Full text of Diaries of Henry Morgenthau, Jr. : Volume 326 : Part 2

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I
TO

FROM

233
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 30, 1940

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL
Mr. Pinsent, Financial Counselor of the British Embassy, telephoned me yesterday
at 3 p.m. He said he was drafting a cablegram to London and that it was urgent that
he give our reaction to his approach to us upon the question of purchasing some gold
now in Canada. He asked if it would be of any use for him to see one of us during
the afternoon. I said there would be no use seeing anyone of us at any time on this

subject. He asked if he could interpret from this what our attitude on the subject
vas. I told him that I was indicating absolutely nothing; that I was not willing to

put my chief on the spot with any such question as that which he had raised. Pinsent
said he had approached me with the question only because of our good relations. I
replied that the relations were all right but that he must depend on his own judgment

in certain matters and not try to tie us in with them.

While speaking to me at 11:00 this morning Pinsent stated that Mr. Purvis had
given him a message somewhat along the lines which I had communicated to him yester-

May. He said that he understood our position thoroughly He said that originally

The French gold proposition had been brought to our attention "for our information"
under instructions from London. (It will be recalled, however, that on that occasion
he definitely endeavored to obtain our reaction to the proposal). On the second
occasion, however, he stated that he had spoken to me on his own initiative since it
had just occured to him that there might be some difficulty because of our freezing
regulations.

AMS

234

October 30. 1940

Dr. Feis
Mr. Cochran

STRICTLY CONFIDENTIAL

The treasury Department is such interested is the disposition that may be sade
of French, Belgies and Pelish Central Beak gold now is or near Dakar. The Treasury
would be sincerely appreciative If the Department of State would to good enough to
instruct the American Consul at Daktar to report currently w cablegree as to:

Actual location of the golds any shipments of gold out of Dakar by land. sea or airs
and any factors. political or otherwise. which may have a bearing upon the dispost-

tion of the gold. Considering war conditions. the Treasury naturally leaves to the
date Department the decision as to what information may appropriately be cought by
and from our Consul but would gindly bear all expenses of instructions and reports

aml

by cablegram. It is suggested that two reports each week may be currented is present
circumstances.

:lap-10/30/40

235

October 30. 1900
Filee
Mr. Cochren

STRICTLY CONFIDENTIAL

Is talking with so in the treasury on October 28. Mr. Pinema. Financial
Counseler of the British Televery. told me that Gull. the Delgian Maleter of Pincess

the is is Senton, has sold the British officiale there this there is only $184,000,000
of Delgian gold at Dakar. This is below the estimate which we had calculated is the
treasury. Pinsent is cabling Sonies to emplore this matter further with Ones, with

the hope that asset figures is regard to the process location of all Dolgian Central
Bask gold may be determined.

10/10p-10/30/40

236

October 30. 1940
Mr. Pehle
Mr. Cochran

Mr. Atherton of the Department of State telephoned me yesterday noon that the
State Department was interested in seeing the Treasury Department give early and
favorable consideration to an application made through the Chase Bank of New York for
a license for the payment of $1,410,000 from Runania to Turkey for the purchase of

cotton. I told Mr. Atherton that I was familiar with the conversation which

Assistant Secretary of State Berle had had with Under Secretary of the Treasury Bell
the preceding afternoon and that I would see that this matter came up at our Group

Meeting in the afternoon.

Mr. Pehle brought up this question at the Group Meeting yesterday. The Group
vas willing to act favorably if the State Department desired. but we were of the
opinion that Mr. Ashorten should have the benefit of the information provided in two
secret communications from the British Tobaccy, before final action was taken. I
telephoned to Mr. Atherton the text of these two memoranda. one dated October 23 and

the other October 28, the first dealing with a Turkish cotton deal with Rumania, and
she second with an Iran settes transaction with that country. He called me bask
shortly and approved the transaction. I confirmed to his that the Treasury's approval

would go out yesterday evening and that he could consequently send a message to the
American Legation at Bucharest, in response to Ste sablegram on this subject, reporting

our approval. While in conversation with Mr. Atherton from the Control Meeting room,
I mentioned that we had applications for certain payments, totaling around $100,000.
from Rumania to Greece. He agreed with us that these applications should be approved
at once.

HMC :lap-10/30/40

237
October 30, 1940
10:38 a.m.

H.M.Jr:
Wm. S.

Hello.

Knudsen:

This is Knudsen.

H.M.Jr:

Morgenthau.

How are you?

H.M.Jr:

I'm alive.

(Laughs). How's the statement?

H.M.Jr:

I'm just having copies made - they made a
few changes and it ought to be over there
within the hour.

Uh-huh. Will you send me a confirming
memorandum of the decision you made with
reference to aircraft?

H.M.Jr:

Well, now, just what do you want me to say?

You told me that the 3,050 release was O.K.

See? Now, we'll have to make that official
and that the further study of the problem
was put up to me, just like you put the guns
up to Secretary Stimson.

H.M.Jr:

Oh, I don't want to write you a letter, do

Well, I thought we ought to have a record

H.M.Jr:

I, Bill?

of it, don't you?
No. I think that those 3,000 planes - that

that's up to you and then you pass it on to
Stimson - I mean, I have no authority to
confirm anything.

H.M.Jr:

Well, it's finally agreed to by the British,

isn't it?

Well, I told them last night that's what you
would do and that they should take it and
like it, and they said, yes.

238

-2Does that mean that I tell them in writing

to release - or have you given them a copy of

that memorandum I gave you.
H.M.Jr:

Idodid
not give them a copy, I was letting you
that.

I see.

H.M.Jr:

No, I gave them nothing except by word of

Then the procedure is that I tell them to
clear these planes and I'11 study the rest

H.M.Jr:

mouth.

of it.
That's right, and you'll find that - I don't
think that you'll ever find that - but what

my word is O.K.
K:

Well, of course, I didn't mean that. You
took a record of the meeting there and I
thought

H.M.Jr:

Well, that goes into the safe and I hide it
and it's - but I've never written any letters
because my - well, how shall I put it - I
always think these things are informal, but
the final authority is between you and

Yeah, all right. All right, I just wanted

H.M.Jr:

Is that entirely O.K.?

Sure, sure.

H.M.Jr:
K:

that clear.

If you want a letter I'11 give you one.
Well, we can write some other kind of a letter
some other time. (Laughs).

H.M.Jr:

Thank you.

All right.

239
PLAIN
AS

London

Dated October 30, 1940
Rec'd 10:53 a.m.

Secretary of State,
Washington.

3579, October 30.
FOR TREASURT.

As in the CARE of Belgium and Holland (SEE

Embassy's No.1163 of May 10) the British Treasury

has not taken stape to block Greek assets at this

stage. In fact the conclusion of arrangements for
special sterling area accounts for that country was
announced last night in spite of the situation that
had developed during the making of the arrangements.

The Stock Exchange and the city generally have
not been greatly affected by the Balkan developments
of this WEEK having EXPECTED and largely discounted

an Italian attack on GIEEOE. No doubt the vesting
orders for Canadian securities, reported in the Embassy's

3547 of October 28 (estimates for the total of which
range from pounds 40 million to pounds 50 million)
coinciding with the news from GIEECE tended to counteract
the

240

AS-2- No. 3579, Oct. 30, from London.

the effect Especially on gilt-Edged prices which dropped
about 1/8 on Monday but made SOME recovery yesterday.

FEW Greek acceptances have been outstanding since the
United Kingdom Commercial Corporation has dominated British

trade in the Balkans. Greek securities totalling pounds 46
million at par value are quoted in London but prices have
been nominal for sometime and quotations WEIE lowered only

a couple of points.
JOHNSON
TFV

241

PLAIN
AS

London

Dated October 30, 1940

Rec'd 10:53 a.m.

Secretary of State,
Washington.

3578, October 30.

It is understood here that British purchase
tax which became effective October 21 must be in-

cluded in dutiable value of British goods exported
to the United States in the case of goods to which
the tax would apply if sold in domestic market.
Can you confirm?
JOHNSON

TFV

COPY

242
October 30, 1940
11:48 a.m.

H.M.Jr:

Ebert K.

How are you? This is Morgenthau.

Burlew:

All right. Good morning.

H.M.Jr:

Mr. Burlew, I wondered if you could take
care of this for me. I am planning, and hope,
to arrive at Puerto Rico on November 8th by
Pan-American. I am going down there - I want
to see what's going on - National Defense and I also would like to go over to the
Virgin Islands. I have arranged with the
Navy once I get there to get me around.
Hello?

Uh-huh. Yeah.

H.M.Jr:

But I would like the Governor of the Island

to know that I was coming - Puerto Rico and

at the Virgin Islands.
B:

All right. Now, you'll get to Puerto Rico

on the 8th. Governor Leahy spoke to me about

your going down there and I'll give him the
data. When do you think you'll get to the
Virgin Islands?

H.M.Jr:
B:

Well

Well, that doesn't matter, as a matter of
fact, because I'11 just tell the Governor

you're coming about that time and they can

H.M.Jr:

Well, I thought I'd put myself in the hands
of Admiral Leahy and I don't want to work
too hard at it but I do want to see what's
been going on on the defense end.

Yes. I hope you do go to the Virgin Islands
because there is a good deal going on there
and a lot more needed, too.

H.M.Jr:

Well, I'll go down there. Those are the only
two places aren't they?

Yes, that's all. Just those two.

243

-2H.M.Jr:
B:

H.M.Jr:

Well, if you will notify them that I'm
coming officially, I'd appreciate it.
I'll do that right away.
And Lieutenant Commander McKay of the United
States Coast Guard will accompany me.

Oh, Yes. That's M-o-C-a-y.

H.M.Jr:

M-c-K-a-y.

K-a-y, yes. A11 right, fine.

H.M.Jr:

Thank you.

That's all right.

244
October 30, 1940
11:52 a.m.
H.M.Jr:

Hello,

Operator:

Mr. Forrestal.

H.M.Jr:

Hello.

James

Forrestal:

Henry?

H.M.Jr:

Good morning.

Good morning, sir. You wouldn't like to

H.M.Jr:

Well, I tell you, Jim, my wife is in town

Oh, well, then don't bother. Bullitt was

have an early dinner tonight would you?
now and we have some guests coming.

coming to dinner and he's going to lunch
with you and there were some other things

that I was going to try to

H.M.Jr:

Well, ask me again some time.

O. K. I'm sorry - I didn't mean to ask you

80 late but I don't make any plans much until
the day.

H.M.Jr:

Tell me - well, thank you very much, but we
have some guests tonight. Let me ask you
this - I'd like to get together with you and
Patterson to plan another inspection trip not

too far off.
Well, I was trying to get one - I'd hoped to

go, as a matter of fact, late tomorrow morning.
He was tied up with a dinner he was giving
for Stimson tonight - he couldn't leave today
and I've got this
coming here tomorrow to get this Brewster thing
finally buttoned up and also on Consolidated,
I think we've got a man to run that show.

H.M.Jr:

You have.

Yeah.

245

-2H.M.Jr:

Well, I'm telling the English that I think
for them to give Brewster any more orders

at this time is cock-eyed.

H.M.Jr:

To do what, Henry?

To give them any more orders at this time I mean on this - Knudsen's list was another
order for Brewster.

Yeah.

H.M.Jr:

I think it's silly.

H.M.Jr:

No sense in it until we get that thing until we know it is functioning.
That's right. Now, the thing that I had in
mind - I don't know where you were going,

but I had hoped that you fellows would start
up at Boeing in Seattle and then go right down
the Pacific Coast.

I'd like to do that.

H.M.Jr:

And that was what I wanted to give a little
push to.

Well, I've got - Patterson said he would go
wherever - anywhere that we thought best.

H.M.Jr:

Do you think right after election that you
could plan to

H.M.Jr:
F:

H.M.Jr:

Absolutely - you're damn right!
do the West Coast crowd because I think

that that's really awfully important.
Well, I do too.
Well, will you think about it.

Apparently we don't need to - the Curtiss
show is doing all right.
Yes, but the Boeing one and from there on
down, all that whole group, I think, ought
to be visited.

246

-3F:

I agree. All right, we'll do it.

H.M.Jr:

Atta boy.

All right.

H.M.Jr:

I thought that

247

October 30. 1940

Under Secretary Bell
Mr. Cochran

with the approval of the Under Secretary, I telephoned Mr. Liveacy at the
Department of State at 12 noon today. in order that I night ascertain, before the
arrival of Secretary Mikkela of the Finnish Legation at 12:15. whether the State
Department was prepared to give us any observations upon the applicability of the
Tandenberg Resolution to the payment made by Finland June 15. 1940, on its debt to
the United States. Mr. Livesey confirmed that he had prepared a nentranius upon

this subject after his last conversation with Mr. Bell. and had started its circula-

tion is the Department of State. Dr. Feis had noted thereon that he doubted the
vision of Fialand bringing up at this late date the refund of the June payment. I an

not sure that he mentioned the fast that Jesse Jenes loaned Procepe the money to
make this payment, but I think he may have had this in mind. Livesey promised to
follow the nenorandus up, and see if he could get some indication from the Legal
Adviser's Office on the subject.

I told Mr. Mikkola that I had just been in touch with the Department of State
ad that the latter had not yet formulated and returned to the Treasury any opinion
upon the point which had been raised by our Treasury General Councel. I let his
know that there was still a legal doubt as to whether the refund was possible, but
that no definite decision had been reached. I promised to let his know whonever we
say have some final word for him.

BMR

Cilap-10/30/40

248

October 30, 1940
Mr. Pable
Mr. Coekran

Mr. Mikkela, Secretary of the Finnish Legation. called by appointment at
12:15 this noon. I read to his Mr. Pohle's menoranies of October 29. advising
that an application has new been filed for the payment of three checks which had
been presented at the Chase National Deak w the National City Bank, and of which

the Finnish Legation is sasions to obtain the proceeds. Mr. Mikkola confirmed
that the Chase Bank had now received instructions from the Bank of Brussels and

is accordingly making formal application for a license to pay the proceeds of the
three checks to the Finnish Maister is Washington. Mikitola stated that the
application was dated October 29 and board No. 15,169. I presune this is the Chase

number. I gave the foregoing information to Ms. Pable by telephone at 12:30 this
neen. and told him that Rr. Mikkels would be very happy to give us any other data
that may be required when once the application is received by us.

Following the Centrol Group Meeting this afternoon, I telephoned Mr. Mikkels
at 4:45 that the above application had been approved, as well as as older application

covering a refund of around $10,000 from Horway to Finland.

10/-00/30/40

249
DEPARTMENT OF STATE
WASHINGTON

reply refer to
840.51 Frozen Credits/771

October 30, 1940

The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
adverting to the former's communication of October 15.
1940 regarding relief supplies purchased in Buenos
Aires for French prisoners of war in France and Germany,
encloses a paraphrase of a further telegram no. 503
of October 25. 1940, 3 p.m. from the Embassy at Buenos

Aires on this subject.

Enclosure:

Paraphrase of telegram
no. 503, October 25, 1940.

250

PARAPHRASE OF TELEGRAM

To:

Secretary of State, Washington

From:

Buenos Aires

October 25, 1940, 3 p.m.

Dated:

Rec'd:

3:07 p.m.

No. 503

I was informed confidentially today by a member

of the British Embassy staff that the question of
allowing the relief supplies referred to in the Embassy's
telegram no. 481, October 11, 7 p.m. to be shipped to
France had been referred to the Ministry of Economic
Barfare in London by his mission and that no reply was
forthcoming as yet.

The member of the British Embassy staff went on to

say that so far ag France is concerned there is no such

thing as Navicerts and that if favorably acted upon, this
matter would have to be exempted specially.

I gleaned from our conversation that the British
Embassy here had not been favorably inclined to recommend

exemption for this shipment of foodstuffs which might
fall into the enemy hands of Germany.

COPY

24872
TREASURY

251

GRAY

Bogota

Dated October 30, 1940
REC'd 12:45 p.m.

Secretary of State,
Washington.

337, October 30, 11 a.m.
Stablization fund during November will discount

applications approved July 1 to July 30.
Advise COMMERCE.
BRADEN
RR

252
October 30, 1940
2:58 p.m.

H.M.Jr:

Hello.

Ambassador
Joseph
Kennedy:

Hello, Henry.

H.M.Jr:

How are you?

Well,
I'm fine, thank you. I'm glad to be
home.

H.M.Jr:

I called you up for two things; first, to

welcome you home and then to congratulate

you on that perfectly swell speech last night.
K:

Henry, that's damn, damn nice of you to

H.M.Jr:

Oh, tremendously.

Think it'11 do any good?

H.M.Jr:

Oh, lots. You put the old heart throb right

bother about that. You liked it?

in the end there - those nine Kennedy children.

(Laughs).

H.M.Jr:

And it was the most useful thing -

Well, that's fine, Henry. We've got a

the whole thing.

terrific amount - Ed Flynn says he has got
more replies from his gang in the country

than he has on any speech so far except the
Philadelphia one.

H.M.Jr:

Is that right?

Yeah.

H.M.Jr:

Well, without talking to anybody I knew it

was good and I wanted to let you know that I
thought so.

Well, thank you, Henry. I don't know just
exactly - I don't know whether I'm going to

253

-2Boston or not - I hope I am not, but otherwise
I'm coming to Washington and then if you have

a
minute I'll come in and tell you how it
looks over there.
H.M.Jr:

Well, I've got the time - all the time in the
world,
before

but if you could let me know the night

Yes, I will, Henry. I'11 let you know when

I'm coming down. And, incidentally, I brought
over a more or less of an economic survey of
the picture there - of England II, and I
handed it in on Sunday night and I told the
fellow who came up to see me from the State
Department to have a copy struck off and sent

over. I thought you'd like it.

H.M.Jr:
K:

Well, I hope

.....

If you don't get it will you holler?
I'm sure I won't get it unless I holler.
Well, I'11 holler when I get there and give
it to you.
Yeah, because otherwise I'll never see it.
Well, I'11 get it for you because I think
your experts might like to take a look.

H.M.Jr:

Well, I'd like to look at it myself - and you

Well, thank you, Henry, and I'11 look forward

did a swell job, Joe.
to seeing you.

H.M.Jr:

I want you to either have lunch or supper

with us.

All right. I'd love it.

H.M.Jr:

Thank you.

All right. Thank you, Henry.

254
RE BRITISH PURCHASING PROGRAM

Present:

Mr. Purvis
Mr. Ballantyne

October 30, 1940
3:50 p.m.

Mr. Young

Mrs Klotz
H.M.Jr:

I don't know whether I imagine it, but I
think you (Purvis) and Ballantyne look a

little happier today.
Purvis:

I feel very much happier.

H.M.Jr:

I thought this might amuse you. It is a

Dow-Jones ticker. The President's press
secretary gave out a notice he is going to
say something tonight. It gets everybody

sort of looking for it.

Purvis:

Oh yes, that is grand.

H.M.Jr:

Did you have a good dinner with Bullitt last
night?

Purvis:

Yes. I didn't know I was going to go until
I got back.

H.M.Jr:

He even got down to telling about the "if"
and the "and."

Purvis:

Did he?

H.M.Jr:

I will tell you something funny. He always

likes lunch, you know, so he knows what is
going on. He says, "I hear you have changed

it from "if" to when."

Purvis:

Yes, "when."

H.M.Jr:

He says, "Oh, I get around, I get around."
So I said, "Well now, wait a minute. There
are only one or two people that could have

told you." I said, "It is either Purvis

255

-2or Layton." He said, "Both."
Purvis:

That is right. So we got a good laugh. He
has a very good line, too.

H.M.Jr:

Who, Bullitt? The reason I said Bullitt is

because he is complaining about all his wine

cellar being in Paris.

Purvis:

Monet has a French couple out here and yesterday morning they discovered their son

was alive, so it was sort of a gala occasion.

We all congratulated the couple, whom I
haven't seen before but who were obviously
very delighted people.
H.M.Jr:

Wonderful.

I had nothing special, but I wanted to report
to you and to Philip Young, whom I try to

keep posted -Young:

H.M.Jr:

What has happened now?

to see that the mails of yesterday go

out on time and all that sort of thing - was
that on me or you?

Young:

You've got me. (Laughter)

H.M.Jr:

Haven't you seen Buckley yet?

Young:

Since when?

H.M.Jr:

Well anyway --

Purvis:

He is getting cagey now.

H.M.Jr:

Getting? (Laughter)

Well, you can worry a little bit, but not
too much.

256

-3Young:

This is my Dutch day, anyway.

Purvis:

Dutch day? I ran across the Dutch Minister
today in Secretary Knox's office.

H.M.Jr:

Oh, did you? Well, Mr. Knudsen called me
up this morning around noon and he said that

memorandum that he had left here with me

What

about
it. Well, was it acceptable? I said yes.

on the planes, had I given it to you.
said no, I had not, I had informed you

Well, would I please write him a letter

saying that was acceptable so that he could

go ahead with it. I said, "Well now look,

Bill, I don't write letters."
Purvis:

He is voracious for that.

H.M.Jr:

"I don't write letters and I have given you

my word, which around town is acceptable,

and he said, "If you want - no, no, he says,
"you write me a letter about something else

sometime, but he says - I said, "If you want

any authority, I have no authority. Get it

from the Secretary of War." "Well," he says,
"are the English going to do this?" And I

said, "Yes." He said, "Well, that is fine.

You are sure they are going to do it now?"

I said, "Yes, they are going to do it." So
he said, "Well, I guess I will write a letter
to the Secretary of War. If So I said, "Well,

that is all right."

So the point is, I think I understood correctly,

but so many people around seem to misunderstand,
that you people told me when you were in here

together that - Fairey and the others - they

were delighted, and they would take them.
Purvis:

Absolutely. The great regret - and Fairey

asked me whether I would again make it clear

257

-4to you - he said you, having been good enough

to advise him in advance - that was the
morning when I was flying down - that there
were 1200 bombers in the wood and telling

them to take the standard, they didn't hesitate a second and they said there is no question but what Mr. Knudsen understands very
thoroughly indeed that they were prepared to

take it in the United States type, in B-24's,

and not demand it in the - any other type.
H.M.Jr:

Well, I just wanted to make sure, because I

Purvis:

Oh, there is no question about it. The only
thing is, they want to go further, that is
all.

H.M.Jr:

Well, that is all right. The way I - I haven't

didn't want to --

got that memorandum here, but that is just the
same as the memorandum that you gave me.

Purvis:

Yes, quite.

H.M.Jr:

And the only difference is that he doesn't
put in there the 60 days.

Purvis:

That is right.

H.M.Jr:

And the only other thing is that I urged you,
or plead with you, not to take any more
Brewsters until Brewster gets straightened
out.

Purvis:

And that is in conformity with our own people.

H.M.Jr:

Does that check with everything that you
know around town?

Young:

Yes, sir.

H.M.Jr:

Phil, that checks?

258

-5Young:

H.M.Jr:

Yes.

There is so much - I would like to tie up
these loose ends. It is awfully hard, es-

pecially where Stimson is a little forgetful
and Knudsen doesn't get the thing the first
time, either.

Purvis:

These understatements are getting more and

more - Knudsen, I think - of course, I think
it is a case that he doesn't want to, because

Knox tells me quite a story about his understanding of the RFC deal. Knox telephoned
me this morning and said, "I would like very
much to see you for a general talk." I went
over and he said, "Have you heard anything
from Secretary Morgenthau in regard to yes-

terday's meetings?' I said, "I haven't,"

and he said, "Has he told you that you can

go ahead?" I said, "With certain limitations
as to type and as to date." He wants - he
said, "Oh, well, I am very glad he has men-

tioned that type question. I think I ought

to let you know that there was a very definite
feeling at the meeting that you should be
prepared to see things from the point of

view - in your interest - of getting larger

supplies from this country in United States
types," and so we had a little discussion
about that, and then he said something about

Mr. Knudsen, Swedes -H.M.Jr:

Dane.

Purvis:

Big Swede and so on, but very friendly, but
he was just saying that he thought he could
be brought into line and so on, but I gathered

he felt that Mr. Knudsen had slightly different ideas on some of the things.

Then I took the opportunity of asking about
the financing --

259

-6H.M.Jr:

Excuse me. I don't know what is bothering

Knudsen.

Purvis:

Nor
do I. I feel inclined to try to get him
to dinner and find out.

H.M.Jr:

I don't know whether it is the financing -

I tell you what I think it is. He has said
it several times. "I am just dizzy, I am

dizzy."
Purvis:

He is not registering any longer.

H.M.Jr:

No, I think the man is over-tired, and I don't
think his brain has been able to take in the
size of what the needs for England and the
United States, as a manufacturing group against

all the rest of Continental Europe, are. He
just hasn't envisaged it yet, what it means.

Young:

I think one remark he made yesterday was

pretty revealing, when he said, "Well, if

we do so and so and build up to "X" capacity
in this country, nobody else has any capacity
greater."
H.M.Jr:

He was talking about 4400.

Young:

Yes, but he stopped at the point where our
capacity was equal to somebody else's, rather
than going ahead to the point where our
capacity was the greatest in the world.

Purvis:

Knox understood him to say he would be com-

fortable at 3000.

H.M.Jr:

You see, I was pressing, why don't they give
you room on this thing. You see, we haven't
got the money, damn it, for this 12,000

bomber show. We have the money for the plant

but not for the orders. He said, "If you do

260

-7this, this means that we will have a production of 4400 a month." Isn't that what

he said?
Young:

Yes.

Purvis:

I pray it may be true.

H.M.Jr:

But the thing we have got to get into him
is this so-called 12,000 bombers a month

planning which is still on paper, and all
the rest of that. "I don't think the Army

has got any money to place orders for those

planes." And I said to him, "Well, let the
English give you some orders." "But they

want the Sterling bomber." I said, "Tell

them that they have got to take the American

bomber.
Purvis:

Yes, but you see he is sheltering there. It

isn't so. He was told most definitely. I

have seen actually a cable go out from
Morris Wilson - I mean really from Self and
Fairey in Morris Wilson's name to Beaverbrook

subsequent to that talk, saying, "There is
no hope of the Sterling bomber being built
here. We have therefore accepted the other,"
so there is no question about it.

H.M.Jr:

I got the impression you people were hanging
on for the Sterling bomber from Knudsen.

Purvis:

You see, it is the same as on the finance.
He has given Knox the definite belief, which
I was able to dispel, and Knox said he was

very careful to get it dispelled - I think

he is now a genuine supporter of our RFC

plan. He has given Knox to understand that

we will not pay for the capacity out of
our proportion of the production. That thing
occurred the other day. Every time he came

261

-8back in the meeting and said, "Well, will
you pay for the capacity?" And each time
I said, "Well, do you know about the Con-

tinental tank engine program?" "Yes, I

know it from A to z." Do you remember?

I said, "Well, it is in that. We will pay."

And then a few minutes ago -Young:

H.M.Jr:

And then he said, "I don't know how you
got it, either." 11

I really think your suggestion of getting

him for supper or lunch just as soon as

possible - I think from what they tell me,
supper seems to be a good time because he

won't go to a movie and he likes to sit up
until 12:00 o'clock and talk.
Purvis:

I can do that.

H.M.Jr:

But that was a swell meeting yesterday, and

if the President does it tonight, I am going
to be very happy.

Purvis:
H.M.Jr:

Oh, absolutely. It is a great thing.
And I want to tell you something which thrilled

me. He had two comments to make. He said,

one, 'Are the English willing to use the figure
26,000?" I said, "Yes." And then the other
comment was, "You know, I don't direct a re-

quest.
Purvis:

Very good.

H.M.Jr:

Which I thought was very interesting.

Young:

It is better.

Purvis:

It is sometimes even more effective.

H.M.Jr:

He said, "I don't direct a request."

262
-9I had the best piece of luck. I walked

over there and he was in the pool and nobody was allowed in and there were two

guards. His doctor went in and I said,

"Doctor, I would like to go in. It is

important." He says, "Come on, come on,"

and I got in just as he was being dried,

and while he was being dried he read this.

If I had come five minutes later, I would

have missed him. There wasn't another

living soul there.

Purvis:

I must say I think it was beautifully worked

out.
H.M.Jr:

It worked all right.

Purvis:

And that took --

H.M.Jr:

Using the statement - if I hadn't had the

statement, this thing would have dragged on
for months.

Purvis:

That is right. You have to crystallize it
around something.

H.M.Jr:

We would have gone on for months here dis-

cussing this thing.

Purvis:

Yes.

H.M.Jr:

For months.

Purvis:

Oh yes, it was very dangerous. No, it opens
the gates very nicely.

H.M.Jr:

And particularly as Layton seemed to want
to take on Stimson and Stimson wants to
take him on.

Furvis:

I was delighted. I thought they started

with sort of a head on misunderstanding.

263
- 10 H.M.Jr:

Have they met today?

Purvis:

I don't know. I haven't been near them. I

was very glad to be out of that one, because

really I think Layton is bound to be dis-

appointed on his 25-pounder.
H.M.Jr:

Well, let's - we are all set now.

Purvis:

The only question that can arise now will
be just such a question as Knudsen - you know,

I think his reason for not including 1200

bombers at this stage is nearly - it is
linked up with that financial thing in his

mind. He feels, "Well now, that means they
are going to get that free of charge." If
H.M.Jr:

Well, don't forget he told me in the first
instance not to tell you about this whole
thing, you know.

Purvis:

Oh, yes.

H.M.Jr:

You remember the first instance he said not

to tell you.

Purvis:

Yes, quite. Well, if he can - Knox said that

he felt that he had too small an idea as to
what the output should be, so that is in
Secretary Knox's mind, too.

264
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Berlin, Germany
DATE:

October 30, 1940, 4 p.m.

NO.:

4511

The following is for the Treasury from Heath and for
the information of the Department:
There is a feature story in the DEUTSCHE ALLEGMEINE

ZEITUNG today of an interview with Schwerin von Krosigk,

the German Finance Minister. There is no new information

in this interview. The customary assertions about the
stability of the fiscal and monetary system of Germany are

repeated. Perhaps it is a point of interest that at this
particular stage a leading newspaper finds it desirable

to present a defense of the Reich's financial stability.
MORRIS.

EA:LWW

265

October 30, 1940
4:21 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Patterson.

H.M.Jr:

Hello.

Robert

Patterson:

Hello.

H.M.Jr:

Henry talking.

Yeah.

H.M.Jr:

Have you got a pencil?

Yeah.

H.M.Jr:

Bob, I've been told on pretty good authority
that the Western Cartridge Company, East Alton,
Illinois, which also controls the Winchester
cartridge, the family which controls the stock
18 the Olin family - 0-1-1-n - and they're
considering selling control.
Yeah. They also control what one?

H.M.Jr:

The Western Cartridge controls Winchester.

Yeah.

H.M.Jr:

Well, if there's anything like that going,

I think we ought to have our oar in on it
and make sure that whoever buys it is - will
cooperate with the Government.

Yeah.

H.M.Jr:

Could you put some of your Ordnance people
on it?

Yes, yes. We're dealing with those people

all the time, of course. That's one of our
important sources of supply.

H.M.Jr:

Yeah, I know it, and this comes from a very
good source.

266

-2P:

see. Yes, they certainly ought to be

aware of who the purchasers will be.

H.M.Jr:

Yes, I mean, it wouldn't be beyond the realms

Yeah. Thank you very much.

H.M.Jr:

of possibility that some foreign power,
unfriendly, might buy it.

If you hear about it, would you mind letting

me know what the result is?

Yes, yes, I will. I'11 make an inquiry.

H.M.Jr:

Thanks.

Good-bye.

267

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

his Country
For

DATE October 30, 1940
Secretary Morgenthau

Mr. Cochran

Mr. Cameron of the Federal Reserve Bank of New York reported the following
transactions in the account of the Reichsbank, Berlin, maintained with the Chase
National Bank.
Date

Amount Debited

October 30

$330,000

Paid To

Chase National Bank, Rockefeller

Branch, New York, for account of
Standard Oil Co. of N.J., N.Y.,
by order of Konversionkasse fur
Auslandsschulden, Berlin
150,000

Chase National Bank, New York

for account of Stockholms Enskilda

Bank, Stockholm

268
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Champoox

DATE October 30, 1940

Miss
FOR

Secretary Morgenthan

Mr. Cochran

FROM

Mr. Cameron of the Federal Reserve Bank of New York reported the following

transaction in the account of the Banca Commerciale Italiana, N.Y., maintained
with the Chase National Bank, New York,
Date

October 30

Amount Debited
$100,000

Paid To

Check drawn by Banca Commerciale

Italiana, N.Y., in favor of

Guaranty Trust Company, New York.

and

269
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 30. 1940

CONFIDENTIAL

Secretary Morgenthau

FROM Mr. Cochran

The reporting banks' transactions in registered sterling were as follows:
Sold to commercial concerns

$231,000

Purchased from commercial concerns L 4,000
Of the $231,000 sold, approximately 1185.000 are being used to cover the importation
of rubber. The remaining $46,000 are being applied against various imports.

In the open market, sterling was first quoted at 4.04. The final quotation was
4.03-1/2. Transactions of the reporting banks were as follows:
Sold to commercial concerns
To 20,000
Purchased from commercial concerns To 6,000

The other currencies closed as follows:
Swiss franc
Canadian dollar
Swedish krona
Reichamark

Argentine pego (free)

Brazilian milreis (free)
Mexican peso
Cuban peso
Lira

.2322

13-1/4% discount
.2386
.4005
.2325
.0505
.2070

9-1/8% discount
.0505

We sold $5,000,000 in gold to the Java Bank, to be added to its earmarked

account.

The Federal Reserve Bank reported that the Bank of Portugal shipped $2,713,000

in gold from Portugal to the Federal, to be earmarked for its account.

There was a holiday in Bombay today, and no metal prices were received from

that center.

In London, the prices fixed for spot and forward silver were both 1/16d higher,
at 23-1/2d and 23-7/16d respectively. The dollar equivalents were 42.67 and 42.56

270
-2-

Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35$.
We made three purchases of silver totaling 150,000 ounces under the Silver
Purchase Act. Of this amount, 100,000 ounces represented sales from inventory, and
the remaining 50,000 ounces consisted of new production from foreign countries, for
forward delivery.

We also purchased 150,000 ounces from the Bank of Canada, under our regular

monthly agreement, raising the total bought from that source during the current month
to 575,000 ounces, as compared with the agreed monthly limit of 1,200,000 ounces.

spo

CONFIDENTIAL

271

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 30, 1940
Secretary Morgenthau

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL
Official sales of British-owned dollar securities under the vesting order

effective February 19:

Sold

$ Proceeds of
Shares Sold

3,075
10,226
8,435
4,018
6,892
7,535

157,061
405,747
440,284
177,384
324,005
305,525

13,000
1,000
8,000
Nil
Nil

6,658

500

441

40,181

1,810,006

22,500

13,162

1,646,514

57,223,825

5,101,500

3,983,734

1,686,695

59,033,831

5,124,000

3,996,896

No. of Shares
October 21
22
23

24
25

Nominal Value
of Bonds Sold

$ Proceeds of
Bonds Sold
5,488
575

Nil
Nil

sales from

February 22 to
October 19
TOTAL FEBRUARY

22 TO OCTOBER 26

Mr. Pinsent reported sales of non-vested securities for the week ended
October 12 totaled $300,000, and for the week ended October 19 totaled $700,000.

Aml

House
TREASURY DEPARTMENT

272

WASHINGTON
OFFICE OF THE ADMINISTRATIVE

ASSISTANT TO THE SECRETARY

October 30, 1940.

MEMORANDUM FOR THE SECRETARY:

We have completed our study of the 1942 Treasury budget estimates,

and the following is a brief outline of the high spots.
The total net increase in our estimates is $62,000,000, made
up of $28,000,000 for the Coast Guard, $26,000,000 for Customs and

Internal Revenue refunds, $6,500,000 for Internal Revenue, and

$1,500,000 for all other Treasury items.
The principal items of increase in the Coast Guard are the
following:
19 new airplanes under Replacement Program

$700,000

2,500 enlisted men to complete manning of
vessels and stations in accordance with
Navy defense plans

2,500,000

Conversion of Coast Guard vessels for Navy use

6,000,000

Ordnance material to meet Navy requirements

2,000,000

Equipment for vessels for national defense in
accordance with request of Navy Department

3 new cutters (This item, if granted by Congress,
probably will be provided for in a deficiency

bill.)

2,000,000

11,000,000

4 training stations for enlisted men

7,000,000

Air station and base at Kodiak, Alaska

3,000,000

30 78-foot patrol boats for Captain of the
Port duties

2,000,000

-2- While the above items aggregate approximately $36,000,000, there

are offsets of non-recurring items which bring the net increase for
the Coast Guard down to $28,000,000.

The Customs and Internal Revenue refunds are of course more or
less automatic.

The increase of $6,500,000 for Internal Revenue is made up

principally of a request for 675 additional employees for defense
tax work, 667 revenue agents and clerks in the income tax unit to
permit of the examination of an increased number of tax returns,

and 163 additional employees for the technical staff to handle an

increased number of tax returns to be referred to that staff.
The Bureau of Engraving and Printing is increased $2,000,000,
$1,200,000 being required for the estimated printing program and
$800,000 for new equipment.

In the Mint Bureau we had a special appropriation this year
for gold shipments to Ft. Knox. This item does not appear in 1942
and a decrease of $1,600,000 is accordingly represented in this
item.

In the Division of Personnel no increase is requested. The
appropriation for the old Division of Appointments was $45,000.
This year Congress appropriated $135,000 for the Division of Personnel, made up principally of a pick-up of emergency personnel
put on a permanent basis. This does not provide adequate funds to

do all of the things contemplated under the President's executive

order directing the establishment of personnel divisions, but it

273

274
-3does furnish adequate funds to do the job as far as Congrese was

willing to go and enables us to handle our personnel activities
in a more efficient manner.
One hundred and forty additional guards are requested for

the Guard Service. This is due principally in order to allow the
guards to be granted time off on Saturdays and Sundays, as well

as on annual vacations. The present force is so inadequate that

the guards are not getting the time off to which they are entitled,
and few of them are getting any vacations.

275

COPY:FE:OJL

No. 136
AMERICAN CONSULATE

Kunming (Yunnanfu), China, October 30. 1940.

SUBJECT: Traffic on Yunnan-Burma Highway.

The Honorable

The Secretary of State,
Washington.
Sir:

In connection with the recent reopening of the Yunnan-Burna Highway to

all types of cargo, I have the honor to comment upon the possibility of its
use as a major supply route for China despite Japanese aerial attacks upon
it.

While there is naturally a variance of opinion as to the effectiveness
of aerial attempts to nullify its use, the best level of opinion by those who

have traversed the road is that Japanese attack from the air cannot in general

stop large-scale traffic on the highway. All agree, however, that use of the

route can be seriously hampered by destruction of bridges at two points - over
the Mekong and Salween Rivers. The Salween River bridge, in particular, would

present a difficult problem, as the river current at this point is considered
too swift for ferrying; moreover, circuitous descents from the mountains on

each side of the bridge are a vulnerable feature as regards avalanches caused
by bombing. However, some observers feel that in order to put this suspension
bridge out of commission, serious damage must be done to the bridge piers at
each end, which would call for very accurate or very intensive bombing into
the deep gorge in which the bridge is built.

As this is written (October 29), there are reports from what are believed
to be reliable sources that the bridge currently in use across the Mekong River
has been definitely broken as a result of bombing attacks in the last few days.
It is stated that, contrary to Japanese claims, attacks on October 17 and 18
and October 25, had done slight damage only. With so many conflicting rumors,
the Consulate has found it difficult to establish accurately the condition of
the old bridge at the present. A high official of the Yunnan Provincial
Government stated yesterday that the Chinese have in readiness a new auxiliary

bridge to replace the old one, which would be located below the latter; all

that it is needed to put it into operation is to attach cables to it. This

source also stated that there is in readiness still another bridge, should the
new

276
-2-

new one be destroyed. An American who returned from Burna via the highway a few
days ago informs me that there is now ready for use an auxiliary bridge over the
Mekong River which can accomodate ten-ton trucks, although he could not confirm that
it has been used to date. An electrically-operated cable arrangement which could
accomodate ten-ton trucks has also been mentioned as a project for transbordment of

the Salween River. A prominent local official recently stated that the use of smokescreens to protect bridges over the two rivers during aerial attacks was contemplated.

Recent arrivals over the highway and other sources consulted have no information
concerning the implementation of the latter two schemes.

Other measures of attack, such as the piling of avalanches on the road and
machine-gunning of trucks are not expected to hamper the flow of supplies to any

great extent; it is stated by travellers that other bridges on the route would
present no serious problem of repair if broken. It is understood that large crows

of coolies are held in readiness to repair the road bed as it is destroyed. It is

pointed out that the Chinese were able to carry on virtually uninterrupted transport
on the Dong Dang-Nanning highway in the face of almost continuous Japanese aerial

attacks, this despite the existence of a number of ferries; the inability of the

Japanese to stop traffic on the Canton-Kowloon Railway from the air is also mentioned.
It is evident, however, that the Japanese forces are determined to attack the road
systematically in the future: raids to the west of Kunning have been carried out
almost daily since the reopening of the highway to military supplies.

It is stated by the above-mentioned American source that much of the traffic is
moving over the road by night, that passage over the Salween and Mekong bridges is
stopped between 9 a,m. and 3 p.m., and that concentration of vehicles near the
approaches thereto is discouraged. New anti-aircraft guns have, according to local

reports, recently been sent to assist in the defense of the large bridges. In fact,
it is the expectation that night driving will be largely employed if necessary to
cope with daylight attacks on truck convoys and individual cars. However, a British

overseer of a Burmese trucking firm under contract to the Chinese Government
mentioned in conversation that he expected most of his Burmese drivers to quit
following the first strafing of his trucks by machine-guns. Many Burmese drivers are
employed by shipping companies engaged in transportation of commercial and governmen-

tal goods, such as Steel Brothers and S. Vertannes, firms registered in Burma. This
informant stated that it may become necessary for the Chinese themselves to devote

more attention to the Kunming-Lashio section of the road to the interior of China,
so far as truck transportation is concerned.
With the disruption due to recent air alarms, which come virtually every day
now, it has not been possible to estimate the progress of cargo shipments over the
highway, but it has been observed that at least several convoys, which left on or
subsequent to October 18 have already arrived in Kunming.

Respectfully yours,

TROY L. PERKINS,

American Consul.

In triplicate to Department, by air mail.
Copy to Embassy, Peiping,
Copy Copy to Embassy, Chungking.

to Consulate General, Shanghai.
Copy to Consulate, Rangoon. 879-TLP1Epy
mg

COPY

277
Y

PARAPHRASE OF TELEGRAM

No. 511, October 30, 1940,
6 p.m., from the Embassy
at Buenos Aires

Reference is made to telegram no. 238 of October 10

from the Department and to our telegram of October 8, 7 p.m.

I have been informed by the Minister of Finance that
it is planned that Prebisch and Grumbach are to leave for
the United States by plane on November 8 (Friday) due to
arrive in Miami on Monday, November 11. They should there-

fore arrive in Washington on November 12. It is suggested
that the Department may wish to have instructions sent to

the Customs authorities at Miami to facilitate their entry.

278
W. RANDOLPH BURGESS
55 WALL STREET
NEW YORK

October 30, 1930.

PRIVATE AND
CONFIDENTIAL

Dear Henry:

I enclose a copy of a letter written by the wife
of one of our American staff in Japan upon her arrival in

this country. It does not give very many facts, but does
give plenty of color.
Sincerely yours,

Randoefle
Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.
WRB.H

encl.

279
(PRIVATE AND CONFIDENTIAL)

Very many thanks for your letter of the 26th, and I thought

that I would write and tell you all I can about Japan while it is still

fresh in my mind - it's amazing how quickly one's impressions fade when
one has left a country.
So far the Japanese people seem to be treating the Americans

as usual - but our friends, people like the

told us one day on

the beach at Hayamant would be better for us not to get together just
now (this was in August and we had planned to play mahjongg together once

a week during the summer) she said "wait until this all blows over"
that friends of hers had had luncheon with some foreigners and then the
police came in and had to be told every word that had been said, and that
all in all it was not a very pleasant situation for either the Japanese

or the foreigners. Of course, the British people are very jittery - they
still have Captain James in Tokyo in jail and keep postponing his trial -

and Mr. Wooley of the Rising Sun in Hokohama - Mr. Woolley has been in

jail for three months and could only just get a lawyer to defend him just
before we left - he is in a very bad state, on the verge of a nervous
breakdown - and all he has done is send statistics on the sale of oil to
London, which of course was part of his work. I am telling you this to
show you that a man doesn't have to be guilty of espionage or anything if they decide to arrest anyone they will, they can always find some
charge - one man was taken because he had in his possession a picture
taken fifteen years ago on a beach or something. And that is why we are

so fearful for our men, if the Japanese turn nasty they can just tap them
on the shoulder and say come with me - and then- oh well - they just don't
have the same ideas on justice or giving a man a fair trial - and condi-

tions in Japanese prisons is something to be fearful of. But let us pray
that it doesn't ever come to that. I know so much more than I would care
to write through my friends in the British Embassy.

As to food - the sugar is rationed to 1/2 a pound per penson a
month, bread is difficult - sometimes one can get it and sometimes not,

flour is also difficult and the rice is 70 per cent rice and 30 per cent
oats - and the rice itself is pretty poor. If we hadn't our Hayama garden
and taken cases of every kind of food, and our own chickens and eggs I
just don't know what we would have done - or what George would be doing
now. Most of the foreigners are pretty well stocked up for the moment the Tokyo crowd of course have only recently returned from leave, and
George can provide all the bank folks with vegetables and eggs - at times
people could only get three and four eggs a week. And all this summer we
were sending our surplus vegetables to the Japanese staff in Tokyo as they
were so scarce and expensive to buy.

The gasoline situation is getting worse and worse - they are
trying to make people double up on the taxi trips - a driver is supposed
to wait until six people are going in the same direction before he can
make a trip. I don't know how it will work out but that was the last

280

-2regulation before we left.
And from October the 6th when the luxury ban went on, everything
disappeared from the shops overnight - many of them had to close - Uyeda

the silversmith told us that he hoped to get a police permit to reopen.
He hadn't got it by the 6th and of course had to close and he hoped it

was only temporarily, but he could only hope - and if he didn't get it it
meant he would store his stock and over 100 people would be out of employment and that is happening all over Japan. They seem to be just going

around in circles and getting more and more confused. The women are frowned

upon if they wear gay colored kimonos, and in Kobe, where there is a much
rougher element, we were told that some women had had their kimonos torn

off them by hooligans. And even foreigners felt uncomfortable wearing rings
or jewels or any kind. I had put my small bits and pisces in the bank
because I didn't care to wear them going back and forth in the train, not
that anyone said anything - but the whole atmosphere made one uncomfortable.

I hope this will give you a little idea of what you want to know and I would be very glad if you will destroy this because, I suppose it's
because we have been living in such an atmosphere as to make one nervous, I

would really feel better just in case it should get into the wrong hands.
************ said that for the first few days we were all whispering to each

other, and that now we are talking in normal voices so she knows we are
relaxing. The whole situation there must have reacted on us more than we
realized,
because I would have said I was not in the least bit a nervous
type.

281
THE

AMERICAN METAL COMPANY. LIMITED
01 BROADWAY

HKH:AA

NEW YORK

October 30,1940

TELEPHONE BOWLING GREEN Q-1800

CABLE ADDRESS: EFFLUX.NEW YORK

Honorable Henry Morgenthau,

Secretary of the Treasury,

Washington, D. C.
Dear Henry:

Yesterday our Silver Department showed

me the figures of bar silver shipments from Japan
to the United States during the past four years.

Presumably this silver originated in China. A1though you are almost certainly familiar with the
figures, I am quoting them herewith:
1937
1938
1939

1940 to Sept. 30

2,872,594 ounces
6,887,125
10,625,140
22,438,659

Sincerely,

Harold
judging from the person-to in person recent

I've been waging weelers

weeks campaign I'm one of the few downtown new

-if not the only one- in there are

new york Here's hoping to
enough more in the country 5th

bring victory on november !

282

G-2/2657-220

RESTRICTED

M.I.D., W.D.
October 30, 1940.
SITUATION REPORT

No. 233

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. Air Force Operations.
The German Air Force launched strong daylight attacks
on the London area and on southern England on the 29th. Night raids
centered over the London area and appear to have been unusually heavy
until about midnight.

The R.A.F. last night attacked Berlin, Hamburg, Magdeburg, and several ports from Wilhelmshaven to Flushing.

II.

Greek Theater of War.

Little is known about the tactical situation in Greece beyond the fact that ground forces are in contact inside the Greek

frontier. Diplomatic relations between Rome and Athens have not yet

been broken off.

III. Mediterranean and African Theaters of War.
No ground operations reported. The R.A.F. raided Italian
communications along the Mediterranean coast and also bombed Assab,
Eritrea.

RESTRICTED

283
BRITISH EMBASSY,
WASHINGTON, D.C.

Personal and Secret

October 30th, 1940.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information copies

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

Dear Mr. Secretary,

Very sincerely yours,

thank Bather

he Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

284

Telegram received from London

dated October 87th, 1940.

Nevel. a.s. "Empress of Britain" still
afloat destroyers "Keho" and "Bursa" arrived at the
Clyde with 570 survivors on board some seriously

injured 10 dead. Cargo of sugar fed the flames.
Salvage may be possible if the fire burns out.
H.M.S. "Delhi" intercepted French steamship

"Alb1" 4191 tons off Duals on October 25th, in ballest
started to souttle had to be sunk. Crow saved.
Merchant service trawler "silites" damaged
in collision with unknown ship October 96th arrived
Middlesborough.

Polish destroyer "Blyskawica" damaged stern

and steering gear in collision with trawler off
Arron D.M. October 86th. Now at Greenock. Two
submerines overdue from patrol Gulf of Taranto
presumed lost.
8.

Royal Air Force. Daylight October 26th. In

the early morning 5 Blenheims bombed power station at

Brest. All returned safely. Later in the day s
medium bombers on patrol off Norwegian coast sank a

merchant ship of about 2000 tone with torpedoes.
They were then attacked by 12 enemy fighters one of
which is thought to have been shot down. Two of our

aircraft are missing.
Night of October 96th/27th. Hampdens and
Whitleys bombed aero-engine works at Spandau four

explosions and large fire. Moebit power station and
marshalling yerds at Putlisstresse and Lehrter were
bombed/

285

-8-

bombed but results unobserved owing to low cloud.

011 plants at Stettin, Leuna Koln, the dockyards at
Hamburg, Bremen and Cuxhaven factories and numerous

aerodromes were attacked but results unobserved.

Blenheims attacked channel ports fires and explosions

resulting.
3.

German Air Force. Daylight October 26th.

Slight activity in early morning but towards midday
seven formations of from 10 to 30 aircraft almost
entirely fighters were plotted over southeast England.
On two occasions a small number of aircraft penetrated
to central London but attacks were not pressed home
and most raiders split up and turned away when over

mid Kent. During this period strong forces of enemy

aircraft were active over the Straits of Dover. 13
persons were killed and 50 seriously wounded in
Curzon Street Mayfair and outside London damage was
caused to property at Farnborough and bombs were

dropped on South coast gea-side towns but no serious

damage or casualties are reported. Just before dark
two Royal Air Force stations in northeast Scotland
were attacked; at one of them a Blenheim was burnt
and an enemy bomber crashed on the aerodrome and

exploded and at the other one aircraft and a hangar
were destroyed.

Night of October 26th/27th. Enemy activity
was rather greater than usual and about 200 aircraft
were operating over the country. The main attacks
were again on London and Birmingham. In London area
the bombing though widespread was chiefly south of

river. The only important incidents were the
destruction/

286

-3-

destruction of an oil tank in the east of London
damage at one power station and a 50 pump fire in
one district which was under control by midnight.
More serious damage was caused at

Birmingham where several fires were started some

of which combined to make five large fires which
were all under control by this morning. The centre

of the letter city was the area chiefly affected and
New Street station is temporarily closed. Serious
damage reported from two factories engaged on war
work one making wireless telegraphy equipment and

the other aluminium eastings. Casualties so for

reported are 50 killed and 100 seriously injured.
Five small Diesel oil tanks were set on
fire at Leatherhead and oil was lost.
4.

Enemy:

Summary of Air Casualties.
Probable Damaged
Destroyed

By fighters

on October 26th

By night inter-

ception, or
fighter

4 Messerschmidts

8 Messer-

4 Messerschmidts

schmidts

109 and 1
Junker 88.

109.

1 bomber

nil

1 Heinkel

nil

October 25th

Grashed evening

of October 96th
Total

111

4
6

British: Three aircraft with 1 pilot safe. Three
bonbere missing two destroyed on the ground.
6.

Shipping Casualties. On October 26th one

British and two Allied ships (totalling about 20,000
tons) were damaged by mines in home waters but none

of/

287

of them were sunk.
6.

Middle Mast.

Reynt. A concentration of 300 enemy

mechanical transport located 15 miles south of
sidi Barrani was attacked by our aircraft on
October 25th. On the same day an enemy camp in

this locality was also bombed; and two attacks
were made on Tobrak where bombs fell on mechanical

transport vehicles supply dumps and buildings in
Naval barracks area.

288

Telegram received from London

dated October 28th, 1940.

Naval. The "Empress of Britain" was taken

in tow yesterday but Bank after an explosion early
this morning.
2.

Royal Air Force. Daylight October 27th.

At dusk a Blenheim on patrol bombarded hengers at
Cherbourg aerodrome and started fires.

Night of October 87th/28th. Clouds and
hase over targets again made location and observation

of results difficult. Main attack directed against
oil targets at Hamburg (Wilhelmsburg), where extensive

fire resulted, Ostermoor (Kiel Canal), Synthetic oil
plant at Gelsenkirchen, Braunkohlen Benzin synthetic

oil plant at Magdeburg, oil plant at Hanover where
small fire started, Deutsche Erdoel Coke-oven batteries
at Gelsenkirchen, where explosion caused and Rhenania

Ossag oil refinery at Hamburg, fires resulting. Other
targets attacked were marshalling yards at Krefeld,
Mannheim, Hamm, Oanabruck, a large explosion being
caused at Hamm and fires at Osnabruck; Skoda works at

Plaen; naval base at Lorient, bursts being observed on
docks, channel ports of Ostend where three fires
started, Antwerp and Flushing; aerodromes in France

and Holland. Two of our aircraft missing.
3.

German Air Force. Night of October 26th/

/27th (further reports). In London area casualties
ao far reported are 57 killed and 160 injured. Those
at Birmingham are now reported as 75 killed and 210
wounded.

Daylight/

289

Daylight of October 27th. During the
day the enemy displayed conciderable activity over
the channel and a number of occasional aircraft

penetrated a short distance inland. Five formations
of about 50 aircraft each flew towards London and on
three occusions small numbers penetrated to the

London area. Towards five o'clock larger formations
approached up the Thames estuary. Our fighters
intercepted and bombing was on a minor scale. As a

preliminary to night operations, a dusk attack was
made on nine aerodromes in Eastern England and some

damage and casualties to Royal Air Force personnel
occurred. Day bombing accounted for damage at one
gas works in East London and to sewage plant in a
southern outer suburb.

Night of October 27th/28th. Night operations
on the usual scale were carried out principally
against London, Coventry and Liverpool. After midnight
activity was reduced, though a few single raids were
maintained over London area. Our,anti-aircraft gune
shot down two and possibly three enemy bombers during

the night. Mine-laying was carried out off the east
coast. Little serious damage has been reported from
London area and casualties seem fewer than usual. At
Coventry several fires, which were all extinguished by
eleven p.m. were caused and Armstrong-Siddeley works

were again hit. Damage was also done to General Post
office. At Liverpool damage and casualties were

slight.
4./

290

Summary of air casualties.

Destroyed

anemy:

Probable Damaged

By our fighters
Bombers

Fighters

8
2

6
5

By anti-aircraft
Bombers

Totals

nil

British: 9 aircraft (4 pilots safe). One bomber missing.
5.

Conveys. Two convoys of seventy ships have

arrived safely. Cargoes included eight of oil,
eighteen of pigiron and iron ore and ten of pyrites.
6.

Middle East. On night of October 26th/27th

enemy aircraft dropped bombs in Ismailia district
without causing damage or casualties.
Sudan. On night of October 25th/26th three

of our aircraft bombed enemy troop concentrations in

Kassala. Fires broke out followed by explosions.
Kenya. On October 25th three enemy aircraft
bombed Garises without causing damage or casualties.

On the same day two Hurricanes of the South African Air
Force intercepted three Italian bombers near Lake
Rudolph and shot down two of them. The third was
severely damaged and is believed to have crashed.

CONFIDENTIAL
291
Paraphrese of Code Callegram Received at the
War Department 09:40, October 30th, 1940.

Leason, filed 17:58, October 29th, 1940.
1. Thirteen planes only of the Bember Command were dispatched

on daylight missions on Monday, October 28th. of these about one-half

earried out their missions - That night the program was
to dispatch a total of 104 planes, 44 against Barlin, 31 against oil
targets, nine against French airdrence, 16 against railroads and four

against coastal parts. The attacks on Berlin scheduled for the night
of October 27-20th were cancelled. The Skeda minitions works were

successfully attacked by one of the eight planes assigned. All other
bombing missions, including the main attack on oil targets, were

considered - Two bembers crashed on landing. The Coastal
Command dispatched 46 patrel missions, whigh engaged in 80 aorties,
and 21 convey assorts. There were no essualties. The Fighter Command

operated 117 patrels that engaged in 606 aortics.
2. The German Air Force operated a total of about 250 planes

on daylight missions on October 20th. In addition to reconnaissance
missions, three min attacks, consisting of about 30, 18 and 225 planes,
respectively, were made. None of these raids reached London. That
night German operations were on a reduced seals, consisting chiefly
of Isne reiders operating over London and the Midlands.

3. During the day three British airdrence were hit but no

damage we d In Losition that night a public shalter was hit, resulting

CONFIDENTIAL

292

CONFIDENTIAL
in about 100 assumities out of the 400 persons sheltered there, and
there were a considerable member of fires set, the worst of which have

not yet been extinguished. Birmingham was hard hit. The Cathedral
was hit, many civilian buildings were damaged and a number of fires
were set, one of which damaged the railroad station.

4. German plane lesses, all of which were fighters, were
five confirmed, serven probable and nine damaged. The British lost no

planes. In the Middle East the Reyal Air Force lost one plane and
its opponents none.

5. Full details of the damages done to four airfields out
of the 16 reported attacked yesterday have been forwarded for the

technical information of the War Department. At the first of these
airtrones bombs dropped by three German planes ereated 19 craters

across the field. One hanger was damaged, putting is out of service

all night and part of the day. At the second field four concrete
aluminum bombs ruptured the water min, destroyed a ast of quarters
and a shelter trencia, and damaged the heat line, a store room, one

hanger, the station handquarters and several other buildings, Six
eraters were formed in the field and three planes were damaged. At

the third field 20 high explosive boube caused slight damages to a
building and two planos. Four persons were killed and seven wounded.
At the fourth airdrone 14 boube from three planes formed 14 eraters
in the field and damaged three planos, one bus, and some buildings.

The field was operating in less than 24 hours.

-2-

CONFIDENTIAL

6. German invasion barges at Antworsh Boulegue and

Delfaifi (Holland) are new arranged in tiers alongside the guays.
Gangays have been removed and it is informed that londing is
complete.

% It is reported that the first commoging submits is
new in the harber at Brest,
a. Indications are that Consumer troop movements during the

last fortnight render it difficult, if not impossible, for Yugoslavia
to make any attempt to assist Groome.

Distributions

Military Aide to the President

Secretary of -

State Department

Secretary of Treasury

A Secretary of War

Chief of Staff

Wear Plane Division

office of Neval Intelligence

CONFIDENTIAL

293

CONFIDENTIAL

Paraphrese of Code Cablegram
Received at the War Department

at 9.00 A.M., Ostober 30, 1960

Belgrade, filed 15:30, October 30, 1940.

In consideration that the Italian offensive on October
28 made very little progress and showed lack of proparation, the

Tugeslavian Chief of Staff believes that Italy was surprised at
the resistance offered by the Greek Government.

According to the - source four complete Yugoalavian

active divisions are stationed near the Albanian frontier.
Secret mobilisation in Serbia of at least several divisions has
been ordered. All leaves have been cancelled. Messahile Yugoslavia awaits developments and regards with great attention the

assistance offered to Greese by the British and also the attitude
of Germany.
FONTIER

Distribution:
Military 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

294

October 31, 1940
9:08 a.m.
H.M.Jr:
Wm. S.

295

Hello.

Knudsen:

This is Bill.

H.M.Jr:

Bill, did you hear the President last night?

Yeah, I did.

H.M.Jr:

How'd you like him?

Fine.

H.M.Jr:

Wasn't he good?

It was all right. The finish was strong.

H.M.Jr:

That's right.

And it wae good.

H.M.Jr:

And that crowd liked it.

Yeah. (Laughs). Well, of course, you know
how a crowd is

H.M.Jr:
K:

I know, but that's an Irish crowd up there

and they haven't been too friendly.

Well, he went right through with the memorandum just as you sent it to me.
Yeah. Word for word.
Yeah. Say, we got an order now to place for
enginee. See?

H.M.Jr:

Yeah.

Well, there are 3,000 British engines and
2,000 American engines and we can make a

plant facilities contract for the 5,000

engines. See? That's easy because the
company wants to finance it itself. Now
what do we do? Do we charge the plant cost do we charge 60% of it over a 5-year period
to the British and 40% of it to the Americane?

296

-2-

.....

H.M.Jr:

Well, now

How are you going to do this?

H.M.Jr:

I don't know. Is this going to be - this

company
- whichever the company is wants to
.....

It's Buick.

H.M.Jr:

Buick.
They want to borrow the money from
R.F.C.?

No, no. They've got their own money, but
they want a plant facilities contract - that's
5-year amortization.

H.M.Jr:

And where they pay back 20% a year?

Yeah. They get paid 20% a year by the

contracting office. In this case that'11 be

the Navy. See? Now then, in your deal with
the British you propose to give them a counter-

part of the Continental contract. See? But
there's no guarantee.

H.M.Jr:

In what - in the Continental?

Yeah.

H.M.Jr:

Well now look, Bill. This is pretty

important.

It is important because I'm bumping up
against it every day.

H.M.Jr:

Have you got confidence in Foley?

Sure.

H.M.Jr:

Could I send him right over? Could you see

him now?

Absolutely.

H.M.Jr:

Let me send Foley and Young over to your

Yeah. You see, there are two ways we can do

office.

it - the Buick might charge one price to the

297

-3British and another to the Americans. That

don't look 80 good because you and I agreed
that they'11 have the same deal. That means

we'll have to make a separate plant facilities
contract with the British. See?
H.M.Jr:

Well, now, I tell you, I usually have a staff
meeting at 9:30. Would 10:15 be agreeable
to you?

Sure.

H.M.Jr:

I'll have Philip Young

See, what we need here is a policy.

H.M.Jr:
K:

H.M.Jr:

I understand, but it's too important for me
to do it on - you know.
Yeah, but I didn't want you to give me a
decision, I thought I'd get you thinking
about it.

You've got me - and if it's all right, I'll
have Young and Ed Foley over at your office
at 10:15.

Fine.

H.M.Jr:

Which engine are they going to make?

1830.

H.M.Jr:

Pratt Whitney?

Sure. That's the 4-motor bomber engine.

Sir Henry Self called me up last night that
he gave up the Sterling planes and I told
him he could place the 4-motor bombers B-24
equal.
H.M.Jr:

Oh, then how many is that - 1200?

1200. That's all set.

H.M.Jr:

That's all set. Well, that's swell.

And 300 B-26.

298

H.M.Jr:

And 300 B-26.

Yeah. Bo that puts them right on the

H.M.Jr:

Well, we're getting somewhere now.

Little by little, yes.

H.M.Jr:

American basis.

But, Bill, where you and I have a little
disagreement is this - I think until that

Brewster plant gets straightened out, they
oughtn!t to get any more orders.
Well, it won't do any harm to leave the
orders in there because we can always take
them out.

H.M.Jr:

Well, I don't know who else - they tell me

Yeah, but we can always switch that.

H.M.Jr:

Can you?

H.M.Jr:

Curtiss has got a good dive bomber.

Yeah. There won't be any material commitment
there right away, anyway.

You wouldn't want to give it to Curties or
Grumman?

No, not right away.

H.M.Jr:

I see.

I want to redistribute the rest of the

planes, you see. I'm now giving them 3,050
and 1500 planes. That's 455C planes and

there are still 4500 more to place.

H.M.Jr:

What is the 1500? Is that the bomber?

That's the bomber.

H.M.Jr:

I get it.

They've now got 4550 out of the 9,000,
the mean time this plant business - we ought

and I've got to work on the others, but in
to get some sort of a policy on that.

299

-5H.M.Jr:

Well, I'll have the boys over there at 10:15
and when they come back I'll ask them to
talk it over with me and I agree with you.

Oh, that's fine. All right.

H.M.Jr:

Thank you.

Bye-bye.

300
October 31, 1940
9:30 a.m.
H.M.Jr:

Hello.

R. K.
Evans:

H.M.Jr:
E:

H.M.Jr:

How are you?

Pretty well, thank you. You?
I'm holding out.

(Laughs).
Well, I imagine it's pretty
strenuous.
I see you're getting along splendidly with
your
- whatever you call the first engine what was that?
The C.

The C, but I was curious to know how you
were coming along with the - whatever is the
next one.

The next one is - well, there are three
that come almost together.

Well, the one for Bell.
The one for Bell is E.

H.M.Jr:

Toolwiee were getting along pretty well, but
we had some bad luck. We lost two engines
which were promised for Bell last Saturday -

lost them because of dirt.

H.M.Jr:

Dirt.

Yes, the bearings were scratched and we had

to provide new propeller - impeller shaft
interesting thing - the engines were - special

and various other parts. It's a rather

parts were made over in the engineering shop
and they were assembled over there - accessory
housings were assembled over there. They

301

-2came over to the production shop, were put
on test, and came down with indications that
there was too much dirt in them. We lost

all the parts. It simply brings out that

our standards have changed to the point where
unless we do the cleaning and assembly in
the production shop, the engines aren't good
enough.

H.M.Jr:
E:

I see. Well, does that mean that Bell hasn't
got anything yet?

Well, they haven't anything for the British
yet. They've had three engines for the
Air Corps, which - they lost one of them
a week ago Monday by a piece of bad luck.

H.M.Jr:

But the one that I thought they were going

to get to put in the British plane hasn't

gone through yet.
E:

No, it hasn't gone through yet. It was

to go out last Saturday and was rejected at
the end of the

H.M.Jr:

Well, when do you think that the E engine

for Bell will really begin to come out of

your place?
E:

H.M.Jr:
E:

Well, they'11 still get 34 or 35 engines
by the end of the year.
34 or 35 by the end of the year.
And then we'll begin to get real production
in January and February and by March we'll
be up to them and have plenty of them.

H.M.Jr:

Is that right?

Yes.

H.M.Jr:

Now, this other one is for

The next one is for Lockheed - the S-2 and
it had 130 hours on the Army model test,

which is the final test of the engine, last
night - 130 of the 150 - and it's about in

302
-3the same position as the E in a production
way but they will not be needing them in
quantity until March and that will be all
right.
H.M.Jr:

Until March.

Yes.

H.M.Jr:

I see.

H.M.Jr:
E:

And the next one is F-3 - that's needed
for the new Curtiss P-40-G.
For the Army?

Yes, and for the Air Corps or for the British
after they've finished the P-40 contract.
The British now have 980 P-40's on order
and the same quantity of P-40-D's, then the
F-3 is also needed for North American British only, and they have 620 on order.

H.M.Jr:

I see. Well, now, I don't know whether it

was you or Mr. Sloan told me that you had
hopes of developing an engine that'd make
up to around 13 or 1400 horse using the
same

Yes. I think it was Mr. Sloan told you
first, Mr. Secretary, and Mr. Hunt felt
that he was telling tales out of school a

little bit.

H.M.Jr:
E:

H.M.Jr:

Uh-huh.

We are of course working to higher horse
power. The E and F are both 1150 horse
power engines and then there is an F-7
and an E-9 in the experimental category for
higher horse power.

Well, when I talked to him a couple of
weeks ago - if I'm going to have to get more
tales I guess I'11 have to go to him. He
was very hopeful at that time.
Well, we are too.

303
-4H.M.Jr:

How far along are you with that?

It isn't an immediate thing because it

involves 2-stage super-charging and the
development of the drive for the second
stage is almost an entirely new product -

that is, it's still in its early stages.

H.M.Jr:
E:

H.M.Jr:

I see.

Now, the engine itself requires no great,
fundamental change but the addition of the
super-charger - the second stage of the supercharger for altitude performance is more or
less a new project.

Well, but on the Bell, it looks as though
you'll really be in production in December.

Oh, yes.

H.M.Jr:

Well, that's very good.

They'11 have a few more planes than we will or they expect to have more planes than
we'll have engines in December but we'll

catch them the early part of the year.

H.M.Jr:

Good. Well, thank you 80 much.

All right, Mr. Secretary.

H.M.Jr:

Good-bye.

304

October 31, 1940
9:30 a.m.
GROUP MEETING

Present:

Mr. Pehle
Mr. Foley
Mr. Caston

Mr. Haas
Mr. Graves
Mr. Thompson
Mr. Young

Mr. Bell

Mr. White
Mr. Schwarz
Mr. Cochran

Mrs. Klotz
H.M.Jr:

The most important thing - good morning,
everybody. Where is Foley? He is 80
small he 18 melting away.

Mr. Knudsen called me up a little after
nine o'clock and over the telephone he
wented me to agree - this 18 in the room,

I don't want it to get out - 86 to a
facilities contract for Buick for 5,000
engines. I think it 1s three and two.

Do the English get three or the two?
Young:

I think they get three on the Buick. That
is the small engine, isn't it, the 1820?

H.M.Jr:

Yes. And up to now he had never said that
the English would get any. This is something

new. He said, "Is that all right?" I said,

"What are they going to do, borrow the money

from the RFC?" "No, one of these facilities
contracts." I said, "Well, where are they

going to get the money?" He kept repeating.

305

-2I suppose they mean -Foley:

Well, the facilities contract with reimbursement of 20% a year for five years, they take
the supply contract for the engines and take
it to a bank and borrow the money from the

bank.

H.M.Jr:

Anyway, I said, "This 18 too important to
decide over the telephone, and he said,
"Well, I just wented to get you thinking
about it," 80 I said, "Well, will it be
agreeable to you to have Berle and Philip
Young in your office at 10:15?" and he said,
"Yes." What is the matter?

Young:

I have the Russian Ambassador at 10:30.

H.M.Jr:

Well, you go Russian and send Buckley. But

I wasn't going to agree to anything on the

telephone. I didn't have - I don' know
whether I had all the story or not. It is
too important. I said for you to go over

and talk to him.
Foley:

Why should we agree, anyway?

H.M.Jr:

You heard my story yesterday - did you hear

my story yesterday about when he wanted me

to write him a letter authorizing him to go

ahead with 3,000 planes for the English?
Foley:

No.

H.M.Jr:

And I told him, well, I said, "I told you

as far as I was concerned." He said, "I
want a letter." I said, "Around town my
word 18 considered good." He said, "It
is good with me. Just write me a letter

some time about something else." (Laughter)

White:

He would like your autograph.

H.M.Jr:

The technique is marvelous. Don't you think
it is wonderful? So he says, "Well, we have

got to get a formula." This is important.

306
3-

He says, "We have got to get together on
it." So he says, Somebody has got to make
up his mind. Somebody has got to tell me

what to do." So you go over and tell him,
will you, Foley?

The other thing which will amuse you, he said last night, he says, "Fairey telephoned me.
He says, "He said to forget the Sterling bomber.
We will take the American type." He says, "At
last I got that through," and Fairey, you know,
has been telling him for three days on his
knees, for God's Bake to give them this American
bomber and he says last night he got it through.
I believe Fairey, don't you, that he told him
a couple of days ago it was okay?
Young:

Oh, I am sure of it.

H.M.Jr:

And you see, I told Purvis when he WRB here

yesterday, "You have just got to keep repeating
it and repeating it to Knudeen and about the

fifth time he gete it." So if you gents will

go over today - send Buckley over, will you?
Young:

Yes.

H.M.Jr:

I thought the President took liberties with

our statement, didn't you? He added a couple
of words.

Bell:

He didn't add a couple of naughts to the
figures?

H.M.Jr:

No, I had the statement and he used it.
Knudsen was very pleased that the President
used the statement the way it was written.

Incidentally, I feel better this morning
because it got a marvelous press. If it

hadn't, would I have been in the dog house!
Haas:

H.M.Jr:

I have got an idea on that, Mr. Secretary.
Well, we have got to have it between now and

10:25.

307
-4
Haas:

I had better go and get it. Here is the
idea. (Laughter)

Go out and get the support for the idea.
The National City Bank put out their compilation
for the first two quarters. Sixty percent up.
The third quarter 18 just beginning to come in
and you can say the trend is continuing. You
can cite the specific cases. But you can't
get any - only scattering information 18

available so far on that third quarter.

H.M.Jr:

How recent is the National City?

Haas:

I think it came out in August for the first

H.M.Jr:

two quarters. It is up 60%.
Let me just check this once here. The first
one 18 up. The second one 18 up. The third
one is up. The fourth one is up. The Merchant
and Miners is up. What is the next? Net loss.
The next, Superior 011, is up. Hershey is
down, chocolate. Marshall Field is up. Allen
Creek is up. Pond Creek 18 up. Standard
Brands, up. Follenaby Steel, they don't have
a comparison 80 you can't tell. They have got
"C, lost before Federal. They have no com-

parison. English steel up, Calumet, down
23,000. United Car, up. Cuneo Press,
profit before Federal but they have no comparison. Kalamazoo Stove, up. Edison, up.
National Tea, up. Electric Power & Light, up.

Why don't I just say this - just read this
thing, out of all of this, this 19 companies
I have before me, I thought it was just interesting
to notice that all but two of them - there are

Schwarz:

H.M.Jr:

Gaston:

21 of them - have increased profits, which I
think is very encouraging.
Third quarter.
Yes. I just happened to be reading this.
What is the matter with that? What would
you think, Herbert?

I think that is good.

308

-5White:

And of the two who weren't, one was Calumet,

H.M.Jr:

Yes.

White:

Certainly no one would deny that their

wasn't it, copper?

earnings are going to rise this next quarter.

H.M.Jr:

Of course, what a lot of these companies have
done 18 take their excess profits and soaking
them in - the surprising thing is that any of
them show increases, because a lot of them
have taken their excess profits and soaked

it in.

Schwarz:

They are still up.

H.M.Jr:

Herbert?

Gaston:

This letter from Francis Biddle, I don't know

what committee he is talking about. He says,
"I suppose like most committees, yours has

never met." What committee is he talking about?

It is a letter from Francis Biddle. He is
talking about German funds. He says, "I

suppose like most committees, yours has never

met.
Cochran:

That is the one, probably, at the State
Department, you know.

H.M.Jr:

He went to that meeting. Don't you remember didn't we designate people at that meeting?

Bell:

You designated me, but the committee has never
functioned.

Gaston:

Bell:

I will talk to Dan about it.
That killed it right there. (Letter from

Gaston:

This letter says, "Mr. Hanee and myself,"which,

Francis Biddle, dated October 29, 1940.)

of course, must refer to Douglas. The dictating
initials are LBD, but it is signed by Allen
Ballentine.

309

-6H.M.Jr:

Who is he?

Gaston:

He is secretary of this thing.

Gaston:

I will read it afterward.
All right.

H.M.Jr:

What else? I am afraid some of these

H.M.Jr:

Gaston:

people might get tainted by politics.
There is nothing else special. Three men

from the Texas Company are coming in to see

us at eleven o'clock this morning that Rogers
sent down to give us some figures on their
foreign trade.
There is one other matter. The Fund Control
are proposing to freeze certain valuables at
the World's Fair and they are anxious to put
to notify the parties concerned today, particularly some diamonds for Belgium, I believe,
-

and some French paintings.

H.M.Jr:

How do you get in on that, Herbert?

Geston:

Well, it is a Customs matter. They are in

Customs custody at the present time. We
have been working on the question of disposing
of those World's Fair valuables for some time.
Harry Durning objects very strongly to any

such action as seizing physical property at
this time.

Bell:

Well, I thought, Herbert, that that WAS going
to be - we were going to suggest to the
representatives of those countries that they

go to the State Department. Isn't that right?

Pehle:

That was the earlier plan, and then after
the commissioners of each of the World's Fair
countries had been consulting with the Federal

Reserve Banks about the reporting requirements,

we didn't run into any difficulty there. They
are to report all their property. Then these
two items game up and I talked to Berle late

310

-7last night and Berle was agreeable to the
Federal notifying the French in the one case

Gaston:

and the Belgian in the other, that they
couldn't get this property from Customs until
we had given them a release. So it wouldn't
require any action on Durning's part.
It is a matter of notifying the commissioners
of these countries that the matter is going that the goods are going to be under control,
under the block.

Pehle:

Yes, and the Federal Reserve is going to do

that, not the collector. We arranged it 80

Durning wouldn't have to do it.
Gaston:

Harry's fear is that this is going to cause
some widespread discussion and turmoil if it
1s known that we are for the first time taking

possession of physical property rather than
funds and he - he said he did not want to
do it unless he had the highest authorization

for it.

H.M.Jr:

What I am going to say, this committee meets
every afternoon and I suggest that you meet

with them and thrash it out there. I don't

want to spend enough time to learn about it.
So whatever - when does that committee meet?

Pehle:

H.M.Jr:

Three thirty.
Let Mr. Gaston appear as a witness, will
you please? Will you, Herbert? And have
it out and see if you can't get something
together. And whatever the committee and
Mr. Gaston decides, I will abide by.

Gaston:

Yes.

H.M.Jr:

I don't want to take the time to dig into it.
What else?

Gaston:

Nothing.

H.M.Jr:

Ed?

311

-8Foley:

We had another meeting of that committee,
the Army and the Navy and the Defense Commission,

yesterday downstairs at lunch.
Foley:

So I hear. Who pays for that lunch?
I did.

H.M.Jr:

Really?

Foley:

Patterson and Eddie Greenbaum came over from
the Army. There were people from the RFC.

H.M.Jr:

Eddie thinks they are very good. He wants
to have them twice a week instead of once a

week.

H.M.Jr:

You would never get the people.

Foley:

No. But everything is progressing very nicely
and this is the first time that nobody had
anything to say against the Treasury. We are
ahead of them now.

H.M.Jr:

Good. Eddie was at the house last night and
I learned for the first time that Tom Manning
had been very sick and has had an operation.

Foley:

No, he has had no operation. He had a heart
attack and has been flat on his back over in
Johns Hopkins for about six weeks or two
months.

H.M.Jr:

You people who have these people who are

fairly important, if you would let me know
80 I could write them a letter, you see.

Would you prepare a letter for my signature?

That goes for anybody - when somebody like

that is 111 or something, I like to do it.

Foley:

Yes. And you know Norman Tietjens is up at

H.M.Jr:

Well, I said goodbye to him. I got a lovely

Seranac.

letter from him, but nobody has told me about
Tom Manning.

Foley:

Well, that is my fault.

312

-9H.M.Jr:

Anything else?

Foley:

No.

H.M.Jr:

He is still on the payroll, 1an't he?

Foley:

on yes, and he will be for some time, into

H.M.Jr:

Good. That is Manning, I mean.

Foley:

That is right.

H.M.Jr:

Is that something you want to tell me about?

Foley:

No, this is on this Customs thing that

Cochran:

I asked Knoke a few days ago to take up with
Governor Towers the matter of our seeing the

the spring.

Herbert was talking about.

Canadian account from which war purchases

were made and so it has gotten - we will have

it ready for you from now on. I will pass
that on.

H.M.Jr:

Well, C. D. Howe, Minister of National Defense
of Canada, is having lunch with me, so if
anybody wants me to say anything to him, I

can do it at lunch.

Cochran:

That is all.

Schwarz:

H.M.Jr:

Several of the boys called early this morning
to ask 1f they possibly might get some more
details on that 12,000 British program this
morning. They are going to ask questions.
I am going to be very close-mouthed about it.

Schwarz:

They are hopeful.

Former Senator Lonergan called to express his

thanks to you for the job that Harry's outfit

did.
H.M.Jr:

Good.

313
- 10 Schwarz:

He is going to deliver it tomorrow, I believe,
up in Connecticut. I take it you saw the
report
on John Sullivan's talk yesterday
afternoon.

H.M.Jr:

No, I'did not.

Schwarz:

There was a notice on the back page of the
Times.

H.M.Jr:

I didn't see that. Anything else?

Schwarz:

That 16 all.

Pehle:

Nothing.

H.M.Jr:

Philip?

Young:

Are you calling Mr. McReynolds for this thing
we talked about last night?
I have been trying. I have called either two
or three times. this morning.

H.M.Jr:

(Telephone conversation with Mr. McReynolds

followed) but not recorded)

314

- 11 H.M.Jr:

I want Thompson and Bell and Philip Young.

What I have got in mind is, I want to put
of this whole question of - strategic materials
and all of this control business and everything
else, you see, that either - I want to go
ahead and build up Philip Young's organization
in handling the foreign stuff and really do a
job, I mean with these different missions,
or I don't. Now, if the President does, we
have got to have - there are a lot of loose

up to Mac to make a study for the President

ends around which ought to be tied up which

I think belong in the Treasury, particularly

if we freeze more funds. I mean, this question
of release of funds for purchases and all the
rest of that stuff. I want Mac to work on it
and I want to give him my ideas and as I
expound, I thought you people might listen.
I think you had better be here, Herbert, at
11:30.

Philip?
Young:

I have nothing else.

Haas:

I have nothing this morning.

H.M.Jr:

Harry?

White:

There was announced yesterday a press release

from the Export-Import Bank involving credit
of $26,000,000 to Brazil, not more than
$5,000,000 to be used every month.

H.M.Jr:

Why didn't you tell me about it?

White:

Last night I received a communication by
messenger and he waited to ask for approval
on the loan.

H.M.Jr:

Was he waiting long?

White:

No, I told him I would have to study it and
he might as well go back, so I have it before
me.

315
- 12 Bell:

They don't need your vote now, do they,

Harry?

White:

on no, they don't need that vote. They
are continuing their usual practice and I
think I will have something, a general
comment in report, a little later.

H.M.Jr:

Well, Mr. Jones W8.8 in here at three on another

matter and just 88 he got up to leave, he saye,
"I think you will be pleased to hear I am
announcing today a $25,000,000 loan to Brazil.'
He says, "The President is talking, I think,

today, and at this time I think it is a good

thing." He said, "I think it will help
politically. So he said, "I am just going
to lend them $25,000,000.

White:

Well, it 18 interesting to know the expedition
with which these thinge are put through. (Laughter)

If it is a practice that will continue, we will
--

have something to say about it. If it isn't
H.M.Jr:
White:

What is this "we" stuff?
I am speaking for the Treasury. There are a

lot of anglee to this that I am sure weren't

considered and either our representation on
that bank means something or if it doesn't
mean something - if it doesn't mean something,

well --

H.M.Jr:

What makes you think it does mean something?

White:

Because I am going to attend the meetings.

H.M.Jr:

All right. Talk that way to Jesse. I would

When it doesn't, I am going to stop.

White:

like to be there.
I have been kicked out of better places.

H.M.Jr:

Not by me.

Would you (Cochren) please get out a memorandum

316
- 13 -

as a little history for me and give it to

me at 9:30 tomorrow morning, what I said to
Sir Frederick Phillips about having somebody
in South America to work with us and the
English on trade.

Cochran:

Yes, sir.

H.M.Jr:

Do you know what I am talking about?

Cochran:

Yes, sir.

H.M.Jr:

And - because, you know those men are coming

Cochran:

Yes, eleven.

H.M.Jr:

Eleven tomorrow. Who is bringing them in?

Cochran:

I don't know whether it will be Pinsent or
Chalkley. It is Pinsent who hae talked with

in at eleven.

me about them.
H.M.Jr:

Well anyway, Harry, between you, would you
bring me up - do you know what I am talking
about?

White:

Not yet.

H.M.Jr:

These two people who are coming in tomorrow,
who have been appointed, taking this suggestion

that England and ourselves will work together
on business side by side in South America
instead of as competitors. They have sent
two fellows over here now. Before they do
anything, they are going to ask to see me.
And if you could see - there have been several
memoranda about it come in on my original

suggestion and all the rest of that stuff.
I thought it would be good ball playing. I

thought I would ask Nelson Rockefeller to be
here. Could you give me something before
Nelson Rockefeller comes in at eleven?
Cochran:

Yes, sir.

317
- 14 H.M.Jr:

That I could give him, to give him a little
of the history on it.

Coohran:

Yes, sir.

H.M.Jr:

He is coming in at eleven today.
will you (White) be here at eleven today?
You are my South American expert, aren't
you?

White:

I think 80. At least, you think so. You

have got me all tied up in a knot.

Here is item two on shipments of scrap iron
and steel that you might want to glance at.
It might have some relevance to the 11:30
meeting.

H.M.Jr:

At eleven o'clock I want you here and I want
a summary of what I did on this thing and
who these people are before eleven o'clock.

Harry, will you come in at five minutes of
eleven?

White:

Yes. We will have it.

H.M.Jr:

What is thie, Harry?

White:

I merely thought that you might want to glance
at those items two and three in preparation
for the meeting with McReynolds. That isn't
why I prepared it, but it might have some
relevance to what you are taking up, I don't

know.

H.M.Jr:

Well, I am going to --

White:

It merely indicates the need for some more

H.M.Jr:

Well, Philip, read this thing. You are the

careful watch of the situation.

fellow that is working on this mainly. Have

it here when McReynolds comes in at 11:30.
White:

That only applies for one of the items, but

318
- 15 -

he will give it back.
You mentioned that Phillips was coming.

Both Merle and I are uncertain as to the
date of his arrival, and we thought there
are some thinge that will have to be ready

for his arrival.

H.M.Jr:

They said something about the 20th. I don't

want him here much before the 1st of December.

Tell that to Pinsent, will you? I don't

want him here much before the first of
December. There is time enough to get the
bad news. What else?

White:

Yes. By then we will have had a very careful
study completed of the value of their various
assets broken down by areas. That is all.
You didn't want any statement made in answer

to Willkie's remarks about the sound dollar?

We have something.
Schwarz:

We have already done it once.

H.M.Jr:

I don't think so. What else, Harry?

White:

That is all.

H.M.Jr:

Harold?
Dan?

Bell:

I have nothing.

H.M.Jr:

Norman?

Thompson:

Nothing.

H.M.Jr:

Norman, would you some time today - I will

tell you now at 2:15 - I would like to go
lists for exemption of the draft made up in the

over with you, how are these so-called preferred
Treasury? Who does that?

Thompson:

We haven't got around to that yet.

319
- 16 H.M.Jr:
Thompson:

H.M.Jr:

Well, all right.
It is in a pretty early stage.
I would like to know how it is done and the
formula - why a man is given - put on the

preferred list.
Thompson:

So far, we haven't had any occasion to do it.

H.M.Jr:

Well, I understood - maybe I was informed
wrong - that there are certain people being

put on the preferred lists.

Thompson:

No.

Foley:

Well, I think what happened, Mr. Secretary,

is this: There were certain reserve officers

on our staff that we got information about

from the War Department. I know, I had two.

I had John O'Connell and Chuck Kades and I
said & S to both of them that we needed them

Thompson:

Foley:

Bell:
Thompson:

H.M.Jr:

here. Now, I don't know how that was handled
out of your (Thompson's) office.
That was before this selective service.

Both of those boys have been notified that they
have been put on the suspense list; they won't
be put into actual service.
That wasn't the draft.

The general policy on reserve officers is -I don't know that I agree with you, Ed, about

Chuck Kades and what is the other man? I don't
think that decision should be made, if you
don't mind my saying 80, without going through

Thompson to me.
Foley:
Thompson:

I thought it did.
No, I didn't hear of it. The only case that
has come to me is one from Internal Revenue

and we ruled in that case that the Deputy Collector -

320
- 17 unless the Commissioner thought the job
we would let him go.

was so vital he was practically indispensable,

H.M.Jr:

How was the thing decided?

Thompson:

That was the way it was decided.

Bell:

There is a Customs case.

Gaston:

That is the Nugent case.

H.M.Jr:

I have very strong feelings about who gete on
that list and I at the beginning want to pass
on them myself and we will start right in on

these
two. I don't know why it didn't go to
Norman.

Foley:

Well, it is so long ago I don't remember,
Mr. Secretary, but I understand that was the
way it did come to me, that it was interoffice
and it wasn't from the outside.

Bell:

We haven't cleared a deferment.

H.M.Jr:

Please don't without my - what I am going to
do is, I would like at 2:15 to have you come

in and I would like to talk to you about it.
Now, I can't handle it myself but I want to

set up a committee, but at least if you know
how I feel, so if you and Bell and Gaston
will be here at 2:15, I would like to talk
about it.
Bell:

Probably there ought to be some circulars on
that.

H.M.Jr:

Let's say 2:30. I have very strong feelings
on it. Before anybody is put on that list,
there 1e going to be an awfully good reason.

Klotz:

This was before the draft in Mr. Foley's office.

H.M.Jr:

Well, granted, but there has got to be a system,

Ed. You will agree with that.

321

- 18 Foley:

Oh, sure. I think there was a system insofar
as these are concerned. I don't think I wrote
to anybody on the outside. This one came
through in the regular way.

H.M.Jr:

Well, I don't know why, but will you and Norman
get together afterward and find out whether it
did or didn't go through Norman?

Foley:

H.M.Jr:

All right.
I am not so interested in these two people.
I am interested in the whole Treasury. The
fact that I heard about these two people makes

me raise the question. I don't want to be
misunderstood. These two people, hearing

about it, last night, is what made me went
to do the thing right for the whole Treasury,
80 I am not picking on anyone - you are on
these two, but I am going to certainly have

a policy for the whole Treasury. We understand
each other?

Foley:

Yes.

H.K.Jr:

I am sure you agree.

Foley:

Sure.

H.M.Jr:

Okey doke.

322
October 31, 1940
10:57 a.m.
H.M.Jr:

Hello.

Operator:

Captain Colline.

H.M.Jr:

Hello.

Captain
Harry

Collins:

Good morning, Mr. Secretary.

H.M.Jr:

How are you?

How are you, sir?

H.M.Jr:

O. K. Harry, I learned that that engine
they were going to give you - they've got
dirt in it or something.

Well, I'11 tell you, the story is they got
some dirt in the oil line and burned out
the main bearings.

H.M.Jr:
C:

H.M.Jr:

Yeah. Well, that's what Evans told me, but
they're making another one for you.
Yes, sir, which he promised to have up here
the end of this week.

I see. Well, when it really gets there,
send me a telegram or something.

Yes, I'll do that.

H.M.Jr:

Because I'm anxious that you people get that.

H.M.Jr:

Well, I appreciate that and we all want to
thank you 80 much for your interest and all
the trouble you've gone to in connection with
that thing.
Now, Harry, let me ask you this. For the
English, how many planes will you have ready completed by the first of January?
If we had the engines, we'd have 25, sir.
25.

323

-2C:

H.M.Jr:

If we had the engines.

Well, now, they say that they're going to
have by the first of January, I think they
said either 30 or 34 engines for you.
Well, that'11 be simply fine. Of course,
the Army are in ahead of them. If we can get you see we're going to use the E-4 in all the
English ships and if we can get those enginee
in here why we'll have 25 planes out for the

British by the first of the year.

H.M.Jr:

That's your schedule.

Yes, sir.

H.M.Jr:

Are you people on time?

Oh, absolutely, sir.

H.M.Jr:

You are.

Yes, we're on time - we're being delayed of course, these engine delays you can get
them SO far and then there is no use in
trying to go any further with the frame

until the engine arrives.

H.M.Jr:

Is there much difference between the Allison
engine for the English and the one for the
Army?

H.M.Jr:
C:

No, sir.
Is there much difference?

No, sir, there isn't. The only difference
is this - on the E-4, which is the English
engine, there is a different crankcase on it
and a different crankshaft - a little heavier
crankshaft which permits a little higher
rating, you see, on the English engine.

H.M.Jr:
C:

Yes.

Now, as I understand it from Allison, after
the first 16 engines are turned out, there'11

be no more E-5's and they'11 all be the higherrated engine.

324

-3H.M.Jr:
C:

I see. Now, how many are you going to have

for the Army by the first of January?

Well, we've got about 28 up here on the
Army line now and I suppose if we had the
engines in there we could have all of those

out by the first of January and probably

more.

H.M.Jr:

About 28.

Yes, sir.

H.M.Jr:

How many orders have you got now for this

particular type from the English and the
U.S.

All told about 1500.

H.M.Jr:

How much of that is English?

Sir?

H.M.Jr:

How many from the English?

H.M.Jr:
C:

About 865. Let me put this down. There's
202, 50 - talks aside - 810, 810 for the
British.
I see. Well, now, that carries youalong
quite a way doesn't it?
Oh, yes, but we could - look, with the engine,
Mr. Secretary, and with the completion of
the plant over there, which will be done in
115 days at the Falls - we could go away
ahead of that schedule.

H.M.Jr:
C:

Are you building another plant?
We're building an addition you know, an
assembly plant. There are 240,000 square

feet at Niagara Falls.
Well, why didn't you people take the rest
of that Pierce-Arrow plant?
No, not the Pierce-Arrow, you mean the rest
of the American Radiator?

325

H.M.Jr:
C:

Yes.

Well, we wanted this plant up there on

account fly-away, you see, to assemble them

there and fly them right from the port for

the Army rather than have to truck them
across town which we do now for a distance
of about 8 or 9 miles.
H.M.Jr:
C:

I see. Well, then, you feel you people

are really up to schedule.

Yes, sir, we are. And I feel also that

we could take on far more capacity with a
little expansion than what we have now.

H.M.Jr:

You could.

Oh, far more.

H.M.Jr:

If you had the engines.

H.M.Jr:

H.M.Jr:
C:

If we had the engines. Yes, it all comes
back to that.
Well, now, you have orders for another ship

besides this particular Bell?
No, sir.
Just this one.

That's right, the Airacobra, The last of the
interceptor bomber, the last of those left

Airacudas, that is, the 2-engine bomber,
day before yesterday.

H.M.Jr:

How many of those?

Only 13.

H.M.Jr:

I see.

H.M.Jr:
C:

Practically experimental jobs.
Well 80 everything now is on this one model.
We're concentrating absolutely on that and
then we're getting into higher stage of

production with it.

326

-5H.M.Jr:

Well, I mean, how many will you be turning
outboth?
in the month of January do you think
for

Oh.
Well,a by
the end of the month I should
say five
day.

H.M.Jr:

In January?

H.M.Jr:
C:

I should think so.
You really think so?

I think 80. Why don't you let me do this,

why don't you,let me shoot you a memorandum

tonight and I'll give you this definitely.

H.M.Jr:
C:

H.M.Jr:

Yeah, and how many more you can take.

Yes, sir. I'11 do that.
And how much it would cost - how much more

money it would cost in the way of plants.

H.M.Jr:
C:

H.M.Jr:

I'11 do that.
And
what you could really do if you had more
orders.
Well, we could handle them.

Yeah, but I mean, if you'd say five a day,
how many more could you go to and when?

Well, if we doubled the plant out here at
Niagara Falls why I should think by the by July we could go on to 10 a day.

H.M.Jr:

Really? Well, give me a little memorandum
on it, you know, just for me to have in my
vest pocket.

All
sir?right. One of our old-time memoranda,

H.M.Jr:

That's right.

H.M.Jr:

All right, sir. I'11 do that. Thank you very

much, sir. Good morning.
Thank you.

327
RE FOREIGN PURCHASES

Present:

Mr. McReynolds

October 31, 1940
11:30 a.m.

Mr. Bell

Mr. Gaston
Mr. Thompson
Mr. Young

Mrs Klotz
H.M.Jr:

Mac, I will tell you a little about it and

then I think if you could go over into
Bell's office they can tell you more, you
see. On the assumption that Mr. Roosevelt
is going to be reelected --

McReynolds:

No chance.

H.M.Jr:

Why isn't Philip Young here?

Klotz:

He may still have the Russian Ambassador.

H.M.Jr:

I can't give it to you all, but here is the

picture.

(Mr. Young entered the conference)

What is the matter, Phil?
Young:

I had the Russian Ambassador.

H.M.Jr:

The thing is, we are still doing for the

President - seeing these various foreign

purchasing missions and more and more they

tell us - the Dutch now have finally sent

a head here and they have got 70 million

dollars that they want to buy with. Oumansky was just in there now with Philip Young

for the first time and the Amtorg is willing
to tell us in advance what they are going
to buy. The thing has never happened before. It has been a slow job and we haven't

had too much help from the State Department.

We are getting it here. It is Young and

328

-2one other fellow, Buckley, and it is just
entirely too much if we are going to do a
good job. If we are going to continue to
do this thing, we don't need 800 people,
but we will need two or three more people.
We supply the information in advance to
the Defense Council.

Now, on the thing when it comes to con-

trolling the stuff, that is what they are

buying here, but when it - on the frozen
funds, for instance, any of these countries
that have frozen funds, they have got to go
through our frozen funds section tc get their
money and so forth, and it is only a question of time before we have got to freeze
the funds for the whole world and the first
step everybody will have to do is to go down
and see the Foreign Funds Section to get a
permit to use their money to buy here, so

that is going to be where the thing is going
to start, so the Treasury has a very important
place in this picture and the whole question
of foreign exchange comes into it, too.
Now, at present there are about five or six
places that have something to do with this.
The Army has an Economics Section. Colonel

Maxwell is attached to the White House. The
licenses are by Joe Green. The ships can't
leave the country unless they go to Coast
Guard. I don't know what you have over in
National Defense, but I counted up once.

There are five or six different places. The

Priorities Committee has something to do with

it, if the man wants the stuff to leave.

So there are two things. If the President

really wants to wage economic warfare, the

thing ought to be all in one place, both

the buying and the permit to get the money
and the permission to have the stuff leave

329

-3the country. Right? And at present, there
is nobody - everybody is falling all over
themselves. Everybody does the work two or
three times. Mr. Hull asked Mr. Stimson to
ask me to find a way to get the planes together - to assign these planes to go to
China. Joe Green calls up Philip Young and

says, "What do you get an idea like this for?

Why don't you come and talk to me about it?"

Phil said, "Don't jump on me; this is Mr. Hull's
idea. "My God, he said, "he never told me
about it. So I mean, it is around and around
and around and you can't begin to say this is

efficiency. It is everything but.

I thought that you were the one person who

certainly, as Administrative Assistant to the
President, ought to work up a plan. I am
quite frank to say I think here in the Treasury

we can do as good a job as anybody on this
thing.
McReynolds:

Well, of course, I doubt whether you can get

it all in one place because the only thing

that the Defense Commission has on that - it
isn't the Defense Commission, it is the

Priorities Board. Now, the Priorities Board
is not the Defense Commission at all. It is
composed of three members of the Defense Com-

mission, with Don Nelson as the executive officer, but the authority has been delegated -

directed by the President to that. The Priorities

Board, not through the Commission at all. That

is, the Attorney General decided that it couldn't

be done through the Commission, it had to be

done by the Board. That is the reason for

that sort of a set-up.

But the Priorities Board has the responsibility
for determining what can be released in ma-

terial for foreign orders. It is necessarily

330

-4channeled
through
got
to clear
it. that Board. They have
H.M.Jr:
McReynolds:

Through which Board?

The Priorities Board. But everything else,
so be
far set
as Iup
can
see,here.
on those things ought
to
right
The Lockheed representative came to see me

yesterday. They have got a request for a
lot of bombers to be built by them for
England, and he came to see whether they

couldn't get it cleared, and I said, "Well,

I don't know any place for you to go except
Phil Young over at Treasury," and I said,
"We wouldn't do anything about it. If It is
up to you folks over here.
Now, the determination of what can be the
order in which these - the material and
the working force can be made available for
the English or anybody else, which is now

centered in the Priorities Board, but that
is the only function they have got to perform with respect to it.
H.M.Jr:

But you see, Mac, as far as we are concerned

at the moment we don't know they exist. Let

me explain it to you. If the English - well,
they have just placed an order for 3,000
planes yesterday. That was with Knudsen.
Knudsen didn't consult Nelson or Stettinius

or Leon Henderson, whether they could place
3,000 planes. Knudsen just says they can

do it, and they didn't know anything about

it until they heard about it at my lunch
table. Let's be practical. I mean, if Knud-

sen says today they can buy - he told them

last night over the phone that they could

buy another 1500 planes, over the telephone

331

-5-

last night, which brings it up to 4500.
He doesn't put it up to the Priorities
Board.

McReynolds:

Well, he is chairman of the Priorities

H.M.Jr:

I know it, but before this order is out it is no different, as far as we are con-

Board.

cerned here, having the Purchasing Com-

mission. We still go to Knudsen. I have

taken the trouble to let Nelson and the
others know so that they don't get sore at

me, but I can see them gasp when they hear

about it, because they hear the thing from
me and not from Knudsen, but over the telephone Knudsen says 4500. This morning he
wanted me to say yes or no on 5,000 engines

for Buick, which I wouldn't, the financing.

The thing that we are looking ahead at on

the Priorities - I mean, I can work with

these fellows. It isn't that I can't work
with them, but it all gets down to one man.
It is all this individual stuff. If Knudsen tomorrow got a mad on us and said, "Well,

I won't talk to Phil Young or Morgenthau,
we would be just out in the cold, and so
would the English and the Dutch, and so
would anybody else that we are trying to
handle. It is too much just one man, and
you know what I am saying is so. I mean,
I told the English last night - Knudsen
told the English over the phone last night
they could have another 1500 planes. There
was no board meeting of the Priorities.

I will bet you five to one I could call up

Stettinius and ask him, "Did you know last
night that Knudsen gave the authority for
1500 planes more, and he would say he didn't
know about it. Neither would Nelson or
Leon Henderson.

332

-6Now, there are two things that we are
worrying about. One is that Philip Young

said if it got down to a formal basis, how

could we, who are handling the various
Purchasing Missions, have a - if you want -

a formal relationship with the Priorities

Board, you see, on the purchasing, and what

can there be worked out on stuff leaving

this country. There are the two things.

One is the buying the stuff and the other

thing is on stuff which leaves this country.

McReynolds: I get the idea. Of course, the procedure

under the Priorities Board is just barely

started, and Bill Knudsen has got no business to tell anybody anything. Don Nelson

is the guy to tell them.

H.M.Jr:

Well, you know he isn't, Mac.

McReynolds: Well, he will.
H.M.Jr:

Maybe.

Young:

Could I expand just one point a little bit
to show how this thing has developed? We

have set up a series of standard forms for
requests for clearance to negotiate on all
war supplies, which all these foreign countries
are filing that have any large purchases.
The Russiand are going to start doing it

today. The British are already doing it.

The Dutch are doing it and the Brazilians
and Chileans and Irish are doing it. The
other countries, their purchasing to date
isn't large enough to use the standard form.

We have requested clearance in accordance

with the original instructions on war
supplies.

333

-7Since last June, as to what is or what

isn't a war supply is quite a different

question from what it was before that
time. It has just increased tremendously

so that
items.
H.M.Jr:

you get into all sorts of peculiar

I think if Mac has the time and they have,
if they go in there - but you have got what
I mean, Mac. You divide yourself with the
two things; and not that there is any trouble,
I am getting along beautifully with these
fellows over there and I hope they feel
that way about me.

McReynolds:

H.M.Jr:

They certainly do.

But the thing is so big that the English

program amounts to over four and a half

billion dollars and it is just too loose.

McReynolds:

Well, all Bill Knudsen is is a big boy and
he always has the feeling that they can
call you and he can get clearance on any-

thing. He tries to get the feeling of something moving all the time.

H.M.Jr:

I am looking forward - I don't want to build
up, and Phil Young doesn't want to build up,
more people unless we are going to continue

to handle this stuff, but there has to be

a formal relationship between - you know,

you are still, on this purchase board, you

are still, so to speak, the secretary of

it, on paper. The reports are supposed to
clear through you to the President, you

know.
Young:

He doesn't get any reports, that is all.

McReynolds: I am already - I am also formally the head

334

-8of the Office of Emergency Management over
at the White House.
H.M.Jr:

What is that?

McReynolds:

That is a statutory organization set up in

the White House by the reorganization order

in '39, and it wasn't put into effect until
last May, but there is that formal organization that is one of the divisions of the

White House.
H.M.Jr:

Well, I am coming to you as an Assistant to

the President, in that capacity, for help.

McReynolds:

As the head of the Emergency Division, Emergency Management of the White House, I am

an ex officio, as Administrative Assistant
to the President, head of that office.
H.M.Jr:

Anyway, Mac, I don't expect an answer today,

McReynolds:

but this is - you can see.
We will work it out.

H.M.Jr:

How big it is and how loose it is.

McReynolds:

Yes. I know it is and we are working on the
procedure or regulations for that Priorities
Board, which haven't been approved. Bill
Knudsen's disposition not to hold things up
has made him, since he is chairman of it,
go ahead and say, "Let's go ahead and do

these things." The real reason for the
establishment immediately of that Priorities

Board was the fact that the War Department
boys had a proposal, and they were going

to the President with it, to cut off - to

notify these airplane manufacturers that

they mustn't manufacture anything except
War and Navy orders, and they were to

335

-9abandon all of their construction of the
transport planes and all that sort of thing,
throw them out and give them 30 days to get

rid of them. Now, of course that would mean,

since they are not tooled for a lot of these

other things, that employment would immediately
go down in many of thse shops and they wouldn't

be utilized. I got a little excited about
that.

H.M.Jr:

Will you put the old bean on it?

McReynolds: Yes.

336

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 31, 1940

Secretary Morgenthau
FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

Secretary Morgenthau raised with Sir Frederick Phillips on July 18, as
reported in the fourth paragraph of the attached memorandum of that date, the question of British and American trade cooperation in Latin America.

On August 14 Mr. Pinsent, Financial Counselor of the British Embassy, left with
the Treasury the attached copy of a memorandum which was to be taken by Sir Owen

Chalkley to Assistant Secretary of State Grady. (This is affixed to my memorandum of
the same date.) The Treasury approved the idea of the Embassy taking up this matter
of the promotion of the British exports with the Department of State.
My memoranda of October 5 and 9 report Pinsent's talks with me in regard to the
contemplated visit of Mr. D'Arey Cooper to the United States with the view to extending British exports to this country. We corrected Pinsent's impression that the
Secretary of the Treasury had initiated any suggestion that a British Export Council
an be sent to Washington to foster British exports to the United States. The suggestion of the Secretary of the Treasury had been with respect to British exports to
Latin America.

Pinsent's memorandum of October 29, transmitted under cover of a personal note

to me, reports the arrival of Messrs. Cooper and Stirling.

6MR

337

July 18, 1940
Secretary Morgenthan
Mr. Cochran

STRICTLY CONFIDENTIAL
At 9:30 this morning Secretary Norgenthan received Sir Froderick Phillips,

accompanied by Mr. Bewley. Nessrs. Bell, White and Cochran were present. The
Secretary asked Mr. Bell what subjects remained for discussion. When Mr. Bell sentioned China, the Secretary indicated his preference that we should not embark upon
this subject, since there was apparently some difference between our two governments
on diplomatic problems concerned with Chise, particularly the closing of the Burna
read.

Mr. Bell then raised the question as to whether the British were consummiting
any financial arrangement with Russia. Sir Frederick understood that Ambassador
Cripps was working on some barter arrangement with Russia. whereby England night

obtain necessary supplies of timber and flax, but he was not aware of any straight
financial negotiations. As to whether there were any diplomatic advances being made
to Russia by Great Britain Sir Frederick was obliged to refer us to his Tabasay.

On the question of French assets in Great Britain, Sir Frederick stated that
the gold which had been earmarked there - Bank of France had been held with the
Bank of England, and consequently was not actually is British Government hands. It
ves, however, blocked, is such a manner that it could not be withdrawn. Sir Frederick
and Bewley would not attempt to forecast what action might eventually be taken with
respect to French assets in Great Britain. They recalled that a financial agreement
had been reached between Great Britain and France when they as allies last Autumn

pooled resources to a certain extent. France was to make france available to the
British and the latter were to make sterling available to the French. While accurate
figures are not yet available, Sir Frederick thought that the French over the British

at least $20,000,000 on balance under this arrangement. From a conversation which we
had with Messrs. Bewley and Pinsent yesterday afternoon the impression was gained
that the British night hold certain payments due France "on account" delaying actual
payments until a final settlement of balances may be arranged.

In reply to the Secretary's inquiry. Sir Frederick stated that English exports
were principally in manufactured goods of a large variety of lines. Exports went
Father well in April and May but have since declined, partly to markets being closed
to the British or becoming more difficult of access. Furthermore, war production has

priority claims on goods and labor. and engineers, for example, have recently been
taken out of manufacturing for export to be utilised in war production. British of coal the
exports to France were very important in the past, and have now stopped. Some that be
British expert coal has been diverted to South America. The Secretary stated
had not discussed the question with any of his colleagues is the American Government, to

but vas interested in knowing whether there night be a way for Great Britain acquire
are foreign exchange in trade with Latia America, without there being a trade war

between Great Britain and the United States. He felt that there night be some the arrangemeat possible whereby one country could supplement rather than compete with products

338
of the other on Latin American markets. Sir Frederick stated that this was a little
out of his line also, but that Sir Andrew Duncan. President of the British Board of
Trade, had been quite active since taking office in March. He has an advisory council, of which Sir Frederick is a member. which is progressing in its efforts to make
British manufacturers export conscious. Sir Frederick was sure that Sir Andrew
would be agreeable to sending someone over here to discuss possibilities along the

line suggested if we may desire it. He pointed out that British exporters were
already educated up to a policy of cooperating with each other rather than competing
to the detriment of all, and he thought that some progress in the same direction
between American and British exporters would be entirely desirable.

In talking of trade policies, Sir Frederick illustrated types of desirable
and undesirable transactions as follows, that is, from the exchange standpoint. He
said his people were naturally anxious to buy wool from Australia in pounds sterling
and sell the manufactured product to the United States for American dollars. The
less profitable transaction from the foreign exchange standpoint vas to pay dollars
to the United States for cotton and manufacture it into piece goods to be sold in the
sterling area for sterling.
It ves agreed that Bewley would see whether he had available or could obtain

from England while still on this continent any additional date helpful in filling

out the forme which Dr. White had submitted to him. The Secretary appreciated the
memorandum which the British had given him yesterday, and which had been presented

to the President. He hoped Sir Frederick could give us, through Pinsent, data sufficient to keep this memorandum correct by months. Phillips agreed to endeavor to do

this.

The Secretary emphasised that it was necessary that he know both the bad and

the good of the British situation. He explained the responsibility which he has

toward Mr. Knudsen and other members of the Defense Committee, as well as American

manufacturers. The Secretary suggested that British aviators who have been decorated
or that British Naval officers who have rendered distinguished service, might do a
good service by coming to this country and letting our people learn from them what

they have been accomplishing in this war. Returning to the subject of information.
the Secretary stressed his desire to obtain certain data, to the extent the British

can provide them, irrespective of the headings under which they may be classified.
That is, he did not want data refused on the ground that we had used the wrong title

in referring to it.

In reply to Mr. Coehran's inquiry as to whether the British had been able
yet to do any thinking or planning as to the international monetary setup after the

var, or with Belgium and the Netherlands was purely

for Sir Frederick stated was

temporary. as to whether wartime their purposes, arrangement that it that the too British early to would think

in definite terms on this subject. He emphasized, however, During

desire to return to liberal monetary and trade policies as early as possible. will quit

war. however, it is absolutely necessary to have exchange control or money
the country.

Mr. Bell

-3-

339

The question of guilder contracts was raised and is was understood that

Bowley would see just what the British position is. If the British are long on

Dutch guilders there sight be possible some arrangement to transfer those to the
American market, which is short of guilders, in exchange for dollars.
When Sir Frederick was asked whether he had given any thought as to their

desires with respect to the Treasury freesing British balances in the United States
is certain circumstances, Sir Frederick quickly responded that he had thought of
this in advance of our question. He would later let us have any opinion which he
sight be able to express on the subject.
Phillips agreed to obtain for us such information as his Government may have
is regard to German balances being reportedly held is the United States under Swiss
sames.

Sir Frederick was not able to give us any breakieva of Hong Kong dollar
balances, amounting to some $15,000,000, according to Dr. White's statistics.

In answer to Mr. Cochran's question as to the final fate or destination of
the approximately $600,000,000 gold reserve of the National Bank of Belgium and
$80,000,000 gold reserve of the National Beak of Poland, both of which reserves had

been in France, Phillips replied that he know nothing beyond the fact that the ship
which sailed from Lorient reportedly carrying these two gold reserves reached Dakar.
He was not sure to what destination the ship thence sailed, but thought this was
either North America or Martinique.
Sir Frederick thought that the Germane may easily have acquired as such as
$100,000,000 in gold in the Netherlands. He did not have exact figures as to other
possible collections.

NMS.

Buc

340

ingust 14, 1940
Secretary Morgenthen
Mr. Cochran

STRICTLY CONFIDENTIAL
Mr. Pinsent handed to as the attached monorandum when he called at 3:25 this

afternoon. I showed this nenoranize to the Secretary later in the afternoon and then
telephoned Mr. Pincent. I let his know that we approved the idea of his Tubancy
taking the matter up through us with the State Department. and I told his that I was
telephoning Assistant Secretary of State Oraly. who is to receive Sir Oven Chalkley
tomorrow morning at 10 e'slock, to the effect that this matter had been discussed as
the time of the visit of Sir Frederick Phillips to the Treasury. and that we approve
its new being taken up with the Department of State.
I was unable to reach Assistant Secretary Brady this evening, but shall
telephone his tomorrow morning before 10 o'clock.

pm.

Bill
(Handed by Mr. Pincent of the British Tubessy to Mr. Goshrea is
the Greasury as 3025 p.m., August 14, 1940.)

During the visit of Sir F. Phillips to Washington,
certain suggestions were discussed by his with the President
and with the Secretary of the treasury regarding measures to
promote British exporte to the United States and to Satis American

countries for the purpose of paying as for as possible in this
very for the greatly increased purchases from those countries which
the United Kingdom requires to make for the conduct of the war.
the President and Mr. Morgeathers advised sis F. Phillips

that the British Government should consider the foreing ons of
experts and moreover suggested that the United Kingdom and the

United States ought to cooperate rather than compute as regards

their respective exporte to South America, for the purpose of ninimising unnocessary competition. especially seeing that such a large
proportion of their respective exports 10 complementary rather thes
competitive.

Sir Frederick Phillips was advised, is response to his
enquiry, that saye and assas for carrying out those suggestions

eight is the first place be informally discussed by the Commercial
Counseller of the British Rebessy with the State and Commerce Departmonte.

Copy of memorandus to be takes by

Sir Oven Gbalkley to Mr. Grady. State
Department.

14th August 1940

(Initialed) G.H.S.P.

C:30

COPY

341

342

October 5. 1940
Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Pinsent telephoned no at 12:15 today. He stated that during Sir Frederick
Phillips' visit to this country the suggestion had been made, in connection with
the extension of British experts to the United States, that some member of the British
Export Council be sent out to the United States in this connection. I told Pinsent

that I did not recall that such a suggestion had emonated from Secretary Margenthan.
Pincent thought the idea may have been developed to this poist in the conversations
at the White House. Pinsent stated that his Government was ready to send Mr. d' Arey
Cooper, a member of the Export Council, to the United States toward the middle or end
of this month if arrangements can be made with you. This man is now available and,
according to Pinsent, very capable. He made his mark as a business man in renovating
the Unilever concern with which he is still connected. Mr. Pinsent thought that the
British would be more comfortable if an invitation night be extended to then by our
Government to have Mr. Gooper come over. He presuned that such an invitation should
essante from the State Department, but hoped that Mr. Morgenthan might see fit to
take the suggestion to that Department.
October 7. 1940.

Mr. Pinsent asked to come and see no at 11:35 this morning. When he arrived he

told no that he desired to correct certain points made on his visit the other day.

as reported in the above paragraphs. He stated that he and Chalkley had checked over

their records of Sir Frederick Phillips' conversations with Secretary Morgenthau this

summer. and had found no report that Phillips had actually mentioned to Secretary
Morgenthau the idea of sending a representative of the British Expert Council to the

United States with the view to increasing British Exports to this country. It had
been indicated in a memorandum that Phillips was to raise this subject with the
Secretary, but there is no evidence that he actually did.

Consequently the Babasay feels that it should alter its approach to us. London
would like to know that 11 is agreeable to the United States Government that States d'Arey to

Cooper, as senior member of the Export Council, should come to the United about
that
discuss British exports to this country with us. Chalkley has been talking
British-American trade problems with the Department of State. It is now planned
Chalkley should raise the above question directly with the State have Department d'Arey Cooper and see come

whether the State Department will express its willingness to the above end
over and inaugurate conversations with the State Department toward

The British Babasay hopes that Secretary Morgenthan, as "patron" of Anglo-American the occasion

economic and financial cooperation. will be willing to see Mr. Cooper if take the
arises. The British are not asking Secretary Mergenthan, however, to
initiative in recommending this visit to the Department of State, for reasons explained
above.

343

-2Indicentally Mr. Pinsent expressed his regret that the report upon British
resources which had been expected for October 3 has not yet arrived. Compaquently

Pinsent has cabled Sir Frederiek Phillips urging the early prévision of the

statistical as premised to the Secretary of the Treasury.

Late this afternoon Mr. Pineast telephoned no that he had just received two
cablograme from Phillips which contained quite a his of the information which he
has been seeking. Pincent is new enlouvering to tabulate these date. No would like.
however, to have the privilege of presenting this material personally to the
Secretary is order that he may sate some oral connent thorson.

BMR.

Noted

mg:1ap-10/7/40

B.M.

Dochran

NMC
B. M. Dochran

344

October 9. 1940
Secretary Morgenthan
Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Pinsent telephoned me yesterday evening from the British He stated
that he had received some statistical information from London which he hopes to
tabulate and have in form for presentation to us within the next two or three days.
He is holding up the report which was expected for delivery to us on October 3. for
inclusion in the more general statement on which he is working. Mr. Pinsent hopes
that he say be able to give the Secretary an oral explanation of certain items
included in his report.
This morning Mr. Pinsent telephoned me that the date for the contemplated
departure from London of Mr. d'Arex Cooper, senior member of the British Export

Council, for the United States has been advanced. The thought, therefore,

that 11 should immediately proceed to learn from the Department of State whether an
indication could be given to the British Government that the mission of Mr. Cooper,
for the purpose of discussing the extension of British superte to the United States,
would be veloomed by the United States Government. Pineent asked If I could Indicate
what Secretary Morgenthau's reaction had been to the information provided in
Mr. Pinsent's earlier conversations on this subject.
I told Mr. Pinsent that Secretary Morgenthan confirmed that he had not discussed
the above subject with Sir Frederick Phillips when the latter visited us this summer.

The Secretary feels that this is a subject which falls within the field of the

Department of State. In answer to Mr. Pinsent's question as to whether an occasion
sight arise for Secretary Morgenthan to receive Mr. Geeper if and when the latter is
is this country, I told Mr. Pinsent that I was sure the Secretary would be sympathetic
to any request made of his by the Babasay.

Amp.

BMC:1ap-10/9/40

345
(Received from Mr. Pinsent of the British Nabasay by Mr. Cochrea in the
Treasury at 2130 p.a., October 29. 1940.)

BRITISH ENSASSY,

KASHINOTON. D. C.

29th October 1940.

Dear Morle,

1 enclose a note for the Secretary
about the forthooming visit of Mr. D'Asey Cooper
and Mr. Stirling to Washington. and our hope

that the Secretary will be able to receive them
some time before the Election.
Yours ever,

(Signed) Jerry Pinsent

Mr. H. Morle Cochres.

United States Treasury.
Washington, D. c.

COPY
da

346
Note for the Secretary of the Treasury.

As a nequel to the suggestions for promoting British exports to

the United States and Latin America which were made by the President

and by the Secretary of the Treasury to Sir Frederick Phillips in
July, His Majesty's Government, after consulting the State Department,

have asked Mr. F. D'Arey Cooper, Chairman of the Executive Members of

the Expert Council, to visit the United States with a view to dis-

cassing this problem with the United States Government. Mr. Cooper
is accompanied by Mr. J. A. Stirling of the Commercial Relations and
freaties Department of the Board of Trade.
Among other questions which Mr. D'Arey Cooper has been asked to

discuss with the United States authorities are the possible effects
of the new British purchase tax on British experts to the United States,
the effects of the United States provisions regarding countervailing
duties and anti-dumping duties, and also the possibility of purchases
of British materials or other goods required for the equipment and
elothing of the United States Army and Havy, and for the construction
of the new United States bases in the Garibbean Sea. He will be in
a position to explain the measures which are already being taken by
His Majesty's Government to promote British experts to the United
States and Latin America with a view to raising the maximum amount of
currency for the payment of British purchases in those countries.

Mr. D'Arey Gooper and Mr. Stirling will arrive in Washington on
the evening of Thursday, October 31st. It has been arranged that they
should call on the Secretary of State at 11 a.m. on Saturday, November
2nd, and on the Secretary of Commerce at 11 a.m. on Monday, November 4th.

His Majesty's Charge d'Affaires will greatly appreciate it if the

Secretary of the Treasury would be willing to receive Mr. D'Arey Gooper,
possibly OR Friday, November 1st, or on Monday afternoon, November 4th,

or at any time which would be convenient to the Secretary.

BRITISH

29th October 1940.

347

October 31, 1940
2:30 p.m.
RE DRAFT DEFERMENT

Present:

Mr. Bell

Mr. Gaston

Mr. Foley

Mr. Thompson

Mrs. Klotz

Gaston:

Incidentally, I think you fellows would
like to know. I went to see the President
of the United States and he told me, "Don't
do anything for Giannini before election."
The old reliable.

Klotz:

I am proud of him.

H.M.Jr:

He said he wouldn't do anything if anybody
held a gun to his head and he said Ed Flynn
could promise him anything he wants to but

H.M.Jr:

that Flynn promises don't go for us. I told
him I told Flynn I wasn't going to do anything

Gaston:

H.M.Jr:

until election and then he began to get very,
very ugly. So the President has told me not
to do anything before election.
You didn't tell him it was orders, did you?

Oh, I told Flynn I wouldn't do it on my own
responsibility. I went across the street
to see the President. I said, "You can

promise him anything you want, but I am sick

and tired of promising. I have been working
on him for a month. I went over to see him.
Did you (Klotz) get that fellow's name?

Klotz:

We can get it from Jerome Frank.

348
2H.M.Jr:

Listen, gents. I have had some day. I got
this time table here from Ed Foley which
shows that on May 23 Charles Bell had an
incoming letter asking that data on - and

then on the 29th an alternative memorandum
from the Personnel Division and Foley signed

it and said there were only two positions in
the division held by reserve officers and
those were key positions.

Thompson:

H.M.Jr:
Thompson:

This happened while I was away. Probably it
wasn't reported to you because the Secretary
of War had requested simply a list of officers+But it is in your shop, Norman.

Yes, but the Secretary of War wants a list of
the employees or officials of the Treasury who
held commissions in the Officers Reserve and
he wanted them under specifications or classifications which he indicated as to key positions
and professional positions and non-professional

positions 80 they could determine whether they

would put those officers in the reserve pool,
and I don't consider that they are definitely
accepted or declared, they are just in the
reserve pool. If the question comes up of
calling them, then it would be a question as
to whether they would fight for an exemption.
H.M.Jr:

The point 18, how many Army and Navy officers

have we here?
Thompson:

From the Treasury Department? There were

reported to the War Department six people at

that time, the Chief Disbursing Officer and
a couple of the secret service agents in charge
and these two from Mr. Foley's of fice. He has

one now. Mr. McDonald's commission has expired,

80 there is just Mr. Kades.

Bell:

There is one in Customs.

Thompson:

Customs didn't report any. I went over the

whole record, and Internal Revenue reported
none.

349

-3H.M.Jr:

Thompson:

Bell:
Foley:

That is impossible. I can just give you an

example. When I go down to Sea Island there
is a Colonel down there in Customs who looks

after me. Every year he takes his four weeks
or whatever it is and goes to training camp.
Well, they didn't report any for these
specifications.
That was key positions, wasn't it? They may
have considered them not in key positions.
The Secretary of War defined what he means by

key positions and these people he thinks are
entitled to exemptions.

H.M.Jr:

Listen, I have had a hard day. Foley 18

Thompson:

I should have known about that.

H.M.Jr:

Well, you were away. Somebody should have

Bell:

That was convenient.

H.M.Jr:

I will tell you, Norman, think about it and
talk it over with Bell a little bit, will you,
so that if the - there are 80 few it is un-

blameless.

told you. We all make mistakes. I make them.
I even forgot Leon Henderson, to invite him to
that conference. (Laughter)

Thompson:

important, but if people are going to come up
and ask for exemptions, let's have a higher
policy.
Yes, we will.

Foley:

Well, I would like to say for the benefit of

these fellows, Mr. Secretary, that these two
men of mine did not ask for exemptions. They
affirmatively wanted to be included and they
prepared a memorandum both ways and I said

that they were in key positions within the
meaning of key positions as defined by the
Secretary of War in his letter.

350

-4Thompson:

Foley:

And we 80 reported them to the Secretary.

And I think that 18 right and they were a little
bit upset and I said, "Well now, you fellows
never mind. If you are going to be called, I
am going to go too. I have got a draft number,

you know."
H.M.Jr:

Have you got it?

Foley:

Sure.

H.M.Jr:

Where are you?

Foley:

Well, I am up pretty high.

H.M.Jr:

Where are you?

Foley:

I am about 4,700.

H.M.Jr:

You mean they have got to call 4,700 before

Thompson:

You were drawn at 4,700?

Foley:

Yes.

Thompson:

That would probably put you about 7 or 800

H.M.Jr:

Your number is where?

Foley:

Somewhere around 4,700.

H.M.Jr:

Henry was 8,800.

Thompson:

Foley:

He has got two or three years.
He is safe.

Thompson:

My son was 3,449.

Klotz:

He is not 8,800.

H.M.Jr:

His number is 3,200 but he was drawn 8,847.

they reach you?

in the draft district.

351

-5Foley:

9,000,
it would be the third year before they
got to him.

H.M.Jr:

Listen, I would like to go, too. I don't

Klotz:

know of any better way of -of loafing.

H.M.Jr:

Yes, for me.

Foley:

Well, I feel this way. If it is a question

of fighting, I mean going into active service
and fighting, that is one thing and I am sure
all my boys want to fight and 80 do I, but if
there is a question of going over to the War

Department and wearing a uniform over there

and doing work that is being done here, I
think that those boys are more essential and
that they can produce more per dollar right
here in the Treasury than they can over there,

H.M.Jr:

and that is what I said to Eddie.
I know it. Just to break the tension a minute,

one thing that is bothering Eddie Greenbaum
more than anything else and makes the beads
of perspiration come out on his forehead, he
has got a circular that on the 7th of November
he has got to appear in uniform.
Bell:

November 1st?

H.M.Jr:

Every three months they have to appear in
uniform.

Foley:

That reminds me of a story they used to tell
about John Cahill's father. John is a U. S.
attorney in New York. Hie father has been on
the police force in New York City for years
and years and years and he had some kind of
an assignment that was made about 35 years

ago to the District Attorney's office in New

York County, and they forgot about him. So
the moths got his uniform and he has never
gotten another one. He used to go over there
in plain clothes and appear at police headquarters to get his check every month and

352

-6that was about all he ever did and then
one time when Valentine got in as Police

Commissioner, he sent out an order that
everybody, plain clothesmen and everybody
on the force, had to appear in uniform at
such and such a place on such and such a
day and old man Cahill had no uniform.

H.M.Jr:

What was his position?

Foley:

He was assigned by the Police Commissioner

to the District Attorney's office and they

forgot about him. He had been over there
for about 25 years. He had no uniform. He
was in plain clothes and he had no superior.
They just forgot about him. (Laughter)

Poor old John tells the story, and it is one
of the funniest stories in the world. They

went scurrying all over and pulled every single
wire they could so he wouldn't have to appear
in uniform.

H.M.Jr:

Well, I am going out to hear the President
speak at three, 80 if you will all excuse me,

this thing really did things to me.

Thompson:

Just one question. On the question of deferments of persons drawn in the draft, nothing
written has come out, no instructions, except
a letter from Mr. McReynolds stating that
someone in each department, preferably the
Personnel Director, should be designated to
represent the department. I have written Mac
that I am designating myself and Mr. Bell as

my alternate to do that.

H.M.Jr:

Right. How is the letter written? Does that

mean you and Bell?
Thompson:

Yes.

H.M.Jr:

That is all right.

Klotz:

For your signature?

353

-7Thompson: Yes.
H.M.Jr:

And I am told that they are planning to be
pretty good over there. They even said you
could go down to deferring a laborer.
Well, 1f you would do the ground work, so
that you get down to -"Well look, Mr. Morgenthau,
these are the rules we have had after working

the thing out," and then if you would get that
far, then let me sit down and look the thing
over and between the lot of us, it 18 just a
matter of horse sense. These people who are
reserve officers are something quite different.
Bell:

They are exempt from the draft, but, of course,
they can be called.

H.M.Jr:

I agree with him. As between sitting over
there in plain clothes working on a contract
for the Army or working on the same contract
for the Treasury and protecting the revenue,
I can't see any difference.
Yes, and that is just what is likely to happen.
Then like Ed and his first assistants, there.
That is just what they would do. They would

Gaston:

put them on a desk.
Thompson:

We had a string of World War cases like that.

H.M.Jr:

It is the same contract, and I think it is just
as important to protect the revenue as it is to

protect the War Department on contracts.
Thompson:

Yes.

H.M.Jr:

But when it comes to whether they should fight

or not, that is something else.

TO:

354

Mr. Foley
14,

1940 - Secretary of War wrote HMJr.

giving interpretation of

May 23,'40

may 29 '40

June 7 '40

"key" positions and asking
to be advised if any such
were in the Treasury.
Charles Bell circulated
copy of incoming letter and
asked that data be compiled
and sent to Personnel Division.
Legal Division circulated
inquiry.
Cox notified that Kades and
O'Connell were reserve officers
in Army but did not consider
their positions "key" ones.

June 29 '40

Alternative memorandum pre-

July 1 '40

Foley signed stating that only
2 of his division were reserve
officers and they had "key"

pared to Personnel Division

positions.
McGuire
MR. FOLEY

355
October 31, 1940
2:35 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Knudeen.

Wm. S.

Knudsen:

Who is this?

H.M.Jr:

Henry Morgenthau.

This is Bill Knudsen.

H.M.Jr:

Good afternoon.

Can you stand some bad news?

H.M.Jr:

Yeah.

Curtiss Wright is shipping 204 planes to
the British this month.

H.M.Jr:

What?!! 204!

Yeah. Burdette Wright just phoned me.

I thought you might want a tip - but don't
tell Beaverbrook or there'd be hell to pay.
(Laughs).

H.M.Jr:

Is that the P-40' 8?

Yeah.

H.M.Jr:

204!

H.M.Jr:
K:

H.M.Jr:

My God! It's wonderful!

(Laughs). Well, I thought you might want
to know it.
Well, thanks ever 60 much.

All right.
Good-bye.

356
October 31, 1940
2:37 p.m.

H.M.Jr:

Hello,

Operator:

Mr. Henderson.

H.M.Jr:

Hello.

Leon

Henderson:

Hello.

H.M.Jr:

How are you?

Pretty good. Say, did you forget me by
accident or design the other day when you

called the priorities board.

H.M.Jr:

No, no. I was terribly sorry. It was entirely
an accident and it was entirely on me.

Well, I feel sure it was.

H.M.Jr:

No, I've been wanting to call you Leon,

I'm awful sorry but it's just one of those

dumb things that in the rush of things I

overlooked.
H:

Well, what I wanted to do more - I was kidding

on this - I wanted to get a set of that stuff
in order to study it because I'm sitting on

H.M.Jr:

a board of course where I'm sort of a
minority
Well, my God, the first man on should have
been you, and why in the devil I didn't

think of it I don't know. Just charge it

up to plain dumbness.
H:

Well, have you got a

H.M.Jr:

I'11 send you a gold-plated set in a silver
case.

(Laughs). All right. Send it over to the
S.E.C. will you, I want to study it over the

weekend.

H.M.Jr:

Oh, you really want it, huh?

357

-2H:

I want to - I'm trying to keep abreast of
those things.

H.M.Jr:
H:

H.M.Jr:

Well, just accept my apology.

Aw,
that's all right. I was just kidding
you about that.
Well, I don't know - it was just one of
these things that happen.

I just don't like not to be invited. When

you have a party I like to come.
H.M.Jr:
H:

Well, you'll come. You're right No. 1 on

the list.
All right, Henry.

H.M.Jr:

Good-bye.

358
October 31, 1940
2:40 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Young.

H.M.Jr:

Hello.

Philip
Young:

Yes, sir.

H.M.Jr:

Phil, through an oversight I forgot to invite

Leon Henderson the other day to this meeting,

and he just called me up. He'd like to have
a set of everything. And send it to him over
to S.E.C. Will you please see it goes out
today?

Well, you don't want all the various drafts?

H.M.Jr:

Everything that went to Knudsen and

H.M.Jr:

Stettinius.

Well, that was just the first two documents.
Well, whatever they got he wants.

Right.

H.M.Jr:

Plus the final draft. O. K.?

Right. Now, can I ask you something.

H.M.Jr:
Y:

H.M.Jr:

If it's snappy.
It'8 snappy. Pirie called me to say that

Slessor was held up at Horta.

What do they want me to do - change the
weather?

No, they want you to take out a mail bag and
put Slessor in.

H.M.Jr:

No, no, they've asked for that all the time.

Yeah.

Take off a mail bag?

359
-

H.M.Jr:

Impossible.

H.M.Jr:

No, he doesn't vote 80'8 we can't do it.

(Laughs).

H.M.Jr:

(Laughs). All right.

Wonderful.

H.M.Jr:

Good-bye.

360
WILLARD HOTEL WASHINGTON D. c.

TELEPHONE REPUBLIC 7860

BRITISH PURCHASING COMMISSION

October 31, 1940

Memorandum for Secretary Morgenthau

I understand that Mr. D'Arcy Cooper is the

"big noise" on the Exports Board. This is an official
body (made up mainly of commercial men) coming under

the President of the Board of Trade. Its object is
to push British exports in order to pay for United
Kingdom purchases abroad.

Mr. Cooper will apparently also wish to discuss

certain questions in regard to Latin America along the

lines of your discussion with Mr. Phillips.
I understand Mr. Neville Butler's present
intention is that Sir Owen Chalkley should bring Mr.
Cooper in to see you tomorrow (Friday) afternoon. Mr.
Cooper will be taken to see Mr. Cordell Hull the day
after.
Arthur B. Purvis

DATE or monstary Research

Date October 31
To:

Secretary Morgenthau

From:

Mr. White

1940

Mr. D'Arey Cooper, head of the

British Export Council to visit this

country to discuss extension of British
exports to the United States, is chairman
of Lever Bros. and Unilevers, Ltd., the
great soap combine, and director of other

companies. He was a member of the Council
of the Anglo-German Fellowship which was

the most influential of the appeasement
groups, and which was partly financed
by Lever Bros.

MR. WHITE

Branch 2008 - 210

362
October 31, 1940
2:53 p.m.
H.M.Jr:

Hello, Bob.

Robert

Patterson:

Henry?

H.M.Jr:

Talking.

You spoke about the Western Cartridge.

H.M.Jr:

Yes.

I made an inquiry and I had a talk this

morning with Colonel Duque.
H.M.Jr:

Yes.

who 18 a minority stockholder in the
Remington - ah Winchester. He said that

old man Olin is 82 years old and that for
some years they wanted him to ease up and

that if he died they wouldn't have any liquid
assets to pay the taxes and so on, but that
he has always resisted it and wants to stay
on.

H.M.Jr:
P:

Yes.

fellow who is the
But his son is the/big works in the company,
managerially, but there was nothing imminent

right now but in all probability they would
finally prevail on the old man and that it

would take the form probably of a public
offering of stock or by some banking investment
concern.

H.M.Jr:
P:

I see.

But he said that the condition has always
been on the part of any of these bankers

who ve been trying to float the stuff, that

young Olin stay in charge of the company.
H.M.Jr:

I see.

He said they almost had a sale figured out
in 1935 with DuPont. He said that he himself
wanted it to go through very much, but the

363

-2old man didn't do it and he said at that

time the condition was put on by DuPont that
young Olin must stay in charge of the works.

He didn't think that there'd be any sale at
this time and if there were, he said it was
such a large undertaking that unless some
concern like DuPont did do it here, it would
probably take the form of a - numerous
stockholders.

H.M.Jr:

Well, you've done just what I'd hoped you'd
do - you've got your finger on it and - I
mean, I just didn't want to wake up some
morning and find possibly some Swedish or
Swiss bank had bought it.

Don't think they'd have the capital to. (Laughs).

H.M.Jr:

I see.

It's quite a - from what he said, I should

think that the sale of that business would
involve - of the stock in the business would
involve a very large-sized financial undertaking.

H.M.Jr:
P:

I see.

Their profits even before the war were quite,
quite large and I suppose that with the boom

on now in their line of business it would
be up some from that. I'm glad for the tip,
and I found out about it and Colonel Duque
said that he was quite - he said the thing
is - he didn't think there was anything on
at the moment. He said the thing has been
discussed now for a few years.

H.M.Jr:

I missed you at our Tuesday meeting. I
thought you were coming.

H.M.Jr:

I was bogged down with a lot of contracts.
Because Mr. Stimson looked around for you.
He missed you - he said where's Mr. Patterson,
where's Mr. Patterson.
Did he?

364

-3H.M.Jr:

Yes, he did.

Well, he went over pretty well buttressed
with people.

Well, it came out beautifully. I thought
the President handled it swell last night.
Yeah, 80 did I. I heard it.

H.M.Jr:

Are you going on tonight?

Yeah.

H.M.Jr:

What time?

9:30.

H.M.Jr:

H.M.Jr:
P:

H.M.Jr:

I'11 be listening.
Well, I'll be interested in what you think

of it.
All right.

Right, Henry. I'm glad - Archie MacLeish
asked me and I said, sure.
Good.

It is not too partisan.
It shouldn't be.
I didn't think it should be. I showed it

H.M.Jr:

all right. He was a little opposed at first.
Yeah. Well, I think it'11 be very, very

H.M.Jr:

H.M.Jr:
P:

to Eddie here and I think he thought it was

helpful.

Well, I hope 80.
Thank you for calling.
Good-bye.

365

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

Minis

For

DATE October 31, 1940
Secretary Morgenthau
FROM Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Cameron of the Federal Reserve Bank of New York reported the following

transactions in Italian accounts maintained with the Chase National Bank and in
the account of the Bank of Sweden with the Federal Reserve Bank of New York.

Chase National Bank
Amount
Date

Credited

Account Credited

Oct. 31 1,315,122.18 Credito Italiano,
New York

Received From

Amount

Debited

Credito Italiano, 1,285,324

N.Y. (2 checks

Account Debited

Paid To

Credito Italiano,

Chase National Bank, N.Y.,
for account of Banca Com-

New York

merciale Italiana, N.Y.

drawn by Post &
Flagg)

Oct. 31 1,285,324

Banca Commerciale

Chase National

Italiana, N.Y.

Bank, N.Y., by
order of Credito

100,000

Banca Commerciale

Italiana, N.Y.

Italiano, N.Y.

Check drawn by Banca Com-

merciale Italiana, N.Y.,
in favor of National City
Bank, New York

1,285,324

Banca Commerciale

Italiana, N.Y.

Check to order of Federal
Reserve Bank of N.Y. in
Federal Reserve funds

Federal Reserve Bank of New York

Oct. 31 1,285,324

Bank of Sweden,
Stockholm

Banca Commerciale

Italiana, N.Y., by
order Istituto
Nazionale per 1
Cambi Con l'Estero,
Rome

366

367

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 31, 1940
Secretary Morgenthau

Mr. Cochran

FROM

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

information regarding the transfer listed below from the account of the

Date

October 31

Amount Debited
$100,000

Reiehsbank, Berlin, maintained with the Chase National Bank.
Paid To

Mercantile Trust Company, Baltimore,

Maryland in favor of Hugo Stinnes
Corp., N. Y. by order of Hugo Stinnes
G.M.B.H., Muelheim, Ruhr, re interservice value 31st.

368

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
NH

DATE October 31, 1940

Secretary Morgenthau
TO

FROM Mr. Cochran

Mr. Cameron of the Federal Reserve Bank of New York gave us the following information regarding transactions in Russian accounts maintained with the Chase
National Bank.

Principal changes in the State Bank of Russia's dollar account during the period
October 24 to October 30, inclusive, were as follows:
Amount

Debited

578,155

Uct. 25 $ 51,000

Narodni Banka, Prague

272,739
250,000

Oct. 26 8,216,000

U. S. Mint, San Francisco 1, 484,641

Chase National Bank for

account of Reichsbank, Berlin
Commercial Letters of Credit
#

$250,000

Oct. 24 $

Paid To

Date Credited

Received From

Amount

Amtorg Trading Corporation

Commercial Letters of Credit

Advance on gold shipment
62,467

U. S. Mint, San Francisco
Final payment on gold
shipment
If

Oct. 28

56,805

National City Bank,

528,600

New York
212,980

Narodni Banka, Prague by

order of Bohemian Union

Bank, Prague
94,000

Narodni Banka, Prague by

order of Coska Prunyslova

Banka, Prague
.

Oct. 29

67,798

Amtorg Trading Corporation

589,348

Oct. 30

57,722

Swiss Bank Corporation,

350,000

Amtorg Trading Corporation

265,240

Commercial Letters of Credit

New York

369
-2On October 30 the balances of the State Bank and the Amtorg Trading Corporation
were as follows:

State Bank of the U.S.S.R.
Balance

Cash Commercial Letters of
Credit Account
Time Deposits
Total

Set change in total since
October 23

Amtorg Trading Corporation

$11,895,600

$1,206,000

14,339,000

2,052,200

10,300

-On

$26,244,900

$3,258,200

+ 6,552,500

+ 235,900

PMP

370
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 31, 1940

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
£103,000
Sold to commercial concerns
Purchased from commercial concerns £ 23,000

of the sterling sold £47,000 were to pay for importation of whisky. The remaining
£56,000 were to be used against various imports.

The Federal Reserve Bank of New York bought £3,000 in registered sterling

from a non-reporting bank.

At the opening of the foreign exchange market sterling was quoted at
4.03-1/2. During the middle part of the day the rate improved to 4.03-3/4. At
the close it was quoted at 4.03-1/2. Transactions of the reporting banks were as
blows:

£27,000
Sold to commercial concerns
Purchased from commercial concerns £18,000

The Argentine free peso rate showed some improvement today after opening at
.2325. It closed at .2335.

The closing quotations for the other currencies were as follows:
Swiss franc
Canadian dollar
Swedish krona
Reichemark

Mexican peso

Brasilian milreis (free)
Cuban peso

Lira

.2321

13-1/8% discount
.2386
.4005

.2053 bid, .2070 offered
.0505

9-1/8% discount
.0505

We sold $2,000,000 in gold to the Bank of Portugal, to be added to its
earmarked account.

The Federal Reserve Bank reported that the Central Bank of the Republic of
Argentina made four shipments of gold valued at $13,596,000 from Argentina to the
Federal. The disposition of this gold is unknown at the present time.

371
-

2 - CONFIDENTIAL

The equivalent of the gold price in Bombay was slightly higher at $33.74 and
silver was about unchanged at 43.32#.

The spot and forward prices for silver in London were both fixed at 23-1/2d.
Spot delivery was unchanged from yesterday and the forward delivery was up 1/16d.

the dollar equivalent for both deliveries was 42.67

Handy and Harman's settlement price for foreign silver was unchanged at
3-3/44 The Treasury's purchase price for foreign silver was also unchanged at 35$.
We made one purchase of 50,000 ounces of silver under the Silver Purchase Act.
this purchase consisted of new production from foreign countries, for forward delivery.
We also purchased 150,000 ounces from the Bank of Canada under our regular
monthly agreement. During this month our total purchases of silver from Canada
mounted to 725,000 ounces as compared with the agreed total of 1,200,000 ounces.

During the month of October we purchased 9,649,500 ounces of silver under the
Silver Purchase Act. The sources of these purchases were as follows:

Type of Silver

Ounces

New Production

1. From various countries

4,870,000

2. From Canada under agreement
Inventory

725,000
3,361,500
693,000

Total

9,649,500

From China

IMP.

372
October 31. 1940.

Dear Mr. Chans

Your letter of October on with its interesting map-shote Salem - the day of the air wold, on
September 30th has manched - desk and I was may

glad to I - you.

I appreciate your word in regard to the recent

long. as well as your - on confitions in the
part of the country that yes have recently visited,
and shall forward to your further letters
after you return from the trip that you were -

planning a make

with certial vegards and good wishes,
sincerely.
(Signed) E. Morganibau, Jr.

M.L.P. Chem.
Fee thing Standing Corporation,
Okian.

GEF/dbs

373

October 31. 1940.

Bear Mrs. these

Your letter of October 9th, with Sta interest.

ing - - - the day of the air wild, on
September - Iss - - desk - I - and to - from I - - werd in regard to the recent
Ice as will as - - on conditions in the

past of the country that you have recently visitor.
and shall Zoule foreard to your further letters

after you return from the way this you - -

planing a main.

wash medial regunds not good wishes,
Sincerely.

(Signed) H Morganthan, fr.

I-

w. LP. -

Fee thing mailing Corporation,

GEF/dbs

374

October 31. 1940.

Dear Mr. Chans

Your letter of October 9th, with its interest-

ing - Sales - the day of the air wild, on
September 30th has wanched - desk and I - -

gind to hour from you

X appreciate your word in regard to the recent
lome as well as your communities on conditions in the

past of the country that you have recently visited,
and shall Inst forward to your further letters

after you return from the trip this you - then

planning to min.

with cartial regurds and good wishes,
Sincerely.
(Signed) R Morgenthau, Jr.

Hr. L.P. Chom.
Fee thing Trading Corporation.

I China.

GKF/dbs

#68

378
KWANG PU CHEN
Foo Shing Trading Corporation,

Kunming, China,
October 9, 1940.

The Honorable Henry Morgenthau, Jr.,
Secretary of The Treasury,
Washington, D. C., U. S. A.
Dear Mr. Morgenthau,

I am writing to express to you my feeling of gratitude for
the granting of the third loan to China. I know this feeling is

shared by all of my countrymen. The loan was announced at a time
when our country was facing a very serious crisis and when positive
expressions of sympathy and support were urgently needed. It goes
without saying that the loan strengthens the economic ties between
our two countries and gives further assurance of developing our

relations on a basis of traditional friendship and mutual benefit.
I visited the tin mines in Kochiu in southern Yunnan where
I SAW mines and smelters using both modern and native methods.

The annual production at present is approximately 9,000 tons and,
with the improvement of both mining and smelting methods, the
production of a much larger quantity and of a better grade of tin
can be expected. The basic problem at present, however, is not
economic but political. With the massing of Japanese troops in
Indo-China, the safety of the tin mines as that of the Burma Road
and the whole southwest are threatened by air-bombing and possibly
by invasion.

I had my first experience of air-bombing in Kunming on Sept.
30th. Unlike Chungking, which is a city of bomb-proof caves,
Kunming is a wide open town of 200,000 where no adequate airshelters can be built. Thus, when the alarm sounded, I followed
the crowd to the countryside. It was a most moving experience
to see the mass exodus of literally over a hundred thousand
people scattered fan-like out of the city gate at a moment's
notice. But not all were lucky enough to get out in time and
about 400 people were killed and much property damage was done.

I am leaving on October 15th for a trip to Rangoon via the

Burma Road and the Irrawaddy River and will keep you informed

as to the result of the trip.

With best personal regards,

there
Sincerely yours,

P.S. I am suchouing 3 shaf whoto
which were Taken during the raid

f sept 30th

then

379

FEDERAL RESERVE BANK
OF NEW YORK

October 31, 1940.
CONFIDENTIAL

Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
Pursuent to Mr. Cochran's request, I enclose
our weekly compilation, showing dollar disbursements

out of the British and French accounts at this bank and
the means by which these expenditures were financed.

Faithfully yours,

Whinen

L. W. Knoke,

Vice President.

Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Enclosure
10 LHG

LECHNICY Y228 VIII
AICE

S VN 0.28

SECOMED

ANALYSIS OF BRITISH AND FRENCH ACCOUNTS

(In Millions of Dollars)

BANK

CREDITS
Total
PERIOD

ENGLAND

Other

Proceeds of Sales of
Cold

Securitios"Rogistered
(Est. )(a) Sterling (b)

incl.

adjust-

Total

Week Ended Oct. 23, 1940. Confidential

DEBITS
Gov't
Expend-

(+) or

Deor. (-)

BANK

CREDITS

Net Inor.

Other

itures(e)

ments)

380

Strictly
OF

Proceeds
of

Total

Other

Gold

FRANCE

DEBITS
Cov'
Expend-

Total

itures(d)

Sales

in Balance

Other

Net Inon
(+) or
Decr.(-)
in Balance

1939

75.2

50.6

43.4

17.8

126.2

20.6
56.7
60.9
46.8
93.2

319.3

301.3

86.2(1)
23.0

57.8

-11.2(e)

10.4

13.4

- 8.1

61.8

105.4

- 12.4

28.1

587

+ 22.4

31.5

30.0

- 5.6

39.9
63.7
55.4

+ 5.4

84.8

32.8
35.9
29.4

101.4

57.0

44.4

+ 44.0

29.4

+188.4

3.6

90.7

+113.5

11.3

5.8

100.9
182.8
89.0

+ 35.3

76.2

35.0

85.9
22.5

82.9

55.1

109.2

93.9

38.0
108.8
101.0

- 11.4

50.1

5.8

54.8

16.7

75.4

29.6

61.5
72.7
99.6

+ 25.3

55.9
71.5
105.0
78.7
145.4

60.7
126.2

18.0
19.2

94.3
106.7
191.7
97.7

8.7

8.9

11.3

19.4

41.2
27.8
15.3

88.6
78.6

86.8

6.0

)

105.8

52.6
25.0
14.2

1
3

33.6

3.2

Nov. 30 Jan.

185.4

)

Nov. 2 29

207.8
142.0

Aug. 31 Sept. 27
Sept.28 Nov.

+ 4.3

1940

14.5
26.1
23.6

87.3 27.0

26.2(1)

113.4
100.9
283.2
249.7

145.3

77.3
137.9

156.7

93.0

261.1

-24.7

180.1

80.9

+ 33.7

1,793.2

605.6
244.3

1,187.6
72.5

- 7.9

11.7

-3.6

0.6

8.3

+ 6.8

0.2

25.9

5.1

12.9

225.0
294.8

212.2

2.0

2.8

267.4

1.0

2.4

1,888.2

356.1

211.2

5.2

308.9

271.5

6.0

1.1

58.6

52.1

7.1

- 21.5

8.0

24.0(k)
255.7

+ 36.1

+ 35.0

30.3(1)

316.8

Oct

115.5

0.2

6.3

62.2

2.0

0.2

8.1

52.4

50.5
44.1

10.6

45.4

41.3

4.1

-25.4

58.3

50.9

7.4

3.0

345.1(1
3.2
10.9

1,095.3

335.6

9.5 156.7(1)

6.3

1.0

0.5

8.4

195.1

866.3

416.6

449.7

1.3

8.6

4.4

4.2

0.6

4.0
0.2

3.8
0.1

0.2

0.1

0.2

10.4

900.2

1.3

127.3(1)

7.3
8.9

3.0

First year of war
Aug. 29 Oct.

11.6(h)

15.9

1.2
6.1

Aug. 28

33.7

15.4

July 5

16.8

May 30 July

54.8
124.8

May 2 29

86.4

21.5
13.4

5.0(g

Apr. 4 May

17.9

29 Apr.

108.3
94.0

Feb. 28

Jan. 4 31

4.1

2.0
+229.0
7.3

Oct. Nov. 27

Nov. 28 Dec. 31

61.3

52.1

9.4

2.0

0.1

Average weekly expenditures since outbreak of war:
$19.6 million
France (through June 19)
27.6 million
England (through June 19)
61.6
million
England (since June 19)
(u)

7.1(m)

(P)

48.9

59.2
20.0

Oct. 2

Transfers from British Purchasing Commission to
Bank of Canada for French account:
$14.2 million
Week ended October 23
79.3 million
Cumulation from July 26

0.2

0.2
-

3.4

0.1

WEEK ENDED:

(See footnotes on reverse side.)
spe

(a)

Through (Proceeds June of 19, those these figures represent total sales of American securities in Second District reported for account of the

ended June the sales, however, may not have been credited to the Bank of England's account in all cases.) United Kingdom.
securities held 26, in figures this country. represent The transfers transfers from the Bank of Montreal, New York Agency, which is custodian for Beginning requisitioned with the American week

Kingdom
residents
were
prohibited.
private deals. From
June 17 to
July 19,
transactions apparently in securities reflect proceeds payable of in official specified security foreign currencies, sales, including including those dollars, handled by through United

(b) Includes proceeds of salts of "registered" sterling in this market only.
of Shipping.
(a) Includes and Ministry
payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control,

(d) Includes payments for account of French Air Commission and French Purchasing Commission.
e) Includes adjustment for (a) above.

(f) About $85 million transferred from accounts of British authorized banks with New York banks.
(g) About $11 million transferred from accounts of British authorized banks with New York banks.
(h) About $8 million transferred from accounts of British authorized banks with New York banks.
(1) About $10 million transferred from accounts of British authorized banks with New York banks.

(3) Adjusted to eliminate the effect of $20 million paid out on June 26 and returned the following day.
(k) About $2 million transferred from accounts of British authorized banks with New York banks.
(1) About $2 million transferred from accounts of British authorized banks with New York banks.
(m) About $1 million transferred from account of a British authorized bank with a New York bank.
10:03

330

381
Noted

FEDERAL RESERVE BANK

M. Cochran

OF NEW YORK

October 1, 1940.
CONFIDENTIAL

Dear Mr. Secretary:

Attention: Mr. H. Merle Cochran

Pursuant to a telephone conversation between Mr. Cochran and

Mr. Rozell of this bank, we are enclosing a special compilation analysing,
by months since the outbreak of the war, dollar disbursements out of the
British and French accounts at this bank and the means by which these
expenditures have been financed.

Recently we received an inquiry from a member of the staff of
the Advisory Commission to the Council of National Defense asking whether

it would be possible to obtain information on British policy in connection

with the use of British gold, with particular reference to the extent to
which sales of gold have been used to finance British purchases of war

materiel. In answer to this inquiry, we orally advised the Commission
that we would, of course, be quite willing to give it whatever data we
have which might help it to analyze British policy, but that we could not
release figures directly to it, which we hold in confidence. We then communicated with Mr. Cochran and suggested that we place any pertinent ma-

terial at the disposal of the Treasury Department. Mr. Cochran agreed
and suggested that we tell the Advisory Commission to the Council of Na-

tional Defense that we had passed their inquiry on to the Treasury for its
consideration.

FEDERAL RESERVE BANK OF NEW YORK

October 1, 1940.

382

Whether or not it is decided to make this data available to the
National Defense Council, the enclosed tabulation may be of use to the

Treasury. By way of explanation, the total debits for both British and
French account represent all payments out of the accounts maintained at

this bank, excluding, of course, all debits arising from the transfer of
funds from one British account to another or from one French account to
another. British "Government Expenditures," which have accounted for

$800,000,000 of the total of $2,050,000,000 since the start of the war,
represent all payments made out of Account "A" and other payments which

can be identified as expenditures on behalf of various British Ministries
or agencies. These expenditures are associated directly with official
British purchases of aircraft and other war supplies and, of course, include
advance payments made to American concerns. The remainder of the payments

out of the British accounts at this bank is composed largely of transfers
to banks in this country (usually for the account of British banks) to cover
other types of transactions where the British authorities are called upon to
supply dollar exchange. During the early months of the war considerable payments were made to cover maturing forward contracts entered into during the
summer of 1939. More recently these expenditures represent largely payments

for American exports and other current account items for which the British
, ,

authorities will make dollars available.

"Government Expenditures" for France are composed of outlays which

can be identified as having been made either by the French Air Commission or
the French Purchasing Commission. In this connection, it should be remembered

that since the capitulation of France last June certain dollar payments have

October 1, 1940.
FEDERAL RESERVE BANK OF NEW YORK

by the British Purchasing Commission to the Canadian authorities, for paybeen made holding these funds for French account as reimbursement assumed by
the
who
are on contracts placed by the French but subsequently included

ments British. made Payments made on these contracts, therefore, are

in both the British and French outlays.

from

some of the data, particularly the credits arising attached
Although is only estimated, the figures contained in character the and

security sales, should offer some basis for determining both the outbreak of the
war.

extent tabulation of British and French dollar expenditures since the

Yours fasthfully

The

Allan Sprout,

First Vise President
Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.
Enclosure

383

384
Strictly

ANALYSIS OF BRITISH AND FRENCH ACCOUNTS

CREDITS
Securities
Gold

PERIOD

(Est)(a)

"Registered

Sterling

1939

Aug. 31 - Sept. 27
Sept.28 Nov.

Nov. 2 29

Nov. 30 Jan.

207.8
142.0
105.8
75.2

185.4

33.6

3.2

52.6

57.8

25.0

50.6

14.2

43.4

20.6

108.3

56.7
60.9
46.8
93.2
301.3
212.2

17.8
17.9
21.5
13.4

Aug. 29 Oct.

May 30 July
July 5 31
Aug. 1 28

86.4
126.2

May 29

94.0

319.3

225.0
294.8

267.4

7.1

11.3

86.2(f

106.7
191.7
97.7

5.8

35.3

8.9

100.9
182.8

8.7

89.0

22.5

76.2
82.9
109.2

16.8

38.0

11.4
15.9

55.9
71.5

21.5

12.9

5.1
2.0

2.8

1.0

2.4

8.0

261.1

24.0(k)

15.4
14.5
26.1

108.8
101.0
87.3

20.6

145.3

77.3
137.9

156.7
180.2

80.9

93.0

BANK

FRANCE

DEBITS

Total

Other

1f.4

11.3
41.2

88.6

55.1
93.9

27.8
15.3

78.6
86.8

5.8
16.7

61.5

105.0

50.1
54.8
75.4

27.0
25.3

78.7

60.7

145.4

36.1

345.1(1)

126.2
335.6
3.0
10.4

24.7
+ 33.7

Expend-

3.2
10.9

Net Inor.
Other

itures (d)

35.0

85.9

Gov't

Sales

+113.5

25.9

Gold

in Balance
90.7

54.8
124.2
115.5
113.4
100.9
283.2
249.7

Total

3.6

26.2(1)

Net Inor.
(+) or
Dear. (-)

94.3

11.6(h)
-

Other

CREDITS
Proceeds

-11.2(e)

33.7

Expend-

itures(s)

ments)

5.0(g)

Feb. 29 Apr.
4 May

Total

10.4

1940

Jan. 4 31
Feb. 1 28

(incl.
adjust-

23.0

DEBITS
Gov't

Other

Proceeds of Sales of
Total

ENGLAND

72.7
99.6

29.6
18.0
19.2

84.8

101.4

9.5(f)

156.7($

6.0

13.4

8.1

61.8

105.4

+ 4.3

28.1

58.7

+ 22.4

31.5
32.8

30.0

35.9

63.7
55.4
44.4
29.4

29.4
57.0
127.3(1)
6.3
0.5

39.9

12.4

- 5.6
- 1.2

+ 5.4

- 6.1

+ 44.0
+188.4

1.0

0.2
0.5

7.3

0.2

1.7

0.2

0.6

0.1
0.1

1.9

0.2

1.6
0.5
1.7

0.4

0.2

8.9

(+) or

Dear. (-)
in Balance

)

BANK

Confidential

Week Ended Sept. 25

8.4

(In Millions of Dollars)

2.0

Oct. 3 30
October

31 Nov. 27
28 Doc. 31

WEEK ENDED:

Sept. 4

59.8

6.7

123.6
60.2

55.9
0.1

112.6
50.8

2.0
2.0
2.0

+ 4.0

0.2

32.2

-47.9
+77.4

0.2

46.2

22.3
12.6
14.0

98.0

86.1(m) 11.9

-37.8

0.3

33.5

4.4

55.8
54.6

0.3

8.7

0.1

7.3(1)

0.3
0.2

3.6

verage weekly expenditures since outbreak of war:
$27.6 million
England (through June 19)
19.6 million
France (through June 19)
$36.6 million
England through Sept.25)

42.0

0.3

Transfers from British Purchasing Commission to
Bank of Canada for French Account:

- $ 0.2 million

Week ended September 25

Cumulation from July 26

55.0 million

-1

(if)
3

(See footnotes on reverse side.)

-1.5
0.4
1.9

- 0.1

(a) Through June 19, these figures represent total sales of American securities in Second District reported for account of the United Kingdom.
(Proceeds of those sales, however, may not have been credited to the Bank of England's account in all cases.) Beginning with the week
ended June 26, the figures represent transfers from the Bank of Montreal, New York Agency, which is custodian for requisitioned American
securities held in this country. The transfers apparently reflect proceeds of official security sales, including those handled through
private doals. From June 17 to July 19, transactions in securities payable in specified foreign currencies, including dollars, by United
Kingdom residents were prohibited.

(b) Includes proceeds of sales of "registered" sterling in this market only.
(c) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control
and Ministry of Shipping.
(d) Includes payments for account of French Air Commission and French Purchasing Commission.

Includes adjustment for (a) above.

(j) Adjusted to eliminate the effect of $20 million paid out on June 26 and returned the following day.
(k) About $2 million transferred from accounts of British authorized banks with New York banks.
(1) About $2 million transferred from accounts of British authorized banks with New York banks.
(m) of which about $39 million paid to Packard Motor Car Co.

COPY

385
FEDERAL RESERVE BANK

of New York

October 31, 1940.
CONFIDENTIAL

Dear Mr. Secretary:

Attention: Mr. H. Merle Cochran

Pursuant to Mr. Cochran's request, I enclose
our weekly compilation, showing dollar disbursements

out of the British and French accounts at this bank and
the means by which these expenditures were financed.

Faithfully yours,
(s) L. W. Knoke,
L. W. Knoke,

Vice President.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.
Enclosure

bfn

ANALYSIS OF BRITISH AND FRENCH ACCOUNTS

Strictly

(In Millions of Dollars)

BANK

CREDITS
Total

ENGLAND

DEBITS

Other

Proceeds of Salea of

incl.

adjustCold

PERIOD

(Eut. (a) Sterling (b)

Week Ended Oct. 23, 1940. Confidential

Total

Gov't
Expend-

Net Inor.
Other

itures(a)

ments

(+) or

Door. (-)

BANK

CREDITS

FRANCE

DEBITS

Proceeds
of

Total

Gold

in Balance

Other

Gov't

Total

Expend-

Other

itures(d)

Sales

Net inon
(+) or

Decr.(-)

in Balance

1939

11.3

19.4

35.3

76.2

35.0

41.2

88.6

8.9

182.8

85.9

82.9

89.0

22.5

109.2

87.8
15.3

78.6

8.7

55.1
93.9

54.8

16.8

11.4
15.9

50.1

5.8

15.4

38.0
108.6

55.9

33.7

124.1

71.5

54.8

16.7

1.6(h)

101.0

81.5

105.0
78.7

75.4
60.7

29.6

87.3

27.0

25.3

99.6
84.8

35.9
29.4

25.9

145.3

145.4
345.10

126.2
335.6

19.2

12.9

115.5
113.4
100.9
283.2

14.5

26.2(1)

75.2

+115.5

50.6

14.2

90.7
100.9

57.8

3.6
5.8

8.0

249.7

156.7

261.1

-11.2(c)

86.2(f)
23.0

105.8

33.6
52.6
25.0

10.4

94.3
106.7
191.7
97.7

6.0

13.4

9.1

61.8

105.4

12.4

28.1

587

28.4

61.5

31.5

30.0

5.6

72.7

32.8

39.9
63.7
55.4

1.2

5.4

44.0
+189.4

4.3

)

3.2

OV. 30 Jan.

185.4

142.0

ov. 2 - 29

207.8

MR. 31 Sept. 27
ept.28 Nov.

86.8

1940

May

30 - July

Hill

First year of war
Oct.

20.6

56.7

94.0

60.9

86.4

46.8

17.8
17.9
21.5
13.4

126.2

93.2

7.1

319.3

301.3

925.0
294.87

218.1

5.1
2.0

267.4

1.0

1,828.2

5.0(g)

Feb. 29 Apr.

43.4

108.3

eb. --28

2.8
2.4

356.1

211.2

5.2

308.5

271.5

6.0

2.1

58.6

52.1

24.00k
255.7
30.3(1)

T-30
th

Nov.
Ded.

26.1

23.6

77.3
137.9

en. 31

36.1

- 14.7

180.2

93.0
80.9

33.7

1,793.2

10.

3.0
10.4

605.6

1,187.6

35.0

1,095.3

900.9

316.8

244.3

72.5

7.9

1.3

18.0

6.1

101.4
156.7(1)

127.3(j)

44.4
29.4

0.2
0.5

7.3
8.9

6.3
0.5

1.0

4.1

8.4

195.1

866.3

9.5(

1.3

57.0

416.6

449.7

2.0
+229.0

8.6

4.4

7.3

27
31

WEEK ENDED:
0.6

6.8

0.2

2.0

10.6

45.4

41.3

4.1

-25.4

0.2

50.9

7.4

3.0

0.1

Average weekly expenditures since outbreak of war:
France
$19.6 million
(through June 19)
27.6 million
England (through June 19)
61.6 million
England (since June 19)

7.1(m)

58.3

0.6

4.0

3.8

0.2

0.1

0.2

0.1

Transfers from British Purchasing Commission to
Bank of Canada for French account:
Work ended October 23
$14.2 million
79.3 million
Cumulation from July 26

3.4

(See footnotes on reverse side.)

1.6

8.3

52.1

11.7

44.1

61.3

50.5

52.4

9.4

62.2

8.1

48.9

20.0

6.3

0.2

59.2

0.2

2.0

Oct. 2

(a) Through June 19, these figures represent total salen of American securities in Second District reported for account of the United Kingdom.
(Proceeds of those sales, however, may not have been prodited to the Bank of England's account in all cases.) Bo dinning with the work
ended June 26, the figures represent transfers from the Bank of Montreal, New York Agency, which is sustodian for requisitions American
securities held in this country. The transfers apparently reflect proceeds of official mosurity nalon, including those handlod through
private deals.
From
June
17 to July 19, transactions in securities payable in specified foreign currencies, including dollars, by United
Kingdom
residenta
wore
prohibited.

(b) Includes proceeds of salbs of "registered" sterling in this worket only.
(2) Includes
payments
for account of Britich Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control,
and Ministry
of Shipping.
(d) Includes payments for account of Fronah Air Commission and Frenah Purchasing Commission.

(o) Includes adjustment for (a) above.
(f) About $85 million transferred from accounts of Britiah authorized banks with New York banks.
(g) About $11 million transforred from accounts of Britinh authorized banka wit th Net York barica
(h) About $8 million transferred from accounts of British authorized banks with New York banks.
(1) About $10 million transferred from accounts of British authorized banka with New York banks.

(1) Adjusted to eliminate the effect of $20 million paid out on Juno 26 and returned the following day.
(k) About 82 million transferred free assounts of British authorized banka with New York banks.
(1) About $2 million transferred from accounts of British authorized banks with Nenz York banks.
(m) About #1 million transferred from account of R British authorized bank with a New York bank.

The original of this

387
COPY

FOR YOUR
INFORMATION
verso toCONFIDENTIAL
sery was stenting
messeugh
Hon on 91/1/40

October 31, 1940

To :

The Secretary

From:

Mr. Young

Re: Siamese Planes for China

I talked with Joe Green, Chief of the Division of Controls, State Department, this afternoon who informed me as
follows with respect to the Siamese planes which might be
transferred to China.
(1) The transfer of the planes was regarded as
more trouble than it was worth:
(2) Secretaries Stimson and Hull have been carrying on a series of conversations. presumably
yesterday and today. the result of which is
that all thought of this transfer has been
given up;

(3) In response to my inquiry as to whether the six
additional planes were to be included with the
first ten, Joe Green replied that it was beside
the point inasmuch as the deal was off;

(4) Green is operating on the theory that the Chinese
should contact the Liaison Committee and make

formal request to place orders for aircraft even
though delivery might be far in the future. To
this effect, Green was talking with the Chinese

Ambassador this afternoon;

(5) After the Chinese have received clearance on a
contract for airplanes to be delivered some time
in the future. the War Department might as a result of the Stimson-Hull conversations referred
to above give China some priority on delivery.
PY:bj

(COPY:FE:OJL)

No. 137

CONFIDENTIAL

388

AMERICAN CONSULATE

Kunning (Yunnanfu), China, October 31, 1940.
Confidential

SUBJECT: Effect of Japanese Attacks on Tin Mines at Kochiu;
exports of Wolfram.
The Honorable

The Secretary of State,
Washington.
Sir:

I have the honor to refer to my telegram of October 30, 6 p.m. sent
to the Consulate General, Hong Kong, and to report fuller information
(received from a local official of the National Resources Commission)
concerning stocks of Yunnan tin and effects of Japanese attacks on tin

production.

This official stated that he has not had word from all the raids, but
it is definitely true that the Japanese have destroyed the tin smelter and
refinery, and the ore dressing plant, all belonging to the new tin combine.

(Apparently these formerly appertained to the Yunnan Tin Mining Company the only modern refinery in the country.) No serious damage has been done
to any of the mines, but the Japanese did bomb the administration buildings
near the mouth of the new shaft the National Resources Commission has been

sinking. However, the production of tin has been seriously affected, as
the owners of the small mines (which produce the bulk of the ore) are all
afraid to continue operations under constant bombing.
The new Consolidated Tin Company is considering the erection of a
small temporary refinery in the vicinity of Kunming, and a somewhat larger
temporary refinery at a site to be selected near the Burma border. The
plant at Kunming will be used to refine the remaining 4,000 tons of native
tin which has been or is being shipped here from Kochiu. When all has

arrived there will be no more stocks in Kochiu. The plant at the border
will smelt the ore concentrate and refine the tin there. At present most
of the crude tin used in the refinery has been native tin, which has been
once smelted already; it is believed that enough can be saved by merely

concentrating the ore at Kochiu instead of smelting it there in native
furnaces, to pass the cost of transporting the concentrate from Kochiu to
the plant at the border where only one smelting and refining process will
be necessary.
In

389
-2-

In addition to the 900 tons of refined tin shipped out in late August
and September, the National Resources Commission is now engaged in shipping

out 1,200 tons, which represents the last refined tin available until tie

new plants can be completed. (It is hoped to complete the temporary plint
at Kunming by the end of the year).

It is planned to stimulate the production of ore by increasing the
price of concentrate, and if necessary by lending the producers money of
guaranteeing them against losses from air raids.
The plans outlined above have not yet been adopted. The general manager

of the Bank of China is expected to arrive at once to confer with the lical
representatives of the company on these questions. My informant states that
he himself is optimistic as to the ability of the company to continue t) turn

out refined tin, and as to its ability to maintain production of ore at least
at the level formerly prevailing. (Actually, the prospects look pretty dark;
it will probably take the Chinese at least a year to build a plant anything
like that suggested. It was mentioned that it might be necessary to orier
some material from the United States.)

As a matter of interest, it might be noted that according to the
Consulate's informant, the National Resources Commission has been orderid
by Dr. Wong Wen-hao to ship about 3,000 tons of wolfram to the United Sates

every month; this official states that it will be difficult to keep expirts

up to this figure. However, he stated (which has been confirmed from other
sources) that his organization has been shipping out Kiangsi wolfram vis Burma
for some time, although in what quantities is unknown.
Respectfully yours,

TROY L. PERKINS,

American Consul

In quintuplicate to Department; original and one copy via air mail.
Copy to Embassy, Peiping.
Copy to Embassy, Chungking.

Copy to Consulate General, Shanghai.
Copy to Consulate General, Hong Kong.
Copy to Consulate, Rangoon.
863.5

COPY

390

October 31, 1940.

Dear Professor Tabulas

I have read with a great deal of interest
your letter of October 27th, which gives me
your comments on the situation in Spain, as
well as upon the European developments.

I appreciate your writing no and shall

always be glad to have your views on events
and personalities abroad.
Sincerely,

(Signed) H. Morganthau, Jr.

Professor A. S. Tahuda,
The Beverly.

Saratoga Springs, New York.

GEF/dbs

391

October 31, 1940.

Dear Professor Telmins

I have read with a great deal of interest
your letter of October 27th. which gives me
your commuts on the situation in Spain, as
well as upon the European developments.

I appreciate your writing me and shall
always be and to have your views on events
and personalities abroad.
Sincerely,

(Signed) H. Morgenthan, Jr.

Professor A. S. Tahnin,
The Beverly.

Saratega Springs, New York,

GEF/dbe

392
October 31, 1940.

Dear Professor Tabulas

I have read with a great deal of interest
your letter of October 27th, which gives your commute - the situation in Spain, as

well as upon the developments.

I appreciate your writing me and shall
always be did to have your views on events
and personalities abroad.
Sincerely,
(Signed) H. Morganthau, Jr.

Professor so S. Telenda,
The Beverly.

Saratoga Springs, New York,

GKF/dbs

Professor A. S. Yahuda

393

The Beverly

Saratoga Springs, N. Y.
October 27, 1940

I beg to submit to your consideration the following observationsin the hope that they may be of interest to you.
Since I had the privilege of speaking to you, things
in Spain turned just the way I and my Spanish and Portugese
friends predicted; Suner, who is now Foreign Minister in Franco's
cabinet, and who can only get power in Spain through Hitler,
forced the hand of Franco who was hesitating in his podicy
towards the Axis, and succeeded not only in bringing Hitler to
the borders of Spain, but, what is worse, to deliver the control
of Spain to Himmler, the chief of the German Gestapo and the
terror of the Nami occupied countries. Franco in spite of the
support of a great part of the army and of the Vatican, is now
handicapped and all the endeavors to begkhim against the

growing influence of Hitler have so far failed and will fail,

because he is not the master of Spain. Hitler and Suner with
the Spanish Fascists and the police under the Gestapo's control

may any moment subject the whole country to the Nazis so that
they can attack Gibralter, occupy all the Spanish ports in the
Atlantic and the Mediterranian anid/become a constant menace to
Portugal too.

I must emphasize these facts because there is a

great alarm, not only in Spanish but also in other circles,
caused by the rumor that strong influences are working for
extending to Franco a loan of a Hundred Million Dollars to
feed hungry Spain. But hungry Spain is the only weapon
against Hiller's penetration and the domination of Spain!
It is precisely for this reason that suner brought Himmler

to Spain so that he may keep the hungry population under the
heels of the Cestapo and prevent the menacing uprising against
the Fascist's power. Now, there is an opinion in some quarters

here that if Franco is supported by a loan the population
would be under his control against Suner. But this is a great
mistake. The money will go to feed the Nazis and not the
starving Spaniards; and it would be Suner who will get the
money and not Franco. This would be the worst step a policy
of "appeasement* could undertake, and I venture to say, that this
policy which failed with Mussolini and Hitler, which is now
proving even to Petain to have been a failure will not be
a success with Franco either. Besides this the advancing of
a loan to Franco for hungry Spain, will create a precident for
Hoover to ask money for feeding hungry France and other occu-

pied countries, only to discover too late that all the provisions
have gone to feed the Nazi dogs to bite more fiercelythe
hungry populations.

394
-2-

Now I shebld like to add a few words more about

M. Henri Haye. In order to win the sympathy of credulous

Americans, he is now enlisting the support of some prominent
French writers to proclaim his and Petain's "democratic" ideals

and to throw" true light on his government's activities. The

most vociferous advocate of M. Haye is now the well known
French author Jules Romain who is constantly singing the praise
of M. Georges Bonnet, but is also paying pen service to the
notorious Nazi agent Otto Abez, who is now Hitler's ambassador
in Paris, and who organized the Fifth Column in France with the

help of M. Haye and his friends. His articles in the Saturday
Evening Post are arousing great indignation in French circles
who are afraid that they may strengthen Haye's position.
In conclusion I may add that I have been continuously in contact with some prominent personalities of Spain
and other European countries, with a special fiew to curb the
activity of the Spanish Fascists (Falangistas) in Latin America and I hope that good results will soon be reached.
I should be very glad if my observations would
Franco. serve a useful purpose and particularly prevent any help to

Yours very sincerely,

A.S.Yahula

395

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 31, , 1940
TO

Secretary Morgenthau

FROM

Mr. Klaus
STRICTLY CONFIDENTIAL

1B1 reports:

entember 21. A letter to Hoover from a company engaged in anti-aircraft
production complains of publicity given to contract awards in newspapers as a

result of which all sorts of persons try to get into the factory; the writer

asks that the publicity given to such awards be curtailed.

396
THE SECRETARY OF THE NAVY
WASHINGTON

October 31, 1940

My dear Mr. Secretary:

I have your letter of October
29th with the enclosure.

I shall, of course, respect
its confidential nature in the man-

ner you suggest.

Yours sincerely,

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

Treasury Department,
Washington, D.C.

397
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON

October 31, 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 - October 26, 1940; Unfilled Orders
and Estimated Deliveries on October 26, 1940.

Part II - Airplane Engines
Deliveries of and New Orders for Airplane
Engines, June 9 - October 26, 1940; Unfilled
Orders and Estimated Deliveries on October
26, 1940.

Faithfully yours,

Chief of Staff.

398

October 31, 1940

MEMORANDUM FOR THE SECRETARY:

Attached is a summary report of the projects
which have been worked on in the Division of Tax
Research during October, 1940.

RB
Attachment

399
Monthly Report on Projects in the
Division of Tax Research
October, 1940

I. New projects
1. Summary of the Second Revenue Act of 1940

A summary of the major provisions of the Second

Revenue Act of 1940 is in preparation.
(Mr. Atlas and Miss Wells)*
Treatment of shared taxes in Bureau of the
Census Reports

In compliance with a request from the Bureau of
the Census a memorandum containing suggestions

as to the treatment of shared taxes in Bureau

of the Census reports is in preparation.
(Mr. Mannen and Miss Wells)

3. Studies and statements on defense financing
Materials were assembled indicating the action

of the President, Secretary of the Treasury, and
others with respect to the Revenue Acts of 1940

and also the timing of the Division of Tax Research
activities on emergency and defense financing.
(Mr. Atlas)

Persons listed as working on the different projects
do not include those who acted largely or exclusively
in a consulting or reviewing capacity. In general, the

person, if any, actively in charge of the project is

listed first.

400

-24. Contributions reported as income tax deductions
A memorandum is in preparation analyzing con-

tributions reported as a deduction item for
income tax purposes by net income classes and

by size classes of contributions for individuals
with net incomes of $5,000 and over in 1938.
(Mr. Copeland)

5. Problems of Federal tax administration
An article on problems of Federal tax administration for the March 1940 issue of the Annals
of the American Academy of Political and Social

Science is in preparation. (Mr. Blough)
6. Foreign taxes
(a) Memoranda on the latest changes in British
and Canadian income, excess profits and

other taxes are in preparation.
(Miss Hughes)

(b) In collaboration with the Division of
Monetary Research a study of the Haitian

fiscal system is in process. (Miss Wells)
7. Fluctuation of large incomes

An analysis of statistical data relating to the
fluotuations of large incomes over a period of

401
-3 - -

years 18 in process. In this connection the
publication "Million Dollar Incomes" by
L. H. Parker will be reviewed. (Miss Coyle)
8. Address by Mr. Sullivan
Data were compiled in connection with

Mr. Sullivan's preparation of an address on

taxation in rebuttal to Mr. Willkie's statements on the subject. (Staff members)

II. Continuing projects
1. War and excess profits taxation
(a) A memorandum analyzing the problems in-

volved in imposing an excess profits tax

on individual proprietorships and partnerships and on non-business income of

individuals is in process. (Mr. Farioletti
and Mr. Mills)

(b) An analysis of special treatment afforded
financial, personal service and public
utility companies, the professions and
agriculture under the World War and present

excess profits taxes of the United States,
Great Britain, and Canada, is in process.

(Mr. Mills)

402

-4(o) A report on the treatment of the issues
raised in the Agenda for the Excess Profits
Tax Committee under the War Revenue Acts

is in final stages of completion.
(Mr. Ecker-Racz, Mr. Gordon, and Miss Wells)

(d) Other phases of the issues involved in
war and excess profits taxation, including studies of amortization and inventory

problems, analysis of statistical information relating to business profits and failures, and consideration of methods of
possible tax avoidance under the Excess

Profits Tax Act of 1940, are continuing.
(Staff members)

2. Tax-exempt securities
An estimate of outstanding tax-exempt securities
as of June 30, 1940 is in process. (Mr. Mannen)

3. Undistributed profits tax
A memorandum is in process analyzing in the light

of issues raised by the undistributed profits
tax, the statistics made available from income
tax returns and other sources. (Mr. Atlas and
Mr. Copeland)

403

-54. Tax on value added
A memorandum is in preparation analyzing the
economic and administrative issues which would

be involved if a value added tax were imposed.

(Mr. Farioletti)

5. Income tax study--W.P.A.
The work of the Philadelphia project has been
divided in the last four months between con-

tinuance of the study of income tax returns
in process since October 1938 and a special

analysis of statistics relevant to excess profits
taxes. Plans and procedures for this special
tabulation have been completed and the study

18 now in process. Additional text and table
forms connected with the continuing study were
reviewed, and a study of investment practices

as reflected in estate tax returns was begun.
(Mr. Blough, Mr. Shere and Miss Coyle)
6. Taxation trends and developments

Articles treating on trends and developments

in the field of taxation during 1940 for the
Britannica Book of the Year and the National
Year Book are in process. A table showing

404

-6State individual income taxes for 1941 is being
prepared for the World Almanac. (Mr. Atlas
and Miss Wells)

7. Inventory of tax proposals
Compilations of proposals for raising additional
revenue and for improving the tax system have
been prepared and are pending review.
(Mr. Zorach and Mr. Copeland)

8. Income and estate taxation

(a) An analysis of the proposal to allow
corporations with five or less shareholders to be treated for tax purposes
as partnerships is in process.
(Mr. Mills)
(b) Reports on the following subjects have not
been actively prosecuted during the month:

(1) Distribution of tax-exempt securities by net income brackets with

particular reference to the holdings of such securities by persons

in high income brackets. (Miss Coyle)

(2) Analysis of the problems of estate
tax payment. (Mr. Mills)

405

-7III. Routine assignments
1. Review of publications
(a) The following publications were reviewed
during the month

(1) The report "Taxation and Recovery"
by Mr. Dewey Anderson of the

T.N.E.C.. (Mr. Shere, Mr. Farioletti,
and Mr. Zorach)

(2) The Annual Report of the Commissioner

of Internal Revenue for the fiscal
year ended June 30, 1940.
(Miss Hughes)

(3) The article "Excess Profits Taxation for National Defense" prepared

by the Division of Industrial
Economics of the Conference Board.

(Mr. Atlas and Miss Wells)

(4) A portion of the article "The Defense
Program Remodels the Economic System"

by Mr. Edwin R. George of Dun and

Bradstreet. (Mr. Shere and
Mr. Mannen)

406
-8(b) The following publications are in process
of being reviewed

(1) The report "Study of the Delaware
State Income Tax Yields" by Walter

C. Wilson. (Miss Coyle)

(2) The report "The Equitable Tax Provisions of the Pension Trust Plan
in Comparison with the Group Annuity

Plan." (Mr. Mills)
(3) The estate and gift tax sections of
Statistics of Income for 1938,

Part I. (Miss Coyle and Mr. Mills)

2. Statistics
(a) In connection with the supervision of the
statistical work of the Bureau of Internal
Revenue several proposals for statistical
compilations were examined, including

suggested tabulations of estate tax returns.
(Mr. Blough, Mr. Shere, and Miss Coyle)

(b) Administretive reports and statistics of
the Bureau of Internal Revenue are graphed
and commented upon for Mr. Sullivan's

information. (Mr. Campbell)

407

-9-

(o) Data relating to different taxes, digests
of tax items, and Congressional activity

of tax items of interest to the Division
are currently prepared. (Staff members)
3. Correspondence

The Division handled correspondence pertaining

to tax matters. (Staff members)

408
G-2/2657-220

RESTRICTED

No. 234

SITUATION REPORT

M.I.D., W.D.
October 31, 1940.
12:00 M.

I. Western Theater of War.
1. Air Force Operations.
Weather was unfavorable.

The German air effort appeared to be on a somewhat dim-

inished scale. On the 30th daylight attacks were made on southern
and northwest England. Night attacks centered on London and the Mid-

lands. German air activity continues over the Atlantic to the north
and west of Ireland.

Last night the R.A.F. attacked the docks at Hamburg,
Flushing and Emden. A daylight attack was made on Cherbourg.

II. Greek Theater of War.
1. Ground Operations.

Italian forces, estimated as a corps, advancing southward from Albania in the coastal region on October 30th reached the
Kalamas River, in the Greek province of Epirus. In places several
bridgeheads were established on the south bank of the river.
On the main road from Argirokasther to Janina, another

Italian detachment seized the Delvonaki Pass, and is continuing its
advance on Janina.

Farther north, in the area from which an Italian advance
on Salonika is expected, no information on the situation has been received.

Italian private official despatches report Greek resistance as slight.

2. Air Force Operations.
Greek aerial activity was extremely limited. The
RESTRICTED

RESTRICTED

409

Italians bombed Patras and Narpartos (Lepanto).

III. Mediterranean and African Theaters of War.
No ground operations reported. The R.A.F. continued its
raids on Italian communications along the Moditerranean coast.

RESTRICTED

-2-

410
CONFIDENTIAL

SPECIAL BULLETIN

MILITARY INTELLIGENCE DIVISION,

No. 25
G-2/2657-231

WAR DEPARTMENT

Washington, October 31, 1940.

NOTICE

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed.

This document is being given an approved distribution,

and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduc-

tion see Letter TAG 350.05 M.I.D. (9-19-40) M-B-M.

THE SOVIET INFANTRY DIVISION

SOURCE

This bulletin contains information furnished by official
American observers in January, 1940, and should be considered in
connection with SPECIAL BULLETINS No. 21, 23 and 24, all of which
are concerned with Soviet equipment. The observers make the fol-

lowing statement: "Although exact figures are given, it must be

understood that they are.
tions,

Lists.

the result of approximate calculaare believed to be substantially correct."
CONTENTS

1. THE REGULAR INFANTRY DIVISION

2. THE RESERVE INFANTRY DIVISION
3. NATIONALIZATION OF UNITS

CONFIDENTIAL

-1-

411
CONFIDENTIAL

1. THE REGULAR INFANTRY DIVISION.

a. Before the World War, regular divisions stationed
during peace time on the frontier were usually kept at 80% to 90%
of war strength, while those in the interior, depending upon their
location, were kept at 40% to 60% of their war strength.
b. In March, 1939, Marshal Voroshilov stated that the
war strength of the Infantry division had been raised, including
all ranks, from 13,000 to 18,000. Principal increases were made
in the Artillery, machine gun units, and the number of riflemen
in the Infantry platoon.
C. During the Finnish War, the organization of the division varied with its mission and with the part of the front which it
occupied. It is said that a division north of Lake Ladoga had one
Infantry regiment and ten ski battalions, while other divisions had
from one to five Infantry regiments. Although it is believed that
in peace time regiments usually were assigned permanently to their

respective divisions, certain Infantry regiments were identified in
different divisions on separate occasions. This was perhaps only a
war time expedient.

Division artillery in some cases was non-existent,

while in others it ran as high as five regiments. North of Lake
Ladoga, divisions usually had less artillery and a lower degree
of mechanization than those on the Karelian Isthmus.

In January, 1940, the theoretical strength of the Infantry divisions was reliably estimated at 16,729 men while the actual
strength was believed to vary from 10,000 to 20,000. Average strength
was set at 14,000 to 15,000. Theoretical strength is shown in the accompanying table, although it is probable that few divisions have all
the men and materiel listed.
Definite information as to the number of Infantry divisions in existence is not available, but reliable sources have reported
*

as follows:

July, 1939
January, 1940.

114

121-149

(Including 30 new Divisions)
161 (i)

April, 1940
May, 1940

July, 1940
August, 1940
October, 1940.

142-148
150

164

165

(Believed substantially correct)

. It is not known whether Reserve divisions are included in these figures.
CONFIDENTIAL

-2-

drawn

Trucks

76-mm.

Horses

AA MG's

Rifles *

Airplanes
Gas Tanks
Tankettes

or 45-mm.
Personnel

Heavy MG's

Light Tanks

Units
Armored Cars
Gas Throwers
ade Throwers

Cars, Passenger

Mortars, 81-mm.

AT Guns, 37-mm.
Light Automatic

Vehicles, Horse-

Amphibious Tanks

Rifles, 7.62-mm.

Ammunition Wagons
Light Field Guns,

Field Guns, Short,

Howitzers, 122-mm.

Rifles with Gren-

120

Hq.
Div.

828

333

162

333

7,173

1.983

9,477
3 Inf.

Regts.

166

1.420

1,245

305

345

1,740

511

Regt.

Bn.
Rec.

192

Bn.

Tk.

49**

288

389
Bn.
Pion.

237

285

En.

Sig.

AT
Co.

Co.

AA MG

155

185
Co.
Chem.

THEORETICAL STRENGTH OF SOVIET INFANTRY DIVISION, JANUARY, 1940

Av.

Det.

3,300
** Includes 5 service trucks.

3,700

* Probably includes automatic rifles and semi-automatic shoulder rifles.

142

Units

Supply

1,500

138

2,615

166

372

345

9,614

7,042

16,729

Total

413
CONFIDENTIAL

2. THE RESERVE INFANTRY DIVISION

In April, 1938, it was reported that 80 of the 90 regular
divisions then in existence could furnish cadres to serve as nuclei
for Reserve divisions, and that additional personnel could be drawn

from the immense reserve of partially trained manpower. Arms and
equipment were said to be available for 80 Reserve divisions. Estimates indicated that the first echelon of mobilization, consisting
of 170 to 180 divisions, could be in the field by the end of the

third month after initial mobilization. The present figure of 165

probably includes many Reserve divisions.
3. NATIONALIZATION OF UNITS

Marshal Voroshilov announced in March, 1939, that the

existence of separate national military units, permanently tied
to their own territory, was contrary to the principles of the
"Stalin Constitution", as well as to the extra-territorial principles of the Red Army. Consequently, these units have been
merged with Russian units.

This policy appears an attempt to Russify the population,
and many believe it will fail to produce appreciable results because
of the pronounced national self-consciousness of the minorities,
especially the Ukrainians. Since many of the non-Slavic nationals
do not understand Russian, it is probable that they will continue
to form separate units in larger Russian elements.

CONFIDENTIAL

414
Paraphrase of Code Dispatch
Received at the War Department

at 17:37, October 31, 1940

CONFIDENTIAL
London, filed 13:30, Oct. 31, 1940
1. Daylight operations of the Bomber Command on
Wednesday, October 30th, were minor only and there were but 29

sorties that night. The operations planned for the night of
October 28-29th were persisted in but were seriously interfered

with by bad cloud and icing conditions. Activities of the Coastal
Command on October 30th were reduced by the weather with 20 patrol

missions, 23 sorties and nine convey escerts. The previous day
two Short Sunderland flying boats crashed near home. The Fighter
Command dispatched 91 patrols that engaged in 535 sorties.

2. The German Air Force during daylight hours of
October 30th carried out two fighter attacks of about 150 and 130
planes, respectively, and engaged in reconnaissance missions. A

total of about 300 planes operated. That night there was one major
attack over London and a minor attack over the Midlands.

3. During the last 24 hours there was little serious
damage reported. The German bombers dived on two minitions factories and damaged them. The public has been warned against play-

ing with small objects that resemble Mill's hand grenades since
bombs of this description are being dropped.
4. German plane lesses were nine confirmed, eight

damaged and seven probable. The British lost four pilots and
five machines. In the Middle East the Germans lost one plane
and the Royal Air Force none,

CONFIDENTIAL

415

CONFIDENTIAL
5. It has been admitted by the Italian Press that a
German military mission is now in Libya. It has been reliably
reported that the personnel of the 1st Libyan Division are new

held to a ration of one liter of water a day. This situation
is new being improved. The Italian pipe line is being repaired
and extended five miles southeast of Sellum. The British believe

that water is the critical factor.
6. It has been officially announced by the Japanese
that their troops have withdrew from Nammings but their destine-

tion is without.
LEE

Distributions
Military Aide to the President
Secretary of War
State Department

Secretary of Treasury
Aest. Secretary of War

Chief of Staff

War Plans Division

Office of Naval Intelligence

CONFIDENTIAL

416

CONFIDENTI
Paraphrase of Code Cablegram Received at the
War Department October 31, 1940.

London, Filed 17:00, October 30, 1940
1. The daylight operations of the Bember Command on Tuesday,

October 29, were minor only. That night the program called for dispatching 99 planes, 37 against factories in Berlin, 45 against German

oil targets, 9 against German airports and 9 against railroads. Two
of these bombers crashed on landing and two are missing. The principal effort of this Command during the night October 28-29 against
navel bases was very successful. The mission against Berlin was
cancelled and all others were successful. The Coastal Command lost
two planes in routine operations. The Fighter Command dispatched

148 daylight patrols that engaged in 649 sorties; and 20 patrols with

20 sorties at night.
2. The German Air Force made five main daylight fighter
attacks over southeast England during October 29, consisting of

about 15, 9, 50, 25 and 140 planes, respectively. In addition there
were two heavy attacks against Portamouth, of about 50 and 30 planes

respectively, one attack of 12 planes against Dover, and about 21

small raids against airfields on the East Coast. A total of about
460 Garman planes operated. Operations that night were against the
Midlands at a reduced scale.

3. of the total of nine airdromes attacked, five were
damaged more or less and the remainder undamaged. London suffered

little injury. An army barracks and two minor naval establishments

CONFIDENTE

417

CONFIDENTIAL
were damaged. Attacks were made on three widely dispersed minitions

factories, with serious damage to one optical plant. There were
some fire essualties.
4. The German plane lessee were 27 confirmed, 8 probable,

and 10 damaged. The British last 17 (7) planes and two pilots.
5. There is no evidence of German troop units in Bulgaria
but tourists and specialists have arrived.
6. One British drifter was reported sunk on October 28.
One German cruiser of the HIPPER class has left Hamburg and one

vessel of the BREMKN class has left Bremerhaven. It is reported

that the main Italian flost is in Taranto and Brindisi.
LEE

(0-2 notes No daily eablegram for October 29 has been received.)

Copies tes Military Aide to the President
Secretary of War
Secretary of State
Steretary of Treasury
Assistant Secretary of War

Chief of Staff

ONI
WPD

CONFIDENTIAL

417-A
Paraphrase of Code Radiogram

Received at the War Department
at 9:28 A.M., October 31,1940

CONFIDENTIAL

Ankara, filed 21:00 (7), Oct. 31, 1940.
British source advises that five Handley and Wellington
squadrons are scheduled to arrive in Crete on the 31st or 1st.
Warell's Chief of Staff, General Smith is paying a purely complimentary visit to Turkey, the occasion being the celebration
of the republic's 17th anniversary. Have had an hour's conversation with Smith and with other British officers from Egypt and
am convinced that the British cannot give real assistance to
Greese or to resist a determined attack on the canal.
In the last 24 hours the Germans have questioned -

repeatedly and they speculate as to whether the Turks will fight

in the event of Bulgaria maintaining neutrality.

It is reliably stated that there is one Bulgarian division opposite Greece and four on the Turkish frontier. There is
no indication that these forces are being increased. The Bulgare

can mobilise ten divisions. The Turks will take no action unless
Greece is attacked by Bulgaria and this is considered improbable.

The Turks feel there is no pressure on the Syrian or
Concesian frontiers. The Russians have moved three divisions to
Bessarabia from the Caucasus.

Distributions
Military Aide to the President
Secretary of War
State Department
Secretary of Treasury
Asst. Secretary of War

KLUSS

Chief of Staff CONFIDENTIAL
War Plans Division

Office of Naval Intelligence

418
BRITISH EMBASSY,
WASHINGTON, D.C.

Personal and
Secret.
31st October 1940.

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,

Hank Buther

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,

Washington, D.C.

419

Telegram of October 29th.

Naval.

Walpole mined off Herwich a.m. October 28th

has arrived in harbour.
H.M.B. "Drifter" bombed and sunk

off Southwold p.m. October 28th.
Reconnaissances October 28th show

one Hipper class has left Hamburg and "Bremen" or
"Europa" may have left Bremerhafen.
Greek motor vessels have been

ordered to avoid enemy ports. P.M. October 28th main

Italian fleet in Taranto and Brindisi. No activity
observed western coast of Greece. Aircraft on
October 24th successfully bombed Tobruk and aircraft

scored direct hite on Lorient power station 6.30 a.m.
October 28th.

Boulogne attacked by aircraft p.m.
October 28th unfavourable weather prevented all air-

craft finding target.
Royal Air Force. Daylight October 28th.
2.
At dusk our medium bombers attacked two German aerodromes and barges at one Hague port.

During the night of October 26th/

29th 109 aircraft were sent to the following targets.
Shipyards at 4 German ports (44 heavy bombers); 3 oil
plants in Germany and Belgium; aerodromes in Northern
France and Low Countries; barges at Boulogne. Many

fires started.
one Blenheim crashed in England one
has not reported back and one heavy bomber came down
/in

420

in the sea off Scotland.
3.

German Air Force.

October 27th/28th.

(Further reports).
Casualties in London area so

Night of

far reported are 25 killed and 64 wounded. At
Coventry no serious damage has been reported from

key point factories. Casualties for the town
were sparse and none fatal.
Daylight October 28th.
During the morning enemy activity
was slight but increased towards midday when about

20 aircraft approached London. At 4 p.m. larger
formations appeared; 30 aircraft approached
Portsmouth area, 100 flew in as far as Southern
Outer London area but soon turned back and about

another 130 penetrated inland, some to Essex and

others to Southern outskirts of London. Several
interceptions were made by our fighters. Minor
bombing resulted chiefly in Kent, Sussex, and
Essex but only slight damage is reported except at
Maidstone where fairly wide damage was caused to
house property.

Night of October 28th/29th.
Activity though widespread was

on reduced scale to recent nights.

London and

Birmingham were main objectives although several

large towns in the Northeast, Northwest and Mid-

lands were visited. From midnight onward the
concentration was chiefly on Southeast England
and suburbs of London, many aircraft turning back

without reaching central area.
One enemy aircraft was damaged

by our fighters and one shot down by anti-aircraft
/fire.

fire.
In London area no noteworthy damage

was reported apart from a 50 pump fire at Woolwich
Arsenal which was under control in half an hour and

a direct hit by 3 bombs on a public shelter containing 400 persons, where it is feared casualties may
be heavy.

Widespread and indiscriminate bombing

is reported from Birmingham area, although casual-

ties and damage are very slight, and in the City
itself further damage by fire was caused at Station.
Many other fires were caused but all except two were
under control and majority extinguished by 2 a.m.
4.
Summary of air casualties.
Destroyed Probable

Enemy:

Damaged

By day - Fighters
October 28

Bombers

2
3

Fighters

By night - Fighters
October 28/29
Type unknown

nil

By anti-aircraft fire

Night October 28/29
Totals:

nil

Type unknown

nil
9

British: Our fighter losses were nil.
One bomber missing.
5.

Middle East.

Eritrea. on October 26th two
Junkers-86 of South African Air Force dive-bombed

an Italian military camp. Fires followed by explosions were started in workshops, a suspected petrol
dump was ignited and several buildings were hit.
Sudan.

Kassala

sector. It is confirmed

from infantry sources that a petrol and an ammunition
dump were blown up by Royal Air Force raid on October
22nd/23rd.

422

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE October 31, 1940

Secretary Morgenthau

FROM

Mr. White

Subject:

Some matters of possible special interest

1. Mr. Marris of the British Embassy yesterday conveyed
to me the following information:
(a) Sweden has signed an oil agreement with Russia,

according to which Russia will send 2 million
additional barrels of oil to Sweden, provided
Sweden purchases from the United States
2.4 barrels to be delivered via Vladivostok.
The British Government is exploring with the
State Department the possibilities of restricting exports to Russia to normal quantities.

(Memorandum received from Mr. Marris is appended.)

(b) Mr. Marris submitted some estimates of capacity
of the Siberian railway available to Germany,
which he stated were requested by you. Mr. Marris
emphasized orally that the estimate was only a
best "guess". (His memo is appended.)
(c) The negotiations between Japan and the Dutch
East Indies are not completed. The Japanese
are now considering the Dutch terms. (Page 3
of the memorandum will interest you.)

2. Shipments of scrap iron and steel to Japan during

week of October 19-26 were 20,688 tons. White House
Press Release of September 26 stated no scrap would
be shipped to Japan after October 16.

3. Gasoline shipments to Japan in the period since the
President's Proclamation of July 26 were 1.3 million
barrels, which is more than we shipped during the
whole year 1939 to Japan. Eighty-three percent of

these shipments were high-grade gasoline and licensed.

White:- fthe flow of scap irm
and oil to Johan continues at
Attachments

this rate bring it to

my attention
after myq A
vacit.atim.
will then doinsomether
about
H.m.

COPY.

423
OIL FOR RUSSIA.

It is our general policy to create an oil famine in Europe and
to stop any supplies which might fall within the following cate-gories:

a) Supplies which might, after receipt in a neutral country, fall
into enemy hands by re-shipment or otherwise.

b) Supplies to a neutral country which might free other stocks
for the enemy.

c) Supplies to a neutral working industrially for the enemy, which
if not made, would either force that country to close down its
plants or to draw its supplies from the enemy or from a source
which is supplying or might supply the enemy. An example is
Sweden which is working industrially for Germany and which should
therefore be forced to draw her supplies of oil from Germany or
Russia.

2. On the above lines we are now exercising a very strict
control over oil for Europe. The only supplies which are allow-ed through our controls are as follows :a) To Spain and Portugal the amounts necessary to meet

their legitimate domestic needs and to stabilize stocks at a
reasonably low level. (The negotiations with Portugal appear
to have temporarily broken down but the basis of our offer is
similar to the agreement with Spain) Polatical considerations
made it necessary to allow these supplies.
b) To Sweden and Finland the small amounts necessary

to run the lorry service to and from Petsamo. We are considering

closing the Petsamo route entirely owing to increased German

control, but if we decide to keep this route open, we should
continue the small allowance of oils.

c) To Greece and Turkey, small quantities of lubricating

oils of a kind which cannot be obtained from Roumania. There are

important strategic and political reasons for satisfying these
countries' requirements of small quantities of these oils.

No other imports of oils to Europe are being allowed
through our controls.
No control has been exercised over Russian oil imports via
3.
Vladivostok. Normally Russia comes into the United States

market periodically for large quantities of motor spirit for

in Eastern Siberia, As the attached statements show, there
use have been no abnormal movements of motor spirit from the U.S.A.
to Russia since the war. Shipments of other oil products of
which Germany is particularly short, e.g. lubricants and gas oil,
have been negligible.
4.

Shipments of motor spirit have been,
1937
1938

nil

1,500,000 barrels.
883,600 barrels.

1939
Oct 15th) 714,000 barrels, with some other in
shipments
1940 (To
sight.

424

5. There is no evidence of westward oil traffic to Europe via
the Trans-Siberian Railway. A reduction in imports to Vladiv-ostok might divert supplies from Russian oilfields which would
otherwise go to Germany but present deliveries of Russian oil to

Germany, which reached 600,000 barrels in July compared with

500,000 barrels in June, are limited not so much by shortage of
oil but by Russian policy and lack of storage and transportation
facilities. Therefore unless Vladivostok imports reach
abnormal quantities or include abnormal qualities , we would
feel no concern.

6. But Sweden has now signed an oil agreement with the Soviet.
Sweden will receive 100,000 tons of Russian oil (750,000 bbls)
over the next twelve months against Swedish railway material

(deliveries are not expected to start this year). This in
itself might tend to reduce supplies of both oil and railway

material available to the enemy, but the agreement further prov-ides that Sweden may receive an additional 272,000 tons,
(2,000,000 barrels) of oil if, in return, she procures for the
Soviets 320,000 tons (2,400,000 barrels) of American oil via
Vladivostok and also additional quantities of American railway
material.

7. It must clearly vitiate our control over imports of oil into
Europe if great quantities can be imported through Vladivostok
to release Russian oil supplies for export, and we are asked
(telegram No. 1869 of October 2nd) to explore the possibility

of United States restricting oil imports via Vladivostok.
8. Obviously this question is involved with wider political

issues and presumably if exports to Russia can be restricted to
normal quantities and qualities, we should have every incentive
to encourage the Swedish agreement if it means diversion of
Russian supplies from Germany to Sweden and the use of Swedish
balances for Russian benefit.

9. The matter is urgent because of current talks between the

U.S. Government and the Russians and because the M.E.W. have

learnt (telegram No. 1953 of October 7th) that representatives
of Socony-Vacuum have gone to Moscow to negotiate with the
Soviet petroleum trusts. We should enquire of State Department
regarding this and I will make discreet enquiries of Socony.

10. Most of the oil going to Russia is carried in U.S.-Flag
tankers. Since, by quality, it is not subject to export license

the United States might restrict the trade to normal through
It is
exercising its power to disapprove tanker charters.
understood that early this year the Maritime Commission disapp-roved charters of American-flag tankers for voyages to the Far
East because it did not want the vessels "to go so far from
home". This policy may have been aimed at Japan but if it could
be applied to Russia after normal quantities have gone forward,
our object would be achieved. The Russians could presumably
charter neutral tankers, but there are probably insufficient
of these free to carry excessive amounts and any competitive
bidding for free neutral tankers would be generally beneficial.

11. One other point is of interest in connection with oil
for Russia. Russia this year has placed orders for large

quantities of oil well machinery, much of which has already
will be to increase Russia's capacity to produce and deliver
oil probably from the new and less vulnerable fields in

gone forward. There will be a time lag, but the net effect
Central Russia.

425

12. By way of illustration, the following orders might be

mentioned:

a) An order placed early this year with Clark Bros. of

Olean, N.Y., for compressors and pumps costing $2,210,000.
b) An order, placed in March 1940, with Franks Manufacturing

Co. of Tulsa, Okla, for 40 portable drilling rigs with engines,
trucks, etc. at $42,000 or $55,000 per unit. These were to be
delivered at the rate of four rigs per month, the whole order to

be completed by January 1941, and presumably much has been shipped.

c) Order, also placed about March 1940, with Portable Rig Co.
etc. mounted on tractors at $65,000 per unit. We presume some

of Houston, for five heavy type drilling rigs, with engines, pumps
of these have gone.

d) A recent order for drilling rigs placed with the Texas

Iron Works, for shipment to Vladivostok via New York, and part of
a large order reported to be valued at $2,000,000.
P.H. 22.10.40.

426
TRANS-SIBERIAN RAILWAY.

I understand that Mr. Morgenthau has asked for a note on the

capacity of the Trans-Siberian Railway now thought to be available to
Germany.

Our calculations show that about 15,000 metric tons a week
capacity was available a few months ago, and that this amount was shortly

to be increased by the conversion of a further number of German freight
cars to the Russian gauge.
The above figure has been checked by reports from various

secret sources which reveal:
(1)

That the South Manchurian Railway has a potential free
capcity of 1,000 tons per day.

(2)

That the Soviet Government has licensed the passage of
commodities through Vladivostock bound for Germany at

the rate of 1,500 tons a day.

The significance of (1) and (2) above is that:In the case of (1) the South Manchurian Railway serves the

ports of Dairen and Fusan. It is standard gauge and only runs as far
as Manchouli, on the Russian-Manchurian border, where trans-shipment to

the Russian gauge has to be made. That this operation is a serious one

and is a limiting factor is confirmed by our information to the effect
that serious traffic and storage congestion now exists at Manchouli.

In the case of (2) the railway from Vladivostock to
Karimskaya through the Russian Far Eastern Provinces is Russian gauge,

and no trans-shipment is necessary.

October 24th,1940.

427

see
P 3 your
JAPAN AND OIL SUPPLIES.
Tons,
1.

Annual Average Supply over 1937-1939 (inclusive)

Annual Average Consumption.

STOCKS. accumulated before 1937,

Japan's imports from the U.S.A.
January to August, 1940.

6,013,000

6,000,000.
5,260,000.

thought to be of all grades.

2,000,000.

Negotiations with Dutch. September-October, 1940:
Japan asked for:
(a)

3,700,000 tons from the N.E.I.

(b)

On 5 year contracts.

aviation spirit could be made.
6.

Japanese have been offered:

(a) An annual rate of delivery of 2,000,500 tons
(inclusive of existing contracts).
(b)

Except for 40,000 tons a month of crude for the

period July, 1940 to July lat, 1941, all the above
was offered on a six month basis only.
tons

(c)

75% of the 2,000,500/to be supplied by Royal Dutch.
25% by Standard Vacuum.

(d) The 2,000,500 tons offer consisted of:
Crude oil.

Tons.
660,000

330,000.

Gasoline.
150,000.
Kerosene.
236,000.

Gas oil and Diesel 011.
130,000.

Residual Fuel.
494,000.
Products under (i.e.) normal Existing import contracts). quota

(e)

The crude is not of a quality capable of producing
aviation gasoline.
The gasoline is not aviation gasoline, though some It
is 70% octane rating which could be leaded up.
is not comparable to the 1,000,000 barrels delivered
or now being shipped from California.

428
7.

The Japanese are not satisfied with this offer,and are
demandings
(a)

Aviation gasoline.

(b)

5 year contracts.

The companies have held fast.
8.

The figure of 2,000,500 was agreed after full consultation
between the Dutch, British and U.S. Governments.

429

The leader of the Dutch Delegation has informed His Majesty's
Consul General in Batavia that the Japanese Delegation, headed by Minister

Kobayashi, persisted in putting the discussions on a political plane, and
averring that the oil policy of the Netherlands East Indies Government was
dictated entirely by Washington. Van Mook, the leader of the Dutch Dele-

gation, denied this strongly. The Japanese then suggested that in order to
remove this unfortunate wrong impression they should inspect the oil fields.
Mr. Van Mook refused this, stating that the Netherlands East Indies Government could not allow the veracity of their statements to be checked by a

foreign third party.
The Japanese asked that they should be believed when they stated

categorically that the "new order in East Asia" did not include any territorial designs on the Netherlands East Indies. Mr. Van Mook replied that
he would believe this willingly if the Japanese would also believe that
Washington had no influence on the oil policy of the Netherlands East Indies,

and he concluded by saying that if they insisted on introducing political
phantasies he must break off negotiations altogether. Altercation ensued
among the Japanese delegates, but they changed their tone and continued the

discussions of economic question in a friendly manner.

October 24th, 1940.