Full text of Diaries of Henry Morgenthau, Jr. : Volume 282 : Part 2

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

203

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

Sales

DATE July 12, 1940

Secretary Morgenthau

FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Leroy-Beaulieu, Financial Counselor of the French Embassy, called on me
yesterday at 5:00 p.m. He asked that I communicate personally and confidentially

to the Secretary the following views on the Martinique situation. Leroy-Beaulieu
said that the large airplane carrier Bearn, of some 24,000 tons, the light cruiser
training ship Jeanne d'Arc and the cruiser Emile Bertin (of 7,000 tons) were still
in Martinique, with the British naval vessels blockading the island, and American
warships in turn, watching the British. He said that he understood all of the airplanes had been taken off the carrier and that twelve billion france in gold had
been removed from the cruiser. Leroy-Beaulieu reminded me that the Island of
Martinique was the oldest French colony and that the natives were unquestionably
loyal to the French Government. In these circumstances, he was convinced that the
people would destroy the planes rather than see them get into the hands of an
unfriendly nation.

It was Leroy-Besulieu's hope that the United States might appoint a commission

to intervene in the Martinique affair with the view to avoiding any hostilities in

our American safety zone. It seemed to be his idea that the French vessels could
be immobilized for the duration of the war, without permitting the cargoes which
they carried to be transferred into British hands. While the Oran incident was

widely removed from our shores, Leroy-Beaulieu feared that any naval engagement
between the British and French at Martinique would have quite a repercussion on the
United States.

In this connection, Leroy-Beaulieu stated that since the capitulation of France
his people in New York have continued to endeavor to cooperate with the British
Purchasing Commission. They have been turning over thousands of contracts and have
continued to make certain payments on these contracts for the British, until the
latter might set up the machinery to take care of them. This has been done with the
understanding that the British would reimburse the French for these latest payments.
The British are also to reimburse the French for certain advances which the French
have made on contracts and for plant expansion, but these repayments are only to be

made when deliveries occur. At that time part of the transfer will take place

through credits opened in Canada, rather than through the payment of United States

dollar exchange by the British. Leroy-Besulieu stated that it had been rather
difficult to keep the French personnel in the New York office in a cooperative mood,
especially since the man at the head of the Contract Transfer Section was a French
navel officer who was naturally bitter over Oran.
Leroy-Beaulieu sincerely hopes that we may help avoid serious trouble at
Kartinique. He said a continuation of a blockade will lead to economic distress in
Aartinique, as aside from the important political significance of any naval engagement

-

He said that the French authorities here were willing to continue to be cooperative
in turning over contracts et cetera, to the British but that an untoward incident
at Martinique would make this almost impossible. He said he did not want to resort

to blackmail against the British, but felt that if they did act at Martinique as

they acted at Oran this might be sufficient reason for the French authorities here

to put all manner of difficulties, legal and otherwise, in the way of turning over

contracts and deliveries to the British. Leroy-Beaulieu wanted the Secretary to
have this situation in mind since the Secretary had been 80 helpful to both France
and Great Britain in making their purchasing plans in the United States.
When Leroy-Beaulieu asked me as to what word we had from France, I recalled
certain information in regard to American banks and the Bank of France which
Matthews had conveyed in a recent cablegram. Leroy-Beaulieu, in turn, gave me
gossip from France. He said that former Prime Minister Reynaud had been in Vichy

in recent days, with his head bandaged. He had not been killed, as reported, in the
recent automobile accident but had been injured. His companion, Countess des Portes
was, however, killed in the accident. The two had been motoring to Southern France
for a holiday following Reynaud's retirement from the Government. The children of
the Countess are in the United States. Leroy-Beaulieu asked if I knew that

Ambassador Bullitt was returning to the United States. I told him that I did not,

but had seen the press report that the Ambassador was going to Spain, and the suggestion that he might proceed to the United States. Leroy-Beaulieu thought that the
Ambassador's star was very much on the decline in France, with the disappearance of
aladier from the Government and with the coming into office of men with whom Bullitt
would have less sympathy. Leroy-Beaulieu stated that there was, of course, a strong
feeling in France that Bullitt had made promises on which he had not been able to

deliver. In this connection Leroy-Benulieu referred to a visit of five hours which
he had had with Premier Reynaud this past February when he had been ordered home

from the United States for consultation. He said that Reynaud had been anxious at
that time to obtain the latest information in regard to American sentiment toward
France. Leroy-Besulieu stated that while he should not be talking about the dead,
he was aware that the Countess des Portes had no use for Ambassador Bullitt, or for
Mr. Jean Monnet. She suspected that these two men were profiting personally from
contracts let by the French Government for the purchase of airplanes from American
manufacturers. On this ground she explained Ambassador Bullitt's reluctance to take
up with the United States Government the possibility of obtaining planes from our
military authorities (on which there would of course be no commission). and the

objection on his part to Reynaud's desire to talk directly with the President by
telephone upon this point. From what Leroy-Beaulieu said, I gained the impression

that Reynaud had proceeded with a direct conversation with the President and that
success had followed. Leroy-Beaulieu does not know what has become of Jean Monnet.

BM.P.
STRICTLY CONFIDENTIAL

205

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 12, 1940
Secretary Morgenthau
FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

At 10:35 today I received by messenger from the Department of State a formal letter in regard to the transformation of the Bank of England accounts with
the Federal Reserve Bank of New York into British Government accounts. This
letter quoted a message from our Embassy in London and also reported an exchange
of correspondence between the State Department and the British Embassy in

Washington. I immediately telephoned Vice President Sproul of the Federal Reserve
Bank, summarizing the communication and quoting the final paragraphs. I told
him that I would turn the letter over immediately to Mr. Bernstein for transmission
to New York, which I did. I volunteered that we could telephone the text to New
York if Sproul desired.

At 12 noon Mr. Sproul telephoned me back that he had been in touch with Mr.
Bernstein and had requested that the text be telephoned, as I had offered. At

1 o'clock I initialed Mr. Bernstein's letter of transmission to the Federal.

This afternoon I have received from Mr. Pinsent, Financial Counselor of the
British Embassy, the attached personal letter and enclosures, including a copy
of Mr. Pinsent's letter to Mr. Sproul in regard to the additional arrangement
which the Federal had requested with respect to "emergency authority", under the
new accounts.

BMS

208
BRITISH EMBASSY
WASHINGTON, D.C.

11th July 1940.

Dear Merle,

I now enclose a copy of the note written
by the Ambassador to the State Department, in reply

to their note conveying the text of our Foreign
Office's note of June 20th to Mr. Kennedy. I also
enclose a copy of the reply which I have to-day sent

to Mr. Sproul's letter of the 5th July.
Yours ever,

(s) Jerry Pinsent

Mr. H. Merle Cochran,
United States Treasury,
Washington, D. C.

207
BRITISH EMBASSY,
WASHINGTON, D.C.
No. 313.

8th July 1940.

Sir, ste
I have the honour to acknowledge the receipt

of your note (841.51/1580) of the 5th instant conveying to me
the text of a note marked "Secret" and dated June 20th, 1940,
addressed to the American Ambassador in London by the Foreign

Office, on the subject of the transfer of the Bank of England
accounts at the Federal Reserve Bank, New York, into the name
of His Britannic Majesty's Government.

In reply I have the honour to state that the
text of the Foreign Office note of June 20th, 1940, is in
accordance with the instructions received by me from His

Majesty's Government, and I shall be grateful if you will
communicate that note to the Federal Reserve Bank, New York,

with your confirmation that the instructions contained in it
emanate from His Majesty's Government.

I have the honour to be,
with the highest consideration,
Sir,

Your most obedient, humble servant,

(r.c.) LOTHIAN.
The Honourable

Cordell Hull,

Secretary of State of the United States,
Washington, D. C.

208
COPY MR. PINSENT.

July 11th 1940.
Dear Mr. Sproul,

I am in receipt of your letter of

the 5th instant with its enclosure, and have
considered the situation very carefully under the

Ambassador's instructions.

for
the
a
State
Department This
I fear that it would be impossible

to
the
would
in
effect
a
different
terms
of a the

proposed corresponds

British
Mr.
Kennedy,
to
you
by the appreciate

that
the
to
certify
that the 20th to
part State intentions Ambassador Foreign Ambassador which British letter, of amount in Department. the the is Office Foreign instructions though to about of terms to is the write restatement note not which to I British Office believe I be empowered of think you contained communicated letter June note Government, you that suggest. in 20th either of to will it June the in to

Mr. Kennedy is legal and valid, or to restate the
instructions contained in that note in different
language.

In these circumstances, by arrangement
with the State Department, the Ambassador has replied

the
text
June
20th.
despatch
of your to a telephone
in the terms shown in the enclosed copy to the note

received by him from the State Department communicating

conversation
States
Treasury, on the

British
note
the
authentication Federal
Reserve
with
the
name
of
His
Britannic operations on
these
accounts
with
the
instructions note of
opening I Bank Foreigh letter understand of Majesty's and of the with will in that, will of the Office British the Mr. me, be the four British Government take that, able Mr. State Cochran receipt accounts Foreign place Walter forthwith subsequent Foreign Department, of of June and of in Office Logan in the accordance the that Office 20th, to the United to text had proceed note the the with of of

June 20th.

On the other hand, I think we can accept
the proposal contained in the enclosure to your letter

to me for the text of the notification to be addresses
to you by the Ambassador or by the Counsellor of this

Mr. Allan Sproul,
First Vice-President,
Federal Reserve Bank,
New York City.

209

-2Embassy in the event of emergency. I feel some
doubt about the necessity of the last sentence

of this draft, which reads:- "From and after the
receipt of this notification by the Federal Reserve

Bank of New York, the persons heretofore authorised

by the Bank of England to sign in its behalf, with
respect to operations on His Britannic Majesty's

Government Special Account "A", are authorised by
and in behalf of His Majesty's Government to operate
said account. This sentence hardly appears to me

to form a part of the emergency notification proper.

Further, the point seems to me to be covered by those

words in paragraph (B) of the British Foreign Office
note of June 20th which provide that when the notice
of cancellation of authority is given by the Ambassador
or the Counsellor of this Embassy, the Bank of
England power to give instructions regarding the
four accounts terminates, and that (by authority
of the British Foreign Office note of June 20th,
1.0. by authority of His Majesty's Government)
Special Account "A" will continue to be operated
by the same signatories as at present. If, however,
you attach special importance to the inclusion of
this last sentence in the form of emergency notification, the Ambassador will not object to doing so.
I would make only one suggestion as to

the wording of the emergency notification, vis.
that it should begin:-

"I have the honour, with reference to
paragraph (b) of the instructions contained
in the note addressed by the British Foreign

Office on June 20th to the American Ambassador
in London, which has been communicated to you

by the State Department to notify you that the
authority of the Bank of England.
.

Yours sincerely,
Sd. G.H.S.Pinsent.
JF:GHSP:GS

COPY

210
PARAPHRASE OF TELEGRAM RECEIVED

DATE: July 12, 1940, 10 p.m.
Rec'd 8 a.m. July 14.

NO.: 59

FROM: (Paris) LA BOUR BOULE.
FOR THE TREASURY DEPARTMENT FROM MATTHEWS.

This morning I drove over to see Cariguel at ClermontFerrand. Cariguel told me that on Tuesday morning the
convoy headed by Governor Fournier, of the Bank of France,

Ardant of the Société Générale and others and carrying

bank notes to the amount of five billion - reference,
telegram of July 6, 9 p.m., No. 27 from this office had finally gotten under way and after some delays en
route had reached Paris.

Cable exchanges with the Federal Reserve, he said,

are continuing satisfactorily, though there are delays in
transit.
As for future developments, Cariguel seemed to be
depressed and uncertain, and he seemed to be somewhat

resentful of the Bank of England's actions. He said that
he had not been able to ascertain the exact status of
Franco-British relations as applicable to financial matters.
He had suggested that rather than make a direct approach

to the Bank of England, which he felt would hardly #be in
keeping with the dignity of France", they make an approach
indirectly through the Swiss connocetions of the Bank of

France to ascertain the attitude of the Bank of England.
END SECTION ONE.
EA:LWW

MURPHY.

211
PARAPHRASE OF TELEGRAM RECEIVED

SECTION TWO, NO. 59 OF JULY 12, 1940 FROM (Paris) La Bourboule

In this regard the Swiss have now been approached,

but no reply has been received as yet. However, he understands that in England balances of the Bank of France have
been blocked. Neither did he seem to have much information

as to the status with the Federal Reserve of accounts of the
Bank of France.

Upon their arrival in Paris, the German authorities
immediately circularized all banks asking about their
holdings of foreign securities and foreign exchange. No
replies to this circular have as yet been made by the banks.
I saw Barrett of the Guaranty in Vichy today, and he said
that the German authorities had as yet exerted no pressure

to obtain the replies. No decision has as yet been made by
the several American banks as to increasing representation

at Paris. However, they are being urged by the Bank of
France to expand their operations in Paris.
END SECTION TWO.
MURPHY.

EA:LWW

212
PARAPHRASE OF SECTION THREE OF TELEGRAM NO. 59

OF JULY 12, 1940 FROM PARIS.

Yeaterday Pearce of the National City Bank drove

over to see me. He said that pending further clarification
of the situation, he has made no final decision, but he may
send some personnel back to Paris merely for the purpose of

cashing depositors' checks. Today his bank is not conducting
any business there.

I was also told by Cariguel that as yet the Germans
have not brought up any question as to the gold holdings
of France.

Cariguel said that two weeks ago the Bank of France's

note circulation was about 179 billion francs. The present
circulation he does not yet know, in view of the uncertainty
as to how much was burned in different localities in the
face of approaching occupation by the Germans.
The National Bank of Belgium Governor, Janssen, has
gone back to Brussels.
END OF MESSAGE.
MURPHY.

EA:LWW

213

OFFICE

12 July 1940
My

dear
by

Stark of
and Part

IIconfidential
Engines,
Airplane
July 6, 1940.
-

which

carries through

Yours

Admiral

Airplanes
information

sincerely,

WITH

Smedbers
Aide to Admiral Stark.

Honorable

of the

Jr.,

Morgenthreasury,
D.C.

Washington,

214

Excerpt from a letter of July 12, 1940, from Mr. George H.
Butler, Second Secretary, American Embassy, Lima, Peru.

Mr. Grégoire van Haersma de With called at the
Embassy yesterday to inform the Ambassador that his
check No. 41, dated June 15, 1940, in the amount of
$100.00, on the National City Bank of New York and Farm
Branch, has been unpaid. The Charge thinks that the

difficulty might be a matter of identification but he
asked if the Embassy could find out through the State
Department if the laws or regulations of the United
States would prevent payment on his check. He is, by
the way, in a bad financial fix because of the European situation. If there is any information you can

give us without going to too much trouble we will
appreciate it.
Mr. Grégoire van Haersma de With is Charge d'Affaires
of the Netherlands at Lima, Peru.

3a

215

July 12, 1940
9:15 a.m.

H.M.Jr:

Hello.

Operator:

Captain Puleston.

H.M.Jr:

Captain?

Captain

Puleston:

Yes, sir.

H.M.Jr:

I'm in a way sorry that you went to the
State Department yesterday about that oil
business. I didn't expect that you would.

P:

H.M.Jr:

Well, I understood you to want me to get
the picture, so I went to the Navy Department
and then they didn't have the information
about the Verde Islands and then I went over
to the State Department to see what they had.
Well, let me handle the State Department
and you concentrate on the Navy and the oil
companies.

P:

All right, sir. I expect to get something
more from Mr. Sadler this morning.

H.M.Jr:

P:

H.M.Jr:

But just -- as long as Mr. Berle is going
to be the man, I'd appreciate it if

(Laughs). All right, sir.
Keep away from the State Department on this

thing, will you?

P:

H.M.Jr:
P:

Yes, sir.
Thank you.

Right.

216

July 12, 1940
9:18 a.m.

H.M.Jr:

Hello.

Operator:

Secretary Knox. Go ahead.

H.M.Jr:

Hello.

Frank
Knox:

Good morning, Mr. Secretary. How are you?

H.M.Jr:

Fine.

K:

When I got back to the Navy last night,

I started a little investigation about that

Canary Island thing.
H.M.Jr:
K:

Yes.

And I find that we have some ships at
Lisbon and we could send a destroyer over

there. It'd take a couple of days, but

the thought occurred to us that we might
see what our consular representative there

H.M.Jr:

could find out for us and save us the trip
if possible.
Well, now, I tell you. Mr. Berle came over
after Cabinet and they've sent a cable to
-- whatever the town is in

K:

Yeah.

H.M.Jr:

They've done just that, so they've sent a
cable to the Canary Islands. I think you're
right, we could wait.
Wait and if we don't get the dope we want

X:

there -- it isn't satisfactory, why it'11

be a simple matter to have a destroyer drop

in there and pick up a load of oil and see

what's going on.
H.M.Jr:

Thanks. Now

K:

All right, I just wanted to check with you
on the thing.

217

-2H.M.Jr:

K:

H.M.Jr:

I appreciate it. Now, I'd like to ask

you something else.
Yes.

You know, this Allied Purchasing Commission

is sort of accredited to me and I look after
it the best that I can. We have a Committee

which the President appointed of Admiral
Spear of your Department, and Colonel Burns
of the Army and Philip Young
K:

Who of my Department?

H.M.Jr:

Admiral Spear.

K:

Admiral Spear.

H.M.Jr:

S-p-e-a-r. Paymaster General.

K:

Yeah.

H.M.Jr:

Now, there's some unfinished business on

that and I wondered if you could see Philip

Young and Spear anytime this afternoon and
see if we couldn't clean up some odds and
ends.

K:

I certainly can. What time will be most
convenient?

H.M.Jr:

You name the time.

K:

Wait a minute. Just a second. (Aside) Capt.
when can I see some of the members of the
Allied Purchasing Commission and our man,

Admiral Spear -- what time today? (Pause)

Half past three be all right.

H.M.Jr:

Three-thirty. I'll tell Philip Young, I take

it you can have somebody tell Admiral Spear?
K:

H.M.Jr:

I'11 take care of that, yeah.
And I'11 have Philip Young there. with the

dope.

218

-3K:

And tell me, is Philip Young a member of the
Allied Purchasing Commission or 18 he our
representative on it?

H.M.Jr:

No. He's Assistant to the Secretary of the

K:

I see. O. K.

H.M.Jr:

Treasury.

And I vouch for him and incidentally he

happens to be Owen D. Young's son.

K:

Oh, I know, Owen D. Young.

H.M.Jr:

It's his son.

K:

Yeah, I see. All right, fine.

H.M.Jr:

Right.

K:

Three-thirty.

H.M.Jr:

Thank you.

K:

O. K.

219

July 12, 1940

1:57 p.m.
H.M.Jr:

Go ahead.

Operator:

Go ahead.

H.M.Jr:

Hello.

Wm. S.
Knudeen:

This is Knudsen.

H.M.Jr:

K:

You know, I think it's funny. I was just
putting in a call for you.
Is that BO? (Laughs).

H.M.Jr:

Absolutely.

K:

Well, I hate to bother you again.

H.M.Jr:

You can't bother me.

K:

Did Foley report to you what Jones said?

H.M.Jr:

Yes. He had a very, very good meeting. He
came back very much encouraged.

K:

Well, do you feel that there's no hitch

there because Mr. Purvis was very much concerned yesterday.

H.M.Jr:

Well, I don't know why.

K:

He thought we were backing up on the deal

that was made in your office that morning.

H.M.Jr:

No, this is what -- on this Packard deal,
Jesse Jones said that in the first place

he was having some of his old trouble in
regard to getting a mortgage on the new

facilities. Maybe you know about that.

K:

H.M.Jr:
K:

Yeah.

As he put it, Packard wanted to build every-

thing sort of within their existing plant.
That's right. Except the test houses.

220

-2H.M.Jr:

Well, I didn't get the details.

K:

He'11 send them.

H.M.Jr:

But it was difficult for him to get that.
Then he said that his Board of Directors
were worried. Well, I never -- I'd even

forgot he had a Board of Directors -- but
He said, now, Mr. Jones, if you re worried
about
this I can get you the Attorney General's
opinion.
Foley gave them a couple of suggestions.

K:

H.M.Jr:

Yes.

So Jones said, no, I don't need that, he
says, I just want to think about it a little
bit more. And Foley felt as he went along
Jones cheered up a good deal, see?

K:

H.M.Jr:

I see.

And he said, now, as soon as he had this
thing straightened out, he wanted to have

a good talk with Purvis, himself, and Jones
said two or three times, well, he said, I
think the trouble is that each of us have been

working too much by ourselves and, he said, we
haven't worked enough together.

K:

H.M.Jr:

Well, you see, it might look that way. But
I was trying to avoid wire-crossing until we
got the job set.
Well, all I can say is that Foley came back

and said he hadn't seen Jones as cheered up
and in as good a humor in weeks. That's when

he left.
K:

I see.

H.M.Jr:

And then on the Curties Wright -- hello?

K:

Yes.

H.M.Jr:

Foley reminded him that he'd written this

letter on the twentieth. So here's the thing,

you see, what Jones couldn't understand -- when
anybody wants to borrow money, he said, well,
why aren't they sitting on my doorstep? Why

221

-3

do I have to go after them? So Foley explained
that they really don't care about the business
and that this is something that the Government
wants them to do and they don't give a damn
whether they do it or not.
K:

H.M.Jr:

Yeah, I see.

And so Foley -- Jones agreed -- he's going
to take off his coat now on this Curtiss
Wright and he's admitted really since the
twentieth he really hasn't done much of
anything.

K:

Well, on the Curtiss Wright, you see, I was
waiting until I had a contract authorization
80 I could give them a commitment, because
we don't need that many motors now

H.M.Jr:

No.

but the planes we've got on order.

K:

H.M.Jr:

Well, Jones kept saying over again, well,
each of us have been too much by ourselves,
and for the first time today he understood
why the Treasury under the present law

couldn't give the write-offs. He said he'd
never understood it before. So for the

first time he understood it. But I was
calling you up to tell you that I felt much

more cheerful and that I thought that the
thing looked much brighter.

K:

Well, I thought this, Mr. Secretary, I thought
that if Purvis was so worried we'd better get

straightened out on it because he tackled me,
you know, yesterday after we got through in
your office and he said he was horribly worried
because he had cabled to London our agreement
that
deal. we could check him in on a United States

H.M.Jr:

Yeah.

K:

And, of course, what Jones doesn't realize
is that Curtiss Wright probably will ship some
motors to England from the plant that he's
financing down there.

222

4H.M.Jr:
K:

H.M.Jr:
K:

That's right.
See?

That's right.
So I feel that Jones has nothing to do with
the British Commission. He only deals with
the subsidiary company for leases to the

operating company who deals with. the British
Government.

H.M.Jr:

But you see, Knudsen, I've done business with
Jones now for over seven years and he likes

to do it just his own way and sometimes it's

rather difficult.
K:

H.M.Jr:

K:

Yeah, he called up and wanted to switch his
loan to the working capital, but a working
capital loan at 4% of course wouldn't be
attractive to anyone.

No. Would you like me to call up Purvis and

cheer him up a little bit?
No, I don't think that's essential, Mr. Secretary.
I just wanted to let you know what was in his
mind. Yesterday after we got through in your

office I said to him, well, you're all right.

You don't have anything to worry about any more.
H.M.Jr:

Well, I don't -- where did he get the idea that
he had something to worry about.

K:

No.

H.M.Jr:

I said, where did Purvis get the idea?

K:

Well, you see if it's illegal for the British
to participate in a plant arrangement, that

will upset his whole program.
H.M.Jr:

Yeah, but who told him it was illegal.

K:

You know, we were talking about that in your
office.

H.M.Jr:
K:

Oh, were we?
Yeah.

223

-5H.M.Jr:

Was he there?

K:

He was there. He was somewhat concerned

H.N.Jr:

Well, 80 much happens each day I can't

K:

(Laughs). I see.

H.M.Jr:

I guess you're the same.

K:

Yeah. All right, sir. I've reported to you

about it.
remember.

now.

H.M.Jr:

Well, I'm glad you called me because I was

calling you because I really -- this morning
I was terribly discouraged, but I feel much
better now.

K:

All right, sir.

H.M.Jr:

Good-bye.

K:

Good-bye, sir.

224

RE DEPARTURE PERMITS

Present:

July 12, 1940
2:15 p.m.

Mr. Compton

Admiral Spear
Mr. Cairns
Mr. Young

Mr. Bell

Mr. Berle
Mr. Woodson

Mr. Foley
Mrs. Klotz

H.M.Jr:

The situation is something like this:
Mr. Berle is expected, but I think we
will go ahead, because he is always a

little bit late. We are holding two

American flagships in Texas, one Swedish

tanker, all under contract for the Texas
011 Company to ship oil to the Spanish
Monopoly, is that right?
Cairns:

The Swedish vessel is under charter to
the Spanish Monopoly.

H.M.Jr:

They are all being held and, in other
words - well, we won't give them a sailing
permit and the Texas Company are down here
and want to know what it is all about and
we just shrug our shoulders and say nothing.
Now, in talking with the President this
morning he said that he had had a happy
thought, as he called it, and he said you have heard him use that expression,

haven't you?
Woodson:

H.M.Jr:

Yes.

When you were with him. He said if we are
embarrassed that under the new legislation
he was sure that the Navy needed this oil

at Puerto Rico, the Virgin Islands, or other
points west. Now, that is the thing very
simply. Now, this is costing the Texas

Company three thousand dollars a day per ship.

225

-2(Mr. Berle entered the conference.)
H.M.Jr:

Hello. The reason the Navy is here is
this: The President had what he called

a happy thought and he told me to continue

not to let these ships sail and if I was
embarrassed - the Texas Company is here

today. The ships are two belonging to

Texas 011 and one Spanish Monopoly. That

all goes to the Spanish Monopoly. He said

if I was on the spot he was sure that the
Navy needed it at the Virgin Islands or
Puerto Rico, and it is costing the Texas
Company three thousand dollars a day per
ship and they are coming back at 3:30, so
that is - just for the moment, as long as
these gentlemen are here, that 18 the
particular problem at the minute. Have
Cairns:

I stated it about correctly?
That is correct.

H.M.Jr:

Now, have you brought your check book?

Compton:

Mr. Secretary, in the first place I haven't
got a logical reason for taking the oil and
I haven't even got a fairly good illogical
reason for so doing, but we want to COoperate, of course, and do anything we
can. We haven't any fuel capacity except
in Guantanamo and that would be just a

question of topping off the tanks. They
have got a good quantity of oil in there

already and the amount of oil that we could
put in those tanks at Guantanamo is 80 small

that it wouldn't make a dent in this rather
large organization down there. The only
other thing we could do would be to - the
only tankers we have, we could go down and
take the oil out of these ships and pump it
in tankers if that had to be done. We have
only two tankers on this Coast, both of
which are en route from one port to another.
One 18 filled with oil and the other is in
ballast, which we might be able to divert
to Galveston now. That would be - we could
take that. I don't know at the time whether

226

-3these ships are American registry or foreign
registry.
H.M.Jr:

Two of them are American.

Compton:

We might be able to move that oil by just

simply chartering those ships. We can move

the oil right out. We don't have any oil

storage at any other - we don't have oil
storage in Puerto R100, do we, Admiral?

Spear:

No.

Compton:

Guantanamo is the only place.

Spear:

The only thing that would take care of these

Compton:

two cargoes is Hampton Roads.

We would have to bring it back up here.

Then the other thing is, the cargo isn't
all fuel oil, as you no doubt know. It
is a miscellaneous cargo of grease, kerosene
and gasoline and bunker oil and diesel oil,
wax. I don't know just what we could do
with the wax. That about finishes the
statement of the information I have,
Mr. Secretary, except that I was pointing
out - I don't think you have heard this,

that the cargo isn't all fuel oil. There is

grease and kerosene - the kerosene and the
those items.

wax - I don't know of any Naval use for
H.M.Jr:

You can sell it.

Compton:

And some of the gasoline is the low grade

gasoline, it is not high test or aviation
gasoline and, of course, we don't use a
great deal of the regular gas, but it looks

to me on the surface as though the best
thing to do, if we do anything, would be
to charter the ships that are of American

registry if we can do that legally, and
move the oil from where it is to Norfolk
and then dispose of it from that point.
We will distribute it to the fleet for
use, what it can use, and sell what we

have no use for. I don't think that we

227

4-

have got anything in the West Indies where

we have stored facilities ashore which
would accommodate that gallonage.

Berle:

May I ask a question?

H.M.Jr:

Please.

Berle:

Has anybody worked out something for Spain

on the theory that Spain is entirely dry of
oil?

H.M.Jr:

These are the figures of the Texas Company.

Bell:

We have got some other figures on the

estimated consumption. In 1936 it was
800 thousand tons a year. In 1937 it was

625,000; 1938, 625,000; and 1939, 575,000.
I don't know what the normal consumption

is, but at that time, in 1939, 575,000 and

1f they get oil at the rates, as it says

Berle:

in that memorandum, of 70,000 a month, it
means they are getting about 840,000 tons
a year over the 575 requirements.
That 18 the answer. I was merely wondering

whether as a result of this we couldn't work
out a kind of rationing arrangement rather
than a complete grab.

H.M.Jr:
Berle:

Bell:

Well, with that in mind -That is clear, they are over their ration.
If the 575 18 a normal figure and we don't
know.

H.M.Jr:

Where did those figures come from?

Bell:

They came from the Texas Company. They

check, too, with a survey that was made

in '39, pretty close to it.

Cairne:

The Cities Service 1939 survey was made
of normal peace time petroleum consumption

and my figures agree with Mr. Bell's.

H.M.Jr:

Cities Service?

228

-5Cairns:

The figures come from Garfield and Wetzel,
who made the survey for the Cities Service.

H.M.Jr:

How much did they say they needed in '39'

Cairns:

How much did they need?

H.M.Jr:

Yes.

Cairns:

I have it in barrels, 4,700,000 barrels, but
that agrees with the tone that Mr. Bell has.

Bell:

That is right, pretty close.

H.M.Jr:

Well, if the Navy can take the two American

flagships, under the rationing thing, we
Swedish one is chartered by Spain, isn't it?
Mr. Secretary, I would just like to point
out in all probability this is grade 0 oil,
a grade that the Navy does not use. It will
be a great inconvenience. It will destroy
some of our high grade oil that we now have
in our tanks to dump this into our present
storage system. The Bureau of Engineering
is vitally opposed to our taking this grade C
oil because of their burners, and it will be
might let the Swedish one go, because the

Spear:

a hard - it will be a difficult thing to
work this stuff off.

Compton:

H.M.Jr:

Spear:

That is what I meant, Mr. Secretary, when I

said we couldn't find a logical reason for -Well, gentlemen, I'm in this frame of mind.
I am not going to worry. It is here. The
President suggested the Navy should take it.
I am not going to issue a license and I am
not going to worry. I will let you fellows
worry. I am not going to beg you to take it.
It isn't even my suggestion. I will simply
tell the President the Navy is thinking about
it and let the Navy work out its solution.
Well, we have the capacity to take that fuel

oil, sir, in Norfolk, Virginia.

229

-6H.M.Jr:

I am not going to worry about this thing.
This was the President's own suggestion and
Colonel Knox says if that is what the President
wants, buy it. I have quit begging around
this town. This authority the President has
given me and I am sitting here with these

three tanks. If you fellows don't want it,
just tell the President. Tell Colonel Knox
that. I won't bother him. I am not going
to beg you to take it. Mr. Ickes sat on

helium for three months and finally they
agreed he was right and I may have to sit on

this stuff for six months, but it is going

to get hot for somebody. I am not going to

worry.
Compton:

Colonel Knox told me to try to find a logical
reason for doing it and a place to store it.
We have got to place it and now that I find
the ships are in our own ports, it makes it
simpler and there are also two of these ships
under our flag and it 18 one of those things
that it is possible to do, no question about
it. It is possible., We can charter the
tankers and we can store the oil, but we
may have a lot of surplus oil on our hands
we don't know what to do with, because we

can't use it and surplus wax and surplus
other items in the cargoes.

H.M.Jr:

Three or four months ago I begged the
Navy Department to take the tools, these
machine tools. We went through the same

thing. Then all of a sudden you got an
order and you did it. We got the same
argument about those machine tools.

Compton:

It was only about a week after you told me

about
it, Mr. Secretary, as far as I am
concerned.

H.M.Jr:

I have got a letter from the Navy Depart-

ment about three months old from Mr. Edison

saying it couldn't be done. The Navy wants
80 somebody else can pick it up - I think

this stuff spotted all over the Atlantic,

itsighted.
is just, to put it mildly, very short-

230

-7Compton:

Spear:

H.M.Jr:

Well, as I say, it 18 possible to do it and
this is a legal arrangement with the use of
our
appropriations that I am not familiar
with.
I can pay for this thing if we are going to
be a dumping ground for this stuff. I don't
know what this lubricating oil 18 and I am
guessing that this fuel oil is a grade we
don't want, but we can pay for it. We can
pay for it.
You have done some good swapping. If you

can get this grade C, you can swap it off
to grade A, can't you?

Spear:

I will have to get the lawyers to tell me

how I can trade Government property for
something else. The Army has something

like this.

H.M.Jr:

Seriously, if you got this grade C, couldn't

you swap it around for grade A or whatever
you buy?

Spear:

These are merchant vessels that have got

this grade C oil. The Army has got some

transports that use that kind of oil.

Woodson:

We can't swap anything under that last Act
that was passed.

H.M.Jr:

Can't?

Foley:

You can swap it with the Army.

Spear:

Why not give it to the Army in the first
place if they can use it?

H.M.Jr:

The President said the Navy.

Compton:

I think the President thought we had some
storage.

Spear:

I think he dreamed this was Navy oil we use
in our burners. We may have to change burners

to use this. If we got all of this in one

231

-gdose, in one tank, and had to issue it,
we would have to mix it with something
to get the stuff to burn in the burners.

H.M.Jr:

of course, the objective is to get this
oil somewhere where it won't get to where
we think it is going to go.
That is right.

Compton:

And that is possible to accomplish. We

Compton:

can store this oil in our tanks up here
use for it. We may have to find some
other means of disposal for it, but if
it is a thing that has to be done, it can

in Norfolk. We may not have any immediate

be done at considerable inconvenience to
the Navy and if we are ever called upon to

justify the doing of it, we wouldn't have
a very logical justification.

H.M.Jr:

At least you would have a legal one this
time.

Compton:

H.M.Jr:
Compton:

That is right, we want to be careful about
that, don't we, Mr. Secretary.
That didn't hurt you any.

I am not worried about it. I didn't even
worry at the time.

Spear:

Does the title to this oil still rest with

H.M.Jr:

the oil companies?
I don't know.

Spear:

Who owns the oil?

Compton:

The Texas 011 Company, isn't it?

Cairns:

I think it is still in the Texas 011 Company.

Compton:

And, of course, that simplifies it. We have
got the legal complications, but they would
be worse if the title were somewhere else.

H.M.Jr:

Haven't you got a contract with Texas or
anywhere else?

232

-9Compton:
Spear:

H.M.Jr:
Berle:

Have we?

We probably have but this doesn't phase my
contract. I don t give a hoot about my
annual contracts, because I will make a

separate contract for this thing here.
I could see that you got it and got a
credit arrangement against some kind.

I think there is a perfectly good reason
for holding these ships on this set of
figures. The consignee is the Spanish
Monopoly. On this set of figures, it would
seem that here is a bunch of stuff that is
headed for some destination other than
Spain, presumably an enemy destination a belligerent destination - because there
is 80 much there.

Cairns:

You mean because they are in excess of normal
times?

Berle:

I suppose you can indulge a presumption when

you have every reason to believe the fact
that these are shipments of contraband to

a belligerent country, under the Neutrality

Act.
Compton:

Berle:
Compton:

H.M.Jr:

Berle:

Well, if that were done, Mr. Berle, then
it would just be a question of unloading the
oil and finding some place to store it.
Then the oil would be - the title to the
oil would remain where, or should it be
returned to the Texas Company? That would
be the simplest thing.
I am thinking of the -Sounds like a good thought there, maybe
worth developing.

Well, by what authority can we tell the
Texas Company to unload these two ships?
We have the authority not to let them sail,
but by what authority can we unload them?

Is the oil paid for?

233

-10Cairns:
Berle:
Cairns:

Berle:
Caims:

Berle:

I don't think so.
I don't think so. We could put it squarely

on the Cash and Carry Law, couldn't we?

011 going from one neutral to another

neutral and carried in the vessel of a
neutral isn't under that provision.
If you indulge the presumption it is not
going to a neutral -The only port they can go to is the port
it is headed for. Under the law, those
are the only ports they can go to.
That is obvious, but the question is the

destination of the goods.
Cairns:

All we know on the record is it is destined
to Monopoly.

Berle:

Well, I wanted to send some stuff. to Switzerland via Marseilles and you said we couldn't
do it.

Cairns:

Marseilles was a belligerent port.

Berle:

It was on the Cash and Carry Law.

Cairns:

I am not suggesting that you cannot operate

on that presumption. In fact, we have got
figures here to back it up.
Berle:

It seems to me the Texas 011 Company might

be told that we have some reason to believe

that this is headed for belligerent destia neutral port.

nation. It is true that it is going through
The object of the Cash and Carry Law was

to prevent our getting involved in a situation

234

- 11 where we had unpaid for goods with funda-

mental belligerent interests which might
get sunk or otherwise knocked around at
sea and we would get in a net here, but
by consequence before we could issue a
license we should want proof satisfactory
to us that the actual destination and consumption of that oil was where it was supposed to be going, the Spanish owner.
That likewise is a foundation for the
ultimate arrangement you will have to
work out, which is that a certain limited
amount of oil for Spain is destined to
be used in Spanish factories and so forth
as long as Spain remains at peace. It
would lay the foundation for rationing

it along that line.

H.M.Jr:

Berle:

If you notice, there are no navicerts
for these boats.

I don't think that we have ever recognized

navicerts around here.

H.M.Jr:

I know.

Compton:

Then if they failed to produce that evidence
that you have asked for, Mr. Berle, then

what would happen to the oil? The Texas
Company would have to take it back, wouldn't

they? Is that the assumption?

Berle:

I presume so, because we don't issue clearance in that case, do we?

Cairns:

No. The non-issuance of a navicert, I
think, is significant or has a bearing
on our assumption that this may be destined
to belligerents.

Berle:

That might be emphasized, but it seems to

235

- 12 me that the Texas 011 Company ought to

be formally told that the Spanish oil
has got to go to Spain. Otherwise, it
falls under the orders of the Neutrality
Act.
Cairns:

We might run right into the situation of
the Spanish Ambassador coming in and giving
assurances that that will go to Spain.

H.M.Jr:

Well, I may say that factually I have no
doubt in the world that the bulk of this
is destined for Spanish consumption.

Berle:

But that is because that country has been

siphoned clear of every drop of oil, as
far as I can make out. Gasoline costs
about two dollars a quart over there
now, I am told. So this probably is replacement.

H.M.Jr:

Who will take care of the Spanish Ambassador

Berle:

I think we will.

H.M.Jr:

I don't think he will come here.

Berle:

Mr. Secretary, the general policy is to

when he comes around?

say here, "We have applied our Neutrality
Act through hell and high water. We have
applied it when sometimes it is hurting
one person, sometimes the other, and
sometimes ourselves, and this is obviously

a case that calls for it. We feel that

you ought to lay down your general outlines of your requirement and give your

assurances and implement those assurances

with figures or something of that kind."

236

- 13 Cairns:

You are looking toward a rationing system?

Berle:

I was just thinking out loud what I would

do --

Cairns:

Because I think we have the power. We say,

"No departure permits" - period. We don't

have to give any explanation.
H.M.Jr:

Berle:

Let's just look at it for a minute with the

Texas Company. As of this morning they were
in a very good humor and they wanted to know

what - I didn't see them, but they are coming
back at 3:30. Now, if we followed for a
minute what Mr. Berle said, then are you
going to say to them, "Well, gentlemen, with
the figures that we have, we feel that they
are far in excess of their quota and therefore we wish that you unload these ships"?
My private opinion is that it would be well
if we can take a couple of shipments off their

hands, because I think it is a little unfair
to the company to pull a lanyard on them

without any previous notice. Therefore, I
think the square thing to do would be to take
care of this couple of ships.
H.M.Jr:

And let the Navy take care of them.

Berle:

Well, they seem to be the only customer in
sight.

H.M.Jr:

That was the only happy thought the President

had and I thought it was a peach. It will

put the Navy on their mettle, to see how good
they are.

Compton:

As I said, Mr. Secretary, it is possible and
the Navy can do it, but I did want to also
point out that if we are ever asked to defend
the action,
defense.

Spear:

we won't have much of a logical

All I trying to do, Mr. Secretary, is to

stop my am fuel oil tanks from being contaminated.

237

- 14 H.M.Jr:
Spear:

H.M.Jr:

Well look -And have these chief engineers all down on

my neck.

Admiral, if Colonel Knox and Mr. Compton
decide they are going to do this thing,
you could work out a swap with the Texas
Company over night that somebody would
swap "C" for "A" and you would wake up in
the morning and you have got "A" oil instead of "C".

Spear:

That sounds very simple, sir, but it isn't
quite as simple as that.

Young:

He is a good swapper.

H.M.Jr:

I know he is. He hasn't had time to think
a good swap out.

Compton:

H.M.Jr:

Berle:

That is another thing, we didn't have much

time to think this through, Mr. Secretary.
Well, I think on the Swedish flag, though, do you think we had better let her go?
I would let her go. I would strengthen
your hand a little in view of the Texas
oil Company - they had contracts to send
oil to France. We asked them not to and

they didn't and that later - in a conversation I had I observed that I thought it was

pretty dangerous for an American flagship
to be carrying oil to a vortex there. It
is certain to arouse complications from one

side or the other, or maybe both. I would

Compton:

H.M.Jr:

also point out that I was concerned about
having oil around the Atlantic bases.
Couldn't we do this, Mr. Secretary?

That is just what the President said. He
doesn't want it spotted all over the Atlantic.

238

- 15 Compton:

Couldn't we do this? This Texas Company
company would take back to their own stock

can't get a license to export it. If the

the oil of the two American ships, couldn't

we then buy from Texas under any contract
we have or any method you could work out,

an equivalent amount of dollars and cents

worth of stuff that they sell and we have
use for?

Berle:

I would say so.

Foley:

Then you wouldn't have any storage problem.

Compton:

Well, we can find a place to store it up
here in our tanks in Norfolk.

Foley:

But you wouldn't have any immediate storage

problem. They will take care of the excess
amount.

Compton:

Yes, on an order they would probably accom-

modate us by keeping it in storage and letting
us draw it out.

Compton:

I thought we wanted to free these ships.
That came from some storage they had. Let's

Spear:

The Texas Company must have commercial orders

Spear:

Compton:

get that back on their storage and let's
leave our storage free to put stuff in.

themselves. Why don't they just simply divert
those cargoes to fill some other orders?
The objective now is not, as you say, to pull
the lanyard on them, as a matter of business
ethics, and to get around that we will buy

from them what we need over and above what
we normally would buy from them anyhow.
Spear:

Standard oil told me that the whole Navy busi-

ness is only one percent of the fuel oil in-

dustry on this Coast, so they must have other
business.

239

- 16 H.M.Jr:
Compton:

I think Mr. Compton has got a real idea.
That makes the question of the ethics of
the thing, as far as I am concerned - and
I don't see any reason why we can't do it
legally or otherwise, do you, gentlemen?

Spear:

What was that again?

Compton:

We have two ships filled with some stuff

we don't need and the Texas Company are

going to be forced, under the application

of this law, to take that stuff back, you
see. Well, instead of the Navy becoming
a customer for that particular oil they
have got on those ships, let us become a
customer for an equal amount of oil.

Spear:

Compton:

Anyway, particularly if we have a contract
for them.

Over and above everything else we have and

stick it in storage somewhere. If that is

Grade C and we want Grade A, let them take
back their Grade C and we buy Grade A.
Spear:

You mean that gets them out of the-financial

hole?

Compton:

Yes, and it covers the point of the business

H.M.Jr:

And it stops paying these demurrers of

ethics mentioned here by Mr. Berle.
three thousand a day.

Compton:

Yes, it stops that loss.

H.M.Jr:

We will do it on the basis we are doing them
a great favor and also get them to agree that
until we could sit down and talk to them,
they won't load any more ships.

Berle:

of course, the fact of the matter is that I
think they would be the logical people to
work out a rationing agreement. I wouldn't

want to try to ration another Government

240

- 17 which is neutral and with which we are at
peace. I would much rather see Cairns
over there with his well known obstinacy
somehow say, "We can only see about so

much of this as destined for Spain. That

is your job. You see the Spanish what you
know is Spanish and if you make out a case,
that goes. If you sell more than that, you
will have to make out more case and it
probably won't go."

Compton:

Berle:

H.M.Jr:

Berle:

It would be the seller's risk.
I would let them do the rationing.
I think that is smart, with the understanding,
of course, that they don't use a Texas sub-

sidiary to send the oil out.
Yes. Of course, the next point is that I
think they would then say to you, "All right,
we will do that and don't bother about it."
What we don't want is W. R. Davis or some
of the sharpshooters to merely squeeze in
there.

Caims:

Don't forget they have got exclusive contracts with a monopoly and no other owner

Berle:

is going to Spain except Texas oil.
How in the world can they enforce that?

Cairns:

That is their contract with the monopoly.
Any oil leaving the U. S. must be Texas oil.

Berle:

Who is going to stop the Spanish Monopoly

from chartering a ship in Port Arthur and
taking it?

Cairns:

Berle:

Well, we will just add it to the quota of
the Texas oil Company. All the oil leaving
the U. S. is Texas oil.
The real reason why you won't have any

trouble lies in the fact that Davis can

always get American flag tankers which

241

- 18 -

Cairns:

will have to come back to you. All the
other tankers I know of are British.
We hold all foreign - American flag vessels.

H.M.Jr:

Well, the Spanish Monopoly chartered the

Berle:

H.M.Jr:

Swedish ship.

That, I think, ought to get by or we will

have trouble with the Spanish Ambassador.

Well now, it sounds good to me if the

Navy will do their stuff on the two.

Spear:

I don't see any reason we can't.
What is the modus operandi? Are you going

Compton:

We don't care where the Texas Company unloads

Compton:

to have the Texas send those ships up here?

them. All we do is buy an equal amount of

oil in dollars and cents. In other words,

those cargoes are worth so many dollars and

so many cents as a business proposition to
the Texas Company. The Navy Department will
buy an equal amount of dollars and cents
worth of something from the Texas Company
that we can use, which we will buy right

now and store, which will be the fuel oil
that people use.

Spear:

Well, I will have to look up those contracts,

Compton:

Well, can't you do it on an open purchase
basis without competition?

Spear:

I might buy aviation gasoline, if they have

Compton:

because we have got about twenty oil contracts.

got that.
Any commodity. All we are interested in,

as I understand it, Mr. Secretary, is to
give the Texas 011 Company people that
business right away.

H.M.Jr:

Over and above your normal contracts.

242

- 19 Compton:

Over and above our normal contracts.

H.M.Jr:

Let's do it this way, because we are
fighting time. Let my people talk to
them and come to an understanding. If
this is agreeable, then I will have
Mr. Foley get in touch with you.
Or directly with Admiral Spear.
If you don't mind - would you mind in this

Compton:

The only thing is, I have got to leave town

H.M.Jr:

Compton:

first instance sitting in on it yourself?

at 4:00 o'clock. I have got to get up to

the New York shipbuilding company tonight.

H.M.Jr:

Well --

Spear:

Just tell me what you want to do. I will
do it.

H.M.Jr:

I am not your boss.

Spear:

Well, Admiral Spear -There will be a boss over there.

Compton:

Admiral Spear and I understand each other

Compton:

very well. I will tell Colonel Knox all

about it when I go back and you will know
that Admiral Spear is handling it.
H.M.Jr:

Well, it is your suggestion, as I understand
it, that as a favor to these men we will
buy "X" hundreds of thousands of dollars of
oil, equivalent to this cargo, over and
above our present contracts.

Compton:

That is right.

H.M.Jr:

What happens to this is their own business.
That is correct.

Compton:

243

- 20 H.M.Jr:

Well then, if that is the case, if you can

Compton:

You are going to let this Swedish ship go?

H.M.Jr:

I think so. On a ration basis, that is
all right. What is in the Swedish ship?

Compton:

The Swedish ship has got 1067 barrels of

get the Texas Company to agree, we will
just contact Admiral Spear.

lube oil, 18,972 barrels of gasoline oil,
83,727 barrels of fuel oil, 440,584 pounds
of grease.

H.M.Jr:
Berle:

I think our position isn't too good on this

Swedish boat.

It is a foreign ship and foreign charter and
foreign title and not a thing in the world

we can hang to.
H.M.Jr:

I would let her go.

Spear:

Will that ship get there or will they pick
her up some place and bring her in?

Berle:

Admiral, I don't know what the British fleet
is doing over there. I have assumed that --

Spear:

I bet she never gets there.

Caims:

She applied for a navicert on the fifth of
June and hasn't got it yet.

Compton:

The British Navy might be more helpful in
this than the United States Navy, Mr. Secretary.

H.M.Jr:

That is all right. I appreciate the way you
gentlemen approached this thing. It is very
helpful and I will tell the President that.
Now, we will go on with something else with
Mr. Berle, and I thank you very much.
(Mr.the
Compton,
Admiral Spear and Mr. Woodson
left
conference)

244

- 21 H.M.Jr:
Young:

That is that. How about the old - the boat
is unloading.

She does not load until 8:00 o'clock in
the morning. This is new. A message came
through she had two million fifty thousand
rounds of 45-callibre ammunition on board,
three Pratt & Whitney engines. And she is
preparing to load a considerable number of

aluminum ingots. Maybe that is to take the

place of ammunition.
H.M.Jr:

Well, isn't aluminum on your list?

Berle:

Not my list.

Young:

It has a permit number here.

Berle:

Mr. Secretary, I have requested that all
outstanding licenses be revoked subject to
immediate reissue on validation. I don't
know that all licenses need to be cancelled,
but they should be suspended and revalidated
so there would be no question. They could
be revalidated with a rubber stamp and no
time lost.

H.M.Jr:

Well, my thought on this boat is this, that
as long as they have volunteered to take off

everything that needs a license, we might as
well do a hundred percent job. Does aluminum

need a license?
Young:

There is a permit number here.

Caims:

Aluminum is on Maxwell's list, I am pretty
sure.

H.M.Jr:

If they would take everything off which needs
a license, there would be no trouble about
their sailing and if whoever told them gave
them
the original hint, we would give them
that hint.

Cairns:

Yes. I think it was Basil.

245

- 22 Foley:

O'Keefe, I think.

Young:

He would give them the hint and if they
would take off everything that required a
license, they would be given a permit to
sail promptly.
What else is on it that needs a license?

Cairns:

I don't know.

H.M.Jr:

I can't hear.

Young:

I was asking Mr. Caims what else was on
there that needed a license.

H.M.Jr:

H.M.Jr:

Well, three engines, or whatever it is.
In other words, it would be - we get down
to munitions, isn't that what it amounts
to?

Cairns:

Yes.

H.M.Jr:

O'Keefe was the fellow that gave that.

Cairns:

II leave.
will get in touch with him as soon as

H.M.Jr:

And the only other thing, we are still
holding sugar for Casa Blanca.

Berle:

As far as I can see, there is no particular
reason for holding sugar for Casa Blanca
unless the shipment should be extremely

Cairns:

large. How big is it?
I haven't the figures on it.

Berle:

How big a ship?

Cairns:

The Greek vessel? I don't have that.

H.M.Jr:

I will
small.

get it. Greek vessels are usually

(To Lieutenant McKay) I want the size of
the ship, this Greek vessel that we are

246

- 23 holding for Casa Blanca and if possible, how
many tons has she got on board. I either
want it in a couple of minutes or it isn't
much use. They may have it downstairs.
Berle:

All right, sir.
In the existing state of affairs, it is

H.M.Jr:

We recognize the French Government?

Berle:

I am glad to say the question has not come
up. There is a French Ambassador up the
street and he has an Embassy and until some
Act of some sort comes along which requires

McKay:

hardly unlikely that will go anywhere
except to African consumption. A limited
amount of it might, I suppose, go into
French boats, but as there aren't very many
of those left loose, I can't see that there
is any reason why the sugar shouldn't go.

us to take some affirmative step, we don't

have to answer that question. Sometimes
when you don't know the answers, it is not

a bad idea to just sit.

H.M.Jr:

Well, there are no other new cases, are
there, Dan?

Cairns:

I have one just handed me.

H.M.Jr:

Good.

Cairns:

This is the first one of this type.

H.M.Jr:

This is good mental gymnastics.

Cairns:

A vessel proceeding from New York to Vladivostok, chartered by the Amtorg, a Panamanian
vessel, with a general cargo.

Berle:

I should say let it go.

Foley:

So would I.

H.M.Jr:

Has it got to have a license?

247

- 24 Cairns:

It has to have a permit from you.

H.M.Jr:
Cairns:

Sailing from where?
New York to Vladivostok.

H.M.Jr:

General cargo.

(Discussion off the record)

248
July 12, 1940

A conference was held in Mr. Cairns' office at 10:05 a.m. with
T.

E. Buchanan, General Manager, Marine Department, Texas Company, and

L. A. Moricca, Assistant to the Management, Export Department, The Texas
Company. The Texas Company wishes to know whether or not departure permits will be issued for the NEVADA and the ARYAN, American flag vessels,
and the BERA, a Swedish vessel, now at Port Arthur, Texas. It is intended

that these vessels carry petroleum products to Spain. The following facts
were developed:

Monopoly

Since 1928, Compania Arrendataria del Monopoleo de Petrolece S.A.

has had the monopoly for the sale, distribution, and importation of
petroleum products into Spain. It is a wholly-owned government corporation. It is the consignee and purchaser of the petroleum products
intended to be transported by the above-named vessels.
Sources of Spanish 011

Prior to the outbreak of the war, Spain obtained its petroleum
products from Russia, Rumania, and the United States. From 1928 to 1935,
the Texas Company was under contract with the Spanish Government to supply

its petroleum requirements. Today Spain obtains all its petroleum products
from the United States and from the Texas Company.

Statistics of Import
1937 -- 35,000 tons a month to Franco.
1938 -- 40,000 tons a month to Franco.
1939 -- 52,000 tons a month (January to March - to Franco).

1940 -- 72,000 tons a month. (First six months.)
Transportation

The Spanish monopoly uses its own ships, but the Texas Company,

in accordance with a verbal understanding, has the privilege of furnishing
transportation when the requirements exceed the monopoly's facilities. In
return, the Texas Company must, to the best of its ability, supply tonnage
when called upon to do so by the monopoly. They have met this last requirement upon numerous occasions since 1936.

Navicerts

The BERA, which is under charter to the monopoly, received a

navicert on its last voyage. On June 5, application for a navicert for

the BERA was made but has not yet been granted. On June 21, application
for a navicert for the NEVADA was made but has not yet been granted. Application for a navicert for the ARYAN has also been made and not yet granted.

249

-Mr. Patrick Hill of the British Embassy is kept fully advised of all
petroleum shipments to Spain, and handles the navicert questions.

It was stated that none of the ships carrying petroleum

products to Spain had been intercepted by any belligerent.
Cost

It was stated that the cost of each day's delay to the
Texas Company in the case of the NEVADA and the ARYAN is $3,000 a day.

Consequences of Failure to Grant Departure Permit

The representatives of the Texas Company stated that they
wished to obey all laws of the United States and, if departure permits
will not be granted, they assume that Spain will look elsewhere for
her oil, probably to Rumania. They stated, however, that the existing
contract is a valuable one, and they are, of course, anxious to preserve
it.

Law

The representatives of the Texas Company were advised that
departure permits were issued pursuant to the Proclamation of the
President, dated June 27, 1940, and the rules and regulations issued
pursuant thereto. They were advised that the permits were not issued

in connection with the Neutrality Act of 1939.
Conclusion

Messrs. Buchanan and Moricca will return at 3:30 for advice
as to whether their vessels will be permitted to depart. They were
given no assurance that any definite statement could be made at that
time.

250
July 12, 1940

A conference was held in Mr. Foley's office at 3:45 p.m.
today with T. E. Buchanan, General Manager, Marine Department, The
Texas Company, and L. A. Moricca, Assistant to the Management,
Export Department, The Texas Company, and Mr. Cairns.
The representatives of The Texas Company were advised

that careful consideration had been given to the issuance of departure
permits for the NEVADA, the ARYAN, and the BERA to carry cargoes of

petroleum products to Spain. The representatives were asked if they

knew the value of the cargoes of the NEVADA and the ARYAN. According

to their best estimate, the NEVADA cargo is valued at $290,000, including $180,000 freight, and the ARYAN, $380,000, including $180,000

freight. The representatives were also asked if they could furnish

estimates of the amount of petroleum products moving to Spain for the
six months period beginning July 1, 1940. They replied that they were
without any definite figures, but they assumed that the amount would
be comparable to that which moved during the first six months period
less the amount of asphalt shipped during that period. This would
amount roughly to 70,000 tons a month. They were unable to state
whether or not this amount represented Spain's normal peacetime needs.
The representatives were advised that it had been decided
to permit the BERA to depart, but not the NEVADA and the ARYAN. They
were also advised that the Treasury representatives were not in a po-

sition to state the reasons for the decision. It was pointed out to

them, however, that the Government appreciated the difficulties of
the situation, and would attempt to relieve the company of possible
losses in connection with the transaction to the extent of arranging
for the purchase by a Government agency at the dollar equivalent of
the cargoes of the two vessels, or perhaps as an alternative, the
purchase of the cargoes directly. The representatives replied that
the suggestion as to mitigation of loss was a policy matter upon which
they could not speak. They thought, however, that a representative
of the company from a different department would communicate with the
Treasury on that point. They stated they would give consideration to
a submission of figures showing the normal peacetime petroleum requirements of Spain.

in 7h.

/K

251

This 18 the note which the Ford representative

drew up while Carl Ward was with him on July 12.

252

COPY.

NOTE.

Etant données les circonstances nouvelles, il parait indispensable d'envoyer outre le moteur 89, le moteur 51 aux Etats-Unis.
En effet, comme il est impossible d'obtenir une production certainement équilibrée dans l'avenir, et meme de connaftre immédiatement
les stocks existants, il convient de prier la maison FORD ou tout
autre groupe associé ou non avec elle, de procéder sans délai A
la fabrication de pieces 51 aussi finies que possible.
Tous les documents relatifs à ces pieces sont déja en la

possession de representants de FORD aux Etats-Unis, pour faire les
outillages qui étaient commandés par FORDAIR.

On devrait donc prier la Maison FORD, ou les groupes associes,

d'accepter pour le compte du Gouvernement Français des commandes

de pieces détachées, formant autant que possible des moteurs com-

plets mais arrivant dans l'ordre des possibilités, c'est-A-dire

aussit8t que chacune d'elle sera terminée. Ces pieces, une fois
existant en France et il est bien entendu qu'ultérieurement et le

reçues, seront autant que possible complétées par des éléments

plus prochainement possible, ce sont tous les éléments du moteur
51 qui devront @tre fabriqués de façon à composer des moteurs
complets.

Il n'est pas besoin de les envoyer assemblés pour le moment:
un ordre d'urgence pour les pieces sera indiqué.

Un effort special et parallele a celui que fait HISPANO à

Tarbes devra @tre fait en ce qui concerne les métaux légers. Sur
ce point, une documentation spéciale sera fournie par HISPANO à
la Maison FORD, avec dessins et pieces-type et modèles si possible.
Ces pieces, et éventuellement ces moteurs 51, feront donc

l'objet d'une commande du Gouvernement Français.

Le moteur 89, qui est envoyé aux Etats-Unis, a fait a quelques

variantes près ses essais d'homologation a Jonzac à une puissance
de 1350 CV. Le moteur 51 est en service et donne les meilleurs
résultats sur le front. Il n'est donc pas question ni nécessaire
de lui faire subir des essais nouveaux.

Du point de vue industriel, 11 est très important que la So-

ciété FORD en ait un en sa possession pour pouvoir fabriquer les
pieces dudit moteur et pour pouvoir se mettre en route, immediatement
et parallelement, sur la fabrication du moteur 89.
Les accessoires devront @tre des accessoires standard americains,
avec la réserve qu'ils puissent être interchangeables sur
avion et moteur avec les accessoires français.
De

253
-2-

De façon A gagner du temps, on pourra s'inspirer des méthodes
americaines en ce qui concerne l'emploi des aciers spéciaux, par-

ticulièrement pour les vilebrequins et pour les chemises. On
pourra se référer aux recommandations faites par le Dr.Mac Caroll.
Tarbes, le 12 juin 1940.

scary

254

Having been faced by a new set of circumstances, it seems indispensable to send over Motor #89, Motor #51, to the United States.

Indeed, since it is impossible to obtain an absolutely balanced production in the future, and even to know at once what stocks are on hand,

it is fitting to urge the Ford establishment, or any other group, whether
associated or not with it, to proceed without delay to the manufacture of
units 51, as nearly complete as possible.

All the papers relating to these units are already in the possession
of representatives of Ford in the U.S.A., in order that the stock of tools
which were ordered through* Fordair may be made.

It should therefore be urged upon the Ford firm, or the associated
groups, that they accept for the account of the French Government orders
for separate parts, forming as much as possible complete motors but

arriving in the order of possible shipment - that is to say, as soon as
each of them shall be finished. These parts, once received, will be
complemented as soon as possible by those parts now in France, and it is

understood that eventually, and as quickly as possible, these will be
followed by all the different parts of Motor #51, which should be manufactured in such a way that they make up readily into complete motors.
There is no need to send them assembled for the time being: the order

of urgency for the different parts will be indicated.
A special endeavor, parallel to that which Hispano is making at
Tarbes, should be made in everything that concerns the light metals.

On this point, a special set of papers will be furnished by Hispano to the
Ford establishment, with drawings, sample parts and models if possible.

*Par
either
by or through. The context would indicate it is used in the
sensemeans
of through
here.

255
-2

These parts, and eventually the Motors #51, will accordingly be
the subject of an order from the French Government.

The Motor #89, which is sent* to the United States, has made at

various readings, in the course of its trials for official confirmation
at Jonsac, up to a power of 1350 Cy**. The Motor #11 is in service

and gives the best of results at the front. There is no longer any
question (in regard to it) nor necessity to make it submit to new tests.

From the industrial point of view, it is very important that the
Ford organization have one in its possession, in order that they may be
able to manufacture the parts of the said *** motor, and to be able to
go to work, immediately and at the same time, on the manufacture of
Motor #89.

The accessories should be the standard American accessories, with

the reservation that they should be interchangeable on both airplane and
motor with the French accessories.

In order to gain time, full use should be made of American methods

in everything concerning special steels (tools i). particularly for the
drills and for the cases (cowling ?). In this connection, refer to the
recommendations made by MacCarroll.

Tarbes, June 12, 1940.

May mean "is being sent".

.. This sentence is confusing in construction. The translation gives what
seems to be its sense, but the aeronautical terms may not be rendered
into the exact English equivalent.

... The latter motor (1). This would seem to mean #51.
(Last Paragraph) Several technical terms not included in even recent dictionaries. is
All give the word #wimble" for vilebrequine, but one also gives drills, which
used
here. etc.
Also chemise indicates some sort of covering - might be cowling,
motor block,

256

July 12, 1940.

n dear Mr. Comptions

I vent to administion your letter of

July 8th, which enclosed a - of . from the Chief of the Suress of - to the
Judge Advente General.

Sincerely,

(Signed) H. Morgenthan. Jr.

Henorable Lovis Comptom

Assistant Secretary of the Many,
Weshington, no Co

GEF/dbs

-

257

my 10, 1000,

w - m. -

1 - w / - Better of

was m which - a - of . the the - of me I of - to -

July / -

Massurity,
(Signed) H.

IAssistant
sade
- of the Happy

- 44

GXP/dbs

r

258

my 22, ww,

n - m. Compleme

/

1 - w / - Softer of

sale m which / a - of a I
from the add of the - of - to the

- Admission /

(Signed) H Morgenthan,Jr.

IAssistant
Made
- of the Hearts

- na

GHF/dbs

-

259

ack
DEPARTMENT OF THE NAVY
OFFICE OF THE SECRETARY

WASHINGTON

Follow

IA-3(51)/qu(400624)

8 July 1940

8 r:
Your letter to the President, dated June 20, 1940, referring to testimony by Rear-Admiral Furlong regarding the
Vinson-Trammell Act, has been brought to my attention by the
President.

I regret that any interpretation of Admiral Furlong's
testimony has resulted in the feeling that there are any objec-

tions on the part of the Navy Department to the worthy purposes
of the Vinson-Tremmell Act, and I trust that the enclosed copy

of a statement from Admiral Furlong to the Judge Advocate General
of the Navy, dated-24 June 1940, will clear up any misunderstanding that may have existed.

Respectfully,

Imi Company
Acting Secretary of the Navy

The Honorable

The Secretary of the Treasury.

Jul

0

260

(COPY)
NAVY DEPARTMENT
BUREAU OF ORDNANCE

L4-3(11/1116) (A8)

WASHINGTON, D.C.

24 June 1940.

From: The Chief of the Bureau of Ordnance.
To: The Judge Advocate General.

SUBJECT: Clearance of Contracts and Certifications with the Treasury
Department.

Reference: (a) Memo of the Assistant Secretary dated 21 June 1940.

1. With reference to Mr. Morgenthau's letter to the President
stating that my testimony made it difficult for him to carry out the

Vinson-Trammell Act, there is a very great misconception as to my testimony and its purposes. I am and have been one of the strongest advocates of the Vinson-Trammell Act and I think that its provisions as to
limitation of profit should be extended to all government departments
and all government purchasing.

2. I was not testifying before the Committee handling H.R. 9822.
I was testifying before the Senate Sub-Committee on Appropriations on
the First Supplemental National Defense Appropriation Bill 1941, H. R.

10055. The Navy was asking in that bill for appropriations for facilities for government and private plants to speed up production.

3. I asked for funds for expansion of facilities for powder in
government plant. Senator Byrnes wanted to know the position of the
private manufacturer as to expansion in his plant. My reply as quoted
sets forth exactly the stand of the many manufacturers whom I have urged

a

and implored to put in facilities to increase production. They have held
back when I knew they should be expanding. They have stated that they
felt
they would not be allowed to recover the costs of enormous outlays
for facilities.

4. Because of the fears and hesitancy of manufacturers, the Bureau of Ordnance, faced with the necessity of getting ahead with production, asked for and obtained authority in the Third Deficiency Appropriation Act of August 1939 to use $6,000,000 to put facilities in private
armor plants. In the bill on which I was testifying other bureaus also
were asking for funds to pay for facilities in private plants. This will ordbe a solution for obtaining shipbuilding facilities and expansion of
nance production in private plants where great expenditure is involved.
However, there are many smaller plants and even some of the largest contractors
that would prefer not to have the government own the facilities
in
their plants.

261
(COPY)
L4-3(11/1116) (A8)

-2-

5. I prefer that they put in facilities themselves under the
Treasury Department regulations but as they do not see their way clear,

the only thing to do is for the Navy to pay for the facilities.

6. There is need now for a $2,000,000 or more expansion at the
Eric plant and Schenectady plant of the General Electric Company to
manufacture the 5-inch antiaircraft mounts and guns needed in great
numbers. They have held back on the necessary expansion. If the rules
prescribed by the Treasury under H.R. 9822 show the contractors that
they have a change of recovering their outlay over not too lung a period,
there will be no trouble about expansion for most of the contractors have
the funds and do not need the government to pay for facilities. There
are a great number who have no reason to expand for their normal business

but they mist expand if we are to finish the ships on time. All they ask
is to get back what they pay out for facilities over not too long a period.
7. It is rather unfortunate that Mr. Morgenthau should think that
I or any one in the Navy is concerned about the administration of the tax.
It is none of my concern except that I believe in the Vinson-Tranmell Act
100% as regards limitation of costs. It is one of the finest pieces of
legislation on our books and is the one block to war profiteering. But
when contractors refuse to put in facilities because they fear the costs
will not be allowed by the time all contracts are finished, then there is
nothing for me to do but ask for funds for the government to pay for the
facilities. My testimony was telling Senator Byrnes why we had to have
money for facilities in private plants.

W. R. FURLONG.

MES

-2-

262

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 13, 1940
Secretary Morgenthan
Mr. Cochran

STRICTLY CONFIDENTIAL

At 4:30 yesterday afternoon Mr. Pinsent told me that Sir Frederick Phillips
Mr. Bewley had arrived at Halifax. Consequently I telephoned Mr. O'Keefe

New York to this effect so that he would not be meeting ships. I also telephoned Mr. Dow in Customs, who promised to send the necessary telegrams to the

districts of Portland, Maine, St. Alban's, Vermont, and Ogdensburg, New York, with
the view to giving the two gentlemen free entry wherever they may cross our frontier.
Pinsent told me that he expected the visiters to reach New York only on
Saturday night or Sunday. They would probably spend some time there with Mr. Purvis,
since they have problems to discuss with the Purchasing Mission. They should, thereore, not arrive in Washington before Sunday night or Monday.
I gave the above information to the Secretary by telephone at 9:30 this morning.
subsequently spoke with Mr. Pinsent, who still has no further information, but who
romised to let me know over the weekend if he may learn of precise plans, in order
hat I may telephone this to the Secretary at the farm.

AMP.

263

July 13, 1940

HM,Jr phoned the following from the Farm this
morning:

I spoke to Arthur Purvis yesterday afternoon.

I called him from the railroad station at a quarter of
four and told him that the situation on Packard looked
much better and I had given it a little push.

No Need To Change Wage Law

Packard
HaltimoreWill
Sun Make

PACKARD VOTES

For U.S. And Britain

TO MAKE 9,000

Airplane Motors
JUL 13 1940

PLANE ENGINES

By GERALD GRIFFIN
(Washington Bureau of The Sun]

Washington, July -The board of
directors of the Packard Motor Com-

Directors Delayed De-

pany has approved a general arrangement for the manufacture of 3,000 Rolls
Royce aviation engines for the United

cision Until Several
Points Were Settled

States Government and 6,000 for Great

Britain, William S. Knudsen, member

of the National Defense Advisory

Contracts For Motors For

Commission, announced late today.

Contracts are being prepared to
cover the United States' part of the
order, and will be put into effect at
This announcement made it plain

By GERALD GRIFFIN
(Continued from Page 1)

the needed funds from private sources.

Turned Down By Ford
The order is the one which would
have gone to the Ford Motor Company had not Henry Ford balked at
building engines in this country for

Mr. Gilman estimated that it would
take ten months to tool and prepare

a belligerent nation.

These points, it was understood included amortization, for tax purposes
of the investments to be put into the

is my primary interest My assign-

law has in no way lessened that inin certain industries for abrogation
could keep me from so reporting. In
my contracts with industry no such
need has yet been demonstrated to
me.'

Cites British Report
The wage-hour administrator called

experiments spread over a period of
more than a year. a reduction of work-

months, reach a total of 840 a month.

ing hours of munitions workers was
associated with an increase of pro-

The Defense Commission has beer

anxious to have work start on these
engines because of the demand for
liquid-cooled motors of this general

type for use in the newest mode
planes. At the same time, however, the
commission and the army and navy an

going ahead with orders for many ad

Earlier today the navy awarded

amortization in five years of defense

contracts for $136,743,900 for nava
bases, air stations and other shore es

tablishments on both the Atlantic and
Pacific coasts and et the Canal Zone
Hawaii and other Pacific islands.
Included among these contracts was
a

(Continued on Page 4, Column 4)

concern," Colonel Fleming wrote.
"As a soldier, the nation's defense

duction would start at twenty engines

already are in production.
$136,743,900 Contracts

this subject with the RFC. but it was

for hours, above which time and onehalf must be paid, has given me much

a month and, at the end of fifteen

order. An agreement was reached two
days ago to write into the new excess

Question About Capital
There was some question, also
about the capital with which the
company was to build its plant additions. The compan has discussed

"The question whether in the light
of the national defense emergency it
will be necessary to raise the ceiling

for production of the engines. Pro.

ditional air-cooled engines, which

plant investment

maximum hour or overtime provisions

attention, in this connection, to the
wartime report of the British munitions commission. stating that from

new plant necessary to handle the

profits tax bill a provision allowing

Colonel Fleming's finding the Ad
ministration would go ahead with it
present policy of not relaxing the

Into Effect At Once

ing headway.

several points could be settled.

quirement of the wage-hour law. The
President observed that in the light o

terest. Were there any defense need

not disclosed today whether it is to
obtain a Government loan or obtain

of directors The board held back until

time and one-half for overtime re

U. S., Britain To Go

negotiations had been straightened out
and that an important phase of the airplane procurement program was mak-

ward the contract and would place

B. Fleming Wage-Hour Administra
tor, reporting that no need has de
veloped thus far for modifying the

of the time-and-one-half rule, nothing

that the final kinks remaining in these

the matter before the company's board

made public a letter from Col. Philip

ment to the administration of a labor

once.

It was announced on July 3 that M.
M. Gilman, president of the Packard
company, was favorably inclined to-

Presigent Roosevelt meanwhile

$24,204,000 award for the construction

of aviation shore facilities at Quonse

Point. R. 1: $12,700,000 for simila
facilities at Norfolk, Va.: $12,786.00
for the naval air station at Jackson
ville. Fla.: $4,000,000 at Pensacola and
$3,500,000 at Miami.

For aviation facilities buildings
fuel storage, dredging and other work
at Pearl Harbor and other island possessions in the Pacific, $30,870,000 will

duction. A forty-five-and-one-halfhour week was found to yield more
in products than a sixty-six-hour
week, and practically as much as a
fifty-five-hour week.

Colonel Fleming referred also. to a

general order issued by the army
chief of ordnance in November. 1917.

which said that "industrial history
proves that reasonable hours, fair
working conditions and a proper
wage scale are essential to high pro-

duction." It also asserted that "the
pressing argument for maintaining in-

dustrial safeguards in the present
emergency is that they actually contribute to efficiency."

The production line techniques of
industry have been greatly developed
since the British and American documents he cited were written, Colonel
Fleming said. so that maximum efflciency of a machine usually is obtained

by using relays of workers in shifts
short enough to make constantly intense effort possible.

He asserted also that the forty-hour
week in France, which was blamed for

slowing up production and which was
dropped before the war began, was

be spent. In the Canal Zone. an $11,

generally a rigid limitation on work-

050,000 award was allotted for aviation

ing hours. The American law. he noted.
does not involve such a limitation, but

facilities at Coco Solo.

requires that time and a half be paid

for hours worked in excess of fortytwo week.

264

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 13, 1940
Secretary Morgenthau
FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Cameron telephoned me from the Federal Reserve Bank this morning. He
stated that a cablegram had been received from the Central Bank of Lithuania
authorising the transfer from its gold earmarked account with the Federal of
$2,750,000 to the account of the State Bank of Russia. This would leave only
about 1,800 ounces of gold in the Lithuanian earmarked account with the Federal.
There is a dollar balance of approximately $48,000. The Federal has not yet
received the necessary wire from the State Bank of Russia to accept the transfer.

Consequently it will not take place today. I told Cameron in confidence that we
were studying the problem of balances in Baltic countries and that he should consult us further on Monday before taking any action. He promised to send copies
of the Lithuanian cablegram to us today, as well as any message that may be re-

ceived from Russia.

At 12:45 noon Mr. Livesey telephoned me from the State Department to the
effect that Mr. Henderson, in charge of the Russian section of the State Department, was again discussing in the Department the reported withdrawal from banking accounts in New York of the three Baltic countries of Lithuania, Estonia and
Latvia. I told Livesey that we had prepared a letter for the Department of
State, at their request made two days ago, giving the balances of these three
countries on the American market. I reminded him that we had had up with the
State Department some days ago the question of applying our control to this
area, but that the State Department had opposed such action. Mr. Livesey
stated that his Department desired that the Treasury ask the following banks:
the Federal Reserve Bank of New York, National City, Guaranty Trust, Irving
Trust, American Express Company, and Chase National Bank not to permit any

important withdrawals from Baltic accounts until after consultation with the
Treasury. Livesey said this was a temporary arrangement pending the return of

Mr. Berle from New York so that he may be consulted on a definite program.

I telephoned the Federal immediately after receiving this message, but

did not reach Mr. Cameron until 3 p.m. I told him that if he did not hear from

us to the contrary before the opening of the New York banks on Monday morning,
he
should informally solicit the cooperation of the above-mentioned banks in
the sense desired.

telephoned
aboveI story.

Under Secretary Bell at 9:30 a.m. Sunday, to give him the

XMR.

2651

Copy of paraphrase to TREASURY

16813

Paraphrase of telegram number 2831 from American Embassy,

Berlin, Germany, dated July 13, 1940.

Secretary of State,
Washington.

STRICTLY CONFIDENTIAL

A trade agreement between Finland and Germany which

envisages a trade increase between them has been concluded

according to the press, which published no details as to

the items affected. It is stated by well-informed Finnish
circles in Berlin that shipments to Germany from Finland
may approximate one and three quarters the amount for the

last half of 1938. These circles confirm the report regarding the conclusion of a payment agreement. Primary

products such as eggs, butter, cheese and like products, as
well as wood products such as timber and paper, logs, and
pulp will go to Germany. Paper pulp and paper presented
some difficulty, but Germany in the end agreed to the

Finnish request that appreciable quantities, though less
than Finland wished, should be included in the agreement.

On the other hand, Germany was willing to take all
dairy products' shipments and meats that Finland could ex-

port, but those exports will decrease owing to declines in
their domestic production. Manufactured goods, coal, coke,
iron and steel will be shipped to Finland by Germany. The
Finnish

266

Finnish negotiators were told that Germany could pro-

vide only about three-quarters of the Finnish requirements of ocal, eeke, iron and steel because of the war
situation, and decreased quantities of other products.
The Fians had tried to obtain more of these products.
Shipments of Finnish pulp to overseas neutral countries,
including the United States, have been hold wp, on one
ground or another, by the German naval authorities. A
trial shipment from Petem has been made, according

to Finnish circles, but transportation costs and sifficulties via that route render doubtria much expert trade
through that port.

9

DCAFUHKILL

267
GRAY
RDS

Berlin
Dated July 13, 1940
REC'D 6:20 p.m.

Secretary of State,
Washington.

2830, July 13, 9 a.m.
My 2359, July 6, 10 a.m.
FOR TREASURY FROM HEATH AND ALSO FOR THE INFORMATION
OF THE DEPARTMENT.

The Reichsbank's statement for July 6 shows a relatively

slight Easement of its position since June 29. Its investment portfolio which had shown an increase of 804,000,000
marks the last WEEK of June declined by only 223,000,000
marks to 13,011,000,000 marks and miscellaneous assets
which had shown a 465,000,000 marks increase the previous
WEEK declined by only 124,000,000 marks to 1,739,000,000

marks. Note circulation decreased by 229,000,000 marks to
15,556,000,000 marks following an increase of 819,000,000
marks the WEEK before and sight deposits decreased by
88,000,000 marks to 1,766,000,000 marks as compared with
an increase of 376,000,000 marks the previous WEEK.

The Reichsbank reported total clearings for June of

131.5 billion marks in its giro system (for payment transfers between banks and large firms having giro accounts at
the Reichsbank) and 7,000,000,000 marks in its abrechnung
systems

268

-2- #2830, July 13, 9 a.m., from Berlin.
systems (maintained in SOME of the larger cities for clearings bEtwEEN large local banks ). . These figures compa re

with 137,000,000 marks in April and 135,000,000 marks in
May in the giro system and 8,000,000,000 marks in April
and 7,000,000,000 marks in May in the abrechnung system.

In 1939 the average monthly giro clearings were 109.6
billion marks.

According to a report of the coinage minted from
April 1 to June 30 which has just been published total

coinage in circulation decreased furing this period by
1018.3 million marks to 1896.4 million marks on June 30.

This fairly large decrease was due to the withdrawal from

circulation of a large amount of nickel one mark and fifty
pfennigs pieces which was partly off set, however, by the
new aluminum fifty pfennigs pieces and zinc ten, five and
one pfennigs pieces minted. Subtracting the Reichsbank's

coin holdings on the dates in question the total coinage
in circulation on June 29 was 1,540,000,000 marks as

contrasted with 1579.2 million marks on March 30th.
KIRK
EMB

269

PARAPHRASE OF TELEGRAN
TO:

Secretary of State, Washington

From:

American Legation, Kannas

Date:

July 13, 1940, 10 D.M.

No.: 165
A Director of the Lictures Bankas has confidentially
informed a member of my staff that the Metaros Bankas

has been secretly foreat by the Seviate to transfer
all available gold reserves and that the Soviete under
duress have obtained the signatures necessary for
assigning to the Gosbank car-aarked gold. They are

giving for exchange for estual transfers American
dollars at as per fine ounce. The total amount involved
approximates $10,000,000, of which free S-1/8 to
$3,000,000 is on deposit with the Federal Reserve Bank

is the United States and $380,000 is is Kannaa. It is
understood that they have not as yet touched foreign
exchange holdings in Lithmania and abroad. On the

black exchange dollar notes are being quoted at

present at lite so.

10 THE

OLLICE OE THE

ENO nnr 12 bW S os

COPY:

RECEIVED

270

OFFICIAL

SECRETARY or STATE

DEPARTMENT OF STATE
WASHINGTON

July 13, 1940.

The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and
encloses one copy of telegram No. 2143 of July 13
from London.

271

GRAY

ATP

LONDON

Dated July 13, 1940
Rec'd 8:40 a.m.
Secretary of State,
Washing ton.

2143, July 13, noon.
PERSONAL FOR THE SECRETARY OF STATE AND SECRETARY
OF THE TREASURY.

Brendonbracken of the Prime Minister's staff told ME

that large supplies of gold and United States securities
have been seized in France by the Germans. HE offered
the suggestion that the Germans intended to demoralize

the United States security market during the Presidential
campaign. I pass this on without comment. I suggested

that possibly the British Treasury had a list of the
United States securities held in France and if 80 I
would like to have it to send to the United States. HE
said he would look this up at once. HE thought the gold

night be used to bid up prices of supplies, Britain
would find it necessary to buy in other countries.
Governor Norman told ME last night he does not plan

at the present time to do anything further with sale of
American securities in the United States. It is of course
becoming obvious that Britain's purchases in the United
States are of such great amount that the sale of
securities

272

-2- #2143, July 13, noon.

from London

securities in the market is academic question.
Sooner or later the United States Government will find
itself forced to do something about these holdings if

they Expect to get their bills paid.
KENNEDY

273
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, (Paris) La Bourboule

DATE: July 13, 1940, 3 p.m.,
Rec'd 8:18 a.m., 15th.

NO.: 63

FOR THE TREASURY DEPARTMENT FROM MATTHEWS.

Reference is made to telegram of July 12, 10 p.m.,
No. 59 from the Embassy.

This morning Cariguel telephoned that they had received
word that in Bordeaux Lloyd's Bank is only paying 30 percent

on deposits. He said that he also had information - which
has not yet been fully confirmed - that the assets in France
of Lloyd's Bank totaled only some 300,000,000 france to

cover 700,000,000 france liabilities. Cariguel said it
appeared that the British managers took to England sub-

stantial amounts either of Bank of France notes or of
French national defense bonds. The Bank of France felt,

he said, that for this state of affairs to be allowed to
continue was obviously prejudicial to the best interests
both of Lloyd's Bank and of the French depositors and
public.

Payments in full to depositors are being made by all
other banks. Cariguel asked that I send you the foregoing

by cable with the thought that you might find it possible and
desirable to bring the matter to the attention of the Bank
of England informally. He added that substantial franc
balances

274

-2balances were owned here by the Bank of England, and the

Bank of France would be glad to have these utilized to remedy

the foregoing situation. He said that whatever solution
might be suggested to solve the problem would be quite
agreeable to the Bank of France.

If you could cable me any information as to the Bank
of France's status and that of the French Government accounts
under the executive order blocking French balances which
I presume has been issued, and any general licenses supple-

mentary thereto, I should greatly appreciate it. Here I
am completely isolated, and exdept after long delay, I do
not have access to the radio bulletins of the Department

of State, nor to our radio or our press.
END OF MESSAGE.
MURPHY.

EA:LWW

275
PARAPHRASE OF TELEGRAM

TO:

Secretary of State, Washington

From:

American Legation, Kaunas

Date:

July 13, 1940, 10 p.m.

No.:

153

A Director of the Lietuvos Bankas has confidentially
informed a member of my staff that the Lietuvos Bankas

has been secretly forced by the Soviets to transfer
all available gold reserves and that the Soviets under
duress have obtained the signatures necessary for
assigning to the Gosbank ear-marked gold. They are

giving for exchange for actual transfers American

dollars at 35 per fine ounce. The total amount involved
approximates $10,000,000, of which from 2-1/2 to
$3,000,000 is on deposit with the Federal Reserve Bank

in the United States and $350,000 is in Kaunas. It is
understood that they have not as yet touched foreign
exchange holdings in Lithuania and abroad. On the
black exchange dollar notes are being quoted at

present at lits 50.

10

bill

Eu:LWH:MGS
RECEIVED

COPY:EA:EB

S

OS

27S

only 33. 1940
Mr. Bell
Sr. Bechres

with reference to the inquiry which I made case Logo age of m. Degree of the
State Department. I have - received from his office word that a collagree from
our interester at Degeta reports that m. Louis New had arrival is New York from

Trease $ By 24. 1940. Mr. Dies se said to have sale plane for reacting is the

letted States and booening as American citizen. me See York account to with the

National City Beak.

-

Mr.

277

Washington, D. C.

July 13, 1940

Personal

My dear Mr. Secretary:

With reference to our recent conversation, I am in receipt of a telegram from
the National Resources Commission at Chungking,

reporting that the price we obtained from

the United States Government for our IndoChina stock of wolfram ore was $16.00 per

unit, and for refined antimony 14 cents per
pound, both c.i.f. New York.

May I tell you again how much I
appreciate your kindness in asking me to
luncheon the other day, and the opportunity
of discussing matters with you?
With kind regards, I am

Yours faithfully,

hetroyoung

HOREHAM WASHINGTON O.C

278
BRITISH EMBASSY,
WASHINGTON, D.C.

July 14th, 1940
PERSONAL AND
SECRET

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a copy

of the latest report received from
London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Lohisan
The Honourable

Henry Morgenthau, Jr.

United States Treasury,
Washington, D. C.

279
Telegram despatched from London

on evening of July 13th, 1940

French battleship "Parie",
Centre Torpilleur Le Triomphant, destroyers
1.

Mistral and Ouragan commissioned July 12th as

tenders of H.N.S. "Drake". Flying boats report
sinking one Italian submarine morning of July 12th
and another same afternoon between Halte and

South Italy. A third reported damaged by two
anti-submerine travlers.
Fleet air arm carried out successful
2.
mine laying operations on north-west coast of
Holland last two successive nights. Last night,
22 Royal Air Force bambers despatched against ship-

building yards at Kiel and Enden. All returned
safely. Reports not yet received. Bad weather
prevented other projected night operations.
Reconnaiscance yesterday reported 50 barges on
Zeebrugge-Bruges canel and unbroken line of

barges three abreast for eight miles in DetendBruges canal.
3.

A single enemy aeroplane, unannounced

by air raid warning, dropped 10 bombs on

Aberdeen yesterday mid-day. 35 persone killed,

several wounded. A direct hit on boiler house
has put yard out of production, this machine
brought down ten minutes later. Convey attacked
off Suffolk coast and bombs also dropped at
Newport/

280

Newport end Beable. Last night speredie attacks

chiefly with incendiary boube, is Glyde, Cardiff
and typecide areas. No serious damage reported.
casualties fee. During yeaterday 16 eneay bombers
and 2 Kesserschmidt 110s. were destroyed, another

6 bombers probably casualties. we loot 6 sircroft.
4.

Shipping leases reported yesterday,

one British travier sunk off Zeeland, one British
ship sunk off East Coast, both by aircraft. one
Danish ship damaged during Portland air paid.
5.

Kgype. on July 10th 22 Blenheims

attacked Italian Detrol dumps near Tobruk. Hite
registered on target. Damage unaccessable owing

to clouds. All aircraft returned. da July 11th
wajeys attacked by 3 enery bombere. 2 aircraft
of South African Air Force intercepted, shooting
down one and badly damaging another.

281
PARAPHRASE OF TELEGRAM
To:

From:

Secretary of State, Washington.
American Legation, Tallinn.

DATED: July 14, 1940, 11 a.m.

Rec'd: July 14, 1940, 12:45 p.m.

No.: 91
A reliable source informed me unofficially last night
in the strictest confidence that on Saturday July 13 the
Estonian Bank was required to transfer to the Gosbank,

that is the Soviet State Bank, its gold abroad and that
the Estonian Central Bank has been given by the Soviets the

equivalent in a dollar account in the Gosbank, These gold
holdings I am told approximate a total of $47,000,000 of
which $9,000,000 are in New York at the office or bank
representing the Baseler Bank, $10,500,000 are in Sweden
and 20,500,000 in England. The remaining $7,000,000

are distributed in other places.

It is my understanding that current dollar credit
accounts held in the National City Bank of New York or
elsewhere by the Estonian Central Bank are not affected.

I am not trying to confirm the above statements from

official sources because of their highly confidential
character.

Eu:LWH

COPY:EA:EB

282
PARAPHRASE OF TELEGRAM RECEIVED
FROM:

American Legation, Riga

NO.: 191
DATE: July 14, 1940

Reference is made to my no. 183 of July 6, 10 a.m.
I have been informed by a member of the Government

of Estonia that over $3,000,000 of Estonian gold, as well

as other assets, are in the United States. He said it
was his belief that pending a settlements of accounts it
would be perfectly justifiable for the United States to
freeze the gold mentioned above since undoubtedly payments

on Estonian dollar bonds and other indebtedness in the
United States will be stopped by the Soviet Government.

It might be desirable to take immediate action in
the event the Department plans to block gold and other

Baltic assets in an effort to afford protection to
legitimate American claims. It would seem that entirely
adequate grounds for such action lies in the obseurity
surrounding both the present and future status of these
Baltic nations.

10 THE VBA

LECHHICY YEE VH1
OLFIDE of THE

evo bM S 01
EA:EB
RECEIVED

283
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON

July 15. 1940
MEMORANDUM FOR THE SECRETARY:

Reports up to Saturday night indicated that we had received
subscriptions to the 2-1/4 per cent Treasury Bonds of 1954-56 in
the aggregate amount of $6,747,000,000, of which approximately

$37,000,000 represent the subscriptions received for the registered
securities to be held 90 days.

We will have final reports in tomorrow evening and hope to
make allotment early Wednesday morning. I am wondering, therefore,

if it will be sufficient for you to say this afternoon that
preliminary reports indicate that the total subscriptions are more
than eleven times the amount of the public offering and that the

600x11

subscriptions for the $5,000 of registered securities are in excess
of $35,000,000.

As a matter of information, you might also say that of the
$21,000,000 in subscriptions received last December for the 2 per

cent 1948-50's in the $5,000 registered class, 60 per cent of the

bonds allotted are still held in registered form. This is an
excellent showing. The 40 per cent exchanged for coupon bonds

does not necessarily mean that these are not still held by the
original subscribers, as it may be more convenient for the investor
to hold his investment in coupon securities.

GWB

284
TREASURY

16749

GRAY

JR

Moscow

Dated July 15, 1940
Rec'd 12:58 p.m.

Secretary of State,
Washington.

859, July 15, 5 poin.
Today's newspapers publish a ukase of the Presidium

of the Supreme Soviet of the Union of Soviet Socialist

Republics in which it is stated that the issuance of poor
quality or defective industrial products or the issuance
of goods below the obligatory standards constitutes antistate crime Equivalent to wrecking. Directors, chief
Engineers and chiefs of departments or others responsible

for such conditions are subject to trial and imprisonment
ranging from five to Eight years. Editorials in PRAVDA
and IZVESTIYA praise the ukase and cite various Examples

of poor quality or defective production.
THURSTON
WSB

16581
285
PLAIN

ATP

STOCKHOLM

Dated July 15, 1940
Rec'd 4:50 a.m. 16th

Secretary of State,
Washington.

729 Fifteenth.
Swedish supplementary trade agreement with Germany

mentioned in 720 Eleventh provides for an increase this
year in Swedish Exports of about 140 million crowns part-

icularly sulphate pulp paper iron and steel tools and
machinery. The Germen foreign Exchange allotment for

Swedish pulp and paper has thus been raised by 33 million

marks of which sixty percent for woodpulp and forty percent
for paper. Germany agrees to increase shipments of coal
and COKE by one million two hundred thousand tone but at

a considerably higher price than the level fixed in
January this increase in the coal prices is alleged to
offset the rise in prices of Swedish Exports to Germany
since the outbreak of the war Excepting iron ore. In
view of improved outlook for imports of coal authority
just given by Fuel Commission permitting sale of coal
and COKE for next winter up to thirty percent of consumption during 1938-39 for heating purposes new Swedish

company incorporated by all oil companies in collaboration
with State RESERVE Supply Board looking to pooled
importation

286
-2-

#729 July 15, 4:50 s.m. 16th from Stockholm

importation of petroleum products from OVERSEAS via

Pstsamo. Project still in preliminary stage and it is
planned to Erect oil tanks in Petsamo but project dependent

on attitude of British blockade authorities. Swedish
State has approximated three million 500 thousand

crowns as first subscription in share capital of previously reported new steel mill to be Erected in northern
Sweden at cost of 10 million crowns. Coupons of
Norwegian State 3 one half percent 1936 Norwegian
Mortgage Bank 3 one fourth percent 1938 and Norwegian
Small Holders and Housing Bank three percent 1938

Swedish loans maturing in Stockholm July 15 paid by

local issuing banks out of funds received from London
appropriated from Norwegian shipping remittances. Consolidated report of commercial banks for June indicates drop
in deposits to 4,128 loans and discounts to 4,788
rediscounts to 202 cash to 189 and net foreign Exchange

holdings to 94 all in million crowns. Protested bills
during June increased to 4,340 involving two million
crowns compared 3,356 and one million 400 thousand crowns
June 1939. Wage agreement involving 12 thousand workers

in graphic and printing trades signed Effective until
June 30, 1941, which provides increase in WEGES of about

10 percent and for automatic increase based on cost of
living index but agreement may be canceled by Either
party

287

-3-

#729

July 15, 4:50 a.m.16th from Stockholm

party if notice given fortnight before February 1 and
April 1, 1941, Undersecretary of Swedish Foreign Office
and several other delegates returning to Moscow today
for further discussion of projected Russo Swedish agreement.
Inform Treasury and Commerce.
STERLING

DDM

288

OFFICIAL

THE SECRETARY OF STATE

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

July 15. 1940

RA

The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses a paraphrase copy of a telegram received from
the American Ambassador to Colombia dated July 11,
1940.

Enclosure:

Paraphrase copy of telegram
from Colombia, dated July 11, 1940.

s

289

[PARAPHRASE]

Of:

Telegram dated July 11, 1940

From:

American Ambassador to Colombia

With regard to the funds of Lu1 8 Dieu concerning
which you have wired me I am informed that the interested person arrived in the United States from France
on May 24, 1940, that he plans to remain in the country at least long enough to become an American citi-

zen and that his funds are on deposit in the National
City Bank of New York, New York City.

Treasury Department

Division of Monetary Research

0
To:

290

Date July 15, 1940
Secretary Morgenthau

Not knowing what time you planned

to take the matter up with the President
tomorrow, I am taking the liberty of
sending this to your home this evening.
There is appended a suggested draft
of a memorandum for the President (two
pages) with appended exhibits of explana-

tory matter. I thought you might wish to
look it over tonight and indicate what

changes you might wish so that I could have

it altered before 9 o'clock tomorrow (pro-

vided you telephone me early in the morning).
You may prefer the memorandum without

reference to any exhibits and without the
appendices, so I am having a copy retyped

without reference to the exhibits.

MR. WHITE

Branch 2058 - 210

19

291
THE SECRETARY OF THE TREASURY
WASHINGTON

July 15, 1940
MEMORANDUM FOR THE PRESIDENT

Preliminary Report on the Possibility of Financial
Assistance to China

1. Mr. T. V. Soong submitted a memorandus (Exhibit A,

attached) tentatively outlining China's needs as
follows:

a. For currency support - $50 million and an
additional equivalent amount "by way of

window dressing*

b. For purchase of planes, military equipment,
and for equipping arsenals - a total of $70
million.
c. For transportation improvements, 1.0., Burma

road, air transport facilities, chiefly from
Burma railway - a total of $20 million.
upper Burma to China, and completion of the

2. Mr. Soong also submitted a tentative suggestion for
China's currency support (Exhibit B, attached). The
proposal submitted was merely for purposes of opening
the discussion. The matter has to be gone into very
carefully before even a preliminary opinion can be
given as to the feasibility of extending financial
assistance from the Stabilization Fund for the support
of China's currency. Such examination is going forward
rapidly now, but it will take at least a fortnight before
the matter
is clarified enough to come to your
attention
for decision.
3. On June 25, 1940 the amendment to the Reconstruction
Finance Corporation Act was passed making it possible

for a corporation, organized by the Reconstruction

-2-

292

Finance Corporation, to make payments, with the approval

of the President, against the purchase price to be paid
for strategic and critical materials in advance of the
delivery of such materials. Under this authority we believe it will be possible to purchase critical and

strategic materials from China and Russia (Exhibit C,
attached).

According to a tentative schedule submitted by
Mr. Soong (Exhibit D, attached), China can deliver at
least $50 million worth of wolfram (tungsten), antimony
and tin over the next five year period in excess of

commitments
she now has outstanding to United States
and
Russia.

From a preliminary survey made of published data,

it appears that Russia might be able to deliver to the
United States from $100 to $200 million during the next
five years of manganese ore, chromite ore, mercury,
asbestos, platinum, fluorspar ore and possibly several
other
items
on our list of needed strategic commodities
(Exhibit
E, attached).
In line with your suggestion of exploring the
possibilities
of a three-way
arrangement, the following
plan may be worth
further examination:
(a) We purchase from $100 to $200 million of strategic
commodities from Russia for delivery as rapidly as
possible but probably extending over several years.
We make advance payments for part of the purchase,

possibly in proportion as Russia extends effective
equivalent credits to China.

(b) Russia on her part agrees to extend to the Government
of China equivalent credits; (in addition to the
$50 million or so credits reported by Mr. Soong to

be still outstanding. China is using up the credit
as rapidly as Russia will permit).

(c) To eliminate the risks of non-delivery of goods from
Russia to the United States, the possibility of Russia's
willingness to leave gold on earmark with the United

States to an amount equivalent to the sums we pay in
advance might be explored. The gold would be unblocked,
and withdrawn if desired, as delivery of goods was made.

4. If this proposal 18 along the lines you had in mind, the

next step should be for me to contact the Russian Ambassador

to ascertain his government's reaction to this proposal.
Attachments

COPY

EXHIBIT A

293

July 12, 1940

SECRET

Received from
T.V. 500mg

AID TO CHINA

In order to maintain organized resistance against Japan as

effectively as possible, China is in need of the following assistance:
1. For currency support, in order to maintain the country's
economic and financial structure and avoid disastrous consequences to

morale, to sustain the position of Chinese currency in enemy-occupied
as well as Chinese-controlled areas, and to maintain a medium of

exchange for legitimate foreign trade not subject to the trade and
exchange control of Japan. Provision of fresh funds amounting to

U.S. $50,000,000 is desired for currency support, and if possible an
additional amount by way of "window-dressing".

While the present technical position of the exchange market is

fairly good, the rise of prices in the interior is proceeding with acceleration. Support of the currency is specially important so that
internal confidence in the currency would be increased and the rate of
increase of prices checked accordingly.

2. For purchases:

(a) Materials for essential needs (specially for arsenals).
(b) Airplanes for military purposes obtainable in the
United States.

(c) Other military equipment procurable in the United
States or in Russia.

3. For transportation:
(a) To improve the Burma Road by paving portions with

asphalt or concrete as may be found practicable;

-2-

294

and to organize a transportation company to operate
between Burma and different points in China, with
joint American-Chinese or American-British-Chinese

participation to conduct transportation as efficiently as possible.
(b) To develop air-transport from Lashio (Upper Burma)
to Kumming, and on other routes as may be practicable,

by purchasing and operating additional transport
planes to be operated by the China National Aviation
Corporation.

(c) To complete the Burma Railway, which is estimated

to be practicable within two years, in order to

increase transport facilities, and in preparation
for a final counter-attack when world conditions
permit or require.

295
C

July 15, 1940

0

P

Y

SECRET
MILITARY EQUIPMENT

(1) 10,000 7.9 mm light machine gune
(2) 300,000,000 7.9 mm cartridges
(3)

7.9 mm infantry rifles

(4)

37 mm anti-tank guns

(5)

75 mm mountain guns

U.S. $2,500,000
7,500,000

10,000,000

MATERIAL FOR ARSENALS

Material for rifles and light and heavy
machine guns

Material for trench mortars of various
calibres, and shells
Explosives, propellants and fuses for shells
Lead, copper, tin plate
Machinery and accessories

10,000,000
30,000,000

MILITARY AIRPLANES

300 pursuits, 100 light bombers with spare parts

40,000,000

U.S.$70,000,000

EXHIBIT B

296

C

0

P

Y

July 11, 1940

SECRET
PLAN FOR CHINESE CURRENCY SUPPORT

1. PRESENT POSITION AND PROSPECTS

Received from
T. V. Soong

The Anglo-Chinese Stabilization Fund of L 10,000,000 created
in March, 1939 (hereinafter called Fund A) now has on hand approximately
62,000,000. The second Fund, which was recently created by Chinese
Government Banks and a British Bank (hereinafter called Fund B), has
so far not been drawn upon, and has on hand approximately 13,000,000.

Experience of two years of stabilization operations shows that
during some extended periods these operations can be conducted without

net cost. Periods of relative stability and strain tend to alternate.
Pressure has always been great in the spring of each year, because of
the seasonal adverse balance of payments, which tends to be lifted when
the export season begins in late Summer and continuing through the Winter.

Strain has also been created by adverse political developments. Since

the first part of May, 1940, the market has acted fairly well, and in
the absence of adverse political events there should be no difficulty
in holding exchange in the neighborhood of the present level for a con-

siderable time, perhaps till the pressure of the adverse balance of pay-

ments begins early in 1941. Nevertheless, there is the probability of
political developments adverse to the currency, whose effect, however,
could be countered were it known by the public that adequate resources

are availa ble to intervene successfully in the market.

There should be flexibility in the rates of exchange to be
supported by the Stabilization Fund. The policy should be to maintain

297
-2-

July 11, 1940

a level in harmony with existing and prospective economic conditions

and not to defend any particular rate too stubbornly.
2. AMOUNT

The Anglo-Chinese Stabilization Fund of L 10,000,000 was not

quite sufficient. With the resources now in the hands of the Stabilization
Committee, i.e., the remaining portion of Fund A plus Fund B, an additional sum of U.S. $50,000,000 should suffice to maintain the currency

at a reasonable level for a year, and perhaps considerably longer. In
view of the present low level of the Chinese currency, the leverage of

a stabilization fund obviously is greater than at higher levels. If
resources are large enough to command general confidence, the amounts

that would have to be expended in market operations would tend to be less.

Therefore, it would be desirable to provide, if possi? ble, for 2 total
additional sum of U.S. $100,000,000, of which U.S. $50,000,000, however,
need not be touched.

Interest preferably would be paid only on the net amount of
the American contribution to Fund C drawn and outstanding.
3.

- we

cormon an SIMS

Chinese Banks contributed helf of Fund A and about two-thirds

of Fund B, which latter was created after the British were at war. Their
present position does not enable them to contribute any large portion

of the proposed further Fund (hereinafter called Fund c). It is necessary that the existing resources of the Chinese Government and of
Chinese Banks be conserved in view of the many grave uncertainties.
The Chinese Government has substantial necessary current expenses in

foreign currency for purchases abroad, transportation, foreign service,
etc.; and it would not be prudent to draw heavily upon remaining reserves

298
-3-

July 11, 1940

to contribute to Fund C. At the outside, if a further contribution
is deemed advisable, the maximum amount thereof from Chinese resources
would be U.S. $12,500,000.
4. PROTECTION OF AMERICAN CONTRIBUTIONS TO FUND C.

Every effort would be made to minimize the eventual cost to
Fund c, and to protect the American contribution from eventual loss.
The following provisions are contemplated.

(a) In the event of a Chinese contribution to Fund c,
such Contribution would first be applied to cover
losses when the Fund is wound up.

(b) The Chinese Government would guarantee the reimburse-

ment of losses on the American Contribution in operations of Fund C.
(c) Reimbursement of such losses would further be made

a first charge on the proceeds of an eventual loan

for rehabilitation of Chinese finances after the

hostilities.
5. RELATION OF OPERATIONS OF FUNDS A, B. AND C.

An understanding would have to be reached as to the participation of Funds A, B, and C in the purchase and sale of exchange.
Subject to the necessary consultations with Funds A and B, the following is tentatively proposed.

(a) Inasmuch as Fund B is not to sell unless and until
Fund A is reduced to the minimum necessary to be

retained by it, any sales to support the market in
the meantime would be for account of Fund A. In

this way greater protection would be furnished to
Fund C.

-4

299

July 11, 1940

(b) After Fund A falls to its minimum, further sales
would be charged to Funds B and C approximately in

proportion to the amounts of the two Funds.
(c) Purchases of exchange would be exclusively for account
of Fund A up to the time when Funds B and C commence

operations, or if purchases are made when only Fund A

is in possession of Chinese dollars. (At present only
Fund A has Chinese currency available to purchase
exchange.)

(d) Subsequent to sales by Funds B and c, and subject to
the preceding paragraph (c) purchases of exchange

would be credited as follows:
50 % for Funds A and B, and
50 % for Fund C.
6. MANAGEMENT

Obviously, the market operations of the three Funds must be
unified. It is proposed to set up a Management Committee for Fund C; and
a Coordinating Committee for Funds A, B, and C.
The Management Committee for Fund C would consist of three or

not more than five persons. The Chairman would be an American national
(preferably not connected with a commercial-Bank) appointed by the
Chinese Government upon the nomination of the American Government. A

majority of the Committee would be American nationals. The foreign
exchange funds of the Committee would be deposited in American Banks;

and the Chinese dollars funds would be kept in American Banks in China
and/or Hongkong. Operations would be conducted through any bank or
banks designated by the Management Committee. Reports concerning the

300
-5-

July 11, 1940
operations and work of the Management Committee would be rendered to
the American and Chinese Governments.

The Coordinating Committee would consist of the Chairman of
the Management Committee of Fund c, who would also be Chairman of the

Coordinating Committee; together with one Chinese and one British

national representing the interests of Funds A and B.

ANY:Om-4

EXHIBIT C

301

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE JUL 12 1940
TO

Mr. Harry White

FROM

Mr. Foley

Re: Strategic & Critical Materials
Section 5d of the Reconstruction Finance Act, as amended (U.S.C.
1934 Ed. Supp. V, title 15, sec. 606b), authorises the Reconstruction
Finance Corporation, when requested by the Federal Loan Administrator,
with the approval of the President "to create or to organize a corporation or corporations, with power (a) to produce, acquire, and carry

strategic and critical materials as defined by the President * * **.

The Reconstruction Finance Corporation is also authorized to make

loans to or purchase the capital stock of any such corporation for any
purpose within its powers related to the National Defense Program, on
such terms and conditions as the Reconstruction Finance Corporation may
determine.
This section further provides that any such corporation is authorized, with the approval of the President, to make payments against the
purchase price to be paid for strategic and critical materials in advance
of the delivery of such materials. Whenever practicable, the corporation
may require the payments so made to be used for purchases of raw or manu-

factured agricultural commodities to be exported from the United States.

Under the provisions outlined above the Reconstruction Finance Corporation could (1) when requested by the Federal Loan Administrator, and

with the approval of the President, organize or create a corporation for
the purpose of producing, acquiring, and carrying strategic materials, and
(2) make loans to or purchase the capital stock of such a corporation for
any purpose within its powers related to the National Defense Program.

Any corporation so organised could purchase strategic and critical
materials and, with the approval of the President, make payments for them
in advance of delivery. It is believed that the charter of any such corporation could be so drawn as to make it possible for the corporation to
purchase such materials from any person or persons whatsoever and, as part
of the contract of purchase, to enter into an agreement with the vendor
whereby the vendor would agree to apply the purchase price to certain speci-

fied uses, or to provide credits to third parties.

302
2

It is not believed that the language used in Section 5d of the Reconstruction Finance Corporation Act, as amended, which states that "whenever practicable, the Corporation may require that advance payments be
used for purchases of raw or manufactured agricultural commodities to be
exported from the United States" places a limitation on the use of advance
payments. In other words, this language does not require that in every

case where an advance payment is made, the advance be used to purchase com-

modities exported from this country. The language is permissive and is
only applicable when practicable.

8.10th

(NOTE: I am informed that the R.F.C. has already organized two corporations
under Section 5d, i.e. the Rubber Reserve Company and Metals Reserve Com-

pany. Each has a capital of $5 million. The Rubber Reserve Company is
organized to deal in rubber only. The Metals Reserve Company may purchase

any strategic or critical materials, but its activities so far have been

confined to the purchases of manganese and tin. Copies of the charters of
these companies are not available for examination, and it is impossible to
state whether their charter powers are broad enough to enable then to enter
into agreements restricting the uses to which the purchase price of the

materials purchased by them must be put, or requiring the vendors to make

credits available to third parties. If the charter powers of the existing

corporations are not flexible enough for this purpose, there is no reason the
why they could not be amended (inasmuch as the R.F.C. itself charters organized.)

corporations), or a new corporation with the requisite powers

a

[PUBLIC-No. 664-76TH CONGRESS]
[CHAPTER 427-3D SESSION]
[H. R. 9958]

AN ACT
To authorize the purchase by the Reconstruction Finance Corporation of stock of

Federal home-loan banks; to amend the Reconstruction Finance Corporation

Act, as amended, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That section 304
of the Act entitled "An Act to provide relief in the existing national
emergency in banking, and for other purposes", approved March 9,
1933, as amended (U. C., 1934 edition, title 12, sec. 51d; Supp. V.
title 12, sec. 51d), is hereby amended by adding at the end thereof

the following new paragraph:

"The Reconstruction Finance Corporation is authorized to purchase at par any part of the stock of any Federal home-loan bank
owned by the United States, as evidenced by certificates, receipts,
or otherwise, in amounts to be determined by the Corporation, with
the approval of the Federal Loan Administrator; and the Secretary
of the Treasury is authorized on behalf of the United States to sell
such stock to the Corporation. Any such stock so purchased by the
Corporation and
shall be held subject to the same conditions, requirements,
rights, privileges
for allby
dividend
provisions)
as are(including
provided
law inorconnection and retirement with the

ownership of such stock by the United States.".

SEC. 2. Section 2 of the Reconstruction Finance Corporation Act,
as amended (U. S. C., 1934 edition, title 15, sec. 602), is hereby
amended by adding at the end thereof the following new paragraphs:

"The Corporation is authorized to make payments from time to
time to the Secretary of the Treasury in amounts to be determined
by the Corporation, with the approval of the Federal Loan Adminis-

trator. for the partial retirement of its capital stock at par and in
payment of dividends from earnings. The aggregate amount of

notes, debentures, bonds, or other such obligations which the Corpora-

is to issue and have at any one

under the of law in force on the
tion authorized provisions outstanding date this paragraph time

takes effect shall not be decreased by reason of any retirement of
capital stock under this paragraph, and such aggregate amount is
hereby increased by an amount sufficient to carry out the provisions
of
paragraph
and
the second paragraph of section 304 of the
Actthis
of March
9, 1933,
as of
amended.

"The Corporation, on or before June 30, 1941, may retire its
capital stock and pay dividends under the preceding paragraph of
this section, and may purchase stock of the Federal home-loan banks
under section 304 of the Act of March 9. 1933. as amended, in an
aggregate amount of not to exceed $300,000,000 to be determined by
the Secretary of the Treasury: but the Corporation, with the approval

303
2
3

(Pcs. 664.)

(PTS BU)

of the Federal Loan Administrator, shall determine that

such manufacture itself. The Corporation may make loans to, or
purchase the capital stock of, any such corporation for any purpose
within the powers of the corporation as above set forth related to
the national-defense program, on such terms and conditions as the

of such aggregate amount which may be used for the retirement portion

the capital stock of the Corporation, the payment of dividends, of
the purchase of such stock of the Federal home-loan banks."
SEC. 3. (a) The third paragraph of section 5 of the Reconstruction Finance Corporation Act, as amended (U. S. C., 1934 edi.

and

Corporation may determine.

"Any corporation created or organized by the Corporation under
the preceding paragraph is also authorized, with the approval of
the President, to make payments against the purchase price to be
paid for strategic and critical materials in advance of the delivery
of such materials, Whenever practicable, the Corporation may
require the payments so made to be used for purchases of raw or
manufactured gricultural commodities to be exported from the

tion, title 15. sec. 605; Supp. V. title 15, sec. 605), is hereby
amended by striking out "$350,000,000" and inserting in lieu thereof
"$500,000,000".

(b) The first sentence of section 3 of the Act entitled "An Act
to extend the functions of the Reconstruction Finance Corporation
for two years, and for other purposes", approved January 31, 1985,
as amended (U. S. C., 1934 edition, Supp. V. title 15, see. 605m),
is hereby amended by striking out "January 31, 1945" and inserting
in lieu thereof "January 31. 1955"
SEC. 4. Section 3 of the Federal Farm Mortgage Corporation Act
S. C., 1934 edition, title 12, sec. 1020b) is hereby amended by
adding at the end thereof the following new sentences: "The Federal
Farm Mortgage Corporation is authorized to repay on or before
June 30, 1941, to the Secretary of the Treasury on behalf of the

United States.".

SEC. 6. That (a) section 1 of the Act approved January 26, 1937
(U. S. C., 1934 edition, Supp. IV, title 15, sec. 613c), as amended,
is hereby amended by striking out "June 30, 1941" and inserting
in lieu thereof "January 22, 1947": (b) the first sentence of section
4 of the Reconstruction Finance Corporation Act (U. S. C., 1934
edition, title 15, sec. 604), as amended, and the first sentence of
section 14 of the Reconstruction Finance Corporation Act (U.S.C.,

United States, all amounts in excess of $100,000,000 theretofore subbed to the capital stock of the corporation. The proceeds of such

1934 edition, title 15, sec. 614), as amended, are hereby amended by

striking out the word "ten" and inserting in lieu thereof the word
"fifteen" (c) the second paragraph of section 5d of the Reconstruction Finance Corporation Act (U. S. C., 1934 edition, Supp.

repayment shall be held in the Treasury of the United States as
fund available for subscription, by the Governor on behalf of the
United States with the approval of the Secretary of the Treasury,

IV. title 15, sec, 606b), as amended, is hereby amended by striking
out "June 30, 1939" wherever it appears therein and inserting in lieu

to the capital of the corporation when, in the judgment of the

thereof "January 22, 1947".
Approved, June 25, 1940.

directors of the corporation, additional subscriptions to its capital
are necessary."

SEC. 5. Section 5d of the Reconstruction Finance Corporation Art,
as amended (U. S. C., 1934 edition, Supp. V. title 15, sec. 606b),
is hereby amended by adding at the end thereof the following new
paragraphs:

"In order to aid the Government of the United States in its

national-defense program, the Corporation is authorized"(1) To make loans to, or, when requested by the Federal Loan
Administrator with the approval of the President, purchase the
capital stock of, any corporation (a) for the purpose of producing,
acquiring and carrying strategic and critical materials as defined
the President, and (b) for plant construction, expansion and equip

ment, and working capital, to be used by the corporation in

the

manufacture of equipment and supplies necessary to the national
defense, on such terms and conditions and with such maturities
the Corporation may determine; and
"(2) When requested by the Federal Loan Administrator,
the approval of the President, to create or to organize a corporationcarry
as

with

or corporations, with power (a) to produce, acquire, and to
strategic and critical materials as defined by the President

(b)

purchase and lease land, to purchase, lease, build, and expand plants,
and to purchase and produce equipment, supplies, and machinery, war.
for the manufacture of arms. ammunition, and implements of in such

(c) to lease such plants to private corporations to engage for

manufacture, and (d) if the President finds that it is necessary in
a Government agency to engage in such manufacture, to engage

304
EXHIBIT D

Received from
T. V. 500mg

C

0

P

Y

July 12, 1940
TENTATIVE OUTLINE OF A PLAN FOR A LOAN SECURED ON WOLFRAM

1. Production of Wolfram, etc.
The estimated production figures for wolfram, antimony and

tin in China for the current year (1940) are as follows:
Wolfram 15,000 tons
Antimony 12,000 tons

Tin

13,000 tons

The production, transportation, and sales of these metals and
ores are under the unified control of a governmental organ, the National
Resources Commission. The producing regions of these metals are almost

wholly in the free-China area, and strenuous efforts are made to main-

tain the production figure at a high level. Domestic consumption of
these metals is negligible, and almost the whole amount of annual pro-

duction is available for export.
Needless to say, war conditions during the past three years
have imposed a serious handicap upon the production of mineral ores in

China. The fact that the present level of production is still maintained,
in spite of such a serious handicap, points towards the possibilities
of great expansion, once the situation returns to something near normal.
2. Export Situation

During the last two years export figures for wolfram, antimony,
and tin have not been able to keep up with the level reached before the

war. Transportation difficulties are in the main responsible for the
slackness of export. Under the stimulus of heavy foreign commitments,

however, it is certain that export figures will pick up, especially as
the Government is determined to overcome all difficulties in the way of
mining and transportation of the products.

305
-2-

3. Commi tments

A portion-but relatively a small portion--of the metals
produced in China has been earmarked for the repayment of export credits

granted by foreign countries, notably the United States and the U.S.S.R.

Commitment to the United States is in the form of 40,000 tons of tin,
repayable in a period of 7 years. (The schedule ranges between 3,000 tons
to 7,500 tons a year.) Commitment to U.S.S.R. is somewhat more flexible.

In the first place, only about one-half of the payment is to be made in
mineral products, the other half being payable in tea, wool, skins, etc.
In the second place, the composition of the minerals earmarked for payment

is subject to negotiation from year to year. For the year 1939-40, the
schedule agreed upon specifies 5,000 tons of wolfram, 5,000 tons of an-

timony, and 3,000 tons of tin. It is possible that some reduction in
the amount of wolfram to be delivered to the U.S.S.R. even in the current
year could be arranged, in view of a provision in the agreement grant-

ing flexibility in deliveries.
The British export credit also has to be paid in part in
minerals. But the amount involved is insignificant.
4. Amount Available as Security

For the current year, the estimated amount of minerals pro-

duced still available as security for further export credit or loan is
as follows:

Wolfram 10,000 tons
Antimony 7,000 tons
Tin

4,000 tons

In years to come, the corresponding amount should be considerably greater,

in view of the anticipated increase in production.

306
-3-

In addition, because of the flexible terms of the existing
arrangement with the U.S.S.R., the range of mineral products available

as security for new loans is widened. In other words, if the American
Government manifests a greater interest in wolfram than in antimony and
tin, arrangements may be made whereby greater quantities of antimony

and tin would be delivered to the U.S.S.R., so as to free a correspondingly larger quantity of wolfram.
5. Tentative Plan for Loan

The following table is constructed upon the basis of using

only wolfram as security, and outlines a tentative plan for a loan of
U.S. $50,000,000. The period that the loan would run is assumed to

be ten years, with interest rate at 4 percent. It is also assumed that
China's annual commitment to the U.S.S.R. continues at the present

figure, namely, 5,000 tons a year, although as stated the commitment
is by no means definite and could be reduced, if necessary, to a lower
figure.

57,800

64,200

122,000,000

122,000

64,200,000 172,000

14,200,000

50,000,000

Total

2,600

10,400

13,000,000

13,000

10,400,000 18,000

400,000

10,000,000

1949-50

2,200

10,800

13,000,000

13,000

10,800,000 18,000

800,000

10,000,000

1948-49

7,000

6,000

13,000,000

13,000

6,000,000 18,000

1,000,000

5,000,000

1947-48

6,800

6,200

13,000,000

13,000

6,200,000 18,000

1,200,000

5,000,000

1946-47

6,600

6,400

13,000,000

13,000

18,000

1,400,000

5,000,000

1945-46

5,900

6,600

12,500,000

12,500

6,600,000 17,500

1,600,000

5,000,000

1944-45

5,200

6,800

12,000,000

12,000

6,800,000 17,000

1,800,000

5,000,000

1943-44

4,500

7,000

11,500,000

11,500

7,000,000 16,500

2,000,000

5,000,000

1942-43

9,000

2,000

11,000,000

11,000

16,000

2,000,000

2,000,000

-

1941-42

8,000

2,000

10,000,000

10,000

15,000

2,000,000

2,000,000

-

1940-41

Tons

Tons

Tons

Tons

$

6,400,000

$

$

$

payment

Wolfram

scheduled
to meet

Surplus

required

Am't of

Estimated

Wolfram

Am't of

as Security
Available

as Security
Available

Production

Wolfram

Wolfram

Value of

Am't of

Wolfram

Estimated

Estimated

Estimated

Total

Interest Due

Principal Due

Am't of
Table I

July 12, 1940

TENTATIVE SCHEDULE FOR SECURITY OF A LOAN OF U.S. $50,000,000
Y

Year

EXHIBIT E

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 15, 1940
TO

Mr. White

FROM

Mr. Ullmann

Subject: The U.S.S.R. as a source of strategic and critical materials
The United States may be able to purchase strategic and critical
materials from the U.S.S.R. to the extent of from $100 million to
$200 million for delivery over a five-year period. (This sum is in
addition to our normal trade with the Soviet Union, which amounted to

$24.5 million in 1939.)

According to this estimate, the following materials might be
annually obtainable in the following quantities and values:
Material
Manganese (ore)

Chromite (ore)
Mercury

Asbestos (unmanufactured)

Platinum (ingots)
Fluorspar (ore)

Tin (ore or metal)
Mica (strategic - unmanufactured)

Graphite (natural

Quantity

Value

450,000 long tons
100,000 long tons
7,000 flasks
(76 lbs.)

$10,000,000
2,000,000
1,400,000

100,000 tons
60,000 troy ounces
30,000 tons
2,000 tons
(metal content)
10,000 tons
10,000 tons

Total

5,000,000
3,000,000
1,000,000
2,000,000
500,000
250,000

$25,150,000

The above estimates are based on the best available information,
which is neither up to date nor comprehensive. There are many strategic
materials which are known to be produced in the U.S.S.R., but for which

no adequate statistical information is readily accessible. Before any
definite conclusion can be reached as to the extent of possible purchases,
it would be desirable to obtain the necessary information from the

Soviet Government as a basis for a more detailed survey.

308

309

Manganese

Use: Manganese is a strategic material, used in the manufacture of steel.

It has been considered of "first priority".

United States Consumption: 1937

Produced in the United States
Imported - From U.S.S.R.

73,000 long tons ore

384,000

Imported - From other countries 528,000
Total imports

912,000 long tons ore

Apparent consumption

985,000 long tons ore

Imports from "other countries" came principally from the Gold Coast,
Cuba, Brazil. Russian ore has a higher manganese content than Western
Hemisphere ore.

United States Emergency Requirements: 12 months (Army estimate)
Domestic Production
Imports

Total requirements

185,000 long tons ore
277,000 long tons ore
602,000 long tons ore

(Deficiency to be made up from inventories)
This appears to be an underestimate of import tonnage requirements.

Estimated cost of imports: $6,000,000.
Soviet Manganese Production

1938 U.S.S.R. production
Known U.SS.R. resources

2,273,000 metric tons ore
785,000,000 metric tons

Conclusion

The United States can probably obtain a large part of its manganese
import requirements from the U.S.S.R. The War Department estimates of
manganese requirements appear low, especially in view of the 1937 volume.
If, however, the United States were to import half the total 1937 quantity,
the cost of imported manganese would amount to about $10 million per year
(using the Army estimates of emergency prices.)

310

Chromium

Use: Chromium is a strategic material (of "first priority"), used in
alley steels, in refractories, in pigments, and in chronium
plating (e.g., machine gun barrels).

United States Consumption: 1937

The United States depends almost entirely on imports for its supply

of chromite, importing chiefly from British Africa, from the Philippine

Islands, Cuba, and Turkey. The Cuban ore is of low grade, and is there-

fore used in refractories. It is understood that Turkey has agreed to
sell chromite to Germany, a factor which (together with shipping diffi-

culties) makes Turkey a doubtful source of supply. 1937 consumption was

as follows:

Domestic Production
Imports from U.S.S.R.

2,000 long tons ore
None

Imports from other countries

554,000 long tons ore

Apparent consumption

556,000 long tons ore

United States Emergency Requirements: 12 months (Army estimate)
The War Department has estimated that in an emergency, the United

States would need 285,000 tons of chromite per year, using all possible
substitutes. It estimated that domestic mines could produce 64,000 tons
annually, which appears high in view of actual production (812 tens in
1938). Assuming its estimates to be correct, however, the United States
would need to import approximately 200,000 tons per year.
Soviet Chromite Production

Soviet production data are not available for years since 1936, when
their output was 217,000 metric tons. Production is probably appreciably
higher at present, since it is known to have risen sharply through 1936:
-

1934
1935

-

1936

-

127,400 tons
177,900 tons
217,000 tons

Furthermore, Soviet publications claimed an inadequacy of chromite in

in 1936, while they claimed requirements to be 100 percent satisfied
1938, when Soviet industry had expanded appreciably from 1936 levels.

311

Chromium

(Continued)

Soviet production now, it is felt, is probably well over 300,000 tons
per year, a part of which the U.S.S.R. might be willing to export, esspecially since sales of the ore would in no way tax her refining
facilities.
The United States has imported no chromite from the U.S.S.R. since
1936. As far as can be determined, the Soviet Union has exported none
since that time.
Conclusion:

If the United States, under an emergency and using substitutes, were
to import half its 1937 importations, it would need to purchase abroad

277,000 tons of chromite per year, which would involve an approximate cost
of $7,000,000 (using Army estimates of emergency prices). If the Soviet
Union were willing to sell us 100,000 tons annually, the cost involved
would amount to, roughly, $2,000,000.

312

Mercury

Use: Mercury is a strategic material, used in manufacturing fulminate
for detonating high explosives and fixed ammunition. It is used

also in drugs (calonel, corrosive sublimate, etc.) in paints for
ship bottoms, in electrical apparatus, and instruments (barometers,

thermometers, etc.)

United States Consumption: 1937

The United States has in the past imported a substantial portion of
its consumption: approximately half in years of high consumption and less
in other years, with domestic consumption remaining relatively steady.
Imports have come principally from Spain and Italy, with lesser amounts
from Mexico. 1937 consumption was as follows:
Domestic production
Imports from U.S.S.R.

16,508 flasks (76 pounds)

Imports from other countries

18,917 flacks (76 pounds)

Less exports

Apparent consumption

None

454 flasks (76 pounds)

35,000 flasks (76 pounds)

United States Emergency Requirements: 12 months (Army estimates)
The War Department has estimated that requirements in an emergency

would rise. The Bureau of Mines has recently (1939) estimated that the
emergency requirements would amount to 46,000 flasks annually. Since
domestic production has followed prices, it has been estimated that the
United States output might reach 30,000 flasks under conditions of high
emergency prices, to which can be added 2,200 flasks from Mexico. This
would leave a deficit of approximately 14,000 flasks which could be supplied only by imports.

Since Spanish and Italian mercury might be cut off from a rising
American market, the price might readily reach $100 per flask (it was
$96.65
in June 1937). The cost of importing 14,000 flasks would be
$1,400,000.
Soviet Mercury Production

Reliable information about Soviet production is not available. The
Minerals Yearbook (quoting the Imperial Institute) places Soviet production
at exactly 8,700 flasks in 1935, 1936, and 1937 (the latest year reported),

313

Meroury

(Continued)

which appears to be inaccurate in view of the rapid expansion of Soviet

production in all other fields. This figure, however, would place the

U.S.S.R. fourth in the world's mercury-producing countries.

It is probable that Soviet production has expanded rapidly in recent
years. As far as can be determined, the U.S.S.R. has exported no mercury.
Conclusion

The United States is faced with a deficiency in mercury, since requirements are rising and since its two most important foreign sources of supply
may be cut off. The U.S.S.R. may be able and willing to supply us with
perhaps 7,000 flasks annually, which would cost approximately $700,000.
1400,000

314

Mica

Uses: Mica is a strategic material used in the electric and radio industries. A large part of the world's mica production is of nonstrategic mica, ground and pulverized for many purposes, including

roofing.

United States Emergency Requirements: 12 months (U.S. Army estimate)

The War Department has estimated that the United States would need
2,600 short tons of strategic mica annually during an emergency (this
appears low in view of peace-time consumption). It estimated that our
production plus normal stocks could more than supply this demand. How
ever, this conclusion was based on #contemplated exploitation of all domestic resources at unrestricted costs".

In the past, the United States has imported chiefly from British
India. If anything should cut off the Indian supply, the United States
might find it practical to import mica from the U.S.S.R. in order to ourtail too sharp a price rise.
Soviet Mica Production

In 1935, the U.S.S.R. produced over 8,000 tone of mica, twice the
1934 output and exceeding British India's output. If the U.S.S.R. production expanded as rapidly as India's, Soviet production in 1938 would

amount to over 14,000 tons.

The United States has imported no Soviet mica, nor is it known that

the Soviet Union has exported any.
Conclusion

The United States might find it practical to import 1,000 tons of

unmanufactured
mica from the Soviet Union, which might cost $500 per ton
or $500,000.

315

Asbestos

Use: Asbestos is a critical material, used in the automotive industries
for brake linings and gaskets. It is also important for heat insulation in various types of construction and equipment.

United States Consumption: 1937

The United States has been largely dependent on imports for asbestos,

with Canada the principal supplier (supplying about 90 percent). The
Soviet Union was second with 3 percent. United States consumption in
1937 was as follows:

Domestic production
Imports from U.S.S.R.

10,000

12,000 tons (unmanufactured)

Imports from other countries 297,000
Total imports
Less exports
Apparent consumption

307,000 tons
3,000 tone
316,000 tons

Soviet Asbestos Production

The U.S.S.R., in 1936, produced 125,117 metric tons of unmanufactured

asbestos, which was a rise of 30 percent from 1934. If Soviet production
continued
to increase at the same rate, it probably will reach over 200,000
tons
this year.
The Soviet Union, in 1937, exported 27,000 metric tons.
Conclusion

The United States, faced with an emergency, might have to import more

asbestos from the U.S.S.R. If that country were able and willing, it might

be able to sell the United States 100,000 tons of raw asbestos at, perhaps,
$50 per ton (the 1938 value of our imports from the U.S.S.R.) or $5,000,000.

316

Platinum

Use: Platinum is a critical material, used in making sulfurio and
nitric acids, as well as in many laboratory instruments, electrical
contacts, and manufacturing processes.

United States Consumption: 1937

The United States is largely dependent on imports for platinum, although a large part of the imports are in crude forms which are refined

domestically.

U. S. production (from imported materials)
U. S. production (from domestic materials)

87,000 troy ounces
5,000 troy ounces

Imports of ingots, bars, sheets, etc.
From U.S.S.R.

From other countries
Less exports (estimated)
Apparent consumption

15,000 troy ounces
47,000 troy ounces
50,000 troy ounces
104,000 troy ounces

Imports of refined metal have come largely from the United Kingdom.
Columbia has supplied a large part of our crude platinum imports.
U.S.S.R. production

The U.S.S.R. is known to produce annually between 100,000 and 200,000

troy ounces of platinum, probably nearer the latter figure.
Conclusion

The United States, in am emergency, would necessarily increase those
industries which use platinum. However, the sale of platinum in consumers'
goods (jewelry) would probably decline, possibly enough to offset the

industrial increase. Nevertheless, we will have to import considerable
quantities. The U.S.S.R., already on an export basis, might be willing
to sell us 60,000 troy ounces annually, which would cost approximately
$3,000,000.

317

7-15-40,

My dear Basil:

In view of the very strong personal reasons which you feel
make it imperative that you return to your former business, as
expressed to me both verbelly and in your letter of July 15, I
have no choice but to accept your resignation as Commissioner of
Customs and Assistant to the Secretary of the Treasury, at the
close of business July 15. 1940.
You came to the Treasury at my personal request at a time of
extreme emergency and I as sure you realize what a deep satisfac.
tion it has been to me to have had the Customs Service in your
charge during your brief stay with us. The Treasury has been
fortunate during the period of your service to have had with it
a person of your resourcefulness and capacity, and it is because

of this that your leaving is of particular regret.

I personally have enjoyed our relationship and shall miss
you, but I shall look forward to seeing you from time to time and
continuing our very friendly relations.
Sincerely,

Secretary of the Treasury.

Mr. Basil Harris,
Treasury Department,
Washington, D. C.

INTERNATIONAL

AI

318

July 15, 1940.

Dear Mr. Secretary:

I herewith tender my resignation as Commissioner of
Customs and Assistant to the Secretary of the Treasury,

effective as of the close of business today, July 15, 1940.
As I have heretofore told you, personal reasons make 11

imperative that I return to my former business.

I think you will find affairs in the Customs Bureau in
good shape and 1 - confident my successor can carry along

with no great difficulty.
May I express to you, Mr. Secretary, my appreciation
for the opportunity to have worked with you and your
associates is the Treasury Department and my wars thanks

for the continued and loyal support you have always given

no is - endeavors.
Sincerely yours,

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury.
Hids

319
BRITISH EMBASSY,
WASHINGTON, D.C.

July 15th, 1940.
Personal and Secret.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a

copy of the latest report received
from London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Loderan
The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

Telegram despatched from London on

the evening of July 14th.

Further report by Commander-in-

Chief upon British-Italian naval action
Mediterrenean July 9th states:"Warspite" also engaged two 8" gun

and two 6" gun cruisers and may have obtained

one hit on 8" gun cruiser. Yesterday an aircraft of Royal Dutch air force attacked U-boat
near Holyhead.

No visible result. Eight

dive bombers attacked British A/8 "Swaller"

off Dover inflicting slight damage.
2. Night July 12th-13th ten Whitleys
reached navel armanents target at Enden. Large
fires which could be seen 70 miles away were

started in target area one stick of bombs seen
to completely demolish a building. Owing to
bad weather only four Whitleys reached naval
armements target Kiel, about 50 medium bombs

dropped, observation results difficult.
Yesterday 22 Blenheims despatched against

aerodromes and industrial targets in northwest

Germany; majority of aircraft forced to abandon
task owing to weather conditions however oil
plant at Honheim aircraft Brussels canal bridges
Two aircraft missing.
near Burges attacked.
One Hudson aircraft bombed Harlingen quay and

warehouses hit and fires started. Another
Hudson/

-2-

Hadson attacked we mine-aveapers off Terechelling

region obtaining . close miss. Last night
twelve Stemhoine attacked barges Srageo-Ostend area

several fires starteds one aircraft missing.
Ninoty-nise bochers compatched against ship-

building yeads and cooks and industrial and railway
targete northwest Germany also aqueduest over

Destinati-In Canal. All sireraft returned.
successful mine laying carried out Elbe estuary
and at

3. - air activity July 13th on reduced

seale. - attacks - chipping but no -

OF casualties reported. Chief fighter mm
nonto were off Portland in Dever area and off

Calais. Many sirereft destroyed six bombore
six fighters (confirmed) five bonbers three
fighters (moonfirmed). Our econotices three
hurricanne. Transport flights from northwest
Germany so north Denmark continue on large seale.

4. Two neutral shipe sunk in western
approaches reported yesterday.

5. Mediterraneam. Reported Italian air
staff worried about large number of ensualties
among experienceipilete over short period and
are wging Genuan support in sircraft and erove.
- a/t edumns engaged near Capasso and casual-

ties inflicted.
6.

East Africa. on July 13th enemy forces

attaching Noyale appeared greatly reinforced.
Our reinforcements held up on south side by light
machine gans and artillery.

Situation of
garrison/

322

gerrison considered seriousoving to water
shortage.
In this area one Hartebeeste
aircraft shot down and two others driven down

on our territory by Fiat fighters.

Two

aircraft of S.A.A.F. bombed Kiemaya July 11th.
On night of July 10th-11th patrol Somaliland
Camel Corps attacked enemy frontier post All Bobs

inflicted essualties and made successful with
draval on July 12th. Two enemy battalions
attacked and captured frontier post west
of Dobo pass.

323

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

FROM

E. H. Foley, Jr.

July 15, 1940

For the Secretary's Diary
Mr. Knudsen telephoned me early this morning and said that he had been

talking to Mr. Jones about the changes in the proposed method of financing
the Packard additional facilities to manufacture the Rolls-Royce Merlin Engine.
Mr. Jones was in Chicago when Mr. Knndsen spoke to him over the telephone.
Mr. Jones told Mr. Knudsen that he had discussed the arrangements with me and

would be glad to talk further with me when he returned from Chicago. At
Mr. Knudsen's request, I had luncheon with him today. He handed me the
attached letter from Mr.Jones and the attached plan which Mr. Knudsen had
prepared in expectation of approval from Mr. Jones.
Mr. Knudsen seemed quite disturbed that the assurances you had given to

Mr. Purvis that the British would receive the same treatment from the R.F.C.

in regard to additional plant facilities as the United States received would
be violated. I told them that I still thought the original arrangement could
be carried out by the R.F.C., but if Mr. Jones wouldn't go along on that
basis it was up to us to modify the arrangement to satisfy Mr. Jones, provided

that the British didn't have to put up additional funds. Mr. Kmadsen asked
me to put the revised formula on paper which I agreed to do and telephone
him later in the afternoon.

324

-2 At 5:15 I telephoned Mr. Knudson that I was ready and he told me to
come over. Chuck Kades and I called on Mr. Knudsen and left with him the
attached revised plan which Mr. Knudsen read carefully and approved. He

said that he would telephone Mr. Bartman, attorney for Packard, who is to
see Mr. Purvis in New York tomorrow and tell him that the $25,000,000 is
to be deposited with the R.F.C. instead of being placed in escrow with a
private bank. Mr. Knudsen said he would explain the modification of the
arrangements to Packard when they called on him on Wednesday.

Mr. Knudsen seemed satisfied that the Treasury had not receded in any

way from its approval of the original plan but was attempting to work out
the arrangements within the limitations laid down by Mr. Jones.

E.N.7h
Attachments 3.

325

C

0

P

Y

July 11, 1940

MEETING WITH PACKARD OFFICIALS:

1. It was suggested that contact be established with the RFC and
confirmation obtained for the arrangement that the plant account on
the proposed Merlin #20 contract to be handled through the RFC with
a separate corporation organized for this purpose which will lease
the equipment and plants to the Packard Company.

2. The question was discussed as to whether an upset price wouldn't

be the best way to start. Packard officials feel that a protective

clause should be placed with the upset price giving them the privilege
of cost plus a fixed fee of $1200.00 per motor for a prearranged quantity of 1500 motors in order to have an intelligent estimate as a basis

for the upset price.

3. The Packard officials brought out as the main point, the question
of cancellation obligations by either of the contracting parties in
case of termination of the contract before completion. The Packard
Company would feel it necessary for its own protection to be assured

through proper arrangements with the British Purchasing Commission on
the one hand, the United States Government on the other, that it would
be in a position to meet its obligations for the commitments and work
done
or both.out of advance payments and deposits by the British Commission,

4.
is understood
theItAmerican
contract. that in general the British contract will follow
5. It was felt that the amortization problem on the engine contract
would
phase. not be any particular problem because of the separate Corporation

6. The British Purchasing Commission will pay in advance cost of tools,
dies and fixtures, the total amount being $4,200,000 for the British,
to
item.be amortised over 6,000 engines. There shall be no profit on this
7. The initial order for 12 hand made engines to be made on a cost
basis and will require a payment of $500,000 for the British portion.

326

8. $25,000,000 to be deposited to the Credit of Packard Company
in some bank acceptable to British Government and Packard Company

in a special deposit to include no other funds to be drawn upon
from time to time by Packard Company, upon presentation to the

depository of requisitions sworn to by the President, a Vice President or the Treasurer of Packard Company to the effect that the
funds so withdrawn are needed for or will be used for the payment
of obligations incurred by Packard Company in the performance of
its contract with the British Government or for reimbursement of
Packard Company for expenditures already made by it for that purpose. Payments by the British Government from time to time on
account so that the fund standing to the credit of Packard will
at least equal`the outstanding obligations of Packard incurred
in connection with its contract with the British Government.
Requisitions for payment will be presented on the 15th of each
month payable on the first of the month following.
9. In case of cancellation the British Government will assume
two-thirds of the unamortized part of the Reconstruction Finance
Corporation loan covering the plant account of about $20,000,000
and will pay all labor and material expense and commitments due

on the date of cancellation of the order for 6,000 Merlin engines.
A handling charge of 10% will be paid to Packard in this case.

10. The entire transaction to be subject to audit by a mitually
satisfactory responsible audit firm after termination of order.

327
FEDERAL LOAN AGENCY
C

0

WASHINGTON
P

Y

July 12, 1940

Dear Mr. Knudsen:

The RFC will be glad to assist the Packard Motor Company
in its proposed plant expansion and in the purchase of new equipment, in order that it may manufacture airplane engines to aid the
Government of the United States in its national defense program.

There would be no objection to the manufacture at the
same time (in the improved plant and with the new machinery) of
engines for sale to England, provided other capital is furnished
for such plant expansion and new equipment in the same ratio to
the capital supplied by RFC that the volume of equipment sold
abroad bears to that sold for use by the Government of the United

States.

It is my understanding that the Packard Motor Company

will build nine thousand motors, of which two-thirds are to be
sold to the British Government and one-third for the Government
of the United States. I therefore suggest that only one-third of
the cost of the plant and equipment should be financed by the RFC.

We understand from your statements that the British
Government will deposit $25,000,000 in escrow to guarantee its
performance of the contract.

I suggest that instead of this $25,000,000 being deposited with a bank, it be deposited with the RFC for the account of

the Packard Motor Company, to be applied and used as contemplated
by the contract as made between the British Government and the
Packard Motor Company, the RFC to furnish necessary capital for
labor and materials and allocate an appropriate amount of the
deposit toward plant and equipment.

Sincerely yours,
(signed) Jesse H. Jones
Honorable William S. Knudsen
Advisory Commission to the

Council of National Defense
Washington, D. C.

Administrator

328
July 15, 1940.

Mr. Jones suggests in his letter of July 12 that instead of depositing

the $25,000,000 belonging to the British Government in escrow to guarantee
its performance of the contract as now contemplated, this sum be deposited
with the RFO for the account of the Packard Motor Company and an appropriate
amount of the deposit be used for the purchase of the new machinery and
equipment. It would seem that this could be accomplished within the framework of the existing understanding in the following manner:
1. The RFC would loan to Packard from its own funds an amount
equal to 1/3 of the cost of the new machinery and equipment. Packard

will include in the sales price of each Rolls-Royce engine produced
for the United States an amount which, if the United States busy 3,000
engines, will yield a sum equal to such loan by the RFC from its own
funds.
2. The British Government will loan to Packard an amount equal
to 2/3 of the cost of the new machinery and equipment. Packard will
include in the sales price of each Rolls-Royce engine produced for the

British Government an amount which, if the British Government buys

6,000 engines, will yield a sum equal to the loan from the British

Government.

3. Packard will agree to pay to the RFC and the British Government monthly on the first day of each month, beginning with the month

after the first of the Rolls-Royce engines is delivered to the United

States, or to the British Government (as the case may be), the amount
so included in the sales price of each Rolls-Royce engine multiplied
by the number of engines delivered to the United States or to the British
Government, respectively, during the preceding month. Packard will
also
to it.pay interest as may be agreed upon annually on the money loaned

4. If the United States cancels its orders for Rolls-Royce
engines from Packard, the RFC will be entitled to repossess the new
machinery and equipment purchased with the proceeds of its loan.

5. If the British Government cancels its orders for Rolls-Royce

engines, Packard will be released from any obligation to repay the

loan to the British and the notes will be cancelled by the British.
6. So much of the $25,000,000 as is not needed for the acquisi-

tion of the new machinery and equipment in accordance with the above
will be deposited with the RFC under the same escrow agreement which

would be used if it were deposited with a private bank, and will be
applied in payment of the purchase price of the Rolls-Royce engines
sold to the British Government and last delivered, and in event of
cancellation by the British Government will be used to reimburse Packard
for
the cost of labor and materials not yet reimbursed through the sale
of engines.

329
FEDERAL LOAN AGENCY
WASHINGTON

July 12, 1940

Dear Mr. Enudeens

The RFC will be glad to assist the Packard Motor Company
in its proposed plant expansion and in the purchase of new equip-

ment, in order that it may manufacture airplane engines to aid the
Government of the United States in its national defense program.
There would be no objection to the manufacture at the
same time (in the improved plant and with the new machinery) of
engines for sale to England, provided other capital is furnished
for such plant expension and new equipment in the same ratio to
the capital supplied by RFC that the volume of equipment sold
abroad
bears to that sold for use by the Government of the United
States.
It is ay understanding that the Packard Motor Company

will build nine thousand motors, of which two-thirds are to be
sold to the British Government and one-third for the Government
of the United States. I therefore suggest that only one-third of
the cost of the plant and equipment should be financed by the RFC.

We understand fres your statements that the British
Government will deposit $25,000,000 in escrow to guarantee its
performance of the contract.
I suggest that instead of this $25,000,000 being daposited with a bank, it be deposited with the RFC for the account of

the Packard Motor Company, to be applied and used as contemplated
by the contract as made between the British Government and the
Packard Motor Company, the RFC to furnish necessary capital for
labor and materials and allocate an appropriate amount of the
deposit toward plant and equipment.

Sincerely yours,
(signed) Jesse E. Jones
Administrator
Honorable William 8. Kaudsen
Advisory Commission to the

Council of National Defense
Washington, D. 6.

330
July 11, 1940

MEETING WITH PAGEARD OFFICIALS

1. It was suggested that contact be established with the RFC and
confirmation obtained for the arrangement that the plant account the proposed Herlin #20 contrast to be handled through the are with
& separate corporation organised for this purpose which will lease
the equipment and plants to the Packard Company.

2. The question was discussed as to whether an upost price wouldn't

be the best my to start. Packard officials feel this a protective

clause should be placed with the speet price giving them the privilege

of cost plas a fixed fee of $1200.00 per meter for a prearranged -

city of 1500 maters in order to have an intelligent estimate as a basis
for the upset price.
3. The Packard officials boought out as the main point, the question
of cancellation obligations by either of the contracting parties in
ense of termination of the contract before completion. The Faciard
Company would feel 10 accessary for its - protection to be assured
through proper arrangements with the British Purchasing Commission the one hand, the United States Government on the other, that is would

be is a position to most its obligations for the consitments and were
done
or
both.out of advance payments and deposits by the British Commission,

40
It is understood that is general the Brittah contract will follow
the American contract.
5. IS was felt that the americation problem - the engine contract

would not be any particular problem because of the deparate Corporation

phase.

6. The British Purchasing Commission will pay in advance cost of tools,
dies and fixtures, the total amount being $4,800,000 for the British,
to be apartised over 6,000 enginee. There shall be no prefit on this
item.
7. The initial order for 12 hand made enginee to be made on a cost
basis and will require a payment of 8500,000 for the British portion,

331

6. $25,000,000 to be deposited to the Credit of Paskard Company

in some bank acceptable to British Government and Paskard Company

in a special deposit to include no other funds to be drew upon

from time to time by Fackard Company, upon presentation to the

depository of requisitions sture to by the President, a Vice Prest

dent or the Treasurer of Paskard Company to the effect that the
funds so withdraw are needed for or will be used for the payment
of obligations insured by Packard Company in the performance of
its contract with the British Government or for reimbursement of
Packard Company fee expenditures already made by is for that pose. Payments by the British Government from time to time on

account so that the fund standing to the credit of Packard will
at least equilithe outstanding obligations of Packard incurred
in connection with its contract with the British Government.

Requisitions for payment will be presented on the 15th of each

month payable - the first of the month following.

9. In case of massilation the British Government will assume
too-thirds of the undorkined part of the Reconstruction Finance

Corporation loom evering the plant account of about $20,000,000
and will pay all labor and material expense and commitments due

on the date of concellation of the order for 6,000 Herlin enginee.
A handling charge of 10% will be paid to Packard in this case.
10. The entire transaction to be subject to audit by a autually
antisfactory responsible andit firm after termination of order.

332
July 15, 1940

Mr. Jones suggests in his letter of July 12 that instead of depositing

Y

the $25,000,000 belonging to the British Government in energe to guarantee
its performance of the contract an now contemplated, this our be deposited
with the RFC for the account of the Packard Noter Company and on appropriate
amount of the deposit be used for the purchase of the new machinery and
equipment. It would seem that Shis could, be accomplished within the from
work of the existing understanding in the following manners

1. The HFC would loan to Fachard from its our funds an amount
equal to 1/9 of the cost of the new machinery and equipment. Packard
will include in the sales price of each Belle-Sayee engine produced
for the United States all amount which, if the United States beay 3,000

engines, will yield a sum equal to such loan by the NFC from its -

funds.

2. The British Government will less to Fackard ea amount equal
to 2/3 of the cost of the new machinery and equipment. Packard will
include in the sales price of each Belle-Hayed engine produced for the
British Government an amount which, if the British Government bage

6,000 enginee, will yield . sun equal to the loan from the British
Government.

3. Fachard will agree to pay to the RFC and the Brittah -

most monthly on the first day of each month, beginning with the month

after the first of the Bollo-Bayee engines is delivered to the United

States, or to the British Government (as the case may be), the amount
so included is the sales price of each Belle-Boyse engine mitiplied
by the number of engines delivered to the United States or to the British

Government, respectively, during the proceding month. will

also pay interest as may be agreed upon annually on the many Leaned

to it.

40 If the United States cancels its orders for Belle-Mayee
engines from Packard, the RFC will be entitled to repossess the new
machinery and equipment purchased with the grocoods of its loan.

5. If the Brittsh Government esseals its orders for Belle-Rayee
engines, Packard will be released from any obligation to repay the
loan to the Britten and the notes will be concelled by the British.
6. So such of the $25,000,000 as is not needed for the acquisi-

tion of the new machinery and equipment is accordance with the above
will be deposited with the RFC under the same encrow agreement which

would be used if is were deposited with a private bank, and will be
applied in payment of the purchase price of the Bolle-Reyee enginee
sold to the British Government and last delivered, and in event of
cancellation by the British Government will be used to reimburse Packard
for the cost of labor and materials not yct reimbursed through the sale
of engines.

333

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 15, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL

The long-expected British program to place nearly every form of commercial
and financial settlement between the sterling area and the United States (and

Switzerland) on an official basis as from July 18, was disclosed in detail in the
morning's press. Although a rapid advance of 244 in New York's open market rate

for sterling was the initial reaction to this news, a subsequent decline cancelled

part of the gain.

Sterling opened at 3.82-3/4, as against Saturday's close of 3.71. Within
an hour, a high of 3.95 was reached. In the reaction that followed, the pound
returned to 3.83 by noontime. During the afternoon, it moved steadily upward to
close at 3.85-1/2.

As indicated by the reported turnover figures, heavy commercial orders to
purchase sterling were mainly responsible for the sharp rise in the rate. Such
purchases probably represented the covering of commitments by importers of rubber,

whisky, tin, jute and certain other products contracted for prior to March. 8, inporters of all other goods from Great Britain already having been compelled, since
July 4, to pay for their purchases on an official sterling basis.
Sales of spot sterling by the six reporting banks and the Federal Reserve
Bank of New York totaled 1302,000, from the following sources:
By commercial concerns

L 88,000

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

1144,000

Total

20,000
1302,000

Purchases of spot sterling amounted to 1428,000, as indicated below:
By commercial concerns

By foreign banks (Burope and South America)

1401,000

I 27,000
Total

1428,000

The following reporting banks sold cotton bills totaling 126,000 to the
British Control on the basis of the official rate of 4.02-1/2:
15,000 by the Bank of Manhattan
11,000 by the Guaranty Trust Company
126,000 Total

334
-

Sterling in the amount of 119,000 was purchased from the British Control at
the official rate of 4.03-1/2 by the following banks:
L 8,000 by the Guaranty Trust Company (for whisky and linen)
8,000 by the Bank of Manhattan (for whisky)
3,000 by the Chase National Bank (for rugs)

119,000 Total

The Swiss franc, after opening at .2268, advanced to .2273 and then returned

to .2271 at the close.

The other currencies closed as follows:
Canadian dollar

12-1/2% discount

Lira

.0505
.4004

Reichsmark
Cuban peso
Mexican peso

Holiday

.1990 bid, .2020 offered

We purchased $50,000,000 in gold from the earmarked account of His Britannic

Majesty's Government.

The Federal Reserve Bank of New York reported that the following shipments
of gold were being consigned to it:
$14,447,000 from Canada, representing two shipments by the Bank of Canada for its

own account, for sale to the U.S. Assay Office at New York.
2,665,000 from Brazil, shipped by the Bank of Brazil, to be earmarked for its
account as fiscal agent of the Brazilian Government.
1,657,000
from Portugal, shipped by the Bank of Portugal, to be earmarked for its
account.

$18,769,000 Total

The State Department forwarded to us a cable stating that the following gold
shipments would be made from England by the Swiss Bank Corporation, London, for sale
to the U.S. Assay Office at New York.
$ 88,000 to the Swiss Bank Corporation, New York.

12,000 to the National City Bank, New York.

$100,000 Total

The report from the Federal Reserve Bank of New York listing deposits for the
account of Asia as reported by the New York agencies of Japanese banks on July 10,
showed that such deposits totaled $37,973,000 a decrease of $543,000 since the

last report as of July 3. Included in this total were $29,368,000 in deposits with

again no office and branches.

the Yokohama Specie Bank, New York, made by its branches in China, and there were

deposits
its head branches
Japanese on
Yokohama's
of the head
officelisted
and for
Japanese
the booksNew
of The York overdraft agency
was $64,624,000, an increase of $709,000 since July 3.

The Bombay
bullion from
markets
reported to have been closed today, and no
quotations
were received
thatwere
center.

CONFIDENTIAL

335

-2In London, spot silver was fixed at 22-1/16d, up 5/16d. The forward price
was 21-3/44, up 1/4d. The U. S. equivalents were 40.11 and 39.544 respectively.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35

We made three purchases of silver totaling 225,000 ounces under the Silver
Purchase Act. Of this amount, 100,000 ounces represented a sale from inventory,
and the remaining 125,000 ounces consisted of now production from foreign countries,
for forward delivery.

BM.P.

CONFIDENTIAL

336

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

CONFIDENTIAL

DATE July 15, 1940
TO

FROM

Secretary Morgenthau

Mr. Haas DA.

Subject: The Business Situation,

Week ending July 13, 1940.
Conclusions

(1) Business activity, which has increased rapidly in

anticipation of heavy demands from the defense program, is
now tending to level out until actual armament orders reach
a volume large enough to support a higher production rate.
Evidence of some business slackening appears in:

(a) A hesitation in steel operations around the
87 per
cent level,
for
a further
rise. when the seasonal trend would call
(b) Continued weakness in steel scrap prices, which
frequently foreshadows a slackening in steel production.

(c) A
materials.
from:

further decline in prices of industrial raw

(2) The hesitation in steel activity apparently arises
(a) Asteel
heavy
finished
ataccumulation
the mills. of finished and semi-

(b) Relatively moderate backlogs of unfilled orders,
despite the satisfactory volume of new orders, due to the
output rate having risen almost as fast as the new-orders
volume.

(o)high
Thelevel.
greater difficulty of expanding steel output
at this
(3) Evidence that the defense program is becoming a more

active support to business activity appears in the recent pre-

dominance of defense projects in heavy construction awards and
in structural
steelwell
awards.
In the meantime, residential construction
is being
maintained.

337

Secretary Morgenthau - 2

Business trend shows hesitation

The rise of 13 points in the FRB index in the last two

months, chiefly because of a contra-seasonal upturn in steel
activity in anticipation of heavy armament demand, represents
an unusually rapid business improvement. It should therefore

not be surprising if business activity should level off for a
time, until the defense program and rising consumer demand

provide a solid foundation for a further advance.

Some evidence of hesitation 18 beginning to appear in

the steel industry. The steel operating rate is tending to

flatten out around the late-June level, just above 86 per cent
of capacity, whereas a seasonal rise during July is the normal
expectation. The demand for pig iron has turned light, and
many consumers are reported to have covered their requirements
through the second half of the year. Steel scrap prices
(Iron Age composite) declined 21 cents a ton further during
the past week, representing a 6 per cent decline from the peak
reached in June. Weakness in scrap prices frequently foreshadows a slackening in steel activity.
The hesitation in steel operations apparently arises from
a temporary over-anticipation of steel demand, which has resulted in an accumulation of finished and semi-finished prod-

ucts at the mills. This is to be desired, of course, in the
present situation, since it will allow the steel companies to
concentrate more fully on defense orders later in the year.
Nevertheless, it will tend to restrain further gains in steel
activity
until heavier defense orders for steel are actually
placed.
U. S. Steel inventories at high level
Our analyses of published and confidential data of the
U. S. Steel Corporation indicate the extent to which this

company has prepared for an anticipated heavy demand for steel.

The production of steel, as estimated from weekly operating
rates of the Corporation, has exceeded the published figures
of steel shipments by this company in every month since
December. (See Chart 1, upper section.) This has resulted
in a steady accumulation of inventories, which at the end of
June, according to our estimates, reached a higher figure
than the peak in late 1936. (Lower section of chart.)

338

Secretary Morgenthau - 3

A comparison of new orders with shipments of the U. S.

Steel Corporation indicates that the backlog of unfilled
orders at the end of June was relatively low. (See Chart 2.)
In other words, shipments have almost kept pace with the increase in orders, which (as the upper chart indicates) has not
reached nearly the proportions of the increase last fall.
The steel rate this week is scheduled at 86.8 per oent,
a less than seasonal increase over last week's 86.4 rate.
In view of the present moderate backlog of orders, large inventories at mills, and the increased difficulties of maintaining production at high capacity levels, it would seem that

further gains in steel production are likely to be limited, unless large new orders come in, greatly increasing the unfilled-

order backlog.

Steel orders currently are at a highly satisfactory level

for the steel companies. Orders reported by the U. S. Steel
Corporation over the past 4 weeks have averaged 95 per cent

of capacity, with 109 per cent recorded in the latest week.
This increase in steel orders, despite the Fourth of July

holiday, has supported our composite index of new orders dur-

ing the holiday week, when declines in textile and other orders
would otherwise have dropped the index rather sharply. (See
Chart 3.)

Heavy construction awards at new high
Engineering construction awards, expanded by defense

projects, rose last week to $98,039,000, a new high since

January 1939. The leading award, amounting to $16,175,000,

was for shipbuilding dooks at the Philadelphia and Norfolk
navy yards. On a daily-average basis (see Chart 4, upper
section) last week's volume shares high honors with two other
weeks in the past two months, the more recent of which was
also high because of armament projects.

Orders for defense purposes predominated in last week's

structural steel awards, bringing an upturn in the total volume. (See Chart 4, lower section.) Important awards include:
4,000 tons of structural shapes and 1,000 tone of
reinforcing bare for naval air bases in Alaska.
1,400 tons for naval air station at Pensacola.
1,300 tone for plant addition of Carpenter Steel Co.
1,200 tone for Vultee Aircraft Co.

339
Secretary Morgenthau - 4

Important
the week
were:

additions to the list of pending awards during

5,000 tons for depot supply buildings in Canal Zone.
4,500 tons for depot supply building at Ogden, Utah.
4,000
tons forIll.Government ammunition magazines at
Savanna,
1,325
tons for addition to Navy munitions building
at Washington.
2,200 tone for addition to plant of Aluminum Co.
Daily average construction contract awards, as reported
new high for the year, aided by a marked increase in the last
week of the month. The June figure was about 3 per cent above
by the F. W. Dodge Corporation, moved ahead during June to a
the previous month and 17 per cent above June 1939.

While a moderate expansion in total construction is normal

for June, analysis of the figures reveals that the gain over

May was more than accounted for by a stepping up in publiclyowned construction projects, which gained 37 per cent over May
and moved above year-earlier levels for the first time since
last July.

Residential construction well maintained
Residential construction so far this summer has shown
some tendency to resist a seasonal decline. The F. W. Dodge
residential contract awards, after reaching a new high since
1929 in May, declined but slightly in June, as compared with

a rather sharp decline in June last year. (See Chart 5,

upper section.)

The outlook for residential awards over the next month
or two, however, appears somewhat less optimistic, in view of
a sharp downturn in F.H.A. mortgages selected for appraisal.
(Shown as dotted line.) The volume of mortgages selected for
appraisal in recent weeks (lower section of chart) has maintained
its gain over
similar seasonal
trend.last year, while following a closely
The number of new homes started under F.H.A. inspection

remained at a high level during the past month (see Chart 6),
but no tendency toward further gains has been apparent.

340

Secretary Morgenthau - 5

Railroad outlook improved

Recent traffic and earnings reports have indicated an
encouraging improvement in the outlook for the railroads.
After declining more than seasonally from the peak levels

of last fall until early April, the trend of freight oar

loadings showed a definite favorable reversal in May, which

has continued up to date. The effect of this reversal was
first shown in the May figure for net railway operating

income of Class I railroads, which amounted to $47,000,000,
and was 87 per cent over the figure for May 1939. While the
coal strike in 1939 somewhat detracts from this favorable

comparison, it is of interest that the amount mentioned also

represented an improvement over both May 1936 and May 1937.

Results for the first 5 months of this year show a gain
in net railway operating income of more than 4 per cent over
the corresponding months of 1936, which, for the full year,
was the best for railroad earnings since 1930. The traffic
outlook now in prospect bids fair to carry railroad earnings
this year to a new high since 1930.

Commodity prices weaken further

A somewhat di sturbing factor in the current business
outlook is a further weakening in prices of industrial materials. The new BLS price index of 16 raw industrial materials has declined for the third successive week. (See
Chart 7, lower line.) Such weakness frequently reflects a
falling off in industrial demand, but in the present case
there seems little doubt that the progressive curtailment of
European export markets has been an important bearish price

factor,
tending
on
our market.

to cause a greater pressure of world supplies

The defense program, on the other hand, provides a

potential bullish price influence, in view of the stimulus

it will provide to industrial demand, and (through increased

employment) to consumer demand. In this connection, a further expansion of credit through increased commercial loans

is likely to be a contributing bullish factor. Despite the
decline in business activity earlier in the year, total commercial loans have held the gains made last fall and have
shown some rising tendency. (See upper line on Chart 7.)

341

Secretary Morgenthau - 6
Weekly business indexes

Due to the difficulty of making proper allowances for

holiday influences and the numerous week-end shutdowns that

occurred in industry, most of the components of the New York
Times index of business activity for the week ended July 6
showed marked changes; and the nine weeks' rise of the combined index was interrupted by a decline of 2.8 points to 100.4.

In contrast with the downturn in the Times index, Barron's
index of business activity for the week ending July 6 rose to

113.5 from 113.1 in the previous week.

The most important factor in the Times index decline was

a drop of over 4 points in the heavily-weighted index of electric power production. In the corresponding week last year a
drop of over 2 points also occurred, only to be followed by a
rise of 3.5 points in the succeeding week. It therefore seems
quite likely that the index of electric power production will
show a sharp rebound in the following week.

A sharp drop of more than 16 points occurred in the calculated index of lumber production, and here again a good recovery in the following week appears probable. The index of mis-

cellaneous freight car loadings also declined, but all other
components rose, with "all other carloadings" and cotton mill
activity making particularly good showings. However, in view

of the unusual fluctuations above mentioned, an accurate ap-

praisal of the situation will not be possible until the results

are available for the week ended July 13, when more accurate
comparisons with pre-holiday business levels can be made.

Preliminary data for the week ended July 13 reveal that,
despite the good recovery in steel operations after the holiday,
the long rise in the adjusted index of steel ingot production
has for the time being been halted. After seasonal adjustment,
a decline estimated at more than 4 points occurred in the index
of steel production during the July 13 week. Automobile production during the past week rose 10,201 units to 62,176. However,
this rise was considerably short of the amount anticipated by
the Times index and was also more than 1,700 units below the

corresponding week of 1939.

STEEL SHIPMENTS, PRODUCTION AND ESTIMATED INVENTORIES
U.S. Steel Corporation
1936

1935

1937

1938

1939

1940
TOMS

THOUSANDS

TOMS

THOUSANDS

Shipments and Production

1600

1600

SHIPMENTS OF FINISHED STEEL
1400
1400

1200
1200

1000

1000

800
800

600
600

ESTIMATED STEEL PRODUCTION

400

400

200
200

0

1936

1935

1937

1938

1939

1940

0

TOWS

THOUSANDS

TOMS

THOUSANDS

Estimated Inventories
2600
2600

2400
2400

2200
2200

2000
2000

1800
1800

1600
1600

1400
1400

1200

1 935

1936

1937

1938

1939

1940

342
Office of the Secretary of the Treasury

- of I and

C - 309

Chart 1

343

NEW

Chart 2
CONFIDENTIAL

ORDERS,
SHIPMENTS
AND ESTIMATED
UNFILLED ORDERS
OF
THE U.S. . STEEL
CORPORATION
TONS

THOUSANDS

TOMS

THOUSANDS

2000
2000

New ORDERS .
1600
1600

1200
1200

SHIPMENTS

800
800

400
400

0

0

1935

1936

1937

1938

1939

940
TOMS

TOMS

WILLIONS

WILLIONS

4.0

4.0

3.5

3.5

3,0

3.0

ESTIMATED UNFILLED ORDERS
2.5

2.5

2.0

2.

1.5

1.5

1.0

1.0

.5

.5

0

0

1935

1936

1937

1938

1939

1940

. CORRECTED TO TAKE ACCOUNT or CANCELLED ORDERS

- - and -

Other of the Secretary of the Treasury

I-100

INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components

1939

1938

PERCENTAGE
POINTS

EXCENTAGE
POINTS

160
160

150
150

140

140

130

Total (combined Index)

130

1936 100

120

120

110
110

100
100

90

90

80

80

70

70

60

60

Total excluding Steel and Textiles

50

50

40

40

Steel Orders

30

30

20

20

10

10

Textile Orders
0

D
o

0

A

J

o
N

D

1938

1939

J

1940

I 85 c

$

A

345

CONSTRUCTION AND STRUCTURAL STEEL ORDERS
DOLLARS
MILLIONS

Heavy Engineering Contracts
Eng. News Rec. Daily Ave.

18

39
14

10

6

40
'38

2

JAN.
TONS

MAR.

MAY

JULY

SEPT.

NOV.

SEPT.

NOV.

Structural Steel Orders

THOUSANDS

80

'38
60

39

40

20

40
0

JAN

MAR.

- of - - -

MAY

JULY

Office the Secretary of the Treasury

C-280

Chart 4

RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES
940

DOLLARS

MILLIONS
(ABARDS)
138

DOLLARS

WILLIONS

Mortgages Selected for Appraisal

(MORTGAGES)

and F.W. Dodge Awards

130

Monthly
126
120

114

110

102
100

90
90

78

80

F. W. DODGE ABARDS
66

70

MORTGAGES SELECTED FOR

APPRAISAL, F. H. A.
54

60

42

50

30

40

18

1938

DOLLARS

MILLIONS

30

1939

JAN.

MAR.

MAY

TTT

TE

JULY

1940
SEPT.

....
NOV.

DOLLARS

MILLIONS

Mortgages Selected

40

for Appraisal, F.H.A.

40

Weekly
35
35

30

30

25

1939

25

20

20

15

15

II

1938

940

10

10

5
5

LILL
0

MAR.

MAY

JULY

0

JAN.

SEPT.

NOV.

346
Office of the Secretary of the Treasury

Division . - and I

c - 260 - A

Chart 5

HONES STARTED

HOMES

HOMES

(F.W.DODGE)

(F.M.A.)

28,000

4,000

26,000

3,750

N
24,000

3,500

22,000

3,250

20,000

3,000

18,000

2,750

16,000

2,500

14,000

2,250

12,000

2,000
Nos HOMES STARTED UNDER

F.H.A. INSPECTION
(WEEKLY)

10,000

1,750
NUMBER OF RESIDENTIAL PROJECTS
(F F.W.DODGE, MONTHLY)

8,000

1,500

6,000

1,250

1940

0

1939

D

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

c 307

COMMERCIAL LOANS AND INDUSTRIAL MATERIALS PRICES
1937

1938

1939

1940

DOLLARS

BILLIONS

PER

(LOANS)

CENT

(PRICES)
5.4
180

5.2
170

5.0

160

4.8
150

COMMERCIAL LOANS

WEEKLY REPORTING MEMBER

4.6

BANKS

BILLIONS OF DOLLARS
140

4.4
130

4.2

120

4.0

110

16 RAW INDUSTRIAL MATERIALS

AUG. 1939 = 100

3.8

100

3.6
90

9 SENSITIVE INDUSTRIAL MATERIALS

1936 100

3.4

80

3.2

70

3.0

60

2.8
M

.

M

938

50

J

J

N

$

.

939

J

.

J

.

.

J

1937

1940

Office of the Secretary of the Treasury
Dividion Research and Statistics

c -203 A

349

July 15, 1940

GROUP MEETING

Present:

Mr. Bell

9:30 a.m.

Mr. Stewart
Mr. Thompson

Mr. Graves

Mr. Haas
Mr. Young

Mr. Schwarz

Mr. Harris
Mr. Viner

Mr. Cochran

Mr. Foley
Mr. White

Mr. Sullivan
Mrs Klotz
Mr. Caims

Thompson:

I have nothing.

H.M.Jr:

Would you let Captain Puleston know that I

want to wind up that office on the first of
September? Is he on our payroll?

Thompson:

No, sir, he is detailed.

H.M.Jr:

I should think 45 days notice would be enough,
wouldn't you think so?

Thompson:

It should be, yes.

H.M.Jr:

I would like to wind it up as of the first

of September.

Anything else?

Dan, could you, by 3:00 o'clock, give me some
figures for my press conference, what the
bond condition is?
Bell:

Yes.

H.M.Jr:

After this meeting, I would like Bell and
White and Dr. Viner and Stewart and Merle

Cochran to stay behind and I would like to

talk about Phillips' visit. If anybody has
any ideas, it can wait until then.
How is your ship-holding committee?

350

-2Bell:

Never heard of it.

H.M.Jr:

Downstairs.

Bell:

Oh, I guess they are still holding.
Mr. Foley is a ship holder.

Thompson:

Sullivan:

Is he ship holding?
Captain of the port.

H.M.Jr:

Who reports on that, anyway?

Foley:

Herbert does, but he isn't here. Huntington
has been doing it for Herbert while Herbert

H.M.Jr:

has been away.

H.M.Jr:

Could we have Huntington in when this breaks

up just for a minute?

Foley:

Sure.

H.M.Jr:

Do you know anything about it, Basil?

Harris:

No, except I don't think it is a holding
committee. I think they are letting them
go, from what I can find out. They are
weakening a bit.

H.M.Jr:

Well, someone Saturday told me there was a

ship getting ready to sail from Philadelphia
today.

Young:

Yes, I told you that on Saturday.

Bell:

You heard about the other conference, didn't
you?

H.M.Jr:

Yes. And nothing happened?

Foley:

Nothing since then. We haven't heard from
anybody.

H.M.Jr:

We have still got the ships?

351

-3Foley:

Harris:

We have still got the Nevada and the Aryan.
So you are discriminating against American
ships as against foreign ships.

H.M.Jr:

On the basis of what Basil told you, we
thought it was dangerous for them to go.
I agree with you, but I thought you were
going to hold them all up.
Well, there is a place called the State

Harris:

I know.

H.M.Jr:

That was a good hunch of yours, you know.

Foley:

Unimpeachable grounds on that one, Basil.

H.M.Jr:

Harris:

Department.

I think on the first one it is better to

have two reasons, the one we use and a
good one.
Viner:

How do you find a good one?

Foley:

We let the Swedish boat go, Jake, to make
our other one good.

Bell:

Did you see Mr. Cochran's memorandum on the

withdrawals of - Latvia, Lithuania and
Esthonia balances?

H.M.Jr:

Have you frozen them?

Cochran:

Temporarily, and there is a request coming

this morning for transfers.

the State Department

few for figures on

day they got nervous
withdrawals they had heard of

You a through see, days already ago because there had them. asked were Satur- us

wouldn't get in

and have a listed group banks

hold
transactions
and some the
the Federal
asked up small if we until they touch hear of with

from us. Now this morning they just phoned
me from the Federal that the Latvian Central

352

-4Bank asked to transfer all of its gold to

the U.S.S.R. Central Bank and there is
one request from the Chase to okay a transfer of ten thousand dollars from Lithuania

to a Latvian account. It is something we

have to get on right away.
White:

Well, Merle, they are not waiting to hear
from us, are they? We are waiting to hear
from them.

Cochran:

Bell:

From the State Department, that is right.
But these transfers are temporarily held
up.

H.M.Jr:

Well, does Mr. Berle know about this?

Cochran:

They were to take it up with Berle as soon
as he came back. They couldn't give us
their definite decision Saturday because
Berle was absent.

H.M.Jr:

(To Lieutenant McKay) Mac, would you ask

Mr. Berle if he could be here at 2:30 today?

McKay:

All right, sir.

Cochran:

We ought to clear them so they can be
handled during the banking day if we
don't hold them up.

H.M.Jr:

Well, I can't get to it before 2:30 and
they will be getting a great deal better
service than they got on these export
licenses
on strategic materials. I just
can't do it.

White:

And Dan sent them our letter asking them

officially on this matter, so they know

Bell:

we are waiting on them for a reply.
It was taken up informally some time ago

and
they didn't like the idea of freezing
them.

353

-5H.M.Jr:

Who didn't?

Bell:
H.M.Jr:

The State Department didn't like the idea.
Well, somebody ought to tell Mr. Berle that
that is one of the things I want to talk
to him about at 2:30.

Bell:

I will tell him.

H.M.Jr:

Will you?

Bell:

Yes.

H.M.Jr:

So he will be up to date on it. What else?

Bell:

The Budget called up and said they had an
Executive Order over there appointing Mr.
Ransom as Vice Chairman of the Federal Reserve
Board to succeed himself. They just wanted to
know if we had any comments to make.

H.M.Jr:

Only that it would be very pleasing, sure.

Bell:

All right.
Now, I have an application from the Bank of
Martinique for a general license, which you
said you would like to see.

H.M.Jr:

Do you mind if we take that up with the
group that stays behind, please?

Bell:

All right. That is all I have.

H.M.Jr:

Harold?

Graves:

I was in Indianapolis two days last week and
ifthe
you
-- will let me come in some time during

H.M.Jr:

Will you tell Mac?

Graves:

Yes.

H.M.Jr:

Would 24 hours make any difference?

354

-6 Graves:

No.

H.M.Jr:

Then tell Mac tomorrow. I am going to try
to concentrate on Sir Frederick Phillips,
because I came back just for that. Tell
McKay.

Doctor White?
White:

There is this letter in response to Mr.
Wyckoff, which apparently began in the Wall
Street Journal. I think somebody ought to
go over that who is familiar with what the
Government has spent.

H.M.Jr:

Let Bell read it.

White:

You asked some time ago - you wanted to see

H.M.Jr:
White:

me with this Latin American thing.

Well, you will have to see me before you go.
This is something I think you should read
on Japan and this is something that you
might want to read.

That is all I have, except that I would like

a couple of minutes more that you didn't
give me the other day.
H.M.Jr:

I know. Stay behind after the next group

meets.

Basil?

Harris:

No, sir.

H.M.Jr:

This
is a sad day for me. Isn't this your
last one?

Harris:

Yes.

H.M.Jr:

Is it?

Harris:

Yes, today. I may come around tomorrow just
to see you and clean up and, you know, throw

355

-7 Viner:

stuff in the wastepaper basket.
I wondered why there was no flower in his

buttonhole.

H.M.Jr:

We will give him a lily.

Harris:

And I leave you with great regrets.
Well, I am sorry.

H.M.Jr:

Harris:
H.M.Jr:

I enjoyed the work and I have been very happy

here.

Well, I will tell you, if you are going to be
here tomorrow, I think we will give you a
little luncheon, the Treasury 9:30 group.

Will you be here tomorrow?
Harris:

I will make it a point to be here.

H.M.Jr:

1:00 o'clock?

Harris:

Thank you.

H.M.Jr:

Pig knuckles and sauerkraut.
George?

Haas:

Here is this report.

H.M.Jr:

Incidentally, George, that was good work you
did over Saturday.

Haas:

Thank you.

H.M.Jr:

Schwarz:

And you may hear a repercussion of it, Chick,
but Hanson Baldwin had a story on the front
page of the Times. Have you heard what I did?
No, but I saw the story.

H.M.Jr:

He was completely - just as wrong as he

could be. He said the English were waiting I don't know, 70 to 100 planes out of CurtissWright, the inference being that the Army
was late.

356

-8Schwarz:

H.M.Jr:

That is right.
Well, George got me the facts. To date the
Allies have gotten two Allison engines, that

is all, so if the Army is held up, they are

held up on two engines and at Curtiss-Wright
in Buffalo there are eleven P-40's waiting
for the English and none for the Army.
Schwarz:

All waiting for motors.

H.M.Jr:

Yes. Well, I didn't tell them all, but there
are - the Army are not waiting for any. I

gave that information to Mr. Sulzberger,
because to read in the papers that the English
are waiting for 70 to 100 planes of Curtiss
P-40's, when they are only waiting for 11,
the inference being that they are holding

up the Army when the Army - there are no

Curtiss P-40's waiting for the Army. I

thought it was -Schwarz:

It is better to get that straight.

H.M.Jr:

You may get a flare-back on it. That is
all I gave them. There is more stuff here
which I didn't give them. Some didn't reflect so well on Curtiss-Wright. The good
news here is that Allison jumped from six
engines to eighteen last week, so evidently
they have turned a corner.

Schwarz:

Got the bugs out, evidently.

H.M.Jr:

Evidently.

Schwarz:

Fine.

H.M.Jr:

You may hear - Hanson Baldwin may jump on

you, but I don't care. Anybody who writes
that careless a story ought to be jumped
on.

Schwarz:

He had good enough sources. If he had
checked, he would have gotten the facts.

357

-9H.M.Jr:

And if anybody did not read last week the

story by Anne O'Hare McCormick, where she

interviewed the President of the Norwegian
Parliament, Hambro, you ought to get that
and circulate that. Anne O'Hare McCormick's
interview with Hambro when he arrived is
Viner:
H.M.Jr:

Young:

quite different.
of course, there is a story like that now
from Brunson, the same sort of story.

I know, but right or wrong it is - the

Hambro story is interesting.
Phillip?

Colonel Maxwell has asked me to work with

him as one of his two or three official
advisers in ironing out his problems. Is
there any objection to that?

H.M.Jr:
Young:

H.M.Jr:

It depends upon what instrument you use for

ironing out. I am delighted.
That is all I have.

What I would do, unless you want me to do it
for you, I would give Mr. Stimson and Mr. Knox
each a follow-up today. Would you like me to
do it for you or would you like to call up
their office and ask whether they have the
answers for you?

Young:

No, I think it ought to stew for a little

bit this morning. I know the Navy isn't
ready yet.

H.M.Jr:

Well, not later than tomorrow.

Young:

Right.

H.M.Jr:

The old Swedish boat, has she sailed?

Young:

She was due to sail on Saturday night.

358

- 10 H.M.Jr:

Somebody has got to know about this ship
holding.

Young:

They have put on aluminum.

(Mr. Caims entered the conference)
H.M.Jr:

Cairns:

Good morning, Huntington. Everybody is
What about the Swedish boat that was
supposed to sail?

ducking this ship holding trusteeship.

It will apply for clearance this morning

or today sometime, according to my last
report.

H.M.Jr:

And you are holding the two American flagships in Texas?

Caims:

Yes.

H.M.Jr:

Did the Swedish one sail?

Cairns:

I haven't heard. We gave them clearance.

H.M.Jr:

You might find out. And there is one loading

Cairns:

Yes, the Koura, a Finnish vessel, carrying
a full cargo of gasoline and other petroleum
products to Finland, together with foodstuffs,

at Philadelphia?

coffee, sugar and wheat.

H.M.Jr:

Well, Mr. Berle will be here at 2:30, so if
you will be prepared at that time, will you?

Cairns:

Yes.

H.M.Jr:

Basil, will you be here at 2:30?

Harris:

Yes.

H.M.Jr:

Bell and Foley, wasn't that the group that

worked on that? Phil, you sat in on that.

359

- 11 Young:

Yes, sir.

H.M.Jr:

What else can you volunteer, Huntington?

Cairns:

I think that is the whole story.
Will you stay, Dr. Viner?

H.M.Jr:

Viner:

H.M.Jr:

The Brazilian Government has sent me a plan
for a scheme of capital control in connection
with their bank and asked me to comment on it.
I don't know whether the Treasury knows any-

thing about that.
Well, the man who is coordinating that for
the President is Mr. Forrestal and he asked

me what we were prepared to do and Dr. White

was present when I told him. You can ask

him afterward. I made this condition, that
if we did anything in connection with the
Central Bank, that I insisted on doing it
myself, and I mean I, the Treasury, rather
than the State Department.

Viner:

Well, they asked me whether I would be willing
to comment and I told them I would. I thought
that - on the other hand it is a big do cument
and I am busy --

White:

Is it the same proposal they had two years
ago?

Viner:

No. I just turned the pages on it and it
is an elaborate scheme for qualitative
control and an argument for it, qualitative
control of credit. The communication was I have had it from three different grades.
The communication was from the Ministry of
Finance and the Embassy here and presented

to me by the Consular staff, a visitation

of three of them.
H.M.Jr:

Viner:

How much coffee do they give you?

They offered me a fee and I told them I

was connected with the Treasury and I

360

- 12 would be very glad to do that without a
fee.

H.M.Jr:

Do you think you ought to turn it down
before we have a chance to talk it over?

Viner:

You know, fifty-fifty.
I thought I would split with you.

H.M.Jr:

How can you split if you turn it down?

It is a coffee split instead of a banana

split. All right.

Viner:

H.M.Jr:

I just wanted you to know that I said yes.

I would have said no otherwise, because I
have two other things to worry about.

Did you sell any of your graduates to any-

Viner:

body in the Treasury?
I don't know.

White:

Yes, one.

Viner:

Did I sell one?

White:

Yes.

H.M.Jr:

What is his name?

White:

Snyder, a young fellow.

H.M.Jr:

Is he a good man?

Viner:

I think so, yes.

White:

Well,
it was on your recommendation that we
took him.

H.M.Jr:

Now that he is in the Treasury, Jake is going

to begin to criticize him. While he was with

Jake, he was good. Now he is with the Treasury

and he doesn't know.
Viner:

Read the record, Harry. He was the man I
knew least well, but my colleagues all thought
he was good.

361

- 13 White:

They all spoke extremely highly of him
and he was one of three you recommended
and he had the best record, but I got
his name from your recommendation first.

Viner:

That is right.

H.M.Jr:

He is in the Treasury now. He is bear meat
for Jake.

What else, Jake?
Viner:

That is all.

H.M.Jr:

Walter?

Stewart:

Nothing.

Cochran:

Nothing.

H.M.Jr:

Ed?

Foley:

I have a couple of memos for the Diary.
This is the conference over at Jones'
office and this is the conference Huntington
and I had Friday.

White:

He doesn't know it yet. He will know it

this morning or possibly he did Saturday.

H.M.Jr:

Do you mind bringing those in at 2:30?

Foley:

All right.

H.M.Jr:

What else?

Foley:

Nothing else.

Sullivan:

I would like a chance to report to you some-

time on some conferences I had with Mr. Doughton and Mr. Cooper.

H.M.Jr:

You got Doughton's name in the paper all right.

Sullivan:

That is right, sir.

H.M.Jr:

Chick did a good job.

362

- 14 -

Sullivan: Fine.
Schwarz:

I stressed him.

H.M.Jr:

Did you get my note to be sure to get it

to Clarence Linz, representing the Greenfield Banner Star?

Schwarz:

H.M.Jr:

Clarence took care of it, sir.
O. K. We will go to the next meeting.
Phil, I want to talk about a personal

matter with you.

363

July 15, 1940
10:00 a.m.

RE AGENDA FOR MEETING WITH SIR FREDERICK PHILLIPS

Present:

Mr. Bell

Mr. White

Mr. Cochran

Mr. Viner
Mr. Stewart
H.M.Jr:

Merle, you had better sit through on all
of these and act as a historian. I don't
think I will have a stenographer present,
80 I think you had better sit through on
all of them. I didn't think this morning
I would be too formal with them. I thought
I would be a little chatty and sort of ask
him what he would care to volunteer. Don't
you think so, Dan?

Bell:

I think 80. I think I would make the first
one as informal as possible and kind of get
under his skin, if he 1s the kind of fellow
they say he is.

H.M.Jr:

Well, I know the man very well. Is he

bringing Bewley with him?
Cochran:

I asked Pinsent. I said, "Will you be,
coming along?" and he said, "I am going
to leave it with Phillips. He asked if
you had indicated any preference, and I
said no, it was up to them, to bring with

him as many as he wished.
H.M.Jr:

What I thought, thinking out loud, was
that I could say to him that I talked to
Arthur Purvis last hight and he said that
Phillips was bringing with him the requirements for the next twelve months, which I
asked for, in the way of money, and Purvis

was quite disturbed. Phillips didn't show

-2-

it to him but he is worried that it

isn't enough, because in the various
talks that I had with Ambassador Lothian
and C. D. Howe, Minister of National

Defense of Canada and Casey of Australia,

they all blame it now on the British

Treasury. They say they were planning
a three year war and what they don't say
is that England was planning on a cheap
war.
White:

There has been a substantial change made

H.M.Jr:

in the Treasury power about two or three
weeks ago that might interest you.
More important or less important?

White:

They have given them much less importance.

They have taken away all their powers to
go over expenditures in any detail and have

reduced them to a status of what is referred
to purely as a paymaster, on the grounds that
it is the Treasury which has been stalling
and wasting time going over detailed expenditures.

Bell:

I didn't think the Treasury had much power

over the Army and Navy.
White:

They did in fact exercise the power under
Simon, according to the reports. They
exercised a good deal of power which they
acquired or developed, possibly, rather
than legally possessed.

H.M.Jr:

What was that, a cable from Butterworth?

White:

No, I got that from two different Englishmen
and I saw one reference to it in one of the
Journals, a very vague reference. That is
my information.

H.M.Jr:

Well, we will know after he gets here, but

what I was leading up to, just to talk to

you people, that I would ask him for those
figures and then ask him if he would care
to tell us how much gold they have or rather

364

365

3-

go back to the thing which I have been

groping for, if they can't give us a
statement of their assets and their
liabilities and we in return, I think,
ought to be prepared to tell them in

confidence what money we have on earmark

for these various countries. I mean,
if he wants to know, for instance, how

much we have got for Norway and Denmark

and these various countries. I think

we ought to be prepared to tell him,
which we never have, have we?

Cochran:

We have never given out Central Bank

balances for another country.

H.M.Jr:

I think if we are going to ask him everything and he 18 going to ask us, I think

we ought to be prepared to do that.
White:

I think with respect to these particular
countries, it wouldn't be inappropriate

to
give it to him because there are special
circumstances.
H.M.Jr:

You know, of the three E's, you have heard
me talk about this - how many months ago?

Stewart:

At least a month and a half.

H.M.Jr:

That I wanted to get a balance sheet of
England.

Stewart:
H.M.Jr:

Oh yes.

We are groping for that now. We asked didn't we ask Pinsent for that?

Cochran:

We have asked him for nothing specific.

White:

Mr. Secretary, following the lines that
you said, after he indicates to you what
their needs are for the current year,
which I think 18 an excellent beginning --

H.M.Jr:

He has that.

366

4White:

Then in order to lead into this other a
little more easily, I wonder whether you

might not ask how they anticipate financing
it, how much gold they are going to use,
how much securities they are going to sell,
and how much their current losses are, and

from that it leads easily into the question
of just what is their status of current
foreign exchange.

H.M.Jr:

I don't get the meaning of the word "losses."

Viner:

Foreign exchange losses.

White:

Drains rather than losses, if you like.
Yes, I --

H.M.Jr:

Bell:

Well, is that requirement that you are
talking about for twelve months in this

country or their total?

Viner:

Their foreign exchange requirement would
be an important item.

Bell:

In this country?

H.M.Jr:

I think that --

Viner:

Their dollar requirement.
We can ask for their whole picture and hope
to at least get this, and then with - there
are in the United States now representatives
who want to buy in Australia, South Africa,

H.M.Jr:

India and Canada and not only do I want the

financial thing, but being for the President
on this purchasing thing, you see, it 16

teriffically important - after we find out

what they have got to spend, then the other
thing that I am going to get Purvis down
here and then have the two of them together,
"Well, how are you going to spend this,
gentlemen? How much is going to tanks for
the Empire, how much for anti-aircraft, how

much for shells?" I was just amazed. Elliott
was in here the other day, who does the steel

367

-5buying. How much steel do you suppose they
are taking a month, not buying, but taking
deliveries? Have you any idea? 950,000

tons is what they are taking a month. Isn't
that perfectly amazing?

White:

Purvis gave me a figure of 300,000 that they

H.M.Jr:

950,000 tons is what Mr. Elliott was here
representing the - some society for buying,
an association of steel manufacturers.

Bell:

That is being shipped to England?

H.M.Jr:

That is what they are taking, and I asked
him the question, "What about deliveries?"

were going to move up to.

"Fine. "What about the prices?" "Very
satisfactory." At the beginning they had
a little trouble, but now everything is
fine, and they do it on a three months
order and then options, I think, for the
balance of the year. That gives you some
idea of the extent of the purchases. That
is a tremendous amount.

Bell:

The French started out with sixty, didn't

they? They were going to work up to 200,000

a month.
H.M.Jr:

I asked him for two or three times - for
this information.

White:

Mr. Secretary, I take it that possibly the
slant that these questions will have will be
in the relation to how it is going to affect
us, either our security market or our gold or
our economy, though the interpretation that
he may read into it - and it would be all
right 1f he did - 18 that we would like to
know what assets they have left in view of
that remark in the Lothian letter that they
don't like to undertake long contracts
because they haven't got enough money, but

I imagine that you have in mind, or it would
be wise, to studiously avoid any imputation
that you want to know, because you want to

368

-6-

H.M.Jr:

how soon they would want credit.
Well --

White:

He may read that into it, which would be

H.M.Jr:

After all, to give you gentlemen the whole
picture, I put something across which I
think - with the President's approval - and
we only finally cleared it Friday - and I
worked it out entirely on my own. I have
been at it now for six weeks, I guess. It
is in connection with this Packard Motor
finance thing, the RFC - they are advancing
the money, all of it, and as the English

all right.

get deliveries or we get deliveries, it is

paid back in per unit, but the money is being
financed by the RFC or a subsidiary, which is
an entirely new departure and we are going to
try to do that for all the orders in the
future. But even up to Friday noon, Jones
was very much worried about the English, 80
Ed Foley said, "Well, take Curtiss-Wright,
which we are financing. At the moment we
have no order for English engines - I mean
orders for engines from the new plant somewhere in the middlewest." If they came along
and wanted 500 engine a month later, we

White:

could give them to them? And I said, "Sure,"
but it is easing the thing for them very much
and I am doing it with my eyes open.
Yet some of the motors that the Packard plant
is going to produce presumably are going to
be used in planes for the United States.

H.M.Jr:

One third.

White:

Yes.

H.M.Jr:

And two thirds for England.

White:

Therefore, in financing them, you are in
real sense financing America's needs.

H.M.Jr:

You have got the answers, Harry.

369

7White:

H.M.Jr:

You are doing it either way.

In the room here, at least let's be frank

with one another. I mean, up to now -

up to that time Purvis had advanced 100%

for the plant and 100% for the taxes that
they had to pay on the transaction, plus
the working capital.

White:

And they got 100% of the product.

H.M.Jr:

Not always. I think in the Colt case -

Viner:

Even then they might the first year or the
second year - they were really financing
productive equipment for us for the third
year. I would say it works the same way
on both kinds of transactions.

H.M.Jr:

But I wanted you people to know the - maybe

I am not sure --

I am overemphasizing it, but I think it is

quite new and I know it was most encouraging

to Purvis.

Viner:

Of course, you have to be very careful not
to raise any expectations in his mind that
you don't feel reasonably sure you can carry

out. It would be unfair.

H.M.Jr:
Viner:
H.M.Jr:

I would leave that the other way.
It would be unfair.

No, I never do that. Jake, take T. V. Soong

who was here. He was 80 disappointed, because

after seeing the President and his hopes were
raised, he saw me, and I told him everything
he was asking was very difficult and I was
very doubtful if I could do anything. I
always go the other way, after being in
Washington 7+ years.

Viner:

They have a great deal at stake, and they do
have to plan.

H.M.Jr:

I do everything possible.

370

-8White:

That doesn't interfere with what he is
doing. We are working on it, but he is
starting from zero. Anything he is able
to do is that much better.

Viner:

Itions.
don't mean let him leave with expecta-

White:

He is not leaving, he is here working.

Viner:

Who?

White:

Soong.

H.M.Jr:

No, he is talking about --

White:

Well, I don't know about that. I think
with regard to Phillips, rather than to
say I wouldn't give him any promise or
couldn't deliver, I think the slightest

implication of anything ought to be excluded from this office because he can have
his own judgment as to the general trend of
Viner:

political affairs, but
I --

H.M.Jr:

....as to loans, or anything like that, the

present temper of the country is absolutely
a step forward in financing this Packard

opposed to any such thing, but we have made

plant. It is a distinctly new departure
and Jones only acquiesced on Friday.

White:

If the question is raised, then I think after

you tell him that you could say that in any

case it would be impossible for the American
Government to give any consideration, even
if they were so desirous of doing, unless

they have a clear picture of the entire
situation and that would be a further justification for them giving you that kind of
picture in anticipation of their asking
for anything.

(Unrecorded telephone conversation with

Pa Watson)

371

-9H.M.Jr:

He just was asking about the Swedish boat

and I told him that was all clear and then
I asked him whether he wouldn't once more
try to get all outstanding export licenses
cancelled. He said Mr. Hull didn't want

it and I said, "If you tried it again today,
I think they could get it."

Let me just go around the room a minute.
What would you like me to do first?
Bell:

I think your suggestion is all right, to

make it pretty easy for the first conference,
informal, and ask a few questions in general

and then get a little deeper into it in the
next conference. It would be more a visit
than anything else.

White:

I think when you get to the questions of
exchange, what they have got in assets and
so on, that at that point you ought to turn
him over to Dan Bell instead of discussing
it with him yourself and let them prepare
something and then come back to you with

some conclusions.
H.M.Jr:

Well,
after the first day or two I won't
see him.

White:

No, but when you get to that point --

H.M.Jr:

I can't say I am rusty on this, I just don't
heard something in Bell's office that I
don't know, so I think when he goes to
school - I will do it the way I did last

know. And then he comes back to me, he has

time. I practically devoted a whole week
to
them and I am prepared to do that this
time.

Stewart:

Do you know how long he plans to be here?

H.M.Jr:

No, I don't.

Stewart:

It affects the time schedule, how rapidly

we have to move.

372

- 10 H.M.Jr:

You (Cochran) might sort of sound out
Pinsent on that, you see.

Cochran:

All right, sir.

Stewart:

My only other suggestion is that - you
know how difficult it is to get him
started talking.

H.M.Jr:

I know.

Stewart:

My inclination would be to have you and

the Undersecretary with him to start with
and let whoever is going to promote his
group and ourselves wait in the anteroom

until you just have a little opening with
him.
H.M.Jr:

Stewart:

Well, I want Merle here because he has

got to write the notes as historian on
this thing.
It is awfully hard for those Britishers

to open up before a large audience. He is

particularly difficult.
H.M.Jr:

Then I will have Bell and Merle here and
then if I can have you three economists
in afterward. White is going to go away
and I want Merle to be here on all of them

and he has got an excellent memory and can

Stewart:

write the thing up.
If you want us to take care of Pinsent, if

he comes, we can entertain him outside.
Viner:

I think that is the procedure.

H.M.Jr:

Do you think you ought to be outside at

Viner:

11:00 Be in your offices.
We will be on call, available.

H.M.Jr:

Be in your offices.

Cochran:

But if he brings along the other two men,
I think you ought to receive them.

373

- 11 H.M.Jr:

Oh, yes.

Cochran:

H.M.Jr:

I left that with Phillips.
But I think if Phillips - if I receive three
of them, it is all right.

Viner:

And the first reception ought to be more per-

Stewart:

I would see him first, if it weren't more than

H.M.Jr:

Alone?

Stewart:

Yes, I would. He may have something he wants

Viner:

Also, you have met him before.

Stewart:

sonal, you see.

five or ten minutes.

to tell you.

I would want to see you, if I was in his

H.M.Jr:

position.
Then I would see them all alone.

Viner:

Yes, I would see them all alone the first five

H.M.Jr:

Is that all right?

Bell:

That is fine. He may have something that he
wants to say --

Stewart:

He may have.

Bell:

That he wants to say confidentially.

Stewart:

You can discuss with him the procedure.

H.M.Jr:

This other thing of doing this thing in a

minutes.

broad way opens up all avenues, doesn't
it?

Stewart: Yes.

374

- 12 Bell:

You might open it up by asking him how long he
is going to be here and how much time he will

have to devote, and so forth.
Stewart:

I think he is interested, actually, in the statistical information that goes out. I am less inter-

ested in that than I am in the question of procedure

and general policy and how we get prompt answers

to questions from our side and that sort of thing,

because I think things change so quickly that even
if they gave us an elaborate answer to the question

there, it wouldn't last us very long.
The first part of what their intentions are to
spend, I like very much.

H.M.Jr:

Well, the other thing which interests me, which
I want to do, is have him here and Soong here.
I am very much interested in what their attitude
is going to be toward China because it will influence me in how hard I work in trying to do
something for Soong.

Cochran:

If that one road is blocked, China can't get much

H.M.Jr:

Except from Russia.

Viner:

Well, that route is almost impossible.

White:

During this two months, yes.

H.M.Jr:

No, the Russian one.

White:

The
Burma road also, it is right in the rainy
season.

Viner:

from outside.

The Russians have been shipping things that way

because their own route is so - too long and

difficult.
White:

Yes, it is three thousand miles long. It would

be quite a departure, Mr. Secretary, if I remember
correctly, from your procedure to see a man under
tho se circums tances alone. I think that certainly
Dan Bell and Merle ought to be here.

H.M.Jr:

If he brings in Bewley and Pinsent, then I will
to find out just what he wants to do. That is the
easiest way. I will ask McKay to ask him what

have Bell and Cochran with me. I will coach McKay
he wants. What suggestions have you got?

375

- 13 Cochran:

There is one thing that I could tell you -

those accounts for the Bank of England
with the Federal were transformed on Friday into Government accounts. You will

be able to tell him that, if it interests

him. That has been pending quite a while.

H.M.Jr:
Cochran:

White:

It finally went through on Friday.
What is the significance of that?

They wanted them in that form so they
could not be attached.
They are under His Majesty's Government

accounts.

H.M.Jr:

Rather than the Bank of England?

Cochran:

That is right.

White:

They were afraid that --

Cochran:

The Germans might try to attach it.

White:

There's somebody operating --

Co chran:

And there is rather a nervous wire in from
Mr.
Kennedy here. I sent you one at the
house.

H.M.Jr:

I haven't been home.

Co chran:

No, I know. That first paragraph doesn't

agree with the information we have had
before.
H.M.Jr:

It sounds crazy. That is the same thing
I have been told two or three times, that

the Bank of America had so many Government

bonds any time they wanted to they could

break the Government bond market.
Bell:
White:

They have got about 400 million. The
Federal could buy those up.
They haven't got more bonds than there is
cash available to buy them.

376

- 14 Cochran:

On the State Department side, Mr. Secretary,
do you want anyone over at any time or do

you want me to make a memorandum for them?
H.M.Jr:

Well, let's see how the thing goes. The
way I feel right now - let's see what he
has to say and then I think the best thing
is to give a memo to Mr. Hull and keep
forwarding them to him and say, "Now, any

comments, any suggestions, I would be glad

to receive them. I can do that with the
first one and say, "I will keep you posted
through memoranda, but please feel free at

any time to send an observer if you wish.

I don't know who they would send and it
might just gum up the works.

The Government of Norway does not have any

American securities. What has he got to do

with it?

Cochran:

H.M.Jr:

He hasn't anything to do with it.
That is about as hysterical a telegram as

I have read in a long time. Have you seen

it?
Bell:

No.

H.M.Jr:

What else?

Cochran:

That is all I have.

H.M.Jr:

Jake?

Viner:

Nothing.

H.M.Jr:

Iso?think we are all right, don't you think

Viner:

I think so.

H.M.Jr:

The main thing, as he asks questions and
as they are answered, I have got to be
present because I just haven't been giving

this thing the detailed attention which it
needs for me to have it at my fingertips

377

- 15 -

and I haven't had time to learn it, but I
thought I could learn it as he asked the

questions.
White:

There will be - if he goes into these, there
will be some area in which, in order to get
a clear picture, either he will submit some-

thing after study or if he is going to give

the information offhand, there may have to
be several questions asked him in succession
to make sure he is covering the area and when

it reaches that point, it will probably be

possible for him to prepare something and

give us a chance to go over it if he wishes
to do that, because otherwise the information
may be too sketchy to be of much value. If
the conversation gets through sooner than
you expect, I am wondering whether a second

topic might not be quite appropriate for the
first morning and that is the question of

blocking German and Italian assets. They
have asked us twice definitely and you might
raise the question as to how important they

think it is.

Bell:

H.M.Jr:

I think he will probably raise that before
it is over with, before we go very far.

Apparently they consider it very important.
I am awfully sorry that Berle is going down
with Mr. Hull to Cuba. I have just established
this working arrangement with them and for him

to go off just breaks it.
White:

He has been more active in this Latin American
thing than anybody else has.

H.M.Jr:

Well,
I think we are all right, don't you
think so?

Stewart:

Sure, we are.

H.M.Jr:

Dan? Then we will leave it that way.

Viner:

One of the things I am curious about is just
what their procedure is or what it is going

378

- 16 to be with the French accounts.
H.M.Jr:
White:

Well, I am, too.
That is one of the questions that is asked

here.

H.M.Jr:

I think we are all right.

Bell:

Do you want Stewart and Viner to go over
these questions and see whether or not they
could elaborate on them?

H.M.Jr:

Very much so. They could take them now and
go down and any time they have any important

cables, if you could get them out, Cochran.

Cochran:

H.M.Jr:

Yes, I will get them out.
And if it hasn't been done, if you could go
through the questions which they have asked

us in the last month which haven't been
answered.

Cochran:

I always let them see my memos.

H.M.Jr:

But I mean if they could be looked over.

Viner:

If they could get them out, to see all of

the questions. Some of them you may not
want to take up.
H.M.Jr:

What have they asked us in the last month
which we haven't answered, because they
no doubt will ask them again and we could
be thinking of an answer.

Cochran:

I think Stewart and Viner ought to see that
letter from Lord Lothian, too. They could
have that in the back of their minds. You
have the only copy of that.

H.M.Jr:

I have?

Cochran:

Well, Miss Chauncey, I suppose.

379

- 17 Bell:

It wasn't copied for distribution. There
are only two questions, Merle, which might
be, you might say, pending. That is the
one of credits and the other of freezing
the German and Italian accounts.

Cochran:

My thought was --

H.M.Jr:

George, what is an aide memoir? She mis-

understood me. I said an egg that smells
badly.

What have you got, something that you want

me to see?
Bell:

I have this application for a general license

by the Bank of Martinique.

H.M.Jr:

Oh, yes.

Bell:

Which you wanted me to bring up, about 174,000
in the French-American Banking Corporation

and they want a general license to operate
that, so they say, to pay for imports from
the United States. Of course, if we give them
a general license, that allows them to operate.

We thought we might give them the same treatment we have given a number of other banks

in similar situations, and that is allow

them a general license on 25% of their balance,

plus any payments. It gives them a revolving
fund of all their in payments plus 25% of
their balance.

H.M.Jr:

Bell:
H.M.Jr:

Do you see what their transactions are?
We would get weekly reports on that.
My own feeling, unless these gentlemen want

to overrule me, which is their privilege,
I wouldn't give it to them.

White:

Wouldn't give them anything?

H.M.Jr:

No, I would pass on each transaction.

380

- 18 White:

It is pretty difficult in these banking
operations. The bank has to have - since
that is all its balances here, it would

have to have some freedom and if we give

them the possibility of using 25%, you are
freezing 75% of the assets and a portion
of the 25 with weekly reports. Otherwise,
I am afraid you will lay yourself open to
unjust criticism that you are so interfering
with their banking operations and with trade

that they will have a just criticism.

H.M.Jr:

Yes, but I want advance notice if anything
is going to happen down there. They have
got 245 million dollars worth of gold.
They have got 80 or 90 American airplanes
which they have landed. Now, if something

happens and we get a report a week later,

we might just as well have it a year later.

Bell:

This only gives them about $40,000 to operate
on.

H.M.Jr:

Bell:

I still say I want a notice.
Well, they will claim that this interferes
with their operations and it might injure

their credit and there might be runs on the
bank. We have had that in a couple of cases.

H.M.Jr:

Well, they have got 245 million dollars worth

of gold down there.
Cochran:

They can't touch that. That is the Bank of

France, you see.
Bell:

Fifty percent of the stock of this bank is

owned by the Guaranty Trust Company and the

First National of Boston and the other
fiftyParis.
percent is owned by the Comptoir d'Escompte
of

H.M.Jr:

Dan, supposing these people want to do something today and Mr. Knoke sends it down.

Can't they get a clearance right away?

381

- 19 Bell:
White:

H.M.Jr:

They can if there is sufficient information

on it.
while.

You might have to delay it a little

There is usually from three to five days
from beginning to end of the transaction.
In the matter of national defense of the

Western Hemisphere - I am not going to

give it to them. I don't want to know a

week later what they are doing down there.
If they have got some money, they may want
to finance an expedition or something or

other. Let's hold it, Dan.

White:

The Bank might put some sort of a sticker
on that and you might reduce the time ele-

ment to avoid criticism.
H.M.Jr:

I would be glad to give them six-hour service.

White:

Well,
we might cut it down to two or three
days.

H.M.Jr:

No, I would give them service the same day.

I would give it priority, but certainly

to get a report a week after they have
Consul down there, you see. It makes it

done something down there - we have no

very difficult. They have got that 245
million dollars worth of gold there.
White:

How did it get there? I thought the boat
was leaving the United States with those

planes.
Viner:

Halifax.

H.M.Jr:

It went down there and then this other

cruiser took it to Halifax and got out

before the Canadians could stop them.
White:

Where did the boat come from, Canada?

H.M.Jr:

France. They both left Halifax and beat
it down to Martinique.

382

- 20 White:

Oh, the gold was destined for Halifax
and they didn't unload it?

H.M.Jr:

That is right. The planes were loaded

and they sailed down to Martinique and
according to Leroy-Beaulieu, they have
landed the gold and the planes on the

island at Martinique. If they intern
those ships and that ends that, then I
would feel differently, but the only
tip-off that I can get for us here that
anything is going to happen is that if
they make some unusual movement with
their money, even if it is only ten thousand dollars.

Bell:

Leroy-Beaulieu says that he wishes to point
out the Banca de la Martinique is the
central bank of the West Indies and a
payment from this bank - suspension of payments on this bank would have a disastrous

economic effect on the islands. If the

license cannot be issued, he asks the
Government to grant a special license
authorizing the withdrawal of funds equal
to the amount of withdrawals for the preceding months.
White:

H.M.Jr:

That doesn't constitute a suspension of
payments, just a delay.
You can tell Knoke particularly if anything

comes in to give it priority over everything else.

Viner:

This doesn't injure their ability to pay

in French francs. They won't be able to

supply foreign exchange to their customers.
White:

They will when we give them their license.

It will be a delay.
What control is there, Mr. Secretary, over
the outward movement of their gold?

H.M.Jr:

This is the most dangerous spot in the

Western Hemisphere, right now, and I am

383

- 21 -

certainly not going to wait until a week
much rather take the criticism or whatafter something has happened. I would

ever it is, also to take personal satisfaction that through some request that
they were going to charter a boat or

something, move the gold back to Toulon,
what they might do.

or something like that. I don't know
White:

Is there anybody there to -

H.M.Jr:

Yes, through Mr. Hoover we finally sent a
man down. I asked Hoover to, in desperation, after the State Department fooled
around a week and told them I was sending
somebody, "What are you going to do about

it?" They finally did it at my request.

J. Edgar Hoover sent a man down. That is
the only person who is down there. But
the State Department wouldn't do it and I

told him, "The man is going and I am telling
you
and what
The man
left. are you going to do about it?"
Cochran:

I mentioned Leroy-Beaulieu's talk on that
the other day in a meeting and then I gave

you a memorandum which you have up at the

house now.
H.M.Jr:

Okay, gents. Thank you all. I am glad
you two
here
at gentlemen
this time. (Stewart and Viner) are

C

0

384

P

Y

Suggested Agenda for Discussion With

Sir Frederick Phillips

1. Gold and Foreign Exchange Assets of Great Britain
1. How
much gold does England have and where is it
located?

2. Is the British Treasury planning to remove the
gold now in England to Canada or to other places
where itinvasion?
will be beyond the reach of a possible
German
3. Does the Treasury anticipate increasing the rate
of liquidation of British held American securities?
4. What is the British Treasury's estimate of the
total value of United Kingdom's foreign exchange
assets classified by kind and location? What
is the value and character of the foreign exchange
assets of each of the Empire countries?

5. To what extent are the dominions and colonies
making their foreign exchange assets available
for the financing of the war?

6. At what rate is the United Kingdom at present
depleting its foreign exchange resources? Could
the British Treasury prepare an estimate for the
Secretary
the balances
of payments for the
next
three of
months
of

(a) The
British Empire with the rest of the
world?
(b) The United Kingdom with her Empire?
(c) The
United Kingdom with non-Empire
countries?

7. Under what circumstances would the British

Government desire the United States to impose

licensing
restrictions
assets
in this
country? on the use of British

385

-2II. Gold and Foreign Exchange Assets of France

1. What steps is the British government taking or
contemplating taking with respect to the French
gold and other French assets in Great Britain
and other parts of the Empire?

2. What are the views of the British Treasury with
respect to the status of French gold earmarked
in the United States, and to the liberation of

other French assets blocked in the United States?

III. Gold
and Foreign Exchange Assets of Other European
Countries

1. The British government has requested us to blook
German and Italian assets here. How important
do they feel such action to be?
2. Does the British Treasury contemplate any special
action with respect to assets belonging to
Switzerland
and Sweden now held in British countries?
3. How much gold does the British Treasury believe
to have fallen into German hands in occupied
countries?
4. Does the British Treasury have any knowledge of
the confiscation of foreign exchange yielding
securities by Germany in the invaded countries?
5. How much gold, balances and other assets do
the invaded countries have in the United Kingdom
and the rest of the British Empire?
IV. Far East

1. Is the British Treasury considering extending
additional aid to the Chinese government for
the purpose of strengthening the yuan? Would

it consider
doing so in collaboration with the
United
States?
2. Does the Indian government intend to aoquire
more
or permit increased imports of
silver silver,
into India?

Ace in 386
JUL 1940
Secretary Morgenthen

M. Feley

Inc. the Mage
In accordance with your assingment with m. Jenes, I attented a conference

in his office from 11.30 to 12.30 Friday warning, July 19th. In addition to
Mr. Jense and agself there were present Measure. Ball School, Chairman of the

Board of Directors of the we, limition, General Common of the are, and
Check Endes.

The first discussed the Wright Assementical Corporation asther. I told Mr.
Janes that Mr. Yes Anda had stated to Mr. Endes yesterday that nothing had been

board from the RFC concerning the proposed loan agreement. Mr. stated

that be and received a photostas of the draft agreement from Mr. the

first part of the week. (Both Mr. and Mr. The And are partners in
the firm of Spence, Windele, Valoer, & Angell which represents Curtise
Wright and Wright Auronautical.)

I stated to Mr. Jense that this photostat was a copy of the draft agreement
which I had sent to Mr. Schron on June 29th, and Mr. Schron recalled having ceived 10. Mr. Jense then stated he had been waiting to hear from Wright here
mentical Corporation that the Advisory Commission of the Council of National
Defense had awarded the contracts for the enginee to Wright Accommatical Corpora-

tion and I explained that such - award would have to come from the Was Depart
ment or the Havy Department, or both, and that the financing of a new plant is

which to build the enginee had to be carried out similareously with the placing
of the orders, to which Mr. Jones nedded assent.

387

Mr. Jense then asked about the saling relating to - - I headed
his a copy of the ruling and the proposed closing - as well as a of the letter from Height Corporation regusting the Commissioner

of Internal - to was a ruling to which - attached a - of the letter
from Mr. Jesse to Mr. Onion, Vice President of Cartiso Weight is charge of
Wright Assumentical Corporation. Mr. Jenes read the file carefully and acted

to see a copy of the registions - which the suiting - Issued which I showed

his and which be indicated be thought - very anot and would be - is
many situations. No acted to keep the file so that the reling could be studied

in
relation to the possible changes in the plan of Simusting and I left thing with him.

as the conclusion of our - of the Wright Assometical Corporation's
application for a lean from the are, - Jesse stated that Mr. Selves and Mr.

Hemilton would got is touch with m and Mr. Van into the early part
of next week with a view to having than - to Backington for a further forence and for working out the details of the transaction.

We then discussed the antton. Mr. Jense stated that
it was the opinion of the RFC that since a large portion of the enginee were to

be - for the British, the facilities were not being constructed for
antional defense" within the maning of the Las of Jesse 25, 1940, authorising

the RFC to advance funds for such purposes. I replied that I thought this interprotation of the law was wrong and that since the new facilities, oven though

able temporarily used to - enginee for the British, would always be avail.
for the manufacture of enginee for the United States and since the Government could as any time give priority to orders for enginee for the Army and

388

the Mary water pas of the National Defense hot of 1926, is was a reasonable

construction to hold that such facilities were for the a defense". Mr.
Mailing stated he thoughts the legislative history and not support my inter
protation and I suggested that the matter be referred to the Attenney General
for an opinion but Mr. Janes stated that regardless of what the Attenney General

night rule he did not want to do is any my. I suggested that as - alterestive
the financing might be done under the Class-Stegall Bill of 1938 which authorised

the RFG to sale loans to industry, but Mr. Jense said that Packard - - will

ing to give acceptable security such as a - to - within the strieter
requirements of that bill.
Mr. Jense said that 18 was his understanding that the British had deposited

$25,000,000 in to secure Peekard against the possibility of the cancellation of orders and that this 625,000,000 would be used only in payment of the

last batch of engines and would be left untouched until that time. Mr. Jense
thought that if the $25,000,000 was utilized to atd in financing the expension
of Peelard, he could advance the balance of the funds needed by Packard. I told
his I did not know any of the details of the arrangement between Fashard and the
British or between Fachard and the Mivisury Commission but that I thought as the
agencies of the Government concerned would get together there was sufficient

ingennity to work out a plan satisfactory to all concerned, and Mr. Jense said

that he felt the - way and that be was not everee to taking risks where
mecosary to got the progress under way.

Mr. Jones mentioned that officers of Celt's Patent Fire Arms Manufacturing

Co. had recently spoiten to him about funds for the purchase of jig, tools, dies
and special anchinery which they wanted installed in the Celt's plant but that

389

they did not was to be under any obligation to repay the Stade as

- did they want the - to have any right - to the /
mehinary which would be purchased with the - and m J indicated special be
thought
this assistado - -

Mr. Jense asked - who 18 - in the British Purchasing Cominston
was spots the for the Commission, and I said that as was my - that in the Purvis

Percis - to talk to on the atten. m. Jenne acted share
to take office - and I stated this as - in New The has be - always Mr. willing

a plano and - to Mastington / -

We of discussed the the presidints of beating the after

if lines we would - - lessing - and Mr. Selecte along the asked
send his engine of this contract and lease.

Mr. I asked Mother as would not be possible for the Treasury to
mgdd its regulations relative to depresiation and electes se as to provide revise

purpose a of the cost of - acquired for actional defense for
special without writing for the - of the - profite tax with the
that the martination provisions. I explained as considerable laught to its. -

in faver treasury had to treat all - alike and could as Macriminate

- of any particular - of - such - private - permitted I explained to his that whatever rate of depreciation and - of
would also for buildings and manisary used to fill actional defense made
and that is have to be applied to buildings and machinery used for other production

any
- - that the Treasury have statutory authority to distinction.

390

Mr. Jense stated that be thoughts that this was a may receivable position
and that be new understood way the Treasury could - health the anotication
question administratively. I stated to m. Jenne that there had been a great

deal of confestion and - this - has - - had had an
opportunity of explaining the problem, the need s - legislation I -

parent. I referred to the Arther Break - which - is the - North
Times on July 10th, as - - of the provalence of misinformation
and told his how obberty unfair and projutions the colum -

I explained to Mr. Jesse that after a - last - as m
office with in Mayors, in Hand and - of Wright Introductions
Corporation at which the - w and special martination deductions
had both been considered I had stated to you that I thought as - committed to

repeal the see and that you had anited for a - - this
subject. After you and considered the - you stated - Monday that you

were cominged that the not - Classiminatory, Instinctive and
- delaying the consention of Important contracts, and that - Monday as a Strence as the White Hease you recommended that the see be repealed and that -

special martination allowance be considered in conjunction with - exesse

profite tax. I also told M Jesse that the President had stated to you that be

wated to consider these setters but that yes should - then with the Dagio-

lativo leaders, and that - the most my, Tuesday, at a - is your office
attended by Senators Barrison, King and George and Congresses June Cooper,
Chairman of the Tax Subscrimities of the Ways and Messa Committee, you had Said

the proposal for the repeal of the see and provision for special

- all as part of a general non-diseriminatory - profits

391

+
tax, before the - After - hesitation and considerable dismention the
legislative Senders agreed with year suggestions and the result - the plan

warted out during the conference as the White Name - - which Mr. Jense

had attented along with Mr. - Senator Services and - Cooper,
is addition to you, John Bulliver and specif.
I told No. Jesse that I thought that the apoud with which the Treasury had
asted aboved that the Treasury, as least, - prepared to do everything mithin

its - to expolite the actional defense - and that the War and May
Departments - postum Shots Semotion of wanting the contracts, the are its

function of flauncing - construction and the Treasury its America of -

ating British - with demotio - and working out a tax policy, all
in close constination as the program - to in Jenne said be realised that the I - trying she best to expodite
the progress of the national defense progress and said he we willing to do his

part to got things - quietly. No said he was is hearty accord with the repeal

of the Ast and thought that a steeply producted - profite
tax of general application - the Stirest form of taxation and would help was corporations getting too big and having annually positions. Recover, be
said be thought that the markination deduction for special astional defense
facilities should be promitted regardless another the financing was dans by the

RFC or w private banking institutions and that otherwise - were going to into a most confined situation especially where came of the facilities would be

from both - plan existing corporate reserves for plant expension.

I told his that I agreed that any whose - Sacilities were carts.
fied by the Army and Bay and the Minisury Commission as being Institutely

HI

+

392

- for antimal / - should to promisted to - over a
- posite such additional without regist to the - of
the funds used to - the - please or - - install the - and that you and - - - - the subject and this - the way you said so his as the - I you would to galling to - the
after with his as - time - . slaw of milk.

40 the conductor of the - ⑉ I - to be in a very estable
- of sind - indicated that he - - and willing to - to the
fallest I goods a don't a his Sealing - the Treasury

- datag its - and that the ruling in the I - me going
to be my belond.

(Initialed) E.H.Y., He

CIXIT

7-23-10

393

JUL 15 1940

Your Mr. Wilmone

Thank you for your letter of July 2nd, -

earning the disposition of the Bells Reyee plane

and Arwings.

Attached herewith is a - of a letter to

the Secretary of the advising his that you will

be delighted to request Sert to Leave

certain of those plane in the emploity of the Yes
Department
for impection purposes if is so
desires.
Sincerely,

(Signed) H. Morgoathan,Jr.

Mr. Marrie v. Wilson,
Representative, British Ministry
of Airwraft Production,
the Royal Bank of Canada,
Nontroal, Gannia

Enclosure

7/12/40
FY:bj

pu.
Ident to and
rpa station
airmail
Special
delivery

394

JUL 15 1940

Dear Mr. Wilsons

Thank you for your letter of July 2nd, concarning the disposition of the Rolls Royce plans
and drawings.

Attached herewith is a copy of a letter to

the Secretary of Year advising his that you will
be delighted to request Lord Seaverbrook to leave
certain of these plans in the oustody of the War
Department for inspection purposes If it so
desires.

Sincerely,
(Signed) H Morgenthau, Jr.

Mr. Morris W. Wilson,

Representative, British Ministry
of Aircraft Production,
The Royal Bank of Canada,
Montreal, Canada.

7/12/40
PY:bj

395

JUL 15 1940

Dear Mr. Vilenas

Thank you for your letter of July 2nd, -

earning the disposition of the Belle Bayoo plans

and drawings.

Attached harmith is a - of a letter to

the Secretary of the advising his that you will

be delighted to request Lert to leave
certain of these plans in the of the Your

Department
for importion purposes if is w
desires.
Sincerely,

(Signed B. alorgenthau.rr.

w. Newria w. Wilson,
Representative, British Ministry

of Aircraft Production,

The Reyal Bank of Consta,
Nontreal, Canada.

7/12/40
FY:bj

396
REPRESENTATIVE IN CANADA AND THE UNITED STATES

4

OF THE

MINISTRY OF AIRCRAFT PRODUCTION
OF THE UNITED KINGDOM

Telephone:

t 7/9/40

ROYAL BANK BUILDING

PLateen 4136

MONTREAL

July 2, 1940.

Hon. Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D.C.
Dear Mr. Morgenthau:

So that you may get rid of the plans, drawings, etc.,
recently delivered to you, other than those of the Rolls-Royce
Merlin engines required in connection with our proposed joint
project, may I request that the plans and drawings of the HalifaxHandley Page aircraft and the Rolls-Royce "G" engines be sent by
express, collect, to:
Morris W. Wilson,
The Royal Bank of Canada,
Montreal.

The remaining parcel, consisting of car and experimental
drawings, may be turned over to the Rolls-Royce representative
presently in Washington.

I regret giving you so much trouble in this connection.
Thanking you in anticipation, I am,
Yours sincerely,

Representative

397

July 15, 1940

Kurt Sell, American representative of the D N B
(which is the Nazi news agency) came in to the local Collector' 8 office in Washington to file tax papers before go-

ing to Havana. By mistake he left an envelope. Irey
made a preliminary translation. It is a document for the
German White Paper #6. The preliminary translation shows
that it is an
Germany
countries
andalibi
thenof
into
France. for its entry into the low

Irey thinks it ought to go to the State Department
today
because
evidently Kurt Sell is going to attend the
Pan-American conference.