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DIARY Book 341 December 18 - 20, 1940 -- Book Page Air Bases, Army For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States Aluminum See War Conditions: Strategic Materials Appointments and Resignations Kuhn, Ferdinand, Jr.: Joins Treasury staff - 12/19/40. 341 218 Army, United States For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States (Air Bases; Camps) -BBinocular Purchases by Navy See War Conditions: Germany -Camps, Army For itinerary of proposed inspection trip by HMJr, see War Conditions: Army, United States Chemical National Bank and Trust Company See War Conditions: Germany China See War Conditions Copper See War Conditions: Strategic Materials Curtiss-Wright Aircraft See War Conditions: Airplanes -DDutch East Indies See War Conditions: Silver -EEccles, Marriner S. See Federal Reserve System for special report on monetary preparedness in connection with military defense --Federal Bureau of Investigation Klaus memoranda - 12/18/40 98,99,100 - F - (Continued) Book Page 341 170 Federal Reserve System Special report to Congress urging preparedness in monetary organization in connection with defense program 12/19/40 a) HMJr, Gaston, Bell, Haas, White, and Kuhn discuss - 1/2/41: See Book 344, page 14 b) HMJr, Foley, Sullivan, Haas, Gaston, Bell, White, and Kuhn discuss: Book 344, page 28 1) Proposed statement by HMJr: Book 344, pages 44 and 96 c) FDR sent press comment "showing its a fight over interest rates" - 1/3/41: Book 344, page 337 d) Viner asked to review proposed memorandum for FDR "which he will memorize and then destroy" 1/6/41: Book 345, page 50 e) Aldrich speech in Boston to be compared with Eccles plan by White - 1/6/41: Book 345, page 193 f) Leading bank stocks (approximately six) to be watched by Haas - 1/7/41: Book 345, page 305 1) See Haas memorandum - 1/9/41: Book 346, page 272 2) Discussion at 9:30 meeting - 1/10/41: Book 346, page 300 3) Haas requested to ask Henderson who dealt in these bank stocks - 12/31/40: Book 348, page 95 g) Jones tells press conference he is opposed to plan - 1/8/41: Book 346, page 41 h) White memorandum commenting on proposals - 1/8/41: Book 346, page 59 1) Eccles' letter to HMJr concerning - 1/13/41: Book 347, page 152 j) Cochran memorandum - 1/24/41: Book 350, page 297 k) FDR provided with Treasury report on Federal Reserve Board recommendations - 1/30/41: Book 353, page 69 Financing, Government Porter, Sylvia: Columns on "free riding" discussed by 9:30 group - 12/18/40 World War I financing - resume'of - 12/20/40 16 273 -GGermany See War Conditions: Foreign Funds Control -H Harrison, George L. (President, Federal Reserve Bank of New York) Guest list for dinner given for HMJr - 12/18/40 Italy See War Conditions: Foreign Funds Control 167 -K- Book Page Kuhn, Ferdinand, Jr. See Appointments and Resignations -LLiaison Committee See War Conditions -NNavy For binocular purchases see War Conditions: Germany Netherlands East Indies See War Conditions: Silver New York Telegraph Boycott because of articles favoring LaGuardia discussed by HMJr and Gaston - 12/18/40 341 166 -PPeru See War Conditions: Strategic Materials (Copper) Porter, Sylvia See Financing, Government Portugal See War Conditions Publicity, Treasury HMJr again refuses signed article in connection with inauguration - 12/18/40 Putlitz (zu), Baron Wolfgang Wiley report - 12/19/40 -RRoumania See War Conditions -SShipping See War Conditions Silver See War Conditions Steel See War Conditions 27 208 -UBook Page 341 127 U.S.S.R. See War Conditions: Foreign Funds Control United Kingdom See War Conditions: Military Planning; Shipping: United Kingdom -WWar Conditions Airplanes: Curtise-Wright to produce 300 additional P-40's for delivery in May, June, and July, 1941; allocation discussed in memorandum to Hull - 12/18/40 a) HMJr discusses with Phillips - 12/20/40 237 b) Young memorandum - 12/22/40: See Book 342, pages 37 and 39 c) Conference with State, Army, and Liaison Committee - 12/23/40: Book 342, page 47 d) Conference with British Purchasing Mission Young memorandum - 12/23/40: Book 342, page 51 Army, United States: Air Bases; Camps Itinerary of inspection trip by HMJr as suggested by Chief of Staff - 12/18/40 162 China: Central Reserve Bank new regulations reported 12/20/40 a) For capitalization, see Book 342, page 22 b) . reaction, see Book 342, page 254 Exchange market resume' - 12/18/40, etc Foreign Funds Control: Germany Transaction with Chase National Bank - 12/19/40. 252 117,213,246 217 Italy: Transactions with Chase National Bank, National City Bank, and Federal Reserve Bank of New York 12/18-19-20/40 U.S.S.R.: Transactions with Chase National Bank - 12/18/40 119,120,215, 216,248 121 Germany: Navy order for binocular spare parts referred to Treasury for opinion - 12/18/40. Purchase by Germans of German properties of American corporations: Discussion by Chemical National Bank and Trust Company with State Department - 12/18/40. Liaison Committee: "Informal Committee" now servicing many foreign governments: HMJr's memorandum to FDR - 12/19/40 116 135 219 a) FDR's acknowledgment - 1/4/41: See Book 345, page 1 Military Planning: Reports from London transmitted by Butler 12/18/40, 12/20/40 89,91,313 - W - (Continued) War Conditions (Continued) Portugal: Anglo-Portuguese payments agreement transmitted by State Department - 12/20/40 Purchasing Mission: Vesting Order: Official sales of British-owned dollar securities - 12/18/40 Requirements: Simultaneous announcements discussed in Cochran memorandum - 12/19/40 Book Page 341 288 124,125 190 a) Proceeding up to point of signing and then awaiting Congressional action protested by Phillips "Informal Committee* (Liaison Committee) now servicing many foreign governments: HMJr's memorandum to FDR - 12/19/40. 219 a) FDR's acknowledgment - 1/4/41: See Book 345, page 1 Statement showing dollar disbursements transmitted by Federal Reserve Bank of New York - 12/20/40 266 Roumania: Anglo-Roumanian transfer agreement transmitted by State Department - 12/20/40 Security Markets (High-Grade): Recent Developments: Haas memorandum - 12/18/40 Shipping: Lothian memorandum on British shipping losses and replacements: Copies sent to Knox, Hull, Stimson, and Knudsen - 12/18/40 British 60-ship program: Delay explained in Young memorandum - 12/18/40 Silver: Netherlands East Indies program for purchases in connection with coins to be made for their government and similar purchases discussed in Cochran Steel: memorandum - 12/20/40. Congestion in industry leads HMJr to resume' in memorandum to FDR - 12/18/40. Strategic Materials: Aluminum: West Coast fabricating capacity - Young preliminary report - 12/19/40 Copper: Importation from Peru without duty discussed by Jones and Gaston - 12/20/40 288 104 142 148 249 101 226 306 United Kingdom: Anglo-Portuguese payments agreement and Anglo-Roumanian transfer agreement transmitted by State Department - 288 12/20/40 United States financing during World War I - resume of 12/20/40 World War I See War Conditions: United States Financing 273 1 v TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 18, 1940 TO Secretary Morgenthau FROM Mr. Haas Subject: Butter under loan or owned by Department of Agriculture. In response to your request of yesterday, I have learned that the Commodity Credit Corporation has acquired under its 1940 price stabilization program 66,000 pounds of butter, valued at approximately $19,000, and the Surplus Marketing Administration has 25,000 pounds (chiefly 1939 butter) for relief distribution, valued at about $8,500. This represents the total present interest of the Department in the butter market. 2 THE SECRETARY OF STATE WASHINGTON December 18, 1940. Dear Henry: Thank you very much for your note of December seventeenth and its enclosure re- garding British plans for the future, which I anticipate examining with keen interest. I shall not forget their confidential nature. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 3 December 18, 1940 9:17 a.m. H.M.Jr: Hello. James Forrestal: Henry? H.M.Jr: Good morning. F: Good morning. I was going to bring this message over sometime this morning. I think you want to see it. It's fairly complete and it's a report on H.M.Jr: Why don't you do this to save yourself. F: Well, yeah, but he's on a mission today. H.M.Jr: Oh. F: I can get the Secretary's Aide to do it, Haven't you got a Naval Aide? Mort Deyo. H.M.Jr: I mean, it would save you trouble unless you want to see me about something. F: No. Well, I'll just do that because I didn't want to let this H.M.Jr: Would that be all right? F: Yeah, I'll bring it over - 80 long as he hands it to you. Yes, if he could - I'm always glad to see you but I want to save you that trouble. Right. O. K., Henry. H.M.Jr: If he'11 come over about quarter of 11:00 - F: H.M.Jr: he may have to wait a little bit, and I don't like to keep you waiting. F: O. K., Henry. H.M.Jr: How's that? 4 -2F: That's fine. H.M.Jr: How are you after yesterday's meeting? F: Well, I think that - I don't know whether we'll get it by today or not, but I think that it has progressed and I think that's a - there's only one thing that - I'd like to have it on a basis where we could have reference to you on these things - we'd not flatter you at all about it but because I think that procedure - these are men who don't know some of the temperamental qualities down here, H.M.Jr: you see, and I think that they need guidance. Well, they can have whatever 18 left of me. F: Yeah. H.M.Jr: I'm available. I mean, I'm available whenever, you know, there is something like yesterday, or any other time. F: Well, I think you'll be - there'11 be need for because this isn't going to be fun from here more and more of that as the pressure gets on, in. H.M.Jr: Well, it's been that way since 1928. (Laughs). F: (Laughs). I know it. I know it. All right. All right, Henry. H.M.Jr: Good-bye. F: H.M.Jr: 5 December 18, 1940 9:30 a.m. GROUP MEETING Present: Mr. Bell Mr. Sullivan Mr. Pehle Mr. Thompson Mr. Chamberlain Mr. Wiley Mr. Haas Mr. Foley Mr. White Mr. Schwarz Mr. Young Mr. Cochran Mr. Graves Mrs. Klotz H.M.Jr: That worked out all right with the press. Where Schwarz: Yes. H.M.Jr: The Times, I haven't had time to read them all. The New York Times, I thought, handled it all right. Gaston: I think all of them substituted the correct quote. Schwarz: The transcript, that is right. H.M.Jr: But that was a dirty piece of business, that subcommittee up on the hill. is Schwarz? George, if you would come here a minute. I won't fuss with this now, but in the next two weeks, if 6 -2- you could fill in - I think back of this line, give me one figure (indicating chart) from January through July 6. If you give it all, it would be too much, but if I could have a total from January 2 through July 6. A total, one figure, and then totals here. Haas: Until the beginning of the year? H.M.Jr: Yes. Do you need this? Haas: No. H.M.Jr: Who is working on ships for me, the whole shipping question? Foley: Gaston: Herbert and I. I had a date to go over, but I didn't go on account of other matters yesterday, and there is another meeting this morning. H.M.Jr: Good morning, Professor. Chamberlain: Good morning, Mr. Secretary. H.M.Jr: I won't be able to read this today, and I haven't. This is a confidential thing. I got it and the President and three Cabinet members. (Memorandum from Lord Lothian to the Secretary dated December 8, 1940, giving data on shipping losses and replacements, November 1940)7 Authd 12/8/40 H.M.Jr: This is the whole shipping question, the loss of their shipping and everything else. It is confidential on the background. The President, Hull, Knox, Stimson, and Knudsen got copies of that this morning. I am giving you as good service. Ed, this Congressman (Ludlow) is only interested in, could we, under our present laws, make a loan -3to Canada. Couldn't you, on the telephone, call him up and say we are interested, is there anything in the law which would keep our Government or a private citizen from making a loan? Which would it be? Foley: Well, in so far as the Johnson Act is concerned, the Johnson Act only applies to private citizens, and the Attorney General answered, among other questions back in 1934, the question that a political subdivision or a dominion of a country that was in default on its indebtedness to the United States would not be under the ban of the act, and an individual in the United States could make a loan to a political subdivision or a dominion of such an empire, so that if England were actually in default under the Johnson Act, there would be no prohibition in so far as a loan to London is concerned-H.M.Jr: But if England was under the law. Foley: That was one of the questions discussed, and at that time he held she wasn't because there were negotiations looking to an adjustment of the War debts. Now I don't think there is any question about the fact she is in default within the meaning of the act. H.M.Jr: How. about the Neutrality Act? Foley: The Neutrality act doesn't apply to the United States, probably by a construction that was placed on it by a discussion on the floor. It does apply to corporations, the Import-Export Bank, and the RFC, but not to the Treasury. H.M.Jr: What I would do is, I would call him on the telephone. He is a lawyer. He is a member of a law firm. Then there is nothing in writing. Don't you think that is a better way to do it? 7 8 -4Foley: All right. And then we will hold this letter H.M.Jr: Kill it. Foley: All right. I perhaps spoke out of an overabundance of caution, and the only reason that I wanted to bring it up was-- H.M.Jr: Well, your caution is justified. You just don't and not send the letter? know how these - the afternoon headlines - when I went home and read the headlines in The Star and then read the body of the story, it was a most outrageous thing. They headlined three times in the Star? Gaston: H.M.Jr: body of the story. Did you read it? The Yes. The story they hedged all the way down the line, but the headlines were terrible. Schwarz: Not enough words in the headline to explain it. Foley: I don't like to see you quoted in the paper as having said that the Johnson Act prevents you from making loans or giving credits. H.M.Jr: I didn't say that. Foley: Well, I know, but I'don't like to have it appear that you said that. H.M.Jr: Well, I said that-- Foley: The Johnson Act doesn't apply. H.M.Jr: What I said was, and I still hold, that as long as the Congress feels as it does, I, personally, will not make any loans to England. Foley: As a matter of policy? -5 H.M.Jr: As a matter of policy. Are we together on that? Foley: Yes, that is all right. H.M.Jr: I said irrespective of what the lawyers said. Foley: I know. You said they look for loopholes, too, but there is no question of loopholes. H.M.Jr: I am sorry. (Laughter) Do you feel better now? Foley: Klotz: Yes, I feel better. Dan is giving me the bird. Oh, I love that. Oh, that is marvelous. H.M.Jr: We are putting a united press in your office (Schwarz). Schwarz: That was what I asked six months ago. H.M.Jr: Well, I always told you if you didn't holler loud enough around this place-- Schwarz: I got your support for it this time. H.M.Jr: You didn't ask me for it, did you? Schwarz: I asked Norman. H.M.Jr: He is the watchdog. He is the head of the Treasury Budget Committee. I am just Secretary of the Treasury. (Laughter) It costs 75 dollars a month. Do you think we are all right on our publicity now, Herbert? Gaston: Oh, yes, the President took all the heat off. Anyway, I wasn't seriously concerned about the story, except as a matter of your own understandings here in the Government. H.M.Jr: His statement and mine ran all right because 9 10 -5after he got through making this talk about the fire hose, he ended up by saying, "Well, we will maybe have to give it to them anyway." He criticized Mrs. Roosevelt indirectly, not too indirectly, for the banal suggestion of a gift and then ended up by saying, Well, maybe we will have to give it to them anyway." Gaston: I have no difficulty in underwriting your statement. I have a lot of difficulty in underwriting the President's talk about leasing and all that sort of thing. H.M.Jr: Well, it is all right. Bell: Does that include bombs? Gaston: It may be a good psychological approach. H.M.Jr: I have got to take a share of the responsibility with it. He said, "I want you to be my public, at lunch, and he rehearsed the thing word for word, and I told him it was all right because he should be a little tougher than what I thought Congress might be, rather than Congress tougher than he, and to break the ice, I think it is all right. Gaston: I think it is a good way to open it up. H.M.Jr: I will take whatever my proportion of the re- sponsibility is. Gaston: I think just as it lies now, it is sort of im- practical, but then I think it is a good way to open it up. Foley: I think it could be worked out legally without going to Congress the way he suggests. White: I am wondering whether, before Cabinet meeting tomorrow or before anything is done, we couldn't -6have a chance to discuss it with you or submit a memorandum. I share Herbert's feelings, and I think, though it is a very excellent move, puts the thing on the right basis, excellent politically and psychologically, that it can be implemented in such a way as to avoid many of the disadvantages, and I am wondering whether before you see the President or before you - whether we couldn't have a chance to submit suggestions and discuss the disadvantages in the way of implementing it. H.M.Jr: I am just sewed up so tight, I can't even see Commissioner Helvering. Sullivan: He didn't holler loud enough. It was 10 days early, but not loud enough (speaking loudly). (Laughter) We will have to get him a megaphone for Christmas. White: He is just learning fast. Sullivan: I have got a memorandum herefor you to give the President, and that takes care of that thing. H.M.Jr: Well, I go on the theory that it either takes care of it or bursts. You (Sullivan) look all right. You look very happy. Gaston: By the way, did I call your attention to that paragraph in the transcript where you said that you think all of this about Great Britain and Canada should stay within the room? After you got done talking about Great Britain and Canada and the Johnson Act, you said that, "I think all of this about Great Britain and Canada ought to stay within this room. H.M.Jr: Mrs. Morgenthau said last night, "Its lovely to have all these editorials that you should go up on the Hill and consult Congress, but look what happens when you do." I mean they will just spill it. 11 -7- 12 Schwarz: Within an hour. H.M.Jr: Well, the difference is, I should only consult the Democrats. It is true. Just as soon as you let a Republican in you see what happens. Bell: Yesterday. I am not so sure that it was a Republican yesterday, though. H.M.Jr: You are not? Schwarz: Partly a Republican. H.M.Jr: Who do you think it is? Bell: H.M.Jr: Bell: H.M.Jr: Well, for a while I suspected Mr. Johnson who has a son on the United Press. Who is Johnson? The one who sits at the right of the Chairman, the old man from West Virginia. Well, now, I thought I would call up the Chairman. What is his name? Schwarz: Ludlow. H.M.Jr: And tell him that he embarrassed me terribly yesterday. What harm is that? Bell: I don't think there is any harm. I think you ought to tell the Committee-Sullivan: They are going to be there for the next three or four days, your various bureaus, testifying in detail, and he can make it pretty unpleasant for for the boys. White: I am wondering whether that isn't a good thing to remember the next time you go up, or the next time they ask you, rather than calling it to their attention now. 13 -8 Gaston: He was very much upset, both he and Mark Shields, the clerk, and he called an executive meeting of the committee yesterday afternoon on this H.M.Jr: thing, and went over this transcript. Shall we let it ride? Gaston: I think I would, yes. White: If for no other reason, that after all you fre- quently go over testimony correcting errors and so on, and if you get tough with them they are liable to get tough with you. H.M.Jr: Well, on the train back, I heard this voice from the wilderness. Sullivan: John is the name. Bell: John from the wilderness. H.M.Jr: If you have a memorandum sometime and you holler early enough and loud enough, maybe I will get to it, and this is the important thing. The meeting with Senator Glass is at eleven tomorrow. Now, who is going to tell the story. Foley: Well, -- H.M.Jr: You see, I think that you should go, I think I should go, and I think Delano should go, but I don't think - don't you think that is enough? Foley: All right. O.K. H.M.Jr: Can you learn it? Foley: Yes. H.M.Jr: Between now and tomorrow? Foley: Yes. 14 -9H.M.Jr: And can you get it to Senator Glass' hotel? Foley: Yes, theit? memorandum is all ready. Do you want to read H.M.Jr: I haven't got time. Why don't you personally arrange it to-- to drop it over there or arrange to give Foley: Ritchie Smith. H.M.Jr: He can come and get it. Foley: All right, I will. H.M.Jr: Are you (Bell) going with us tomorrow? Bell: I can. H.M.Jr: It is not necessary. Bell: No. H.M.Jr: All right, I will save you. Bell: This is a letter to Leon Henderson on the statistics of income tables. Are you going to do anything about getting Phillips and Prebisch together on the British securities, is that our job? H.M.Jr: No. I have mentioned it now to everybody, and I think that in view of what happened, I wouldn't push it. I have told Prebisch about it, and I have told Phillips about it. Bell: Prebisch, last time he was in, asked if you wanted a joint conference, and I told him I didn't know if you had that in mind, but I would find out. White: That was one of the items on the agenda that was 15 - 10 - sent down to them, but I think it could be well handled in the next discussion we have in Mr. Bell's office without bothering you about it, because I don't from it at this end.think anything will develop H.M.Jr: I think I would let the two of them get together. I would simply say this, "They are here and let the two of them get together; and, if they have anything, we will be glad to talk to them." I don't want to be pressing them. White: I think it is better that they do it. H.M.Jr: Let the two get together. Bell: I don't think we are interested unless they use our dollars. H.M.Jr: That is right. What else? Bell: That is all. H.M.Jr: Harold? I still will see you. I don't think it will be until next week now, because I am going up Thursday night to this dinner, and I hope not to come back until late Friday. Chick? Schwarz: Sylvia Porter gives us some ideas in her column. They have got a good line there. They suggest defense liberty bonds. H.M.Jr: I saw her at my house yesterday. Schwarz: That may be a result. H.M.Jr: I had quite a talk with her. She is an awfully swell girl. Schwarz: She is very smart. Bell: Not so friendly at times, is she? 16 - 11 H.M.Jr: Well, she was right, Dan. Bell: It wasn't exactly right. The Treasury was a party to it. She intimated that the Treasury did it so that they could have the free riding. That isn't quite true. She could have pointed out all the steps we have taken to eliminate the free riding. H.M.Jr: Well, but the woman is smart. Schwarz: She analyzed the situation. H.M.Jr: We may have her down here. Yes, sir, I am serious about having her come down for six months. No likee? Bell: It is hard enough around here now. (Laughter) H.M.Jr: She knows this racket in New York. Foley: Who is that, Mr. Secretary? H.M.Jr: Mrs. Porter. She writes for the New York Post, and she knows the racket, how to beat the game better than anybody I have seen. I don't say she knows it any better, but at least she will tell. White: We are making studies on the individual corpora- tions, the British corporations. I am just let- ting you know so that in case you want them, we have a study on each separate industry. We are beginning with the largest and going down the list. H.M.Jr: Right. White: And we had thought, unless you feel to the contrary, that we would also cooperate with the SEC man whom they are loaning to us in evaluating these. I don't know whether you would rather postpone that until some later date or not. We 17 - 12 had thought merely of going ahead. H.M.Jr: Use your own judgment. White: O.K. That is all. Did I understand you to say that you would read a memorandum if we prepared it on-- H.M.Jr: Yes, if you get it to me within - Cabinet is tomorrow, that is the trouble. I am all fixed up. White: It is only because it is taking so much of the stage that it is worth while. H.M.Jr: If you can get it to me in my waking hours. Haas: Mr. Secretary, you have asked if we would work up some charts on the different bank holding companies. We have completed three, and I have got another one here. Do you want me to turn them in to you, or-- H.M.Jr: To Professor Foley. He is going to give this lecture tomorrow; and, if you have some other Haas: than trans-American, it would be very helpful. Yes. This makes four. H.M.Jr: Yes. Haas: Cy Upham is getting the dope from the banking men. That is the big one. H.M.Jr: Is it pushing you too much, Ed, to have this lesson ready by tomorrow? Foley: No. I don't think we will have that second part of the legislation that you spoke to me about. H.M.Jr: That is all right. - 13 Foley: I have got the holding company legislation, but the other part I won't be ready with. H.M.Jr: Good. I will have to just sit there with Carter Haas: 18 Glass and listen. I forgot to attach copies of - I put the wrong name on this, on that steel thing. H.M.Jr: This should be Henderson? Haas: Yes. That was your suggestion, you know. H.M.Jr: I hadn't had time to read it yet. Philip? Slessor Young: Air Commodore Schlesser has sent in another note in reply to the reply of the War Department to his original note. H.M.Jr: How does he know about the War Department note? Young: I don't know, but he takes up the points one by one. I thought I would summarize all three and give you a short summary of the bunch before he has a chance to get out another one. H.M.Jr: Good. White: Mr. Secretary, did you happen to hear a report that the CIO is going to present to the President ways of expanding airplane capacity by using other factories and so on? You said something about it. I wonder whether you might not want to get hold of it. H.M.Jr: Yes. White: I don't know who can get it for you. I can't. H.M.Jr: CIO? White: The various vice presidents are indicating in a 19 - 14 memorandum how plane production can be increased and why it is under produced now. H.M.Jr: Well, the person to get it through is the Commissioner over there. Schwarz: Hillman. H.M.Jr: The CIO fellow? Schwarz: Hillman. White: Well, I don't know what avenues you have, but if you are interested in the report-- Schwarz: That has been published, that they were planning such a report. H.M.Jr: Call up his office and say if there is such a report, I would like to have a copy of it. White: I will do that for you if you like. H.M.Jr: Do it direct. White: Is there somebody here who deals with him at all? H.M.Jr: No. White: I will call up Lubin, his assistant. H.M.Jr: Yes, that is good. Young: I haven't yet been able to get out of Nelson's office a copy of his recommendations on treat- ment of foreign priorities. I understand that he has gone home and won't be back until after the first of the year. He left about a week or so ago. Because of pressure on that stuff, unless you have some objection, I thought I would write up a few sample cases of foreign priorities for the formal presentation to the Priorities Board as such and then see what they do. - 15 H.M.Jr: 20 I haven't got it enough, Phil. If you think it is good, all right, but I can't give you any judgment on it. I don't know enough about it. Young: All'right. H.M.Jr: But I think I would talk it over with Graves and discuss it with Graves. My judgment is no good because I don't know enough about it. You will have to decide whether it would be help- ful or harmful in view of what we are trying to do. Young: All right. H.M.Jr: Discuss it with Graves, and whatever the two of you decide, O.K. Young: That is all. Pehle: Was there anything particular about Martinique that I should know? I sent you that memo as to what we did-- H.M.Jr: Well, just this, that two hundred seventy thoue sand - if that is correct - I read the memorandum. Why don't we just call up the State Department and say, "Why don't they release it." Pehle: Well, we had a conference while you were away over at State in Mr. Berle's office, and at that time they were having a great deal of difficulty with the Admiral, the French Admiral in charge of Martinique, who has since been supplanted from Vich, and he was threatening at any time to take one of the boats and put some gold on it and leave, and the State Department felt that in view of that attitude they had better go very slowly, particularly on a monthly allow- ance. Then they asked for this large amount monthly, and which is quite large in comparison with the individual amounts that they have asked 21 - 16 - for. Since then I have heard, although it hasn't been confirmed, that the French have agreed to cut that amount in half, but we still haven't heard from the State Department about the monthly license. Now, if you want to, I will be glad to call them up. H.M.Jr: Well, just ask them where it stands. Pehle: We had a letter within the past week saying that that was still under consideration. H.M.Jr: Well, ask them again. Pehle: I will. H.M.Jr: The French Ambassador - I sat next to him Satur- day night - raised the thing. Pehle: I don't think they really have any complaint. H.M.Jr: Pehle: Raise it, will you? Yes, sir. H.M.Jr: Professor Chamberlain? Chamberlain: We had an appointment at three o'clock this afternoon, Mr. Secretary. H.M.Jr: It still stands. Haas: Mr. Secretary, may I be excused to go up to that Appropriations Committee? H.M.Jr: Sure. I have a note here for you. Read this. It is in my own handwriting. I would like to know more about it. I happen to be related - he is a first cousin by marriage, and if there is anything more, I would like to know. 22 - 17 Wiley: All right. H.M.Jr: I know what his firm in Paris has done, and I have always been very curious. Merle? Cochran: I have this memo from the British on gold. I have circulated it to Bell and White and Bernstein. And I have these figures on allowances that you wanted to see. Then there is a cablegram from Shanghai that I think you ought to read when Archie is here, at least have it before you. H.M.Jr: Well, tell Archie to bring it in, and let Archie Cochran: All right. H.M.Jr: Can't Archie read it? Cochran: Sure. H.M.Jr: Let Archie read it, and I won't be at a loss. That is all. Cochran: Bell: read it. By the way, should Archie sit in on these Chinese-H.M.Jr: Well, you had better wait until I see him. Now, I am seeing him at eleven. He doesn't want to go and all the rest of it. He will be here at eleven o'clock. Bell: We are going to have a conference this morning internally on the agreement. The Chinese are not in it at all. H.M.Jr: Well, let him sit in on that anyway. He is all right. 23 - 18 Cochran: The State Department fellows are coming. H.M.Jr: Let him sit in on it. Sullivan: Here is another memorandum. H.M.Jr: Good. Sullivan: And here is a memorandum from Commissioner Helvering on the Ramspeck bill. We have got 25 hundred people who are under our service, and we are taking another thousand next month. If the President issues the order covering Internal Revenue under the Ranspeck bill, we loose them all. H.M.Jr: John, if this isn't important-- Sullivan: It is. H.M.Jr: Is this a letter to the President? Sullivan: No, that is a memorandum to you from Mr. Helvering. H.M.Jr: But then, the fellow who controls it is the President. Sullivan: That is right. H.M.Jr: Then fix it up for me in the form of a letter to the President. Sullivan: A letter from you to the President? H.M.Jr: Yes, and if you will give it to Mrs. Klotz, she will see that I get it within the hour, and I Sullivan: H.M.Jr: will sign it, if you will write it. All right, sir. If you leave it that way, it is - you know - but 24 - 19 - Sullivan: you get it to her, she will get it to me, and Iif will sign it. All right, sir. The collections for the first four months of this year are up two hundred sixtytwo million over last year, and of that amount, a hundred and forty-seven million is in defense taxes. The tentative figures for November indicate that we are up about a hundred and six million dollars just in the month of November. Of course, we are getting practically no income tax payments. This would seem to indicate that our estimate of a billion dollars for the Revenue Act of forty for a full year are going to be low. There is a man out in Kansas who is a friend of Commissioner Helvering's who was brought over from Amsterdam. He is a foreign trade expert, and he sent to the Commissioner a resume of the South American situation, and I thought I might turn that over to Dr. White. H.M.Jr: Good. Sullivan: You wanted to be acquainted with the steps that were being taken to familiarize the public with the necessity of filing returns. H.M.Jr: Yes. Sullivan: I don't suppose you have time to look them over, but we have here all of the information we send out to the newspapers and the radio programs, the forms that are being distributed in the army camps for those boys to file, and all that sort of business. Now, in addition to that, there were two different people who were writing scripts for movie skits. Rogan, the collector in California, got in touch with the movie people and asked them If they would be willing to do a skit, and they said they would, but they didn't think it should be confined to California, it should be used all over the country. They spoke 25 - 20 of using either Clark Gable or Spencer Tracy. And I asked him to have the skits sent on here H.M.Jr: and let us look them over. If the skit isn't any good, it doesn't make any difference who plays it. That is right. Sullivan: I assume your veto on Bert Lehr still holds? (Laughter) H.M.Jr: All right. Foley: The important thing, Mr. Secretary, is this meeting of the State Department on ships yesterday. Herbert wasn't able to bo, but I went. I have a memorandum here. There is a meeting over there at ten o'clock this morning to work up a memorandum for presentation to the President to cover what can mobilize ships in our ports, what action should be taken, and how, what distribution is to be made of them between our Army and our Navy and our own shipping lines, if we get them, and what is to be done about new ship construction facilities like Hog Island, for instance. Now, the one thing at this meeting yesterday that was attended by the Army and the Navy and the Maritime Commission and the State and the Treasury was that there is a disposition on the part of everybody to do something about the problem this time. Hull made the rather naive suggestion that each Department submit its problems and its policy and he take them all over to the President, and I said I thought that was unfair to the President and would delay and confuse the situation, and I thought that we ought to get a joint memorandum and put down the conclusions of the group and the recommendations, and he said that that sounded fine and suggested a meeting this morn- ing at ten o'clock, and he asked me if I would come and-- H.M.Jr: You ought to go. 26 - 21 Foley: Yes. If I have got these other things, I won't be able to stay over there all day; but, if it is all right with you, I will take Huntington on this ship control business and Cox, who was with me yesterday, and leave them over there to work on the memo. M.M.Jr: That is all right. Foley: I told them that-- H.M.Jr: Who called this meeting? Foley: Hull. Land was there, and Land was very cooperative yesterday. He said that he understood the President had in mind some kind of as statute whereby we could take over these immbilized ships belonging to the French and Danes and Germans and Italians in our ports; and, of course, we can hold them. Now, I pointed out that we had a request for clearance for this Sheherazade, a big tanker, down in New Orleans. She is a French tanker and wants to clear for martinique. Hull said we should hold her until after this memorandum could be gotten up, and he could clear it with the President. Gaston: That was a test case. H.M.Jr: I think you had better go on over and leave those two boys behind. I think you had better go right away. Foley: Yes. There isn't any objection from the Belgian Ambassador to ask Bernie to come to lunch today, and I told him I didn't think there would be any objection as long as he didn't become a cookie pusher. (Laughter) H.M.Jr: That is all right. Do you have anything, Herbert? 27 - 22 Gaston: Yes. Just one thing. Steve Early called me yesterday afternoon and wanted to urge very strongly that you agree to the request of the Star to submit an article for your signature on that special inaugural section of the Star. He said that everybody else in the Cabinet was going to do it, and it would break up the scheme, which apparently Steve had agreed with Ben McKelway to do. Schwarz: He already told Mr. Noyes we would. Gaston: Who had told him? Schwarz: We sent another letter. Gaston: Does that letter say that it would be done? Schwarz: Would not be done. Gaston: That letter is on my desk. It hasn't gone out. White: What is the subject matter, Herbert? Gaston: Oh, just general about the past and future of the Treasury Department. H.M.Jr: Well, I have never done it. Gaston: I know you have never done anything of that sort. I thought you ought to know about this direct request from the White House. It is apparently Steve's scheme worked up with Ben McKelway of the Star. H.M.Jr: Well, I am the only Cabinet member that wouldn't do anything on that famous book that they got out four years ago. Gaston: Yes, the campaign book. H.M.Jr: I wouldn't do it, either. 28 - 23 Gaston: Yes. H.M.Jr: There are a lot of things I don't do, Herbert. Schwarz: If you change your policy now, it will be hard for us to turn down other things. H.M.Jr: I am sorry, I am not going to do it. 29 Copy left with Bertha Jones at 12:15 on 12/18/40, Mr. Young' being at the British Purchasing Mission. 30 December 18, 1940 11:23 a.m. H.M.Jr: Hello. Operator: Mr. Welles. Summer Welles: Hello, Henry. How are you? H.M.Jr: I'm pretty well. How are you? W: All right, thanks. Struggling along. Mr. Hull gave me this morning a letter to him in regard to these Greek planes. H.M.Jr: W: Yeah. I must admit that I'm in a state of the most helpless confusion because Butler the night before last came in to see me to say that he just received a telegram from his Government informing him that General Metaxas had advised the British Government that he would be quite satisfied with the Defiance H.M.Jr: W: planes in substitution for the P-40 planes. Well, I'll be damned. Now, we've got in touch with Butler in view of the Greek Minister's statement to you which he also made to us last night. Butler is talking to - what's his name - Morris Wilson is it and he is to let us know by noon today. And I think also the best thing we'd better do, Henry, is to telegraph to our Minister in Athens and tell him to try and find out exactly what the situation is because here we have two completely diametrically opposed statements. H.M.Jr: W: Let me just get this - I'm breathless. Metaxas sent word to the British Embassy here Metaxas informed the British Government and the British Government informed the British Embassy here and the latter informed me personally the night of the 16th -2H.M.Jr: That it's O. K. that they are glad to receive the W: Defiance planes instead of the P-40 and yesterday the Greek Minister goes to you and to us and says just the contrary. H.M.Jr: And now you're going to do some checking up and I'11 sit tight and do nothing until I hear from you further. W: H.M.Jr: Now Butler is going to check with Morris Wilson and we're going to instruct our Minister in Athens to find out just exactly what the situation 18. Of course if they will take those Defiance, it would relieve us all I think. It was a very embarrassing situation. W: H.M.Jr: Why it would solve the whole problem. And I personally think that the English are sincere about the Defiance, and that they are carrying the whole burden of the fight in the air. They really ought to know. W: Yes. H.M.Jr: And my people tell me that the Defiance 18 a good plane. W: Yes. Well, I have no doubt it would be entirely suitable for the operations there. H.M.Jr: That's right. Well, I'11 sit tight until W: That's right. Now, with regard to the other I hear further from you. question you asked; that is, the 10 planes for Siam and the Philippines and the 6 completed to Siam in California. My understanding is that the Chinese do not want them and that our Army does want them. H.M.Jr: Well, the word that I got yesterday was that the Army has again changed its mind for about the fifth time and does not want them. 31 32 3W: (Laughs). H.M.Jr: That's why I wrote the letter. W: H.M.Jr: Well, as you know, the Chinese have said they didn't want them. Well, I am writing Hull a letter today suggesting that he have a meeting in his office Monday morning with whomever is in his Department. We have here about 20 different requests for planes, engines and parts from about 20 different countries. I'm sending the complete list over to him today. W: H.M.Jr: Good. I'm asking him to have Mr. Stimson and Knox present because each one has his own ideas. I think there are about 20 different requests W: H.M.Jr: There must be at least that. and the ones - the list will be ready America - I do think we ought to at least tell to be sent over - because the ones for South them yes or no. W: H.M.Jr: I think it is of the utmost importance that we tell them yes to the fullest extent possible. But this thing has gotten 80 that it's kicked around and kicked around and we do the best we can but each day we hear something else, and I think out of the meeting - if State, War and Navy would say, well, on this question we'11 meet once every two weeks, or we 11 meet once a week or something. You know. W: That's a very useful suggestion. It would H.M.Jr: Yeah, because these people have a grievance, solve a lot of difficulties. just like this one - you say the Army says they do or don't and I hear something different. It's gotten to a point where they should say yes or no. 33 4 W: - Exactly. Well, I think that's a very helpful suggestion. I think it ought to be done just that way. H.M.Jr: Six planes to Siam are just as much trouble as a thousand planes. W: H.M.Jr: W: Exactly. Well, thanks for the call. All right, Henry. Then I'11 let you know as soon as we get some verification. H.M.Jr: Thank you. W: Thanks. 34 December 18, 1940 12:16 p.m. H.M.Jr: Guy Hello. Vaughn: Hello, Mr. Morgenthau. H.M.Jr: Talking. V: This is Guy Vaughn. H.M.Jr: How are you? V: This Studebaker building engines for the British and for the United States Government has got some complications in it as far as our own future business is concerned, and we would like very much to discuss it with you at your convenience. H.M.Jr: V: Right. If you are coming up around Christmas or if you would be in Washington on Thursday either way, whatever your convenience is between now and then except that I am definitely tied up here on some very important things that must be cleared immediately 80 that I couldn't come to New York this week - Washington this week. H.M.Jr: How pressing is this thing? V: Sir? H.M.Jr: How pressing is the thing that you're talking about? V: Well, it's got to be done before a meeting and it's in the interest of national defense to get things cleared and under way. ..... H.M.Jr: Well, I mean V: It's just a delay in our own production schedule; that is, propeller particularly and that, you know, is being done last and therefore will be a bottleneck and I've been working 35 -2night and day on it and I could come down there and get right back I suppose this week. Be better for you. H.M.Jr: V: Well, the trouble 18 I'm tied up solid now until tomorrow and I go up to a dinner in New York tomorrow night late. Hello? Yes. I hear you. H.M.Jr: I'11 be in New York Friday morning. V: You'll be in New York Friday morning. H.M.Jr: Yes. V: Well, will you have a moment? H.M.Jr: Yes. V: H.M.Jr: Well, now, you just set your own time and place and we'll be there. Well, I tell you what you can do. I'm staying with my father at 1133 Fifth Avenue. V: 1133 Fifth Avenue. H.M.Jr: And he lives just above Willkie. Yes, I know just about where it is - about 98th - 97th Street. And if you were there at 9:00 Yeah, 93rd. o'clock I could see you Friday morning. 9:00 a.m. Friday morning. Well, that's V: H.M.Jr: V: perfect. It's just a matter of policy. I'm not going to bother you with a lot of details but after all you want to protect us in a fair and equitable manner and we don' want any more than we have to have to exist. H.M.Jr: V: That's all right. All right, sir. Well, that's fine and thank you very much indeed. H.M.Jr: Good-bye. 36 December 10, 1940 My dear Mr. President: For your confidential information, I am inclosing herewith a report from the British showing the member of airplanes and pilots they had on hand as of May 10, September 87 and November 89. Yours sincerely, (Signed) E The President, The White House. - 415 37 December 10, 1940 My dear Mr. President: For your confidential information, I an inclosing herewith a report from the British showing the member of airplanes and pilote they had on hand as of May 10, September 27 and November 29. Yours sincerely, The President, The White House. By 38 December 10, 1940 My dear Mr. President: For your confidential information, I an inclosing herewith a report from the British showing the member of airplanes and pilote they had - hand as of May 10, September 87 and November so. Yours sincerely, (Signed) H The President, The White House. by 39 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November so. Youre sincerely, (Signed) The Honorable The Secretary of the Nevy. By Messages 4 is 40 December 18, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, The Honorable The Secretary of the Navy. By Messenger 41 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the member of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) The Honorable The Secretary of the Navy. By / 42 December 18, 1940 My dear Mr. Knudsens For your confidential information, I an inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, Mr. William S. Knudsen, Advisory Commission to the Council of National Defence, Federal Reserve Building, Washington, D. C. By / 4's 43 December 18, 1940 My dear Mr. Knudsens For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, Mr. William S. Kneison, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D. C. By Member 44 December 18, 1940 Ky dear Mr. Kandeens For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Signed) E Mr. William S. Kandoom, Advisory Commission to Council of National Defence, Federal Reserve Building. Washington, D. C. 4 / 45 December 10, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. , Yours sincerely, R Jr. The Honorable The Secretary of State. By - 415 46 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewith a report from the British showing the member of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, The Honorable The Secretary of State. 1 By Messages 47 December 18, 1940 My dear Mr. Secretary: For your confidential information, I as inclosing herewi th a report from the British showing the number of airplanes and pilote they had on hand as of May 10, September 27 and November 89. Yours sincerely, The Henorable The Secretary of State. By / 48 December 18, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, B The Honorable The Secretary of Var. 4 15 49 December 18, 1940 My dear Mr. Secretary: For your confidential information, I an inclosing herewith a report from the British showing the member of airplanes and pilote they had on hand as of May 10, September 27 and November 29. Yours sincerely, The Renerable The Secretary of Mar. By / 50 December 10, 1940 My dear Mr. Secretary: For your confidential information, I am inclosing herewith a report from the British showing the number of airplanes and pilots they had on hand as of May 10, September 27 and November 29. Yours sincerely, (Suggest) The Honorable The secretary of war. By / 5 STRICTLY CONFIDENTIAL onig is filed 12/14/40 date SECRET AND MOST CONFIDENTIAL the Sept. 27. May 10. Stocks 3.735 3.209. (Hurricane, Spitfires, Nov. 29 4.185 Wellington, Blenheim, Whitley & Hampden) N.B. Planes shipped to other theatres of war by Britain were included in September figures, but not in November. (These numbered 374 in period from May to November.) Consequently improvement between September and November is greater than appears at first glance. Pilots 3.101 4.149 4.398 N.B. Pilot wastage last quarter about 400 per month, allowing for half wounded returning to duty. C.R.O. 1.874 1.882 (Awaiting repairs and inspection) STRICTLY CONFIDENTIAL 52 December 18, 1940 3:30 p.m. H.M.Jr: Hello. Operator: H.M.Jr: Secretary Hull coming on. Thank you. Hello. Cordell Hull: Hello, Henry. H.M.Jr: Hello, Cordell. H: That's going on? H.M.Jr: Well, I sent you over a letter which ought to get to you in a few minutes and I've asked whether you would call a meeting at your office Monday morning with myself, Stimson and Knox. H: Yes. H.M.Jr: And I'd like to lay before you -and I sent it in the letter - there are about 20 different countries that have requests in for airplanes and we're not giving them any answer and I think we ought to say either yes or no to these people. H: Yes. H.M.Jr: And I sent you over a list of the requests from the various countries for airplanes, engines and parts up to date. H: Well, now, we'll fix up anything that we can get - I think I told you that Stimson and Knox have been coming in here every Tuesday morning for an hour to go over the points of our situation together and I guess - it will suit me 100% Monday. H.M.Jr: Well, I just sent the letter over and I sent the list of the various requests and there are 300 Curtiss P-40's to be divided up. You see? 53 -2H: H.M.Jr: H: Well, now suppose I call them - shall I I'd much rather you'd have your office do it. All right. I'll tell them that you want us to meet together here and discuss that situation. H.M.Jr: And I'm laying on the table 300 Curtiss P-40's which can be gotten and which can be divided up. H: Now this is Monday morning. H.M.Jr: Yes. H: All right, Henry. H.M.Jr: Now, what time would suit you? H: 9:30? H.M.Jr: 9:30 Monday. H: I'll let you know if there's any trouble about their being present. H.M.Jr: But I thought that if we could do this once in a while and then - like those damn 10 planes in the Philippines - instead of having it knock around for two months if we could say yes or no. You know. H: Yes. H.M.Jr: And Summer called me on that Greek thing. Have you heard the last one on that? H: On which? H.M.Jr: On the Greek? The last thing on the Greeks? H: I turned it over to Summer and told him that he had failed to communicate with you as I asked him to and he overlooked it I knew. 54 -3 H.M.Jr: Well, he called me up this morning. H: Yes. H.M.Jr: H: H.M.Jr: You know I sent to him a memorandum last night. You see he got in that picture originally and that's the reason I have to keep him in it. Well, he called me up this morning and tells planes that England wants to give him and the Greek Minister last night told me that me that General Metaxas says he wants the H: they didn't want it. Well, the Assistant Greek Minister is telling somebody else here something else. H.M.Jr: Well, I told Sumner I'd sit tight now and do nothing until I heard from him further. H: All right. H.M.Jr: Because he says he wants to carry it. H: All right, Henry. H.M.Jr: H: H.M.Jr: So he and I are together since this morning. Well, fine. If I don't hear from you again I'll be at your office at 9:30 on Monday. H: H.M.Jr: Now, if the Secretary can't come is it all right for the Chief of Operations to come or do you want to put it off? No, I think if it's possible, I think we ought to go to town on it. H: With H.M.Jr: Well, with whoever is here. 55 H: All right. H.M.Jr: Whoever is here. H: All right. H.M.Jr: Thank you. 56 December 18, 1940 4:30 p.m. RE BRITISH PURCHASING PROGRAM Present: Mr. Young Sir Frederick Phillips Mr. Bell Mr. Cochran H.M.Jr: Sent for Mayor LaGuardia of New York, and I am trying to squeeze you in. When he comes, I will have to stop. I was just reading this thing here. Young: My note? H.M.Jr: Yes. Young: I must say that everyone and their pup today H.M.Jr: Well, do I gather from this that you want to Phillips: That is my belief, yes. Bell: That comes ahead of the ordnance. Phillips: I think it comes ahead of the ordnance, yes. Whether it comes ahead of the airplanes, I have been on my neck about the ship program. do the ship program first, is that it? don't know. Young: Certainly, Sir Frederick, ships and planes come before ordnance. (Mr. Cochran entered the conference.) 57 -2H.M.Jr: Do you (Phillips) want to read this (Young's memorandum) and see if this expresses the way you feel? Phillips: Yes. Yes. I did put the first question to Mr. Young, as to the status of these new orders under Program 1 and Program 2. You know the President's press statement drew a distinction between the future orders and existing orders, and the question I put to Mr. Young is, are these Program 1 and Program 2 orders which you have given us a clearance for future orders or are they existing orders, and I thought the answer was, "They are future orders," and I thought he rather agreed with me. We haven't got it in black and white. Young: They are future orders today, in that no contracts have been signed for anything on either of those programs. H.M.Jr: Is that the first question? Phillips: The first question, yes. Bell: Future orders but existing programs. The program has already been put before this Government. Phillips: Oh yes, that is perfectly true. Bell: The orders haven't been entered under those programs, is that what you mean? Phillips: I don't think there is any doubt. They are future orders. We haven't got it in black and white. H.M.Jr: There is Program 1 and 2, existing orders or future orders. That is question number one. Phillips: Yes, number two follows from this table. We submitted to you a program showing an expenditure, 53 -31343 before the end of February on orders already placed, Program 1 and Program 2. H.M.Jr: On orders already placed? Phillips: Yes, plus Program 1 and Program 2 and our outgoings as we estimate them by the end of February are 1,343 million dollars, which exceeds our immediate resources -- Young: One billion. Phillips: By 800 million dollars and I want to know what is the thought on that subject. H.M.Jr: Let me have that again. If you placed - would this be correct? If you placed orders for one and two, plus what you already have on our books -- Phillips: That is right. H.M.Jr: If orders one and two were placed, plus existing orders - what is the date? Phillips: By the end of February. H.M.Jr: Would you say by March 1st? Phillips: Yes. We estimate cost at 1,343 million, of which capital, 287 - 1,343 is the figure and our immediate resources are about 570. H.M.Jr: How much Phillips: 570, and as you know, sir, Gifford is selling at about a million dollars a day. He pushed it right up to 6 million dollars a week. Bell: It is just about doubled. Phillips: That is as far as it has gone. 59 -4H.M.Jr: Now, what you want to know is, where do you go from here. Phillips: Yes. H.M.Jr: Well, I can't tell you that until I ask the Phillips: That is what I felt sure your answer would be. H.V.Jr: Well, this boils down this whole thing, doesn't Phillips: I think that is the lot, excent that I again President. it? mentioned to Mr. Young the question of the end of the war. We are running our gold right down during this period. Then the question of what gold we have at the end of the war becomes much more important to my people. We want to know what will we do if that gold reserve comes right down, what chance of building it up again before the end of the war to a minimum figure. The minimum figure, I mentioned before, is 600 million dollars. H.M.Jr: The other thing, I am going to put down three, Phillips: We would like to have it. I have got my people H.V.Jr: Oh, you don't have it yet? Phillips: I can get it tonight. see Phallops dated No, if I can get it tomorrow morning. We will 11-19 have Cabinet tomorrow. If I could have it H.M.Jr: the order of priority which you select. working on that at this moment. before two tomorrow. You give me the order of priority that you would like. Phillips: Very well. 60 -5Young: In what detail? H.M.Jr: Oh, not too much. Talk about ships, planes, and ordnance. Young: Those three? H.M.Jr: Yes. I tell you what you can do. You could have the word ships at the top on one sheet, and then give me all the details. Ships and the total cost up on top, you see. Then if anybody in Cabinet says, "Well, what kind of ships, and so forth, well, I have it there if I want it. Then another sheet, Ordnance, then as much detail as you can. But you will have to number which comes first, ships, ordnance, or planes. Phillips: H.M.Jr: All right, we will do that. Is that practical? Phillips: Yes, I think we can give you what you want all right. H.M.Jr: If I say they want ships first, Frank Knox may say, "What kind of ships, what speed, what tonnage," and so forth. Well, I will have some of that information. Phillips: Well, what I am giving you, sir, is only Program 1 and Program 2. Would you like me to go on and deal with Program 3? That would take me some time. H.M.Jr: No, you would sink this ship (indicating self) if you did. Phillips: All right. H.M.Jr: But on the one and two, if you could give me the order in which you want it, with just a heading, "Ships", and then this, "Planes", and so forth, so if they ask me -- 61 -6Phillips: Yes. Young: Of course, those two programs do not include other expenditures which may be made for products outside of ordnance and ships. Phillips: They do include steel and iron. H.M.Jr: Well, I think that - it isn't plain to me - if you get it between now and two we can squeeze another time in. But you have got what you want right now. Phillips: Yes, you have given me the answers I expected to get. H.M.Jr: You are luckier than I am. referre d to at off, 4:30 meeting CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips 11:45 A.M. at his request. Sir Frederick Phillips asked me to come over to his of- fice inassuch as he said he had some questions to ask concern- ing the President's statement on financing for Britain. I attach herewith a table which he made up showing estimated monthly distribution of payments against existing commitments plus commitments to be made under Programs 1 and 2. Sir Frederick has two things on his mind: first, he is very saxious to find out how to tackle the problem of placing orders as the British Purchasing Commission feels that contracts must be made immediately for new capacity to build ships and planes. In this connection he pointed out that the B Program was included in Program No. 1. and that, if it is a question as to allocation of available resources. London feels that the money should 6 to ships and planes rather than to ordnance. I think Sir Frederick is right on this point, and as the B Program is included in the over-all picture the British should have the right to say what should get priority. The second problem on Sir Frederick's mind is the quee- tion of drawing down the gold reserve to the vanishing point. He feels very strongly that this can only be done in the case of a going concern, such as the United Kingdom, provided it was understood that the United Kingdom would be permitted to accumulate a comparable reserve for exchange stablisation, etc., to be available after the MAR. Sir Frederick is anxious to talk with you about these matters, and he said that he and his colleagues would give as 100 per sent cooperation in getting information or in laying all their assets out on the table at any time. Print 62 (Initialed) P.Y. 63 fee CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips 11:45 A.M. at his request. Sir Frederick Phillips asked me to come over to his of- fice inasmuch as he said he had some questions to ask concern- ing the President's statement on financing for Britain. I attach herewith a table which he made up showing estimated monthly distribution of payments against existing commitments plus commitments to be made under Programs 1 and 2. Sir Frederick has two things on his mind: first, he is very anxious to find out how to tackle the problem of placing orders as the British Purchasing Commission feels that contracts must be made immediately for new capacity to build ships and planes. In this connection he pointed out that the B Program was included in Program No. 1, and that, if it is a question as to allocation of available resources, London feels that the money should go to ships and planes rather than to ordnance. I think Sir Frederick is right on this point, and as the B Program is included in the over-all picture the British should have the right to say what should get priority. The second problem on Sir Frederick's mind is the question of drawing down the gold reserve to the vanishing point. He feels very strongly that this can only be done in the case of a going concern, such as the United Kingdom, provided it was understood that the United Kingdom would be permitted to accumulate a comparable reserve for exchange stablisation, etc., to be available after the war. Sir Frederick is anxious to talk with you about these matters, and he said that he and his colleagues would give us 100 per cent cooperation in getting information or in laying all their assets out on the table at any time. Pu see 18th Is program It 2 existing adero a future a dero ? 64 R. If nders 162 there placed plus existing aden they by march 1st we estimate cost at 1.343 million immediate res ourseen #570 million 3. 65 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Conference with Sir Frederick Phillips, 4:30 P.M. Sir Frederick submitted a table. attached herewith, showing estimated monthly distributional payments against existing commitments plus commitments to be made under Programs 1 and 2. Sir Frederick stated that there were two principal problems on his mind: (1) Are Programs 1 and 2 to be regarded as existing orders or future orders. (No contracts have yet been signed for any of the items included under Programs 1 and 2). (2) If orders covering Programs 1 and 2 were placed immediately and the necessary payments added to balances due on orders already placed, $1,343,000,000 would have to be paid from December 1, 1940, to March 1, 1941. To offset this $1,343,000.00 Sir Frederick said that he had immediate resources of $570,000,000.00, leaving a deficit of $773,000,000. Dy. Estimated Monthly Distribution of British Purchasing Mission Payments in the United States against Existing Commitments and Programmes 1 & 2, as per Schedule entitled "Summary of British Programmes" g) 69 handed by the Secretary of the Treasury to Sir Frederick Phillips, December 17, 1940. Millions of U.S. Dollars Total Total Dec. - Feb. After Dec. 1940 Jan. Feb. 1941 1941 147 123 426 858 1 14 5 1940 1941 Feb. 1941 Balances due on Orders already placed Product 1284 156 Capital 17 10 Product 2062 86 197 187 470 1592 Capital 699 35 89 139 263 456 Product 1225 63 59 38 160 1065 Capital 10 10 - - 10 - Product 4571 305 403 548 1056 5515 Capital 726 55 92 140 287 459 5297 360 495 488 1545 3954 5 Programme No. 1 Programme No. 2 Total TOTAL Note: The monthly distribution of payments shown above reflects a partial revision of the rate of expenditure shown in the November 30th estimates. A complete revision as of December 51st will be available early in January. B.P.C. - WH December 17, 1940 67 December 18, 1940 CONFIDENTIAL To: The Secretary From: Mr. Young The following is a summary of comments by General Marshall and General Brett regarding Air Commodore Slessor's notes on United States air production: 1. Air Commodore Slessor's notes were apparently based on incomplete information or written with the ultimate aim of effecting a change in United States productive facilities. 2. The speed and armament of United States bombers and fighters is considered for the most part as good as or superior to their British equivalents. The specifications are the result of joint Army-Navy- British technical consultation based on recent combat experience. 3. It is agreed that new productive capacity should be reserved in large measure for advanced-design planes using new 2000 h.p. in-line motors. such designs to be also those which can be soonest translated into United States production. 4. Any general increase in capacity such as envisioned by Commodore Slessor (to 4500 per month) would in- volve a restudy of delivery objectives. General Marshall expresses his concern as to the effect of this type of criticism on the aircraft manufacturers and on the consummation of our own airplane program. P4 68 MOST SECRET THE U. S. AIR PRODUCTION PROGRAMME NOTE BY AIR COMMODORE SLESSOR 1. The following note conveys my impressions of the main problems in connection with the programme of production in the United States, attasing from a very brief visit to this country. There appear to me to be two main directions in which the programme of aircraft production in the U. S. A. falls short of requirements of modern warfare, from the point of view both of Great Britain and the United States - namely, in the fighting efficiency of the aircraft due for production and in their numbers. It must be remembered that the contri- bution of U. S. industry to the air war will not make itself felt to a really important degree until the second half of 1941 and early 1942. Fighting Quality 2. The bombers now being produced in U. S. A., while they have good speed and range and a fair bomb load, do not incorporate the important lessons that the R. A. F. have learnt from the fighting of last summer, notably in the direction of defensive armament. The types coming on to production early in 1941, such as the Consolidated B.24 and Martin B.26 show a marked improvement in this direction. And, although no U. S. bomber at present in sight compares for fighting efficiency with our own heavy bombers now in production such as the Halifax and Stirling - the American bombers will be quite adequate for night operations and will constitute a most valuable contribution when they appear in any substan- tial numbers, though we should have liked a considerably larger proportion of the heavy four-engined types. 3. As regards fighters, however, it is difficult to avoid the conclusion that United States types that will be available in any numbers by the summer of 1942 are for the most part 69 -2- unlikely to be of sufficiently high fighting quality to meet really effectively the requirements of the air war by that date. If there is one lesson which sticks out more than others from the lessons of last summer, it is the enormous importance of fire-power in the fighter. It is hardly too much to say that it was the 8-gun fighter that saved England in August and September. This is not to say that it was only the 8 guns which did the trick. It was also (apart from the fighting value and training of the crews ) the superior performance and quality of the British types - Hurricanes and Spitfires. We must keep that superiority - we cannot afford inferior quality aircraft as well as inferior numbers. Any production man knows that to introduce a new type into existing capacity means a terrible drop in production of the existing types before the new one comes in in any numbers. The enemy has now at his disposal the potential - the floor space, machine tools and raw materials of all the conquered territories, notably of France; and always in the background is the possibility of the Germans, with their drive and efficiency developing the vast potential of Russia. 4. It is, therefore, of great importance that at least those U. S. fighter types for which new capacity is to be created in this country should be a really substantial advance on British types now in production and at least equal in fighting quality to the new British type, the Typhoon, now going into production in the U. K. I do not claim to be a technical expert, but I do not feel that they do come up to this standard. For instance the Curtiss 87, which starts coming in in substantial numbers in the spring, may attain about the same speed as the Spitfire III (on paper - actually it probably won't be as fast), but it only mounts four .50 machine guns as against the eight .303 of the Spitfire III. The firm say that, with the best will in the world, they cannot promise to install six guns till the 70 -3- 151st aeroplane; this may mean that we shall still have 4-gun fighters being delivered in England in January 1942. As compared to the Typhoon, the Curtiss 87 is very much slower, and the Typhoon has twelve .303 or six .20 m.m. cannon guns against the four .50 guns of the Curtiss. 5. There are other more advanced fighters now under devel- opment. The Bell Aerocobra, for instance, of which we have several hundred on order, may have a rather higher performance than the Spitfire though less than the Typhoon, and the firm have proposed the installment ultimately of a powerful armament amounting to five 20 m.m. and two .50 guns. It has, however, certain doubtful features such as a very high wheel loading, and its performance when the improved armament is installed must be to some extent a matter of conjecture. Another fighter type now under development in the United States, namely, the Republic P.47.B, will have a useful armament of eight .50 calibre guns and a good top speed at high altitude (25,000 feet). On the other hand I understand that it's performance so far is only on paper and it will not fly until January or February 1941, whereas the Typhoon has been flying for some months already. In general, except at its specialized height of 25,000 feet 7 it seems certain to be inferior in speed, performance and operational qualities to the Typhoon, and the Technical officers of the British Air Commission have not thought it desirable to go in for it. Both the Aerocobra and the Republic P.47 incorporate certain untried experimental features, which may or may not be suc- cessful in larger scale production, whereas the Typhoon is a normal development of a tried type, The Hurricane. 6. Reference should be made to the question of gun cali- bres. It is true that the guns in the initial issue of Typhoons are .303 as against the .50 calibre machine guns in the U. S. types. But the British view, which has received some confirmation in recent trials in England, is that the 71 .50 calibre, while greatly superior in hitting power to the .303 - is not likely to be fully effective against the degree of armour which must be anticipated in enemy aircraft by 1942. For this reason the British intend to mount in the Typhoon six 20 mm. cannon guns as they become available -- a type of gun against which they believe it to be quite impossible to armour. Indeed, British policy is ultimately to turn over to cannon guns in all fighters, including existing types. 7. It seems to me therefore the best chance of getting in substantial numbers by June 1942 a really marked advance in the spheres both of performance and armament, is for U. S. industry to produce the Typhoon - a type of which, incidentally, I have little doubt we could satisfy the U. S. Air Corps that they could make very valuable use in emergency. The argu- ments in favour of producing American as against British types in U. S. A. are well known; but it is hard to believe that the difficulties (anyway as far as fighters are concerned) are insurmountable. The production of the airframe should be relatively easy; the main difficulty is going to be to make the engine, the 2000 h.p. Napier Sabre. Both of course involve the creation of new capacity, and both will involve difficulties in the direction of machine tools. But it is hard to believe that the vast engineering resources and skill available in the U. S. A., if really vigorously directed along the right channels, could not overcome the difficulties and produce Typhoons by the spring of 1942. Numbers. 8. This can only be dealt with on more general terms. Very briefly, the situation is this. The "3000 a month" scheme has,for the present, faded out of the picture as a practical proposition in the reasonably near future. The present scheme involves 26,000 aircraft for the Empire by June 1942 - the 14,000 on existing orders and the new 12,000 - which works out at an average of about 1300 a month. But this programme is only being achieved by continued use of existing capacity 72 and part use of new capacity already being created under the U. S. Defence programme. The joint U. S. - British capacity which will probably be in existence by June 1942 on present plans, would be of the order of 2500 combat planes a month, of which only 10%, or 250 a month would be heavy bombers. This planned figure is probably little, if any, more than the present capacity of Germany alone. And - in view of the possibility of really serious and widespread interference with production in England by bombing - it seems impossible to sit back and accept a situation in which the British and U. 8. Air Forces are backed by so inadequate a production. It will no doubt be suggested that shortage of machine tools pre- cludes the possibility of creating any further capacity in the near future. But there seems some reason to hope that the machine tool situation will show an improvement in the near future. And in any event experience in the U.K. has shown that, where one is really up against it, it is surprising what can be done by going out into the highways and hedges and making use of all sorts of hidden capacity, normally in use for other purposes and, if the best is not available, making do with the second best, such as the plant and tools of the automobile industry. It would be an admission of defeat to accept that the production of aircraft engines and the necessary accessories such as guns, radio, etc., cannot be greatly increased in scope and accelerated in tempo. But it cannot be done without far more drastic measures than are at present in force. 9. As a practical suggestion (which has the authority of Bir Henry Self) the following seems the programme at which we should aim. We had originally assumed that by June 1942 we should see a production on joint account of 3250 combat planes a month (as against the 2500 mentioned above) with a further capacity for 1250 a month, to be started early in 1941 and to be in full production by the and of 1942. 73 Our aim therefore should be first to create immediately capacity for at least an additional 250 a month of an improved type of heavy bomber - a class which are of vital importance to the defeat of Germany and in which there is a serious deficiency on present programmes. This should be followed as soon as possible after the first stage is under way (by which combat plane capacity will have been increased as above to 2750 per month) by the creation on joint account of capacity for the production of new types to bring the total of United States production up to 4500 a month. November 27th, 1940. MOST SECRET SECRET 74 THE U. S. AIR PRODUCTION PROGRAMME Second Note by Air Commodore Slessor. 1. As a result of visits to certain aircraft factories and to Wright Field, and of further discussions with U. S. Air Corps officers, I think it may be desirable to amplify the views expressed in my note on the U. S. Air production programme dated 27 November 1940. 2. There are two main desiderata in the field of aircraft production in the United States, from the point of view both of the British Air Force and of the U. S. Air Services who have their own great programme of expansion. These are (a) the need to produce as large a number as possible of adequate combat types to meet the requirenents of expansion and of wastage in the campaign of 1941, and (b) the need to produce, in as large quantities as possible, aircraft of improved performance and fire power that will be better than, or at least as good as, the greatly improved types that we must anticipate will form a high proportion of the enemy air forces in the campaign of 1942. 3. Unfortunately these desiderata are to some extent conflicting. If we were to attempt to introduce the now 1942 types into existing capacity, the result could only be that we should not get adequate numbers of existing types during 1941. The suggestion in my previous note, however, was that we should not mortgage all the new capacity to be created by extending the production of existing types, but should reserve at least some of it for the production of new types which are a really substantial advance on those now in production. 4. The previous note dealt mainly with fighters. If it were possible to apply the foregoing principle to the production of bombers it would obviously be desirable to do so. There is, however, no suggestion that we should attempt to produce the Halifax or Stirling in U.S.A., I do not believe it would be possible to get into substantial production on these types before an U. S. type bomber could be produced of quality equal to either. 5. As regards fighters, I should make it clear that my previous note implied no criticism of U. S. fighter types as 1941 fighters. What I /was, 75 was, and still am, concerned about is whether there is anything now in sight which will be of sufficiently high all-round fighting quality speed, climb, manoeuvrability, and volume and hitting power of the armament - to be 100% effective against the bombers of greatly improved speed, arnament and armour that it is only prudent to assume will be met in the spring and summer of 1942. And, if we are to have fighters of that quality in sufficient numbers by that time, we should be creating the capacity for them now. I do not suggest that all our fighters must or can be of this high quality - obviously they cannot be; the Hurricane now is markedly in performance inferior/ to the Spitfire, yet it is still shooting down a great many Huns; and we ourselves in England shall still be in large scale production of Spitfires in 1942. But at least some of the new capacity now to be created in this country should be allocated to the production of a really first class 1942 fighter. 6. The problem is what type to select for this purpose. It seens likely that the only way of achieving with certainty the required firepower and performance will be to make use of much higher powered engines than any now in quantity production. In my previous note I suggested that the best solution would be to produce the Typhoon with the 2000 h.p. Napier Sabre engine in this country. The crux of this is the production of the Sabre engine of which the drawings are now in the hands of the U. S. technical experts. I think the Typhoon still holds the field as the best 1942 fighter now in production. The only possible alternatives would seen to be to build a fighter round either the 1650 h.p. Rolls Griffon (which might be introduced as a follow-on for the Merlin at Packard's) or one of the big radial engines coming into production in this country, such as the Wright 3350 or the Pratt and Whitney 2800. I cannot help doubting whether it will be possible to achieve adequate overall performance in a fighter with one of the big radials; the British technical officers have not taken a favourable view of the only fighter at present projected using the P and If 2800, namely the Republic P.47. It may be possible to introduce such improvements into the Bell Airacobra and Allison engine as will give that type the necessary performance as well as gun-power as an interim type; and in my note annexed to Sir Henry Self's letter of December 14th I have recommended taking a chance on that. 76 -3 7. To sum up, the U. S. type fighters now coming into production such as the Curtiss Hawk 87, the North American 73, and the Bell Airacobra with existing armament will be very formidable fighters for 1941. For the fighting season of 1942 we should endeavour to produce in the United States, from new capacity to be created, as many fighters as possible with 1942 fighting qualities - which means at least 400 m.p.h. at operational height and multiple cannon. ember 15, 1940. oter a 1030 - resent 77 December 10. 1940 Dear General Harshall: thank you for sending - your compente and these of General Bross segardiag sir Committee Sleever's notes on the United States ALE Protection program. Sincerely. (Signed) H. Secretary of the Treasury General George e. Marchall, Shief of Staff. We Department. Weshington 2. e. -Pits by 100 78 December 10. 1040 Dear General Barshall: Shank you for seeding - your and those of General Dress regarding Air Committee Sleever's notes on the United States ALE Production program. Stecorely. (Signed) H. Morgantban, Jr. Secretary of the Treasury General George 6. Hereball, and of Staff. - Department. Backlington, s.a. OPW:1a 79 SECRET WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF acken & WASHINGTON summary December 11, 1940. MEMORANDUM for the Secretary of the Treasury: My dear Mr. Morgenthau: I have had Commodore Slessor's notes on the United States Air Production Program checked over by General Brett and his officers. The following are their comments: A careful study of these notes indicates clearly that they are based upon incomplete investigation and information; that Commodore Slessor had not at the date of these notes consulted with or conferred with the Air Corps engineers charged with development and production; that the information as furnished in his notes is contrary to much of the information furnished by other members of the British Purchasing Commission such as Mr. Fairey, Commodore Mansell and Commodore Baker; that he has not personally gone into the details of any of our later models nor has he examined those models, which are available at the various factories. Also, reading between the lines, it appears that Commodore Slessor's ultimate objectives are: a. Production in America of a British design long range bomber (the Sterling) b. Production in America of a new British design pursuit airplane. c. Increased productive capacity of the American aircraft industry (i.e. from 2500 airplanes a month, as now set up, to 4500 airplanes a month by 1943) General Brett submitted the following detailed comments: a. LONG RANGE BOMBERS. Fire Power - It is stated that: "No U.S.bomber - compares for fighting efficiency with our own heavy bombers now in production." Comment - The fire power of the "Sterling" and "Halifax" SECRET 80 SECRET British bombers consists of eight .30 caliber guns mounted in three turrets. The fire power of the B-24 (Consolidated) and the B-17 (Boeing) consists of six to seven .50 caliber and one to two .30 caliber, or the equivalent of twelve to thirteen .30 caliber guns. The overall combat efficiency of the American bomber is considered superior to the English. Commodore Mansell, in meetings with our technical specialists, has stressed the desirability of the British changing from .30's to .50's. By yardstick methods, we consider one .50 equal to two .30's in a bomber. Prototype of two models of 5300 mile bomber provides for fourteen .50's and two .20's. These are scheduled to be ready for production in early 1942. Speed - The production articles of both the B-17 (Boeing) and the B-24 (Consolidated) are at least the equal of the British types now in production. The advantages due to turbine supercharger installations of the American types have been stressed by technical and tactical representatives of the British Purchasing Commission. New Types, Heavy Bombers -The placing in production of the British bombers now in production would require at least a year, and probably two years, in view of the differences in American technique. The Army now has under construction service test orders of a heavy bomber with greater range, with greater fire power, with greater speed, greater bomb capacity, than either of the British bombers discussed. b. FIGHTERS (PURSUIT) In regard to comparison of the British "Hurricane" and "Spitfire" with the modernized pursuit types now in production (i.e., the Bell B-39, and Republic P-47, and the Curtiss P-40D), the follow- ing comments are pertinent: The Bell P-39 is equipped with one 37 - cannon, two .50 caliber synchronized guns in the nose, and four .30 caliber wing guns as compared with the Spitfire's eight .30 caliber gun. The P-47B (Republic) has provision for eight .50 caliber wing guns. The Curtiss P-40D has a normal equipment of four .50 caliber wing guns; provision is also made for substituting two 20 mm. cannons for two .50's. SECRET -2- SECRET 81 The Curtiss P-40B (a stop-gap airplane) is equipped with two .50 caliber guns and four .30 caliber wing guns. The gun installations and armanent details of all these airplanes were coordinated with representatives of the British Commission, based on combat experience available last August and September. New Types - We concur with Commodore Slessor's statement that: "It is of great importance that at least those U.S.fighter types for which new capacity is to be created in this country should be really a substantial advance in British types now in production (see paragraph 4, page 2). It is believed that a 2000 horsepower liquid-cooled engine is essential to meet this requirement. The Pratt & Whitney Aircraft Company discontinued the development of the Army engines of this type after they were well under way. The Navy has an experimental 2000 horsepower liquid-cooled Lycoming engine. A conference between the Army, Navy and British, with the view of determining whether the Navy Lycoming engine or the British Sabre engine should be put into production for this purpose is highly desirable in view of the Pratt and Whitney change in experimental policy. The British engine appears to be in a more advanced state of development. Provided the engine can be made available, the production of either the Typhoon type or the American design could be effected. PRODUCTION. Commodore Slessor's suggestion that the production be increased to 4500 airplanes per month is a re-statement of the request of July 24 for additional productive capacity. The means for obtaining this increased production appears to be practical. The present production capacity as now set up will reach 2500 airplanes per month, neglecting Government factories now authorised. Tentative British orders for 12,000 airplanes, now being placed, are sufficient for the first increment of increased productive capacity, suggested by Air Commédore Slessor, provided that both the Army and British place additional orders for at least 24,000 airplanes, for delivery in 1943, at an early date. RESTUDY OF PRESENT PROGRAMS. The suggestions made by Air Commodore Slessor for increasing pro- duction requires a restudy of the delivery objectives established July 23 and 24 for the period June 30, 1940 to April 1, 1942. Consideration should be given at this time to the following: (1) The release of all airplanes to the British over and above the actual requirements to equip 54 groups. (2) The matter of finance, facilities. (3) The matter of placing orders with proper consideration to the ability of the industry to absorb the additional load SECRET -3- SECRET Personally, I an inclined to believe that there is an ulterior motive behind this statement, having in view a complete rearrangement of production and procurement procedure. I am deeply concerned over the slow rate, the dwindling rate of plane deliveries to the Aray; but I an becoming even more concerned over the possible effects of the present campaign in certain portions of the press, particularly if supported by statements such as this from Commodore Slessor. It is natural that Slessor should be dominated by the desire to help the British situation, however superficial his knowledge of conditions in this country may be at the moment. My interest must center on our situation, and I am worried over the disturbing effect this sort of thing has on the airplane manufacturer and other agencies involved. Our problem is hard enough as it is - in time of peace with an unrestricted press, with the varied interests of Latin America, China, the British Empire, and our own vast expansion - but it is becoming increasingly difficult and confused under the various pressures, some very powerful, and each of which has a special purpose in mind. Incidentally, the recent publicity campaign directed against American types of planes in England as a reflection on the general efficiency of our program, is really an outrageous piece of business. The British Government was given what they pled for, in some cases to our serious embarrassment in training; now we are being dained in the press for that action. Please note General Brett's statement on the subject, which is attached. Chief of Staff. SPECIMEN encl. SECRET 82 December 13, 1940. 83 WAR DEPARTMENT Public Relations Branch Tel. - RE 6700 Brs. 3438 and 3425 IMMEDIATE RELEASE DATA ON AIRPLANES RELEASED FOR EXPORT Major General Geo. H. Brett, Acting Chief of Air Corps, made the following comments today relative to the release of Army airplanes for export and the consequent efficiency of such airplanes now in use by the British. "Prior to March, 1940, it was the policy of the War and Navy Departments to release for foreign sale only such equipment as was classed as obsolescent. Under this policy many airplanes, only some of which could be regarded as United States Army types, were purchased by and delivered to the British and French Governments in the full knowledge that they were not the latest types. "At the urgent request of Foreign Purchasing Commissions, the War Department released obsolete equipment (the A-17 planes) which were used only for pilot training. Ninety-three of these airplanes were turned back to the manufacturer by the Army in exchange for new models at the insistence of the Anglo-French officials and after the Army Air Corps had made it clear to them that these. airplanes were completely obsolete for fighting purposes. "The DB-7 Douglas bomber was initially ordered by the French and taken over by the British in considerable quantities. This combat airplane was not found acceptable when offered to the Air Corps by the Douglas Company in a competition held early in the year 1939. "The Martin-167 bomber, for which large orders were placed by the French and taken over later by the English, was likewise found to be un- acceptable by the Army in a competition held in April, 1939. "The Curtiss P-36, which was purchased in considerable numbers by France, was determined by the Air Corps, in competitions held in 1939, to be obsolescent. "On March 25, 1940, the policy was liberalized to permit the release of modern equipment for foreign sale provided an improved model of the released type was available for procurement by the Army Air Corps. On that 84 date, which was before any severe air fighting had occurred between German and British or French air forces, the first model of one of our latest pursuit planes, the P-40, was in production. It mounted four machine guns. but had no armor nor leakproof fuel tanks. Some of these early models were purchased by the British and it is understood that after the addition of two machine guns and leakproof tanks and limited improvised armor, they were sent to England. Whether any of these planes have been used in combat is unknown. "When the P-40 was released to Britain, although a modern plane, it was regarded as obsolescent by the War Department which was placing in production an improved model known as the P-40D which has greatly increased fire power, leakproof tanks, and protective armor. These planes are now being manufactured for both the United States and Great Britain. "The above statements should clarify in the minds of the American public the fact that the Mar Department has not only developed but is procuring equipment which, from all information that can be secured by our observers in Europe, is equal or superior to that now employed abroad. "Close relationship has existed between the technical members of the British Purchasing Commission and our War Department. Every advantage has been taken of the lessons learned during the War and the incorporation of new features of design and equipment has been made as rapidly as possible in all the equipment. non under production. But the development and production of airplanes is a lengthy process and cannot be interrupted for each new improvement if necessary numbers are to be obtained." END -2- WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF WASHINGTON 0 Dec.16,1940. The attached was inadvertently omitted as Enclosure to letter signed by the Chief of Staff dated Dec.11, 1940 to the Secretary of the Treasury, which was delivered about 1 P.M., today, by special messenger. - 85 SECRET December 10, 1940. MEMORANDUM FOR - The Chief of Staff. SUBJECT - Comments of Air Commodore Slessor. 1. Herewith attached are comments on notes submitted to the Secretary of the Treasury by Air Commodore Slessor. 2. A very careful study of these notes indicates clearly that a. They are based upon incomplete investigation and information. b. To the knowledge of the undersigned Air Commodore Slessor had not at the date of these notes consulted with or conferred with the Air Corps engineers in charge of development and production. s. The information as furnished in his notes is contrary to much of the information furnished by other members of the British Purchasing Commission such as Mr. Fairey, Commodore Mansell and Commodore Baker. ₫. To the knowledge of the undersigned he has not personally gone into the detail of any of our later models nor has he examined those models which are available at the various factories. 2. The comments herewith attached are a statement of fact and are based upon the best possible information available from England. Further study and further factual date can be furnished upon request. GEO. H. BREET, Incl: Comments. Major General, U.S.A., The Assistant. SECRET 86 SECRET COMMENTS ON NOTES SUBMITTED TO THE SECRETARY OF THE TREASURY BY AIR COMMODORE SLESSOR ON THE UNITED STATES AIR PRODUCTION PROGRAM. 12-10-40. 1. Reading between the lines, it appears that Air Commodore Slessor's ultimate objectives area Production, in America, of a Britter design long-range bomber (the Sterling). a. B. Production, in America, of a REE British design pursuit airplane. e. Increased productive capacity of the American aircraft industry (1.0., from 2500 airplanes a month, as now set up, to 4500 airplanes a month by 1943). 2. The notes appear to be based upon incomplete investigation and in formation, therefore are in part misleading and contrary to information furnished by other members of the British Purchasing Commission. Air Commodore Sleasor had not visited Wright Field nor consulted with Air Corps engineers. Cognisance has not been taken of improvements that have been made as a result of British experience in combat airplanes now on order or of our experimental program. In particular, it is desired to invite attention to the followings s. LONG RANGE BONRERS. Fire Power - It is stated thats "No U.S. bomber - - compares for fighting efficiency with our om heavy bombers now in production". Comment - The fire power of the "Starling" and #Halifex® British bombers consists of eight .30 caliber guns mounted is three turrets. The fire power of the B-26 (Consolidated) and the B-17 (Boeing) consists of six to seven .50 caliber and one to two .30 caliber, OF the equivalent of twelve to thirteen .30 caliber g The overall combat efficiency of the American bomber is considered superior to the English. Commodare Mansell, in nookings with our technical specialists, has stressed the desirability of the British changing from .30's to .50's. my yardstick methods, we consider one .50 equal to two .30's in a bember. Proto type of two models of 5300 mile bember provides for fourteen .50's and two .20's. These are scheduled to be ready for production in early 1942. Speed - The production articles of both the B-17 (Soeing) and the B-24 (Consolidated) are at loast the equal of the British types now in production. The advantages dan to turbine expercharges installations of the American types SECRET Duel) SECRET 87 have been stressed by technical and tactical representatives of the British Purchasing Commission. New Types, Heavy Bombers - The placing in production of the British bombers now in production would require at least a year, and probably two years, in view of the differences in American technique. TheAray now has under construction service test orders of a heavy bomber with greater range, with greater fire power, with greater speed, greater bomb capacity, than either of the British bombers discussed. b. FIGHTERS (PURSUIT). In regard to comparison of the British "Hurricane" and "Spitfire" with the modernised American pursuit types now in production (i.e., the Bell P-39, the Republic P-47, and the Curties P-40D), the following comments are pertinents The Bell P-39 is equipped with one 37 - cannon, two .50 caliber synchronised guns in the nose, and four .30 caliber wing guns as compared with the Spitfire's eight .30 caliber gun. The P-678 (Republic) has provision for eight .50 caliber wing guns. The Curtiss P-40D has a normal equipment of four .50 caliber wing guns, provision is also made for substituting two 20 am. cannons for two .50's. The Curties P-40B (a stop-gap airplane) is equipped with two .50 caliber guns and four .30 caliber wing guns. The gun installations and armement details of all these airplanes were coordinated with representatives of the British Commission, based on combat experience available last August and September. New Types - We concur with Commodore Slessor's statement thats *It is of great importance that at least those U.S. fighter types for which new capacity is to be created in this country should be really a substantial advance in British types now in production (see paragraph 4, page 2). It is believed that . 2000 horsepower liquid-cooled engine is essential to meet this requirement. The Pratt & Whitney Aircraft Company discontinued the development of the Army engines of this type after they were well under way. The Havy has as experimental 2000 horsepower liquid-cooled Lycoming engine. A conference between the Army, Navy and British, with the view of determining whether the Navy Lycoming engine or the British Sabre engine should be put into production for this purpose is highly desirable in view of the Pratt and Whitney change in experimental policy. The British engine appears to be in a more advanced state of development. Provided the engine can be made available, the production of either the Typhoon type or the American design could be effected. SECRET -2- 88 SECRET 3. PRODUCTION. Connodore Sleever's suggestion that the production be increased to 4500 airplanes per month is a restatement of the request of July 24 for additional productive capacity. The means for obtaining this increased production appears to be practical. The present productive capacity as now set up will reach 2500 airplanes per month, nogleeting Government factories new authorised. Tentative British orders for 12,000 airplanes, now being placed, are sufficient for the first increment of increased prodoctive capacity, suggested by Air Commodere Blessor, provided that both the Aray and British place additional orders for at least 24,000 airplanes, for delivery is 1943, at en early date. 4. RESPECT OF PRESENT PROGRAMS. The suggestions made by Air Commodore Sleever for increasing pro- duction requires a zastatz of the delivery objectives established July 23 and 24 for the period June 30, 1940 to April 1, 1942. Consideration should be given at this time to the followings (1) The release of all airplanes to the British over and above the actual requirements to equip 54 groups. (2) The matter of finance, facilities. (3) The matter of placing orders with proper consideration to the ability of the industry to abourb the additional load. SECRET 89 BRITISH EMBASSY, WASHINGTON, D.C. December 18th, 1940 Personal and Secret Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Work Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 90 Telegram from London dated December 17th. Naval. The French torpedo-boat "Branlebas" manned by Royal Navy, which sailed on December 13th from Dartmouth as escort to a West bound channel convoy, has failed to answer any signals and must be presumed lost. The 8. 8. "Orari" has arrived safely in port. 2. gilitary. Italian prisoners taken by the Greeks now number Their morale is extremely low as more than 10,000. indicated by their abandonment of equipment and criticism of their officers and Fascist leaders who are considered responsible for the unpopular war with Greece. 3. Royal Air Force. Night of December 16th/17th. A total of 120 heavy and 8 medium bombers carried out a very successful attack against the industrial targets at Mannheim. All returned safely except two. 4. German Air Force. Night of December 16th/17th. Only about 30 enemy aircraft were operating. The majority visited the North Midlands and Manchester where eleven persons were killed and 13 seriously injured; damage was confined to private property. 5. Aiggraft casualties in operations over and from British Isles. Enemy: Nil. British: two bombers missing. 91 BRITISH EMBASSY, WASHINGTON, D.C. Personal and Secret December 18th, 1940. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Marik Bather The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 92 Telegram from London dated December 16th. Nevel. British naval forces have been continuing to support operations in the constal area between sidi Barrani and Bardia. 2. From Air reconnaissances on the 14th and 15th, the following is the disposition of the Italian naval units. At Taranto: 2 damaged battleships, 1 6-inch cruiser, 1 destroyer. One Littoria class battleship, one 8-inch cruiser, 4 destroyers and 2 large merchant vessels entering the harbour. At Naples: 2 (possibly 3) battleships, 4 or 5 cruisem 15 or 16 destroyers, 11 merchant vessels. At Tripoli: 4 destroyers, 3 torpedo boats, At Messina: 3 cruisers, 3 destroyers, 4 or 5 submarines. 3. Germany. Air reconnaissances December 14th shows "Lutsow" and one old battleship at Kiel, "Tirpits" at Wilhelmshaven, and "Bismarck" at Hamburg alongside Bloha and Voss yard. 4. Shipping Casualties, A Banish ship (2300 tons) in south bound convey. has been sunk by E-boat off the East Coast. 5. Ship mentioned in the second sentence of peragraph 2 of the summary of the 15th has now sunk. 6. A convoy of 21 ships has arrived from Canada; none were lost on the passage. 7. Royal Air Force, Night of 15th/16th. 59 heavy bombers were sent to attack military objectives in Berlin and 10 others to Freakfurt. In both areas many large fires and explosions caused. In addition#8 heavy/ 93 heavy bombers were minelaying. Three aircraft are missing 2 crashed crew being injured in one case, and one came down in the sea crew saved. 8. Night of 15th/16th. About 125 enemy aircraft were operating of which 20 were mine-laying. 94 RESTRICTED G-2/2657-220 SITUATION REPORT No. 273 M.I.D., W.D. December 18, 1940. 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. Air Force Operations. Unfavorable weather prevailed. The German Air Force executed no offensive operations. The R.A.F. carried out small night raids against Mannheim and the Channel invasion ports. II. Greek Theater of War. The heaviest fighting appears to be in the Tepeleni-Klisura area, where the Greeks have been able to make little headway. Apparently, Italian resistance is stiffening in the Porto Palermo area and along the coast road where recently the Greeks have made their farthest advances. Air activity was limited by weather. III. Mediterranean and African Theaters of War. In extreme western Libya all Italian strongholds except Bardia, where the Italians are resisting strongly, have been captured by the British. The British mechanized forces have apparently penetrated west of Bardia to the main Bardia-Tobruk road. The Italians claim to have increased their air activity over western Egypt. There were widespread minor raids by both sides throughout these theaters, including an apparently effective Italian attack on Port Sudan, on the Red Sea. RESTRICTED 95 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department 10:20 Aam. Deeomber 18, 1940. London, filed 15:15, December 18, 1940. EXTRACT In a confidential conversation the Assistant Quartermaster General in charge of the supply of food and petroleum products in the War Office advised Colonel Demond, CaMeC., special observer in this office, that it was his conclusion that enemy bombing has caused severe lesses of food, to include the destruct tion in Liverpool of rations valued at $80,000,000. Recent enery attacks have destroyed two oil eanning factories, where gasoline and lubricants are sealed in tin containers for use by Army tactical units. These plants had a total capacity of 2,400,000 gallons a day and their destruction handicape motor transport foress overseas, whose divisions have a daily requirement of 100 tens. The Army is now contemplating reducing the present meat ration of 10 ounees to 78. LEE Distributions Secretary of War State Department Aest. Secretary of War Chief of Staff War Plane Division Office of Naval Intelligence CONFIDENTIAL CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 10:20 A.M., December 18, 1940 96 London, filed 15:15, December 18, 1940. 1. On Tuesday, December 17, planos of the Goastal Command carried out attacks on a fastory and two airtrence in the Calais area and on a French port. No planes of the Bember Command operated that day. The proceding night British bembers made a concentrated attack on an important industrial city in the Rhine Valley. It was reported to be very successful. 2. Daylight operations of the German Air Force on December 17, were limited to coastal recommissance flights, and no German planes fiew inland that night. 3. During the night of December 16-16, a total of 77 planes operated against enery targets. of those 10 attacked Frankfort and 59 Berlin, while eight heavy bembers laid mines. of these, three planes are missing and two crashed on landing. The same night 185 emery planes were plotted, of which 20 laid mines. 4. Station navel vessels are new based on Messina, Maples, and Terente. 5. British aircraft in Egypt bombed Tobruk and other Italian treep concentrations. The 2nd Armoured Division participated in most of the recent action in this theater. British bembers based in Greeso attacked the harber of Durasse, Albania. The Italian priseners captured in this theater have an extremely low morale, as indicated by their criticism of Faseist leaders and their - officers and by their abandoment of equipment. The Italian Centure Amered Division in CONFIDENTIAL CONFIDENTIAL 97 this theater is equipped with about 220 tanks, probably between two and five tens; but it apparently did not operate as an armored division. Some troops in this Division fought as dismounted Infantry and one regiment of Beranglieri was detached from the Division early in the operations for use elsewhere. 6. A 2,300 ten Danish ship was sunk off the east coast by an E-boat. A convoy from Canada of 21 ships has just arrived with. out loss in Britain. 7. The German attack on Sheffield during the night of December 12-13, did considerable damage to the business district but the larger mmitions plants suffered but little. 8. The general apprehension continues of an enemy invasion of the British Isles before the New Year, but in spite of this no significant change in the disposition of enemy shipping has as yet been observed. LEE Distribution: 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 AC-2 G-3,1 CONFIDENTIAL 98 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE December 18, 1940 Secretary Morgenthau TO FROM Mr. Klaus FBI reports: November 18. FBI is monitoring Czechoslovakia funds in San Francisco. November 27. FBI is watching Italian bank accounts in the Los Angeles area through confidential informants employed in key positions in various banks; special emphasis is being placed on the account of a sister of Cesare Grinaldi, reported as having been a former bodyguard of Mussolini. FBI is also monitoring Japanese bank accounts in the same area. December 2. A report that an officer of the Corn Exchange National Bank in Philadelphia states that the German Consul has not been paying any bill by check since January 1940; he has even been paying his hotel bill in cash. December 13. The Dutch Consulate General in New York City has learned from the Dutch Embassy in London that the Nazis in Holland have confiscated an unknown unber of genuine Dutch passports which are being issued to Nazi espionage agents, particularly to German-Jewish agents who are posing as Dutch refugees. December 14. The German and Italian Ministers in Guatemala are said to be buying up United States bank notes, preferably of high denomination. December 14. A strike was called December 11 on the Standard Fruit Company boats at New Orleans; the boats are of Honduran registry and the strike is said to be led by Communist elements in the American Communications Association and the National Maritime Union (Joe Curran's organization). December 14. A large number of American securities have been transferred from Switzerland to the National Bank of Haiti, Port-au-Prince, Haiti, for the account of a new company to be organized in Haiti; the Haitian bank officials are suspicious and the FBI is investigating further. 81 99 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL TO FROM DATE December 18, 1940 Secretary Morgenthau Mr. Klaus State Department reports: December 10. From the Embassy in Vichy: The Germans vetoed a French pro- posed law requiring the registration of all foreign securities held in France; the ground in of bearer the refusal is presumed operations securities secret. to be the Germans' desire to keep their ser 100 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL TO DATE December 18, 1940 Secretary Morgenthau Mr. Klaus FROM FBI reports: December 9. The Italian Air Attache and the Italian Ambassador on December 11 cashed two Banco di Napoli Trust Company Treasurer's checks amounting to (9,735.35, receiving 8 $1,000 bills and the remainder in currency of small denomination. FBI has the numbers of 5 of the $1,000 bills. December 12. The German Embassy purchased a $7,500 draft payable to the German Consulate General in New York City in 5 $1,000 and 5 $500 bills which are being traced. December 17. The outstanding $10,000 notes traced to the German Consulate General, New York, have been reduced to $30,000; 10 notes have just appeared at J. P. Morgan and Company in payment for Hamburg-American Line bond redemption obligations. December 17. The Banco de Mexico is reported to be buying $12,000,000 in gold in New York City, having thus far transferred $9,000,000 to its account at the Federal Reserve in payment for the gold. M 101 DEC 18 1940 by dear Mr. President: My interest in forestalling potential inflationary developments that would react unfavorably on the economy of the country, as well as our whole fiscal program, and in guarding against possible shortages of do fense materials, leads me to express my serious concern over the growing congestion is the steel industry. No expert knowledge is necessary to see that the steel industry will be unable to handle the volume of orders that lies ahead. In addition to the huge British orders that are now in prospect, the bulk of our defense orders are still to be placed with the steel mills, and the ordinary nondefense donand will underbittely be enlarged as the national income rises. As you will note on the shart which I as attaching, there is very little capacity available in any steel district for a further increase in output. A system of priorities, applied except as a temporary expedient, would seriously happer the program for achieving full employment of labor and resources. I have not been greatly encouraged by recent press announcements of expension plans by certain steel companies. In an attached table I have listed all of the proposed increases is steel inget capacity that I inco about, plus the new capacity (electric furnase) completed this year OF under construction. Taken together. this amounts to a prospective in crease is ingot capacity of only 2.7 per cent, the bulk of which apparently will not be completed for 12 to 18 months. You will recall the large steel expension that was found necessary during the World War, when the inget capacity was increased about one-third between 1914 and 1918. In view of the increasingly urgent need for more steel, 10 seems to me that an immediate major expansion Progress for the steel industry is clearly called for. Faithfully yours, (Signed) H. Morgenthan, Jr. the President, The White Issue. Copies to: Mr. Stettinius Mr. Henderson IA AWB FILE COPY 7 110 102 New steel capacity completed, enter construction OF authorised since January 1, 1940 Net tens Bethlehen Steel Corporation 8. S. steel Corporation American Selling MEEE 890,000 400,000 50,000 Electric furnesse (american Irea and Steel Institute estimate of capacity of 21 electric furnasse - is operation, OF expected to be in production early in 1941) OCH: law 12-17-40 FILE COPY 900.000 2,200,000 M STEEL OUTPUT AND RATED CAPACITY Weekly Tonnage TONS Millions U.S.Total TONS Millions Capacity 14 1.2 1.2 Output 1.0 8 6 4 1.0 2 2 oNJFM 0 o D o M 1941 1939 PRINCIPAL PRODUCING DISTRICTS 1939 1940 1939 1941 TONS 1940 1941 TOMS Thousands TONS Thousands Chicago 360 320 360 Pittsburgh Thousands Capacity Capacity 320 320 320 280 200 280 280 240 240 240 240 200 200 200 200 140 160 160 120 120 120 120 80 so so 80 40 40 Output ww Output 140 40 40 o o Youngstown 0 o 160 Philadelphia 160 200 200 160 140 120 120 120 80 40 so so 40 40 120 mm so 40 o o o Cleveland www. Buffalo so so so 40 40 o so Birmingham 40 40 Wheeling Cincinnati 40 Detroit . 1939 1940 1941 1939 1940 1941 "Board - Iron Age date C-344 Prepared by: Mr. Turner Mr. Murphy Mr. Haas TREASURY DEPARTMENT 104 INTER-OFFICE COMMUNICATION DATE December 18, 1940 TO FROM Secretary Mergenthau Mr. Haat Subject: Recent Developments in the High-grade Security Markets; The Market Value of Tax Exemption SUMMARY (1) New record high prices were attained during the first half of December by long-term Treasury, corporate and municipal bonds (Charts I, II and III). (2) The new National Defense Treasury notes are now sell- ing to yield about 12 basis points more than it 18 estimated that a five-year note identical with outstanding notes would yield (Chart IV). Part of this differential is due to uncertainty as to the future "rights" value of the new notes, and part -- probably the larger part -- 18 due to the difference in tax exemption between the Defense notes and outstanding Treasury notes. (3) Estimates of the market value ascribed to the taxexemption privilege vary widely and are subject to a large error of estimate. The differential between the yields of taxable corporate bonds and tax-exempt municipal bonds has shown no definite relationship to the maximum rate of the Federal individual income tax since the initiation of that tax in 1913 (Chart V). The largest spread in favor of municipals occurred before the institution of the Federal income tax. In Treasury testimony before Congressional Committees about a year and a half ago, the differential between the yields of long-term, high-grade bonds attributable to "full" tax exemption was estimated at between 1/4 of 1 percent and 1/2 of 1 percent, and that attri- butable to "partial" tax exemption at between .05 percent and .15 percent. Current observation would show larger differentials, but it is questionable whether such larger figures measure the rate at which a substantial volume of new borrowing could be accomplished through the issuance of tax-exempt securities. 105 Secretary Morgenthau - 2 I. Recent Movements in the High-grade Security Markets Prices of long- and intermediate -term Treasury bonds advanced to new all-time highs during the first half of December, but have receded slightly during the first two days of the current week (Charts I and II). Prices of Treasury notes show little net change since the beginning of the month. High-grade corporate and municipal bond prices also reached new highs during the first half of the month (Charts II yesterday. and III). Corporates declined in price slightly II. Reception of the New National Defense Treasury Notes The new 3/4 percent, 5-year National Defense Treasury notes opened on a when-issued basis on the day after the closing of subscription books at 100-16/32 bid, and have since then suffered a net decline of about 1/32. Chart IV shows as of yesterday's close the yields of all outstanding Treasury notes selling on a positive yield basis, including the new National Defense notes, and, for comparison, the yield of the partially tax-exempt 2-1/2 percent Treasury bonds which mature on the same date 8.8 the new notes. Because the new note is fully subject to Federal income taxes and there is some question with respect to its "rights" value, its yield cannot be compared directly with the yields of outstanding Treasury notes. A yield of .65 percent for the new note is, however, about 12 basis points higher than the estimated yield basis on which a 5-year Treasury note identical in all respects with outstanding issues would sell. This spread represents the combined market effect of the increased taxability and the diminished prospective rights value. It is extremely difficult to determine how much of this rately. The impairment of rights value is, of course, due spread is the result of each of these factors taken sepa- to the provision of the First Revenue Act of 1940 requiring that the national defense obligations therein authorized 106 Secretary Morgenthau - 3 be paid from specified tax revenues. This presumptive absence of rights value would be of dominating importance 1f taken at its face value, for it is estimated that pro- spective rights values result in a diminution of as much as 20 basis points in the yield on outstanding five-year notes. It is clear, however, that only a fraction of this maximum valuation of the rights privilege on outstanding notes can be allowed for its impairment in the present case. Five years is a long time, and it doubtless appears to the market that chances are excellent that by the time the notes just issued mature they will be on all fours with other outstanding issues as far as the rights privilege is concerned. The possible impairment of the privi- lege in the present case has occasioned considerable market discussion, however, and probably accounts for some portion of the existing differential in yield between the new note and outstanding issues. It seems, however, that the larger portion of the differential should be ascribed to the complete taxability of the new notes for the Federal income tax. In this connection it is interesting to observe that the yield of the 2-1/2 percent Treasury bonds, due December 15, 1945, is 11 basis points lower than that of the new notes, and only 1 basis point above the estimated basis for a five-year note of the traditional type. As far as individuals are concerned, these bonds are exempt from only the 4 percent normal tax; but for corporations their exemption is equivalent, under present laws, to that of the wholly exempt Treasury notes. This would suggest that the additional value placed by the market on "full" as compared with "partial" tax exemption is very small in the case of securities with a five-year maturity. III. Estimated Market Value of Tax Exemption Estimates of the market value of the tax-exemption privilege -- 1.e., the yield differentials attributable to differences in taxability - vary widely. Chart V and the attached table compare the yields of fully taxable highgrade corporate bonds with those of fully tax-exempt highgrade municipal bonds annually since 1900. There is also shown (in red on the chart) the maximum rate of the Federal individual income tax annually since its initiation in 1913. It will be noted that the differential between corporate and municipal bond yields has varied widely, and that on occasion the yields of the municipals have been higher than those 107 Secretary Morgenthau - 4 of the corporates. It is also interesting to note that the maximum differential in favor of the municipals 00curred before the introduction of the Federal income tax. There does not seem to be any definite relationship between the differential and the maximum rate of this tax. It would appear, therefore, that tax exemption has never been the decisive factor in determining municipal bond yields, that the value attached by the market to the tax-exemption privilege has probably varied widely from time to time, and that it is subject to a wide margin of error of estimate. It would appear, however, that the market does attach some value to tax exemption. This has already been indicated in the previous discussion of the new Defense notes. A substantial market valuation of tax exemption is also indicated by a comparison of the yields of Federal with high-grade State and municipal bonds. The State of New York, for example, offered early this month an issue of serial bonds of which the 20-year maturity was priced to yield 1.35 percent and the 25-year maturity was priced to yield 1.45 percent. On the day these bonds were offered, the partially tax-exempt Treasury bonds of 1960-65 sold to yield 2.10 percent to earliest call date (20 years) and 2.20 percent to final maturity (25 years). This is a yield differential of 75 basis points in favor of the New York State bonds. While a portion of this may be explained away on various grounds, a substantial portion must be due to the superior tax-exemption qualities of the State as COM- pared with the Federal bonds. Although it is thus clear that tax exemption has a real value in the market, the measurement of this value is extremely complex. Thus the differential between the yields of high-grade corporate and municipal bonds shown on Chart V is currently about 67 basis points. The use of other sets of indices would give substantially different results, however. This is due principally to the difficulty of maintaining a uniform standard of quality for the inclusion of issues in the indices, and to the difficulty presented by the large number of corporate bonds now selling above their call prices. It is necessary, therefore, in the final analysis to resort to comparisons of individual issues. 108 Secretary Morgenthau - 5 It was estimated in the testimony of the Treasury DeTaxation of Governmental Securities and Salaries in the partment before the Special Senate Committee on the spring of 1939 that the differential due to "full" tax exemption was between 1/4 of 1 percent and 1/2 of 1 percent, and that the differential due to "partial" tax exemption was between .05 percent and .15 percent. These estimates were reaffirmed in the testimony before the House Ways and Means Committee in June 1939. They referred in each case to long-term, high-grade securities. Both the total value of tax exemption and the difference between the value of "full" and "partial" tax exemption is much less for shorter maturities. These estimates were based upon observations of the market differentials made before the cessation of further issuance of tax-exempt securities was generally considered a strong probability. We are now making a detailed study of the value of the differential at the present time, but it is clear that, at least in the case of the "full" taxexemption privilege, it is substantially higher now than it was a year and a half -- or even three months -- ago. It may well be, however, that the earlier measurements embodied in the testimony before the Congressional Committees in 1939 are more representative of the differentials at which substantial amounts of new borrowing through the issuance of tax-exempt securities could be accomplished than those prevailing today, which may reflect in large part an expected scarcity value for the outstanding supply of tax-exempt securities. Attachments 109 Comparison of the Differential in Yield between High-Grade Corporate and Municipal Bonds and the Maximum Rate of the Federal Individual Income Tax, 1900-40 : : : : : : : $ 4.05 3.90 3.12 3.13 3.86 .77 1902 .66 1903 1904 4.07 4.03 3.20 3.38 3.45 1905 1906 1906 3.89 3.40 3.57 .49 .42 .41 .69 3.86 1908 4.22 3.93 1909 4.06 4.16 4.17 4.21 3.78 .29 .26 3.97 .19 3.98 4.02 4.22 .19 1910 1911 1912 - .58 1907 income tax : individual - 0.93 3.99 4.27 Federal : tial Maximum : Differen- 1901 1900 - - .19 .20 1914 4.42 4.46 1915 4.64 1916 1917 4.49 4.79 4.20 .50 67 1918 5.20 4.50 .70 1919 5.29 4.46 77 .83 1920 5-72 5.57 4.98 .81 5.09 4.23 4.25 .62 .73 1913 1921 4.12 4.16 3.94 Z .48 4.98 4.78 4.67 4.20 .58 4.09 .58 4.08 .43 3.98 .33 1928 4.51 4.31 4.34 1929 4.50 .29 .33 .57 1930 4-55 1931 4.58 4.01 1932 5.01 4.49 4.00 4.65 4.71 .48 4.03 3.41 .19 1940 3.60 3.24 3.26 3.19 3.01 2.85 1940 2.71 1934 195 1936 1937 1938 1939 73 46 3/ .36 -.22 -.03 1933 15 .48 1923 1924 4.05 4.27 4.07 7 .55 4.85 1927 7 .34 1922 1925 1926 V Municipal bonds 2 : Year High-grade corporate bonds 1 3.07 .17 3.10 2.91 .28 2.76 2.54 .31 2.04 .67 .16 .25 81 fields from 1900 through 1929 are those reported by Standard Statistics Co. for 15 high-grade railroad bonds. fields from 1930 through 1940 are those reported by Moody's Investors Service for high-grade corporate (Ana) bonds. Fields are as reported by Standard Statistics Co. Standard Statistics Co. index of yields of high-grade railroad bonds 4-39 percent for 1930, and the differential based upon this index, 0.32 was percent. WittDecember Average11, for1940. first 11 months. Chart I 110 CHANGES IN THE PRICES OF U.S. SECURITIES Points Plotted Represent the Difference from April 6. 1940 Price of Bach Maturity Class 1940 1941 1940 or MAY POINTS set MAR 1.14 30 MAY POINTS POINTS (NET (NET CHANGE) (NET CHARGE) DECORES NOVEMBER OCTOBER Saturday Quotations Daily +21 +21 44 +25 +2) +26 +24 .3 .2 +2 of +2 +1 *1 *11 3 NOTES 1-3 YM +1 BONDS OVER 15 Yes. +1 +16 CALL - -1 5-15 YRs TO CALL NOTES 3-5 Yas. -3 Boards, -15 Yrs. TO CALL NOTES 1-3 Yes + OVER 15 Yes -5 -1 TO CALL -14 -14 -11 -11 -If -7 -2 -2 -26 -24 -29 -2 -24 -24 -3 NOV. JAN. MAR. 1941 -3 5 SEPT 1940 -10 19 12 OCTOBER 26 16 2 -/-- Office of the Secretary of the Treasury JULY MAY 23 30 14 21 28 9 MAY the 7 111 111 NOVEMBER DECEMBER 1940 F-153-8-4 111 Chart II COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS 1939 1940 1940 JULY NOV DEC OCT. DEC Inverted Scale JAN PER CENT PER CENT PER CENT WEEKLY. Saturday Quotations 2.0 2.0 20 2.2 Long Term 2.2 Treasury 2.2 2.4 2.4 2.4 Long Term Treasury 14 years more to sontest cell deta) 2.6 2.6 2.4 2.8 2.8 Corporate 2.8 3.0 3.0 3.0 Corporate 3.2 3.2 1.2 3.4 3.4 14 3.6 3.6 34 3.8 3.8 1.0 DEB CENT PER CENT PER coo 1.00 1.00 100 Spread so so so Spread Between Long Term Treasury and Corporate 60 60 40 40 40 20 20 20 I MAR ARE - ART 1939 AP incl oct 2 as nic An Pea' MAA ARE M MAY of Long form Treasury average 1940 NEW OCT. OCT 1940 0 Chart III COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY AND Dow-JONES AVERAGE OF MUNICIPAL BONDS Invert 1.4 " " 1." 1.4 " ... Yields Based on Saturday Quotations 1939 1940 JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV" DEC PER CENT 2.0 Long Term Treasury" 1.9 Inverted Scale PER CENT 2.0 (10 2.2 2.2 2.4 2.4 2.6 2.6 2.0 2.6 3.0 3.0 Twenty 20-Year Municipal Bonds 3.2 3.2 3.4 8.4 PER PER CENT CENT 60 60 40 40 Differential 20 20 o THE JAN FEB MAR APR MAY JUNE to AUG. SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE JULY o " JULY 1939 1940 AUG. SEPT OCT. NOV. DEC "Break - line indicates change - composition of Long Form Treasury average. Office al the Secretary d the Treatury - disease - - F-134-A Chart IV 113 YIELD OF TREASURY NOTES AND 218 TREASURY BOND OF DEC. 15, 1945 Based on Closing Bid Prices, Dec. 17, 1940 1941 1942 1945 1944 1943 PERCENT PERCENT .7 .7 New NOTE .6 .6 BOND .5 .5 x x .3 .3 .2 .2 .1 0 0 1941 -/-- Office of the Secretary of the Treasury 1942 1943 1944 1945 F - 196 114 Chart V COMPARISON OF THE DIFFERENTIAL IN YIELD BETWEEN HIGH-GRADE CORPORATE AND MUNICIPAL BONDS AND THE MAXIMUM RATE OF THE FEDERAL INDIVIDUAL INCOME TAX. . 1900-40 1905 1910 1915 1920 1925 1930 1940 1935 PERCENT PERCENT (INVERTED) (INVERTED) 2.5 2.5 LATEST FIGURES DCC. 11, 1940 3.0 3.0 3.5 3.5 MOODY'S AAA MUNICIPAL DONDS STANDARD STATISTICS 4.0 4.0 4.5 4.5 5.0 5.0 RAILROAD BONDS, STANDARD STATISTICS 5.5 5.5 6.0 6.0 PERCENT PERCENT (INCOME TAX) (DIFFERENTIAL) 75 1.5 DIFFERENTIAL 50 .5 25 0 MAXIMUM RATE OF INCOME TAX 0 -5 1905 I-- Mas the Secretary of the Treasury 1910 1915 1920 1925 1930 1935 1940 *YIED FIGURES FOR 1940, AVERAGE OF FIRST 11 MONTHS B 216 115 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Re: Additional P-40 planes. The representatives of Curtiss Wright have insisted that they must get an immediate release on at least 100 of the 300 additional P-40 planes if materials are to be ordered and production maintained. They feel that they cannot wait until next week. There are two possible solutions: first, for you to ask Guy Vaughan to have Curtiss Wright undertake this commitment on its own; or, secondly, to let the British place an order for 100 of these right away, leaving the allocation of the 200 to other purchasers until next week. (The British have already been promised fifty, and I think they should get 100 out of the 300 to be produced.) My to 15 Ms tale in ,I Times. JAM 116 CONFIDENTIAL December 18, 1940 To: The Secretary From: Mr. Young Admiral Spear, my Lisison Committee member in the Navy, called me late this afternoon to say that he had been asked to sign a letter addressed to the United States Naval Attache in Berlin, requesting the latter to purchase $25,000 worth of binocular spare parts from Zeiss for the United States Navy. This has evidently been a usual peace-time practice in the past and the Navy needs the parts. Despite the fact, however, that these parts include no optical elements and merely consist of frames and the like, it is my feeling that this request should be called to your attention. Admiral Spear is interested in getting the reaction of the Treasury Department. 26- Friental's 9 Bring to Forestals attention mext 117 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns $54,000 L 8,000 Open market sterling remained at 4.03-3/4. Transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns 3,000 TO 4,000 The Swiss franc, which has remained in the neighborhood of .2321 since the end of October, had a weak tendency today. Prior to our opening, the rate of .2318-7/8 WS 8 received from the Zurich market, and the first quotation here was .2320. A low .2318 was recorded at noontime, and the closing rate was .2313-1/2. There was virtually no movement in quotations for the other currencies, and closing rates were: Canadian dollar 13-3/8% discount Swedish krona Reichamark Lira Mexican peso .2385 .4005 .0505 .2360 .0505 .2070 Cuban peso 8-1/2% discount Argentine peso (free) Brazilian milreis (free) There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the National City Bank, Bonbay, shipped $926,000 in gold from India to its head office at New York, for sale to the New York Assay Office. The Bombay gold price was unchanged at the equivalent of $33.82. Silver in Bombay was priced at the equivalent of 43.01#, up 1/84. The prices fixed in London for spot and forward silver both advanced 1/16d, to 23d and 22-15/16d respectively. The dollar equivalents were 41.76 and 41.65 118 -2- Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35$. We made one purchase of silver amounting to 50,000 ounces under the Silver Purchase Act. This consisted of now production from various countries, for forward delivery. The report of December 11 received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that total position of all countries was short the equivalent of $10,013,000, an increase of $202,000 in the short position. The largest movement occurred in the sterling position, wherein the banks undertook further commitments to sell pounds equivalent to $1,448,000. Reduction in the "Europe" short position was concentrated mainly in Swiss francs, with the position here moving from $512,000 short to $292,000 the long. Net changes were as follows: Country England** Short Position Short Position December 4 December 11 $ 59,000 (Long) 3,950,000 11,000 (Long) Europe Canada Latin America Japan Other Asia 11 others Total 362,000 4,296,000 1,347,000 74,000 (Long) $9,811,000 Change in Short Position $ 1,448,000 $ 1,389,000 3,114,000 373,000 (Long) 374,000 4,093,000 1,428,000 12,000 (Long) $10,013,000 - - + - + + 836,000 362,000 12,000 203,000 81,000 62,000 + $ 202,000 *Decrease in short position, or increase in long position, indicated by minus (-). Increase in short position, or decrease in long position, indicated by plus (+). **Combined position in registered and open market sterling. KMR. CONFIDENTIAL 119 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau STRICTLY CONFIDENTIAL Mr. Cochran The Federal Reserve Bank of New York reported the following transactions in Italian accounts maintained with the Chase National Bank, New York, the National City Bank, New York and the Federal Reserve Bank of New York, Chase National Bank Date December 16 Account Debited Amount Debited Banca Commerciale Italiana, $100,821.60 Paid To Check to order of Swiss Bank Corp., N.Y. N.Y. National City Bank Date December 17 Account Debited Amount Debited Banco di Napoli Trust Co., $1,860,000 100,000 Paid To Chase National N.Y. Bank, N.Y., for Banca Commerciale Italiana, Check to order account of Swiss Bank Corp., N.Y. N.Y. of Chase National Bank, N.Y. Federal Reserve Bank of New York Date December 17 Account Debited Amount Debited $ 40,000 Banco di Hapoli Trust Co., Paid To Cash withdrawal N.Y. Check to order of 650,000 Banco di Napoli Trust Co., N.Y., endorsed in favor pmp of Federal Reserve Bank of N.Y., in payment of subscription for $650,000,par amount U.S.3/4% Notes due Deo.15. 1945 120 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthan FROM Mr. Cochran STRICTLY CONFIDENTIAL In my menorandum of December 17 it was reported that the Banca Commerciale Italiana, New York, had issued a check in favor of the Federal Reserve Bank of New York for $195,000 against its account maintained with the Chase National Bank, New York. Mr. McKeon reported today that this amount was in payment for $195,000 par amount of the new U.S. 3/4% Notes due December 15. 1945. BMP. l 121 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION For Miss Chauncey DATE December 18, 1940. Secretary Morgenthau TO STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transactions in Russian accounts maintained with the Chase National Bank. Principal changes in the State Bank of Russia's dollar account during the period December 12 to December 18, inclusive, were as follows: Amount Amount Date Credited Received From Debited Paid To Dec. 12 $ 250,000 Dec. 13 57,733.67 Dec. 14 $300,000 Chase National Bank, N.Y., by order of Amtorg Trading Corp. Commercial Letters of Credit 471,164.96 Commercial Letters of Credit Union Bank of Switzerland, Zurich, by order of Ungarische Allgemeine Creditbank, Budapest. 110,000 Chase National Bank, N.Y., by order of Swiss Bank Corp.,N.Y., by order of Export Kredit, Hamburg, re Credit #10870 by order of Banque Suisse, Zurich. Dec. 16 135,000 Dec. 17 167,293.33 Amtorg Trading Corp. 250,562.92 Commercial Letters Chase National Bank, 205,560.88 Commercial Letters N.Y., by order of of Credit of Credit Stockholms Enskilda Bank A/B, Stockholm 1,304,977.94 Amtorg Trading Corp. 411,349.90 Chase National Bank, N.Y., bills discounted for account of Promsyricimport. 122 -2. Amount Amount Date Credited Received From Dec. 18 $580,000 Irving Trust Co., N.Y., by order of Debited Paid To $ 99,765.68 Commercial Letters of Credit Ungarische Allgemeine Creditbank, Budapest, by order of Union Bank of Switzerland, Zurich On December 18 the balances of the State Bank and the Amtorg Trading Corporation were as follows: State Bank of the U.S.S.R. Cash Balance Cash commercial Letters of Credit Time deposits Total langes in total since December 11 Amtorg Trading Corporation $ 10,593,600 $ 1,436,200 13,120,200 2,338,700 -0- 10,300 $ 3,774,900 $ 23,724,100 - $ 904,100 MMP. t $ 239,300 123 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau Mr. Cochran Mr. Gifford telephoned me at 12:30 this noon. He let me know that he had registered with his control $20,000,000 of United States Government securities, including issues of thirty-four different dates. He would like to these in the coming year. Before as interfere in any way with our market inquired securities to whether for liquidation this might early vest doing operations. title this, in he In compliance with his request, I brought this matter to the attention of Secretary Morgenthan who authorised me to call Mr. Gifford back, which I did, and let his know that ve had no objection to this transaction. IMMP 124 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 16, 1940 Secretary Morgenthau Mr. Cochran FROM STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19: December 2 No. of Shares $ Proceeds of Sold Shares Sold Nominal Value of Bonds Sold $ Proceeds of Bonds Sold 32,310 5,775 21,908 29,850 6,818 1,675 903,235 261,254 563,481 984,768 303,011 86,640 4,000 27,000 92,000 1,530 18,434 53.978 Nil Nil Nil Nil Nil Fil 98,336 3,102,389 123,000 73,942 3 4 5 6 7 ovember 26 adjustment 32 3,102,421 Sales from February 22 to November 30 2,186,324 76,520,977 5,606,500 4,342,191 2,284,660 79,623,398 5,729,500 4,416,133 TOTAL FEBRUARY 22 TO DECEMBER 7 Mr. Opie reported sales of non-vested securities for the week ended November 30 totaled $500,000. BMS 125 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 18, 1940 Secretary Morgenthau TO Mr. Cochran STRICTLY CONFIDENTIAL FROM effective Official February sales 19: December 9 10 11 12 13 of British-owned dollar securities under the vesting order No. of Shares $ Proceeds of Sold Shares Sold Nominal Value of Bonds Sold $ Proceeds of 25,000 9,338 141,504 773.937 973,629 675,001 1,068,870 1,105,197 8,618 4,605,252 2,284,660 79,623,398 5,729,500 4,416,133 2,426,164 84,228,650 5,794,500 4,443,166 24,790 26,215 18,020 27,784 44,495 200 14 Nil 34,000 5,000 1,000 Nil 65,000 Bonds Sold Nil 13,644 3,456 595 Nil 27,033 Sales from February 22 to December 7 TOTAL FEBRUARY 22 TO DECEMBER 14 Mr. Opie reported sales of non-vested securities for the week ended December 7 totaled $1,250,000. 126 December 18, 1940 My dear Mr. Secretary: AS the direction of the Secretary of the treasury. I enclose herewith a copy of a letter of even date, addressed to the Secretary of State, concerning n quests from foreign countries the the parchase of aircraft. Sincerely yours, (Steped) Philip Young Philip Thing Assistant to the Secretary The Recorable, the Secretary of the Berry. Similar letter to Secretary of Mar Fitbj 127 December 18, 1940 X My dear Mr. Secretary: I have been informed by the Curties Wright Carpora- tion that 18 will be in a position to produce 800 additional P-40 persuit ships for delivery in May, June, and July, 1941. over and above those already allocated and on order. This 300 includes the 194 P-40's which have been discussed from time to time by Mr. Philip Young with Assistant Secretary of State Derle. It is my understanding that neither the Var Depart- meat nor the Herry Department are interested in placing an order for these planes, a situation which night make it possible for them to be allocated to other foreign per chasers, such as Chima, Greece, and Latin America. For your information, I - enclosing a list prepared for - by Mr. Philip Young, of the Interdepartmental Committee for Coordination of Foreign and Domostic Military Purchases, which shows the various requests received from all ever the world for airplanes, airplane enginee, and parts. In order that this potential supply of planoe my be best distributed is accordance with the domand, may I suggest that Secretary Stinson, Secretary Knox, and syself meet in your office next Monday morning and invite this committee, composed of Mr. Philip Young. General Burns, Admiral Speer, and Colonal Nazvall, to be present. Sincerely, (Signed) E The The Secretary of State. 2 Enase rely a By Memo REQUESTS FOR AIRPLANES AND PARTS BY SOUTH AMERICAN COUNTRIES PENDING OR RECENTLY DISAPPROVED AS OF DECEMBER 13, 1940 Request For Country Argentina 600 - Part 16892 - Rocker Shafts Date of Request Date Forwarded to Defense. Army. Nevy Nov. 4, 1940 Nov. 23, 1940 Disapproved Nov.23,1940 for Twin Wasp Junior S2A4G Status Engines Argentine Spare parts for Wasp 83H1 engines Dec. 4. 1940 Dec. 9. 1940 Pending Argentina Spare parts for Northrop airplanes Nev. 22. 1940 Nov. 26, 1940 Pending Argentina 15 NA-16-1 and 15 NA-16-3 training Sept. 25, 1940 Sept. 28, 1940 Pending planes Brasil 2 Douglas DC-3 Commercial Trans- Dec. 5, 1940 - from Govt. ports Brasil Spare parts for Pratt and Whitney Nov. 13, 1940 Pending letter Nov. 13, 1940 Pending infor- Oct. 31, 1940 Pending Nov. 25, 1940 Pending infor- Wasp Jr. enginee nation. (PMR B-11) Brasil 2 Leakheed Model 18-14 airplanes Oct. 28, 1940 equipped with Pratt & Whitney 84040 engines and Hamilton Standard constant speed propellers, Hub #23E50 and Blades 46139A-12. (Filed by Lockheed) Chile Eyan S.T.M. with Kinner 160 HP (20 to 25) - (PNR D-2) Nov. 25, 1940 nation Country Chile Chile Request For 1 S1E3-0 Hornet engine and accessories (PNR D-3) Nov 25. 1940 25 Fairchild Trainers M. 62-B Nov. 28, 1940 and spare parts (PNR D-5) Mexico Spare parts for airplane engines (Wasp S1B1 and Wasp Junior SB) Mexico Spare parts for airplane engines (Canadian Car & Mexico Foundry) 21 aeroplanes OW 22 and 6 aeroplanes CW 21 Uraguay 8 Model 6-4000 Ranger aircraft engines (Pluna) Venesuela Date of Request 2 standard Hamilton pro- pellers, 40 rubber tubings, (PNR D-3) (PNR D-5) Nov. 15, 1940 Nov. 15. 1940 Date Forwarded to Defense. Army. Faxz Nov. 25, 1940 Status Pending information Nov. 28, 1940 Pending infornation Nov. 19, 1940 - Pending Pending information Oct. 10, 1940 Oct. 12, 1940 Oct. 24, 1940 Oct. 25. 1940 Temporarily disapproved. Disapproved Nov. 14, 1940 Dec. 4, 1940 Dec. 5. 1940 Pending Oct. 22, 1940 Oct. 25. 1940 Pending Dec. 10, 1940 Dec. 13, 1940 Pending and 80 clamps Venesuela 3 Curties P-36 planes, 3 Stearman A75L3 planes, 5 North American NA 16-3 planes, 3 North American 76-D-3 planes. Venesuela 1 2D30 (6167A-6 blades) propeller (not yet mailed) REQUESTS FOR AIRPLANES AND BY FOREIGN COUNTRIES PENDING OR RECENTLY DISAPPROVED AS OF DECEMBER 13, 1940 Date Forwarded to Country Australia Date of Request Defense. Mayx Oct. 30, 1940 Nov. 6. 1940 Disapproved Nov. 30,1940 Oct. 31, 1940 Nov. 18, 1940 Pending Nov. 25, 1940 Nov. 30. 1940 Pending Training Planes: 120 Ryan, 50 North Nov. 26, 1940 American Basic Trainers and 20 Beechcraft AT-18 Bombing trainers 10 Lockheed Lodestar transport planes Nov. 30. 1940 Pending Dec. 2, 1940 Pending Request For 7 Cyclone GR-1820-021 Enginee for installation in 2 DC-3 Douglas (PNR 255) Status Commercial Transports (PNR 255) China 2 Model 18-40 "Lodestar" airplanes equipped with 4 Wright Cyclone OR-1820-01C2A engines from Lockheed Aircraft Corp. 250 Fighters (Brewster F4F or Grumman 36A or Vultee Vanguard or Republic P-43) 100 Fighters (Curtise-Wright P-40 or North American NA-73) 50 Bombers (Douglas B-23 or older type if more promptly available) 100 Bombers (Lockheed-Hudson) Spare parts Norway 4 Fairchild M-62 Trainers for use Nov. 23, 1940 in Canada 130 -2Country Philippine Government Turkey Date of Request Date Forwarded to Defense,Army. Navy Spare parts for Pratt & Whitney Jr. Engines Series TIB and SB Nov. 6. 1940 Nov. 7. 1940 Disapproved Nov. 29,1940 Spare engine parts - Wright Nov. 22, 1940 Nov. 28, 1940 Pending Nov. 22, 1940 Nov. 28, 1940 Pending Nov. 15, 1940 Nov. 20, 1940 Pending Request For Status Cyclone Engines 50 Curtise-Wright Model 22 Falcon training planes with necessary R-975-33 450 HP Wright Whirlwind Engines Sweden Spare parts for Wright Cyclone 0102A Engines 131 P.4. 132 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Vichy DATE: December 18. 1940, g p.m. NO. : 856 The following is a message for the personal attention of Mr. Matthews from the Treasury Department. The payment of $50,000 out of the blocked funds in the United States belonging to the French Government is being approved by the Treasury, payment to be made to the American Friends Service Committee. The latter wishes to purchase milk in Switzerland for distribution to children in France. It would be appreciated by Secretary Morgenthau if you would report at intervals on the importation and distribution of such milk by the Friends Committee. Informa- tion particularly desired is whether the milk is being distributed under American supervision directly to the children in France. HULL (BL) TECHNIC 10 THE EA:HF:LWW PA/D 12212) SD: A-B DE THE RAILWW IN 10 0a Copy:bj DELVEINERS DECEIAED 133 GRAY EH Baghdad Dated December 18, 1940 Rec'd 8:40 p.m. Secretary of State, Washington. 122, DECEMBER 18, 4 p.m. British banks in Iraq have received instructions from their head offices in London to refuse all applications for dollar exchange. The British maintain that Iraqi dollar credits resulting from their exports to the United States are more than sufficient to meet their normal purchases in the United States, but that the Iraqis have permitted their dollar Exchange to be utilized for their purchase from Japan. In these circumstances Britain will not permit its meager dollar credits to be utilized by Iraq. It is estimated that Iraqi dollar credits lack by 30% enough to meet their normal American requirements plus the Equipment for their army now on order in the United States. The LEgation's banker informed ME today that the local British banks endeavored to pursuade Iraqi Government to institute Exchange control in order to safeguard their foreign credits for legitimate needs such as American credits for American goods but no action was taken. The 134 EH -2- 122, December 18, 4 p.m. from Baghdad. 00 A The Effect of this situation will be a throttling of Iraq purchases in America until steps are taken to control dollar credits for American purchases. 8/0 KNABENSHUE EMB 135 DEPARTMENT OF STATE Pille WASHINGTON December 18, 1940 In reply refer to EA IS Harry White his compliments to John The Secretary Wiley of State presents All the Honorable the Secretary of the Treasury and transmits for his consideration a copy of a memorandum of a conversation between the president of the Chemical National Bank and Trust Company and officers of the Department of State regarding purchase by Germans of German properties of American corporations. Enclosure: Memorandum of conversation, December 17, 1940. UNVESSED 30 modervict forman CUNDOORE H.P ADVISER ON INTERNATIONAL ECONOMIC AFFAIRS 136 DEPARTMENT OF STATE Memorandum of Conversation DATE: SUBJECT: December 17, 1940 Purchase by Germans of German properties of American corporations PARTICIPANTS: Mr. Frank c. Houston, President, Chamical National Bank and Trust Company, New York Mr. Feis Mr. Livesey COPIES TO: are 1-1 Mr. Houston called by reference from the Secretary of State. He said that the Chemical National Bank has been making collections in Germany with very good success. It was eligible with $19,000,000 eredits outstanding in Germany at the time of the transfer erisis of 1931 and they were freson under the Standstill Agreement. All these eredite have been collected without less to the Bank. The Bank has recently had in Germany for several months an employee, Mr. Kellmar, German-Derm, naturalizes.com 10 or 12 years age, very able and elever, who in ways that Mr. Houston does net understand, but apparently largely in contact with the State Works, has successed in collecting a million dollars 137 dollars for the Beak and other sume for a British banking firm. Mr. Kellmar returned to New York last week. Mr. Kellmar brought word from some important German interests that they were interested in purchasing for dollars the German properties of American corporations. Mr. Houston showed some press elippings dealing with similar German activities and said that he of course had heard of them, including a report that the General Electric Company had sold some of its German interests to the German General Electric Company for $80,000,000 cash. If some of the friends and customers of the Chemical National Bank actually feel the way that they have talked, they would be glad to sell their properties in Germany for 8.80 on the dollar, if they paid could get part in cash for the properties which have yielded little or no dollar returns for many years. It appeared therefore that the Chemical National Bank might be in a position to oblige its customers and to make a commission for itself by following up the German proposal. However, before approaching any one with such a proposition, he had wished to come down and put the whole matter before the Department of State and find out whether 11 had any objections to such activities. Mr. Feis said that the Department had of couree heard a great deak about such purchase transactions, and had n served newspaper reports regarding then. Reverse, n had 119820 138 118910 direct knowledge of them. No asked where Germany was getting the dollars to pay for such purchases. Mr. Houston said that he did not know. No had heard that certain Belgian and Netherland banks had large amounts of dollars accumulated through the Bank for International Settlements or Swiss banks, and were new using these dollars to purchase American properties in Germany. Mr. Feis said that Germany had not laid hands on the Belgian or Netherland banks. Mr. Houston said. that the Germans had not seised the banks but he had heard that they had bought into them and thus obtained control and direction over then. The Reishabank was said to have used large same in such investments. Mr. Feis suggested that the Department sight telegraph the American Consul at Basie, Switzerland, and ask him to comment on PUROPS such as Mr. Houston had mentioned. No mention would be made of the Chemical National Bank. Mr. Houston saw no objection to this. Mr. Feis said that 18 was his understanding, subject to correction by his colleagues, that the Department - such purchase and sale arrangements as private transactions on which the Department did not sere to comment - as the phrase was. Reviver, he could not say this without first strealeting the to several others is the Department to assertain 139 4 ascertain their views. No suggested he telephone Mr. Houston in two OF three days. Mr. and would prefer to have something in writing that there was no objection he would be glad Department tomorrow, se that it would haveisemeting more definite on which to base a memorandum and a reply. This was agreed to. Mr. Houston said that if his Bank, after hearing from the Department, should pursue the matter with its friends and customers, he would be glad to keep the Department fully informed of all transactions and of all particulars of these activities. Mr. Houston remarked that the Germans are of course buying back securities of all kinds in the United States, and he had heard in England also. Just before the war started, they had made extensive purchases of German bonds in England. My. Houston was in London at the time, and on August 22, 1939, the day before he left London, a banker friend there told his that on that one day his firm had delivered 84,000 & of German bonds to German who paid through the Bank of England. The had taken this as a sign there would be no sepaed to Mr Houston to be meanzage German confidence that Germany would I health that German purchases way, in Breat Britath con with, dost as least, the knowledge and approval of RAIFLINE 140 THE SECRETARY OF STATE WASHINGTON December 18, 1940. Dear Mr. Secretary: I want to thank you for your letter of December eighteenth enclosing a copy of Lord Lothian's letter to you dated December eighth regarding British shipping questions, which I am very glad to have. I appreciate your kindness in sending it to me. Sincerely yours, Gabre spee The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 141 DEC 18 1940 X n dear Mr. Presidents I have pleasure in enclosing. is strict confidence. a photostable oopy of a letter written to me unios date of December . w the late Sept Lethies, together with 100 enclosures. consisting of seared asseriate dealing with British shipping lessee and replacement. the position is British shipparts. and estimated deliveries united the about shipbuilding progress. Sincerely years. (Signed) R Secretary of the Treasury n President. m white Sease. KMP - 12/17/40 By Memorador 10 15 142 DEC 18 1040 and 19/8/41 n dear No. Secretary: I have pleasure is enclosing. is strice confidence. a photostable - of . Letter witten to no enter date of December s w the late Book Bethica. together with 190 enclosures, constating of sectrol - dealing with British chipping lessee and replacement, the position is British deposits. and octinated deliveries - the - chand program. Sincerely years, (Signed) E Magnation Jr. Secretary of the Restocarse m Reservite. Trunk Boom. Secretary of the May. ANR - 12/17/20 By Mastercard n 143 DEC 18 1010 n dear Mr. Secretary: I have pleasure in enclosing. is strice confidence. . photostatic on of a letter willies to no water date of December s w the late Send Bethies, together with see enclosures, consisting of searet dealing with British chipping lessee and replacement. the position is British shipperto. and estimated deliveries under the cheat shipbuilding program. Sincerely yours, (Signed) E Secretary of the Indicates. the Goodsti Ball. Secretary of State. amp - 12/17/40 By / 10 of 144 DEC 1 8 1948 my dear Mr. Secretary: I have pleasure is enclosing. is strict confidence. a photostatte - of a letter written to - under date of December s w the late Seed Bethian. together with its enclosures. consisting of secret dealing with British shipping lessee and replacement, the position is British shipparts, and estimated deliveries enter the about shipbuilding program. Sincerely years. (Signed) E Jr. Secretary of the treasury Inclusive the Senerable, Heavy s. Secretary of Yes. KMP HMO:1 12/17/40 By / is 145 December 18, 1940 Ny dear Mr. Kandsons I have pleasure in enclosing, in striet confidence, a photostatic copy of a letter witten to me under date of December e by the late Love Lothian, together with its enclosures, consisting of secret morranda dealing with British shipping losses and replacement, the position in British shipyards, and estimated deliveries under the abant shipbuilding program. Sincerely yours, Mr. William S. Kandoon, Minisory Commission to the Council of National Defence, Federal Reserve Building, Washington, D. c. 146 December 18, 1940 My dear Mr. Knudsens I have pleasure in enclosing, in strict confidence, a photostatic copy of a letter written to me under date of December 8 by the late Love Lethian, together with its enclosures, consisting of secret monoranda dealing with British shipping lesses and replacement, the position in British shipyards, and estimated deliveries under the shant shipbuilding program. Sincerely yours, Mr. William s. Kandoon, Advisory of Defence, Federal Reserve Building, Council Commission National to the mashington, D. G. 147 December 18, 1940 My dear Mr. Knudsens I have pleasure in enclosing, in striet confidence, a photostatic copy of a letter written to me under date of December 8 by the late Lord Lothian, together with its enclosures, consisting of secret memoranda dealing with British shipping losses and replacement, the position in British shipyards, and estimated deliveries under the norchant shipbuilding program. Sincerely yours, Mr. William s. Kandson, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D. C. 148 CONFIDENTIAL ACTION REQUIRED December 18, 1940 To: The Secretary From: Mr. Young Re: British Shipbuilding. Admiral Peoples, representing Todd Shipyards, visited me this morning, and Admiral Land, Commissioner Vickery of the Maritime Commission, Congressman Oliver from Maine, and representatives of the British Purchasing Commission all telephoned me today wanting to know why the Treasury was holding up the British sixty-ship program. As I explained the other day, clearance had been given for the British to negotiate a contract for these ships with Todd, and, as I advised you, I asked Mr. Ballantyne not to have this contract signed until final clearance WRS given. My reasons for this request were, first, that Secretary Knox had questioned the advisability of this new ship construction: secondly, that the President during our conference at the White House had made certain comments with respect to it; and, thirdly, because the ship program was one item of the British orders to be placed which is now under consideration. Admiral Land advised me today that Secretary Knox had no objection to this contract being signed. The British have advised me that about 50 million dollars have been earmarked for these ships (out of the total cost of 96 million dollars, including capital). Both Todd and the British are ready to sign the contract. The Treasury is in the position of holding it up. My reaction would be to clear it if the British ear-tagged the full amount, otherwise to let it wait pending the detailed clearance of program No. 1. 149 December 18, 1940 x Dear stever I an inclosing herewith a memorandum with accompanying charte from which you will note that - playment in the aviation manufacturing industry has multiplied More them four times in the last Swenty months and has doubled in the last sins months. Those figures were se inter- esting to - that I thought maybe you OF the President night like to with then public. Yours sincerely, (Signed) E Non. Stephen Early, Secretary to the President, The White House. Enc. photostatic copy of memo for Secretary from Mr. Haas dated 12/12/40 B / 1020 150 December 18, 1940 Dear Steve: I an inclosing herewith a menorandum with accompanying charts from which you will note that - ployment in the aviation manufacturing industry has multiplied More than four times in the last twenty months and has doubled in the last nine months. These figures were so interesting to me that I thought maybe you OF the President might like to make then public. Yours sincerely, Non. Stephen Early, Secretary to the President, The White House. By - December 10, 1940 151 Dear Steve: I am inclosing herewith a from which you playment in the aviation manufacturing memorandum with accompanying charte industry has multiplied times in the last Swenty months and has doubled in the last nine months. These figures were so inter- esting to - that I thought maybe you OF President might like to mike thenthe public. Youre sincerely, Non. Stephen Early, Secretary to the President, The White House. By - STRICTLY CONFIDENTIAL 152 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE December 12, 1940 TO Secretary Morgenthau FROM Mr. Haad AA Subject: Employment in the Aviation Manufacturing Industry 1. Employment in the aviation manufacturing industry has multiplied more than four times in the last twenty months and has doubled in the last nine months. In November 1940, manufacturers of airplanes employed approximate 120,700 factory workers, and manufacturers of airplane engines approximately 34,300 factory workers,a total of approximately 155,000 for the entire industry. Included in these figures are the employees of manufacturers of parts for airplanes and airplane engines. 2. For the industry as a whole employment rose by approximately 7,100 factory workers in November. The largest increase in employment -- approximately 2,150 factory workers -- occurred at the Lockheed Aircraft Corporation. Consolidated Aircraft Corporation added 1,300 factory workers to its rolls during the month, raising its total employment to 12,355. In January of this year Consolidated employed only 2,837 factory workers. 3. The increase in employment during November was not experienced by all plants in the industry, however, there being important decreases at two of the large plants. At the United Aircraft Corporation employment decreased by 800 during the month. At the Boeing Aircraft plant in Seattle there was a decrease of 1,040 factory workers. Boeing reported that this decrease in employment was due to "between contracts and lack of materials". 4. Two charts are attached to this memorandum. The first shows total employment in the industry and the employment of selected companies since January 1937. The attached tables give the figures plotted on the chart. The second chart presents total employment in the industry by geographic areas for December 1938, December 1939, and November 1940. Attachments 153 Employment in Aviation Manufacturing Industry (Airplanes and Airplane Engines) 1937-1940 1937 1938 1939 22,100 23,700 25,251 24,100 24,200 27,875 25,200 22,800 35,973 23,400 22,050 41,425 23,800 24,450 52,800 January February 5,500 6,500 6,989 March 6,000 6,600 7,825 6,600 6,900 8,727 6,400 6,772 9,289 6,600 6,847 12,600 1940 Airplanes January February March April May June July August September October November December 58,000 60,500 64,500 67,000 73,000 80,000 90,000 97,448 105,362 115,241 120,650 Airplane Engines April May June July August September October November December 13,900 15,800 17,300 18,600 20,800 22,900 25,400 27,019 28,981 32,633 34,314 Total Industry -- Airplanes and Airplane Engines January February 27,600 30,200 32,240 March 30,100 30,800 35,700 31,800 29,700 44,700 29,800 28,822 50,714 April May June July August September October November December 71,900 76,300 81,800 85,600 93,800 102,900 115,400 124,467 134,343 147,874 154,964 30,400 31,297 Office of the Secretary of the Treasury, Division of Research and Statistics. 65,400 154 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 1937 1938 1939 1940 January February 615 222 654 March 850 290 912 808 440 1,410 859 865 896 840 873 718 235 703 213 606 799 1,834 1,493 2,380 1,726 1,700 2,749 1,249 1,736 2,989 Bell Aircraft Corp. April May June July August September October November December 1,192 1,480 1,963 2,413 3,355 3,449 Boeing Aircraft Co. - Seattle January February March April May June July August September October November December 5,137 4,942 4,759 4,198 5,190 5,882 6,571 6,926 1,109 1,798 3,985 1,380 2,285 4,749 6,940 6,391 5,351 Consolidated Aircraft Corp. January February 3,169 2,540 968 March 3,246 2,518 819 3,099 2,104 832 August September 2,617 989 1,408 November December 2,580 981 2,540 April May June July October 2,837 3,477 3,807 4,349 5,040 5,821 6,743 7,836 9,289 11,018 12,355 155 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) 1937 1938 1939 1940 4,380 4,744 : Curtiss-Wright Corp. - Buffalo January 1,241 2,211 3,802 March 1,500 2,347 2,939 February April May June July August September October November December 1,933 2,310 2,848 2,202 2,736 1,562 5,016 5,213 5,698 6,314 6,531 6,597 6,824 7,682 2,007 7,889 3,491 3,447 5,591 6,328 4,334 5,961 6,173 4,177 6,653 4,672 5,445 August September 5,532 4,028 6,318 November December 6,771 4,110 10,362 910 1,577 2,305 1,094 1,594 3,509 1,338 1,797 5,699 1,383 1,997 5,324 1,428 2,123 5,156 Douglas Aircraft Co., Inc. January February March April May June July October 11,952 12,077 13,119 14,033 14,656 14,957 14,662 14,898 14,219 14,158 14,787 Lookheed Aircraft Corp. January February March April May June July August September October November December 5,157 4,768 4,362 4,400 5,016 5,591 6,599 7,296 7,582 8,517 10,675 15S Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) 193 1,364 1,*14 2,905 1,716 1,892 4,092 2,044 2,134 6,029 2,032 2,341 10,070 1,41* 2,777 11,174 1939 : 1937 1940 : : Glenn L. Martin Co. January February March April May June July August September October November December 10,9*4 9,407 9,133 9,010 9,357 9,133 9,513 11,200 10,019 11,414 12,950 North American Aviation, Inc. January February #29 1,713 2,223 4,049 4,324 March **9 1,935 2,457 4,154 April 4,371 May June July August September October November December 441 2,400 3,125 1,272 2,685 2,992 566 2,530 3,795 2,350 2,245 1,*26 2,444 2,16 1,766 2,497 1,972 1,952 4,336 4,782 4,91* 4,916 5,111 5,*28 6,054 United Aircraft Corp. (excluding Pratt & Whitney) January February March April May June July August September October November December 2,439 1,200 2,123 2,33* 1,774 2,5** 2,757 3,051 3,46* 3,735 3,912 4,2M2 4,M23 5,016 5,445 6,010 5,251 157 Employment of Selected Aircraft Manufacturing Corporations 1937-1940 (continued) : 1938 1939 : : : : : 1937 1940 : : Vultee Aircraft, Inc. January 364 February 440 March April May June 560 533 430 288 334 662 July August September October November December 742 938 959 1,008 1,334 2,127 2,618 2,857 3,531 3,652 3,749 Employment of Selected Airplane Engine Corporations 1937-1940 1937 1938 January February 218 March 1939 1940 262 454 229 297 466 238 339 558 1,114 1,261 1,610 1,958 2,766 3,254 : Allison Engineering Co. April May June July August 238 382 642 266 439 901 January February 151 153 134 March 153 152 138 162 144 171 135 146 203 September October November December 3,917 4,595 5,282 6,280 6,295 Continental Motors Corp. (Airplane Engine Division) April May June July August September October November December 288 344 358 368 378 388 398 382 567 732 855 152 142 243 Lycoming Division of Aviation Manufacturing Corp. January February March April 849 729 519 889 704 521 901 549 573 756 514 644 762 506 689 Kay June July Ausust September October November December 581 638 657 711 765 819 873 970 1,080 1,459 1,320 158 159 Employment of Selected Airplane Engine Corporations 1937-1940 (continued) : : 1938 : : 1937 1939 1940 5,642 6,549 : Pratt & Whitney Aircraft January February 1,931 2,567 2,264 March 2,119 2,489 2,659 2,384 2,555 7,15* 7,541 7,765 3,066 2,471 2,384 3,394 #,504 9,121 9,449 9,406 April May June July August September October November December 9,794 10,377 2,61* 2,227 5,022 January February 2,254 2,607 3,39* March 2,515 2,705 3,771 6,001 6,537 6,984 *,6*2 Wright Aeronautical Corp. April 7,882 May June July August September October November December 5,411 2,200 2,930 3,997 2,690 3,184 4,026 2,60 3,374 5,141 9,491 10,151 10,726 11,240 11,950 STRICTLY 160 EMPLOYMENT IN AVIATION MANUFACTURING INDUSTRY Factory Wage Earners 1937 EMPLOYEES EMPLOYEES Thousands Thousands Total Industry (Aircraft and Engines) 140 140 120 120 100 100 80 80 60 60 40 40 20 20 o 0 . 1940 1938 1937 Selected Aircraft Manufacturing Companies Selected Airplane Engine Companies EMPLOYEES Thousands EMPLOYEES EMPLOYEES Thousands Thousands The Douglas Aircraft Co 1941 Glenn Martin Co 17.1 15.0 15.0 15.0 12.5 12.5 12.5 10.0 10.0 7.5 7.5 7.5 5.0 5.0 2.5 2.5 5.0 2.5 1934 1937 940 1939 1941 0 o 1937 1938 1939 1940 1937 1938 1939 1940 ... 17.5 15.0 Prett and Whitney Aircraft Boeing Aircraft Ca 1941 15 0 12.5 12.1 D 10.0 Wright Aeronautical Corp Consolidated Aircraft Corp 12.5 10.0 10.0 10.0 7.5 7.5 7.5 5.0 1.0 5.0 2.5 0 1937 1938 1939 1940 o 2.5 1941 2.5 1938 1937 1940 1939 1941 12.5 12.5 Curtiss-Wright Corp Reducing dright a Lockheed Aircraft Corp Corp) 1937 1938 1940 .. 1440 ... 1939 1940 1941 1989 1440 1941 1939 12.5 10.0 10.0 Allison Engineering Co 10.0 7.5 7.5 7.6 5.0 5.0 5.0 2.5 2.5 2.5 1938 1939 1940 0 1937 1945 1937 1938 1939 1940 1941 0 10.0 10.0 North American Aviation Inc 0 United Aircraft Cora discharing Pratt Whiteed 1937 1938 1939 7.6 7.5 7.5 Lycomine Division of 5.0 5.0 2.5 2.5 1938 1939 1940 o 1937 1941 0 2.5 1937 1938 1939 1940 1941 0 Ball Aircraft accept Engine 2.5 2.5 o 1940 1941 1934 Centinental Motors Vultee Aircraft Corp Corp 2.5 1939 1937 so 5.0 5.0 Ariation Manufacturing Corp so 1937 1938 1939 1940 1941 1937 1988 . 161 STRICTLY CONFIDENTIAL EMPLOYMENT IN THE AVIATION MANUFACTURING INDUSTRY, BY REGIONS Factory Wage Earners MONT NOAR MINN wis NY S DAK NEW IDAMO IOWA NESS UTAH PENN as OHIO COLO MO KANS Mountain Central and Southern Atlantic Dec 1938- 2,300 32,000 Dec 1939- 4,400 ARIZ Dec Nov 1940-22.000 Nov. 1940- 71,500 OKLA TEXAS ARK .. GA ALA MISS CALIF FLA Total U.S. Dec 1938-31300 Dec 1939-65400 Nov. 1940-155,000 . Office Secretary of the Treasury Including Parts Companies 1-124-A WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF WASHINGTON December 18, 1940. MEMORANDUM FOR LIEUTENANT COMMANDER MCKAY: Attached is a proposed itinerary for the Secretary's trip as suggested by the Chief of Staff. It includes visits to type installations in Continental United States. We would have liked to arrange for the Secretary to visit the Puerto Rican area and see some phase of the joint operations scheduled there for February, but the plans of the Navy Department have made the dates of this landing exercise so uncertain that it would be difficult to include it in a short trip. The hours shown on the proposed itinerary are, of course, only tentative and are included simply to give an idea of the time required to make the trip. HBS. W.B.S. Incl. 162 163 SUGGESTED ITINERARY OF MR. MORGENTHAU (All Travel by Air) Dayton Washington Fort Sill Langley Field Barksdale Field Ft. Bragg Camp Jackson San Camp Beauregard 6 Intonio Ft. Benning 1st Day Depart Washington 9:00 for Langley Field. Arrive Langley Field 10:00 A. M. Depart Langley Field 1:00 P.M. for Fort Benning flying over Fort Bragg and Camp Jackson. Arrive Fort Benning 5:00 P.M. 2nd Day Inspect Infantry School Armored Division 4th Infantry Division Witness demonstration of modern weapons and tactics. Depart Fort Benning 1:00 P.M. E.S.T. for Camp Beauregard Arrive Camp Beauregard 3:00 P.M. C.S.T. Inspect concentration area. 3rd Day Depart Camp Beauregard 9:00 A.M. for Barksdale Field Arrive Barksdale 9:50 A.M., inspect Air Corps combat units Depart Barkedale 1:00 P.M. for San Antonio Arrive San Antonion 3:25 P.M. Inspect Gulf Coast Training Center (Air Corps) 4th Day Inspect Fort Sam Houston, Randolph 6 Kolly Fields. 5th Day Depart San Antonion 8:00 A.M. for Fort Sill Arrive Fort sill 10:30 A.M., inspect Field Artillery School Depart Fort sill 1:00 P.M. for Dayton, Ohio Arrive Dayton 6:50 P.M., visit Air Corps Material Division 6th Day Depart Dayton 12:30 P.M. CST for Washington Arrive Washington 4:10 P.M. EST OCAC 12-18-40 164 December 18, 1940 5:07 p.m. Frank Knox: Hello, Henry. H.M.Jr: Hello, Frank. K: I just thought you might be interested to know that we had a very, very satisfactory talk with the President on a matter we discussed with you and in principle the idea was accepted. H.M.Jr: oh, wonderful. K: Yeah. H.M.Jr: Isn't it marvelous. K: Yeah, as a matter of fact as I might of guessed, the Old Man had found his way there pretty nearly alone. H.M.Jr: Pardon. K: He practically found that - he practically had gone all the way himself in his own thinking. H.M.Jr: K: Well, I'll be darned. Yeah. So I guess it's going to come out all right. It's going to be decided this week. H.M.Jr: Wonderful. K: Yeah, I think so. I think we'll get a little order out of the thing now. H.M.Jr: Well, one thing that I - I talked up everybody but ourselves and my boys have told me today that we musn't forget about the guiding of the England in this picture. K: Do what? H.M.Jr: Taking care of England and her orders. 165 -2K: H.M.Jr: Well, that's part of the picture. It is. H.M.Jr: Oh, yes, very definitely. Well, where would they fit in? K: Huh? K: H.M.Jr: I didn't attempt to get my own self into the picture. K: How will it fit in? H.M.Jr: Yeah. K: They become Army and Navy orders. H.M.Jr: I see. K: See? H.M.Jr: I see. I see. K: The problem that we have got ahead of us is H.M.Jr: K: additional appropriations. I see. But you're perfectly happy? I'm very happy over it and delighted with the way the thing was received. H.M.Jr: Well, I'm awfully glad. I appreciate your calling me. K: All right, Henry. H.M.Jr: Thank you. K: Good-bye. 166 December 18, 1940 I called up Herbert Gaston at 8:00, and told him that Mayor LaGuardia had told me that the New York Telegraph in New York City is being boycotted, and the reason they are being boycotted is because of a few articles and statements which he gave out during the campaign. I told him that I thought if the articles they were running on me were friendly that it might help the New York Telegraph in New York City. Gaston said that this was an excellent angle, and it looks as though we were doing them a favor instead of their doing us a favor. Gaston said he almost hesitated to tell them this for fear that dothey might want too much from me. However, he said he would it, and would get hold of Parker, take him out to lunch and talk the matter over with him. I asked Gaston to write me a memo and tell me what happened when he saw Parker, and he said he would. 167 December 19, 1940 Guest list for dinner given in honor of HM,Jr by Governor George Harrison of the Federal Reserve Bank in New York this evening. 168 Sunstary Mergenthan Huury Massuthan Sr. clease teatured Uritthrop Aldrich streart Baker hauliattan lawyn arthur Ballantyne Dawiel Bill Treasury Marine lundland James G. Blaine Donaldson Brown gru Mistors Durch FRANCY mortiner Buckner U.Y. Trust Baulus Trust sloan Get ? Fruit company Central Hauour T.J. Coolidge Incupe Davison Pres. Coruell U.Y.Ba. Dis. idmund Day Fust leatival San Fraser Walty Frew Coru Ex chaugh Duesell Leffriguell I P.M. to lbn Mc. Wartin Frank L. Polk Clean C. Potter India Reachelles. ? 4.4. Sth Ex charge Lawyer Guarant Trust National at Macy & Dis F.R. Bhlth. 169 Grandsley Rwil Kulu Lost John M Scluff blen S Suidain F.R.Ble Plulad allan Sproul F.R. Bk 4.4. Pres. Murgan Stanly M Harold stauly Refut sterus ? Pusfl Sterio & Dut R.B. 4.4. Haltin Streat C Traphagme J. Watson. red. Arliamson 9. M. Baruch then D. young de Marrison Bk of 4. & Trust To Jut. Business F.R.B ofhy Pres U.4. Central Eccles Gar.Harrison copy 170 President of 7wor Edward rat'l 25 charge Brown bought December this in , 1940 to Secretary Dee 19 SPECIAL REPORT TO THE CONGRESS ab 9:30am by the Board of Governors of the Federal Reserve System, the Presidents of the Federal Reserve Banks, and the Federal Advisory Council For the first time since the creation of the Federal Reserve System, the Board of Governors, the Presidents of the twelve Federal Reserve Banks, and the members of the Federal Ad- visory Council representing the twelve Federal Reserve Districts present a joint report to the Congress. This step is taken in order to draw attention to the need of proper preparedness in our monetary organization at a time when the country is engaged in a great defense program that requires the coordinated effort of the entire Nation. Defense is not exclusively a military undertaking, but involves economic and financial effectiveness as well. The volume of physical production is now greater than ever before and under the stimulus of the defense program is certain to rise to still higher levels. Vast expenditures of the military program and their financing create additional problems in the monetary field which make it necessary to review our existing monetary machinery and to take measures to forestall the development of inflationary tendencies attributable to defects in the machinery of credit control. These tendencies, if unchecked, would produce a rise of prices, would retard the national effort for defense and greatly increase its cost, and would aggravate the situation which may result when the needs of defense, now a stimulus, later absorb 171 2- less of our economic productivity. While inflation cannot be controlled by monetary measures alone, the present extraordinary situation demands that adequate means be provided to combat the dangers of overexpansion of bank credit due to monetary causes. The volume of demand deposits and currency is fifty percent greater than in any other period in our history. Excess reserves are huge and are increasing. They provide a base for more than doubling the existing supply of bank credit. Since the early part of 1934 fourteen billion dollars of gold, the principal cause of excess reserves, has flowed into the country, and the stream of incoming gold is continuing. The necessarily large defense program of the Govern- ment will have still further expansive effects. Government securities have become the chief asset of the banking system, and purchases by banks have created additional deposits. Because of the excess reserves, interest rates have fallen to unprecedentedly low levels. Some of them are well below the reasonable requirements of an easy money policy, and are raising serious, long-term problems for the future well-being of our charitable and educational institutions, for the holders of insurance policies and savings bank accounts, and for the national economy as a whole. The Federal Reserve System finds itself in the position of being unable effectively to discharge all of its responsibilities. While the Congress has not deprived the System of responsibilities or 172 -3of powers, but in fact has granted it new powers, nevertheless, due to extraordinary world conditions, its authority is now inadequate to cope with the present and potential excess reserve problem. The Federal Reserve System, therefore, submits for the consideration of the Congress the following five-point program: 1. Congress should provide means for absorbing a large part of existing excess reserves, which amount to seven billion dollars, as well as such additions to these reserves as may occur. Specifically, it is recommended that Congress - (a) Increase the statutory reserve requirements for demand deposits in banks in central reserve cities to 26%; for demand deposits in banks in reserve cities to 20%; for demand deposits in country banks to 14%; and for time deposits in all banks to 6%. (b) Empower the Federal Open Market Committee to make further increases of reserve requirements sufficient to absorb excess reserves, subject to the limitation that reserve requirements shall not be increased to more than double the respective percentages specified in paragraph (a). (The power to change reserve requirements, now vested in the Board of Governors, and the control of open market operations, now vested in the Federal Open Market Committee, should be placed in the same body.) (c) Authorize the Federal Open Market Committee to change reserve requirements for central reserve city banks, or for reserve city banks, or for country banks, or for any combination of these three classes. (d) Make reserve requirements applicable to all banks receiving demand deposits regardless of whether or not they are members of the Federal Reserve System. (e) Exempt reserves required under paragraphs (a), (b) and (d) from the assessments of the Federal Deposit Insurance Corporation. -- 173 2. Various sources of potential increases in excess reserves should be removed. These include: the power to issue three billions of greenbacks; further monetization of foreign silver; the power to issue silver certificates against the seigniorage, now amounting to one and a half billion dollars on previous purchases of silver. In view of the completely changed international situation during the past year, the power further to devalue the dollar in terms of gold is no longer necessary or desirable and should be permitted to lapse. If it should be necessary to use the stabilization fund in any manner which would affect excess reserves of banks of this country, it would be advisable if it were done only after consultation with the Federal Open Market Committee whose responsibility it would be to fix reserve requirements. 3. Without interfering with any assistance that this Government may wish to extend to friendly nations, means should be found to prevent further growth in excess reserves and in deposits arising from future gold acquisitions. Such acquisitions should be insulated from the credit system and, once insulated, it would be advisable if they were not restored to the credit system except after consultation with the Federal Open Market Committee. 4. The financing of both the ordinary requirements of Government and the extraordinary needs of the defense program should be accomplished by drawing upon the existing large volume of deposits rather than by creating additional deposits through bank purchases of 174 -5Government securities. We are in accord with the view that the general debt limit should be raised; that the special limitations on defense financing should be removed; and that the Treasury should be authorized to issue any type of securities (including fully taxable securities) which would be especially suitable for investors other than commercial banks. This is clearly desirable for monetary as well as fiscal reasons. 5. As the national income increases a larger and larger portion of the defense expenses should be met by tax revenues rather than by borrowing. Whatever the point may be at which the budget should be balanced, there cannot be any question that whenever the country approaches a condition of full utilization of its economic capacity, with appropriate consideration of both employment and production, the budget should be balanced. This will be essential if monetary responsibility is to be discharged effectively. In making these five recommendations, the Federal Reserve System has addressed itself primarily to the monetary aspects of the situation. These monetary measures are necessary, but there are protective steps, equally or more important, that should be taken in other fields, such as prevention of industrial and labor bottlenecks, and pursuance of a tax policy appropriate to the defense program and to our monetary and fiscal needs. It is vital to the success of these measures that there be unity of policy and full coordination of action by the various Governmental bodies. A monetary system divided against itself cannot stand securely. In the period that lies ahead a secure monetary system is essential to the success of the defense program and constitutes an indispensable bulwark of the Nation. STRICTLY CONFIDENTIAL 175 Memorandum December 19, 1940 A-L Mr. Long: The following representatives of government departments and agencies met on December 18, 1940 to discuss policies covering immobilized foreign shipping in United States jurisdiction: State Department Green H. Hackworth, Legal Adviser to the Secretary J.E. Saugstad, Assistant Chief, Division of International Communications Treasury Department Herbert E. Gaston, Assistant Secretary of the Treasury E. H. Foley, Jr., General Counsel Huntington Cairns, Assistant General Counsel Oscar S. Cox, Assistant to the General Counsel War Department Lt. Col. C. H. Kells, Executive Office, Water Transportation Branch Major Frank Ross, General Staff Corps Justice Department Judge N. A. Townsend, Special Assistant to the Attorney General Navy Department Capt. R. E. Schuirmann, Director of Central Division, Naval Operations Capt. C. S. Alden Commander H. Biesemeier, Office of Judge Adjutant General United States 176 -2 United States Maritime Commission Admiral Emory S. Land, Chairman Russell E. Luts, Assistant General Counsel Eugene J. Ackerson, Attorney, Legal Division H. T. Morse, Assistant to the Chairman The attached memorandum for the Secretary of State is agreed to by these officials although not signed by them. LE:GHH IN:JES:FMD (Copy:pm) 177 MEMORANDUM OF CONFERENCE ON IMMOBILIZED SHIPPING Time: 4:00 to 5:40 P.M., December 18, 1940 Place: Room 474, State Department Building Present: State Department: Green H. Hackworth, Legal Adviser to theSecretary, and J. E. Saugstad, Assistant Chief, Division of International Communications. Treasury Department: Herbert E. Gaston, Assistant Secretary of the Treasury, E. H. Foley, Jr., General Counsel, Huntington Cairns, Assistant General Counsel, and Oscar S. Cox, Assistant to the General Counsel. War Department: Lt. Col. C. H. Kells, Executive Office, Water Transportation Branch, and Major Frank Ross, General Staff Corps. Justice Department: Judge N. A. Townsend, Special Assistant to the Attorney General. Navy Department: Capt. R. E. Schuirmann, Director of Central Division, Naval Operations, Capt. C. S. Alden, and Commander H. Biesemeier, Office of Judge Adjutant General. United States Maritime Commission: Admiral Emory S. Land, Chairman, Russell E. Lutz, Assistant General Counsel, Eugene J. Ackerson, Attorney, Legal Division, and H. T. Morse, Assistant to the Chairman. Discussion: Mr. Saugstad of the State Department, raised for discussion the revision of Draft No. 3 of the memorandum, a copy of which is annexed. The Treasury Department raised the fundamental question of whether it was wise to recommend to the President that a Coordinator be appointed since the conferees were apparently meeting for the purpose of coordinating and disposing of the problem of immobilized ships. The Treasury, through Messrs. Gaston, Cairns, and Cox, also raised a series of specific questions. One was the statement that there was not now an acute shortage of tonnage available for the requirements of the 178 -2United States overseas commerce. Mr. Cox pointed out that factually, in the light of what Admiral Land had said, the statement was not true and that as a legal matter, if it were decided to requisition the ships, a record should not be made against the Government on either an unsupported or doubtful statement of fact. The Treasury also raised the question as to whether or not the statement in Paragraph 3, on page 7, about the inability of the Maritime Commission to requisition under existing law, was accurate. The Treasury also suggested that if it were decided to proceed on the basis of the present plan, one of the major recommendations should be that the Coordinator determine whether or not the immobilized ships could be put to use under the law. All of the Treasury's views were adopted. Other suggested revisions were also introduced and accepted. Mr. Saugstad said he would send a revised copy of the memorandum to Mr. Gaston on the morning of December 19. Mr. Saugstad also said that he wished to submit this memorandum to the Secretary of State at the same time. The memorandum was sent, not to Mr. Gaston, but to Mr. Cox at 5:00 P.M. on December 19. Attachment OSC:mp 12/20 40 (Copy:pm) 179 STRICTLY CONFIDENTIAL MEMORANDUM For the Secretary of State: Subject: Vessel Tennage It is the consensus of representatives of the Departments of State, Treasury, War, Justice, and Navy, and of the Maritime Commission, after informal discussion, that destruction and disruption of world shipping tonnage caused by current war in Europe have reached conditions in amount and in degree of intensity sufficient to warrant immediate administrative consideration. Tomage Destruction Strietly confidential official sources indicate that from September 3, 1939 to November 24, 1940, tomage 180 tonnage destruction has been: British 2,729,000 gross tens Foreign 1,898,000 . 4,627,000 . Total . Average rate of British loss per week from June 10 to November 24, 1940, 99,000 gross tons, OF approximately 14,000 gress tons per day. Tomnage Immobilization There are in United States ports (including outlying possessions) 112 vessels of foreign registry totalling 615,000 gross tons which are immobilized by reason of war conditions. They are as follows: Totals by Plage No. Danish French Italian Nervegian Belgian Greek Regarism Lithmanism Yugosias Latvian 41 15 27 6 1 4 1 1 3 3 Gross Tons 188,561 164,018 145,489 41,925 6,429 24,815 3,933 1,265 11,642 10,761 5,997 7,209 Estomism Rammism Sundish 3 German 2 24,601 9,067 112 618,430 Total 2 3 There 181 s There remains of the 112 vessels in the Maritime Commission's 1016-mp first at the outbreak of the war, a total of 46 vessels, 24 of which are up for bid for purchase without restriction, 2 are up for bid restricted to purchase by American citizens for domostic operation, and the remaining 20 vessels are either undergoing recen- disioning or are to be reconditioned for use as may be required, Tennage Shortage and Reserve The Maritime Commission is of the opinion that there is not NOW nor has there been acute shortage of commercial tonnage available for the requirements of the United States overseas commerce. It is generally agreed that 18 is inpossible to predies with any certainty future teanage requirements. It is obvious in the light of previous experience during was conditions that the Government of the United States must maintain seas reserve tannage. Shipping Requirements of Government Agencies The present additional meas time shipping requirements 182 requirements of government agencies other than those of the Maritime Commission are summarized as follows: War Department: 7 vessels of transport class and 5 vessels of supply class. Navy Department: 15 combination vessels and 10 earge supply vessels. The Maritime Commission has already turned over to the Var Department 13 vessels-7 combination vessels and 6 cargo vessels, and there are under construction for the account of the Commission for delivery to the Var Department two 0-3 type transports. The Maritime Commission has made arrangements for acquisition by the Navy or has turned over directly to the Navy 38 vessels-14 combination vessels, 12 new eargo vessels of the 0-2 and C-3 type, and 12 new national defense tankers. The Commission has received bids for the construction of five additional new national defense tankers for the Navy. Problems 183 -5- Problems On the surface, it might appear that ve could take over these foreign vessels amounting to over six hundred thousand tons and release the equivalent of that tonnage to the British. This does not necessarily follow. It is a question as to how many of these vessels are desirable or economically suitable for operation in our United States trade. Some of the problems involved are as follows: 1. The acquisition of these vessels and their operation as merchant vessels under the American flag will necessitate, under existing law, alterations to meet our inspection requirements and standard of crews quarters. 2. Being equipped with foreign-built engines, most of which are Diesel, numerous difficulties will be encountered in operation, such as making repairs, securing parts, eteeters. 3. Securing American licensed engineers experienced in operating these engines will be difficult. 4. If these vessels were chartered for commercial operation in our Merchant Marine, it would 184 would probably be accessary to retain at least the Danish engine FOOD personnel. Under existing law, all licensed officers must be American citizens. s. If, in turn, American vessels were treasferred to the Marry OF sold to the British, the American crows would be thrown out of work with resultant serious objections by American labor. 6. These vessels, being foreign-built, would not, water existing law, be eligible for subsidy or operation in the domostic trade. v. Mady of these shipe are of small teamage readering questionable their utility to our Merchant Marine or to the Away or Mary. In the opinion of the Away and Herry, the balk of those vessels are not suitable for Away or Navy needs. However, they might be very uneful to the British. Destrol Objective 1. That such central should new be exercised over foreign tennage immilised in United States parts on - of - contisions as will keep 28 available to this Government for use as may be mosted by our various services or for possible salence to the British Government. Extetties 185 -7- Existing Authority to Centrol and Acquire Foreign Flax Tomage under 1. The Treasury Department has authority to take protective control ever the immobilized vessels in our ports and may prevent their departure and protect them against note of sabotage. (U.S.C., Title so, Chapter 12) An existing presidential proclamation is sufficient basis for the exercise of this authority. 2. The Havy Department has authority to acquire and convert vessels for naval auxiliaries. It may charter OF purchase vessels for naval auxiliaries but does not have authority to requisition. (Second Supplemental National Defense Appropriation Act, 1941 (Public No. 781)) 3. The Maritime Commission is the requisitioning agency of the Government with respect to American-owned vessels but it does not, under existing statutes, have authority to purchase, charter, or requisition foreign-owned, foreign flag tennage. (Section 902, Merchant Marine Act, 1936) Recommendations 1. That the President designate one man as Chief Countinater under the President for the activities of the various Departments and intopendent agencies of the Government conserved in the 186 the problem of dealing with the immobilized vessels, teamage supply and other related emergency problems. 2. That the Secretary of the Treasury, in cooperation with the Chief Coordinator, immediately take such steps as may be necessary to control and safeguard the immobilised vessels new in our parts, including ports of the insular possessions, 3. That the Coordinator assertain if the immobilized vessels can be requisitioned or otherwise acquired by the Government under existing law. 4. That the Navy proceed, in cooperation with the Chief Coordinator, to exercise the authority which it now has to buy or sharter any of the tonnage under consideration that may be needed for its purposes, 5. If existing law does not authorize the requisition of immobilized vessels and if the President submits legislation to the Gongress in line with the policy recently announced with rea- peet to granting aid to the British, there be ineluded a section giving him specific authority to require OF requisition foreign owned foreign fing vessels immobilized by reason of WAY conditions, found in United States jurisdiction, together with each authority as may be necessary to make each use OF disposition thereof as he shall determine, It 187 It will of course be appreciated that any request for legislative authority to acquire immobilized foreign vessels will at once raise the question as to why such authority is needed at a time when we are selling vessels, and also whether the purpose in obtaining such authority is to enable us to turn these or other vessels over to the British Government or to keep available reserve tennage for national needs. Any opposition would perhaps be more pronounced in connection with an independent bill for this purpose than it would be if a section for the same purpose were included in other legislation of a general character concerning aid to the British, Le:GHH INDJESIFIC 188 December 19, 1940 12:00 p.m. H.M.Jr: Hello. Isador Lubin: Hello. H.M.Jr: Yes, Lubin. Morgenthau. L: Is there any chance of my seeing you for one minute? H.M.Jr: No, but you can do it on the phone. L: It's the sort of thing I can't talk about. H.M.Jr: L: Well, what is it? It's a matter that I think the Boss has got to be spoken to about. H.M.Jr: Well, can you give me an idea? L: Well, it's this reorganization of the Commission. H.M.Jr: L: Oh. Well, do you want to before Cabinet? I don't care whether - more or less - but I do feel that there's going to be a hell of a reaction particularly in view of John Lewis and his group - to be able to say that the two Republicans - three Republicans, Army, Navy and a big industrialist are going to run this whole show. H.M.Jr: Well, why don't you be here at 10 minutes of 2:00. L: O. K. I'll be there. H.M.Jr: 10 minutes of 2:00. L: All right, fine. Swell. 189 December 19, 1940 Mr. Lubin phoned the Secretary at 12 o'clock and wanted to come over to see the Secretary on a matter he preferred not to discuss over the phone. He came over at ten minutes to two. Mr. Lubin said he thought it was a great mis- take to have three Republicans, Stimson, Knox and Knudsen and no Democrats on the council to speed de- fense. He thinks it is a great mistake not to have a labor man on this committee. He also felt that Knudsen was not the man to head up this council for, in his opinion, he has done nothing worthwhile up to date. Lubin asked the Secretary whom else he should talk to and the Secretary suggested Corcoran, Cohen and Felix Frankfurter. 190 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 19. 1940 Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Sir Frederick Phillips, accompanied by Messrs. Pinsent and Playfair, called on me at 12 o'clock noon by appointment. Around 11 o'clock Secretary Morgenthan had explained to Messrs. Bell, Young and myself the circumstances attending the issuance of the simultaneous press conferences held at the White House and the Treasury in which information had this morning been made available in regard to the British pro- gran of contracts in this country. It was understood that I should make the ticker reports of such conferences available to Sir Frederick Phillips, but that I could add no information thereto. When I showed the visitors the ticker reports Sir Frederick Phillips immediately insisted that he had understood the Secretary to have given him the message that the British were free to go ahead with the placing of their contracts, without any restriction being made that they should merely proceed up to the point of signing and then await some action on the part of Congress. In answer to Phillips' inquiry, told him that Secretary Morgenthan and Under Secretary Bell were not available, acause of schedules involving the Cabinet Meeting and immediate departure thereafter for New York. I did, however, at my visitors' suggestion, ask Phillip Young to join our group. Phillips concentrated upon the argument that it is very vital to his Government that they know the calendar date by which this situation may be cleared up so that they can actually sign contracts. Young and I argued that as much as it was possible to give had been embodied in the communications and that there was no possible way of telling by what date the whole problem could be resolved vis-a-vis Congress. I promised to speak to the Secretary on this point if I saw him before he attended the Cabinet Meeting, or to ask Mr. Bell to telephone me back from New York any message which the Secretary might feel free to let me pass on to Phillips tonight, particularly if the plans might have crystallised to some further extent at this afternoon's Cabinet Meeting. It was our belief, however, that there could be no further helpful discussion of the question before Secretary Morgenthau's return from New York. Before leaving us at 1 o'clock Phillips asked if he could 888 me again in the afternoon. At 5 o'clock this afternoon Phillips returned to my office, accompanied by Pinsent. I explained to Phillips that I had not seen the Secretary before the Cabinet Meeting, but had spoken with Mr. Bell along the lines above indicated, and that I would pass on to him, Phillips, any message which I might receive from the Secretary before his return tomorrow afternoon. Phillips said there was no use indiscussing the contracts and supplies further to question Washington of today, in but the morning, that he was and sure he would be having inquiries from his Government tonight or would consequently like to see the Secretary again as soon as possible. He did desire day, however, to go into the assets side of the question with mo. 191 -2Phillips reminded me that when he was explaining British assets to the Secretary he had let it be known that gold holdings of Great Britain, together with foreign exchange assets in the United States and Canada, totaled $574,000,000. Since the date on which Phillips gave this estimate, these resources have dwindled further. Now that the possibility has arisen that a few days or several weeks may be involved before any definite arrangement is made which will relieve the British of paying cash for their purchases in this country, Phillips feels that we must consider the very immediate problem of the cash question. He reminded me of the British desire to maintain a minimum working balance of $600,000,000 in gold. The figure has now gone considerably below that level and this is the one available reserve to be looked to immediately, aside from the securities which are being liquidated. Phillips explained to me that while a large portion of the British gold had been transported to and stored in Canada, the supply there is now nearing exhaustion and there are various problems involved in bringing more gold to the United States from Australia and South Africa where the remaining gold holdings of the British are situated. In this connection, Phillips asked whether it would be possible for the Treasury or the Federal Reserve Bank of New York to buy gold situated in Australia or South Arrica. I told Phillips that it had been the consistent policy of the Treasury since the day that the European war broke out in September 1939 to purchase gold only upon delivery in the United States. I let him know that various treasuries and central banks in Europe had approached us on this subject, but that the only gold which we had taken title to outside of the United States after the outbreak of the war was that French gold which we accepted delivery of aboard an American cruiser and brought to the United States in the month of June, 1940. I added, furthermore, that the Federal Reserve Bank of New York has not bought any gold abroad, although both it and private banks have in a few cases made advances to central banks against gold in transit to the United States. Whether this could be done in the present instance was a question. On Phillips' side, he said there was doubt in his mind as to whether the risk should be attempted of bringing gold from South Africa in a merchant vessel. He asked, in this connection, if the American Navy had any vessels in South African waters. I replied that I believed none was maintained there regularly, although our ships occasionally visited South African ports. He was obviously interested in rendering a service to the British similar to that provided the French in transporting one lot of gold by cruiser. Phillips then raised the question of the British Government acquiring gold from her allies. He said that he believed his Prime Minister would want some expression from President Roosevelt as to the propriety of such action before his Government pursued this point further with the allied governments. In answer to my inquiry, Phillips confirmed that his Government had already taken up this matter with the exile governments of Norway, the Netherlands and Belgium. When the proposal vas made to them that they dispose of their gold to the British Government against sterling, in order to help finance the common cause, the Norwegians and Dutch officials to The likewise insisted that they had certain dollar obligations themselves to meet. They were not willing accept proposition. Belgians of refused, butofdid to the indicate villingness to the consider the proposition lendingtheir some gold British, provided an undertaking was made to return it to Belgium at the close of 192 3- hostilities, since this constituted the one reserve of Belgium which has been preserved, and which will be needed for post-war rehabilitation. Phillips did not mention whether an approach had been made concerning the comparatively small amount of Czech gold. That of Poland is all in the hands of the French in Dakar. Denmark's gold holdings are quite small. The question of French gold held in Canada was then discussed. Phillips reminded me that part of this was earmarked directly with the Bank of Canada by the Bank of France, and that the remainder had been earmarked originally with the Bank of England, and that the latter had now placed this with the Bank of Canada. The British do not feel that they should take steps toward "pinching" that French gold which is with the Bank of Canada in the name of the Bank of England unless and until the Dominion Government is reconciled to the idea of the Government of Canada, through the Bank of Canada, taking similar action with respect to that French gold earmarked directly with the Bank of Canada. Phillips told me that the proposal toward this end which he had submitted to the Government of Canada last summer after his visit to Washington had been turned down. He has again taken the matter up with Deputy Minister of Finance Clark during the latter's visit to Washington several days ago, and is still waiting some word from Ottawa. He added that another cause for a cautious policy on the part of the British in this respect was the concern of Purvis lest contractors in the United States might become excited if the British were taking over French gold in this hemisphere. He thought this might lead to difficulties in lacing British orders. Now, however, Phillips feels that the purchasing program has developed to such a point that there is no longer need for concern on this ground. On the other hand, there has been a new development in France which gives cause for pause. That is, with the sentiment in France having become decidedly more pro-British in recent weeks, there is a question as to whether any step should now be taken through "pinching" the French gold in Canada which might strongly antagonise the French. Furthermore, Phillips pointed out that only a part of the French gold is accessible to the British, that part aside from the stock in Canada being distributed in the United States, Martinique and Senegal. With respect to United States dollar securities held by the British, we discussed the efforts of Mr. Gifford to speed up the liquidation thereof, and shared pleasure at the progress which Gifford has made the first three days of this week, from which it appears that it will be possible considerably to increase the rate at which dollar securities have been marketed at New York. Even if this total does, however, go along at the rate of the first half of this week, or even increases further, the total proceeds therefrom will be entirely inadequate to meet the cash requirements of the British. Phillips asked whether there had been any further thought given to the subject of the Treasury or the R.F.C. taking over these securities. Pinsent agreed with me that a recent statement by R.F.C. Chairman Jones indicated that he felt that no loan could properly be made against such securities in the absence of Congressional action. Pinsent and I also reminded Phillips of recent statements of Secretary Morgenthau wherein he denied any intention of rendering financial aid to Great Britain, which might conceivably violate even the spirit of the Johnson Act, ithout prior approval of Congress. 193 -4Phillips then let me know that he had seen Prebisch of the Argentine Financial Delegation a few days ago and had discussed the proposition which the British have had up with the Argentines for some time of the latter redeeming the British-owned railways in Argentina. Phillips believes that the maximum value of such securities in present market conditions is 145,000,000, or approximately $180,000,000. Various arrangements have been talked over with the Argentines, but Phillips thought the one most likely to offer possibilities was one whereby Argentina might borrow around $100,000,000 from the United States and pay the British in dollars for their securities and also, I believe, the equity involved. I asked Phillips if it was his understanding that Prebisch would look to us for this $100,000,000 in addition to the two transactions, one by the American Export Import Bank and the other by our Stabilization Fund, which are now being consummated. Phillips replied in the affirmative. He realized that there might be another plan worked out whereby the British would be reimbursed for their Argentine securities through 4 percent sterling debentures which would run 60 years. I told Phillips that we have had no recent conversations with the Argentines on this subject, leaving the field to the British and the Argentines themselves to cover. As a next possibility, Phillips brought up the question of direct investments in the United States. He thought the Department of Commerce estimate thereof was too high, especially since some of such investments really consist of securities which have been taken over already by the British Government and have brought the total of their United States dollar securities up to about $1,000,000,000, which is in excess of the Department of Commerce estimate. Phillips feels that the marketability of most of their investments in the United States is small because of the importance of the connection of the parent concern in England with the affiliates in the United States. He seemed to favor the idea of borrowing under mortgages covering such properties, rather than attempting outright sales. In answer to my question, he said that Gifford had not looked into this possibility, and that some other agent than Gifford, who is purely a security expert, would probably be selected if any comprehensive effort to dispose of direct investments is undertaken. Finally Sir Frederick raised the question as to whether immediate and direct assistance could be obtained from our Stabilization Fund. I explained to him the simple process which we use in our current and proposed operations with certain countries. I added, however, that I doubted whether Secretary Morgenthau would feel that his clearance with the Congressional committees on the Chinese proposition left him free to carry out a similar transaction with Great Britain, the latter being definitely a belligerent. Pinsent agreed with me that other statements of the Secretary might preclude such a possibility. They hoped, however, that I would broach this subject to the Secretary, since it would be the most prompt and immediate aethod of providing dollar exchange, if it is at all feasible. I ventured to suggest that the Secretary might refrain from such action, even though the law might permit it, now that the big program has been launched of putting the British situation squarely before Congress. That is, I thought that in view of the statements made by the President and the Secretaries of State, Treasury and Commerce, there might should be the risk of damaging the whole British cause here if the Treasury Department 194 -5- Sir whole over with the proceed independently and take the position of anticipating Congressional now approval. Frederick hoped that I would talk this subject Secretary, considering the urgency of the British cash position and the arrangement for the Secretary to let Sir Frederick have his views as early as possible. 195 BRITISH EMBASSY, WASHIKCTON, D.C. 19th December 1940. Dear Mr. Secretary, I enclose tables in the form in which you asked me for them yesterday afternoon, showing the order in which we should wish to place the various orders contained in Programs Nos.1 and 2. I hope this will give you all the information which you require. Believe me, Dear Mr. Secretary, Very sincerely yours, Hhillips The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 196 His Majesty's Government have learned with very deep appreciation of the President's message conveyed by the Secretary of the Treasury, that they should proceed at once with the placing of the orders necessary to fulfil Programs Nos.1 and 2 referred to in the statement handed to Sir F. Phillips by Mr. Morgenthau on the 17th December. They are anxious to proceed immediately in accordance with the President's decision. The British Purchasing Commission and British Air Commission have prepared, subject to confirmation from London, the following notes on the succession in which they believe it will be possible to place orders:- British Embassy, Washington, D.C. 19th December 1940. Estimated Monthly Distribution of British Purchasing Mission Payments in the United States against Existing Commitments and Programs 1 & 2, as per Schedule entitled "Summary of British Programs handed by the Secretary of the Treasury to Sir Frederick Phillips, December 17, 1940. Millions of U.S. Dollars After Total Total Balances due on Orders already placed Program No. 1 Program No. 2 Total Dec. Jan. Feb. Dec. - Feb. 1940 1941 1941 1940 147 123 Product 1284 156 Capital 17 10 Product 2062 86 Capital 699 35 Product 1225 5 1 1941 426 Feb. 1941 858 14 5 187 470 1592 89 139 263 456 63 59 38 160 1065 Capital 10 - - 10 - 10 Product 4571 305 405 348 1056 3515 Capital 726 55 92 140 287 439 5297 360 495 488 1543 3954 TOTAL 197 Note: The monthly distribution of payments shown above reflects a partial revision of the rate of expenditure shown in the November 30th estimates. A complete revision as of December 31st will be available early in January. 198 FIRST GROUP OF ORDERS (In Millions of U.S. Dollars) Total of Orders SHIPS Estimated Payments Dec. 1940 - Feb, 1941 Estimated Payments after Feb, 1941 Product 97 30 67 Capital 9 9 - 106 39 67 Product 620 160 460 Capital 300 75 225 920 235 685 Product 444 70 574 Capital 35 35 - 479 105 574 1161 260 901 344 119 225 579 1126 AIRCRAFT MUNITIONS TOTAL - Product Capital GRAND TOTAL 1505 - A. SHIPS New Ships. This is theTodd scheme for the construction of 60 new merchant ships, 410 feet long, 9300 tons, 10 knots speed. Used Ships. Purchases of used merchant ships at auction. B. AIRCRAFT The above covers (a) the placing of orders to complete the first 14,000 aircraft (already cleared) (b) the release of orders for 3660 aircraft from existing capacity (clearance pending), and (e) the creation of capanity for further production, especially for urgently needed heavy bombers. C. MUNITIONS British Types. This represents the "Army Program Ast required to complete the equipment of the divisions already formed or forming, together with Oerlikon guns for merchant shipping anti-sircraft defense. American Types. This represents certain U.S. type material (guns, ammunition etc.) which are in the "Army Program A. 199 SECOND GROUP OF ORDERS (In Millions of U.S. Dollars) Estimated Payments Total of Orders Dec. 1940 - Feb, 1941 Estimated Payments after Feb. 1941 AIRCRAFT Product 200 50 150 Capital - - - 200 50 150 Product 100 30 70 Capital 15 4 115 34 81 Product 300 80 220 Capital 15 4 11 84 251 MINITIONS 11 TOTAL GRAND TOTAL -515 D. AIRCRAFT These orders cover the continued exployment of existing capacity from April to June 1942. E. ITIONS The above covers orders still to be placed to complete our program for 5000 MS American Type Gruiser Tanks. 200 THIRD GROUP OF ORDERS (Millions of U.S. Dollars) Total of Estimated Payments Dec.1940 - Feb.1941 Estimated Payment 650 150 140 510 75 75 800 215 585 Product 600 130 Capital 200 75 470 125 800 205 595 Product 576 20 556 Capital - Orders AIRCRAFT Product Capital MUNITIONS after Feb. 1941 MISCELLANEOUS - 576 20 556 Product 1826 1536 Capital 350 290 150 440 1736 TOTAL GRAND TOTAL 2176 200 F. AIRCRAFT The above covers (a) the British share in new plants now being created by the U.S. Army. (b) orders to be placed from new British capacity referred to in the first group of orders:paragraph B (c). G. MUNITIONS The above covers the 10 Division scheme (Army Program B) exclusive of certain additional items still under consideration. H. MISCELLANEOUS The above covers steel and miscellaneous purchases. These are in the nature of current supplies which are ordered on running contracts, not involving large forward commitments. TREASURY DEPARTMENT 201 INTER OFFICE COMMUNICATION DATE December 19. 1940 TO FROM Secretary Morgenthau Mr. Cochran Mr. Gifford telephoned me from New York at 10:30 this morning. He stated that yesterday he consummated one single transaction for a total of between $1,250,000 and $1,500,000. This involved the sale of its own stock to an issuing company and took place after a revival of a heretofore unsuccessful effort to make the deal. Mr. Gifford let me know further that another transaction is under way envisaging a disbribution operation through Smith Barney, amounting to about $2,500,000. This second deal is contingent upon the state of today's New York stock market. If the market recedes beyond a certain point, and it was noted that the opening was weak, Smith Barney may withdraw from the arrangement under the privilege which they have. Gifford telephoned me these two items to let us know that he is making a real effort to speed up transactions, and is following insofar as possible the lines which he thought the Treasury desired that he pursue. December 20, 1940 Late yesterday afternoon Mr. Gifford tried to reach me by telephone, but I was in a meeting. Following that, Pinsent told me when calling here with Sir Frederick Phillips that Gifford had asked him to communicate to me the message which he had hoped to give directly, that is, that the $2,500,000 deal (which Gifford had men- tioned to me and which is described above) had been consummated and will appear in the report covering yesterday's transactions. Thus there will be included in the sales of December 18 an item amounting to $1,250,000 to $1,500,000, and in the report of December 19 this other item of about $2,500,000. BMR. 202 PLAIN JR London Dated DECEMBER 19, 1940 REC'D 2:05 p.m. Secretary of State, Washington. 4144, 19th. The President's "lend our neighbor the hose pipe" declaration at his press conference was reported in yesterday's press but not until this morning did journalists have time to catch their breath and comment on the proposals. The scheme is universally praised, nearly all comments Emphasizing the fact that the statement revealed a determined Effort for speeding up production as the primary problem Eclipsing any technical considerations of finance or foreign Exchange. The TIMES diplomatic correspondent refers to the statement as "one of the most important suggestions to COME across. the Atlantic since war began" and states that "seldom can a few words have offered the prospect of so complete a change in a great and vital problem". This writer also asserts that "in London it is thought that hardly less important than Mr. ROOSEVELT'S statement is the one made at about the same time on Tuesday by Mr. Cordril Hull on the great task that faces Great Britain during the 203 -2- #4144, DECEMBER 19, from London. the next few months". The TIMES long editorial on the subject points out that America realizes that loans on the scale needed would simply create difficulties after this war similar to those which helped to wreck the world after the last war, and that Britain could only repry by increasing exports to the United States which would stimulate higher tcriffs to protect American industry and Employment. This Editorial also points out that Britain has freely made rll SECRET and technical information available to the American authorities and that C distinguished American soldier hrs described these facilities rs worth mony millions of dollars; the Editorial contains C warning the t the suggestions must be submitted to Congress and suggests the verious types of opposition it will doubtless meet but odds that by many it will be hailed CS the "first gleam of E conomic senity in C world bEdEvillEd by finance" and that there will be relief that at the End of the war the "world may be spared the nightmare of unpryable war debts and reparation which after 1918 helped to produce such conditions C made social unrest, Hitlerism and war almost inevitable." This Editorial urges that the British Government should make it clear that no repayment is expected of the advances made to GREECE and of similar advences. The 204 -3- #4144, December 19, from London. The MANCHESTER GUARDIAN, like the DAILY TELEGRAPH, emphasizes that the President's statement reveals that he is alive to the importance of increasing American production. "As WE have found production at war speed cannot be secured by peace-time hours of labour and methods of orgenization and the United States is making the SOME discovery." The NEWS Chronicle stresses the same point in its Editorial referring to Secretary Hull's Emphasis on the need of increasing the flow of from to Britain. The FINANCIAL PRESS naturally stresses the foreign Exchange implications. The FINANCIAL TIMES, for example, stating "whether intentionally or not the plan has the adventage of avoiding pitfills inseparable from international lorns and credits and it effectually bypasses the difficult problem of foreign Exchange." This Editorial concludes that the scheme foreshadows EXtEndEd Economic collaboration and "may later adumbrate the appearance of n new order of a very different type from the slevery system Envisaged by Hitler." The FINANCIAL NEWS points out that it is reasonable to assume that the scheme can well provide a "useful possible wor cushion for British industry" C.S well na avoiding the confusion crising from an entanglement of dollar debts. "Responsible American statesmen do not of course doubt the Efficc.cy of gold as international currency but 205 -4- #4144, December 19, from London. but they have long recognized that further considerable additions to a redundent gold stock SERVES merely to ensure that ultimately the United States will suffer the fate of Midns." This Editorinl Ends with C. warning similar to those contained in the comments of the DAILY TELEGRAPH and the MANCHESTER GUARDIAN that the United States cannot EXERT its full weight EXCEPT with a reduction in living standards and ASSUMES that the DEfEnCE Commission must be given more powers in due course. The favorite subject of today's cartoons is the presentation of the President CS Santa Claus. In one COSE (the DAILY EXPRESS) Britnin's stocking hangs on the fireplace of C bomb-shattered room with 0 note "thanks a million--sorry I couldn't wait--I'm on duty." In another CASE (DAILY HERALD) Uncle Sam asks "can WE fford to give all that to Britain" and Santa Claus replies "can WE offord not to?" Please give n copy of this telegrom to Trensury. JOHNSON CSB 31 BECEIAED 206 THE ASSISTANT SECRETARY OF WAR WASHINGTON 4850 December 19th, 1940. OFFICE My dear Henry: I acknowledge with thanks receipt of your letter of December 9th, enclosing two communications from Air Commodore Slessor, relating respective- ly to the British operational aircraft and pilot situa- tion and Air Commodore Slessor's impressions of the United States Air Production Programme. The confidential nature of this material has been noted and it will be held in the appropriate files. Sincerely yours, RLPP.U Honorable Henry Morgenthau, Jr., The Secretary of the Treasury. 207 THE SECRETARY OF STATE WASHINGTON December 19, 1940 Dear Mr. Secretary: I wish to thank you for your kindness in sending me enclosed in your letter of December eighteenth the report on the British air force. Your courtesy in making it available to me is appreciated. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 203 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 19, 1940 TO Secretary Morgenthau FROM Mr. Wiley Re: Baron Wolfgang zu Putlitz. Supplementing my memorandum of December 4, the FBI now reports that Baron Putlitz arrived in the United States on June 20, 1940, from England, and quotes him as stating that he had been in the German Diplomatic Service for many years, had served with Von Ribbentrop in London, and was last stationed in The Netherlands. Because he was anti-Nazi and was suspected of un-German activities and sympethies, he had been kept under surveillance for several years by the Gestapo. In October, 1939 he fled from the Hague to England by private plane, where he claims he furnished valuable information, particularly to Van Sittart. Though he offered his services to the British Government he was not used, and when Churchill came to power conditions in England became impossible for any German. He was then given a visa for Jamaica. He gave the name of Lottie Lehman as his best friend in the United States, where he was permitted to remain thirty days enroute to Kingston. He told FBI various anecdotes: For example, when he was working with Von Ribbentrop in London he knew a man who was receiving 650 a month from Von Ribbentrop for the sole purpose of contacting Chamberlain's brother-in-law. This stoolpigeon, an Englishman, was a house-guest practically every weekend in Scotland, where the innermost secrets of the Chamberlain government were freely discussed. This sort of thing stopped abruptly when Churchill took over the government. Since the British did not think it was worth while to make use of his services, I see no special reason from his record why we should. His personal peculiarities, too, would suggest that it might be better for him to remain in Jamaica. and 209 m w ley gave this to the seing after the 9:30 meeting this am TREASURY DEPARTMENT 210 INTER OFFICE COMMUNICATION DATE December 4, 1940 TO FROM Mrs. Klotz Mr. Wiley I return herewith the correspondence regarding Baron Wolfgang zu Putlitz. Within a day or so I expect to receive reports from several sources on him. It appears that he is very well known to the State Department, where views regarding his admission to the United States are divided. In any event, should he be given a quota visa at Jamaica, he would not become eligible for a quota number for some three months, so the matter is not urgent. As soon as further information is received I shall send it to you. dow Air Mail. 211 SECRET AND PERSONAL. 29th November, 1940. Dear Mr. Morgenthau, Concerning Baron Wolfgang zu Putlitz, I enclose a copy of a letter I have sent by this mail to Lord Lothian. It is selfexplanatory. He only made two copies of the typescript, one which I had sent for him to the New York publishing firm and one for himself. He is now busy typing a copy for you, which I will send through Lord Lothian. With best wishes, Yours very sincerely, Ar Cubaris The Hon. Henry Morgenthau, J.R. Secretary of the Treasury WASHINGTON, D.C. 212 Air Mail. 29th November, 1940. secret and Personal. Dear Lord Lothian, six months ago I received here Baron Wolfgang zu Putlits and valet Friedloe Wilhelm Schneider, at the request of His his uajesty's Government. I was asked to look after then and to the intern separately as the Baron had rendered great services to them Government. We have a military hill station above Kingston British small allotted for their use. ItHe is ahas lonely and to and a life forhouse a manwas of considerable culture. no one miserable to and nothing to do. During the six months he has written a book talk - an autobiographical criticism of the Nazi regime. I sent it recently for him/to a New York firm:Greystone Press, Inc., East 49th Street New York if they publish it I am confident it will have A great sale. and is only forty years of age and in my view may play a big Putlitz in the post War world. He is a friend of Sir Robert Vansittar and part is well known is many diplomatic circles. He mentions as people who know all about him three names:Michael Huxley, British Embassy, Washington; Hugh S. Cumming, Jr. State Department, Washington; Walton Butterworth, American Embassy, London. During the recent visit of Mr. Henry Morgenthan to Jemaica I the matter to him and expressed the opinion that keeping was a mentioned such a man rotting in idleness and eating his London heart out that here he might be great mistake. I have recently suggested to office there. back to do Intelligence Work under the Foreign sent been received. Mr. Morgenthau before leaving the Jamaica bool No reply has to yet that I might send a copy of the typescript States of Governe suggested me and he would consider whether United and is to him through you of his services. Putlitz has only one copy it is ready ment now busy could typing make another use hich I will send to you as soon AB It will take about a fortnight. if think fit, you might care to speak this to letter. Mr. Morgenthau Meanwhile on the you subject. I have sent him a copy of with best wishes, Yours very sincerely, An entry into the United States a under long the P.S. quota The has idea been of enquired obtaining into, but as you know there is waiting list and it may take years. Am The Most H.B.M. Hon. Ambassador The Marquess Extraordinary of Lothian and Plenipotentiary British Embassy WASHINGTON, D.C. 213 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION communicy DATE December 19. 1940 Secretary Morgenthau Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns 33,000 53,000 In the open market, sterling was quoted at 4.03-3/4 throughout the day. Transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns L 4,000 L 2,000 Following yesterday's decline to .2318, the Swiss franc had a steadier tone today. The final rate for that currency was .2320. Closing quotations for the other currencies were: Canadian dollar 13-5/16% discount Swedish krona Brazilian milreis (free) .2385 .4005 .0505 .2360 .0505 Mexican peso Cuban peso 8-1/2% discount Reichemark Lira Argentine peso (free) .2070 There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the Bank of Canada shipped $3,030,000 in gold from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay Office. The Bombay gold and silver prices were both unchanged at the equivalents of $33.82 and 43.01$ respectively. The prices fixed in London for spot and forward silver were also unchanged at 23d and 22-15/16d. The dollar equivalents were 41.76$ and 41.65 34-3/44. Handy and Harman's settlement price for foreign silver was unchanged at The Treasury's purchase price for foreign silver was also unchanged at 35$. We made two purchases of silver totaling 100,000 ounces under the Silver Purchase Act, both of which consisted of new production from foreign countries, for forward delivery. 214 -2- The Federal Reserve Bank's report of December 11, listing deposits of banks in Asia with the New York agencies of Japanese banks, showed that such deposits totaled $101,895,000, an increase of $1,440,000 since December 4. As usual, nearly all of the change in deposits took place on the books of the Yokohaza Specie Bank's New York agency. The latter's principal dollar liabilities to and dollar claims on Japanese banks in Asia stood as follows on December 11: Liabilities: Deposits for Japan & Manchuria Deposits for China December 11 Change from Dec. 4 $53,361,000 36,328,000 + $2,969,000 $40,269,000 17,891,000 + 2,703,000 - 597,000 : U.S. Treas. bills, comm. paper, etc. 31,187,000 + 761,000 Claims : Loans : Other - mainly Jap. import bills 538,000 The last three categories refer almost entirely to Japanese banks in Japan and Manchuria. The rise in deposits for account of such banks mainly reflects an increase in loans made by the New York agency. CONFIDENTIAL 215 TREASURY DEPARTMENT Cho INTER OFFICE COMMUNICATION Miss DATE For December 19. 1940 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Credito Italiano, New York, maintained with the Chase National Bank, New York. Date December 19 Account Credited Amount Credited Credito Italiano, N. Y., for account of Credito Italiano, Rome XMR. $ 214,400 Received From Chase National Bank, N. Y., by order of Sveriges Riksbank, Stockholm 216 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION Miss DATE December 19, 1940 for Secretary Morgenthau TO FROM STRICTLY CONFIDENTIAL Mr. Cochran The Federal Reserve Bank of New York reported the following transaction in the account of the Banco di Napoli Trust Co., New York, maintained with the National City Bank, New York, Date December 18 Amount Debited $ 300,000 BMW. Paid To Federal Reserve Bank of New York, for account of Banco di Napoli Trust Co., N.Y. 217 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 19. 1940 Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Deutsche Golddi skontbank, Berlin, maintained with the Chase National Bank, New York. Date December 18 Amount Debited $ 67,560 Paid To Irving Trust Co., N.Y., for account of Carl Marks and Co. HMP U 218 The Hear York Times Times Square December 19, 1940. Dear Mr. Secretary, This is just to tell you that I shall be at the Treasury on Monday morning at 9, ready for business. My temporary address will be the Hay-Adams, beginning Sunday night. As I told you at lunch last Saturday, you can count on my full devotion in this new work. I am proud of the opportunity to be of use to you, and I am deeply grateful. Faithfully yours, Furning Kuhn I. The Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. see I 219 reply 1-4-41 December 19, 1940 Ny dear Mr. President: The "informal committee to represent the American Govern- ment in its contacts with the interested foreign governments in all matters relating to the purchase of war materials in the United States", which you appointed on December 6. 1939, has been forced to extend the scope of its work due to the our- rent international situation. Originally established to service the British and French purchasing missions, this Committee today is not only aiding and closely supervising the British programs, but also helping the Government of the Netherlands and other British allies, as well as China and the countries of Latin America. Faced at the outset only with the necessity of arranging for friendly foreign purchasers to acquire supplies from surplus stocks, it now has the infinitely more complex task of fitting foreign procurement into our own defense program with its priorities and its almost complete absorption of our productive capacity. This Committee is constantly in touch with the British Purchasing Commission and has been instrumental in working out detailed programs for the procurement of aircraft, tanks, and ordnance material. To a large extent, it has been the means whereby your policies in dealing with the British have been implemented and followed up. To give the greatest possible assistance to the British programs and still prevent conflicts with our own defense effort, a alearance procedure has been established through this Cammittee for all substantial British orders. This pro- cedure bridges the gap between the British Purchasing Commission and the Var and Navy Departments, the Advisory Commission to the Council of National Defense, the State Department, the Reconstrue- tion Finance Corporation, and the Administrator of Export Control. Every request for clearance is processed by this Committee with these departments and a single coordinated reply is furnished to the British. 220 -2In addition, the Committee has been instrumental in bringing the fighting experience of British technicians and British weapons to the notice of United States experts; in working out standardised arms, ammition, and material of MAIL in developing ways and means of increasing production; in securing all kinds of information from the British for interested United States Government agencies; and in arranging for the financing of new facilities to be used by both the British Government and the United States Government. To assist these United States Government agencies in studying the impact of the British purchases on our economy, statistical surveys and reports have been secured from the British Purchasing Commission covering value of orders placed, value of orders to be placed, capital commitments made and to be made, each requirements, and financial resources. The same treatment and assistance accorded the British is also being given to the Netherlands Purchasing Commission which has the second largest foreign purchasing program. Here, however, a frequent check is made with the State Department through Assistant Secretary Berle to be sure that these purchases are consistent with our foreign policy. with the development of our our defense program and the expansion of British orders, 11 is becoming increasingly difficult to fit the Datah requirements into our productive capacity and many of their requests have had to be denied. Even greater difficulty has been encountered in arranging for the placing of orders by Latin American countries. The Advisery Commission to the Beuncil of National Defense has apparently given little beed to the requirements of foreign buyers other than the British. In most instances it has been impossible to find sources of supply which are free to fill Latin American requirements within a reasonable period. The Maison Committee is working closely with Mr. Welson Rocksfeller and the State Department is - attempt to selve this problem which is making it extremely difficult to give Entin America any tangible evidence of the United States Rgood neighbor policy in the matter of war supplies. The Committee has also received representatives of Skins, Broose, Nervey. Finland. Belgium, Partigal, Turkey, Iron, Ireq. Thailand, Eire, Section, and Eassis. In every ease the State Department has cooperated closely with the Maison Committee. 221 -3The contacts which the Committee has established with every foreign government purchasing war supplies in the United States, and the clearance procedures which it has set up. have developed an important system of centrols over foreign purchas- ing. For the first time, it is nav possible to guide foreign purchasing from the standpoint of foreign policy, commite defense, and the purchaser's *ability to pay* before any attempt is made to ascertain the availability of production capacity. In addition. the Committee is surveying all foreign orders for var supplies already placed in the United States. Faithfully yours, (SgL.) H. Morgeather, Jr. The President, The White House. PX:bj Copyright 222 PARAPHRASE CONFIDENTIAL The following is the substance of a confidential telegram of December 19, 1940, from the American Con- sulate General at Singapore: The Embassy has been informed in confidence from an official source that a British officer who has recently completed a trip over the Yunnan-Burma high- way states that because of extra bridges, the present width and improvements on the road and the availability of coolies to make repairs, the likelihood of a complete break in traffic by either weather or accident is negligible. It is also stated that to interrupt traffic by artificial landslides, it would be necessary to bomb one spot practically daily and systematically. CONFIDENTIAL Paraphrase of Code Radiogram Received as the War Department at 10.19 P.M., December 19, 1940 223 London, filed 19:30, December 19, 1940. 1. During daylight hours of Wednesday, December 18, 15 Lockhood Hudsons of the Coastal Command bombed the Bergen-Oele railroad. A direct hit on Hyset (1) was observed. The Maas Estuary in Helland, was mined. The proceding night eight medium bombers attached ports and aircrease in France and Belgium and nine heavy bembers attacked Mannhaim. 2. During the night of December 18-19 enemy air activity was slight. Probably this is partially explained by weather conditions. on the Continent, but in the past large seale operations by long range bembers have taken place under more adverse weather conditions. 3. On December 17 four British bembers were missing and one enemy plane was destroyed. 4. In the Greek theater the ecastal town of Qepare (9) has been occupied and Tepeleni has been subjected to artillery fire. Weather conditions have limited operations. 5. British planes reported nine large vessels at Durasse on the 16th of December. 6. 0a December 17, the British took Shefferson, Musaid (1) and sids Omar in the Egyptian theater. AS Capusso and Selum, 10 Italian fighter planes (First C.R. 48) were captured intact. On the night of December 16-17, British fighter planes harassed the retreat- ing Italian troops at Tebruk, inflicting heavy lesses, a mater transport and the city of Bardia were also basibed. CONFIDENTIAL CONFIDENTIAL 224 7. On December 16, a South African Brigado made a suecessful attack on E1 Wak in Kenya. 8. It was reported by sources in Yugoalavia that an Albanian Gramos battalien has been disarmed by the Italians. This battalien was attached to the Italian Ferrara Division (23rd) and it is believed that all other Albanian troops will also be disarmed. Desertions of Albanians to the mountain regions are frequently reported. 9. On December 15, photographs were made of practically all of the Channel Coast from Belle Isle to St. Masaire and almost no land or shipping activity was observed. Twenty-nine barges and three coastal vessels, which appeared to be unloaded, were observed at Boulegne. Shipping activity at Brest appears to be primarily naval, with patrol vessels and mine sweepers being observed. The photographs reveal that there has been only a minor redistribution of craft since December 10. 10. During high speed trials on December 17, the British 1350-ten destroyer ACHERON sank after an explosion from an unknown cause. There were a - survivors. 11. It was stated in reports from Tangier that white troops had replaced a thousand Moors who were withdrawn because of their discontent with the long mobilisation and the shortage of food. In all probability white troops will replace other Moorish units. LEE Distributions Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff War Plans Division Office of Naval Intelligence AC-2 G-3, 1 CONFIDENTIAL 225 G-2/2657-220 RESTRICTED M.I.D., W.D. December 19, 1940. No. 274 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. Air Force Operations. There was no important German air activity over Eng- land in daylight yesterday or last night. According to press re- ports heavy aerial fighting is in progress over London today. The R.A.F. attacked Mannheim for the third success- ive night. II. Greek Theater of War. The Greeks continued their pressure but there seems to have been little change in the situation. Despite bad weather, there was minor air activity by both sides against troop concentrations. III. Mediterranean and African Theaters of War. 1. Operations continue in the Bardia area. Bardia appears to be encircled by the British, and its fall is believed to be only a question of time. The British report a successful road on E1 Wak (E1 Uach) which is in the Jubaland territory near the Kenya border. 2. Reports on air activity in the Egyptian-Libyan theater are inconclusive. There were sporadic air raids in East Africa, including another Italian attack on Port Sudan. Last night the R.A.F. operated over northern Italy in limited force, perhaps two squadrons, attacking factories at Milan and docks and the airdrome at Genoa. RESTRICTED 226 December 19, 1940 MEMORANDUM TO: The Secretary FROM: Mr. Young Re: Preliminary Report on West Coast Aluminum Fabricating Capacity It appears that the West Coast inspection trip started everyone in town worrying about the aluminum situation, for when we asked the Aluminum Section of the Advisory Commission for West Coast information they threw up their hands with horror and said that they had been deluged with work in the last two weeks and begged us not to insist on detailed information unless we were prepared to wait a week or ten days. They seemed to be the only people having anything like a complete picture, for neither the Reconstruction Finance Corporation, Department of Commerce, War Department nor Navy Department has anything that is specific. We gather that it 18 only recently that the Aluminum Section of the Defense Commission has really begun to get complete data on fabricating capacity. Heretofore there have been a good many press releases on how the "poundage" of aluminum capacity is great enough to meet our needs, but I think it is only now that they are beginning to wake up to the necessi ty for an intensive analysis for the various major types of fabricating capacity which will be required to meet the needs of the various aircraft programs. At this point the following is all the information we have been able to collect on the West Coast situation: 1. The only ingot production on the West Coast will be the new Aluminum Company plant at Vancouver, Washing- ton, which has a present capacity of about 60,000,000 pounds per year which will be increased to about 150,000,000 pounds by June, 1941. The bulk of this production will probably have to be shipped to the Middle West or to the East for fabrication. -2- 227 2. The Aluminum Company has forging capacity at Los Angeles which is to be increased in January, 1941. No information is available at the moment as to the percentage of West Coast forging requirements which this plant will be able to cover. 3. The Aluminum Company also has some capacity for producing extrusions at the Los Angeles plant, but probably not a very substantial portion of West Coast requirements. 4. There is a small amount of independent casting capacity in the Los Angeles area, but probably relatively small in relation to requirements. 5. There is no capacity for the production of bars, rods, and sheets on the West Coast now nor does it seem that any is contemplated. All of this material required by the West Coast aircraft industry must come from middle western or eastern plants. 6. The Defense Commission will be able to tell us shortly: a. The percentage of the potential ingot output at the Vancouver plant which can be fabricated on the West Coast. b. The percentage of West Coast requirements which can be produced by plants in the area. C. Whether there is any serious planning at the present for bar, rod, or sheet capacity on the West Coast. Ry. 228 STRICTLY CONFIDENTIAL DELIVERIES OF AIRPLANES, BY PURCHASERS AND BY TYPES OF PLANES January 1 - December 7. 1940 Other Bonbers Pursui to Trainers military planes Commercial planes Total TOTAL ALL PURCHASERS Jan. 1 July 6 July 7 July 20 July 21 Aug. 3 Aug. 4 - Aug. 17 Aug. 18 Aug. 31 Sept. 1- Sept. 14 Sept. 15 Sept. 28 Sept. 29 Oct. 12 Oct. 13 27 - Oct. 26 9 Oct. Nov. Nov. 10 Nov. 23 Nov. 24 Dec. 7 Subtotal July 7 - Dec. 7 Total Jan. 1 Dec. 7 589 63 108 946 630 96 71 420 2,693 40 276 346 120 337 300 16 104 28 38 463 1,052 116 206 77 389 64 419 50 184 305 133 159 367 118 179 10 37 405 1,001 1,664 86 503 3,717 1,631 2,610 194 923 6,410 50 532 65 21 60 ARMY Jan. 1 July 6 July 7 July 20 July 21 Aug. 3 Aug. Aug. 17 Aug. 18 Aug. 31 Sept. 1- Sept. 14 Sept. 15 Sept. 25 Sept. 29 Oct. 12 Oct. 13 Oct. 26 Oct. 27 Nov. Nov. 10 Nov. 23 Nov. 24 Dec. 7 Subtotal July 7 Dec. 7 Total Jan. 1 - Dec. 7 34 681 91 129 40 29 82 119 38 83 135 16 78 52 87 34 86 124 14 92 112 10 96 110 68 264 838 16 1,186 102 314 1,370 81 1,867 145 NAVY 92 42 18 Aug. 4 Aug. 17 Aug. 18 Aug. 31 Sept. 1- Sept. 14 Sept. 15 Sept. 28 Sept. 29 Oct. 12 18 31 6 26 8 Oct. 27 13 - Nov. Oct. 26 14 Nov. Nov. 10 24 Nov.23 Dec. 7 10 13 23 11 26 43 52 30 7 Subtotal July 7 Dec. 7 Total Jan. 1 - Dec. 7 176 39 3 Jan. 1 July 6 July I. July July 21 Aug.20 3 52 10 78 70 56 209 68 403 112 59 301 107 579 500 364 203 BRITISH EMPIRE AND FRANCE* Jan. 1 July 6 July 7 - July 20 July 21 Aug. 3 Aug. 4 Aug. 17 Aug. 18 Aug. 31 Sept. Sept. 14 Sept. 15 Sept. 28 Sept. 29 Oct. 12 Oct. 13 Oct. 26 27 Nov. 9 10 143 111 85 25 at 39 81 11 13 124 69 21 13 137 103 126 Oct. Nov.10 Nov. 23 47 152 so 26 1,231 496 36 2,330 119 410 737 296 614 293 796 998 13 193 2 Nov. 24 Dec. 7 Subtotal July 7 Dec. 7 Total Jan. 1 Dec. 7 1,099 118 17 OTHER July 7 - July 20 July 21 Aug. Aug. 4- Aug. 17 Aug. 18 Aug. 31 Sept. 1- Sept. 14 Sept. 15 Sept. 28 Sept. 29 Oct. 12 99 120 47 38 22 10 33 65 29 67 324 477 697 42 260 443 867 1,634 2 Total Jan. 1 - Dec. 7 119 61 Oct. Oct. 27 13 Oct. 26 Nov. 9 Nov. 10 Nov. 23 Nov. 24 Dec. 7 Subtotal July 7 - Dec. 7 2 Jan. 1 July 6 Office of the Secretary of the Treasury, Division of Research and Statistics Deliveries under French contracts were made up to June 30, 1940, December 19, 1940 STRICTLY CONFIDENTIAL photosretion HSK love windl for ROYAL GREEK LEGATION WASHINGTON maily B.J. 25.27.40 has 229 MEMORANDUM CONFIDENTIAL FOR MR. MORGENTHAU The reasons for which the Greek Government insist on securing P. 40 airplanes are clear. Today we confront a great power well equipped with a strong and powerful air force, while tomorrow we might have to confront another still stronger and more powerful; therefore, our present air force must urgently be strengthened with more modern and effective planes. Defiance planes are unweildy for pursuit purposes, slow in taking off, two seaters, consequently do not fill the real purpose of our needs. That is why these latter are no longer used by Great Britain. Washington, D. C. December 19, 1940. Received 4.25 P.M. the 20th 1940. 230 December 20, 1940 4:02 p.m. Sen. Robert Wagner: Hello, Henry. H.M.Jr: How are you? W: Pretty good. H.M.Jr: Where are you? W: H.M.Jr: W: I'm in Washington. Oh, for heaven sakes. I was on a little cruise and I landed at the Virgin Islands and saw the spot where you did your swimming. H.M.Jr: (Laughs). W: (Laughs). It was a nice little spot too. H.M.Jr:, Did you go in? W: I didn't go in, no. We didn't have enough time. H.M.Jr: W: H.M.Jr: W: H.M.Jr: W: H.M.Jr: W: Oh, it's beautiful there. Yes. How long did you stay - you had a rest there too, didn't you? Two days. Oh, yeah. Well, it's a great place to be. Well, I'd like to stay there two weeks. So would I some time or other. of all those places I think that's the most attractive. That is, yes. If there are any - well, of course the climate is wonderful and all that but I went around those slums - how those poor people live and I think it's distressing. 231 -2H.M.Jr: Did they tell you I walked all through those? W: Yeah. H.M.Jr: I walked all through those. W: Yeah. H.M.Jr: W: Did they tell you? Yes, they did. Well, I didn't have time enough. I had to take the car, but it's sad and I don't know what you can do about it. You know - right away. H.M.Jr: W: Yeah. Well, Henry, the reason I called is: Ed Foley called the office I think it was yesterday that you wanted to sit down with me sometime. H.M.Jr: That's right. W: When did you intend that to be? H.M.Jr: W: Well, at your convenience. Well, I mean how soon because I was leaving again tomorrow noon and, you know, Christmas is on and H.M.Jr: W: H.M.Jr: I know. Is the first of the year too late? Well, I tell you, Bob, it's something on bank legislation and I did what you always tell me to do - I spoke to Carter yesterday and he's all for it. Some special kind of legislation I want. W: H.M.Jr: W: Yes. And he wants us to prepare - work on a bill for him. I see. 232 -3H.M.Jr: But I wanted to find out, naturally, how you felt and try to get your support also. W: Yeah. H.M.Jr: Now that's what it 18. W: Well, then it's got a little time hasn't it, I mean, as long as he's got it in charge. H.M.Jr: W: Oh, yes. Well, you know you always ask me when I come to see you - have you seen Carter Yeah. Well, that's all right. Yes, we've got to humor him a little bit. He annoyed a few Senators this last time at our China conference - they told me afterwards, but he doesn't mean - he gets impatient, you know. H:M.Jr: Well, he's all right on this and this thing W: Well, that's all right with me. H.M.Jr: Is it all right with you? W: Yes, absolutely. H.M.Jr: W: will Well, then, why not let's leave it until after the first of the year. Yeah, I believe it'11 go until after the first H.M.Jr: Would you have someone call me when you come W: Yeah. All right. H.M.Jr: back? I need about an hour. 1'11 need about an hour but I wanted to tell you because without your help I can't get anywhere. W: Yeah. All right, Henry. H.M.Jr: Thank you. W: All right. Good-bye. 233 December 20, 1940 4:35 p.m. H.M.Jr: Hello. Wallace Murray: Hello. H.M.Jr: Mr. Murray. M: Yes, Mr. Morgenthau. H.M.Jr: How-do-you-do. I'm calling you because I find that Mr. Welles has gone home. Mr. - well, I don't know - Depasta, the Minister-Counselor M: H.M.Jr: Depasta, I think his name is. Depasta. Well, he was here and he gave me a memorandum which I let him read me. It was some more stuff on these Greek planes. I said, I have no comment that you and Mr. Welles are handling this thing until they can find out what's straight. I said it's gotten beyond me. M: Yes. H.M.Jr: So he said, won't you make any suggestion. I said absolutely none and I said, the only suggestion I do make is please give a copy of what you've given to me to either Mr. Welles or Mr. Murray. So I made absolutely no comment of any kind other than that he should walk it over to you. M: H.M.Jr: M: All right. Now I take it that - of course, we haven't - I only heard indirectly that there was something in the works. I take it that he's bringing a second communication around saying that they still want the P-40's. I presume that's what it is. Is that it? When you boil it all down, that's what it is. That's what it is. Well, I had a talk with Mr. Philip Young, who I presume has talked with you meanwhile or will do so, giving some 234 2- suggestions which we are going to - we've already wired our Minister in Athens to take a hand in this thing to try to clear it up H.M.Jr: and I have a feeling, Mr. Morgenthau, if we can safely say that there would be a delay in any case in this P-40, in the delivery of it, much less in the transportation of it and we can bear down on that point, I told Mr. Young that I thought we could break the Greek resistance and have them look at this thing reasonably and I think they are being unreasonable. Well, I personally think that they are being very unreasonable considering the fact that England has over 400 planes there now fighting M: their battle. That 18 subject to a little qualification. She is stated to have 400 planes assisting Greece. The Greeks claim that the actual number there in Greece - permanently there is of course a very much smaller number, but that's a detail. But in any case I think the important point is that here are planes in hand in Egypt that can be flown to Greece, the spare parts are available - the P-40 spare parts would not be available - and the British are willing to wait for the later delivery which, I take it, may be June whereas they can get these planes right now. And so that is the line we are taking and the line we have instructed our Minister in Athens to take and I have a feeling that it will - and further- more, I have talked both with the Counselor of the British Embassy and he has talked with the Purchasing Commission people here, Mr. Morris Wilson, and I think really we can bear down on them and get this thing cleared up. I can assure you that we are bringing - taking every pressure that we can from this end to do it. H.M.Jr: Well, I'm glad because I personally think that that is the angle to take and I agree with you. I think the Greeks are being very unreasonable. 235 -3M: H.M.Jr: M: H.M.Jr: M: H.M.Jr: M: And I even - I think I might just give you the word that the British even think that the Greeks are trying to play both ends against the middle and get planes out of both of us. It wouldn't surprise me. And they want both the P-40's and the of getting P-40's when they probably can't fly them and then they will use the British and their Defiance planes for the actual work. It wouldn't surprise me - I've been in Greece. (Laughs). Your father has also. Well, I've. been there too. (Laughs). If you get a chance to talk to Mr. Young today he will tell you a great deal more. I won't bother you with telling you what I said to him but I think that whenever you have a chance to talk with him you'll see that I think we've got the answer and I think the answer is that at the time we cannot assure them that these planes will be available immediately and furthermore Mr. Young tells me that he has not ever assured the Minister that they would be ready immediately. Now I think there is the answer to the whole question if I can with all assurance say that Mr. Young or you or nobody has ever told the Minister they could have these planes at once. H.M.Jr: Well, you can go further: you can say that nobody in the Treasury ever told them that they could have them at all, which is the truth. M: (Laughs). Yeah. H.M.Jr: I sent a written report saying that to Mr. Hull. M: I don't know whether you saw it or not. Yeah, I did. I just saw it. It got out of my hands and went back to you before I had a chance to finish it. I wanted to read that report. 236 H.M.Jr: Well, in that report we made a statement we haven't promised the Greeks anything because we couldn't. The Army saye they won't give up a plane and we couldn't promise planes that don't belong to us and belong to the British. M: But did I understand that the Army actually has any P-40's ready that could, I mean everything else being equal, just be taken down off the shelf and given to the Greeks. H.M.Jr: I don't know. M: I don't think there is such a thing. H.M.Jr: I don't know, but the Army evidently is very reluctant and I think that at this time it would be a mistake to take anything from the Army. They've got too little as it 18. M: I know. H.M.Jr: I think it would be a mistake. M: Yes. Well, thanks a lot for this information and if you have occasion to talk to Mr. Young I think you will approve, and I sincerely hope you will, the line which I took with the Greeks and which we're taking in that H.M.Jr: M: H.M.Jr: Well, I approve it heartily now. I approve it most heartily. Yes. A hundred percent, and if this fellow comes over and said that I said anything other than that he should see you, he's just telling a whopper. M: Well, that's a good double check to have on them. You know these wily Greeks. H.M.Jr: I know them. M: All right. Well, that's very helpful Mr. Morgenthau. Thank you very much and I'11 bear that in mind. H.M.Jr: Thank you. 237 December 20, 1940 4:45 p.m. RE BRITISH PURCHASING PROGRAM Present: Mr. White Mr. Cochran Mr. Young Sir Frederick Phillips H.M.Jr: This was a little party last night, and I answered questions and all they wanted to know was England's problems and ours. They didn't get on anything else. Sir Frederick, I have not had a chance to have any of these gentlemen bring me up to date on anything that has happened. I have been back about an hour and a half. So - and I told them that unless there is some emergency, am going to try not to work Saturday and Sunday, I but I will read reports. I am going to try not to see people because the last three and a half weeks have been a little bit more strenuous than usual, but I have asked Mr. Hull to have a meeting Monday morning at his office. I don't want to let you know this the night before so that you have to stay up until 9:30. At that time we are going to discuss the so-called order for 300 Curtiss P-40's. Now, the story is this. Some time along in August or September, we don't know just exactly when, the Curtiss Wright Company runs out of orders on the Curtiss P-40. They are making 8 a day. And with these extra engines which amount to 500 and how much? Young: I think Sir Henry said he had about 530 or 60, 238 -2something like that. H.M.Jr: Well, you were there. Which became available of Allison engines due to the cancellation that you had with Lockheed, this order can be placed. Now, what I am doing before these three Cabinet members is to lay before them all the orders we have from all of the various countries for pursuit ships. Not orders, but requests. I misspoke myself. Requests, you see. Now, we can't promise them any of your engines unless we get your consent, but I would like to be in a position to be able to say that the English do or don't want "X" number of these pursuit ships and they have or have not got the money earmarked for this similarly to the deal on the 60 ships, you see. Phillips: Yes, I see it all except the money earmarked, H.M.Jr: Well, Philip Young told me that in connection with these 60 ships, that there was 50 million dollars earmarked for that deal. On that basis, I so told the President and the President said, which I don't quite follow. All right, let it go through." I take it that wherever Young got that information, it was correct. Is there any doubt about that? Phillips: Well, I am not familiar with the phrase "earmark", but I don't think that particular point matters very much, but certainly as regards the Curtiss planes and my understanding is that it is simply an ordinary British purchase. We have made no special provision or earmarking of funds in ad- vance for it. H.M.Jr: Well, this has nothing to do with any other transaction but we will have to take each of these transactions up separately. Here is one I have got to settle, 239 -3because the pressure comes from the manufacturer. If he is going to continue and not shut down, whatever the date is - he said September 1. I saw him in New York. But he wasn't sure. Let's say he is right, but he is checking. He has to place his order for materials now or else he will have to shut down his line and, naturally, the pressure comes from him, not from me. We also have pressure from about 20 other countries that want pursuit ships, and I said we want to know from the British government between now and Monday, do they want any or all of these if they can get them and too, do they consider that they have the funds wherewith to pay for them. Phillips: Well, I will get the proper people in touch with H.M.Jr: If I could have the answer by nine o'clock Mr. Young tonight. Monday morning. Phillips: Yes. H.M.Jr: And anything else that you discussed with Cochran, I just haven't had the chance, but he has written it out and I will absorb it Saturday and Sunday, so you can figure you can have a quiet week-end unless there is some emergency. Phillips: Oh, I don't know about that. H.M.Jr: Well, as far as I am concerned. I am really going to try not to work for two days, if possible, other than to study, but if I could have that and it has nothing to do with anything else other than here is the manufacturer and he says if you people want these and you want him to continue to make 8 a day, you have got to tell him Monday what you want, because it takes him 6 months to place his orders at least for his materials. 240 -4Phillips: Yes, I have got the point. Production is like that (indicating up), and if we do nothing it will go down and then shoot up later. H.M.Jr: Exactly. And this is the only company in America that is really turning out ships in any number. Phillips: Yes. H.V.Jr: Thank you. Phillips: I haven't got any reply from London on the last statement of the President's. It is just as well, perhaps, that I don't try to discuss it now. H.M.Jr: Well then, maybe by Monday, but I really am a little extra tired. You have nothing until Monday either? Phillips: I don't know. H.M.Jr: Well, just this one thing which is really something Phillips: Very well, thank. you. quite by itself. 241 December 20, 1940 4:54 p.m. H.M.Jr: Hello. Operator: Mr. Forrestal. H.M.Jr: Hello. James Forrestal: Yes, Henry. H.M.Jr: Jim, they say you called me. Have you forgot F: Well, I must be disintegrating, Henry, I can't remember what it was about. H.M.Jr: F: Well, that's all right. I think everything looks pretty good - the other thing. H.M.Jr: F: Oh, do they. I don't think you're going to get perfection This isn't going to get any miraculous sudden change but I think it's at least in the channels. H.M.Jr: Well, that's the way democracies work. F: One thing - I think that that little Brewster plant up at Long Island City is in good shape now. I talked to the fellow today and they are really hitting. F: Wonderful. Well, if you remember I'll be here for another half an hour. You will. H.M.Jr: Yeah. F: O. K., Henry. H.M.Jr: Thank you. H.M.Jr: 242 December 20, 1940 5:18 p.m. H.M.Jr: Hello. Operator: Mr. Lubin. I reached him in Mr. Hillman's office. H.M.Jr: Hello. Isador Lubin: You don't give me a chance to call you. to thank you and tell you what a swell job it turned out to be. H.M.Jr: Well, I did it at Cabinet, and I put it on the note that you'd been around to see me and had made the suggestion to me. L: H.M.Jr: oh, swell. I mean, I said that Lubin has been here and made this suggestion and I agree and I underlined it. L: Well, it turned out beautiful. H.M.Jr: Well, I gave it to the President yesterday L: H.M.Jr: at Cabinet. And everybody's happy and it's going to work too because we've got four people who really can work together. Well, I just thought you'd want to know I did give it to him and I did put it on that you'd come to see me and that I agreed with you L: heartily and I thought he ought to do it. Swell. Thanks a million times. H.M.Jr: Well ..... L: You know, we've got another problem now. H.M.Jr: Only one more? 243 -2L: We've got a liaison person to pick. H.M.Jr: Meaning what? L: Between him and the group. H.M.Jr: Between who? L: The Skipper. H.M.Jr: Oh, really? L: Yeah. H.M.Jr: L: Oh, isn't he going to work with them directly? Yeah, but I mean, he wants a full-time person to keep his eye on things. H.M.Jr: Pardon? L: He wants a full-time person to keep his eye H.M.Jr: on things. Besides these four? L: Somebody between ..... H.M.Jr: L: yeah. I didn't know that. When did that happen? Well, he's been thinking in those terms apparently. H.M.Jr: L: H.M.Jr: You mean he wants liaison people between these A leg-man really. (Laughs). Well, what the hell does he want a leg-man.why can't these men come and see him? H.M.Jr: Well, I suppose You can't talk where you are. L: Yeah. That's it. L: 244 -3H.M.Jr: What? L: Yeah. Are you going to be in your office tomorrow? H.M.Jr: No, but I'11 be home. L: May I call you or come over? H.M.Jr: Give me a ring tomorrow. I made a little oath I wasn't going to see anybody for two days, but I'd love to have you call me. I could see you this evening if you're free. No, I'm going to the concert. L: O. K. Well, I'll call you at the house and H.M.Jr: L: if you're free I'11 come; otherwise, I'11 understand. H.M.Jr: How's that? L: O. K. H.M.Jr: Yeah, I'd like to and every rule has its L: What's the home phone? H.M.Jr: For you and you only? L: Yeah. H.M.Jr; I mean, you won't tell anybody. L: No, absolutely. H.M.Jr: Because it's unlisted: North 8898. L: O. K. Thanks 80 much. H.M.Jr: It's unlisted. North 8898. L: Thank you ever so much. exceptions. 245 H.M.Jr: L: I'm delighted because I think it was a major mistake. Labor has to be there, we have to recognize labor, we need labor and it's got to be a partnership. Yeah. Well, I think so. L: And I was a hundred percent for it. Fine. Thanks a million times. H.M.Jr: Right. L: All right. H.M.Jr: 246 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 20. 1940 Miss TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £101.000 Purchased from commercial concerns £ 6,000 The Federal Reserve Bank of New York sold £20,000 in registered sterling to a non-reporting bank. Open market sterling remained at 4.03-3/4. and transactions of the reporting banks were: Sold to commercial concerns Purchased from commercial concerns £ 5,000 -a The Canadian dollar has had a slightly firmer tone in the last few days. As against a discount of 13-9/16% at the beginning of the week, that currency closed today at 13-1/4% It is believed that seasonal tourist demand has influenced the quotation. The Swiss franc gained another point in today's trading, closing at .2321. The rate is now back to the level which prevailed prior to the decline on December 18. The other currencies closed as follows: Swedish krona Reichanark Lira Argentine peso (free) Brazilian milreis (free) Mexican peso Cuban peso .2385 .4005 .0505 .2360 .0505 .2070 8-5/8% discount There were no gold transactions consummated by us today. No new gold engagements were reported. The Bombay gold price was equivalent to $33.84, up 2$. Silver was 1/2 higher at the equivalent of 43.574. In London. the prices fixed for spot and forward silver both advanced 1/16d. to 23-1/16d and 23d respectively. The dollar equivelents were 41.88$ and 41.76$ -2- 247 Handy and Harman's settlement price for foreign silver was unchanged at 34-3/40. The Treasury's purchase price for foreign silver was also unchanged at 35#. We made one purchase of silver amounting to 50,000 ounces under the Silver Purchase Act. This represented trading silver. KMP CONFIDENTIAL 248 TREASURY DEPARTMENT mind Chaudocy INTER OFFICE COMMUNICATION DATE December 20, 1940 Secretary Morgenthau TO Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Credito Italiano, New York, maintained with the Chase National Bank, New York. Date December 20 Paid To Amount Debited $100,000 Chase National Bank, N.Y., for account of Sveriges Riksbank, Stockholm, by order of Credito Italiano, Rome. KM.P. 249 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 20, 1940 For Mies Secretary Morgenthan FROM Mr. Cochran At 11:35 this morning Mr. Knoke telephoned me from the Federal Reserve Bank at New York. He mentioned an arrangement entered into by the Government of the Netherlands East Indies with the Guaranty Trust Company of New York for the purchase on an installment scale of 6,000,000 ounces of silver to be used by the United States Mint in making coins for the Netherlands East Indies. I told Mr. Knoke that I was not aware of this business, and that I would arrange with Mr. Howard of our Mint service to keep my office currently informed of such transactions, and that we, in turn, would give all pertinent information to the Federal Reserve Bank of New York. Such in- ortant operations as the present one will affect directly the amount of silver which the Treasury may be called upon to purchase. BMP THEASURY 28767 250 PLAIN AS Shanghai via N. R. Dated DECEMBER 20, 1940 Rec'd 11:02 a.m., 21st Secretary of State, Washington. 1415, twentisth. Special Financial. Minister Finance Nanking regime yesterday announced NEW Central RESERVE Bank to be opened Nanking January 6th and to issue currency temporarily at par with "the old lapi" until the latter system collapses. Branches to be opened in principal cities and notes to be considered legal tender for payment taxes, for official and private business and for foreign Exchange transactions. Lapi is to be allowed circulation temporarily pending ultimate rehabilitation and unification. Statement also assails indisoriminate inflation by Chungking financial authorities causing high costs living, thus necessitating issuance of a new currency. NEW bank to be in principle the Central Bank in North China where present federal reserve banks ourrency to be permitted temporarily to continue oiroulation. Present Hua Haing issue to be abolished. The military 251 AS-2- No. 1415, twentisth, from Shanghai. military yen scrip to continue in circulation as it has a coordinating and complementary value in relation to the new currency, hence the two to be allowed to achieve their respective objectives. Minister also announced the regulations governing a foreign Exchange reserve control committee to consist of four Experts yet to be appointed. INFORM COMMERCE. LOCKHART ALO 252 PLAIN AS Nanking via N. R. Dated December 20, 1940 Rec'd 2:15 p.m. Secretary of State, Washington. 139. December 20th, 4 p.m. Opening of Central Bank of Issue by the Nanking Regime. Following is a free translation of an item appearing in today's local Chipese press: "The Central Reserve Bank regulations which were passed at the 38th Central Political Council meeting and referred to the Legislative Yuan for examination have been approved by the latter on December 14th after amendments. They were promulgated by mandate of the National Government on the 19th. In connection with the opening of the Central Reserve Bank which is to take place on January 6th Mr. Chou Fu-hai, Minister of Finance, made the following statement yesterday: 'The rehabilitation of economy and strengthening of finance is an important administrative policy of the National Government. In order to be able to stabilize finance and rehabilitate economy a sound national bank must be organised. Since the outbreak of hostilities the people have been in great distress and economy is on the verge of bankruptcy because of the continued drop in the value of currency and the increasing high cost of commodities. Therefore, 253 AS-2- No. 139, Dec.20th, 4 p.m., from Manking. Therefore, unless a fundamental adjustment is made in China's finance the sufferings of the people cannot be relieved, and the foundation of social economy cannot be stabilized. At the time when the Government returned to its capital, this Ministry made a solemn declaration in regard to maintaining the value of currency and the stabilizing of finance. Later a petition was made to the Government for the organization of a preparatory committee for the establishment of the central bank. After careful deliberations and positive planning for the past several months, preparations on all matters such as the raising of reserve fund, business policy. internal organization and issuance of notes have now been completed. In accordance with a resolution passed at the Central Political Council meeting in March 1937. the name of the bank will be the Central Reserve Bank. The formal opening of the bank will take place in the capital on January 6. 1941 on which date business will commence. With a view to enlarging the scope of its business, branches will be gradually established in the principal cities. The notes to be issued will be called "legal tender" and may be used for paying taxes, exchange purposes and all public and private payments. In order to avoid any disturbance to the financial market and to safeguard the resources of the people all old legal tender notes which are now in circulation will for the time being be allowed to circulate at par value with the legal tender notes to be issued by the Central Reserve Bank. Gradual adjustment 254 AS-3- No. 139. Dec.20th, 4 p.m., from Nanking. adjustment will be made and means will be devised to unify them. This Ministry has already drawn up effective measures to deal with the possibility of Chungking's again increasing its note issue which would cause further depreciation in the value of its notes, produce disturbance in the market and affect the livelihood of the people. With regard to the circulation of Japanese military notes which is in a special condition during the continuation of hostilities, the new legal tender will give mutual assistance so that both may be able to complete their respective tasks. The Federal Reserve Bank is an important financial organ in North China therefore efforts should be made to afford it a healthy development. The present status in the areawhere the Federal Reserve notes are circulated should be main- tained. As regards the Hua Heing Bank, its note issuing rights will be nullified and its business in the future will be confined to foreign trade, finance, and ordinary commercial banking. From now on China's economic development, enrichment of its National Treasury, social prosperity and international prestige all depend on the authority of the Central Reserve Bank. Every care will be exercised in the issuance of the new notes, and it may be taken for granted that both the nation and the people will be benefited. I sincerely hope that.people in all walks of life will understand this and give their assistance to the new notes so that they may be circulated without obstruction and the living conditions of the people may be stabilized and their sufferings reduced." Sent to the Department. Repeated to Chungking, Peiping and Shanghai. By mail to Tokyo. PAXTON THE COPY inc (CONFIDENTIAL) 255 CONFIDENTIAL PARAPHRASE A telegram (no. 1422) of December 20, 1940, from the American Consul General at Shanghai reads substantially as follows: Upon obtaining detailed information in regard to the plans for the new Central Bank of the Wang Ching-wei government and for the bank's currency, bankers in Shanghai expressed themselves as feeling relieved since it seems that the scheme 18 not nearly 80 drastic as it was expected to be. Although Shanghai bankers admit that the new currency will definitely threaten the currency of the Chinese National Government in the Shanghai area, they do not feel that the dangers will be immediate. Shanghai bankers are of the opinion that counter-measures having for their aim elimination of speculative assaults on the foreign exchange value at Shanghai of the currency of the National Government and a reduction in the extent of profit which the new currency measures may afford the Nanking regime and the Japanese will probably be taken by the authorities at Chungking. It is not likely, in the opinion of Chinese bankers, that foreign trade at Shanghai will be made impossible by such counter-measures, at any rate not for some time yet, depending upon developments in the situation. A 256 CONFIDENTIAL -2- A summary of the comments of bankers follows: (a) As the published announcements show that not much authority is given to the Nanking regime for support of the new currency, views held previously that the Japanese did not favor the introduction of the currency but for political reasons granted the right to the new regime are confirmed; (b) Toleration concerning the continued circulation of the notes of the North China Federal Reserve Bank and of fapi with no provision for the circulation in North China of the new currency discloses the new currency's weakness; (c) As the present fapi is acceptable even for payment of taxes no compulsory measures are seen in the announcements for circulation of the new currency; (d) No definite time is fixed for elimination of fapi in any area under the control of the Nanking regime; (e) Provisions for competition of the new bank with private commercial banks in accepting private deposits and in dealing in commercial foreign exchange matters directly (not a function usually exercised by a government reserve bank) discloses the depeptiveness of the position of the new bank as a central bank solely; (f) 257 CONFIDENTIAL is (f) Attention was called to the fact that it was only after foreign trade control measures were instituted and compulsory tactics enforced that the currency of the Federal Reserve Bank in North China was successful; although it is admitted that it is likely the regime at Nanking has the authority to make drastic measures effective, doubt exists whether such action will be encouraged by the Japanese authorities in the near future; rapid success of the new currency is not expected for this reason. (g) It is pleasing to observe that none of the stated provisions seem to involve measures for the control of trade; (h) As the announcements concerning foreign exchange are very vague and are considered impractical, especially without cooperation on the part of exchange banks-Chinaee and foreign-it is not anticipated that an attempt will be made to control foreign exchange. The abolition of the Huahsing currency as the unit of currency used in paying customs duties is a matter of concern in business circles which are fearful that increases in the effective tariff rates may result therefrom. 258 Message from Chase Bank in China received through courtesy of Federal Reserve Bank of New York, December 20, 1940. C 0 P Y CABLE RECEIVED FROM SHANGHAI DECEMBER 19. 1940 "PRIVATE AND CONFIDENTIAL It is expected Nanking China Government opening new Central Bank of China in Shanghai early in January and will issue bank notes: for that reason 1 exchange market weak For your information only English banks American banks have agreed amongst themselves not to accept nor have dealings with new banknotes" Copyrala (CONFIDENTIAL) 259 PARAPHRASE A telegram of December 20, 1940, from the American Consul General at Hankow reads substantially as follows: Consular offices in Hankow have been informed by the Japanese Consulate General of new regulations governing the carrying, by travelers between Hankow and points down river, of drafts, letters of credit, or cash. The new regulations, which are effective retroactively as of December 1, provide that each traveler may carry without a permit 300 yen in cash. Travelers desiring to carry more than this amount in cash, drafts or letters of credit must obtain a permit from the Japanese military. The letters of credit or drafts are to be obtained from Japanese banks. Travelers must upon departure from or arrival at Hankow or other ports submit to the military authorities a formal declaration in regard to the letters of credit, drafts or cash in their possession. Confiscation of their money or other treatment considered suitable is to be meted out to travelers violating these regulations. Although the Japanese circulated to foreign banks the limitation regulations, the regulations have been disregarded by the foreign banks, which continue to send funds to Shanghai without obtaining permits from the Japanese military. Travelers will suffer no practical hardship from the regulations as long as the banks continue the 260 -2- the above-mentioned practice and travelers are permitted to carry 300 yen without obtaining a permit. Strict enforcement of regulations, however, may result later on in seizure by the Japanese of letters of credit and drafts which non-Japanese banks have issued without having obtained the permission of the Japanese military in advance. Attempts at penalty confiscation of funds of boat transporting such bank transfer may also be possible in case of a strict enforcement of regulations. The question of discrimination against an American bank does not arise as the branch in Hankow of the National City Bank of New York closed on December 12. At the present time it is not clear what were the motives for the promulgation of the above-mentioned regu- lations. The principal factors involved seem to be a desire to prepare the ground for crowding non-Japanese banks out through discriminatory permit system for all transfers, to strengthen the Japanese military yen on the Hankow market, and to stop shipments to Shanghai, by speculators (including Japanese) in military yen, of large amounts of Chinese national currency. In the opinion of some persons the regulations are being used also for the purpose of putting into operation at an early date an issue of paper money projected by the regime of Wang Ching-wei -- such -3-- 261 such currency to be exchanged at par in Hankow for cur- rency of the Chinese National Government. After consultation with British and French banks and Chambers of Commerce the British and French consular representatives are refraining for the present from replying to the Japanese Consulate General's notification. For this reason and on account of the situation described above, the Consul General suggests that pending clearer signs of Japanese in- tention to interfere seriously with the transfer of funds of American citizens he also refrained from making any reply to the Japanese notification. (CO.FIDENTIAL) PARAPHRASE CONFIDENTIAL 262 A telegram (no. 70) of December 20, 1940, from Consul Reed at Hanoi reads substantially as follows: Although previous to 1940 the amount of Indochinese rice imported by Japan was insignificant in amount, RCcording to information received on December 19 from an official of the economic section, the Japanese demand now that they be allowed to receive during 1941 approximately 700,000 tons, which is about one-half of the ex- portable surplus. The 450,000 tons of rice imported by Japan in 1940 and imports in previous years were paid for in American dollars. However, the Japanese propose that a barter arrangement be made for 1941 imports. The informant remarked that it was necessary to find another market for Indochinese rice, even on the basis of a barter arrangement, since the loss of the French market, which was most important in the past. General reports indicate that Japan is lacking in exportable commodities suitable for the Indochinese market. Therefore, it would appear that Japan's adverse trade balance with Indochina which is already large would be considerably increased by greater imports from Indochina and that large unusable credits in Japan would result. By means of clearing agreements Japan, through her debtor position, would secure for herself profitable commercial relations with Indochina comparable to the position of Germany in the Balkans before the war.