Full text of Diaries of Henry Morgenthau, Jr. : Volume 307 : Part 1

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DIARY

Book 307

September 19 - 23, 1940 -

-ABook

Page

Allison Engineering Company

Bee War Conditions: Airplanes (Engines)

Appointments and Resignations

Collector of Custome - St. Albans, Vermont )
Collector of Internal Revenue - Toledo, Ohio)
Gaston Memoranda giving resume - 9/18-19/40
Cox, Oscar: Complimented and promoted for work on

307

Vultee contracts - 9/20/40

9,34
174

Maryland: Appointments (General Watson's memorandum)
discussed by HMJr, Helvering, Gaston, and Thompson 9/19/40

a) Magruder (Collector of Internal Revenue,
Baltimore) offered job on Processing Tax

Board of Review and FDR advised - 9/20/40
1) Welles' connection surmised by Gaston

215

292,311

2) Watson tells Gaston "OK to drop matter" 9/25/40: See Book 308, page 172
Argentina
See Latin America

-BBalfour, Harold H. (Captain)
See War Conditions: United Kingdom
Belgian Congo

See War Conditions: Foreign Funds Control
Burgess, W. Randolph

"Financing the National Defense Program": Address before
American Bankers Association, Atlantic City - 9/23/40
Business Conditions
Haas memorandum on situation for week ending 9/21/40

394
332

-CCentral Republic Trust Company
HMJr, Helvering, Wenchel, and Foley discuss - 9/20/40

130

China

See War Conditions: China; U.S.S.R. (Russia-China-United States
agreement)

Collector of Customs - St. Albans, Vermont
See Appointments and Resignations

Collector of Internal Revenue - Toledo, Ohio
See Appointments and Resignations
Cox, Oscar

See Appointments and Resignations

Crane, J. E. (Standard Oil Company of New Jersey)
See War Conditions: 011

Customs, Collector of - St. Albans, Vermont
See Appointments and Resignations

-EBook

Page

307

247

Enforcement Agencies, Treasury

Brandon, Edmund J. (United States Attorney for
Massachusetts) addresses monthly coordination
meeting in Boston - 9/21/40
Export Control
See War Conditions

-F--

Financing, Government

Refunding discussed by HMJr, Bell, Haas, Viner, Hadley,
and Murphy - 9/23/40
"Financing the National Defense Program": Address by
Burgess (w. Randolph) before American Bankers

Association, Atlantic City - 9/23/40

Financial Transactions
See War Conditions

Foreign Financial Transactions
See War Conditions: Financial Transactions
Foreign Funds Control
See War Conditions

France

See War Conditions

-GGermany

See War Conditions: Foreign Funds Control; Germany
Gold

See War Conditions
Graphite

See War Conditions: Strategic Materials

Greece

See War Conditions
Gunpowder

See War Conditions

-HHeinkel 113
See War Conditions: Airplanes

-IInternal Revenue, Collector of - Toledo, Ohio
See Appointments and Resignations

Italy

See War Conditions: Foreign Funds Control

382

394

-JBook Page
Jacemy, Colonel (French Indo-China group)
See War Conditions: Export Control
Japan

See War Conditions: Export Control (discussion of
embargo on scrap iron and oil); Japan; U.S.S.R.
(Russia-China-United States agreement)

-KKlaus, Samuel

See War Conditions: Foreign Funds Control

-L- Latin America

Treasury representatives - convention: Second meeting
at Quito, Ecuador, on September 21, 1940
a) United States Government agenda attached

307

183

Argentina:

New Minister of Finance, Dr. Federico Pinedo:
Resume of career by Norman Armour - 9/19/40
Financial negotiations discussed by Ambassador

with White and Bell - 9/23/40
a) Minister of Finance will head delegation 9/23/40

b) Resume of situation reported by American
Embassy, Buenos Aires - 9/23/40

278,281
303,305
308

Luxembourg

See War Conditions

-M-

Magruder, M. Hampton (Collector of Internal Revenue,
Baltimore, Maryland)
See Appointments and Resignations
Maryland

See Appointments and Resignations
Merry-Go-Round, Washington

See War Conditions: Airplanes (Plant Expansion)

Mexico

Hochschild transmits report - 9/20/40
Military Planning
See War Conditions

214

-0 Book Page
Obsolescence

See War Conditions: Airplanes (Plant Expansion)
Ohio

Collector of Internal Revenue, Toledo:
Oil

See Appointments and Resignations
See War Conditions

-Pehle, John W.

See War Conditions: Foreign Funds Control
Petroleum

See War Conditions: Oil

Phillips, Sir Frederick

See War Conditions: United Kingdom
Plant Expansion
See War Conditions: Airplanes

-SSwitzerland
See War Conditions: Foreign Funds Control

-UUnemployment Relief

Works Progress Administration report: Decrease of
3000 from previous week - 9/23/40

U.S.S.R.

See War Conditions: Foreign Funds Control; U.S.S.R.
United Kingdom

See War Conditions: Military Planning; United Kingdom

-Vermont

Collector of Customs, St. Albans:
See Appointments and Resignations

Vultee Aircraft, Incorporated

See War Conditions: Airplanes

307

356

-WBook

War Conditions
Airplanes:

Page

Coordination of British orders and defense orders
for United States discussed at conference;
present: HMJr, Knox, Forrestal, Patterson, and
Young - 9/20/40
Employment by regions as shown by map - 9/20/40

307

246-A
239

Heinkel 113: Further information concerning

from London - 9/23/40
Plant Expansion: Obsolescence: Resume by Sullivan
of steps taken while Hanes was Under Secretary,

379

in connection with Merry-Go-Round article -

9/19/40

a) Pearson and HMJr discuss - Doughton angry 9/20/40

b) Doughton-HMJr conversation - 9/20/40
1) Copy of proposed letter to Doughton
signed by Sullivan
Progress reports acknowledged by War and Navy
Departments - 9/19/40

123
227

236

88,90

Vultee Aircraft, Incorporated: Contract as submitted

to Canadian Government - 9/19/40
Engines: Allison Engineering Company: Schedule of

deliveries - 9/23/40
China: Loan of $20 million against tungsten discussed
by Jones and Soong; Jones repeats conversation to
HMJr - 9/23/40
a) HMJr suggests to Jones making loan through
Universal Trading Corporation - 9/24/40:

See Book 308, pages 111 and 176
Exchange market resume - 9/19/40, etc.

Export Control:
Exports of petroleum products, scrap iron, and scrap
steel from United States to Japan, Russia, Spain,
and Great Britain, as shown by departure permits
granted for week ending 9/21/40
Iron and Steel Scrap Embargo: Hull calling meeting

272

294

60,208,
253,366

270

"to discuss situation on which he is on a day-to-day

basis" - Henderson informs HMJr - 9/23/40
Financial Transactions: State Department inquires as to

what information Treasury receives of interest to
national defense regarding financial transactions
with foreign countries - 9/20/40

392

126

- W - (Continued)
Book

Page

307

396

War Conditions (Continued)
Foreign Funds Control:
Belgian Congo: Situation discussed by Cochran
and State Department - 9/23/40
Italian and German accounts as reported by Federal
Reserve Bank of New York - 9/19/40
Klaus to work on German, Russian, and Italian
payments in United States under Gaston and
Cochran - 9/19/40
Pehle to act as head of group when Chamberlain

returns to Columbia University - 9/19/40
Switzerland: Requirements of United States control
discussed by Swiss Minister and Cochran 9/23/40

U.S.S.R. transactions with Chase National Bank 9/19/40

France: Rueff and Matthews discuss situation - 9/23/40.

64,204

395
62

296

Germany:

Economic resume at end of first war year: American
Embassy, Berlin, report - 9/19/40
Germany-Greece trade agreement reported - 9/21/40

Gold:

259

Inflows since outbreak of war: White memorandum 9/23/40
Greece:

Germany-Greece trade agreement reported - 9/21/40

359
259

Gunpowder:

Chinese have too much - Lochhead worried; HMJr suggests

arrangements for turning over to British - 9/19/40
a) Cochran memorandum - 9/20/40

111

Japan:

Economic sanction - possible courses: Foley memorandum 9/23/40

371

Luxembourg:

German foreign exchange control now in force - 9/21/40.
Military Planning:

255

Tentative Lessons from the Recent Active Campaign
in Europe: War Department bulletins

British Comment on Divisional Artillery 9/19/40

Rhine Crossing and Penetration of Maginot Line 9/23/40

German attacks on England, etc. - 9/19/40
Reports from London transmitted by Lothian 9/19/40, etc.

Balloon barrages - effect of - 9/23/40
Oil: Proposed method of payment for petroleum supplies to
Great Britain, Canada, Argentina, and Australian area
as drawn up by Crane (Standard Oil Company) - 9/20/40
Petroleum: See War Conditions: Oil

315
43

94,98,222,274
375

237

W - (Continued)
Book

Page

307

251

War Conditions (Continued)
Purchasing Mission:

Statement of dollar payments as of 9/1/40
Vesting Order: Official sales of British-owned

dollar securities - 9/23/40

Strategic Materials:
Graphite: Facilitation of imports from Madagascar

397

discussed by State Department and Cochran -

9/23/40

Iron and Steel Scrap:
See War Conditions: Export Control

381

U.S.S.R.:

Inducements to cooperation as suggested by White 9/19/40

a) Trade agreement - resume of
Russia-China-United States agreement: Discussion at
Cabinet meeting reported by HMJr to Bell, Gaston,

Foley, and White - 9/19/40
a) HMJr states this would be one way "to set

55
56

Japan back on our heels"

b) Hull apparently not too familiar with
conversations going on between Oumansky
and Welles

c) FDR finally orders conference between Jones,

HMJr, and State Department
d) Welles-HMJr conversation
e) Hull-HMJr conversation - 9/20/40
f) Conference; present: Oumansky, Jones, HMJr,
and White - 9/20/40

141
148

1) State Department representative did not
come

2) Proposal as drawn up

145,147
189

3) Copy of transcript (confidential) of
meeting sent to Jones - 9/24/40:
See Book 308, page 94

g) HMJr tells Jones he will see Hull at his
apartment tomorrow - 9/23/40

368

United Kingdom:

Balfour, Harold H. (Captain): Back in England;
thanks HMJr for assistance rendered in connection
with plane mission - 9/19/40
Phillips, Sir Frederick: Reports to be made by
United Kingdom to United States following talks
with HMJr - 9/21/40
War Department

Military Intelligence Division bulletins:

See War Conditions: Military Planning
Works Progress Administration
See Unemployment Relief

269

GROUP MEETING

Present:

Mr. Foley

September 19, 1940
11:15 a.m.

Mr. Graves

Mr. Sullivan
Mr. Thompson

Mr. Bell

Mr. Cochran
Mr. Gaston
Mr. Chamberlain
Mr. Schwarz
Mr. Young
Mr. White

Mrs Klotz
H.M.Jr:

I have got several memoranda that I would

like to get rid of. Archie Lochhead has

got too much powder.
Young:

What kind of powder?

H.M.Jr:

Gunpowder. He is worrying about it and I
thought that you could get the English to
buy it, with an agreement that if they want

some later, they will let them have it, but

if he has got too much powder and they are

short, why not sell it to the English with

the arrangement they can have it later on,
you see. Get the idea?
Young:

Yes, sir.

H.M.Jr:

They are worrying about storage. The best

place to store it is in an English gun.

I never saw so much fussing in my life about
Mr. Baruch and this man Butler.
Gaston:

Is anything more coming to you on that?

H.M.Jr:

Well, it is just a memorandum from Merle
Cochran.

Gaston:

Oh well, that is all taken care of.

#
-2H.M.Jr:

I would like to know about it in writing.

Gaston:

I will give you a memorandum on it.

H.M.Jr:

Would you? I have to know something about

Gaston:

Yes.

H.M.Jr:

Is this fellow Butler coming back?

Gaston:

No, he is staying in Paris. The only man
we have left over there is him, but Johnson
ordered him to get rid of this Chinese ser-

this. Could I have the facts?

vant who had been in a scandal and after some

demurrer and protest, he finally did it.

H.M.Jr:

And he cabled to Baruch about that?

Gaston:

Yes, through the State Department.

H.M.Jr:

Well, why do we keep a man like that?

Gaston:

Well, up to that point, there didn't seem to
be any good reason for getting rid of Butler.
He is a good man, but of course that going
outside of the Department is quite a reprehensive thing.

H.M.Jr:

I think it is terrible. Could you give me

a report on it, Herbert?
Gaston:

Yes.

H.M_Jr:

Customs is under you.
Where is Merle Cochran?

This cable which you wrote, Harry, to go to
the Argentine, I have no objection to sending

it out.

-3White:

All right, because we just got another
cable. It was cleared with Merle and Dan.

H.M.Jr:

Well, this man is coming in at 11:30 to
talk to me. Supposing I ask him about
this?

White:

H.M.Jr:

All right; I think it would be a good idea.
If he says okay, I will give it to you.
Merle, on this fellow they are sending down
to South America, the British, before he

goes, I would like to talk to him.

Cochran:

You mean someone from here? There is no
one

H.M.Jr:

This memo that you wrote me. Is he going
from here?

Cochran:

No, they are sending a mission out from
England, you see, a trade mission.

H.M.Jr:

Do you know about this, Harry?

White:

Yes, I do.

H.M.Jr:

All right. That is all.

Thompson:

You might be interested sometime, Mr. Secretary, in seeing how we have housed the
Foreign Funds Control Unit.

H.M.Jr:

Oh, yes.

Thompson:

We have quite a force there. There are 135
employees.

H.M.Jr:

Are they in the middle of that corner there?

-4Thompson:

Yes.

Bell:

It is very nice.

H.M.Jr:

All right, I will go down there.
On that, I have taken this recommendation

now, of this group. Bell, did you report
that back?

Bell:

No, I did not. I haven't seen them.

H.M.Jr:

Just the way Bell wrote it to me on Mr. Pehle.

Bell:
H.M.Jr:

Just like we agreed on it the other day.
I take it that was unanimous.

Bell:

Yes.

H.M.Jr:

Professor Chamberlain was in on that meeting, wasn't he?

Bell:

No, he was not, because you asked us to con-

H.M.Jr:

He was not?

Bell:

No. I will be glad to tell him about it,

sider that.

though.

H.M.Jr:

Before I decide, I would like to ask him
whether he thinks that is wise. I thought
he was in on it.

Bell:

No, he wasn't. You asked Gaston and I and

Dr. White and Foley to consider it.

H.M.Jr:

Then I will talk to Professor Chamberlain

myself. I didn't realize that. Tell him
it is my mistake. It is on me.

-5Harry?

White:

I have nothing.

Cochran:

Yesterday, Archie Lochhead phoned me about

this Chinese powder, getting some facilities
for storage, and I want to speak to Phil

about it, if you have no objection.

H.M.Jr:

While you weren't in the room, I told him

to buy it for the English.

Cochran:

Is that so? Because the State Department
mentioned it to Colonel Burns, who is in
the Ordnance Department, and he said if it

is the right fineness, the right quality,
that the Army would be willing to take it

over.

Cochran:

It is sold, sold to the English.
All right, if the Chinese are willing. I am

H.M.Jr:

Oh, sure they will be willing.

White:

Maybe it is wet.

H.M.Jr:

They have got a new system now between the

H.M.Jr:

not sure about that.

lawyers for taking the stuff, on those

Swedish planes. The deal was signed last
night, you know, with Vultee.
Foley:

I knew they had the contract. I didn't know
the contract had been signed.

Young:

It will be signed this morning.

H.M.Jr:

All right.
Professor Chamberlain?

-6Chamberlain: May I see you for just a minute, Mr. Secretary?

H.M.Jr:

Chamberlain:

Right after this, sure.
It won't take long.

H.M.Jr:

Take as much time as you want.

Chamberlain:

I won't take much.

H.M.Jr:

Phil?

Young:

We are working out the Swedish machine guns
on the same basis as the Swedish planes.

H.M.Jr:

Okay.

Chick?

Sullivan:

I have nothing.

H.M.Jr:

What about tonight?

Foley:

I don't know whether they will drive me down

H.M.Jr:

Let me know at 7:00 o'clock. How is that?

Foley:

I will let you know before 7:00.

Gaston:

The British Purchasing Commission want to
know if they can use our shooting range

or not.

down here in the basement for training 15
or 16 guards that they are employing here

in Washington. I just don't know.

H.M.Jr:

The answer is no.

Gaston:

All right.

-7H.M.Jr:

The answer is no.

Gaston:

I have some --

H.M.Jr:

There is enough shooting going on now.

White:

Who are they going to protect themselves
against, the Americans?

Gaston:

There are other kinds here, Harry.

White:

We have got an adequate police force.

Gaston:

I have a recommendation for purchasing air-

planes. Do you want to look at it?
H.M.Jr:

For what?

Gaston:

Funds we have now. We have a half a million
dollars for airplanes. This is a recommendation for the purchase of three Grumman twin

motors. It is about the only thing we can
get and it is about the most suitable of anything that we have had up to date.

H.M.Jr:

Can you get delivery?

Gaston:

We can get delivery. The planes are in con-

struction now. If it is all right with you,

I would approve it.
H.M.Jr:

All right.

Gaston:

We are also in the market for the new Grumman

called the Widgeon. I don't know whether

you have seen anything about it or not. It
is an in line six cylinder motor on each side.
It only costs half as much as these other
twin-motor Grummans. It carries about four

men. I will bring you in a picture of it,
if you would like.

-8H.M.Jr:
Gaston:

I would like to see it.
We have money enough to buy ten of those.

H.M.Jr:

Well, buy those three.

Gaston:

This is just for these three, yes.
Okay. All right?

H.M.Jr:
Gaston:

That is all I have. I talked to Ed Flynn.

H.M.Jr:

What are you going to do about it?

Gaston:

Well, I suppose it will be what Ed Flynn
wants. His proposal is to come on here

and go with Bowen to the White House. When
they come out of the White House, Bowen will
announce that he is going out to campaign

in the State of Washington for the President.

He will tell who is going to direct the cam-

paign in Washington. The man has resigned
as Collector of Customs.
H.M.Jr:

All right, gentlemen.

to take to

WH 9-19
September 18, 1940.
MENORANDUM

TO: Secretary Morgenthan
FROM: Mr. Gaston

You may wish to discuss either or both of the following political
situations with the President:
(1) Collector of Internal Revenue at Teledo, Ohio. Charles H.
Graves, former Collector, died August 15th. General Watson phoned on
August 24th that the President had just been talking to Charles Sawyer
of Cincinnati, National Committeeman, and that nothing was to be done
toward filling this vacancy until the President had had a chance to

talk to you. I don't believe the President will wish to make any

appointment before election but I should like to confirm this so we

can be guided accordingly.

On August 23rd Senator Donahey wrote to the President recommending
the immediate appointment of Ralph O. Snyder, Secretary to Representative

John Hunter, and also stating that the appointment of one Frasier Reans,
a lawyer of Teledo, would likewise meet with his approval. We received
this letter August 26th. Both Donahey's and Hunter's offices have called

us up frequently pressing for action. I finally told Hunter yesterday

that nothing would be done until we got further directions, which seemed
to stump him. Three persons have written or wired advising that no
appointment be made until after the election. They are: Samuel R. Young,
an attorney of Teledo; I. W. Gotschall of Toledo, who gives John Biggers

as reference, and Tell Thompson, County Chairman of Hancock County.

(2) Frank Duffy, National Committeeman from Vermont, wants to
have his son, Frank Duffy, Jr., appointed to succeed the late Stephen M.
Driscoll, formerly Collector of Customs at St. Albans, Vermont, who died

several months ago. Duffy was in to see you shortly after Driscell's

death and you introduced him to me. He asked that nothing be done about

the appointment until after the conventions, but he brought in and introduced his son at that time and told me that he hoped his son could be
appointed. Duffy, Jr., is an engineer, formerly employed by the New York
State Highway Department and more recently on P.W.A. bridge projects in
Vermont. Duffy can, of course, produce an adequate number of letters of
recommendation for his son, but doesn't wish to do so unless he gets the
go sign. One John Picher, a member of the French-Canadian colony at
Winooski, near Burlington, has been energetically advocated by residents
of that town. Duffy says they are not an important element of the
Democratic Party of Vermont.

10
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy Berlin, via Bern
DATE: September 19, 1940, noon.

Rec'd: September 23, 1:08 p.m.

NO.: 4062
The following telegram is for the Treasury from
Heath, and for the information of the Department.
There are two recurrent themes in the economic press

in Berlin and in conversations with German officials, now

that the first year of war has ended. They are: (1)
The wartime performance of the German economy has triumphed.

(2) Germany has been strengthened to the point of economic

invulnerability through victories and territorial acquisilong

tions, however aboxxt the war may be. The last point,
however, usually is accompanied by a statement of the

prescribed official point of view that the war will
soon come to an end with complete victory for the German
Government.

In connection with the first point, it must be admitted
that the German economy did come through the first year
of war without breaking down, and also without serious

difficulties, with the exception of the tie-up in transportation which resulted from the unusually severe winter of
1939-40, defects in rolling stock, and personnel which
was inexperienced, causing a temporary shortage in the

larger cities of certain essential foodstuffs. The German
people

-2people as a whole were adequately fed with the exception

of this period. Fuel shortage was the main result of
the difficulties of transportation, which caused vocal
discontent as well as physical distress and illness. The
warmer weather and German victories, however, brought to an

end the vocal discontent.

In connection with the second point, it must also be
admitted that Germany in general is much stronger economically

for another year of war than the country was last September.

The fiscal policy of Germany, first of all, is much more
sound than it was in the first World War. Through efficient
control over consumption and distribution, Germany has

avoided price and monetary disturbances of wartime. It is
true that only 1/2 of the expenditures of the Government
are met by Germany's present tax collection of about
2 billion marks a month, but only 1/10 of the outlays of
the Government were met by taxes in the first World War.
It has been necessary for the Government to borrow at the

monthly rate of 2 billion marks, but there has been no

difficulty in accomplishing this, and the present national
debt is not inordinate. The disclosed debt of the Reich
on the last day of June was 60 billion marks. This figure
has probably gone up to 65 billion marks now, compared with

the figure at the outbreak of the war of 37 billion marks.

The undisclosed debt of the Reich must be added to this
figure - an amount probably greater than 10,000,000,000

marks - which was accumulated during the first years of
rearmament under the National Socialist Party. The war
has been financed for the most part by taxation and genuine
savings resulting from enforced consumption curtailment

rather than by recourse to currency and credit inflation.
There was an increase in note circulation of the Reichabank
to 12.1 billion marks on August 23, 1940, as compared with

8.7 billion marks on August 23, 1939. To a large extent
this expansion can be explained by the introduction of the
mark into western territories in Poland which were incorporated into the Reich, and by the cash reserves which

German military units carried and the decreased velocity

of note circulation because of the difficulties and restrictions on purchases. Currency circulation increase was
accompanied by an almost negligible rise in the prices of
goods and services essential to the population due to

the strict controls over prices, wages and rations which
Germany now has over almost all economic goods and services.

There was a rise in the cost of living index - using 1913
as 100 - to only 133.1 in August 1940 as compared with

127.3 in August 1939. Leaving out rents, which were static,
the

-4the food and clothing increase was the largest. For
clothing the increase was from 133. to 140, and for food
from 124.9 to 133.0. Approximately the maximum has been

reached for revenues under war conditions and at present

rates of taxes. However, the cost of maintaining the
German military forces is to a large extent now being borne

by the countries occupied by Germany. This is a help to
the monetary position of Germany as well as to the fiscal
burden of the Reich; troops abroad are being paid either
in a special mark scrip which the occupied territories must
accept, or in currencies of the occupied countries.
There is as yet no information available here concerning
the stocks of raw materials which Germany acquired in the

countries occupied by the military. It is understood that
these stocks include substantial amounts of textile materials,
non-ferrous metals and copper, and oil. New sources of
raw materials have been acquired by Germany in addition
to the stocks; she now has access to the French (omission)
iron ore, the Silesian zinc mines, Norwegian molybdenum,

and important manufacturing facilities. In view of Germany's
military domination of the whole continent of Europe, she

is in a position to force increased deliveries of supplies
of various commodities from European neutrals. The position
of iron ore has changed to one of surplus over present needs,

where heretofore it was one of potential shortage in a long

war. In addition to the oil stocks which Germany acquired
by occupation, it should be possible for her to import
from Rumania in a short time petroleum products at least
at the annual rate of 3,000,000 tons, as contrasted with
the quota conceded by Rumania in the early part of the
war of 1.5 million tons. I can perceive no evidence that
there is any great concern on the part of German military
authorities over the supply of petroleum in the war's present
phase and scale. If there should be a shortage of the
petroleum supply, Germany would not permit operation of the
considerable number of passenger cars and trucks which are

still operating and which are not performing vitally
essential services.
There are certain potential economic weak spots, as
contrasted with the foregoing economic gains and elements

of strength. One gains the impression from talks with German

officials that behind the officially optimistic facade there
is some concern over the fact that practically the whole
continent of Europe is now under blockade - and Europe

neither feeds nor clothes its people nor can it meet its
minimum needs in most non-ferrous metals and in oil.

It is known, specifically, that the problem of coal production and transportation is of some concern to the economic
authorities. During the summer efforts have been made to

transport to German cities a sufficient supply of coal
to

-6to avoid the shortages which occurred last winter. However,

if this winter should be as severe as the last one, according
to informed sources, these stocks will not be sufficient.
The outlook is far more serious in the countries under
occupation and in the neutral countries. This Embassy has

authoritative information that the Netherlands is the only
country outside of Germany which is secure from severe

shortage by reason of its considerable domestic output.
The coal industry of Germany is one in which the Third
Reich has not been able to obtain any important enlargement

of output during the past two years, and it is hardly likely
that there will be an early increase which would at all
make up for the 30,000,000 tons which Britain ships to

Europe normally. A point of significance is that Dr. Ley
in a speech he made recently promised to place the pay
of the miners at the peak of wages in Germany.

The supply of petroleum, as previously stated, does

not present a serious problem in the present stage of the
war. However, note should be taken of the fact that the

synthetic gasoline plants present identifiable aerial targets
as do the overburdened systems of rails and canals - and

the air force of Germany and part of her motorized land

forces now depend on the synthetic gasoline plants. It is
to be noted particularly that despite the fact that Germany
has been drawing on the rolling stock of the countries under

occupation, it has been necessary for the German State

Railways to advise German shippers to use freight cars
as sparingly and as promptly as possible.
In the event of a long war, Germany cannot count with
certainty upon imports from Russia, which imports have
been a comparatively important factor in the war economy
of Germany. Germany at war would definitely have added

troubles should there be elimination or even substantial
reduction of imports from Russia of manganese and oil, which

it is claimed by German officials are being received now
at an annual rate of more than 1,000,000 tons, plus feed
grains, and the 500,000 tons of Russian phosphate fertilizer.
It would seem that the German food supply is assured

for another year of war. However, thereafter German

observers believe it likely that the rations of fats and
eventually meats will have to be decreased because of

an insufficient supply of fodder. There have taken place
already greater than normal slaughterings of livestock in
Holland, Denmark, Germany and Belgium. It is the hope of
agricultural authorities in Germany to raise French agricultural production in 1941 through ordering increased use

of fertilizer and labor, but it is uncertain to what extent
this can be achieved. Aside from the fats and meat question,
an eventual grain shortage can be envisaged due to the

insufficient supply of phosphatic fertilizers - although
shipments

-8shipments from the northern part of Africa may remedy this

situation. A contributing factor to eventual grain shortage
would be the exhaustion of reserve stocks which in Germany

will be drawn upon relatively lightly but which in states
under German military occupation would be drawn upon heavily

since they are grain deficit countries with the exception
of France.

There is still another question of which account must

be taken, 1.e., the effect of the prospect of prolonged
warfare - accompanied by air raids - on morale, which latter
has been an important factor to date in the economic

productivity of Germany. The efficiency of the consumption
restrictions and controls has not been solely responsible
for Germany's success in avoiding inflationary results
from its tremendous financial operations; the acceptance
of all this by the German people has been partly responsible.
The German people have been instilled with the belief that
their sacrifices would be brought to an end by an early
decisive military victory by Germany.
Should the European war continue to be limited as it
is now to an aerial and naval attack against the British

Isles with relatively unimportant aerial counterattack
being suffered by Germany, these potential weaknesses in

the future food supply and in transportation, the eventual
deficiency of non-ferrous metals and alloys, the European
coal

-9coal supply problem and the cumulative effect of restrictions and shortage on Germany's oivil population
and on the civil populations in occupied countries
should present to Germany no critical economic dif-

ficulties. Should the area and the participation in
the war increase and Germany, instead of being in the

position of attacker, also be the object of a continued
attack genuinely destructive without the compensation
of continued successes, then the military BER scales
might eventually be tipped by the aggregation of these
weak places, strains and deficiencies with their
material and also paychological effects and consequences.

(END OF MESSAGE)
KIRK

EA:LWW/msg

21524
GRAY

Buenos Aires

Dated September 19, 1940

Rec'd 11:55 a.m.

Secretary of State,
Washington.

423, September 19, 1 p.m.
Embassy's 422, September 19. noon.

This noon the Director of the Exchange Control
office informed the Embassy that the suspension applies

to all (repeat all) applications for prior permits to
import American merchandise including prospective purchases
of such goods by Argentine Government departments. Thus
the embargo is temporarily complete.

TUCK

WWC

COPY

imc

PARAPHRASE OF TELEGRAM

No. 422, dated September 19, 1940
Noon, from Buenos Aires.
The Embassy was requested this morning by the Minister

of Finance to inform the Department that the suspension
of prior import permits for American merchandise was not
intended in any way to put Argentina in a bargaining

position in connection with the visit of Warren Lee Pierson.
He said that the measure became necessary due entirely

to the fact that Argentina's supply of exchange had been
seriously depleted.

The Minister of Finance referred again to the problem of an exchange and monetary agreement and asked if

it were possible to do anything to have the United States
act more quickly on this matter. He expressed the hope

that it might be possible to arrange some form of a triangular agreement in connection with the current AngloArgentine negotiations regarding the proposed British
purchase of 40 million pounds sterling of Argentine
products.

The Minister stressed the fact that the present
economic and financial situation in Argentina is desperate
and that help is urgently needed from the United States.

RA:AED:CBT

COPY
bj

September 19, 1940.

MEMORANDUM

TO: Secretary Morgenthau
FROM: Mr. Gaston

The

In view of your conversation with Assistant Secretary of

State Breckenridge Long on September 3rd, you will be interested
to know that the State Department has approved the request of
Herbert L. May on behalf of the Permanent Central Opium Board
and the Opium Supervisory Board under the 1931 Convention, both
of Geneva, Switzerland, to establish temporary so-called branch
offices in the United States. May, a rich American who has made

control of the opium traffic his main interest, is a member of

both boards. The State Department has accorded diplomatic visas
to the five permanent members of the staffs of the two organizations who are to come from Geneva. One of the staff, Leon Steinig,
Secretary of the Supervisory Board, is already in the United States.

This action came about in a rather odd way. Various indirect
approaches had been made and early last week May called up Harry

Anslinger to ask if he could suggest any way in which they could
get action. Anslinger said: "I suggest you make formal application
to the State Department for permission to establish these offices."
May did it and the application was granted. Long receded from

his objections in view of Secretary Hull's strong interest.

The offices will probably be housed at Rockefeller Center,

New York. While they will be called branch offices, they will
actually transact all the business of gathering statistics and
regulating the international narcotics trade for the duration of

the war in Europe. Operation from Switzerland has become impossible
because of the great delays even in diplomatic mail.

September 19, 1940.

MEMORANDUM

TO: Secretary Morgenthau
FROM: Mr. Gaston

In view of your conversation with Assistant Secretary of

State Breckenridge Long on September 3rd, you will be interested
to know that the State Department has approved the request of
Herbert L. May on behalf of the Permanent Central Opius Board
and the Opium Supervisory Board under the 1931 Convention, both
of Geneva, Switzerland, to establish temporary so-called branch
offices in the United States. May, a rich American who has made

control of the opium traffic his main interest, is a member of

both boards. The State Department has accorded diplomatic visas
to the five permanent members of the staffs of the two organisations who are to come from Geneva. One of the staff, Leon Steinig,

Secretary of the Supervisory Board, is already in the United States.
This action came about in a rather odd way. Various indirect
approaches had been made and early last week May called up Harry

his objections in view of Secretary Hull's strong interest.

The offices will probably be housed at Rockefeller Center,

New York. While they will be called branch offices, they will
actually transact all the business of gathering statistics and
regulating the international narcotics trade for the duration of

the war in Europe. Operation from Switserland has become impossible
because of the great delays even in diplomatic mail.

HEG/mah

September 19, 1940
10:50 a.m.
Present:

Mr. Helvering
Mr. Gaston

Mr. Thompson (for latter part)

down?
me.

HM,Jr: Good morning, gentlemen. Will you sit

This is the memorandum which the President gave

Pa Watson.

(Reading) "Memorandum for General Watson.

"Senator Tydings and Senator Radcliffe handed

me the enclosed list of the Maryland appointments in which they are interested. Three
of the four are re-appointments.

"The Collector of Internal Revenue, Wm. S.

Gordy 1s a splendid selection. He is from

the Eastern Shore, and was a candidate for
Governor about four years ago polling a large
vote.

"After the President told me that he would

make these appointments, I talked with Helvering suggesting to him to appoint Magruder, the
present Collector, to some place in the Wash-

ington office. This would leave no bad feeling on the part of Magruder or his friends.

I have not yet heard from Helvering about the

appointment.

"Tydings tells me that if I can assure him that
the President will make these appointments, he
will comply with my request to issue a statement supporting the ticket without waiting for
the appointments to be sent to the Senate. I
think it should be done today. Some one should

advise Morgenthau to immediately appoint Magruder
to come place in the Treasury Department."

-2-

HM,Jr: You know you (Helvering) and I talked
about this.
What can you do?

Mr. Gaston: The point is we are asked to find
another job in the Treasury for Magruder.
HM,Jr: He (Helvering) knows about it.

Mr. Helvering: Yes. Byrnes talked to me at

length about it.

HM,Jr: Jimmie Byrnes. Got a job?
Mr. Helvering: We haven't anything in the Bureau.
HM,Jr: How much do you pay on that Tax Board?

Mr. Helvering: That Tax Board is $10,000.
HM,Jr: Does Charlie West get $10,000?
yes!

Mr. Helvering: Yes. Is he on the Tax Board? Oh,
Yes. $10,000.

HM,Jr: There is a vacancy there. I think there is.
Mr. Helvering: You mean the Board of Tax Appeals?

Mr. Gaston: You are talking about the Processing
Tax Board of Review that Charlie West is on.

Mr. Helvering: I am not sure of their salaries.
HM,Jr: It's $7,000 or $7,500.
Mr. Gaston: There isn't any salary. I think the

man is an employee of the Treasury Department and he's designated by you to be a member and he can be appointed out of
that to a job in the Treasury Department.
thing.

HM,Jr: They want an answer right today on this

Mr. Helvering: The way they put it up to me, as I

-3-

explained to you -- I don't t know that you recall -that we find a place in Internal Revenue to advance
him to it. But of course we can't advance anybody

by reducing the salary and the only places we have
that pays more than Magruder, or as much, are all
filled by excellent men now. Only myself and the
Deputy Commissioner and the Special Commissioner and
Assistant and the Head of the Technical Staff.

HM,Jr: Is it the fellow who formerly ran for

Governor they want to take care of?

Mr. Helvering: Oh, yes! He was Comptroller

of Maryland.

HM,Jr: Why wouldn't it be easy to take care

of him and leave Magruder where he is?

Mr. Helvering: What they want is to show they

have enough influence to put Magruder out.

Mr. Gaston: Magruder turned against Tydings.

Mr. Helvering: Tydings will not have any objec-

tion, but he wants to show Maryland

Mr. Gaston: Magruder supported Lewis.

(Mr. Thompson came into the Secretary's office

at this point.)

HM,Jr: will you handle this and let me know today

what you can do?

Mr. Helvering: There isn't anything we can do

in the Bureau.

HM,Jr: Talk it over with Norman Thompson. I
won't go over it again, but go in and see Norman and

sometime tomorrow morning I will see you if you two can
work out something on that.
(HM,Jr then read Gaston's memo of Sept. 18th

the first two paragraphs of which referred to the position of Collector of Internal Revenue at Toledo.)

HM,Jr: What the President said was this. You
two fellows can handle this between you. I don't care
how you do it. Call Charles Sawyer, of Cincinnati, and
tell him what these fellows want and get his advice and
after you know what Charles Sawyer wants I am to again
talk to the President, but in order to save my time,
Herbert, I am going to ask you to call up Pa Watson and
tell him what Charles Sawyer said.

Mr. Gaston: Yes. Yes.
HM,Jr: You call up Charles Sawyer and give him
this rigamarole and say the President wants to know what

he thinks of it, what is his advice, and after you get it
report back to Pa Watson.
Mr.

Gaston: Sawyer is a pretty week sister.

HM,Jr: Well

(The Secretary then read the last paragraph of

Gaston's memorandum of Sept. 18th which referred to the
desire of Frank Duffy, National Committeeman from Vermont,

tohave his son, Frank Duffy, Jr., appointed to the vacant
position of Collector of Customs at St. Albans, Vermont.)
HM,Jr: The answer to Frank Duffy is this: The
President remembers Frank Duffy, Jr., very well. He can't
do anything just now, but the chances are very good that

after election he will take care of his son.

Mr. Gaston: In other words, we will leave this
thing alone for the present just as it has been.
HM,Jr: That's the story. Does that clean up the
politic?
Mr. Gaston: Yes. I was going to mention that
Pa Watson called me a minutes ago and Donahey and Hunter

were in his office and he wanted to know what to say to
cept no decision had been reached as to whether there

them. I told him there was nothing to say to them exwould be an immediate appointment.

-5-

HM,Jr: Anything on your (Helvering) mind?
about.

Mr. Helvering: One matter I want to speak to you
HM,Jr: Now?

Mr. Helvering: Yes.
About a year ago I made a recommendation that we

take all these bank cases where they had disassociated

their facilities under the Act of 1934 and set them on
a certain basis. There was some opposition to it and
I wrote up a memorandum distinguishing between the two
cases which the Supreme Court had decided and settled,
the ones under -- one case as having the divorcement

provision in there that told us very clearly, showed us
very clearly, that there had been divorcement of the affiliate in the bank stock and there was a possibility of
avocation of values. The Department of Justice, however,
has some cases pending and they don't want that done.

I want to state to you that recommendation over
here to you and Mr. Hanes O. K'd it. Since Hanes went
out this situation in the Department of Justice has come

up. Now, Hanes has written us a letter in which he de-

mands us, under that provision in the recommendation, that
we made and he O. K'd, that we go ahead and settle certain

cases under these affiliates.
HM,Jr: Hanes!

Mr. Helvering: Yes, because that was the ruling
and we should follow it. We discussed with the Department of Justice yesterday and they think they can now
overrule the so-called Hageman case, which was the one
we were getting the act under, but if we think administratively all these 400 - 500 cases could be settled
better under the provision of that recommendation they
will withdraw, but I know they don't like to. They
think they can reverse the Hageman case. That is the
quandary presented to us.

HM,Jr: What is Hanes' interest in it?

-6-

Mr. Helvering: He has a friend who has a big

tax case.

HM,Jr: Who did he address the letter to?
Mr. Helvering: Me. Of course, he remembered
about this recommendation of mine that he O. K'd. So
he is contending there was a proposition passed by the
Treasury and should have been acted on.

HM,Jr: I will have to have -- could you bring
Foley
up
to date and I will talk to the two of you tomorrow?
Mr. Helvering: I would like to bring Wenchell.
HM,Jr: Bring Wenchell along and bring the letter

from Hanes.

000-000

September 18, 1940.

Ms.

MEMORANDUM

TO: Secretary Morgenthau
FROM: Mr. Gaston

You may wish to discuss either or both of the following political
situations with the President:
(1) Collector of Internal Revenue at Toledo, Ohio. Charles H.
Graves, former Collector, died August 15th. General Watson phoned on
August 24th that the President had just been talking to Charles Sawyer
of Cincinnati, National Committeeman, and that nothing was to be done

toward filling this vacancy until the President had had a chance to

talk to you. I don't believe the President will wish to make any

appointment before election but I should like to confirm this so we
can be guided accordingly.

On August 23rd Senator Donahey wrote to the President recommending

the immediate appointment of Ralph O. Snyder, Secretary to Representative
John Hunter, and also stating that the appointment of one Frazier Reams,

a lawyer of Toledo, would likewise meet with his approval. We received
this letter August 26th. Both Donahey's and Hunter's offices have called
us up frequently pressing for action. I finally told Hunter yesterday
that nothing would be done until we got further directions, which seemed
to stump him. Three persons have written or wired advising that no
appointment be made until after the election. They are: Samuel R. Young,
an attorney of Toledo; I. W. Gotschall of Toledo, who gives John Biggers
as reference, and Tell Thompson, County Chairman of Hancock County.

several months ago. Duffy was in to see you shortly after Driscoll's

death and you introduced him to me. He asked that nothing be done about

Originals returned to Seneral Watson
9/19/40

THE WHITE HOUSE
WASHINGTON

September 19, 1940.

MEMORANDUM FOR GENERAL WATSON:

Senator Tydings and Senator Padcliffe
handed me the enclosed list of the Maryland ap-

pointments in which they are interested. Three
of the four are re-appointments.

The Collector of Internal Revenue, 7im.

S. Gordy, is & splendid selection. He is from

the Eastern Shore, and was a candidate for Governor

about four years ago polling a large vote.

After the President told me that he would
make these appointments, I talked with Helvering
suggesting to him to appoint Magruder, the present

Collector, to some place in the Washington office.
This would leave no bad feeling on the part of
Magruder or his friends. I have not yet heard from
Helvering about the appointment.

Tydings tells me that if I can assure
him that the President will make these appointments,
he will comply with my request to issue & statement supporting the ticket without waiting for
the appointments to be sent to the Senate. I
think it should be done today. Some one should
advise Morgenthau to immediately appoint Magruder
to some place in the Treasury Department.

JAMES BYRNES

Calleotn of Customer tota held until after studion,
United States Senate m
WASHINGTON. D.C.

Collection 7 Internal Revenuewm S. gordy, Jr. C Salisbury MA

was for 15 years state Comptroller of

mayloud

J Removed
Battemor
u. S.Flywn
District
atty - md
(encumbent)

august
Hecka,
But
a.s. marshell

(wicumlnnt)

S. Scott Beels- - Chesterthin and
Comptroller of Customs

(wewchht

Hni

THE WHITE HOUSE
WASHINGTON

9-12-40 Talk Deer should
MEMORANDUM FOR THE PRESIDENT:

Henry Morgenthau 'phoned me that Guy

Helvering was told by Senator Byrnes that the
President wanted to promote Collector Magruder in
Baltimore, to make a vacancy so that the two
Senators could make a new appointment. Helvering
is in a quandary as to how he could be promoted.

Gun
E. M. W.

September 19, 1940.

MEMORANDUM

TO: Secretary Morgenthau
FROM: Mr. Gaston

I talked to Charles Sawyer, National Committeeman of Ohio,

on the telephone this afternoon. He said he would regard it as
very unfortunate if any appointment of Internal Revenue Collector
at Toledo were made before the election. He strongly urged that
the ap pointment be delayed until after the election. As to
Snyder, Secretary to Congressman Hunter, whom Hunter and Senator
Donahey have recommended, Sawyer said he was "no good"; that he was

for Lemke in 1936 and before that a Republican. He added that John
Hunter, the Congressman, "has never been with the President." I
reported the substance of this to General Watson's secretary, General

Watson being out of the office at the time.

Soon after I had made this report to Pa Watson, Jim Rowe called

me and said that the President wants to do all that he can to fill
vacancies in Presidential offices immediately. He would like to have
us start the ball rolling right away. Rowe had a list of vacancies
in various departments and said the President would like some action
on all of them except the Collectorship of Customs at Savannah, as
to which he said no, and the Collectorship of Internal Revenue at
Little Rock, as to which he had a question mark: He added that the
President wanted us to consult Ed Flynn before sending any of the

nominations over. I told Rowe I would give him a list of our vacancies and explain the situation on each. It was Rowe's impression
that Flynn might be in town this afternoon and would probably talk
to us.

At my request Johnson sent a telegram to Saul Haas today, sug-

gesting that he telegraph a request for permission to come to
Washington on Customs business.

In talking to Ed Flynn today I told him that I was here nearly
all the time and that he could reach me directly on matters affecting
Treasury employees or appointments.

September 19, 1940.

MEMORANDUM

TO: Secretary Morgenthau
FROM: Mr. Gaston

I talked to Charles Sawyer, National Committeeman of Chio,

on the telephone this afternoon. He said he would regard it as
very unfortunate if any appointment of Internal Revenue Collector
at Toledo were made before the election. He strongly urged that

the appointment be delayed until after the election. As to

Snyder, Secretary to Congressman Hunter, whom Funter and Senator
Donahey have recommended, Sawyer said he was "no good"; that he was

for Lemke in 1936 and before that a Republican. He added that John
Hunter, the Congressman, "has never been with the President." I
reported the substance of this to General Wetson's secretary, General

Watson being out of the office at the time.

Soon after I had made this report to Pa Watson, Jim Rowe called

me and said that the President wants to do all that he can to fill
vacancies in Presidential offices immediately. He would like to have
us start the ball rolling right away. Rowe had a list of vacancies
in various departments and said the President would like some action
on all of them except the Collectorship of Customs at Savannah, as
to which he said no, and the Collectorship of Internal Revenue at
Little Rock, as to which he had a question mark. He added that the
President wanted us to consult Ed Flynn before sending any of the

At my request Johnson sent a telegram to Saul Haas today, sug-

gesting that he telegraph a request for permission to come to
Washington on Customs business.

In talking to Ed Flynn today I told him that I was here nearly
all the time and that he could reach me directly on matters affecting
Treasury employees or appointments.

HEG/mah

given to me by horman Sept emage 19.1950
36

Dr. Federico Pinedo, Minister of Finance
in the new Argentine Cabinet

with the appointment of Dr. Federico Pinedo as

Minister of Finance in the new Argentine Cabinet, there
has been a decided change both in personality and in the

general outlook of the occupant of this position.
Dr. Pinedo, who is about forty-five years of age, possesses
one of the outstanding financial minds in Argentina. While
he was educated as a lawyer, he is also an economist of

note and is highly respected in both fields. After ob
taining his doctorate in jurisprudence in 1915, he practiced law and served three terms as National Deputy for

the Federal District. From 1933 to 1935 he was Minister
of Finance under President Justo and is a member of the

Board of Directors of a number of prominent financial and
business houses in Buenos Aires.

Dr. Pinedo was instrumental in the reorganization of

the administration of Argentina's finances, including
the creation of the machinery for the Central Bank and
the unification of taxes. Although Dr. Pinedo, with the
Minister of Agriculture, inaugurated the bilateral system
of trade balances in Argentina which was detrimental to
American interests, he has not been unsympathetic towards

this country and during intervening years his opinions

have changed 80 that they are no longer in direct conflict
with the principles of freedom of trade supported by
Mr. Hull. He is a man of broad outlook and experience
and in numerous recent conversations with members of the
American Embassy staff at Buenos Aires has expressed
himself

37/
himself emphatically in favor of greater continental
solidarity and in particular in favor of a Pan-American
Customs Union and cooperation with the United States both

economically and in continental defense. In a telegram
of June 10, 1940 from the Embassy at Buenos Aires, it was

reported that an article which had appeared in the local
press signed by Dr. Pinedo in which he took a firm stand
against the Nazis and asserted that the future well-being
of Argentina would be threatened should they win the war.
He urged closer cooperation with this country in continental defense and by inference warned against the peril

of "fifth column* activities, calling upon Argentina not
to make the mistake of delivering over its Government,
through fear of a possible enemy, into the hands of

sympathizers with this enemy. It is reported that he
maintains a very close touch on all the problems of the
Ministry of Finance doing a great deal of the work himself
and taking the responsibility of initiating and conducting
negotiations. Dr. Pinedo is a close friend of Julio Roca,
the new Foreign Minister, and they are reported to be in
complete accord on political and economic questions. This

fact, coupled with the fact that Roca is not in good
health, makes it inevitable that Pinedo will take a leading
part in Argentine negotiations with the United States.
In a recent conversation with a member of the Embassy

staff Pinedo stated that the Argentine Government has de-

cided to do everything possible to cooperate fully with

the United States in matters pertaining to further interAmerican cooperation and solidarity. He added that
Argentina is now in a position somewhat similar to that of
Great

-30

Great Britain with respect to the necessity for looking to
the United States for aid in working out its problems.
He continued that while Argentina formerly considered

Great Britain as its chief interest, it is now felt that
Argentina's future lies in developing closer relations
with the United States.

39
CONFIDENTIAL

M.I.D., W.D.
Tentative Lessons

G-2/2657-235

Bulletin No. 51
September 19, 1940
TENTATIVE LESSONS FROM THE RECENT
ACTIVE CAMPAIGN IN EUROPE

NOTICE

This document is being given an approved distribution,

and no additional copies are available in the Military Intelligence Division. Its reproduction in whole or in part

is subject to the provisions of letter TAG, November 15,
1939, AG 350.05 (11-1-39) M-B-M, "Dissemination of Military

Information by the Military Intelligence Division and by
Recipients of M.I.D. Information".

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative
and are in no sense mature studies.

BRITISH COMMENT ON DIVISIONAL ARTILLERY
SOURCE

The information in this bulletin came from a high British
authority through an official American source. Reports were made in
mid-August, 1940.
CONTENTS

I. BRITISH DOCTRINE ON COMMAND OF DIVISIONAL
ARTILLERY.

II. CHANGES IN ORGANIZATION

CONFIDENTIAL

-1-

40
CONFIDENTIAL

I. BRITISH DOCTRINE ON COMMAND OF DIVISIONAL ARTILLERY,

After study of operations in Flanders and France, the
British have not changed their doctrine of command and methods of

control of the Divisional Artillery.

Perfect cooperation between all Artillery commanders and
the Infantry commanders they support is enphasized more than ever,
as is the necessity for instant and automatic change from "supporting" to "attached" whenever communications to the higher echelon

are broken. The British also stress the change from "attached" to
"supporting" whenever divisional control is possible.

The doctrine of employment of Infantry tends more and
more towards rapid movement in the opening stages of an engagement,

with Infantry brigades and their normally supporting Artillery
operating more or less independently as a brigade group Natural-

ly there will be many occasions during rapid movement when Division-

al Field Artillery regiments will be "attached", under command of
the Infantry brigade commander.
However, when enemy resistance is met in forward move-

ment, or when it is decided in withdrawal to establish resistance
and the divisional commander is in a position to control his Infantry brigndes, the Field Artillery regiments must at once revert
to divisional control. The commander of the Divisional Artillery
must therefore be able to establish his own communication with his
regiments.

As set up in the British divisional organization, one

section 3 of the Divisional Signals is permanently designated,

organized, and trained to provide communications for the commander

of the Royal Artillery. He does not share the Infantry net nor de-

pend upon others to exercise his command functions.

According to a recent Var Office letter:
"The divisional commander controls the employment of

Divisional Artillery.
"The commander of the Royal Artillery is in command of

the Divisional Artillery and prepares detailed Artillery plans to
implement the plans of the divisional commander.

1. The British Infantry brigade is the equivalent of our regiment.0-2
2. The British brigade group is the equivalent of our combat team.G-2

3. i.e., one company. G-2
4. i.e., a signal battalion under command of a lieutenant-colonel.0
CONFIDENTIAL

-2-

III
CONFIDENTIAL

"The staff consists of a brigade major, a staff captain,
a lieutenant for Artillery intelligence duties, three clerks from
the Royal Artillery, 1 draughtsman from the Royal Engineers and

20 other ranks. Two Royal Air Force radio operators join on arrival
in the theatre of operations and remain permanently attached to the
staff.
"Communications are provided by the Divisional Signals.
Three motorcycles are assigned to the brigade for employment by

orderlies acting as dispatch riders. The attached Royal Air Force
personnel are provided with one radio set."
II. CHANGES IN ORGANIZATION.

As a result of a thorough study of operations in Flanders
and France, the General Staff Artillery Committee has recommended

that, for the creation of a more flexible and more easily handled
Artillery regiment, the battery should consist of only two troops
of four guns each. The regiment will have three batteries instead
of two, but the number of guns in the regiment, 24, will remain as
before. It is authoritatively stated that this recommendation will
be approved and put into effect.
The British unit designated as a troop is a captain's
command of four guns similar to our battery, but lacking certain

elements of the maintenance platoon which are concentrated for
economy of men and road space in the next higher echelon under a

staff officer. The British unit designated as a battery is similar
to our battalion and is a major's command.

Another advantage of this reorganization should be pointed

out. As the British division is triangular throughout, the contemplated change in the Field Artillery regiment will greatly facilitate Artillery support. A reginent of Field Artillery (24 guns)
will support the Infantry brigade, and a battery of Field Artillery
(8 guns) will support each of the three battalions of the Infantry
brigade.

CONFIDENTIAL

-3-

RESTRICTED

G-2/2657-220

M.I.D., W.D.
September 19, 1940.
SITUATION REPORT

No. 198

12:00 M.

This military situation report is issued by the Military
Intelligence Division, General Staff. In view of the occasional
inclusion of political information and of opinion it is classified
as Restricted.

Western Theater of War.

1. No ground operations.

2. Air Force Operations.
Apparently German daylight attacks on the London area

on the 18th were successfully intercepted. German night attacks

over London followed the usual pattern and caused widespread damage.

The air alert lasted 92 hours. The Germans state they attacked numerous docks and port facilities in London. Elsewhere in England,
Liverpool, Newcastle, the Billingham chemical works and an airdrome
were attacked.

The British made some daylight attacks on the Channel
ports on the 18th and renewed them more heavily that night. There
was limited British activity over Germany. The R.A.F. is now employing up to 200 bombers during each 24 hours in offensive operations.

II. Mediterranean and African Theaters of War.

1. The Italians are consolidating their hold on Sidi Bar-

rani. There is still no reliable information concerning activity
farther south.

2. The Italians claim air attacks on Mersa Matruh and on

naval units off Sidi Barrani. The British claim to have bombed
Italian forces between Bugbuq and Sidi Barrani. There were also
widespread raids, presumably by small elements of the R.A.F., over
East Africa, the Sudan and the Dodecanese Islands.

RESTRICTED

CONFIDENTIAL

All

Paraphrase of Code Cablegram Received at the
War Department 1:46 Pomo, Sept. 19, 1940

London, Filed 13:06, September 19, 1940

During the night of September 18-19 182 planes of the Royal
Air Force attacked enewy ports and communications across the English

Channel. Six planes were lost. The Coastal Command carried out their
usual reconnaissance and photographic mission, losing two planes out
of the 77 employed.

During the daylight hours of the 18th the German Air Force

operated about 800 aircraft, the attack centering generally along the
Thames River and the southeast part of London. Little damage was done

to important targets. Houses were demolished here and there, one oil
tank was hit and there were some civilian casualties.
German attacks during the night of September 10-19 lasted
all night and were concentrated on London, with some raids on northeast
England that did little damage. There was considerable random damage
done to houses in the West End of London, many streets were blocked

with debris, and five good sised fires were started. Fire in the
plant of the Pleasey Company, Inford, Essex, did extensive damage.

A fire in the guaponder factory at the Imperial Chemical Industries
at Waltham was soon under control, production in the Royal Small Arms
Factory, Enfield, was affected by an unexploded delay action bomb,

and there was a fire at the plant of Beaton and Sons, Acton.
German aircraft lessee were 46 confirmed, 16 probable and 19

damaged. The Royal Air Force lost 12 planes and 3 pilots. Estimated

CONFIDENTIAL

CONFIDENTIAL
station commIties in the London area were 90 killed and 350 injured
Three British ships totalling 13,500 tons were mukie

There are no changes in the information of plans for invoice.

Yesterday I main a visit to the Anny - the coast. A12
reales were very anxious for the German to attempt - invoice. Lard
Beaverbrook stated that there is no question but that Germany month

business as hits on - barges indicate that they were leaded with
assestion. The Royal Air Force is holding considerable air power
in reserve, including sase powerful new becomers, for - against
energy sea-borne foress.

From the night of Londan recently 10 to be proved conclusively that both searchlights and sound locators

are ineffective, at least obsolescent. Enery booking planes during
the last few nights have been almost unopposed. In the nour future

the British expect to equip their night fighters with a new deteotion device that will enable them to locate and destroy bonbers as
night.
German planes have been dropping parachuto-borne mines on

London. These result in extremely severe blasts but so far casualties
have book mederate. They are reported to be about three feet in
districter, with a torpode wall and a time fune.

It has born found necessary to sahd all - out of town
as night. Conorth Park (7) is boobed out and all are sleepless.
We are all well hare.

CONFIDENTIAL
LEE

Copies too Military Aide to President

Asst. Secretary of War

Secretary of War

Chief of Staff

State Department

ONX

Secretary of Treasury 2

WPD

CONFIDENTIAL

All
Persphrase of Code Radiogram

Received at the War Department
at 6:33 P.M., September 19. 1940.

Berlin, filed 19:28, September 19, 1940.
The missions of the present German Air Activity appear
to bel

1. The obtainment of air supremacy.
2.

The destruction of vital British industries and other

objectives.

3. The undermining of public morale with the ultimate forcing
of capitulation or bringing about a change of government and the establishment of a cabinet amonable to negotiation.
The Germane continue preparations for an attack by all
arms, time containing England while preparing to conduct operations

in other theatres. It is my opinion that Germany is apprehensive as
to the success of an offensive against England at the present time.
PHYTON

Distribution:
Aide to the President
Secretary f Yar
State Department

Secretary of Treasury
Asst. Secretary of War

Chief of Staff

War Plans Division

Office of Naval Intelligence

CONFIDENTIAL

CABLE

FROM: Commercial Attache, Nicholson
Shanghai, China.
DATE: September 19, 1940

For the Secretary of the Treasury.
Current situation Shanghai for week ending September 14th
STOP Exchange market was dull and steady throughout week with

chief interest centered on Europe but no definite trend apparent
STOP Market uncertain during most of period turning easy at

close but still maintaining good volume with prices only moderately
80

off STOP Sugar monopoly STOP Reported that Japanese military

about to place in hands of four Japanese first exclusive privilege

of importing all sugar destined for interior of China that a
guarantee will be required that none of such imports go into
unoccupied territory STOP Local cotton mills now operating at
about 50% capacity but are considered likely to reduce to 30%
either October or November STOP Prospects not bright as transport

to interior is virtually cut off while local yarn stocks estimated
at 350,000 bales and increasing STOP Of local spindle capacity
about 70% is Japanese mostly associated with Osaka interests

and while operating in China is more profitable than in Japan
apparently an effort will be made for Japanese domestic political
reasons to give Osaka mills an increased share of China business
which remains STOP Only bright aspect for China as that domestic
supplies of raw cotton should for some time be adequate to meet

requirements with substantial termination of foreign imports
which during past year had such adverse effect on exchange STOP

Japanese military however, apparently preparing to fix price of
Chinese raw cotton so that industry proper will apparently gain
NICHOLSON
little or no advantage.

47 fl

"The Department has discussed with the Treasury the possi-

bility of sending to Buenos Aires an important Treasury
official who would be capable of and authorized to discuss and
conclude a monetary and exchange arrangement with the Argentine

authorities. After giving careful and sympathetic consideration

to all of the points raised by Dr. Pinedo 1/ the Secretary of
the Treasury believes that considering all the circumstances
such a negotiation could more appropriately take place in
Washington. Please discuss the situation with Dr. Pinedo and
inform him that the Secretary of the Treasury would be glad
to discuss in Washington the possibility of such arrangements
with him personally or any representative which he may choose to
name.

O.K. 1/mfi
9-19-40.

September 13, 1940

Mr. White:

Mr. Collado called and dictated the following, which it is proposed
to include in a cable to Argentina. (He wanted you to understand that
we have already given the Argentines an opportunity tell us that they
would like to have the discussions, so the Treasury is not inviting
the discussions.)

"The Department has discussed with the Treasury the possi-

bility of sending to Buenos Aires an important Treasury
official who would be capable of and authorized to discuss and

bring

conclude a monetary and exchange arrangement with the Argentine

starts

authorities. After giving careful and sympathetic consideration
1

to all of the points raised by Dr. Pinedo the Secretary of the

Treasury believes that such a negotiation could take place only

appropriately

in Washington because he is extremely desirous of playing an

active role in it. Please discuss the situation with Dr. Pinedo
and inform him that the Secretary of the Treasury would (reatly)

glad to descuss

welcome the opportunity of discussing in Washington the possi-

bility of such arrangements with him personally or any representative which he may choose to name.

"Please also inform Dr. Pinedo that the Department and the

Treasury & onsider such discussions would deal with basic
monetary and exchange relationships of long born character and
s

20 such would not greatly conflict with the discussions of Mr
Pierson which will consist of commercial banking arrangements, the

financing of long term development projects and similar matters.
The new Minister of Finance.

QUINTUPLICATE

Buenos Aires, Argentina,
September 6, 1940.

No. 1208

A SUGGESTED MONETARY AND EXCHANGE
ARRANGEMENT BETWEEN THE UNITED STATES
AND ARGENTINA

The Honorable

The Secretary of State,
Washington.

Sir:

With reference to the Embassy's telegram no. 391 of

September 4, 7 p.m., I have the honor to enclose a copy
of a memorandum of the conversation in which Dr. Federico
Pinedo, the Minister of Finance, inquired whether the
Treasury Department would attach an appropriate official

to Mr. Pierson's staff so that the matter of a monetary
and exchange arrangement might be looked into during the

course of Mr. Pierson's visit to Buenos Aires.
Respectfully yours,
For the Charge d'Affaires

origi-

Monnett B. Davis

First Secretary

ENclosure: as stated.
CMR:jk

MEMORANDUM OF CONVERSATION

Buenos Aires, September 5, 1940.

Messrs. Tuck, Davis and Ravndal called on Dr. Fede-

rico Pinedo this afternoon, at the latter's request, to

discuss the Embassy's memorandum of August 19 which indicated

that if the Argentine Government should be interested in

effecting a monetary and exchange arrangement with the
United States, the Treasury Department would be pre pared

to discuss the matter in Washington. Dr. Pinedo said that
Dr. Roca, the Minister for Foreign Affairs, had drawn the
question to his attention last night and had asked him to
draft an appropriate reply to the Embassy's communication.
He added that before making an official reply he wanted to
discuss the matter informally with a view to obtaining a
fuller understanding of the background of the question.
The Charge d'Affaires explained that members of the Argentine Delegation to the Habana Conference had discussed the
Argentine economic situation in great detail with members
of the United States Delegation and had emphasized the

desirability of taking up the questions of a trade agree-

ment, monetary arrangements, Export Import Bank credits,
a corn agreement and possible purchases of surplus commo-

dities. The Charge d'Affaires went on to say that it was
felt that the question of a trade agreement could not be
raised at this time, that we had already proposed a corn
agreement which we understood was being studied by com-

petent officials of the Argentine Government, and that
matters such as monetary arrangements fell within the province of the Treasury which had indicated that if the Argentine Government wished to take the initiative Treasury
officials were prepared to discuss a monetary and exchange
arrangement in Washington. (The question of the possible
purchase of hides and skins specifically was at no time
mentioned).

Dr. Pinedo then remarked that both he and Dr. Roca

were of the opinion that since he is to take an active
personal part in endeavoring to work out satisfactory
agreements with the United States it would be very helpful if the Treasury Department would be willing to send

someone to Buenos Aires. He recognized that the Department might have the same objections to the visit of a

Treasury official as had led it to withhold the Hawkins

mission, but suggested that perhaps these objections
might be met if the Treasury expert were attached to Mr.
Pierson, ostensibly in connection with business relating
to the Export Import Bank. He pointed out that Mr. Pierson
had been here before and that his coming at this time

would be regarded as perfectly natural in the light of
publicity given the granting of the twenty million dollar
Export Import Bank credit to the Central Bank. According-

ly, he felt that if a Treasury official should come with
Mr.

51
-

Mr. Pierson there would be no publicity which might be
construed as suggesting that trade agreement negotiations
were being reopened.

Dr. Pinedo also pointed out that there is a connecmatters which Mr. Pierson is to discuss and that it would
therefore seem to be reasonable to have the conversations
held in the same place rather than to have one part of
related matter handled at Washington while the greater
part was being considered in Buenos Aires. However, he
went on to say, if the Treasury Department should not be
disposed to send an official to Argentina at this time,
or to authorize Mr. Pierson's mission to handle the matter,
the Argentine Government would send a competent representative to the United States at an early date. de added
tion between a monetary and exchange agreement and the

that he earnestly hoped that 11 the Argentine Government
should send someone to the States, the Department would
not use the same reasons he had used and suggest that the

Argentine mission also discuss the matters which it is now
planned willbe considered during Mr. Pierson's visit. In
other words, it is hoped that any arrangement made with
regard to the monetary and exchange question will not be
permitted to obviate the Pierson mission.
LT. Pinedo stated that the Argentine Government is
decided to do everything possible fully to cooperate with
the Government of the United States in matters tending to
further inter-American solidarity, adding that Argentina
is now in a position somewhat similar to that of Great
Britain with respect to the necessity of looking to the
United States for aid in working out its problems. He want
on to say in this regard that while Argentina formerly
considered Great Britain as its chief concern, it is now
felt that Argentina's future interests lie in developing
closer relations with the United States.
Dr. Pinedo was informed that the Embassy had for some
time been considering making a recommendstion to the
Department that the United States Government, purely as
political measure, purchase some of Argentina's export
a

surpluses as a symbolic gesture of its firm intention to
thought the idea an excellent one but hoped that the purchases would not be made until it could be announced that
tiations looking towards closer relations between the
two countries were in progress. He said it would be most
unfortunate to dissipate any of the political credit which

assist Argentina out of its difficulties. Dr. Pinedo

might be obtained from such purchases.

with regard to the matter of having a Treasury official included in Mr. Pierson's mission for the purpose

of working out a monetary and exchange arrangement, the

Charge d'Affaires, just before leaving, again drew LT.
Pinedo's attention to the fact that matters such as
monetary arrangements fall within the province of the
Treasury, but added that he would be glad immediately to
submit the Minister's views to the Department and inform
him in the premises as soon as possible.
C.M.R.
CMR:JK

DEPARTMENT OF STATE
WASHINGTON

September 19, 1940

In reply refer to
EA 840.51 Frozen Credits/581

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses

for such reply as he may consider appropriate a copy of
a letter from Mr. Jack Gross of Brooklyn, New York
requesting information concerning the bearing of Executive
Order No. 8389 on commissions owed to him by a firm in

Cognac, France. Mr. Gross has been informed of this
reference.

Enclosure:
From Mr. Jack Gross,
September 16, 1940.

1162 East 13th St.
Brooklyn, New York

Sept. 16, 1940
State Department,
Washington, D. C.
Gentlemen:-

This letter has to do with FROZEN BANK CREDITS held

here by a New York bank, to the order, however frozen, of
a French firm, in Cognac, France, - and by whom I was
employed as a commission merchant, and salesman.

For several months prior the capitulation of France,
this firm in Cognac, France advised me that they had applied to the Exchange Control for the right to send my
commissions to me-and nothing was forthcoming.

After the Order was issued from Washington, freezing

funds here, for credit to French Nationals, at least one

draft was presented here in behalf of a shipment made by
my firm of Cognac, - and paid by the consignee. Therefore,
this money must be held frozen here.

I doubt very much that the firm in France, under strict
surveillance as it is, would write me to-day, to help; although after the capitulation I did receive a letter from
France, mentioning that they hope my commissions may be
paid when matters become right.

In order to establish my right to a claim on funds
held here-please advise whether it is necessary for me to
sue my French principals at law, and recover a judgment?

If perchance, I could receive a letter from France,
authorising the bank holding the funds here, to release

to me-would that suffice? However, I fear there is little

likelihood of such permission coming from France, - due to
restrictions imposed.

Will you refer this letter to the proper governmental
department, in event I have mis-directed it?
Respectfully yours,
JACK GROSS

jg/h

Washington, September 19th, 1940.

AMBASSADE DE BELGIQUE

D. 8187

No. 3749

Dear Mr. Cochran,

Referring to my letter of August 28th, No. 3378, may

I take the liberty of calling again to your kind attention,
the question of the "Banque Italo Belge". I am informed
that the "Banque Belge pour l'Etranger" in New York, which

has on deposit one of the accounts of the "Banque Italo
Belge* in the United States" has requested, in connection
with the license which expires on September 30th, that the

United States Treasury consider the possibility of the total

release of this account. You will recall that in my letter
abovementioned, I had inquired whether it would be possible

to release the accounts of the "Banque Italo Belge" up to
50% and as an experiment. If the Treasury Department is

unable to follow this suggestion, could it not at least, release in its entirety, one of the accounts of the "Banque
Italo Belge", for example, that on deposit at the Banque Belge

pour l'Etranger in New York, while still maintaining the
restrictions on the others, where the amounts on deposit, as
you are sware, are quite large.
Yours sincerely,
The Counselor of the Embassy

(s) Baron de Gruben
Mr. H. Merle Cochran

Technical Assistant to the Secretary
Department of the Treasury
Washington, D. C.
COPY
bj

Treasury Department

Division of Monetary Research
55
Date
To:

September 19,

1940.

Secretary Morgenthau

Below are a few suggestions that might be
worth thinking about as possible concessions
that might be made to the Russians if any
inducement is necessary to get them to cooperate.

1. Informal assurance that gold sent here
by Russia which does not come from

Germany, or from occupied territories,
shall receive the same treatment as
that accorded gold coming from any

other country. (She has asked for
something like that in a recent cable

which has doubtless come to your

attention.)

2. Informal permission for Russia to buy
any materials she needs here, such as
machine tools, possibly molybdenum or

anything else that does not constitute
a violation of any existing law here.
3. We might see what can be done about the

relinquishing the Baltic ships in our

ports which are now being tied up with
legal and foreign fund obstacles so

that they shall not fall in Russian

hands.

4. Possibly American technicians who were

recalled at the time of the Finnish
episode might be permitted to return.

MR. WHITE

Branch 2058 - Room 208

Treasury Department

Division of Monetary Research

Date Sept. 19, 1940.
To:

Secretary Morgenthau

From:

Appended is the report of
the consummation of the trade

agreement with Russia. You will
be interested in the date, which

is August 6, 1940.

MR. WHITE

Branch 2058 - Room 210

Commercial Policy
AGREEMENT WITH THE UNION OF SOVIET SOCIALIST REPUBLICS
(Released to the press August 7)

The Acting Secretary of State, Mr. Sumner
Welles, made the following statement regarding
the commercial agreement with the Union of
Soviet Socialist Republics:
It may be noted that notes were exchanged August
6, 1940, between this Government and the Soviet Government extending until August 6. 1941, the commercial

agreement which in its present form was first concluded between the two countries on August 4, 1937.
The present agreement Is similar to those in effect during the previous three years in all respects except that

there has been added a proviso to the note referring
to the minimum amount of purchases ($40,000,000) to
be made in the United States by the Soviet economic

organizations. This proviso takes into account the
possibility that various export restrictions imposed by
the United States in the course of its national-defense
program may make It impossible for these organizations to carry out their intentions
It is a source of deep gratification that we are able
by means of this agreement to continue our commercial

relations with the Union of Soviet Socialist Republics
on the present basis, and It Is to be hoped that during
the coming year they will develop In a manner advantageous to both parties.

As in the previous three agreements, the So-

viet Government has informed the American
Government that the Soviet economic organizations intend to purchase during the next 12
months American goods to the value of at least
$40,000,000. The agreement takes into account

the possibility that various export restrictions
imposed by the United States in carrying out its
national-defense program may make it impossible for these organizations to carry out their
intentions.

The Government of the United States undertakes in the agreement to continue to accord to
the commerce of the Soviet Union unconditional
most-favored-nation treatment, with a reservation in respect of coal, deemed necessary because of the nature of the coal-tax provisions of

the Revenue Act of 1932. Under this agreement, therefore, the Soviet Union will continue
to receive the benefits of concessions granted
by the United States in trade agreements with
countries other than Cuba entered into under
the authority of the Trade Agreements Act.
The Soviet Government has renewed in a

United States of America and the Union of Soviet Socialist Republics which was proclaimed
and became effective on August 6, 1937, and
which was renewed for successive periods of
one year on August 5, 1938, and August 2, 1939,

note accompanying the agreement its commitment to export to the United States in the next
12 months not more than 400,000 tons of Soviet
coal which was approximately the quantity of
Soviet coal exported to the United States in the
calendar year 1936. While there were imports
of coal during each of the first three agreement

was continued in force for another year, that

years, such imports did not in any such year

Released to the press August 61

The commercial agreement between the

is until August 6, 1941, by an exchange of identie notes at Moscow on August 6, 1940, between
the American Charge d'Affaires ad interim, Mr.
Walter C. Thurston, and the People's Commissar for Foreign Trade of the Soviet Union, Mr.
A. I. Mikoyan.

amount to as much as one half the 400,000-ton
limitation. Since October 1939 there have been
no imports of Soviet coal.
The following table gives the value in dollars

of United States exports to and imports from
the Soviet Union in the agreement years:
105

DEPARTMENT OF STATE BULLETIN

106

record by this note the following agreement which has
reached between the Governmental of our respect

U.S. de

tive countries:

Agreement year (Asg.July)

CERR
W.U.S.

1985-86
1100-ST.

One The United States of America grant to the

N.U.S.

unrestricted most favored is all mat

the United of America, Its territortes or pos
the Philippine Islands or the Panama Canal
Zone to one another or to the Republic of Cuba shall

months in connection with the commercial
States and the Soviet Union on August 6, 1940:

ters concerning customs daties and of every

ing the exportation or importation of gold or silver,

kind and in the method of levying duties and further

is all matters concerning the rules, formalities and

or to prevent the adoption of such measures as the
Government of the United States of America may see

67,779

Preliminary

The text of the identic notes exchanged at
Moscow between the American Charge, Mr.

Walter C. Thurston, and the People's Com-

missar for Foreign Trade of the Union of

charges imported is connection with the clearing of

fit with respect to the control of the export or sale

goods through the customs and with respect laws

for export ammunition or Implements of war,

or regulations affecting the sale or of Imported

and in exceptional cases all other military supplies

goods within the country

It is understood that any action which may be taken

Accordingly. natural or manufactured products hav
ing their origin in the Union of Soviet Socialist Repub
lies shall in no case be subject, in regard the matters
referred to above. to any duties, taxes charges other

by the President of the United States of America under

the authority of Section 2 (b) of the Neutrality Act
of 1937 in regard to the passage of title to goods shall

or higher. or any rules or formalities other or more

not be considered contravening any of the provisions
of this agreement relating to the exportation of natural

burdensome than those to which the like products have

or manufactured products from the territory of the
United States of America

Soviet Socialist Republics, Mr. A. I. Mikoyan,

ing their origin In any third country are or may here

is as follows:

after be subject
Similarly natural or manufactured products exported

crimination shall be effected by the United States of

from the territory of the United States of America and

America against importations from the Union of Bovlet
Socialist Republics and in favor of those from any third

Moscow. August 6. 1910
EXCELLENCY

In accordance with the conversations which have
taken place. have the honor to confirm on behalf of
my Government the agreement which has been reached

between the Governments of our respective countries
that the agreement regarding commercial relations be
tween the United States of America and the Union of
Soviet Socialist Republics recorded in the exchange of
notes of August 4. 1937. between the Ambassador of
the United States of America and the People's Com

missar for Foreign Affairs of the Union of Soviet So
cialist Republics which cause into force on August a

1937 the date of proclamation thereof by the Presi
dent of the United States of America and approval
thereof by the Council of People's Commissars of the
Union of Soviet Socialist Republics and which was re

newed on August 5. 1988, and August 2 1939 shall
continue in force until August 6 1941 The present

consigned to the territory of the Union of Soviet Social
1st Republics shall In no case be subject with respect

exportation and in regard to the above entioned mat
to any rules or formalities other or more burdensome
to the territory of any third country are or may here
Any advantage favor, privilege or Immunity which
has been or may bereafter be granted by the United
States of America In regard to the above-mentioned
matters, to a natural or manufactured product origi
nating in any third country or consigned to the territory
of any third country shall be accorded immediately and
without compensation to the like product originating in

or consigned to the territory of the Union of Soviet
Socialist Republics

It is understood that so long as and in so far as
existing law of the United States of America may

of People's Commissars of the Union of Seriet Socialist

otherwise require. the foregoing provisions, In so far as
they would otherwise relate to duties, taxes or charges
on coal, coke manufactured therefrom, or coal or coke

Accept (etc.)

WALTER c THURTON

briquettes shall not apply to such products imported

The following text is that of the agreement
of August 4, 1937:
With reference to recent conversations which have
taken place in regard to commerce between the United

States of America and the Union of Soviet Socialist
Republics have the honor to confirm and to make of
Executive Agreement Series No 100

prohibitions or restrictions (1) imposed on moral or
humanitarian grounds (2) designed to protect human,

agreement should proclaimed by the President of the
United States of America and approved by the Council
Republics

country, the foregoing provisions shall not extend to

animal, or plant life, (3) relating to prison-made goods,

after be subject.

into the United States of America. If the law of the

or (4) relating to the enforcement of police or revenue
laws

Two On its part the Government of the Union of
Soviet Socialist Republics will take steps to Increase

entirety on thirty days' written notice
It is understood furthermore, that the advantages
now accorded or which may hereafter be accorded by

Moecow, August 1910.

EXCELLENCY:

I have honor to refer to our recent conversations

In regard the between the United States
America and the Union of Soviet Socialist Republics

to ask you let me know the value of articles
the growth. produce or manufacture of the United
States of America, which the Government of the Union
of Soviet Socialist Republics intends to purchase In the

United States of America during the next twelve
months for export to the Union of Soviet Socialist
Republica

Except [etc.]

WALTER c. TRUNSTON

(Translation)
Mr. CHARGE D'ARVATIEN

Moecow, August 6, 1940

In reply your Inquiry regarding the Intended pur
chases by the Union of Soviet Socialist Republics in
the United States of America in the course of the next

twelve months, have the honor to Inform you that
the economic organizations of the Union of Soviet No.

etalist Republics intend buy in the United States of

America in the of twelve months Ameri-

substantially the amount of purchases the United
States of America for export to the Union of Soviet

can goods to the valor of at least $40,000,000

Socialist Republics of articles the growth produce,
manufacture of the United States of America
Three This agreement shall come into force on the
day of proclamation thereof by the President of the
United States of America and of approval thereof by

Government of the United States should render It dim

the Soviet of People's Commissers of the Union of
Soviet Socialist Republics which proclamation and
approval shall take place on the same day. It shall
continue in effect for twelve months Both parties

agree that not than thirty days prior to the

If, however, restrictions imposed on exports by the
cult for Soviet economic organizations to satisfy their
needs in the United States It may be Impossible for

these organizations carry out their Intentions The
Government of the Union of Sorlet Socialist Republics

is therefore not in a position at the present time to
guarantee the above-mentioned value of its purchases
in the United States.
Accept [etc.]

WALTER c THURSTON

expiration of the aforesaid period of twelve months
they shall start negotiations regarding the extension
of the period during which the present agreement shall

continue in force.

United States of America shall not permit the complete
operation of the foregoing provisions with respect to the
above-mentioned products, the Union of Soviet Socialist

Republics reserves the right within fifteen days after
January 1. 1968, to terminate this agreement in ID

agreement entered into between the United

Subject to the requirement that no arbitrary dis

ters to any duties, taxes, or charges other or higher,
than those to which the like products when consigned

the Union of Soviet Socialist Republics intends
to make in the United States during the next 12

Nothing in this agreement shall be construed to pre
rent the adoption of measures prohibiting or restrict

$1,018

30,355

107

be excepted from the operation of this agreement.

38,254

64,224

months)

Union of Soviet Socialist Republics and

AUGUST 10, 1940

The following communications, exchanged
between the American Charge and the People's

Commissar for Foreign Trade, concern the
amount of purchases which the Government of

(Released to the press August 10)

The commercial agreement between the
United States and the Union of Soviet Socialist
Republics, signed on August 6, 1940, was pro-

claimed by the President on August 7. On the
same day, the agreement was approved by the

Council of People's Commissars of the Union
of Soviet Socialist Republica

AUGUST 10, 1940

The Foreign Service

109

Jacob D. Beam, of Princeton, N. J., Third
Secretary of Embassy at Berlin, Germany, has

been assigned for duty in the Department of
State.

Maurice Pasquet, of New York, N. Y, Vice
Consul at Dairen, Manchuria, has been assigned

as Vice Consul at St. Pierre-Miquelon, where
an American Consulate will be reopened.

PRESS INTERVIEW BY THE AMERICAN AMBASSADOR TO BELGIUM
Statement of the Acting Secretary of State, Mr. Welles
(Released to the press August 9)

I have now received from the American Empress interview given by Ambassador Cudahy

the United States Nevertheless, the interview
given was in violation of standing instructions
of the Department of State, and certain of the

in London on Tuesday, August 6, last.

views expressed by the Ambassador are not to

bassy in London a transcript of the notes of the

From the transcript it would appear that Am-

Treaty Information

ple, an interest which is shared by the people of

Compiled in the Treaty Division
OPIUM

yet subject to the supervision Instituted under the

International Opium Convention (1925)

Swiss legislation on narcotics now undergoing revision,
the acceptance by the competent Federal authorities of
the Health Committee's resolution CRODOL take effect

be construed as representing the views of this

bassador Cudahy received at an informal gathering some American correspondents and rep-

Government

resentatives of the British press who had requested interviews with him.

tance which must be attributed by American

The incident illustrates once again the impor-

representatives abroad to the Department's in

Switzerland

With reference to the circular letter from the

structions to refrain at this critical time from

League of Nations dated October 25, 1939, com-

making public statements other than those made

from, or without prior notification to, the De-

municating for information the text of a letter

in accordance with the instructions of the De

partment of State.

addressed to the states parties to the International Opium Convention of February 14, 1925,

As I previously stated, the Ambassador's in-

terview was given without prior authorization

I am sure that no one will question the sincerity of the Ambassador's sympathetic interest in the future well-being of the Belgian peo-

By direction of the President, Ambassador

Cudahy has been requested to return to the
United States immediately for consultation

PERSONNEL CHANGES

concerning the acceptance by certain states, in-

cluding Switzerland, of a new resolution of the

Health Committee applicable to the prepars-

The following changes have occurred in the
Foreign Service since August 3. 1940:

Leland B. Morris, of Philadelphia, Pa., Consul General at Vienna, Germany, has been designated Counselor of Embassy and Consul General

France,

Samuel H. Wiley, of Salisbury, N. C., Con-

sul at Havre, France, has been assigned at
Consul at Lisbon, Portugal.

at Berlin, Germany, and will serve in dual

George J. Haering, of Huntington Station,
N. Y., has been assigned as Consul at Vigo,

capacity,

Spain.

The assignment of James J. Murphy, Jr., of
Pennsylvania, as Consul General at Rotterdam,

Netherlands, has been canceled. Mr. Murphy
has now been assigned as Consul General at
Hamburg Germany.

Hugh S. Fullerton, of Springfield, Ohio,
First Secretary of Embassy and Consul at Paris,
108

The assignment of Joseph F. Burt, of Fair
field, III., as Consul at Prague, Bohemia, has
been canceled. Mr. Burt has now been assigned

as Consul at Valparaiso Chile.
Thomas C. Wasson, of Newark, N. J. Consul
at Vigo, Spain, has been assigned as Consul at
Dakar, French West Africa, where an American
Consulate will be established

Department has the honour, etc.
BELNE November 18th, 1939

To the Secretariat of the
League of National Genera

COMMERCE

Agreement With the Union of Soviet

the Secretary General of the League transmitted

Socialist Republics

to the Secretary of State with a circular letter

Swiss Federal Political Department dated
France, has been assigned as Consul at Marseille,

Requesting the Secretarist to bring the foregoing to

the attention of the Governments concerned, the

tions based on Indian-hemp extract or tincture,

dated May 27, 1940, the following letter from the
(Released to the press August 10)

within Switzerland until the new Federal law comes

into force.

November 18, 1939:

In circular letter dated October 25th last, the Seeretariat of the League of Nations informed the Federal

Political Department that, several countries including
Switzerland having accepted the Health Committee's
resolution of May 1009 concerning the application of
Article 10 of the Convention of February 14th, 1925, to
preparations based on Indian hemp extract or tincture,

the provisions of that agreement had become I
diately applicable to the preparations referred to by the

said resolution in relations between States This com
munication was immediately transmitted to the Federal
Public Health Service

In agreement with this Service and referring to its
note of August 7th 1939 the Political Department has
the honour to draw the Secretariat's attention to the
fact that, as Indian hemp extract and tincture are not
'See the Bulletin of December 9. 1939 (vol. 1. no. 24).

to 680-681

An announcement regarding the commercial
agreement between the United States and the

Union of Soviet Socialist Republics, signed
August 6, 1940, appears in this Bulletin under
the heading "Commercial Policy".

INTERNATIONAL LAW

International Institute for the Unification
of Private Law

The American Ambassador to Italy transmitted to the Secretary of State with despatch
dated May 16, 1940, a copy of the new Funda-

mental Statute of the International Institute
for the Unification of Private Law. The Institute which is now established in Rome was for-

merly a part of the League of Nations with
headquarters in Geneva.

According to information furnished by the
Italian Foreign Office the statute, which is dated

110

DEPARTMENT OF STATE BULLETTN

March 15, 1940, entered into force on April 21,

1940. The following countries have adhered
to the statute: Belgium, Bolivia, Colombia, Fin-

Publications

land, Germany, Greece, Hungary, Ireland,
Italy, Lithuania, the Netherlands, Nicaragua,
Rumania, Spain, Sweden, Switzerland, and

Uruguay.

DEPARTMENT or STATE
Reciprocal Recognition of Load Line Regulations for
Vessela Engaged in International Voyages on the Great

Lakes Arrangement between the United States of
America and Canada-Effected by exchanges of notes

Legislation

signed April 29, 1988, August 24. 1968, October 22 1984
September 2, 1939, October 18, 1989, January 10, 1940

and March 4. 1940 Executive Agreement Series No.
Two Supplemental Estimates of Appropriations for
State Department 1941: Communication from the
President of the United States transmitting two supple
mental estimates of appropriations for the Department
of State, for the fiscal year 1941, amounting to $306,500

(H. Doc. 802, 76th Coug. 34 sens) 2 pp. 56.

172 Publication 1482 9 pp. 5f.

Achievements of the Second Meeting of the Foreign
Ministers of the American Republica: Statement of the
Honorable Cordell Hull Secretary of State, at the close

of the Meeting. Habana, July 30, 1940 Conference
Series 47. Publication 1488 8 pp. 54.

- PRINTING

For sale by the Superintendent of Documents, Washington D. C-Price 10 cents Subscription price $2.75 . gest
PUBLISHED WHELLY WITH THE APPROVAL OF THE OF THE BURNAC OF THE BUDGET

THE DEPARTMENT OF STATE

BULLETIN
AUGUST

10,

1940

Vol. III: No. 59-Publication 1493

Contents
GENERAL:
Page

Statement by the Secretary of State

103

Licenses under the Export-Control Act

104

AMERICAN REPUBLICS:

Dinners in honor of delegations to the Habana Meeting
of the Ministers of Foreign Affairs:
Brazilian delegation
Argentine and Uruguayan delegations

104
104

COMMERCIAL POLICY:

Agreement with the Union of Soviet Socialist Republica

105

THE FOREIGN SERVICE:
TREASURY

DEPARTMENT

Press interview by the American Ambassador to Belgium: Statement of the Acting Secretary of State,
Mr. Welles

Personnel changes
TREATY INFORMATION:

108

Opium:

International Opium Convention (1925)

109

Commerce:

Agreement with the Union of Soviet Socialist Republies

109

International Law:

International Institute for the Unification of Private
Law

109

LEGISLATION

110

PUBLICATIONS

110

General

STATEMENT BY THE SECRETARY OF STATE
(Released to the press August 01

The strong belief of the representatives of
the 21 American nations at the recent Habana
Meeting was that the military and other sinister
activities on the part of some nations in other

unless and until they recognize that there exists
unbreakable resistance.

At Habana we forged new instrumentalities

of continental defense, These will be of Vast

large areas of the world present real possibilities of danger to the American republica
It was universally recognized that a threat to
any important part of the Americas means a

importance to our Nation and to every Arberi.
can nation. But there are other and immense

threat to each and all of the American nations.
It was, therefore, agreed that full and adequate
preparations for continental defense could not

in this country and in this hemisphere from

tasks still before us.

I would greatly prefer to say that we are safe
outside danger. But I am firmly convinced that
what is taking place today in many areas of the

be taken too soon if the threatened danger from

earth is a relentless attempt to transform the

abroad was to be checked and terminated It

civilized world as we have known it into a world
in which lawlessness, violence, and force will

was also the unanimous view at Habana that

the prompt strengthening of unity and
solidarity for the purpose of continental defense

and for its implementation by concrete programs supported by the 21 nations was indiapensable to the safety, security, peace, and welfare of this hemisphere.

There was general agreement that if the
peaceful nations of Europe had thus promptly
organized themselves for self-defense on the
most effective cooperative basis, the chances are

that their situation and that of Europe would

be vastly different today. Instead, many of
those countries complacently relied upon utterances of peaceful purpose and upon their own
neutrality to safeguard them against the mighty
forces of invasion, conquest, and destruction.
Some of them have been overrun and destroyed

by the ruthless invader. Their fate should be a

tragic lesson to us

The vast forces of lawlessness, conquest, and

reign supreme, as they did a thousand years ago,
The people of this country cannot recognize too
soon this fact and its overwhelming significance

for our national safety and for the maintenance
of our national institutions
The one and only sure way for our Nation to
avoid being drawn into serious trouble or actual

war by the wild and destructive forces now
abroad elsewhere in the world and to command

respect for its rights and interests abroad is for
our people to become thoroughly conscious of

the possibilities of danger, to make up their
minds that we must continue to arm, and to
arm to such an extênt that the forces of conquest and ruin will not dare make an attack on

us or on any part of this hemisphere. To this
end, each citizen must be ready and willing for
real sacrifice of time and of substance and for

hard personal service. In the face of terrific
problems and conditions, and until the present

destruction are still moving across the earth

serious threats and dangers have disappeared,

like & savage and dangerous animal at large.
By their
very nature, those forces will not stop
253067-40

we cannot pursue complacently the course of
our customary normal life.
103

104

DEPARTMENT OF STATE BULLETIN

I feel constrained thus to offer my views in
the light of what is already a dangerously widespread movement for world conquest and for
the destruction of most of the worthwhile things
which civilization has given the human race.

LICENSES UNDER THE EXPORTCONTROL ACT

The Honorable Dr. Antonio Camillo de Oliviera, Mem.

ber of Brazilian Delegation

Dr.Delegation
Abelardo Bueno do Prado, Member of Brazilian
The
Honorable Henry A. Wallace, Secretary of Agril
culture
The Honorable Key Pittman, United States Senate
The Honorable Sol Bloom, House of Representatives
The Honorable Charles A. Eaton, House of Represents
tives

(Released to the press August 91

During the period July 5-31, 1940, inclusive,
the Division of Controls received 6,242 applications for license to export articles or materials
listed in the President's proclamation of July
2. 1940, establishing export restrictions under
the authority of section 6 of the act of Congress
approved the same day. Of this number, 5,897
applications were disposed of on or before July
31, and 845 remained pending at the end of the
month. Of the applications disposed of, 4,361
were granted, 236 were rejected on the ground
that the articles or materials in question were
essential to the national defense, 104 were returned with the request that further data be

submitted, and 696 were returned with the
statement that no license was required for the
contemplated exportation.

The Honorable James A. Shanley, House of Repre
sentatives

The Honorable Jesse Jones, Federal Loan Adminis
trator

Mr. Drew Pearson

Argentine and Uruguayan Delegations
(Released to the press August 7)

The following guests attended the dinner
given at the Mayflower Hotel, Washington, As
gust 7, 1940, by the Acting Secretary of State,
the Honorable Sumner Welles, in honor of the
Argentine and Uruguayan delegations to the

Habana Meeting of the Ministers of Foreign
Affairs:
His Excellency Senor Don Felipe A. Espll, Ambassado
of Argentina

His Excellency Dr. Leopoldo Melo, Chairman of the
Argentine Delegation to the Habana Conference

American Republics

The Honorable J. Richling. Minister of Uruguay
His Excellency Dr. Pedro Manini Rios, Chairman of

DINNERS IN HONOR OF DELEGATIONS
TO THE HABANA MEETING OF THE
MINISTERS OF FOREIGN AFFAIRS

The Honorable Dr. José A. Mora Otero, Member of the
Uruguayan Delegation to the Habana Conference

the Uruguayan Delegation to the Habana Conference

Brazilian Delegation
(Released to the press August 6]

The following guests attended the dinner
given on August 6, 1940, by the Acting Secretary of State, the Honorable Sumner Welles,

The Honorable Frank Knox, Secretary of the Navy
The Honorable Tom Connally, United States Senate
The Honorable Elbert D. Thomas, United States Senate

The Honorable Guy M. Gillette, United States Senate
The Honorable Luther Johnson, House of Represents
tives

The Honorable Ed. V. Izac, House of Representatives
The Honorable Foster Stearns, House of Represents
tives

at his home, Oxon Hill, Md., in honor of the

General George c. Marshall, Chief of Staff

Brazilian delegation to the Habana Meeting of

Admiral Harold R. Stark, Chief of Naval Operations

the Ministers of Foreign Affairs:

The Honorable Henry F. Grady, Assistant Secretary
State

His Excellency Carlos Martins, Ambassador of Brazil
His Excellency Dr. Mauricio Nabuco, Chairman of the

Brazilian Delegation and Undersecretary of State
for Foreign Affairs of Brazil
See the
pp. 12-13

Bulletin of July 6, 1940 (vol. III, no. 54),

The Honorable Breckinridge Long, Assistant Secretary
of State

Mr. Felix Belair, Jr.
Mr. Constantine Brown
Mr. Ernest Lindley
Mr. Philip W. Bonsal, Department of State
Mr. H. Charles Spruks, Department of State

58
DEPARTMENT OF STATE

Washington

In reply refer to

September 19, 1940

EA 840.51 Frozen Credits/592

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
herewith copies of the paraphrase of a telegram received
from the American Consulate General at Beirut regarding
funds of the Banque de Syrie which are deposited with
the French American Banking Corporation and the Chase
National Bank.

Enclosure:

Copies of paraphrase

of telegram no. 91,
from Beirut,

September 18, 1940.

COPY

imc

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate General, Beirut.
DATE: September 18, 1940, 6 p.m.

NO. : 91.
This is in reference to my telegrans numbered 46, 74,
76 and 83. concerning frozen French credits.

I have been informed by the Banque de Syrie that its

license permitting partial release of its funds deposited
with the French-American Banking Corporation will expire
on September 20, and that a similar license concerning

their funds in the Chase National Bank will expire on
September 27. The Banque de Syrie has communicated with

these American banks by telegraph, requesting that these
licenses be renewed. Because of the essential requirements

of this mandated territory, the importance of this was
stressed by the High Commissioner in a conversation which

I had with him today.
PATMER

EA:VCL

COPY

imc

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 19, 1940
TO

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

The six reporting banks executed the following transactions in registered

sterling:

Sold to commercial concerns
Purchased from commercial concerns

£55,000

£ 4,000

Open market sterling remained at 4.03-3/4 all day. Transactions of the
reporting banks in open market sterling were as follows:
Sold to commercial concerns
Sold to foreign banks (Venezuela)
Total

Purchased from commercial concerns

£6,000
£5,000
£11,000

-0-

Continuing its improvement, the Canadian dollar reached a discount of 15-7/8%

at the close today. It will be recalled that this currency reached a current
low of 17-1/2% on September 14.

The other currencies closed as follows:
Swiss franc
Swedish krona
Lira
Reichsmark
Mexican peso
Cuban peso

.2279
.2385
.0505
.3992

.1996 bid, .2016 offered
8-7/8% discount

There were no gold transactions consummated by us today.

The Federal Reserve Bank informed us that it had made another three-months

loan of $50,000 to the Central Bank of E1 Salvador. As collateral, the Federal

set aside gold valued at $56,988 from the Salvadorean bank's earmarked account.
The total of such loans now outstanding amounts to $350,000. secured by $397.753
in gold.

CONFIDENTIAL
The Federal Reserve Bank reported that the Bank of Canada was shipping
approximately $50,000,000 in gold from Canada to the Federal, to be earmarked
for account of His Britannic Majesty's Government.

The report from the Federal Reserve Bank of New York listing deposits for the

account of Asia as reported by the New York agencies of Japanese banks on September
11, showed that such deposits totaled $85,301,000. a rise of $40,719,000 since the

last report as of September 4. Included in this total were $34,210,000 in deposits

with the Yokohama Specie Bank, New York, made by its branches in China, up
$5,130,000 from September 4, and $42,110,000 in deposits made by Japanese banks in
Japan and Manchuria, up $34,795,000. Loans made to Japanese banks by Yokohama's
New York agency totaled $14,791,000, showing no change from the September 4 figure.
We understand that the Federal Reserve Bank is investigating the above-mentioned

deposit increases, in the belief that other unreported cash balances may be involved.
It will be recalled that, in its investigation of changes in reports of Yokohama's

New York agency for the two weeks ended August 7. the Federal learned of the

existence of a custody account held for the Bank of Japan. The results of this
investigation were summarized in our daily report of August 14.

The Bombay gold price was slightly higher at the equivalent of $33.91, while
the silver quotation was unchanged at 44.56
In London, the price fixed for spot silver was unchanged at 23-7/16d. The
orward price moved off 1/8d to 23-5/16d. The dollar equivalents were 42.56 and

4.33$ respectively.

Handy and Harman's settlement price for foreign silver was unchanged at 34-3/4*.
The Treasury's purchase price for foreign silver was also unchanged at 35.
We made two purchases of silver totaling 161,000 ounces under the Silver
Purchase Act, both of which consisted of new production from foreign countries,
for forward delivery.

BMP.

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 19, 1940

Secretary Morgenthan

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL

Mr. McKeon of the Federal Reserve Bank of New York gave us the following

information regarding transactions in the account of the State Bank of the U.S.S.R.
maintained with the Chase National Bank,

Principal changes in the account during the period September 12 to September 18,
inclusive, were as follows:
Date

Amount Credited

Received From

September 12

$ 137,000
September 14

200,000

Amount Debited

Paid To

$106,000

Commercial Letter

500,000

Amtorg Trading Co.

136,000

Commercial Letter

950,000

Amtorg Trading Co.

418,000

Commercial Letter

of Credit Account

National City Bank
Skandinaviska Banka,
Stockholm

September 16

September 17

100,000

Swiss Bank Corp. by
order Reichabank

300,000

Hungarian General
Bank, Budapest

95,000

Bank of Sweden

63,000

Commercial Letter

54,000

Hungarian Commercial
Bank, Budapest

294,000

98,000

of Credit Account

of Credit - Import

Commercial Letter

of Credit - Import
Narodni Bank, Prague

69,000

of Credit Account

Mellon National Bk.

-2 Date

September 18

Amount Credited
$10,951,000

Received From

Advance against gold
shipment by U. S.
Mint, San Francisco

304,000

Finlands Bank

183,000

Narodni Bank, Prague

175,000

Commercial Letter of

Amount Debited
$119,000

Credit - Import
118,000

J. Henry Schroeder
Banking Corporation

pm.

Paid To

Commercial Letter

of Credit Account

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 19. 1940
Secretary Morgenthau

FROM

Mr. Cochran

STRICTLY CONFIDENTI:
Mr. McKeon of the Federal Reserve Bank of New York gave us the following
information regarding the transfers listed below from Italian and German accounts.

Italian
National City Bank
Date

September 9

Amount Debited

$ 60,000

Account Debited

Bank of Naples Trust

Paid To

Chase National Bank

Company

September 10

150,000

Credito Italiano,

Cash withdrawal

New York

Chase National Bank
Date

September 16

Amount Debited

Account Debited

$ 463,000

Credito Italiano,

New York

$1,122,000

September 17

500,000

September 17

Paid To

The Bank of Italy, Rio

de Janeiro

Post and Flagg

Banca Commerciale

Italiano, New York
920,000

Credito Italiano,

September 18

New York

German

Chase National Bank
Date

(eptember 17

Amount Debited

$ 80,000

Account Debited
Reichsbank

AMR

Paid To

Narodni Bank, Prague

September 19, 1940
3:45 p.m.
RE RUSSIA-CHINA-U. S. AGREEMENT

Present:

Mr. Bell

Mr. Gaston

Mr. Foley
Mr. White

Mrs. Klotz
H.M.Jr:

Just sit down, everybody, and I will reserve

the right of getting my chest clean first.

I had a chance at Cabinet to talk about

refunding next week, and if my memory serves

me right, I said we could go out 14 or 15

years on a 2% bond.
Bell:

Well, a little far.

H.M.Jr:

You said '53-'55?

Bell:

That is right. That is 12-3/4. That is about
right. On that sheet, as I recall --

H.M.Jr:

From 1940 to 1955 makes 14 years.

Bell:

Well, the callable period is a little shorter

H.M.Jr:

Well, I think I got across today the most
important thing I have done this year. In
the usual discussion at Cabinet - of course,

than the maturity.

this is in the family - Hull said, "Now,

within a day or two the Japanese are going
to walk into China," and we would have to
do something on scrap iron and loan 20 or 25

million dollars to China.

(Unrecorded telephone conversation.)
H.M.Jr:

Welles is calling now to try to block this
thing. At least I am going to make a record

of it all.

-2After Mr. Hull said that he wanted to do
something, then he went on to say there is
no use doing anything on oil. So I said,
"Well, if they really want to do something
to set Japan back on our heels, take the
President's suggestion of a couple of
months ago of a three-cornered deal with
Russia, China, and ourselves. That would
really mean something to Japan," and they

said, "How," and I said, "Well, for example,

if you bought some manganese from Russia

and had the understanding that Russia would
sell some arms, with that money, we would

give credit for arms and China could pay
them with Tungsten or something like thatThey went on and on and on discussing it.
Of course, Stimson is always very helpful.
I was going to say something again to make

my point again and I didn't, because I
thought - I was playing it down. I drove
it pretty hard. This went on for about 20
minutes to a half hour, and then the
conversation ceased.

During the thing I said that if the President
would direct me to do this, I said with the
help of Jesse Jones I would like to do it,
if the President wanted me to. That was all.

Then they went on and on and on. The conversation stopped and the President said,
"Henry, I guess you had better get hold of

the Russians and start your talk. So Jones
spoke up - or Hull spoke up and said, "Well,

before you have the final arrangement and

give it out to the press, I would like to

be consulted," and I said, "Well, absolutely,"
and I said, "If it is agreeable to Mr. Jones,
I would like to have Mr. Henderson, who looks

after Russia, sit in and listen to the
discussion." He said that was fine. So at
11:30 tomorrow we are on our way. Now we

will get Welles.

Klotz:

He may surprise you.

-3H.M.Jr:

I amHull.
going to tell him to do his arguing with
Mr.

Bell:

Is Hull in favor of this suggestion?

H.M.Jr:

He never said a word. He never said yes or
no and he said that I must have misunderstood
Welles because he didn't know anything about

it. I said it was Welles that said I couldn't

do this and mustn't do this thing until he
gets through with this trade treaty with
Russia.

So somebody said, "Well, how is this going
to hurt the trade treaty?" Hull said he
didn't know and he showed he didn't know

anything about this thing and I kept stressing
the point that this was the President's suggestion. There is no question that if you
want to set Japan back, this is the way to
do it.

White:

Sure. If they think they are forcing us

into an arrangement with Russia by their
steps in Indo-China, they would be more
worried by that than anything else. They

H.M.Jr:

might reverse their position entirely.
Hull is out on the end of the limb. He

has twice scolded Japan if she goes into
Indo-China. According to Hull, she is
going into Indo-China and he is going to

say, "Boys, I am going to lend some money

to Indo-China," which they know they can't

White:
H.M.Jr:

Bell:

buy arms with. I pointed that out at the
meeting. He is going to do something about
scrap iron, but he won't touch oil, and I
made a big talk on oil.
Did you notice the figures -But I thought it was one of the most
important things I have sat in and Mr. Welles
can just - I don't give a hoot what he says,
I am going ahead with it.
What is the reason for not touching oil?

H.M.Jr:

What Hull said was that if we shut down on
oil here, they would go down to Indo-China
and could get all they want.

Bell:

Indo-China?

H.M.Jr:

Dutch East Indies. So the President said,
"Well, I am kind of dumb, but I don't see
why you want us to stop giving the oil to
Japan if she can get all she wants from the
Dutch East Indies." So I said, "The answer
18, she can't," and Hull said, "Yes, that

is right."

White:

H.M.Jr:

The answer is she can't?

She cannot get all the oil she needs in the

Dutch East Indies.

White:

She can if they will give it to them unless
it is destroyed.

H.M.Jr:

I know.

Foley:

That is what he means.

H.M.Jr:

I read the report.

White:

Two and two makes six.

H.M.Jr:

Stimson covered me up nicely by saying

what it makes - I threw a little bluff and
Hull, who didn't have his figures, agreed
with me, but Stimson covered up nicely for

me.

(Telephone conversation with Summer Welles

follows:)

8-16

-5H.M.Jr:

White:

I am willing to be shaken hands with by
is that worth to you, Harry?

anybody. Champ for one minute. How much

It sounds good to me right away. He is

mad as hell.

H.M.Jr:

Well, did you hear? I said it was too bad --

White:

That last crack set him back.

H.M.Jr:

What was that?

White:

That his own Secretary doesn't know what he
18 doing.

H.M.Jr:

Well, it 18 too bad.

White:

Well, there is something peculiar. I thought
that trade agreement was already arranged in
the first place. In the second place,
apparently there are other things. What
did he say about our citizens there?

H.M.Jr:

Klotz:
White:

H.M.Jr:

Sure, Singer Sewing Machine and everything

like that.

If it goes back to the German Embassy -Did you tell Oumansky anything that you

wouldn't want the Germans to know?

I haven't seen Oumansky. He is coming here
tomorrow. The meeting hasn't taken place

yet. Cabinet is just over.
White:

Oh, he has reference to what he told Oumansky?

H.M.Jr:

Evidently. I haven't seen Oumansky.

Klotz:

Well, this will help. I said that is all
to the good.

White:

H.M.Jr:

You are taking on a fight.
Did you hear what Mrs. Klotz said? She said

-6we should tap Oumansky's wire and I said no,
Welles's
White:

H.M.Jr:

White:

H.M.Jr:

Didn't I sound perfectly pleasant?
I mean, you are taking a fight on your hands.
There is no question about that in my mind,
and I think you ought to proceed very
cautiously, because he will exploit any

failure to the fullest opportunity.
That 18 all right, Harry, and I have got to

a point - I have got to a point where people
like Mr. Welles and the rest of them, I am
going to fight him tooth and nail up to the
point that this place gets too hot for one
of us. I have reached that point.
There is a question of being careful 80 --

That is all right. I am not any more going
to be careful with people like Mr. Welles.
I am through. I crossed that bridge on the

planes and look where I have got. I am
going to have a stenographer sitting here
and Jesse Jones here and Mr. Henderson and
you and if the President of the United States I have a direct order from him on this thing
and 80 has the Secretary of Commerce. Now,
if Mr. Welles wants to go up against Jesse
Jones and me and the President, okay, let's
see what happens. I appreciate your personal
friendship in warning me, but I am not going
any more just the way I did. Just the way
I decided, I am going to put in this young
fellow Pehle and give the young fellows a
chance whose hearts are in the right place.
I am not going to fool around with any more
appeasements.

White:

It does do the - I mean, make the best possible
step by step that you can, because it would be

well to be successful in this particular event.
H.M.Jr:

Look, Mr. Welles and the rest of them have
made a complete failure with our negotiations
from the day we recognized Russia, from the

-7day we recognized Russia. And the whole

peace of the Pacific 18 at stake, and it
is worth my taking on a fight with Mr. Welles.
The whole peace of the Pacific. And this
damned nonsense of Cordell Hull saying he

18 going to tell them he is going to make
a loan to China and that way slow them up the minute the word leaks out that the
United States 18 talking with Russia and
China, that is something, and I hope it
leaks. I can take on Mr. Welles as long
as I have got the President with me.

White:

Well, you don't want to make any false
steps.

H.M.Jr:

Well, I have been pretty lucky without
being over-confident, but, Harry, I am
through with the Welleses.

Now, on the train, between two and three

'clock in the morning, after continuous
drinking from eight o'clock on, Welles

began to talk and he told Wallace, who
was my informer, and who doesn't drink,
what a great guy Mussolini is and how we
must do so and 80 and 80 and so. He still
thinks that Mussolini 18 a great guy and

so forth. The sooner the people get onto

it, the better.

White:

Do you have - are you going to have something

H.M.Jr:

Talk. Where is that memorandum of yours?
Right here on top. What do you want me to

specific for tomorrow, or is it just going
to be first --

do with Summer Welles?

White:

No, I am glad to see you take him on, but
having taken him on, I don't want to miss

any bets, that is all.

H.M.Jr:
White:

Well, I have taken -He is a --

8H.M.Jr:

He 18 a what?

White:

He is a tough adversary, and you want to

H.M.Jr:

All right, he had better watch out. I am
tough, too, and as I say, I went far more
dangerously in this airplane thing a year
and a half ago, and we have come to the
position now - this is also in the room where I go to the President of the United

watch each move.

States and want additional planes for England,
and you know what his answer was this morning?
They can have anything they want. That is
the answer I got today, and they are going

to get it, too.

Of course, the Gallup Poll has nothing to
do with my policies.
Klotz:

That is wonderful.

H.M.Jr:

My God, when Harry begine to want to slow
me up - where is that memorandum that you
have been needling me with?

White:

I don't want to slow you up. I just want to
put a brick in your glove.
All right.

H.M.Jr:
Gaston:

Gallup gives 38 states to Roosevelt in a

private poll.
H.M.Jr:

I made a note. Someplace or other, there
is a list which came through - you will have
to get together with Miss Chauncy - someplace,
a list of war material which Russia had sold
to China. Now, one of these many things
that come my way, so many guns --

White:

Did we get it from China?

H. M.Jr:

I think it came from Nicholson, but you will
have to go through with it.

-9Gaston:

Arohie may know something about it.

Whit e:

Do you have any idea --

H.M.Jr:

White:

H.M.Jr:

It is within the last month.
I see. That will be easier to find, then.
Good night, everybody. I will read anything

you will send to the house, Harry, on Russia,

and don't go around and make a deal with
Sumner Welles tonight, either, see.

September 19, 1940
9:17 a.m.
H.M.Jr:

Paul Appleby was asking about.

Herbert
Gaston:

Yes.

H.M.Jr:

Why don't you call up Ed Flynn yourself?

H.M.Jr:
G:

H.M.Jr:

Well, I thought of doing that.
And
ask him what it's all about. You've got
the background.
Yes, I know all about this situation.
Just see it through for me will you?
Yes, yes, I'11 call him.
Will you do that? And just ask him what he
has in mind about Saul Haas and all the rest
of it, please.

Yeah. I'11 do it.

H.M.Jr:

Thank you.

September 19, 1940
3:50 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Purvis just went out to keep an appointment
and she doesn't know how long he'll be. She
said Mr. Young arranged the appointment with

Mr. Vance.
H.M.Jr:

Oh. Well, does she know whether he's leaving

Operator:

I'11 ask her. Just a second. (Pause) She

town tonight?

says she doesn't think he knows yet, but she

doesn't.

Operator:

Well, I'd like to talk to him in the morning.
All right, and Mr. Wellee is calling you.

H.M.Jr:

Who?

Operator:

Welles.

H.M.Jr:

Welles?

Operator:

Yes.

H.M.Jr:

Well, I can't take it just now.
All right.

H.M.Jr:

Operator:

3:53 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Welles said he'd like to call you back.

H.M.Jr:

Well, tell them he'll have to do it in the next
three or four minutes, if he wants to talk to
me.

Operator:

Right.

September 19, 1940
3:55 p.m.

H.M.Jr:

Hello.

Sumner

Welles:

Sorry to bother you again, Henry.

H.M.Jr:

That's all right.

I wanted to ask you, because Mr. Hull told me
that he wasn't sure what it was about, what
the meeting is that you're going to have

Oumansky at with one of our people and Jesse
tomorrow.

H.M.Jr:
W:

H.M.Jr:

Well, I don't know why Mr. Hull didn't
understand it. We went over it three times.
Well, he told me that he didn't.
Well, the question came up about what Mr. Hull
could do to Japan if she walked into IndoChina and I reminded the President of his
suggestion of a 3-cornered deal between the
United States, Russia and Japan and China, and
if he directed Jesse Jones and me to go ahead
I'd be willing to, and after the discussion
ran along twenty minutes he said he wanted
Jones and me to do it.
Uh-huh.

And Hull said that before any final arrangement
was made he'd like to see it and I said well
I'd like whoever watched Russia for him to sit
in at all of the meetings and he said the man
was Henderson.

H.M.Jr:

Yes. Does this - what you have in mind - does
this involve the loan to China?

It might and it might not, but I also said, so
that you have the whole story, that when I
broached it to you that you said that you
definitely didn't want me to do anything about
it because it might hamper you on your trade
deal with Russia.

-2- W:

Well, that's the reason that I wanted to have

the chance of talking to you. I'm just in the

middle of these conversations with Oumansky
and the Russians have taken the most completely

uncooperative attitude after the first two
conversations and we haven't gotten anywhere
with the treatment of our own citizens in

Russia and on many other things that we consider necessary.
H.M.Jr:
W:

Well, maybe this will help you.
Well, I wanted to give you this background
so that you'd know it.

H.M.Jr:

Right.

In addition to that I want to tell you that

we have positive information that everything
that is told to Oumansky here in the Department
of State is immediately communicated by him
to the German Embassy.

H.M.Jr:
W:

I see.

And I have no doubt that the German Embassy
would inform the Japanese Government of anything

that you might say in regard to that problem.

H.M.Jr:
W:

Well, that would be helpful wouldn't it?
Possibly; possibly not. In any event,
Henderson will be there at your meeting and
I wanted to tell you personally what the

situation here was with regard to my negotiations

with him.
H.M.Jr

Well, it's too bad that Mr. Hull didn't seem
to be familiar with your negotiations. He
didn't seem to know anything about it.
on

Well, they've been going/as you know for two
months. Of course he was away for three weeks

out of that time.

H.M.Jr:
W:

Yeah.

All right, Henry, I just wanted to let you

have that dope.
H.M.Jr:

Thank you.

September 19, 1940.

Dear Captain Balfours

I was very and to have your letter of
September 6th. and to learn that you had reached

home safely. I appreciate your writing me as

you did about our discussions here, and I gind to have the information you sent no.

with cardial regards,
Sincerely,

Captain Harold H. Balfour,
Parliamentary Undersecretary of State

for Air,

Air Ministry, Department O.A.,
King Charles Street,

Whitehall, S. 14.1

England.

sent to State Dept. 9/20
go by Deplomatic Pouch
GEF/dbs

September 19, 1940.

Dear Gaptain Balfours

I was very gind to have your letter of
September m and to learn that you had reached

have safely. I appreciate your writing - as
you ase about - discussions have, and I did to have the information you sens no.

with certial regula,
sincerely,
(Signed) a

Gaptala Barold 3. Bolfour,
Particularly
of State
for Ms.
Als Middley, Department O.A.S

ring Charles street,

s. v. 2.

England.

GEF/dbs

Sent to State Dept 9/20
to go by Diplomatic pouch

80
I

September 19, 1940.

Dear Captain Balfour:

I was very gind to have your letter of
September 6th, and to learn that you had reached

home safely. I appreciate your writing me as

you did about our discussions here, and I gind to have the information you sent no.
with certifical regards,

Sincerely.

(bagned) H. Morgantbau.ru

Captain Herold H. Balfour,
Parlingentory Undersocretary of State

for Air,

Air Ministry, Department Oakes
King Charles Street,
Whitehall,
England.

GEF/dbs

Sent to State Dept 9/20
to go by Diplomatic pouch

81 In
Dept.O.A.

6th September, 1940.

Dear Mr Moyontkan
I am so sorry that before leaving the American
Continent I could not send you a personal letter of thanks
for your hospitality on Sunday, and also to express my
appreciation of the opportunity of meeting you. I left
Montreal early yesterday morning and we got in safely this
afternoon - so I lose no time in making up for my deficiency.
When I went to New York I took up the question of

the secret aircraft about which you spoke to me. I find that

your words of three weeks ago did not fall upon barren ground,
in that we have been making enquiries in a discreet way as to

what is the position, I gather that the aircraft is not very

far advanced as the prototype has not yet flown, and it may
be
1942
before production can get into swing. We are, however,
vitally
interested.
As regards your suggestion of connecting up the
supply of the particular fitment you mentioned with the

ordering of this type of aircraft; if, of course, the 1942
date is anywhere near correct this would make it an unduly
long time. I think you know that Sir Henry Tizard is at

Washington dealing with these very matters, and I have taken
steps to see that he has been made acquainted with our
conversation.

With kind regards - and may I be allowed to add

an expression of the sentiment which all of us feel, of
gratitude to you for your personal help in what I believe is
our common cause.

The Hon. Henry Morgenthau,

Secretary of the Treasury,
Washington, D.C.

Bagan
yours sincerely

September 19, 1940

8:55 a. m.
Present:

Mr. Bell
Mrs. Klotz

HM,Jr: On this thing, your memorandum of Sept.
17th, on the recommendation of who should work on the
German, Russian and Italian payments, I accept that
recommendation.

Number 2.

Your recommendation about Professor

Chamberlain -- in regard to Pehle, I accept that.
Mr. Bell: He ought to understand that is tentative.

HM,Jr: If you will tell somebody, I would like

to see Pehle myself.

He ought to get a little more money.
Mr. Bell: We thought not for the moment. Maybe

on January 1, if he is still in charge, you would give

him more money, but he has been promoted pretty fast in
the last four months.

83 oh
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON

September 17. 1940
MEMORANDUM TO THE SECRETARY:

Messrs. Gaston, Foley, White, Thompson, Cochran, and I have considered the following matters suggested by you at yesterday's conferences
and make the recommendations indicated herein:

1. German, Russian, and Italian payments in the United States

We discussed this at some length and feel that all of the material
which we have in our possession should be studied by one of Dr. White's
employees and Mr. Klaus, who should report thereon to Mr. Gaston and
Mr. Cochran, making whatever suggestions they care to regarding further
procedures to obtain additional information. We suggest that, for the

time being, they confine their studies to the material already in
possession of the Treasury. If, after discussing it with Mr. Gaston
and Mr. Cochran, it is decided that further information is needed from
either the Federal Bureau of Investigation or the Federal Reserve Bank
of New York, Mr. Gaston and Mr. Cochran will make those contacts and
request whatever is necessary.

If it is later decided that there is sufficient work to require
the full time services of an employee in addition to Mr. Klaus, we will
then undertake to secure the services of such an employee.

2. Recommendation concerning Professor Chamberlain's position
After some discussion of this matter we recommend that Mr. Pehle

temporarily be given the title of "Assistant to the Secretary" and be

authorized to administer the Foreign Funds Control section in the same

manner that Professor Chamberlain has administered it, except I it might

- be understood with Mr. Pehle that this is a tentative arrange-

ment and that after election you may want to bring in some one from the
outside to handle this matter.
The committee arrangement should continue, but every effort should
be made to reduce the number of cases to be submitted to the committee

and also to reduce the length of its meetings. It might even be possible
to meet three times a week instead of every day.

AWB

COPY

September 19, 1940

His Majesty's Government

In Right of the Dominion of Canada
c/o British Purchasing Commission
37 Wall Street,

New York, New York.

Dear Sirs:

We submit this proposal to enter into a contract
with you for the construction and delivery of 144 Vultee

Model #48-C Single-Engine Pursuit airplanes, in accordance
with Vultee Specification #544-6 Change C. dated January

31, 1940. except as modified herein, plus 15 additional Pratt

& Whitney Twin Wasp two speed engines, Model R-1830-S204-G,

plus 15 Hemilton Hydromatic Standard propellers, plus spare
parts for the above Model #48-C Vultee airplanes to be selected

by you within forty-five days after your acceptance of this

proposal, which, however, must include such spare parts for
said airplanes as are now in process of manufacture at our
factories or have been heretofore ordered by us from the pur-

veyors thereof.
follows:

The terms and conditions of this proposal are as

1. This proposal is subject to acceptance within twentyfour hours from the delivery thereof, and if accepted, a definitive contract is to be executed and delivered within ten
days thereafter.

2. The price of each of said airplanes completed in accordance with the specifications and including engine, propeller and accessories, and automatic manifold and optical gunsights not covered by said specifications, but exclusive of
charges for boxing and crating or delivery charges shall be
$61,043. The price of each of said additional engines shall
be $17,508. The price of each of said additional Hamilton
Hydromatic Standard propellers shall be $3,764. and your order for spare parts shall aggregate a total amount of not less
than $1,758,054. 81 United States dollars. The total price of

all of the aircraft. engines, propellers and aircraft spare

parts to be manufactured, sold and delivered hereunder shall be
$10,867. 422. 39. unless said aggregate total price is increased
by reason of your having ordered aircraft spare parts in excess of the minimum of $1,758,054.81, and the down payment of

His Majesty's Government

In Right of the Dominion of Canada

-2-

September 19, 1940

50% of said total contract price, or $5,433,711.19 is to be

made by depositing said sum in United States dollars to our
credit at The Chase National Bank of the City of New York, contemporaneously with your acceptance of this proposal. The remain-

ing portion of the contract price of each item to be delivered
hereunder is to be paid to us when said items respectively are ready
for delivery at one of our plants or at the plants of purveyors
thereof, in the case of spare engines and propellers and such other
articles as we may mutually agree are to be shipped direct by such
purveyors to you. The foregoing prices are exclusive of boxing
and crating charges, sales, use and processing taxes imposed upon
the manufacturer, if any, insurance and delivery charges which are
in every case to be added to the contract price and paid by you,
and at your risk and expense we agree to make delivery of all of

the aircraft, engines, propellers and aircraft spare parts covered
by this contract at such place outside the State of California but

within the United States of America as you may designate. Your
obligation to accept delivery of said airplanes and to make payment of the balance of the purchase price thereof shall not be
dependent upon the procurement of a license to export same from
the United States, but we agree to cooperate with you in endeavoring
to obtain an export license.

3. The airplanes and materials to be manufactured and sold
hereunder are to be ready for inspection as follows:

As to airplanes 2 airplanes not later than October 31, 1940;
3 airplanes not later than November 30, 1940;
7 airplanes not later than December 31, 1940;
10 airplanes not later than January 31, 1941;
15 airplanes not later than February 28, 1941;
20 airplanes not later than March 31, 1941;
22 airplanes not later than April 30, 1941;
22 airplanes not later than May 31, 1941;
23 airplanes not later than June 30, 1941:
20 airplanes not later than July 31, 1941.
As to spare engines, spare propellers and spare parts, delivery
will be made of seven spare engines and spare propellers not later
than June, 1941, and of the remaining 8 spare engines and spare pro-

pellers not later than July, 1941. Our spare parts price list and

recommendations as to the airplane parts you should purchase will
be delivered to you within two weeks after your acceptance of this

proposal. Your complete order for spare parts is to be given to us

His Mejesty's Government

In Right of the Dominion of Canada

-3-

September 19, 1940

as soon as practicable thereafter, and in any event not later
than 45 days after the receipt of said price list and recommendations. Having 80 received said order. we agree promptly to
order from our own purveyors such materials and supplies as
are required to complete the same, and to commence deliveries

the reunder within sixty days after the receipt of said order

and complete the same in monthly installments in substantially
the same proportions as deliveries of the balance of the airplanes hereunder with final delivery not later than August 31,
1941.

All obligations with respect to delivery are subject to

force mejeure and other excusable causes of delay as set forth
in Article X of the agreement between the undersigned and His
Majesty's Government in the United Kingdom, dated as of July 3.
1940. and are also to be excused without payment of loss or damage
by us if consummetion of the contract contemplated by this pro-

posal is enjoined by final decree of a court of competent jurisdiction, or if we are required by government order or final decree of any court to make delivery of said airplanes and material
elsewhere than to you, and upon the happening of any such event
so preventing performance of our contract by reason of government

order or final decree of a court of competent jurisdiction, we

agree to repay to you All moneys advanced by you to us pursuant

to this proposal, less the contract price of any airplanes or
material actually delivered to you hereunder. and after deducting

an amount equal to all costs, damage and expense not otherwise
paid by you which we have sustained by reason of the making and
acceptance of this proposal.

4. The definitive contract to be executed if this proposal
is accepted is to contain the same guarantees and warranties with
respect to the construction and performance of the airplanes to
be manufactured and delivered hereunder based upon the specifications applicable thereto as are contained in the contract between this corporation and His Majesty's Government in the United
Kingdom, dated 88 of July 3. 1940, and in general. substantially
the same provisions with reference to taxes. insurance represen-

tation of purchaser at seller's plant, inspection and tests, change
orders, Neutrality Act. labor standards, patents, copyrights and

His Majesty's Government

In Right of the Dominion of Canada

-4-

September 19, 1940

tradesmarks, contingent fees, corrupt gifts to persons in His
Majesty's service, confidential treatment and other applicable
provisions.

VULTEE AIRCRAFT, INC.

By V. C. Schorlemmer,
Vice President

The foregoing proposal is hereby accepted this
17th

day of September, 1940.

HIS MAJESTY'S GOVERNMENT

IN RIGHT OF THE DOMINION OF
CANADA ACTING THROUGH THE DIRECTOR
GENERAL OF THE BRITISH PURCHASING

By A. C. Boddis
FOR AND IN BEHALF OF THE
DIRECTOR GENERAL

COMMISSION

WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON

September 19, 1940.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.

Dear Mr. Morgenthau:

Thank you very much for the following reports, which you sent me this date:

Part I - Airplanes

Deliveries of and New Orders for Airplanes,
June 9 - September 14, 1940; Unfilled Orders
and Estimated Deliveries on September 14, 1940.

Part II - Airplane Engines
Deliveries of and New Orders for Airplane
Engines, June 9 - September 14, 1940; Un-

filled Orders and Estimated Deliveries on

September 14, 1940.

Faithfully yours,

Chief of Staff.

OCS
OW

OCS 17840-203

September 19, 1940.

Honorable Henry Morgenthem, Jr.,

Secretary of the Treasury,
Washington, D. C.

Dear Mr. Morgenthau:

Thank you very much for the following reports, which you sent me this date:

Part I - Airplanes
Deliveries of and New Orders for Airplanes,
June 9 September 14, 1940; Unfilled Orders
and Est ated Deliveries on September 14, 1940.

Part II - Airplane Engines
Deliveries of and New Orders for Airplane
Enginee June 9 - September 14, 1940; Un-

filled Orders and Estimated Deliveries on

September 14, 1940.

Faithfully yours,
(sed) G. C. MARSHALL

Chief of Staff.
DISPATCHED

SEP 180 1940
A

FROM

ame

C
In reply refer to Initials
and No.

NAVY DEPARTMENT
OFFICE OF THE CHIEF OF NAVAL OPERATIONS

WASHINGTON

19 September 1940

Dear Mr. Morgenthau:

Receipt is acknowledged of Parts I

and II of the latest confidential reports furnished

by the Treasury Department on airplane and airplane
engine deliveries.

Your courtesy in continuing to fur-

nish these reports is much appreciated.
Sincerely,

Brundher
W.R .Smedberg, III,

Lt.Comdr., U.S.Navy,

Aide to Chief of Naval Operations.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D.C.

END 2Eb so W a 13
of

MEMORANDUM

September 19, 1940.

TO:

Secretary Morgenthau

FROM:

Mr. Sullivan

On November 24, 1939, in a conference with Under Secretary
Hanes which was attended by Mr. Foley, Mr. Kades and myself, Mr. Hanes
showed us a photostatic copy of a memorandum of November 9, 1939,

initialed by the President directing you to work out a policy of depre-

ciation allowance by which the abnormal investment in plant expansion
that will be required by the airplane motors manufacturers will be
absorbed over the life of the contracts or during the emergency period.

At that conference Mr. Hanes asked me to furnish him with a memorandum

indicating the extent to which closing agreements might be used to

expedite erection of additional facilities for National Defense.

That afternoon Messrs. Lauchlin Currie, Kades, Burrus, Appel
and Reiling met with me at the Bureau of Internal Revenue and on November 25, 1939, we completed a memorandum which I submitted to Mr. Hanes.
This memorandum stated that the objective of the President's memorandum

might be more effectively approached by revising regulations relating
to obsolescense than by any attempt to expand the functions of a closing
agreement.

On November 28, 1939, in a conference in Mr. Hanes' office
which was attended by Mr. Wenchel and Mr. Kades, Mr. Hanes approved the
memorandum of November 25th and suggested that the regulations relating

to obsolescence might be clarified insofar as the Vinson-Trannell Act

was concerned.

Mr. Hanes asked me to bring everything I had on Consolidated

Aircraft to a meeting the following day to be held with the Secretary.

At the conference with the Secretary on November 29, 1939, Mr. Hanes
submitted the memorandum dated November 30th stating that Congressional
action was required and outlining the two methods which Congress could

use to solve the problem: (1) direct appropriations to the Army and to
the Navy for the construction of additional facilities and (2) a statute
authorizing the Treasury Department to provide for special deductions
for amortization.
The Secretary disapproved the last part of this memorandum
and Mr. Kades and I prepared a new memorandum which was approved by Mr.

Foley, and which on December 1, 1939, the Secretary took to give to the

-President at the Cabinet Meeting. On December 2, 1939, Mr. Kades
prepared a memorandum developing in detail the scope of the Treasury

authority to assist in the program for National Defense by exercising
powers conferred upon it by the Internal Revenue laws in respect to
closing agreements, obsolescence allowances and remedies of taxpayers.
on December 11, 1939, Mr. Kades prepared drafts of identical letters
to the Secretary of War and the Secretary of the Navy, outlining the
scope of the Treasury authority and summarizing the applicable laws
and regulations. On this same day Mr. Foley submitted to the Secretary
a draft of a memorandum for the President which had attached a copy
of the letters to the Secretary of War and the Secretary of the Navy,
which memorandum stated that the only two solutions of the problem
were: (1) the erection of the Federal Government of shadow factories

to be leased to private industry, and (2) the construction or financing
of construction of such plants by the Federal Public Works.

JLS

3, 1940.

Washington Daily

wew

Merry-Go-Round
(Trade Mark Registered

DREW PEARSON and ROBERT S. ALLEN
It is a mixed story. Some
The most disastrous news
business
firms have been 100
that has escaped the British
By

recently is the fact that
the Bristol arms factory in southwest England has been severely

damaged by German bombs.
This news has come back to
Washington via the diplomatic
and military cables.
The Bristol plant is one of the
most important munitions factories in England. and apparently it has been virtually put
out of business Coming on top
of damage to the Rolls-Royte
airplane motor plant. this is devsistating information

Furthermore the Germans
have been causing a lot more

damage than gets on the press

tables and on the whole the
British situation nas worsened
considerably in the past week.

British morale is still high,
in fact better than during the
last World War, and British
aviators still are putting up an
amazing battle far surpassing

the Germans in individual skill
and bravery. However, bravery
and morale alone will not win
war. and when the output of

many factories such as the
Bristol arms plant is stopped it

means that the British may
have only morale and bravery
On the optimistic side, howRoyal Air Force aviators
been wreaking terrific dam
German gasoline plants

Ruhr factories The dam
German plants is greater

ationately Only trouble
the British don't have

many planes as the
to perform bombing
kind

in British bombing
time ago was 12

British bomber
carrying capacity.
better now but not
Defense Difficulties
The behind-:he-scenes struggle

OVER taxes on national defense

ders together with the sitdown staged by certain manuadjusted

to suit them. is one of the most
important developments in the
Capital this summer

Roosevelt, and on November 10
he decided to make Morgenthau

per cent patriotic in their
attempt to aid national defense

On the other hand. a great
many have not. Some have
been very much like British and
French munitions firms in their
procrastination over vital war
orders.

The story goes back to Novem

ber 8. 1939. when John Hanes.

then Undersecretary of the
Treasury. submitted a confidential memorandum to the
President advising that industry
would have to be given tax con-

cessions if it was to expand for
national defense. Specifically
Hanes pointed out that airplane
manufacturers could not be ex
pected to build new plants to
speed up production if after
year or-two the war would be
and they would be left with
empty plants on their hands
So Hanes proposed that the

cost of these new plants be
amortized in a relatively short

time so that industry would not

co-ordinator for-the sale of air

planes to France and Great
Britain Later, on December 6.
Undersecretary of State Sum

ner Welles approved a plan
whereby the Treasury, rather

than the State Department

passed on the shipment of airplanes to the Allies.
Hitler Gums the Works
The Morgenthau Idea seemed

to work all right during the win
ter and the Allies laid plans for
spending about $7,900,000 on
U. S. factory expansion They
didn't do this very willingly, but
Louis Johnson, hard-boiled As
sistant Secretary of War, saw to
it that they didn't get the latest
types of planes unless they paid
extra for plant expansion and
MorgentHau backed him up
Thus the British paid $739,000

to the Curtiss Aircraft Company
for putting in new tools. not only

for British but for new U. S.
planes.

One factor upset this program

namely, Adolf Hitler. For by
the time he had gone into Norway, Belgium and Holland it

became apparent that the United

States was going to need air

planes a great deal faster than
either the British or the United
States could finance plant ex
pansion-in fact, much faster
than anyone could build new

have to pay taxes on them after
the war emergency was over.

plants.

Morgenthau's Idea

Shortly after the invasion of
the Low Countries the British

Roosevelt approved this pro-

Companies Fear Taxes

entered into a deal with the War

posal. But when the Hanes
memorandum went back to
Secretary of the Treasury

Department and they thought

weather. In fact. this memo
was one of the things over
which Morgenthau and his

tors. 6,000 for Britain and 3.000
for the United States. The price
was increased somewhat in or

Morgenthau it ran into storms

undersecretary quarreled

Hanes and Morgenthau both
are millionaires. both able men

with Ford to manufacture

9,000 Rolls-Royce airplane

der to take care of the extra

expense to be incurred by Ford

in equipping his plant. and

Congress rushed through a spc

But Hanes, a director of the

cial appropriation of $43,500.000

Glenn Martin Aircraft Corpora
tion looks at taxes more from

Then Ford reneged on the
British end of the order and

the businessman viewpoint

while Morgenthau looks at taxes
from the viewpoint of collecting
money to run the Government

Therefore, Morgenthau told
Roosevelt that he would secure
enough factory expansion from

the airplane companies, but in
stead of taking it out of govern-

ment tax revenue, he would
make the French and British
pay for it. He pointed out that
the Allies were placing large
airplane orders. and that they
could pay American factories a
higher price in order to finance

plant enlargement and new
machine tools.

This seemed a good idea to

to pay for the order.

the offer was made to Packard

which immediately raised the
question of tax amortization In
other words Packard said that

if they were to enlarge their
plant they didn't want to have

to pay taxes on it after the

emergency was over

This was agreeable to the

Treasury and the White House

But about this time the Treasury and the congressional com-

mittees considering new taxes
proposed a limit of 8 per cent
profit on all Army orders This

is the same profit limitation

enforced on Navy orders under
the Vinson-Trammell Act. which

was inserted in the 1936 naval

bill through an amendment
by Senator Tobey of New

Hampshire However, the Army
escaped any profit restriction
on its contracts except for air
planes. on which manufacturers

can make a profit of 13 per

cent

BRITISH EMBASSY,
WASHINGTON, D.C.

Sep tember 19th, 1940
PERSONAL AND
SECRET

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a copy

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

Dear Mr. Secretary,

Very sincerely yours,

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

Telegram from London dated
September 19th, 1940

Royal Air Force

During September 17th Blenheim aircraft
attacked cargo boats at Zeebrugge and barges at Detend,
Antwerp, and Stelburg.
During September 17th/18th, 208 aircraft

attacked barges and shipping in French, Belgian, Dutch

and German ports, and railway narshalling yards. Mine

laying was also carried out. 2 aircraft missing.
2. German Air Force
Considering widesproad nature of attacks on
London during the night of September 16th/17th,

comparatively little major damage was done. Several
railway stations and lines were damaged, but not in a
manner to affect main line traffic which is now normal from
many termini. Some damage was done to electric power

stations, but this is not serious. There were no
casualties in hospitals reported damaged in my telegram of
September 17th. Certain main roads in London were blocked

and traffic has been temporarily diverted. Preliminary
reports indicate that 20 to 30 were killed and 250 to 350
injured, but these figures may be increased when final
reports are received. slight damage and no casualties
are reported from Midlanda, except Coventry where 14

people were killed and 21 seriously injured. House
property damagelint Liverpool and one person killed and 9
injured.

The/

To
96

-2-

The principal enemy activity yesterday was

attack by approximately 300 aircraft during the afternoon.
Leading 110 aircraft reached Maidstone, reminder
spreading out over East Kent. Our fighters obtained
interceptions before the enemy aircraft withdrew, and
Themes Naturary was not crossed. Single enemy aircraft
attacked many places in South East England and Portamouth

but only alight damage and few casualties resulted.
Last night London was frequently bonbed, and

in the provinces chief areas of attack were Liverpool,
South Wales and Glasgow. Extensive use was made of

incendiary boube. what are believed to be magnetic mines
were dropped in London suburba and at Tunbridge Wells.
some fires caused in London dooks but no serious damage

resulted. Southern Railway again suffered damage, but

not to main lines. Large number of fires reported in London
area, but all are under control. Figures of casualties
not yet available. In Liverpool property was damaged and
24 fires started. Dock in Glasgow damaged by fire.
Incendiary bombs dropped at Stranges - no serious damage.

Borbing caused considerable damage to house property in
Exeter.

3. Summary of air casualties.
Destroyed probable damaged

Enemy by day

by fighters
bomber

fighters

by anti-aircraft fire
fighters

by night

by fighters
bomber

by anti-sircroft fire
unknown

Totals

British/

Britishs 5 aircraft (2 pilot killed OF missing).
4. chipping
Coonalties. One British ship (5,300 tons) sunk by
torpedo on September 14th while homeward bound.

Convoy of 39 ships, including 19 Allied and 3
neutral, has arrived in home waters. Cargoes include

8 of pit-props, 15 of lumber, and 8 of steel.
5. Hiddle East
Italian advance from Libya reported to be led
by 2 motorized metropolitan divisions extended between

sidi Barrani and Sollum, while Libyan division 10
dispersed between sidi Omar and Helfaye preparing

defensive positions,
on September 16th Blenheims attacked

mechanical transport concentrations East of Bug-Duq,

and fleet air arm aircraft made successful attack on
shipping in Derna harbour. Hangara and aircraft also
destroyed by British air attack on Benina aerodrome.
Sudan. Our positions at Bone and Gallobat bombed .

September 15th. No casuelties.

Situation on Kenya front reported all quiet.
5, Projected action against the United Kingdom
There is no material change in the situation
regarding invesion.

BRITISH EMBASSY,
WASHINGTON, D.C.

September 20th, 1940.

Personal & Secret

Dear Mr. Secretary,

I enclose herein for your personal
and secret information a copy of a supplementary
resume from London for the period September 5th
to 12th.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

L livia

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D.C.

Telegram from London dated September 18th.

The following is a supplementary
resume of operational events covering the
period September 5th to September 12th.
1.

Naval.

German attack on London docks has

caused appreciable casualties to merchant vessels
Sinkings by U-boat have decreased.

Reports of raiders in the South Atlantic and
Indian Ocean have been received.
There has been a very marked movement

of enemy merchant ships and barges westward

along the southern shores of the North Sea and
the English Channel.

Our light forces have been carrying
out sweeps off the French, Belgian, and Dutch
coasts, during which they have encountered and
sunk several enemy vessels.
Sweepe have also been carried out

towards Iceland and the Norwegian coast by heavy

forces, but, apart from a few merchant vessels
near the coast, nothing WOB encountered.
2.

Military.
In Italian Seat Africa there are

indications that an attack may soon be launched
against the Sudan along Asmare-Kassala axis.
This/

100

This offessive may be accompanied by a thrust
southward towazie Kenya, although no abnormal

troop concentrations have yet been reported in
this region.

There is further evidence in Italy
of a lack of enthusiasm for the ward of a desire

to preserve intact as long as possible the Italian
armed forces in the hope that German offensive

against Great Britain will bring victory at
little cost in Italian blood) and of serious
effects on the morale and industry of R.A.F.
attacks on Northern Italy.
Royal Air Force.
3.
Our bombing operations against

Germany were on a similar scale to those of the

previous week, but, in addition to continuing
our offensive against the usual targets, a
considerable augmentation of series of attacks
was directed against concentrations of barges
and shipping along the coasts of France and

Holland. A number of varied targets in Berlin
were bombed with satisfactory results. Attacks
against Italy were restricted to a night raid on
Turin.

The enemy's tactics at first consisted
of reserved and unsuccessful attempts to break

down our fighter defense by further attacks on
British aerodromos. Later a now phase developed

and attacks were directed with the object of
disrupting communications and creating chaos in
London dock area. A third phase followed which

seemed to have as its aim the demoralisation
of/

of the civilian population by indiscriminate
might bombing. Although general damage has

been considerable no serious dislocation of
the country's war effort was caused.

It is satisfactory to note that in
spite of the enemy's attacks on our aerodromes

no aircraft were lost on the ground during this
period.

Our aircraft successfully attacked a
member of enemy aerodromes on Libyan .........

In East Africa several Italian aircraft were
destroyed or damaged on the ground by bombers

of the South African Air Force.
The most destructive raid took place
on the afternoon of September 7th against London

docks area by about 250 aircraft, and continued
throughout the night. Bombing was accurate and

considerable damage resulted. Eighty of the
enemy were destroyed by our fighters, and large

scale daylight attacks were not repeated until
the 11th, when equally heavy losses were sustained

by the attackers, this time without any compeneating success. A feature of the enemy's
daylight attacks has been the very heavy fighter
protection provided for his bombers.
4./

102

German Air Force.

The dispositions of the German Air
Force remain substantially unchanged. The
two long range bomber formations from Norway

are now stationed in Belgium. The short range
divo bomber force, which was withdrawn from

operations against this country on August 18th,
has not been concentrated in the Calais area.
The examination of over 100 prisoners
shows that the morale of the German Air Force

is still high. This is specially so amonget
fighter pilots - high morale of heavy bomber

crews being not quite so outstanding. A report
by a medical officer says however that many of
the prisoners show signs of nervous exhaustion.

There is no apparent shortage of trained pilots.

Italy.
The 200 Italian pilots who were
undergoing dive bombing instruction in Germany

were recalled to Italy before the completion of

their training. The reason for this ourtailment
was stated to be that the physique of the
Italians was unequal to the strain.
5.

Switzerland.

There is reason to believe that the
Swiss Government under German and Italian pressure

may be forced to take more serious measures to

secure interception of belligerent aircraft.
It is reported that an order has been given to
station anti-aircraft batteries high in the
Swiss mountains.

6./

103

Home Security.
Damage caused by enemy bombing has

been regularly reported in daily telegrams during
the week as it occurred.

Nearly all of those factories in
Birmingham and Coventry, which in the last few
weeks have sustained damage, are now on full
production.
None of the damage caused to electric
power stations has caused more than a temporary

failure of electric light or power; but a large
area of East London has been out off from gas

supplies for at least a week, owing to damage
caused at a gas works.
Casualties for the week ended September

11th were 1,211 killed and 5,547 wounded. These

figures include 976 killed and 4,149 injured in
the London area.
Unexploded Bomba.

Arrangements have been made not only to

strengthen bombs disposal sections, but to add
to them a number of trained men, who can carry
out reconneissence of the site of reported

unexploded bombs. It is hoped that this procedure
will save a considerable waste of effort on the
part of the sections themselves, who are frequently
called to places unnecessarily.
Although/

104

Although there have been many cases

of direct hite and near misses on shelters of
all types, public confidence in them remains
high. Large number of people take their bods
to a public shelter every night.
One shelter had a direct hit while
some thousand people were inside, 162 casualties

resulted, whereas of 600 refugees in a school
which was hit in West Ham over 200 people were

killed and many more severely injured.
The civil defence services have been
very heavily engaged and have endured long hours

of very heavy duty with efficiency and cheerfulness. Remarkable examples of skill and determine-

tion have been reported from all services, and

in at least one area they have been officially
thanked for their work by a deputation of members

of the public.
British

Operational Aircraft Casualties.
In the Air
On the ground

Bombers

Fighters

114

Coastal

Total

143

At least 69 of the fighter pilots are
known to be safe.
Probable Damaged

german

Destroyed

Bombers

114

Fighters

153

Miscellaneous
Total

299

134

N.B./

105

Included in the above are 15 destroyed,
2 probable and 10 damaged by anti-sircraft fire.

N.B.

No account is taken of German aircraft destroyed
on the ground.

Middle East,

British

In the air On the ground
-

Italian

Destroyed
17

Probable
11

Damaged.
14

No. 1 Canadian Squadron Hurricanes

has been in action on most days during the
period September 1st to 15th. This equadron has

destroyed 8 enemy airer ft (and probably a further
6) and damaged 16 others. During this period

the squadron has lost 11 aircraft, 4 of the
pilots of which were killed.
During the same period the Natal

Squadron (Spitfires) has also been heavily
engaged. They have destroyed 26 enemy aircraft

and probably a further 15, while they have
damaged 16 others. During these engagements

they lost 8 aircraft, although some of the pilots
were saved.

106

September 19, 1940

MEMORANDUM

To:

The Secretary

From:

Mr. Young

Re: Possible Increase in Production Rate
of Sperry Bomb Sights.
At the present time Sperry Gyroscope Company

has an order for 100 Sperry 0-1 bomb sights for the

Air Corps. These will be produced at a rate of 20
per month and 15 have been delivered already. The

Air Corps has planned to start production on a
slightly improved bomb sight (Sperry F-1) in April
thus losing any advantage which might be secured

in price and in quantity by increasing the rate of
production of the 0-1 bomb sight now being delivered.

If Sperry could secure an order of 1,000 of
these 0-1 bomb sights, 500 for the Air Corps and 500
for the British, the production rate would be increased
to 100 per month in approximately six months and the
cost would be cut by 30 to 40 percent. The additional
expense necessary to bring about this increased rate
of production would be relatively negligible and
represented solely by some additional tooling.

P4.

107

September 19, 1940

MEMORANDUM

To:

The Secretary

Front

Mr. Young

Re: Increase in P-40 Production.

The production rate of Curtiss P-40's will be
stepped up by 33% because the Advisory Commission,

the Air Corps and the British Purchasing Commission

have agreed to build this one type for a definite
period and so take advantage of mass production

methods. Specifically, the production rate of increase
is from 6 planes per day to 8 per day, or from 132 per
month to 176 per month. The approximate cost of this
production increase is only $190,000 ($150,000 for
tooling and $40,000 for building) as against the

initial cost value of the plant of $6,200,000.

This specific instance of the P-40 demonstrates
how the production rate can be increased from 20 to

40% at little additional cost where there is a sufficiently

large order for a standardized product over a period of

time long enough to take advantage of modern production

methods.

108

September 19, 1940
4:00 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Purvis.

Arthur
Purvis:
H.M.Jr:

Hello. Good afternoon, Henry.
Hello, Arthur.

Yes, Henry.

H.M.Jr:

Where are you?

I'm over with Mr. Vance for a few minutes on

H.M.Jr:
P:

machine tools.
Oh.

I'd like to see you too - could I? Would
ten minutes from now be all right? We're in

rather an important meeting on that machine
tool

H.M.Jr:

No. I can't do it just now, I just wanted to

Yes.

H.M.Jr:

You've heard about it?

No, but you told me you were going to.

H.M.Jr:

tell you that the mission I undertook which I
told you I was going to

Well, I met with even more favorable reception
than I possibly could have hoped for.

Oh, really.

H.M.Jr:

Yes. And if you think that that word would
be encouraging

I think it would be, very.

H.M.Jr:

I think you might send that along.

109

-2P:

H.M.Jr:

Can I translate it into any practical issue.
No, I think we 11 have to wait. They hope to
get it down in black and white and get his
formal okay on it by the middle of next week.

By the middle of next week.

H.M.Jr:

Yes.

But it might be better than one-for-one, do

you think?
H.M.Jr:
P:

H.M.Jr:

Pardon?

Do you think it might be better than one-for-one?
No, just what I said yesterday.

Just what you said.

H.M.Jr:

No, but through until the first of July.

Uh-huh. Oh, yes, I mean, that could be very
valuable.

H.M.Jr:
P:

H.M.Jr:

oh, yes. You saw the figures.

Yes. Oh, yes, I think that's simply wonderful.
Right. No, I think that you'd better go through
with your machine tool thing and if you're in

town tomorrow and still want to see me why
maybe we can fix it up.
P:

I think I'11 stay over in the hope of having a

word with you tomorrow because I think I'd like
to sit down and ask your - just advice on the
other question of the financing thing - just
to sit with you for three or four minutes and
get your central thought.
H.M.Jr:

Oh, that's fine. Are you going to stay over
just for that?

I think I shall stay over just for that.

H.M.Jr:

Good heavens!

110
3-

Well, after all, these are the important

H.M.Jr:

Well, will you call up McKay in the morning?

things.

I will.

H.M.Jr:

Right.

Thank you very much.

H.M.Jr:

Good-bye.

111

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 20, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

STRICTLY CONFIDENTIAL

At the Staff meeting yesterday forenoon I brought up the question posed to me
on the preceding day by Mr. Lochhead in regard to Chinese contracts for powder in the
United States. The Secretary told me that this powder should go to the British and
that I should, with the assistance of Mr. Philip Young, work toward such an arrangement between Mr. Lochhead and the British.

After coming out from the meeting I telephoned Mr. Lochhead in New York. I
told him that I had spoken with Mr. Adams of the Far Eastern Division of the State
Department the preceding evening. Mr. Adams had called me back this morning, stating
that he had discussed the matter with Dr. Hornbeck and Mr. Hamilton of the Department
of State, and also with Mr. Green of that Department. There was no objection on the
part of the Department of State to the Chinese obtaining storage facilities from
Government departments in this country. The State Department was, in fact, desirous
of rendering any appropriate assistance to the Chinese. With this in mind, the
tate Department had talked with Colonel Burns of the Ordnance Department of the
Army. The latter had stated that if the powder contracted for by the Chinese is of
suitable granulation, the United States Army would be willing to take this over and
then repay the Chinese with a similar amount at such time as the Chinese may desire
delivery.

I also told Mr. Lochhead of the Secretary's views on this proposition. Lochhead
stated that there were plenty of opportunities to sell the powder, but that China
was particularly interested in having the facility for immediate delivery of a
similar amount of powder whenever shipment into China may be feasible. He promised

to talk over the question further with his associates, and to get directly in touch

with Mr. Young whenever their study in New York is completed.

At 10:15 this morning Mr. Young telephoned to ask me if I had heard from
Mr. Lochhead. I replied that I had spoken with Mr. Lochhead yesterday after the
meeting, and that it was my understanding that Mr. Lochhead would call Mr. Young as
soon as he was ready to talk on the matter. Mr. Young told me that Mr. Purvis was
in his office, and had shown him a memorandum of the Chinese powder situation, giving
details along the same lines of those which Mr. Lochhead had provided me. In
response to my inquiry, Mr. Young stated that the duPont people had given this infornation to Mr. Purvis. Mr. Young stated that Mr. Purvis thought an arrangement could
be made whereby the British, if permitted to take over the Chinese powder deliveries
now, would allot from their own deliveries such repayment as and when the Chinese
desired.

After this conversation. I again telephoned Mr. Lochhead and reported that
Mr. Purvis was here, with full information on the Chinese powder contracts, and

112

-2 interested in making some sort of a deal. Lochhead stated that his people had not
yet taken a decision, but that he would get in touch with Mr. Young as soon as
practicable, with the possible view to a meeting with Mr. Purvis or one of his

assistants. Lochhead still has certain reservations about selling to the British,
especially considering the fact that it is the British blocking of the Burna Road

which makes impossible the delivery of this powder to the Chinese. I told
Mr. Young of this last conversation with Mr. Lochhead.

pm.p

113

September 20, 1940
9:00 a.m.

HM Jr: I am a little under pressure this morning so

I will let you talk.

Purvis: Fine. I won't bring anything - the first thing

I wanted to ask your advice on was this RFC situation. We have

now got them with a couple of letters which I think put the is-

sue on the real basis; namely, that U.S. defense needs are 20
per day, and whereas the appropriation only enables them to
order 10 per day, and we, of course have the advantage that if
our order goes in - the U.S. has the advantage that skilled

labor and executive talent is trained on a larger basis, and
they don't lose but are taking the products in the meantime.
That has been put crystal clear to the RFC, and we are terribly
anxious to get this patent established even if it is only this
once. And, of course, it all depends now as to what is the
way to crystallize it with the RFC. I have hesitated to go

to them because both Young and myself feel, I think, that
to go over there introduces and emphasizes too much the British
angle to the situation which Jesse Jones does not want in the
picture. He has said and Schram has said in a meeting that
if it is a fact that the Army and the Defense Advisory Commission want a capacity of 20 per day as being essential to U.S.
defense needs they would go ahead and do the thing. Now he
said that to me you see in a way, but I know he was rather

sheering off for the time being. Nevertheless to hold up the

defense program, because that is what it comes to almost, must

be a rather difficult thing from his view, and it was just a
question of how it could be brought home to him.

HM Jr: What do you think, Phil?

Young: I think if it does not jell this week I don't
know when it will, and it is ready for the final pushover the
top. I think this is the strategic time to have it done
because if it is not done in this instance I don't know when
it ever will be.

114

-2HM Jr: Why don't you do this, Phil - there are so
many personalities in this thing - go over and see Schram and
say now look, the English Purchasing Mission are on your neck;
when can we get an answer; what if anything can they do to
accelerate it? Ask Schram, "Will you, Schram, advise Phil

Young what to do?" See? I think I would try that this morning.

Young: No, I don't think it will do any good. Schram
is going to talk to Jones this morning, I know, on that.
HM Jr: Didn't Schram tell you?
Young: He told me the other day he couldn't do anything
except present it to Jones which he is doing.
HM Jr: Well, Jones is coming in this morning. Supposing
I ask him point blank?

Purvis: For it is on the basis of U.S. defense needs

with the British not there at all.

HM Jr: The last time I talked to him they were waiting
for something from you.

Purvis: We have given him two letters. We haven't, but

both the Defense Advisory and the Army have given him specific

four-line bald letters that this is required essentially for

U.S. defense.

HM Jr: This is just the Continental thing?
Purvis: Yes, but it is the patent for the whole thing.
him?

HM Jr: Supposing I call him up on the phone and ask

Purvis: I think it is a good idea because it is based

purely on U.S. defense. We can keep the British end out.

115

-3 Young: It has nothing to do with the British.

Purvis: It is really on the U.S. basis now.
HM Jr: This is the Continental engine?
Young: Yes.
Purvis: Yes. They have gone so far - I mean the Army
has burned its boats completely and with full approval of
Patterson and Stimson.

HM Jr: Supposing I do it another way? Supposing I ask

Stimson to ask Jones?

Young: I thought of that yesterday and almost suggested

it to him last night. I think that's much better. If Stimson

would call Jones and say, "I told you I wanted a production
capacity of 20 tanks a day.

Purvis: "What are you going to do about it?"

HM Jr: I think that's better.
Young: And remember - Stimson called in Patterson to

write the letter, and Stimson is going to be after you to follow
this through because Stimson brought in Patterson to get the
letter written, and Patterson got Gen. Harris and Colonel Lewis

very enthusiastic about it.

(At this point HM Jr tried to reach Secretary Stimson
on the phone but he was not available.)

M Jr: I think that's the best way.
Young: The stage is completely set.
Purvis: The job has been done well.

116

HM Jr: Do you (Young) think that's the best way?

Young: Yes. If you can get Mr. Stimson to call up

Jesse
British Jones and say, "Look here" - and say nothing about the

Purvis: That's the point.
"I want my tank engines."

Young:

Purvis: And that fits in with what Mr. Jones said to
me, "If they come to me at the top and don't get it too far
down and put it on that basis, I am prepared to do it."
HM Jr:

Is that what you had in mind?

Purvis: That was the chief thing. The other thing Mr.
Jones would probably say he is waiting on the British. That is
not so on this purely national defense basis.
HM Jr: If that is so then I would say to Stimson that
if they say they are waiting on the British, could he suggest

to Jones that Jones send for Purvis at once?
Young: No.

HM Jr: Why not?

Young: Because that brings the British into the picture

and you don't want them in the picture.

Purvis: Could you in that case get Patterson to work
it with Young? Put them together on it.
HM Jr: I will just ask Stimson to get the low-down on
it and see if he could push the thing through, and if there is

anything I can do let me know.

Purvis: I think this is very vital because with that

patent established we have something which I think could be
used as a spearhead of a very important move.

117

-5-

HM Jr: I think the thing to do is to do it through

Stimson.

Purvis: I suppose the President himself would not take

a part just now.

HM Jr: No.

Young: Did Jones talk to the President?

HM Jr: I don't know. Anything else?
Purvis: The only other thing is whether you had any
particulars you could give me in a general way so I could indicate what it might mean

HM Jr: No. I don't want to make the mistake - I never
have - of making any half-forecasts and then disappointing you.

Purvis: No. Quite.
HM Jr: But what I am going after for your information
Purvis: Quite.
HM Jr:

is wherever the Army has an excess - not

excess - has deliveries in excess of what you people are getting
between now and the first of July on fighting planes

Purvis: Fighting planes?
HM Jr: I am going to go for everyother one

Purvis: And it looks as if it might happen?
on every manufacturer, and where it is necessary to supplement the orders, I'm going to make a commitment
HM Jr:

on your behalf.

Purvis: Yes. Quite.

118

HM Jr: You can always throw me down.

Purvis: We have not been in the habit of doing that

very strongly.

HM Jr: I am going after - and I will give you a little
indication - I have a memo here where they have worked out
on the PBY 5s - it's all worked out but it only went for 50.
I said, "That's very nice but it's no good." What do you
mean?" I want to do it to the first of July. This only ran
through April.

Purvis: Yes. I see.
HM Jr: So I said, "Run it through to the first of July."
Purvis: Yes. I see.
HM Jr: What I am crowding for is that the Army and Navy

have this thing so they can put it on the President's desk
the middle of the week so he can say yes or no, and I think

he is going to say yes. And I haven't figured it up but it

ought to be good for 500 or a thousand battle planes between

now and the first of July. And with this thing - these are

all bombers - should go the new bombsight, but I am meeting both Patterson and Forrestal are coming at 10:30 this morning -

on this. I haven't lost any ground. I have got my clearance

from the President, but I think it is much better to play it

down.

Purvis: I think that's right.
HM Jr: Play it down and be able to say, "Now, we have

got this, particularly in view of this whole destroyer mess.

Purvis: By the way, I have got Lothian to hold off any-

thing except those four items which originally came in, and he

has written his letter to Secretary Hull along the lines of what
his understanding was from the President in regard to those four
items, and he has cleaned out the balance.

113

-7 HM Jr: And another thing - by not sending messages on

this it won mix the two deals up. No ground is lost. I am
pushing for all I am worth. You are not losing anything, and
If another message came that might mix the two things up.

Purvis: Could very easily happen.

HM Jr: So I think you have everything to gain. And

if you would make a mental note - for Heaven's sake, whoever

is handling publicity - on the radio this morning - you don't

want the Nile to ask for any submarines for the next day or two.

Purvis: Is there something?
HM Jr: I have heard of it. But I think what happens -

Louis Beal feeds this stuff to the White Committee and the
White Committee gets it

Purvis: Submarines is an entirely new thing.

HM Jr: Anything in the next few days, I think if they
just lay off.
Purvis: Yes.
HM Jr: And I sent word to the White Committee, "For
Heaven's sake, lay off," because I gather somebody is pushing

on the old flying fortresses.

Purvis: Which frankly I think is a great mistake.

HM Jr: You don't want it if you can get this stuff,
so put a bee in somebody, "For Heaven's sake, pipe down."

Purvis: Absurd. I must see. I don't know about that
or where it is coming from.

HM Jr: I imagine Beal is using this other committee as
a front. Ike Bergen - whatever his name is of the White Com-

mittee

120

-8-

Purvis: I have never met any of them. If there is
anything coming out of ours, we will stop it.
HM Jr: Because I don't want - the other thing - are

you catching a plane?

Purvis: No. No.
HM Jr: The other thing - I am not saying anything to
them at this time about any training planes.
Purvis: No.
HM Jr: See? But over the weekend and not later than
Monday have in my hands - I say Monday, if I could have it
Monday afternoon - what your minimum needs are on training

planes from now until the first of July.
Purvis: Yes.

HM Jr: Because if you could squeeze out some - I'm
not saying anything to anybody about this - but if you could
squeeze some out between now and the first of July, it would
leave a much better taste.

Purvis: Quite.
HM Jr: Because I had Knudsen last night and Knudsen
said, "Well, you know you need not sell me on anything for the

British. They can have it all as far as I am concerned." But
he said, "What we need is training planes." If it is something
you could squeeze out

Purvis: On the training end?
HM Jr: If you could squeeze out something on the training planes and say, "We are doing the fighting and you are doing
the training," it would leave a much sweeter taste.

Purvis: I can see that.

121

-9HM Jr: Tell them to take all the padding out and get

down to bed-rock - what's the minimum they could get along
with between now and the first of July? And you could say

in view of what is coming you could forego this if there is

something. It would make a much better aftermath.

Purvis: It is a good approach if we can do it.
HM Jr: Say to the fellows in Canada who have the training program, "Look, boys, no kidding. You have so many on
order and this is what you want. What do you really need?"

One of the things - I don't know if it is at all practical -

if they bring these fellows down to train them in these commercial schools, haven't these commercial schools got planes?

Purvis: I don't believe so. We are always up against

the need for advanced trainers.

HM Jr: You have sufficient confidence in me so I can
put it in my vest pocket so at the right moment I could say,
Look, gentlemen, in view of what you have done

Purvis: Yes.
"

HM Jr:

do it as a last resort.

I am going to do this," but I will only

Purvis: Quite. Fine.
I don't want to bother you about anything else. I have
one or two minor things but I won't bother you.
I am terribly anxious about this RFC thing. That weighs

on my mind.

122
Paraphrase of Code Radiogram

Received at the War Department
at 8:40 A.M., September 20, 1940

CONFIDENTIAL
Chungicing, filed 05:15, September 20, 1940.
Japanese expected shortly to enter Indo-China according

to the American Consul at Hanoi. Informed opinion here is that

there will be little if any French resistance. While Chinese
military headquarters has restated the Chinese intention to enter
Indo-China regardless of French action, the recent destruction
by the Chinese of the railroad bridge spanning the Red River at

Laokay (on the border) and their reported intention to destroy
the southern 70 kilometers of the rail line through Yunnan province cause most observers here to think that Chinese action will
probably be confined to taking up positions along the border, with
possible limited penetrations at some points.
Chinese military leaders feel that Admiral Decoux and
the Vichy Government have both been attempting to mutually shift

responsibility for the French decision. They likewise state that
they (the Chinese) have from the beginning expected the French

to eventually capitulate.
BARRETT

Distribution:
Aide to the President
Secretary of War
State Department

Secretary of Treasury
Asst. Secretary of War

Chief of Staff

War Plans Division

Office of Naval Intelligence

CONFIDENTIAL

123

September 20, 1940
9:00 a.m.

H.M.Jr:

Hello.

Operator:

Drew Pearson.

H.M.Jr:

Hello.

Drew

Good morning, sir.

Pearson:

H.M.Jr:
P:

Hello, Drew.

Sorry to bother you. I wanted to warn you
that my - our friend Bob Doughton is on the

warpath and I think he's coming down to see

you.

H.M.Jr:

Well, this is what I know about it. I told

Johnny Sullivan to keep his shirt on yesterday
and do nothing, which he did.
P:

Yeah.

H.M.Jr:

Yesterday afternoon publicly Doughton was very

affable. Then after the meeting he again got
hold of Sullivan and gave him hell and he is
demanding to see me, so in a little while I
was going to call him up on the phone and find
out what it was all about, see.

Yeah.

H.M.Jr:
P:

But my attitude is - well, I'm not responsible
for what you fellows write.
Well, absolutely, or you would have changed
some of the things we wrote about you.

H.M.Jr:

And how often.

(Laughs).

H.M.Jr:

As a matter of fact, I can't remember whether

I did or didn't tell you about this president

of the tobacco company.

124

Well, you gave me a tip on it but naturally
I haven't divulged that to anyone. He called
me up and raised hell first with me and then
he said, well, where did this come from - the

Treasury? And I said Congressman you know that

I can't divulge any sources as to where I get
stories and as a matter of fact, I said, the

Treasury in the past has always been singing
your praises, said you were cooperating very
excellently with them. I said, I don't think
they feel quite the same way about you this
time but I said they didn't inspire this story
if that's what you mean.
H.M.Jr:
P:

Yeah. I appreciate your calling me up. He
also - I gathered that he hoped to see you.
Well, I have an engagement with him at 12:30

this morning and I thought I'd try to softsoap him and calm him down, but he's threatening
to go on the floor of the House, which I don't
give a damn if he wants to do that, and
denounce us. That's all right, but I just
didn't want to get you into any trouble about
it because he's on the warpath against you.

H.M.Jr:

Well, we are right now in hot water on it,

but we ve been there before and as far as the

tax bill is concerned, I've got a clear

conscience and I don't think that he has.

Well, I don't think that he has either. I
told him - the nearest hint that I gave about
the story, I said, well, I'd talked to some
of the members of the Committee - your

Committee - and I indicated, I didn't exactly
say it, that that was the chief source of the
story.

H.M.Jr:
P:

(Laughs). Good for you.
But when he tried to pin me down on the

Treasury I said, well, I can't tell you anything
in singing your praises in the past. I sort

about that. I said the Treasury has been fine

of let it go at that.

125

-3H.M.Jr:
P:

Well, did some of the members of the Committee
help you out?

Well,
we did a little - I didn't do it personally,
but we did a little checking up there and I
think Jere Cooper feels pretty much as the
story indicates.

H.M.Jr:
P:

H.M.Jr:

Well,
the Committee is a big Committee, they're
26 members.
Yeah.

Well, I appreciate - we are in a hot spot,
and I gather he'e angrier than he's ever been
before.

H.M.Jr:

Well, I may have to write something just to
kid him along and make him feel better. I'm
going to try to soft-soap him if I can. When
are you going to talk to him?

I'm going to talk to him in the next fifteen

or twenty minutes. Foley and Sullivan are
coming in here.

H.M.Jr:
P:

All right.
I'm going to talk to him while they're here.
All right, swell, and if anything happens that
I ought to know before 12:30, let me know.

H.M.Jr:

I'11 have one of the boys call you. I may
not be able to do it myself.

All right. Thanks ever 80 much.

H.M.Jr:

Thank you.

126

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 20, 1940

TO Secretary Morgenthau
FROM Mr. Cochran

STRICTLY CONFIDENTIAL

At 9:30 this morning Mr. Collado called me from the Department of State. He
inquired as to what information the Treasury Department was receiving in regard to
financial transactions with foreign countries which might be of interest in connec-

tion with our national defense. Collado was familiar with the reports of capital

movements which the Treasury requires from the Federal Reserve Banks.

I reminded Collado that the Treasury's Secret Service was not in the field of

gathering information of this type, which had been left to the F. B. I. I did tell
him, however, that through the Federal Reserve Bank in New York we are currently

receiving data with respect to important transactions carried out by the leading
banks in New York for Italian, German and Russian account. Furthermore, the F. B. I.
gives us certain information on transactions of this character and has been requested by us to amplify its reporting on international financial transactions.

Mr. Collado informed me that he was making this inquiry since the question was
up with a group in the Department of State as to whether some system should be
created for obtaining information of the type under reference for the benefit of
this Government. Collado thought the Treasury was the proper agency for assembling
such data. I confirmed that the Treasury was doing as much as it thought could
wisely be undertaken in the circumstances, but would endeavor to improve its system,
with the cooperation of the F. B. I. and the New York banks. To avoid duplication
and possible embarrasement to the Government, I suggested to Mr. Collado that no
new investigations should be started. I told him that such information as we
obtained would naturally be made available by us to the State Department if the

latter is interested. I stressed, however, the fact that the various reports reaching us required a lot of sifting and analysing and that it would be of little use
to the State Department to give it the material as received. Mr. Collado agreed to

inform the State Department committee along the above lines and to keep in touch
with me on the subject.

Bm.

127
September 20, 1940
9:40 a.m.
Secretary

Stimson:

on that kitty for South America

you know - you know the project?

H.M.Jr:

Yeah.

Now apparently Pan America wants to

borrow money from Jesse first for the
first three months or after, and Jesse wants

me to write a letter virtually guaranteeing that out of the kitty - in case - that
it'11 come out of that in case of any trouble
with Pan America. Well, now it seemed to me
all right as it all comes out of Uncle Sam
and it's just a question of whether it comes if there's any loss whether it comes out of
Uncle Sam's 12 million kitty or his R.F.C.
Now, I thought that Jesse was entitled to the
- he wants to keep it in the form of - which
would be regular under commercial banking
and I thought he was entitled to that, but
I don't know what your custom has been in

regard to that kitty. I ran into a block

from -- my Judge Advocate General presented

me with a block based, as I think, upon a
false premise, that I couldn't spend that
money from an appropriation - I couldn't make
the guarantee - but it isn't a War Department
appropriation. I retaliated by pointing out
that I was not speaking as Secretary of War;
I was speaking as the President's agent it was his money.

H.M.Jr:

Yeah.

Now, has that come up before?

H.M.Jr:

No. It's something brand new.

H.M.Jr:

Well, do you think I'm right or wrong?
I don't know. I'd have to have something a
little bit more. Would you want one of my
attorneys to go over there and take a look

at it?

128
2

Well,
I'll wait
I hear
what my Judge
Advocate
saysuntil
to my
retort.

H.M.Jr:

I see. Well, if you want any

I'll see.

H.M.Jr:
S:

H.M.Jr:

Iit.wouldn't - I just don't know enough about

I mean, I don't know how - the principle I have a good opinion of Jesse, as I think we
all have, and I've been trying to help him
in his efforts to keep the R.F.C. on sound
banking principles.
That's right.

And as this is really - in substance, this
is really a payment by the U. S. from the kitty

for certain expenditures and Jesse comes in
simply as an interim banker and why he
shouldn't be allowed to shape up on that

M.Jr:
S:

H.M.Jr:

Well, I wouldn't know. Of course, my feeling 1f you ask me my feeling on it

Yes, I do.
as between the R.F.C. and a kitty of

the regular appropriation, when this thing is
over it's all going to come out of the Treasury

anyway because if the R.F.C. has a loss, we've

got to make it up; if this fund is lost, we
have to make it up so it's six of one and
seven of the other and of course let Jesse

We have to make it up. What do you mean?

H.M.Jr:

The Treasury. I mean, let's say

You mean you have to make it up out of taxation.

H.M.Jr:

That's what I mean.

Well, that I understand, but I mean the kitty
fund was made for just these purposes.

129

3H.M.Jr:

Well, from what you tell me and if it' S legal
and it makes Jesse happy, I think I'd do it.

Yes, that WAS my opinion.

H.M.Jr:

I think I'd do it.

That was just my opinion. It seemed to me

that it didn't make a bit of difference as

far as Uncle Sam was concerned
H.M.Jr:
S:

I don't think it does.
and it kept Jesse's banking methods

above suspicion.
H.M.Jr:

H.M.Jr:

And I know how he feels about those things.
No, I think from what you tell me I would be
inclined to go along with him.

Well, that's what I thought.

If after you've talked to him on this

Continental engine thing for these tanks
you could give me a word why I could pass it
on to Purvis
S:

Well, I'll try to pass it on. I'll try to
do it, Henry.

H.M.Jr:
S:

H.M.Jr:

Thank you so much.

All right.
Thank you.

130

RE CENTRAL REPUBLIC TRUST COMPANY

Present:

Mr. Helvering

September 20, 1940
10:00 a.m.

Mr. Wenchel

Mr. Foley
H.M.Jr:

All right, let's go.

Helvering:

These cases all have arisen, a great many

of them, as a result of the legislation
passed in 1933, effective June 3 of 1933,
which divorced the trust affiliates from

national banks and caused them to disassociate themselves from the national
banks. Those were accomplished during the

latter part of 1936. A great many of these
banks had weak affiliates. In some of them,
the banks were weak and in some of them, they

were rearranged. That is what caused it.
Now we come up to the place where these

people commenced to adjust their taxes

in 134 as a result of these various actions
taken. The Central Republic Bank of Chi-

cago was one of them among a great many
cases.

Foley:

That is the Dawes bank.

Helvering:

I would like to have Mr. Wenchel give you
the detail as to what happened there in
that bank. Go ahead.

H.M.Jr:

Go ahead. My time is limited today.

Wenchel:

I will make it very short.
The Central Republic Trust Company, andaffiliate - the Central Republic Trust Company went

sour and that left only the stock --

H.M.Jr:

Excuse me a minute. I have a telephone call.
(Unrecorded telephone conversation)

131

-2Wenchel:

That left the owners of the stock with just
the investment company, which was the affiliate. There never was any stock issued. It

was simply endorsed on the shares of the
bank stock and gave them a beneficial interest

in the investment trust. Then the owners
wanted to take the losses on the basis of
the stock bank.

We will take one particular case. They

wanted to deduct $300,000 for losses sustained by reason of the bank stock going
sour, and then put a value of $38 on the

rest of it, and we said no, they couldn't
do that. You can't tell what the value is

until you have sold both. We lost the case
when we - the first case we tried, the Hager-

man Case. Then we tried another case, the

DeCoppet Case, and we won that. Then came

along a third case and we won that. However,
a number of people thought that we should

follow the Hagerman Case.
H.M.Jr:

Which you lost?

Wenchel:

Which we lost, and there is, of course, something to the argument that you can't differen-

tiate them. However, we think - that is, I

thought that under the DeCoppet decision the
language used was sufficient to overrule the

Hagerman Case if we ever got another case up
before the Supreme Court.
H.M.Jr:
Wenchel:

H.M.Jr:
Foley:

Have you one now?

Well, we won the DeCoppet Case in this way.
What is that?

That is the one that held you couldn't make
a severance and that you had to sell both
fully before you could determine the value

132

and establish a loss. We had conflicting
rulings of the Third Circuit in Philadelphia
and the Second Circuit in New York, and we
appealed from the decision in the Second
Circuit to the Supreme Court, and they won.

Certiorari was denied. This case, as I understand it, is before the Board that Clark wants
to settle now, and there is also another case
involving the same shares of stock, or stock

in the same investment company, in the District
Court out in Chicago. So I don't see as we

can settle this case at all. I think we have
to let the Board decide, and if they want to
appeal from the Board's ruling, we will let

the case go on up. Otherwise, it seems to
me we will just have the administration of
the Bureau in a hodgepodge. We won't know

what to follow.
H.M.Jr:

What is this memorandum that Hanes refers to?

Helvering:

Well, I don't know whether you recall or not.

We were in and talked to you on that and you
told us to go out there and get together and

you told Sullivan to go with us and get together on this and work out something.

H.M.Jr:

Was Hanes here at that time?

Foley:

Yes, and Sullivan was still over in the Bureau.

H.M.Jr:

I couldn't remember.

Helvering:

Oh, you don't --

Foley:

I didn't remember that, either. I talked to
John last night and he said that at first he

agreed with Sullivan - or I mean, with Hanes,
and then when he talked with Philip afterwards,
Philip showed him that John was wrong, and he

agreed, after he talked with Philip, with Phil's
position, and he agrees now that we shouldn't

133
4-

settle the Clark Case, and apparently John
Hanes had told the taxpayer that he would
have the thing settled, and he was quite
annoyed with Phil, Phil tells me now, and
I remember him mentioning it to me at the
time, because Phil refused to go along with

his interpretation of the law and what he
thought ought to be done.

Helvering:

Well, it was perfectly natural for Hanes to
tell this fellow that, because I made a recom-

mendation that we, in those cases where it
was clearly a divorcement, go ahead and settle
it. I sent this memorandum over here and
Hanes endorsed it, or I mean he signed it.
Wenchel:

Then the Commissioner talked to me and I

told him I thought it was wrong, and then
he told John that I said it was wrong, and
then another conference was called and it
was decided not to do anything about it.
H.M.Jr:

It was decided not to do anything?

Wenchel:

That is right.

H.M.Jr:

Then your record is all right.

Helvering:

Hanes, though, had told this fellow that that

was all settled; he remembered signing the
memorandum. And Clark told him it wasn't

settled. So that is a --

Foley:

I think we have to let the case go to the

Board, Mr. Secretary, and let the Board
decide.

H.M.Jr:

Are you all in agreement on that.

Helvering:

Well, I have always looked at it like this:
Basically, these men had losses, there is

134

no question about that, and we were in a
way taking advantage of a technicality about

the losses; that is, he was not getting the
benefit of losses which he actually had,
but at the same time if we - we understand
now that the Department of Justice has a
case--which they say they can absolutely overrule

H.M.Jr:

Well, the point is, after this memorandum
came over and after Hanes signed it, there
was a subsequent meeting in which Philip

Wenchel -Foley:

The lawyers wouldn't go along with the
administrative determination.

H.M_Jr:

Did you make a record of it?

Wenchel:

No, there was no record made.

Foley:

Well, you had a memorandum.

H.M.Jr:

Did you write any record in your office?

Wenchel:

That memorandum came afterward.

Foley:

After the meeting with Hanes?

Wenchel:

No, that was after the meeting with - in which
Hanes talked about the specific case, but not -

there was no memorandum made after this meeting

in Mr. Hanes' office where he and I had this
little difference. What really happened was
this, Mr. Secretary. The Commissioner said,
"Well, you heard what my lawyer tells me.

What can I do?" He said, "Well, I would fire

my lawyer.
H.M.Jr:

Who said that?

Helvering:

Hanes.

135

-6Wenchel:

To the Commissioner.

H.M.Jr:

Fire your lawyer?

Helvering:

You see, Hanes was really tromping on me

because I had agreed to do something. I
told him I had submitted it to my lawyer

and he said no. I said if that was the
case, what would I do. He said, "Well, I

would fire the lawyer." "
H.M.Jr:

I don't see that this is such a difficult

problem. You fellows want to let this case
go to the Board of Tax Appeals.

Foley:

And let the Supreme Court decide.

H.M.Jr:

Let it go.

Foley:

If we don't do it, we are going to upset
a theory of law that the Department of
Justice is pursuing in a case involving
stock of the same affiliate, and there are
lots of these stockholders, Mr. Secretary,

holding shares of the same company that don't

want to take losses in '34. They want to
take their losses at the time they sell the
stock when their income is high, so you are

not going to satisfy all the people if you
follow what Mr. Clark wants.

Mr. Clark wants to take his loss in '34 because Mr. Dawes tore up a note of his for
$330,0 000 in '34. He wants to establish

this loss.

H.M.Jr:

Wouldn't you establish the principle everybody has to go back?

Foley:

Everybody has to go back.

136

-7
H.M.Jr:

How many stockholders are there?

Wenchel:

169, I think.

Helvering:

In this particular bank, we have 8,000 cases
all over the country.

H.M.Jr:

I have always had a rule, when in doubt let

Foley:

That is right, and if we don't, we wouldn't

H.M.Jr:

Meeting is adjourned.

the Court decide.

have any theories --

137

September 20. 1940
Files
Mr. Cochese

AS 10:00 this morning Mr. Enoko sold no w telephone that the Chase Beat had

informed his that as was expecting 1,122,000 ounces of silver to arrive on the
American steamship President Adams, which to completing a world cruise. This

silver, consisting of coins etc., is being handled by the Shanghai and Hong Keeg

Banking Corporation, but to supposed to come from the Central Bank of Chisa. IS

is to be solted up into bars and then offered for sale is the United States.

Mr. Knoke is sending no a - on this subject.

138

September 20, 1940

Mr. Jones called to speak to the Secretary on
the phone at 10:28, but the Secretary was at a meeting.
When the meeting was over, HM,Jr asked Lieut.

McKay to call Mr. Jones and ask him if it could wait
until he came over to the Secretary's office for the

11:30 conference with the Russian Ambassador. The
answer from Mr. Jones office was yes.
Later, Mr. Jones office phoned again and said Mr.

Jones would like to come in at 11:25 in order to see the
Secretary alone before the conference with the Russian
Ambassador and the State Department representative, Mr.

Henderson, at 11:30. Following this call, Mr. Jones
office again phoned and said he was on his way to the
Secretary's office but would be a little late for the
11:30 meeting.

CONFIDENTIAL

M. 139

Paraphrase of Code Radiogram

Received as the Var Department
at 10:46 A.M., September 20, 1940.
London, September 20, 1940.
During the night of September 19-20 the Bomber Command

of the Royal Air Force dispatched 53 planes against Channel ports

and railroads leading thereto, and to lay magnetic mines. Eight
planes of the Goastal Command attacked shipping.

German daylight activities on the 19th were on a reduced

scale, with about 70 planes participating, mostly operating singly.
There were no major attacks.

London was attacked again during the night of the 19-20th,

with bombs falling in 39 different areas. Some streets are blocked
by unexploded bombs or mines. Production in one munitions factory

was partially, and in another entirely, stopped.
German plane losses were six confirmed and one probable.

The British had no lesses. Civilian casualties have not been reported,
but are probably small,
One 1,035 ton ship was sunk.

There has been no further advance in Libya. An increase
in the amount of shipping at frondheim has been observed. The French

cruisers that passed into the Atlantic are being shadowed by British
warships.

The general situation remains unchanged.
LES

CONFIDENTIAL

Distribution:
Aids to the President
Secretary of Var
State Department

Secretary of Treasury
Aest. Secretary of War

Chief of Staff

Var Plans Division

Office of Naval Intelligence

CONFIDENTIAL

141

September 20, 1940
11:05 a.m.

H.M.Jr:

Hello.

Operator:

Secretary Hull.

Cordell
Hull:

Hello, Henry.

H.M.Jr:

Hello, Cordell.

Why, that Russian-Chinese matter yesterday,

I'd never heard of it before naturally and
I didn't have a minute's time to think. Now,

what we've got in mind here is to give you

anything we've got as sidelights and background
with reference to the whole Chinese loan their whole idea of helping China.
H.M.Jr:

Right.

In the first place it's this Russian outfit -

I don't think you could depend on them a split

second to do anything for China more than what
they are doing or would be disposed to do anyhow. They are supposed to be even more

interested in helping her than we are and yet
in Welles' conversations they've tried to
strike up a bargain with him to allow a few
planes to fly over a little strip of Russian
territory to get into China.

H.M.Jr:

Yeah.

It's that kind of a spirit that they've got.

Well, now on the question of getting away from
Brazil and others here that we do need to give
every attention to, and buying large
of manganese over there, to hire them in effect
to do what they are more interested and more
obligated to do than we, and when they are
utterly as unreliable as Jesse James -- now

that's the -- then here's the other side now.

H.M.Jr:

Yeah.

142
-2
H:

Suppose you people should - suppose we should

the Government - let them have tungsten ore
to be paid for in tungsten and we give them

cash or credit facilities. They can buy anything then they want in the way of munitions
or other things and have the fullest latitude.

H.M.Jr:
H:

In other words, we'd try to give them the
fullest encouragement. Now that doesn't
include the question that you had primarily
in mind and that's actual delivery of armaments.
That's right.
Well, now I have this morning a pretty strong
report from Grew at Tokyo to the effect that
the Japs have had a 3-hour conference with

the king - or whatever they call it - and they

have decided to go into an open alliance -

military defensive alliance they call it - with

Germany.

H.M.Jr:

I see.

That's like Jesse James and Colt Young were

going into an alliance for self-defense. At
any rate that means that they are - that
Germany is probably telling the Vichy Government
to let Japan into Indo-China.
H.M.Jr:

I see.

And so on and SO on. Now, we want to go as

far as possible on a loan and on an iron
scrap embargo as quickly as Japan settles in
Indo-China, and it's a question of how far we
can go without running too much risk of a
military crash. Now this sort of a loan to
China would obviate that. They couldn't make

serious complaint about a purchasing loan
like we made before if the Chinamen are disposed.
So I thought - there are some other phases

connected with the situation - but from the
standpoint of getting - of helping China
actually that we could very well - and from
avoiding possibly two brash acts with Japan
all at once - the iron scrap and everything -

embargo - and we might consider this other
method than the Russian method if you and the

President, after we talk a little further,
should

143
3H.M.Jr:
H:

Well, this Russian Ambassador is coming in
here at 11:30 this morning.
Yes, I know and you can be sure that the

German Embassy and the Italian Embassy here

in Washington will know everything that takes
place between you and him in one hour. That's
what he's been doing with Welles' conversation.

H.M.Jr:

Well, there's one thing I don't understand
that Welles said. He called me up right
afterward about - I got the impression that
this trade treaty with Russia had not been

consummated and I see it was consummated on
August 6th.
H:

No, that was that annual arrangement we have
with them.

H.M.Jr:
H:

Yes, and SO there's nothing pending with
Russia.

Nothing except that Welles has been having
two and three hour conversations at a time
on the whole situation between Russia and
the United States to see whether anything

could be finally worked out.

H.M.Jr:
H:

Well, they couldn't have been very effective.
No, I haven't - I W8.8 away you know at
Havana and the Springs and so on and I haven't

kept up with that.

H.M.Jr:

Well, Cordell, unless you tell me definitely
you object - this fellow will be here in twenty
minutes - and I thought I'd very diplomatically
just throw out a hint along the line that the
President asked me to.

Well, that's your business. I'm just giving

you my views if they're worth anything to you.

H.M.Jr:

Well, they're worth a lot and I only wish that

you had said them yesterday at Cabinet.
H:

Well, if you had given me notice that you
were going to spring that thing

144

H.M.Jr:

Well, I couldn't give you notice because I
didn't know that you were going to bring it
up.

You mean bring up the

H.M.Jr:

Doing something for China.

Well, of course we've had that up at every
session nearly.

H.M.Jr:

Well, I brought this up

And that was something new as to the method.

I didn't have time to think it out, but

anyhow I just wanted you to know that what

you say to him will be repeated by him to the
German Embassy and to ours.

H.M.Jr:
H:

H.M.Jr:

Well, it may make them think twice.

Well, that's all right then.
Well, I'll be just as careful as I know how.
Henderson is here and he can report back to
you what I said. I realize that it's a very,
very ticklish thing and if the President
hadn't specifically said to go ahead, I
wouldn't have dreamed of doing it.

Yes. Well, of course, we are here trying to
help him from this angle and sometimes we see
something that's very patent, and we hold
it up until we can get to see him and that's
with you on that.

H.M.Jr:

Well, I'll try my best not to make it more
difficult and I hope that I can make it.

145

September 20, 1940
11:38 a.m.

H.M.Jr:

Hello.

Operator:

Secretary Hull has a newspaper man with him

H.M.Jr:

and he'd like to call you back.
Well, let me talk to his - Gray.

Operator:

Gray? All right.

H.M.Jr:

dray, is that his name?

Operator:

Mr. Gray.

Cecil
Gray:

H.M.Jr:

Hello, Mr. Secretary.
Yes. Mr. Henderson, in charge of the Russian
desk of the State Department, was supposed to

H.M.Jr:

be here at 11:30. He's not here. I wondered
if there was a change in the orders.
I haven't heard a thing
Well, I wish you'd find out because - well,

it's very embarrassing to me that Mr. Henderson
isn't here. The appointment was made yesterday

and if he isn't going to be here, I think
that the least the State Department could
have done is to extend me the courtesy of
telling me he wasn't coming.

H.M.Jr:

I'll look into this matter immediately, sir.
I mean, it seems I'm entitled to the courtesy

if Mr. Henderson has been ordered not to come.

Yes, I feel that he must be on his way or
something, sir.

H.M.Jr:

Well, I'd like to know.

146

-2G:

I'11 report right away, Mr. Secretary.

H.M.Jr:

And let Mr. McKay know, please.

I'11 do it sir.

147

Sept. 20, 1940
11:40 a.m.

Mr. Gray phoned Lieut. McKay and told him

that Secretary Hull said he thought the meeting had

been or should be cancelled.

148

September 20, 1940

11: 45 a. m.

Presenti

The Russian Ambassador, Mr. Outanaky
Mr. Jesse Jones
Dr. White

HM.Jr: Mr. Ambassador, I am sorry to have de-

layed you.

Mr. Ambassador, Mr. Jones and I asked you to
come down to see us because we have had an idea. You
most likely know Mr. T. V. Soong has been here for

some time on the question of getting a loan and in
the discussions which we have had -- as you most likely

know, with the money that we lend them they cannot buy

munitions -- and the suggestion is made that they could
get more help from Russia.
this.

Mr. Jones: I said to him, "Suppose we don't do
who's going to help you?

"Russia. The only people we can get. And they

can only help so much."

HM,Jr: Now, the thing that we had in mind
Mr. Jones: I think he suggested, Henry, that"1f
you people in buying your defense supplies could buy

more from Russia, more metals, manganese and some other

things that they have got to sell, they might be able to

do more for us" or something of that kind.

Ambassador: If the United States buys more man-

ganese from Russia?

Mr. Jones: That was his suggestion. I guess he

was floundering around looking for something. Probably
been talking to you about it?

149

Ambassadort I had several talks with Mr. T. V.
Soong, but not quite along this line and the suggestion

of an increase in South American trade was not advanced

by him.

Mr. Jones: South American?

Ambassador: I mean Soviet-American trade. This

suggestion he did not advance.

Mr. Jones: The last time I saw him was two or

three days ago.
that.

Probably you have not seen him since

Ambassador: No; I have not.
Mr. Jones: And he indicated -- maybe it was his

own idea; maybe he thought if we would do something

more in the way of the things we are doing already, buying these metals, accumulating for stock piles, which we
are doing on a large scale now and expect to continue to
do.

Ambassador: One thing I noticed with Mr. T. V.

Soong. I had several talks with him since he arrived
here. He has been in very friendly contact with me all
the time. I did notice his general worry, I would say,

and disappointment about the rather lamentable state of
affairs in Russian-American relations. He was very much
discouraged to see our relations, far from getting better,
are getting worse between our two countries.
Mr. Jones: You mean our relations ....

Ambassador: Economic and political relations
between the United States and my country. And this, of
course, disappointed him very much. Exactly by the same

reasons you just mentioned.

Mr. Jones: Maybe he was acting in the role of
good Samaritan talking to me. Maybe he thought he could
do some good.

Ambassador: I think he has these intentions.

150

Mr. Jonest Yes. Undoubtedly.
Ambassador: And I understand his motives perfectly and they are very good motives, but of course

the reality in our relations right now is very gloomy.

This I want to make clear at once. And his approach
to this is that exactly along the lines you are talking,
that such a triangle requires good relations between

every two angles of that triangle. Our relations with
China are very close, very friendly. Your relations
with China are very close, very friendly. Sorry that
we cannot qualify in the same relations between my

country and your country. But that's a general remark.
HM.Jr: I understand, but I think we can both

make the assumption we are both friendly disposed to
China.

Ambasandor: This is a common donominator which
does exist.

HM,Jr: I think we are both interested in peace
in the Pacific.
Ambasaador: Certainly!
HM.Jr: And with those two common denominators

and possibly in the interest of both of those worthy
causes, the question comes up of either manganese or
chromite, quicksilver, mica, things that we need and
things that you may or may not have a surplus of and
want to sell.
Mr.

Jones: Are you helping China a great deal

now?

Ambassador; Oh, yes!

Mr. Jones: What do you sell them?
Ambassador: Munitions.

151

Mr. Jones: Munitions.
Ambassador: Well, according to the information
which the same Dr. T. V. Soong gave mo, I don't think
they could have resisted as long as they do if they had
not had

Mr. Jones: your help.
Ambasoador: Yes: help. Without wanting to
discourage any scheme of the kind you mention, I just
think of a few factual questions I would like to

raise.

HM.Jri Please.
My
Ambassador: A few practical questions.
first question being, how could you get our manganese
which, as you well know, is concentrated on the Black

Sea coast?

Mr. Jones: That's very difficult. Very diffi-

oulf.to get out.

Ambassador: Not only is it difficult, but as a

matter of fast, the situation has changed very much.
A year ago we sat at this same table, a year ago, and

I complained about you not buying enough of our manga-

ness which you could have received, at that time, in

great quantities. Unfortunately, I did not succeed.
The Secretary of State promised to consider our sug->
gestion that about 800,000 tons of our manganese be

bought within four years, but nothing came of this. At
that time, the communications were free. Today this
manganese, as you will see, I can point to you,
if you to
referred
want, the particular spot. (The Ambassador
the world map hanging in the Secretary's office.) The
greatest deposit in the world is here.

152

HM.Jrs That's not far from
Ambassadort And this, Poti Port, all the deposite are very close to the Coast and the other is
Mariupol, here. This route is out of the question
now. So is this. To transport manganese are by
rail-is
commercially unthinkable. Physically possible,
but commercially
Mr. Jones: How far is it across here?
Ambassador: About 9,000 miles, at least. So
this is the first practical question which occurs to
me. After Italy went into the war, I understand some
American boats which were on their way to Poti just
had time enough, in late May, to slip out and bring

the last shipments. I don think there have been

any since.

Mr. Jones: No way to get up here, huh?

Ambassadori Well, that, of course, is shorter,

but by reasons not known to me this sone here, where
not a single combat has over taken place, has been proclaimed by your Executive to be combat sone, so American
ships cannot enter.

Mr. Jonest Mr. Soong's idea does not seen to be
very practical then.
Ambassador: This is my first doubt about it.

Now, whether manganese is the only thing, I don't know.
You mentioned other commodities.

HM.Jrs I mentioned others.
Ambassador: What did you mention?

HM.Jri The ones I Jotted down, just as possi-

bilities - asbestos, mica, meroury ....
Ambassador: Platiment

153

HM.Jrs Yes. Chromium. That's the whole group.
Ambassador: Gold is not a commodity?

HM.Jrs We buy that. I just bought 10 million

from you the other day.

Mr. Jones Do you produce all those things?
Ambassador: Asbestos, yes. Mica, yes. About
meroury, I must check. Platinum, yes. Chronium, yes.
HM.Jrs (To Mr. Jones) We just bought 10 million.
Where did you get the gold?

Ambresador: Plenty!

Mr. Jones: Dig it out of the ground?
Ambassador: (Laughed but made no reply.)

HM.Jrs They have lots of it.
Ambassador: That was my first question.

HM.Jr: We don't consider it a commodity. The

Ambassador and I had this discussion a couple of years ago lot of gold coming out - as to whether gold was a commodity
or not and he and I came to a very good understanding and
from that day we have seen eye to eye on this gold question.
Ambaesador: That's correct.
HM.Jr: And the working agreement is good today.
Ambassador: with one exception, just departing as
you did for one moment from our discussion. In my conversations with Mr. Summer Welles I had quite some diffi-

culty in obtaining a very simple statement. We took that

up about three or four times among other questions, a very
modest request of ours, of being given a general assurance

154

that there would be no discrimination toward Russia

in the question of importation of gold; that we re-

alised you cannot give us a specific statement that
you always will buy it and always at the same price.
We know your laws. But we asked one very modest
and very reasonable things That your fixed policy in
the gold question be applied without disorimination
to Russian gold. Sorry to say that this question,
which I considered as being of third or fourth importance, as a very subsidiary question which I raised
only because I had my instructions, I was surprised
to see that on this question I did not obtain the
necessary assurances. We have not finished our conversations yet. Perhaps I will obtain it. But even
on this technicality, which unfortunately does characterise the gloomy situation to which I was referring
before
That's just being nasty for a moment.
HM.Jrs Well, Mr. Jones and I are neither of
us diplomats. He's a newspaper publisher and I am

a farmer. Is that right?
Mr. Jonest Yes.

HM.Jrs So we don't know anything about diplomacy.
Ambassador: I have not known recently anything
about diplomacy. I have been a newspaper man myself
for 18 years.

HM.Jri Well, you are talking to a newspaper man
and a farmer, so we don't know anything about diplomacy.
Ambasaador: My second question, coming back to
Mr. T. V. Soong's scheme is

Mr. Jones: Call that "suggestion" instead of

"scheme".

Ambassador: Suggestion.

Mr. Jones: Would you mind?

155

Ambassadora No. I don't mind at all. Ny

second question is he or anybody who has brought forward that suggestion assumes that the amount of help

we are giving our Chinese friends is limited by our
financial resources; that we give only as much as we
can afford financially. I don't know enough about

the matter, but as a first reaction to what you told
me I would say I am not sure of this. I think we are
giving China that amount of help which we can afford
from the point of view of available
Mr. Jones: Materials?

Ambassador: .... materials. And, as far as

I know, financial difficulties between ourselves and
China have not arisen, but this is my private reaction
to a suggestion which is new to me and which, of course,
I will refer to my Government.
Mr. Jones: These talks or suggestions were more

or less vague on his part; were not specific; to be

reduced down to a definite suggestion.
HM.Jr: You know by now in our previous discussions
we have either agreed or not agreed. There has never
been

Ambasaador: That's correct.

HM.Jrs It's either black or white. There has
never been any grey, and I think I never have talked to
you on a matter like that unless I had full authority.
Ambassador: I realize that perfectly.
HM.Jrs You appreciate that, because I don't take
up your time talking about
Ambassador:

I realise that perfectly.

Mr. Jones: How about your trade balance with
this country

156

that?

Ambassador: It remains chronically passive.
Mr. Jones: You have not been able to correct

Ambassador: No. As to our trade in general

between our two countries, 1f things continue as they
are going on now, the moral embargoes, the retainment
of goods which w have bought two years ago and which

now in a retroactive way are being retained (they allegedly are necessary for National defence) and so on,
if these measures continue I don't think that our trade
relations or any relations will develop in a satisfactory
way. So far I cannot boast about any achievements in

my conversations with your Government.

Mr. Jones: I wish you would import more caviar

than you do.

Ambassador: I share your desire very much. I am

getting short of it.
HM.Jri That's one thing -- I like it, but I could
perfectly well get along without it the rest of my life.
Mr. Jones: He taught me to drink vodka and like

it and to eat caviar and that other fish

Ambanaador: (1) sturgeon, from which caviar comes.

Might I ask you, Mr. Secretary, to repeat
HM.Jr: We have two Secretaries. Mr. Jones is a

Secretary Since yesterday.

Mr. Jones: My feathers are still pin feathers.
HM,Jri But you are drybbehind the ears.
Ambanendor: Mr. Morgenthau, I don't quite underimagine the situation is a practical one, just
for the sake of this conversation. How would that manganese be purchased? It would have to be purchased by
stand.

157

-10-

our two customers, U. S. Steel and Bethlehen Steel or
would it be the Federal Government?

HM.Jri You (Mr. Jones) would buy it, wouldn't
you?

Mr. Jones: I suppose so. I think that would

be a practical matter to work out.

HM.Jri You see, Mr. Jones in his many capacities,
also has a - what do you call the corporation that buys
these raw materials? Do you buy manganese or do IT
Mr. Jones: We bought manganese. We have what
we call the Metal Reserve Company* and we have already
bought over 1,000,000 tons.

Ambassador: Imagine this is gold. Is credit
open in this country here or what? How would that triangular arrangement work, speaking abstractly?

HM.Jri First we want to find out whether the will

is there.

Ambassador: I understand.

HM.Jr: But the idea

Mr. Jones: If the will is there and the desire,

we would have to work out the mechanics.

HM.Jri We have to work out some way, if we bought
what the call strategic materials and paid you cash that
you, in turn, would find some way to assist our Chinese
friends in an even bigger way than you have in the past.
Ambassador: I understand.

HM.Jri Financial protection or whatever it is.

We have no way of knowing, but we do know they are in

great need. We also know that today Russia is the only

place left, practically, that they can get supplies and,

158

-11-

as I say, as you put it, very much better than I can,
there are three points to a triangle and from Russia
to Ohina is friendly and from the United States to
China is friendly.

Ambaseador: That's right. The rest is blank.
HM.Jri I am an optimist and I always have hopes.

Ambassador: I tried to be for a long time.
HM.Jri And if and when you hear from your Government

Ambassador:

... I will let you know

HM.Jr: let me know and Mr. Jones and I will be delighted to see you.
Ambassador: Mr. Secretary (Mr. Jones) I would be
glad to come to you without any practical thing on my
mind should you be interested in knowing what RussianAmerican trade looks like now.

Mr. Jones: I will be glad to see you.
Ambassador: I will be glad to come and see you

and tell you about the very bad condition it is in now.
Mr. Jones: I will be very glad to see you.
000-000

159
RESTRICTED

G-2/2657-220

M.I.D., W.D.
September 20, 1940.
SITUATION REPORT

No. 199

12:00 M.

Western Theater of War.

1. No ground operations.

2. Air Force Operations.
All operations in the vicinity of England were hampered by rainy weather.

In daylight of the 19th there was German bombing in
the London area, in Essex, Sussex, and in the west of England but

no large-scale attacks. During the night raids were steadily conducted over the London area but apparently this activity was less
intensive than the night before.
The British bombed along the Channel and in Western
Germany on the night of September 19-20.

According to news reports, large-scale German raids

are in progress today, focussing on main junction points of the
Southern Railway.

II. Mediterranean and African Theaters of War.
1. No apparent Italian movements beyond Sidi Barrani,
where consolidation continues.
2. The R.A.F. operated intensively against communications

and concentrations west of Sidi Barrañi. Italian planes continued
their bombing of British forces in Egypt and also bombed a camp at
Galladat, Anglo-Egyptian Sudan.

RESTRICTED

160

GRAY

HSM

Berlin
Dated September 20, 1940

REC'd 12:06 p. m.

Secretary of State,
Washington.

4072, September 20, 10 a. m. (SECTION ONE)

My 4036 of September 17, 5 p. m.

The decree of the REich Finance Minister relating

to the incorporation of the protectorate into the
customs territory of the Reich dated September 16 has
now been published in the REICHS GESETZBLATT of September

18, 1940. It provides for the abolishment of the customs
frontier between the REich and the protectorate Bohemia
and Moravia or October 1, 1940 at which time the German

customs regulations will be introduced in the protectorate.
Customs revenues and consumption taxes will thereafter

be collected and administered by the REichs administration. A separate decree issued by the REich Finance
Minister also dated September 16 provides for the creation

of a REich revenue office for the district (Oberfinanzbezirk) of Bohemia and Moravia for administering customs
EXCISES and monopolies.

Effective

161

ham -2- No. 4072, September 20, 10 p.m. from Berlin (SEC. 1)

Effective October 1, the REich tax laws relative to
tobacco, sugar, salt, beer, brancy, Electrical bulbs,
playing cards, sacharin, mineral oils and fats are to
be introduced in the protectorate. The Reich turnover
and slaughter taxes will also be introduced in the protectorate on the same date.
According to an Editorial appearing in the ESSENER
NATIONAL ZEITUNG of SEptEmbEr 18, the competency of the

REichs Stellen or REich monopoly boards for the various

agricultural products will also be Extended to the protectorate. Therefore, in the future these boards will
also compute purchases for the protectorate on a centralized basis.
Although considerable progress has been made in

adjusting the price and wage lEVELS to thos E of the
Reich during the one one-half years of German occupation

of the protectorate certain transitory measures are still
deemed necessary to Ensure a smooth incorporation of the

protectorate into the REichs customs territory. Important among these measures are agreements bEtwEEN the

industries of the protectorate and the REich which have

been worked out lately to reduce the Evil Effects which
might arise on both sides from free competition after

the removal of tariff barriers between the two territories.
KIRK
DDM

162

GRAY

RDS

BERLIN

Dated September 20, 1940

Rec'd 4:05 p.m.

Secretary of State,
Washington.

4072, September 20, 10 a.m. (SECTION TWO)

The details of these agreements vary considerably

for the different industries. Doctor Bernhard Adolf, the
Reich protector's special commissioner with the association of Bohemian and Moravian industries, has summarized

their general characteristics however in an article published in the Frague newspaper NETERTAG on September 16

as follows:

OnE. ThE markets of the Protectorate and of Slovakia
are reserved for the Protectorate's manufacturers and those
of the old Reich for German manufacturers.
Two. The Austrian market is to be supplied in common

by both industries in respect to certain goods.
Three. The Sudetenland market is in SOME instances

reserved for Sudeten factories and in others for those
of the Protectorate.
Four. Some of the agreements provide for unilateral

or reciprocal sales quotas, fixed for a certain period of
time,

163

-2- #4072, September 20, 10 a.m. (SECTION TWO) from Berlin.

time, and based on percentages of 1937 deliveries.

Five. In SOME instances, the Protectorate manufac-

turers have agreed to join the respective Reich cartels
which make special measures for market protection superfluous.

Six. In SOME branches of industry, Protectorate
manufacturers are forbidden to produce certain goods "in

order to save raw materials", according to the official
explanation.

Mony agreements contain provisions in regard to prices:
Protectorate monufscturers undertake to adjust their offers
to prices prevailing in the old Reich and VICE VERS.
The agreements in SOME industries are limited to a reciprocal undertaking to abstain from sales propaganda and

advertising in the other territory.
In regard to the compensation for Exchange losses on

foreign balances in Czech crowns referred to in telegram
No. 4036, Doctor Friedrich Mueller, the Reich's commissioner
with the National Bank for Bohemic and Moravic, states in
an article appearing in yesterday's NEUERTAG that all
holders of such balances abroad who wish to take advantage

of higher rate must offer such foreign holdings to the
National Bank not leter than October 1, 1940. HOWEVER,
persons

164

-3- #4072, September . 20, 10 a.m. (SECTION TWO) from Berlin.

persons who have claims in foreign currency which result
from the sale of merchandise and cannot be collected before
October 1, may obtain compensation at the higher rate

after that date.

INFORM TREASURY

(END OF MESSAGE)

KIRK

165

September 20, 1940

12:40 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Wallace calling.

H.M.Jr:

Who?

Operator:

Wallace.

H.M.Jr:

Wallace?

Operator:

Yes.

H.M.Jr:

All right. Hello.

Henry

Wallace:

Hello, Henry.

H.M.Jr:

Hello, Mr. Vice President.
Henry, I have no intention of making a speech
on taxation on this Western trip which I'm

starting, but I notice however Willkie dealt
with it quite at length yesterday - I didn't

know whether any of your people would care to
H.M.Jr:
W:

H.M.Jr:

fix up any information for me or not so that
Sure, if you'd give us an inkling of what
you'd like.
Well, I'd say it would be the natural things
that would come to their mind in defense of
your taxation policy in view of what Willkie
has said about it.

My own thing that went through my mind - but

I'll be guided by you - is, I thought I'd give

him a little more rope.
W:

Well, I had no intention of saying anything
but

H.M.Jr:

You see Johnny Hanes is there advising him

I get you.

166

-2H.M.Jr:

and I thought if he went out a little

bit further and really put his foot in it,
then we might haul him up short.

Yeah.

H.M.Jr:

My own hunch after reading it was just to

Yeah. You know Johnny Hanes and know what

sit back and see whether Johnny Hanes didn't
get him to say some more.

he'll likely do, huh?

H.M.Jr:

Pardon?

You know what Johnny would likely get him

to do.

H.M.Jr:

Yeah, and I thought we could wait a little

Yeah.

H.M.Jr:

bit.

And if something happens - I'll keep it in
mind - I can telegraph it to you or give it

to Paul Appleby and he can get it to you.
Yeah. Well, I have no intention whatever of
making a speech on taxation but I thought
perhaps it's conceivable that the information
might come in handy in an emergency of some

kind.
H.M.Jr:

Well, Sullivan is coming in now and I'11

Well, it would be good education for me anyway

H.M.Jr:

Well, we'll get something out for you.

H.M.Jr:
W:

mention it to him when he comes in.

to know the - a little bit about the

No tremendous rush on it - if you could have
somebody slop it together and you can give

it to Paul to mail it to me.
R-r-right! O. K.

I talked with my brother-in-law and find

167

-3-

that it's the - in the other Department

and not in yours.
H.M.Jr:

Oh.

It is what you suspected. I got the thing

twisted from - Mrs. Wallace had got it twieted
about it why he said he didn't have any idea

when she wrote me, and when I talked to him
(laughs)

H.M.Jr:

Well, wasn't he pleased the way we had taken

Yes, yes.

H.M.Jr:

What?

Yes.

H.M.Jr:

Because we had stretched a point to do it.

Yes, he felt that your folks had been most

care of it?

cooperative.

H.M.Jr:

Good.

Yes, I got it all twisted. You see, it was

one of those things that came in a conversational

letter from my wife and she got it twisted.
H.M.Jr:
W:

O. K.

I just thought I'd let you know that he

seemed to be greatly pleased at what you folks

had done.
H.M.Jr:

Thank you, Henry.
Yes.

H.M.Jr:

Good-bye.

168
GROUP MEETING

Present:

Mr. Gaston

September 20, 1940
2:30 p.m.

Mr. Foley

Mr. Cochran
Mr. Schwarz
Mr. Young
Mr. White
Mr. Graves
Mr. Thompson

Mrs Klotz

H.M.Jr:

Has this gone through?

Cochran:

We were working on that yesterday.

White:

I thought we agreed on it.

H.M.Jr:

It is all right with me. Anybody object?

Sold. Who will inform the Committee?

Cochran:

I can do that.

H.M.Jr:

I will keep this. It is blocked dollars,

Harry.
White:

This was my understanding, that it was

limited to that, although the discussion --

H.M.Jr:

And in unoccupied France.

White:

Well now --

H.M.Jr:

What?

White:

Is that stated so limited there?

H.M.Jr:

The majority of the - a number of refugees
in unoccupied France.

White:

Oh.

H.M.Jr:

Unoccupied.

169

2Cochran:

But there was one operation which they
had under consideration yesterday. That
was Miss Ann Morgan's $10,000. I think
that was to help her get out of occupied
France.

H.M.Jr:

I am so sick and tired of hearing of Ann
Morgan. I had Mrs. Bliss here for half
an hour and we told them we would give them
enough money to get her out of France and

she should get out. Chamberlain sat here.
I was willing to give her some money, and
he said no, only give her the money to help
her get out.
Cochran:

My only point was that part of this --

H.M.Jr:

She will get out of France, yes, but I was
willing to give her the money for the time
being and he said no, Chamberlain did.

Cochran:

We referred this case specifically to him
yesterday.

H.M.Jr:

And what did he say?

Cochran:

I thought they were putting that through,
didn't you, Harry?

White:

Well, I think that would be an exceptional
case and this is a general case and there-

fore it is not included in there.

H.M.Jr:

I would give her $10,000 if she would come
home. Chamberlain was handling it and he

knew all about it. I don't have to get in
on it, do I?

Cochran:

No. I mean, that is the general rule.

H.M.Jr:

Herbert?

170
3Gaston:

You got my brief report on the status of
this recruiting thing?

H.M.Jr:

Yes, and I sent a telegram to Pa Watson
from what you told me, and I have sent a

copy of it in to you. I said as soon as

we heard anything further we would advise

him. That was the easiest way.

Gaston:

Yes. You haven't any objection to my giving
out a list of the Presidential appointees
and their statuses to this man?

H.M.Jr:

He is entitled to them.

Gaston:

I am terribly afraid the first thing we are
going to get is a nomination for Appraiser

of Customs in New York and Comptroller of
Customs in San Francisco. It might do some
good.

H.M.Jr:

If he wants it, he can have it.

Gaston:

Yes. I will give it to him today.

H.M.Jr:

Anything else?

Gaston:

No, I don't think so. I wrote you a memo-

randum on Butler, Homer Butler, Attache in

Paris.
H.M.Jr:

I haven't got it yet.

Gaston:

I signed it today.

H.M.Jr:

When?

Gaston:

Just a little while ago.

H.M.Jr:

It just hasn't come yet. It will come.

171

Gaston:

I will see that you get a copy.

H.M.Jr:

What else?

Gaston:

I haven't anything else.

H.M.Jr:

I am trying to hurry so as not to spoil any-

body's golf.
Gaston:

Are you flying?

H.M.Jr:
Gaston:

Right. I am taking the second best plane.
What is the matter with the other?

H.M.Jr:

They sent a message the plane would be grounded

until their personal representative could come

in to look at something. Maybe something has
gone wrong. They have grounded all those models

pending putting in something in the tail.
Gaston:

All of them?

H.M.Jr:

I guess so; certainly this one.

Gaston:

Well, there was something, you know, about
that speed.

H.M.Jr:

That was changed.

Gaston:

For a time, you know, they wouldn't let them
land under 75 miles.

H.M.Jr:

Then we sent the plane out there and it was
fixed, and now it is something else.
Edward?

Foley:

I haven't gotten Nelson Rockefeller yet. He
is in New York.

H.M.Jr:

Anything further on the Doughton thing?

172

Foley:

No. John had some funny statement from

Doughton. He didn't have the letter, but
John told him he would sign it and bring
it up to him. He went up there this after-

noon. He said something that didn't make
any sense to me or to John, about he was
going to indemnify Pearson against suit,

and then he was out and the matter was between the Treasury and Pearson, which I

don't understand at all. It didn't make

any sense to John, either.
Cochran:

Do you want to take along this statement
of Jay Crane?

H.M.Jr:

Yes.

Cochran:

He didn't get to sign it, but he dictated

H.M.Jr:

I would like White and Bell to each have a

it.

copy of that. Anything else?
Cochran:

No, sir.

Schwarz:

I wanted to ask if we would be able to give
out this decision about the remittances for
the charitable organizations. The Associated
Press has gotten a story in which they say
that a lot of Americans are complaining about

their difficulties.

H.M.Jr:

I never give you those stories. I don't know

how you get them.
Schwarz:

We get them through the Legal Division. Is
this going to be a general license?

H.M.Jr:

I don't know.

Cochran:

I don't think it is a general license.

173

-6White:

Just general policy here, but not in the

form of a general order.

H.M.Jr:

I don't know.

Schwarz:

We ought to do something so as to counter-

act it. They say there are many people

there complaining that our Consulates are
allowed to pay out ten pounds to any Britisher who comes in there acting as representative of the British Government.

Bell:

Is this a new order or the one that we gave
out about two weeks ago?

H.M.Jr:

This is the one we talked about just before

you came in.
White:

Why don't we see if something can be drafted?

Schwarz:

All right. We will see if we can't draft
that into something.

H.M.Jr:

Who do you see when you get one of these
statements?

Schwarz:

Pehle, usually.

H.M.Jr:

You know, I'm giving Pehle a chance to run
this show on a make-good basis after Chamberlain leaves.

Schwarz:

He always explains them well and translates

H.M.Jr:

Maybe you can get it out of him.

Schwarz:

I will try, sir. I think it is worth doing.

Young:

No difficulties.

it.

174

7H.M.Jr:

Will you compliment Cox on the work that
he did on those Vultee contracts for me,
Ed? According to Philip Young, he was
very good.

Foley:

Yes, sir.

H.M.Jr:

Send him my compliments. Is he Assistant

Foley:

Assistant to the General Counsel.

H.M.Jr:

Are you one of those, also? Assistant to,

General Counsel?

and Assistant General Counsel?

Foley:

His title is Assistant to the General Counsel. He has the job that Jack Harlan had

when he was here.
H.M.Jr:

Which pays more?

Foley:

He gets eight thousand.

Bell:

The same grade.

Foley:

It is in the same grade. We could give him
eighty-five hundred.

H.M.Jr:

I think I would.

Foley:

All right.

H.M.Jr:

It is a cumulative thing.

Thompson:

If he is on your regular roll, you couldn't

promote him because there is a prohibition
on Administrative promotions.
Foley:

We will find a roll.

H.M.Jr:

He will give you a legal opinion, Norman.

175
-8

If necessary, Cox will write it. Well,
the boy is doing good work and I think

he has earned it. I would like to give

a letter to him myself Tuesday.
Foley:

I will have it ready for you.

H.M.Jr:

Provided the President doesn't come down
Sunday night.

White:

I have here a letter that needs to be
signed before you go, if possible, and
it has an agenda there. This is on the

Latin-American meeting. The agenda I
had a chance to clear with Gaston, and I

would like to show it to Dan Bell.

H.M.Jr:

I am surprised you fool around with South
America. I thought your middle name was
Soong.

White:

It is not going so well in that direction.
I am looking for new fields.

H.M.Jr:

What do you mean, after this morning?

Anything else, Harry?
White:

No, that is all. Oh, yes, something else.

Mr. Jones called up and wanted some informa-

tion and a suggestion with regard to Costa

Rica, and I said that if it would be all

right with him, we would send him a memorandum Monday and prepare something for him.

H.M.Jr:

He was going to give me a memorandum on
Costa Rica.

Young:

That is going to be the one.

White:

He didn't ask for a memorandum. He asked
for some - he wanted to know whether I

176

-9thought something would be all right that
they had contemplated doing, and I said -H.M.Jr:

Three for one on the money? Taking the
money deposit out of the issued currency

against it?

White:

Yes.

H.M.Jr:

He asked me about that and I said I couldn't
give him an offhand opinion and he said,
"I will give you a memorandum on it."

White:

Well.

H.M.Jr:

I am going to get one, all right.

White:

I suppose it will be all right if I send him
that?

H.M.Jr:

Sure. If he would like the financial reports
that Ambassador Kennedy gets out, they are

written by Butterworth. What else?
White:

That is all.

H.M.Jr:

Harold?

Graves:

I just received from Mr. Helvering a report
on the activities of the Bureau of Internal
Revenue in Chicago in connection with this
labor union.

H.M.Jr:

I saw it in the paper this morning.

Graves:

Yes. I can give you Mr. Helvering's memorandum or I can tell you.

H.M.Jr:

Tell me, please.

Graves:

Well, as I understand the situation, the

177

- 10 -

State's attorney in Chicago, that is, the

prosecuting officer for Cook County, has
for a long time been investigating the
activities of various unions which, according
to this report, and evidently the newspapers
have it, have to some extent been taken over
by the hoodlum racketeer element. Now, as
disclosures appear in the press, the Collector
of Internal Revenue in Chicago has been following those inquiries to see whether the money
that apparently has changed hands in these
racketeering operations has been properly
accounted for for tax purposes, and they have
gone from one union to another, following

more or less the activities of the State's
attorney.

Now, no statement was sent out yesterday by
the Revenue people in Chicago. There are

reporters who are stationed at all times in
the Customhouse Building in Chicago and they
have been in touch with this situation. They
see people coming into the Collector's office
and their story is sort of a rehash of what
has been happening there for a long time when

these investigations have been going on. That

is roughly the picture.

H.M.Jr:

I see by the papers that Tom Dewey is starting

an investigation of the State tax of Scalise,

you know. We gave Tom Dewey some help on

that.

Gaston:

We couldn't give him what he wanted. He wanted
a very unreasonable thing.

Foley:

He wanted our investigation, which we couldn't
give him.

H.M.Jr:

Oh.

178

- 11 Foley:

He didn't protest, and he got the con-

H.M.Jr:

I see.

Foley:

Our investigation isn't completed, as you

H.M.Jr:

No, I don't know.

Foley:

It has been going on for several months.

H.M.Jr:

On Scalise?

Gaston:

Yes, entirely independent of his.

H.M.Jr:

When are you going to finish it, after he

Foley:

Well, he put him in jail for a violation

H.M.Jr:

But when are you going to break it?

Foley:

I don't know. That is up to Herbert.

Gaston:

No, no, that is up to Elmer and --

Foley:

Well, he is under you.

Gaston:

No, he isn't. I didn't know about the tax

viction without it.

know.

is in jail?

of the State law. We have an income tax --

investigation, but I did know something about

this Tom Dewey thing, because that went through

me. They just haven't completed their case,

that is all.

Schwarz:

This story, Mr. Secretary, was undoubtedly
requested by Pegler's United Feature Syndicate of the United Press in order to keep
his stories lively and newsy. He has been
pushing along on this subject.

179

- 12 H.M.Jr:

If you (Graves) could give our income tax

investigation a push. Is it Scal-ee-se or

Scal-i-ce? Probably Scalouse.

Everything else all right?
Daniel, are you going to rip those people
back from Atlantic City?
Bell:

It is a little difficult to get one of them.

Sinclair has arranged for a dinner on Monday

evening at which he is the host. It will be

a little difficult for him to get here before
1:00.

H.M.Jr:

11:00 o'clock, Tuesday. Have you told McKay?

Bell:

Yes. How about doing it, so far as they are
concerned, by telephone?

H.M.Jr:

Marvelous.

Bell:

Let Ransom and Chester Davis and Szymczak

come over here. Bob Rouse can do a little
scouting around on Monday if you want to

make any announcement about whether its

going to be just refunding or --

H.M.Jr:

We will see.

Bell:

Well, I think it might be well to give that

out Monday before he starts the conferences.

That will help. We will do that after I
talk to you on the phone Monday.

H.M.Jr:

All right.

Bell:

Swell.

H.M.Jr:

Going to get a little golf in tomorrow?

180

- 13 Bell:

I don't think so.

H.M.Jr:

Who is on duty tomorrow?

Bell:

I will be here. Sullivan, I think, is going

away.

H.M.Jr:

Hope you all have a good week-end.

TREASURY DEPARTMENT

2130 staff meeting
181

INTER OFFICE COMMUNICATION
DATE

FROM

September 20, 1940

Secretary Morgenthau

J. P. Chamberlain

The majority of the Foreign Funds Control Committee authorized

the sending of france to France against blocked dollars by charitable
organizations which give satisfactory guarantees that the funds will
be disbursed in France solely for relief purposes, and under control
of agents of the American organization sending the funds.

This authorization will only apply so long as francs are made
available in France against dollars blocked in the United States.
The large number of refugees in unoccupied France, both of French

and of other nationalities, including Spaniards, Poles, Germans and

Russians, creates a difficult relief problem, and the importance of
permitting relief to go especially to the foreign refugees has been
persuasively urged.

In accordance with your instructions the licenses will only be
given to unoccupied France. No license will be granted for more than

one month, and it is understood that this authorization applies only
so long as francs are available in France against blocked dollars deposited in the United States.

g.P. Chambulan.

182
PARAPHRASE OF TELEGRAM SENT
TO:

American Embassy, Buenos Aires.

DATE: September 20, 1940, 4 p.m.
NO.:

219.

CONFIDENTIAL.

The possibility of sending an important officer of
the Treasury Department to Buenos Aires who would be

capable of and have the authorisation to discuss a
monetary and exchange agreement with authorities of

the Argentine Government and bring it to a conclusion
has been discussed with the Treasury by the Department.

The Secretary of the Treasury, after carefully and
sympathetically considering all the points which

Dr. Pinado raised, believes that in view of all the
circumstances Washington would be a more appropriate

place for such a negotiation. You are requested to
talk this over with Dr. Pinedo. Inform Dr. Pinedo
that the Secretary of the Treasury will gladly discuss
the possibilities of such an agreement in Washington

with Dr. Pinedo personally or with any representative
Dr. Pinedo desires to send.
HULL
(SW)

EA:EGC:CMS

EA:MSG

183

SEP 201 1940

My dear Mr. Under Secretary:

This is in reply to your letter of September 16,
1940, your reference IC, inquiring as to whether
December 9, 1940 is satisfactory to the Treasury as
the date for convening the Second Meeting of Treasury
Representatives at Quito, Hounder, and asking that
any suggestions for the agenda of the Meeting be submitted to you by September 21, 1940.
December 9, 1940, the date suggested by the
Founderen Government for convening the Second Meeting

of the Treasury Representatives, is satisfactory to
this Department. In accordance with your request the
suggestions being submitted by this Department for
the agenda of the meeting are appended hereto.
Sincerely,
(Signed) H. Morgentime, Js.

Secretary of the Treasury.
The Honorable Summer Welles,

Under Secretary of State.
Attachments

cc to ms thompson

HSW HRS:dia
HRS 9/18/40VC

FOR

E COPY

By Messenger 3 oz

184

Suggested Agenda for the Coming Inter-American Treasury Conference

The following suggestions for - agenda for the Second InterAmerican Treasury Conference are submitted for consideration by American

Republicas

It would seen that effective work could be accomplished at the
conference by having a series of round table discussions. Each round
table would be presided over by the Treasury representative of a selected
country which possibly has a more than ordinary interest in the problem,
and the representative of another country that also has had some special
experience or special interest would contribute the leading paper for
discussion. The representative of the country designated in charge of
the round table would have the duty not only of acting as chairman during the discussion, but would have the responsibility of preparing in
advance an agenda of questions and topics relating to the subject. It
is thought that the Inter-American Committee holdings its meeting in
Washington might select the country whose Treasury representative might

act as Chairman for a particular round table discussion, as well as the
countries assigned to prepare particular papers.

In view of the fact that the working period will probably only be
five or six days, and in order to provide for the usual exchange of
amenities, etc., it would probably be found desirable to limit the number
of round table discussions to eight or ten. The following dosen topics
are suggested out of which a final selection might be made:
1. Standardisation of budgetary and accounting practices in the
Federal Government.

(In view of Brasil's recent conferences to consider standardisetion of budgetary and accounting practices of states and municipalities she might wish to contribute an interesting paper on this
topic.)

2. Unification of taxes,
(Argentina might wish to report on her experience since 1936 with

the Federal collection of provincial taxes.)
3. A bulletin of American Treasuries.

(Proposal by the United States, with a formal outline of the suggosted bulletin.)
4. Sauggling and counterfeiting as Treasury problems.

185

5. The handling of the exchange problems arising out of ampon
sation and clearing agreements,

6. The internal organisation of American Treasuries.
7. The work of the General Accounting Office.
8. Administrative experience with the income tax.

9. Training personnel for treasury work.
10. Problems in improving custome administration.
11. A comparison of budgetary procedure in American countries.
12. Short-term financing policies and procedures of American

Treasuries.

HDWglrs

9/20/40

186

OFFICIAL

SECRETARY OF STATE
WASHINGTON, D

DEPARTMENT OF STATE
WASHINGTON

In reply refer to

September 16. 1940

My dear Mr. Secretary:

Dr. L. S. Rowe, Director General of the Pan American
Union, informs me that he has received a request from the
Government of Ecuador that the Pan American Union desig-

mate the date for the Second Meeting of Treasury Repre-

sentatives which will be held in Quito, Ecuador. The
Organizing Committee appointed by the Government of

Ecuador has suggested December 9, 1940 as the date for
the convening of the Second Meeting, and Dr. Rowe has

inquired informally whether that date would be convenient

for this Government. In view of the fact that this will
be a Meeting of Treasury Representatives to discuss tech-

nical problems, this Department perceives no objection to

the suggested date. I shall appreciate it very much if
you will let me know not later than September 21 1940
whether this suggested date is agreeable to you.

It
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

187
-2-

It is important that the agenda for the Meeting be
formulated at the earliest possible date and I therefore
suggested to Dr. Rowe that the Governing Board of the
Pan American Union consider suggestions for the agenda

at the same time that it sets the date for the Meeting.
I shall therefore appreciate it if you will submit any
suggestions which you may have for the agenda so that I
may receive them not later than September 21. The suggestions for the agenda will then be communicated to the
governments of the twenty-one American republica for their

comments, after which the definitive agenda will be
formulated.

Sincerely yours,

Bills

Under Secretary

DAG

932

9/20/40

188

HM,Jr gave Mr. Jesse Jones the

original ribbon copy of this
after their conference with

Russian Ambassador today.

the

189

COPY

July 15, 1940

MEMORANDUM FOR THE SECRETARY:

Proposal for a possible three-way arrangement between
thecains
United States, Ameria and China to give
to

The following tentative plan is put forward as a
possible feasible method of carrying out the President's

suggestion
givingRussia.
aid to China through an arrangement
which
wouldof
include
A.

We would purchase from $100 to $200 million
of strategic
and critical commodities

as as possible but

over years. We would advance

extending for delivery several Fapidly from make probably Russia

payments for part of the purchase, preferably in
proportion
as Russia extends effective equivalent
credits to China.

According to an estimate based on the available data, which are neither comprehensive nor up
to date, Russia can supply us with about 825 million
per annum of manganese ore, asbestos, platinum, chromite,

etc. (In addition to her normal exports to the

United States). (See Exhibits A and B.) Further

information from the Soviet Government would be
needed
tobe
ascertain
that could
made. the volume of such exports
B.

Russia on her part would agree to extend to
the Government of China credits equivalent to our
advance payments for Russian strategic materials.
Russia's equivalent credits to China would be in

addition to the 850 million or so of Russian credits
reported by Mr Soong in the middle of July to be
still outstanding which China is using up as rapidly
as Russia will permit. Russia's equivalent credits
to China would become effective simultaneously with

our advance payments to Russia.
C.

To eliminate the risk of Russian non-delivery

of goods for which we have made advance payment,

Russia could be requested to agree to leave gold on
earmark with the United States to an amount equivalent
to the suns we pay in advance. The gold would be
unblooked, and if desired withdrawn, concomitantly

with our receipt of Russian goods already paid for.

190

As a possible quid pro que to the Russians

we might allow then to use our advance payments
to them for the purchase of such American goods
as can be exported without detriment to our national defence.
Advantages of plan:

1. It would make possible increased aid to China
at a time when no other means -- except perhaps a ourrency esabilisation loan -- is open, and thus by
strengthening Chinese resistance to Japanese aggression
improves the United States' defensive position in the

Pacific.

2. The aid to China would be made without our insurring any risk and only at the cost of payment in advance
for strategic and oritical materials which we need anyhow.
3. We would increase our foreign trade by making
possible larger exports to Russia.

4. If the international situation develops in such

a way as to make it to our advantage to improve our relations with Russia, this three-way agreement would
constitute a convenient opening wedge for this purpose.

HDW:WLU:SA:1rs

9/12/40

191

EXHIBIT A

September 12, 1940

The U.S.S.R. As a Source of Strategic and Critical Materials
The United States may be able to purchase strategic and critical
materials from the U.S.S.R. to the extent of from $100 million to

$200 million for delivery over a four-year period. (This sum is in

addition to our normal trade with the Seviet Union, which amounted to
$24.5 million in 1939.)

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

Chromite (ore)
Mercury

Asbestos (mmanufactured

Platinum (ingete)
Fluorepar (ore)

Tin (ore or metal)

Quantity
450,000 long tone
100,000 long tens

7,000 flasks
(76 lbs.)

100,000 tens
60,000 troy ounces
301000 tons
2,000 tons
(motal content)

Mica (strategic - unmanufactured) 10,000 tons
Graphite (natural)
10,000 tons
Total

Value

$10,000,000
2,000,000
1,400,000
5,000,000
3,000,000
1,000,000
2,000,000
500,000
250,000

$25,150,000

The above estimates are based on published data available to

us, but the data is not up to date, nor is it comprehensive. There
are many strategic materials which are known to be produced in the

U.S.S.R., but for which no adequate statistical information is
readily accessible. Before any definite conclusion can be reached
as to the extent of possible purchases, it would be desirable to

obtain the necessary information from the Seviet Government as a
basis for a more detailed survey.
1/ Prepared by Mr. Ullmann

Bur Division of Monetary Research

192

Manuanase

Manganese is a strategie material, used in the manufacture of steel.

It is considered of #first priority*.

United States Consumptions 1937

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

Imported - from other
countries

384,000
528,000

73,000 long tone are

Total importe

912,000 long tons are

Apparent consumption

985,000 long tens are

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

Hemisphere are.

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

185,000 long tens are
277,000 long tens are

Total requirements 602,000 long tens are
(Deficiency to be made up from inventories)
This appears to be an underestimate of import tennage requirements.

Estimated cost of importer $6,000,000.
Soviet Manganese Production

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

2,273,000 metric tons are
785,000,000 metric tens

Conclusion

The United States can probably obtain a large part of its manganese
import requirements from the U.S.S.R. The War Department estimates of

manganese requirements in view of the 1937

the United were to half the total

the If, however, appear States low, especially import 1937 volume. quantity,
cost of imported manganese would amount to about $10 million per year
(using the Army estimates of emergency prices.)

193

Asheater

Year Askestes is a critical material, used in the extensitive industries
for brake linings and gaskets, x is also important for heat in
sulation in various types of construction and equipment.
United States Constructions 3992

The United States has been largely dependent on imports for asbestes,
with Canada the principal supplier (supplying about 90 percent). The
Seviet Union was second with 3 percent. United States consumption in
1937 was as follows:
Domestic production
Imports from U.S.S.R.

12,000 tons
10,000

Imports from other countries 97,000
Total imports
Less experts
Apparent consumption

307,000 tons

3.000 tons
316,000 tons

Soviet Production
The U.S.S.R., in 1936, produced 125,337 astric tons of unsaufactured
asbestos, which was a rise of 30 parent from 1934. If Seviet production
continued to increase at the same rate, it probably will reach over 200,000
tens this year.

The Soviet Union, in 1937, exported 27,000 metric tens.
Conclusion

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

asbestos from the U.S.S.R. If that country were able and willing, 18 night
be able to sell the United States 100,000 tens of asbestos at, perhaps,
$50 per ten (The 1936 value of our importe from the U.S.S.R.) or $5,000,000.

9/12/40

194
Mies

Useas

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

roofing.

United States Emergency Requirements 12 months (U.S. Aray estimate)
The War Department has estimated that the United States would need
2,600 short tons of strategic mica annually during an emergency (this
appears low in view of pease-time consumption). It estimated that our
production plus normal stocks could more than supply this demand. Nowever, this conclusion was based on "contemplated exploitation of all dom-

estic resources at unrestricted costs".

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

In 1935, the U.S.S.R. produced over 8,000 tons of mica, twice the
1934 output and exceeding British India's output. If the U.S.S.R. production expanded as rapidly as India's, Soviet production in 1938 would
amount to over 14,000 tons.

The United States has imported no Soviet mica, nor is it known that
the Soviet Union has exported any.
Conclusion

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

unnamufactured nica from the Seviet Union, which might cost $500 per ten
or $500,000.

195
Nersury

Uses Mercury is a strategic material, used in manufacturing falminate

for deterating high explosives and fixed ammition. It is used
also in drugs (calonel, corresive sublimate, etc.) in paints for

ship bottoms, etc.)
in electrical apparatus, and instruments (barometers,
thermoneters,
United States Consumption: 1937

The United States has in the past imported a substantial portion of
its consumptions approximately half in years of high consumption and less
in other years, with donestic consumption remaining relatively steady.
Importe have come principally from Spain and Italy, with lesser amounts

from Mexico. 1937 consumption was as follows:
Donestic production
Importe from U.S.S.R.

16,508 flasks (76 pounds)

Imports from other countries

18.927 flasks (76 pounds)

Less exports

Apparent consumption

None

456 flaske (76 pounds)

35,000 flasks (% pounds)

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

would rise. The Bureau of Mines has recently (1939) estimated that the
energency requirements would amount to $6,000 flasks annually. Since
domestic production has follows prices, it has been estimated that the
United States output might reach 30,000 flasks under conditions of high
emergency prices, to which can be added 2,200 flasks from Mexico. This
wouldonly
leave
deficit of approximately 14,000 Blacks which could be supplied
by a
imports.

Since Spanish and Italian aeroury might be out off from a rising
American market, the price might readily reach $300 per flask (it was
896.55
in these 1937). The cost of importing 14,000 flasks would be
$1,400,000.
Soviet Marquery Production

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

196

Mercury
(Continued)

which appears to be inaccurate in view of the rapid expension of Seviet

production in all other fields. This figure, belover, would place the
U.S.S.R. fourth in the world's marcury-preducing countries.

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

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

197
Chrosive

Uses Chronium is a strategic material (of "first priority*), used in
alley steels, in refrestories, in pigments, and in chromics
plating (e.g., machine gun barrals).

United States Consumptions 1937

The United States depends almost entirely on importe for its supply

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

Islands, Cuba, and Turkey. The Cuban are is of low grade, and is therefore used in refractories. It is understood that Turkey has agreed to
sell chromite to Germany, a factor which (together with shipping diffsculties)
makes Turkey a doubtful source of supply. 1937 consumption was
as
follows:
Domestic Production
Imports from U.S.S.R.

2,000 long tons are

Imports from other countries
Apparent consumption

None

554,000

556,000 long tons are

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

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

would need to import approximately 200,000 tons per year.
Soviet Chronite Production

Seviet production data are not available for years since 1936, when
their output was 217,000 metric tens. Production is probably appreciably
higher at present, since is is known to have risen sharply through 1936,
1934
1935
1936

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

Furthermore, Seviet publications claimed an inadequacy of chronite
in 1936, while they claimed requirements to be 100 percent satisfied in
1938, when Soviet industry had expanded appreciably from 1936 levels.

198

Chronium

(Continued)

Soviet production now, it is felt, is probably well over 300,000 tons
per year, a part of which the U.S.S.R. might be willing to export, especially since sales of the are would in no way tax her refining

facilities.

The United States has imported no chronite from the U.S.S.R. since
1936. As far as can be determined, the Soviet Union has exported none
since that time.
Conclusions

If the United States, under an emergency and using substitutes, were
to import half its 1937 importations, it would need to purchase abroad
277,000 tone of chromite per year, which would involve an approximate cost
of $7,000,000 (using Army estimates of emergency prices). If the Seviet
Union were willing to sell us 100,000 tons annually, the cost involved
would amount to, roughly, $2,000,000.

199
Platters
Unes Platinum is a critical material, used in making sulfurie and
nitric acids, as well as in many laboratory instruments, electrical
contacts, and manufacturing processes.

United States Consumptions 1937

The United States is largely dependent on importe for platinum, although a large part of the importe are in crude forms which are refined
domestically.

U.S. Production (from imported materials)
U.S. Production (from domestic materials)

Imports of ingets, bars, sheets, etc.
From U.S.S.R.

From other countries
Less experts (estimated
Apparent consumption

87,000 troy ounces
5,000 troy ounces
15,000 troy ounces
47,000 trey ousees
50.000 troy ounces
104,000 troy ounces

Importe of refined metal have come largely from the United Kingdom.
Columbia has supplied a large part of our crude patimus importe.
U.S.S.R. production

The U.S.S.R. is known to produce annually between 100,000 and 200,000

troy ounces of platinum, probably nearer the latter figures.
Conclusion

The United States, in an emergency, would necessarily increase those

industries which use platinum. However, the sale of platious in

consumers' goods (jewelry) would probably decline, possibly enough to

effect the industrial increase. Nevertheless, we will have to import considerable quantities. The U.S.S.R., already on an export basis, might be willing
to sell us 60,000 troy owness annually, which would cost approximately

$3,000,000.

200

Exhibit 3

United States Trade with the U.S.S.R., 1937 - June, 1940
(Thousands of Dollars)
1938

1939

1937

1940

16 months)

U.S. Exports (including
reexports)

Vegetable food products

8 1,719

$ 2,351

2,521

711

6,362

5,844

3,020

186

437

6,940

10,898

3,776

3,268
-

6,984
1,012

241

1,852

Crude rubber

Other inedible vegetable
products

Non-netallic minerals
Copper

Molybdenum and ferro
alloys
Tin

Iron and steel products
and other astals and
manufactures

Metal working eachinery

Aircraft and parts

Other machinery and
vehicles

9,535

8,961

5,092

5,289

6,954
3,213

35,163
5,171

18,655
2,905

10,082

10,028

9,106

6,942

4,075

424

846

213

1.449

1,258

599

642,892

869,691

656,637

Chemicals and related
products