Full text of Diaries of Henry Morgenthau, Jr. : Volume 285 : Part 2

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206

RE ALLIED PURCHASING PROGRAM

Present:

July 23, 1940

10:00 a.m.

General Brett
Mr. Stimson
General Arnold
Mr. Young

Lieutenant Anderson

Mr. Knudsen
Colonel Knox

Mr. Purvis
Mr. Ballantyne
Mr. Taylor
Mr. Wilson

Mr. McReynolds
Admiral Towers

Mr. Foley
Mr. Nelson
Mrs Klotz
H.M.Jr:

Mr. Stimson, I think you are responsible for
having this meeting.

Stimson:

Well, as I look around at the numbers and the
importance of the conferees, I am amazed at
my own indiscretion.

H.M.Jr:

Oh well, it is an important subject.

Stimson:

But, Mr. Secretary, it came up out of the

rather unsettled and haphazard conditions

that I found involving the question of air-

plane engines manufactured here and there

was a controversy in embryo in regard to -

arising out of it and I am taking it up with
the Air Corps of the Army. They suggested a

series of examinations and resumes being made,

which I sent you a copy of, for the purpose
of finding out a basis out of which we could
achieve, possibly, an orderly situation. As
I understand, the trouble has been that airplanes are not being manufactured in an integral or orderly condition geographically.
People are ordering engines and airframes

207

-2and they are building them in different places
and with that being the case and without supervision, there is bound to be a straining and
possibly a clash of interests and it came up

particularly out of - it was brought to my
attention from an order of - what was it,

General? I am separated from my right hand
here by a remote - some 1200 engines?

Arnold:

Some 1200 airplanes that the options were taken
up on.

Stimson:

Options on 1200 airplane engines which my other
friend Purvis had been snooping around and get-

ting the contracts for without apparently any-

body to say nay or to watch him.
Purvis:

I wish that were true. There are 2407.

Stimson:

Well, at any rate, I caught him before he had
gone any further than 1200.

H.M.Jr:

Are those engines or frames?

Stimson:

Engines.

Arnold:

Frames.

Brett:

Airframes.

Stimson:

Additional frames, but there is a body of engines
involved in there.

Arnold:

Yes, the engines together with the airframes.

Stimson:

Together with the airframes.

Arnold:

It is the total of airframes and engines.

Stimson:

Well, with the engines and airframes being

ordered in different places --

208

-3Arnold:

That is correct.

Stimson:

That is what I mean. The engines were ordered by separate manufacturers.

Arnold:

They have got the engines. Now they are
buying the airframes to go with the engines.

Knox:

Were these engines French orders transferred

H.M.Jr:

Here is a press notice here this morning which
has just been put on my desk. It makes Mr.

to the British?

Knudsen a hero.

Stimson:

It looks as if your (Knudsen's) publicity

department had been working overtime.

(

H.M.Jr:

He is going to save the day, good old Knudsen.

Knudsen:

What is it, Mr. Secretary?

Stimson:

"The Army has asked William S. Knudsen, Pro-

duction Chief of the National Defense Council,
to prevent new British orders for about 1200
American airplanes from interfering with production for this country's defense program,
the United Press has learned. The request

for coordination of British orders with this
country's demands was made by Army Air Corps

officials. If

That may possibly come down to your publicity
department, Arnold.

Arnold:

No, not mine.

Stimson:

I am the only one that I am sure hasn't any.

"....who fear that the new orders would tie
up production channels. It was the first
time such a request has been taken directly
"

209

-4to the Defense Council. Knudsen's associates
said he expressed willingness to undertake
coordination of the orders and he believed
no serious difficulties would be encountered."

Now, that is very hopeful.
H.M.Jr:

I just thought it was a nice tone to start
on, anyway.

McR:

I didn't give it out.

Knudsen:

I am sure I didn't.

Stimson:

Anybody who says we have got an inactive Advisory Commission had better take notice.

Well now, there is the suggestion that I telephoned to Secretary Morgenthau the other day,

to this effect, that there should be a resume
of all engines under order for the United
States and for all foreign nations made.
Second, that there should be a resume of all

Allied production of airframes and of the requirements of engines manufactured in the
United States for those frames.

Third, that there should be an allocation - I
wouldn't call it an allotment - of all engines

manufactured in the United States to airframes
manufactured in the United States for foreign
governments. The result of this would then
give a balance of American engines available

for allocation to either the United States or
Great Britain for additional airframe construction. We would then be in a position to form
a definite program for additional factory ex-pansion with reference to both frames and
engines.

Well now, to put that in my rough and ignorant
brevity, I conceive of this meeting as a meeting

210

-5to set to work the machinery for laying on

the table all of this construction of air-

plane engines in the United States, together
with the construction, both in the United
States and outside of the United States, of
the airframes for which those engines were
being intended, and that out of that we
should have the knowledge out of which a

fair consideration could be given to the

comparative equities of the Army, the Navy,
and the British purchases, that preferably
I had in my mind that some board should be

appointed with authority to go over this
matter and to allocate the different engines
to the different requirements for engines in

the shape of airplanes, both here and abroad,
in such a way that we wouldn't be butting up
against each other, but would have an equitable adjustment of the entire matter.

Now, if in that ignorance I have omitted anything, General Arnold, will you correct me?
Arnold:

I think that is a correct statement.

Stimson:

Don't be shy.

Knox:

As a matter of fact, Mr. Secretary, haven't

we created just such an agency in Mr. Knudsen's

outfit to do that very thing? Isn't that your

understanding, Mr. Knudsen, that that is part
of your function?
Knudsen:

If that is the pleasure of the meeting, we are
willing to undertake it. You see, what we
need is --

Stimson:

We haven't got it now, I know, because this
row has come up.

Knudsen:

The upshot of it is that I asked, last week,
Mr. Purvis to be kind enough to notify us

211

-6when he started to negotiate for more planes

out in the field so that we knew that before

he actually placed an order and that agree-

ment was made in my office between Mr. Purvis

and myself. Then I asked a second thing.
I asked in the second place that as far as
humanly possible that I would like to make

it mandatory that the planes the British

bought over here would be the same as the
American planes.
Stimson:

That was the same point I was coming to, standardization.

Knudsen:

There isn't very much difference in a couple
of models. They could mostly today be used
in an American program, but by and large, I

think we could get together with it.

Stimson:

Would you object to having it associated with
yourself, representatives from the Army and
Navy, who could perhaps be able to advise you
in more detail?

Knudsen:

Not at all, sir.

Stimson:

In regard to the things which are requisite to
their construction and which might not other-

wise come to you.
H.M.Jr:

Could I just interpose here a minute before
we get down to a committee or detail? I would
like to state my position and why the meeting

is in this room. My orders are from the President. I am going to be very frank and say so
in this room. The President some time ago

set up a committee representing the Army and

Navy and Treasury to receive all foreign pur-

chasing missions and to channelize them to
the right people, and Colonel Burns represents
you (Stimson) on that and Admiral Spear represents you (Knox) on that and Mr. Philip Young
represents me.

212

7Stimson:

I had as a prominent member on the suggested

board that I had, that either you or a member of your Treasury staff should be a mem-

ber.
H.M.Jr:

Now, as I understand, what the President

said in May in Congress, he said it perfectly

forthrightly and no if, and or but, that in

this national defense program that we were
beginning to undertake - May 10 or May 16,
he made his speech - that our program was to
be superimposed upon the needs of the Allies.
That is what he said to Congress and as far
as I know he has never intimated at any time
that that program should be changed. Further-

more, I also believe it is his belief - and I

very seldom try to interpret what he says that just as long as we can keep the English
going, and they have the will and the courage
to keep going with their own money - and the

only thing they are asking for is permission
with their own money to buy the stuff they
need to keep up this magnificent fight - that
if we want to keep out of the war, as I understand it what he feels, that the longer we
keep them going, that much longer we stay out
of this war.
Now, I don't mind saying it seems to me the

height of stupidity to do anything at this

time which interferes with their program
when they are doing their fighting with
their men, their blood and their money.

Now, if for some shortsighted reason we are

going to interfere with this program, if I

understand what the President wants, he wants
to keep these people going. Now, he has done

everything possible to do that and I don't
believe - and certainly at no time has either

General Marshall or Admiral Stark told me
that anything that we have done has interfered
with the national defense program with the

213

-8money at the disposal at that time, and I
have sat down and spent hours and hours,

particularly with General Marshall, and
gone over it item by item with him.

Now, I just want to say, as a policy matter -

and I say I very, very rarely try to inter-

pret the President, but I am using as my
sailing orders what he said to Congress, and
the only time that I have had anybody check

was before you came in, Mr. Compton at Cabinet
meeting one day said, Now, this was two weeks

ago, Mr. President. Are we still to continue
to help the English? Is there any change?'

The answer was that we should continue to

help them. I just want to lay that down,

and my position, acting for the President,
not as Secretary of the Treasury, is to see
that these people get what he wants.

Now, I am not here as Secretary of the Treasury;
I am here as his agent, and as long as he asks
me to continue to do that, I am going to do

it, because I think it is sensible; I think it

is farseeing; and I think anything to stop

these people or to nag them or to worry them
at this time when they are doing what they
:

are, I just think is a move to drive us into
the war and bring us that much closer. I
think it is the height of stupidity and I

just want to say that on the record and the
world can know it, as far as I am concerned.

(

Stimson:

Mr. Secretary, you certainly know my position
well enough to know that it coincides with
that of the President.

H.M.Jr:

I know it does.

Stimson:

And if I have given any other impression in
what I have said here this morning, words
have served to conceal instead of reveal

214

-9 the thoughts, but the whole purpose of this
was to find a way by which the purpose which
the President has, which is also coincident
with another purpose which he has, namely
of - and which he has expressed to the Con-

gress very vigorously, of building up a great

national defense of our own.
H.M.Jr:

Granted.

Stimson:

Shall be carried on with a minimum of friction,
a minimum of trouble and a minimum of burden
to yourself.

H.M.Jr:

There is no - you and I and Colonel Knox have

talked this thing over. We are in complete
disagreement, but I just -Knox:

Disagreement!

H.M.Jr:

Agreement, complete agreement, and just before

we get down to detail, I wanted to at least
state the principles and keep this thing on
a fairly high plane, and then as far as I am
concerned, I would just as lief leave the
room.

Stimson:

We don't want you to leave the room.

H.M.Jr:

But I want to explain once more to these represenatives of the Army and Navy what is my

function, what is motivating me and what I

understand is what the President wants me to
do, and in my conversations with you and with

Mr. Knox, I think we see as nearly eye to eye
as three men can see on any subject.

Knox:

There is one thing you omitted in your survey
that I think is in Secretary Stimson's mind,

that after that situation that you describe -

and the description of which I am in complete
agreement with - there has come about a new

215

- 10 situation which is superimposed upon it,
of a very large appropriation for expanded
activities in both the Army and Navy and I

think I know exactly what is in Secretary
Stimson's mind, and it is in my own, that
this activitiy of the Navy and Army for
additional planes should not be permitted

to gum up what we have been doing before and

get it confused, and what I think Secretary
Stimson is asking for is a very reasonable

thing, that we take this new factor, find

out exactly what the British need and what
they want and God knows we want to give

that to them and then add to that the additional factor that we have got to have a

lot more planes in the Navy and the Army
has got to have a lot more planes and we

want to justify our activities here to

the public as a whole, because they are

very keen about this thing, by not interfering in any way with the British getting

what they want. We are also adding these

additional airplane facilities to our airplane defense. Isn't that right?

Stimson:

That is right. My proposal was based upon
the fact that men can work more effectively,
in my opinion, when instead of working without knowledge of what each other one is
doing, they are working in accordance with
thoroughly well understood coordination and

not clashing with each other. You can't do
that without a dissemination of knowledge.

H.M.Jr:

I agree with you but, Mr. Stimson, as far
as I am concerned, the principles involved
in this are so important that I personally
hope you gentlemen, Mr. Knudsen and Mr.

Nelson, who is in charge of priority, that
we give this thing enough time to arrive
at a formula and then anybody that we

216

- 11 designate can work it out, but nobody that
I can designate can work this formula out

and I hope it will be worked out here. And
then as to the details, leave it to somebody
else.
Stimson:

Well, isn't there a step first before that,
namely to find the facts out of which the

formula - on which the formula must work.

H.M.Jr:

Well, I think --

Stimson:

I found that on the part of the gentlemen

upon whom I rely in the War Department there

has been an insufficient knowledge of facts
as to these items which I enumerated in this
resume. They don't know the capacity of the
airframes for which engines are being sought

in this country, being built outside. They

don't - they didn't even know about these
last 1200 orders until they had been made.
Purvis:

I hope I am going to get an opportunity pre-

sently of speaking on that a little, Mr.

Secretary.
H.M.Jr:

Couldn't we take an inventory right now? I
hope you have allowed until 11:00, and I
think --

Purvis:

Mr. Secretary, --

Stimson:

Not only 11:00, but as long as you want.

H.M.Jr:

I think if you gentlemen can be a little patient,

we can settle this thing and there is enough
information in this room to settle the thing
here this morning so that the English Pur-

chasing Commission can go on about their busi-

ness. I really think there is, if we just

take the time this morning to do it. Don't

217

- 12 you think so, Knudsen, because-Bill, here,
is all - he wants to go to town and he has
got this and the other thing.
Knudsen:

Of course, what I think, Mr. Secretary, is

when we have three or four places we want

to put stuff, as in this particular place,

we had the Army, we had the Navy, we have

the British, we have other foreign and we

have some commercial. What this thing needs

is a dispatcher's office to say, "Let her

go over here," 80 the two trains don't get
on the same track and that is all we are

trying to do. Nobody is trying to take

anything away from the English, not me.
H.M.Jr:

No, but haven't you got all the facts so

that you could take five minutes and paint

the picture as it is right now? What is

the problem, anyway, as you see it? What
is the problem?
Knudsen:

I've got enough figures here to write a

book.

H.M.Jr:

All right.

Knudsen:

But boiling them down to simple terms, I
took all the airplanes that I knew we had
on order and I found out that there were

two of the British airplanes of 8,103.
Knox:

Of what?

Knudsen:

British airplanes.

Knox:

An order for 8,000?

Knudsen:

8,103.

Stimson:

In this country?

218

- 13 Knudsen:

In this country. Then I find we had other
outside orders, 1,417, and that including
our program, meaning the program that was
passed by Congress, which we called the

42-'47 program, the United States had 10,572.
Knox:

Ordered?

Knudsen:

And with the program that is on the Hill, to

that would be added 14,000 airplanes, so when

we get all through, there are 34,386 airplanes
either on order in the United States or to be
placed within the month. Of that, 10,000 are
placed now, 8,000 British and 1,417 varied,
Sweden and - don't amount to anything, com-

mercial, all that kind of stuff. When I get
around to looking it up, there are a good

many more engines on order in the United States

for the British than there are planes. There
is an unallotment of about 12,000 engines.

H.M.Jr:

Unallotted?

Stimson:

That is, 12,000 engines for which no airframes

are being constructed in this country that

you know of.

Correct, that is right.
Stimson: And are those all for the British?

Knudsen:

Knudsen: Yes, all for the British, because they represent the combined British and French orders

that the British took over when the French
passed out of the picture. Now, when we get
through with our load for the program I just

gave you a little while ago, there will be
62,000 engines for the Army and Navy and
31,000 for the British and 7,600 for mis-

cellaneous, making a total of 101,000 engines
which we have until the end of 1942 to manu-

facture. I can tell you just by companies -

219

- 14 -

but the totals - the companies don't matter.
Knox:

Purvis, what are you going to do with these
1,000 engines you have ordered that you
haven't ordered frames for?

Purvis:

Mr. Secretary, before I answer that, may I
have the privilege of just running back a

little over the history? Quite a number of
people in this room were not present. It

won't take more than a minute to do it. Would

that be all right?

H.M.Jr:

Please.

Stimson:

I would be very glad.

Purvis:

I think these historical things from our view
have such a vital bearing on this decision,
the importance of which I can't emphasize

enough. I honestly believe that the Secretary

is quite right. If I were to cable to London

today, the feeling of discouragement that I
had for a moment last week, I think the effect
would be very vital on the course of the war,
so if you will let me speak for a moment of
my historical. things, I would appreciate it
tremendously.

In the first place, there is one dominant
fact which I don't think is realized generally
in the room. Secretary Morgenthau knows it

and some others do know it. That is, that
the extent of the orders, whether for airframes
or engines, placed in this country by England
or France was not governed by their needs

as they saw them at the time at all. They

were governed by the productive output, ca-

pacity, of the industry as added to by the
Allied money that was poured into the industry
and which has given that industry today a

220

- 15 place which is valuable in the United States'
national defense. It would have been of but

very little value but for that.

Stimson:

I am aware of that.

Purvis:

That was a privilege for us, and it was also,
I think, not without value to you.

Stimson:

Your orders have been responsible for the build-

ing of additional facilities in this country

which are very valuable.

I do want to start on that note, however, that

we were never able to buy nearly as many planes
or engines as we wanted and today we are unable
to buy nearly as many planes or engines as we

want, as we need, in the face of the fact the
enemy has more. It isn't a perspective background, it is a question of what we have to do
day by day. Now, for that reason I think we
can dispose of any idea that there is a surplus
pool of engines or planes or anything. There
is none. It is just a question of how many
completed airplanes - and I believe this goes
for U. S. defense, though I have no right to

talk of U. S. defense - it is just a question

of the number of airplanes that we can get

into the air in a given time, which will
actually be used to hold this particular fort.

That is my conception of the background of

the situation.

I believe that a great deal of misunderstanding
seems to have arisen - and this has come some-

what in the last week, as a surprise to us
for reasons which I will state later - has come

through a distinctive feeling that there is
some plus sign in the picture which came as
a result of the debacle in France. There is
no plus sign; they are all minus signs. We

)

Purvis:

221

- 16 have never been able to get what we needed

or wanted at the time.

With that background, I would like to say
just two or three other things about the

situation. When in December the idea was
born to have a new program for aircraft
here, the British and French Governments
took the precaution to come to Mr. Secretary
Morgenthau, as the President's liaison man

that we had to respond to, and to explain to
him the vital importance of this and to ask
whether we could assume that the placing of
that program would be favorably looked on

and blessed by the Administration. I believe
that that went right through to the highest
quarters and we felt that assurance of great
backing in the matter was present, and
assurance that you yourself - you have come

into the picture more recently and have reemphasized it this morning, to my great

relief.

The fact remains that that went into great
detail. The Army and Navy, I think, came

into discussions behind the scenes to some
measure, so far as we were concerned, but

often in the same room also. And it went
even before Congressional committees and

was blessed as something that helped U.S.

national defense, and also we felt, therefore, that there would be no question that
when the engines and planes began to come

through, of withdrawal of those, at least please don't misunderstand me. If there is
any pool of engines anywhere at any time
which lacks - which can be put into the air
against the enemy, we will be the very first
to say, "Let's distribute them to the general
advantage," including, of course, yourselves.
I know you could take it anyway if we didn't

take that attitude, but we would take it

- 17 -

naturally because this is a vital necessity
for us, too, and we would like to see this

country armed very strongly. We don't want
to play the dog-in-the-manger policy with
one single engine. Today we have airplanes

waiting for engines. There is no surplus
that I know of at this time.
Knudsen:

No one says there is any surplus. We say
we have no frames allocated to us.

Purvis:

Wait a minute. I think, Mr. Knudsen, that
I gathered the impression from your remarks
that we had rather more engines than we
needed. Now, admittedly, you were pointing
out - and I quite conceded - that you were

missing certain information. I regret to say
that even today they are working on it feverishly at home. I have not got it with me,

the number of frames into which they would
like to put the engines, which could have
been otherwise sent to France. I do know,
however, and Mr. Wilson, of course, as his
personal representative can handle it much
better than I can, I do know Lord Beaverbrook -H.M.Jr:

Explain Mr. Wilson's position.

Purvis:

Mr. Morris Wilson of Montreal has been appointed
by Lord Beaverbrook as his special representative
in North America to watch the programs as a
whole which we have been carrying out and I
know that Lord Beaverbrook has reduced and
standardized enormously and in the process
has increased the number of frames which are

coming out of our plants, perhaps at the

sacrifice of quality over a longer range. We

may not have all the long distance bombers and
things that we want, but he has immediately
gone out to reduce the number, I think I have

heard, from 13 to 7 types of frames in order
to step up the airplane output and therefore

223

- 18 get the maximm of completed planes in the

air. That has a very great bearing on this
engine problem.

But may I go back just a minute? We have

had that feeling, as I say, that that would
very careful examination. I would like
be - that we had placed these orders after
straight away to answer one point that

Mr. Knudsen has been worried about last week.
The point is whether or not we have been

acting fully in the open in placing orders
or whether we have been putting them somewhat surreptitiously.
Stimson:

Nobody - I certainly didn't intend to --

Knudsen:

Oh, for heaven's sake.

Purvis:

Last week I gathered Mr. Knudsen felt that

our machinery had been a little lax. I
would like to explain -Knudsen:

No, we had no agreement up to the day in my
office. We had no agreement that you would
notify us when you made an inquiry.

Purvis:

No. We had an agreement

Knudsen:

We have it now.

Purvis:

We had an agreement that we had to notify in
a weekly statement, which is a pretty close
record and which has been coming to the Secretary and was on your (Knudsen's) desk that
day, week by week, not only the orders we
have placed, but the inquiries that were pend-

ing, and I may say that the only slip up from
our end is that apart from the weekly record
that we have been putting in to you of orders

pending, which we are trying to place, we have

224

- 19 been sending the manufacturer to you up to
the time I made that agreement, to say, "Can

we accept this order?" instead of ourselves

coming to you because we thought it was a
foregone conclusion. May I say why we thought
it was a foregone conclusion, Mr. Knudsen,
because here we were with the anxiety to place

orders. I feared not for 1200. As far as
our calculations go, it is nearer 1385.

Knudsen:

Well, say so.

Purvis:

But here is the point. We assume --

H.M.Jr:

Let me interrupt you. I think this is right,
General Arnold and Brett and Admiral Towers,
that no American manufacturer takes an order

for a foreigner without checking first with
the Army and Navy.

Brett:

We knew nothing whatsoever about the Consolidated or Bell orders and we knew nothing

about the Vultee order until Mr. Vultee came

in after the negotiations were practically
completed.

Purvis:

Nevertheless, before they were completed, we
said we would not sign an order with him unless he got your okay.

Brett:

We knew nothing about the Consolidated order
until the Consolidated company had signed on

the dotted line.

Towers:

We knew about it, however, and Consolidated is
under the chaperonage of the Navy.

Brett:

But we knew nothing about the Bell order.

Purvis:

To the best of my knowledge and belief, there

has been no case in which we have signed

225

- 20 an order without sending the manufacturer
to you and posting week by week with the

Administration a note of the order - the

negotiations pending as well as the orders
placed.

Brett:

I say that we knew nothing about the Bell
order until the order had been signed, in

my office, I mean in the office -H.M.Jr:

That is the beauty of a meeting like this.

A thing like that can be cleared up and he

has made an arrangement with Mr. Knudsen so

that can't happen again.

Knudsen:

An agreement has been made.

H.M.Jr:

Last week with Mr. Knudsen.

Purvis:

From now on, it is all on a daily basis.

H.M.Jr:

On everything, not only on airplanes, but

on everything and anything over $150,000,

Purvis:

isn't that right?
That is right.

H.M.Jr:

But everything.

Purvis:

May I just finish on one note, Mr. Secretary,
and that is, we feel there is a very great
danger now, going back to the first point.

We have never been able to buy nearly what

we need and that that is - that the emphasis
is going to be not on how we can by hook

or crook at the sacrifice of butter, and
increase the number of planes which will

be available to divide, but that we may get
into the position of spending our energies

dividing what is already in the pot. So

far as we are concerned, up to September

and October '41, in particular, the loss

226

- 21 of one plane would be a very important factor.
In the early months just now, what we would

like to do, in fact, we would like to cooper-

ate with anything you want to do and put down
such money as is necessary to do it from our
end. What we would like to do is concentrate

almost entirely on increasing the production,
coming to the point that the recent orders
we have been trying to place for airframes it never occurred to us in our wildest moments
that that would be anything but welcome, for
this reason: When we obtained permission to
place the orders for shipment of engines to
France, as such, as distinguished from airframes with engines in them, we realized that
that represents an unbalancing to some extent

of your outlet. You had the - we took it

because everybody knows that engines are a

bottleneck and anything that would help the

worst bottleneck would presumably be good
and that was investigated and talked about
and approved and done.

When we inherited those French engines, we
immediately went to work to put some of them

into frames that would be available in England
but also, as we thought, in constancy with
the only policy that you demanded, to put

a substantial portion into airframes in this
country, because then you have a balanced

condition. Otherwise, the engines presumably

would be shipped out as such unless you used

your powers to prevent that. We had thought,
and this is basic to our whole understanding

of this situation, that your view was going
to be this: As long as the Allied money is

building up potential output in this field,
as long as it is increasing airplane pro-

duction so much a month so that in three
or four months we can put out so many thousands of model planes, that the question of

227

- 22 letting the background of the current pro-

duction go to us was something that would
be constant with your normal defense policy.

We have been working on that assumption.

If there were a change in that, if the results

of this meeting were going to be such that
we lose planes and engines or the possibility,

to put it more clearly, of getting more planes
into the air, whether it be the airframe built
here or not, I really feel we ought to - I
really feel it would change their outlook as
to whether they continue the war. Air power
is vital. Excuse me if I have been so em-

phatic, but that is the position as I see it.
Knudsen:

There are two points in our talk, Mr. Purvis,
that from my standpoint ought to be cleared

up. There is no disposition on our part to
help lose the war. Now, let's get that

straight. I don't think there is anybody

in this room, I am sure, that would do anything - hesitate to advance anything that

would do - you have got certain programs
coming for your planes in the United States

and all we are trying to do is to engineer
it so that the plants don't get confused.

General Brett shows me the production lay-out.
There are certain places now where there is
a gap in the production, see.
Purvis:

I am all for doing anything that will get
more planes in the air and will sit and
conspire with you with a pool of engines
to that effect.

Knudsen:

All we are trying to do here is to get it
laid out, see, through one channel, to get
it out to the factories so they get orders
from one place and then after we get that
far, then put the screws on them to get

more planes. Now, I think that that is the

228

- 23 proper way to handle the job and there cer-

tainly isn't anybody in this crowd that I

know of that is trying to cut you down. We

are just trying to lay it out so we can all
get more, because we have got to have more.

Purvis:

Still we are waiting your permission to place
1200 planes, for which there are engines, on

which the manufacturers should be at work.

Now, admittedly, that is very recent and I
have no complaint --

Knudsen:

I asked you, Mr. Purvis, if you could wait
until today.

Purvis:

Oh yes, I know.

Knudsen:

Now if you are going to lose the war on
account of three days' delay, then I am

going to be up against it. I shouldn't

have done it.
Purvis:

I think that has been our problem. I think

we have lost the war so many times on three
hours' delay, Mr. Knudsen - excuse me, may
I answer one other point of the Secretary's,
standardization?

I don't think there is any field in which we

have so completely accepted what the manu-

facturer in this country could produce and
sell than in the planes, admittedly on armor,
on which I think the European experience is
a help. We have had positive ideas. But
so far as the actual airframe and engine is
concerned, we have simply accepted - I think

I am right in saying - 99 and it might be

100 percent of what the industry here wanted
to build. We have accepted that. We have
not been able to get them to even consider

changing. There Isn't a British type made
here. Everything is American type.

229

- 24 Brett:

I would like to state my position. I am

probably the tempest in the teapot.

H.M.Jr:

I think you are, at least somebody is.
Let's have it out on the table here.

Brett:

The whole question arises from my stand-

point. It is the fact that of course I

have directives which I have to work on
which have been approved by the Chief of
Staff of the Army and the Secretary of War.
Those directives require a given number of

airplanes, fully equipped, to be in possession
of the U. S. Army within a given period of
time. In connection with that we have naturally made a very careful survey of the airframe industry, likewise the production of
the airframe industry with increased facilities and factories. In making those surveys,
we assumed a certain condition. We had to,

in order to get a true picture.

Now, the orders which you speak of for the
last few days would naturally upset that

picture. As I say, I am the cause of all
that trouble because all I want to do, in
spite of anything Mr. Purvis says or any
insinuation concerning our desire to hold

him up, there is nothing in that at all.

I merely want the cards laid on the table
80 that I can count on what I can tell my

Chief as to his possibilities of getting
airplanes. I don't care if the English

get every airplane. In fact, if it is

going to win the war for the English, I
would be tickled to death to give it to

them, provided my Chief tells me that that
is okay.

In connection with Mr. Purvis, I think we
have worked together quite a bit before. I

was the man that probably did as much to

230

- 25 defer deliveries for him last December as
anyone. I also gave up a great deal of
engine capacity at that time which I had under
option, in order that the English and French
could place their orders and did everything

in the world I could and I am in exactly the
same position today, if the President desires
that consideration be given, but I would like

to know what I am working toward. I would
like to know exactly what we are going to

get and what the English will get. We will
take the monthly production of our engines,

the monthly production of airplanes, and if
they want 100 percent of them, they are en-

titled to them. They can have them. But I

would like to know exactly where we stand
and where we are going to stand over the
next eighteen months or two years.
H.M.Jr:

Brett, may I say that up to now we haven't
had to bother the President and I hope we

won't, but after all, if we can't come to

an agreement, Mr. Stimson and Mr. Knox and
Mr. Knudsen and Mr. Nelson and McReynolds

and myself can go over to see the President,

but I hope we won't have to and I don't think
we will.
Stimson:

We are less likely to have to --

H.M.Jr:

Now, as I understand it, there is this much
that has been agreed to as of last week.
Any orders in contemplation to be placed,

the Allies will either direct or through

this Committee, whichever is the quickest
way, will get word to Mr. Knudsen before
you place any orders for anything.
Purvis:

We have put in a teletype service to Washington since last week and so far as we are

231

- 26 concerned, we intended to clear it through
Mr. Ballantyne and Mr. Young. I have appointed

a man in our office. We are only asking that
if we send you every hour on the hour ques-

tions that we want authority to go ahead, that
you will pass them as quickly as you can.
H.M.Jr:

And it is agreeable that Phil Young service
you?

Knudsen:

H.M.Jr:

Yes. He was there when we made the deal.

All right. Well, he is a very modest young

man, you know.
Purvis:

We will probably find out he really inspired

H.M.Jr:

Well, that is taken care of.

it.

Now, there are two things, as I see the thing.
The new orders in advance before anything

for any - before any war order is placed
will clear through to Mr. Knudsen and it is
up to Mr. Knudsen to take care of the Army
and Navy. Right?

Knox:

I would like to hear Mr. Purvis tell us about
these 1200 engines.

H.M.Jr:

Do you mind one second?

Knox:

No, go ahead.

H.M.Jr:

I was trying to put this into three pockets,

if I could. But I can wait.

Knox:

No, go ahead.

H.M.Jr:

The other thing here, as I see it - there are

two things and they are entitled to know this.

232

- 27 Do you gentlemen intend to take away from
them any of the engines they have on order
now and, number two, what are you prepared

to let them have? Are you ready to let the
English place additional orders for engines,

which they are ready to do today?
Stimson:

Part of that depends upon problems which

are under your operation and with the rapidity
with which we can go into plane construction.
H.M.Jr:

I am not going to take that today. If you
don't mind, it isn't my fault that Guy Vaughn

came down here in May and we practically
reached an agreement that he was ready to

put in a plant and since May that thing has
been kicking around this town and the thing
hasn't been consummated. It is not the

Treasury's fault, it is not the Treasury's
fault that the Packard Company --

Stimson:

Please don't advertise my speech or think
that I am saying something against you personally.

H.M.Jr:

No, I am glad to get it because it is getting
under my skin because if they won't do it

on the basis which Mr. Knudsen has spent day
and night - and because Mr. Jesse Jones - I

am sorry he is not here, because I would like

to say it to his face - is afraid, notwi th-

standing a ruling from the Treasury and the
Attorney General that he can lend this money
to Curtiss-Wright and to Packard and that

they can still place an order with the English.
It is neither Mr. Knudsen's fault nor my fault.

You can't do anything more than that, and
Mr. Knudsen has worked day and night to try

to get this thing through. We have worked
day and night with him and Mr. Jones sits

there and won't do this thing because some-

body tells him that he can't build a plant

which at some subsequent date may --

233

- 28 -

Stimson:

I was with Jones last night.
May I just --

H.M.Jr:

This thing goes around and around and around

Knudsen:

and it comes down to this amortization and
I am no more to blame for that thing than
the cop on the corner.

Stimson:

No, but certainly I didn't intend to in-

timate - but you asked me a question as to
whether or not we were going to require in
our program certain engines or planes in
certain numbers than at the immediate moment. That depends on whether or not we
can go and produce planes and that in turn

depends on the solution of the problem that

I asked you.
H.M.Jr:

Well --

Brett:

Well, we are bridging that gap, Mr. Secretary,
and we are placing a clause in the contract
which doesn't hold anybody responsible in

case the law is repealed. It neither holds
the Government responsible for the contract

or responsible -H.M.Jr:

Well, some of these columnists have gotten

under my skin. I read in the paper day after
day that it is the Treasury and I am just a
little emphatic. I don't mind the words, but

some of these columnists have just got under
my skin, because no one has worked harder
than myself and my associates to straighten

this thing out, nor is there anybody more
interested than I am.

To come back to the thing, it gets down to
two pockets; one, what do you want to do
about the orders the English have out, contracts for; and two, what are you prepared
to do to let them place additional orders?

234

- 29 Knudsen:

For the airframe orders for the moment, the
airframe orders they have at the moment,

there is no action on that, that goes right
through.

H.M.Jr:

What about engines?

Knudsen:

Just a minute, I beg your pardon.

H.M.Jr:

Mr. Stimson, I get emphatic because I feel

this thing very, very deeply and it is -

you know my -Stimson:

So do I when you shake your gory locks at me.

Knox:

Have we got the background all through now?

H.M.Jr:

You win.

Knox:

I would like to know what the English want
to do and see how it fits into our program.

Knudsen:

In other words, the present orders that are
on the books will go along with no interference whatever.

H.M.Jr:

Engines?

Knudsen:

Planes. Secondly, what we want to know now

is how many planes do the British care to
place against the so-called engines in the
pool.

Purvis:

Could we just perhaps get down to that for a
few minutes?

H.M.Jr:

Excuse me. Admiral Towers says if he had a

minute he thinks he could throw a little

light on this.

Purvis:

Good.

Towers:

The Army and the Navy have certain long-range

235

- 30 programs. The Navy's is based largely on

requirements of the fleet for aircraft,

which in turn, of course, is based upon
the ships, some of which are just being
started.

Mr. Knudsen, as I understand it, has two

major missions about aircraft. One is to
procure the aircraft required to meet the

Army's program and the Navy's program and,

two, to attain within a certain time a

velocity of production.

Now then, our Army and Navy respective orders

amounted to enough aircraft to attain that
velocity of production which was desired.
Of course, I can't speak for the Army but
in so far as the Navy is concerned, in order
to get the velocity within the two-year
time limit, Mr. Knudsen's representatives
requested of the Navy that they order in
two years more aircraft than they needed at
the end of two years and in so far as we

are concerned, in order to let the British
buy more aircraft, if we are asked to re-

duce our numbers down to our real requirements, I for one would be very pleased because it doesn't make any difference whose
money goes into these plant expansion or
whose orders go in there, you accomplish a

mission of getting a velocity of production.

H.M.Jr:

Terribly important.

Brett:

That is exactly our position.

Arnold:

No.

H.M.Jr:

No. What Admiral Towers has said is terribly
important.

Towers:

We actually are preparing to order, at the
request of Mr. Knudsen, some 1700, isn't it,
Anderson?

236

- 31 Anderson: 1795.
Towers:

In excess of our requirements over the next

two years. In other words, if they were all

built at the end of two years, we would be
ahead 1700.

H.M.Jr:

Would you have the money to pay for them?

Towers:

I go up this afternoon and try to get that
money.
I am in a vitally embarrassing position.

H.M.Jr:

I realized this, but Admiral Towers put it
much better. I saw the figures that Mr. Mead
originally developed, but you (Towers) put
it very much better.

Towers:

I think that somewhere along the line the

original request of us to take more aircraft

than we really wanted within two years has
been forgotten and now your people are trying
to get engines to enable them to deliver to
us the number of aircraft that you asked us

to take, which is more than it was.

Knudsen:

But in the program that you asked for on the
Hill, did you ask for more than what you
needed?

Towers:

Not more than we will need, no, because even

this program doesn't - that we are asking
money for now - doesn't carry us to the com-

pletion of expansion, but it carries us for-

ward at a more rapid rate than the ships that
are going to carry these aircraft are being
produced.

Purvis:

You are looking for potential gain rather than
actual, immediate --

Towers:

Yes, and we agreed to it only to enable you

to place orders of sufficient size to get

237

- 32 your velocity, which was way under -Knox:

And now the British come in and want more
planes and we can divert the orders designed

definitely for the Navy to the British so

they can meet immediate necessity. In other

words, the Navy in this picture is ready to
help the British to a maximum of 1700 planes.
Is that right?
Towers:

Yes, sir. We have certain --

Knudsen:

When are these 1700 due?

Knox:

Within two years, supposed to be.

Towers:

Yes, within two years. It amounts to 3200

engines, I think, isn't it? Well, a total

of about 3,000 engines manufactured by private industry, 250 manufactured in the Govern-

ment.
Knudsen:

How many of them can you give up within the
next six months?

Towers:

None in the next six months.

Knudsen:

How many can you give up in the second six

months?
Towers:

Knudsen:

Certainly not many, except on a directive

from higher authority. I mean, in so far as -Then as I take it, your proposal is that after

the total program for the two years, you are
willing to give up 1795 planes at some time

after the first year?

Towers:

Yes.

Knudsen:

That helps.

238

- 33 H.M.Jr:

I wonder if the Army will come as clean.

Stimson:

The Army has a very different program.

Knox:

Yes, you are right.

Stimson:

A very different program. The Navy has to
wait two years for the ships.

Knox:

More than that.

Towers:

Also for pilots and shore bases. They are
all - really, we would rather have them all
come along parallel to each other.

Stimson:

The Army is to be prepared or trying to be

prepared to meet an emergency which might

come very quickly, very quickly, and we
have not, as I understand it, enough planes
to meet even our minimum requirements for

the 80-called protective mobilization plan.
Arnold:

That is correct, sir.

Stimson:

Which is, I would say, a plan that I don't
dare talk about much in public because it

is 80 insignificant to the danger with which

we are confronted with and your need is much
bigger and more immediate than Mr. Knox's.

Consequently, we are not at all in the same
situation in which the Navy is.

Arnold:

I might go into more detail than the Secretary
did. We have three stop dates in the develop-

ment of our program and each one balances out

in so far as enlisted men, pilots, construction

and airplanes are concerned and the best information we have from the Procurement people

is that by April 1, 1941, we will be short

airplanes to meet our program. After that,
we catch up. Beyond that, there is - we
produce more than we need.

239

- 34 H.M.Jr:

April 1, '41?

Arnold:

'42, April 1, '42. After that, we have more

airplanes than we need, but up to that time
we have just been nip and tuck to meet our
program and that is the reason why General

Brett was so consistent that if any changes

be made, our directives should be changed.

But as it is now, it is balanced in 80 far
as mechanics, personnel, construction and
airplanes are concerned.

Stimson:

A directive is one which is so small and so

modest that I for one am very much concerned

lest it be enlarged by news from the other

side of the Atlantic almost every time I pick

up a paper.
H.M.Jr:

Well, Mr. Stimson, could we do this? Would

this be helpful? Using the date April 1, '42,

for the Army, let's work backward, see, from
that date. That is a new date to me. Would
you take it, Knudsen, from there and work back

with it and what is the situation for England
and ourselves from now until April 1, '42?

Knudsen:

I can do that on one page, Mr. Secretary, if
England tells me how many planes they want

to place up to that date.

H.M.Jr:

But up to now, they have always used the date

September, '41. Could you just as lief use
the date April 1, 1942?
Purvis:

At this stage we could push it forward probably to April, '42, couldn't we, Mr. Wilson?

Wilson:

Yes.

Purvis:

We really took options on the output of this
time. September, '41, was merely at that

240

- 35 time a date which happened to be important

to the strategy then.

H.M.Jr:

Would you answer Mr. Knudsen, please?

Purvis:

Mr. Knudsen, on the actual orders, may we

just dwell on those for a minute and I will

also answer Mr. Knox. On the shortest
possible form, may I give you items of the
United Kingdom airplane orders recently

placed on our understanding with the company

that they would not - that they would tell

us that it was accepted by you before they otherwise, we placed it on the definite
understanding we had to have your approval.

That includes 210 P-39's, with delivery from

May to September, '41; 30 Curtiss Hawk 75-A's
to be delivered by May, 1941.
H.M.Jr:

How many?

Purvis:

30. Perhaps I should mention in regard to the
Bell P-39's, we intended to use engines from
the French contracts. The same in regard to
this other 30. 80 Curtiss Hawk - that is the
P-40 modified. That is merely an intensification of the capacity which is now employed
on British orders. They came to us and said,
"If you have the engines, we can deliver that
amount more within the date you have always
told us you wanted them, by September, '41,
that is. 24 Lockheed Hudson reconnaissance
bombers. That is overtime working capacity
employed on existing order, engines again
from French contracts; 200 Vultee dive bombers,

negotiations having originally started from
the French and concluded by U.K. In other

words, the French intended to keep those
engines here for that Vultee that you men-

tioned, General Brett. It makes a total of

544 placed originally, probably in addition

- 36 -

to the 8,103 on the strict understanding on
our part from the manufacturers that they

had cleared with you.

Now, there is another list equally short

that we would like to place and which we
have put up to your Commission to place under
the new conditions. We shall have to recon-

cile this to make quite sure that you have it
all today in that list I gave you last week.
There may be one or two slight differences,

but they will be slight. It is the list that

I imagine I gave you last week. 150 Brewster
dive bombers, January, August, 1941 delivery,
using engines off French contracts; 100 Brewster dive bombers, also from the French, by
September, '41; 50 fighters to be delivered
by September, 1940; 20 to be obtained as
spares that we already have on order; 30 now
used on United Kingdom order, engines to be
exchanged with the Dutch for French engines,

to be released - to go in 36 PBY flying boats.
It is a switch around, you might say. 100

Grumman fighters, delivered October, '40, to

March, '41, under the existing contractual
option, expiration July 31, 1940, the French

contract, engines again from the French contracts. 100 Curtiss Hawk P-40, December '40

to May '41 delivery, from an intensification

of capacity now employed on U.K. orders, engines
coming from French contracts, 180 for delivery
October to December, 1941, under the existing

U.K. contractual obligation expiring July 1;

94 Lockheed Hudson bombers, engines off the
French contracts; 100 Stinson 074, which we

would like to place and on which we have also
asked whether you could give us the priority
on your 074's which you may or may not be
able to do, but we would be very anxious if
we could; 200 Vultee dive bombers, delivery
March '41 to February '42, using French engines;

242

- 37 80 Northrup 817 bombers for delivery now.

Those are 80 bombers that we once hoped to

get. We haven't yet got them out of stock.
150 flying boats as soon as possible and

which we have sent a memorandum recently

asking for help either from stocks or priorities. Frankly, however, I would like
to say that in giving that list which we

would like your approval to match up with
the French engines, if we could place 4,000,
6,000, 8,000 or 10,000 more planes, we would

place it today. We wouldn't wait a moment.
None of this has ever begun to catch up with
what we have to have in order to take care
of Germany and we are there on the spot with

it. That, of course, is our difficulty.

So that this is very urgent. You can analyze
them --

Knudsen:

How many planes is that altogether?

Purvis:

The whole thing, including the - wait a minute,
let me just - I gave you 500 of the other it is about 1200.

Knudsen:

1200 altogether?

Purvis:

That is excluding the 80 Northrup A-17's which
we originally thought we might get out of
stocks.

Knudsen:

1300 planes that you need now.

Purvis:

That we want to place orders for now. Of course,
we would like to get your permission to place
the orders wherever we can find a place to use
the engines which are not actually required
for U.K. airplanes.

Knudsen:

What you are pleading for - asking for now,
you want to cover the 12,000 engines.

243

- 38 Purvis:

Oh, yes. I mean, after all, we bought the

Knox:

12,000 or 1200?

Knudsen:

1200.

Purvis:

I am not quite sure of the 12,000. We don't
quite agree on that figure. It may be 8,000
and it may be 12,000, but the fact remains
what we want to do is, in combination with
frames built here and in the U.K., to use

propellers.

every last engine that we have got and then
ask your help in doubling the production of
engines if possible so we can do more.

Knudsen: Let's reduce this to cases. You have 8,000

planes on order. You want to place immediately
1200 more.

Purvis:

I don't quite agree with the figures. I think

it is 8,200 and something on order, plus 500
that we have placed subject to the assurance
received already from the contractor that he
has cleared with you, plus -H.M.Jr:

We start with 8800, then.
Plus this 1200 --

Knudsen:

That is 10,000.

Purvis:

Plus anything that we can get.

Knudsen:

Then we have got to decide what you are going

Knudsen:

for up to '42. How many more will that be?

We are going to place 1400 ourselves here.
Purvis:

Now, let us get back to - we have just com-

pleted aircraft, Mr. Knudsen, that is all

we talked about. There are still some engines

- 39 left for planes there and we are assuming
that those will either be shipped as engines

to U.K. or built into frames here.

Knudsen:

We have got to decide whether we can get
along in our 14,000 program, plus the 42
on the program and the Navy --

Purvis:

Plus the stimulation of production which I
suggest is the emphasis we should all get

into this. After all, it is reputed Ger-

many can make 36,000 planes a year. Surely
in this country we can make 48,000.
Knudsen:

Let's be sensible and say what we can make

and not have wishful thinking. I gave the
Secretary a report and I know what it is.

We think that is as far as we can go. If
we get any more or you get more -Purvis:

There will be paper orders, you mean. In
other words, there are two kinds of orders,

those where the manufacturer of planes puts
up his money on a penalty basis, which is
the orders we have placed, or paper orders
which might be placed.
Knudsen:

On this money situation, what you really say
is, you ought to have the planes you put
down money for.

Purvis:

Yes, we want to put down --

Knudsen:

It is up to us not to take any more money

until we give you planes for it.
Purvis:

Well, I am assuming all the time that you are
right when you say you want us to have as
many planes as we can get.

Knudsen:

That is right. Let's find out how many there

are. Can we do that? You give me 10,000 planes.

245

- 40 Purvis:

I brought this statement down to file with

you, of course. This will be filed this
morning.

Knudsen:

I appreciate that. Can we talk now about

how many more you think you would like us
to get you?
Purvis:

What deliveries are you talking about?

Knudsen:

I am talking to April 1, 1942. You have

got 10,000 In the pot now.
Purvis:

I should think the very minimum would be

700 for the six months in question, or is
it seven months? April 1, six months?

That would be the minimum, wouldn't it, because that --

Knudsen:

That is 4200 motors.

Purvis:

That from our viewpoint, however, is just a
continuation of the state to which our money
brought the industry last time, for which
we have options. We have contractual options.

Knudsen:

You want 4200 more planes, is that right?

Purvis:

Plus anything more we can get.

Wilson:

Our program now runs from two or three hundred

a month up to July and then it tapers off very
sharply to nothing. Two or three months after

July it will be practically nothing.

Knox:

July what?

Wilson:

Next year, 1941. We taper off very rapidly.
Of course, we have options by - we haven't
got enough.

246

- 41 Knox:

But would you be satisfied with a production
on
this side of the water of 4200 planes in
six months?

Wilson:

Of course, Colonel Knox, if we didn't get
that much our program would be tapering

away.
Knox:

You want more than that, is that your idea?

Wilson:

We were thinking in terms of more. We are
in your hands, of course.

Purvis:

We want to aid in any way we can in building

up the velocity of production.

Knudsen:

Mr. Wilson, this is 14,000 planes you are
talking about. If you get 14,000 planes,

do you feel that is fair?

Purvis:

They only last, Mr. Knudsen, a very short
time. The 14,000 you are talking about

under our conditions will be going off the
rack as fast as they come on. Under your
conditions, without a war, they come out

and stay there. These planes go up, I think

it is 16.8 times, that is all.

Knudsen:

Have you raised the 14,000 or do we stay

with 14?
Purvis:

We would like to raise it - it is no good
talking, as you said just now, in fairy
figures and we don't want to throw monkey

wrenches by talking 36,000, but as I said
the other day, if by any chance, to show
you the state of our need, if by any chance
you could give us 3,000 more a month, starting for instance in January of this year,

I believe - I know it is not practical but
it is to give you an illustration of our

need. I think we could get you the orders

247

- 42 in 24 hours for the whole year.
Wilson:

In other words, our need is unlimited.

Knox:

I think we are in the realm of speculation
here, but here we have got a tangible figure.
14,000 planes by April, '42. Why don't a
small group of about four or five, Mr. Knudsen and Mr. Purvis and representatives of

the Army and Navy and perhaps the Treasury,

sit down, four or five people, and here is
an objective. 14,000 planes by a certain
date, and let's work that out so that we
all understand what each of us is doing and
we are sure the whole thing is harmonizing
and coordinating.
Purvis:

But there is one thing you left out of account.

H.M.Jr:

Is that what you want?

Knox:

That is what we want. There is one other thing
I want to add, Purvis, before we speak. As far
as I am concerned, in the Navy, we want to see

you get yours first because we think you are

fighting our fight.

Purvis:

There is only one thing in there that might not
be clear, Colonel Knox. I know the anxiety
here is to come out of the meeting clear. That
is that the 14,000 we are talking about are
entirely apart from - there is a surplus of
engines that we have contracted for in this
country and built up for U.K. frames.

Knudsen:

We want to trade you some planes for these
engines. Can we do that?

Purvis:

That might be possible. That would be talking,
wouldn't it?

H.M.Jr:

There is just one thing which I think that he
ought to state again, which he stated to me.

248

- 43 -

As I understand it, the English are ready
and would like to place another order along
the lines of the Rolls Royce or Packard and
if - they are ready to place another order
for 6,000 engines. Now, if they could place
that order, certainly from ten to twelve
months it will come into production and if
we could do the same - and we haven't got
the money - you could go to Congress and get
the money for another 6,000 and that would
increase the common pot by 12,000 engines

a year. I think that is terribly important.

Knudsen:

But you see, we have got 9,000 of these engines

coming now that Mr. Purvis isn't taking. We

have got 6,000 coming and 3,000 coming out

of Pratt & Whitney. Are you talking liquidcooled engines or any kind?

(

H.M.Jr:

Any kind. Let me state it again. If I am
correct, in the last six weeks the only in-

crease in production due to additional plants
that I know of is the Packard order. Right?

Knudsen:

Are you figuring on a second Curtiss plant?

H.M.Jr:

But the second Curtiss plant again, unless I

may be misinformed, you have no orders for
that.

(

Knudsen:

Oh yes, we have orders.

H.M.Jr:

How many?

Knudsen:

We have got this 14,000 program. We have sent
them letters.

H.M.Jr:

But this so-called Curtiss-Wright plant --

Knudsen:

Well, we will have orders for that.

H.M.Jr:

Have you got the money?

249

- 44 Knudsen:

It is up on the Hill, but we will get it.

H.M.Jr:

How many?

Brett:

That is a thousand a month, sir.

H.M.Jr:

That is new?

Brett:

That is new.

H.M.Jr:

That will be added to it?

Brett:

That is right. Well now, it is in the socalled Ohio plant of Curtiss-Wright. Is
that on one shift or two shifts? I think
it is a two shift basis.

H.M.Jr:

Well now, is there any room in any plant for
the English to place additional orders for
England?

Knudsen:

No.

Brett:

I understand Pratt & Whitney is expanding

slightly.

Knudsen:

These engines are taking up that space.

H.M.Jr:

But you have an order for Curtiss-Wright for
the Ohio plant?

Brett:

That is their allocation.

H.M.Jr:

Have you got the money?

Brett:

The money is in this bill.

Knudsen:

You see, the Curtiss-Wright plant is just as
far as the Packard plant.

Brett:

Colonel Knox expressed our position very

clearly to the effect that we are just

250

- 45 -

anxious to get together to lay out a definite

program as to what should be done.
H.M.Jr:

Mr. Stimson, how would this be, if this meeting adjourned to Mr. Knudsen's office? After
they got together we could meet again here
and get a report from them. Would that be

agreeable with you?
Stimson:

I don't want to adjourn without this distinct

thing being understood, that whereas Admiral
Towers tells me that the Navy today is ready

with its full quota of planes for action,

General Arnold tells me that the Army is about
3,000 planes short of this minimum P.M.P. required. Now, that is why I have been troubling

Mr. Purvis a little bit with my situation, that

a crisis might come which would require action
by the Army in that time and therefore, I have
to consider immediate emergency when these

requirements for '41 or '42 seem like iridescent
dreams. We are glad to have them happen but

our strain might come right off.

H.M.Jr:

Would it be agreeable to you gentlemen if we
met here again at 10:00 o'clock tomorrow
morning and got a report from this committee?

Stimson:

I think so. I may have to go to the Hill to-

morrow morning on a budget hearing.
H.M.Jr:

Well, if you do, we will do it in the afternoon.

Knox:

Suppose we meet subject to your call.

Knudsen:

We will report to you when we are done --

Stimson:

No, I think we ought to make a time. I will
come sometime tomorrow and I will try to
avoid being --

251

- 46 Knox:

10:00 o'clock tomorrow.

H.M.Jr:

This committee ought to be able to get together, all good men with good will ought to
be able to get together by 10:00 o'clock to-

morrow morning.
Knudsen:

Are you going to sit in with Mr. Purvis, Wilson?

Purvis:

To the extent that you want us, we would be very
happy to be available just as often as you need
us.

Knox:

I think you ought to be there.

Knudsen:

Of course.

H.M.Jr:

10:00 o'clock tomorrow morning back here, then.

Purvis:

14,000 planes and the engines. Don't cut me
off of the 14,000 planes.

Knudsen:

Well now, I asked you --

Purvis:

Oh, but I said it, Mr. Knudsen. I called atten-

tion just now. I said, "Don't forget, it doesn't

stop at 14,000 planes. It stops at whatever

engines may be there,' and then Secretary Stim-

son said not to forget it.

252

CONFIDENTIAL

July 23, 1940

To:

The Secretary

From:

Mr. Young

At the aircraft and aircraft engine conference held
this morning in Mr. Knudsen's office, the following were
present: British Purchasing Commission - Mr. Arthur Purvis,
Mr. Morris Wilson, Mr. Taylor, Mr. Charles T. Ballantyne;

Advisory Commission - Mr. Knudsen, Dr. Mead, Captain Kraus:
Army - General Arnold, General Brett, Major Lyon; Navy Admiral Towers, Lieutenant Anderson.

Mr. Knudsen asked the British Commission, the Army

and the Navy to tell him their requirements for airplanes
as of April 1, 1941, October 1, 1941, and April 1, 1942,
classified by combat planes and by trainers. After considerable discussion, the figures given on the attached
sheet were considered to represent the approximate requirements of the parties involved.
At the present time the British have 1,287 planes on
order or for which negotiations are under way. An added
number of 4,200 planes was allotted to the British to cover
their needs at the rate of approximately 700 per month for
six months from October 1, 1941, to April 1, 1942. The
total requirements of the Army. the Navy, and the British
call for a production of 33,467 airplanes by April 1, 1942.
Mr. Knudsen considers this total figure as about 5000
planes more than this country can produce by that time.
However, it is his idea to call in the manufacturers and
to tell them that that number of planes has to be produced
and then suggest those companies which should expand their

facilities. The monthly production and delivery schedules
to the three parties involved are yet to be worked out.

Mr. Purvis made several ardent pleas, both for a larger
slice of production and for even greater production capacity.

253

-2Mr. Knudsen attacked the problem on the basis that this
country cannot possibly manufacture more than 30,000 airplanes before April 1, 1942, and that therefore this number
had to be allotted among the various interests.

With respect to aircraft engines, the British have
orders to date for 21,485 plus options for 20,589. According to Mr. Knudsen's figures, there would seem to be adequate
engine capacity in this country for the 33,467 planes required

by April 1, 1942. It was estimated that for the 33,467 planes
56,894 engines would be required. Further, that the United
States has productive capacity to turn out 68,000 engines for
the two fiscal years 1941 and 1942.

Both Mr. Purvis and Mr. Wilson emphasized the fact that
airplane engines would not be shipped out of the country by

the British if there were no airframes available to use them.

In addition, it was tentatively agreed that if the British did

not have airframes for engines which were completed, then the
United States would assume priority, provided, of course, that
the British would get engines for their airframes as they needed
them. The British agreed to furnish as soon as possible figures
on production of airframes in England.

The British also agreed to have their technical representatives work with the technical representatives of the Army and
Navy to establish a program of standardization for complete airplanes and all accessories to be ordered in the future.
The attached sheet represents a tentative agreement between
the British Purchasing Commission and the Advisory Commission.

It is being discussed by Mr. Wilson and Mr. Purvis this afternoon
and will be finally settled at the conference tomorrow morning.

Ry.

254

Meeting of July 23, 1940

Airplane - Army requirements to 4/1/42
- Navy requirements to 4/1/42
#

- British requirements to 4/1/42

If

Army
Navy

British

April 1. 1941

October 1, 1941

6,882
1,923
4,094

3,548
1,555
4,686

12,884
6,208
14,375

April 1. 1942
2,454
2,730
5,595

These requirements are accepted by parties involved. British
Empire will place at once the 1,287 planes under negotiation and
has the option of placing 4,200 planes more to make the total of
14,400.

On Engines:

British orders of today are 21,485 with options to 12/31/42
of 20,589. It is understood and agreed that all planes, American
and British, get priority on Engines and that optional and unallocated engines are distributed in accordance with the above
understanding. It is understood also that specifications for spare
engines for Great Britain manufactured planes will be submitted as
soon as possible and will be considered on the same basis.

255

July 23, 1940
12:04 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Purvis. Go ahead.

H.M.Jr:

Hello.

Arthur
Purvis:

Hello. Yes, sir.

H.M.Jr:

Arthur, are you where you can talk?

P:

Yes I am.

P:

Well, you don't mind my being very short
and to the point.
Not a bit.

H.M.Jr:

And if you don't mind my saying it, I think

P:

Did I?

H.M.Jr:

Yes, you did. If I may make the suggestion,

H.M.Jr:

you missed a trick at the end there.

I don't know how many damn engines you got
from the French, see?

P:

Yes.

H.M.Jr:

But what I would do -- otherwise you're going

to lose them -- would be just -- you're getting

somewhere between 6 and 700 planes between now
and September 41.
P:

Correct.

H.M.Jr:

What I would do is, whatever those engine

deliveries are, I just would add them to your

monthly production -- your monthly requirements
from now until September.

P:

Yes, I see.

H.M.Jr:

You see?

P:

Yes.

256

-2H.M.Jr:

P:

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:

And say, well, we're getting 670 planes
every See?
month. Well, from now on we want a
1000.
Yes, exactly.
And
then from
September to April 42, we
still want
a 1000.

That's it.
In other words I'd list my requirements from

670 -- I think it's something like that

Yes, quite. I'm very glad you telephoned me.
to whatever the engine requirements

are ....

Yes, exactly. I know exactly what you mean.

and if you haven't got it, I'd make a

blind stab and say I need a thousand.

That's what I'11 have to do. (Laughs). That's

right.
I'd make a blind stab and if you can raise
that to a 1000.

P:

Excellent. Thank you very much.

H.M.Jr:

But otherwise you're going to lose them now,

P:

All right. Thank you.

H.M.Jr:

You're going to lose them.

P:

Thank you. All right.

H.M.Jr:

Thank you.

P:

Much obliged. Am I going to see you?
At lunch alone.

H.M.Jr:

Arthur.

P:

About what time.

H.M.Jr:

One o'olock.

P:

Excellent. Thank you.

257

July 23, 1940
12:35 p.m.

H.M.Jr:

give me an answer on this tomorrow

morning. I want you and Chamberlain to talk

about it in strictest confidence.

Daniel

Bell:

O. K.

H.M.Jr:

Sumner Welles is working on a proposal to

get those planes back from the island of

Martinique which are now held by the French.
B:

Yeah.

H.M.Jr:

But the French Ambassador says he won't do it

unless the money that he gets paid for it will

be free and not frozen. See?
B:

H.M.Jr:

Yeah. Do you know the amount involved?

Oh, let me just think. The planes -- what's
50 times 50 -- 225 million, is it?

B:

50 times 50?

H.M.Jr:

50 times 50,000.

B:

50 times 50,000, that would be 21 million.

H.M.Jr:

Well, that's about what it is -- 21 to 3

B:

Uh-huh.

H.M.Jr:
B:

million.

Talk it over with Chamberlain and give me an

answer tomorrow.

All right. Yeah, we've done that you know
in some few cases.

H.M.Jr:
B:

Have we?

Well, for instance, in bringing American
citizens back from Denmark we had to give the
Danish National Bank free dollars before they
would furnish the Danish pounds to let them

buy their tickets.

258

-2H.M.Jr:

I see.

B:

It doesn't amount to much money but the

H.M.Jr:

Will you let me know in the morning?

B:

If it's that important.

H.M.Jr:

It' 8 important.

B:

O. K.

H.M.Jr:

It's damn important.

B:

All right. I'll let you know.

principle is there, and we could do it

7-23-40

253

The following are excerpts from E. H. Foley, Jr.'s calendar of July 23,
1940 with regard to Foley's opinion of July 23, 1940 to Secretary Morgenthau.#

The Attorney General did hot write a formal approval of this opinion, but it
was handled by telephone.

1:55 Judge N. A. Townsend "I'm sorry I have not been able to call you sooner
but I have been in meetings most all morning. I'm calling to say that I have
now prepared a short memo to the Attorney General and have reached the conclusion

that your opinion is sound."

Mr. Foley - "That is very good of you, and I appreciate it. I will now sign
it and send it over to Mr. Knudsen. I do think it is a pretty important matter."

Judge Townsend - "I'm sorry I've taken so much time, but I wanted to be sure
that I didn't overlook anything that might bob up to make us want to change
our opinion."

Mr. Foley - "I didn't mean to rush you, but I did have this meeting with the
Secretary (10 am) and Mr. Knudsen this morning."

Judge Townsend - "I was sorry I couldn't get it through by then."
Mr. Foley - "I'm very grateful. Thank you very much."
5:00 Attorney General Jackson called Mr. Foley to say that Judge Townsend
had given him a memo in which he said "I am of the opinion that Mr. Foley's
opinion is sound." Mr. Foley said "I'm very sure that we are absolutely right
but I wanted an insurance policy so that we won't be left out on a limb
and its' a pretty important and vital thing insofar as the National Defense
program is concerned and that is the reason why we took the extraordinary
precaution in asking your indulgence in advance so if it did come to you we
would be looking at it in the same way. Mr. Jackson agreed with Mr. Foley
that it was the advisable thing to do. Mr. Foley said he was glad to have
his approval of the matter and thanked him "ever so much."

*Opinion on the authority of the Reconstruction Finance Corporation to make
a loan to X Company either under the 1940 National Defense Amendment or
under the 1938 Glass-Steagall Amendment. It was Mr. Foley's opinion that
there is adequate authority for such loan.

Pages 260 through 263 dated July 24, 1940 Placed in Book 286

284

MEMORANDUM

July 23, 1940.
TO:

Secretary Morgenthau

FROM: Mr. Sullivan

In the course of a conference this morning with Attorney
Fred Eaton of the National Advisory Commission regarding the amort-

ization statute, he again referred to the importance of having his
Commission in accord with what we submitted to Congress as an

Excess Profits Tax Bill.

I advised him that the Treasury did not intend to submit
this bill to any other agency but that we would be glad to discuss
its provisions with the Commission after the bill had gone to the
House Ways and Means Committee and had been printed for public dis-

tribution. He agreed with me that our position was a proper one,

but he expressed the fear that his Commission might be "forced" to

intervene. I inquired who would be likely to do the forcing and

he said that the Chamber of Commerce and the aeronautical associ-

ations were already putting great pressure upon them. I suggested
to him that it was unlikely the Commission would be executing contracts with any associations and that I failed to appreciate the
necessity of the Commission yielding to the demands of trade associations.

Continuing the discussion on the amortisation provision,
he said that he hoped that we would provide the taxpayer with the

option of writing off all unused amortization in the year in which
the emergency ended "because the Commission anticipated that army

and navy contracts would be so phrased that if the emergency ended

before the contract was completed, cancellation of the contracts
by the army or navy would require that Department to pay to the
contractors a sum equal to the unpaid balance of the cost of any

facilities".

Eatonme
was
a little bit vague
aboutforth
this matter
and
asked himMr.
to send
a memorandum,
setting
just what
hewished I

and the reasons for it. It would seem that if the Commission's
view prevails, the contractor will be paid for his building twice:
(1) out of the unit price which provides for cost of construction
(together with the cancellation bounty), and (2) by allowing the
contractor to write off 100 percent cost of construction through
amortization.

This

265

RE EXCESS PROFITS TAX

Present:

Mr. Sullivan

July 23, 1940

8:40 a.m.

Mr. Foley
Mr. Viner
Mrs. Klotz

H.M.Jr:

At your service on taxes, first.

Sullivan:

Well, when we met yesterday at 2:00 o'clock --

H.M.Jr:

Yesterday?

Sullivan:

and Mr. Doughton made --

Foley:

Dan?

H.M.Jr:

Is he outside?

Foley:

He is in his office. I don't know whether he

H.M.Jr:

Sullivan:

is supposed to be here or not.
Let it go a minute.

He made quite a long speech about how we

didn't want to kill the bill by delaying it

or spoil it by hurrying it, and so on and so

forth, and he wanted to know if the Treasury
staff and the experts of the Joint Committee
had been able to agree and I advised him that
in accordance with my letter to him as of
last Friday that we had been through everything
up to that date with Mr. Stamm and that we had
only one important difference of opinion and
three unimportant differences of opinion and
the important difference was on the basis for
the tax and I went ahead and stated the Treasury position and I was constantly interrupted.
There were present at the meeting Senators
Harrison, George, Connally, Byrd, Mr. Doughton,
Mr.
Cooper, Mr. Boehne, Mr. Buck and John
McCormack.
H.M.Jr:

Sullivan:

You would be interrupted.

Senator Connally was definitely for the bill
now. I think Boehne is, too, but he didn't

say so. Senator Byrd was very, very antagonistic and so, too, were most of the others, not

266

-2antagonistic but the lines of questions they
asked indicated very clearly their bias on
the matter.

H.M.Jr:

I see.

Sullivan:

They then called on Stamm to state his posi-

tion and he said that I had stated the situation between us fairly, that although he
did not approve of the Treasury plan, he
hadn't been able to think up anything else
that wasn't subject to similar objections
and he was still working on it and gathering
information.
Then Doughton and Cooper and Harrison all said,

"Well, do you think that you will be able to
get something?" He said, "Well, I don't know.
If we don't, we will have to agree with Treasury,"
and Doughton said, "I believe everybody thinks
it would be better if Treasury and the Joint

Committee agree on something and do you think
you would agree if you had another week?"
H.M.Jr:

Who said that?

Sullivan:

Doughton.

H.M.Jr:

To?

Sullivan:

Stamm. And Stamm said, "Yes, I think so," and
I then suggested that we go ahead with the
Committee right now, presenting ours, and then

if Stamm is able to devise a plan that he likes
better, let him bring it in and let the Committee be referee and they -H.M.Jr:

Excuse me. Does he (McKay) know that Corcoran
and Cohen are coming?

Foley:

No.

H.M.Jr:

Are they coming?

Foley:

At a quarter of 9:00.

H.M.Jr:

(To Lieutenant McKay) When Mr. Ben Cohen and
Mr. Tom Corcoran come, let me know, please.

267

-3McKay:

Yes, sir.

H.M.Jr:

Excuse me.

Sullivan:

Yes, sir.
They didn't want to do that and then Senator
Harrison said he was all tied up on Monday,
so
it was set for a week from today at 10:00
o'clock.

It was perfectly obvious this thing was

arranged before we got in there, because I
got hold of Stamm afterward and I said,
Just between us, have you any plan?" and
he said, "No," and I said, "Do you have any

idea you are going to get one?" He sort of
smiled and said, Well, I can't tell, maybe
not.'
They were all very much interested to know

how much money would have to be raised.
H.M.Jr:

That is the thing. What I want to do today,
I want to call Mr. Roosevelt and ask him
when, this week, he will give us, the Treasury,
a chance to sit down and talk to him about
planning for the next - well, for the balance
of this fiscal year. That is as far as - that
is July 1, '41.

Viner:

Sure.

H.M.Jr:

On this basis, looking the thing over, on the
idea that you teach somebody to walk before
they run. I don't see how you could ask for

more than half a billion at first crack from
excess profits.

Sullivan:

They asked for rates yesterday and I fought

H.M.Jr:

Have you seen this?

Viner:

I saw the schedule. I wasn't --

it off and fought it off and fought it off.

268

-4Sullivan:

Finally Connally --

Viner:

I didn't understand it. You see, I didn't

know what the proposal was like. This is
the amount exempt, is that right?
Sullivan:

No, you have an exemption of five thousand.

Viner:

Plus 15%

Sullivan:

Plus 15%, yes.

Viner:

Is exempt.

Sullivan:

No, it isn't exempt.

H.M.Jr:

Take him afterward, because I would very much
like him to go into it. You can't do it in
five minutes.

Sullivan:

Then Connally, the outstanding friend we had

up there - I said, well, we hadn't devised
any rates because we don't know what the provisions in the bill are going to be, but we
thought we could give him a rough guess that
the provisions as we had prepared them - and

you wanted fairly low rates and I gave him
the first schedule.
H.M.Jr:

This?

Sullivan:

Yes.

H.M.Jr:

You mean this piece of paper --

Sullivan:

No, I didn't give him anything. I just talked

out loud and they wrote it down. And it wasn't
this one, either. It was an approximation of
between 550 and 750 million dollars, which would
be 25 on the first bracket, 40 on the second
and 50 on the third.

H.M.Jr:

Well, take Viner and go over it with him.

Sullivan:

Yes, I will.
Well, I think this: This other bill produced

H.M.Jr:

four billion, didn't it? It cost four billion

269

-5and we produced roughly a billion in taxes.
Sullivan:
H.M.Jr:

That is right.
Thinking offhand, this is going to be five

billion, isn't it?

H.M.Jr:

I don't know, you see.
Well --

Viner:

It isn't going to be five billion for this

Sullivan:

year, not according to Dan. It isn't going
to be anywhere near it.

H.M.Jr:

No, he figured a billion one. But in Dan's
figures, I think - when I go on the Hill
I think he ought to take half way between well, I think he ought to take the Budget
figures, that is the simplest way.

Viner:
H.M.Jr:

Sullivan:
H.M.Jr:

Viner:

Yes, but of course that is just a guess now.
I know, but I would rather be on the high
side than on the low side.

I think that is right and I think up there

they want that, too.

I would take the high side. I only read this

thing once. I think it is a billion four,
isn't it?
I think it is a billion eight, with two, one
for the Army and Navy.

H.M.Jr:

I remember Dan said a billion one and I think
the Budget was a billion four and the Army
was two, one, but I think they ought to take

the Budget's figure. After all, that is their
job.

Viner:

That is right.

H.M.Jri

Now, my feeling -(Mrs. Klotz entered the conference)

270

-6Klotz:

I am sorry I was late.

H.M.Jr:

You are not late; I was late, too. I tried

to get around it by having him come down and

call for me but he stayed at the Mayflower

last night.

My thought is this, and we will go into it
some time today: I will tell you now. I
would like to do it again at 3:00 o'clock
today. I want to talk on fiscal policy to
all three of you here and have Mr. Bell here,
too. Well, I don't know but what I question
whether in this calendar year we want to

superimpose - I tell you what I would like
to do - if you wouldn't mind leaving, I will
talk politics with Mr. Cohen and Mr. Corcoran.

271

BRITISH EMBASSY,
WASHINGTON, D.C.

July 23rd, 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.

Telegram despatched from London

on the evening of July 22nd.

272

1.

Early yesterday morning German

merchant vessel, believed tanker, escorted by

five destroyers or sloops, eighted off
Norwegian coast proceeding south. Two attacks

carried out by our aircraft obtained hite both
times. When last seen, tanker was stopped and

on fire.
During attack on Dover yesterday,
destroyer Beagle shot down one enemy aircraft.
Destroyers Vanoc and Havelock collided

in Liverpool approaches July 20th, Vanoo haled
above water-line; Havelook slightly damaged.
H. M. submarine Phoenix now four days

over due is presumed lost.
Attack on U-boat by Bery1 reported in
summary of July 20th considered successful,

oil still rising from position. Two promising
attacks carried out July 21st against U-boats
northeast approach by one of our aircraft and
e

aloop Weston.
2.

Our night bombing July 20th - 21st

was generally successful, most targete located

and attacked. No definitely successful resulte
Wilhelmshaven dockyard but one 2000 lb. bomb

fell near the Admiral Scheer. During a successful
mine/

mine-laying operation, one Hampden claims a

direct hit with one 250 1b bomb on a 2000 ton
vessel off Copenhagen.

2N.3

Last night 112 aircraft were despatched
as follows:
Eighty-one bombers against aircraft

factories and store depots, with oil plants and
railway targets as additional objectives, 6
medium bombers to petrol tanks at Ghent, 18 medium
bombers to enemy aerodronce, 8 heavy bombers for

mine-laying in the Helsingor area, 5 heavy bombers

leaflet dropping in northwestern France. All
aircraft except one returned safely.
3.

Enemy activity on the night of July 20th
- 21st in addition th that reported yesterdays
Tin box factory at West Hertlepool
demolished, with 13 minor assualties; some houses

destroyed at Flymouth and 1 person killed; structural

damage at ...... 5 persons killed. Bombs were
dropped without serious damage in the Orkneys, near
Seaham, Sunderland and Houghton, near Aylaham,

Shoeburyness, near Gillingham and Margate, and

at Falmouth, Near Bishop Auckland canisters of
orude oil were dropped on farm land but did not
ignite. Yesterday the enemy were active chiefly
against Channel fleets and attacks on shipping.
In two instances formations preparing to attack
convoys turned back on seeing our fighters.

Last night enemy air activity was less,
but widely dispersed. Bombs were dropped at
Portobello/

274
Portobello, Synoside, in Leiecatershire, at
Hilfordhaven and near Plymouth. Small material
damage and only one casualty reported. Mine-laying
suspected in the Thomes Estuary, Plymouth, and
Tyne areas.

Subsequent information corrects enemy

casualties reported in yesterday's summary to 15
confirmed and 8 unconfirmed. Yesterday 4 enemy

aircraft confirmed as destroyed, 1 unconfirmed;
our casualties 2. One Sunderland despatched July
21st on reconnaissance Trondheim failed to return.
4.
Shipping casualties:
(a)

By U-boats:

British Fellside, 3500 tons, outward bound
in ballast sunk July 17th northwestern approaches.
(b)
By air:
Panema Frossoula, 1300 tone, sunk Bay

of Biscay July 15th.
Yesterday westbound Channel convoy

repeatedly bombed off south coast; British Terlings,
2300 tone, sunks Norwegian tanker Kollbjorg, 8000

tons, set on fire; Norwegian tanker Nina Borthen,
6000 tons, damaged.
5.

Malta. Early yesterday 3 Italian aircraft

made a low bombing attack on Kalfarena, causing slight
damage. Later the same morning, during the second

attack, 1 bomber shot down by anti-aircraft.

275
FEDERAL RESERVE BANK
OF NEW YORK

July 23, 1940.
The Honorable,

The Secretary of the Treasury,
Washington, D. C.

Attention: Mr. Cochran
Dear Sir:

I enclose for the Department's information copies of
(1) our cablegram No. 419 of June 25, 1940,
(2) cablegram No. 292 of June 26, 1940,

received from the Bank for International Settlements,

(3) our cablegram No. 424 of June 27, 1940,
(4) our cablegram No. 427 of June 29, 1940,

(5) cablegram No. 301 of July 2, 1940,
received from the Bank for International Settlements,
(6) our cablegram No. 431 of July 2, 1940, and
(7) cablegram No. 328 of July 19, 1940,
received from the Bank for International Settlements.
We are now studying the points raised by the Bank for

International Settlements in their cable No. 328 and shall wish
to discuss them with the Treasury Department in due course.

Very truly yours,
(Signed) L. W. Knoke,
L. W. Knoke,

Vice President.
Encs.

Copy

276

OUTGOING CABLEGRAM-Serial No. 5877

copy

Sent on June 25,1940

Bank for International Settlements
Chateau d'Oex
No. 419

The Treasury Department has advised us that Executive

Order No. 8389, as amended, covers the Bank for International

Settlements and its assets in the United States of America.
Accordingly, Treasury licenses are needed for disposal of such

assets. We are undertaking to obtain from the Treasury a
general authorization covering all transactions considered by
us to be normal transactions. Other transactions would be a

matter for special application.
Federal Reserve Bank of New York

Copy

copy

277

INCOMING CABLEGRAM-Serial No. 4279

Received on June 26,1940

Chateau d'Oex, June 26,1940

Federal Reserve Bank of New York
New York

No. 292

Reference your number 419 Policy of Bank for Inter-

national Settlements has been and is to deal with its assets

in each country strictly in accordance with laws in force there.

My intention is that no transaction shall be carried out for its
clients by this institution which client could not legally carry
out directly and in their own name. Please advise Treasury to
this effect and cable nature of amendments to executive order
8389 issued since May 10. Would be grateful for information why

Treasury license is required by Bank for International Settlements
as stated in your 420 except when dealing with property specified
in order as amended.

McKittrick
Bank for International Settlements
Test correct

Copy

278

copy
OUTGOING CABLEGRAM-Serial No. 5944

Sent on June 27,1940

Mc Kittrick
Bank for International Settlements
Chateau d' Oex
No. 424

Your No. 292 received and will cable
later

Federal Reserve Bank of New York

Copy

copy

279

OUTGOING CABLEGRAM-Serial No. 6046

Sent on June 29,1940

Bank for International Settlements
Chateau d'Oex
No. 427

We have obtained from Treasury Department

license covering normal transactions mentioned in
our 419.

Your Nos. 295 and 296 Transactions completed.

Expect to revert to your 292 on Monday

Federal Reserve Bank of New York

Copy

280

COPY
INCOMING CABLEGRAM-Serial No. 4678

Received on July 2,1940

Chateau d'Oex,July 2,1940

Federal Reserve Bank of New York
New York

No. 301

Papers report measures of blocking French

assets in United States. Please advise nature and

extent. What is position of property in United States
in which French Nationals domiciled in France outside

of occupied territory have an interest.

Bank for International Settlements

Test correct
Copy

281
COPY

OUTGOING CABLEGRAM-Sorial No. 6109

Sent on July 2, 1940

Bank for International Settlements
Chateau d'oex
No. 431

FOR MC KITTRICK

Reference your No. 292 dated June 26, 1940

1. Have advised Treasury as requested
2. Only amendment since May 10, to Executive Order 8389

is that of June 17, 1940 which extends as of that date all the
provisions of such order to property in which France or any
national thereof has at any time on or since June 17, 1940, had
any interest.

3. Treasury Department considers B. I. S. as national of
one or more of the foreign countries named in the Executive Order,

as amended. Accordingly, transactions of the kind prohibited by
the Executive Order involving the accounts of the B. I. S. may only
be effected pursuant to license even though the party beneficially

interested in the transaction is not a national of such a country.
Reference your No. 301 dated July 2, 1940. Property in the
United States in which French nationals domiciled in France outside

of occupied territory have an interest is in the same position as
property of French nationals domiciled within occupied territory.
Federal Reserve Bank of New York.

282
INCOMING GABLEGRAMSERIAL NO. 4782

Received on July 19. 1940
Chatean d'oex, July 19, 1940.
Federal Reserve Bank of New York
New York

No. 328

Your No. 431. Am much disappointed by attitude of Treasury

as stated in paragraph three for every effort is being made here as
stated in my 292 to avoid actions in any country which would go against

declared policy of that country.

Bank for International Settlements must protest with all
possible emphasis against interpretation given by Treasury to Executive
Order both on general and specific grounds.
ONE

Bank for International Settlements cannot effect any trans-

action in the United States which is not available to all
banks in countries omitted from Executive Order and doing

international business. Attitude of Treasury seems there-

fore to discriminate specifically against Bank for International Settlements. Thanks to your assistance which is
deeply appreciated licenses granted fortunately permit
orderly continuation of business in New York.
TWO

Attitude of Treasury in considering Bank for International
Settlements "national of one or more of the foreign countries
named in the Executive Order" causes great anxiety for the

future. If situation develops as at the close of last war
COPY

-2-

and assets owned by nationals of certain countries are

applied in satisfaction of claims of various sorts position
of Bank for International Settlements if burdened with
unspecified multiples of nationality will become desperately
complicated from legal standpoint. Unless some modification
of present declaration can be secured risk incurred by Bank
for International Settlements in holding assets whether
deposits or gold in Americas will probably be greater than

for any other institution.
May I also point out while confirming my cable No. 292 that

principle of allowing financial institutions created by
international agreement to do their legitimate business
without interference has recently been given emphatic con-

firmation in case of inter-American bank to which United
States has given adherence. While United States is not
signatory to Young Plan whereby special rights are granted

to Bank for International Settlements it still seems strange
that two similar institutions should receive such widely
different treatment.
Fail to understand on what specific grounds Treasury has

taken its decision. Largest holding of Bank for International Settlements stock in any country mentioned in
Executive Order is 12.6% in Belgium but ownership of Bank

for International Settlements shares carries no voting

rights and is therefore of no influence on policy. Voting
rights of United States are as great as those of any nation
named in Executive Order and as no such country's rights

283

284

exceed 10% of the total none can be considered substantial
as required by Section 11 Order.

Bank for International

Settlements is a corporation under Swiss laws and must be

considered Swiss if nationality needs to be specified.
FIVE

Would be most grateful for any assistance in finding solution

of present difficulty and shall be glad if you think it wise
to have you communicate this cable to Treasury as well as
Federal Reserve Board.

Suggest following for your consideration.

Firstly As ownership of all gold you hold under earmark
for Bank for International Settlements has as
required been communicated to you presume no

questions arise in this connection.
Secondly Bank for International Settlements could open with
you Special Account whose balance would be main-

tained equal to total of dollar balances with Bank

for International Settlements of all nationals of
all countries named in Executive Order. Total
balance on such account on June 30 would have been

only $33,000. Would hope by this or some similar
means to keep you informed at all times as to total

amount of dollar balances held by Bank for Inter
national Settlements for countries named in Order
and to give you notice automatically whenever an

operation affecting these balances takes place.

285

It is not possible that by such an arrangement you
would have sufficient information for Treasury to

withdraw its declaration as to nationality of Bank
for International Settlements. Shall appreciate
greatly any help you may feel able to give.
McKittrick

COPY

286

GRAY

JR

Ankara

Dated July 23, 1940
REC'D 12:26 p.m.

Secretary of State,
Washington.

129, July 23, noon.
Danish Charge de Affaires requests that authorization
be granted to Guaranty Trust Company of NEW York to honor
check number 1914 June 10, 1940 for $470.36 drawn by

Danish Ministry of Finance to his order as P. Friis
Ankara. HE anticipates that this will be the lost
request of this nature that he will make for three or
four months. STCOR.

MACMURRAY
WWC

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 23, 1940
TO

FROM

Secretary Morgenthau
Mr. Gaston
MERCHANT SHIP MOVEMENTS

Matters Requiring Action by the Secretary of the Treasury
None.

Matters Not Requiring Action by the Secretary of the Treasury
Closed Cases

The Texas Company was advised yesterday that a departure permit
would be granted the SS MONTE JAVALON under Spanish registry to carry

5,000 tons of asphalt to Spain.

Pending Cases

The matters described in paragraphs 1, 3, and 4 under "Pending

Cases"
in the July 17, 1940, report, attached, are still under consideration.

287

188
COPY

Secretary Morgenthau
Mr. Cairns

July 17, 1940
MERCHANT SHIP MOVEMENTS

Closed Cases

1. A departure permit was refused for the American Tanker
ARYAN, carrying petroleum products to Spain. This vessel 18
owned by the Texas Company, and is at Port Arthur, Texas.
2. A departure permit was refused for the American Tanker
NEVADA, carrying petroleum products to Spain. This vessel is
owned by the Texas Company, and is at Port Arthur, Texas.
Pending Cases

1. The Texas Company has submitted a request to export
610,000 tons of petroleum products to Spain for the balance of
the year 1940. This would make a grand total of 1,076,000 tons
for the year 1940. A memorandum of & conference with representetives of the Texas Company held on July 17, 1940, is attached.
This
matter is under consideration.
2. The Texas Company has requested advice as to whether or
not the SS MONTE JAVALON, under Spanish registry, will be permitted

to carry 5,000 tons of asphalt to Spain. The vessel will be loaded

at Port Neches, Texas, some time between August 10 and the early

part of September. This matter is under consideration.

3. Suspicious circumstances have arisen in connection with
the departure of the SIMLA, e Norwegian vessel now at the port
of Philadelphia. No departure permit has been requested, but a
stop order has been placed against such a request when it is
received.
4. The Lithuanian Steamship DENNY is now in Boston. The
Lithuanian-American Import & Export Corporation, 157 Chambers

Street, New York City, has requested that it be advised 11 a
departure permit is asked for this vessel. The corporation
desires to submit certain facts to the Treasury Department before
such permit is granted. This matter is under consideration.
HC/cp
(Initialed) H. C.
CC: Miss Chauncey
Mr. Foley

r

:

July 23g 1940
Secretary Morgenthan
Mr. Gasten
MERCHANT SHIP MOVEMENTS

Matters Regulation Action by the Secretary of the Treasury
None.

Matters Not Requiring Action by the Secretary of the Treasury
Closed Cases

The Tesas Company was advised yesterday that a departure permit
would be greated the 86 MONTE JAVALON under Spanish registry to carry

5,000 tens of asphalt to Spain.

Pending Cases

The matters described in paragraphs 1, 3. and 4 under "Pending
Cases"
in the July 17. 1940, report, attached, are still under consideration.
(Signed) Herbert E. Gaston

CC: Miss Chauncey

Mr. Feidler

Mr. Foley

200m

289

290
COPY

Secretary Morgenthan

Mr. Caims

July 17, 1940
MERCHANT SHIP MOVEMENTS

Closed Cases

1. A departure permit was refused for the American Tanker
ARYAN, carrying patroleum products to Spain. This vessel is
owned by the Texas Company, and is at Port Arthur, Texas.
2. A departure permit was refused for the American Tanker
NEVADA, carrying petroleum products to Spain. This vessel is
owned by the Texas Company, and is at Port Arthur, Texas.
Pending Cases

1. The Texas Company has submitted a request to export
610,000 tens of potroleum products to Spain for the balance of
the year 1940. This would make a grand total of 1,076,000 tone
for the year 1940. A nemorandum of a conference with representstives of the Texas Company hold on July 17, 1940, is attached.
This matter is under consideration.
2. The Texms Company has requested advice as to whether or
not the 88 MONTE JAVALON, under Spenish registry, will be permitted

to carry 5,000 tons of asphalt to Spain. The vessel will be loaded

at Port Neches, Texas, some time between August 10 and the early

part of September. This matter is under consideration.

3. Suspicious circumstances have arisen in connection with
the departure of the SIMLA, a Norwegian vessel now at the port
of Philadelphia. No departure permit has been requested, but a
stop order has been placed against such a request when it is
received.
4. The Lithmanian Steemship DENNY is now in Boston. The
Lithuenian-American Import & Export Corporation, 157 Chambers

Street, New York City, has requested that it be advised if a
departure permit is asked for this vessel. The corporation
desires to submit certain fasts to the Treasury Department before
such permit is granted. This matter is under consideration.
HC/CD

CC: Miss Chauneey
Mr. Feloy

(Initialed) H. C.

291

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 23, 1940
TO

FROM

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Pinsent called on me yesterday afternoon at 3:45. He showed me a cablegran from London dated July 20 in which the foreign office informed the Embassy that
several more assurances had been received that all gold had left France and was per-haps in Dakar. (This is assumed to refer to the $512,000,000 remnant of the French
gold supply which had been heretofore unaccounted for in British estimates.)
The telegram expressed the opinion that Germany may have acquired 140,000,000

sterling of gold in the Netherlands; 11,000,000 sterling of gold in Denmark: and
11,000,000 sterling of gold in Dansig. No estimates were available regarding other
assets acquired by Germany.

Mr. Pinsent told me that the Commercial Counselor of the Babasay, Sir Owen
Chalkley, was having conversations with our Government representatives in regard to the
possible taking by Great Britain on this market of American agricultural products,

against providing tin and rubber. Pinsent told me confidentially that the two
governments are still far apart. The Americans have drawn up a list of $300,000,000
worth of agricultural products which they would like to dispose of to Great Britain.
The British have compiled a list of $65,000,000 worth of American agricultural products
which they might take, including lumber in this figure.

BMP

292

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

CONFIDENTIAL

DATE July 23, 1940

Secretary Morgenthau

TO

FROM

Mr. Haas IAA
The attached table shows the preliminary schedule of

cash disbursements on balances due June 30, 1940 with respect

to British Government orders in the United States placed
through the British Purchasing Commission. The total of such

balances amounted to $320.8 millions.

The Commission 18 unable to supply us with information
regarding the estimated disbursements on British Government
orders placed in the United States outside of the Commission.
We have been informed that the Commission has no records
regarding deliveries or payments on such orders.
The Commission also informed us that they had no information concerning the payment schedule on balances due in the
United States on orders placed by other members of the British
Empire. Both the Canadian and Australian Governments have been

placing at least part of their orders in the United States through
the Commission but apparently the Commission does not keep records
concerning the deliveries or payments on these orders, It is

possible, however, that some of the desired information which 18
not now available may be developed by the Commission through its
own purchasing divisions or by contact with the respective
Governments. We are expecting a further report as to these

possibilities.

Attachment

293

Preliminary Schedule of Cash Disbursements
on balances due June 30, 1940 on

British Government Orders in the United States
through the British Purchasing Commission

(In millions of dollars)
1940

1941

1942

January

18.9

.3

February

18.4

.1

March

19.1

April

19.5

May

19.3

June

19.4

July

40.0

16.7

August

25.7

17.5

September

21.8

15.8

October

19.4

8.3

November

19.7

1.0

December

19.4

.5

146.0

174.4

Total

Grand Total as of June 30

.4

320.8

294

United States Exports of Petroleum Products to Selected Countries
during the First Six Months of 1939 and 1940

(In millions of dollars)
March

:

United Kingdom

May

June

Total

3.1

$ 4.4

$ 3.8

$ 4.8

1940

3.0

4.4

6.1

6.0

7.0

5.4
6.2

25.5
32.7

1939

3.1

2.5

1940

2.7

3.0
3.2

1.9

3.9
3.4

4.3
2.5

1.8
2.3

18.6
16.0

2.1
2.3

2.2
2.1

3.2
3.3

5.9

5.2

5.4

6.2

20.7
21.5

5.0

2.9

3.1
3.2

21.8
16.8

1939

France

April

:

Feb.

Jan.

to:

:

Exported

$

4.0

$

1939

2.1

1940

2.2

1939

3.5

3.5

1940

3.2
4.0

2.1

2.3

3.5
2.3

1939

.3

.6

.4

.8

.4

.8

1940

1.3

1.1

1.8

.3

.9

1.5

3.3
6.9

1939

1.1
1.0

1.0
1.8

.8

6.9

1.1

1.2
1.1

1.4

1940

1.4
1.4

.3

6.7

1939

.6

.5

.6

.8

.4

.9

1940

.7

.1

.2

.4

.3

-

Netherlands 1939

1.0

1.4

1.1

.5

1.9

1.3

1940

1.3

.4

.5

.3

.3

1939

.2

.2

.1

-

.4

.2

-

-

Canada

Japan

in

Italy

Bel gium

Forway

1940

.5

.6

.5

.2

1939

.2

.6

1.3

1.2

1940

.5

1.1

1.2

.7

10.9
11.7

8.0
11.3

12.7
11.3

10.4
10.7

countries 1939 26.0

24.1

29.3

27.6

29.8
29.7

28.9
28.7

Sweden

-

3.8
1.7
7.2
2.8
1.0
1.8

1.1

5.5

.1

3.6

12.4
9.4

11.1
11.1

64.5
65.5

37.8
29.8

32.2
30.9

178.8
176.0

1.1
-

Other countries
1939

1940

Total all
1940

easury Department Division of Monetary Research

July 23, 1940.

295

July 23, 1940
12:30 p.m.

Sumner Welles just telephoned me.

Last night I told him that the President had

suggested that I work out a three-cornered deal with
Russia, China and ourselves whereby we would buy certain
strategic materials from Russia and they, in turn, would
use that money as credit with which to sell arms to China.
I asked him please to talk with the President as to Russian

matters to see that this is what the President still had in
mind. That I had been waiting for Welles' return before
doing anything because I wanted a State Department repre-

sentative to be present if and when I saw the Russian

Ambassador.

Welles told me that the Russians are very angry
because we have frozen the Latvian, Estonian and Lithuanian
money and he thought it was an inopportune time. He called
me at 12:30 and said he had talked to the President and the
President agreed the matter ought to be postponed for a
week or ten days.

He then said, in strictest confidence, he was
trying to work out with Ambassador Saint-Quentin getting
hold of the planes at Martinique for the English and it
would have to be some sort of exchange with the manufacturers
and Saint-Quentin said that if they did it they would only
do it on condition that the money they received for these
planes would be free and not frozen. I promised to let
him know not later than noon tomorrow. I told him my own
impression was we would do it. Welles thought we ought

to do it. I said I would have to consult my people.

(When the Secretary concluded dictating the above,
he phoned Mr. Bell and asked him to look into the matter.)

296
MEMORANDUM

July 23, 1940

To:

Mr. D. W. Bell

From:

Secretary Morgenthau

Would you as soon as possible find out for
me how many planes Congress has already voted for both
the Army and Navy and how many planes are in bills
for the Army and Navy pending before Congress now.

This is both for money to be authorised and for money
to be obligated, but please separate the two groups
of planes Into: Group one - money to be authorized;
and, group two - money to be obligated.

Just as soon as you get this, and I am in
a great hurry for it, give me a memorandum and give

one to Philip Young, and tell Philip Young to rush

it to Mr. Purvis.

297

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 23, 1940.
TO

FROM

The

Secretary Morgenthau
Mr. Gaston

An application for a departure permit was received
from the Collector of Customs, San Pedro, California, on
July 22, 1940, for the Japanese MS NITEIEI MARU to Gensan,
Korea. This ship is owned by Nitto Kogyo Kisen Kaisha.
Departure permit was issued at 2:40 p.m., July
22, 1940, and the Collector at San Pedro advised at 3:30 p.m.

that the ship had sailed, carrying 84,000 barrels Diesel oil.

298

STRICTLY CONFIDENTIAL
July as, 1940

My dear Mr. Presidents

I an sending you, inclosed herewith, a
statement showing the number of vessels, and

their eargo, destined for Japan that cleared
United States parts July 20th, Sist and 2001.

From now on I will funish this to you
weakly.

Youre sincerely,
(Signed) H. Moralathan Jr.

The President,
Hyde Park, New York.

Copies to:

Secretary of war
Secretary of Navy
Secretary of Interior
Admiral Stark

Asting secretary of state

By Messeager 125

299

July 23, 1940

My dear Mr. Secretary:

I an sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(Signed) H. Morgenthau, Jr.

Honorable Frank Knox,

Secretary of the Havy.
Enco. 2

By Messenger / 25

I , 300
July 23, 1940

My dear Mr. Secretary:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(Signed) H. Morgenthau, Jr.

Honorable Frank Knox,

Secretary of the Nevy.

By Manager

301

July 23, 1940

My dear Mr. Secretary:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(bagned) H. Morganthau, 41.

Honorable Frank Knox,

Secretary of the Havy.

By Message

or 302
July 88, 1940

My dear Mr. Secretary:

I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(Signed) H. Morgenthan, Jr.

Honorable Harold L. Inkes,

Secretary of the Interior.
2 Enco.

By Messager

125

303

July 28, 1940

My dear Mr. Secretary:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(higned) H. Morgenthau, Jr.

Honorable Harold L. Inkes,

Secretary of the Interior.

By Messenger

in
July ss, 1940

My dear Mr. Secretarys
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(Suggest) a

Honorable Harold L. Inkes,

Secretary of the Interior.

By Messenger

304

ET 305
July 23, 1940

My dear Admiral Stark:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(signed) R

Admiral Harold R. Stark,
Chief of Neval Operations,

Havy Department,
Washington, D.C.

Encs. 2

By Message 125

306

July 23, 1940

My dear Admiral Stark:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(Signed) H. Morgenthau, Jr.

Admiral Harold R. Stark,
Chief of Naval Operations,

Navy Department,
Washington, D.C.

By Messenger

or 307
July us 1940

n dear Muiral Starks
I - sending you herewith
eapy of the letter which I have
sent to the President today.
Yours sincerely,

(begued) E Jr.
Mairal Narold & Stark,
Boxy Chief of Heral Operations,
Department D.C.

n Messeager

308

July 23, 1940

My dear Mr. Welles:
I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(begued) R Morgenthau, Jr.

Honorable Summer Welles,

Acting Secretary of State.
Enes. 2

By Message 125

309

July 28, 1940

My dear Mr. Welles:

I am sending you herewith

copy of the letter which I have
sent to the President today.
Yours sincerely,
(begned) H. Morgenthau, Jr.

Honorable Summer Welles,

Acting Secretary of State.

By Messenger

310

July m, 1040

n dear Mr. Welless

I - sending you herewith
copy of the letter which I here
sent to the President today.
Yours sincerely,
(signed) R. Morganities,

Henerable Seamer Welles,

Aoting Secretary of State.

By Messager

311

July 23, 1940

My dear Mr. Secretary:

I - sending you herewith copy

of the letter which I have sent to
the President today.

Yours sincerely,
(begand)

Honorable Heary L. Stinson,
The Secretary of War.

Enes. 2

By Memoryous 125

312

July 28, 1940

My dear Mr. Secretary:
I am sending you herewith copy

of the letter which I have sent to
the President today.

Yours sincerely,
(Signed) H. Morgenthau, Jr.

Honorable Henry L. Stimson,
The Secretary of War.

By Messenger

313

July 22, 1940

my dear Mr. Secretarys
.

I - sending you herewith copy
of the letter which I have sent to
the President today.
Yours sincerely,
(bigned) H. Morgentheu, J1.

Henorable Beary L. Stinson,
The Secretary of War.

By Messenger

IMPARTURE PURKINS GRANTED

TESSELS GARRYING

PRODUCTS OR JULY 20g 23 22.
Cargo

From

7/20

ITSUKUSHIDA KARU Jap.

5818

Bulk 011

San Pedro

Tokusuka, Japan.

7/20

RIKKO MARU

Jap.

7143

Crade 011

San Francisco

Kavasaki, Japan.

7/20

KOREA.TO MARD

Jap.

3895

Crude Oil

San Luis Obispo

Wiitago, Japan.

7/20 BELLO

Nor.

3686

Gasolano

New Orleans

United Kingdom via New York

7/20

Noth.

2883

Aviation Gasoline

Houston

United Kingdom.

7/20 MIRZA

Neth.

4484

Gasoline- Oil

Corpus Christi

United Kingdom.

7/21 OTYASAT MARU

Jap.

5300

Bulk 011

San Pedro

Nagasaki, Japan.

7/22

NITIRI KARU

Jap.

5815

Bulk Diesel 011

San Pedro

Gensan, Korea.

7/22

ALIYO KARU

Jap.

4302

Grade Oil

San Luis Obispo

Yokahama, Japan.

7/22

PRINS BERNHARD

Neth.

Petroleum Products

San Juan

Datch Guiana, Trinidad, &

203

French Guiana.
7/22 RESOLUTION

Am.

26

Petroleum Products

San Juan

Virgin Islands.

Figures on the amount of petroleum products laden by the above listed vessels are not available except
the case of the NITIEL MARU which sailed with 84,000 barrels of oil. This figure may furnish a rough method
of approximating the cargoes of the other vessels by a comparison of the net tognages given.

NOTES

in

DEPARTURE PERMITS GRANTED

VESSELS CARRYING

PETROLEUM PRODUCTS ON JULY 20. 21 & 22.

Date Vessel

Nat.

Net

Cargo

From

To

Tonnage

7/20

ITSUKUSHIMA MARU

Jap.

5818

Bulk 011

San Pedro

Yokusuka, Japan.

7/20

RIKKO MARU

Jap.

7143

Crude 011

San Francisco

Kawasaki, Japan.

7/20 ESEERTO MARU

Jap.

3895

Crude 011

San Luis Obispo

Niitage, Japan.

7/20 BELLO

Nor.

3686

Gasoline

New Orleans

United Kingdom via New York

7/20 KATENDRECHT

Noth.

2883

Aviation Gasoline

Houston

United Kingdom.

7/20 MIRZA

Noth.

4484

Gasoline- 011

Corpus Christi

United Kingdom.

7/21

OTWASAN MARU

Jap.

5300

Bulk 011

San Pedro

Nagasaki, Japan.

7/22

NITIEI MARU

Jap.

5815

Bulk Diesel 011

San Pedro

Gensan, Korea.

7/22

ZHIYO MARU

Jap.

4302

Crude 011

San Lais Obispo

Tokahama, Japan.

7/22

PRINS BERNHARD

Noth.

Petroleum Products

San Juan

Dutch Quiana, Trinidad, &

203

French Guiana.
7/22 RESOLUTION

Am.

26

Petroleum Products

San Juan

Virgin Islands.

Figures on the amount of petroleum products laden by the above listed vessels are not available except
is the case of the NITIEI MARU which sailed with 84,000 barrels of oil. This figure may furnish a rough method
of approximating the cargoes of the other vessels by a comparison of the net toanages given.

NOTED

315

316
THE UNDER SECRETARY OF STATE
WASHINGTON

July 23, 1940

My dear Mr. Secretary:

I appreciate your courtesy in sending me

with your letter of July 23 a copy of the letter

which you have addressed to the President on the
same date, showing the number of vessels clearing from United States ports for Japan.

This information is very helpful to the

Department.

Believe me

Sincerely your

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington.

317

July 23, 1940
3:16 p.m.

H.M.Jr:

Hello.

Operator:

Secretary Stimson.

H.M.Jr:

Hello.

Secretary
Stimson:

Hello.

H.M.Jr:

Morgenthau -- Henry.

S:

All right, Mr. Secretary. Two things. In
the first place the letter that you ve just

sent me enclosing a letter to the President
about the shipments of oil.

H.M.Jr:

Yes.

S:

I'm very glad you've done that and I wanted

to tell you this, apropos our talk last

Friday.
H.M.Jr:

Yes.

S:

I thought of a precedent that would be very

interesting in this situation and I've got the
references to it. It happened in 1918. In

1918, you may remember that the Japanese got

very uppy" in Siberia.

H.M.Jr:
S:

That was the place at that time called

Manchuria.

No, no. This was in November, 1918, in the
last war.

H.M.Jr:

Oh.

S:

You remember the Allied Associated powers

H.M.Jr:

I see. I don't remember it but

went into Siberia and the Japs went in to
stay and they sent in more troops than they -than had been agreed to in the allotment and
they acted in a very rough way and it looked
as if they were there to stay.

318

-2S:

There was that situation. The United States
got rather alarmed at it, everybody was
troubled, because it looked as 1f they were
going off on what they've done since and
the War Trade Board took it in hand.

H.M.Jr:
S:

H.M.Jr:
S:

I see.

And they laid restrictions upon licenses
for the export of cotton to Japan and for the
import of silk from Japan.
Oh, really.
By gum, they rounded up the Japs and the Japs

took their army and got out of there in no

time.
H.M.Jr:
S:

Well, I'11 be darned.

And you can find the thing referred to in
Foreign Relations, those are the reports of
the State Department with regard to foreign

affairs, for 1919

H.M.Jr:

What year?

S:

I say, it's in the volume of 1919.

H.M.Jr:

1919.

S:

It's referred to on page 247.

H.M.Jr:

Oh, grand!

S:

H.M.Jr:

And our friend from the State Department now
had better have that showed to him.

Well, I'11 do that because I had a very bad
session with him and Lothian at my house

yesterday. I got nowhere.
S:

Well, that's the trouble. Well, we've got to
get somewhere. The trouble is with Summer he

doesn't know as much about it. I've got another
thing that I can show you that came from the
State Department only I let Knox have it to
read first. It's a memorandum going very

carefully into the present situation. I

shouldn't want to have it quoted because it

319

-3was given to me in confidence by a friend.
H.M.Jr:

Well, could I see it after Knox has read it?

S:

Yes, I'd be very glad to. It's quite a long

H.M.Jr:

Well, Lothian came to the house and all the

thing to read but it's most educational.

figures he had was the Department of Commerce

figures on oil leaving this country and when
I asked for the English figures, oh, he didn't
have those but he'd try and get them and it's
the most silly thing. He had three days notice
and he comes there simply with our own figures.

S:

Well, I see in these figures of yours, you
have figures from American ports. Are they entirely
let's see. No. San Pedro, San Francisco,
San Luis Obispo -- where's that?

H.M.Jr:
S:

I think San Luis Obispo is -- must be
California.

I think it must be California. New Orleans,

Houston, Corpus Christi
H.M.Jr:
S:

These are all United States ports that I've
given clearance to in the last three days.

Yes. I see that -- 1, 2, 3, 4, 5 -- five
of them are going to Japan.

H.M.Jr:

I think they're all going to Japan.

S:

Well, I see some United Kingdom via New York

H.M.Jr:

But they're all headed for Japan.

S:

I suppose they're all going there.

H.M.Jr:

That was the instructions anyway.

S:

Yes. But they're all on Japanese ships.

H.M.Jr:

Yes.

S:

They're all on Japanese ships apparently.

320

H.M.Jr:

Now the only thing that I got out of Sumner
yesterday, and this is strictly confidential,
he evidently talked to the President before

he came to my house and the President told
him to get an order ready which would stop

the export of aviation gasoline.

S:

H.M.Jr:

Yes. That would help a lot.
Well, evidently -- well, Sumner threw that
in as a kind of sop, but that's -- now what
I said last night -- pardon me.

H.M.Jr:

No, no, no. I didn't mean to interrupt.
I say, I sent up to the President last night
two orders, one on scrap iron and scrap steel
and the other on all oil products.

S:

I wish you'd do that, yes.

H.M.Jr:

I did. I sent it to him last night.

S:

S:

H.M.Jr:

S:

H.M.Jr:

Sent it to the President.
All it needs 18 his signature and then that
would make it legal. For instance, we're sitting
on a ship, two ships, now for ten days with
oil for Spain with no legal grounds for it
and we're just sitting there holding them.
Well, that's good.
And if the President would only sign this
thing then we'd have some legal grounds.

S:

Well, I think, frankly -- I think -- of course,
I hate -- I don't want to butt into another

Department even though I think I know something

H.M.Jr:
S:

about that Department, but I do think that
Sumner is all wrong on that.
Well, of course he is and

I mean, there's nobody in the Department
that knows anything like as much about it as

Stanley Hornbeck does and I know how he stands.

321

- -5 H.M.Jr:
S:

of course, I understand Stanley Hornbeck is
all for clamping down on the Japanese.
Absolutely.

H.M.Jr:

So I understand.

S:

But for goodness sake don't quote me because

H.M.Jr:

Oh, no, no.

S:

There's an old friendship between him and
me and he comes and talks to me in confidence
and he knows that job better than anybody in

it isn't fair to him.

the whole Department.

H.M.Jr:
S:

He wasn't that way two or three years ago.

No. He was very cautious. He wasn't that
way when I came out of my -- well, he was
very loyal. He helped me with my letter to

Borah I understand.
H.M.Jr:

Yeah.

S:

He helped me with it, but he was very much
alarmed, but since then he's come stronger
and stronger and he goes with me 150%.

H.M.Jr:

Now, the other thing -- let's see, I told you

about aviation gas. That's in the woods and -oh, yes, I asked Stettinius today to give me
the facts on scrap iron and scrap steel and
he started to refer me to the State Department.

I said, now, listen, Stettinius, you haven't

been in Washington long enough to refer me to
the State Department, and he said he'd have it
ready for me by Thursday.
S:

All right. Well, that's good.

H.M.Jr:

He'd have it ready for me by Thursday. Now

S:

Now -- oh, all right. Beg pardon, I have one
more thing. Don't let me forget it.

322

-6H.M.Jr:

I just wanted to say, this isn't my Department

either over there but I'm putting all the

pressure on the State Department I can and

S:

H.M.Jr:

I'm going to continue to.
You' re dead right and I never was more filled
with hope than by the talk we had with the
President last Friday.
Well, one other thing and then, then -and that's the thing which bothers me. Both
Welles and Berle take the position that
China and Japan should make peace, you know.

S:

Well, they're dead wrong. I mean, Berle I

don't count at all. I know the reason he's
been -- I know enough of what's going on in
the State Department to know that he's --

why he pretty nearly got us into trouble with
Great Britain with his early notes.

H.M.Jr:
S:

Did he?

I mean, in those first negotiations over the
blockade the original drafts were nearly
always drawn by Berle -- of course, this is

strictly confidential.

H.M.Jr:
S:

Surely.

And Herbert Feis told me that they had a
dreadful time and it was only because several
of them like Feis and like one or two others
stood up that we might have gotten into
serious estrangement with Great Britain.

H.M.Jr:

Well

S:

So I don't count Berle at all.

H.M.Jr:

We have somebody over here -- this is equally
confidential -- whose comment on Berle is that

he renders all of his legal opinions by ear.

S:

(Laughs). Well, now, the other thing that I
wanted to speak to you about is this, that I
just have had word from the Committee on
Appropriations that they want me absolutely

and preemptorily tomorrow at 10 o'clock for
a short time.

323

-7H.M.Jr:

I see.

S:

Now, I'11 come to you just as quick as I get

H.M.Jr:

Well, now why don't we so we don't crowd

through there.

you too much -- why don't we put it off
after lunch and then there won't be such a
crowd, I mean, there won't be such a rush.

Why don't I say 3 o'clock. How would that
suit you?

S:

Well, my statement will be very short and
I could agree to get down by 11 o'clock, I
think.

H.M.Jr:

Well, they'11 want to cross-examine you.

S:

No, they won't -- I'm not going to talk on

H.M.Jr:

figures; I'm just making an opening statement.
Well, shall we postpone the meeting until
11?

S:

H.M.Jr:

If you hold it at 11, I think I'll be there
all right.
Well, supposing I make the meeting 11 or
11:30.

S:

Either one you like.

H.M.Jr:

Well, you name it.

S:

11:30 perhaps.

H.M.Jr:

What?

S:

11:30 I'll be surer.

H.M.Jr:

I'11 change the whole meeting until 11:30
because there is no use sitting down without
MacGregor.

S:

H.M.Jr:

Oh, no, no, no. I have got to go to the

other though because it's that big appropriation.
Now, may I ask you one little favor.

324

-8S:

H.M.Jr:

S:

H.M.Jr:
S:

Sure.

Make sure that those Army officers of yours
aren't asking for more than they really

are entitled to.
Well, I'll do my best.

I mean, just make sure that those figures
aren't padded. I have no way of knowing.

I know. I know. Well, I'11 see but I'm
new here, too, you know. I'm just getting
acquainted.

S:

They'd tell you where they wouldn't tell me.
My impression has been that -- my talks with
Brett have been the chief talks -- that Brett
has been very fair about it.

H.M.Jr:

Well, if you would ask him, and I'll make

S:

Yes, thank you very much.

H.M.Jr:

Thank you.

H.M.Jr:

this appointment 11:30.

325
In reply refer to Initials
and No.

NAVY DEPARTMENT
OFFICE OF THE CHIEF OF NAVAL OPERATIONS

WASHINGTON

23 July 1940

Dear Mr. Secretary:
I appreciate so much your note

of today and its enclosures, and I will be
glad to keep abreast this situation which,
of course, is a vital one.
Sincerely,

NRShard
Honorable Henry Moregnthau, Jr.,

Secretary of the Treasury,
Washington, D.C.

326

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Stookholm.

DATE: July 23, 1940, noon.
NO.:

753.

The Governor of the Riksbank would like to know if
earmarked gold is included in short-term foreign
liabilities which are held by banks and bankers in
the U.S. blooked by the Government of the United

States. Will you please cable.
STERLING

EA:MSG

327

July 23. 1940
Dr. Feis
Mr. Cochren

will you kindly send a cablegram along the following lines, based on an oral
request received by me on behalf of Professor Charlee Ries, Henouary Under Governer
of the Beak of France:

"American Rebesey,

Berlin.
For Health from Goohrea.

Would appreciate any information you may be able to cable concerning
whereabouts velfare Lieutenant Leenard Rist of the Fourth Batallion, 329th
Regiment, French Infentry. 'Stat Major', last heard of at Le Havre. This
officer is sen of Professor Charles Rist."

:lap 7/23/40

328

TELEGRAM SENT

PAP

GRAY

July 23, 1940
6 p.m.
AMERICAN EMBASSY
BERLIN

2031.
FOR HEATH FROM CO CHRAN.

Would appreciate any information you may be able

to cable concerning whereabouts welfare Ligutenant
Leonard Rist of the Fourth Batallion, 329th Regiment,

French Infantry, 'Etat Major', last heard of at LE
Havre. This officer is son of Professor Charles Rist.
WELLES

(Acting)
(FL)

: EA:FL:MSG

329

my 23.1996
Dr. Fels
Mr. Bedires

will you kindly send the following emblograms
"American Televacy
London

For Butterworth free Treasury

Reference year 2329. July 22. 6 D.E. treasury Department to interested is acquiring French bank notes."

M.M.P.

330

TELEGRAM SENT

PAP

GRAY

July 23, 1940
9 p.m.
AMEMBASSY
LONDON

1983.
FOR BUTTERWORTH FROM TREASURY.

Your 2329, July 22, 6 p.m.

Treasury Department is not interested in acquiring
French bank notes. STCOR.
WELLES

(Acting)
(HF)
EA:MSG

331

MEMORANDUM

July 23, 1940.
TO:

Secretary Morgenthau

FROM:

Mr. Sullivan

This morning Mr. Stam intimated to Mr. Blough that

he was acting under orders when he requested another week

in which to consider our plan. He also intimated that he

would have no plan to introduce.

Later on he said he would like to discuss the matter
with the Treasury on Friday, July 26th, and that be might
have "some sort of a plan" then.

TLS

332

JUL 23 1940

Dear Ms. Helsens

1 have year letter of June 29. 1940, and accept your
resignation, as sentered, as letting Director of Presurement
and Assistant to the Secretary. As you point out is your
letter, the accessity for your resignation has boon brought
about w year appointment w the President as Federal
Goordinator of Purchases.

I cannot everlook this opportunity to express my
appreciation for your valued services and counsel while
accestated with no in the Treasury Department. 30 accured

that you have - heartiest good wishes is your now taking.

wash personal regards, $ on,
Sincerely,

(Signed) H. Morgenthau, Jr.

Mr. Resald a. Soloom,

Accistant to the Secretary.

-

Department,

File to Mr. Thompson
By Messenger good mg/24

THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
FEDERAL RESERVE BUILDING

issue

WASHINGTON, D.C.

June 29, 1940

My dear Mr. Secretary:

It is with genuine regret that I herewith hand

you my resignation as Acting Director of Procurement
and Assistant to the Secretary.

This is made necessary, as you know, by the
fact I was appointed Federal Coordinator of Purchases

reporting to the President.

I enjoyed my work tremendously in the Treasury

and gained a great admiration for yourself and your
staff during my short period there. It was a real
pleasure to work with you and if I can be of service
to you at any time, please call on me.
With sincere regards,
Sincerely yours,

WP. huhm

Donald M. Nelson

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.

7/24/40

334

Miss Chauncey

Mr. McKay called Mr. Foley last
night and said that the Secretary
wanted these figures on the
amount of oil exported to
Spain since January of this
year sent to Secretary Ickes.

This is for your information
and file.
"cG

MR. FOLEY

335

-m-

was 23, 1940

is - - of Secretary

- 2 - additions a table aboving

- - equate of

/ in - flow sis - of 1999-2040,

- . work - d the - to
- - proteste - exported during

- flow de I of 1940.

-I

Manualy 1
1w E. N. Tolay, Jr.

a - the - Saturian

/

-w
Original forearded to Addresses

from the office of the General
Cameal as 9:00 a 7/24/40

(

types 7/23/40

By Messenger

336

U. S. Reports of Petroleum Products
First Six Months of 1935-1940

(In millions of dollars)

1936 1937 1936 1939 1940
$20.1

$23.0

830.4

$26.0

829.3

February

16.9

24.4

30.0

24.1

27.8

March

19.7

23.1

30.6

29.8

29.9

April

20.5

29.7

35.8

29.0

28.8

May

24.0

35.0

35.3

37.8

29.8

June

21.6

33.0

35.2

32.2

30.00/

124.2

169.5

196.3

178.9

175.6

260.8

376.3

386.6

383.7

-

January

Total

Total 12 months

Treasury Department, Division of Monetery Research.

v Estimated on basis of exports for 2/3 of month.

July 22, 1940.

338

RE SMALL LOANS TO BUSINESS MEN

Present:

Mr. Sullivan

July 23, 1940

8:50 p.m.

Mr. Foley
Mr. Viner

Mr. Gaston

Mr. Haas
Mr. Cohen

Mr. Corcoran
Mrs Klotz
H.M.Jr:

What I wanted to do was to take a new look

at this question of loans to small business
men and just see what the situation is,
legislatively and otherwise, because while
I haven't discussed it with Mr. Roosevelt,

it seems to me that I am about seven and a
half years past due doing something for them
and I asked George yesterday - I haven't had
much time to go after the Federal Reserve
and RFC figures and see what they have done.

Haas:

Corcoran:
Haas:

What is the situation, George? We will sort
of take an inventory. Do you have time?
I have some very rough figures that I put
together last night. For the Federal Reserve,
I don' need a paper. They have got one
application for $10,000 which they are considering.
That has been five years they have been doing

that, isn't it?

That is right. And the RFC, I took their

records and had someone count the loans under
$25,000.

H.M.Jr:

I was just looking around. Are we all Demo-

orats? Yes, we are all Democrats. It is
all right. Are we all Roosevelt Democrats?
Yes. It is all right to count you in, George,

isn't it?

Haas:

Been at it for a long time; I don't see why
not.

H.M.. Jr:

If anybody wants to take a walk, it is a good
time right now.

339

-2Gaston:

I think most of this crowd will stick.

H.M.Jr:

Go ahead, George.

Haas:

I counted the RFC loans of amounts under

25 and in February of this year there were
32 loans made of that size. March, 42;
April, 49; May, 42. That was the last
figure.

H.M.Jr:

How many?

Haas:

42 in May; 49 in April; March, 42; and February, 32.

H.M.Jr:

Well, do it one way or the other. Go up the
ladder or down. Do it over again.

Haas:

All right, February of 1940, 32 loans; March,
1940, 42; April, 1940, 49; May, 1940, 42.

H.M.Jr:

Do you know what part of the United States?

Haas:

It said - gave the name of the concern and

its location, I am pretty sure. I think I

will have to check that up, Mr. Secretary.
Corcoran:

George, were those loans actually closed or

Haas:

These are actually closed.

H.M.Jr:

That is twenty-five thousand or under?

Haas:

Yes, sir.

H.M.Jr:

While he is looking, what is the status of

Cohen:

As I understand, it is simply stalled in

loans authorized?

the legislation on this matter now?

Wagner's committee.

Foley:

Two bills were introduced at this session.

H.M.Jr:

What are they?

Foley:

And both of them are about the same. One

340

3

of them is S-3511, which is a bill to establish
a permanent industrial loan corporation to
assist financing institutions and making credit

available to commercial and industrial enterprises. The management of that corporation

would be in the Board of Governors of the Federal Reserve Board and the capital stock and
surplus would come from purchase on the part
of the Treasury of the FDIC stock held by the
twelve Federal Reserve Banks and the gold increment would be used for that purpose. That
bill is pending in the Senate Banking and

Currency Committee.

The other bill would amend Section 13-B of the
Federal Reserve Act, which is the power they
have at the present time to make industrial
loans and it would eliminate the requirement
that loans have to be made to established

businesses and would strike out the limitation
of five years on the maturities.
H.M.Jr:
Foley:

H.M.Jr:
Foley:

Is there any size limit to the capital?
I don't know, Mr. Secretary. I think that the
total amount available there was that 129
million dollars that they got from us.
Is there any limit to the individual?
No, I don't think so.

H.M.Jr:

And no insurance plan, just the straight loan?

Cohen:

That is right.

H.M.Jr:

This is no insurance plan.

Cohen:

No. Of course, the RFC by its participation
powers has virtually the right to insure loans

if they want to exercise it.
Foley:

Well, under 5-D, the RFC has the broadest kind
of power and if that power were exercised

liberally I don't think you would need much

more. Don't you agree, Tom?

341

4Corcoran:

Yes.

H.M.Jr:

What I want to say is this: I have been
thinking this thing over during the week-end.
I think we have got a pretty good record
about what we have done for the sharecropper
and the unemployed, and so forth and so on,

but what we have done for the little business

Corcoran:

man "ain't so hot". Right?
Well, Mr. Secretary, I think politically

you have got to make up your mind whether

you are going to try to do something or make

a noise about doing something.
H.M.Jr:

Well,
I am only for doing something, not a
noise.

Corcoran:

H.M.Jr:

If you want to do something -I want to do something.

Corcoran:

The wisest way politically to do something is

to simply have the President order Jesse Jones
under the authority that Ed now says he has

to announce a plan, under his existing authority,
so we won't have to wait for the Banking and
Currency Committee, to insure these banks and
then Jesse announces it in such a way that instead of saying the Government is going to lend
to these fellows, on which we will disappoint
them sure as hell, we simply say the Government
has forced the banks to loosen up. That sounds

much better, because I know the RFC.
H.M.Jr:

I know you do.

Corcoran:

And I know perfectly well that it has been
trained in such a way that it will never be

able constitutionally - it won't be able to

make enough loans to make any difference between now and election, and furthermore, such

loans as they do make will be tied up with
such impossible conditions that the fellow
that gets the loan will hate you more for the
conditions than he will be grateful to you for
making the loan. That is why I asked George,
"Are those loans closed or not?"

342

-5H.M.Jr:

Well, following your avenue, there would be
the way of going down that road and doing
what Stewart McDonald did in FHA and have

a local campaign and an appeal to the people

and lots of radio publicity and asking the
people to come in and all that, but the thing
that I don't know is the pulse of Jesse Jones
today.

Corcoran:

I understand that.

H.M.Jr:

Whether he would do it; and the other avenue
would be to take his competitor, Mr. Marriner
Eccles --

Corcoran:

Who also won't make any loans, Mr. Secretary,
no matter what statute you give him, because --

H.M.Jr:

And the other one is have Marriner go up and

make a fight on the Hill and get a fight on
this thing and having the Republicans vote
against it and the liberal Democrats for it.
Corcoran:
H.M.Jr:

Let's just talk about that.
If that is all you want to do, to make a noise,

you don't want a statute on the books --

No, we are talking politics here. It is not

what I want, I am asking advice. My mind is
open. This is a conference.
Cohen:

I am wondering 1f at this time the fight will

make the impression on the country we want,

one, that a Republican will probably oppose
it for one reason or another and some of the
Democrats. Both Marriner and Jesse's performances before the committee actuated in
part by their mutual jealousies of one another
has not created a very happy atmosphere in the
committee. Wagner is frankly, I think, puzzled.
He doesn't know much about it and he is fearful.

H.M.Jr:

And isn't much interested.

Cohen:

And isn't much interested, and in the platform
he intended to water it down before he took

343

-6it out to Chicago. Then we got him to stiffen
it up a little and then some of the provisions
were left out by the committee out there, so
how far he will go really fighting for you is

a question and whether under those circumstances
a Republican may not give the country the im-

pression that we are hopelessly at sea in trying

to deal with the problem and that we have brought

it up at this late date simply as a political

move.
I would
like to do something, but I am
troubled
-H.M.Jr:

You mean on the Hill?

Cohen:

Yes. I would like to do something, but I am
troubled as to how it can be done effectively.

H.M.Jr:

What do you think, John?

Sullivan:

Well, I don't know. The situation up there, I

am afraid, after yesterday afternoon's conference, is not as happy as I hoped it would
be and I am impressed by Ben's remark that
the demonstration that Jones and Eccles will
put on, combined with the remarks that will
come out of the not so liberal Democratic

members, might defeat the very purpose we are

H.M.Jr:

seeking to accomplish. I also think if it is
going to be kept down to $25,000 loans, we
are restricting it too much.
This legislation doesn't say that. I gather

it doesn't say the amount or the number of
years, does it?
Foley:

No, it doesn't say the dollar amount or the
number of years. There is a five-year limitation.

H.M.Jr:

Are either of these the so-called Mead bill?

Foley:

Yes, one of them is the Mead bill and -They are both Mead bills.

Cohen:

Foley:

Both Mead bills, and Ford, I think, in the

Banking and Currency Committee in the House,
has got them, John Ford.

344

7-

Corcoran: Mead has his name on a series of bills.
Cohen:

Mead is willing to take any bill he thinks

the Administration wants and he first picks
up one bill and then another.

Foley:

I think, Mr. Secretary, our legislative
record in so far as loans to small business
is concerned is pretty bad. In so far as
expanding the RFC powers, the two Banking

and Currency Committees, particularly Steagall's
committee, has gone out of its way to indicate
to Mr. Jones that the committee would like to
have Mr. Jones exercise that power very liberally and in 1938 they added loans of sound
value to the reasonable security provision
because Jesse said reasonable security meant
that he had to have collateral, so they
added sound value and they went out of their
way to point out that that was quite a liberalization and that meant you don't have to have
security, all you have to do is to have a
sound corporation and the loan sound value
in the opinion of the RFC.

I think at this late date the best thing to

do politically would be to have the President
call in Jesse and have Jesse set up a separate
corporation and turn over 250 million dollars
or more to the separate corporation and announce
that the corporation would make loans to small
business men on liberal terms.

Corcoran:

Either that way, Mr. Secretary, or to go the

whole hog the other way and set up a statute
which you never expect to operate in time
but which looks like a whole new picture; give

it to Marriner and then your excuse, if the

loans aren't made - and they will not be made
business loans are bad loans - the excuse
that doesn't get operating before November
is the machinery hasn't had time to be set

by Federal Reserve Governors because these

up and you will have a promise that it will
begin to operate after November. That is
another political objective, but you ought
to play it either to produce results now,

345
8-

which means you haven't got time to get a

statute, or set up new machinery, that is
Schram do it, or you ought to play the
game way over to the other side and have
a brand new approach and the fact that it
Jesse, or separate Schram out and have

doesn't get going in time for November and

is only a promise - well, you had to set up

whole new machinery. But you ought to slide
itinone
or the other and not get caught
the way
middle.
Foley:

Tom, do you think if you draft a new bill

and everybody gets behind it you can get
it through?
Corcoran:

Cohen:

No, I don't, because I think there will be
mutual throat cutting. The people who want
the jurisdiction in that business will see
that it never gets out of the committee.
The Republicans will say this is a last minute

effort. "They have had seven and a half years
to do something and now they are trying to
rush the thing through." You will probably
find Republicans on a committee like that.
Usually they are unwilling to play with us.
It seems to me the best avenue is to see if

Schram can be induced to do something in order
to cover up the seven years delay and make the
announcement that is specially designed to

help the small business man take part in
the national defense program.

Gaston:

Right.

H.M.Jr:

You have taken the words out of my lips, ex-

Gaston:

H.M.Jr:

cept that I would like to make it a little
bit broader. I think the thing - do you
want to talk first?
No, I was just checking -It crystallized in my mind as I was listening
to you two gentlemen.

You (Gaston) talk first.

346

-9Gaston:

I agreed entirely with what Ed said. I
prefer the avenue of doing something. The
other is just no good, as I see it, and I
think that the separate corporation out of

which you can make an announcement of some-

thing new starting and then introducing this

defense explanation as a reason for doing
it now while it has not been done over these
seven years is the best you can do, and I

think there are real possibilities in it.

Corcoran:

H.M.Jr:
Corcoran:

May I just add one thing, Mr. Secretary?
Please. I wasn't summing up.

If you are going to do that, the thing you
ought to do is to handle it not only so
you get the national defense angle but that

you get somebody to blame for these last
seven years and therefore what you ought to
do is to have Schram -Haas:

Corcoran:

I am just agreeing with you.
Then you ought to have Schram make the announce-

ment that in the interests of a sound economic
system we have been trying to keep these loans
in the banks as much as possible, but they
just haven't done it and apparently they are

not going to do it in time to let the little
business man participate in the system and

therefore he is putting the squeeze on to
give them no excuse for not helping the little
business man get into the defense situation,

and you blame somebody and you get a new out.
H.M.Jr:

Well, what I think --

Corcoran:

The RFC has to be taken out. It won't play

ball. If it is going to be blamed, you have

got to blame the banks. That is the way you
have got to do it or they won't play with

you.

H.M.Jr:

Well, to be sincere on this thing.--

347

- 10 Corcoran:

Well, I am sincere, Mr. Secretary.

H.M.Jr:

mean for me, and I think - that is all
right. Well anyway, listening to you
people, I think you are absolutely correct,
I

we can't go on the Hill at this time. I
think if we sent Marriner and Jesse up there
to put on a show, it would just hurt like
hell. Therefore, it gets down to this idea

of a separate corporation, but the trouble

we have been having is absolutely outrageous.
I talked with Guy Vaughn of Curtiss-Wright
and the man from Pratt & Whitney and we

practically, in the case of Vaughn, had it

ready in the middle of May, to have them
build a plant in the Middle West. The thing

is still hanging fire.

They are going to meet here at 10:00 o'clock
this morning on this thing and now Knudsen has to
run around yesterday and last night to Ed and
try to get a ruling so he can say today to Jones,

"It is all right to build a plant in the United

States, even though this plant will be producing
partly for the English." We haven't crossed

that bridge. Here it is only the 23rd of July,

see. There is no plant in the Middle West and
the President wants two plants and so they are
coming in here this morning at 10:00 o'clock
to take the engines away from the English instead of doing what I want them to do, increase
the pool, you see. I want to increase the
pool so there are more engines instead of
trying to take them away from the English.
Just this morning, the Army has asked Knud-

sen - production chief - to prevent new
British orders for about 1200 American planes

from interfering with the production of this
country's defense program. Instead of doing
everything - I've spent half or three quarters
of my time keeping this fellow Purvis' flag

flying and nobody helps me and instead of
saying, "Good boy, you have done a wonderful

job, six planes yesterday," and all that,
which all comes down to this: I think the

President ought to set up some corporation,

348

- 11 national defense lending corporation, and get
it out from under Jesse, but word it so we
want the small business man to have his share
of this new production, work the two things

in together. We don't want all of this going
to the business giants. In other words, on
the sub-subcontractor, the fellow who has to
buy twenty-five or fifty thousand dollars
worth of this special tool or bolt, that fellow
should be able to get part of that contract,
which he can't today, and this man is going
to make it possible for the fellow who is in

the country and has got a little one man
machine job with 20 or 25 people to get part
of this thing and stress that in the national
defense program, not, if you don't mind,
making a goat, because that reflects on
Mr. Roosevelt just as much. If you can't
run your own shop after seven and a half

years, it is just too bad.

Corcoran:

No, it is Jesse's shop.

H.M.Jr:

Well, Jesse is appointed by the President and

reappointed by the President. I think I am
right, am I not? I think he has been reappointed.

Foley:

Sure, he has been made loan administrator, too.

H.M.Jr:

So blaming Jesse is - in the first place, "If
he was no good, why didn't you fire him, or

"You are sore because he bucked you in Chicago."

Corcoran:

No, it is because I have got to have somebody
to blame other than ourselves. The real reason

is, Mr. Secretary, no direct lending business
will work in this field because the business
is too intricate and too varied and the stuff
is too important alone. You have just got to
throw the insurance in and take long risks.
H.M.Jr:

Correct, but I think - just think it over, Tom,
of not trying to blame a Presidential appointee
but setting this thing up, but emphasizing in
the announcement the fact that the thing that

Sidney Hillman said, which impressed me very

349

- 12 much at one meeting that I attended at the
White House, that he wants to get a lot of
these plants out in the country and get the
farm boys working and not all in the indus-

trial centers, but work the thing - in order
to do that you have got to finance it, but
we want the little fellow to have just as

good a chance to get an opportunity at this
national defense, whether he has got $10,000
capital or whether he has got 10 million and
emphasize that. Just think about that, not

blaming somebody who has worked for Mr. Roose-

velt for eight years.

Corcoran:

I say I am not blaming Jesse, I am taking the
blame off Jesse, because Jesse isn't to blame.

H.M.Jr:

Yes he is.

Corcoran:

No he isn't. When you actually get down into

the guts of lending to this little tannery,
Chicopee Falls, you find you have been using
a pile driver to drive a tack and most of the
time the pile driver hits the tack at the
wrong angle and smashes the tack.

H.M.Jr:

Tom, who wrote the regulations to the RFC
that you have got to be turned down three
times before you can come to the RFC?

Corcoran:

That won't make any difference.

H.M.Jr:
Corcoran:

But that is true.
But the difficulty is that once the loan gets

H.M.Jr:

You mean you don't --

Corcoran:

To mass production.

H.M.Jr:

You mean you don't think even if we set up a
separate corporation with a man of good will
and good heart -We will have to fake him.

Corcoran:

in, it just doesn't --

350

- 13 H.M.Jr:

You mean you won't --

Corcoran:

oh yes, we will get them out but you will
have to say, "Don't kid yourself about
following any standards for loans."

Foley:

I think the Secretary agrees with that,
Tom. You write it off. You set it up and

say, "There is the national defense finance
corporation. Go out and get this money into
the hands of small business men and don't
worry about getting it back."
Gaston:

Don't you really mean this, what you are
making is not bank loans, not short term

loans, security loans, collateral loans,

but what you can make here is capital loans.

That is what the demand has been -H.M.Jr:

What kind of loans?

Gaston:

Capital loans.

H.M.Jr:

I thought you said cattle loans.

Corcoran:

We started on cattle loans.

Gaston:

But that is the difference about trying to

Corcoran:

force the bank loans. They want to make
bankable loans and these are capital loans.
I agree with you, but you see what Ben and I
were trying to do in the RFC last year was
take the psychology of loan out of the RFC
mind. You can't train a bunch of bank examiners
in seven years and expect them not to roll over
on any loan that isn't a bank loan. You can't
make bank examiners make capital loans. I mean,

as a sheer matter of administration, it just

doesn't work, no matter what instructions you

give them. Every time you come along - you. have

H.M.Jr:

to find a formula that doesn't look like loans.
I don't think I have got my point over to you
yet. My point is, these loans that we are

talking about now to build munitions, the
Government has got to take all the risk because

351

14 -

on a cancellation we have got to take all
the risk and this is not a bankable loan.
There is a national defense loan and therefore we don't - we don't have banking standards or bank examination standards and
therefore all the things which you say are
true but wouldn't apply in this instance,
and where you start in talking about lending
25 or 50 million dollars to Curtiss-Wright

to build a plant in Ohio, I wouldn't - I
personally wouldn't want any national bank
to participate in that, but I do say the

United States Government should and we are

just about six weeks slow in doing it.
I think you could do something if you had
the right man and if you had made ten thousand loans to small fellows and this fellow
says, "Well, gentlemen, I've got a piece
of this business. I am helping this country. I have got a twenty-five thousand or
fifty thousand or hundred thousand dollar
contract to help. I am a part of this thing,"
rather than have him sit back and just see
this thing going over him as an airplane
15,000 feet in the air and he just doesn't
even sense the thing.

But it is going to take a big fellow and a
fellow who - and I said if somebody is
willing to sit there and hold down his
chair and lend a billion dollars in the

next six months for plant expansion, knowing
that he is taking a chance, he may lose

about 50 to 75% of it, that is the kind of
fellow that has got to be the head of this
thing. You can put out a billion dollars

and under this quick - why, they have got
Ed Foley nuts around here. He runs from

Knudsen to Jones to Stimson and to Knox
and they go round and round and round, and

Cohen:

they are not doing anything.
And we have to take all the risk anyway.

Corcoran: Mr. Secretary, you talk like a Secretary of
the Treasury. You think a billion dollars

352

- 15 -

is a lot of money. I don't think a billion
dollars is a lot of money.

H.M.Jr:
Foley:

H.M.Jr:

Well, I work myself up to that gradually.
Don't be belittling us, now.
I am wearing him down. Listen, you name a

fellow who can lend a billion dollars in
this corporation between now and the first
of January and I will kiss him on both
cheeks and give him the croix de guerre.
Where is the fellow?

Corcoran:

They are there.

H.M.Jr:

Where?

Corcoran:

They are over there now.

Gaston:

Couldn't leave it nominally in RFC and give
them a board that would force them along?
I have been worrying about this problem
ever since we worked that RFC statute through.
The men are there and I think I know the
combination you can put together. I would
like to talk with you sometime about that.
The combination - the men are there but
you have got to cut them out from -Give them a separate advisory board.

Corcoran:

Gaston:

Corcoran:

That is right. You see the difficulty is
that - here is the way it is set up over
there. Instead of taking the fellows that

had enough feeling for the thing to do the
job, we have split our business up with
the old members of the board. For instance,

Marion is running rubber, isn't he, or is

he running tin?
H.M.Jr:
Who is running tin?
Corcoran: Marion.

353

- 16 H.M.Jr:

Is he still over there?

Corooran:

Yes, and he is in charge of tin.

H.M.Jr:

How is his insurance business in Kansas?

Corooran:

His son's business is doing very well.
I wish he wouldn't write me letters on his

H.M.Jr:

insurance company stationery.

Corcoran:

But that is the problem. There again you
have got this problem. If you set up completely new men, you have got not sabotage,
because it will never be conscious, but

you will get jealousy. Your business is to
out out from the present RFC men whose re-

lationships are close enough so that they
are the RFC and yet men who will do the job.
Your difficulty is, if you set up a new corporation you will have trouble.
H.M.Jr:

Corcoran:

Well, of course, I am discouraged because I
don't think any corporation that you set up
will be anything but Jesse Jones, Incorporated.
Well, that depends.

H.M.Jr:

Well, we were lead to believe that when Mr. what is the fellow's name?

Gaston:

Schram?

H.M.Jr:

Corcoran:
H.M.Jr:
Corcoran:

Schram would go in there, he was going to

show independence. He calls up here. It is

pitiful after something has been accomplished.
He tried to get posted from Ed as to what is
going on in his own shop.
That is due to some other factors over there.
Well, you have got the
And I also have the wisdom to know how to stay

out of things, too.

354

- 17 H.M.Jr:

Corcoran:
H.M.Jr:

Do you think you can set up a corporation
that we can go to this President and say,
"Here is the thing, If in a day or two, and
say, "This is the thing that you need"?
Do you think you can do that?
I know it can be done.

Well, if you gentlemen will set something
up, I will ask for the appointment or you
ask for the appointment, either one.

Corcoran:

Well, I would rather tell you what I think
about it after twelve hours and then let
you do it.

H.M.Jr:

All right.

Corcoran:

After all, I am just moving into a new model
office in the RFC tomorrow. We are moving
into the new building, you know.

H.M.Jr:

The RFC?

Corcoran:

Yes, we are bigger than you are now. We

Gaston:

Corcoran:

have got three-quarters of a block.
Is that the Lafayette Building?
Yes. New furniture and soft lights and everything. We are, like the Federal Reserve and
Supreme Court, going into a mausoleum. I am
going to San Francisco.

H.M.Jr:

Are you serious that you could give me a set-up

Corcoran:

Mr. Secretary, it is just a matter of picking
men. It is a matter of picking men in the

in 24 hours?

RFC whom you know in combination would do

these things. One would get the thing done
and two would have the nerve not to let any-

body boss them.
H.M.Jr:

Do you like this hour for meeting?

Corcoran:

It is a little early for me.

355

- 18 H.M.Jr:

9:00 o'clock too early?

Corcoran:

Oh, yes. I am just beginning to wake up now

H.M.Jr:

What about you?

Cohen:

It is all right.

H.M.Jr:

It is good for him, don't you think 80?

Cohen:

Sure.

Corcoran:

and it is nearly 10:00.

It implies, Mr. Secretary, that you go to bed.
the end at which it is hard for me.

That is the difficulty that I have. That is

H.M.Jr:

Do you want to come back in 24 hours?

Corcoran:

Yes.

H.M.Jr:

What time?

Corcoran:

All right, 9:00 o'clock, just as a gambling

H.M.Jr:

Maybe you are right. It leaves me a little

proposition.

sunk, but I get all worked up on these things maybe you are right, but I have yet to see
that Jesse doesn't kill everything sooner or
later.
Cohen:

Is time actually being lost on the building
of those plants by this --

H.M.Jr:

Nothing has happened, absolutely nothing.

Corcoran:

Of course, Mr. Secretary, what you have --

Cohen:

But the war is going on.

H.M.Jr:

But nothing is happening. Has Packard's contract been signed?

Poley:

Nothing has been signed.

H.M.Jr:

There hasn't been, in the airplane field, one
dollar of new production added through any

Government action today.

356

- 19 -

H.M.Jr:

Mr. Secretary, are you sure -Not a dollar.

Foley:

In this Government.

Corcoran:

Are you sure that Mr. Jones, if he is falling

Corcoran:

down on this, knows what is expected of him?

H.M.Jr:

Well, Ed can answer that better than I can.

Corcoran:

But you know, he is the kind of a man, particularly after what happened in Chicago,
he is the kind of man that if he gets his
orders, "I expect this much to be done by
Monday," well, somehow he will get it done
by Monday. Are you sure the line of command
has really been straight?

Foley:

Well, Tom, in 1938 when they added sound value
to reasonable security, he never accepted what
the committee meant by sound value and now he

is construing this new national defense power
that he has been given to mean that he can't
loan money if any of the facilities are to
be used for other than Government production.
Corcoran:

Foley:
Corcoran:

I know, but just the same, I mean on the sound
value thing, I understand perfectly why.
That is sabotage, Ben, of the worst kind.
Just be awfully sure before you say sabotage.
You can't make dogs change their tricks and
no matter how many words you put in a statute,
you can't make a fellow who, as Herbert says,
has been making banking loans all his life,
left to his own judgment, do anything but
make banking loans, but if you say to him,
"Mr. Jones, march those troops over the
precipice, throw the money away by Monday,"

and say it to him like that, he will do it.
Cohen:

No, but the point Eddie is making is the
same point that Ford is raising. I mean,

357

- 20 -

Jesse - that is the same point Ford raised.
Corcoran:

And I construe the statute and the Attorney
General construes the statute the other way

and that is the end of it.

Foley:

Corcoran:

H.M.Jr:

I said, "Jesse, let's put it up to the

Attorney General. Your General Counsel
doesn' agree with me and I think I am

absolutely right and I think the Attorney
General will agree with me." He said,
"That is only an opinion and I wouldn't
follow it anyway."
But if the President said, "Mr. Jones, I want
this done --"
But Tom, the President has told him he wants

two plants built for engines in the Middle West
this, "Why do you always have to run to the
President to get him to tell Jesse Jones he
wants every single --" and Jesse is taking
and the President has told me and everybody

exactly the same position as Henry Ford is

taking.
Corcoran:

But what I think you do is this; I think it
is a matter of getting on the record with
an instruction that is large enough and at

the same time specific enough so that he
has running orders for two months.
Foley:
Corcoran:

Well then, Tom, wouldn't the thing -Instead of playing with indirection, I have
seen it happen. Instead of pressing on him
this way and that way, you just hit it once
and he will do it. I mean, Jesse does carry
out orders.

Foley:

Well, why don't we set up a national defense
financing corporation and why don't we put
down on a sheet of paper what is intended to
be done by that corporation and come back
here tomorrow --

358

- 21 H.M.Jr:

And working in - stressing the small business
man angle of it.

Foley:

That is right, and the fact that the capital
can be lost but it is to be put out in the

interest of plant expansion, large and small,

for national defense purposes.
Corcoran:

Just let me clear one more thing.

Foley:

And then let the President tell him that that

Corcoran:

Now, remember, this business of small loans

is what he wants.

in detail is a terribly energy-swallowing

device. When you take and put in the same

Foley:

Corcoran:

corporation the small loans and the CurtissWright loans, it is an unnatural combination.
You have got, therefore, to permit.-But they are all risk loans, Tom.
But you have got to permit the corporation
that makes small loans in the same bracket

in the interest of saving energy and getting
results, you have just got to let them go
high, wide and handsome and slap it on
according to certain cut and dried rules

and know - and you are going to lose most of
the money.

Foley:

Sure. I am willing to agree to that, but

do you think if you set it up that way and

the President is agreeable and the President

tells Jesse to do it, that Jesse will do it?
Corcoran:

Yes, I know how it can be done.

H.M.Jr:

Let's do it this way for tomorrow to save
time. Let's do it in the form of a letter
from the President to Jesse Jones. Now, I

did that once before. He didn't sign it,
but he kept it on his desk and sent for Jesse
and talked to him and used it and I got what
I wanted. It was in connection with the
Bank of America - no, it wasn't, it was on
that legislation on the Hill this year on

353

- 22 those two things you (Foley) were up there

fighting for.
Foley:

Sure.

H.M.Jr:

And we wrote this letter and he kept it on
his desk, sent for Jesse, told him what was

in the letter, but he never signed it.
Well, think it over, anyway.

Corcoran:

You know, it is a complicated business, this
first meeting.

H.M.Jr:

You fellows have got what is in my mind. I
think the best possible combination is national
defense and small business men, bringing the
small business man in, but this situation
here of getting new plants started is just
tragic. Let me leave this thing for a minute.
There are two other things I want to mention
along the same lines. Number one, if and when,
for instance, anybody needs - the Government,

for instance - I was going to start with a
duPont plant somewhere down in Tennessee, I
don't know where - I saw it in the paper but immediately as part and parcel of that
thing, as they begin the plant, they should
be planning to house those workers, which
they aren't. I heard at this same meeting
they are going to put up wooden shacks or
tents for single men at first. Now, Straus'

organization are only now figuring on build-

ing things on Government Reserves in connection
with the Army and Navy, but we could make a

magnificent record and do a social service if
as part and parcel of any plant expansion for
munitions purposes, a decent housing for
married families were begun so we don't have
them living in tin shacks and what have you,
and keep these people happy. Straus ought
to get something as an amendment through

that in this plank; if the Government is
going to loan 20 million dollars to duPont
to go to a powder factory, there ought to
be half a million dollars or a million dollars

360

- 23 to go with it to house the workers and that
is part of our social program and it isn't
there and there isn't a dollar to do it.
That is number two.

Cohen:

Wasn't there someone inquiring about it in
the Army or Navy?

H.M.Jr:

I may be wrong. He can do it in connection
with the Government Reservation if the Navy
or the Army is doing something, but not if
duPont is building this for them. I was
with this Ernie Bowen yesterday and I asked

him
the about
bill. it. He says there is nothing in

Cohen:

But that large powder plant, though --

Foley:

That would be an unhappy example. An example
of what you have in mind would be where we

loan the money to Curtiss-Wright and CurtissWright puts up the plants.

H.M.Jr:
Foley:

Cohen:

Foley:

H.M.Jr:

Poley:

But not in the case of duPont. Check it.
I think in so far as the duPont situation
is concerned, that is direct Government construction and the Government has title to
that -And by the way, if Jesse is blocking those
claims, I don't see why they don't do the
same way. We wanted it the other way, because we thought it was simpler and -The trouble with your way, Ben -One second, Ed. Just hold your thought for

one minute. Just for fun, with the plant,
if the Government is doing it for duPont,
is there a housing plan that goes with it
to house the workers? I will bet you L've
cents to a penny there isn't.
Well, I wouldn't be surprised.

361

- 24 H.M.Jr:

But there is no plan to take oare of the
workers and you are going to have a lot
of disgruntled people saying, "Under the

New Deal we live in shacks and have no
homes. Why, even if we had a private contractor he would give us a decent house to

live in, you see.

Foley:
Corcoran:
Foley:

H.M.Jr:

They have just hired this fellow Palmer, who
is the head of these Housing Authorities.
He is from down in Atlanta.

To be the liaison fellow for national defense.
He is a pretty good man, but I still say that
when they lay down the plant for duPont, if
it is a hundred percent Government or whether

Foley:

it is private, that there should be with that
plant a place to give these married families
a decent place to live, and I am pretty positive that that is not in the program.
Well, on your point, Ben, if you do it the
direct way by utilizing the appropriated
funds for the Army and the Navy, I am afraid
that those facilities can't be used except

for Government order, since the Government
owns them, and then you have to go through

the rigmarole of determining that the property is surplus and then selling it and then
making a report to the committees on the Hill

and all that sort of thing.

Corcoran:

Why can't you put that in and make the FHA

put up 80 or 90 percent of it? In fact, what

you are doing there is tapping another appropriation. Then you throw out an FHA mortgage

Foley:

on it and the banks won't take it up.
I don't know whether that appropriation can
be used as equity money. I don't think it

can. I think it can only be used for capital

improvements to be owned by the United States.
But you could do that with your RFC money.
H.M.Jr:

Tom, to save my time a little bit, I have

got one other thing and then I am through.

362

- 25 Two weeks ago I brought to the attention
of the White House - it was about two weeks
ago on Leo Crowley?
Klotz:

Yes.

H.M.Jr:

Please send for Leo Crowley and either ask
him to resign from Standard Gas & Electric

or from FDIC, to do either. He is only

staying here because he thinks the President he thinks he is doing the President a favor

and I notice in Kiplinger this week a little
squib that it would be very difficult for
the Administration to go after public utilities with Mr. Leo Crowley --

Corcoran:

Oh, but that is a good public utility, you
don't understand. It has come in and gone
through a thorough laundry. This isn't like
Willkie's

H.M.Jr:

I still say it is an impossible situation

for Leo and for anybody who wants to make

any campaign speeches. It is ridiculous
and Leo is only doing it because he thinks

Corcoran:

he is doing the President a favor. He is
getting $50,000 a year from Standard Gas &
Electric and acting as Chairman of FDIC. It
is crazy. It ought to be changed right away.
If you can't change it --

H.M.Jr:

You can change it.

Corcoran:

It isn't as difficult a situation as it might

be.

H.M.Jr:

Leo will do anything. He is only staying here

because he thinks he is doing the President
a great favor and I understand he would be

willing to give up his position with Standard
Gas, which would be unfair to ask him, if the
President wanted him to stay, but he is Acting

FDIC Chairman, drawing no salary there, but he
runs the shop, and drawing $50,000 from Standard

Gas & Electric and I think it is very, very
bad.

363

- 26 Corcoran:

You don't think politically - you probably
are dramatising the situation to your disadvantage in having him go, because he has
been in that utility now for nearly five
months.

H.M.Jr:

The normal thing would be just to have him
resign and the President put in some lame

duck that he has got to take care of as

Chairman of the FDIC.
Corcoran:

One of the guys in this lame duck conference,
Burke, might come back if we gave him a job.

H.M.Jr:

But just don't brush this aside. I have
pushed the President and I am going to push
him again this week and I think it is just
an oversight. Leo is swell on this thing.

He will do anything anybody asks him to.
Cohen:

I think that is right. It is embarrassing
to everybody.

H.M.Jr:

Including Leo. This is a silly thing.

Foley:

What may happen, Ben, they may open up on it

Cohen:

H.M.Jr:

and then you may have to do it. You may have

to ask him to resign.
He can say his banking situation is such that
the President has said he would like to have
him stay on.
What he wanted was to have him handle the

Wisconsin situation, which he evidently has,
and now that is over. But Leo is a good guy
and he will do whatever the President asks

him to do, but if Kiplinger has it in his
letter, that is a tip-off like Arthur Krock's
column, where he said that we had better get
busy and save the situation before they make

an actual issue out of the thing.

Corcoran: Well, I think it is an issue already.
H.M.Jr:
I don't think so. He could slip out of there
and the President could put in somebody. He

364

- 27 has got two or three people he is looking

for jobs for. He could just put them right
in there. Leo's great personal sacrifice
has continued, waiting until the President
could find somebody. The President has

found somebody and now he goes on as Presi-

dent of Standard Gas. I just thought of it.

How about Stewart McDonald? Isn't he in
the same boat?

Corcoran:

He is not in the utility company. He is

over in the mortgage company in Maryland.

H.M.Jr:

Isn't he drawing a salary from there?

Corcoran:

Yes.

H.M.Jr:

Well, he ought to get it.
Willkie would just love to point out those

Cohen:

things and while he resents the theoretical
criticism of the New Deal, those are things
that would never exist in the Government
under his administration.
H.M.Jr:

Don't you agree with me, Ben?

Cohen:

Yes. I think he would like to say --

Corcoran:

It was six months ago it happened. At that
time I thought they shouldn't put those jobs
together, but I just wonder how you can be
holy about it after it has been six months.

Cohen:

H.M.Jr:

You are not holy, you don't make any announce-

ment at all.

Look, if Stewart McDonald slipped out this

week and Leo dropped out this week and then
next week the President announced some suc-

cessors, I don't think it would draw any
attention, but let Willkie make a speech on
those two guys --

Cohen:

Give him a chance to talk first and then they
would say something. This way it is all out
before he talks.

365

- 28 Corcoran:

You see, in that company you not only have
Leo, you also have the President of the
main subsidiary of that company, who is a

former SEC Commissioner, Matthews.
Foley:

H.M.Jr:
Cohen:

He is out, he is not in the SEC now.
The President has got several fellows he
has asked me for jobs for.

I think really they ought to go before
August 1st; that is, before Willkie has a
chance to make a speech.

H.M.Jr:

Absolutely, Ben. It is just crazy to keep
them that ammunition. It is just crazy.
And it is exactly the time.
those fellows in those two jobs and give

Cohen:

H.M.Jr:
Corcoran:
Cohen:

This is not economics I am talking about.

I am not either. My feeling is, the lady
is just a little bit pregnant already.
You don't make an announcement of it. You

simply fill the post and it looks as though

each of them stayed on a couple of months

as a mere matter of courtesy to the President

H.M.Jr:

until he finds someone, but if you let it
continue much longer and let Willkie speak
first,
you can't do that.
Ben, you and I think alike.

366

July 23, 1940
3:04 p.m.

Edward

Stettinius: Yes.
H.M.Jr:

Look, if either the President or I were to

ask you on an hour's notice to give us a
justification for clamping on an embargo on
scrap iron or scrap steel products, whatever
you call it, how long would it take you to
get it ready?
S:

H.M.Jr:

The justification?
Yeah. Justification is a good word.

S:

It'd be pretty tough to really justify it

H.M.Jr:

Can't you do it on

S:

do it on certain qualities, but there's
a very large stock pile of stuff on the Pacific

Coast and also in Texas -- this low grade -and it would never be used out there or any
place and could probably lay there for ten

years.
H.M.Jr:

Well, that stuff

S:

From our standpoint it won't be needed by
the industry.

H.M.Jr:

But on this taking good stuff

S:

Yes, some. Some.

H.M.Jr:

Well, could we classify this stuff and let

S:

them have that?

I think so. But, Mr. Secretary, wouldn't it
simplify it if the State Department could --

in other words, you want an
H.M.Jr:

Now, listen, young fellow, you haven't been in
town long enough to pass the buck to the State
Department. Now, come, come, come, come.

S:

(Laughs).

367

-2H.M.Jr:
S:

H.M.Jr:

Now,
wait aonminute.
(Laughs). Don't you go
Washington
me.

You're getting into territory
All I want are the facts and I'd like to sit
down and talk to you because I know what's
in the President's mind and mine and would

you get the facts.
S:

H.M.Jr:
S:

H.M.Jr:
St

On the whole scrap situation.

Scrap iron and scrap steel they talk about -is there such a thing as scrap steel?
Yeah, there is.
Could you get it all together when you got it?
We'11 get the whole works -- I'11 get the whole
works together and be prepared to talk to you
anytime you give me a ring.

H.M.Jr:

Well, I'11 do it the other way. When you've
got it ready, call me.

S:

O. K.

H.M.Jr:

How's that?

S:

In the next 48 hours. Is that too soon -- too

long?
H.M.Jr:

No, I

S:

Say Thursday?

H.M.Jr:

Not later than Thursday.

S:

Thursday morning.

H.M.Jr:

And I don't want to ask the State Department -(laughs).

S:

(Laughs). O. K.

H.M.Jr:

All right, Ed.

S:

Thank you.

H.M.Jr:

Good-bye.

368

July 23, 1940
3:46 p.m.

H.M.Jr:

Hello.

Secretary
Ickes:

Hello, Henry.

H.M.Jr:

Yes, Harold.

I:

I have some dope here on shipment of
petroleum products to Spain.

H.M.Jr:

oh, have you?

I:

Apparently we're sending -- we're shipping -this year to date we've shipped daily
16,40 barrels.

H.M.Jr:

How much?

I:

16,400.

H.MJr:

Daily.

I:

Which is equal to 4/10ths of 1% of the total
demand for oil in the United States. Now I

have that broken down into gasoline, kerosene,

gas, oil, fuel oil, lubricating oil. Now all

of this stuff goes to a government monopoly.
H.M.Jr:

That's right.

I:

Now, it's been suggested over here that we

might very well refuse to ship oil into any
country where American citizens are not on

a parity with the -- won't have the same
rights in that country that the citizens of
that country would have here. For instance,
on the public domain we won't allow any

foreign citizen to explore for oil or to

operate an oil well -- we won't give them
any rights unless our citizens are given
H.M.Jr:

similar rights in that country.
I see. Well, it's an idea. Now, let me
tell you what the situation is. Since

Saturday a week ago I have refused to let

369

-2any American flagships sail for Spain with

oil. I've got no authority but I've just

done it. Hello?
I:

Yes, Henry.

H.M.Jr:

Now, I sent up last night to the President
two Executive Orders, one forbidding all
export of oil and oil products out of the
United States so that he could add Spain if
he wanted to, or Japan, and the other one
having to do with scrap iron and scrap steel.
Now, I have a whole group of statistics on
oil consumption in Spain which we've collected
here and I'd like to send those over to you
by hand.

I:

H.M.Jr:

All right.
for this year. But I'm sitting on it

right now -- oil -- and supposedly this week -today or tomorrow -- Sumner Welles is supposed
to talk to the American companies doing

business in Venezuela and Colombia about

shipping oil to Spain.

I:

Yeah.

H.M.Jr:

Now that's the situation.

I:

What authority does the Maritime Commission

H.M.Jr:

have about permitting oil to be shipped.
I have it all; they have none.

I:

Oh, you have the authority.

H.M.Jr:

And they're no God-damn good anyway. Do you

know what they tried to get me to do the
other day?

I:

No, I can't imagine.

H.M.Jr:

Well, they wanted us to sell some Matson Line
ships today to a French company -- this was
this week.

I:

Yeah.

370

-3H.M.Jr:
I:

H.M.Jr:

They don't
France.

know that France is no longer

(Laughs).

But the authority to let the steamers

leave the harbor rests with me.
I:

H.M.Jr:

I see.

And I'm just not giving any permits, but

I've got no authority and now I need some, so

I:

H.M.Jr:

Well,
suppose
on this
other you put your people to work

Have you got anything in writing that I
could give Ed Foley?

I:

I think we have the order on that reciprocity
on oil wells, (haven't we?-- aside). Yes.

H.M.Jr:

Could you send it to me by hand?

I:

Yes. I'll send it right over to you.

H.M.Jr:

I'm glad you've got the old bean on it.
You're getting -- it's very encouraging.
All right, Henry.

I:

H.M.Jr:

And I'll send you over all of my statistics
on oil in Spain. Did you get my figures on

oil to Japan?
I:

H.M.Jr:
I:

Yes, it just got in.
Right-o. And I got hold .....

H.M.Jr:

We're sending a lot over there, aren't we?
And I've got old Stimson all exoited
about this.

I:

Who?

H.M.Jr:

Stimson.

371

-4I:

I'll bet you have.

H.M.Jr:

Yeah.

I:

I'11 bet you have.

H.M.Jr:

Yeah.

I:

Hell, if we'd stopped sending scrap iron
to Japan a couple of years ago why the
world would be different today.
Right. Thanks

H.M.Jr:
I:

If we hadn't shipped to Italy at the time

of Ethopia, the world would be different
today.

H.M.Jr:

You bet.

I:

I wanted to.

H.M.Jr:

Well, if you'l send me what you have, I'11
send you my oil statistics on Spain and

have them checked by your people.
I:

All right. I'll do that.

H.M.Jr:

Thank you.

I:

All right.

372

July 23, 1940

4:39 p.m.
H.M.Jr:

Hello.

Sen. Pat
Harrison:

Henry?

H.M.Jr:

Yes, Pat.

H:

How are you?

H.M.Jr:

Oh, I'm wonderful. I'm just sitting in an
air-conditioned room and I don't want to

go home.
H:

Oh, I see. Henry, I called up while you
were at dinner to talk to you about this
conference in the morning.

H.M.Jr:

Oh. When was that you called me up. I
didn't get the message.

H:

Huh?

H.M.Jr:

I didn't get the message.
I know you didn't but I got word back

H:

H.M.Jr:
H:

and they've fixed it at 9:30. Now, I tell
you, I find -- I've got a telegram that
I've got to leave here at 6:45 -- there's

a death in my family and so I've got to go
to Mississippi.
I'm sorry.
Now I'11 tell you what the conference is
about so I hope you can see them. Now it's
the two Louisiana Senators and they want

it put through pretty quick to save
because they don't it to get out who they're

recommending and they've agreed on it and so

on. And the fellow that they're recommend-

ing is 100%. I just as soon -- if I should

pass out of the picture -- he could work on

me without any bond as an executor.
H.M.Jr:

Uh-huh.

373

-2H:

You know him and he's all right.

H.M.Jr:

What's his name.

H:

Paul Maloney.

H.M.Jr:

Paul Maloney?

H:

Yeah. He's on the Ways and Means Committee
of the House.

H.M.Jr:

Oh.

H:

So he's all right, but they don't want
it to get out and then Paul don't want it

to get out because he's down there, but he

will accept and it will save them and save
the situation.
H.M.Jr:
H:

H.M.Jr:
H:

I see.

So what they want to do, I called up the
President but of course he won't be back
until Thursday, so I wish Thursday when
he comes that you'd undergo all this stuff
about investigating a-body because you
know him thoroughly and he's just all
right in every way.

I see. Well, thanks for calling. I'm

sorry you've had this trouble, Pat.
Well, I appreciate that.

H.M.Jr:

Right.

H:

It's about that collector business down
there.

H.M.Jr:

Right. Thank you, Pat.

H:

And, Henry.

H.M.Jr:

Yes, sir.
If you can get the President to shoot that
in right away without these boys having to
go up there to bother him about it -- the
quicker it's done, the better for you and

H:

me.

374

-3H.M.Jr:

Right, Pat.

H:

So I'11 go tell them that I can't go with

them up
about
it. there because I've spoken to you
H.M.Jr:
H:

Well, are they coming here tomorrow?

They'11 be there in the morning at 9:30

if that's agreeable to you.

H.M.Jr:
H:

Well, why don't they wait until I get a
chance to talk to the President?

Well, they want to tell you about this
business first just to give you the facts
and so forth.

H.M.Jr:
H:

Well, do you think I ought to see them?
Oh, yes, I think you ought to see them.

If the time isn't satisfactory, all

H.M.Jr:

right.
Oh, sure. I've got you down for 9:30.

H:

Yeah.

H.M.Jr:

Right.

H:

H:M.Jr:
H:

Now if you don't want -- if you'd rather
not -- if you'd rather wait and see the
President Thursday and then if the President
wants to see them, all right. But they
want it shot through pretty quick.
Well, what do you recommend? I'll do what
you tell me.

Well, I'd like to see them go through, but
of course, I've got nothing to do with it.
These two Senators are the persons that

ought to make the recommendation.
H.M.Jr:

Well, do you think I ought to see them

H:

Well, if you want to, all right. If you

tomorrow or

want me to tell them that it's not necessary

375

to see them that you'll talk to the
President about it and tell him what I

say. I've had luncheon with them today.

H.M.Jr:

Well, I hate to have them come down here

and that gives me a chance to talk to the
President
on Thursday and then I'11 get in
touch with them.

H:

Well, suppose you do that.

H.M.Jr:

I'll do that.

H:

And then I'll tell them they needn't come
down there tomorrow that I talked to you
about it and that's what you want to do.
Tell them in all this heat I want to save

H.M.Jr:

them a trip.

H:

Yeah, that's all right. And then you can
get in touch with Overton in the Senate,

you know.
H.M.Jr:

I understand.

H:

All right.

H.M.Jr:

Thank you.

H:

All right. Good-bye.

H.M.Jr:

Good-bye.

376

July 23, 1940

4:43 p.m.
John

Sullivan:

Yes.

H.M.Jr:

Ed, what Harrison was coming down with

S:

tomorrow, the old fox
This is John.

H.M.Jr:

John who?

S:

John Sullivan.

H.M.Jr:
S:

Well, that's who I asked for.
Oh. I thought you said Ed.

H.M.Jr:

Well, isn't your name Ed Sullivan?

S:

O. K.

H.M.Jr:

All right, John.

S:

Yes.

H.M.Jr:

What Harrison was coming down for, the
old fox, he was bringing the two New Orleans
Senators with him, see?

S:

Uh-huh.

H.M.Jr:

But, he's got to leave town tonight
because he's had a death in his family,
see.

S:

Oh, Pat has?

H.M.Jr:

Yeah, somebody died and so he can't come

because he's got to go down back to
Mississippi, see?
S:

H.M.Jr:

Yes, sir.
Now. The fellow they want for collector
is Paul Maloney, who is on the Ways and

Means.

377

2-

S:

Paul Maloney.

H.M.Jr:

Yes.

S:

On what Ways and Means?

H.M.Jr:

of United States Congress.

S:

Oh, yes.

H.M.Jr:

See?

S:

Yeah.

H.M.Jr:
S:

Do you know anything about him?

No. I'11 find out for you.

H.M.Jr:

Suppose you try to move in on this fellow
because they want me to talk to him. They
say they want it done kind of quick before
anybody knows they're for him.

S:

Oh, I see.

H.M.Jr:

They don't want nobody to know it.

S:

Well, of course, he has to have the usual
investigation.

H.M.Jr:

I know. Give him the New Hampshire bum's

rush.
S:

Well, are they coming to see me?

H.M.Jr:

No, I saved you that, honey.

S:

My goodness! Ickes certainly gave you the
business. He made a new man of you, didn't
he?

H.M.Jr:

He sure did. Now, you go on. You go on
now. You get busy.

S:

All right. You want an immediate investigation
of Paul Maloney.

378
3

H.M.Jr:

That's right.

S:

Right-o.

H.M.Jr:

Good-bye.

S:

Good-bye.

-

COMPLIMENTS
OF

MR.H.K. HOCHSCHILD

319

Copy of Letter from Monterrey July 23, 1940.

Although the labor situation in general thruout Mexico shows every
sign of becoming disturbed now that the elections are over, we have so

far had nothing more than routine difficulties at our smelting plants.

The Mining and Metallurgical Syndicate are holding their convention
in Mexico City, and they have requested a personal interview with
President Cardenas for the purpose of explaining to him the difficulties
which they are having on account of the Cananee strike as well 88 their

difficulties due to low metal prices, etc.

A committee of railroad employees had 8 personal interview with
President Cardenas and advised him that to save the Railways it would be
necessary for the Government to advence the Railways 150 million pesos
for the purpose of purchasing new equipment and rolling stock, and that
higher freight and passenger rates should be authorized and the Govern-

ment should discontinue the construction of additional highways. President Cardenas advised then that under no consideration would they be
allowed to increase their rates.

While there is very little political agitation in Monterrey at the
present time, we understand that there is considerable in other parts of
the Republic, and quite a few seem to think that there will be trouble

over the presidential elections between August 15th and September 1st,
when the Mexican Congress will announce the election results. General

Almazan has stated that there will be a meeting of his political
supporters August 15th for the purpose of naming their own Congress,
and that he will be declared President of Mexico. Should this threat
be carried put, there will unquestionably be serious disturbances, as

the congreemen elected by the P.R.M. (Government party) will convene
on
the same date for the purpose of declaring Avila Canacho President
of Mexico.

Rumor has it that the trip of General Almazan to Havana is for
the purpose of securing an interview with Secretary of State Hull, end
that if he receives any encouragement he will proceed with his plans
as above outlined and that if he does not receive any encouragement
he will not proceed with his plans.
The Communist Party in the State of Nuevo Leon recently held e
meeting for the purpose of uniting their members for protection against
what is termed by them "Reactionary Groups".
Exchange: 4.95.

380

July 23, 1940

I suggested to Archie Lochhead that they hire a
boat at Rangoon on the Irawaddy River and fill her
up with gasoline and send her upstream and see what

happens. I told him not to put munitions on but
just gasoline.

381

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE July 23, 1940
TO

Secretary Morgenthau

FROM Mr. Haas

904
The Work Projects Administration experienced a slight

increase in employment, the first since the last week of

February. The report for the week ended July 10, 1940 shows
1,619,000
workers compared with 1,611,000 for the previous
week.

8000
"?"
does

Attachments

382
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Weekly

United States

Week ending
1939-40

Number of Workers
(In thousands)

December 13
December 20
December 27

2,075
2,123
2,144
2,152

January 3
January 10
January 17
January 24
January 31

2,160
2,190
2,222
2,244
2,266

February 7
February 14
February 21
February 28

2,288
2,306
2,319
2,324

March 6
March 13
March 20
March 27

2,324
2,319
2,312
2,288

April 3

2,204
2,162
2,118
2,092

December 6

April 10
April 17
April 24
May 1
May oz

May 15
May 22
May 29

June 5
June 12
June 19
June 26

July 3
July 10

Source: Work Projects Administration.

2,059
2,008
1,970
1,945
1,925
1,859
1,785
1,714
1,666
1,611
1,619

383
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Monthly
United States

1938

Number of Workers

January
February

March

April

May

June

July
August
September

October

November
December
1939

January
February

March

April
May

June

July
August
September

October

November
December

(In thousands)
1,901
2,075
2,445
2,582
2,678
2,807
3,053
3,171
3,228
3,346
3,287
3,094

2,986
3,043
2,980
2,751
2,600
2,551
2,200
1,842
1,790
1,902
2,024
2,152

1940

January
February
March

April
May

June

Source: Work Projects Administration.

Monthly figures are weekly figures for the latest
week of the month.

They include certified and noncertified workers.

2,266
2,324
2,288

2,092
1,925
1,666

384
WORK PROJECTS ADMINISTRATION
Number of Workers Employed

United States

1935

1936

Monthly W.P.A. Employment
41

WILLIONS
WORKERS

-

WILLIONS WILLIONS

3.2

-

- -

Weekly V.P.A. Employment

1939
MAY

MRL

NOT

MORKERS

an

MA

1941

1940 MEA you, - - MILLIONS
m

SOMICS

3.4

3.4

3.3
3.3

3.2

3.2
3.2

2.8

3.1
3.1

2.0
3.0
3.0

2.9
2.9

2.4
2.4
2.8

2.8

2.7

2.7

2.0
2.0

2.6

2.6

2.5

2.5

2.4

2.4

2.3

2.3

2.2

2.2

2.1

2.

2.0

2.0

1.9

1.9

1.0

1.0

1.7

1.7

1.6
1.6

1.2
1.2

.8

A
A

J

JTU

THE
1935 1936

----

Office of the Secretary of the Treasury

1937

1938

1939

1940

-

0

0

1.6

1.6

1.5

ALL
JAN.

41

1.5
MAR.

MAY

JULY

1939

SEPT.

NOV.

JMP.

MAR

MAY

JULY

940

SEPT.

NOV.

JAR.

MAR.

941

SOUNCE: MORE PROJECTS ADMINISTRATION

Z - 221 82

385

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

July 23, 1940

Secretary Morgenthau

TO

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL
Official sales of British owned dollar securities under the vesting order

effective February 19:

July 15

No. of Shares

$ Proceeds of

Sold

Shares Sold

1,500
3,210

Nominal Value
of Bonds Sold

$ Proceeds of
Bonds Sold

17

500

18

19

1,450
1,665

5,730
25,800
1,854
43,448
107,970

20

10

929

8,335

185,731

28,000
59,000
93,000
37,000
86,000
7,000
310,000

1,379,748

48,085,013

2,419,000

2,152,579

1,388,083

48,270,744

2,729,000

2,397,935

16

27,266
38,122
70,092
26,976
77.532
5,368
245,356

Sales from

February 22 to
July 13
TOTAL FEBRUARY

22 TO JULY 20

Mr. Pinsent reported that non-vested securities for the week ending July 13
totaled $500,000.

386

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE July 23, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL

Activity of the six reporting banks in registered sterling was as follows:
1. Purchased directly from authorised banks in London

Purchased from the Federal Reserve Bank of New York

Total purchased

2. Sold directly to authorised banks in London

$20,000
$28,000
$48,000

L 1,000

Of the above-mentioned purchases, $30,000 were bought by the banks for their
customers: the remaining 18,000 were probably used to increase registered account
balances in London.

The Federal Reserve Bank of New York also stated that 1164,500 in registered
sterling was purchased from it by the non-reporting banks listed below:
6159,000 by J. P. Morgan and Company (for tin)
5,000 by the American Express Company
500 by Kidder Peabody and Company
6164,500 Total

The rate for open market sterling opened at 3.79 and moved up to a high of
3.82-1/2 by late afternoon. It closed at 3.81-3/4. The reporting banks executed
orders to sell $47,000 and to purchase 57,000 in open market sterling.
The other currencies closed as follows:
.2273

Swiss franc
Canadian dollar
Lira

11-7/16% discount

Reichamark
Cuban peso
Mexican peso

9-15/16% discount

.0505
.4004

.2010 bid, .2040 offered

There were no gold transactions consummated by us today.

The Federal Reserve Bank of New York reported that the following gold shipments were consigned to it:
$8,395,000 from Canada, shipped by the Bank of Canada for its own account, for sale
to the U. S. Assay Office.
1,185,000 from England, shipped by the Bank of England for the account of the Bank
of Greece, disposition unknown.
$9,580,000 Total

387

2

The report of July 17 received from the Federal Reserve Bank of New York

giving foreign exchange positions of banks and bankers in its district, revealed
that the total position of all currencies was short the equivalent of $12,904,000,
as
follows: of $415,000 in the short position. The net changes in the positions are
a decrease
Country
England
Europe
Canada

Latin America
Japan

Other Asia

All others

Short Position
July 10
$ 1,434,000
7,590,000
253,000 (Long)
326,000

3,192,000
1,055,000
25,000 (Long)
$13,319,000

Short Position
July 17

$ 947,000
7,672,000

445,000 (Long)
272,000
3325,000
1170,000

37,000 (Long)
$12904,000

Decrease in

Short Position
$487,000

82,000 (Increase)

192,000 (Increase in
54,000

Long Position)

133,000 (Increase)
115,000 (Increase)

12,000 (Increase in
$415,000

Long Position)

Open market sterling

The equivalent of the Bombay gold price worked out to $33.78, off 64.

Spot silver in Bombay was slightly lower at the equivalent of 43.97
The London price for spot silver was fixed at 22-7/16d, up 1/4d. Forward
silver
was unchanged at 22-1/16d. The U.S. equivalents were 40.79 and 40.11
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 two purchases of silver totaling 175,000 ounces under the Silver Purchase

Act. Of this amount, 125,000 ounces represented inventory silver for spot delivery,
andforward
the remaining
for
delivery.50,000 ounces consisted of new production from foreign countries,

KM:
CONFIDENTIAL

388

July 23, 1940

Under Secretary Bell
Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Maurice Beyer, whose American address is 41 North Broadway, Mathieson Park,
Irvington on the Redson, New York, called on me at 10:15 this forenoon. He showed

me a copy of a letter which he addressed to Under Secretary Bell on July 19. In the

letter 11 was noted that the American banks having accounts of the Banque Francisco
et Italianne pour 1'Amerique du Sad were making application for reneval of the arrange-

ment. made effective on June 25. for the utilisation of 25% of their assets.
Mr. Boyer requested, however, that complete freedom be given to the accounts of
the above-neationed bank. He stated that he had takes the initiative when war broke
out of blocking funds of this bank which he represents. If French interests were is
the least jeepardised he said he would be the last to recommend the lifting of our

restitutions at this time. No feels, however, after his experience to date that the

Italian and French business interests concerned is the bank are cooperating perfectly

and that there is absolutely no danger to French interests through lifting of the
freesing regulations. No stressed the importance of this bank is Latia American
economic life, and mentioned American interest in doing everything possible to aid

Latine America in the present Bayer hopes to have a reply from Mr.

Bell as early as possible, and that this may be favorable. He exphasizes his opinion
that when the French interests concerned. for whose benefit our freesing regulations
were instituted, learned from experience that this protection is not needed. the
American Treasury should not insist upon its imposition.
Boyer stated that he still has power as a managing director to represent the
Banque de Paris et des Pays Bas and full power to act for the Banque Franceise of
Italianne pour 1'Amerique da Sad.

Mr. Boyer left with me the attached translation of a cablegram to his from
Malagodi, the Italian Controller General, and Cavia, the French manager of his bank
at Buenes Aires.

HMC:dm:7.23.40

am

389
TRANSLATION

ALL AMERICA GABERS AND RADIO

"YEA ALL AMERICA"

DR&2037 JUL 17 40
18865 BAIRES 106 17
MLT CHASKBANK FOR MAURION DOTA NYK -

WE TENDER YOU OUR VERY BEST THANKS YOURS GAVEN JUNE 24
WE REQUESTED KREUSES TO COMMUNICATE TO YOU OURS TODAY
VE SHOULD BE GRATEFUL TO YOU FOR SECONDING OUR REQUEST
STREESING OUR POSITION HAS REMAINED NORMAL
SOURHAMERICAN BRANCHERS MANAGED N GENERAL CONTROL AND
NUMBORAIRES IN ACCORDANCE WITH AGREEMENT

OUDOT MATTICLE IN GOOTHAMERICAN INTEREST RECEUSEVALY
STOP WE RECEIVED THROUGH REBASST GAMER OUDOR JULY 10
COMPIRATION EXPLICATLY NEUTRAL CHARACTER SOUTHAMERICAN

BRANCHES UNGING us TO OBPAEN FREEING DOLLARS OFFERING TO
COOPERATE FULLESS POSSIBLE EXTRET WE REQUESTED HIM

JULY 12 THROUGH SAME MEDIUM TO GABLE YOU ALONG THESE LINES
CABLE PROBABLY NOT YES ARRIVED STOP OUDOT STILL CHATELOUTGE
OUR OFFICE THINS PUYDEDOME UNDOCUPING TERRITORY PARIS
OFFICE SPILL CLOSED THANKS
MALAGODI GAVER

390

July 23. 1940

Univer Secretary Bell
m. Coderes

STRICTLY CO IDENTIAL

Mr. Reward Report, Vice President of the National onsy Bank of Net York is
Charge of Surepean Business, telephoned as gesterday afternoon. m. bank is pertionlesly sanions to ... a desisten w as which will permit transfers abroad ea the

part of individuals is this country to friends and relatives is Surapo. I sold Ma
that w expected shortly to have a definite desisten on this question.

As a second problem. Mr. Report stated that his New York beak signs be

requested to - to its Paris Beak French france our the letter. Such a treas-

petion involve the sale of a dellar draft is Parts. the

would consent
to such
. transactional
If and shee
mother sight
as Could
National
treasury
citytheyes respons on

is Pasis its Supertant nool will be for French from has to emply this debend the

National
City in
New Yesk will most 11mly have to provide dollars to TOMAT france
which # over
Parts.

mm

10:da: 7.23.40

391

July 23. 1940
Under Secretary Bell
Mr. Cochran

STRICTLY CONFIDENTIAL
at 3:15 yesterday afternoon Mr. Livesey telephoned me free the State Department to the effect that the Detroit Trust Company had telephoned Mr. F. 3. Stevens
in the State Department, requesting the transfer to Bordesux, France of $5,000 for the

relief of Mrs. Neglietta, a non-resident American citizen. This - was stated to be

necessary
herofmistenance
villa and afor
staff
servents. and support. It was explained that she maistained a

Mr. Livesay told me that he had had conversations with Mr. Peble is the past
in regard to the amounts which sight properly be allowed to be transmitted to invaded
territory for the subsistence and transportation of American citisens. While a maxisun remittance of $1,000 had been first considered, this had subsequently been extended
to permit a $2,000 release. Should 18 be further extended to permit a $5,000 remittancel
Mr. Livesay also mentioned the question raised by New York State Insurance Fund
a regard to making payments to Harepoon countries. It seems that the United States
was transites with certain Sureposa countries, including Berway and Satvia, which have
specific arrangements for transmission through censular officers of payments the under

labor compensation provisions. etc. I believe Secretary Perkins has had this matter
up with the State Department, so we night desire to consult with the State Department
on applications for transfers of this type.

Mr. Livesay added that the Healities Babasay had submitted a note for the
relief of its diplomatic offices is Germany and Deswark which have their balances with
the Bani: Hollandes Vaide, which matter Mr. Livesay mentioned to no orally last week.
He stated that Mr. Welles was personally interested in an adjustment of this matter
being expedited favorably, and that a communication to this effect would be sent to us

by the State Department.

B.M.S.
HMC:da:7.23.40

392

July 23, 1940

My dear Mr. Secretary:

I have your letter of July 23, 1940, transmitting a
certified copy of your order of the same date determining, ordering, and directing, subject to my approval, that there be issued
$250,000,000, or thereabouts, of notes of the Commodity Credit
Corporation designated Series F, to be dated August 1, 1940, to
mature May 1, 1943, and to bear interest at the rate of 3/4 of 1
percent per annum, to be sold to the public at par and accrued
interest. The issuance of the Series F notes has my approval.
The text of the notes proposed to be issued, and the terms and
conditions under which they are to be issued, also have my ap-

proval.

The Treasury will be glad to comply with your request
and arrange for the sale and delivery of these notes through the
facilities of the Treasury and the Federal Reserve Banks, any

expense in connection therewith to be borne by the Commodity Credit

Corporation. In accordance with your request instructions will be
given for the deposit of the proceeds of sale of these notes for

the account of Commodity Credit Corporation in Reconstruction
Finance Corporation's Symbol Account No. 13-892.

There is transmitted herewith a copy of Treasury Depart-

ment Circular No. 638, the official circular prepared to govern
the offering of the new notes, and the press statement to be issued in connection with the offering.
Very truly yours,

(Signed) H. Morgenthan Jr
The Honorable

Secretary of the Treasury.

The Secretary of Agriculture.
Enclosure

not mailed from beign office

393

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS

Wednesday, July 24, 1940.
7/23/40

Press Service
No. 21-69

The Secretary of the Treasury, on behalf of the Commodity

Credit Corporation, is today offering for subscription, at par
and accrued interest, through the Federal Reserve Banks, $250,000,000, or thereabouts, of 2-year 9-month notes of the Commodity

Credit Corporation, designated 3/4 percent notes of Series F. The
notes will be dated August 1, 1940, and will bear interest from that
date at the rate of 3/4 percent per annum payable on a semiannual

basis, the first coupon being for the fractional period ending
November 1, 1940. They will mature May 1, 1943, and will not be
subject to call for redemption prior to maturity.
The notes will be fully and unconditionally guaranteed both
as to interest and principal by the United States. They will be
exempt both as to principal and interest from all Federal, State,
municipal, and local taxation (except surtaxes, estate, inheritance,
and gift taxes).
The notes will be issued only in bearer form with coupons
attached, in denominations of $1,000, $5,000, $10,000 and $100,000.

Subscriptions will be received at the Federal Reserve Banks
and Branches, and at the Treasury Department, Washington. Sub-

scriptions will not be received at the Commodity Credit Corporation,
Banking institutions generally may submit subscriptions for account
of customers, but only the Federal Reserve Banks and the Treasury

Department are authorized to act as official agencies. Subscriptions from banks and trust companies for their own account will be

394

-2-

received without deposit, but will be restricted in each case to
an amount not exceeding one-half of the combined capital and sur-

plus of the subscribing bank or trust company. Subscriptions from
all others must be accompanied by payment of 10 percent of the
amount of notes applied for. A new certification has been added

to the subscription blanks to be used for this offering, designed
to eliminate the practice of making formal or informal contracts

for the sale of subscriptions or allotments before the closing of
the books. This practice has been discouraged by the Treasury and
the Federal Reserve Banks, but has still persisted to some extent
on recent issues.

The right is reserved to close the books as to any or all
subscriptions or classes of subscriptions at any time without

notice. Subject to the reservations set forth in the official
circular, all subscriptions will be received subject to allotment.
Payment for any notes allotted must be made or completed on or

before August 1, 1940, or on later allotment.

The text of the official circular follows:

COMMODITY CREDIT CORPORATION

395

3/4 PERCENT NOTES OF SERIES F, DUE MAY 1, 1943

Dated and bearing interest from August 1, 1940
FULLY AND UNCONDITIONALLY GUARANTEED BOTH AS TO INTEREST AND PRINCIPAL
STATES, WHICH GUARANTY IS EXPRESSED ON THE FACE OF EACH NOTE

Exempt both as to principal and interest from all Federal, State,
municipal,
and local taxation (except surtaxes, estate, inheritance,
and gift taxes)
1940

Department Circular No. 638

TREASURY DEPARTMENT,

Office of the Secretary,

Washington, July 24, 1940.

Fiscal Service
Bureau of the Public Debt
I. OFFERING OF NOTES

1. The Secretary of the Treasury, on behalf of the Commodity

Credit Corporation, invites subscriptions, at par and accrued interest,
from the people of the United States for notes of the Commodity

Credit Corporation, designated 3/4 percent notes of Series F. The
amount of the offering is $250,000,000 or thereabouts.
II. DESCRIPTION OF NOTES

1. The notes will be dated August 1, 1940, and will bear
interest from that date at the rate of 3/4 percent per annum, payable on a semiannual basis on November 1, 1940, and thereafter on
May 1 and November 1 in each year until the principal amount becomes

payable. They will mature May 1, 1943, and will not be subject to
call for redemption prior to maturity.
2. These notes are issued under the authority of the act
approved Karch 8, 1938, (Public No. 442-75th Congress), as amended,

-2-

396

which provides that these notes shall be fully and unconditionally
guaranteed both as to interest and principal by the United States;
that they shall be deemed and held to be instrumentalities of the
Government of the United States, and as such they and the income

derived therefrom shall be exempt from Federal, State, municipal,

and local taxation (except surtaxes, estate, inheritance, and gift
taxes); and that the notes shall be lawful investments and may be

accepted as security for all fiduciary, trust, and public funds the
investment or deposit of which shall be under the authority or con-

trol of the United States or any officer or officers thereof.
3. The authorizing act further provides that in the event the
Commodity Credit Corporation shall be unable to pay upon demand,

when due, the principal of, or interest on, such obligations, the
Secretary of the Treasury shall pay to the holder the amount thereof
which is authorized to be appropriated, out of any money in the
Treasury not otherwise appropriated, and thereupon to the extent of
the amount so paid the Secretary of the Treasury shall succeed to

all the rights of the holders of such obligations.
4. Bearer notes with interest coupons attached will be issued
in denominations of $1,000, $5,000, $10,000 and $100,000. The notes

will not be issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks
and Branches and at the Treasury Department, Washington. Banking

institutions generally may submit subscriptions for account of
customers, but only the Federal Reserve Banks and the Treasury

397
3-

Department are authorized to act as official agencies. Others than

banking institutions will not be permitted to enter subscriptions
except for their own account. Subscriptions from banks and trust
companies for their own account will be received without deposit
but will be restricted in each case to an amount not exceeding onehalf of the combined capital and surplus of the subscribing bank or
trust company. Subscriptions from all others must be accompanied by
payment of 10 percent of the amount of notes applied for,

2. The Secretary of the Treasury reserves the right to reject
any subscription, in whole or in part, to allot less than the amount
of notes applied for, and to close the books as to any or all subscriptions at any time without notice; and any action he may take
in these respects shall be final. Allotment notices will be sent
out promptly upon allotment, and the basis of the allotment will be
publicly announced.
IV. PAYMENT

1. Payment at par and accrued interest, if any, for notes
allotted hereunder must be made or completed on or before August 1,

1940, or on later allotment. In every case where payment is not so
completed, the payment with application up to 10 percent of the
amount of notes applied for shall, upon declaration made by the

Secretary of the Treasury in his discretion, be forfeited to the
United States.
V. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks
are authorized and requested to receive subscriptions, to make

398

-allotments on the basis and up to the amounts indicated by the
Secretary of the Treasury to the Federal Reserve Banks of the re-

spective districts, to issue allotment notices, to receive payment
for notes allotted, to make delivery of notes on full-paid subscriptions allotted, and they may issue interim receipts pending
delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from
time to time, prescribe supplemental or amendatory rules and regu-

lations governing the offering, which will be communicated promptly
to the Federal Reserve Banks.

HENRY MORGENTHAU, JR.,

Secretary of the Treasury.

Mr. Broughton's Office

399

TREASURY DEPARTMENT TELEGRAM

EXPENSES OF LOANS ARE

WHERE WRITTEN:

Washington,

To Presidents, Federal Reserve Banks,
July 24, 1940.
Boston, Mass.
New York, N. Y.

Philadelphia, Pa.
Cleveland, Ohio.
Richmond, Va.

Atlanta, Ga.

Chicago, n1.
St. Louis, Mo.
Minneapolis, Minn.
Kansas City, Mo.
Dallas, Texas.

San Francisco, Calif.

PERSONAL AND CONFIDENTIAL: Subscription books for the current offering

of Commodity Credit Corporation notes of Series F will close at the
close of business today July 24, 1940 STOP Any subscription addressed
to a Federal Reserve Bank or Branch and placed in the mil before aidnight tonight, as evidenced by post office cancellation, will be cansidered a timely subscription STOP Federal Reserve Banks will use
their discretion with respect to subscriptions from small towns, postmarked tomorrow, where there is evidence the subscription was placed

in the post office but not postmarked prior to midnight tonight.
Please file GREEN reports of subscriptions proptly at 4 o'clock
P.M., Eastern standard time, tomorrow and Friday, showing (a) total
subscriptions today and (b) total subscriptions to date,
GREENWOOD wire giving final report of subscriptions, unclassified,
should be filed on Saturday, July 27 STOP Should any timely subscrip-

tions be received after final report is filed, you will please wire the
Department for special alletment instructions.

It is the present intention to wire instructions as to allotments
on the morning of Monday, July 29.

Please acknowledge receipt of this telegram by wire,
(Bigned) Morgenthau, Jr.
MORGENTHAU

SiKuary

Sent as:

(Initialed) H.M.Jr.

Private Wire.

400

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Press Service

Therefor, July 25,2910
9/24/40

Secretary of the Treasury Morganthan announced last night that

the subscription books for the current offering of 3/4 percent notes
of Series , of the Commodity Credit Corporation closed at the close of
business Wednesday, July 24.

Subscriptions addressed to a Federal Reserve Bank or Branch, or

to the Treasury Department, and placed in the mil before 12 o'clock,
addnight, Wednesday, July 24, will be considered as having been entered
before the close of the subscription books.
Americansent of the amount of subscriptions and the basis of
allotment will probably be made on Monday, July 29.

(Initialed) H.M.J5.

L

PARAPHRASE OF TELEGRAM RECEIVED
FROM:

American Legation, Riga, Latvia.

DATE:

July 23, 1940, 10 a.m.

No.

217

401

Banks transportation of large and commercial enterprises was nationalized yesterday by Sasimo and a

maximum of thirty hectares is the limitation placed on

private utilization of land. Gollectivization is not
compulsory. There has been no change in the currency

and the lat remains. The full equivalent would be paid
if the currency is changed in the future.
WILEY

402
THE WHITE HOUSE
WASHINGTON

July 23, 1940

My dear Mr. Secretary:
Thank you very much for

your thoughtfulness in sending me
the memorandum from Mr. Irigoyen,

which I will hold in strictest confidence.
Sincerely,

M

JAMES FORRESTAL

Administrative Assistant
to the President

The Honorable

The Secretary of the Treasury,

Washington, D. C.

403

REB

PLAIN

London

Dated July 23, 1940
Rec'd 2:30 p. m.

Secretary of State,
Washington.

2353, July 23.
FOR TREASURY FROM BUTTERWORTH.

Today in this the Eleventh month of the war the
third of the war budgets was introduced in the HOUSE of
Commons by Sir Kingsley Wood, the recently appointed

ChancEllor of the Exchequer. The utter inadequacy of
Simon's second war budget was recognized shortly after

its introduction in April. It failed in three respects.
(1) It grossly under-estimated the Expenditure necessary

for the prosecution of the war, (2) it provided for
revenue to meet only 46 percent of the inadequate

Expenditure Estimate and (3) it indicated a complete

lack of realization of an ESSEntial function of a war

budget, namely, that it should play its part, in a
coordinated Economic and financial plan, in the reduction
of consumption in the face of rising incomes and thus

avoid an inflationary spiral. In today's budget as
regards (1) while Wood has budgeted for an Expenditure of
63,467 million as compared with Simon's 62,667 million he,
like

404

REB -2- #2353, From London, July 23.
like Simon, has assumed the current WEEKLY Expenditure as

remaining static throughout the remainder of the year.
As regards (2) although he has levied increased taxation

to yield 6126 million this year and L239 million in a full
year, this revenue will only provide 36.4 percent of his
Estimated Expenditure as compared with Simon's 46 percent,

the latter not including the yield of the purchase tax.
As regards (3) his tax increases are unimaginative,
traditional in character and are only a partial remedy in
preventing purchasing power from causing an inflationary

price rise in the face of reduced supplies of consumption
goods.

The ChancEllor himself stressed in his speech the

interim character of this budget. HE admitted that the
situation was "fundamentally dangerous" and that inflation
could Endanger the successful prosecution of the war but he

was confident that it could be avoided. Therefore if
these statements are to be taken literally it may well mean
that another budget will have to be brought in before the
End of the financial year, March 31, 1941. The revenue
increase from Simon's 61,234 million to 61,360 million is
to be produced by an increase in the standard rate of
income tax from 7 shillings 6 PENCE to Eight shillings 6

pence in the pound, (the lower rate charged on the first
6165

405

REB -3- #2353, From London, July 23.

6165 of taxable income to be 5 shillings instead of half the
standard rate) to produce L60 million this year and 674
million in a full year: surtax on incomes of 62,000 to be
raised from 1 shilling 3 PENCE to 2 shillings in the
pound and the 9 shillings 6 PENCE rate to reach down to

incomes of 120,000 instead of 130,000 all of which to

yield 68 million this year and L11 million in a full year:
a 10 percent increase in Estate duties to yield 61 million
this year and 66 million in a full year: an increase
in the beer duty amounting to 1 penny a pint and 2 shillings
per gallon on wines and 2 shillings per pound on tobacco to

yield together 615 million this year and L24 million in a
full year: an increase in the Entertainments duty to
yield 61.8 million this year and L4 million in a full year;
and a purchase tax to yield 640 million this year and 6110

million in a full year at 33 1/3 percent on luxuries and
purchases "which could be postponed with 16 2/3 percent

on other goods subject to the tax as described in my
telegram No. 1961 of July 3 the purchase tax to be assessed
on the wholesale price when goods are purchased by the

retailer. THESE rates are roughly Equivalent to 24 percent

and 12 percent respectively on the retail price. Wood's
purchase tax will be more restricted in character than
Simon's

406

REB -4- #2353, From London, July 23.

Simon's and apply to only about 660 million out of the
national income which in peacetime is generally Estimated
at 65,000 million. Incidentally the House of Commons was
apathetic during the budget speech.
KENNEDY

HPD

407

PLAIN

JR

London

Dated July 24, 1940
Rec'd 6:15 a.m.

Secretary of State,
Washington.

2358, twenty-fourth.

My 2353, July tventy-third, in second paragraph,
penultimate SENTENCE, substitute "39 per cent" for

"36.4 per cent."
KENNEDY

DDM

408
THE UNDER SECRETARY OF STATE
WASHINGTON

July 23, 1940

My dear Mr. Secretary:

I greatly appreciate your courtesy in sending
me with your letter of July 22 a copy of a memorandum
delivered to the Treasury Department by the Financial
Counselor of the Argentine Embassy containing a
personal message addressed to you by the Argentine

Minister of Finance.

I have telegraphed the text of this telegram
to Secretary Hull at Habana.
Believe me

fours very sincerely

Maths
The Honorable

Henry Morgenthau, Jr., ,

Secretary of the Treasury.

409

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

FROM

July 23, 1940

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL
With reference to the question which we had up some weeks ago of permitting
the Vatican State to open an earmarked gold account with the Federal Reserve Bank of
New York, it is noted that such an account, in the amount of $7,665,000, appeared on

the confidential statement of earmarked gold sent to us under date of July 17 by the
Federal Reserve Bank of New York. Mr. Knoke explained to me that all of the gold
intended to be placed in this account had now been received, according to his information. One lot of Vatican gold reaching New York had been sold for dollars and had
not been placed in the earmarked account.