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DIARY

Book 337

December 8 and 9, 1940

-A-

Book Page

Africa, South

See War Conditions: United Kingdom
Allison Engineering Company

See War Conditions: Airplanes (Engines)

Argentina

See Latin America

-B Bank of America

Entire Giannini situation discussed by Frank and HMJr
in view of approaching hearing before Securities
and Exchange Commission - 12/8/40

337

a) Frank upset for fear HMJr had made certain
promises to National Democratic Committee before
election

b) Frank intimates Jones' interest may be because
he is a Catholic
c) Haas provides organization chart, etc. - 12/11/40:
See Book 338, page 322

HMJr tells 9:30 group of Frank talk - 12/9/40
a) Delano ill; HMJr will not act until Delano can
participate

Black Tom case

Approaching settlement discussed by Foley at 9:30
meeting - 12/9/40

38-B

a) McCloy tells Bernstein of resignation from firm

and full-time employment in Washington - 12/12/40:

See Book 339, page 7
Branch Banking
See Bank of America

Business Conditions
Haas memorandum on situation for week ending 12/7/40
Butterworth, Walton W.

HMJr explains to 9:30 group "Butterworth is not in his
confidence" - 12/9/40
(See also Book 338, page 246 - 12/11/40)

236

38-H

-CCanada

See War Conditions
China

See War Conditions

Churchill, Winston
See War Conditions: Purchasing Mission

-DDefense, National

Inventory of idle plants outside New York City: Report
sent to HMJr by Lehman - 12/9/40

Dillon, Clarence

Forrestal will introduce to HMJr - 12/9/40

165
59

-EBook

Page

337

323

Edison Company (Boston and New York)
See Financing, Government

--Federal Bureau of Investigation
Klaus memorandum - 12/9/40

Financing, Government
Tax-exempt Securities:

Reconstruction Finance Corporation: Jones asked by
HMJr to borrow no money in market with tax-exempt

securities in view of Treasury plan; Jones
doubtful - 12/8/40

a) Jones' agreement
Wickard and HMJr discuss - 12/9/40
a) Wickard tells HMJr Grange, Farmers Union, and
Farm Bureau all agree - 12/11/40:

262

62,102

See Book 338, page 275

Tax-exempt problem and debt limitation discussed by
Treasury and Federal Reserve - 12/9/40
Press conference draft as drawn up by HMJr - 12/9/40.
Edison Company Boston and New York rates compared for
HMJr - 12/9/40

260
256

Food

See War Conditions: Purchasing Mission

-GGiannini Family
See Bank of America
Gold

For South African gold mines held by British, see
War Conditions: United Kingdom

See also Var Conditions: Gold (Portugal)
Greece

See War Conditions: Airplanes

-IItaly
See Var Conditions: Foreign Funds Control

-LLatin America

Rockefeller progress report for week ending 12/9/40.

327

Argentina:

For British holdings, see Var Conditions; United Kingdom
Leffingwell, Russell
Gaston vetoes connection with Treasury - 12/9/40
Liaison Committee
See War Conditions

266

-MBook

Page

337

315

McCloy, John J.
See Black Tom case
Monnet, Jean

See War Conditions: Purchasing Mission

-NNetherlands Purchasing Commission
See War Conditions
New York State

For report on idle plant facilities, see War Conditions:
Plant Expansion
Norway

See War Conditions

-PPension System (National)
HMJr's memorandum to Bob Allen - 12/9/40
(For Allen's acknowledgement see Book 338, page 320)

Phillips, Sir Frederick

See War Conditions: Purchasing Mission
Pickett, Clarence
Jealousy between Pickett and Norman Davis discussed
by Mrs. Roosevelt and HMJr - 12/9/40
Plant Expansion
See War Conditions
Portugal
See Gold

President's Liaison Committee
See War Conditions: Liaison Committee

-RReconstruction Finance Corporation
See Financing, Government

Rifles

See War Conditions: Canada

-SSouth Africa
See War Conditions: United Kingdom
Spain

See War Conditions

-TBook

Page

Taft, Robert A. (Senator, Ohio)

"HMJr directs foreign policy rather than Hull" continued statements discussed by 9:30 group -

12/9/40

337

Tax-exempt Securities
See Financing, Government
Transamerica
See Bank of America
Turkey

See War Conditions

-UUnited Kingdom

See War Conditions: Military Planning; Shipping

-VVar Conditions
Airplanes:
Engines:

Allison Engineering Company:

Bad production situation discussed by Sloan
and HMJr - 12/9/40

Deliveries and shipments - 12/9/40

311,312

Greece:

Availability of P-40 airplanes discussed by Young
and War Department - 12/9/40

259

Canada:

Coordination between Purchasing Commission and Defense

Board to be worked out - 12/9/40
Rifles - availability of: Young memorandum - 12/9/40
Flying of aircraft from Canada to England: Young
memorandum - 12/9/40

324
326

China:

Currency situation: Outlook in light of American
support and in face of progressive threat to security
of Shanghai - American Consulate report - 12/9/40

Exchange market resume' - 12/9/40
Foreign Funds Control:

Italy:

Transactions with Chase National Bank - 12/9/40

334
301

303

Gold:

Portugal: Shipments by and for account of Bank of
Portugal - 12/9/40
Liaison Committee (President's)

Difficulties with regard to scope of work and priorities
discussed in Young memorandum - 12/9/40

Military Planning
Report from London transmitted by Lothian - 12/9/40

270

313
358

- W - (Continued)
Book

Page

337

267

War Conditions (Continued)
Netherlands Purchasing Commission:
Set-up explained to HMJr in Young memorandum 12/9/40
Norway:

Prefabricated houses to be purchased in Sweden
by American Norwegian relief organization
discussed at 9:30 meeting - 12/9/40
Plant Expansion:

New York State: Inventory of idle plants outside New
York City - report sent to HMJr by Lehman 12/9/40

165

Purchasing Mission:

Churchill's resume of 1940 and prognostication for

1941 prepared for FDR - 12/8/40
Requirements as of December 1, 1940, discussed by
HMJr. Bell, White, Cochran, and Young - 12/9/40
a) Tables and charts attached

b) Marshall will unhesitatingly approve

(See also Stimson's reservation on
$50 million: Book 338, page 34)
Requirements discussed with Phillips, Playfair, and
Pinsent - 12/9/40

15-A
43

108

Dollar receipts and expenditures of sterling area,
12/1/40--9/1/41: White original memorandum

(later revised) - 12/9/40

Food: Nelson asks HMJr to arrange so that all food
purchases clear through the Commission - 12/9/40
Monnet, Jean: Resignation as chairman but continued
cooperation - Monnet-Churchill-Greenwood correspondence

372
231

263

Shipping:

United Kingdom: Lothian report on (1) amount of tonnage
now available (losses in recent months included) and

(2) shipbuilding situation - 12/8/40

Spain:

Payments agreement negotiated with United Kingdom -

12/9/40
Turkey:

Payments agreement negotiated with United Kingdom -

12/9/40
United Kingdom:

British holdings in Argentina: Discussion at 9:30

304

meeting - 12/9/40
South African gold mines and other South African

meeting - 12/9/40
Payments agreement negotiated with Spain and Turkey -

properties held by British: Discussion at 9:30
12/9/40

White, William Allen (Editor, Emporia Gazette)
Thanks HMJr for hospitality - 12/9/40

304

258

1
BRITISH EMBASSY,

SECRET

WASHINGTON, D.C.

December 8th, 1940

Dear Mr. Secretary,
In accordance with your request
secret

I enclose herein al memorandum regarding the

shipping problem. Attached to this memorandum

are two appendices, the first containing figures
showing the amount of tonnage now actually

available to the Allies and giving the figures
for losses in recent months, and the second

dealing with the ship-building situation in the
United Kingdom and which sets out the kind of
assistance that the Ministry of Shipping would

like to obtain. These documents were not specially
written for communication to the United States
Government but I think you would like to see them.

They were given to me just before I left London
and have been brought up to date in the light of

certain telegrams just received. I should
emphasize, however, that the figures for the new
ships/
The Honourable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

(aver)
/

ships which it is hoped to have built in the
United States should be regarded as provisional.
In addition to encouraging the construction of a large number of merchant vessels

in this country there are of course a number of
other methods by which the United States Government

could greatly ease the present situation but I
hardly think you would wish me to go into such

matters in this letter. Perhaps however I may
quote one concrete example to show the complication

which arise from the Neutrality Act in its present
form.

The British authorities are very anxious

to be able to export military aircraft which they
buy in this country to Takoradi in the Gold Coast
where they would be reassembled and, I understand,

used to reinforce our air force in the Middle East.
Takoradi although a belligerent port is within the
area regarded as "safe" according to Section 2 (g)
of the Neutrality Act and American vessels may

therefore carry goods to it. Such goods may

not

however/

BRITISH EMBASSY,
WASHINGTON, D.C.

however include any war materials and thus
American ships cannot be used to carry the

aircraft from this country to the Gold Coast.
There are extremely few British ships on the
United States - West Africa run - in fact I am
not sure if there are any such ships engaged in
this trade at the moment - and the British
authorities are therefore faced wi th the
alternative of cutting down the number of aircraft
which can be sent to Takoradi or taking off some

British ships from the other routes in which they

are so badly needed. If it were possible for
American ships to carry the aircraft to Takoradi
the situation would be immensely improved.
Believe me,

Dear Mr. Secretary,

Yours very sincerely,

Lolam

SECRET

SHIPPING LOSSES AND REPLACEMENT

For the successful prosecution of the war,
nothing is more urgently necessary than that the

tonnage resources of Great Britain and her Allies should
be maintained and augmented.

It is true that the accession of Allies who
have important maritime fleets has put at the disposal
of the Alliance a large number of vessels, but the

effective importing capacity of this tonnage, like that
of Great Britain herself, is reduced, far more seriously
than is popularly supposed, by a number of war conditions.
Moreover, much of this shipping is normally engaged in

bringing goods to Great Britain. It is by no means all
additional.

Measures essential to protection involve

delays:- time awaiting convoy, resort to zigzagging and
indirect routing and much time spent in arming vessels

with guns and in degaussing them. Allied crews naturally
demand armament, and the Norwegian and Dutch shipping

chartered to the Minister of Shipping has been held in

port for substantial periods in order to admit of this
protection being given. Ultimately, of course, these
measures reduce wastage but the first result is delay,
and that delay may now affect Greek shipping, thus
actually reducing its immediate value.
Under war conditions, moreover, especially
when the ports have been subjected and remain subject to

aerial bombardment, the turn-about of ships is less
expeditious and docking repairs take longer than in time
of peace.

Above all, the closing of the Mediterranean
and the inability to use the French North African and
Moroccan ports, consequent on the defection of France,
have/

-2-

have involved reliance upon much more distant sources

of supply for certain important commodities, including
iron ore, phosphates and barley, while the additional
length of voyage to Egypt, India and the East entails a
serious diminution in the importing capacity of our fleet.
The losses inflicted on shipping, British,
Allied and Neutral, have become much more serious since

the defection of France gave the enemy the use of all

the French Channel and Atlantic ports. (Incidentally,
this closed also the use of Bilbao and other ports in
North Spain, our nearest source of supply of Iron Ore).
Paragraph (1) of Appendix I shows the total
of British vessels of 1,600 gross tons and over

(roughly the limit for overseas service in present
conditions) at the outbreak of war - viz: just under
14 million gross tons of shipping. To this rather over
2 million gross tons has been added by capture,
transfers from the Great Lakes, purchases from neutrals

and new building. Acquisitions by capture cannot continue
on any substantial scale and the field of purchase from

neutrals is increasingly restricted. Practically all
the vessels purchased have been secured from the United

States, through the greatly appreciated good will of the
Maritime Commission.

From paragraph (4) it is possible to see what
a heavy drain direct naval and military requirements
make upon shipping, and in particular, upon passenger
ships and those mixed passenger and cargo liners which,

by their high speed, are an important aid in importing
essential supplies from the more distant sources.
After allowing for losses (as indicated in
paragraph (3) of the Appendix) and for the tonnage

withdrawn for naval and military purposes, there was at
the end of October, 1940, just over 11 million gross tons
of/

-3-

of shipping under the British flag, but much of this is
required for essential trade of the Empire outside the
United Kingdom. Moreover about 11 million gross tons
are at present under repair. The balance available for
importing into the United Kingdom is therefore under
8 million gross tons. To this add about 2,400 thousand
tons gross of neutral and allied shipping on time-charter
to the Ministry of Shipping, together with about half a
million tons gross on voyage charter (see paragraph 6).
If the dietary of the people and the supply
of raw materials are to be maintained on a scale fully
adequate to the war effort, a minimum import of 43
million tons (excluding oil) per annum should be
achieved, although the necessity for a somewhat lower

figure has been envisaged. In spite of the volume of
shipping now secured, imports (excluding oil) fell in the
last two months, when the closing of the Mediterranean,
the loss of several near sources of supply and the
heavier sinkings of the recent months began to show

their full effects, to 3 million tons in September and
slightly over 3 million tons in October (see paragraph 8)
that is at the rate of import of only some 36,000,000
tons per annum.

The losses of British and foreign tonnage
from all causes in recent months represents an annual

wastage of 4 million tons gross, and this can only be
replaced by new building, of which we can probably

supply only 11 million - leaving a deficit of some
3,000,000 tons to be supplied from elsewhere.
Steps have naturally been taken to increase

and expedite new construction in this country and other

parts of the British Empire. Apart from the very
limited capacity of the yards in Hong Kong, this means
substantially that we must look to the home yards.
Appendix/

Appendix II describes the programme at which

we are aiming and the limitations upon it. We shall be
fortunate if we attain next year an annual rate of output
of 11 million gross tons, in view of the urgent claims
of naval construction and the demands they make upon our

resources in men, material and facilities.
The remarkable rapidity with which the merchant

shipbuilding facilities of the United States were
expanded and devoted to the Allied cause in the war of
1914-1918 suggests that similar assistance could now be

made available, and it is urged that the United States
production for Great Britain should be raised, as

expeditiously as possible, so as at least to deliver
3 million gross tons, of which one third should be cargo
and passenger linersof 15/16 knots speed, which are
essential for the reasons elaborated in the Appendix.

It is specially important, if possible, to
secure a number of these faster ships without delay

and this could only be achieved by transferring to
British account some of the vessels now under construction
for the Maritime Commission.

A further direction in which assistance could
be given to the war effort would be to widen the range
of ports to which United States vessels can trade and
also carry munitions and other war material (e.g. to
South and East Africa), and if necessary, to amend the
Neutrality Act.
Any measures which would make the numerous

German, Danish, and Italian vessels sheltering in ports
in North and South America available for service in
connexion with the British war effort, without thereby

allowing financial benefits to accrue to the Axis
powers, would also greatly assist.
NOVEMBER, 1940

SECRET

APPENDIX I

1. At the outbreak of war the ocean-going British
Mercantile Marine (i.e. vessels of 1,600 gross tons and
over) exclusive of tankere, consisted of some 2,500

vessels totalling 14 million gross tone or 181 million
tons deadweight. These vessels were classified as follows:
(Tonnage figures in thousands)
Number

Passenger liners
Mixed passenger and

cargo liners
Cargo liners
Tramps

Gross tonnage

Deadweight

968

485

444

3,433
5,770
4,235
14,406

2,845
8,141
7,221
18,692

978

1,009
2,524

2. From that date and up to 27th October last the
following additional tonnage has come under the British
Flag:(Tonnage figures in thousands)
Number

(a) New Vessels
(b) Purchases from
neutrals

Gross tonnage

Deadweight

126

771

1,038

325

497

256

994

444

2,090

1,308
2,843

French and

Danish tonnage

and transfers
from the Great
Lakes

The acquisitions under (c) are of a non-recurring

nature.

3. The losses of the British Mercantile Marine from
enemy action and other causes up to the same date were:(Tonnage figures in thousands)
Number
374

Gross tonnage

Deadweight

2,044

2,873

From the beginning of the war up to the end of May, these
losses averaged 4 vessels per week totalling 20 thousand
tons gross or 30 thousand tone deadweight. In the
succeeding period up to the 27th of October the weekly
losses averaged 10 vessels of 60 thousand gross tons or

81 thousand tons dead weight, i.e. the losses in the

later/

later period were at a rate nearly three times that
experienced in the earlier period.
The losses are continuing at a high level.
4. The ocean-going British vessels diverted to naval
and military purposes at the present time, i.e. at 20th
October, 1940, are as follows:(Tonnage figures in thousands)
Number Gross tonnage Deadweight

Passenger liners

7736

350

1,512

1,084
1,021

Mixed passenger

and cargo liners 136
132
Cargo liners

Tramps

742

257

404

3,247+

410

2,865

Between 20th October and 3rd November this total
had increased by approximately 100,000 tons.

5. Accordingly, there are now about 2,200 vessels of
11 million gross tons or 15 million deadweight under

the British Flag with which to transport all the vital
supplies of food and munitions for the United Kingdom
and the Empire, in comparison with the figures shown in

paragraph 1 above. The classification of these vessels
is approximately as follows:(Tonnage figures in thousands
Number Gross tonnage Deadweight

Passenger liners

257

109

299
811

1,869
4,756
4,313
11,195

1,729
6,696
7,263
15,797

Mixed passenger and

cargo liners
Cargo liners
Tramps

1,055
2,190

An appreciable part of this tonnage is engaged in
serving the Dominions and Colonies.

6. Allied and Neutral vessels on time charter to the
United Kingdom as at 31st October, and thus in the

direct service of this country comprise:
(Tonnage/

-3-

(Tonnage figures in thousands)
Number Gross tonnage Deadweight
On Naval and

Military service

On other service:

259

155

1,185
2,242
3,582

Liners

143

Tramps

803

346

1,357
2,419

519

In addition, some Allied and Neutral vessels not under
time charter to the United Kingdom still engage in trade
with this country.

7. It must not be inferred that the great volume of time
chartered Allied and Neutral tonnage represents an
addition to the tonnage resources available for the
importing work of the United Kingdom as compared with pre-

war conditions. Much of it is normally engaged in
bringing supplies to the United Kingdom. Delays due to
the need for convoys, the routing via the Cape owing

to the closing of the Mediterranean, port delays, the
increased volume of tonnage under repair and general war-

time restrictions reduce the effective carrying capacity
of tonnage. Near European sources of supply are no
longer available.
8. Our pre-war imports (1937) averaged 5,010 thousand
tons per month excluding tanker cargoes. The corresponding
average imports during the first year of the war amounted
to 3,670 thousand tons. In recent months the record of
imports has been as follows:1940

(Thousand tons)

April

4,207
4,177
4,054
3,389

May

June

July
August
September

3,939
3,017

Similar figures are not yet available for
October. The present indications are that imports for
that month may be a little less than those for September.
Our programme of requirements (other than oil)
for/

for the second year of war amounts to 43 million tons:Ministry of Food
Ministry of Supply

19 million
23 million
1 million
43 million tons per

Miscellaneous

annum

or 3,600 thousand tons per month

9. Losses of tonnage (other than tankers) from all
causes in recent months represents an annual depletion

of tonnage available by 42 million tons gross or 64
million tons dead weight. The recorded figures for
vessels of 1,600 gross tons and over give the annual rates
as follows:Million

Gross tons

British
( based on 21 weeks

Million
Deadweight tons

3.1

4.2

1.4

2.1

4.5

6.3

10/6 to 3/11

(

Foreign

based on 20 weeks
}

10/6 to 27/10

(

11
APPENDIX II

SECRET

The position in British shipyards.
The maximum output to which British shipyards

can attain in wartime is not likely to exceed 1,250,000
gross tons per annum. Pre-war planning did not assume any

higher figure because it was realised that naval
requirements would have to take first place.
(In the first year of war the actual amount of
new tonnage produced was 760,000 gross tons.)

The output of new merchant ships is further
affected by the heavy burden of fitting and repair work

on existing ships arising from war-risk damage, collision
in convoy, defensive arming, degaussing and protection
against air attack. So serious have been the demands on

labour for these purposes that the Ministry of Shipping
is encouraging owners to carry out repairs abroad to the
maximum extent possible by means of grants towards the

extra cost.

Marine engineering labour has been particularly
affected by demands made for war production in other
branches of the engineering industry, and engines for
merchant ships have had to take second priority to those

for naval vessels, with the result that engine
production has lagged behind the completion of hulls.
Notwithstanding the heavy demands for skilled
labour in other directions, shipyard labour has shown a
substantial growth. since september, 1939, but, for the

reasons given, little of this increase has been available
for new merchant ship construction

Finally, shortage of steel supplies has

retarded output: this arises from the loss of ore
supplies from Sweden, of heavy forgings for crank-shafts,
etc. from Norway and Belgium, and of steel from
Luxemburg/

12
-2-

Luxemburg and France. Deficiencies have to be made good

by imports from more distant sources, including steel
plates from U.S.A.
Type of vessels being constructed.

In order to achieve the maximum of carrying
power, the Ministry of Shipping has arranged that the
Merchant Shipbuilding Department of the Admiralty are

concentrating on the construction of simple types of cargo
ships with speeds not exceeding 12 knots, and on tankers.
Save for a small number of cargo liners ordered on
Government contracts at the outbreak of war and for those
liners building on private account (mostly ordered before
the outbreak of war), there has been a rigorous
exclusion of everything save tonnage for cargoes in bulk.
A tabular statement is annexed showing the

different types expected to be completed between 1st
October, 1940 and 30th September, 1941.

Construction outside the United Kingdom.
Apart from Hong Kong, where the yards are
being employed to the maximum in producing merchant

tonnage for the Ministry of Shipping (35,000 gross tons
per annum) the only countries outside the United Kingdom
capable of building ocean-going vessels are Canada and
the United States.

In view of the obvious seriousness of the
position through losses in recent months, the First Lord
of the Admiralty and the Minister of Shipping have been
authorised by the Government to arrange for the placing
of orders for 60 cargo tramps in the United States, and
it is understood that the work is being entrusted to the
Todd Shipyard Corporation. These vessels will be
delivered between the Autumn of 1941 and the end of 1942,

and will mean an addition to the British Mercantile
Marine/

13
-3-

Marine of 400,000 gross tons; of this 300,000 gross tons
will be produced in the third year of war, bringing the
total output for the year from all sources to about 11
million gross tons of ocean going vessels excluding
tankers, which is only a quarter of the present annual
rate of loss of tonnage in Allied service.
Essential needs over and above the foregoing
Programme

It is the opinion of the Minister of Shipping
that the aim of tonnage output outside the United Kingdom

in the third year of war, or as soon as possible, should
be 3,000,000 gross tons, of which a small proportion

may be built in Canada; that is to say, instead of
400,000 gross tons the United States production for
Great Britain should be 3,000,000 gross tons at least.
This should be divided as follows:Cargo tramps

2,025,000 gross tonnage (300
instead of
60 ships)

Cargo and passenger

liners (of 15-16

knots speed)

975,000 gross tonnage (95 ships)

(It may be necessary to substitute some tankers for
cargo tramps, but this is a matter for adjustment

between the United Kingdom and United States production).
Cargo and Passenger Liners.

The passenger and cargo liner position in
the United Kingdom is rapidly becoming acute owing to

the diversion of this type of ship to naval and military
purposes, and to the substantial number of such vessels
which have been lost while on naval service as armed
merchant cruisers: these must be replaced by drawing on

existing liners engaged in maintaining the much restricted,
though vitally essential, services throughout the Empire.
The construction of this type of vessel in place of cargo
vessels would substantially diminish output in the United
Kingdom, viz: 20 such ships would result in a diminished
tonnage/
13

1.1

tonnage output of 80,000 gross tons per annum. The

maintenance of British Forces in the Near East entails
voyages by the Cape which take four times the time
occupied by direct voyages through the Mediterranean, and

the provision of additional fast tonnage of these types

for carrying troops and military stores is essential in
order that vigorous prosecution of the war in the
Eastern Mediterranean may not be jeopardized.

It is therefore a matter of the first
importance that the United States Government should

anticipate output by assisting the British Government
to take over tonnage of which the construction is
already well advanced and, in particular, vessels of the
fast cargo and passenger type. Even twenty such vessels

available in the next six months will help at a critical

period. A first step in this direction is already
being taken in the request made to the United States
Government to place at our service for operational use
with the British Navy two 18-knot tankers in private
American ownership, but the disposal of which is
controlled by the Maritime Commission.

TABLE

SUMMARY OF ESTIMATED DELIVERIES - MERCHANT SHIPBUILDING,

IN EACH QUARTER FROM 1st OCTOBER 1940 - 30th SEPTEMBER, 1941.

G.T.

55985

87635

156795

155055

48940

106450

No.

G.T.

CARGO LINERS

CARGO TRAMPS

TANKERS

COLLIERS

COASTERS

TOTAL

12800
7175

281,695

D.W.

23080

12095

384,315

D.W.

No.

D.W.

G.T.
38530

202715

No.

66790

17250

1390

327,675

11th November, 1940

JULY - SEPT. 1941

APL. - JUNE 1941

JAN - MAR. 1941

OCT - DEC. 1940

TYPE OF VESSEL

G.T.

D.W.

TOTAL

No.

G.T.

23600

206750

155020

104

669585

67550

289730

2800

55930

2585

23245

251,555

Excluding sundry small vessels

228

D.W.

1,245,240*

15.A

British Embassy,
Washington, D. C.,

SECRET AND PERSONAL

December 8th, 1940

Dear Mr. Secretary:

I enclose herein a letter for the President
forwarding a secret and personal letter for him
from the Prime Minister. A copy of Mr. Churchill's
letter is enclosed herein for your personal information.

I should be very grateful 1f the letter could
be sent on to the President at the earliest possible
moment. I hope it may be possible to send it by
sea plane, because the Prime Minister is most anxious
that the President should have time to read it care-

fully while on his cruise and before he gets back to
the bustle of Washington.

I should also be greatly obliged if the enclosed
letter from myself to Mr. Henry Hopkins could be sent
at the same time.
Believe me,

Dear Mr. Secretary,

Yours very sincerely,
(Signed) L. Lothian
The Honourable

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

15.B
BRITISH EMBASSY,

WASHINGTON, D. C.

December 7th 1940

My dear Mr. President,

As we reach the end of this year I feel that

you will expect me to lay before you the prospects
for 1941. I do so strongly and confidently because
it seems to me that the vast majority of American
citizens have recorded their conviction that the

safety of the United States as well as the future
of our two democracies and the kind of civilisation
for which they stand are bound up with the survival
and independence of the British Commonwealth of

Nations. Only thus can those bastions of sea-power,

upon which the control of the Atlantic and the Indian
Oceans depends, be preserved in faithful and friendly
hands. The control of the Pacific by the United
States Navy and of the Atlantic by the British Navy
is indispensable to the security of the trade routes
of both our countries and the surest means to preventing the war from reaching the shores of the United
States.

15. C
-2-

There is another aspect.

It takes between

three and four years to convert the industries of a
modern state to war purposes. Saturation point is
reached when the maximum industrial effort that can be
spared from civilian needs has been applied to war

production. Germany certainly reached this point by
the end of 1939. We in the British Empire are now
only about half-way through the second year. The United
States, I should suppose, was by no means so far
advanced as we. Moreover, I understand that immense

programmes of naval, military and air defence are

now on foot in the United States, to complete which

certainly two years are needed. It is our British
duty in the common interest as also for our own survival

to hold the front and grapple with Nazi power until
the preparations of the United States are complete.
Victory may come before the two years are out; but
we have no right to count upon it to the extent of
relaxing any effort that is humanly possible. Therefore
I submit with very great respect for your good and

friendly consideration that there is a solid identity
of interest between the British Empire and the United

15. D

-3-

States while those conditions last. It is upon this
footing that I venture to address you.
3.

The form which this war has taken and seems

likely to hold does not enable us to match the immense
armies of Germany in any theatre where their main
power can be brought to bear. We can however by the
use of sea power and air power meet the German armies

in the regions where only comparatively small forces
can be brought into action. We must do our best to
prevent German domination of Europe spreading into

Africa and into Southern Asia. We have also to maintain
in constant readiness in this Island armies strong enough
to make the problem of an overseas invasion insoluble.
For these purposes we are forming as fast as possible,

as you are already aware , between fifty and sixty divisions
Even if the United States was our ally instead of our
friend and indispensable partner we should not ask

for a large American expeditionary army. Shipping,
not men, is the limiting factor and the power to
transport munitions and supplies claims priority
over the movement by sea of large numbers of soldiers.
4.
The first half of 1940 was a period of

15.-E

-4-

disaster for the Allies and for the Empire. The last
five months have witnessed a strong and perhaps

unexpected recovery by Great Britain; fighting alone
but with invaluable aid in munitions and in destroyers
placed at our disposal by the great Republic of which
you are for the third time chosen Chief.
The danger of Great Britain being destroyed
5.
by a swift overwhelming blow has for the time being

very greatly receded. In its place there is a
long, gradually maturing danger, less sudden and

less spectacular but equally deadly. This mortal
danger is the steady and increasing diminution of
We can endure the shattering of our
sea tonnage.

dwellings and the slaughter of our civilian population
by indiscriminate air attacks and we hope to parry
these increasingly as our science develops and to
repay them upon military objectives in Germany as
our Air Force more nearly approaches the strength of

the enemy. The decision for 1941 lies upon the seas;
unless we can establish our ability to feed this Island,
to import munitions of all kinds which we need, unless

15.F
-5-

we can move our armies to the various theatres where

Hitler and his confederate Mussolini must be met,
and maintain them there and do all this with the

assurance of being able to carry it on till the
spirit of the continental dictators is broken, we
may fall by the way and the time needed by the United
States to complete her defensive preparations may not

be forthcoming. It is therefore in shipping and in
the power to transport across the oceans, particularly
the Atlantic Ocean, that in 1941 the crunch of the
whole war will be found. If on the other hand we
are able to move the necessary tonnage to and fro

across the salt water indefinitely, it may well be
that the application of superior air power to the
German homeland and the rising anger of the German

and other Nazi-gripped populations will bring the
agony of civilization to a merciful and glorious end.
But do not let us underrate the task.
6.

Our shipping losses, the figure for which

in recent months are appended, have been on a scale

almost comparable to that of the worst years of the
last war. In the 5 weeks ending November 3rd the

15 - G
-6-

losses reached a total of 420,300 tons. Our estimation
of the annual tonnage which ought to be imported in
order to maintain our war effort at full strength
is 43,000,000 tons; the tonnage entering in September
was only at the rate of 37,000,000 tons and in October
at 38,000,000 tons. Were the diminution to continue
at this rate it would be fatal, unless indeed
immensely greater replenishment than anything at

present in sight could be achieved in time. Although
we are doing all we can to meet this situation by new

methods, the difficulty of limiting the losses is
obviously much greater than in the last war. We
lack the assistance of the French Navy, the Italian
Navy and the Japanese Navy, and above all the United

States Navy, which was of such vital help to us
during the culminating years. The enemy commands the
ports all around the northern and western coast of

France. He is increasingly basing his submarines,
flying boats and combat planes on these ports and on

the islands off the French coast. We lack the use of

ports or territory in Eire in which to organise our
coastal patrols by air and sea. In fact, we have now

15-H
-7-

only one effective passage of entry to the British
Isles namely, the northern approach, against which

the enemy is increasingly concentrating, reaching
over farther out by U-boat action and long distance
bombing. In addition, there have for some months
been merchant ship raiders both in the Atlantic and in
the Indian Oceans. And now we have powerful warship
raiders to contend with as well. We need ships both
to hunt down and to escort. Large as are our resources
and preparations we do not possess enough.
7.

The next six or seven months bring the

relative battleship strength in home waters to a
smaller margin than is satisfactory. The "Bismark"

and the "Tirpitz" will certainly be in service in
January. We have already the "King George V"

and hope to have the "Prince of Wales" at the
same time. These modern ships are of course far
better armoured, especially against air attack,
than vessels like the "Rodney" and "Nelson" designed
twenty years ago. We have recently had to use the
"Rodney" on trans-Atlantic escort and at any time
when numbers are so small, a mine or a torpedo may

15-I
-8-

alter decisively the strength of the line of battle.
We get relief in June when the "Duke of York" will

be ready and will be still better off at the end of
1941 when the "Anson" also will have joined. But
these two first class, modern, thirty-five thousand
ton, fifteen inch gun German battleships force us
to maintain a concentration never previously necessary
in this war.

We hope that the two Italian "Littories"
will be out of action for a while and anyway they
8.

are not SO dangerous as if they were manned by the

Germans. Perhaps they might be! We are indebted
to you for your help about the "Richelieu" and the

"Jean Bart" and I daresay that will be all right.
But, Mr. President, as no one will see more clearly
than you, we have during these months to consider

for the first time in this war, a fleet action in
which the enemy will have two ships at least as good

as our two best and only two modern ones. It will
be impossible to reduce our strength in the Mediterranean
because of the attitude of Turkey and indeed the whole
position in the Eastern basin depends upon our having

15-J
-9-

a strong fleet there. The older un-modernized
battleships will have to go for convoy. Thus even
in the battleship class we are at full extension.
9.
There is a second field of danger: the
Vichy Government may either by joining Hitler's new
order in Europe or through some manoeuvre such as

forcing us to attack an expedition despatched by sea
against free French Colonies, find an excuse for
ranging with the Axis Powers the very considerable

undamaged naval forces still under its control. If
the French Navy were to join the Axis, the control
of West Africa would pass immediately into their
hands with the gravest consequences to our communication

between the northern and southern Atlantic, and also
affect Dakar and of course thereafter South America.

A third sphere of danger is in the Far East.
Here it seems clear that the Japanese are thrusting
10.

Southward through Indo China to Saigon and other naval

and air bases, thus bringing them within a comparatively
short distance of Singapore and the Dutch East Indies.
It is reported that the Japanese are preparing five
good divisions for possible use as an overseas expedi-

tionary force. We have to-day no forces in the Far East

15
-10-

capable of dealing with this situation should it
develop.
11.

In the face of these dangers, we must

try to use the year 1941 to build up such a supply of
weapons, particularly aircraft, both by increased
output at home in spite of bombardment, and through ocean-

born supplies, as will lay the foundation of victory.
In view of the difficulty and magnitude of this task, as
outlined by all the facts I have set forth to which many
others could be added, I feel entitled, nay bound, to
lay before you the various ways in which the United
States could give supreme and decisive help to what is,
in certain aspects, the common cause.
12.

The prime need is to check or limit the loss
of tonnage on the Atlantic approaches to our Islands.
This may be achieved both by increasing the naval forces
which cope with attacks, and by adding to the number of
merchant ships on which we depend. For the first purpose
there would seem to be the following alternatives:
(1) the reassertion by the United States of the doctrine
of the freedom of the seas from illegal and barbarous
warfare in accordance with the decisions reached after

15-L
-11-

the late Great War, and as freely accepted and defined

by Germany in 1935. From this, the United States ships
should be free to trade with countries against which
there is not an effective legal blockade.

(2) It would, I suggest, follow that protection
should be given to this lawful trading by United States
forces 1.0. escorting battleships, cruisers, destroyers
and air flotillas. Protection would be immediately
more effective if you were able to obtain bases in

Eire for the duration of the war. I think it is
improbable that such protection would provoke a
declaration of war by Germany upon the United States
though probably sea incidents of a dangerous character
would from time to time occur. Hitler has shown himself

inclined to avoid the Kaiser's mistake. He does not
wish to be drawn into war with the United States until
he has gravely undermined the power of Great Britain.
H1s maxim is "one at a time".
The policy I have

ventured to outline, or something like it, would
constitute a decisive act of constructive non-belligerency
by the United States, and more than any other measure

15-M
-12-

would make it certain that British resistance could
be effectively prolonged for the desired period and
victory gained.

(3) Failing the above, the gift, loan or supply
of a large number of American vessels of war, above

all destroyers already in the Atlantic, is indispensable to the maintenance of the Atlantic route.
Further, could not United States naval forces extend

their sea control over the American side of the Atlantic,
so as to prevent molestation by enemy vessels of the
approaches to the new line of naval and air bases which

the United States is establishing in British islands in
the Western Hemisphere. The strength of the United States

naval forces is such that the assistance int he Atlantic
that they could afford us, as desribed above, would not

jeopardize control over the Pacific.
(4) We should also then need the good offices of the
United States and the whole influence of its Government

continually exerted, to procure for Great Britain the
necessary facilities upon the southern and western

shores of Eire for our flotillas, and still more

15-N
-13-

important, for our aircraft, working westward into
the Atlantic. If it were proclaimed an American
interest that the resistance of Great Britain should
be prolonged and the Atlantic route kept open for
the important armaments now being prepared for Great

Britain in North America, the Irish in the United
States might be willing to point out to the Government
of Eire the dangers which its present policy is creating
for the United States itself.
His Majesty's Government would of course

take the most effective steps beforehand to protect

Ireland if Irish action exposed it to a German attack.
It is not possible for us to compel the people of
Northern Ireland against their will to leave the
United Kingdom and join Southern Ireland. But I do
not doubt that 1f the Government of Eire would show

its solidarity with the democracies of the English
speaking world at this crisis a Council of Defence of
all Ireland could be set up out of which the unity of
the island would probably in some form or other emerge
after the war.
13.

The object of the foregoing measures 18 to

15-0
-14-

reduce to manageable proportions the present destructive

losses at sea. In addition it is indispensable that
the merchant tonnage available for supplying Great Britain
and for the waging of the war by Great Britain with all
vigour, should be substantially increased beyond the one
and a quarter million tons per annum which is the utmost
we can now build. The convoy system, the detours, the
zig-zags, the great distances from which we now have to
bring our imports, and the congestion of our western
harbours, have reduced by about one third the value of

our existing tonnage. To ensure final victory, not
less than three million tons of additional merchant

shipbuilding capacity will be required. only the
United States can supply this need. Looking to the
future it would seem that production on a scale com-

parable with that of the Hog Island scheme of the last
war ought to be faced for 1942. In the meanwhile, we
ask that in 1941 the United States should make available
to us every ton of merchant shipping, surplus to its
own requirements, which it possesses or controls and

should find some means of putting into our "hands"
a large proportion of the merchant shipping now under

15.P
-15-

construction for the National Maritime Board.
14.

Moreover we look to the industrial energy
of the Republic for a reinforcement of our domestic

capacity to manufacture combat aircraft. Without
that reinforcement reaching us in a substantial
measure, we shall not achieve the massive preponderance

in the air on which we must rely to loosen and disintegrate
the German grip on Europe. The development of the
Air Forces of the Empire provides for a total of nearly
7000 combat aircraft in the fighting squadrons by the
spring of 1942, backed by about an equal number in the

training units. But it is abundantly clear that this
programme will not suffice to give us the weighty

superiority which will force open the doors of victory.
In order to achieve such superiority it 1s plain that
we shall need the greatest production of aircraft which
United States of America are capable of sending us.

It is our anxious hope that in the teeth of continuing
bombardment we shall realize the greater part of
production which we have planned in this country.
But not even with the addition to our squadrons of

all the aircraft which under present arrangements

15-Q
-16-

we may derive from the planned output in the United
States can we hope to achieve the necessary ascendancy.

May I invite you then, Mr. President, to give earnest
consideration to an immediate order on joint account
for a further 2,000 combat aircraft a month? Of

these aircraft I would submit that the highest possible
proportion should be heavy bombers, the weapon on which

above all others we depend to shatter the foundations
of German military power. I am aware of the formidable
task that this would impose upon the industrial

organization of the United States. Yet, in our
heavy need, we call with confidence to the most

resourceful and ingenious technicians in the world.

We ask for an unexampled effort believing that it
can be made.
15.

You have also received information about

the needs of our armies. In the munitions sphere,
in spite of enemy bombing, we are making steady

progress. Without your continued assistance in
the supply of machine tools and in the further release
from S tock of certain articles we could not hope to

equip as many as 50 divisions in 1941. I am grateful

15-R
-17-

for the arrangements already practically completed
for your air in the equipment of the army which we
have already planned and for the provision of Americantype weapons for an additional 10 divisions in time

for the campaign of 1942. But when the tide of
dictatorship begins to recede, many countri es, trying
to regain their freedom, may be asking for arms, and
there is no source to which they can look except to
the factories of the United States. I must therefore
also urge the importance of expanding to the utmost

American productive capacity for small arms, artillery
and tanks.
16.

I am arrangingto present you with a complete

programme of munitions of all kinds which we seek to

obtain from you, the greater part of which is of course
already agreed. An important economy of time and
effort will be produced if the types selected for the
United States Services should, whenever possible, conform

to those which have proved their merit under actual

conditions of war. In this way reserves of guns and
ammunition and of aeroplanes. become inter-changeable

and are by that very fact augmented. This is however

a sphere so highly technical that I do not enlarge upon it.

15.5
-18-

17.

finance.

Last of all I come to the question of
The more rapid and abundant the flow

of munitions and ships which you are able to send
us, the sooner will our dollar credits be exhausted.
They are already as you know very heavily drawn
upon by payments we have made to date. Indeed

as you know orders already placed or under negotiation,

including expenditure settled or pending for creating
munitions factories in the United States, many times
exceed the total exchange resources remaining at the

disposal of Great Britain. The moment approaches
when we shall no longer be able to pay cash for
shipping and other supplies. While we will do our
utmost and shrink from no proper sacrifice to make
payments across the exchange, I believe that you

will agree that it would be wrong in principle and
mutually disadvantageous in effect 1f, at the height
of this struggle, Great Britain were to be devested
of all saleable assets so that after victory was won
with our blood, civilisation saved and time gained
for the United States to be fully armed against all
eventualities, we should stand stripped to the bone.

15.T
-19-

Such a course would not be in the moral or economic

interests of either of our countries. We here
would be unable after the war to purchase the large
balance of imports from the United States over and
above the volume of our exports which is agreeable

to your tariffs and domestic economy. Not only
should we in Great Britain suffer cruel privations
but widespread unemployment in the United States

would follow the curtailment of American exporting
power.
18.

Moreover I do not believe the Government

and people of the United States would find it in
accordance with the principles which guide them, to
confine the help which they have so generously
promised only to such munitions of war and commodities

as could be immediately paid for. You may be assured
that we shall prove ourselves ready to suffer and
sacrifice to the utmost for the Cause, and that we

glory in being its champion. The rest we leave
with confidence to you and to your people, being
sure that ways and means will be found which future

generations on both sides of the Atlantic will approve
and admire.

15-U
-20-

If, as I believe, you are convinced,
Mr. President, that the defeat of the Nazi and
19.

Fascist tyranny 1s a matter of high consequence

to the people of the United States and to the
Western Hemisphere, you will regard this letter not
as an appeal for aid, but as a statement of the
minimum action necessary to the achievement of our
common purpose.

I remain,

Yours very sincerely,
Winston S. Churchill.

The following figures show losses by enemy action of British,
allied and Neutral merchant tonnage for the periods given. Vessels 15V
of all tonnage are included but no commissioned ships.
Allied
Neutral
British
eek ended

Gr. Tons. No.

Gr. Tons

79,415
49,762
60,006
91,373
30,377

25,137
22,253
40,216
81,742
13,627

310,933

75,888
40,469
42,463
65,601

No.

une 2, 1940

16,

23,

30,

TOTAL

12
4

182,972

No.

Allied-Neutral

Gr.Tons No.
4,375

Total: British-

108,927
86,765
123,392
212,274
63,336

14,750 25
23,170 31

39,159
19,332

12
5

40
15

100,786 146

Gr. Tons.

594,694

eek ended

July 7, 1940

14,

21,
If

28,

TOTAL

224,421

67,827
32,257
41,175
108,404
62,921

18,924
13,159
3,679
7,090

42,852

21,968
24,845
13,723

NIL

116,780
78,473
59,865
72,691

23
22
21

60,536

327,809

13,768
6,708
4,134
8,692
18,460

89,007
46,639
52,899
118,814
96,419

51,762

403,778

13,715
7,379
14,425

77,189
75,107
176,135
75,566

Week ended

ug. 4, 1940
11,

18,
If

25,

Sep. 1,

TOTAL

312,584

44,975
55,153
148,704
56,096

7,412
7,674
7,590
1,718
15,038

39,432

13
13
23

eek ended

Sep. 8, 1940
15,

22,

29,

TOTAL

304,928

18,499
12,575
13,006
12,119
56,199

20
30

7,351 17
42,871

403,997

3,687
14,544
26,816
1,583
NIL

40,315

84,749
96 781

Yeek ended

Oct. 6, 1940

10
.

20,

13,

27,

Nov. 3,
TOTAL

30,886
52,668
154,279
9,986
65,609

313,428

5,742
17,537
24,686
6,874
5,403

60,242

47
9

46,630 102

18 443
71,012

420,300

15 W

-ek ended
No.

.10,1940
"

17,
"

24,

TOTAL

Allied

British
Gr.Tons

69,110
57,977
75,560

202,647

No.

Gr.Tons
10,236
15,383
12,415
38,034

Neutral
No.

Total: BritishAllied-Neutral

Gr. Tons No.

8,617 15
1,316 19
NIL

9,933

Gr. Tons

87,963
74,676
87,975
250,614

rand Totals to November 24th, 1940.
372

1668,941

105 419,734

92 312,517 569 2401,192

otes: Week ended November 24th is the last full week for which
etails are available and from the nature of the circumstances must be
onsidered provisional.

For the specified period the following commissioned ships of
00 gross tons and over (formerly merchant vessels) have been lost by
memy action: 20 vessels of 183,000 gross tons approximately.

16
Paraphrase of Code Radiogram

Received at the War Department
at 10:35, December s, 1940.

CONFIDENTIAL
London, filed 14:15, December 8, 1940.
1. On Saturday, December 7th, the Bomber Command

successfully attacked Zeebrugge and two other occupied naval bases.
The preceding night heavy and medium bembers launched a sustained

heavy attack on all of the principal German airdrense in the occupied countries. They were reported to be highly successful. From
heights as low as 500 feet British planes machine-gunned some of

the fields and the German planes which were preparing to take off

for attacks on Britain. Successful attacks were also delivered
against the main invasion parts. The Coastal Command dispatched
convey escarte, reconnaissances and 26 patrel missions.

2. During daylight hours of December 7th about 110
German planes carried out one attack along the southeast coast,
patrolled the Dever Straits and the English Channel, and made

reconnaissance flights. That night there were no reports of
German aerial activity over Britain.
3. The British last no planes while the Germans lost
one confirmed and one prebable.

4. During daylight hours of December 6th about 60
German planes flow over the British Isles, while about 70 operated
that night.
5. The reason for the marked decrease in German aerial
operations during the last few days cannot be diagnosed. The
weather last night was perfect for bombing and yet there was no

CONFIDENTIAL

activity. Many explanations are possible but all are inconclusive.
6. British planes again attacked Valena, Albania, and
many effective direct hite were seen. Patrels over Athens were

mintained. British planes machine-gunned Italian treeps west of
Sarande (9).

7. On December 6th the Greek foress in the northern
sector had reached Mount Kamia, west of Pogradee, thence to the
.

north-south line: Peshtan-Protopapa. In the Pindus sector they
have occupied the high ground two kilometers west of Backs, thence

along a line to the south through Pontoun and Helove (?). In the
Epirus sector the Greeks captured the montaine above Radat and
have occupied Saranda.
LEE

Distributions

Military Aide to the President
Secretary of War
State Department

Secretary of Treasury
Asst. Secretary of War

Chief of Staff - 2

War Plans Division

Office of Naval Intelligence
0-3

AC - 2

CONFIDENTIAL

18
December 8, 1940

(Dictated December 9, 1940)

I spoke to Jerome Frank at 10 o'clock Sunday night,
and he wanted to know if I had promised the Gianninis
anything in regard to bank branches. He seemed very much
upset and said that Jones, Goldwater, who is Flynn's
partner, and a man by the name of Malone connected with
the Democratic State Organization in California had been
after him to postpone the hearing on Transamerica which

is to start Monday. Frank said it was intimated to him

that I had made certain promises to Flynn in regard to
the Gianninis. I told him I had made no promises to anybody; that I had spoken to the President the week before
election, explained to him that I had made no promises,

and the President had not asked me to make any promises,

and that the only statement that I made was to Jones that I

would take a look at the Bank of America and Transamerica

applications for new branches after election. That was all.
Frank said he was sure I had not made any promises

but they kept intimating I had. The thing that seemed to

worry him the most was that possibly they would get a message to the President, and that the President would want

him to postpone the date of the hearing. I gave him unconditional guarantee that the President would not interfere,
and that seemed to reassure him. I also told him I hoped he

would go ahead on Monday, and he said he was going to.

I told Frank we were thinking of granting one branch to
the Bank of America. He said he had no interest in the

Bank of America branches.

I also informed Frank that I had it under consideration
that before I did anything with Transamerica I would consult
the appropriate committees on the Hill. He thought that was
a wonderful idea. I also said that before I took any steps
I would talk with him. I told him Haas was preparing charts

on Transamerica with the assistance of SEC. He didn't seem
to know about it.

-2-

The best way I can describe Frank is that he seemed

to have an awful attack of jitters. I told him that Jones

had talked to me at 10 o'clock Sunday morning and hadn't
mentioned anything about this, and that seemed to surprise
him. He said he could not understand why Jones took such
an interest in the Gianninis, and he asked me whether I

knew or had I heard that Jones is a Catholic and that that

is why he is so interested? I said I didn't believe

Jones was Catholic, but I agreed with him that Jones'
interest in the Gianninis was a great mystery.

December 8, 1940

(Dictated December 9, 1940)

Sunday at 10:00 a.m., Jones called me in answer to
my previous call, and I explained to him what we were

doing in regard to tax exemption. I told him that I

did not want him to borrow any more money in the market

for the time being with tax exempt securities, and that
we would lend him the money at the market rate. I
told him that I wanted to have his answer by 3:00 p.m.

Monday. He seemed a little doubtful about it, but if I
don't hear from him by 3 o' clock, I am going to call
him.

21
December 9, 1940

GROUP MEETING

Present:

9:30 a.m.

Mr. Bell

Mr. Gaston

Mr. Wiley
Mr. Pehle
Mr. Graves

Mr. Foley

Mr. Haas
Mr. Thompson
Mr. Schwarz
Mr. Young
Mr. Cochran

Mrs Klotz
H.M.Jr:

I want to beg off on that 10:30 appointment

with Graves and Thompson. Ask Mac to give

you another one. I just can't. I am all
booked up.

I thought in view of the funny way that
Harold Smith has been acting I would tell
him not to come, that I don't want to be in

any way handicapped by - he was afraid about

that other man talking. I want to talk freely. We have got the information, anyway.
So I don't want to feel I am under any obligations not to talk.

Bell:

Well, he wanted you to know that he would like
to come and talk to you. He didn't want you

to feel that this was in any way an attempt

to get out of this conference at all. He always likes to talk to you and keep you fully
informed, but he has had a lot of difficulty
this last year.
H.M.Jr:

Well, I don't want my hands tied.

Bell:

You mean talking publicly?

H.M.Jr:

Yes.

-2Bell:

Of course, that is a presidential matter.
It is the President's budget and I do believe he would have no control over it.

H.M.Jr:

Well, I will talk to him. Let him come.

Bell:

I think so.

H.M.Jr:

He will be here?

Bell:

Yes. 11:30, you say?

H.M.Jr:

Yes.

Bell:

Well, Mr. Delano is sick in bed this morning
and while Cy knows the story --

H.M.Jr:

No, he has got to be here.

Bell:

Delano?

H.M.Jr:

Yes.

Bell:

He is sick in bed, Mr. Secretary.

H.M.Jr:

I will wait until he gets well. When he is
well, we will call a meeting.

Bell:

Should we let him come?

I say you can postpone it, although Cy does

know.

H.M.Jr:

No, Preston Delano has got to be here at this
one.

Bell:

Then you can get rid of that appointment.

H.M.Jr:

The reason I say this - I can dictate this last night - this is very much in the room

here - around 7:00, your (Foley's) pal, Jerome

Frank, called up, could I talk to him at ten.

-3So I talked to him at ten, and had I heard
from Jesse Jones or Mr. Maloney, who has
something to do with this State Committee

of California, or Mr. Goldwater, the law
partner or Edward Flynn. Well, I said I
hadn't heard from any of them. Well, he

was - the pressure on him was just too

terrible not to S tart the hearing today in

San Francisco on Transamerica. So I said
that well, nobody had talked to me and I
talked to Jesse at 10:00 o'clock yesterday
morning and I hadn't heard anything about

it. Well, they said I had made certain
promises. I said I didn't make any promises
other than to look at them in a non-prejudicial matter. That is my attitude toward
everything. I said I hoped he would go ahead.
Well, he was - they had just worn him out.
I talked to him for 25 minutes. They start
this morning.

So I think the sooner we get into this Bank
of America thing in the regular way - so

just as soon as Mr. Preston Delano - Jerome

Frank was in bed, too, so when they all get

out of bed we will talk about it. If they

think I am going to act on it because - every
time it gets hot, Preston Delano goes to bed.
The day that he is well, I will meet with
them, but if he thinks he is going to say
he was in bed when we decided on that thing,

he is mistaken. I haven't got time to go
over to his bedroom.

Bell:

Well, you have his memorandum on how he

H.M.Jr:

He is going to be here in the flesh. He
is going to make a personal appearance.
don't want to hear afterward that if he

looks at it.

-4had been there it would have been so-and-so.
Foley:

How does he feel about it, Dan?

Bell:

Oh, he is against granting the branches.

Foley:

Well, it is interesting that Goldenwater
is in the case.

H.M.Jr:

I know. I asked what he thought his interest
was. "Oh, purely acting in the absence of
Mr. Flynn. But he evidently is very much
interested, Goldwater. Is the name Goldwater
or Goldenwater?

Foley:

I think it is Goldenwater; I am not sure. I

don't know him.

H.M.Jr:

What is that German drink that they have with

Wiley:

That is goldwasser.

H.M.Jr:

Well, anyway, I thought it was very amusing.

the little gold plates?

No one has called me up.

Thompson:

Mr. Ludlow is starting the Treasury hearings
next Monday at 10:00 o'clock. Will you be
there with the usual statement on the Treasury
budget? He is Chairman of the House Appropriations Committee.

H.M.Jr:

When does he want me?

Thompson:

10:00 o'clock next Monday.

H.M.Jr:

How are we, all right?

Thompson:

We have just gotten our final figures and we

will have a final statement all ready by

-5Friday, anyway.
H.M.Jr:

All right by me.

Thompson:

We can change the date if necessary.

Bell:

Do you want any dealers here tomorrow on

H.M.Jr:

No.

Bell:

Bob Rouse called me. He wanted to make

the regular financing?

arrangements.
H.M.Jr:

No, I don't want any dealers for what I am

doing. Incidentally, I told Jesse yesterday

at 10:00 o'clock that what we were doing
would apply to all government guaranteed funds
and I didn't want him to borrow any more money,
except from the Treasury, until we got this
straightened out. Well, he said he supposed
he would have to go along, but he wanted to

think it over. I suppose I ought to call

up the Secretary of Agriculture, oughtn't I?
Bell:

Well, some of those organizations had probably

Foley:

How about United States Housing, Dan?

H.M.Jr:

Let's see. F.F.M.C., what is that?

Bell:

Federal Farm Mortgage Corporation. The Chairman of that Board is Governor of the Farm

better know about it.

Credit Administration.

H.M.Jr:

The first one that comes due on that is '42.

Bell:

The first call date.

H.M.Jr:

So there is nothing on that

0/15/41.

-6That's H.O.L.C.
Bell:

That may be paid off in cash.

H.M.Jr:

So we don't have to cross that bridge. R.F.C. --

Bell:

Contemplated borrowing money for the R.F.C. in
January.

H.M.Jr:

7/20 and 11/20, so they are all right. C.C.C.,
the eighth month. There is nothing --

Bell:

Nothing coming due in the next few months.

H.M.Jr:

Except the - then that will be all right.

Bell:

But R.F.C. does need some cash, which they will

have to get from the Treasury until this thing
is settled.
H.M.Jr:

Well, Jesse is on notice.

Bell:

I don't think any of those others need cash.

Of course, Federal Farm Mortgage Corporation

needs cash to pay off from Treasury that
hundred million as a recapture of capital
funds, but that can wait. The U. S. Housing
has got a peculiar situation, where you go
out and make all these commitments, and

part of the contribution of the local area
is a tax exemption feature and part of these
obligations carry tax exemption features.
H.M.Jr:

What's-his-name has the - Mayor LaGuardia --

Foley:

John?

H.M.Jr:

Yes. And he had a very good talk with him
and the man wanted to come down tomorrow

and he thinks he can make a deal with me,

-7 provided that we can find some other way to

guarantee it, other than Jesse Jones. He

won't do business with Jesse Jones.
Foley:

To guarantee what?

H.M.Jr:

Underwrite it, so if the bankers won't give
it to him, there is some place that he can
go. He has got something in his mind, you
sec.

Foley:

Sure. He won't have any trouble getting his
money.

H.M.Jr:

Well - incidentally, I read your speech and
I thought it was excellent.

Foley:

Thanks.

H.M.Jr:

I congratulate you. I thought it was very

scholarly and very convincing. You should do
more. Anybody who hasn't read it and who is
interested in the tax problem, I suggest they

read it.

Think it over, my sending it over my signature
to every Governor. with a letter, and then

the possibilities of circulating it to the

Mayors' Convention.
Foley:

Well, they asked for 450 copies.

H.M.Jr:

They did?

Foley:

Yes.

White:

Herbert has a very good article in this

month's Social Research Review.
H.M.Jr:

Who has?

-8White:

Herbert. On budget.

H.M.Jr:

I would like to see it.

Gaston:

I sent it in.

H.M.Jr:

Well, send it again.

Gaston:

It is a magazine.

H.M.Jr:

Will you? &

Bell:

Other than defense expenditures and the

estimates of the Army and Navy, there is
that fourth column, the total estimated ex-

penditures for this year.
H.M.Jr:

Well, let's do that in the announcement.

Bell:

All right. That is all I have.

H.M.Jr:

Now, Philip tells me he kind of took the bull John Bull (facetiously) - by the horns in
tightening and buttoning up this thing. Are
you going to have something to show me later
on?

Young:

Yes. I have some statements here now. You
can have them now or later.

H.M.Jr:

Well, I need a few minutes right after this

meeting and I will tell you now. I will

put you down at a quarter of 11:00. Bell,
are you busy at that time?

Bell:

No.

H.M.Jr:

Cochran?

Cochran:

No.

-9H.M.Jr:

A quarter of 11:00.
Harold? Hold everything on that personnel

thing until I get around to you.

Graves:

All right.

White:

The Argentinians have given us very excellent
data on British holdings in Argentine which -

incidentally, their totals are in excess of

what we had estimated somewhat on the par

value. On the market value there is considerable difference of opinion and -H.M.Jr:

Just a second, Harry.

Clark is coming. I got word he is coming.
Young:

I think he is already in town.

Bell:

Deputy Minister of Finance, that is his title.

H.M.Jr:

Okay. You know, I have dubbed Sir Frederick

Bell:

Third Secretary.

H.M.Jr:

I know. I don't know which is the better.

Bell:

We raise them.

Cochran:

He likes this new title. (Laughter)

Schwarz:

No objection.

H.M.Jr:

I have never seen him correct it. He let me

Phillips Under Secretary of the Treasury, which
he isn't, you know.

know that his immediate superior is Sir Horace
Wilson, who has a reputation of his own. He
carries two umbrellas. (Laughter)

- 10 -

All right, Harry?
White:

Very good.

H.M.Jr:

You like that?

White:

Yes.

H.M.Jr:

Worthy of you.

White:

That is true. (Laughter)
With reference to foreign holdings, the

British are going to get - try to get more

information. They have given us some which
they have been preparing and they are going

to arrange for studies for more information,
so we will be able to check up on their
figures and the Argentine figures, et cetera.

H.M.Jr:

Good. Now, we will have a trial run at a

White:

They were very, very cooperative. It is

quarter of 11:00.
amazing.

H.M.Jr:

I can't hear you.

White:

They were amazingly cooperative, very, very.
The atmosphere was all "Hands across the Sea."

H.M.Jr:

Wonderful. Which hand is full? (Laughter)

White:

One of them had a brass knuckle.

H.M.Jr:

Jerome Frank said any time we wanted to
see Sumner Pike, that he was an authority
on South African gold mines.

White:

We would like to call on him very soon because we have just completed a study of

- 11 the British holdings of South African gold
mines and other South African properties

and they are very substantial and we would

like some idea of what their marketability

is. Is it all right to call or do you want

to see him? Supposing I give you the memorandum and then you can get in touch with

him on it.
H.M.Jr:

Right.

White:

And they are already cooperating with us.
They let us have their best man.

H.M.Jr:

lie told me they would let you have somebody,

White:

It is Purcell's assistant, Louchheim.

H.M.Jr:

Sounds like a good combination. With the
"Louch" and the "Heim," he ought to be

but he wasn't quite clear who it was.

pretty good.
White:

I don't get it.

Klots:

lle doesn't speak German.

Schwarz:

You had John Sullivan checking up on these
companies that we were talking about, the

taxes cutting into their profits. Now comes

Admiral Spear in his annual report and he
says that excess profits plus the Walsh-Healy

Act are disturbing factors in their defense
progress.

H.M.Jr:

Well, let Sullivan --

Schwarz:

Pass it along to him to include that in
there?

- 12 H.M.Jr:

Yes, and let him do it fairly soon.

Schwarz:

Then Senator Taft on Saturday in an interview with his own paper in Cincinnati, his

family's paper, says that the Secretary of
the Treasury apparently is directing the
foreign policy of the Government more than

Cordell Hull. I think it wouldn't hurt to
make some reference at the press conference

to begin to squelch him. He has been sound-

ing off ever since you went up to the Hill.

H.M.Jr:

I don't agree with you. I don't think he

Schwarz:

Well, what he has been saying hasn't been

is worthy of my mettle.

very important, but I didn't want him to go

into --

H.M.Jr:

I don't think you could change that man
anyway, but thanks for bringing it to my
attention.

Schwarz:

The other thing, do you want to S et a time
for Mr. Callender, of the New York Times?

H.M.Jr:

Well, the New York Times can wait. I do want
to see Paul Leach. Tell Mac to put Paul

Leach - to keep after me until I see him
today. This Callender fellow can wait.

Schwarz:

I will check with you on him tomorrow.

H.M.Jr:

But I will try to work Paul Leach in today.

White:

I notice Krock is up to his old tricks. Did

you read his column yesterday?
H.M.Jr:

It was marvelous. I can see Kennedy calling
him up and telling him to get busy.

- 13 White:

I was thinking of his column on Jones and

the British. It was either yesterday or
the day before.

H.M.Jr:

It was very interesting. It is much less

expensive than taking a full page advertise-

ment.
Gaston:

We don't know that.

White:

We don't know that, no. We don't know how

H.M.Jr:

You win. (Laughter)

expensive it is.

All right, what else, Chick?
Schwarz:

H.M.Jr:

That is all.
George? I am counting on you Wednesday, you

know.
Haas:

I will have something (handing report to

Secretary).
H.M.Jr:

Is this the week we get the engine report?

Haas:

Yes, Wednesday; but you know you asked us

to get that every week.

H.M.Jr:

Allison turned out 30 engines last week. I
am going to call up Sloan and tell him to
stop making speeches and to start to produce. I am going to telephone afterward.

Haas:

The last three weeks haven't been so much.

That is all I have.

H.M.Jr:

Philip?

Young:

In that same connection with the Allison,

- 14 you know Curtiss is going to squeeze out
the extra P-40's next summer and fall. How-

ever, they can't get any information out of

Allison as to whether they can get engines.
H.M.Jr:

Well, I'm just going to call up Sloan and

Young:

So that I think I had better put that in

give him a piece of my mind.

Mr. Knudsen's lap to find out, about the
engines.

H.M.Jr:

Yes.

Young:

On the other - the Chinese are looking over
the P-40 now with an idea of taking 20 out of

the first hundred, and with respect to the

Greeks, I will see what is happening to them

this morning, if I can find out.

H.M.Jr:

Maybe they will name Fort Edda - call it

Young:

The only trouble is they want them right now.
In any of your conversations with LaGuardia
sometime, we have got to work out the joint
operation of this Canadian Joint Defense
Board. Between that and the Canadian purchasing

Fort Philip if you get it through.

program there is no coordination at all at the

moment.

H.M.Jr:

Well, after I get through talking taxes, I will
have you come in.

Young:

We are getting into a very difficult situation
on South American purchasing of war supplies,
planes and guns and munitions, and in order

to get a little clearer insight into just what
the picture is, I am going to get together

with Nelson Rockefeller and Larry Duggan, to

begin with, on that and tell them what the

- 15 South American countries are doing in that

line. Are you interested in that, Harry?

White:

No.

Young:

That is all I have.

H.M.Jr:

Why so sad?

Pehle:

Me?

H.M.Jr:

Yes.

Pehle:

I was just thinking. (Laughter)
I want to raise that problem I spoke to you

about about the prefabricated houses going
to Norway. The project is to S end funds
to Sweden which have been collected over here
by an American-Norwegian relief organization
to purchase prefabricated houses in Sweden
and send them into the sections in Norway
that were most heavily bombed. The Norwegian

Minister has been pressing us on it, although
it is not exactly a governmental project.
The State Department advised the British
of it through the London Embassy, and the

British said that their preliminary view
was that it was all right, but they apparently
want some time to think about it.
H.M.Jr:

Who said so?

Pehle:

The British.

H.M.Jr:

Well, I have had a chance to think about it.

Unless there is something which your committee

opposes, I am willing to go ahead with it.
I had a chance to discuss it with Mrs. Roosevelt.

- 16 Pehle:

No, the committee just felt that the two
arguments against it were, one, that indirectly
it made dollars available to the Germans, but
it is indirect; secondly, it had to be considered
as part of the general relief question because
it is to a certain extent opening the door on

letting supplies go in. But there is consider-

able pressure on it.
H.M.Jr:

Well, I am willing to do it.

Bell:

The State Department recommends it, too, doesn't

Pehle:

The State Department recommends it.

H.M.Jr:

In today's New York Times, Merle, there is
dispatch from Stockholm that evidently came

it?

telling the story of how in Oslo they sort

of closed up their Stock Exchange and refused
to do any business, and I wondered if you
couldn't ask the State Department to please

ask their Minister in Stockholm to give me
more details about it, what happened in Oslo,

as far as they know. would like to have
Times. Is our Minister on duty there?

more details than there were in the New York
Cochran:

In Stockholm, yes. Sterling is still there.

H.M.Jr:

There isn't some way of asking Green to go

to S ee our friend, the head of that bank,

is there?
Cochran:

I think we should make that suggestion.

H.M.Jr:

What really happened in Oslo.

Cochran:

Yes.

H.M.Jr:

Can you do that this morning?

- 17 Cochran:

Yes, sir.

H.M.Jr:

Are you (Pehle) through?

Pehle:

Did you see the statement in yesterday's
Herald-Tribune about Pickett debating relief in Europe with Sherwood? He again is
taking the view that supplies ought to be
sent.

H.M.Jr:

I have spoken to Mrs. Roosevelt about it over
the week-end and her attitude was very con-

structive. She said this, that there is great

jealousy between Norman Davis and Pickett, but

she would like very much to have us watch it

very closely, and if there is anything that
we think is out of the ordinary, to let me
know so I could let her know, and she is
going to watch them very closely, but she
says there is this great jealousy between
the two men which might perfectly well

account for it. But please watch it very
closely and if you see anything that we are
at all suspicious about, let me know. She
didn't take the attitude that anything Pickett
does is perfect.

Pehle:

I think he is again not exactly squaring with
what he told us, that he actively going out
and backing these proposals.

H.M.Jr:

Also in the room, she said that as far as

Pickett is concerned, we must remember that

when this gets on the international front
that after all he is a Quaker and they might
do something for peace. As a Quaker, he
might be in some movement to bring about

peace. Her attitude was that - well, not
everything he says is perfect.

Wiley:

I have nothing.

- 18 H.M.Jr:

Frozen funds will be the thing I take up it is the next thing on my list when I
get out of this tax situation and my financial situation, and inasmuch as there
is so much talk, Dan, don't you think we
might as well do this thing Wednesday and
get it out of our system?

Bell:

Yes, as long as it is the type. We can s end
it out tomorrow about noon and they will

have plenty of time on just the one. It
was the three that I was worried about.

H.M.Jr:

But announce it in the Wednesday morning
papers and do it Wednesday.

Bell:

It is all right.

H.M.Jr:

I got the okay from the President, and to my
amazement - you see, I only sent that Friday
night. By noon of Saturday I had the answer.

Bell:

Very quick. That will be all right as long

H.M.Jr:

Because he couldn't have gotten it until

as you --

Saturday morning, and by noon the White
House called me up that the answer was wait-

ing for me, and he said okay.
Bell:

A formal approval by letter, I assume, will
come.

H.M.Jr:
White:

Oh, I sent it down by airmail. He has special

mail service.

Have you any special interest in the proposed assistance to Spain, either to reflect
your views through the Export-Import Bank
or the Red Cross, because there is a great

38-A

- 19 -

deal of talk about it now.
H.M.Jr:

When I spoke to Jones yesterday I said,
"Jesse, what do you know about this thing

to Spain?" And he says, "Not a thing."
He hadn't heard about it, didn't know a

thing about it. He said, "Neither do I."

He said, "I am thinking about calling up

Hull to ask him." If Now, you (Cochran) were

over there the other day on that specific
thing, weren't you?

Cochran:

Not on that. You had me ask them for in-

H.M.Jr:

Well, ask them about this, will you please?

Cochran:

Yes, sir.

H.M.Jr:

What, if anything, is in the works. Jones

Bell:

The paper indicated that Pierson was carry-

formation on that British-Spanish affair.

said he knew nothing about it.
ing on conversations.

H.M.Jr:

Will you (Cochran) ask the State Department.

White:

I will find out about it this morning. I

Cochran:

And will you (White) as a director of the
Export-Import Bank, find out about it?

will ask. (Laughter)

Archie is across the hall in my room.
Nishiyama, the Japanese Financial Consul here,

is giving a dinner down here. He is having
Joe Ravensky. He asked me to go.

H.M.Jr:

Do you like Japanese music?

38-B

- 20 Cochran:

You remember he came down here and talked

with you a couple of times.

H.M.Jr:

I think in your official capacity you ought

Cochran:

I think so.

H.M.Jr:
Cochran:

Foley:

to go.

I think so. You know, a friendly nation

policy.

I see, sir.
I talked with Bernie a little bit about

McCloy and his interest in the Black Tom

litigation. He is a partner of the Bath

firm, as you know, and they represent the
Lehigh Valley Railroad and Bethlehem Steel,

the principal litigants in that matter.

The case is coming up in the Supreme Court

today. William D. Mitchell, who used to be
the Attorney General, is the voice of this

thing now that it is in the courts. He is
not a partner of that firm but evidently

they have retained him to represent them.
Apparently McCloy is not an appellant lawyer.

Our interest is merely that of a stakeholder
and it lies more on the side that McCloy is
on than it does on the other side, so his
interests are not antagonistic or adverse to
the Government's position at this time and

I don't think that what he is doing is

practicing before the Treasury Department.

This is in the courts. The thing has been
going on now for about 20 years and it is

about to be finally concluded. This will
probably be the final piece of litigation,

or it may be. I just don't think --

38-C

- 21 H.M.Jr:

Well, Ed, now wait a minute. Who has the
money?

Foley:

We have the money.

H.M.Jr:

We have the money?

Foley:

We are the stakeholder and these two people

are squabbling over who is entitled to it.
The awards have been made and these other

people that McCloy does not represent are

trying to upset the awards. The real party

in interest here is the German Government,
but McCloy is not representing the German
Government. He is representing the Lehigh
Railroad and the Bethlehem Steel.
H.M.Jr:

For the benefit of everybody, what does the
statute say about being hired by the Government and still practicing before a department?

Foley:

Well, I don't think that there is any violation of the statute, Mr. Secretary, in this --

H.M.Jr:

Are you familiar with the statement?

Foley:

No, I haven't got it in front of me, but his
interest is no different than any of these
other interests where you bring somebody in

from the outside. In the Bank of America

case, for instance, when we brought in coun-

sel from the outside, it didn't mean that
the firm could represent clients before the

Government.

H.M.Jr:

He went all through that. He was very care-

ful to satisfy himself that he didn't disqualify himself.

Foley:

That is right.

38-D

- 22 H.M.Jr:

And of course Greenbaum went all through

this thing. As a matter of fact, he tells

me that over in the Department of Justice
it is known as the "Greenbaum Ruling."
Foley:

In the Mitchell Case.

H.M.Jr:

Well, whatever it was.

Foley:

Yes.

H.M.Jr:

That - whether he could or couldn't practice and whether he disqualified himself.

Bell:

McCloy, I take it, is on the side of the

Foley:

Well, our interests lie in that direction,

H.M.Jr:

Are you satisfied?

Foley:

Well, I don't know what McCloy is doing over

H.M.Jr:

I can tell you what he is doing. He has been

Government in this case.

Dan. Our sympathies do. Our interests are
impartial. We are just a stakeholder here.

in the War Department.

brought down by Mr. Stimson to assist him

on this question of British purchases. Is

Young:

that right?
I don't know.

Bell:

He was in a conference the other day. That

H.M.Jr:

That is what he is here for. He supersedes

is the first time I have seen him.
Patterson and everybody.

Foley:

I should think, Mr. Secretary, that as far

38-E

- 23 -

the lawsuit is concerned, that he is representing a client in the Supreme Court of
the United States and that it would not bar

him from what he is doing.
H.M.Jr:

Do you mind taking a look at the statute and

Foley:

I will give you a memorandum on it.

H.M.Jr:

Bring it in yourself. If you don't mind, I
would like to take a look at it.

Foley:

Sure, absolutely.

H.M.Jr:

Because personally I don't feel comfortable
having a man sitting on the most confidential
of confidential meetings and here he has --

Foley:

I think that is something else again, Mr. Secre-

letting me take a look at it? It can't be
very long, but there is a specific statute.

tary. There is a real question of policy in-

volved as to whether or not you want to take
somebody like that who is representing clients,
who hasn't separated himself from his other

interests. There is a conflict of interest
or may be one, but whether or not it is one
that will violate the statute and constitute

an actual disqualification as a matter of law
is another thing.
H.M.Jr:

Do you know whether McCloy has any other cases
pending before the Bureau?

Foley:

I should say offhand that his firm, of course,
would have, whether or not he practices before them. I don't know about that, but I
can find out.

H.M.Jr:

Take a look at the statute because I am sick

38-F

- 24 and tired of these attorneys who come down

here from three to six months, National De-

fense and Army and Navy, and they don't sever

their connections --

Foley

That is right.

H.M.Jr:

And they can do what they want to over there,
but after all, when they come into my most

confidential meetings it affects me personally.

Bell:

Alsop had an article yesterday, didn't he, on

H.M.Jr:

I didn't see it.

Bell:

He went into the membership of the National
Defense Council. About the only one that

that?

severed his connections was Knudsen.

H.M.Jr:

Bell:
Schwarz:

That is right.
The rest all have several irons in the fire.
He said, "You don't know when they stop representing their companies and begin representing
the Government."

H.M.Jr:

Send it in to me. I don't know what paper it

was in, but I didn't see it. I would like to
see it.

Foley:

Of course, all these fellows that Jim Forrestal
has in the Navy Department that are doing the
same thing are members of firms in New York.

It is a big question that puts a cross-current

practice in Government. These fellows have
gotten Franklin and others down.
H.M.Jr:

Well, it is really a matter for the Attorney

38-G
- 25-

General. After all, he is always making
addresses before the American Bar Association on ethics, and so forth and so on.
White:

One of the interesting ramifications of
that, I had to appear before their committee on nitrates, representing all the
big nitrate concerns in the United States,

and they had to decide whether or not to
buy a stock pile from a foreign country and
they were strongly opposed to it. Subsequently they gave in, but you can see where

the conflict of interests would lie. They
just came down here on this committee and
they were making the decision.

H.M.Jr:

Do you know what Rockefeller did since I
advised him? Do you know what he did about
it?

White:
H.M.Jr:

Foley:

No, I don't.
I gave him some advice right along this line

and he said he would do it the same day.

I should think Stimson would be a little bit

ticklish about this because he has always been

such a stickler about ethics.

H.M.Jr:

I should think so. I don't hesitate to bring
it to his attention where it affects me.
What else?

Foley:

That is all.

H.M.Jr:

Herbert?

Gaston:

I have this book that Waesche prepared. There
are some diagrams in it.

38-H
- 26H.M.Jr:

Oh, yes. I will study that.
Just so the office knows, Butterworth is in
town today. He called up and he wanted very

much to sit in on these meetings with Sir Fred-

erick. I am not having him sit in with Sir

Frederick, and just so those of you who have
records will know, Butterworth is not in my
confidence. I just wanted you to know. He
had his opportunity and he hasn't treated me

right, so I don't feel with these negotiations -

if he knows what is going on - I am sorry to
say this, but I can't be sure to whom he repeats it; and therefore, I am going to have

a talk with him, and I don't say this lightly,
but on this whole question of what the English
did on selling their securities or notes,
Butterworth had his chance to keep me posted

and didn't. He had his choice as between

reporting to Treasury and Mr. Kennedy, and he
chose Mr. Kennedy, so I don't want him - I
mean any information as to what is going on

with the British in these negotiations, I

ask that it be left to me how much he does

or doesn't know, and the trouble - a lot of
the trouble that I have had with this Scotch-

man -Cochran:

Gifford.

H.M.Jr:

Butterworth could have straightened it out.
You see, I advised him to do one thing, that
when we feel fairly sure that one of the one of the reasons that Gifford didn't take
my advice is because he took Kennedy's, and

Butterworth was in a position where he could
have helped the Treasury, and I don't think
I am being unfair when I say that he let me

down. He can get in on it or not if he

wants to.

38-I
- 27 Cochran:

Well,
on it. I will see that he doesn't get in

H.M.Jr:

Am I unfair in my statement?

Cochran:

No. It embarrassed us very much. There is
no question about that.

H.M.Jr:

I don't want him to have the run of the

place. After all, we are keeping Mr. Hull

and Mr. Welles and Mr. Feis informed, which
is enough. I just want everybody to know

I don't make a statement like that lightly,

but he had his chance the last time he was

here. Butterworth sat in and I did everything

humanly possible to push the man and to help

him in his work, but he didn't do very much
for me. It can only happen once. So I would
tell Mr. Butterworth that he can go back

to the State Department and he can leave word
with Mr. McKay and when I am ready I will see

him. I am not ready now. I don't want him
hanging around the Treasury. If he will

wait over at the State Department and speak

to McKay - I will treat him just the way I
would anybody else. When I get around to it,
I will see him.

Cochran:

All right.
If Mr. Hull calls, or any of his people, about
these meetings, is it understood that I am
to go over again after we have had this meet-

ing today or tomorrow when we have something
more to report?
H.M.Jr:

I am going to see Mr. Hull myself at a
quarter of nine tomorrow morning. I expect

to tell him myself, so - no, I don't want

you to go over without checking with me.

38-J
- 28 Cochran:

No, no, I understand that.

H.M.Jr:

We can't be too careful about these things.

So long as it is in the Treasury, it is
all right, but I have learned my lesson. I
don't know who stands where.

Okay.

December 9, 1940
10:20 a.m.
H.M.Jr:

Hello.

Operator:

Henderson.

H.M.Jr:

Hello.

Leon

Henderson:

Hello, Henry, it's Leon.

H.M.Jr:

How are you?

I'd like to come by and see you sometime as
soon as I can just to talk with you about some
things going on in our shop and some things are
bothering me and find out what you've got on

H.M.Jr:

your mind, if possible.
Is Wednesday for lunch too far off?

What?

H.M.Jr:

Is Wednesday for lunch too far off?

Not too far off - I'd naturally like it a little

earlier if I could, but Wednesday at lunch would

be all right.
H.M.Jr:

Well, is it something pressing?

No, it's just that it just seems to me that
there are a lot of things going on and I

thought you and I ought to have a talk before
the Boss got back.

H.M.Jr:

Well, if it's nothing on an hourly basis, let's

make it Wednesday for lunch.

All right.

H.M.Jr:

1:00 o'clock.

H.M.Jr:
H:

Are you going to give me a lunch, is that it?
I'm giving you lunch at the Treasury.

All right. (Laughs).

-2H.M.Jr:

See?

I'11 be there at 1:00 o'clock.

H.M.Jr:

Just you and I.

H.M.Jr:
H:

Yeah. I may be a couple of minutes late because
that's our meeting day but I'11 be over there.

Well, let's say now - 1:15.
No, I'd rather make it 1:00 because - and I'11
try to break away over there.

H.M.Jr:

O. K.

All right, Henry.

H.M.Jr:

Be glad to see you.

Good-bye.

December 9, 1940
10:30 a.m.
H.M.Jr:

Hello.

Operator:

Mayor La Guardia is on his way to the office.

H.M.Jr:

Thank you.

They' 11 call me as soon as he comes in.

10:44 a.m.
H.M.Jr:

Hello.

Fiorello

LaGuardia: Hello, Henry. How are you?
H.M.Jr:

How are you?

Pretty good.

H.M.Jr:

Look, Fiorello, I got word from Johnny Sullivan
and he had a swell talk with you and that you
were coming down here sometime.

H.M.Jr:
L:

H.M.Jr:

Yes, I'11 be in tomorrow.

Well, he said 4:00 o'clock but I don't think
I - would 4:30 be all right?
Well, I - wait a minute - (talks aside).
I tell you what, I've got a meeting with four
Cabinet members at 3:00 on this English thing,
you see. Hello?

Yes, I understand.

H.M.Jr:

And I don't know how long - I don't want to
keep you waiting - it might run after 4:00,
you see.

That's right. You see, I'm taking the 5:30 back.

H.M.Jr:

5:30.

42
-2
L:

Yeah, and I don't know - (talks aside).

H.M.Jr:

What time do you get to town?

Oh, all right, I think - let's make it 4:30.

H.M.Jr:

What time is your plane?

5:30.

H.M.Jr:

Well, I'11 kick them out at 4:30.

All right. I'll be there at 4:30.

H.M.Jr:

How 18 that?

Yeah, but look, we're going to have difficulties.

I find that I'm under a mandate of the Conference
of Mayors.

H.M.Jr:

Well, I thought you were the Conference of
Mayors.

No, no.

H.M.Jr:

What?!!

I'm not even one of the big shots in it.

H.M.Jr:
L:

Oh, listen now - (laughs) - you can kid some
of your fellows up there

I'm making inquiries now very quietly and I

hope to have something definite by tomorrow.
H.M.Jr:

Right.

I'11 see you at 4:30.

H.M.Jr:

Wonderful.

Good.

H.M.Jr:

Good-bye.

RE BRITISH PURCHASING PROGRAM

Present:

Mr. White

December 9, 1940
10:45 a.m.

Mr. Bell

Mr. Cochran
Mr. Young
H.M.Jr:

This
is as
at
Table
1.of November 30. I am looking

Young:

That is the same as December 1.

H.M.Jr:

Oh, sure; thanks. Aircraft, non-aircraft.

What do you mean, capital, balances due,
17 million?
Young:

Capital expenditures.

H.M.Jr:

One, three. Well, I had a figure here the
other day of one, three something. What

was that?
White:

That is a later table. I might say that

these tables as they presently are are
rather complicated and we were going to simplify them and build them up.
H.M.Jr:

Additional orders to be placed under "X" program. What is that program?

Young:

That is this program of Layton's, planes,
ordnance and ships.

H.M.Jr:

What is the s e c ond column?

Young:

The second column are additional orders out-

side of this program that they want to place.
H.M.Jr:

The program is the Layton program?

Young:

Well, this sheet of two billion six that we
had the other day.

-2H.M.Jr:

I see. Do you notice already somebody has

White:

Yes, it was out the day before yesterday.

given out the figure of two billion seven.
Apparently somebody heard everything that
went on.

H.M.Jr:

I know. That always happens. Krock got to
somebody.

Bell:

Was that in the Monday meeting, do you think,
or was it in one previous meeting?

White:

That was the - what was said in that large
meeting came out within two or three days.

Bell:

That is right.

White:

Even as to the exact figures.

H.M.Jr:

This thing is very amusing to me. Additional
orders to be placed now under negotiation,

additional orders to be placed under "X" program.
Young:

That is the total. Balances due plus additional orders.

Bell:

There is still some duplication, isn't there?
Not in that. It has all been ironed out.

White:

Bell:

I don't see how you can prevent duplication
between the two billion 62 million and the

699 million capital, because the British are
going to pay a part of that capital as they

pay for those orders. Is that right? And
if they get all of the orders, they will
pay for the 699 million in orders. So it is
part of the --

-3White:

I presume that the price they gave does not
include the addition which would be called

for in the capital.

Bell:

Oh, you do assume that?

White:

Sure.

H.M.Jr:

What is the big thing here?

White:

Table 2? That is what you have just been
looking at, broken down into details and into

monthly payments.
H.M.Jr:

I see.

Young:

That is how we got Table 1.

H.M.Jr:

I see. And Table 3?

White:

Table 3 is a current balance of payments that

we had asked them about. You know on Saturday
we sent them a memorandum asking for their

various assets and this, I think, is part of
it and the other part is coming, but this
tells us what their current picture is, and

there are some things here that we don't agree
on.

H.M.Jr:

Payments of British purchasing, actual, Septem-

ber 1, 1940, November 30, 1940. I see. Total
actual payments.

Young:

This table, you see, is on the war year basis,
September to September.

H.M.Jr:

All right.

White:

You can get the net figure on the table following, Mr. Secretary.

-4H.M.Jr:

Just a second. Now, down to question 7, net

outgo in U. S. dollars and gold by sterling

area (excluding payments to Canada and New-

foundland), three, one.

White:

3.1.

H.M.Jr:

That is up to when?

White:

August 31, 1941. Now, they have made some

H.M.Jr:

And where do you do that?

White:

Well, that isn't done on here because they say

H.M.Jr:

Well, that is all right. Net expenditure of

payments on that, but if you want to extend
that another three months you will get a
picture of the next twelve months, which is
roughly that.

they do all their figuring on a yearly basis.
gold --

Young:

This Table 4, you see, is really a continuation

H.M.Jr:

I see.

Young:

Here is the last figure on Table 3.

H.M.Jr:

Right. Now, without - this looks like a very

of Table 3.

workmanlike job.
White:

They did a very good job. There are some things

here that are of special interest that we want

to call your attention to.

H.M.Jr:

Well, you can do that tonight. Now, what about
their assets, Harry?

White:

Now, their assets - we gave them a very detailed

-5request with a statement that we were in no
way indicating whether or not these were to
be regarded by you as assets but merely the
Research wanted to present as many facts as

might be pertinent to the discussion and then

we gave a list of all their assets and we

went over them yesterday and they indicated
some they gave us. Some they indicated they
would get for us. Some they are working on.
Some they may not be able to get. Some they

think they won't be able to get. So we have
got on each item a pretty clear picture of
what they have or can get for us, and then

we have our own estimates which, judging from

those they have given us, are pretty good,

of their various assets.
H.M.Jr:

To sum this thing up, between now and August 31,

'41, they need three billion three hundred
sixteen million dollars?

White:

No, it would be a little bit less than that

because that is supposed to be for the war
year and three months have already passed, so

we will have to project that. Take a year from
today they will need approximately that.

Bell:

During the twelve months ended August 31,

they need three billion. Now, some of that
they have already paid for and liquidated.

H.M.Jr:

Look, gentlemen, please give me something

along - that I can say, "I want to know for
tonight, the net figure from December 1 to

August 31, '41, how much do they need.
White:

That is what we are going to work on today.

H.M.Jr:

Then I don't want to use this because this
is confusing.

-6White:

But that is the only way they would give us

H.M.Jr:
White:

By tonight -We will have it.

Bell:

What you can do is take what has been paid

H.M.Jr:

By tonight I want on a sheet of paper two

that.

and deduct it from the three billion three.
things; one, how much money do they need
from December 1 to August 31, '41; and on
another sheet of paper, how do they propose

to pay for it.

White:

Right.

H.M.Jr:

Because this thing is - just as soon as you

give me something, then you have got to be-

gin to explain it, and I don't want to use
that.

White:

We had in mind to put it in shape like this.

H.M.Jr:

That is the purpose of this meeting.
Philip, did you hear what I said? Two sheets.

Young:

Two sheets of paper.

White:

We just got this last night.
I know. I think what they have done over a
week is perfectly grand, but I again say how

H.M.Jr:

much are they going to spend from December 1

to September 1? Now, that would be a sliding

figure in the sense that it would be - no,

we want to know how much they think they are
going to spend. How much does Philip say -

-7the whole picture. The same thing for Canada.
And also I would like to know how much is
England going to spend in Canada.
White:

That we have. In this figure that they owe
us, and one of the things we were raising - this
is not what they owe us, but this is what they
need in U. S. gold and dollars. Now, of that
amount, there is over 600 million - 620 million
which is supposed to go to Canada.

Bell:

And that is dollar requirements.

White:

That is right. They claim United States dollar
requirements to Canada.

H.M.Jr:

Well, look, let's do it once more. From now
until September 1, how much - after all, the
pot of gold is in the English Treasury. How

much are they going to need to spend in Canada,
how much are they going to need here, see, and
how they propose to do the two things.
White:

And the same with regard to Canada, how much
Canada expects to spend.

H.M.Jr:

Yes, and the Argentine.

White:

Yes. We can give you that.

H.M.Jr:

Yes, and the Argentine.

White:

They have got that figure of how much they
expect to spend in the South American coun-

tries and all other countries. That is in

here. We have segregated that. We already

have that.
H.M.Jr:

I would rather have it over-simplified. Here
is England, here (indicating top of page), and

-8-

you can start at the top, total expenditure,

the top figure that England expects to spend,
to import, the top figure you see.

White:

Right.

H.M.Jr:

Then you start with the figure up here, December 1 to September 1, from United States,
Canada, South America, so much. There will
be a recap and the two things would total.

Bell:

Do you want South America as one item or --

White:

Well, we have got South America.

H.M.Jr:

I want a break-down.

White:

We may be able to make one.

H.M.Jr:

You could say Argentine and the rest of South
America, or Argentine and Brazil and the rest

of South America, but let's do it this way,
gents. This is good bookkeeping practice,

Isn't it? Here is your total figure of ex-

penditures, and then here come your countries

and here is a column running inside, isn't it,
to the left, and then you total that column
and that figure ought to be the same as this,
and then on the other side of the page would
be how they propose to spend this.

Bell:

The items.

H.M.Jr:

And then - that is England. And then I want

to do Canada the same way, and then when we
get Canada, what Canada wants to do here and

what comes from England to Canada, and so forth,
but I want Canada the same way and then we will

see if they tell the same S tory. I wouldn't
be in such a hurry to put Clark into the

-9-

hands of Phillips. Let him take his own initiative, because I think if we talk to them
for a day or two alone they may tell us some

things. I wouldn't rush him into the hands

of Phillips. Phillips knows he is here. It

was he that suggested that if somebody could
come, it be Clark.

Now, could I have that, and even if for tonight
you say to me, "Now, Mr. Morgenthau, this is

only 75% right," at least it would be the kind
of formula that I want.

White:

Yes. We will prepare it and then I will check
with Bell.

H.M.Jr:

This would be the kind of formula. Now, if it
has got 25% error in it - which it won't.

White:

Is Phillips coming this morning?

H.M.Jr:

I won't see Phillips until he comes to my

house at 7:30 for supper, and I am expecting

the rest of you at 8:30, including you (Reporter),

please.

Now, Dan, is this good accounting procedure?
Bell:

That is a good statement form, very good.

H.M.Jr:

That gets it down to one page, anyway. It
gets it down to two pages.

White:

If we can work out something satisfactory,
and Dan thinks it is very simple, before we
show it to you, we would like to have them
make possibly a large copy for the Tuesday
morning group.

H.M.Jr:

Yes, and then we don't have to give them

copies. I am afraid of giving them copies.

- 10 You know, the great trouble in Washington is

the fear that the people don't think that
the public thinks they are in on something,

so they have got to go and tell the newspaper

men what they know.
Bell:

That is friendship.

White:

There is one thing I would like to mention,
Mr. Secretary, about Argentine. One of the

men has just come back from the Argentine
Tariff Commission and he says there is a
German Military Mission in Argentine and they
are very active, and we wondered whether you

might not want to take that up with the State

Department to find out why should they have a
German Military Mission if we are going to

lend them money.
H.M.Jr:

Will you ask the State Department that question?

Cochran:

Yes, I will ask them.

STRICTLY CONFIDENTIAL

BRITISH FINANCIAL REQUIREMENTS

IN THE UNITED STATES, DECEMBER 1, 1940.

parts the

These tables provide information relative to the
financial
sterling
area
for
U. S. cover the those
(1.e.

Canada, Dollars. of the requirements British Newfoundland They do Empire of not the and outside Hong Kong). of requirements sterling gold of area and

There are four tables: Tables I and II refer only to
III and IV refer to total requirements.

the needs of the British Purchasing Missions; while Tables

Table I presents a summary of estimated future payments
in the United States by British Purchasing Missions as of Dec.
1, 1940. The table covers balances due on existing commit-

ments and estimated commitments involved in additional orders
now under discussion, including those at present being nego-

tiated and those in the "X" Program. It does not include the
larger airplane, shipbuilding, and other programs that will be
forthcoming and will be submitted at a later date.

Table II presents detailed information with respect to
the data in Table I, classified by commodity group. The 10Division Army Plan is classified by itself because of the
difficulty of breaking it down into commodity groups; the value
shown is based on a War Department estimate. The table also
shows the estimated distribution of payments up to August 31,
1941 and subsequently, except for capital on orders to be

placed which is not distributed because of the lack of available information. The distribution of the payments for the
10-Division Army Plan is arbitrary, the amounts prior to Aug.
31, 1941 being on account of estimated advances.

Table III shows the total requirements of the sterling

area for U. S. dollar payments (excluding any such payments to
Canada) between Sept. 1, 1940 and August 31, 1941 (the second

year of the war). This table summarizes the needs of the
British Purchasing Missions during this period together with
the sundry debit and credit items entering into the normal
balance of payments.

Table IV summarizes the general position of the sterling
area for the second war year. This table cites the net requirements of the sterling area in both U. S. dollars and Canadian
dollars taking into account the assistance which the Canadian
Government have already given and may yet give in meeting the

latter requirement (the balance having to be met in gold). The
estimated amount of South African newly-mined gold is also taken
into account. The resultant final balance is an estimate of the
net amount required by the sterling area in gold and dollars
over this period. This represents only the current items of
the final balance of payments, and does not take into account
any of the existing capital assets which may be liquidated in
order to meet the dollar expenditure of the sterling area.
British Embassy, Washington
December 7, 1940

STRICTLY CONFIDENTIAL

TABLE I

Forecast of Future Payments in the United States
to be made by British Purchasing Missions 1
Summary Statement
November 30. 1940

(In millions of U. S. dollars)

Balances Due
on Orders

Already Placed

Additional
Orders to

be Placed

be Placed
under "X"
Program 2/

as of Nov. 30.

Now under

1940

Negotiation

Sun of Balances
Due on Orders
Already Placed
and Estimated

Additional Orders

Commodities

Aircraft

787

270

1,075

2,132

Non-aircraft

497

955

987

2,439

1.284

1,225

2,062

4,571

Total commodities

Capital

Grand total

1,301

1,235

726

699

2.761

5,297

British Purchasing Commission,

Statistical Division. New York.
December 7. 1940
1/

British Purchasing Commission, British Air Commission,

British Iron and Steel Corp. Ltd., and British Ministry of Shipping.
2/

This program is the subject of the financial statement of Nov. 28.
1940, entitled "Statement of the Estimated Value of Additional Orders
to be Placed under the Air. Munitions and Shipbuilding Programs
recently under Discussion with the Administration together with an
Estimate of the Further Production Facilities required to supplement
Existing Capacity."

TABLE II

STRICTLY CONFIDENTIAL

Forecest of Future Payments is the United States
to be sade by British Purchasing Missions 1/
Detailed Statement
November 30,1940

(In williese of U. s. dollars)
Millional orders to be placed

Additional Ordere to be Placed

Orders Already Placed
Orders

Mar.'A

Ang.'41

72.0

21.0

29.0

276.0

67.0

36.0

340.0

179.0

194.6

281.2

24.5

32.2

28.7

29.9

145.7

20.2

69.0

20.0

62.2

72.1

64.4

63.2

367.4

139.5

85.6

56.1

16.9

11.2

7.5

4.9

13.7

23.6

1.9

1.8

1.4

8.3

6. Chemical Narfare Materials

7.0

5.0

69.8

7.5

6.1

5.2

3.7

23.4

23.9

127.4

25.7

101.7

6.0

5.2

7.7

7.1

28.1

47.6

25.0

201.7

129.1

72.4

17.7

630.0

270.0

360.0

15.5

12.5

3.0

360.0

2.0

87.0

23.0

24.0
4.0

8.0

26.0

40.0

12.0

117.0
39.5

76.5

40.5

22.5

17.0

1.6

1.3

230.0

370.0

600.0

180.0

50.0

370.0

547.0

2438.7

1212.1

1225.9

4570.7

2018.1

2052.6

134.0

250.0

146.0

124.0

955.0

294.0

37.4

571.0

58.8

107.1

987.0

75.0

491.6

265.5

1225.0

210.0

331.0

325.0

100.6

634.0

147.1

123.2

2062.0

155.8

681.0

1283.7

499.0

***

xxx

526.3

***

17.3

10.0

200.0

***

XXX

***

200.0

XXX

2761.0

***

xxx

$297.0

XXX

3rd

2.4

10.0

xxx

***

XXX

***

XXX

***

600.0

93.6

496.7

130.1

147.7

35.0

1054.9

40.0

2338.4

23. Total Commodities

525.3

1022.0

140.0

10.0

6.0

3.0

3.1

10.0

22. Total Non-Aireneft Products

1.5

100.0

24.9

1.1

2.3

227.9

26.5

9.5

1.5

163.0

180.9

2.3

3.0

162.3

106.8

11.5

12.3

20.0

35.9

55.9

30.0

268.0

410

.5
.5

99.0

8.0

4.4

4.6

3.0

1.6

1,7

530.0

1.3

2.0

3.3

3.9

10.0

25.0

20.0

1.9

15.5

10.0

20.0

23.0

69.0

38.2

30.0

53.7

30.0

100.0

143.4

107.0

243.4

5.9

6.9

Let

58.0

13.2

26.0

17.7

25.0

49.0

12.7

270.0

30.4

68.9

26.0

43.6

15.3

138.7

25.0

78.8

79.0

21.1

33rd

6.7

6.1

6.4

8.7

106.1

82.4

224, Equipment for 10 Division Army Plan

26. Capital

8.0

826.7

52.6

8.2

1305.3

135.0

16.5

2132.0

40.1

20. Fister
21. All Other

20.0

17. Animals

19. Communications Equipment

15.0

16. Patroleum Products

18. Shipe

15.0

15. Toodstaff Tobacco

10.0

556.p

14. Textiles Clothing

40.0

74.1

13. Non-Ferrous Metals

1075.0

12. Irea Meel

113.0

11. Meter Tehdelee

81.0

10. Tanks

76.0

9. Ordnance Equipment

270.0

8. Ammition

13.0

7. Explosives Propellants

157.7

9.0

787.0

8.0

192.2

95.4

529.6

30.0

434.0

169.5

1316.4

2.1

626.2

99.0

12.8

2.5

2.4

2.7

3.0

25.5

5. Machine Tools

32.7

143.0

4. Total Aircraft Products

58.2

46.0
19.0

, Airplane Accessories

114.0

475.8

2. Airplane Engines

560.4

171.0

135.4

775.9

206.9

1136.3

30.8

1943

354.0

33.3

Inrest

37.2

114.0

34.7

217.0

180.3

685.0

Ang.

1943

302.3

Ther

Dec.44-

Total

782.6

Value

August

1. Airframe

48.0

1943

Value

1941

Dec. * Apr.
Mar.'dl ing.'43

Ang.'D

Dec.'40 Apr. Amount

Estimated Parents

After
Total

Mar.'43

Feb. 43

Total

Jan.'4

Dec.'40

the

Increase

1940

Art.

Estimated Payments

litter

Due

Dec.

1940

Estimated Payments

Balances

Made

Through
Nev.

Through

New. x

Group

Payments

Placed

Committee

Sun of Balances Das and Bellnated Additional Orders

under "Y" Program &

Now Under Negotiation

1103.0

264. Capital for 10 Division Army Plan

25. Grand Total

2186.3

1185.3

1301.0

165.5

150.5

123.9

100.9

496.0

266.0

1235.0

British Air Commission, British Iron and Steel Corporation Limited, and British Ministry of of Shipping. Additional

Note 1: British Purchasing Commission, entitled *Statement of the Estimated Ministration Value

Note 21

This progres is the subject of the the financial Air. Musitions statement and Shipbuilding of November 26, Progress 1940. recently under Discussion Existing Capacity. with the

together

Orders to with be Placed an Estimate under of the Further Production Facilities required to supplement

***

STRICTLY CONFIDENTIAL
TABLE III

Estimated Balance of Payments of Sterling Area with the United States
and in U. S. Dollars to Countries other than Canada and Newfoundland 1
September 1. 1940 - August 31. 1941

(In millions of U. S. dollars)

1. Vieible U. K. imports from and exports to United States
A. Gross payments on United Kingdom purchases (visible imports)
1. Payments by British Purchasing Missions 2/
a. Actual Sept. 1. 1940 - Nov. 30. 1940
(1) Commodities

(2) Capital
(3) Total actual payments Sept. 1. 1940 - Nov. 30. 1940
b. Estimated Dec. 1. 1940 Aug. 31. 1941
(1) Commodities 3/

(2) Capital (on orders already placed) 4/
(3) Total estimated payments Dec. 1. 1940 - Aug. 31, 1941
C. Total payments by British Purchasing Missions

517
71

588

2.518
17

2.535
3,123

2. Other payments
a. Manufactures
b. Petroleum
C. Food

d. Other raw materials
e. Total other payments

281

3. Total payments on United Kingdom purchases

3,404

B. Less gross receipts from United Kingdom visible exports

164

C. Net balance of visible imports into United Kingdom from United States

3,240

11. Less net balance of invisible exporte of United Kingdom to United States

3,224

III. United Kingdom adverse balance of payments with United States

IV. Less net receipts from sterling area (excluding U. K.) exports to United States
A. Gross receipts from exports
1. Australian gold
2. Merchandise.

560

3. Total gross receipts from exports

634

B. Deduct gross payments on imports

334
4

1. Visible importe
2. Net balance of invisible imports
3. Total gross payments on imports

338

C. Net receipts from sterling area (excluding U. K.) exports to United States
V. Adverse balance of sterling area (including U. K.) with the United States

296

2.928

VI. Add expenditures in U. S. dollars and gold by sterling area in countries other than

248

the U. S. (excluding payments to Canada and Newfoundland 1/)

VII. Net outgo in U. S. dollars and gold by sterling area (excluding payments to
Canada and Newfoundland 1/)

3,176

British Endassy. Washington.
December 7. 1940

See Table IV. for Canada and Newfoundland

British Purchasing Commission. British Air Commission. British Iron and Steel Corp. Ltd.
and British Ministry of Shipping.
See Table II. item 23.
See Table II. item 24. No allowance is made for capital on additional
British Purchasing Mission orders not yet placed.

57
STRICTLY CONFIDENTIAL
TABLE IV

Summary of the General Position
September 1, 1940 - August 31, 1941

(In millions of U.S. dollars)

The net expenditure of gold and U.S. dollars
by the sterling area during the second war year,
excluding any gold or dollars paid to Canada, as

3,176

shown at the foot of Table III, is estimated at

II.

The adverse balance of the sterling area

with Canada and Newfoundland must also be dealt

with; for the second war year this is estimated at

880

Under our existing arrangements the Canadian

Government are helping us during the first six months
of the second war year to the extent of
Leaving a balance of

150
750

If repatriation of Canadian securities in the
last six months was no more than the first six months, vis. 130
This would leave to be met in gold or U.S.

dollars an amount of

III.

IV.

On this last assumption, therefore, the amount
which will have to be furnished in gold or dollars
during the second year of war is estimated at
Against this may be set the mining output of
South Africa during this period, which will be a
current addition to the monetary resources of the

United Kingdom. It is estimated at

The balance remaining is

British Embassy, Washington.
December 7. 1940

620

5,796

480

3,316

December 9, 1940

At lunch, General Marshall said that the program
which the English are asking permission to place in this
country for ordnance would mean only the equipping of
another 250,000 men in the United States. Therefore,

he said that he is prepared to unhesitatingly say that
they should be given the permission to place this order.
He said that as far as the airplanes (the additional
ones the English wanted to order) are concerned, he

hesitates to say yes, but nobody can tell today what the
tomorrow holds for us, and that his Air Corps, on the
other hand, are prepared to say yes.

I sounded him out as to how he felt about my visiting
some of the troops, and he was very enthusiastic that I
should make this inspection.

He is very much worried about aircraft production. He
said that the Army only got 6 "tactical" planes in November. He personally is looking into the whole subject.
He feels that the English are getting an entirely disproportionate number of our planes.

December 9, 1940
2:15 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Forrestal.

H.M.Jr:

Hello, Jim?

James

Forrestal: Henry.
H.M.Jr:

Yes.

How is your time this afternoon - are you you wouldn't want to have an early dinner
would you?

I'd love to but I'm having Sir Frederick
Phillips tonight.
Oh, well. The reason I - Clarence Dillon was

H.M.Jr:

Well, now, let me just - I tell you what. At

H.M.Jr:

H.M.Jr:
F:

in town and I was going to bring him around
for a minute or 80.

3:00 o'clock I meet with the Federal Reserve;
at 4:00 I have Press; #:30 Deputy Finance
Minister Clark; 4:45 Butterworth from our American
Embassy in London. Now, when - is Mr. Dillon
here just today?
No, he'11 be here tomorrow morning too - at least
I hope - I think he will. I'm almost certain
he will.

Well, I'd like to meet him. I know that he's
your boss. What time have you in mind?

Well, I'd suit yours. It ran through my mind
that if you were free for dinner I might get
you for then, but either late this afternoon
or tomorrow morning or anytime

H.M.Jr:

I tell you - how about 11:30.

Tomorrow - O. K.

H.M.Jr:

Tomorrow morning.

-2-

H.M.Jr:

All right.
Is that all right?

You bet.

I'd love to meet him. I've never met him.
Well, I think you should meet - I'd like to

H.M.Jr:

Fine.

What time 18 your meeting tomorrow?

H.M.Jr:

3:00 o' clock.

At 3:00.

H.M.Jr:

Now while I've got you on the phone, may I

Yeah.

H.M.Jr:

What about bringing Chief of Naval Operations?

H.M.Jr:

see you together anyway.

make a suggestion?

Isn't he interested in this sort of thing,

or not - Stark.
F:

H.M.Jr:
F:

H.M.Jr:

What operation, Henry?

Ought Stark to know about this or not, or do
you keep him informed - Admiral Stark.
Well, I'm going to bring him.

That's what I was trying to say tactfully.
(Laughs).

Right. Well, I'd already had that
(Laughs).

H.M.Jr:

Next time I'11 say, for Christ's sake bring
Admiral Stark and you can say, go to hell, or
yes.

Yeah. Well, when I came back last Friday I
informed him of our meeting and I said I thought
he ought to be there tomorrow.

-3H.M.Jr:

All right.

All right, Henry.

I won't be 60 damn polite next time.
You don't have to be with me.

H.M.Jr:

O. K.

H.M.Jr:

Good-bye.

H.M.Jr:

62
December 9, 1940
2:18 p.m.
H.M.Jr:
Claude

Hello.

Wickard:

Yes.

H.M.Jr:

How are you?

Oh, I'm pretty good. How are you?

H.M.Jr:

O. K. This 18 what I'm calling you about we've got a financing to do for the U. S.

Treasury and we are not doing what we would

normally do; that is, sell a lot of long term

bonds because we want to wait and see if from

Congress we cannot get the authority that all
direct and indirect - by that I mean guaranteed
obligations of the Government - be subject to all
taxes.

Yes.

H.M.Jr:

Now, what I'd like to be able to say is - you

Yes.

H.M.Jr:

But I'd like to say - be able to say that both

don't happen to have anything that's coming
due right away - I looked over your Farm Credit
stuff, see?

for the U. S. Treasury and the Government
guaranteed that we expect to ask Congress for

the authority that these obligations should

pay all Federal taxes and not be exempt from
anything.

H.M.Jr:

Yes, on all new issues.

All new issues - all future issues, but I

didn't want to make a statement like that
where you were directly affected without first
consulting you.

Well, now. the Governor of the Farm Credit 18

here right now and let me discuss this thing
with him and I'll call you back.

H.M.Jr:

Could you call me before 4:00 o'clock?

-2W:

Yes, I 11 do it in less time than that.

H.M.Jr:

I got Jesse to write me a letter on it to go

H.M.Jr:
W:

along.

Oh, you did.
Yeah.

And you'd like to have me write you a letter.
No.

Call you first?

Just call me - that's all I need.
All right.

H.M.Jr:

No, I mean, I was amazed that Jesse wrote me,

Jesse is committed

H.M.Jr:

To this program.

but you just call me

To this program. All right. I'11 talk it over

with the Governor of Farm Credit and I'11 call
you in the next half hour.

H.M.Jr:

Thank you.

Good-bye.

64
December 9, 1940
2:54 p.m.
H.M.Jr:

Alfred

Hello.

Sloan:

Yes.

H.M.Jr:

Morgenthau speaking.

Yes, good morning, Mr. Secretary. How are you?

H.M.Jr:

I'm all right. It's afternoon here.

Oh.

H.M.Jr:

How are you?

Pretty well, Mr. Secretary. I'm up here in

H.M.Jr:
S:

Michigan at our engineering station.
Yes. The reason I'm calling you is
We've got a lot of snow up here.

Yes. I'm very much disappointed in the figures
that I get on your production out at Allison.
Well, let's talk about that a minute, Mr. Secretary.

H.M.Jr:

God, it's terrible!

Well, now let's talk about it. Last October was
pretty good and November wasn't 80 good. We

fell down in November and that was due to -

principally to two causes. In the first place,

this is just what happened. There was a movement

from the plant there to other places of two or

three of the inspectors who had charge of the
work and they brought in new people and there

was quite a little delay in getting those new

people - you might say - acclimated to the job.
In other words, parts that the other men had
found perfectly satisfactory and had passed
through, these new men being different to the
job and being new to the job and not familiar

with it, took a different attitude of mind
toward it and that in certain critical parts

delayed our production considerably. The second

point was that one critical part had got behind

-2due to a 3-weeks strike we had in our other
plant in Detroit. Those are the two things
that primarily caused the delay. This month
while we'll pick up several of the parts, some
of the engines we lost. I was down there a few
days ago and generally speaking I think e're
making pretty good progress and getting our
things lined up but of course there was another
thing also that had delayed us both in November
and this month and which has now been cleared.

H.M.Jr:
S:

Yeah.

And that 18, we had a little engineering
difficulty develop in connection with the front
end of the engine which was developed around

the cold weather and it took a little time to
clear up. Now, that's been covered and we got
that removed but such things are likely to

happen on a new job of this kind.
H.M.Jr:
S:

I see. Well, when I saw you going

All I can say to you is that there's nothing
serious at all, it's just thesethings that
come up and they have to be cleared and it takes
a little time and on the record it looks bad
but fundamentally the job is going along very
satisfactorily and I think we re gaining
operating strength every day but naturally
when you re in a thing of this kind that's new

why you can't ever tell what is going to happen.
When it happens why you've got to get out of it
the best you can, but I can assure you it's
nothing fundamental at all and as I said before,
we're gaining strength in a general way all the
time.

H.M.Jr:
S:

Tell me. How are you coming along with the
engine for Bell?

On the . what job - the Bell?
The engine for the Bell - I don't know what
model it is.
That involves what we call here the Allison the E job.

-3H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:

Yeah, that's right.
And the type tests on the E job are not entirely
cleared, but we re making progress on them and
that also applies to the F job.
When I spoke

I say to them, Mr. Secretary, the same as I
said on the C job that the delay, I might say
that as far as we know, the delays on the 0
job due to the point that I mentioned have not
in any way delayed the shipment of planes. I'm
quite certain that we are quite a little ahead
of planes already.
How about this engine - this
About the Bell job.
How about this - you had hoped to be able to

develop an engine with 1300 horse, or something

like that.
S:

H.M.Jr:

That takes what?

Are you making any progress with an engine which
will develop more horse power?

Well, you mean a different type?

H.M.Jr:

Well, yes.

You're referring to that conversation that I had
with you a month or so ago.

H.M.Jr:
S:

Yeah, that's what I'm referring to.
Well, now, that's a question of evolution. In
discussing that with you probably I was a little
ahead of the actual demonstrated facts. I simply
said that I thought through evolution we would
get more power out of the engine but of course
that's a matter for the future. But outside of
that we are not doing anything in the way of very little engineering work on a bigger engine.

I presume you know we have worked on that in the
past but just at the moment we've been concentrating

all our engineering talent on cleaning up these

points that arose from time to time in connection
with the c, E and F jobs because that's of more
primary importance at the moment.

H.M.Jr:
8:

Well,
I may give you another ring in another
week or so.
Anytime you want to I'11 be delighted to talk
with you and I'll give you the facts exactly
as they are.

All right. If you should come to Washington on
any other business, let me know. We could have
a longer talk.
Come in and talk. Hello?

H.M.Jr:

Yes.

H.M.Jr:

I'11 be glad to come in and see you and any
time you d like to have me come down and talk

to you personally, all you have to do is to

let me know.
H.M.Jr:

O. K.

All right.

see also spee sept to

Cong given to Hmm
11/19 by Eceles Harrison

T Edw E Brown

Pres / at not BK of Chaps

RE FINANCING

Present:

Mr. Bell

December 9, 1940
3:00 p.m.

Mr. Sinclair
Mr. Eccles

Mr. Szymczak

Mr. Currie
Mr. Piser

Mr. Goldenweiser

Mr. Haas
Mr. Murphy

Mr. Hadley
Mr. Draper
Mr. Rouse

H.M.Jr:

Will you (Rouse) read again? You had a

Rouse:

Very well.

H.M.Jr:

I may have one telephone call.

nice voice last time.

(Mr. Rouse read attached mimeographed memo-

randum marked "Strictly Confidential" dated
December 7, 1940)
H.M.Jr:

Let me report to you gentlemen what I have

been doing since I have seen you last. I
think I indicated the seriousness of the
steps which we will take at this time and
its implications on future financing and
tax problems. Not being too sure what the

best thing to do was, I asked the Ways and

Means people who were in town, which was very

limited, plus the Speaker, to see me, and I
did the same thing with Senator Harrison. To
my surprise, I found the feeling up there was
that I would get a good reception as far as
raising the debt is concerned, certainly taking Senator Byrd, who I suppose was the

extreme on this, he said if I asked to raise

the debt to an amount equal to the appropriation voted by Congress, less whatever the

-2net amount we have received from taxes over
expenditures - I got the impression anyway
that he would go along - which would amount

to increasing it by about ten billion dollars,
and I suppose he is extreme. If we could
get an increase of ten, we would be all right,
certainly, for some time to come. It would
give us 60 billion dollars.
I also explained to them how the Treasury

felt about taxing future issues, and with the
exception, I think, of Senator Bailey, there

was complete sympathy for that position.

I don't believe we will have any difficulty
in getting the partitions removed on the debt.
That is, of one consolidated debt rather than
defense notes and something else.

I also found, as I say, that there was sympathy
toward our policy to tax future issues of Government securities plus a very important group of
Government guaranteed securities. I don't think

there will be any trouble on that.

Eccles:

That is future issues of Governments?

H.M.Jr:

I am only talking about future issues.

Eccles:

Both on the guaranteed as well as direct?

H.M.Jr:

Yes. I didn't mention the guaranteed on the

Hill, but in describing the thing, the thing

was - I mean, there was complete sympathy.
They all seemed very much worried about when

we tackle the States and the municipalities
on that. They want to treat that as a separate
bill. They all seem to want us to use the
defense notes.

Szymczak:

What?

-3H.M.Jr:
Szymczak:

Want us to use these defense notes.
Now?

H.M.Jr:

Now.

Eccles:

In spite of the fact that they are willing to
get rid of the --

H.M.Jr:

Szymczak:

H.M.Jr:

Yes. Now, I am giving you impressions. Nobody
has signed the thing and they may change their
minds, but there seemed to be a general opinion
we should use the defense notes.

In other words, use defense notes which, if
issued now, will later become part of the
general debt limit?

I think so. I also injected my own opinion
on the thing, that if we issued long-term

bonds or we explained to them that it would
increase bank deposits, increase excess re-

serves, and that frankly doesn't interest them.

Eccles:

Well, they wouldn't understand that.

H.M.Jr:

They don't seem to think that is nearly as

important as not committing the Treasury at
this time to issuing a bond which would be

partially tax free. In other words, what I
put to them is this. I said, "Gentlemen, are
you willing for the Treasury to say publicly
that we are not going to issue any more
partially tax-exempt bonds and sit tight until
Congress says something and put this thing in

your lap?" And they said, "Yes, go ahead, it
is all right." #
Eccles:
H.M.Jr:

This is the Finance Committee?
Yes, and the Ways and Means and the Speaker.

-4Eccles:

Of course, the question of banking and excess
reserves both come in the Banking and Currency
Committee.

H.M.Jr:

Yes, but this is fairly representative. On

the Senate side we had some New Dealers like
Senator Clark and Senator Byrd and Senator

Bailey and Senator Thomas. Is that his name?
Eccles:

From Oklahoma?

H.M.Jr:

No, Utah. Johnson of Colorado. We had a whole
group of New Dealers there. (Laughter)

Eccles:

Particularly Byrd and Clark, yes.

H.M.Jr:

But the thing that I came away with, the thing
that I was explaining there, supposing I just
raised 500 million dollars worth of cash and
did nothing and said I was going to sit tight
until Congress did something. They said, "That

is all right. Now, Harrison said, "Won't you

make it a billion, because we may need a little
time by the 15th of March." So I said well,
this was a new issue. I don't know just how
to price it and just what the reception would
be. I would rather make it 500. I begged him
not to say anything about the amount and so

forth, and of course five minutes later he
did. But I was amazed to find that they are
perfectly willing for the Treasury to throw
this baby in their lap and have us say that

we are going to go ahead and use these defense

notes until they act on the tax question.

Szymczak:

Meaning that perhaps there would therefore
be no exchanges at this time?

H.M.Jr:

What I am thinking about, gentlemen, is that
I would very seriously do nothing but ask

-5for cash and throw this thing down to Con-

gress, plus the Mayors and the Governors

and all the rest of them. We have got to
start sometime.

Now, I thought Congress said, "Oh, you can't
do this to us," If but they said, "No, go ahead,

you can't hurt us. We like it." I said, "Now,

I may talk about slacker money and I don't
want to be encouraging. The fellow that has

a million dollars worth of securities and he

goes down to Palm Beach and pays no taxes and

there he sits. We have got to raise them from
somebody else." It didn't bother them a bit.

Draper:

H.M.Jr:

It must have been the election in November.

Yes, but look at the group that I was talking
to, and they don't want me, frankly, to go
ahead and issue a lot of bonds at this time.
Now, if you had told me that - I didn't know,
but I wanted to find out, so Bell and Foley
and Sullivan and I marched ourselves up on
the Hill and that is what we found out.

Now, in the light of that, I really think it

would be a mistake to go ahead and do anything but to get some cash from the defense.

Now, I know it is going to be bad temporarily,
increase your excess reserves, put the bonds

up and all the rest of that, but these men
said - what they said was this, practically,

on the House side. They said anything that
the President and I recommended on this, the
Ways and Means will take it and pass it.
Isn't that what they said, Dan?
Bell:

That is right.

H.M.Jr:

On the House side?

-6Bell:

You might explain that this --

H.M.Jr:

Am I reporting correctly?

Bell:

Yes, that is right, every bit of it. You might
explain that what we proposed to ask for in
the tax exemption side is discretion of the

Secretary to make them taxable or non-taxable

just like the discretion he now has in the

issuance of notes. That was what was contemplated and they went for that in a big way
because they don't have to jump this hurdle
now of taxing state and local issues.
Eccles:

How is that again, Dan?

Bell:

It would give the Secretary discretion to issue
tax-exempt bonds or taxable bonds.

Eccles:

I see.

Saynczak:

Is that their thinking, Dan, or the Treasury's
thinking?

Bell:

It is the Treasury, but they accepted it and
it is a good solution of this whole problem

at the moment.
Eccles:

Let me ask this, that if you - they want this

handled separately from the municipal tax

problem, which means of course you may not

get that.

H.M.Jr:

Well, Sullivan saw LaGuardia. He didn't get
kicked out. LaGuardia is coming down tomorrow
to see me about it.

Eccles:

Yes, but the rest of the country will be

H.M.Jr:

But he is the spearhead.

difficult. It is all right to try to get it --

-7Draper:

He is Chairman of the Mayors.

Eccles:

You can do this in any case. Why couldn't
you issue Treasury bonds that are taxable
in case of Federal taxes and so far as the
States are concerned - you see, they don't
give the States the same opportunity except
they give you the right to tax municipal
securities. In other words, why should the
States - you could make your securities tax
free so far as States are concerned but taxable
so far as the Federal Government is concerned,

unless they in turn give you the exchange.
Bell:

That is right. We have assumed that there

will be some provision in this Act that the

States and local communities couldn't tax
the income from the Treasury securities unless we were permitted to tax their securities.

H.M.Jr:

That is a good point.

Eccles:

And if you got that in connection with your

bills, got that option, too, you see, then

you have got some leverage on them.
H.M.Jr:

But we did get through the salaries, the
State salaries.

Eccles:

Well now, this report in the press, of course,
was naturally not complete at all. Whoever
it was made the report --

H.M.Jr:

Harrison.

Eccles:

I assumed it was Harrison. He made it appear
that all that happened was that you had got

up there and had recommended, from the report

I read, a five-year defense note pending

the clarification of this tax program and

-8-

that they had agreed to it. I mean, that is that was the substance of the press report

which, of course, is entirely -Draper:

Well, he would say that, though.

Eccles:

He possibly would, which is entirely garbled.

Draper:

It is his press statement.

H.M.Jr:

It was all there. I said, "Please don't say

Eccles:

Of course, he passed it right on to you and

anything about the amount. If you will say
something about the debt limit, about taxing
future issues, that would help us."
said you would come up and ask for an au-

thority of 500 million in cash, et cetera,
which apparently wasn't in the picture at
all. Well, I didn't say last time when I

was over here, because I was so far in the

minority on this thing, but - that short

statement which was read at the last meeting

which expressed my views and -Szymczak:

You mean the minority of the committee?

Eccles:

That is right. I wasn't at all enthusiastic
about doing any long financing now or refunding now for the reasons that you have
got too many uncertain factors, three of

them, that are in the picture. First, you
have got this taxable or tax-free securities,
and if you are going to have a taxable

security, naturally you don't want to put out
three issues, one for 25-30 years, another
for an intermediate period, with an option
of long bonds as well, and another for intermediates. In other words, the whole thing
in this program was intermediate and long

bonds.

-9Now, certainly, before you expect to get a
tax-free security you don't make a very good

case for yourself --

H.M.Jr:

You have got to point.

Eccles:

If I was out fighting to get a tax-free security,
I --

Szymczak:

Eccles:

You mean a taxable.

I mean a taxable security. I wouldn't want just before I made that request, I wouldn't

want to go up --

(Discussion off the record)
Now, that was one consideration, but another
one that was more important -H.M.Jr:

Say, I read the Saturday Evening Post over and
I hear that Jesse always gets his point over

by telling a dirty story, so I thought I would
tell one.

Eccles:

Whether he gets his point over that way or not,
I am not so sure, but I know damn well he always

tells a dirty story. I can vouch for that.

Bell:

You are always sure of that?

Eccles:

You can always be sure of that. Whether he

gets his point over, I wouldn't be so sure
of.

Szymczak:

Eccles:

He gets his point over while everybody is

laughing at the dirty story.
Another factor that is just as important or

more important from my point of view is,

- 10 I don't like the defense note - I mean the
defense authority. I would like them to

take this partition out, as they call it.

H.M.Jr:

I went down that avenue, didn't I, Dan?

Bell:

Yes.

H.M.Jr:

Dan sold me on that.

Eccles:

I think he is a hundred percent right on that

one. If they take that partition out, then
certainly you want to avoid any r efunding

or long term - or any long term issues or
refunding, pending the clarification of that.

H.M.Jr:

That is right.

Eccles:

You may be criticized if you fail to use the

defense authority if you are going to get new
money and if you are going to do refunding

at this time.

Now, if you don't do refunding, they have

nothing to criticize you for.

H.M.Jr:

That is right.

Eccles:

And if you get new money under the defense

issue, then they can't criticize you on that

score. Now, the third one and the most important thing from my standpoint was the

question of getting this long term security
in the hands of investors rather than in
banks, the question of being able to price
long-term securities with a greater degree
of accuracy or assurance as to stability.

Now, with the banking considerations that
are likely to be taken up and the whole

- 11 question of easy money, excess reserves, and

its long-range implications, that should in
six months help to be clarified in one way

or the other so that the public can't say
that you, during a situation, attempted to

take advantage of a market for a long period
of time and then the market at sometime in
the near future, because of legislation which

you should have known might develop, see,

develops and takes a flop and it puts the

Reserve Board, the Committee, on the spot.
Then we are obligated. They expected us to
go in to support a market, which we would

certainly hesitate to do if that is what

happened.

Now, those are the three arguments and the
way you can keep those bonds out of the

banks is to deal with the excess reserve
picture. You can talk about putting them
into the insurance companies and into the
investor's hands, but what happens is that
they, the insurance companies, in turn, are
going to sell their intermediate bonds, and
the banks will get them as the insurance
companies and other investors take the long

bonds, so it is a transfer, so you can't it isn't like you can operate in two airtight or watertight compartments. They just
lap right over, and I don't think you are
going to get at this distribution of the
investment in the hands of the investors
until you deal with the excess reserve
problem.

H.M.Jr:

Before you get away from the tax thing, we
also mentioned that we wanted the discretion
to make United States Savings bonds taxable
so that we could use that as a framework,

as our popular drive to get the small in-

vestor --

so
- 12 Eccles:

The tax is unimportant there.

H.M.Jr:

Eccles:

True, but the whole thing - I mean we can't we think here our position is only tenable
if we go the whole hog on this thing.
That is absolutely right.

Draper:

You have got to be consistent.

H.M.Jr:

And you can't have United States Savings bonds

partially free or an RFC note partially free
or a Farm Credit note. I mean, it has got
to be a consistent policy.

Draper:

Yes.

Rouse:

It would give you flexibility all the way along
with respect to the Savings bonds, in limits,
and so on.

H.M.Jr:

Yes. That doesn't mean they are going to get

it, but I certainly got the most friendly

reception from the most difficult people on

the Finance Committee that I could have even

hoped for. They were very friendly on the
things that we are talking about here, very
friendly.
Eccles:

This present bond market, of course, looks

like it is just going through the ceiling,
but there is a great difference, it seems

to me, between the bank investor that goes
out and buys a bond at a hundred and eleven

that you sold at par. They can't blame you

if they go out and buy it. You didn't create
this price, necessarily, so that in the purchasing of these securities at these prices
today, it seems to me there is less responsibility on the part of the Treasury than

- 13 there would be if the Treasury undertakes,

maybe, to price the security today. I
don't say that that pricing wouldn't be

right, but it may not be right. It is at

an equivalent of one hundred and eleven

that you were doing it.

Now, you haven't issued a long-term security
and a 2-3/4%. You have issued what we call

intermediate securities at 2-1/4, the last one,
and 2-1/2. The thing that they are talking of
now is 1-3/4. In other words, you haven't
issued a security comparable - that you would
have to issue on today's market; you haven't

issued a security within a half a percent
yield. Your long bonds were half a percent

higher than you now propose. Your intermediate
bonds have been 2-1/4 at the low and now in
this memorandum the proposal is 1-3/4, so that

from the standpoint of the Treasury or the
Government, they have not sold to the public
securities at the excessively low yield on
long term that exists today. They haven't
done it. Therefore, they haven't the same
responsibility, we might say, for attempting

to protect the investor. I mean, that is

another factor that weighs on me.
H.M.Jr:

Well, I don't see - leaving the excess reserves
picture out, I mean as to what we are going
to do about it, you are not making any recom-

mendations today?
Eccles:

No, we can't. It is a question of going to
Congress. We are in a sense like you are,

that this financing is - you are directly

concerned, but we are indirectly concerned
and indirectly affected because the whole

banking structure is. We are directly con-

cerned with excess reserves; you are indirectly
concerned with the --

- 14 H.M.Jr:

Right, but if we just went after 500, while

it might stimulate excess reserves, temporarily
aggravates the situation, but on a long-term
basis it doesn't set the die one way or the
other.

Draper:

And it will put the pressure on Congress so
they will have to do something.

H.M.Jr:

Granted; and they are willing to have it.

Draper:

I know. I think that is an ideal solution

for the short bond.

Szymezak:

How many of them are present, 50% of them?

H.M.Jr:

In the Senate?

Szymczak:

Yes.

H.M.Jr:

Well, there were seven. Those seven would
represent, as far as opinion would go, I would
say almost 90%, because they were the most

difficult men. Six of those seven were favorable. With that group with us, and those

Democratic members friendly and certain Republi-

cans that are friendly, I wouldn't be worried

about any legislation as far as what we are
talking about.
Eccles:

I just had to - just before coming over, a
statement that is just a tentative suggestion.
I don't know whether you want to make any.

I personally would like to see a statement
made because of the general uncertainty of
the whole picture. Something, it seems to

me, ought to be said if it is going to be
done with this financing -Szymczak:

You mean no refunding.

- 15 Eccles:

Or no refunding, either one.

Szynczak:

You mean if all the financing would be done
for cash and with defense notes.

Eccles:

Yes.

H.M.Jr:

What you are saying there - I don't like a

formal statement, but I have written out something in longhand and it is in complete accord

with this except that I am making a little
soapbox speech about the fellow down at
Palm Beach. (Laughter)

Szynczak:

Lucky we are not there.

Eccles:

It has got all three reasons there.

H.M.Jr:

Now, let me just ask our visitor here, Mr. Currie,
how he feels as he listens to Mr. Eccles.

Currie:

I don't think I have anything at all to add,
Mr. Secretary. I am very pleased, as a matter
of fact, with the way it is developing on the
possibility of getting this removal of the
tax exemptions on bonds and I think your argu-

ment on that point is absolutely conclusive,
as far as I am concerned.

H.M.Jr:

It is?

Currie:

Yes.

H.M.Jr:

Now, I called up Jesse Jones at 10:00 o'clock
yesterday morning, Sunday, and I asked him,
told him what we had in mind about this meet-

ing, could I have something before 3:00 o'clock,

and this is the very satisfactory letter that
came in a little while ago.

- 16 -

"In reply to your question yesterday as to

whether or not I, as Federal Loan Administrator, would cooperate with you as regards
issuing Government-guaranteed obligations,
the income to be subject to taxation, beg

to advise that if it becomes the policy of the

Administration to sell only Government and

Government-guaranteed obligations, the income

to be subject to taxation, I will be glad to
cooperate in connection with the agencies
under my supervision. The directors of the

RFC and probably the HOLC will undoubtedly

expect that only short-time obligations be
sold, not longer than five-year maturities.
This would serve to insure a not too high

interest rate.'

And I have talked to Wickard. Wickard said

he needed a little bit more time. He said
he wanted to consult the American Farm
Bureau Federation and a few other people,

and so on. (Laughter)

Eccles:

Well, that wouldn't --

H.M.Jr:

Federal Farm Credit.

Eccles:

Federal Farm Mortgage Corporation.

H.M.Jr:

They have got another one coming due. It

is a very nice situation. The only thing

that is coming due until May is HOLC. Dan
says he thinks they may pay that off with

cash, and that is only 191 million. Now,
the next one, RFC has nothing coming due

until July '41, so we are really in beautiful shape as far as the guaranteed money

is concerned, so we don't have to cross that
bridge with Jones taking that attitude,

and If the rest of you will help me play
poker on this thing --

- 17 Currie:

If the RFC, Mr. Secretary, would come through

with their repayment to the Treasury, that
would postpone your need for new money.

H.M.Jr:

They would have to raise it. They would have
to borrow it.

Currie:

But I mean postpone your need.

H.M.Jr:

But if they pay this back, they would have to
go to the market and borrow it and they can't
borrow --

Currie:

I mean not to hold up the 500 million now,
but with the 500 million plus any repayment

by them.
H.M.Jr:

No, but they can't pay us back unless they

went through the market.
Currie:

That is all right.

H.M.Jr:

But they would have to give us these tax-exempt
securities.

Currie:

Oh, the same thing.

H.M.Jr:

That is the same. That is why I called up

Jones, because I went through it with Jones,
and said to Jones that pending this I would
like to have them only get the money from
the Treasury. In other words, we are going

on a sit-down strike, stand firm until we
get this.

Eccles:

Well, I would like the other members of the
committee here - I have done all the talking.
We assumed before coming over here that in
view of what we had seen in the press that

the die had been cast on this thing, even
though at the last meeting we were - I asked

- 18 -

you at that time if the thing had been pretty
well set in your mind. You said at that

time that it --

H.M.Jr:

Had not.

Eccles:

That it had not and that - I assume that if

H.M.Jr:

That is right. I went up on the Hill to seek

you had had a different conference on the
Hill with those people, you would possibly
have had maybe a different program.

advice the way I did from you, but there was
such complete agreement that to fly in the
face of that seems a mistake, but still nothing
has been said. Nothing has been done.

Eccles:

I was just going to say that if you go and
issue the 500 million in defense notes, we
were in agreement on this point, that we
would like to see the defense notes as short
an issue as possible so that - so that they
could be refunded into whatever financing
there was to be done after these questions

were decided. In other words, if the defense
authority was going to be eliminated and it
was going to be merged with your general

blanket authority and this partition, as you

call it, eliminated, it would be well to get
rid of all defense notes. You have got de-

fense bills, and of course you can turn those
over any time. Therefore, if you only had
one five-year, 500 million out, that holds
the thing up, and it was our thought that if
you could make it 500 million for one year
in defense notes, with the idea that during
the next year Congress would possibly put

this whole thing in one authorization and
you would - by the end of the year the whole
defense thing could be cleaned up and all

- 19 this earmarking of funds, and so forth, would

be out of the way, and we all felt pretty
strongly that that should be done.

Szymczak:

That is in the memorandum.

Eccles:

Therefore, it is very desirable to confine

Szynczak:

All that is out the window now.

Eccles:

Not necessarily.

Szynczak:

Well, I understand that you were talking about
a five-year note.

H.M.Jr:

Well, there is no commitment that has been
made. We talked about five years, but there

the financing down to one year.

have been no commitments made.

Eccles:

Well, they would just be agreeable to one,

Bell:

More short term than anything else.

H.M.Jr:

Well, I would like to take that into consider-

Szymczak:

Well, that is in the memorandum as an alterna-

as far as that is concerned, whether it is
a five or a one not going counter at all,
as I get it, to your discussion with them.

ation.

tive and we consider that quite vital to the

whole procedure from the standpoint of the

future. You place yourself in a position

where you can then get out of those notes en-

tirely and get out of the defense notes
as long as they are going to remove the partition.

H.M.Jr:

How do you feel, Sinclair?

- 20 Sinclair:

Mr. Secretary, I think we have recognized

from the start the possible alternative.

I think when a man is faced with a situation and has the choice of two or more ways
of doing the thing, he selects one that no

one can criticize him for so doing. I have

some sympathy with the problem you are faced

with and the position you are taking. I do
hope that whatever you do will be as short
term as possible so that the thing which I
object to most strongly is this segregated
way of financing - so it can be eliminated

as possible, and I think that to me is the

most important point, one of the most important points involved, and therefore I
can't feel that you have done anything but

the right thing in the face of a practical
situation which you have explained fully to

us.

H.M.Jr:

Mr. Draper?

Draper:

feel exactly the same way, Mr. Secretary.

Theoretically, I think the one-year note

would be the ideal arrangement, but there
might be many other considerations that
may come up that we don't - and that we

don't know about at the present time. It
might make you feel differently. As far
as I am concerned, the arrangement which

is now in prospect is so much better than
we imagined that I would like to say nothing further.
H.M.Jr:

Well, the only reason that makes me hesi-

tate to say right at this minute, I am

taking kind of a chance on this whole thing
because there is a certain gamble involved,

because maybe they won't do what they say,

and if I had 500 million tucked away for

five years at 3/4%, that is that, but I will

- 21 -

certainly sleep on it, you see.
I have my regular Monday press conference

at 4:00. I am not going to say anything,
but the only thing we would like to say is,

we thought there had been so much talk about

this we would like to maybe do the thing

Wednesday instead of Thursday.
Eccles:

I think the sooner the better now.

Draper:

The sooner the better.

Szymczak:

There was a question, Mr. Secretary, this

afternoon. I don't know whether the other

members of the committee want to bring it
up or not, because there is some difference

of opinion among committee members, but John

McKee raised the question as to whether or
not we should break the precedent we have

established for some time; that is, not

operating the market the day the announcement
goes in the books. This may become important

at this time and may be yet most dishonest
for us to be operating when we know just
about what is going to happen. We are
going - we may have to sell even more longs
and Intermediates.

H.M.Jr:

Have you sold any today?

Rouse:

We have sold about six million of the long
categories of bonds. The thing is almost
resistless this morning.

Szymczak:

In other words --

Rouse:

Bonds have gone - the longest bond from
110-20/32nds to 111-10/32nds.

Draper:

But Mr. Secretary, there is a difference of

- 22 opinion, I think, among us as to whether we
should operate in the market or not during

financing. Some of us, I think, are opposed

to it.

Rouse:

Up until this time we have had no more information than the market has had.

Draper:

Not up to this time, but now we have.

H.M.Jr:

Are you asking me or not?

Szymczak:

I don't know whether the other members --

Sinclair:
H.M.Jr:

I would like to get the Secretary's point of

view on that.

Personally - well, we have stuff. We have a

lot of securities. I wouldn't do it, no

matter what. I would rather be in the position, "Well, I am not going to take any more
advantage of the United States Post Office
account than I am for John Smith that has

$1,000." I mean, that is what I think.

Eccles:

Well, of course your situation is different
from ours in this regard, that you, of course,
are investing someone's funds. In our case --

H.M.Jr:

What are you doing, operating?

Eccles:

Well, but we are not investing anybody's
funds, but our operation - we have no funds
that we are required to invest. You see,
your trustees have trust funds that you are
required to invest, but we create funds.

It is an actual, pure creation.

Draper:

But that makes it worse from our standpoint.

Eccles:

It doesn't make it any worse, Ernest, because

- 23 our operation isn't based upon a condition
of trying to invest funds and take any advantage of any market. The only justifica-

tion for our operating at all in the market
is to help stabilize the market.

Draper:

Well, you see how much stabilization --

Eccles:

Well, I know, but normally - I am not saying
that --

Szymezak:

No, we are not saying --

Eccles:

I don't think that the committee would do it.
I may be wrong, but it has - one member of
the committee raised the question, would
the Treasury object --

H.M.Jr:

Well, I didn't answer that that way. I simply
said that in our own position I wouldn't do
it. I am not going to object, but I wouldn't
do it.

Bell:

Mr. Secretary, we have had more or less the

policy that they should be out of the market everybody should be out of the market that
is connected with the Government for about
a week before financing, and we all know

about the time financing is coming. This time
they have been in the market selling right up
until today. Now, tomorrow certainly Bob

will be talking to dealers to find out a

rate tomorrow morning around noon. They

certainly shouldn't be in the market tomorrow,
should they?

H.M.Jr:

Bell:

I shouldn't think so.
But they have been in today, even though they

knew that the announcement was coming Wednes-

day or Thursday.

- 24 -

Rouse:

Slipped a little bit.
If this thing --

Eccles:

It doesn't make a dann bit of difference.

Rouse:

The story that came out on Saturday turned

H.M.Jr:

out to be all wet. We might well have been

not in an embarrassing position but some
questions might possibly have been asked,

in view of the very sharp rise in the market
which occurred, and I think that is the explanation that I would make of our action
Saturday or today. It seemed to me entirely
proper.

Bell:

In other words, if this had been wrong when
it came out Saturday, you couldn't have had

a bond issue on Wednesday at 2-1/4%
Rouse:

We would have been subject to very sharp

Eccles:

We were meeting an unusual situation due to

H.M.Jr:

Rouse, would Wednesday be all right, do you

Rouse:

Did the letter get out Saturday?

Bell:

You have the forms now.

Rouse:

I think we ought to be set to go. I can get

criticism, I think.

a certain press report.

think? Is that crowding you?

you prices by 11:00 o'clock or 12:00 o'clock.
H.M.Jr:

Is that all right with you, Marriner, Wednesday?

Eccles:

Wednesday suits me fine. I think the sooner
the better now.

- 25 H.M.Jr:

Let me just say one thing. This is more

Federal Reserve Board than Treasury. Just
so there will be no misunderstanding, in

my talk the other day, Marriner, I said

you might send somebody over to sit with
us on the Argentinian thing and also the
Chinese thing, and Mr. Bell reported to me

that Mr. Goldenweiser felt that he didn't
want to sit in unless it affected excess
reserves. Is that correct?

Bell:

And that I would keep him advised as to
what is going on.

Goldenweiser: What I said to Mr. Bell is that there is no

use sitting in on details of negotiations
unless we could be of some help and that

if we did know about everything, that would
be very helpful to us.

H.M.Jr:

Well, how are we going to keep you posted

Eccles:

Well, what I wanted --

H.M.Jr:

I just wanted to make sure. We made the offer

if you don't sit there?

in all sincerity and if this is the way you
want to do it, it is all right with me, but
frankly, we just don't have time to keep calling
up on the telephone --

Szymczak:

Or sending memoranda.

Goldenweiser: Don't misunderstand me, Mr. Secretary, I have
no reluctance to come or to have Gardner

come, if that is desirable.
H.M.Jr:

I just wanted the Board to know that we made

the offer in all sincerity. If you fellows
don't want to sit in, that is all right with

me. But I did make the offer, and you can't

- 26 -

call up three or four times a day and say,
"Well now, this is what is happening."

The policy is made over a group of meetings.

It isn't - it doesn't come out of thin air.

Eccles:

What I would like to discuss --

H.M.Jr:

I wanted you to know about it.

Eccles:

I want to discuss with you sometime when you

have a little time the points of contact,
the points of where we are both involved
and interested.

H.M.Jr:

All right; but this happened and I didn't

Eccles:

If we could work out a procedure, in other
words, so that it wouldn't bother you and

want to lose the chance to see if you understood correctly.

wouldn't bother me, I mean, so that it is

a matter of more or less routine when cer-

tain things of this sort come up, why, if

it is in Dan's shop or if it is in some-

body else's here, they can get in touch with

somebody over there and they can sit through.

For instance, if something starts - in the
case of these loans, now, they started to
develop - I mean, this Argentine thing.

H.M.Jr:

And China.

Eccles:

And there may be something else. All right,
instead of each one separate, if they are

all inter-related, they are all more or less
the same type of problem, that if we have -

we could designate someone who would keep in
touch with somebody who is handling that here

as a matter of --

H.M.Jr:

Personally, if I may throw this out --

- 27 Eccles:

Just like we do on financing. Piser, for
instance, is constantly in touch with you
on the Government bond market.

H.M.Jr:

But this is for you to think about. I think
on a thing like the Chinese and the Argen-

tinian loans that if you men aren't too busy,
it is important enough for some Board member

to sit in.

Eccles:

We are not too busy.

H.M.Jr:

It is either important enough for some Board

Eccles:

member to sit in, or it isn't.
Well, it isn't too much.

Draper:

That is a good suggestion.

H.M.Jr:

We are on uncharted seas and we would like all

Eccles:

I was thinking, Henry, not the lack of importance

advice we can get, and it is either important
enough for a Board member to sit in, or it
isn't.

in sitting in, but there is often a certain
amount of staff preliminary work. Maybe not
in that particular case, but I know in so

many of these issues that come up, for instance

like in the case of your frozen balances their
was a lot of detailed staff work. Now, you
get to a point of making decisions based upon

certain studies and preliminary work that is
done by people connected with the staff.
H.M.Jr:

Now, on that, Marriner, I will stop. You take
that. There is a meeting every afternoon.
The policies are made from day to day. It
isn't a sudden decision. This whole question
of feeding the people in Europe, it isn't
suddenly - somebody doesn't say, "Let's do

- 28 -

it or don't do it." It is after days and

days and days of meeting. The question of

whether we should let Sweden have money to

build houses in Norway - it is a long experience which these people get who si

for a couple of hours every day. that :
am saying is, on those sort of things,

here are delighted to have the Federal

Reserve Board not just sit in but give us
the benefit of the Board members, plus ir

staff. I mean it. I did it the other da

and I thought, after the talk, if you don

mind my saying, I thought you (Golder eise
were wrong.

Goldenweiser: About what, Mr. Secretary?
H.M.Jr:

About not sitting in.

Goldenweiser: Well, that wasn't the understa was it?
Well, I think Dr. Goldenweise. said he o:dn't
Bell:
want to sit in on the detailed negotiations
for the agreement.
H.M.Jr:

with all due respect, if you could sit in,
I'd say a Board member can sit in.

Goldenweiser: It wasn't that I thought -H.M.Jr:

That is the impression I got, anyway.

Bell:

I don't think it was a question of r. Goldenweiser's time. I think he just thought --

Goldenweiser: I just thought that I would just be in the
way, but so long as a matter of negotiation -Bell:

Discuss the common problems.

Goldenweiser: You can command my time any time you wish.

- 29 H.M.Jr:

I didn't want Mr. Eccles to feel on the

one hand I make a suggestion and the next

thing it ceases.

Draper:

we ought to get organized a little more
definitely ourselves.

H.M.Jr:

Well, you people are invited in now.

Szynczak:

Well, we will be there.

Eccles:

I wanted to discuss this and other common

relations.

H.M.Jr:

Let's have a joint luncheon.

Szymczak:

Fine.

98
STRICTLY CONFIDENTIAL

December 7, 1940

Full consideration has been given to the discussion at the conference in the Secretary's Office on December 4. One of the principal

matters discussed at that time was the question of the narrowing margin
of the general statutory debt limit and whether securities should be issued
under that authorization or under the national defense authorization. We
recognize that from the Treasury's standpoint there may be grounds for pre-

ferring to do the financing at this time by means of the national defense
authorization in view of the amount of authority available under the general statutory debt limit. The decision will, of course, be made by the

Treasury.

Adequacy of debt limitation

The facts in respect to the limitation, as we understand them, are:
At the end of November the remaining authority under the general statutory
debt authorization was $723,000,000. By December 18 it is estimated, assum-

ing the continued program for substitution of national defense bills for
regular bills, that the margin under the debt limit will increase to $900,000,000. If $750,000,000 of cash is raised through a new issue the margin

would be reduced to about $150,000,000. Assuming completion of the bill
program in the aggregato amount of $1,300,000,000, the margin would thereafter increase to about $450,000,000 in January, would decline to 3350,000,000 in February and to $150,000,000 in March, and would be eliminated

about the end of April. The question is whether this margin is sufficient
and also whether it seems likely that an increase in the authorization can
be obtained from Congress before the margin is exhausted.

Regardless of the decision which the Treasury makes at this time,
we believe that the Treasury and the System should join in making a recommendation to Congress and possibly a public statement against placing defense

financing in a special category and in favor of raising the general debt
limitation as soon as possible. Since the passage of the Revenue Act in

June 1940 Congress has increased defense appropriations very materially.

In order to finance the deficit which must be incurred it obviously is nooessary for Congress again to raise the debt limitation. It is our opinion

and recommendation that such an increase should provide the Treasury with

full authority to raise this monoy in whatever manner is best suited to the
interests of the national economy rather than to restrict the sale of securities to specific types and terms. We would strongly urge Congress to make
this change and to make it as soon as possible, and to that end we would be
glad to assist the Treasury in any way that we can.

It is our opinion that the margin is adequate and justifies the
Treasury in proceeding with the issue of securities under the general statutory debt limitation. If an emergency should arise prior to receiving additional authorization from Congress, the Treasury will have sufficient authority under which to not until the middle of March, at which time sufficient
leeway could be obtained by the replacement of the June 15 maturity of

$500,000,000 of notes with national defense series obligations. If still

STRICTLY CONFIDENTIAL

-2-

greater leeway is thought necessary, the refunding of the 3 3/8 per cent
bonds could be deferred until March, when if additional debt authority has
not been granted, they could be replaced with defense obligations.
Recommendations

1. Cash financing. - We recommend that the Treasury should
raise $750,000,000 of cash in December through a long 2 1/4 per cent bond,

which at the present market would have a maturity somewhat beyond the

existing range of outstanding issues. It is our judgment that, considered
solely from the point of view of the influence of the financing on the

national economy, the Treasury's cash requirements should be reised by the
issuance of bonds for the following reasons:

a. The issuance of such securities would be an influence
in the direction of financing the public debt more largely from the savings
of the country rather than from a further expansion in bank credit. Although it is recognized that a long bond would not be distributed exclusively to the savings groups, it would fall into the category of an investment suitable primarily for them. It would, therefore, be a step in the
general program suggested.

b. The issuance of bonds would tend to rostrain a further
rise in pricos over the near months.
C. Present market conditions are such that the Treasury
could float an issue of practically any maturity that seems desirable, in-

cluding at least a limited amount of long bonds. An offering of an inter-

mediate and long bonds would be readily absorbod in the market, provided
the long bonds are restricted to an amount that the market can comfortably
digost, which may be estimated at about $1,000,000,000.

An argument for short-torm securities is that until the uncortain-

tics concorning banking and tax logislation are sottled the market cannot bc
expected to measure long-term interest rates with fairness. If the influence
of large surplus banking funds were removed from the market, long-term rates
might have to increase somewhat from present record low levels in order to
attract the savings of the country. Long-term bonds issued at this time

would be vulnerable to such a rise. If this condition is definitely anticipated, the offering of short-term securities at this time is indicated, provided a public statement is issued, in which the reasons for this decision
are given.

To recommend (a) that considoration be given to raising the limitation on proferred allotmonts on cash subscriptions to $20,000, since this
stop would tond to encourage subscriptions from individuals and trust accounts and to reduce allotments to banks; (b) that the period during which
deliveries of securities on these subscriptions are deferred should be ex- it
tended from three months to six months, with the dating so planned that

STRICTLY CONFIDENTIAL

-3-

100

will not fall immediately prior to or after a Treasury financing date; and
(c) that consideration be given to eliminating the provision whereby payment for new securities may be made by credit to war loan deposit accounts

in banks having that privilege, since such elimination would be in line
with a policy of avoiding the creation of additional bank deposits.

2. Refunding of March 1941 notes. - We recommend that the 1 1/2
per cent March 1941 notes should be refunded in December into a 1 3/4 per
cent intermediate bond, which at the present market would have a term of
about 1952-54. It would probably be advisable to do this refunding in
December, since it would dispose of the problem of the largest maturity of
the next six months. An intermediate bond rather than a note is recommended,
because (a) investors have a decided preference for intermediate bonds over
notes at current yields, (b) an intermediate bond would supply the market
with a maturity currently in demand, and (c) an intermediate bond would

follow more closely the general financing policy previously outlined. It is

recommended that the note holders should not be given an option to exchange

into a long bond as well as into an intermediate bond, since (a) the bulk
of the exchanges might be for the long bond, in view of the larger premium
that probably would be placed on it, thereby creating an outstanding amount
considerably in excess of 81 billion and (b) the limitation of exchanges to
an intermediate bond would avoid arbitrage transactions and wide fluctuations
in the rights between the time of closing the books on cash subscriptions
and the time of closing on exchanges.

3. Refunding of 1941-43 bonds. - It is recommended that the

3 3/8 per cent 1941-43 bonds should be refunded in December into the new
1 3/4 per cent bonds for the same reasons stated above in connection with
the exchange of notes. It is also suggested, however, that holders should
be given the option of exchanging for the new 2 1/4 per cent bonds under

certain restrictions. It is understood that a large proportion of the

1941-43 bonds is in the hands of insurance companies, savings banks, individuals, and trust accounts, many of whom would hold a long bond for
permanent investment. If all holders of the 1941-43 bonds exchanged for
the long issue and an additional $750,000,000 were raised through cash subscriptions, the issue would total about $1,300,000,000. Since this amount

is larger than the market could readily absorb under current conditions, it

is recommended that the long bonds be issued for exchange but only on the
basis of a registered bond which would be delivered after six months and

would then be exchangeable for bearer coupon bonds. Such an arrangement

would afford sufficient immediate protection to the long-term market.

box

Refunding of the bonds might be postponed up to any time prior to
their maturity in March in order (a) to provide reserve authority under the
general statutory debt limitation in case of necessity and (b) to avoid any

need for an interest adjustment if refunding is done at this time. The
reason for the latter is that the large interest value (27/32) might be a
deterrent to the refunding in the event of a decline in the market after
the offering is announced. As regards this point, however, the new issues
offered in exchange can be so priced as to make the exchange sufficiently
attractive to assure conversion.

101
STRICTLY CONFIDENTIAL

- 4-

Recommendations if financing is under
defense authorization

If it is the decision of the Treasury to issue securities at this
time under the national defense authorization, it would be advisable, in our
opinion, to raise as little as possible of the necessary funds through
national defense issues. If any funds are raised through national defense
issues, we would recommend first that bills be issued as funds are required.
Bills are recommended, since it is our opinion that any issues made under
the national defense authorization should be for as short a term as possible
in order to insure early retirement. If the Treasury decides to issue
notes, the only type of obligation that may be made fully taxable, it is
recommended that the issue should be of a maturity of only one year instoad
of & longer period, also for the reason that we believe such issues should
be of as short A term as possiblo.
Issuance of registered bonds without privilego
of conversion to beeror coupon issues
It has been suggested by the Treasury that bonds which aro issued
under the deforred dolivery plan should be in registered form as at present

but without the privilego of exchange for bearer coupon bonds. It is our

recommendation, however, that this suggestion should not be put into operation, because

1. Registered bonds would have a higher yield in the market than
coupon bonds and this differential is estimated at about 0.10 per cont.
2. The work involved in recording changes in ownership of Government securities would be increased to very substantial proportions.

3. There would be considerable objection in the market to such
a procedure. The misunderstanding by the market in September 1939 that
the System Account's request for the names of sellers might be for discip-

linary purposes infers that a similar misunderstanding would arise if the
Treasury should adopt the policy of issuing bonds in registered form only.
The effect on the market of innovations or restrictions suggesting partial
control of an otherwise free market might be harmful, especially at a time
when all indications point to a substantial volume of future financing and
when the Treasury probably will be attompting to broaden the market for its
securities.

102

December 9, 1940
3:02 p.m.
H.M.Jr:

Hello.

Operator:

Secretary Wickard.

H.M.Jr:

Hello,

Claude

Wickard:

Hello. I told you I'd call you and tell you

what our recommendation on that would be but
the Farm Credit people asked me 80 many questions

that I wondered if there was somebody in your
Department that they could call directly and
get answers to their questions. For instance
they want to know what taxation is involved -

is it all just income tax - Federal income tax
or

H.M.Jr:

Well, the person that they can call - they can

either call - well I tell you who could give it

to them would be Mr. Foley, our General Counsel.

Mr. Foley.

H.M.Jr:

Yeah.

All right. And they said that they understood
that you people have been making quite a study
and they just would like to know a little more
about that. Now, I tell you what we re afraid
of more than anything else, we're afraid of
the farm organizations kicking up quite a rumpus
on the thing and we are wanting to get if this
would be advisable - for us to call Ed O'Neill

and maybe Lou Taber and tell them this thing
has been put up to us and we understand, as

least as far as the Grange is concerned
that they are already on record, but you know,
just make them feel that they are kind of a

party to the thing.
H.M.Jr:

Sure, sure.

It might save us a little heat later - you or

somebody else would be in better position when

103

H.M.Jr:

I think that would be swell if you could line

What did you say?

H.M.Jr:

I think it would be swell if you could line

them up.

Well, I think it's worth the effort and 80
if we do that, why we'll have to get on long
distance and it might require a little bit

longer.

H.M.Jr:

Oh, well, you had better take time enough to
do the job well.
Well, now, I'm going to speak tomorrow at the

American Farm Bureau Federation meeting in

Baltimore - the national, and I didn't know

whether you wanted the answer before morning

or whether just to feel around a little bit
and

H.M.Jr:
W:

You do it your own way

And get word to you as quickly as we can.
What's that?

And e'll get word to you then as quickly as

we feel the thing out a little.
Yes, I want to be reasonable.

All right. Now, I'll have them call Mr. Foley
to get more details of what all is involved
and what you people have found and then we'll
get in touch with these people and I'll call
you within the next day or two at least.

H.M.Jr:

Thank you 80 much.

You bet.

H.M.Jr:

Thank you.

All right.

104
December 9, 1940
5:20 p.m.
H.M.Jr:

Hello.

Operator:

Prime Minister King.

H.M.Jr:

Hello.

W.L. Mackenzie
King:

Oh, how are you, Mr. Secretary.

H.M.Jr:

I'm fine. How are you?

Very well, thank you. I received a wire from
Churchill - it was sent yesterday but seems to
have been delayed coming - thanking me very
much for letting him know of the situation and
saying that Purvis would return very shortly

and that Layton has been asked to come home

at once. He says - our purchasing program and

the return of Mr. Purvis. He will start very
shortly and Layton 18 coming home at once.

H.M.Jr:

Good.

I have now arranged after a good many personal

adjustments that Purvis shall be under the
Ambassador. Purvis shall be the acknowledged
head of all our supplies and technical missions
in the United States whether permanent or
temporary. This unity and focusing will be

a high advantage. I hope that will fit in with
your plans or your views.

H.M.Jr:
K:

Well, I think it's a mistake to put
But under the Ambassador it's a little bit
I think that's unfortunate.
Yes. Well, I think it just means that he's
got to have him - it wouldn't do probably in
the relationship there if he gave him practically
a centralized control on everything without
having the Ambassador recognized somewhere.

H.M.Jr:

I suppose that's

But I imagine it means that Purvis will have
a free hand.

105

-2H.M.Jr:

Well,
hope so because there's been conflict
there II know.
Yes.

H.M.Jr:

But
if itall.
doesn't work out I'11 tell you,
that's
That's right.

H.M.Jr:

What?

That's right.

H.M.Jr:

But sometime I hope to see you in the not too

distant future and I want to talk about that
thing.

Well, thank you so much.

H.M.Jr:

Now, Layton is out front

Yes.

H.M.Jr:

Layton is in my outer office waiting to say

Hello?

good-bye to me.

Oh, really.

H.M.Jr:

He said that he just got word that he is
going.

H.M.Jr:
K:

H.M.Jr:

I see.

I just thought you'd be interested.
That is interesting, yes.
Now you know I sent for Clarke and he's here
and he just left here five minutes ago and I
described to him what we need in connection

with Phillips' visit and I lay the greatest

importance on the request I've made of Clarke,

and if you had a little time when he reports
to his superior, if you could find out about
it - I'm afraid to mention it on the phone but from the standpoint of defense and things
that I'm asking for - the information, that is
from a financial standpoint, is of the utmost
importance.

106

-3Yes.
K:

H.M.Jr:

And if you had the time to look into it, I'd -

it would be helpful to me.
Oh, I'd be very glad indeed to.

H.M.Jr:

Because we've got to a point now, due to what

Lothian announced publicly, that we've just

got to, as we say here, fish or cut bait.

You've just got to what?

H.M.Jr:

We've got to fish or cut bait.

Oh, exactly. Yes.

H.M.Jr:

I mean, to use the vernacular because he
announced to the world that they are running
short of money

H.M.Jr:

Yes, I know.

and of course the Canadian picture is
very important and I've explained to Clarke

just what I needed, 80 he knows. But I can't

over-emphasize the importance from the standpoint

of the financial aspects of it.
K:

Yes, yes. By the way speaking of Lothian, he's
coming to Ottawa this weekend to stay with the
Governor and he's dining with me here on

Saturday night. I'11 be talking to him on
Saturday afternoon.

H.M.Jr:

Good.

I, of course, won't say anything about our

H.M.Jr:

No, I would appreciate that because

H.M.Jr:
K:

communications at all.

Oh, yes, that's quite between ourselves.
I mean, to be able to come to you
occasionally is very helpful to me and

Quite right. Yes, and I think you can rely
on Churchill watching that too.

107
4

H.M.Jr:

I hope 80.

Oh, yes.

H.M.Jr:

Well, thank you so much.

Well, thank you. It was most kind of you to
ring up.

H.M.Jr:

And I'11 be wanting to see you soon.

All right. Thank you, Mr. Secretary. Good-bye.

103
December 9, 1940
8:30 p.m.
RE BRITISH PURCHASING PROGRAM

Present:

Sir Frederick Phillips

Mr. Playfair
Mr. Pinsent

Mr. Cochran

Mr. Bell

Mr. White
Mr. Young
H.M.Jr:

I just want to say this, Sir Frederick. I can guar-

antee secrecy as long as it is in the Treasury, but
when I bring in five other Departments, I cannot
guarantee secrecy. It is impossible. I mean - you
see that figure two billion seven got out.
Pinsent:

Yes.

.....rr.

I just don't do it. They will talk.

Phillips: There is something unfamiliar about these figures.
Are we on the small sheet?

.Jr:
White:

Yes.

There wouldn't be a duplicate of any of the figures
that you presented in the other material because

these are arranged from December 1 to September 1.
The Secretary wanted it that way, whereas your

figures ran from September 1 to September 1. In
other words, they included the last three months one set of figures.

Phillips:

These are nine months.

White:

This particular one is only nine months.

Phillips:

And your real deficit is two billion 678 million.

White:

For that period, yes.

-2Phillips:

Three million five, four million six, which is the

H.M.Jr:

Well, I don't see how you do this thing, Harry.

109

same old figure.

White:

Total dollar receipts, one billion 166 million.
That is right.

H.M.Jr:

Then you have these dollar receipts, Canadian. What

White:

Dan thought you would like the total on top as being
more crystallized.

H.M.Jr:

Stand on my head to look at them?

White:

We turned them up-side-down. We had them the other

do you do with that? You don't total those.

way.

H.M.Jr:

What is this - the Chinese loan?

Young:

That is the way you asked for it.

Bell:

You said, "I want the total figure on top and then
I want the stuff."

H.M.Jr:

So this is the receipts and this is the breakdown.
(Laughter) So I go "upsy.

Bell:

Yes, you stand on your head.

H.M.Jr:

This thing here totals one billion, one-hundred sixty-

Bell:

get that figure from?
That is the difference between that and that.

H.M.Jr:

But you have added those, haven't you?

Bell:

Well, you can subtract this from that and you get it

six? Then this is the total deficit. Where do you

the same way.
H.M.Jr:

This is the craziest thing. How can you add a
deficit and a receipt?

-3110

Bell:

Well, the deficit and your receipt represents the

contemplated expenditures. You have got your contemplated expenditures and you take away your

receipts and that is the deficit.
H.M.Jr:

Seriously, if we are going to do this for tomorrow,

we can take these things and bring this down here.
You fellows take me to literally. Have you had some
jokes about this?
White:

We
first.did have some laughs because it was done this way

H.M.Jr:

You take this and you bring this one around here

and then you - it would be here and then this thing -

here would be your receipts down here, and then you

subtract this from this and you get that.

Bell:

That is right, and that is broken down into these
two parts.

H.M.Jr:

You have got to rearrange it.

Bell:

O.K.

H.M.Jr:

Is it done the same way here?

White:

No, we had them both ways so we would have one right.

H.M.Jr:

I think I had better look at this.

Phillips: What has happened to the South African gold?

Playfair: It appears on the right-hand in the big table.
Phillips: In the short one?
Young:

No, the short one is just a summary of the big one.

It is over on the right-hand side.

H.M.Jr:

You fellows thought you would rub my nose in it, did
you.

-4Bell:

111

No, Frederick. it wasn't that bad. Did you find the gold, Sir

Phillips: Yes.
H.M.Jr:

They are having some fun with me here, you see.

Phillips: B, (3).
H.M.Jr:

These figures are new to me - that Item 3 under (a).

White:

Yes, because it doesn't include 699 capital, and

That 959 seems smaller than what we have had.

it doesn't include that portion of about a billion
dollars which is supposed to fall due after the date

which is indicated here.
Bell:

This is nine months of expenditures under that
program.

White:

But I think we should add that underneath.

Bell:

Yes, because 709 will have been spent, probably,

in nine months if you are going to spend 959 within
the period.

White:

You see, there is an added billion.

Young:

But they pay for it - paid over the unit price.

H.M.Jr:

That is all right. I don't think I want this small
one.

White:

O.K. I think this (indicating large tabulation)
is much better.

H.M.Jr:

What is this?

White:

That is the assets they have given us so far.

H.M.Jr:

Oh, this is what they have given us.

White:

Yes, all the figures they have given us.

Bell:

Is it necessary to pay Canada the 465 in United

States dollars?

-5-

112

Phillips: They have no sterling and have to buy it.
Bell:

Does that have to go through the dollar exchange,
the American dollar exchange?

Phillips:

That deficit is - we actually pay the freight in

Bell:

American dollars?

Phillips:

White:

the handling of the gold to Canada.

Well, that is a sum really expressed in United
States dollars. You add 10 percent, it would be
511 in Canadian dollars - 511 million dollars.
It would either be United States dollars or Ameri-

can dollars or gold. I take it, if you don't have

Canadian dollars, your thought is it would be either
gold or United States dollars.
Phillips:

Yes, or rather - some is due in Canadian dollars
and we get those dollars.

White:

Yes.

H.M.Jr:

Now, before we get it down, does this, what we have
here now, include all the contemplated purchases
between now and September '41?

White:

That is--

H.M.Jr:

Is that it, Sir Frederick? Is there everything on
this sheet which you have in your hand now? Is
this an outside figure?

Phillips:

No. This is the figure brought up to the stage at

which Sir Walter Layton's memorandum which you showed

me had brought you. I don't say this is the complete story because, for instance, I don't know what

proposals my Government may be making about shipping.

They might make a lot more about shipping than Layton

mentioned.
Pinsent:

Yes, and this also includes the first part of what
we call the Beaverbrook scheme and not the second

-6-

113

part, the first part being nearly ready to be put
out in the form of contracts, but the second part
being still sometime away.

H.M.Jr:

Well now, they are going to ask me tomorrow--Phil,

have you got just what this means? Let's call it,
for want of a better name, the Layton memorandum.

Young:

Well, that is included in there, yes.

H.M.Jr:

This includes the Layton?

Young:

That is up to now.

H.M.Jr:

So the 12 thousand airplanes is included in this.

Young:

Yes.

H.M.Jr:

But--

Young:

This is the program so far as it can be expressed

in concrete form today, as I understand it. It

does not take into account any contemplated orders

which may be placed for the first part of next year,
which are not under negotiation or which have not
reached the stage of taking - becoming negotiated

at this point.

Phillips:

That is right.

H.M.Jr:

Can we get any idea how much more you will want to
buy between now and September 1, '41.

Phillips:

I don't think I have got any idea what that might be
by those dates. Have you, Pinsent? The general
shipping program is, of course, a very big thing,
but what falls between those lines, I don't know.

H.M.Jr:

I see.

Pinsent:

I rather think that in it - I am not quite sure.
I haven't had time to study it. In the latest
monthly forecast of the purchasing commission

dated the first of November, they wrote about 10

-7-

114

pages. Does that show any items for the further
airplane scheme?

Playfair:

Yes, it does. But I don't think that should be
taken as any too certain at this stage. Of course,
that shipping and the so far undetermined part of
the 10 Divisions, that is the ordnances here, and
certain other items, are what one can think of,
but beyond that in the nine months to come there
will possibly be other things arising of which we
know nothing at present, so it is impossible to

give a firm figure.

H.M.Jr:

I had lunch today with General Marshall, our Chief

of Staff, and he was complaining bitterly that he

no sooner gets set on one thing than the English
want something else, and he really was quite irri-

tated about it. I don't know what all the circumstances are, but I am sure Mr. Young knows much

more about it than I do, but he really was quite General Marshall very seldom gets upset, but he

really was quite - this constant coming at him
in all directions, as soon as he gets set on one

program, somebody comes with something else. He

says it just has to stop. He says they have got

to get together so that one person can speak for

them. Now, what I am thinking out loud is that I

would much rather have a high figure - I mean,
supposing we go all through this and there is some
way found of seeing this program through, and we

get this thing nicely through after two weeks
hard work, and then you come along and say, "Well,
we want another two billion." I mean, it is going
to be hard work and whatever we are going to do,

I really think that your Government ought to say,
"Well, besides this, - because you dropped that

remark the other day, Mr. Phillips - I think you
said, "We will need at least another two billion,"
- or whatever the figure is. But I would go
through it once, whatever it is, that you think
that you are going to need between now and September 1, '41.

White:

There are two billion seven which is not included

in that, which is a total of payments due after

-8-

115

September
seven more. 1 on orders indicated here, two billion
H.M.Jr:

There is?

White:

Yes.

H.M.Jr:

Aren't you going to show that?

White:

That is shown.

H.M.Jr:

Where?

White:

Payment accepted December 1.

Bell:

You understand this is a cash expenditure payment,

and there are a lot of contracts which will not
have been liquidated by September 1.

White:

We will add that.

H.M.Jr:

I think you should. It isn't there now.

White:

It says, in addition, 266 million expected to fall
due after September 1. The next is 684. Then
there was a billion which we left out, and then

there is seven hundred million capital expenditure,
and we can total those and put it here to indicate.

H.M.Jr:

Why not put it here after September first--

...hite:

On orders indicated on this sheet, there will be

two billion seven due, or a total of five billion.

H.M.Jr:

That is what I was groping for. I knew it came

to five billion, but I didn't see where it came

from, Harry.
White:

Right.

H.M.Jr:

That is enough to wrestle with.

Bell:

That still isn't all of it.

-9-

116

White:

If
are some
to there
be placed
soon. other things they have in mind

H.M.Jr:

You see, Sir Frederick, if you could get off a
cable to your Government and say, "Now look, they
do you think you want?"

are asking for this. How much more besides this
Phillips:

As regard shipping, the only shipping proposals
I have seen rather represented the sum of say

150 million pounds, that is 600 million dollars,
in which obviously only a fraction would fall
due before September next, but what the airplanes
come to, I don't know. What do we know about that
airplane business?

Pinsent:

Well, there is a footnote on the tenth page of
the British Purchasing Commission's December 1
forecast which has just been circulated in the

last day or so. It gives estimated figures for
the capital required for the third airplane pro-

gram, April to August 1941, a hundred million-Phillips:

What?

Finsent:

dollars. September '41 to August '42, four
hundred million. It then goes on, "It is not yet

possible to forecast the orders to be placed and
the production expenditure involved to utilize the
combined capacity after June '42."
But isn't there anyone who can tell you that on
the basis of the original three thousand a month,

whatever the figure was, how much extra would we
want before September 1.

Phillips:

There is a hundred million of capital estimated

here. It just simply says that it is not yet possible to forecast the production expenditure.
Who is in charge of it?

Pinsent:

Self, I think.

- 10 Phillips:

Can't we get Self on the phone.

Pinsent:

Yes, if he is here.

H.M.Jr:

Do you want to do it tonight?

Pinsent:

Better
get him tomorrow. We can cross-question
him
better.

Phillips:

Yes. As I understand this--

H.M.Jr:

We can if you want to.

Phillips:

Is it up to and including that memorandum you
received from Walter Layton?

White:

117

That is right. That is the item which is called

here "Contemplated 'X' Program.
Phillips:

If I understand what Sir Walter Layton's memorandum

is intended to represent, it is intended to represent those things which were just about at the
stage at which orders could be placed very shortly
if the United States Government was agreeable.

Wasn't that the point of it?
White:

I don't know the answer to that.

Young:

That is correct. Sir Walter's memorandum dealt
with those three proposals of plances, ordnance,
and ships.

Phillips:
Young:

Phillips:

That he could place orders straight off.
Yes, which were the three largest and three hottest
things on the fire at the moment.

Yes. Well, I think we can give you a figure, but

it will be a little vaguer than this. This is,

after all, reasonably good estimating.
H.M.Jr:

Well, Dan, don't you think - I mean, you argue with
me if you think I am wrong. We have got to go

- 11 -

113

through this very, very difficult operation.
If we go through it and no sooner is the ink

dry than the English come back and say, "Now

look, we need another billion or two billion
more," everybody is just going to throw up
their hands, aren't they?
Bell:

I think so. Just as Marshall says, "They don't

any more get set on a program and get started
than along comes another one, and they have got
to work the next program." 11

H.M.Jr:

Pinsent:

I told that to Layton this evening when he left,
and he didn't like it, but I would much rather
have it on the high side and then find that you
didn't need as much, than to find that the thing
was low, and I had to start all over again.
I believe, Mr. Secretary, that it is not so
difficult to give with reasonable correctness
the total cost of that additional airplane scheme
divided into capital and product.

H.M.Jr:

Pinsent:
H.M.Jr:

You say that is difficult.
No, I don't think that is difficult.
I don't either.

Pinsent:

The difficulty is assigning it to particular
dates and times. Isn't that right?

Young:

Yes, and the cost of the thing is all worked out.

Pinsent:

The total capital involved--

Young:

Three thousand per month idea.

Pinsent:

Yes. The total product payment up to a certain
number of planes I think can be stated quite
easily.

H.M.Jr:

I am just throwing that out because, as I say,

- 12 -

119

I am not fooling myself one minute what this

job is going to be to get it through, and I

don't want to do it more than once.
White:

Unless, Mr. Secretary, their new planes, those
which they haven't included here, call for production in the second half or in 1942 - because

it is to be expected that if the war continues,

thereare going to be more orders, and it is merely

an open end, depending upon the duration of the

war, so that it will be desirable to have their
contemplated orders, if those orders are to be

placed sometime within the next few months and

if production is to take place as rapidly as

possible.
Young:

You have got three things you have got to take

into account there, Harry. One is the course

of the war. Will it be a land war or an air

war a year from now?-White:

H.M.Jr:

That is why I say that any contemplated proposals

as to what they will need - if it is a year and
a half from now - it doesn't have a great deal
of bearing on this.
Harry, I have lived with this thing now since we
started with the French, just exactly two years
ago, and I don't want to go through this thing something else may come in six months from now,
but I am talking in terms of weeks, that we get
this thing sort of set if fortune is with us,

and we hardly get the English dry and they say,
"Now, look, we want another two billion more, and

as far as General Marshall is concerned, well, I
say, he was irritated as to the method of handling

this thing. He is friendly to the placing of this
program, as a matter of policy, I don't want to
be misunderstood. I have found him suprisingly
friendly.

Pinsent:

I think we can get out without difficulty the
figures for the execution of that third airplane

program up to, say, any given number of planes;

- 13 -

120

the actual period when it would start and how

long it would last can't be stated with any
precision, but perhaps just the total amount
for a given number of plances is enough to give
you the picture you require.
Young:

I think it was eight hundred million, wasn't it?

Pinsent:

Five hundred million capital or nearly - well,

I have some figures before me generally. They
seem to be missing this time.

Bell:

Young:

Phil, you are talking about three thousand planes
a month. You have got on this program 12 thousand
planes. We got three thousand planes again? Aren't
the 12 thousand part of thiat program?
There were two original schemes: three thousand
planes a month and twelve hundred and fifty planes
a month.

Bell:

But you have got 12 thousand planes--

Young:

This is the twelve hundred and fifty planes, the

Pinsent:

smaller of the two schemes.

There is something in here. For the third program
it gives two hundred twenty-five million payment
for product up to August 1941, between April and
August 41, and an estimate of a hundred million

for capital if the capital has to be met by us.

Then considerable amounts after August 1941. The

figure given here is six hundred seventy-five
million after August '41, which is described as
the new scheme for nine thousand units.

White:

Pinsent:

H.M.Jr:

Then everything that is in here, in that table, is
not in here (large table)?
What is described as the third program in this is
not in there.

I repeat again, I don't want to go through the

- 14 -

121

difficult task and say that we just about get it

completed and then they come along and say, "Now

look, we want something else that is going to
cost a billion or two billion more," and have

the President or somebody throw up his hands and

say, "Well, it is impossible. If I would much

rather have them be on the high side than on the
low side.

Phillips:

I don't think there is any difficulty in meeting

the Secretary on that point, Pinsent, as regards
the airplanes, which I am sure you can do, and
ships. What I doubt now is that you have got

any corresponding program for ammunition and tanks

and that sort of stuff.

Pinsent:

Well, we have to ask the purchasing commission

about that. I am afraid I don't know the answer

to that point at all.

H.M.Jr:

Well, I have--

Pinsent:

I haven't heard anything on those lines at present
but, of course, there is always this, that as the
war is prolonged there are likely to be repeat
orders.

H.M.Jr:

That is all right.

Phillips:

But what was the Layton memorandum supposed to

Pinsent:

10 Divisions of equipment, but not including Oh, it included airplanes and I think the tanks
also in the 10 Divisions.

H.M.Jr:

Well, now, let's just leave that and go on to the

cover, 10 Divisions or what?

question of what you have got in the way of liquid
assets on the receipt side.

Pinsent:

Here is a table on that.

- 15 -

122
H.M.Jr:

Balance of gold - where is that here?

White:

That is right along here. That is the history of

H.M.Jr:

the past month and that is what they have now.

Where is the 450?

White:

Well,
that is the figure they gave. That is gold
and dollars.

H.M.Jr:

There is no figure of 450.

White:

No, we broke it up into gold and dollars, which
they gave us.

H.M.Jr:

Has he got a copy of this?

White:

No, I just made it.

H.M.Jr:

Has Pinsent got a copy?

White:

No.

H.M.Jr:

Will you give him a copy.

White:

Certainly.

H.M.Jr:

And give Sir Frederick a copy. Have you got an extra
copy there?

White:

I should have. Yes.

H.M.Jr:

Norway has more than six million. What about that
gold that landed in Baltimore? How much was that
gold, Merle, that landed in Baltimore, Norwegian
gold?

Cochran:

I can't think now.

Pinsent:

It was in pounds, Mr. Secretary.

Cochran:

That was nine million, as I recall it.

H.M.Jr:

Dolla rs? Oh yes, it was more than that.

- 16 123
Cochran:

Split it six to us and three to Canada.

H.M.Jr:

You
say, Harry, these figures are incorporated
in this?

White:

Yes, with the exception of one change which they
made in securities just now.

H.M.Jr:

Which?

White:

They reduced it about a hundred million below
our figure.

H.M.Jr:

Yes. Have you given Sir Frederick a copy?

White:

Yes, here it is.

H.M.Jr:

Let's just start with the top. Gold, 450 million.

White:

Does that check with their figures?

That is the figure they gave us. Is that right,

Mr. Pinsent?

Phillips:

It is December 1, isn't it?

White:

That is on December 1, yes.

H.M.Jr:

This doesn't say.

Pinsent:

Five hundred eighty-four. There is something left
out, isn't there?

H.M.Jr:

Then they have gold held in banks - 124. All of
this is available?

White:

I don't know.

H.M.Jr:

Shall we take item by item, Sir Frederick?

Phillips:

Yes. What I say is that 574 is rather below what

H.M.Jr:

Five seventy-four?

I regard as the proper working balance.

- 17 -

124

I think our working balance ought to be some-

Phillips:

where near six hundred.

That would leave nothing then.

H.M.Jr:

I think it is down already to about what the

Phillips:

working balance ought to be.

H.M.Jr:

This shows 574 here.

Phillips:

That is right.

I.M.Jr:

Do you think that is as low as it should go?

Phillips:

Certainly.

H.M.Jr:

There is nothing more available in gold, is that
right?

Phillips:

That is right.

H.M.Jr:

I mean, I just want to find out what this means.

Phillips:

There is no surplus gold. It is down to about the
lowest it ought to be.

A.M.Jr:

Well, now, Item No. 3, United States dollar securities held by United Kingdom, 750.

I don't recognize that figure. Our figure is

Phillips:

660.

White:

They just reduced that down.

Phillips:

I don't recall. Six sixty is about the really saleable stuff. The difference is constituted of
Australian stuff and so forth.

H.M.Jr:

That is market value?

Phillips:

Well - I think you can take it that it represents
approximately the market value.

H.M.Jr:

Now, No. 4, Latin-American securities, investments

- 18 -

125

Held By United Kingdom, two billion 825.
Phillips:

Help! Where does that come from?

White:

That is a nominal value. Here is a table which

I submitted on that. Here is the original. That
is just the breakdown.

H.M.Jr:

Harry, make life simple for me. In Item 4 you

White:

They have a separate item of the listed market
value, that portion of them which they were able

have got two million 825.

to ascertain, a listed market value.

H.M.Jr:

How much is that ? - one million seven?

White:

That is right.

Phillips:

That is the nominal, and 630 is the market value.

White:

That is this figure here, 158 million pounds.
I don't understand. Market value of a billion

H.M.Jr:

seven of these were given as 630. What does that

mean? A billion seven of the two billion 8.
Phillips:

Of the two billion 8. There are no quotations on
a substantial portion, around 40 million pounds,
but those which they did find quotations for had
a market value of that figure down there.

H.M.Jr:

Are any of these for sale?

Phillips:

Beg your pardon.

H.M.Jr:

Are these securities mentioned in No. 4 - are
these for sale, any of them?

Phillips:

Well, they are sterling, you understand, not
dollars. You would have to find a buyer for
them first. One part is the Argentine railways
in South America and the other isn't. We are

- 19 -

126

deal ing with the Argentine Government now, and

the price isn't fixed, but the absolute conceiv-

able maximum value is 250 million pounds. That
is all they are worth - much more than they are

worth - some fraction of a billion dollars for
the Argentine railway. Then the rest of it is this

figure you have got here, market value, six hundred
30 million.

White:

That figure doesn't include the - this two hundred
39 million pounds of the nominal capital structure
that you indicated.

Playfair: Your 28 - your figure here indicates it.
white:
I just copied that from yours.
The 285. The substance of it is that the securiPhillips:
ties have a market value of about six hundred 30

million dollars plus whatever you get for the
Argentine railway; but, of course, they are sterling
securities and the problem is to find a buyer for
them.

E.M.Jr:

Well, you are saying that the sterling securities-am I to take from that that they are not - the
proceeds from these securities, if a buyer was
found, is not available for purchasing munitions

in this country? Is that inference correct or

not?

Pinsent:

No, Mr. Secretary, I think the point is that it
would be very difficult to find a buyer, a person
who would buy for dollars a sterling security of
these kinds, most of them. Some would be different.

.Jr:

Well, I mean - put it a little bit differently.

These securities - are you holding these for some
arrangement with the Argentine or, if a buyer

could be found; let's say in this country, are

they available? Do you want to sell them? Supposing a syndicate was formed in the United States.

- 20 Phillips:

Why I think it is quite obvious we would be will- 127
ing to sell them if you wanted to--

White:

This is the item in addition to what you have there,
240 million pounds for the Argentine railway.

Phillips:

We would be mildly suprised if there was a syndi-

cate formed to buy them. In fact, I don't know

any conceivable buyer in the United States Government who would want them. I am quite sure the
ordinary American investors wouldn't put up any

such funds. Masses of these things are in default
and have been in default and market prices are 20

percent. They are not the kind of thing you could
sell on a stock market. We are trying to point
out that if there were a sale, it would have to be
an arranged sale with a special buyer.

Just one other point, just while we are on it. We

can only sell what we have got, and if you take some

of these public utilities in South America where the

local government has given a certain franchise to
some company in London, of course, it doesn't follow

that he is going to automatically transfer that

franchise to some other country in the world. As

regards the public utility part of it, there is

always the possibility that the local government

could put a stop to it.

Cochran:

Do you have such a control over these securities
now, Sir Frederick, that you could handle a sale?

Phillips:

You could get hold of most of them anyhow.

Cochran:

I mean, you have them registered--

Pinsent:

They are registered, aren't they

Playfair:

No, not all of them are registered. We haven't got
all the Brazilian ones registered.

Cochran:

Could you vest title in them the same as you have

Playfair:

I should have explained to Dr. White that that
figure must be taken very much subject to reserves.
It is an estimate based, in many cases, simply on
the capital issues in England, and I gave it on

in dollars:

123
- 21 the reserves, and I am not prepared to stand by
it, but we could - some of them are already
registered and the others can be registered at
any time. The deficit does include some nonregistered holders.

Well, I will come back to that. Five. Gold. Now,
under five - is any of this available for Norway,

Netherlands, Belgium, Czechoslovakia - any of that
available for payment of goods in the United States?

Phillips:

I think it is correct to say we could borrow the
Belgian stuff for the period of the war.
Borrow it?

Phillips:

Borrow it. But I think it is also true that in

every case they have been invited to subscribe for
some of this gold and have refused on the ground

that it is the reserve they are holding for reconstruction after the war, and a little more pertinently, that if, for instance, the Netherlands'
Government applies this gold to the prosecution of

the war - of course, if they hand it over to the

United Kingdom for prosecuting the war, that will
be a very strong factor in German propaganda in

their own country and they don't like it, but as a
matter of borrowing for carrying one over the difficult period of a month or two, I dare say we
could borrow this. I think we could from Belgium
at least.

What about the 650 million?

Phillips: Well, I can't answer myself for the strategic

point, and it might be at the particular moment
they didn't want to give the French any excuse for
being in the Mediterranean, but subject to that
I should have thought there was no difficulty
about that being made available during the war.
It will, no doubt, remain due to the French
after the war, subject to the terms of peace

- 22 -

129

settlement. There will be no difficulty, of
course, if anything is stuck in our fingers after
the war. Of course, that would certainly be valuable.
K.M.Jr:

I am not familiar with that expression.

Phillips:

which?

Stuck on your fingers.
Phillips:

Well, supposing in fact - I am rather guessing
here - but supposing, in fact, at some stage of
the war that was taken over, that 650 million

dollars. Prima facie, we, at the end of the war,

owe 650 million dollars to the then French State,
whatever form it may take. Supposing, in fact,
the peace settlement was such that it was dis-

charged by handing back to them four hundred mil-

lions, leaving 250 million. That, of course, we
should regard as certainly helpful to discharge
any debts we had incurred to the United States
Government or any other party during the war.

h.M.Jr:

Yes, but let's say in the next three months you

needed some money. Is that 650 and the Belgian

516 - is that available? Is that for sale,

United States Treasury, as between now and Sep-

tember 1, '41, or isn't it?

Phillips: Personally, we shall be driven to it if we don't

get any help in a month or two. We shall be forced

to it.

H.M.Jr:

Well, that - if you don't mind my saying it, I

think the situation is just a little bit the

other way around, if you understand American

sentiment. Certainly, the feeling of the Administration is that the chances of helping England

would be greater if, in advance of our making some
arrangements with you, items like the French gold

and, let's say, the Belgian gold - and I don't

see where it is listed - American factories owned
by you in this country--

- 23 -

130

White:

They didn't have any information on that point,

H.J.Jr:

Well, that is very important. I want to get this
over to Sir Frederick, if I can, because there is

but they were going to get some.

a fundamental difference of viewpoint here. To
go back, you say if you don't get help, you will

be driven to it. What I am trying to say is that
the chances of getting help are far greater if
you take these steps first. Now that just goes
back to what I said the other day. I have had

some talks since I have seen you, and I know, as
far as the men in this Administration who have to
do with money are concerned, just as long as there
are these sort of items, plus the English owned

factories in this country that aren't exhausted

first, it makes it that much more difficult by

affecting American sentiment, and I am quite sure

I am right. I don't see that other item at all.

That was around six or seven hundred million,
wasn't it?
White:

Something like that.

Phillips:

What is this other large item? What figures are

White:

The Department of Commerce has made the only study

there?

up to date. It had a figure of 11 hundred million.

That was eight hundred million of what they called
direct investments and three hundred million of
other funds, mortgages, trust funds, and so on.
It was eleven hundred million. How nearly accurate that figure is, we do not know now. We were
making some further study, but we don't know.

Phillips:

Well, I should say, in the first place, the figure
undoubtedly includes as direct investments what

are really a lot of marketable securities. I

say that because we have gotten an estimate of
your people and I know the estimates were too

low for that but isn't too high for the other.

- 24 White:

131

There probably are some. We have already gone

through the list, and we have found, I think

about a hundred million dollars, through one
list, and I am sure that when we go completely
through the other list, we may find some more

of that. It may count another hundred million
or so.

H.M.Jr:

Let me just take a look at this big sheet where
they say dollar receipts. Now, you have got a
hundred and 35 million

Canadian six and United Kingdom 195. There is a

figure, a total of one billion 166 million. Do
I understand that the British Treasury is telling me tonight that the only dollar receipts

available between now and the first of September

is a billion 166 million?

Pinsent:

Generally speaking, this estimate is the estimate
of the current account, Mr. Secretary, not allowing for the use of gold dollar balances or the

sale of securities. This is drawn up on the
basis that the current portion--

H.M.Jr:

What I have got to have between now and three

o'clock tomorrow, unless this meeting is going
to be a complete failure, is how much money or
assets, which are saleable over a nine months

period, does the British tell me are available

between now and the first of September '41. That
is what I want.

Bell:

That second sheet you had was an attempt to show
what was available--

H.M.Jr:

But, Dan, Mr. Phillips doesn't accept these figures.
I want British Treasury figures. I want them to
say to me, "Morgenthau, between now and September

1, '41, this is the limit. Now, we want to ours
in your hands. Now, this is what we can go, the
limit. I don't want to be in the position of

bargaining or putting any pressure on or anything

else, I am saying that if the British Treasury

132

- 25 -

will say to me, "Now, this is the absolute maximum we can do. How, how bad do you want us to

strip ourselves? But this is what we can do'

and then leave it to us to come back and say to have something to say, but I don't want to
be bargaining and I don't want to be pushing and

I don't want to be arguing. Well, I haven't got
that figure.

Pinsent:

The only figure that is missing, I think--

H.M.Jr:

They have just got to trust us, that is all they
have got to say, "This is the absolute limit.
Yes, we can take the French gold. We can take

the Belgian gold. We would like to argue, explain

to you the difficulty, but we can do it. We can

do so much on the securities. Now, if you expect
us to absolutely strip ourselves, this is what we

can do," - and then I think that the attitude will
be, "Well, we can't ask the British to do as much
as this. This is too much to ask of them. Now
if I could get the people in that frame of mind
instead of saying, "They are not doing enough and

why can't they do this and why can't they do that,"
I could make headway much faster.

Bell:

I think that is right.

H.M.Jr:

Am I right, Dan?

Bell:

I think that is right.

H.M.Jr:

I mean the people in that room will say, "Well,
Morgenthau, you are too hard-boiled. You can't
ask them to do this." But otherwise they will say,
"You are just a 'softy' and you haven't begun to
ask them, and then I am on the defensive. I
would much rather have them take the side of
England against me instead of saying that I am
taking the side of England and have them all be

against England. It is a degree of preparing
this group who have got to prepare Congress.

least you can - don't you think that is the way
that group would react, Phil?

- 26 Young:

133

Well, I don't think there is any doubt about it
because the impression, I think is prevalent

that England has got to do a good deal more than
she has given any obvious and apparent signs of
doing today before she can count on any great
help from the United States.

H.M.Jr:

When that group came to me today and told me I

have got to be tough and all that sort of thing Phillips:
Young:

What did you mean by doing more than we are doing
now, exactly?

Just the question of degree as to how far she can
call upon available assets, as to how many of your
assets can be liquidated, to meet what bills you

are running up to meet bills in the United States.
Phillips:

The answer in almost every case is, "Where do we
find a buyer."

Young:

Surely--

Phillips:

Yes, we are supposed to have a hundred and 60

million pounds and six hundred odd million dollars
of the very finest American marketable securities,

and they are going out fairly slowly. If we can't
sell the very finest American market securities on
the American market, what reason is there for
thinking that we will find a buyer for some securities of South American states?

H.M.Jr:

Why don't you put it up to us?

Phillips:

I think we would sell the marketable securities.
Coming down to the second line, I thoroughly

understand your line of criticism--

H.M.Jr:

But you don'tput it up to us. I mean, I don't
know how much you have got left, six or seven
hundred million. Let's just for a minute say,
supposing you said, "Well, now" - I don't know
what is fair, the average of the last three months

- 27 -

134

or six months, whatever would be fair, say
"Look, do you think that you can do better than
we can? If you can get us the average price for
the last three months or the last six months,
see if you can do better than we can." I mean,

in other words, put the burden on to it - to us

here to see whether we can not take your Argentinian

things. Say, "Here is the lock, stock, and barrel.

At such and such a price we would be delighted to

sell them. If you can do it, all right, go to it"

- and as I say, the Belgian gold, if the thing

comes to a guess and the French, yes, and it gives
us something to work on, and if I could get you
in the frame of mind that - put the burden on us

instead of saying - you see, I can't lose track of
the fact of what the fight is for, and I am the

worse person in the world to be trying to put any

pressure on you. I can't do it. If could

only get across to your Government that "Morgenthau
has demonstrated in the last two years that he

is our friend, and we either can or cannot put
ourselves in his hands" - and, of course, if you
don't want to say it that way, let's use the word

"Roosevelt, - "that Mr. Roosevelt is our friend.'

Either we can put ourselves in his hands and he

will do the right thing for us, or we won't,

but I don't think anybody around here in the
Treasury wants to bargain, but Mr. Churchill has
got to say, "Well, I can put myself in Mr. Roosevelt's
hands, and here, Mr. Roosevelt, this is what we have
got. I have turned my pockets inside out. You see
everything I have got. Now, you have got to treat
me fair. Now, on that basis we can make progress
and make it very fast, and I say leave me out of
the picture, but you have got to trust our President, and Mr. Churchill is the head of your Government and has got to make up his mind he either will
or won't, and you are not going to find the President in any bargaining mood, either.

Phillips:

Let me ask a question. Do you accept the proposition I made about a minimum balance of six

- 27 -

134

in other words, put the burden on to it - to us

here to see whether we can not take your Argentinian

things. Say, "Here is the lock, stock, and barrel.

At such and such a price we would be delighted to

sell them. If you can do it, all right, go to it"

- and as I say, the Belgian gold, if the thing

comes to a guess and the French, yes, and it gives
us something to work on, and if I could get you
in the frame of mind that - put the burden on us

instead of saying - you see, I can't lose track of
the fact of what the fight is for, and I am the

worse person in the world to be trying to put any

pressure on you. I can't do it. If I could

only get across to your Government that "Morgenthau
has demonstrated in the last two years that he
is our friend, and we either can or cannot put

ourselves in his hands" - and, of course, if you
don't want to say it that way, let's use the word
"Roosevelt, - 'that Mr. Roosevelt is our friend."
Either we can put ourselves in his hands and he

will do the right thing for us, or we won't,

Phillips:

Let me ask a question. Do you accept the proposition I made about a minimum balance of six

- 28 -

135

hundred million dollars?
H.M.Jr:

Bell:

What I am trying to get across is a mental attitude.
I, personally, think how much your balance is, if
you don't mind my saying it, in gold, where it is
visible, is very unimportant. What I am trying to
say -- I am trying to get over to you gentlemen
how to deal with us, and that is visible, and
whether it is four hundred million or three hundred
million, from our standpoint, it is not important,
and once all the cards are on the table, you can
say, "Well, this is why we need it." Then you
are not going to have any trouble. Do you agree
with that, Bell?
I think you might have an easier time if you could
say that we are now down, we have gone as far as

we can in liquidating our assets, and we are down
to this minimum balance and that is all we have
got left now. He has got to come forward and,

I think, you would get it much quicker on that
basis than you would if you had all these assets
and this balance.

H.M.Jr:

But, Dan, if everything is on the table, cards
face up, the six hundred million dollar balance,

everything else, it is all there, here is the

whole pot, here is everything right in the middle
of the table. Now, we have got everything. Every-

thing is there. Now, there it is. It gets down
to a question of Mr. Churchill putting himself in

Mr. Roosevelts hands with complete confidence.

Then it is up to Mr. Roosevelt to say what he will
do.

White:

And Congress.

H.M.Jr:

Well-

White:

He has got to put it before Congress.

H.M.Jr:

But I am not worrying so much about Congress, once

- 29 -

136

Mr. Roosevelt makes up his mind, but that is
what it gets down to, but I may be - what I am

saying, I am saying in all sincerity, and I

don't want to step on anybody's corns, but I
don't feel, if you don't mind my saying so with

all sincerity, that all the cards are now on the
table.

Phillips: Well, now, which are the ones that you think are
missing?

H.M.Jr:

Well, I think you know as well as I do now, don't
you think so?

Phillips:

Which particular assets do you feel you haven't
enough information on? As far as I know--

White:

I can indicate the assets which--

Phillips:

I think we have given you figures on everything

we have got except direct investments where we

haven't got figures.

Playfair:

Those are on their way at the present time.

White:

I think, in line with what the Secretary said, the

assets which may be included by public opinion,

and that is what we have to contend with, I think
you will appreciate, are the following items, without any attempt to evaluate them, because their
particular liquidation value depends, as you put

it, upon finding a buyer within a limited length
of time, et cetera, et cetera; but I think there

will be some people who are going to present to
Congress and to the public what they regard as

the assets which are available to the British
Empire and that the Administration is going to be
in the position either of saying, "These assets

don't exist," or that, "They are in negligible
quantities, or, following the Secretary's thought,

is that "Yes, they have told us about these assets,
and if we want to strip them, these assets are
worth such and such, but do we want to strip

them?" Now, with that in mind, I will indicate

- 30 -

137

some of those which are basedH.M.Jr:

Can I interrupt you a minute? You (Phillips)

remember when you and I saw the President, he,
himself, mentioned those South American things

and
I told you I didn't put that idea into his
head.

Phillips: No.
White:

There is the gold which you have indicated, and
there are the dollar balances which you have

indicated. Our estimates of the dollar balances

are a little bit higher, but the difference can

be ironed out because we include some estimates

that you don't.

Phillips:

You point them out to us, and we will get hold of

White:

Yes, I say we have them here. I mean our reported

Playfair:

We have already telegraphed home for a reconcilia-

White:

them.

private assets, which are reported here. If you
don't know of them, we will be glad to tell you of
them, but they amount to a little bit more.

tion of that point.
Yes, I am merely indicating that in passing. I

am sure they can be reconciled. Then there are
the American securities which you have indicated.
Then there are what we call direct investments.

Phillips:

Well, what figure do you put on it.

H.M.Jr:

Well, direct investments, I say the only figure
that we can begin with, and Lord knows what we

will end up with after examining them, but the
figure we begin with is the 11 hundred million

dollar figure which the Department of Commerce
purports to have found. We are making pretty
rapid examination of them and some changes already

have been introduced in the figure. We

- 31 -

133

are not
speaking
of book
the liquidation
what
they
call their
value. value, merely

Phillips: Yes.
White:

And what the figure will show, I don't know, but
I am not sure that that is quite in point because,
I take it, what the Secretary has in mind, we say
that they have got about 11 hundred million and
the public is going to believe the Department of
Commerce's figures until such time as we have

further information from yourselves to alter those
figures. Then the answer is obvious. That doesn't

mean that they have a liquidation amount.
Playfair:

We already have a larger amount of information

about book value. I hope next week I will be able

to bring it in. A letter is being prepared with
full details. It seems to us useless to start
talking until we have the complete details for
each one.

White:

Then we have the foreign investments of the United
Kingdom outside the United States. The Latin
American investments which we have already said
something about. There are the investments in
South Africa and Rhodesia, British Asia, and

others. Again, the nominal figure is large,

what one wishes to call the market figure may be
anything way down, and the liquidation figure may

be still smaller.

Phillips:

They are all sterling.

White:

They are all sterling, that is right, but the
fact it is a sterling security doesn't, I take it,
mean to the public that they have no value. Now,
what that value is--

Phillips:

It doesn't mean with regard to the American public

that they will pay any price for them. In the
first place, they are sterling and in the second
place, to the American public, they have very
definite worries.

- 32 White:

139

I take it that that would be one of the factors
that would be discussed by those who are setting

policy in considering that. They say, "Yes, they
are throwing these on the table. Now, how much
are they worth," and all these arguments would
come to the fore. What they would end up with,

I don't know, but they are part of the United

Kingdom assets. Then there are likewise the

United Kingdom investments in Canada, which are
substantial.
Phillips:

Well, we have been setting those at the very highest rate we can and they are just about half or
a third of our expenditure in Canada.

White:

Well, I don't know if we want to go into that now.
Judging from the rate of expenditure which I got
from your balance of payments, there is some

reduction, but I take it that according to your

figures, the only securities which were purchased
back - you can correct me on this. What was your

estimate in the first six months?

Playfair:

One hundred 30 million in the first six months of
this year and last year also.

Phillips:

And a hundred and seventy million last year.

White:

A hundred and seventy million, according to the
estimates of the nominal value, and again what they

may actually be, I don't know. Selling them at
the rate of 260 million during the first year of
war still would leave substantial amounts unless,
as I say, the market value is very much less.
Phillips:

That is as fast as the Canadian government will
take them. We have been pressing them for a long
time to take more.

White:

But I take it that the thought here is that they
might find a market here, but again I wouldn't
wish to be put in the position of saying what the

- 33 -

140

market value is. I don't know. But these are

assets which the general public has in mind and
if they have no value, they wouldn't be included.

They have some value; how much I don't know.
Playfair:

We can provide figures of that.

White:

Yes.

H.M.Jr:

Harry, can't we, for tomorrow, on this sheet, so
I don't make such a bad showing, put down here
underneath this thing after the one billion 166 -

I would put down here the Belgian gold, the French
gold on direct investments.

White:

Well, if they want to regard those as assets. You

see, I think the point of difference is that your

perfectly legitimate interest for the moment is
what is the market value of these. I take it the
Secretary's thought is not that. That is something to be considered later, that these are on
the table. There they are for what they are worth,
which doesn't mean that they will take them.

H.M.Jr:

Well, I mean - look. I can't go before this group
tomorrow and show that only one billion 166 million
is there. I want to show that there are these direct
assets--

White:

Listen, Mr. Secretary, that is what they are going
to get.

H.M.Jr:

Whatever it is, I want to put down these other
things. I don't want to put down these Argentinian
things, but certainly everything that they have
got in the United States and Canada, which isn't
pledged to Canada, ought to be put down.

White:

Well, if they will indicate the items, we will put
down the estimates. Now, whether or not they are
worth those estimates would be our error, not
theirs.

- 34 H.M.Jr:

141

Now, the gold which is in Canada, securities not
pledged to Canada, which wouldn't be used in

Canada - I mean it is silly to take them away

and then have Canada come back and say, "Well,

we have counted on those." What was it Clark
said, he was running 30 or 35 million short a
month now?

Bell:
H.M.Jr:

White:

About 30 million.
So there is no use taking United Kingdon investments in Canada, but the gold, American securities and American direct investments, yes.

Thirty million a month short, but that doesn't
include their gold and silver which they have
against that.

Bell:

Oh, no, that is the Treasury balance.

White:

Balance of payments?

H.M.Jr:

No, but Harry, for tomorrow, direct investments,
what the best estimates are that we can get from
these gentlemen plus our own American-held

securities, and whatever gold is on this conti-

nent.
White:

Well, we will put in anything--

H.M.Jr:

Well, I have got to have something.

Bell:

What you want, Mr. Secretary, is a second chart

and this is their deficit for this period; now,

how are they going to meet it over and above
their current receipts, and don't you want another

chart showing the assets listed like that only on

a better basis?
H.M.Jr:

What?

White:

That other table.

- 35 -

142

Bell:

That other table that you have under a different

White:

This is the deficit, two billion six.

H.M.Jr:

How are they going to meet that?

White:

So far the only assets which Sir Frederick has
indicated--

H.M.Jr:

Then can't you put it in this space?

White:

We can put in that space the assets that he cares

Phillips:

Which 650 is that?

White:

The United States securities.

Phillips:

United States securities as fastas they can be

White:

That is the only assets which, I take it, you have
indicated are available to meet this two billion

form, I think.

to indicate. So far the only asset that has been
indicated which is available and is 650 million.
Am I correct, Sir Frederick?

sold, yes.

six deficit.

Phillips:

This two billion six is covering both the United

White:

That is right.

Phillips:

Yes, that is so.

Playfair:

Covering Canada as well.

White:

There is 650 million.

Bell:

Yes, you ought to add the Canadian securities, too.

Playfair:

Add the Canadian securites?

White:

Oh, their holdings of our securities.

States and Canada:

- 36 Playfair:

No, I mean as against their securities.

White:

You would like to put those assets in?

Playfair:

Obviously a thing which contains both Canadian--

Pinsent:

I have the figure on Canadian securities.

Phillips:

What are they:

Pinsent:

Four hundred twenty-six million dollars, British
holdings of Canadian securities - 426 million

143

United-States dollars.

White:

That is just securities, not direct investments?

Pinsent:

Yes. That is the valuation as of the thirtieth
of September.

White:

Would you wish that to be included?

Phillips:

In so far as they can be reasonably sold, yes.

White:

That is two items.

H.M.Jr:

There are American securities of how much?

White:

Six hundred fifty.

K.M.Jr:

The Canadian securities?

White:

Four twenty-six.

H.M.Jr:

That makes how much?

White:

That is--

Bell:

A billion eighty.

H.M.Jr:

Then add the French gold and the Belgian gold, the

six fifty--

White:

Which is either in Canada or in --

- 37 -

144

Well, there is the Belgian of 516 and the French
of 650, making 1166.

White:

One difficulty about that is some of that French
and Belgian cold is in the United States, whereas

if it is in England, England could sell it to us,

but
it. if it were in the United States we can't buy
H.M.Jr:

Why not.

without the Belgian government and the Dutch

overnment telling us to.

Phillips:

Couldn't you put a stopper on that?

White:

No, no, I mean - are you sure the Belgian and Dutch
government would say O.K.?

H...Jr:

.hite:

No, I am not, but I am only assuming they would
say it. The British would give then a receipt for
it.

The British can't give them a receipt for gold
they hold with us.

N.M.Jr:

Now much is there of this?

Cochran:

The French gold in Canada is in Canada.

H.M.Jr:

All right.

hite:

That is 1080 and 650, 1730.

Well, wait, we had a figure of 1100.
White:

Ten eighty.

H.M.Jr:

Well, call it eleven hundred and 650.

White:

That would be 1750.

H.M.Jr:

And how much Belgian gold outside the United States?

- 38 -

145

White:

Ithe
can
tell you
how much Belgian gold there is in
United
States.

H.M.Jr:

Well, Belgian and the rest of it.

White:

Belgium has about a hundred and seventy million

here.

H.M.Jr:

Which country:

white:

Belgium, three fifty. Then the other one is Holland.

H.M.Jr:

How much of Netherlands is in England now?

Cochran:

It is in Canada, 88.7 in Canada.

White

Three sixty-five.

Cochran:

Three sixty-three in the United States.

H.M.Jr:

What they have got here now is plenty to pay for
any possible program they are talking about, isn't

Have you got that there?

it? Isn't their program around 70 million?

Young:

About 75. It will probably be going up, though.

White:

They have got 365 in gold alone here.

H.M.Jr:

How much was Canada?

Cochran:

Eighty-eight and seven-tenths.

H.M.Jr:

Put that down. And Norway? Well, look, in order

Pinsent:

listed here, so much of it is in Canada.
I think that is in one of the paper I gave you.

Bell:

Didn't you get that, Merle?

Cochran:

I have it in this little one.

to make life a little easier, why can't Mr. Pinsent
or somebody tomorrow morning say, "Of this gold
If

- 39 -

146

It
first
thing the President will ask about,
is is
thethe
Latin
American.
...ite:

And put their nominal value there and put what
their market value is there with a question mark.

Yes. At least on that basis, by putting those
things down, it will make it look as though I
had some financial sense of responsibility when
I let them place these orders.
Well, they haven't placed some of these yet.
I know.
.hite:

This includes some which haven't been placed yet.

I know, but I would put it down here and then that doesn't mean - at least Sir Frederick can
report back his conversation and the way I feel,

and he can get additional instructions, but for
this three o'clock meeting tomorrow, if they
think of anything else - they don't have to agree
to anything, but at least something we can put
there, and I can say, "Well, I am putting the
cards face up on the table and here they are."

Phillips:

What I said about that French and Belgian gold when you say that can be taken over, that is in

the first place given out an assumption. In the

second place, it is creating a debt. It isn't
increasing our total wealth in any way. If our
debt at the end of the war doesn't have to be

met, I agree it is a perfectly legitimate deduce

tion, and a perfectly legitimate use for it is

to hand it over to meet the expense of the war as
far as we go, but you can't say because we lay
down so many hundreds of millions of dollars in

French and Belgian gold we have acquired that sum.

We haven't acquired it except for use during the
period of the war.
Well, you can give me your I.O.U.

- 40 Phillips:

147

No.

On a piece of paper, now. Then after you have

won, you can worry about it. It is just like when we were negotiating for the Rolls Royce

engine. They sent it over here, Lord Beaver-

brook did, and I didn't want to take it until

I knew how much the royalties were going to be
and what it was going to cost us, so he sent me
a message, "I am sending the engine over and

after we win the war we will talk to you about
the charges. So we have got the engine and
we are making it, and I haven't got the slightest idea whether we will pay any royalties or
not, because he refused to tell me, but I

didn't take the position - I didn't say I

wouldn't make the engine until he did tell me.

We are just going ahead and manufacturing 9,000

of them, 6,000 for you, and we have had to tell
our own manufacturers that we didn't know, but
in case there was a royalty we would indemnify
them against it. Wasn't that what it amounted

to? But his attitude was for going ahead. "I

want the engine, and we need the engine to fight
now.' You have got some engines here-White:

There are some other assets. There are gold

H.M.Jr:

There is one thing I know I can say for Mr.

holdings in the Empire countries. There is a
British investment in South Africa, Far East.
Roosevelt, unless he has changed his mind since

he has made this trip, that we don't want any
of these islands, unless he has changed his
mind. I mean, he may want additional bases,
he may think up some new bases, but I know he
doesn't want Jamaica, I know he doesn't want

Trinidad, and I know he doesn't want British
Guiana, at least that was the way he felt very

strongly before he left. I understand that all of
this talk about these being wanted by us is - who
was it that said today that - "Well, if they have
got to give up all these, we might better make peace:

- 41 -

148

Somebody told me that. I don't know who that
was. He says, "If we are going to lose them
anyway, why not make peace and give them to

Germany, or something like that, but I can
assure you as of the time he left the last
thing in the world that he wanted was any of
these British islands or possessions in the
Caribbean.

Cochran:

In order, Mr. Secretary, that you could let the
people know tomorrow that you have gone to the

bottom of everything, why couldn't Harry draw

up a list of these rather questionable assets
and then let Mr. Pinsent and Mr. Playfair help
put in a little paragraph at the side of each
giving a short explanation, the fact that they

feel they ought to have a minimum of 600 million
dollars of gold in foreign exchange, that some

of these colonial assets are only in sterling,

are a war risk and not immediately available and
so on, so that you have that immediately before
you?

H.M.Jr:

That is all right.

White:

Well, we gave them just that and they were going

Pinsent:

Well, we have listed that material with the

to work on it.

exception of the direct investments, which we
hope is on its way by plane.

White:

Yes, but I take it following Merle Cochran's
remark - let us take, for example, the Latin
American investments you have given us your

estimate of. We have those, and I take it
those would be indicated as part of the assets
which are available without any attempt to
evaluate them at this state in the discussion,
if ever. and similarly with other assets. We
can indicate the list and if we don't include
them in the list, somebody else is going to
and I mean it isn't as though - I mean there

- 42 -

149

are plenty of people in Congress and elsewhere

who-H.M.Jr:

Why, sure. Take, for example, this 700 million
dollars worth of securities. I am sure Jessie
Jones would like to take a look at them.

Pinsent:

We have sent for the list, Mr. Secretary.
I am sure that in connection with the deal with
the Argentine, that Mr. Jones would like to
take a look at what your holdings are in the
Argentine. I know I have mentioned it to
Mr. Prebisch, and I think he would like to take

H.M.Jr:

a look at them.

Phillips:

That is all right with regard to the railways,
but we haven't got his price yet.

H.M.Jr:

The day he was in I went over that. You were
there, Dan. You remember I asked Prebisch and
Espil whether they were dealing on this thing,
and they said no and they also said they had

the authority to do it, didn't they?

Bell:

Yes. They said they came prepared to discuss it.

H.M.Jr:

Two questions: Are you prepared? Yes. And are
doing anything? No. And have you the authority?

Yes.

Pinsent:

I think Senor Prebisch's English is not quite
perfect, Mr. Secretary. I have found once or

twice if I asked him something, he would say,
"Yes," and I would discover presently that he

hadn't understood.
H.M.Jr:
Cochran:

Well, Espil's English is all right.
On that, Mr. Secretary, there is a possibility

that they meant that this delegation coming to
South America was not talking about it.

Phillips:

Well, anyway, the position is that the nominal

150
- 43 -

capital is of the order of 260 million pounds.
If there is a reasonable offer, the deal certainly is on; and, assuming you were to put

up the dollars, they are available.
H.M.Jr:

Well, that is the first time I have heard what

Phillips:

Oh, no, I say if they offered it. They haven't

the price was they have offered. They have
offered you 60 million dollars?

offered a figure, you see. We have been trying

for months to get a figure on it. If the best
offer they make is too low, we shan't take it.
If they make a reasonable offer, we shall.

Pincent:

I think we can easily make a list of all these
items, but the direct investments we can't

today, but we hope to be able to very soon.
The others we can all attach some kind of a
figure, I mean attach the nominal figure and

the market value so far as it is obtainable.
They can all be set out on paper. I do think
there is merit, Mr. Secretary, in Dr. White's

arrangement, putting these capital items on a
separate sheet, because they are very different
in kind from the current incomings and outgoings.

White:

There wouldn't be much use in our indicating,
including the others, unless the--

H.M.Jr:

Now, Harry, for me for tomorrow, before the
other meeting, here I want gold belonging to

the Allies of England which is not in the United
States, of the Allies of England.

Pinsent:

We have that.

H.M.Jr:

American securities, American direct investments,
and securities held in Canada.

White:

Canadian securities held by them?

H.M.Jr:

That for this purpose, I think, is--

- 44 -

White:

French gold in Canada?

H.M.Jr:

I said Allies.

White:

H.M.Jr:

151

Oh.

Free France. Haven't you got an ambassador in
Viche?

H.M.Jr:

All right.
Isn't that the list?

White:

Latin America, too?

H.M.Jr:

No, that will be - no.

Bell:

Do you want another chart showing the complete list

Phillips:

You have seen that note we put in about those
Latin American securities, haven't you? The

White:

of--

public utilities is about 30 million dollars.

H.M.Jr:

On the Argentine thing, I think there may be a
three-cornered deal where one will kind of

watch the other do a little unfreezing, but I

doubt if we will get very much free money out of

it ourselves. There might be a little unfreezing

all around.
White:

These are all nominal figures. It is quoted on
the Securities and Exchange. There are over a

half billion business enterprises that are not
quoted.

Phillips:

What was that public utility figure?

Playfair:

Nominal, 6,000 pounds. The market value is
about--

- 45 H.M.Jr:

Phillips:

152

Would you put that in? I don't think so.
What is that?

White:

Your dollar exchange.

Phillips:

The only gold dollar exchange is going to run

H.M.Jr:

I don't think I would put that in.

White:

Well, I mean one might ask the question if they
are going to continue to use that, and I take it
they are. Why not include it?

H.M.Jr:

And point out--

White:

out by the middle of January, isn't it?

That it is getting very low. Is it your

thought that some of that gold in dollars will

be used up in January?
Phillips:

We have got to pay with whatever we have got or

Bell:

Put it down there with the note.

White:

This is the last of the--

Bell:

can get.

reserve.

White:

Of course, there is another question that might
be raised at the meeting. I don't know whether
you want to raise it here. But Canada is helping - part of that is a payment to Canada of
600 million in gold.

Phillips:

That is one point I have been trying to make
all evening.

White:

That is included here. Now, why has Canada issued gold. She can handle her balances to the
United States next year without that.

H.M.Jr:

Where does she get that gold from?

- 46 -

153

Phillips:

Us. The best we can do on Canadian securities
to
the Canadian
dollars
a year. Government is about 130 million

H.M.Jr:

You mean they won't buy them fast enough?

Phillips:

Well, they say they are buying them as fast as

White:

Four hundred sixty-five million dollars of gold.

H.M.Jr:

Well, maybe something could be worked out on

White:

Yes, because Canada has only their estimates of

they can.

that.

the - I think their tentative one is around 350
million dollars and to meet that they have got
about a hundred and fifty million dollars of
current production in gold and some silver, and
they have got a little gold on hand and so on.

Bell:

About a hundred and fifty million dollars.

White:

They have got American securities. So for the
next 12 months' period, Canada, so far as the
United States is concerned, is in a pretty good

foreign exchange position. Now, if on top of
their position they are going to get 465 million
dollars worth of gold from Great Britain, they

are going to have much more gold at the end of
next year. They are going to have something

like probably two or three hundred million

dollars more gold next year than they have now

after another year of war.

H.M.Jr:

Is there any use trying to switch some of these
orders into the name of Canada?

Phillips:

I think they have got all the orders they could
possibly deal with, haven't they?

H.M.Jr:

I don't know. How about that, Philip?

Young:

Canada has probably got around four or five

- 47 -

154

hundred
million
to December
'41. of orders, I should think, up
H.M.Jr:

In this country?

White:

To December '41?

Young:

In this country.

White:

Possibly.

Young:

Does that tie up with your figures, Harry?

White:

He was going to give us that tomorrow.

H.M.Jr:

Let me see if I understand this. You have how
many securities in Canada that you own?

Phillips:

Four hundred million dollars, was it?

Pinsent:

Four hundred twenty-six million United States

dollars, wasn't it? - 426 million United States
dollars.

H.M.Jr:

And they say that they can't buy them fast enough,

Pinsent:

Yes.

Phillips:

That is right.

H.N.Jr:

The budget or the financial program is probably
the trouble with them.

Pinsent:

The Government have taken some, the Canadian

is that it?

National Railways have taken some, and we are
putting some on the market.
H.M.Jr:

Well, I don't think that that is beyond the

realms of possibility, that we could have some

kind of an arrangement with Canada to help on
that.

White:

If she would take some over, we would take them

- 48 -

155

and give her that dollar credit.
H.M.Jr:

Yes,
that would
land,and
wouldn't
it? relieve the strain on Eng-

Phillips:

Very much.

White:

To the extent of a hundred and - was that for
the next six months' period? A hundred and 30

million?
Playfair:

Wait a minute.

White:

Oh, that is what Canada--

Pinsent:

That is the help we assume Canada would give out.

White:

In the way of repatriating your securities?

Pinsent:

Two hundred sixty million for the year--

White:

Six hundred what?

Pinsent:

Eight eighty was our first figure, two sixty from

White:

Canada and the rest was our--

How much of that was in securities they were going

to take in part payment? That is 260 million dollars for the year; and, if you have got 420, that

would be the difference between the 460 and 420

that you would save during the first year and
then after that there wouldn't be any saving.
H.M.Jr:

How much?

White:

Two sixty and four twenty would be six sixty.

H.M.Jr:

But supposing it was possible in a lump sum. I

mean, we could work out some way of buying these

securities, you see, and then giving them a
credit so that they would use them.

White:

Then the British Government would be able to

utilize a hundred and sixty million during the

- 49 -

156

next twelve months that they otherwise would

not be able to use until the ensuing six months.

White:

But it would give them immediately-A six months'--

H.M.Jr:

But immediately it would ease the tension to

White:

That is right.

H.M.Jr:

Wouldn't it?

White:

That is right.

H.M.Jr:

I mean this money that we gave Canada--

White:

That is, the money that you would get for those

H.M.Jr:

Well, then, can't you put down here, U. K. owned
Canadian securities in the amount of 426 million?

White:

Well, we were going to include that.

Pinsent:

We should have to reserve some part. I think you

H.M.Jr:

the extent of 426 million.

securities. In other words, instead of this
gold going to Canada, it would go to the United
States, or most of it.

were calculating their dollar requirement in
Canada.

White:

But you were going to cover it with gold. If you
cover it with these securities, the difference

between them, you wouldn't have to cover it with
gold.
Pinsent:

We have got to cover it with security so far as
we thought Canada could absorb them and for the
rest we feared.

White:

That is right, and the Secretary is suggesting
that we might absorb them, and, therefore, that
would no longer be a limiting factor.

157
- 50 H.M.Jr:

Just say that is that.

White:

We have already accomplished one of the five

H.M.Jr:

Have you written it down here?

White:

Yes. That was one of the five items. Gold and

items you listed here.

American securities - Canadian securities held
by U.K.

Playfair:

What was the fifth item, Mr. White?

White:

The fifth item was French gold in Canada.

Playfair:

I am sorry.

H.M.Jr:

Bell:

Dan, you started to say something a little

while back about another balance sheet. You
mentioned something you didn't finish.
I was saying I thought you ought to have another

statement listing all of these assets probably

in the order of the liquidity. For instance,

put their cash balance first and their gold and
American securities and some other securities
and direct investments and so forth in the
order in which they might be realized upon with
an explanation of each.

H.M.Jr:

But don't you think these five things we are
talking about could fit into here?

Bell:

They could. I don't think they necessarily

belong on there because they may not be realized

upon in that order, but I don't see any harm in

it.

H.M.Jr:

Well, you can take a look at them.

White:

We can always put it this way. That is what is

to be raised and then we can have another table

saying these are the assets which are liquid, in

- 51 -

153

the order as those five that were indicated.
Then Dan was suggesting another table listing

all items somewhat in the order of a liquidity
thing.

Bell:

I must confess I don't understand this Canadian

H.M.Jr:

Something like that.

.hite:

Canadian?

Bell:

I don't understand this Canadian thing. I

thing.

take it what you have done is put Canada in

this balance of payments for the British Empire.
White:

Because Sir Frederick has explained they have to
meet their adverse balances in Canada with gold
except to the extent that - to which Canada has
agreed to accept a certain amount of their own
securities back.

Bell:

But in this statement you have under B (2), Payments to Canada, 660 million--

Pinsent:

That is the gross balance.

Bell:

Well, is it the gross balance? On the other side,
you have Canadian assistance, 195 million and

total dollar deficit of the sterling area with

Canada, 465. The two equal the 660 on the debit
side?

White:

That is a net figure on the debit, not a gross
figure. That is what led you astray, because

they are not all in that figure.

H.M.Jr:

I don't think we can go much further tonight.

White:

I think once there is some agreement on the items

that might be available, then there is a great
deal of joint work between your (Phillips') staff

and our staff to attempt to see what value these

- 52 -

159

have, see whether there is agreement on the values

of particular items, but the initial task is

merely to say that these are or are not available
for this purpose. How much they would finally
amount to would depend on what we could run down
and agree on as to what the market value might

be and that would require pretty careful, long
study on numerous items.

Bell:

Want us to meet in the morning and see if we can
work out this second set plus an explanation?

H.M.Jr:

I wish you would, Dan.

Bell:

Ten o'clock?

H.M.Jr:

Including me, you mean?

Bell:

With me.

H.M.Jr:

Oh, yes.

Bell:

Have to have a little time for financing, about
eleven thirty or something like that.

H.M.Jr:

Oh.

Bell:

To determine the market condition.

H.M.Jr:

Well, when I get to the office, which will not be

before 9:30, because I am stopping to see Mr. Hull,
maybe we can have a little talk then, Dan, about
financing.

Bell:

All right, before this ten o'clock meeting.

H.M.Jr:

How would that be?

Bell:

That would be all right.

H.M.Jr:

Have a little talk then. As soon as I get to the
office, I will get in touch with you.

- 53 -

Bell:

160

All right. We can do some preliminary work and
then we ought to settle it about eleven or
twelve o'clock. Bob Rouse will be talking to
me tomorrow morning.

H.M.Jr:

Forrestal is bringing in Clarence Dillon. We

will let him settle it.

White:

He seems to be awfully interested in it.

H.M.Jr:

Maybe I can make a sale to him. Do you (Phillips)

Bell:

They certainly had him down to the second the

think the newspaper men will be impressed with
the length of time you have been here? (Laughter)

other day: one hour and thirteen minutes.

UNITED KINGIXSZ FORKION EXCHANGE ASSETS AS REPORTED BY
HR. PINSENT

(In millions of dollars)
490

1. Gold

2. Dollars

(a) held by Bank of England

864

(b) hold by authorized dealers 60
Total

126

3. U. S. dollar securities held by United Kingdom

about 750

6. Latin American securities and investments held
by U.K. nominal value

2,825

CHarket value of 1.7 billion of those reas
given as $630 million)

S. Gold of British Allies Held in U.S. and Britten infire
76

Horray

MetherLanda

446

Belgium

916

Caushoaloval

6. French Gold in Canada or United Kingdom

690

the above items cannot be totalled because
(a)

certain of the items such as gold and dollar balances the British
indicated earlier that there are certain sinteen reserves which
to be maintained and their reported balances are below that

ted minimm.

orlimate was divon as to the liquidation value of the Latta American
setments.

indication was Given as to the availability of the gold of Britter

Las held in the United States and Britteh AmpAre, nos as to the
gold in Canada or the United Kingdom.
other categories of assets for which we have asked informBrittsh Treasury representatives either have not yet submitted

or have indicated that they will not be able to do so.

appended a list of the categories of assets which we had hoped the
would be able to supply data for.

was

agreed

out these

Bollar Signature and of starting Ayea From
2, 1940 to September ho 1942

(In Millins of 1. e. Dollars)

Total deliar receipts or L5
83,044

starting

V.K. payments to be made OR total purchases
$2,745
from the U. s.

Dollar receipts by U.K. free

0. K. purchases from areas outside

Dollar reseipts by sterling area

the U.S. requiring gold or dollars..
Purchases by starling area
(excluding U.E.) from U.S.
(Des. 1940 to Sept. 1941)

846

U.S.

0 135

from U.S

836

Canedian assistance to U.K.

195

253

Total U. S. and Canadian dollar deficit
of starling area

$2,678

Total dollar deficit of
storling area with U. S.

$2,213

Total dollar deficit of

storling area with Canada

(in U. S. dollars)

$3,844 TOTAL

TOTAL

)

8 465

83,844

BOLLAR EXPENDITURES AND RECEIPT OF SPERLING AREA FROM

DECEMBER 1, 1940 TD SPECIMEN 1, 1988

to President 12/17/10.

(IN MILLIONS OF U.S. SOLLARS)

Dollar Expenditures of Sterling Area

Dollar Receipts of streeting Agen
A.

K. payments to be made on total purchases

FOR the U.S.

Dollar reseipte w U.K. from U.S.
1. U.E. exparte of
to U.S.

1. Same to be paid between December 1,

1940 and Sept. 1, 1941 on orders
already placed

(In addition, 1266 million is ozpooted to fall due after Sept. 1,

Taken to meeting at coretary's house 12/9/40
photographed (with Light additions) for lecture
12/10/40. copy of Cotograph given to Secy to taxp

P Net
balance
from U.S. to V.E. on
invisible
Stone

s 1,035

(10 is expected that 1684 million
will be payable on this program
after 3ept. 1, 1941)
3. Suns to be paid by Sept. 1. 1942 on
contemplated "X" program

Commission® .

542

2. Austrellas gold exports to U.S.
3. South African exporte of gold
959

Total
e.

210

480
96

136

Ganadian assistance to U.E.

Total dollar receipts of U.K. storling APGA

1.266

8 2,745

Items 2 and 3 above do not is-

elude $709 million of capital assis-

Total dollar defielt of storting area

tance. whatever part of this is to
be paid before Sept. 1941 must be
added to this total.

with U.S.

2,43

Total dollar defielt of steeling area
with Canada (1a U.S. dollars)

U.K. purchases from areas outside the U.S.

2. Payments by storling area (mostly
U.K.) to Canada and Bevfoundland.

Dollar reseipts by storting area from
1. Commodity experte

Total payments to be made on U.K.
purchases from U.S.

requiring gold or dollars
1. Purchases by starling area (mostly
U.K.) outside the U.S. and Gannda
requiring dollars

e 335

U.S.

4. Importe from U.S. not purchased

through the British Purchasing

Total

1941)

2. Summ to be paid in next nine months
on additional orders now under
negotiation

329

Total U.S. and Canadian dollar

defiets of starting area

$2,616

1.66

660

Total U.K. payments outside U.S.

requiring dollars

Purchases by sterling area (excluding U.K.)
from U.S. (Dee. 1940 to Sept. 1941)
1. Commodity imports

2. Invisible items
Total payments to U.S. by sterling
area (excluding U.K.)

250
3

251

GRAND TOTAL

Dollar requirements of sterling area
for all transactions

$ 3.844

Jensury Department, Expiration of Honotary Research.

*This
figurebalance
and other
in the
of payments
have
takenthe
a Stuve-fourths
of the corresponding figures is the
estimated
of figures
payments
for balance
the second
year of the
var,been
submitted
British.
VFC:eah

12/9/40

165

December 9. 1940.

Dear Herberts

I have your letter of December 6th, enclosing
copy of an inventory prepared to show idle plants
in the neighborhood of New York City. 1 was interested in this, and in your consents, and if you
can furnish me with another copy of this material,

I shall be gind to bring 10 to the attention of
the British Purchasing Commission.

with cordial regards and best wishes,
Sincerely,

Henry
Honorable Herbert H. Lohann,

Governor of the State of New York,
Albany, New York.

GEF/dbs

166

December 9. 1940.

Dear Berbarts

I have your letter of December other enclosing
a copy of an Laventory prepared to show 102. plants

in the neighborhood of New York City. I was in
terested in this, and in your comments, and if you
can furnish no with another copy of this material,
I shall be and to bring 10 to the abtention of
the British Purchasing Commission.

with cordial regards and beet wishes,
Sincerely,

Henry
Honorable Newbort N. Loham

Governer of the State of New Youkg
Albany, New York

GEF/dbs