secretary, Mr. Rist and Mr.

Ashton-Gwatkin arrived yesterday morning.

280
-2-

HM,Jr: Secretly! (Laughter)
Mr. Purvis: yet.
Secretly, yes! They have not
been legitimatized
HM,Jr: Nobody knows of their arrival! (Laughter)
Mr. Purvis: And we were talking over the procedure, hence my call to you as to what -- they being
attached to the Embassies for blockade control work
only, which they emphasize, will of course report to
their Embassies and presumably be taken to pay an of-

ficial call to the State Department.
HM,Jr: First.

Mr. Purvis: Insofar as any questions in regard to control of essential materials is concerned,
they are very clear that they hope and expect to deal
only in talking anything that they could talk technically, or whatever approach might be the proper
approach, and they have quite a lot of things they
would like to discuss technically through you under
whatever conditions you think are wise and proper.
They feel that they don't wish to confuse those two
issues in any way if they can possibly help it. They
have quite definite work to do in connection with
handling the difficulties that go with contraband
control with the State Department, but they don't
feel -- I mean, they feel that the other matter 18

an Anglo-French Coordinating Committee matter coming
specifically as it does under Monnet and not under
the separate Governments.

HM,Jr: Let me be frank, the way I have been
with you right along.

Mr. Purvis: Right!
HM,Jr: The thing that bothers me -- your Ambassador has to straighten this thing out. I am
familiar with the talks between Lord Lothian and Mr.
Hull on what Mr. Hull thinks you people should buy.

Mr. Purvis: Yes. Yes. I am now being

281
-3-

made familiar with many things I wasn't.
HM,Jr: You and I have never talked about
that.

Mr. Purvis: No. No.
HM,Jr: Because the President -- well, I have
no instructions to talk to you about it. My instructions are to make things easier for you.
Mr. Purvis: Quite!

HM,Jr: Now, think this thing over carefully.
If I begin talking with these people, then the State
Department begins talking -- I don't want to get this
thing all crossed up.
Mr. Purvis: I can see there is a real possi-

bility.

HM,Jr: I don't know what the answer is if

they come in to me and talk about something and Mr.
Hull meets them or Dr.Feis meets them: "You have
got to buy applies, more pork products, more coffee,
more tobacco, -- and then they come over here and
say, "Now, Mr. Morgenthau, can you help us on tung-

st en?" I am awfully afraid of it.
Mr. Purvis: Yes. It has a very definite

danger.

HM,Jr: You see? And it brings you in.
Mr. Purvis: Yes.
HM,Jr: I mean, I am not afraid about my work.

I mean, I know what I am supposed to do

Mr. Purvis: Quite!
HM,Jr: .... as far as these various purchasing

missions are concerned.

282
-4-

Mr. Purvis: Yes.
HM,Jr: But, you see, you come in here and
say, "Now, Mr. Morgenthau, we have to get these

planes and that. Can you help me out? Can you

help me get powder?"

Mr. Purvis: Yes, for which I am very grateful.
sible.

HM,Jr: And I have been able to do the impos-

Mr. Purvis: Exactly! Yes, including even
taxation, for which I am very grateful.
HM,Jr: And, therefore, the thing -- may sound
immodest -- the thing I am doing for you is 80 import-

ant

Mr. Purvis:

that we should not get into

any danger.

HM,Jr: These people are going to ask me and

on 95% of the things it's going to be no. I can't
help Mr. Rist with copper, with oil, with soy beans.
It's stupid. Now, I am talking very frankly.
Mr. Purvis: Yes. Yes.
HM,Jr: Now, why get me bogged down where you

and I know the chances are 95% I am going to say no

and then get me in this cross-fire between Lord Lothian,
yourself, Mr. Ashton-Gwatkin, Mr. Rist and Mr. Hull and
Herbert Feis.

Mr. Purvis: Quite! It's a dangerous situation.
HM,Jr: I have a saying around here there are
enough fights around here in Washington, I pick my
own fights.

Mr. Purvis: I can fully understand.
HM Jr: And I would like to pick as my fights,
first, the ones I believe in and, second, the ones we

283
-5-

have a chance of winning. Now, as I say, I am
being helpful; I am getting you things which nobody other than the President can get for you.
Mr. Purvis: Quite!
HM,Jr: And I am in this beautiful position
that the State Department are perfectly satisfied
and they don't in any way try to interfere with what

I am doing. Is that right?

Mr. Cochran: Absolutely!
HM,Jr: There isn't a murmur of interference,
but if they think they can use me and my influence
on this business, they are going to do it. Is it
worth it?
Mr. Purvis: I see exactly what you mean.
HM,Jr: Mrs. Morgenthau asked about having

Professor Rist for tea. For tea, I would love to
have Mr. Rist if he will talk about his home in
Switzerland.

Mr. Purvis: Which, by the way, was all he
wanted to do yesterday. He asked if there was any
difficulty re-establishing the purely social contact.
HM,Jr: If he promised not to talk about these

other things. But am I right? Like copper, soy
beans? Now, as a matter of fact, the things I can
help you on, I think you and I have pretty well COVered. Now, if on the other hand, he says to you -I have not rehearsed this -- if he says to you, "Mr.
Purvis, now have you taken up this or that," and you
say this: "Well, I have not taken up "b", but the
next time I see Mr. Morgenthau I will see if there
is anything he thinks can be done.'
Mr. Purvis: Yes.
HM,Jr: But if you get me all mixed up in
this business

.....

284

-6-

Mr. Purvis:

it may be a very poor thing.

HM,Jr: And you ought to talk this over, but

if you don't mind my suggesting

Mr. Purvis: I will.
HM,Jr: And my hunch 18 officially I would
keep those fellows away from me. They can tell you
if there 18 something on some subject that you and I
have not touched and then you can ask me, but I am
scared to death. What do you think, Merle?
Mr. Cochran: The State Department is expecting
to see these men.

Mr. Purvis: You mean, there might be real
value in seeing how far they go.
HM,Jr: Don't you think I am right?
Mr. Cochran: Yes, I do, Sir.
HM,Jr: I am in the unique position, there are
80 many things where the State and Treasury in every
country get crossed up.
Mr. Purvis: Always.
HM,Jr: Now it took us the longest time to get
our lines straight and you don't know the State Department exists.

Mr. Purvis: No. That's correct. I have

kept entirely out of that side.

HM,Jr: And you have taken some very, almost
impossible things, like powder, away from the Army
and the State Department --: we don't have to ask the
State Department or Mr. Green, of the Munitions Con-

trol Board, or anybody. Mr. Hull is perfectly satis-

fied to have me handle this, and that is a very unusual situation.
Mr. Purvis: And one that is devastatingly

285

-7-

important and what might, during some particular
period, cover the whole success of the War.

HM,Jr: Well, as I say, getting you powder
won't win the War, but getting half a dozen things
as important as the powder -- the accumulation of
them

Mr. Purvis: Is very, very important. Yes.
HM,Jr: See? So I just might -- I have not
talked it over with Cochran, but I really think it's
stupid to get me mixed up with Ashton-Gwatkin and
Mr. Rist officially. What do you think?
Mr. Cochran: I think you are right, Mr. Sec-

retary, because Mr. Purvis can bring anything to you
and if you wanted something brought to you a little
more prepared, I can get together with Mr. Purvis.

Mr. Purvis: If I can get some unofficial ad-

vice occasionally, which would not
be quoted,
but
ask
question?
may
which would give us a sense

I

a

And that is, is there any definite -- for instance,

molybdenum. Any talks I have with Climax, I might
want to come back to talk with you about, and possibly nickel, or something of that kind, as compared
with copper, oil, soy beans which are in another and
more political category, or is it all perhaps better
I
to be in the same. Take the Climax situation.
am expecting to get a cable -- after our last talk
you suggested would I carry on. I have asked our
people to give me a few more cards so I will know
what foot room I have before I talk with that group.
other
may get that any day now. Supposing, on the
I

hand, I find myself in some difficulty. You know
the dramatis personae and you were good enough to do
a wonderful piece of work in the beginning. Take
molybdenum. How shall we proceed there, as distinct
from copper and so on?

HM,Jr: I would say that if you have trouble

with molybdenum, you come back and see me.

Mr. Purvis: It would not prevent that. That's

really what I am asking.

286
-8-

HM,Jr: No. Now again, on strategic materials, if they have copper in mind, you come

in. Supposing you get a list. You say, "Mr.

Morgenthau, what are the chances about copper?
"Not one chance in a hundred."

"What are the chances about oil?"
"Not one chance in a hundred."
"What about BOY beans?"

"Not one chance in a hundred."

Now, if they are not satisfied with what I
say, they are perfectly free to take it up with Mr.
Hull -- and have him hit the ceiling!
Mr. Purvis: I absolutely agree with you.
Mr. Cochran: One thing you have not mentioned.
Rist 18 known over here more as a financial, monetary

man. If he is seen around the Treasury very much, I
think the press people might get suspicious.
HM,Jr: That is not as important as here 18 the
Allied Purchasing Mission, if they are accredited to
anybody they are accredited to the Treasury. They
don't have to bother going through all the formalities
of the State Department and Lord Lothian can tell you
his troubles. Now if Aehton-Gwatkin and Rist begin
to bring me in and mix me up into this fight whether
the mail should be stopped in Bermuda in exchange for
copper or this, or should we continue to give them
airplane engines unless they let the mails go through
Mr. Purvis: Might be a disadvantage.
HM,Jr: And I can tell you beforehand -- and
if I have any doubts, the way I always do I will say,
"Mr. Purvis, I am not sure. I will ask the President
and then you will know."

287

-9-

Mr. Purvis: I must admit my judgment is I
can see that is a concrete situation which we ought
to face and handle perhaps with great care. I would
just like to feel on molybdenum
HM,Jr: Anything.
or nickel or some special
Mr. Purvis:
situation, I can get your advice.
HM,Jr: You can feel free to walk in here and
ask me anything and I will simply say I can't handle
it or I can, but you will get an answer in any case.
Mr. Purvis: What it really means, it does not
close the doors to such things as you feel in your own
judgment, from time to time, you could properly come
in and help on if you can possibly help, but it does
mean you will not be dragged into things which will
criss-cross with the State Department.
HM Jr: What I am trying to say 18 I don't want
this relationship that we have
Mr. Purvis:

disturbed

to have them use our relationship.
They know that we get along well. They are having
HM,Jr:

lots of trouble over there and for them to try to have

me help them by bringing pressure on you to buy more

copper or tobacco, or vice versa
Mr. Purvis: It's a disadvantage to my main

job, to put it in a selfish way.

HM,Jr: And I am interested in doing what I
am doing and I am not interested in the other thing.
Mr. Purvis: I must admit your judgment is
right.
HM,Jr: But apparently -- from your standpoint,
what have you got to get from it? You are diluting
your cream.

288

-10-

Mr. Purvis: That's right.
HM,Jr: But that does not keep these gentle-

men from asking Morgenthau how he feels about this?

Purvis: No. And in your own judgment,
from time to time, doing such things as you feel you
could properly do and successfully do. I am still
seized with the vision what this control of certain
Mr.

essential materials might mean among the Democracies
in giving us a better background for a more common-

sense and designed kind of peace. That's almost an
individual response to what I think is a very fine
and practical outlook on a thing that is going to
face us reasonably soon, but there is nothing you
are saying that prevents us from keeping that in
mind without endangering immediate objectives.

HM,Jr: If you talk it over with Lord Lothian,

I

feel sure he will agree with what I am saying.

Mr. Purvis: Yes. I agree, Sir.
HM,Jr: Now there is one thing I would like
to clear up with you and I would like to have your
help. As you know, we try to keep track of the purchases and money you spend, etc.

Mr. Purvis: Quite.
HM,Jr: There is a discrepancy of $200,000,000
which we can't explain.
Mr. Purvis: Quite a sizeable sum.

HM,Jr: And this will interest you, we are
suspicious it might be flight of unregistered capital.
Mr. Purvis: oh, yes!
HM,Jr: Which you would be interested in.

Mr. Purvis: Naturally.
HM,Jr: Therefore, if you could get hold of

289
-11-

Pinsent and Mr. Cochran and Harry White and have
a meeting and we will show you our figures and
then if you would make a check.

Mr. Purvis: Yes.

HM,Jr: But there is a definite discrepancy

of $200,000,000 in money from England here. In

other words, we have $200,000,000 more than you ac-

count for. We think it is flight of capital, which
is quite a leakage.

Mr. Purvis: You bet it is.
HM,Jr: So if you would, and Cochran will arrange it.
to.

Mr. Purvis: Certainly. I will be delighted

HM,Jr: You get Mr. Cochran, Harry White and
Mr. Pinsent, sit down and we will put our cards on
the table.

Mr. Purvis: We will put what we have and get

such other ones as we need.

HM.Jr: The only explanation is possible flight
of unregistered capital.
Mr.
Purvis: Yes. That would be, of course,
of great interest to us and I would be delighted to
follow it through to a point where we getsomewhere.

If day after tomorrow will suit you (Cochran), I think
I will have to be down tomorrow. I would like to go
back tonight.

Mr. Cochran: You tell us the hour.
Mr. Purvis: Thank you very much. I would
like very much to do that. Incidentally, they have
been sending a good deal more information on that
line and perhaps we have figures that don't match.
HM,Jr: I think Gifford would be interested
in this too.

290
-12-

too.

Mr. Purvis: Very much so. Very much so.
HM,Jr: You might want to bring him down

Mr. Purvis: Very good! I think he would

enjoy the opportunity.
HM,Jr: Because he might have an angle on it.

Mr. Purvis: Yes. Very valuable.
HM,Jr: What do you (Cochran) think?

Mr. Cochran: I don't think it is necessary,

because Mr. Gifford has a pretty good schedule there
now.

Mr. Purvis: Anyway, we will leave him until
after the first meeting is over.

HM,Jr: All right.
too.

Mr. Purvis: Fine. He's in Hampshire House

HM,Jr: Now, aircraft.
Mr. Purvis: Pleven and Jaoquin arrived yes-

terday and Self arrived the weekend from Ottawa,

wanting very much to call on you, but not liking to
come in ahead of the others. Pleven arrived last
night for a short time in Washington and equally
feels that he can't call before Self gets down here.

think they crossed their wires because we expected
Pleven to come off the boat and up to New York and
come to my house with Self and Jacquin and BlochI

Laine at 10:30. When we got there, Pleven was
missing. Self is very anxious to pay his respects.
He is one of the senior members in the Air Ministry.
A civil servant and I think, if I may speak perhaps
just a second off the record
(Miss Chauncey stopped taking notes here. )

291

-13-

HM,Jr: Is he the number one civil servant
in the Air Ministry?
Mr. Purvis: He was in charge of that part
in Harington, the production end.
HM,Jr: Is he an engineer?

Mr. Purvis: I don't think he's a technical
engineer. He brings with him Commodore Baker, who
is the technical head and his intention is to take
charge of production and we work in there, Bloom and
his crowd, on the industrial side to see that the

American industrial mission is properly represented.
HM,Jr: When are these gentlemen going to be
in the same place at the same time?
Mr. Purvis: Now, that is the whole point.
I think what Pleven would like to do, and Self puts
himself entirely at your disposition, what Pleven would
like to do is run up this afternoon to New York. He's
waiting to hear. He would like to run up to New York.
Either on Friday, or Monday or Tuesday he would come

HM,Jr: I would like to do it -- I would like to

have them down here Thursday afternoon.

Mr. Purvis: All right. They will be here Thurs-

day afternoon. What time will suit you?
HM,Jr: Three o'clock.

Mr. Purvis: I will arrange it. It's up to

them to come.

HM,Jr: You come too.

Mr. Purvis: That will be Pleven, Jacquin, Self.
Baker does not arrive until day after tomorrow.

HM,Jr: Don't make it entirely social. Let's

get down to business.

292
-14-

Mr. Purvis: Let's get down to cases. That,
I think, 18 why Self, who has been waiting very patiently for people who insist on getting on clippers
instead of boats -- from the time he left his office
until he arrived in Ottawa, less than seven days
whereas the fellows who came by boat have taken a
longer time to get here -- I think what Self would
like to do is sit down with Pleven and get to cases
before they see you. You see, what they talk to
you will be really
HM,Jr: If they have a week, they will take
a week.
If they have 36 hours, they will take 36
hours.

Mr. Purvis: They can do it in 36 hours. I

shall go back tonight.
HM,Jr: You know how those things are.

Mr. Purvis: If I can get away tonight, we

will sit all day tomorrow and come down perfectly
well.

HM,Jr: Have you any inkling?

Mr. Purvis: Slightly reduced. There has
been no joint meeting and I have not heard the French
end at all. Slightly reduced program which might perhaps ease the situation in regard to the burden on the
machine tool'end. Tendency to try and seek for the
types of engines that will least disturb the machine
tool market. That approach, really the approach that
will recognize production difficulties and endeavor to
overcome it.

HM,Jr: That sounds intelligent.

Mr. Purvis: Self is intelligent. He's a

curious looking bird, but I think Self is really an
intelligent fellow.
HM,Jr: Do you know what proportion bombers

or pursuit planes?

293
-15-

Mr. Purvis: More pursuit planes. It is
awaying towards fighters and away from bombers, because it looks as if it is going to be the thing.
HM,Jr: More pursuits?
Mr. Purvis: More pursuits and less bombers.

That seems to be the recent experience. Now, I
say that with the reservation that the French have
not had a hack at this since Self left and Pleven
was in Paris and London four days after Self -this is Self's reflection, because I have just seen
Pleven for exactly ten seconds, just shaking hands
with him when I got in here.
HM,Jr: Well, we will see what they have.

Mr. Purvis: I think one of the things that

impresses me the most, I think it goes back to your
first talk on the subject when Pleven came in here
when you rather reminded him of the difficulties
that arose last time, having to go back continually
on particulars, types and so on, I think what you
have achieved there is we have Self and Banker, and
Pleven and Jacquin, with a high degree of effective

authority -- I think that's the phrase they use.
HM,Jr: Bring them all in. Baker and so forth.
Mr. Purvis: Baker, I fear, will not be there.
HM,Jr: How about Jacquin?

Mr. Purvis: Jacquin, I think yes. Verl well.
That is about the picture from the British end
with the reservation, as I say, that we have not sat
together, but they have got over from the Air Ministry, in addition to Baker, three other technical fellows. Not only has it value for this program, but

your reminder has enabled me to bring about something
which was really becoming absolutely essential, namely:

a greater decentralization of authority on the existing contracts, though information that was given you

294

-16-

by the airplane people in regard to, for instance,
Curtiss' complaint about his contract and in regard
to our not ordering engines direct, was about 85%
inaccurate. There was a complaint which they did
not voice to you, which I think they could have,
and that is, in my opinion, that London was trying

to run their armament of the planes they were buying from London without knowing enough to decide it

from London and without being willing to trust the
men they had over here. The effect of the new program is we have over here a section of technical men

who can literally settle it without cabling. The
younger technical men were coming to me almost at
their wit's ends and terribly depressed at the lack

of decision and I finally used this as a means of
getting these people over here.
HM,Jr: You have to have people here on a
billion dollars program and a half a million program.
Mr. Purvis: Even one hundred million, you
have to have it, but on technical questions of armament you have to have the fellows who have that
particular knowledge, specialized knowledge.
HM,Jr: How are you coming along with the
Hercules contract?

Mr. Purvis: I almost hesitate to tell you

that we are hopeful. I have my fingers crossed.
you have now given us, but I will believe that Heroules thing when it is signed and sealed, because
they have been terribly full of fears, genuine fears,
but if I have ever had fear on a commercial basis
it was that. I have not had such a frightened group
I don't see how we can go wrong with the background

of people

HM,Jr: What are they frightened about?

Mr. Purvis: They are frightened -- I tried to

describe it -- they were frightened because that in
1929 the system they lived on proved wrong. They
are frightened we may lose the war, and, if we don't

295

-17-

we may not pay our debts, and they are fraid of
the New Deal. I found myself dictating to Monnet
and those four fears stuck up as the main ones,
but when it comes to negotiating a contract -- I
came to America originally as a Britisher and I have
learned more in my knowledge have to produce things
efficiently than I ever did in my country. I came
here as a rugged individualist, but a rugged individualist is more extinct today than a dodo.
HM,Jr: Have you met any machine tool people?
(Laughter.)

We will see each other again
Mr. Purvis:
Thursday.

HM,Jr: And you bear this other question
Mr. Purvis:
very definitely in mind.
will proceed to talk with Lord Lothian and may I have
a quiet word with you on Thursday as to the results
I

of that?

HM,Jr: Surely!
Mr. Purvis: But I see your point thoroughly.
HM,Jr:

Surely.

And you might tell me when

Rist comes to town. We will have him up to the house
for tea.
Mr. Purvis: He came last night and I think he
would like very much to have an opportunity of seeing
you personally and would accept an invitation to go
there.

Again, many, many thanks.
000-000

296

March 5, 1940
REMINDER FOR THE SECRETARY.

France.

In re United States Air Missions to England and

General Arnold said the Army's original plan was
to send 3 men to France and 4 to England, but they could
not get the mission idea approved, 80 switched to the
Assistant Attache idea, which reduced it to 1 man to
France and 2 men to England. The 1 to France is on his
way, but the 2 to England have never been cleared by the
British.
Admiral Towers was uncertain how large a mission
the Navy would want to send, because of the various Bureaus
of the Navy involved. He thought the last figures he
heard were 7 men to the two countries.

297

MAR 5 1940

My dear Mr. Secretary:

I have considered carefully the suggestion in

your letter to me of February 24, that the possibilities
relative to the development of a local steal industry in
Brasil should be explored by the so-called Committee of

Three.

In my view, the Committee of Three was dissolved
upon the conclusion of the temporary settlement of the

Colombian debt last month. Accordingly, I do not feel

able to participate in the Brasilian steel astter. Further,
in so far as purely technical cooperation might be desired,
I feel that, due to the press of business, the Treasury
should not assume a new additional burden of this nature.
If the Department of State desires the help of other departments or agencies of this Government in the considere-

tion of this matter, I venture to suggest that the Export-

Import Bank and the Department of Commerce are the more

appropriate agencies.

I am sending copies of this letter to Mr. Jones
and Mr. Noble.
Sincerely,
(Signed) H. Morgenthan Jr.

Secretary of the Treasury.

The Honorable

The Secretary of State.
JPC,JR:BJ 3/5/40

By Messenger. 415 pm 3/5/40
File to Mr. Thompson

298

Excerpt from report to the Secretary by the Treasury Attache at
Shanghai, dated March 5. 1940 (Received March 19).

Japs Tired of War

All indications point to the fact that Japanese troops in south

China are very sick of the war because of long service not only on
south China but on north China fronts. When the Jap S.S. Canton Maru
passed through Hong Kong from Canton to Japan recently, she had on
board over 200 officers and men going to Formosa to be imprisoned for
insubordination.

These soldiers are so recalcitrant that they are on the verge

of an open mutiny, hence Prince Chichibu, younger brother of the
Japanese emperor, came south to investigate the matter and restore
harmony if possible. Such feelings are high in Canton, Swatow and
Hainan Island. Such elements are found in the Fukuyama unit in
Canton and several men have been executed because they were found

to have anti-war literature.

In Japan 55 persons were arrested for anti-war sentiment, including Deguchi, 70 and Takaki, 67. Many people still do not understand
the meaning of "New Order in East Asia" despite Premier Yonai's
threat to punish such "stupid" persons.

299
STATEMENT BY
SENATOR
HARRY F. BYRD, (DEMOCRAT, VIRGINIA) FOR MORNING PAPERS OF
WEDNESDAY,
MARCH
6, 1940.

With respect to the suggestiOn of certain Senators that the balance in the
general fund of the Treasury, known as the working cash balance, be used an offset
for new appropriations, it should be understood that under the Budget submitted by
the President, this working balance will be reduced by $1,241,000,000 on July 1

next. In other words, the present working balance will be reduced by this amount
in order to pay current appropriations.

In addition, it is proposed to recover in the next fiscal year from the socalled government corporations the sum of $700,000,000 to be placed into the
general Treasury.

These two devices are for the purpose of avoiding action by Congress at this
session to increase the present debt limit of 345,000,000,000. Even with such
transfers unless appropriations as submitted in the Budget are reduced by about

$400,000,000, then additional taxes to this amount will still be necessary, so
that the expenditures will not exceed the present debt limit within the next
appropriation year.

This reduction as proposed in the general fund balance will leave the
smallest balance in many years and could not be further reduced. Any effort to
pay new appropriations by any further reduction in the working balance would not

be possible. Let us not fool ourselves. The only alternative, if Congress desires
to increase appropriations, is either to increase taxes or increase the legal
debt limit. This should be understood in any discussion of this subject.

300
NEW YORK HERALD TRIBUNE

MAR 6 1940

New Tax Held

Takes Exception on Taxes

Sure Without
Debt Limit Rise
Byrd Points to Impossible
Use of Treasury Balance

to Avoid One or Other
From the Herald Fribune Bureau

WASHINGTON. March -Senator Harry F. Byrd, Democrat, of
Virginia, a leader of the Senate
economy bloc. tonight issued a
statement in which he took to task
certain Senators who have advo-

3,094,775

New Tax Held

Sure Without

cated in recent days expenditure of
the Treasury's $1,000,000,000 working

balance in order to avoid new taxes

and a rise in the debt limit.
Senator Byrd pointed out that under the President's budget message
the Treasury's working balance will

Debt Limit Rise

be reduced by $1,241,000,000 on July

Underwood & Underwood

1. next, the beginning of the 1941

fiscal year. "In other words, the

Senator Harry F. Byrd

present working balance will be re-

Debt Limit Shown
The Treasury today released a
memorandum to the press in which
it was disclosed that a total of $2.-

duced by this amount in order to

pay current appropriations," he said.
Meanwhile. the mystery deepened

about yesterday's conference at the
White House with President Roosevelt. and Secretary of the Treasury

Henry Morgenthau jr., Marriner S.
Eccles, chairman of the Federal Re
serve Board: Daniel Bell. Under-

secretary of the Treasury, and
Lauchlin Currie, one of the special

assistants to the President,

Routine, Says President

At his aid-week press conference
today the President was asked, after

he had disclosed that the meeting
took place to discuss financing, why
the refunding of the June 15 maturity of $738,000,000 of notes, was
made the subject of a special con-

471334.975 of government obligations
could be issued before the $45,000.-

000,000 statutory debt limit is
reached. under Section 21 of the
Second Liberty bond act. he total
ross public debt outstanding as of
Feb. 29. 1940. was $42,365,353,180.

The following table shows that as
of Feb. 29. 1940, there were the fol-

lowing government securities outstanding:

Savings
maturity value)
Adjusted service
Total

Treasury notes

ference.

Certificates of Indebted-

Every time we have a bond issue
we have a session the President re-

Treasury bills (maturity

plied, pointing out that there was
nothing unusual about it.
Then he was asked why the June

15 maturity was refunded into a
five-year note issue. Mr. Roosevelt
said that every body recommended
such an exchange.

There are reports here that Under

secretary of State Sumner Welles
who is now making a round of the

capitals of the belligerents, had
made a bearish report on coming
events abroad. Perhaps, it is said.
the President wanted to review the

ness

value)

Total

Grand total

$26,897,110,900
8,979,335,550
769,492,525
$31,045,988,975
$8,405,874,900
1,652,800,000
1,308,271,000
$11,366,445,900
$42,412,884,873
interest

Amount of obligations on which
has ceased:

Bonds
Notes

Certificates of Indebtedness
Treasury bills
Total

Obliestions which may be
taxted

$10,048,400
21,118,050
4,008,700
T2,110,000
116,280,150

$2,471,884,975

Senator Byrd's statement, com-

which might be hurriedly under-

menting on the proposals to use the
Treasury's free funds, said:
With respect to the suggestion of
certain Senators that the balance in

Reports that financial steps of

known as the working cash balance.
be used as an offset for new appro-

in the near future. however, continue to circulate here. There is a

that under the budget submitted by
the President, this working balance

Treasury's position for any financing

taken, and review the economic and
fiscal situation here.

the general fund of the Treasury,

some character might be undertaken

priations, it should be understood

strong bloc developing in Congress

will be reduced by $1,241,000,000 on

for
of the Treasury's
free expenditure
funds

cover in the next fiscal year from
the so-called vernment corporations the sum of $700,000,000 to be
placed into the general Treasury.

"These two devices are for the

purpose of avoiding action by Congress at this session to increase the

present debt limit of $45,000,000,000.

Even with such transfers unless
appropriations as submitted in the

budget are reduced by about $400.-

000,000 then addition taxes to this

amount will still be necessary, so
that the expenditures will not exceed the present debt limit within
the next appropriation year.
"This reduction as proposed in the

Interest Bearing Bonds
Treasury

(Continued from page thirty-one)

July 1 next. In other words, the

present working balance will be reduced by this amount in order to
pay current appropriations.
"In addition, # is proposed to re(Continued on page 34, column 8)

general fund balance will leave the
smallest balance in many years and

could not be further reduced. Any
effort to pay new appropriations by
any further reduction in the workIng balance would not be possible.
Let us not fool ourselves. The only
alternative, If Congress desires to
increase appropriations, is either to
increase taxes or increase the legal
debt limit. This should be under-

stood in any discussion of this
subject."

301

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON

OFFICE OF THE CHAIRMAN

March 6, 1940.

My dear Henry:

As I told you in our telephone conversation on Monday,

I felt that I should not let our discussion of the Lasser corre-

spondence end without a further effort to correct your impression of the matter as reflected in your letter of February 29th.
The best way to do this, it seems to me, is to repeat, first,
exactly what Mr. Lasser asked me and, second, what I said in reply, because I believe that your impression as to this correspondence must have been based on what someone else told you about it.

In Mr. Lasser's letter to me he stated (a) that he had
been informed that there are considerable resources available to
the Administration today without further legislative authority
which could be used for meeting current expenditures without in-

creasing the debt limit or without further taxation; (b) that

among these funds are a $2,000,000,000 stabilization fund,
$1,000,000,000 power to issue silver certificates, and $1,500,000,000
excess in the Treasury's working balance over normal requirements,
totaling $4,500,000,000; (c) that this $4,500,000,000 is based on
the Treasury's working balance of about $1,800,000,000, the usual
practice being to maintain a working balance of about $250,000,000;

and (d) that this $4,500,000,000 is in addition to the power to
issue $3,000,000,000 of additional currency not specially backed
by gold or silver. He then asked me, first, whether these figures

were correct; second, whether to my knowledge there were additional
funds that could be used for meeting current expenditures of the

Government without further legislative authority or without increasing the debt limit and, last, my viewpoint as to the economic
effects of using such funds for increasing work and consuming power
in the hands of the low-income groups.
These are the questions which were before me when I an-

swered his letter and I replied in four brief paragraphs. First, I

quoted the language of the Gold Reserve Act which states the purposes

for which the stabilization fund is available for expenditure, and
stated that I was advised that it would require legislation to apply
the fund to meet current expenditures. Second, I stated that as to

silver I was informed that approximately $1,500,000,000 would be
available by monetizing the difference between what had been paid by

302

-2the Treasury for the silver and the official price of $1.29 and

that this would not require legislation. Third, I told him that

the Treasury's working balance was approximately $1,600,000,000,

that tentative estimates of our statistical division indicated

that without new financing the balance would not fall to less
than $1,000,000,000 at the end of the present fiscal year, and

might be somewhat more than that if sales of baby bonds continued

in the current volume, and that I understood that prior to the

advent of the present administration it was not customary to keep
working balances in excess of $250,000,000 or $300,000,000. I
confirmed his statement that there is unused authority under the

Thomas Amendment which provides that up to $3,000,000,000 of

currency may be issued, but stated that it might be issued only
for the purpose of meeting maturing Federal obligations. Finally,
in the last paragraph of my letter, in response to his question
regarding the economic effects of using such funds for increasing

work and consumer buying power, I stated that the Government
could expend only what Congress authorizes and appropriates and
to the extent that these funds were used to meet such expenditures

it would avoid an increase in the public debt but consumer buying
power in the hands of the low-income groups would not be increased
thereby unless increased expenditures were voted by Congress.

The foregoing is all that there was to the correspondence.
You say that Mr. Lasser's letter did not give you the "impression

that he was in search of facts". But, as I said to you before, I

am not acquainted with Mr. Lasser and it did not occur to me to
suspect or question his motives. His letter came in in the usual
course, was referred to the staff and a draft of a reply prepared
on a factual basis, as is customary in the case of such correspond-

ence. It so happens that I took special care to see that my reply

was purely factual and contained no expression of opinion whatso-

ever on my part regarding "matters of budget and fiscal policy" or
regarding "ways in which the President's fiscal policy could be improved". However, I would have been doing just that if, as your
letter suggests, I had "attempted to explain the present justification for a larger working balance".

It is perfectly true, as you say, that the matters to
which Mr. Lasser's letter related did not "fall within the sole

jurisdiction of the Board of Governors". On the other hand, they

do not fall wholly outside the field of my responsibilities as

Chairman of the Board of Governors and, incidentally, as a member
of the Fiscal and Monetary Committee. Consequently, I felt that

303

-3when Mr. Lasser addressed his inquiry to me in my capacity as
Chairman of the Board of Governors he was justified in expect-

ing from me, as a public official, direct answers to his
questions. That is a courtesy that we endeavor to accord to

many inquiries from individuals whose interest in these matters

is frequently less substantial than that of the National President

of the Workers Alliance of America.

In the circumstances, I would not have felt justified in
asking Mr. Lasser to read the President's budget message to obtain
the information which he requested instead of giving him direct

answers. In fact, it would have been quite difficult for him to

find the answers that way. As for your statement to the press that
I should read the budget, I am sure that you did not think that I
needed to be informed as to its contents nor that you expected the
press to think so. You say that I had an opportunity from about
February 6 to February 26 to give you the facts. It never occurred
to me that you could possibly have the least interest in a factual
reply to a routine letter. I had no way of knowing that you were
in any way concerned about the matter until I saw your comment in

the press. As for the comment itself, it would have been possible
for you to have said simply that you had not seen the correspondence. I think you assumed, as your comment indicated, that the
facts were quite different from what they actually are.
Possibly you will recall that when I was requested to
appear before the Senate Special Committee to investigate unem-

ployment and relief in January 1938 I did my best to avoid it but
was told by the Chairman of the Committee not only that if I did
not appear voluntarily he would issue a subpoena but that if I
was not prepared to testify I should not be occupying my present
office. I am convinced that it would have been exceedingly

difficult, if not impossible, for me to justify the avoidance of

a direct and simple answer to each of Mr. Lasser's questions.

As I have said before, I intend always to cooperate
with you as fully as possible, and I have undertaken to go into

this matter fully and frankly with that end in view.
Sincerely yours,

Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.

304

PARAPHRASE OF TELEGRAM RECEIVED
FROM:

American Embassy, Rio de Janeiro

NO.: 89
DATE: March 6, 1940, 1 p.m.

Reference is made to the Department's no. 54 of
March 5.

I have made arrangements for the matter to be

held open all of today.
CAFFERY

EA:EB

305

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro

NO.: 90
DATE: March 6, 1940

Reference is made to my conversation with Feis.
When I explained to Aranha what had occurred in

the Department regarding Grade IV, he said that although

he much prefers not to do so, he is willing, as a further
demonstration of his "extreme good will", to again reduce
the British and French held Grade IV, first year, from
45 percent to 40 percent if this is the Department's
desire, no matter what is said or done by the French.
CAFFERY

EA:EB

306
COPY OF TELEGRAM RECEIVED

From New York, New York, March 6, 1940
Honorable

A. A. Berle, Jr.,
Washington.

In order to avoid any misunderstanding please

telegraph Text of Brazilian offer to which your
telegram of last night refers.
FRANCIS WHITE

COPY:EA:EB

307
NEW YORK

JT

Rec'd March 6, 1940
5:46 p.m.
THE HONORABLE

A.A. BERLE, JR.,
ASSISTANT SECRETARY OF STATE,
WASHINGTON, D.C.

Council has reconsidered Brazilian offer in the light
of your telegram of March fifth and particularly in view of
Department's belief that it has obtained the best offer
possible and is constrained in bondholders' interest to reaffirm action previously taken.
Council's statement to be published when offer is made,

assuming that offer, text of which WE have not yet received,
is as WE understand it from Department's verbal statements,
is as follows:
"Without passing in any way on the merits of the Bra-

zilian proposal, which was not negotiated by it, the Council
limits its comment on the proposal of the Brazilian Government received through the Department of State to the remark
that pursuant to consultation with the Department of State
negotiations at present would SEEM to hold no favorable

prospect of obtaining any better offer. The Council must
leave to bondholders to determine whether or not they will
accept

308

-2- #- to Mr. Berle
accept what is now offered."

It is further understood that the offer will disclose
to the bondholders the whole picture including any repatriation of bonds and that should there be modifications of the
present offer the Council reserves the right to review the

situation anew with full liberty of action with respect
thereto. The Council has learned of the change made by the
Brazilian Government in Grade IV since my talks in Washington

on Monday and in spirit of cooperation will not alter its
position on account of this modification, but I repeat
reserves the right to do so should there be further changes.
FRANCIS WHITE

President

NPL

TELEGRAM SENT

JT

309
GRAY

March 6, 1940
7 p.m.
AMEMBASSY

RIO DE JANEIRO
56

The Council has telegraphed to the Department the following comment on

the possible Brazilian debt offer:
QUOTE Council's statement to be published when offer is made, assuming

that offer, text of which we have not yet received, is as we understand it
from Department's verbal statements, as follows:
INNER QUOTE Without passing in any way on the merits of the Brazilian

proposal, which was not negotiated by it. the Council limits its comment on
the proposal of the Brazilian Government received through the Department of

State to the remark that pursuant to consultation with the Department of State
negotiations at present would seem to hold no favorable prospect of obtaining
any better offer. The Council must leave to bondholders to determine whether
or not they will accept what is now offered. END INNER QUOTE.

QUOTE It is further understood that the offer will disclose to the bondholders the whole picture including any repatriation of bonds and that should

there be modifications of the present offer the Council reserves the right to

review the situation anow with full liberty of action with respect thereto.
END QUOTE

You are authorized to communicate this to the Brazilian authorities.
the

HULL

(HF)

EA:HF:EB

310
March 6, 1940.

The Honorable

Francis White,

Foreign Bondholders Protective Council, Inc.,
90 Broad Street,
New York, New York.

The terms of debt service contemplated to be proposed

by the Brazilian Government to cover a period of four years
which have been transmitted through the Embassy at Rio and

which have been under discussion with the Council are as
follows:

(Percentages of service provided for the last year
of the so-called Aranha plan of 1934)
Grade I

Interest - 50 percent; amortization - 40 percent
in each of the next four years.

Grade II

Interest - 50 percent: amortization - 40 percent
in each of the next four years.

Grade III

50 percent in each of the next four years.

Grade IV

45 percent first year, 50 percent fourth year.

It is not entirely clear whether in the second
and third years the percentage is to remain at
45 percent or to increase.

311

-2Brades V,

VI, VII,

and VIII

40 percent, 41 percent, 43 percent, and

50 percent during the first, second, third
and fourth years, respectively.

The Brazilian Government would reserve the right,

under numbered paragraph six of Article I of the 80-called
Aranha plan of 1934, to put additional amounts of funds

into purchases of bonds on the market. It has been
stated separately that the Government of Brasil would
be prepared to devote in this manner $10,000,000 over

the four years to the purchase of dollar bonds.

All these terms are of course strictly confidential.
HULL (AAB)

EA:FL:EB

312

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

March 6, 1940

MEMORANDUM FOR THE SECRETARY

The present capacity of the Army plant at Picatinny Arsenal of the manufacture of smokeless powder is 10,000 pounds a day with the existing recovery
equipment. This capacity is being employed to the maximum on current orders.
The Picatinny Arsenal can produce no more until additional solvent equipment

is installed. It is anticipated that the installation of such equipment will

be completed in the fall of 1940 and that the capacity then will be 18,000
pounds per day. Therefore, it appears that the Picatinny Arsenal is already
operating at full capacity.

Concerning the procurement of powder from commercial sources, 1,800,000 pounds

are set aside for war reserve. Of this quantity 600,000 pounds of the capacity

of war reserve bulk powder was recently conceded to the Government of Finland,
leaving a net available capacity of powder in this category of 1,200,000 pounds.
In a memorandum to the Chairman of the President's Liaison Committee from the

Acting Secretary of War under date of February 29, 1940, it is stated that the

War Department does not desire to release any of this remaining 1,200,000 pounds,

but that if it is desired by the President that the British Government should

be accommodatod it is believed that the release should be limited to the

1,200,000 pounds being manufactured for war reserve by the Heroules Powder
Company.

M
Collins

Chairman, Lisison Committee

313
PLAIN

hsm

London

Dated March 6, 1940

Rec'd 2:40 p. m.

Secretary of State,
Washington.

564, March 6.
FOR TREASURY FROM BUTTERWORTH.

The weakness of sterling in the unofficial market
in NEW York is being publicly attributed here to the
prospective measures reported in my 432, February 21,

5 p. m., hints of which have recently appeared in the
press as a result of the consultations which the British
Treasury has found it necessary to have with the affected
producer interests. It is an open secret that the Bank
of England plans to bring these regulations into force
at the End of this WEEK. The Effect of these measures
in transferring a substantial amount of the demand for

sterling from the free to the official market is reinforced by the arrangements between the RESERVE Bank of

India and the Bank of England whereby banks in London

have been instructed to insist that the sterling be
acquired through official channels in payment for many

of the important Indian Exports previously financed in
sterling.

314

hsm -2- No. 564, March 6, from London

sterling. Likewise purchasers of rupees outside the
sterling block (and in countries whose currencies are
not officially quoted by the Bank of England) must make
payment in dollars, belgas, guilders, Dutch East Indies
guilders or Swiss francs.
Although the British Treasury was at the time annoyed
that knowledge of its plans should have found its way into the press, the fact that the news was broken to the
market in this way may tend to lessen the reaction.
Nevertheless if the supply of unofficial sterling continues available in undiminished amount the rate must
depreciate with lessened demand. While the amount of

foreign balances still remaining in London is doubtless
not much greater than operation needs require there are
considerable holdings by foreigners of British securities
and it remains to be SEEN whether a wobbly pound perhaps
weakened by SOME particular war development would not

produce SOME further flight of foreign capital.
These Exchange control measures also have significance

in terms of the export trade in that while unofficial
sterling will not be available for the more important
Empire area raw materials it will still be available for
the numerous British manufactured products which could

be purchased at the going but no doubt preferential rate.
2.

315

hsm -3- No. 564, March 6, from London

2. With reference to the final SEntEncE of my No.
482 of February 28th, a White Paper issued today by the
Export Council, (the appointment of which was reported

in my No. 304 of February 2nd) indicates that the

initiative for the Expansion of exports is for the
time being to remain with manufacturers and traders,
who are urged to organize thems elves into industry groups

"so as to make it possible for them to work with the
Export Council in securing the necessary adjustments in
the war-time machinery of trade and so as to profit

Effectively from the direction, guidance and support
which the Government are ready to give." The Council
EXPRESS confidence that in present internal and external
circumstances a substantial increase in Exports can thus

be achieved. Nevertheless the report adds "should
EXCEPTIONAL circumstancES arise in particular trades or

OVER the whole field the Council place no limit to the
Expedients they would be prepared to consider."
The Council has already opened discussions with a

large number of industries, and will lose no time in
extending this action. Meanwhile it invites exporters
to prepare thEmsElves for consultation. SOME of the
industries which appear to have formulated plans and
allocated reduced amounts of their output to the home

market are linen, wool textiles, and the rayon industry.
The

316

hsm -4- No. 564, March 6, from London

The Council point out that when consumers find that they

cannot buy all they need of pre-war quantities and
qualities of less necessary goods, they can contribute
to the war Effort by putting up with reduced consumption.
There are actual shortages of skilled labor in a number
of industries including not only Engineering, shipbuilding,

Et cetera, but such industries as cotton textiles, wool,
Et cetera. Where these shortages Exist labor is often
bid for at increasing wages, and Exporters with contracts
are in SOME cases faced with losses. It is of interest
that the Chairman of the Bradford Dyers Association a few
days ago strongly advocated Export subsidies. The cost

problem is therefore beginning to show itself and call
for Expedients beyond the mere "direction, guidance and

support" which the Export Council bElieve will substan-

tially increase British Exports.
JOHNSON

HPD

Net Capital and Gold Movements

(In millions of dollars)
From December 28, 1939

Week ending

Week ending

February 28, 1940

March 6, 1940

to

March 6. 1940

Inflow

29.3 Outflow

28.8 Inflow

Inflow

24.1 Outflow

34.0

Outflow

43.8

Inflow

19.4 Outflow

27.4

Outflow

51.3

Inflow

4.7 Outflow

6.6

Inflow

7.5

B. Net security transactions

Inflow
Inflow
Inflow

6.0 Inflow
2.8 Inflow
3.2 Inflow

35.6
3.4
32.2

C. Brokerage balances

Outflow

.8 Inflow

3.9 Inflow
.1 Inflow
3.8 Inflow
1.3 Inflow

70.1 Imports

45.5 Imports

1. Net flow of capital consisting of
A. Banking funds
(1) Change in balance of foreign

central banks and governments
with the Federal Reserve Bank
of New York

(2) Change in all other short-term
balances (most private funds)

(1) Domestic securities
(2) Foreign securities

II. Net gold imports

Imports

Net security transactions reported by

March 7 through March 15

the SEC

Outflow

Addition to monetary gold stock 1/1/40

to 3/6/40

Net gold imports 1/1/40 through 3/6/40
Net release of gold held under earmark for
foreign account 1/1/40 to 3/6/40
Treasury Department, Division of Monetary Research.

1.8

+ 576.9
+ 470.1

+ 83.3

1.4

9.5

568.2

318

PLAIN

HSM

London

Dated March 6, 1940

Rec'd 3:10 p. m.

Secretary of State,
Washington.

565, March 6.
FOR TREASURY FROM BUTTERWORTH.

1. Keynes scheme on "how to pay for the war" was

Effectively put on ice by the Chancellor of the Exchequer's
answer in the HOUSE of Commons to the following question:

"Whether the increased volume in national income and
wages is prompted only because of an increase in the

general cost of living and whether he will give an undertaking that no scheme will be introduced which would
deprive the individual, after the orthodox claims of
direct and indirect taxation have been met, of the full
USE of Earnings?" Simon replied: "The relation between
variations in national income and variations in the cost

of living is too complex a matter to be dealt with
adequately in reply to a question. As regards the second
part of the question, the Government are confident that
their appeal that EVERYONE should SAVE and lend to the
state

319

hsm -2- No. 565, March 6, from London

state as much as possible of their net income will
continue to meet with a response commensurate with our

great and unprecedented needs. So long as this is the
case the question of introducing schemes such as those
referred to in the second part of the question is less

urgent. But clearly I cannot at this stage give any
final undertakings as to how the war will be financed

throughout its duration."
2. Although the gilt-edged market closed about 3/4

of a point below the unofficial highs of last night the
city Expects the 1300 million loan to be a SUCCESS and

finds its terms acceptable. Naturally the Chancellor of
the Exchequer's statement has had a very good press, the
only criticism coming from the Labor DAILY HERALD which
states that "Mr. Montagu Norman and Sir John Simon have

stepped much too near the slippery slope of dear money
with this loan". The most pertinent comment COMES from
the FINANCIAL NEWS which emphasizes that the real import-

ano E of this operation is in helping to reduce the danger

of inflation, that the question for the investor is "not
merely one of reinvesting resources at present lying
idle in individual banking accounts (however important
it may be that these potential sources of spending should
be definitely transferred to the Government) but on
deciding how much can be spared from current family budgets

to increase the flow of genuine savings".
JOHNSON

320

March 6, 1940
Present:
Mr. Chen
Mr. Sheahan

Mr. Cochran

Mrs. Klotz

Mr. Chen: If it is agreeable with you, Mr.
Secretary, I will leave Mr. Sheahan with you.
HM,Jr: Why don't you stay?

Mr. Chen: All right. Just as you wish.
HM,Jr: Are you making a report which I am
going to be able to see?
Mr. Sheahan: That I was discussing with

mr. Chen. I am ready to make the final report
of the first six months of our work, summarizing
our recommendations.

HM,Jr: How much could you give me in 15

minutes of the situation as it is. I don't want
details of the organization -- about the stuff, the
problems yet to be done as you see it. Let's start
at that end. What I am interested in is here's all
this stuff which is already over there at Haiphong.

How are they going to move it up and how are they

going to take care of their traffic from now on?
I would rather start on that end.
Mr. Sheahan: I think I could summarize it
for you very well briefly. We have about 39,000
tons of U.T.C. freight in Haiphong.
HM,Jr; That's Universal Trading?
Mr. Sheahan: Yes. of which 8900 tons is
petroleum products. That's of January 12, this year.
We are moving about 100 tons maximum per day over new

321

-2-

roadways that have been opened up and we anticipate
that February 15th, at the latest, the French Railway should have resumed operations and on their in-

creased capacity that has been brought about by transferring certain equipment, rolling stock and motive
power from the Chinese railroads that are under construction in occupied areas we could increase tonnage
on the French Railway to approximately 24,000 tons
per month.

HM,Jr: They never move more than 9,000.
Mr. Sheahan: 18,000.

HM,Jr: 18,000? Did they?
Mr. Sheahan: Of which amount, roughly, twothirds or 18,000 tons can be Government freight.

HM,Jr: I see.
Mr. Sheahan: Balance for the commercial in-

terests in the interior. We are also arranging to

transship approximately 9 to 10,000 tons, the bulk
of which will be petroleum products and crated trucks
to Rangoon for assembly with more experienced workmen, utilizing those trucks to haul
the gasoline
over
has
route
Burma
The
the Burma route to Kunming.
been set up on a 24-hour work operating basis that
will permit movement of 9,000 tons per month by that
route by one company. We believe that can be doubled
with safety. We are moving, and have moved, approximately 10,000 tons per months through the seaports
that are allegedly under Japanese control.
HM,Jr: In or out?
Mr. Sheahan: Out and in both. That's Ningpo,
Kwangchow, Sintai, Macao and a point near the French
concession, Fenghshien. The old opium smugglers

route, we have utilized that with human carriers,

river junks, rail and truck combination. So the
entire possibilities there, I believe, will be in
the neighborhood of 35,000 tons per month if fully
utilized.

322
-3-

HM,Jr: To move up?

Mr. Sheahan: To move in or out.
HM,Jr: What were they doing when you left?
Mr. Sheahan: When I left, they were moving
the new trucks with light loads over the highway

that has just been completed into the interior through
Caobong in French-Indo China. We had just completed
recovering 9,000 tons of freight that had been in the
interior near Kwangsi and in the neighborhood of Nanning.
We brought that all back to French Indo-China. We lost
about 390 tons, the majority of which was buried in
rivers and properly marked for later recovery when they
burned the town of Lanchow. That recovered freight
HM,Jr: What doyou mean "recovered"?

Mr. Sheahan: It was freight of partially Uni-

versal Trading origin that had been transshipped into
China, but was caught between the two lines.
HM,Jr: I see.
Mr. Sheahan: And according to press reports
in this country was captured by the Japanese, and, as

a matter of fact, we recovered it all.
HM,Jr: I see. But that does not answer -it's very interesting, but it does not answer my

question that these 9,000 tons represents the only
freight which is moving in up to Kunming.
Mr. Sheahan: No. That was our first consideration, imports and also exports. We must remember
what was moving into Kunming was negligible when I left
due to the breach in the railroad in two points. What
we had done was to quickly arrange with the French
Railway authorities and their engineers to serve the
route and we went over every inch about bombings. The
total damage in our money was $7,000 to $10,000. We
figure it would be open by the 15th of February and,
barring further interruptions, would increase their

323

traffic to around 24,000 tons per month.
HM,Jr: Let me switch a minute, because

after you finish I am going to have you talk to

Captain Puleston. How many trucks are there being
operated on behalf of the Universal Trading Corpor-

ation?

Mr. Sheahan: We have about 5,000 trucks in

all available for U.T.C. cargo.

HM,Jr: But how much are they actually using?

Mr. Sheahan: Of that amount, we will say, I
will say, around 3,000.
HM,Jr: Running every day?

Mr. Sheahan: Not every day, but capable of

operations as fuel supplies arrive.
HM,Jr: When you left there, how many trucks

were running every day?

Mr. Sheahan: That's something I can't answer.
HM,Jr: Were there 100 trucks?
Mr. Sheahan: What we had on the road was 3,000.
HM,Jr: How many are running?

Mr. Sheahan: That's the group we had running
between the Southwest Transportation Corporation and

our Corporation. We had a shortage of gasoline at
that time. Out of 5,000 we had 3,000 in operation.
Now, on U.T.C. freight alone, we had -- most of the
freight consists of trucks -- we had 50 a day going out
over the new road. We loaned
HM,Jr: How much time have you got?

Mr. Sheahan: I have, at your convenience, today

and tomorrow.

324

-5-

HM,Jr: You have?

Mr. Sheahan: Yes, sir.
HM,Jr: This 1s too much. (Asked the operator

to have Captain Puleston come to his office. I will
tell him in front of you what I want. I will let him
put you through the wringer. I am not getting what I

want. The best thing Mr. Chen and his Government can
do is give me the bare facts even though they are not
very good. See?

Mr. Sheahan: I would certainly, have not attempted to color this in any way. I want you to
know that. But understand, U.T.C. cargo is about
the least amount of the problem. We still had freight
to cover from Rangoon and other points.
HM,Jr: Because the figures we have of freight
out of Haiphong is far in excess of what you say.
Mr. Sheahan: That's true, but there is other
freight there.
HM,Jr: From my standpoint, whether it's U.T.C.
or A.B.C., the question is how it is moving, and I
don't think it is moving. The question is, is it all
going into China? You see, we get weekly reports, both
cable and mail, from various consuls, 80 I have a little
inkling of what's going on. What I am trying to do is
help these people.
Did you look at all into the question of movement by river, the Irrawaddy River?
Mr. Sheahan: Yes.

HM,Jr: Are they using those facilities?
Mr. Sheahan: In a limited way.
HM,Jr: Is there a possibility of expansion?
Mr. Sheahan: A possibility if the Burma Rail-

way would cooperate.

325

-6-

HM,Jr: Do they control the river?
Mr. Sheahan: The Burma Railway is governmentally controlled and the company which operates

on the river is a private corporation and there is
bitter competition between the two routes.
HM,Jr: Why can't the Chinese Government

give it to the river?

Mr. Sheahan: They can and do, but only in

minor part. The reason is the Defense Consul in
Burma also is in control of the railroad and they
prefer to use that part of Burma and they have built
facilities for storage of supplies along the railway.
HM,Jr: You are looking into that too, aren't
you?

Mr. Chen: Yes. Yes.
(At this point, Captain Puleston came in. )
HM,Jr: Captain, sit down a minute. What I
would like you to do for me is have Mr. Sheahan go
down to your room, and what I would like him to tell
you is what the situation was when he left as to traf-

fic; what's going up; where it is, and the tonnage
which is going into China. I take it everything is

Government now, isn't it? No private tonnage going
in?

Mr. Sheahan: Yes, there's private tonnage.

HM,Jr: Well, anything that goes into China
and how it gets in. Also, what part is moved by
truck, which are controlled by the Government and
what part is still done by trucks which are privately
controlled. I believe there are still trucks which
trucking companies still own.
Mr. Sheahan: Very limited.

HM,Jr: I would like to go into the whole

326

-7-

thing and see if you can get the picture as it was
when he left there. And he has his own ideas as
to the solution of what might be done, and the point
which I brught out and we cabled for, is they are not
using the river from Rangoon up, and I have talked
with Mr. Chen about that, and I think we could look
into that too. I understand Mr. Sheahan has notes.
I think if you could spend as much time -- he will
stay here -- until you pump him dry.
Mr. Sheahan; Give you all the information
Ihave.

fine.

Captain Puleston: All right. That will be
HM,Jr: All right.

(At this point, Mr. Chen and Mr. Sheahan left
the Secretary's office.)
HM,Jr: This fellow, Sheahan, just tried to
give me a lot of bunk and filled me up with a lot of
stuff and he wasn't talking two minutes when I saw
it and I told him that I am trying to help China and
he gave me a lot of stuff about 3500 tons. "How much
are you moving a day?" "We have got 3,000 trucks. .
Made a very bad impression on me and I found myself

losing my temper, so I sent for you, and I told him
I want unvarnished facts; don't want a lot of bunk.
Just a waste of time. But he must have stuff and you
have read everything that has come through from the
Consuls and all that, and I just want you to put that
fellow through the wringer and I don't care how tough
you are. He looks yellow to me.
000-000

327
COPY

No. 61
AMERICAN CONSULATE GENERAL

American Foreign Service, Hanoi, Indochina, March 6, 1940.
SUBJECT: Pack Train Transportation in China.
The Honorable

The Secretary of State,
Washington.
Sir:

I have the honor to report, as of possible interest to the Department, that, for
lack of adequate facilities for transportation to China via Indochina, the organization of coolie and pony caravans at points along the frontier is apparently being

stressed by the authorities in unoccupied China. Despatch no. 30 of February 12, 1940,
from the Vice Consul at Kunming, reported the organisation of pack trains for the
transportation of tung oil to Holow and of gasoline on the return trip to Kunning and

Hing-I.

In connection with the above report, the following excerpt from a letter to a

.rm engaged in marketing gasoline in China may be of interest:

"For your information, 1000 mules carrying wood oil are leaving
here (Kunming) today (February 15) for Hokow. They are being sent out by
the Foreign Trade Commission who think it will take just 12 days for mules to
get to Hokow from Kunming, while according to the mule men it will take not
less than 21 days. We rather believe the mule men. We are advised that on

their return trip these 1000 mules will carry gasoline."

Mr. C. H. Liu of the Foo Shing Trading Corporation informs me that at least a number
of the mules will arrive at Holcow on March 8. If the pack train left Kunming on
February 15, as reported, the estimate of the mule drivers, that the trip would take
about 21 days, is apparently correct. Accordingly, a pack train cannot make a round
trip each month.

Mr. Liu states that he has sufficient stocks of gasoline in tins at Holcow to provide for the return load. But he adds that he has no assurance that he can maintain
sufficient stocks to provide for future caravans - particularly as the "tupan" of
Hokow is creating certain difficulties as to the storage of gasoline at Hokow. Mr. Liu
also stated that the Ministry of Communications has instructed him to load tin plate,
if gasoline in tins be not available, but laying down stocks of tin plate at Hokow is
just as difficult as laying down stocks of gasoline, in view of the shortage of rolling
stock on the railway and the uncertainty of obtaining cars. If cars can be obtained for
carriage to Hokow, there is no present reason why the cars should not continue to Kunming.

Assuming that each pack train of 1,000 animals is able to make one round trip per
nth, which is apparently impossible, each train will carry into China approximately
70 tons of gasoline - 2 cases of 2 tins per animal and 30 cases per ton. A large number
of pack trains will be required to make the transportation of gasoline by this method
of significant importance.

328

-2The Standard-Vacuum 011 Company has sold a certain amount of gasoline for

delivery at Tralin (near the Chinese frontier about 34 kilometers from Caobang),
from which place there is a trail to Tsingtsi, passable only for coolies and ponies.
The carriage between Tralin and Tsingtsi is about 1 day and the company expects to
develop this route, and from other points in the vicinity, depending of course upon
the availability of coolies and ponies. The Asiatic Petroleum Company is understood
to be interested in this means of marketing in Kwangsi.
An unconfirmed report has been received that the Chinese National Government

has agreed to turn over the N.C.C.L.F. duties to the Kwangsi Tax Bureau. In this same
connection, a member of the Kwangsi Import and Export Syndicate is reported to have

stated that the Kwangsi authorities will allow the importation of all petroleum
products, including kerosene (now prohibited). but that all importations will be made
by the syndicate or by the military. In any event, the oil companies are said to be
preparing for a resumption of kerosene business.
Respectfully yours,
For the Consul at Saigon,
CHARLES S. REED II,
American Consul.

In duplicate to the Department (Original by air mail)
Copies to the Embassy, Chungking and Peiping
Copies to Consulates General, Hongkong and Shanghai
Copies to Consulates, Kunming and Saigon
815.4/869

STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT

329

INTER-OFFICE COMMUNICATION

DATE March 6, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

Mr. Purcell of the Securities and Exchange Commission telephoned me this

noon. He asked if I was receiving any reports on the British liquidation of
vested securities. I replied in the affirmative. He then reminded me of the
original arrangement that was agreed upon last autumn, providing that I send

on copies to him of the daily reports received from the British.

I told Mr. Purcell that I had not begun providing him with any reports

since it was my understanding that an arrangement subsequent to that above
mentioned had been reached by the Secretary of the Treasury and the Chairman
of the Securities and Exchange Commission, which relieved the former of the

automatic provision of copies of the daily reports. It was my understanding
that Mr. Frank did not desire to be kept daily informed, but reserved the
right to approach the Secretary of the Treasury and request pertinent data,

which would be made available only upon the promise of the Chairman of the
Securities and Exchange Commission to guard their secrecy. Mr. Purcell told
me that he would check with the Chairman. I said that if my understanding was
not in accordance with Mr. Frank's idea, then he should communicate with me

further. While I have not the notes of the meeting in which I believe this

subject was discussed by the Secretary and Chairman Frank, I quote the following excerpt from a letter written to me on December 1 by Pinsent which clearly

sets forth the understanding at that time:

"In our discussion at the S.E.O. Mr. Whigham put the position
once more to Mr. Jerome Frank as regards the use of the figures regarding the sale of securities which we are to communicate to the
Secretary. Mr. Frank said that he would prefer that the figures
should not be passed on to him by the United States Treasury, with
an understanding however that he could if he wished ask for them at
any time and that the Secretary could then make the condition that
they should not be used in any way for purposes of publicity. If

this position is satisfactory to the Secretary, it is quite satisfactory to us."

From a recent talk with Pinsent, I am positive that the above indicates
the procedure which he hopes will be followed.

m.P.

330

TREASURY DEPARTMENT

my

INTER-OFFICE COMMUNICATION

DATE March 6, 1940
TO

Secretary Morgenthau

FROM

Mr. Cochran

CONFIDENTIAL

The rate for sterling was firmer today, recovering two cents of its recent
loss. In New York the opening quotation was 3.89-3/4, and throughout the day it
was strong reaching a high of 3.91-3/4 in the late afternoon. It subsequently
eased to close at 3.91-1/2.

While the reported turnover given below showed an appreciable excess of sales

over

purchases of sterling, it must be kept in mind that these figures cover only

six reporting banks and do not take into consideration transactions consummated by
these banks for their own account or operations conducted by non-reporting banks.

Sales of spot sterling by the six reporting banks totaled 1669,000, from the

following sources:

By commercial concerns

By foreign banks (Europe, Far East, So. Amer. & Near East)
Total

L 182,000
L 487,000

I 669,000

Purchases of spot sterling amounted to 1358,000, as indicated below:
L 314,000

By commercial concerns

By foreign banks (Far East and South America)

L 44,000

Total L 358,000

The following reporting banks sold cotton bills totaling 140,000 to the

British Control on the basis of the official rate of 4.02-1/2:
L 21,000 by the Guaranty Trust Co.
9,000 by the National City Bank
9,000 by the Chase National Bank

1,000 by the Irving Trust Co.

40,000 Total

The other important currencies closed as follows:
French france
Guilders
Swiss france

.0221-7/8

Belgas

.1691

Canadian dollars

.5314

.2242-1/2
14-3/8% discount

We sold $2,000,000 in gold to the Central Bank of the Argentine Republic to

be added to its earmarked account.

-2 -

331

We purchased $350,000 in gold from the earmarked account of the Central Bank
of Chile.

The Federal Reserve Bank of New York reported that the Swiss Bank Corporation,
Zurich, shipped $3,113,000 in gold from Switzerland for its own account to the Swiss
Bank Corporation, New York, for sale to the U. S. Assay Office.

The State Department forwarded to us a cable stating that the Banque Federale,
Bern, shipped $170,000 in gold from Switzerland for its own account to the National
City Bank of New York, for sale to the U. S. Assay Office.

Including the two shipments noted above, the total value of gold en route to
the United States from foreign countries as of the close of business tonight is
$114,088,000, the disposition of which is to be as follows:
$ 43,197,000 consigned to the Federal Reserve Bank of New York-disposition unknown at the present time.
28,552,000 consigned to the Federal Reserve Bank of New York-to be earmarked for account of various foreign central banks.

21,374,000 for sale to the U. S. Mint at San Francisco.
20,965,000 for sale to the U. S. Assay Office at New York.

$114,088,000 Total

It is interesting to note that $39,629,000 of the gold en route is consigned to the

Federal Reserve Bank of New York for account of the Bank of Sweden; of this amount,
$33,393,000 was shipped from Sweden, and the remaining $6,236,000 is coming from
South Africa.

The U. S. equivalent of the Bombay silver quotation advanced 1/8 to 41.57.
In London, the spot and forward fixing prices for silver were both up 1/8d,
at 21-1/16d and 20-15/16d respectively. The U. S. equivalents were 36.95$ and
36.47

Handy and Harman's and the Treasury's prices for foreign silver were unchanged
at 34-3/44 and 35$ respectively.

We made five purchases of silver totaling 500,000 ounces under the Silver
Purchase Act, all of which was new production from foreign countries, for forward
delivery.

ZYP.
CONFIDENTIAL

STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT

332

INTER-OFFICE COMMUNICATION
DATE March 6, 1940

TO Secretary Morgenthan
FROM Mr. Cochran

I talked with Mr. Pinsent at 11:25 today. He stated that British sales

of vested securities for yesterday, March 6, were:
9,600
405,284

Nil
Nil

I asked Mr. Pinsent if he had any direct word as to new regulations, as
intimated by the Press, in regard to the clearing up of any indebtedness on
registered securities before they are turned over to the Government. He said
that he had nothing new. It was his understanding that the Government desired

to receive perfectly clean title to vested securities and required, therefore,

that any liens thereon be paid off before surrendered to the Government. To

clear the title to vested securities, the practise evidently is to sell, if

possible, non-vested securities with the dollar proceeds whereof the indebtedness on the vested securities could be paid off. In some instances, the
holder may not have any assets other than the securities, so the Government
might be obliged to give permission for the sale thereof by the holder, and the
Government simply take the margin between the sale price and the mortgage on
the security.

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

m

333

DATE March 6. 1940
TO

FROM

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL

I have talked this noon with Mr. Reber, formerly Secretary of our Embassy
in Rome, who is now in the Department of State in charge of the Italian desk,
and with whom I talked yesterday, along with Mesers. Dunn and Hickerson.
Reber told me that nothing new had been received on the Anglo-Italian coal
controversy since I talked with them yesterday. Consequently their opinion of
the situation remains unchanged. Reber promised to call me back if anything
further reached the Department of State before 2 o'clock this afternoon.

To summarize, my friends in the Department of State feel that the difficulties will be compromised. Of Italy's 13,000,000 tons of coal per year,
Germany has heretofore been supplying 9,000,000 tons and England 4,000,000.

About 6,000,000 tons of the German coal have been transported by rail, but
Germany has not now rolling stock facilities to transport coal in such volume
to Italy.

The British feel that the Italian position is quite weak. That is, she

must either obtain an insufficient quantity of coal by rail from Germany or
look to England therefor. While the British state that they have no objection
to the Italians obtaining coal in the United States or Belgium, they are aware
that freight rates from the United States are prohibitive, and that Belgium

probably could not provide the necessary coal, even if some basis for payment

or barter could be arranged. The British are willing to accept payment for
their coal to Italy in sterling, knowing that the Italians have not the
necessary sterling, or in goods. If, however, they are to accept payment in
goods, they reserve the right to specify what these shall be, namely, airplane
engines, armaments, etc., with perhaps some materials for uniforms. Controlling
the Suez and Gibraltar, Great Britain controls Italy's important routes for the
importation of the raw materials required for Italian manufacturers. It is presumed that the British, through their Intelligence service in Italy, are satisfied that the Italian economic position is so weak, particularly with respect
to fuel and raw materials, that they will be forced to abide by the British
decision. Even though my State Department friends are convinced that Italy is
waiting to see who will be the winner of the war before taking sides definitely,
they do not feel that this incident will be enough to provoke her immediate
entry on the side of Germany.

My friends pointed out that the concentration of British and French troops
near the Suez, with South African troops moving into Kenya, providesa formidable
threat to Italy. Libya could be taken over with comparative ease, according
to at least one observer in the State Department, and Italy's communications with
her African possessions seriously hampered.

-2-

334

In addition to talking this noon with Mr. Reber, I also spoke with Livesey.
The latter looks for no immediate break between England and Italy over the coal

problem. It is his impression that the Italian press has not played up this

issue as dramatically and dangerously as it has sometimes been permitted to do

when real action was planned on Italy's part. Livesey is of the opinion that
Mussolini wants to maintain peace and will not take any hasty step now. He
will, however, through his public statements and exchange of notes with the
British, build up the position of Italy as a neutral, showing the manner in
which she is being throttled by Great Britain, particularly as a result of
this country's violation of international laws set up to protect neutrals, and
as a consequence of British domination of key positions such as Gibraltar and
the Suez. These are the points on which German protests have been loudest.

Italy should, therefore, if she remains a neutral, claim a seat at a peace conference where other neutrals might gather with the belligerents, and there seek
some alleviation from the dominance of Great Britain against which she now
complains.

pmg

335
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, London, England

DATE: March 6, 1940, 5 p.m.
NO.:

560

FOR SECRETARY MORGENTHAU.
FROM BUTTERWORTH.

Reference is made to your telegram of March 5, No.
416.

In the Air Ministry, Sir Henry Self is the First
Deputy Under Secretary of State. As such, he is civil
servant No. 2 in the Ministry.
Sir Henry was sent to the United States recently

to act in an advisory capacity to the office of Mr.
Purvis for a temporary period. He 18 to act mainly in
resuming negotiations with the American aircraft industry,
in cooperation with the French.
JOHNSON.

EA:LWW

336

OFFICIAL
THE

SECRETARY OF STATE
WASHINGTON

DEPARTMENT OF STATE
WASHINGTON

March 6, 1940.

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury, and
encloses one copy of paraphrase of confidential
telegram No. 560 of March 6 from London.

H.F

337

TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

March 6, 1940
MEMORANDUM FOR THE SECRETARY

At a luncheon meeting today at which were present, in addition to the Secretary,
General Arnold, Chief of the Army Air Corps; Admiral Towers, Chief of the Bureau
of Aeronautics, Navy Department; and Captain Collins, General Arnold stated that
the cost of airplanes to the Army had increased during the past year. Admiral
Towers stated that the Navy had not had a similar experience and that, considering
the improvements in the art in the manufacture of planes, as well as the additional
horsepower that had been developed in engines, he felt that the prices being paid
by the Navy did not indicate an increase when compared with those paid for planes
last year.

General Arnold stated that in going over the cost statements of some of the companies with which the Army had contracts an increase from 4% to 48% had been

indicated in their profits. The Secretary pointed out that the operation of the

Vinson-Trannell Act restricted profits to 12%, and General Arnold then explained
that the Vinson-Trammell Act, insofar as the Army was concerned, did not become

effective until the beginning of the fiscal year 1940 and that the reference was
to the fiscal year 1939.

The Secretary then asked if, since the meeting of yesterday afternoon, there were
any suggestions to be offered as to where 150 pursuits and 36 bombers might be had
for the Government of Finland. Admiral Towers stated that the Navy had already
released 44 planes to the Government of Finland from their contract with the
Brewster Company, and the Secretary stated that it was doubtful if there could
be logically sustained a further release of pursuits to the Government of Finland
from the same company. In this Admiral Towers concurred. Admiral Towers further
stated that they had no contracts for 2-engine bombers.
General Arnold stated that the Army had no existent contracts for any P-36 pursuits
and that deliveries under an existing contract with the Curtiss Airplane Company

for the P-40 pursuits, if deliveried in their entirety to the Government of Finland,

would not provide 150 ships in time to be of any use to that Government. As it did
not appear possible to divert any deliveries presently being made to the Army, it
was concluded that the only source from which Finland might obtain 150 pursuits, as
well as 36 twin-engine attack bombers, was from existing French contracts. The
Secretary is to take this up with representatives of the French Air Mission.
The Secretary asked Admiral Towers if there was any company which Navy would par-

ticularly like to see have business awarded to it for the purpose of developing a
defense reserve, and Admiral Towers replied that they would appreciate anything that

might be done to build up the Grumman Company. General Arnold made the same recommendation concerning the Boeing Aircraft Company at Seattle.

H. E6 Collins

Chairman, Liaison Committee

338

March 6, 1940
MEMORANDUM FOR THE SECRETARY

At a luncheon meeting today at which were present, in addition to the Secretary,
General Arnold, Chief of the Army Air Corps; Admiral Towers, Chief of the Bureau
of Aeronautics, Navy Department; and Captain Collins, General Arnold stated that
the cost of airplanes to the Army had increased during the past year. Admiral
Towers stated that the Navy had not had a similar experience and that, considering
the improvements in the art in the manufacture of planes, as well as the additional
horsepower that had been developed in engines, he felt that the prices being paid
by the Navy did not indicate an increase when compared with those paid for planes
last year.
General Arnold stated that in going over the cost statements of some of the companies with which the Army had contracts an increase from 4% to 48% had been

indicated in their profits. The Secretary pointed out that the operation of the

Vinson-Trannell Act restricted profits to 12%, and General Arnold then explained
that the Vinson-Traumell Act, insofar as the Army was concerned, did not become
effective until the beginning of the fiscal year 1940 and that the reference was
to the fiscal year 1939.

The Secretary then asked if, since the meeting of yesterday afternoon, there were
any suggestions to be offered as to where 150 pursuits and 36 bombers might be had
for the Government of Finland. Admiral Towers stated that the Navy had already
released 44 planes to the Government of Finland from their contract with the
Browster Company, and the Secretary stated that it was doubtful if there could
be logically sustained a further release of pursuits to the Government of Finland
from the same company. In this Admiral Towers concurred. Admiral Towers further
stated that they had no contracts for 2-engine bombers.
General Arnold stated that the Army had no existent contracts for any P-36 pursuits
and that deliveries under an existing contract with the Curtiss Airplane Company

for the P-40 pursuits, if deliveried in their entirety to the Government of Finland,

would not provide 150 ships in time to be of any use to that Government. As it did
not appear possible to divert any deliveries presently being made to the Army, it
was concluded that the only source from which Finland might obtain 150 pursuits, as
well as 36 twin-engine attack bombers, was from existing French contracts. The
Secretary is to take this up with representatives of the French Air Mission.
The Secretary asked Admiral Towers if there was any company which Navy would par-

ticularly like to see have business awarded to it for the purpose of developing a

defense reserve, and Admiral Towers replied that they would appreciate anything that

might be done to build up the Grummer Company. General Arnold made the same recent
mendation concerning the Boeing Aircraft Company at Seattle.

H. E. Collins

RECign

Chairman, Liaison Committee

Will hest regards

339

yours
ministry
HJ.-J. PROCOPÉ
Envy Extraordinary and Minister Plempotentiary
of the Republical Fonland

340

apprent 3-6-40

(Requested meets

Confidential in Dem's 3-5-40) office

Commitments of The Finnish American

Trading Corporation as per March 6, I940.
Purchases closed total
In negotiations

$8,094,386.33
$1,436,000.00
$9,524,386.33

Shipments made

$3,148,855.00

(this is included

in purchases closed)

Confidential

341

Value of Main items purchased by

The Finnish American Trading Corporation until end of February
Items

Steel, Copper,
Iron and Aluminium

Value

$1,143,850.00

Lard

$ 915,122.00

Cotton

$ 351,660.00

Oats

$ 187,500.00

Peas

$ 225,240.00

Soap

$ 90,000.00

Wool

$

14,095.00

Corn

$ 210,000.00

oil

$ 47,750.00

Gasoline

$1,023,000.00

Soyabean oil

$ 185,000.00

Chemicals

$ 147,483.00

Trucks, Tracktors

and Parts

$1,822,000.00

Ducks

$ 145,527.00

Tires

$ 56,224.00

Lathes

$ 25,000.00

Machinery

$ 225,736.00

342

Confidential

Some civilian commodities which Finland
might buy during the next 6 months.

Rye

Wheat
Oats

Pure Lard
Peas

Fruits, spices, tea, COCOR
Cotton

Tractors
Copper Rods
Gasolene

Oils

Soyabean Oil
Wool

Trucks

Telephone Wire
Soap

Different kinds of machinery
Different kinds of clothes and shoes

Fertilizers
The above mentioned list is neither accurate nor complete and to indicate
quantities and values is for the time being impossible. A calculation made in October last year concerning civilian commodities to be bought from this country
during six months gave an estimated value of 15 to 20 million dollars.

March 7th, 1940

34

343

MEMORANDUM - concerning the

urgently-needed military

for
most commodities
the Finnish

Government approximate calculation.
Group Is

Commodity ies for which contracts have already been signed:

8

March

MO

ferent implements of war
ammunition

April

May

June

Later

$818,100

m/a Stokes mortar shells 435,000 $60,807 176,412 244,034
le ammunition from

1,822,000 678,000

chester

4,800

t links

5,120

6,400

5,120

3,880

249,154

3,880

440,000 180,000 100,000

or torpedo boats

12,000

ber forms for concrete

3,519,800 935,927 282,812

Group I Total 4,991,573

Group II. Commodities for which contracts are expected to be signed:
March

April

May

June

$1,150,000 259,000 700,000 200,000

/m field gun shells

400,000 400,000 400,000 400,000

der

300,000

300,000

mington ammunition
206,000

tor torpedo boats
rachute flares

20,000

cessories for airplanes

32,000

irtridges for airplanes
mor seats for airplane a

.ts for airplanes

300,000

300,000

monthly
300,000

148,750

148,750

le barrels

52,500

94,400

80,800

137,000

137,000

137,000

115,000
8,000
5,000

ropellers for airplane

24,000

$2,408,750 1,139, 500 1, 780,150 1,117,800
Group I and

Later

300,000
monthly

II 5,928,550 2,075,4272,062.962 1,366,954
Group II Total 6,446,200
GRAND TOTAL

$11,437,773

the Legation is negotiating for 150 Pursuit planes included) and 36

available

which lightmust
Bombersimmediately
Regarding to a valuebe
airplanes, of approximately for the $13,000,000 opening of (equipment Irrevocable and Letter spare of parts Credit, if

344

March 6, 1940
10:31 a.m.

HMJr:

Hello.

Edward R.

Stettinius: Hello, Mr. Secretary.

HMJr:
S:

HMJr:

S:

HMJr:

How are you?

I'm fine, sir. Glad to hear your voice.
Mr. Stettinius, if you have time I'd like to gossip

a little bit with you.
Sure.

I wondered if you'd care to tell me, just for myself
and the President, nobody else, how things -- how --

how the orders are coming in right now and how far
ahead you can see as far as your own business goes

and then as far as the industry goes.

S:

HMJr:

Right. Well, the incoming orders this week were disappointing.
I see.

S:

Down under -- under forty percent.

HMJr:

I see.

S:

They hopped up about two weeks ago, they came -- they

were pretty good, started to come back a little bit
and then they dropped down again.

HMJr:

Yeah.

S:

Now, -- that's number one. The orders are disappointing. We still have a backlog, speaking of our own
company only, of something approaching 2 million tons.

HMJr:

Yeah.

S:

In reviewing -- in checking up with the fellows in
the field on the firing line, the general sentiment

is that we're scraping bottom now.
HMJr:

By that you mean it can get no worse.

345

-2 S:

It -- they don't think -- they don't feel it's

going to get any worse and then the general morale

of the sales organization is that in the course of
the next three or four weeks things in the steel
industry will turn up.
HMJr:
S:

I see.

Now, that -- that's a very, very fresh, quick reaction that I have obtained in the last few days
from the field.

HMJr:

I see.

S:

I think -- I think our fellows are a little bit -feel a little bit more confident of an early turn
than the general business world does.

HMJr:

S:

I see. But they -- they think things might pick up
in three or four weeks.
Yes, that the -- that there is some railroad buying

and the auto -- the spring automobile business is
going to be good, the canning business is holding up,
and of course we are beginning to get some very
substantial increase from abroad.
HMJr:
S:

Are you really?

Yeah. Nothing in very large tonnage but the indication is that they might begin to make some substantial

purchases.
HMJr:

S:

I see. What kind, because I -- I haven't realized -I mean, that there's
Well, there's a great deal of interest in -- in ingot,
-- that is, the raw steel; not pig iron but the raw
steel in ingot form for re-rolling

HMJr:

I see.

S:

......on the other side.

HMJr:

I see.

346

-3S:

And there's interest that's -- the stock for shell

MMr.

I see.

S:

And miscellaneous items.

HMJr:

I see.

S:

steel.

But that isn't -- that isn't on the books, but the
-- the general impression of our export fellows is
that the buying in the second cuarter of this year
is going to be more substantial than the first
cuarter.

HMJr:

S:

Well, as you know, or may or may not know this -what I call professional economists connected
here with the various departments are all very

pessimistic. Hello? Hello?
Yes, sir, I'm listening.

HMJr:

And I'm not as pessimistic as they are.

S:

Yeah.

MJr:

S:

HMJr:

And I figured that your business, which touches so
many different industries, that I could get a pretty
good cross-section of the country.

Well, I think that -- I think that's true.
And what I'd like to do - I'd like to call you up
again in about a week.

S:

Fine.

HMJr:

And then maybe you could see a little bit further
ahead.

S:

Sure.

HMJr:

And

S:

Well now, I tell you, a good -- a good time would
be Tuesday.

-4HMJr:

Tuesday?

S:

Tuesday afternoon, for us to have a chat because

347

that's when the figures are fresh.

HMJr:
S:

HMJr:
S:

All right.
And I think they would mean a little bit more then
than they do -- than they would later in the week.
I'll call you Tuesday afternoon.
Yeah, we have a finance committee, but you could

call me, say, around about three-thirty on Tuesday
afternoon, then I could give you an up-to-themoment flash.
HMJr:

Well, I'll call you when, you say?

S:

About three-thirty on Tuesday.

HMJr:

Well, I'll try that.

S:

HMJr:
S:

HMJr:
S:

If that's -- if that's convenient, and of course if
it isn't, any other time.
Well, is that before or after your meeting?
That's after the meeting.
After your meeting.
Yeah, because you see I get -- I get sometimes the
feel in the meeting that I'd like to give you the
benefit of.

HMJr:

And that's that. They've tried -- you'd be interested,
they've tried to get me to get into this thing, the
steel mill for Brazil.

S:

Yeah.

HMJr:

But I mean, interest myself.

S:

Yeah.

HMJr:

But you people have turned that down, haven't you?

348

-5-

S:

Well, Mr. Secretary, we -- we didn't slam the door

on it. We -- we told them that -- very politely --

that we'd do everything that we could to bring it
about, but that we couldn't risk our own capital
or we couldn't take the sole responsibility of
management.

HMJr:
S:

HMJr:
S:

HMJr:

Well, I.

Those -- those are the only -- those are the two
important points
Well, I.
confidentially, that we made to them.

Well, I wrote Mr. Hull last night that I've got too
many things and he had better ask somebody else to

take it on.

S:

HMJr:
S:

HMJr:

S:

HMJr:

Yeah.

But I'm not going to take it on.
Well, I think -- I think you're wise because that's
pretty -- pretty indefinite situation.
Well, it 18, and particularly with the debt thing so
much up in the air.
That's right.

And -- but I just -- well, I'm going to call you
again Tuesday afternoon.

S:

Yeah. How -- how's the President?

HMJr:

He's fine.

S:

HMJr:
S:

HMJr:

He really got -- he got rested?
Oh, yes, he's -- he's in fine shape.
Oh, that's fine.
Yeah.

349

-6S:

HMJr:

Well,
anything I can do at any time, you let me
know.
Well, while the thing seems to be 80 much up in the
air -- business so uncertain, I would like to keep
in touch because I -- I have -- my own feeling is
along the line that the next two or three weeks will

tell the story - whether it's going to get better or

worse.
S:

I think that's true. I think in another three weeks
we'll know definitely as to whether it's going to
be long-extended or short.

HMJr:

Righto. Thank you so much.

S:

Goodbye.

HMJr:

Goodbye.

350

March 6, 1940
10:40 a.m.

HMJr:

Hello.

Arthur
Purvis:

Hello.

HMJr:

Hello, Mr. Purvis.

P:

Good morning, Mr. Secretary.

HMJr:

How are you?

P:

Very well, thank you.

HMJr:

I was given a difficult assignment yesterday by the

President.

P:

Oh, yes?

HMJr:

And I'm coming to you for help.
Yes, sir.
Mr. Procope, the Finnish Minister, saw the President

P:

HMJr:

on Sunday.

P:

Yes.

HMJr:

And Finland wants, right away, 150 modern pursuit

planes like the Curtis P-36.

P:

I see.

HMJr:

And they want 36 two-engine light bombers, either

P:

Martin or Douglas, yes.

HMJr:

Now, I went over the situation yesterday with Admiral

P:

Yes.

HMJr:

And we just haven't got anything, 80 the only -- I

like the Martin or like the Douglas.

Towers and General Arnold.

mean, we've given them -- we've released 43 Brewster
planes to them once.

351
2

P:

Yes.

HMJr:

But there's just nothing that the Army and Navy have
got

P:

HMJr:

Oh, I see.

which we could release, so the thing gets down
to release those or not.

to the question of whether the French Government wants
P:

Yes.

HMJr:

Now, all I'm doing is -- is putting it up to you.

P:

Exactly.

HMJr:

And I'm going to ask you whether you would phone this

P:

Yes.

HMJr:

Or get it to him in any way that you have of getting

P:

Yes.

HMJr:

I take it he would be the person, wouldn't he?

P:

He'd -- well, what I'd like to do

HMJr:

Yes.

to Mr. Monnet.

it to him very fast.

if you feel it's all right, is this: I have

P:

lunching with me today Pleven, Self and Jacquin.
HMJr:

Yes.

P:

And I think if we could -- if I could leave it until
that time -- they're up town at the moment.

HMJr:

Oh, yes; oh, surely.
And then we could work on a plan of action and as
Pleven is just over from the other side, the DOBsibilities of the situation would be more apparent
to him, I dare say.

352

-3 HMJr:

Yes.

P:

He will also know how Monnet is thinking, and how

HMJr:

they are thinking opposite the Finns.

Well, in any event, if you could sort of give it
a little precedence.

P:

I will.

HMJr:

And then when I see you tomorrow

P:

Yes.

maybe you'd have some word for me.

HMJr:
P:

HMJr:
P:

HMJr:

I'll endeavor to get it by then and I'll try and get
it before. If you really wanted it, I'd really go
right at it now, but I think it might be better if
I can leave it until lunch.
No.

We'll get along better, I think.
No -- and -- I mean, if you have a -- a definite
answer before tomorrow, give me a ring.

P:

Exactly.

HMJr:

But if you're going to turn me down I can wait until
tomorrow.

(Laughs) Well, you know where my sympathies will lie.

I saw the Finnish Minister just as I left there yes-

terday and I must say my -- I know where my instincts

are.
HMJr:

Well, I want to make it very clear. This is a auggestion and not a request, if you know the -- if you
get the difference, you see?

P:

Yes, I know.

HMJr:

I mean, I don't want you to feel that

353

-4it has to be done.

P:

HMJr:

It isn't what we call a "must".

P:

No.

HMJr:

M-u-s-t.

P:

Well, I mean, I am glad to know that because it -I know that the -- the trouble of course with this
whole situation is that the next two months or three
months for everybody

P:

That's right.
......18 the acute time.

HMJr:

Well, I made a survey and there isn't any other

HMJr:

place to go

P:

HMJr:
P:

HMJr:

No.

......for them.
Exactly.

And you might be interested in this: I asked our Army
people and I said, "Well, why don't they go to Italy? If

P:

Yes.

HMJr:

And they said, "Well, the question -- they understand,"
-- I mean this is -- our people say that if they go
to Italy, Italy in turn wants raw materials and they

can't give it to them, that is the Finns.

P:

Oh, I see.

HMJr:

You see?

P:

Yes.

HMJr:

They can't -- they have no way of getting it to them.

P:

No, exactly.

354

- 5HMJr:

So I guess it really gets down that either you
people decide that you will release them and can,
and that the Finnish frontier is important enough
to do it, or else we'll just have to tell them they
can't get them in the United States.
Yes, exactly.
You see?

Well now, let me go right into it, Mr. Secretary.
Now, while I have you I want -- two other things.
One thing, if you could tell me tomorrow what your
mission has in mind in regard to the purchase of
steel or steel -- or any form of steel for the
next month or two.
Yes.

I -- I'd like to know. I don't know whether you're

considering anything or not.
Well, as a matter of fact, we haven't been because
there was a very big purchase of steel earlier on
but I think there's something in the

I'll -- I'll get that up anyway.

And a third and last thing. Think this one over look, when you get down your preliminary talks with
the aircraft industry
P:

Yes.

I'm making the suggestion that I don't see
why you don't do it in your New York office. You see?
New York office?

Rather than here in Washington.

I think -- yes, I think you're right.
There's less -- New York is a much bigger place.
Exactly.

355

-6HMJr:

There are less gossips.

P:

Exactly.

HMJr:

And when you get something it will be time enough

P:

Yes.

HMJr:

I don't see why Collins should sit in in the early

for Collins to sit in after you've had your preliminary talks.

stages.

P:

HMJr:

P:

HMJr:

P:

HMJr:

P:

HMJr:

P:

HMJr:
P:

No, I -- I think that's right. I think that's quite

right, Mr. Secretary. I can bring that about.
I mean, I don't see why it's necessary -- I mean,
his services are available after you have more or
less formulated a plan.
Exactly.

But there's so much gossip down in -- it's like any
other capitol.

Exactly. As a matter of fact, it could -- it could

result in something that would be undesirable.
Yes, and -- and you can have the aircraft people come
to your office in New York
Exactly.

......on the preliminary talks and I think make progress faster.
Well, that -- that frankly, I was even going to suggest -ask you whether that was a cceptable, because I believe
it's the proper way to do it and then come to you -to Captain Collins and/or if necessary to you only
when there's something that we really want to get your
thought or help in.
I think so.
Yes.

356

-7HMJr:

We seem to agree on most things.

P:

(Laughs) All right. Thank you, Mr. Secretary.

HMJr:

Goodbye.

P:

Goodbye.

357

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

H

DATE March 6. 1940
Secretary Morgenthau

TO

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL

Mr. Purvis spoke with me by telephone at 5 o'clock this afternoon. He
had talked with Mr. Pleven in regard to the question of possible release of
planes to meet Finland's request. Pleven, who has just returned from France
and is entirely familiar with the subject, said that this matter of supplying

planes to Finland has been debated extensively by the Supreme War Council.
Pleven was convinced that Monnet could do nothing in the premises. He would

be injecting himself into a much bigger issue than that of coordinating purchases. Pleven feels that the French Government opinion is that they have already done everything that they can in the way of providing planes for Finland,
and that the help already granted along this line has been very important.
The needs of the Allies themselves, particularly during the next few dangerous
months, must be the controlling factor in any decision as to distribution of
planes.

Pleven thought it was hopeless, therefore, to ask Monnet to get into this

matter of higher international politics and military strategy. Purvis discussed this matter at greath length with Pleven, but in view of the latter's

confirmed opinion, has not communicated with Monnet himself. It was the
opinion of Purvis and Pleven that the only intervention which might be effective
now would be for some powerful individual, such as Welles, to make the appro-

priate representations in Paris. I told Mr. Purvis that I would communicate
this information to the Secretary this evening. I added that I had discouraged
Minister Procope from going to New York to see Purvis, but that the Minister
might seek to talk with Purvis tomorrow in Washington.

At the end of our conversation Purvis regretted that he had to report
another disappointment with the Hercules people. At a meeting of the Directors
today, according to a message just telephoned from Wilmington, the decision had
been taken to refuse to accept a closing agreement. Mr. Purvis will speak to
the Secretary on this point Thursday.

KMR.

STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT

358

INTER-OFFICE COMMUNICATION

DATE March 6, 1940

TO Secretary Morgenthau
FROM Mr. Cochran

In response to my telephone message of yesterday afternoon, Mr. K. P. Chen
came to the Treasury this morning to see Commander Thompson, and the two of
them then visited me.

Mr. Chen minimized the importance of this one lone shipment of wood oil.
He was sure this was oil which had been snuggled out of China from small ports
enjoying no railway connections and into which it had been carried by coolies.
He has cabled his people to make an effort to stop the swaggling, principally
through offering to buy up the wood oil at these small ports.

Mr. Chen did not think there was any chance of competition arising through
the sale in this country of other oil snuggled out from China, so his price
could not be broken. On the contrary, he does not mind one bootleg shipment

like this which relieves the American trade from the feeling that it is in the

hands entirely of the Universal Trading Corporation's monopoly of the Chinese
wood oil trade.

At 12 o'clock I telephoned Mr. Penfield in the Far Eastern Division of
the Department of State, to let him know that Mr. Jacques Maguite, upon whom
the State Department has an espionage dossier, is now in Hong Kong as Vice
President of the United American Asiatic Corporation of New York, and has made
one commercial shipment from Hong Kong to New York.

PM

359

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 6, 1940.
TO

FROM

Secretary Morgenthau

Mr. Haas HA.

Subject: United "States Savings Bonds

Sales of Savings bonds have recently been attaining record
high levels. The cash proceeds of such sales amounted to
$418 millions in January and February of this year, as compared
with $214 millions in the corresponding months of last year.
This money costs approximately 2.90 percent and comes in a flow

which cannot be directly regulated to fit in with the cash demands of the Treasury.

I. Distribution of Savings Bonds
Savings bonds, as I recall, were originally designed primarily in order to secure a wider distribution of the public
debt, and 80 stimulate a more widespread interest in the fiscal
affairs of the Federal Government. In actual practice, however,
the great bulk of sales (in terms of value) have proved to be

rather concentrated. Over the entire period from the commencement of sale of the bonds on March 1, 1935, through November 30,
1939, 68 percent of all sales (based on face amount) were in the

$1,000 denomination -- the largest available. There are no data
available prior to the year 1939 on the proportion of bonds sold
to persons purchasing the legal limit of $10,000. During the
first eight months of 1939, however -- the only period for which
such data are available -- 42 percent of all Savings bonds sold
(in terms of face amount) were purchased by persons who bought

the full legal limit.

It appears, therefore, that the original objective sought in

offering Savings bonds for sale might be as well accomplished and
the Treasury spared the necessity of borrowing a substantial

amount of high-cost money, often at inconvenient times, if the
amount of Savings bonds permitted to be purchased by any one person were drastically reduced. The new limit might apply either
to the amount of bonds purchased in a single calendar year (as at
present), or to the total amount held by one person, irrespective
of the year in which purchased.
II. Interest Rate on Savings Bonds
When they were first offered, Savings bonds were priced ap-

proximately in line with other Treasury securities (although, it
should be noted, that their complete liquidity really made them

360

Secretary Morgenthau - 2

much more attractive than Treasury bonds, even at that time).
Since then, the yield on ten-year Treasury bonds has fallen by

about 3/4 of 1 percent, making Savings bonds tremendously more
attractive than other Treasury securities of comparable maturity.
(See the accompanying chart.)

The present wide differential between the rate obtainable
upon Savings bonds and on other market securities is probably
necessary to assure their widespread distribution to small savers.
Small savers can secure a return of from 2 to 2-1/2 percent from
the Postal Savings System, from mutual savings banks, or from
many commercial banks, and may secure an even larger return from
insured building and loan associations. These rates are available
even on funds left for only short periods - six months generally
suffices to receive the full rate. If Savings bonds are to continue to receive a widespread distribution among small savers,
they must bear a rate high enough to compete with these alternative opportunities. It is not recommended, therefore, that their
present rate of return be out drastically.
It is suggested, however, that the schedule of "step-ups" in
the values of hereafter issued bonds should be revised 80 as to
give the Treasury greater assurance that it is really borrowing
ten-year money and not selling bonds which will be turned in for
redemption earlier if interest rates rise.* This might be accomplished if a portion of the return were put in the form of a
special "maturity bonus" rather than spread out over the life of
the bonds. A precedent for this may be found in the case of War
Savings Stamps where 29 cents out of the total enhanoement in value of 88 cents (over a period of five years and on a $5 stamp)
occurred in the final month.

Attachment

# This danger, it should be noted, applies principally to bonds
purchased by the larger investors. There would be little less,
however, in terms of the original objectives of Savings bond
sales, if small savers also, who only intended to hold the
bonds for short periods, were discouraged by the proposed
revision.

INTEREST YIELD ON U.S. SAVINGS BONDS COMPARED
WITH THAT ON TREASURY BONDS
PER
PER

CENT

CENT

TREASURY BONDS

2.5

2.5

MARCH 1, 1935

2.0

2.0

U.S. SAVINGS BONDS
1.5
1.5

1.0

TREASURY BONDS

1.0

MARCH 1, 1940

.5
.5

0

0

9

8

10

7

6

5

4
3
2

I

Office of the Secretary of the Treasury

- of I and Institution

NUMBER OF YEARS
F - 150

Channy
362

March 6. 1940

By door Mr. President:

In acknowledging the receipt of the report of purchases
under the Silver Purchase Act of 1934, from June 19. 1934

to February 15. 1940, may I express to you, and ask that you
communicate to your assistants, my genuine appreciation of
the promptness and thoroughness with which your institution
has compiled this comprehensive and valuable record.
Sincerely yours.
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury.

The Henorable

George b. Harrison, President

Federal Reserve Beak of New York
New York, New York

HMO samo

PMP

363
March 6, 1940
5:10 pm

Present:

Mr. Foley

Mr. Sullivan
Mr. Irey

HM,Jr: Ed, here's the last chapter in the

Indiana case.

I just had a long conversation with Eddie
Greenbaum. Jerome Frank calls him up and says,

"I am sending a man up to see you tomorrow morn-

ing. Will you see him?" Eddie said,

"Yes.

What's his name?" He says, "Fowler Harper.
He does not tell him what it is about. He had no
idea what it's about.
So Fowler Harper came in this morning to
see him and said he had been trying to see me but

couldn't. Said he saw Sullivan, but he did not

know whether Sullivan had passed the story along
to me.

Mr. Foley: Has he ever asked to see the

Secretary?

Mr. Sullivan: Oh, yes!
HM,Jr: So Eddie said, "Knowing Sullivan
as he does, he knew he had passed it on."
So I said we have an organization here in

the Treasury known as Internal Revenue, which makes

investigation when we think there is criminal tax
evasion and this organization is working now, and
the man for Mr. Elder to see, if Mr. Elder wants
to talk, is our representative in Indianapolis.
That's just what he did not want to do, because of

364

-2-

certain political implications and that they had
given money, which was nothing illegal, but they
had given $10,000 to Thomas Corcoran to be used
in New York for the election of Congressman Fay.

Mr. Foley: Who said this?
HM,Jr: Harper Fowler said this to Eddie.

I said, Well, I had heard the story, but the last
time I heard it, it was $25,000 and I said that
Corcoran had so reported the story to Sullivan,
but I had discussed it with you, Foley, and you
did not seem to be bothered about it.
Mr. Foley: He has never mentioned it to
me, but John told me.

HM,Jr: So I said, I can't help it. I don't

know whether it is true or not, but supposing I did
see him and he told me this -- then what?

Mr. Foley: What of it?
HM,Jr: What would I do then? So Eddie
pressed me a little bit. to see this man. I said,
"Wait a minute, Eddie. Let's get this straight.
I am very much upset to think Jerome Frank would
send this man to you in the first place and, in
the second place, Sullivan did tell me about it
and Sullivan told Mr. Fowler, at my request, that
I would not see him.

Mr. Sullivan: I gave him a verbatim report.
HM,Jr: The whole business? That you tell
Fowler Harper he should keep his nose out of this?
Mr. Sullivan: I told him, in your words,
"as a friendly tip, consider the door closed and

let it drop".

HM,Jr: After I convinced Greenbaum that,

first, I did not like this business and, second,

I would not see Fowler Harper, I would not see

365
-3-

Elder, that the person to talk to was Sullivan
in Indianapolis, and that Eddie would tell Mr.
Harper, make it very clear to him that he, Mr.
Greenbaum, did not want to have anything more
to do with Fowler Harper. The thing I don't
like about this whole business is that Jerome
Frank sends this fellow to Greenbaum and I, to
put it very mildly, it's about the worst taste
I have ever heard of. So there she is! I

don't like it at all. Do you?

Mr. Foley: No.
HM,Jr: And I am very much upset about it.

Can you see any possible excuse why I should change
my position?

Mr. Foley: About seeing Elder?

HM,Jr: About seeing Elder or anybody. I
never have before. The matter is in the hands
of Robert Jackson now anyway. All the evidence,
all the stuff is over there and it's up to Jackson
to decide whether he is going to have the man in
Court or not.

Mr. Irey: Did the last report go over to

the Justice Department?
Mr.

Foley: No. I have not sent anything

to Justice. I got a reply to that letter from

Clark.

Mr. Irey: I sent a copy of the memorandum

to Ed that I sent to you.

HM,Jr: I read it all last night.
Mr. Foley: I have seen it. I have been

over it.

I spent three hours on it.
HM,Jr: What did you do with it?
Mr. Foley: I wanted to talk to you.

I

366

-4-

have not replied to the letter Sam Clark sent
to me yet and I think that's the next thing to
do.
Now, 80 far as that stuff that came in
this morning, I must say I am a bit disappointed.
I think if that's all there is to support it, it
isn't going to convince the Department of Justice.
HM,Jr: Well, you (Irey) might as well tell
him what I told you three-quarters of an hour ago.
Mr. Irey: The Secretary told me the very
same thing that you just said.

HM,Jr: I sent for Irey.
Mr. Irey: Almost the same words.
HM,Jr: That's why the whole thing has up-

set me so. I had Irey in three-quarters of an

hour ago.

Mr. Sullivan: I was with Mr. Foley, Mr.
Kades and Mr. Leming about an hour of the three
hours they went over it and my reaction was the
same.

HM,Jr: But I told Irey I would not say
anything until I let Ed Foley make up his own
mind.

Mr. Foley: I checked it against the testimony, you see, before Sullivan on the 14th and
the thing that struck me, Elmer, 18 that his conclusions in that letter to you are not borne out
by the testimony before him on the 14th. Now,
I will show you
Mr. Irey: I would like you to show me,

Ed.

Mr. Foley: They just don't stand up.
Mr. Sullivan: Specifically, I can give you

367

-5-

one, Elmer.
mony

You remember there was some testi-

HM,Jr: Gentlemen, I am very, very tired
and this thing has hit me kind of low, because I
don't like all this back-door stuff. My God! For
Jerome Frank and people like that, don't know, don't
have the judgment to know when to put the pressure
on -- but that's my job. But I think, in view of
what's happened and everything and you fellows have

spent the time, I think you had better have a conference first and let Mr. Helvering read that thing.

Mr. Irey: He has read it.
HM,Jr: And then have meetings. But I told

Elmer
my own reaction, but I did not want to prejudice

Mr. Foley: You and I have not talked all day

and I did not get it until this morning.

HM,Jr: I thought it was a wash-out.
Mr. Irey: We can have a session with Mr. Helvering, the four of us, without bothering you.

HM,Jr: I think you should. If that's all

we have got, well, it just looks like a fishing expedition to me. But that still is no reason why
I should see Mr. Elder.
Mr. Foley: No.

Mr. Irey: No.
Mr. Sullivan: No.
HM,Jr: And what I don't like -- I have to
get it off my chest, and I always think it takes
less courage to be brave than it does not to be,

the bringing in of Tommie Corcoran and Eddie Greenbaum. I don't like it. And Jerome Frank never
should have sent Harper up there.

368

-6-

Mr. Foley: I think that's right.
HM,Jr: The only result is it 18 going to

make
fair. me tougher and I have to be careful to be

Mr. Foley: Well, insofar as Tom is concerned, he has not spoken to me about it.

HM,Jr: I would not talk to him. "Tom, have
you taken $10,000. And the story you, Sullivan,
heard was $25,000.
Mr. Sullivan: No, he never got anything of

it. No. Not as I got the story.

HM,Jr: Well, but the amount was $25,000
that they were supposed to have given

Mr. Sullivan: .... to somebody else.

HM,Jr: O. K. Nice lot of people! I still

believe that a Liberal is not a liberal spender.
I am convinced I am a Conservative, and the Franks
are Liberal and I am just Conservative.
I am upset over this.
000-000

369

March 6, 1940
10:53 a.m.

HMJr:

Hello.

Operator:

Captain Collins. Go ahead.

HMJr:

Hello.

Captain

Collins:

Good morning, sir.

HMJr:

Hello, Collins. Collins, this memorandum that you
gave me on powder

C:

Yes, sir.

HMJr:

...... Indianhead

C:

Yes, sir.
please find out between nov and one o'clock,
does Indianhead make the same as Dupont.
.

HMJr:

It isn't clear, you see.

C:

HMJr:

Yes, sir.
much for Dupont.

up to 25,000 pounds a day won't leave

C:

No. Well, of course

HMJr:

But we're taking four month's production away from
Dupont.

HMJr:

Yes, sir.
And -- and only giving the English part what they
want. Now, if Indianhead could go up, then the Navy
could release still more to the English.

C:

That's right. Yes.

HMJr:

If it's the same kind of powder.

C:

I'll check on that right away, sir.

HMJr:

You get the significance?

C:

370

-2C:

Yes, sir, I do.

HMJr:

What?

C:

I

do, sir. I -- I don't know but -- in the back

of my mind, I may be wrong -- I do not believe it
is the same powder.

C:

Well, if it isn't the same powder.
of course, they have -- they are very anxious -I do know also they are very anxious, of course,
to keep Dupont working.

MrJJ:

Well, hell, at 600 thousand pounds it takes Dupont

C:

That's right.

HMJr:

Now what the English wanted was four million pounds.

C:

That's right.

HMJr:

four months.

And they're only getting 600 thousand out of Dupont.
Now, if Indianhead -- that's just what the President
had in mind -- if Indianhead can produce more they

could release still more.

C:

HMJr:

That's right.
But -- if it's the same kind of powder.

All right. I'll check on that and have it for you.

C:

HMJr:

Now, the other thing, in regard to this matter you
mentioned to me about having these English -- I
mean, airplane people over and hold these reliminary
meetings at your place.
Yes, sir.
And -- I thought a lot about that and I told Purvis
this morning, in talking with him on this Finnish
thing, that I think there'd be much less gossip in
New York than there would be here.

0:

Um-hm.

371

-3HMJr:

And that I suggested to him that he hold these preliminary meetings until he knows what he wants with
the aircraft industry in New York and then after
they -- they see their way clear -- or when they
need more advice, come down and see you or me.

C:

C:

That'll be -- that's all right with me, sir.
Because -- well, it -- I have a hunch on it and I -and I'm quite right that my hunch is right that we
are only asking for trouble by sitting in.
Um-hm. Well of course it is going to -- it is going
to be one of those jobs though that eventually somebody
has just simply got to bear down on them because

Well
C:

these English, particularly, they -- they've
got to be pushed and not led in this thing.

Well, let's -- let's let -- Purvis said that he had

been thinking it over and he was going to ask me
whether it would be agreeable to hold the preliminary
meetings in New York, and I'd much rather have them.
And then when they -- when they can't get what they
want let them come and see you.

C:

Aye, aye, sir. That's -- that's perfectly agreeable
to me, sir.
But there has been criticism around the town -- gossip

and all that -- and I'd like to keep the Treasury out
of it as much as possible.
Yes, sir.

HMJr:

And I'm going to see you at one.

C:

Aye, aye, sir.

HMJr:

Thank you.

C:

Thank you, sir.

372

March 6, 1940
11:22 a.m.

Merle

Cochran:

Yes, Mr. Secretary.

HMJr:

Will you call up Mr. Procope
Yes.

C:

HMJr:

and tell him that the only place that we could
get him the 150 pursuit planes and the 36 light
bombers
Yes.

C:

HMJr:

would be 1f the Allied Purchasing Mission would
be willing to release orders which they now have on
hand. You see?
Yes.

C:

HMJr:
C:

HMJr:

I have put that up to Mr. Purvis this morning.
Yes.

Whether they'd be willing to release any of their
P-36'8 -- Curtis P-36's which are coming through
very fast now.

C:

Yes, sir.

HMJr:

Or any of their Martin or Douglas light bombers.

C:

Yes, sir.

HMJr:

C:

HMJr:

He promised to take it up at once and will let me -give me some kind of an answer in a day or two.
I see. So you have already taken it up with Purvis.
Have already taken it up with Purvis, but outside of
that there has been no place -- no way of getting
it for them unless the Allies are willing to release
them.

C:

I see. There's no chance on our own?

373

-2HMJr:
C:

HMJr:

Absolutely none
I see.

And -- and the planes that have got to be released
are
French planes. They are all planes on order for
France.

C:

I see.

HMJr:

See?

C:

Yes, sir.

HMJr:

So that's that. And the other thing, at 2:15 today
I have to make up my mind about my financing and I'd
like you to give me a fresh report. the EnglishItalian discussion and

C:

All right, sir. I was just in this little office

now going to call Raber over at the State Department.

HMJr:
C:

HMJr:

C:

HMJr:

C:

If I could have it right after two o'clock.
You'd rather have it then than before?
Around then -- after -- or rather between two and
two-fifteen.

All right, sir. I'll be here at that time.
And -- T mean, if it's any -- well, if -- whatever
the situation is I'd like to have it.
I see. I have two or three things I'd like to show
you if you get any chance.

HMJr:

No, nothing before lunch.

C:

Good. All right, sir. Fine. I'll tend to this thing.

HMJr:

One-way traffic this morning.

C:

All right, fine. Nothing urgent. Goodbye.

374
March 6, 1940
2:22 p.m.

Operator:

Go ahead.

HMJr:

Hello.

Marriner
Eccles:

Hello.

HMJr:
E:

Hello, Marriner.
Hello, Henry.

HMJr:

Marriner, we are about ready to make up our minds

E:

Yeah.

on this note.

HMJr:

And it looks like three-quarters of a percent.
Yeah, well, are you interested in knowing what -my discussion with the Board is on it? I calle d
them together about one o'clock -- twelve-thirty
to -- to explain the thing and
I'd like very much to know.

E:

And we came to exactly the same conclusion on that.

HMJr:
E:

I told them that I thought you might call and I'd
like to be able to report to you what their feelings

were.
HMJr:

Yeah.

E:

And if you wanted their recommendation it would be

HMJr:

E:

HMJr:

that the thing be priced at three-quarters of one
percent without an interest adjustment.
That -- that's absolutely in accord with what we

have in mind.

hat it looks like the way that -- yesterday it looked
like there may have to be a little interest adjustment.
It was pretty thin.
Yeah.

375

GRAY

JT

PARIS

Dated March 6, 1940

Rec'd 5:15 p.m.

Secretary of State,
Washington.

297, March 6, 7 p.m.
FOR THE TREASURY FROM MATTHEWS.

The French financial press has of course published
summaries of the revised Keynes' plan with Explanatory
comment. While the general tone of such comment is that the

matter is an internal British question there is a noticeable
undertone of "reservation" and skepticism as to its practicability: it is characterized as.a "forced loan" in a country
which has always charished its liberties including the
"liberty to own, to invest and to save" which would be
turned OVER directly to the British Government" under the
Keynes' plan. (END SECTION ONE)
MURPHY

NPL

376

JT

GRAY

PARIS

Dated March 6, 1940

Rec'd 5:18 p.m.

Secretary of State,
Washington.

297, March 6, 7 p.m. (SECTION TWO)

This criticism, however, regards new solution of financing
the war which her ally might SEEK - and no French commentator

ventures to offer an alternative method - is motivated by a
veiled anxiety lest the French Government might be tempted

to consider a similar system - which needless to say would
be repugnant to Frenchmen of all classes. AGENCE ECONOMIQUE

ET FINANCIERE says frankly in this connection "one final

reservation: EVEN if the Keynes' plan is workable in the
United Kingdom it is doubtful if it EVER would be in France:

for the sole reason that this plan is not simple. In the
country of Descartes (forgive the cliche, but France is

really the country of Descartes) clarity is the first
virtue of any system.
MURPHY

NPL

377
JT

GRAY

PARIS

Dated March 6, 1940
Rec'd 3:20 p.m.

Secretary of State,
Washington.

297, March 6, 7 p.m.

(SECTION THREE)

The small savings class among us would not understand this

compulsory levy, these blocked accounts, this deferred consumption, these repayments by installments. What would bE
acceptable to the English if need be would not be acceptable
to the French."
Today's JOURNAL OFFICIEL carries a decree suspending

until six months after the war customs duties on certain

specified iron and steel items, including ingots, blooms,
billets, sheets, bars, and rails. Restoration of the duties
may be Effected by decree prior to the six months post-war
period.
MURPHY
NPL

378

GRAY

JT

PARIS

Dated March 6, 1940

Rec'd 3:20 p.m.

Secretary of State,
Washington.

297, March 6, 7 p.m.

(SECTION FOUR)

Dautry, the Minister of Armament replying to criticism
in the Chamber yesterday that agricultural labor needed in
the fields is being kept in the munitions factories stated
that while the private armament factories before the war
Employed 1,230,000 workmen this figure fell to 620,000 on
mobilization and has since risen again to approximately

1,200,000. There are today, he said, in all armament factoriES but 11,390 farm laborers and rural artisans. HE said
that he had released for varying periods a total of SOME
23,000 agricultural laborers and that he proposed to give
additional ten day leave periods for crop sowing.
(END OF MESSAGE)
MURPHY

WWC

379
GROUP MEETING

Present:

Mr. Gaston

March 6, 1940.
4:00 p.m.

Mr. Sullivan
Mr. Graves

Mr. Thompson

Mr. Schwarz
Mr. White
Mr. Cochran

Mr. Harris

Miss Chauncey
H.M.Jr:

I guess you thought I had given you fellows
a chance to get acquainted.

Gaston:

It is nice to know you are here.

H.M.Jr:

I have had a financing. It is five years,

three-quarters of a percent. Have you got

anything, Herbert?
Gaston:

Sullivan:
Gaston:

No. Perhaps others have told you that your

name was mentioned on the "Information Please"

program last night.
He was on the top of the team.

Asking for the names of fathers and sons with
identical names who are in the same line of
effort. This was statesmen. And Frederick
Lewis Allen, who was the guest, named Henry

Morgenthau and Henry Morgenthau, Jr. as father
and son statesmen of the same name.

Thompson:

How much did he win, two dollars or something

Gaston:

No, they don't do that. The person who supplies
the question wins ten dollars and a set of En-

like that?

cyclopedias if it isn't answered correctly.

H.M.Jr:

What else, Herbert?

Gaston:

Herbert Feis called up to consult us about the
nature of a reply they should make to Senator
Elmer Thomas, who sent him a copy of his bill

for redistribution to the nations of the world

about gold stock.

380

-2H.M.Jr:

That same letter came here.

Gaston:

Yes. I called Harry White and I found that
our letter didn't ask for our opinion on the
bill but merely warned us that Thomas was
asking Chairman Wagner to ask us for an

opinion and I called Feis back and found
that that was the way his also read and we

agreed that we would simply reply to Thomas,

thanking him for a copy of the bill and saying
asked us to reply to it. Feis also asked to
be advised about the nature of our reply when
we got ready to send it and I agreed to do
that after consulting Harry White.

we would do what we could when the Chairman

H.M.Jr:
Gaston:

Did you tell Herbert Feis I am not going to
do the Brazilian Steel Mill?
No, I didn't mention it.

H.M.Jr:

We turned that down.

Gaston:

H.M.Jr:

I haven't anything else.
You are still right. There are no submarines

Gaston:

No German submarines.

H.M.Jr:

Yes.

Gaston:

That was interesting about that ship that is

H.M.Jr:

Yes.

Sullivan:
H.M.Jr:

Sullivan:
H.M.Jr:

in the Caribbean.

to arrive in New York tomorrow morning.

Hercules called Mr. Reiling at 3:40 and advised

him that -It is now 4:05.

That is right. They called at 3:40.
And I say it is now five minutes past 4:00.

381

-3Sullivan:

Yes,
I was delayed in getting this report
to you.

H.M.Jr:

I didn't know you were going on a time schedule.

I don't know what the significance is, but if
you are going to be so precise, I just want to

equal it, that is all.

Sullivan:

And they told him they had decided not to enter
into any closing agreement and that they would

be unable to enter into a transaction with the

British Purchasing Commission because we, in

our closing agreement, were reserving the right
to make the closing agreement subject to future
changes in the law which would happen regard-

less of whether we put it in there or not. A
few days ago they submitted a tentative closing
agreement that has that provision in it themselves. Miller, the former Chief Counsel of
the Internal Revenue Bureau, who is counsel
for Hercules, knows very well that whether it
is in there or not it happens. A future change
in the law will change a closing agreement and
the only way we could get around it is amend

the constitution.

H.M.Jr:

It is entirely worth while.

Sullivan:

I should think that in view of the time element

H.M.Jr:

it would be quite difficult.
All right, what else?

Sullivan:

There was sent to you a letter by Senator Harris

asking for an opinion on a bill to permit contributions and gifts to the Republic of Finland
to be deducted in computing income taxes to the
same extent that charitable contributions are
deducted. The opinion is that the bill should
not pass. I am not so sure that the reasons
for it are the best that we can think of. I am
wondering whether you want to have that held

up for a little while.

H.M.Jr:

You had better talk to Dan. Dan wrote something
or had me sign something on a whole flock of

bills.

382

-4Sullivan:

Very well.

H.M.Jr:

Look, you and Dan get together and whatever

the two of you agree on is okay with me.

Sullivan:

All right. I told the Finnish Minister yes-

terday when he approached me out in the other

room - he asked me about fighting funds for
Finland and I told him that we had no discretion under the law at all and that could
not be included.
H.M.Jr:

Whatever you and Dan decide is okay with me.

Sullivan:

Very well, sir.

H.M.Jr:

Anything else?

Sullivan:

No, sir.
Nothing. Pinsent was just down talking to

Cochran:

Harry White.

White:

Oh, on this - well, did I break up that meeting?
No, sir.
Well, it was practically over.

H.M.Jr:

What else?

Cochran:

I have a message from Butterworth on this man,

H.M.Jr:
Cochran:

Sir Henry Self. (March 6, 1940)

There was a cablegram.from Brazil about Aranha. (Mar. 6)
H.M.Jr:
Cochran:

It has got to be on or off by the sixth. Which

is it?

They are still telephoning between the State
Department and Brazil. Do you want to see the
message?

H.M.Jr:

Oh, I don't think so.

Co chran:

I wasn't sure that was in accordance with the
press story. The press indicated this man

383

-5was
tion. going to be definitely in charge of aviaH.M.Jr:

It is all right. Anything else?

Cochran:

No, sir.

H.M.Jr:

Chick?

Schwarz:

Captain Collins supplied the complete informa-

tion about that matter of airplanes and I
have gone into it.

H.M.Jr:

Give it to me so I can get it now.

Schwarz:

Colonel Leonard S. Horner, of Hartford, Connecticut,
at the moment is in Hollywood. He is Chairman
of a committee that has been set up by the
National Academy of Sciences at the request of
the War Department on a $50,000 allotment to

study the cost factors that go into airplane
engines and accessories as they are related
to increased production and the unit cost resulting from increased production for the

armed forces of the United States.
H.M.Jr:
Schwarz:

H.M.Jr:

Did you give that to the boys?
Yes, sir.
You see, Arnold went up yesterday and testified
and he was here for lunch. He claimed that
his testimony was misunderstood. He didn't
say they were profiteering. He denied they
were profiteering. He said the cost is more.
Fortunately, I had Admiral Towers there and I
said, "Now, let me ask you a question. Take

the Curtiss P-36. I want to buy it today
with the same horsepower, same equipment.
Will I have to pay one dollar more today for
it than I did last year? They both agreed
I wouldn't. He said, "Oh, but we have more

horsepower and we have more firing --" et cetera.

I said, "That is a different story." He said,
"I told them they weren't profiteering."

384

6-

Gaston:

H.M.Jr:

Schwarz:

H.M.Jr:

The boys have been calling up and saying the
Morgenthau story of no profiteering in the
airplane industry is wrong. Well, I don't
want to get into this thing. There are two
things. One is that the War Department has
a committee now studying this very thing.
Arnold shoots off his mouth, that is number
one. Number two, Admiral Towers of the Navy
said there is no profiteering and you can
buy the plane for exactly the same price
today you could a year ago, for the same
type of plane with a better engine.
Then you are buying a better type of plane.
What they are buying is more plane, more
gadgets. I went all through this thing with
Arnold. Did you send him over to see Towers?

Yes, sir.
I hope he gets a good reception. I have decided if they want any information from now
on I will have one Navy man and one Army man
and see that they get together. We didn't
sit down before Towers jumped right down
Arnold's throat and said that statement he
made was crazy. Arnold said he didn't say

that. They asked him why they should pay
more for the same number of planes this year
than last year and he said that would be

profiteering. Have it on a little piece of

paper. If they ask me tomorrow, I am going
to say, "Gentlemen, here is a committee set

up by the War Department to make this study

and I will refer you to them."

Schwarz:

I will have it all written.

H.M.Jr:

I will do this personally,
What else, Chick?

Schwarz:

That is all. Everything is peaceable.

H.M.Jr:

Wonderful.

Basili

385

7-

Harris:

We are going to hold an open hearing next
Tuesday morning on that Fishery matter that

Congressman Brewster and those other New
England Congressmen raised. They have asked

for a hearing and we have set it for next

Tuesday morning.
H.M.Jr:

Anything else?

Harris:

No.

H.M.Jr:

Harry?

White:

The letter from Senator Thomas which you sent

to us doesn't call for an answer unless you

want - beyond an acknowledgment and a state-

ment that you will be glad to submit your
report when the committee asks for it, unless
you want to give him a report. It is the committee that will ask you. Do you want to give
him your comments on his bill. or do you want
to wait until the committee sends you the bill
for comment?

H.M.Jr:

White:

What I would like you to do is prepare a statement for me. If it is a good one and a strong

one, I think I will use it, you see.
Well, I take it you imply that it would be

condemnatory. Some of the things, you might

not wish to comdemn.
H.M.Jr:

I don't know. For once I agree with two
editorials in the Wall Street Journal today,
the one on the free distribution of gold and
the other one on our refunding, both of them
complimentary.

White:

I have it in my office. I will look at it.

I didn't see it yesterday.

H.M.Jr:

You can have this one.

White:

I have it.

H.M.Jr:

Try your hand at it, Harry, and see.

386

-8White:

Well, the report which you will give the
committee will have to be a judicious evaluation of it, which would - and I think it
would be best to avoid sending Thomas one

directly, because I don't think it will be
as sympathetic as he thinks it will be or
hopes it will be, so if we could just send

him a note saying that you will be glad to
submit your views to the committee, I think

that is really all that is necessary.

H.M.Jr:

All right.

White:

Here is the memorandum which --

H.M.Jr:

But I would rather not go up to the committee

White:

I don't think this calls for your going up.
It calls, as I understand it, for your

if I could get out of it.

written comments on the bill.
H.M.Jr:

I mean, just keep this in mind. By sending
something in writing, if I could keep from

testifying, I would like to do it.

White:

I had assumed that that was what you were

H.M.Jr:

What else, Harry?

White:

Here is a memorandum - this mess of stuff on

going to do, was to try and not testify.

China and the reason I am calling your atten-

tion to it now is that I think you ought to
see Mr. Chen on the transportation, because
freight is piling up there so that the ques-

tion become whether or not - I think you had

better ask Chen some questions.
H.M.Jr:

Let me tell you what happened. Mr. Chen
brought in Mr. Sheahan.

White:

This is his report.
And I practically lost my temper at him be-

H.M.Jr:

cause he started to boss me and give me a

387

-9lot of misinformation, tried to paint the
picture entirely too rosy, and I just - well,
Mr. Chen was here and I think - I want the
unvarnished facts. If I am going to be
helpful to China I have got to have the facts.
So therefore, I sent for Puleston and told
Puleston to take Sheahan downstairs and that

is where he is now and Puleston is giving him
the third degree.

White:

I see. Well, that is what should be done.

H.M.Jr:

What I am doing - because I am going on the

assumption that the stuff is moving, but they
are having great difficulty and I have cabled
to the Consul at Rangoon for the facts on
the river transportation. Now, they are not
using it and the reason I think they are not

using it is that some local political situation but they could move a tremendous amount of
traffic up the Irrawaddy River and - get it all
within a hundred miles of the back door of

White:

China, and they are not using it at all.
Then there would be no use of your looking this
over because the conclusion of this is merely
that you ought to investigate. I mean, our
conclusion is that you ought to investigate
the situation.

H.M.Jr:

Would you send that down to Puleston right away?

White:

Yes, I will send it to him.

H.M.Jr:

Will you, because he is right at that now.
I think he knows about it.
This fellow -Sheahan went to the hotel to get his notes before he talked with Puleston and then he is

White:

H.M.Jr:
Cochran:

coming back.
White:

I talked to him and told him about it. We

388

- 10 had some figures we were comparing. So Pules-

ton, I think, is cognizant of the facts. But

this is Sheahan's own report. I think he hasn't

had this.
H.M.Jr:

I wish you would send it down, because I think
Sheahan is just a so and so.

White:

The Consul --

Harris:

What is his first name?

White:

Sheahan?

Harris:

Yes.

Chauncey:

Maurice, isn't it, M-a-u-r-1-c-e?

Harris:

I know another Sheahan that corresponds with

that. I wondered whether it would be the same
fellow.

White:

In line with what you say, Mr. Willis R. Peck,
Counsel of the Embassy at Chung Kiang, says the
report by Sheahan is over-optimistic.

H.M.Jr:

I just gave him hell.

White:

Here are these letters that you asked me to see

White:

you about on that You stay behind. That is all?
That is all.

Graves:

Nothing, except I would like to thank you for

H.M.Jr:

Thank McKay.

Thompson:

I have nothing.

H.M.Jr:

Have you anything?

Chauncey:

No.

H.M. Jr:

O. K.

H.M.Jr:

signing that letter.

389

march Francing
RE OPEN MARKET

Present:

Mr. Bell

March 6, 1940.
2:15 p.m.

Mr. Haas

Mr. Hadley
Mrs Klotz
H.M.Jr:

Good morning, gentlemen.

Klotz:

That doesn't sound like you.

H.M.Jr:

Did you know I was here today?

Bell:

I heard you were taking a vacation this

morning.
H.M.Jr:

Bell:

Right here at my desk and I got more work

done.

H.M.Jr:

Did you go horseback riding this morning?
Until 10:00.

Bell:

It was a nice morning.

H.M.Jr:

Well, Professor Bell, did you speak to Sir

Bell:

Eccles?

I haven't been able to get Eccles. They thought

he would be back before 2:30.

Haas:

"Sir Eccles."

Klotz:

"Little Sir Eccles."
He didn't call me last night. They said he
would be back by 2:30. I talked to Rouse
at 12:00 o'clock. He said the situation hasn't

Bell:

changed materially. The people with whom he

talked after 3:00 o'clock yesterday all recommended the three-quarters and they all thought
it would sell somewhere around a point. The

rights are off, I think, a little this morning,
aren't they, Hadley?

Hadley:

Yes, they are off about two. They dropped off
about 4:00 early in the morning and then they
came back. Some of the insurance companies

390

-2 have been selling their rights and buying
long bonds and that has added to yesterday's
movement and put the long bonds up another
quarter of a point on top of yesterday's
rise of about three-eighths.
H.M.Jr:

You see, I thought this all out. I want to
give you an explanation. We will first do
it this way and then get the bonds up and

when we get a nice bond market -Hadley:

If you can save an eighth of a point --

Bell:

Do you want to announce that?

H.M.Jr:

It is a carefully thought out plan, see.
That is pretty good.
Well - you are getting as good as the British.
Oh, I am better, I hope.

Bell:
H.M.Jr:
H.M.Jr:

Bell:

The fellows who have got the British securities
don't have an option.

H.M.Jr:

I win my wars.

Bell:

Well, temporarily.
Well, I have won for six years.
That is right. You have to keep fighting, though.
You never have peace. Isn't that right, Mrs.

H.M.Jr:

Bell:

Klotz?

Klotz:

Yes.

H.M.Jr:

Bell:

Dan, on this Gulf oil, was everything peaceful?
In this connection, yes.

H.M.Jr:

Was it?

Bell:

Yes.

H.M.Jr:

As between them and the Federal?

March 6, 1940.
2:22 p.m.
H.M.Jr:

Hello.

Eccles:

Hello.

H.M.Jr:

Hello Marriner.

E:

Hello Henry.

Marriner

H.M.Jr:
E:

Marriner,
this note.we're about ready to make up our minds on
Yes.

H.M.Jr:

And it looks like three quarters of a cent.
Yes, well - are you interested in knowing what I my discussion with the Board on it, I called them
together about twelve-thirty to explain the thing
and -

H.M.Jr:

I'd like very much to know.
And we came to exactly the same conclusion on that.

E:

I told them that I thought you might call and I'd like
to be able to report to you what their feelings were.

H.M.Jr:

Yes.

E:

And if you wanted their recommendation it would be

H.M.Jr:
E:

H.M.Jr:
E:

391

that the thing be priced at three quarters of one
per cent without an interest adjustment.
Well that's, that's absolutely in accord with what we

have in mind.

Yes. It looks like the way, yesterday it looked like
they may have to be a little interest adjustment
it was pretty thin.
Yes.

Today it isn't too sweet but at the same time being a
purely a refunding no new money that twenty-five
thirty-seconds, it looks like it ought to run somewhere
in there ought to be enough for premium to induce them
to convert.

392

-2H.M.Jr:

E:

H.M.Jr:

Well yesterday the, what they call the rights, the
so-called rights were higher on the June, and they've
sold off now.
Yes, well yesterday, they closed last night at a hundred
and one.

Yes but at one time there was, there's one fellow that
paid a hundred and one eight yesterday.

E:

Paid that much yesterday?

H.M.Jr:

Yes.

E:

Well it closed last night at a hundred and one.

H.M.Jr:

That's what we have.

E:

And they went off, the last I heard, I don't know what
they are now but the last day I heard of them they were
down to twenty-eight thirty-seconds, that was a couple
of hours ago.

H.M.Jr:

Well and now they're thirty thirty-seconds.

E:

Huhhuh.

H.M.Jr:

So that that doesn't make any difference.

E:

H.M.Jr:
E:

No, I mean you're within a few, you're within four
thirty-seconds of the market on the rights on this basis,

at this pricing.
Well I And this is in line with the offering you put out last
June a year ago, see that was a three-quarter issue.

H.M.Jr:
E:

That's right.
And that that - at that time it was put out on a basis
of about a little less premium than this 18. Now,
checking it and at the present time it's quoted at about
a hundred and one.

H.M.Jr:

Yes.

E:

See? So it looks like the thing is in line at threefourths of one per cent.

-3H.M.Jr:
E:

H.M.Jr:
E:

H.M.Jr:

393

And it's damned cheap money for the Treasury.

Oh Lord, you can't expect it - it'isn't quite as cheap
as your bills yesterday, the other day, No, no.

Now, on - well that's the way we feel about it, so
we're right together on that aspect of it.
That's right. Well then there's nothing, that's all

I had in mind and we'll go ahead and get the forms
together and we'll announce it for tomorrow morning's

papers.

Now there's another thing that I think, if this -

in this Bank of America case which I've spent, I'm
about worn out with the damned thing, it's been it's been almost endless times - here for six weeks

now, it's been terrible.

H.M.Jr:

Yes.

E:

But it looks like that we're getting up to the end of

H.M.Jr:

the road.

Well I had a talk with Dan, he told me yesterday he
thought that either today or yesterday he'd get
together.

E:

Yes. Well now -

H.V.Jr:

Dan's here with me now.

E:

Well I was to go over, been talking about going over
there this afternoon.

H.M.Jr:

Yes.

E:

And this seems to be one of the cuestions and as Dan is

H.M.Jr:
E:

there I mention - I was going to call Dan about it.

Well he's sitting here.
And it was this. That the number one in this program
which calls for the preferred stock we couldn't write
in number one all of the conditions, we got into an

endless discussion about the thing and it was agreed
at the time that you would make a request of the RFC,
see?

-4 H.M.Jr:
E:

394

That's right.
And we would leave the RFC up to write the ticket,
that that doesn't mean of course that the Comptroller
shouldn't go over and tell him what his ideas are,
you see?

H.M.Jr:

That's what Dan has reported to me.

E:

Well then there isn't - that's the way it stands, but -

H.M.Jr:

Just a minute, may I, just let me check with Dan a
minute, will you please? Do you mind holding on?

E:

No that's fine, that's O. K.

H.M.Jr:

Marriner? Hello?

E:

Yes.

H.M.Jr:

All I can say to you is that Bell has kept me posted
from day to day and whatever he's told you on this -

E:

Huhhuh.

H.M.Jr:

He's authorized to talk for me. I haven't followed it.
How should I say, second to second. I have followed

it day to day.

E:

Yes.

H.M.Jr:

And whatever he's told you.

E:

Yes.

H.M.Jr:

That I would do in connection with this letter I

E:

Yes.

H.M.Jr:

You see?

E:

Yes, well what -

H.M.Jr:

I mean this isn't like the other negotiation in

E:

Yes.

H.M.Jr:

Until it was too late.

underwrite.

December '38 where I wasn't kept posted you see?

395

- -5 E:

H.M.Jr:

Yes.

And the statements were made there over which I didn't
know about until after they were made and then I
couldn't approve them because the President wouldn't
approve them either.

E:

Yes, well I -

H.M.Jr:

I know I'm on safe ground and whatever Dan has told you

E:

Yes.

H.M.Jr:

As a matter of fact Jones was here yesterday for lunch.

E:

Yes.

H.M.Jr:

about this letter.

And I told Jesse that I was so pleased that the three
agencies have gotten together and that within a day or
two there would be a letter coming over from me.

E:

A request.

H.M.Jr:

A request.

E:

Yes.

H.M.Jr:

He didn't ask me about anything, I didn't ask him.

E:

Yes.

H.M.Jr:

The only thing he asked me was had I talked to the SEC.

E:

Yes.

H.M.Jr:

And I said no I had not.

E:

Yes.

H.M.Jr:

But I said I understood from Bell that when the agreement was finally entered into between yourself and
Comptroller and FDIC that he was going to invite the
SEC over here and explain the thing to him at a meeting
at which you would be present.
Well what we were going to do this afternoon was to
check this very matter that I was discussing with you.

E:

H.M.Jr:

Yes.

396

-6E:

And then also discuss the question of procedure with

reference to this SEC matter. Now that's got to be -

H.M.Jr:

Well -

E:

That's - it's a delicate thing to handle.

H.M.Jr:
E:

H.M.Jr:
E:

Marriner, Bell has handled the thing so beautifully
and when he sits in there with you he's talking for me.
Yes.

So whenever you gentlemen come to an agreement you

have no trouble with me.

Now there's one thing that I've been worried about on
this - some time or other, and that is publicity, see?
We've avoided it up to date and I think it's extremely
careful - extremely important that nobody, that
nothing comes from the Treasury, from the FDIC or
ourselves on this thing. Nothing up to date has and
I think it should be avoided at this time and - and -

that - but I've been a little worried about it, that

Jesse go over there for the preferred stock, see?
Jesse could put out a statement here, I don't know
that he will, see, but I think it's important that
the RFC don't don't put out a statement on this issue
either that now is no time for anybody to make a
statement, you see what I mean.

H.M.Jr:

Yes, well if you're asking me to keep.
anybody cuiet outside of the Treasury -

H.M.Jr:

Well of course as far as we're concerned here, you
won't have any trouble from that score.
Well -

E:

And I don't think there would be from the FDIC. Now

the cuestion is, I don't think today is the time but

certainly when the application goes over you might
well say to Jesse, it seems to me that you would

prefer that there be no publicity whatever given to
this matter at this time and at such time as it may
appear to be advisable to say anything that we get
together.

H.M.Jr:

I'd be glad to do that.

397

-7E:

Now, because otherwise this thing is just too damned -

we worked too hard to have something come out now to

unset it.

H.M.Jr:

E:

H.M.Jr:

Well I was asked yesterday at my press conference, the
boys knew pretty much all about this, 80 I said
a national bank is just the same as income taxes as
far as the Treasury is concerned, we never discuss it.

That's right.
We never discuss it. Well as a matter of fact just
horseback opinion it seems to me that the publicity
should come from the bank.

Well that's possibly right. The bank should, if they
get - they've got to, of course they've got to explain
the getting of this preferred stock. There isn't any
cuestion, they've got to do it, and that's why I'm
thinking that if somebody says something beforehand,

see?

H.M.Jr:

Yes.

That it might upset it, and I would think this, that

if we say nothing, and the RFC says nothing, we could
say to these people, "Now here, any publicity, any
announcement of this thing we're going to expect it
to come from you people, see?"

H.M.Jr:
E:

Yes.

And we hope that it will be the kind of a statement,
say, that will not make it necessary for us to make
a counter statement.

H.M.Jr:
E:

That's right.
And just put them right on their basis of explaining
it as best they can in view of what they have said,
they've got to make some kind of a statement but if
we simply say that we're not going to be the first to
make statements, you go ahead and make your statement
now and try to do it in a way, see, that it won't be
necessary for anybody to make any counter statement.

H.M.Jr:

Well I can't imagine that the RFC at this stage would
care to take the responsibility of wrecking this thing.

-8E:

H.M.Jr:
E:

Well they wouldn't necessarily think that that was
what's going to be done possibly.
No, I But you know, you possibly know that, Jesse I know
has been, he's been pretty sore about the whole thing.

H.M.Jr:

Well I -

E:

And I think he's been holding their hand to some

H.M.Jr:

I see.

E:

398

extent.

And he, I think he'd like to see it fixed up all right,
I don't question that, I think he might like to feel
that he was doing the fixing, see?

H.M.Jr:

Yes.

E:

Which I don't care, I mean I don't give a damn who gets

the credit for that, but I can't see at this stage where

publicity from any of the governmental agencies made
independently, see?

H.M.Jr:

Yes.

E:

Would be of any value in their affront with real
danger.

H.M.Jr:

Webl you and I agree there's no argument.

E:

So that if it, it does seem that if tomorrow, if this
thing's in shape where by tomorrow you can send this
over to the RFC with a request you could call Jesse

up and tell him you're doing it and indicate to him
that you hope it won't be necessary for anybody to
say anything about this thing until it's all closed
up and then let the bank make a statement.

H.M.Jr:

Well I'll keep it in mind and do the best we can.

E:

O. K. then.

H.M.Jr;

Thank you.

E:

Fine. Goodbye.

399

-3 Bell:

Yes. We never had - of course, we never had
these conferences with the Open Market Com-

mittee. We only had Burgess to deal with
at that time, but maybe Mr. Mills would go
around and Mr. Winston would go around to
the Board and tell them what the Treasury
was contemplating. There was never any question. There is only one time we ever had
any question across the street and that was
when Mr. Harding first came into office.
Interest rates were very high and we were
going to put out a five-year note and the
best information we could get was we couldn't
sell it for less than six percent and we
sent a recommendation to the President and
he sent word back that he didn't know anything about Government finance or any other
kind of financing, but he knew six percent
was too high for the Federal Government to
pay, so we had to drop the rate to 5-7/8ths
and call up our bankers. That is the only
time.

Klotz:

Why do we have Open Market Committee meet-

Bell:

We did.

H.M.Jr:

Well, you see, before I came in they had - they

ings? Who started it?

were in the open market, buying bills. That is
what they were doing.

Bell:

You see, back in those days, the Open Market
Committee really didn't know.

H.M.Jr:

Is everybody for three-quarters?

Bell:

Yes.

(Telephone conversation with Eccles)

400

March 6, 1940.
4:26 p.m.
H.M.Jr:
Adolf
Berle:

Hello.

Hello, Mr. Secretary?
Talking.

First rate. This is Mr. Berle speaking.
Hello.
We have here a memorandum from Butler the Counselor of

the Embassy, British Embassy, saving that you had
asked the British Purchasing Mission that you preferred
to have them have any further talks on the cuestion
of alloys, molybdenum and so forth continue through the
Department of State with Ashton-Gwatkin and Rist.

Butler, un at the Embassy added that he didn't cuite
understand what this meant, the matter had been discussed un to that time with the Treasury but the
Embassy had hoped that we'd be prepared to continue
the discussion.
Somebody -

This is news to us but I just wondered whether you This is news to me.

Well I H.M.Jr:

Is that in a memo form?

Well this is a memorandum of telephone call and it
merely relates to what Jimmy Dunn reported that Butler
had telephoned to say that the Secretary of the Treasury,
that's you, had informed the Purchasing Mission he
preferred to have talks on alloys through the Department

of State. of course we're glad to do it but unless
you wanted to discontinue -

H.M.Jr:
B:

No.

They seem to be going along very happily under the terms
of the arrangement there.

N.V.Jr:

I don't know who this fellow Butler is.

3:

He's Counselor of the Embassy.

-2H.M.Jr:
B:

H.M.Jr:

401

Well let me take exactly, let me take a minute and tell
you. Mr. Purvis was in yesterday.
Yes.

I - you know, he gave me a memorandum. The first time
when Rist came over we told him no.

B:

Right.

H.M.Jr:

Then he brought me over a memorandum setting up,

about two or three months had passed on this Rist,
Ashton-Gwatkin coming over on it on a different

basis. I showed it to the President and he said
"All right let them come" and I had Merle Cochran
show - leave a copy with Mr. Hull.

B:

H.M.Jr:

B:

Right.

Now that's available over there, and yesterday Purvis
coming to see me, and I said "No, I'd be glad to see
Professor Rist because I know him and met him several
times and if the Ambassador will bring him in to introduce me to him I'll be glad to see him". But on
anything that they had in mind that had to do with the
blockade, inasmuch as they both were accredited to
the Embassy, while Allied Purchasing Mission was
more or less accredited to me.

was in and he wanted to know about these two men

Yes, that's right.

H.M.Jr:

In order to keep the two things from getting crossed up,
I said they ought to see the State Department.
They'11 be in here in a couple of minutes and what I
thought was this that we'd straighten that out and any
question they have on alloys and molybdenum and so
forth which have been discussed with you they go on
discussing with you.
Absolutely.

B:

Right.

H.M.Jr:

And I told Purvis, asked them what they had in mind

H.M.Jr:
B:

in regard to anything particular, he particularly said
to me just before he left and I had a stenographer

present because I can't remember all these things.
B:

Yes.

-3 H.M.Jr:

He said, "Can we continue", this is the last thing
he said before he left the room, he said, "Can we
continue to talk with you about molybdenum, tungsten
and nickel". I said, "Absolutely".

B;

Right.

H.M.Jr:

That was the last thing he said.

B:

H.M.Jr:

402

Well they obviously got it wrong and I just wanted
to straighten out with you

I don't - I haven't had anything to do with the things
that Mr. Hull is talking about tobacco and
products and I just didn't want to
get crossed up.

H.M.Jr:

Quite. Well I just gathered that they got it
They just got it twisted.

B:

That's what I had hoped they had when I saw the

B:

memorandum, hence my call.

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

And don't you agree with me that we ought to keep the

two things entirely separate.
Absolutely, absolutely, otherwise we'll get hopelessly
jammed. I will advise them in that sense, sir.
It's the dumbest thing I ever heard.
Well you Is Butler sort of a dumb cluck?

B:

A little, yes.

H.M.Jr:

What?

B:

Yes, he 1s.

H.M.Jr:

All right. Well that's Treasury language. Of course

B:

Oh no, we say that they're laboring under a slight

you never use language like that.

misapprehension. Thank you.

H.M.Jr:

Goodbye.