Full text of Diaries of Henry Morgenthau, Jr. : Volume 3 : Part 2

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1-29-35
230
A BILL

To amend the Second Liberty Bond Act, as amended, and for
other purposes.

Be it enacted by the Senate and House of Representatives

of the United States of America in Congress assembled. That the
Second Liberty Bond Act, as amended, is further amended as follows:
SEC. 1.

The first paragraph of section 1 is amended to read

as follows:

"The Secretary of the Treasury, with the approval of the

President, is hereby authorized to borrow, from time to time, on

the credit of the United States for the purposes of this Act, to
provide for the purchase, redemption or refunding, at or before

maturity, of any outstanding bonds, notes, certificates of
indebtedness or Treasury bills of the United States, and to meet
expenditures authorized for the national security and defense and
other public purposes authorized by law, such sum or sums as in his
judgment may be necessary, and to issue therefor bonds of the

United States: Provided, that the face amount of bonds issued
under this section and section 22 of this Act shall not exceed in
the aggregate $25,000,000,000 outstanding at any one time."

SEC. 2. The first sentence of subsection (a) of section
5 is amended to read as follows:

231

-2"In addition to the bonds and notes authorized by
sections 1, 18 and 22 of this Act, as amended, the Secretary

of the Treasury is authorized, subject to the limitation imposed

by section 21 of this Act, to borrow from time to time, on the
credit of the United States, for the purposes of this Act, to
provide for the purchase, redemption or refunding, at or before

maturity, of any outstanding bonds, notes, certificates of indebtedness or Treasury bills of the United States, and to meet
public expenditures authorized by law, such sum or sums as in his
judgment may be necessary, and to issue therefor (1) certificates

of indebtedness of the United States at not less than par (except
as provided in section 20 of this Act, as amended) and at such rate

or rates of interest, payable at such time or times as he may prescribe; or, (2) Treasury bills on a discount basis and payable at

maturity without interest.'
SEC. 3. Section 5 is further amended by striking out the
final sentence of subsection (a) thereof, rencing as follows:
"The sum of the par value of such certificates and Treasury

bills outstanding hereunder and under section 6 of the First
Liberty Bond Act shall not at any one time exceed in the aggregate
$10,000,000,000."

SEC. 4. Subsection (a) of section 18 is amended to read
as follows:

"In addition to the bonds and certificates of indebtedness
and war-savings certificates authorized by this Act and amendments

232
- 3-

thereto, the Secretary of the Treasury, with the approval of the
President, is authorized, subject to the limitation imposed by

section 21 of this Act to borrow from time to time on the credit
of the United States for the purposes of this Act, to provide for
the purchase, redemption or refunding, at or before maturity, of
any outstanding bonds, notes, certificates of indebtedness or

Treasury bills of the United States, and to meet public expenditures authorized by law, such sum or sums as in his judgment may

be necessary and to issue therefor notes of the United States at

net less than par (except as provided in section 20 of this Act, as
amended) in such form or forms and denomination or deneminations,

containing such terms and conditions, and at such rate or rates of
interest, as the Secretary of the Treasury may prescribe, and each
series of notes so issued shall be payable at such time not less
than one year nor more than five years from the date of its issue
as he may prescribe, and may be redeemable before maturity (at the

option of the United States) in whole or in part, upon not more
than one year's nor less than four months' notice, and under such
rules and regulations and during such period as he may prescribe."

SEC. 5. By adding a new section, as follows:
"SEC. 21. The face amount of certificates of indebtedness

and Treasury bills authorized by section 5 of this Act, certificates
of indebtedness authorized by section 6 of the First Liberty Bond

Act, and notes authorized by section 18 of this Act shall nct
exceed in the aggregate $20,000,000,000 outstanding at any one time."

233
-4SEC. 6. By adding a new section, as follows:

"SEC. 22. A. The Secretary of the Treasury, with the ap-

proval of the President, is authorized to issue, from time to time,
through the Postal Service or otherwise, bonds of the United States
to be known as United States Savings Bonds. The proceeds of the
Savings Bonds shall be available to meet any public expenditures

authorized by law and to retire any outstanding obligations of the
United States bearing interest or issued on a discount basis. The
various issues and series of the Savings Bonds shall be in such

forms, shall be offered in such amounts within the limits of Section
1 of this Act, as amended, and shall be issued in such manner and
subject to such terms and conditions consistent with paragraphs B

and C hereof, and including any restriction on their transfer, as
the Secretary of the Treasury may from time to time prescribe.
"B. Each Savings Bond shall be issued on a discount basis to
mature not less than ten nor more than twenty years from the date

as of which the bond is issued, and provision may be made for redemption before maturity upon such terms and conditions as the

Secretary of the Treasury may prescribe: Provided, that the issue
price of Savings Bonds and the terms upon which they may be redeemed

prior to maturity shall be such as to afford an investment yield not
in excess of three per centum per annum, compounded semiannually. The

denominations of Savings Bonds shall be in terms of their maturity

value and shall not be less than $25. It shall not be lawful for any

234

-one person at any one time to hold Savings Bonds issued during
any one calendar year in an aggregate amount exceeding $10,000

(maturity value).

"C. The provisions of Section 7 of this Act, as amended,
(relating to the exemptions from taxation both as to principal
and as to interest of bonds issued under authority of Section 1
of this Act, as amended) shall apply as well to the Savings Bonds:
and, for the purposes of determining taxes and tax exemptions, the
increment in value represented by the difference between the price
paid and the redemption value received (whether at or before matur-

ity) shall be considered as interest. The Savings Bonds shall not

bear the circulation privilege.
"D. The appropriation for expenses provided by section 10 of

this Act and extended by the Act of June 16, 1921; (U.S.C., title 31,
sec. 761) shall be available for all necessary expenses under this
section; and the Secretary of the Treasury is authorized to advance,
from time to time, to the Postmaster General from such appropriation
such sums as are shown to be required for the expenses of the Post

Office Department, in connection with the handling of the bonds issued
under this section.
"E. The Board of Trustees of the Postal Savings System is

authorized to permit, subject to such regulations as it may from
time to time prescribe. the withdrawal of deposits on less than
sixty days' notice for the purpose of acquiring Savings Bonds

--

235

which may be offered by the Secretary of the Treasury; and in
such cases to make payment of interest to the date of withdrawal

whether or not a regular interest payment date. No further original
issue of bonds authorized by Section 10 of the Act approved June

25, 1910 (U.S.C., title 39, sec. 760), shall be made after July 1,
1935.

"F. At the request of the Secretary of the Treasury the
Postmaster General, under such regulations as he may prescribe,

shall require the employees of the Post Office Department and of
the Postal Service to perform, without extra compensation, such
fiscal agency services as may be desirable and practicable in connection with the issue, delivery,safe-keeping, redemption and payment of the Savings Bonds."
SEC. 7. Section 1126 of the Revenue Act of 1926 is amended by

adding at the end thereof the following: "In order to avoid the
frequent substitution of securities such rules and regulations may

limit the effect of this section, in appropriate classes of cases,
to bonds and notes of the United States maturing more than a year

after the date of deposit of such bonds as security. The phrase
bonds or notes of the United States' shall be deemed, for the purposes of this section, to mean any public debt obligations of the
United States and any bonds, notes, or other obligations which are

unconditionally guaranteed as to both interest and principal by
the United States."

January 29, 1935.

The sub-committee on Housing met at 11:30 A.M. in the office
of the Secretary of the Treasury. Those present were:
Henry Morgenthau, Jr. Secretary of the Treasury,

236

T. Jefferson Coolidge, Undersecretary of the Treasury,
John H. Fahey, Chairman, Home Owners' Loan Corporation,

Marriner S. Eccles, Governor, Federal Reserve Board,

H.B. Hackett, Housing Division, Public Works Administration,
Stewart McDonald, Federal Housing Administration,

Mr. Bell, Acting Director of the Bureau of the Budget,
C.B. Upham, Secretary of the Committee.
Mr. Fahey presented a memorandum which he had prepared showing

the present situation of the HOLC.
Mr. Coolidge stated his position as being that the HOLC should
have increased borrowing authorization for a sufficient amount to
clear up applications they already have received but that no funds
should be provided for the Home Loan Banks and the Federal Savings &
Loan Associations.

Mr. Fahey said that he would like to set up a Congressional program calculated to stop lending by the HOLC this year and under condtions such as not to interfere with private lending agencies but to
get them into action the soonest possible. The resources should be
used to as much advantage as possible, he said, with as little burden as possible being placed on the Federal Government. He said that

it was really better in the long run, so far as the budget is concerned,
to provide some money for the Home Loan Banks and the Federal Savings
& Loan Associations.

Mr. Bell said that the increase in borrowing authority didn't
directly affect the budget and that his only attitude was one of
reluctance to see the Government's contingent liability piled up.

-2-

Mr. Coolidge inquired if it would not be expected that newspapers would comment that the President had set the budget figure

and was now increasing it in this indirect fashion. He added that
he thought this attitude would be different if an announcement was
made that the increased authorization for guaranteed bonds will
be just enough to take care of applications already in.
Mr. Morgenthau commented that the President announced that he
ed

is cutting down emergency lending agencies and asking if giving
more money to the Home Loan Banks and the Federal Savings and Loan

Associations isn't an expansion of those agencies.
Mr. Fahey said that the mortgage problem cannot be dealt with
properly by the Government but private business must do it. A
part of it must be taken care of through HOLC and business must be
stimulated to take the rest. If the HOLC is not given enough money
now we will find ourselves a year hence on the eve of a national
election in a position where the HOLC can't stop at all. He urged
that communities take the load and that Home Loan Banks and
Federal Savings & Loan Associations be given money to stimulate
private lending.
Mr. Morgenthau said that it seemed to him the problem was
which way to go, the HOLC way or the FHA way.

Mr. McDonald pointed out that the FHA works on the principle
of mutual insurance on private capital. The Government guarantee
expires in 1937. Risks must be selected. Mr. McDonald said that
they had insured about $500,000 in mortgages, that about the same
amount had been rejected, that $2,000,000 were being appraised and
$2,000,000 were being submitted.

237

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238

Mr. Morgenthau asked if insurance meant 1% extra to the
home owner.

Mr. McDonald replied yes, but that the interest rate on the
refinanced insured mortgage was probably less than the home owner
had previously been paying.

Mr. Morgenthau said that someone should straighten the two

organizations out - that in his opinion they were no nearer a
solution of the problem today than when we first met with the
President.

Mr. Fahey said that it can't be expected that people coming
to the problem fresh could in fifteen or twenty minutes understand

all its ramifications and complications. It is a new thing, he said,
a revolutionary thing. Lenders are not used to 80% loans - the
entire mortgage structure must be made over. Long term amortized
mortgages have not been deelt in by insurance companies and other
mortgage lenders heretofore.

Mr. McDonald said that 67 big contracting firms in New York
City want to build 5000 homes on an insured mortgage basis.
Mr. Morgenthau developed the opinion that the HOLC and the

FHA maintain aeparate organizations throughout the country with
separate sets of appraisers and that the overhead of the HOLC
for 1935 was $39,000,000 and that of the FHA $8,000,000.
He said that he would recommend to the President that the borrowing
authority of the HOLC be increased by $1,000,000,000 with none to be
given to the Home Loan Banks and the Federal Savings & Loan Associations.

With respect to the overhead of the FHA, Mr. McDonald said

-4-

239

that it should be remembered that Title I does not deal with
mutual mortgage insurance and expires this Fall and that a good
part of the overhead was in connection with that. The FHA can be

shaped up to do the job 1f somebody will pay the bill and say what
the job is. It cannot, as a mutual mortgage proposition with the
public paying the bill.
Mr. Eccles expressed terrible disappointment with the whole
Housing setup. He referred to the plan which was developed by the
committee on which he served a year ago and said that the admiris-

tration of housing hadnot been in accordance with that plan. He
said there is no relationship between the rules and regulations
of the FHA and the plan of his committee. If the FHA continues
under its present regulations it means that money must be continuouslybe provided for the HOLC. It was not thought that National Mortgage Associations would be in operation until $1,000,000,000 of
insured mortgages had come into existence. The FHA is trying to
organization National Mortgage Associations as a basis for creating
insured mortgages.

Mr. McDonald said that the interpretation of the Act by the
FHA is National Mortgage Associations are an integral part of
the Statute.

Mr. Fahey expressed his disbelief in National Mortgage Associations.

Mr. McDonald said that the FHA can do without the National

Mortgage Associations and liberalize their rules and regulations
but that the law requires them to try to develop the National Mortgage Associations.

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240

Mr. Eccles said that Walker and Rieffler were sticklers for
National Mortgage Associations and that Hopkins, Fahey, Dean and

himself agreed to put them in but certain they would not work. Now
he says Moffett puts the National Mortgage Associations in the
forefront and makes everything else depend on them. He said the

credit risk should be left up to the lending institutions - that
they have a sufficient stake to make them careful. If mortgages
were down to a 5% basis and the insurance premium down to 1/2%

there might be a substantial amount of mortgage business done.
Mr. Morgenthau said that he would suggest an increased
borrowing authority of $1,000,000,000 to $1,250,000,000 and would
recommend that Tom Smith come back to Washington for a week to

study the Housing situation and make recommendations.
Mr. Fahey said that the recommendations made by Mr. Smith
a year agu were many of them absurd.
Mr. Morgenthau said HOLC had adopted 9 out of 10 of them.

Mr. Fahey said that they had been doing those 9 or ten for
a year already.
Mr. Morgenthau said he had
been listening for a year now to
not
this Housing mixup and he was/going to let the President be put
into a jam on account of it. The HOLC is doing 9 out of 10 things
that Tom Smith recommended and it can be proved.

Mr. Fahey said that the first recommendation was that there
be no increase for the HOLC and that it stop its activities Septem-

ber 1st. If it had stopped then, he said, we would be in a fine
mess. They did keep within the $200,000,000 limit a month and
that was a very bad thing to do.

be

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158

Mr. Eccles said that of course the HOLC could not stop loans
without stopping applications and what they should have done was
stop applications. He suggested a $1,250,000,000 compromise with

a drop in the discount rate of the Home Loan Banks. He said that
he thought that the two agencies should be gotten together.
Mr. Morgenthau said he can't understand where the FHA is
going. He had been told they would take the pressure off the HOLC.
He thinks we ought to have Tom Smith come for a week. He thought
his recommendations of a year ago were far from ridiculous and he

was of the opinion that the HOLC thought they were far from ridiculous
because they had adopted 9 out of 10 of them.

Mr. Fahey said he had no objection to Mr. Smith but that the

President ought to be able to decide matters of public policy he ought to trust those responsible or get rid of them. No one can
absorb the Housing background in a few days.

Mr. Morgenthau said that if the heads of independent agencies
can't get together he couldn't get them together.
Mr. McDonald said that they were instructed to set up a mutual
mortgage system - that they were not told that they were a dam to
stop HOLC distress and that the Act was not set up that way.
Mr. Fahey reported that Mr. Moffett had said that the President
was in favor of National Mortgage Associations and that he expected
no real help from the FHA this year. No matter what you do with

FHA, he said, they can't be of any help to HOLC this year. If you
give HOLO too little money this year you will have it as a permanent
agency.

04

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242

Mr. Morgenthau asked if $1,500,000,000 were given to HOLC
now would they need more later.

Mr. Fahey replied that there was a very good chance they
would not need any more.

243

January 29, 1935.

The sub-committee on Housing of the Interdepartmental Loan
Committee met with President Roosevelt at the White House at 1:00
P.M. Those present were:
The President,

The Secretary of the Treasury, Mr. Morgenthau,

The Undersecretary of the Treasury, Mr. Coolidge,
The Governor of the Federal Reserve Board, Mr. Eccles,
The Chairman of the Home Owners' Loan Corporation, Mr. Fahey,

The Chairman of the Reconstruction Finance Corporation, Mr. Jones,
The Assistant Administrator of the FCA, Mr. McDonald,

The head of the Housing Division, P.W.A. Colonel Hackett,
The Secretary of the Committee, Mr. Upham.
Mr. Fahey submitted to the President a copy of the memorandum

which had already been discussed in the office of the Secretary of
the Treasury and made a statement relative to the position of the
HOLC. He stated Mr. Coolidge's position with respect to giving no
funds to Home Loan Banks and Federal Savings & Loan Associations

and his own position to the contrary.
Mr. Fahey said that many delegations of Congressmen and State

officials were visiting his offices pressing for an expansion of
the activities of the HOLC. He urged that the Corporation be given
sufficient borrowing power now so that none will be needed a year
hence. He said that the HOLC has more applications than it can take
care of and that many of them cannot be taken care of elsewhere. The
insurance companies can take a few. He said that it had been hoped
there would be some relief through the FHA. He felt that Mr. Morgenthau had expected more of the FHA than it could do. He explained that

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244

Mr. Eccles was in favor of charging the regulations of the FHA but

Mr. Moffett did not agree. He said that as he understood it, Mr.
Moffett would not guarantee results to the President.
The President interposed to say that Mr. Moffett had not been
very hopeful of success of the FHA.

Mr. Fahey said that it was a very slow process.
Mr. Jones said it was very nearly impossible.
Mr. Fahey pointed out that the FHA might be taking a greater
risk if theywere to have a continuous Government guarantee.
The President asked if it was correct that what Mr. Fahey was
recommending was an expansion of the borrowing authority of the HOLC

by $1,500,000,000 with $400,000,000 of that total either definitely
or optionally available to Home Loan Banks and Federal Savings &
Loan Associations.

Mr. Morgenthau recalled to the President that the budget had
already turned down a request for $50,000,000 additional for
Federal Savings & Loan Associations. He explained that his
recommendation to the President would be for a $1,500,000,000

expansion of the borrowing authority but before any funds are
furnished to the Home Loan Banks or the Federal Savings & Loan

Associations that there should be a definition of the field of the
HOLC and of the FHA.

The President said he thought it would be a good thing if
it were possible to draw 9 line of demarcation between the two
agencies.

Mr. McDonald voiced the opinion that if the FHA took up the
HOLC distress load that their rules and regulations would have to

245

be very BRIGH iberalized and they would be no longer a mutual
system.

The President said "suppose we 80 2106 with the HOLC, can
we draw any line of demarcation"?
Mr. McDonald said the FHA could be changed.

Mr. Fahey said the FHA cannot take distressed mortgages and
make their plan work
The President asked Mr. Eccles what he thought.

Mr. Eccles suggested that the HOLC take no more applications,

that it be given enough funds to clean up applications already in,
that it be given $250,000,000 for Home Loan Banks and Federal

Savings & Loan Associations and that the rules and regulations
of the Federal Reserve System be liberalized to provide for the

eligibility of mortgages as collateral for borrowing from Federal
Reserve Banks.

Mr. Jones said that the collections of the RFC had been helped
by the operations of the HOLC.

The President said that the HOLC was one of the operations

which should be tapered off just as cotton loans and seed loans.
He suggested that the HOLD be given $1,250,000,000 with the

assurance that if by January they need more they can have a
reasonable sum.

Mr. Morgenthau said that if that were done there was no end

of the road. He explained that in the budget for 1936 the overhead of the HOLC was $35,000,000 and that of the FHA $8,000,000.

He pointed to duplication between the two agencies. He suggested
that Tom Smith be brought to Washington for a week to study the

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246

Housing situation and attempt to draw some line of (emercation
between the agencies in the field.
The President said that if the FHA and the HOLD want to use
the good offices of the Treasury and have Tom Smith make such a

study that is up to them.
Mr. Fahey thought that they should draw the line themselves.
the President said that the decision as to that was an
administrative detailand suggested that the sub-cosmittee go
ahead with its plan for $1,250,30.00 of expansion of lending
power and with its proposal for making study of the field of
operations of the two agencies.

248

247

MEMORANDUM 0 F

sacabo

89.274,280,

DR. H. H. KUNG, MINISTER OF FINANCE AT NANKING
DATED JANUARY 30, 1935

The Chinese Government had thought the situation here

was made clear but in view of the inquiry of January 26
desires to summarize, supplement, and bring up to date the
data furnished heretofore.
The Chinese Government was greatly disturbed for the

past year over the effects of the American Silver Program
on the Chinese economic and financial situation. On
February 16 in connection with the ratification of the
London Silver Agreement for Stabilizing Silver the Chinese
Government through the American Consulate General at

Shanghai informally communicated the following views:

"China entirely sympathizes with the purpose

of e London silver agreement on the stabilization : silver prices and Minister Kung has personally rged ratification which is now pending.
Since China currency is silver, China is of
course vitall, nterested in measures affecting
its value and intenational exchange but of
course has no desir to intrude upon questions of
purely American interal concern. In view of reports here, it may be ocerved that any action
resulting in a rise of Lina's currency out of
relation to other currence and especially out
of relation to world common ies would have deflationary effects in China, rther decrease her
already reduced exports and BC upair her ability
to purchase goods from abroad. t would also
probably increase the present Belous tendency
towards heavy silver exports as nessary means
of settling large adverse balance. 1 view therefore of China's vital interest, it 16 oped that
the Government of China will be consult in advance if measures concerning silver that Light

-2materially affect China's currency and exchange
are in fact being contemplated."
Again immediately after the American nationalization
of silver in August the Chinese Government made the following further communication:
"The London Silver Agreement of July 1933

received the signature of China's representatives
and has more recently been ratified by the
National Government of the Republic of China with
the understanding that its major purpose was to
secure the stability of the price of silver which
was thought menaced by the large surplus stocks
held by the Governments of India and Spain. The
preamble of the agreement states in part that 'it
is to the advantage of China that sales from
monetary stocks of silver be offset by purchases

as
herein provided, with a view to its effective
stabilization'
"It now appears that under the Silver
Purchase Act of 1934 the stability of the price
of silver and the interests of China are as much
menaced as by the previous situation of potential
sellers. China would therefore appreciate an
indication of the probably policy of America in
the future purchase of silver in order that China
may properly safeguard her currency, which has
recently been flowing out of the country to a
degree that 18 potentially alarming".

These views were substantiated by results as detailed
in a memorandum communicated to the American Minister on

October 5. Moreover full information furnished Professor
Rogers here and subsequently concurrently furnished the
American Treasury representative, the Commercial Attache

and the Consulate in Shanghai 18 presumably available both

to the State and the Treasury Department. Nevertheless the
following further statement is submitted:

248

249

-31. Net silver export in 1934 not including
smuggling was 257 million dollars of which five
sixths in less than four months from the adoption
of the Silver Purchase Act to October 15 when

China was obliged to enforce restriction to protect the currency reserve from this extraordinary
drain. In 1934, the silver export was five times
the previous high record in 1907.
2. The Shanghai silver stock declined from 544
million dollars at the end of June 1934 to 312
million dollars now. Also the stock of other
leading centers declined proportionately.
3. Till July last money was easy and financing
plentiful but accompanying the silver drain money

became extraordinarily tight. Since the first
half of 1934 interest rose from the equivalent of
six percent per annum charged by native banks to
customers to 26 percent about January 1. Since

arranging the financing of new year settlement
lower rates have been nominally quoted at the
instance of the Government but this does not repre-

sent real improvement since it 18 practically impossible to borrow at any rate regardless of
security. As a consequence tightness of money led
to the sale of foreign exchange for cash at a

250

-4premium over forward delivery worked out to be
27.4 per cent per annum yesterday for one month
loan.

4. Notwithstanding the tendency to world wide recovery deterioration of China's situation increased
alarmingly the last six months and the condition
now is at the lowest point since depression began.
The total foreign trade for the second half of 1934

is thirteen percent below the first half and sixteen percent below the second half of 1933. Although the adverse merchandise balance has declined

the drain of both gold and silver the last three
years makes the situation here precarious unless
the conditions causing the adverse balance of payment are counteracted. Since July last Government
and industrial bonds declined by ten percent;

property of the Center District of Shanghai declined
about fifteen percent; industrial stocks declined
seven percent. There are widespread business
failures in all regione including numerous important
industrial and mercantile establishments. Recently
Government-supporting banks and enterprises through

the Central Bank of China, Bank of China and Bank of

Communications try to prevent further increase of
unemployment and wholesale collapse. New year

251

-5settlement is only about fifty percent of the
normal as banks fear pressure would precipitate
numerous bankruptcies which at this time would

cause general collapse. As a consequence not-

withstanding their own difficulties banks feel
obliged to grant loan extensions even to practically insolvent concerns. In order to ease
money and sustain confidence during new year

settlement the Government is obliged to bring

back silver from Hongkong at 19 percent loss in

the small driblets which the financial situation
permits but the present impaired credit structure
and the inordinate interest rate due to the
silver drain are destroying trade.
5. Tight money gravely impairing Government

finance is making practically impossible further
financing by banks. The reserve particularly that
of the customs is seriously threatened by the
present tendency. Reconstruction activities are
checked; for example the loan for the important
project of bridging connecting railways near
Hangchow and extending the railway to Ningpo cannot

be floated though already contracted for.

6. All evidences confirmed the rising of currency
value which has proved disastrous to China because

252

-6-

involving parallel deflation. For detailed discussion supported by statistics see a recent report
of the Ministry of Industries Commission of which
Professor Buck has preliminary copy which however

contains figures only to early 1934. Since then
the conditions have become greatly aggravated.

Chinese Legation,

Washington, February 1, 1935.

253
CHINESE LEGATION
WASHINGTON

The Chinese Minister presents his compliments to the

Secretary of State and has the honor to transmit the following text of a cablegram which has been received from
Dr. H. H. Kung, Minister of Finance at Nanking:
China greatly appreciates the American Govern-

ment's consideration for China's difficulty in
connection with the execution of the silver pur-chase program. However the Chinese Government
feels that under existing conditions the present
or higher price in any open silver market
inevitably involves the loss of an essential part
of China's monetary reserve through legal and/or
illegal exportation with resulting monetary chaos and
social and political complications international
in scope. China however cannot raise the exchange
to the foreign silver parity and at the same time
prevent disastrous deflation and conserve the silver reserve on the present basis. Lack of confidence in and present doubt about China's currency
resulting from uncertainty about the silver price
and about the extent of the drain on China's

silver under the influence of American buying are
ruinous to foreign and internal trade and seriously
impair the Government's revenue when the Government is making strenuous efforts to stamp out the
communist threat in a western province and consolidate its position throughout the nation.
China has therefore considered how it might adjust
its monetary and financial policy and program to
the American policy and program and harmonize the
interests of both countries and has decided it has
no choice but to seek feasible means to abandon
the exclusive silver basis maintained by it alone
and adopt a new currency system by using both

silver and gold with a view to linking its currency
to that of the United States and to freeing its

exchange from uncertainty attached to the silver
basis under present conditions.

American cooperation is essential to that end
if China is to escape from the present impossible
situation and pass safely through the trying transition to a new monetary system without a period
possibly prolonged of inconvertible paper money

254
2-

accompanied with grave risks to internal if
not external stability. The Chinese Government

hopes the American Government will be
line indicated by the memorandum
21 pending an

China of act January along would the arrangement whereby able to

supply the American silver requirement in an endeavor to assist the American
Government and would obtain American support

in currency reorganization. To this end
China outlines the following plan:
Section 1. Under existing circumstances
China would prefer to supply the requirement
under the Silver Purchase Act provided the extent
thereof, the period of years for their fulfilment,
and the sale price of silver supplied are mutually
agreeable. Given time and facilities to get
together sufficient silver in the hand of the

Government China could provide for the entire

C

requirement out of the country's holdings. It is
suggested that in the first year China sell
200 million fine ounces with tolerance to China
of fifty million fine. Subsequent delivery is
to be arranged as soon as the American Government
indicates its requirement. The price is to be
determined either on a gradually rising scale
or at a flat valuation above the present price

depending on how rapidly and to what valuation
thebe
American
to
raised. Government desires the silver price

Section 2. In changing the currency of the
entire country in a brief time from silver to a

currency linked with the United States of America
dollar China would require immediate resources 80
as to establish confidence during the transition
and provide a sound basis for the new currency
which would require protection against temporary
adverse balance of payment consequent upon China's
silver exchange being out of line with the level
of the world's commodities and leading foreign
currencies. Such resources further would tend
to assist in repairing the serious damage to
China's economy resulting from the loss last year

of 260 million silver dollars vital reserve plus

the amount
consequent extreme tightness
of thesmuggled
financial and
market.

--

255

Currency experts estimate that the minimum
resources required would be a loan or long term
fund amounting to United States of America dollars

100 million. In addition to this a credit of

like amount against future delivery of silver to

be drawn upon if and when required 18 desired
80 as to ensure beyond question the soundness of

this currency reform. It 16 hoped that this

credit would not be drawn upon at all because

the reform based upon American cooperation and

a settlement of the silver difficulty would
itself command general confidence.

Section 3. It is understood that the above
proposal is conditioned upon a final agreement

on a feasible currency program. The Chinese
Government earnestly hopes that the foregoing

will receive favorable consideration with a view
to promoting a solution of the silver difficulty
and encouraging trade development.

Chinese Legation,

Washington, February 5, 1935.

256
January 30th

Jackson came over to see H. M. Jr. about a
settlement of a tax matter in which Basil O'Connor is
interested. The Attorney General asked H. M. Jr. whether
he wanted to speak to the President inasmuch as Basil
O'Connor is concerned. H. M. Jr. informed the Attorney
General that he never discussed these cases with the
President and, therefore, did not want to make an
exception in this case. H. M. Jr. is interested to know
whether Basil O'Connor has enough influence with the
President
this case. to have the President approach H. M. Jr. on

257
H.M.Jr:

Morgenthau talking. How are you?

Senator
Smith

H.M.Jr:

Well I don't know since I've been pulled through the
Well Oscar Johnston is here with me and he says you
have
been very considerate and courteous about my
coming up there
.

Yes and I'll

S:

so that

can advise you

in the military situation.
HM.Jr:
S:

Well now Senator I'm always at your disposal. Now if
I come up there what can I talk about?
I just want you to come and give the decrease in our
revenues
any. Just give a statement
as to the from imports,if ifthere
has been.
to imports, and I would like to have
a

H.M.Jr:
S:

I see.

Just a list of those and, if you see fit, you can just
state the facts, if you see fit to do it,
before your

Department as the reason for being decreased. We will

take care of the other features after legislation.
And I'm not going to let this thing get away - get out
into a discussion of this military system that will be
taken up in another section.

H.M.Jr:

I see. Well I'm perfectly willing to do that. I don't

think it will satisfy a certain gentleman on your

committee.
S:

H.M.Jr:
S:

H.M.Jr:

I don't give a darn. I handed down this morning that
I want to state to you that I never was more delighted
in my life in the manner in which Wallace handled himself.
Fine.

He just did
Now I'm not going to have this
thing run away into everybody's hands.
Well what time do you think you want me up there?

258

-2S:

Well what time could you come? -- Now
going on in the morning. What time do you think you

is

would be able to come?

H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:
S:

Well most any time that you say. If I knew I could go
on at a certain hour.

Well I'll call you - that's what I'll do. I'll notify
you in time to get here.
It only takes me 15 minutes to come up. You couldn't
say about 12 o'clock?

Well I expect we will get through by that time and
but I think it will be just about 12 o'clock tomorrow.
You think you could put me on? At 12 o'clock.
Yes.

Thank you very much.
You're welcome.

January 30, 1935.

Wednesday.

259
STATEMENT OF SECRETARY MORGENTHAU

BEFORE THE SENATE COMMITTEE ON AGRICULTURE

January 31, 1935.

I am appearing before you at the invitation of your Chairman, Senator

Smith. I believe that the main considerations affecting the subject of
foreign trade have been ably presented to you by Secretaries Hull, Wallace

and Roper, and there is probably little of value that I can add. I am,
however, happy to renew the pleasant and satisfactory contacts that I had
with your Committee during my experience in the Farm Credit Administration.

I will simply review briefly some of the salient facts in our dealings
with other nations as they have come to our notice in the Treasury Department.

The outstanding feature of trade in 1934 is the decline in the
trade of gold bloc countries in contrast with the marked increase in the

countries which did not adhere to the old gold standard. Exports of
gold bloc countries as a whole decreased 8% from 1933, while exports

of the other group increased 19% Likewise, imports of gold bloc
countries dropped an average of 8%, while the imports of the other
group increased 17%

Thus, the exports of France declined 4% of Germany 14% of Italy 16%

of Belgium 4% of Netherlands 3%; while the exports of the United States
increased 27%, of Canada 23% of Japan 16% of Brazil 23%, of United
Kingdom, 7%, of Mexico 80%

The situation with regard to imports presents an even more favorable

picture of the non-gold bloc countries.
Our own foreign trade for the year 1934 has shown a marked improvement

over 1933. This is true both of exports and of imports. Our exports
have increased from 1.6 billion to 2.1 billions, an increase of 27%. Our

-2-

imports of merchandise increased from 1.4 billion to 1.6 billion, an increase of 14%. The United States had a "favorable" balance of trade which
was more than double that of 1933 -- 478 million as against 225 million.
During the past year our net imports of gold amounted to 1.1 billion dollars

and of silver 86 million dollars.
A survey of our leading items of export reveals how practically every

region of our country has shared in the increased foreign trade. Exports
of wheat, copper and automobiles, parts and accessories more than doubled
in

1934 as compared with 1933. Other large increases occurred in iron and

steel mill products, industrial machinery, chemicals, tobacco leaf, crude
petroleum, lumber, meat products and wheat flour.
000-000

260
LOSS OF EXPORT TRADE AND MEANS OF RECOVERY

79

Dr. TUGWELL Here
Senator MURPHY. Yes.

Dr. TUGWELL, No: we were asked only in relation to cotton.

Senator MURPHY. Won't you ask the Agiculture Department to

do that?

The CHAIRMAN. My understanding was that the Agriculture De-

partment was to cover all exportable agricultural products. Now,
I think as he suggested, cotton being dominant, you are dramatizing
the situation, but it would be interesting for us to know about other
exportable agricultural products.

Senator MURPHY. In my view of the situation I think lard and

pork products are involved as that raises the question of embargoes
and restriction of other countries, such as the Ottawa Pact, those
factors entering into the importation of lard and so forth.
The CHAIRMAN. May we now indicate to Dr. Tugwell that he and

I will follow it up together with the Secretary of Agriculture to see
that we have asked for data on those subjects. That will stand

as a request now.

Now, in view of the fact of a call of the Senate, there is a matter
that perhaps can be disposed of over in the Senate that a good many

of us are interested in, we will take a recess until 2 o'clock and we

will then carry on.

(Thereupon, at noon a recess was taken until 2 p. m.)
AFTER RECESS

(The hearing was resumed at the expiration of the recess, 2 p. m.)
The CHAIRMAN. The meeting will come to order. We have present with us here the Secretary of the Treasury, and I have asked him
to come here and give us a statement as to our exports and imports.
Now, it must be recognized that Mr. Morgenthau is Secretary of

the Treasury. He is placed in the position here where he is supposed to carry out the policy that is handed down to him by us
rather than to initiate any monetary policies, and I presume that
he would feel more hesitancy right now even if he was at liberty
to give his opinion, that he would feel more hesitancy right now
in view of the pending decision of the United States Supreme Court
on certain policies or certain laws; and I understand the difference
between the position Mr. Morgenthau occupies in the administration
of our laws and certain other Cabinet members. Mr. Morgenthau.

STATEMENT OF HON. HENRY MORGENTHAU, JR., SECRETARY OF
THE TREASURY

Secretary MORGENTHAU. Mr. Chairman and gentlemen: I am ap-

pearing before you at the invitation of your chairman, Senator

Smith. I believe that the main considerations affecting the subject

of foreign trade have been ably presented to you by Secretaries
Hull, Wallace, and Roper, and there is probably little of value that
I can add. I am, however, happy to renew the pleasant and satis-

factory contacts that I had with your committee during my ex-

perience in the Farm Credit Administration.

through.

80

LOSS OF EXPORT TRADE AND MEANS OF RECOVERY

I will simply review briefly some of the salient facts in our dealings with other nations as they have come to our notice in the Treasury Department.

The outstanding feature of trade in 1934 is the decline in the
trade of gold-bloc countries in contrast with the marked increase

in the countries which did not adhere to the old gold standard,
Exports of gold-bloc countries as a whole decreased 8 percent from
1933, while exports of the other group increased 19 percent. Likewise, imports of gold-bloc countries dropped an average of 8 percent. while imports of the other group increased 17 percent.
Thus, the exports of France declined 4 percent, of Germany 14
percent, of Italy 16 percent, of Belgium 4 percent. of Netherlands
3 percent; while the exports of the United States increased 27
percent, of Canada 23 percent, of Japan 16 percent. of Brazil 23 percent. of United Kingdom 7 percent, of Mexico 80 percent.
Senator WHITE, Is that in volume or value?

Secretary MORGENTHAU. Dollars, of the currency of the country.
The situation with regard to imports presents an even more favorable picture of the non-gold-bloc countries.
Our own foreign trade for the year 1934 has shown a marked improvement over 1933. This is true both of exports and of imports.
Our exports have increased from 1.6 to 2.1 billions, an increase of
27 percent. Our imports of merchandise increased from 1.4 to 1.6
billion. an increase of 14 percent. The United States had a " favor-

able balance of trade which was more than double that of 1933,
478 million as against 225 million. During the past year our net
imports
of gold amounted to 1.1 billion dollars and of silver 86 million
dollars.
A survey of our leading items of export reveals how practically

every region of our country has shared in the increased foreign trade.

Exports of wheat, copper, and automobiles, parts and accessories
more than doubled in 1934 as compared with 1933. Other large in-

creases occurred in iron and steel mill products, industrial machinery,
chemicals,
wheat flour. tobacco leaf, crude petroleum, lumber, meat products and
(Senator Thomas took the chair.)
Senator THOMAS I would like to ask you this question, Mr. Secre-

tary, and if for any reason you think any questions I may ask you
are not proper, do not hesitate to say so. We are trying to find some
wayquestion.
to increase the prosperity of the cotton producers. That is the
first

LOSS OF EXPORT TRADE AND MEANS OF RECOVERY

81

opinion, is this reasoning sound: That if we could raise the price of
silver throughout the world that that of itself would raise the value
of the units of those several countries and that by raising the value
of the unit-for example, Mexico with its peso, and China with its
dollar, and Japan with its yen, and other countries having their own
names for their monetary units-by raising the value of the silver,
raising the value of their monetary units, and by raising the value of
the monetary units we raise the cost of the production in those countries and to an extent we raise the cost of the production of cotton
and we would thereby tend to serve the best interests of the cotton
producers of America. Is that sound
Secretary MORGENTHAU. It is an awful difficult question to answer,

sir.

Senator THOMAS I would not urge an answer, but I would like to

have you consider it. I will leave the question with you and have
you think about it later.
Secretary MORGENTHAU. I would appreciate it if you would give

me a chance to answer.
Senator THOMAS. We are here in a sincere effort to help.
Secretary MORGENTHAU. It is such an important question I would

not want to give a snap judgment on it.
Senator THOMAS. We have an impression, some of us, that the
raising of the value of the silver, not too high, but if we raise silver
to $1.29 an ounce on the present value of our dollar that it would
only raise the value of the silver in it to about 85 cents an ounce. or
the old value of the silver that was in, really as high as it was before
the war, and as it was for 100 years of American life, so that we are
not proposing to raise the value of silver to anything like its value,
say, the first 100 years of American existence, but it just occurs to
some of us that if we raised the value of silver to $1.29 an ounce we
would make the silver in a dollar worth a dollar. That would raise
the monetary units in these silver countries, that would raise the cost
of production there, and by so doing we would enable our cotton
men in the South to produce on a comparable basis with the producers of cotton in the other cotton-producing countries.
It is the opinion of some of us that unless we do this that the cotton
men of the South must either go out of the business of raising cotton
or they must fall to the standard of the cotton producers of Mexico
and Chile and Egypt and India and China. Now, our reasoning may
be bad. If it is, we want to find it out. Of course, no one wants to
do any injustice to any of our neighboring countries, but I think our

Of course, what helps the cotton producers likewise helps the wheat
producers, the livestock producers, and the farmers generally.

duty, speaking for myself, is to our American people first. They

ton. Many Southern States depend very largely for their subsistence cotthat and prosperity upon their success in raising cotton. It now

don't know, or they won't tell us. We want to find out for ourselves.
Secretary MORGENTHAU. I understand the question. I am not prepared to answer, but I will be very glad to work on it.
Senator THOMAS. Personally, if you would ask your expert advisers to submit their opinion.
Secretary MORGENTHAU. I would be very glad to do it.
Senator THOMAS. That is all I want.
(At this point Senator Smith resumed the chair.)
The CHAIRMAN. Mr. Morgenthau, we are very glad to have the
here?
statement that you have made. Is Mr. Johnston

The United States is about half devoted to the production of

silver most of America's competing nations in cotton production appears are

on standards or on silver, using silver almost exclusively. For
example, Mexico, Chile, Brazil, Argentina, Egypt, and China.

Now, I want to state my proposition and I would like to know if

my the reasoning United is faulty. Each of these countries recently along with

because States has depreciated the value of their unit

in of this depreciation the price of their products monetary has increased

unit just like it has increased here in the unit. Now, in your

have been going for a long time and they have done the same thing

to our gold that we have done to our silver, and our smart folks

through.

82

LOSS OF EXPORT TRADE AND MEANS OF RECOVERY

Mr. Johnston
is connected
with both the Department of Agriculture
and the Treasury
Department.
Mr. Johnston, you have been selected to go more into the details
touching the matters before us. and as indicated this morning, and
as Secretary Wallace said about cotton being the predominant export business, it has been emphasized here and comparably

other agricultural products that suffered

to same degree that cotton has-and
given a very instructive and

tive we be glad now to have us

I line think and view, exportable Secretary perhaps and would Hull the has you give along your construc- the likewise, views same with

as the
to the
situationofrelative
to the part that has been assigned to you
by
Secretary
Agriculture.
STATEMENT OF OSCAR JOHNSTON, MANAGER 1933 COTTON
PRODUCERS' POOL

Mr. JOHNSTON. Thank you, Mr. Chairman.
Gentlemen, first let me make it clear

Senator CAPPER. Mr. Chairman, let us have for the record the

name of the gentleman and the position he holds.

Mr. JOHNSTON. My name is Oscar Johnston, the address is Scott,

Miss. My normal and ordinary occupation is that of a cotton
farmer. At present I am engaged and connected with the Department of Agriculture in the capacity of manager of the 1933 cotton
producers' pool, and I am connected with the Treasury in the capacity of Assistant to the Secretary of the Treasury with particular
reference and regard only to the contacts of the Treasury with agriculture, and as they relate to agricultural commodities. I have no
connection with the Treasury with respect to its general economic
or monetary policies. In appearing before the committee I do so
both at the request of the Secretary of the Treasury and the Secretary of Agriculture, in respect to agriculture, particularly cotton.
First, gentlemen, with your permission, before going into my
general statement, there have been questions asked of different witnesses on the stand that have likewise been propounded to me by
members of this committee in which you are probably very much

interested; I should like to answer these questions.

One question asked was with respect to the number of varieties
or classifications of cotton. It has been suggested to the Secretary
of Agriculture that there are probably 100 classes of cotton.

It is rather important, I think, that you, in framing legislation

affecting cotton, should keep in mind a little more definitely the

division and classification of cotton because in the administration of
some of those laws that have been enacted with regard to cotton
we have been confronted with difficulties because of the general
tendency to deal with cotton using it in a generic sense, all inclusive,
rather
taking
cognizance of the fact that we produce many
differentthan
varieties
or classifications.

There are recognized and traded in generally every day in the
United States 16 distinct staples ranging from three-fourths of an
inch in length up. There are recognized and generally traded in
every day 13 distinct grades of cotton ranging from ordinary to
good middling and one somewhat obsolete type, even above good

261

January 30, 1935.

The sub-committee on banking legislation of the Interdepartmental Loan Committee met at 10:00 A.M. in the office of the
Undersecretary of the Treasury. Those present were:

T. Jefferson Coolidge, Undersecretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation,
Jesse H. Jones, Chairman, Reconstruction Finance Corporation,

J.F.T. O'Connor, Comptroller of the Currency,

A.W. Willcox, Legislative section, office of the General Counsel
of the Treasury.
Tom K. Smith, Legislative Committee, American Bankers Assn.
C.B. Upham, Secretary of the Committee.

The sub-committee had before it a draft of the legislative
proposals of the FDIC and of the omnibus bill proposals of the
Comptroller of the Currency and the Federal Reserve Board.
Both Mr. Crowley and Mr. O'Connor expressed preference for

a breakdown of the banking bill into three bills instead of having
it composed of three titles.
It was the consensus that the FDIC bill was satisfactory
with the single exception of the rate of assessment to be levied
upon banks.

Mr. O'Connor thought we would have a better, popular and cons-

titutional argument if a distinction were made between insured and
uninsured deposits. He said he was not SO particular as to the
exact rate but he thought that 1/8 of 1% on the insured deposits
and 1/10 of 1% on uninsured deposits would pull the Corporation
through.

-2-

262

Mr. Jones suggested 1/12 of 1%.

Mr. Eccles said that he preferred to stick to the principle
of a flat tax on all deposits and stated that there were many
compensations to the banker for even a fairly heavy assessment.
Mr. Coolidge expressed a preference for a flat rate.

Mr. O'Connor said that when the bill is passed we will be
enjoined and that many of the big banks will be glad to say and
to advertise that they are not insured.
Mr. Willcox when asked by Mr. Coolidge said that offhand he
could see no advantage from a constitutional standpoint to drawing
a distinction between the assessment on insured deposits and those
that are uninsured.

Mr. O'Connor said that when the bill gets on the hill, Congress
will put in a 1% maximum rate and leave it to the discretion of
the Board as to how much to charge each year.

Mr. Jones inquired whether that opinion was based on judgment

or information and Mr. O'Connor replied that it was based largely
on information.

Upon a round-robin expression of opinion as to the rate to be
charged, Mr. O'Connor voted for 1/8 of 1% on insured and 1/10 of
1% on uninsured deposits.

Mr. Jones said that he preferred 1/12, that he will vote for
1/10 or for 1/8 and 1/10, but that he prefers the principle of
the flat tax.
Mr. Smith voted for 1/12. Mr. Eccles 1/10, Mr. Coolidge 1/10.
There was some discussion of when and how to end the double

liability on banks.

-3-

263

Mr. Coolidge suggested that a definite date of July 1, 1937

be fixed.

Mr. Jones said it ought to be five years.
Mr. O'Connor advanced his formula that when surplus equals

capital, double liability ends.
Mr. Jones said this was sound, but Mr. Smith and Mr. Coolidge

said that it had better not be done that way, that it resulted in
inequalities.
Mr. Coolidge instanced the case of the two banks, one with

$2,000,000 capital and no surplus and so $2,000,000 liability and
the other $1,000,000 capital and $1,000,000 surplus and so no

liability. He also said he didn't like to see the bank with 90%
surplus and still fully liable.
It was finally agreed to provide for the end of double
liability on July 1, 1937.
There was discussion of real estate loans by National banks.

Mr. Jones said that he was for the liberalization but that he
would make it loans upon improved revenue bearing real estate.

Mr. Eccles said that was now in the law. He suggested that
there might be straight loans up to 50% or 60% for as long as 3
years, but that on 20 year loans the amortization principle should
be included.

Mr. Coolidge suggested that a total amount be put in the bill
and the details left to the regulations of the Federal Reserve.
Mr. Eccles suggested that it be 75% of time deposits but that
it include "other real estate".
Mr. Coolidge thought this too high.

264

Mr. Smith suggested that it be fixed at 50% of time deposits
or 100% of capital, the latter provision to take care of banks
with no time deposits.
Mr. O'Connor said that the greatest trouble of the banks had
been real estate loans and this would put us right back.
Mr. Eccles said that if the commercial banks could not make
real estate loans then their savings funds should be taken away
from them.

Mr. Jones pointed out that the country banks made real estate
loans but not the city banks.
Mr. O'Connor rejoined with the remark that city banks are

still open.
Mr. Coolidge said that sound Massachusetts savings banks
had made many real estate loans.

Mr. O'Connor said that the three worst banking situati ons in

the country - in Atlantic City, in Detroit and in the New England
savings banks resulted from heavy real estate loans. He said there
was a horrible situation in the New England Savings Benks and that

they are probably the worst spot there is.
Mr. Jones said that if banks can't make real estate loans
the Government will have to do it.
A slight change was made in Section 328 of the omnibus bill,
the parenthetical clause to be inserted as follows (other than a
Mutual Savings Bank). .

It was agreed that private bankers should be left in.
It was suggested that Mr. Coolidge, Mr. O'Connor, Mr. Eccles
and Mr. Crowley act as a clearing committee to work together to

-5-

follow the bill through Congress.

265

271

It was the consensus that there would be no objection to the

committees on the hill splitting the bill after it was received by
them.

Tom Smith said that 95% of the bankers program is in the bill
and that its introduction by the Administration will create a
tremendous amount of good will.

266
STATEMENT OF SECRETARY MORGENTHAU

BEFORE THE SENATE COMMITTEE ON AGRICULTURE

January 31, 1935.

I am appearing before you at the invitation of your Chairman, Senator
Smith.

I believe that the main considerations affecting the subject of

foreign trade have been ably presented to you by Secretaries Hull, Wallace

and Roper, and there is probably little of value that I can add. I am,
however, happy to renew the pleasant and satisfactory contacts that I had
with your Committee during my experience in the Farm Credit Administration.

I will simply review briefly some of the salient facts in our dealings
with other nations as they have come to our notice in the Treasury Department.

The outstanding feature of trade in 1934 is the decline in the
trade of gold bloc countries in contrast with the marked increase in the
countries which did not adhere to the old gold standard. Exports of
gold bloc countries as a whole decreased 8% from 1933, while exports

of the other group increased 19% Likewise, imports of gold bloc
countries dropped an average of 8%, while the imports of the other
group increased 17%

Thus, the exports of France declined 4%, of Germany 14%, of Italy 16%

of Belgium 4%, of Netherlands 3%; while the exports of the United States
increased 27%, of Canada 23% of Japan 16% of Brazil 23%, of United
Kingdom, 7%, of Mexico 80%

The situation with regard to imports presents an even more favorable

picture of the non-gold bloc countries.
Our own foreign trade for the year 1934 has shown a marked improvement

over 1933. This is true both of exports and of imports. Our exports
have increased from 1.6 billion to 2.1 billions, an increase of 27%. Our

-2-

267

imports of merchandise increased from 1.4 billion to 1.6 billion, an increase of 14%

The United States had a "favorable" balance of trade which

was more than double that of 1933 --- 478 million as against 225 million.

During the past year our net imports of gold amounted to 1.1 billion dollars

and of silver 86 million dollars.
A survey of our leading items of export reveals how practically every
region of our country has shared in the increased foreign trade. Exports
of wheat, copper and automobiles, parts and accessories more than doubled
in

1934 as compared with 1933. Other large increases occurred in iron and

steel mill products, industrial machinery, chemicals, tobacco leaf, crude
petroleum, lumber, meat products and wheat flour.
000-000

February 4, 1935.

The sub-committee on banking legislation met in the office
268
of the Secretary of the Treasury, at 11:00 A.M. Those present
were:

Henry Morgenthau, Jr. Secretary of the Treasury,

T. Jefferson Coolidge, Undersecretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation,

J.F.T. O'Connor, Comptroller of the Currency,
Jesse H. Jones, Chairman, Reconstruction Finance Corporation,
C.B. Upham, Secretary or the Committee.

Mr. Coolidge stated that the three titles of the Banking Bill
were completed except for determination of one or two matters
which he suggested be settled at this meeting.
Mr. Crowley and Mr. O'Connor stated that Senator Glass had

asked for a copy of the title relating to the Federal Deposit
Insurance Act and that they had felt that it was desirable,
and perhaps necessary, that it be given to him and this had been
done.

Mr. Eccles asked why they had given it to him and stated that
Senator Glass had also wanted a copy of the bill amending the

Federal Reserve Act, but that he had explained to him that it was
not completed and did not believe the Senator was interested in
looking over proposals which might not be cleared or included.
He said that he had assured Senator Glass that he would not discuss
it with anyone outside the Administration before he discussed

it with the Senator.

-2-

Mr. Crowley said that the FDIC draft had been ready for
269
30me time and that in his opinion it would never have done to
refuse to give it to the Senator and that the Senator would have
been riled.
Mr. Crowley and Mr. O'Connor reported that Congressman

Steagall had talked with Senator Glass and that he was fearfull
Senator Glass would introduce the FDIC Bill today and that
Chairman Steagall was asking for the same privilege.
Mr. Morgenthau telephoned to the President. The President
suggested that Mr. Morgenthau telephone Chairman Steagall telling

him that the President would speak to him over the 'phone around

2 o'clock and ask him if he would be willing to wait that long
for his decision. Mr. Morgenthau 'phoned Chairman Steagall
and found that arrangement satisfactory.
It was suggested that the bill might be cleared with the
President before 2 o'clock and Congressman Steagall and Senator

Fletcher permitted to introduce all three titles today. This
would make it appear that Congressman Steagall was working with

the Administration and he would be at no disadvantage by reason

of the fact that Senator Glass had introduced one title of the

bill, even if that occurred.
It was agreed that in the section amending the Federal Reserve

Act with respect to real estate loans of National banks, that
they would be permitted to loan 60% of the amount of their time
and savings deposits , but that this amount would include "other
real estate". It was agreed that the loan might be up to 75%
of the value of the real estate.

-3-

270

It was agreed that instead of asking that members of the
Federal Reserve Board be given the same salary as Associate
Justices of the Supreme Court, that it would be the same salary
as Cabinet Members. It seemed to be the general opinion that
Congress would not agree to anything more than $15,000.
There was discussion as to who should have final authority
in open market decisions - open market committee or the Federal
Reserve Board. The Federal Reserve Board now approves or dis- approves the recommendations of the open market committee. The

proposal in the bill is for the open market committee made up
of three members of the Federal Reserve Board and two Federal
Reserve Bank Governors to have the final say.
Mr. Morgenthau said that if the Board remains the same as
it is now he doesn't want them to be the open market committee.

It is necessary, he said, to have split second action in open
market operation transactions.
It was explained that the Board has given the open market
committee authority to buy or sell up to $250,000,000 of Government securities and that, within this limit, Mr. Burgess, as a
practical matter, does the buying and selling.
Mr. Eccles said, however, that it took a week to get the
$250,000,000 authority. He said that he is for the proposal that
the decisions of the open market committee be final, but that the
Federal Reserve Board will not like it.
Mr.Morgenthau said that if the Treasury did not have a

stabilization fund and the other funds at its disposal, that
Government credit would still be at the 3% for 13 months stage

-4-

271.

where it was when he took office. He felt there is a possibility
that Congress may go even further than the suggested proposal

and that in the end the Treasury will be conducting open market
operations itself directly. The Federal Reserve Board has done
nothing to help Government credit or stabilize the market for
Government securities and the whole burden has been carried by
the Treasury.

Mr. O'Connor said that it "looks like action" to him.
Mr. Eccles pointed out that the proposal substitutes the
action of 5 men for present action by the twelve Governors
plus the Federal Reserve Board - since at present the decisions
are reached by the open market committee of twelve Governors
and are then subject to approval by the entire Federal Reserve
Board.

Mr. Eccles raised the point as to whether the banking
committees would be called to the White House or whether the Bill
would be sent up by the President.
Mr. Morgenthau suggested that that be left to the decision
of the President.
The group, with the exception of Mr. Morgenthau, adjourned

to the office of the Undersecretary with the understanding that
two copies of the complete bill would be brought to the White
House by Mr. Upham not later than 1:30 P.M.
In the Undersecretary's office, the group was joined by
Mr. Wyatt, General Counsel of the Federal Reserve Board, Mr.

Willcox and Mr. Bastedo of the Legislative section of the
Treasury.

272
-5-

Mr. Eccles read a letter which he proposed to be given to

the President for use in transmitting the bill to the banking
committees if he so desired. Some changes in the letter was
suggested and there was an informal agreement that it would be
retyped and sent to the President as soon as ready - although
Mr. O'Connor
was doubtful about some of the language which was
and
used,/Mr. Jones characterized it as "just words".
There was some discussion whether the Federal Reserve Board

would have the authority to issue the regulations governing
open market operations and it was agreed that they should.
Mr. Jones suggested that he would amend the bill to permit

branch banking, at least county-wide or city-wide in cities of
certain sizes.
It was explained that this proposal had been considered and

decision reached to propose it separately, if at all.
Mr. Upham took the two copies of the bill (together with a
memorandum to the President summarizing the bill section by
section. to the White House, where it was presented to the
President by Mr. Morgenthau.

273

Hello - Mr. Speet - Henry Morgenthau, Jr.
S:

Yes Mr. Morgenthau.

H.M.J:

Mr. Speed, I'm calling you up - off the record if

S:

H.MJr:

you don't mind -

Oh certainly - certainly.
We started today, after two or three weeks of planning,
a check-up in New York on all places that sell liquor -

block by block in cooperation with the Governor and
with the Mayor and we don't know what the results are
going to be, we don't know what the courts are going
to do but we do know that New York is the worst place
for bootleg liquor in the United States. We put in 100
men and the Mayor put in 100 policemen. I asked
Mr. Gaston, who is here with me, to go up to New York
and to call on any of the publishers who would care to
get first-hand information on what we're doing.
We've
any publicity just yet but
if the papers think that what we're doing is worthwhile,

we would a little later in the week like some editorial
support. I'm particularly worried about the courts,

because up to now the New York Judges either have been discharging the prisoners or giving them ten day sentences
and everybody that we contacted up there, including
United States District Attorney, Lehman and Mayor
LaGuardia are very enthusiastic about this program and

I wanted to tell you simply that we have no police power

that's all.

S:

Yes I see. About this man that is coming up -

H.M.Jr:

Gaston - Gaston

S:

I didn't get that.

H. M. Jr:

Herbert Gaston. He left on the one o'clock train and

he'll call you up.

S:

Yes.

H.M.Jr:

I don't care for publicity now until we know better

where we're at.

S:

I see. Well I think that's very wise.

H.M.Jr:

And we refrained from giving out any statement but I

did want the publisher's office and the editorial office

274

-2-

8

to know first-hand as to what we're doing.
S:

I see.

HM.Jr:

And as I say I'm sorry to say that New York is the
worst place in the United States.

S:

Yes.

HM.Jr:

And we've been making a really

wipe out non-tax paid liquor.
S:

Yes. Well I think it's

H.M.Jr:

Thank you.

S:

Alright, thank you very much.

H.M.Jr:

Thank you - goodby.

February 4, 1935.
Monday.

drive to

275
H.M.Jr:

Hello Mr. Doughton.

D:

How are you?

H.M.Jr:

I'm fine.

D:

Are you coming down in the morning?

H.M.Jr:

Tomorrow morning

D:

Tomorrow morning, yes.

H.M.Jr:

Is that right?
Yes that's right - sure.

D:

H.M.Jr:
D:

Now has Miss Perkins communicated with you?
What's that?

H.M.Jr:

Has Miss Perkins communicated with you?

D:

Not in the last few days - no.

H.M.Jr:

Well I asked her to come with me, providing it was

D:

H.M.Jr:
D:

H.M.Jr:

agreeable to you.

Why of course it is.
Well I thought it would be better, from everybody's
standpoint, if she came up there with me.
That's alright.
wise
Because other/I'm afraid that the opposition may try
to play me off against her.

D:

Yes.

H.M.Jr:

You see?

D:

Yes.

H.M.Jr:

And if we both come up together why I think that that

shows that there's no rift in the official family.
suit you or

D:

speak to the Committee about that.
D:

What I called you about this morning was this. We had
a little conference here last week with two or threee of
my

We decided that we would suggest to you that you assign
one of your best legal men
to study of the
Legal Division of this
with our

276
2-

H.MJr:

We'd be very glad to do that.

CONO Especially with the State Retention Division

D:

and I thought that you would assign a good man to go
and ask the Attorney General to assign a man
and your man might be better.
Well when we left there Monday night I asked Mr. Oliphant
to make a study of the bill.

over with him the Texas Division
H.M.Jr:
D:

Yes.

H.M.JrE

And I imagine by now he's done it and as I understand it
you want us to specialize on the tax feature.
specialize in incorporation with

D:

Dever (?)

H.M.Jr:

Dever

D:

Because he's the man we have to rely on to

H.MJr:

Well Mr. Oliphant's in the room here now.

D:

H.M.Jr:
D:

Well we'll have somebody during the day get in touch with
Dever (?)

Yes sir

H.M.Jr:

Thank you.

D:

Goodby.

H.M.Jr:

Goodby.

February 4, 1935.
Monday.

P.277was manly mimograph
copy of this he was ward

COMMITTEE PRINT-UNREVISED"

Diery

Note.-This print is for the immediate use of the committee and is
subject to correction
E. W. G. HUFFMAN, Clerk.

ECONOMIC SECURITY ACT
HEARINGS
BEFORE THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
SEVENTY-FOURTH CONGRESS
FIRST SESSION
ON

H. R. 4120
No. 12

FEBRUARY 5, 1935

UNITED STATES

GOVERNMENT PRINTING OFFICE
110098

WASHINGTON 1935

278

planer

swips

alaibsermi

sellimmos

of

edit

not

at

ining

--0307

issidue

TOA

HIT

COMMITTEE ON WAYS AND MEANS

VM00

ROBERT L. DOUGHTON, North Carolina, Chairman
SAMUEL B. HILL. Washington
ALLEN T. TREADWAY.Massschusetts
THOMAR H. CULLEN, New York
ISAAC BACHARACH, New Jersey
CHRISTOPHER D. SULLIVAN, New York
FRANK CROWTHER New York
MORGAN G SANDERS, Texas
HAROLD KNUTSON. Minnesota
JOHN W. McCORMACK Massachusetts
DANIEL A REED. New York
DAVID J. LEWIS, Maryland
ROY O. WOODRUFF. Michigan
FRED M. VINSON, Kentucky
THOMAS A. JENKINS, Ohio
JERE COOPER. Tennessee

ARTHUR P. LAMNECK Ohio
FRANK H. BUCK. California
RICHARD M. DUNCAN. Missouri
CHESTER THOMPSON. Illinois

,

JOHN W. BOEHNE, JR. Indiana
CLAUDE A. FULLER, Arkansas
WESLEY E. DISNEY. Oklahoma

20

OSTA H H

Statements of:

Page

Hon. Henry Morgenthau, Jr., Secretary of the Treasury

853

Mrs. Beatrice Pitney Lamb, representing the National League of
Women Voters

868

George A. Huggins, representing the Church Pensions Conference

873

Miss Mary Van Kleeck, Director of Industrial Studies, Russell Sage
Foundation

875

III

J. TWING BROOKS, Pennsylvania

JOHN D. DINGELL. Michigan
E. W. G. HUFFMAN, Clerk
II

CONTENTS

ECONOMIC SECURITY ACT
TUESDAY, FEBRUARY 5, 1935
HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.

The committee met at 10 a. m., Hon. Robert L. Doughton (chair-

man) presiding.

The CHAIRMAN. The committee will be in order.

The first witness this morning, in further consideration of the
economic recovery bill, is Hon. Henry Morgenthau, Jr., Secretary of

the Treasury.
We are also honored with the presence of Miss Perkins, the Secretary of Labor, whom we shall be glad to hear if she desires to make a
statement this morning.

Mr. Secretary, we shall be pleased to hear you at this time.
STATEMENT OF HON. HENRY MORGENTHAU, JR., SECRETARY OF
THE TREASURY. ACCOMPANIED BY A. J. ALTMEYER, SECOND
ASSISTANT SECRETARY, DEPARTMENT OF LABOR

Secretary MORGENTHAU. Mr. Chairman and gentlemen of the

committee:

The chief suggestions that we should like to make in connection
with the economic security bill are the following: (1) The substitution in the contributory old-age annuity system of a scale of contributory taxes and benefit payments that will facilitate the continued operation of the system on an adequate and sound financial
basis, without imposing heavy burdens upon future generations;
(2) the transference from the Social Insurance Board to the Treasury
Department of the function of issuing and selling voluntary annuity
certificates; and (3) administrative simplification.
OLD-AGE PROVISIONS

1. By inaugurating a national contributory old-age annuity system,
the Federal Government is undertaking very heavy responsibilities

extending from year to year into the indefinite future. Under the
modification that we shall suggest, as well as under the plan now
incorporated in the economic security bill, the sums to be paid out
each year in benefit payments will rise to more than $4,000,000,000.
It is obvious that we must make sure now that the provisions incorporated in the bill will enable the Federal Government continuously
to meet the heavy and recurring liabilities that will be imposed upon
it.

2. Under the provisions now embodied in the economic security

bill, the Federal Government is called upon to defray, out of its general
853

Sec

854

ECONOMIC SECURITY ACT
ECONOMIC SECURITY ACT

revenues, not only one-half the cost of the Federal-State system of
noncontributory old-age assistance, but also the cost of substantial
unearned gratuities that are provided under the contributory system
for persons who will retire during the next 40 years. The benefits
provided for such persons will be substantially in excess of the contributions, plus interest, made in their behalf Such excess benefit
payments would be borrowed from current contributions to the fund
and repaid with compound interest in subsequent years. In consequence, under the present bill, by 1980 and forever after, the cost of
the contributory system to the Federal Government is estimated at
$1,500,000,000 a year. This burden is in addition to a Federal cost

estimated at $504,000,000 a year in 1980 and thereafter for the

noncontributory system.
3. The alteration that we recommend will make it possible, without
the imposition of onerous burdens upon the future, to provide ennuities ranging from $22.50 to $82.50 per month for individuals whose

monthly wages have averaged $150 or more; $15 to $55 for those
whose monthly wages have averaged $100; and $7.50 to $27.50 for
those whose monthly wages have averaged $50-the monthly annuities in each case varying with the number of years of contributions
This scale of benefits is the same as that now incorporated in the
economic security bill for those who retire during the first 10 years.
Our scale is somewhat smaller than that now incorporated in the bill
for those who retire between 10 and 30 years after the system goes

into effect: and our scale is distinctly higher thereafter. The aggregate
benefit payments under the plan that we propose are substantially
identical with those now incorporated in the bill, as may be seen in
the appended tables. The small number of individuals who receive
very modest annuities under the scale that we recommend would be
eligible to have these supplemented under the noncontributory system,
precisely as is the case under provisions now incorporated in the bill.

4. Any actuarial computations extending indefinitely into the
future, such as are necessary for the establishment of a national
contributory old-age annuity system, inevitably rest upon assumptions and forecasts that are subject to a very considerable margin of
error. Subject to this acknowledged limitation, it is our opinion that
the national contributory system can be launched and maintained on
a sound financial basis by establishing the combined rate of pay roll

855

for them upon retirement-despite the fact that the majority of such
individuals will have means of their own. Under our proposal, the
6-percent rate that goes into effect at the end of 12 years will make
up for the deficiency created by the low rates that will be in effect

during the earlier years of the system.
6. Under our proposal, the Federal Government would guarantee

an investment return of 3 percent on all receipts from the pay-roll
and earnings taxes that were not currently disbursed in benefit payments. Such sums would be used progressively to replace the outstanding public debt with the new liability incurred by the Federal
Government for old-age annuities. To the extent that the receipts
from the old-age annuity taxes are used to buy out present and future
holders of Government obligations, that part of the tax revenues that
is now paid out to private bond holders will be available for old-age
annuity benefits: thereby minimizing the net additional burdens upon

the future. Such accumulations and public debt retirement will, of
course, be relatively small during the first 10 years by reason of the

low tax rates with which we propose that the system should be

inaugurated

7. It should be emphasized that the Federal Government, by
inaugurating a national contributory old-age annuity system, is
undertaking responsibilities of the first magnitude. Not only is it

committed to paying a 3-percent return upon all collections in excess
of current benefit payments involved, but it is also diverting for the
purpose of old-age security a very large fraction of its possible tax

revenues But we recommend this deliberately, in view of the

outstanding importance of objective. We know, moreover, that,

even in the absence of the well-considered legislation, we cannot avoid

important financial outlays for the care of the aged. Students of
our population trends tell us that the proportion of the aged and of
the dependent aged in our population gives promise of increasing
very materially in the course of the next few generations.
8. There are some who believe that we can meet this problem as we

go by borrowing from the future to pay the costs. They are willing
to incur the large and growing new liability for old-age annuities
without effecting any compensating reductions in the outstanding
public debt, reductions that could be represented by a reserve account

in the Treasury They would place all confidence in the taxing

and earnings taxes at 2 percent for the first 3 years, 3 percent for the
next 3 years, 4 percent for the third 3-year period, 5 percent for the
fourth 3-year period, and 6 percent thereafter: in substitution for
the rates now incorporated in the bill, which start at 1 percent and

power of the future to meet the needs as they arose.

are increased by 1 percent at the end of each 5 years until a permanent
level of 5 percent is reached at the end of 20 years.

year. We cannot safely expect future generations to continue to
divert such large sums to the support of the aged unless we lighten
the burdens upon the future in other directions. If we fail to do this,
the $4,000,000,000 a year will be a net additional burden. Such a

5. A combined contributory tax rate of 5 percent is the minimum
that will permit the payment of adequate annuities and at the same
time maintain the financial integrity of the system under both the
present economic security provisions and under our proposed alteration. But a 5 percent rate can do this only if it is imposed from the
start. Under the present provisions of the economic security bill, a
5-percent rate does not go into effect for 20 years. Hence, under the
bill a heavy deficit is accumulated in the early years, and the small
sums paid on behalf of individuals now middle-aged or over are kept
so low as to be far out of keeping with the benefit payments scheduled

We do not share this view. We have already cited the fact that

the aggregate benefit payments under our proposal, as under that of
the economic security bill, will eventually exceed $4,000,000,000 a

burden might well jeopardize the continued operation of the system.
If, on the other hand, we are able to reduce the necessary outlays of
future generations in other directions, as by retiring a large part of
the public debt, and by the provision of useful public works, we can

look forward with far more assurance to the continued support of
the system. This, then, is the purpose of our proposal. We desire
to establish this system on such sound foundations that it can be
continued indefinitely in the future; and, at the same time, to meet

Sec

ECONOMIC SECURITY ACT

the highly desirable social objective of providing an adequate annuity
without a means test to all eligible workers upon retirement.
9. We recognize that the incidence of the pay-roll and earnings
taxes appears to be largely upon the mass of our population. But
should be emphasized that the effect of these taxes is to provide a
substitute form of savings from which our workers will receive far
greater and more assured benefits than from many other forms of
savings now in existence. These taxes, in other words, will not be a
net deduction from workers' incomes. They will release funds, as
well as relieve anxiety, hitherto directed toward the universal problem
of providing against one's old age.
10. Further, it is entirely possible that improvements in our revenue system may permit us in the course of time to reduce various
taxes on consumption goods; and thereby to return to the mass of our
population in this form what is taken from it in the form of pay-roll

and earnings taxes.

11. Appended hereto are tables presenting the character of the tax

ECONOMIC SECURITY ACT

Before taking up the next paragraph, which is entitled "Adminis-

trative Simplification I would like to say that from here on I am

presenting the Treasury's own attitude toward the collection of this
tax: that is, this is the attitude of the Bureau of Internal Revenue
on whom the burden of collecting these taxes will fall. As I say, this
is purely the Treasury's statement. Up to this point, those of us who
have worked on this bill are in complete accord. But I wish to point
out that from here on the matter discussed is one which has been
brought to my attention by the Bureau of Internal Revenue. I feel
it is my duty to point that out to the committee, and I want to emphasize once again that this is purely the Treasury's attitude.
Mr. COOPER. Mr. Chairman, may I ask the Secretary a question?
The CHAIRMAN. Mr. Cooper of Tennessee.

Mr. COOPER. By that, Mr. Secretary, we are to understand that
the Economic Security Committee is in agreement and submits
jointly all of the statement which you have read up to this point?
Secretary MORGENTHAU. Up to this point, yes.
Secretary PERKINS. Yes, sir.

rates, net total contributions after deduction for administrative expenses, estimated benefit payments, Federal contributions, and reserves, under both the national contributory old-age provisions as
now incorporated in the economic security bill and under our proposed
alteration.
VOLUNTARY ANNUITY CERTIFICATES

It would appear to be highly desirable that the function of issuing,
and determining the terms and conditions of issue, of voluntary annuity certificates be in the hands of the Treasury rather than in those
of the Social Insurance Board
These certificates will be direct obligations of the United States, and

will involve rates of interest, direct or indirect. They will differ,

chiefly in form, from other interest-bearing obligations of the United
States. For example, a 20-year Treasury bond contains the promise
of the United States to make 40 semiannual interest payments as well

as a principal payment at maturity. An annuity certificate would

also contain the promise of the United States to make a series of per-

iodical payments. Depending upon the character and form of the
annuity, these payments might be made monthly, quarterly, or otherwise; they might be made for a stated limited period, or they might be

made until the death of the holder; or they might even be made in
perpetuity to any holder. Whether the payments were to begin immediately after the purchase of the annuity, or whether the contract
called for payments beginning 20 or 30 years from that date, or when
the holder attained the age of 65, the certificates in all cases would constitute
promises of the United States, precisely like other direct Treasury obligations.
The language of title V providing for these certificates is very broad
in character and would appear to permit the sale of all the types of

certificates just indicated. It would be wholly desirable to retain

such a broad choice of forms; but the intent of the Congress in providing this wide range should be made absolutely clear. In any event,
however, the terms of issue of the certificates and the rates of interest
involved
would appear to be proper matters for determination by the
Treasury.

857

Mr. TREADWAY May I ask a question, Mr. Chairman?

The CHAIRMAN. Mr. Treadway
Mr. TREADWAY. From the point where you are now about to read,

your Department is not in agreement with the bill as submitted to
us? Is that what you mean, Mr. Secretary?
Secretary MORGENTHAU I would not put it that way. I simply
feel that this is a matter the responsibility for the carrying out of
which will fall on the Bureau of Internal Revenue. They raised the
point as to whether they can enforce this, and I, as Secretary of the
Treasury, feel that I should bring it to the attention of this committee.

Mr. TREADWAY. I assume that you concur with the Bureau of

Internal Revenue on this point?

Secretary MORGENTHAU. Oh, yes.

Mr. TREADWAY. You approve what they are recommending to
you for you to submit to the committee?
Secretary MORGENTHAU. Yes Otherwise, I would not read it.
Mr. TREADWAY. That is what I assumed.
Secretary MORGENTHAU. I would not read it unless I believed in
it.

Mr. TREADWAY. I wanted it to be perfectly clear in the record.
Secretary MORGENTHAU. I want to make it clear that Miss Perkins

and I are in complete accord, but this particular matter is purely

one of administration

The CHAIRMAN. Please proceed.
Secretary MORGENTHAU.
ADMINISTRATIVE SIMPLIFICATION

This committee is well acquainted with the Treasury's attitude on
law enforcement. If there is a law on the statute books to be enforced
by the Treasury, we insist on enforcing it to the utmost of our powers.
But in one respect the bill in its present form imposes a burden upon
the Treasury that it cannot guarantee adequately to meet.

The national contributory old-age annuity system, as now pro-

posed, includes every employee in the United States, other than those
of governmental agencies or railways, who earns less than $251

news mu
Sec

a

856

858

ECONOMIC SECURITY ACT
ECONOMIC SECURITY ACT

month This means that every transient or casual laborer is included
that every domestic servant is covered, and that the large and shifting

859

(The tables submitted with the statement of the Secretary are as

class of agricultural workers is covered. Now, even without the

follows:)

inclusion of these three classes of workers, the task of the Treasury
in administering the contributory tax collections would be extremely
formidable. If these three classes of workers are to be included,
however,
the task may well prove insuperable-certainly, at the outset.

Economic security plan
(All estimates in millions)

1937

302.9

1938

306.0

1939

308.9

18.4

1940

312.0

26.1

insofar as the domestic-service class is concerned over there.
Secretary MORGENTHAU. I am sorry, Mr. Congressman, that I am

1950

1945

not familiar with the experiences of Great Britain. I am simply
pointing out what I feel is a difficulty. Perhaps we can work out

Benefit

0.0

666.1

Reserve
end of
year

302.3

0.0

0.7

0.0

2.0

415.3

0.0

3.3

939.3

0.0

4.8

0.0

190.1

0.0

577.1

104.9

1,064.0

payments

tions

reserve

difficulty of collecting the tax from those classes.
Mr. REED. Mr. Secretary, your views with regard to the difficulty

of collecting this tax coincide with the experience of Great Britain

Federal

contribu

tributions

I want to point out here that personally I hope these three classes

can be included. I am simply pointing out the administrative

Interest

Net con-

Year

1,274.7
4,079.6

1955

1,507.1

334.9

1,149.6

7,673.9
11,811.0

1960

1,953.1
2,042.0

424.0
458.0

0.0

1,924.9

14,595.7

1965

165.7

1970

2,121.1

458.0

632.8

1975

2,200.1

458.0

1,034.1

1980 and thereafter

2,216.7

458.0

1,478.7

2,532.8
3,112.5
3,611.2
4,153.3

209.1

0.0

some way of overcoming that difficulty.

⑉
it

15,266.7

Source Committee on Economic Security.

Mr. REED. The British Government had that difficulty, exactly
along the lines you mention, and those people were eliminated from
the provisions of their security act.
Secretary MORGENTHAU. I do not happen to be familiar with the
British experience or practice in that respect.
The CHAIRMAN. In other words, you are presenting a very serious

Suggested basis of national contributory old-age annuity system
(All estimates in millions)
Interest on

Net contributions

Year

difficulty which you have thus far not been able to find a way of

reserve

Federal
contribo-

Benefit
payments

tions

Reserve

end of year

overcoming?

Secretary MORGENTHAU. Up to now. But I am asking the Bureau
of Internal Revenue to try their best to find some way whereby this
tax can be collected As soon as they find a way, I shall ask them to
bring it to this committee's attention

1937

0.0

0.0

1934

18.7

0.0

4.0

1939

38.0

0.0

6.7

58.0

0.0

1940

Under the income-tax law, the Bureau of Internal Revenue last
year handled something less than 5 million returns; with the present
nearly universal coverage of the bill's provisions with respect to contributory old-age annuities, we estimate that some 20 million returns
would be received. In addition, there would be required the sale of
stamps to be used in connection with hundreds of thousands of odd
payments for casual work, often for only a few hours' duration. We

10.8

1945

1,393.3

237.5

0.0

207.6

1950

2,185

498.7

0.0

623.6

796.8

0.0

2,280.0

1955

2,375.1
1965

1,046.5

1,206.1

1,983.0
2,960.2
9,838.8
18,682 8

1,223.

0.0

2,023.1

2,470.0

1,231.5

00

1,628.4

0.0

3,191.2
1,692.3

2,565.1

1,370.0

1975

2,000.00

1,462.7

0.0

1980

2,660.0

1,502.2

0.0

1970

622.0

1.3

146.3

am
50,093.7

Source: Committee on Economic Security.

Present economic security annuity scale

recognize, without question, the need of these classes of workers for
the same protection that is offered other employed workers under the

FOR ENTRANTS PRIOR TO 1942
Monthly annuity based on

bill. But we should like to ask the committee to consider the question whether it is wise to jeopardize the entire contributory system,
as well as, possibly, to impair tax-collecting efforts in other fields,
by the inclusion under the system of the necessity for far-flung,

Monthly acculty based on
level monthly wage of-

level monthly wage ofYears of contribu-

Years of contribu-

tion

tion
850

minutely detailed, and very expensive enforcement efforts.
In view of the great importance of our objective, we should greatly
regret the imposition of administrative burdens in the bill that would

$100

$150 and

$50

$15.00

$22

to

$20.00

30.00

threaten the continued operation of the entire system. After the
system has been in operation for some years, more inclusive coverage

may prove to be entirely practicable; but we should like to see the
system launched in such fashion that its administrative as well as its

40.00

$40.00
40.00

20.00

45.00

20.00
20.00

$100

over

$150 and
over

$00.00
60.00
60.00

20.00

40.00

60.00

$17 NO

$35.00
40.00

$12.00
40.00

00.00

FOR ENTRANTS IN 2942 AND AFTER

financial provisions contribute directly to the assurance of its success.
I assume it will not be necessary for me to read the tables that are
submitted in connection with my statement.
The CHAIRMAN. I do not think that is necessary. They will be put
in the record at this point.

$5.00

$10 00

$15 00

7.50

15.00

22.50

10.00

30

30.00
45

80.00

Source: Committee on Keonomic Security

0

non
Sec

45.00

22.50

45.00

67.50

25.00

50.00

75.00

ECONOMIC SECURITY ACT

860

ECONOMIC SECURITY ACT

Suggested basis of national contributory old-age annuity tem-illustrative annuities
ENTRANTS OVER 40 YEARS OF AGE
Monthly annuity based on

level monthly wage of

Years of contribu-

Years of contribu-

tion

tion
$100

$7.50

$15.00

10.00

20.00

12.50

15.00

25.00
30.00

17.50

35.00

$1.50 and

$22.50
30.00
37.50
45.00

$100

$50

over

$150 and
over

to

17.50

35.00

as

35.00

52.50
52.50

40

35.00

52.50

35.00

52.50

45

$50

Monthly annuity based on
level monthly wage of-

to

52.00

a Service rendered after attaining age 65 is not counted in computing benefits

85.00

5.00
7.50

10.00

15.00

12.50

25.00

17.50

35.00

an

The CHAIRMAN. The Chair would like to suggest that unless someone should request to be heard in opposition to the proposed changes,
further hearings will not be necessary on those proposed changes.

Should any one request that they be heard in opposition to those
changes that might change the situation
Mr. KNUTSON. Mr. Secretary, under your annuity plan as proposed
this morning, what is it going to cost in 1980?
Secretary MORGENTHAU On the contributory part of the plan it
will cost the Government nothing. It will be self-sustaining.

Mr. KNUTSON. What will the entire plan cost? Will it materially

change the cost to the Federal Treasury?
Secretary MORGENTHAU. The noncontributory part of its will cost
the Treasury something over $500,000,000.

Mr. KNUTSON. That is in 1980 And that would become a fixed

ENTRANTS UNDER 40 YEARS OF AGE
$2.50

861

charge upon the Treasury annually, of $500,000,000?

20.00

40.00

18

45.00

67.50

25.00

50.00

75.00

27.50

55.00

82.50

60.00

52.50

Secretary MORGENTHAU. Yes.

Mr. KNUTSON. What about the old age part of it?
Secretary MORGENTHAU. That will be zero.

Mr. KNUTSON. You mean the old-age pension plan will take care

Source: Committee on Economic Security

Mr. KNUTSON. Mr. Secretary, you are making some recommendations of changes in the bill that we have before us?
Secretary MORGENTHAU Yes, sir

Mr. KNUTSON. It was my understanding that the bill we have
before us, H. R. 4120, was the product of the Economic Security

Committee appointed by the President
Secretary MORGENTHAU. That is right.
Mr. KNUTSON. When were these changes agreed upon, Mr. Secre-

tary'

Secretary MORGENTHAU. Mr. Knutson, the fact that the changes

have been made as late as this is purely my own fault. Unfortunately, I had so many administrative duties to perform. I worked for
3 months on the $4,800,000,000 bill that was recently before the
Congress. I took part in the preparation of the Budget. So it is
my fault that I did not get to this earlier. I simply felt that I had

better be late and be right.
Mr. KNUTSON. We have put in 2 weeks of hearings on H. R. 4120.
I am just wondering whether the changes that you have proposed this
morning would necessitate continued hearings, perhaps for as long a
time as we have been in session on this bill.
Secretary MORGENTHAU. Of course, that is up to the committee,
as to whether they want to have further hearings on the bill.
Mr. VINSON. May I suggest to the gentleman from Minnesota that
several of these suggestions that have been made this morning were
mentioned during the course of the hearings. For instance, the exclusion of the agricultural workers, domestics, and the casual workers
from the contributory plan was discussed freely, as I recall it.
Dr. Witte made the statement that the exclusion of those from the
contributory system could be had without any added burden to the
fund or to the system.
Mr. KNUTSON. That is true.

The CHAIRMAN. If Mr. Knutson will yield-

Mr. KNUTSON. Of course,

of itself in 1980?
Secretary MORGENTHAU. Yes, sir
Mr. TREADWAY Mr. Secretary, you speak about being delayed in

getting up your recommendations We have been urged to hasten
this bill. You regard this as a very important piece of legislation,
do you not?
Secretary MORGENTHAU. Very important.

Mr. TREADWAY. Do you think there is any occasion for Congress
to hurry in its consideration of it?
Secretary MORGENTHAU. I would not advise the Congress, sir

Mr. TREADWAY. Oh, you have so many times and in so many
ways, I think we ought to ask for your advice now.
Secretary MORGENTHAU. I have never been so rash as to advise
Congress

Mr. TREADWAY. Let me approach this from a different avenue,
then. It is queer how much confidence some people have in Congress, much more than I personally have, with the present set-up
of it.

Mr. Secretary, Dr. Witte insisted-I do not mean insisted in

the rude sense of the word-bu was very positive that we should

hasten to proceed as rapidly as possible, because he said there were

44 State legislatures in session this year. Do you think that the

action of Congress should be in any way subservient to, or based upon,
what legislatures may do after congressional action?
Secretary MORGENTHAU. I do not think I could answer you on a
question like that. You have been here so much longer than I.

Mr. TREADWAY. That was the reason given by Dr. Witte for
suggesting to us to hurry our action. Personally, I do not agree

with him
Secretary MORGENTHAU. You have been here so many years, you
know much better than I what Congress should or should not do.
Mr. TREADWAY. But is not that a fair question, Mr. Secretary?
We are advised by the secretary of this committee, of which you are
the chairman, or one of the most important members
Secretary MORGENTHAU. Just a member.

Sec

862

ECONOMIC SECURITY ACT
ECONOMIC SECURITY ACT

Mr. TREADWAY. Your secretary, your employee, has very definitely
advised us to hurry. Do you approve his recommendation or
not?

Mr. VINSON. Our whole purpose is to consider it fully and carefully, as we have been doing, are doing and will continue to do.
Mr. TREADWAY. And that is perfectly agreeable to me.
Now, Mr. Secretary, allow me to ask you about the social insur-

Mr. DISNEY Mr. Chairman, is that in order when we have im-

portant business to proceed with?

ance board. You recommended the transference from the social
insurance board to the Treasury Department of the function of
issuing and selling these voluntary annuity certificates. That would
take the issuance of the annuity certificates out of the hands of the
social insurance board, would it not?

Mr. Chairman, I object to the gentleman abusing

Mr. TREADWAY. You object to what?
Mr. DINGELL I suggest to the gentleman from Massachusetts that
he has been trying to force an answer to that question from every

witness who has appeared here.

Secretary MORGENTHAU. That is right.

Mr. TREADWAY. To what extent would that reduce the responsi-

Mr. TREADWAY. I have a right to do that, as a member of this

committee.

bilities of the Social Insurance Board?
Secretary MORGENTHAU. I do not think it would reduce them at all.

Mr. DINGELL. I submit that the secretary is not here
Mr. TREADWAY. 1 am not insulting the secretary in any way.
I shall submit to the chairman of this committee, not to you, sir, for
judgment on what I am doing. The chairman has the power to keep
order here, not a subordinate member of the committee.
The CHAIRMAN. Gentlemen, I hope we will not have any contro-

Mr. TREADWAY. They would still be just as important as in the

original set-up?
Secretary MORGENTHAU. I think so, yes.
Mr. TREADWAY. Let me ask if you approved the manner in which
that board is established.
Secretary MORGENTHAU. Mr. Chairman, I have been here before,

versy.

Mr. HILL. Will the gentleman from Massachusetts yield to me?
Mr. TREADWAY. Yes, but I do not intend
Mr. HILL. I am not going to lecture you.
Mr. TREADWAY. No, and I do not intend to take it. [Laughter.
Mr. HILL. I just want to ask the gentleman from Massachusetts
if
he
has observed any evidence of undue haste on the part of this
committee.

and I think you know that I try to answer questions on matters on
which my responsibility rests. I do not want to seem to evade Mr.
Treadway's questions, but I should like to confine my testimony
only as to what I am familiar with, and I have confined myself to a

Mr. TREADWAY. No, I have not, but I have on the part of witnesses
to hurry us.

Secretary MORGENTHAU I feel that a question like that Miss
Perkins, who is here, is in a far better position to answer than I.
have confined my activities to the financial aspects of the question.

study of the financial aspects of the bill.
Mr. TREADWAY I am perfectly willing to withdraw the question
under those circumstances.

Mr. HILL. Does not the gentleman think that the committee can

I

DINGELL.
theMr.
witness.

863

Mr. TREADWAY. That is entirely satisfactory, Mr. Secretary
There are just one or two other inquiries I should like to make, if I
may In the discussion of the bill with your secretary of your committee, we frequently ran into the statement that the paragraph that
we were considering, the section we were inquiring on, was written

take care of itself?

Mr. TREADWAY. I am sure they can. Then if it is not agreeable to
the
Secretary to answer that line of questions, than I will try one or
two other lines.
Let me make this one statement of my own in connection with these
44 State legislatures. I find that of those 44, 18 have an expiration
date in March, 4 in February, and 2 in April. There are only 17 of
those legislatures whose terms of session are indefinite. Therefore,
I think the argument falls pretty flat that Congress should hurry in
order to reach the legislatures while they are in session this year.
Mr. VINSON. Will the gentleman yield to me?

in the Treasury, and consequently the witness knew nothing about it,

or took it for granted that the Treasury had done the thing in the
right way. That occurred several times.
Would you be willing to inform us where in the Treasury those
paragraphs were written?

I cannot at this moment lay my hands on the individual items, but
you will find that appearing in Dr. Witte's testimony, in answer to

Mr. TREADWAY. Yes.

that kind of a question, several times.
Secretary MORGENTHAU. I think you will have to help me out by
telling me which paragraphs were referred to.
Mr. TREADWAY I agree that my question is somewhat indefinite,
unless you had in mind, in a general way, the nature of his testimony.
Secretary MORGENTHAU I am sorry I am not sufficiently familiar
with it.
Mr. TREADWAY. There were certain parts of it written by some of
your assistants, or associates?
Secretary MORGENTHAU. Oh, yes. I am sure that if Dr. Witte said

Mr. VINSON. I know the gentleman from Massachusetts well, and
I cannot conceive that he is endeavoring to leave the impression that
anyone is seeking to delay this legislation.
Mr. TREADWAY. Oh, no; but I do not intend to behastened There
is no one trying to delay. I am for the legislation, if we can whip it
into shape properly. have never said a word in opposition to the

legislation, as the gentleman knows.

Mr. VINSON. I understand that, and I cannot conceive of the

gentleman seeking to delay it.
Mr. TREADWAY. Not in the slightest; nor do I wish to be hurried
in the consideration of it.

that the Treasury wrote it, referring to any certain paragraph, that

his statement is correct.

)

Sec

864

ECONOMIC SECURITY ACT
ECONOMIC SECURITY ACT

Mr. TREADWAY He did not say by whom in the Treasury Department, and we know the Treasury is a pretty big organization
Secretary MORGENTHAU. Well, we have had a great many people
working on it, and some of the employees have been changed
Mr. TREADWAY I now have Dr. Witte's testimony before me, and

willinstance,
call your
to some parts of it. In reply to an inquiry,
for
heattention
says:
I frankly state that I cannot answer that question definitely The bill was
drafted by the counsel of the committee, with the assistance of the legislative
members
andhouses.
with changes made by the legislative members, who introduced
the bill in both
Another inquiry:
Have you had the aid of Mr. Beaman at all?

Mr. Beaman is our legislative drafting counsel, and one in whom
we have the fullest confidence Dr. Witte's answer was:

865

Mr. TREADWAY I was under the impression that there was a list
of advisory committees in the back of the report as an appendix,
and that these names were in that list.

Mr. ALTMEYER. We shall be glad to furnish that information to

your committee, if you wish
Mr. TREADWAY. And there was complete agreement among the
actuaries?

Mr. ALTMEYER Yes, sir.
Mr. TREADWAY. As to the actuarial set-up of this proposition?
Mr. ALTMEYER. Yes, sir; no disagreement at all.

Mr. TREADWAY I have read the names of these four gentlemen,
but I understood you to say there were others.
Mr. ALTMEYER. No.
Mr. TREADWAY These four are responsible for the actuarial set-up?

I could not answer that. I think not. We have had the aid of the Treasury
Department in all financial provisions, and I think Mr. Beaman was consulted

Mr. ALTMEYER. They were the consultants who were consulted by
the staff actuaries.
Mr. TREADWAY. Who were the staff actuaries?
Mr. ALTMEYER. As I said, Mr. Richter, of the American Telephone

That this
is one
drafted
bill.of the places where he refers to the Treasury as having

& Telegraph Co. Mr. Williams of the Travelers Insurance Co.: and
Mr. Latimer, who is Chairman of the Railroad Retirement Board, as
well as several staff employees, who made many of the calculations.

by the members, but not directly by the committee.

Just one other request, and I will have finished In your list of
committees, in the appendix, on page 60 of this report, there are
certain names. We have made some inquiries from time to time about
the advisory committee and were not entirely able to get at the root

of the matter. I want to call your attention to the actuarial consultants, consisting of 3 college professors and 1 president of a mutual life
insurance company 4 gentlemen who were the actuarial consultants
I would like to inquire whether, in making up these tables of cost
and
annuities,
and so forth, other actuaries of the country were consulted
by your committee?

Mr. TREADWAY. What do you mean by staff employees; employees
of the technical board?
Mr. ALTMEYER. Yes.
Mr. TREADWAY. Or members of the technical board?
Mr. ALTMEYER. No; employees of the technical board.
Mr. TREADWAY. These four gentlemen whose names appear here
are the only official actuaries of the committee; is that correct?

Mr. ALTMEYER. No: I just told you that Mr. Richter
Mr. TREADWAY. But you talk about a staff and about actuarial
consultants, and there is so much of a mix-up that I cannot under-

Secretary MORGENTHAU Will you allow Mr. Altmeyer, the Second
Assistant
Secretary of Labor, to answer that question?
Mr. TREADWAY. Of course.

stand it. Of course, it is clear in your own mind, and perhaps it
ought to be in mine, but I may be dull about this. Who were the

Mr. ALTMEYER. The report of the committee will give you full information as to the actuaries who were consulted. There was a committee of actuaries that met with the staff actuaries. The staff actuaries included Mr. Richter, of the American Telephone & Telegraph
Co.; Mr. Williams, of the Travelers Insurance Co. and Mr. Latimer,
who,
as you
know, has
already testified and who is chairman of the
Railroad
Retirement
Board

Mr. ALTMEYER. Mr. Richter, of the American Telephone & Telegraph Co.: Mr. Williams, of the Travelers Insurance Co. and Mr.

Mr. TREADWAY. Is Mr. Latimer a professional actuary, or is he
just chairman of this board that you mentioned?
Mr.
ALTMEYER.
Mr. Latimer
is probably the outstanding expert in
this
country
on industrial
pensions.

head actuaries who recommended this program?

Latimer, Chairman of the Railroad Retirement Board.
Mr. TREADWAY And they were the heads of the actuarial consultants, as noted in this report?
Mr. ALTMEYER. They were the men in Washington. They spent
all, or practically all their time on these actuarial calculations.

Mr. TREADWAY. That is what I wanted to know. Now we are

that in the report the names of the actuaries who were consulted
appear
in addition
those
listed as actuarial consultants Can you
tell me where
to findtothat,
please?

getting somewhere. But these other gentlemen, the four whose names
these
appear here, were outsiders who might have had the report of
three men submitted to them, something like that?
Mr. ALTMEYER. Exactly. They came to Washington for consultation with these three men who gave practically their full time to it.
We wanted to be certain that we were doing the thing right, and we
had those three or four men who could not come to Washington full
time to go over all of the calculations, and, as I said before, they are in
absolute agreement with our men: no disagreement whatsoever.
Mr. TREADWAY. Thank you. That is what I wanted to know.

ALTMEYER.
to Mr.
submit
it to you. I have not a copy of it with me, but I will be glad

Mr. VINSON. Mr. Altmeyer, in addition to the three gentlemen

Mr. TREADWAY. But he is not a life-insurance actuary?
Mr. ALTMEYER. That is correct.

Mr. TREADWAY. May I ask this further question? I understood

you to say-I could not quite hear understood you to say

whom you mentioned being in active charge of the actuarial work and
110098 35 No

Sea

866

ECONOMIC SECURITY ACT
ECONOMIC SECURITY ACT

the four gentlemen who are listed as consultants, you did not mean to
exclude other actuaries who worked on this proposition?
Mr. ALTMEYER. Not at all. There were many.
Mr. VINSON. Tell us about that.

867

If you do not mind, I will ask Mr. Altmeyer to answer those

questions.

Mr. ALTMEYER. There are about 7,000,000 who are over 65 at the

Mr. ALTMEYER. I do not know all of the actuaries who were consulted. Mr. Witte could tell you what actuaries were consulted from
time to time. But, gentlemen, we are perfectly willing to place full
responsibility upon those persons whom we have just mentioned
They will accept that responsibility, I am sure.
Mr. VINSON. But of course they had a staff.
Mr. ALTMEYER. They had gentlemen on the technical staff.
Mr.
VINSON. And actuaries in different departments assisted in
these calculations?

present time. As the years go by, that number will increase. In
about 30 or 40 years you will find it will run up to about fifteen or

Mr. ALTMEYER Yes. The Treasury Department assisted us, for
example. I do not know how many actuaries were actually consulted
But those persons I have mentioned will assume full responsibility
Mr. LEWIS. Mr. Altmeyer, will you tell the committee of the work

Mr. VINSON. May I suggest to the gentleman from Massachusetts
that they are not excluded.
Mr. McCormack. Is it proposed by you that they should be?

twenty million. Those figures are contained in the supplement of the
committee report, which I shall be glad to file with the committee.
Mr. McCorMack. That is based on the tables of mortality?
Mr. ALTMEYER. Yes, sir.

Mr. McCorMack. Why should they be excluded from the benefits

of old-age assistance?
Secretary MORGENTHAU. Who, Mr. McCormack?

Mr. VINSON. They are merely relieved from the contributory

done by Dr. Latimer, by way of qualification for the work that he

features.

has done in connection with this bill? I understand through years of
labor he has compiled two large volumes on agencies such as we are
setting up in this bill. I would have the feeling that perhaps he is the

Secretary MORGENTHAU. I tried to make clear, and I am glad to
have the opportunity again, that I do not suggest that anybody be

foremost authority in the world today on that subject matter. Tell

the committee briefly of his work, please.
Mr. ALTMEYER. Mr. Latimer you have said in a nutsbell exactly
what he is. The President, as you know, has appointed him Chair-

excluded. simply point out that the Bureau of Internal Revenue
feels that a plan has not yet been devised which will make it practical
to collect this tax.
We just came out of one of the most difficult eras of selling liquor.

I have been struggling with that for about 13 months. We are

man of the Railroad Retirement Board. I think you are correct in
saying that he is the foremost expert on industrial pensions in this
country today. He has had many years of study of the subject of
industrial pensions, and the main result of his recent studies is
included in this 2-volume report that you have just mentioned
Before that
technical
work.he had long sebolastic training to prepare him for his

beginning to see daylight now, and getting the public to realize that it
is a question of buying tax-paid or non-tax-paid liquor. The American

Mr. McCorMACK Mr. Secretary, referring to the casuals, and the
domestics, and I assume those engaged in agricultural pursuits, they
are the ones you have in mind in connection with your expression of
doubt conveyed to the committee of the feasibility of practical administration of the provisions of the bill as applied to them, is that
right?

is up to us to find a way to collect that tax, and the Internal Revenue
Bureau should do that. But we have not been smart enough yet to

Secretary MORGENTHAU Yes, sir.

Mr. McCorMack. How many are involved in number?
MORGENTHAU.
I am told an approximate estimate would
beSecretary
about 7,000,000,
all told.

Mr.
McCorMack And the bill in its present form embraces about
how
many?
Secretary MORGENTHAU. Mr. Haas says about 20,000,000.

Mr. McCorMack. Twenty million?

Secretary MORGENTHAU. The bill would affect about 20,000,000.
Mr. McCormack That is, under the unemployment features?
Secretary MORGENTHAU. That is the old-age provision.

Mr. McCormack Is there any estimate as to how many of those

20,000,000 will be affected by the old-age provisions?
Secretary
MORGENTHAU. Now you are getting a little beyond my
depth,
Mr. McCormack

public got itself into a frame of mind where they just did not think

they had to obey the Federal laws.
What I am afraid of is that if we make it so difficult to collect this
tax that we may again build up a large population or group who will

get themselves into that same sort of frame of mind. I feel that it
do it. I want to make it very clear that we are not recommending

that any group should be excluded.
Mr. VINSON. May I suggest that the testimony before the com-

mittee, Mr. Secretary, has shown that the moneys that would be
paid in by this group in taxes, under the contributory plan, would
buy very small annuities. You would have to take the benefits

that would accrue, and, of course, there is no suggestion here that this
group would be excluded from the noncontributory features, or what
we generally call the old-age pension plan.
Mr. McCormack I recognize the force of the argument that there

are administrative difficulties, but that is taking an attitude of defeatism, it seems to me. If we do not get them in the bill, then you
are going to have a lot of difficulty in the future getting them into
the bill. If we are going to do anything, we might as well embrace
them now, and if necessary suspend payments from them for a year
or two until you have devised a method of obtaining those payments
in 8 practical way That would be my thought on the matter.
Secretary MORGENTHAU I would say that that would be ideal.
The CHAIRMAN. If there are no further questions, we thank you
for your appearance and the testimony you have given the committee,
Mr. Secretary.

Sed

868

ECONOMIC SECURITY ACT

The CHAIRMAN. Mrs. Lamb, will you please come forward, state
your name, and the capacity in which you appear.
STATEMENT OF MRS. BEATRICE PITNEY LAMB, REPRESENTING

THE NATIONAL LEAGUE OF WOMEN VOTERS, NEW YORK

CITY

Mrs. LAMB. Mr. Chairman and gentlemen of the committee:
The National League of Women Voters favors the passage of the
unemployment compensation sections of the economic security bill.
Since our reasons for supporting the bill are much the same as the
reasons already given by other advocates of the bill, we will not take
the time of the committee to go into them.
Instead, I will confine myself to speaking about certain sections of
the
bill, about which questions have occurred to us
The first of these is section 606, under the definition of "Unem-

ployment fund". which seems to require that every State law,
whether of the pooled-fund type or the separate reserves type must

set up a pooled fund with at least 1 percent contributions from

employers. The rest of the fund might be of any type desired by the
State, but there must be in any case this 1-percent pooled fund.
This is a valuable provision, for it would provide some secondary
security, for example, to workers covered by company reserve funds,
which had become exhausted. In the case of the Wisconsin plan, it
would be a step toward changing from the reserve to the pooled plan,
and provide greater security to workers.
As I say, section 606 seems to require this, but doubts arise in our
minds about it, for this provision is hidden away not only in a definition instead of in the main body of the bill, but also in parentheses,
which is a strange place to find a major requirement of this kind.

If this requirement is to be binding it should be taken out of

parentheses, taken out of section 606, and set down definitely as one

of the requirements for State laws, under sections 407 and 602.
Otherwise, a court of law might hold that it had slipped into the bill
by accident, and that it was clearly not the intent of Congress to

require the setting up of a 1-percent pooled fund as one of the conditions of receiving administrative allotments or employer credits.
My second point is that as the bill stands at present, there is one
serious loophole, a loophole that might actually encourage States to
pass weak rather than strong State laws. This results from the very
generous sections on additional credits, in sections 607 and 608,

combined with the fact that the bill requires no standards as to
length of waiting period or size or duration of benefit payments.
Under section 608 (b) of the bill, the employer is allowed full credit
against his tax for all the contributions which he is not making to his
reserve fund providing that fund does not fall below 15 percent of the
annual pay roll. He can cease his contributions entirely and still
receive credit so long as the fund is up to the required 15 percent.
The simplest way to keep a fund up to 15 percent is to pay very
little out of it, that is by making the waiting period long, the benefits
small, and the benefit period short. If the employers in a State wish
to evade the Federal tax and at the same time pay little or nothing as

unemployment compensation contributions they can do so. All

they have to do is to get through their legislature a bill providing for

279

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

February 6, 1935

FE 893.515

My dear Mr. Secretary:

Referring to previous communications in regard to and

in connection with the effects in China of the silver
policy of the United States, I enclose for your consideration copies of papers as follows: a note dated February 1,
with enclosure, from the Chinese Minister in Washington;
and a note dated February 5 from the Chinese Minister in
Washington.

I would appreciate receiving at your early convenience an indication of your views in regard to the "plan"

outlined by the Chinese Minister of Finance, the text of
which 18 communicated in the note of February 5 from the
Chinese Minister in Washington.
Sincerely yours,
(Signed) CORDELL HULL

Enclosures:
From Chinese Legation,

February 1, with

enclosure;
From Chinese Legation,
February 5.
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

280

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

FE 893.515/402

February 7, 1935

My dear Mr. Secretary:

Referring to my letter to you of February 6 transmitting copies of communications of February 1 and
February 5 from the Chinese Minister in Washington, I
wish to add that, in connection with the note of February 5 in which appears the "plan" outlined by the Chinese
Minister of Finance, the Chinese Minister in Washington
gave me a separate note in which he states that, in reference to the communication from the Chinese Minister of
Finance, he "desires to make the following observation:
"By making all purchases from China desired quantities could be obtained more
expeditiously and advantageously and with less
inducement to speculation than by buying from
many sources and the Chinese Government can
thus obtain necessary supplies without the risk
of smuggling to take advantage of a higher price
abroad. American buying at London or other open
markets at a price above the value in China
necessarily invites smuggling. For these reasons
the assurance of American purchases made in China

only from the Central Bank of China is no great
assistance against smuggling. Moreover an exclusive arrangement would facilitate the government
in obtaining desired quantities from the Chinese

public.' #

Sincerely yours,
(Signed) CORDELL HULL

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

281
COPY

CHINESE LEGATION

Washington

February 1, 1935

My dear Mr. Secretary:

I beg to inform you that I have received from
Dr. H. H. Kung, Minister of Finance at Nanking, for
delivery to you a memorandum summarizing, supplementing

and bringing up to date the data on the silver question,
a copy of which is herewith enclosed for your consideration.

I beg leave to point out that the opinions expressed
in the report of the Ministry of Industries Commission
referred to in the memorandum do not necessarily represent the views of the Chinese Government.

I am, my dear Mr. Secretary,
Very sincerely yours,
(Signed) SAO-KE ALFRED SZE

Enclosure:

Memorandum as above.

Honorable Cordell Hull,

Secretary of State.

282
Senator

letcher:

Mr. Secretary, I hate to trouble you about a
a small matter like this.

HM.Jr:

You can't trouble me anytime Senator Fletcher.
It seems to be a last chance for a man whose
circumstances which require that I take the opportunity
for me to speak for him. His name is J. S. Kemp.
He's now Administrative Officer for the Division of
Disbursements connected with the PWA. He started
He
in as Messenger in the Treasury years ago.
did splendid wherever he has been employed.

F:

H.M.Jr:
F:

How do you spell his name?

J. S. K e m p.

H.M.Jr:

Kemp

F:

Yes. He's been trans/ with these people and he
wants to be transferred as CAF 13.

H.M.Jr:

CAF?

F:

ferred

CAF 13. His salary is $5600 I think.

H.M.Jr:

$5600.

F:

He's been there for a great many years since he was
a boy and he's rendered splendid service wherever he
has been. He's doing a big job there with PWA now.
He's spending something like a million and a quarter
a day.

H.M.Jr:

And they're going to lay him off?

F:

What?

H.M.Jr:

Are you going to lay him off?

F:

No no trouble - this reclassification. He has a
chance of getting this classification CAF 13.

HM.Jr:

Oh he'd like to come with us?

F:

He wants to do that. HeSwith you now but he wants

HM.Jr:

Is he on my payroll or PWA?

F:

He's on your payroll at present, I believe, but PWA

to have this classification.

has been paying him, I guess.

233

-2H.M.Jr:

Oh, well I'll look into it.

F:

Alright.
and -- I wish you would. He've very deserving

HM.Jr:

I'11 be glad to look into it.

F:

Alright.

H.M.Jr:

Thank you.

February 11, 1935.

Monday.

284

February 13th

Mr. Irey had been to see the Attorney General
in regard to a p pointing Dan Moody as a Special Assistant
United States Attorney General to handle the Huey Long case.
The Attorney General agreed but said that they had no funds
with which to pay Mr. Moody. Mr. Morgenthau told McReynolds
to work this out. All investigations show that Mr. Moody
is an excellent man to handle this case.
H.M.Jr. checked with the Vice-President and
he greatly approved of this appointment.

H.M.Jr. also talked with the President and got

his approval to go ahead.

235
February 13, 1935

Monday - Feb. 11th - As soon as we started lunch I read
the following statement to the President:
1. Since January 14th banks and dealers in
foreign exchange and gold, have practically stopped
buying and selling gold, within gold import and export points - which means that the International
Gold Standard as between foreign countries and the
United States has ceased its automatic operation.

2. Thanks to the foresight of 73rd Congress,

we now have a Stabilization Fund.

3. When we saw that the external value of the
dollar was rapidly going out of control, we put the
Stabilization Fund to work on a moment's notice with
the result that for the past four weeks we have successfully managed the value of the dollar in terms
of foreign currencies.
The country can go about its business with assurance that we are prepared to manage the external
value of the dollar as long as it may be ncessary.
He liked it very much and made a good suggestion. I no sooner finished reading mine when he said, your statement fits in
with what I have written. He said, "you eat and let me read
you my proposed radio speech to be given on the night of the
day that the court hands down its decision." He was like
kid about it, he was so pleased with himself and with the
statement. After finishing the statement he said, "Joe
Kennedy thinks that the statement is so strong that they will
burn the Supreme Court in effigy." I told him that I did not
a

think it was too strong. As a matter of fact I liked it very

much.

I tried to get him to discuss the details of what we
would do in case a decision would be handed down but he said
it was no use discussing it until we see how the decision
is worded.

I had Mc Reynolds bring in a statement for him to
sign which letter would go on the Hill asking the Senate Committee on Finance to make it possible to pay the 1300 Civil
Service employees who had to be dropped off the payroll on
December 1st on account of the McKellar Amendment. He read
thru the statement very carefully, looked up and said, "how
will McKellar feel about this". We told him that he would be
opposed. Without a moment's hesitation he reached for the
pen and signed the letter. I would not have been a bit surprised if he would have suggested postponing the sending of

286

this letter until after the Senate Finance Committee had voted
out the four billion eight bill. McReynolds who was present
of course got a great thrill out of seeing how the President

reacted.

On returning from the White House I continued to go over
the statement consulting Oliphant and Coolidge and finally
George Harrison over the telephone (copy of phone conversation
attached hereto) and all of them made good suggestions.
was naturally quite nervous about giving out this statement
as I realized that it was one of the most important statements
that I will have made since being Secretary of the Treasury.
At my press conference I first discussed the N.Y.C. liquor
situation and then read very slowly, repeating each sentence
at least once, my statement on the Stabilization Fund.
Tuesday - Feb. 12th - I was very much pleased with the
way the papers received my statement. During the morning we
marked time waiting for news to approach. I talked to Joe
Kennedy in the morning and he said as far as he was concerned
my statement cleared the atmosphere and he no longer worried
what the decision from the court would be.
I

At 12 o'clock a number of us hovered around the U.P. ticker
which stopped working and everything was very quiet and very
tense and about 12:10 we got word that there would be no

decision. Of course the fact that there was no decision

makes my statement really important and the longer the court
postpones handing down a decision the greater value my statement will have.

In the afternoon I went over with Bill Myers his Seed Loan
Bill and told him that if it was not legally possible to
transfer funds from the four billion eight for seed loan purposes, I would recommend to the President that he veto the
bill with the statement that if they would re-pass it making

two changes - 1, limiting it to forty million dollars and 2,
adding a paragraph making it legal to transfer the money from
the four billion eight - he would sign it. I understand from
Myers that the President promised Marvin Jones that he would
sign the bill if it was possible to take the money out of the
four billion eight. If my suggestion is followed he will keep
faith with Marvin Jones and also with his budget message.

287
George

Harrison:
H.M.Jr:

I'm glad to hear you're back.
I'm glad to be back. I am giving out very confidentially a little statement at 4 o'clock and we've
all discussed it and I pleaded with the President.
Coolidge and Oliphant are in here and we've just been
arguing as to terminology and I'd like to read it to
you very slowly without trying to explain it to you.
I mean just read it to you and see what your reaction

is. See? I'll read very slowly.

H.M.Jr:

H:

Reading: "Since January 14th, banks and dealers in
foreign exchange and gold have practically stopped
buying and selling gold within the gold import and
export point, which means that the use of the
international gold standard as between foreign
countries and United States have practically stopped.
2. Thanks to the foresight of Congress it created
at the last session the Stabilization Fund.
3. When we saw that the external value of the dollar
was rapidly going out of control we put the
Stabilization Fund to work on a moment's notice
with the result that for the past four weeks we
have successfully managed the value of the dollar
in terms of the pound and the Franc and the country
can go about its business with the assurance that
we are prepared to manage the external value of
the dollar as long as it may be necessary."

Well its an awfully hard thing to answer right off
the bat. My immediate reaction is one of caution,
Henry, and next you'd be putting yourself into a
noose - putting your head into a noose there.

H.M.Jr:

How?

H:

I mean a commitment which you may not be able to

H.M.Jr:

How?

H:

Well I mean if you make a commitment that in effect

live up to.

you are going to take the dollar at a price right

now whatever may happen, and something very drastic
does happen, you are in effect inviting the bankers
an agreement that you
here to

will buy at this particular price, no matter what

happens.

288

-2H.M.Jr:

H:

H.M.Jr:

Well Jeff's on the phone - his eyebrows have gone

halfway up his forehead. I think he'd be delighted
if that would happen. Let me give you -Well I don't know because, Henry, I don't know -Well the point is simply this. We've been doing this
thing for a month. A lot of statements in the papers,
which mostly come from abroad, they're trying to
what we're trying to do. I personally
think we've done a swell job. I don't see why we

shouldn't say so. I argued back and forth. I first
thought we'd say we are buying gold at $35.00 an ounce
till hell freezes.

H:

Well I think that would be a mistake.

H.M.Jr:

That would be a mistake.

H:

Now you hit the nail on the head. That's what I was

worried about whether you
H.M.Jr:

Wait a minute. We say anything and we are prepared
to manage the external value of the dollar as long
as it may be necessary. Now we don't say where we're

going to manage it. Now the thing that is worrying
Jeff is the terminology. The thing that's worrying
him is when we say "which means that the use of the
international gold standard as between foreign countries
and United States has practically stopped". That's
what worries him. We think that when the gold - the
price of gold gets out between the gold point that

H:

international gold standard has dropped away.
In determining the terminology you say you expect to
the gold point yet.
manage it - you haven't

H.M.Jr:

I don't say that I'll try to do that. I simply say

H:

dollar in terms of the pound and the Franc".
But you haven't done that if by success you mean
making the international gold standard
between the gold point.

H.M.Jr:

No no I don't - I'm not --

that "we have successfully managed the value of the

289

go

3Coolidge:

George.

H:

What?

C:

I'm quite

H:
C:

I'd accept the national
currency. I rather wanted to infer that we
five or six people in making the gold standard work.

I'm sorry but I didn't hear that.
I merely wanted to infer that we
five or six people in making the gold standard work
approximately well.
the gold
standard is gone and we

H:

Well what you've really done is to have provided a

market with dollars which have been in demand.
The private banker
That's what you've really done you know.
C:

H:

C:

And do you think the safest thing is a matter of
our policy, which is vague at the moment, whether
to do that only by buying gold or by buying currency,
with no reference to the price of gold.
I don't think you ought to talk about whether you
bought gold or currency
now that you've done it.

Istatement.
see. In that case I'd be happy with the present.
What you've done is to provide

dollars with a view to keeping the dollar within the

gold point.
C:

H:

C:

And you don't think the manner of providing - whether
buying sterling or gold makes any difference,
No I do not.
Well I

H:

I mean as far as your statement is concerned I don't.

C:

That's my only thesis of it. I've been turning the
thing over in my mind.

H:

Of course it's awfully hard to visualize over the

telephone but do you commit yourself on a definite

230

-4-

tariff of that rate for buying gold at the present

price?
C:

I don't think we do. We haven't said we are buying
gold. All we say is that we are going to control
buying currency or manage it.

H.M.Jr:

Jeff's been trying to get me to say control rather
than manage. The point is this. You, as an expert
in foreign currency, is this statement correct that
the use of an international gold standard as between
foreign countries and United States has practically
stopped"? Oliphant says "as between the foreign
countries and the United States has ceased its automatic

operations".
H:

H.M.Jr:
H:

Well I think that's much better.
"Has ceased its automatic operations".
Yes I think that's much better.

H.M.Jr:

Well I'll put that in.

H:

Yes I think that's much better.

H.M.Jr:

Alright - "has ceased its automatic operations".

H:

I think you made a mistake when you talk about handling
the Franc and the pound. You invite immediately the
some
why you haven't
of these other fellows who have been much worse hit
than the Franc and the pound.
you deal with the guilder and the

H.M.Jr:

Why not simply say "have managed the value of the dollar
in France of foreign currency". How's that?
That's much better.

H:

H:

Instead of "foreign currency"?
Yes I think that's much better.

H.M.Jr:

What?

H:

I think that's much better.

H.M.Jr:

291

-5H.M.Jr:

You don't think I ought to tell them that I stopped
operating in the Franc because they wouldn't stop

bootlegging.
H:

No I certainly wouldn't - you've had enough talk
about that anyway.

H.M.Jr:
H:

H.M.Jr:
H:

What
we want to know is who's got the concession at
St. Pierre?

I have it.
Let me read it to you once more.

I think you are buying a little too much. It depends

on what you mean by "successfully managing". You can
manage that complete breakdown that's one thing. You

H.M.Jr:

haven't successfully managed it in that you substitute
a better support for automatic banking because it's
not automatic except for the value of the gold point.
Well we obviously didn't want that. We could have
done it. The New York Times to-day has got a fellow
Nebbling, I think his name is, writing from London.

He said we did a good job.
H:

H.M.Jr:

H:

Well I think you have.

I think we have, and I think we put it just where
we
wanted to put it. Now let me read this to you
once more.
Alright.

H.M.Jr:

I realize it's hard over the phone. Jeff seems to
have a smile on his face. Now he's alright.

H.M.Jr:

Reading: "Since January 14th, banks and dealers in
foreign exchange and gold have practically stopped
buying and selling gold within the gold import and
export point, which means that the use of the
international gold standard as between foreign
countries and United States has ceased its automatic

operation.

-6H.M.Jr:

292

90

Still reading. 2. Thanks to the foresight of

Congress and Governor Harrison it created at the
last session the Stabilization Fund."
H.M.Jr:

How's that?

H:

O.K. Fine. I like your insertion.
You like the insertion. Alright.

H.M.Jr:
H.M.Jr:

H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

Continues to read: "3. When we saw that the external
value of the dollar was rapidly going out of control
we put the Stabilization Fund to work on a moment's
notice with the result that for the past four weeks
we have successfully managed the value of the dollar
in terms of foreign currency and the country" - I suppose
it ought to be "our country".
What did you say the value of the dollar what?
I like the word "managed".
Alright.
You fellows might as well get used to it.
We'll see a lot more of it.
Alright. "We have successfully managed the value of
in terms of foreign currency and the country can go
about its business with the assurance that we are
prepared to manage the external value of the dollar
as long as it may be necessary, so help me Huey Long".
O,K.?

H:

H.M.Jr:
H:

H.M.Jr:
H:

H:

H:

Yes I think that's much better.

As it is now it doesn't disturb you, does it?
Well I don't know what your point in putting it out is.
Well we have reasons.

But my inclination would be not to put it out at all
but if you've got some reason for doing it I think
you've probably got it -I think the reason is just as harmless as you want to
see it.

I don't think I'd be
otherwise it's alright.

but

293

99

-7H.M.Jr:
H:

Well you think the

a little strong.
I think

You think that's

because then you're commiting yourself
H.M.Jr:

Well we're willing to continue.
I see.

H.M.Jr:

Alright. Thank you for your help. You've been
very helpful.

H:

I may be down there tomorrow.

H.M.Jr:

Good.

H:

H.M.Jr:

I'd like to see you.
Well if you're coming, send me a wire, will you?

H:

alright sir.

H.M.Jr:

Thank you.

February 11, 1935.
Monday.

February 14th

234

The following memorandum was given to Mr. Morgenthau

by Robert H. Jackson on January 30. 1935 bringing him up to date
on the Matter of the United States V. Dan W. Jones et al (Universal
Aviation Corporation) case.
"Yesterday I was requested to meet the Attorney
General at 12:15. A request was also made that Commissioner

Helvering attend, but in his illness no substitute was desired.
The Attorney General related the facts concerning

this case which briefly are these:
An indictment charging effort to defeat and evade
income taxes was returned against a number of men formerly
officers or attorneys of the Universal Aviation Corporation.
The defendants demurred to the indictment but the
indictment was upheld by Judge Faris on October 25, 1934 with
the remark from the bench that he thought the defendants conduct was a crime and if it were not it ought to be.
The assets of the old Universal Aviation Corporation
have since been acquired by the Aviation Corporation connected
with the Cord interests. At the time of the indictment the press
carried stories that Basil O'Connor, law partner of the President,
was representing some of the defendants and was arranging a settlement. It is my understanding that he has been somewhat active in
this matter but that he claims it is purely a friendship and that

he is getting no fee for it.

William D. Loucks of New York was the Attorney for

the company and was the author of a letter insisting that the plan

which the Department has condemned be followed through and urging

that no fool lawyer be permitted to talk them out of it. It was

an asinine letter and an impossible one for Loucks to explain.
It has now been proposed to pay full tax, penalty
and interest in settlement of both civil and criminal penalties.
The Attorney General expressed doubt on the subject of conviction
and considerable doubt whether as much money could be realized
by any other method.

He pointed out that the defendants had done nearly
everything to make settlement difficult but suggested that the
President would like to see the matter out of the way and
suggested that Secretary Morgenthau talk with the President before
determining what answer he should make to the Department of

Justice inquiry as to our position.

He stated that he would not make a settlement under
any circumstances unless it could be done in open Court with the
joint action and recommendation of both the Treasury and the
Department of Justice.

295

I attach hereto a carbon copy of the letter that

he was considering sending to ask for the Commissioner's recommendation.

The substance of this interview was communicated to
Secretary Morgenthau and Mr. Oliphant this morning at 10:30.
The Secretary called the Attorney General and stated that he

was not in the habit of taking up cases of this kind with the
President, that he had never done it and dill not feel that he

should take this one up with the President unless the President
made some inquiry about it.
The Attorney General had told me that he intended to
call the Secretary of the Treasury and ask him to get in touch
with the President.
Mr. Morris, of the Department of Justice, was present
during my conference with the Attorney General. #
This morning, February 14th, the President phoned
and said that he thought the above case ought to be settled
very soon. H. M. Jr. then asked the President how much he
really knew about the case and he replied that he did not know

very much but he did know that Averell Harriman and Robert Lehman

were mixed up in this, to which H. M. Jr. replied that he did

not know that these men were connected in any way but from what
he knew about the case in general the people mixed up in it ought
to be given a sentence and not merely made to make a cash settlement.

H. M. Jr. told the President that he wanted to talk to him about
it in detail and would bring one of our tax attorneys who was
familiar with the case. The President said he didn't want H.M.Jr.
to bring anyone with him but wanted to go over the whole thing
personally with him. The President also said that for some unknown
reason neither Averell Harriman or Robert Lehman were indicted and
both of them should have been. He said whether we settle or sue,
it will come out that these men should have been indicted and

were not. The President also said that he wanted to settle the
case because if we sued we only had a 50-50 chance of winning
but H.M.Jr. told him that he wanted to sue because he felt that
these men ought to be given jail sentences.
H. M. Jr. is very much interested to find out what
the real nigger in the woodpile is, and his guess is that somebody
is trying to save Averell Harriman.

236

DRAFT
February 14th

Mr. Stanley K. Hornbeck and Mr. Raymond C. McKay

came over yesterday to discuss with H. M. Jr. Dr. H. H. Kung's
cables, which were transmitted by the Chinese Minister in

Washington in his notes of February 1st and February 5th. I
am attaching herewith text of these cables, also a memorandum
dated February 14th prepared by the State Department on the

Chinese silver situation and their suggested solution, also a
draft of a reply to Dr. Kung, by the Secretary of State, in
answer to his cables.
H. M. Jr. told the State Department representatives
that he did not feel that their answer to Dr. Kung would get us
anwhere, nor would it help China. However, he told them if

this is what Secretary Hull wants it is alright with him, but
he would again have to say that he did not think this would
help China; that if the time should come when the Department
of State was ready to say that this is a monetary matter and
should be conducted outside of diplomatic channels, H. M. Jr.
was ready to go ahead and handle it. He told them that he was
operating the Stabilization Fund without the State Department
but with the advice of the President, went into the London and

Paris market, took care of the dollar there and put it just where
he wanted to and, therefore, felt that he could do the same for
China.

297

-2The State Department told H. M. Jr. that they did not
believe that Japan intended to permit anyone to rehabilitate
China in any respect whatever, that they wanted to help China
themselves but did not have the money with which to do it.
H. M. Jr. again told the State Department that
if they wanted to handle this situation with China through
their usual diplomatic channels it was alright with him, but
until they were ready to say that this is a monetary matter and
should be handled by the Treasury, he was not ready to go ahead.

298
February 14, 1935.

DRAFT
The Secretary of State presents his compliments to
the Chinese Minister and has the honor to acknowledge

receipt of the Minister's two notes of February 5, in
one of which the Minister transmits the text of a cablegram from Dr. H. H. Kung, Minister of Finance at Nanking,

containing the outline of a plan with regard to silver,
and in the other of which the Minister makes certain
observations.

In the outline of a plan, the Chinese Minister of
Finance suggests that arrangement might be made whereby
China would supply the American Government's requirements

under the Silver Purchase Act, the amount, the period of

years for effecting delivery, and the sale price of silver
to be agreed upon between the United States and China;

and, that, in view of what China deems the necessity for
abandoning the exclusive silver basis maintained by China
alone and adopting a new currency system involving use of
both silver and gold with a view to linking China's currency
to that of the United States, the United States (a) loan
China one hundred million United States dollars and (b)
extend to China a credit of one hundred million United

States dollars "against future delivery of silver to be
drawn upon if and when required"; the above project to be
"conditioned upon a final agreement on a feasible currency
program".

299

-2In reply, the American Government, taking into con-

sideration the history of projects which have been formulated
and proposals which have been made and possible arrangements

which have been discussed and tentative agreements which

have been entered into, at intervals during the past four
decades; and, giving thought to various factors, some
economic and some political, in the situation in China and
in the United States and in the field of international rela-

tions today, feels that it would not be practicable for the
United States to enter into an agreement with China such as
is envisaged in the outline of a plan under reference. How-

ever, the Secretary of State is moved to suggest that, if,
upon further consideration, the Chinese Minister of Finance
should deem it advisable to suggest simultaneously to the
governments of several of the foreign powers which have in
the past shown themselves most interested in the projects
for the solution of certain of China's financial problems,
and especially in projects for Chinese currency reform,
the American Government would be prepared to cooperate

with the other governments in that manner approached along

with it, and with the Chinese Government, in exploring the
possibility of collective rendering of the assistance thus
sought by China.

300
DEPARTMENT OF STATE

DIVISION OF FAR EASTERN AFFAIRS

February 14, 1935.
CHINA: SILVER

Situation, Problem and Suggested
Solution

The finance, banking, exchange, etc., situation in
China is in a state of great confusion. The purchases by
the American Government of silver, under the Silver Purchasing Act, have contributed to the creation of this
confusion and the uncertainty with regard to our future
action under that Act, contributes and will continue to
contribute thereto.
The Chinese Government has sent us a note (February 5)

in which there are advanced the affirmations that China is

being forced off of silver and that China would like to
engage in currency reform, and the suggestion that the
United States make to China a loan of $100,000,000 and
extend a credit of $100,000,000.

To this there are three possible replies: "yes", or
"no", or the advancing of a counter-suggestion.

It is believed that a "yes" would be highly inadvisable.
It is believed that a "no" would be highly impolitic.
The American Government is endeavoring to pursue the good

neighbor policy in its foreign relations; this country has
traditionally been especially well disposed toward China;

-2-

301

our action in regard to silver has contributed to China's
present embarrasement; we have on several occasione mani-

fested definitely and officially an interest in projects
for Chinese currency reform; China is at present under
some form of pressure from Japan; a rebuff from us at this
moment, unaccompanied by any indication of solicitude or

desire to help would tend to add to the desperation in
the minds of Chinese officialdom which tends in turn to
induce them to surrender to Japan; a complete victory by

Japan in a strictly bipartite struggle such as is now
going on between that country and China would probably

have distinctly adverse effects upon the interests of the
United States (along with those of other Occidental powers)
in the Far East for some time to come; etc.
It therefore seems desirable to attempt to make to
the Chinese some counter-suggestion.

In view of the fact that the American Government has
repeatedly shown an interest in and on at least one occasion
taken the initiative in projects for Chinese currency reform;
and of the fact that we at one time negotiated with China

a preliminary agreement for the conclusion of a loan by us
for that purpose; and that we later played a leading part
in the formation of a four power consortium for China

financing and turned in this currency loan project to be
handled by that consortium; and that we took a leading part
in the creation in 1920 of the new China consortium, which

302

-3-

consortium is still in existence, -- it is believed that
we might with warrant from point of view of political
strategy and with a bare possibility of advantage from
point of view of financial strategy suggest to the Chinese
that they consider asking for a cooperative loan from
several of the powers for the assistance of China in a
program of currency reform.

To that end there is submitted a draft of a possible
reply to the Chinese Government's note.

The fact should all the while be kept in mind that
the silver purchasing program of the American Government

has contributed and will continue to contribute to the
financial confusion in China. That being the case, the
American Government should continue to keep in mind the

fact that that program 18 and will continue to be an

irritant. If, continuing in the carrying out of that
program, we at the same time become (in consequence of an
approach by China to the powers such as is suggested above)

parties to international discussion of the question of
assisting China for purposes of currency reform, the suggestion will in all probability be made to us by and from
other governments that we consider seriously a revision
or scrapping of our silver purchasing program. How we might
at such time react to such a suggestion is of course

problematical. The possibility that it may come should not
be overlooked.

303

-4-

a

Referring expressly to the tentative draft of proposed
reply to the Chinese Government's notes, it may be pointed
out that if the substance is accepted the phraseology may
need to be given, and can readily be given, further consideration.

FE:SKH/ZMK

FE

304

Feb. 15th

At Cabinet I simply said, Mr. President, do you care
to have me take up the Stewart contract demanding that this
information be furnished in regard to Farley's being hooked
up to Stewart. I read the letter from Glavis and the
President said, "what of it"and I said, if on December 27th
after a meeting which took place in my office on January
25th*Icke wanted to know why this contract was let, he
could have asked me. Ickes said,"I did not know anything
about the Glavis letter". I.got disagreeable and simply
said, after all, Mr. President, the point is that a couple
of weeks ago at Cabinet, Ickes said he was not investigating
any Cabinet member. H.M.,Jr said these reports should be
turned over to the Attorney General. President said, not at
all. H.M.,Jr. said to the President privately that this
stuff is bad for the Attorney General. The President
pounded his desk and said, you fellows have to get together.
H.M.,Jr. said he thought he would write a letter to Ickes
and say, carrying out the wishes of the President, I would
be glad to have you and I get together to inform me what
the adverse report had in it and any other information Glavis

had in regard to P.W.A. money spent.
Feb. 18th

Haas told H.M.,Jr. that Prof. Buck has been having
conferences with the Chinese Minister. H.M., Jr. was disturbed about this because Buck had been attending all the
confidential Treasury meetings on the Chinese situation. He
called Prof. Buck in and asked him whether he had been seeing
the Chinese Minister and Buck admitted that he had - but if
H.M.,Jr. had any objections he would discontinue his visits
to the Chinese Minister. H.M.,Jr. asked Prof. Buck for the
time being not to see the*******
Chinese Minister.
H.M.Jr. told Lochhead to buy francs in London with
the Sterlin we have on hand and jump the franc into the gold
point. H.M.Jr. phoned George Harrison and told him we are
going to operate in both London and Paris with the objective

of trying to keep gold within the gold points.

H.M., Jr. said that he thought the Supreme Curt would

not render a decision until after three o'clock today when
the exchanges closed.

Dictated on Feb. 20th.
Telephoned Hull on Wednesday of last week and suggested

that we get together and discuss the last Chinese note and
then go and see the President. Hull informed me that he
would be away for the rest of the week so I suggested that he
send over his people to see me.
Mine amanning this meeting attached p.308

305

The head of the Far Eastern Division and his assistant,
Coolidge, Oliphant and I sat down and discussed it and they
presented me with an argument (written) and a suggested answer.
All that the answer to the note said was that we would be
glad to join other nations in discussing with China her mone-

tary policy. I told the head of the Far Eastern Division that
I felt that this would get them nowhere; that just as long as

Hull wanted to consider the Chinese situation as a diplomatic
one, I would bow to him and if the time should come that he
considered the problem a monetary one, the Treasury was ready
and willing to handle it independently.
Sunday night this week at the White House Bullitt
walked in unexpectedly and told the President that the
Chinese Minister had showed him a very confidential cable which
he did not feel he could show the State Department, but he wanted
Bullitt to get the information to the President. (This procedure seemed most irregular and I should think would be
frowned upon by Hull). The purport of the note was that
Japan had told China that she would be willing to help her
provided that Japan would get economic control of all of China
north of the Yellow River. In return for this she would help
China and, most interesting of all, would join China in fighting
the United States silver policy. Hull and I had lunch with
the President on Monday and had about ten minutes with him on
China. The President tried in a most diplomatic manner to
tell Hull that he should either not answer the Chinese note

at all or just go thru the motions, but he should tell the
Chinese that the United States Treasury Department would be
glad to discuss China's monetary difficulties with her. The

President repeated this about three times but made absolutely
no headway with Hull. In the course of the conversation the
President told Hull about Bullitt's conversation of the previous
night. Hull seemed surprised as he heard nothing about it. The

President said, "in view of the information that Bullitt has
brought us, I am now convinced that I am right that somehow
or other our silver policy is hurting Japan. I have told this
to Henry and other people but nobody seems to know why it should
hurt Japan, but I maintain that it does".
The upshot of the conversation, I believe, is that Hull
will go ahead and send the note to China just as it was written
the previous week. During the course of the conversation it
was pointed out that if we made the suggestion or let it be
known that we were willing to join the nine power consortium
that there was a very good chance that the other eight powers
would combine in protesting against our silver policy. The
President felt that it was important that we should avoid at
this time sitting down with the eight powers. (of course the
State Department made the suggestion to China to invite the consortium nations to sit down with us and discuss China's monetary
and silver policy).

306

It seemed to me that the President very definite knew what he
wanted but that Hull did not get what the President was driving

at - or did not want to.

Thursday night I talked to the President on the
telephone around seven o'clock and he mentioned the fact that
Huey Long had passed a resolution asking for information in
regard to Farley's relation with Stewart & Co. and the letting
of the N.Y. Post Office annex.
Friday bright and early I called up Ickes and asked
at his files.* Upon learning that the Postmaster General was
away I called up Miss Lehand and told her that Farley was away
and I thought that somebody representing him should take a

him if I could send over Peoples, McReynolds and Opper to look

look at Ickes' files. A little later on, the President called
me up very much excited and said, "what was the Treasury doing investigating Ickes" ? I said, "I do not understand what
you are talking about". Then I explained to him that our
people over there were simply looking at the files and I felt
that somebody should look at them from Farley's office. The
President then calmed down and said it was a good idea. He

said, "call up Bill Hause and tell me to go over". I did this

and Hause said, "how should I do it". I said, "call up Ickes
and tell him that you are coming over". "Supposing he refuses to let me see the files", said Hause and I replied, "go
to the White House and have them order him to do this".

At noon I went over to the White House to have Df.
McIntyre treat my nose and while there I dropped in to see Miss
Lehand. I asked her what had been the matter with the President when he spoke to me over the telephone - why he was so
angry. She said, he misunderstood me and I told him most
emphatically that he had misunderstood me when I conveyed your
message to him. Miss Lehand said she thought it was terrible
to have Ickes investigating Farley.
On returning to the office I saw the men whom I had
sent over and they felt from reading the files that Ickes had
been investigating the Procurement Division as much or more
than he had been investigating Farley and they copied a letter
written on December 27th which reads as follows:
Letter attached (p.3U)

Oppu attached pant

307
February 16, 1935
MEMORANDUM FOR THE FILES:

On February 15, 1935, at about 10:30 A. M., Mr. McReynolds, Admiral Peoples, Mr. Laws and I called at the Interior
Department for the purpose of inspecting certain records in the
Division of Investigation connected with the New York building
projects - particularly the New York Post Office Annex.
We first went to Mr. Ickes' office, who immediately
referred us to Mr. Glavis. Mr. Glavis stated that there were
a number of files involved in this case which he had examined
very hurriedly, but that there were apparently only two in
which we would be interested, saying that the remainder were
all complaints connected with labor violations. These two
files were examined and I made some notes which are attached.
He also showed us a memorandum prepared by Mr. Dresser of PWA,

describing a conference in Secretary Morgenthau's office on
January 26, 1934, copy of which I obtained and delivered to the

Secretary.

Mr. Glavis was asked, with reference to the letter of
December 27, 1934 (copy attached), whether any report had been
received. He stated "No", that was all there was in the file,
and he assumed that they had not found anything of sufficient
importance to report. He was asked further whether, if this
was a fact, they would not have reported to this effect, whereupon he stated that he would get in touch with Special Agent
Bailey to see whether a report had come in. On being called
back a few minutes later by Mr. Bailey, he stated to us that
no report had come in. There was nothing in the file indicating
that anyone had ever withdrawn the instructions to proceed with
the investigation.
Admiral Peoples asked Mr. Glavis whether he had

investigated the Procurement Division. He said "No". The
Admiral then asked whether he had investigated the General
Builders' Supply Company or Farley. He said "No", that the
company was a very general supplier of all building materials, and
that it would not have been significant if materials had been
bought from it.
After we had been with Mr. Glavis for some time, two
representatives of the Post Office Department came in - Messrs.
Howes and Purdum. Mr. Howes asked Mr. Glavis point blank whether
they had investigated Mr. Farley. Mr. Glavis said "No".
Mr. Howes referred Mr. Glavis to the World-Telegram articles
which stated that Mr. Glavis told a reporter they were making an
investigation. Mr. Glavis said that was untrue. Mr. Howes asked
whether the statement had ever been denied. Mr. Glavis said
"No" - that he could not deny all the statements that appeared
in the newspapers.

(Initialed) CVO

308

304

January 25, 1934.
MEMORANDUM TO THE ADMINISTRATOR:

At the meeting this morning in Secretary Morgenthau's
office there were present: Secretary Morgenthau, Assistant
Secretary Robert, Mr. Martin, Mr. Oliphant, Mr. McReynolds,
Postmaster General Farley, Fourth Assistant Postmaster GenSilliman Evans, Senator Tydings and myself.
The subject of discussion was the award of contract for
the New York Post Office Annex, bids for which were recently
opened, the same being submitted for a base bid which would
deliver the building completed and an alternate bid which called

for the 4th and 5th floors not to be finished. The Driscoll
Company was low on the base bid and the Stewart Company was low
on the alternate bid or bid no. 2.
Senator Tydings insisted that the Stewart Company figures
he had compiled them would ultimately deliver the building
at less cost. This question was contested by Mr. Robert and
Mr. Martin. However, Senator Tydings further insisted that
the Driscoll Company never were bonafide bidders and that they
had never qualified under the N.R.A. ruling until 48 hours
after they had discovered that they were low bidders, when bids
were received prior to December 27.
as

The question of Comptroller General McCarl's ruling and
also the opinion of the attorney General were discussed. Mr.
Oliphant explained to Senator Tydings that the disbursing officer
would have been obliged to forfeit his bond had he allowed any
funds to be disbursed other than in accordance with McCarl's
ruling.
Senator Tydings volunteered the information that he knew
McCooey was interested in seeing Driscoll get that contract and
that McCooey's political henchmen were active in Washington,
and when pressed for more explicit explanation of his statement,

he replied that that was generally known but did not mention any
names. Then he took up the correspondence regarding this project
as it took place between the Post Office Department and the
Treasury. It appears that a letter was written by Silliman Evans
advising the Treasury Department that they did not desire the
4th and 5th floors of the building finished, which would under the
bidding give the contract to Stewart. Several days after, this
letter was recalled and another letter was written by the Post
Office Department advising the Treasury that they desired the
building completed in its entirety, which would give the contract
to Driscoll. Senator Tydings asked for a copy of the first letter
and he was informed by Silliman Evans that it had been destroyed.
No copies were kept. Mr. Robert was asked if he had made a copy
of that letter and he replied that he had not. The Senator
pointed out that destroying letters was a dangerous practice,

-2-

309

and in this case very significant in that the Post Office
building they would use or desire for their facilities
Department had elected to make a decision as to how much

after the bids were received and opened.

Mr. Morgenthau asked Mr. Robert who advised him to

return the first letter and he said that/ail arranged over

the telephone between himself and Mr. Evans. Subsequently,
the second letter was written asking for the completed
building. Senator Tydings was aware of the contents of
both of these letters and I would not be surprised if he
had
of them himself although he did not volunteer
this copies
information.

The letters in question were discussed and no real
reason was advanced by anybody for the destruction of this

first letter, simply trying to excuse the act by the fact

that some other decision had been reached. Then, in turn,
the question of how to proceed from here on was launched.
It was decided to re-advertise for a completed building
without any alternates whatsoever. Mr. Morgenthau was told
the Government accepted bids on the basis that any and all
bids could be rejected if the Government so chose. Acting
on this reservation, the bidding is to be reopened.
After the meeting, Secretary Morgenthau asked me what
inference I placed on Senator Tydings' remarks that McCooey's
henchmen were busy in Washington working for Driscoll's best
interests. It is plain as to what he meant but he mentioned

no names. I told the Secretary that contractors of that sort
usually sought to get advance information as to what alternate
bid would be favored in any advertisement when alternates are
called for, and that, in my opinion, it was dangerous because
of the fact that alternate bids are misinterpreted, they are
manipulated to swing jobs in certain directions many times
and contractors of the type who are interested in this project always endeavor to get advance information in regard to
the alternate which would be favored. Their main figure
then is so set up to blend with the alternate proposed. This
means in many cases the substitution of materials other than
those called for, and I told him further that probably the
best procedure in any case, in my opinion, was to ask for
bids without alternates and eliminate the possibility of any
such practice.

This memorandum prepared by Mr. F.J.C.

Dresser, Associate Director of Housing,
with Headquarters at Chicago.

310

At Cabinet, Feb. 15th, when it came to my turn to
speak I first brought up the question of our getting a release on the $250,000 for Coast Guard for North Island,
California which the President told Ickes to give me. Then
he asked me if I had anything else and I said, do you want
me to bring up the question in regard to the investigation
of the N.Y. Post Office and Stewart & Co. and he said, yes,
and then I read him the December 27th letter signed by
Glavis. I then got very excited and demanded of Ickes what
he meant by investigating the Procurement Division eleven
months after the contract had been let and the matter
settled. He denied all knowledge of the letter so I said
to him very forcefully, "didn't you say a couple of weeks
ago at Cabinet that you had never investigated any Cabinet
officer and that every report of Glavis went across your

desk"? "He said yes. Then he said, "of course, I will
have to take the blame for this letter". In the midst

of these conversations the President handed me a note which
read as follows:

You must not talk in such a tone of voice to
another Cabinet officer
but he never let the note out of his hand and after I read
it he tore it up. He also pounded the desk very angrily
and said, Ickes, Farley and Morgenthau must get together
in this matter. I cannot have three Cabinet members disagreeing. You must get together in this matter. "hen I
kept insisting that Ickes had been investigating the Treasury
the President again turned on me very angrily and said,
"don't you understand, Henry, that Harold said he knows
nothing about it and that ends the matter". He said, "dont
you understand" and I replied, "I am afraid I am very dull,
Mr. President, I do not understand" - and he answered, "you
must be very dull".
The point that I was trying to get over was that in
the absence of Farley, Ickes had been investigating both
the Post Office and the Treasury and that he was not telling

the truth. On returning to the office I wrote the follow-

ing letter to Ickes and Farley:
Dear Mr. Ickes:

Carrying out the wishes of the President, expressed
at the Cabinet Meeting today, I suggest that you, Mr. Farley
and I get together at 10:30 Monday morning, feb. 18th, in
my office and discuss the letting of the contract for the
N.Y. Post Office Annext.

Will you please bring with you Mr. Glavis and his report of March 16th and 17th together with any other material
which you have in any way bearing on this matter. I am attaching herewith copy of the letter which I am today writing
to Mr. Farley.

311
Dear Jim:

I am enclosing herewith a copy of the letter
which I am today sending to Mr. Ickes, which speaks for
itself.
I suggest that you come to my office at 10:30
Monday morning and bring with you the Assistant Postmaster
General who is in charge of Post Office sites together with
any material which you have bearing in any way on this matter.

At 8 o'clock I called up Louis Howe and told him
that I thought there was a danger that Ickes might send his
report up on the hill the first thing Saturday morning and
I thought Louis ought to do something about it, whereupon
Louis argued with me that I should do something about it and
I told him that I sent the letter and I would have someone
call Ickes in the morning to see if he would come to my
office on Monday.

At 10 o'clock the President called me, his mood entirely changed. He was most sympathetic and kind over the
phone. I responded to his mood and we must have talked for
about fifteen minutes. He again brought up the question
that Ickes claimed he knew nothing about the Dec. 27th

letter and I replied by telling the President that I still
thought Ickes was not telling the truth. The President
ended the conversation by saying, "stop worrying, Henry,

go to bed and get a good night's rest". I felt that

his

telephone conversation came as near to being an apology as
the President could give you.

Sunday, Feb. 17th, at 4 o'clock I had at my house
Peoples, Oliphant, McReynolds and Opper. They had prepared a synopsis of the letting of the contract to Stewart
and another synopsis of the exchange of letters between
Peoples and Glavis in regard to the N.Y. Post Office Annex
and the Court House. Opper had searched high and low on
Saturday for the files from Jan. 1st to 15th in regard to
the N.Y. Post Office Annex and late Saturday night he found
them in Asst. Secretary Robert's office files. Amongst
these files of Roberts was a letter from the Vice President
of Stewart & Co. to Farley which upset us considerably. P.312
(Both are attached herewith).
Farley called me at about 3 o'clock Sunday afternoon
upon returning from Florida to thank me for what I had done
during his absence. At the time that he called me Idid
not know about the Dear Jim letter from Stewart & Co. After
the others left and Mrs. Klotz had arrived we talked the
matter over and I called up the President and said, "I do
not know what to do about this letter which has just turned

up in Robert's file". He said, Farley is coming here at
5:30, you come down at ten minutes to six. I did, and
stayed there over an hour. We went over the whole matter

312

and I have never seen Farley so nervous. The conversation

centered on two things first, the Dear Jim letter and second,
the Dresher memorandum of the meeting which took place in my
office on January 22d. Farley said"in regard to the Dear Jim
letter - can't that be taken out of the files and destroyed"
and the President said emphatically no. In regard to the
Dresher memorandum Farley said "must that memo go up on the hill
can it not be considered just an office memorandum". The
President said he would think it over. I then reminded the
President that he said he would have Ickes, Farley and myself
Monday morning and I consider this most important as I felt
that if we met in my office we would get nowhere. Next morning
at 10 o'clock Ickes, Farley and I met with the President in the
Oval Room on the second floor. We were with him for about an

hour. I took very little part in the conversation as I did not

want tongive Ickes the impression that I was fearful of being

investigated myself. The President took my memorandum of
Stewart and Company and went over the whole thing step by step.
He decided that as regard the Dresher memorandum he would have

to go up on the hill, especially as Colonel Halsey had called
up Ickes on Saturday to tell him that they wanted this memorandum.
The President said to Ickes "you must find out how Halsey found
that that memorandum existed". He said "send for Dresher and
ask him to explain some of the statements that he made in that
memorandum." When we came to the December 27th letter Ickes
then read a copy of a letter from Bailey to Greer and I think
from Greer to Bailey.
Ickes then said "well you see that that closed that
incident". Then I spoke up for the first time trying to keep
my voice moderated and said "Harold, if that file was in my
office I would positively consider that the question was not
closed and,' I said, "who is the Treasury official mentioned
in that letter as being investigated". Ickes again repeated
"the matter is all settled" so I asked him to read the whole
thing over again and the President said "Henry is right - it
is not closed" and the President said to Ickes "send for Glavis
and Greer and ask them if there is anything still to be investigated and if there is not have them say so.
I then pointed out to the President that there was
this big correspondence between Glavis and Peoples in which
Glavis had been investigating up to a couple of months ago the
Procurement Division and the Court House, pointing out particularly that the Court House had not been built with PWA money.
The President then told Ickes that Glavis had no business
investigating the Court House but I said "If Glavis has anything
about the New York Court House that does not look right I want it."
During the whole conference the President directed his conversation
at Ickes and put considerable pressure on him to clear up the
investigation that he had been making

313

December 27, 1934

A. D. Bailey, Jr.

Sp. Agent in Charge

3131 Int. Bldg.

Washington, D. C.
Dear Sir:

I transmit herewith for further investigation
and report a copy of the adverse report of Sp. Agent
Curtis dated Mar. 16-17, relative to the bidding on
P.O. Annex, New York, New York, F. P. #5.

It is noted that after PWA allotted funds for
this project, the Treasury Department received bids on
three occasions. The first two were rejected and the

contract was finally awarded to James Stewart & Co.

You are instructed to ascertain why the bids
were rejected on two occasions. The division file
contains considerable correspondence concerning this
case, which correspondence should be examined by the
special agent to whom the case is assigned. The
completion of this investigation should receive
preferred attention.

Very truly yours,
Louis R. Glavis

COPY

314
1

James Stewart & Co., Inc.
Contractors

New York Central Building
230 Park Avenue

Harry D. Watts
Vice President

New York

MEMORANDUM

Mr. J. C. Stewart phoned me this afternoon that our operator called Driscoll Company operator who stated that she had
personally mailed the President's Re-employment agreement, signed
by Driscoll on Tuesday October 3rd which was a day after the
opening of the bids on the New York Post Office Annex. The instructions to bidders stated that no bids would be accepted from
a contractor who had not signed and complied with the provisions
of the President's Re-employment Agreement.

The Department of Commerce and the Brooklyn Post Office on

the day following the opening of these bids, neither had a record
of this agreement having been signed by said Driscoll Company.
Mr. Brauer, the Assistant Director of the N. R.A. Division at New
York advised me personally that Driscoll had not signed as of
October 3rd after a complete search of his records. Today he
dvised Mr. Stewart that he finds that since then Driscoll's
a

papers to the Department of Commerce had come in. The Post Office

at Brooklyn, as late as this afternoon, stated they have received
no such papers from Driscoll. The papers submitted to the Department of Commerce bear date of September 29th.

Evidently Driscoll, who returned to New York the night of
October 2nd after he was the low bidder, went to the office the
next morning signed the papers for the Department of Commerce and
mailed them out that night.
Under the conditions of bidding, unless he had signed the
President's Re-employment Agreement prior to the time of bidding,
the bid is legally out not having qualified as required by the
instructions to bidders.
What we want you to do is have the Post Office Inspector or

in authority force the girl who made the statement that
she herself had mailed these instruments, confirm this statement
and Driscoll is out. This should be done tonight or the first
thing in the morning before Driscoll gets back from Washington.
someone

COPY

315

James Stewart & Co., Inc.
CONTRACTORS

New York Central Building
230 Park Avenue

New York

Harry D. Watts
Vice President

October 5, 1933.

Hon. James A. Farley,
Postmaster General,
Post Office Department
Washington, D. C.
Dear Jim:

I am enclosing memorandum relative the Driscoll episode

in connection with the bidding of the Post Office Annex in
New York as per our conversation of a few minutes ago.
Anything you can do to assist us will be more than
appreciated.

Sincerely yours,

(signed) Harry
HDW REO

316

Sunday night, February 17th, during the course of
the conversation the President just pounded his desk and said
"My Cabinet has to get along with one another or I will ask them

all to get out" and I said "that suits me fine Mr. President but"
I said "if you want your Cabinet to get along as well as our people
do in the Treasury then you've got to tell Ickes to stop investigating other Cabinet officers and their Departments. If Ickes has any
doubts as to how another Cabinet officer or another department is
being run he should either tell the head of that department or you
and not have his investigating force all over the lot and" I said to
the President,
"as you are
a fair
agree
with my statement"
- and
heand
did.just person you will have to
Monday when we wound up the conference I said "before

Ickes' statement goes up on the hill I think the President and Farley
should have a chance to see it" and the President told Ickes that we
should have a chance to see it. As I was leaving Ickes asked me
whether he could have a copy of the series of the correspondence
between Peoples and Glavis and I said "yes". I told Opper to give
it to him when I got back to the office.
Tuesday morning I called up Ickes, at the suggestion
of Oliphant and Opper, and told him that I thought it was unwise
for me to send over the correspondence between Peoples and Glavis
at this time because it would become a part of his file and he might

then feel it necessary for him to send it on the hill. He agreed
with me and I said "I find that we have all of this information in
the office anyway and it is unnecessary for you to send it over".
I said "as soon as you have finished preparing your memorandum to
go on the hill I want to sit down with you Glavis and Peoples and

receive any information which your organization may have which may
indicate that there was any graft in the Procurement Division,
including the New York Court House and Ickes said "fine".
I am not going to leave a stone unturned to make

Ickes admit first,that he has been investigating the Procurement
Division
second, that there is nothing there but what is honorable
and aboveand
board.

317

Henry talking.
Rex

Tugwell:
H.M.F:

Henry, Harry Hopkins, said something to me about
you being interested in Gardner Means.

Well I simply said that in the, how shall I put it,

the shakeup or whatever you call it that you're having
over
there
if he wasn't happy or anything I'd
like to
talkthat
to him.

T:

I see. Well I'll tell you about Gardner. He's got
plenty of work to do and - of course I tried to get

him in the Treasury you know sometime ago.
HM.Jr:
T:

H.M.Jr:
T:

H.M.Jr:
T:

No I didn't know that.
You don't remember but I spoke to you about him.

Well its kind of slipped my mind.
He really belongs over there.
Yes.

And we've only kept him on here - you see I've got

him.

H.M.Jr:

Yes.

T:

When the Treasury was in different hands.

H.M.Jr:

Fine.

T:

He did serve a useful purpose, however. We've got
him doing a lot of useful stuff but if you could use
him he'd certainly be more ---

H.M.Jr:

Well if - I don't want to go after him, but if he's

T:

HM.Jr:

I'd be delighted to see him.
Do you mind if I speak to him first ?
Not a bit.

T:

Alright, Henry.

H.M.Jr:

O.K.

unhappy and he'd like to come over and talk to me

February 15, 1935.
Friday.

318
Mr. Morgenthau?

H.M.Jr:

Yes.

Just a minute.
Hello.
H.MJr:

Hello - Herbert?
Yes Henry, how are you.

H.M.Jr:

Fine. Herbert, What I'm calling you up about is
this. I thought you'd want to know it - that

Commissioner Mulrooney is not doing anything about
the cases that we're sending him. We sent him about

150 cases. of licenses, most of which should be
cancelled. The reason he gives is that he is so
busy issuing new licenses. When we went to him
on this proposition he said he'd give us ten day
service. We thought it would be wonderful. I'd
much rather not have him know that I'm saying anything
to you but what I would like if you would send for
him and ask him how that check up in New York City
is going along.
Governor
Lehman:

Well it's funny, Henry, I did talk to him just about
four or five days ago, a week ago maybe - Sunday I
think it was and at that time I asked him about these this work and he said that he was cooperating 100%
with the federal government.

H.M.Jr:

Well he's not.

L:

Well I'll check up on it again.
Our cases are over there and I had my man up there
yesterday and he said Mulrooney is so busy issuing
new licenses that he hasn't been able to handle any
of the cases we've sent over to him.

L:

I see. Well I'11 check up on him. But he certainly

gave me very definitely, not only the impression but
the assurance that they were cooperating in every
way with you, because I want him to do that.
H.M.Jr:

Well it may be that he's short of clerical help or
something.

L:

Well I don't know about that Henry because he didn't
say anything.

H.M.Jr:

Well you see these things are backing up and it

looks bad.
L:

Yes sure.

-2-

319

H.M.Jr:
L:

H.M.F:
L:

Because they think maybe the state government isn't
going to cancel these things.

Well I'11 check up on that right away Henry.
I'd appreciate
it and
bringing
me into
it? would you let us know without

I will. Yes I'll get - I'll have a talk with him

next week. He comes up Sunday, I think, or Tuesday
or Wednesday
and
this too. and I'11 talk to him about other things
H.M.Jr:

I'm planning
to come up to the Correspondents' dinner
this
time.
L:

That's
course. fine. Henry, you'11 stay at the Mansion of
H.M.P:

I'd love to.

L:

Fine.

H.M.Jr:

I'd love to

L:

Is Ellie coming up too?

H.M.Jr:

No.

L:

Because
Edith is giving a party for the newspaperwomen
that
night.
H.M.Jr:
L:

HM.Jr:
L:

H.M.Jr:
L:

Oh really.
And I know she love to have Elinor. .

Well I'11 tell you. I going to come by aeroplane.
I see.

And Elinor won't fly in the same plane with me.
I see. I saw Elinor yesterday, by the way.

H.M.Jr:

Did you?

L:

Up at Ithaca.
Oh really.

H.M.Jr:

320

-3L:

H.M.Jr:
L:

Oh yes.

Her
train
chance
to was
-- late this morning so I haven't had a
Well
she's alright, she looked fine. I saw her and
Mrs. Roosevelt too.

H.M.Jr:

Fine.

L:

I couldn't get up there for the Farmers' dinner the
night before because I had to stick to getting this
budget through, but I got up there.

H.M.Jr:
L:

H.M.Jr:
L:

H.M.Jr:
L:

You seem to be getting along swell.
Everything is going along alright.
Thank you Herbert.

Where are you at the farm or -I'm at the Treasury.

Alright - by by Henry.

February 16, 1935.
Saturday.

321

H.M.Jr:
Governor
Horner:

H.M.Jr:

H:

Hello - hello - hello Governor, how are you?
I'm fine.
The reason I'm calling you up is this. We would
like
to start
a block
to block check up in Chicago
on
places
that
sell liquor.
I see.

H.M.Jr:

Hello

H:

Yes.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

H.M.Jr:
H:

H.M.Jr:

And we'd like to do it with the cooperation of the
state and municipal authorities.
I see.

We tried it in New York and we've been running there
for two weeks now and we've been very successful.
I see.

And in New York for every man we've put in they've
picked a special squad of detectives and assigned
them to us, and we work together and we've been very
successful.
Now the man who personally represents me on this is
Harold Graves - G-r-a-v-e-s.

I'11 put that down - Harold Graves.

And I'd like to send him out there Monday to see you.
I don't know anybody in Chicago so I'd like to start

with you, if I might.

H:

H.M.Jr:
Ht

Alright, and he has authority to go ahead?
Yes yes.

Well that's alright - if he'll just tell us what he
wants. You're going to send your men out?

H.M.Jr:
H:

H.N.Jr:

Yes.

But you want them accompanied by local detectives?

That's the idea. And then with the state liquor board
so cancel
that when
we find violations that they'11 be prepared
to
the licenses.

-2H:

HM.Jr:

322

Well that will be fine. We'll be very glad to give
you all the assistance we can give you.
I know you will.

H:

I'd better wait before calling up Chicago.

H.M.Jr:

Yes.

H:

Until I talk to Mr. Graves.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

Fine. Will you be in Springfield Monday?
Yes I will. I'11 be here Monday. Tell him to come
right to the State House.
Right to the State House.
And if I'm not here I'11 be over to the Mansion.
About what time will he be in?
Well I suppose he'11 get to Chicago in the morning
and then - he said he'd go right to Springfield.
I suppose he'll get there about the middle of the
morning.

H:

There's a way of getting to Springfield right from

Washington on the B & 0
H.M.Jr:
H:

H.M.Jr:
H:

HM.Jr:
H:

On the B and 0

But he may want to stop at Washington.

No he'11 come right to Springfield.

Alright. Now if he comes here I'11 go right ahead

with him.

Well I'11 have him - he's sitting here - I don't know
what time that B & 0 train gets in.
Tell him to look me up just as soon as he gets here
and I'll leave word as soon as he comes in he is to
see me.

H.M.Jr:
H:

H.M.Jr:

Thank you Governor.

I'11 go right through with it for you.
Thank you.

323

-3 Hellon
H:

I'm assuming that the city will go ahead.

H.M.Jr:

Well I imagine

H:

Otherwise we'11 put it through the proper channels.
Well we haven't approached the city. We thought we'd
rather de it through you and then ask you to help us

H.M.Jr:

introduce it to the city authorities.

H:

Very well. How are you feeling?

H.M.Jr:

I'm fine.

H:

Enough to keep you busy down there?

H.M.Jr:

Plenty.

H.M.Jr:

Well thank you Governor.

H:

Goodby.

the President
about it
the only people that could

February 16, 1935.
Saturday.

speculators. or course that wouldn't be
to

E

bad

on

us.

government warket too.

324
H.M.Jr:
Joe

Hello?

Kennedy:

Hello Henry.

H.M.Jr:

Good morning.

K:

All I want to say is it's a lovely day.

H.M.Jr:

Yes.

K:

How is everything? Is everything alright?
Well everything is terribly jumpy abroad.

H.M.Jr:

Is it? The market is - the only thing I've got is

K:

the German bonds are weak but the market was rather

stagnant.
H.M.Jr:

Is it?

K:

H.M.Jr:
K:

H.M.Jr:

H.M.Jr:

Well you don't think that these fellows, after all
this preliminary build up that they've given us, would
attempt to put it out until after three o'clock.
Well I'm betting that they won't. The people here in
the Treasury - some of them disagree with me.

That's what some of them think.
And you don't?

K:

H.M.Jr:

I think it will come after three.
Yes.

K:

H.M.Jr:

But

Well I talked to the boss again about it - the President
about it - he had an idea that the only people that could
be hurt were the speculators. of course that wouldn't be
if it really started to go bad on us.

K:

K:

Oh yes.

That they'11 put it out at 12?

K:

H.M

Well the foreign exchanges are very jumpy.

.Jr:

or course we've got our government market too.
Yes.

things

It

seems

325
2H.M.Jr:

Now have you any means of getting information.

K:

Well no I haven't got anything more. I understand
now that they're going to keep the only phone there
for you and for us.

H.M.Jr:

Now wait a minute, Oliphant's here

K:

H.M.Jr:

a

Yes Henry.

Herman Oliphant said that he's assigned Laylin and he's
going up there with one of your men and they're going

K:

to stick together.
That's it - Johnny Burns.

H.M.Jr:

Johnny Burns.

K:

Yes.

H.M.Jr:

hello?

What have they got a phone?

K:

Yes. They've made arrangements with them so that they
can have the only phone.

H.M.Jr:

Where does that phone go to? To your office?

K:

No it will go - it can go right directly to you. You

can have it anywhere you want it to go but what good
will it do you or me. We won't know what the decision

is until he finishes it.

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:

No.

I mean won't you want to sit down and won't Herman want

to sit down and read what it really says before he can

tell whether it's right or wrong or -Well personally I agree with Herman here. I think that

that phone ought to go to you rather than to us.
Alright.
After all I mean

I mean we're to place it so it'11 get to Howe. There's

no question about that.

Well I mean it's the logical thing. It seems to be the
logical place for it.

326

-3 K:

H.M.Jr:

Well Henry, I'll tell you what I'll do. We'11 keep
it open to the boys and then I'll get you on the other
phone. Are you going to be at the White House?
Yes I'll be in the Cabinet Room and I'11 have the
White House phone.

K:

Alright. Well that goes right to my desk and I'll
call you right on that one.

H.M.Jr:

Isn't that the best way?

K:

Alright. That's alright. That's fine and then, if you

want, I'11 come right over and then you can decide what
we'd better do.

H.M.Jr:

Well you tell your fellow to have the phone hooked up

K:

Alright Henry.

H.M.Jr:

O.K.

K:

O.K.

to you.

a

February 18, 1935.
Monday.

327
Feb. 18, 1935

The following was dictated about 3 weeks later
Today the Gold Decision was handed down. Oliphant,
Mrs. Klotz, Miss Reynolds and I walked over to the Cabinet
Room. I had talked on the telephone to the Attorney General to find out if he was going to join us but he seemed

to think he would stay in his own office. I think he felt
that because the President did not ask him to come personally that it was beneath his dignity to join us. I sat

in my usual chair, Mrs. Klotz sat in the Secretary of State
chair, Oliphant in the chair of the Sec. of War and Miss
Reynolds in Roper's chair. I had had a telephone put in at
the end of the table away from the President and Miss Reynolds sat there with the phone connected to the "gold room"
in the Treasury. I spoke to Miss Lehand and asked her if
the President's wheel chair was handy and if we got word
that there would be a decision would she rush in and tell
the President and get him to come into our room. She said
she would and a few minutes past twelve Miss Reynolds got a
flash over the U.P. ticker that the court had started to
read the decision. I rushed into Missy's office, told her
to get the President and it seemed like less than one minute he came in smiling and took his regular place.
There was a telephone at his end of the table which I
put in a year ago when we had been in the Cabinet room with
him on February 1st. The phone at our end of the table
rang and it was Joe Kennedy that he had gotten word that
the decision was coming. I told him that we had already
gotten word. My arrangement with Kennedy was that as he
got word from his men who had a phone in the Supreme Court

that he should phone me. I felt the President would get a
greater kick out of it if he talked to Kennedy direct so
from then on I turned the phone over to him.
McIntyre and Early and Miss Lehand constantly hovered

around and after a while, to my surprise, Ray Mcley dropped
in. In the midst of the excitement as we were getting word
over the telephone Missy asked the President whether she
could find out what her gold stock was doing. I think she
was in earnest and the President told her quite firmly "no".
McIntyre sat down next to me and said, "Mrs. Jimmy Moffett
certainly is cleaning up because she has been buying stocks
very heavily.
I spoke to Lochhead at the other end of the room and
he said that Sterling was up. I remember it was about 4.88
I said that I thought we should sell some, and then called
down to the other end of the table and Oliphant said very

emphatically and very excitedly - "no" - let it go up higher
and I said, better take a profit while we can and the
President nodded his head - so I told Lochhead to sell Sterling
every time it went up a little bit.

328

Subsequently
history
proves
thatsold
I ammore.
right and I am only
sorry now that we
could
not have
As the decision came over the phone we would have

general discussion and I was interested to see from the
President's questions that he was not really familiar with
the case any more than I was and he had to get Oliphant to
interpret each decision for him. We were in the Cabinet
Room all together about an hour - the atmosphere was very
jolly - the President was very natural, laughing and smiling practically all the time. It certainly was one of the
big moments of my life and it was an experience to be with
him.
Monday being my lunch date we adjourned to his office
and to my surprise he had Cordell Hull there to discuss the
proposed Chinese note and we never got to the note until

about three o'clock as all thru lunch the discussion was on
the court decision. At about 2 o'clock the Attorney General
came in very much pleased with himself and taking it more or
less as a great personal victory. He had not had lunch and
the President ordered lunch for him. Later we were joined
by Stanley, Asst. Attorney General and Oliphant. Just before
leaving we took up the Chinese note and the President in a
very nice but quite firm manner told Hull that he did not want
him to send the note as drafted because in this note it said
that we would be glad to join the other nations in conferring
with China in regard to a loan to her. The President said
that this should be treated as a monetary matter and should be
handled by the Treasury. The President seemed to make no
impression on Hull.

329
74TH CONGRESS

SENATE

1st Session

DOCUMENT

No. 21

GOLD CLAUSES IN OBLIGATIONS

OPINIONS
OF THE

SUPREME COURT OF THE UNITED STATES
AND THE

28

DISSENTING OPINIONS
IN THE CASES QUESTIONING THE VALIDITY OF THE JOINT
RESOLUTION OF CONGRESS OF JUNE 5, 1988, WITH RESPECT TOTHE " GOLD CLAUSES" IN OBLIGATIONS
Regairela

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of

UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON:1935

ese

MI 2020A10 (LIOD

2TATA
SUBMITTED BY MR. CONNALLY
IN THE SENATE OF THE UNITED STATES,
February 15 (calendar day, Feb. 18), 1935.

Page

No. 270. Norman C. Norman, petitioner, v. The Baltimore and Ohio Railroad Company

Ordered, That the opinions of the Supreme Court of the United
States, together with the dissenting opinions, delivered February 18,
1935, in the cases questioning the validity of the Joint Resolution of
Congress of June 5, 1933, with respect to the "gold clauses" in obli-

471.

The United States of America, Reconstruction Finance Corporation, of al., petitioners, v. Bankers Trust Company and William
H. Bizby, Trustees

No.

472. The United States of America, Reconstruction Finance Corporation, of al., petitioners, v. Bankers Trust Company and William
H. Bizby, Trustees

No. 531. F. Eugene Norta v. The United States

1

EDWIN A. HALSEY,

17

No. 532. John M. Perry, v. The United States

Secretary.

21

Dissenting opinions

31

n

III

)

ESTATA

2011

1

gations, be printed as a Senate document.
Attest:

No.

1

30

CONTENTS

MOREAN K1 BRETTAJO (LIOD
lift

adidad
SUSTAIN

TO

MIDS

with

stroging

of

bail

16

Between
iii

Abivoin

dou SUPREME COURT OF THE UNITED STATES
TO aros 7da a
starting
the
bildtiq 16)
and
Nos. 270, 471 and 472.-OCTOBER TERM, 1934.
doques
Not
270

On Writ of Certiorari

Norman C. Norman, Petitioner

to the Supreme Court

PA.

The Baltimore and Ohio Railroad

of the State of New
York.

Company.

The United States of America, Recon
struction Finance Corporation, et al.,
Petitioners,

471

DR.

Bankers Trust Company and William
H. Bixby, Trustees.

On Writs of Certiorari
to the United States
Circuit Court of Appeals for the Eighth

The United States of America, Reconstruction Finance Corporation, et al.,

Circuit.

Petitioners,

472

vs.

Bankers Trust Company and William
H. Bixby, Trustees.
1

Mr. Chief Justice HUGHES delivered the opinion of the Court.

These CARDA present the question of the validity of the Joint
Resolution of the Congress, of June 5, 1933, with respect to the
clauses of private contracts for the payment of money.
Sixt 112
This Resolution, the text of which is set forth in the margin,
declares that every provision contained in or made with respect
anthorth the cotes and currencies of the United States
the

public

Interest,
of

and

are

therefore

subject

purport
United

to

to

proper
give
States

the
or

GOLD CLAUSES IN OBLIGATIONS

GOLD CLAUSES IN OBLIGATIONS

to any obligation which purports to give the obligee a right to
require payment in gold or a particular kind of coin or currency,

$22.50, the face of the coupon, and was affirmed upon appeal. The
Court of Appeals of the State considered the federal question and

2

decided that the Joint Resolution was valid. 265 N. Y. 37. This

or in an amount in money of the United States measured thereby

is against public policy Such provisions in obligations thereafter
incurred are prohibited. The Resolution provides that Every

Court granted B writ of certiorari, October 8, 1934.
In Nos. 471 and 472, the question aross with respect to an issue

obligation, heretofore or hereafter incurred, whether or not any such
provision is contained therein or made with respect thereto, shall be
discharged upon payment, dollar for dollar, in any coin or currency
which at the time of payment is legal tender for public and private

of bonds, dated May 1, 1903, of the St. Louis, Iron Mountain &
Southern Railway Company, payable May 1, 1933. The bonds
severally provided for the payment of "One Thousand Dollars
gold coin of the United States of the present standard of weight
and fineness". with interest from date at the rate of four per cent.
per annum, payable "in like gold coin semi-annually" In 1917,
Missouri Pacific Railroad Company acquired the property of the
obligor subject to the mortgage securing the bonds. In March,
1933, the United States District Court, Eastern District of Miasouri, approved a petition filed by the latter company under Section 77 of the Bankruptcy Act. In the following December, the

debts'

In No. 270, the suit was brought upon a coupon of a bond made by
the Baltimore and Ohio Railroad Company under date of February
1, 1930, for the payment of $1,000 on February 1, 1960, and interest
from date at the rate of 4 1/2 per cent. per annum, payable semi-

annually. The bond provided that the payment of principal and

interest 'will be made
in gold coin of the United States of
America of or equal to the standard of weight and fineness existing
on February 1, 1930" The coupon in suit, for $22.50, was payable
on February 1, 1934. The complaint alleged that on February 1
1930, the standard weight and fineness of a gold dollar of the United

States as a unit of value was fixed to consist of twenty-five and
eight-tenths grains of gold, nine-tenths fine". pursuant to the Act of
Congress of March 14, 1900 (31 Stat. 45); and that by the Act of
Congress known as the "Gold Reserve Act of 1934" (January 30,
1934, 48 Stat. 337), and by the order of the President under that Act,
the standard unit of value of a gold dollar of the United States was
fixed to consist of fifteen and five-twenty-firsts grains of gold, ninetenths fine". from and after January 31, 1934. On presentation of
the coupon, defendant refused to pay the amount in gold, or the
equivalent of gold in legal tender of the United States which was
alleged to be, on February 1, 1934, according to the standard of D
weight and fineness existing on February 1, 1930, the sum of $38.10,
and plaintiff demanded judgment for that amount.
Defendant answered that by Acts of Congress, and, in particular,
by the Joint Resolution of June 5. 1933, defendant had been prevented from making payment in gold coin or otherwise than dollar
for dollar, in coin or currency of the United States (other than gold
coin and gold certificates) which at the time of payment constituted
legal tender. Plaintiff, challenging the validity of the Joint Resolution under the Fifth and Tenth Amendments, and Article I, Section 1,
of the Constitution of the United States, moved to strike the defense.

The motion was denied. Judgment was entered for plaintiff for
to logal for debts. Any such provision contained in any law authorising obligathe

of

hereby

but

other

any

to

term

means

banks

national

Federal

and

such

debts.

and

power.
emergency

to

joint-stock

Approved June 1933.

land

coined

private

with

banks

and

for

proportion

law

their

for

the

single

of

be

or

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trustees under the mortgage asked leave to intervene, seeking to
have the income of the property applied against the mortgage debt
and alleging that the debt was payable "in gold coin of the United
States of the standard of weight and fineness prevailing on May
1. 1903." Later, the Reconstruction Finance Corporation and the
United States, as creditors of the debtor, filed a joint petition for

leave to intervene, in which they denied the validity of the gold
clause contained in the mortgage and bonds. Leave to intervene
specially was granted to each applicant on April 5, 1934, and
answers were filed. On the hearing, the District Court decided
that the Joint Resolution of June 5, 1933, was constitutional and
that the trustees were entitled, in payment of the principal of each
bond, to $1,000 in money constituting legal tender. Decree was
entered accordingly and the trustees (respondents here) took two

appeals to the United States Circuit Court of Appeals. While

these appeals were pending, this Court granted write of certiorari,

November 5, 1934.

The Joint Resolution of June 5, 1933, was one of a series of measures relating to the currency. These measures disclose not only the
purposes of the Congress but also the situations which existed at the
time the Joint Resolution was adopted and when the payments under
the "gold clauses" were sought. On March 6, 1933, the President,
stating that there had been "heavy and unwarranted withdrawals of
gold and currency from our banking institutions for the purpose of

hoarding" and extensive speculative activity abroad in foreign
exchange" which had resulted "in severe drains on the Nation's
stocks of gold" and reciting the authority conferred by Section 5 (b)
of the Act of October 6, 1917 (40 Stat. 411), declared bank holiday until March 9. 1933. On the same date, the Secretary of the
Treasury, with the President's approval, issued instructions to the
Treasurer of the United States to make payments in gold in any

form only under license issued by the Secretary.
On March 9. 1933, the Congress passed the Emergency Banking
Act. 48 Stat. 1. All orders issued by the President or the Secretary
of the Treasury since March 4, 1933, under the authority conferred
by Section 5 (b) of the Act of October 6, 1917, were confirmed. That

legal

One appeal WM allowed by the District Judge and the other by the Circuit Court of Appeals

o

3

4

GOLD CLAUSES IN OBLIGATIONS
GOLD CLAUSES IN OBLIGATIONS

section was amended 80 as to provide that during any period of national emergency declared by the President, he might 'investigate,
regulate or prohibit", by means of licenses or otherwise, "any transactions in foreign exchange, transfers of credit between or payments

by banking institutions as defined by the President, and export,
hoarding, melting, or earmarking of gold or silver coin or bullion or
currency, by any person within the United States or any place subject to the jurisdiction thereof". The Act also amended Section 11
of the Federal Reserve Act (39 Stat. 752) so as to authorize the Secretary of the Treasury to require all persons to deliver to the Treasurer of the United States 'any or all gold coin, gold bullion, and gold
certificates" owned by them, and that the Secretary should pay there-

for "an equivalent amount of any other form of coin or currency

coined or issued under the laws of the United States'
By Executive Order of March 10, 1933, the President authorized
banks to be reopened, as stated, but prohibited the removal from the
United States, or any place subject to its jurisdiction, of "any gold
coin, gold bullion, or gold certificates, except in accordance with regulations prescribed by or under license issued by the Secretary of the

Treasury By further Executive Order of April 5, 1933, forbidding

hoarding all persons were required to deliver, on or before May 1933,
to stated banks all gold coin, gold bullion and gold certificates' with

certain exceptions, the holder to receive "an equivalent amount of
any other form of coin or currency coined or issued under the laws of

the United States". Another Order of April 20, 1933, contained
further requirements with respect to the acquisition and export of gold
and to transactions in foreign exchange.

By Section 43 of the Agricultural Adjustment Act of May 12,
1933 (48 Stat. 51), it was provided that the President should have
authority, upon the making of prescribed findings and in the circumstances stated, to fix the weight of the gold dollar in grains
nine tenths fine and also to fix the weight of the silver dollar in grains
nine tenths fine at a definite fixed ratio in relation to the gold dollar
at such amounts as he finds necessary from his investigation to stabilive domestic prices or to protect the foreign commerce gainst the
adverse effect of depreciated foreign currencies and it was further
provided that the gold dollar, the weight of which is so fixed, shall

be the standard unit of value and that "all forms of money shall
be maintained at a parity with this standard", but that in no event

5

under Section 43 of the Act of May 12, 1933, and, by section 12, with
respect to the authority of the President to fix the weight of the gold
dollar, provided that it should not be fixed "in any event at more than

60 per centum of its present weight" On January

31,

1934,

the

President issued his proclamation declaring that he fixed "the weight

of the gold dollar to be 15 5/21 grains mine tenths fine" from and

after that date.

We have not attempted to summarize all the provisions of these
measures. We are not concerned with their wisdom. The question
before the Court is one of power, not of policy. And that question
touches the validity of these measures at but a single point, that is,
in relation to the Joint Resolution denying effect to 'gold clauses
in existing contracts. The Resolution must, however, be considered
in its legislative setting and in the light of other measures in part
materia.

First. The interpretation of the gold clauses in suit. In the case of
the Baltimore and Ohio Railroad Company, the obligor considers the

obligation to be one for the payment of money and not for the

delivery of a specified number of grains or ounces of gold' that it is an

obligation payable in money of the United States and not less so
because payment is to be made "in a particular kind of money
that it is not a commodity contract" which could be discharged by
"tender of bullion" At the same time, the obligor contends that,
while the Joint Resolution is constitutional in either event, the
clause is a 'gold coin" and not a "gold value" clause; that is, it
does not imply payment in the equivalent of gold in case performance by payment in gold coin is impossible' The parties, runs
the argument, intended that the instrument should be negotiable and

hence it should not be regarded as one 'for the payment of an
indeterminate sum ascertainable only at date of payment" And

in the reference to the standard of weight and fineness, the words
"equal to are said to be synonymous with of
In the case of the bonds of the St. Louis, Iron Mountain & Southern
Railway Company, the Government urges that by providing for
payment in gold coin the parties showed an intention to protect
against depreciation of one kind of money as compared with another,
as for example, paper money compared with gold, or silver compared

with gold" and, by providing that the gold coin should be of a

particular standard, they attempted 'to assure against payment in
coin of lesser gold content The clause, it is said, does not reveal
an intention to protect against a situation where gold coin no longer

shall the weight of the gold dollar be fixed so as to reduce its present
weight by more than 50 per centum"
Then followed the Joint Resolution of June 5, 1933. There were

circulates and all forms of money are maintained in the United States

further Executive Orders of August 28 and 29, 1933, October 25,
1933, and January 11 and 15, 1934, relating to the hoarding and
export of gold coin, gold bullion and gold certificates, to the sale
and export of gold recovered from natural deposits, and to trans-

actions in foreign exchange, and orders of the Secretary of the Treasury, approved by the President, on December 28, 1933, and January
15, 1934, for the delivery of gold coin, gold bullion and gold certificates
to the United States Treasury.
On January 30, 1934, the Congress passed the Gold Reserve Act
of 1934 (48 Stat. 337) which, by section 13, ratified and confirmed all
the actions, regulations and orders taken or made by the President
and the Secretary of the Treasury under the Act of March 9, 1933, or

o

at a parity with each other' apparently, the parties did not anticipate the existence of conditions making it possible and illegal to
procure gold coin with which to meet the obligations" In view of
that impossibility, asserted to exist both in fact and in law, the
Government contends that the present debtor would be excused, in
an action on the bonds, from the obligation to pay in gold coin," but,
as only one term of the promise in the gold clause is impossible to

perform and illegal" the remainder of the obligation should stand
and thus the obligation "becomes one to pay the stated number of

dollars'

The bondholder in the first case, and the trustees of the mortgage
in the second case, oppose such an interpretation of the gold clauses as

GOLD CLAUSES IN OBLIGATIONS

6

GOLD CLAUSES IN OBLIGATIONS

inadequate and unreasonable. Against the contention that the agreement was to pay in gold coin if that were possible, and not otherwise,
they insist that it is beyond dispute that the gold clauses were used for

In Trebilcock Wilson, supra, where a note was payable "in specie"

the Court said (pp. 694, 695) that the provision did not "assimilate
the note to an instrument in which the amount stated is payable in
chattels; as, for example, to a contract to pay a specified sum in
lumber, or in fruit, or grain" that the terms specie were "merely
descriptive of the kind of dollars in which the note is payable, there
being different kinds in circulation, recognized by law": that they
meant "that the designated number of dollars in the note shall be
paid in so many gold or silver dollars of the coinage of the United
States' And in Thompson v. Butler, supra, pp. 696, 697, the Court

the very purpose of guarding against a depreciated currency. It is
pointed out that the words gold coin of the present standard" show
that the parties contemplated that when the time came to pay there
might be gold dollars of a new standard, and, if so, that 'gold coin of
the present standard would pass from circulation; and it is taken to be
admitted, by the Government's argument, that if gold coins of a lesser
standard were tendered, they would not have to be accepted unless
they were tendered in sufficient amount to make up the gold value"
for which, it is said, the contract called. It is insisted that the words
of the gold clause clearly show an intent "to establish & measure or

adverted to the statement made in Bronson V. Rodes, and concluded

that notwithstanding this, it is a contract to pay money, and none
the less so because it designates for payment one of the two kinds of
money which the law has made & legal tender in discharge of money

standard of value of the money to be paid if the particular kind of
money specified in the clause should not be in circulation at the time

obligations Compare Gregory v. Morris, supra.

of payment". To deny the right of the bondholders to the equivalent of the gold coin promised is said to be not a construction of the

With respect to the interpretation of the clauses then under consideration, the Court observed, in Bronson v. Rodes, supra, p. 250, that a
contract to pay a certain number of dollars in gold or silver coins was,
in legal import, nothing else than an agreement to deliver A certain
weight of standard gold, to be ascertained by a count of coins, each
of which is certified to contain a definite proportion of that weight
The Court thought that it was not distinguishable, in principle, "from

gold clause but its nullification.

The decisions of this Court relating to clauses for payment in
gold did not deal with situations corresponding to those now presented. Bronson V. Rodes, 7 Wall. 229; Butler v. Horwitz, 7 Wall.
258: Dewing v. Sears, 11 Wall. 379; Trebilcock v. Wilson, 12 Wall.
687; Thompson v. Butler, 95 U. S. 694: Gregory V. Morris, 96 U.
619. See, also, The Vaughan and Telegraph, 14 Wall. 258; The
Emily Souder, 17 Wall. 666. The rulings, upholding gold clauses
and determining their effect, were made when gold was still in circulation and no act of the Congress prohibiting the enforcement of
such clauses had been passed. In Bronson v. Rodes, supra, p. 251,
the Court held that the legal tender acts of 1862 and 1863, apart
from any question of their constitutionality, had not repealed or
modified the laws for the coinage of gold and silver or the statutory
provisions which made those coins & legal tender in all payments.
It followed, said the Court, that there were two descriptions of
money in use at the time the tender under consideration was made,
both authorized by law, and both made legal tender in payments.
The statute denomination of both descriptions was dollars; but they
were essentially unlike in nature". Accordingly, the contract of the
parties for payment in one sort of dollars. which was still in lawful
circulation, was sustained. The case of Trebilcock v. Wilson, supra,
was decided shortly after the legal tender acts had been held valid.
The Court again concluded (pp. 695, 696) that those acts applied
only to debts which were payable in money generally, and that there

were 'according to that decision, two kinds of money, essentially
different in their nature, but equally lawful". In that view. said
the Court, contracts payable in either. or for the possession of either,

must
be equally lawful, and, if lawful, must be equally capable of
enforcement
(Instration the time of such clauses M affording standard or measure of value. doctors refer to Article
Ingold

countries

with

the

stated

monetary
Germany which were made
purpose that
the

'shall

be

the weight and finepees of gold enacted by law 00 January 1914" Reference also made
construction the gold clause in the bonds before the House Lords in Friet, appeliant. and Societ

(L. R. (1984) 181. 1733 and to the declaions the

manent Court of Justice in the cases the Berbian and Brazillan loans
gold
frience,
Permanent

Court of International Justice, Serios A. Nos. 20/21) where the bonds provided for

7

a contract to deliver an equal weight of bullion of equal fineness"
That observation was not necessary to the final conclusion. The
decision went upon the assumption that engagements to pay coined
dollars may be regarded as ordinary contracts to pay money rather

than as contracts to deliver certain weights of standard gold" Id.

p. 251.

the

We are of the opinion that the gold clauses now before us were
not contracts for payment in gold coin as a commodity, or in bullion, but were contracts for the payment of money. The bonds
were severally for the payment of one thousand dollars. We also
think that, fairly construed, these clauses were intended to afford
a definite standard or measure of value, and thus to protect against
a depreciation of the currency and against the discharge of the
obligation by a payment of lesser value than that prescribed.
When these contracts were made they were not repugnant to any
action of the Congress. In order to determine whether effect may
now be given to the intention of the parties in the face of the action

taken by the Congress, or the contracts may be satisfied by the payment dollar for dollar, in legal tender, as the Congress has now prescribed, it is necessary to consider (1) the power of the Congress
to establish a monetary system and the necessary implications of
that power; (2) the power of the Congress to invalidate the provisions of existing contracts which interfere with the exercise of
its constitutional authority; and (3) whether the clauses in ques-

tion do constitute such an interference as to bring them within

the range of that power.
Second The power of the Congress to establish a monetary system.
It is unnecessary to review the historic controversy as to the extent
of this power, or again to go over the ground traversed by the Court
in reaching the conclusion that the Congress may make treasury notes
legal tender in payment of debts previously contracted, as well as of

8

GOLD CLAUSES IN OBLIGATIONS

those subsequently contracted, whether that authority be exercised
course of war or in time of peace, Knoz V. Lee, 12 Wall. 457 ;Juilliard

GOLD CLAUSES IN OBLIGATIONS

Dealing with the specific question as to the effect of the legal

V. Greenman, 110 421. We need only consider certain postulates

upon which that conclusion rested.

tender acts upon contracts made before their passage, that is, those

The Constitution grants to the Congress power "To coin money,
regulate the value thereof, and of foreign coin" Art. I, sec. 8, par. 5.

cases, recognized the possible consequences of such enactments in

But the Court in the legal tender cases did not derive from that

express grant alone the full authority of the Congress in relation to

the currency. The Court found the source of that authority in all
the related powers conferred upon the Congress and appropriate to
achieve' the great objects for which the government was framed"

"a national government, with sovereign powers'. McCulloch v.

Maryland, 4 Wheat. 316, 404-407; Knoz V. Lee, supra, pp. 532, 536;
Juilliard v. Greenman, supra, p. 438. The broad and comprehensive
national authority over the subjects of revenue, finance and currency
is derived from the aggregate of the powers granted to the Congress,
embracing the powers to lay and collect taxes, to borrow money, to
regulate commerce with foreign nations and among the several States,
to coin money, regulate the value thereof, and of foreign coin, and
fix the standards of weights and measures, and the added express

power to make all laws which shall be necessary and proper for
carrying into execution' the other enumerated powers. Juilliard V.
Greenman, supra, pp. 439, 440.

The Constitution "was designed to provide the same currency,

having a uniform legal value in all the States" It was for that

reason that the power to regulate the value of money was conferred
upon the Federal Government, while the same power, as well as the
power to emit bills of credit, was withdrawn from the States. The
States cannot-declare what shall be money, or regulate its value.
Whatever power there is over the currency is vested in the Congress.
Knox Lee, supra, p. 545. Another postulate of the decision in that
case is that the Congress has power to enact that the Government's
promises to pay money shall be, for the time being, equivalent in
value to the representative of value determined by the coinage acts,

or to multiples thereof Id., p. 553. Or, as was stated in the

Juilliard case, supra, p. 447, the Congress is empowered to issue the
obligations of the United States in such form, and to impress upon
them such qualities 88 currency for the purchase of merchandise and
the payment of debts, as accord with the usage of sovereign govern-

ments" The authority to impose requirements of uniformity and
parity is an essential feature of this control of the currency. The
Congress is authorized to provide sound and uniform currency for
the country", and to "secure the benefit of it to the people by appropriate legislation" Veazie Bank V. Fenno, 8 Wall. 533, 549.
Moreover, by virtue of this national power, there attaches to the
ownership of gold and silver those limitations which public policy
may require by reason of their quality as legal tender and as a medium

of exchange. Ling Su Fan V. United States, 218 U. S. 302, 310.
Those limitations arise from the fact that the law "gives to such
coinage a value which does not attach as a mere consequence of
intrinsic value" Their quality as legal tender is attributed by the
law, aside from their bullion value. Hence the power to coin money
includes the power to forbid mutilation, melting and exportation of
gold
and silver
its_origin".
Id., p.coin,
311. to prevent its outflow from the country of

o

for the payment of money generally, the Court, in the legal tender

frustrating the expected performance of contracte, in rendering
them "fruitless or partially fruitless' The Court pointed out that
the exercise of the powers of Congress may affect apparent obligations" of contracts in many ways. The Congress may pass bankruptcy acts. The Congress may declare war, or, even in peace, pass
non-intercourse acts, or direct an embargo, which may operate
seriously upon existing contracts. And the Court reasoned that if
the legal tender acts were justly chargeable with impairing con-

tract obligations, they would not, for that reason, be forbidden,

unless a different rule is to be applied to them from that which has
hitherto prevailed in the construction of other powers granted by
the fundamental law" The conclusion was that contracts must be

understood as having been made in reference to the possible exercise

of the rightful authority of the Government, and that no obligation
of a contract "can extend to the defeat" of that authority. Knox

v. Lee, supra, pp. 549-551.

On similar grounds, the Court dismissed the contention under the
Fifth Amendment forbidding the taking of private property for public
use without just compensation or the deprivation of it without due
process of law. That provision, said the Court, referred only to a

direct appropriation A new tariff, an embargo, or a war, might

bring upon individuals great losses; might, indeed, render valuable
property almost valueless, might destroy the worth of contracts.
But whoever supposed asked the Court, "that, because of this, a
tariff could not be changed or a non-intercourse act, or embargo be
enacted, or a war be declared". The Court referred to the Act of
June 28, 1834, by which a new regulation of the weight and value

of gold coin was adopted, and about six per cent. was taken from the
weight of each dollar. The effect of the measure was that all creditors
were subjected to a corresponding loss, as the debts then due "became solvable with six per cent. less gold than was required to pay

them before" But it had never been imagined that there was a
taking of private property without compensation or without due

process of law. The harshness of such legislation, or the hardship it
may cause, afforded no reason for considering it to be unconstitutional. Id., pp. 551, 552.
The question of the validity of the Joint Resolution of June 5,
1933, must be determined in the light of these settled principles.
Third. The power of the Congress to invalidate the provisions
of existing contracts which interjere with the exercise of its constitutional

authority. The instant cases involve contracts between private

parties, but the question necessarily relates as well to the contracts
or obligations of States and municipalities, or of their political subdivisions, that is, to such engagements as are within the reach of
the applicable national power The Government's own contracts
the obligations of the United States are in a distinct category and
demand separate consideration. See Perry V. United States, decided

this day

The contention is that the power of the Congress, broadly sustained
by the decisions we have cited in relation to private contracts for the

9

10

GOLD CLAUSES IN OBLIGATIONS

GOLD CLAUSES IN OBLIGATIONS

payment of money generally, does not extend to the striking down of
express contracts for gold payments. The acts before the Court in
the legal tender cases, 88 we have seen, were not deemed to go so far.

Those acts left in circulation two kinds of money, both lawful and
available, and contracts for payments in gold, one of these kinds, were

not disturbed. The Court did not decide that the Congress did not
have the constitutional power to invalidate existing contracts of that
sort, if they stood in the way of the execution of the policy of the
Congress in relation to the currency. Mr. Justice Bradley, in his
concurring opinion, expressed the view that the Congress had that
power and had exercised it. Knoz V. Lee, supra, pp. 566, 567. And,
upon that ground, he dissented from the opinion of the Court in
Trebilcock V. Wilson, supra, p. 699, as to the validity of contracts
for payment "in specie". It is significant that Mr. Justice Bradley,
referring to this difference of opinion in the legal tender cases, remarked (in his concurring opinion) that of course" the difference
arose from the different construction given to the legal tender acts
"I do not understand he said, the majority of the court to decide
that an act so drawn as to embrace, in terms, contracts payable in
specie, would not be constitutional. Such a decision would completely nullify the power claimed for the government. For it would
be very easy, by the use of one or two additional words, to make all
contracts payable in specie".

Here, the Congress has enacted an express interdiction. The

argument against it does not rest upon the mere fact that the legislation may cause hardship or loss. Creditors who have not stipulated
for gold payments may suffer equal hardship or loss with creditors

who have so stipulated. The former, admittedly, have no constitutional grievance. And, while the latter may not suffer more, the
point is pressed that their express stipulations for gold payments con-

stitute property, and that creditors who have not such stipulations
are without that property right. And the contestants urge that the
Congress is seeking not to regulate the currency, but to regulate contracts, and thus has stepped beyond the power conferred.

This argument is in the teeth of another established principle.

Contracts, however express, cannot fetter the constitutional authority
of the Congress. Contracts may create rights of property, but when
contracts deal with a subject matter which lies within the control of

the Congress, they have a congenital infirmity. Parties cannot remove their transactions from the reach of dominant constitutional
power by making contracts about them. See Hudson Water Co. v.
McCarter, 209 U.S. 349, 357.

This principle has familiar illustration in the exercise of the power
to regulate commerce. If shippers and carriers stipulate for specified
rates, although the rates may be lawful when the contracts are made,
if Congress through the Interstate Commerce Commission exercises

its authority and prescribes different rates, the latter control and
override inconsistent stipulations in contracts previously made.
This is so, even if the contract be a charter granted by a State and
limiting rates, or a contract between municipalities and carriers.
New York v. United States, 257 U. S. 591, 600, 601; United States V.
Mr. Justice M filer also dissented in Treblloock # Wilson 12 Wall. pp 000, 200 upon the ground "that

contract for gold dollars. in terms, WM DO in legal effect, from contract for dollars
without
the qualifying words, specie, or gold, and that the legal tender statutes had. therefore the
effect in both

Village of Hubbard, 266 U. S. 474, 477, note. See, also, Armour
Packing Co. v. United States, 209 U. S. 56, 80-82; Union Dry Goods
Co. v. Georgia Public Service Corporation, 248 U. S. 372, 375.
In Addyston Pipe & Steel Co. v. United States, 175 U. S. 211, 229

230, the Court raised the pertinent question, if certain kinda of
private contracts directly limit or restrain, and hence regulate interstate commerce, why should not the power of Congress reach such
contracts equally with legislation of a State to the same effect?
What sound reason", said the Court, can be given why Congress
should have the power to interfere in the case of the State, and yet
have none in the case of the individual? Commerce is the important
subject of consideration, and anything which directly obstructs and
thus regulates that commerce which is carried on among the States,
whether it is state legislation or private contracts between individuals
or corporations, should be subject to the power of Congress in the
regulation of that commerce"
Applying that principle, the Court held that a contract, valid when
made (in 1871) for the giving of a free pass by an interstate carrier, in
consideration of a release of a claim for damages, could not be enforced

after the Congress had passed the Act of June 29, 1906, 38 Stat.
584. Louisville & Nashville Railroad Company V. Mottley, 219 U. S.

467. Quoting the statement of the general principle in the legal

tender cases, the Court decided that the agreement must necessarily
be regarded as having been made subject to the possibility that, at
some future time, the Congress might so exert its whole constitutional
power in regulating interstate commerce as to render that agreement

unenforceable or to impair its value". The Court considered it

inconceivable that the exercise of such power 'may be hampered or

restricted to any extent by contracts previously made between
individuals or corporations 'The framers of the Constitution
never intended any such state of things to exist" Id., p. 482.
Accordingly, it has been 'authoritatively settled by decisions of
this Court that no previous contracts or combinations can prevent the
application of the Anti-Trust Acts to compel the discontinuance of
combinations declared to be illegal. Addyston Pipe & Steel Co. V.
United States, supra: United States v. Southern Pacific Company,

259 U. S. 214, 234, 235. See, also, Calhoun V. Massie, 253 U. S. 170,

176; Omnia Commercial Co. v. United States, 261 U. S. 502, 509;
Stephenson v. Binford, 287 U. S. 261, 276.

The principle is not limited to the incidental effect of the exercise
by the Congress of its constitutional authority. There is no constitutional ground for denying to the Congress the power expressly
to prohibit and invalidate contracts although previously made, and
valid when made, when they interfere with the carrying out of the
policy it is free to adopt. The exercise of this power is illustrated
by the provision of section 5 of the Employers' Liability Act of 1908
(35 Stat. 65, 66) relating to any contract the purpose of which was to
enable a common carrier to exempt itself from the liablity which the
Act created. Such stipulation the Act explicitly declared to be void.
In the Second Employers' Liability Cases, 223 U. S. 1, 52 the Court
decided that as the Congress possessed the power to impose the liability, it also possessed the power to insure its efficacy by prohibiting
Compare New York Cretral . Hudson R R Cb. v. Gray. - v. Massic, 258 U.

same

o

11

170. 176.

GOLD CLAUSES IN OBLIGATIONS

12

GOLD CLAUSES IN OBLIGATIONS

any contract, rule, regulation or device in evasion of it" And this
prohibition the Court has held to be applicable to contracts made
before the Act was passed. Philadelphia, Baltimore & Washington
R. R. Co. V. Schubert, 224 U. S. 603. In that case, the employee,

suing under the Act, was a member of the "Relief Fund" of the railroad company under a contract of membership, made in 1905, for
the purpose of securing certain benefits. The contract provided that
an acceptance of those benefits should operate as a release of claims,
and the company pleaded that acceptance as a bar to the action. The
Court held that the Employers' Liability Act supplied the governing
rule and that the defense could not be sustained The power of the
Congress in regulating interstate commerce was not fettered by the
necessity of maintaining existing arrangements and stipulations which

13

purrency and determine the value thereof. If the gold clause applied to a very

limited number of contracts and security issues, it would be a matter of no par-

ticular consequence, but in this country virtually all obligations, almost as a
matter of routine, contain the gold clause. In the light of this situation two
phenomena which have developed during the present emergency make the
enforcement of the gold clauses incompatible with the public interest The first

is the tendency which has developed Internally to hoard gold; the second is the

tendency for capital to leave the country. Under these circumstances no cur-

rency system, whether based upon gold or upon any other foundation, can meet

the requirements of situation in which many billions of dollars of securities are
expressed in a particular form of the circulating medium, particularly when It is
the medium upon which the tire credit and currency structure rests.

And the Joint Resolution itself recites the determination of the
Congress in these words:
Whereas the existing emergency has disclosed that provisions of obligations
which purport to give the obligee a right to require payment in gold or a particular kind of coin or currency of the United States, or in an amount in money
of the United States measured thereby, obstruct the power of the Congress to
regulate the value of the money of the United States, and are inconsistent with
the declared policy of the Congress to maintain at all times the equal power
of every dollar, coined or issued by the United States, in the markets and in the

would conflict with the execution of its policy. The reason is manifest. To subordinate the exercise of the Federal authority to the
continuing operation of previous contracts would be to place to this
extent the regulation of interstate commerce in the hands of private
individuals and to withdraw from the control of the Congress so much
of the field as they might choose by "prophetic discernment" to bring
within the range of their agreements. The Constitution recognizes
no such limitation. Id., pp. 613, 614. See, also, United States V.
Southern Pacific Company, supra; Sproles v. Binford, 286 U. S. 374,
390, 391; Radio Commission V. Nelson Brothers Company, 289 U.

payment of debta.

Can we say that this determination is so destitute of basis that
the interdiction of the gold clauses must be deemed to be without
any reasonable relation to the monetary policy adopted by the

Congress?

266,282.

The same reasoning applies to the constitutional authority of the
Congress to regulate the currency and to establish the monetary
system of the country. If the gold clauses now before UR interfere
with the policy of the Congress in the exercise of that authority, they

cannot stand.
Fourth. The effect of the gold clauses in suit in relation to the monetary
policy adopted by the Congress. Despite the wide range of the discussion

The Congress in the exercise of its discretion was entitled to consider
the volume of obligations with gold clauses, as that fact, as the report
of the House Committee observed, obviously had a bearing upon the
question whether their existence constituted a substantial obstruction

to the congressional policy. The estimates submitted at the bar
indicate that when the Joint Resolution was adopted there were
outstanding seventy-five billion dollars or more of such obligations,
the annual interest charges on which probably amounted to between

at the bar and the earnestness with which the arguments against the
validity of the Joint Resolution have been pressed, these contentions
necessarily are brought, under the dominant principles to which we

three and four billion dollars. It is apparent that if these promises
were to be taken literally, as calling for actual payment in gold coin,
they would be directly opposed to the policy of Congress, as they
would be calculated to increase the demand for gold, to encourage
hoarding, and to stimulate attempts at exportation of gold coin.

have referred, to a single and narrow point. That point is whether
the gold clauses do constitute an actual interference with the monetary policy of the Congress in the light of its broad power to determine
that policy. Whether they may be deemed to be such an interference

If there were no outstanding obligations/with gold clauses, we suppose

that no one would question the power of the Congress, in its control
of the monetary system, to endeavor to conserve the gold resources
of the Treasury, to insure its command of gold in order to protect
and increase its reserves, and to prohibit the exportation of gold coin
or its use for any purpose inconsistent with the needs of the Treasury
See Ling Su Fan V. United States, supra. And if the Congress would
have that power in the absence of gold clauses, principles beyond
dispute compel the conclusion that private parties, or States or

depends upon an appraisement of economic conditions and upon
determinations of questions of fact. With respect to those conditions
and determinations, the Congress is entitled to its own judgment
We may inquire whether its action is arbitrary or capricious, that is,
whether it has reasonable relation to a legitimate end. If it is an
appropriate means to such an end, the decisions of the Congress as
to the degree of the necessity for the adoption of that means, is final.
McCulloch V. Maryland, supra, pp. 421, 423; Juilliard V. Greenman,

municipalities, by making such contracts could not prevent or

supra, p. 450; Stafford V. Wallace, 258 U. S. 495, 521; Everard's

embarrass its exercise. In that view of the import of the gold clauses,
their obstructive character is clear.
But, if the clauses are treated as 'gold value" clauses, that is, as
intended to set up a measure or standard of value if gold coin is not
available, we think they are still hostile to the policy of the Congress

Breweries V. Day, 265 U. S. 545, 559, 562.

The Committee on Banking and Currency of the House of Repsentatives stated in its report recommending favorable action upon

the Joint Resolution Rep. No. 169, 73d Cong., 1st sess.):

and hence subject to prohibition. It is true that when the Joint

The occasion for the declaration in the resolution that the gold clauses are
contrary to public policy arises out of the experiences of the present emergency.
These gold clauses render ineffective the power of the Government to create a

'See Note 1.

8. Doe. 21, 74-1-

o

GOLD OLAUSES IN OBLIGATIONS

14

GOLD CLAUSES IN OBLIGATIONS

Resolution was adopted on June 5, 1933, while gold coin had largely
been withdrawn from circulation and the Treasury had declared that

gold is not now paid, nor is it available for payment, upon public
or private debts," the dollar had not yet been devalued. But devaluation was in prospect and a uniform currency was intended.
Section 43 of the Act of May 12, 1933 (48 Stat. 51), provided that
the President should have authority, on certain conditions, to fix the
weight of the gold dollar as stated, and that its weight as 80 fixed
should be "the standard unit of value" with which all forms of mony
should be maintained "at a parity". The weight of the gold dollar

was not to be reduced by more than 50 per centum. The Gold

Reserve Act of 1934 (January 30, 1934, 48 Stat. 337), provided that
the President should not fix the weight of the gold dollar at more
than 60 per cent of its present weight. The order of the President of
January 31, 1934, fixed the weight of the gold dollar at 15 5/21 grains
nine-tenths fine as against the former standard of 25 8/10 grains
nine-tenths fine. If the gold clauses interfered with the congressional
policy and hence could be invalidated, there appears to be no constitutional objection to that action by the Congress in anticipation of
the determination of the value of the currency. And the questions
now before us must be determined in the light of that action.
The devaluation of the dollar placed the domestic economy upon
a new basis. In the currency as thus provided, States and municipalities must receive their taxes; railroads, their rates and fares;
public utilities, their charges for services. The income out of which
they must meet their obligations is determined by the new standard.
Yet, according to the contentions before us, while that income is
thus controlled by law, their indebtedness on their "gold bonds'
must be met by an amount of currency determined by the former
gold standard. Their receipts, in this view, would be fixed on one
basis; their interest charges, and the principal of their obligations,

on another. It is common knowledge that the bonds issued by

these obligors have generally contained gold clauses, and presumably

they account for a large part of the outstanding obligations of that
sort. It is also common knowledge that a similar situation exists
with respect to numerous industrial corporations that have issued
their "gold bonds" and must now receive payments for their products in the existing currency. It requires no acute analysis or profound economic inquiry to disclose the dislocation of the domestic
economy which would be caused by such a disparity of conditions in

which, it is insisted, those debtors under gold clauses should be
required to pay one dollar and sixty-nine cents in currency while
respectively receiving their taxes, rates, charges and prices on the

basis of one dollar of that currency.
We are not concerned with consequences, in the sense that consequences, however serious, may excuse an invasion of constitu-

tional right. We are concerned with the constitutional power of
Treasury Statement of May 26, 1933.

The Senate Committee on Banking and Currency is its Report of May 27. 1933. stated: "By the
Emergency ment on obligations Banking public Act-and the private existin By Executive the Thomas orders gold not currency now paid. WM intended obtainable to be for made pay:
legal

tender

for

all

debta.

However,

due

to

the

language

used

doubt

has

arime

whether

has

been

made

legal tender for payments on good clause obligations, public and private This doubt should be
These gold clauses interfere with the power Congress to regulate the value of the money of the United

States and the enforcement of them would be inconsistent with existing legislative policy Sen. Rep.
No. 99, 730 Cong., 1st sess.

o

15

the Congress over the monetary system of the country and its attempted frustration. Exercising that power, the Congress has
undertaken to establish a uniform currency, and parity between
kinds of currency, and to make that currency, dollar for dollar,
legal tender for the payment of debts. In the light of abundant
experience, the Congress was entitled to choose such a uniform
monetary system, and to reject a dual system, with respect to all
obligations within the range of the exercise of its constitutional
authority. The contention that these gold clauses are valid contracts and cannot be struck down proceeds upon the assumption
that private parties, and States and municipalities, may make and

enforce contracts which may limit that authority. Dismissing
that untenable assumption, the facts must be faced. We think that

it is clearly shown that these clauses interfere with the exertion
of the power granted to the Congress and certainly it is not estab-

lished that the Congress arbitrarily or capriciously decided that
such an interference existed.

The judgment and decree, severally under review, are affirmed.
No. 270. Judgment affirmed.
Nos. 471 and 472. Decree affirmed.

CHION

21

SUPREME COURT OF THE UNITED STATES.
No. 531.-OCTOBER TERM, 1934
F. Eugene Nortz,
08.

The United States.

On certificate from the Court of
Claims.

Mr. Chief Justice HUGHES delivered the opinion of the Court.
The facts certified by the Court of Claims may be thus summarized:
Plaintiff brought suit as owner of gold certificates of the Treasury of
the United States of the nominal amount of $106,300. He alleged
that defendant, by these gold certificates and under the applicable
acts of Congress, had certified that there had been deposited in the
Treasury of the United States $106,300 in gold coin which would be
paid to the claimant, as holder, upon demand; that at the time of the
issue of these certificates, and to and including January 17, 1934, a
dollar in gold consisted of 25.8 grains of gold, .9 fine; that claimant
was entitled to receive from defendant one ounce of gold for each
$20.67 of the gold certificates; that on January 17, 1934, he duly
presented the certificates and demanded their redemption by the
payment of gold coin to the extent above mentioned; that on that
date, and for some time prior and subsequent thereto, an ounce of
gold was of the value of at least $33.43, and that claimant was accordingly entitled to receive in redemption 5104.22 ounces of gold of the
value of $170,634.07; that the demand was refused; that in view of
the penalties imposed under the order of the Secretary of the Treasury
approved by the President, on January 15, 1934, supplementing the
order of December 28, 1933, and the laws and regulations under which
those orders were issued, which the claimant alleged were unconstitutional as constituting a deprivation of property without due process

of law, claimant delivered the gold certificates to defendant under

protest and received in exchange currency of the United States in the
sum of $106,300 which was not redeemable in gold; and that in consequence claimant was damaged in the sum of $64,334.07, for which,
with interest, judgment was demanded.

Defendant demurred to the petition upon the ground that it did

not state a cause of action against the United States.
The questions certified by the Court are as follows:

1. In an owner of gold certificates of the United States, Series of 1928, not

holding a Federal license to acquire or hold gold coins or gold certificates, who,

on January 17, 1934, had surrondered his certificates to the Secretary of the
Treasury of the United States under protest and had received therefor legal
tender currency of equivalent face amount, entitled to receive from the United
States a further sum inasmuch as the weight of a gold dollar was 25.8 grains,

nine-tenths fine, and the market price thereof on January 17, 1934, was in excess

of the currency so received?
2. In a gold certificate, Series of 1928, under the facts stated in question 1 an

express contract of the United States in its corporate or proprietary capacity
which will enable its owner and holder to bring suit thereon in the Court of Claims?

3. Do the provisions of the Emergency Banking Act of March 9, 1933, and the
Order of the Secretary of the Treasury dated December 28, 1933, requiring the
plaintiff as owner of gold certificates as stated in question 1 to deliver the same to

the Treasury of the United States in exchange for currency of an equivalent
17

GOLD CLAUSES IN OBLIGATIONS

18

GOLD CLAUSES IN OBLIGATIONS

amount, not redeemable in gold, amount to a taking of property within the
meaning of the Fifth Amendment to the Constitution of the United States?

These gold certificates were currency. They were not less so because
the specified number of dollars were payable in gold coin, of the coinage
of the United States. Being currency, and constituting legal tender,
it is entirely inadmissible to regard the gold certificates as warehouse

Defendant's demurrer, which admitted the facts well pleaded in
the petition, did not admit allegations which amounted to conclusions of law in relation to the nature of the gold certificates or the
legal effect of the legislation under which they were issued, held, or to

a

be redeemed. Dillon v. Barnard, 21 Wall. 430, 437; United States
v. Ames, 99 U. S. 35, 45: Interstate Land Co. V. Mazwell Land Co.,
139 U. S. 569, 577, 578; Equitable Life Assurance Society v. Brown,

receipts. They were not contracts for a certain quantity of gold as
commodity They called for dollars, not bullion.

We may lay on one side the question whether the issue of currency
of this description created an express contract upon which the United
States has consented to be sued under the provisions of section 145
of the Judicial Code, 28 U. S. C. 250. Compare Horowitz v. United
States, 267 U. S. 458, 461. We may assume that plaintiff's petition

213 U. S. 25. 43.

Gold certificates were authorized by section 5 of the Act of March
1863 (12 Stat. 709, 711), which provided that the Secretary of the
Treasury might receive 'deposits of gold coin and bullion and issue
certificates therefor "in denominations of not less than twenty dollars
each, corresponding with the denominations of the United States

3.

permits an alternative view. Plaintiff urges as the gist of his contention that, by the Acts of Congress, and the orders thereunder,
requiring the delivery of his gold certificates to the Treasury in exchange for currency not redeemable in gold, he has been deprived of
his property, and that he is entitled to maintain this action to recover
the just compensation secured to him by the Fifth Amendment.
But, even in that view, the Court of Claims has no authority to entertain the action, if the claim is at best one for nominal damages. The

notes The coin and bullion so deposited were to be retained in
the treasury for the payment of the certificates on demand. It was
further provided that certificates representing coin in the treasury
may be issued in payment of interest on the public debt, which certificates, together with those issued for coin and bullion deposited,
shall not at any time exceed twenty per centum beyond the amount
of
coin and bullion in the treasury See R. S., sec. 254; 31 U.S.C
428. Section 12 of the Act of July 12, 1882 (22 Stat. 165) contained

Court of Claims was not instituted to try such a case" Grant v.
United States, 7 Wall. 331, 338: Marion & Rye Railway Co. v. United
States, 270 U. S. 280, 282. Accordingly we inquire whether the case
which the plaintiff presents is one which would justify the recovery

a further provision authorizing the Secretary of the Treasury to

of actual damages.

receive deposits of gold coin" and to issue certificates therefor, also
in denominations of dollars as stated. The Act of March 14, 1900

By section 3 of the Emergency Banking Act of March 9, 1933
(48 Stat. 2), amending section 11 of the Federal Reserve Act (39
Stat. 752), the Secretary of the Treasury WHS authorized, whenever
in his judgment it was necessary "to protect the currency system of
the United States" to require all persons to pay and deliver to the
treasurer of the United States any or all gold coin, gold bullion, and
gold certificates' owned by them. Upon such delivery, the Secretary was to pay therefor 'an equivalent amount of any other form
of coin or currency coined or issued under the laws of the United
States". Under that statute, orders requiring such delivery, except
88 otherwise expressly provided, were issued by the Secretary on
December 28, 1933, and January 15, 1934. By the latter, gold coin,
gold bullion, and gold certificates were required to be delivered to the
treasurer of the United States on or before January 17, 1934. It was
on that date that plaintiff made his demand for gold coin in redemption of his certificates and delivered the certificates under protest.
That compulsory delivery, he insists, constituted the taking of the
contract" for which he demands compensation.
Phintiff explicitly states his concurrence in the Government's
contention that the Congress has complete authority to regulate

(31 Stat. 45) prescribed that the dollar consisting of twenty-five

shall be the
and eight-tenths grains of gold nine-tenths fine,
standard unit of value, and all forms of money issued or coined by

the United States shall be maintained at a parity of value with this
standard, and it shall be the duty of the Secretary of the Treasury
to maintain such parity' Section 6 of that Act also authorized the
Secretary of the Treasury to receive deposits of gold coin and to issue

gold certificates therefor, and provided that the coin so deposited
should be held by the treasury for the payment of such certificates
on demand and should be "used for no other purpose" And the
latter clause appears in the amending Acts of March 4. 1907 (34 Stat.
1289) and of March 2, 1911 (36 Stat. 965). See 31 U. S. C. 429.
The Act of December 24, 1919 (41 Stat. 370) made gold certificates,
payable to bearer on demand, "legal tender in payment of all debts
and dues, public and private" And Section 2 of the Joint Resolution
of June 5. 1933 (48 Stat. 113) amending the Act of May 12, 1933 (48

Stat. 52) provided that "all coins and currencies of the United
States

heretofore or hereafter coined or issued, shall be
legal tender for all debts, public and private, public charges, taxes,

the currency system of the country. He does not deny that, in
exercising that authority, the Congress had power to appropriate
unto the Government outstanding gold bullion, gold coin and gold
certificates.' Nor does he deny that the Congress had authority

duties and dues"
Gold certificates under this legislation were required to be issued in

denominations of dollars and called for the payment of dollars.
The form of the gold certificates here in question is stated to be as follows:
This certifies that there have been deposited in the Treasury of

The description of gold certificates in the reports of the Secretary of the Treasury to which allusion was

made in the adrument at 375.
bar. could in no way alter their true legal Reports for 1936, P.

THE UNITED STATES OF AMERICA
ONE THOUSAND DOLLARS

80;

point 20. 604. WAS 607: not 1933. D. to United States . State Bank as U. R. 30. upon which platefiff relies

The Cust there decided that here the money or properts of an person has good cannot into the be coffers held

to gold none payable to the hearer on demand
vala"This

19

certificate in a legal tender in the amount thereof in payment of all debts and dues public and pet.

the the nation United by States means against of fraud the claim to which of the its arent was and party. such party money that the basis

by the liability was "an implied contract by which the United States might wall become bound in virtue

On the reverse side appear the following words

of its corporate character. Its soversignty WM "in no wise involved

"THE UNITED STATES OF AMERICA
ONE THOUSAND DOLLARS

o

GOLD CLAUSES IN OBLIGATIONS

"to compel all residents of this country to deliver unto the Government all gold bullion, gold coins and gold certificates in their possession" These powers could not be successfully challenged.
Knoz v. Lee, 12 Wall. 457 Juilliard V. Greenman, 110 U. S. 421;
Ling Su Fan V. United States, 218 U. S. 302; Norman v. Baltimore
& Ohio R. R. Co., decided this day. The question plaintiff presents
is thus simply one of "just compensation.
The asserted basis of plaintiff's claim for actual damages is that,
by the terms of the gold certificates, he was entitled, on January
17, 1934, to receive gold coin. It is plain that he cannot claim any
better position than that in which he would have been placed had
the gold coin then been paid to him. But, in that event, he would
have been required, under the applicable legislation and orders,
forthwith to deliver the gold coin to the Treasury. Plaintiff does
not bring himself within any of the stated exceptions. He did not
allege in his petition that he held a federal license to hold gold coin,
and the first question submitted to us by the Court of Claims negatives the assumption of such a license. Had plaintiff received gold
coin for his certificates, he would not have been able, in view of the

legislative inhibition, to export it or deal in it. Moreover, it is

sufficient in the instant case to point out that on January 17, 1934,

the dollar had not been devalued. Or, as plaintiff puts it, at the
time of the presentation of the certificates by petitioner, the gold
content of the United States dollar had not been deflated and the
provision of the Act of March 14, 1900, supra, fixing that content
at 25.8 grains, nine-tenths fine, as the standard unit of money with
which "all forms of money issued or coined by the United States'
were to be maintained at a parity, was "still in effect" The currency paid to the plaintiff for his gold certificates was then on a
parity with that standard of value. It cannot be said that, in receiving the currency on that basis, he sustained any actual loss.
To support his claim, plaintiff says that on January 17, 1934, "an

ounce of gold was of the value at least of $33.43". His petition so
alleged and he contends that the allegation was admitted by the demurrer. But the assertion of that value of gold in relation to gold
coin in this country, in view of the applicable legislative requirements,
necessarily involved a conclusion of law. Under those requirements,
there was not on January 17, 1934, a free market for gold in the
United States or any market available to the plaintiff for the gold
coin to which he claims to have been entitled. Plaintiff insists that
gold had an intrinsic value and was bought and sold in the world
markets. But plaintiff had no right to resort to such markets. By
reason of the quality of gold coin, as a legal tender and as a medium
of exchange", limitations attached to its ownership, and the Congress
could prohibit its exportation and regulate its use. Ling Su Fan V.

SUPREME COURT OF THE UNITED STATES
No. 532.-OCTOBER TERM, 1934

John M. Perry,
US.

The United States.)

On Certificate from the Court of Claims.
]

20

Mr. Chief Justice HUGHES delivered the opinion of the Court.

The certificate from the Court of Claims shows the following facts:
Plaintiff brought suit as the owner of an obligation of the United
States for $10,000, known as Fourth Liberty Loan 41% Gold Bond
of 1933-1938" This bond was issued pursuant to the Act of September 24, 1917 (40 Stat. 288), as amended, and Treasury Department circular No. 121 dated September 28, 1918. The bond pro-

vided: "The principal and interest hereof are payable in United

States gold coin of the present standard of value"

Plaintiff alleged in his petition that at the time the bond was

issued, and when he acquired it, a dollar in gold consisted of 25.8
grains of gold .9 fine" that the bond was called for redemption on
April 15, 1934, and, on May 24, 1934, was presented for payment;
that plaintiff demanded its redemption "by the payment of 10,000
gold dollars each containing 25.8 grains of gold .9 fine": that defend-

ant refused to comply with that demand, and that plaintiff then

demanded "258,000 grains of gold .9 fine, or gold of equivalent value
of any fineness, or 16,931.25 gold dollars each containing 15-5/21
grains of gold .9 fine, or 16,931.25 dollars in legal tender currency
that defendant refused to redeem the bond 'except by the payment
of 10,000 dollars in legal tender currency"; that these refusals were
based on the Joint Resolution of the Congress of June 5, 1933 (48
Stat. 113), but that this enactment was unconstitutional as it operated to deprive plaintiff of his property without due process of law;
and that, by this action of defendant, he was damaged "in the sum
of $16,931.25. the value of defendant's obligation" for which, with
interest, plaintiff demanded judgment.

Defendant demurred upon the ground that the petition did not

United States, supra.

state a cause of action against the United States.
The Court of Claims has certified the following questions:

The first question submitted by the Court of Claims is answered in
the negative. It is unnecessary to answer the second question. And,
in the circumstances shown, the third question is academic and also

1. Is the claimant, being the holder and owner of a Fourth Liberty Loan 414%
bond of the United States, of the principal amount of $10,000, issued in 1918,

which was payable on and after April 15. 1934. and which bond contained a
clause that the principal is payable in United States gold coin of the present
standard of value entitled to receive from the United States an amount in
legal tender currency in excess of the face amount of the bond?
2. Is the United States, as obligor in a Fourth Liberty Loan 414% gold bond,

need not be answered.

Question No. 1 is answered "No".

Series of 1933-1938, as stated In Question One liable to respond in damages in a
suit in the Court of Claims on such bond BF an express contract, by reason of the
21

O

GOLD CLAUSES IN OBLIGATIONS

22

GOLD CLAUSES IN OBLIGATIONS

change in or impossibility of performance in accordance with the tenor thereof,
due to the provisions of Public Resolution No. 10, 73rd Congress, abrogating the

There is no question as to the power of the Congress to regulate
the value of money, that is, to establish a monetary system and
thus to determine the currency of the country. The question is
whether the Congress can use that power so as to invalidate the

gold clause in all obligations?

First. The import of the obligation. The bond in suit differs from
an obligation of private parties, or of States or municipalities, whose
contracts are necessarily made in subjection to the dominant power

terms of the obligations which the Government has theretofore issued

in the exercise of the power to borrow money on the credit of the
United States. In attempted justification of the Joint Resolution
in relation to the outstanding bonds of the United States, the Gov-

of the Congress. Norman V. Baltimore & Ohio R. R. Co., decided this
day. The bond now before us is an obligation of the United States.

The terms of the bond are explicit. They were not only expressed
in the bond itself, but they were definitely prescribed by the Congress.

The Act of September 24, 1917, both in its original and amended
form, authorized the moneys to be borrowed, and the bonds to be
issued, on the credit of the United States' in order to meet expenditures needed 'for the national security and defense and other public
purposes authorized by law" 40 Stat. 288, 503. The circular of
the Treasury Department of September 28, 1918, to which the bond
refers "for a statement of the further rights of the holders of bonds
of said series" also provided that the principal and interest are
payable in United States gold coin of the present standard of value"
This obligation must be fairly construed. The 'present standard
of value" stood in contradistinction to a lower standard of value.
The promise obviously was intended to afford protection against loss.
That protection was sought to be secured by setting up a standard or
measure of the Government's obligation. We think that the reasonable import of the promise is that it was intended to assure one who
lent his money to the Government and took its bond that he would
not suffer loss through depreciation in the medium of payment.

The Government states in its brief that the total unmatured
interest-bearing obligations of the United States outstanding on
May 31, 1933, (which it is understood contained a "gold clause'
substantially the same as that of the bond in suit) amounted to
about twenty-one billions of dollars. From statements at the bar,
it appears that this amount has been reduced to approximately
twelve billions at the present time, and that during the intervening
period the public debt of the United States has risen some seven
billions (making a total of approximately twenty-eight billions five
hundred millions) by the issue of some sixteen billions five hundred
millions of dollars of non-gold-clause obligations"
Second. The binding quality of the obligation. The question is
necessarily presented whether the Joint Resolution of June 5, 1933
(48 Stat. 113) is a valid enactment so far as it applies to the obligations

requiring "payment in gold or a particular kind of coin or currency
were against public policy," and provided that "every obligation,
heretofore or hereafter incurred, whether or not any such provision is
contained therein". shall be discharged upon payment, dollar for
dollar, in any coin or currency which at the time of payment is legal
tender for public and private debts This enactment was expressly
extended to obligations of the United States and provisions for payment in gold, 'contained in any law authorizing obligations to be
issued by or under authority of the United States were repealed.
term

Station"

to

the

alled

this

States

excepting payable to money of the United States and the term eets or current means nota
currency of the United States, including Federal Reserve notes and circulating notes of Federal

Reserve banks and national banking

ernment argues that "earlier Congresses could not validly restrict the
73rd Congress from exercising its constitutional powers to regulate
the value of money, borrow money, or regulate foreign and interstate
commerce" and, from this premise, the Government seems to deduce
the proposition that when, with adequate authority, the Government
borrows money and pledges the credit of the United States, it is free
to ignore that pledge and alter the terms of its obligations in case a
later Congress finds their fulfillment inconvenient. The Government's
contention thus raises a question of far greater importance than the

particular claim of the plaintiff. On that reasoning, if the terms of

the Government's bond as to the standard of payment can be repudiated, it inevitably follows that the obligation as to the amount to be

paid may also be repudiated. The contention necessarily imports
that the Congress can disregard the obligations of the Government
at its discretion and that, when the Government borrows money, the
credit of the United States is an illusory pledge.
We do not so read the Constitution. There is 8 clear distinction
between the power of the Congress to control or interdict the contracts
of private parties when they interfere with the exercise of its constitutional authority, and the power of the Congress to alter or repudiate
the substance of its own engagements when it has borrowed money

under the authority which the Constitution confers. In authorizing
the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment.
By virtue of the power to borrow money 'on the credit of the United
States", the Congress is authorized to pledge that credit as an assurance of payment BR stipulated, as the highest assurance the Government can give, its plighted faith. To say that the Congress may
withdraw or ignore that pledge is to assume that the Constitution
contemplates a vain promise, a pledge having no other sanction than
the pleasure and convenience of the pledgor. This Court has given
no sanction to such a conception of the obligations of our Government.

of the United States. The Resolution declared that provisions

And mbdivision (b) of section of the Joint Restruction of June & 1983. provided: "As used to

23

The binding quality of the obligations of the Government was
considered in the Sinking-Fund cases, 99 U. S. 700, 718, 719. The
question before the Court in those cases was whether certain action

was warranted by a reservation to the Congress of the right to
amend the charter of a railroad company. While the particular

action was sustained under this right of amendment, the Court took
occasion to state emphatically the obligatory character of the contracts of the United States. The Court said: "The United States
are as much bound by their contracts as are individuals. If they
repudiate their obligations, it is as much repudiation, with all the

GOLD CLAUSES IN OBLIGATIONS

24

GOLD CLAUSES IN OBLIGATIONS

wrong and reproach that term implies, as it would be if the repudiator
had been a State or a municipality or a citizen

When the United States, with constitutional authority, makes

contracts, it has rights and incurs responsibilities similar to those of
individuals who are parties to such instruments. There is no difference, said the Court in United States V. Bank of Metropolis, 15 Pet.
377, 392, except that the United States cannot be sued without its
consent. See, also, The Floyd Acceptances, 7 Wall. 666, 675: Cooke V.
United States, 91 U. S. 389, 396. In Lynch v. United States, 292
U.S. 571, 580, with respect to an attempted abrogation by the Act
of March 20, 1933 (48 Stat. 8, 11) of certain outstanding war risk
insurance policies, which were contracts of the United States, the
Court quoted with approval the statement in the Sinking-Fund cases,
supra, and said: 'Punctilious fulfillment of contractual obligations

is essential to the maintenance of the credit of public as well as

private debtors. No doubt there was in March, 1933, great need of
economy In the administration of all government business economy
had become urgent because of lessened revenues and the heavy
obligations to be issued in the hope of relieving widespread distress.

Congress was free to reduce gratuities deemed excessive. But

Congress was without power to reduce expenditures by abrogating
contractual obligations of the United States. To abrogate contracts,
in the attempt to lessen government expenditure, would be not the
practice of economy, but an act of repudiation
government bonds, is in substance that the Government cannot by

contract restrict the exercise of a sovereign power. But the right
to make binding obligations is a competence attaching to sovereignty
In the United States, sovereignty resides in the people who act through
the organs established by the Constitution Chisholm v. Georgia, 2
Dall. 419, 471; Penhallow v. Doane's Administrators, 3 Dall. 54, 93;
McCulloch v. Maryland, 4 Wheat. 316, 404, 405; Yick Wo Hopkins,
118 U. S. 356, 370. The Congress as the instrumentality of sovereignty is endowed with certain powers to be exerted on behalf of the

people in the manner and with the effect the Constitution ordains.
The Congress cannot invoke the sovereign power of the people to
override their will as thus declared. The powers conferred upon the
Congress are harmonious. The Constitution gives to the Congress
the power to borrow money on the credit of the United States, an
unqualified power, a power vital to the Government, upon which
in an extremity its very life may depend. The binding quality of the
promise of the United States is of the essence of the credit which is
80 pledged. Having this power to authorize the issue of definite
Justice Strong,
had
written the opinion
of theFund
majority of the Court in the legal tender cases
Wall. who
4573
dissented
sloking
12

in

the

cases,

731.

U.

because

be

that

thought

action the
Congress WM
notwith
consistent with
the Government's and bence was translegislative power.
And
the
sanctity

respect

of

the

contracts

the

of

he

the of Mr. Hamilton in his the Senate of January 20,

(citing Hamilton's orks, 518 519). that when government enters into contract with an Indi-

vidual, M the matter of the contract its authority, and exchanges the character

that of more agent, with the same rights and ligations as an dividual Its
conside M excepted out of its power to legislat unless in aid them. It la in theory

reconcile the Idea of promise which obliges, with the power to make law which can vary
Oppenheim
International
Law. there
4th ed. vol. 1. secs 493. 494 This is recognised to the field of international
engagements
Although
may

be

no

Indicial

procedure

which

by

such

contracts

may

be

enforced
the consent
of the sovereign to be soed. the engagement validly made by sovernot absonor
state in the
without oflegal
force.
as

readily

appears

the

turisdiction

entertain

to the of the conferred upon an International tribunal Hall,
to

obligations for the payment of money borrowed, the Congress has
not been vested with authority to alter or destroy those obligations
The fact that the United States may not be sued without its consent
is a matter of procedure which does not affect the legal and binding
character of its contracts. While the Congress is under no duty to
provide remedies through the courts, the contractual obligation still
exists and, despite infirmities of procedure, remains binding upon the
conscience of the' sovereign. Lynch v. United States, supra, pp. 580,

582.

The Fourteenth Amendment, in its fourth section, explicitly
declares: The validity of the public debt of the United States,

authorized by law. shall not be questioned While this

provision was undoubtedly inspired by the desire to put beyond
question the obligations of the Government issued during the Civil
War, its language indicates a broader connotation. We regard it
as confirmatory of 8 fundamental principle which applies as well
to the government bonds in question, and to others duly authorized
by the Congress, as to those issued before the Amendment was
adopted. Nor can we perceive any reason for not considering the
expression "the validity of the public debt as embracing whatever concerns the integrity of the public obligations.
We conclude that the Joint Resolution of June 5, 1933, in so far
as it attempted to override the obligation created by the bond in
suit, went beyond the congressional power.

The argument in favor of the Joint Resolution, as applied to

'Mr.
(Knox
#

25

with

Inter-

Law, 8th ed. see 107: Oppenbelm, Inc. etc.; Hyde, International Law, vol 2. sec. 489.

o

Third. The question of damages. In this view of the binding
quality of the Government's obligations, we come to the question
as to the plaintiff's right to recover damages. That is a distinct
question. Because the Government is not at liberty to alter or

repudiate its obligations, it does not follow that the claim advanced by the plaintiff should be sustained. The action is for

breach of contract As a remedy for breach, plaintiff can recover
no more than the loss he has suffered and of which he may right-

fully complain. He is not entitled to be enriched. Plaintiff seeks
judgment for $16,931.25, in present legal tender currency, on his
bond for $10,000. The question is whether he has shown damage
to that extent, or any actual damage, as the Court of Claims has

no authority to entertain an action for nominal damages. Grant
v. United States, 7 Wall. 331, 338; Marion & Rye Railway Co. V.
United States, 270 U. S. 280, 282; Nortz v. United States, decided

this day

Plaintiff computes his claim for $16,931.25 by taking the weight
of the gold dollar as fixed by the President's proclamation of January 31, 1934, under the Act of May 12, 1933 (48 Stat. 52, 53), as
amended by the Act of January 30, 1934 (48 Stat. 342), that is, at

15-5/21 grains nine-tenths fine, as compared with the weight fixed by
the Act of March 14, 1900 (31 Stat. 45), or 25.8 grains nine-tenths
fine. But the change in the weight of the gold dollar did not necessarily cause loss to the plaintiff of the amount claimed. The question of actual loss cannot fairly be determined without considering
the economic situation at the time the Government offered to pay
him the $10,000, the face of his bond, in legal tender currency The
case is not the same 88 if gold coin had remained in circulation.
That was the situation at the time of the decisions under the legal
tender acts of 1862 and 1863. Bronson V. Rodes, 7 Wall. 229, 251;

GOLD CLAUSES IN OBLIGATIONS

26

GOLD CLAUSES IN OBLIGATIONS

Trebilcock v. Wilson, 12 Wall. 687, 695; Thompson v. Butler, 95
694, 696, 697.

Before the change in the weight of the gold dollar in 1934, gold
coin had been withdrawn from circulation. The Congress had authorized the prohibition of the exportation of gold coin and the placing of restrictions upon transactions in foreign exchange. Acts of
March 9, 1933, 48 Stat. 1; January 30, 1934, 48 Stat. 337. Such
dealings could be had only for limited purposes and under license.
Executive Orders of April 20, 1933, August 28, 1933, and January
15, 1934; Regulations of the Secretary of the Treasury, January 30
and 31, 1934. That action the Congress was entitled to take by
virtue of its authority to deal with gold coin as a medium of exchange.
And the restraint thus imposed upon holders of gold coin was incident to the limitations which inhered in their ownership of that coin
Conceding the title of the owner of such coins, yet there is attached to such
ownership those limitations which public policy may require by reason of their
quality as a legal tender and as a medium of exchange. These limitations are
due to the fact that public law gives to such coinage a value which does not
attach as a mere consequence of intrinsic value. Their quality as a legal tender
is an attribute of law aside from their bullion value. They bear, therefore, the
impress of sovereign power which fixes value and authorizes their use and
unwise

a

However

law

may

be,

aimed

at

the

exportation

of

such coins, in the face of the axioms against obstructing the free flow of commerce,

there can be no serious doubt that the power to coin money Includes the power
to prevent its outflow from the country of its origin.

The same reasoning is applicable to the imposition of restraints
upon transactions in foreign exchange. We cannot say, in view of the
conditions that existed, that the Congress having this power exercised

it arbitrarily or capriciously. And the holder of an obligation, or

bond, of the United States, payable in gold coin of the former standard, so far as the restraint upon the right to export gold coin or to
engage in transactions in foreign exchange is concerned, was in no
better case than the holder of gold coin itself.
In considering what damages, if any, the plaintiff has sustained by
the alleged breach of his bond, it is hence inadmissible to assume that
he was entitled to obtain gold coin for recourse to foreign markets or
for dealings in foreign exchange or for other purposes contrary to the
control over gold coin which the Congress had the power to exert,
and had exerted, in its monetary regulation. Plaintiff's damages
could not be assessed without regard to the internal economy of the
country at the time the alleged breach occurred. The discontinuance
of gold payments and the establishment of legal tender currency on

a standard unit of value with which "all forms of money" of the
United States were to be maintained at a parity had a controlling
influence upon the domestic economy. It was adjusted to the new
basis. A free domestic market for gold was non-existent.
Plaintiff demands the "equivalent" in currency of the gold coin
promised. But 'equivalent' cannot mean more than the amount

of money which the promised gold coin would be worth to the
bondholder for the purposes for which it could legally be used.
*In its Report of May 27, 1933. It WM stated by the Senate Committee on Banking and Currency: By

the Banking Act and the existing Executive Orders gold t not now paid, or obtainable for pay-

meat on obligations public or private". Ben. Rep. No. 99. 73d Cong., 1st -

That equivalence or worth could not properly be ascertained save
in the light of the domestic and restricted market which the Congress

had lawfully established. In the domestic transactions to which
the plaintiff was limited, in the absence of special license, determination of the value of the gold coin would necessarily have regard to
its use as legal tender and as a medium of exchange under a single
monetary system with an established parity of all currency and coins,
And in view of the control of export and foreign exchange, and the
restricted domestic use, the question of value, in relation to transactions legally available to the plaintiff, would require a consideration
of the purchasing power of the dollars which the plaintiff has received.
Plaintiff has not shown, or attempted to show. that in relation to
buying power he has sustained any loss whatever. On the contrary,

in view of the adjustment of the internal economy to the single

and gave them no right of action. Ling Su Fan V. United States,
218 U. S. 302, 310, 311. The Court said in that case:

exchange.

27

measure of value as established by the legislation of the Congress,
and the universal availability and use throughout the country of the
legal tender currency in meeting all engagements, the payment to
the plaintiff of the amount which he demands would appear to constitute not a recoupment of loss in any proper sense but an unjustified
enrichment.

Plaintiff seeks to make his case solely upon the theory that by
reason of the change in the weight of the dollar he is entitled to one
dollar and sixty-nine cents in the present currency for every dollar
promised by the bond, regardless of any actual loss he has suffered
with respect to any transaction in which his dollars may be used.
We think that position is untenable.
In the view that the facts alleged by the petition fail to show a
cause of action for actual damages, the first question submitted by
the Court of Claims is answered in the negative. It is not necessary to answer the second question.

Question No. 1 is answered "No".

SUPREME COURT OF THE UNITED STATES
No. 532.-OCTOBER TERM, 1934.

John M. Perry,

On Certificate from the Court of

08.

Claims.

The United States.
[February 18, 1935.]
Mr. Justice STONE.

I agree that the answer to the first question is "No," but I think
our opinion should be confined to answering that question and that
it should essay an answer to no other.

I do not doubt that the gold clause in the Government bonds, like
that in the private contracts just considered, calls for the payment
of value in money, measured by a stated number of gold dollars of
the standard defined in the clause, Feist V. Socialté Intercommunale
Belge d'Electricité, [1934] A. C. 161, 170-173; Serbian and Brazilian
Bond Cases, P. C.I.J., series A, Nos. 20-21, pp. 32-34, 109-119. In
the absence of any further exertion of governmental power, that
obligation plainly could not be satisfied by payment of the same number of dollars, either specie or paper, measured by a gold dollar of
lesser weight.

I do not understand the Government to contend that it is any the
less bound by the obligation than a private individual would be, or
that it is free to disregard it except in the exercise of the constitutional

power "to coin money and "regulate the value thereof." In any

case, there is before us no question of default apart from the regulation
by Congress of the use of gold as currency.

While the Government's refusal to make the stipulated payment

is a measure taken in the exercise of that power, this does not disguise

the fact that its action is to that extent a repudiation of its under-

taking. As much as I deplore this refusal to fulfill the solemn promise
of bonds of the United States, I cannot escape the conclusion, an-

nounced for the Court, that in the situation now presented, the
Government, through the exercise of its sovereign power to regulate
the value of money, has rendered itself immune from liability for its
action. To that extent it has relieved itself of the obligation of its
domestic bonds, precisely as it has relieved the obligors of private
bonds in No. 270, Norman V. Baltimore & Ohio R. R. Co., decided this
day.

In this posture of the case it is unnecessary, and I think undesirable,

for the Court to undertake to say that the obligation of the gold

clause in Government bonds is greater than in the bonds of private
individuals, or that in some situation not described, and in some
q. Doe. 21, 14-1-1

29

30

GOLD CLAUSES IN OBLIGATIONS

manner and in some measure undefined, it has imposed restrictions
upon the future exercise of the power to regulate the currency. I am
not persuaded that we should needlessly intimate any opinion which
implies that the obligation may so operate, for example, as to interpose
a serious obstacle to the adoption of measures for stabilization of the
dollar, should Congress think it wise to accomplish that purpose by
resumption of gold payments, in dollars of the present or any other
gold content less than that specified in the gold clause, and by the
re-establishment of a free market for goid and its free exportation.
There is no occasion now to resolve doubts, which I entertain, with
respect to these questions. At present they are academic. Concededly they may be transferred wholly to the realm of speculation
by the exercise of the undoubted power of the Government to withdraw the privilege of suit upon its gold clause obligations. We have
just held that the Court of Claims was without power to entertain
the suit in No. 531, Nortz V. United States, because, regardless of the
nature of the obligation of the gold certificates, there was no damage.
Here it is declared that there is no damage because Congress, by the
exercise of its power to regulate the currency, has made it impossible
for the plaintiff to enjoy the benefits of gold payments promised by
the Government. It would seem that this would suffice to dispose
of the present case, without attempting to prejudge the rights of other
bondholders and of the Government under other conditions which
may never occur. It will not benefit this plaintiff, to whom we deny
any remedy, to be assured that he has an inviolable right to performance of the gold clause.

Moreover, if the gold clause be viewed as a gold value contract,
as it is in Norman V. Baltimore & Ohio R. R. Co., supra, it is to be
noted that the Government has not prohibited the free use by the
bondholder of the paper money equivalent of the gold clause obligation; it is the prohibition, by the Joint Resolution of Congress, of
payment of the increased number of depreciated dollars required to
make up the full equivalent, which alone bars recovery. In that case
it would seem to be implicit in our decision that the prohibition, at
least in the present situation, is itself a constitutional exercise of the
power to regulate the value of money.
I therefore do not join in so much of the opinion as may be taken
to suggest that the exercise of the sovereign power to borrow money
on credit, which does not override the sovereign immunity from suit,

SUPREME COURT OF THE UNITED STATES
Nos. 270, 471, 472, 531 and 532.-OCTOBER TERM, 1934.

Norman C. Norman, Petitioner,
270

The Baltimore and Ohio Railroad

The United States of America, Recon-

struction Finance Corporation, et

al., Petitioners,
471

vs.

Bankers Trust Company and William
H. Bixby, Trustees.

The United States of America, Recon-

struction Finance Corporation, et

which we now hold to be superior to the obligation of the bonds.

On Writs of Certiorari to
the United States Circuit Court of Appeals
for the Eighth Circuit.

al., Petitioners,
472

vs.

Bankers Trust Company and William
H. Bixby, Trustees.
F. Eugene Nortz,
531

On

vs.

John M. Perry,
532

Certificate from the
Court of Claims.

The United States.
On

vs.

The United States.

Certificate from the
Court of Claims.

[February 18, 1935.)

may nevertheless preclude or impede the exercise of another sovereign

extent, not stated, superior to the power to regulate the currency

the State of New York.

Company.

power, to regulate the value of money or to suggest that although
there is and can be no present cause of action upon the repudiated
gold clause, its obligation is nevertheless, in some manner and to some

On Writ of Certiorari to
the Supreme Court of

DR.

Mr. Justice McREYNOLDS, dissenting.
Mr. Justice VAN DEVANTER, Mr. Justice SUTHERLAND, Mr. Justice

BUTLER and I conclude that, if given effect, the enactments here
challenged will bring about confiscation of property rights and repudiation of national obligations. Acquiescence in the decisions just
announced is impossible; the circumstances demand statement of our
views. "To let oneself slide down the easy slope offered by the
course of events and to dull one's mind against the extent of the
danger,

that is precisely to fail in one's obligation of

responsibility

Just men regard repudiation and spoliation of citizens by their

sovereign with abhorrence; but we are asked to affirm that the Con31

o

GOLD CLAUSES IN OBLIGATIONS

32

GOLD CLAUSES IN OBLIGATIONS

stitution has granted power to accomplish both. No definite delegation of such a power exists; and we cannot believe the farseeing
framers, who labored with hope of establishing justice and securing
the blessings of liberty, intended that the expected government
should have authority to annibilate its own obligations and destroy
the very rights which they were endeavoring to protect Not only
is there no permission for such actions; they are inhibited. And no
plenitude of words can conform them to our charter.
The Federal government is one of delegated and limited powers
which derive from the Constitution. "It can exercise only the powers
granted to Powers claimed must be denied unless granted; and,
as with other writings, the whole of the Constitution is for consideration when one seeks to ascertain the meaning of any part.

33

The obligation secured by the mortgage or lien under which Morris held was
for the payment of gold coin, or, as was said in Bronson v. Rodes, 7 Wall. (1869)
229, an agreement to deliver a certain weight of standard gold, to be ascertained

by count of coins, each of which is certified to contain a definite proportion of

that weight and is not distinguishable "from a contract to deliver an equal weight

of bullion of equal fineness.

We think it clear, that, under such

circumstances, it was within the power of the Court, so far as Gregory was concerned, to treat the contract as one for the delivery of so much gold bullion; and,

if Morris was willing to accept a judgment which might be discharged in cur-

rency, to have his damages estimated according to the currency value of bullion.

Earlier cases-Bronson V. Rodes, 7 Wall. 229: Butler V. Horwitz,
7 Wall. 258; Dewing V. Sears, 11 Wall. 379: Trebilcock v. Wilson, 12

Wall. 687: Thompson V. Butler, 95 U. S. 694 while important,

need not be dissected. Gregory V. Morris is in harmony with them
and the opinion there definitely and finally stated the doctrine which

we should apply.

It is true to say that the gold clauses "were intended to afford
a definite standard or measure of value, and thus to protect against
a depreciation of the currency and against the discharge of the

By the so-called gold clause promise to pay in "United States
gold coin of the present standard of value" or "of or equal to the
present standard of weight and fineness" -found in very many private and public obligations, the creditor agrees to accept and the
debtor undertakes to return the thing loaned or its equivalent

obligation by payment of less than that prescribed" Further-

Thereby each secures protection, one against decrease in value of
the currency, the other against an increase.

a

The clause is not new or obscure or discolored by any sinister
purpose. For more than 100 years our citizens have employed
like agreement. During the War between the States, its equivalent
"payable in coin" aided in surmounting financial difficulties. From
the housetop men proclaimed its merits while bonds for billions were

sold to support the World War. The Treaty of Versailles recog-

nized it as appropriate and just. It appears in the obligations which
have rendered possible our great undertakings-public-works rail-

more, they furnish means for computing the sum payable in currency if gold should become unobtainable. The borrower agrees
to repay in gold coin containing 25.8 grains to the dollar: and if this
cannot be secured the promise is to discharge the obligation by
paying for each dollar loaned the currency value of that number of
grains. Thus, the purpose of the parties will be carried out. Irrespective of any change in currency the thing loaned or an equivalent

will be returned-nothing more nothing less. The present currency
consists of promises to pay dollars of 15% grains; the Government
procures gold bullion on that basis. The calculation to determine

the damages for failure to pay in gold would not be difficult. Gregory
V. Morris points the way.

roads, buildings.

Under the interpretation accepted here for many years, this clause
expresses a definite enforceable contract. Both by statute and long
use the United States have approved it. Over and over again they
have enjoyed the added value which it gave to their obligations. So
late as May 2, 1933 they issued to the public more than $550,000,000
of their notes, each of which carried a solemn promise to pay standard
gold coin. (Before that day this coin had in fact been withdrawn
from circulation, but statutory measure of value remained the gold
dollar of 25.8 grains.)

The Permanent Court of International Justice interpreted the

clause as this Court had done and upheld it. Cases of Serbian and
Brazilian Loans, Publications P. C. I. Series A, Nos. 20-21 (1929).
It was there declared: "The gold clause merely prevents the borrower
from availing itself of a possibility of discharge of the debt in depreciated currency", and "The treatment of the gold clause as indicating
a mere modality of payment, without reference to a gold standard
of value, would be, not to construe but to destroy it"
In Feist v. Societe Intercommunale Belge d' Electricite, (1934), A. C.
161, the House of Lords expressed like views.

Gregory v. Morris, (1878) 96 U. S. 619, 624, 625-last of similar
causes construed and sanctioned this stipulation. In behalf of all
Chief Justice Waite there said:

Under appropriate statutes the United States for many years

issued gold certificates, in the following form:

This certifies that there have been deposited in the Treasury of The United

States of America One Thousand Dollars in gold coin payable to the bearer on

demand. This certificate is a legal tender in the amount thereof in payment of

all debts and dues public and private.

The certificates here involved-seri 1928-were issued under
Sec. 6. Act Mar. 14, 1900, 31 Stat. 47, as amended. See U. S. C. A.
Title 31, Sec. 429.

In view of the statutory direction that gold coin for which cer-

tificates are issued shall be held for their payment on demand "and
used for no other purpose", it seems idle to argue (as counsel for
the United States did) that other use is permissible under the ancient

Act of March 3, 1863.

By various orders of the President and the Treasury from April
5 to December 28, 1933, persons holding gold certificates were required
In his Annual Report, 1926, 80. 81. the Secretary of the Treasury mid "Gold and silver certificates

or standard giver case. or against or

posited fact in the more CD# 'warehouse case, receipts issued by the deposited Govern in the other exchange for gold coln And or bullion standard de
the
Gold
fund
diver
general
Treasur
certificates
respectively withdrawn from the
of

United States notes Treasur notes of 1890. and Federal reserve notes are Streetly redeemable in gold"
In letter with the Annual Report for 1933 375, be showed that on June 30 1933. $1,230,717,109 was held

trust against gold and notes of 1890 The Treasury notes of 1990 then outstanding

did not exceed about 3,550,000. Tr. Rep. 1936. so.

34

GOLD CLAUSES IN OBLIGATIONS

GOLD CLAUSES IN OBLIGATIONS

to deliver them, and accept "an equivalent amount of any form
coin or currency coined or issued under the laws of the United States

designated by the Secretary of the Treasury". Heavy penalties

were provided for failure to comply.
That the holder of one of these certificates was owner of an express
promise by the United States to deliver gold coin of the weight and
fineness established by statute when the certificate issued, or if such
demand was not honored to pay the holder the value in the currency
then in use, seems clear enough. This was the obvious design of the
contract.

The Act of March 14, 1900, 31 Stat., c. 41, 45, 47, as amended, in
effect until January 31, 1934, provided: "That the dollar consisting
shall be the standard
of 25.8 grains of gold nine-tenths fine,
unit of value, and all forms of money issued or coined by the United
States shall be maintained at a parity of value with this standard,
and also "The Secretary of the Treasury is authorized and directed to
sums of
receive deposits of gold coin with the Treasurer
not less than twenty dollars, and to issue gold certificates therefor in
denominations of not less than ten dollars, and the coin so deposited
shall be retained in the Treasury and held for the payment of such
certificates on demand and used for no other purpose". See U.
C. A. Title 31, Section 34, 429.
The Act of February 4, 1910, 36 Stat. c. 25, p. 192, directed "that
any bonds and certificates of indebtedness of the United States hereafter issued shall be payable, principal and interest, in United States
in

gold coin of the present standard of value."

By Executive Orders, April 5, and April 20, 1933, the President
undertook to require owners of gold coin, gold bullion. and gold certificates, to deliver them on or before May 1st to a Federal Reserve
Bank, and to prohibit the exportation of gold coin, gold bullion or
gold certificates. As a consequence the United States were off the
gold standard and their paper money began a rapid decline in the
markets of the world. Gold coin, gold certificates and gold bullion
were no longer obtainable. "Gold is not now paid nor is it available
for payment upon public or private debts" was declared in Treasury
statement of May 27, 1933; and this is still true. All gold coins have
been melted into bars.

The Agricultural Adjustment Act of May 12, 1933, 48 Stat., c. 25,
pp. 31, 52, 53-entitled 'An act to relieve the existing national economic emergency by increasing agricultural purchasing power, to
raise revenue for extraordinary expenses incurred by reason of such
emergency, to provide emergency relief with respect to agricultural
indebtedness, to provide for the orderly liquidation of joint-stock
land banks, and for other purposes" by Section 43 provides that
"Such notes [United States notes] and all other coins and currencies
heretofore or hereafter coined or issued by or under the authority
of the United States shall be legal tender for all debts public and

private". Also, that the President by proclamation may "fix the
weight of the gold dollar as he finds necessary from his investigation to stabilize domestic prices or to protect the foreign com-

merce against the adverse effect of depreciated foreign currencies"
And further, "such gold dollar, the weight of which is so fixed, shall

o

35

be the standard unit of value, and all forms of money issued or

coined by the United States shall be maintained at a parity with this
standard and it shall be the duty of the Secretary of the Treasury
to maintain such parity, but in no event shall the weight of the gold
dollar be fixed so as to reduce its present weight by more than 50 per
centum".

The Gold Reserve Act of January 30, 1934, 48 Stat., c. 6, p. 337,
342, undertook to ratify preceding Presidential orders and proclamations requiring surrender of gold but prohibited him from establishing the weight of the gold dollar 'at more than 60 per centum

of its present weight" By proclamation, January 31, 1934, he

directed that thereafter the standard should contain 15 5/21 grains
of gold, nine tenths fine. (The weight had been 25.8 grains since
1837.) No such dollar has been coined at any time.
On June 5, 1933, Congress passed a "Joint Resolution to assure
uniform value to the coins and currencies of the United States"
48 Stat. c. 48, p. 112. This recited that holding and dealing in

gold affects the public interest and are therefore subject to regulation;
that the provisions of obligations which purport to give the obligee
the right to require payment in gold coin or in any amount of money
of the United States measured thereby obstruct the power of Congress to regulate the value of money and are inconsistent with the
policy to maintain the equal value of every dollar coined or issued.

It then declared that every provision in any obligation purporting

to give the obligee a right to require payment in gold is against public

policy and directed that "every obligation, heretofore or hereafter
incurred, whether or not any such provision is contained therein or
made with respect thereto, shall be discharged upon payment, dollar
for dollar, in any coin or currency which at the time of payment is
legal tender for public and private debts"
Four causes are here for decision. Two of them arise out of corporate obligations containing gold clauses-railroad bonds. One is
based on a United States Fourth Liberty Loan bond of 1918, called
for payment April 15, 1934, containing a promise to pay in United
States gold coin of the present standard of value' with interest in
like gold coin. Another involves gold certificates, series 1928, amount-

ing to $106,300.

As to the corporate bonds the defense is that the gold clause was
destroyed by the Resolution of June 5, 1933; and this view is sustained by the majority of the Court.
It is insisted that the agreement, in the Liberty Bond, to pay in
gold also was destroyed by the Act of June 5, 1933. This view is
rejected by the majority; but they seem to conclude that because of
the action of Congress in declaring the holding of gold unlawful, no
appreciable damage resulted when payment therein or the equivalent

was denied.

Concerning the gold certificates it is ruled that if upon presentation for redemption gold coin had been paid to the holder, as promised,

he would have been required to return this to the Treasury. He

could not have exported it or dealt with it. Consequently he sustained
no actual damage.

GOLD CLAUSES IN OBLIGATIONS

GOLD CLAUSES. IN OBLIGATIONS

proper "Monetary Policy' as it may deem necessary in order to

provide for national obligations and furnish an adequate medium of
exchange for public use. The plan under review in the Legal Tender

Cases was declared within the limits of the Constitution but not

without a strong dissent. The conclusions there announced are not
now questioned; and any abstract discussion of Congressional power
over money would only tend to befog the real issue.
The fundamental problem now presented is whether recent statutes
passed by Congress in respect of money and credits, were designed to
attain a legitimate end. Or whether, under the guise of pursuing 8
monetary policy, Congress really has inaugurated a plan primarily
designed to destroy private obligations, repudiate national debts and
drive into the Treasury all gold within the country in exchange for
inconvertible promises to pay, of much less value.
Considering all the circumstances, we must conclude they show that
the plan disclosed is of the latter description and its enforcement
would deprive the parties before us of their rights under the Constitu-

tion. Consequently the Court should do what it can to afford
adequate relief.

What has been already said will suffice to indicate the nature of
these causes and something of our general views concerning the intri-

cate problems presented. A detailed consideration of them would

require much time and elaboration; would greatly extend this opinion.
Considering also the importance of the result to legitimate commerce,
it seems desirable that the Court's decision should be announced at

this time. Accordingly, we will only undertake in what follows to
outline with brevity our replies to the conclusions reached by the
majority and to suggest some of the reasons which lend support to
our position.

The authority exercised by the President and the Treasury in
demanding all gold coin, bullion and certificates is not now challenged; neither is the right of the former to prescribe weight for
the standard dollar. These things we have not considered. Plainly,
however, to coin money and regulate the value thereof calls for

legislative action.

Intelligent discussion respecting dollars requires recognition of
the fact that the word may refer to very different things. Formerly
the standard gold dollar weighed 25.8 grains; the weight now prescribed is 15 5/21 grains. Evidently promises to pay one or the
other of these differ greatly in value and this must be kept in mind.
From 1792 to 1873 both the gold and silver dollar were standard
and legal tender, coinage was free and unlimited. Persistent efforts
were made to keep both in circulation. Because the prescribed rela-

tion between them got out of harmony with exchange values, the
gold coin disappeared and did not in fact freely circulate in this

country for 30 years prior to 1834. During that time business transactions were based on silver. In 1834, desiring to restore parity and
bring gold back into circulation, Congress reduced somewhat (6%)
the weight of the gold coin and thus equalized the coinage and the
exchange values. The silver dollar was not changed. The purpose

o

was to restore the use of gold as currency-no to force up prices or
destroy obligations. There was no apparent profit for the books of
the Treasury. No injury was done to creditors; none was intended
The legislation is without special significance here. See Hepburn on
Currency.

The money under consideration in the Legal Tender Cases, decided
May 1, 1871, 12 Wall. 457, and 110 U. S. 421, were promises to pay

dollars, "bills of credit". They were "a pledge of the national

credit' promises "by the Government to pay dollars the standard
of value is not changed.' The expectation, ultimately realized, was
that in due time they would be redeemed in standard coin. The
Court was careful to show that they were issued to meet a great
emergency in time of war, when the overthrow of the Government
was threatened and specie payments had been suspended. Both
the end in view and the means employed, the Court held were lawful.
The thing actually done was the issuance of bills endowed with the
quality of legal tender in order to carry on until the United States
could find it possible to meet their obligations in standard coin. This
they accomplished in 1879. The purpose was to meet honorable
obligations- not to repudidate them.
The opinion there rendered declares "The legal tender acts do not
attempt to make paper a standard of value. We do not rest their
validity upon the assertion that their emission is coinage, or any regulation of the value of money; nor do we assert that Congress may
make anything which has no value money. What we do assert is,
that Congress has power to enact that the government's promises to
pay money shall be. for the time being, equivalent in value to the
representative of value determined by the coinage acts or to multiples thereof." What was said in those causes of course must be read
in the light of all the circumstances. The opinion gives no support
to what has been attempted here.
This Court has not heretofore ruled that Congress may require the
holder of an obligation to accept payment in subsequently devalued

coins, or promises by the Government to pay in such coins. The
legislation before us attempts this very thing. If this is permissible
then a gold dollar containing one grain of gold may become the
standard, all contract rights fall, and huge profits appear on the
Treasury books. Instead of $2,800,000,000 as recently reported
perhaps $20,000,000,000, maybe, enough to cancel the public debt,

maybe more!

The power to issue bills and "regulate values" of coin cannot be
so enlarged as to authorize arbitrary action, whose immediate purpose

and necessary effect is destruction of individual rights. As this
Court has said a "power to regulate is not a power to destroy

154 U. S. 362, 398. The Fifth Amendment limits all governmental
powers. We are dealing here with a debased standard, adopted with

the definite purpose to destroy obligations. Such arbitrary and

oppressive action is not within any Congressional power heretofore
recognized.

The authority of Congress to create legal tender obligations in
times of peace is derived from the power to borrow money; this

cannot be extended to embrace the destruction of all credits.
to the

may well be doubted whether the nature of society and of government
does
not prescribe some limits
the
found
legislative

power;

and

any

be

prescribed

where

are

they

to

be

property

of

There is no challenge here of the power of Congress to adopt such

37

an

fairly and honestly acquired may be seized without compensation. Ch. Justice Marshall in Fletcher
Peck, Cranch 87, 155.

F.

36

GOLD CLAUSES IN OBLIGATIONS

38

GOLD CLAUSES IN OBLIGATIONS

There was no coin-specie- general circulation in the United

States between 1862 and 1879. Both gold and silver were treated
in business as commodities. The Legal Tender Cases arose during
that period.

Corporate bonds.-Th gold clauses in these bonds were valid and

in entire harmony with public policy when executed They are
property-Lynch V. United States, 292 U. S. 571, 579. To destroy &
validly acquired right is the taking of property-Osborn V. Nicholson,
13 Wall. 646, 662. They established a measure of value and supply
a basis for recovery if broken. Their policy and purpose were stamped

with affirmative approval by the Government when inserted in

its bonds.

The clear intent of the parties was that in case the standard of
1900 should be withdrawn, and a new and less valuable one set up,
the debtor could be required to pay the value of the contents of the
old standard in terms of the new currency, whether coin or paper.

If gold measured by prevailing currency had declined the debtor
would have received the benefit. The Agricultural Adjustment Act
of May 12th discloses & fixed purpose to raise the nominal value of
farm products by depleting the standard dollar. It authorized the
President to reduce the gold in the standard, and further provided
that all forms of currency shall be legal tender. The result expected to follow was increase in nominal values of commodities and
depreciation of contractual obligations. The purpose of Section 43
incorporated by the Senate as an amendment to the House Bill was
clearly stated by the Senator who presented it. It was the destruction of lawfully acquired rights.

In the circumstances existing just after the Act of May 12th,
depreciation of the standard dollar by the Presidential proclamation
would not have decreased the amount required to meet obligations
containing gold clauses As to them the depreciation of the standard
would have caused an increase in the number of dollars of depreciated

currency. General reduction of all debts could only be secured by
first destroying the contracts evidenced by the gold clauses; and this
the Resolution of June 5th undertook to accomplish. It was aimed
directly at those contracts and had no definite relation to the power
to issue bills or to coin or regulate the value of money.
To carry out the plan indicated as above shown in the Senate, the
Gold Reserve Act followed-January 30, 1934. This inhibited the
President from fixing the weight of the standard gold dollar above
60% of its then existing weight. (Authority had been given for 50%
reduction by the Act of May 12th.) On January 31st he directed

that the standard should contain 15 5/21 grains of gold. If this

reduction of 40% of all debta was within the power of Congress and
if as a necessary means to accomplish that end. Congress had power
by resolution to destroy the gold clauses, the holders of these corporate
bonds are without remedy. But we must not forget that if this power
exists Congress may readily destroy other obligations which present
He said-"This amendment has for its purpose the bringing down or cheapening of the dollar. that

being in order
raise agricultural
and dity prices. The
with to
conditions
precedent
action

ment

do

to

being

taken

later

first

part

of

the

amend

will be my task to show that the amendment shall prevail It has potentfalities as follows It may

transfer from one class to another class in these United States value to the extent of almost

This value will be transferred, first. from those who own the bank deposits Secondly, this value be
those who own bonds and fixed Investments Cong. Record, April, 1933. pp. 2004,

from
2216, 2217, 2219.

o

39

obstruction to the desired effect of further depletion. The destruction
of all obligations by reducing the standard gold dollar to one grain of
gold, or brass or nickel or copper or lead will become an easy possibility. Thus we reach the fundamental question which must control
the result of the controversy in respect of corporate bonds. Apparently in the opinion of the majority the gold clause in the Liberty
bond withstood the June 5th Resolution notwithstanding the definite

purpose to destroy them. We think that in the circumstances

Congress had no power to destroy the obligations of the gold clauses
in private obligations. The attempt to do this was plain usurpation,
arbitrary and oppressive.
The oft repeated rule by which the validity of statutes must be
tested is this- "Let the end be legitimate, let it be within the scope
of the Constitution, and all means which are appropriate which are
plainly adapted to that end which are not prohibited but consistent
with the letter and spirit of the Constitution are constitutional.
The end or objective of the Joint Resolution was not "legitimate."
The real purpose was not "to assure uniform value to the coins and
currencies of the United States". but to destroy certain valuable contract rights. The recitals do not harmonize with circumstances then
existing. The Act of 1900 which prescribed a standard dollar of 25.8
grains remained in force: but its command that "all forms of money
issued or coined by the United States shall be maintained at 8 parity
of value with this standard" was not being obeyed. Our currency
was passing at a material discount; all gold had been sequestrated;
none was attainable. The Resolution made no provision for restoring
parity with the old standard it established no new one.
This Resolution was not appropriate for carrying into effect any
power entrusted to Congress. The gold clauses in no substantial way
interfered with the power of coining money or regulating its value
withmany
or providing an uniform currency. Their existence, as

other circumstances, might have circumscribed the effect of the
intended depreciation and disclosed the unwisdom of it. But they
did not prevent the exercise of any granted power. They were not
inconsistent with any policy theretofore declared. To assert the

contrary is not enough. The Court must be able to see the appropriate
ness of the thing done before it can be permitted to destroy lawful

agreements. The purpose of a statute is not determined by mere
recitals-certainly they are not conclusive evidence of the facts

stated.

Again, if effective, the direct, primary and intended result of the
Resolution will be the destruction of valid rights lawfully acquired.
There is no question here of the indirect effect of lawful exercise of
power. And citations of opinions which upheld such indirect effects
are beside the mark. This statute does not "work harm and loss to
individuals indirectly" it destroys directly. Such interference violates the Fifth Amendment; there is no provision for compensation.
If the destruction is said to be for the public benefit proper compensation is essential; if for private benefit the due process clause bars the
W&V

Congress has power to coin money but this cannot be exercised
without the possession of metal. Can Congress authorize appropri-

GOLD CLAUSES IN OBLIGATIONS

GOLD CLAUSES IN OBLIGATIONS

ation without compensation of the necessary gold? Congress ha
power to regulate commerce, to establish post roads, &c. Some ap-

States. And see Act May 30, 1934, 48 Stat. 817, appropriating

proved plan may involve the use or destruction of A's land or a
private way. May Congress authorize the appropriation or destruc-

tion of these things without adequate payment? Of course not.
The limitations prescribed by the Constitution restrict the exercise

of all power

Ling Su Fan V. United States, 218 U. S. 302, supports the power
of the legislature to prevent exportation of coins without compensation. But this is far from saying that the legislature might have
ordered destruction of the coins without compensating the owners
or that they could have been required to deliver them up and accept
whatever was offered. In United States V. Lynah, 188 U. S. 445, 471,
this Court said:
If any one proposition can be considered as settled by the decisions of this
court it is that although in the discharge of its duties the Government may
appropriate property, it cannot do so without being liable to the obligation
cast by the fifth amendment of paying just compensation.

Government bonds.-Congress may coin money; also it may borrow
money. Neither power may be exercised so as to destroy the other:
the two clauses must be so construed as to give effect to each. Valid
contracts to repay money borrowed cannot be destroyed by exercising
power under the coinage provision. The majority seem to hold that
the Resolution of June 5th did not affect the gold clauses in bonds of
the United States. Nevertheless we are told that no damage resulted
to the holder now before us through the refusal to pay one of them in

gold coin of the kind designated or its equivalent. This amounts to
a declaration that the Government may give with one hand and take
away with the other. Default is thus made both easy and safe!
Congress brought about the conditions in respect of gold which
existed when the obligation matured. Having made payment in
this metal impossible the Government cannot defend by saying that
if the obligation had been met the creditor could not have retained
the gold; consequently he suffered no damage because of the nondelivery. Obligations cannot be legally avoided by prohibiting the
creditor from receiving the thing promised. The promise was to pay
in gold, standard of 1900, otherwise to discharge the debt by paying
the value of the thing promised in currency. One of these things
was not prohibited. The Government may not escape the obligation
of making good the loss incident to repudiation by prohibiting the
holding of gold. Payment by fiat of any kind is beyond its recognized power. There would be no serious difficulty in estimating the
value of 25.8 grains of gold in the currency now in circulation.
These bonds are held by men and women in many parts of the
world: they have relied upon our honor. Thousands of our own
citizens of every degree not doubting the good faith of their sovereign

have purchased them. It will not be easy for this multitude to appraise the form of words which establishes that they have suffered
no appreciable damage; but perhaps no more difficult for them than
for us. And their difficulty will not be assuaged when they reflect
that ready calculation of the exact loss suffered by the Philippine
government moved Congress to satisfy it by appropriating, in June
1934, $23,862,750.78 to be paid out of the Treasury of the United

o

41

$7,438,000 to meet losses sustained by officers and employees in foreign countries due to appreciation of foreign currencies in their relation to the American dollar

Gold certificates. were contracts to return gold left on

deposit; otherwise to pay its value in the currency. Here the gold
was not returned: there arose the obligation of the Government to
pay its value. The Court of Claims has jurisdiction over such contracts. Congress made it impossible for the holder to receive and
retain the gold promised him; the statute prohibited delivery to him.
The contract being broken the obligation was to pay in currency the
value of 25.8 grains of gold for each dollar called for by the certificate. For the Government to say, we have violated our contract
but have escaped the consequences through our own statute, would
be monstrous. In matters of contractual obligation the Government
can not legislate so as to excuse itself.

These words of Alexander Hamilton ought not to be forgotten:

When a government enters into a contract with an individual, it deposes, as
to the matter of the contract, its constitutional authority, and exchanges the
character of legislator for that of a moral agent, with the same rights and obligations as an individual. Its promises may be justly considered as excepted out
of its power to legislate, unless in aid of them. It is in theory impossible to
reconcile the idea of a promise which obliges, with a power to make a law which
can vary the effect of it". 3 Hamilton's Works, 518, 519.

These views have not heretofore been questioned here. In the
Sinking Fund Cases, 99 U. S. 700, 719, Chief Justice Waite speak-

ing for the majority declared: The United States are as much
bound by their contracts as are individuals. If they repudiate

their obligations, it is as much repudiation, with all the wrong and
reproach that term implies, as it would be if the repudiator had been

a State or a municipality or a citizen. No change can be made in
the title created by the grant of the lands, or in the contract for the
subsidy bonds, without the consent of the corporation. All this is
indisputable"

And in the same cause, (731, 732) Mr. Justice Strong, speaking

for himself, affirmed:
a

40

It is as much beyond the power of a legislature, under any pretence, to alter
contract into which the government has entered with a private individual, as

it is for any other party to a contract to change its terms without the consent
of the person contracting with him. As to its contract the government in all its
departments has laid aside its sovereignty, and it stands on the same footing
with private contractors.
Can the Government, obliged as though a private person to observe

the terms of its contracts, destroy them by legislative changes in the

currency and by statutes forbidding one to hold the thing which it
AN ACT Relating to Philippine currency reserves on deposit in the United States.
Be it enacted by the Senate and House of Representatives of the United States of America is Congress assem-

Med,That the Secretary of the Treasur authorised and directed. when the funds therefor are made
Islands

for

$23,862,750 establish TH. 00 being the books an amount of the equal Treasury to the credit increase in in favor value of (resulting the Treasury from of the the reduction Philippine

equivalent the opening business January 31. 1934. of the

continental Government

balances the weight of the gold at dollar) that time the gold banks in the United States by the Interest received of the

Philippine Islands for its gold standard fund and its Treasury certificate fund less the
such

balances.

2 There hereby authorised to be appropriated. out of the receipts covered into the Treasury
under SEC section the Gold Act 1994. by virtue of the reduction of the weight of the cold credit dollar

by the the on January 31. 1934. the amount necessary to establish the

provided for in section 1 of this Act. Approved June 19. 1934

42

GOLD CLAUSES IN OBLIGATIONS

has agreed to deliver? If an individual should undertake to annul of
lessen his obligation by secreting or manipulating his assets with the
intent to place them beyond the reach of creditors, the attempt would
be denounced as fraudulent, wholly ineffective.
Counsel for the Government and railway companies asserted with
emphasis that incalculable financial disaster would follow refusal to
uphold, as authorized by the Constitution, impairment and repudiation of private obligations and public debts. Their forecast is discredited by manifest exaggeration. But, whatever may be the situstion now confronting us, it is the outcome of attempts to destroy
lawful undertakings by legislative action, and this we think the Court
should disapprove in no uncertain terms.
Under the challenged statutes it is said the United States have
realized profits amounting to $2,800,000,000.4 But this assumes that

gain may be generated by legislative fist. To such counterfeit

profits there would be no limit; with each new debasement of the
dollar they would expand. Two billions might be ballooned indefinitely-to twenty, thirty, or what you will.
Loss of reputation for honorable dealing will bring us unending
humiliation; the impending legal and moral chaos is appalling.
. In radio address conterning the plans of the Treasury, August 28, 1934, the Secretary of Treasury as
reported by the Commercial and Financial Chronicle of September 1. 1934. stated

"But we have another cash drawer in the Treasury, in addition to the drawer which carrier our workin
balance. This second drawer I will call the "gold" drawer In If la the very large sum of $2,800,000,000,
this
representing "profit" resulting from the change in the gold content of the dollar Practically all of
"profit" the Treasury holds in the form of gold and silver. The rest is in other assets

"I do not propose here to subtract thle $3,800,000,000 from the not increase of $4,400,000,000 in the national

debt-thereby reducing the figure to $1,600,000,000 And the reason why I do not subtract It is this for

the present this $2,800,000.00 is under lock and key. Most of it. by authority of Congress la aggregated
in the so-called 'stabilisation fund, and for the present we propose to keep It there But call your attention

to the fact that ultimately we expect this profit to flow back into the stream of our other revenue and

thereby reduce the national debt.

330

ALTERNATIVE AGENDAE

OF IMMEDIATE ACTION.

1.

All three cases favorable to Government
(or gold certificate remanded on bad

- Rejoice and be thankful

record)

2. All three cases adverse on merits

- Proclamation
- Message

- Press release (No.2)
- M Resolution
- Withdraw right to sue
- Withdraw appropriations

3. Gold certificate adverse on merits

Private and Liberty Bond cases favorable.

4. Liberty Bond adverse
Private bond and certificates favorable

- Withdraw right to sue
on currency

- Press release (no.3)
- Withdraw appropriation
- Message

- Letter from President to
Sec'y.

- Press release (No.4)
- Withdraw right to sue
- Withdraw appropriation

5. Liberty Bond and gold certificate
adverse

Private favorable

6. Liberty Bond expressly adverse as to
foreign holders only

- Message

- Press release (No.5)
- Withdraw right to sue
- Withdraw appropriation
- Press release (No.6)

- Qualify appropriation

Cases otherwise favorable

7. Private and Liberty Bonds adverse
Gold certificate favorable

- Proclamation
- Message

- Press release (No.7)
- M Resolution

- Withiraw right to sue on
bonds

- Withdraw appropriation
8. Private bonds adverse

Liberty Bonds, gold certificates
favorable

- Proclamation

- Press release (no.8)
- Message

- M Resolution

332

331

PROCLAMATION

Whereas, a national emergency having been found and declared to

exist, the President of the United States, being thereto
authorized by the Congress, suspended gold payments and,

thereafter, fixed the weight of the gold dollar below that
fixed by law before such emergency;

Whereas, the Congress, by Public Resolution, approved June 5, 1933,

declared to be against public policy every provision contained
in or made with respect to any obligation payable in money of

the United States which purported to give the obligee the right
to require payment in gold or a particular kind of coin or
currency or in an amount in money of the United States measured
thereby;

Whereas, the Public Resolution so declaring has been found by the

Supreme Court of the United States to be invalid as applied to

certain obligations therein described;
Whereas, Section 5 (b) of the Act of October 6, 1917, as amended by

the Act of March 9, 1933, provides:
"During time of war or during any other period
of national emergency declared by the President, the

President may, through any agency that he may desig-

nate, or otherwise, investigate, regulate, or prohibit,

under such rules and regulations as he may prescribe,
by means of licenses cr otherwise, any transactions in
foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of

gold or silver coin or bullion or currency, by any

person within the United States or any place subject

to the jurisdiction thereof; and the President my

require any person engaged in any transaction referred

332
- -2to in this subdivision to furnish under oath, complete
information relative thereto, including the production
of any books of account, contracts, letters or other
papers in connection therewith in the custody or con-

trol of such person, either before or after such
transaction is completed. Whoever willfully violates any of the provisions of this subdivision or
of any license, order, rule or regulation issued thereunder, shall, upon conviction, be fined not more than
$10,000, or if a natural person, may be imprisoned for
not more than ten years, or both; and any officer,
director, or agent of any corporation who knowingly
participates in such violation may be punished by a

like fine, imprisonment, or both. As used in this

subdivision the term 'person' means an individual,
partnership, association, or corporation"; and

Whereas, upon investigation, I find that by reason of the amount of
public and private obligations containing provisions declared
by said Public Resolution to be against public policy, any immediate attempt to realize upon claims arising from such provi-

sions, in the face of the national emergency hitherto declared
and now existing, would precipitate widespread bankruptcies,
increase unemployment and lessen purchasing power, injuriously

affect credit and our financial and industrial systems, transportation and other essential services, public and private,
thereby materially and dangerously enhancing such emergency;
NOW, THEREFORE, I, Franklin D. Roosevelt, President of the

United States, by virtue of the authority vested in me, do hereby
declare that the national emergency hitherto found and declared

to exist, continues, and, in order to permit a period of adjustment and to prevent the bankruptcies and the destruction of credit
which would result from immediate attempts to realize upon claims

arising from provisions declared by said Public Resolution to be
farm

purposes

333

-3against public policy, I do hereby proclaim, order, direct and
declare that until the expiration of a period of 90 days from this
date, or the earlier revocation of this proclamation by me, every
payment by any banking institution organized or doing business

within the United States and every transfer of credit between any

such banking institution and any banking institution within or
outside of the United States is prohibited in every case where such

payment or transfer, or any part thereof, is made or, to the knowledge of the banking institution making the payment or transfer,

will be applied, in full or partial payment of any obligation in
an amount over and above the stated dollar amount thereof because

of any claim arising from any provision declared by said Public

Resolution to be against public policy. The Secretary of the
Treasury is authorized to prescribe, with the approval of the

President, regulations for carrying out the provisions of this
proclamation, which regulations may also provide for the furnishing
under oath of complete information, including the production of

books of account, contracts, letters or papers, regarding any payment or transfer prohibited or regulated under this proclamation.
As used herein the term "banking institution" shall include
all Federal Reserve banks, national banking associations, banks,

trust companies, savings banks, building and loan associations,

credit unions, and other corporations, partnerships, associations
and persons engaged in the business of receiving deposits, making

loans, discounting paper, acting as fiscal or financial agent, or
transacting any other form of banking business, and, for the purposes

335

334

-4

of this proclamation, each home office, branch, agency, or correspondent of any banking institution so engaged shall be regarded

as a separate banking institution; and the term "United States"
means the United States and any place subject to the jurisdiction

thereof, including the Philippine Islands.

the

IN WITNESS WHEREOF, I have hereunto set my hand and caused

the seal of the United States of America to be affixed.

Done in the City of Washington this - day of February
o'clock P. M., in the year of our Lord One Thousand

at

Nine Hundred and Thirty-five, and of the Independence of the
United States the One Hundred and Fifty-ninth.
about

future issnes

and
with
of
with the to if

(SEAL)

By the President:

indications mere Tea
immensed

Secretary of State.

an

X

ARRIDO

by

the
st

and

Na will needs from their member.
of

the

juniday

the States Seastation one Inne 5, 1983 madarback to ersablish.

335
MESSAGE

I recommend legislation to the Congress withdrawing the

right to sue the United States on its bonds, currency and similar
obligations, withholding appropriations for the payment of more than

the face amount thereof and making it unlawful for any officer of
the United States to pay in excess of such amount. The passage of
bills for this purpose becomes immediately necessary because of the
decision of the Supreme Court just announced in the Norts and Perry
cases.

The Government will, of course, continue to meet its debts

promptly, dollar for dollar, as it has always done. Since the passage
of the Joint Resolution of June 5, 1953 the Government has issued and

sold about thirteen and one-half billion dollars of bonds and other

securities which do not contain gold clauses. It is manifest that
these and future issues would be prejudiced if the large amount of the
Government's outstanding gold clause obligations, aggregating about

fourteen and one-half billion dollars, were accorded a position of
preference which the Resolution sought to prevent. Not only so, if
gold clauses in Government obligations were permitted to become effec-

tive again, the national debt would be automatically increased by

about ten billion dollars. I am unwilling, as I assume the Congress
will be, to impose this additional burden on the country when it can
be justly and lawfully avoided.
No hardship or injustice will result from these measures.

They are wholly consistent with and in furtherance of the policy
which the Joint Resolution of June 5, 1935 undertook to establish.

336

H

MESSAGE

The reasons which impelled the adoption by the Congress

of the Joint Resolution of June 5, 1933, annulling gold clauses
in private and public obligations, have not been removed by the
decision of the Supreme Court in the Gold Clause Cases. They are
as imperative as before and have even been enhanced, since our antire

had

had

people have assumed the validity of the Resolution and have gone

about their business in reliance upon it. It is unnecessary to
repeat these reasons here. The Resolution itself summarized

them, but it will be recalled that the total of gold clause obligations had attained such an enormous figure, approximately

one hundred billion dollars, as to obstruct the power of the Congress to regulate the value of money and to deal with the problems
accentuated by that very obstruction, such as the maintenance of

a uniform currency system in which one dollar should be of equal
value with every other. The Resolution was also designed to meet
other problems of the utmost urgency growing out of the depression.

The situation in which the decision leaves the country
is, however, by no means hopeless. Partly because of the Joint
Resolution and partly because of other remedial and recuperative
measures, conditions have greatly improved and with them hope has

heightened and courage has routed despair. Until these gains can be

-2-

3 337

the Constitution itself amended (amofor
consolidated and permanent legislation framed) to meet the new

difficulty which has arisen, I recommend the adoption of a series
of measures by the Congress, preliminary to which and for the
same purpose, I have this day issued a Proclamation under the

authority vested in the President by Section 5 (b) of the Act of
October 6, 1917, as amended by the Act of March 9, 1933.

I recommend first, a moratorium for one year, unless
sooner terminated, staying the enforcement of gold clause obligations in any form, over and above the face or par amount. Such
moratorium, which is a considerate measure of relief, assuring a
period of re-adjustment, and based upon auxiliary and composite

powers of the Congress, is constitutionally sanctioned as an
emergency measure.

begread

Second, withdrawal of the right to sue the United States

on its bonds, currency and similar obligations containing gold
clauses. The Government will, of course, continue to meet its

debts promptly, dollar for dollar, as it has always done. Since

passage the

the Joint Resolution
of June
5, 1933,
thirteen and
one
half the Government has issued and

sold about
fifteen billion dollars of bonds and other securities
a

which do not contain gold clauses. It is manifest that these and
future issues would be prejudiced if the large amount of the Government's outstanding gold clause obligations aggregating about

fourteen and one half

thisteer 1billion dollars, were accorded a position of preference

which the Resolution sought to prevent. Not only so, if gold clauses

338

-3-

in Government obligations are permitted to become effective again,

the national debt will be automatically increased by about aine ten

billion dollars. I am unwilling, as I assume the Congress will
be, to impose this additional burden on the country when it can

be justly and lawfully avoided.
Third, withholding of appropriations and authority for
payment by the Treasury of gold clause Government obligations in

excess of the face amount in lawful money, making it unlawful for
any officer of the United States to make any such excess payment.

No hardship or injustice will result from these measures.

On the contrary, they will serve, in an actual and practical sense,

gran

to prevent both widespread hardship and that form of injustice
which necessarily would result from increasing by about 70%

obligations estimated, as I have said, at once hundred billion
dollars, and from plunging the country again into the depth of
depression from which it is emerging.

their

I recommend the immediate enactment, of these

339
A bill to amend Section 24, Subsection (20),
and Section 145, Subsection (1) of the Judicial Code.
Be it enacted by the Senate and House of

Representatives of the United States of America in
Congress assembled, That Section 24, Subsection (20)

of the Judicial Code (U. S. Code, Title 28, Section 41,
Subsection 20) be and hereby is amended to read as

follows:

"(20) Suits against United States, - Twen-

tieth. Concurrent with the Court of Claims, of

all claims not exceeding $10,000 founded
upon the Constitution of the United States
or any law of Congress, or upon any regulation of an executive department, or upon any

contract, express or implied, with the Gov-

ernment of the United States, or for damages

liquidated or unliquidated, in cases not
sounding in tort, in respect to which claims
the party would be entitled to redress
against the United States, either in a court

of law, equity, or admiralty, if the United

States were suable, and of all set-offs,

counter-claims, claims for damages, whether
liquidated or unliquidated, or other demands
whatsoever on the part of the Government of
the United States against any claimant
against the Government in said court; and of
any suit or proceeding commenced after the
passage of the Revenue Act of 1921, for the

recovery of any internal-revenue tax alleged
to have been erroneously or illegally
assessed or collected, or of any penalty
claimed to have been collected without authority or any sun alleged to have been excessive or in any manner wrongfully collected
under the internal-revenue laws even if the
claim exceeds $10,000, if the collector of
internal revenue by whom such tax, penalty,
or sum was collected is dead or is not in

office as collector of internal revenue at

-2-

340

the time such suit or proceeding is commenceda
Nothing in this paragraph shall be construed

as giving to either the District Courts or the

Court of Claims jurisdiction to hear and determine claims growing out of the Civil War,

and commonly known as 'war claims, or to hear
and determine other claims which had been re-

jooted or reported on adversely prior to the
3d day of March, 1887, by any court, department, or commission authorized to hear and determine the same, or to hear and determine

claims for pensions; or as giving to the Distriot Courte jurisdiction of cases brought to
recover fees, salary, or compensation for official services of officers of the United
States or brought for such purpose by persons
claiming as such officers or as assignees or

legal representatives thereof; but no suit

pending on the 27th day of June, 1898, shall

abate or be affected by this provision. No

suit against the Government of the United
States shall be allowed under this paragraph
unless the same shall have been brought with-

in six years after the right accrued for which
the claim is made. Nor shall anything in this

paragraph be construed as giving to any of

said courts jurisdiction to hear and determine
claims arising out of bonds, contracts or other obligations for the repayment of money,

made, issued or guaranteed by the United

States, or arising out of gold or silver ooin
or bullion, or any coin or currency of the

United States, or out of any surrender, requisition, seisure or acquisition of any such
ooin, bullion or currency. The claims of married women, first accrued during marriage, of
persons under the age of twenty-one years,

first accrued during minority, and of idiots,
lunatios, insane persons, and persons beyond

the seas at the time the claim accrued, en-

titled to the claim, shall not be barred if

the suit be brought within three years after
the disability has ceased; but no other disability than those enumerated shall prevent
any claim from being barred, nor shall any of
the said disabilities operate cumulatively.
All suits brought and tried under the provisions of this paragraph shall be tried by the
court without a jury."

341

Section 2. That Section 145, Subsection

(1) of the Judicial Code (U. S. Code, Title 28, Section
250) be and hereby is amended to read as follows:

"(1) Claims against United States.

First. All claims (except for pensions)

founded upon the Constitution of the
United States or any law of Congress, upon any regulation of an executive department, upon any contract, express or implied, with the Government of the United
States, or for damages, liquidated or
unliquidated, in cases not sounding in

tort, in respect of which claims the party would be entitled to redress against
the United States either in a court of
law, equity, or admiralty if the United
States were suable: Provided, however,

That nothing in this section shall be
construed as giving to the said court jurisdiction to hear and determine claims

growing out of the late civil war, and

commonly known as 'war claims, or to hear
and determine other claims which, prior to
March 3, 1887, had been rejected or reported on adversely by any court, department, or commission authorized to hear and
determine the same. Nor shall anything in
this paragraph be construed as giving to

said court jurisdiction to hear and deter-

mine claims arising out of bonds. contracts
or other obligations for the repayment of
money. made. issued or guaranteed by the

United States. or arising out of gold or
silver coin or bullion. or any coin or currency of the United States. or out of any
surrender, requisition. seizure or acquisition of any such coin. bullion or currency. .

342.
Whereas, the Congress and the President of the United States having

found and declared a national emergency to exist, gold payments were suspended in order to safeguard our banking,

financial, and currency systems, protect our foreign and domestic
commerce, and arrest the processes of deflation;

Whereas, to end instability in foreign exchange and domestic prices, the
Congress and the President thereafter fixed the weight of the
gold dollar below that fixed by law before such emergency;

Whereas, in order to further objects of these measures and to
assure that such measures would affect all the people of

the United States uniformly, holders of gold and gold certificates were required to surrender them to the United States,
and the Congress, by Public Resolution No. 10, approved

June 5, 1933, declared to be against public policy every
provision contained in or made with respect to any obligation
payable in money of the United States which purported to give

the obligee the right to require payment in gold or a particular kind of coin or currency or in an amount in money of the
United States measured thereby;

Whereas, said Public Resolution has been found by the Supreme Court

of the United States to be invalid in whole or in part; and
Whereas, the existing emergency theretofore declared has been so

enhanced as to menace the safety of the United States by imperiling commerce with foreign nations and among the several

and the uniform and stable value of money and the regulation.

343

-2of the value of foreign coin, by threatening the ability of the
Government to borrow money and to collect taxes, and by endangering

the solvency of both debtors and creditors, thus impelling immediate
measures to forestall nationwide bankruptcies and to permit the orderly
exercise of the constitutional powers and duties of government:
NOW, THEREFORE, in exercise of the powers vested by the Consti-

ution in the Congress to cope with such enhanced emergency and in

exercise of all other pertinent powers vested by the Constitution in
the Government, be it
Resolved by the Senate and the House of Representatives of

the United States of America in Congress assembled, That, in order to

establish justice, insure domestic tranquillity, provide for the common
defense, and promote the general welfare, there is hereby declared a

moratorium on each and every claim, whether for principal or interest or
otherwise, arising from any clause or provision declared to be against

public policy by said Public Resolution or from any alleged deficiency
in payment for gold or currency surrendered by reason of any govern-

mental order, which moratorium shall terminate at the expiration of one
year or upon earlier proclamation by the President that the emergency

impelling it has ended. The moratorium herein declared shall stay the

assertion or exercise of all rights, privileges, and powers arising from
any such clause, provision, or alleged deficiency as if the time of
its continuance had not elapsed, but without impairing the same, and

without prejudice to any right to collect interest on any such claim for the
H

period of the moratorium after its termination. Accordingly, and without
limiting the generality of the foregoing, during such moratorium, no suit

345

-

3

344

-

or other proceeding shall be commenced or other action or step, judicial
or otherwise, taken for the purpose of collecting or realizing upon any
claim arising from any such clause, provision, or alleged deficiency;
and every judicial or other proceeding heretofore commenced shall be

stayed in so far as any right or remedy arising from any such clause,
provision, or alleged deficiency is concerned.
/This law, made in pursuance of the Constitution, is of the
supreme law of the land; and the judges in every State and in every

place subject to the jurisdiction of the United States, including the
Philippine Islands, shall be bound thereby.7

Public

the

345

Whereas, the Congress and the President of the United Statesx having
found and declared a national emergency to exist, suspended gold

were suspended

payments in order to safeguard our banking, financial, and currency
s

systems, protect our foreign and domestic commerce, and arrest the

processes of deflation;
Whereas, to end instability in foreign exchange and domestic prices, the
Congress and the President thereafter fixed the weight of the gold
dollar below that fixed by law before such emergency;

Whereas, in order to further the objects of these measures and to assure
that such measures would affect all the people of the United States

uniformly, holders of gold and gold certificates were required to
surrender them to the United States, and the Congress, by Public
Resolution No. 10, approved June 5, 1933, declared to be against

public policy every provision contained in or made with respect to
any obligation payable in money of the United States which purported

to give the obligee the right to require payment in gold or a particular kind of coin or currency or in an amount in money of the United
States measured thereby;

Whereas, said Public Resolution has been found by the Supreme Court of the

United States to be invalid in whole or in part; and
Whereas, the existing emergency theretofore declared has been so enhanced

as to menace the safety of the United States by imperiling commerce

disturbing

with foreign nations and among the several states, by jeepardising the
uniform and stable value of money and the regulation of the value of

foreign coin, by threataning the ability of the Government to borrow

345

Whereas, the Congress and the President of the United Statesx having
found and declared a national emergency to exist, suspended gold

were suspanded

payments in order to safeguard our banking, financial, and currency
1

systems, protect our foreign and domestic commerce, and arrest the

processes of deflation;
Whereas, to end instability in foreign exchange and domestic prices, the
Congress and the President thereafter fixed the weight of the gold
dollar below that fixed by law before such emergency;

Whereas, in order to further the objects of these measures and to assure
that such measures would affect all the people of the United States

uniformly, holders of gold and gold certificates were required to
surrender them to the United States, and the Congress, by Public
Resolution No. 10, approved June 5, 1933, declared to be against

public policy every provision contained in or made with respect to
any obligation payable in money of the United States which purported

to give the obligee the right to require payment in gold or a particular kind of coin or currency or in an amount in money of the United
States measured thereby;

Whereas, said Public Resolution has been found by the Supreme Court of the

United States to be invalid in whole or in part; and
Whereas, the existing emergency theretofore declared has been so enhanced

as to menace the safety of the United States by imperiling commerce

disturbing

with foreign nations and among the several states, by jeepardising the
uniform and stable value of money and the regulation of the value of

foreign coin, by threatening the ability of the Government to borrow

346
--2-

money and to collect taxes, and by endangering the solvency of both
debtors and creditors, thus impelling immediate measures to forestall

nationwide bankruptcies and to permit the orderly exercise of the
constitutional powers and dutiesof government:
NOW, THEREFORE, in exercise of the powers vested by the Consti-

tution in the Congress to cope with such enhanced emergency and in

exercise of all other pertinent powers vested by the Constitution in
the Government, be it
Resolved by theSenate and the House of Representatives of the

United States of America in Congress assembled, That, in order to

establish justice, insure domestic tranquility, provide for the common
defense, and promote the general welfare, there is hereby declared a
moratorium on each and every claim, whether for principal or interest

or otherwise, arising from any clause or provision declared to be
against public policy by said Public Resolution, which moratorium

shall terminate at the expiration of one year or upon earlier proclamation by the President that the emergency impelling it has ended.
The moratorium herein declared shall stay the assertion or exercise

of all rights, privileges, and powers arising from any such clause or
of

provision as if the time during its continuance had not elapsed, but
without impairing the same, and without prejudice to any right to collect

interest on any such claim for the period of the moratorium after its
termination. Accordingly, and without limiting the generality of the
foregoing, during such moratorium, no suit or other proceeding shall
be commenced or other action or step, judicial or otherwise, taken

347

-3[in any State or place subject to the jurisdiction of the United States
(including the Philippine Islands) for the purpose of collecting or
realizing upon any claim Grising from any such clause or provision;

heretofare

and every judicial or other proceeding present commenced shall be

stayed in so far as any right or remedy arising from any such clause
or provision is concerned.

[This law, made in pursuance of the Constitution, is of the supreme
law of the land; and the judges in every State and in every place sub-

ject to the jurisdiction of the United States, including the Philippine
Islands, shall be bound thereby
,

348

-

(To be used in the event the gold certificate
case is adverse on the merits and the Liberty
bond case favorable.)

No

Rhother

Sec. 3. Any consent which the United States may have

given to the assertion against it of any right, privilege, or power,
whether by way of suit, counterclaim, set-off, recoupment or other

affirmative action or defense in its own name or in the name of

any of its officers, agents, agencies or instrumentalities in any
proceeding of any nature whatsoever presently or hereafter com-

menoed, upon a claim arising from any alleged deficiency in payment for gold or currency surrendered by reason of any govern-

mental order, is withdrawn until otherwise specifically provided
by Act of the Congress.

349

(To be used in the event Liberty bond and
gold certificate case adverse on the merits)
No IRIRS, whether heretofore or hereafter appropriated or

authorised to be expended, shall be available for, or expended in,
the payment of any claim arising out of any provision declared to
be against public policy by Public Resolution No. 10, of June 5,
1933, or of any claim for payment for coin or currency in 6x0888

of the face value thereof or for gold surrendered by reason of
Governmental order in excess of $20.67 an ounce, unless such payment

shall have been expressly authorised by future enactment.

350

(To be used if gold certificate case
unfavorable on the merita; Liberty bond
case favorable)

No suns, whether heretofore or hereafter appropriated or
be

authorised to be expended, shall be available for, or expended in,
the payment of any claim for payment for coin or currency in excess
5,

of the face value thereof or for gold surrendered by reason of
Governmental order in excess of $20.67 an ounce, unless such payment

shall have been expressly authorised by future enactment.

351

(To be used if Liberty bond case is
adverse, gold certificate case favorable)

The

No suns, whether heretofore or hereafter appropriated

or authorised to be expended, shall be available for, or expended

in, the payment of any claim arising out of any provision declared
to be against public policy by Public Resolution No. 10, of June 5,
1933, unless such payment shall have been expressly authorized by
future enactment.

352
2.

The decision just rendered by the Supreme Court will occasion

no change in the monetary policy of the Administration. To avoid
confusion and prevent needless and futile litigation, I an recommending to the Congress that it declare a temporary moratorium on

gold clauses in all public and private obligations and that it
withdraw the right to sue the United States on such clauses and on
its currency, pending the adoption of permanent measures.
in Main

353

5.

The decision just rendered by the Supreme Court will occasion

no change in the basic monetary policy of the Ministration. To
avoid confusion and prevent needless and futile litigation, I an
recommending to the Congress that it withdraw the right to sue the
United States on its currency, pending the enactment of permanent

measures in line with the Administration's monetary policy.

356 354
4.

The decision just rendered by the Supreme Court will occasion

no change in the monetary policy of the Administration. To avoid
To

confusion and prevent needless and futile litigation, I am recommending to the Congress that it withdraw the right to sue the United
States on such clauses, pending the adoption of permanent measures

in line with the Administration's monetary policy.

See

adidas

of

355
5.

The decision just rendered by the Saprome Court will occasion

no change in the basic monetary policy of the Administration. To
avoid confusion and prevent needless and futile litigation, I am
recommending to the Congress that it withdraw the right to sue the
United States on gold clauses and currency, pending the adoption of
permanent measures in line with the Administration's monetary policy.
Signature

Depart,

David

great

The

registered
Department.

356

(To be used if Liberty case

6.

favorable to Government except

as to foreign holders)
The

in

the

The Treasury announced that no bonds

owned abroad would be paid except on presenta-

tion of full and adequate proof of such ownership since June 5, 1953, and of the right to
receive payment under the law as interpreted

by the Supreme Court. Such proof will be
required to be made under regulations formulated by the Treasury Department.

357 138

7.

The decision just rendered by the Supreme Court will occasion exclut

no change in the basic monetary policy of the Administration. To

seant.

avoid confusion and prevent needless and futile litigation, I am
recommending to the Congress that it declare a temporary moratorium

on gold clauses in all public and private obligations and that it
withdraw the right to sue the United States on such clauses, pending
the adoption of permanent measures in line with the Administration's
monetary policy.

ing

by

driving It

dones

I ear change that.
Want's that?

too.
2

1121
SK

keep

$1

No

the
Leoke

didn't

this thing

this than
possible.

cooea

Jeff's
NICE
I

get
you

want to

358
H.M.Jr:
George

On this foreign exchange thing. Have you got any
suggestions? Have you been watching it?

Harrison:

Not in the last hour - no, but --

H. M. Jr:

They tell me sterling is weak.
Sterling is weak because, as Payne says, the market
is so thin that when we tried to sell some it went
down and the Francs immediately got over the gold point.
The Franc isn't over the gold point now.
Well it was over the lower point the last time I
saw it, wasn't it?
What? Oh I mean within the gold point.
Yes. So it ran down the cost rate so low that it
became up to you to tell Saulsbury to buy Francs

H:

H.M.Jr:
H:

H.M.Jr:
H:

that way.

H.M.Jr:

Well can we buy gold now at--

H:

Wait a minute I can't hear you.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.ET

Well I don't see why we don't buy some gold in Paris.

Well now that's the way I would handle it. I think
I would stop selling sterling at the moment. The
market is thin and I don't see what you're accomplishing by driving it down any further.
I can change that.
What's that?

I'll tell Lochhead to change that.
I'm sorry I didn't hear you.
I'll tell Lochhead to change that.

Yes, I think it would be better. I've sent for
Payne but I'm sure he thinks it will be better too.
Well now on the government bond thing - I didn't get
a good chance to talk with the President. Jeff's
on the phone here and I'll leave this thing with you

and Jeff this way that if this thing comes I want to
keep it just as steady as possible.

359

-2 H:

H.M.Jr:

360

Yes.

I mean I want to - I've ordered Hunter to keep the
thing steady.

H:

You've done what?

H.M.Jr:

I want to keep the thing steady.

H:

Yes.

H.M.Jr:

I want to keep the thing steady.

H:

I see. Well I agree with you.

H.M.Jr:

So if you and Jeff get together and we have to use
some of the Postal Savings gold bonds, it's perfectly
agreeable to me.

H:

H.M.Jr:
H:

H.M.Jr:

Alright, first rate.
See?

Well then I'll keep in touch with Jeff on it.

H:

Yes you keep in touch with Jeff.
Alright then.

H.M.Jr:

See?

H:

Yes.

H.M.Jr:

Alright.

February 18, 1935.
Monday.

360

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAP RS,

Monday, February 18, 1935.
2-16-35.

Press Service
No. 4-28

Secretary of the Treasury Morgenthau today announced that the new United

States Savings Bonds to go on sale through the postoffices on or about March 1
would yield an interest rate of 2.9 per cent compounded semi-annually if held

till maturity.
These bonds, which range in denominations from $25 to $1000, will not be

transferable, but they will be redeemed for cash on the owner's request at any

time after sixty days from the date of issue. The face of each bond bears a
table of redemption values which enables the purchaser to know its redemption

value at all times. The redemption value will increase regularly after the

first year.
Under the rate fixed by the Secretary of the Treasury, purchasers will pay
$18.75 for a bond of $25 maturity value; $37.50 for a $50 bond; $75 for a $100
bond; $375 for a $500 bond and $750 for a $1,000 bond. The bonds sell on a

discount basis, and the difference between the price paid at issue and the
maturity value represents accrual of interest. The $100 bond increases in
redemption value by $1 every six months after the first year. After the seventh
year it gains in value at the rate of $2 every six months. The other denominations increase proportionately.
The new government securities will be on sale at approximately 14,000

postoffices. These include all first, second and third-class postoffices, and
all fourth-class postoffices located at county seats. The Postoffice Department

will have complete charge of the distribution of the bonds to the public, and
preparations for handling the work are under ways

362

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

TO

FROM

Feb. 19, 1935

Mr. Morgenthau
A. Lochhead

On February 15 the Banco de Mexico requested the Federal Reserve

Bank of New York to make a telegraphic bid on 1,500,000 ounces of silver
for immediate delivery. The Federal Reserve Bank of New York was in-

structed to bid 54.69 per ounce for delivery at Vera Crus. This bid
gave them the full benefit of the New York price for silver as compared

to a price of 54.10, which is all they would have been able to obtain
if it was sold in the London market. On Saturday morning they telegraphed
requesting that the Federal Reserve Bank, if possible, improve the bid

owing to the general advancing tendency of silver. As the bid given to
the Banco de Mexico was a full one, good until the following day, it
did not seem proper to encourage them to ask for new bids whenever the

market was advancing, as in the event of a declining market we would
have to stand by the bid made by us. The Federal Reserve Bank of New

York was accordingly requested to inform the Banco de Mexico that we did
not care to change our bid, and on Monday, February 18, they again telegraphed, agreeing to accept our original bid made to them on February 15.

363
FEDERAL EMERGENCY ADMINISTRATOR

of Public Works
Washington

February 19,1935.

Memorandum for the Administrator:

This is in reply to your request of this morning asking
me to amplify my memorandum to you of January 25, 1934, in

which I reported a conference in Secretary Morgenthau's

office, where the subject of discussion was the awarding of
the contract for the New York Post Office annex.
I said in that memorandum that Senator Tydings, who was

present at the conference, volunteered the information that
he knew that McCooey, of New York, was interested in seeing
that Driscoll get the contract and that McCooey's political
henchmen were active in Washington in that behalf. I said
also that when Secretary Morgenthau asked Senator Tydings for

the names of these men, he replied that the fact was generally
known. He did not mention any names.

In the last paragraph of my memorandum I stated that after
the conference had adjourned, Secretary Morgenthau asked me

what inference I placed on Senator Tydings' remark that
McCooey's henchmen were active in Washington working in

Driscoll's behalf. In my memorandum in this connection I said
to Secretary Morgenthau: "It is plain what he meant but he
mentioned no names." What I meant by the language just quoted
was that Senator Tydings meant for the conference to understand
that McCooey was working in Driscoll's behalf, although he
refused to mention any names. It seemed evident to me that in
Senator Tydings' opinion this statement of supposed McCooey's

364

-2-

activity would react in the interest of Stewart and Company,
which firm it was clear that Senator Tydings believed should
1935.
have the contract.
Regarding the statement in my memorandum of January 25,

1934, in the matter of the exchange of letters between the
Treasury Department and the Post Office Department, and the
destruction thereof, I was simply reporting to you the gist
of the conversation relating thereto. I have never of my
own knowledge known any fact bearing on this matter.
100

(Signed) F.J.C. Dresser.

St.

medely told
appreciate
reported. Upon

Osborne the
mad

received

official
of

British the State

to close the deal with Prance.

way,

365
Note:

There was an ink note written at the
top of this memo (original of which was
sent to the President) reading as follows:
"First home run for your Buccaneer Diplomat"
Signed "Henry".

366
MEMORANDUM FOR THE SECRETARY

February 19, 1935.

Subject: Newfoundland.

We have received confidential information from
our Consul General at St. John's, Newfoundland, that the
Newfoundland government has established a system of control
over liquor exports, along the lines requested by us, said
system having been approved by the Dominions office in London.
This system went into effect last Saturday, February 16, at
midnight.

The system is described as the Bermuda system

of landing certificates, applying to vessels under 200 tons.
(The rum running vessels are all under this tonnage, averaging
around 100 tons.) This means that before a rum runner can
clear with a cargo of alcohol or liquor, the exporter will
have to deposit a cash bond equal to double the import duty
on the spirits. This bond may only be returned upon the
presentation of a landing certificate, from the port for which
the vessel clears, to the effect that the spirits have been
legally landed. Since the import duty on alcohol in Newfoundland
is $5.80 a proof gallon, the amount of bond necessary per gallon
of 180 proof alcohol is $10.44. In other words, a gallon of
alcohol which costs the smuggler $.50 at St. Johns, will have
to be covered by a bond amounting to over twenty before it can
be exported. Since this puts up a prohibitive bar in the way

of the smuggler's profit, it is safe to say that it will stop
smuggling from Newfoundland.

The above information has not been received officially
as yet, since the British Embassy here has not been notified in
the premises by London. To speed up the official notification
(in order that we may be in a position to immediately arrange
with France as to closing up St. Pierre by a similar arrangement),
I have requested Mr. Osborne, Counsellor of the British Embassy
to inquire by cable of London as to the decision in the matter. I
did not disclose to Mr. Osborne the source of our information,
but merely told him we had received word in a roundabout way,
and would appreciate official verification if the facts were
as reported. Upon receipt of the necessary official information
from the British Embassy, the State Department will then proceed
to close the deal with France.
The above information should not be given publicity
at present, since the British Embassy, as I have stated above.
do not know it as yet, other than what I told Mr. Osborne. If

367

we should give it publicity at this time, the favorable position
in which our Consul General is now established in Newfoundland
might suffer, in other words, his information might be shut off.
Therefore,
I would
withholding publicity for a few days,
until
after we
close suggest
with France.
B. M. Thompson.

2

wouldn't

2

I

358
Speaker
Byrnes

Alright, Mr. Secretary.

H.M.Jr:

Hello, how are you?

B:

Feeling fine.

H.M.Jr:

I want to ask a little advice.
(Chuckled) I can't give you any.

B:

H.M.Jr:
B:

H.M.Jr:

Yes you can. We're thinking now about our next
financing you see?
Yes.

And I want to ask you whether you hear on the Hill whether it makes any difference that the Treasury
carries such a big balance, you see? You know it
up we carry a balance of a
billion shows dollars, that we
because
the of
have couple
to deduct
gold

profit and it leaves us about a billion two. I was

wondering whether people on the Hill - whether they
ever watch that in connection with some of their
bonus and other financing or whether that doesn't
make any difference.
B:

H.M.Jr:
B:

H.M.Jr:

I don't think it does, Mr. Secretary.
You don't think so.

I haven't heard it discussed over here.

say
a
billion
on - the difference if

You haven't. You see what I mean? Now we could

let that balance run down. I just wondered if people

dollars would "well hand the what's Treasury's got couple we of pass

fifty or hundred million dollar extra appropriation.

B:

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:
B:

I haven't
heard
that idea advanced up here. It may
be
and then
I'm not

Could you sort of sound them out a little bit?
I'11 sound them out.

I wouldn't want to put the idea in their head.
I understand but I've got a way that I can find out.
But I wondered if people watched our balances, you see?

I don't think that the most of them - there may be
one or two that do it but I don't think that the
great majority of them know what the balance is.

369

-2 H.M.Jr:
B:

H.M.Jr:

Well if it doesn't make any difference, I'd rather

keep a big balance in case of some emergency.
Yes I see.

But if it's going to - if they think well they have
so much money it doesn't make any difference, I'd

rather let it run down.
B:

H.M.Jr:

I see the point and I think you're wise about it.
But if you would kind of sound them out I'd appreciate

it.

B:

I'll do that and let you know Mr. Secretary.

H.M.Jr:

Thank you.

B:

Alright.

February 19, 1935.
Tuesday.

H.M.Jr:
Com-

missioner

Hello Commissioner.

370

I've succeeded in getting enough money for

Mulrooney:

a couple of months for six additional stenographers
for transcribing.

H.M.Jr:

How did you get them?

M:

H.M.Jr:
M:

H.M. Jr:

Well I appealed to the Budget Director.
Yes.

I didn't bother the Governor.
I sec.

M:

I got him to allocate the funds for me.

H.M.Jr:

Fine.

M:

Which will probably bring about a deficit in our

budget later on. You know we haven't got as much

money here as you have in Washington.
H.M.Jr:

Oh really.

M:

But, however, we'11 move prettyfast now.

H.M.Jr:

Well that's fine.

M:

I think tomorrow I'll make the first announcement

of revocation

on the result of this inspection -

some of our own and some of yours.
H.M.Jr:
Mr

H.M.Jr:
M:

That'11 help.

Many of these reports coming in of course are merely
minor things.
I understand.

Letters of warning it's good to have the correctional
effect however.

H.M.Jr:
M:

They tell me the thing is having a very good effect.
Yes. Well you know they're not fearful of being

arrested.
H.M.Jr:
M:

H.M.Jr:

What's that?

They're not fearful of being arrested.
No.

371

-2-

M:

H.M.Jr:
M:

H.M.Jr:
M:

H.M.Jr:
M:

H.M.Jr:
M:

They're not fearful of the Magistrate's Court which
results in suspension so often nor are they concerned
with federal court. We had a case yesterday in
Westchester County where the police found a still;

the Justice of the Peace would not hold the man because
there was not a a purchase.
I see.

So what do you think of that?
That's tough.
When the law strictly prohibits the manufacture of
alcohol or liquor.

That's right.
And we couldn't get the federal men interested in it.
Really?

We haven't up to now. But, however, I've just gone
over a couple of hundred here now

Do you want me to speak to the boys about this case?

HM.Jr:
M:

Well I haven't got the details at my fingertips. If
find that it is necessary, I'11 drop you a letter
about it. I'll talk to Mr. Flet here. Does he take
I

Westchester?

H.M.Jr:
M:

H.M.Jr:

I'm not sure.
Well I'11 connect with whoever it is as soon as I can.

Well if you don't get it, just send me a wire and I'll
have somebody around in an hour.

M:

Yes. You see what they're fearful of here is revocation.

H.M.Jr:

Yes.

M:

And I think it will have a very good effect.

H.M.Jr:

Fine.

-3 -

372

I'll go right along on it.

M:

H.M.Jr:

Goodby.
the
a
to watch the printing of the first - of the Pending

M:

Thank you. Goodby.

will - on sale do the postadiffee on or about March in

and 504 that first dollvery of the new 14635 and H and

is file daysi They +123 Kipne be Distributed to 14,000 pre white

are ou be scid dven 9250 planter for They will to - Middle at all firsty

and bhirdmoless postoffiche, appli 18 on located
county seats. It is expressed 1241 - vill was saide organists
Endown for chair with and 4240 - opening officials to benefits that

naturalore the with in the min, delivery
been this the Banks will sell foo prices which
2004 retain 100 - years agai) to Interest as slightly less this 3 per

cost they 211 be in five deconditions, ranging from
@@@ medically value to $1000. The $28 busd will cell for $10.75 and the 21000

bonit for 87504 They Are authorize we NO time after state days from the date of

which shall the the The the of - bonch is which the handa are botught

The caper gots back only his relations An the first you After 136
first youz, the bonds in this RIVER six

February 19, 1935. 048 Lenture by Car the Monday.

values which absom tips when of the

$100 band, for instance, increase in may by #1 -

your and by 018 every six after the - Indreage in -

373
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Wednesday, February 20, 1935.
3-19-35.

Press Service
No. 4-32

Secretary of the Treasury Morgenthau visited the Bureau of Engraving today

(Tuesday) to watch the printing of the first atch of United States Savings Bonds
that will go on sale at the postoffices on or about March 1.
Mr. Morgenthau was told that first delivery of the new bonds will be made

within a few days. They will then be distributed to 14,000 postoffices, where

they are to be sold over the counter for cash. They will be on sale at all first,
second and third-class postoffices, and at all fourth=class postoffices located

at county seats. It is expected that the postoffices will set aside separate
windows for their sale, and also delegate special officials to handle them.
Postmasters or their agents will aid purchasers in the sale, delivery, safekeeping,
redemption and payment of the bonds.

Secretary Morgenthau has announced that the bonds will sell for prices which

will yield a return in ten years equal to interest at slightly less than 3 per
cent compounded semi-annually. They will be in five denominations, ranging from

$25 maturity value to $1000. The $25 bond will sell for $18.75 and the $1000

bond for $750. They are cashable at any time after sixty days from the date of
issue, which shall be the first day of the month in which the bonds are bought.

The cwner gets back only his original investment in the first year. After the
first year, the bonds increase in value every six months.
The bond is about eight inches square. On the face there is a table of
redemption values which shows the redemption value of the bond at all times. The

$100 bond, for instance, increases in value by $1 every six months after the first
year, and by $2 every six months after the seventh year. The other denominations
increase in value proportionately.

-2-

In buying a bond, the purchaser simply pays cash to the postmaster or his
agent. The postmaster then writes on the face of the bond the name and address

of the owner, the date of issue and the date of sale. No bond will be valid
unless it bears these notations, and no bond will be payable to anybody but the
person whose name appears on it, with the exception of payments to the proper

person or agent in case of death or disability. Attached to the bond is a stub
which the postmaster detaches and forwards to the Treasury Department as record

of the sale. These provisions guarantee complete protection to the owner in
event of loss or destruction, for he may replace the bond under Treasury regulations. He cannot be deprived of payment through forgery or any legal process.
The purchaser may take his bond with him, or he may leave it with the
Government for safekeeping.

TREASURY DEPARTMENT

Washington

Release, Morning Newspapers,
Monday, February 25, 1935.

374
Press Service

No. 4 34

2-23-35.

Many advance orders have been received at the Treasury Department for

the purchase of the United States Savings Bonds which go on sale at post

offices on or about March 1. The requests have come from many sections of
the country, and the amounts asked range from the smallest denomination of

$25, which costs $18.75 at issue, to the largest unit of $1,000, which will
be sold at an issue price of $750. There have been numerous requests for
purchase of the maximum amount of $10,000 which one person may buy in a single
calendar year.

Although these requests indicate public interest in a form of Government

security issued in small denominations, Treasury officials point out that no
advance or private sales will be made. The bonds will be offered to

the

general public as a convenient means of saving and investment, and they will

be on sale only at post offices. They will be sold at about 14,000 post

offices, which include all first, second and third-class offices and all
fourth-class offices located at county seats.
The Post Office Department has begun distribution of the bonds and has

given instructions for their sale to postmasters. It is expected that the
latter will set aside separate windows for handling the bonds, and delegate

special officials to have charge of their sale. Postmasters and their
assistants will be ready to advise purchasers on any question in connection
with the sale of United States Savings Bonds.

The Treasury Department has sent to post offices and banks the official

circular setting forth the terms of the offer, and these will be available at
the Treasury Department. This circular describes the bonds and explains how

they may be obtained, kept and redeemed. It points out that a purchasermay
keep them in his own possession, or, if he prefers, he may deposit them with

-2-

the Government for safekeeping.

It is believed that owners generally will prefer to retain possession of
their securities. They will be registered bonds, and the owner cannot be deprived of payment by loss, destruction, theft or forgery.
The official circular also contains the table of redemption values which
is printed on the face of each bond. This shows the value of the bond at

any

time before maturity, so that the owner will know at all times how much he will
obtain if it becomes necessary to cash it in an emergency. The circular notes
that the bonds are exempt from all present or future Federal, state or local
taxation, with the exception of estate or inheritance taxes and Federal income
surtaxes.

Postal Savings depositors may withdraw their savings for the purchase of

United States Savings Bonds without loss of interest. They may withdraw their
Postal Savings certificates and exchange them for the new Government securities

at the same post office window. The new bonds will sell at prices which will
yield an increase of value equal to a return of slightly less than 3 per cent
compounded semiannually, if held until maturity in ten years.
Each denomination bears the portrait of a President. The $25 bond
carries a picture of George Washington, while the likeness of Jefferson appears
on the $50 bond, Cleveland on the $100, Wilson on the $500 and Lincoln on the
$1,000 unit.

This is the first time that the picture of former President Wilson has
been used on a public debt security of the United States.
000-000

UNITED STATES SAVINGS BONDS
SERIES A
TREASURY DEPARTMENT,

1935

Department Circular No. 529

OFFICE OF THE SECRETARY,

PUBLIC DEBT SERVICE

Washington, February 25, 1935.

Offering of United States Savings Bonds, Series A
The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, approved September 24,
1917, as amended, offers for sale, to the people of the United States, through the Postal Service, an issue of bonds of the
United States, designated United States Savings Bonds, Series A, which will be issued on a discount basis, will mature
in 10 years, but will be redeemable before maturity at the option of owners. Beginning March 1, 1935, these bonds will
be on sale at post offices of the first, second, and third classes and at selected post offices of the fourth class, in amounts of
$25 (maturity value) and multiples thereof; and they will continue to be on sale until this offering is terminated by notice
given by the Secretary of the Treasury to the Postmaster General.

Description of Bonds Offered
United States Savings Bonds, Series A, will be issued only in registered form, in denominations of $25, $50, $100, $500,
and $1,000 (maturity value), at prices hereinafter set forth, and will bear the name and address of the owner, the date as
of which issued, and the date of maturity, which on original issue shall be inscribed thereon by the authorized postmaster
at the time of issue. All such savings bonds are to be dated as of the first day of the month in which the issue price is
received, and will mature and be payable 10 years from such issue date. They may be redeemed prior to maturity (but
not within 60 days after the issue date), at the owner's option, in accordance with the table of redemption values appearing
at the end of this circular, and set forth on the face of each bond. No interest will be paid on savings bonds, but the
purchase price has been fixed so as to afford an investment yield of about 2.9 percent per annum compounded semi-

annually If the bonds are held to maturity. If the owner exercises his option to redeem his bond prior to maturity

the yield will be less, varying with the respective redemption values.

The savings bonds will not be transferable, and will be payable only to the owner named thereon, except in case of
death or disability of the owner or as a result of judicial proceedings, and then only in accordance with regulations prescribed

from time to time by the Secretary of the Treasury. (See Treasury Department Circular No. 530, dated February 25,
1935.) Savings bonds issued through a post office shall be valid only if inscribed with the owner's name and address,
dated the first day of the month in which the issue price is received, and duly delivered by an authorized postmaster;
they will bear the facsimile signature of the Secretary of the Treasury, the seal of the Treasury Department will be impressed thereon, and they will bear the post-office dating stamp.
The savings bonds shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by
the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a)
estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits
and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds authorized by the Second Liberty Bond Act,
approved September 24, 1917, as amended, the principal of which does not exceed in the aggregate $5,000, owned by any
individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above.
For the purposes of determining taxes and tax exemptions, the increment in value of savings bonds represented by the
difference between the price paid and the redemption value received (whether at or before maturity) shall be considered

as interest.

Purchase
Savings bonds of Series A may be purchased for cash, at post offices of the first, second, and third classes, and at
selected post offices of the fourth class, at any time while this offer is in effect; and, subject to regulations prescribed by the
Board of Trustees of the Postal Savings System, the withdrawal of postal savings deposits, without loss of interest, will be
permitted for the purpose of acquiring savings bonds. The issue prices of the various denominations of these bonds follow:
Denomination (maturity value)
Issue price
$25

$18.75

37.50
75.00
375.00
750.00

50

100
500

1,000

It shall not be lawful for any one person at any one time to hold savings bonds issued during any one calendar year in
an aggregate amount exceeding $10,000 (maturity value).

Delivery and Safekeeping of Bonds
Postmasters from whom savings bonds may be purchased are authorized to deliver such bonds duly inscribed and
dated upon receipt of the purchase price. Deliveries should not be accepted by any purchaser until he has verified that
his name and address are duly inscribed on the face of the bond and that the bond is duly dated the first day of the
month in which he made payment of the purchase price.
Any savings bond will be held in safekeeping by the Secretary of the Treasury if the purchaser so desires, and in this
connection the Secretary will utilize the facilities of the Federal Reserve banks as fiscal agents of the United States. The
purchaser may arrange for such safekeeping at the time he purchases his bond or subsequently. Postmasters generally will
assist owners in arranging for safekeeping, but will not act as safekeeping agents.
1-10001

(OVER)

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Wednesday, February 27, 1935.
2-26-35.

375 Press Service
No. 4-36

Two people may share ownership in a United States Savings Bond, according to

a regulation governing their sale made public today by the Treasury Department.

The circular, which has been distributed to all banks, explains how the new Govern-

ment securities may be bought for miners, relatives, estates, trusts and other
classes of beneficiaries.
It answers many questions which have been asked about the bonds, which will go

on sale at 14,000 posteffices on or about March 1. The Treasury has received many
advance orders, and in many instences prospective purchasers have asked whether

they could buy bonds in the name of their children, their wives and trusts in
their charge. Provision for such purchases and for insuring payment to the actual
owner or his legal representative has been made in every case.
When two people buy a bond, as a husband and wife, the names of both are

written on the bond as evidence of joint ownership. But either person may obtain
payment without requiring the signature of the other on the application form on

the back of the bond. In purchasing a bond for a minor who will collect the full
amount at maturity, a parent may write on the bond the name of the intended
beneficiary.
Purchasers may designate beneficiaries to whom they intend the bond to be

paid by writing in the latters' names at the time of sale. Guardians, executors,
administraters and trustees may acquire bonds for individuals or estates in their

legal charge, and officers may buy them for their firms. In all instances of
purchases of this kind, the relationship between buyer and beneficiary must be
written on the face of the bond.

The circular also explains the procedure to be followed in case of death or

disability of the owner. Strict regulations to safeguard the rights of the actual
owner or his heirs have been made by the Treasury Department.

REGULATIONS GOVERNING UNITED STATES
SAVINGS BONDS
376
TREASURY DEPARTMENT
OFFICE OF THE SECURITARY,

Washington, February 25, 1985.

1935

Department Circular No. 530
PUBLIC DEBT SERVICE

To Owners of United States Savings Bonds, and Others Concerned:
following regulations governing United States Savings Bonds are published for the information and guidance
of all The
concerned:
I. REGISTRATION

1. United States Savings Bonds will be issued only in registered form. Except as otherwise specifically provided in
these regulations, the Treasury Department reserves the right to treat as conclusive the ownership and Interest in the bond
as stated in the registration.
2. The following forms of registration are authorized:
(a) In the name of any individual, including minors.
(b) In the names of two (but not more than two) natural persons in the alternative, as, for example, "John Jones
OR Mary Jones." The addresses of both persons should be inscribed on the savings bonds. No other
form of registration in two names is authorised except, as provided in subparagraphs (c) and (d) hereof.
(c) In the name of one individual and a single designated beneficiary in case of death, as for example, "John
Smith, payable on death to Mary Smith". in which case the address of the registered owner and the
address of the beneficiary should be inscribed on the face of the savings bont.
(d) In the name of one or more guardians, executors, administrators, trustoes, or other fiduciaries, whose names
shall be given, followed by a description as complete as possible of the capacity in which and the persons
for whom they hold the savings bonds. Registration in a form indicating that the persons whose names
appear on the bonds do not hold full legal title to the savings bonds, as, for example, "John Jones, under
Article 10, of the will of Henry Smith". will not be permitted.
(e) In the name of any corporation, unincorporated association, partnership, or joint-stock company. The
name of the owner should be followed by the word or words corporation". 'unincorporated association",
"partnership", or "joint-stock company", as the case may be. No designation may be made in the registration of an officer or agent to receive payment in behalf of the corporation, unincorporated assoolation, partnership, or joint-stock company.

H. BONDS NOT TRANSFERABLE
United States Savings Bonds are not transferable; and are payable only to the owner named thereon, except in case of
the death or disability of the owner or as a result of judicial proceedings, and then only to the extent specifically provided

in Sections XIII, VIII, and XIV hereof.

III. LIMITATION ON HOLDINGS
Under the provisions of Section 22 of the Second Liberty Bond Act, approved September 24, 1917, as amended, It shall

not be lawful for any one person at any one time to hold savings bonda issued during any one calen AT year in an Aggregate amount exceeding $10,000 (maturity value). In determining whether the $10,000 limitation on the holdings of
any one person has been exceeded, the full maturity value of savings bonds issued in any one calendar year held for the
benefit of such person in the name of a fiduciary or fiduciaries, or held by such person with any other person (but not of
bonds of which such person in merely the designated beneficiary in case of the death of the owner), shall be added to the full
maturity value of such bonds held by such person in his or her own name, and the sum must not exceed $10,000 (maturity
value). If any person who owns savings bonds should become the owner of additional savings bonds as the result of the
death of any other person, and the total amount then owned by him is in excess of the lawful limit, he should immediately
surrender the excess for payment at the redemption value for the period in which the excess was acquired.

IV. LOST, STOLEN, OR DESTROYED BONDS
1. Under the provisions of the Revised Statutes, duplicates may be issued or payment made upon proof of the
loss, theft, or destruction of savings bonds. Application for relief in such cases will be governed by the regulations
found in Department Circular No. 300. Full Information as to the requirements, as well as appropriate forms, may be
secured from the Treasury Department, Division of Loans and Currency, Washington, D. C.
2. It is important that immediate notice of such loss, theft, or destruction be given to the Treasury Department.
(1)

B-10008

V. SAFEKEEPING FACILITIES
1. Any savings bond will be held in safekeeping by the Secretary of the Treasury if the purchaser so desires, and in
this connection the Secretary will utilize the facilities of the Federal Reserve banks as fiscal agents of the United States.
The purchaser may arrange for such safekeeping at the time he purchases his bond or subsequently. If the owner desires
his bond held in safekeeping, he can obtain from the postmaster an appropriate envelope, and an application blank which
he should fill out, address to the appropriate Federal Reserve bank, sign and enclose with the bond in the envelope, which
should be addressed to the appropriate Federal Reserve bank. The postmaster will then register the envelope, at the
owner's expense, and the registry receipt will serve as the owner's temporary receipt.
When received at the Federal Reserve bank, the bond will be placed in safekeeping and a receipt from the bank will
be mailed to the owner at the address given in the application. The owner can subsequently regain possession of his
bonds upon application to the Federal Reserve bank, and upon such identification as is required by such bank.
3. Postmasters generally will assist owners in arranging for safekeeping, but will not act as a safekeeping agent.
2.

VI. GENERAL PAYMENT PROVISIONS
1. Savings bonds will be payable at or after maturity at their full value, or, at the option of the owner, prior to maturity
(but not within 60 days after the issue date) at the appropriate redemption value as shown on the face of each bond. Payment, in each case, will be made following presentation and surrender of the bond, at the Treasury Department, Division
of Loans and Currency, Washington, D. C., or at any Federal Reserve bank, with the request for payment appearing on the
back thereof properly executed in accordance with the succeeding paragraphs. Such presentation will be at the expense and
risk of the owner and, for his protection, the bond, or bonds, should be presented in person or forwarded by registered mail.
2. The request for payment must be signed in ink or indelible pencil by the person in whose name the bond is inscribed,
or by the person entitled to receive payment under the provisions hereof. The request must be signed in the presence of,
and be certified by, one of the following officers:
(a) Any United States postmaster, acting postmaster, or official in charge of a post office authorized to sell
savings bonds: provided that in post offices of the first class the assistant postmaster, the postal cashier, the
superintendent of money orders, or the superintendent or clerk in charge of a classified station or branch
may certify to the request for payment; and provided further that at any post office of the second class,
the assistant postmaster, or the clerk in charge if there is no assistant postmaster, may certify to the request for payment. If an official other than a postmaster, acting postmaster, or an official in charge of an
office certifies to a request for payment, he should certify in the name of the postmaster, acting postmaster, or official in charge, followed by his own signature and official title, e. g., "John Doe, postmaster, by Richard Roe, Superintendent of Money Orders". The certification of any post-office official
must be authenticated by a legible imprint of the dating stamp of his post office;
(b) Any executive officer of an incorporated bank or trust company, whose signature must be authenticated
by the impression of the corporate seal of the bank or trust company;
(c) Any officer authorized generally to witness assignments of United States registered bonds (See Pars. 3335 Department Circular 300).
3. No person authorized to certify requests for payment may certify a request signed by himself, either in his own
right or in any representative capacity.
4. Certifying officers should require positive identification of the person exec ting the request for payment as the
person whose name appears on the face of the bond, or the person entitled to request payment under the provisions of
these regulations, and will be held fully responsible therefor.
for

batters

VII. MINORS
1. If a savings bond is registered in the name of a minor and the Treasury Department has notice that a guardian of
the estate of such minor has been appointed by a court of competent jurisdiction, payment will be made only to such
guardian. The request for payment appearing on the back of the bond should be signed: "A. minor, by C. D., guardian" and must be supported by a certificate from the proper court, or by a certified copy of the order appointing the
guardian, showing his appointment and qualification. The certificate, or certified copy, must be under the seal of the
court and should be dated not more than one year prior to the presentation of the bond.
2. If the Treasury Department has no notice of the appointment of a guardian of the estate of a minor owner of
savings bond, payment will be made direct to such minor owner, provided such minor is, at the time payment is requested,
of sufficient competency and understanding to sign his name to the request and to comprehend the nature thereof. In
general, the fact that the request for payment has been signed by the minor and duly certified in accordance with Section VI
hereof will be accepted as sufficient proof of such competency and understanding If the Treasury is properly advised in
the request for payment that such minor owner is not of sufficient competency and understanding to execute the request
for payment, payment will be made to either parent of the minor with whom he resides, or in the event that such minor
resides with neither parent, then to the person with whom be does reside. In executing the request for payment the parent
or other person shall sign the minor's name as well as his own name, and state his relationship to the minor, and there shall
be inserted above the space for signature in the request for payment a statement to the effect that the owner is a minor,
that he is not of sufficient competency and understanding to execute the request for payment, and that the person signing
the request is the person with whom the minor resides. An appropriate form is as follows:
"I am the
(state relationship) of A. B. and the person with whom he resides. He is
not of sufficient competency and understanding to sign this request.
2-10092

C.D.

on behalf of A.B.

a

VIII. DISABILITY OF OWNERS
1. If the owner of a savings bond has been legally declared to be incompetent to manage his affairs and the Treasury
Department has notice that a conservator or other legally constituted representative of his estate has been appointed by a
court of competent jurisdiction, payment will be made only to such conservator or other legal representative. The request
for payment should be signed: "A. B. incompetent, by C. D., conservator (guardian or committee as the case may be). and
must be supported by a certificate from the proper court or a certified copy of the order of the court appointing such conservator or other legal representative showing his appointment and qualification. The certificate, or certified copy. should
be under the seal of the court and dated not more than one year prior to the date of the presentation of the savings bond
for payment.

2. In cases where the owner of a savings bond has been judicially declared incompetent or insane and no guardian or
other legal representative of his estate has been appointed, and the entire gross value of his personal estate, both real and
personal, does not exceed $500, payment will be made to a member of his family standing in the position of voluntary
guardian upon presentation of proof satisfactory to the Secretary of the Treasury that the proceeds of the bonds are
required, and are to be used, for the purchase of necessaries for the incompetent or for his wife or minor children or other
persons dependent upon him for support.
IX. COOWNERS
A savings bond registered in the names of two persons in the alternative, as for example, "John Jones OR Mary Jones"
will be payable to either person named thereon without requiring the signature of the other person, but not to the representative of a deceased coowner except as hereinafter provided, and upon payment to either person the other shall cease
to have any interest in the bond. Should one of the owners die and then the survivor himself die before payment of the
savings bond, the provisions of Section XIII hereof, governing payment or reissue of savings bonds held by a deceased
owner, shall govern the payment or reissue of the bond as though the survivor had been the sole owner.

X. BENEFICIARIES
1. A savings bond registered in the form "A. B. payable on death to C.D." will be payable, until the Treasury Depart
ment has received notice of the death of the registered owner, as if the beneficiary were not named on the bond. Upon
proof of death of the registered owner, the bond will be payable to, or reissued in the name of, the beneficiary named on the
bond, at his option (but only if such beneficiary did not predecease the original owner), as if he had been the registered owner.
2. If the beneficiary should predecease the registered owner, the savings bond will be payable to the registered owner
as though such beneficial registration had not been made. Registration naming beneficiaries at the death of the registered
owner cannot be changed so as to add, eliminate, or substitute beneficiaries.

3. Should the beneficiary die after the death of the registered owner, but before payment or reissue of the savings
bond, the provisions of Section XIII hereof governing payment or reissue of savings bonds held by a deceased owner.
shall govern the payment or reissue of the savings bond as though the beneficiary had been the registered owner.
XI. FIDUCIARIES
from

1. A savings bond registered in the name of a fiduciary will be paid to such fiduciary without proof of his authority
upon presentation of the bond with the request for payment duly signed by him and certified in accordance with Seation
VI hereof. The request for payment should be signed by the fiduciary in exactly the same manner as his name and design
nation as fiduciary appear on the face of the savings bond,
2. In the event of the death or disqualification of a fiduciary in whose name a savings bond is registered such sayings
bond will be paid to, or, if desired, reissued in the name of, his successor upon satisfactory proof of the appointment and
qualification of such successor. If there is no successor, the savings bond may be paid to, or, if desired reissued in the
name of the person or persons beneficially entitled thereto upon satisfactory proof of their beneficial ownership.
XII. CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, ETC.
1. A savings bond registered in the name of a corporation, unincorporated association, or joint-stock company will be
paid upon a request for payment signed by a duly authorized officer of such organization. The signature to the request

should be in the form, "The Company, by JOHN JONES, President". The fact that the request
for payment is signed and duly certified in accordance with Section V hereof may be accepted as sufficient proof of the
officer's authority.

bna

2. A savings bond registered in the name of a partnership will be paid upon a request for payment signed by any
general partner. The signature to the request should be in the form "Smith and Jones, a partnership, by JOHN JONES,
a general partner" The fact that the request for payment is signed and duly certified in accordance with Section VI
hereof may be accepted as sufficient proof that the person signing the request is a general partner.
XIII. DECEASED OWNERS
1. With administration.-If the owner of a savings bond dies leaving a will which is duly admitted to probate and
on which letters testamentary are issued, or dies intestate and the estate is administered in a court of competent juriadic.
tion, payment will be made to the duly appointed representative of the estate. The request for payment should be signed
in the form, "A. B., executor (administrator) of the estate of C. D., deceased", and must be supported by a certificate
under the seal of the court appointing such representative, dated not more than six months prior to the presentation of
the savings bond for payment, showing the appointment and qualification of such representative and stating that the
2-10000

intment is still in force; or, in the absence of such a certificate, by a duly certified copy of the representative's letter
of appointment, the certification of which must be dated not more than six months prior to the presentation of the bond
for payment, and must state that the appointment is still in force. A savings bond will be reissued in the name of an heir
or legatee of the deceased owner upon the request of the representative accompanied by his certificate to the effect that
the person in whose name reissue is requested is entitled to the savings bond as such legatee or heir. If the representative
is himself the heir or legatee entitled to the savings bond and desires reissue in his own name, a special order of the court
authorizing such reissue must be submitted.

2. Without administration.-If the owner of a savings bond dies and no legal representative of his estate is to be
appointed and it is established to the satisfaction of the Secretary of the Treasury, either that the gross value of the personal estate does not exceed $500, or that administration of the estate is not required in the State of the decedent's domicile,
the savings bond will be paid to, or reissued in the name of, one (but not more than one) of the persons entitled to the bonds
under the laws of the State of the decedent's domicile without administration. The request for payment should be signed
in the form, "A. B., C. D., E.F., heirs and persons entitled to the estate of X. .X., deceased," and should be accompanied by
an agreement signed by all persons entitled, specifying the person to whom payment is to be made or in whose name the
bond is to be reissued. Proof will be required that the debts of the decedent and of his estate have been paid or provided
for, and that the person to whom payment is requested or in whose name reissue is requested, is entitled to the bonds;

such proof will include affidavits of all persons entitled to any share in the estate setting forth the facts in detail and
agreeing to the payment or reissue in question, supported by affidavits of two disinterested persons having personal knowl.
edge of the decedent and his famil and by a death certificate or other proof of the death of the owner. (Use Form
L. & C. 285, copies of which may be procured from the Treasury Department or any Federal Reserve bank.) If the gross
value of the personal estate exceeds $500 the Secretary of the Treasury may further require an affidavit or a certificate from
a practicing attorney or judicial officer of the State of the decedent's domicile showing that administration of the estate is
not required in such State and referring specifically to the statutes or the decisions of the courts of such State under which
exemption from adminis ration is claimed, or showing that it is a general and well recognized practice in that State to
settle such estates without administration.
3. No payment or reissue without administration will be permitted in a case where any of the persons entitled are
minors or under disability, except to them or in their names or upon compliance with the provisions of Sections VII and
VIII hereof governing the payment of savings bonds in the names of such persons.

XIV. CREDITORS' RIGHTS
Payment of a savings bond will be made in accordance with a judgment or decree of a court of competent jurisdiction,
or proceedings pursuant to such judgment or decree, except in cases where the action is instituted for the purpose of giving
effect to an attempted transfer by the owner contrary to Section II hereof. In appropriate cases the Treasury Department
will require proof that the court acting had jurisdiction over the parties and subject matter, and proceeded in due course
of its jurisdiction, and that the judgment or decree is final and conclusive, that it has fully and effectually transferred the
title of the owner, and that it is not open to attack in any jurisdiction whatever. For this purpose duly authenticated copies
of the complaint, order of service, return of service, answer, or other pleading, and the final judgment or order of the court
must be furnished, together with a certificate, under seal, from the clerk of the court showing that the time for appeal has
elapsed without an appeal having been taken, or that an appeal has been taken and determined by the court of last resort
(In which case certified copy of the rescript or mandate of such court must be furnished) and that no further appeal is
possible.

XV. DENOMINATIONAL EXCHANGE OR REISSUE
No denominational exchanges of savings boads will be permitted, and except as expressly provided by this circular
no reissue of savings bonds will be made, whether in the same name or in another name.

XVL FURTHER PROVISIONS
These regulations are prescribed by the Secretary of the Treasury as governing United States Savings Bonds issued
under the authority of the Second Liberty Bond Act, approved September 24, 1917, as amended, and the provisions of
Treasury
Department Circular No. 300 have no application to such savings bonds except as hereinbefore specifically provided.

The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules

and regulations governing United States Savings Bonds.

HENRY MORGENTHAU, JR.,
OFFICE

2-18803

Secretary of the Treasury.

Diany

377
February 20, 1935.

The Open Market Committee of the Federal Reserve System met

with the Sécretary of the Treasury in his office at 11:00 A.M. to
discuss Treasury financing.
Those present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
T. Jefferson Coolidge, Undersecretary of the Treasury,
Marriner S. Ecoles, Governor of the Federal Reserve Board,
George L. Harrison, Governor, Federal Reserve Bank of New York,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,
W.W. Paddock, Deputy Governor, Federal Reserve Bank of Boston,

M.J. Fleming, Deputy Governor, Federal Reserve Bank of Cleveland,
G.J. Seay, Governor, Federal Reserve Bank of Richmond,

G.J. Schaller, Governor, Federal Reserve Bank of Chicago,

George C. Haas, Director of Research and Statistics, Treasury
Department,

D.W. Bell, Commissioner of Accounts and Deposits,
C.B. Upham.

Mr. Morgenthau explained that when the Committee was asked to

meet today, it was thought that it might be possible to make some

definite decisions as to the Spring financing, but that it is
difficult to tell from the market of the last two days just what it
may shake down to, and that it will probably be advisable to confine
the discussion today to general considerations, and wait until the
middle of next week to reach decisions.
Mr. Coolidge made a general statement as to plans under consi-

deration. His feeling is that it will not be necessary to ask for
any cash on March 15th but that the thing to do is to offer a note

-2-

378

in exchange for the $528,000,000 of notes that mature March 15th

and a bond for the $1,870,000,000 of Fourth 4-1/4's that have been

called for April 15th, with no choice or alternative being given.
His feeling is that the bill offerings should be jumped from
$75,000,000 of six month bills to $100,000,000 with some of them

nine months bills. This will bring M $325,000,000 additional
cash between now and June. If that is done, we will certainly
need no more new cash until June.

Mr. Coolidge said he would like to get reactions on the proposed change in maturity of bills, and on the proposal to restrict
holders of maturing notes to a five year note and holders of called
bonds to a long-term bond.

Asked what rate he was figuring on for the five year note to
be given to holders of the $500,000,000 of 2-1/2 per cent notes
maturing March 15th, Mr. Coolidge indicated that it would probably
be pretty low, say 1-3/4 at the most.
Mr. Coolidge indicated that he would go to New York and sound
out the market. Mr. Burgess observed that what the market is looking
for usually goes pretty well. Mr. Morgenthau suggested that if it
were known that no cash would be asked for on March 15th, the market
might begin to act more naturally.
Asked by Mr. Harrison if it were certain that more money would
be needed in June, Mr. Coolidge said, not necessarily, and added that
we might try out a sale of longer notes on a weekly basis.
Mr. Burgess said that a nine month bill on a discount basis is

new and there is some difference of opinion about its advisability,
that nine months was beyond the usual usance for such securities,

that he preferred the six month maturity, but that he thought the

-3-

379

14

nine month would go alright.

Mr. Coolidge commented that we have used bills and certificates,

but that he prefers nine month bills to the combination of certificates
and shorter bills. It means smoother operation and cheaper money.

Mr. Coolidge asked if the market is in shape to take a two
billion dollar exchange, and Mr. Harrison replied that if not now,
it never was.

Mr. Morgenthau asked if it would be alright to announce tomorrow
afternoon the decision to ask for $50,000,000 on six month bills and

$50,000,000 on nine month bills, Thursday being regular bill offering
day.

Mr. Harrison asked if the arguments against nine months bills
were not the same as originally advanced against six month bills.
Mr. Burgess replied that they were not quite the same. London went
back to three month bills, he said, because that 13 the general
usance for discount paper. There is always a market for the short
terms, he said.
Mr. Morgenthau recalled that when Earle Bailie was here he had
been very timid about increasing the bill maturity from three to six
months.

Mr. Coolidge said he was eager to get rid of the certificates.
Mr. Harrison said a different situation exists now. There is
something to be said for the longer maturity with a greater return.
Give the market plenty of short terms, and some long for the greater
yield.

Mr. Coolidge remarked that the long ones get short. He said
C

that Mr. Case of the New York Federal Reserve Bank was about the

380 381

only person in New York who objected -- that the bankers liked the
idea generally.
Mr. Burgess suggested that the position might be different
when the market tightens and it is necessary to drop back to three
month bills. Mr. Coolidge thought we might drop back when we need
less money. Mr. Burgess said he had no objection to the new proposal.
Mr. Harrison said he thought there is an academic objection, but that
it is not serious, and that there are many arguments in favor of it.
Mr. Morgenthau said that unless someone felt that the 9 month

bills would not go, he would like to try it.
Mr. Burgess suggested that we do not try too many new things
at once -- try the nine month bills now and the new note idea in
six weeks.

Mr. Harrison asked what rate might be expected on the nine

r

month bills, and Mr. Coolidge said that he thought it might be
around .22 to start off and would perhaps work lower later. Mr.
Harrison commented that the baby bonds were more attractive, and

Mr. Coolidge responded that their yield was about the best of any
Governments. Mr. Eccles mentioned the $10,000 annual limit on
acquisitions by any one person.
Turning to the conversions, Mr. Coolidge suggested the possi-

bility of 2-7/8 bonds. If there is a good rate offered, he said,
the whole five billion can be converted, but we can't offer a three
per cent bond at par when the market is at 1031. He said he would
like a long bond of say 20-30 years, but would be willing to cut it
to 20-25 if it was thought there would be much difference between
I

the two.

Mr. Harrison asked if it were not better for the Treasury

-5-

381

to have a short spread. Mr. Haas said he thought the long spread

better, and explained that such is the British practice. Mr.
Coolidge said that we have been able to call the 32-47's, whereas
we would not have been able to had they been 42-47's. He thought

the short spread better for the holders. He explained that the
usual term is. "callable each six month interest payment date on
three months notice."

Mr. Morgenthau pointed out that there is no 55-60 maturity
at the present time, and that 55 and 56 are the latest.
Mr. Coolidge asked about how much difference there be

between offering a 2-3/4 or a 2-7/8 at par or a 3 at 102. It
was agreed that offering at par is advisable, and it was said that
we could not offer a 3 at par.
Mr. Morgenthau referred to the relations of the Treasury with
Congress, and said that he would like to keep the coupon as low
as possible. He considers that more important than the price or
the maturity. In his opinion 2-3/4 would look good to Congress,
and would help out in opposing the idea of non-interest bearing
currency. We must get the coupon as low as possible. He would
like to get out beyond *55 but the prime consideration is the
coupon rate.

Mr. Coolidge observed that we will get a large amount irrespective of the rate, of course, but the rate may make the percentage more satisfactory.
At the suggestion of Mr. Morgenthau, Mr. Upham told of the
ideas advanced and sponsored at a meeting of the Monetary Forum

in the House Office Building caucus room last night at which
Former Senator Robert Owen, financial writer Hemphill, Robert M.

-6-

382

TO

Harriss, and Congressman Goldsborough spoke.

Mr. Morgenthau said that the agreements reached so far would
be announced, and asked the committee to return a week from today

for a decision as to the details of the conversion offerings.
Mr. Morgenthau suggested that he announce at his press
conference Thursday morning that no new money would be asked for

March 15th. Mr. Burgess commented that this might put the market
up, and Mr. Eccles added "and get you 2-3/4 bonds." Mr. Coolidge

said that he liked the proposal -- that he thinks it pays to tell
the market as soon as possible. Mr. Harrison said that it was
fairer than "seepage".
Mr. Morgenthau said that the bill announcement would give a

partial explanation for the decision as to no new money on the 15th.
Mr. Harrison said that he thought it too bad to have to tell
but that otherwise the talk necessary in New York will result in
a preferred list of informed persons. Mr. Morgenthau said that if
we tell New York we have to tell Oklahoma and Wisconsin at the same
time and that the only way to do it is through the press.

Mr. Harrison observed that there had been little opposition
expressed to the nine month bills but that there had been no
discussion of the wisdom of exchange of a note for a note and a
bond for a bond, without any choice. He said that he was always
against a choice, but pointed out the possibility of a choice

being regarded as a sign of weakness if it is used only occasionally.
Mr. Coolidge said that in his opinion we can now sell $1.8

billion of long bonds, and that this is the first time since he
came to the Treasury that he has thought that possible.

-7-

383

Mr. Morgenthau said to Governor Harrision that he was
pleased that the Open Market Committee had given discretionary

authority as to the use of $250,000,000. Mr. Harrison replied
that the committee had followed the Treasury lead in the exchange
market, and had come out about the same place -- about even. Mr.
Morgenthau said that the Treasury is not out yet, but that currently
it shows a profit. He referred to the brush with the French as
successful, and commented that the "Bermuda plan" has been

adopted as applicable to St. Pierre, ships being required to show
proof of landed cargo.
Mr. Morgenthau suggested that if the Open Market Committee

will help to shove the market up a little, it will help in securing
a 2-3/4 bond. Mr. Harrison replied that they were "waiting for
orders. ".

384
H.M.Jr:

Hello.

This is Bob Jackson.
H.M.Jr:

Hello Bob.

J:

I want to tell you the most startling thing that

happened this morning.
H.M.Jr:

Yes.

J:

They have been forced to admit that this return
was a false return from the very beginning.
Mellon signed it in Washington - he didn't swear

to it. They brought it up to Pittsburgh and fixed
it up with a Notary Public in his office to make it
look like a regular return and filed it and they've
admitted that on the stand.

H.M.Jr:

Well I'11 be damned.

J:

They've also admitted that while he was Secretary
of the Treasury he was selling short in the market -

H.M.Jr:
J:

That came over the ticker - $78,000
It did?

H.M.Jr:

Yes - I saw that on the ticker.

J:

Well you hadn't got this about the false return yet?
No I did not.

H.M.Jr:
J:

Well that - oh that is a piece of evidence that justifies
everything we've ever done and more too.

H.M.Jr:

Well how did he come to admit it?

J:

Well we got it on him. Last night they put this return
in; then they put their agent on - Johnson - and he
testified that the thing was sworn to or that the

H.M.Jr:
J:

H.M.Jr:

return was signed in Washington.
I see.

It was our information that it had been signed here
in Pittsburgh, so we immediately checked the Notary
and Sher immediately found out that the Notary was a

Pittsburg Notary.
I see.

385

-2J:

So that it's just one of those things that wouldn't

J:

happen once in a million in
Just a good piece of luck.
Well yes just horseshoes but

H.M.Jr:

What?

J:

It's just horseshoes but of course we'll have to
claim that we knew all the time

H.M.Jr:

That's alright. Well that's fine. It reads awfully

H.M.Jr:

J:

H.M.Jr:
J:

well in the paper and I liked your gesture about
asking Congress to investigate.
Well of course the press has not been giving us a
very favorable report up to now; they've been under
the impression that there is nothing to the case and
that it was a persecution.
How were the Hearst papers?
strange enough

The Hearst papers/have given us the best write-up here

H.M.Jr:

locally of any paper in Pittsburgh.
That's interesting.
They've been very friendly with us and they've given
excellent write-ups of the case and they've gone out
of their way to be nice personally.
Well isn't that nice. They have a paper there.

J:

Yes.

H.M.Jr:

Fine.

J:

Yes - the Home Telegraph. Why they even so far

H.M.Jr:
J:

went

they embarrassed me.

H.M.Jr:

Really. Nice things that they said?

J:

Yes they were very very complimentary.

H.M.F:

Fine. Well while this is going on I'd be glad to
have you call me up. I'm intensely interested.

J:

Well, of course, this was the first thing that was
really a vital break. The break yesterday was rather

386
38

Bello,
Revold

-3-

against us on that darn stamp.

H.M.Jr:

Grand.

J2

But the President will be interested in this

because the last thing before we came up he gave

us his blessing.
H.M.Jr:
J:

Fine.

So - why - they can't talk politics any longer.

It's all justified.

H.M.Jr:

Thank you.

J:

Alright. Goodby.

H.M.Jr:

Goodby.

worrying

to

February 20, 1935.
Wednesday.

387
Hello.
Harold
Graves:

How are you sir.

H.M.Jr:

I'm fine.
I have seen the Governor, the Mayor and the Police

G:

Commissioner in Chicago.

H.M.Jr:

Fine.

G:

And everything is alright.

H.M.Jr:

Fine.

G:

They're going to assign their officers as soon as

H.M.Jr:

Fine.

they can and we hope to have them assigned by Monday.

It seems that there's a strike on here that's worrying

G:

H.M.Jr:

them some and that might operate to delay the thing
for a few days.
I see.

But there's no question of their willingness to

G:

H.M.Jr:

go along with us.
You set up a Board there the same way?

The Board here doesn't figure in this proposition
it turns out. The licenses are issued by the City

G:

of Chicago.

H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:

Oh.

And practically speaking is in the control of the

Mayor by himself.

I see.

these

So the Mayor practically can revoke/licenses without
going to the State Board.
I see.
I did talk with the Chairman of the State Board but
when I found that he didn't have much to do with it,

I didn't pursue that end of the thing at all.
I see. Well but you got a good cooperation.

383 388

-2you
G:

H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:
G:

Good cooperation. Everything is just fine.
We'11 let the publicity come later.
I think so, yes.
Right.

And I'11 be back Friday morning. I'm sorry but I
can't get there any earlier than tomorrow afternoon
so I'11 not be back until Friday morning
Well I'll be in Washington Friday, so look me up.
I'll drop in and see you.

H.M.Jr:

Thank you.

G:

You're welcome.

H.M.Jr:

Goodby

G:

Goodby.

February 20, 1935.
Wednesday.

389

Hello.

He's at a meeting but I'11 get him if you want him.
H.M.Jr:

Yes, I want him.

Hello Harold. Have you seen this story about
Mrs. Whittemore in this morning's merry-ro-round?
Ickes:

Yes.

H.M.Jr:

Well what do you think of it?

Ickes:

Well just like all the rest of that damn stuff.

H.M.Jr:

it's all coming from.
Well I got pretty good reason to know where this

Ickes:

Where did it come from.

H.M.Jr:

Why it came right out of your shop

Ickes:

From whom?

H.M.Jr:

What?

Ickes:

From whom?

H.M.Jr:

Well I got pretty good reason to know where it comes

Ickes:

Well from whom?

H.M.Jr:

What?

Ickes:

From whom?

H.M.Jr:

From you.

Ickes:

From whom?

H.M.Jr:

From you.

Ickes:

Me?

H.M.Jr:

Yes.

Ickes:

It isn't true. Why do you talk to me like that?

This gold decision down here - I don't know where
came from.

from.

390

-2-

H.M.Jr:

Because I have reason to know so.

Ickes:

Well what are your reasons?

H.M.Jr:

What?

Ickes:
H.M.Jr:

What are your reasons.
Direct.

Ickes:

Direct from - who told you so?

H.M.Jr:

Came direct.

Ickes:

What?

H.M.Jr:

It comes direct from Pierson.

Ickes:

I don't get it.

H.M.Jr:

I say it comes direct from Pierson.
He told you that I told him?
He told - he told - if you want to know he told it
to a person whom I've got absolute confidence in.

Ickes:
H.M.Jr:

Ickes:

I didn't tell him that.

H.M.Jr:

Well that's what he said. You see, Harold, I haven't
talked to the newspapers. I never do that thing.
The story yesterday and the story to-day - those
stories haven't come out of the Treasury. If you
and I don't believe on some project and don't Well do you think I talked to Lambert too?
I don't know anything about that.
Well
I tell you I didn't. I have seen him for weeks,
or months.
Well I don't know anything about that but this thing
came to me just a few minutes ago and I can - I've
never had any personal feeling. I can disagree with
you on whether we build this --

Ickes:
H.M.Jr:
Ickes:
H.M.Jr:

391

-3Ickes:
H.M.Jr:

Well I don't -But this thing --

Ickes:

I don't agree with you that there's been no personal
feeling.

H.M.Jr:

Well there has been on my side.

Ickes:

Yes I think there has been.

H.M.Jr:

Well-

Ickes:

But quite aside from that I did not - I've never
said anything about that to anybody.

H.M.Jr:

Well I'm just telling you what ---

Ickes:

Well supposing that - assuming that I did -

H.M.Jr:

Yes

Ickes:

There's no reflection on the Treasury, is it?

H.M.Jr:

Well Mrs. Whittemore works for the Treasury.

Ickes:
H.M.Jr:

Well what of it?

What of it? Well it says here "the trouble with

the lady who marries a man high in government with

a broad smile is the yacht".

Ickes:

Well I never made any statement. I didn't know
she had a yacht.

H.M.Jr:

Well it said so in Greeding's letter.

Ickes:

Well now look here Henry.

H.M.Jr:

Yes.

Ickes:

Frankly, I don't think it's a matter that concerns
you anyhow, even if I did give it and I tell you I
didn't.

H.M.Jr:

Well it does

Ickes:

But I don't see any time involved in anybody saying
that it's proposed to transfer a woman in order to

make place for a man.

392

1500

H.M.Jr:

-4-

The point that I'm objecting to is this. That in
two days' running there's been stuff given to the
papers about people working in the Treasury De-

partment.
Ickes:

Well I tell you it did not come from here.

H.M.Jr:

And

Ickes:

And I sent you a letter this morning - John Lambert
says that he didn't get it either directly or indirectly
out of this Department.
And it doesn't do the President any good to have
this kind of stuff appear in the paper.
Well, with all due respect, Henry, I'll - if the
President has anything to say as to what does him
good or not I'll take it from him and not from you.
Well, Harold, don't push me too hard on this stuff,

H.M.Jr:
Ickes:
H.M.Jr:

see?

Ickes:
H.M.Jr:

Well you're doing the pushing.
No because I'm not --

Ickes:

You're insinuating and making accusations I say are
not true, and you keep persisting in making those
insinuations.

H.M.Jr:

And they keep appearing in the papers

Ickes:

I don't give a damn what appears in the papers. I
tell you I'm not responsible. You either take my
word or you don't take my word. My word is just as

good as yours Mr. Morgenthau.
H.M.Jr:

That's alright but the stuff keeps --

Ickes:

Thank you - goodby.

February 21, 1935.
Thursday, AM

The Daily
Washington
The NRA board is on its last .
legs

Its members, personally on
friendly terms, are as far apart
as the poles on policies and
plans. On almost every impor-

tant issue before them they

have split wide open and the
President has had to step in
and make the decisions.

This was the case in the cig.
arette code. It was even more
so in the renewal of the automobile code.

As a result, the work of the

recovery agency has fallen into
state of confusion and uncer-

39Merry-Go-Round

But Mrs. Whittemore is not
anxious to be transferred. San
Juan is & delightful place. Furthermore, the collector of internal revenue enjoys the use of a
beautifully equipped Govern
Government with a Broad smile,
"is the yacht

Associate President" Don Rich-

berg.

The reason is obvious.

The Washington Sideshow

word to use instead of dy

The Administration from now

than the board members them-

selves.

Three of the five Chairman

S. Clay Williams, Arthur E.

Whiteside and Sidney Hillman

are making no secret that

they intend quitting just as soon
as they can conveniently do so.

Donald R Richberg is very

unhappy

He is not talking about resign-

ing. but to friends who call on
him he inveighs at great length

and with much bitterness against

his former laborite associates
who blame him for the renewal
of the auto code.

Above all. Richberg resents
what General Hugh Johnson
has been saying about him in
the Saturday Evening Post
Those articles justify the let.

ter I sent to the publishers

warning them about what Johnson would say about me."

A shake-up of personnel in the

government of Puerto Rico is
impending. But it awaits one

thing the eccentricity of
woman

The shake-up provides that
Benjamin J. Horton, now attorney general of Puerto Rico. shall

be collector of customs, and that
Whittemore now collector
of quesoms, shall be transferred

zushy barth in the U.S.A.

namic.

rushed through the House

psychic influence of the President, put the lid on.
The new NRA bill is going to
be a committee bill. From now
on so will all other big measures. The only exceptions will
be in those cases where the
President assumes direct responsibility for a measure and
plainly states that he wants it,
as is. without the crossing of

House. Involved in it also is

a matter of major political

that Gen. Robert E. Wood,

president of Sears Roebuck &
Co, was appointed principal

adviser to the President on the
allocation of the $4,800,000,000
work-relief fund.

new NRA bill should go to Sam
Rayburn's Interstate Commerce
Committee. Both that one, and

The real fact is that Roose
velt did not appoint the Chicago business man to any

stronger claims on it than Ways
and Means. But Speaker Byrns,
at a White House conference,

was performed by "Uncle Dan'
and the agency to which General Wood was named has no

thing.

What appointing was done

with Rayburn present, an-

strategy House leaders are
convinced that the reputation

nounced he would refer the bill

to Ways and Means. He was
fortified with a parliamentary
opinion that Ways and Means,

of the House as a "rubber
stamp' isn't helpful to the
House itself or its individual

having had original jurisdiction,
was entitled to it. That settled
it. So Ways and Means gets it.
Very quietly thus was enhanced
the prestige of the House and

members.

There is reason to believe
Speaker Joe Byrns has ex-

pressed this view in very high
quarters. and that he played a
very important, if generally unknown, part in insisting upon
the reestablishment of the constitutional independence of the
legislative branch of the Government. That there was gen-

General Wood was named

ning Council.' Both the committee and the council are the

Long-headed veterans in public life in Washington see in the
Supreme Court's decision as to
the gold clause in Government

obligations, the raising of a

momentous political issue. that

seems certain. Everything har-

may rock the country for the
next 20 years. It may turn out

monious!

-

to be the greatest political issue

The net result will be that the

of the kind since 16 1.

Ways and Means Committee
will itself draw up the act con-

(Copyright, 1985, by Universal Service)
M

published
a

every

day

Gladiation

is

the

basiness

year

how the employment-creating

money will be spent.
What actually happened was

chairman of a committee of the
"Business Advisory and Plan-

good Democratic politics, too!

the aforesaid high quarters

official status and will have
nothing to do with deciding
this:

of the speakership. And it's

uine acquiescence in this view in

First, massaging adidas

strated it with one of the

smoothest publicity stunts seen
in Washington in many moons.
That is the real low-down be
hind the widely fanfared story

the Judiciary Committee had

Congress, and especially of the

Northwe

big way. Last week he demon-

five-billion more nearly choked

All this represents a big

Street

What it takes to get his name

on the front page he has in a

the House than is commonly
realized. The Senate is at this
moment choking on it.
Incidentally, there is reason
to believe that in certain quarters outside the House there
was a strong desire that the

change in the psychology of

1817

Roper.

self will draw that bill. Naturally, its own ideas will go
into it, too. Swallowing the

under the weight of the

THE WASHINGTON REBALD

You have to hand it to Secretary of Commerce "Uncle Dan"

the committee of such ideas as
it may desire to have included
in the measure. But the main
point is that the committee it-

bill, which nobody apparently

a

"Dynamic is so rare in diplomacy." he continued. "that no
one seems to know any synonym for it.

sent to the Capitol marked
"Please stamp!" Naturally, the
executive branch will inform

Hill. The latter are tired of

sponsored, but which was

wall nd none know it better

want, he said. "a good

tinuing NRA. There will be no
draft prepared elsewhere. and

on is going to play ball better
with the boys up on Capitol

General Johnson counseled.

Bud the handwriting is on the

tion owner until he complies

By George Röthwell Brown

4,880 million dollar works-relief

retained.

He can resort to the simple ex-

pedient of withholding the Gov.
ernment's check to the planta

Genial Tom Hewes. Special
Assistant to Secretary Hull, ran
into the State Department press
room looking for a thesaurus.

being a "rubber stamp.' The

denying that it has proven a
flop and is insisting that it be

section 7a

shall "permit all terants to continue in the occupancy of their

berg's baby. He persuaded the
President to turn to it instead

fore, would be a serious blow to
Richberg. So he is vehemently

force the labor provisions of this
law than NRA and Labor Board
officials having jurisdiction over

cifically provided that owners

A new kind of labor board

shouldering their reputation of

Junking of the Board, there-

Henry Wallace is in a much
more strategic position to en-

with the law.

The board idea was Rich-

of the one-man rule which

1934 and 1935

work as day laborers.
This is contrary to the cotton
acreage reduction act which spe-

soon may be in operation.
It would seek to provide more
effective protection for Southern

That a drastic reorganization

homes rent free for the years

tural Department from tenant
farmers charging that plantation owners are driving them
from the land. forcing them to

The trouble with the lady.
remarked a man high In the

sonnel has sunk to zero.

and Robert S. Allen

share-croppers under the cotton
control program and in general
enforce the labor provisions of
AAA crop control contracts
Hundreds of complaints have
been received by the Agricul-

ment launch.

tainty. The morale of its perof NRA administration is imperative is conceded by all in
the inner council except one,

By Drew Peat56

as

brain-children of Roper.
Made up of big business men.
the two groups have no more

relation to the Government

than any other unofficial body
of men. Their announced purpose is to suggest plans to the
Administration on how to combat the depression

Their real purpose is to enable Roper to keep himself in

the limelight an objective to
which he devotes much thought

and for which he recently em-

played a high-pressure pub

liaity man,

394
Hello?

Hello.

Hello, Mr. Speaker, Morgenthau talking - Hello?
Byrnes:

Hello

H.M.Jr:

They said you called me.

B:

What?

H.M.Jr:

Is this Speaker Byrnes?
Yes.

Morgenthau.
B:

Oh Morgenthau. I thought you said McIntyre.

H.M.Jr:

No.

B:

H.M.Jr:
B:

Oh Mr. Secretary I was coming down there. I don't
know now whether I have time or not. You know you
called me yesterday.
Yes.

I discussed that matter. I think that - I don't
know whether it's sufficiently strong for you to
give it serious consideration or not but there is

some feeling up here you know along the line you said.
Of course it's wholly unwarranted but at the same time

it exists.

H.M.Jr:
B:

It does.
Now to show you, let me give you an example and I
hadn't thought of talking to him about it. Madrick,
that new member, was making a speech on the floor
of the House yesterday for about ten minutes and he
was talking about increasing our armaments you
understand. That's what he thinks and I happened
to be sitting on the floor and when he got through
he came over and sat down by me and I complimented

because I thought it was a one
"now know I think we

his
and he
said you
"so could
pretty do good this.
I don't
seespeech
any great
reason
many

(

He says as a matter of fact there's a big - over two
billion dollar surplus down in the Treasury. Why he
says I think we could issue notes and - without any

danger of inflation. Well I told him - I said I think
you' re just wrong about that now. But at the same

396
2

H.M.Jr:

time that was his opinion.
I see.

I'm just giving you that as the views of some of them.
Now how general it is, I don't know but that was his
idea and that came, as I say, voluntarily from him.

B:

H.M.Jr:

I see.

B:

He just had that idea and I think that's entertained
by some of the others up here.

H.M.Jr:
B:

H.M.Jr:

Well I certainly appreciate your calling me.
Yes. Mr. Secretary.
Yes sir.

In regard - who ought I communicate with about some
of those Baby Bonds. Can you tell me.

B:

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:
B:

You mean as to information?

I just want to get some information about them.
Well I'll be glad to send somebody up to see you.
Well what I want is are there limitations on the
number sold to an individual.
You can buy - any individual can buy up to $10,000
in one year.
I was thinking about getting some of the Baby Bonds
myself.

H.M.Jr:
B:

H.M.Jr:
B:

That's fine.
Some of the $1,000 ones.

Well any individual can buy up to $10,000 in one year.
Well now I had better make my application, hadn't I?

H.M.Jr:

Yes.

B:

Right away.

-3-

H.M.Jr:
B:

396

I'd be glad to handle it for you.
Well that's mighty good of you. What shall I do send
a check or what?

H.M.Jr:

If you send us a check we'll be glad - when we announce
it to announce that you bought some.

B:

What?

H.M.Jr:
B:

We'11 be glad, if you don't mind.
Well I don't know.

H.M.Jr:

You send me down a check personally and I'11 be

delighted to take care of it.

H.M.Jr:

I don't know whether my credit is worth your being
delighted to take care of that or not.
Well --

B:

But - shall I send that right away?

H.M.Jr:

Why anytime between now and the first of March.

B:

H.M.Jr:

Alright, thank you so much, Mr. Secretary.
Between now and the first of March.

B:

Thank you so much.

H.M.Jr:

Right.

B:

February 21, 1935.
Thursday.

397
February 26th

At the 9:30 meeting to-day, H. M. Jr. brought
ing towards helping the 1300 men get their pay. Mr. Gaston
suggested that he would get Gridley, of the United Press, to
send word around to the editors of their newspapers asking
them whether they would not help these people along by running
editorials in their papers. H.M.Jr. then telephoned Senator
Glass and attached herewith is their conversation.

up the question of the McKellar Amendment and what we were do-

e

A discussion started on the pink slips and
H.M.Jr. stated that he would not take a position on the income
tax publicity. He has told everyone who has questioned him
that he would carry out the orders of Congress.
H.M.Jr. told Bell that he wanted to print
$50,000,000 more of $10 silver certificates and wanted these
sent out to the Federal Reserve Banks as soon as possible.
H. M. Jr discussed with Mr. Haas, Coolidge,
Oliphant and Bell to-day our banking system and our currency
system. It is Mr. Morgenthau's idea to separate commercial
deposits from checking accounts. 90% of our currency is based
on checks. When banks want to become liquid, they call in
loans which they have made to factories, etc., and, therefore,
contract the amount of business that factories can do in order
to get enough money to keep checking accounts liquid on account
of fear of having a run. If these two functions are separated,
he wants to find out whether we could not stop from happening
what occurred in 1933 when we had all of our bank failures.
H.M.Jr. called the President and told him
that we have a number of people on the hill representing the
Treasury on the Security Legislation - this was asked for by
Congressman Doughton. These people reported to Mr. Morgenthau
that a young man by the name of Elliott is really representing
the administration on the security bill and that everything
was at sixes and sevens. The President inquired who Elliott
was and H.M.Jr. told him that his title was Legal Adviser to

Miss Perkins on the security bill. H.M.Jr. also told the
President that Congressman Doughton and the Democrats were all
fighting and everything was in a terrible condition. Miss Perkins
had said that she was going to carry on the security legislation
but she has been so busy that she has had to designate this
young fellow Elliott. Things were getting worse hourly and
H.M.Jr. suggested that the President take this up with

Miss Perkins.

398

H. M. Jr. also told the President that

Miss Roche had been talking to the labor people over the
week-end and she states that the labor people are terribly
upset over the $50 a month wage. There is a great deal

of hostility. H. M. Jr. felt that inasmuch as Senator
Wagner and Costigan were very sympathetic and wanted
to be helpful, that the President might want to talk to
them and, through their help, perhaps break this jam. The
President said that the labor organization went into this

thing with their eyes open. He also reminded H.M.Jr. that
they only represented three million people. He said he would
be glad to talk to Wagner and Costigan but he felt that we
would not be able to compromise. The President also said
that he would call up Doughton on the security legislation.
H.M.Jr. reported to the President that
silver was up to 56 and that India was buying spot silver.

399

Carter

Hello. Morgenthau, Jr. talking.

Glass:

Yes.

H.M.Jr:

Good morning Senator. How are you sir.

G:

Fairly well, thank you sir.

H.M.Jr:

H.M.Jr:

Senator, I'm calling up about the Treasury
Post Office bill. Do you think there is
going to be any chance to get that out?
Oh yes. I think its going to be good
enough maybe the latter part of this week.
The latter part of this week?

G:

Yes.

H.M.Jr:

Well that will be grand. I saw that the

G:

Senate got out the Jeffsis Commerce bill
and of course ours passed - came over first
and I

The reason for that was that I was engaged

G:

with this five billion dollar bill.

H.M.Jr:

Yes, so I've read.

G:

Senator McKellar was Chairman of the
sub-committee having in charge the State

Justice Department. I told him to go ahead
with his bill in order to have it out of the
way so that we should get to the Post Office

bill.

H.M.Jr:
G:

H.M.Jr:
G:

And you think you'll get to the Post Office

Treasury the end of the week.

I think so - yes.
Well that will be fine.
The next bill that will be considered is the
District of Columbia bill which came over
first of all, but it had not been considered
because Senator Copeland, who is a very
active member on the Committee, was out of

town on account of the accident to his wife

in Florida, but I think this Treasury Post
Office bill will be taken up the latter
part of this week.

400
H.M.Jr:

Well thank you very much.

G:

I'11 communicate with you as soon as its done.

H.M.Jr:

Thank you. Goodby.

with

recelled

He added

follows:
of Large

Mr.
8014
genthed in that the han right to

andline was disoproomble because
Sinclair that Ba did not eant to do business
used the tactics whiteh Sinelair 418 sun of
Bagged to be forgiven.
H.M.J. immidiately

the Federal Reserve York and hike

message to the Central Bank of Western

the President of the Credito

have any ailver to offer the Status
816 not have to litre anyone,

shi that tony withi 10 do

<

gent

401
February 26th

John F. Sinclair came in to see Mr. Morgenthau
to-day and had with him a letter from the President of the
Mexican Mineral Association called the Credito Minero Mercantil
in which it authorized him to negotiate with H.M.Jr. for a
contract for from three to five million ounces of silver a
month. H.M.Jr. told Sinclair that he did not do business
with any intermediary but he did deal directly with the
Central Bank of Mexico on the purchases of any silver.
H.M.Jr. does not trust John Sinclair and
recalled to Mr. Sinclair's mind the impertinent P. S. which
he added to his letter of October 23, 1934 which is as
follows:

"Is it fair, therefore, to conclude that
the Treasury is in the market for the purchase
of large volumes of silver at this time?"
Mr. Sinclair said that he agreed with Mr. Morgenthau in that he had no right to ask this question. The
meeting was very disagreeable because Mr. Morgenthau told
Sinclair that he did not want to do business with a man who
used the tactics which Sinclair did and of course Sinclair
"begged" to be forgiven.
H.M.Jr. immediately telephoned Burgess at
the Federal Reserve in New York and told him to get a
message to the Central Bank of Mexico and have them tell

the President of the Credito Minero Mercantil 'that if they
have any silver to offer the United States government they
did not have to hire anyone, that you were our Fiscal Agent
and that they ought to do business through you.

402
H.M.Jr:
Burgess:

H.M.Jr:

But I want you to handle it for me just the same
Yes.

I had a man by the name of John F. Sinclair just
came in to see me.

John F. Sinclair.

B:

H.M.Jr:

Yes.

B:

I know him.

H.M.Jr:

With a letter from the President of the Mexican

Mineral Association called the Credito - C r e dito
M 1 n e r o Y M e r c a n t 1 1 S A signed by the
President, in which it authorized him to negotiate
with me for contract from three to five million
ounces of silver a month, see? Now I don't know who
we buy our silver through - I know we buy it from you
and you get these telegrams, don't you?

B:

Yes.

H.M.Jr:

You get them from the Central Bank in Mexico.

B:

Yes.

H.M.Jr:

Hello?

B:

Yes.

H.M.Jr:

I think that's the way it is, see?

B:

H.M.Jr:

B:

H.M.Jr:

Yes.

Well whoever you get your telegrams from, I want
to advise them that I don't do business with any
intermediary, see.
Yes yes.

I don't know - God knows what this fellow told him,
but I want to get word to him that we don't do
any business through any intermediary and we'll do
business - that you're our agent and if anybody in
Mexico has any silver to offer, they should offer
it to you, but I won't do business with any middleman, see.

403

-2B:

H.M.Jr:

Now do you want me to talk to Sinclair or No no no no no. As I understand it, it's the
Central Bank of Mexico that sends/these telegrams.
us

B:

Oh yes yes.

H.M.Jr:

And I'd like you to get this message to the

B:

Yes yes.

H.M.Jr:

Central Bank of Mexico.

And let them tel. whoever the President of the
Credito Mercantil is, that if they have any
silver to offer the United States government they
don't have to hire anybody.
I see.

B1

H.M.Jr:

Because I'm afraid this fellow may say the boys
sold me down the river.

B:

Yes.

H.M.Jr:

You see what I mean?
Yes.

B:

H.M.Jr:

But I want to get this word to the Central Bank
of Mexico and let them pass it on, see?

B:

Yes yes.

H.M.Jr:

Don't you think I'm right? I know I'm right.

B:

H.M.Jr:
Tuesday,
B:

I don't want them to think that we do business
that way up here.
Yes I see.

And I'm very anxious - after you're my fiscal
agent - you in turn give that information to the
fiscal agents of Mexico.
You think that this company employed Sinclair
perhaps.

H.M.Jr:
B:

Oh he had a letter from them, authorizing him

to be their agent - him to be their agent.
I see, yes yes. I wonder whether the way to do
it would be to tell Sinclair.

404
405

-8 9.7.5m

Hello,

Speaker

Bello Mr. Escretary
I have already - he actually was crying in
my office. He just left my office. I told
him I wouldn't do business with any intermediary.
feeling

H.M.Jr:

B:

Yes yes yes.

H.M.Jr:

He had tears in his eyes - he was terribly upset.
I told him I wouldn't do business through any
middleman but I want to get this word from the

called **

Federal Reserve of New York to the Central Bank
in Mexico.
B:

I see. I see . Well we'11 find a way to do it.

H.M.Jr:

Thank you.

B:

Alright sir.

H.M.Jr:

Goodby.

this

I

February 26, 1935.
noon
Tuesday.

send him digital

0

405
H.M.Jri

Hello.

Speaker

Hello Mr. Secretary.
How are you sir?

Byrnes $
H.M.Jr:
B:

H.M.Jr:
B$

H.M.Jr:
B:

Feeling fine.
I got word you called me yesterday.

No I - well yes I did call you but I didn't
intend to bother you about it. I don't think
I asked that you call me. I'm not sure.
Well just the fact that you called me is enough
for me.

Well that's fine of you. I appreciate it. Now
I'll tell you what I called you about but I'm

not going to bother you with that. It was more in
response to our friend, Bell, who represents Kansas
City on the amendment. He's got a bill up here
which he's pressing you know. Made a speech yesterday
in regard to this Publicity Clause. He asked me if
I would mind calling you, so he could come down and
talk to you about it. Well I understand the
Committee is in touch with you and I would presume
that you wouldn't care to talk to any individual
on that who comes down there about it.

H.M. Jr:
B:

H.M.Jr:
Bt

H.M.Jr:
BP

H.M.Jr:

Well I'11 talk to anybody you send down.
Well I know but there's a question whether or not

I ought to do it.

Well I don't mind.
What?

I don't mind.

well I don't know now. I talked to him yesterday
noon and I don't know now whether he's going to Well if he wants to come and he presses you, you
send him down.
gained

courte,

because
looked table

body of
but

406
2

B:

H.M.Jr:

West now that's might clever of you, but if he
down't press me I'm not going to do it.
now let me tell you confidentially what my position
is going to be on this.

Yes. I think clearly right greens.

Bt

H.M.Jr:

You tell me if you think I'm right. The position
that I'm going to take on this publicity is this:
That I'm here to carry out the will of Congress,

30

and anything that Congress does I'11 carr out.

B:

Yes.

Well thank you very mon, No. Speaker

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

But I will not express any preference - I say I
don't think it's up to me to express a preference.
I don't think so either.
Had Congress passed this law last year, we're going
ahead to make our plans.

If they want to repeal it, they can do so.
They can do so, but I will not express any opinion
one way or the other.

B:

I think you're clearly right; I think that is the

H.M.Jr:

to you, you know.
I know.

B:

H.M.Jr:
B:

February 26,
Twesds y.

correct position. This thing of passing the buck

I believe that is the position and if you let
that be known and ---

Well I'll have to answer Doughton's letter and
that's the way I'm going to answer it.
I think you're right about it and let Congress act.
Now personally I don't mind telling you, I'm in
favor of repeal. I don't see much that is to be
There is a trenendous demand. Now, of

it's coming from'a know,

those who don't
gained. because course, people limited want number their The you returns great

looked into are necessarily limited.
body of the people don't pay any income tax, etc.,

but I'm just inclined to think that I'm like - I

407
0.8

-3 Morgenthan Maliding,

H.M.Jr:
B:

H.M.Jr:

feel that you are right. Let Congress take the
responsibility.
that
Well, unless you tell me I'm wrong, that's the
position, I'm going toto take.
you about this
Well I think you're clearly right myself.
Thanks very much and if this gentlemen wants to
see me and he bothers you, you just send him down.

Well I don't think he will, but that's what I

Bt

H.M.Jr:

called you about yesterday.
Well thank you very much, Mr.Benretary
Speaker.

B:

Alright, thank you for calling. will
followtogn
of

H.M.Jr:

Goodby.
the

they do.

3 understand you elways that.
The

Then

absolution

Speaker

on?

you're not

No. asked his advice said Morganthan
right.

of repeal

I'm

it

that

Woll

in

desirable
to

stay absolutely

February 26, 1935.
Tuesda y.

position,

Wall hard that,
Alright siz.
Bas the President cons back?

H.M.Jze

Economic

delay

I

Gets back Thursday morning.

will

408

Morgenthau talking.
Doughton:

H.M.Jr:

Alright Mr. Secretary.
I got a note yesterday that when I came in to-day
you wanted to talk to me.

Yes. I want to talk to you about this agitation
that's going on about repeal of this publicity

D:

chause of the income tax law --

H.M.Jr:

D:

H.M.Jr:

I don't hear you very well.
I want to get your reaction to it.
Well I talked to the Speaker about it about a
half an hour ago and I told him how I felt and
I told him that I thought as Secretary of the
Treasury that my position was the following:
That I am here to carry out the will of Congress
and that we're making our preparations to give
this matter publicity, but if Congress wants to
change the law, while we'll abide by whatever
they do.

D:

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:

I understand you always do that.

The Speaker thought that I was absolutely right.
Then you're not going to take a position here with me?
No. I asked his advice and he said Morgenthau
you're absolutely right.

I'm in favor of repeal but I doubt if we could do
it unless we had an expression from the Administration
that it is desirable - I doubt it very much.
Well I don't - as far as the Treasury is concerned,
we're going to stay absolutely neutral.
I don't want to delay this other Economic bill.
Well that's going to be our position.
Well we're glad to have that.

Alright sir.
Has the President come back?
Gets back Thursday morning.

-2D:

H.M.Jr:
D:

H.M.Jr:

409

Thursday morning. Well we 're working hard
on this Economic Security bill.
I know you are. I hear you're having some trouble.
Oh it's the most dificult proposition - about six

or eight bills in one.
I know.

D:

It's like sailing on an uncharted sea.
When I went up there - before I went up there
it was the damnest bill I ever testified on in
my life.
Well we'll see you before long.

H.M.Jr:

Thank you.

D:

Thank you very much for calling, Mr. Secretary.

H.M.Jr:

Thank you.

D:

H.M.Jr:

February 26, 1935.
Tuesda y.

Yes.

410
H.M.Jr:
L. W.

Robert:

Hello.

Hello Mr. Secretary.

H.M.Jr:

Where are you ?

R:

I'm just between trains in Raleigh.

H.M.Jr:
R:

H.M.Jr:

Oh I mean where are you now?

Oh I mean Atlanta.

Oh, well I didn't know - have you got a - what
I wanted to tell you was this. In this report
which Peoples is making to Glavis, see, in this
thing - it has only come out recently - Glavis

has made charges against you and Reynolds - hello?
R:

Yes I'm listening.

H.M.Jr :

And I'm am putting in this statement Peoples
is saying that the Treasury Department investigated
Mr. Roberts and found no ground for the charges
made.

R:

H.M.Jr:

R:

That's O.K.

Now I didn't want to put - that is most likely
going up on the hill but I didn't want to do
a thing like that without finding out from you
if it was satisfactory.
Well don't you feel and I feel that you had a
perfect right to look into the situation and
see if there was any grounds?

H.M.Jr:

Well I think so inasmuch as we made an independent

investigation. The charges were that there was
some sort of relationship between you and Stewart,
and we made an investigation and we found no
grounds for the charges.
R:

H.M.Jr:
R:

H.M.Jr:
R:

H.M.Jr:

That's perfectly alright.
And we're saying so.

That's perfectly alright.
That's alright.
And another subject while we're on the phone.
Yes.

411

-2-

R:

H.M.Jr:
R:

H.M.Jr:

R:

You know the man that you say I'd better
watch out for.
Yes.

He hasn't been in touch with me at all and
he rather dodged me the other day but I ran
upon him at a dinner and I think that he didn't
want to have anything to say because I know he
sort of feels that he might be on the spot himself.
Well I see, but I just wanted to let you know
because you might pick up the paper and see
"Treasury investigates Robert". Well they did
but they found that there was nothing to it.

Well that's perfectly alright and just as I told
you and I recall I wrote to you I accept full
responsibility and I know my ground, don't you

understand?

H.M.Jr:
R:

Alright.
I understand it, Mr. Secretary. That's perfectly
alright. I'11 be back Monday. I'11 be in New

Orleans in the morning and
H.M.Jr:
R:

H.M.Jr:

Well leave word so we can get you at anytime, see?
O.K.

Thank you.

February 27, 1935.

Wednesday.

412

February 27th

Senator Pat Harrison called up and asked
Mr. Morgenthau to designate someone to represent the
Treasury on the Townsend plan. Mr. Haas and Oliphant
said that we should not send up a representative and
Mr. Morgenthau disagreed with them. He said that he
could not antagonize Senator Harrison and that if he
wanted someone we had to abide by his wishes.
Mr. Morgenthau then telephoned Frances

Perkins and she said that she had testified on it
herself and so did Mr. Witte and she too said that
if they want the Treasury to testify we could not
turn Senator Harrison down.

Mr. Morgenthau then telephoned Senator
Harrison and asked whether we could not send our
Principal Actuary up, a man by the name of Reagh, and

Senator Harrison was satisfied.

413
H.M.Jr:

Hello?

H:

Henry.

H.M.Jr:

Yes - hello Pat.

Harrison:

How are you.

H.M.Jr:

I'm fine.

H:

I'll tell you what I'd like done and several
of the fellows wanted done. This fellow

Townsend
came
before my Committee on this Old
Age Pension
stuff.
H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

H:

H.M.Jr:
H:

What's his name?
Old man Townsend.

Oh yes Townsend, sure.

And his expert and I like for you to have some
man in the Treasury, who can handle it, look into
his testimony from every angle, analyze his bill
before
my committee
and just tear it to pieces as
to
the cost,
etc.
Right.

You see - now who have you got there that's first
rate?

Well it will take me five or ten minutes to check I don't - I think the best fellow - I don't know is

Haas - H a a s, but do you want me to call you back?
No because I've got to go.

I'11 call you back in the morning.

Alright. I'11 tell you. He can get a copy of

the hearings. He appeared before my committee

and he also appeared before the Ways and Means,

and I like for this fellow just to take it and the
bill, take the testimony of this fellow and take

his auditor and just be ready to come before my
committee; he can write out a statement if he wants

H.M.Jr:
H:

to just to show the ridiculoushess of the thing.
WellbePat
I'11well.
assure you it will be done and it
will
done

Alright.

414 is
-2Put

Behay Colking

Savings

Yes.

H.M.Jr:

Who will do it, I just don't know.
Alright. Aenty.

H:

H.M.Jr:
H:

H.M.Jr:

But I assure you it will be done.
Alright.
Thank you.

an nice one an the

Yes.

Yeb. REGIST in the 1.1 THE send our beautiful
asthary up

Well LEFS stright Wheever you send, The only

thing is that I'm SURY loging to present #

to tear this de ass his was infirm

questions in the world. but I weared samebody who

can test analyze St and has that stills to to 55,
to show the fooliations of the String and the
impossibility of = government of financing sizeh
. proposition.

Well this fellow 15 - send Nine wes hels

H

capabio of deling that He's our principal actuary.
Wall that's alright.
des P
Yes,

February 26, 1935. anytime you wan% him.

-

Tuesday.

a

83

Well tell Still to have his staff ready, Have

his prepare E statement on st, as representing
the Tresstry

He will
Now let - ask you.
Yes.

415

Pat

Hehry talking.

Harrison:

Yes.

H.M.Jr:

How are you?

H:

Alright Henry.

HM.Jr:

Now listen. On this Dr. Townsend plan.

H:

Yes.

H.M.Jr:

I think you wished me a nice one on that.

H:

Yes.

H.M.Jr:

Yes. How would it be if we send our leading
actuary up there?

H:

H.M.Jr:
H:

Well it's alright whoever you send. The only
thing is that I'm just trying to present a basis
to tear down this fellow. He'll ask him all the
questions in the world, but I wanted somebody who
can just analyze it and has that ability to do it,
to show the foolishness of the thing and the
impossibility of the government of financing such
a proposition.
Well this fellow Ray, if we send him up, he's
capable of doing that. He's our principal actuary.
Well that's alright.

H.M.Jr:

See ?

H:

Yes.

H.M.Jr:

So anytime you want him.

H:

Well tell him to have his stuff ready. Have

him prepare a statement on it, as representing

the Treasury.
H.M.M:

He will.

H;

Now let me ask you.

H.M.Jrs

Yes.

416

2-

H:

I've got a meeting of my committee this morning
and there's been a lot of requests, etc. it's
propaganda, of course, to repeal this publicity
stuff on income tax returns. Now does the Treasury
recommend anything at all on it?

H.M.Jr:

Well I'll tell you just what I told Bob Doughton,

when he called me yesterday. I told Bob Doughton
that the Treasury was down here to carry out orders

of Congress, see?
H:

Yes.

H.M.Jr:

And whatever Congress decides is O.K. with us.

H:

Yes.

H.M.Jr:

And we're going to stay strictly neutral.
Well, of course, my own opinion is that the
Senate will not repeal this publicity stuff,
and certain they're not going to do it unless

H:

be

the request comes from down there.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

Well it won't come from here.

Well that's alright then.
No, we're going to stay strictly neutral.
It won't give all the trouble that these people
are trying to propaganda, will it?
Well I don't know, but we're just going to stay
strictly neutral and whatever is done up on the
hill is O.K. with us.

H:

Alright Henry.

H.M.Jr:

Alright.

the

So long.

H.M.Jr:

Goodby.

February 27, 1935.
Wednesday.

417
418
H.M.Jr:

Hello Frances.

Perkins:

Hello Henry.

HM.Jr:

How are you?

P:

And you?

H.M.Jr:

Just fair.

H.M.Jr:

Frances, I had a very urgent call last night
from Senator Pat Harrison.

P:

H.M.Jr:

Yes.

And the message was this: Would the Treasury
please have their best man or woman study the
Townsend plan, the testimony before the Senate
and the House and be ready to come up and tear

it apart?

P:

Yes.

H.M.Jr:

Of course, we've never been in on the Townsend
plan.

P:

Nobody has.

H.M.Jr:

And you're Chairman of the Committee and I don't
want to make any move without consulting you first.

Well I have testified on it - in regard to it -

and I said that it was fantastic and that it would
absorbe about half of the national income, going
to a small group like that and that it would result
in inflation, because I'm speaking expertly on the
financial aspect of it. I think that you can - Witte
knowsaa lot about it. If you want Witte - he knows
the plan. What the Treasury would say would be

HM.F:

a Treasury thought, of course.
Well we're not crazy about going up there on it.

P:

I don't know why they need sworn statements on it.
Haven't they got brains enough to do it themselves?
I
mean they know what it is. Everybody has been
asked that has any sense at all. It's on record.
I think we'11 probably have to do it, don't you?

H.M.Jr:

Well he's a very difficult man to refuse because
hels always been so friendly.

P:

Yes. I would do it I think Henry but I wouldn't

want to make an elaborate study.

2

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:
P:

418

Well I wonder if he knows that Witte made a study?
He knows that because Witte testified and I
testified. What he wants is to have the Treasury
of the United States say it won't do, you see?
I mean they can use that to their constituents

betterthey
than
they can anything else. I think that's
what
want.
I see.
And I wouldn't have a man put any elaborate study
on
it because it's a waste of time.
No.

If you want to send somebody over to see Witte,
somebody who is going to testify for you, he

can do it. I daresay that Haas has the requisite.

H.M.Jr:

Yes.

P:

It's a plain proposition which provides a sales
tax and under the sales tax you re to pay every

aged person $200 a month, but they must spend it
within 30 days.
H.M.Jr:
P:

H.M.Jr:

Spend it within 30 days?

It's the old Hupt money idea, you see? They've
got to spend it within 30 days.
Yes, well I never even read it.

Well that's what it is - $200 a month - spend it
within the month in which it is paid and the money
is be
to be
raised by sales tax. Originally it was
to
raised

but then they come to think

of that. So it's very brief. It has a virtual

simplicity - anybody can understand it, but they
can't understand the government plan - it's too

complicated.
H.M.Jr:
P:

I see. Well then I ought to be able to understand
it.
Yes. Well I mean it's simple - Simple as a word.
I mean you don't think of the thing having any
economic or financial aspect - simple. But you

--

419

see what it is. It's preposterous. Seven million

people persons 65 years of age and over and you
multiply that by $200 a month and multiply that
by 12 and you see where you come out and of course

the theory is that they're going to spend it and
thatwhat.
spending makes it more difficult - God knows
for
H.M.Jr:
P:

Well
thank you very much. I'll call him up now
and see what I can do.
I think it's alright. You can send somebody who
can demolish it in ten minutes. There's nothing

really to it, except it won't do. Alright Henry.
H.M.Jr:
P:

Thank you.
Goodby.

Yes.

February 27, 1935.
Wednesday.

Yes,

But

420

Hello - Joe?
Joe

Robinson:

H.M.Jr:

Yes.

This is Henry.
Who?

H.M.Jr:

Henry Morgenthau, Jr.

R:

Yes Henry.

H.M.Jr:

I've just been talking to Oliphant and Opper about
what we were supposed to do as a result of that
meeting at the White House Friday at 5:30. Now
there seems to be considerable misunderstanding
as to what was or was not to be done but I remember
that the President asked you to interest yourself

in it.

R:

Yes.

H.M.Jr:

And this is not for repetition, see?

R:

Yes.

H.M.Jr:

But that lawyer who was there - Foley - told Opper,
my lawyer, that the minute that Joe Robinson

wanted the file, hae'd send it on the hill.

R:

Yes.

H.M.Jr:

Now our understanding was that Jeff and I were to

R:

Yes.

H.M.Jr:

Wasn't that your understanding?

see it and particularly the President before it
went on the hill. Hello?

That's perfectly O.K. so far as - yes - you go.
H.M.Jr:

Is Jim in town?

R:

Yes.

R:

But he doesn't want to see it?

H.M.Jr:

What's that?

R:

He doesn't want to see it.

caintained

421

22

-2H.M.Jr:

He doesn't want to.

R:

Oh no.

H.M.Jr:

Well I think if you could do this. I don't

think that ought to go up on the hill certainly

before Friday, see?
Yes.

R:

H.M.Jr:
R:

H.M.Jr:
R:

So that the President will have a chance to see

it, if he wants to.

Well is he to see that again?
I don't know. Post
No I didn't understand that he wanted to see it
again.

H.M.Jr:

Well I mean from a previous meeting.

R:

Yes, you see, because that was completed that night.

H.M.Jr:

Was it?

R:

Sure. He saw all he wanted.

H.M.Jr:

Well I didn't understand that.

R:

Yes.

H.M.Jr:
R:

Well let me ask you this pointblank question.
Whose job was it to produce the lost letter?
Well that will be taken care of from this end.

H.M.Jr:

That's what I thought. It wasn't up to the

to

anything

you

may

Treasury.

R:

No.

H.M.Jr:

Well now you see they - Foley's bringing pressure
on us to produce those photostats and I've maintained

it wasn't up to us.

R:

Oh absolutely not.

HM.Jr:

That's what I understood.

R:

Absolutely not.

422

3H.M.Jr:
R:

I mean it isn't up to us.
Oh no. What has he got to do with that? All in
the world he's got to handle is him own - hello

H.M.Jr:

Hello.

R:

All
He's got to handle is his own part of this
thing.

H.M.Jr:

Well he isn't handling it the way they said at all.

They're trying to make us produce that and I've just
had Opper and Oliphant in my office and I just my memory is pretty good and they say on the 26th
of January the Post Office/have the written letter
must
and they would produce the original. We wouldn't
produce those photostats at all. Hello?

R:

H.M.Jr:
R:

H.M.Jr:

You see --

Isn't that right?
Yes. All in the world that he has to d'o is to send
up
all.the record of that particular department, that's
Yes, that's right.

R:

And then with respect to anything that you may
want to show, that comes later.

H.M.JrL

But those photostats - it's not up to us.
Not at all.

R:

H.M.Jr:

But also to check my memory they said that Peoples
should answer that letter and answer Glavis,

wasn't that the idea?
Rt

Well he must be prepared to do that.

H.M.Jr:

Yes that's right.

R

Yes. We wanted to find out what he did as a

H.M.Jr:
H.M.Jr:

result of that memorandum.

But the explanation of how the letter came to be
returned - was that up to the Post Office or to us?

423

-4
R:

Yes - that's up to the other people.

H.M.Jr:

Up to who?

R:

Not to you.

H.M.Jr:

Up to us.

R:

H.M.Jr:

Not to you.
Not to us.

R:

Not to you.

H.M.Jr:

Not to us. That's what I thought. Well Foley's
either got a very tricky memory or a very careless
memory.

H.M.Jr:

Yes. Well this matter was left in my hands. of
course the point is that they went out in advance.
No Foley stayed till the last minute.

R:

Oh did he?

H.M.Jr:

Yes.

R:

Well I must see him then.

H.M.Jr:

No Foley stayed until the last minute.

R:

Yes.

H.M.Jr:

See?

R:

Yes.

H.M.Jr:

He heard everything - he stayed behind.

Rt

Yes.

H.M.Jr:

Joe you know me pretty well.

Rt

Rt

28,

Yes.

H.M.Jr:

And I'm telling you there's quite a mixup. Now
that's only for you, see?

R:

Yes.

424

-5bello
H.M.Jr:
R$

But as I remember, it was left in your hands.
Yes. Well I'11 get busy on this thing.

H.M.Jr:

Will you Joe?

R:

You betcha.

H.M.Jr:
R:

H.M.Jr:
R:

H.M.Jr:

that

Now
what
I'm telling you is absolutely between
the two
of us.
Yes.

Have you got somebody on your wire?

Well its ah ah -Alright Let me know tomorrow, will you?

Rs

You betcha.

H.M.Jr:

See?

R:

Alright.

H.M.Jr:

And you're the only person I'm having this
conversation with.

R:

H.M.Jr:

O.K.

Alright.

Statement?
Yes.
that's

gets

first?
yes,

that that does

February 26, 1935.

Tuesday.

Oh

gentleme.

425

Hello - hello Henry.
H.M.Jr:

Hello Joe.

Robinson:

Everything is O.K.

H.M.Jr:

Yes,

What does that mean?
What?

R:

H.M.Jr:

Well I mean that everything is moving along
according to schedule.
Fine, and nothing ahead of schedule?

R:

No.

H.M.Jr:

When is the thing going up on the hill?
Well I think that the statement will be ready
tonight, but the President will want to see it
the first thing in the morning.
I see. You mean the Ickes statement.

R:

H.M.Jr:
R:

No no I mean the other one.

H.M.Jr:

Oh the other one.

R:

Yes.

H.M.Jr:

Fine.

R:

And its very important, from my point of view,
to see that that statement gets up first.

H.M.Jr:
R:

Oh you mean our mutual friend's statement.
What's that?

H.M.Jr:

The Farley statement?

Ramurry

Yes.

H.M.Jr:

That that gets up first?
That goes first, yes.
Well you're seeing that that does go first &
on yes you bet I talked with both of the other

R:

H.M.Jr:
R:

gentlemen.

426

-2
H.M.Jr:

Fine. Was my hunch right yesterday?

R:

Yes, I think so.

H.M.Jr:

What?

R:

H.M.Jr:

I think so, your hunches usually are.
Not always. But it was right yesterday anyway.

R:

Yes.

H.M.Jr:

Well thanks Joe.

R:

Alright Henry.

February 27, 1935.
Wednesday.

427
February 27, 1935.

The Executive Committee of the Open Market Committee of

Federal Reserve Governors met with the Secretary of the Treasury

in his office at 11:00 A.M. Those present were:
Henry Morgenthau, Jr. Secretary of the Treasury,
Marriner S. Eccles, Governor of the Federal Reserve Board,
W.W. Paddock, Deputy Governor, Federal Reserve Bank of Boston,

George L. Harrison, Governor, Federal Reserve Bank of New York,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,
G.J. Seay, Governor Federal Reserve Bank of Richmond,

G.J. Schaller, Governor, Federal Reserve Bank of Chicago,

T. Jefferson Coolidge, Undersecretary of the Treasury,
D.W. Bell, Commissioner of Accounts & Deposits,
George C. Haas, Director of Research and Statistics,
C.B. Upham.

Before taking up the current financing, Mr. Coolidge mentioned
that the Treasury is behind some $50,000,006 in its program of issu-

ing silver certificates and stated that we are planning to print
$50,000,000 $10 silver certificates.
Mr. Morgenthau said that the progress of the program was being
checked on the Hill and it had been alleged that the Federal Reserve

Banks were holding up the program, which, of course, is not the case.
He said that we were delayed somewhat by the fact that there were
some $700,000,000 $1 silver certificates left over from the previous
Administration.
Governor Harrison asked what the law is with respect to the

issuance of silver certificates.
Mr. Morgenthau replied that the Treasury has to issue them

as a minimum up to the cost of the silver acquired under the

-2-

428

Silver Purchase Act. He explained that there was a gentlemans'
agreement in existence with the reserve banks that only
$50,000,000 $10 denominations would be issued and it is now

the desire to increase that. There was no objection.
Mr. Coolidge also mentioned "Baby Bonds" publicity and

it was agreed that circulars would be sent to the reserve banks
with the suggestion that they write to member banks and nonmember banks in their districts offering to supply as many
circulars and advertising posters as might be desired.

Mr. Coolidge referred to the plan of issuing a 5 year note
in exchange for the $528,000,000 of notes which mature March 15th

and a bond for the $1,800,000,000 of bonds which are called for
April 15th, the announcement to be made on Monday next.

Mr. Burgess indicated that there would be no great difficulty
in such a program. It will mean some switching around and will
probably push the note market up and the bond market down. The

dealers, he said, are about $175,000,000 long and their short

position is almost nil,
Mr. Coolidge expressed the opinion that the market is getting
near the high point and he thinks the financing may bring a drop.
The position of Governments is technically weak. The investment
market generally is strong and going up.
Reference was made to the current yield on the various
Treasury issues and Mr. Coolidge expressed the opinion that so
far as notes are concerned we might sell a 1-5/8 or 1-3/4. His
hunch was for a 5 year note at 1-3/4. He said such a note might
come to a premium and then it might look as if we could have
gotten away with 1-5/8. He thought the rates ought to be subject

429
-3-

to a change after a final talk with dealers on Friday.
Mr. Harrison said that the whole situation is full of
complexities and it is impossible to appraise the future. He
said that he had been wrong for a long time. He had never thought

that the Treasury, with a constant deficit and with no balancing
of the budget in prospect and with gold pouring in, could carry

on as it has done. He said the market is subject to artificialities and hard to appraise. At the moment the biggest force is
pressure on the banks to do something with their unused funds.
Mr. Eccles asked how it could be accounted for that in all
other countries too the cost of Government financing had been
reduced.

Mr. Burgess interposed that there were idle funds everywhere
just as there were in the United States.
Mr. Harrison said that the chief influence here and abroad

is the accumulation of short time funds and bank reserves. It

is O.K. he said so long as that is the only pressure, but if there
is a scare or anything goes wrong there is always the risk that
the trend may go into reverse.
Mr. Morgenthau said that he agreed with that and had been

aware of it all along.
Mr. Harrison asked if it might not be that we would all be
happier if Government bond quotations were on a lower basis.

Mr. Morgenthau said that for that reason it would be well
not to get out too much of the 6 or 9 month paper but to keep

that for necessity if it arises.
Mr. Harrison said we have no practical alternative for this
financing but looking forward to June and later on he wondered

430

what the Federal Reserve System or the Treasury can do to bring
on a more healthy bond market and less danger of puncture.
r. Morgenthau asked how one could know that it was not

healthy now, to which Mr. Harrison replied that there was more
and more talk about the position of the Government bond market.

Mr. Morgenthau referred to the disparity in the situation
at the time he came to the Treasury and the present, saying
that at the earlier date we had to pay 2-1/2% for 13 month paper
and that now, we are floating 9 month bills for 1/6th of 1%.
Mr. Coolidge referred to the proportion of Governments held
by banks and said that there was a smaller percentage in December
than in June.

Mr. Schaller inquired if the sentiment was the same the
country over or if it were not possible that the Government bond

market is strictly a New York City market, to which Mr. Coolidge
replied that in his opinion there was a real country market on
all bonds.

Mr. Harrison said that he had no intention of sounding an
alarm or being argumentative but he thought it might be helpful
to explore the realm of fancy even and added that maybe the quo-

tations are not too high. He said that he had reason to suspect
that they were pretty high. They are as high as they have ever
been in the face of the biggest deficit we have ever had. If
excess reserves are withdrawn the largest sustaining factor will
be eliminated.

Mr. Coolidge made the point that private liquidation has
been in excess of extraordinary Government borrowing.

Mr. Harrison said that he goes on the principle that when

-5-

431

things look fine that is the time to worry.
Mr. Eocles suggested that we might study the British

situation with profit, to which Mr. Harrison replied it was
not comparable to our own.

Mr. Coolidge interposed to say that the immediate problem
is the rate on the 5 year note.

Mr. Morgenthau said that he would like to try for 1-5/8
and squeeze the market if necessary.

Mr. Burgess said that that was a possible rate but he
thought it open to question.
Mr. Coolidge said that the short time bond market scared
him and that the 5 year note might help the bond market. He
said we will get 1-5/8 if we think we can.

Turning to the bonds, Mr. Coolidge pointed out that there
is only $1,000,000,000 which is neither due nor callable by 1947-12 years hence. There is not much knowledge as to what rate a
longer bond would go for. He would like to see some in the market. We might sell either a 2-3/4 short term or a 2-7/8 long
term. He suggested for the purposes of discussion a 20-25 year
bond at 2-7/8.

Mr. Harrison agreed that the rate was important actually

and politically. He would like to see the rate under 3 whatever
the maturity. He suggested that we see how far we can go on

maturity at 2-3/4 or 2-7/8.
Mr. Ecoles said that he likes 2-3/4 with maturity whatever

it must be.

Mr. Harrison agreed that that was sensible especially if a
big conversion is thought of later.

-6-

432

Mr. Ecoles said that he thinks it is important to get 2-3/4
now and extend the maturities later.

Mr. Coolidge said that he thinks it is important to get a
long term bond in the market as quickly as possible.

Mr. Morgenthau suggested that we tailor our suit to the
2-3/4 rate.

Mr. Bell said that on the basis of present yields 2-3/4 would
throw the maturity right in the middle of present maturities--

about 12 years hence.

Mr. Coolidge made the point that a long term bond would be
taken by other than banks--a desirable thing.

Mr. Burgess thought a 2-7/8 would be likely to stand up in
the market better than a 2-3/4.
Mr. Coolidge said if the maturity were out beyond 1955 at
2-7/8 he would prefer that rate.
Mr. Harrison suggested that 2-3/4 was not possible on a
refunding.

Mr. Burgess thought the market would be more receptive to

a 2-7/8 long term and suggested either a 2-3/4 10-15 or a 2-7/8

for 20-25.

Mr. Eccles suggested a 2-3/4 for 15-20 years to which Mr.
Burgess and Mr. Coolidge both said no.

Mr. Ecoles said that he did not like forcing holders into
a long term bond when there is a budgetary deficit. it is

alright if the market takes it, but don't force it.
Mr. Coolidge said that the existing deficit makes it all in
the more important to have healthy maturities and remarked that
we have no long bonds out.

-7-

433

Mr. Eooles said that if you have a long bond you pay for
it, to which Mr. Coolidge replied that 2-7/8 was not much of a

price.

Mr. Schaler said that he voted for a 15-25 year at 2-7/8
and added that the long terms were not so good out in his
country. As he phrased it, the people in the middle west are
hanging off the long stuff--both the banks and private investors. The gold decision didn't help, he said.
Mr. Paddock said that the market up his way was looking
for a long term bond.
Mr. Harrison said
they are ready for a long bond in
New York, that the 5 year spread is O.K. and that we should go
as far as we can on maturities.
Mr. Seay said he voted for a 20-25 year bond not under
2-7/8.

Mr. Eccles said, in speaking for the interest of the banks
he would suggest a 20-25 year bond at 2-7/8 and that speaking
in the interest of the Government he would vote for a 10-15

year bond at 2-3/4 or a 15-25 year bond at 2-7/8. He thinks
very cheap money is possible in 15 years.
Mr. Bell said that he thought the 10 year spread was also
in the interest of the banks.
Mr. Burgess said that in the long run the 10 year spread
was less attractive. He thought right now a 15-25 year bond
would go as well as a 20-25.
Mr. Coolidge said that the advantage to the Government in

a 20-25 year issue is that we will know the long term yield.

434
435

As soon as the bond is above par it is figured on the basis of
the called date maturity anyway with banks preferring to buy
a called bond and we will get a better distribution with a

5 year spread.

Mr. Morgenthau said that a 15-25 will sell better now then

a 20-25.

Mr. Harrison said we will get a better market appraisal
and a better distribution with a 20-25.
Mr. Bell asked how a 20-30 would go.

Mr. Coolidge said he would like to do it but is afraid.
Mr. Morgenthau said he would like a 10 year spread and
thinks a 20-30 year bond would be perfect.

Mr. Harrison said that he would like to add a word as to
procedure. In the interest of the Treasury he sees a growing
risk in the development of a fixed practice by which Mr. Coolidge
visits New York and discusses with bankers and dealers there the

details of financing. Sooner or later Congress will complain.
He said that either Mr. Coolidge should go to two or three or
four points for his discussion or there should be a return to the
system of asking the members of the Executive Committee to

bring to Washington the concensus of opinion in their districts
and report.

Mr. Morgenthau said that he understood the members present
did bring that concensus and had @anvassed the bankers and

dealers in their districts.
Mr. Schaller agreed that he followed that practise.
Mr. Harrison thought if that were the procedure followed

the Treasury would be insulated from criticism.

435 171

Mr. Morgenthau asked if any criticism had been heard to
which Mr. Burgess replied that there had been some market

criticism.

Mr. Harrison said it was not worth the risk and while it
had been necessary at first for Mr. Coolidge to become acquainted
with Government dealers, the practise should be abandoned now.
He said that he thought it would be a great mistake for Mr.

Coolidge to go up Friday---that a week or two before the offering
is alright but not the day before.
Mr. Coolidge said that he thought it would be just as
difficult to get reserve banks opinion in advance as it is to

give it to others.
Mr. Morgenthau asked what Mr. Burgess would do between now
and Friday.

Mr. Burgess explained that he used to talk to dealers or
rather let them talk to him, but that now he does less of it.
Mr. Morgenthau said that if this 5 year note goes he plans
to sell $100,000,000 a week at auction and that he hopes to increase
the bill maturities to 13 months in 6 weeks, using these two
devices until refunding is out of the way.

436
February 28th

Mr. Farley called up H. M. Jr. and told him
that he had tried all morning to see the President to show
him the letter which he was sending up on the hill (a letter
explaining why he had withdrawn the letter which he sent
to the Secretary of the Treasury on the New York Post Office).
The President
upset
about it.refused to see him and Mr. Farley was quite
The President is going to make a movietone on
his purchase of a Baby Bond tomorrow at 10:30 and Mr. Morgenthau suggested that Mr. Farley take advantage of this

opportunity and show it to him then. Mr. Morgenthau felt
that it was very unfair for the President not to see Farley

and help him out.

Mr. Morgenthau sent for Mr. Dollar of the
Dollar Line because of the constant reports that we are

getting that the Dollar Line is bringing in opium on all
of their ships. Mr. Morgenthau feels that they could stop
this situation if they made an effort to and told him that
the Canadian Steamship Company was able to accomplish it.

Mr. Dollar said that he wanted to do everything
he possibly could but it was a very bad situation and he
said unless the government co-operated he could not do a
thing. Mr. Morgenthau then suggested that we assign three
or four men to travel back and forth on the various ships
and Mr. Dollar agreed that it would help to check this stuff
from being loaded on their ships.
Mr. Morgenthau called Mr. Anslinger and asked

him whether he thought there was any objection to our assigning our people and Mr. Anslinger said that he did not see
any objection.
Mr. Morgenthau then turned Mr. Dollar over to
Mr. Graves, Mr. Anslinger and Mr. McReynolds and asked them
to work out a plan which would clean up this situation. He
told Mr. Dollar that he wanted to be fair but that he was
going to be "hard boiled".
Mr. Prince came in to see Mr. Morgenthau and
told him that Mr. Harris and Father Coughlin have separated
on their monetary ideas.

437

Mr. Prince then went on to tell Mr. Morgenthau
that, with the exception of the Secretary of the Treasury,
the Cabinet Members were not working with their President.
Each was working for himself, that the President's best
friends were deserting him, that Senators know the dissention
that is going on in the various departments anc that the
President is not controlling his Cabinet.
He also told him that Jesse Jones wants the
nomination in 1936 for President and that he is playing
with the big money group and is working in opposition to
the President.
Prince's conversation was a very depressing one
and HM.Jr. told him that the President has not drawn his
gun nor has he fired a single shot.

438
February 28th

This morning Chief Moran told me about changing

Jervis and two other men and also about the drinking of the
Secret Service men. I told the Chief that I had known this
thing for some time. I could not talk about it. The Chief
is going to get out a written order to the field men and a
verbal order to the men at the White House that no man in
Secret Service can take a drink while he is on duty. The
verbal order to the White House will be to the effect that the
men who are assigned to the President and if they can't live up
to that we will give them some other assignment. The President
is very nervous at this time. Chief Moran said that he was very
sorry he did not bring this to my attention before. He apologized
profusely and said he did not do it because he thought he could
take
care of the matter himself. He said "I know I have fallen
down".

I sent for Colonel Starling and put the whole
thing up to him. He said he understood just what I wanted. I
told him very emphatically a man could not take care of the
President and be under the influence of liquor. I also told
Colonel Starling that if anyone of his men broke the rule and
was fired even the President of the United States could not
ask me to take him back.

439
Hello?

Hello sir.
H.M.Jr:

Burgess?

B:

Yes.

H.M.Jr:

Well now what's the good news?

B:

Well we're all set.

H.M.Jr:

Good.

B:

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

I thought now - we just had lunch together, the
Governor and I and I've talked with a number
of people and we incline toward the 20-25 years,
on this basis. I just talked with the Treasurer
of one of the big insurance companies. They
very much prefer 20-25 years.
I see.

And he says that the investor prefers it. I think
the investor ought to and does prefer that. There

are fellows at the banks who would prefer the other,
at least temporarily but the new idea that occurred
to me on it - not the new idea - the one we ought
to consider, which is the question of setting a
precedent - what you do on this issue rather sets
a precedent for what you will do on further longtime financing.
Well of course during the Wilson administration
they had a 15 year call.
I know they did but the more recent one was a five
year call.
Well that's a Republican influence.
(Laughter)

H.M.Jr:

You can't live that down you know.

Coolidge:

How about a 20-30.

B:

I'd be a little afraid of that at that rate, Jeff.

H.M.Jr:

That's out of the question.

B:

Well let it ride, but we lean toward the 20-25
now.

H.M.Jr:

Well we're going over to see the President.
If he said 15-25 you wouldn't say they couldn't go?

440
2-

B:

H.M.Jr:
B:

H.M.Jr:

Oh no, either one will go.
Either one will go.
It's
just ato.question of which group you want
to eater
Well now which group would be the 15-25?

That will be the banks.
H.M.Jr:
B:

H.M.Jr:

and the 20-25?

That will be investors.
Well that's fellow I want to reach.

H.M.Jr:

Well I should think so, yes.
I want to reach the investor.

B:

Yes.

H.M.Jr:

That'11 be 20-25?

B:

B:

HM.Jr:
B:

That's right.
Well on the note - you can't make it 1 1/2?
No 1 5/8's is as low as you can go. That's
cutting it thin but you can do that because
you're crowding that market.

B:

I see. Now the market right now has been fairly
steady, hasn't it.
The market has been very: strong this morning.
How are you heeled on the 2 1/8 4-year notes to-day?
It was 143 this morning.

C:

143.

B:

143 yes. You see 5/8's is too thin on that.

H.M.Jr:
B:
C:

Ifthe
you
count
June
39. 18 points between September 38-and

C2

It makes it very thin when you compare it to the
bonds.

441

-3Yes it does but the market

B:

different kind of thing.

is a

C:

And those bonds will move up on this financing.

B:

Yes.

C:

They'11 go below 2% I guess.

Well they may go down a little.

B:

Yes.

C:

But I think the note will probably sell to
premium. I think this financing is bound to

B:

force your short market up and that's the basis

on which I'm prepared to recommend that.
C:

Yes.

H.M.Jr:

Well Jeff and I'11 go over and see the President
and he'll come back and tell you what's decided

B:

but I've got to stay for Cabinet.
Alright sir.
But if the 20-25 goes to the investor, I'd rather
have it go there.
Well that's the thing we're catering for the

H.M.Jr:

Yes we want to get away from the banks. By the

B:

H.M.Jr:

investor.

way, we're getting good reports from all over the
country on the Baby Bonds.

B:

Oh that's fine.

H.M.Jr:

Yes I just got U. T. Chariot on that ticker.

B:

Governor Harrison's Secretary bought the first

February

one in New York.

H.M.Jr:

Oh did she?

B:

Well the first one at one of the Post Offices

H.M.Jr:

Well in Detroit in the first two hours they sold

Thursday.

anyway.

$150,000.00 worth.

442

Joffts
-4 down

THE

Yes.

H.M.Jr:

Is that so? That's fine.
Well we may - I think it's going to go well.

B:

Yes.

H.M.Jr:

Thank you.

Be

H.M.Jr:

Alright.
Jeff will call you when he comes back.

Br

Very good.

H.M.Jr:

Thank you.

B:

Goodby.

B:

February 28, 1935.
Thursday.

443
H.M.Jr:

Jeff's going to try to listen unless it cuts
down the power on the telephone.

Yes. Alright.
H.M.Jr:

How are things going to-day on the bond market?

H.M.Jr:

Well now frankly, I've been having a meeting all
morning on an indust tal loan that we got into a
mess on and I haven't got it before me.
Well let me switch to Burgess then.

E.M.J.

What?

H.M.Jr:
1

H.M.Jr:

H.M.Jr:

H.M.Jr:

Can I be switched to Burgess?
Yes sure.

Well I wish you would get in on it because we've
got to make up our mind within the next hour.
Alright well I'11 get in on it right now because
I've just finished my meeting.
Well let me have my switch to Burgess and will
you talk to him and call me back?
I'11 talk to him and I'll call you back anyway.
Right.

Now in the meantime, I'll switch you over to him.
He'll give you much better. I've got the figures
here but I haven't been talking to anyone so I
won't know as much as he would.

H.M.Jr:

Right.

Wait a minute.
H.M.Jr:

Hello.

Burgess:

Yes.

H.M.Jr:

Coolidge and I are on the line together.

B:

Yes.

H.M.Jr:

Well on the five hundred million coming due,
what do you think we can do?

B:

One and 5/8's.

444

-2-

H.M.Jr:
B:

and

1 5/8's.
but that's on the
I have plenty of
assumption that you offer a
The effect of that is going to depress your
bond market and to raise your note market.

H.M.Jr:

Depress your bond market.

B:

Yes, because you see there are a lot of holders
abroad who are holding
who are going to sell and try to buy something
short.

H.M.Jr:
B:

They're going to try to buy something short?
Yes. That will put your note market up and your

H.M.Jr:

Well how can you stop that?

B:

Well it's a question whether you want to stop it.
Let's say I wanted to put the long-time market

H.M.Jr:
B:

H.M.Jr:
B;

bond market down.

upwards.

Well the way to do that is to give your bondholders
a choice between the bond and the note and then
just make the bond issue very thin - make the note
issue very thin so that they would be tempted to
is
go into the bond. In that way your
permanent and your bond market would go up, I think,
but you wouldn't sell many bonds.
Well could you make it any thinner than 1 5/8's?
No that's as thin as you could go, but you could
do that and you could let the bondholders decide
whether they wanted to go into the bond or the
note.

H.M.Jr:

What's your inclination? Let's make it a little
easier - let's say 1 558's for five years.
Jeff says O.K. Well let's say it's subject to
the President's O.K.

B:

I think that's alright.

-3-

H.M.Jr:

445

Well let's talk about the bonds.
Well now two hours ago I would have urged you

to give them a choice. I'm not so sure of that
right now because the whole market is mixed up

and I have talked with some people on the street
and you've got about 50-50
B:

Now I think if you made it a 15-25 year bond
you could just have a bond and get away with it.

H.M.Jr:

Well that's what I'd like but it isn't going to

B:

make Jeff so happy, but that's what I'd like.
Well I sort of lean toward it because I think
you've got a lot of banks who have a deadline
and won't take anything over 15 years or over
12 years. Now if you offer them a 15-25 they'11
and say well we'll just take the 15 year bond.
If you go 20-25 there will be more fellows who
will think that is beyond the deadline and who
sell and that will put down your bond market.

Coolidge:

Well Randolph.

B:

Yes Jeff.

C:

You know perfectly well and so does every sensible
purchaser that a 20-25 year bond is better more attractive to the purchaser than the 15-25.

C:

Certainly Jeff.
And I can't think that people buying large amounts
don't recognize that fact. I think it's a little
unreasonable to think that you'll really sell
more 15-25 or get a better distribution.

B:

Well I think it is a little unreasonable but I
think it will help us.

B:

C:

I think there is a large number of insurance
companies and individuals would prefer the 20-25
very considerably and I think you get a better
distribution there that would keep the price
higher

wouldn't buy that so they buy something else instead.

446

-4B:

H.M.Jr:

100

Well I don't think it's a tremendous matter,
I think either one would go Jeff.
May I interrupt? In fairness to the Treasury,
I wish you'd keep sounding this thing out/1:30.
I mean I'm perfectly frank that I prefer the 15-25,
for different reasons than Jeff does. I think a
10 year spread is a better financing - for the
Treasury 15 years from nowtif I do that and we
fool the people - they fool themselves rather into thinking they're buying for 15 years. We
have the right to hold it for 25 years if we want
to. It's perfectly open. Now what I'd like to
do is this. Jeff and I are going to see the
President a quarter to two and at sharp 1:30 if
you and George Harrison can be in the same room
together and talk to Jeff and me at sharp 1:30.
Hello?

B:

H.M.Jr:

Governor has just come in now.
Well can you and he be together at sharp 1:30
and Jeff and I'll be together in this room at
sharp 1:30.

B:

That's alright we'll be together.

H.M.Jr:

Because there's no use checking again till then.

B:

H.M.Jr:

B:

H.M.Jr:

Yes .

But have everthing for us because Jeff and I
won't go over and see the President until a
quarter to two.

I see, yes yes. I'll talk to a number of people.
But the way the thing sounds now - I like it
just the way it sounds - I don't know how the

President will like it, but I like it, see.

Alright?
B:

Alright fine.
Thank you.

February 28, 1935.
Thursday.

447

H.M.Jr:

William

Phillips:
H.M.Jr:

Hello. Bill, in reading the New York Tribune
this morning, I see on page 2 a story
If Stabilization of World Currency Linked to
Low Tariffs".
Is that in his speech?
Yes. Then it goes on and says that "attacking
competition in currency depreciation as
intensifying "world chaos", Henry F. Grady,
chief of trade agreements made a plea for
international stabilization".
Yes.

P:

H.M.Jr:

I haven't seen the speech and don't know what

it is but if he did talk on it I think it would

have been courteous to have shown it to us first.

Yes. I'll look that right up.

P:

H.M.Jr:
P:

H.M.Jr:

Would you mind, and could you have somebody send

me over three copies. I'd like to read it.
I will Henry.

And if that's what he said I think we should have

seen it first

Well I do too.

P:

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:
P:

H.M.Jr:
P:

Thank you.

Look here I had a long talk with Pitcher about
the

Oh yes.

And gave him the story - in other words told him
the position of the French government at St. Pierre

That's fine. I wrote a very enthusiastic letter
to D'Arcy thanking them for what they've done.

Oh yes that's nice.
Very appreciative and all that.
That's good.

-2 -

448

Well I'11 send you over those copies right away.

P:

H.M.Jr:

Thank you very much.

P:

You're welcome.

February 28, 1935.
Thursday.