Full text of Diaries of Henry Morgenthau, Jr. : Volume 26 : Part 2

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June 4, 1936

Mr. Bewley came in to see the Secretary. The first re-

marks were made by the Secretary who said to Mr. Bewley:

"I want to talk to you straight from the shoulder and not

diplomatically. The situation is 80 critical that if we

use the usual diplomatic procedure we may have a smash-up
in Europe. On the surface people seem far more nervous

than the situation seems to justify, but they are very
nervous and, of course, this French strike is getting very
much worse.

Mr. Bewley inquired, "What people do you mean particu-

larly? HM,Jr. answered, "The financial people all over
the world -- the heads of the big banks. I have not had
time to prepare a very beautiful statement in answer to
yours and to learn it by heart, but I do know what the
situation is and I think I appreciate perhaps as much as
anybody else in the country the seriousness of it, not 80
much to us because whatever France does we are pretty much
isolated and insulated and I am not looking at it from a
selfish viewpoint, but I do look at it as the psychological
time.'

Continuing, HM,Jr. told Mr. Bewley, "What I have in
mind is this -- the statement which you gave me, I can call

it "Outlining Your Fiscal Policy." I can say this, that
making the same hedges as you people have done as to possible
deflation, we are not far apart at all. I cannot make a very
beautiful speech, I again repeat, because I have not had the
time, but I can tell you that using the same hedges as you

have we are fairly well satisfied with our price level which

has been pretty steady and which gets down to this point.
"I have just had telephone information that the French
have advanced their program and will form their Cabinet
tonight and go before Parliament on Saturday for approval.
When they form this Government, the biggest thing that they
have facing them is what are they going to do with the franc
and if the French could know that your Government and our
Government would be willing to sit by and see them devalue
between 20 and 30% and that we would not try to go under
them, they would then have the assurance that they could
take this jump from the springboard and would land on solid

IIIA
-2-

ground and they must be really in a desperate situation because
they do not know what to do and what your Government will do and

what we will do." Bewley then said, "I was wondering if our
people have discussed it with them at all."
The Secretary inquired of Mr. Bewley, "In the first place,
do you feel you can say -- as our expression goes -- "off the
record" whether you agree with me in spirit as far as I have
gone, without committing your Government, that what I am

saying 18 'horse sense'. Bewley replied, "I can certainly
say that."

HM,Jr. continued, and said, "You came in here with a very
important verbal statement. I come back and tell you that
as far as we can see, we are looking at this thing alike.
I can also tell you that your Government, each day, 18 supporting the franc more reluctantly. We figure that you have
$500,000,000 worth of gold earmarked in the Bank of France
with a possible mob rising and you cannot show you are afraid
and say you are going to take it out, because that would be

putting a match to it.
"What I am leading up to is this: I have the authority
to talk. I think it may be the right moment if we could
tell the French, in this room, what you have told me or if
you could get permission to tell the French right here that
this is the message I have brought to Mr. Morgenthau and I
want to repeat it to you. And I can turn to the French

and say, We look at this thing alike. If the French
would want to announce a fixed devaluation over the week-end
then if we could do this thing all at one time, I may be

prepared to say to your Government that we will earmark

gold for you here. The pound is now up to 5.03-7/8. The
only way to stop the pound from rising is to buy gold in
the United States. I may be rebuffed. Bewley's comment
was, "I do not know what my Government has been saying to
the French." HM,Jr then stated, "I could not say anything
to the French without your permission, and would not. On
the other hand, up to now we have worked very closely with
the French. I see the possibility that we might accomplish
what everybody wants to accomplish. This is the 'horse
sense, sensible thing to do and you can only do it if the be
three Governments move simultaneously and the thing may
accomplished right here in this room, and looking at it
from your standpoint, what we want to get out of it, what

the selfish motive of the United States (if you want to

117B

-3-

call it that) is that this will bring about general world
stabilization of currencies and out of it we will get our

share of what the world's increase of trade 18. I do not
even feel that we will have to draw up written papers or
memorandums, but we want the assurances as to what extent
the French will devalue, and Great Britain and the United
States will, in turn, give France assurances that we will
not try to go below them." Bewley inquired, "Do you think
it will be somewhere between 20 and 30%?" and HM,Jr. re-

plied, "That is the highest I have heard." Bewley then
asked, "Do you interpret that that would be reasonable?"
Mr. Morgenthau then said, "Your Government is in a
very embarrassing position. You made this 90-day loan

to the French and you cannot get out of it." Lochhead
interrupted to say, "This was not a British Government loan
but a syndicate of British banks and firms." HM,Jr. remarked, "But it's all tied in together." And Lochhead
added, Any loan of this nature must be made with the sanction of the British Government."
Addressing Mr. Bewley again, the Secretary said, "I
think this is a time we can do something if we can be suf-

ficiently intelligent and civilized to act." Bewley

asked, "Do you think the time when the new Government will
be
formed will be Saturday?" And HM,Jr. answered, "Yes.
I should think between now and Saturday we should all get

together. I will not say a word to the French until I

hear from your Government. Do you want to ask me anything?"

Bewley replied, "The only point I do want to make is this:
it seems impossible for us to have made this loan to the
French without having talked to them and discussed our policy."
HM,Jr.'s comment was, "Let's say you have and the new Government that is coming in certainly could not make any promises
to the British that they would not put an embargo on gold.
With this rising and suddenly increasing strike, you could
not get your gold out, if you wanted.
Mr. Bewley then asked the Secretary the following: "Have
you any information that if we both did say this to the
French, they would be willing to do this?" HM,Jr. answered,

"I do not work like that. I would tell you if I knew anything. The only thing I do 18 to get information that they
volunteer.. I have not tried to feel them out. You are the
first person I have talked to outside of our own Government.
Bewley then stated, "I will be very glad to put this before

117C

-4-

my Government. Speaking personally, I think it seems extremely sound."

The Secretary's next statement was, "I am talking with
full authority from the President to make this suggestion.
On a thing like this, either day or night do not hesitate
to have the Treasury call me at home. The very fact that
they are so nervous without there being a visible reason
for it increases my nervousness. It was a similar situation
that started the march in Rome. The Hitler situation was

just like this.

"Incidentally," the Secretary added, "here is my press
release on the German countervailing duties and this also
is fairly important." Mr. Bewley thanked him and said,
"Yes; yes. I agree." Continuing, HM,Jr. said, "When
the Attorney General gives out his formal opinion, Taylor
will give you a copy." This concluded the meeting.
000-000

After Bewley's departure, the Secretary reviewed with
Mr. Oliphant the conversation with Bewley and asked Mr.
Oliphant to prepare the legal documents which might be
needed in the event England agreed to go through with the
Secretary's suggestion.

000-000

HM,Jr. asked Lochhead to arrange with the Customs

Bureau to send the Treasury decision on countervailing

duties to the consular offices in London, Paris, Berlin,
Shanghai and Kobe, with the request that they make the
decision available to the Embassies at those points. He
also wanted the Shanghai office to give a copy to Buck.

118

Thursday

June 4, 1936
Operator: Go ahead.
HMjr:

H.M.

Hello - hello -

Cochran:

Hello, Mr. Morgenthau

HMjr:

What news have you got? What's new?

I tried to see this man

C:

HMjr:

-

Yes

Will not be available until tomorrow.

C:

HMjr:

I see.

I'm
be inoftouch
with their Chef de Cabinet, that's
the to
Chief
his office

C:

-

HMjr:

Yes

- at quarter past eleven tomorrow morning.

C:

HMjr:

Yes

See, they were just going - they were just getting

C:

HMjr:
C:

HMjr:
C:

together the Cabinet when you phoned.
I see.

And I couldn't find them any place. They said that
they were between the Chamber of Deputies and the
palace, going back and forth.
I see.
You see the one government resigned between four and

five.

HMjr:
C:

HMjr:
C:

HMjr:
C:

Oh yes

Then they were presenting the others you see immediately
afterwards.
Yes

And so I tried through several friends to get in
touch but I just couldn't do it.

All right.
But I'm to get in touch with people of his office at
eleven. You see the turnover takes place in the

118A
-2-

Treasury tomorrow at eleven.
HMjr:

Well, just as soon as you've talked to him put in
a call for me.

C:

Beg pardon?

HMjr:

As soon as you've talked to him telephone me.

All right.

C:

HMjr:

Will you?
Fine

C:

C:

All right.
I'll get him just as soon as I possibly can.

HMjr:

Yes, and then you telephone me.

C:

Then I'll put in a call to you.

HMjr:

0. K.

HMjr:

C:

That's right.

HMjr:

Goodbye.

C:

All right, sir.

HMjr:

Goodbye.

C:

Good night.

118B

Friday
June 5, 1936

Operator:
HMjr:
H. M.

Cochran -

Mr.

go ahead.

Hello

Cochran:

Hello, Mr. Morgenthau

HMjr:

Yes, Cochran
Hello?

C:

HMjr:

Yes, I hear you.

I saw our friend out at the bank at six o'clock.

C:

HMjr:

Yes

He said that - he had asked -- only to indicate -

C:

HMjr:

Had what?

Only to indicate -

C:

HMjr:

Yes

That is without any commitment or without any written
promise whatever that if there should
develop
some
disturbances
here
- or

C:

hitch, that is throughthat is - if the local banks
to lack of
would not be able to take care of this situation ,

HMjr:

Yes

Because of such an emergency then the Federal could
in such emergency borrow available resource through
the Bank of France against gold earmarked here by the

C:

bank for shipment on the first available steamer.

HMjr:

Well, how much does he want?

C:

He said that -

Mjr:
C:

HMjr:
C:

a big amount.

How much?

the big

He said that amount like last year.
- he doesn't want as big an amount?
Yes

A transaction which would probably be perhaps twenty

million dollars.

life
-2-

Twenty million?
Yes

He'd be satisfied with twenty million?
Beg pardon?

Twenty million?
Yes

C:

HMjr:

Over the weekend?

No, he said for longer than that.

C:

HMjr:

Yes

C:

A few days.

HMjr:

How many days?

The next few days.

C:

HMjr:

I see. Well now does he make any special offers?

I asked him, I said, 'Is the situation like it was
last year'? I said, 'What if an embargo comes?'

C:

And he said, well he didn't think an embargo would
come but if it should come he was absolutely sure
that gold earmarked for a foreign Treasury or Central
Bank would not be subject thereto.

HMjr:

Yes

And I asked him confidentially how much our friends
across the Channel were holding under earmark here.

C:

HMjr:

Yes

What's that?

C:

[jr:
C:

How much?

Twelve billion francs - that's eight hundred and
sixty million dollars about.

HMjr:

No

C:

That's the highest it's ever been I think.

HMjr:

Twelve billion francs?

115 N.
-3-

Twelve billion francs held here for them under ear-

C:

mark.

HMjr:

Yes

And no guarantee other than what we would have.

C:

HMjr:

Yes

With the promise that it wouldn't be connected

C:

with an embargo --

HMjr:
C:

HMjr:

Now all he wants is twenty million dollars?
He thinks he would rather not fix it.
He doesn't want to fix the amount?
No, but he said that he thought that would be the
maximum. He didn't think anything would be required -

C:

HMjr:

Yes

- but he does want us to do that if the emergency
should arise -

C:

HMjr:

Yes

- to have some reserve to fall back on.

C:

HMjr:

All right. Well now you can tell him that he can
have up to twenty-five million.
Up to twenty-five?

C:

jr:

And I'll have the Federal work out the details right
away.

C:

I see. He said that you didn't need to wire him
anything.

HMjr:
C:

HMjr:
C:

HMjr:

What's that?

He said he didn't need any written statement whatever.

Well, you can tell him.
He says that if I can simply tell him that you approve
of the - of such an operation, that will be enough
to his mind.

Well, you can tell him that I do.

118D.

-4-

And up to twenty-five million?

C:

Yes

All right.

C:

Mjr:

Yes

And then we can come to that later.

C:

HMjr:

What's that?

C:

I mean this is the only thing for the present. If

HMjr:

All right, this is just for him to fall back on so

C:

Yes

HMjr:

So he can sleep well.

C:

That's right.

the situation gets worse then we can take it up again.

HMjr:

he can sleep?

Yes

And he also mentioned that he is already shipping to
the United States and has on the water now about twelve

C:

billion dollars of gold for the account of his own
bank.

HMjr:

Yes

C:

It is tending to build up deposits under earmark with

HMjr:

I get you.

C:

So if there should be some emergency this - resulting

the Federal.

also.

HMjr:

Well, that's a very good move.

C:

Yes - I said, 'Well I hope you continue it'.

Mjr:
C:

HMjr:

Yes

He said, 'I can. We want to build it up to twentyfive million'.
Yes.

115E

-5-

C:

HMjr:
C:

HMjr:

He said that it has been hard to re
some time the favor of such How much does he want to build it up to?
At least twenty-five million.

for

How much?

Hello?

C:

HMjr:

How much?

At least twenty-five million.

C:

C:

Twenty-five million, I see. Well, that's all right.
Now - well, that's that. Hello?
Yes - well, I'll tell him this evening.

HMjr:

You'll do what?

HMjr:

I shall tell him this evening that - that you 0. K.

C:

that idea.

HMjr:

C:

HMjr:
C:

HMjr:

Yes - and you might be interested that the allotments
on our bonds were fourteen per cent.
Is that so?
And on the notes fifteen per cent.
Fourteen on bonds - notes fifteen per cent?

That's right - on the allotments on this - for the
cash offering.

Yes, yes

C:

HMjr:

And the conversions were ninety-seven per cent.

C:

Already?

HMjr:

Well, it's finished.

C:

It's finished now, conversion ninety-seven?
Mjr:

C:

HMjr:

Ninety-seven per cent

-

Ninety-seven per cent - congratulations, that's fine.
of the people converted. It's - it's the had. best issue,
I - mean it's the greatest success we've ever

1188
-6-

That's wonderful.

0:

HMjr:

Ninety-seven per cent conversions and on the cash the
bonds were fourteen per cent and the notes fifteen
per cent.

Yes, yes - we used to figure eighty per cent converted was normal, didn't we?

C:

C:

Yes, well that was under Mr. Mellon.
Yes (Laughs) well, things have changed.

HMjr:

Yes (Laughs) all right.

C:

Well, let me tell you just one more thing.

HMjr:

HMjr:
C:

Please

On the market today dollar sales totaled about twenty
million.

HMjr:

Twenty million?

C:

Yes

HMjr:
C:

HMjr:
C:

Yes

- done by the British control.
Twenty million by the British control?
They bought some francs, then they sold them again

this afternoon because sterling - on account of
sales from New York.

HMjr:
C:

HMjr:

Well now, how do you explain that?

Well, certainly it sailed from New York. On the other
hand I heard that London was buying dollars- or put
it either way you want, I don't know which to say.
Yes - wait a minute, just wait a minute (Spoken to Mr. Lochhead: You understand that?)
Lochhead thinks that must be just a temporary hourly
adjustment.

C:

Yes, it may have been.

HMjr:

Yes

C:

But anyway that was the peak of the day, that the

British control sold absolutely no gold until today.

118G

-7-

HMjr:

Yes - and I haven't got your cable yet.
The one I sent this morning?

C:

HMjr:

No

they were working on it at one-thirty-

-

C:

HMjr:

Yes

- when I was talking with you I gave it to them at

C:

once.

HMjr:

Yes

C:

I've sent one more since then.

HMjr:

Well, we may get that tomorrow.

C:

So -

HMjr:

Yes

And at noon today I - after
I talked with you I
and Chen.

C:

talked with

HMjr:

Yes

And this taller one of the two, the younger one,
is not air-minded.

C:

HMjr:

Oh -

C:

And so I think they're going ahead by Genoa.

HMjr:

Oh, well that's too bad.

C:

Well anyway

said that he would probably

go the other way.

HMjr:

Who CheN?

C:

- as early as possible.

HMjr:

Chen?

C:

Beg pardon?

HMjr:

How will Chen go?

C:

Nicholson wants to go as soon as Chen.

118 H
-8-

HMjr:
C:

Yes, he'd better go on and get back there, tell him.
That's what he wants to do and then it's better to
go by boat -

HMjr:

Yes, that's right.

C:

They have their passage and they don't want to have

HMjr:

Well, tell Nicholson to go back the quickest way and

to wait in Vladivostok.

never mind the expense.

C:

All right.

HMjr:

Tell Nicholson to go the quickest way and never mind

C:

All right.

HMjr:

the expense.

See?
Yes

C:

HMjr:

Is that all right?

C:

Yes

HMjr:

You tell him, I mean, he can go and we can pay for it
out of a special fund, see?

C:

All right.

HMjr:

Tell him to get back the quickest way he can.

C:

Fine

HMjr:

All right.

C:

They don't think the situation is as bad as you had
heard.

HMjr:
C:

Well, they don't know.
I mean, they have talked with their Embassy here andthis
I asked Wait and Nicholson to fix up a
afternoon.

HMjr:
C:

Good, good - well they just don't know or elseatthey
BaselYes - anyway there's a meeting of
on Sunday.

11st
-9-

HMjr:

Yes

And I think I'll go down Sunday morning - I'd be
back here Tuesday morning - I'll be away just one

C:

day.
HMjr:

Now, you'd better be in Paris Monday.

But I miss the meeting if I am.
HMjr:

What?

I say I miss Basel if I'm here.
HMjr:
C:

HMjr:

C:

HMjr:

Well -

Do you think there'll be anything Monday?
Well, I want you where I can get you. What's doing
in Basel?

That's the monthly meeting of the Directors. Tannery
will be down there, Gorman, Schacht and all the rest.
Well then, you'd better go. - But leave word where
I can get you by phone.

You can get me at the Hotel Schweitzerhof, -

C:

HMjr:

Schweitzerhof?

C:

At Basel - all day Sunday -

HMjr:

Yes

C:

- all day Monday -

HMjr:

Yes

C:

up until eleven o'clock that night.
ljr:

I see. All right.
I'll be back here at seven o'clock in the morning.

C:

jr:

Now has there been any comment on our countervailing
duties?

C:

I haven't seen any yet.

HMjr:

You haven't?

C:

The main reason is there were only three newspapers
published here today.

118J
-10-

on - did Wait show you a copy of it?
I have the broadcast statement which came through
our private

Well, I sent Wait a special cable on that.
Well, I'll get a copy from him then.
He has the full cable, Wait.

Well, I'll get it from him.
I'd be very much interested in what the reaction is
at Basel.

Well, I'll see our friend the Doctor down there.

C:

HMjr:

0. K.

And then I'll go ahead and tomorrow night I'll try
and get a wire off to you after Blum delivers his

C:

speech to the Parliament.

HMjr:

All right.
And then I'll go on Sunday morning.
0. K.
Fine

Mjr:
C:

Goodbye.

Goodnight.

119

June 4, 1936

Just before press conference today, the Secretary
called the Attorney General and said, "I am having a press
conference in a few minutes and I have your very excellent

opinion on countervailing duties on my desk. Is it agreeable to you, when answering questions of the men, to say
that copies of this opinion will be made available by the
Attorney General?" The Attorney General replied that he
would be very glad to make it available.

120

June 4, 1936

Mr. Lochhead and Mrs. Klotz were with the Secretary
pressed his thoughts to them as follows:

just after he arrived at the office this morning. He exThe European situation is getting clearer and clearer
to me. There is such a thing as being too slow and missing one's opportunity. The time the British need us is
when sterling goes up a cent a day and the time that the

French need us is when they are making up their mind to
devalue.

"In view of the fact that the President is so busy

and I can't get to him, I will call him in a little while

and want to get his permission to send for Bewley and say
to him, Telephone your Government and ask them if I can
send for the French and have a meeting here and have you
tell them what you told me the other day.' I want to
tell Bewley that the time has come when the three countries
can move together. If the French know that when they jump

off a springboard they will land on solid ground, it makes
all the difference in the world. The quicker Blum knows
how we feel, the better.
It may be too late if we wait over the week-end and
I feel that I want to send for Bewley this morning.
o0o-000

HM,Jr. called the President. He said, "This European
situation is getting steadily worse. The franc is .0658
and the pound, 5.032. It is up from 5.01 yesterday.
would like to have your permission, if you think it is
sound, to send for Bewley. When I saw Bewley yesterday
he asked if it were possible for the British to get gold
here. My answer was that it was. I cannot work in this
roundabout political way. I want to tell him that we have
been close friends with the French and that I want to send
for them and either alone or in Bewley's presence tell the
I

French what Bewley told me and give them the assurance that
unless something unforeseen happens that Great Britain and

the United States would not devalue further if the French

devalued 20 to 25% If I can do that now and get that to

121

-2-

Blum over the week-end, he might be able to save his

country. To sit here until the catastrophe blows up
in our face, I think is stupid. 11
The President thought very well of HM,Jr's idea and

said, It would tide them over for the next five or six
days," to which Mr. Morgenthau replied, "Oh, no! Mr. President. It might help them permanently.
HM,Jr. also said to the President, "On the tax bill,
after it passes the Senate and before our boys talk to
the conferees, I would like to bring them over to have a

talk with you first. The President said he would be

very glad to see them.

122
June 4th

The following group were present at the 9:30 meeting
in Secretary Morgenthau's office this morning:
Mr. Daniel W. Bell
Mr. Herbert Gaston
Mr. Stephen B. Gibbons
Mr. George C. Haas

Mr. Guy T. Helvering

Mr. A. S. McLeod
Mr. William H. McReynolds
Mr. Herman Oliphant
Miss Josephine Roche

Mr. Lawrence H. Seltzer
Mr. Wayne C. Taylor

Mr. Bell: I have a problem in New York. When we

took over the accounting from the WPA we reduced the force by
about 400 employees. Now we have been studying the disbursing
set up and we can reduce again by 100 people. We are prepared

to go through with that but it has political consequences.

New York Congressmen will be on your neck.

Mr. Morgenthau: You don't need the 100 people?

Mr. Bell: No.
Mr. Morgenthau: Well let them go then.

Mr. Bell: O.K. we will go ahead then. I just wanted

you to know about it.
the work?

Mr. McReynolds: You have to keep the ones left to do

Mr. Bell: Yes.
Mr. Morgenthau: Why is it increasing so rapidly?
Mr. Bell: We are consolidating - we have had so many
payments scattered throughout the city.
Mr. McReynolds: You cut the thing in half when you

first took it over.
Mr. Bell: We took the figures of Finance Officer of

WPA and he said we reduced it 400 less.

-2-

123

Mr. Morgenthau: Let the Socialists out first.
(Hearty laughter by the group)

Mr. Morgenthau: That is being bi-partisan isn't it.
(More hearty laughter by the group)

Mr. Morgenthau: Now taxes. I spoke to the President
this morning and he said on account of the death of the Speaker
he does not know what will happen. He wants to sit down and go
over each item himself.

Mr. Oliphant: No!
Mr. Morgenthau: He said, "why of course I do. Where
did you get the idea I didn't? I want to go over item by item".
I think that is very encouraging. Certainly if we have it and
the President said this and he wants that and it comes from the
President it makes all the difference in the world. You fellows
look a little weather-beaten - punch drunk. (Laughter by the group)
So I think that is about all for you (meaning McLeod and Seltzer)
Note: At this point McLeod and Seltzer left, having been
excused by the Secretary.

Mr. Morgenthau: Are we ready on this thing?
Mr. Gaston: Yes we have it in two sections - a short
release with the T. D.
Mr. Morgenthau: T. D.?
Mr. Gaston: Treasury Decision.
Mr. Morgenthau: Will you be in at 10:15?
Mr. Gaston: Yes.
Mr. Morgenthau to Mr. Oliphant: Want to come?

Mr. Oliphant: No - I don't think anybody ought to be

here from Counsel.

Mr. Morgenthau: I called up Oliphant this morning before

breakfast - I think it was at 7:30 - and I said, "I just read

the Attorney General's opinion and it looks as though he copied
Gaston's press release" and Oliphant got sore. (Laughter by the
group)

124

3-

Mr. Oliphant: (Laughing heartily). I didn't get sore.

I had only one eye open and I was trying to think of something good
to say to you.

Mr. Oliphant: Had you seen the Attorney General's opinion

before he read the press release?
Mr. Gaston: Yes.

Mr. Morgenthau: This narrative form it has taken was
Herbert Gaston's. I have been darned careful to read them all
but the Attorney General smatters very much of the narrative form
of Herbert Gaston's press release. We will have a dress rehearsal
at 10:15.

Mr. Oliphant: I will be in at the rehearsal but not at

the Press Conference.

Mr. Morgenthau: Now the other thing - are we going to
give a list of the manufacturers that they can go through the
legal papers?

Mr. Gaston: I haven't any list but we can get it.
Mr. Morgenthau: I think it would be helpful for you.

Find out. This thing hits on the AP and UP.
Mr. Gaston: There was a story yesterday morning how
they had so many million harmonicas in exchange for oil.
Will you get the list of manufacturers?
Mr. Morgenthau:
Mr. Gaston: Yes.
Mr. Morgenthau: Mac?

Mr. McReynolds: Nothing.

Mr. Morgenthau: What's the matter?

Mr. McReynolds: Not a thing. I'm feeling fine.
Mr. Morgenthau: Cy?
Mr. Upham: Nothing

Mr. Helvering: I want to call attention to the situation

on the money for refunds which we are trying to work out to the
best advantage we can and I am mentioning it for this reason.
I know there will be thousands and thousands of those little
refund claims in and you will not have the money.

-4-

125

Mr. Morgenthau: Haven't I got it?
Mr. Helvering: Not yet. The bill has not passed yet.
Mr. Morgenthau: Are they coming in now - all those?
Are you answering them and telling them that pending the legislation we can do nothing?

Mr. Helvering: Well of course nobody has insisted yet.
Mr. Morgenthau: What do you suggest?

Mr. Helvering: I want to report to you that we have
been endeavoring to get an amendment in the bill which justifies
the Secretary of Agriculture releasing money to us.
Mr. Morgenthau: Is it up to me to do anything?
Mr. Helvering: Nothing you can do just now.
Mr. McReynolds: He is just telling you there will be a
lot of people on your neck.

Mr. Bell: You can't use your regular refund appropriation.
Mr. Helvering: No.
Mr. Gibbons: (Laughing) James J. Hoey said you are the

dumbest Commissioner of Internal Revenue we have had.

Mr. Helvering: (Laughing) I will be kind to him and say
he is one of the best Collectors we have.
Mr. Bell: Have you any idea how much the refunds amount
to?

Mr. Helvering: Approximately 50 million.
Mr. McReynolds: I have an estimate on my desk.
Mr. Morgenthau: Is it up to me to do anything or just

let it float?

Mr. Helvering: Nothing you can do now.

Mr. Morgenthau: I would get out a form letter so that

they don't get worked up.
Mr. McReynolds: There is nothing to do now because we
may get a chance to get money.

-5-

126

Mr. Morgenthau: Mac, please! I write in - I don't
hear from the Bureau for 30 days. Now if I get a letter saying
pending action by the legislature we are trying to do something
but for the moment we can't the fellow gets some kind of an
answer.

Mr. Helvering: We will do that. I again call your

attention to the fact that when those export claims came in you
rode me very severely.

Mr. Morgenthau: Well I most likely will again. (Laughter)

The fellow should have something to show that he has heard from
his government.

Mr. Helvering: The Secretary of Agriculture will show

that the money which was made available has been allocated.

Mr. Oliphant: I am not sure but what I have a letter
from him to that effect now.
Mr. Morgenthau: Let's bring it up again at 9:30.
Mr. Gibbons: Nothing.
Mr. Haas: Nothing
Miss Roche: Nothing.

Mr. Taylor: What happened with your Investment Trust
people yesterday?

Mr. Oliphant: They sent word to me to forget it that they

were 100% satisfied.

Mr. Morgenthau: Did they take the book?

Mr. Oliphant: I forget that.
Mr. Taylor: Who satisfied them?
Mr. Morgenthau: The President.

Mr. Oliphant: Turney had worked it out and did fine.
Mr. Gaston: Chief Moran spoke to me about his bill
for his annuity. Mott was designated to go up and make an objection
which he did. He wanted to know if I knew a man from Oregon who

was close to Mott but I didn't know of anybody.

-6-

127

Mr. Morgenthau: What can I do?

Mr. Gaston: I don't know.

Mr. Oliphant: Hester reported to me on that bill and
he said everything was being done that is possible.
Mr. Morgenthau: If anybody can do anything I would
be more than delighted.

Mr. Gaston: I got all the agencies but have not been
able to talk to Jesse Jones or O'Connor.
Mr. Gibbons: I thought I was going to talk to John
O'Connor this morning. He can straighten it out. That fellow
from Oregon is a real good fellow.
Mr. Oliphant: John Collier, Interior Department,
takes over the deposits of Indians on the reservations.
Mr. Morgenthau: That is Bell.
Mr. Bell: Well it comes up under the Permanent Appeal
Appropriation Act and the Civil Service is trying to force the
Treasury into the Trust Fund under that Act and there was a bill
introduced not only to change that law but prohibit the Treasury
from taking over the disbursing funds of the Indians of the
Interior Department. We reported to Secretary of Interior that
we had no objection to the first part changing the appropriation
act but then if he did that he wouldn't need the second part. I
understand that Interior is satisfied.

Mr. Oliphant: I reported it. Collier is head of the

Bureau of Indian affairs.

Mr. Morgenthau: Would you mind giving him a ring?

Mr. Bell: No I will call him up.

128
June 5, 1936

Whem HM,Jr. saw the President, this morning, he
said that he had overruled the Vice President and they
are going to have eight conferees in the Senate and
among them will be La Follette and in order to reach
La Follette they are increasing the number of conferees.

128A

TREASURY DEPARTMENT

Washington

Press Service
No. 7-54

FOR IMMEDIATE RELEASE

Friday, June 5, 1936.

Secretary of the Treasury Morgenthau today announced the subscription

figures and the bases of allotment for the cash offering of 2-3/4 percent
Treasury Bonds of 1951-54 and of 1-3/8 percent Treasury Notes of Series
B-1941.

Reports received from the Federal Reserve banks show that subscriptions

for the cash offering of Treasury bonds, which was for $600,000,000, or thereabouts, aggregate $4,282,000,000. Subscriptions in amounts up to and includ-

ing $5,000 were allotted in full and those in amounts over $5,000 were allotted
14 percent, but not less than $5,000 on any one subscription.
For the cash offering of Treasury notes, which was for $400,000,000, or
thereabouts, subscriptions aggregate $2,772,000,000. Cash subscriptions in
amounts up to and including $5,000 were allotted in full and those in amounts
over $5,000 were allotted 15 percent, but not less than $5,000 on any one
subscription.

Preliminary reports of exchange subscriptions, in payment of which Treasury
Notes of Series E-1936, maturing June 15, 1936, and of Series A-1936, maturing

August 1, 1936, were tendered, indicate that practically all of the maturing
notes will be exchanged for. the new issues, and that over 90 percent of the
exchanges are for the bonds.

Further details as to subscriptions and allotments will. be announced
when final reports are received from the Federal Reserve banks.

--00o--

129
USED AT MEETING AT WHITE HOUSE

Monday, June 8, 1936 at 4 p.m.
IMPORTANT COLLATERAL PROVISIONS TO BE CHANGED IN CONFERENCE.

1.

Lonorgan amendment on estate tax insurance to be eliminated.

2.

Copeland Liquor Tax emendment to be eliminated.

Review of Excise taxes by Board of Tax Appeals to be
eliminated.

1.

Windfall tax (title III) - 30-day rebate provision to

4.

be eliminated.

5.

Preferential rate for sales of oil and gas properties
(a 104) to be eliminated.

6.

7.
8.

9.

Preferential rate of tax for Canadians and Mexicans
(88 211(a) and 231(a)) to be eliminated.
Common trust provisions (a 169) to be revised.

Floor stock, etc., refunds, (an 601 and 602) - $10 limitation to be restored.
Title VII - Refunds of taxes under Agricultural Adjustment

Act. $10 limitation to be restored.

10.

Corporate Reorganization Amendment (as 112 and 113) not to
be relaxed.

Note

- The following amendments do not concern Treasury Policin

a. Additional taxes on importation and processing of oils.

b. Tariff on sardine oil.
C. Extension of tax on imported lumber.

d. Provision for quota on imports of shingles.

130
1.

Lonergan Amendment to Tax Bill Permitting Deduction From Gross
Estate of Proceeds of Insurance Farmarked for Payment of Death Duties

without legislation anybody can take out insurance to provide quick funds at death
to pay estate taxes. But such funds would not be exempt from death duties, and should
be, any more than should funds accusulated for the same purpose in any other way,
for example, in savings accounts or by purchase of Governments.

2. While the Lonergan amendment would result in no loss of revenue in 1936, it would
cause an estimated loss of $9,000,000 during 1937 and of $52,000,000 yearly thereafter.

3. It would discriminate against small estates because as the estates increase the
amount of the deduction increases and the tax decreases more than proportionately due
to the fact that the rates on larger estates are higher. For example, on an estate
of $100,000, without the insurance deduction the tax would be $9,280, and with the
deduction $8,198, a saving of $1,062 or 11.0% On an estate of $1,000,000, without
the deduction the tax would be $222,600, and with the deduction $158,724, & saving of
$68,876 or 28% On an estate in the highest bracket the maximum saving would be
$175,000. Also inequities as between estates are possible because one taxpayer might
be in a position to adjust his affairs to meet the amendment and thus obtain its full
benefit, while other taxpayers might not be in a position to adjust.

4. No restrictions are placed on the type of insurance deductible or the period of
time it must have been in force, and policies in amount up to $250,000 are deductible.
Because of the diversity of foras of insurance existing and the ingenuity of insurance
Agents in devising additional forms, various subterfuges which would enable both tax-

ayera and insurance companies to profit at the expense of the Government are possible.

5. The amendment might be prejudicial to states whose death taxes are so devised as to
secure the maximum amount for which credit may be allowed against the 1926 Federal tax
and might induce taxpayers to change their residences.

6. It will give preference to insurance over other classes of investments. Why should
the proceeds of insurance policies be deductible from estate taxes and not other prop-

erty, including Government bonds, when such other property is used, as it may be, to
make estate tax payment immediately on death? This preference would tend to make
Government securities less desirable and interfere with the Government's program of
financing.

7. For all practical purposes, the general effect of the amendment would be a boon for
insurance companies and agents; and a discount at a rate equal to the highest rate of
tax applicable to each estate, or from 2% to 70% depending upon the size of the estate,
will be allowed for prompt payment of death taxes with insurance proceeds. It is too
high a price to pay.

8. The amendment would result in serious administrative difficulties.

8. If it is desired to provide additional ways of meeting estate taxes by the #instal-

ment payment* method, time should be given to the Bureau to develop such a plan, which
sight include instalment deposits with the Treasury prior to death and which would
void the discriminations, loss of revenue, and other objections mentioned above.

131

2.
2. Copeland Liquor Tax Amendment.

This amendment provides for the collection of the liquor

taxes from the retailers. It was attached to the FACA Bill last
year and eliminated in conference.
The plan contained in the amendment is impractical and

unworkable. It would greatly increase the administrative and
enforcement work of the Bureau and would undoubtedly promote

bootlegging and cause loss of revenue.

132

3.

3. Review of Excise Taxes by Board of Tax Appeals.
The Senate mendment giving the Board of Tax Appeals juris-

diction to review cases involving excise taxes should be eliminated.
Excise taxes are on a monthly return and collection basis, and
the machinery of the Board of Tax Appeals is not adapted to handling

this class of cases. The amendment is not adequately drafted to
cover the extensive procedural changes in the law that would be
necessary.

The Board of Tax Appeals is already far behind in its docket.
No good reason is seen for dissatisfaction with the present method

of handling excise tax cases or for loading this additional work
on the Board. It may be noted that under existing law most of the
excise taxes in question will automatically cease to be in force
on July 1, 1937.

133

4.
4. Windfell Tax - 30-day Period for Rebates to Customers.
The Senate amendment giving taxpayers under Title III of

the Bill a deduction for tax rebates to customers made within
thirty days after the enactment of the Act should be eliminates,
and the House provision should be restored, so that allowance
will be made only for rebates asde on or before March 3, 1936 or

under a written contract existing on that date.
The Senate provision will stimulate taxpayers to build up
good will by making these rebates to their customers and saving

the 80 per cent tax. There is no real possibility of these rebates being passed along to the ultimate consumer who really bore

the burden of the tax. The consequence is that the dealers who

receive the rebates will become subject to the tax on unjust enrichment. This means that instead of having a few thousand taxpayers to deal with the Bureau may have in excess of a hundred

thousand. This will multiply by several times the investigative

work and litigation under title III, and in the end will probably
mean the loss of most of the revenue under title III.

134

5.
Preferential Rate on Sales of oil or Gas Properties
- Sec. 104.
Section 104 of the Senate Bill granting preferential treatment
to income from sales of oil or gas properties should be eliminated.
This provision limits the tax attributable to such income to 30 per
cent of the selling price of the property.
Prior to the Revenue Act of 1934 a similar provision appeared

in the las. See section 102 of the Revenue Act of 1932 The eli-

mination of this provision when the Revenue Act of 1934 was enacted

apparently recognises (1) that the oil industry is not today in a
situation which calls for tax benefits to stimulate production, and
(2) that the complete revision of the capital gains provision was a
suitable occasion to drop the special provision. Under the old law
gains on property held by a taxpayer for not more than two years were
taxed as any other income, while gains from assets held more than two
years were subject to a limitation that the tax could not exceed 12
per cent. The Revenue Act of 1934 introduced a system of taxing such
income upon a percentage basis graduated according to the length of
time the property was held, and starting the preferential treatment
at one year.

The arguments for section 104 of the Senate Bill are presumably
that gains on this type of property are sudden and sporadic and that
the business will be driven into the hands of corporations to excape
the high surtaxes. The first argument is largely net by the new capital gains provisions, and the second argument is no more convincing
with respect to oil or gas property than with respect to any other
type of saleable asset.

135

6.
6. Preferential Rate to Residents and Corporations of
Canada and Mexico - Secs. 211(a) and 231(a).

The preferential rate given to (1) income of nonresident
aliens living in Canada or Mexico, and (2) dividends received
by Canadian and Mexican Corporations (5% in lieu of the 10% rate

generally applicable) should be eliminated from sections 211(a)
and 231(a).

The State Department opposes this as a discrimination against
other countries and there seems to be no reason for allowing such

a low flat rate to nonresident aliens and foreign corporations.

136

7.
7.

Counon Trust Provision - Sec. 169.

This provision (sec. 169 of the Senate Bill) taxes a "com-

trudt" as a partnership of trusts In effect, the provision

non will allow banks and trust companies to operate investment truste

under this exception rather than under the general rule. It is

time that the regulations of the Federal Reserve Board at present
yostfict this activity, but the American Bankers' Association is
attempting to have these restrictions relaxed.
The Senate amendment will give rise to distressing legal
and administrative problems. The court decisions on the partnership provisions involved are in confusion, and it is undesirable
to project these controversial questions into a new field.
Approximately the same results can be reached by a provision
that common trusts shall be treated for income tax purposes as

strict trusts. If the principle of the Senate amendment is to be
retained, it is highly desirable that this alternative treatment
be adopted.

137

8.
of

Title IV - Export, Charitable Delivery, and Floor
Stocks Refunds - $10 Limitation on Claims.

The provisions limiting allowance to claims for $10 or
more should be restored to sections 601 and 602, relating to
refunds on exports and charitable deliveries and payments on

floor stocks as of January 6.

The injustice which could result from this limitation is
negligible. Not more than $2,000,000 would be involved in claims

for less than $10 even if such claims were all filed, but the
exclusion of these claims will save a vast and disproportionate
amount of administrative labor.

138

9.
9. Title MIX - Refunds of Taxes under Agricultural Adjustment Act - $10 Limitation on Claims.
The retention of this title as adopted by the Senate is
highly important, but for administrative reasons it would be
desirable to restore the $10 minimum limit on claims which was

stricken out on the floor of the Senate.

139

10.
10.

Corporate Reorganisation and Liquidation Provisions
(as 112 and 113).

This Senate amendment is acceptable, but it is important, if

it is retained, that it be kept intact and that none of the safeguards be eliminated.

140
June 5. 1936

Cochran's telephone conversation with HM,Jr. in which Cariguel
had asked Cochran if US would make arrangement similar to last
year in the amount of $20,000,000. Cochran said Cariguel had
informed him British were holding about $860,000,000 in earmarked gold in France.

Filed in Stabilization Folder under date of June 5, 1936.

I

141/

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: June 5, 1936, 2 p.m.
NO.: 459 FROM COCHRAN.
RUSH.

At 11 o'clock this morning Minister of Finance

Auriol took over his office. I was the first one to
call on him.

Auriol said that the declaration of Blum to be made
tomorrow will survey the general situation, and will
give a summary of the policies of the Government.

Auriol intimated that they plan no immediate steps in
the financial or monetary field. Tomorrow no separate
declaration will be made by the Minister of Finance. He
will, within the next ten days or two weeks, reveal problems and suggestions of the Ministry of Finance - probably
in and before the Chamber's Finance Committee.

The Minister of Finance mentioned the following
division of problems:

First. Monetary: Blum has already declared that
he is against franc devaluation; this was the pledge of
the Popular Front when it came into power. Here the

situation is at present in many ways similar to that
which faced President Roosevelt when he was inaugurated,

but Auriol said the big difference is that there has
already been one devaluation of the franc. It is his
opinion that it is likely there would be a very different
reaction

141A

-2reaction in France from a second devaluation compared

with the single devaluation in the United States.
Second. Economic: A reflation policy, similar to
that of the United States, is to be followed.
Third. Fiscal: The tax question will be taken up
immediately, but it will take perhaps two months to
work out a plan.

The first plea which Auriol makes to foreign countries
will be for their cooperation with respect to frauds in
connection with funds which are held abroad; I take it
from this that the flight of capital from France will
be investigated by the Government, and an endeavor to

procure its return will be made.
As to a large monetary conference, Auriol said he
had no faith in such an undertaking. A confidential con-

tact with two or three parties is his preference, for the
purpose of seeing if points of agreement can be found.
The Minister of Finance believes that accords that may
thus be consummated will draw others into agreement more

effectively than open debate and long discussion in

large international meetings would be likely to do.
The Minister of Finance tobd me his immediate task

is to attend to the cash question of the Treasury. Therefore

1410
-3fore tonight he is meeting with the chief of the Ministry's
movement of funds section for the purpose of discussing this
matter.

Auriol expressed admiration of the manner the United

States is bringing about recovery. He indicated interest
in having close contact with us while he is helping to work
out the problem of his own country.
STRAUS.

EA:LWW

142

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

FROM

Mr. Herman Oliphant

June 5, 1936.

In connection with the imposition of countervailing duties
on certain imports from Germany by Treasury Decision 48360, I should

like to make record of the fact that I attended a conference on this
subject at the State Department on November 25, 1935, beginning at
three o'clock, Mr. Turney accompanying me. Those present, whose
names I recall, were Messers. Livesey, Hickerson, Feis and Schoenfeld

of the State Department. On that occasion, I repeatedly called
attention to the fact that the Secretary of the Treasury had no
option under the law except to enforce it, and that, if action was
not to be taken, it would be necessary for the law to be changed
by legislation.

142A

June 5, 1936

HM,Jr. called Secretary Hull and told him that at
him from Paris. He also told Mr. Hull the following:
"At my suggestion, Cochran called on the Minister
of Finance of France this morning and it was the firsthas

ten minutes past seven this morning, Cochran had called

call that the Minister had received officially. He

given us the whole inside story and I told Cochran to
rush a cable over repeating his conversation with the

Minister. It is most significant and most interesting.
full
Nothing will happen over the week-end and they really

don't know 'where they are at'. We have a room
of charts and what we want to do is to fight for 15%
devaluation, but we would take 20%. Would you mind
doing two things for me? Please tell your people
that the minute Cochran's cable comes in, to decode it
and rush it over and tell the embassies in Europe to
cable us, at our expense, the reaction to our announcement on countervailing duties. I called Bewley in again
yesterday and we had some more talks. I dropped the

hint, with the authority of the President, that we might

give up gold to England provided the French devalued and
arrangements with England and ourselves were all simultan-

eous. The thought I had in mind was that the English
in order to be able to get gold from us they might bring
the French back into line and if France knew that if she
jumped, England and the United States would not go under
her devaluation it would encourage her. If we were
able to get this French-England thing straightened out
as far as money goes, I think it would be the most wonderful thing for this country and this whole question of
trade barriers would begin to drop.
After the conversation Mr. Morgenthau said that
Hull had told him that if we could get France to devalue
20%, it would be satisfactory.

could bring pressure on France, but we could not, and

143
June 5. 1936

Cochran's telephone conversation with HM,Jr. in which Cariguel
had asked Cochran if US would make arrangement similar to last year
in the amount of $20,000,000. Cochran said Cariguel had informed
him
British were holding about $860,000,000 in earmarked gold
in France.

Filed in Stabilization Folder under date of June 5, 1936.

144

FEDERAL RESERVE BANK
OF NEW YORK

DATE June 5, 1936.
FFICE CORRESPONDENCE
SUBJECT: TELEPHONE CONVERSATION

CONFIDENTIAL FILES

L. W. Knoke

WITH BANK OF FRANCE.

I called Mr. Cariguel at 12:19 P. m. today to let him know
that I could not give him an answer to his inquiry of yesterday before this afternoon or tomorrow morning. Inasmuch as he might not
be in tomorrow he suggested that I call on Monday which would be

early enough. Referring to our telephone conversation yesterday, he

tried to make it clear that whereas last year the arrangement was for
him to sell dollars against gold, what he had in mind now was to give
us gold in Paris and take dollars from us, such gold to be shipped immediately or as soon as possible, at his expense, to New York (in
other words, he wants us to take the gold at $35 per ounce less a

quarter delivered in New York). I suggested that it was conceivable
that it might be more convenient for us, in order to avoid unnecessary

gold imports, to take the gold for delivery in Paris at about $34.74,
all shipping charges to be for our account, which was the arrangement
in the latter part of 1935. This, I understood, was equally satisfactory to him. However, I repeated that I was not as yet in a position
to give him an answer as I had not succeeded in getting hold of the
right people.

With reference to today's market, Cariguel said the British
had operated only to the extent of 20,000,000 francs; the Bank of
France's gold losses to New York would probably be $20,000,000 for
the day. Cariguel added that he was sending us some more gold for

earmark. I asked him whether his reason for making these latter ship-

ments was to avoid the possibility of a tie-up in transportation
facilities and he confirmed this.
LWK:KMC

145
FEDERAL RESERVE BANK
OF NEW YORK

DATE June 5, 1936.
ICE CORRESPONDENCE
CONFIDENTIAL FILES

L. W. Knoke

SUBJECT: TELEPHONE CONVERSATION WITH

BANK OF ENGLAND.

I called Mr. Bolton at 12:30 P. m. today. He said that
they had had a very quiet day with practically no business at all
and no news from Paris. New York seemed to have been a big seller

of sterling in the London market, which does not altogether tally
with what I have been able to find out here. Bolton said he shared
the feeling that nothing was likely to happen in France over the
weekend, though nobody, of course, knew. Amsterdam was today the

tender spot in Europe, not on any particular news but because the

situation there seemed to be a very difficult one. Holland was
losing gold to the United States and to Belgium, but was not shipping

any to London just now. Bolton said there was a lot of talk in their
market about our operating in sterling. I assured him that this talk
was entirely without foundation. There was again some hoarding demand from the Continent for Bank of England notes, of which he estimated about £20,000,000 were salted away on the Continent. I inquired
whether he still thought the #blow-up" would come on the ninth and he
said around about then. Blum, he thought, could not tackle the franc

situation until he had the strike situation in hand.
I referred to the Central News dispatch from London to the
effect that the communistic elements in the new French Government might

demand that the gold holdings held by the Bank of France for account of
the British Fund be handed over to the Government. Bolton called that

absolute nonsense and journalism; they are not the least bit worried,
he said.
LWK:KMC

146
June 5, 1936
Cable from Cochran.

first to visit him.

Auriol took office this morning; Cochran
Auriol gave Cochran outline of the monetary,

economic and fiscal policies of the new Government.

Filed in Stabilization Folder under date of June 5, 1936.

147
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE June 8, 1936.

TO

FROM

Subject: Meeting at Secretary's home, 7 to 10:30 P.M., Friday, June 5, 1936.
Present: Secretary Morgenthau

Assistant Secretary Taylor
Mr. Earl Bailie - J. W. Selignan & Company
Mr. S. Parker Gilbert - J. P. Morgan & Company
Gov. G. L. Harrison, Federal Reserve Bank of N.Y.
Mr. L. W. Knoke, Federal Reserve Bank of New York
Mr. Robert Loree - Guaranty Trust Company
Mr. 0. P. McComas - Bankers Trust Company

Mr. Gordon S. Rentschler - National City Bank
Mr. Leo N. Shaw - National City Bank
Mr. Siegfried Stern - Chase National Bank
Mr. John Williams - Federal Reserve Bank of New York
Messrs. Haas, Lochhead, and White

During dinner the conversation was confined to non-monetary subjects.

After dinner the Secretary stated that he was glad those present
had been able to come. The Secretary explained that he had asked them
to Washington because the international monetary situation was partic-

ularly acute and he wished to hear their views on the situation and
their suggestions as to the best way of handling the problem. He said

it was possible the path was cleared for clarification of the sterling-

franc-dollar problem, and that the views of men who had had a great
deal of practical experience in international monetary matters and who
were operating all the time in international currencies would be most
valuable.

The Secretary stated some data had been compiled in the Research

Division of the Treasury which bore on some aspects of the problem
which he would like to present to them for their consideration and

criticism. Discussion of the particular aspects of the problem that

would be presented would, he indicated, be followed by a consideration

of the other aspects of the international monetary situation. The re-

mainder of the evening was spent in examination of data presented on

141A
-2-

charts bearing on some aspects of the changes in the competitive
strength of leading countries during the past eight years. The more
comprehensive aspects of the problem were left for the morning discussion.

The meeting was adjourned at 10:30 P.M. and all the men volunteered

to remain in town over-night in order to continue with the discussion on
the following morning. Mr. Loree was at first hesitant about staying,
fearing that events might become more acute and require his presence in
New York. The Secretary assured those present he had received word,

through his special representative in Paris, from the Finance Minister
in Paris that no action was contemplated over the week-end.

H.D.White

NA

148

June 6, 1936

I called Cochran and told him that he must see
the Minister of Finance today and find out from him
whether it would be helpful to the French if they could
devalue knowing that the United States and England would
not devalue further.
He said that Professor Riszt had asked him whether
there was any truth to the rumors that England and ourselves had come to an agreement because if we had, everything
would be very helpful. I pointed out to Cochran, who should
tell the Minister, that if it was an international agreement
all the things that Blum had said about not devaluing in

France would take on an entirely different aspect. Furthermore, we had no understandingwith England, but I did have
direct connections with them. Furthermore, that the whole
question of devaluation in France, from our standpoint,
resolved itself as to how much they would devalue and I
told him to get this message to the Minister of Finance
and then telephone me back and Cochran said, of course if
such a thing could be brought about it would save the situation there. The strikes are much worse today.

149
PARAPHRASE

TARIS

Dated June 6, 1936
Rec'd 9:20 p.m.
RUSH

467, June 6, 9 p.m.
FRCI COCERAN

ULTRACONFIDENTIAL

I called on Auriol at 6:45, ct which time he had
just returned from the chamber session during which the
Cabinet declaration had been made and from a conversation

with caillaux, who is chairman of the Finance Committee
lifter remarking that we knew the new French Government oftheles
was opposed to independent devaluation by France, I

broached the question whether the situation and the
promises the Premier had publicly made would not take on
another aspect if it were possible for Blum to be assured

that the other two principal currencies would not undercut
the franc if France devalued to a reasonable extent.

tripartite

Auriol is unwilling to enter a separate/ägreement
on these terms, namely, devaluation of the franc and
maintenance of the approximate status quo of sterling and
the dollar.
Pers nally he is willing to suggest to Blum and the
French cabinet the idea of a monetary truce or peace on
the basis of a leveling out of currencies in ac ordance
with some common measure--the most reasonable would be the

world price level provided that France, Great Britain the

144A

-2-

Paraphrase Paris June 6, #267.

the United States, Switzerland and Netherlands adhered

to it and provided also that he be permitted to notify
the Russians in advance as the ruble at the present time
is attached to the franc. His idea is not that there should
be a general conference but that the United States, just
as we have today approached the French, should informally

approach each of the above countries individually and
ascertain whether it is possible to reach and agreement
between the two currencies, i.e., between the dollar a
and the pound, the dollar and the guilder, etc., and each
of these countries then agree with each of the others. Then
announcement could be made to the world some Saturday when

stock markets are closed that all these leading monetary
powers have reached a general agreement for a general

international monetary truce at the agreed rates. The agreement W uld have to contain some stipulation that the rates
of exchange of the currencies involved would not subsequent-

ly be changed without the consent of the other parties to
the agreement.

Saying that the major strucgle is between the dollar
and sterling, Auricl asked whether Great Britain would
reach an agreement with us. He feels that some understanding

should first be reached between us and the British and
that we should also approach the Swiss and the Dutch so

that France would not be singled out. He wishes to preserve

unity within the three countries which still constitute
the gold bloc if it is possible to do 30. It is impossible for

149B
-3-

Paraphrase Paris June 6, #267.

for him to approach the British and he cannot be quoted
as even personally favoring any devaluation scheme or as
suggesting or inspiring any.
He showed an inclination to want to tie in peace and
economic measures. I said that monetary stabilization was

enough to try to accomplish at one time and that the

situation was too urgent toallow the delay that a discussion of trade, raw material supplies, etc., would
require. I said that the United States already has fair
trade agreements with the countries of the gold bloo,
including France.

Auriol will be Clad to be advised informally of the
American reacti n to his suggestion. Be must not be
quoted in any way. If there should be any leak regarding
his position stated above, he would be obliged to resign
from the cabinet.

Caillaux, with whom Auriol talked this afternoon,
is an advocate of "alignment of currencies."
Reynaud in debate in the chamber this afternoon
set forth his usual arguments. He advised the Government

to devalue at once, and said that if it does not, it
will be forced into exchange control within a few days.
He expressed the opinion that the United States and Creat

Britain would be receptive to the idea of "alignment of
currencies."

Auriol, I should add in concluding, fears a

currency

149C

1494
-4-

Paraphrase Paris June 6 #267

currency depreciation race and expressed concern about

Germany and Italy. He felt that after the major
currencies were adjusted, the minor currencies would
be taken care of.

At 10:50 this evening I leave for Basel,
returning here by 6:45 a. m., Monday, June 8.
(Paraphrased by

F. Livesey
June 6, 1936)

149 D
GRAY
JR

Paria

Dated June 6, 1936

Rec'd 8:37 p.m.

Secretary of State,
Washington, D. C.

466, June 6, 8 p.m.

The Front Populaire Government presented itself
early this afternoon to the Senate and to the Chamber of
Deputies. In the Senate the proceedings were brief.
Daladier as Vice Premier read the ministerial declaration

and the only two interpellations will be heard in all
probability on June 9 when the Senate next meets. The

meeting lasted barely half an hour.
Blum appeared before the Chamber, with Herriot

presiding, shortly after 3 o'clock. He was given a warm
greeting by the Left parties while the Center and the Right
maintained a stony silence. The ministerial declaration,
which was of considerable length, dealt almost entirely
with problems of interior political economy. The Prime
Minister failed to include in his declaration any very
specific reference to the strike movement and the
Government's intentions with regard thereto nor did he
touch on the thorny questions of devaluation, the gold
of

movement, or currency control. The most important portion

149E

JR

-2- No. 466, June 6, 8 p.m., from Paris.
of the declaration concerned the Governmentra? ::
proposed draft laws which will be submitted to Parliament

in the near future. These draft laws concern an amnesty,
the forty hour week, collective labor contracts, paid
vacations, a plan for public works, the nationalization of
arms manufacture, the creation of a wheat market control
board with similar boards for wine, meat and milk, the
raising of the school age, the reform of the Statute of the
Bank of France, and finally an abrogation or first revision
of certain decree laws affecting salaries of certain
categories of civil servants and veterans pensions. As
soon as these measures will be voted the Prime Minister
announced his intention of presenting to Parliament a
second series of draft laws dealing with unemployment,

agricultural debt and social insurance. Subsequent to the
passage of these measures he promised to put forward plans

for the simplification of the present fiscal system and
destined to favor production and commerce.

With regard to foreign affairs, he expressed the
ardent hope that the organization of collective security
would put an end to the race towards rearmament and would

bring about the reduction and effective control in the
production of arms. Observers are of the belief that, if
only

144F
JR

-3- No. 466, June 6, 8 p.m., from Paris.
only by implication, he favored the maintenance of sanctions.
At the close of the Ministerial declaration which was on
the whole favorably received it was decided that the

Chamber would listen forthwith to the nine interpellations
on general policy.
The first speaker, Fernand Laurant, a center deputy,
proceeded to a lengthy analysis of the proposed draft laws
and took the Government severely to task in connection with
a number of these. In particular he inveighed against the
40 hour week which he considered most dangerous unless it

could be preceded by an international agreement. Referring

to the 0 hour day he pointed out that it had proved
disastrous for the French merchant marine in the past and
asked whether it was the Government's intention to renew this
serious error.

ation

The following interpell/was the former Minister of Finance
and devaluationist, Deputy Paul Reynauari who devoted most

of his speech to the financial difficulties which faced the
country. He pointed to England's successful fight against
the crisis with its capitalistic liberal regime and demanded
that France should follow the same course. Alluding to
Butler's recent international labor office report urging
monetary alignment he warned Blum that if his program was
not

1496

JR

-4- No. 466, June 6, 8 p.m., from Paris.
not accompanied by monetary alignment it would lead to

inflation and catastrophe. He stated there had been more

than a twelve billion franc inflation up to the present
time and that this figure would be more than doubled

by the end of the year. He expressed the belief that the
laboring classes whom the present Government was trying

to help would be the first victims. He warned that if
Blum refused to devaluate he was heading for controlled
exchanges and that this would be a question not of weeks but

of days. Finally he declared that England and the United
States were not as hostile to the realignment of currencies
as was generally believed. In conclusion he urged
cheaper money and pointed out that France now pays twelve

times more than England for loans. He concluded by
reference to the success of the Roosevelt devaluation
experiment and stressed the necessity for a balanced
budget.
w

The remaining interpellators are not being heard
following whom Blum will make his final reply on general

policy which will terminate the debate. The vote of
confidence will then be taken and there seems but little
doubt that the Government will obtain a substantial
A

majority.

149 H

JR

-5- No. 466, June 6, 8 p.m., from Paris.
telegram

A second/: 1.: will follow giving the high lights of
the remaining interpellations and the result of the
vote.
STRAUS
WSB

1490

GRAY

HJD

DIS Paris

Dated June 6, 1936.

Rec'd. 10:50 p. m.

Secretary of State,
Washington.

468, June 6, midnight.

Our 466, June 6, 8 p. II.
The interpellations closed with nothing of much
value added to the debate. A sensation was caused when

Xavier Valad, Royalist independent, stated that for the
first time in history "our Gallo-Roman country" was to be
governed bydew. The remark caused so great an uproar

that Herriot presiding stepped into the debate stating
that he did not recognize Protestants, Catholics or
Jews but only Frenchmen. The remainder of Valad's
remarks were drowned in the general confusion and he con-

cluded lamely by stating that in Blum nourished on the
Talmud France would have her Disraeli.
Blum summing up the debate on general policy stated

that he was not converted to devaluation. He hoped to

get through the widening of credits what other countries
had obtained through devaluation adding that the policy
of deflation had proved unsuccessful.
With regard to his program of draft laws he would
not ask

1495
-2- #468, June 6, midnight from Paris
not ask for full powers but would demand quick action
and procedure of extreme urgency. He had no intention
of transforming the present regime but would carry on
the Front Populaire program. With regard to the strikes

he stated that the workers were fighting to improve their
conditions and that the strikes were a direct result of
the crisis. He said however that if the strike movement
should become subversive the government would undertake

to suppress it. He admitted that the strikes were beyond
control of the unions. The occupation of the factories
he conceded to be illegal but inasmuch as the employers
had not asked for armed force to dislodge the workers he
had no present intention of using force. He asked the
question "Do you want me to use force?", adding that in
this eventuality the army and the police and even some
of the extra parliamentary troops (who were responsible
for much of the disorder) might become involved. The
government's role would for the time being be limited
to assuring food supplies and serving as arbiter between
the employers and the workers. He announced that a

special parliamentory commission would shortly be appointed

for quick action on the proposed draft laws. Finally he
stated that a general debate on foreign affairs would
take place in the Chamber before the Geneva Council
meeting.

Adhereing to strict party discipline a vote of confidence on

149K
-3- S 468, June 6, midnight from Paris
fidence on the order of the day (Blum's proposed reforms
embodied in the popular front program) gave the government
the convinuing majority of 384 to 210.

A final cheerful note was struck tonight when
Jouhaux, leader of the labor union, saw Salengro, Minister

of the Interior, and informed him that all organized
labor will return to work on Monday morning. It is
generally believed that the majority of non-organized
strikers will follow suit in view of Blum's convincing
majority, the promised reforms in the Front Populaire
program and the government's avowed determination not

to allow subversive activity.

STRAUS

150

June 6, 1936

Before Bewley came in at 4:45 today (Saturday), HM,Jr.

said, "I have decided that I am going to act independently
with the Stabilization Fund to hold this thing pending an
agreement and I will not agree with England to do anything.
I am going to be fairly direct, because I think the situa-

tion deserves it. After all, if after each talk the two
countries can feel a little bit closer, that is what I want."
The following was their conversation:
Bewley: They were considering what you said and were
going to telegraph fully as soon as they were ready.
HM,Jr.: But in the meantime the Bank of England did
not think anything would happen in France over the week-end.

Up to that time the British people had not spoken to the
French regarding our last conversation?
Bewley: They have not spoken to the French about this
since our last conversation.

HM,Jr.: I think the French are terrible nervous. The

message which I sent them was this: I appreciate that when
Blum says he does not want to devalue that he is talking

about the internal situation and I realize that he 1s taking
for internal consumption, but would it not be an entirely
different thing if we were talking an international monetary
situation with the possibility of the three countries getting together and would be care to consider that? The
news I got back this afternoon was (and this is not Blum;
it is the Minister of Finance), he is so afraid that if
rumors that he might be considering devaluation got out,
he would have to resign. It is so confidential. My
assumption was correct, that what they were talking about
is internal, but that if there was a possibility of arrival
at a world agreement that they would listen. The French
would like the United States, and also the British (of whom
the French are particularly afraid) to sound out Holland
and Switzerland, who are their partners. Any agreement
which did not also include Holland and Switzerland, they
would not be interested in, but they themselves would not
sound out anybody. Then the French talked in terms of

tying the currencies to a world price level. I asked them

150A

-2-

what they meant and was informed that it was a new way

of putting it -- something that the French people would
accept. It does not mean anything to me and I do not
know whether it means anything to you.

Bewley: It does not.
HM,Jr.: It simply means a suggestion has been given
to the French which is entirely different from anything
which they have ever said publicly and the suggestion made
is acceptable if the five nations agree. Of course, the
French would stabilize at a fixed devaluation. Cochran
says that they have got to talk in the way of taking aor
half step by basing it on world prices. I asked two
three times and I did not understand. The big thing I
will tell you is that the French Government is willing to
talk and they say, although we are publicly pledged not to
devalue we are willing to talk but we will not sound out
anybody but would like the United States to do it and
France feels that before they finally sign they would
have to tell Russia.
Bewley: It seems irrelevant.
HM,Jr.: Because the Russian ruble is tied with the
franc.

I am taking the attitude that your Government and

ours are trying to get somewhere. If I told you this

just before you sign, you would say (shrugged shoulders).
If we get somewhere on a world agreement, it can't be but
in Russia's interest because she has so much gold to sell.
I am going to go ahead, and at Basle tomorrow I am going
to have my man talk to the Swiss and Dutch and not to
your people nor to anybody else.
Bewley: We do not want to have two channels. This
is just between the Treasuries.

HM,Jr.: I told him absolutely not to talk to Norman.
Up to now he has been one of our big hurdles. It is
simply between the Treasuries. This is the way I see the
picture: at the moment, Great Britain and the United
States are both in a boat. We are going down a very

turbulent stream. You are rowing an oar and we are rowing

150 B

-3-

an oar. France is swimming for her life with her head
just above the water. We have three empty oarlocks, one
for France, one for Holland and one for Switzerland. In
the meantime, it just so happens and both England and the
United States are rowing in the same direction and I hope
that we will be able to reach France before she sinks.
Over the week-end we did what we did a year ago. We

told the Bank of France that we would, if necessary, take
$25,000,000 worth of gold under earmark. Up to tonight
they have on board boat $22,000,000 in gold which has not
yet been sold. This thing is so bad it may blow up in
our faces before we can move. Here I am trying to do
this thing and what I want to say is that we have both, up
to now, been rowing the same way. I am telling you what
I have done. If the British Treasury has any suggestion
on what we might do further to keep this situation going,
I would be glad to receive their suggestions. If ourmay
Stabilization Fund can do anything pending this agreement
I would be glad to receive suggestions So that you
know, I am telling you that this $22,000,000 is shipped to
build up a fund of $25,000,000 of gold in the United States.
I hope that you have other ways than cabling to communicate with your people. I hope that they will have
this information when they wake up in the morning.
have been told that you have 12,000,000,000 francs gold
earmarked in France. You ought to have the authority to
'phone England.
Bewley: Yes, I have.
HM,Jr.: We talked to you. We talk to France toWe

morrow. We will talk to Holland. I feel that we are
making real progress.
Bewley: Have you envisaged any procedure between

the five countries?

HM,Jr.: I do not see how we have the time.
Bewley: I do not see how there is time for a meeting

here and I just can't leave the country.
HM,Jr.: The only way I can see is to do it the way
we are doing.

150C

-4-

Bewley: What you contemplate, really, is that your
man at the International Bank will find out what he can
from the other countries and the next move will be between
you and France?

HM,Jr.: I do not feel that way, but the French seem
to think it is hopeless to get together with you.
Bewley: I do not know why that should be.
HM,Jr.: The Minister of Finance is just petrified

that this will get out.

Bewley: We will use every secrecy that this will

not get out.
HM,Jr.: At least he did not say, Why no! We would

not think of devaluing! What he said was, Sound out
these other countries. If they are interested, we are
interested.

When I do hear from Holland and Switzerland, I will
let you know. In the meantime, if your Government has
any suggestions as to what our fund can do, let me know.

Our banks have done everything over the week-end to keep

this thing stable.
Bewley: I am afraid that the French will just let

this thing drift.
HM,Jr.: Oh, yes! I forgot to tell you that the

Finance Minister said, "Possibly some Saturday morning
we can do this."

Bewley: That puts it off for a week. The chances
of complete secrecy with five countries involved is quite
hard.

HM,Jr.: If France wants to tell the Russians before
she agrees, that is her business. I can only suppose,
if the French are particularly afraid of the English, that
they would not take the two hints.
Lochhead: I do not think they will devalue, but will
probably drift into exchange restrictions.

150 N

-5-

Bewley: Have you any idea how much more gold

they would be willing to let out?

Lochhead: They always speak about maintaining a

a war chest.

HM,Jr.: The net figure we use is 52,000,000,000
francs that they have now, not counting the money you

have earmarked.

Of course, you know Tannery is out. If their bank
clerks go on strike and if transportation facilities are
suspended, then they are just going to let this thing
drift. Then it gets down to your fund and ours doing

what we can.

Bewley: I had better go and get my telegram off

while I can. I hope the British are not away for the
week-end.

HM,Jr.: The President is leaving Monday midnight

for an eight or nine day trip and after Monday it will
be very difficult to reach him.
Bewley: We had an answer yesterday evening. The
Chancellor of the Exchequer wants to thank you for your

letter and, secondly, he wants to say that he thoroughly
agreed with the idea that it would be much better for France
not to put on restrictions.
HM,Jr.: His idea on that seems the same as ours.
Bewley: But the actual proposal which you made seems

to present some difficulties to him.

151

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE June 8, 1936.

TO

FROM

Subject: Meeting at Secretary's home, 9 to 11:30 A.M., June 6. 1936;
(continuation of meeting which adjourned Friday evening,
June 5, at 10:30 P.M.)
Present: Secretary Morgenthau

Assistant Secretary Taylor
Mr. Earl Bailie - J. W. Seligman & Company
Mr. S. Parker Gilbert - J. P. Morgan & Company
Gov. G. L. Harrison, Federal Reserve Bank of N.Y.

Mr. L. W. Knoke, Federal Reserve Bank of New York
Mr. Robert Loree - Guaranty Trust Company
Mr. O. P. McComas - Bankers Trust Company

Mr. Gordon S. Rentschler - National City Bank
Mr. Leo N. Shaw - National City Bank
Mr. Siegfried Stern - Chase National Bank
Mr. John Williams - Federal Reserve Bank of New York
Messrs. Haas, Lochhead, and White

Mr. Gilbert arrived an hour after the meeting began.
The Secretary opened the meeting with statement that now they
have been thinking on the matter he would be glad to hear an expres-

sion of their views.

Mr. McComas spoke first; stated that he wished to offer some-

thing to shoot at and said he figured a reasonable dollar-sterling-

franc ratio would be between $4.75 and $4.90, with a French devalua-

tion of 25 per cent from parity.
Mr. Loree then stated that he and several others, including
Mr. Bailie and Mr. Rentschler, had been talking the matter of parities
over and felt that sterling at $4.86 - which had the strong advantage
of being the traditional rate - appeared to them to be the reasonable
one. They also felt that the franc might devalue 25 per cent without
hurting the United States. Mr. Loree stressed the opinion that if any
arrangement was to be attempted -- which he believed would be highly

desirable -- it should be with England alone. France, he stated, was
less important to us and the French would doubtless fall in line
after the sterling-dollar arrangement had been settled; England, being

151A
Meeting on June 6, 1936 -- 2.

more interested in the franc, could take care of the franc. He recommended that the leeway in the sterling-dollar rate be similar to the
old gold points - i.e., approximately plus or minus one per cent.
This would make the sterling range in New York approximately $4.83 to
$4.89.

The Secretary asked whether so narrow a range could be maintained

at the start. He wondered whether it might not be desirable to begin
with a wider range and then narrow it should events later justify a
narrower spread. The Secretary in his question specified that he was
for the moment postponing the question of a particular level of the
rate, and that his discussion of the spread was not to be interpreted

that he necessarily acquiesced with the $4.86 recommended by Mr. Loree.

Several present, including Mr. Bailie, Mr. Rentschler, Mr. Stern, and
Mr. Shaw, stated that they agreed with the Secretary that a somewhat

wider range would be desirable. They felt that the Secretary's tentative suggestion of 11/ or 2 per cent spread either side of parity
would be better to start with. Mr. Lochhead asked Mr. McComas whether

he still felt that the wide ranges he recommended earlier were to
prevail on all three currencies. Mr. McComas appeared to be influenced
by the comments made since his earlier remarks and stated that he
thought a narrower range than the one he first suggested would be desirable.
Mr. Rentschler then expressed his agreement with Mr. Loree that

it would be important to get the dollar-sterling matter settled, but
he also felt that an attempt might be made at the same time to include
the franc. However, he too believed, he said, that it would be wise
to let England take the initiative in the case of France since England
was more interested in the level of the franc than we are. His view

was that the Secretary could indicate to the British that if it were
all right with them a 20 per cent devaluation would be agreeable to

us, or anything moderately above that. If they felt it should go

lower we would be willing to go along with them - his view being that
the English being more interested than we in the franc situation
would be in a better position to determine the rate. Should the British
insist on a higher franc rate it would be the British rather than the
United States who would have the onus of demanding it. England having

a bigger stake in the franc situation, could be depended upon to get
the best results. (I think Mr. Loree expressed similar views.)
The Secretary stated that the French have recently come out for
a program of "reflation" without devaluing the franc. He admitted
he could not understand what that meant and laughingly asked if anyone would explain it. Several stated that both together were impossible. Mr. Rentschler (and/or Mr. Shaw and Mr. Stern) stated that
"reflation" without devaluation would sooner or later bring France
face to face with her budget difficulties and she would be worse off

151B

Meeting on June 6, 1936 -- 3.

than ever. The concensus of opinion was that a policy of reflation

could not possibly work unless preceded by or accompanied by devaluation.

Mr. Williams said that if the French devalued and pursued a
policy of reflation somewhat similar to what occurred in the United
States France's competitive position would be less unfavorable to
us. He said that a program of reflation following devaluation would
be a desirable thing from our point of view.
The Secretary stated that the French at the moment did not appear to have a definite monetary policy but that he thought highly
of Professor Rist and he understood from Rist that devaluation was
desirable for the franc. Someone pointed out that Rist was close to
Blum -- I believe it was said he was probably his economic adviser -and that the recent speech by Rist was a device employed by Blum to
pave the way for deflation. The Secretary asked if anyone knew anything about the new Governor of the Bank of France, Labeyrie, who
replaced Tannery. None had any information, but Mr. Knoke and, I

think, Mr. Gilbert, expressed the view that he had the reputation of
being the best of the Leftish bankers.

At that point in the discussion, the Secretary said he would
tell them frankly what the situation was between the British and
himself. He said that for two and a half years he had been attempting to secure a channel for quick and frank discussion with the
British, and that the British had been cold to the attempts. Nevertheless, he had continued to make the effort for the sake of the
interests of the United States and that very recently efforts have
been successful, and there is now a clear path to and from the British
Treasury for an informal exchange of views. This opening up of a
channel for easy co-operation constitutes an important first step.
He stated that some idea of the importance of the point gained could
be deduced from the fact that the State Department had informed him
it was the most important diplomatic step that had happened in three
years.

The Secretary said he was very glad to hear their views as to
what procedure to take with regard to the sterling-dollar ratio, and
as to the prospects of and reasonableness of particular rates of
franc devaluation and would now like to have them give their advice
on a specific problem. He posited the following question: Supposing
Monday morning, or some other morning soon, the French were to de-

clare an embargo on gold; what did they think would happen (a) to the

franc, (b) to sterling, and (c) to the dollar?

Mr. Stern spoke first in reply. He said that in his opinion

there would be some exchange restrictions imposed but, netwithstanding,

151C

Meeting on June 6, 1936 -- 4.

the franc would depreciate in terms of sterling, and that sterling
would, in turn, be strong, rising somewhat above $5.00. Above that
point there would also be a demand for dollars and as sterling rose

above $5.00 there would be some movement from sterling into dollars.
But as the franc depreciated sterling, he thought, would weaken, and

sterling would begin declining in terms of dollars. As the franc

depreciated there would be some tendency for funds to flow back to
France which would serve to check the franc depreciation. When the
franc had reached some point 20 or 25 per cent below, they might, he

felt, peg the franc to sterling. He also said that if the political
situation got worse, or if the franc continued to depreciate, un-

certainty might spread, and that there would be a demand for gold.

The situation would be bad if it continued in that direction.

Mr. Loree expressed the view that he thought sterling would decline and not rise. The Secretary questioned him again on the point,
saying that his view seemed to be different from the views expressed

by most of the others. In the ensuing discussion it developed that
all who expressed an opinion on the subject, except Mr. Loree,

thought there would be a bulge in the sterling -- that is, it would

rise somewhat -- and later decline. Mr. Lorre thought there might be
a bulge but it would be very short-lived. He added that no one could
tell what would happen with sterling; it was an uncertain situation
and anything might take place. The difference of opinion seemed to
be chiefly one of time. Most of those present thought the rise in
sterling would last a little longer than it appeared Mr. Loree did.
All of the bankers expressed themselves on this point except, I think,
Mr. Gilbert.
The Secretary then said that he would like their views on another
important matter. He then put this question before them for their
consideration:

Should we on Monday morning be confronted with a different situa-

tion, i.e., France might, let us say, declare an embargo on gold.
Just what steps did they think he ought to take? The Secretary said
he would like to get everybody's opinion. Someone suggested that
they would like the Treasury's view on some of the things that had
been said. The Secretary stated he would first like to hear from
the private bankers, with the Federal Reserve Bank next, and then
the Treasury last, and laughingly suggested that the order of the
Federal Reserve Board coming before the Treasury was the usual one.

Mr. McComas stated he did not see any need for immediate action,
that our position WELS very strong and we could easily wait a few days
before anything was attempted other than conversations.

1510
Meeting on June 6, 1936 -- 5.

Mr. Loree then spoke. He said in his opinion the thing to do
was to sit tight over the week-end with regard to any operations, but
to proceed with an understanding with England looking forward to a
tentative settlement. However, he again stated that the important

situation was with England. He reiterated his former position -namely, that the important thing was not the French situation, but
the arrangement with England. He later expressed the view that the
gold market should be left open for England so long as some progress
was being made in the conversations.

Mr. Rentschler likewise advised sitting tight over the week-end
in the event of a French gold embargo, and stressed the need of an
hour to hour policy since it is not at all certain what would happen,
and the policy would have to be adjusted to the turn of events. He
added that he thought nothing startling would happen over a few days.

Mr. Stern thought the Treasury ought to sit tight, but if neces-

sary to lend gold to England against earmarked gold abroad, to avoid

any sharp rise in the rates owing to lack of transportation facilities.

He suggested a similar arrangement to that which had apparently taken

place with France earlier. The Secretary stated that they already

had an arrangement of that kind with France over the present weekend, but no commitment had been made with regard to any other period
and a similar arrangement could be made with England.

Mr. Bailie also advised that we sit tight, but at the same time
to press forward with talks with England and keep up the conversations
looking toward an agreement even though efforts prove unsuccessful at

first. He advised being persistent in the conversations but did not
favor permitting gold flows to England.
Mr. Shaw also recommended sitting tight over the week-end.

Mr. Gilbert strongly favored opening the gold market to England
and Central banks or Treasury Departments of other countries at once
and keeping it open so long as there existed any chance of successful
co-operation. He thought it would be an error not to open the gold
market in the United States while the conversations were going on;
that in the absence of an open gold market the fluctuations might be

very upsetting and that it might be very difficult to control the
situation after it once got started. He said we could afford to be

generous and that the conversations could not be quickly consummated

- might drag on for several days or several weeks - but that during
that period it would be extremely desirable to have an open gold
market so that gold could be sold to all Central Banks and treasuries.
He thought the chances of an understanding with England were very

excellent, did not anticipate any difficulties, and thought it would

151E

Meeting on June 6, 1936 -- 6.

be time enough to stop selling gold if England definitely showed no
desire to co-operate.

Mr. Harrison spoke at length, taking the position similar to
Gilbert's. He stated we ought to open our gold market to Central
banks and treasuries during the conversations. He thought it was a
splendid thing the way was open and believed the conversations ought

to continue, but that we ought not to be "small" in handling the
matter. He was of the opinion that we should permit gold to move

out until it was definitely certain there was no possibility of an
understanding. He believed, as did Gilbert, that we would find the
English quite ready to come to an understanding with us.

Mr. Taylor expressed the view that it would be sufficient to
open gold to only England; there was no need of taking in the rest
of the countries at this time.
The Secretary answered Mr. Harrison to the effect that he did
not agree with him we should open our gold market and did not feel
we had in any way been "small"; that he had been most generous and

most patient with the British, but he did not think it desirable to
give away the trump card he held in his hand. In commenting on

Gilbert's remarks that we could stop selling gold if the British did
not agree, the Secretary said he thought it would be a bad thing if
we closed our gold market to them after it had been opened; it would
be better not to start at all. Several of the men present agreed
with him, including Shaw, Stern, and Rentschler.
Mr. Gilbert expressed the view that he did not think the
Secretary was giving up any trump card since he could always stop
selling gold and that it was understood the policy would be one which
would be subject to change according to conditions.

Mr. Gilbert said we must not think we have the upper hand; that
the British are very shrewd and they doubtless could make things

difficult for us. They could let the pound depreciate. He pressed

again for the maintenance of an open gold market during the conversations which he presumed would continue.

The Secretary said that he had frequently stated he was on a
24-hour policy and that he has used that expression to mean their
policy was flexible, but it could be adapted to whatever new situa-

tion appeared; that it did not imply the absence of a policy.

The Secretary stated that obviously we could not give any
guarantees with regard to their policy, but Vandenberg the day

previously had said a foolish thing -- namely, that the President may wake up some morning and devalue. The Secretary

151F
Meeting on June 6, 1936 -- 7.

said if Vandenberg believes that he is absurd. The Secretary stated
that he did not mean there have not been foolish things said on the
other
side, but that Vandenberg had said this and it was of some significance.

Mr. Knoke felt that it would be necessary to help sterling out
because if there were pressure on sterling they could not stop it
without buying dollars and that they would hesitate to buy dollars
because it would be paper money, since they could not get gold. It
would help matters a great deal, he thought, if the United States
would co-operate and let some gold out.

It was suggested by Mr. Loree that a pot of 50 million dollars
each by the United States, England and France be made up and that
when that was used up in keeping currencies within the agreed-upon
range the situation could be canvassed again.

Mr. Harrison, after hearing the Secretary's disagreement with
his position, defended his former position at considerable length,
but he began to alter it slightly and place more stress on the
negotiations and upon the fact that the gold sales could be contingent upon an expression by deed or word of co-operation by the
British. By the end of his talk he seemed to approach more closely
the view expressed by Mr. Rentschler, Mr. Bailie, and Mr. Shaw that
the Secretary should not do anything unless there was some indication that the British were likewise demonstrating their willingness
to do an equal amount.

Mr. Rentschler, Mr. Bailie, Mr. Stern, Mr. Loree, and Mr.
Harrison stressed the fact that the Secretary had a trump card only
if he used it in the privilege of sending gold to England.
The Secretary asked if gold were shipped could it be done publicly or privately, adding that he would be opposed to any public
statement. Mr. Rentschler and Mr. Stern thought that it could be
done privately, merely earmarking the gold out of the Stabilization
Fund without any notice being given. If the matter were treated

confidentally, it would be easier to withdraw if the negotiations
fell through.

The Secretary thanked them all for their generous assistance
and advice, and said he may find as the situation develops that he
may wish to ask them to gather again to discuss the matter.

H.D.White

WH

152

Sunday, June 7, 1936

HM,Jr. took to the White House three sets of papers
to be signed by the President:
1 - Public Announcement (A) Press release - President
(B) Letter to Federal Reserve Bank of New York - President

(c) Letter to Assay Office
II - Sale without announcement
(1. For sale to Bank of England
(

(A)

(2. For sale to any foreign Government or Central Bank

(B) Letter to Assay Office

III - Sale from stabilization fund
(A) Letter to and authorization from President
The President signed the papers and asked in whose care

they would be put. HM,Jr. told him that he would put them
in Mrs. Klotz' care. The President said, "Will you tell
Mrs. Klotz that if anything should happen to the President
or the Secretary of the Treasury that I (the President) said
she should destroy all these papers? It is up to her to
destroy these papers." He also said, "The last one I want
you to use is II-A-1, which is the agreement which would
give England exclusively gold."

153

June 8, 1936

Bewley came in to see the Secretary at 11 o'clock this
morning. Taylor and Lochhead were also present.

The following is stenographic transcript of the con-

versation at the meeting:

Bewley: We had an answer yesterday evening, but it

was too late to do anything last night.
The Chancellor of the Exchequer, first of all, wants
to thank you for keeping in touch and telling him what you
did on Saturday and, secondly, he wants to say that he
thought it would be much better for France not to put on
restrictions of any sort, but to go off simply and devalue.
As regards the actual proposal which you made, he

sees some difficulties. He does not like, in the first
place, the idea of anybody outside the British authorities
speaking for British policy. That I don't think is a
matter of fundamental importance because it is obvious

that nobody likes anybody else to speak for their policy,
but it is clear you could speak here for the American
policy and he on the British. It does not seem a matter
of fundamental importance.

But on the question of taking the initiative in making
a de marche to France, he felt rather differently from you
on that. He felt that the French Government, the new
Government, has not approached him in any way at all about
their policy. There has been no communication between
London and Paris about their monetary policy since the

new Government came in. The present position, as far
as they know in London, is they hope to remain on the gold
standard, and the Chancellor feels that it might be very
embarrassing to make a de marche to France or to take the
matter up with them in a way which might possibly be represented as trying to push them off gold. He feels considerable doubt if, in the present circumstances, the French
would welcome a statement of that sort unless possibly for
the reason that it would help them to shift the responsibility on to other shoulders, which clearly would be embarrassing to all concerned and his conclusion, therefore,

is that he is rather reluctant to take the initiative himself

153A

-2-

at present, but if the French should approach you in any
way, he would be perfectly willing to discuss the position with them. Perhaps I might dare to add myself
that the French officer in London -- he drifts in and
out of the Treasury a lot so it would be perfectly easy
for him to raise the point if the French Government wanted
to without any possible
HM,Jr.: What is his name?
Bewley: Monet.

HM,Jr.: Incidentally, either Monet talks too damn
much or else he says things which are just unbelievable.
I don't know. Is that your impression?
Bewley: I have seen so little of him.
HM,Jr.: He has been saying some of the strangest

things. They don't seem to fit in at all with what his
Government believes.

Bewley: No, I don't know at all. I met him a few

times out here.

HM,Jr.: He seems to talk pretty freely on what his
Government thinks. Let me ask you this: I don't think
at any time I suggested that I wanted to talk for the
British.
Bewley: You were saying you would make a statement

here of policy and I thought your statement immediately
covers what we had said.

(HM,Jr.)

Lochhead: You/said something that you might speak

in this room but with you and they being here, Bewley
would speak for the British.
HM,Jr.: I said that you would be here representing

Great Britain. I wish you would clear that up.
Bewley: Tha was not a fundamental thing. It was
in his telegram so I thought I would mention it.

HM,Jr. I thought you might mention to him that you

1530

-3-

asked me where this could take place and I said it might
take place with you here representing Great Britain. So
would you mind? He might think I was taking on more I
than I should. I am going to continue to be frank.
don't know the European situation and they all seem to

be so terribly afraid of your country. I don't know why.
Bewley: Yes.

HM,Jr.: And certainly when Auriol spoke (although

he is not one of the Baltimore varieties), I greatly doubt
at this time if he would be willing to -- but let me back
track a minute. Cochran did see the Dutch and the Swiss

yesterday.

Bewley: Yes.

HM,Jr.: There is a long cable coming now which he

sent this morning, but he told me the sum of it. And the
Dutch attitude is that if they could devalue 20 to 25%
and the Swiss about the same, knowing that the dollar and
pound sterling relationship would stay practically the
same, they would be very much interested.
Bewley: Yes.

HM,Jr.: Again, what would England do?

Bewley: You say the Dutch said this or the Dutch and

the Swiss?

HM,Jr.: They both said it -- the Dutch and the Swiss

would like to devalue if they felt that sterling (they

particularly mentioned sterling) would not drop below -they mentioned 4.86.

Bewley: 4.86 to the dollar; yes.
HM,Jr.: You see, the way they talked -- I have not
in the slightest way indicated that I have talked to you.
Bewley: I see.
HM,Jr.: And they say, "Oh, we don't know what the
English are doing." And I don't give them any indication.

153C

-4-

But here's the way it stands. Pending this cable, which
I understand is six pages long and which has not come in
yet, it amounts to practically this: the Dutch and Swisa
and French have practically all told us that if they could
get some assurance from your Government that they would
not have a depreciation war, they would like to devalue.
Bewley: Yes.

HM,Jr.: So everything we have done up to this point
is encouraging. Now I think the thing we don't want to
do -- let's think out loud -- is to get to the point where
we say we won't take the initiative and the French say we
ant because we are publicly committed against devaluation.

Bewley: Is it possible for either the Dutch or Swiss
to take it? They have reasonably strong Governments. It

does seem natural to me that if the Governments' real feeling is they can't do something because of something that
another Government might do, the natural thing to do is

to put out some sort of feeler to see if there is any basis
for that fear.
HM,Jr.: Let's just talk. You think the Dutch -- the
eyes of the world are not on them just now -- that they
might take the initiative and sound out Great Britain?

Bewley: I don't like to say it is likely in the
sense that they might, but I don't see any real difficulty
in their doing it, if that is their real difficulty about
going off gold.
HM,Jr.: Because our connection over there, with
the Bank and the head of Holland is very good. Mr. Tripp.

It isn't the Treasury. It so happens that the connection
is with Tripp. And I think Tripp stands very well on the
Continent.

Bewley: I think he does; very well.
HM,Jr.: What would you think of the suggestion if
I sent word back, would Tripp be willing to take the initiative on this thing?
Bewley: I would not like to suggest where the initiative should come from. I don't feel I am in the position
to do that.

153D

-5-

HM,Jr.: Someone must, because we have taken the

initiative up to now. Let's be frank. Your Govern-

ment says they don't want to go any further unless they
are approached by one of the Continental gold bloc.
Bewley: What they said was France, but presumably

the thing applies to the other countries.
Taylor: More particularly with France than with
anybody else.

Bewley: I imagine if France chose to act through

the Dutch, I can't see that there is anything, in principle, different in the two.
HM,Jr.: Here's the situation -- all three gold bloc
countries all say they are willing if your country and
ours did not cut under.
Bewley: Yes.

HM,Jr.: You and I have never talked what the level
is or cross rates and it's too early to get down to that,
because after all you have to say, we have a figure in
mind and you have a figure.
Mr. Bewley: As a matter of fact, your Government

might figure for France slightly lower than this. They
said they thought a reasonable figure would be 15 to 20%
but 25% would be the maximum.

HM,Jr.: Did I give you a figure?
Bewley: You said 20 to 30%
HM,Jr.: I am going to revise that because I have
made a lot of study since then and I would like to say
for the moment 15 to 20%.

Bewley: That's exactly the same as us then.
HM,Jr.: For the moment I would like to say 20% is
the maximum, but we are not very far apart on that.

Bewley: No; clearly together on that.

153E

-6-

HM,Jr.: Above 25% would be impossible. We could
not
standWell
that. But you say 15 to 20% and a maximum
of 25%
Lochhead: You were saying that different people have
been
saying
20 toit.30%, but after that you asked our own
people
to E tudy

Bewley: Oh, yes. I understood that was only a feeler

you threw out.

HM,Jr.: Our people say 15 to 20% would be ideal and

I could not say today that -- if they said 25% today, I
could
not say yes, but 30% is too much. So we are again
together.
Bewley: Yes; we are together on that.

HM,Jr.: I am glad we brought this up. I can't quote
it, but it means so many france to the pound and then there
is the relation of the pound to the dollar. It works out
so many hundred francs to the pound.

Lochhead: Not quite a hundred, but that's the way it

works out.

HM,Jr.: If they devalue 15%, your cross rate is so
much and ours is so much. I have to call in technicians
on that, but they have it all worked out and it also brings
in a definite price of sterling in dollars. You go round
but you enter the same place. You can get there in either
direction, from sterling to dollars to france or the other
it,
way, and it all works out the same way based on certain
percentages of deval uation. If we ever get down to
I would like to show you that, but I don't think the time
is ripe.
Bewley: No, the time is not right. And your ultimate
conclusion is 15 to 20%?

HM,Jr.: 15 to 20% They would have to do an awful
lot of fighting to get me to go to 25%, so we are again
together.

Bewley; Yes, we are together.

153F

-7-

HM,Jr.: Now, then, how can we break this log Jam?

Bewley: Well, I do feel it is delicate suggesting
that a third country -- Great Britain, in this case -should suggest to another country that they might take
the initiative. If these people really want to do this
on this line, which is open to possibilities
HM,Jr. Now, you see, I am out of my depth. You
are getting into diplomatic usages. Here you and I know

that the situation is -- the cherriesvare ripe.

Bewley: They did put forward various other things,
such as basing their currency on world prices and getting
an agreement with Russia.

HM,Jr.: I don't think that means much. I don't
take great stock in that. If we could get the Dutch and

Swiss to agree, could you not do this: could you not ask
the Chancellor for a suggestion what the next move is now,
knowing that the Swiss and the Dutch are willing?
Bewley: Yes. You are very sure of that, without
deciphering the whole of the telegram; that their real

fear is the British attitude?
HM,Jr.: Well, let's wait until it comes in. He
filed it at ten, Paris time, this morning. Let's wait
until it comes in and I will let you know when we have
it. But, quite frankly, when we get down to diplomatic
usages I am out of my field. I can sit down and talk
to you and no one could be more frank with each other,
but instead of having to talk about the terms -- we know

pretty well the terms are acceptable and it's just who
is going to talk first and that's something -- I have seen
so many conferences break up on that, and I am just beyond
my depth, but this thing is so important that we must not
let the thing drop. because we don't know who is to talk

first.

Bewley: What I had in mind was a little more than
It was not just diplomatic usages. It was 1f
that.
these countries don't want to ask this question, does it
mean it's internal policy rather than that they would be

afraid of what Great Britain might do? Is it perhaps
that the British attitude is not the compelling factor?

153G

8HM,Jr.: Everything I have gotten so far indicates
that. I am not saying this for trading purposes. They
all seem to think Great Britain is the stumbling block.

I don't see why, but I get it. e everything I get it's
the same thing. I can't explain it. It isn't something
I am imagining, but that's what comes back.

Bewley: Yes; quite.
HM,Jr.: You see, here Auriol says it's impossible

for him to approach the British and he cannot be quoted
as even personally favoring devaluation or suggesting or

inspiring. (Reading from cable.)

Bewley: Do they give any reasons?

HM,Jr.: No. Then he goes on to say that if there
should be the slightest leak on this thing it would mean
he would have to resign at once. That gets into European
politics, which I don't pretend to know and don't pretend
to understand.

Bewley: I am out of my depth there because I can't
see why it is the stumbling block and if they are anxious
to do it why they don't put out some sort of feeler, because they are all in touch with the Government or with
Norman. Tripp is always seeing Norman over the week-end.

HM,Jr.: Yes, he is still there today, but I had

Cochran come right back. Let's wait until the full cable
comes in and when it comes in I will give you a ring, but
my own feeling this morning is that -- let's just see, and
I have nothing else.

Taylor: I think it 13 important to emphasize that
because I got a slightly different impression from the

telephone conversation this morning than what you gave
a minor difference, but I
Bewley; the cable that very will but think it when minor we see

all be cleared up, was in

many ways. There was no material difference. This
question of what the Dutch and Swiss and French, either
individually or collectively, might do under certain
eventualities.
HM,Jr.: I don't understand.

153H

-8-

Taylor: I say let's wait until we see the full

text of the cable because we were both listening on
the telephone and there was no material difference,
but there was a difference in impression that I got from
what the Secretary got, but we can clear it up.
Bewley: There are two other points which are not
fundamental. One is, I don't know why they telegraphed

it to me, because I think it is clearly understood, but
they did put it in the telegram, that it was understood
we could not at the present stage promise a permanent
and absolute stability in any case, whatever the French
did. I think that's always understood. The French
going down is not going to make us put the pound down too.
I think they were just putting that in to make quite certain
we are not getting an absolute stability right away.
HM,Jr.: No. As a matter of fact, you hedged it with
"provided your internal price level remained stable.

Bewley: I think that's quite clear. And the other

point was the publicity that got out in London which you
mentioned to me on Saturday. When you mentioned it, I
thought it was earlier, but I got back to the Embassy and
checked and it was the thing in the Daily Chronicle.
inquired and they said they got it from America, so I
don't know where it came from. I don't think that matters
because it has had no repercussions at all. There was
only this one notice and I don't think anybody paid any
We

attention to it.

HM,Jr.: Is that a good paper?
Bewley: It's not a good paper, but he is very keen.
HM,Jr.: Someone may have seen you drop in, because

these newspaper men just roam the halls all the time. One
of them might have seen your car with the license number.
Bewley: I wouldn't have raised the point, only you
mentioned it on Saturday.

HM,Jr.: I am curious and, as a matter of fact, to

show you how these things go -- the United Press man, who
now covers us here and who used to cover the State Department,

1535

-10-

came in and asked someone what was a good book to read

on monetary fractions. He wanted to read up on it.
Bewley: That's a hint they know something.
HM,Jr.: Where he got that, I don't know. He formerly
used to cover the State Department. But it didn't do any
harm. As a matter of fact, if it did get out and if it
prepares the public mind, it's all to the good.

Bewley: Well, I will wait until I hear from you again.
HM,Jr.: Yes. It will be cometime in the middle of
the afternoon, because if it is as long as that it will
take them quite a long time, but I asked Hull to give it
precedence.

154

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: June 8, 1936, 10 a.m.
NO.:

469 FROM COCHRAN

RUSH

ULTRA CONFIDENTIAL.

This morning I returned to Paris from Basel. I did
not wait for the formal meeting of the BIS to be held today,
but I did have an opportunity for conversations with most
of those persons whom I usually contact.
I had a talk with the President of the Netherlands
Bank, Trip. He gave me in extreme confidence his per-

sonal and unofficial views on the question of international currency stabilization.
Trip's views on this question are not to be taken

as binding, but he did not hesitate to tell me that he
and Colijn see alike as regards stabilization, and he
(Trip) is in constant touch with his Government.
With regard to the French situation, Trip told me
that he had been hopeful about it until the control of
the Government came into the hands of the Popular Front.

He has been of the opinion that the franc is doomed be-

cause of the flight of capital that has since taken place,
the weakness of the authorities now in power as regards
the

154A

-2the dangerous labor situation, and the Government champion-

ing of increased expenditures of funds and other plans

which are wholly irreconcilable with preserving the "present

parity of the gold franc.
Trip said he is sure that while this Government's
tenure of office may not be long, it will wreck the franc.
He thinks that France should either devalue at once

in the way Belgium devalued, or tie the franc to sterling,
although not at a rate which would mean a depreciation of
as much as 40 percent. For a while, he fears, it will be

politically impossible to take either step. It is his
opinion that the present Government will allow further
deterioration of the situation and attempt to show France
what a bad mess the outgoing regime passed on to it.

Trip said that this would lead to exchange control.
Such control, he believes, would fail more miserably in
France than in any other country that has attempted it;
he said that neither the Bank of France nor the Ministry

of Finance has the technical set-up and skill which is
necessary for effectively carrying out exchange control.
The idea of attempts that may be made to force a

return of capital to France was ridiculed by Trip he said that the effect of such efforts would only be to

154B

-3to force more capital out.
The replacement of Tannery, the man with whom Trip
has been cooperating, by a man who has no experience in

central banking has disgusted Trip.

Should the slightest restrictions on exchange be
imposed by France, Trip said, the Netherlands would at

once decide that France had left the gold standard and

would no longer regard any gold bloc ties as binding.
Trip insisted that the Netherlands must reserve

entire liberty of action, in view of the degree of chaos
already existing in France. He mentioned that Great
Britain, Belgium, and other nations have each acted independently in making decisions regarding their currencies,

without consulting or informing their neighbors.
The Netherlands will take action as soon as the
French make any official move toward restrictions on
exchange or bankers (?) valuation, and there is even a
chance that the Netherlands will take action before

France, in view of the fact that the French situation
has now become so bad. Action by the Netherlands, when

it comes, will consist in that country leaving the
gold standard, and then keeping the florin at around a

certain rate vis-&-vis sterling. If necessary, it will
have

154C

-4have recourse to some sort of a stabilization fund arrangement between the Netherlands Central Bank and the Treasury.

Trip is unwilling to tie the guilder definitely to
gold at a new rate until he sees what action other curren-

cies, and particularly sterling, will take. He is convinced Schacht will tie the Reichsmark to sterling along
his own plan when the Reichsmark leaves the nominal gold

standard, but this would probably be at a rate of depreciation different from that which the guilder would main-

tain vis-a-vis sterling.
The opinion was expressed by Trip that the United

States and Great Britain should take the first step in
any international monetary agreement, and he urges that

we should not try to exact a complete and definite return

of the British to gold at a fixed parity. Trip insists
that Great Britain is not ready for such a step, that we
cannot force them to take it, and that should we insist
on this it might mean wrecking at the start any plan
formulated. He made the suggestion that at present the
United States should not give up its legal right to devalue the dollar ten points more, but that we might enter
a gentleman's agreement with the British to the effect
that as long as the British did not allow the pound to
drop

154D

-5drop below, say, 4.86, we would not make use of that

authority. However, before exacting this much we will
have to give the British the means to carry out their
part of the agreement; in other words, we should permit
London to purchase and export gold from the United States

as long as sterling did not fall below the rate agreed
upon.

Trip said that should it become necessary for him to

leave the gold standard, he would be willing to try to
time his departure with a devaluation of the franc, if
the French are willing to enter into a concerted devaluation arrangement. Trip would feel free to tie to sterling
independently of France if the latter resorts to exchange
control; he would do so as soon as such exchange control
was instituted by France, and as stated above, he may

even anticipate the French action should the franc situation get worse and exchange control seem imminent.

Trip believes that were the lead taken by the Netherlands, this might even help France to reach a wiser solution than exchange control. Vis-&-vis the United States
and Great Britain, Trip suggested a gentlemen's agreement
under which the Netherlands would try to keep the guilder

within certain limits vis-a-vis sterling - provided sterling does not drop below a rate of, say, 4.86. An
arrangement of this kind would tend to force Great Britain
to

154E

-6 to maintain sterling at a rate not under 4.86, especially
if the example were followed by Germany and other countries.

The dollar-sterling rate would thus be the point about which
the whole system would revolve.

It is Trip's opinion that at the present time it would
prove difficult to get any very satisfactory understanding
with the French; he believes it would be enough for the
Americans and the British, after they had arrived at an
agreement between themselves as to their currencies, simply

to inform France that if there were franc devaluation,
not beyond, say, 25 or 30 percent, they would not consider
such action as a cause for changing their mutually agreed

parities. Similar action might be taken in relation to
Switzerland.

He intimated that the depreciation which he has in
mind for the guilder under the contemplated tie-up with
sterling might be about 25 percent.
I stress again that the foregoing suggestions by

Trip are absolutely personal and confidential. He stated
that the moment for action having arrived, some one should
take the lead. He said that the lead is within effective

grasp of the United States Treasury, if it only will not
be too hard in its attitude toward Great Britain. He
said that if the United States is too adamant, the British,
who

154F

-7who can go on indefinitely on their present basis, might
bring up war debts and all manner of excuses. He expressed

his conviction that Great Britain will not give up its
cheap money policy and use the discount rate as a means of

holding sterling . It is essential for this reason that
the United States open its gold supply to them within
certain exchange limits.
I had a conversation with Professor Bachmann, President of the Swiss National Bank, and I approached him

along the same lines as I followed in my conversation with
the President of the Netherlands Central Bank.
Bachmann admitted that the fate of the Swiss currency
depends largely on the French franc. There are many dif-

ferences, he said, in the positions of the Swiss and the

French, since there is no political crisis in Switzerland
and no serious social unrest. In addition, the Swiss budget is in balance, expenses have been reduced, and so on.
Bachmann did admit, though, that if the French franc

should go off gold, the Swiss franc would be subjected to
so much pressure that it might be imperative for Switzerland to take action.
Bachmann asked me if I had a talk with Dr. Trip; I

said that I had a conversation with him, but could not

relate Trip's reactions to him. It was then agreed that
Bachmann should talk over the problem with Trip. The

former

154G

-8former thanked me for talking to him on the subject of an
international plan, and said that naturally he was interested in such an undertaking, but he did not commit himself any further.
After I saw Bachmann, he and Trip talked together,

and then Trip and I saw each other again. Trip expressed
surprise at finding that apparently Bachmann favors

action along his own line - i.e., to tie the Swiss franc
to sterling in case the French franc goes off gold.
I saw Messrs. Niemeyer and Norman just to exchange

greetings with them, but had no conversation with them.

I received a call from Dr. Schacht for me to see

him. Schacht told me he felt hurt over the attitude
Secretary Hull had taken towards him, especially since
he had been hoping that the time was near when Germany

and the United States could more easily find common

ground for improvement in trade relations between the two
countries. Schacht made specific reference to the imposi-

tion by the United States of countervailing duties on
imports from Germany, and to our alleged insistence that
Brazil impose quotas on certain imports from Germany or

else payment for Brazilian coffee exports to our country

would be denied. I replied that as for the last-mentioned
affair, I knew nothing. But as regards the countervailing

duties,

1541

-9duties, I said that this is action which the Treasury Department takes when facts showing justification for such action
are presented to it. An assistant to Dr. Schacht told me
that in Germany the impression was especially bad with the
countervailing duty announcement coming just after payment
by Germany of the coupon on the American tranche of the

Young loan, on the first of June. The remark was made that
our abrogation of the trade treaty with Germany happened to
be timed somewhat similarly. I was asked by Dr. Schacht
how he was expected to pay his debts to us if we make it
impossible to sell German goods on the American market, or

to gain foreign exchange through multilateral trade to
apply on his indebtedness to us.
The Swedish economist of the BIS - Jacobsson - gave

me, with his usual blunt frankness, his impressions on
current affairs gained in conversations with bankers at
Basel and from recent travels in Europe.

Jacobsson said that politically Germany is following
a waiting policy, and that Germany is also trying to delay
devaluation of its currency. Conceding that when Germany

moves it will tie the mark to sterling, it is the opinion
of experts that Germany does not have sufficient funds or

resources to do this effectively at the present time; a
better

154-0

- 10 better time may be after proceeds from the autumn harvests
are in.

It is Jacobsson's belief that in any international
stabilization scheme Germany must still be considered a key

country. He said that if the British and Americans hope to
see Germany and other countries with depleted resources

stabilize, these two capitalist countries, notwithstanding
their lack of sympathy with religious persecution and rearmament projects, must open their markets to such foreign
borrowers. Europe furthermore is not yet convinced that

President Roosevelt would not cut the gold content of the

dollar further should there be a considerable fall in American prices while he still has the power to do so. Observers
in Europe do not know of any recent utterances by President
Roosevelt which might indicate that he is convinced that
international monetary stability is now desirable and that

this country could pledge its part in it. Observers are
not convinced that the United States would, before the election in November, take any binding steps in the international

monetary field; on the other hand they are likely to attribute political motives to certain routine measures. An
example is the countervailing duty decision coming years

after the practices involved were started and only a few
months before the national election in the United States.
Schacht has reached no decision - so far as I am aware as

154J.

- 11 as to what his next move should be in the face of the two
American developments I mentioned above. He requested me

to do anything I could to get at least a postponement of
the application of countervailing duties. Later this week
he will begin a series of return calls upon Near Eastern
central bank governors.

It is Schacht's opinion that adjustment of the political situation in Europe will be made more difficult by
the existence of the Blum Government in France.

I had a talk with Beneduce, who said he thinks the
French Government was showing a lack of force in dealing

with the labor problem. Azzolini said he is much further

contracting the Italian currency in spite of the fact that
it was necessary to print more notes for use in Ethiopia.
Italian note circulation at present is between
14,200,000,000 and 14,500,000,000 lire, of which 13,000,000,000

is in Italy and the rest in the colonies.
It is the expectation of most Basel observers that
sanctions against Italy will be raised sometime this summer;
that Great Britain will pursue a vigorous policy of strengthening its own forces, and that various neutral states
will consider withdrawing from the League, and the League

will drift into a sort of political BIS, maintaining an

154K

- 12 expert staff for study of international problems but
dropping more ambitious undertakings.
I heard comment on the growing isolation of France

following Germany's reaction to the Soviet treaty with
France, the unhappiness of Great Britain over the attitude
of France towards the Ethiopian situation, the disappointment of the Danubian countries in French acquiescence. in
Rhineland militarization, and the Italian dislike for the
Government set up by Blum.

Everyone is worried about the present French social
and monetary situation.
Yesterday at the informal meeting of bank governors,
the Bank of England made an offer to provide gold bars

against gold coins to central banks possessing the latter
when they find it necessary to dispose of them. The
offer is for the purpose of preventing the hoarding of
gold pieces as when the Netherlands Bank sells coins to
maintain the exchange parity of the guilder.
For today's meeting the routine business is light. It
includes study of correspondence which has been exchanged

with the Federal Reserve Bank of New York on the Hungarian

credit and the question of transfer of shares of the Bank
for International Settlements.
END MESSAGE.
STRAUS.

EA:FL:LWW

155

June 8, 1936

HM,Jr. called the President. He said, "I can't
keep up with you," and the President asked, "Why not?
That is too bad." HM,Jr. inquired, "How about you?'

and the President answered, "I am fine." HM, ,Jr's comment was, "You are too swift company. I went home and
had a headache." They both laughed.
Getting down to business, HM,Jr. said to the President, "Things are temporarily quiet and Cochran got back
and sent me a six-page cable which is coming in, but the

main thing is that in talking to the Dutch and Swiss
they are very sympathetic to the suggestion. As long
as they can devalue 20% to 25% and sterling would not
drop below 4.86, they would go along. We know that
is entirely agreeable to the English. Bewley is coming
in at 10:15." The President remarked, "Perhaps $5.00
is too high. It is a damn sight easier figuring than
4.86." HM,Jr. answered, "I have never mentioned 4.86
or any figure. I have not tipped my hand one iota."
The President said, "Do you realize it would be a
very interesting thing if we could work out a 5.00 pound
and a 5 cent franc? The 5 cent franc would be about
20% devaluation." HM,Jr. answered, "It will be a little
bit more. What we have here is if the French devalue
15% to 20%, then they talk 85 to 90 francs to the pound.
What they are talking is 95 to 100 francs to the pound.
Then they use the inverted figure in relation to the
dollar. They figure 16 francs to the dollar. These
tables are all worked out. It takes a foreign exchange
man to work them out. I would not do a thing on that

until I talk to you first. The interesting thing is,

when you talk to any of these countries on the Continent
be-

they are all just scared of England. They must have
haved very badly lately. May I see you before the 4:30
meeting?" The President replied, "You are coming for
lunch." HM,Jr facetiously remarked, "Please have some
black coffee for me." The President, also facetiously,
asked, "Do you want some bicarbonate? HM,Jr. declined,
saying, "No, just black coffee. Both the President and
HM,Jr. had a good laugh over this.

156

June 8, 1936

HM,Jr. called Phillips at 2:30 and said, "Have you
seen Cochran's cables? I would like to know what your
plans are for this afternoon and evening. Bewley was
in this morning and I told him that I would have a further
answer for him in the late afternoon. I have a press
conference at four and a tax meeting at the White House
at 4:30. I have an hour right now if you could come
over." Phillips said he had to read the cables first
and inform himself and that he had a formal dinner engagement tonight. HM,Jr. then asked him if he could
come up after he dressed, at about 7:15 or thereabouts,
and they could have a talk before he went to his dinner.
Phillips said he would be there.

157

Monday

June 8, 1936

H. M.

Cochran:

Hello

HMjr:

Hello

C:

Mr. Morgenthau

HMjr:

Good morning -

C:

Good morning, sir

HMjr:

What do you know?

good morning -

C:

I sent you a long cablegram early this morning.

HMjr:

Yes

C:

HMjr:

I had my trip there. I saw both the two men that I

wanted to see.
Yes

C:

And I talked with each one of them.

HMjr:

Yes

C:

The one who you know, you know?

HMjr:

The what?

C:

The one who came up here last summer when you were

HMjr:

Yes, I know the one you mean.

C:

here - you sat next to at luncheon -

I had a good visit with him. He is very much disturbed over this situation here.

HMjr:

Yes

C:

And is ready - to put a

HMjr:

What's that?

C:

on any exchange control
here.

I say that whenever these local people - they take
any steps which look like exchange control -

HMjr:

Yes

C:

He would at once tie to sterling.

HMjr:

Yes

-2-

151A

And at not necessarily at forty per cent depreciation

C:

but at some rate that he would choose.

HMjr:

Yes

And he would be willing to give at his word, HMjr:

What's that?

He would be willing to give at his word, -

C:

HMjr:

Yes

That he would hold that rate, namely twenty or twentyfive per cent against sterling provided sterlingthedid
not go below a certain rate

dollar, say four eighty-six.

HMjr:
C:

HMjr:
C:

I see.

See? And he talked to his rich friend who would be
probably interested in following the same procedure.
I see.

And - but he insists that the first part of any

arrangement is for us to get together with our President.

HMjr:

Yes

C:

And he said that we would have to refrain
from
trying
to the
gold

to tie them up to - to a strict
standard.

HMjr:

Yes

C:

And he said that if we do fix a limit below which
they should not permit their currency to decline -

HMjr:

Yes

C:

HMjr:
C:

HMjr:

- that you should give them the means of holding that
equal, that is, that we should open up our market, our
gold to them Yes

- to withdraw provided their unit does not go below
a certain level.
Yes

-3-

151B

As they say, 'the old parity'.

C:

HMjr:
C:

HMjr:

In other words, there'd be some gold point?
Yes - some lower gold point.
Yes

C:

And then these people here, the ones I spoke to yesterday -

HMjr:

Yes

Especially the one, you know?

C:

HMjr:

Yes

C:

- would tie his currency on to that unit -

HMjr:

Yes

C:

HMjr:

- but a always conditional upon the dollar - the other
rate being maintained not below the old rate, you see?

Yes - well now, what you say, as I understand it,
if our cousins kept the old rate -

C:

Yes

HMjr:

- and these gold countries didn't go more than twenty

twenty-five, they'd be perfectly satisfied? Is that

right?

well, they just talked about that rate as - as
'for instance', you see?

C:

-

HMjr:

Yes

C:

That's the rate that occurred to them.

HMjr :

Yes

C:

And I spoke about the rate -

HMjr:

Yes

C:

And I mentioned that Reese had figured that the difference between World prices and prices obtained in France
are between twenty and twenty-five per cent.

HMjr:

Yes

C:

And he said, 'Well, that sounds reasonable'.

-4HMjr:

1516

Well now, let me ask you something?
Yes

HMjr:

Have you seen anybody in Paris?

No, I haven't.
HMjr:

You haven't?

No - I mean, I'll get your reaction to this first

C:

HMjr:

because it's a little different proposition, see?
But you filed your cable? - When did you file your

C:

It started out from here at ten o'clock this morning.

HMjr:

What's that?

C:

My cable left here - part of it - at ten o'clock this

cable?

morning.

HMjr:

Has it all gone?

C:

They're coding on the last part of it now.

HMjr:

What's that?

C:

I say they are still coding the last two pages.

HMjr:

Yes

C:

But six pages left here before noon.

HMjr:

Well, I think I'd better wait until I get that.

C:

HMjr;

HMjr:

And after I've read it I'll call you back.
All right.
See?

Yes

C:

I'll wait until I get your cable now.
I think that's best, because I have a lot of things

HMjr:

What's this cable called, what number?

HMjr:

in there.

-5-

1510

I don't know the number.

C:

HMjr:

Oh, well I'll tell them there is one coming. You

have only sent one today, haven't you?

cable -

-

C:

HMjr:

What?

C:

- in sections -

HMjr:

Yes, now do you keep - Mr. Straus sees these cables,
doesn't he?

C:

Yes, at half past nine.
I say, Mr. Straus sees these cables, doesn't he?
I showed him this one, yes, and explained the situation.

HMjr:

And you shoed him the other ones?

C:

Yes

C:

HMjr:

HMjr:
C:

Yes, I want him to see them.
Yes, I showed it to him and I explained that you had
called me after hours on Saturday -

HMjr:

Yes

C:

And that I figured out that you had already spoken

HMjr:

to the judge across the street there.
That's right. Was he satisfied?

C:

Very well.

HMjr:

What?

C:

HMjr:
C:

HMjr:

He was entirely up on the matter.

Good, good - that's good.
Then, you'll call me back tonight, will you?
Yes, now all right, I'll call you back when the
cable comes. Now what is the situation now this
morning in Paris?

C:

It is better.

157E
-6-

HMjr:

Better?

The strike has been - there has been some agreement

on the strike. On the other hand certain new strikes
broke out in the mining industries and the situation
is not yet clear by any means.

HMjr:

I see.

On the money market there is practically no trading.
The bank has strengthened fifteen -- fifteen fifty
and a half, which is three and a half points from the
gold point, you see?
HMjr:

Yes

HMjr:

And it's also strenthened against sterling.
Yes - now listen -

C:

Yes

C:

HMjr:
C:

HMjr:

C:

I think that Auriol, is that the way you pronounce his

name? - Auriol?
Yes

- ought to know - I mean, I wouldn't go to see him
just specially - but when you do see him I'd tell him

about the offer that we made over the weekend, see?
Tell him about what?

HMjr:

Tell him about the offer of support which we made over
the weekend. Hello?

C:

Yes

HMjr:

The -

C:

The offer that you what?

HMjr:

The next time that you see Auriol, see?

C:

Yes

HMjr:

- tell him about the offer of cooperation -

C:

Yes

HMjr:

- which we made to the bank over the weekend.

C:

Oh, yes, yes, surely.

151F
-7-

HMjr:

Because he may not know that.
Yes

HNjr:

See?
Yes

HMjr:

And, I wish that you'd call on the new Governor of
the bank now.

He has not taken office yet.
HMjr:

Well, when is he going to take office?

C:

Friday, I think.
Well, I wish you'd talk to him.
All right.

HMjr:

Now, let me ask you this.

C:

Yes

C:

HMjr:

HMjr:

I wish you'd talk to him today.

C:

All right.

HMjr:

And see what ideas he's got.

C:

Yes

HMjr:

Now the other thing, how freely can you talk to

C:

Very freely -

HMjr:

You can?

C:

Yes

HMjr:

Well, then I think I'd go up and have a talk with

C:

Yes

Professor Rist?

him, you see?

C:

And get his most recent ideas.
Get his on these things of which I have spoken?

HMjr:

Yes - what you are trying to do.

HMjr:

Yes

157G

-8HMjr:

Because wouldn't it be helpful if we could get his

C:

If we could get what?

HMjr:

His support

support?

Not very, because in his speech Saturday night HMjr:

Yes

Blum criticized very sharply these people who had
just now come out with changed opinion.

HMjr:

Oh -

C:

You see?

HMjr:

Well then maybe you'd
better keep away from him.
about

HMjr:

I'm a little nervous/that All right.

C:

I'm a little afraid of it.

C:

HMjr:

Well, but I wish you'd call on the new governor of
the bank and find out what his ideas are.

HMjr:

All right.
I mean, I wouldn't tell him anything but I'd just find

C:

I see.

HMjr:

And then give me a cable on that.

C:

You want me to call today if possible?

C:

out what his ideas are, what plans he's got.

C:

No, you can put that in the cable.
But I mean you want me to see him -

HMjr:

Yes, yes

C:

All right - even though he has not taken over office?

HMjr:

Sure

C:

All right.

HMjr:

157H
-9HMjr:

You know,he's got some ideas now.

C:

Yes, yes

HMjr:

All right, - and as soon as I get this cable I'll let
you know.

All right, but if you can give me notice ahead HMjr:

I will.

C:

Then - then I would come down here at the office and

HMjr:

All right.

C:

The connection in my apartment is not so good.

HMjr:

Well, I'll call the embassy and you let them - leave

C:

HMjr:

take the call.

word to have them call you.

All right, if you could give me an hours notice you
see, as to the time you are going to -

I'll try to.

HMjr:

Well, all right.
All right

C:

Just leave word here as to when you are going to call

C:

me.

HMjr:

All right.

C:

Fine

HMjr:

Goodbye.

C:

I'll try to see this other man.

HMjr:

Thank you.

C:

All right.

HMjr:

Goodbye.

C:

Goodbye.

157D
DEPARTMENT OF STATE

OFFICE OF THE ECONOMIC ADVISER

June 9, 1936.

Mrs. Klotz;
Will you please make the

correction as indicated on the
enclosed sheet on the copy of
the telegram which Secretary

Morgenthau now has?

7f

1075

CORRECTION
June 9, 1936

In telegram from Paris No. 469, June 8, 10 a. m.
(Section Nine) from Cochran at end message make read

"the Italian currency circulation much (End Section
Nine) ".

DIVISION OF COMMUNICATIONS AND RECORDS

158
NEW YORK TIMES - June 8, 1936.

hoarding demands account for at

LARGE GOLD STOCK

HELD BRITISH NEED
Metal Required to Offset Rise
in Circulation Due to European Hoarders.

FATE OF FRANC THE KEY
Devaluation, the City Believes,
Would Halt Demand for Notes
of the Bank of England.

least £30,000,000 of this expansion.

The year's increase in circulation
was accompanied by the addition
of only £14,716,000 to the Bank's

gold holdings and, as a consequence, the reserve of the banking

department has fallen to the low
level of £34,718,000. the lowest, in
fact, since January, 1933, while the
ratio is 25.8 per cent, also the lowest in three and a half years.
This position foreshadows further
substantial purchases of gold by
the Bank unless the French fiscal
crisis soon is settled by devaluation.

In that event, Bank of England
notes would come out of hoarding
and the note circulation would decline accordingly. It is, of course,

open to the Bank to increase its

Wireless to Tax New YORK TIMES. fiduciary issue, but that is a pro-

LONDON, June 5.-The feeling of ceeding which would be resisted
tension in the foreign-exchange strongly because of the unfavorable
market here has found reflection in impression this step might create
abnormally quiet and dull security abroad.
markets and a rising tendency in In 1928 when the Treasury and
money rates. The monetary situa- Bank of England note issues were
tion. indeed, is being influenced ap- amalgamated the amount of the
preciably by the foreign-currency fiduciary issue was fixed at £260,
crisis. The appreciable diminution 000,000. and it has remained at that
of credit supplies developed out of figure since.
the heavy demand for currency Acceleration of gold purchases or
the decline of circulation on both
notes.
In the week that ended on would restore the banking reserve
Wednesday circulation of the Bank to normal proportions, but the
of England rose by £7,390,000 to a present position clearly points to
new high record of £433,452,000. the necessity for increasing gold
Probably less than half the week's purchases.

increase can be ascribed to the The security markets are endeavWhitsun holiday, the balance rep- oring, without much success, to
resenting Continental European preserve a calm, firm front, but
hoarding which, in the last few sentiment is being chilled by fears
days, received fresh stimulus from of Continental political and finanthe great anxiety concerning the cial upheavals that might easily
fate of the French franc. Com- develop should France fall into a
pared with a year ago, circulation state or disruption.
is £37,562,000 higher, and estimated

10

WALL STREET JOURNAL - June 8, 1936.

The Franc and the Dollar
Possible consequences of the
French upheaval as they may affect

the United States are not entirely
clear, but it is likely that, short of an
actual revolution, which appears most

unlikely, the net result will in the end
prove advantageous to this country.
Notwithstanding the fact that devaluation of the frane, or an embargo

on gold exports-which amount to

the same thing as far as maintenance
of the present monetary parity is con-

cerned-would be construed unfavor-

ably in this country, It is dubious if
the depressing immediate effect on
values here would be as great as is
popularly supposed. In any event,
looking toward the future, it appears

that such action would be & step

toward reestablishing an international

gold standard, the desirability of
which action is questioned by very
few.

At the present time there are three

principal barriers in the way of such
action which, if resolved, would permit the summoning of an international
conference with reasonable prospects

of success. The first is the attitude
of Great Britain. The second is the
question of what government will be
in power in the United States, which
question will be disposed of next No.

vember. The third is the putting of
French exchange through the wringer,

in order that that country can ap.
proach the conference with a view
toward stabilization at other than the
present level of the franc.
Of these three questions, time will
possibly answer one and will certainly

answer the other of the first two. But
the question of French exchange will

prevent any resumption of a gold
standard as long as present parity is
maintained. In this is the significance

and the ultimate hope in the present
outlook for the franc.

wg
ISC. 3.2 6034 5-35

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
O CONFIDENTIAL FILES

L. W. Knoke

FROM

DATE June 8, 1936.
SUBJECT TELEPHONE CONVERSATION

WITH BANK OF FRANCE.

I called Mr. Cariguel at 11:26 a. m. today to make good
on my promise of last Friday. Since the Secretary of the Treasury
had in the meantime, through Mr. Cochran, answered the informal

question that Cariguel had put to me on Thursday, and since the an-

swer was in the affirmative, all he, Cariguel, would have to do now any
time he wished to avail himself of the promised arrangement would be to

cable us officially to that effect, whereupon we would give him our
formal reply.

With reference to today's markets, Cariguel stated that
everything was very quiet which was the natural reaction to last

week's excitement. The British had done nothing at all. The settlement of the strike did not of course imply an equally satisfactory
settlement of the monetary problem, he said. The only thing that
he could be guided by was the public statement of the new Government

to the effect that there would be no devaluation of the franc.

LWK:KMC

160

June 8, 1936
9 p. m.

Bewley met with the Secretary at the latter's home

tonight.

The following is a report of their conversation:
HM,Jr.: The cable from Cochran has finally come
through. This is part of Cochran's conversation with
Tripp.

Bewley: Who 1s this man?

HM,Jr.: Cochran is the First Secretary of the Embassy
in Paris. We do not have a Financial Treasury Attache,been
but

he practically does that work. For five years he has
going to Basle. He used to be Consul General. Very few
people know that he does this and we keep it very quiet.
Most of his time is spent for us. They never built up a
foreign service for the Treasury.
(Here the Secretary began to read the cable. He read
practically the full cable, referring to France, Holland
and Switzerland, received from Cochran today.)

That is the conversation in its entirety as between
Cochran and Tripp.

Bewley: I am very grateful to you.
HM,Jr.: I am being entirely open. I may be doing
an injustice to Tripp, but if we are supposed to approach
each country and not say anything, how are we going to get
anywhere? Of course, you realize that this is most confidential and I leave it entirely to your discretion as
to how much to pass on to your people.

Bewley: I had a further telegram, which did not add
much to their previous one, but they said that they had
seen Blum's statement on policy which he made on Saturday.
I have not seen it myself in full, but I saw in the Herald
Tribune that he was not going to devalue, so I suppose
that is what they were referring to. This made it more
difficult than ever to make any de marche, if we want to

put it as strongly as that, in the light of Blum's statement. They said that the position is very obscure and

160 A

-2-

did not see that anything could be done and wanted to

wait for a day or two and see 1f things did not clear
up.
The Foreign
said that they would see Ray
Atherton
some dayOffice
this week.
HM,Jr.: This does not mean that they will not

communicate any further to you?

Bewley: I do not think so. Nothing will be com-

municated in the immediate future.

HM,Jr.: After hearing this, have you any suggestion?
Bewley: I do not know what to suggest. Tripp does
not seem to think, from what he says, that the attitude
of the British is really the stumbling block.
HM,Jr.: Is it an advantage or a disadvantage to have
a country like Holland devalue and tie up to sterling?

Bewley: I do not think it is any real advantage. It

means that in so far as trade relations go, the two countries
would be on a par.

HM,Jr.: Would the same go for Switzerland?

Bewley: Yes, the same for Switzerland.
HM,Jr.: How about Germany?

Bewley: I do not think that Germany could remove
their restrictions and keep any money in the country.
Lochhead: That would depend on the extent to which

they devalued. I gather that from the word you received
that the Treasury in England feels that they had better

just sit tight for a couple of days.
Bewley: That is exactly what they said in their last
telegram. They fully realize the importance of all this

and are very glad you raised it with them, but they do not
feel that they can take any step at the present stage. They
could not take the initiative, but if the French did they
would not refuse to discuss it. I think the difference
to some extent between them and yourselves is that I do not
think they beliege that the British attitude is the main

160B

-3-

stumbling block.

HM,Jr.: I, myself, have never said that. I am
only repeating information. That is the impression that
I got over the telephone, but one of the reasons that I
read the whole thing to you tonight 18 not to leave you
with a false impression. At least that is what they say.
Of course, after all, it is not going to be easy for Blum

to change his position and I suppose -- here it is Monday
night, and about Friday morning everybody will again begin
to get excited.

Bewley: I suppose so.

HM,Jr.: Everything will be quiet between now and
Friday and on Friday everybody will begin to get nervous.
I cannot help but feel -- and I am willing to go much
more than half way, realizing these gold bloc countries
could do what they really need to do and knowing the position of your Government and ours -- that the situation is

ripe for them and it seems very regrettable that it cannot

be brought about.

Bewley: I agree, but as far as Holland and Switzerland
to be bad. of course, when the French brought in these
other countries it made it much more difficult. The more
countries you have to consult, the more difficult it becomes.

go, from what you have read, the situation does not seem

HM,Jr.: The original thought was to restrict it to

France. Both Holland and Switzerland, as far as we are
concerned, are relatively unimportant.
Bewley: Holland is important.
HM,Jr.: Holland regularly, once a week, goes below
the gold point and nothing happens. The fact that Holland
goes below the gold point has no significance.
bulk.

Bewley: Well, they do export a lot of gold in the
HM,Jr.: The reason for that is that they have a lot

of gold coins and our banks do not want to buy them.

Lochhead: The Dutch Central Bank reserves the right

160c

-4-

to deliver their gold bars or gold coins and the experience of the American banks in handling the gold coins has
been very unsatisfactory. They found that they lost in
handling charges and in weight and have left this business

entirely to the Dutch banks who make any shipments necessary.

Bewley: The main problem is the French situation, and
from the English telegrame I gather that they have given
the fullest consideration to it and they are in a position
to know and they are convinced that even if they did something 1t would not have any effect on the French situation

and would be dangerous, and the French would not welcome it.
HM,Jr.: How do you mean dangerous?

Bewley: Suppose it got out, for instance, that the
English were making an approach to France. It could be
interpreted as an attempt to influence France to go off
gold and 1f that were divulged it would be extremely embarrassing to Great Britain and might cause trouble in
France, too.

HM,Jr.: We are like the American Indians. We are
very good sitters.
Bewley: You are in a very happy position.
HM,Jr.: Yes, we are in a very comfortable position.
If, during the next few days, anything happens, call up
Taylor and if it is important enough I would be delighted
to have you come up and see me. By air it only takes 12
hours. My impression is that the English will not move
for another week or ten days.

Taylor: They would do it during my Twentieth Reunion,
which is next Saturday!
Lochhead: Can't we arrange that these crises occur
in the middle of the week?
Bewley: The ultimate fact seems to be the weakness

of the French Government. Is it not really that they are
internally weak and are afraid to take any steps?

HM,Jr.: I would not want to pass on it. I have been

160D

-5-

just sort of taking everybody at face value and if Mr.
Auriol says that he might do this thing, I am just taking
it that he means what he says, but everybody who knows
the French says that they will only move when they are

forced to. People say they will never come through with
a clean-cut devaluation. Just as long as we have this

thing, it certainly keeps the world in turmoil.
Bewley: I would like to suggest something, but I

really cannot.

HM,Jr.: Well, just wait and see what happens. If

we get anything we will let you know.

Bewley: If I hear anything I will let you know.
HM,Jr.: I will surely be back Sunday night.
000-000

After Bewley left, HM,Jr. said, "What I got out of

him was that I was not sure whether it was a good thing
for Holland and he showed very definitely that England
would not want it."

HM,Jr. also said that Phillips, when he stopped in
earlier in the evening, had said that on the 16th the
question of sanctions comes up in Geneva and, after all,
England has a great many irons in the fire and this is
just one of them and their relationship with France on

a trading basis right now is of terrific importance to

England and the reason why England will not do anything

unless France comes and asks her, in Phillips' opinion,
is that England definitely would want to put Frence under
obligations to her. In other words, England would not
make it easier for France to devalue unless through doing
this she put France under obligation to her.

161

June 8th

The following were present at the 9:30 meeting this
morning:

Mr. McReynolds
Mr. Upham

Mr. Bell

Mr. Haas

Miss Roche

Mr. Taylor

Mr. Gaston

Mr. Oliphant

Mr. Morgenthau; Good morning everybody.
Group: Good morning.

Mr. Morgenthau: There is just one thing we must not let
go by the Board and that is the material for monetary planks for
Senator Wagner. Wallace tells me he worked some out on Agriculture
Saturday. I don't see how we can do ours till we see the Republican
money plank but if everything is all right and it is agreeable to
the President I am going to leave tomorrow morning and, if everything stays quiet, I am going to stay away for the week and if
Wagner wants to see me I could run him up in an hour or an hour
and a half. I could send him on the plane. I take it that he
flies. I would go up for the first two days and rest and then
let Mrs. Klotz come up. Frankly, I am all washed up.
Mr. Gaston: We have some preliminary stuff, written on
all phases which we expect to cover, in shape for going over and
re-writing. I promised I would have a talk with John Fahey who

has some ideas and also plan to see Marriner Eccles and Mr. Thurston.
They have some ideas.

Mr. Morgenthau: He gave very definite instructions on
those things. I would like to call up Wagner. I don't want to make
good yet - I want to see the Republican's. I got this idea from
listening to Wallace. If they have a bum money plan then you ought
to send for the American Farm Bureua or Grange and give our money
plan and if we could meet them half way and with the farm organiza---tions

Mr. Gaston: I am afraid we will get into difficulty with

those people trying to satisfy them.

Mr. Morgenthau: Well Herbert let me put it this way.

What should I tell Wagner?

-2-

162

Mr. Gaston: Why couldn't I take it up to you in the

middle of the week? We will have it in better shape than we

have it now.

Mr. Morgenthau to Miss Roche: Have you been working on
any planks?

Miss Roche: No, not very much sir. I have conferred
with some of the relief people.
Mr. Morgenthau: Are you working on this Cy?
Mr. Upham: Oh I wrote a little bit.
Mr. Gaston: He has written as much as anybody else.

Miss Roche: I would be glad to help.
Mr. Morgenthau: This will be a big opportunity as far

as the party goes.
Heard over the loud speaker:

Senator Wagner: You see if we wait for everything until
on Monday I wanted to have something ready. It doesn't
the
mean that it is going in that way because when the President comes
back we have to sit down with him but, in confidence, as a matter
of preparation that's all.
Mr. Morgenthau: I am going to ask you to give me a day
or two more if you don't mind.

Wagner: All right. I am getting this together quietly

and nobody knows anything about this at all.
Mr. Morgenthau: You see I had a bond issue last week.
Senator Wagner: I see that went over in great shape

didn't it.

Mr. Morgenthau: They certainly can't say we can't raise
the money or that there is anything wrong with government credit.
Senator Wagner: That's a good point to make.
Mr. Morgenthau: They can't laugh that off. Well I've
got this thing very much in my mind if you will just be a little
charitable.

Senator Wagner: I want you to understand this is nothing
for publication. When we sit down with the President you may want
to modify it.

163

-3-

Mr. Morgenthau: We are all working on it but it just

has not jelled.

Note: End of telephone conversation.

Mr. Mc Reynolds: Hester says if you will call Barkley
and ask him to get the Committee together this morning that
everything is set and if you can get the Committee together he
says they can get it out and he thinks they can get it passed
to-day. He got that Coast Guard Bill through - passed by the
Senate on Saturday and ready for signature. He is some lobbyist.
Mr. Morgenthau: Who?

Mr. McReynolds: Hester.

Mr. Morgenthau: Can't they poll the Committee?

Mr. Oliphant: Well apparently the Committee has to meet.
Mr. McReynolds: It is a Special Committee in charge
and Hester says if you would call Barkley that would be the push

that they need to get the thing out. If they get it out this

morning the Senate will pass it this morning.
Note: Secretary Morgenthau was trying to get Mr. Wilbur J.
Carr on the telephone. Mr. Carr is Assistant Secretary of State.
After hanging up Secretary Morgenthau said, "Mr. Carr lost his cane
so he has not been able to come down to the office". (Laughter by
the group).

Mr. Oliphant to Mr. Morgenthau: Tell her (meaning Operator)

to put in a call for Barkley.
Mr. Morgenthau: I was going to let Steve spend the rest
of the day on the Hill but Steve isn't here.
Mr. Gaston: Hester didn't take any chances on that.
Mr. McReynolds: You know Hester's background is a

salesman for Fuller brushes. (Hearty laughter). He made his
way through Law School selling Fuller brushes.
Mr. Morgenthau: They get them together and have a
salesmen's song and then they have regular instructions how to

put your foot in the door and never take it out until the lady
says yes. (More hearty laughter)

-4-

then

164

Mr. McReynolds: Hester can make more people mad, and
get them to do what he wants, than anybody I ever saw.
Mr. Morgenthau: Where is Hester?

Mr. McReynolds: On the Hill.

Mr. Morgenthau: I think everything except these planks

are in good shape.

Mr. Oliphant: Will the Board of Tax Appeals be up to-day?
I heard from Will Keleher. He says Beal is good.
Mr. Oliphant handed the Secretary a telegram and the
Secretary read it and then said: "We can kick out the woman member
of the Board of Tax Appeals provided we take a husband whose wife

is acceptable to Molly Dewson." (Laughter)
Mr. Morgenthau: I think this woman member of the Board
of Tax Appeals is very very mediocre. My attitude is it is much
worse in government to have a poor woman. I would much rather
not have any.

Miss Roche: Well we pay more heavily for it than men.
Mr. Morgenthau: They expect more.
Note: Senator Barkley's call came through and Secretary
Morgenthau conversed with him as per the attached record of their
conversation.

Mr. Oliphant: Would you mind asking her (meaning the
Operator) to get Hester and we will have him go see Barkley.
Note: At this point Secretary Morgenthau called McIntyre
at the White House reminding him that Mr. Farley and he are ready.
Mr. Morgenthau: Mr. Wallace says I do not know anything

about it. I will tell you what he says. He says "you can't take
his 296 million which is due the farmers for crops because it is
just robbing the farmer of the money he is entitled to."
Mr. Oliphant: It should be used to take up these
refunds. That was explicitly agreed to.
Mr. Bell: The 296 was to liquidate the obligations

-5-

165

Note: Mr. Bell was interrupted by a call coming through
for Secretary Morgenthau from Mr. Wilbur J. Carr, of the State
Department, the call having been placed shortly after the meeting
was under way.

Mr. Morgenthau to Mr. Carr: Yesterday your Code Room

sent me the original of Cochran's cable. Now if you don't want
me to keep that in my own private file I will be glad to return
it to you. I have a private safe and I will keep it. The one
that is coming now is equally important and if I could have the

original I am telling you that no one will see it but I will have I have a private safe that only one person has access to. Normally
I don't want the original.
Note: No part of Mr. Carr's reply could be heard as the
loud speaker was turned off.

Mr. Morgenthau: Let's do this. Couldn't we send Wallace
something showing how the 296 was arrived at - the breakdown?
What do you want for Guy Helvering under that?

Mr. Bell: Well they want administrative expenses for all
these refunds and then they want the original money. Now they don't
know how much it is.

Mr. Morgenthau: Will you do this for me? It is purely

a budget matter.

Mr. Bell: Well the Treasury was in it at the time.
Mr. Morgenthau: Well yourein the Treasury aren't you?

Mr. Bell: Yes.
Mr. Bell: What do you want me to do with it?
Mr. Morgenthau: What is fair and just.

Mr. Bell: I think what is fair and just has been done.
Mr. Morgenthau: I will leave it entirely in your hands.
Can I forget about it?
Mr. Bell: Yes.
Mr. McReynolds:

Mr. Morgenthau:

I am in entire agreement with Dan.

That's lucky

(Laughter)

6-

166

Mr. Morgenthau: Maybe you would rather handle it than
turn it over
to Bell.
Mr. McReynolds: I wouldn't think of it.
Mr. Morgenthau: All right with you Taylor?
Mr. Taylor: Splendid.
Mr. Morgenthau: And in the letter he says he is
perfectly willing to give away the balance that is kept in

Customs if we would use that. That's where he suggests that
we get it but the 100 million from AAA must not be touched.
He does not want the 100 million touched.

Mr. Oliphant: After the invalidation of the AAA
we all sat down and asked how much it would cost to wipe the
thing clean and these things were included.

Mr. Morgenthau: If everybody is willing to let me
have it signify by saying aye.
Group: Aye.

Mr. Oliphant: What was the word on the Board of
Tax Appeals.

Mr. Morgenthau:

When I get word you will meet

with me and we will have a rehearsal five minutes before.
You can take Beal.

Mr. Oliphant: He wants Childress and Beal, he said,

if you gave up the woman.

Mr. Morgenthau: Both Childress and Beal are married

to Molly Dewson girls.
Miss Roche: We do have our use for some things. (Laughter)

Mr. Morgenthau: He is satisfied with Beal.
Mr. Oliphant: Why can't we have Beal and our good man

from California - Traynor. We could strengthen that Board.
Mr. Morgenthau: We will have a rehearsal before I go.

167

Monday

June 8, 1936

HMjr:

Senator
Alben

Barkley:
HMjr:

Henry Morgenthau, Junior -

-

and

I still say I'm 'Junior! to him.
Well, just keep up that illusion.
Well, it's all right. I'm calling up on not a very
important matter but I would appreciate the help.
And that's on this Treasury Agency Bill - consolidating the Treasury Agencies you know?

Yes

B:

HMjr:

Which there has been all this argument about and
Keenan has been up there and all that business, you
know?

B:

Yes

HMjr:

Well now, Keenan wrote a letter to King Friday before
he left saying that the Department of Justice had no
interest and no objection. And Homer Cummings has

B:

told me twice that he has no interest and no objection,
see? And I talked to the president last night and he
told me that I could quote him as saying he very
definitely would like this thing to get through. And well, I may have faults but I think you realize I am
truthful.
but Keenan was over there the other
I called day lobbying around against that bill -

HMjr:

Yes

B:

And I gave him the devil. I said, 'I wish - if you

fellows are opposed to this thing why don't you come

out in the open and come before the Committee and give
your reasons?'
HMjr:

Yes

B:

And then I said, 'Homer Cummings I understand is not

HMjr:

Yes

B:

And never got him and he calloed me later and told me

HMjr:

Yes

B:

against it'. So I called Homer -

that he of course was not opposed to it. But I told
him to call King.
I don't know whether he did or not.

-2-

HMjr:
B:

HMjr:

168

Yes, he did.
Yes

He did call King. And Keenan Keenan to write King a letter -

I finally got

B:

Yes

HMjr:-

- saying that they wanted it.

B:

Yes

HMjr:

Keenan had no business up there doing that.

B:

Well, of course he didn't.

HMjr:

B:

Now, would it be asking too much to either call the
Committee or to poll them to your sub-committee?
Well, the Committee has already authorized the bill
to be reported.

HMjr:

Well, couldn't it - ?

B:

King has been holding it up.

HMjr:

Well, couldn't it be -

couldn't it be gotten out

today?

B:

Well, I am going to see King today and insist that he
make his report. He's got the authority to do it
because the Committee voted on it last week.

HMjr:

Well, Homer did call King.

B:

Yes

HMjr:

Because he told me so.

B:

Yes

HMjr:

And - if it got out you could pass it today.

B:

Yes, I suppose so.

HMjr:

I mean, I --

B:

HMjr:

Is that story true that was in the paper the other
day about this fellow Glavis?
Absolutely not.

-3-

Well, I -

B:

169

there'd be - if that were true it

might cause some opposition over there.

HMjr:

Well, I don't mind telling you that I talked to the
President about it last night and I said as far as
I was concerned I just wouldn't have the man.

Yes

B:

HMjr:

And
it. the President didn't seem to know anything about

B:

Yes

HMjr:

Well, I - I can give you my word -

I suppose it's one of those - well I just simply

H:

want to be in the position because I know how -

there's a lot of feeling against him over there on
the Hill.

HMjr:

Well, I can give you my word, as long as I'm here
Glavis won't head that Agency.

Well, that's all right. I did want to put you wise
to the fact that if that were - if it were thought

B:

that were true -

HMjr:

Yes

B:

There would be some opposition to the bill -

HMjr:

No

B:

- over in the Senate.

HMjr:

No, no

B:

HMjr:

B:

HMjr:
B:

Because, I don't know - they seem to hold him in suspicion over there.
No - we haven't - we haven't got anybody and when the

bill passes I'll take it up with the President.
Of course. Well, I'll see King - I'll see King today
and see if we can't get it out.
Alben, I'd appreciate it very much because it's been
kicked around and it's a move in the right direction.

I was - listen, I was expecting King last week, after
Homer told me he'd called him I didn't ask King if he'd

-4-

170

called him, but I thought he'd tell me because he had
been
sitiontelling
to it.me all along about the Department's oppoHMjr:

Yes

But I'll see him today the first thing.
Well, what I - I'm not going to do - may I say leave it entirely with you?
B:

All right -

HMjr:

Do you mind - ?

HMjr:

Assuming that it will get in very poor hands - but
I'll do the very best I can.
Well, I disagree with you a thousand per cent.

B:

Well, we'll see what happens.

HMjr:

Yes, I know -

B:

You may have to revise your judgment.

B:

HMjr:

No, I never have yet.

B:

Well, I'll take it up with him right away.

HMjr:

I heard you make one key note speech and I am looking
forward to another one.

B:

Well, I'll tell you this tax bill has gotten me so

HMjr:
B:

HMjr:

darn stale I'm afraid I'm going to make a flop.
Oh, go on, you'll make the speech of your life.
Oh (Laughs) Well, I hope so.
I know you will.

B:

Well, I'll call you back later.

HMjr:

Thank you very much.

HMjr:

Will you be in the office all day?
You bet - the President ordered me to sit here.
(Laughs) He said, 'Don't you go out of town until
my train leaves and don't you leave your office until my train leaves'.

B:

What time is he leaving?

B:

-5-

HMjr:
B:

HMjr:
B:

HMjr:
B:

HMjr:

Ten something Tonight?
Yes

Oh yes
Yes

All right.
0. K.

171

172
Tuesday

June 9, 1936

HMjr:

Mr. Phillips, please -

Operator:

All right

HMjr:

Operator:
Wm.

State Department - hello
Mr. Phillips

Phillips:

Good morning, Henry

HMjr:

Good morning

HMjr:

I hope you are feeling a little more rested.
Yes, I am going to leave in about ten minutes to go

P:

Yes

HMjr:

I talked to Cochran this morning.

P:

Yes

HMjr:

And he had nothing new.

P:

Yes

HMjr:

And he had not yet seen the new Governor of the Bank

P:

P:

HMjr:

to the Farm.

of France but he expected to see him today. He takes
office at two-thirty. And he said that the new
Governor had not cut off his old connections so I
gathered he is having - taking sort of a leave of
absence so if he didn't like what was going to go on
he could go back Yes

- to his old job. The only thing that I picked up that up to the time I talked to him, Cochran, no gold
had left - been engaged today. But the franc is

again down below the gold export point and they expect
another rush any time. The gentleman came to see me

last night after you did --

P:

Yes

HMjr:

And he had had another message and - which sort of -

I gathered that they didn't want to do anything for
two or three days.

P:

Oh -

172A,
-2-

HMjr:

So - well I said, 'That's all right', I said,

'the way the American Indians are,' I said, 'I'm
a very good sitter, I can sit a long time'. And,
so he said, 'Well, after all, you people have got
nothing to worry about - which I thought was
rather interesting.
Yes

P:

HMjr:

And then I read him enough of the cables to let him
know that the Dutch were thinking of tying to sterling and that seemed to worry him a great deal. And

I asked him, I said, 'How does tha affect you?'
'Well,' he said, 'we wouldn't particularly like to
have the Dutch tie to sterling'.
Yes

P:

HMjr:

'...or the Swiss'.
He said that?

HMjr:

Yes, he did. So, it seemed - that seemed to bother
him considerably and then of course again he said,
'We have had absolutely no information, we don't
know, and unless they approach us we are going to

sit tight'. And then in talking to Cochran this
morning I sort of asked whether there was any possibility of getting the French to stop and talk to the

British. And he said, out of the question'.

P:

HMjr:

Oh, he said he couldn't talk to them, or --?
No, he said, but, he said the way the conditions are
now, he said if he just, he said they'd consider it
an impertinence on his part if Cochran would suggest
to the French that the French talk to the English.

P;

Oh -

HMjr:

He said they would consider it an impertinence on his

P:

HMjr:

part.

Isn't that curious?
Yes - and so Cochran said, 'Well, your relations _1
-I mean he was very careful in his talk, he didn't
mention any names- 'but the English are still friendly,
aren't they?' And I said, 'Oh, yes,' I said, 'They
have been entirely friendly, but I said, 'for a
couple of days we will just sit back and wait'. And
I said, 'I imagine by Friday or Saturday morning if

things get acute again why we'll have another message'.

172A2

-3-

P:

Yes, I see.

HMjr:

But evidently during the day Bewley did get a message

P:

HMjr:

telling him to lay off for a couple of days.

Thank you very much, Henry, that's very interesting.
Now that boils the whole thing down and of course I

don't know what's going on over there and - and

what I gave people who are with me, I mean, I gave

the distinct impression - well, I - it's - I

can wait, I have waited three years, I can wait three

months more.

Well, I - -

P:

HMjr:

I mean I -

I think I understand the --negotiations of our tips the political negotiations.

P:

HMjr:

Yes, I mean I showed no nervousness whatsoever.

P:

Yes

HMjr:

You see?

P:

Yes

HMjr:
P:

HMjr:
P:

HMjr:

You think things are very tense?
Oh, I know they are because they are getting up towards
the sixteenth I see.

- of this month when the Council of the League is supposed to meet in Geneva. No one knows definitely

whether it's going to be, but that's the normal schedule.
Well, Bill, if you get anything important will you
phone me?

P:

Yes, indeed

HMjr:

And

P:

HMjr:

Of course I will.
And if I get anything, but I don't intend to call
Cochran now again until something happens.

112B
-4Yes

P:

HMjr:

P:

HMjr:
P:

HMjr:
P:

HMjr:

But we just got word from one of the New York banks.

They
think that the Russian gold is going to start
again.
Yes

But - we just have to sit. Do you see anything else?
No - not a blessed thing.

All right.
Well, I do hope you'll get a good rest - have a
chance to forget your troubles for a minute anyway.
Yes - and if anything should happen that affects
the currency as far as Italy and Germany are concerned you'd let us know too?

P:

Oh yes

HMjr:

I mean anything that you have on the currencies.

P:

Yes

HMjr:

Thank you very much.

P:

Goodbye

172C

June 10, 1936

Earle Bailie called HM,Jr. on Tuesday and told him

that there was some uneasiness among the banks as to

whether there would be enough boats to take the gold

which might be expected to arrive this week-end. HM,Jr.
asked Lochhead to check up. Lochhead did so and found
that there will be 13 steamers sailing between Wednesday
and Sunday, inclusive, this week and, therefore, the
alarm did not seem to be warranted.

Today when HM,Jr. telephoned from the Farm, he told

Mrs. Klotz that Gordon Rentschler had called him this
morning and had told him the same story that Earle Bailie
had.

TREASURY DEPARTMENT

Washington

Press Service
No. 7-59

FOR RELEASE, MORNING NEWSPAPERS,

Wednesday, June 10, 1936.
6-9-36.

Secretary of the Treasury Morgenthau today announced the final subscription

and allotment figures with respect to the current offering of 2-3/4 percent
Treasury Bonds of 1951-54 and 1-3/8 percent Treasury Notes of Series B-1941.
Subscriptions and allotments were divided among the several Federal Reserve

districts and the Treasury as follows:
2-3/4 PERCENT TREASURY BONDS OF 1951-54

Federal Reserve

District

Boston
New York

Philadelphia
Cleveland
Richmond

Atlanta
Chicago

St. Louis

Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTAL

Federal Reserve

District

Boston
New York

Philadelphia
Cleveland
Richmond

Atlanta
Chicago

St. Louis

Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTAL

Total Cash

Total Cash

Total Exchange

Subscriptions

Received

Subscriptions

Subscriptions

Allotted

Received

Total

Subscriptions

Allotted

(Allotted in full)

$ 404,340,200
2,234,799,300
239,235,800
244,664,450
140,575,100
108,040,000
376,426,700
112,264,300
60,206,350
77,845,550
83,406,950
198,264,100

1,787,700
$4,281,856,500

$ 25,001,200

$ 60,519,300

588,822,200
12,167,000
11,846,400
39,186,600
10,167,000
157,923,400
19,540,400
27,556,600
34,715,500
7,140,100
18,212,400
3,851,900
$956,130,700

315,800
$670,807,150

320,938,150
37,688,300
40,564,200
24,024,800
20,334,950
65,039,650
22,941,000
11,701,150
17,112,100
18,641,150
30,986,600

$ 85,520,500
909,760,350
49,855,300
52,410,600
63,211,400
30,501,950
222,963,050
42,481,400
39,257,750
51,827,600
25,781,250
49,199,000
4,167,700
$1,626,937,850

1--3/8 PERCENT TREASURY NOTES OF
SERIES
total
CashB-1941 Total

Total Cash

Subscriptions

Total Exchange
Subscriptons

Received

Received

$ 200,309,800

$ 4,524,800

1,440,293,800
145,006,000
198,529,500
94,809,300
72,664,500
252,356,200
76,270,600
40,824,200
57,140,500
54,569,800
138,446,700

1,500,000
$2,772,720,900

Subscriptions

Allotted

Subscriptions

Allotted

(Allotted in full)
45,934,500
1,959,700
1,349,500
803,300
565,200

4,713,000
702,100

2,816,000
1,911,300
384,000

3,051,600
20,000
$68,735,000

$ 31,169,100
217,654,300
22,264,600
30,815,200
15,199,300
12,437,400
42,066,000
14,193,900

7,167,000
10,507,200
10,043,500
21,481,000
225,000

$435,223,500

$ 35,693,900
263,588,800
24,224,300
32,164,700
16,002,600
13,002,600
46,779,000
14,896,000
9,983,000
12,418,500
10,427,500
24,532,600
245,000
$503,958,500

173

June 11, 1936

The Secretary telephoned the following from the farm today:

HM,Jr.: Cochran just called me. In the first place,

cables 483 and 488 are coming through and tell them over
at the State Department to please rush the decoding.

The point is that Caillaux has just made a statement,
which he has cabled us, which is word for word what Auriol
told Cochran in the strictest confidence. He has come
out with a flat statement and Cochran reminded me that
before Cochran saw Auriol he had been in contact with
Caillaux. Now Caillaux has come out with this statement
in the paper, word for word, on stabilization as to what
Auriol told him in confidence.

That's No. 1. I want you fellows to read it.

I

want you to discuss it with Phillips as to whether we should
show Caillaux' statement to Bewley.
Now the other thing is, Bachmann, President of the
Central Bank of Switzerland, called up Cochran and wanted
to know if he had any answer, and I would like you to talk
that over with Phillips, and after you MAXE fellows have
talked it over there I would like to have Phillips call me
at the farm. But I want Phillips to read cables 483 and 488.

I want to know two things: (1) general advice; (2)
whether we should bring Caillaux' speech to Bewley's attention and tell him that he seems to be talking officially

and (3) whether we should give the Swiss and Dutch any answer,
because the Swiss have asked what progress we are making.

I want you to have a talk with Phillips and after you
have had that, you might ask Phillips if he could arrange

it and knew when I would be here, he might drop over to my
office so we could use the loud speaker and make a record
of the conversation.

Taylor: I will get in touch with him right away.
HM,Jr.: Another thing, Phillips should certainly discuss this with Mr. Hull and get Hull's opinion.
Cochran also said that the thing in Paris is much worse;

that the Crillion Hotel is closed up entirely; butcher shops,
restaurants, everything are closing and the thing is much

173A

-2-

worse, SO while it isn't on the surface, underneath it
is much worse.

The fact that Caillaux should come out with a public
statement saying word for word what Auriol told us in con-

fidence is terrifically significant. Furthermore, they

really have devaluation in France now, but won't admit it.
Taylor: Any indications of that?

HM,Jr.: I don't know. He just told me that.
The best thing is for Phillips to drop into the office.

If you have the cable around 5 o'clock your time, make an
appointment for 5 o'clock and I would be home at that hour.
The reason I want him to come to my office is because I

like to make a record of my calls and I have the facilities
to do it. If he raises any objection, you can go on over
there, but tell him I would appreciate it.
Mr. Lochhead: I think you would be interested to know

that the Federal Reserve talked to the Bank of England today
and as far as operations are concerned against the franc,

there is nothing doing today; very quiet.
HM,Jr.: That checks with what Cochran said. He said
the British were out of the market.
Lochhead: Bolton thought they would probably have
trouble by Tuesday when Auriol goes before the Cabinet and

tells what he wants. He did not put it as a straight state-

ment, but he thought that was the day he was looking for
rather than the week-end.

HM,Jr.: Another thing, if we do see Bolton tonight,
if you fellows chew it over, the question I would like to
ask Bewley is to ask his Government what if anything they
are going to do over the week-end, but I want you fellows
to talk it over and don't do anything until you talk to me
at five o'clock, your time.
Why don't I talk to four o'clock your time and five
o'clock my time?

Lochhead: That is with Phillips over here?
HM,Jr.: Yes.
Lochhead: The significant thing about the Bank of
England conversation this morning was this: you remember,

173B

-3-

last Saturday a couple of banks said there were rumors

that the British were operating in dollars? We had an
opening today to speak about it and Bolton said"absolutely
nothing. They have not operated in dollars; that the
only small operations they do are against commercial accounts; that everything they do is put through the Federal
Reserve Bank and will continue to do so. So we have that
fixed up. But that was the most significant part of the
conversation.

The market is quiet. Your bonds are off 2 or 3/32's.
HM,Jr. : Have you heard about the Federal Land Bank
bonds:

Taylor: They closed the books at 11 o'clock with cash
subscriptions of 4 times the amount of the offerings.
HM,Jr.: Good boy!
T.:

And of course they haven't heard from the exchanges.

HM,Jr.: Oh, that's all right.
Taylor: Apparently went very well.
HM,Jr.: Miss Chauncey, will you tell Mrs. Klotz that
I am going to call back again at four your time? And have
her get from Gaston how many people are coming Sunday night,
because Mrs. Morgenthau will talk to her at four o'clock and
wants to arrange for supper. Also ask her to look up how

much we paid Charles last summer and get McReynolds to dictate
a memorandum on just what he has done with Charles about his
pay and vacation.

114

GRAY

FS

Paris
Dated June 11,1936

Rec'd 12:28 p. m.

Secretary of State,
Washington.

483, June 11, 3 p. m.
FROM COCHRAN.

Caillaux, former Minister of Finance and now President of Senate Finance Committee, contributed an article
to today's LA REPUBLIQUE under title "objectivity" on
France's monetary and Economic problems. HE urges

immediate monetary alignment in concert with gold bloc
countries first and then with great powers whos E curren-

cies are still unsettled, along with far-renching commercial agreements calling for monetary and Economic PEACE

which accompanies political peace.
Caillaux recalls that a year ago he expressed the

hope that unsettled currencies would align themselves as

quickly as possible with the franc. HE points out that
recent EVENTS will lead to mounting prices in France and

that such increases will inevitably result in a closed
Economic regime for the country. Such a regime could not
be successful in France lacking raw materials and depending
upon

174A

No. 483, June 11, 3 p. m. from Paris

FS

upon foreign outlets for its quality Exports. France
must be able to deliver Exports at reasonable prices.
HE considers as impossible the suggested solution which

Envisages an increase of internal prices so as to provide
a compensation for foreign sales which he Explains would

amount to nothing more than a huge indirect tax. HE said
disparity between French and foreign prices will become

more accentuated. In 1935 he favored deflation not by
cutting budget Expenditures but by carrying out a farreaching conversion of public and private debts and by
administrative reorganization. Since Economy measures
will not be adopted under new Government, Caillaux says

France must hurry monetary alignment. HE adds that it

will be said that threatened devaluation. To this he
observes that devaluation is already here in fact and concludes that the monent when the great currents of international trade are established, the return of prosperity
that will follow will compensate the inconvenience which

may temporarily attach to the lowering of the value of
the currency.
HPD

WILSON

174B

FS

be portion of this
telegram paraphrased must before be closely being

communicated to anyone.
(A)

Paris

Dated June 11,1936

REC'D 12:55 p. m.

Secretary of State,
Washington.

488, June 11, 5 p. m.
(GRAY). FROM COCHRAN.

National City today invoiced to National City
34,000,000 francs gold bars PRESIDENT HARDING.

Paris exchange market quiet but very uneasy.

Small amount of business done in sterling at 76.25

without control present. At 3 p. m. Guaranty had sold
$1,700,000. Rentes down another franc and one half
and French shares declining. Bank of France statement
as of June 5 shows gold loss one and one half billion;
circulation up 257,000,000; deposits down 694,000,000;
coverage 59.68 versus 61.01.

Strike situation in Paris district more serious with
many hotels, restaurants, meat shops, ET cetera, involved.
It is rumored that motor buses may be stopped tomorrow.
Minister of Finance meeting with banking representatives
has reached certain wage agreement for bank and Bourse

Employees and negotiations continue but possibility of
their striking is not yet unmoved. (END GRAY).
Fester

174C

-2The manager of a Paris-American Bank says that

the withdrawals of deposits are continuing, and that
deposits have reached record low levels. A careful watch
is being kept at Ministry of Finance of rumors and opera-

tions against the franc. The foreign banks here fear that
agents may be placed in their banks in order to watch
their operations. According to one Paris-American
stockbroker, some purchases of American securities are
being made but

END SECTION ONE.
WILSON.

EA:LWW

1740

PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 488

of June 11, 1936, from the American Embassy, Paris.

that he had not noticed any panicky haste in such opera-

tions. From a talk with him, it was gathered that his firm
had been doing a fair amount of business, although it
seemed that he did not want to convey this impression.
Another American firm which was contacted said that

not much business was being done. It was their belief that
most of the important transfers
of capital from France had
now only
already been made, and that/people not familiar with Ameri-

can securities were carrying out small purchases of foreign
exchange.

This morning I visited friends at the Bank of France.
I saw the Chief of the Office of Governor Labeyrie, Gelin.
The office of Governor has nominally been taken over by

Labeyrie, but he is still spending all his time outside
the Bank working with the Treasury and legal experts on

the drafting of a bill for revision of statutes of the
Bank of France. This bill is to be filed this afternoon
or tomorrow. Serious concern over the present state of
social unrest is admitted by my friends at the Bank. They
tell me that the smaller banks are facing the end of their

resources, and since no one will pay loans, it is impossible
for them to call them. Tax receipts for the month of June
will be hard hit, in view of the demoralized state of busiLOSS.

174E
-2ness.

According to my banking contacts, branches or French
subsidiaries of several well-known American manufacturers

are meeting the present demands of labor, but at the same
time they are making plans for moving their business from
France to England.

I summarized Caillaux's remarks in my telegram No. 483,

June 11, 1936, 3 p.m., since it (i) significant that he,
the Senate Finance Committee Chairman, now tries out on

the public a suggestion (?) for the international stabilization plan which the Minister of Finance is secretly considering (see my telegram No. 467, of June 6, 1936, 9 p.m.).
Reference final paragraph my No. 462, June 5, 5 p.m.

A separate note prepared by Rist to supplement the Rist
Committee's report has been published wherein Rist concludes
that French recovery depends upon the indispensable condi-

tion that the franc be adjusted to the pound awaiting gen-

eral stabilisation on gold.
END OF MESSAGE.
WILSON.

EA:LWW

175

Thursday

June 11, 1936
HMjr:

What's the matter?

Archie

Lochhead: It probably is the weather condition.
HMjr:

You don't hear me well?

L:

I can hear you fairly well but it's quite faint.

HMjr:

Yes, well go ahead.

L:

488 - 'National City

(not recorded)

L:

(Mr. Lochhead read to the Secretary Cable No. 488
from H. M. Cochran at Paris, France)
altogether.

HMjr:

Altogether?

fifty-

about
L:

five billion -

HMjr:

Yes

Which would bring it down to about fifty and a half
after all the allowances were made.

HMjr:

I see.

L:

'Strike situation in

1

L:

(not recorded)

(Mr. Lochhead read to the Secretary Cable No. 483
from H. M. Cochran at Paris, France)
We haven't got the rest.

HMjr:

Well, that thing is - from Bachmann, he said he
didn't put that in the cable on purpose.

L:

Oh, he didn't put anything in on Bachmann?

HMjr:

No

L:

I see.

HMjr:

He - he said he wanted to - he was afraid to put it

L:

in a cable.

I see. Well then there - I then
presume
hasn't put
either,he
maybe.
anything in about

HMjr:

NO, no

L:

Well, still there is another section, at least one
more section coming.

175A

-2-

HMjr:

Well, if it comes, is Mr. Phillips coming over?
No, now Mr. Taylor is here now and he wants to speak
to you and tell you how that's developed.

L:

HMjr:
W. C.

Taylor:
HMjr:

0. K.

Phillips is out of town Yes

And I've made a tentative appointment with Secretary

T:

Hull for between three and three-thirty.

HMjr:

Yes

I thought the only thing to do is go over and talk
to him and tell him - show him the cables and get his

T:

advice.

HMjr:

Yes

T:

Now, I don't think I can get him to come over here and

HMjr:

No, no - no

call -

T:

HMjr:

So we'll just have to do it on word of mouth.
That's all right. Now, I've had a chance to think
this over, see?

T:

Yes

HMjr:

And especially since hearing that cable on Caillaux -

T:

(Laughs)

HMjr:

- my thought is that we don't approach Bewley today.

T:

It - that would - that would check with me, too.

HMjr:

Yes

T:

It - I don't think it's quite as important as it

HMjr:

first looked.
No - no, I think that we'd better sit tight and wait

T:

0. K.

HMjr:

I think you could go over there and if Mr. Hull - I'd
like him to see that -

until we hear from Bewley.

175B

-3Yes

HMjr:

T:

HMjr:

And see whether he thinks - I wouldn't say anything
about talking to Bewley - whether anything has
happened that - that he knows about.
Yes, that we should do anything further.
But what Cochran did say was that what Caillaux said
was exactly word for word what Auriol said.

Well, in effect that's so.

T:

HMjr:

Yes

of course we know that the other two people said they
wouldn't play.

T:

HMjr:

What?

T:

We know that the other two people said that they wouldn't
play necessarily.

HMjr:

Yes

T:

They'd act independently.

HMjr:

Yes - but in my mail, the mail that comes, be sure and

T:

Right

HMjr:

But you go over there and talk to Hull and then come
back and call me.

T:

Yes

HMjr:

Can you hear me?

T:

Yes, I can hear you.

Operator:

Mr. Morgenthau --

HMjr:

Yes

Operator:

I'm sorry to interrupt you but Mrs. Klotz is back now
and she wants to talk to you before you hang up.

send me those cables.

All right.
Operator: All right.

HMjr:

HMjr: - All right.

115C
-4-

HMjr:
T:

HMjr:

Hello -

Yes, I can hear you all right.
0. K. Well, you go on over and see Hull, but I I think we'd better sit tight and not approach Bewley.

T:

I think that's right. Now, how about Bachmann?

HMjr:

Yes, yes - that Bachmann called him up, yes.

T:

Yes

HMjr:

And was waiting to hear.

T:

All right, fine.

HMjr:

Shall I tell Hull about that?

Yes

T:

Right

HMjr:

0. K.
Goodbye.

- all right, you call me when you get back.

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE
CONFIDENTIAL FILES

L. W. Knoke

176
DATE June 11, 1936.

SUBJECT: TELEPHONE CONVERSATION

WITH BANK OF ENGLAND.

I called Mr. Bolton at 10:45 a. m. today. He told me there
was remarkably little news available from France and that it began to

look to them as though it might take a long time before the situation
cleared up. As a matter of fact, observers now thought that matters
might drag on for a month or so. There seemed, however, to be a little
more anxiety about developments in France next week, when the French

Minister of Finance was expected to publish his statement of the financial condition of France, which, obviously, would be a very poor story.
This statement might be made on Tuesday. The market in Paris had been

quiet for the past two or three days, the demand for dollars had continued but on a much smaller scale. The British Control had done

nothing at all; was very much on the fence, as it were. As far as the
dollar was concerned, it was probably fair to say that the seasonal demand was just beginning to be noticable in London. The London market

was in a state of lethargy this afternoon
with nothing doing at all.
last week
Reminding Bolton of his question/as to whether we were oper-

ating in francs or sterling at present, which I had answered in the negative, I told him of rumors which I had heard last Saturday that there was
definite evidence of the British Fund now trying to manage sterling through

the dollar. Bolton was very emphatic in his denial, saying that he could
assure me that they did not do a dollar transaction of any sort that did
not show on their account with us. Occasionally, of course, they were
getting good-sised dollar orders. In addition they had to handle the
Australian gold shipped to San Francisco, which, from time to time, gave

them substantial dollar balances. He could tell me quite frankly that

176A

12 0034 5-35

FEDERAL RESERVE BANK
OF NEW YORK

DATE June 11, 1986.

FICE CORRESPONDENCE

SUBJECT TELEPHONE CONVERSATION

CONFIDENTIAL FILES

WITH BANK OF ENGLAND.

L. W. Knoke

-2
through

there had been no attempt to do any sort of Control 10 dollars and
that they would not dream of making such an attempt without telling
us.

LWK:KMC

3.2 GOM

5-35 mr Sachhead

FEDERAL RESERVE BANK
OF NEW YORK

FICE CORRESPONDENCE
CONFIDENTIAL FILES

177
DATE June 12, 1936.

SUBJECT:

L. W. Knoke

One of the New York banks just told me orally that they

had inquired of Paris as to the real reason for the inactivity on
the part of the French Government in the face of the continued flight
of capital from France. The answer telephoned from Paris to London
and cabled thence stated that the reasons were rifts between the
three component parties making up the popular front due to differences
of opinion regarding devaluation which, combined with inherent weak-

ness of the leaders, resulted in inability to take decisions.

LWK:KMC

178

June 12, 1936

HM,Jr. spoke to Cochran by telephone early this morning.
He instructed Cochran to inform Cariguel of the Bank of France

that the facilities covering the purchase of $25,000,000 in
gold to be earmarked for the Bank of France, which had been
offered to the Bank of France over the last week-end, are to
be considered as cancelled. This is due to the fact that
there is a new set-up in the Bank of France and the Secretary
feels that if these facilities are again desired the United

States Treasury should be approached by the new administration
of the Bank of France.

GERMAN COUNTERVAILING DUTIES

179
EXTRACT FROM MR. TAYLOR'S MEMO TO THE SECRETARY June 12, 1936:

I had a call from Phillips late this afternoon about
a cable which had just been received from our Charge in Berlin.
In effect, German exchange authorities want to send somebody

over here to explore the possibilities of either postponing
present action or devisiong some method which would be mutually

satisfactory to the two countries. I talked to Johns on about
the matter and he is preparing an answer. There is nothing we
can do about delaying the application of the existing findings.
When it comes down to finding a method it is questionable whether
we can pass in advance on any method, but that will be a subject

for further consideration.

All 180 180

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE June 13, 1936.

To

Secretary Morgenthau:

FROM W. R. Johnson, Acting Chief Counsel of Customs.

Re: Countervailing duties on German goods.

Mr. Oliphant has instructed me to communicate directly to you,
during his absence, any developments in regard to the recent order
relating to countervailing duties on German goods.
On Thursday afternoon, June 11, Dr. Meyer, First Secretary of
the German Embassy, talked about the order with Assistant Secretary
Gibbons and myself in Mr. Gibbons' office. Meyer had received no
communication from his government in regard to the order, probably
because Schaact was not in Berlin. He wanted it clearly understood
that he was not speaking officially for his government.
Dr. Meyer expressed his appreciation of the courtesy and consideration with which the Treasury had received his past representations. He said he understood that the Treasury acted under the
compulsion of a mandatory law, and that any dispute as to the re-quirements of that law was a matter now to be decided in the courts.
With this preface he continued for about two hours to discuss the
order and the situation resulting therefrom. Although he expresaly
refrained from requesting any decision or assurance, his whole discussion amounted in substance to a presentation of three requests:

1. That the effective date of the order be postponed until the
possibilities of some adjustment of German-American trade could be
explored.

He was advised in this connection that there is no authority
law or precedent for delaying
30 imposing
days fromnew
the or
date of
date ofbeyond
any order
of the 30-day notice in these cases
of publication duties. The the granting effective is increased based and I
solely on a practice which has been followed for many years,
have been unable to discover a single instance in which the effective
date has been longer delayed, although almost every notice has been
followed by requests for a longer postponement.

-2-

181

2. That the order be reconsidered with a view to exempting some
of the German procedures from its application, or of devising some
basis for the continuance of German-American trade.
Dr. Meyer had apparently read the opinion of the Attorney General,
although he stated he had not studied it. No purpose would be served
by a reconsideration of the procedures covered by that opinion, and I

believe this is understood by Dr. Meyer. His discussion of this point
afforded an opportunity for me to refer courteously to the difficulties
encountered by the Treasury as a result of steps taken by the German
Government to prevent disclosure to our agents of the nature and operation of the German procedures. I suggested that full cooperation by
the Germans with our efforts to ascertain the facts in connection with
each shipment of goods would greatly expedite the settlement of duties

and aid our efforts to administer the law with the least possible hindrance to trade.

3. That no addition be made for at least a fortnight to the list
of commodities subject to the countergailing duties.
The thought in this connection seemed to be that two or three weeks

without any addition to the list would afford a breathing spell for ex-

citement to quiet down and for a calm consideration of the situation.
No expression of any kind was made with regard to the plans of the Treasury
in this respect. I believe it will be more than two weeks before we shall
be prepared to add to the list.
At the meeting of the Executive Committee on Commercial Policy at
the State Department on Friday morning, June 12, Secretary Wallace stated

that his Department had received requests from cotton exporters that it
endeavor to obtain from the Treasury an extension of the effective date
of the countervailing duty order. Will Clayton, presumably of the Anderson Clayton Company, was mentioned as the principal applicant.
Secretary Wallace stated that about 100,000 bales of American

cotton are contracted for sale to Germany in barter deals involving
German goods which cannot reach the United States before July 12, the

effective date of the order. It was intimated that enforcement of the
order on July 12 would probably result in cancellation of the sales of
these 100,000 bales.

Chairman Sayre asked me what would be the probable result if the
Executive Committee on Commercial Policy requested the Treasury to give

sympathetic consideration to the request that the effective date be

postponed. I replied that it had been a practice of the Treasury without than
any exception to deny every request for the postponement for more

-3-

182

30 days from the date of publication the effective date of administrative
orders resulting in the imposition of new or increased duties. I also
stated that several requests for postponement of the effective date of
the order had been received; that I was not in a position to state what
answer had been made to such requests; and that my recommendation would

be that all such requests be denied for the reason that there is no
authority of law or precedent for such postponement,

W.R. Johnson

June 14, 1936.

183

A group met at the home of Secretary Morgenthau for a supper
conference.

Those present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
Marriner S. Eccles, Chairman of the Board of Governors of the
Federal Reserve System,

John H. Fahey, Chairman, Home Owners' Loan Corporation,

Stewart McDonald, Federal Housing Administrator,

Wm. A. Julian, United States Treasurer,
Stephen B. Gibbons, Assistant Secretary of the Treasury,

Herbert E. Gaston, Assistant to the Secretary,
Guy T. Helvering, Commissioner of Internal Revenue,

Elliott Thurston, Special
Assistant to the Chairman of the
Federal Reserve Board,
C.B. Upham, Assistant to the Secretary.
Mr. Gaston read a áraft of financial planks which had been
prepared as suggestions to be given Senator Wagner at his request

for consideration at the Democratic Convention at Philadelphia.
The general opinion of those present was that the document
was excellent, although perhaps, longer than would eventually be
found desirable, and perhaps not in as good platform language as
some reworking might produce.

It was specifically agreed that it would be well to make no
mention of the silver program as such in the platform.
It was suggested that something be added with respect to the
Banking Act of 1935 and its change from private control of credit
to public control.
Mr. Eccles was to furnish suggested language on that point to

-2-

Mr. Gaston.

Mr. McDonald stated that in his opinion there should be
specific mention of the program of home saving carried out by
the Home Owners' Loan Corporation.

Several indicated their agreement that this was one of the
most praiseworthy activities of the New Deal.
Mr. Morgenthau suggested that if any of the agencies felt

that their own activities should receive more recognition that
they send in language to Mr. Gaston.

Mr. Morgenthau expressed his feeling that the section on

taxation was not up to the standard set by the other parts of
the memorandum and suggested that it be strengthened by material

from Mr. Helvering on the efficiency and effectiveness of tax
administration by the Bureau of Internal Revenue.
There was some discussion as to the section dealing with

prohibition repeal and liquor revenue. Mr. Morgenthau stated
that church people are pleased with the honest enforcement of
liquor laws by the Treasury and that reference to ithas some
values.

There was general discussion of the monetary planks adopted
by the Republican Convention and some general discussion of the

problem of currency stability at home and abroad.

184

traft # 185
FISCAL AND MONETARY POLICIES

The fiscal and monetary policies of the Roosevelt Administration
have been at once courageous and wise. We take pride in the great and

essential part they have had in the winning battle against the depression,
in rescuing us as a people from bankruptcy and in setting us on the pathway to sound and stable prosperity.

A ruinous deflation, disastrous alike to all classes of our oitizens, had been in progress for almost four years when this Administration
came into power and, instead of abating, was sweeping to a olimax in
complete paralysis of the monetary and credit system. There was a panic

rush for liquidity of all property values which, in the very nature of
things, could not be achieved; foreclosures were multiplying, values were

being remorselessly wiped out with irreparable injury both to debtors
and to creditors; businesses were going bankrupt; the wave of bank
failures was mounting higher and higher; terror had replaced confidence
in the strength and future of America; millions were out of employment

and clamoring pitifully for aid that was not being granted except in the
most grudging and ineffective way. This was the heritage handed over by

an Administration that had boasted that it was the guardian of prosperity,
an Administration that had sought to serve the powerful few and in the
end was found to have served nobody.

Fear, vacillation in high quarters, mismanagement of the Nation's
fiscal, monetary and credit problems were largely responsible for the
magnitude of the disaster. Realizing that monetary measures undertaken

186

-2by European Nations to protect their own people had stifled our trade
and were an increasingly menacing threat against our currency reserves,
a Republican Administration know of nothing more effective to do than
to tell our European debtors that they could stop making payments to us
and to prate about the soundness of a currency system that was already

in process of disintegration before their eyes.

It is an unhappy, a mortifying situation to recall -- its grim
irony is magnified by a reading of the confused sterilities of the Republican platform of 1932, which yet bears witness to the facts -- but to
recall it is necessary for an understanding of what has happened since
March 4, 1933.

On that date an Administration with a clear mandate from the

people took charge on behalf of the American people. It had a leader
gifted with understanding of America's problems, infused with American
resourcefulness and American courage, inspired with American patriotism.

As a wise and skillful physician, ministering to a patient desperately ill, the Administration prescribed and with the cooperation of
a Congress representing all the people, executed a series of swift measures

which arrested the disaster, restored the confidence of the people and
enabled them to go forward boldly on the march to a better day. Among the

first and most important policies translated into execution were those
dealing with monetary, credit and fiscal policies. The menacing drain
upon the Nation's monetary reserves was stopped, the deflation of the
prices paid for American goods and services was arrested, the dollar was
placed in an imprognable position against all attacks, the banking system

-

187

-3was rehabilitated and reborn, new credit machinery was provided to protect

alike millions of debtors and creditors and to restore values, and the
credit of the Nation was mobilized to provide food and work for the people.
The benefits have accrued to those in every walk of life. The steady march
of recovery is unbroken.

188

-41. Monetary Action
A domestic credit collapse, aggravated by monetary changes and dis-

turbances abroad, was swiftly draining our monetary system of its gold
reserves in 1932 and 1933 and the competition for gold forced prices lower
and lower, so that measures both to protect the gold supply and to reverse
the price trend had been urgently needed long before the Democratic Adminis-

tration was charged with responsibility for the Government. Action had
to await the coming to power of those with the decision and courage to act.
The obvious and necessary first step was that which was taken without delay,
to suspend gold payments and call in all monetary gold in the country.

The current was turned, further deflation was stopped, a restoration of
values set in, the dollar began to assume a more correct relation to foreign
currencies, the selling prices of American commodities rose and the markets
of the world were once more unlocked to American goods, while at the same

time we gained a new measure of protection from the flood of competitive
foreign products caused by devaluation of other currencies. The purpose
was plainly stated by the President when, in a radio address on May 7, 1933,

he said: "The Administration has the definite objective of raising commodity prices to such an extent that those who have borrowed money will,

on the average, be able to repay that money in the same kind of dollar
which they borrowed. We do not seek to let them get such a cheap dollar

that they will be able to pay back a great deal less than they borrowed."
This was amplified on July 2, 1933, in a message to the London Economic

Conference in which the President said: "Let mo be frank in saying that

189
-5-

the United States seeks the kind of a dollar which a generation hence will
have the same purchasing and debt paying power as the dollar value we hope

to attain in the near future." The objective of a truly sound and stable
currency, not subject to the wide fluctuations in value which, periodically throughout American history as the values of monetary metals rose and
fell, have robbed in turn wage-earners and creditors on the one hand and
debtors on the other, has been pursued steadfastly by this Democratic Ad-

ministration. In pursuit of that objective the value of the dollar, adjusted to a fairer level by the operation of the gold embargo, was stabilized and under the wise administration of the Gold Reserve Act and the
Silver Purchase Act we have built up the most ample metallic monetary
reserves any nation has ever possessed. All components of our monetary

circulation are now of equal value the world over, our currency possesses

greater stability in purchasing power than at any time in our history and
we have been placed in a position of unique advantage to deal with any
monetary stresses to which the world may expose us. Through the stabilizing
of the American currency there was achieved a new measure of de facto

stability as between the principal world currencies which points the way
toward international understandings to promote not only permanent exchange

stabilization but permanent internal stability for all currencies. We
believe that this result should be earnestly sought, but under no circumstances should the monetary system and the economic welfare of this country
be endangered by the entanglements of any premature international agreement.
We approve without reservation the monetary policies and the monetary

acts of the Roosevelt Administration, which will be recorded in American

190

-6history as among the greatest achievements of the American genius and

capacity for public affairs. We specifically approve the objective of a
permanently sound currency, stable in purchasing and debt-paying power and

the means adopted to effect it, including the restoration of silver to its
rightful place in the monetary systems of the world.

191

-72. Recovery Expenditures

The latent power of the Nation and the Nation's credit was mobilized
to rescue its people from an economic disaster whose magnitude could not be

realized until there same into responsibility a National Administration
with the courage to seek out the facts and to meet them boldly. The new
Admini stration was faced with the necessity of undertaking Government

expenditures on a scale large enough to provide adequate relief for the

destitute, to halt foreclosures and to create a flow of money sufficient
to bring about restoration of the Nation's economic life. With the
burdens of a war concluded fifteen years before still bearing heavily on
the National Treasury, adding about a billion and a quarter dollars
annually to the Federal Government's costs, some of the selfish, the
timorous and the sluggish of our citizens counseled the kind of economy

that meant National ruin. They would have sought to protect the National
Treasury by forcing the American people into bankruptcy.
An Administration and a Congress truly representing the people

turned their backs on that suicidal course. They realized that it is
one of the duties and purposes of government to protect its people from
disasters against which only governmental action can be effective.

We spent more than forty billions of dollars to carry out our part
in the World War and to care for its consequences up to the present day.

We are still paying its costs. This Administration has incurred a deficit
of about one-sixth of this amount in the National business accounts to

combat the depression. This expenditure is but a small fraction of the

192

-8 increase in the people's wealth which the policies of a Democratic
Administration have directly caused. Our National income has grown each

year of recovery far more than the amount of the National deficit for
that year. The estimated National income for 1936 is twenty billions
greater than the National income for 1932. An insupportable burden of

private debt has been lifted from the backs of our citizens by the rise in
values of all property.
Increase in Federal revenues as well as in private incomes has
marked each year of recovery, bearing testimony to the wisdom of the de-

cision that the only sound road to a balanced budget lay through the
gateway of a balanced recovery promoted by National action designed to

that end. The amount by which expenditures both for the regular activities
of government and for relief have exceeded revenue receipts has decreased

steadily since the first year of the recovery program. We are moving
steadily toward a true balance not only in the budget of the Federal
Government, but in the larger budget that represents the adequacy of the
people's income to meet the people's needs. We repudiate the narrow concept that would seek to balance Federal income against Federal outgo

though the people starve. We indorse and approve the declaration of our
great President that the National budget will be in balance just as soon
as the needs and abilities of our people make that possible.

193

-93. Financing Recovery

It was necessary that recovery expenditures be financed largely
by borrowing rather than by taxation until the National income had been
raised to a level that would yield enough to support necessary Government

expenditures through taxation. Investors in Government securities have
not been misled by the partisan attacks that have been made on the

Nation's credit but have assayed the policies of this Administration as
constructive. Quoted prices of Government securities have been constantly

rising and the average interest rate has declined sharply, so that a rise
in the gross public debt has been accompanied in the recovery period by
a

decreasing interest burden. The interest charges today are materially
less than they were in any of the six years immediately following the

World War. The latest big issue of Government obligations was sold at
the lowest rates of interest and was eagerly oversubscribed many times

in a single day. Our war debts have been refunded at lower rates in the

midst of the recovery financing and the maturities of the public debt
have been carefully spread over a range of years to facilitate repayment.
Interest costs to private borrowers have declined and the prices of good
commercial securities have risen along with the decline in Government

interest rates and rise in the prices of Government securities. This
has been an aid to business and has served as an added factor in pro-

moting recovery. We acclaim the wisdom, initiative and prudent
commonsense with which these vital fiscal operations have been directed

under an Administration representing truly the interests of all the people.

194
- 10 The Government's credit was never sounder at any time in the Nation's

history than it is today.

195
- 11 4. Banking and Credit
The record of the Roosevelt Administration in strengthening and
rebuilding the banking and credit structure of the country commands the

admiration of all. In March, 1933, when the Democratic party came into
power and responsibility, banking was in a state of complete collapse,
the country over. An unprecedented wave of bank failures had brought

the fear of panic to our people. Hoarding was widespread. The credit
mechanism had broken down. The farmer, the home-owner and the small

merchant could not secure loans. Private financial institutions restricted
their operations. Foreclosures were bringing social chaos close.
Out of this wreckage a new structure has been built. Sound banks
were promptly licensed for reopening. Reorganized and reopened banks

were given capital strength through subscriptions to their stock on the
part of the Reconstruction Finance Corporation. Bank depositors were

given assurance of the safety of their money by the establishment of the
Federal Deposit Insurance Corporation, which insures their deposits.

We heartily endorse the record of the Administration in effectively
reestablishing the banking business of the country upon a sound basis, in

assuring to depositors safety of their funds, and in the restoration of

normal credit activities.
Confidence has been restored. Bank deposits have shown a strong

and steady increase. Bank losses have been turned into bank earnings.
Bank failures have been stopped. The thousands which closed their doors

during the twelve years of Republican misrule are being liquidated. Deposits in closed banks have been made available to their owners speedily,

196
- 12 -

through loans against assets, the assets themselves being disposed of

gradually to the better advantage of depositors.

Not only were the private financial institutions of the country
given strength and safety. The Federal Government stepped into the

breach caused by their temporary inability to meet the credit needs of
business and the people. It has supplemented their activities in ways

essential to the continued life of the Nation. While the Reconstruction
Finance Corporation provided needed funds to innumerable lines of business
activity, the needs of the common man were also considered and met.
Through the nation-wide operations of the home-saving and home-financing
agencies of the Government, millions of homes have not only been saved

for those who struggled to acquire them, but real estate values have been
revived, and the construction of new homes stimulated. Enormous losses to
millions whose savings were invested in mortgages have been averted through
assistance extended to banks, insurance companies, savings and loan asso-

ciations and other financial institutions.
The credit needs of the farmer have had attention. Private financial
institutions had withdrawn almost completely from this field. A comprehensive and integrated system to care for the long and short term credit requirements of Agriculture has been established. Under the wise administration of the Farm Credit Administration thousands of foreclosures have been
averted, hard pressed farm borrowers have been given extensions of time,
interest rates have been reduced and emergency loans have been granted.

197

- 13 5. Taxation
The Democratic party proclaims its continued adherence to the

justice of the principle of taxation according to ability to pay and
benefits received. This Administration in 1933 inherited a tax structure
that bore too heavily proportionately on those least able to pay and
permitted avoidance of their just share of taxation by those who receive

the greatest benefits from the American system. A basic policy of this
Democratic Administration has been to correct this injustice as rapidly
as conditions permit by reducing the proportion of taxes on consumption,
which bear most heavily on the poor, and stopping the channels of
avoidance of surtaxes on large incomes. Honest and zealous administra-

tion of the Federal tax laws since 1933 has also promoted justice in
taxation and increased the revenues. While lesser objectives, such as

the simplification of our tax laws and their administration will not be
neglected, the Democratic party pledges itself to the larger objectives
of greater justice and equity in our tax structure. Problems under
study to this end include the proper treatment of tax-exempt securities
and the coordination of the Federal system of taxation with state and
local ones.

198
- 14 6. Prohibition Repeal
The debauchery of our National life brought about by the Prohibition amendment and the hypocritical gestures at enforcing it made by

previous administrations has been ended. The results justify the bold
stand for repeal in which the Democratic party expressed the judgment of

the American people. Regulation of the liquor traffic under repeal
with honest and vigorous enforcement has reestablished respect for law,

has improved social conditions and has brought more than a billion dollars
into the Federal Treasury, besides providing a source of additional revenue

to localities. The Democratic party pledges continued cooperation with

and aid to the States, their subdivisions and their citizens in finding
and enforcing methods of dealing with the liquor problem best suited to
local conditions.

Insoft II. Sunday night June 14.1936 199
FISCAL AND MONETARY POLICIES

The fiscal and monetary policies of the Roosevelt Administration have
been at once courageous and wise. We take pride in the great and essential

part they have had in the winning battle against the depression, in rescuing
us as a people from bankruptcy and in setting us on the pathway to sound and
stable prosperity.

A ruinous deflation, disastrous alike to all classes of our citizens,
had been in progress for almost four years when this Administration came into
power and, instead of abating, was sweeping to a climax in complete paralysis

of the monetary and credit system. There was a panic rush for liquidity of
all property values which, in the very nature of things, could not be achieved;
foreclosures were multiplying, values were being remorselessly wiped out with

irreparable injury both to debtors and to creditors; businesses were going
bankrupt; the wave of bank failures was mounting higher and higher; terror
had replaced confidence in the strength and future of America; millions were
out of employment and clamoring pitifully for aid that was not being granted
except in the most grudging and ineffective way. This was the heritage handed
over by an Administration that had boasted that it was the guardian of prosperity, an Administration that had sought to serve the powerful few and in the
end was found to have served nobody.

Fear, vacillation in high quarters, mismanagement of the Nation's fiscal,
monetary and credit problems were largely responsible for the magnitude of the
disaster. Realizing that monetary measures undertaken by European Nations to

protect their own people had stifled our trade and were an increasingly menacing
threat against our currency reserves, a Republican Administration knew of nothing

200

-2-

more effective to do than to tell our European debtors that they could stop
making payments to us and to prate about the soundness of a currency system

that had failed to fulfill its proper functions and to protect the national
economy in a time of crisis.
This was the situation when an Administration with a clear mandate
from the American people assumed responsibility on March 4, 1933, and exe-

cuted a series of swift measures which arrested the disaster, restored confidence and enabled the Nation to go forward boldly on the march to a better

day. Among the first and most important policies translated into execution
were those dealing with monetary, credit and fiscal policies. The menacing
drain upon the Nation's monetary reserves was stopped, the deflation of the
prices paid for American goods and services was arrested, the dollar was
placed in an impregnable position against all attacks, the banking system
was rehabilitated and reborn, new credit machinery was provided to protect

alike millions of debtors and creditors and to restore values, and the credit
of the Nation was mobilized to provide food and work for the people. The

benefits have accrued to those in every walk of life. The steady march of
recovery is unbroken.

201

-3- 1. Monetary Action

The objective of a truly sound and stable currency, not subject to
the wide fluctuations in value which, periodically throughout American history as the values of monetary metals rose and fell, have robbed in turn wageearners and creditors on the one hand and debtors on the other, has been pur-

sued steadfastly by this Democratic Administration, with the result that we
now have the soundest currency in the world and the most ample monetary reserves

any Nation has ever possessed. All components of our monetary circulation

are now of equal value the world over. Our currency possesses greater stability
in purchasing power than at any time in our history and we have been placed in
a position of unique advantage to deal with any monetary stresses to which the
world may expose us. Through the stabilizing of the American currency there
has been achieved a new measure of de facto stability as between the principal
world currencies which points the way toward international understandings to
promote not only permanent exchange stabilization but permanent internal

stability for all currencies. We believe that this result should be earnestly
sought, but under no circumstances should the monetary system and the economic

welfare of this country be endangered by the entanglements of any premature
international agreement.
We approve without reservation the monetary policies and the monetary

acts of the Roosevelt Administration, which will be recorded in American history as among the greatest achievements of the American genius and capacity

for public affairs. We specifically approve the objective of a permanently
sound currency stable in purchasing and debt-paying power and the means

adopted to effect it, including the restoration of silver to its rightful
place in the monetary systems of the world.

202

-4-

2. Recovery Expenditures

The latent power of the Nation and the Nation's credit was mobilized
to rescue its people from an economic disaster whose magnitude could not be

realized until there came into responsibility a National Administration with
the courage to seek out the facts and to meet them boldly. The new Administration was faced with the necessity of undertaking Government expenditures

on a scale large enough to provide adequate relief for the destitute to halt
foreclosures and to create a flow of money sufficient to bring about restoration of the Nation's economic life. The responsibility was boldly accepted.
To combat the depression we have incurred net additions to the national debt

which are but a small fraction of what the World War cost us and but a small

fraction of the increase in the people's wealth which the policies of a
Democratic Administration have directly caused. It was a highly profitable
investment which has returned ample dividends to the American people. Our
national income has grown each year of recovery far more than the amount of

the National deficit for that year. The estimated national income for 1936
is twenty billions greater than the national income for 1932. An insupportable
burden of private debt has been lifted from the backs of our citizens by the

rise in values of all property.
Increase in Federal revenues as well as in private incomes has marked

each year of recovery, bearing testimony to the wisdom of the decision that
the only sound road to a balanced budget lay through the gateway of a balanced
recovery promoted by National action designed to that end. The amount by which

203

-5-

expenditures both for the regular activities of government and for relief
have exceeded revenue receipts has decreased steadily since the first year

of the recovery program. We are moving steadily toward a true balance not
only in the budget of the Federal Government, but in the larger budget that
represents the adequacy of the people's income to meet the people's needs.
We repudiate the narrow concept that would seek to balance Federal income

against Federal outgo though the people starve. We indorse and approve the

declaration of our great President that the National budget will be in balance
just as soon as the needs and abilities of our people make that possible.

204

-63. Financing Recovery

It was necessary that recovery expenditures be financed largely
by borrowing rather than by taxation until the National income had been
raised to a level that would yield enough to support necessary Government
expenditures through taxation. Investors in Government securities have
not been misled by the partisan attacks that have been made on the

Nation's credit but have assayed the policies of this Administration as
constructive. Quoted prices of Government securities have been constantly

rising and the average interest rate has declined sharply, so that a rise
in the gross public debt has been accompanied in the recovery period by a

decreasing interest burden. The interest charges today are materially
less than they were in any of the six years immediately following the
World War. The latest big issue of Government obligations was sold at
the lowest rates of interest and was eagerly oversubscribed many times

in a single day. Our war debts have been refunded at lower rates in the
midst of the recovery financing and the maturities of the public debt
have been carefully spread over a range of years to facilitate repayment.
Interest costs to private borrowers have declined and the prices of good
commercial securities have risen along with the decline in Government

interest rates and rise in the prices of Government securities. This
has been an aid to business and has served as an added factor in promoting
recovery. We acclaim the wisdom, initiative and prudent commonsense with

which these vital operations have been directed under an Administration repre-

senting truly the interests of all the people. The Government's credit was

never sounder at any time in the Nation's history than it is today.

205

-7 4. Banking and Credit

The record of the Roosevelt Administration in strengthening and rebuilding the banking and credit structure of the country commands the

admiration of all. In March, 1933, when the Democratic party came into
power and responsibility, banking was in a state of complete collapse, the
country over. An unprecedented wave of bank failures had brought the fear
of panic to our people. Hoarding was widespread. The credit mechanism had
broken down. The farmer, the home-owner and the small merchant could not

secure loans. Private financial institutions restricted their operations.
Foreclosures were bringing social chaos close.
Out of this wreckage a new structure has been built. Sound banks
were promptly licensed for reopening. Reorganized and reopened banks were

given capital strength through subscriptions to their stock on the part of
the Reconstruction Finance Corporation. Bank depositors were given assurance

of the safety of their money by the establishment of the Federal Deposit Insurance Corporation, which insures their deposits.

We heartily endorse the record of the Administration in effectively
reestablishing the banking business of the country upon a sound basis, in

assuring to depositors safety of their funds, and in the restoration of
normal credit activities.
Confidence has been restored. Bank deposits have shown a strong and

steady increase. Bank losses have been turned into bank earnings. Bank
failures have been stopped. The thousands which closed their doors during

206

-8the twelve years of Republican misrule are being liquidated. Deposits
in closed banks have been made available to their owners speedily, through
loans against assets, the assets themselves being disposed of gradually to
the better advantage of depositors.

Not only were the private financial institutions of the country given
strength and safety. The Federal Government stepped into the breach caused

by their temporary inability to meet the credit needs of business and the

people. It has supplemented their activities in ways essential to the continued life of the Nation. While the Reconstruction Finance Corporation
provided needed funds to innumerable lines of business activity, the needs
of the common man were also considered and met. Through the nation-wide
operations of the home-saving and home-financing agencies of the Government,

millions of homes have not only been saved for those who struggled to
acquire them, but real estate values have been revived, and the construction
of new homes stimulated. Enormous losses to millions whose savings were invested
in mortgages have been averted through assistance extended to banks, insurance

companies, savings and loan associations and other financial institutions.

The credit needs of the farmer have had attention. Private financial
institutions had withdrawn almost completely from this field. A comprehensive and integrated system to care for the long and short term credit requirements of Agriculture has been established. Under the wise administration
of the Farm Credit Administration thousands of foreclosures have been averted,
hard pressed farm borrowers have been given extensions of time, interest rates
have been reduced and emergency loans have been granted.

207

-95. Taxation
The Democratic party proclaims its continued adherence to the

justice of the principle of taxation according to ability to pay and
benefits received. This Administration in 1933 inherited a tax structure
that bore too heavily proportionately on those least able to pay and
permitted avoidance of their just share of taxation by those who receive
the greatest benefits from the American system. A basic policy of this
Democratic Administration has been to correct this injustice as rapidly
as conditions permit by reducing the proportion of taxes on consumption,
which bear most heavily on the poor, and stopping the channels of
avoidance of surtaxes on large incomes. Honest and zealous administra-

tion of the Federal tax laws since 1933 has also promoted justice in
taxation and increased the revenues. While lesser objectives, such as

the simplification of our tax laws and their administration will not be
neglected, the Democratic party pledges itself to the larger objectives

of greater justice and equity in our tax structure. Problems under study
to this end include the proper treatment of tax-exempt securities and the
coordination of the Federal system of taxation with state and local ones.

208
- 10 6. Prohibition Repeal
The debauchery of our National life brought about by the Prohibition
amendment and the hypocritical gestures at enforcing it made by previous

administrations has been ended. The results justify the bold stand for
repeal in which the Democratic party expressed the judgment of the American

people. Regulation of the liquor traffic under repeal with honest and
vigorous enforcement has reestablished respect for law, has improved social

conditions and has brought more than a billion dollars into the Federal
Treasury, besides providing a source of additional revenue to localities.
The Democratic party pledges continued cooperation with and aid to the

States, their subdivisions and their citizens in finding and enforcing
methods of dealing with the liquor problem best suited to local conditions.

draft ni.

209

FISCAL AND MONETARY POLICIES

When this Administration came into power, a ruinous deflation

had been in progress for almost four years and, instead of abating,
was sweeping to a olimax in complete paralysis of the monetary and
credit system. There WRS a panic rush for an unattainable measure of

liquidity of all proporty values; foroclosures were multiplying values
were being remorselossly wiped out with irreparable injury both to
debtors and to creditors; businesses were going bankrupt; the wave of
bank failures was mounting higher and highers terror had replaced can-

fidence in the strength and future of Americas millions were out of
employment and clamoring pitifully for aid that was not being granted

except in the most grudging and ineffective way. This was the heritage
handed over by an Administration that had boasted that it was the

guardian of prosperity. Fear, vacillation in high warters, monetary
and credit miamanagement, were largely responsible for the magnitude of

the Nation's troubles. Realising that monotary measures undertaken by
European Nations to protect their own people had stifled our trade and
were an increasingly monacing throat against our currency reserves, a
Republican Administration know nothing more effective to do than to
prate about the soundness of a currency system that had failed to pro-

teat the national economy in & time of crisis.
The fiscal and monetary policies which the Roosevelt Administration adopted to deal with this emergency were both courageous and wise.

We take pride in the great and assential part they have had in winning
the battle against depression and in setting us on the patimay to sound

-2-

210

and stable prospority.
The monacing drain upon the Nation's monetary reserves was stopped,

the deflation of the prices paid for American goods and services was

arrested, the dollar was placed in an imprognable position against all
attacks, the banking system was rohabilitated and reborn, new oredit

machinery was provided to protect alike millions of debtors and creditors
and to restore values, and the credit of the Nation was nobilized to
provide food and work for the people. The bonefits have accrued to
those in every walk of life. The depression was broken and a stoady march

toward prosperity substituted in its stead.

2-1

-31. Monetary Action

The objective of a truly sound and stable currency, not subject to
the wide fluotuations in value which, periodically throughout American
history, have robbed in turn wage-earners and creditors on the one hand
and farmers, debtors and all property owners on the other, has been pursued
stoadfastly by this Democratic Administration. We now have the soundest
currency in the world and the most ample monetary reserves any Nation has

ever possessed. We are now in a position of unique advantage to deal with
any monetary stresses to which the world may expose us. Through the
stabilising of the American curroney there has boon achieved a now measure

of de facto stability as between the principal world currencies which
points the way toward international understandings to promote not only per-

manont exchange stabilization but pormanont internal stability for all ourrencies. We believe that this result should be earnestly sought, but under
no circumstances should the economic welfare of this country be sacrificed
to premature international commitments.
We approve without reservation the monotary policies and the monetary

record of the Roosevolt Administration, which will be recorded in American
history as among the greatest achievements of the American gonius and

capacity for public affairs. We specifically approve the objective of a
permanently sound currency so stabilized as to promote full utilisation of
the country's resources and equitable relations between debtor and creditor.

212

2. Recovery Expenditures

Until the Roosevelt Administration came into office, with the
courage to seek out the facts, and to face them boldly, the American
people were not more of the mignitude of the economic disaster which
threatened them, and the far-reaching character of the governmental

action necessary if the disaster was to be avoided. The now Administration was faced with the necessity of undertaking Government expenditures

on a scale large enough to provide adequate relief for the destitute,
to halt the avalanche of foreclosures and to create a flow of money

sufficient to bring about restoration of the Nation's economic life.
The responsibility was boldly accepted. The latent power of the Nation
and the Nation's credit was mobilized to roscue its people from an economic

disaster. To combat the depression and to strengthon the national cofenses, not additions to the public debt were incurred which are but a
small fraction of what the World War cost us and but a small fraction

of the increase in the people's wealth which has resulted directly and

indirectly from the policies of the Democratic Administration. It was a
highly profitable investment which has returned ample dividends to the
American people. Our national income has grown each year of recovery by

far more than the amount of the gross national deficit for that year.
The estimated national income for 1936 is twenty billions greater than
the national income for 1932. An insupportable burden of private debt

has been listed from the backs of our citizons by the riso in values of

all property.

5

213

Increase in Federal revomues as well as in private incomes has
marked each year of recovery, bearing testimony to the wisdom of the

decision that the only sound road to a balanced budget lay through the
geteway of a balanced recovery promoted by national action designed to

that end. The amount by which expenditures both for the regular activitica of government and for relief have exceeded revenue receipts has
decreased each year of the recovery program. We are moving stoadily
toward our goal of a true balance in both the budget of the Federal Govern=
ment and the larger budget that represents the adequacy of the people's

income to not the people's needs.

214

⑉6S. Financing Recovery

It was mccessary that recovery expenditures be financed largely
by borrowing rathor than by taxation until the National income had boon

raised to a level sufficient to yield without hardship and without retarding recovery enough tax revenue to support necessary Government ox-

penditures. Investors in Government securities have not been nisled
by the partisan attacks that have been made on the Nation's credit but

have assayed the policies of this Administration as constructive. Quoted
prices of Government securities have been constantly rising and the

average interest rate has declined sharply. so that a riso in the gross
public debt has been accompanied in the recovery period by a decreasing

interest burden. The interest burden of the National debt is today
materially loss than it was in any of the six years innodiately following
the World War. The latest big issue of Government obligations was sold
at the lowost rates of interest and was eagerly oversubscribed many times

in a single day. Our war debts have been refunded at lover rates in the
midst of the recovery financing and the maturities of the public debt
have been carefully spread over a range of years to facilitate repayment.
Interest costs to private borrowers have declined and the prices of good
commercial securities have rison along with the decline in Government

interest rates and riso in the prices of Government securities. This
has been an aid to business and has served as an added factor in promoting
recovery. We acclaim the wisdom, initiative and prudent commonsense with

which those vital operations have been directed under an Administration

representing truly the interests of all the people. The Government's oredit
was never sounder at any time in the Nation's history than it is today.

-7-

215

4. Banking and Credit
The record of the Roosevelt Administration in strengthening and
recuilding the banking and credit structure of the country commands the
admiration of all. In March, 1933, when the Democratic party came into
power and responsibility, banking was in a state of complete collapse, the
country over. An unprecedented wave of bank failures had brought the foar
of panic to our people. Hoarding was widespread. The credit mechanism had
broken down. The farmor, the home-owner and the small merchant could not

secure loans. Private financial institutions restricted their operations.
A wave of foreclosures was throatoning social chaos and monacing the security

of our Democratic institutions.
Our of this wreckage a now credit structure has boon built. Sound
banks were promptly licensed for roopening. Reorganized and reopened banks

were given capital strength through federal loans and subscriptions to

their stock. Bank depositors were given assurance of the safety of their
money by the establishment of the Federal Deposit Insurance Corporation,

which insures their deposits.
The Federal Reserve System, with its great power over the monetary

system as well as the credit system of the Nation was brought under direct

public control.
We heartily endorse the record of the Administration in effectively
reestablishing the banking business of the country upon a sound basis, in

assuring to depositors safety of their funds, and in the restoration of
normal credit activities.

.-

216

Confidence has boon rostored. Bank deposits have shown a strong

and steady increase. Bank losses have been turned into bank earnings.

Bank failures have been stopped. The liquidation of the thousands of
banks which had closed their doors during the twelve years of Republican
administration has been carried out in on orderly and economical way
and has been almost completed, with minimum loss to depositors.
The Federal Government not only restored strength and security

to the private financial institutions of the country, but it stopped
into the breach caused by their temporary inability to meet the oredit
noods of business and the people. Not only word needed funds provided

to inmunorable lines of business activity, but the sholter of the
Nation's credit was thrown about millions of distressed farm and home
owners.

Through the nation-wide operations of the Home Owners' Loan Cor-

poration and the Federal Housing Administration millions of homes have

not only boon saved for those who struggled to acquire thom, but roal
estate values have been revived, and the construction of now honos stim-

ulated. Enormous losses to millions whose savings wore invested in
mortgages have been averted through assistance extended to banks, insur-

anoo companies, savings and loan associations and other financial institutions.
The credit mode of the farmer have boon given sympathotic atten-

tion. Private financial institutions had withdrawn almost completely
from this field. A comprehensive and integrated system to caro for the

217

long and short term oredit requirements of Agriculture has been ostabe

lished. Under the wise administration of the Farm Credit Administration thousands of foreclosures have boon avorted, hard presend farm
borrowers have been given extensions of time, interest rates have been
reduced and energoney loans have been granted.

A now resource and a new protection has been given to small

borrowers through the orcation of a National system of credit unions.
The Democratic party takes unbounded pride in this great record

of governmental service to all the people.

(

218

. 11 0. Prohibition Ropeal
The dobauchory of our National life brought about by the Prohibition Amondment and the hypocritical gostures at enforcing it made by

previous administrations has been ended. The results justify the bold
stand for repeal in widch the Democratic party expressed the Judgment of

the American people. Regulation of the liquor traffic under repeal with
honest and vigorous enforcement has reostablished respect for law, has

improved social conditions, and has brought more than a billion dollars
into the Federal Treasury, bosides providing a nooded source of additional
revenue to States and localities. The Democratic party plodges continued

cooperation with and aid to the States, their subdivisions, and their
citizens, in finding and enforcing methods of doaling with the liquor
problem best suited to local conditions.

219

June 15, 1936

I called Cochran this morning and he said that the
strikes in Paris have quieted down, but in the seaport

towns they were still pretty bad.
He told me that the French Minister of Finance
was going to declare his policy before Parliament on
Thursday and Cochran urged me very strongly that I permit him to go and see Auriol and tell him about my conversation with the British and that the British will
not do anything unless the French approach them.

I

hesitated for quite a while, but he kept urging me and
said that if the French had this information now it
might make a decided difference in what Auriol said on
Thursday, so I finally agreed and told Cochran that he
could tell Auriol of my conversation with the British
and that the British wanted the French to approach
them direct; furthermore, that the British and ourselves were in agreement as to the percentage of devaluation that the two of us could stand. (I did not menif my
tion the percentage to Cochran.) Furthermore,
advice was asked by the French, I would strongly urge
them to devalue now because from the international
standpoint of world currencies it seemed to me that
this was the most opportune time for the French -- and
how could they tell what the situation would be six
months from now?

Then Cochran urged me to let him talk to the Dutch

and Swiss, and after considerable urging I agreed. As
Cochran said, if the Dutch and Swiss knew of my conversation with the British, they in turn might bring
pressure on the French to devalue. I told Cochran
that I felt we could lose nothing by his talking to
the Swiss and Dutch and might gain something. I
also told him not to write the Swiss and Dutch, but to
telephone.

I asked him to 'phone me after he had seen Auriol.

220

June 15, 1936

HM,Jr. called the President at 2:40 p.m. He said,
"I know you are talking to all the leaders.
"It came over the ticker that Thomas, of Oklahoma, has
introduced a resolution extending the Stabilization Fund for
two years.

(Dow-Jones 2:15 p.m.
June 15, 1936

Thomas introduces resolution to con-

tinue Stabilization Fund.

Sen. Thomas introduced in the Senate a
resolution to continue the $2,000, 000, 000

Stabilization Fund for 2 years from January 30, 1937, when it now expires. The
Fund would continue under the authority of
the Secretary of the Treasury.

"Now that it has been introduced, we will have to see
it through. I talked to McNary and he said he had no objections and asked me to talk to Vandenberg, which I did

and he said to me at the time, 'I will have to talk about

it, but will only object for about five minutes' It just
cannot be defeated. Anything you can do would be grand.

"Bob Doughton said that it is too late to do anything

about FAA. 11

221
June 15th

A meeting was held in Secretary Morgenthau's office at
11:30 this morning on Income Taxes. The following were present:
Mr. McReynolds

Mr. Helvering Mr. Russell Mr. Mires

Mr. Morgenthau: I like to start with the oldest cases.
Mr. Helvering: Could I give you an idea of how we stand?
We keep a monthly record on this thing. It is brought up to date
every week-end - all years - 1932 and prior to that. During that
period there were 90 million returns filed.
Mr. Morgenthau: 90 million?
Mr. Helvering: 90 million returns filed.
Mr. Helvering: Of the original cases there are still open
3,185 of this 90 million. There have been some reopened cases but
to go over and check all the refund claims and fraud cases - every-

thing put together there are 12,140 out of the 90 million.
Mr. Morgenthau: 12,000 prior to 132?
Mr. McReynolds: Over three years old - 1932 and prior years.
Mr. Morgenthau: That is just income tax cases?
Mr. Helvering: Yes - all income taxes. When we come to
133 there has not been that many settled yet.
Mr. Morgenthau: Does this include 132 or 133 original?
Mr. Helvering: For 1933 there are 6,226 original cases.open
total 13,270 including those original returns, reopened cases and
fraud cases. Of course when you get down to 134 - those are the
ones we are examining now - that jumps to 323,000. 5,535 open
but not examined.

Mr. Russell: Just coming out of the field now.
Mr. Helvering: This don't include the 9,000 pending in
the Board of Tax Appeals. I do not know what years are affected

there. It is not carried in this tabulation.

Mr. McReynolds: We can't do anything about that now.
You can't withdraw them.

-2-

222

Mr. Morgenthau: Oh no.

Mr. Helvering: The thing we are working for is to get

these more up to date.
Mr. Morgenthau: Yes.

Mr. Helvering: And the only thing we have open in any
amount is the '34 and 135.
Mr. Morgenthau: Well the fact remains that the most
difficult ones are the ones back of 132.
Mr. Russell: Some of those old cases are held pending

Board decisions.

Mr. Morgenthau: Yes but 3200 cases are not now in the
Board of Tax Appeals.

Mr. Russell: That's right.
Mr. Morgenthau: What I'd like to do - I'd like to have

these 3200 cases prior to '32 broken down - what kind of cases

they are, where they are, what is holding them up and all that

kind of stuff.

Mr. Helvering: In the field there are 2,735 examinations
for claimssfor refund.
Mr. Morgenthau: Would that be included in the tax year
'32?

Mr. Helvering: Yes.
Mr. Helvering: Total number of all those - 132 and
prior, including original cases that have not been finally disposed of - claims for refund - fraud cases - total number everything except Board of Tax Appeals is 12,140 out of the 90
million.
Mr. Morgenthau: I mean what is - there must be so

many fraud - so forth and so on. I would like that thing broken
down so I can sit down with you and see where it is. A lot of
them will be thrown into the Board of Tax Appeals. It will take
time to bring this down.
Mr. Russell: I would say three or four days Mr. Secretary. We have a breakdown now to some extent.

Mr. Helvering to Mr. Russell: You will have to get that
in more detail for what he wants.

-3-

223

Mr. Morgenthau: After all, you take a business man who

had a case along in '31 or '32 and it involved a lot of money.
The thing is hanging over his head. There is nothing more depressing than that.

Mr. Helvering: I am not making this as an alibi or in

defense of the Bureau.
it

Mr. Morgenthau: The criticism is on me. I have given

so little attention. With the exception of the first few

months when I was here and used to have those things brought up

-

Magill brought them in - I have been completely out of touch it has not been humanly possible.
Mr. Helvering: These fellows that complain - I am safe
in saying that 90% of them is the refusal on the part of the taxpayers' attorneys to submit evidence which they are contesting.
I think 100% would be better.

Mr. Morgenthau: I think I am partly to blame. The
attitude of the Bureau has been a little bit difficult. They
have been tried in the Courts.
Mr. Russell: That is the reason why we have these
cases because we are unwilling to throw them into the Courts.

Mr. Morgenthau: I want to start with '32 or prior and
throw myself into this. I want to be helpful. I am not sitting
here saying this, that or the other thing. I would like to get
after anything of '32 or previous.
Mr. Helvering:

May I detail one case for you?

Mr. Morgenthau: Sure.

Mr. Helvering: The International Paper Company. That

is open for all these years. I am not positive for '17 but

I know '18 and clean up to the present time the International
Paper Company claim for refunds - '18, '19, 120 and 121 over a
million dollars and they have refused to make any adjustment
we plan. Well we can't give them a refund.
Mr. Morgenthau: Why not?

Mr. Helvering: They are not entitled to it. The

Treasurer of that company explained to me that he has spent

over $450,000 fighting this case.
Mr. Russell: They are making a fight for us to give
them a refund in those previous years to which they are not
entitled.
Mr. Morgenthau:

I see.

-4-

224

Mr. Helvering: Of course we had a hearing with them
a couple of weeks ago and we told them it had to break.

Mr. Russell: It would be usel SS if we sent them to

thethe
Board.
on
case. It would take a Member of the Board a year to work

Mr. Mogenthau: Let's leave it this way - if you have
something this week I would like to have another meeting with
you. Then Russell could do this thing. I want a simple chart
showing the routine - what happens to these cases - how they
gradually go through - just what happens to them. I mean the
organization chart on cities on this thing - how many people they
have to go through and all that - what is the machinery? Does
it go to the General Counsel's office or is there a bottle-neck
that is holding this thing up?
Mr. Helvering: I started in some time ago to prepare
you a memorandum. This is not criticism of the General Counsel's
office - it is just a statement of fact - the General Counsel's
office together with the office here does help settle the case
but in a great many cases it unduly delays them.
Mr. Morgenthau: Well it don't come to my immediate

office does it ?

Mr. McReynolds: Of course your compromise and refund

settlements - unless there is some point involved that is

entirely new

Mr. Morgenthau: How many are there around here?

Mr. McReynolds: After they come from the lawyers'
group they don't stay here 24 hours.
Mr. Helvering: No - they come right back to us.
Mr. Morgenthau: Well I would like to have a very
simple working chart.

Mr. Helvering: It is not so very darn simple. We can
outline the steps it takes.
Mr. McReynolds: In the breakdown you will get most of

that. That will show what stage the cases are in.

Mr. Morgenthau: Now you get my attitude on that?

-5225

you.

Mr. Helvering: Oh absolutely and I am in accord with

Mr. Morgenthau: This is not true in miscellaneous
taxes? They are not slowing up in this way?
of them.

Mr. Russell: All those to the Board but not a lot
Mr. Morgenthau: Anything in your Bureau '32 or older

I would like to go into with you.

Mr. McReynolds: I had in mind to ask but I know that

the bulk of the stuff is all here.
the work?

Mr. Russell: You want this chart - the movement of
Mr. Morgenthau: Yes - and have Miscellaneous Tax too.

Mr. Helvering: I would like to have this so that right
now - first of this month - we would have nothing to do except
'35 and the thing that you started is looking to that end.
Mr. Russell: We did not get the money for that program
but we are looking to advance the program, In 1934 I went over
there and asked for an appropriation to hire agents. With the
750 million we we would obtain Collectors to collect immediately
approximately 11 million for the 11 months. A month to go and
it has run 60 million additional taxes and 11 million agreed
taxes to collect and yet we have a month to go.
Mr. Morgenthau: That one group that you sent out on the
job - was that Cleveland or Detroit?
Mr. Helvering: Cleveland.
Mr. Morgenthau: Did they take back taxes?

Mr. Helvering: Oh yes - everything in that division.
Mr. Morgenthau: I thought they finished it.
Mr. Helvering: Oh no, we just started April 15th. That
will continue right along.
Mr. Morgenthau: How many men on that?
Not very many men on that.
Mr. Russell:

-6Mr. Morgenthau:

226

Has it gone far enough to prove it a

success?

Mr. Russell: No - it will take a year. They started
issuing the 90 day letter in the division after April 15th.

The taxpayer gets 90 days to file an appeal and to file an
answer so we can't tell about the success of it.
Mr. Morgenthau: Just as soon as you are ready give me
a ring.
Mr. Helvering: Did you read over those two memorandums?

Mr. Morgenthau: Yes - I read everything you give me.

221
Monday

June 15, 1936 (9:30 a. m.)
HMjr:

Let me ask you something which I think you can do -

Hogate:

Yes

HMjr:

I know that newspaper publishers hate to do it though.

H:

Well, if I can I will, you bet.

Kenneth C.

HMjr:

Well, here's the point, Duffield wrote a very excellent
story on Friday Yes

H:

HMjr:

- in regard to the United States and England getting
together Yes

H:

HMjr:

I

H:

That was a week or so ago, you mean?

H:

No, it was this - it was either Friday or Saturday.
Friday or Saturday? - Well now, I haven't seen that

HMjr:

Well, it was either Friday or Saturday.

H=

Yes

HMjr:

because I have been out of town.

HMjr:

And I'm always a little bit disturbed when people write
those kind of stories which get into the International
field as to whether it's something which he was just
shrewd enough to dope out or whether somebody was

talking, see?

Yes

H:

HMjr:

All right, I'll be glad to do it - I don't know now Mr.

H:

Secretary, I haven't even seen the story but I'll look
into it and call you back later in the day?

Mjr:
H:

Now, it's pretty important for me and if you feel you
could tell me I can give you my assurance that it goes
no further than my own self.

Well, he may just be a smart boy at doping out Yes

228
-2-

HMjr:

But on the other hand if something comes out in the
"London Economist" of that kind why everybody gets

excited and they think that it's the British Treasury
talking and if they see it in a paper - the Wall
Street
Journal, they think most likely that it's
semi-official.

H:

Yes

HMjr:

You see what I mean?

H:

I see entirely.

HMjr:

And I just - if - if somebody tipped him off he'll

H:

Yes

HMjr:
H:

HMjr:

unquestionably tell you.

It's just, I've got to be up on, so to speak, on top
of the job.
Yes, I appreciate that.
And that's my only reason. And I want to say as far
as Duffield is concerned he is one of the ablest that
come into the Treasury.

H:

Well, fine, I'm glad to have you say that. Well now
I'll get hold of him and call you back later in the
day, Mr. Secretary.

HMjr:

Thank you very much.

H:

All right, sir.

HMjr:

Thank you.

H:

Goodbye.

229
Monday

June 15, 1936 (Morning)
HMjr:

Hello

Mr. Hoguet
Operator:
Kenneth C.
Hogate:

Hello, Mr. Secretary

HMjr:

Hello, Mr. Hogate

H:

I talked with Duffield just now.

HMjr:

Yes

He says he got the tip on that story from London.

H:

HMjr:

Oh -

And that with what he got from London all he needed

H:

was his background so he didn't talk to anybody in
the Treasury Department about any specific part of
the story.

HMjr:

Well, that's all right. - That's all -

H:

So, I am glad to tell you that because I know it will

HMjr:

Yes, because -- I mean I'd have been disturbed if

make you feel better.

H:

HMjr:
H:

HMjr:
H:

somebody had given him the tip here.
Yes - well there was a tip came from London.

Well that's all right.
All right.
And I'll - and I'll keep it as confidence.
Well, thank you so much, because (Laughs) it looked
like a good story and we were darn glad to have it of
course.

HMjr:

It's all right.

H:

Yes

HMjr:
H:

I mean

- but I just wanted to - you understand, -

Oh, I understand perfectly and there was no - there at
was no violation of confidence in your department

all because - it all initiated in London.

HMjr:

Swell -

thank you.

230
-2-

All right. Are you going to be in the country before

H:

long?

HMjr:
H:

HMjr:

Well, I hope to get up next weekend but it depends upon
this Congress down here.

Yes, I wish they'd get out of there.
Me too -

H:

(Laughs) Well I hope to see you during the summer.

HMjr:

Thank you.

H:

Thank you, Mr. Secretary.

HMjr:

Goodbye.

H:

Goodbye.

231
Monday

June 15, 1936 (Morning)
HMjr:

Hello

Operator:

Congressman Doughton -

HMjr:

Hello -

D:

Hello

HMjr:

Morgenthau talking -

D:

All right, Mr. Secretary.

HMjr:

How are you?

D:

All right, thank you, how are you getting along?
Well, I'm getting on all right, how are you?
Oh - it has been going along pretty slowly, pretty

HMjr:

What do you think is going to happen on the tax bill?

D:

HMjr:

D:

slowly, but it's still going along this term.

Well, I'm hopeful that we will get together by tomorrow
or something, I don't know though -

HMjr:

Yes

D:

The Boss will be back today, won't he?

D:

Yes, at twelve o'clock.
We'll have another meeting this morning at ten o'clock -

HMjr:

Yes

D:

And I am hoping that the ice will begin to give way a

HMjr:

Yes

HMjr:

little.

HMjr:

But I just don't know.
Let me ask you something, I want a little advice.

D:

Well -

HMjr:

Over the week end I got a thought that I wanted to

D:

talk about to the President if you thought it was all
And that is - I know it's a last minute
right. thought - and that is this idea of keeping the the Federal

Alcohol Commission in the Treasury as part of

232
-2-

Alcohol Tax Unit, part of Internal Revenue. This
idea of this thirty-seventh agency, independent
agency - it just goes against my grain.
Well, we - you knew we had agreed --

D:

HMjr:

I know.

- we knew what we had agreed on this, just to be independent and have a board -

D:

HMjr:

Yes

D:

We finally yielded to the Senate on that.

HMjr:

Well, how would you feel about it, supposing -- ?

D:

How is that?

HMjr:

How would you feel about it personally, supposing the

D:

HMjr:

President should change his mind, is it too late?
- Well, I don't know whether it would be or not. I wouldn't even say we were able to reconsider it.
I'm fearful it's too late. The conferees all agreed
to sign the report.
Yes - have you - is it out of your hands?

I think it is, that's my opinion - it's out of my

D:

hands.

HMjr:
D:

Well you personally, as I remember it, last year always
wanted to keep the thing in the Treasury, didn't you?

Oh yes, I wanted to keep it in the Treasury all the
sent for me at the beginning of this session of Congress

time and until the President

and made an appeal to me and urged that it be made an

independent issue, and I have agreed to it.

HMjr:

Yes - you don't suppose you could let it go for one
day, just today?

D:

How is that?

HMjr:

Is it, I mean, you don't suppose you could let it slide

D:

for one day?

Well, I'm afraid it's gone too far. I'll look into
it a little further and call you back.

233

-3- .
HMjr:

D:

HMjr:
D:

I haven't spoke to another living soul about it on
the Hill - nobody knows about it but you.
Well, I'll find out, but I'm under the impression that
it's gone too far by now.
Would you mind looking into it?

I'll be glad to. I'll look into it and call you back
sometime about noon today.

HMjr:

Thank you.

D:

All right, thank you.

234
Monday

June 15, 1936

2:20 p. m.

HMjr:

Operator:

Operator:

Here you are.

Sam

Hill:

Hello

HMjr:

Hello

H:

Mr. Secretary?

HMjr:

Talking -

H:

This is Hill.

HMjr:

Yes

About that separate agency on the Federal Alcohol

H:

Control, Hester was telling me that you wanted to
talk to me before we did anything about bringing up
the conference report.

HMjr:

H:

HMjr:

H:

HMjr:

H:

HMjr:

That's right. Now, since
then I've talked to the
Hello?
President, see? -

Yes, I'm listening.
And he said as far as he is concerned if I feel
strongly about it why he's perfectly agreeable to
leave it in the Treasury. He said that I can say
that - quote him as saying so.
Yes, well it's pretty late now to do that.
I know. And I've gotten kind of worried because I've
already seen the boys begin to buzz that the source of
the thing is going to get out.
Yes

I know it's late and I - of course you've got every
right to say, 'Well, why didn't you think about it
earlier?' Well, of course I have and I couldn't get
anywhere -

H:

Yes

HMjr:

But this is going to be the thirty-seventh independent
agency and I'm afraid we're going to be awfully criti-

cized for it.

H:

Yes, well you know we've fought - we've fought

against that and we have fought against everybody else.

235
-2-

HMjr:

I know, I know - in the Treasury.

H:

HMjr:

I know.

H:

This
everybody apparently wanted it out so we
tooktime
it out.

HMjr:

Well, I'm not - I can't say much other than if it
isn't too late I'd still like to have it left in the
Treasury and it's all right with the President if
you'll take my word for it.

H:

HMjr:

Yes

H:

And we didn't

through with it.
it now.

HMJr:

H:

HMjr:
H:

on it, but we've just got to go

I don't see how we can get out of

I see, well, I know it's - I'm sorry but I couldn't

-

my hands were tied.

next year
Yes, well if you
if you're not satisfied with the change.
You think it's too late?

It's gone so far we can't do anything about it. I've

been conferring with other members of our committee

and they - they all express that same sentiment.

HMjr:

All right - well we can't blame anybody but our-

H:

Yes

HMjr:

And I couldn't move, my hands were tied.

H:

HMjr:

selves.

Yes, well we thought - we understood that you wanted
division, you know.

No, well I never said, I mean I - last year - I never
said anything this year, but last year first they'd
say one thing and then they'd say another so I just

kept my mouth shut.

236
-3-

And McIntyre called me up and I think he called every
member of the conference up and told us that the President was very anxious to have this a separate agency -

H:

That's when we were in conference, you know?

HMjr:

Yes

And we agreed to make it one.

H:

HMjr:

Yes

bulk of the adminis-

H:

tration

HMjr:

Well, there's no question that the President did want
it a separate agency.

H:

Yes

HMjr:

But I talked to him about it and I said, 'I think it's
too late', but I said, 'If it isn't too late would you
object?' And he said, 'No, but' he said, 'I wouldn't
make any fuss about it'.

Yes, well it's just too late. I don't see how we
could possibly do it.

H:

HMjr:
H:

HMjr:
H:

I see. Well, I appreciate your calling me anyway.
Is Mr. Doughton there with you?
No he isn't here with me but I've talked with him
about it.

Well, I said I'd call him back after I'd gotten through
lunch so I'll give him a ring now.
All right.

HMjr:

I appreciate very much your calling me.

H:

Yes, all right.

HMjr:

Thank you.

H:

Thank you.

237
Monday

June 15, 1936

2:30 p. m.

Operator:

Congressman Doughton -

HMjr:

Hello

Doughton:

Henry -

HMjr:

Doughton -

D:

Yes

HMjr:

Morgenthau -

D:

All right.

R. L.

HMjr:

When I came back from lunch Sam Hill called me up he wanted to know about this Alcohol Control thing,
see?

Yes

D:

HMjr:

So he called me before I had a chance to call you.
Yes

D:

HMjr:

So I said I had talked to the President and the President said as far as he is concerned he didn't care

and if I felt strongly about it all right.

Yes

D:

HMjr:

So - but Sam Hill says it's too late now.

D:

That's my opinion.

HMjr:
D:

Yes

I'm awfully sorry, because I was right with you on

that, all the time, and trying to hold the line as
long as I could.

HMjr:
D:

HMjr:
D:

You really think it's too late?
I really do, we have - you see the conference report

has been accepted by the Senate you know?
Yes

And we've got the report signed there by unanimous
agreement by all so I don't see how we can do anything.

238
-2HMjr:
D:

HMjr:
D:

HMjr:
D:

Well, it's our own fault.
I'm awfully sorry.
All right.
All right.
Thank you.

You're welcome.

Monday

239

June 15, 1936
3:10 p. m.
HMjr:

Did you get my message?

Hester:

No, I didn't.

HMjr:

Well, I sent Cy Upham to find you because I thought

it was so important. Now, Senator Thomas of Oklahoma

has introduced a resolution to extend the stabilization fund for two years.
H:

HMjr:

Yes

I was going to let it go by the Board but now that
he's introduced it there's just no if, and or but,

it's got to pass.

H:

Yes

HMjr:

Now anything else that you are doing is secondary or

H:

All right.

HMjr:

Now, I took it up two or three weeks ago with Senator

third in importance to this.

Pittman - he's for it. I talked to McNary, he said
he's for it - I should talk to - he wouldn't object.
I'd talk - he said, ..better talk to Vandenberg'.
I talked to Vandenberg and Vandenberg bellowed at me,
then he said, 'I'll object for five minutes and then

I'll let it go through'.

H:

Yes

HMjr:

Now Robinson wasn't so hot but Key Pittman is very

strong. I was going to let it go because I didn't

want to have a fight on my hands.
H:

Yes

HMjr:

But now that it's been introduced I don't give a damn
what you're doing up there, this is the most important
thing.

H:

All right.

HMjr:

Now I called up the President and he said everybody

he talks to today he's going to put a word in for

it.

H:

Well, that's fine. Now, you want that introduced in
the House too right away?

240
-2HMJr:

Well, you'd better go and see Senator Thomas and find

H:

Yes, all right, I'll do that.

HMjr:

How's my Treasury Agency Bill?

H:

HMjr:
H:

out what arrangements he's made.

Well, I'm - I've been watching Senator Gerry, he's
waiting to bring it up. He's trying to get it up
this afternoon.
0. K.

And Senator Robinson is going to help, so I am encouraged.

HMjr:

H:

but you'd better go
Well now, all right, and and see Senator Thomas and now as long as it's
introduced we just can't let this thing fail.

All right, I'll - I'll get right after it.

HMjr:

0. K.

H:

All right.